ERS Texas stays the course with FY 2024 private equity pacing plan

Employees Retirement System of Texas plans on committing $600 million to private equity in FY 2024, keeping its target the same as the previous year.

Institutional investors are facing a conundrum during a challenging environment. Many LPs remain overallocated to private equity while suffering cash constraints due to reduced distributions and liquidity.

ERS Texas approved the private markets pacing plan at its August 23 board meeting. Buyouts watched a broadcast of the meeting.

The $35.4 billion system’s planned $600 million in commitments mirror the same amount slated in FY 2023, according to a presentation outlining the pacing plan.

ERS Texas currently allocates 18.3 percent of its total portfolio to private equity, above its 16 percent target, but still within its strategic range, board documents say.

While planning on the same dollar amount of commitments, Texas ERS announced some shifts in its private equity strategy for FY 2024.

In FY 2024, the pension system plans on committing to 12 primary funds along with five to nine co-investments. The previous year, the system eyed between 10 to 12 commitments to primary funds and three to four co-investments, according to the FY 2023 pacing plan.

This change reflects a trend among allocators in recent months. Many are reducing the dollar amount of re-up commitments while focusing more on co-investments to reduce fees.

According to the presentation, ERS Texas wants to target 20 percent of its annual private equity commitments to co-investments. As of the end of 2022, 17 percent of the system’s $15.7 portfolio was committed to co-investments.

ERS Texas will also focus on buyout and growth equity strategies, especially for those focused on healthcare and technology, the presentation said.