Texas Teacher Retirement System is redesigning its combined $20.2 billion in private equity and real assets, radically changing the fund's relationships with its investment managers.
The $109.1 billion Austin-based system will eventually trim its 115 manager relationships in those classes, making larger commitments with a smaller number of managers. The number of remaining relationships has not been determined, according to an e-mail from Juliana Helton, fund spokeswoman.
In all, the system has $14.3 billion targeted but not yet invested — $7.1 billion in private equity and $7.2 billion in real assets. This year alone, system officials plan to commit $3.2 billion in real assets and $1.5 billion in private equity.
Its real assets category includes real estate, real estate investment trusts, publicly traded real estate debt and inflation-protection securities.
As part of a broader change, Texas Teachers plans to commit an additional $700 million to invest in private equity and real asset emerging managers over the next two years.
The program is aimed at boosting returns and giving the fund “a competitive advantage via more committed capital within a customized vehicle,” according to materials given to the pension fund's board.
“They are taking a page from the foundation (and endowment) playbook by investing in emerging managers and more money in fewer managers,” said an executive at a money management firm that specializes in endowments.
There's been much discussion among private markets investors about trimming the number of managers and taking steps to get more control over these locked-up investments. A few investors — such as the $225.6 billion California Public Employees' Retirement System and the $27.6 billion Harvard University and $16.7 billion Yale University endowments — have adopted similar strategies.
Texas Teachers, however, appears to be putting its own stamp on the program. Officials are forming a strategic partnership network that will include two to four managers with average fund commitments of between $250 million and $500 million. Together, those strategic partnerships will account for as much as 35% of the system's private markets portfolio, which includes both private equity and real assets.
These partnerships will create customized investment vehicles that include other institutional investors. And, according to the board materials, Texas Teachers officials expect their fund to be, long term, the best-performing client in the strategic partnership networks.