Half an hour isn’t exactly plentiful time when you’re sitting down with the chief investment officer of one of the US’s largest public pension systems to discuss which pockets it may invest in. Secondaries, however, got quite a bit of airtime.
New York City’s Bureau of Asset Management, which oversees the investment portfolios of each of the state’s five pension systems and which has been given a regulatory green light to deploy more into alternatives, sees a great opportunity to deploy into the secondaries market in the next 12 to 18 months, Steven Meier, CIO of NYCRS and deputy comptroller for asset management, told me in an interview in April.
NYCRS is investing in secondaries “really to increase and diversify our holdings”, Meier explained. “We have an outside manager that is looking to add to our existing positions. [We are also looking to] add other secondary opportunities that may be cheap in the market, but are of high-quartile quality that meet our requirements.”
As we were making finishing touches to affiliate title Private Equity International’s cover feature for its July/August issue, Rede Partners’ H1 Liquidity Index came across my desk solidifying the sentiment. Investor intrigue in secondaries funds spiked the most compared with other strategies, with 20 percent of the 149 respondents to Rede’s survey indicating they would look to increase their allocations to secondaries. That’s up from 7 percent in the placement agent and advisory firm’s H2 2022 report.
LPs’ piqued interest in secondaries comes in parallel with a marked increase in the volume of LP stake secondaries in the market, Rede’s report noted. With more LP stakes in the market and “reduced bullishness on final outturns”, pricing has begun to fall following years of premium pricing. The survey data “suggests investors are viewing these prices as representing an attractive arbitrage opportunity and they are indicating strong appetite to expand their buying activity over coming [the] months”.
Investors may be “calling the bottom of the cycle” and may signify investors’ desires to mitigate the lengthening J-curves amid a tougher macro environment, Rede noted.
Some LPs were already plunging further into the secondaries market at the back end of last year, and the market has responded to the demand by continuing to raise its targets compared with predecessors. Blackstone Strategic Partners’ mammoth $25 billion raise this year remains the largest secondaries fund of all time, aptly illustrating investor demand for secondaries.
In recent conversations, sources have told Secondaries Investor that the segment remains a bright spot in an otherwise subdued fundraising market, with one adviser telling me they sensed all of the large secondaries vehicles in market will get to target; the same can’t be said for their primary counterparts.
There are only a few North American pension plans that don’t have the secondaries market high on their list of priorities in a bid to gain liquidity in private markets. “We’re actually not a seller in the market. We don’t need to be,” Meier told me. “We’ve got a high-quality portfolio… with a 7 to 9 percent current allocation. We’re not constrained – we have more than enough liquidity.”
Some of NYCRS’ peers don’t have the luxury of that wiggle room.
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