Peter Teneriello is an investment analyst with the Texas Municipal Retirement System, serving on the private equity team and leading their work in venture capital. In this interview, he discusses how TMRS is creative in how they approach building their venture portfolio; how the current crisis has led them to rethink the best ways to invest over the next year; and why governance structure is key jump on great opportunities during these unprecedented times.
Peter Teneriello was named on Trusted Insight’s 2020 Top 30 Pension Private Equity Investors.
Trusted Insight: What are your responsibilities as a pension investor at the Texas Municipal Retirement System?
Peter Teneriello: I cover all of private equity, including buyouts, growth equity, equity turnarounds, distressed credit, and of course venture capital. One thing that I really pride myself on is my role in sourcing investments. Just last year, I took about 350 or so meetings with GPs and placement agents, and close to 300 the year before. Frankly, it's the best way to gain market color. I believe that in order to do your job as an LP effectively, you need to turn over every stone you can.
Trusted Insight: Your team is really focused on early-stage funds and emerging managers, because they tend to outperform historically. How do you go about cutting through the noise and picking the winners?
Peter Teneriello: First off, we generally focus on the lower middle market. We avoid the funds playing in the mega-cap space, and we like smaller managers. This applies to how we approach buyout and growth equity strategies—venture capital is a different animal however.
We’re also willing to commit to emerging managers—we do have a track record of backing several fund one’s and fund two’s, as well as firms that have gone through generational transitions. Those are the types of stories that scare away lots of traditional LPs.
Venture capital is a tough space for us to access. Given our total assets under management, we really need to make commitments that are $50 million or greater. It’s tough for venture to move the needle as a result. Venture funds rarely have $50 million available for a single LP, let alone a public LP. Thus, we have to be more creative in how we build our venture portfolio. For example, we created a customized sidecar with Foundry Group to double down on their seed/micro VC fund of fund strategy, giving us exposure to a part of the market that we wouldn’t otherwise be able to access. On the flip side, we can't just knock on Sequoia’s door and ask for allocation to their early-stage funds. We wouldn’t be able to invest our capital at scale, or at all for that matter.
When it comes to cutting through the noise, we take as many meetings as we can to develop that sense of pattern recognition. Most of those meetings by virtue of the sheer volume aren’t going to lead to investments. However, every once in a while, we’ll meet a manager where you can tell there's something different about their story and how they talk about their investing.
I tried to put my finger on it the past few years, and it took me until last fall to realize which managers really break through the clutter. They are the ones that approach their work like art. They treat it like a real craft, in how they invest and how they build their funds. When you come across managers like that, you should do everything you can to partner with them because they’re going to be the best stewards of your capital, and they’re probably going to deliver the best risk-adjusted returns for your beneficiaries.
Trusted Insight: You mentioned dealing with the next 12 months. How are you positioning yourselves to ride through the COVID-19 situation and a market downturn?
Peter Teneriello: I think it's safe to say that the world has changed. Thinking about our forward calendar, we have several re-ups with existing relationships that are in the pipeline. We also have groups that have been in the pipeline where we may not be an investor yet, but have been developing the relationship for several years. In both those cases, it's business as usual.
We’re not standing down and we’re not shutting down our investing just because of the current crisis. But, we do have to regroup in how we think about the best way to invest over the next 12 months. It's going to be with groups that can play effectively across the entire capital structure, who have the capabilities and the backgrounds to provide creative capital solutions for companies that come to them.
Trusted Insight: Pension investors often bring up the importance of solid governance structure in place. Is it difficult for your team to be innovative and independent?
Peter Teneriello: Governance structure is absolutely important. It may even be the most important thing in determining the type of investing that an LP can do. If governance is set up in the wrong way, it will prevent the staff from being able to access fast-moving, high-quality opportunities. It can push the staff at those LPs to invest purely with lower-returning fund of funds.
Great governance will allow the LP to take back more control from the GPs. It can allow them to become direct investors, to invest alongside great GPs that are otherwise access-constrained, to be thought of as institutions that bring a lot to a fund's LP base. They will be sought after not just as partners by GPs, but other LPs as well. And at the end of the day, it can allow them to deliver higher net returns to their beneficiaries.
Governance absolutely drives everything, and it’s never finished. It's a constant project, and I can say that we have taken some absolutely great steps there over the past several years. Our governance allows us to be nimble and to access great opportunities in a time like this.
Trusted Insight: Any final thoughts you’d add?
I'll tell you a story that relates to some of my earlier comments, and should explain how I'm trying to approach my investing going forward.
Last fall, I was in Barcelona. I was walking along the rooftop of the Casa Milà, one of the buildings there designed by Gaudí, the world-renowned Catalan architect. I remember being on that rooftop thinking that Gaudí, even for his time, was just so out there. He didn’t follow the consensus. He didn't look at buildings as just being four walls with floors and a roof. He approached his buildings like they were art. He pulled in all sorts of influences from other fields, from nature, from the world around him. All that made me think, how can I approach my work as an investor like an artist? How can I approach the world with clear eyes to think through where the best opportunity is, and where I should be playing?
Several months later, I'm still trying to figure it out. I'm not a finished product. I'm still trying to learn. It's made me want to be more of a generalist in how I look at the world: to be able to evaluate opportunities across sectors, across geographies, across asset classes, and then see how I can create the right investment to capitalize on those opportunities.
View our full catalog of interviews here.
The full list of 2020 Top 30 Pension Private Equity Investors can be found here.
