SBCERA joins cross-asset separate account wave

The pension system is investing $150m across real estate, energy, private equity, credit and growth strategies with Kayne Anderson Capital Advisors.

The San Bernardino County Employees’ Retirement Association is following other pensions in forming separately managed accounts to invest across asset classes.

The California pension system is partnering with Los Angeles-based alternative investment firm Kayne Anderson Capital Advisors for a $150 million separately managed account that will be deployed across real estate, energy, private equity, credit and growth strategies, according to materials from SBCERA’s Thursday meeting.

The SMA could invest $15 million in Kayne Anderson’s real estate strategies, including Kayne Anderson Real Estate Partners V, an opportunistic fund targeting 18 percent net internal rate of return, and Kayne Anderson Core Real Estate Fund, a recently-launched core vehicle targeting a 9-10 percent net IRR, according to SBCERA documents.

Among the SMA’s other potential investments is $30 million in credit, which includes the firm’s latest real estate debt fund, Kayne Anderson Real Estate Debt III. The vehicle is targeting a 10 percent-plus net IRR and an equity haul of $1.5 billion. Kayne Anderson has $45 million of the SMA unallocated for future opportunities.

SBCERA began discussing the SMA with Kayne Anderson in July 2016. Through the account, “SBCERA will receive the benefit of enhanced manager interaction, preferred economic terms and enhanced transparency for all of its investments with Kayne Anderson,” Laura Vossman, senior investment officer at the pension system, wrote in meeting materials.

SBCERA managed $488 million in real estate out of its $9.2 billion portfolio as of June 30, according to its most recent investment report. The asset class returned 3.4 percent in the fiscal year ending June 30, below its 7.3 percent benchmark.

Other high-profile examples of multi-strategy mandates awarded to private equity firms include two $3 billion accounts for the Teacher Retirement System of Texas managed by Apollo Global Management and KKR, PERE previously reported. The State of New Jersey pension has a $1 billion SMA with Blackstone, while KKR is working on one with an undisclosed amount for Aflac, the insurer, according to Bloomberg.

KKR is also reportedly nearing the close of a $3 billion commitment from New York City’s pension system to invest across private equity, infrastructure, real estate and credit.

Limited partners like the flexibility the accounts offer by not being tied to a narrow investment strategy, one investor with several SMAs told PERE sister publication Private Equity International.

“SMAs provide this unique capability to capitalize on investment strategies that you’re not going to get access to through typical private equity funds, venture capital funds, secondaries funds and things along these lines,” the investor said. “Separate accounts give us the ability to not only control fees, but also control the timing of the investment and the timing of the allocation ultimately we’re going to get in our portfolio. It gives us more control over our portfolio and that’s really the key to us.”