April 2019 Committee on School Finance/Permanent School Fund Item 8

Decision on Real Estate Investments

April 5, 2019

COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: ACTION
STATE BOARD OF EDUCATION: CONSENT

SUMMARY:
This item provides an opportunity for the committee and board to review and consider possible real estate investments.

STATUTORY AUTHORITY: Texas Constitution, Article VII, §2 and §5, 19 Texas Administrative Code (TAC) Chapter 33

The Texas Constitution, Article VII, §2 and §5 establish the permanent school fund, the assets that comprise the permanent school fund, the bond guarantee program, the available school fund, and authorize the State Board of Education (SBOE) to manage and invest the permanent school fund in accordance with the prudent person standard.

19 TAC Chapter 33 codifies administrative rules that provide a statement of investment objectives, policies, and guidelines of the Texas Permanent School Fund as adopted by the SBOE.

The full text of statutory citations can be found in the statutory authority section of this agenda.

PREVIOUS BOARD ACTION: At the January 2019 meeting, the board approved:

• execution of agreement(s) with Blackstone Real Estate Advisors IX L.P., necessary to make an investment commitment of up to $75 million in Blackstone Real Estate Partners IX L.P., subject to continued due diligence and negotiation of fund terms, and authorization for contract execution by the Commissioner of Education;

• execution of agreement(s) with KKR Associates RE Asia SCSp, necessary to make an investment commitment of up to $75 million in KKR Asia Real Estate Partners SCSp, subject to continued due diligence and negotiation of fund terms, and authorization for contract execution by the Commissioner of Education;

• execution of agreement(s) with PAG Special Situations GP III Limited., necessary to make an investment commitment of up to $75 million in PAG Special Situations Fund III L.P., subject to continued due diligence and negotiation of fund terms, and authorization for contract execution by the Commissioner of Education; and,

• execution of agreement(s) with Rockpoint Real Estate Fund VI GP, L.L.C., necessary to make an investment commitment of up to $75 million in Rockpoint Real Estate Fund VI, L.P., subject to continued due diligence and negotiation of fund terms, and authorization for contract execution by the Commissioner of Education.

BACKGROUND INFORMATION AND JUSTIFICATION:
At the May 2008 meeting, the board selected Courtland Partners as the Permanent School Fund’s real estate counsel to provide the expertise and advice related to the investment strategy of the real estate portfolio for the Permanent School Fund. Following the RFP process in July 2013, the board approved a contract to continue with Courtland Partners as the Permanent School Fund’s real estate counsel. At the July 2016 meeting, the board approved an increase in the allocation to 10%.

PUBLIC BENEFIT:
The distribution of the Permanent School Fund will flow to the school districts and reduce the tax burden to the public and the state of Texas.

PUBLIC COMMENTS: None

Staff Members Responsible:
Holland Timmins, Executive Administrator and Chief Investment Officer, Texas Permanent School Fund