SBCERA to enter $150m SMA with Kayne Anderson

The capital will be invested across the investment firm’s various strategies, including energy private equity, credit, real estate and growth equity.

The San Bernadino County Employees’ Retirement Association is set to approve a $150 million allocation to Kayne Anderson, a figure that would be invested across the investment firm’s various strategies, including energy private equity, credit, real estate and growth equity.

The pension fund board will consider the allocation, which will be made through a separately managed account – which SBCERA refers to as a master custodial account (MCA) – at its Thursday meeting, according to SBCERA documents.

“In the proposed MCA, SBCERA will commit an initial $150 million over a multi-year period to funds, co-investments, and direct investments across the Kayne Anderson platform,” senior investment officer Laura Vossman wrote in a staff memo recommending the MCA.

“Through the MCA, SBCERA will receive the benefit of enhanced manager interaction, preferred economic terms, and enhanced transparency for all of its investments with Kayne Anderson.”

SBCERA’s investment committee gave preliminary approval to the $150 million MCA. A potential allocation of the capital outlined in the pension fund documents includes two $15 million tranches to energy private equity (committed to Kayne Anderson Energy Fund VIII and Kayne Private Energy Income Fund), and $15 million in Kayne Partners Fund IV, which is currently seeking $300 million.

The remaining $105 million would be allocated to Kayne Senior Credit Fund III, Kayne Real Estate Debt Fund III and the CLO fund ($30 million combined), Kayne Solutions Fund ($15 million), real estate ($15 million), and uncommitted portions reserved for future Kayne Anderson funds ($45 million)

According to a slide deck prepared by Kayne Anderson for SBCERA, Kayne Partners Fund IV, a growth equity fund, is targeting a net internal rate of return of 20 percent and a multiple on invested capital of 2x to 2.5x. The fund will seek to invest up to $25 million in technology companies in North America with $5 million to $40 million in revenues.

SMAs represented nearly 6 percent of private capital raised last year, up from 2.5 percent in 2006, according to Bain & Company’s most recent global private equity report.

Last month it was reported that KKR is expanding its SMA war chest substantially. The firm is 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, according to Bloomberg.

KKR’s relationship with New York City is the latest high-profile example of significant mandates being allocated to direct investors. Others include two multi-billion-dollar accounts for the Teacher Retirement System of Texas managed by Apollo Global Management and KKR. The State of New Jersey pension has one with The Blackstone Group, while KKR is working on one for Aflac, the insurer, according to Bloomberg.

In real estate, Massachusetts Pension Reserves Investment Management Board is currently seeking a core separate account manager that would invest directly on behalf of the plan with an initial allocation of $300 million-$500 million. On the private debt side, the Texas County & District Retirement System made a $450 million commitment in April to an SMA managed by Providence Equity’s direct lending arm, Benefit Street Partners.

As well as offering LPs more visibility and control over their investments, SMAs are also a boon for fund managers, allowing them to forge a stronger relationship with LPs, to have access to more stable revenue and to allocate across a platform of investments.

– Andrew Hedlund contributed to this report