Public Funds Cautiously Endow Alternative Investments

New York State Teachers’ Retirement System (NYSTRS) considered its first hedge fund investments at a May 2 board meeting, and made several private equity allocations. Thomas H. Lee Equity Fund V received a commitment of up to $300 million from New York State Teachers, additionally committing $100 million each to private equity through:

• HarbourVest VI
• Navis V

The Los Angeles City Employees? Retirement System (LACERS), with $8 billion in assets, also announced a commitment of equal shares of $75 million to the following funds:

• Thomas H. Lee Equity Fund V
• Weston Presidio Capital IV
• Essex Woodlands Health Ventures Fund V

LACERS committed monies from cash in funds already set aside for alternative investments. The $500 million reallocated by New York State Teachers also came from cash reserves.

Joseph Vet, Securities Investment Officer at NYSTRS, sees increased interest in alternative investments:  “We are going through an educational and review process, as we know other public retirement systems are, to look at hedge funds as alternative investment vehicles. Because of the recent aggressive markets, there are concerns that returns may go back to single digits and there may be increased volatility.  Therefore, we are looking at alternatives to dampen downside risk.” 

Vet said NYSTRS is considering investing up to $1 billion in hedge funds. NYSTRS holds more than $81 billion in assets. 

Thomas H. Lee is a leveraged buyout firm that only pursues companies that want to be pursued. Typical acquisition targets are middle-market companies with growth potential.