LPs

San Bernardino commits $30 mln to Venezuela private markets

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Nicolas Maduro, Venezuela
Venezuela's President Nicolas Maduro speaks during the kick-off event for the international trading of Petro, the cryptocurrency developed by the Venezuelan government, in Caracas, Venezuela October 1, 2018. REUTERS/Carlos Garcia Rawlins
  • New strategy will invest in real estate, PE or international treaty claims
  • SBCERA has $110 mln left to spend in unallocated 2018 PE budget
  • System has 16 pct allocation target to PE

San Bernardino County Employees’ Retirement System committed $30 million to a private equity strategy focused on acquiring assets in Venezuela.

SBCERA, which has $9.97 billion in assets, committed to a new strategy managed by Gramercy, an existing manager in its PE portfolio.

SBCERA has a $512 million master custody account relationship with Gramercy, which includes two separate-account strategies and six commingled funds, one of which focuses on public Venezuelan assets.

The Venezuela public-markets strategy has given SBCERA an 11 percent annualized return since inception and the retirement fund decided to extend that investment into private markets in the country, a memo prepared for the board’s Oct. 9 meeting shows.

“Based on experience with other emerging market sovereign restructurings, Gramercy also recommended private, illiquid investments related to Venezuela for the MCA,” SBCERA Investment Officer Jake Abbott wrote in the memo.

“The target assets may include real estate, private equity or international treaty claims. Gramercy believes public assets provide exposure to similar underlying risks but the private investments are available at much more attractive valuations.”

SBCERA expects that about half the capital commitment to private Venezuelan assets will be drawn over the next two years.

The system committed $30 mln alongside Gramercy and other investors to acquire a pool of Venezuelan assets, drawing $20 million from its unallocated PE budget for 2018 to make the investment.

SBCERA had earmarked $50 million for Gramercy as part of its $500 million private equity pacing plan for 2018, but had already committed $39 million to a separate Gramercy PE strategy earlier in the year, the memo says.

After accounting for the $20 million taken from the unallocated PE budget, SBCERA still has $110 million in its private equity budget for 2018, according to the memo.

The initial pacing plan allocated $335 million to existing relationships, including Gramercy, leaving $165 million in its unallocated budget to be reserved for new opportunities.

In addition to the $20 million allocated to Gramercy, SBCERA recently allocated $35 million to Waterfall Asset Management’s debut PE fund, which will invest in middle-market financial services companies.

Before creating the master custody account in 2012, SBCERA made a direct investment in Gramercy Distressed Opportunity Fund II.

SBCERA has a 16 percent target allocation to private equity.

Action item: Read SBCERA’s 2018 private equity pacing plan here: https://bit.ly/2CFB5h0