The Teacher Retirement System of Texas flexed its muscles in the fourth quarter, committing more than $1 billion to alternative investment managers, including a $150 million pledge to Silver Lake’s fourth fund – a new relationship for the retirement system.
Many institutions are choosing to stick with their best performers and avoiding entering into new relationships. However, Texas Teachers is open to new managers that fill a need in the portfolio.
“We have a view of what areas of the market we want to be exposed to, and we spend time looking at who we think the strongest players in each area are,” said Rich Hall, head of private equity at the pension system, talking about the decision to form a new, significant relationship with a major firm. “We try to build relationships over time and when it’s appropriate.”
We think the programme itself is at equilibrium, and to maintain that we need to continue to make new commitments.
Texas Teachers remained quite active in its commitment pace in the final months of 2012. The system, which had about $111 billion in assets as of August, committed $200 million each to GSO’s second rescue fund, Kohlberg Kravis Robert’s debut Special Situations fund and Apollo SPN Inv (Lightning Credit). KKR’s first distressed fund is reportedly targeting $1 billion. The pension system’s commitment to the Special Situations fund came from its $3 billion separate account pool it created with the firm last year. Similarly, the Apollo commitment also came from a $3 billion separate account the system formed with that firm last year.
Texas Teachers also gave its pledge of confidence to EnCap Investments, which got $100 million for its Fund IX, targeting $4.25 billion, and committed $150 million to Wayzata Opportunities Fund III, targeting $2.5 billion, and $15 million to LiveOak Ventures I, part of Texas Teachers emerging manager programme.
The system’s target allocation to private equity is 12 percent and it has just about met that target, Hall said, though that won’t hinder a robust commitment pace.
“You’re getting capital calls, having money invested and getting distributions – all those things are happening at any given time, and the result is that you can’t just stop committing,” Hall said. “We think the programme itself is at equilibrium, and to maintain that we need to continue to make new commitments.”
Hall was named head of private equity last year, replacing Steve LeBlanc who had run the alternative investment programme since 2008.