Ventura County Employees’ Retirement Association is on track to hit its goal of 16 percent allocation by 2025 with the overall plan value having increased faster than projected.
The pension plan has been steadily adding to its private equity allocation since 2017, when it had just 4 percent to allocated to private equity. That allocation moved up to 6.9 percent in 2018, 8.1 percent in 2019, 11.9 percent in 2020 and is now on pace to exceed 13 percent by year-end.
“We continue to move closer to the goal of 16 percent of total net asset value and although the pacing called for 12.6 percent by 2022, we will actually be over the 13 percent mark by the end of the year,” said Matthew Smith, managing director at Abbott Capital Management, which VCERA hired in 2017 when the pick-up in pacing commenced.
The board approved the 16 percent PE target allocation earlier this year, moving it up from 15 percent.
As of September 30, 2021, VCERA committed approximately $291 million to private equity for the year, compared to budgeted 2021 commitments of $325 million. As of the same date, there were $181 million in Abbott-sourced commitments and $100 million of VCERA sourced commitments.
This spurred a question from one board member who was not satisfied with Abbott reporting their commitments to the VCERA board on a quarterly basis and wanted to make it more frequent. The board then requested Abbott inform the board about Abbott-based commitments to the board once a month.
“Abbott has full discretion, with the PE market being so hot, funds can open and close before the board meetings take place, so we report on a quarterly basis on the funds we have committed to but will now report to the board monthly,” Smith said.
According to the presentation, there are about $40-million-worth of primary commitments in diligence and $20 million of VCERA sourced commitments left in the 2021 pipeline.
“Based on overall plan value, we anticipate annual 2022 commitments of $300 million, but will adjust based on year end data,” said Smith. “NAV is appreciating faster than modeled – increased capital calls, slightly lagging distribution activity, and robust asset appreciation all contributing to that.”
Looking ahead to its 2022 pipeline, VCERA is planning to commit at least $300 million of “quality investment opportunities including several managers to which VCERA has previously committed,” according to Smith.
“It is expected to be a particularly robust year of venture capital and growth equity opportunities as well as international buyouts & special situations relative to prior years,” he said.
However, Yong Lee, managing director at Abbott, believes inflation will still be a headwind next year.
“Year-over-year CPI inflation has been running north of 5 percent in recent months, well above the Federal Reserve’s 2 percent target,” he said. “While inflation levels may temper somewhat going forward, the CPI data is likely to remain elevated for the foreseeable future, suggesting that inflation impacts are not as transitory as the Fed would like to believe.”
But Lee does see things getting better through 2022.
“All in all, inflation remains challenging but will ease meaningfully during 2022,” he said. “We believe the Fed won’t let get inflation out of hand.”