Washington State Investment Board‘s outgoing chief investment officer has shed light on the $128 billion US pension’s secondaries strategy.
WSIB, which has a $20.98 billion allocation to private equity, does not invest in secondaries funds. Instead, it acquires LP stakes on its own, according to Gary Bruebaker, who is set to retire at the end of the year after 18 years in the role.
“We did that even before secondaries funds existed and it was a pretty good strategy for us in the beginning,” Bruebaker told sister publication Private Equity International. Secondaries funds today are willing to pay more for fund stakes than the pension is, he added.
“The only transactions the pension ever sees are when a GP wants to close something extremely quickly and quietly and they can give us a call.”
Pension funds accounted for around 6 percent of buy-side activity last year, according to intermediary Setter Capital’s Volume Report FY 2018.
Such non-traditional buyers can often pay 3 to 5 percentage points more than a dedicated secondaries buyer due to having a lower cost of capital, Sunaina Sinha, managing partner at Cebile Capital, told Secondaries Investor. Whereas a large secondaries firm is often trying to underwrite to a mid-teens IRR, an institution may be happy to do so at 8 or 10 percent and can therefore increase pricing on a deal, she added.
Bruebaker will remain engaged with WSIB, which commits almost $2 billion a year to private equity, until April 2020 to help with the transition.
Reflecting on his almost four-decade career, Bruebaker said conversations around fees and costs were still front and centre in the industry.
“I honestly think we have a healthier relationship today with our GPs than we had in the beginning,” he said. “When I first started, there was no transparency. Now, most GPs have become comfortable with added transparency and the public scrutiny that comes with investing with public pension systems.”
Transparency must be balanced by the need to be competitive in the marketplace, and public LPs also adhere to that balance, he added.
– Preeti Singh and Adam Le contributed to this report.