Key Takeaways
- • Texas Permanent School Fund terminated hedge fund-of-funds manager GAM USA, reallocating $332 million to two strategic partners in a decision made at the Texas State Board of Education meeting on November 16, 2012.
- • The fund retained Mesirow as a strategic advisor, maintaining continuity in its alternative investment consulting structure despite the GAM USA termination.
- • Texas Permanent's strategic partnership model—established in April 2008 with JP Morgan, Morgan Stanley, BlackRock, and Neuberger Berman—has generated returns of 7.3% for the fiscal year ending September 2012, exceeding performance expectations for the $91 billion Teacher Retirement System of Texas (TRS).
- • Strategic partnerships are delivering measurable value beyond investment returns, including proprietary research projects and enhanced access to public and private market opportunities, according to TRS Chief Investment Officer Britt Harris.
- • The $4 billion committed to strategic partnerships represents a core pillar of TRS's multi-consultant framework, which also includes LaSalle Investment Management (private markets fiduciary advisor), Hamilton Lane (domestic private equity), Altius Associates (international private equity), Albourne (absolute return), and The Townsend Group (real estate consulting).
Summary
The Texas Permanent School Fund executed a significant reallocation of alternative investment assets on November 16, 2012, terminating its relationship with hedge fund-of-funds manager GAM USA and moving $332 million to two unnamed strategic partners. The decision came as a surprise given the fund's ongoing reliance on external managers, though the fund retained Mesirow as a strategic advisor, signaling selective rather than wholesale portfolio restructuring.
The timing of this reallocation reflects the broader performance context of the Teacher Retirement System of Texas (TRS), which oversees the $91 billion fund. TRS's strategic partnership program, initiated in April 2008 with four cornerstone firms—JP Morgan, Morgan Stanley, BlackRock, and Neuberger Berman—has generated returns of 7.3% for the fiscal year ending September 2012, materially exceeding internal performance expectations. The $4 billion committed to these strategic relationships has proven effective not only in absolute returns but also in collaborative proprietary research and enhanced investment decision-making, according to TRS Chief Investment Officer Britt Harris.
Beyond the four primary strategic partners, TRS maintains a diversified consultant network to optimize asset allocation across multiple investment categories. The fund appointed LaSalle Investment Management as fiduciary advisor to the private markets portfolio, while Hamilton Lane manages domestic private equity, Altius Associates oversees international private equity, Albourne provides absolute return strategies, and The Townsend Group advises on real estate. As of August 2012, TRS held approximately $5.5 billion in real estate, REITs, and real assets, with public equities representing the largest allocation at $47 billion. This multi-manager framework positions TRS to leverage specialized expertise while maintaining disciplined governance over a complex portfolio spanning public markets, private equity, real assets, and alternative strategies.
The timing of this reallocation reflects the broader performance context of the Teacher Retirement System of Texas (TRS), which oversees the $91 billion fund. TRS's strategic partnership program, initiated in April 2008 with four cornerstone firms—JP Morgan, Morgan Stanley, BlackRock, and Neuberger Berman—has generated returns of 7.3% for the fiscal year ending September 2012, materially exceeding internal performance expectations. The $4 billion committed to these strategic relationships has proven effective not only in absolute returns but also in collaborative proprietary research and enhanced investment decision-making, according to TRS Chief Investment Officer Britt Harris.
Beyond the four primary strategic partners, TRS maintains a diversified consultant network to optimize asset allocation across multiple investment categories. The fund appointed LaSalle Investment Management as fiduciary advisor to the private markets portfolio, while Hamilton Lane manages domestic private equity, Altius Associates oversees international private equity, Albourne provides absolute return strategies, and The Townsend Group advises on real estate. As of August 2012, TRS held approximately $5.5 billion in real estate, REITs, and real assets, with public equities representing the largest allocation at $47 billion. This multi-manager framework positions TRS to leverage specialized expertise while maintaining disciplined governance over a complex portfolio spanning public markets, private equity, real assets, and alternative strategies.
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