Fresno County Employees’ Retirement Association is significantly underweight, by 6.9 percent, for its private credit allocation at the end of the first quarter, though that figure is likely to increase due to pending commitments.
The pension fund set a target allocation of 8 percent for the asset class and listed an actual allocation of 1.9 percent, according to materials from Wednesday’s meeting. FCERA is in negotiations finalising commitments to The Carlyle Group and EQT’s latest special situations vehicle, additional documents showed.
Two commitments of $150 million each have been greenlighted to Carlyle for the Carlyle Middle Market Fund and a separate account.
The commingled fund has a three-year investment period and a seven-year term, according to the Fresno, California-based pension fund’s documents. The fund, which would use up to 1:1 leverage, has a management fee of 1.25 percent on drawn equity, an incentive fee of 15 percent and a 7 percent hurdle.
The fund targets 40-60 percent senior loans and 30 to 50 percent second lien or unitranche loans in mid-market companies, which the Washington-based asset manager defines at $10 million to $100 million in EBITDA. First and second lien loans will target yields of 7 percent and 10.5 percent, respectively, while unitranche loans will aim for a 7.5 percent yield.
The separate account will target 95 percent of its investments in first lien senior secured loans and will utilise 0.5x leverage. There is no management fee associated with the account.
Last year, the pension fund embarked on an effort to increase its private equity exposure, which has a 6 percent target, and its private credit exposure to the aggregate target of 14 percent. Currently, FCERA’s allocation for the former asset class is 2.6 percent. Those two buckets make up the private markets categories.
In addition to the pledges to Carlyle, FCERA also committed $40 million to EQT Credit Opportunities III, which has raised €1 billion, putting the firm within striking distance of its €1.15 billion goal, as Private Debt Investor recently reported. EQT expects to post a 15 percent net internal rate of return.
Verus, which is helping FCERA manage those two portfolios, decided that the pension fund would need to commit $100 million to private equity and $130 million to private credit annually to align both categories with the target allocations.
FCERA decided to work on the private equity portfolio because it was a “more straight-forward structure”, according to a December memo from Verus to FCERA. Among the private equity commitments FCERA made were $70 million to the Hamilton Lane’s Private Equity Fund IX, the Bala Cynwyd, Pennsylvania-based firm’s latest fund of funds vehicle. Hamilton Lane held a final close on $1.9 billion for the vehicle this week.