The Los Angeles City Employees’ Retirement System is refining its private equity strategy to broaden diversification across fund size, strategy, geography, and vintage year, as narrow market leadership and uneven exit activity complicate return expectations.
As public and private markets adjust to higher interest rates, geopolitical uncertainty, and shifting capital flows, LACERS’ approach highlights a growing emphasis among institutional investors on resilience over reach in private equity portfolios.
During a recent board meeting, LACERS’ advisor Aksia recommended against a sharp pullback in commitments, despite being modestly overallocated to private equity. Periods of market dislocation have historically produced some of the strongest private equity vintages, said Trevor Jackson, a managing partner at Aksia, during the board meeting. Instead, the advisory firm is recommending the system recalibrate how capital is deployed, prioritizing balance and selectivity over scale.
Aksia recommended LACERS maintain buyouts as the foundation of the portfolio, with venture and growth equity playing a supporting role (with exposure capped below 30%) given their longer duration and more binary outcomes. Although venture performance has lagged in recent years amid higher interest rates and valuation resets, Jackson noted selective opportunities — particularly areas in the artificial intelligence space — remain attractive.
To improve diversification by fund size, Aksia also recommended LACERS increase exposure to smaller buyout funds, where exit activity has been more consistent and valuations more disciplined. Large and mid-sized buyouts continue to dominate the portfolio, but smaller funds offer a complementary return profile and greater capital efficiency, said Jackson.
Aksia noted it would also like to focus on diversification in vintage year. Jackson said nearly three-quarters of the portfolio consists of funds launched in 2019 or later, leaving substantial unrealized value but increasing exposure to a narrow economic window. Older vintages — particularly those from 2012 to 2018 — could be selectively sold in the secondary market, allowing LACERS to recycle capital into newer, higher-conviction opportunities, he added.
Geographically, Aksia recommended LACERS remain heavily invested in North America while gradually expanding exposure to Europe, where valuations and deal structures are viewed as more attractive. Asia is expected to remain a smaller allocation, despite improving conditions in select markets such as Japan and India.
Sector diversification was identified as another priority. While technology would remain the portfolio’s largest exposure, particularly when considering its importance to the U.S. economy; however, Jackson emphasized the need for investments to be complementary rather than additive. Allocations to industrials and healthcare are expected to grow, offering more defensive and value-oriented characteristics, while consumer-related investments would remain underweight following inconsistent performance.
The fund also plans to continue consolidating manager relationships, making larger commitments to fewer, high-conviction managers to improve governance and oversight. Emerging managers would remain part of the program, though allocations are constrained by fund-size limits and a higher bar for new relationships.
For 2026, Aksia recommended LACERS deploy between $550M and $650M in private equity commitments, modestly below prior years, while maintaining consistent pacing to avoid disrupting long-term diversification.
