This content is from: Portfolio

How a Challenge Between a Quant Manager and a Texas Pension Shook Out

A quant manager thought it could reduce trade execution costs for Teacher Retirement System of Texas.

The Teacher Retirement System of Texas revealed Thursday that it recently beat a quantitative investment manager in a trial to cut trading costs.

The pension fund’s trading team was given the chance to benchmark its execution capability against one of its external quant managers, according to its investment meeting book released Thursday. The unnamed quant manager, with a “best in class execution arm,” estimated it could reduce the Texas pension’s execution costs by at least four basis points over a six-month trial period.

The quant manager failed. “Over the six-month trial period TRS Trading significantly outperformed the external quant firm by minimizing trading costs,” the retirement fund said in the meeting book.

A spokesperson for the Teacher Retirement System of Texas declined to provide the name of the quant manager. He said in an email that the six-month trial ended May 6. 

The retirement fund and the quant manager executed a total 13,816 trades over that period, the meeting book shows. The trades were tested across three categories: the external quant firm, the TRS systematic trading group, and the TRS discretionary group.  

The external quant firm’s trading costs were 18.7 basis points, or about $7.3 million over the six-month period, according the pension’s meeting book. The discretionary group’s costs were 13.2 basis points, or about $5 million, and the systematic group’s costs were 7.9 basis points, or about $3.2 million.  

The pension fund’s meeting book shows that in the year through September, quant managers represented $105.4 billion of its trading activity by strategy, or about 42 percent of the total $252 billion.

[II Deep Dive: Leadership Is Changing at Texas Teachers, Washington State Investment Board]

The Teacher Retirement System of Texas is in the midst of a transition in terms of investment management. A person familiar with the matter told Institutional Investor in late November that its chief investment officer, Jerry Albright, planned to step down.

Albright was the replacement for Britt Harris, who left the retirement system for the University of Texas endowment in 2017. At the board meetings held Thursday and Friday, the board planned to discuss succession plans for Albright.  

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