The Los Angeles Fire and Police Pensions is reviewing responses to the RFP it issued in May for private equity investment advisers to fill the hole left by its termination of Aldus Equity Partners. The limited partner is also considering using a single adviser for both the core and specialized parts of its private equity portfolio and a partial discretion mandate for the private equity adviser.
The pension fund is seeking a firm to handle the core part of the private equity program. The whole private equity program is divided into two components, a traditional (or core) portion that includes venture, buyout and special situation funds; and a specialized private equity component targeting commitments to first-time funds, smaller funds focused on specific geographic or demographic sectors, or funds run by emerging managers. The program is structured so that 80 percent of new commitments go to the core portfolio and 20 percent to the specialized one. StepStone Group administers the specialized program on a nondiscretionary basis.
The board has not yet decided if the core program will be a discretionary or a nondiscretionary mandate but will determine this after reviewing the responses to the RFP. The chosen adviser’s duties will include the identification, due diligence evaluation and recommendation of investments, legal review, performance measurement, attribution analysis and reporting. The firm will also be expected to administer and report on the existing core portfolio, and to coordinate with the specialized private equity adviser to provide reports on the whole private equity program.
The board is also considering having one firm handle both the core and specialized mandates. According to board documents, the advantages to having one adviser include more control over portfolio construction and cost savings of $150,000 or more per year.
The LP’s staff and its general consultant, Pension Consulting Alliance, also believe that the private equity program can be run more effectively if the pledge approval process is streamlined. Thus the LP is considering establishing a policy allowing partial discretion, also called discretion-in-a-box, whereby the board establishes criteria for fund selection. As long as the potential pledge fits the minimum criteria and the adviser feels it’s appropriate, the investment would not need a separate, final approval from the board.
After discussing the single adviser and discretion issues at the June 18 meeting, the board did not make any decisions. It did however direct staff to report back on the issues, along with information about the responses to the RFP, Michael Perez, the LP’s general manager, told Buyouts.
In other news, the pension fund’s general consulting contract with Pension Consulting Alliance will expire on Sept. 30. Staff is recommending a general consultant search, with responses due by July 20. Responsibilities of the general consultant include advising on private equity market assumptions and allocations, and on private equity investment policies, strategies and the selection of gatekeepers.
Los Angeles Fire and Police Pensions manages $11 billion, with a 10 percent allocation to private equity. To date, the program has committed about $1.9 billion to more than 180 partnerships managed by 85 general partners. The LP makes $375 million to $500 million in new private equity commitments each year.