San Jose pension funds set to drop private debt pacing by $50m in 2019

The two public retirement plans are set to decrease their commitments to the asset class as part of the impending implementation of a new asset allocation.

The San Jose Federated City Employees’ Retirement System (CERS) and San Jose Police and Fire Department Plan (PFDP) are set to decrease their private debt pacing plans as the two pension funds plan new asset allocations.

At a meeting Thursday, CERS is poised to cut its private debt commitment plan for this year and next year from $45 million to $35 million as it weighs a final OK to implement an altered asset allocation.

The updated allocation policy would see the private debt bucket decreased to 4 percent from the 6 percent adopted in October 2017. In addition, private equity will see its allocation increased from 9 percent to 10 percent, and the firm has introduced a venture capital allocation of 5 percent.

At the PFDP’s 6 September meeting, the pension cut its private debt commitment plan in half for this year, down from $100 million to $50 million, and trimmed its expected 2019 allocation from $100 million to $60 million. Total private debt allocation will fall from 8 percent to 4 percent, while private equity will increase from 8 percent to 12 percent.

In June, the board approved the updated asset allocation framework, pending approval to implement the program both from the pension fund’s investment committee and board, with an effective date of 1 October. Total private market assets would increase from 20 percent of CERS’s portfolio to 25 percent.

In October 2017, PFDP adopted a proxy plan that redirected part of its allocation dedicated to private to global equity and investment grade bonds, pension plan documents showed.
This proposal, drawn up by the PFDP’s general consultant Meketa Investment Group, was a reaction to its underweight private debt portfolio, according to documents presented to the pension plan’s investment committee at the time.

The two San Jose pension funds had set aside up to $145 for million in private debt commitments this year and, according to a source, were willing to consider a number of different strategies within the asset class.

Both CERS and PFRP currently have investments with Cross Ocean Partners, GSO Capital Partners, Medley Management and White Oak Global Advisors. PFRS also has capital with ArrowMark Partners, Marathon Asset Management, Park Square Capital and Shoreline Capital.