Firms & Funds

Oregon makes biggest bet so far in ’18: $500 mln on Vista

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Oregon Investment Council, Vista Equity Partners, private equity, pension fund, software
the starry sky above Mount Hood in Oregon. Photo courtesy deimagine/E+/Getty Images
  • AUM: $76.6 bln
  • Target allocation to PE: 17.5 pct
  • Actual allocation to PE: 20 pct
  • PE strategy: OIC’s PE policy permits allocations of 13.5 pct to 21.5 pct of the total fund. The asset class is managed with the objective of earning at least 300 basis points in annualized, net excess returns relative to the Russell 3000 Index over a 10-year period.
  • Key advisers/consultants: TorreyCove Capital Partners
  • Whom to contact for a meeting: James Sinks (sinks@ost.state.or.us)
  • Why this is important: Oregon issues its single largest fund commitment this year.

Oregon Investment Council re-upped with Vista Equity Partners in what has been the pension’s single largest fund commitment this year.

Last week, the council, which oversees Oregon Public Employees Retirement Fund, committed $500 million to Vista’s seventh fund. The firm invests exclusively in enterprise software and technology-enabled-service businesses.

According to a TorreyCove Capital Partners memo, the fund will seek acquisitions with “controlling interests in 10 to 15 upper middle-market and large-cap companies” in North America.

The average enterprise value of these companies: $750 million to $10 billion.

In an SEC filing from 2017, the Fund VI principals were listed as Founders Robert Smith and Brian Sheth and CFO John Warnken Brill.

The sixth fund closed at around $11 billion, and Vista is targeting at least $12 billion for Fund VII.

Two other commitments have come from pensions in recent months, including $300 million from New Jersey Division of Investment and $100 million from Illinois Municipal Retirement System, both in May.

James Sinks, spokesman for Oregon State Treasury, declined to comment.

Oregon has an established partnership with Vista going back to 2007. In that time, the $76.6 billion retirement system has pumped $1.2 billion into six of the GP’s funds, pension documents said.

Since it was founded in 2000, the firm has raised $31 billion across all business lines, of which $23 billion has come through Vista Equity Partners for a net IRR of 20 percent.

This return figure is unevenly distributed across all its funds. In November 2017, a performance review from Kentucky Retirement Systems had the most recent buyout fund posting an investment multiple of 1.0x and a net IRR of -0.37 percent, compared with one of its predecessors, Fund III, which recorded values of 2.63x and 29.24 per cent, respectively.

Prior to making the commitment, staff cited some concerns with regard to Fund VII, from the increase in competition to its growing fund size.

As a first mover in a nascent market for software buyouts, Oregon expressed some reservations about the rise in PE-backed M&A undercutting Vista’s investments. In addition, it said the fund was likely to pursue a 20 to 25 percent growth in the value of its commitments.

These risks, the pension reported, were offset by Vista’s ability to drive value through earning enhancement and the secular trends underpinning demand for software and data solutions, which Oregon claims are set to grow.

Moreover, the firm boasts a focused investment strategy “with more than 220 million end users in over 175 countries.” The scale of Vista’s portfolio allows it to access industry insights that remain unavailable to much of its competition.

The West Coast retirement system has an aggressively weighted allocation to private equity of 17.5 percent of its total fund.

Before the announcement of its commitment to Vista, Oregon had an actual allocation of 20 percent, which sits within the accepted policy range of 13.5 to 21.5 percent.

Action Item: Check out Vista’s Form ADV here: https://bit.ly/2AJi78r