LA County pension’s emerging managers program beats core fund’s results

Emerging managers in Los Angeles County Employees’ Retirement Association’s dedicated program have outperformed the system’s traditional private equity portfolio.

New managers have struggled in the current capital constrained environment. That makes dedicated programs like LA County’s important to fuel the emerging manager ecosystem.

LA County provided an update on its emerging manager program at its board of investments meeting March 13. Buyouts watched a broadcast of this meeting.

According to senior investment analyst Calvin Chang, LA County’s emerging managers program has earned a 21 percent net IRR since 2009, outperforming the system’s core private equity holdings by more than 400 basis points.

The emerging manager program has also generated positive net cashflow, according Chang’s presentation.

Since 2009, LA County has committed more than $1 billion to emerging managers through a series of outsourced separate account platforms, the presentation said.

JP Morgan managed the program from 2009 to 2022, with LA County making commitments through four separate vintages, according to the presentation.

Chang said five managers graduated from JP Morgan’s platform into the system’s core private equity program, highlighting Atlantic Street Capital as an example. The Connecticut-based manager invests in lower mid-market companies spread across a wide variety of industries, according to its website.

Buyouts’ database shows that LA County committed $50 million to the manager’s fourth fund, which raised $500 million and closed in September 2019. The system also committed $150 million to Atlantic Street Capital V, which has raised nearly $415 million to date with a $750 million target.

Other LPs known to have committed to the fifth fund include Plymouth County Retirement Association, Community Foundation of Greater Memphis and TIAA, according to Buyouts’ database.

In 2022, LA County selected Hamilton Lane to manage its emerging managers program, giving it a $400 million commitment.

LA County’s chief investment officer Jonathan Grabel said the system moved on from JP Morgan because of the disappointing amount of managers that graduated into its core fund.

“I don’t think five is enough graduations. It’s underwhelming,” Grabel said.

Chang added that $1.28 out of every $10 dollars in the emerging manager program goes to diverse-owned managers.

According to the presentation, LA County classifies emerging managers as a GP out with its first, second or third institutional fund. Buyouts and growth equity funds must be under $1 billion in size with venture funds below $400 million.