LACERS Looks Outside the Box

The Los Angeles City Employees’ Retirement System (LACERS) made an $8 million commitment to Reliant Equity Investors’ debut fund last week, highlighting a trend that has public pension funds pouring capital into private equity funds that fall outside the mainstream.

Reliant is a Chicago-based investment firm founded in 2001 by Thomas Darden. Its first private equity fund is expected to reach $125 million and invest in later-stage middle market minority-owned and minority-controlled businesses, and in businesses that target the minority marketplace, says a source within LACERS.

Reliant’s investment strategy is an increasingly popular one. There are at least 24 firms investing in minority-owned and minority-focused businesses, according to a study prepared in July by the Ewing Marion Kauffman Foundation in Kansas City, Mo. Together, such funds manage $2 billion and find most of their limited partners in pension funds, regional banks and insurance companies. Their portfolios most often include service companies, retail and wholesale businesses.

Last year, for example, Hispania Capital Partners in Chicago closed a $150 million fund to invest in Hispanic-owned businesses, including a Spanish-language newspaper publisher in Chicago. The fund’s limited partners include Duff & Phelps and Bank One.

While firms like Reliant might stray from the technology and life science companies most familiar to venture capitalists, Reliant’s strategy is just the thing LACERS was looking for. Last year the $7.8 billion pension fund vowed to commit $600 million to private equity investments after upping its allocation to that asset class up from 5% to 7%.

This summer the fund said it would devote one-tenth of that allocation to non-traditional private equity investments, those that reach beyond the scope of traditional buyout and venture capital deals.

Reliant Equity would not comment for this story.