San Bernardino County rains $35 mln on Waterfall’s debut PE fund

  • Assets under management: $9.97 bln
  • Target allocation to PE/VC: 16 pct
  • Actual allocation to PE/VC: 14.28 pct
  • Size of PE portfolio: $1.5 bln
  • Whom to contact for a meeting: Michael Tamony (mtamony@
  • Why this is important: MCAs allow LPs to invest across various GP strategies and build fewer, closer relationships

San Bernardino County Employees’ Retirement Association committed $35 million to Waterfall Asset Management’s debut private equity fund that will invest in middle-market financial services companies.

It is unclear how much Waterfall’s debut Sentinel Fund is targeting. Waterfall, with $7 billion in assets, built its expertise in structured credit and loan products.

Waterfall hired Gene Weil and John Nelligan to lead its effort into private equity in 2017. Previously, Weil and Nelligan were co-heads of Houlihan Lokey’s financial institutions group.

San Bernardino made the commitment through its managed custody accounts (MCA) program. The program allows the system to form strategic relationships with firms through which it can invest across funds, strategies and products.

San Bernardino had already committed $126 million to Waterfall through the managed account program in global debt strategies and Sutherland REIT, according to pension documents.

The MCA structure helped the pension system reduce its number of GP relationships and fees, said a source familiar with the pension system. It also helped the pension system establish closer relationships with its GPs, the source said.

San Bernardino’s $1.5 billion private equity portfolio is divided between buyouts, venture, secondary, sector-specific funds, direct lending, mezzanine funds, credit/distressed/opportunistic and special situations funds.

The pension system’s 2018 private equity pacing is $500 million, up from $400 million in 2017, according to documents.

The PE portfolio is comprised of a core allocation to Standard Life and Pathway Capital Management for exposure to domestic private equity, and Partners Group for exposure to European private equity. In addition, a direct investment program focuses on cash flow generation in the short-term, pension documents said.

Including the Waterfall commitment, the pension system has committed $370 million this year to date and had an unallocated budget of $130 million, as of June 30, 2018, pension documents said.

Prior to the commitment to Waterfall’s debut fund, San Bernardino committed $335 million across six MCAs, including $25 million each to Alcentra and Ares Management, $30 million to Kayne Anderson Capital Advisors, $40 million each to Partners Group and Pathway Capital, $50 million each to Gramercy Capital and Tennenbaum Capital Partners and $75 million to Industry Ventures Partners Group.

As of June 30, the private equity portfolio returned 14.8 percent over one year, 12.4 percent over three years, 13.6 percent over five years and 8.4 percent over 10 years, San Bernardino reported.

Action Item: Read more on the pension system’s performance here