Key Takeaways
- • CalPERS is exploring re-entry into the secondary market to offload private equity stakes, joining a widening cohort of institutional investors liquidating PE holdings as secondary market sales volumes reach record levels.
- • The pension fund is actively shopping a $3 billion portfolio of private equity fund stakes to pare down legacy holdings and reconfigure its overall PE program strategy.
- • Institutional investors are reassessing PE investments made during higher-valuation vintage years (2019–2021), viewing these positions as unlikely to deliver strong returns and preferring to redeploy capital into current opportunities rather than hold underperforming assets.
- • According to NEPC's Scott Perry, while current market conditions lack the distress characteristics of the 2008 financial crisis, major asset owners remain overweight to private equity with significant allocations to vintages in which they have diminished conviction.
- • The secondary market surge reflects a structural shift in how institutional investors manage private equity portfolios, using secondaries as a strategic portfolio management tool to exit legacy positions and rebalance allocations.
Summary
The California Public Employees' Retirement System is joining a growing wave of major pension funds and endowments divesting private equity holdings through secondary market sales, a trend reflecting broader institutional reassessment of legacy PE investments. CalPERS is exploring plans to reenter the secondary market sales arena and is actively shopping a $3 billion portfolio of private equity fund stakes as part of a broader effort to pare down legacy holdings and shift the composition of its PE program, according to sources cited in Secondaries Investor.
The acceleration in secondary market activity reflects a strategic calculus among institutional asset owners facing overweight private equity allocations. Scott Perry, a partner with Boston-based consulting firm NEPC and head of portfolio strategy for the firm's $130 billion outsourced CIO business, highlighted the driving factors: institutional investors "find themselves overweight to private equity and also have sizable allocations to vintages they don't have a lot of conviction in." These vintages—particularly 2019, 2020, and 2021 cohorts—were deployed during elevated valuation environments and are now viewed as unlikely to generate strong returns. Rather than hold these underperforming assets hoping for recovery, institutional investors are opting to exit positions and redeploy capital into current investment opportunities.
The secondary market surge, while lacking the distress dynamics of the 2008 global financial crisis, represents a material shift in institutional portfolio management behavior. Pension funds and endowments are using secondaries strategically to address overallocation to private equity, exit legacy positions with limited conviction, and rebalance portfolios toward contemporary opportunities. This institutional repositioning has driven secondary market sales volumes to record levels, underscoring the scale and significance of the portfolio reconfigurations taking place across the institutional investment landscape.
The acceleration in secondary market activity reflects a strategic calculus among institutional asset owners facing overweight private equity allocations. Scott Perry, a partner with Boston-based consulting firm NEPC and head of portfolio strategy for the firm's $130 billion outsourced CIO business, highlighted the driving factors: institutional investors "find themselves overweight to private equity and also have sizable allocations to vintages they don't have a lot of conviction in." These vintages—particularly 2019, 2020, and 2021 cohorts—were deployed during elevated valuation environments and are now viewed as unlikely to generate strong returns. Rather than hold these underperforming assets hoping for recovery, institutional investors are opting to exit positions and redeploy capital into current investment opportunities.
The secondary market surge, while lacking the distress dynamics of the 2008 global financial crisis, represents a material shift in institutional portfolio management behavior. Pension funds and endowments are using secondaries strategically to address overallocation to private equity, exit legacy positions with limited conviction, and rebalance portfolios toward contemporary opportunities. This institutional repositioning has driven secondary market sales volumes to record levels, underscoring the scale and significance of the portfolio reconfigurations taking place across the institutional investment landscape.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.