Oregon pension takes big step as it shops $1.5bn portfolio of PE stakes

Oregon Public Employees Retirement Fund is selling a portfolio of interests in older private equity funds valued at about $1.5 billion, three sources told Buyouts.

Oregon has not been a significant seller on the secondaries market, so the sale marks a big step for the large West Coast pension. It is a challenging time to try and sell a large portfolio of LP stakes, as secondaries activity slowed because of the pandemic lockdown. Activity started to come back, but mostly with GPs looking for ways to move assets out of older funds into continuation pools.

A spokeswoman with Oregon did not respond to a request for comment.

The portfolio is being sold by Pathway Capital Management on behalf of Oregon, sources said. Oregon entered a $2 billion partnership with Pathway last year to sell select private equity holdings and shift the proceeds into an existing co-investment vehicle, Buyouts previously reported.

The portfolio consists of mostly older funds, generally around 2009 vintage, one of the sources said. The portfolio includes venture, energy and funds-of-funds, with buyouts representing about half of all funds in the pool, the person said.

Oregon’s private equity portfolio was valued at around $16.6 billion as of March 31, 2020, according to pension documents.

A few sources questioned how a large LP portfolio would fare on today’s market, when buyers have been reluctant to dive into assessing such large holdings. The challenge is pricing the diverse, underlying assets held in funds contained in large portfolios, especially as valuations are still being issued for the second quarter.

“Even a $1 billion deal given last year’s volume, I don’t think that business is back rolling,” said a secondaries market buyer. The difference between LP portfolios and GP-led deals is that “LP deals are being priced off of trailing NAV. In an up-market, it’s easy to price LP deals off trailing NAV; in a volatile market, more work needs to be done on what the underlying assets are … you need more current NAV.”

Another LP portfolio on the market is CPPIB, which is shopping up to $2 billion in stakes in private equity funds, Buyouts previously reported.

Oregon is one of the earliest public pension system investors in private equity funds, famously backing KKR in the early days of the industry. It contributed $65 million to KKR in 1985, which generated distributions of $221.3 million, for a 16.8 percent internal rate of return and a 3.4x multiple, according to Oregon documents. The system committed $98.3 million and contributed $201.8 million to KKR 1986 Fund, which distributed $918.9 million for a more than 7x return, Oregon said.

LP deals still took most market share in the first half of 2020, with GP-led deals like fund restructurings representing about 39 percent of total deal volume, according to Evercore. Total volume was estimated at $18 billion for the first half, down 57 percent from the $42 billion during the same time last year, according to Greenhill Cogent’s first-half volume report. Check out Buyouts’ in-depth look into secondaries activity for the rest of the year.