The $105 billion Teacher Retirement System of Texas has debated, and rejected, the idea of appointing an independent chief risk officer outside of the investment management division, with the board deciding oversight of risk is sufficient within its current practices.
The consideration of an independent risk officer, reporting to the executive director, is a hangover from a review by the Investment Training and Consulting Institute, which was hired by the fund chief audit executive to do a comparative study on the use of derivatives trading and external managers a couple of years ago.
As part of the ITCI’s recommendations it advised the TRS to consider creating a new chief risk officer who would report directly to the executive director and be segregated from direct oversight by the chief investment officer.
Action on this recommendation was deferred until the transformation of the investment division, as laid out in 2007 by the then new chief investment officer Britt Harris.
That transformation, which has included diversifying the portfolio by reducing the dependency on public equities and increasing the allocation to alternatives, adding alpha by more actively managing the portfolio, appointing new staff, systems and processes, has now been complete.
In a board debate it was decided the internal auditor, risk committee and the culture of the board which included trustees with investment knowledge was sufficient to oversee the investment division and its risks.
Some of those functions and procedures, including the independent risk committee, were not in place at the time of the original recommendation.
Meanwhile the fund has appointed Brian Guthrie as its new executive director to replace Ronnie Jung from September. Jung has agreed to serve as executive liaison to the TRS board during a period of transition to the end of January 2012.