The tables are turning for pension fund advisers. From California to Texas to New York, the nation’s pension funds are pressing private equity firms to deliver better profits, with fewer of the sometimes incredibly high fees that have made private-equity managers some of the best-compensated individuals on Wall Street—regardless of their performance.

For years, the private-equity sector has set the terms—and costs—of managing pension fund money. But diminishing returns have resulted in pension fund managers reasserting themselves. In Texas, for instance, equity firms seeking state pension fund business must now compete and earn a place on a “premier” list of top-performing managers who are reevaluated every six months. The best performing of the group may ultimately obtain more pension dollars, while the bottom tier is eliminated.

“It is not only about fees—it is also about transparency, alignment of interests, and governance,” explains Steven LeBlanc, the head of the private markets unit of the Teacher Retirement System of Texas (TRS). LeBlanc and his team have helped transform the $110 billion pension plan into one of the most efficient and aggressive institutional investors in the sector. The TRS’s private markets group handles some $35 billion in assets, including $20 billion of private equity and real asset investments and an additional $15 billion earmarked for future investments.

LeBlanc, who joined the Austin, Texas–based TRS five years ago, decided that the old system of simply allocating funds wasn’t working. With the blessing of TRS chief investment officer Britton Harris, LeBlanc and his team steered the Teacher Retirement System private markets sector into a more diversified system that includes ever-increasing allocations to both private equity and real assets—with closely monitored accountability.

LeBlanc, chair of ULI Austin, created a list of “premier” managers—private equity, real asset, and other real asset professionals—with whom he felt TRS could develop deep, long-term relationships. The pension plan’s premier list includes some well-known names in the private equity real estate business, such as KKR, Apollo, and the Blackstone Group. TRS wanted to be a leader, not a follower, he adds, “and you will see us constantly being ahead of the curve.”

LeBlanc says the reexamination was prompted by limited internal resources, the fact that top-performing managers deliver superior returns, and the belief that deeper “partnership” relationships would result in high returns. It was about finding general partners that the System could trust and build a future with as opposed to merely results, he explains.

In compiling the list, LeBlanc methodically measured the performance, track record, strategy, and team players of fund managers. “We had confidence that managers on our premier list were making prudent decisions at the time,” he explains. “Our premier-list managers were very supportive. Poor performers were not.”

A small number of fund managers have been removed from the list for a variety of reasons ranging from portfolio reallocation to fund performance and team turnover, he adds.

Selection for the list involved a number of criteria, but probably the most important criterion was managers with not only a good track record but who also are relationship-driven—who are excited and eager to work with the TRS.

LeBlanc estimates that his team’s efforts in implementing the premier list have saved an estimated $150 million to $200 million for the TRS. Achieving such significant savings is very satisfying to him on a personal level—LeBlanc’s mother raised three children by herself on a teacher’s aide’s salary, so helping teachers and other public employees is important to him.

Performance is nothing new to LeBlanc. During his tenure as chief executive officer at Summit Properties, a Charlotte, North Carolina–based real estate investment trust, before joining TRS, he earned shareholders an estimated 144 percent return in the late 1990s and early 2000s.

Going forward, LeBlanc says he anticipates additional changes. “I see more strategic partnerships, improved reporting, and transparency,” he continues. “I expect to see better alignment with managers investing more capital in their own funds, and a consolidation of the industry with many managers going quietly into the night.”

LeBlanc’s colleagues at other pension funds, he notes, are also seeking increased transparency, a pay structure that emphasizes performance rather than management, and tighter governance. The problem in the past has been that they were a dozen voices, and while they commanded a huge part of the market, they decided they needed to speak with a single voice. “Since we ask for transparency from our managers, we thought we would hold ourselves to the same standards, which is how the ‘Texas way’ evolved,” he explains.

Thus, LeBlanc and his team are building the Texas way brand with two goals in mind. “The first is to attract the best and brightest investors who want to work for TRS,” he explains. “The second is to develop the brand among general partners and managers that Texas Teacher Retirement System is the best limited partner, and that an investment by TRS will attract additional capital—similar to Warren Buffet’s efforts.”

So far, the Texas way appears to be working: the TRS was the top-performing pension plan is the United States over $10 billion.