Things haven’t been going so great over at the Pennsylvania State Employees’ Retirement System. It faces increasing obligations to pensioners, is over-allocated to private equity and has lost staff from its PE investment team.
Against that backdrop, the $25 billion pension fund has been seeking buyers for as much as $3 billion worth of its PE investments, one source told peHUB. A second source said PennSERS has been in discussions with secondary advisors Cogent Partners and UBS. A spokesperson for PennSERS denied that the pension fund was in talks with Cogent and UBS to sell $3 billion worth of PE assets.
Fortune magazine’s Term Sheet email newsletter reported on Sept. 15 that PennSERS “reached out earlier this year to secondaries placement agents at firms like Cogent Partners and UBS about a large sale — one that would include mega-LBO fund commitments — but no offering seems to have come of it yet.”
According to a June 2010 report issued by PennSERS, the fund has about $6 billion of its funds in private equity investments, totaling approximately 26.1% of its total fund.
PennSERS said in December that it plans to reduce its exposure to alternative assets. It said in a statement that it is moving “toward a greater allocation to fixed income investments in order to meet the liquidity needs arising from a projected increase in benefit payouts as the fund matures. SERS expects to pay out about $2.6 billion in benefits and expenses in 2011 but that is expected to jump to $4 billion in 2020.”
The pension fund also stated that it would reduce its allocation to alternative investments (PE and VC) to 15% from 25.1 percent.
At the same time, PennSERS has lost some of its staffers. As many as four private equity portfolio managers have already left, and more turnover could come, one source says. PeHUB was unable to determine exaclty how many PE professionals PennSERS employs.
Recent departures include PennSERS’ head of alternatives, Bruce Feldman, who retired this summer, and Jeffrey Burton, an alternative investments portfolio manager, who departed earlier this month for the Pennsylvania Public School Employees’ Retirement System.
The two sources say senior management at the pension fund is concerned about the illiquidity of its private equity assets, which comes at a time when the fund is facing growing costs for retiree benefits.
It is unclear which funds PennSERS is interested in selling on the secondary market. Among its recent commitments, which for the most part have not yet been distributed back to the pension, are Battery Ventures VIII ($25 million commitment); HarbourVest Partners VIII ($100 million commitment); Charterhouse Capital Partners VIII and IX (each more than $70 million committed); Polaris Venture Partners V ($50 million committed); Madison Dearborn Capital Partners VI ($50 million committed); Nordic Capital VII (more than $100 million committed); ABRY Partners VI ($50 million committed); Permira IV (more than $125 million committed) and TPG Partners V and VI ($100 million and $45 million committed, respectively).