The $3.9 billion Fresno County (Calif.) Employees Retirement Association has had positive net IIR on all 16 of its private credit investments since 1998 through to the end of last year. Most of these funds (14 out of 16) also beat the Barclays Capital Aggregate Bond Index, against which Fresno benchmarks its private credit investments, according to a recently released private credit portfolio review from FCERA.
“Broadly speaking, we are pleased with the returns that have been achieved thus far and continue to be mindful of niche opportunities that may be created by increased volatility and/or dislocations in the capital markets,” the documents said. “FCERA maintains significant ‘dry powder’ managed in either equity or fixed income index funds, waiting for deployment to new or existing commitments,” the memo continued.
Of the eight private credit fund investments listed in the review, the Lone Star Fund IV delivered the best returns by far: posting net IRR of 30.7 percent and soundly beating the Barclays Aggregate, which posted returns of less than five percent in the same period. The Lone Star fund was a 2002 vintage year vehicle into which Fresno committed $20 million. The portfolio consisted of 65 investments globally, but with a heavier tilt towards Asia, specifically Japan and Korea. “The portfolio is nearly liquidated. Since inception the fund returned 229 percent of invested capital,” the documents said.
Another high performer was the Colony Distressed Credit Fund, a distressed real estate fund. The 2009 vintage year fund posted an 18.2 percent net IRR, also besting the Barclays Aggregate index which returned under five percent at the time. The pension invested $40 million in the Colony vehicle. The fund is in the process of harvesting money to investors and has returned 105 percent of called capital. As of 31 December, 43 percent of the Colony fund’s committed capital was in Federal Deposit Insurance Corporation and other loan portfolios, 29 percent in originated and acquired loans with nine percent in CMBS/debt securities, the Fresno documents said.
The pension also recently invested in Colony’s newest fund, the Colony Distressed Credit II fund, a 2014 vintage year into which the pension committed $20 million. Performance for that fund isn’t yet available. The fund has called $91 million to date for seven NPL portfolios and one performing investment which include 465 loans in aggregate. The transactions included Ritz-Carlton Kapalua, a Freddie Mac loan portfolio and a Spanish commercial real estate loan portfolio. Projected gross IRR is 15 percent and the fund has called about 27 percent of FCERA’s commitment.
The documents noted that younger funds will not yet reflect the full potential returns as the value has not yet been generated or realised.
Fresno also invested $15 million in the Oaktree Opportunities Fund IX, a 2012 vintage year fund, which returned 3.7 percent so far, though the fund hasn’t yet reached its distribution period and Fresno expects returns could yet still improve. The documents also noted that recent transactions “mark the interest of the fund in European real estate and the energy front; they [Oaktree] believe that recent macro events have allowed for attractive risk-return opportunities to surface”, the Fresno materials said.
In addition to Oaktree’s ninth fund, the TCW Shop (Shared Opportunity) III and IV funds posted some of the lowest returns. The third 1998-vinatge year fund had net IRR of 3.4 percent, falling below the Barclays Aggregate Bond Index which was returning five percent at that time, while the 2002 vintage year TCW Shop IV returned 6.9 percent, landing slightly ahead of the Barclays Aggregate at the time, which was a little below five percent.