The Teacher Retirement System of Texas (TRS) has committed $160 million in co-investments alongside three private equity firms in the past nine months.
In June, the $94 billion pension invested $50 million alongside Warburg Pincus in Interactive Data Corporation (IDC), a provider of financial market data and analytics. Warburg partnered with US technology specialist Silver Lake in May on the $3.8 billion transaction for IDC, one of the largest deals of the year.
In April, TRS invested $35 million alongside Kohlberg Kravis Roberts in Pets at Home, a UK-based retail chain that sells pet food, pet products as well as fish and small animals from 259 stores. The company also operates 59 veterinary surgeries via a joint venture. KKR acquired Pets at Home earlier this year for roughly $1.4 billion from Bridgepoint. In June, the pension made a $50 million co-investment with KKR in a partnership with Hilcorp. KKR pledged to invest up to $400 million in the partnership to develop Texas oil and gas properties.
Last December, Texas TRS invested $50 million in Parallel Petroleum alongside mega-firm Apollo Global Management. The Nasdaq-listed company headquartered in Midland, Texas, specialises in the exploitation, development, acquisition and production of oil and gas using 3-D seismic technology and advanced drilling, completion and recovery techniques.
Co-investing represents a growing strategy for LPs looking to take more control of their private equity programmes, and Texas TRS is looking to get more involved in co-investments, the pension says.
“Our private equity and real estate strategies do call for more co-investments,” a spokesperson told PEO. “We expect to remain active in the years to come.” The pension will only co-invest alongside firms with which it has an existing commitment as an LP.
Other pensions have expressed interest in moving more toward co-investment and direct investing, such as the California Public Employees’ Retirement System. With more than $200 billion of total assets, the largest pension in the US said earlier this year it is planning to create “unique structures with select general partners” that charge lower fees and offer more customised portfolios. In a board presentation, investment staff said CalPERS would also build up its co-investment capability to invest alongside the “highest capability” general partners to gain additional exposure to “attractive companies at lower costs”.
CalPERS has a separate account for co-investment with Apollo to which it committed $1 billion for investments in senior bank debt and hung leveraged buyout loans. The Apollo Credit Opportunities Fund had an internal rate of return of 11 percent as of 30 September 2009, including $952 million of CalPERS $1 billion commitment called. The vehicle is carrying a 1.2 percent investment multiple, according to CalPERS.
Apollo also has a vehicle called Palmetto with the South Carolina Retirement System. Last year, the account had committed more than $250 million to investments “primarily in [Apollo’s] European non-performing loan and private equity funds”, Apollo said.
Texas TRS has a 5.9 percent actual allocation to private equity, investment documents said.