Mark, who left a job last summer as a senior portfolio manager at the California Public Employees’ Retirement System to launch his own advisory firm, Upwelling Capital, said the growing vigor of the secondary market is an important development for an asset class that is coming to maturity.
“This is a huge area of interest, one that investors increasingly are going to have to contend with,” said Mark, who offers a range of strategic advice to new and existing investors, along with investment management and legacy portfolio services.
“Ten years ago, it was sort of taboo to sell to a secondary market,” Mark said. But times have changed. “You have to be an active investor,” he said. “It used to be you could commit to a manager and they generate great returns, you commit again to the manager and they generate great returns again.”
But as alternatives take a bigger share of portfolios, investors must take a more active role in managing their holdings. He observed that the Washington State Investment Board has a target allocation of 25 percent of its overall portfolio to private equity, and its actual allocation is even higher. “It’s not a rounding error any more.”
But many investment managers, especially at smaller pension funds, endowments and family offices, find themselves understaffed, underpaid, overstretched—essentially unprepared for the obligations of actively managing their holdings of alternatives. “There is still a lot of apathy among LPs,” he said. “They don’t have the time or the resources to deal with every issue that comes up.”
A year after announcing his new firm, Mark said the assignments are coming in, and he recently moved out of his lawyer’s offices to hang out his own shingle. “LPs are starting to get the message,” he said. “Extensions and amendments have become a regular part of investment committee meetings.”
The expected 10-year lives of buyout funds have been extended to 12 to 15 years, and in some cases the practical life of commitments can be even longer. Mark said that actions such as those undertaken recently by Behrman Capital and Willis Stein & Partners will come to be seen as pioneering efforts to help LPs achieve liquidity while retaining their abilities to manage an aging portfolio of investments. “You can’t be exclusively a primary investor and just wait to watch what happens.”
Web site: www.upwellingcapital.com