Why re-engaging with Europe has been ‘a struggle’ for Texas Permanent

Two-thirds of the Texas Permanent School Fund's PE commitments have been made to North American investments, with the remainder split between Europe and Asia.

Re-engaging with Europe from a private equity commitment perspective has been a “struggle” for the Texas Permanent School Fund, but the public endowment remains focused on the region in the long term.

Speaking virtually at the BVCA Summit last week, Erin Wedepohl, portfolio manager and managing director of private equity at the fund, told attendees it had been looking to increase its focus on Europe for “quite some time”, adding that “we do believe it’s an important exposure for us”.

Just as the endowment was restarting its market mapping in Europe, the pandemic struck. “We – perhaps naively, considering how long we’ve been doing this – thought we should maybe wait for the world to open up a little bit more before we can travel. Spend some more time on the ground truly meeting people in funds,” Wedepohl said.

Then, as the Texas Permanent School Fund was able to resume in-person visits across Europe, Russia began its invasion of Ukraine and markets once again became volatile.

“Coupled with our capacity constraints from our existing re-up pipeline, the world has not quite made it super easy on us to re-engage with Europe. So that’s been a struggle for us.”

The $42.6 billion public endowment does not use a consultant or adviser for its primary fund commitments. This, Wedepohl said, made it difficult for the fund to really understand a given market when considering country-only funds.

Of its 18 percent private equity allocation, two-thirds of Texas Permanent’s commitments have been made to North American investments, with the remainder split between Europe and Asia.

The fund has one UK-only manager, but many of the funds it backs are pan-European.

“Many of the larger buyout funds that one might have considered European or kind of having that European background have started to add more US or global exposure,” Wedepohl said. “There’s a lot to be said for that, because there’s certainly a place for that in a portfolio. But trying to balance that on the larger end has been important for us.”

European strategies collected just 6 percent of the $337 billion raised by private equity funds globally in the first half of 2022, according to PEI data. Overall fundraising fell from $495 billion across the same period last year as investors have wrangled with the denominator effect and a rush of managers coming back to market.