The Arkansas Teacher Retirement System's board of trustees Tuesday authorized the investment of up to $100 million in a fund managed by Stephens Inc. of Little Rock and Neuberger Berman Alternative Advisers LLC of New York City.
The fund will be called the Arkansas Opportunity Fund LP and it provides investment opportunities in the range of $6 million to $12 million; that size of investment is below the typical range of system investments on a stand-alone basis, the system's staff said in a memo to the board.
"The fund would provide ATRS a vehicle to participate in these smaller investment opportunities that may offer enhanced returns and continue to increase the diversification of the ATRS portfolio in asset classes that are not as correlated to the stock markets," the memo states.
In other action, the system's trustees also signed off on investing up to $25 million in Highland LLC, which is constructing a wood pellet manufacturing facility in the Pine Bluff Industrial Complex near White Hall. The trustees also approved investing up to $30 million in a Maryland-based private equity buyout fund and up to $25 million in a Los Angeles-based real estate fund.
The Teachers Retirement System is state government's largest retirement system with investments of more than $14 billion and more than 100,000 working and retired members.
System Executive Director George Hopkins said the system already uses Stephens Inc. as a small capital stock market investment manager, and the firm started looking a few years ago at "a fund of opportunities approach" to provide the ability to participate in specialized and sometimes smaller investments in Arkansas and throughout the United States.
"Establishing a new fund and complying with all legal and regulatory requirements takes time and energy," he said.
"It is a process that was not rushed and focused on quality deal flow, quality investment selection, quality management, and extensive diversification," Hopkins said in a written statement.
"The bottom line is that Stephens Inc. and Neuberger Berman had to be comfortable that the Arkansas Opportunity Fund was not just another fund, but one to be positioned as a top-tier fund. With that focus, Stephens Inc., Neuberger Berman, and ATRS took the time to create a strong structure that provides cutting-edge opportunity that other managers will likely try to duplicate. ATRS has always known of the high respect that Stephens Inc. has earned in the investment world," Hopkins said.
The trustees' approval of investing up to $100 million in a fund managed by these two companies comes more than a year after the trustees in April 2015 authorized stock market investments of up to $20 million managed by the Circumference Group of Little Rock, which was founded by former Altell Corp. Chief Operating Officer Jeff Fox.
The money is in funds invested in stocks of companies in the information technology, telecommunications and business services industries and both funds have performed well, the system's staff said in its report.
The trustees' authorization Tuesday of an investment of up to $25 million in Highland LLC provides the system with a 31 percent equity ownership in the company, according to the system's staff. Highland LLC is the operating entity for the Highland wood pellet plant near White Hall on Interstate 530; wood pellet production is expected to begin in November.
Hopkins said the system's interest in an investment with Highland started when Highland contacted the system's investment staff.
Highland provided background on the management team, the progress with the construction of the wood pellet plant, its contract to obtain all timber needed, its quality equipment and unique design, and its off-take agreement with Drax Group, a utility in the United Kingdom, he said.
"After that initial meeting, additional due diligence was conducted by ATRS and its outside consultant. Ultimately, this resulted in a recommendation that ATRS obtain a 31% interest in the company for $25 million," Hopkins said in his written statement.
The investment of up to $30 million in a private equity buyout fund -- authorized by the trustees Tuesday -- will be in the Arlington Capital Partners IV LP fund, managed by Arlington Capital Partners based in Chevy Chase, Md.
The fund is being raised to "buy and build" investments in defense and aerospace, government services, health care, business services and software, the system's staff said in its memo.
The investment of up to $25 million in a real estate fund -- authorized by the trustees Tuesday -- will be in CBRE Strategic Partners U.S. Value 8 LP fund, managed by CBRE Global Investors based in Los Angeles. The fund will seek to add value to high quality real estate in certain United States markets by improving lease rates and terms, according to the system's staff.
Metro on 07/20/2016