Mike Lazorik is a director of principal investments in private equity, growth, and venture capital at the Teacher Retirement System of Texas. He is responsible for making technology-focused direct investments on behalf of Texas Teachers’ $180+ billion pension fund. He has served the Teacher Retirement System of Texas since 2010, prior to which he was a director of corporate development at BMC software. Previously, he was a co-founder and director of Dell Ventures, a corporate venture capital unit at Dell, Inc. Mike holds a BBA in finance and marketing from the University of Texas at Austin.
In this interview, he discussed how the world will continue to evolve with tech disruption and innovation; why he prefers to engage with unique managers who are spreading their wings to manage more products and strategies; and why it will be difficult for investors to deliver without broad exposure to Asia moving forward.
Mike Lazorik was named to Trusted Insight’s 2021 Top Public Pension Investment Directors.
Trusted Insight: Could you start by telling us a little bit more about your program at the Teacher Retirement System of Texas? How are your assets distributed and how is your team organized to manage them?
Mike Lazorik: The total assets at Teacher Retirement System of Texas are approximately $180 billion, and we maintain a target allocation of 14% to private equity. There are 20 highly dedicated people in our private equity group, which is split between principal investments and fund investments. We work collaboratively with our fund group to identify long-term partners who will generate accretive returns at the fund level, as well as attractive principal investments, which we define as co-investments and other direct opportunities.
We historically invested 20-30% of our PE budget each year in principal investments, and we are focused on building that exposure to at least 35% while maintaining the asset selection and fee savings, which enable us to deliver accretive results relative to our broader portfolio and benchmarks.
Trusted Insight: Could you tell us about how your previous experience in venture capital informs your work at TRS of Texas?
Mike Lazorik: When I left Dell, I was the co-founder of the original Dell Ventures organization. There was no playbook when we started. That time in the late 90's working in corporate venture capital saw a frenzy of good, bad, and otherwise unproven ideas which became the seeds for today’s incredible innovation curves. Learning how to disrupt by riding the internet wave for eyeballs using new technologies like “internet software,” with no reliable valuation metrics, was the order of the day.
Implementing or developing these new tech-enabled business models is now steak and potatoes for buyout, growth, and venture managers across strategies and sectors. So I still spend a lot of my time thinking about how the world will evolve even when considering the current cohort of ebullient and bulletproof enterprise software transactions. This spate of software dealmaking is still in its infancy when you consider the growth and fragmentation of software as it permeates every industry on earth. But I’ve also been looking at how technical disruption can benefit or harm existing portfolio companies, as well as investing in those actual disruptors. I try to think 10 years out and work backwards to build a resilient growth-oriented portfolio.
Trusted Insight: Private equity firms and funds have raised record amounts of money over the past few years and are sitting on a dry powder mountain. We’ve heard some concerns about that from your peers during the course of the pandemic, but those fears seem to have ebbed, and to have been replaced with discussions of where to go looking for the kinds of outsized returns that used to be the expected reward in private equity. As competition rises, some private equity portfolios have pivoted further into venture, while others have adopted specialization strategies. How do you define private equity these days, and what’s your strategy for creating a unique and strategic posture that helps you find the right managers for your funds?
Mike Lazorik: That is the question of the day, and probably the question of the half-century, which is about the right time frame to assess this. We agree that the assets under management in private equity have fundamentally exploded. But if you look at it relative to the opportunities in the marketplace and go over things with a finer-tooth comb, you may find that the amount of dry powder available in private equity is not disproportionate to the number of opportunities that there are out there.
I dislike the repetition we see from the industry and prefer to engage with unique ideas when possible. In terms of geography, strategy, and technique, managers are spreading their wings and evolving to manage more products and strategies, whether that’s by design or a function of following opportunities, maximizing their capacity, or just having the latitude to be more diverse in the ways that they invest. This creates the opportunity, and the challenge, for us to make sure that we're able to select the managers who are generating alpha in the marketplace.
In theory, the managers that have more flexibility should be able to generate more alpha. We're comfortable working closely with them on how they evolve, and monitoring whether they are delivering on what they told us. When you look at the different pools of capital that are out there—from SPACs to bankruptcy restructurings, unicorn funding rounds and decacorn companies—you can understand that we're in a market that is both elevated in terms of valuations, but which also allows for a degree of creativity that we haven't seen in the private markets. And that’s not to mention the intriguing and rapidly growing GP-led secondary market. We're trying to understand all of this financial innovation and take advantage of it. It’s never been more dynamic and challenging.
