LPs

LACERS’ PE allocation inched up in FY19: report

The system's short-term PE returns came in over their benchmark, but long-term returns did not fare so well.

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Los Angeles City Employees’ Retirement System’s private equity allocation inched upwards in fiscal year 2019, according to a comprehensive annual financial report posted on its website.

As of June 30, 2019, private equity made up just over 11 percent of LACERS’ portfolio, up from 10.3 percent a year before. At the same time, its private equity assets were valued at just over $2 billion, up from $1.8 billion a year before. That is still well below the system’s target allocation of 14 percent.

LACERS wants to adjust its private equity portfolio. The system is considering a secondaries sale, as Buyouts has reported, with a staff report on the topic expected in March. It might also increase its co-investment activity. Los Angeles County Employees Retirement Association, LACERS’ sister system, recently completed a major secondaries sale and is also looking into getting more into co-investments, as Buyouts has reported.

Of the 11 percent of the total LACERS portfolio in private equity, 5.87 percent was in buyouts, .59 percent in distressed debt, .02 percent in mezzanine, 1.28 percent in special situations, and 3.41 percent in venture capital. A November report from PE consultant TorreyCove went deeper into the make-up of the portfolio, as Buyouts reported. LACERS’ 2020 pacing plan calls for $625 to 675 million in commitments, Buyouts has reported.

LACERS beat its short-term benchmark in fiscal year 2019 but came just short of its longer-term benchmarks. One-year private equity returns were 13.46 percent versus a 12.23 percent benchmark, three-year returns were 13.96 percent against a 17.42 percent return, and 5-year returns were 10.92 percent versus a 13.48 percent benchmark. LACERS returns were reported gross of fees.

For its private equity benchmark, LACERS currently uses the Russell 3000 index plus 300 basis points. It is also considering changing its private equity benchmark.

As of June 30, LACERS’ total fund was valued at $17.7 billion. Its overall returns for FY19 were 6.15 percent over one year, 9.52 over three years and 6.30 percent over five years. These were below the benchmarks of 6.97 percent over one year, 9.79 over three years and 6.29 percent over five years. All of these returns are gross of fees.

Action Item: read LACERS’s 2019 CAFR here.