Thursday, January 18, 2018

Get your message in front of TEXPERS' 

plan sponsor members

Put your TEXPERS membership to work. Advertise in the association's monthly TEXPERS Outlook newsletter.

It's a very affordable way to reach the association's plan sponsor members and increase visibility with them throughout the year.  Review details and the rate sheet here.

TEXPERS to host Advanced Trustee Training class during annual conference in April

Staff report

An advanced training class for public pension system trustees will be conducted on Saturday, April 14 on South Padre Island during the Texas Association of Public Employee Retirement Systems' annual conference. 

The Advanced Trustee Training class provides four hours of Continuing Education that meets the Pension Review Board CE training requirements for trustees that have met the initial seven hours of basic training. Trustees can register for Advanced Training when they register for the conference or separately if they are only attending training. 

Register or learn more here.

TEXPERS is a statewide, voluntary nonprofit educational association organized in 1989. Its members are trustees, administrators, professional service providers, employee groups and associations engaged or interested in the management of public employee retirement systems. TEXPERS member systems represent nearly 130,000 active and retired participants and approximately $89 billion in assets.

TEXPERS surveyed members last month to determine interest in an Basic Trustee Training class. The survey indicated that we would have very few students if TEXPERS held a class in April prior to the Annual Conference on South Padre Island.

The survey indicated that there would be interest in a class conducted in October in Austin. TEXPERS is working to select a date and venue. As soon as a date is set and registration is open, a notice will be posted to the TEXPERS blog and social media channels as well as emailed to member systems.

For more information about TEXPERS, visit its website.

Texas County & District Retirement System Elects Chair and Vice Chair

Bob Willis
Robert Eckels
Article Submitted by TCDRS

The Board of Trustees of the Texas County & District Retirement System (TCDRS) elected Polk County Commissioner Bob Willis as its new vice chair and re-elected Judge Robert Eckels as chair at its December board meeting.

Commissioner Willis has served on the TCDRS Board of Trustees for more than a decade. He was appointed to the board by Governor Rick Perry in April 2004. He was most recently reappointed to the board by Governor Greg Abbott in 2014.

“This is a tremendous responsibility because it impacts so many retirees regarding their retirement income,” says Willis. “We as a board have strived to hire the best staff as well as the best investors to keep our retirees’ investments safe and strong. That is our goal at TCDRS.”

Willis was elected as the Polk County Commissioner for Precinct 1 in 2000. He now serves as the senior member of the commissioners court. He is a past president of the Tax Assessor-Collectors Association of Texas and a past chairman of the Board of Tax Professional Examiners.

Eckels, a former Harris County judge, begins another term as TCDRS chair in 2018 after being reelected by his fellow board members. He is an attorney with Gray Reed & McGraw LLP and serves as president of Texas Central High-Speed Railway. He is a past member of the Texas House of Representatives.

Trustees on TCDRS’ nine-member board serve staggered six-year terms. The board is comprised of system members and retirees appointed by the governor and confirmed by the Texas Senate. The board has oversight of all system operations, including the annual budget, policy determination, legislative proposals and investment policy.

The Texas County & District Retirement System was created by the Texas Legislature in 1967. Since then, TCDRS has grown into a strong, multi-billion dollar trust with more than 735 participating counties and districts that provide retirement, disability and survivor benefits to more than 282,000 members.

For more information about TCDRS, visit

Note: Want to share news about your public pension plan? Email TEXPERS Communications Manager Allen Jones at

NIRS Visionary Circle membership provides 

benefits to TEXPERS members

TEXPERS Staff Report

TEXPERS has become a Visionary Circle member of the National Institute on Retirement Security, a nonprofit research and education organization established to foster a better understanding of retirement security. Membership comes with perks, including one that extends to TEXPERS’ system administrator and trustee members.

Public pension plan administrator and trustee members of TEXPERS may attend online seminars conducted by NIRS. The sessions often focus on the latest research regarding defined benefits and public pensions. TEXPERS will email notices to its member trustees and administrators inviting them to attend the webinars.

