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VCERA to stay course on private equity build-out amid slowdown

The pension's private equity program is still in its "development phase," but its consultant believes sticking to the plan during the market dislocation could prove profitable.

Ventura County Employees’ Retirement Association plans to stick to its 2020 private equity pacing plan despite the turmoil wrought by the coronavirus crisis, aiming for its $250 million commitment goal.

“The 2020 Annual Plan is being presented during a time of uncertainty, which will be marked by great challenges and opportunities,” consultant Abbott Capital Management said in the proposed plan, presented to the board at its April 20 meeting. “The overall VCERA Plan will face volatility, and the ‘denominator effect,’ a shrinking of overall plan size and lagging downward valuation adjustments, may cause exposure to private equity on a reported NAV basis to approach or exceed the target.”

In the first quarter of 2020, the system committed $107 million to private equity. Abbott encouraged the pension to stay the course.

“Historically, investors who have remained true to their long-term pacing plan have experienced benefits from dollar-cost averaging into private equity through access to attractive vintage years during and immediately following times of economic and capital markets disruption,” Abbott wrote.

The board approved the plan, sources told Buyouts.

The $5.3 billion system’s private equity program “remains in its development phase,” according to the plan. It hired Abbott in 2017 to manage a private equity separate account and to provide consulting services. VCERA staff, led by chief investment officer Dan Gallagher, makes some investments on its own as well.

In 2019, VCERA committed $90 million on its own, with Abbott committing $137.3 million. By the end of 2019, private equity made up 7.7 percent of its fund. Its current holdings were valued at $437.7 million as of December 31, with just over $1 billion in total exposure.

Its long-term private equity target is 13 percent, which was raised from 10 percent last year.

In addition to the $250 million goal this year, Abbot recommended the pension commit an average of $200 million a year over the next five years to meet that goal. The firm said it was doing due diligence on seven potential commitments, which would total about $140 million.

In all, the VCERA pipeline includes five venture and growth equity funds, nine North American buyouts and special situations funds and seven international buyouts and special situations funds.

The pension also announced several commitments, including Clearlake Capital Group‘s latest flagship, and two venture commitments, as reported by sister title Venture Capital Journal.

Action Item: read VCERA’s April 20 meeting materials here.