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Sacramento County explores becoming secondaries buyer

The pension's advisor Cliffwater has recommended the pension offload older stakes and exploit the lack of competition at the small end of the market by purchasing individual fund positions.

Sacramento County Employees’ Retirement System is considering becoming a secondaries buyer by exploiting inefficiencies at the small end of the market.

In a presentation given at the 17 April board meeting, private equity advisor Cliffwater and the pension’s investment team recommended SCERS build a “buy list” of names from its existing private equity portfolio and target single positions in those managers’ funds.

“Many established secondary managers are leaving a market opportunity to acquire single fund positions because they are just too small… There is an opportunity for SCERS to operate at the periphery, buying single positions in managers where there is a high conviction,” the presentation noted.

Cliffwater recommended buying without the use of an intermediary and relying instead on the strength of existing GP relationships.

It also recommended that the pension, which has $9 billion in assets under management, perform bottom-up analysis on its portfolio to determine which assets are “under-performing on an absolute and relative basis”, with an eye to a secondaries sale.

“A well-executed sale, even at a discount, could free up capital to invest in higher performing assets. Careful acquisition of mature assets… could result in better cashflows and performance for the entire private equity portfolio.”

SCERS has a 9 percent allocation to private equity. Recent fund commitments it has made include a $45 million ticket for TSG8, a buyout fund managed by San Francisco-based TSG Consumer Partners, and funds of funds RCP Fund XIII, according to PEI data.

Pensions accounted for 32 percent of sales of limited partnership stakes in 2018, compared with 23 percent in 2017, according to data from advisor Campbell Lutyens. This represents a year-on-year increase of almost $12 billion.