Key Takeaways
- • Sacramento County Employees' Retirement System (SCERS) has moved deeper into niche private credit, including asset-based finance and royalty-based lending, to fund benefit payments as retirees outnumber active members.
- • SCERS paid out $742 million in retirement benefits against $545 million in total contributions in its 2025 fiscal year, a net outflow that was more than covered by $1.3 billion in net appreciation of assets, according to Institutional Investor.
- • The global private asset-based finance market is valued at $6.1 trillion, with KKR projecting growth to $9.2 trillion by 2029, larger than the syndicated loan, high yield bond, and direct lending markets combined.
- • The plan had roughly $15 billion in assets, about 40 percent allocated to alternatives including 12 percent to private equity, and was 93.5 percent funded as of June 30.
- • CIO Steve Davis argues asset-backed loans offer better downside protection than corporate lending because collateral can be sold on default, though concentration and collateral-value risks remain.
Summary
Sacramento County Employees' Retirement System (SCERS) is expanding its private credit exposure to address negative cash flow, a condition common to many mature public pension plans. According to Institutional Investor, the plan's retiree population began outnumbering active members about a decade ago, pushing it into net cash outflow around the time Steve Davis was promoted to chief investment officer. Davis responded by increasing allocations to cash-generating assets such as infrastructure and private credit, with the stated aim of "always being in the proper liquidity profile."
Since Davis became CIO in late 2016, SCERS has moved into what Davis describes as "a lot more esoteric lending strategies," including asset-based finance and royalty-based lending across entertainment, healthcare, and aircraft engine leasing. Asset-based loans, which are backed by invoices, inventory, or royalty streams, are gaining allocator interest. SCERS is entering a global private asset-based finance market valued at $6.1 trillion, which KKR projects will reach $9.2 trillion by 2029.
The article notes these strategies can offer higher risk-adjusted returns than traditional corporate lending but are not without risk. Collateral values can fall, and asset-backed portfolios can carry more concentration risk than most corporate loans. Davis contends that the physical-asset backing provides better downside protection, since lenders can sell collateral after a default, whereas corporate defaults typically lead to restructuring or bankruptcy. SCERS runs annual liquidity studies with consultant Cerity to confirm it can meet obligations.
SCERS has invested in real assets and private credit on an ad hoc basis since about 2011, with private credit designated as a formal asset class in 2017. The plan has grown from roughly $5 billion when Davis joined as an investment officer in 2010 to about $15 billion today. Its portfolio is roughly 40 percent alternatives, including a 12 percent private equity allocation. Davis said private markets are "mature, they're self-funding, cash flow positive, and have generated really strong performance."
The article places SCERS's position in context. The Center for Retirement Research at Boston College estimates that most mature state and local plans face net cash outflows of about 2 percent of assets annually before market returns. Such outflows do not automatically indicate insolvency. For fiscal 2025, SCERS paid $742 million in benefits against $545 million in contributions, but net investment income, including $1.3 billion in net asset appreciation, more than offset the gap. The plan was 93.5 percent funded as of June 30.
Since Davis became CIO in late 2016, SCERS has moved into what Davis describes as "a lot more esoteric lending strategies," including asset-based finance and royalty-based lending across entertainment, healthcare, and aircraft engine leasing. Asset-based loans, which are backed by invoices, inventory, or royalty streams, are gaining allocator interest. SCERS is entering a global private asset-based finance market valued at $6.1 trillion, which KKR projects will reach $9.2 trillion by 2029.
The article notes these strategies can offer higher risk-adjusted returns than traditional corporate lending but are not without risk. Collateral values can fall, and asset-backed portfolios can carry more concentration risk than most corporate loans. Davis contends that the physical-asset backing provides better downside protection, since lenders can sell collateral after a default, whereas corporate defaults typically lead to restructuring or bankruptcy. SCERS runs annual liquidity studies with consultant Cerity to confirm it can meet obligations.
SCERS has invested in real assets and private credit on an ad hoc basis since about 2011, with private credit designated as a formal asset class in 2017. The plan has grown from roughly $5 billion when Davis joined as an investment officer in 2010 to about $15 billion today. Its portfolio is roughly 40 percent alternatives, including a 12 percent private equity allocation. Davis said private markets are "mature, they're self-funding, cash flow positive, and have generated really strong performance."
The article places SCERS's position in context. The Center for Retirement Research at Boston College estimates that most mature state and local plans face net cash outflows of about 2 percent of assets annually before market returns. Such outflows do not automatically indicate insolvency. For fiscal 2025, SCERS paid $742 million in benefits against $545 million in contributions, but net investment income, including $1.3 billion in net asset appreciation, more than offset the gap. The plan was 93.5 percent funded as of June 30.
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