Texas Pension Official: Sovereign-Wealth Funds Crowd Out Pensions on Co-Investing Opportunities


At a recent board meeting, a top official at the Teacher Retirement System of Texas outlined an emerging source of competition for pension funds looking to co-invest: sovereign wealth funds.

Britt Harris, the pension fund’s CIO, said that his fund might have to consider new strategies to get in on the best co-investing opportunities, according to LBO Wire.

More on Harris’ remarks, as reported by the Wall Street Journal:

“The whole emergence of sovereign wealth funds is disrupting the market,” said Britt Harris, the chief investment officer of the roughly $132 billion pension system during a board meeting in February. “We’re in competition with funds outside the country that are very large and very heavily resourced.”

Texas Teachers, which Mr. Harris said could “easily” do transactions above $100 million, faces intense competition for large co-investment deals as sovereign-wealth funds increase in influence.


Texas Teachers sources co-investment deals, which it calls “principal investments,” by focusing on a network of existing general partners and strategic partners.

“We have to convince these guys that we are the people to bring big investments to,” Mr. Harris said.

The pension fund may consider stationing staff in other major cities to expand its presence beyond its Austin, Tex., stronghold. It also is trying to structure transactions creatively.

“We have to come up with new ways of structuring things,” said Eric Lang, senior managing director of real assets and private equity.

Texas Teachers said it hopes to become involved in deals before they are signed and syndicated across a manager’s limited partner base.

“We’d like to be a full underwriting partner,” Mr. Lang said. He raised the possibility that if the pension fund has a larger role in due diligence before a deal closes, “We might have to share in deal costs with the [general partner].”

Texas Teachers manages $132 billion in assets.


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Texas Teachers Pension Commits $465 Million to Three Real Estate Funds

small model house

The Teacher Retirement System of Texas has committed $465 million to three real estate funds, which will invest in a gamut of sectors including residential, industrial, hotel, retail and offices.

More from IPE Real Estate:

The pension fund is committing $200m to Westbrook Real Estate Fund X, $200m to Carlyle Realty Partners VII and $65m as a co-investment with Starwood Capital Group.

Westbrook Partners is seeking to raise $2.5bn for its latest global opportunity fund, which will be targeting gross returns of 15% (12% net).

It will invest in the major markets in Europe and coastal gateway cities in the US, focusing on distressed situations in the office, retail, apartment and industrial sectors.

Carlyle is targeting a $3bn equity raise for its latest US opportunity fund, which will invest in developments and existing assets that need to be improved.

It will target relatively small investments – in the range of $10m to $30m – in the office, industrial, retail, residential, hotel and senior-housing sectors.

Texas Teachers is co-investing in Starwood’s SCG TMI Co-Invest entity, which invests in opportunistic real estate.

TRS Texas manages $124 billion in assets.


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Texas Teachers Pension Forms $450 Million Residential Real Estate Venture

small model house

The Teacher Retirement System of Texas is entering a joint venture with Camden Property Trust that will invest $450 million in U.S. residential real estate.

More from Investments and Pensions Europe:

The US pension fund is investing in Camden Property Trust’s Multifamily Fund III vehicle, supplying $144m in equity.


Ric Campo, chairman and chief executive at Camden, said there were “many value-add opportunities in the US”.

“We could buy existing properties we can renovate and improve, and we could also develop new properties,” he added.

Targeted returns for the investment fund are a 12% net IRR, with a maximum 60% leverage component.

Camden has full investment discretion on the fund, which will last until 2026.

Targeted markets will include Texas, Georgia, North and South Carolina, Washington, DC, and Florida, as well as Southern California, Phoenix and Denver.

Most of the transactions will be with properties of around 250 units and in the investment range of $40m to $50m.

Camden and Texas Teachers also agreed to extend the life of the Camden Multifamily Value Fund I and II by nine years.

“The properties in the funds have moved from a value-add to its current status of a core asset,” Campo said.

“We and Texas Teachers are enjoying the cash flow these properties are producing.”

By increasing the life of the two funds from 2017 to 2026, investors will have “much more flexibility” to sell the assets, which have a gross market value of $1.1bn, Campo added.

The funds own 22 communities totalling 7,278 apartment units in a variety of US markets.

Ownership is split 68.7% to Texas Teachers and 31.3% to Camden.

TRS Texas manages $126 billion in assets.

Texas Pension Accounting Tweak Will Shift Debt to Schools, If Only Symbolically

calculator, pen and numbers

In light of newly adopted GASB accounting rules, the Teacher Retirement System of Texas in 2015 will require school districts, colleges – and any other government entities that pay into the system – to declare their employees’ pension liabilities on their books.

From the Killeen Daily Herald:

School districts across the state will soon have more debt listed on their general fund balances and teachers could see a smaller paycheck…


“TRS does not want to put this liability on their books so they are taking the allocation to the districts and the cities and colleges and saying, ‘You record this amount; I’ll record this amount,” said Dane Legg, a partner at Lott, Vernon and Company PC, the Killeen Independent School District’s external auditing firm.

Legg reviewed the upcoming financial policy change with board members at their mid-December workshop.

In laymen’s terms, this means Killeen ISD will have to show a $48 million liability in its budget for about 28 years, the amount TRS said it owes toward Killeen ISD employees’ pensions.

The liability stems from the TRS Trust Fund, which is underfunded but will be fully funded in 28 years.

“It’s not set in stone — that number has not been set yet — but this was what they were charged to do to give people a heads up and go ahead and come up with their best guess,” Legg said.

