LACERS to focus on small, mid-market funds this year

Small and middle-market vehicles accounted for approximately a quarter of Los Angeles City’s $1.3 billion portfolio as of June, well below its 30 percent to 40 percent target exposure range, according to an investment plan prepared by Portfolio Advisors.

While LACERS will continue to invest in large and mega-buyout funds “selectively,” it plans to reduce its portfolio’s exposure to those vehicles from around 40 percent to around 25 percent, the investment plan states.

Some investors believe small and middle-market managers generate stronger returns than large mega-funds, some of which underperformed following a pre-financial crisis fundraising boom. Several large limited partners, including the California State Teachers’ Retirement System and State of Wisconsin Investment Board, said they would direct more of their commitments to smaller funds in 2014.

The $14 billion retirement system will likely make between 12 and 15 commitments in the New Year, according to the investment plan. The commitments will likely be around $10 million to $40 million in size.

The plan is consistent with LACERS’ allocation to private equity in 2014. The retirement system committed $350 million across 18 funds in 2014, including flagship vehicles managed by ABRY Partners, Hellman & Friedman and Vista Equity Partners.

LACERS disclosed three new commitments in its Jan. 13 meeting materials. The retirement system made two commitments in December, pledging $25 million to Natural Gas Partners XI and $25 million to Insight Venture Partners IX. In October, LACERS re-upped $10 million to Spire Capital Partners III, a buyout fund targeting $375 million.