San Diego pension re-ups with GSO 'recovery' fund

The San Diego County Employees' Retirement Association has approved a $90 million commitment to GSO Capital Partners’ second rescue fund. The commitment is $30 million more than the amount investment staff recommended in the system's agenda.

It's not clear why San Diego County Employees' decided to commit more than the recommended amount.

GSO’s capital solutions team focuses on companies in need of liquidity or restructurings due to potential breaches of debt covenants, impending loan maturations, cyclical downturns or other funding needs. The group is led by Blackstone senior managing directors David Posnick, Jason New and Dwight Scott.

GSO is one of many private equity groups to focus on opportunities related to the ongoing economic chaos in Europe, as firms including Kohlberg Kravis Roberts, Apollo Global Management and Oaktree Capital Management have all been focusing on credit-related opportunities in the region.

The Blackstone Group’s debt affiliate is expected to hold a first close for GSO Capital Solutions Fund II in November, according to a source with knowledge of the vehicle. It is unclear how much the fund is targeting, though Bloomberg reported the fund has a $4 billion target.

SDCERA previously committed $50 million to GSO Capital Solutions I, and has committed a total of $180 million to four Blackstone funds in the past: three private equity funds and one real estate fund. The second rescue fund will focus on Western European companies more than the first fund, which invested primarily in US businesses and does not have much exposure to Europe, sources previously told Private Equity International. Fund II will charge a 1.5 percent management fee, with a discount if SDCERA participates in a first close, according to pension documents.

SDCERA is being advised by private equity consultant Albourne and portfolio strategist Salient Partners, both of which concur with the commitment recommendation. The $8.6 billion pension has been conducting meetings this week with finalists as a part of its search for a portfolio strategist. SDCERA issued a request for proposals in July for a portfolio strategist to be responsible for the “the development of recommendations on SDCERA’s strategic allocation for the Board’s consideration, the implementation of SDCERA’s strategic asset allocation as approved by the board, and ongoing oversight, monitoring, and reporting with respect to the investment program,” according to pension documents.

The new portfolio strategist contract is expected to be chosen by late December and has a contract start date of 1 January 2013.

SDCERA has a 10 percent target allocation to private equity, which is split between 4.5 percent to buyout and growth capital investments, 3 percent to distress and special situations, 1.5 percent to opportunistic investments and 1 percent to venture capital.

A spokesperson for the SDCERA was unavailable for comment at press time.