Texas Municipal Makes $500 Million in New Commitments

The board of the Texas Municipal Retirement System has made commitments totaling $500 million to four private equity funds and one infrastructure fund, as well as reallocating $200 million to an existing real estate fund, pension officials confirmed.

The fund manages a total of $27.5 billion in assets.

The largest private equity commitment was $100 million to FGN 2018 Partner Fund run by Foundry Group, a Bounder, Colorado, venture capital firm. Foundry manages close to $2.5 billion. Agenda material for the system’s Feb. 14-15 meeting says that Texas Municipal will co-invest $100 million in a separate account that will target high potential and access-constrained early-stage venture capital investments.

The other three private equity commitments are:

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A $50 million commitment to Reverence II, a buyout fund managed by Reverence Capital Partners. The agenda material says Reverence Capital is a New York-based investment firm founded in 2013 that focuses on the middle market. It invests in financial services companies, such as asset/wealth management bank and non-bank finance, payments and services, and insurance. The fund is targeting $750 million.
A $50 million commitment to Arcline I, a buyout fund managed by Arcline Capital Partners in San Francisco. Agenda material says the fund focuses on acquiring middle-market industrial companies and transforming their business model. The fund is targeting $1.2 billion in the fund.
A commitment of $50 million to PSG IV, the growth equity affiliate of Providence Equity Partners. Agenda material says the fund will target investments in lower middle-market software and technology-enabled businesses. The Providence, Rhode Island, based firm is targeting $1.75 billion in the fund.

The agenda material says Texas Municipal has a goal of making $525 million in private equity commitments in 2019. The pension system has private equity investments totaling $566 million as of Dec. 31. The system wants to increase its private equity investments to more than $2.2 billion in the next eight years as it builds its private markets portfolio, show presentations at the February 14-15 board meeting.

In the infrastructure arena, the board approved Texas Municipal’s commitment of $200 million to Harrison Street HSSI, a fund managed by Harrison Street, an investment management firm in Chicago with a focus on real estate storage facilities, education, and healthcare.

Agenda material shows the firm is now expanding into infrastructure investments. It says the fund will develop a portfolio of investments in social infrastructure, investing in the healthcare, education, government, and utility sectors. The fund will be part of Texas Municipal’s real return asset class, whose investments total $2.5 billion.

The board also approved a reallocation of $200 million to H/2 Partners, a real estate firm. The firm already invests the money for the pension system. Agenda material says the firm specializes in providing access to liquid private commercial real estate debt markets by participating in the origination and structuring process of securities and loans. It was unclear at press time as to how the reallocation differs from the original commitment.

The real estate asset class totals $2.6 billion for the pension system.

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Tags: Arcline Capital Partners, Foundry Group, Pension, Private Equity, Providence Equity Partners, Reverence Capital Partners, Texas Municipal Retirement System

Let’s see if the newly dovish Federal Reserve policymaking committee is as averse to further rate increases as the stock market believes. On Wednesday afternoon, the Fed releases the minutes of the panel’s meeting three weeks ago, meaning the public will view the details of their outlook.

“It’s hard to imagine the Fed sounding as dovish in the minutes as [Fed Chair Jerome] Powell sounded in the briefing” to reporters last month, Michael Schumacher, head of rate strategy for Wells Fargo Securities, told CNBC. “We do think the minutes will be bearish.”

Right now, the Fed funds futures show very low expectations of any more interest rate hikes this year. If such projections are right, that would be a significant pivot for the central bank, which boosted rates four times in 2018.

Deutsche Bank economists expect just one more increase this year, in September, and a final one in March 2020. They predict some of the weakening economic indicators will do better in coming months, and inflation will remain muted, with a go-slower Fed policy the ultimate outcome.

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The Federal Open Market Committee, at its Jan. 30 meeting, held rates steady and declared it would be “patient” about increasing them in the future. Powell also indicated in his news conference then that the Fed would be flexible about further reducing its $4 trillion balance sheet (down from a peak of $4.5 trillion)—as that shrinkage tends to force longer rates higher.

This news, along with a possible lessening of US-China trade tensions, has helped stocks recover their mojo after the December slide. Investors had dreaded that the Fed would continue raising rates and, due to a softening economy, perhaps plunge the nation into a recession. But since its mid-December low, the S&P 500 has advanced almost 15%.

Regardless of how dovish or hawkish the recent FOMC minutes turn out to be, the big fear is that the Fed will misread the economy and not take the right action. That has happened before.

In 2000, the minutes show that Fed policymakers shrugged off indications of problems among dot-com firms, and ended up having to do an emergency cut of 0.5 percentage point as the tech sector imploded. The same obliviousness occurred in mid-2007 amid signs that the sub-prime mortgage market was disintegrating.

Avi Tiomkin, an advisor to hedge funds, who unearthed these incidents from the FOMC minutes, contended in a recent Barron’s essay that Powell is “continuing the regrettable tradition” set by his predecessors of “blatant detachment from the real economy.”

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Tags: Federal Reserve, Interest Rates, Jerome Powell, S&P 500