San Bernardino County considers $500 mln for PE in 2018

  • New commitment pace would mark 25 pct-plus increase
  • San Bernardino County committed $395 mln to PE in ’17
  • Bulk of county’s PE exposure in managed accounts

San Bernardino County Employees’ Retirement Association is weighing an investment-pacing model that would increase its budget for private equity commitments by more than 25 percent, association documents show.

In 2017 San Bernardino committed $395 million to PE, the bulk of which went to existing separate accounts with firms like Ares Management, Kayne Anderson Capital Advisors and Partners Group.

Next year, should the board at its Jan. 4 meeting approve a pacing plan developed by retirement association staff and consultant NEPC, the $9.7 billion public pension would allocate as much as $500 million to private equity.

As it did in 2017, San Bernardino expects the bulk of its 2018 PE commitments to cycle through its separate accounts, pension documents say. San Bernardino staff and NEPC plan to commit $335 million through the existing separate accounts with the remaining $165 million allocated opportunistically across private equity strategies, according to NEPC’s report.

San Bernardino County structures its separate accounts as “master custodial accounts,” in which it has the ability to invest across a manager’s funds, co-investments and direct investments, a white paper prepared by law firm Foley & Lardner says.

Generally, the county negotiates the fees and expenses of these accounts up front, which hastens its ability to allocate capital as new investment opportunities are presented.

“The creation of the MCA structure was driven by a desire to focus on the best investment opportunities available through a manager while minimizing agency conflicts and establishing a board approved governance structure for the relationship,” former SBCERA Investment Officer James Perry told Foley & Lardner, describing why the public pension established its separate accounts in 2012.

San Bernardino County did not immediately respond to requests for comment.

The county’s PE program had delivered a 10.7 percent internal rate of return and 1.4x multiple through March 31. The retirement association launched the program in 2014 and it’s currently valued at around $1.4 billion.

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The sun rises over electric power lines in Encinitas, California, on Sept. 4, 2007. Photo courtesy Reuters/Mike Blake