San Bernardino approves Ares separate account

SBCERA had been scheduled to approve the commitment in October but was delayed because of procedural issues. 

The San Bernardino County Employees’ Retirement Association approved a master custodial account with Ares Management last week, chief investment officer Donald Pierce told Private Debt Investor.

The board approved the separately managed account at a special board meeting held on 5 December. The account first appeared on the board’s agenda in October, but the vote was postponed for procedural purposes, Pierce said. The terms of the proposed account did not change between October and the board’s final approval in December.

The account will be used to invest in bank loans, European direct lending, global structured credit, banking capital structure arbitrage and real estate debt opportunities, according to documents made available to PDI in October.  The account will also give SBCERA access to direct investments and other structured opportunities with “very attractive relationship based pricing”.

Ares will receive a management fee equal to 1 percent net asset value as well as an incentive allocation equal to 20 percent of returns over a 5 percent hurdle, according to SBCERA documents.  

SBCERA staff’s decision to form a separate account appears to have been inspired by the performance of the firm’s Enhanced Credit Opportunity (ECO) Fund. SBCERA’s original $215 million investment Ares was worth $488 million as of July. It is said to be the most successful investment in SBCERA’s history in terms of net gain.

“The recommendation to create a master custodial account with Ares will allow SBCERA to diversify its current holdings in ECO across the well regarded and strongly performing Ares platform,” according to Perry. “It also is intended to expand the manager’s mandate from a predominately US bank loan-focused strategy to a more broadly focused opportunistic mandate.”

San Bernardino will invest in the account through a combination of new capital commitments and a diversification of SBCERA’s existing investments in the ECO fund, according to an NEPC report. Staff recommended an annual commitment pace of $10 million per year for the next five years.

Investments would be sourced by Seth Brufsky, Americo Cascella and Greg Margolies. Investments made through the account would require Pierce’s approval.