Florida SBA’s PE value down almost 10% in Q1

Staff also says there are likely to be secondaries opportunities once Q2 valuations come in.

Florida State Board of Administration’s private equity portfolio value is expected to fall 9 percent to 10 percent for the first quarter of 2020, staff has told Buyouts.

At the June 30 meeting of the Investment Advisory Council, senior investment officer John Bradley said this “compares very favorably” against the program’s benchmark, which fell around 20 percent. He noted the final Q1 valuations were still coming in.

Contributions had decreased by about 60 percent since the coronavirus crisis took hold and froze deal flow, Bradley said. He still expected 2020 to be a positive cash flow year for the board, which manages assets for the Florida Retirement System Trust Fund.

“What’s different this time is our distributions have actually increased by approximately 15 percent,” Bradley said. “A majority of the increase in these distributions has been from the sale of publicly-traded shares and the selling of publicly-traded shares has been very strong over the last few weeks. And so if there are any questions as to how our private equity GPs feel about public market valuations, this is probably as strong of a signal as I can think of.”

Opportunities amid the crisis

The board seemed interested in what opportunities the crisis provided and how the fund could take advantage of them. Staff were asked multiple times about secondaries. They said the market would remain slow for now.

“There’s really this sense of waiting for 6/30 valuations to come out to get a good sense of where these portfolios should be priced for an appropriate return,” Bradley said. “We would think [secondaries] will pick up in the next 6 to 9 months.”

Until then, things will be uncertain. “On the sellers’ side you get that normal situation where the sellers’ expectations really haven’t digested yet, and so there’s still a pretty sizable bid-ask spread in the valuations side,” he said.

But once the dust clears, Bradley seemed confident there would be action in the secondaries market. “While we might not see the depths of distress that we saw in 2008 and 2009, I think since then…LPs are much more active repositioning their portfolio, taking things to market,” he said, adding that Florida would be well-positioned to take advantage of that.

Executive director and chief investment officer Ash Williams said staff has no plans to increase the overall private equity presence.

Responding to a question from council chair Vinny Olmstead, Williams said Florida would neither increase its asset allocation or do what Williams dubbed a “more radical idea…levering up our existing private equity exposure or other parts of our portfolio.” Added Williams: “What we don’t want to do is increase risk in the portfolio in a way that we potentially increase the downside risk of short-term downdraft in the market shock to the portfolio and the related contribution shock that that could generate.”

Bradley added that staff was limited to a 20 percent allocation for alternatives, which includes both private equity and another asset class called strategic investments.

Williams added that Bradley and the staff have “been very selective about which GPs we have re-upped with and which we have increased scale with and which we we have chosen not to re-up with.”

“I think that activity in and of itself has been very effective in improving the value proposition for our private equity investment book,” Williams said.

As of June 30, the fund was valued at $160.7 billion. Private equity made up 7.3 percent against a 6 percent target, according to a Florida spokesman. Strategic investments made up 8.87 percent against a 12 percent target.

Action Item: read the meeting agenda and materials for the June 30 Florida SBA Investment Advisory Council meeting here.