The Texas Municipal Retirement System (TMRS) will commit a total of $700 million to five opportunistic credit strategies, according to recommendations in a report prepared by the pension's consultant, R.V. Kuhns & Associates (RVK), at a board last Thursday (23 June).
The allocations are part of a plan by TMRS to increase opportunistic credit to 2.9 percent of its investments in the non-core fixed-income asset class. Citing economic, regulatory, industry and capital market developments to support its move into opportunistic credit, the report said that the investments would face less interest rate risk than traditional fixed-income strategies.
The strategies examined by TMRS included both distressed opportunities and alternative yield instruments such as asset-backed securities, commercial mortgage-backed securities and collateralised loan obligations.
According to the report, the team identified 25 managers with capabilities in opportunistic credit, eventually settling on five strategies across three managers. Managers were evaluated in a selection process based on personnel, process, performance history and fees.
The four managers evaluated in the final round were Beach Point, Marathon, Oak Hill Advisors and PIMCO.
TMRS and RVK recommended the pension invest $200 million into Beach Point Total Return Fund II and $200 million to the PIMCO Corporate Opportunities Fund II Onshore Feeder Fund. The report also recommended TMRS invest $50 million with the Marathon CLO Equity Fund, $100 million in Marathon European Credit Opportunity Fund III and $150 million to Marathon Structured Product Strategies Fund.
In February, the TMRS board approved up to $600 million in private equity manager searches for the year. According to PDI Research and Analytics, last year TMRS invested into special situations funds managed by The Carlyle Group, TPG Special Situations Partners and H.I.G. Bayside.
Beach Point manages over $10 billion through opportunistic credit, high yield, corporate loan and distressed/special situations strategies. The firm was founded in 2008, is headquartered in Los Angeles and maintains offices in New York and London. Blackstone recently revealed it would be taking a minority stake in the manager.
Marathon is an alternative asset manager with about $13 billion in capital. Founded in 1998, the firm invests through private funds, separate accounts and emerging markets credit, structured credit and corporate credit strategies. Marathon's headquarters is in New York and it maintains offices in London and Singapore.
PIMCO is a subsidiary of German insurer Allianz with $1.5 trillion of assets under management. Founded in 1971, the firm is based in Newport Beach, California and maintains 12 offices throughout North America, Europe and Asia.