CalPERS eyes potential largest-ever PE secondaries sale

California Public Employees’ Retirement System, a bellwether LP that often sets the standard for private equity investing, is embarking on what could be an historic sale of private equity fund stakes.

The system, which managed total assets of about $469 billion as of July 12, engaged Jefferies to sell up to $6 billion in private equity fund stakes, three sources told Buyouts.

The portfolio is a mix of tail-end funds and stakes in blue-chip funds, sources said. The rationale is not clear, though one source said the system is shifting from a large portfolio of numerous GP relationships to more concentrated interests, separately managed accounts and co-investments.

The system is not getting out of private equity, as it increased its allocation target to the asset class to 13 percent, from 8 percent, in November. This indicates rather than backing away from PE investing, the system is looking for ways for more direct access to top managers at lower cost.

Spokespeople for CalPERS declined to comment.

CalPERS trustee Margaret Brown told Secondaries Investor in November that the pension could explore a secondaries sale to help clean up tail-end exposure: “We have some really old private equity that’s just sitting there doing nothing. I call them zombies.”

CalPERS has not engaged in such a large sale of PE interests, though it’s possible it has opportunistically bought and sold individual stakes in funds. The system caught market attention in 2015 when it sold a portfolio of real estate fund interests to Blackstone Group’s Strategic Partners in a deal valued at $3 billion.

It’s not clear if the full portfolio will get sold, being so large, sources told Buyouts. It’s possible that pieces of the portfolio get sold off. Some LP sellers bring large portfolios to market with the expectation that only chunks of it will actually transact.

The CalPERS sale is among a slew of traditional LP portfolio sales to hit the market since the fall, with prices high and buyer interest piqued by more diversified investments beyond the single- or concentrated asset deals that dominated the market in the first half of 2021.

Public Sector Pension Investment Board, for example, closed a roughly $1.5 billion sale of private equity fund stakes toward the end of the year. HarbourVest Partners was lead investor on the sale, Buyouts previously reported.

Other big processes include Pennsylvania Public School Employees’ Retirement System shopping a $1 billion-plus private equity portfolio; and New York State Teachers’ Retirement System is shopping a portfolio of private equity fund stakes valued at around $2.6 billion.

Large portfolio sales took up buyer interest in the second half of 2021 as many buyers looked to diversify beyond the concentrated bets they made in the early parts of the year and in 2020.

In the first half, GP-led secondaries deals like single-asset continuation funds represented about 57 percent of the $46 billion in total estimated activity. LP portfolio sales were expected to accelerate in the second half, sources told Buyouts.

The sales have come amid an environment of rich pricing, which generally helps convince institutions to move forward with contemplated rebalancing. Pricing for buyout funds hovered around 92 percent of net asset value in the first half, according to Greenhill & Co’s first-half volume report.