San Diego’s Long and Winding Road Leads to RFP

The $5 billion San Diego City Employees’ Retirement System recently entered the private equity arena for the first time, issuing an RFP on June 30 for one or more discretionary advisers to develop a diversified, global private equity portfolio. The pension fund has set a 5 percent target allocation to private equity and is open to all sectors of the asset class.

The pension fund, which seeks to commit about $100 million to $150 million per year, is accepting proposals from a variety of gatekeepers, including managers of funds of funds and separate accounts. It would prefer to hire one adviser but is open to hiring more than that. The deadline for responses is Aug. 1. The pension plan hopes to reach a decision by the end of the year, according to Corey Buuhoan, investment officer and head of private equity.

San Diego City Employees’ took its initial step on its private equity journey in February 2007, when the board approved the addition of private equity as an eligible asset class for its portfolio. Last September the board approved a 5 percent target allocation after getting advice from its general consultant, Callan Associates. The system plans to reduce its exposure to domestic equities to make room for the allocation.

In early 2008, three staff members joined San Diego City Employees’ to help implement the private equity program, and this spring they interviewed 21 private equity firms, eight consultants, six investment firms and six placement agents in a survey of the private equity market to help them understand the various products and services available. They also spoke with six plan sponsors to get a feel for how they implemented their private equity programs.

The big decision then boiled down to hiring a discretionary versus 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 pension fund also uses an outside non-discretionary adviser, The Townsend Group, to help manage its real estate portfolio.