Texas Teachers weighs additional allocation to PE

  • $150 bln pension has 13 pct target to PE
  • Weighs proposals to add 1 pct or 2 pct to target
  • New allocation to be sent for board approval in July

Teacher Retirement System of Texas is considering a modest increase in its private equity allocation, seeking to improve expected returns without sacrificing too much liquidity.

Texas Teachers expects its current asset allocation to provide a 7 percent investment return, and it is weighing changes that could bring the expected return up to 7.15 percent, 7.25 percent or 7.35 percent.

To get there, the pension will add more assets to private markets, and it will consider adding leverage in its fixed income portfolio, according to a staff presentation at the April 25 meeting.

Texas Teachers is looking at adding 1 percent or 2 percent to private equity, 1 percent to real estate and 1 percent to energy, natural resources and infrastructure. It would reduce its global public equity allocation to account for the changes.

Texas Teachers had modeled the impact of a more dramatic increase to private markets, but concluded that adding 5 percent to PE and 5 percent to real assets at the same time would be imprudent, according to Mohan Balachandran, senior managing director of asset allocation.

“A simple increase of allocation to private markets would reduce the liquidity of the trust,” Balachandran said.

The $150 billion retirement system has a 13.9 percent allocation to private equity, with a 13 percent long-term target.

Texas Teacher’s investment staff will present new asset allocation mixes to the investment committee and board for approval in July, with the aim of writing new investment policies by September.

Action Item: View materials from the April 25 investment committee meeting here https://bit.ly/2ZBxFnO