The chairman of Florida State Board of Administration‘s investment advisory council has questioned the role of secondaries in two of the pension’s separately managed accounts.
Peter Collins acknowledged the benefits of secondaries in mitigating the J-curve and improving internal rates of return, but questioned whether the asset class fulfilled the job-creation remit of Florida Growth Funds I and II – vehicles used to encourage growth in Florida-based enterprises – according to a transcript of the council’s 25 September meeting published last week.
“We have to remember that this idea started out as a way of promoting businesses in Florida and growing businesses in Florida,” he said. “Personally, I just wonder how much impact that has if we’re doing secondaries… If you brought me two deals and one was a direct investment and one was a secondary and you’d ask me if they were similar, I would take the direct investment.”
Florida Growth Fund I was formed in 2009 with $500 million of capital with the aim of generating attractive returns by investing in growth and technology companies in Florida. Fund II was launched in late 2014 with a first tranche of $250 million in capital, according to the transcript. The funds are managed by Hamilton Lane.
Ash Williams, an executive director at SBA, emphasised that it had turned down investments with great return potential due to the likelihood of those companies suffering job losses. At the same time, strong returns are the ultimate consideration.
“While the employment is great and we’re delighted to have it, particularly at double the
average wage in Florida, that’s a nice but, without being negative, not necessary component,” he sad. “We’re in this as fiduciaries to earn an attractive risk-adjusted
Fund I and Fund II are performing at a 12 percent net internal rate of return, according to the meeting transcript.
According to Nayef Perry from Hamilton Lane, Fund II was “J-curve positive” within two quarters, partly because it sought to carry out a secondaries transaction early on, prompting the statement by Collins.
The pension plan is committed to Ardian’s and Lexington Partners’ secondaries funds, and invested $150 million and $500 million to those managers’ latest respective flagship vehicles, according to PEI data.