Texas TRS sees highest PE returns among US pensions

Teacher Retirement System of Texas moved up one spot from last year’s AIC annual public pension fund analysis, which ranks the top performing public pensions’ PE portfolios.

Teacher Retirement System of Texas (TRS) posted the highest private equity return of all US public pension funds in the fiscal year ended 30 June 2015, according to the American Investment Council (AIC)’s 2016 annual ranking of US public pension funds by their private equity investment returns. 

With a 15.4 percent annualised 10-year return, Austin-based TRS moved up one spot from second place in the AIC’s 2015 report, according to the Washington, DC-based private equity advocacy group.

PEI data indicate that TRS allocates 12.07 percent of its $128.23 billion in assets under management to private equity. According to its website, TRS has a 13 percent allocation target for its private equity portfolio, which includes buyout, growth and venture, and special situations and credit.

Private equity commitments it has made so far this year include $150 million to Hony Capital Fund VIII, $300 million to Green Equity Investors VII, €341.87 million to Sixth Cinven Fund, $300 million to TPG Partners VII, $200 million to Vista Equity Partners Fund VI, €444.38 million to Permira VI, and $200 million to Kohlberg Investors VIII, according to PEI data.

On the AIC ranking, the San Francisco Employees’ Retirement System snagged second place, with 15.21 percent of annualised 10-year private equity returns, and the Iowa Public Employees’ Retirement System third, with 14.95 percent.

Fourth place was filled by last year’s top private equity performer, Massachusetts Pension Reserves Investment Trust Fund, having realised a 14.79 percent return from its private equity portfolio for the latest ranking. Last year, it beat out all of its peers with an impressive 17.93 percent return.

“Which 10 pensions will make the top 10 rankings are always a surprise, although the top spot has been dominated by a few names in recent years,” AIC vice president of research and investor relations Bronwyn Bailey told Private Equity International

“Reporting the strong performance figures may also motivate more dialogue among institutional investors generally, not just pensions, to uncover which factors drive better performance, such as portfolio construction and fund selection.”

Three of the top 10 public pension funds with the highest returns were new to this list, compared with AIC’s 2015-year report. Of the three, Massachusetts Water Resources Authority Retirement System (MWRA) came in most strongly, at number seven, with a 13.5 percent return.

Based just outside of Boston, MWRA manages $467.5 million in assets and allocates 7.2 percent of its portfolio to private equity, as of 31 August, according to its latest fund performance report. MWRA has a 9 percent target allocation for private equity, the report said.

Some of MWRA’s private equity investments include funds such as Invesco Fund VI, to which it allocated $5 million in 2013; Landmark XV, to which it committed $3 million in 2013; and Ascent VI, to which it committed $3 million in 2015.

The two other newcomers to the top 10 ranking were Michigan Public School Employees’ Retirement System, which returned 13.4 percent in the 10-year period observed in the report, and New York State Teachers’ Retirement System (NYSTRS), which marked a 13.2 percent return.

“The noteworthy aspect of this report is the consistency year over year of the asset class rankings,” Bailey added. “Private equity provides the highest annualised returns, usually followed by equities, real estate, and fixed income.”

The report found that private equity investments by public pensions in the US returned a 10-year annualised median of 11.4 percent, whereas public equity delivered 7.6 percent, real estate 6.3 percent, and fixed income 5.2 percent.

According to the report, US public pensions invest on average 9.2 percent of their portfolio to private equity, compared with 45.9 percent to public equity, 25.8 percent to fixed income, and 8.2 percent to real estate.

Most of the public pensions studied in the report allocated between 5 percent and 10 percent of their portfolio to private equity.

AIC observed 10-year performance data of 155 US public pension funds for the report.

TRS, MWRA and NYSTRS were not immediately available for comment. Michigan Public School Employees’ Retirement System declined to comment.