Texas Employees Retirement System will invest in up to four new hedge funds in the next fiscal year, which begins Sept. 1.
Trustees approved 2015 tactical investment plans for the hedge fund, private equity and infrastructure portfolios at a meeting Tuesday at the Austin headquarters of the $26.1 billion pension fund, according to a webcast.
The 2015 tactical plan for hedge fund investments gives investment officials leeway to invest up to $250 million each in up to two hedge fund managers within the pension fund’s directional growth categories. Trustees approved an investment policy change that raised the upper limit for individual investments in the directional portfolio to $250 million from $150 million. Investment strategies considered likely will be in long/short equity, but could include global macro, relative value or opportunistic, meeting materials showed. The directional growth portfolio totaled $525 million as of June 30.
No changes are planned for the pension fund’s separate, $1.1 billion hedge fund (absolute return) allocation beyond routine rebalancing and possible opportunistic additions of new hedge funds. The plan dictates that assets managed in the hedge fund portfolio be maintained near the 5% target.
Texas ERS includes some hedge funds within applicable asset classes. The 2015 tactical plan said one hedge fund investment each may be considered for the system’s global credit portfolio and the real estate portfolio. Robert Lee, a portfolio manager on ERS’ hedge fund team, explained to trustees during the webcast that a long/short REIT hedge fund portfolio would fit better into the real estate portfolio, for example, than in the dedicated hedge fund portfolio. The sizes of the potential credit and real estate hedge fund hires were not provided in the tactical plan materials.
The pension fund’s 2015 private equity plan sets a total commitment of $950 million, down $300 million from the 2014 target “for pacing purposes,” meeting documents said. Between six and 10 new private equity fund and co-investments will be sought, although a strong focus will be on re-upping with existing managers. The size of individual commitments was not provided in the meeting materials.
ERS’ private equity portfolio totaled 7.9% of plan assets, or $2.1 billion in investments, as of June 30. With commitments, the pension fund’s private equity allocation totaled $4.4 billion. The fund’s long-term private equity target is 10%.
The 2015 infrastructure tactical plan targets $300 million of commitments “consistent with a steady investment pace for the ramp-up years of the program,” meeting materials showed. Two to three “new investments across the risk spectrum and all geographies,” are sought, documents said. The potential sizes of the commitments were not provided.
The infrastructure program was launched in the 2013 fiscal year. The infrastructure portfolio was 1.6% of total fund assets, or about $410 million, as of June 30. The infrastructure target is 4%.