Marin County pension board pushes back against PE target hike, invoking tech pain

As private equity valuations trail movements in the public markets, tech heavy private equity baskets likely will soon reflect the pummelling taken by public tech stocks.

The heavy beating that publicly traded tech stocks have recently taken may temper Marin County Employees’ Retirement Association’s private equity ambitions.

The Marin County pension board discussed a recommendation from its investment consultant Callan to hike its private equity allocation target. It took no action on the recommendation.

The discussion at Marin County’s pension board meeting this week reflects discussions taking place at LP organizations around the country. In general, LPs want to maintain or increase their exposure to the asset class, but also must contend with the changing macro environment of persistent inflation, supply chain delays and geopolitical shocks.

As private equity valuations trail movements in the public markets, tech heavy private equity baskets likely will soon reflect the pummelling taken by public tech stocks. This may lead to a reconsideration of not just the amount pensions invest in private equity, but also to the types of funds to which they commit.

The most recent meeting of Marin County revealed how these dynamics could come into play.

Advisory firm Callan said at the pension’s board meeting this week that Marin County should increase its targeted rate to private equity to 10 percent from 8 percent. However, during the meeting, board member Sara Klein disagreed, as tech investments comprise 40 percent of Marin County’s private equity allocations.

“The great bull run is over,” Klein said about tech investing, citing the Federal Reserve’s rate hike and other factors that will limit how much leverage entities can take on.

A representative of Callan said at the meeting that the recommended “modest” increase in private equity was not fully intended for early stage venture capital investments, which is generally where tech investments are concentrated.

The representative also added that any increased investments resulting from the potential target increase would be spread out over a two-to-five-year period.

Klein’s concerns were echoed in a phone interview by John Traynor, chief investment officer at People’s United Advisors, a money manager focused in New England and New York that advises institutional investors.

Traynor said he’s bearish on private equity – beyond tech – because of the high valuations as indicated by entry cash flow multiples in the double digits.

“Entry prices are just very high right now,” Traynor said in a phone interview.