Texas Teachers lowers PE commitment plans for 2017

The $138bn pension fund sees high valuations in private equity as a continued challenge.

The Teacher Retirement System of Texas has lowered its private equity commitment expectations for the 2017 calendar year  amid concerns for current market conditions.

The Austin-based pension fund had 12.3 percent of its $138 billion assets in private equity as of 31 March.

TRS expects to commit up to $4.2 billion in private equity, which includes buyout, growth and venture capital, credit and special situations, and emerging managers, in 2017, down from the $4.6 billion planned for the prior fiscal year, according to materials for TRS’ board meeting on 1 June.

So far this year, it has committed $1.94 billion to private equity, per monthly update emails sent by a TRS spokeswoman. Funds that received a TRS commitment this year include Clayton, Dubilier & Rice Fund X, Great Hill Capital Partners VI and Silver Lake Partners V.

In the documents, TRS indicated that private equity is in a high-valuation environment with lots of capital flowing into the asset class, and that high EBITDA multiples continue to pose a challenge for navigating investments in the industry.

Amid these market conditions, TRS maintained a conservative approach to capital commitments in private equity. In 2016, TRS committed $3.8 billion to private equity, short of the $4.6 billion projected for the year, the meeting materials showed.

That actual amount included $3.1 billion committed to 15 funds, $507 million to six principal investments, which include direct- and co-investments, and $150 million to emerging managers.

The amount committed in principal investments was almost half of the $1 billion it targeted for the year, again due to the conservative approach, TRS indicated in the materials. The amount also fell significantly short of the $1.2 billion TRS committed to this strategy in 2015, materials for the June 2016 board meeting showed.

Despite the conservative approach and being under the target allocation for private equity, TRS indicated in the materials that it is on track to meet the 13 percent target by the end of 2017.

This follows New Jersey State Investment Council’s announcement last month of its plans to slow down its private equity and real estate commitment pacing for the next eight years, amid market conditions involving record levels of dry powder, as reported by PEI.

Other plans for 2017 include the implementation of the standardised fee reporting template created by the Institutional Limited Partners Association and private equity fee audits, which began in May to check accuracy of fees, compliance with contracts and support for investment valuations, the materials showed. According to materials for TRS’ audit committee meeting on 1 June, two funds were identified and are being audited with an anticipated report on the results to be presented in September.

As previously reported by PEI, TRS noted during its February board meeting that only 32 percent of its private equity general partners were using the ILPA template at the end of the 2016 fourth quarter, but expected that number to reach 80 percent by June.

A TRS spokeswoman was not available to comment.