Investment officials of the Los Angeles County Employees Retirement Association (LACERA) are exploring a secondary sale of around $1.25 billion of the pension system’s $5 billion private equity portfolio.
No formal decision has been made on whether the secondary sale will occur, Jonathan Grabel, the system’s chief investment officer, told CIO. He said 12 firms replied to a RFP last month seeking an advisor or advisors to conduct such a sale.
The deadline for the RFP was February 26. Grabel said the process is in the preliminary stages.
“Potentially we want to have the flexibility to do something, but there no action or decision that has been made at this point,” he said.
The RFP said $1.25 billion of private equity assets could be sold at a secondary sale.
Grabel said a lot of the system’s legacy funds may be at their fair value and could be candidates for a secondary sale. He said a secondary sale could allow the pension fund to rebalance less liquid assets such as private equity just like the retirement system is able to do in more traditional liquid asset categories.
In a public response to bidders’ questions, posted on the LACERA website, the pension system says private equity managers whose most recent funds were not re-upped are potential sales candidates.
The response said, “while we seek to be serial investors with all of our general partners, both limited partners and general partners evolve. Strategies change. Professionals move on. Macro-economic events transpire. Regulatory change intervenes. Supply and demand imbalances create terms misalignments.”
The post said currently LACERA has about 60-75 high-conviction core managers “with whom we seek to deepen ongoing relationships.”
LACERA begin its private equity program in 1986 and has rarely sold interest in the secondary market, the post says.
The pension system has approximately $56 billion in assets under management.
Secondary sales to other investors allow pension systems and other institutional investors to exit private equity funds before the traditional seven- to 10-year life span, but the fund assets are often sold at a discount.