Public Pensions Flood Secondary Market with PE-Fund Stakes

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Public pensions are loading up the secondary market with limited-partner interests in an environment of pricing as high as it’s ever been, according to Buyouts research and interviews with secondary-market sources.

At least five public systems are selling or considering sales on the secondary market: Maryland State Retirement and Pension System; Florida State Board of Administration; Los Angeles County Employees Retirement Association; Teachers Retirement System of Illinois and Pennsylvania State Employees’ Retirement System.

Colorado Public Employees’ Retirement Association is exploring options for both buying and selling stakes on the secondary market, Buyouts reported earlier this year.

It’s not unusual for several public pension systems to have portfolios on the secondary market, though this year activity seems to be stronger than usual, sources said.

Along with U.S. pensions, Canadian pensions have been active sellers on the secondary market. However, it’s not clear whether any Canadian pensions are shopping portfolios this year.

Public pensions and sovereign-wealth funds represented the largest percentage of sellers on the secondary market in the first half, about 20 percent, down from about 24 percent last year, intermediary Greenhill Cogent’s first-half secondary volume report shows.

The systems are taking advantage of the high-priced environment, according to Brian Mooney, managing director with Greenhill Cogent.

“Pricing is high and all types of LPs are continuing to actively manage their portfolios; including several large public pensions,” Mooney said. “This is consistent with what we’ve seen in recent years, except that 2018 is on a record pace.”

The average high bid for all secondaries strategies was 93 percent of net asset value in the first half, the volume report says. Buyout funds garnered the highest prices, at 98 percent of NAV, off slightly from 99 percent of NAV in 2017, the report said.

“Pricing is very strong; pricing is often above par for good-quality funds,” said Sabina Sammartino, partner and head of secondaries at Mercury Capital Advisors.

First-half deal volume came in around $32 billion, up 18 percent from the year-earlier period, Evercore said in its volume report. Total volume last year came in at an estimated $54 billion, Evercore said.

LACERA and Maryland could sell portfolios of LP stakes valued at up to $1 billion, sources have told Buyouts.

How much Florida or Pennsylvania state workers are trying to sell is unclear. Pennsylvania’s state workers’ pension, PA Public School Employees’ Retirement System, held a massive secondaries sale in 2014, unloading a portfolio of around $1.75 billion.

Illinois Teachers’, meanwhile, said in its 2019 private equity strategic plan that it would consider selling fund stakes next year, Buyouts reported.

“Market dynamics continue to be favorable for sellers of assets, offering TRS an opportunity to reshape its portfolio as desired, shed non-core managers, and pursue liquidity for the asset class,” the plan summary said.


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