Episode summary
Donald Pierce: An all-weather credit strategy
Summary
Don Pierce says San Bernardino County Employees’ Retirement Association built its best results by emphasizing income-producing credit over distressed situations and other more speculative bets. He argues that CLO structures have been especially resilient because they generate enough cash flow to “heal themselves quite quickly,” while distressed debt often looks better in theory than in execution.
Pierce says the fund’s broader experience reinforced a preference for assets that can produce steady return through different market regimes. He points to the 2001 tech wreck, the shift into private equity and hedge funds, and the disappointing outcomes in long/short equity and timber as examples of how not every diversification experiment worked. By contrast, he says credit strategies in the US and Europe have delivered strong risk-adjusted results and helped support the fund’s 8.7% net investment return in fiscal 2025.
Looking ahead, Pierce says today’s environment still looks “accretive” to credit because rates and spreads are more normal, but he is cautious about tight spreads and speculative capital spending. He says the fund has built up dry powder and is adding European credit managers, while remaining wary of overpaying for assets or chasing markets that may be pricing in too much future success.
Key takeaways
- Don Pierce says San Bernardino County Employees’ Retirement Association’s credit success came from focusing on income rather than volatile price gains.
- Pierce says CLO structures have been particularly effective because strong cash flow lets them recover quickly after price moves.
- The fund deemphasized distressed debt because the hoped-for “buy at 40 cents, get par” outcome rarely plays out as cleanly as expected, Pierce says.
- Pierce says US and non-US credit strategies returned 7.3% and 8.6% over the 10 years ending March 31, 2025.
- Pierce says the fund has built cash and dry powder because spreads are tight and many opportunities no longer look attractive.
Notable quotes
“CLLO structures have been particularly robust. These are term match financing vehicles that have performed very well in a lot of different markets”
“the prospect of buying something at say 40 cents and getting paid par a nice two and a half times return is fantastic in theory”
“we have deemphasized those more challenged credits and really focusing on those income producing assets”
“the more we can rely on income as a source of return, that's where you get a lower V portfolio”
“we've certainly had a buildup in cash as we find less and less attractive opportunities and so we're sitting on a good amount of dry powder”
How the episode opens
So I would say that CLLO structures have been particularly robust. These are term match financing vehicles that have performed very well in a lot of different markets. And it's not that they don't experience price movements.
They do. They can be incredibly volatile assets, but because they generate so much income, they can heal themselves quite quickly. And to the extent that in my view the that cash flow regeneration to flow back to the investors or to improve the capital structure of the of the vehicle are very important uh parts of the why those particular assets have been very um very strong.
I would say one of the areas that we have deemphasized has been for lack of a better word distress debt. think the the aspect the prospect of buying something at say 40 cents and getting paid par a nice two and a half times return is fantastic in theory but the execution always is you never get the par and it never takes it never seems to take only four years. I think in the in the broad scheme of things we have deemphasized those more challenged credits and really focusing on those income producing assets.
It feels feels tough to chase um you know an equity market that continues to hit new highs on what at least from my perspective is a a speculative capital expenditure build that doesn't have the revenues yet. It may I mean the market may be right. The market may be quite right in saying all of this expenditure is going to work out, but it doesn't have to.
And if it doesn't, what is the what is the consequence? Markets have been volatile, but disciplined credit investing has helped drive strong results at the San Bernardino County Employees Retirement Association.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- all-weather credit strategy
- cicd/credit income assets
- cllo term match financing
- distressed debt de-emphasis
- volatile markets credit discipline
Watch the episode
Watch “Donald Pierce: An all-weather credit strategy” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from Markets Group
-
The €3bn German Allocator Who Said No to Alternatives -
RE West 2026: Valerie Red Horse Mohl of the California Endowment Spoke to Courtney McQuade -
RE West 2026: Steve Biggs of The Mather Group Spoke to Courtney McQuade -
RE West 2026: Martha Delgado of Saint Francis Foundation Spoke to Courtney McQuade -
Two Stints as Interim CIO: Howard Hodel on Risk, Rebalancing and Reassuring the Board -
Stefan Beiner on Repo, Resilience, and Why Governance Beats Prediction in Pension Investing
Markets Group, this episode and its artwork belong to their owners. Octagon is not affiliated with the show; this page is an independent summary.
