Brexit Is a Mess, but Texas Teachers Is Keeping Its London Outpost

CIO Jerry Albright says Britain is still a good place to run investments from.

Amid the turmoil surrounding Britain’s exit from the European Union, some board members of the Teacher Retirement System of Texas wondered if maintaining the pension plan’s London investment office was wise.

But Jerry Albright, the chief investment officer of the $154.3 billion fund, assured them at the board’s April 25 meeting that the prospects of the UK-based operation were good, regardless of the situation with Brexit. So the office is staying put.

“We continue to see great results from our London office,” he said, adding that the pension plan wants to do some hiring and move to another location—in London. For one thing, it can take advantage of cheaper leases. “A lot of the market has gone down in London because of Brexit,” he said.

The first lease was originally a short-term shared office, whose rent Albright said had “quite a high markup.” Albright said Texas Teachers can find other quarters at 40% less.

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“We’re not looking for a bigger space, we’re looking for a similar space,” he said. “We feel like we can beat the value that we’re getting.”

Prime Minister Theresa May’s difficulty striking a deal with the EU on Britain’s departure has prompted a number of financial institutions to shift their venue from London, historically Europe’s primary money center, to the Continent. 

Albright noted that “a lot of these big bank systems are moving to Frankfurt,” in Germany. But those are mainly for back-office operations, not the investment professionals. “All the investors are still sitting there in London,” he said.  “As far as if it’s the best place to be, I think it’s going to be the center of that financial world for a long period of time.”

London retains some advantages that other cities in Europe lack, he argued. The English-speaking staff would have language barriers in Spain or Germany, and that there is “no city big enough to take them,” he said.  

Whether that continues to be the case is hard to say, he indicated. “There’s impediments to a massive shift that may take place over time, but nothing in the near-term,” he said. “If there’s a no-deal Brexit tomorrow, I think the markets will react but I don’t think people would be shuffling.”

London should remain a decent place to know what’s going on in the EU, he said.

“Now, it is important to be there with boots on the ground to try to understand how this is going to occur and what’s going to happen,” he said. The Texas funds’ London officials have contacts who “are connected and they can give you some indication of where things are going and what to look for.”

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Australia Future Fund Bounces Back in Q1

A robust turnaround in equities brings a 5% return for the asset owner.

A strong equity performance in this year’s first quarter allowed the Australia Future Fund’s assets to recover from its December losses, growing to A$154 billion ($108 billion).

The fund bounced back 5% from the dismal showing in 2018’s final quarter, when it lost 1.2%, thawing the fund’s winter chill. ‘The last quarter showed strong returns in public equity markets, no doubt influenced by the US Federal Reserve’s decision to hold interest rates and easing US-China trade tensions,” said Peter Costello, who chairs the fund’s Board of Guardians.

That said, he added that the global economy will face structural challenges, including demographic shifts and high debt levels.

“Long-term real yields remain very low, indeed negative, in a number of major economies, which implies that long-term prospective returns will be lower relative to history,” he said.

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Overall, the sovereign wealth fund’s diversification has been an excellent long-term strategy.. Not only has the organization’s 10.4% 10-year returns trumped its 6.5% benchmark, but all across its various fund portfolios.

“The Future Fund continues to perform strongly against its investment mandate, delivering strong long-term returns without excessive risk,” said David Neal, the fund’s chief executive officer, who highlighted its work on the medical research portfolio, worth $A9.6 billion on March 31.

The portfolio, which holds a large amount in cash (33%), has beaten all of its benchmarks since its 2015 inception. It has returned 3.7% and 4.9% over the one- and three-year period, and 4% all-time (all benchmarks for these periods are 3%).

The long-only strategy allocates the rest of the assets to debt securities (24.1%), alternatives (17.2%), global equities (10.4% developed markets, 6% emerging), Australian equities (4.3%), private equity (3.1%), property (1.7%), and infrastructure (0.1%). That is expected to be further diversified over time, according to the Future Fund.

“As we navigate a complex investment environment, we are focused on constructing the most efficient portfolio possible for generating strong long-term returns,” said Neal.

Raphael Arndt, the Future Fund’s chief investment officer, was unable to be reached for comment.
 

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