Distributions slip as capital calls surge at LACERS

  • LA City portfolio was cash-flow positive for five years
  • Larger 2013-2016 commitments led to more capital calls
  • PE portfolio netting 11 pct IRR

Los Angeles City Employees’ Retirement System’s five-year streak of positive cash flows from its private equity program came to a close last year.

Distributions — the money LACERS receives from its PE managers — were outpaced by capital calls for the first time since 2010, a Sept. 26 report from retirement-system consultant Portfolio Advisors shows.

Fund managers called $265.2 million from LACERS for new investments in 2016. Distributions totaled $235.3 million.

The year “2015 marked the fifth consecutive year in which the Aggregate Portfolio’s distributions outpaced contributions,” resulting in positive cash flows, according to the report. “In 2016, the portfolio reverted back to negative net cash flow due to the increase in the exposure target and commitment pace from 2013 through 2016.”

The $14.8 billion retirement system in early 2012 increased its target PE allocation to 12 percent from 9 percent. As of Dec. 31, the portfolio was valued at $1.57 billion and represented 10.6 percent of LACERS’s investment assets.

Portfolio Advisors attributed the PE program’s negative cash flow to a surge in commitments between 2013 and 2016, when LACERS began committing larger amounts to PE each year to expand its portfolio. LACERS allocated just $166 million across seven funds in 2012. Four years later, the retirement system paced its commitments at $327.4 million across 19 new vehicles.

In total, the retirement system committed $416 million to funds marked as 2016 vintages — $95 million more than its next most prolific year.

Even after a five-year period of positive cash flows, LACERS’s private equity program remains in the red. The portfolio has delivered more than $2.7 billion to the system since its inception in 1995, according to the report. Contributions total a little less than $2.9 billion since inception.

LACERS’s PE portfolio has netted an 11 percent IRR since inception.

The system did not respond to a request for comment.

Action Item: Read the Portfolio Advisors report: http://bit.ly/2fPdTzW