Orange County Employees Retirement System, Santa Ana, Calif., provisionally committed $175 million to managers for custom credit strategies designed to take advantage of energy markets dislocation opportunities, which are open to other public pension funds for investment, said Robert Kinsler, communications manager for the $11.9 billion pension fund, in an e-mail.
The board at its Tuesday meeting committed $100 million to credit manager Brigade Capital Management's Brigade Energy Fund, a custom portfolio; and $75 million to direct lending manager Tennenbaum Capital Partners to be invested in high-quality energy credits in a fund structure to be determined by Girard Miller, chief investment officer. OCERS has invested with both managers in the past.
The Tennenbaum fund will do direct lending to energy and energy-related companies with a strong focus on senior secured loans and senior debt. The Brigade Energy Fund will initially invest in publically traded energy-industry credits but also may invest in private credits and long-short strategies in a comprehensive diversified portfolio. This includes the ability to deploy options.
Both mandates are contingent upon a further due diligence review and second opinion by OCERS general investment consultant NEPC, which had previously vetted both managers for similar mandates.
Both of these funds will be eligible for additional commitments by other qualified public pension funds, “which is consistent with OCERS' strategic emphasis on collaborative procurements and 'piggyback' investment vehicles that provide benefits and economies of scale to other public plans,” Mr. Kinsler wrote.
Public fund CIOs can contact OCERS or the managers directly for more information. Both strategies will have limited capacity.
The selections were made following an RFP for managers to run portfolios focused on energy market dislocation opportunities. OCERS received 15 proposals for both debt/credit and equity strategies, with almost half from incumbent managers.
The OCERS staff could present the finalists for the equity side of the search as early as the investment committee's March 25 meeting.
Pension fund officials put the recommendations on a “fast track” due to energy lenders' semiannual loan review in April “when a shakeout is expected in the energy credit markets because of the dramatic decline in oil and gas prices,” Mr. Kinsler wrote.
“This spring is therefore expected to provide timely opportunities for investors prepared to offer cash-hungry borrowers with funding at the top of the capital stack in a dislocated/distressed industry,” he said.
OCERS' staff might present a third credit or debt manager at a later time, depending on the outcome of OCERS' current asset allocation review.
