Houston Firefighters’ commits $10m to Lexington

Other than this secondaries play, the $2.3bn pension may commit no further capital to private equity GPs this year as it struggles with a 'cash flow crunch'.

The $2.3 billion Houston Firefighters’ Relief and Retirement Fund has made its first and probably only commitment to private equity this year with a $10 million pledge to Lexington Partners' seventh secondaries fund.

Houston has pulled back from making commitments because of a cash crunch, according to Chris Gonzales, chief investment officer with the Houston Firefighters’.

“Capital calls are still coming in and distributions have almost dried up and we’re still paying out benefits every month,” Gonzales said. “This has created a cash flow crunch.”

The pension is not in crisis mode and has not considered selling any private equity interests on the secondaries market at this point, Gonzales said.

The $10 million commitments is lower than past commitments to private equity funds, which ranged between $20 million and $30 million, Gonzales said. Houston Firefighters’ has committed to Lexington before and made the more recent commitment mostly to keep up the relationship, he said.

“We’re a legacy investor, and they’ve done very well. We want to maintain the relationship,” Gonzales said.

Additional commitments for the remainder of this fiscal year, which for Houston Firefighters’ ends in July, will be with firms with which the pension already has relationships.

Houston Firefighters’ has been investing in private equity since the 1980s and has an actual allocation to the asset class of 11.1 percent. Its allocation range to private equity is between 11 percent and 18 percent.

Lexington’s Fund VII is targeting $5 billion, according to documents from the Montana Investment Board and the City of Manchester Employees’ Contributory Retirement System. Montana contributed $20 million to the fund last year, and the City of Manchester pledged $2 million last August.