Mr. Auby's downbeat prognosis comes as bankers, investors and economists are sharply divided on the health of the economy. J.P. Morgan Chase & Co. CEO Jamie Dimon said Friday that consumer balance sheets remain healthy and the economy continues to be resilient after last year warning of an impending "hurricane." The CIO of fixed income for J.P. Morgan Asset Management though continues to see a recession and predicts that the Federal Reserve will be forced into rate cuts.
For Mr. Auby in Austin, the real impact on the economy from more than a year of tightening by the Fed, before the pause in June, has yet to be felt, apart from higher mortgage rates. To reflect that, the fund is focusing on diversification, reducing exposure to mega buyouts and exploring opportunities in the energy sector, he said.
More than 14% of the Texas fund, the largest in the state, is in government debt, a position that will help mitigate bouts of volatility in the stock market, said Mr. Auby. With a membership of almost 2 million, the fund maintains a comparatively lower allocation to US equities than its peers, while favoring emerging and developed markets, Mr. Auby said.
During the board meeting, trustees and committee members discussed investment strategies over the coming years. The pension fund intends to increase its allocation to small-, large- and middle-market buyouts in private equity — aiming to attain higher returns — while reducing exposure to the very largest buyouts.
Mr. Auby also highlighted the pension fund's approach to the energy sector in contrast to other states, which may pursue divestment from fossil fuels. Mr. Auby sees a window of opportunity for energy investments as capital flows into the industry diminish.
Proposed changes to the pension fund's investment policy statement, including raising the allocation limit on hedge funds to 15% from 10% and allowing internal trading of derivatives, will be voted on at the next meeting in September.