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Committee members do not appear to be considering establishment of a uniform investment policy, despite the language of the charge, which refers to “an investment policy that is consistent across all state trust funds.” There was some interest in the levels of risk that funds are willing to accept in their investments, and the variances among state funds in that regard, but several witnesses pointed out that the needs and goals of, for example, a teacher pension fund are likely to be very different from those of a university endowment.
Teachers have been concerned about the risk levels of the new types of investments TRS is making. Witnesses noted that risk should be considered in the broader context of an entire fund portfolio, rather than any individual investment opportunity. Hedge funds and derivatives are two controversial alternative investment options that tend to make TRS members nervous, but the committee heard from experts who maintain that even investments that carry a higher level of risk individually could ultimately lower a fund’s overall risk by providing balance to the portfolio. However, investment managers were cautioned that “transparency” is a crucial component when considering such alternative investments. The fund’s beneficiaries – school employees and retirees, in TRS’s case – must have access to good information and communication from the agency.
One panel essentially pitched the concept of encouraging Texas pension funds to invest in Texas infrastructure (such as toll roads). Senate Finance Committee Chair Steve Ogden appeared supportive, discussing the creation of a quasi-governmental agency designed to market Texas infrastructure investment opportunities, but other committee members (notably Senators Tommy Willams and John Whitmire) expressed concern about the potential for political pressure on funds to make such investments. TRS and ERS executive directors both reminded the committees of their boards’ duty to always consider the best interest of the fund and its members, and the need to weigh any investment opportunity with regard to whether other options might be preferable. The pension funds already have the ability to invest in infrastructure opportunities, and when presented with opportunities in Texas that are a better deal than other options, they can take advantage of those situations.
Sen. Jane Nelson, known for her opposition to the introduction of casino gambling in Texas, asked about TRS’s investment last summer in a casino in Las Vegas. TRS staff provided details of the investment and maintained that it was an excellent opportunity for the fund. Sen. Ogden noted that it seemed odd that “the teachers” were investing in activities that are not legal in Texas, while other committee members opined that there were probably plenty of Texas teachers who availed themselves of the Las Vegas casinos.
The committees will continue to address their interim charges in the coming months before developing recommendations this fall to present to the 81st Legislature in 2009.
Web posted: 03/27/08
