LPs

Los Angeles Fire and Police audit report IRRs, find no fault

-
LAFPP, Los Angeles Fire and Police Pensions, pension fund, private equity, Portfolio Advisors
Photo of Kobe Bryant, taken April 2, 2013. The Los Angeles Lakers seen here celebrating after his teammate Dwight Howard scored while being fouled on an assist from Bryant during the first quarter of their NBA basketball game against the Dallas Mavericks in Los Angeles. Reuters/Danny Moloshok
  • RVK, staff reviewed IRRs presented by Portfolio Advisors
  • Reported returns found correct
  • LAFPP one of several LPs to review PE fees, cash flows

Los Angeles Fire and Police Pensions found no fault with internal rates of return calculated by private equity consultant Portfolio Advisors, according to audit materials published in the pension’s Jan. 5 meeting materials.

The review was conducted by RVK, the board’s general investments consultant, along with LAFPP staff. The $19.5 billion public pension ’s internal audit staff recommended the review in March 2014.

RVK “performed a recalculation of private equity management fees that included IRR recalculations and found no material discrepancies from performance as reported” by Portfolio Advisors, pension documents say.

LAFPP’s internal audit team then tested a sample of those recalculated IRRs and determined they were consistent with what Portfolio Advisors previously provided. Portfolio Advisors calculates IRRs by using the cash flows from each fund and the LP’s capital account.

Several public pensions, including larger institutions like California Public Employees’ Retirement System and California State Teachers’ Retirement System, recently reviewed management fees and carried interest collected by their PE portfolios.

Many public-pension boards have grown skeptical of PE’s costs amid SEC allegations of misallocated fees and expenses at top-tier firms. The SEC in recent years has also reportedly probed PE firms for their performance figures.

Last year, California Gov. Jerry Brown signed a bill requiring general partners to provide state and local pensions with information about management fees, carried interest and, most significantly, other expenses charged to fund investors and their underlying portfolio companies. The LPs will have to publish those amounts in an annual report.

Many public pensions presented PE returns net of costs, but few tracked those costs on a more granular level.

LAFPP held 8.8 percent of its assets in private equity as of Sept. 30.

Action Item: For more information about Los Angeles Fire and Police Pensions, visit www.lafpp.com

The Los Angeles Lakers’ Kobe Bryant on April 2, 2013, celebrates after a teammate scored while being fouled after an assist from Bryant during an NBA game against the Dallas Mavericks in Los Angeles. Photo courtesy Reuters/Danny Moloshok