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LACERS widens range for PE emerging managers

The $22.4bn pension's CIO said changes to the policy were in the works last year after one board member expressed criticism.

Los Angeles City Employees’ Retirement System adjusted its emerging manager program to broaden the parameters for minority-owned private equity managers.

“We believe that the external environment, which is really the emerging manager community, has seen changes over the last several years,” said chief investment officer Rod June at the pension’s May 25 meeting, where the changes were approved.

“Also, there have been indications internally among the board to take a look at the policy and to try to make it more inclusive and better fit the emerging manager community,” he added.

The original policy capped a participating manager’s firm-wide assets at $1 billion and limited the program to first or second-time fund managers. The new policy added third-time funds and widened the scope of fund sizes allowed in the program.

Now, a first-time fund cannot be larger than $750 million, a second-time fund is capped at $1 billion and a third-time fund is capped at $1.25 billion, according to a draft of the new policy posted on the system’s website.

The new policy still caps commitments to first-time funds at 10 percent of the fund or $30 million, whichever is smaller. It also adds a slightly higher limit for second and third-time funds of 20 percent of the projected final total or $40 million, whichever is smaller.

The new policy maintains the minimum private equity fund size of $100 million, but also adds a $75 million minimum for venture capital funds.

Additionally, LACERS also will start using an “organization diversity survey” to measure the demographics of firms responding to requests for proposals and getting contracts. However, due to a California state law passed by public referendum in the 1990s, government organizations are not allowed to consider race, gender or ethnicity when rewarding contracts.

Therefore, the information from the surveys will not be provided to staff or the board until after commitments are made. It will be processed by a separate department and used to “improve outreach, to develop neutral policies that promote the goals of diversity and inclusion, supporting the widest possible range of qualified bidders to do business with the plan,” said assistant city attorney Anya Freedman.

The survey asks potential managers for the number of people of different races the firm employees throughout its workforce, from executives to administrative support to board members, and asks about the manager’s diversity and inclusion policy.

In December, board member Nilza Serrano expressed concern over the system’s previous emerging manager policy, as Buyouts reported. June told Buyouts at the time that the system was at work on a new policy. On May 25, Serrano was the first board member to move to approve the new policy, and she voted for it.

As of May 24, LACERS’ fund was valued at $22.4 billion.

Action Item: read the materials for LACERS’ May 25 board meeting here. Listen to the meeting here.