PA Schools shops $1bn-plus PE portfolio amid rich pricing

Perhaps the third time’s a charm?

Pennsylvania Public School Employees’ Retirement System, for the third time, is shopping a more than $1 billion portfolio of private equity fund stakes, three sources told Buyouts.

The $72.5 billion system is bringing out the portfolio at a time when pricing in secondaries is rich, and buyers are hungry for the diversity that comes with portfolios of numerous underlying funds and their proliferation of portfolio companies.

The average high bid for all strategies in the first half was 90 percent of net asset value, representing a 400-basis-point increase from 2020. For buyouts, the average high bid was 96 percent of NAV, the richest pricing among all strategies.

PA Schools decided last year to drop its allocation to private equity to 12 percent, from 15 percent, over a three-year period, Buyouts previously reported. That reduction could be effected, in part, by secondaries sales.

But the system has tested the market several times, and pulled back from selling, likely because it didn’t receive desired prices for its fund stakes. The last time, the system pulled a portfolio as the pandemic ripped into the markets in 2020, sources told Buyouts.

The system seems to have mixed feelings about secondaries sales. Jim Grossman, chief investment officer for PA Schools, said during the board meeting earlier this year the system is constantly monitoring the market for ways to offload non-core relationships.

“As recently as three or four months ago we looked at it, and we didn’t think the pricing was good,” Grossman said at the time.

PA Schools is not alone in testing the market with a portfolio and pulling back after getting a sense of pricing, sources said. “About half of what we look at doesn’t end up transacting,” said a secondaries buyer. “The playbook now is to go out with a $2 billion or $3 billion portfolio to sell $500 million to $1 billion and do what you can do with the best pricing.”