LACERA sells over $1.4bn LP portfolio as investors hunt for liquidity

The deal is part of a wave of LP secondaries driven by fund investors' desire to get proceeds from older funds.

Los Angeles County Employees’ Retirement Association sold a large portfolio of LP stakes in mostly buyout funds amid a slowdown in distribution activity prompting many fund investors to seek alternative ways to generate liquidity.

The deal is part of a wave of LP secondaries being driven by fund investors’ desire to get proceeds from older funds. Slowed M&A, including muted exit activity, has been putting pressure on LPs whose PE portfolios are not generating the steady stream of cashflow they have come to expect.

This makes it tougher for LPs to follow their robust private equity commitment pacing of past years, forcing them to slow new commitments and potentially trim down the size of their PE portfolios.

With slower distributions, many LPs have turned to secondaries as a way to capture liquidity from private equity, even at a discount to net asset value. Stronger pricing this year is also helping LPs choose to sell rather than wait for the environment to improve.

“The desire for liquidity became the dominant theme of the year and drove 36 percent of all LP selling activity (up from 14 percent in 2022),” Jefferies said in its 2023 full year volume survey.

LACERA’s process closed in recent weeks with a group of buyers, sources said. One of the main buyers in the deal was Ardian, two sources said. A spokesperson for Ardian did not return a comment request.

The size of the portfolio sale was more than $1.4 billion, sources said. The system, which managed about $74 billion, worked with Campbell Lutyens on the sale.

A LACERA spokesperson declined to comment.

Pricing was said to be strong on the portfolio, which consisted of mostly stakes in buyout funds, a source said. Pricing for high quality buyout funds strengthened last year, averaging around 91 percent of net asset value, Jefferies said.

LACERA has a mature and large private equity portfolio, valued at about $13.9 billion, representing 18.9 percent of the total fund. That puts the system over its 17 percent target, a situation many US public pensions are facing after years of robust commit activity.

The system’s sale is among several driving secondaries volume. Last year, LP sales led activity, with an estimated annual tally of about $60 billion, according to Jefferies.

Other sales in the market include those from Washington State’s pension system, Kaiser Permanente and USS.