Texas Teacher Retirement System, Austin, may cut its domestic equity allocation, increase hedge funds and high-yield bonds, and add emerging markets debt and real estate as new asset classes.
Howard Goldman, director of communications for the $72 billion system, said the board is considering the changes to improve the fund's risk-return profile.
A report from the system's investment staff, presented at the Sept. 25-26 board meeting, suggested cutting domestic stocks to 43% of assets, from 52.5%, and investment-grade fixed income to 28% from 29%. It would then increase hedge funds to 3% of assets, from 1.5%; high-yield bonds to 3%, from 1%; and establish a 3% allocation to emerging market debt and a 4% allocation to real estate. The staff recommended keeping the fund's international equity allocation unchanged at 13%, and private equity at 3%.
Those staff recommendations are not in line with those of general investment consultant Ennis Knupp, which recommended lowering domestic equities to 48.5%; increasing international equities to 15% from 13%; keeping hedge funds at 1.5%; increasing high-yield bonds to 1.5%; and establishing allocations of 1% to emerging market debt and 3% to real estate. Ennis also suggested putting 26.5% in investment-grade fixed income and keeping 3% in private equity.
Mr. Goldman said the board has meetings scheduled for Nov. 21 and Dec. 18 to discuss the asset allocations, and it may schedule another meeting before then.