The former CalPERS executive tells Privcap why so many LP portfolios need to be ‘cleaned up in some way.’
The private equity asset class has grown tremendously over the past decade, and as a result many institutional investors now find themselves challenged by non-core or underperforming assets in their portfolios, according to Joncarlo Mark, the founder of Upwelling Capital and a former senior portfolio manager for the California Public Employees’ Retirement System.
In an exclusive audio interview with Privcap, Mark said his new firm would help institutions better understand what is in their portfolios and, in many cases, to shed assets and relationships. “There’s been a huge growth in allocations to private equity,” he said in the interview. “As these allocations have grown – sometimes doubled, tripled, quadrupled – there’s also a need to focus on rebalancing one’s portfolio away from the non-performing investments so that that capital can be redeployed into better-returning opportunities.”
Guide to the conversation
00:52 Mark gives his definition for “legacy asset” – private equity assets in institutional portfolios that may be preventing value maximization. Mark’s firm, Upwelling Capital, will help clients address parts of their portfolios that can be “cleaned up in some way.
02:34 Why would an LP want to sell assets? Isn’t private equity a long-term asset class in which partnership value takes years to be realized? Mark argues that LPs have a fiduciary responsibility to maximize value, reduce risk and active portfolio management can help accomplish these duties.
04:17 Mark describes the stages of analyzing, then formulating a plan to deal with, legacy assets. He adds, “Part of it is just helping and institution know the value, or more specifically, what they actually own. Given the size and the number of relationships and the relatively few number of staff people, oftentimes its just a challenge getting their arms around what they actually own.
06:35 Communication among other LPs will be part of Upwelling’s plan for effecting change.
07:51 Will LPs need to consider removing the GP as one way to reconfigure their portfolios? “Removing a general partner is a pretty big step. There are interim steps between selling and removing the GP that may be appropriate.”
08:52 What is Mark most proud of from his 12 years at CalPERS? First, the people he hired and trained. As for performance, Wilshire Associates has found that CalPERS’ private equity program has generated top-quartile returns verus all public funds in the consultant’s database.
10:45 Mark discusses what he learned from being part of a major secondaries sale process at CalPERS in 2007. Secondary deals are “complicated. . . very few public funds had actually engaged in a secondary sales. . . We recognized after 15 years of investing in private equity that it was really appropriate to rebalance the portfolio and reduce the number of relationships that we had built.”
12:15 Every new GP relationship that is added makes it more difficult to address existing relationship, given staff constraints.
13:31 Private equity “has become a much more global opportunity set. . . you’ve seen a major shift into new markets in Asia and South America.” But this trend places further strain on investment staff.
15:34 How can LPs new to the private equity asset class build programs that remain focused and not end up with sprawling portfolios? LPs need “an all-out effort to obtain superior market knowledge and relationships.”
17:49 How did the limited partner market change during the years Mark was in the leadership of the Institutional Limited Partners Association? “Bring people together from around the world, provide them relevant content. . . help them become smarter in their jobs.” The promulgation of ILPA standards and best practices has also been important.
19:53 What do LPs talk about when GPs are not in the room? “Private equity is an asset class where people do best when there’s an information advantage on a particular market or a particular manager.” However, “Maybe some. . . information is held back. It’s pretty competitive out there.”
About Joncarlo Mark
Joncarlo Mark is founder and managing member of Upwelling Capital Group LLC. Prior to forming Upwelling Capital Group, Joncarlo was a Senior Portfolio Manager in the Alternative Investment Management (AIM) Program at the California Public Employees Retirement System (CalPERS). CalPERS is the largest public pension fund in the US, with approximately $230 billion in overall assets. Joncarlo was a part of the senior leadership team responsible for investing in global private equity partnerships and direct investments, with a portfolio that exceeds $48 billion of invested and committed capital. Joncarlo represented CalPERS on multiple fund advisory boards including funds managed by Affinity Asia, Ares Management, Avenue Capital, CVC Capital Partners, The Carlyle Group, Khosla Ventures, and Leonard Green & Partners. He also helped oversee a multi-billion dollar secondary sale of LP interests in 2007 and led the restructuring of over $2 billion of legacy assets in the CalPERS portfolio. From 2007 to 2010, Joncarlo served as Chairman of the Board for the Institutional Limited Partners Association (ILPA), whose 250 member institutions manage more than $1 trillion of private equity capital. Joncarlo is currently an Advisory Board member for the Brookings Institute Private Capital Research Project, which is the group that previously guided the World Economic Forum’s “Study of the Economic Impact of Private Equity”. He also serves on the Advisory Board for the Center for Entrepreneurship at the University of California, Davis. Prior to joining CalPERS in 1999, Joncarlo spent six years with Premier Farnell PLC, a global industrial products manufacturing and distribution company. Joncarlo earned an MBA from the Graduate School of Management at the University of California, Davis and received a BA from the University of California, San Diego.
