Texas Teachers’ sets out another $1 bln to back young managers

  • Why this is important: Texas Teachers’ sets $1 bln plan to help small managers break into portfolio
  • Target allocation to PE: 13 pct
  • AUM: $150 bln
  • Emerging-manager program $8 bln vs $2 bln in 2010

Teacher Retirement System of Texas hopes a $1 billion mandate will help promising GPs graduate from its emerging-manager program and transition into the regular portfolio.

The pension fund has not yet committed to any managers out of the new program, called Emerging Managers Select, CIO Jerry Albright said during a keynote address at Buyouts Insider’s PartnerConnect Southwest conference.

The program, open to managers across asset classes already in the system’s emerging-manager portfolio, will make commitments of $50 million to $70 million, he said, adding that he prefers larger allocations to fill the program more quickly.

Texas Teachers’ found that few managers were successfully breaking into the normal portfolio after graduating from the EM program, he said.

The gap between the $20 million typically allocated to an emerging manager and the $150 million minimum commitment that Texas Teachers’ uses for its main portfolio was too big for most firms to bridge.

“We tranched another billion dollars that we can put capital in and get them a little bigger and help them get into the trust a little bit easier,” he said.

The $150 billion retirement system has quadrupled its emerging-manager program to $8 billion today from $2 billion in 2010, Albright said.

Texas Teachers’ updated its definition of emerging managers to include those raising up to Fund V with under $3 billion in assets.

The EM program has had notable successes, with firms like Vista Equity Partners, Roark Capital Group and Crestview Partners graduating into the main portfolio.

“We allocate time and resources to it for one specific reason, always, and that is to add return. It’s got to be additive to the trust,” Albright said.

“The second primary purpose is to find the next Vista, the next Blackstone, the next KKR or Apollo. They’re out there, and we’ve found a few of them along the way.”

Even with Emerging Managers Select as a stepping-stone, Albright expects it to remain difficult for firms to break into the retirement system’s portfolio.

Managers, large or small, need to bring something unique to the table if they want a slice of Texas Teachers’ targeted 13 percent allocation to PE.

“It needs to be something that we don’t do, and we don’t have other people doing,” Albright said.

Action Item: Teacher Retirement System of Texas: https://bit.ly/2UFfCdL