Tuesday, April 20, 2010
By Dave Montgomery
Fort Worth Star-Telegram
Texas' major investment funds rebound but haven't fully recovered
AUSTIN -- The state's major investment funds have shown a strong rebound since the economic downturn bottomed out last year, but they have not fully recovered to peak levels, according to state investment officials.
"We've had a nice recovery, but not a full recovery," said Holland Timmins, chief investment officer for the 156-year old Permanent School Fund, the nation's largest endowment for public schools.
Other major investment funds, including those providing pension benefits for retired teachers and state employees, and another providing financial support for the state's two biggest university systems, are also on the upswing after a horrifying plunge that spanned 2008 and early 2009.
But analysts, while cautiously optimistic, say continued uncertainty over the still-fragile economy makes it difficult to predict how long the buoyancy will continue.
"Certainly the market is doing better. Everything depends on the future," said state Rep. Vicki Truitt, R-Keller, chairwoman of the House Pensions, Investments and Financial Services Committee. "We just need to stay the course. It takes a while to come back. "
The stock market's chaotic journey last year rocked the state's investment funds with the same gyrations experienced by ordinary residents' 401(k) accounts.
Although the drop did not have an immediate impact on monthly pensions to retired teachers and state employees, it was severe enough to keep the Permanent School Fund from making full financial distributions to school districts.
Created in 1854, the fund provides free textbooks to the state's 4.7 million schoolchildren as well as general financial assistance to the more than 8,000 Texas public schools.
Because the Texas Constitution prohibits the distribution of assistance if the fund's performance fails to meet certain measures, only $60.7 million of the $575 million slated for school districts was released by the Texas Education Agency for fiscal 2010, which started Sept. 1.
"Obviously, 2008 was a very difficult and painful year," said Timmins. "The economy as a whole seems to be gaining a more stable footing. I think the fund has been performing well."
The fund was valued at $21.6 billion in January, Timmins said, compared with $18.1 billion on Dec. 31, 2008. Though the fund is still below peak levels, he said he is hopeful that the fund's improved performance will enable school officials to make full distributions to school districts for fiscal 2011.
"We think if the fund stays about $20.5 billion, then we should be in good shape for making a distribution," Timmins said. A so-called catch-up provision would allow the state to distribute the remainder of the $587 million earmarked for fiscal 2010 as well as the full distributions for 2011, Timmins said.
Teacher retirement
The largest fund is the Teacher Retirement System Pension Trust Fund, which includes about 1.3 million people. After bouncing through the same roller-coaster environment that battered other funds, the fund will report a value this week of $94.2 billion.
The fund held $105 billion in August 2008 but plunged to $67 billion by March 2009, near the market's low. From there, it began a robust recovery, reaching $88.7 billion by Aug. 31 and continuing to rebound.
"Our fund has gained a huge amount during the past year," spokesman Howard Goldman said.
Nevertheless, two steep market declines over the past decade have taken a toll on the teacher retirement fund as well as other funds, threatening teachers' hopes of a cost-of-living increase in retirement benefits for the first time since 2001. A valuation as of Aug. 31 said the fund has sufficient assets in place to continue making payments through 2058.
"The coffers are refilling after the great meltdown in 2008, but it's going to take awhile to completely catch up from that drop," said Richard Kouri, director of public affairs for the Texas State Teachers Association. He said it remains to be seen "whether or not the fund is in good enough shape to provide a cost-of-living increase for teachers."
The Employees Retirement System Pension Trust Fund shows a similar pattern. After a high of nearly $25 billion in October 2007, the fund hit a low of $15.6 billion in February 2009 and then rebounded to about $21.7 billion.
Concerns persist
Bruce Zimmerman, CEO and chief investment officer for the University of Texas Investment Management Co., also reports a healthier investment picture after last year's downturn. The company oversees the investment portfolio for the Permanent University Fund, which supports the University of Texas and Texas A&M University systems.
Investment returns in the fund were down 13 percent in fiscal 2009 but are up 12.7 percent since Sept. 1, Zimmerman said. The fund's value in March was $10.7 billion, compared with $9.7 billion at the end of fiscal 2009.
"In terms of going forward, we continue to be very concerned about the fundamental health, or lack thereof, of the United States and other developed countries' economies," he said.
Zimmerman said his fund's worst period was in October-November 2008, but investment returns have been positive and encouraging since the first of the year.
"We are most proud of the fact that over long periods of time we have consistently produced superior risk-adjusted returns," he said.
DAVE MONTGOMERY IS THE STAR-TELEGRAM'S AUSTIN BUREAU CHIEF. 512-476-4294