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THE 'EM-ification' of DM’s

At a high level, it’s fair to say that economic and other fundamentals in developed markets (DMs) have become increasingly fragile over the past decade-plus. During that period, severe stress episodes like the global financial crisis (GFC) and the COVID-19 pandemic have spotlighted and, in some cases, accelerated this weakening of fundamentals in some countries.

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International Equities – Where Value Goes to Hide

As U.S. equities outperformed over the last decade, helped by superior earnings growth and innovation, relative valuations of international stocks have fallen steadily. In fact, the valuation differential between U.S. and international equities is at its widest since the 2008 financial crisis. With improved operating margins, beneficial structural trends, the likely capex revival, and fiscal spending, are international stocks positioned to outperform? We believe so.

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Three Keys to the Tech Growth Opportunity

In a world of scarcer growth and rising competition, the future belongs to companies that understand the transformative power of technology and successfully integrate it within their core business models. This was demonstrated and accelerated by the COVID-19 lockdowns of 2020. The outperformance of technology and technology-related companies is a powerful reminder that tech opportunity is no longer confined to hardware, software, and the internet giants. What’s more, the tech-driven growth is far from over. There’s a wide frontier ahead for new market leaders to emerge. Amid rapid technology change and adoption, our research points to three catalysts for earnings and revenue growth in the United States and globally:

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Defined Contribution Recordkeeper Consolidation Continues

Empower Retirement recently announced an agreement to acquire Prudential’s retirement plan recordkeeping business. The acquisition promises to capitalize on both firms’ experience and expertise to the benefit of retirement plan participants and plan sponsors. This announcement follows Empower’s earlier acquisitions of MassMutual’s and Fifth-Third Bank’s recordkeeping businesses and has become representative of the retirement plan recordkeeping industry over the last two decades.

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A Historical Analysis of Inflation's Impact on Real Estate

Temporary bouts of inflation have arisen in the last two decades, prompting questions that result in lengthy webinars and white papers on the matter as those bouts materialize. On the surface, concerns about inflation appear valid. After all, the notion that higher inflation leads to higher borrowing costs, therefore increasing cap rates and applying downward pressure on valuations, is a simple concept to latch onto and cause worry. In addition, the massive injections of liquidity that governments and central banks have deposited into the global economy over the past dozen years add support for concerns of runaway inflation. 

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Why Texas Should be Your Next Investment

When it comes to corporate relocations, Texas is hot, and we are not talking about the temperature or humidity. Companies from around the country are taking a hard look at moving to the Lone Star State.

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How Texan Real Estate is One of the Biggest Beneficiaries of the Outpost Economy

Balance can be a challenging ordeal, especially when you are organizing and determining the correct allocation of real estate in a portfolio. Many pension funds will allocate around 15% for real estate investments; these are often core real estate investments that are income producing, high quality assets. By definition, these are often associated with primary markets.

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How Populism May Sway Policies in Emerging Markets

COVID-19 has increased inequality and aggravated social problems across emerging market economies, fueling populist pressures—but several emerging countries share features that make them particularly vulnerable. Assessing key environmental, social and governance (ESG) metrics can help identify potential pressure points.

Crisis can be fertile ground for populism. The unique characteristics of COVID-19 may have stifled unrest initially, but the pandemic has exacerbated inequality and poverty, which could fuel public discontent, impacting political and policy paths. It has also given a double edge to the youthful nature of many emerging countries. A young demographic profile is normally a positive for economic growth but could pose challenges if the pandemic curtails business activity and permanently increases unemployment.

Political and policy shifts are arguably more likely in countries where socioeconomic conditions are more fragile and where COVID-19 scarring is deeper. But the resulting pressure for change could lead to contagion, pushing politicians across emerging markets to pursue populist policies, delay fiscal consolidation, and/or erode democratic standards.



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Reading Fed Tea Leaves? Watch Market Prices Instead

Fed watching is once again one of the markets’ favorite pastimes. Federal Reserve officials continue to signal that they would favor tapering of bond purchases in 2021, in line with recent announcements from the European Central Bank. When and how remain to be seen. With ample speculation about the Fed, unemployment, and inflation, it might be a good time for a reminder about what Fed announcements can, and cannot, tell us about the future of fixed income markets.

