CalPERS Adds Partnerships to Alternative Investment Management Stable

December 11, 2000 (—California Public Employees' Retirement System, Sacramento, has committed $219 million in additional alternative investments, and approved its first investments in biotechnology.

A total of $145 million will go to four firms: Venture capital funds Oak Investment Partners X LP and Bay Partners X LP, private equity fund Three Arch Capital LP and European buyout fund KKR European Fund LP. Another $74 million was committed for co-investment opportunities, according to staff reports to trustees.

Oak Investment Partners and Bay Partners each will receive $20 million.

Oak Investment Partners X will invest in communications, Internet and infrastructure companies. The firm’s five active funds from 1988 to 1998 generated 48.6% net return to limited partners. The $20 million investment is side by side with a $5 million commitment from Grove Street Advisors.

Bay Partners invests in early-stage technology companies. The latest Bay Partners fund focuses on networking and wireless software/services, Internet infrastructure and Internet services companies, mostly in northern California. The CalPERS commitment will be alongside a $5 million commitment from Grove Street Advisors.

Grove Street Advisors runs CalPERS venture capital investment fund, California Emerging Ventures, which totals $750 million. All new commitments will be part of the emerging ventures fund, said Brad Pacheco, spokesman for CalPERS.

On the private equity side, CalPERS staff committed $30 million to Three Arch Capital. It will represent the first of a new product line that will invest in later, development stage opportunities in health care. These companies typically will have completed one or more rounds of venture capital financing.

Grove Street has made an additional $10 million commitment to Three Arch Capital.

KKR European Fund LP received a $75 million commitment from CalPERS. The European Fund will invest in traditional buyouts and leveraged build-ups of companies with quality franchises and high caliber management. KKR received $2.95 billion in commitments by Oct. 3 and expects to receive about $4 billion in commitments by the end of 2000.

Also part of the fund’s alternative investment program, $73 million will be invested in two secondary limited partnerships alongside Coller Capital Ltd. and Lexington Partners Inc. A secondary interest represents the purchase of an existing partnership usually obtained at a discount to net value. The interests include a 17.1% interest in SPV LP. and an 18.1% interest in NatWest Equity Partners II Partnership LP.

CalPERS’ staff also decided to commit $683,282 for two additional follow-on investments in Concentra Managed Care Inc. CalPERS originally co-invested $13 million in 1999 alongside Welsh, Carson Anderson & Stowe VIII LP.

The CalPERS alternative investment program has about $7.8 billion of the $11 billion committed to the asset class invested in partnerships, said Mr. Pacheco.

The fund’s investment committee approved Monday to move forward with investments for a $500 million biotechnology investment program.

The program was approved in June by the CalPERS board. It allows the fund to partner with biotechnology venture capital funds and to pursue investments in biotechnology incubators, university partnerships and corporate ventures.

Five investment opportunities were approved by trustees Monday: Prospect Venture Partners II; MPM Capital; Burrill and Company’s UCSF Seed Capital Fund; and EuclidSR; and partnerships with institutions and universities such as the University of California system, California Institute of Technology, and the Novartis Institute of Functional Genomics.

CalPERS is the largest pension fund in the United States. Assets totaled $167 billion as of Oct. 31.

By Susan L. Barreto, Senior Reporter


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