Keywords: Private Equity, corporate auctions, asset sales ...
Private Equity Asset Class Review Year-End 2019...Private Equity Asset Class Review Year-End 2019...
Transcript of Private Equity Asset Class Review Year-End 2019...Private Equity Asset Class Review Year-End 2019...
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Private Equity
Asset Class Review
Year-End 2019
October 8, 2020
Charles Spiller, CPM
Darren Foreman, CAIA
Luke Jacobs, CFA, CAIA
Patrick Knapp, CFA
Tony Meadows, CAIA, CPA.CITP
Phil VanGraafeiland
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Table of Contents
▪ Portfolio Performance Update - Luke
▪ Co-Investment Program Update - Tony
▪ Portfolio General Update - Darren
▪ PE Review & Due Diligence Summary - Patrick
▪ Jobs Data Update and Fund Commitments - Phil
▪ Appendix
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• Executive Summary & Team Update - Charlie
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Executive Summary
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Name Years at PSERS Years of Professional
Experience
Charles Spiller 26 45
Darren Foreman 23 26
Luke Jacobs 21 23
Tony Meadows 10 16
Patrick Knapp 2 12
Phil VanGraafeiland 1< 9
Private Equity Staff – Benefitting from Longevity & Recent Hires
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Private Equity Portfolio Quarterly Summary
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Table of Contents
▪ Executive Summary & Team Update - Charlie
▪ Jobs Data Update & Fund Commitments - Phil
▪ Portfolio Performance Update - Luke
▪ Portfolio General Update - Darren
▪ PE Review & Due Diligence Summary - Patrick
▪ Co-Investment Program Update - Tony
▪ Appendix
5
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Private Equity Portfolio Quarterly Summary (continued)
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Private Equity Portfolio – By Core, Legacy, PEIP(As of December 31, 2019)
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PE Net IRR Performance by Geography(As of December 31, 2019)
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IRR Performance by PE Strategy(As of December 31, 2019)
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Table of Contents
▪ Executive Summary & Team Update - Charlie
▪ Jobs Data Update & Fund Commitments - Phil
▪ Portfolio Performance Update - Luke
▪ Portfolio General Update - Darren
▪ PE Review & Due Diligence Summary - Patrick
▪ Co-Investment Program Update - Tony
▪ Appendix
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Diversification by Vintage Year – Last 10 Years
Vintage Year Total Exposure1 MoCSince Inception
IRRBurgiss
BenchmarkKS PME2 Direct Alpha
2010 $5.3 1.1x 1.38% 16.00% 0.66 -9.25%
2011 $691.9 1.5x 12.22% 12.77% 1.04 1.24%
2012 $984.7 1.7x 16.34% 12.02% 1.16 5.05%
2013 $945.1 1.7x 16.74% 15.05% 1.19 5.91%
2014 $780.6 1.5x 15.18% 15.79% 1.13 4.98%
2015 $1,646.8 1.2x 10.14% 7.40% 0.99 -0.57%
2016 $1,553.4 1.4x 22.22% 8.72% 1.17 9.81%
2017 $1,478.8 1.3x 20.71% 15.58% 1.10 8.39%
2018 $1,750.9 1.1x 11.97% 15.71% 1.00 -0.24%
2019 $1,598.1 1.0x 5.88% 8.10% 0.93 -11.77%
2010-2019 Vintage Year Portfolio Total
$11,435.6 1.4x 14.81% 12.45% 1.09x 3.65%
1. Total Exposure = NAV + Unfunded Commitments.2. KS PME is calculated compared to the PSERS Blended custom benchmark.Note: The above analysis takes into account the vintage year of the fund, not necessarily when PSERS committed capitalData shown represents 01/01/2010 to 12/31/2019.
