LPs boost 2019 PE allocations to accommodate choice funds

Employees’ Retirement System of Texas and Teachers’ Retirement System of Louisiana are already over-allocated to private equity.

Employees’ Retirement System of Texas and Teachers’ Retirement System of Louisiana have increased their private equity allocations for fiscal 2019 to accommodate attractive private equity funds.

Both systems are already over-allocated to private equity: Texas ERS’s $4.07 billion private equity holdings accounted for 14.2 percent of its overall portfolio as of 31 March, compared with its target of 13 percent. Louisiana Teachers’ $2.33 billion private equity portfolio likewise accounted for 11.3 percent as of 28 February, compared with its 11 percent target.

LPs are under pressure to commit to funds from highly sought after managers early in a fundraise. In 2018, the median time to close private equity funds was just 12.5 months, the shortest since the global financial crisis, according to Pitchbook.

However, managers are taking longer to return to the fundraising trail as high valuations and political tensions cause deal-making to slow. The average time between funds increased to four years and three months in 2018, the first such increase in five years, according to EY’s PE Pulse for April 2019.

The $28.28 billion Texas ERS bumped up its annual private equity pacing plan from $1 billion to $1.45 billion.

The adjustment was warranted because of “a very special opportunity with an important strategic relationship”, portfolio manager Ricky Lyra said at the pension’s 22 May investment committee meeting.

Lyra declined to name the fund manager.

“It is a very particular strategy that is, from a private equity standpoint, very defensive,” Lyra said at the meeting.

A source familiar with Texas ERS said the opportunity alluded to was a $100 million commitment to LGT Capital Partners’ Crown Secondaries Special Opportunities II fund, approved in March.

LGT Capital invests in private equity funds across primary, secondaries and co-investment strategies. The manager’s strategy is significantly diversified in terms of fund exposure, vintage exposure and geographic exposure.

Last year, Texas ERS committed only $700 million of its $1 billion annual private equity investment allocation, Lyra said.

For the second time in three years, the $20.1 billion Louisiana Teachers increased its private markets investment allocation. The 2019 pacing target for private markets increased by $300 million to $1.7 billion, according to 2 May meeting documents. Previously, the pension increased its annual allocation by $200 million and committed $1.4 billion to private markets in 2017, sister publication Buyouts reported.

The reason behind the increase is the timing of potential investments occurring prior to the close of the fiscal year, according to a presentation to the pension system by its investment advisor Hamilton Lane.

Private equity accounted for most of the increase in Louisiana Teachers’ allocation. The pension system has committed $425 million to the strategy to date, compared with its target of between $150 million and $300 million for fiscal 2019.

So far in fiscal 2019, the pension system has committed $50 million to TPG Partners’ Fund VIII, $50 million to Thoma Bravo’s Fund XIII, $50 million to Lindsay Goldberg’s Fund V, $100 million to Blackstone’s Fund VIII, $75 million to Summit Partners’ Fund X and $100 million to Platinum Equity Partners’ Fund V.