- LACERS recently hired a PE consultant and increased its allocation target to 14 pct
- The pension’s current PE portfolio has 254 partnerships and 123 specific fund managers
- Secondary sales, not currently addressed in LACERS’ policy, could help rebalance the PE portfolio
Los Angeles City Employees’ Retirement System moved a step closer to its first-ever secondary sales, introducing a new policy at its January investment committee meeting that would enable such sales.
Secondary sales could help the $17 billion retirement system consolidate and streamline the PE portfolio after a year in which it hired a new private equity consultant, TorreyCove Capital Partners, and raised its PE-allocation target to 14 percent from 12 percent.
While TorreyCove has said secondary sales could be used to conduct a “spring cleaning” of the portfolio, LACERS’s current investment policy does not provide any mechanism for those types of sales.
LACERS staff presented a revised policy to the investment committee in January, potentially removing that stumbling block if the new language is approved next month.
“The committee provided some direction to staff, and we expect to bring the revised investment policy to the LACERS board at our first meeting in February,” LACERS General manager Neil Guglielmo said.
The policy would require board approval for the sale of a partnership fund interest on the secondary market or to other LPs or potential buyers.
It empowers investment staff to manage and execute the secondary sale, with the PE consultant providing an analysis report for each new investment and secondary sale.
TorreyCove’s David Fann and LACERS CIO Rodney June, speaking at the pension’s October meeting, said the LACERS portfolio was probably too big, with 254 partnerships and 123 specific fund managers.
But demand on the secondary market is high, he added, and a secondary sale could trim the portfolio and monetize legacy investments.
“I think there’s an argument to be made that there’s probably too much diversification in this portfolio at this point,” Fann said.
“The good news about the secondary market right now is that there is a bigger supply of capital than there is opportunity, so pricing is very favorable.”
Action Item: Read the LACERS 2019 strategic plan for PE here: https://bit.ly/2JFFSjn