NEPC: San Bernardino could see giant spike in distributions

NEPC projects a big rebound in distributions for at least one public pension plan it consults. A slowed exit market has caused many LPs to fret about cashflow and liquidity. This in turns impacts pacing plans for private equity and fundraising overall.

NEPC predicts that San Bernardino County Employees’ Retirement Association’s private equity program will generate $800 million in distributions for the year ending June 2024.

According to board documents, San Bernardino’s private equity investments returned $216 million in distributions from March 2022 to March 2023, the latest returns posted for the system’s private equity program.

This marks a difference of nearly $585 million from the June 2024 projections, board documents show.

The consultant’s cashflow projections were included in a proposed private equity pacing plan to be discussed at San Bernardino’s board meeting scheduled for January 4. Buyouts reviewed NEPC’s presentation in advance of the meeting.

NEPC did not elaborate on the reasons behind the projected distributions emanating from San Bernardino’s private equity portfolio in its presentation. The consultant also declined to comment.

The system’s investment team did not answer a request seeking comment by press time.

The consultant also projects a positive net cashflow of $185.4 million for the year ending June 2024. The system’s PE portfolio generated positive cashflow of $1 million for the year ending March 2023, documents show.

Capital calls are also projected to rise to $614.2 million for the year ending June 2024, up from $217 million from the year ending March 2023, according to NEPC.

The NAV of San Bernardino’s private equity portfolio stands at $2.4 billion, the presentation said. This comprises 16.7 percent of the total fund, below its target allocation of 18 percent.

NEPC recommended San Bernardino commit $575 million to private equity over the next two to three years. It was not made clear if San Bernardino’s board approved the proposed pacing plan.

San Bernardino pioneered the usage of master custodial account relationships for its private equity program. These are a type of separate account that allows an LP to invest in a manger’s primary funds, co-investments, secondaries or direct investments.

This approach allows San Bernardino to make decisions on each manager’s opportunities as opposed to the traditional model.