Florida SBA eyes more co-investments amid high-priced secondaries market

Florida State Board of Administration‘s secondaries portfolio is its second-best-performing strategy, though co-investments are becoming increasingly important for the pension system amid high pricing.

At Florida SBA’s 18 June investment advisory council meeting, senior portfolio manager Clark Griffith said the pension would continue to co-invest alongside its secondaries partners in order to mitigate the impact of high prices.

“Secondary market pricing continues to remain elevated,” Griffith said, according to minutes from the meeting published for its 11 September IAC gathering. “There’s a lot of dry powder that needs to be invested [in the secondaries market]. We’ve been trying to leverage our large relationships with these managers to operate more tactically, and so we look to co-invest with our managers when we can in opportunities that we find to be more attractive.”

Secondaries investments generated a since-inception internal rate of return of 15.5 percent as of 31 March, according the September meeting documents. The only better-performing strategy was distressed, which returned 19.5 percent.

The Cambridge Associates secondaries benchmark was 14.3 percent as of end-March. The benchmark for the whole private equity asset class is 12.3 percent.

Florida SBA has more exposure to Lexington Partners than any other private equity general partner, the firm accounting for 11 percent of its PE portfolio. Lexington is Florida SBA’s only co-investment partner and 75 percent of the pension’s exposure to the firm is through co-investments.

“They manage the fund solely for us. They have a few other LPs that they do it for. And so they’re able to source diligence, act quickly on co-investments,” said senior investment officer John Bradley about the pension only having one co-investment relationship.

Florida has a target allocation to co-investments of 10 percent against an actual allocation of 8 percent. The pension pays fees of between 40 and 50 basis points on co-investments and no carry, the documents note.

Florida’s most recent co-investment vehicle, Lexington Co-Investment Partners 2005 Pool IV, closed in 2015, according to performance data from the pension fund. The $500 million vehicle had returned a net multiple of 1.16x and a net internal rate of return of 32.7 percent as of 30 September.

Florida’s other secondaries relationships are Ardian and Landmark Partners, the latter through its real estate programme.

Florida SBA has $11.67 billion in private equity assets under management, according to PEI data.