LACERS bumps allocation to PE

The $10.8bn retirement system shook up its asset allocation mix at its last meeting, increasing its target to private equity to 12% of total assets.

The Los Angeles City Employees’ Retirement System has increased its allocation to private equity, boosting its target allocation to 12 percent of total assets, according to retirement system documents.

Under the new allocation mix, LACERS will lump its commitments to private equity in with its 65 percent targeted allocation to equities. The $10.8 billion retirement system made the change based on the recommendation of pension advisor Wilshire Associates, which also recommended that the retirement system decrease its allocation to domestic equities by 13 percent and increase its target to international equities by 9 percent.

The new allocation mix has increased LACERS’ expected median return from 7.05 percent to 7.40 percent, according to a presentation used by Wilshire to make the recommendation.

The retirement system previously had a 9 percent target to alternative investments, which its 2008 investment policy defined as private equity, venture capital, buyout, mezzanine financing, distressed securities, natural resources and hedge funds.

LACERS was well over target on its alternatives allocation, according to a 30 September, 2011 investment report; with 11.4 of its assets committed to asset class. The retirement system set its targets in 2009.

In 2010, the California Public Employees’ Retirement System instituted a similar allocation mix when it aggregated its public equity stocks and private equity holdings into a “growth” group that accounts for 63 percent of its total assets. The allocation strategy was designed to expose the $229.5 billion retirement system to rising markets. 

LACERS also committed up to $20 million to Leonard Green & Partners sixth fund, which is targeting $5 billion with a $6 billion hard-cap. The firm changed the terms on its sixth fund last year, increasing the amount of transaction fees it will use to offset the management fee paid by limited partners to 100 percent, according to a letter the firm sent to limited partners. The firm also changed the structure of the fund’s carried interest distribution, requiring that LPs be paid back for partnership expenses – minus the management fee – before the GP can collect profits from the fund.

The firm’s sixth fund will invest between $100 million and $500 million per transaction in the US retail, consumer product, distribution, media, business services and healthcare sectors. The GP will invest $200 million in the fund over a six year period, according to documents from the School Employees’ Retirement System of Ohio, which committed $50 million.