How Texas TRS Is Coping With ‘Tremendous Volatility’

Stable value assets and cash-on-hand were part of the Teacher Retirement System of Texas’s “battle plans” for a recession.

Austin, Texas (Bronte Wittpenn/Bloomberg)

Austin, Texas

(Bronte Wittpenn/Bloomberg)

Jase Auby, just months into his tenure as the chief investment officer for the Teacher Retirement System of Texas, is already managing his first financial crisis at the helm.

Texas TRS held a virtual meeting Friday, where Auby shared how the retirement system is dealing with “tremendous volatility” amid the coronavirus pandemic and subsequent market downturn.

The Teacher Retirement System of Texas lost roughly 5.7 percent of its value between August 31, 2019, and March 31, 2020, according to the board meeting book. The TRS trust’s value declined from $157 billion to $148 billion during that period.

According to Auby, TRS is projecting a loss for the first quarter of just over 8 percent.

“In our lifetimes, we hadn’t seen anything like this before,” Auby said. “The concept of completely shutting down the economy and thinking through the implications was something that was out of the realm of what people could conceive at that time.”

This is why, he added, that markets fell so quickly and sharply — and have since bounced back slightly. Auby noted that there is an “emerging consensus” that market lows may have already been reached. He cautioned, however, that this could change.


Auby said that TRS had “battle plans” that made it ready to handle the market downturn. This included a slightly higher amount of cash-on-hand than usual — three percent, rather than the usual two percent — and an allocation of 21 percent of its capital to “stable value” assets like government bonds and stable value hedge funds.

According to Auby, 35 percent of the trust’s assets are invested in private markets. Those investments are just now reflecting their December 31 valuations, Auby said.

“The private investments are likely to be down, but it’s unlikely to be a dramatic drawdown,” Auby said. “Those marks do take time to reflect in the portfolio.”

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As for what’s next for TRS? “As things normalize, we’ll begin to think about opportunities,” Auby said. “Over the next few months and longer, opportunities will present themselves.”

The retirement system could choose to go overweight equities once things start turning around, Auby said. The retirement system also sees value investing as an opportunity because the strategy tends to do well after a recession.

Auby added that the retirement system has made some small credit investments to take advantage of dislocations in investment-grade and high-yield markets.

Like the retirement system’s peers, Texas TRS is keeping track of some of its best managers’ closed funds.

“They can open up because there’s more capacity for them to invest — or because they may have investors who need to redeem,” Auby said. “We stand ready and able to step into those investors’ shoes.”