CalPERS Pulls Off Record Secondary PE Sale, Will Other LPs Follow?

By David G. Barry


The California Public Employees’ Retirement System (CalPERS) has made what industry observers say is the largest-ever secondary sale of private equity fund stakes. What remains to be seen is whether the sale leads to a surge in secondary transactions by other institutional investors.

The $440 billion public pension fund sold some $6 billion of its stakes in funds over the past two weeks, according to Bloomberg. The financial information provider said the stakes were acquired by Lexington Partners, which is part of Franklin Resources Inc., and CVC Capital Partners’ Glendower Capital. It represents more than 10% of its $50 billion in private equity holdings.

The sale comes at a time when many other public pension funds find themselves overallocated to private equity and are deciding whether to try to rebalance through secondary sales. The decision has been made tougher by the fact that valuations are declining.

CalPERS, though, moved ahead, desiring the capital to make new investments. According to Bloomberg, CalPERS sold its holdings at a roughly 10% discount to their September 2021 value. It, however, sought to reduce the pain by deferring some payments beyond June 30, the last day of its fiscal year.

In a prepared statement, CalPERS Chief Investment Officer Nicole Musicco said the “sale positions us to act on our new asset allocation and allows us to capitalize on market opportunities.”

CalPERS did not disclose what funds it sold, but Bloomberg described them as older buyout and growth strategy funds. A spokesperson for the plan did not return messages seeking additional information.
According to published reports, CalPERS hired Jefferies Financial Group Inc. earlier this year to shop the assets.

With $63 billion of private equity secondary sales, 2021 was a record year for the industry, according to Campbell Lutyens & Co., a secondary industry advisor.


Commenting on how LPs are approaching the secondary market in today’s environment, Keith Brittain, a managing director on Hamilton Lane’s secondary investment team, said that with the “dynamic” of numerous institutional investors being overallocated to private equity, Hamilton Lane is expecting an increase in the supply of LP secondary opportunities. But he also said that if secondary discounts continue to widen, LPs may try to bridge the price gap with purchase price deferrals or delayed closings, or they may not sell all of the fund stakes they have up for sale.


Still, Brittain said, “we would expect continued growth, although that growth may not be in a straight line.The overallocation issue is real.”     

Iyobosa Adeghe, a principal with secondary-focused firm Coller, agreed, saying that "while the macro environment is causing a short-term slowdown in transaction volumes, fundamental interest in the maket remains strong." He added that while all portfolios are impacted to some degree" by lower pricing, portfolios "that are younger, higher quality, or which have less direct public exposure are seeing less pricing impact than their counterparts." 

 As for the rest of 2022, Adeghe concedes that "many sellers have put plans on hold given this window of uncertainity." He adds, though, that "the absence of any negative news may be enough to result in a meaningful up-tick in transaction volumes as LPs push ot meet allocation objectives before year-end."