NYC Retirement Fund Raising Allocation to Private Equity

September 28, 2011 ( – New York City's employees’ pension fund is increasing its allocation to private equity to 6.5% from 4% and using fewer firms in pursuit of total returns of 8%.

Larry Schloss, Chief Investment Officer and Deputy Comptroller for Pensions said at the Bloomberg Dealmakers Summit in New York that the city’s pension plans to allocate $2.5 billion annually for the next four to five years to increase its private-equity commitments. The pension will sell about $2 billion in existing private- equity funds as it seeks to pare relationships to about 70 firms in the “top quartile” from 106 when Schloss joined the pension in January 2010, according to Bloomberg. The city will “write bigger checks” of more than $300 million, versus about $100 million on average to each fund before the overhaul.  

Bloomberg reports the $41.8-billion New York City Employees Retirement System, whose 347,000 members are the most of any U.S. municipal retirement fund, aims to generate returns of at least 8%. Private-equity firms, which typically buy companies using loans secured on the targets and work to improve performance before selling them in five to 10 years, are a long- term commitment that offer potentially the highest returns, Schloss said.  

The firms get money from investors including pension plans and endowments with a mandate to invest it within five to six years and return it with a profit after about 10 years. Private- equity firms typically charge an annual management fee equal to 1.5% to 2% of the fund, and keep 20% of profit from investments.