San Jose pensions open to various strategies for 2018 allocations – exclusive

The private debt pacing plan for the two limited partners runs through 2028.

Pension funds for San Jose, California, which have set aside up to $145 for million in private debt commitments this year, are willing to consider a number of different strategies within the asset class, according to a source familiar with the situation.

Two of the city’s pension funds – the San Jose Federated City Employees’ Retirement System (CERS) and the San Jose Police and Fire Retirement Plan (PFRP) – are slated to make up to five commitments each. Both would consider more macro strategies, including direct lending and mezzanine debt, along with niche strategies like specialty finance, this person said.

San Jose’s pensions are “very opportunistic” in the way they approach private debt commitments, the source said, specifically noting that the pacing plan is a “guideline” rather than set in stone.

Both pensions declined to comment.

CERS, which is scheduled to commit $45 million to the asset class in 2018, is under-allocated to its private debt programme, according to April documents from the pension plan. The pacing plan runs up to 2028. Through 2022, the pacing plan suggests $45 million in commitments a year, while from 2023-2028 the plan would commit $50 million.

Some 3.6 percent of its portfolio is dedicated to the category, short of its 6 percent target. The retirement plan set a 5 percent apportionment to opportunistic investments in 2010, which CERS dedicated to direct lending investments. In the asset allocation adopted, the pension fund last year upped that goal by 1 percent.

For its part, PFRP aims to make up 8 percent of its portfolio with private debt, and the actual allocation is 8.2 percent. For 2018, $100 million has been set aside for the asset class, according to April meeting papers. PFRP’s pacing plan also runs through 2028, and it suggests $100 million a year through 2024 and then $110 million from 2025-2028.

The pension fund also added alternative lending to its book in 2010. PFRP set the current allotment target after reducing it from the previous figure of 11 percent.

Both CERS and PFRP, which manage $2 billion and $3.54 billion, respectively, currently have investments with Cross Ocean Partners, GSO Capital Partners, Medley Management and White Oak Advisors. PFRS also has capital with ArrowMark Partners, Marathon Asset Management, Park Square Capital and Shoreline Capital.

CERS posted a one-year return on its private debt investments of 3.3 percent as of 31 March. PFRP reported a one-year return of 5.5 percent as of 28 February.