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LAFPP: reporting could cover carried interest

The LA pension fund may commit up to $90 million to four new PE funds in the remainder of 2015.

The Los Angeles Fire & Police Pension System’s internal audit section has recommended that “management explore various options to confirm management fees and carried interest” and to look into whether additional resources are required.

In a report presented to the LAFPP board on 20 August, the audit section said that the board “has done the necessary job to select credible fund managers and monitor fees”, but “enhancements” to private equity reporting could include “additional information on fund expenses and verifications of ‘carried interest’.”

The report outlined the conclusions of consultant RVK's review of investment management fees. As a result of an audit recommendation in 2012, the fund hired RVK to undertake a recalculation of fees paid, including to private equity funds, according to the minutes of the meeting.

The consultancy concluded that of sample of 300 PE and real estate funds, including 54 private equity funds, there were no discrepancies between fees communicated and charged, but noted the calculations did not include carried interest.

“Fee transparency across the private equity industry appears to be increasing; RVK expects management fee information to continue to become increasingly available through general partners’ standard reporting over time,” the RVK report said.

The LAFPP report concluded that the fund’s private equity programme “has been an important addition to LAFPP’s portfolio and asset allocation.” Its portfolio has earned a net 11 percent internal rate of return and a 1.5x multiple between 1996, when it was established, and December 2014.

At the same meeting, the LAFPP board approved a maximum $5 million commitment to 1315 Capital, an investment that closed on 17 July.

The LAFPP had a private equity portfolio with $1.56 billion in commitments to six funds as of 30 June, according to the chief investment officer’s quarterly report of asset allocation. The commitments were $77.9 million to Abbott Capital, $24.1 million to Hamilton Lane, $69.8 million to PCA, $929.6 million to Portfolio Advisors, $305.6 million to Aldus Equity and $155.6 million to Stepstone Group.

This accounts for 8.39 percent allocation to private equity from its $18.61 billion fund, as of 30 June. Its target PE allocation is 10 percent, with a range between 7.5 percent and 12.5 percent.

According to reports, the LAFPP may commit between $80 and $90 million to four new PE funds from August to the end of the year. The CIO report projects the third quarter private equity cash flows to be $30.2 million, up from the previous quarter’s $12.6 million.

In the four years leading up to December 2013, the LAFPP committed $1.4 billion to private equity, according to PEI’s Research & Analytics.