LACERS sets PE pace for next year after pulling back on secondaries sale

Los Angeles City Employees Retirement System passed on a secondaries sale in 2023 despite the system’s desire to shrink the number of managers in its portfolio.

Public pension system LPs have been debating whether to generate liquidity, as well as reduce their exposure, to private equity through secondaries sales. While pricing on buyout funds has strengthened through the year, LP sellers generally don’t want to see too much of a discount.

LP portfolio sales dominated secondaries activity so far this year, with about $25 billion in the first half, according to Lazard’s first-half volume report. Secondaries activity was estimated at between $15 billion to $20 billion in the third quarter, according to an interim volume update from PJT Park Hill. LP deals represented about 55 percent of total deal volume, the report said.

LA City and private equity consultant Aksia discussed its private equity strategy and pacing plan at its November 14 investment committee meeting. Buyouts listened to a broadcast of the meeting.

The investment committee approved a plan to commit $850 million between 10 and 15 private equity funds next year. LACERS planned to commit the same amount in 2023, according to Aksia’s presentation.

But the top recommendation from Aksia was for the system to consolidate commitments with the top performing managers.

“Some managers who came back with funds this year were fine. But we didn’t re-up with them because we didn’t necessarily have the highest conviction,” said Trevor Jackson, a managing director at Aksia.

As of the end of 2022, LACERS’ portfolio includes 152 sponsors with 276 active investments, according to board documents.

However, steep discounts prevented LACERS from shedding its portfolio via the secondaries market, according to Jackson.

“We looked at a secondaries sale, but the discounts are just too large. We are open to it. When you have a large portfolio, you have the opportunity to sell some things. It’s an option,” Jackson said.

LACERS will also start a long-awaited co-investment program next year, according to Aksia’s presentation.

According to Aksia, LACERS will commit $150 million over the next two years in a separately managed account with a not yet named manager. The $22.7 billion system will be the only LP in the fund.

Half of the co-investment fund will be dedicated to LACERS’ existing managers, with the rest geared for opportunities with managers outside of its portfolio, according to Aksia.

The system will pay “much better” fees for co-investments with existing managers, Jackson said.

“You get a better, more well-rounded portfolio this way,” Jackson said about the structure of the SMA.