The global impact of COVID-19 on global markets tested the mettle of the investment approach of the Teacher Retirement System of Texas, and the portfolio performed as expected, thanks to a high degree of diversification and ready liquidity, said Jase Auby, CIO of the Austin-based pension fund in an interview with Pensions & Investments.
Assets fell to an estimated $148 billion in the quarter ended March 31 from $163 billion as of Dec. 31 with an investment return of -8.3%, but the decline hasn't affected the pension fund's ability to meet benefit payments and to invest in new investment opportunities at bargain prices during rough market conditions.
"We were positioned pretty neutrally prior to the crisis, and we have a heavy emphasis on maintaining that neutral stance by focusing on rebalancing," Mr. Auby said.
When the coronavirus crisis hit global markets in February, the first thing the TRS investment team did was increase the pension fund's cash on hand to 3% from 2% while adding leverage by the same amount to maintain steady portfolio exposure, Mr. Auby said.
TRS has a zero to 10% (4% neutral) net leverage allocation within its portfolio. TRS sold bonds to buy public equities to rebalance the global stock portfolio to its 40% target allocation.
TRS' board raised the strategic asset allocation to long-dated U.S. Treasury bonds (19-year duration) to 16% from 11% in the fall of 2019, Mr. Auby said, noting that during the early phase of the coronavirus crisis "it was all about selling Treasuries. Prices were good during the coronavirus crisis for long-dated Treasury bonds."