The Texas Municipal Retirement System is leaning harder into utilities and digital infrastructure —industrial assets — while keeping office and retail exposure lean.
As the pension fund reshapes its real assets portfolio around data centers, power, and energy-transition themes, it plans to significantly increase infrastructure allocations and pull back from core real estate under a $1B pacing plan for 2026, according to materials from a recent board meeting. TMRS is also expanding its real assets co-investment program to “reduce portfolio fee load and mitigate the blind-pool risk linked to closed-end funds.”
With a target allocation of 18% for its real assets portfolio, the pension plan invests across real estate, infrastructure and natural resources.
The system deployed $533M across 10 co-investments in 2025, targeting energy, digital infrastructure, and industrial assets. First-quarter commitments included $30M to a Permian Basin E&P venture, $50M for Texas municipal waste-sorting services and $75M to a powered-shell data-center developer.
In the second quarter of 2025, the fund invested $100M in U.S. transportation, waste and digital infrastructure, and another $100M to acquire and lease industrial warehouses. Third-quarter allocations include $50M to a Louisiana natural gas distribution company, $50M for fiber buildouts in master-planned communities, and an undisclosed amount to an aerial firefighting and infrastructure services provider, as well as $28M for a powered-shell data center project and a $50M commitment to another natural gas distribution business located in New Mexico.
The portfolio shows a pronounced tilt toward residential and industrial real estate, even as the fund remains underweight in office and retail. Residential represents 37% of the real estate portfolio, above the 30% benchmark, while industrial stands at 33%, roughly in line with broader market weightings. The fund maintains slimmer exposure to office (7%) and retail (6%), reflecting remote work, e-commerce, and migration patterns. Subclasses range from warehouses and last-mile logistics to medical office, self-storage and life-science properties, supported by drivers such as housing affordability pressures, domestic migration and onshoring trends.
In infrastructure, TMRS favors utilities (38%) and digital networks (30%), with smaller commitments to transportation and social assets. Subclasses span power and gas systems, water infrastructure, airports, vessels, and digital assets such as towers and data centers. The shift tracks broad sector currents, including strong demand for data centers and fiber, geopolitical pressures on supply chains, and public-sector funding constraints.
TMRS’ natural resources allocation remains modest at 1.9% of the total plan, dominated by oil and gas investments (67%) and minerals and mining (33%). Exposure centers on exploration, development, and production tied to global energy demand, geopolitical risk, and demand for critical minerals. Timberland and farmland remain negligible.
The real assets portfolio continued to navigate a divided market in the third quarter, with real estate facing refinancing pressures, while infrastructure activity remained solid. Roughly 30% of maturing property loans are at risk of default or restructuring, and inflation and materials costs have pushed construction starts down 18% from a year earlier. Sales remain subdued, though redemption queues have eased to 13% of net asset value.
Meanwhile, TMRS’ meeting materials noted infrastructure is benefiting from federal support for nearshoring and rising demand for artificial-intelligence-related power and digital capacity. Deal flow has normalized, but limited capital availability is fueling increased co-investments and continuation vehicles. TMRS deployed $228M during the quarter — $100M to funds and $128M to co-investments. For the 12 months through Sept. 30, the real assets portfolio returned 6.3% and 8.2% over five years, outperforming its benchmark by 0.8 and 3.5 percentage points. Gains were driven by energy, power, and digital infrastructure holdings, including investments managed by Hull Street, SDC Capital, Pioneer Point Partners, and Oaktree Power.
Yup Kim, TMRS’ chief investment officer, disclosed key performance indicators showing sustainable performance of 10.95% and 8.96% for the one- and five-year periods, exceeding benchmarks by 58 and 195 basis points, respectively. In his report, Kim also highlighted investment activity, portfolio construction, and the priority to grow the co-investment sleeve to help reduce costs.
