The Tennessee Consolidated Retirement System will soon hire a new executive to plan and invest up to $900 million in pension-fund assets in private equity.

Earlier this year, the Tennessee General Assembly gave TCRS unprecedented authority to invest up to 3 percent of TCRS' $32 billion in assets in what are often labeled alternative investments.

The changes in state law signed by Gov. Phil Bredesen two months ago allow investment in "domestic and international venture capital, corporate buyouts, mezzanine and distressed debt, special situations, and secondary funds. Private equity investment vehicles may include, but are not limited to, limited partnerships, private placements, co-investments, funds-of-funds, and commingled funds."

It may take TCRS "three or four years to get to that [$900M] target," according to Ed Hennessee, the state's assistant treasurer for employee benefits and investments.

Hennessee explained that the TCRS Council on Pensions and Insurance and TCRS staff may begin developing overall policy for private-equity investments as early as the council's next scheduled meeting, Sept. 29-30, although the agenda for that meeting is freighted with other issues. The council is chaired by State Sen. Randy McNally (R-5-Oak Ridge) and State Rep. Craig Fitzhugh (D-Ripley-82). The two men chair their chambers' Finance, Ways and Means committees.

Regardless of whether the council works its way through that policy task next month, Hennessee said that before the end of September TCRS will begin recruiting candidates for the new equities directorship. "We're not waiting on the policy" to begin advertising the position, Hennessee said, although he noted the PE director job description has not been finalized.

Also, Hennessee said the pensions council and the new private-equity director will be responsible for publishing a request for proposals from companies that would like to provide advice and counsel to TCRS with respect to attractive investment alternatives. That procurement of services will be overseen by the yet-to-be-hired equities director, Hennessee said.

Hennessee said TCRS has been preparing for the new investment activity for some time. He noted that the state's chief investment officer, Michael Brakebill, joined State Treasurer Dale Sims' staff six months ago from the Teacher Retirement System of Texas. In Texas, Brakebill was director of domestic equities for the $100 billion agency.

Momentum has been building on the private-equities front for some time: The state's long-standing investments advisor - San Francisco-based Strategic Investment Solutions - analyzed TCRS assets and liabilities a year ago. At that time, according to a copy of the resultant SIS report provided to VNC, SIS recommended TCRS "consider selectively adding to its Real Estate allocation and implementing an Alternative Investment program, with a primary focus on Private Equity."

Even prior to SIS' report, the TCRS annual report for fiscal 2007 noted that TCRS had "underperformed" relative to median performance of peer funds. TCRS' "low alternative investments allocation" relative to peers was among factors contributing to subpar results.

Concerned about publication of this article generating questions from would-be consultants that cannot be answered at this point, Hennessee stressed that the new TCRS alternatives director will be responsible for dealing with potential bidders and others. Hennessee added that, while he routinely tries to be available to talk with anyone who tries to reach him, communications with potential bidders are unlikely, in his view, to be very productive until sometime in the first half of 2009. ♦