Jonathan Grabel is the chief investment officer at the Los Angeles County Employees Retirement Association (LACERA). Previously, he was the CIO at the Public Employees Retirement Association of New Mexico, a pension fund with $14.5 billion in assets under management. Prior to that, he was the CIO at Montgomery County Public Schools. Grabel graduated from the University of Chicago, Booth School of Business with an MBA in Finance and graduated from the University of Pennsylvania, The Wharton School with a B.S in Economics.
In this interview, Jon discussed how private equity has been LACERA's best-returning investment strategy since the mid-'80s, how LPs can be catalysts for change through programs like TIDE, and how the organization has become more detailed than ever as the world continues to become complex.
Jon Grabel was named to Trusted Insight's Top Transformational Leaders Of Last Five Years: 2022.
Trusted Insight: Tell us about the LACERA investment office, its team size, assets under management, and your role.
Jon Grabel: At LACERA, we oversee about $75 billion on behalf of our 185,000 plus members. We take that mission to our members to pay benefits today, tomorrow and into the future very seriously. Our mission is everything to us. We construct our team, our portfolio with that mission in mind. One of the things that I firmly believe is that financial outcomes are wholly dependent upon properly attracting, motivating, retaining incredible human capital. We are budgeted for about 45 people and are below that right now. There are some great career opportunities pending at LACERA now.
Our team is constructed in two main ways. One is we have people who work in specific asset categories and we have reimagined those asset categories over the last four or five years where they are more functionally constructed. For example, our growth team consists of public and private equity. Our risk mitigation and credit team consists of both credit and more traditional fixed income strategies. In addition to the asset category groups, we have a portfolio analytics team that takes a cross-functional view of the portfolio by evaluating stewardship, performance reporting, asset allocation, and risk management. One incremental dimension that we are contemplating going forward, because it is an important part of our strategic plan, is our co-investment team. We have co-investments in multiple asset categories. Do we want to extract that and have a dedicated co-investment team? We have a great investment team and what puts a smile on my face is that I believe our best is yet to come.
Trusted Insight: LACERA has been investing in private equity since the mid-1980s, and it's a very active program? Can you speak more on the program's recent development?
Jon Grabel: Private equity is part of our growth allocation. Our growth allocation has a target of 53%, as a result of our strategic asset allocation review last May. Our growth allocation increased from 48 to 53%. There are a couple moving pieces in growth. Our target to private equity increased from 10 to 17%, and our target to public equity went down from 35 to 32%. The balance of the growth portfolio is in non-core real estate.
Private equity has been our best returning major investment strategy since the mid-'80s. We have allocated a significant amount of capital over that the last 35 years. The program has evolved nicely from our first fund commitment to a generalist fund to more specialization, embracing venture, international private equity funds, co-investments, and secondaries. Our private equity program has three main components. One is fund commitments. The second is our emerging manager program. The third is our internal direct co-investment and secondaries program. All three build off one another.
We brought our co-investment and secondaries program in-house in July 2019, and those investments are performing quite well. The total co-investment and secondaries program since we brought it in-house has an IRR of about 43.5%. If we isolate co-investments, the IRR is 58%. That exceeds our private equity program since that point in time, which had a return of 30.5%, which has well exceeded its benchmark return of 18.5%. In addition to terrific performance, we estimate that we have saved over $10 million in fees by doing this ourselves as opposed to outsourcing co-investments and secondaries. Another dimension of this program relates to better risk management. We are more intentional in terms of stage, sector and geography. We believe this improves our risk-adjusted returns.
This program is a great example of our strategic plan, which is titled Allocator to Best-In-Class Investor. There are many other examples of how we operationalize our strategic plan and improve the prospects for LACERA and our members. I know I've spoken in the past about our DEI program that we call TIDE, Towards Inclusion, Diversity and Equity. Be it private equity or LACERA TIDE, we are more deliberate with our program.
Trusted Insight: Can you share more on the TIDE program and any other initiative that Lacera is excited about?
Jon Grabel: There are several things I would highlight. One is TIDE. I give credit to the board for making this a key priority for the organization. TIDE consists of five pillars, and we view it as a comprehensive framework and one built for continuous improvement. TIDE consists of our Internal Practices, how we perform Diligence, being an Active Owner in public and private markets, Capital Formation, and Industry Advocacy. In December, we presented to the board our annual TIDE report measuring where we have made progress and where we need to do more TIDE consists of quantitative and qualitative measures. It is connecting fiduciary duty with the recognition that diverse teams produce better outcomes. TIDE is about LACERA being an active and engaged investor through diligence, including post-investment monitoring of the portfolio. TIDE also recognizes that we need to partner with like-minded organizations such that we can all be positive catalysts for change. LACERA TIDE focuses on the development of our emerging manager programs. Yet, it does not stop with emerging firms. All firms should look to optimize outcomes. As a result, we push larger, more established firms to better embrace the benefits of diversity, equity, and inclusion.
