Kaiser Permanente, the massive non-profit healthcare organisation, is shopping a large portfolio of private equity fund stakes at a time when pricing for high-quality buyout funds has strengthened, sources told affiliate title Buyouts.
The deal comes as LP secondaries sales keep steady and drive activity with strong pricing and sellers eager to capture liquidity from private equity portfolios. Exit activity has remained slow, meaning cash is not flowing back to LPs, leading to sluggish fundraising.
With slow cashflows, LPs need ways to capture liquidity off their PE portfolios, and secondaries sales are part of that process. The challenge is pricing, with most LP institutions unwilling to take too big of a loss.
“The secondary market is a bright spot for liquidity for LPs, albeit there has been a bit of a bid/ask spread over the past couple years, but that’s narrowed,” said Mike Catts, partner at Hollyport Capital, which is not involved in the Kaiser deal. “That’s why volume has increased. Despite that, LPs remain heavily over-allocated to private markets and the set-up for growth in the LP space this year is still very good.”
Kaiser Permanente is working with Jefferies on the sale. The total value of the portfolio is in the multi-billion dollar range, according to two sources. The expectation, however, is that around $1 billion-$2 billion will transact, two sources said.
The deal is expected to close in the first half, a source said. No one from Kaiser responded to a request for comment.
Kaiser has been a programmatic seller of PE fund stakes for the past few years. Last year it held what appeared to be the largest LP portfolio sale, transacting on more than $5 billion, working with PJT Park Hill.
Kaiser ramped up its private equity exposure very quickly, going from about $6 billion in PE NAV to 2019 to $33 billion in 2021, largely under the direction of Anton Orlich as head of alternative investments. Orlich left last year and joined California Public Employees’ Retirement System, where he now leads private equity investing.
Kaiser is apparently using secondaries sales to rebalance its portfolio, which grew so quickly it became overexposed to the asset class, sources previously told Buyouts. Kaiser is not alone in using sales to rebalance, as many LPs are contending with overexposure challenges and are considering sales.
Other LP sales rolling through the market this year include Universities Superannuation Scheme, which is shopping a more than $1 billion portfolio; and Washington State pension system, which is selling a more than $2 billion portfolio.
LP sales led secondaries activity last year, according to Campbell Lutyens’ full-year volume report. LP sales tallied around $56 billion out of $111 billion of total activity, the survey said.
Average pricing reached about 15.7 percent discount to net asset value for 2023, with the highest quality buyout funds trading within the 10 percent discount range, Campbell Lutyens said. At the beginning of 2024, firms held around $174 billion of uncalled capital for secondaries investments, up more than 20 percent from the beginning of 2023, the survey said.
Madeleine Farman contributed to this report.
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