Texas Teachers Pension Commits $465 Million to Three Real Estate Funds

small model house

The Teacher Retirement System of Texas has committed $465 million to three real estate funds, which will invest in a gamut of sectors including residential, industrial, hotel, retail and offices.

More from IPE Real Estate:

The pension fund is committing $200m to Westbrook Real Estate Fund X, $200m to Carlyle Realty Partners VII and $65m as a co-investment with Starwood Capital Group.

Westbrook Partners is seeking to raise $2.5bn for its latest global opportunity fund, which will be targeting gross returns of 15% (12% net).

It will invest in the major markets in Europe and coastal gateway cities in the US, focusing on distressed situations in the office, retail, apartment and industrial sectors.

Carlyle is targeting a $3bn equity raise for its latest US opportunity fund, which will invest in developments and existing assets that need to be improved.

It will target relatively small investments – in the range of $10m to $30m – in the office, industrial, retail, residential, hotel and senior-housing sectors.

Texas Teachers is co-investing in Starwood’s SCG TMI Co-Invest entity, which invests in opportunistic real estate.

TRS Texas manages $124 billion in assets.


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Texas Pension Accounting Tweak Will Shift Debt to Schools, If Only Symbolically

calculator, pen and numbers

In light of newly adopted GASB accounting rules, the Teacher Retirement System of Texas in 2015 will require school districts, colleges – and any other government entities that pay into the system – to declare their employees’ pension liabilities on their books.

From the Killeen Daily Herald:

School districts across the state will soon have more debt listed on their general fund balances and teachers could see a smaller paycheck…


“TRS does not want to put this liability on their books so they are taking the allocation to the districts and the cities and colleges and saying, ‘You record this amount; I’ll record this amount,” said Dane Legg, a partner at Lott, Vernon and Company PC, the Killeen Independent School District’s external auditing firm.

Legg reviewed the upcoming financial policy change with board members at their mid-December workshop.

In laymen’s terms, this means Killeen ISD will have to show a $48 million liability in its budget for about 28 years, the amount TRS said it owes toward Killeen ISD employees’ pensions.

The liability stems from the TRS Trust Fund, which is underfunded but will be fully funded in 28 years.

“It’s not set in stone — that number has not been set yet — but this was what they were charged to do to give people a heads up and go ahead and come up with their best guess,” Legg said.

TRS is $28.9 billion underfunded statewide, Legg said. And officials expect many government entities will take issue with the new GASB 68 policy because it will force some of them to look like they are in debt.

“TRS determines how that liability gets allocated by the district, and TRS is only taking a small piece of that $28 billion, and they are giving most of the rest to the district to record,” said Megan Bradley, the chief financial officer for Killeen ISD.

The district will not have to fund the liability, it will simply be a book entry, Legg said. TRS will fund it, however, by changing its member contribution rates and possibly the district’s match rate.

The Teachers Retirement System of Texas managed $124 billion in assets as of the end of 2013.


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Texas Fund Cuts Hedge Fund Allocation By 1 Percent

Texas Proof

The Teacher Retirement System of Texas, one of the largest pension funds in the country, announced Thursday it would cut its allocation to hedge funds by 1 percent. It also changed its target allocations for equities and bonds.

Reported by Bloomberg:

The board of the $126 billion Texas system approved the change today following an asset allocation study, Howard Goldman, a spokesman, said by e-mail. Texas will reduce hedge funds to 8 percent of the pension from 9 percent, according to board documents.


Besides reducing its bet on hedge funds, the Texas pension lowered the portion of assets it gives to equities by 4 percentage points and to fixed-income securities by 2 percentage points, while adding 5 percentage points each to risk parity and private markets, according to board documents. Risk parity is a strategy for investing based on allocation of risk and private equity and real assets.

“These new allocations are expected to be funded from a diverse set of asset classes across the trust in order to increase the overall probability that TRS will be able to achieve the 8 percent actuarial return target,” according to a statement provided by Goldman.

TRS Texas is approximately 80 percent funded. It is the sixth-largest public pension fund in the United States.

Houston Firefighters Fund CIO Resigns

Houston Fire Truck

Christopher Gonzales, the Chief Investment Officer of the Houston Firefighters Relief and Retirement Fund (HFRRF), resigned from his position today. As Pensions & Investments reports:

Mr. Gonzales said he has taken a position with a corporate retirement plan. He declined to provide further information. He has been CIO at the pension fund for 13 years. His last day is Sept. 12.

The board will discuss how to handle the upcoming vacancy at a special board meeting on Thursday, said Chairman Todd E. Clark.

Notably, Gonzales is a staunch supporter of private equity investments. The most recent data reveals the HFRRF allocated just over 10 percent of its assets towards private equity in 2013, but that number was once as high as 18 percent.

In an op-ed written for Pensions & Investments in January 2014, Gonzales lauded the performance of his fund’s private equity investments:

For the second year in a row, the Houston Firefighters’ Relief & Retirement Fund was among the top ranked in the Private Equity Growth Capital Council’s top 10 pension funds by private equity returns.

HFRRF earned a fourth-place spot in the private equity return ranking with a 13.6% annualized return, net of fees, over the 10 years and 9.3% over the five years, ended June 30, 2012.

Returns have shown consistency. In the 10 years ended June 20, 2011, the PEGCC study ranked HFRRF seventh best in private equity portfolio performance.

The PEGCC’s report showed that private equity returns to large public funds outperformed all other asset classes with median annualized 10-year returns of 10% for the subset of 146 large public pension funds that published 10-year returns ended June 30, 2012.

The HFRRF returned 11.24 percent, net of fees, in 2013 after returning 1.89 percent in 2012 and 20.29 percent in 2011.


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