TRS is $28.9 billion underfunded statewide, Legg said. And officials expect many government entities will take issue with the new GASB 68 policy because it will force some of them to look like they are in debt.

“TRS determines how that liability gets allocated by the district, and TRS is only taking a small piece of that $28 billion, and they are giving most of the rest to the district to record,” said Megan Bradley, the chief financial officer for Killeen ISD.

The district will not have to fund the liability, it will simply be a book entry, Legg said. TRS will fund it, however, by changing its member contribution rates and possibly the district’s match rate.

The Teachers Retirement System of Texas managed $124 billion in assets as of the end of 2013.


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Texas Teachers Commits $865 Million to Real Estate

businessman holding small model house in his hands

The Teacher Retirement System of Texas has committed $865 million to several real estate funds that will invest in Europe, the U.S. and elsewhere around the globe.

Details from IPE Real Estate:

The US pension fund approved a $465m allocation to Westbrook Partners’ UWS Co-Investment 9 venture. The manager, which did not comment, will invest in special situation opportunities on a global basis.

Westbrook is active in the US, as well as London, Paris, Munich and Tokyo.

Texas also made respective $150m and $50m commitments to Square Mile Capital Management’s Credit Partners and Tactical Partners debt funds. Square Mile declined to comment.

Credit Partners, which will raise $750m, includes a $200m co-investment by the manager.

USAA Real Estate Company, which invested in Square Mile in 2012, is understood to be behind the manager’s commitment.

Credit Partners, which is targeting 10% to 12% gross IRRs, will provide new loans, including mezzanine debt on major property asset classes, avoiding land and single-family residential.

Around 85% of capital will be invested in the US, with the remainder in Europe.

Texas Teachers also approved a $200m commitment to Almanac Realty Investors’ Securities VII, investing $100m directly into the fund and $100m into a sidecar for the same fund for co-investments. The fund focuses on US REITs and real estate operating companies.

TRS Texas manages $124 billion in assets.

Texas Teachers Pension Invests $200 Million in Automotive Real Estate

The Owner Said This Gets a Lot of Attention

The Teacher Retirement System of Texas (TRS Texas) has committed $200 million to a fund that invests in car dealership properties.

From IPE Real Estate:

The pension fund is investing in the $651m BSREP CARS Co-Invest Pooling, a vehicle set up by Brookfield to invest in Capital Automotive, which provides real estate financing for car dealerships.

The commitment by Texas Teachers was one of several from institutional investors and will amount to 30.5% of invested capital in the vehicle.

Brookfield Strategic Real Estate Partners Fund provided most of the capital for the joint venture. Brookfield declined to comment on how much capital it has invested. Additional capital came from BSREP CARS.

Capital Automotive, which has invested $4.3bn in 440 US facilities and has a 16.3m sqft portfolio in 35 US states, typically provides real estate financing for automotive dealers to either acquire new locations or upgrade existing operations. The firm was previously owned by DRA Advisors.

Texas Teachers made the investment for its ‘special situations’ portfolio, a new category it created within its real assets portfolio for investments outside traditional core, value-added and opportunistic classifications.

TRS Texas manages $124 billion in assets and is the sixth-largest public pension fund in the United States.


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The Ten Pension Funds Getting Best Private Equity Returns

private equity returns

A new report from Bison and the Private Equity Growth Capital Council (PEGCC) ranked the ten pension funds seeing the best private equity returns over the last decade.

[List can be seen above.]

More from HedgeCo.net:

The Texas pension’s 10-year annualized private equity return was 18.2 percent, followed by the Massachusetts Pension Reserves Investment Trust (17.8 percent), and the Minnesota State Board of Investment (16.2 percent).

Other rankings and key findings include:

– Private equity delivered a 12.3 percent annualized return to the median public pension over the last 10 years, more than any other asset class. By comparison, the median public pension received a 7.9 percent annualized return on its total fund during the same period.

– CalPERS currently invests the most capital ($32.3 billion) in private equity compared to all other pension funds in the country. CalSTRS and the Washington State Investment Board invests the second and third greatest amounts ($21.9 billion and $16.2 billion, respectively) to private equity funds.

– Based on the 150 pensions studied, private equity investment makes up 9.4 percent of total public pension fund investment.

Read the full report here.

Here’s another chart of the ten pension funds holding the most private equity assets.


Texas Fund Cuts Hedge Fund Allocation By 1 Percent

Texas Proof

The Teacher Retirement System of Texas, one of the largest pension funds in the country, announced Thursday it would cut its allocation to hedge funds by 1 percent. It also changed its target allocations for equities and bonds.

Reported by Bloomberg:

The board of the $126 billion Texas system approved the change today following an asset allocation study, Howard Goldman, a spokesman, said by e-mail. Texas will reduce hedge funds to 8 percent of the pension from 9 percent, according to board documents.


Besides reducing its bet on hedge funds, the Texas pension lowered the portion of assets it gives to equities by 4 percentage points and to fixed-income securities by 2 percentage points, while adding 5 percentage points each to risk parity and private markets, according to board documents. Risk parity is a strategy for investing based on allocation of risk and private equity and real assets.

“These new allocations are expected to be funded from a diverse set of asset classes across the trust in order to increase the overall probability that TRS will be able to achieve the 8 percent actuarial return target,” according to a statement provided by Goldman.

TRS Texas is approximately 80 percent funded. It is the sixth-largest public pension fund in the United States.