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PA Schools not keen on current secondaries climate

CIO Jim Grossman told the $63bn pension's board that staff would focus on slower private equity pacing to reduce its allocation for now.

Pennsylvania Public School Employees’ Retirement System staff do not feel pricing on the secondaries market is adequate to justify selling its older holdings for now, its chief investment officer said last week.

“We’re constantly looking at the secondary market to see if there’s opportunities to sell what I would call our non-core private equity funds,” Jim Grossman told the $63 billion pension’s board Thursday. “As recently as three or four months ago we looked at it, and we didn’t think the pricing was good.”

PA Schools decided last November to reduce its private equity allocation from 15 percent to 12 percent over the next three years, as Buyouts reported.

Grossman has also said the vintage years leading up to the 2008 financial crisis had “challenged” returns, and would be the primary focus of possible secondaries sales to get the allocation to the new target faster.

But last week, Grossman said reduced private equity pacing would be the primary tactic for now, with staff keeping an open mind if they thought they could get a “fair value.”

“We think there will be opportunities, maybe over the course of this year, to be able to sell something,” he said.

Spokesman Steve Esack told Buyouts fair value is in the “eye of the beholder,” but the pension bases it on the price it can get compared to an asset’s current value and the expected future prospects for the fund – and market conditions were still not ideal.

“While the S&P 500 Index has fully recovered plus some from the pandemic crisis lows in March, private markets prices are still rebounding,” Esack said via email.

Moreover, the other party in a secondaries transaction will have its own idea about a fund’s performance prospects, Esack said.

Generally speaking, Esack mentioned several variables affecting the secondaries market. These include resolving the covid pandemic, the peaceful transition of power from President Donald Trump to President-elect Joe Biden and any fiscal and tax policies enacted by the Biden administration.

“The covid and political events could have a material impact on the economy and financial asset values,” Esack wrote.

Action Item: read PA Schools’ most recent asset allocation report here.