Texas ERS emerging manager program adds credit, HF investments

The $35 billion Employees Retirement System of Texas has built up its $2.3 billion emerging manager program, most recently focusing on private credit and hedge fund investments.

According to state statute, emerging managers are defined as private professional investment managers with less than $2 billion in assets who provide pension fund management, consulting, investment advising, brokerage services, hedge fund management, private equity management and real estate investment.

The retirement system is plotting another $275 million in private credit commitments in non-performing residential mortgage loans and Europe direct origination middle-market lending, according to meeting documents from December 2021. Previously, officials have placed $275 million in CLO warehousing and U.S. middle market distressed debt strategies.

As of June 30, 2021, Texas had tapped six firms and nine funds in the credit section of the portfolio. Those funds were: AGL Credit Management; All Seas Capital I; Balance Point Capital Partners III; Balance Point Capital Partners V; Glendon Opportunities Fund; Glendon Opportunities Fund II; Marblegate Partners Fund II; VWH Master Fund and VWH Master Fund III.

The hedge fund segment of the emerging manager program continues to grow as well with a strategic acceleration investment being made to London-based Lijaro Asset Management. The deal done in partnership with PAAMCO Launchpad was announced last week, but the investment commitment size was not disclosed.

“The investment with Lijaro reflects our continued commitment to building Launchpad with high caliber emerging hedge fund managers,” said David Veal, CIO of Texas ERS.  “We are excited about this outstanding investment opportunity, which we view as the beginning of a mutually beneficial long-term relationship.”

Previously, the program has allocated to Cinctive, Complus Asia and Phase 2 Partners. The PAAMCO Launchpad emerging manager platform initiative with Texas ERS began in 2018. Officials at PAAMCO Launchpad have said they have been pleased with the 2020 performance of their first seed, Cinctive Capital, which was founded by Rich Schimel and Larry Sapanski.

In early 2021, Phase 2 Partners officially launched with roughly $150 million in commitments from multiple investors, including a strategic partnership with the Employees Retirement System of Texas (Texas ERS) and PAAMCO Launchpad, the emerging manager initiative of FoHFs group PAAMCO Prisma.

According to a presentation to Texas ERS’ board of trustees, two key commitments have been made so far totaling $325 million.

As for Lijaro, the firm was founded by former Balyasny Asset Management’s Head of the London Office and Portfolio Manager Stephen Irvine. He is a well-known sector-specialist within long/short equity with a focus on industrials and cyclicals sectors with a global mandated concentrating on Europe. Prior to Balyasny he was a portfolio manager at Brummer Asset Management, De Putron Fund Management and Fortress Investment Management.

Irvine’s distinct sector focus is still relevant. “While some have termed these sectors ‘old economy’ in the past, we see significant changes occurring in the way that goods are manufactured and processed globally,” he said. “In our opinion, these changes provide an abundance of interesting investment opportunities, with new disruptive technologies and the increasing climate change agenda both helping fuel that rate of change.”

Lijaro launched in mid-2020 and currently manages more than $600 million. The firm is the first outside the U.S. to be including in the Launchpad initiative.

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