An LP showcase

DiNapoli, the comptroller of New York State, has been running media tours of companies in his private equity portfolio – showing off the scrappy young companies its money is helping to grow

Employees at the start-up company looked on curiously as their cramped, open-plan office was invaded by people in suits. Many of the employees, more used to wearing jeans and sneakers, had dressed up for the occasion.

Even as the suits milled about, shaking hands and looking around, the employees continued to work at their monitors. The company, Truveris, which negotiates with prescription drug benefit managers and validates claim payments, seemed mostly composed of teams of developers, crammed into various spaces around the office.

The joke was that the software developers usually liked to work in the dark and never turned on the lights. But with the arrival of the people in suits, all the lights were on.

The occasion was a tour led by the comptroller of New York State, Thomas DiNapoli, who has been in the process of visiting businesses that have benefitted from investments made by the pension system’s private equity programme.

DiNapoli has a unique idea. It’s one that is obviously intended for self-promotion: he’s a politician, and obviously wants to boost his profile by showing the benefits his system is helping to provide. However, I’ve not often (maybe even never) seen a high-ranking LP official take the time to visit the companies he is exposed to through his organisation’s private equity portfolio.

The tour was a great way to illustrate what happens to a limited partner’s dollars. In the case of Truveris, New York State committed to an early-stage-focused venture firm called Tribeca Venture Partners through the in-state programme. In total, the state has $1.7 million in the company. Not a huge amount of capital in relation to the system’s total assets, which come in at almost $150 billion.

However, Truveris is part of New York Common’s exposure to the asset class. And perhaps the more important story here is the jobs the small business has created, and the potential it has to create even more.

Tribeca provided seed capital to Truveris in 2009, when the company had six employees. It has since expanded, despite the US credit market freeze: it now has 24 employees. It has already had to move offices once to accommodate its growth, and it will probably need to move into a bigger space soon, according to one employee (a developer who was taking a break to watch the proceedings). This need for more space was obvious just from looking around the office.

The employee I spoke to said that working for a company backed by a venture firm was no different from other places he has worked in the past. But the big difference, he said – and one that he saw as a real positive – was working at a start-up. Instead of being an anonymous cog in a larger organisation, he actually felt like an individual; like part of a family, almost.

Truveris was a good example of the kind of businesses the state likes to back. Since 2000, it has committed $987 million to the programme. So far, that’s translated into about $608 million invested in 218 companies, which have as a result increased total employment to 13,817 from 10,809, according to the Comptroller’s office.

Of course, one criticism of systems that focus on narrow criteria like in-state programmes, or even women and minority-focused portfolios, is that they meet certain political goals but sacrifice performance. In New York State’s case, however, the in-state programme was reflecting an internal rate of return on exited investments of more than 30 percent as of March 2012. That’s a remarkable return, especially in today’s environment where public institutions have been revising their expectations down and private equity portfolios struggle to hit returns in the teens.

“Over the long haul, private equity has been a good and strong diversifier for us,” DiNapoli said at one point during the tour, responding to a question about the negative perception the public has about private equity – partly stemming from this year’s presidential election, which has already attracted considerable attention to Republican candidate Mitt Romney’s private equity past.

Private equity provides a double bonus for the retirement system by driving returns to help its pensioners in the long term, as well as by creating jobs to help the state economy in the short term. It’s a message that more LPs should be getting out. So regardless of DiNapoli’s motivations, I applaud his efforts.