CalPERS sells stake for between $1B and $1.5B to a syndicate of five firms
The California Public Employees’ Retirement System earlier this month sold stakes in roughly 60 private equity funds, mainly mid-market buyout funds, whose average age—eight years—put them in the pension fund’s “mature” category. And more CalPERS-owned stakes may be coming onto the market as the state pension fund turns its attention to backing new firms.
The sell-off by the $260 billion pension fund represents one of the largest secondary deals of its kind. The buyers, a syndicate of five firms that paid between $1 billion and $1.5 billion, includes secondary firm Lexington Partners; funds of funds shops HarbourVest Partners and Pantheon Ventures; asset manager Oak Hill Investment Management; and Conversus Capital, a publicly traded fund of funds in the Channel Islands that is principally owned by Oak Hill and Bank of America.
The names of the 60 sold funds weren’t disclosed.
Conversus Capital is the only firm so far to announce its role in the completed transaction, disclosing that its piece of the CalPERS portfolio has a net asset value of $189 million, excluding $25 million in unfunded commitments. Oak Hill, which bought stakes in the same CalPERS-owned funds for itself and for Conversus, hand-picked the holdings. They happen to be the nine oldest in the portfolio, and most tilted toward distressed investments.
In fact, each member of the acquiring syndicate selected precisely which funds it wanted, says Jamie Hale, the Oak Hill partner who led the investment for his firm. Hale calls the scenario “unique,” as well as effective. Agreeing on which stakes each firm wanted in advance and how much they would pay for them made consensus, and the sale, far easier.
“I don’t know if there will be another opportunity like this, but I think you’ll see other LPs start to use secondaries as a tool to reduce load and to change the composition of their portfolios,” Hale says.
CalPERS itself may turn to the secondary market again. In 2006, it announced plans to sell off a “legacy” portfolio of older funds. The net asset value of those investments was $2 billion, with another $1 billion in unfunded commitments—more than the purchase price of what it just sold.
Assuming CalPERS didn’t just hold a fire sale, more of its stakes may be coming onto the market, although the pension fund is coy about what lies ahead.
“We haven’t done a secondary sale like this for some years,” said CalPERS spokesman Brad Pacheco. “This is the first sale of assets that we can confirm; that’s not to say there have been or will be others.”
Meantime, as CalPERS severs ties with older vehicles, the state pension fund is upping its commitments to new funds and fund managers. In particular, CalPERS is backing new vehicles that target the smaller end of the buyout market under what CalPERS has coined its Manager Development Program II. The strategy is to back emerging managers with assets of less than $2 billion.
Philadelphia-based FIS Group, a 12-year-old funds of funds manager that’s specialized in backing emerging managers for 12 years, received the program’s first commitment, totaling $350 million. FIS has nine funds in its current lineup, including three African-American owned firms and two owned by women.
CalPERS also committed $200 million to 10-year-old money management firm Redwood Investment Management of Stamford, Conn. Its president, Andrew Hanson, launched the firm after nine years with the New York-based asset manager Lepercq de Neuflize & Co.