SDCERS boosts allocation to PE, includes credit

The San Diego City Employees’ Retirement System’s private equity portfolio contains commitments to distressed and mezzanine investments. 

The San Diego City Employees’ Retirement System approved a new asset mix at its meeting last week that increased its target allocations to both private equity and emerging market debt, according to documents available through the retirement system website.

The mix increases SDCERS private equity allocation from 5 percent to 10 percent. Its emerging market debt allocation will grow from 3 percent to 5 percent.

“The current asset allocation remains broadly appropriate; however, modest refinements to the current asset allocation will improve the Fund’s risk/return profile and help meet objectives,” according to a Hewitt EnnisKnupp report that details the changes.  

SDCERS had $600 million committed to private equity as of 31 December, representing approximately 4 percent of the $4.7 billion retirement system’s assets. Around 24 percent of the private equity portfolio is dedicated to distressed funds. An additional 3 percent is committed to mezzanine strategies, according to documents.

“[It] may take longer to accomplish; actual commitments would depend on attractiveness of opportunities,” according to the report.

The retirement system first committed to private equity strategies with a 5 percent allocation in 2009. Hewitt EnnisKnupp estimates that SDCERS will hit its new 10 percent allocation target in 2019, according to a report.

In addition to increasing its allocation to private equity, the new asset mix also increases the retirement system’s allocation to emerging market debt, citing stronger underlying fundamentals to certain emerging debt markets.  

“Select EM countries have more attractive debt fundamentals than their developed peers,” according to the report. “Local currency [emerging market debt] provides exposure to the local yield curve as well as the underlying currency of issuance.”