Texas ERS places $285m in HF and private real estate funds

The $29 billion Texas Employees’ Retirement System has continued to further diversify its alternative investment portfolios, recently allocating to a hedge fund and a series of private real estate investments. A $60 million commitment is understood to have gone to Laurion Capital Management, a global relative value hedge fund. Founded in 2005, by J.P. Morgan equity derivatives group alums Benjamin Smith and Sheehan Maduraperuma, Laurion reportedly received capital from Texas last month. Overall the system has a 4% allocation to hedge funds or $1.16 billion. At the end of the 2019, ERS had some strong returns in its hedge fund portfolio with all managers ending the month in positive territory. Performance during the month was led by Graham, a global macro manager, and Hudson Bay, a multi-strategy manager. These two managers generated gains of 1.43% and 1.39%, respectively.In December, officials committed to three funds: Wheelock Fund VI ($50 million); Wheelock Long Term Value Fund ($100 million); and PAG SCREP VII ($75 million). Wheelock Fund VI is a closed-end diversified fund focusing on value-add and opportunistic commercial and residential investments in the U.S. The fund will consider a variety of capital structure opportunities, including mortgage debt, subordinated debt, preferred equity and equity transactions, according to a staff report. The Wheelock Long Term Value Fund meanwhile is an open-end diversified fund that invests in core and core-plus commercial and residential investments in the U.S. The fund is targeting long-term returns to be between 100 basis points and 200 basis points over the pension fund’s real estate benchmark of the Open-end Diversified Core Equity (ODCE) Index. The third real estate-oriented commitment was to the PAG SCREP VII fund, which is focused on value-add commercial and residential properties primarily in Japan as well as other Asia-Pacific countries. Texas ERS’ commitment is in addition to other pension fund allocations including a recent $150 million investment from the Teachers’ Retirement System of Texas. The ERS private real estate portfolio represents approximately 7.6% of the overall system’s assets, which is below the interim target allocation of 8% and the eventual long-term target of 9% that is to be met by 2021. The near-term focus continues to be on renewed commitments to performing fund managers in which ERS has investments, commingled “club funds” with the potential to drive terms and conditions, niche property sectors, co-investments and select international investments. Since inception, commitments by ERS’ private real estate program total approximately $4.6 billion.

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