Florida SBA ‘comfortable’ with high manager concentration in PE secondaries

The state pension is also under-allocated versus its target, due to the denominator effect, says a spokesman.

Florida Retirement System Trust Fund‘s advisory council is comfortable with its GP concentration within the asset class, despite being under-allocated against its secondaries target.

The Tallahassee-based pension is allocated exclusively to Lexington Partners and Ardian, according to documents for its June investment advisory council meeting.

The state trust has committed to Lexington’s last six flagship programmes and Ardian’s last three.

Including other funds and co-invested capital, Florida SBA is exposed to Lexington more than any other private equity manager, representing a combined 10 percent of the firm’s PE portfolio or $1.57 billion. The pension describes its exposure to Lexington as 74 percent co-investment and 26 percent secondaries.

Ardian makes up 2 percent of the overall private equity portfolio. The entire PE portfolio has $16 billion in net asset value, with an additional $6.9 billion in unfunded commitments.

Florida SBA is “comfortable” with its diversification within secondaries at this point, a spokesman for the pension told Secondaries Investor. The board does not make forward-looking statements regarding manager election, he added.

The denominator effect has artificially shrunk the state pensions allocation, according to the spokesman.

“The perceived under allocation is generally the result of the outperformance in other sub-asset classes,” he said.

While the pension has a 10 percent target for secondaries in the private equity portfolio, the current allocation of invested capital sat at 4 percent as of 31 December. Venture capital’s component of the portfolio is nearly triple its target allocation: 27 percent over a 10 percent target.

At its March investment advisory council meeting, Peter Jones, a member of the investment advisory council, asked real estate adviser Michael Fogliano whether closed-end real estate funds traded on an exchange, according to a transcript in the recent documents. Fogliano explained the secondaries market is the only way to sell a stake.

When Jones asked if the pension currently uses the secondaries market, Fogliano replied: “We do have a secondary market player that we use. I get calls all the time regarding whether we want to sell or whether we want to buy secondaries. We have not done it directly. We could do it.”

Overall, in Q2 2021, the $183 billion pension made over $725 million-worth of private equity allocations. The commitments comprised $250 million to Hellman & Friedman Capital Partners X, $200 million to Searchlight Opportunities Fund II, $150 million to Hull Street Energy Partners II, $100 million to DCP Capital Partners II, and $25 million to SVB SIF-Ascension.

Florida SBA has a 6 percent target allocation for private equity in the broader portfolio, which stands at 7.8 percent.