The Visionary Circle membership is open to educational sustainers like TEXPERS and offers various benefits, including access to retirement research and resources developed by NIRS. Visionary Circle members work with NIRS’ board of directors to shape and contribute to the national dialogue on retirement security issues. Through the membership, TEXPERS also will participate in an annual Visionary Circle Insights and Impact Meeting with NIRS trustees and partner Visionary Circle members.

TEXPERS also will receive prominent exposure and VIP Access to the organization’s annual NIRS Retirement Policy Conference. This year’s conference is scheduled for Feb. 26 and 27 in Washington, D.C. The conference is titled, “Refocusing Retirement: Taking the Long View” and features keynote speaker Gene Dodaro, U.S. Comptroller General and head of the U.S. Government Accountability Office.

During the conference, NIRS also will discuss new researching examining the retirement quandary millennials face. According to NIRS, the demographic cohort of 95 million Americans born between the 1980s and early 2000s face many retirement hurdles. The event also includes speaker panels exploring topics such as short-termism, education, and technology as it relates to retirement.

Monitor TEXPERS’ social media channels, blog, and publications for articles about the conference. Visit To learn more about NIRS, visit 

By Allen Jones
TEXPERS Communications Manager

The funded status of local public pension plans is growing closer to that of state funds, according to a new national study by the Center for Retirement Research at Boston College. The same is true of many local plans in Texas, and the outperformance could be due to those systems receiving more of their required contributions and using more rigid funding methods than their state counterparts.

The funding status of a public pension plan consists of the fund's accumulated assets that have been set aside for the payment of retirement benefits to employees. Since 2001, the aggregate funded status of local pension plans across the United States has lagged behind state plans. However, local public pension funds are gaining ground, says Jean-Pierre Aubry, associate director of state and local research at the center, and co-author of the funded status report.

The center released the report this month. Aubry spoke to TEXPERS about the report’s findings.

During the early 2000s, state and local plans were overfunded in aggregate, based on traditional Governmental Accounting Standards Board measurements, Aubry says. Two financial crisis changed that. Local funding levels declined more sharply than that of states, though. Since 2012, however, the gap between state and local funding has been shrinking.

“The funded status of local plans decreased modestly from 67 to 69.9 percent,” Aubry says. “The funded status of state plans remained essentially level between 73.3 and 73.9 percent.”

He offers two reasons why the funded status gap between state and local pension plans are “inching closer.”

“First, local plans continue to receive more of their required contributions than state plans and are a bit more likely to use stringent funding methods," he says. "Second, in recent years, local plans have earned stronger investment returns than state plans, perhaps partly due to a lower allocation to alternative investments."

The report uses the most recent data available – from 2015 and 2016 – to update the center’s prior assessments of the funding status of local plans. Researchers obtained data from 130 large local plans located across the United States. Data from several local plans in Texas were among those sampled for the study. Researchers compared the local data to those of 114 state plans. According to the report, data for all state plans and 55 of the local plans come from the Public Plans Database. Researchers collected the data for the other 75 plans separately.

Before 2012, although local plans received more of their actuarially required contributions and tended to set more stringent required contributions, poor investment returns historically limited their ability to close the gap with states, Aubry says. In recent years, however, local plans have experienced stronger returns than state plans, shrinking the funding gap between the two.

Eleven local plans in Texas were among the nationwide local public pension systems the center’s researchers examined for the report. Of the Lone Star State’s local plans, the City of Austin Fire Fighters’ Relief and Retirement Fund had the highest funded ratio of 88.3 percent. Among those 11 Texas systems included in the study, Dallas Police and Fire had the lowest funded rate, 49.4 percent. 

