The Teachers’ Retirement System of Texas is beginning its strategic asset allocation study, which investment advisor Dr. Keith Brown of the University of Texas noted is “the most important decision that [the board] is going to decide,” during a recent board meeting initiating the procedure.
The board is expected to complete the procedure by the end of the year, beginning with a survey of its consultants on projected returns for several asset classes. Capital markets assumptions collected from its consultants are summarized below:
The study is conducted at least every five years, a spokesperson for the pension told CIO. The asset allocation implemented in 2014 resulted in decreases in target allocations for US and Non-US developed equity, global inflation-linked bonds and US Treasuries (-2% each), emerging markets and directional hedge funds (-1% each), and increases in alternative strategies such as private equity (+2%), real assets (+3%), and risk parity (+5%).
Materials presented to the board noted that “metrics indicate the current strategic asset allocation is good… can we do better?” The current allocation “offers a better risk/return profile than any stock/bond combination…appears to be well-positioned versus US peers…but insight from Canadian plans and endowments may present opportunities to improve.”
A proposed strategic asset allocation will be evaluated to make sure the plan is “meeting the trust’s objectives to control risk and achieve a long-term rate of return that exceeds our actuarial rate of 7.25%, the inflation rate +5%, and the return of the trust’s benchmark,” a spokesperson told CIO. After receiving recommendations from consultants, other stakeholders, and the strategic asset allocation group, the board of trustees will be responsible for approving the new asset allocation.
The pension recently appointed two officials from the Teacher Retirement System of Illinois and the California State Teachers’ Retirement System to oversee the pension’s emerging manager program and lead as the new chief operations and administrations officer, respectively.
The $153 billion’s plan’s most recently available asset allocation metrics to the public is as follows:
The TRS closed out 2018 in blockbuster fashion, committing over $1.8 billion across more than a dozen strategies, primarily focused on real estate and infrastructure.
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