San Bernardino kicks in $300m-plus to PE through separate accounts

San Bernardino Employees’ Retirement Association has leaned on its master custodial account relationships when investing in private equity this year.

MCAs are a type of separate account that allows an LP to invest in a manager’s primary funds, co-investments, secondaries or direct investments. This approach allows San Bernardino to make decisions on each manager’s investing opportunity as opposed to the traditional model.

San Bernardino senior investment officer Amit Thanki discussed the system’s 2023 private equity activity at the $13.8 billion system’s investment committee meeting held July 13. Buyouts watched a broadcast of the meeting.

According to Thanki, the system committed $305.1 million to 17 opportunities presented by its six MCA managers this year. These managers offered a total of 38 opportunities to San Bernardino, meaning the system turned down 65 percent of what its managers offered.

A majority of the 17 commitments were co-investments, Thanki said.

San Bernardino will use six of its eight MCA managers in 2023, which include Adams Street Partners, Industry Ventures, Kayne Anderson, Partners Group and Pathway Capital. The system has no planned budget for separate accounts with Ares and Waterfall Asset Management, board documents show.

San Bernardino previously had an MCA with Crestline. However, Thanki said the system was unable to come to terms with the manager for another fund.

The system has budgeted a total of $525 million for commitments to its private equity managers in 2023, down from the $700 million budgeted in 2022, according to the documents.

San Bernardino pioneered the MCA structure in 2012 to quickly find opportunities in the wake of the financial crisis, according to a white paper from law firm Foley and Lardner.

Thanki also provided some color on the status of the private equity market.

According to Thanki, there has been an increase of managers taking publicly held companies private. He attributed this to public companies not having access to capital like they had in previous years.

“Analyst coverage for smaller companies is limited as investment banks do not have the talent pool they used to. A lot of smaller cap companies that typically do well in a bull market rally have not had much love,” Thanki said. He expects distributions from 2021 and 2022 vintage years to take longer than other years. He said one primary issue was that investors deployed capital too fast.

“We’ve seen managers that have lost discipline before. But when the entire market loses discipline like it did in 2021 and 2022, managers will blame investors and investors will blame managers,” Thanki said.