2016 Funded Status of Texas Local Plans Included in 
the Center for Retirement Research Study
Plan Name
Funded Ratio
City of Austin ERS
City of Austin Fire Fighters’ Relief and Retirement Fund
City of Austin Police Officers’ Retirement and Pension Fund
Dallas Employees Retirement Fund
El Paso City Employees Pension Fund
Fort Worth Employees Retirement Fund
Houston Firefighters
Houston Municipal Employees Pension System
Houston Police Officers Pension System
San Antonio Firemen’s and Policemen’s Pension Fund

In Texas, the legislature has worked to shore up the state systems with significant additional contributions in the last few legislative sessions, says Joe Gimenez III, owner of G3 Public Relations and TEXPERS’ public affairs consultant. He recently reviewed the Center for Retirement Research’s funded status report for TEXPERS. Local governments, whose public employees are closer to the electoral process, can hold local elected officials more accountable, too, he says.

“TEXPERS has not looked at aggregate funded status comparison trends since 2001, but we can say that, according to the latest Pension Review Board report, only one statewide system (Judicial Retirement System of Texas) is among the top 10 in a best-funded ratio comparison,” Gimenez says. “The larger Texas County and District Retirement System and Texas Municipal Retirement System are among the top 15. It’s hard to agree that, in Texas, local pension funds have lagged the state plans.”

And contrary to the Center for Retirement Research’s report, TEXPERS’ annual asset allocation study shows that Texas plans are more likely to use alternative strategy investments.

“The largest statewide respondents to TEXPERS’ survey, the Texas Employees Retirement System, allocated 26.5 percent to alternative strategies,” Gimenez says. “The other statewide respondent, the Texas Emergency Services Retirement System, did not allocate any money to alternative strategies. The aggregate allocation of all Texas system to alternative investment was 27 percent in 2016. An investment return comparison is not available from current TEXPERS data.”

The Texas Pension Review Board ranks systems by amortization periods instead of funded ratios. Only one statewide system, TCDRS, is among the top 25 systems with the best amortization periods, Gimenez says.

“All systems face funding challenges,” he adds. “Politicians seem to favor corporate subsidies or other special projects, which raise their name recognition with voters. The funding of pensions is not valued like it should be. As Hurricane Harvey demonstrated, the value of public employees to disaster response and then rebuilding efforts is instrumental to civic order and structuring. The competition among public choice options for budget expenditures rarely ranks employee pension in their appropriate position to function of civil society.”

Because the Center for Retirement Research’s brief is based on aggregate data and is not specific to Texas plans, the head of the state agency that oversees the actuarial soundness of Texas’ state and local public pension retirement systems couldn’t comment. The PRB uses amortization period as one of the key metrics to review plan health, says Anumeha Kumar, executive director of the Texas Pension Review Board. However, it is not the only metric the agency looks at, she adds. The PRB is currently conducting system actuarial reviews and has identified eight factors including amortization period, funded ratio, unfunded actuarial accrued liability as a percent of payroll, and actual contribution as a percent of actuarially determined contrition (ADC) to prioritize plans for in-depth reviews. ADC is a concept similar to the actuarially required contribution that was used under Governmental Accounting Standards Board principles.

“The brief also states that ‘more research is needed to fully understand this recent reversal’ in the shrinking funding gap between local and state systems,” she says. “Unfortunately, we have not studied this trend of data for Texas plans so I would not be able to make any quantitative comments on or provide a Texas perspective relative to this report.”

An Overview of Public Pension Plans
In 2016, there were 6,276 state and local pension plans. The plans had an estimate of more than $3.7 trillion in assets and 31.2 million members. Of those plans, 5,977 were locally administered with $684 billion in assets and 3.8 million members. Local plans, make up the majority of plans even though the majority of assets and plan members are in state-run plans, says Jean-Pierre Aubry, associate director of state and local research at the Center for Retirement Research at Boston College. Aubry recently co-wrote a study indicating the funding status of local public pension plans are inching closer to state public pension systems. 
According to the center’s report, more than 90 percent of local plans had less than $1 billion in assets in 2015. However, three plans – the New York City Employee Retirement System, the New York City Teachers Retirement System, and the Los Angeles County Employee Retirement System – each had market assets in excess of $40 billion. 

Allen Jones
About the Author:
Allen Jones is the communications manager for the Texas Association of Public Employee Retirement Systems. Email him at or call 713-622-8018.

Monday, December 18, 2017

Global investors see renewed promise in emerging markets

Updated 1.4.2018 at 9:42 a.m.