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PE Quartile Rankings: Pre-Global Financial Crisis Vintage Years
versus 2011 – 2016 (As of December 31, 2019)
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PSERS Buyout Fund Exposure vs Peers(March 31, 2020)
Source: Hamilton Lane
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PSERS Sector Exposure vs Peers(March 31, 2020)
Source: Hamilton Lane
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PSERS Geographic Exposure vs Peers(March 31, 2020)
Source: Hamilton Lane
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U.S. PE Deal Activity
Through the first half of 2020, US PE dealmakers closed on 2,173
deals totaling $326.7 billion, meaning deal volume was down nearly
20% compared to the first half of 2019
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▪ Management fee savings to date of $161.4 million on fund
commitments
▪ Management fee savings of $36.3 million to date from the in-house
co-investment program (1% management fee is typically charged
on co-investment funds)
▪ Carry savings of $15.9 million to date from the in-house co-
investment program (10% carry is typically charged on co-
investment funds)
▪ Additional savings of $95.3 million from the NAV of the internal co-
investment program instead of investing in private equity funds:
▪ $63.5 million (1.75% management fee on PE funds)
▪ $31.8 million (20% carry on PE funds)
Fee Savings To Date
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Table of Contents
▪ Executive Summary & Team Update - Charlie
▪ Jobs Data Update & Fund Commitments - Phil
▪ Portfolio Performance Update - Luke
▪ Portfolio General Update - Darren
▪ PE Review & Due Diligence Summary - Patrick
▪ Co-Investment Program Update - Tony
▪ Appendix
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Value Drivers by Vintage Year – for the Year 2019
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Top 20 Total Exposures
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Private Equity – Quarterly Cash Flow Summary
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Cumulative Net Cash Flow Activity – Last 10 Years
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Portfolio by Industry, Geography and Public/PrivateAs of December 31, 2019
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Legal Review &
Negotiation
Strategy, Team, & Market Review
Reference Checks
Terms Negotiation
• 400+ pages of reading (generally 40+ documents)
• Performance calculation & review (PME, levered & unlevered)
• Site visit(s) with GP, 8+ phone calls with GP, 3+ with Hamilton Lane
Goal: Develop an opinion on competitive advantages vs. market and likelihood of success.
• 10 – 15 (existing manager), 15+ new manager
• Covers portfolio company staff, former employees of GP, co-investors/lenders, other LPs
Goal: Uncover major red flags, highlight blind spots in due diligence, and separate marketing from reality.
Due Diligence Process
• Variable and continuous throughout process
• Key terms targeted typically include fees and carry, waterfall structure, clawbacks, key person clause
Goal: Alignment of interests between PSERS and GP, alignment between perceived value of/to PSERS program and GP economics.
• Completed in conjunction with PSERS legal teams (Thank you!)
• Review of ~150 pg. LPA
• 3+ internal meetings, 2+ meetings with GP legal
Goal: Alignment of interests between PSERS and GP, ensure Commonwealth required terms included in legal agreements.
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Table of Contents
▪ Executive Summary & Team Update - Charlie
▪ Jobs Data Update & Fund Commitments - Phil
▪ Portfolio Performance Update - Luke
▪ Portfolio General Update - Darren
▪ PE Review & Due Diligence Summary - Patrick
▪ Co-Investment Program Update - Tony
▪ Appendix
25
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PSERS & PE - Jobs by the numbers
529,000 Net jobs created or added
2 MM Total jobs supported
94% of our private equity funds produced net positive job growth
35 GP relationships have addressed the growing importance of
tracking job creation
Data as of 12/31/2019.
89% of NAV reported jobs data (80 PE Funds)
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Last 12 Months (LTM) Commitment Summary
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Table of Contents
▪ Executive Summary & Team Update - Charlie
▪ Jobs Data Update & Fund Commitments - Phil
▪ Portfolio Performance Update - Luke
▪ Portfolio General Update - Darren
▪ PE Review & Due Diligence Summary - Patrick
▪ Co-Investment Program Update - Tony
▪ Appendix
28
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Since Inception (Feb 2012) NAV Bridgeas of December 31, 2019
Excludes Pennsylvania Co-Invest and Currency Hedge
$311.4 M
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Private Equity Internal Co-Investmentsas of December 31, 2019
****
* 65% MSCI USA Small Cap / 35% MSCI ACWI x US Small Cap;
Minor differences due to rounding
($mm)
Private Equity
Pennsylvania
Co-Invest Total ProgramFund I Fund II Total
Wilson
Currency
Hedge Grand Total
Performance (net of fees):
Inception IRR 23.2% 12.7% 21.0% n/a 21.7% 17.9% 21.4%
Benchmark * 12.1% 13.5% 12.1% n/a 12.1% 12.7% 12.2%
