The State Board of Administration of Florida‘s current allocation to private equity secondaries is underweight, according to documents from its December board meeting.
Its current allocation is 5 percent of the total private equity portfolio, but the target is between 10 percent and 20 percent.
Despite the gap, secondaries aren’t a high priority for the $180 million pension this year and the target allocation is “merely a guide”, according to a Florida spokesperson.
Florida considers commitments to alternative fund strategies, including secondaries on an opportunistic basis, “only if suitable investments are available”, the spokesperson added.
The majority of Florida’s secondaries commitments will be towards North American and European secondaries funds. Earlier this year, Florida said secondaries in the two regions were a “medium priority” for its investment strategy, while secondaries funds in Asia and the rest of the world were “low priority”.
North American and European secondaries funds were noted to be more important for the pension because it either feels it lacks sufficient exposure to those secondaries markets, or considers market conditions attractive.
This year, Florida has committed to two secondaries funds. Commitments include $150 million to Ardian Secondary Fund VI, which closed on $9 billion in April and $200 million to Lexington Capital Partners VIII, which had collected $6 billion as of last month.
Both were re-up commitments for Florida, which had also committed $100 million to AXA Secondary Fund V, now branded as Ardian, and $200 million to Lexington’s previous fund, Capital Partners VII. As of 30 September, AXA V has been generating a 23.7 net internal rate of return and Lexington VII has been generating a 17.4 percent net IRR.
While Florida is below its secondaries target, its investments to other private equity funds are overweight. Currently it has a 20 percent exposure to growth and venture capital, which is the top of its 5 percent to 20 percent recommended range. The pension is also nearing the top of its leveraged buyout (LBO) target range which is between 50 percent and 80 percent. It’s currently allocating 75 percent of its portfolio to LBOs.