San Diego County pension bucks PE cashflow trends

San Diego County Employees Retirement Association reported positive cashflow from its private equity portfolio over the past six months.

The $15.9 billion San Diego County system has bucked the trend of LPs contributing more to their private equity program than they’re receiving in the slowed exit environment. At the system’s September 21 board meeting, the system’s investment staff attributed its cashflow-positive position to its slow-and-steady approach to private equity.

Buyouts watched a broadcast of the meeting.

Board documents showed that San Diego County’s private equity portfolio generated a positive cashflow of $12 million during the first two quarters of 2023. The system has shown success throughout its private asset classes – private equity, private debt, real assets and real estate – which have brought home $128 million more in distributions than contributions over the past 12 months.

“Your investment team spends a lot of time looking for the right partners. They also seek better investment terms like lower fees and better liquidity options,” said Mike Comstock, a partner at San Diego County’s consultant Aon.

San Diego County allocates 3 percent of its portfolio to private equity, below its 6 percent target and well below much larger allocations seen at similar pension systems.

Over the years, San Diego County fluctuated its commitment pacing to private equity while other institutional investors were piling money into the asset class.

According to board documents, San Diego County’s last commitment to private equity came in 2017 to a fund managed by Public Pension Capital LLC.

“I wouldn’t call us conservative. But we do want to be more liquid and transparent,” said San Diego County CIO Stephen Sexauer.

Sexauer did not respond to a request seeking comment about San Diego County’s private equity strategy.

Aon’s quarterly review of San Diego County’s private equity investments showed the system has received $20 million in distributions against $8 million in contributions since the start of 2023.

According to the review, all but five of San Diego County’s 20 private equity funds have brought home more cash than it paid out – with two of those funds still relatively early in their investment period.

San Diego County’s biggest winner has been a $15 million commitment made to Hellman & Friedman Capital Partners’ seventh fund in 2009, which has returned more than $46 million in cash. San Diego County has not invested in any other Hellman & Friedman funds since.

Other big winners include $142 million returned on a $90 million commitment to the 2013 vintage New Mountain Partners IV; a combined $192 million from $96.1 million in total commitments to EQT’s sixth and seventh funds; and $155.8 million from a $100 million pledge to the 2010 vintage Blackstone Capital Partners VI.

Other funds, including those managed by Baring Asia Private Equity, Capital International, New Mountain and Blackstone, reported increased distributions over the past six months, the report said.

“It’s hard. You really have to work at it,” Sexauer said about managing a private equity portfolio.

Sexuaer added that GPs in recent months have had to readjust after having access to “15 years of free money.”

“We’ve seen managers raising their newest fund and say they’re going to close in August. Then they come back and say they’re extending that a bit further. Then they say they’re going to close at the end of the year. And then we’ll talk to other people who say there is no way the manager will be able to get their fundraising done,” Sexauer said.