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Due diligence

A winning personality counts with Texas Muni

If you want to manage money for the $28.5 billion Texas Municipal Retirement System, get ready to have your personality analyzed.

The Austin-based pension fund is on a fast track for building its private equity portfolio, having only started investing in the asset class in 2015. To date, portfolio commitments total just $1.2 billion, so Christopher M. Schelling, director of private equity, is meeting a lot of managers.

Mr. Schelling, whose undergraduate degree is in psychology, said he wanted a way to more objectively evaluate pertinent traits — such as assertiveness, independence and decision-making style — of the private equity managers on which he and his team were conducting due diligence.

"After you meet someone and talk to them for a while, you often get to like them. I wondered how much of what I was hearing and liking was just marketing. I wanted to add objectivity to the totally subjective process of assessing managers," Mr. Schelling said.

He hit on the idea of personality tests, found a vendor that administers the tests and scores respondents' answers, and asked private equity teams to take the 45-minute online test.

"Individually, traits don't mean that much, but assessed together, it helps to show what a person is good at," Mr. Schelling said, adding that looking at the test results of individuals across a private equity team reveals "complementary traits and skill sets and helps us assess team dynamics."

After 18 months of testing, Mr. Schelling said he's making better manager selections — and the success of the private equity experiment has persuaded TMRS' real estate and real assets teams to test their potential money managers as well.