Jerry Albright, chief investment officer of the Teacher Retirement System of Texas (TRS), had a private sit down with members of Institutional Allocator’s editorial team when they flew down to Austin to attend Markets Group’s 6th Annual Texas Institutional Forum. Institutional Allocator’s Managing Editor Leslie Kramer later followed up with Albright to find out more about his Texas roots, and how he sets the investment strategy of the $154.6 billion in assets under management System.
Tell us about your career path to becoming a CIO.
I grew up in Gause, Texas. It’s a rural town about a hundred miles east of Austin. After graduating from Texas A&M in 1980, I went to work at the Austin National Bank, six blocks down the street from TRS’s current location, near the State Capitol. Banking in Texas was very fragmented at the time, and that was driven by state law. In order to advance in the business, you needed to move around in the banking community, improving your position at each step. Eventually, due to economic downturns in Texas, the banking industry was allowed to consolidate and the banking business in Texas was dramatically changed. The consolidations led to many changes of ownership, and ultimately I decided that the banking industry was not in my long-term plan.
A position at the Teacher Retirement System of Texas opened up, which looked interesting, so I made a decision to leave banking for the public pension world. What a great decision! I have been here ever since, 26 years. I received a great education on the job, with many mentors, and have always been thankful to be a part of Texas Teachers.
What is your institution’s asset allocation breakdown?
TRS’s central strategy is comprised of a 57% allocation to global equity markets, with structurally high allocations to both emerging markets and private equity. The remaining 43% is comprised of three additional strategies designed to diversify the total fund, when either a deflationary or inflationary regime arises. The percentage allocations to the four strategies were based on the likelihood of each scenario occurring—based on historical experience. The scenarios are each defined by GDP growth, inflation, earnings growth, productivity, political stability and valuation.
Stable Value = 16% including: Treasuries 11%, stable value hedge funds 4%, cash 1% absolute return 0%.
Global Equity = 57% including: 13% private equity and 44% public equities. The public markets side is made up of U.S.18%, non-U.S. developed 13%, emerging markets 9%, directional hedge funds 4%.
Real Return = 22% including: Global TIPS 3%, real estate and other real assets 16%, energy & natural resources 3%, commodities 0%, REITS 0%.
How would you describe/characterize your investment philosophy?
We are always looking out for the best interests of our members—the state’s education professionals. My philosophy boils down to three I’s: invest, innovate and impress, and of course surround yourself with the best people. In terms of our portfolio, we invest 80% of our assets with a long-term approach and 20% with an opportunistic approach.
What was the best experience in your career?
I was fortunate to join TRS just when office technology was erupting all around the public pension fund business. It is hard to believe that I was at TRS when email first became a requirement to do business. I took advantage of the tech opportunity and ran a successful project that modernized all of TRS’ investment applications. In order to accomplish this, I had to know the details of everything we were investing in. That laid a strong foundation for my future in investing and TRS. Spending the last two years as CIO at TRS and getting the “Building the Fleet” initiative (see IA article, Dec. 17, 2018) approved by the Board of Trustees and implementation underway is also proving to be a great experience –especially when you are part of a growing team of really smart, talented and motivated investors like we have at Texas Teachers.
What was your worst experience in their career?
Without a doubt, I’d say the great financial crisis and trying to navigate the drawdown effectively. However, that was followed by one of the most successful transformations at TRS when were able to use our values and capitalize on our ‘5 L’ strengths of being large, liquid, having low leverage, a long-term dedication and keeping our presence local. Those strengths really allowed us to take advantage of the dislocations in the market.
In what part of the industry have you witnessed the most change?
The low interest-rate environment has required significant industry change. This has perpetuated alternative investing by public plans, like ours, and has certainly changed the landscape of investing. I believe it will continue to do so as institutional entities like TRS become more experienced in direct private investing. To the asset allocation in the past 10 years we have added: private equity, real assets, energy and natural resources, infrastructure as well as hedge funds.
What aspect or element of the industry would you most like to see changed and why?
External manager fees should not take a majority of the alpha from the fund. I would like to see external managers be more willing to get paid solely from their contribution to the Trust rather than a management fee. Institutional investors like TRS are seeking ways in which to lower cost as a secondary way to improve total return. While we will manage what we can internally, when we have adequate expertise, accessing the full breath of the market will require partnership with external managers.
What is the fund’s funded status? And if underfunded, what is the fund’s plan to address it?
As of August 31, 2018, the plan’s funded status was 76.9 percent. State lawmakers are responsible for setting contribution rates for the state, members and employers. The legislature approved in 2013, a three-phase, stair-step contribution-rate increase for the years 2015-2018. We manage the Trust’s money based on an actuarial rate of return assumption of 7.25%.
Who makes up your family, what are your hobbies, and what books are you reading? Any travel plans?
I am married to Dr. Brenda B. Albright, and we have two adult children: Brooks Albright, who works with the Llano County, Texas, Sheriff’s office and my daughter Kelcey Lambert, who is married to Steven Lambert. They have two twin girls, Addie and Jillie. I love any activity involving the beautiful lakes around Austin: jet skiing, waterskiing, and having fun with family and friends. I also enjoy running on the trails around Lady Bird Lake in downtown Austin. I am currently reading the Presidents of War by Michael Beschloss. And next, I will take up Capitalism in America by Alan Greenspan and Adrian Wooldridge.
As for future travel, I am headed over to TRS’ London office in March, hopefully before the Brexit. I will be also be going to Bangkok, in February, to attend meetings with one of our strategic partners.
What is your key to success?
We are grateful for a very strong, dedicated and professional Board of Trustees. We provide them with full transparency about the investments we are making, and they delegate the investment responsibility to the investment management division. There are five professional investors and four member representatives on our Board, and they serve the state and members without compensation.