Private Equity Update

Transcription

1 Private Equity Update Andrew Junkin, CFA, CAIA Managing Director Thomas Toth, CFA Vice President May

2 Private Equity Where TERS is Today Target Allocation of 10%, roughly $100 million TERS has committed $40 million to private equity ($20 million each to Harbourvest and Pantheon), but only $4 million has been called at this point (all by Harbourvest) To reach the target allocation, TERS needs to continue to commit to private equity on an ongoing basis Wilshire recommends commitments of million per year for the next several years, adjusting as the size of the fund grows and the private equity portfolio matures 1

3 Private Equity Harbourvest Recommendation Harbourvest, one of TERS current private equity managers, is raising a domestic fund (Harbourvest Fund IX) and an international fund (Harbourvest International Private Equity Partnership Fund VI) Wilshire recommends that the System commit $15 million to the two funds combined 50% to Harbourvest Fund IX; 50% to HIPEP VI 50/50 split mimics the System s public equity allocation Fund IX to be split 60% to buyouts, 30% to venture, and 10% to credit strategies As recommended by Harbourvest and vetted by Wilshire Harbourvest is a specialized private equity-only firm, one of the largest. Highly ranked, management fees are reasonable, lots of deal flow, no investment banking conflicts, reduced fund size from prior funds. Harbourvest is one of Wilshire s top rated private equity managers and an existing TERS manager 2

4 Private Equity Hamilton Lane Recommendation Hamilton Lane, one of the finalists interviewed by the Board during the 2009 search, is raising a global fund (Fund VII) Hamilton Lane s approach is complementary to Harbourvest s, with greater focus on buyouts and direct transactions The combination of funds will provide greater diversification Wilshire recommends that the System commit $15 million to Hamilton Lane Private Equity Fund VII, pending Staff due diligence onsite and a presentation to the Board in August Hamilton Lane is a specialized private equity-only firm, with significant non-discretionary business. Highly ranked, relatively low fees, lots of deal flow, no investment banking conflicts, manageable fund size. Lower allocation to venture higher to buyout. Hamilton Lane is one of Wilshire s top rated private equity managers 3

5 Funding Private Equity- An Illustrative Cash Flow Cycle Realization Period Return investment cost Return entire fund Drawdown Period Partnerships identify & make investments in portfolio companies Commitment Period Fund Manager identifies & commits to partnerships Years

6 Funding Private Equity- Hypothetical Example Wilshire recommends committing 30% of your target allocation each year It will take approximately 7-8 years to reach the target allocation Adjustments to pacing will be made as TERS approached its target allocation 10% 9% 8% % of Total Fund 7% 6% 5% 4% 3% 2% 1% $40 0% Years Target Allocation Committed Capital Invested Capital 5

7 Selecting Top Private Equity General Partners is Key Spread between top performing funds and average performers is high, substantially more so than in traditional asset classes Private Equity Percentile Comparison All Private Equity Venture Capital Buyouts & Mezzanine U.S. Equity - Large Core U.S. Equity - Small Core 90.00th percentile 75.00th percentile 50.00th percentile Non-U.S. Equity 6

8 Compliance Important Information This material contains confidential and proprietary information of Wilshire Consulting, and is intended for the exclusive use of the person to whom it is provided. It may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity without prior written permission from Wilshire Consulting. The information contained herein has been obtained from sources believed to be reliable. Wilshire Consulting gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in such information and for results obtained from its use. Information and opinions are as of the date indicated, and are subject to change without notice. This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. 7