Another key initiative is our stewardship effort. Many view ESG or stewardship as a product. We view it as a comprehensive cross-portfolio process. One that enhances returns and/or mitigates risks. This means our fiduciary duty compels us to embrace ESG considerations. Said differently, ESG is not a small allocation for us. We believe there is applicability across 100% of the fund. Like our TIDE update, we publish a stewardship report on our various initiatives. LACERA has a dedicated board committee on governance and stewardship, which sets the tone for our ESG activities.
To connect the dots, as everything is connected to our mission to members, the board approved last month our strategic plan that we call Allocator to Best-In-Class Investor. The plan has five pillars. We discussed three of the pillars already – optimize investment model (co-investments), TIDE, and our stewardship activities. The other components of our strategic plan are enhancing our operational effectiveness and strengthening our influence on fees and the cost of capital. Most of our initiatives cross into multiple strategic categories. These initiatives inure to the benefit of our members. They are rooted in an engaged and committed board combined with a great team.
Trusted Insight: What are some exciting outside market opportunities that LACERA views as a long-term global investor?
Jon Grabel: Every market has risks, opportunities, and liquidity constraints. When we do strategic asset allocation as well as structural reviews, we look at the various components of our portfolio and make sure we are being compensated for risks. Consistent with our investment beliefs, we try to ensure that a prospective strategy or investment either enhances returns and/or mitigates risks. You should not invest in a long-lock vehicle, for example, if you can get the same returns in public markets. We are always looking at risks in the portfolio. This philosophy comes from our statement of investment beliefs.
Is the world more complex today? Yes. Is our portfolio more complicated today? Yes. But maybe that's why we have this level of sophistication, resources, and specializations on the team. Our reach and analysis are more detailed than ever. We believe our processes best position the LACERA fund to optimize risk-adjusted returns for our members.
View our full catalog of interviews here.
The full list of Top Transformational Leaders Of Last Five Years: 2022 can be found here.
In this interview, Jon discussed how private equity has been LACERA's best-returning investment strategy since the mid-'80s, how LPs can be catalysts for change through programs like TIDE, and how the organization has become more detailed than ever as the world continues to become complex.
Jon Grabel was named to Trusted Insight's Top Transformational Leaders Of Last Five Years: 2022.
Trusted Insight: Tell us about the LACERA investment office, its team size, assets under management, and your role.
Jon Grabel: At LACERA, we oversee about $75 billion on behalf of our 185,000 plus members. We take that mission to our members to pay benefits today, tomorrow and into the future very seriously. Our mission is everything to us. We construct our team, our portfolio with that mission in mind. One of the things that I firmly believe is that financial outcomes are wholly dependent upon properly attracting, motivating, retaining incredible human capital. We are budgeted for about 45 people and are below that right now. There are some great career opportunities pending at LACERA now.
Our team is constructed in two main ways. One is we have people who work in specific asset categories and we have reimagined those asset categories over the last four or five years where they are more functionally constructed. For example, our growth team consists of public and private equity. Our risk mitigation and credit team consists of both credit and more traditional fixed income strategies. In addition to the asset category groups, we have a portfolio analytics team that takes a cross-functional view of the portfolio by evaluating stewardship, performance reporting, asset allocation, and risk management. One incremental dimension that we are contemplating going forward, because it is an important part of our strategic plan, is our co-investment team. We have co-investments in multiple asset categories. Do we want to extract that and have a dedicated co-investment team? We have a great investment team and what puts a smile on my face is that I believe our best is yet to come.
"Private equity has been our best returning major investment strategy since the mid-'80s. We have allocated a significant amount of capital over that the last 35 years."
Trusted Insight: LACERA has been investing in private equity since the mid-1980s, and it's a very active program? Can you speak more on the program's recent development?
Jon Grabel: Private equity is part of our growth allocation. Our growth allocation has a target of 53%, as a result of our strategic asset allocation review last May. Our growth allocation increased from 48 to 53%. There are a couple moving pieces in growth. Our target to private equity increased from 10 to 17%, and our target to public equity went down from 35 to 32%. The balance of the growth portfolio is in non-core real estate.
