Florida SBA considers PE target hike

Florida State Board of Administration is considering hiking its target to private equity by 4 percent.

Florida SBA is one of the biggest institutional investors in the country and has an eye on increasing its stakes in alternative investments. Last month, the state enacted a bill that will increase how much Florida SBA can allocate to alternative investments – including private equity – to 30 percent, from 20 percent.

The move could represent a much-needed infusion of capital into a private equity ecosystem that has been starved of liquidity as limited partners retrench and exit activity remains slow.

Florida SBA will consider upping its target to private equity to 10 percent at its investment advisory committee meeting scheduled for June 27, according to a recommendation drafted by the system’s consultant Aon. Buyouts reviewed the recommendation, which was included in documents in advance of the meeting.

The target allocation for private equity is 6 percent, although the system currently invests 9.5 percent in the asset class, according to the recommendation.

The recommendation is part of an overhaul of Florida’s asset allocation strategy – and a sign of exactly how much capital may become available to private equity managers from Florida in the years ahead.

Florida considers alternative investments as private equity and a “strategic investment” asset class comprised of hedge funds, infrastructure and private debt. AON’s recommendation would reduce the 12 percent target for strategic investments to 4 percent.

Much of this reduction would come through the creation of a new active credit strategy, comprised of both public and private credit investments, with a 7 percent target.

Strategic investments would still contain allocations to real assets, insurance-linked securities, hedge funds and investments labeled as opportunistic if the recommendations are approved.

The private equity, strategic investments and active credit asset classes would have a combined target of 21 percent, still below the new maximum allocation of 30 percent to alternatives.

Florida’s $180.4 billion state pension is the only plan under Florida SBA’s management that invests in alternative assets.

Florida has a $17.3 billion private equity portfolio, according to a separate presentation reviewing the system’s private equity program scheduled for June 27.

The portfolio consists of 224 funds spread across 69 GPs, according to the presentation.

Florida targets 55 percent of its private equity portfolio to buyout funds. According to the presentation, the system has a sub-target of 40 percent to small buyout funds between $400 million and $4 billion, 35 percent to mid-market managers ranging between $350 million and $7.5 billion, and 25 percent to large buyouts.

Tech makes up 30 percent of Florida’s buyout fund investments, according to the presentation.

Florida’s two largest GP relationships are to managers outside of buyouts.

According to the presentation, secondaries specialist Lexington Partners is the system’s largest GP and comprises 11 percent of the system’s private equity portfolio. Florida has made $2.85 billion in commitments to 12 Lexington funds and co-investments, starting with Lexington’s fourth flagship fund.

SVB Capital, a venture-focused fund-of-funds manager associated with Silicon Valley Bank, is the system’s second-largest GP. According to the presentation, the system has around $1.45 billion of net asset value with SVB, which makes up 8 percent of the system’s total private equity portfolio.