Oregon Investment Council staff will empower Pathway Capital Management to sell select private equity holdings on the secondary market and funnel half the proceeds into an existing co-investment vehicle, according to documents posted on its website for its meeting Wednesday.
Staff will work with Pathway and private equity consultant TorreyCove Capital Partners to select an initial $2 billion portfolio made up of existing private equity assets held by Oregon Public Employees Retirement Fund for the “monitoring and liquidity management” program.
OPERF’s private equity program is overweight. The fund was valued at $80.5 billion as of October 31. Around $17.2 billion, or 22.2 percent, of that was in private equity, above the 21 percent upper limit of Oregon’s policy range, not to mention its 17.5 percent target for the fund.
As Pathway liquidates holdings on an opportunistic basis, Oregon staff recommends placing half the proceeds from the program’s first five years, or up to $1 billion, in Pathway Private Equity Fund C-III, LP, an already-existing co-investment vehicle.
The meeting documents say this new arrangement will provide two new capabilities: “enhanced monitoring of legacy investments” and “opportunistic accelerated liquidity as a portfolio and pacing management tool.”
Oregon has been working on re-positioning OPERF’s private equity portfolio since 2015, with an emphasis on “more focused primary investments, fee mitigation, and better calibrated pacing.” Staff said the first two objectives have been achieved, and this program will accomplish the final pillar.
Staff cited three main concerns about the program: cost, alignment and execution. While the program means paying more fees, staff said they would be modest compared to the opportunity cost of performing that work in-house. Alignment issues would be mitigated through the program’s compensation structure.
Staff said it will work closely with Pathway on the program, citing a long and productive relationship. Oregon has worked with Pathway since 2001 and committed $1.15 billion across two investment mandates.
TorreyCove appended its own memo expressing support for the plan. “The potential strategic benefits available justify the risks associated with the program,” the memo said.
Oregon staff confirmed to Buyouts that the program was approved at Wednesday’s meeting. The program’s creation is still contingent on negotiation of terms with Pathway in concert with Oregon’s legal council, the meeting materials said.
As of September 30, Oregon’s total funds were valued at $106.8 billion.
Action Item: read Oregon’s meeting materials here.