Orange Co. adds GP to its PE portfolio, builds direct PE investments

Orange County Employees Retirement System committed $50 million to GGV Capital, bringing its total PE commitments to $200 million year to date.

The $15.9 billion pension system committed $40 million to GGV’s seventh fund, which is targeting $800 million with a hard cap of $1.36 billion. It also committed $10 million to GGV’s VII-plus fund, targeting $200 million with a hard cap of $272 million.

GGV’s plus fund will deploy capital to its “winners,” CIO Molly Murphy said at the Sept. 6 meeting. The winners are sixth-fund companies that will be successful enough for the next round of investing, Murphy said.

The idea is that the plus fund would try to generate outsized returns by avoiding some of the early startup risk, she said.

GGV is a new relationship for the pension system.

With offices in the San Francisco Bay Area and in China, GGV Capital is a venture firm focused on internet-related investments. The management team has launched three funds and has been together for almost a decade, Murphy said.

GGV Capital was an early investor in Alibaba, and that has allowed it to “parlay into a lot of successful internet investments,” Murphy said at the meeting. GGV Funds IV, V and VI returned in excess of 2.4x gross multiples, Murphy said.

GGV’s portfolio includes Domo, Opendoor, Wish, and Musical.ly.

For the next three years, the Orange County pension system has a $350 million private equity pacing target that will bring it into the neighborhood of $1 billion of commitments, Murphy said.

The system will employ several PE strategies as it builds up its internal PE expertise, Murphy said. In the near term, the system will support emerging managers and their first funds because they have LP-friendly fee terms, she said.

The pension system will also look at larger GP mandates and opportunities to invest across asset classes for better fee structures, Murphy said.

The county system will also look to make co-investments with PE firms, she said. Building a co-investment program will take time as proper staffing and in-house expertise must be built up, documents said.

Orange County pension system’s 2018 direct private equity commitments were spread across different strategies and included $25 million in growth equity firm Accel-KKR’s third fund, targeting $500 million, and $75 million to Thoma Bravo’s 13^th fund, targeting $9 billion, documents said.

Orange County pension system also committed $50 million to midcap shop H.I.G. Capital. It is unclear whether the commitment was for H.I.G.’s latest fund of funds, which is targeting up to $1 billion.

The county’s $1.4 billion PE portfolio had allocations between 50 percent and 65 percent to buyouts, 10 percent and 35 percent to VC, 0 percent and 15 percent to special situations, and 0 percent and 10 percent for other, pension documents said.

The geographic allocation was between 55 percent and 75 percent to North America; between 15 percent and 25 percent to Europe, between 10 percent and 15 percent to Asia Pacific, and between 0 percent and 5 percent for the rest of the world, pension documents said.

The pension system’s PE allocation was 9.18 percent compared with its target of 8 percent, documents said.

As of June 30, the private equity portfolio returned 17.4 percent over one year, 12.4 percent over three years, and 13.8 percent over five years.

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