Arizona State Retirement System, the $49 billion state pension plan, is the latest in a wave of institutional LPs using or thinking about using the secondaries market to taper their PE exposure.
At Monday’s investment committee meeting, deputy CIO Samer Ghaddar indicated a strategic priority for the plan to halve its relationships with roughly 80 managers – representing 170 commitments – over the next five years.
“That would be difficult to do organically without the secondary market,” Ghaddar noted.
It is not clear if the pension has yet begun showing a portfolio to market or engaged an intermediary to begin such a process. A spokesperson did not return a request for comment by press time.
Arizona SRS currently sports a 12 percent allocation to private equity, which translates to roughly $6 billion in holdings, over a 10 percent target.
Executive director Paul Matson noted that the mountain of dry powder plus new entrants are making the private equity ecosystem more challenging. The plan will be “highly selective” in choosing its partners, hence the desire to consolidate relationships.
There could be up to $1.5 trillion in extant dry powder between buyout, growth and fund-of-funds strategies, Matson added.
The amount of unspent capital has meant fiercer competition and higher entry prices, according to law firm Dechert’s 2022 Global Private Equity Outlook report.
This is the fifth time in the past 30 days Secondaries Investor has reported a sale, process or intent to use the secondaries market by an institutional LP.
New York State Teachers’ Retirement System is shopping a portfolio of private equity fund stakes valued at about $2.6 billion to rebalance its portfolio, three sources told affiliate title Buyouts earlier this week.
In late October, Montana Board of Investments, the Helena-based state pension, indicated it plans to use the secondaries market for active portfolio management; Lexington Partners emerged as a buyer of a $1 billion-plus portfolio of fund stakes sold by the State Teachers Retirement System of Ohio; and Harvard Management Company sold around $1 billion of stakes to Ardian and another unnamed buyer.