San Diego Goes Back To School To Determine PE Style

The $5 billion San Diego City Employees’ Retirement System is studying up on private equity. Executives at the pension fund recently entertained presentations from 12 advisory firms as part of its efforts to shape a strategy for its 5 percent target allocation to the asset class. The firms all represented different models, such as funds of funds.

The schooling follows San Diego’s issuance of an RFP on June 30. The request for one or more discretionary advisers to develop a diversified, global private equity portfolio received 63 responses. Once all the responses were in, the pension fund categorized the respondents by model. The staff then picked the 12 firms to give them primers on their particular model. This does not mean, however, that the other respondents are out of the running.

After hearing the presentations in late September, three outcomes now seem likely. Taking the presentations into account, the pension fund seems most likely to first determine the structure of its program then decide which firms out of the original 63 to interview. There’s also a chance that one firm among the 12 presenters will be particularly impressive and get picked outright. The third option is that none of the models presented seem appealing.

In the last case, staff would go back to the responses and see if they missed anything. If so, they would then reconsider, or perhaps develop another type of program, such as a hybrid. Starting over would not be out of the question if the limited partner still can’t find what it’s looking for.

In early 2008, three staff members came on board to help implement the city’s private equity program. The staff’s biggest decision regarding the program was whether to hire a discretionary or a non-discretionary consultant. Ultimately the staff recommended, and the board approved, the hiring of a discretionary consultant, given the staff’s present resources. The LP seeks to pledge between $100 million and $150 million to private equity each year.