LACERS plans to increase emphasis on emerging managers

The Los Angeles City Employees’ Retirement System is looking to expand the pool of emerging private fund managers it can consider for its commitments.

At its most recent meeting on 14 March, the city pension fund staff proposed an increase in the maximum assets under management size of first-time fund managers from $500 million to $750 million, and set a new $1 billion cap on second-time fund managers for its private markets emerging manager programme, which includes private equity, real assets – excluding real estate – and credit, according to meeting materials.

The AUM cap increase is to expand the number of possible emerging managers with whom LACERS can invest, chief investment officer Rodney June said at the meeting.

“We couldn’t find emerging managers with assets under $500 million, so we needed to widen the pool,” June said. “We want to be more inclusive.”

The $14 billion pension fund, which allocated 10 percent, or $1.42 billion, to private equity as of 30 June, has plans to commit $325 million to $350 million in 2017 to the asset class to meet its 12 percent allocation target, as reported by Private Equity International.

LACERS staff also proposed a maximum commitment amount of $25 million to emerging managers, up from $20 million in the previously approved investment policy from June 2014, although no vote has yet taken place.

The pension plan is also focusing on emerging managers in its search for a new external private equity consultant, hoping to select a firm that has emphasised the importance of emerging managers, as also discussed at the 14 March meeting.

The process to seek a new consultant began in October, when LACERS sought to “test the market” for consulting services and potentially select a new advisor to start when its contract with current consultant Portfolio Advisors ends in January 2018, as reported by PEI. Materials from a previous meeting showed there are four semi-finalists in the search process: Cliffwater, Hamilton Lane, Portfolio Advisors and TorreyCove Capital Partners.

Last week, LACERS’ investment team presented each manager’s focus on and commitments in emerging managers in the past three years.

However, the team – including June and investment officer Jimmy Wang – was not able to answer the board’s specific questions about the portion of those commitments in relation to their total private market commitments, and about their specific strategies to target emerging managers. The team and board will continue to discuss the proposed investment policy revisions and the private equity consultant search at upcoming meetings, including its next one on 11 April. 

“There’s nothing more important to me than this emerging manager [requirement] and ensuring that women and people of colour and disadvantaged areas get through the door,” LACERS board member Nilza Serrano said during the meeting. “But I feel like I’m not getting the information that I should be getting, or you’re not judging the consultants that are going to fit that particular need.