Arizona pension sees exit market recovery in early stages

Acquisitions and exits have started to recoup, according to the system's deputy CIO.

Evidence of an exit market recovery has emerged, according to Arizona State Retirement System’s deputy chief investment officer.

Institutional investors have worried about a slowdown in deal activity and multiples, which have led to reduced distributions. This, in turn, has shrunk the pool available for new commitments for many LPs.

But a turnaround may be in its earliest stages, Arizona deputy chief investment officer Samer Ghaddar said at the $50 billion system’s investment committee meeting held in late June.

The Federal Reserve’s rapid increase of interest rates was the major contributor to the exit slowdown, according to Ghaddar.

“However, we are seeing early signs of recovery since the start of this year,” Ghaddar said, reagarding acquisitions and exit activity.

The end of historically low interest rates will show the importance of manager selection in the months ahead, Ghaddar said.

“You can see if you have selected the right managers and have the right managers in place. We’ve seen our positive selection help our portfolio,” Ghaddar said.

Arizona’s private equity portfolio had a time weighted return of 1.33 percent during the first quarter of 2023, the system reported.

Ghaddar attributed at least part of the portfolio’s relative success due to the system’s scant allocation to venture capital, which dropped in value.

“We have a very conservative portfolio,” Ghaddar said.

Arizona’s private equity portfolio was valued at $6.3 billion as of the end of March. Ghaddar said the system plans on committing $1.35 billion to private equity funds this year.