Los Angeles City Employees' Retirement System extended the contract of private equity consultant Portfolio Advisors LLC to July 11, 2018, but the decision came after a saga that exposed the difficult job investors have to gauge consultant performance even when they try to get apples-to-apples comparisons, audio recordings of the board's June 13, July 11 and July 25 meetings show.
LACERS' board discussions also went to the heart of what investors expect from their private equity portfolios: a larger number of smaller commitments to hard-to-access funds or larger commitments to fewer funds.
The board had issued an RFP for a private equity consultant last October, but canceled it at the July 11 meeting. It expects to have a new RFP completed before July 11, 2018; Portfolio Advisors will be invited to rebid.
Thus far, LACERS has been on a wild ride. Along the way, the board has received staff reports that first recommended one consultant, then switched to the other finalist, and then last, asked for more time to rectify issues with the finalists' performance reports.
The board of the $15.7 billion pension fund board canceled the original RFP at its July 11 meeting after at least one board member, Nilza R. Serrano, voiced concerns with Portfolio Advisors' response to a request to provide return information of its clients, according to an audio recording of that meeting. In answering the request, Portfolio Advisors had omitted the returns of one of its largest clients, the $52.7 billion Pennsylvania Public School Employees' Retirement System, Harrisburg. In the response, the consulting firm reported returns on $16 billion of its total $37 billion under management, among other things.
LACERS has a 12% allocation to private equity, which it classifies as alternatives. The pension fund's $1.4 billion private equity portfolio has underperformed its benchmark for the one- and five-year periods ended March 31, according to the pension fund's most recent performance report.
At the July 11 meeting, LACERS staff also changed its stance from recommending Portfolio Advisors be rehired to a request that the board defer selecting a private equity consultant. The change was due to “confusion around the numbers submitted by the firms,” said Rodney June, chief investment officer, according to the recording. He added the other finalist, TorreyCove Capital Partners LLC had provided more “complete disclosure” than Portfolio Advisors.