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Texas ERS to invest $300m in infrastructure in FY 2015

by Reg Clodfelter

The Employees Retirement System of Texas will look to deploy $300 million into private infrastructure during its 2015 fiscal year, which begins Sept. 1, 2014. The capital is expected to be invested between two or three investments, and within an acceptable range of $225 million to $375 million. The retirement system is also looking to invest at least $325 million into real estate during fiscal year 2015.

Additionally, Texas ERS will shuffle its target allocations to the sector, increasing its target to value-added infrastructure from 40 percent to 50 percent and subsequently decreasing its targets to core and opportunistic infrastructure to 25 percent each from 33 percent and 27 percent, respectively.

“Jay talked a little bit about pricing in the core space,” said Wesley Gipson, director of private equity/infrastructure for Texas ERS, referencing Jay Yoder, partner and head of infrastructure at Altius Associates, during a webcast of a board meeting. “And when you look at the universe, we agree that we think we will spend most of the time playing in the value-add sandbox, and that’s really the driver there.”

Gipson added, “U.S. independent power is a very attractive space, U.S. midstream energy is a very attractive space, and that is going to be a large part of the focus.”

The language in Texas ERS’ infrastructure investment policy was also amended to clarify that direct investing and co-investing will be an active part of the program. Furthermore, the board has removed the infrastructure program’s leverage limitation, “which is not a signal of the program’s intent to engage in very high levels of leverage and is simply due to the fact that we don’t have a lever to control that,” explained Gipson, who went on to add that the leverage used by managers and on each asset will be a “primary consideration.”

The entire infrastructure program has a target allocation of 4 percent, with 3 percent allocated to private infrastructure and 1 percent to public infrastructure. From here on out, the public infrastructure portfolio will be managed by Texas ERS’ global equities team.

Since the inception of the infrastructure program through June 30, 2014, Texas ERS has invested in one private infrastructure fund and closed on three co-investments with commitments totaling $275 million, adjusted for currency exchange rates.

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