Rich Hall, the new head of private equity at the Teachers’ Retirement System of Texas, is soft-spoken and admits to being “averse” to talking to the media.
However, steer the conversation to any topic related to LP alignment of interests or the Institutional Limited Partners Association, and he becomes passionate.
One of the most significant contributions of the industry trade organisation has been the reporting templates ILPA has created, according to Hall. “We’re strongly encouraging GPs to adopt the template,” he says. “We think this could be a huge efficiency driver in the market.”
Coupled with electronic exchanges of information, the templates could be a big help to LPs with small teams responsible for handling big portfolios, he said. “This would allow us to get deeper into the portfolio and understand the businesses that are in there,” Hall said. “There’s room to grow and improve and the electronic exchange of data is one goal I’d put out there.”
Along with the templates, ILPA’s recommended list of ‘private equity principles’ to closer align LPs and GPs is an important part of Texas Teachers’ process when choosing managers, Hall said – although, he adds, “we don’t look at it as a checklist… we don’t just go down and say ‘yes or no’.”
Hall has some big shoes to fill at Texas Teachers: predecessor Steve LeBlanc, who led alternatives at the system for four years, became one of the most respected LPs in the industry.
Hall says his job won’t change that much, since he was already spending time on the day-to-day operation of the portfolio. But what will change is the system’s pace of commitments: it’s now just about at its 12 percent target allocation to the asset class, Hall said.
One major development for Texas Teachers’ last year was its formation of two separate accounts with Apollo Global Management and Kohlberg Kravis Roberts: this involved it allocating $3 billion apiece to Apollo and KKR for investments across asset classes. However, the system will not be forming any more separate accounts any time soon, Hall suggests – though it would like to create similar strategic accounts in the future.
Hall is a big advocate of private equity and can readily cite statistics that illustrate its benefits to the system: “We know that over the last 12 years our private equity portfolio has generated returns that are more than $3 billion higher than if we had invested that money in the public stock market.”
The benefits of the asset class make the “politicisation” of private equity in this year’s US presidential campaign unfortunate, he says. “It is important for everyone, including politicians, to understand the facts about private equity investments. The fact is that the asset class is a valuable piece in TRS’ overall portfolio allocation,” he insists. “It delivers higher returns than most other asset classes and helps us meet our obligations to provide retirement income to 1.3 million teachers. If we didn’t achieve those returns from private equity, where would that $3 billion come from? Teachers? Taxpayers? The federal government?”
It’s a question to which the industry’s political opponents are unlikely to have a good answer.