The Los Angeles Fire and Police Pensions has committed a total of $65 million to a buyout fund, a secondary fund, a distressed debt fund and a venture capital fund this summer, leaving it with another $193 million to spend on private equity pledges this year.
The $14.5 billion pension fund, with 4 percent of its assets in private equity, well south of its 10 percent target allocation, committed $25 million to Crestview Partners II. Crestview Partners is trying to raise $2.5 billion for a second fund earmarked for buyouts in the financial services, media and health care industries. As of April 2008, the firm had collected $1.1 billion from 83 backers. Crestview charges the typical ‘2/20’ terms, with a preferred return of 7 percent.
Last month, the pension fund also committed $10 million to Clearlake Capital Partners II, a distressed debt fund targeting $500 million. New York-based Clearlake Capital Partners, which began marketing the fund early this year, takes control positions in small and mid-sized North American companies, then tries to enhance them using financial, operational or structural improvements. Steve Chang, Behdad Eghbali and José Feliciano founded the firm in January 2007. Chang and Feliciano previously worked together at Tennenbaum Capital Partners, a California-based distressed investment buyout firm, and Eghbali formerly worked at TPG.
Reservoir Capital Group, a New York-based investment firm that backs new private equity firms and hedge funds, was the sole backer of Clearlake I, a vintage-2006, $200 million fund that generated a net IRR of about 18.5 percent on its two fully realized investments, according to a Los Angeles Fire and Police Pensions report by Michael Perez, general manager. Reservoir Capital has already committed $100 million to Clearlake II, but the fund “is essentially a first-time fund, in that the Principals have built the eleven-person investment team over a relatively short time span and the group will be working together for the first time,” wrote Perez in his report. Clearlake II charges management fees of 2 percent and a carried interest of 20 percent, after a preferred return of 8 percent.
Meantime, a slug of $20 million went to ARCIS European Secondary Development Fund IV in July following the recommendation of Aldus Equity, the LP’s advisor. Paris-based ARCIS Capital Ltd. had sought €350 million ($556 million) for the fund and plans on buying secondary positions in European private equity funds and funds of funds. It will also make direct investments in European companies financed by private equity. The management fees for ARCIS IV are 1.5 percent on commitments during the five-year investment period, 1.35 percent on contributed capital the next year, and are reduced 20 percent each subsequent year. The carried interest is 12.5 percent after an 8 percent hurdle rate. A final close occurred on July 31, according to recent Fire and Police board minutes.
Also, in August, the Fire and Police board approved a pledge of $10 million to Element Partners II, which is targeting $500 million for venture capital investments in clean technology. Element Partners, founded in 2005, has standard ‘2/20’ terms with no preferred return.
Including these four new commitments, the board of Los Angeles Fire and Police Pensions will have promised about $307 million to private equity funds so far this year. It intends to commit a total of $500 million in 2008, leaving $193 million still to be pledged. All told, the board currently has pledged about $1.62 billion to the asset class, leaving roughly $560 million to be committed in the future.
In the private equity category, the LP includes early, middle and late stage venture capital, buyouts, distressed debt and subordinated debt. The program tries to commit to each of these subsets every year.