LACERS considers $20m distressed commitment

The Los Angeles City Employees’ Retirement System is considering investing $20 million in American Securities Opportunities Fund II, which will raise an undisclosed amount to make investments in distressed companies.

The LACERS board will consider approving the investment Tuesday.

The target for Fund II is not clear. American Securities’ first distressed fund closed on $300 million in 2006. The fund invests in bank debt, high yield bonds, trade claims and equity securities.

LACERS invested scantily in private equity in 2009, as it dealt with repercussions from a national pension pay-to-play scandal that allegedly involved some firms the pension had dealt with in the past. The pension board’s chairman, Eric Holoman, stepped down last year to be in compliance with a California law prohibiting pension fund members from selling investments to state pension plans.

LACERS, which had $8.2 billion in assets as of 30 June 2009, has a target allocation to alternatives of 7 percent and an actual allocation of 8.6 percent. The pension targets 5 percent for real estate, with an actual allocation of 5.9 percent to the asset class.

American Securities bills itself as one of the oldest private equity firms in existence. The firm started out in 1947 as a family-office investment shop founded by William Rosenwald, an heir to the Sears, Roebuck fortune. The firm did “bootstrap” investments that eventually came to be known as leveraged buyouts.

In the late 1980s, the firm began to branch out to investors outside the immediate family, and take investments from other well-known family offices and select institutions. Finally, in 1994 the firm formalised its private equity programme by accepting third-party capital.

Along with its distressed funds, American Securities invests from a family of five private equity funds, its latest with $2.3 billion of capital for investments in healthcare, consumer and industrial sectors. Fund V, which targets the mid-market, has a 25-year life.