(Bloomberg News) New York City's pension plans may unload a $2 billion portfolio of buyout funds to trim their private-equity relationships, said two people with knowledge of the plan.
At least one of the five pension plans is weighing whether to sell stakes managed by Clayton, Dubilier & Rice LLC and Silver Lake Management LLC, said the people, who requested anonymity because investment decisions are confidential. Details about which holdings will be sold and what price would be acceptable are still being worked out, according to the people.
U.S. pension plans have been severing ties with asset managers through so-called secondary sales of private-equity stakes to free up money for new investments and improve returns. New York, which had 108 private-equity managers as of June 2010, is among investors seeking to concentrate bets with a smaller number of better-performing managers. Private equity accounted for about 6 percent of the $122.4 billion in assets for New York's pension funds as of April 30.
"It was taboo for pensions to sell funds, but now they're using a secondary sale as a portfolio-management tool," said Brian Talbot, head of New York-based Neuberger Berman Group LLC's secondaries team. "Pensions are invested in hundreds of funds, which has become a huge administrative burden that many of them have decided they can't manage efficiently."
Performance Gains
Overall, the city's funds gained more than 20 percent in fiscal 2011, the most in 13 years, which Comptroller John Liu attributed to the hiring of new asset managers and improved stock and bond markets. That follows gains of 14 percent for fiscal 2010, according to a July 5 statement.
Mike Loughran, a spokesman for Liu, Thomas Franco, a spokesman for New York-based Clayton Dubilier, and Jenny Farrelly, an outside spokeswoman for Silver Lake, declined to comment. Private-equity buyout funds typically use debt to buy companies with the goal of selling them within about five years. To pay the debt, the new owners try to improve operations and slash costs.
Earlier this year, the pension funds fired five out of six activist managers who buy stakes in publicly traded companies and press for higher share prices. The funds dismissed included Breeden Capital Management LLC, headed by former U.S. Securities and Exchange Commission Chairman Richard Breeden, and Ralph Whitworth's Relational Investors LLC.
In the secondary market, investors trade stakes in private-equity funds originally sold by buyout and venture capital firms. New York is hoping to capitalize on the growth of secondary sales and take advantage of record amounts raised to purchase previously owned private-equity holdings.
Ready to Sell
Among private-equity investors, more than one-third of North Americans, a quarter of the Europeans and as much as 42 percent of those in the Asia-Pacific region expect to stage secondaries sales in the next two years, according to the "Summer 2011" survey by Coller Capital Ltd. Those are record levels, according to Coller, a London-based buyer of secondaries, which said that as of mid-2008, only 22 percent of investors had conducted sales.
Sellers of private-equity fund stakes sometimes have to offer discounts from net asset value. Discounts were wider at the height of the 2008-09 financial crisis when sellers needed liquidity, according to Preqin Ltd., the London-based research firm. Those discounts have narrowed to about 19 percent of net asset value on buyout funds as pensions and endowments sell more opportunistically, according to Preqin.
Pooling Assets