CalPERS LP launches ‘end of life funds' strategy

An influential limited partner, Joncarlo Mark, formerly a top private equity investment officer with the California Public Employees’ Retirement System, is ready to be the “bad guy” to help other LPs deal with legacy assets.

Mark, who took part in the creation of the industry guide on LP investing in private equity – the ILPA principles – has launched Upwelling Capital. The firm will help institutional investors deal with investments run by managers who are not likely to raise a new fund.

More than secondary sales advice, the firm will assist LPs in deciding whether to use the secondary market to manage their programmes, monitoring their portfolios and negotiating with managers on amendment requests and “understanding the quality of underlying portfolio companies”, Mark said.

“People are trying to figure out what to do with all the relationships, funds, co-investments they have,” Mark told Private Equity International in a recent interview. “If you don’t do anything, you risk continued erosion of value, illiquidity and misalignment of interests, particularly if the manager is not in the money. If you sell, you risk discounts on the secondary market.”

Joncarlo Mark

This kind of advice will occasionally put Mark in the role of “the bad guy”, he said, especially when it comes to GP amendment requests. “Some people don’t want to be the bad guy. We’re prepared to be active from a monitoring and restructuring standpoint,” Mark, who spent 12 years at CalPERS, said.

While at CalPERS, Mark led one of the largest secondary sales ever when CalPERS sold more than $2 billion of its private equity portfolio on the secondary market in 2007. He served as chairman of the Institutional Limited Partner Association from 2007 to 2010, when he helped develop the ILPA principles.

The spectre of consolidation in the private equity industry looms larger than ever, as limited partners work to chop down the number of manager relationships in their portfolios, which will leave some managers without the ability to raise future funds.

Institutional investors have concerns about end-of-life funds run by firms that will not exist once the current fund is

People are trying to figure out what to do with all the relationships, funds, co-investments they have. If you don't do anything, you risk continued erosion of value, illiquidity and misalignment of interests, particularly if the manager is not in the money. Joncarlo Mark

totally liquidated, especially in cases where they continue to pay fees on investments that never seem to retire.

LPs have been getting more amendment requests in the past few years than ever before, sources have said, including extensions of investment periods and extensions of funds’ lives. Fund life extensions, while usually built into fund contracts, have proved particularly galling to some LPs, especially when fund investments age beyond 10 years.

“We’ve had situations where fund lives have not been extended and … the GPs send you private securities that are completely illiquid,” a fund of funds manager said in a prior interview. “Now, instead of having someone who knows something about the business, you as an LP have a portfolio of three or four private companies that you’re kind of undereducated about.

“It’s a tricky discussion,” the manager said.

Mark is the second influential LP to launch a firm around a trend in the industry this year.  Alexander Abell, who worked as a director at BlackRock Private Equity Partners, a fund of funds, launched Atlas Diligence in June to advise LPs on targeting specific strategies like emerging markets.