Pacific Life Catches Big Secondary Wave –

Hunting for a pickup game at a local basketball court or scanning the surf for the next set at Huntington Beach, Ronn Cornelius could be mistaken for a Southern Californian beach bum. You’d never suspect that the 42-year-old is one of the country’s most experienced fund managers, having spent two decades helping grow Pacific Life’s private equity portfolio to more than $1 billion.

Cornelius went to work for Pacific Life in 1988, one year out of graduate school, as a supervisor in the accounting department. After a year accounting, he moved to Pacific Life’s Private Placement Investments Group, where he spent the next 16 years working in private debt (corporate bonds) and private equity, helping to shape Pacific Life’s portfolio and participation in around 100 partnerships.

Cornelius recently helped form a new secondary fund, but he continues to co-manage the portfolio at Pacific Life, which also happens to be an investor in his new fund.

Looking back on the creation of Pacific Life’s portfolio, Cornelius explains that the company-one of the largest life insurers in the nation with $75 billion in assets-began investing in private equity in the early 1980s. When he joined, the insurer’s PE portfolio was a fraction of its current size, in the neighborhood of $60 million. The Pacific Life portfolio that Cornelius co-manages today with partner Sam Tang has $1.3 billion in commitments and assets valued at around $700 million.

About half of the portfolio is in secondaries, one-fourth is in specialty funds and the remainder is in buyout and venture funds. Pacific Life was among the first LPs to allocate such a large chunk of its assets to secondary investments, which Cornelius says began their real growth as a group of funds about 15 years ago.

The trick in having successfully grown a large portfolio was to pick successful managers. And Cornelius picked well. Firms such as ARCIS, Credit Suisse First Boston, Landmark, Lexington and Pantheon are among the secondary investors that he backed when they were in their first funds. In venture capital he has long-term relationships with Enterprise Partners Venture Capital, Menlo Ventures and Mission Ventures. And in buyouts, he has bet on Brentwood, Kelso and Hicks Muse.


The attraction to secondaries and success at investing in such funds while the industry has been growing is another life-long theme for Cornelius. The benefit of secondaries, he says, is that they provide several types of diversification beyond asset class.

“With a primary fund manager you’re exposed to one manager in which maybe five or six people are making investments,” he notes. “In secondaries I get 50 to 200 managers because the secondary funds that we’re buying have hundreds of portfolio companies. So we get extensive diversification.”

Through secondary purchases, Cornelius typically buys assets that are five to nine years old. “We truncate the J-curve phenomena and have faster access to realizations at the same time,” he says.

The next level of diversification that secondaries provide is in asset class itself. “With a secondary you get an asset mix all-in-one vehicle-venture capital, mezzanine, buyouts, special situations,” he says. And it doesn’t stop there. “On top of that, you have geographic diversification. From 100 funds over various asset classes, you have over 1,000 companies spread across the world.”

But the clincher is vintage diversification. “What were buyout and venture funds’ returns on vintage 2000? Is there a median return? Was it no return? With secondary funds, we don’t have that problem.” Because a secondary fund holds assets from one to 15 different vintage years, the returns average out over time to avoid the great chasms of economic cycles. “If you risk adjust for all of the 25 secondaries we’re in, it’s also been the least volatile class that we’ve invested in,” Cornelius says.

New Beginning

One of the relationships Cornelius established at Pacific Life was with two young entrepreneurs who started two secondary niche funds. Ed Pfohl and Brian Smith incubated Montauk Partners with an initial fund of $35 million in 1999 and a second fund of $75 million in 2000.

Cornelius and Tang helped to incubate Montauk and have since joined the firm to form Montauk Triguard, the third boutique secondary fund with the Montauk name. The new fund has $300 million under management.

In addition to their new roles as secondary fund managers, Tang and Cornelius continue to manage the portfolio of Pacific Life as contractors. Pacific Life is an LP in Montauk Triguard, with an approximate 10% stake. The remaining $265 million was raised from every class of investors, including endowments, insurers, pensions and family owned asset managers.

Ronn Cornelius

Partner, Montauk Triguard III

Contract Portfolio Manager, Pacific Life

Age: 42

Education: B.S. in finance, California State Long Beach, 1984; MBA, California State Long Beach, 1987.

Work History: 1987-88: Northrup, Project Financial Analyst. 1988-2004: Pacific Life, Co-Manager of the PE Asset Portfolio and Co-Chair of the Workout Committee; 2005: Montauk Triguard III, Partner, and contract portfolio manager for Pacific Life.

Personal: Married with two children (boy and a girl).

Hobbies: Golf, basketball, surfing, martial arts.

Favorite Book: The Bible.

Last Book Read: The Institutions of the Christian Religion, by John Calvin.

Favorite Film: Gladiator.

Best Investment: Early 1990s investments into the first secondary funds of Landmark and Lexington Partners.

Worst Investment: Participation in a Brazilian fund in the mid 1990s. “Wasn’t the right time, not the right management group. It didn’t work.”

Advice for Fund Managers: “You need to treat your LPs as though they are really your partners. You need to truly believe that they are your partners, not just a source of capital.”