First Lady’s former pension plan now fuelled by alternative investments

7 March 2008

If Britt Harris is successful, the Bush family might be envious of the First Lady’s former teaching colleagues back in Texas.  Harris, the CIO of the $100 billion Teachers Retirement System of Texas, steered the plan toward a 16.3% last year.  (Truth be told, we’re not sure if the First Lady opted in or out of the plan back in the early 70’s when she taught in Dallas and Houston, but records seem to indicate that she is not in it right now).  According to Harris, if he can allocate nearly $40 billion to alternative investments as planned, he thinks he can anticipate more above average returns in the future. (For vital stats on the plan see page 5 of the most recent TRS Newsletter).

Barron’s reports this week that Harris was brought on board in late ‘06 to revamp plan - particularly its adherence to the traditional “60/40″ equities/bonds split.  Says Barron’s:

“A key element in Harris’ plan: greater use of hedge funds, whose combined strategies can offer more flexibility in tough environments. He also wants more exposure to private equity, both as an investor in funds and as a co-investor with buyout partners, in the same way that sovereign funds have lately been snapping up opportunities.”

However, as Barron’s reports, critics echo some of the concerns expressed by their neighbors in New Mexico (see related posting):

“Not everyone is enamored of Harris’ approach. Frederick “Shad” Rowe, chairman of the Texas Pension Review Board in Austin, agreed to speak with Barron’s as a private citizen. He worries about the potential for big losses: ‘There seems to be a misunderstanding over risk, which they equate with volatility, and the absolute and permanent loss of capital…I don’t think this approach is appropriate for all big public pension plans. They’re certainly sophisticated, but it’s not something I’d like to see everybody doing.’”

Harris is apparently trying to emulate the success of big university endowments like Yale, Harvard and Duke by making sizable allocations to alternative investments (real estate, private equity, hedge funds etc.)

Speaking of university endowments, you can now add Cornell to that list too.  bFinance reports this week that the $6 billion Cornell endowment earned 26% last year with a whopping 55% allocation to alternative investments (25% in hedge funds alone).  

Addendum: The FT also ran an interesting piece on university endowments earlier this week, saying:

“Colleges and universities in the US and Canada are likely to funnel more of their $411bn (€274bn, £207bn) in endowment assets into alternative investments in a hunt for the high returns that would cover spending increases.”

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