LP Scorecard: Big bet on middle market pays dividends for LACERS

If money talks, then the Los Angeles City Employees’ Retirement System is a firm believer in mid-sized funds, having placed more capital behind them than behind other fund sizes (see accompanying table). And the strategy has not disappointed, with middle-market funds netting the highest IRR, at 17.6 percent, out of four size categories. Large-sized funds came in second with a net IRR of 13.9 percent. Mega-funds and small funds rounded out the buyouts sector, generating IRRs of 10.8 percent and 7.1 percent for LACERS, respectively.

Aside from being LACERS’s largest sector in terms of capital committed, buyouts as a whole beats other sub-asset classes in the LACERS portfolio with a 1.64x return multiple, but come in second place by IRR, at 13.3 percent. Venture capital funds, in second place in the LACERS portfolio by committed capital, hasn’t been nearly as lucrative, posting an IRR of 7.4 percent. Distressed debt ranks third in commitments ($273.6 million), return multiple (1.43x) and net IRR (12.1 percent).

Overall, LACERS’s private equity portfolio has netted an 11.6 percent IRR and boasts a 1.53x multiple. In addition, the pension has achieved self-funded status by producing a positive net cash flow—distributions outpacing contributions—since 2011.

LACERS started investing in private equity in 1995. The pension has committed over $3 billion across 191 funds since its inception, with buyouts being the largest allocation, amassing nearly 61 percent of the portfolio with over $1.8 billion in committed capital.