Maryland pension sees cash flow from smaller PE, pays more into large funds

The system is considering new relationships and emerging managers next year.

Maryland State Retirement and Pension System reported a negative annual cashflow of $360 million, with most of the losses attributed to its large and mega buyout GPs.

Many LPs have put out more capital into private equity than they’ve received due to slow exit activity. A look at Maryland’s cashflow returns shows where some of the primary weaknesses in the current marketplace lie.

Maryland reviewed its private equity portfolio with consultant Hamilton Lane at its November 21 investment committee meeting. Buyouts watched a broadcast of the meeting.

According to the presentation, Maryland’s private equity portfolio saw contributions outpace distributions by $360 million for the year ended June 30.

“Contributions are down meaningfully. Distributions are down meaningfully. That’s a trend we will see continue over the next year. There’s still a pricing mismatch between buyers and sellers,” said Katie Moore, a managing partner at Hamilton Lane.

According to Hamilton Lane, Maryland paid $931.4 million to its largest GPs while only receiving $688.4 million in distributions.

The system’s mid-market and smaller GPs generated $132 million in positive cashflow for the year, the presentation said.

“A lot of private equity assets are smaller companies and aren’t in lock-step with public markets. If you look at mega buyout funds, their portfolios contain companies with enterprise values the same as big public companies. There’s a lot more volatility,” Moore said.

Maryland’s private equity portfolio was valued at $14.4 billion at the end of June 2023, an increase of $622.4 million over the year, according to the presentation.

Maryland’s venture capital portfolio fell in value by $176.9 million over the year and now has a net asset value of $1.6 billion, Hamilton Lane said.

“We are seeing some weaknesses in venture and growth equity would where you see a lot of cash burn,” Moore said.

Maryland is eyeing $1.5 billion in commitments in 2024, according to the presentation.

While much of its focus will remain on re-ups, Maryland will consider new relationships with the possibility of commitments to smaller and emerging managers.

“We’ll look to be selective to drive alpha in the portfolio,” Moore said.