OCERS seeks international direct lending managers

The California pension fund has issued a request for proposals for two separate direct lending allocations, one European and an Asia/Pacific direct lending strategy.  

The $12.6 billion Orange County Employees Retirement System (OCERS) has issued a request for proposals (RFP) on its website soliciting direct lending fund managers to handle separate Europe- and Asia/Pacific-focused mandates. 

The pension fund hasn’t set a specific target for the mandates, though it has a 14 percent (or $1.8 billion) target allocation to diversified credit strategies, of which about $400 million is already invested with some international direct lending managers, which include Cross Ocean, BlueBay Asset Management, Hayfin Capital Management, OCP Asia and Park Square Capital. These firms are invited to re-bid in the new search, according to the RFP.

The European mandate is open to both primary and secondary credit investment. The investor would prefer a diversified Asia/Pacific lending fund with limited exposure to China. “We strongly prefer senior secured, collateralized and unitranche credit quality, and discourage entries from lower-quality credit shops, especially in light of the evolving stage of the credit cycle,” the RFP outlined.

In the Asia/Pacific region, OCERS will also consider an emerging market direct lending fund that dedicates 20 percent or less to Japan and Australia, “especially if the portfolio loans are well diversified throughout the region and subject to British law”. “We are willing to consider a ‘founding investor’ role in such a fund without our normal concentration requirements, if provided sufficient incentives in the fee structure,” OCERS said.

The pension fund requires that applying firms only charge management fees on invested, rather than committed, capital and that those fees not exceed 1.5 percent. On the performance fees, there must be a hard hurdle rate of five percent annualized, using a European waterfall or equivalent IRR structure.

NEPC, the Boston-headquartered institutional consulting firm, is advising OCERS on the search. The RFP also said that applying direct lending managers must have a track record of at least three years and carry an FPL (focused placement list) designation with NEPC, which means the firm must already be on an ‘approved managers’ list at the consulting firm.

Proposals are due on 21 September and further information on the search and criteria is available on OCERS’ website.