Texas' Harris Urges Pension Trustees to Up Investments in Hedge Funds, Private Equity

February 12, 2007 (PLANSPONSOR.com) - The chief investment officer for Texas' Teacher Retirement System is pushing for a more aggressive investment strategy that involves funneling more of its $107 billion in assets to into hedge funds and private equity investments, hiring more money managers and increasing its own investment staff.

The public fund is the fifth largest pension fund in the U.S. and has now built a $13 billion shortfall that has left the system’s 250,000 retirees without a benefits increase since 2001, the Austin American-Statesman reported.

CIO Britton Harris told trustees Thursday that the 8.8% returns the fund has reaped over that last five years could be higher. He said returns could be boosted by raising the amount in certain alternative investments, but stopped short of saying how the fund would be allocated or how many managers he wanted to add.

Some trustees, according to the American-Statesman, said they expect Harris to propose putting at least 20% in private equity, a leap from the 3% it now devotes.

Harris also asked the board to urge lawmakers to allow public pension funds to use derivatives, a strategy that is now barred by state law.

According to the newspaper, he said the fund could earn $1 billion more in investment income each year and do so with less risk.

The board will consider and possibly vote on the investment shift and add managers at its meeting in Austin on April 12-13, the newspaper reported.

The system hired Harris – a long-time veteran of managing private pensions and investments funds – late last year (See Texas Teachers Fund Hires Harris as CIO). Harris   has held top money manager positions for Verizon Corp.’s pension plan and at Bridgewater Associates.