Lower mid-market firm wins $50m re-up from PA SERS

As it works to meet its $500m annual commitment target, the US public pension has committed to LLR’s Fund IV, targeting $800m.

The Pennsylvania State Employees’ Retirement System, which has embarked on a major overhaul of its alternatives programme, has committed $50 million to LLR Partners’ fourth fund.

LLR Equity Partners IV is targeting $800 million for investments in service-based companies in the business, consumer, financial, healthcare and software/IT sectors, according to Pennsylvania Public School Employee’ Retirement System documents. The fund has raised $508.9 million, according to documents filed with the US Securities and Exchange Commission, and has a hard-cap of $1 billion.

PA SERS previously invested in LLR’s first, second and third funds. The firm typically invests in lower mid-market businesses, with potential portfolio companies generating less than $100 million in revenue. In order to better align interests with management, LLR does not charge deal-specific management or transaction fees to portfolio companies, according to a Portfolio Advisors memo to the PSERS board of trustees.

Last month, PA SERS committed $50 million to Advent International GPE VII and $10 million to private equity real estate firm BPG Properties’ ninth fund. Both commitments were also re-up investments.

PA SERS, which manages $25 billion in assets, is currently pursuing a number of strategic initiatives as part of a plan to cut its current allocation to alternatives from 27 percent to 14 percent over 10 years. The pension aims to reduce investment fees, emphasising separate – not commingled – investment mandates and limit total new commitments to alternatives at $500 million per year.

Significantly, PA SERS plans to do this for now without using the secondaries market, according to a spokesperson. As part of its 2012-2013 strategic investment plan, the pension will work to reduce general partner relationships from 149 to between 60 and 80 in five years and between 40 and 50 in ten years.

Private equity, which accounts for 63 percent of its current alternatives exposure, would increase to 65 percent after five years and remain at that level for the following five years, according to pension documents.