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Texas Teachers sees strength in PE second-quarter recovery

Staff told the $148bn fund's board that this compared very favorably with the public markets over the same period of time.

Teacher Retirement System of Texas‘s private equity returns were down about 11.9 percent in the first quarter of 2020, a performance that was stronger than public markets. And the system has hope for second-quarter PE performance.

Senior managing director Eric Lang said Q1 PE returns, which were preliminary, compared favorably to public markets over the same quarter.

“We do think second-quarter returns will be better as markets have recovered,” he said at the meeting, conducted via teleconference due to the coronavirus crisis.

At the same meeting, Aon Hewitt reported the total fund was down 8.3 percent that quarter.

Lang said staff had more than 500 interactions with managers over the first quarter to monitor portfolio holdings.

“We have also done deep dives on the whole portfolio trying to understand where we have adverse exposure to the current environment and continue to monitor that,” he said. “Each group has developed their own monitoring system and have reviewed all our large exposures and all our principal investments.”

According to the Aon Hewitt presentation, Texas Teachers was slightly overweight in private equity as of March 31, at 16 percent versus a 13.8 percent target and a 14 percent long-term target. That was well within its 9 percent to 19 percent range.

PE holdings were valued at $23.65 billion. A Texas Teachers spokesman said that included net asset values as of December 31, 2019 plus cash flows between January and March.

Texas Teachers’ fund was valued at $148 billion as of March 31. This is the same value CIO Jase Auby shared at the fund’s April meeting, as Buyouts reported.

Texas Teachers has been focusing on building out its “principal investments,” which refers to both direct and co-investments. In 2019, 38.5 percent of private investments were principal investments, beating its goal of 35 percent.

Earlier, Auby said the coronavirus market disruption could mean that slows down in 2020.

“Our ability to deploy principal investments, and consequently fleet savings, may be delayed. Not reduced, but potentially delayed as this works through the system,” Auby said.

So far, principal investments had accounted for 13 percent of overall private investments in 2020, with a goal of 38 percent. In PE, the pension wants to commit $2.8 billion in 2020 with 30 percent of that in principal investments.

Texas Teachers has also been building out its private markets team. In 2019, the fund added nine members. In 2020, five members have been added so far. Lang said four of those started working remotely on June 1.

Action Items: watch the July 16 meeting of the Texas Teachers investment management committee here. Read the meeting materials here.

Update: this story has been updated to add the 2020 PE commitment goals.