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US State of Georgia is Making Preparations to Begin Investing in Private Equity Funds – January 2013

by Joanna Nye

  • 29 Jan 2013
  • PE

Until early 2012, Georgia remained the last state in the US that prevented its state-sponsored pension funds from investing in alternative assets, inclusive of private equity funds. However in April 2012, the Georgia State Senate passed legislation to allow the majority of Georgia’s public pension funds to invest up to 5% of their total assets in alternatives. The one exception to this is Georgia Firefighters’ Pension Fund, which was granted the ability to invest in private equity funds in 2010, making it the first public pension fund in the state to have exposure to the asset class. The pension fund was permitted to invest up to 5% of its total assets in the asset class, and as of the end of Q2 2012, had 0.6% of its total assets invested in private equity funds of funds.

Following implementation of the legislation, which came into effect on July 1 2012, Georgia is yet to begin investing in private equity, although a number of steps have been made in preparation for this. By the end of 2012, Georgia Division of Investment Services, which manages the assets of the majority of Georgia’s pension funds, had set up an alternative investments programme. Earlier this month, the programme hired its first two co-directors, Ben Cahyono from Delaware Investments and Catharine Burkett from Camden Partners, with the aim of working on building up its alternative investments programme throughout the course of 2013. Following this, it has been announced that the division is planning to make its first private equity fund commitment in Q3 of this year.

Among the pension funds whose assets are managed by the division is Georgia Employees' Retirement System, which with $11.8bn in assets, makes up the majority of the approximate $14.0bn managed by the investment division. Interestingly, Georgia’s largest pension fund, the $53.5bn Georgia Teachers' Retirement System, remains excluded from legislation and continues to be diverted away from investment in alternatives.

US-based public pension funds continue to be attracted to investments in private equity funds, particularly given the promise of higher returns, compared to the low interest rates presented when investing in traditional assets. Preqin’s Investor Intelligence database currently tracks 292 US-based public pension funds actively investing in private equity funds, covering investors across 50 states. At present, the largest investor by current allocation to private equity is California Public Employees' Retirement System (CalPERS), with $32.1bn currently allocated to the asset class, followed by California State Teachers' Retirement System (CalSTRS) which currently has $21.8bn allocated to private equity. Of the US public pension funds tracked by Preqin, 91% are currently active in the asset class, 3% are looking to invest in the longer term, and 6% are not currently investing but are considering investments in the asset class going forward.

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