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North Carolina’s growth and venture holdings throw their weight around

Growth and venture holdings had generated such sizable returns as of March 31 that the strategy was over 4 percentage points overweight.

North Carolina State Treasury‘s growth equity and venture holdings have outperformed its other private equity strategies, leaving that part of its $5.67 billion portfolio overweight.

As of March 31, North Carolina’s growth/venture holdings made up 34.2 percent of its private equity holdings, according to a presentation on the private equity program to the state’s investment advisory committee on Wednesday. This was against a 20 percent target and a 30 percent maximum.

“The real reason for this is performance,” said private equity director Craig Demko. “This has by far been our strongest performing underlying strategy in the portfolio over the one, three, five, seven and 10-year figures. The amount of additional capital that’s been generated from this strategy, excess capital, has been very strong relative to what our cost basis has been.”

Buyouts made up 45.5 percent, just below its 50 percent target and well below its 65 percent maximum. Special situations made up 20.3 percent of the portfolio, below its 30 percent target and above the 15 percent minimum. A fourth strategy, funds of funds, was split between the other three strategies based on the underlying holdings.

Demko’s presentation did not provide returns broken out by strategy.

Returns by strategy were, however, included in a separate presentation on the overall fund presented by interim co-CIO’s Christopher Morris and Jeff Smith, but those calculations appeared different from Demko’s in a few respects.

This presentation had different valuations and proportions than Demko’s, most likely because it did not re-distribute the funds-of-funds holdings to the other strategies but instead measured them as a separate strategy.

While Demko’s presentation was as of March 31, this one was dated as of June 30, 2020, but specified that PE returns were lagged one to three months. It valued the overall PE portfolio at only $5.342 billion, though, which was lower than Demko’s valuation for the portfolio.

Demko and North Carolina did not respond to requests for clarification. During his presentation, Demko did say that the overall fund marks had “changed dramatically” since March 31.

Nevertheless, the returns reflected Demko’s analysis. The growth strategy returned 6.19 percent over one year, 15.06 percent over three years, 10.86 percent over five years and 14.11 percent over 10 years, the best of all the strategies. Over three months, returns were negative, coming in at -1.58 percent.

The overall PE portfolio returned 2.35 percent over one year, 10.10 percent over three years, 8.84 percent over five years and 9.9 percent over 10 years. The three-month returns were -5.44 percent.

Buyouts fared the worst over three months, returning -9.47 percent. Special situations returned -4.28 percent and fund of funds returned -2.16 percent.

As of June 30, North Carolina’s total fund was valued at $103.9 billion.

Action Items: Check out Demko’s presentation on the private equity program here and the total fund performance presentation here.