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Tulare County pension hikes PE target, moves to become a direct fund investor

The board approved doubling its private equity target allocation to 12%.

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California

Tulare County Employees Retirement Association voted to increase its private equity allocation to 12 percent from 5 percent as it shifts to becoming a direct investor in PE funds.

The pension would need to commit $80 million to $90 million annually over the next decade to achieve its 12 percent allocation, which can range up to 16 percent maximum, according to a presentation before the board at its September meeting.

The TCERA Board of Retirement reviews its strategic asset allocation on an annual basis.  The adjustments to the allocation were a result of that review.

“Given these commitment sizes, we believe a fund of funds approach is sub-optimal,” said one of the presentation slides. “The ease of implementation comes with contractual costs for 15-20 years.”

The current portfolio features eight PE fund commitments – all funds of funds. The current 5.05 percent allocation to PE is made up of the following commitments: $443,622 to Pantheon, $10.9 million to Stepstone (secondaries), $17.5 million to Ocean Avenue III, $17 million to Ocean Avenue IV, $28.9 million to Pathway fund 8, $21.6 million to Pathway Fund 9, $3 million to Pathway Fund 10 and $527, 330 to BlackRock Alternatives.

As of July 31, 2021, the system’s PE portfolio has a $108.4 million market value.
The system also rehired Verus Advisory as investment adviser.

“The adjustment to the private equity target was part of the complete review of the strategic asset allocation and after careful consideration, the board of retirement determined that it was prudent to adopt an asset mix that would offer a higher return potential,” according to Leanne Malison, retirement administrator for Tulare County, which is near Fresno, California.

The new strategic allocation includes an increase to public and private equity exposure, reduces fixed income exposure, and adds allocations to opportunistic real estate and infrastructure.

“The board of retirement expects increased return potential over the long term as compared to public equities and fixed income,” she said. “The largest increase was to the private equity allocation.”