Sacramento pension offloads positions in three HarbourVest funds

The sale follows a recommendation from SCERS staff and consultant Cliffwater to sell down commitments made to 2006-08 vintage funds to deal with overallocation.

The Sacramento County Employees’ Retirement System has sold stakes in three HarbourVest Partners funds as part of a plan to address its overallocation to private equity.

The Californian pension offloaded positions in HarbourVest International VI, HarbourVest VIII Buyout and HarbourVest VIII Mezzanine, according to documents prepared for its 19 April board of retirement regular meeting. Final returns for SCERS from the funds following the secondaries sale are still to be determined.

SCERS committed €32.2 million to HarbourVest International VI in 2008, which had generated a net internal rate of return of 11.21 percent and a multiple of 1.83x as of September 30, according to the documents. Its stake was sold on the secondaries market for €10.8 million.

Its stake in HarbourVest VIII Buyout was sold for $1.05 million. It had committed $37.5 million to the fund in 2006. That vehicle had generated a net IRR of 10.98 percent and a 1.82x multiple as of the end of September.

The smallest of its commitments was to HarbourVest VIII Mezzanine with $5 million allocated to the fund in 2006. The fund had generated a net IRR of 6.96 percent with a 1.37x multiple as of end-September, with the remaining position sold for $186,000.

A spokesperson for HarbourVest declined to comment on the sales.

The sale follows a recommendation from SCERS staff and its consultant Cliffwater that it sell down stakes after its private equity portfolio reached a 13.4 percent allocation at the end of 2021, above its 11 percent target allocation, according to documents prepared last year.

The pension and Cliffwater identified 24 funds of funds that it would consider for a sale in which SCERS invested across 2006 and 2008. Those included vehicles from HarbourVest, Abbott Capital and Goldman Sachs.

At that time, the vintage year 2006 and 2008 funds it had committed to generated a net IRR of 12.6 percent, which significantly trailed the net IRR of 24.7 percent that SCERS’ investments had generated since 2010 when it began to make direct fund investments, according to the documents.

Initial pricing indications for its fund of funds portfolio suggested a 15-20 percent discount to NAV at that time.

SCERS, which had purchased assets via secondaries transactions by April of last year, had not sold secondaries positions until now, according to the document.

In 2019, 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, Secondaries Investor reported.

Public pensions accounted for 39 percent of LP-led transactions by seller type last year,  a 9 percentage point increase year-on-year, according to Campbell Lutyens’ 2023 Secondary Market Overview. This marked the greatest year-on-year change of any seller and highlighted the strength of the denominator effect in driving sales of LP-stakes, the adviser noted.

SCERS, which has $11.91 billion of assets under management, has a current allocation of 10.4 percent to private equity against an 11 percent target allocation, according to Secondaries Investor data.