By Muskan Arora
The $4.5bn San Joaquin County Employees Retirement
System unveiled its private credit and private equity pacing plans, with the
support of consultant Meketa.
Within the private equity space, the
system is left with up to $40m to commit in 2024, which may scale up or down
depending on the opportunity set.
So far this year, the system has committed
$30m to Capitol Meridian Fund 1, a buyout fund and $40m to Stellex Capital Partners
II, a special situations fund.
“The current portfolio allocation to
private equity is impacted by the denominator effect related to the decrease in
the public equity values due to volatility and macroeconomic elements,” as stated
in the meeting materials.
Maintaining the vintage year
diversification and reflecting on the portfolio’s condition, the system plans
to achieve its target allocation of 10% by 2027. The current allocation stands
at 8.3% or $365.6m, as of March 31.
Following the footsteps of most allocators,
SJCERS’ darling within the sleeve is buyout, with a focus on North America, as the
allocation doubles in almost four years.
Being sceptic of the special situations strategy, the system expects a sudden allocation drop over the years.
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The PE portfolio returned 6.7%, 12.8% and 16%
for its 1-,3- and 5-years return.
Influenced by the volatility of the market,
SJCERS sets pacing as $130m for the year for its private credit portfolio,
which may go up to $190m depending on the opportunity set.
With an aim to achieve the target of 10% by
2025, the system will allocate funds focused on direct lending, specialty
lending, special situations, distressed and real estate debt strategies. The
current allocation stands at $434m, as of March 31.
Most recently, the system has committed
$62m to Silver Point Specialty Credit Fund III , a direct lending fund and
$62.5m to Ares Pathfinder Fund II, a specialty lending fund.
The PC portfolio returned 3.9%, 3.6% and
3.2% for its 1-,3- and 5-years return, all of which are below the benchmark.
The consultants and staff observed multiple
factors in the current economy to spot the right opportunities as most asset
classes posted gains in August.
However, both the US and non-US markets
depend on factors including China’s economic disorder and slowing economic
growth, yen-carry trade, and the looming US elections.
Further, the lag in the fed interest rates
cut has increased the ‘hard landing’ risk for the US economy.
