Fresno County Pension Fund Invests Heavily in Private Markets

Fresno County Pension Fund Invests $100 Million in Diverse Private market Strategies

Published: May 3, 2024

The Fresno County Employees’ Retirement association (FCERA) has strategically committed approximately $100 million to four distinct private market strategies in early 2025. This move underscores the $7 billion pension fund’s dedication to diversifying its portfolio and maximizing returns. Currently, FCERA allocates around $1.9 billion to private markets, encompassing private equity, real estate, private credit, and infrastructure.

In February,FCERA authorized three key allocations. A $10 million commitment was made to the EnTrust Global Blue Ocean Onshore Fund II. This maritime private credit strategy, launched in 2016, specializes in providing asset-backed financing within the shipping sector.The pension fund also designated $20 million to Kayne Anderson Private Energy Income Fund III, wich recently finalized a $2.5 billion close.

Kayne Anderson’s energy private equity team manages this fund. They currently oversee approximately $7 billion in energy-focused capital across various investment vehicles. This investment reflects FCERA’s interest in the energy sector and its potential for growth.

Further expanding its portfolio in april, the board approved a $55 million investment in harbourvest Infrastructure Opportunities Fund III. This fund targets essential infrastructure assets in the renewables, power, and transmission sectors. It also incorporates secondary investments into its overall strategy. Most recently, FCERA committed $15 million to Graceada Partners Fund IV-QP.

Graceada Partners Fund IV-QP is a value-add real estate fund concentrating on industrial parks and multifamily housing. These investments demonstrate FCERA’s commitment to real estate as a stable and potentially lucrative asset class.

understanding Private Market Investments

Private market investments, unlike publicly traded stocks, are not readily available on exchanges. They offer the potential for higher returns but also come with increased illiquidity and complexity. Pension funds like FCERA often allocate a portion of thier assets to private markets to diversify their holdings and enhance long-term performance.

Diversification across strategies, such as maritime credit, energy income, infrastructure, and real estate, helps mitigate risk and capitalize on opportunities in various sectors. These investments are crucial for meeting future pension obligations and providing financial security for retirees.

Frequently Asked Questions About FCERA’s Investments

1. What are private market investments? Private market investments involve investing in companies or assets not publicly traded on stock exchanges, offering potential for higher returns but with less liquidity.
2. Why is FCERA investing in private markets? FCERA aims to diversify its portfolio and enhance long-term returns by allocating funds to private equity, real estate, and infrastructure.
3. What is the EnTrust Global Blue Ocean Onshore fund II? This fund focuses on providing financing to the shipping sector, a specialized area within private credit.
4. How much did FCERA invest in Kayne Anderson Private Energy Income Fund III? The pension fund committed $20 million to this energy-focused private equity fund.
5. What types of infrastructure assets will HarbourVest Infrastructure Opportunities Fund III target? The fund will invest in renewables, power, and transmission infrastructure, including secondary investments.
6. What is a value-add real estate fund? A value-add real estate fund, like Graceada Partners fund IV-QP, aims to improve properties to increase their value and generate higher returns.
7. What is the total amount FCERA has allocated to private markets? Currently, FCERA has approximately $1.9 billion allocated to private markets.

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What are the primary reasons FCERA has increased its allocation to private market investments?

The Shift Towards Illiquid Assets

The Fresno County Employees’ Retirement Association (FCERA), responsible for managing retirement benefits for over 13,000 county employees and retirees, has significantly increased its allocation to private markets. This strategic move, gaining momentum over the past decade, reflects a broader trend among public pension funds seeking higher returns in a low-interest-rate surroundings. Traditionally focused on public equities and fixed income, FCERA is now dedicating a substantial portion of its portfolio to alternative investments like private equity, private credit, and real assets.

Understanding the Allure of Private Markets

Why the increased interest in private market investments? Several factors are at play:

Potential for Higher Returns: Private markets often offer the potential for returns exceeding those available in public markets, although this comes with increased risk and illiquidity.

Diversification: Adding alternative assets to a portfolio can reduce overall risk by diversifying away from conventional asset classes.

Lower Correlation: Private market returns frequently enough have a lower correlation to public market fluctuations, providing a buffer during market downturns.

Long-Term Investment Horizon: Pension funds, with their long-term liabilities, are well-suited to withstand the illiquidity of private market investments.

FCERA’s Private Market Portfolio: A Deep Dive

As of recent reports (early 2024 data, with updates expected in late 2025), FCERA’s private market allocation represents approximately 25-30% of its total portfolio – a significant increase from under 10% in 2010. This translates to billions of dollars committed to various private investment strategies.

Here’s a breakdown of key areas:

Private Equity: FCERA invests in a range of private equity funds, including buyout, venture capital, and growth equity. These funds target companies not listed on public exchanges.

Private Credit: This includes direct lending to companies, mezzanine debt, and distressed debt investments. Direct lending has become a especially popular strategy.

Real Assets: FCERA’s real asset portfolio includes investments in infrastructure (roads,bridges,utilities),real estate (commercial properties,residential developments),and natural resources (timberland,farmland).Infrastructure investments are seen as providing stable, long-term cash flows.

Real Estate: A growing segment, with a focus on diversifying geographically and by property type.

Recent Investment Activity (2023-2024)

FCERA has been actively committing capital to new private market funds. Notable commitments include:

1. A $150 million investment in a North American infrastructure fund focused on renewable energy projects.
2. A $100 million allocation to a private credit fund specializing in lending to middle-market companies.
3. A $75 million commitment to a venture capital fund targeting early-stage technology companies.

Risks and Challenges of Private Market investing

While the potential rewards are attractive, investing in illiquid assets like private markets isn’t without its challenges.

illiquidity: Private market investments are tough to sell quickly, which can be problematic if FCERA needs to raise cash.

Valuation Complexity: Determining the fair value of private market investments can be challenging, as there is no readily available market price. Private equity valuation relies heavily on appraisals and estimates.

Lack of Transparency: Private market investments often lack the transparency of public markets, making it difficult to assess risk.

Manager Selection: The success of private market investments depends heavily on the skill of the fund managers. Due diligence is crucial.

J-Curve Effect: Private equity funds often experience negative returns in the early years (the “J-curve”) as they deploy capital and incur expenses.

FCERA’s Approach to Risk Management

FCERA employs several strategies to mitigate the risks associated with private market investing:

Diversification: investing in a wide range of private market funds across different strategies and geographies.

Rigorous Due Diligence: Conducting thorough due diligence on fund managers before making commitments.

Pacing of Commitments: Spreading out commitments over time to avoid deploying too much capital at once.

Secondary Market Sales: Occasionally selling existing private market investments in the secondary market to manage liquidity.

Regular Portfolio Monitoring: Closely monitoring the performance of private market investments and making adjustments as needed.

Impact on Fresno County Taxpayers and Retirees

The performance of FCERA’s private market investments directly impacts the financial health of the pension fund and,ultimately,the security of retirement benefits for county employees and retirees. Accomplished private market investments can help reduce the funding gap and possibly lower contribution rates for taxpayers. Though, poor performance could exacerbate funding challenges. Pension fund performance is a key concern for both stakeholders.

Case Study: Infrastructure Investment Returns

FCERA’s early