Private Equity Takes Away from Texas Retirement System

The Employees’ Retirement System of Texas’s private equity portfolio has lost 2.14 percent as of June 30.  The private equity portfolio is worth $4.4 billion, but it was the biggest detractor at a 1.9 percent loss.  Before the Coronavirus pandemic, the private equity portfolio was strong at a 7.6 percent net internal rate of return.  

A meeting will take place on Wednesday to determine what course of action to take to rebuild the private equity arm of the Employees’ Retirement System.  Some of these changes could include more buyouts and co-investments.  According to a statement regarding the plan, “The buyout segment of the market has been and will continue to be the key driver of co-investment deal flow for the portfolio.”  49.2 percent of the ERS’ private equity portfolio will be dedicated to buyout funds.  Some of the top private equity managers include LGT Capital Partners, Riverside Company, and Landmark Partners. 

The system will allocate 20 percent of capital to co-investing.  This can lower management fees and ultimately maximize returns.  The ERS will also induce a growth-equity exposure strategy.  In a statement by the plan, “Growth equity strategies are particularly relevant when it comes to international diversification where buyout markets in certain jurisdictions are less mature and growth equity represents the primary way to participate in those countries.”  

The ERS managed $27.44 billion as of June 30.  This is a decrease from $28.67 billion in the previous year.  Its returns of 0.3 percent also underperformed, missing the 2.9 percent target.