The San Diego City Employees’ Retirement System approved a 2 percent allocation to credit opportunities within its Opportunity Fund at its meeting last week, chief investment officer Liza Crisafi told Private Debt Investor.
Retirement system consultant Hewitt EnnisKnupp will lead a search for a firm to manage the strategy on behalf of SDCERS. The retirement system will likely pursue the strategy through a separately managed account rather than a traditional limited partner fund.
“We’re leaning towards a separate customized account,” Crisafi said. “The original allocation’s two percent, but we want to have the opportunity – at some point in the future – to increase that allocation. And a separate account gives the flexibility to do that.”
“We just think this is a really compelling opportunity right now,” she said, adding that opportunistic strategies are minimally correlated to many of SDCERS holdings in other asset classes.
The $5.3 billion retirement system is targeting high single digit or low double digits returns for the strategy, net of fees, Crisafi said.
SDCERS Opportunity Fund refers a portion of the retirement system’s assets dedicated to strategies that do not fit within one asset class. SDCERS set an 8 percent allocation to the Opportunity Fund in 2010, according to a Hewitt EnnisKnupp report released by the board last year.
In June, SDCERS considered adding a 2 percent to 3 percent sub-allocation to opportunistic real estate within the opportunity fund. The retirement system’s investment committee later approved a $50 million commitment through the opportunity fund to Torchlight Debt Opportunity Fund IV.