Texas Municipal eyes Europe as it overhauls PE investment framework

The retirement system is widening the funnel of managers it will consider investing with, according to deputy CIO Tom Masthay.

Europe is on the horizon for Texas Municipal Retirement System, which is making changes to the way it approaches its private equity portfolio construction.

Texas Municipal – which established its private equity programme in the mid-2010s – has been overhauling its processes, shifting from a framework of allocating capital in order to access targets to focusing on a new phase of rationalising manager relationships, deputy CIO Tom Masthay said onstage at the IPEM Cannes 2023 conference on Tuesday.

The pension fund is also widening the funnel of managers it will consider compared with six to eight years ago.

“I’m here… to build up a European network, which we haven’t had before, and to try to bring that knowledge on the table as a possibility for execution,” Masthay said. He added that the $34.06 billion system previously focused on execution in its own backyard rather than considering markets that are further afield.

The process for backing a new manager has become more time-consuming as a result. “Maybe it was 50 meetings for an investment before,” he said. “Now, it’s maybe 150 meetings and an investment committee for a new manager.”

Texas Municipal goes “really deep” on reference calls and meetings to get an understanding of how other market participants are communicating a manager’s strategy, Masthay said. “You can kind of get the BS test [and] have that calibration just based on taking lots and lots of meetings.”

The retirement system has people who are good at digging into data and others who are more relationship-orientated, but it’s up to those in its senior ranks to blend those two perspectives, he added. Additionally, it’s crucial not to let one side get control over the other when it comes to manager selection decisions.

Texas Municipal’s allocation to private equity sits at 10.7 percent, slightly above its 10 percent targeted allocation for the asset class, according to PEI data.