Texas Public Employee Pensions Using Broad Diversification Strategies to Grow Assets, Manage Risks

HOUSTON (April 19, 2017) -- The low interest rate environment of the last 10 years has resulted in a successful effort by Texas local public employee pension funds’ to find decent returns in global assets and alternative investments, according to a survey performed by Maples Fund Services for the Texas Association of Public Employee Retirement Systems.

TEXPERS’ yearly “Report on the Asset Allocation and Investment Performance of Texas Public Employee Retirement Systems," released at its 28th Annual Conference in Austin, shows that the local systems which invested in U.S. assets outperformed over the last 10 years while those in global equities and bonds outperformed in the 20-year period. The 59 survey respondents managed almost $50 billion in total assets in 2016.

Overall, the pension funds split their investments in four types of assets in nearly equal proportions. Alternative strategy investments held a narrow edge at 26.8% of the funds’ assets, while U.S. domestic equities comprised 26.6%. The alternative strategy investments included private equity, real estate, and marketable alternative assets. Fixed income assets averaged 22.5% of local Texas pension fund portfolios, and the remaining 21.8% of portfolios was held in international equities.

The report noted that most systems have lowered rate of return assumptions and now average 7.6%. The assumed rate is a target, not a guarantee. Lower targets reflect pension boards’ desire for conservative investing approaches, but sometimes require additional contributions from a city and its employees. Higher targets are criticized for increasing investment risks or masking higher unfunded liabilities.

A new item in the TEXPERS report showed that about 26 percent of the survey takers did not receive the full actuarial required contribution from their city sponsor in 2016, a factor which may increase unfunded liabilities in future years.

"Texas pension systems are continuing their quest for balance, diversity and above average long-term returns," said Max Patterson, the executive director for TEXPERS, a statewide voluntary nonprofit association of pension funds for police, firefighters and municipal employees. "The steady lowering of the target rate by these systems is a healthy trend but we remain concerned that too many city sponsors are not meeting their actuarially required contribution."

TEXPERS released the report to 620 pension Trustees, administrators, system members and investment professionals attending its "Rising Above: Today’s Search for Tomorrow’s Best Ideas" educational conference in Austin.

Patterson recognized the following standout systems for 20-year average performance for the period ending September 2016:

Big Spring Firemen's Relief & Retirement Fund    8.54%
El Paso Firemen and Policemen's Pension Fund    8.21%

The full 2017 Asset Allocation is available here.
The Texas Association of Public Employee Retirement Systems (TEXPERS) is a statewide voluntary nonprofit association to provide quality education to trustees, administrators, professional service providers and employee groups and associations engaged or interested in the management of public employee retirement systems. Today, TEXPERS' 75 member systems represent approximately 2 million active and retired participants and approximately $165 billion in assets. Learn more at www.TEXPERS.org or www.TEXPERS.blogspot.com.