Alternatives, Defined Benefit, Institutional Investors, Pension Funds, Private Equity

LA Water & Power Preps PE Pursuit

The approximately $15 billion Los Angeles Water & Power Employees’ Retirement Plan (WPERP) intends to commit $400 million to private equity this year and continue to deploy capital in private equity to achieve its long-term strategic allocation target, Jeremy Wolfson, chief investment officer, confirmed.

Jeremy Wolfson, CIO of Los Angeles Water & Power Employees’ Retirement Plan

WPERP has adopted a target allocation to private equity of 8% of its assets, Wolfson said, pointing to a strategic plan prepared for the fund in February by StepStone Group, a New York-based global private markets firm that provides advisory services in the investment class. As of Sept. 30, 2018, PE represented approximately 4.6% of WPERP’s assets.

WPERP sponsors a defined benefit retirement find that totaled $11.7 billion in assets, and a Heath Fund, that totaled $2 billion in assets, as of December 2018.

According to StepStone’s report, “[WPERP’s] staff has worked with StepStone Group to develop a pacing plan to prudently achieve and maintain a targeted asset allocation to the Plan’s private equity investment strategies over the short and medium term (i.e., five years). [WPERP’s] staff and StepStone have developed a pipeline of near-term opportunities that will be leveraged to identify attractive fund investment opportunities for the annual plan.” 

StepStone recommends that the WPERP target $400 million of annual private equity commitments in 2019 and increase that amount thereafter in order to smooth deployment pacing and achieve a target of 8% exposure by fair market value to private equity as a percentage of the fund’s program assets. The report specifies that WPERP’s retirement fund target US$350 million of annual private equity commitments in 2019, via four to seven investments annually with an average investment size of US$85 million, and that its Health Fund target US$50 million of annual private equity commitments in 2019, via four to seven investments annually with an average investment size of US$12.5 million.

Pursuant to the strategy, StepStone also recommended that WPERP:

  • Increase geographic diversification by targeting commitments to fund managers with a European focus in order to achieve the long-term target exposure to Europe, and selectively commit to other international regions, including Asia and Emerging Markets;
  • Underweight Venture Capital and Fund-of- Funds exposure through an increase in complementary late stage/growth capital commitments, which can be made directly and at scale; and
  • Develop a program to leverage co-investment opportunities generated from the Plan’s portfolio, providing improved net return potential.

WPERP is one of one of the best-funded plans in the nation, at 93.1% market value as of June 30, 2017. A Milliman study found that public pension plan funding levels as of June 30, 2017 were estimated to be 70.7% on average (IA, 09/27/18).

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