Arkansas seeks consultant for new PE portfolio

The system could commit $575m – $500m in secondaries – in 2023 as it builds its PE program.

Arkansas Public Employees Retirement System will seek a consultant for its new secondaries-focused private equity portfolio.

Arkansas is an anomaly as a state pension system as it has avoided private equity until recently. The $10.4 billion system approved the creation of a private equity program earlier this year with plans on reaching a 5 percent target by 2029.

The Arkansas board voted at its May 17 meeting to seek a private equity consultant to help manage the nascent portfolio through an expedited search process. Buyouts watched a broadcast of the meeting.

The system is considering two strategies for its private equity portfolio, both heavy with secondaries investments.

The first strategy would see the portfolio comprising 75 percent secondaries and 25 percent traditional funds-of-funds vehicles. The second strategy would see a 50 percent split between secondaries and primary funds-of-funds.

Either secondaries strategy would allow Arkansas to start receiving distributions earlier than a primaries-focused portfolio created from scratch. According to system consultant Callan’s projections, the first strategy would see cashflows turn positive starting in 2029 while the second would turn cashflow positive in 2030.

The system hopes to make its first private equity commitments this year.

According to Callan’s pacing plan, the system would commit $500 million to secondaries and $75 million to primary funds-of-funds in 2023 if it follows the 75/25 strategy. In the 50/50 portfolio, Arkansas would commit $300 million to secondaries and $150 million to primary funds-of-funds.

By 2032 the 75/25 strategy would see $1.35 billion committed to secondaries and $450 million to primary fund-of-funds while the 50/50 portfolio would see $800 million dedicated to each by 2032, according to Callan.

“I favor secondaries right now because a lot of investors have to sell assets now. I think in a few years you’ll appreciate making these commitments earlier. 2023 is when you want to start making commitments,” said Arkansas CIO Carlos Borromeo.