Side Letter: Texas Permanent’s cap calls; impact’s $1trn; family offices low on PE

The frenetic fundraising environment isn't leading to frenetic capital calls for some LPs. Plus: the impact investing market grows 40 percent in two years and family offices and endowments bare their differences when it comes to PE allocations. Here's today's brief, for our valued subscribers only.

Just happened

Differing views: not all LPs are experiencing the frenetic fundraising environment in the same way (Source: Getty)

Everything’s normal in Texas
It’s no secret that funds are coming back quicker than ever. What is less well known is that it’s not necessarily affecting some LPs from a capital call perspective. Speaking at the BVCA Summit last week, Erin Wedepohl, portfolio manager at the $42.6 billion Texas Permanent Teachers Fund, said the pension initially considered trimming the size of its fund commitments to keep its overall pacing allocations consistent, and ended up not doing this.

“What we found, at least with our GPs, is that while the fundraising itself might be accelerated, we do our vintage years based on first cap calls,” Wedepohl said. “Whether it be the use of sublines or just people raising early and then not necessarily calling that capital immediately, we were seeing our vintage years still push out a little bit closer to where our initial expectations would have been.”

In other words, the fundraising environment may be frenetic, but it’s not really affecting Texas Permanent’s capital deployment schedule. Wedepohl’s anecdote chimes with research published by Investec in June, which showed the average number of capital calls made by private capital funds dropped to 1.9 last year – a 10-year low – and down from 2.3 in 2020. It also suggests that even though LPs are being asked to re-up at a quicker pace than before, the internal rates of return of those vehicles might not be affected in a negative way.

Topping $1trn
The impact investing market has grown to over $1 trillion, rising nearly 40 percent since 2020, according to research from the Global Impact Investing Network. The annual market estimates the size of the impact investing market across public and private markets. GIIN estimated the market size as $715 billion in 2020 and $502 billion in 2019, our colleagues from New Private Markets report (registration required). Among private markets managers with the most capital raised for impact are TPG, Actis and Brookfield Asset Management, according to NPM’s latest Impact 30 rankingKKR and Apollo Global Management are also on the list. The latter hired executives to launch its impact platform in 2020 and – through its Impact Mission Fund, which raised close to $900 million as of end-June – is seeking to differentiate itself from the impact competition by investing capital into mature businesses. KKR is in market with its second PE impact fund, with nearly $1.5 billion raised.

They did the math

Family fortunes. Single family offices are not as similar to endowments as some would have you believe. That’s according to the Credit Suisse Single Family Office Index, which found that as of July SFOs had on average 17 percent allocated to alternatives, and just 1.3 percent to PE. By contrast, the top US endowments have, on average, 36 percent allocated to PE, VC and leveraged buyouts. Alternatives were the best performing asset class for SFOs in the year-to-date, returning 0.57 percent versus a 6.48 percent loss for public equities and a 1.62 percent loss for fixed income.


Another one bites the dust. As more public pensions find themselves overallocated to PE, it has become increasingly commonplace to find them tweaking their numbers in order to keep things balanced.

The Teachers’ Retirement System of Louisiana is the latest pension system to disclose upcoming changes to its PE allocation: in a presentation made by consultant Hamilton Lane, Louisiana said it will target between $500 million and $700 million in PE commitments for fiscal year 2023, and that it has already made three commitments totalling $225 million. The pension system is overallocated to PE at present, at 16.2 percent against a 12 percent target, affiliate title Buyouts (registration required) reports.

This disparity isn’t uncommon: in August, Employees Retirement System of Texas said it was raising its target allocation to 16 percent from 13 percent to bring figures closer in line with its actual allocation of around 20 percent, Private Equity International reported at the time. “The capital plan is reducing our commitment pacing to get back to our targets,” said Texas investment officer David Veal.

For many pension systems, private equity is a key driver of outperformance, leaving them struggling to bring their figures in line without damaging returns. Different tactics are being employed – in June, PEI reported that New Mexico State Investment Council was forced to downsize its commitment to TDR Capital’s latest fund despite the “great job” the GP has done. One thing’s for certain, a longer-term approach is needed for those hoping to battle the denominator effect.

Today’s letter was prepared by Alex Lynn with Adam LeCarmela MendozaHelen de Beer and Madeleine Farman