UPS plans to launch co-investment program

The program would make up approximately 10 percent of the $28 billion UPS Group Trust’s private equity portfolio within the next three to four years, said Brady Hyde, the portfolio manager, speaking during a panel discussion at the Buyouts Midwest conference in Chicago on June 24. 

“Right now we’re at the very early stages of implementing” the co-investment program, said Hyde. He added the he’s been “taking a lot of meetings” and ”done a lot of research in that space and hopefully we’ll get to be very active in that market in the next six to 12 months.”

UPS Group Trust, the retirement program for employees of Atlanta-based United Parcel Service, manages a private equity portfolio valued at roughly $2 billion, including both net assets and unfunded commitments, Hyde told Buyouts on the sidelines of the conference. The corporate pension typically commits $400 million to $500 million per year to the asset class and expects to allocate $40 million to $50 million to co-investments per year once it launches the program.

Hyde’s enthusiasm for co-investment opportunities echoed that of fellow panelist Doug Bollerman, managing director and portfolio manager at money manager TIAA-CREF, where he has steered a steady portion of its private equity commitments toward mid-market co-investments since joining the firm four and a half years ago.

Although co-investments remain a focus for TIAA-CREF, Bollerman urged caution. The easy availability of debt financing, coupled with an accumulation of dry powder, has driven up price multiples. That has compelled TIAA-CREF to turn down co-investment opportunities offered by some of its sponsors.

“The biggest challenge right now is to stick to the discipline of your underwriting,” Bollerman said.

Hyde said that UPS Group Trust would attempt to maintain similar discipline with its nascent co-investment program, and that it would likely avoid deals with sponsors that are willing to pay deal multiples of, say, 6.5x to 7.5x EBITDA or more.

The launch of a co-investment program would take place alongside a reorientation of the UPS Group Trust’s private equity portfolio, which has been dominated by larger buyout funds, Hyde said. The pension has been shifting toward smaller funds, including those run by teams that have spun out of larger institutions.

“On top of that, we’re also looking at secondaries as well,” he said, adding the pension would participate as both buyer and seller. “This year, it hasn’t been (as) active as it has been in the past, but it is something that we’re very active in.”