Texas Municipal Retirement System (TMRS) is allocating $200 million to three special situations funds managed by The Carlyle Group, TPG Special Situations Partners (TSSP) and H.I.G. Bayside.
The commitments, approved by the pension fund’s board last week (22 October) – alongside three new buyout investments – are part of TMRS’ annual private equity investment plan. The private equity slice of its annual investment programme was set to total $300 million this year. Between three buyout allocations and $200 million committed to private debt, the total so far this year is $350 million.
The $24 billion pension’s commitment to Carlyle was a $65 million ticket for Carlyle Energy Mezzanine Opportunities Fund II. The vehicle is raising $2.5 billion overall and is slated to reach a final close soon, PDI understands. The fund is aiming for 10-12 percent returns, according to TMRS documents. The pension cited capital needs in the energy sector, strong past performance in the strategy and solid project finance underwriting skills the reasoning behind the investment.
TMRS also voted to invest $75 million into TSSP Adjacent Opportunities (TAO) vehicle. TPG’s open-end fund structure will invest across the credit and private equity firm’s special situations platform, including TPG Opportunities Partners, a distressed-for-control strategy and the lender’s US and European specialty lending strategies, which handle sponsored and non-sponsored direct lending.
“Additionally, TAO III will opportunistically access special situations, such as defensive yield, non-control stressed and distressed and asset special situations,” according to documents published by the pension. The vehicle is targeting 12-15 percent returns and raising $3.5 billion overall. Texas Municipal listed TPG’s experienced and deep team and tenured track record as reasons to invest, as well as its impressive sourcing engine, opportunistic approach and very strong credit and structuring capabilities. The Pennsylvania Public School Employees Retirement System (PSERS) also invested $250 million in the TAO platform earlier this month.
Texas Municipal’s third special situations investment was a $60 million cheque to H.I.G. Bayside Loan Opportunity IV, which will make non-control investments in North American complex situations and/or stressed/distressed senior loans in small-cap companies. Texas Municipal cited the firm’s deep experience in the lower end of the middle market, reduced competition in the non-control distressed arena and the firm’s strong sourcing machine as driving its decision to invest with Bayside. The vehicle is targeting 12-15 percent returns.
Texas Municipal’s buyout commitments went to Searchlight Capital II, Harvest Partners VII and Tritium I at $50 million apiece. All recommendations were made to the board by TMRS’ director of private equity Chris Schelling and the pension’s private equity advisor, The StepStone Group. The pension is currently finalising contracts with the managers and expects to have the commitments funded by year-end.