Los Angeles Fire and Police Pension System‘s board voted Thursday to increase its private equity allocation and create an allocation for private credit.
Based on a recommendation from RVK, its general investment consultant, the pension will decrease its allocation to commodities from 5 percent to 1 percent. The private equity target allocation will go up to 14 percent from 12 percent, while the private credit target will start out at 2 percent.
As of July 31, the pension’s private equity allocation was under-weight, making up 10.28 percent of its total portfolio. The pension’s PE holdings were valued at $2.6 billion. The total portfolio was valued at $25 billion.
Earlier this year, when the covid-19 crisis was just taking hold, chief investment officer Tom Lopez told Buyouts the pension might deploy less to private equity than planned, depending on the market. But, the pension also increased its private equity fees budget considerably, as Buyouts reported.
“You have the ability to tolerate a reasonable amount of illiquidity in the portfolio. That is not true of many public pension plans,” said RVK’s Jim Voytko. The pension’s strong funding level, contribution policy and low payout rate meant the new allocations were “not something that concerns us greatly given the outcome of the asset liability study.”
During the following discussion, when asked how much liquidity LAFPP had on hand, Lopez said it was about 4 percent, or enough to pay almost a year’s worth of expenses.
When asked by a board member, Lopez expressed support for the new private equity asset allocation.
“At one point, that would have been sort of a radical number, nowadays it’s actually pretty ordinary,” he said. “There are issues with private equity. It’s an expensive asset class, but on the other hand it’s done exactly what we hoped for. It is a major return driver in our portfolio. It has outperformed the public markets over the period of time we’ve done it.”
Board president Brian Pendleton said the new mix, “seems to move things around just enough to give us access to new areas of investment while getting rid of some that have not performed.”
Action Item: read the RVK presentations to LAFPP at its August 20 meeting here.