Florida PE portfolio nets $700 mln-plus in 2017

  • PE program beats equity benchmark since inception
  • Florida’s PE program valued at more than $10 bln
  • IAC member questions fees amid lower return expectations

Florida State Board of Administration’s private equity portfolio netted more than $700 million for the state’s investment program in 2017.

The board, which oversees $205 billion of state assets including the $162 billion retirement system, generated the bulk of its 2017 returns from its buyout, secondary-market and distressed holdings. Returns in its growth-capital and venture-capital portfolios lagged, an investment report in the board’s most recent meeting materials shows

The PE market favored sellers in 2017. Purchase-price and leverage multiples ticked up last year, the Florida report says. Bain & Co reported multiples hit a record last year as more than half of all the businesses sold went for more than 11x Ebitda.

Despite the strong cash-on-cash returns, the expected decline of private equity’s overall return has left some members of Florida’s investment advisory council wondering whether the asset class is worth its steep costs.

PE and other private-market investment managers typically charge higher management fees than firms managing public-equity or fixed-income strategies.

“It seems to me it was pretty easy to justify fees because there were so many inefficiencies and so little capital. And your returns show that up until 2009 or ’10. But since that time, just the supply of capital seems to me a factor,” said Council Member Chuck Cobb, a transcript of a Dec. 4 meeting says.

Florida’s remained an active limited partner in the current environment, committing $440 million to PE funds in Q4.

Florida distributed its more recent commitments across a wide range of funds, including a number of mid-market funds operating in markets where purchase-price multiples tend to be lower than those seen for larger deals.

Florida’s portfolio has netted a 9.3 percent internal rate of return since its 1989 inception. Its benchmark, an all-world equities index plus 3 percentage points, netted a 7.9 percent return over the same period.