A common theory going around the private equity industry is that, as public markets stabilise, secondaries pricing will get more certain, and limited partners who have been itching to sell down their private equity exposure will hit the market.
While the floodgates have perhaps not swung wide open quite yet, the past few weeks have seen a surge of LP portfolio sales that some believe will swell into a wave of transactions.
One such deal rippling through the market at the moment is coming from New York State Teachers’ Retirement System, a perennial seller on the secondaries market. NYSTRS is shopping a portfolio valued at around $6 billion, three sources told affiliate title Buyouts.
A NYSTRS spokesperson declined to comment. The system, which managed about $132.1 billion in assets as of March, is working with Mozaic Capital as secondaries adviser on the process.
The portfolio comprises around $4.5 billion of net asset value, and another $1.5 billion of unfunded commitments, one of the sources said. Funds in the portfolio include those from Hellman & Friedman, Cinven and Abry, among others, the source said.
The process is in its early days and pricing is not clear. The entire portfolio may not transact as has been the case in this market, where buyers pick and choose funds from GPs they like or with whom they want to build exposure.
The system, which targets 9 percent to private equity, had a current allocation of 10.9 percent as of 31 March, according to Buyouts data. Rationale for the sale is similar to many other large public LP institutions in the US, which are looking for ways to rebalance their portfolios and relieve overexposure to the asset class.
New York State Teachers’ has been a regular seller on the secondaries market. It has worked with Mozaic on its sales in recent years, including on the sale of a portfolio in 2021-22 that was valued at about $2.6 billion. It is unclear how much of that portfolio sold. The system also sold a portfolio in 2019 working with Mozaic.
The system has chosen Mozaic outside of a public RFP process, which is routine at other public systems. New York State Teachers’ PE team conducted informal reviews with brokers and other secondaries professionals ahead of its first mandate with Mozaic in 2019, a spokesperson told Buyouts in a previous interview.
Pricing has kept many potential LP sales on the sidelines. This year, Kaiser Permanente sold a $6 billion portfolio of LP stakes to a group of buyers. Other sellers include Norinchukin Bank, Cathay Life Insurance Co and CPP Investments.
LP sales led secondaries activity in the first quarter, taking about 60 percent of volume share, according to PJT Park Hill’s first quarter analysis report.
“Successful transactions in the quarter involved carefully crafted portfolios, realistic valuation/pricing expectations and flexibility for structured solutions, which the team expects will continue this year,” the report said.
Pricing strengthened in the quarter compared with year-end 2022, improving 200 to 400 basis points, coming in around 85 percent to 90 percent of net asset value, driven by improvement in macroeconomic sentiment and buyers with uncalled capital looking for deals, the report said.
Secondaries investors, mostly large shops, held around $170 billion of dry powder as of the first quarter, the report found, for around $150 billion of deal volume.
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