Administration August 8, 2005

TRS to Reallocate Assets into Higher-Risk Investment Vehicles

August 20, 2004 (PLANSPONSOR.com) - Following other large pension funds such as CalPERS, the Texas Teachers Retirement System (TRS) has decided to allocate up to 8.5% of its $86 billion in assets over the coming years into alternative investments such as private equity, venture capital, and hedge funds.
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According to published reports, TRS does not have enough funds to pay benefits to its 610,000 active members unless it raises at least $3.2 billion to accommodate all its members due to retire in the next 30 years.

The move to riskier investment alternatives, however, has not come without some discontent. “As a citizen of the state, I’d be worried sick,” Leonard Cargill, former member of the Texas Pension Review Board, was quoted as saying. According to news reports, the controversy surrounding such a decision stems mostly from a lack of disclosure. TRS has refused to release specifics about asset allocation, as well as about the fees the fund is paying to private managers.

TRS is certainly not the first pension fund to reallocate assets into higher-risk investment vehicles. The trend has often been cited by the SEC as justification for increased regulation of the hedge fund industry, which as of now has largely been left unscathed by recent disclosure regulation. According to SEC Chairman William Donaldson, investments by pension funds are made for what he referred to as “ordinary Americans,” thus justifying SEC’s oversight.

– Kip McDaniel

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