City of Dallas considers boosting private equity target

Consultant Wilshire projects an expected 10-year return of 9.9% for private equity.

Employees’ Retirement Fund for the City of Dallas may hike its target allocation to private equity.

Many retirement systems have reduced private equity plans due to overallocation issues and liquidity concerns caused by slowing distributions. However, some systems have taken the opposite approach as they believe the next few vintage years will provide sterling returns with asset valuations at more reasonable levels.

Thomas Toth, a managing director with consultant Wilshire Associates, recommended Dallas increase its allocation to private equity from 7.5 percent to 10 percent, stating the $3.5 billion system has enough liquidity to invest long-term in private markets.

Toth’s recommendations were detailed in Dallas’s board meeting on April 11. Buyouts watched a webcast of the board meeting.

Dallas will vote on Wilshire’s recommendations at its May meeting.

Wilshire projects an expected 10-year return of 9.9 percent for private equity, according to Toth’s presentation. This compares to the 7 percent, 10-year return Wilshire projects for global equity.

“There’s a spread of about 3 percent. You can get higher expected returns from private equity as a benefit for taking on that illiquidity,” Toth said.

Wilshire also recommended Dallas add a 2.5 percent allocation to private credit.

An unidentified board member expressed concerns about due diligence conducted before investing in private funds, citing the collapse of Silicon Valley Bank and FTX.

Another board member stated he was familiar with the due diligence process from his professional endeavors.

“The biggest investors in the world serve on their advisory boards. The due diligence work that goes into private funds is incredible,” the board member said.

Dallas currently allocates 10 percent to private equity.