Key Takeaways
- • Orange County Employees Retirement System (OCERS), a $25 billion pension fund, is reducing fund of funds exposure by executing sales through the secondaries market, marking a shift in its private equity allocation strategy.
- • The pension system plans to leverage both GP-led and LP-led secondaries markets to offload its indirect private equity holdings, providing multiple exit pathways for these positions.
- • OCERS is also evaluating a potential secondaries sale of its private debt portfolio, with valuations estimated between $100 million and $300 million according to an RFP issued by the fund.
- • This move reflects a broader institutional trend toward direct private equity exposure and away from fund of funds structures, which typically carry higher fee layers and reduced transparency.
Summary
Orange County Employees Retirement System, managing $25 billion in assets, is actively reducing its fund of funds allocation by pursuing sales through the secondaries market. The pension system's strategy reflects a deliberate repositioning away from indirect private equity exposure toward more direct investment structures, leveraging both GP-led and LP-led secondaries channels to execute these transactions.
The initiative extends beyond traditional private equity fund of funds, as OCERS is simultaneously evaluating the sale of a portion of its private debt portfolio. According to a recent request for proposal issued by the fund, the private debt holdings under consideration are valued between $100 million and $300 million, indicating material scale within the pension system's alternative investment portfolio.
This strategic pivot aligns with a broader institutional investor movement away from layered fund structures toward direct allocations and more transparent investment vehicles. Fund of funds structures, while historically valuable for diversification and access, typically impose additional fee layers and reduce operational visibility—concerns that have prompted large institutional investors to rationalize their indirect exposure in favor of direct relationships with underlying managers and cleaner economic terms.
The use of secondaries markets for this reallocation provides OCERS with flexibility in execution timing and pricing discovery across multiple transaction types, reflecting the growing sophistication of secondary markets in accommodating large institutional exits. The dual approach—utilizing both GP-led continuation vehicles and traditional LP secondary sales—demonstrates a methodical approach to reallocating capital while maintaining portfolio continuity.
The initiative extends beyond traditional private equity fund of funds, as OCERS is simultaneously evaluating the sale of a portion of its private debt portfolio. According to a recent request for proposal issued by the fund, the private debt holdings under consideration are valued between $100 million and $300 million, indicating material scale within the pension system's alternative investment portfolio.
This strategic pivot aligns with a broader institutional investor movement away from layered fund structures toward direct allocations and more transparent investment vehicles. Fund of funds structures, while historically valuable for diversification and access, typically impose additional fee layers and reduce operational visibility—concerns that have prompted large institutional investors to rationalize their indirect exposure in favor of direct relationships with underlying managers and cleaner economic terms.
The use of secondaries markets for this reallocation provides OCERS with flexibility in execution timing and pricing discovery across multiple transaction types, reflecting the growing sophistication of secondary markets in accommodating large institutional exits. The dual approach—utilizing both GP-led continuation vehicles and traditional LP secondary sales—demonstrates a methodical approach to reallocating capital while maintaining portfolio continuity.
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