NYC pension's private equity sale might be largest ever of its kind
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Illustration: Sarah Grillo/Axios
New York City's pension systems yesterday announced a $5 billion sale of private equity stakes, with Blackstone as the lead buyer.
Why it matters: This appears to be the largest PE secondaries deal ever, in terms of dollar value, and highlights how large limited partners are seeking to streamline their manager rosters.
- It's also NYC's first-ever secondaries sale, having abandoned two prior processes — one due to COVID and one due to pricing.
By the numbers: NYC's five pensions sold positions in over 125 funds managed by 74 different firms.
- That means it's now got active relationships with only around 45 different managers, and plenty of allocation headroom.
- Blackstone acquired over 95% of the portfolio.
Behind the scenes: Steve Meier, NYC's chief investment officer and deputy comptroller for asset management, tells me that the sale process began more than a year ago and arguably has its genesis in private equity's "Golden Age."
- "A number of the holdings we sold dated back to 2007 and 2008, right before the financial crisis," he explains. "New York City had hired a consultant in 2007 that brought in 50 deals in 52 weeks. Obviously that wasn't great."
- NYC picked the assets it wanted to sell, intentionally including a few strong performers as "sweeteners," rather than asking buyers to cherry-pick from a vast universe (which is sort of what Yale is currently doing).
- He declined to discuss pricing, except to say that NYC went to market with a $5 billion price tag.
Zoom in: Meier acknowledges the lack of recent private equity distributions, but says the sale was about "strategic realignment" instead of generating liquidity.
- In short, the glut of managers added a ton of work and expense — extra legal, reporting, etc. — whereas NYC now can do more co-investing and fund investing with a smaller number of partners.
- It's a refrain that lots of large LPs have been spouting, and has contributed to the recent PE secondaries boom.
- Meier also hopes that the sale will allow each of NYC's underlying pension systems to do more customization — although he cautions that there would be additional staffing needs that haven't yet been approved.
The bottom line: Private equity fundraising already is a slog, particularly for emerging managers, and the culling trend is likely to make it even more challenging.
