Texas State Board of Education, Austin, approved a $75 million commitment to Cerberus Institutional Real Estate Partners IV from the $29.2 billion Texas Permanent School Fund, which it oversees.
The fund's manager, Cerberus Capital Management, will divide distressed debt investments in non-performing loans and commercial and residential mortgage-backed securities equally between opportunities in the U.S. and Western Europe.
Board commissioners also approved four-year extensions — effective Sept. 1, 2016 — for Grosvenor Capital Management and Blackstone Alternative Asset Management during a meeting on Friday, according to a webcast of the meeting.
Grosvenor manages $943 million in a hedge fund of funds and co-manages with PSF staff a $406 million portfolio of direct investments in hedge funds. BAAM manages $856 million in a hedge fund of funds and co-manages $466 million in direct hedge funds.
The school board also approved a new long-term strategic asset allocation for the Permanent School Fund for the 2017 and 2018 fiscal years.
The weighting to large-cap U.S. equity rose 3 percentage points to 16% and large-cap international and emerging market equity rose to 16% from 14%. Funding for the higher equity allocations will come from a 3 percentage point reduction for private equity to 10% and a drop in the real estate allocation to 8% from 10%.
The allocations to the following asset classes will not change: domestic investment-grade fixed income, 12%; hedge funds, 10%; emerging markets debt (local currency) and risk parity, 7% each; real return, 6%; U.S. smidcap equity, 5%; and emerging markets equity, 3%.
Returns of the Permanent School Fund as of May 31, the third quarter of the fund's fiscal year, were: three months, 2.2% (benchmark, 1.9%); fiscal year-to-date, 2.1% (2.3%); one year, -1.3% (-1.4%); three years, 4.9% (4.9%); five years, 5.8% (5.7%); and 10 years, 5.4% (5.1%). Multiyear returns are annualized.
During a meeting Thursday of the board's Committee on School Finance/Permanent School Fund, commissioners asked to table discussion of proposed changes to the fund's real estate investment policy, which would have granted investment staff discretion for investment of traditional real estate investments. Staff already has investment discretion for commitments to co-investments and secondary shares managed by the fund's existing real estate managers.
Commissioners and finance committee members David Bradley and Lawrence A. Allen Jr. said during the meeting they were uncomfortable about handing investment discretion for real estate to staff without more research and discussion, according to the webcast.
Real estate investment policy changes will be discussed again at the next state board meeting Sept. 14–16.