Texas Permanent School Fund, Austin, split its new 5.5% real-return allocation evenly between U.S. Treasury inflation-protected securities and commodity investments.
The move was recommended by NEPC, the $25 billion fund's investment consultant.
Investment staff received approval to internally manage 2.75%, or $688 million, in TIPS from the Committee on School Finance/Permanent School Fund of the Texas State Board of Education, according to minutes from a July 20 committee meeting.
Carlos Veintemillas, deputy chief investment officer, told the committee that the fund already has a 4% allocation to TIPS within its fixed-income portfolio, according to the minutes.
Separately, the school fund committed $50 million to Blackstone Real Estate Partners VII and approved a pool of 10 real estate managers.
Holland Timmins, executive administrator and chief investment officer of the fund, did not return calls seeking information about whether the existing TIPS investments will be moved into the real-return allocation, how the 2.75% commodities allocation will be invested, and the names of the 10 newly approved real estate managers.
The Permanent School Fund returned 4.05% in the first quarter, underperforming its benchmark by seven basis points, according to the July 20 meeting minutes. Individual asset class performance in the first quarter was domestic equity, 6.5%; private equity, 5.32%; international equity, 3.45%; absolute return (hedge funds), 2.05%; fixed income, 0.65%; and real estate, 0.10%. Hedge funds underperformed the internal benchmark by 119 basis points in the quarter, while fixed-income returns trailed the policy benchmark by 20 basis points.
During his report to the committee, Mr. Timmins said the fund's absolute-return and private equity portfolios, which total 16% of plan assets, account for 68% of the investment management costs of the entire fund because of those portfolios' funds-of-funds structures, according to the meeting minutes. Mr. Timmins “indicated the fund could achieve significant cost savings by moving away from a fund-of-funds structure toward a staff and adviser structure,” according to the minutes.