How Texas Teachers Got Governance Right

Transparency is key, according to CIO Jase Auby and board chairman Jarvis Hollingsworth.

Illustration by II

Illustration by II

The Teacher Retirement System of Texas has a long history of strong governance, including the board having an independent consultant and an investment team that is compensated well. The efforts have paid off in a positive relationship between the board and the investment staff.

“We’ve really developed a level of trust and our performance has been really good as well,” said board chairman Jarvis Hollingsworth via Zoom. “if you combine the communication with the quality of our staff and the quality of the performance, you can start to see how a board would develop a really strong trust in the investment team.”

For TRS, it starts with the set-up. The TRS board has long-tenured members, including Hollingsworth, who first joined in 2002. Early in Hollingsworth’s tenure as a board member, TRS shifted its compensation strategy to ensure that team members were being paid the market rate of asset managers. The move allowed TRS to attract and retain talent.

The pension fund just wrapped up its five-year-long hiring program, called Build the Fleet. The pension fund hired 88 investment professionals in a bid to bring some of TRS’s investment functions in-house to save on fees. The program has saved $1.2 billion for the fund to date.

In 2008, the investment management division added an internal investment committee that includes senior managers who review and authorize investments.

“At around $179 billion, the investment volume is quite heavy for a board,” said Jase Auby, TRS chief investment officer. “The internal investment committee does a lot of heavy lifting there.” 


This team provides regular transparency reports that include details on the investments and diligence process to the TRS board. Additionally, the board has its own consultant that operates independently of the investment management division. This allows for independent counsel and insight into the fund.

“I would characterize our structure as delegated authority with strong transparency,” Auby added. “The only way that it can work is with a strong basis in trust and making sure that the board gets the information that they need.” 

To Auby’s point, the board delegated investment authority to the investment management division early in Hollingsworth’s tenure, with the goal of giving the team room to move quickly and prudently in complex asset classes like private equity.

“It was a collaborative effort between the board and the investment staff to come up with the most optimum ways to make the board feel comfortable with delegation, but not abdicating its authority, and having a high-quality staff — giving them the flexibility and the authority they needed . . . to generate high returns,” Hollingsworth.

Adding more private assets to the portfolio, though, involved tapping Texas’s legislature as well. Back in 2007, the board, investment team, and state legislature worked together to change regulations that then allowed TRS to allocate more capital to external managers.

Since then, TRS increased its alternative investment allocation from 4 percent to 35 percent, while its hedge fund allocation has doubled to 10 percent.

Today the board, investment management division, and legislature regularly interface to discuss policy matters that affect TRS. Hollingsworth and Auby stayed mum on Texas’s recent efforts to rein in environmental, social, and governance investing. One change requires pension funds to avoid a specific list of financial institutions due to their avoidance of energy companies.

Over the years, TRS has made other allocation changes with the help of the board. This includes adding leverage to the portfolio in 2019 as a result of a five-year strategic asset allocation study. The fund is one of few in the U.S. to operate with an allocation to leverage, which has the potential to bolster returns by using debt to invest in assets that are expected to outperform.

In TRS’s case, this is a four percent allocation. CalPERS added an allocation in 2021 that led to quite a bit of attention for the organization given the potential downsides.

“Large pension systems like to be in range with peers,” Hollingsworth said. “Peer discussion is always a big part of this. And I’m not one who likes to say that no one else does it that way so we shouldn’t, but we can lead in these types of situations.”

TRS is set to embark on another strategic allocation study later this year. While the results of that study remain to be seen, both Hollingsworth and Auby are confident that they will continue working together effectively.

“The board is strongly aligned behind the view that the purpose of the fund is to maximize its value and prudently manage risk,” Auby said. “That’s just really helpful. It’s a clear objective for staff. Staff doesn’t spend its time on objectives other than that.”