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NY State Teachers eyes major secondaries process

Mozaic Capital is advising on the process designed to rebalance the pension's $120.5bn portfolio, amid the resurgence of LP-led deals.

Amid a resurgence of limited partners selling fund stakes on the secondaries market, New York State Teachers’ Retirement System is shopping a major offering meant to help rebalance the portfolio.

The system, with $120.5 billion in assets as of 30 June 2020, is selling a portfolio of private equity fund stakes valued at about $2.6 billion, three sources told affiliate title Buyouts.

At that amount, the portfolio is one of the largest to hit the secondaries market. LP portfolio sales largely went on hiatus last year in the pandemic, as valuing underlying portfolio companies held in funds for sale became challenging.

Mozaic Capital is working as secondaries adviser on the sale, sources said. No one from NYS Teachers returned a comment request Friday.

Traditional LP portfolio sales represented about $19 billion of total transaction volume of $48 billion in the first half of 2021, a 58 percent increase from the same period last year, according to a half-year volume report from Jefferies. GP-led deals were 60 percent of first half volume, according to Jefferies’ report.

Enthusiasm for LP portfolios is being driven by secondaries buyers, flush with capital from strong fundraising, looking for diversification after spending millions on single-asset processes, sources said. The bar for participating in a single-asset deal has gone up, one adviser source said.

As well, sellers are finding a strong pricing environment to unload fund stakes. 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.

Harvard Management Co, for example, sold a portfolio of fund stakes valued at around $1 billion, while State Teachers Retirement System of Ohio sold a $1 billion-plus PE portfolio, Secondaries Investor wrote. Lexington Partners was a buyer of the Ohio Teachers’ sale.

NY State Teachers has a target allocation to PE of 8 percent, with an actual allocation of 8 percent as of 30 June 2020 (which means the actual allocation has likely changed).

The system had $24.5 billion in active commitments, $15 billion in adjusted market value and $6.5 billion in unfunded commitments as of 30 September 2021, according to an investment report. The system had 233 active partnerships across 80 sponsors as of the same date, the report said.

The system made $904.7 million in contributions to existing partnerships and received $637.3 million in distributions for the quarter ended 30 September 2021, the report said.