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Illinois Teachers’ pension tests secondaries pricing with $1bn-plus portfolio

Portfolios with valuations pegged to 30 September no longer reflect market dynamics, including public market volatility, plunging tech valuations and geopolitical turmoil sparked by Russia’s invasion of Ukraine.

Teachers Retirement System of Illinois is running a sale on a portfolio of private equity fund stakes, even as pricing such secondaries deals becomes uncertain amid market volatility, reports affiliate title Buyouts.

The portfolio is among several large offerings to hit the market since last year as LPs sought to take advantage of rich secondaries pricing and buyer desire to diversify beyond concentrated GP-led deals.

While pricing was high in the fourth quarter, at an estimated 97 percent of net asset value for buyout, market participants expect pricing to weaken. Portfolios with valuations pegged to 30 September no longer reflect market dynamics, including public market volatility, plunging tech valuations and geopolitical turmoil sparked by Russia’s invasion of Ukraine.

The portfolio is valued at more than $1 billion, according to two sources familiar with the matter. Illinois Teachers’ is working with Evercore on the sale, sources said. A spokesperson for the pension system did not respond to a comment request.

Illinois Teachers’ portfolio includes funds managed by Veritas Capital, Advent International, Madison Dearborn Partners and Astorg, one of the sources said.

Illinois Teachers, which manages about $65 billion in total assets, has a 15 percent target allocation to private equity, which stood at about 14.1 percent as of last year. The system earlier this year made commitments to A&M Capital Partners, Apollo Global Management, Thomas H Lee Partners, TSG Consumer Partners and Greenspring Associates.

Traditional LP portfolio sales came back in a strong way in the second half of last year, after being eclipsed by GP-led processes such as single-asset deals. Buyers sought portfolios with a mix of funds and co-investments as a way to diversify away from single-asset deals, which have the potential to throw their funds out of balance with too much exposure in one asset.

With numerous portfolios on the market, including offerings from the California Public Employees’ Retirement System, APG and Canada Pension Plan Investment Board, pricing has become uncertain.

Public market volatility, especially around tech stocks, driven in part by inflation and supply chain delays, combined with geopolitical shocks like the Russian invasion of Ukraine, are hammering away at pricing. Buyers and sellers will likely look for more clarity from valuation marks set to year-end.

Year-end marks become available in late March/early April, and first quarter marks aren’t available until around May. Conceivably, some of the portfolios on the market could be delayed until summer, when pricing may become more certain if some of these factors begin to ease.

This report was originally published on affiliate title Buyouts.