The Oregon Investment Council is structuring a secondaries programme targeting LP stakes in private equity funds that will be managed by PCG Asset Management.
The council, which manages $65 billion in assets spread among several state pensions, would commit $100 million to the programme. The programme would target funds that are in the pension’s investment portfolio, “and also opportunistically from other funds which PCG, or staff, know well”, OIC’s investment staff said in internal documents.
Oregon will target original commitments of between $5 million and $20 million and the programme will be structured as “semi-discretionary”, giving investment staff veto power over any transaction.
PCG would not receive any carried interest from the programme but would be paid through a transaction fee for completed deals and ongoing monitoring fees on the invested portfolio, staff said.
OIC’s investment staff will work with PCG to source deals, and also to learn about the secondaries market. “Staff will also have the ability to participate in joint due diligence, pricing analysis, negotiations and transaction structuring with PCG, to enhance staff skills and experience in secondary transactions,” according to the documents.
OIC held a preliminary discussion about the programme at its meeting Wednesday but withheld decisions in lieu of more information about the secondaries market, according to a spokesperson for the council.
A successful secondaries programme requires several main characteristics, according to internal documents, including confidentiality, rapid decision-making, certainty of the buyer’s ability to execute and ability to appropriately value opportunities to avoid overpaying for assets.
Also, crucial to the success of a programme is the “market knowledge and manager selection skill necessary to conclude that the fund general partner will be able to invest the unfunded part of the commitment successfully”, investment staff said in the documents.
“Many high net-worth individuals, endowments, foundations, family offices and even some public and private retirement plans have … found a need to exit some, or all, of their private equity partnership commitments,” investment staff said. “The current ‘buyers’ market’ in private equity secondaries is an attractive opportunity for [the pension] to generate incremental investment returns.”
Other public pensions have explored secondaries opportunities this year. The Tennessee Consolidated Retirement System, which made its first-ever private equity investment in August, is considering making a commitment to a secondaries fund. The pension is in discussions with several secondaries firms, Lamar Villere, the pension’s head of private equity, told PEO in a prior interview.