Trusted Insight: Private equity is coming under scrutiny all the time, but there are headwinds coming out of the Biden Administration’s policy-making apparatus that obviously did not exist under President Trump. What’s your read on the changing political atmosphere?
Mike Lazorik: I think the tax system is clearly not harmonized. When you look at some of the recent studies, I think you see inefficiencies and arbitrage happening in the tax code across the globe, across taxpayer status. So long as TRS isn't going to be asked to pay taxes, I'm not going to be terribly concerned about who ends up paying what—I just want it to be fair.
Trusted Insight: A lot of your peers in PE, and especially in venture, are very bullish on China, while a small minority have told us, in a survey we conducted last fall, that they’re pulling back either out of fiduciary concern or because board members have soured on Chinese economic policies and human rights violations. Do you have these kinds of conversations on your team or with your board when it comes to China?
Mike Lazorik: On our private market side, TRS has historically been underweight in China. We still have managers who work within China, and we even have a handful of China-specific managers. It's hard to ignore an economy of that size. It is unfortunate that some of our investments are becoming more politicized. But at the same time, so long as those Chinese companies remain on benchmark and liquid for U.S. investors, I don't think it makes sense for us to pivot away. Hopefully the U.S. and China will figure out how to work together collaboratively. But as the fabric of that relationship changes, and as these investments become more politicized on both sides, we'll continually be evaluating. There are unique and attractive deals in every geography, and if you look at the outliers in China, they are juggernauts compared to most of their Western analogues. When politics cool down and investment allocation matters, it will be hard to deliver without some broad exposure to Asia.
Trusted Insight: How has your venture program evolved over the years, and how are you planning to evolve into this new normal of huge funding rounds for both VC-backed companies and the VC firms that keep them flush with cash?
Mike Lazorik: Our venture program has been underweight given the size of our program, so we have not been able to participate directly in what we'll call the traditional core venture managers in the U.S. and globally. We do have a handful of larger venture managers that we've worked with for a very long time, which has been successful, as well.
I think we will continue to look at ways that we can work constructively with the industry for series A and B. Some of our existing managers in growth and other areas are now participating in series A and B, so we are getting exposure to some of those rounds indirectly. That being said, we will be slower to make venture a significant piece of our portfolio given the size of our program. The VC industry is also evolving and has figured out the value of their unfunded pre-emptive rights. Maybe TRS can lean in there in the future.
Trusted Insight: Does your venture team have any specialties or specific areas where you’re building domain expertise?
Mike Lazorik: Our focus in venture is primarily on building and maintaining a strong set of partnerships which access exposure to venture and growth. Due to scale, our team focuses on the larger-scale venture managers, and we partner with an external group to gain more access to the early-stage managers. For principal investments, we don’t invest a lot in venture, but when we do, we tend to focus on technology or software companies with meaningful revenue traction, and we generally seek to invest alongside one of our partners. It is fascinating to see some of the changes in their industry, but our focus is on making the best returns we can for the teachers.
Trusted Insight: Is the mania around venture going to give out any time soon, or is this just the new normal, i.e., a secular evolution in market organization?
Mike Lazorik: Having been in venture since 1999, my personal view is that venture has finally hit its stride, and it’s doing it while re-inventing itself more so than other alts strategies. This is a new normal, and we’re seeing the returns that were penciled out with the advent of the internet and other technologies that never came to pass for a variety of reasons. I think that the acceleration of technology, the pervasiveness of technology across industries, and the geographic capabilities of technology are all going to make this next 10 years the most exciting decade in venture that we've ever seen: AI, crypto, space, online, and all the boring software that will make it work—it will all be investable.
Trusted Insight: Finally, Mike: what kind of exciting programs are in the works down at TRS of Texas?
Mike Lazorik: Our number-one focus is finding and retaining the best talent. Given what the industry is seeing in terms of growth, we're all challenged to find the best talent right now—every industry player in this ecosystem feels this challenge. So I think our number-one program right now at TRS is to make sure that we continue to use our capabilities and advantages to find the best people to implement our program.
View our full catalog of interviews here.
The full list of 2021 Top Public Pension Investment Directors can be found here.
