September 2014 Committee on School Finance Permanent School Fund Item 12

Decision on Real Estate Investments

September 19, 2014

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, §5(f).

PREVIOUS BOARD ACTION: At the July 2014 meeting, the board approved the execution of agreement(s) with Ares Management necessary to make an investment commitment of up to $75 million in Ares U.S. Real Estate Fund VIII, L.P. The board also gave its approval to execute agreements with The Carlyle Group necessary to make an investment commitment of up to $75 million in Carlyle Realty Partners VII, L.P.; and, approval to execute agreements with Invesco Advisers, Inc. necessary to make an investment commitment of up to $75 million in Invesco Mortgage Recovery Fund II, L.P., each subject to continued due diligence and negotiation of fund terms.

BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: 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. At the July 2012 meeting, the board set a strategic asset allocation which included an 8% allocation to real estate. 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.

FISCAL IMPACT: The distribution of the Permanent School Fund is projected to be $1.677 billion during the 2014-2015 biennium.

PUBLIC AND STUDENT 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.

PROCEDURAL AND REPORTING IMPLICATIONS: Not applicable.

PUBLIC COMMENTS: None.

ALTERNATIVES: None.

OTHER COMMENTS AND RELATED ISSUES: None.

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