Texas County & District Retirement System, Austin, committed $450 million to a direct lending strategy, part of an expansion of the $25.6 billion pension fund's allocation to the asset class.
The separately managed account will be run by Benefit Street Partners in a “straightforward middle-market direct lending strategy,” said Paul J. Williams, chief investment officer, in an email.
Pension fund trustees on April 6 approved an increase in the direct lending allocation to 10% from 5%, with funding coming from the reduction of the hedge fund allocation to 20% from 25%.
TCDRS investment staff began consolidating managers and reducing the size of the hedge fund portfolio late last year, a process that will continue, Mr. Williams said.
Mr. Williams said the pension fund likely will add one or two more direct lending managers for allocations of similar size.
“We have been spending time getting to know the space and like the return profile. Attractive current income generation (is available) with minimal principal risk when you hire managers with demonstrated credit skills. That's why you see larger allocations to (a) small number of managers. It's also a good time to be in floating rate instruments,” Mr. Williams said.
As of Dec. 31, the pension fund had $462 million committed to or invested in eight direct lending strategies, a transaction report showed.
The TCDRS board also changed target allocations to other asset classes. The target allocations are public equity, 32% from 34%; hedge funds, 20% from 25%; private equity, 16% from 14%; direct lending, 10% from 5%; real estate, 6% from 5%; distressed debt, unchanged at 3%; high-yield bonds, 3%; MLPs, 3%; investment-grade bonds, 3%; opportunistic credit, 2%; and REITS, 2% from 3%.