TMRS Heading in Wrong Direction?

The Texas Municipal Retirement System (TMRS), seems to continue to invest in higher risk investments that are not transparent. Even though the TMRS total return this year is meeting or surpassing expectations, it is not surprising given the dramatic increase in stock market values.

TMRS is the pension management organization that invests Georgetown employee's retirement funds.

A new research paper has just been published about the valuations and volatility of Private Equity funds. Naked Capitalism Here are the conclusions:

If this article’s conclusions are correct, future investors may have second thoughts about purchasing buyout funds instead of listed securities. Moreover, past buyout-fund investors may have been unfairly induced to place monies into these investment vehicles, in part through (1) faulty mark-to-market residual values, (2) improper year-to-year return estimates, or (3) inaccurate volatility calculations. Furthermore, many buyout fund return studies rely, by necessity, on residual value estimates of the fund GPs. If these estimates are inaccurate, the validity of these studies’ conclusions may be called into question.

TMRS has been steadily increasing their investment in Private Equity(PE). Their goal is 5%, or approximately $1.25B. They have $173.6M  invested in PE as of 6/30/2017with a goal of adding $600M this year. Even in this robust market environment, they are missing their PE investment performance goal by 1.25%.

Thus we see that even though respected industry analysts are finding shortcomings with the accounting by Private Equity funds, TMRS continues to increase their investments in said funds.

Where are the "adult overseers" for TMRS? The shortcomings in PE investments may be hidden by the robust stock market, but when the next market down turn occurs, the valuations of the PE funds will decline much more than the overall market, thus exposing the issues identified in the article above.