Credit Suisse pitches Texas infrastructure fund(2)

The firm’s customised fund investment group is seeking the support of the $22.3bn Employees Retirement System of Texas for the Texas Infrastructure Partnership, a private equity-style fund that would invest across the US’ second-most populous state.

Credit Suisse’s customised fund investment group has approached the Employees Retirement System (ERS) of Texas about the creation of a state-focused infrastructure fund, according to agenda and presentation materials recently disclosed on the $22.3 billion pension’s website.

Credit Suisse pitched the concept of a Texas Infrastructure Partnership that would “seek out a select group of investors, most likely Texas-based institutions, to create a diversified pool of like-minded LPs”. LPs, or limited partners, are end-investors in private equity-style funds managed by investment professionals known as general partners.

Credit Suisse’s customised fund investment group, which says it manages 10 in-state focused programs such as the one it is proposing in Texas, would be the general partner of the fund. The like-minded limited partners would include other Texas-based pension plans such as the ERS and institutions and universities.

The Texas Infrastructure Partnership would target a portfolio of 10 to 15 direct investments and co-investments in infrastructure assets in Texas. It would also make two to three fund commitments to funds focused on Texas.

Targeted infrastructure sub-sectors would include pipelines, transmission lines, toll roads and wind farms. No one sub-sector would account for more than 30 percent of the fund and no one investment would constitute more than 15 percent of the fund.

Texas Infrastructure Partnership: from concept to reality
Source: Credit Suisse presentation to ERS.

Kelly Williams, managing director and co-head of Credit Suisse’s customised fund investment group, made the presentation to the ERS, along with Vikram Bhaskar, Charles Schalliol and Michael Rose. Williams and Bhaskar are also in charge of the Michigan 21st Century Investment Fund, another state-focused fund managed by Credit Suisse.

Williams and other members of Credit Suisse’s customised fund investment group did not return repeated requests for comment.

Their presentation to the ERS was made on an informational basis and did not require action by the pension’s board. A spokesperson for the pension said it does not actively invest in infrastructure but “may be taking it into consideration”.

Credit Suisse’s proposal for the Texas Infrastructure Partnership comes nine months after Texas Governor Rick Perry expressed support for the creation of “a Transportation Finance Corporation or similar entity that will allow investment funds to invest directly in Texas transportation projects”.

The proposal set off a contentious debate about whether the state government has the right to legislate how and where its big public pensions – including the $105 billion Teachers’ Retirement System of Texas (TRS) – invest their money.

“We have to weigh any opportunity, whether it’s in Texas or anywhere else, on a global basis. We have to look at it independently and whether or not it stands up to other investment alternatives that are out there,” James Lee, chairman of the TRS board, said at a joint hearing on the subject in the Texas state legislature last year.

An aide to Texas’ Speaker of the House said he was unaware of any enabling legislation that has been passed for the Transportation Finance Corporation during the current legislative term, which ends on 1 June.

Texas, home to a population of 24.3 million that is expected to grow to 35.8 million by 2040, has a burgeoning need for infrastructure investment. In 2006, the Texas Transportation Commission estimated that $188 billion will be required over the next 25 years to construct needed improvements to Texas’ transportation system, with government revenue sources only able to generate about half that amount.