San Bernardino plans $50 mln commitment to Ares through separate account: UPDATED

  • Formed separate account with Ares in December
  • Special Situations IV targeting non-control investments in distressed assets
  • San Bernardino will have committed $290 mln of $300 mln budgeted for 2014

The retirement association’s investment committee approved the commitment at its Tuesday, July 8, meeting, spokesperson Sierra Orr told Buyouts. The commitment was scheduled to be considered by San Bernardino’s board of retirement at its meeting today (July 10). (Update: The board of retirement approved the commitment.)

Should the retirement board approve the commitment, San Bernardino will have allocated $290 million of the $300 million it had projected for private equity commitments in 2014. The remaining $10 million will likely go to funds of funds managed by Pathway Capital Management and Partners Group, according to retirement association documents.

San Bernardino had anticipated $30 million of its 2014 commitments to go toward growth equity strategies, an allocation that will likely go unfilled, Chief Investment Officer Donald Pierce told Buyouts.

“Other things came first,” Pierce said, noting investments in direct lending funds managed by Ares and Tennenbaum Capital Partners. “We had a lot of direct lending, and Ares is at the top of the budget.”

San Bernardino formed the Ares separate account in December, moving roughly $480 million in existing Ares commitments to a broader mandate that calls for opportunistic credit investments to be made through direct deals and Ares’s closed-end funds. The separate account’s structure anticipated a commitment to Special Situations Fund IV, according to December presentation documents. The fund is earmarked for non-control, stressed and distressed opportunities in North American corporate credit markets.

Dow Jones reported in May that Ares had set a $1 billion target and $1.5 billion hard-cap for the fund. The firm’s previous special situations fund, a 2011 vintage, had generated a 14.42 percent internal rate of return as of December 31, according to New Mexico Educational Retirement Board documents.

Ares declined to comment.

San Bernardino had a 15.8 percent allocation to private equity as of March 31, according to its website. The retirement association has a 16 percent target allocation for the asset class.