Partners Group eyes PE liquidity for defined-contribution plans

Partners Group has been weighing options to give defined-contribution retirement plans – which have trillions of dollars of assets — improved access to alternative investments, according to a source.

The Swiss firm, with $55 billion in assets under management, and Nasdaq’s private market unit have been discussing ways to open private equity investing to defined-contribution plans such as 401(k) accounts.

A source familiar with Partners Group said the firm could be in the mix, along with other institutions, for any products Nasdaq is considering. “It’s something they’re exploring,” the source said.

Collective trust

The structure of the Partners Group product includes a collective investment trust that invests a large portion of its assets into Partners Group Private Equity Fund, a publicly registered fund already functioning in the market, the source said.

Spokesmen for Partners Group and Nasdaq declined to comment.

Robert Collins, managing director for investment solutions Americas at Partners Group, also declined to comment about specific plans. He argued, however, that retail investors should be able to tap into the superior returns that PE and other alternatives offer.

“Defined-contribution sponsors are looking to diversify,” Collins said by phone. “If they’re looking to get equity returns that they used to get in the public market, many of the promising equity opportunities have moved to the private sphere.”

Norm Champ, a partner with Kirkland & Ellis, said getting PE assets into 401(k)s in a way that enables retirees to cash out with flexibility has challenged the industry. “No one has completely solved that,” he said. “I’ve spent a lot of time thinking about it. It would be incredibly popular.”

Other products

Partners Group’s conversations with Nasdaq come about a year after it unveiled its first private market fund for the defined-contribution market. In 2015, the firm said it lined up a client for the fund. It did not identify the client.

At the time, Partners Group said the defined-contribution offering would provide access to private market investments, while at the same time providing daily liquidity and pricing. But the announcement didn’t say how the liquidity feature would work.

Partners Group also manages the $2 billion Partners Group Private Equity fund, the largest of a class of so-called 40 Act funds from PE managers. The class is named for the U.S. Investment Company Act of 1940, the law that governs mutual funds and other investment funds.

Aimed at qualified individuals and smaller institutional LPs, the funds allocate dollars into direct private investments and secondary and primary fund stakes. Investors here may put in as little as $25,000. Currently, most 40 Act Funds allow only partial liquidity. After two years, these funds allow as much as 5 percent of their total assets to be divested in a quarter.

Other 40 Act Funds include CPG Carlyle Fund from Central Park Group and Carlyle Group; Altegris KKR Commitments Fund from Altegris and Kohlberg Kravis Roberts; Pomona Investment Fund from Pomona Capital and Voya Investment Management; and AMG Pantheon Fund from Pantheon and Affiliated Managers Group, according to filings and other disclosures. See related story.

While aimed at an affluent-retail-investor audience, these funds don’t offer the ability to buy or sell quickly like a stock or ETF.

Retail-friendly

To attract 401(k) money, PE firms and others have been exploring product possibilities for target-date funds, which offer blends of different asset classes that the managers handle over time. The funds would have to fulfill investors’ need to buy and sell interests in the funds at much shorter intervals.

Nasdaq has been meeting with PE players to pool ideas, sources say. The efforts are expected to bear fruit slowly as the industry builds consensus around how to manage defined-contribution plans.

It’s also unclear whether regulators would play a role in any liquidity solutions for 40 Act Funds. Typically, the SEC would be involved in regulating marketplaces for public equities, but its potential role here hasn’t been defined. A spokeswoman from the SEC declined comment.

Seen as a large but mostly untapped source of investment capital for the PE industry, defined-contribution plans tipped the scales at $6.7 trillion at the end of 2015, the Investment Company Institute estimates.

Action Item: Partners Group, https://www.partnersgroup.com/en/businesses/private-equity/overview/; Partners Group Private Equity Fund, https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001447247&owner=exclude&count=40&hidefilings=0

Retiree Madeline Barcelo on Aug. 26, 2015, swims at the beach with her granddaughter in Varadero, Cuba. Photo courtesy Reuters/Alexandre Meneghini