By David G. Barry
The Los Angeles City Employees’ Retirement System has
joined the growing list of institutions that will be reducing its private
equity investing in 2023.
The LACERS’ board has approved a recommendation from consultant Aksia to commit up to $850 million in the coming year. A year ago, it planned to commit $1.37 billion. However, through September 30, the $20.6 billion system has deployed $787 million and will likely end up committing roughly $1 billion, Aksia Managing Director Trevor Jackson told the board.
The move to reduce pacing is due in large part to LACERS – like so many others – being overallocated to the asset class. As of June 30, the private equity portfolio was valued at $3.8 billion, representing 18.2% of its $20.6 billion portfolio. LACERS has a 16% target to the asset class, meaning it is some $500 million above target.
In reducing the amount, it is committing to private equity, LACERS joins such other pension funds as New York State Teachers’ Retirement System (NYSTRS) and the Pennsylvania Public School Employees’ Retirement System (PSERS) which made similar decisions.
Under the Aksia plan, LACERS will look to back 10 to 15 firms, committing $40 million to $75 million. Heading into 2022, the system had planned to invest $50 million to $100 million into 18 to 25 managers.
Because of the reduction in capital, Jackson stressed to the board that LACERS “won’t be able to do everything,” and that “there might be some difficult” decisions in terms of reupping with managers.
LACERS will continue to seek to invest at least 10% of its private equity allocation to emerging managers.
The plan also includes selectively adding exposure internationally – primarily to Europe, Asia and Latin America – and developing a framework for implementing a co-investment program that could potentially launch in 2023. Additionally, Aksia suggests LACERS continue building a framework for addressing secondary transactions.
Since launching its private equity program in 1995, LACERS has committed $7 billion to private equity – with roughly half in buyouts. Venture capital and growth equity account for 30% while credit has 6.9% and natural resources accounts for 6.3%.