Texas Teacher Retirement System's returns have trailed the $109 billion fund's internal benchmark for periods ended Sept. 30, according to performance information presented to trustees of the Austin-based retirement system.
For the year ended Sept. 30, the fund returned 3.64% compared to the 5% return of the policy benchmark, according to data presented at Wednesday's board meeting in Lubbock by the system's consultant, Hewitt EnnisKnupp.
As of Sept. 30, the retirement system returned an annualized 4.56% for three years and 2.63% for five years. The annualized benchmark return for three-year period was 4.68% and for five years, 2.81%.
The returns still met the system investment management division's goal to be in the top quartile among peer funds for the one-year and five-year periods ended Sept. 30. For three years, the return was just below the top quartile mark.
Brian Guthrie, executive director, and T. Britton Harris IV, chief investment officer, compared the returns, asset allocation, risk management and investment operations of the Texas Teacher fund over the five-year period since Mr. Harris began to restructure the portfolio in 2007, according to a webcast of the meeting. Mr. Harris joined TRS in 2006.
“We've done the largest portfolio restructuring that I'm aware of,” Mr. Harris told trustees. He said the fund's future challenges are to annually produce an 8% annual total return and 1% of alpha.
Under Mr. Harris' watch, the fund's target asset allocation as of Sept. 30 had shifted to a much stronger emphasis on alternative investments with a 36% allocation compared to just 7% in 2006. The 2011 TRS allocation was 44% public equity, 19% fixed income, 13% real assets, 12% private equity, 9% hedge funds, 2% real return and 1% short-term investments. The allocation in 2006 was 60% public equity, 30% fixed income, 4% private equity, 2% hedge funds, 3% real assets and 1% short-term investments.
Steve LeBlanc, senior managing director, external private markets, told trustees that he set up internal task forces to review investment opportunities in Europe, North American single-family homes and energy-related investments, according to the webcast.
In response to a question from R. David Kelly, chairman of the board, about the fund's investments in U.S. Treasury bonds given the low-interest rate environment, Mr. Harris said he and the investment staff are “rethinking” the portfolio and may restructure it later this year.