San Diego County wants to expand private equity program

The system allocates 4% to private equity.

San Diego County Employees Retirement Association investment staff’s top priority is building out its private equity portfolio, according to a discussion at its most recent board meeting.

San Diego County stands out for having a relatively low (6 percent) target to private equity in its portfolio. The $14.6 billion fund stands out even more as it is currently underweight and allocates only 4 percent to the asset class.

At San Diego County’s board meeting on September 15, Mike Comstock, a partner at consultant Aon, said the system’s results over time could have been stronger with an increased allocation to private equity. Buyouts watched a livestream of the meeting.

“The biggest strategic initiative for the investment team is how to build out your private equity program. The marching orders have been to partner with solid firms and to feel comfortable with the process,” Comstock said.

San Diego County’s trust fund fell in value by 9.4 percent over the past year, placing it in the 66th percentile of 63 public funds considered its peer group. During the same time period, private equity returned 14.2 percent and private real assets returned 18.8 percent.
Comstock said pension systems similar in size to San Diego on average allocate 10 percent to private equity.

Comstock also told the board there were trade-offs to potentially raising its private equity allocation.

“The dispersion between the best and worst manager in private assets is so much larger than with public managers. Fees will be higher. Your liquidity profile will be worse. But the trade-offs are worth it. Taking a thoughtful approach and making sure this is done right will be additive,” Comstock said.