Searches and Hires

Texas Permanent commits to Asia real estate fund, considers shifting commodities in-house

Also proposed is changing the governance structure to create a non-profit entity

The $32.5 billion Texas Permanent School Fund committed up to $75 million to Blackstone Real Estate Partners Asia II, an opportunistic fund managed by Blackstone Group.

The fund will primarily seek existing, institutional-quality residential properties in Australia, China, Hong Kong, India, Japan, Korea and Singapore. It will invest in some development projects, particularly logistics, and distribution facilities to a much smaller extent, said Nicholas Tramontana, senior real estate portfolio manager for the permanent fund, during a meeting of the Committee on School Finance/Permanent School Fund, according to a webcast of the Thursday meeting.

During the meeting, finance committee members also were informed by about a $50 million co-investment run by an unidentified manager that was approved by investment officials with advice from real estate consultant Courtland Partners between meetings. The co-investment vehicle has been set up to acquire six office properties in Los Angeles, Thomas R. Hester, senior vice president of Courtland Partners, told commissioners, noting the acquisitions will be "a solid investment in a strong market."

Debbie Ratliffe, a Texas Education Agency spokeswoman, could not immediately provide the name of the co-investment manager.

The TEA provides administrative support to Texas State Board of Education, which oversees investment of the Permanent School Fund.

The SBOE approved the finance committee's recommendation to investment in Blackstone's Asia II fund during a board meeting Friday, Ms. Ratcliffe confirmed.

Among other finance committee actions, members requested that B. Holland Timmins, executive administrator and chief investment officer, and the fund's investment consultant, NEPC, evaluate whether to move investment of the fund's $1.2 billion commodities portfolio to internal management, according to the webcast. Pacific Investment Management Co. and Credit Suisse Asset Management roughly split management of the commodities portfolio.

A report will be presented to the committee at their Nov. 9 meeting.

Also, Charles Campbell Jr., the SBOE's fiduciary counsel and a partner at Jackson Walker, presented an alternative governance structure of a non-profit corporation for the Permanent School Fund during a workshop session of the committee meeting.

Currently, the SBOE has direct control of permanent fund staff, investment activity and most administrative functions, but the Texas commissioner of education has hiring and firing authority over the fund's executive director and other staff members because they are employed by the TEA, Mr. Campbell told commissioners.

By establishing a non-profit corporation for the Permanent School Fund, similar to the structure of University of Texas Investment Management Co., the board of education — like University of Texas — would be responsible for setting objectives, bylaws and investment policies and select board members of the non-profit. The non-profit board would likely be made up of SBOE commissioners and would have direct administrative control over operations, including hiring staff, as well as investment responsibilities, said Mr. Campbell.

He said at the meeting that statutory changes to state law would be required to set up the non-profit organization, however, a change to the Texas constitution would not be necessary. As with the current structure, the Texas Legislature would continue to control the PSF operational budget.

Reaction to the proposal among finance committee members was mixed.

SBOE Commissioner Patricia Hardy asked whether a change to the new structure was needed if performance of the fund is acceptable.

She said "I am on the record: This is an exercise in futility."

Commissioner Lawrence Allen Jr. said it would be hard for him to support a structure that "will take me further away from investment decision-making," stressing that the "SBOE needs to have skin in the game" regarding investment management oversight.

Commissioner David Bradley noted that the structural change in governance would be a matter of prudence, adding that if implemented, the structure "won't change investment returns."

The committee asked Mr. Campbell to present a narrower version of his recommendations for a change to a non-profit structure at the Nov. 9 meeting.