The New York Times‘ DealBook blog has this news about the San Diego City Employees’ Retirement System looking to dig into the world of private equity.

San Diego’s pension fund is still working its way out from under a huge shortfall that nearly bankrupted the city. The private equity business faces serious challenges of its own these days. So it might seem like a strange time for San Diego to start private equity investing.

But the sun-drenched city is taking the plunge.

The Times continues:

The allure may be especially strong for funds like San Diego’s, which needs big returns to help close the gap between its assets and the benefits it has promised to workers.

Although few investment managers expect private equity funds to reap the stellar gains, sometimes exceeding 30 percent, of recent years, the profits may still be above what they could get from stocks or bonds.

One risk is that private equity funds tend to show small returns, or even losses, in the early years, a phenomenon often described as the J curve.

Even so, San Diego is hardly the only pension fund that is increasing its bets on buyouts.

You might remember that down the street at the county’s retirement system, investments in hedge funds got the San Diego County Employees Retirement Association into some trouble. My colleague Scott Lewis wrote extensively about it in 2006.

Update: I originally paraphrased The New York Times story incorrectly by saying SDCERS was getting involved in hedge funds. While there are similarities between private equity and hedge funds, I should have been more careful. My apologies.


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