May 2024
At least every five years, the TRS Board of Trustees and TRS' investment professionals rebalance the pension trust fund's Strategic Asset Allocation, which is one of the most important undertakings the agency performs for our members.
The Strategic Asset Allocation, SAA for short, provides an updated investment approach and guiderails that our investment management professionals and trustees respectively use to make and oversee the wisest possible investment decisions for our members' futures.
The SAA is so important in fact, it is engrained in TRS' Investment Policy Statement:
The Investment Division will assist the Board in engaging in an asset-liability study for the pension plan at least once every five (5) years to review asset classes, return-risk assumptions, and correlation of returns with applicable benchmarks and across asset classes.
An internal TRS group called Risk and Portfolio Management (RPM) puts a considerable amount of thought and time into identifying just the right themes for any modified SAA. Simply, this sustained focus helps point the way to maximizing investment returns while minimizing risk. In 2019, the last time trustees approved TRS' SAA, changes included an increased allocation to Private Markets along with targets to make our pension fund more balanced and more efficient. Other changes were put into place in 2014, 2009, and 2007.
Where is the SAA process in 2024?
A lot has happened in global financial markets since TRS' last SAA process. Think of the 2020 COVID-19 pandemic and the trend of more people working from home. More recently there has been rising inflation and interest rates. Other big changes include the emergence of generative artificial intelligence, wars around the globe, and later in 2024, there will be a presidential election here in the U.S.
Looking forward, TRS’ RPM team is walking thoughtfully through all kinds of possible economic scenarios and models. They want to ultimately pick from those most likely to happen in these next five years or so. The final plan will aim to balance long-term risk with expectations of how much TRS can earn from investments.
The RPM group will solicit views from within the investment community and gather data from pension peers and other research avenues. Topics they'll focus on into 2024 are admittedly heady and include areas such as Yield Curve Dynamics, Role of Risk Parity and Illiquidity Premium Drivers. The team will look at other factors too like how much the pension fund has grown, how much more sophisticated TRS investments are, along with current and projected funded status and contribution rates.
This is a deliberative, intensive process that takes many months as TRS' investment teams examine the far corners of the world's money markets for upcoming trends and ultimately, opportunities. And the SAA process is made transparent by the RPM team's reporting plan to TRS' board of trustees and investment advisors. Recommendations are due in July 2024 with board feedback and approval made by September 2024. The board of trustees' goal is to make an informed, well-reasoned decision that will benefit our members in the years ahead. Read moreabout TRS' Strategic Asset Allocation Study from the February 2024 TRS Board of Trustees' meeting and presentations to trustees. Phrase search “Strategic Asset Allocation" or “SAA."