BUYOUTS-NYC investment officer's new job raises eyebrows

Thu May 23, 2013 6:07pm EDT

* Lands at secondary buyer Landmark Partners

* Follows NYC committing $400 mln to same firm

* Should pension rules be tightened?

By Gregory Roth

NEW YORK, May 23 (Reuters-BUYOUTS) - Barry Miller, who has been head of private equity for the New York City Pension Systems, has landed a job at Landmark Partners, a secondary firm to which the pensions recently made a sizeable commitment. The timing of Miller's move raises questions about whether the city's pensions, and pensions generally, should have stricter rules governing investment officers who wish to leave for money managers.

New York City Pension Systems, which includes five pension funds with $142 billion in assets, committed $400 million in December to Landmark Equity Partners XV LP, the firm's latest flagship secondary fund. That commitment, which was spread among the city's five municipal pensions, closed roughly five months before Miller announced that he was joining Landmark Partners.

Conversations between Miller and Landmark Partners about joining the firm "began in late January or early February," according to Francisco Borges, Landmark Partners' chairman and managing partner.

"I looked at a bunch of things and Landmark made the most sense to me. It's a very established brand," said Miller, 43, who has been with the New York City pension system since 2011 and before that worked in the secondary market.

Having the ability to join a money management firm so soon after being involved in a decision to back that firm does seem to invite temptation - the temptation to give the firm more consideration than it deserves, based solely on the merits. Said Charles Elson, a professor of finance and corporate governance at the University of Delaware: "It certainly raises questions, and it's the optics that create the questions."

"This reeks of impropriety and inappropriateness," said Daniel Dromm, a New York City councilman representing Queens. "Appearance-wise, it looks as though he got the job because he recommended the commitment." He suggested a waiting period "of at least a year" before public officials are allowed to begin working for firms they conducted business with while in office.

Although nothing under New York City Pensions Systems' rules forbids such a move, according to an executive there, other pensions, such as the California Public Employees Retirement System, do have rules against investment officers joining a firm they did business with while at the pension within a set period of time. CalPERS in 2012 enacted a two-year waiting period on investment officers before working for such firms.

Landmark Partners "started talking to him after the commitment closed," said Lawrence Schloss, the chief investment officer for New York City Pension Systems. "We have rules. He can't be in a dialogue about a job while we're doing business with them." In addition, Schloss said, "you can't call on the city (to solicit investments) for a year after you leave."

Schloss added that the city has been an investor with Landmark Partners since 2002, "long before Barry came on board." The city's pensions invested in Landmark XI in 2002, Landmark XIII in 2006 and Landmark XIV in 2008, he said.

New York City doubled the size of its most recent commitment with Landmark Partners, up from the $200 million that it committed in 2008. Miller attributed the rise in part to the strong performance of the predecessor fund. According to New York City return data from September 2012, the fund has produced a net IRR of 20 percent, and a net investment multiple of 1.2x.

Landmark Partners' Borges said he wasn't concerned about any appearance of a conflict of interest in hiring Miller. "It's very clear that (hiring Miller) is entirely appropriate," he said. New York City's process for making its commitment to Landmark Partners' latest fund was a "rigorous one" that was reviewed and signed off by Schloss, as well as the pension funds' outside consultants, and by the individual pension boards, he said. "No single individual has the authority to commit," said Borges.

"There are always going to be doubters," said Miller of the potential for some to perceive a conflict of interest. "For some people, the glass is half full, and for others, it's half empty," he said. As head of private equity, he said, it has been his job to find firms that are "best in class." Thus, "it's natural that you'd want to work for a firm that you think is best in class too," he said.

Prior to joining New York City's Bureau of Asset Management, Miller worked for Pomona Capital and AXA Private Equity, both of which have large secondary businesses. In 2012, Miller engineered a $1 billion secondary sale of private equity assets, mainly to help reduce New York City's large number of private equity relationships. In the sale, which involved 11 funds managed by nine different firms, the pensions reduced the number of relationships to 99 from 108.

New York City's five municipal pensions have $8.8 billion in invested private equity capital, roughly 6.8 percent of the overall portfolio, according to Schloss. That compares to an average 7 percent private equity target across the five pension funds.

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