OCERS to lower its private credit allocation

The California pension fund updated its asset allocations to ensure steady returns if faced with changes in market conditions.

The Orange County Employees Retirement System has voted in favour of decreasing its private credit asset allocation by 2 percentage points, according to meeting documents released last week.

The California pension fund voted at its 25 October investment committee meeting to lower its private credit allocation from 13 percent to 11 percent. The investment committee will also lower its real asset allocation from 22 percent to 17 percent. Private equity’s allocation will increase from 8 percent to 10 percent, and risk-mitigating investment will double from 5 percent to 10 percent.

The changes are meant to address the current portfolio imbalance between low and high-risk investments, according to meeting minutes.

The new allocations are designed to keep the portfolio’s expected return consistent at 7.5 percent. Currently, 11.9 percent of the portfolio is invested in private credit.

Within private credit, the new allocation includes a decrease in opportunistic credit from 2.6 percent to zero. There is also a decrease in corporate credit from 5.2 percent to 5 percent. Private credit and emerging market debt will both increase by 0.3 percent, which puts both at a 3 percent allocation.

The recommendation to decrease the asset class’s allocation is intended to address a variety of potential changes in market conditions. The changes in the portfolio are meant to keep the expected return rate consistent despite various potential scenarios including inflation, a US equity market crash or an ineffective monetary policy being signed into law.
At of the end of the third quarter, the pension had more than $1.77 billion invested in private credit.

The fund has made multiple debt investments this year including a $25 million commitment to the Accel-KKR Growth Capital Partners III fund, which focuses on mezzanine debt, and a $75 million commitment to Almanac Realty Securities VIII, a real estate-focused mezzanine fund.

Based in Santa Ana, OCERS covers more than 44,000 people and has more than $15 billion in assets under management.