SC Fund Setting Up Independent Private Equity Shop

A New York Times news report said the effort by the South Carolina Retirement System Investment Commission is believed to the first of its kind in the United States.

By not relying as heavily on outside money managers and investing directly, the fund could eliminate about $2 billion in fees and other costs over the next decade, according to a study by consulting firm Booz & Company. The firm would charge the pension fund less than typical market rate fees, the Times said.

The fund has approved $15 million in start-up costs for the firm, which is set to begin next month with its headquarters in Charleston and an office in New York. Initial plans call for hiring 30 professionals by next year and ultimately more than 60 people, according to the fund’s documents.

“It’s high time that state pension funds are able to develop structures that have greater transparency and lower costs,” said Robert L. Borden, the $25-billion system’s chief investment officer, and chief executive of the new money management firm.  With outside managers, Borden complained: “There are layers of fees, your control rights are zero and your costs are astronomical. We’re trying to tackle that model.”

According to the Times, South Carolina is also increasing its allocation to private equity, looking to commit as much as $8.7 billion to the strategy, fund documents show.

The enterprise still plans to collaborate with these outside private equity funds. It expects to allocate as much as 40% of its assets to strategic partnerships and so-called co-investment opportunities.