LA Fire To Cool Private Equity Commitment Pace

The Los Angeles Fire & Police Pension System has decided to slow the pace of its private equity commitments through June 1, 2009, due to the problems in the financial markets, a lack of liquidity and the fall in value of total pension fund assets.

The limited partner anticipates committing $175 million to private equity in the first part of 2009, which translates into an annual investment pace well below its usual $500 million per year rate. According to a Dec. 18 document, this reduction in pace would permit investments in promising funds, while slowing the increase in unfunded commitments and tempering the pension system’s need for liquidity.

The reduction is expected to result in a $20 million to $25 million decrease in the need for cash annually for the next two to three years. If the economy stabilizes in the second half of the year, the LP could increase its private equity commitment pacing at that point.

According to CIO Tom Lopez, the pension fund’s target allocation to private equity is still 10 percent, with a range of plus or minus 2 percent. Based on an overall asset value of $10.6 billion, as of December 2, 2008, the fund’s target to private equity would be $1.06 billion. As of late November, the market value of the private equity program stood at roughly $684 million, or 6.5 percent of the fund’s portfolio. Unfunded commitments were at $671 million.

Pledges made in 2008 include ones to ARCIS European Secondary Development Fund IV, designated for buying secondary positions in European private equity funds and funds of funds; Caltius Capital Partners IV LP, a lower mid-market mezzanine fund; Clayton Dubilier & Rice VIII LP, a global mega-buyout fund; Clearlake Capital Partners II, a distressed debt fund; Crestview Partners II, earmarked for buyouts in the financial services, media and health care industries; GI Partners Fund III LP, a buyout fund that makes investments of $25 million to $250 million in management buyouts and turnarounds; Natural Gas Partners IX LP, earmarked for companies operating at the start of the fuel delivery cycle, where oil and gas are sourced and produced; and Saybrook Corporate Opportunity Fund LP, a distressed debt fund.