San Jose Police pension boosts PE target

The system’s private markets chief sees opportunities as lengthier fundraising timelines continue.

San Jose’s police and fire pension boosted its target to private equity by 1 percent as it sees an opportunity to choose commitments strategically due to the slowed fundraising environment.

Many LPs with available liquidity see an opportunity as managers with new funds search for capital in a constrained fundraising environment.

The PE increase is part of an overall target increase to private markets to 27.5 percent from 25 percent, which includes 1 percent hikes to private equity and private debt, along with a 0.5 percent rise to venture capital.

With the new changes, San Jose will now target 10 percent of its total fund to buyouts, 4.5 percent to venture capital and 5 percent to private debt. Allocations to real assets and private real estate will remain at 4 percent, according to board documents.

The pension board approved the changes at its May 2 meeting. Buyouts listened to a broadcast of the meeting.

The pension will reduce holdings of cash equivalents by 2.5 percent to allow for the increase to alternatives.

San Jose Police’s head of private markets Dhinesh Ganapathiappan said lengthier fundraising timelines allows the system to take a more patient approach without feeling the need to make quick decisions.

“Managers who were previously oversubscribed have taken longer and longer to fundraise. We’re weighing whether we want to take the risk in being early in a close or if we want to wait and see so we have an idea of how early investments are performing,” said Ganapathiappan.

The system plans to commit up to $395 million to private markets in FY 2024-2025, according to a pacing plan the board approved alongside the changes to its asset allocation.

This includes a $150 million commitment to a private equity fund of one managed by Neuberger Berman. This fund was created in 2023 with an original commitment of $100 million.

The pacing plan also calls for another $150 million commitment to that fund in FY 2025-2026, followed by annual $125 million commitments for the following three years, board documents said.

This is San Jose Police’s second Neuberger Berman fund of one. The first has a value of $477 million, largely on buyouts and co-investments in the mid-market.

Previous to that, the pension made direct investments to private equity funds starting with its inception in 2004, the system said.

The legacy portfolio and the two fund of ones have a total value of $867.1 million as of 3Q 2023.