Last chance to nominate!
Nominations for PEI Group’s Women of Influence in Private Markets close today – do let us know who should be included in our list celebrating the trailblazing women in alternative assets. Details here and submissions here.

Tokyo thrift
It’s no secret that US public pensions have struggled with the denominator effect over the past year; what’s received less attention, however, is that some of their Japanese peers have been experiencing similar headaches. The yen’s decline relative to the US dollar last year, coupled with soaring private markets valuations, inflated the scale of Japanese LP portfolios with large exposures to Western markets. What’s more, these currency fluctuations meant that their annual budgets – typically set early in the calendar year – were greatly reduced in US dollar terms, leaving them with tough decisions to make about their commitment pacing.

“Some of our clients have been strongly impacted by the denominator effect and exceeded their internal limits for alternative assets,” one senior executive at a gatekeeper for Japanese LPs told Side Letter on condition of anonymity. “As a result, they’ve slowed their activity to get back to compliance. Some have seriously considered selling [fund stakes on the secondaries market], though pricing doesn’t incentivise them to sell currently.”

The result? Many Japanese LPs have become extremely selective over the past 12 months. Some have reduced their ticket sizes and others have declined certain re-ups in favour of others. GPs with exceptional performance, no evidence of style drift, limited exposure to volatile tech markets and the ability to offer co-investments will likely emerge as winners in this scenario, industry sources note.

Japan’s heightened selectivity and new sources of LP capital are just some of the issues that will be explored in depth in Private Equity International‘s Japan Special Report next month. Keep your eyes on PEI for the full coverage.

Hawaii says aloha to PE
Employees’ Retirement System of the State of Hawaii will boost its planned commitments in private equity in 2023, our colleagues at Buyouts report (registration required). At the system’s board meeting on 13 March, a presentation by the pension’s consultant, Hamilton Lane, stated that Hawaii will invest between $600 million and $700 million in PE this year. The system committed $600 million to private equity through Hamilton Lane in 2022, which was in the midpoint of its $550 million to $650 million pace plan; Hawaii’s staff committed an additional $95 million across three funds in 2022.

Hawaii has a 6.17 percent actual allocation to PE against a 7 percent target, according to PEI data. The state pension’s increased appetite for the asset class stands out from its peers. Due to uncertainties and overallocation issues, many public pensions systems have been reducing their commitment pacing plans, but according to Hawaii’s board meeting minutes, its increased appetite was approved last July. Hamilton Lane is also considering placing commitments over $50 million to the system’s top performing managers, according to the presentation.

In the fourth quarter of 2022, the system committed to Vistria Fund V, TorQuest Partners VI, GTCR XIV, and Hellman & Friedman Capital Partners XI. Distributions, meanwhile, were down 57 percent from the same quarter in the prior year, the presentation stated.

Essentials