LA County considers upping allocation to secondaries programmes

Los Angeles County Employees’ Retirement Association may increase the amount it can allocate to its co-investment and secondaries programmes.

Many LPs have been eyeing co-investment opportunities as a way to reduce management fees. Others have also discussed the role secondaries can play in a private equity portfolio, especially as many retirement systems are overallocated to the asset class.

LACERA investment staff would like to allocate up to 30 percent of its private equity portfolio to its two co-investment and secondaries programmes, an increase of 5 percentage points from the top of its current range.

The proposal was included in documents provided in advance of the system’s Equity Public/Private committee meeting on 9 November. Affiliate title Buyouts reviewed the documents.

The $67.6 billion system has an externally managed co-investment/fund of funds/secondaries strategy along with an in-house co-investment/secondaries programme.

According to the documents, these two programmes have a combined market value of $2.7 billion as of the end of June – or 21 percent of the private equity portfolio’s NAV. It is  estimated the two programmes will reach 28 percent of the portfolio’s NAV by the end of 2024.

Each of these strategies work with seven active GPs, with a combined 21 investments between them.

According to the documents, the system has saved $20 million in fees through the co-investment/secondaries programmes since their inception. Since 2019, co-investments have earned 46.5 percent net IRR and secondaries 25.7 percent, beating the overall private equity performance of 24.8 percent.

In addition to potentially hiking its allocation to co-investments and secondaries, LACERA staff may consider a possible secondaries sale of between $500 million to $1 billion in the future. No other details about the potential sale were included in the documents.