Direct Alpha 11.1% -0.7% 8.8% n/a 9.6% 5.2% 9.2%
1-Quarter (TWR) 1.2% 3.0% 1.5% n/a 1.5% 0.0% 1.3%
1-Year (IRR) 6.0% 11.8% 10.3% n/a 10.3% 16.7% 10.9%
3-Year (IRR) 12.6% n/a 12.9% n/a 12.9% 17.2% 13.3%
5-Year (IRR) 18.0% n/a 17.5% n/a 17.5% 17.9% 17.5%
Inception Multiple 2.02x 1.17x 1.52x n/a 1.54x 1.62x 1.55x
Commitment Summary:
Authorized $ 1,000.0 n/a $ 1,000.0 $ 250.0 $ 1,250.0
Outstanding Cost $ 175.8 $ 468.3 $ 644.1 n/a $ 644.1 $ 49.8 $ 693.9
Unfunded Commitments $ 33.8 $ 26.4 $ 60.2 n/a $ 60.2 $ 2.5 $ 62.7
Available $ 295.7 n/a $ 295.7 $ 197.7 $ 493.4
Flows & Valuations:
Contributions $ 335.9 $ 468.5 $ 804.4 $ (.1) $ 804.3 $ 57.8 $ 862.1
Distributions $ 441.9 $ 29.1 $ 471.1 $ 19.0 $ 490.1 $ 10.1 $ 500.2
Valuations $ 236.4 $ 517.6 $ 754.0 $ (3.3) $ 750.7 $ 83.5 $ 834.2
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Internal Private Equity Internal Co-InvestmentsPerformance by “Fund” as of December 31, 2019
Investment Vintage Commitment
Cumulative
Contributions
Cumulative
Distributions Valuation IRR TVPI DPI
Fund 1
CEIL (Guernsey), L.P. 2013 $ 9,386,879 $ 12,086,263 $ 43,766,157 $ - 16.1% 1.84x 1.84x
CP-VER Aggregating, L.P. 2015 15,000,000 15,175,000 3,684 - -86.4% 0.00x 0.00x
Ferrara Candy Company 2012 10,000,000 7,500,000 12,939,297 - 11.8% 1.73x 1.73x
Penrose Topco Ltd 2012 12,842,192 13,878,761 33,036,817 - 44.4% 2.38x 2.38x
PPHC Holdings, LLC 2014 12,056,481 12,086,263 44,193,142 - 46.5% 3.66x 3.66x
PSERS Ortholite, L.P. 2014 13,000,000 13,035,722 94,207,284 - 90.6% 7.23x 7.23x
Redtop Co-Invest, L.P. 2012 8,488,708 10,000,061 25,548,076 - 22.5% 2.55x 2.55x
WCI-HFG Holdings, LLC 2016 11,000,000 11,000,000 17,519,990 - 16.1% 1.59x 1.59x
WCI-Quantum Holdings,
Inc. 2015 12,000,000 12,362,967 17,826,120 - 10.7% 1.44x 1.44x
Total Realized 103,774,260 105,200,434 263,970,046 - 32.9% 2.51x 2.51x
Total Partially Realized
and Unrealized 265,851,161 230,658,068 177,950,038 236,441,566 17.0% 1.80x 0.77x
Total - Fund 1 369,625,421 335,858,502 441,920,084 236,441,566 23.2% 2.02x 1.32x
Total - Fund 2 494,960,690 468,563,163 29,109,333 517,662,950 12.7% 1.17x 0.06x
Total - Private Equity
Internal $ 864,586,111 $ 804,421,665 $ 471,530,211 $ 753,603,723 21.0% 1.52x 0.59x
Excludes Wilson Currency Hedge
Minor differences due to rounding
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Co-Investments Deal Flow Funnel Since Inception (Feb 2012 – December 2019)
153 Co-Investments Reviewed
8 Declined by PSERS’ AIC
85 Declined After Brief Due Diligence
59 Co-Investments
1 Approved by AIC / GP Declined investment on legal
terms
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▪ The Private Equity Program has generated a Net IRR of 11.4% since inception
versus 9.3% for the custom public index
▪ The PE Team since 2011 has been better at:
▪ picking 1st and 2nd quartile funds at an increased rate
▪ 2011 and forward Vintage Years have outperformed the Program’s PME and the Burgiss
Benchmark
▪ Portfolio will remain focused on larger commitments to high conviction managers
The Next Year:
▪ Funds:
➢ We will opportunistically add new GPs that have a proven ability to add value
to their portfolio companies and generate top quartile performance
➢ Would like to add a fund or two in the sub $1.5B fund size
▪ Co-Investments:
➢ Portfolio has generated a very good return since inception
➢ Deal flow has been very good
➢ At the March Board meeting we received approval to go up to $50M per deal
Key Takeaways - Private Equity
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Table of Contents
▪ Executive Summary & Team Update - Charlie
▪ Jobs Date Update & Fund Commitments - Phil
▪ Portfolio Performance Update - Luke
▪ Portfolio General Update - Darren
▪ PE Review & Due Diligence Summary - Patrick
▪ Co-Investment Program Update - Tony
▪ Appendix
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Performance Summary by Investment Fund
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Performance Summary by Fund (continued)
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Performance Summary by Fund (continued)
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Performance Summary by Fund (continued)
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Performance Summary by Fund (continued)
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Performance Summary by Fund (continued)
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Performance Summary by Fund (continued)
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Performance Summary by Fund (continued)
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Performance Summary by Fund (continued)
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Performance Summary by Fund (continued)
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Performance Summary by Fund (continued)
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Performance Summary by Fund (continued)
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Private Equity
Asset Class Review
Year-End 2019
October 8, 2020
Charles Spiller, CPM
Darren Foreman, CAIA
Luke Jacobs, CFA, CAIA
Patrick Knapp, CFA
Tony Meadows, CAIA, CPA.CITP
Phil VanGraafeiland
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