Main Content

Investment Update

July 1, 2020

Teachers’ Retirement System continues to protect member assets as much as possible and has slowly started to recapture funds lost to the economic devastation of the coronavirus pandemic.

The System’s strategic focus is on a prudent, long-term allocation of assets that keeps investment risk as low as possible, protects assets during any economic downturn and is nimbly poised to take advantage of economic growth.

At the end of May, TRS held $50.6 billion in investment assets, a 4.1 percent increase in assets compared to the $48.6 billion reported at the end of March. Prior to the spread of the pandemic, TRS began the January-March quarter of 2020 with $54.2 billion in assets.

With the world still reeling from the economic downturn, on the whole April was a positive month for TRS investments with a return rate of +3.6 percent.

All public pension systems and institutional investors around the world lost money because of shelter-in-place orders caused by COVID-19 and the rapid spread and uncertainty of the virus. But compared to public pension systems similar to TRS, the System ranked among the nation’s leaders in its ability to preserve assets.

During the January-March quarter, the TRS investment return was -9.95 percent, net of fees. At the end of December, the TRS investment return for the year was +13 percent. These rates, however, stand favorably compared to other economic measurements of the same period:

  • The Northern Trust Corporation’s analysis of the 300 largest U.S. institutional investors indicated that the median return for public pension plans was -12.6 percent.
  • A similar analysis of public pension systems by Wilshire Associates found that the median quarterly return was -12.8 percent.
  • A customized analysis of 128 public pension systems completed by RVK, Inc., the TRS investment consultant, indicated the median return was -12.1 percent.

Using statistics from the RVK comparison, the TRS portfolio ranked in the top 25 percent of public pension plans during the quarter, meaning that 75 percent of the systems studied ranked below TRS. The System’s rank improves as these comparisons include long-term statistics. For instance, at the end of March the TRS 10-year and 20-year returns ranked in the top 10 of peer systems. TRS long-term investments out-performed 90 percent of similar systems in the United States.

In general, the negative investment returns for various stock market measurements indicate that the TRS portfolio held up comparatively well. Here are some January-March return rates of the three best-known stock market indices:

  • -22.97 percent - Standard & Poor’s 500
  • -26.23 percent - The Dow Jones Industrial Average
  • -17.83 percent - National Association of Securities Dealers Automated Quotations (NASDAQ)

TRS maintains a focus on steady, long-term investment returns. Short-term corrections in the investment markets get the headlines, but TRS recognizes that the majority of its members maintain relationships with the System that last for several decades.

Even with the effects of the coronavirus pandemic on the economy, TRS projects that its long-term investment returns will continue to exceed the System’s long-term assumed investment return of 7 percent. 

For instance, the 40-year return for TRS at the end of fiscal year 2019 was 9.2 percent and 9.1 percent at the end of calendar year 2019. During calendar 2019, the annualized return for the S&P 500 index was 8.4 percent. Current calculations indicate that at the end of fiscal year 2020 in June the TRS 40-year return rate will be 8.9 percent.

Although no one saw the COVID-19 virus coming, the resulting economic downturn did not catch TRS off guard. For years, economists have predicted that a downturn eventually would occur. So for several years, TRS has employed a “defensive” investment strategy to guard against unforeseen drops in the investment markets.

For instance, when TRS decides each year how much money to commit to stocks, bonds, real estate and other investment markets, the System runs “stress tests” on the portfolio to help determine how best to protect assets during a downturn.

In all situations, the System’s top investment goals are to protect the assets and keep investment risk as low as possible. After that, the goal is to make prudent investments to increase the size of the fund. Some examples:

  • Right now, TRS only has approximately 32.5 percent of its investments in the public equity markets, which is low for a large public pension system.
  • TRS has a diversified portfolio – 26 percent of its assets in bonds and income-related securities, about 15.7 percent in real estate, 13.4 percent in private equity opportunities and about 11.6 percent in investments designed specifically to help lessen the effects of an economic downturn. 

In its 81-year history, TRS has survived numerous economy-shattering events, including World War II and the resulting reconstruction of Europe and Asia, wars in Korea and Vietnam, oil supply crises in 1973 and 1979; runaway inflation in the 1970s and 1980s; numerous stock market “corrections”; the Iraqi invasion of Kuwait, the terrorist attacks of September 11, 2001 and five global health epidemics – SARS, Ebola, the Avian Flu, the Zika virus and the Swine Flu.