Europe is on the horizon for Texas Municipal Retirement System, which is making changes to the way it approaches its private equity portfolio construction.

Texas Municipal – which established its private equity program in the mid-2010s – has been overhauling its processes, shifting from a framework of allocating capital in order to access targets to focusing on a new phase of rationalizing manager relationships, deputy CIO Tom Masthay said on stage at the IPEM Cannes 2023 conference on Tuesday.

The $34.06 billion pension fund is also widening the funnel of managers it will consider compared with six to eight years ago.

“I’m here… to build up a European network, which we haven’t had before, and to try to bring that knowledge [I gain by talking to European market participants] on the table [to inform our] execution,” Masthay said. He added that the system previously focused on execution in its own backyard rather than considering markets further afield.

The process for backing a new manager has become more time-consuming as a result. “Maybe it was 50 meetings for an investment before,” he said. “Now, it’s maybe 150 meetings and an investment committee for a new manager.”

(Masthay can be reached on LinkedIn here.)

Masthay did not specify how many European managers Texas Municipal would like to add or what percentage would focus on venture capital versus private equity investments. The LP is an active investor in venture and growth funds, according to data reviewed by Venture Capital Journal.

Records show that in the past two years it has committed $100 million to Updata Partners VII, a growth fund managed by Updata Partners; $75 million to Foundry 2022 and $25 million to FG Next Flatirons I, which are venture funds managed by Foundry Group; $125 million to Insight Partners XII, a growth fund managed by Insight Partners; $100 million to Activate Capital Partners II, a VC fund managed by Activate Capital; $100 million to Dragoneer Opportunities Fund VI, a VC fund managed by Dragoneer Investment Group; and $75 million to Techstars Ventures 2022, a venture fund managed by Techstars accelrator.

Texas Municipal goes “really deep” on reference calls and meetings to get an understanding of how other market participants are communicating a manager’s strategy, Masthay said. “You can kind of get the BS test [and] have that calibration just based on taking lots and lots of meetings.”

The retirement system has people who are good at digging into data and others who are more relationship-orientated, but it’s up to those in its senior ranks to blend those two perspectives, he added. Additionally, it’s crucial not to let one side get control over the other when it comes to manager selection decisions.

Texas Municipal’s allocation to private equity sits at 10.7 percent, slightly above its 10 percent targeted allocation for the asset class, according to VCJ data.

Europe has matured into a key part of the global venture market over the past decade. VCJ reported in September that one reason the continent is particularly attractive is because start-up valuations did not get as bloated in Europe as they did in the US.

Some limited partners reported to VCJ that they were finding it harder through last summer to get access to really good venture funds in Europe and that many of them were oversubscribed from their existing LPs.

Additional reporting by VCJ staff