Texas Permanent picks Neuberger for $900m mandate

The $26bn state education fund will take more decision-making control over its private equity programme.

The Texas Permanent School Fund, a $26 billion state education fund, is taking more control of its private equity destiny.

The fund, which is governed by the state board of education, last week awarded Neuberger Berman a three year, $900 million private equity mandate that includes a hybrid structure granting the fund’s investment staff veto power over investment decisions. This is a change from the way private equity has been run since the programme’s launch in 2010, which gave Credit Suisse’s Customized Fund Investment Group and Neuberger Berman total discretionary authority over decision-making.

In 2010, Texas Permanent allocated $650 million each to Credit Suisse and Neuberger Berman for its fledgling push into private equity. Those allocations are mostly drawn at this point, according to a presentation about the programme at the Committee on School Finance/Permanent School Fund meeting last week. The meeting was re-broadcast on the Texas Education Agency’s web site. The board of education approved building a private equity allocation in 2006. The system's target allocation to the asset class is 6 percent.

While that first phase of the programme may be coming to an end, Texas Permanent plans to continue being a private equity investor for the long-term, according to one official with the fund.

They'll be putting on the training wheels.

David Bradley

“Vintage year diversification is something you want to maintain in your private markets allocation,” the official said during the meeting. “[You want] to be able to continue to invest to catch the good years like 2009 so you’re not out of money and miss the good ones.”

However, moving forward, the fund wanted more say in investment decisions regarding private equity. The new structure will give Permanent Fund investment staff more transparency into sourcing and monitoring of the portfolio, and provide a cost savings, according to the webcast.

Neuberger will run a specialised portfolio of secondary and co-investments, for which it will maintain discretionary control and charge fees. Texas Permanent staff will have joint oversight over a portfolio of fund commitments along with Neuberger, which will comprise the bulk of the private equity programme, according to the board of education finance committee meeting. Neuberger will not charge fees on the fund commitments portion of the portfolio, which will provide the fund a savings from the earlier mandate, according to the webcast.

“There is a cost savings as well as bringing more control in-house,” according to Thomas Ratliff, vice chairman of the state board of education and a member of the finance committee, who spoke with Private Equity International Monday.

The mandate with Neuberger Berman also will allow investment officials with the fund to get hands-on private equity

There is a cost savings as well as bringing more control in-house.

Thomas Ratliff

training, said David Bradley, a board of education member and a member of the finance committee.

“They’ll be putting on the training wheels,” Bradley told Private Equity International in an interview Monday.

Credit Suisse and Neuberger Berman will continue to manage out their earlier allocations, officials said during last week's meeting.

Texas Permanent’s head of private markets is John Grubenman; Martin Telfer, a private equity portfolio manager with the fund, joined in January after working as a private equity investment officer with the New York State Teachers’ Retirement System since 2006.