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Texas Growth Fund

The Texas Growth Fund (TGF), which was created by the Legislature and approved by Texas voters in 1987, is an equity-oriented investment fund based in Austin. The TGF is backed by the state’s four largest public trust funds: the Permanent School Fund (PSF), the Permanent University Fund (PUF), the Teacher Retirement System (TRS) and the Employees Retirement System (ERS). Each of these trust funds, as well as any local government trust fund, is authorized to contribute to TGF “trusts.” Each of the four major state trust funds is represented on the Texas Growth Fund Board of Trustees.

TGF created three investment trusts, the first of which was formed in 1991. The 1991 Trust had $52 million contributed by TRS and the PUF. The 1995 Trust had $75 million contributed by TRS, the PUF, and the San Antonio Fire and Police Pension Fund. The most recent trust, the 1998 Trust, was created with $450 million contributed by TRS and ERS.

The Texas Growth Fund Management Corporation, which was created in 1992, administers TGF. TGF Corp. developed a set of investment criteria for TGF. TGF can only invest in companies that have a meaningful presence in Texas. In addition TGF prefers companies to have annual revenues of $15 million to $250 million, demonstrated profitability and proven management and financial strength. The fund’s managers prefer to invest in manufacturing, distribution and service companies in stable and established markets.

The most recent recorded investment for the 1998 Trust was in December 2005. In previous years, the TGF Management Corp. would analyze about 250 business opportunities each year. Based TGF Corp. criteria for investment, eight to 10 companies were typically deemed worthy of investment. These choices have included companies as diverse as Austin-based Classic Cable and Turfgrass America.

Altogether, the Texas Growth Fund has invested in 44 companies since its creation. Through December 31, 2005 TGF had invested $411.7 million. The 1998 Trust expired December 22, 2003 and no new companies have been selected for investment since that time. The only investment activity has been follow-on investments in companies already in the 1998 Trust portfolio.

Based on December 31, 2005 data, full-time employment at TGF portfolio companies declined 12 percent since the initial investments were made, with 890 fewer staff. Part-time employment declined by 17 percent with 153 fewer staff.

Job Creation and Retention in Texas by Portfolio Companies

Capital Formation and Expenditures within Texas
(dollars in thousands)

[1] Co-Investment includes all contemporaneous financings (debt or equity), except debt refinancings and seller financings
[2] 24-month time restriction based on date of last investment