ERS’s Emerging Program

In less than four years, the Employees Retirement System of Texas (ERS) has become one of the most influential investors in the U.S.’s emerging manager space. By 2019, that influence will have grown significantly as the pension’s emerging manager program doubles in size to almost $1B. ERS’s commitment to emerging managers across the asset classes isn’t just in dollar terms. Ann Bishop, ERS Executive Director, tells PrivcapRE: “We are in this for the long term. We want to see people succeed, and we want to be there next year and the next year and the year after that.” Adds Bishop: “It’s where a lot of the growth will come in the future. The returns are good, and there’s a lot of satisfaction in watching someone grow. But at the end of the day, we’re not going to do something that isn’t good for the Employees Retirement System of Texas. It has to produce.” That sentiment is echoed by Bob Sessa, director of real estate at the $25.3B public pension fund, who calls for greater “enlightenment” of investors. “Investors are already investing in emerging managers; they might not call it emerging managers, but they are doing it,” he says. “There’s a lot of alpha to be generated investing with smaller first-, second-, and third-time funds.” The challenge for some investors looking to real estate managers on their first, second, and third funds is quantifying performance above and beyond the cost of investing in the space. The ERS program formally started in 2010 and has yet to see a full cycle of its investments, and therefore performance data, says Sessa. Investing a total of $90M with multi-managers Oak Street Real Estate Capital and Morgan Creek Capital Management, and $15M directly with real estate manager Pennybacker Capital, ERS targets first-, second-, and third-time real estate fund managers, usually raising less than $500M and with less than $1B in assets under management.