LACERA board member slams ‘pejorative’ language about emerging managers

Wayne Moore also requested that staff and J.P. Morgan, which runs the private equity emerging manager program, provide more information about the demographic make-up of the program's managers.

A Los Angeles County Employees Retirement Association board member slammed a staff presentation on its emerging manager program for containing “inherently pejorative” language Wednesday.

Board member Wayne Moore took issue with a line from a staff-prepared presentation which referred to “the higher risk (investment and operational) associated with emerging managers,” in regards to the fund’s fixed-income program.

“It paints a picture for the public and board that emerging managers are incontrovertibly risky,” Moore, a former member of the investment board, said at the board’s meeting Wednesday. “The board must end this deleterious characterization of emerging and minority managers. Speculation, stereotyping, implicit and explicit bias cannot substitute for facts.”

In an email to Buyouts, he said his criticism extended to the private equity emerging manager program.

“My criticism is that it is a nuanced, analytical outcome that is simplified by characterizing emerging and by inference minority managers as ‘risky,’” Moore wrote. “The data suggests that similarly situated small firms whether minority-owned or not are not more risky than their white-owned peer firms.”

Later on in the meeting, principal investment officer Vache Mahseredjian said the emerging manager policy, which was included in the board’s meeting materials, also stated that emerging managers provided higher expected returns.

“I think we take a very balanced, pragmatic and dispassionate approach,” he said.

During his public comment on Wednesday, Moore also suggested the $63.8 billion pension provide more information on which firms were receiving allocations, saying it would be “valuable and actionable.”

He suggested providing a list of all the firms in the pension’s emerging manager program, which is overseen by J.P. Morgan Private Equity Group, a part of J.P. Morgan Asset Management.

Additionally, Moore requested to know how the firms have been classified as diverse based on Equal Employment Opportunity Commission (EEOC) guidelines, the specific amount they have been allocated and how much is being paid them in fees.

Moore previously said his “litmus test” for whether or not a firm was diverse was the presence of African-Americans on staff, due to the long history of oppression experienced by that community.

African-Americans and Hispanic people make up a sizable portion of the pension beneficiary community, and so should be equally represented within firms investing to secure their retirement, he said.

“Diversity without inclusion is simply not acceptable with public tax money,” Moore wrote.

LACERA staff had no comment.

Emerging manager results

Overall, 98 percent of the commitments in the emerging manager program were to diverse teams, which can include non-investment staff at a private equity firm, and 67 percent were to diverse investment teams, where the investors themselves are diverse, according to the presentation on the program, which was formed in 1995 and run by J.P. Morgan since 2009.

Of those, 24 percent were to managers with Black or African-American investment professionals, meaning they work at the partner or principal level, 16 percent with Hispanic or Latino managers, 32 percent with women investment professionals and 32 percent with Asian-American investment professionals.

The program also had strong performance numbers.

As of September 30, 2020, its internal rate of return was 21 percent and its multiple of invested capital 1.7x. Moreover, 57 percent of its investments are in the top two quartiles for their respective vintage years.

Co-investments, which make up only 5 percent of the commitments, performed best, returning 84.8 percent IRR and a 4.9x MOIC. Buyouts came next with 19.9 percent IRR and a 1.8x multiple, followed by venture and growth with 16.6 percent IRR and a 1.7x multiple.

LGBTQ representation

New investment board member Joseph Kelly and returning member Alan Bernstein brought up concerns over whether the emerging manager program was doing enough to encourage lesbian, gay, bisexual, transgender and queer, (LGTBQ), inclusion as well.

When asked by Kelly why there was not an “LGBTQ prism,” J.P. Morgan’s Laureen Costa said it was hard to collect data on that so far because firms had to willingly identify as such.

“We are doing our best to expand how we are measuring and the data that we are collecting,” she said.

Action Item: read the materials from the January 13 LACERA Board of Investments meeting here.