Peter Teneriello was named on Trusted Insight’s 2020 Top 30 Pension Private Equity Investors.
Trusted Insight: What are your responsibilities as a pension investor at the Texas Municipal Retirement System?
Peter Teneriello: I cover all of private equity, including buyouts, growth equity, equity turnarounds, distressed credit, and of course venture capital. One thing that I really pride myself on is my role in sourcing investments. Just last year, I took about 350 or so meetings with GPs and placement agents, and close to 300 the year before. Frankly, it's the best way to gain market color. I believe that in order to do your job as an LP effectively, you need to turn over every stone you can.
Trusted Insight: Your team is really focused on early-stage funds and emerging managers, because they tend to outperform historically. How do you go about cutting through the noise and picking the winners?
Peter Teneriello: First off, we generally focus on the lower middle market. We avoid the funds playing in the mega-cap space, and we like smaller managers. This applies to how we approach buyout and growth equity strategies—venture capital is a different animal however.
"Venture funds rarely have $50 million available for a single LP, let alone a public LP. Thus, we have to be more creative in how we build our venture portfolio."
We’re also willing to commit to emerging managers—we do have a track record of backing several fund one’s and fund two’s, as well as firms that have gone through generational transitions. Those are the types of stories that scare away lots of traditional LPs.
Venture capital is a tough space for us to access. Given our total assets under management, we really need to make commitments that are $50 million or greater. It’s tough for venture to move the needle as a result. Venture funds rarely have $50 million available for a single LP, let alone a public LP. Thus, we have to be more creative in how we build our venture portfolio. For example, we created a customized sidecar with Foundry Group to double down on their seed/micro VC fund of fund strategy, giving us exposure to a part of the market that we wouldn’t otherwise be able to access. On the flip side, we can't just knock on Sequoia’s door and ask for allocation to their early-stage funds. We wouldn’t be able to invest our capital at scale, or at all for that matter.
When it comes to cutting through the noise, we take as many meetings as we can to develop that sense of pattern recognition. Most of those meetings by virtue of the sheer volume aren’t going to lead to investments. However, every once in a while, we’ll meet a manager where you can tell there's something different about their story and how they talk about their investing.
"We’re not standing down and we’re not shutting down our investing just because of the current crisis. But, we do have to regroup in how we think about the best way to invest over the next 12 months."
I tried to put my finger on it the past few years, and it took me until last fall to realize which managers really break through the clutter. They are the ones that approach their work like art. They treat it like a real craft, in how they invest and how they build their funds. When you come across managers like that, you should do everything you can to partner with them because they’re going to be the best stewards of your capital, and they’re probably going to deliver the best risk-adjusted returns for your beneficiaries.
Trusted Insight: You mentioned dealing with the next 12 months. How are you positioning yourselves to ride through the COVID-19 situation and a market downturn?
Peter Teneriello: I think it's safe to say that the world has changed. Thinking about our forward calendar, we have several re-ups with existing relationships that are in the pipeline. We also have groups that have been in the pipeline where we may not be an investor yet, but have been developing the relationship for several years. In both those cases, it's business as usual.
We’re not standing down and we’re not shutting down our investing just because of the current crisis. But, we do have to regroup in how we think about the best way to invest over the next 12 months. It's going to be with groups that can play effectively across the entire capital structure, who have the capabilities and the backgrounds to provide creative capital solutions for companies that come to them.
Trusted Insight: Pension investors often bring up the importance of solid governance structure in place. Is it difficult for your team to be innovative and independent?
Peter Teneriello: Governance structure is absolutely important. It may even be the most important thing in determining the type of investing that an LP can do. If governance is set up in the wrong way, it will prevent the staff from being able to access fast-moving, high-quality opportunities. It can push the staff at those LPs to invest purely with lower-returning fund of funds.
"Governance absolutely drives everything, and it’s never finished... Our governance allows us to be nimble and to access great opportunities in a time like this."
Great governance will allow the LP to take back more control from the GPs. It can allow them to become direct investors, to invest alongside great GPs that are otherwise access-constrained, to be thought of as institutions that bring a lot to a fund's LP base. They will be sought after not just as partners by GPs, but other LPs as well. And at the end of the day, it can allow them to deliver higher net returns to their beneficiaries.
Governance absolutely drives everything, and it’s never finished. It's a constant project, and I can say that we have taken some absolutely great steps there over the past several years. Our governance allows us to be nimble and to access great opportunities in a time like this.
Trusted Insight: Any final thoughts you’d add?
I'll tell you a story that relates to some of my earlier comments, and should explain how I'm trying to approach my investing going forward.
Last fall, I was in Barcelona. I was walking along the rooftop of the Casa Milà, one of the buildings there designed by Gaudí, the world-renowned Catalan architect. I remember being on that rooftop thinking that Gaudí, even for his time, was just so out there. He didn’t follow the consensus. He didn't look at buildings as just being four walls with floors and a roof. He approached his buildings like they were art. He pulled in all sorts of influences from other fields, from nature, from the world around him. All that made me think, how can I approach my work as an investor like an artist? How can I approach the world with clear eyes to think through where the best opportunity is, and where I should be playing?
Several months later, I'm still trying to figure it out. I'm not a finished product. I'm still trying to learn. It's made me want to be more of a generalist in how I look at the world: to be able to evaluate opportunities across sectors, across geographies, across asset classes, and then see how I can create the right investment to capitalize on those opportunities.
View our full catalog of interviews here.
The full list of 2020 Top 30 Pension Private Equity Investors can be found here.