Private equity has been our best returning major investment strategy since the mid-'80s. We have allocated a significant amount of capital over that the last 35 years. The program has evolved nicely from our first fund commitment to a generalist fund to more specialization, embracing venture, international private equity funds, co-investments, and secondaries. Our private equity program has three main components. One is fund commitments. The second is our emerging manager program. The third is our internal direct co-investment and secondaries program. All three build off one another.
We brought our co-investment and secondaries program in-house in July 2019, and those investments are performing quite well. The total co-investment and secondaries program since we brought it in-house has an IRR of about 43.5%. If we isolate co-investments, the IRR is 58%. That exceeds our private equity program since that point in time, which had a return of 30.5%, which has well exceeded its benchmark return of 18.5%. In addition to terrific performance, we estimate that we have saved over $10 million in fees by doing this ourselves as opposed to outsourcing co-investments and secondaries. Another dimension of this program relates to better risk management. We are more intentional in terms of stage, sector and geography. We believe this improves our risk-adjusted returns.
"TIDE also recognizes that we need to partner with like-minded organizations such that we can all be positive catalysts for change... As a result, we push larger, more established firms to better embrace the benefits of diverse, equity and inclusion."
This program is a great example of our strategic plan, which is titled Allocator to Best-In-Class Investor. There are many other examples of how we operationalize our strategic plan and improve the prospects for LACERA and our members. I know I've spoken in the past about our DEI program that we call TIDE, Towards Inclusion, Diversity and Equity. Be it private equity or LACERA TIDE, we are more deliberate with our program.
Trusted Insight: Can you share more on the TIDE program and any other initiative that Lacera is excited about?
Jon Grabel: There are several things I would highlight. One is TIDE. I give credit to the board for making this a key priority for the organization. TIDE consists of five pillars, and we view it as a comprehensive framework and one built for continuous improvement. TIDE consists of our Internal Practices, how we perform Diligence, being an Active Owner in public and private markets, Capital Formation, and Industry Advocacy. In December, we presented to the board our annual TIDE report measuring where we have made progress and where we need to do more TIDE consists of quantitative and qualitative measures. It is connecting fiduciary duty with the recognition that diverse teams produce better outcomes. TIDE is about LACERA being an active and engaged investor through diligence, including post-investment monitoring of the portfolio. TIDE also recognizes that we need to partner with like-minded organizations such that we can all be positive catalysts for change. LACERA TIDE focuses on the development of our emerging manager programs. Yet, it does not stop with emerging firms. All firms should look to optimize outcomes. As a result, we push larger, more established firms to better embrace the benefits of diversity, equity, and inclusion.
"Is the world more complex today? Yes. Is our portfolio more complicated today? Yes. But maybe that's why we have this level of sophistication, resources, and specializations on the team. Our reach and analysis are more detailed than ever."
Another key initiative is our stewardship effort. Many view ESG or stewardship as a product. We view it as a comprehensive cross-portfolio process. One that enhances returns and/or mitigates risks. This means our fiduciary duty compels us to embrace ESG considerations. Said differently, ESG is not a small allocation for us. We believe there is applicability across 100% of the fund. Like our TIDE update, we publish a stewardship report on our various initiatives. LACERA has a dedicated board committee on governance and stewardship, which sets the tone for our ESG activities.
To connect the dots, as everything is connected to our mission to members, the board approved last month our strategic plan that we call Allocator to Best-In-Class Investor. The plan has five pillars. We discussed three of the pillars already – optimize investment model (co-investments), TIDE, and our stewardship activities. The other components of our strategic plan are enhancing our operational effectiveness and strengthening our influence on fees and the cost of capital. Most of our initiatives cross into multiple strategic categories. These initiatives inure to the benefit of our members. They are rooted in an engaged and committed board combined with a great team.
Trusted Insight: What are some exciting outside market opportunities that LACERA views as a long-term global investor?
Jon Grabel: Every market has risks, opportunities, and liquidity constraints. When we do strategic asset allocation as well as structural reviews, we look at the various components of our portfolio and make sure we are being compensated for risks. Consistent with our investment beliefs, we try to ensure that a prospective strategy or investment either enhances returns and/or mitigates risks. You should not invest in a long-lock vehicle, for example, if you can get the same returns in public markets. We are always looking at risks in the portfolio. This philosophy comes from our statement of investment beliefs.
Is the world more complex today? Yes. Is our portfolio more complicated today? Yes. But maybe that's why we have this level of sophistication, resources, and specializations on the team. Our reach and analysis are more detailed than ever. We believe our processes best position the LACERA fund to optimize risk-adjusted returns for our members.
View our full catalog of interviews here.
The full list of Top Transformational Leaders Of Last Five Years: 2022 can be found here.