The Teacher Retirement System of Texas, the largest of several pension funds in the US state, is mulling putting an office in Hong Kong or Singapore so it can manage its $22 billion of assets in Asia more effectively.
With the region accounting for 15% of the $151 billion global portfolio, "it probably makes sense to move some human resources" closer to those assets, chief investment officer Jerry Albright told AsianInvestor during a trip to London last week.*
The aim of Texas TRS’s first Asian branch would be to “better control risk and make better [investment] decisions”, he said, though it does not plan for an "expensive" presence given its relatively limited resources.
“We will be evaluating the possibility of an Asia office with the board in July," Albright said, and it is at least a year before it would be established.
Texas TRS is yet to decide where it might locate what would be its first regional base, with Hong Kong and Singapore both potentially under consideration. The fund invests across Asia, he added, but it’s a question of where its main focus will be.
If the new office goes ahead, Texas TRS could become the first large US pension fund with staff in Asia.
It is a pioneer both in that sense and in its relatively big allocation to Asia. US investors generally don’t have much exposure to the region apart from Japan, Hong Kong and Singapore, said Paul Colwell, Asia head of portfolio advisory at Willis Towers Watson. Hence Asian markets potentially represent a great opportunity for American pensions to diversify, he told AsianInvestor.
Texas TRS's new branch would initially focus on listed equities in Asia, investing via hedge funds and also directly into stocks via its emerging-markets team. It would later look to make private market investments, Albright said. “Over the next couple of years we will increase the activity to other asset platforms as we grow the office over time."
The approach will be different from that of the fund’s London office, which was set up in 2015 specifically to make direct private investments in Europe.
Most of the Asia allocation is to public markets at present, with any private assets owned via external managers. “We’re not resourced to do direct or co-investment in Asia at the moment,” Albright noted.
Texas TRS runs an EM equity portfolio out of its headquarters in Austin both on an active and passive basis. Emerging markets account for 9% of its global equity exposure – which has remained fairly stable for the past five years – with Asia contributing most of that allocation, he said.
The fund is due to carry out its five-yearly allocation review next year, noted Albright, and that will determine whether its target EM exposure will change.
But Texas TRS does not plan to build headcount to the same degree as those institutions, which have sizeable teams on the ground focusing on both public-market and direct investment in private assets.
“I always say we’re going ‘halfway to Canada’,” said Albright. “We won’t have so many people on the ground or do as much in-house investing [as the likes of CPPIB or Singapore sovereign wealth fund GIC]. We are going to make the best use of the resources we have; we don’t have unlimited resources like some other funds.
"Some people think the Canadian model is a great way to go," added Albright. "And it's not that it isn't, but you need a lot of resources. [Those funds] have been doing private investing for years and are very large."
* An extended article about Texas TRS's investment approach and allocation strategy based on an interview with the CIO will appear in the upcoming June/July issue of AsianInvestor.