In this interview, he discussed how the world will continue to evolve with tech disruption and innovation; why he prefers to engage with unique managers who are spreading their wings to manage more products and strategies; and why it will be difficult for investors to deliver without broad exposure to Asia moving forward.
Mike Lazorik was named to Trusted Insight’s 2021 Top Public Pension Investment Directors.
Trusted Insight: Could you start by telling us a little bit more about your program at the Teacher Retirement System of Texas? How are your assets distributed and how is your team organized to manage them?
Mike Lazorik: The total assets at Teacher Retirement System of Texas are approximately $180 billion, and we maintain a target allocation of 14% to private equity. There are 20 highly dedicated people in our private equity group, which is split between principal investments and fund investments. We work collaboratively with our fund group to identify long-term partners who will generate accretive returns at the fund level, as well as attractive principal investments, which we define as co-investments and other direct opportunities.
We historically invested 20-30% of our PE budget each year in principal investments, and we are focused on building that exposure to at least 35% while maintaining the asset selection and fee savings, which enable us to deliver accretive results relative to our broader portfolio and benchmarks.
Trusted Insight: Could you tell us about how your previous experience in venture capital informs your work at TRS of Texas?
Mike Lazorik: When I left Dell, I was the co-founder of the original Dell Ventures organization. There was no playbook when we started. That time in the late 90's working in corporate venture capital saw a frenzy of good, bad, and otherwise unproven ideas which became the seeds for today’s incredible innovation curves. Learning how to disrupt by riding the internet wave for eyeballs using new technologies like “internet software,” with no reliable valuation metrics, was the order of the day.
"I’ve also been looking at how technical disruption can benefit or harm existing portfolio companies, as well as investing in those actual disruptors."
Implementing or developing these new tech-enabled business models is now steak and potatoes for buyout, growth, and venture managers across strategies and sectors. So I still spend a lot of my time thinking about how the world will evolve even when considering the current cohort of ebullient and bulletproof enterprise software transactions. This spate of software dealmaking is still in its infancy when you consider the growth and fragmentation of software as it permeates every industry on earth. But I’ve also been looking at how technical disruption can benefit or harm existing portfolio companies, as well as investing in those actual disruptors. I try to think 10 years out and work backwards to build a resilient growth-oriented portfolio.
Trusted Insight: Private equity firms and funds have raised record amounts of money over the past few years and are sitting on a dry powder mountain. We’ve heard some concerns about that from your peers during the course of the pandemic, but those fears seem to have ebbed, and to have been replaced with discussions of where to go looking for the kinds of outsized returns that used to be the expected reward in private equity. As competition rises, some private equity portfolios have pivoted further into venture, while others have adopted specialization strategies. How do you define private equity these days, and what’s your strategy for creating a unique and strategic posture that helps you find the right managers for your funds?
Mike Lazorik: That is the question of the day, and probably the question of the half-century, which is about the right time frame to assess this. We agree that the assets under management in private equity have fundamentally exploded. But if you look at it relative to the opportunities in the marketplace and go over things with a finer-tooth comb, you may find that the amount of dry powder available in private equity is not disproportionate to the number of opportunities that there are out there.
"We're in a market that is both elevated in terms of valuations, but which also allows for a degree of creativity that we haven't seen in the private markets... We're trying to understand all of this financial innovation and take advantage of it. It’s never been more dynamic and challenging."
I dislike the repetition we see from the industry and prefer to engage with unique ideas when possible. In terms of geography, strategy, and technique, managers are spreading their wings and evolving to manage more products and strategies, whether that’s by design or a function of following opportunities, maximizing their capacity, or just having the latitude to be more diverse in the ways that they invest. This creates the opportunity, and the challenge, for us to make sure that we're able to select the managers who are generating alpha in the marketplace.
In theory, the managers that have more flexibility should be able to generate more alpha. We're comfortable working closely with them on how they evolve, and monitoring whether they are delivering on what they told us. When you look at the different pools of capital that are out there—from SPACs to bankruptcy restructurings, unicorn funding rounds and decacorn companies—you can understand that we're in a market that is both elevated in terms of valuations, but which also allows for a degree of creativity that we haven't seen in the private markets. And that’s not to mention the intriguing and rapidly growing GP-led secondary market. We're trying to understand all of this financial innovation and take advantage of it. It’s never been more dynamic and challenging.
