Teacher Retirement System of Texas, Austin, is close to investing $100 million of its internally managed global equity portfolio in companies that are likely to benefit from rebuilding efforts in Japan.
Chi Kit Chai, senior managing director of the active portion of the $108.2 billion system's internally managed portfolio, told system trustees at an investment committee meeting April 7 that his team anticipates strong earnings growth potential for companies that will provide power equipment and machinery and materials such as cement and glass as Japan works to recover from the effects of the country's earthquake and tsunami in early March.
Mr. Chai said the next strategy in development by the active global equity investment team is a natural resources fund, to be followed by other thematic or quantitative approaches.
Jerry Albright, deputy chief investment officer, told trustees during the investment committee meeting that the staff of the internal active global equity portfolio, known as Global Best Ideas, “is the amazing secret sauce that we've got going on.” The GBI flagship strategy returned 35.4% in 2009, beating the MSCI All Country World index by 78 basis points. For 2010 the strategy returned 12.9%, 21 basis points over the index, according to board meeting materials.
As of Dec. 31, Texas Teachers' internally managed strategies were Global Best Ideas, with $19.4 billion; the Precious Metals Fund at $500 million; and the passive and overlay portfolio at $36.9 billion.
Also on April 7, trustees accepted a staff recommendation to keep the fund's assumed rate of return at 8%.
The fund's assets increased 13.1% or $12.5 billion in the first six months of its fiscal year to $108.2 billion as of Feb. 28, said Brian Guthrie, deputy director and executive director-designate. The growth was fueled by an investment return for the six-month period of 14.5%, equal to 31% annualized, according to meeting support documents.
However, despite this “exceptional investment performance,” the system's unfunded actuarial accrued liability increased to $25.7 billion as of Feb. 28 from $22.9 billion as of Aug. 31, according to meeting materials. As a result, the system's funding ratio dropped to 81.3% as of Feb. 28, from 82.9% as of Aug. 31.
Ronnie Jung, the system's executive director who will step down this summer, told trustees the drop in the plan's funding ratio was because of the inclusion of significant investment losses in 2008 and 2009 in the six-month period ended Feb. 28 through a smoothing process.
The pension fund's portfolio returned 14.7% for the calendar year ended Dec. 31 and 5.6% in the fourth quarter, ending the year with $105.3 billion, according to board presentation materials. For the year, the system's return added 1.7 percentage points of value over the policy benchmark return of 13%.