This content is from: Portfolio

Texas Teachers Set to Expand Investment Staff

During a board meeting Thursday, the CIO of Texas Teachers also commented on the investment strategy he sees winning this coming decade.

The Teacher Retirement System of Texas is adding staff as it seeks to cut investment costs, according to documents for its board meeting that began Thursday.

The pension fund is expanding its investment management division to a full-time-equivalent staff of 270, the documents show — a rise from 181, said Jase Auby, chief investment officer of Texas Teachers, during the meeting.

The pension aims to cut $1.4 billion of fees and carried interest over the next five years as it adds staff, according to the documents.

Auby said during the meeting that additional staff is needed to accommodate growth of the pension fund. At some point, “you have to add new strategy” he said, explaining that existing investment strategies eventually reach capacity in terms of hiring. 

Texas Teachers expects assets under management to rise to about $200 billion in the next five years based on recent growth, Jerry Albright, head of global investment initiatives, said during the board meeting. The fund now manages about $165 billion, he said.

Expanding its investment staff will mean competing for talent with other large pension funds, as well as asset managers in the private sector across the U.S., according to remarks made during the board meeting. 

For recruitment, Albright said that Texas Teachers competes with pensions including California Public Employees’ Retirement System, California State Teachers’ Retirement System, and the University of Texas/Texas A&M Investment Management Co., as well as asset managers such as Pacific Investment Management Co., Dimensional Fund Advisors, and Vista Equity Partners.

Auby said Texas Teachers will be looking for investment talent in cities such as San Francisco, Chicago, and New York. 

[II Deep Dive: Texas Teachers Increases Exposure to Private Markets]

In the first half of this year, investors are focused in part on the continuation of slow growth globally and recovering manufacturing sectors, according to the board meeting book. Emerging markets are expected to gain momentum over developed ones due to “easing trade tensions and monetary policy,” Texas Teachers said in the document. 

The board meeting book also pointed to the potential for market volatility tied to the U.S. election, including primary voting for candidates vying for the Democratic party’s nomination to compete against President Donald Trump in November. Texas will vote in the primary election on March 3.

While large-cap stocks were the “hot” asset class of the past decade, Auby expects that diversification will pay off as strategy in the next 10 years. According to the CIO, risk parity — the most diverse investment strategy in his opinion — gained 9.1 percent in the past decade, while the least diverse — a simple portfolio of 60 percent U.S. equities and 40 percent U.S. bonds — gained 9.1 percent, according to slides he presented.

“I believe that diversification will reassert itself,” he said. 

Related Content