One of the managers selected by the Texas Permanent School Fund to replace BlackRock is deepening its partnership with the $52 billion endowment.
Quant equity manager Intech announced an expansion of its partnership with TPSF on Wednesday, which builds on the $1.5 billion allocation TPSF awarded Intech earlier this year.
The Texas Permanent School Fund hired Intech to manage a World ex-U.S. enhanced index portfolio following its divestment from BlackRock in March. Like other public funds in Texas, TPSF now is legally required to terminate its contracts with the asset management giant because BlackRock has some funds that do not invest in fossil fuels.
This deal, though, goes beyond an equity allocation. According to Andre Prawoto, senior managing director and head of strategy at Intech, Texas Permanent and the asset manager will collaborate to develop new strategies and product offerings, while also sharing research and expertise.
“The specific products we expect to launch are aimed at [TPSF's] goals and leveraging our strengths,” Prawoto said by phone. “There's nothing we can speak about specifically yet.” He added that TPSF and Intech have already met to start planning these products.
This deal is a coup for Intech, which has lost nearly $30 billion in assets since December 31, 2021. In 2022, the firm took a managed buyout from its owner Janus Henderson and is now an employee-owned organization that manages $9 billion.
Since that buyout, according to the firm’s site, it has made changes to its investment team, adding co-CIO Ryan Stever, who joined from BlackRock and helped the firm refresh its strategy. Intech also slashed trading costs by 70 percent and worked to neutralize its models’ small-cap bias, which detracted from performance.
It doesn’t hurt that it’s an interesting time to invest in enhanced indexing strategies, which combine elements of both passive and active equity management. Intech, in particular, has long been a player in the enhanced indexing field, using stochastic portfolio theory to run investments. This investment framework allows the manager to analyze portfolio behavior and equity market structure, and then use that to optimize performance.
Interest rates that were near zero, the move toward passive equity indexing, and a shift toward private equity pushed strategies like Intech’s out of the limelight for years. But with the rebound of public equities in 2023 and higher interest rates, asset owners are considering whether or not they have too much in private markets.
“We kind of see the world coming back to enhanced indexing,” Prawoto said. “It's been out of style for a long time.”
He added that the renewed interest in enhanced indexing first grew overseas and has since come stateside. Now, Intech expects to grow.
“We think it’s a great time for investors to start looking back at these strategies, especially when you look at passive strategies, which are great but now they’re super concentrated in tech stocks,” Prawoto said. “Squeezing out 50 basis points, 100 basis points can really add up over 20 years. We've seen that with our clients.”
