The San Bernardino County Employees’ Retirement Association’s board declined to discuss a separate account with Ares Management that had been heavily recommended by its investment staff, a spokesperson disclosed to Private Debt Investor.
SBCERA will likely consider the account, dubbed a master custodial agreement, at its 7 November meeting, though that has yet been determined, the spokesperson told PDI in an email. The spokesperson declined to say why the retirement association’s board pulled the account from its 3 October agenda.
Staff had recommended the account based on Ares’ performance with its Enhanced Credit Opportunity Fund. SBCERA’s investment in that vehicle was said to be the most successful in the $6.7 billion retirement association’s history, according to documents provided to PDI. Its original $215 million investment was worth $488 million as of July.
“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 a memo from senior investment officer James 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.”
Ares offered SBCERA favourable terms on the account: a 1 percent management fee on net asset value with a 20 percent performance fee over a 5 percent hard hurdle, which advisor NEPC dubbed “very competitive,” according to a memorandum.
An Ares spokesperson had not responded to a request for comment at press time.
SBCERA did approve a master custodial agreement with Oaktree Capital Management at the meeting, the spokesperson wrote in an email. That account will include $82 million of SBCERA’s existing investments in Oaktree’s convertibles strategy plus an annual commitment of at least $30 million per year over the next five years, according to a term sheet made available to PDI by the retirement association.