‘Significant opportunity cost’ drives Minnesota to seek buyers in $500m sale

Minnesota State Board of Investment received approval to explore the sale of $500 million-worth of private markets funds stakes in June.

The $96 billion pension administrator’s board approved the recommendation to sell the stakes which are “substantially mature or otherwise do not represent the optimal use of capital going forward”, according to minutes from the SBI’s 14 June meeting, published on Wednesday.

SBI was granted authority to solicit bids directly from buyers to establish price expectations, and does not need to engage an advisor. It was also allowed to “potentially” engage a broker.

“In many cases these funds are nearing the end of their contractual term, or have been extended beyond their initial term,” SBI executive director Mansco Perry wrote in a recommendation letter to the board. In some cases, the general partner or investment manager of the fund does not have the confidence of the SBI going forward, and some funds may not be a good strategic fit for the portfolio, he added.

“Staff believes that in the current market environment it would be prudent and appropriate to explore the possibility of selling certain fund interests,” Perry noted.

SBI has not historically been an active seller of LP interests, the document noted.

Holding these fund stakes represent a “significant opportunity cost”, Perry wrote, as the SBI is foregoing potential return from other investment opportunities.

The sale may not go ahead of if the SBI finds pricing unattractive or due to other concerns, the document noted.

It is unclear whether the SBI is still actively soliciting bids for the portfolio or whether it has engaged an advisor.

Funds that Minnesota SBI has committed to with 2010-vintages or earlier include $100 million to GTCR X, $100 million to EnCap Energy Capital Fund VIII and $50 million to Hellman & Friedman Capital Partners VII, according to PEI data.

Pension funds were the second-most active sellers in the first half of the year, accounting for 23 percent of trades by value, according to a mid-year report by intermediate Setter Capital. Non-fund of funds/secondaries funds were the most active sellers, accounting for 31 percent of sales.