By David G. Barry
The San Jose (Calif.) Police & Fire Department Retirement Plan will increase its private markets investing as it shifts toward an endowment model.
Under a plan approved by its board, the $5 billion San Jose Police & Fire now has a 25% target to private markets – up from 18%. Buyouts, or private equity, will go from a 7% target to a 9% target, while venture capital, private debt, real estate and real assets will each increase to 4% from 3%. The approved plan also calls for an increased allocation to cash equivalents from 5% to 13%.
To balance these gains, the plan will reduce U.S. equities and developed market equities by 1%, emerging market equities and commodities by 2%, long-term government bonds by .5% to 1.5%, and investment-grade bonds to 4.5% from 11%.
In remarks to the plan’s board, Prabhu Palani, chief investment officer of the City of San Jose Retirement System, said an increase to private markets is the best way to manage the plan while maintaining its risk tolerance. He said it makes sense to “increase our exposure to private assets at the cost of public equities.”
The increase in private markets will put it more on course for adopting the so-called endowment model, which tends to favor such segments as private equity, venture capital and real assets. The San Jose Police & Fire Department Retirement Plan, he said, has taken “baby steps,” since he became CIO in 2018 – most notably adding venture capital to its mix.
For the 2021-22 fiscal year, the plan said it expects to complete 20 private markets investments, totaling $248 million. Its single biggest investment was a $25 million investment in Neuberger Berman’s fund-of-one, which is classified as a private equity fund.
Within private markets, the fund’s biggest commitment area was venture capital, where it allocated $65 million, including $20 million to Tiger Iron SJPF, a fund of funds. It also allocated $63.2 million to private debt – with $21 million going to Angelo Gordon Credit Solutions Fund II, Arbor Lane Credit Opportunity Fund III and Octagon CLO Opportunity Fund IV.
For the 2020-2021 fiscal year, the plan generated net 26.3%.
In addition to the Police & Fire, the City of San Jose Retirement System also invests on behalf of the $2.8 billion San Jose Federated City Employees’ Retirement System. Its allocation strategy will remain the same – although its private markets investing also was strong during the fiscal year.
During the year, it made 15 private markets investments, totaling $167 million. Like its sister fund, its biggest investment – $50 million – was in Neuberger Berman’s fund-of-one.
By June 30, private markets are expected to
account for 20% of the fund – just below its 21% target.
San Jose Federated City Employees returned a net 29.2% for the fiscal year ended June 30, 2021.