By Rex Mathew
Guest Columnist

After nearly five years of underperformance, emerging market equities regained some favor from global investors in 2016 and have outperformed so far this year as well. Yet, many investors still worry about the risks, perceived as well as real. Is it yet another false dawn that could quickly fade when the United States Federal Reserve and other major central banks start scaling back their balance sheets? Or could the pessimism reappear if commodity prices falter again?

I believe emerging market fundamentals are much healthier now when compared to recent years. Helped by sustained gains in domestic demand and the recovery in export shipments, the economic growth outlook for the major emerging countries has brightened. I do see growth stabilizing in China, even as the country is rapidly shifting to a consumer-driven economy and several other Asian economies are accelerating. Domestic demand has become the growth driver for the emerging world and rate cuts by central banks are helping consumer spending. Commodity exporters are gradually recovering, as the demand outlook for energy and industrial materials continues to improve.

Finally, and perhaps most importantly, emerging market corporations are now growing more confident in their revenue and earnings growth outlook.

Growth differential with the developed world is widening

For nearly a decade before the 2008 global financial crisis, the appreciably faster economic growth in Emerging Markets attracted global investors. At the peak in 2007, emerging and developing economies were expanding at an annual pace of over 8.5 percent, compared to around 3 percent for the developed world. After the dip in 2008 and 2009, short-term fiscal spending by governments helped emerging economies accelerate again. However, as commodity prices started to moderate and global trade slowed, growth in emerging economies cooled off. In 2015, when the developed economies expanded at an average rate of 2 percent, emerging economies registered a not so impressive 4 percent. 

Nevertheless, it now appears likely that emerging markets could regain some of the growth momenta and widen the growth differential with the developed world. The International Monetary Fund estimates that average the growth rate for emerging markets could rise to 5 percent annualized by 2019, and that rate could be sustained through 2022, while the developed countries are unlikely to expand faster than 2 percent. Though the pace is nowhere close to the pre-crisis high, even a moderate acceleration would be much appreciated in a world starved for growth.

Energy and commodity prices: not too cold, not too hot

The sharp decline in energy and commodity prices after 2014 did benefit large importing countries such as China, South Korea and India. But the abrupt fall in export realizations hurt Brazil, Russia, and other emerging countries, and pushed some of them into recession. The weak outlook forced energy producers and mining groups to cancel or delay capital investments, hurting equipment manufacturers and their supplies even in countries that have benefited from low commodity prices. On balance, the boost from cheaper commodities for the emerging world as a whole fell short of expectations.

Last year’s rebound in crude oil and other industrial materials such as iron ore helped the resource exporting countries recover from deep recessions. Brazil and Russia are expanding again, while most Latin American countries should grow faster by next year. At the same time, commodity prices have not moved high enough to appreciably detract from growth rates in China and other resource importers.

Governments in select countries are pushing reforms

After dramatically opening up their economies to join the globalizing world, and enjoying the growth boost afterward, governments in several emerging countries lost the urgency to initiate additional reforms to support businesses and make them more competitive. In some countries, governments became embroiled in corruption scandals and lost the political goodwill to make policy changes. The current governments in India and Indonesia did not have those constraints and have implemented significant policy initiatives, even at the risk of short-term disruptions to economic activity. Both governments have also proactively taken steps to reduce corruption and make it easier to do business in their countries. Similarly, several of the smaller Latin American countries are implementing business-friendly policies and reducing public spending.

Political risks in other emerging countries have also eased, though some of the governments have become more authoritarian and their policies have become somewhat unpredictable. Governments in Brazil, South Africa and Malaysia are facing corruption allegations, but the risk of these governments losing power appears low. If reform-oriented governments come to power in elections scheduled in 2018 and 2019, it is possible that some of these countries could see policy measures that enable faster economic growth.

Emerging market valuations remain attractive

Despite outperforming the developed markets for the last eighteen months, we believe equity valuations in emerging markets remain relatively more attractive and continue to offer long-term opportunities. Unlike earlier when most large emerging market corporations were energy or material producers in a handful of countries, investors now have the opportunity to participate in the growth of a broad array of industries and geographies.   

