Troubled Dallas police pension turns to secondary market for liquidity

Dallas Police & Fire Pension System is selling a $613.9 million private investment portfolio as it tries to generate liquidity in the face of an effort by beneficiaries to withdraw cash.

The pension’s board of trustees was set to approve the sale this week. It’s not clear whether the board has decided yet. Kelly Gottschalk, the system’s executive director, did not respond to a request for comment.

The city police pension has asked Dallas for $1 billion as a bailout, which the city is considering providing over 30 years. This would equate to a tax increase of $115 on a $24,000 residence, according to a report on the Fox 4 Dallas website.

The system has assets of $2 billion and liabilities of $6 billion, according to pension documents.

Costs have spiraled out of control, in part through the system’s deferred retirement option plan, in which public-safety employees can continue working and receiving pension checks, which are deposited into the DROP plan. Dallas Police & Fire’s DROP program guarantees an 8 percent interest rate. The pension also provides 4 percent cost-of-living adjustments each year for members.

The system hired Evercore to sell a portfolio of 37 private investment funds totaling $613.9 million of net asset value and $277.8 million of unfunded commitments, pension documents show. That includes $261.5 million of net asset value, and $175.2 million of unfunded commitments, across 16 buyout, growth and special-situations funds.

The sale also includes real estate, energy and infrastructure funds, the document said.

Evercore launched the process on Oct. 31, according to pension documents. The portfolio received 19 bids after approaching 59 buyers.

The pension is in the right environment to try and sell some of its private investment portfolio. The secondary market is flush with capital, holding about $70 billion of uncalled capital as of the first half of 2016, Evercore said in its presentation about the deal.

This at a time when buyout funds are attracting average pricing with around 8 percent discounts to NAV, Evercore said.

Action Item: Check out Evercore’s presentation here: https://www.dpfp.org/images/PDFs/Agendas/2016/12-Dec/C02%20Evercore%20Presentation.pdf

Dallas Cowboys running back Julius Jones (21) is tackled by Buffalo Bills linebacker John DiGiorgio (52) and George Wilson (left) in their NFL game in Orchard Park, New York, on Oct. 8, 2007. Photo courtesy Reuters/Brendan McDermid