Washington pension system shops large PE portfolio as secondaries surge

LP portfolio sales led volume last year, clocking in at an estimated $60bn out of a total of $115bn, according to PJT Park Hill’s full-year volume survey.

Washington State’s massive public pension system is shopping a multi-billion dollar portfolio of private equity fund stakes in a re-engagement with the market after pulling a similar sale in 2022, sources told affiliate title Buyouts.

The LP portfolio, said to be upwards of $2 billion or more, is among a slew of activity among institutional investors to find ways to generate liquidity out of PE portfolios in which distribution activity has slowed. With pricing, especially for buyout fund stakes, strengthening through last year, LPs are more inclined to explore sales in which they won’t be facing steep discounts.

Washington State Investment Board is working with Evercore on the sale, similar to the previous time, sources said. A spokesperson for the system did not respond to a comment request.

At the time of the last sales process, an investment board spokesperson told Buyouts: “Our staff does have the authority and capability to evaluate potential secondary opportunities in this manner, and we will continue to evaluate the secondaries market. If and when such deals are completed, our staff will report the results to our board members,” the spokesperson said.

These two processes represent the first attempt by Washington State to sell a large portfolio of private equity fund stakes. The system is one of the oldest public LPs in private equity, with a portfolio dating back to the 1980s. The board invests for 38 funds, including 17 retirement funds, five state insurance funds for injured workers, seven permanent funds and nine other funds, the quarterly report said.

Washington State’s private equity portfolio had a market value of about $46 billion as of 30 June 2023, representing around 27.3 percent of the retirement fund’s total assets of about $188.5 billion, according to the system’s most recent quarterly report.

Washington State’s sale will be one of numerous large sales on the market this year, sources said. LPs are gearing up to make heavy use of the secondaries market to generate liquidity from the programmes, where distributions have slowed because of sluggish exit activity in the muted M&A environment.

LP portfolio sales led volume last year, clocking in at an estimated $60 billion out of a total of $115 billion, according to PJT Park Hill’s full-year volume survey. “The LP market continued to drive secondary volume as LPs sought to generate liquidity to compensate for a lack of distributions from their private market portfolios,” the survey said.

Strong pricing portends continued demand by LP sellers, who will look to cash out at an opportune moment. Buyout funds priced in the 90-95 percent of net asset value range, PJT Park Hill said.

Two large portfolios sold last year were from Kaiser Permanente and New York State Teachers’ Retirement System, which both shopped $6 billion offerings. Kaiser sold more than $5 billion while NYS Teachers’ sold about half the offering, Buyouts reported.

Another large portfolio on the market was from Dutch pension administrator PGGM, which was exploring a sale of up to $2 billion of its PE portfolio, Buyouts reported.