Texas Municipal Retirement System Update

While TMRS is increasing their investments in private equity, and absolute return,, the Harvard Endowment is reducing their investments by $2.5B in these sectors plus real estate.

"So with this major overhaul taking place, it is hardly a surprise that the Harvard Endowment is quietly seeking to liquidate some $2.5 billion in private equity, venture capital and real estate investments, as Axios reported on Monday. The website notes that the secondary offerings include just under $1 billion of PE/VC partnership positions plus around $1.6 billion of real estate positions."

As noted in a prior post, the large retirement/endowment systems are exiting the higher risk investments while TMRS is increasing their exposure. It should be noted that TMRS has done well with investments in real estate, but, there are troubling signs that the risk is increasing.

Mean while, Gabriel, Roeder, Smith & Company, consultants and acturaries to TMRS, have posted their latest analysis on the investment performance as shown in the following chart.

Click chart to enlarge

This chart succinctly shows one of the main issues with the management of TMRS. They assume an annual investment return of 6.75% while they have earned 5.91% on average over the last ten years.

At the 6.75% rate TMRS calculates the fund is more than 80% funded and "all is well". At 5.91%, the fund is estimated to be 68% funded.

So the question is: Why do they assume a 6.75% return when historically they have earned 5.91% over the last ten years?

The answer is: At the lower rate the cities would have to increase their contributions, which is anathema to politicians.