Side Letter: Kaiser’s $1.5bn buzzer beater; New Mexico’s re-up quandary; McKinsey takeaways

The winner of PEI's North American LP of the Year is close to finalising a $1.5 billion rebalancing at a time when LP portfolio sales are grinding to a halt. Plus: New Mexico SIC's trustees will consider giving staff more autonomy as LPs struggle to cope with a wave of re-up opportunities. Here's today's brief, for our valued subscribers only.

Just happened

Kaiser will sell’em
US insurer Kaiser Permanente, winner of Private Equity International’s North American LP of the Year 2021, is nearly through selling a portfolio of LP stakes worth about $1.5 billion, affiliate title Buyouts reports (registration required). Kaiser brought around $3 billion worth of stakes to the market with the intention of transacting on about half of that to ensure strong pricing on what got done, Side Letter understands. The stakes were roughly half buyout and half credit, including the likes of KKRWarburg PincusTPG and Equistone Partners. Unlike some other large transactions in the market which involve a structured component, this transaction is expected to be done fully in cash.

Kaiser’s PE business has scaled rapidly since its launch in 2019. The healthcare plan provider invested $12 billion in PE last year, bringing its net asset value from $6 billion in 2019 to $33 billion as of early March, split between buyout, growth, venture and private credit. As of October, it had a 28 percent actual allocation to the asset class, within a 10 to 30 percent target range. This sale frees up more capital to expand the alternatives strategy, particularly in the direction of lower-cost co-investments.

Assuming the process gets done, it will represent something of a buzzer beater for Kaiser. Given macroeconomic volatility and frothy valuations, secondaries advisers are telling potential sellers to hold off bringing new processes to market until at least May or June, when first-quarter marks are set by GPs. Kaiser, based in California, is understood to be working with adviser M2O on the sale. Both parties declined to comment.

Power to the PE-ople
Trustees at the $34.5 billion New Mexico State Investment Council are considering whether to divest part of their authority to investment staff. In a 22 March meeting, trustees debated a motion that would permit investment staff to make decisions on fund re-ups without board approval. Concerns included whether this power would be granted indefinitely or just for one year, and whether the board should be involved if the re-up was larger than New Mexico’s previous commitment. Ultimately, the motion was deemed insufficient in its current form, but trustees directed staff to draft a new motion to be discussed at the next meeting.

New Mexico’s quandary comes at a time when GPs are coming to market quicker than ever and often with steeply elevated targets, a dynamic that puts pressure on public institutions to make speedy decisions. Rapid fundraising has been⁠ “stressing LPs’ pipelines”, Neha Champaneria Markle, head of AIP private markets solutions at Morgan Stanley, said on a fundraising webinar last month. With more firms likely to raise in this fashion throughout 2022, New Mexico staff will be hoping their next motion is received more favourably.


McKinsey metrics
McKinsey’s latest Global Private Markets Review is out this morning. Here are some key takeaways:

  • Global private markets fundraising hit $1.2 trillion last year, up nearly 20 percent over 2020; dry powder rose 16.6 percent.
  • Endowments and foundations have the largest gap between their exposure and target allocations to PE; public pensions are closest to their target allocations.
  • A third of private markets managers anticipate having a retail-oriented vehicle in the next five years, while just 9 percent have one today.
  • PE and growth equity investment reached $2.04 trillion across 14,686 deals.
  • PE outperformed other asset classes for the fifth consecutive year; funds in the top quartile for vintages 2008-18 delivered a 30.5 percent net IRR through 30 September, versus 12.4 percent for private debt funds and 16 percent for real estate.

Today’s letter was prepared by Alex Lynn with Carmela Mendoza and Michael Baruch.