Texas TRS ratchets up credit allocation to Apollo, KKR

The Lone Star State retirement plan says its credit investments are performing above expectations.

Apollo Global Management and KKR have each received an additional $500 million from the private credit portfolios of the Teachers’ Retirement System of Texas, as part of the pension fund’s large separately managed accounts with the two alternative asset management behemoths.

The Austin-based retirement plan upped its allocation at a January meeting to the two New York-based firms by $1 billion collectively to the debt investing vehicles, known as the tactical value portfolio, according to materials from February’s meeting. The add-on investment also allows for the recycling of profits earned by the funds.

Texas TRS’s private debt portfolio performance-to-date has exceeded expectations, which under the “original investment thesis” were 10-12 percent net returns. The portfolio is fully committed and almost fully invested, the documents showed.

At the pension fund’s September meeting, Michael Pia, Texas TRS’s senior managing director of strategic partnerships and research, said the tactical value portfolio had posted a 23 percent return, but is expected to decrease to the expected returns laid out in the initial investment reasoning. Some $1.3 billion of the $2 billion had been invested, the September meeting documents showed.

The need for alternative credit, as well as its investment rationale, are “structural and expected to persist for another three to five years”, materials from February’s meeting said.

Before Texas TRS raised its credit allocation, Apollo and KKR both managed $5 billion for the pension, bringing the new total to $5.5 billion for each firm. In 2011, the pension fund committed $3 billion to the firms to invest in multiple private market asset classes. In 2015, it upped the accounts by $1 billion each and allocated an additional $1 billion to the tactical value portfolio.