LACERA seeks adviser for PE secondary sale

Los Angeles County Employees Retirement Association is preparing to sell a portion of its $5.1 billion private equity program on the secondary market.

LACERA’s Board of Investments approved a plan at its Jan. 10 meeting to request proposals from experienced secondary market advisers to lead the sale of “portfolios comprised of dozens of distinct limited partnership interests with aggregate values in the hundreds of millions of dollars,” according to the RFP.

The RFP included an extensive list of firms that might qualify for the mandate, including Campbell Lutyens, Credit Suisse Group and Park Hill Group. The $52.8 billion retirement association’s staff plans to recommend finalists to the board by April or May, LACERA documents show.

Many institutions increasingly use stake sales as opportunity to manage their portfolios. This has contributed to the secondary market for private equity LP interests to expand rapidly in recent years.

Deal volume reached a record $22 billion in the first half of 2017, according to a report from secondary advisory firm Greenhill Cogent. Deal pricing also reached near-record peaks with average bid hitting 91 percent of a fund stake’s net asset value.

The LACERA board did not discuss what assets it would sell, spokesman John Harrington wrote in an email. It’s unclear how large a sale LACERA would pursue or what fund stakes would be included.

Under its current investment guidelines, LACERA grants its CIO the authority to approve stake sales valued at $500 million or less.

The guidelines provide staff with a number of factors to consider in choosing which funds to put up for sale, including performance, maturity and long-term strategic fit within the private equity portfolio. Certain assets may be included to help improve the purchase price.

The document sets a number of parameters for applicants. Firms are expected to have executed more than $2.5 billion in secondary transactions and 200 fund stake sales in their history. The list of recent clients should include at least two institutions with more than $5 billion of assets.

In its private equity investment plan, which was also approved at the Jan. 10 meeting, LACERA staff wrote that it would work with its advisers to identify interests in funds considered “non-core,” at which point it will determine fair valuations and pursue sales.

2018 investment plan

In addition to initiating a secondary sale process, LACERA’s Board of Investments also approved a new investment plan that would see it allocate between $1.2 billion and $1.5 billion to private equity in 2018. Staff projects seven to nine of the fund commitments made during the year will be re-ups with managers in LACERA’s current portfolio.

LACERA sets sector and geographic allocation targets within its private equity program and plans to keep an eye on its exposure in 2018, the investment plan shows.

The retirement association is underexposed to the financial and consumer markets, according to the investment plan. It’s also heavily overexposed to information technology companies, though many private equity firms with generalist strategies have begun to pursue opportunities in that sector.

The 2018 plan is consistent with the investment pacing set for 2017. Through early November, LACERA had committed $1.3 billion across 10 funds in 2017.

Since inception, LACERA’s private equity program netted a 16.1 percent internal rate of return, according to a report included in the Jan. 10 meeting materials. The retirement association held 9.6 percent of its assets in private equity as of June 30, slightly under its 10 percent allocation to the asset class.

Action Item: For more on LACERA, visit www.lacera.com