Side Letter: Podcast series launch; SERS’s PE pacing; MassPRIM’s ESG committee

We're excited to bring you today the first episode from our fresh podcast series, Private Markets and the End of Cheap Money. Plus: A US pension meeting encapsulates the conundrum facing LPs in 2023; and MassPRIM has formed a committee to take a closer look at ESG. Here’s today's brief, for our valued subscribers only.

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A paradigm shift for PE

The end of cheap money

A paradigm shift from an era of free money – that’s how industry veteran Jeremy Coller, founder and CIO of his eponymous firm, described the impact of rising interest rates on the private equity industry in an upcoming podcast discussion with PEI senior editor Adam Le. As this era comes to an end, it’s “very clear to me that people are going to be caught with their pants down”, he added.

Exactly how the rising cost of borrowing is playing out across the private equity industry is what various editorial teams from the PEI Group stable have been looking into over the past few months for our podcast series, Private Markets and the End of Cheap Money. Our first episode in this series, out today, looks at how sponsors are coping with the higher price of ‘L’ in LBOs. Check it out here, and subscribe to PEI’s Spotlight podcasts here: Apple | Stitcher | Spotify | PodBean | Listen Notes | Google Podcasts | Pandora

PE pacing pain

A recent investment committee meeting for Pennsylvania State Employees’ Retirement System highlights the conundrum facing many of its LP peers. Many such pensions have found themselves overexposed to private equity at a time some believe could be rife with opportunities. SERS is one of them: the $39.9 billion pension has a 20 percent actual allocation to the asset class against a 12 percent target.

Deputy CIO Bill Truong said staff and StepStone would prepare to commit up to $800 million to PE when further building out the 2023 pacing plan. This compares with the $1.1 billion it has deployed this year.

During an earlier discussion, StepStone partner Mike Elio had said the current market dislocation was an ideal time for LPs to invest in PE. “This is when companies become available for good prices, and when private market capital can step in. Now is not the time to run and hide but is the time to deploy more capital in this space at a measured pace.” And therein lies the rub: PE’s massive outperformance in 2021 has led to exposure and pacing issues in 2022, which in turn may prevent LPs from capturing more potentially great returns down the line. Investors will be thinking carefully about how to manage this dynamic in the year ahead.


MassPRIM’s ESG committee

At a time when some state pensions are pushing back on ESG, others are going full steam ahead. Massachusetts Pension Reserves Investment Management, for example, has created an eight-person ESG committee to advise its board, our colleagues at New Private Markets report (registration required). It includes treasurer Deborah Goldberg, who proposed the committee; representatives of Massachusetts’ State Teachers’ and Employees Retirement boards; and external investment advisers and asset managers.

The fund has $92.4 billion in assets, with 18 percent allocated to PE and 18 percent to real estate and agriculture. It is actively seeking diverse real estate managers to invest with and is “collaborating with the risk team on ESG and climate impact research, particularly in timberland”, chief investment officer Michael Trotsky said at a February board meeting.

Getting its Duksin a row

Side Letter has written a fair bit in recent months about the competition for secondaries talent. Baird, the mid-market investment bank, for its part, has hired another top executive to join its secondaries advisory team as it expands GP-led-focused operations, our colleagues at Secondaries Investor report (registration required). Jeremy Duksin, a senior member of Credit Suisse’s private funds group, will join the Milwaukee-headquartered bank early next year after completing a period of gardening leave. He will co-head the bank’s advisory group that focuses on GP-led processes alongside former Goldman exec Alex Mejia, who is set to join Baird in mid-December.

There has been movement in both the GP-led and LP-focused advisory world in recent months. In October, Secondaries Investor reported that Eaton Partners had hired Kevin Nowaskey from Moelis & Co to join its GP advisory, secondaries and directs team, while in September, our colleagues at Buyouts reported that William Blair, which has been building out a private capital advisory business since hiring Mike Custar from M2O earlier this year, hired Jake Stuiver as a director to focus on LP secondaries sales.

Today’s letter was prepared by Alex Lynn with Adam Le.