Texas Public Pension Turns to Private Equity Giants KKR, Apollo

(November 8, 2011) — As megafunds clamor for alternative investments to better fulfill their funding shortfalls, private equity firms — increasing in popularity — have evolved from leveraged buyout specialists into asset managers. 

The latest example of a magafund turning toward the private equity industry to more effectively put their cash to work is the Teacher Retirement System of Texas’ (TRS) decision to seek help from Kohlberg Kravis Roberts (KKR) and Apollo Global Management. 

Private equity firms KKR and Apollo Global Management have been selected to manage $6 billion for the Teacher Retirement System of Texas (TRS). Each firm announced that it will receive $3 billion from TRS to manage in separate accounts devoted solely to the scheme. “…The Board of Trustees for the Teacher Retirement System of Texas (“TRS”) authorized the TRS executive director and chief investment officer to negotiate and execute a fund-of-funds master limited partnership agreement and commit up to $3 billion with Apollo Global Management, LLC (“Apollo”) and Kohlberg Kravis Robert & Co (“KKR”), each individually,” the public pension fund said, noting that the agreement follows the successful model for strategic relationships in the global public markets funded by TRS three years ago, which over its initial three years produced first quartile investment results.

According to TRS, the advantages of the new relationships include: improved diversification and potentially reduced long-term investment risk, increased ability to seek out and access attractive investment opportunities, heightened capacity to conduct strategic research, more aligned long-term economics and improved use of TRS’ resources. TRS continued: “Both Apollo and KKR are among the most reputable and successful private investment management firms in the world, and both have been investing successfully for 21 and 36 years, respectively.  They bring the abilities of two preeminent industry leaders into the long-term service of the 1.3 million members who participate in TRS.  As a result, these strategic partnerships endeavor to establish a sustainable competitive advantage for TRS.”

KKR noted that its partnership with Texas Teachers includes a flexible, discretionary arrangement encompassing $3 billion of long term capital committed in 2011 ($1 billion to date) and beyond. “It takes advantage of the long-term nature of the TRS portfolio to capitalize on market opportunities globally and is designed to deliver an attractive risk reward profile to TRS in a widely diversified, global portfolio,” according to a statement on the firm’s website. Commenting on the partnership, Henry Kravis and George Roberts, Co-founders and Co-CEOs of KKR, said: “We appreciate the innovative and market-leading approach of TRS, and we are very excited about this strategic partnership. It reflects the deepening of a longstanding relationship between TRS and KKR, and we look forward to working with the TRS team in the years ahead.”

Click here to read an aiCIO Interrogation of Britt Harris, the chief investment officer of the Teacher Retirement System of Texas (TRS).