Contra Costa County pension to form new PE relationships

The California-based system looks to commit up to $450m in 2024.

Contra Costa County Employees’ Retirement Association, unlike many other pension systems, will work to form new relationships with private equity managers.

Most institutional investors have focused on re-ups with existing managers in a fundraising ecosystem constrained by liquidity concerns and overallocations to private equity. Contra Costa County’s different approach reflects the system’s build-out of its private equity program to reach a target allocation of 15 percent.

Contra Costa discussed its private equity program and 2024 pacing plan at its November 1 board meeting. Buyouts reviewed presentations from investment staff and consultant StepStone in advance of the meeting.

The $10.5 billion system set a 15 percent target allocation to private equity in 2021, up from 11 percent. The system currently allocates 12.4 percent to the asset class, board documents said.

According to investment staff, the system projects it will make between $350 million and $450 million in private equity commitments in 2024. These commitments will be spread between two re-ups with existing GPs and up to three new relationships.

The $10.5 billion system made $315 million in commitments to four funds in 2022 and anticipates another $100 million commitment to a fund currently under review, investment staff said.

According to StepStone, an annual commitment pace of $350 million would allow the system to reach its 15 percent target by 2028.

The system is primarily investing in North American buyout funds as it builds its portfolio, according to investment staff.

The system has invested in private equity since 1996, largely through funds-of-funds until 2017. Contra Costa shifted its strategy in 2018 to a focus on directly committing to buyouts funds, StepStone said.

Contra Costa’s private equity portfolio consists of 63 investments, with the 46 commitments made before 2018 considered as its legacy portfolio, according to StepStone.

Currently, 63 percent of its portfolio is held in funds of funds from the system’s legacy portfolio, StepStone said.

According to StepStone, the system has committed more than $1 billion to 18 primary funds since 2018 with a 17.4 percent gain in net IRR.

The system’s portfolio fell in value by $30 million between June 2022 and June 2023, StepStone said. No reasons why the portfolio lost value were provided in the presentation.

Contra Costa has received $69.6 million in distributions against $76.2 million in contributions through the first three quarters of 2023, StepStone said.