The Imperial County Board of Retirement reviewed a Verus memo on April 16 that breaks down recent increases in private‑credit fees and explains why interest costs have been the principal driver.

Verus presenter Brian (last name not specified) told the board that management fees for the managers in question are stable at about 1.25 percent, and administrative fund expenses are relatively small. The largest change has been interest expense tied to leverage: for one manager quoted in the memo interest expense rose from roughly $122,000 in 2022 to about $280,000 in 2024. That increase was driven, Verus said, by higher market interest rates rather than a material change in leverage for that manager.

The memo compared two managers identified by the board as Ares and Audax. Verus reported Ares’ leverage around 31 percent and Audax’s leverage around 66 percent, and said the higher‑leverage fund has produced stronger returns so far: Audax tracking at a net internal rate of return (IRR) of about 14.6 percent versus Ares at about 8.1 percent. Verus cautioned that higher leverage increases default risk because borrowed funds must be repaid even if underlying loans suffer losses.

Board members asked how the leverage percentages compare with contractual limits and whether the managers remain within subscription‑agreement ranges. Verus said the leverage observed appears to be within each manager’s stated guidelines but recommended monitoring. Board members asked staff to flag any instances where a manager’s leverage exceeds the ceiling specified in its agreement.

Directors also sought clearer dollar‑based results in future reports. Member David H. Price said IRR alone does not convey how many dollars the fund actually generated after fees; Price asked staff and future presenters to include gross and net dollar returns alongside IRR in the next full report.

Several trustees emphasized that private‑credit investments are less liquid and typically cannot be redeemed on short notice; Verus reiterated that some private credit funds continue working through existing investments rather than making new commitments. The consultant offered to supply quarterly leverage statements on request and suggested the board consider requesting manager representatives to appear in months when portfolio cost reports are presented.

Board action: none formalized on this item; trustees directed staff to monitor contract leverage ceilings and to ask managers for regular leverage and dollar‑return detail.

The board moved on to remaining agenda items after concluding questions to the consultant.