CalPERS CIO: Not keen on NAV losses

The secondaries market can be an important tool in portfolio management – but only when pricing makes sense, the US pension’s CIO recently told PEI.

As the California Public Employees’ Retirement System (CalPERS) works to reduce the number of its relationships with private equity fund managers, its chief executive, Joseph Dear, has told Private Equity International the pension giant would consider selling another portfolio of fund stakes on the secondaries market.

“We did two secondary sales in 2011, which we received a premium for,” says Dear. “We sold portions of funds; we didn't sell out completely.”

One of those sales, led by UBS, was reportedly dubbed “Project Alpha”: the sale of $800 million-worth of stakes in mostly mega-buyout funds. The portfolio was said to include 20 percent of its holdings (largely unfunded commitments) in funds managed by Kohlberg Kravis Roberts, the Carlyle Group, Silver Lake Partners, Providence Equity Partners and Apollo Global Management.

Dear: 'not so keen' on NAV losses

CalPERS’ Dear – an  in-depth interview with whom appears in this month’s PEI – says the pension is focused on reducing its number of GP relationships. “If we don't reduce the allocation to the programme, [then] that means the size of the commitments to the remaining partners will go up.” Dear says there are no plans to change the pension’s 14 percent private equity allocation. “So we're looking intensively at what those relationships could be.”  

Using the secondaries market is, however, nothing new for CalPERS. It gained board approval to do so in 2005 and in late 2007 pared down its portfolio, selling $2.1 billion of fund interests in a series of transactions that removed 80 fund interests, tied to 60 GPs, from its massive private equity portfolio.

Dear says CalPERS is likely to use the secondaries market going forward if the pricing makes sense. “We will consider another secondary sale, but the market is very different now. And I'm not so keen on booking a NAV loss,” he says. “So it will take time to reduce the size of the portfolio.”

Stephan Schäli, Partners Group’s head of private equity, told PEI in January that secondary prices started to come down in the second part of 2011 “amid public market volatility, a temporary slowdown in NAV growth as well as the sluggish exit environment. Deals are currently transacted at an estimated 15-25 percent discount to NAV, leading to a widened bid-ask spread,” he said.


An overview of secondaries market trends will feature in PEI’s 2011 Annual Review, to be distributed with PEI’s March issue.