The TEXPERS Blog

TEXPERS’ Members Stay on Task, Beat Long-term Benchmarks

James Perry, Maples Group study coordinator, along with
Elizabeth Shiang, presents results of the asset allocation
study during TEXPERS' Annual Conference in Austin. 

By Joe Gimenez, Guest Contributor

The TEXPERS annual survey of its members revealed upbeat statistics about their collective investment performance: They beat the benchmark indexes which held the same types of investments in the most crucial 20-year period.

Our survey’s respondents – nearly two-thirds of the systems monitored by the Texas Pension Review Board – had a 7.3 percent composite return for the 20-year period ended September 30, 2018.

Even though this composite return slightly underperformed their collective 7.4 percent target rate, our members outperformed a widely recognized industry benchmark of global stocks and bonds. They beat, by 1.8 percent, a passive 60 percent allocation to the MSCI ACWI Index and a 40 percent allocation to the Bloomberg Barclays Global Aggregate over the last two decades on an annualized basis net of fees.

“It is remarkable how the pension systems have handled the preceding 20-year period,” said James Perry, the Maples Group study coordinator which produced the TEXPERS survey. “Considering that it included the Dot-Com bubble and bust of 1998-2003, the global financial crisis of 2007-09, and the uncertainty of quantitative easing and its unwinding, it’s safe to say that as a group these systems have successfully navigated some of the worst that the global markets have thrown at them. It’s a credit to their ability to manage their members’ retirement assets.”

TEXPERS released its yearly “Report on the Asset Allocation and Investment Performance of Texas Public Employee Retirement Systems" at its 30th Annual Conference for pension fund trustees and staff in Austin. The study confirmed that Texas pension funds hold 51 percent of their dollar-weighted asset allocations in domestic and international stocks. Alternative strategy investments comprised 28 percent and fixed income 20 percent of their portfolios. The respondents manage $58.45 billion in combined total assets.

“It’s very important that pension funds have strong long-term performance to match their employees’ anticipated career path and retirement goals,” said Paul Brown, the president of TEXPERS’ Board of Directors. “Our members’ ability to get close to future targets is remarkable. It is comforting to public employees who want to know their benefits will be there after 20 or more years of service.”

In addition, a shorter term measure was positive as well. TEXPERS members’ 15-year composite return of 7.5 percent also beat the Global 60/40 portfolio return of 6.5 percent.

TEXPERS conducts the annual survey to document its member systems’ diversification with respect to the types of assets invested in, and the investment performance of these systems with respect to their actuarially assumed returns, market benchmarks and other public funds.

The report findings are conveyed to members of the Texas Legislature and help us to demonstrate that local systems are being managed in compliance with the “prudent expert” rule. As the report notes, this rule requires that fiduciaries to exercise their duties with the care, skill, prudence and diligence under the prevailing circumstances that a prudent person acting in a like capacity and familiar with matters of the type would use in the conduct of an enterprise with a like character and like aims.

Of particular value to members is the analyses of standard deviation in the 5-, 10-, 15- and 20-year periods, on pages 15-19 of the report. Those pages can help benchmark your system’s performance against those pensions systems which are similar in size to yours and take into account the investing environments for those time periods.

Another benefit of the report is the asset allocation analysis, which allows you the opportunity to compare your portfolio mix with funds of similar size, or those of higher and lower performance. These can provide some guidance to those Boards considering changes to their portfolio mix.

TEXPERS’ report notes that, overall, Texas pension funds continued to orient their target rates toward more conservative expectations. The average rate in 2018 was 7.4 percent, down from 7.5 percent in 2017, and 8.0 percent in 2013. By lowering their target rates, the pension systems have responded to widespread sentiment that the higher returns of the late 1990s and early 2000s may not be possible in future market and economic environments.

In a Texas-wide press release announcing the report findings, TEXPERS Board President Brown recognized the following standout systems for 20-year performance above the target:

• 8.71 percent - Houston Municipal Employees Pension System
• 8.33 percent - CPS Energy Employees' Benefit Trust
• 8.20 percent - Austin Police Retirement System

About the Author: 

Joe Gimenez is a public relations professional who specializes in pension fund communications. He has assisted TEXPERS and several Texas pension funds in crisis situations and public affairs.