Sacramento County Employees’ Retirement System is setting the stage for renewed push into buyouts-centered co-investments alongside its partners at private equity investment firm Ardian, based on comments at a recent board meeting.

The $14.5 billion pension is paired up with Ardian on a co-investment vehicle that’s nearing the end of a three-year run. The mandate has shown early signs of improving the private equity portfolio’s returns and helping build stronger ties with managers, according to the pension’s staff.

The system first partnered with Ardian in 2022 on the platform, which was backed by a $100 million commitment. At an October 15 board meeting attended by Buyouts, staff indicated they’re considering refreshing Ardian’s private equity mandate and adding equivalent programs for infrastructure and private credit.

Acknowledging that it lacks resources for managing time-sensitive co-investment deals in-house, the system’s goal was to act on opportunities arising from its manager relationships as well as to access a larger network to source deals from, according to meeting materials.

The pension, which is just slightly above its 11 percent target for private equity at 11.4 percent, has been sourcing smaller deals with buyouts managers below the size threshold of Ardian’s flagship co-investment funds through this platform.

Steve Davis, Sacramento County’s CIO, told the board that the system has benefited from having access to the fee advantages of co-investment outside of its own contingent of small- to mid-cap buyouts managers, which are limited in number.

“Stating the obvious, every LP wants co-investment deal flow,” Davis said. “We’ve seen some public plans even set targets for their PE book to get specific allocations there. So, it’s a competitive landscape to get deal flow today.”

During the meeting, Davis and Jim Donohue, the system’s deputy CIO, expressed they’ve been pleased with the performance of the program – with Ardian’s figures pointing to all but one investment held for at least a year being marked up in value.

It was noted there hadn’t been any realizations out of the platform, but that was expected to arrive closer to the program’s five-year targeted holding period.

At this point, the initial $100 million commitment to the platform has been nearly fully deployed. About $5 million was deployed in 18 co-investments to 16 managers in the portfolio – with more of those deployments occurring over the past year than in a cautious 2023 and 2024, based on the presentation.

Only two of the managers involved in deals in the investment vehicle were the pension’s private equity GPs. Donohue suggested to the board he’d like to see more deals sourced from the system’s existing managers over time.

“We’re constantly reinforcing with our managers that we also do co-investments,” Donohue said. “We don’t ask for big tickets, so it’s a little easier for us than [some plans] that tend to want larger deal sizes.”

Co-investing on the rise

When asked by the board about the market for co-investments today, Donohue said he expects more GPs to offer these opportunities and more LPs to utilize them as a tool for portfolio management.

The system’s own approach has proven to be a scalable and cost-effective way to build private market exposure, he said.

“This has proven so far to be successful,” Donohue said. “Ardian has been transparent. And we couldn’t ask for a better partner on the private equity side. They’ve given us good opportunity to get good transactions at an affordable price.”

The system is completing due diligence on the second iteration of its private equity co-investment platform with Ardian as a partner, likely with a four-year investment timeline, based on the presentation.

Because the vehicle is a fund of one, Davis said it can be customized as one mandate with different asset class sleeves in it.

Patrick Kocsi, co-head of co-investment and senior managing director at Ardian, said at the meeting they were prepared to expand similarly structured co-investment vehicles in other asset classes, including infrastructure.

In its meeting materials, the system reported that Ardian is “investing in capabilities and building a platform” that could enable hybrid co-investments in private credit as well.
Davis admitted during his comments to the board that the system was farther away on its plans for a private credit co-investment platform.

“Our most immediate target would be extending the private equity mandate, but we see the possibility of including real assets in there,” Davis said. “That’s low-hanging fruit.”