Texas Municipal eyes emerging GPs in Europe

The $30bn pension is building a five-year road map for Europe PE and seeks to back up to 10 GPs.

Texas Municipal Retirement System wants to back more GPs in Europe this year as it seeks to increase exposure to the market, Private Equity International has learned.

The $30 billion public pension fund is building a five-year road map for investing in Europe private equity, Chris Schelling, director of private equity at Texas Municipal, told PEI on the sidelines of the IPEM 2020.

“We’ve been slow in building up our European exposure,” Schelling said. “We only have one [GP] right now and we will probably have another couple this year and we’re starting to put together a better understanding of the landscape and different regions and what’s required from a GP to be successful.”

The pension’s private equity team is putting together a road map in the next three to four years to build a set of between four and 10 European GP relationships, he added.

Texas Municipal has made a €45 million commitment to London-based CapVest‘s fourth fund, according to PEI data.

Schelling also said the pension seeks to build a European programme that’s diversified in growth and value, as well as in geographic focus.

More than three-quarters of the funds Texas Municipal has backed globally are below $2.5 billion. It has been focused on earlier-stage and more growth-oriented managers.

Buyouts make up about 55 percent of its PE portfolio and growth roughly 40 percent, Schelling noted.

“We are focused on growth. Valuations are full everywhere. Within growth, they are definitely stretched,” he said. “Growth equity valuations for software business in the US in particular are at 10-15x revenue or more. We are very concerned about the level of valuations.”

Schelling said the pension is slowing its deployment into new funds in the software technology space because of the sector’s expensive valuations. Healthcare-focused GPs, however, are providing attractive opportunities.