By Christine Williamson | | Updated
Texas Teacher Retirement System, Austin, adopted a new strategic asset allocation at its board meeting Thursday that raises the allocation to private markets, adds a 5% allocation to risk-parity strategies, and slightly cuts the allocation to directional hedge funds.
A periodic strategic review of the $130.2 billion pension fund’s asset allocation concluded “the trust is currently well-positioned” to produce the 8% actuarial rate of return over 20 years “without unacceptable risk of intermediate-term downside volatility,” said Howard J. Goldman, a
Mohan Balachandran, a TRS senior managing director, told trustees during the meeting that “no major changes seem necessary or appropriate at this time,” meeting materials showed.
TRS’ new asset allocation reduces the broad global equity category to 57% from 61% and stable value to 16% from 18%; increases the real-return portfolio to 22% from 21%; and adds the 5% risk-parity allocation, the board meeting materials showed.
On a more granular level, in addition to the new risk-parity allocation, changes are:
- real assets to 16% from 13%;
- private equity to 13% from 11%;
- U.S. large-cap equity to 16% from 18%;
- non-U.S. developed market equity to 13% from 15%;
- emerging markets equity to 9% from 10%;
- directional hedge funds to 4% from 5%;
U.S. Treasuries to 11% from 13%; and- global inflation-linked bonds 3% from 5%.
Unchanged are U.S. small-cap equity, 2%; stable value hedge funds, 4%; energy and natural resources, 3%; and cash, 1%.
TRS returns, both long term and short term, have exceeded those of the pension fund’s benchmark in every period ended June 30, meeting materials showed.
As of June 30, the return of the defined benefit plan for the 12 months was 16.3% against the benchmark’s 15.5%; three years, 9.6% vs. 9.3%; five years, 13.2% vs. 12.3%; 10 years, 7.3% vs. 7%; and since inception (July 1, 1991), 9% vs. 8.5%. Returns for more than one year are annualized.
Strong performance in the second quarter pushed Texas TRS’ assets to $130.2 billion, up 3.3% from March 31.