Los Angeles City Employees’ Retirement System’s private equity consultant gave the pension’s board details at its recent meeting about which of its private equity assets may be best suited for selling on the secondary market.
“Generally speaking, some of your assets are long in the tooth [and] some of them are funds that you’re not going to continue to support, and so those would be the obvious ones to consider being marketed in a secondary process,” said David Fann, president and CEO of private equity consultant TorreyCove Capital Partner, at LACERS’ board meeting Tuesday.
But Fann also told the board it might have to offer more valuable assets to create an attractive package for potential buyers.
“It’s like selling a house—you have to paint some walls and fix some windows, so we would be tinkering with the portfolio to enhance its market appeal,” Fann said.
Fann made it clear he had not discussed what would be in the portfolio with the pension’s staff yet. LACERS has been considering a secondaries sale for quite some time, ever since hiring TorreyCove in 2018, Buyouts reported.
TorreyCove has already recommended LACERS increase its allocation to buyouts and decrease its allocation to venture funds, Buyouts reported. As of June 30, 2019, its private equity portfolio was valued at $1.9 billion and consisted of stakes in 238 funds, according to reports on the LACERS website.
The data shows LACERS is an LP in several older, lower-performing funds, including:
• 1999 vintage Austin Ventures VII, -2.8 percent IRR and .81x multiple;
• 2000 vintage VantagePoint Venture Partners IV, -1 percent IRR and .93x multiple;
• 2001 vintage Austin Ventures VIII, -6.9 percent IRR and 1.65x multiple;
• 2001 vintage CVC European Equity Partners III, -41 percent IRR and 2.88x multiple;
• 2001 vintage Menlo Ventures IX, .8 percent IRR and 1.05x multiple;
• 2005 vintage Rustic Canyon / Fontis Partners, -4.2 percent IRR and .74x multiple.
Fann also told the board it would recommend LACERS hire a licensed broker-dealer to handle any potential secondaries sale, suggesting UBS, Goldman Sachs, Greenhill & Co, Evercore and Moelis & Company as “logical and obvious” options.
LACERS’s sister system, Los Angeles County Employees Retirement Association, recently completed a large secondary sale with Greenhill’s help, as Buyouts reported. Last year, LACERA moved to change its private equity policy to make secondary purchases easier and provide more co-investment deal flow, Buyouts reported.
TorreyCove also gave LACERS presentations on co-investments and bench-marking, providing five different options for how to go about co-investments.
Fann encouraged the board to consider co-investments.
“We’re comfortable [with] however you want to do it. We just think you should be doing it,” he said.
LACERS chief investment officer Rod June told the board that staff would present a report in March providing concrete options for co-investments and secondaries. Neither Fann nor LACERS responded to requests for comment.
As of June 30, 2019, LACERS’ trust was valued at $17.7 billion.
Action Item: read TorreyCove’s January 14 presentation to the LACERS board here.