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The pension systems for Texas cities’ firefighters, police and municipal employees scored gains in 2020 despite the peak-to-trough stock market decline of more than 35% during March and April 2020 in response to the Covid-19 pandemic.
Despite that significant recent decline, the 42 system members of the Texas Association of Public Employee Retirement Systems’ responding to an annual survey hit the average actuarial targets of 7.4% in annualized returns for the five-year period. Their combined portfolios amounted to $54.98 billion at the close of the survey period, September 30, 2020. The median target rate of the 100 pension systems monitored by the Pension Review Board of Texas is 7.25%.
The survey, conducted for TEXPERS by the Maples Group, confirmed also that the local pension systems who provide secure retirement for public servants successfully diversified their portfolio assets to smooth over market roller coaster rides of the last 20 years. The systems have outperformed the 5.2% average of an industry standard global aggregate index of 60 percent stocks and 40 percent bonds and overcome three significant bear market events with some of the largest drawdowns of equity markets since the Great Depression.
“Pensions must succeed over the long term in matching overall performance to the decades-long careers of public employees,” said James Smith, the president of TEXPERS’ Board of Directors. “The pension systems must deliver on the promises of city employers for the deferred benefits of retirement security. This survey, perhaps more than any other, reflects on pension Trustees’ proficiencies.”
The TEXPERS survey seems to have served Trustees well. A few years ago it showed that Texas pension systems were over-weighted in their bond holdings as compared to other institutional investors. This could have turned for the worse if interest rates rose. The 2021 survey of 2020 investment allocations indicated that Texas pension systems pared their bond portfolios in favor of equities and alternative assets, like private equity and real estate. The weighted average allocation for participants in 2020 was 46% equities and approximately 30% alternatives, compared to 16.2% fixed income. Alternative assets have helped plans achieve their actuarial goals in the last 5- and 10-year periods.
TEXPERS released its yearly “Report on the Asset Allocation and Investment Performance of Texas Public Employee Retirement Systems" at its Annual Conference for pension fund trustees and staff in Austin, held May 23-26. Approximately 450 people registered and attended the event at the Austin Marriott.
Background
1) The global aggregate index referenced in the third paragraph is the 60% Morgan Stanley Capital International All Country World (Equity) Index and the 40% Bloomberg Barclays U.S. Aggregate Bond Index.
2) The survey period ended September 30, 2020. The stock market continued to rise through 2020 and early 2021. Pension funds will report their late 2020 and three quarters of 2021 gains in the next TEXPERS survey.
