Texas Public Fund Enters Equity Realm

December 4, 2007 (PLANSPONSOR.com) - The Texas Municipal Retirement System (TMRS) has approved a portfolio rebalancing to take the plan from being 100% fixed income to a mix of 60% equities and 40% fixed income over five years.

A news release from the $13.8 billion Austin-based pension plan said board members approved an initial equity position of 12% by the end of 2008.

Board members decided to depart from their traditional 100% fixed income approach based on investment consultant advice and because of comparatively low interest rates with 30-year Treasury bonds yielding below 5%. TMRS said its all-bonds strategy (mostly in government and high-quality corporate bonds) allowed it to grant annual interest credit rates as high as 11% to member and city accounts.

Half of the initial 12% equities investment will go to a portfolio of U.S. companies and the other half to foreign companies, the release said. Each of these equity portfolios will be invested passively to track the performance of a specific index such as the S&P 500. The officials said they would use the broader Russell 3000 Index for domestic equities and the MSCI-EAFE for international equities.

“In the past, the market value of the portfolio was not a priority for TMRS, since the investment strategy was focused on the income return of the portfolio; however, the transition to equities will emphasize a new focus on a total return investment strategy,” the announcement said.

TMRS said it has traditionally used two economic investment advisers, Hillswick Asset Management, LLC and A. Gary Shilling & Co. The board hired its first general investment consultant, R.V. Kuhns & Associates of Portland, Oregon, to advise the Board on investment policy and strategy and to carry out the portfolio diversification.

The TMRS investment policy is here .