Los Angeles City Employees’ Retirement System‘s private equity capital calls have more than doubled since the coronavirus pandemic took hold, the system’s chief investment officer told the board Tuesday.
Rod June said investment staff were used to about $25 million per month being called and that had increased to $60 million to $70 million a month.
June gave two reasons for the increase: first, PE firms are finding “opportunities to invest at lower valuations, which is always a good thing”. Second, firms are also using subscription lines of credit to draw down capital for their portfolio companies and must come back to their partners to “replenish” them.
June said the $17 billion US pension had about 2.2 percent of its value in cash now, totalling about $375 million, to ensure it had adequate liquidity to pay benefits and the increased calls. Last month, the board approved this greater cash allocation, as sister title Buyouts reported. As of 29 February, cash on hand was 0.7 percent of the allocation, or about $130 million.
June said he did not know how long the increased capital calls would continue but was confident the fund would be able to stay on top of them. This reflected the general thinking of most LPs, as Buyouts has reported.
June also said the fund and its consultants were considering making investments to take advantage of the current market dislocation. This could include distressed debt and special situations investments.
“We are exploring those,” June said, and told the board he would come back to them “within the next month or two”. He added some of the moves may require board approval as they “may not fall within our current policy structure”.
In response to a question about private markets valuations, June said he expected them to go down as private markets catch up to public markets but warned they may not show up until the third or fourth quarter of this year.
June did not respond to a request for comment.