Credit overweight pushes Texas to top spot, performance pay reinstated

The 108 investment staff of the Teacher Retirement System of Texas (TRS) have had their performance incentive awards reinstated, and will receive $9.7 million between them, after a year which saw the fund outperform its benchmark by 240 basis points making it the best performing public pension fund in the US.

The TRS board approved the payment of the first half of the performance incentive awards for the 2010 plan year, as well as the deferred awards from the 2008 and 2009 plan years, a total of $9.7 million, as a result of “this exceptional performance”.

For the three-year period (2008-2010) TRS employees added $2.3 billion in excess of the incentive award benchmark established for the plans.

According to the attribution breakdown, of the 240 basis points added, 110 basis points were due to asset allocation and 140 basis points from security selection.

The $100.3 billion fund had a 4.8 per cent overweight position to credit and an underweighting of 5.5 per cent to long treasury bonds, the largest risk position at an asset allocation level, according to chief investment officer Britt Harris.

“This is a trade we have had on for the past year, and it is our biggest exposure relative to the benchmark,” he said at the December board meeting.

At the end of the year the fund also had a 2 per cent overweight to global equities primarily in emerging markets, a 2 per cent underweighting in the inflationary area and a small overweight to commodities.

Overall the return for the 2010 plan year (to the end of September) was 12.6 per cent, which translates to an $11 billion investment gain.

Harris said the value added by TRS versus the median US public pension fund with more $10 billion was about $2 billion.

He acknowledged some specific teams within the investment management division, including the internal investment management team, the trading area and private markets teams.

By managing the global best ideas portfolio inhouse, the internal investment management team, which re-engineered its process three years ago, the trust saves about $50 million a year, Harris said.

He also acknowledged the external public team, the portfolio strategies and risk groups, all of which did not exist three years ago.

Since the inception of the fund, 60 per cent of all contributions have come from investment earnings, 20 per cent from member contributions and 20 per cent from state contributions.