Contra Costa County looks to commit up to $200m to distressed debt, buyouts

The firm’s private equity portfolio has a 5-15% sub-allocation to special situations.

Contra Costa County Employees’ Retirement Association (CCCERA) may commit $200 million to its private equity programme – an allocation that includes investments in distressed debt and special situations vehicles.

The northern California pension fund heard a plan to make commitments of $25 million-$50 million to two to four funds, according to documents from an 11 December meeting. The focus would include North American distressed debt funds and US buyout funds, including vehicles focused on small-cap and mid-markets transactions, as well as those concentrating on large-cap deals.

The pacing plan was merely an informational agenda item, and no action was taken, a spokeswoman for the pension plan said.

A representative for CCCERA could not be reached for comment by press time.

CCCERA has a 10 percent private equity target, and the retirement plan’s consultant, StepStone Group, set a commitment pace of $100 million-$300 million per year for ten years. While CCCERA’s portfolio can invest globally, it does have a bias toward North America.

The sub-asset class allocation consists of 60-70 percent to buyouts and 5-15 percent for special situations, venture capital and growth equity, and real assets and natural resources. Secondaries funds have a 0-10 percent allocation target. Currently, 6 percent of the pension’s private equity allocation is in special situations funds, and 36 percent is in buyout strategies.

Special situations fundraising was robust in 2017. Last year, distressed debt fundraising locked down $66.67 billion, falling just short of senior debt, which at $67.55 billion was the strategy that raised the most. This year it has locked down 24 percent of the total capital raised, or $21.12 billion.

While it has made up a smaller portion of fundraising this year, limited partners are still interested in the strategy. Several Korean investors have expressed interest in gaining more exposure to special situations in their portfolios, which have to this point largely been made up of direct lending. Likewise, LPs polled at the PDI New York Forum indicated that they favoured special situations over direct lending.

Editor’s note: This story has been updated to reflect the CCCERA spokeswoman’s information.