May joint ERS Board-IAC meeting highlights
The Employees Retirement System of Texas (ERS) Board of Trustees and Investment Advisory Committee (IAC) met May 20, 2020. In compliance with COVID-19 open meeting guidelines, the Board and presenters met entirely online through a virtual meeting platform that was open to the public.
A brief recap of the meetings follows. You can find more information, including the presentation slides and links to meeting materials and video recordings, on the ERS May Board Meeting page.
The next joint meeting of the ERS Board and IAC is scheduled for Wednesday, August 19.
Audit Committee meeting
Tony Chavez, ERS’ Director of Internal Audit, along with representatives from Gabriel, Roeder, Smith & Company (GRS), presented findings of the Fiscal Year 2019 Insurance Actuarial Audit, which is conducted every five years for post-retirement health care benefits. GRS found that the audit provided a fair and reasonable assessment of the liabilities of the post-retirement healthcare plan.
Chavez, Internal Audit Manager Tressie Landry and Internal Audit Project Lead Greg Magness presented results of the 2019 Incentive Compensation Audit. The audit found that ERS satisfactorily made its incentive compensation awards in accordance with its approved Incentive Compensation Plan.
Joint Board and IAC meeting
IAC appointment
The Board approved ERS staff’s recommendation to reappoint Gene L. Needles Jr., chairman and CEO Resolute Investment Management, to the IAC.
Experience study findings and Board action
Tom Tull, chief investment officer at ERS, and Sam Austin, a representative of NEPC (ERS’ general investment consultants) reviewed ERS' asset allocation and implementation assumptions. The Trust Fund is performing admirably in this unusual climate, and is well positioned to benefit from the current market environment. ERS’ well-diversified portfolio has helped insulate the Trust from wild gyrations in the market. NEPC deemed ERS’ current asset allocation appropriate and recommended that ERS continue its current investment model.
Representatives from GRS presented findings from the ERS Pension Experience Study. Most notably, they recommended reducing the assumed rate of return from 7.5%. NEPC representatives agreed that 7.5% no longer seems to be a reasonable projection. After discussion among trustees, the IAC, ERS staff and external consultants, the IAC recommended setting the rate at 7%.
Following comments from ERS members and retirees, the Board approved a long-term, nominal 7% investment return rate and maintaining the current asset allocation.
Investment performance
Tull and representatives of NEPC discussed the Fund’s performance in the first quarter of CY20. They noted that over both the past year and 10-year period, the Fund has slightly underperformed against the policy benchmark.
Carlos Chujoy, risk officer in ERS’ Investments Division, presented a risk update. He noted:
- the major disruptions caused by the COVID-19 pandemic.
- the onset of a technical recession with soaring unemployment claims and fiscal damage-control efforts by the U.S. government,
- large drawdowns on risk-on assets and
- that ERS’ diversified portfolio allowed it to lessen the risk of a dramatic drawdown.
Market updates
Robert Sessa, director of real estate, presented the real estate market update and proposed annual tactical plan. Some near-term strategies include investing in “niche” properties, such as medical offices and self-storage buildings, as well as selectively investing in the international real estate market. The Board approved the proposed FY21 Private Real Estate Tactical Action Plan.
Pablo De La Sierra Perez, director of private infrastructure, presented the infrastructure market update and the Private Infrastructure Annual Tactical Plan for FY21. Among other proposals, the approved plan recommends that ERS make three to six investments of $400 million in core and non-U.S. markets.
Leighton Shantz, director of fixed income, provided an update on fixed income investments and a review of the securities lending program.
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