SCERS Signals Tighter Re-up Criteria; QHP Closes $1.1B Continuation Fund
Sacramento County Employees’ Retirement System (SCERS) signaled a continued preference for re-ups with existing private markets managers, while emphasizing stricter scrutiny on distributions, consistent performance, and portfolio fit.
“We… do prefer to re-up with good general partners that have proven their ability over time,” SCERS’ alternative assets consultant Cliffwater said during the pension’s March 18 board meeting reviewing private equity, private credit, and real assets performance, highlighting the role of established relationships in a roughly $15.6B portfolio.
Staff clarified that re-ups are not mechanically tied to returning capital, but instead reflect forward-looking commitment decisions within a broader pacing framework. “When we use the term re-up, it simply means committing to a successive fund of a GP. It is not strictly, ‘We have this money in hand, now we’re repurposing it,’” Cliffwater said.
Even so, continued support is increasingly dependent on realized outcomes, particularly distributions. “If we’re in successive funds with one manager and they haven’t distributed capital, we might take a break. Not because they’re not doing well, but [because] they haven’t given enough money back to us,” staff said, indicating that delayed liquidity can interrupt commitment cycles.
The system applies a consistent underwriting framework across both new and existing managers, underscoring the absence of preferential treatment in diligence. “There is no difference in vetting process… whether it’s a re-up… or a brand-new GP relationship. It’s really the same diligence,” staff said.
Cliffwater highlighted steady returns and diversification across vintages and sectors. The alternatives portfolio generated a five-year net internal rate of return of approximately 14.63%, outperforming comparable public benchmarks, while maintaining consistency across investment periods. “We really do feel pretty good about your portfolio over time and also across the different sectors. This isn’t a one-trick pony,” the consultant said, noting that returns were not driven by a single outsized investment but reflected broader portfolio construction.
The firm also pointed to sector exposures within the private equity portfolio, particularly a higher allocation to information technology relative to industry norms. While typical private equity portfolios carry roughly 30% exposure to IT, SCERS’ allocation is closer to 40%, driven in part by strong performance from venture capital and growth equity holdings. Cliffwater noted that the concentration was largely a function of “really good performance from a lot of the funds that happen to hold IT positions” than a deliberate shift in strategy, expressing confidence as well in the stability of the portfolio in the event of a disruption. “Across the board, you’re investing with specialists within these sectors, specific to IT [and] software,” the consultant said. “[That] doesn’t mean that they can’t be blindsided, have a hiccup in their diligence, or that things do unfold in an unexpected fashion, but again, to us, we take comfort in where we think there’s going to be disruption… We’re not afraid of it.”
Despite elevated exposure to technology and ongoing discussions around artificial intelligence-related disruption, the consultant indicated no immediate need for structural changes to the portfolio. Instead, the emphasis remained on continued monitoring and maintaining diversification across strategies, with performance supported by contributions from venture, buyout, and growth equity allocations. “Where we stand now, our view is that this is more likely to create a lot of dispersion within the sector,” Cliffwater posited. “It’s going to create and separate winners from losers, as opposed to just decimating the entire category.”
