As part of a long-term expansion of its private investment program, the $107 billion Texas Teacher Retirement System hired private equity giants Kohlberg Kravis Roberts & Co. and Apollo Global Management to each manage $3 billion of the pension’s assets. Back in June, TRS said it planned to make $7 billion in private equity commitments by 2015.
According to TRS, the arrangements are “fund-of-funds master limited partnership” agreements. It was not clear whether the firms would invest mainly in their own funds or choose and manage outside funds in a conventional fund-of-funds arrangement. If the latter were true, it would mark a departure for both firms. Unlike The Carlyle Group, which recently bought AlpInvest, a large fund-of-funds manager, KKR and Apollo do not, as of yet, have such a capability.
According to the firms’ press releases, KKR’s arrangement will give it “wide latitude for the opportunistic allocation of capital in different market environments.” Apollo, for its part, said it expects to deploy capital “across numerous product categories over an extended period.” Both agreements are subject to “the negotiation of definitive documentation and receipt of any requisite approvals.” No details on fees were disclosed.
In a written statement, Steve LeBlanc, TRS’s senior managing director for external private markets, described the arrangement as the “culmination of a multi-year effort to create a private market partnership platform that will support the needs of TRS and its beneficiaries.”
As of June 30, the giant pension had $10.2 billion in invested private equity capital, amounting to 9.3 percent of TRS’s portfolio. TRS’s current private equity target is 10 percent. It has also announced plans to increase that target to 12 percent by 2015.
In addition, Texas Teachers manages $1.5 billion in direct investments, including $600 million in private equity co-investments and $900 million in real estate co-investments.
TRS has had longstanding relationships with both firms. Apollo, which has $65 billion under management, has been a TRS investment partner for 21 years, while KKR, which has $59 billion in assets, has managed TRS funds for 36 years.
Texas Teachers manages the pension resources for 1.3 million of the state’s current and retired educators.