San Francisco to increase its secondaries scope

The $33bn system adds flexibility in making a secondaries purchase, perhaps indicating the system sees an opportunity in a dislocated market.

San Francisco Employees’ Retirement System will modify its private equity programme and increase the limits allowed for secondaries purchases.

Secondaries funds have been stockpiling capital in anticipation of what could be a buyers’ bonanza, as LPs eager for liquidity start to accept discounts on their fund stakes. However, this has not yet emerged in the current market as LPs are holding off selling at too steep a loss.

The $33 billion public pension approved changes proposed by staff to its investment policy at its board meeting on 19 January. As detailed in a presentation, the changes indicate the system may see an advantage in the secondaries market, along with other alterations to its private equity guidelines.

Affiliate title Buyouts viewed a broadcast of this meeting.

According to the presentation, the changes will increase the amount San Francisco may pay for a secondaries investment from $20 million to 0.1 percent of the plan’s total assets – or $33 million at the total fund’s current net asset value.

The changes also allow San Francisco to invest in fund stakes from managers not in the system’s portfolio, which will give staff more “flexibility” in the secondaries market, according to the presentation.

San Francisco has been an active seller on the secondaries market in the past, having sold 59 private equity funds for $541 million in net asset value in 2019, according to board documents.

San Francisco also will start to list growth equity as a core strategy in its private equity portfolio per the changes.

The amended investment policy also lists new allocation ranges for the system’s private equity portfolio. Venture capital would see a range between 20 percent and 50 percent, growth equity between 15 percent and 40 percent, buyouts between 30 percent and 60 percent, and special situations between zero and 25 percent.