Stanford Abandons PE Secondary Sale
However, after four final bids valued the portfolio at 80 cents to 85 cents on the dollar of appraised value as of Sept. 30, endowment staff decided against a sale, since its liquidity had improved with the recovering stock and bond markets.
Unlike other universities that attempted to sell on the secondary market, Stanford tried to dispose of only partial interests in its partnerships, or about 10 percent to 20 percent of its holdings across private equity, venture capital, oil and gas, timber and real estate.
Firms interested in the sale, however, ignored Stanford’s preferences and made offers on specific partnerships. Private equity got the most attention, followed by natural resources. Venture capital partnerships also received some bids, though some GPs didn’t agree to a change in ownership.
F-O-Fs Still Pledging
The importance of fund-of-funds managers as limited partners in new vehicles has grown considerably as pension funds and endowments have cut back on commitments, according to a report from Preqin, a London-based data provider. These firms have not been affected by the denominator effect or lack of capital, and thus have retained their ability to invest in new funds.
In 2009, fund-of-funds managers contributed 22 percent of the capital raised by private equity funds, versus 16 percent in 2008. Funds of funds also grew in importance to institutional investors during 2009 because of the diversification these vehicles offer.
Capital raised for funds of funds versus direct funds grew significantly over the past year, with fund of funds capital equivalent to 11 percent of the capital raised for direct funds in 2009, up from 7 percent in 2008. The report notes that the numbers for 2009 do not include December; thus the percentage is likely to rise.
Although they are still investing, 60 percent of fund-of-funds managers made fewer investments in 2009 than they did in 2008. Concern over financing was the most important reason given, with investor sentiment and a lack of exit opportunities following close behind. General economic uncertainty was also an important factor, as was the current level of new deal opportunities.
Some of the strategies fund-of-funds managers find compelling include small to mid-market buyout funds, distressed vehicles and expansion funds; 25 percent of respondents were considering venture and mezzanine funds.
Other highlights include:
• 42 percent of current investors in funds of funds will increase their allocations to these vehicles over the next three years, 28 percent will maintain and 30 percent will decrease.
• 56 percent of underlying investments made by fund-of-funds managers beat the median; only 16 percent of underlying funds were in the bottom quartile.