Oregon renews ‘recycling’ program to boost co-investment funding

A green-friendly (meaning money) recycling program allows Oregon to take up to $1bn from secondaries sales of its legacy portfolio and place it into a co-investment fund.

Oregon Investment Council will renew a “recycling” program through which the system takes proceeds from sales of its legacy private equity portfolio and invests them into a co-investment fund managed by Pathway Capital Management.

Many experienced LPs have extensive legacy portfolios of funds in their wind-down phase. This presents a challenge for LPs having to manage out older pools but also allows for an opportunity to raise capital through secondaries sales.

Pathway manages Oregon’s co-investment fund and a program included in the $91.8 billion Oregon Public Employees Retirement Fund’s legacy portfolio. Since the legacy portfolio’s inception in 2020, Pathway has generated $3.3 billion in proceeds via secondaries sales, according to a presentation made at Oregon’s board meeting on January 25.

Buyouts viewed a webcast of the meeting.

The “recycling” program can take up to $1 billion over a five-year period from proceeds generated from sales of its legacy portfolio into Pathway’s co-investment fund.

Oregon and Pathway have had this structure in place for the past five years, according to Michael Langdon, OIC’s director of private markets. “We have more than optimized this program,” he noted.

Langdon said OIC and Pathway are not planning on using the secondaries market due to the pricing gap between sellers and buyers. Langdon explained that the five-year window for the recycling program will allow OIC and Pathway to take advantage of opportunities if the secondaries market improves for sellers.

The recycling program also allows for better deployment of staff and resources, Langdon said.

“When it comes to secondaries, if you’re not staffed or you don’t have the expertise, you can get very poor execution,” Langdon pointed out.

The legacy portfolio contains as many managers as the active GP roster, which requires a heavy amount of monitoring, according to the presentation.

Pathway and OIC’s co-investment fund started in 2019. Since then, Pathway has committed $1.5 billion to 81 co-investments, with five more pending, the presentation said. The market value of the co-investment fund stand at more than $1.8 billion.

According to the presentation, 22 percent of the co-investment fund is dedicated to enterprise software opportunities. Healthcare, consumer and sector-specific software also rank as the top industries in the co-investment program.

The legacy portfolio contains 91 partnerships via 47 general partners spread out between 1999 and 2015 vintage years, the presentation said.