Since David Kushner joined the City of Austin Employees' Retirement System (COAERS) as chief investment officer in 2022, he has built the pension’s private markets system from the ground up. Now that the foundation has been laid and the infrastructure is in place, Kushner is ready to make deals. 

“It’s taken four years to get the first private equity recommendation to the board,” Kushner told Institutional Investor. “We had a lot of pieces to put in place to build a state-of-the-art program. We needed consulting, we needed staff.”

Last year, the board approved a new strategic asset allocation for the $4.2 billion public pension: 10 percent to private credit, 15 percent to real assets, and 8 percent to private equity. The fund also hired Albourne as its first private markets investment consultant in July. Now, Kushner’s team is actively evaluating managers across private credit, private equity, real estate, and infrastructure—and presented its first private equity recommendation to the board in late June. 

Because COAERS is starting fresh with no legacy portfolio, the fund currently uses public market investments as proxies for its four verticals — stocks in place of private equity, REITs in place of real estate, and bank loans in place of private credit (the fund hired a bank loan manager to track the LSTA index). This gives the fund "beta exposure" across all asset classes, with public market equivalents serving as funding sources when capital calls come in. As more private investments are approved and capital is called, money will be shifted out of those public holdings and into the new mandates.

 

Building from Scratch With a Blank Sheet (Again)

When Kushner came out of retirement to join COAERS, the City of Austin’s pension had no private markets program—just two open-end core investment funds (one in real estate and one in infrastructure). The public pension CIO of the year finalist had brought with him a system he had established while at the Florida State Board of Administration called “core equity,” which was designed to outperform the S&P 500 without adding on risk. He would later design this process at Los Angeles’ and San Francisco’s employees' retirement systems (LACERS and SFERS). He was charged with building the necessary infrastructure, hiring staff, and bringing on a private markets consultant (Albourne) to handle pacing and strategy. 

“Here’s the fifth time in my career that I’m handed a blank sheet of paper to build something from scratch,” the industry vet said. But this was easier said than done: “I had to build a foundation before I could build deals.”

The first step was making sure they had enough funding. In 2023, the City of Austin and COAERS reached a legislative agreement that improved cash flow and gave the pension fund the flexibility to invest in private markets. That same year, they made their first private investment—a direct lending deal with Blue Owl.

Once that legislation passed, the pension had better cash flow from the city, which let it invest in more illiquid assets. Then came staffing: the team consists of four senior people (including Kushner), plus a recently hired analyst and a PE director starting in July (“I like to run lean,” he added).

Kushner’s team can pick the best opportunities regardless of manager size—and they have the flexibility to write smaller $10 million to $20 million checks that larger funds can't (“It’s a scale issue,” Kushner said). The board understands this will take about five years to fully build out, so it is prioritizing quality over speed. 

“We want to find the best managers to build this out,” he added.