LACERS to issue RFP for private equity consultant

The LA city employees' pension, which has worked with Portfolio Advisors since January 2014, is looking to lower its fee structure with the firm.

The Los Angeles City Employees’ Retirement System (LACERS) has agreed to issue a request for proposal to seek private equity consulting services.

During its 23 August meeting, the investment committee requested board approval to issue the RFP in order to “evaluate the current marketplace,” according to its investment committee meeting agenda. The request was authorised during the meeting, a spokesman for Portfolio Advisors told Private Equity International, although LACERS didn't return requests for comment.

The move comes after the pension's staff had initially recommended to renew its current three-year contract with Portfolio Advisors at its 9 August meeting.

The agenda for that meeting indicates Portfolio Advisors, an investment management and consulting firm with $36.4 billion in assets under management and $46 billion in assets under advisement, began its current contract with LACERS, which has $14 billion in assets, on 25 January 2014 to support LACERS in building its private equity portfolio.

Portfolio Advisors beat out fellow semi-finalists Hamilton Lane and StepStone Group in LACERS' original 2013 RFP, according to a board meeting agenda from October 2013.

The contract, which cost LACERS $2.18 million for a three-year period, is set to end 24 January 2017. LACERS is in the process of negotiating a “more favourable fee structure” with help from an external legal counsel, the document said.

In the two-and-half years between the contract start date and 30 June, Portfolio Advisors helped LACERS commit $902.5 million to 39 fund managers and 48 individual funds, according to the document. That averages to about $361 million in commitment per annum. Of the 39 general partners, 21 were new relationships and seven were emerging managers.

In line with LACERS’ private equity strategy to focus on lower mid-market funds, small- and mid-cap buyout was the most popular strategy with the pension plan during this time. Almost 30 percent of the $902.5 million was committed to 15 lower mid-market funds, according to LACERS documents from 9 August. 

With this emphasis on smaller funds, the average size of funds that LACERS committed to also decreased. In the last two-and-half years, the average fund size was $2.7 billion, below the $4.7 billion average from the eight-year period before Portfolio Advisors was hired.

Under Portfolio Advisors’ advisory, LACERS also committed 15 percent, 10.5 percent, and 13.2 percent of the total private equity amount to special situations, growth equity, and venture capital, respectively. It made one commitment to a secondaries fund, as well. According to PEI data, it committed $25 million to StepStone Secondary Opportunities Fund III in 2015.

The document from 9 August indicates the commitment pace that Portfolio Advisors has been implementing with LACERS puts the pension on track to reach its 12 percent private equity allocation goal in about three years. The pension plan’s allocation to private equity was 10.2 percent as of 31 March.