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LACERS clears path for higher commitments, secondary PE sales

  • AUM: $17 bln
  • Target allocation to PE: 14 pct
  • Why this is important: Pension doubles cap on pledges; can do secondaries with board approval
  • Contact LACERS: +1 213-779-8328

Los Angeles City Employees’ Retirement System approved an investment policy that raises the limits on commitment sizes, though the pension plans to “ease into” the higher commitments.

The $17 billion retirement system at its Feb. 26 meeting approved three commitments totaling $95 million. The commitments were the first ones recommended by private equity consultant TorreyCove, which took over for Portfolio Advisors in 2018.

The commitments were approved after LACERS’s latest revision to its investment policy, which doubled the cap on commitments to new GP relationships to $50 million. The policy also raises the cap on follow-on commitments to $100 million from $40 million.

But because the recommendations were made while LACERS was still debating the policy change, they followed the old limits on their recent commitments.

The February commitments included a new GP relationship for LACERS and two follow-ons.

LACERS committed $25 million to Roark Capital, divided between a $15 million commitment to Roark Capital Partners V and a $10 million commitment to Roark Capital Partners II Sidecar.

Fund V will focus on food and restaurants, specialty retail, health and wellness, retail healthcare, business services and education, while the sidecar will focus only on casual dining. Both Roark funds will target portfolio companies valued at $100 million to $1.5 billion.

LACERS also committed $40 million to ABRY Partners IX and 34.9 million euros ($40 million) to Astorg Partners Fund VII.

ABRY Partners IX is a middle-market buyout fund focused on media, communications and business and information services. LACERS previously committed $105 million to five ABRY funds between 2014 and 2018.

Astorg is a buyout fund focused on European businesses in the industrial, healthcare and software sectors. LACERS committed $25 million to Astorg VI.

LACERS didn’t plan to immediately make many commitments at the new thresholds, CIO Rod June said at the February meeting.

The new investment policy also includes, for the first time, a procedure for pursuing secondary sales. The old PE-commitment limits created a PE portfolio spread out over many small commitments to different GPs.

TorreyCove previously recommended exploring secondary sales to conduct a spring cleaning of the portfolio.

The new policy requires the board to approve the sale of a partnership fund interest on the secondary market or to other LPs or potential buyers.

June did not immediately respond to a request for comment on LACERS’s near-term plans for secondary sales.

LACERS has a 14 percent target allocation to PE.

Action Item: Read a red-lined version of LACERS’ new investment policy here https://bit.ly/2u2xl2O