Updated with correction
Texas Employees Retirement System, Austin, on Wednesday approved tactical plans that call for up to $6.2 billion to be invested in alternative asset classes over the next three to five years, including the first hedge fund investments for the $23.2 billion fund.
Texas ERS will allocate 5% of plan assets, or $1.158 billion, in direct investments to hedge fund managers over the next three years: $358 million targeted for the fiscal year ending Aug. 31, 2012; $500 million in fiscal 2013; and $300 million in fiscal 2014, confirmed Mary Jane Wardlow, a spokeswoman for the fund, in e-mail.
About one-third of the Texas system's hedge fund portfolio will be in core investment strategies with individual manager allocations ranging between $75 million and $100 million, and two-thirds will be in satellite strategies with individual manager allocations between $40 million and $60 million. The hedge fund portfolio will invest in managers using the following strategies: event-driven, long/short equity, tactical/directional, opportunistic and relative value, according to meeting materials.
The fund is nearing completion of its search for an internal hedge fund portfolio manager to oversee the new portfolio, Ms. Wardlow confirmed in an e-mail.
The five-year private equity tactical plan approved by trustees will commit $3.71 billion through the end of fiscal 2016 to bring the plan up to its 8% target allocation. The board also approved the use of co-investments with existing private equity managers. In fiscal 2012, the fund will commit $625 million to six to 10 new private equity funds or co-investments. The average annual commitment to private equity will be $742 million over the five-year period ending Aug. 31, 2016.
The Texas fund had $2.268 billion in private equity commitments as of June 30, according to board meeting materials.
Trustees were informed at the meeting that Wesley Gipson was promoted to director of private equity. Mr. Gipson was a private equity portfolio manager and replaces Patrick O'Hara, who left the fund in February, according to agenda materials.
Texas ERS will invest $1.36 billion in private real estate funds over the five-year period ending Aug. 31, 2016. The newly approved real estate tactical plan for fiscal 2012 calls for commitments of $450 million to private real estate funds and co-investments. In order to bring private real estate investments and commitments up to the target 6% of plan assets, the average annual commitment to private real estate will be $272 million over the five-year period ending Aug. 31, 2016.
Texas ERS had real estate investments and commitments totaling $1.473 billion as of June 30, according to board meeting materials. About $470 million of that total was invested in REITs, according to agenda documents.
The fund's investment staff will not issue open RFPs for hedge fund, private equity and real estate managers, but instead will conduct searches by invitation, with the assistance of the appropriate specialist consultant for each asset class, Ms. Wardlow wrote in an e-mail. She confirmed that funding for the new alternative investment portfolios will come from rebalancing other asset classes.
“The select pool has been established to create a board-approved list of potential advisers that the investment staff can use. Some or all may be hired, or not. Allocation would depend on need at the time as would the funding source. Select pools like this give the board and staff flexibility,” Ms. Wardlow wrote in an e-mail.
The fund had about $6 billion or 25.9% of plan assets invested in international equity as of June 30. Information about the fund's existing international equity managers could not be learned.
The fund's investment returns topped or matched policy benchmarks in all of the following periods ended June 30: three months, 1.4%; one year, 20.5%; three years, 4.8%; five years, 5.3%; and 10 years, 5.5%.