State of Wisconsin Investment Board, one of the largest private equity investors in the country, is ready to travel and meet GPs in person as it works to build toward its target allocation.
“We have also started to travel, now that managers are open to having us visit,” said Anne-Marie Fink, SWIB’s private markets and funds alpha managing director, said during the system’s recent meeting. “My hope is that this helps differentiate us from other LP’s, by visiting and meeting managers face to face.”
Many LPs and GPs curtailed in-person activity last year as the pandemic shut down society. While fundraising dipped, most capital flowed from LPs to their established relationships, leaving newer shops out of luck. For LPs, this essentially barred them from committing to GPs not in their portfolio, unless they were ok assessing a manager over video chat.
The system, with $157.9 billion in assets, invests in emerging managers as part of its program. Recently, Wisconsin committed to a first-time fund called Percheron Capital Fund I, which closed its debut fund on $770 million.
Meeting GPs live, and having an advantage over other institutions, could be vital in any increasingly competitive environment, as access to GPs gets tougher, according to Scott Parrish, private equity portfolio manager at the system.
“The PE environment is very competitive right now and has been this year, with a lot of money flooding in from allocators and other entities, including public market investors getting involved in late-stage venture capitalism,” Parrish said. “Valuations are going up and the ability to get access to the best managers is becoming harder.”
Building to target
SWIB has an actual allocation to private equity of 11.3 percent, with a range of 8 to 14 percent. The market value for the PE portfolio is $12.7 billion, with $8.65 billion in unfunded commitments and $19.5 billion in total exposure.
Strong private equity activity this year has helped boost Wisconsin Investment Board’s private equity portfolio on track to easily surpass its benchmark returns.
The system’s portfolio is beating its benchmark in the one-, three- and five-year timeframes, according to SWIB’s investment committee meeting held Sept. 29.
SWIB’s U.S. PE portfolio is also ahead of all three benchmarks. That portfolio is on track to return 21.1 percent in one year – 6.4 percent above the benchmark.
“The PE portfolio currently has $12.7 billion of value and has seen a 140-basis point growth this year,” Parrish said.
The co-investment portfolio is on pace to exceed the benchmark returns in all three time-periods – with the biggest coming in five years, as it is expected to bring back 27.1 percent – 11.6 percent above the benchmark.
“We have increased our co-investments and it’s helped established reputation and makes us more flexible around how things get bucketed/categorized in the portfolio and that is something we are looking to do more of in the future,” Fink said.
During the meeting, Parrish presented data from Pitchbook, about the hyper-activity in the PE space: Deal activity in Q2 2021 was $457 billion – up 40 percent compared to the first half in 2020 through 3,708 deals and up 70 percent compared to 1H 2020. Add-on activity accounted for 75 percent of all deal activity during 1H 2021, which is up from the 70 percent record that occurred in 2020, Parrish said.
Median U.S. buyout purchase price multiples were 13x EBITDA in first half 2021 – down from 14.2xin first half of 2020. Median leverage multiples were 7.5x EBITDA in the first half of this year, down from 8.8xin 1H 2020, Parrish said.
PE exit activity in 1H 2021 is on track for a record-breaking year as the combined PE exit value of $356 billion has already exceeded 2019’s annual figure of $323 billion and is closing in on 2020’s $367 billion.
The SWIB portfolio is 2.4 percent above the one-year with an expected return of 49.4 percent, 1.9 percent higher than the returns for the 3-year and is in line for a 17.7 percent return and 2.6 percent greater than the expected returns and the five-year timeframe is on pace for a 17.7 percent return.