To conclude, the economic and political environments in several large emerging markets have become more favorable for businesses to grow their revenues and earnings. Years of slow demand growth have forced emerging market corporations to trim their costs and become more efficient. Some of them have used this period to invest in capacity expansion that should help them grow their market share. We are now seeing clear signs of a revival in earnings, across most sectors, in emerging markets. If the environment remains supportive and the earnings cycle continues to revive, emerging market equities may deserve more favorable consideration from international investors.  

The views expressed in the article do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of Thomas White International or TEXPERS.

About the Author:

Rex Mathew
Rex Mathew is senior vice president of Thomas White International, responsible for research on companies based in Asia and Latin America for the firm's international and emerging markets portfolios. He leads the global markets, economy and industry analysis efforts that support the firm's investment research as well as the development of written content that highlight investment and market insights. In addition, he is responsible for the portfolio reviews and commentary for the Thomas White Funds as well as institutional accounts at the firm. 

Four key forecasts for stocks and bonds

By Matt Peron and Colin Robertson
Guest Columnists

Consider taking a global approach to investing, as emerging markets and Europe should present interesting opportunities. While global yields should remain low, relatively attractive yields can be found in the United States fixed income market. 

Here are just some of our forecasts for the next five years:

Emerging Markets Should Outperform

Investors may want to keep emerging markets in mind, as they represent attractive opportunities for stocks and bonds. We expect emerging markets to return 8.4 percent for equities and 5.3 percent for bonds, exceeding developed markets. Emerging market performance may reflect relatively strong economic growth and increasing demand from within their home markets. Valuations should increase, as they are too low for the stable economic environment we expect.

Look for U.S. Yields to Lead

We think the U.S. should continue to have the highest rates across the yield curve of all major economies with a 3 percent yield for 10-year Treasurys. Outside the U.S., we expect other countries’ rates to move out of negative territory, although Japan may remain close to 0 percent.

Investors may find that higher government yields will translate into higher yields across the U.S. fixed income market. We think returns from U.S. investment-grade bonds should lead globally, at a 3.2 percent return.

Still, global yields are low versus historical averages, reflecting low inflation and cautious central banks. Although central banks should begin the process of reducing the size of their balance sheets, we believe this should occur at a very slow, gradual and transparent pace and be unlikely to cause market volatility.

U.S. Equities to Lag Other Developed Markets

Keep a global perspective. Beyond just the opportunities in emerging markets discussed above, Europe and Asia may present more opportunities for investors than they have in the past. Globally, developed market equities are in a sweet spot of steady growth and low inflation. However, when breaking down regional contributions, we see a 5.9 percent return in the U.S., trailing other developed markets (see Exhibit 1 below). We think profit margins in the U.S. should fall slightly but remain high in Europe and Japan. We are encouraged by European regulatory developments, which we expect will boost economic growth and financial markets. 

High-Yield Defaults Should Fall

In the high-yield market, investors are unlikely to benefit from a contraction in credit spreads. The global high-yield market looks much different than it did a year ago, when volatile oil prices threatened energy companies. Since then, defaults have slowed and credit spreads have narrowed to more normal levels.

We don’t think there is as much opportunity for spreads to narrow further. We see a 4.5% return for global high yield, 1% lower from current yields. This represents a lower hit from defaults than we have realized historically in the past.

Stay Fully Invested and Well Diversified

While steady global growth provides a bedrock for investing in the coming years, this is not a high-performance investing environment. We expect traditional stock and bond portfolios to return 4 percent to 6 percent. Cash returns are very low, so investors who are not fully invested are penalized even further by taking money out of the market. We think that investors should stay fully invested with a diversified portfolio throughout market cycles for the best chance to reach their portfolio goals. 

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of Northern Trust or TEXPERS.

About the Authors:

Matt Peron
Colin Robertson
Matt Peron and Colin Robertson are with Northern Trust Asset Management. Peron is head of global equity and Robertson is head of fixed income.