Los Angeles Fire & Police Pensions’ board could not obtain a majority vote that would have renewed Portfolio Advisors’ role as the system’s private equity consultant.
The system provided a glimpse into the selection process and how rivals compete with each other for consulting contracts. In this case, incumbent Portfolio Advisors faced off against Mercer at the pension’s board meeting on March 16, of which Buyouts viewed a webcast.
However, the selection process was delayed as only four of the board’s nine members agreed with the recommendation of pension staff and general adviser RVK to reappoint Portfolio Advisors as its PE consultant. Board member Megan Hernandez voted against the recommendation.
None of the other four board members were present for the meeting.
Hernandez did not explain why she voted against the recommendation but indicated earlier she was concerned about the scant number of board members in attendance. Board president Kenneth Buzzell said Mercer and Portfolio Advisors may need to return to make their presentations again at a future board meeting.
“This would require everyone to come back again. But if they want the business, they have to do whatever they have to do,” Buzzell said.
Portfolio Advisors versus Mercer
LA Fire has two private equity programs – a “core” program and one focused on emerging managers.
Portfolio Advisors has served as the consultant for both programs since 2010, with its contract set to end March 31. Fairview Capital also advised the emerging manager program from 2016 before Fairview withdrew from the role in July.
The $28.2 billion system issued an RFP in October advertising the possible selection of a new private equity adviser, with Portfolio Advisors and Mercer being named the two finalists for the position.
In its presentation, Mercer touted its size, experience and work with emerging and diverse managers. The adviser also proposed that LA Fire’s core private equity program make between $600 million and $1 billion across 10 to 15 annual commitments.
Mercer said it would recommend the system use between 30 and 35 active managers.
“You have over 300 funds in your portfolio. That would stretch investment staff at any pension fund,” said Amy Ridge, a partner at Mercer.
Buzzell said many of the funds are part of the system’s legacy portfolio. The system was previously required to make smaller sized commitments, resulting in it working with more managers, he said.
Portfolio Advisors proposed an annual fee of either $1.2 million or $1.4 million depending on whether LA Fire pays legal costs related to closing fund commitments.
Mercer said at the meeting its fees would be “competitive” with Portfolio Advisors, having changed from its initial proposal. Board member Hernandez said Mercer should include its new fee schedule if it reappears for another meeting.
Portfolio Advisors managing director Liz Campbell said her firm been criticized in the past due to its conservative approach in avoiding investments in crypto and early-stage venture funds.
“We’ve gotten flack in not pursuing sexier strategies, but I think in the end it served us well,” Campbell said.