Middle-Market Strategies Dominate Texas Municipal’s Latest Commitments

Retirement fund recommends $650 million in investment activity at its last meeting.

At its last board meeting, staff at the Texas Municipal Retirement System (TMRS) recommended that the board allocate $250 million to private equity strategies that focus on middle-market opportunities, encompassing all of the pension’s recommendations for the asset class during the meeting.

Staff recommended that the board commit $50 million apiece to Reverence Capital Partners Opportunities, Arcline Capital Partners, and Providence Strategic Growth IV, as well as $100 million to the Foundry Group Next 2018 Partner Fund.

The largest of the fundraises will be the Providence fund, which is targeting $1.75 billion to make 20 platform investments valued between $5 million to $75 million each. The funds each target a 25% net internal rate of return (IRR), with the exception of the Foundry fund, which targets a 20% net IRR.

The pension’s 2019 private equity pacing plan calls for $525 million in commitments, to keep their allocation as tight to the 5% target as possible. Their projected pacing plan until 2027 is as follows:

Source: Texas Municipal Retirement System

The board was also asked to consider a $200 million commitment to the Harrison Street Social Infrastructure Fund, an open-ended fund that intends to develop and acquire “high-quality social infrastructure investments”, which serve the education, healthcare, government, and utility sectors. The fund intends to invest $150 million or less per transaction, “which may be considered middle market to lower middle market in the infrastructure universe,” according to a report from the pension.

The board was also asked to consider a commitment that would restructure the existing relationship between the TMRS and H/2 Capital Partners, through a $200 million reallocation of TMRS’ existing H/2 Capital accounts.

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