FROM: Don Pierce, Chief Investment Officer
SUBJECT: Arini Capital Management - Master Custody Account
RECOMMENDATION:
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Recommend that the Board approve the establishment of a Master Custody Account (MCA) with Arini Capital Management, including a $200 million initial allocation, subject to completion of due diligence and legal documentation.
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BACKGROUND:
Starting in 2024, staff undertook an effort to broaden the SBCERA portfolio's capabilities in the European credit universe. As previously communicated, this included an in-depth process to survey the market and identify target areas of interest. Beginning with 62 survey respondents, staff conducted focused diligence on 10 managers and identified 4 managers that aligned with SBCERA's objectives from a strategy and firm perspective.
Staff recommends that SBCERA establish a new Master Custody Account (MCA) with Arini Capital Management ("Arini" or "the firm"). This account will initially focus on three main categories of investment:
- Arini Credit Master Fund ("ACMF") - $50mm of the MCA (25%)
o Open-ended all-weather strategy focused on delivering absolute returns through the identification of specific long and short positions across the credit universe. The fund will largely emphasize opportunities across public bonds, loans, CDS and structured credit, with the majority of exposure in Europe and the remainder in the US.
- Arini Credit Opportunities Fund ("ACOF") - $75mm of the MCA (37.5%)
o Drawdown hybrid strategy focused on catalyst-driven situations, including restructuring, refinancing and capital solutions. The fund will have slightly more concentration than ACMF and will have a 50/50 profile with respect to public and private investments.
- Direct Investments - $75mm of the MCA (37.5%)
o Bespoke positions represented by investments that either are too large for existing Arini funds or fall outside of existing fund mandates. Staff expects that this sleeve will mostly be compri...
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