LACERA seeks to increase exposure to VC, international, tech funds

  • Will lift VC/growth targets by 5 percentage points
  • Wants to diversify portfolio, seek top non-U.S. managers
  • Eyes GP specialists in fintech, AI, cybersecurity, more

Los Angeles County Employees’ Retirement Association wants to increase its exposure to venture capital and international private equity funds, seeking to diversify its $5.5 billion PE portfolio.

The $55.9 billion pension fund has concentrated heavily on U.S. buyouts over the past five years, with 70 percent of its commitments going to buyouts and 78 percent going to U.S. managers in that period.

Both the U.S. and international markets have weighted more capital toward venture and growth investments than LACERA has, and the system wants to move closer to the average, materials from its November equity-committee meeting show.

Currently, 10 percent of the asset value of LACERA’s PE portfolio is in venture and 5 percent is in growth investments. Over the past three years, though, 19 percent of private capital in the U.S. targeted VC and 10 percent growth equity, according to LACERA.

Over the same period, 17 percent of global private capital targeted venture and 17 percent targeted growth equity.

LACERA is not expecting a dramatic change, planning to boost the upper and lower ranges of its combined VC and growth exposure by 5 percentage points.

“Given this opportunity set, combined with LACERA’s  desire to increase non‐U.S. exposure, raising LACERA’s target range from 10 percent‐25 percent to 15 percent‐30 percent is justified,” LACERA staff wrote in an investment memo.

The pension system plans to explore VC incubators in the coming year, meeting materials say.

LACERA will also seek to diversify its manager roster, reassessing legacy relationships and seeking out top-tier managers abroad for new partnerships.

“While LACERA will maintain relationships with compelling managers returning to the marketplace, an emphasis in the upcoming period will be on increasing exposure to top-tier funds outside” the U.S., investment staff said in a memo. “Staff and [consultant] StepStone expect this strategy will incorporate several new, top-quality managers.”

LACERA committed $1.02 billion from February through October, including $400 million in four re-up commitments approved under CIO authority.

The system did not re-up with all the managers who raised new funds in the past year, however, declining to commit to ABRY Advanced Securities Fund III, Carlyle Partners VII, Institutional Venture Partners XVI, Palladium Equity Partners V, Riverside Capital Appreciation Fund VII and Vista Equity Partners Fund VII, according to meeting materials.

In the coming year, LACERA plans to mitigate high valuations by favoring managers that have invested through a full market cycle. The system also will take advantage of demographic shifts by targeting GPs globally specializing in healthcare, education, logistics, and healthy lifestyles.

LACERA also plans to increase exposure to GPs specializing in financial technology, mobility and e‐commerce, artificial intelligence, big data and cybersecurity.

LACERA has a 9 percent current allocation to PE with a 10 percent target allocation.

Action Item: Materials from LACERA’s equity-committee meeting: