Kern County to add private credit, more real estate to portfolio

The Bakersfield, California, pension fund will reduce its investment in equities and commodities.

The Kern County Employees Retirement Association (KCERA) hasadopted a recommendation to rejigger the makeup of its investment portfolio as it seeks to boost its return but lower its volatility exposure.

The Bakersfield, California, pension fund voted 13 July to devote 5 percent of its portfolio each to private credit and value-added real estate. By adding the two new investment areas, consultant Verus Investments projected KCERA would increase its 10-year return from 6.6 percent to 6.9 percent while reducing its expected volatility by 1 percent.

To effectuate the asset allocation, KCERA, which manages $3.7 billion in assets, willreduce its exposure in public equities in both domestic and international by 4 percent each and scale back its commodity investments by 2 percent. Under the new portfolio makeup, 19 percent will be devoted to domestic equity while 18 percent will be dedicated to international equity. Commodity investments will be 4 percent of the new portfolio.

Fixed-income securities will make up the largest portion, or 29 percent, of KCERA’s investments. Exposure to private equity and private credit will each be 5 percent each. Money put into hedge funds will be 10 percent the fund’s portfolio. The addition of value-added real estate will increase the firm’s real estate position from 5 percent to 10 percent.

Seattle-based investment consultant Verus has been recommending new private credit allocations, or raising existing targets, to several clients to boost returns. The Tulare County Employees’ Retirement Association also established a 5 percent private credit allocation in March. The Fresno County Employees’ Retirement Association is looking for a private equity and credit separate account manager to help it get up to its 14 percent target.