TRS will let four firms each invest $1 billion of its money
April 10, 2008
The Teacher Retirement System of Texas is expected to approve a plan today that will give as much as $1 billion each to four Wall Street firms to invest in public markets across the globe.
Written by Robert Elder, Austin American-Statesman
Britt Harris State pension executive says plan leverages fund's heft on teachers' behalf.
The Teacher Retirement System of Texas is expected to approve a plan today that will give as much as $1 billion each to four Wall Street firms to invest in public markets across the globe.
The retirement system's strategic partnership program is designed to boost investment returns for the pension fund while giving the fund access to strategies from some of the investment industry's biggest names. The four firms up for pro forma approval by the retirement system's board are BlackRock Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and Morgan Stanley.
Each firm will be paid a minimum fee of 0.20 percent on the money it manages. On $1 billion, the base fee is $2 million. The amount of fees can rise to 0.85 percent of assets managed, but only if the firm's investment returns far outstrip benchmarks set by the pension fund.
Britt Harris, the teacher fund's chief investment officer since December 2006, said the partnerships are a way to use the financial heft of the fund to the advantage of teachers.
"Our job is to deliver the highest-quality investment services possible to the teachers of Texas," Harris said Wednesday. "That means we are supposed to take their collective power and bring it into the financial markets in a way they could never do themselves."
Harris said there are "probably not a hundred investors worldwide" who manage enough money to be able to allow outside firms to invest $1 billion each.
He also said the additional expertise in global markets will prove especially valuable as giant emerging economies continue to develop and the U.S. financial markets constitute a smaller percentage of global markets.
"We need to use these resources as kind of our headlight system around the world," Harris said. "They're coming back saying, 'We're seeing something in Asia you need to look (at),' or, 'There's something in South America that looks attractive.' "The partnership program is another step in Harris' overhaul of the retirement system's investment strategy.
At $108 billion, the teacher pension fund is one of the nation's largest and serves 1.2 million active and retired public school workers. The fund paid about $6 billion in benefits last year.
Under Harris, the fund is implementing a sweeping strategy to invest more money in hedge funds, real estate, private equity and inflation-protected bonds while shifting some money out of U.S. and foreign stocks.
The investor partners will manage money for three years initially. The agreement will allow the fund to terminate its partnership with any firm on 10 days' notice.
An April 1 memorandum by Ennis, Knupp & Associates Inc., one of the fund's investment advisers, said the base fee was modest and the pay-for-performance structure "aligns interests" between the fund and its partners.
The teacher fund's investment return was 9.3 percent in 2007, putting the fund in the middle of U.S. public funds that manage more than $10 billion.
Related Stories
Fair Use Notice
This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a "fair use" of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond "fair use", you must obtain permission from the copyright owner.