Orange County pursues $100 mln in PE commitments to close 2018

  • The $15.8 bln system plans to commit to a tech-focused buyout fund and a generalist buyout fund
  • Investment staff plans to recommend increasing the private equity allocation from 8 pct to 10 pct
  • OCERS’s new PE consultant wants to increase commitments to North American buyout funds

Orange County Employees’ Retirement System is negotiating two private equity commitments that would put it at $330 million in total commitments to the asset class for the year, meeting its target for 2018.

OCERS plans to commit $75 million to a large tech buyout fund and $25 million to a large generalist buyout fund, according to documents prepared for its September board meeting.

The $15.8 billion system planned to commit $300 million to $350 million to the asset class for 2018, its first year working with a new PE consultant, TorreyCove. OCERS did not name the two funds with which it is negotiating.

Earlier this year, OCERS committed $50 million to H.I.G. Advantage, a mid-market buyout fund, $75 million to Thoma Bravo Fund XIII, a large buyout fund, $25 million to Accel-KKR Growth III, a growth equity fund, and $50 million to GGV Fund VII and VII Plus, both venture capital funds.

The latest investment, with GGV, closed Aug. 9. The $330 million year-to-date total also includes part of an earlier $100 million commitment to a Pantheon separately managed account, which was made in Q1 2018, before TorreyCove came on board.

In the near term, TorreyCove said it is looking ahead for at least two top-quartile opportunities launching in first-quarter 2019 and will propose a 2019 PE program plan and pacing for OCERS.

OCERS soon is also likely to see an increased allocation to private equity. Its general fund consultant, Meketa Investment Group, plans to ask the retirement fund to consider asset-allocation-policy changes, including an increase to 10 percent from 8 percent for PE, a decrease in real assets, and an increase in risk-mitigating strategies, meeting documents show.

OCERS staff said “modest adjustments to asset allocation over time are appropriate.” It noted that the retirement fund’s new CIO, Molly Murphy, has had time to absorb the full portfolio and make well-reasoned adjustments to the asset allocation.

In PE, Murphy believes OCERS is in a strong position to trade liquidity for higher expected return.

Most of OCERS’s PE commitments in 2018 – including 68.2 percent of committed capital — have been North American buyout funds, part of TorreyCove’s plan to continue to focus on North America and large and mid-market buyouts.

TorreyCove’s recommended implementation would have OCERS increase its exposure to buyouts to a range of 55 to 65 percent from its current 32 percent, while reducing special situations to a range of zero to 15 percent from its current 34 percent allocation.

Geographically, TorreyCove would want to see OCERS reduce its global allocation — which comes from funds of funds with exposure to all regions — and increase its exposure to North America to a range of 55 to 70 percent from 44 percent.

TorreyCove would also increase allocations to Europe and Asia, raising each to 15 to 25 percent from 13 percent. TorreyCove recommends a continued focus on high conviction North American managers, and an opportunistic approach to non-U.S. managers, according to OCERS documents.

OCERS is also planning to invest in an energy income fund and an energy fund in fourth-quarter 2018, but those commitments will be part of its real-assets portfolio.

Action Item: Read TorreyCove’s recent presentation to OCERS here