Trusted Insight: Private equity is coming under scrutiny all the time, but there are headwinds coming out of the Biden Administration’s policy-making apparatus that obviously did not exist under President Trump. What’s your read on the changing political atmosphere?
Mike Lazorik: I think the tax system is clearly not harmonized. When you look at some of the recent studies, I think you see inefficiencies and arbitrage happening in the tax code across the globe, across taxpayer status. So long as TRS isn't going to be asked to pay taxes, I'm not going to be terribly concerned about who ends up paying what—I just want it to be fair.
Trusted Insight: A lot of your peers in PE, and especially in venture, are very bullish on China, while a small minority have told us, in a survey we conducted last fall, that they’re pulling back either out of fiduciary concern or because board members have soured on Chinese economic policies and human rights violations. Do you have these kinds of conversations on your team or with your board when it comes to China?
"If you look at the outliers in China, they are juggernauts compared to most of their Western analogues. When politics cool down and investment allocation matters, it will be hard to deliver without some broad exposure to Asia."
Mike Lazorik: On our private market side, TRS has historically been underweight in China. We still have managers who work within China, and we even have a handful of China-specific managers. It's hard to ignore an economy of that size. It is unfortunate that some of our investments are becoming more politicized. But at the same time, so long as those Chinese companies remain on benchmark and liquid for U.S. investors, I don't think it makes sense for us to pivot away. Hopefully the U.S. and China will figure out how to work together collaboratively. But as the fabric of that relationship changes, and as these investments become more politicized on both sides, we'll continually be evaluating. There are unique and attractive deals in every geography, and if you look at the outliers in China, they are juggernauts compared to most of their Western analogues. When politics cool down and investment allocation matters, it will be hard to deliver without some broad exposure to Asia.
Trusted Insight: How has your venture program evolved over the years, and how are you planning to evolve into this new normal of huge funding rounds for both VC-backed companies and the VC firms that keep them flush with cash?
Mike Lazorik: Our venture program has been underweight given the size of our program, so we have not been able to participate directly in what we'll call the traditional core venture managers in the U.S. and globally. We do have a handful of larger venture managers that we've worked with for a very long time, which has been successful, as well.
I think we will continue to look at ways that we can work constructively with the industry for series A and B. Some of our existing managers in growth and other areas are now participating in series A and B, so we are getting exposure to some of those rounds indirectly. That being said, we will be slower to make venture a significant piece of our portfolio given the size of our program. The VC industry is also evolving and has figured out the value of their unfunded pre-emptive rights. Maybe TRS can lean in there in the future.
Trusted Insight: Does your venture team have any specialties or specific areas where you’re building domain expertise?
Mike Lazorik: Our focus in venture is primarily on building and maintaining a strong set of partnerships which access exposure to venture and growth. Due to scale, our team focuses on the larger-scale venture managers, and we partner with an external group to gain more access to the early-stage managers. For principal investments, we don’t invest a lot in venture, but when we do, we tend to focus on technology or software companies with meaningful revenue traction, and we generally seek to invest alongside one of our partners. It is fascinating to see some of the changes in their industry, but our focus is on making the best returns we can for the teachers.
"Given what the industry is seeing in terms of growth, we're all challenged to find the best talent right now—every industry player in this ecosystem feels this challenge."
Trusted Insight: Is the mania around venture going to give out any time soon, or is this just the new normal, i.e., a secular evolution in market organization?
Mike Lazorik: Having been in venture since 1999, my personal view is that venture has finally hit its stride, and it’s doing it while re-inventing itself more so than other alts strategies. This is a new normal, and we’re seeing the returns that were penciled out with the advent of the internet and other technologies that never came to pass for a variety of reasons. I think that the acceleration of technology, the pervasiveness of technology across industries, and the geographic capabilities of technology are all going to make this next 10 years the most exciting decade in venture that we've ever seen: AI, crypto, space, online, and all the boring software that will make it work—it will all be investable.
Trusted Insight: Finally, Mike: what kind of exciting programs are in the works down at TRS of Texas?
Mike Lazorik: Our number-one focus is finding and retaining the best talent. Given what the industry is seeing in terms of growth, we're all challenged to find the best talent right now—every industry player in this ecosystem feels this challenge. So I think our number-one program right now at TRS is to make sure that we continue to use our capabilities and advantages to find the best people to implement our program.
View our full catalog of interviews here.
The full list of 2021 Top Public Pension Investment Directors can be found here.