Texas Teachers pension sells ‘large, concentrated positions’ on secondary market

Teacher Retirement System of Texas completed a sale of stakes in private equity funds totaling between $1 billion and $2 billion, sources told Buyouts.

The sale completed at the end of last year. While large, it came in under the potential size of the sale, which could have totaled $3 billion, Buyouts reported last year.

Multiple buyers picked up the fund stakes, sources said, though it’s not clear who acquired the interests. The sale included concentrated, large positions in a few managers, according to the sources.

Rob Maxwell, a spokesman with Texas Teachers, declined to comment about the sale. Greenhill Cogent worked as secondary advisor on the deal.

The deal was one of the largest LP stake sales last year, though it was eclipsed by Norinchukin Bank’s $5 billion PE portfolio sale. Ardian was the buyer on Norinchukin’s process.

LP portfolio sales led deal activity in the secondaries market, though GP-led deals like fund restructurings have been taking an increasing amount of market share. LP portfolio sales represented 67 percent of all deal activity in 2019, compared with 32 percent for GP-led transactions like fund restructurings, according to Evercore’s full-year 2019 secondary volume report.

This year though, LP portfolio sales have fallen off, along with most other types of secondaries deals in the downturn. Sources expect transaction activity could come back around the fourth quarter, once buyers and sellers have a better sense of how big of an impact the coronavirus downturn had on valuations in the second quarter.

Texas Teachers has been slightly over its long-term target to private equity, which could be why the system is motivated to sell down the portfolio.

The system has been weighing changes to its asset allocation to try and boost its 7 percent expected investment return to 7.15 percent, 7.25 percent or 7.35 percent, Buyouts reported in May.

To boost performance, Texas Teachers would likely have to add assets to private markets. The system is considering adding 1 or 2 percent to private equity as part of the contemplated changes.

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