LACERS Nixes One Commitment, Scales Back Another

Indicative of a tight liquidity situation, the Los Angeles City Employees’ Retirement System recently killed one private equity commitment and reduced another.

The pension fund, which has $9.7 billion in total assets under management, took the unusual step of rescinding the pledge at a board meeting in January. Although the board had agreed in 2007 to a $5 million commitment to Cityfront Capital Partners LP, a Chicago-based women- and minority-owned fund-of-funds manager that sought $300 million, the pledge was conditional on the firm raising at least $50 million. Because the firm has managed to scrape together only $7 million for its small- and mid-market fund of funds, and one of the founders had left the firm, the pledge was withdrawn.

At the same meeting, the limited partner decided to take up TPG on its offer to allow its backers to reduce their commitments to TPG Partners VI LP by 10 percent, taking the pledge down by $2.5 million, to $22.5 million from $25 million. TPG is targeting $15 billion for buyout and growth capital investments in the U.S., Europe and Asia. TPG has also told backers that it would call no more than 30 percent of total commitments during 2009, unless the vehicle’s advisory committee approved otherwise.

“We are currently above our range, but are in the middle of working up an asset allocation review, so we don’t yet know what direction the board will pursue,” LACERS CIO Dan Gallagher told Buyouts, when asked if the private equity commitment pace will slow in 2009. The LP had an actual allocation to private equity of 9.5 percent, as of Sept. 30, 2008, a target of 8 percent and a range of 4 percent to 10 percent.

As of Sept. 30, LACERS’s cash position stood at only 0.5 percent, below its 1 percent target. Many pension funds and other institutional investors are strapped for liquidity these days, reflecting a lack of distributions from the private equity funds they back.

In 2008, the LP committed roughly $300 million to the asset class. It backs buyout, distressed, venture capital, mid-market growth and mezzanine funds. Hamilton Lane serves as its alternative investment consultant, with Pension Consulting Alliance providing specialized alternative consulting services.