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Supply Chain in a Post-COVID-19 World

The global health pandemic and economic shutdown present unparalleled challenges to the global economy. The consequences of the financial collapse were far-reaching, exposing vulnerabilities of supply chains throughout the global economy.  Recently, the disruptions at the Suez and Panama Canals created global port congestion, a shortage of shipping containers and rising costs of goods. As a result, we anticipate manufacturers will hold more inventory on or near their facilities, increase domestic production and reduce reliance on global supply chains moving forward. We believe this will result in increased demand in the U.S. for logistics real estate in addition to secular shifts like the continued growth of online retailing. “Disruptions can be a negative for companies who are unprepared to adapt to supply chain challenges, or an opportunity to differentiate if a company can secure goods when consumers need it most,” indicated Melinda McLaughlin of Prologis. “In general, most Prologis customers view these disruptions negatively due to lost sales, increased difficulty of planning and volatile prices.”

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Electric Vehicles Drive Commodities of the Future

Demand drivers stemming from electric vehicles (EVs) and their infrastructure could impact the utilization of several metals and the countries from which they are sourced—many of them emerging markets (EMs). Specifically, the push toward EVs and their infrastructure supports the demand for a number of metals we call commodities of the future—lithium, nickel, aluminum, and copper. 

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6 Webinars to Help You Up Your Pension Leadership Game

Webinars are one of the most effective tools for distance learning, allowing attendees to acquire knowledge without being bound by a specific location. 

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State Representative Announces Retirement

Rep. Dan Huberty, R-Houston, is retiring from the Texas House. 

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Partnership with NYDIG makes HFRRF the first announced investment in bitcoin by a public pension

HOUSTON and NEW YORKOct. 21, 2021 /PRNewswire/ -- The Houston Firefighters' Relief and Retirement Fund (HFRRF), the pension fund for the City of Houston's firefighters, today announced that it had purchased bitcoin and ether for the defined benefit plan's portfolio. This investment marks the first announced investment in digital assets by a public pension plan in the U.S. and was facilitated exclusively by NYDIG, a leading bitcoin company.

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Legislative Happenings

 

The state's 87th regular legislative session got underway on Jan. 4, 2021 and adjourned May 31, 2021. The governor called three special sessions. TEXPERS, along with the association's Legislative Committee and legislative consultant, is monitoring the sessions, especially for any actions regarding public employee pensions. TEXPERS staff will regularly update this blog page with the latest happenings that may be of interest to trustees and administrators of public employee retirement systems.

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Memorial Service for Longtime Defender of Secure Retirement Held Oct. 13

Michael J. Curran, a former member of TEXPERS' Board of Directors, died on Oct. 5.

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Pandemic Didn't Sideline Cybercriminals: Report

Even though the novel Coronavirus pandemic slowed down life for businesses in 2020, it did not deter the ambitions of cybercriminals. In fact, according to the FBI's 2020 Internet Crime Report, cybercriminals pretty much seized the pandemic as an opportunity to "profit from our dependence on technology to go on an internet crime spree."

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Q&A: The Bull and Bear Case for Ethereum

 

Question: What is a digital currency actually backed with as there are no assets within a digital currency? 

 

Answer: Cryptoassets are—to quote a recent Bank for International Settlements’ (BIS’) consultative document on the topic—“private digital assets that depend primarily on cryptography and distributed ledger or similar technology.” So the world’s central bankers agree they are assets. 

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Benefit Bonds: What You Should Consider

The issue of funding an increasing pension liability is a lingering concern for many trustees and state officials. As employee contribution rates continue to increase, discount rates are declining, and municipal contributions are under pressure due to competing priorities, many plans struggle to properly manage and continue to provide benefits to employees.

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Board Diversity: The Time for Change is Now, Will Shareholders Step Up?

Much ink has been spilled, much breath expended, and many hands have been wrung over the last decade on the lack of diversity in corporate boardrooms. That chorus only intensified over the last year as protests over racial inequity poured out into the streets of cities across the country.

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