Texas Teacher Retirement System's board of trustees gave final approval to a new asset allocation for the $156.4 billion pension fund during a meeting Friday.
Implementation of the new investment structure will begin Oct. 1 and will continue over a six-month transition period, said Robert Maxwell, a spokesman for the Austin-based pension fund, in an email.
The new strategic asset allocation changes the target weightings to the pension fund's three broad portfolios:
- The allocation to global equity will drop to 54% from 57%.
- The real-return portfolio will be reduced to a 21% allocation from 22%.
- The stable value portfolio, which includes U.S. Treasuries, stable value hedge funds and absolute-return strategies, will be increased by 6 percentage points to 21%.
Within the $83.2 billion global equity portfolio, the biggest change is the elimination of a 4% target weighting to directional hedge funds. The hedge funds will remain in the global equity portfolio and may be incorporated in the future to other asset classes, such as risk parity.
Also within global equity, the target for private equity will rise a percentage point to 14%, but the target weightings for other subasset classes in the global equity portfolio will remain unchanged with U.S. equity at 18%; non-U.S. developed market equities, 13%; and emerging markets equity, 9%.
In the real-return portfolio, the target allocations to real estate and energy/natural resources/infrastructure will each rise 1 percentage point to 15% and 6%, respectively, while the 3% target allocation to U.S. Treasury inflation-protected bonds will be eliminated.
Both subasset class portfolios within the $27.2 billion stable value bucket will be increased under the new strategic asset allocation with the target to U.S. Treasuries increasing to 16% from 11% and stable value hedge funds rising by 1 percentage point to 5%.
The target allocation to the pension fund's $7.9 billion risk-parity portfolio will rise to 8% of plan assets from 5%.
The pension fund also increased its cash allocation to 2% from 1%.
The new asset allocation also includes for the first time, a specific target allocation of -6% to net asset allocation leverage.