FROM: Don Pierce, Chief Investment Officer
SUBJECT: Adams Street Partners/SBCERA Headwaters Fund
RECOMMENDATION:
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Recommend that the Board approve a $200mm commitment to a new fund-of-one (the SBCERA Headwaters Fund) with Adams Street Partners under our existing MCA, subject to the finalization of legal documentation.
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BACKGROUND:
The SBCERA Headwaters Fund (“Headwaters” or “Fund”) will focus on investments with emerging managers in private equity. Staff has identified this as a timely investment opportunity with the potential to drive attractive and differentiated risk-adjusted returns for the overall portfolio.
Headwaters will commit to 8-10 primary fund investments over a three-year period, with an average investment of $20-25 million. The fund will concentrate on managers raising early vintages (funds I, II or III // typically under $1 billion in size), and will primarily represent a mix of generalist and specialty buyout strategies in the US.
The fund will be executed by Adams Street Partners, which is a firm with over $60 billion of assets under management. The firm was founded in 1972 and is comprised of five platforms - primary investments, secondary investments, co-investments, growth equity, and private credit. SBCERA has been working with Adams Street Partners since 2020, and has approximately $200 million of investments across the co-investment, secondary and growth equity sub-sectors.
Headwaters will fit within the private equity/venture capital portion of our overall asset allocation, which is ~20% of the SBCERA portfolio. At full deployment, Headwaters would represent a projected ~1% of our entire portfolio and ~5% of the private equity/venture asset class.
The fund represents an attractive fit within SBCERA’s portfolio, namely as a source of idiosyncratic returns with multiple long-term benefits. The strategy has direct philosophical alignment with SBCERA’s core investment beliefs and the program will be run by a partner that we are excited to grow alongside. Staff and NEPC are recommending a $200 million commitment to this new initiative, with the potential for additional growth in the future.
BUDGET IMPACT:
Investment Costs are deducted from Net Asset Value.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Prudent Fiscal Management
STAFF CONTACT:
Thomas Kim
ATTACHMENTS:
Exhibit A: SBCERA Presentation
Exhibit B: Adams Street Presentation
Exhibit C: NEPC Memo
Exhibit D: Adams Street Proposal Details (confidential)