(July 26, 2013) – All five of the Teacher Retirement System of Texas‘ public market strategic partners are surpassing their net 2% alpha benchmark for the year, according to a July 26 board of trustees meeting.
Morgan Stanley, JP Morgan, BlackRock, Neuberger Berman, and Barclays Funds & Advisory are together averaging 280 basis points above public markets.
The program marked Texas Teachers’ first major foray into external management for public market assets. It launched in July 2008, with the fund allocating $1 billion to each of the first four partners. Barclays Funds & Advisory joined in 2011.
“I’m still on the journey of trying to understand how the strategic partnerships work and how they benefit our members,” said one trustee, recounting a recent meeting with the asset managers and CIO Britt Harris.
“It wasn’t until I sat in a room with the heads of those investment organizations that I understood how Britt and his team had brought all of that horsepower to bear together for our members,” the trustee said. “No other pension system—from what they tell me—has ever brought that to bear.”
During the meeting, another trustee described the positioning behind much of the fund’s public market successes.
“We went into this year with a significant overweight to equities,” he said. “In stable value and fixed income, we also had an overweight to high yield and corporates over US treasuries.”
He went on to address the unusual regional distribution of equity market gains of late.
“If you would have told someone that you can take it as a given that S&P 500 is going to be up 17% in next six onths, then asked them: ‘What is going to be the result in emerging markets?’ they’re down about 10%,” the trustee explained. “This spread is not unprecedented, but it’s rare. It’s got everyone thinking whether this is a structural shift or anomaly—it’s probably somewhere in between.”
He did, however, express bullishness in global equities as a whole, spare one region: China.
Correction: An earlier version of this article listed Barclays Global Investors (BGI) as the fifth strategic partner. BlackRock purchased BGI in 2009. The fifth partner is in fact Barclays Funds & Advisory.