LACERA’s capital commitments fall short of expected pacing

'The market is where the market is and we are where we are,' says LACERA CIO Jonathan Grable.

Los Angeles County Employees Retirement Association has made between $1 billion and $1.5 billion of private equity commitments in 2023, well below its original plan of dedicating $3 billion to funds raising capital.

Fundraising has notoriously slowed this past year for a variety of reasons, ranging from LP overallocation to liquidity concerns. LACERA’s actual commitments against its initial goal reflects the difficulties GPs face, even when approaching large institutions.

LACERA and consultant StepStone discussed the state of its private equity portfolio at the system’s equity-focused subcommittee meeting held on November 8. Buyouts watched a broadcast of the meeting.

“The market is where the market is and we are where we are,” said LACERA CIO Jonathan Grable.

While Grable did not provide any specifics about why LACERA did not commit more to private equity in 2023, the $72.6 billion system – like so many others – saw its distributions drop significantly this year.

According to StepStone, LACERA received $615 million from its GPs through June of this year, against contributions of $871 million. In 2022, the system received $1.6 billion in distributions against $2.2 billion in contributions.

However, conditions in the exit market look to be improving, said StepStone partner Natalie Walker. She said the average age of investments held by private equity firms stands at between five and seven years.

“We see a wave of exits happening over the next several quarters,” Walker said.

LACERA’s private equity portfolio has been cashflow positive since the inception of its private equity program in 1986, with a net DPI of 1.1x, according to StepStone’s presentation.

However, roughly 35 percent of the system’s contributions are held in commitments made between 2017 and today, with those GPs still in the earlier stages of the J-Curve.

According to StepStone, LACERA’s portfolio from inception through 2016 has a net DPI of 1.55X, meaning its fund partners have returned $1.55 for every $1 invested.