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Tennessee CRS private-equity Venrock play
weighted toward Technology, Healthcare
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TECHNOLOGY and Healthcare are the priorities of Venrock VII, which recently received a commitment of up to $35 million via the private-equity investment program of the Tennessee Consolidated Retirement System (TCRS).

That TCRS commitment brings total commitments since the TCRS program's launch in 2009 to approximately $1.9BN, directed toward venture capital, buyout and opportunistic funds.

That total allocation reflects more than 40 transactions involving 31 VC/PE's and their affiliates. Commitments represent only upper limits of asset allocations that are authorized to be made for given transactions. Allocations can take protracted periods to deploy, and can later be adjusted downward.

Venrock Associates' Fund VII has a reported target of $450MM, targeting the healthcare and technology sectors. In 2010, TCRS committed up to $25MM in Venrock VI, which then planned a $350MM raise.

In addition to investments in Athenahealth, Healthsouth and dozens of other firms, Venrock has since 2008 been among the backers of San Francisco-based Castlight Health (NYSE:CSLT). Six-year-old Castlight's shares debuted in March after logging 2013 revenue of about $13MM, with no profits. Its market cap today is $1.5BN.

Castlight competes with nine-year-old Change:Healthcare, a Nashville-area startup that's backed by Solidus (Nashville), Blue Cross Blue Shield of Tennessee (Chattanooga), Noro-Moseley (Atlanta), Healthsparq (Portland) and other investors.

Michael Brakebill

Responding to capital calls from participating funds, TCRS has thus far backed-up its commitments with $550MM to $575MM money "in the ground," said TCRS Chief Investment Officer Michael Brakebill during a June 24 VNC interview. He confirmed the Venrock VII commitment during a brief followup interview during a break in TCRS governance meetings at Legislative Plaza, June 27.

In the past 12 months, TCRS data indicate, TCRS made about 20 PE commmitments, or about half the total number of the five-year-old program's transactions.

The pace of TCRS PE transactions has accelerated since the 2009 appointment of the agency's first private equity (PE) director, who led efforts to shape and launch the program, which was til then unprecedented in Tennessee history.

TCRS PE transactions to date listed here. Earlier TCRS coverage is here.

Since January this year, the program has been led by Director Daniel Crews, 37, who began serving as interim director in 2Q13, as the program's first director, Lamar Villere, began his transition to private asset-management practice based in New Orleans.

Daniel Crews

Crews reports to Brakebill. TCRS staff are accountable to the TCRS board of trustees, chaired by State Treasurer David Lillard, and to the TCRS board's investment committee.

Crews is building a team: He recently brought aboard two senior PE portfolio managers: Carrie Green, previously a TCRS public-equities senior portfolio manager; and, Grant Leslie, whose previous stops have included A.G. Edwards, Hammond and Mercer. All three are CFAs.

TCRS draws on outside experts through its Investment Advisory Council, which meets formally on a quarterly basis. That council now has four active members, and is likely to add a fifth, soon, said Brakebill.

Updated: VNC has also learned that state Assistant Attorney General David Burn also assists in some transactional matters.

George Stadler

The four current council members are Carol Womack, Diversified Trust Company (Nashville); George Stadler, HMS Capital Management (Nashville); Susan Logan Huffman, Reliant Investment Management (Memphis); and, Frederick Crown, a Nashville financial advisor, previously long associated with banking. Recent past Council members include Henry Delicata, Park Street Capital (Boston, formerly in Nashville at Vanderbilt University); and, Chuck Webb, Barksdale & Assocs. (Nashville).

Based on a combination of current TCRS strategy and State law passed in 2008 (and subsequently amended), TCRS could, in time, allocate at least $1.2BN of its current $42.7BN assets to traditional VC/PE.

That number is a small fraction of TCRS total assets. However, for perspective, note that $1.2BN is more than eight times greater than the roughly $140MM net capital that was made available to the ten TNInvestco venture funds that were spawned by the 2009 passage of state legislation, which set into motion a one-time capital injection for in-state capital formation and seed- and early-stage funding for dozens of Tennessee startups.

No Tennessee venture capital or private equity firm has yet won a role in the TCRS program, but Brakebill recently told VNC that TCRS has more than once "gotten pretty close" to going with a Tennessee-based firm, and it seems likely that eventually a native firm will be enlisted.

As previously reported by VNC, Brakebill maintains an "open-door" policy for VC/PE firms. As a matter of policy, Tennessee firms must compete for commitments on a level playing field, with no set-asides for in-state firms.

Venrock Associates, formed in 1969 by members of the Rockefeller family, has gone through a generational transfer of power and culture in recent years, as reported by Forbes. Venrock funds' raise targets since 2007 have totaled $1.4BN. The firm has offices in Palo Alto, New York City and in Boston.

The term "opportunistic" investment within the alternative-asset class is not intended to suggest the risk of a specific allocation or investment, according to information online.

TCRS recently made a $100MM opportunistic-type commitment to Strategic Partners VI, which has described its strategy as centered around "purchasing secondary interests of high quality funds in leveraged buyout, mezzanine/distressed, real estate, venture capital, and fund of funds."

VNC has previously reported that TCRS's standing contract advisors include Strategic Investment Solutions (San Francisco, general investment), Cambridge Associates (Boston, private equity) and The Townsend Group (Cleveland, Ohio, real estate). Cambridge is charged with helping the agency monitor identified managers for new fundraising opportunities.

TCRS routinely documents its alternative-asset commitments in the minutes of its overseeing and advisory bodies; but, in Spring 2013 TCRS halted its practice of issuing a brief announcement regarding new commitments to financial news media.

Each of those broad announcements, a TCRS representative told VNC, had spawned a sudden surge of requests for data, mainly from finance-sector players, and the congestion of information requests hampered staff productivity. VNC

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Tags: Blue Cross Blue Shield of Tennessee, Cambridge Consulting, Carol Womack, Carrie Green, Change Healthcare, Daniel Crews, David Lillard, Diversified Trust, Grant Leslie, Healthsparq, Lamar Villere, Michael Brakebill, Noro-Moseley, Solidus, state government, Strategic Investment Solutions, TCRS, Tennessee Consolidated Retirement System, TNInvestco, Townsend Group, Venrock Associates

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