Side Letter: How LAFPP set out to promote diverse-owned PE managers

How does one promote diversity and inclusion in the PE industry? The answer is pretty simple for one US public pension plan. Here's today's brief, for our valued subscribers only.

He said it

“There are issues with private equity. It’s an expensive asset class, but on the other hand it’s done exactly what we hoped for. It is a major return driver in our portfolio. It has outperformed the public markets over the period of time we’ve done it”

Tom Lopez, chief investment officer of Los Angeles Fire and Police Pension System puts some colour around the fund’s increased allocation to PE. Read more on sister publication Buyouts.

Just happened

Money talks when it comes to diversity in PE

Los Angeles Fire and Police Pension System has backed emerging and diverse PE managers since 1987, one of the oldest programmes in the US pension system. In 2016, it was the first to provide institutional capital access to LGBTQ-owned GPs under its specialised manager programme. Private Equity International‘s Carmela Mendoza had an exclusive tour of the pension’s “specialised manager” programme, courtesy of CIO Tom Lopez. Here are some of the takeaways:

  • Returns for the programme have tracked the PE portfolio, delivering a 11.6 percent net internal rate of return and 1.59x net multiple from inception until end-December 2019, pension documents show. “Historically on a quarterly basis, the multiple on investment and the internal rate of return are extraordinarily close to the performance of the core PE portfolio, usually 3/10 of a percent,” Lopez explained.
  • For 2020, the pension has earmarked a total of $300 million for its specialised manager programme, mandated evenly between Portfolio Advisors and Fairview Capital Partners.
  • Portfolio Advisors, which manages LAFPP’s core PE portfolio, in 2018 created a diversity matrix that they ask all GPs to voluntarily complete. The form breaks down the sponsor’s workforce by occupation, gender identity and ethnic background, and includes LGBTQX, disabled and veteran employees.
  • It’s tricky to find LGBTQ-owned managers, said Portfolio Advisors’ managing director Todd Hughes: “You have got to have senior investment professionals in organisations that have declared their sexual orientation and are willing to be public.”

LPs on Vista

Are limited partners worried about the tax inquiry into Vista Equity Partners founder Robert Smith? Of two large North American investors in Vista’s funds we spoke to yesterday, one wasn’t even aware of the media reports into the inquiry and the other hadn’t read past the headlines and wasn’t overly concerned. The letter Vista sent to investors on Friday described the investigation as a “personal issue” not involving Vista, its funds or any of its portfolio companies.


Epstein connections

Apollo founder and industry grandee Leon Black is set to be subpoenaed by the Virgin Islands’ district attorney for information relating to his connections with Jeffrey Epstein, says the New York Times. Read our report from last year on the relationship.

Carlyle spin-out’s fundraise

Melior Equity Partners, a private equity firm founded by former members of Carlyle Group’s Ireland team, has made headway with its debut fund. The vehicle has raised almost two-thirds of the target for the vehicle which has a €200 million hard-cap. Adam Le has the story.

Dig deeper

Institution: Montana Board of Investments
Headquarters: Helena, US
AUM: $21.52 billion
Allocation to alternatives: 14.9%

Montana Board of Investments has committed $260 million across six private equity vehicles, according to agenda documents from its August 2020 investment board meeting.

The commitments comprise $40 million to Axiom Asia VI; an additional $20 million to Mountain Capital Partners II; and $50 million each to McCarthy Capital Fund VIITenex Capital Partners Fund IIIOCP Asia Fund IV and GoldenTree Distressed Co-Investment Fund III.

Today’s letter was prepared by Toby Mitchenall with Adam Le and Carmela Mendoza.

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