TRS Remains in Spotlight

The Texas Teacher Retirement System continues to make news regarding its investment policies and, more recently, its decision to pay a new outside law firm $750 an hour, one of the highest legal fees ever approved by the Texas attorney general and a much higher rate than what many other large public pension funds pay. In an article in the Austin American Statesman (registration), Sen. Robert Duncan (R-Lubbock), has some pointed questions for the TRS board of trustees.

From the article:

"We had counsel that was uniquely qualified to do the job, and apparently there were no conflicts of interest, no issues that would make you say, this firm is no longer meeting our needs, or that they've made a mistake," Duncan said. "Now we're going to a firm with a higher hourly rate, and we have to hire other firms at higher hourly rates in case there are conflicts. Why are we changing to something that is in my view chaotic?"

Also, in the Statesman's blog, Public Capital, Richard Elder comments on questions he keeps getting about the status of the TRS investment portfolio, in light of the recent financial crisis.

Here's what Mr. Elder says:

Readers of this blog have asked that question about the state’s pension and endowment funds, both in published comments on Public Capital and in e-mails to me. More specifically, the questions focus on how much damage the funds have suffered in the market of late, and how that will affect benefits for retirees and the payouts from endowments.

At this point, it’s difficult if not impossible to tell. As Gov. Rick Perry told Bob Garrett of the Dallas Morning News the other day, when asked about Monday’s epic stock-market decline, “Any time you have a loss of that magnitude, you have concern. We ought to have concern.”

The article continues, “(Perry) said, though, that it’s premature to say whether the state will have to pour more money into pension funds — or discuss the budget outlook generally.”

I asked the state’s two major pension funds for their investment performance for the state fiscal year ended Aug. 31.

For the Teacher Retirement System: one-year rate of return of -4.3%, and the pension fund’s value was $104.9 billion.

For the Employees Retirement System: one-year rate of return of -4.6% and the pension fund’s value was $22.311 billion. The ERS also weathered most of September pretty well — the value of the fund was $22.215 billion as of Sept. 22.

The TRS didn’t provide an estimated value of the trust beyond Aug. 31.

Better yet: The University of Texas Investment Management Co., which reported a -3.34% return for the Permanent University Fund. The $11.4 billion PUF helps pay for the costs of the UT and Texas A&M systems.

The investment returns of endowments and pensions shouldn’t be compared, however, as their goals are so different.

So far, though, it appears the big pensions and endowments are holding up quite well.