Texas Teacher Retirement System, Austin, will invest in leveraged loans through a separately managed account run by CIFC Asset Management, a new manager for the $193.1 billion pension fund.
Credit specialist CIFC created a leveraged-loan investment fund platform — Texas Debt Capital — for Texas TRS, which is the anchor investor limited partner, said Robert Maxwell, TRS spokesman, in an email.
Mr. Maxwell confirmed that the pension fund has "committed significant equity to the fund," but said the size of TRS' commitment is not being disclosed.
The fund-of-one will invest in high-quality senior secured loans, including loans issued by managers in TRS' $31.5 billion private equity portfolio.
"Returns are expected to be enhanced by term and non-mark-to-market leverage, including through the opportunistic issuance of collateralized loan obligations," according to a joint news release from TRS and CIFC issued Monday.
Jase Auby, TRS' CIO, declined to be interviewed, but said in the news release: "As TRS is already one of the nation's top private equity investors, the creation of this platform to invest in sponsored loans represents an exciting strategic innovation for TRS. We are pleased to leverage CIFC's track record as a best-in-class alternative-credit manager to gain long-term exposure to this attractive total return."
The TRS fund will initially provide for up to $2 billion in loan-purchasing capacity in the U.S. and Europe, said Stephen J. Vaccaro, CIFC's CEO and CIO, in an interview.
TRS wanted to increase the defined benefit plan's exposure to bank loans and CIFC created a customized investment strategy in collaboration with the retirement system's investment team, stressing that "we view this relationship as a partnership," Mr. Vaccaro said.
Institutional investor demand for customized credit strategies is on the rise as asset owners seek a way to diversify their credit portfolios, Mr. Vaccaro said.
"It's hard for asset owners to capture relative value in the credit markets and more are turning to multiasset credit portfolios. Institutional investors want managers with the ability to shift their portfolios to where relative value can be found," Mr. Vaccaro added.
CIFC managed $33.9 billion as of Oct. 1.