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Nebraska shelves private markets portfolio sale

Low pricing deterred a sale of certain 'illiquid' assets held in a portfolio the US pension began managing in January.

Nebraska Investment Council has aborted a potential sale of private equity and real estate fund stakes because of weak pricing, documents from the pension’s 22 February meeting show.

The proposed sale was in relation to assets held by the Omaha School Employees’ Retirement System, a $1.2 billion pension fund for which NIC took over management in January.

Aon Hewitt Investment Consulting was hired to help NIC bring the OSERS portfolio in line with the long-term asset allocation policy of three other state defined benefit plans, according to the documents. While NIC will be able to liquidate or reallocate around 70 percent OSERS’ legacy assets, around 30 percent of the portfolio is invested in illiquid positions scheduled to run off over the next ten years.

Aon spoke to various market intermediaries and sourced indicative bids for the illiquid portfolio on behalf of the US pension manager, and recommended NIC refrain from selling any of the assets on the secondaries market because “discounts to current NAV [net asset value] are too large,” it wrote in a memo dated 2 February.

OSERS had stakes in eight funds across private equity and real estate strategies which had a total value, including distributions, of $283.7 million as of 30 June, according to a second quarter 2016 performance report. It is unclear if the 30 percent of illiquid assets Aon refers to in the memo relates to these interests.

As of the second quarter OSERS’ private markets funds portfolio comprised:

  • Stonetree Capital Fund IV, a $50 million 2011-vintage vehicle managed by Florida-based fund of funds Stonetree Capital Management
  • Four funds of funds raised by private equity firm SPC, which were recording a combined internal rate of return since inception of 4.6 percent as of 31 March
  • 25 Capital Residential Mortgage Opportunities Fund, a 2012-vintage whole loan residential mortgage fund managed by 25 Capital Partners
  • FCP Fund II, a 2011-vintage $91 million vehicle focusing on the lower mid-market and managed by First Capital Partners
  • JP Morgan Maritime Global, a 2010-vintage shipping investments-focused fund managed by JPMorgan Asset Management that was seeking $3 billion

Average high bids for stakes across all strategies slipped 1 percentage point to 89 percent of NAV last year, according to an end of year report by advisory firm Greenhill Cogent. Despite the fall, pricing remains at historic highs and has risen 7 percentage points since 2011, hitting a high of 92 percent of NAV in 2014.

Lincoln-headquartered NIC manages $22 billion in assets in behalf of numerous state entities and organisations, including the State Employees Retirement System of the State of Nebraska and the Retirement System for Nebraska Counties, according to PEI data.

NIC also invests for the three main defined benefit plans: School Retirement System of the State of Nebraska, the Nebraska State Patrol Retirement System and the Nebraska Judges’ Retirement System.

NIC and Aon did not return requests for comment.