Orange County Employees Retirement System, Santa Ana, Calif., committed a combined $130 million to three alternative investment funds, staff of the $20.2 billion pension plan reported to the investment committee Wednesday.
OCERS committed $75 million to Hellman & Friedman Capital Partners X, a North America and Europe large-cap buyout fund; $30 million to Orchid Asia VIII, a growth equity fund investing in China managed by the Orchid Asia Group; and $25 million to Insight Partners XII, a growth equity and venture capital fund.
During the meeting, Dave Beeson, senior investment officer at OCERS, reported that a routine audit of Insight Partners by the Securities and Exchange Commission resulted in a letter with three findings "that were fairly technical." One of the findings concerned how Insights' portfolio investments were defined and how losses and management fees were calculated during the step-down period, which occurs after the fund stops making investments.
He said the "ill-timed letter" caused a delay in the fund closing to allow investors and their consultants time to speak with Insight on the issue. He said that Insight executives walked him through the firm's 30-page response to the SEC. Insight did make some changes, including how portfolio company investments are defined and how permanent impairments to the portfolio are calculated and treated, he said. As a result of the changes made by Insight, it rebated $5 million to the investors that were impacted, Mr. Beeson said. He said that OCERS private equity consultant Aksia TorreyCove held follow-up meetings with Insight executives and "they came away with similar comfort," he said.
Insight executives could not immediately be reached for comment.
Separately, OCERS adopted a plan to commit $150 million to $225 million to non-core real estate in fiscal year 2022. OCERS expects to make two to three non-core real estate commitments of about $75 million per fund. OCERS will not be making new commitments to core real estate funds in fiscal year 2022, to reduce its overweight position in the strategy. OCERS's real estate target allocation is 7% with a range of 50%-100% in core and zero to 50% to non-core. The goal of the fiscal year 2022 real estate investment plan adopted Wednesday is to gradually increase OCERS' real estate exposure to its 50% limit, said a report by OCERS' real estate consultant, Townsend Group.
Ideally, OCERS is moving toward a more balanced real estate portfolio, funding some of its non-core investments with redemptions from core funds, Mr. Beeson said. As of year-end 2020, including unfunded commitments, core was 55% and non-core was 45%, he said. OCERS had $1.2 billion in real estate strategies as of Dec. 31.
The coronavirus pandemic prompted two of OCERS' open-end real estate managers to suspend redemptions that pension officials had requested in January: J.P. Morgan Strategic Property Fund, which held $147 million, and Jamestown Premier Property Fund, which held $62 million, both as of Dec. 31.
OCERS also removed Mondrian international small-cap equity fund from its watchlist. Mondrian Investment Partners managed $199.7 million in the strategy as of March 31. The Mondrian strategy was placed on watch last July, following the sudden departure of Francis Cuthbert, a senior portfolio manager who had been on the international small-cap equity investment team since 1999, according to a report to the investment committee by OCERS' general investment consultant, Meketa Investment Group. Concern about Ms. Cuthbert's resignation has subsided, and Meketa said it believes the Mondrian team is sufficiently staffed, but it will continue to monitor the situation.