Marin County pension board debates new commitments in uncertain environment

The inflationary environment, along with interest rates rising higher than they’ve been in years, have spurred questions about the direction of private markets.

Marin County Employees’ Retirement Association will commit $50 million to two private equity fund-of-funds managers next year as investment committee members weigh concerns about the need for liquidity.

The inflationary environment, along with interest rates rising higher than they’ve been in years, have spurred questions about the direction of private markets. The outlook was a primary topic at Marin County’s investment committee meeting on September 28, a webcast of which was seen by Buyouts.

Much of the meeting’s focus was on the $3 billion system’s private equity pacing program for 2023. Marin County uses two fund-of-fund managers for its private equity program: Abbott Capital Management and Pathway Capital Management.

The investment committee pledged up to $25 million to each manager for 2023. Adviser Callan recommended a $60 million commitment before the committee decided to lower the amount.

Some committee members were skeptical about directing any capital to the managers, stressing the need for liquidity during a rocky economic climate.

“I’m concerned about making this commitment and the market becoming even more volatile,” said investment committee member Sara Klein. “I’m concerned about investing in a rising interest rate environment. Interest rates have been zero and central banks have been buying bonds. All of that has been completely reversed. We are in a new regime, and I think it is going to be very humbling for asset managers across all asset classes.”

Gary Robertson of Callan said the system should stick to its pace to practice “dollar cost averaging” across multiple vintage years. “Investing across different vintage years is the DNA to building long-term returns. Not doing so means you could miss some very good value,” Robertson said.

Callan president Jim Callahan said the increased cost of capital will affect all equity classes. “A well-thought-out private equity program over time, even in a higher interest rate environment, should still deliver a premium over public equities,” he said.

Klein said she doubted Callan’s predicted distributions of $114 million in 2023 from Marin County’s private equity program. Earlier in the meeting, representatives from Abbott and Pathway each predicted they would distribute between $20 million and $30 million respectively back to the system.

“Both managers are predicting significantly less in distributions than what it says in this model,” Klein said. “And given what financial conditions are at now, it seems like their estimates are optimistic. I’m finding it very hard for us to get $114 million in distributions next year.”

Marin County began investing with both Abbott and Pathway in 2008. The system has committed $450 million to both managers since that time.

Abbott has $14 billion in assets under management, according to a presentation it made to the investment committee. Marin County invests in five of its funds, all of which provide exposure to venture capital, growth equity, buyouts, special situations and secondaries.
Abbott has committed to funds like Green Equity Investors VI, Battery Ventures XII and Oak HC/FT Partners II, according to the presentation.

Abbott’s public pension system clients include Illinois Municipal Retirement Fund, Utah Retirement System and Wyoming Retirement System. Other clients include Butler University, the US Holocaust Memorial Museum, the Texas A&M University System, Hess Corporation, Alliance Bernstein and Encyclopedia Britannica, the presentation said.
Marin County also invests in five funds with Pathway, which has more than $90 billion in assets under management, according to its presentation.

Pathway has placed money with 68 managers across 15 vintage years. These managers include 169 primaries, 24 secondaries and 39 co-investments, according to its presentation.

Marin County currently allocates 13.8 percent of its portfolio to private equity. It has a target allocation of 8 percent.