The $12.3B San Diego City Employees’ Retirement System approved a pacing plan of $200M for its private debt portfolio in fiscal year 2026.
According to materials from a recent board meeting, the pacing will be deployed in three to four funds within core direct lending and asset-backed strategies on the recommendation of investment consultant Callan.
The pension plan expects to reach its target allocation of 5% by 2029, with reductions in its pacing plan to $75M in 2027 and $50M annually from 2028 to 2035.
Callan also recommended that SDCERS continues to build its core portfolio with direct commitments to primary funds to avoid a double layer of fees, while non-core exposure is maintained with SDCERS’ discretionary advisors, noted the materials.
Additionally, during the meeting, the pension plan committed $50M to the Blue Owl Diversified Lending Fund, an evergreen fund focused on direct lending to larger, more stable companies in the upper middle market. The portfolio is made up of primarily first lien positions to high-quality companies in non-cyclical sectors.
The board approved the creation of its private debt sleeve at its May 2023 meeting, and as of September 30, 2025, the portfolio stands at 2.1%. This commitment to the Blue Owl Diversified Lending Fund would bring SDCERS’ private debt portfolio to approximately 3.6% of the total fund.
The meeting materials disclosed that several important parameters were considered in this search for a direct lending strategy. First, the consultant was focused on a strategy within the upper middle market, which lends to larger, more established companies that are market leaders in their industries, such as companies with annual earnings greater than $125M on average.
In addition, Callan favored managers with track records of at least several years to demonstrate the ability to execute their strategy in different market environments. The consultant also looked for managers with size and scale. Finally, the search was dependent on which funds were currently open and raising capital.
Related stories:
