TRS 2011 Comprehensive Annual Financial Report

TEACHER RETIREMENT SYSTEM OF TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT 2011
Management’s Discussion and Analysis
INVESTMENTS
The following investment information is calculated per the
Certified Financial Analyst (CFA) Institute guidelines. When
comparing returns, it is important to remember that as a pension
fund, the TRS investment performance has a very long
horizon.
Below are rate of return results for the total fund for the periods
ending August 31, 2011:
• One-Year 15.5%
• Three-Years 3.6%
• Five-Years 4.0%
• Ten-Years 5.8%
The following table presents the actual investment allocations
as of fiscal year end 2011 and 2010 as compared to the target
allocations for 2011 and 2010.
INVESTMENT ALLOCATIONS
Fiscal Year 2011 Fiscal Year 2010
Target Actual Target Actual
Public Equity 50.0% 50.7% 52.0% 51.7%
Private Equity 10.0 10.4 8.0 9.0
TOTAL GLOBAL EQUITY 60.0% 61.1% 60.0% 60.7%
Fixed Income 15.0% 14.1% 15.0% 15.3%
Short-Term 1.0 1.3 1.0 1.0
Hedge Funds 4.0 4.0 4.0 4.2
TOTAL STABLE VALUE 20.0% 19.4% 20.0% 20.5%
Global Inflation Linked Bonds 8.0% 5.3% 8.0% 8.6%
Real Assets 8.0 9.7 2.0 6.0
Commodities 2.0 3.1 8.0 2.2
REITS (Real Estate
Investment Trust) 2.0 1.4 2.0 2.0
TOTAL REAL RETURN 20.0% 19.5% 20.0% 18.8%
TOTAL 100.0% 100.0% 100.0% 100.0%
These asset allocation investment categories and targets are
determined by and subject to the system’s investment policy
guidelines which are reviewed and adjusted by the board as
necessary to aid the fund in achieving the long-term portfolio
return of 8 percent.
TRS had an annual rate of return of 15.5 percent for the fiscal
year of 2011 on investments. At the end of fiscal year 2011
the Pension Trust Fund’s investment value was approximately
$11.8 billion more than at the end of fiscal year 2010. TRS’
investment strategy is designed to address three different
potential market scenarios and have an advantage in each of
them by allocating 60 percent to global equities, 20 percent
to real return, and 20 percent to stable value. This allocation
provides for good performance in any of the three scenarios.
TRS continues to enhance its asset management capabilities
by adding a new strategic partner, an internal gold fund, a
bubble monitor and building a Co-Investment Program for lower
fees and increased transparency. Due to lower interest rates
today and European sovereign debt concerns, the outlook is for
muted returns over the next few years. For additional details
on investments and their performance refer to the Investment
Section. For a reconciliation of the CFA basis to the GAAP basis
investment value refer to the Market Values table also in the
Investment Section.
FINANCIAL SECTION
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