Side Letter: CalSTRS’ writedown warning; BPEA’s $11bn; Apogem’s biggest Fann

The US's second-biggest public pension is reaping the benefits of its predilection for co-investments and acknowledges that market volatility may undo some of these gains. Plus: Baring Private Equity Asia has reportedly entered the region's elusive double-digit club; and TorreyCove veteran David Fann has a new role. Here's today's brief, for our valued subscribers only.

Just happened

Writedown warnings
The California State Teachers’ Retirement System is enjoying the good times while they last. The $311 billion institution posted a 24.2 percent private equity return for the year ended 31 March and 14.7 percent on a 10-year basis, according to a presentation made at the pension system’s investment committee meeting on 31 August, which our colleagues at Buyouts tuned into (registration required). Non-US buyouts and co-investments (the latter comprise 20 percent of its PE portfolio) played outsized roles in these impressive returns.

The future picture is less rosy. “One piece of bad news is that, looking forward, non-public assets will be repriced to reflect what was happening in public markets,” Meketa managing principal Allan Emkin said during the presentation. “You should expect sometime in the next three to four quarters to see writedowns as private markets are not immune to what happens in the broader economy.”

This unfortunate reality doesn’t seem to have dented CalSTRS’ deployment. The institution has committed nearly $5 billion to PE this year and could reach $8 billion by year-end. “We’re a little bit above pace,” Meketa consultant Tad Fergusson noted at the meeting. “There has been a crowded fundraising environment, so commitments have been front-loaded in the calendar year. But we still think it’s best to follow this budget and maintain discipline.”

PE’s valuation delay relative to public markets can be a blessing and a curse. While the asset class may be less susceptible to volatility, buyers and sellers can sometimes be left playing a waiting game when there’s a sharp mismatch in private asset prices and their public references. Private Equity International examined three ways that markdowns could affect the industry back in July – if you haven’t already, read that here.

BPEA’s billions
In January, we speculated that Baring Private Equity Asia‘s eighth fund could be one of several pan-Asian vehicles to shoot past their target and become a member of the exclusive double-digit club (ie. the elite cadre of firms with an APAC fund larger than $10 billion), as geopolitical, pandemic and regulatory uncertainty makes diversification a more appealing bet in the region.

The Hong Kong-headquartered firm appears to have done just that: BPEA VIII has so far raised about $11 billion for its eighth flagship, Bloomberg reported this week. No doubt its agreement in March to be acquired by EQT helped with the fundraise (and perhaps the Nordic giant read our predictions piece and took note).

They did the math

Alts allocations
Alternatives exposure among the world’s largest pensions declined last year, research from Willis Towers Watson shows. Of the top 20 largest pensions, North American institutions saw allocations to alternatives and cash slip 9.2 percentage points year-on-year, while those in Europe fell 3.8 percentage points. Only those in Asia-Pacific, such as Japan’s $1.7 trillion Government Pension Investment Fund and South Korea’s $798 billion National Pension Service, reported any growth, with allocations climbing to 5.7 percent from 3.4 percent the prior year. This was attributed to a combination of APAC funds allocating more to these asset classes and strong investment returns over the period.

Essentials

Apogem’s biggest Fann
David Fann, the private markets veteran who co-founded investment advisory TorreyCove Capital Partners prior to its 2020 acquisition by Aksia, has joined New York Life Insurance subsidiary Apogem Capital, per a statement. Fann will serve as senior managing director and vice chairman of Apogem, which was formed earlier this year through a combination of PA Capital, Madison Capital Funding and GoldPoint Partners. The $37 billion group offers lending, primary fund commitments and secondaries investments, as well as equity-co-investments and GP stakes.

Fann’s duties will include managing business development and investor relations at Apogem, as well as serving on several of the firm’s investment committees. “The middle market represents an important portfolio exposure for institutional investors but has been a segment that has been difficult to navigate due to the sheer number of firms and the wide dispersion of outcomes,” he said in the statement. “Apogem is uniquely positioned as it applies decades of collective investment experience through multiple business cycles, key market relationships and proprietary data to its investment programmes in middle market private equity and private credit.”

Keitel’s next responAbility
Ralph Keitel, former principal investment officer and head of Asia at the International Finance Corporation, has joined Swiss impact firm responsAbility Investments, according to his LinkedIn. Keitel, who spent nearly 17 years with the development finance institution, has been named head of fund of funds in Switzerland, having relocated from Singapore. responsAbility has $3.5 billion of assets under management across a range of products, including agriculture-focused private debt and PE. It’s unclear whether fund of funds investing represents a new strategy.

Dig deeper

Institution: Teachers’ Retirement System of the State of Illinois
Headquarters: Springfield, US
AUM: $64.57 billion
Allocation to private equity: 16.1%

Teachers’ Retirement System of the State of Illinois has confirmed $810 million worth of commitments across 16 private equity funds, following its August board meeting.

Within the system’s $10.4 billion private equity portfolio, a total commitment of $100 million was made to Baring Private Equity Asia Group. One commitment of $75 million was for Baring Asia Private Equity Fund VIII and a second, of $25 million, for Baring Asia Private Equity Fund VIII – Annex A. Baring has an existing relationship with TRS, with it managing $340 million of the pension’s assets.

A further total commitment of $75 million was made to Lightspeed Venture Partners across three funds: $25 million to Lightspeed Venture Partners XIV, $25 million to Lightspeed Partners Select V and $25 million to Lightspeed Global Opportunity Fund II. Lightspeed currently administers $180 million in TRS assets.

Craft Ventures and Leeds Equity Partners have both established a new investment relationship with the public pension. Two commitments of $30 million each to Craft Ventures IV and Craft Ventures Growth II, as well as a $35 million commitment to Leeds Illuminate Global Fund I, have created this new investment relationship.

More first-time relationships have been formed – $10 million was committed to MaC Venture Capital II and $50 million to New MainStream Fund IV. These new investment partnerships are through the System’s Emerging Manager Program.

The remaining commitments have standing relationships with TRS. They comprised the following: $100 million to Bregal Sagemount IV-B, $15 million to FinTech Collective Opportunity Fund I, $10 million to Insight Partners Vision Capital II, $150 million to Silver Lake Partners VII, $75 million to Sunstone Partners III and €130 million to TDR Capital VSilver Lake currently administers the largest amount in TRS assets, at $685 million.

The $64.6 billion US-based public pension has a 16.1 percent exposure to private equity, above its 15 percent target. Recent fund commitments have predominantly focused on venture capital.

For more information on TRS Illinois, as well as more than 5,900 other institutions, check out the PEI database.


Today’s letter was prepared by Alex Lynn with Carmela Mendoza