TMRS Highlights from the February 11 Board Meeting

The TMRS Board met on Friday, February 11 in Austin and this meeting was open to the public at the new TMRS building.  I was able to attend in person.  All TMRS board members were present at the meeting.

TMRS Executive Director David Wescoe gave a report on some internal updates on staff and retirements. Specifically, he wanted to welcome and thank  Jesus Garza for serving in his first meeting as chair.  He also thanked former Chair David Landis for his leadership in 2021.  Wescoe also welcomed the new Chief Investment Officer Dave Hunter to his first meeting.  He reported that the 2021 Senior Staff Action Plan was completed successfully and that the senior staff met off-site recently and developed another ambitious Action Plan for 2022.  Finally, Wescoe reported that the move to the new location, The Grove, continues to be a hit and allows the TMRS staff to conduct their business in a much more efficient manner.

Back in December, the Board voted unanimously to adopt a schedule of six meetings and one retreat for 2022, but did not vote on specific meeting dates.  After much discussion, the following dates were selected:  February 11, March 24, May 26, June 23, September 22, October 27 ( retreat), and December 8.  All meetings are open to the public, and I encourage anyone who has not attended a meeting to do so.  I know you will find them very interesting and informative!

TMRS Advisory Committee Chair Jesus Garza and TMRS staff member Michelle Kranes reported that the virtual advisory committee meeting which was scheduled for February 4 was cancelled/postponed due to the inclement weather across the State.  Even though the advisory committee meeting did not occur, Michelle Kranes gave an overview and update on providing retiree cost-of-living adjustment (COLA) without providing updated service credit (USC).  In other words, “de-link” the two.  As it currently stands, a city cannot provide retirees with a COLA without also adopting USC provisions for active employees.  Kranes reported that TMRS surveyed all 886 cities with contributing members as of the 2020 valuation report.  The response rate was 17 percent.  According to responders of the survey, 66 percent supported allowing cities to provide retirees with a COLA without having to provide USC to active employees.

As some background, of the 886 cities:  482 cities (54 percent of total cities) have USC and COLA; 131 cities (15 percent of total cities) have USC only; and 273 cities (31 percent of total cities) have no USC or COLA.  Garza stated that de-linking the USC and COLA could provide an easier path for some cities, but more importantly, it would provide cities the option.  Consensus among the Board was to continue down the path of de-linking the USC and COLA.

TMRS staff member Dan Wattles gave an update on key dates for the 2023 Legislative Session, should the TMRS Board want to pursue filing legislation in 2023.  A decision from the Board should be made by December 2022 at the latest, but the earlier a bill is filed, the better.

The new TMRS Chief Investment Officer Dave Hunter reported that overall total fund market returns were 12.80 percent, net of fees, for 2021. This figure is based on preliminary market return data. This preliminary return exceeded the actual allocation benchmark or AAB by 61 basis points.  Both the private market and real estate markets did very well in 2021.  Hunter also gave the asset allocation update.  As of December 31, 2021, actual valuations were within approximately 1 percent of target with exceptions for public equity (overweight 2.3 percent), private equity (underweight 2.3 percent) and hedge funds (overweight 3.3 percent).  There was discussion that the overweight in public equity and the underweight in private equity were off-setting each other and that was OK.

Hunter reported that the Staff Investment Committee (SIC) had approved a total of 10 investments totaling $1.325 billion.  Finally, Hunter reported that TMRS will issue a general investment consultant RFP in early February and finalists will be presented to the Board at the May meeting.

RVK Consulting reported that the Total Fund returned 3.71 percent, net of fees, in the 4th quarter and 12.80 percent, net of fees, over the trailing 12 months (calendar year 2021).  These figures are based on preliminary market data.  Out performance for the 4th quarter was driven primarily by private equity and hedge funds, which beat their custom benchmarks by 781 and 141 basis points, respectively.  Private equity and real estate drove relative performance over the trailing 12 months as the asset classes outpaced their custom benchmarks by 1,443 and 193 basis points, respectively.  Total fund value as of December 31, 2021 was $37,778,876,154, an increase of nearly $4.1 billion over the calendar year.

The next TMRS Board meeting is set for March 24, 2022 at the TMRS headquarters in Austin.