Los Angeles pension fund to up allocations to PE bucket

The city’s retirement plan wants to commit more to mid-market and lower mid-market distressed for control situations.

The Los Angeles City Employees' Retirement System (LACERS) plans to increase its private equity commitments in 2017 so its portfolio hits the 12 percent exposure target, pension fund documents show.

The $15 billion Los Angeles-based retirement plan, as of 30 September, shows some 9.8 percent of their investments consisted of private equity.

In documents laying out next year's strategy, LACERS said it planned on committing between $325 million and $350 million for private equity. If the fund makes commitments of that size for the next two years, it could hit its 12 percent target for private equity investments, the documents showed. That breaks down to 16 to 18 investments of $10 million to $40 million made throughout the course of 2017.

As of 30 June, buyout funds comprise the majority – 57 percent – of the private equity portfolio, followed by venture capital and growth equity strategies at 15 percent and 10 percent, respectively. Distressed debt and special situations each make up 8 percent of the portfolio, while mezzanine and secondaries funds represent 1 percent.

LACERS said it would put an emphasis on managers that execute distressed debt for control of mid-market and lower mid-market companies. Similarly, the documents indicated a focus on mid-market and lower mid-market buyout strategies. The pension fund said it would also opportunistically invest in mezzanine and secondary funds.

The fund will meanwhile place less emphasis on mega buyout funds, growth equity and venture capital strategies and European and Asia funds.
The most recent private equity performance report, as of 30 June, showed the fund had $318.5 million invested in distressed debt out of the $3.72 billion of committed capital for the private equity bucket.

Of the pledges to distressed funds, $201.4 million of it was put into vehicles with non-control strategies, which posted a net internal rate of return 10.8 percent. LACERS invested $71.2 million in control strategies, while the remaining $45.9 million went toward multi-strategy distressed funds. The strategies' IRRs were 10 percent and 7.4 percent, respectively.

The report showed the distressed debt commitments included two Oaktree Capital Management vehicles, $7.5 million to the Opportunities Fund X and $17.5 million to the Opportunities Fund Xb. The latter is the largest fund currently in market, according to  Private Debt Investor  data. LACERS' single largest commitment in the strategy is $30 million each to Ascribe Opportunities Fund III and Providence Debt Fund III.