Maryland Boosts Private Equity Allocation

April 18, 2005 ( - Maryland's state employee pension fund has allocated $165 million of its $32 billion to private equity and venture capital funds, indicating a continuing trend in public pension funds moving towards these alternative investment vehicles.

The $165 million from Maryland will go to both domestic and international firms and, if all goes well, the 330,000 employees and retirees covered by the funds will see a growth in the pension plan’s assets.

About $15 million has been earmarked for venture capital firms, which invest in start ups and are often seen as the more risky end of the private equity spectrum.

This is not the last of the state’s private equity investment, however. F und managers and the board want to allocate $200 million to $250 million each year to private equity. It has also given money to such investments in the past: in September 2003, the board voted to boost the fund’s allocation for private equity to 2%, or about $650 million.

The current move follows the recommendation made by a gubernatorial panel charged with designing a technology development strategy for Maryland. The panel recommended that the state eventually match the national average with its alternative investment allotment, which would amount to 6% of the pension fund, or $1.4 billion. A 2002 study found that the state was well below the national average in its allocation to private equity.

After a lackluster number of years, Maryland’s pension fund generated an investment return of more than 16% in 2004, compared with 2003’s 3.2%.

Maryland is not alone in its move to rely more heavily on private equity investments. Recently, Mississippi made the move to invest up to 10% in these alternative vehicles, while New York City has decided to double its investment in such vehicles (See  Mississippi Allows Pension Fund to Allocate 10% to Private Equity and  New York City to Double Private Equity Investment ). Massachusetts also made a recent move to up its investment in such vehicles (See  PRIM Ups Private Equity Investments ). In November, New Jersey decided to make a similar move and the Governor of New Mexico is also expected to sign a similar law that would allow that state’s pensions to invest in private equity.