The Employees Retirement System of Texas is planning to grow its emerging manager programme by investing $100m (€72.7m) of new capital over the next several years.
The pension fund said its investment staff had determined that, over the long term, inclusion of emerging managers as part of external investment management should enhance and diversify the investor’s portfolio and complement its external investment management.
It also said smaller managers had proven to deliver competitive risk-adjusted investment returns, and that employee-owned firms tended to have a stronger alignment of interest with investors.
It added that entrepreneurial managers could provide the fund with unique investment strategies and diversity of thought.
ERS said it would primarily use a manager of emerging managers for private real estate to supplement its main direct relationships.
The pension fund said the fund-of-funds structure was the best way to source funds in the private real estate space and build a diversified portfolio.
It said its current focus for emerging managers was on firms raising their first, second or third commingled funds with a size under $500m.
ERS will consider on a case-by-case basis opportunities to form direct relationships with an emerging manager.
Through the end of 2013, the pension fund had invested a total of $105m in its emerging manager programme.
This capital had been invested with two managers.
It invested $50m with Morgan Creek Capital Management directly into the Oak Street commingled fund and two sidecar investments of $40m into the commingled fund.
ERS has also invested $15m into Pennybacker III.
The pension fund has a long-term target allocation for real estate of 7%.