The Employees’ Retirement System of Texas took several steps to advance the sustenance of a few major asset classes in its portfolio to their ideal allocations and configure its approach to how it invests in them.
The largest of the bunch was, of course, private equity, which is currently over-allocated at about 15.2%. The retirement system planned to invest a steadily lower—then higher—amount over the next six years until the asset class reaches its ideal 12.3% allocation in 2024. They also expanded the limit of singular commitments to approximately $1.45 billion from its previous $1 billion target.
Source: Employees Retirement System of Texas
Next on the pension’s list was its severely under-allocated private infrastructure, which stands at about 1.9% relative to the ideal weighting of around 7%. The asset class’s director, Pablo De La Sierra Perez, requested that the investment committee allow for greater levels of manager concentration, so as to relieve the burden of avoiding many different relationships for the portfolio. Additionally, the staff permitted a greater allotment in the portfolio for co-investments, raising the cap of a single investment’s exposure from 5% to 6% in the asset class.
The portfolio needs some attention on sector and region diversification, staff at the pension implored, while pointing out its overexposure to renewable power generation and investments in the United States, and under exposure to core assets. The pension is expecting to make between three to six new infrastructure commitments of about $450 million each in the new year.
Source: Employees Retirement System of Texas
Last but not least was an expansion of the pension’s private real estate allocation, which stands at about 7% versus the target allocation of 9%. The team wants to invest in more niche areas that have low correlation with traditional real estate assets, such as medical offices, timber, agriculture, or core properties in international markets.
Additionally, the team approved a 5% allocation to real estate supporting companies in the portfolio, referring to technological solutions that solve problems for the real estate industry. These types of opportunities may be in the underlying technology itself, such as venture capital, or in companies supporting real estate operations.
The pension stands to invest $100 million to $200 million to annually in core assets until 2023, and $550 million to $300 million each year to non-core assets.
Tags: Private Equity, Real Estate, TERS, Texas Employees