Texas Teacher Retirement System, Austin, returned 8.51% in 2014, outperforming its policy index by four basis points, said a performance report prepared by investment consultant Aon Hewitt Investment Consulting.
The top-performing asset class was stable value, which returned 21.4% over the year, followed by real return at 10.2%, risk parity at 8.1% and global equity at 5.3%.
As of Dec. 31, the pension fund had an asset allocation of 65.3% global equity, 18.7% real return, 14.8% stable value and the rest in risk parity.
For the three, five and 10 years ended Dec. 31, the pension fund returned an annualized 11.47%, 10.11% and 6.63%, respectively, outperforming its policy index in each of the periods.
For the three months ended Dec. 31, however, the pension fund returned 1.5%, six basis points below its policy index.
Sources of underperformance in the quarter, the report said, were domestic equities and directional hedge funds, which returned 3.7% and -0.7%, respectively, trailing their benchmark returns by 1.4 and 1.6 percentage points. At the end of 2014, the pension fund had a 23.5% actual and 20% target allocation to domestic equities and 4.6% actual and 5% target allocation to directional hedge funds.
An overweight allocation to emerging markets equities (10.7% actual vs. 10% target), which declined in the quarter, and a below-target allocation to long Treasuries (9.4% actual vs. 13% target), which performed well, also hampered fourth-quarter results, the report said.
The performance report was presented to the $132 billion pension fund's board of trustees at their meeting Thursday.