Texas Teachers builds mega-fund separate accounts

The Teacher Retirement System of Texas has selected Kohlberg Kravis Roberts to manage $3 billion of capital across several private market asset classes. The strategic partnership includes a “flexible, discretionary arrangement” and “meaningful recycling provisions” for an opportunistic allocation of capital in different market environments, according to a statement. 

TRS’ private markets staff recommended that the retirement system partner with KKR and Apollo Management at its 2 November meeting. KKR has received $1 billion in committed capital from TRS to date, according to the statement. KKR, Apollo and TRS could not be reached for comment. 

“These strategic partnerships enable us to work closely with a small group of top tier managers and they allow us to take advantage of the best global investment opportunities,” TRS senior managing director Steve LeBlanc said in a statement. “Over the last three years, we have implemented similar partnerships in public markets, and they have been very successful.”

The $107 billion retirement system began its search for strategic partners in the second quarter of 2010, according to Texas documents. Criteria for potential strategic partners included access to the entire platform of both TRS and the strategic partner, flexibility and ability to allocate assets across market cycle within a TRS risk framework, a customised fee structure and an increase in TRS’ co-investments in regards to deal flow, size and quality.

TRS’ principal investments programme, which include co-investments, are expected to grow to as much as 20 percent (or up to $5 billion) of the retirement system’s entire private markets portfolio, LeBlanc told Private Equity International in a previous interview.

Texas has significantly expanded its private equity portfolio over the last several years, increasing its allocation to the asset class from 4.3 percent in 2007 to 11.7 percent as of September, according to retirement system documents.