Orange County chisels out private credit bucket

The pension’s overall credit portfolio was overweight at 19.31% of its total portfolio. 

The Orange County Employees Retirement System has carved out a specific bucket for private debt from its credit allocation, pension plan documents showed.

The OCERS board at its Tuesday meeting approved recommendations to divide its credit allocation into four sub-asset classes: corporate credit (including high yield bonds and bank loans), emerging market debt, opportunistic credit and private credit (described as direct lending or other unleveraged private lending).

The southern California pension plan set the private credit sub-asset class at 20 percent of its total credit bucket, down from the 30 percent these types investments had represented as of 30 June. OCERS expects a 6.5 percent return for its private credit portfolio.

Opportunistic and emerging market debt will each target 20 percent of the OCERS credit bucket, while corporate credit will make up the plurality of the portfolio at 40 percent.

The pension’s overall credit portfolio was overweight as of the end of last month, representing 19.31 percent of its total portfolio, well over the 13 percent target. OCERS’ total portfolio hit $14.73 billion as of 31 August, bringing its credit allocation to roughly $2.84 billion.

OCERS declined to comment.

The board also approved on Tuesday a reclassification of certain private credit assets as private equity. The recategorised investments included ones deemed riskier “either as a result of leverage or additional country/capital structure risk”, documents presented at the meeting read.

The private credit assets reclassified as private equity included a $178.4 million investment in the OCP Asia Orchard Landmark Fund I, a $52.9 million investment in Monroe Private Credit Fund II and a $48.4 million commitment to Alcentra European Direct Lending Fund II.

At the same meeting, the board approved a redemption of the pension’s $75 million investment in the PIMCO DiSCO II fund, which OCERS committed in May 2012. OCERS’ DiSCO II portfolio was valued at $149.5 million as of 31 August, representing a 13.8 percent annualised return since inception.