Texas Municipal terminates real estate manager contract

The $19.5 billion pension fund has decided to pull its $100 million commitment to H/2 Capital’s core debt fund after the two parties failed to reach an agreement on contract terms.

The Texas Municipal Retirement System (TMRS) has ended its negotiations with H/2 Capital Partners, a Stamford, Connecticut-based alternative investment manager, regarding a $100 million commitment to the firm’s H/2 Core Real Estate Debt Fund.

The commitment was to have been one of the Austin, Texas-based pension fund’s first allocations to a real estate manager.

“Despite the efforts of TMRS and H/2, mutual agreement could not be reached on contract terms involving the Texas Public Information Act,” a spokesman wrote in an email to PERE. Texas MRS declined to elaborate further, and H/2 could not be reached for comment at press time.

Typically, managers being hired by a US public pension fund are required to publicly disclose certain information, which could include performance track record, investments and management fees.

The cancellation of the negotiations with H/2 will add $100 million to the $400 million that Texas MRS is expected to allocate to core real estate managers, although the number of managers and mandates has yet to be determined. The manager search currently is in its late stages, with the pension’s investment staff and its real estate consultant, ORG Portfolio Management, expected to present recommendations to the board in September.

Created in 1948, Texas MRS had focused its investments almost entirely on bonds until 2008, when it adopted a new policy that included a 10 percent target allocation to real estate. In 2010, the pension hired ORG to assist with its entry into the asset class, and in March 2011, selected its first real estate managers, committing $100 million each to open-end core real estate funds managed by Harrison Street Real Estate Capital and Stockbridge Capital Group.

Texas MRS hired H/2 Capital, which focuses on commercial real estate-related fixed income investments, during its second round of real estate managers selections last September, allocating $100 million to H/2’s core debt fund, as well as $75 million each to Miller Global Properties and Greenfield Partners’ value-added real estate vehicles and $50 million to Walton Street Capital’s opportunistic fund.