Employees’ Retirement System of Texas intends to commit $400 million across three to six private infrastructure investments in fiscal year 2021 to diversify its portfolio, according to its May 2020 retirement board meeting minutes.
Texas ERS plans to invest outside the US to increase its emerging economy infrastructure exposure from 30 percent to half of its total infrastructure allocation. The pension’s infrastructure portfolio is currently well diversified across sectors, which aligns with its long term goal.
According to its evaluation criteria, the institution is looking for infrastructure portfolio managers that have yielded attractive returns on both absolute terms and relative to peers, and displayed a history of steady capital deployment across different vintage years.
Texas ERS had made thirteen co-investments and sixteen fund commitments, amounting to $1.8 billion, since the inception of its private infrastructure program in 2012, May 2020 meeting documents show.
During fiscal year 2019, it invested $285 million into private infrastructure. At the end of the first quarter of fiscal year 2020, commitments stood at $165 million.The pension aims to achieve its original target of commitments totalling $450 million in the fiscal year, despite the covid-19 pandemic.
It is also seeking co-investments and direct investment opportunities that provide core, European and emerging markets exposure.
Co-investments have saved the pension approximately $40 million in realised management fees from inception of its co-investment program in 2012 through the end of the first quarter of 2020. The core strategy is considerably below target.
Texas ERS expects to reach its current target allocation of 7 percent by end of fiscal year 2023. As of 31 March, 2020, its actual allocation to the asset class was 3.9 percent of total assets, a share that is expected the grow to 4.8 percent by end of the current fiscal year.
Texas ERS’s infrastructure team has over 34 years of combined experience in infrastructure investing. Furthermore, CBRE Caledon has been consulting Texas ERS on its private infrastructure portfolio since early 2019.