Private Equity Falls Short of Expectations at New York State Teachers’

NYSTRS funneled capital into eight new investments amid disappointing long-term returns for the asset class.

Albany, NY (Ron Antonelli/Bloomberg)

Albany, NY

(Ron Antonelli/Bloomberg)

The New York State Teachers’ Retirement System has made a bevy of new commitments to private equity, an asset class where the pension fund has recently underperformed.

Documents from NYSTRS’ Wednesday investment committee meeting show that the retirement system’s private equity portfolio lagged its benchmarks for the three-, five-, and ten-year periods ending on September 30, 2019 — despite slightly beating expectations over the 12-month period.

The results mark a continuation of the underperformance reported by the pension fund at its October committee meeting, which addressed private equity returns for the period ending June 30. At that time, NYSTRS said that its 12-month return through mid-2019 was 12.1 percent, below its benchmark of 15.4 percent. The pension fund judges private equity returns against the performance of Standard & Poor’s 500 index plus five percent.

According to Wednesday’s meeting materials, NYSTRS’ private equity portfolio returned 9.9 percent over the year ending September 30, beating a benchmark of 9.3 percent. Meanwhile, the private equity portfolio’s three-year return trailed expectations, measuring at 14.7 percent, as compared to the benchmark return of 18.4 percent. Similarly, five- and ten-year returns of 13.9 percent and 14.2 percent came in below benchmark returns of 15.8 percent and 18.2 percent, respectively.

NYSTRS has a total of $21.6 billion in active commitments to private equity, according to the meeting documents.

[II Deep Dive: Private Equity Isn’t Making the Grade, New York State Teachers’ Pension Finds]

The documents also show that the pension fund closed on eight new private equity investments between October 1 and December 31.

These included a commitment of up to $150 million to MBK Partners Fund V, a large-cap buyout fund targeting investments in media, financial services, and retail companies in Korea, Japan, and Greater China. NYSTRS also committed up to $150 million to the fifth fund raised by Valor Equity Partners, a growth investment firm that focuses on tech-related companies. Another $150 million maximum was dedicated to the retirement system’s coinvested fund with HarbourVest Partners.

In addition, NYSTRS committed up to $200 million each to a separate account with Abbott Capital Partners and Clearlake Capital Partners’ sixth vehicle, a middle-market buyout fund focused on industrials, energy, tech, and software companies.

Other new private equity investments included commitments to two funds at EIV Capital, a Houston-based private equity firm that invests in the energy industry, and a commitment of up to $100 million to the Cortec Group’s seventh fund, which focuses on middle-market leveraged buyout opportunities.