Exclusive: Texas Teachers’ Investment Operation Considering Opening Singapore Office
Art by Melinda Beck
The Teacher Retirement System of Texas is proposing opening a Singapore office to get closer to the action in Asia.
The Austin-based $152 billion pension fund’s focus in Asia would be first on public market investments and then to tap the private markets to build its relationship in the region. The Asia office could open in 2020, as confirmed by the fund, pending future board of trustees’ approval.
Texas Teachers currently has about $22.2 billion in Asia-Pacific investments, according to Chief Investment Officer Jerry Albright. If the Singapore office is added, however, asset allocation targets wouldn’t necessarily increase. Allocations to public and private assets in the region might shift, but the overall percentage of around 14.8% for the fund’s Asia holdings would stay the same.
“The Asian market is a big world …. so it’s a big span of space over there we’re looking to cover,” Albright told CIO. “It is 16 hours away from Texas if you’re trading, and we actually trade a lot of public equities out of that market, and so it’s important for us to be there.”
The move to have a local presence in order to source new investment opportunities has worked in the past, when Texas Teachers opened its UK office in 2015 to get more boots on the ground in London. The London outpost significantly bolstered the fund’s footprint in the area and it beat its deal targets quickly.
Albright, a fan of the Canadian pension model, has been working on Texas’ own version. Canada’s retirement plans typically hire more staff in-house to keep management fees down and they also don’t have as much government oversight as state public pension programs do in the US.
And while Albright’s American plan may not operate as freely vis-à-vis Texas state government, he is keen on bulking up on staff. This expansion is the core of his “Building the Fleet” initiative to bring investment management in-house. He wants about 120 more workers at the fund over the next five years while maintaining key partnerships with GPs.
The fleet strategy is expected to incrementally save the fund $1.4 billion over the next five years. It’s saved $46 million in external management fees alone so far.
The Fleet’s Formation
Texas Teachers’ fleet strategy was introduced under then-CIO Britt Harris, who Albright succeeded in 2017. The two had discussions on the strategy and how to implement it, but Harris departed before the strategy was fully formed. Albright introduced the strategy during the fund’s February 2018 board meeting.
Harris “came in with the strategy of ‘we’re all in one boat sailing in the same direction.’ That was his vision,” said Albright, who said at the time the fund was at $115 billion with 85 staffers. “Now we’re at $150 billion and we’re 150 people, about double both from the asset size and people size.”
Because Albright found it necessary to “structure the power level differently” than originally envisioned, the organization is heavy on nautical metaphors, and the overall entity, the “Fleet,” is comprised of six parts.
The main vessel is the “command ship,” which does all the heavy lifting of cost reduction, legal, and compliance, overseeing the investment operations, and the hiring and talent development of the “crew,” who are relegated to the smaller “cruisers.” Those cruiser elements work on public and private market developments, opportunistic investments, strategic partnerships, and subsidiaries, such as the London and proposed Singapore offices.
Albright said the fund learned how to work in different areas by watching its external managers once it shifted over to active investment management. Pre-Harris, it had a more passive approach.
“The whole premise of ‘Building the Fleet’ is based around giving us the internal resources necessary so we can save the system $1.4 billion a year by having the internal resources,” he said, adding that the board and TRS’ executive staff continue to offer full support to the idea.
Most recently, the legislative session that just ended saw renewed focus on the state’s educators with the passage of laws that aid in the long-term health of the fund by boosting contribution rates for members over time. Later this year, lawmakers will provide TRS retirees a 13th annuity check. Still, it is investment returns that make up around two-thirds of the fund’s annual revenue.
Taking Texas Out to Sea
The London and Singapore offices came out of Albright’s desire to expand the fund and get more of a presence outside of Austin. He initially wanted a New York office as well, but then realized that it wasn’t missing any opportunities it couldn’t find in Texas.
“We were missing half the transactions in London,” said Albright. “We weren’t missing hardly any in New York, so we’re not going to do New York. Why have the cost?”
Soon after it opened, London was a hit.
“Our thought was if we could get over there, do one transaction, that one transaction would actually pay for the office and the people,” Albright said. “In fact, we went over and I think we did eight transactions, so we beat our expectations there.”
Since the London operation worked, he next decided to test the waters for Asia. Hong Kong was initially thought to be where the action is, but it turned out living expenses, foreign difficulty, and help from the Singaporean government made the decision for where the Texas office could open a new shop.
“What we’ve done over there is we’ve worked with the Singapore Monetary Authority to support Texas Teachers opening a new office there,” he said, meaning the government body will provide incentives toward opening the facility.
Albright doesn’t see an immediate profit in Asia. He’s expecting a J-curve for several years, but he feels it’s a necessary risk, one he expects board members to embrace when the request comes before them.
“The reason why I say that was important to Texas Teachers was that we won’t be able to do what we did in London,” he said. Due to language and cultural barriers that don’t exist in Britain for Texas Teachers, hitting the ground running will be more difficult in Asia, he noted. Albright stressed that the plan would need time, “and if this is going to be an important generator of returns for the system over time, we need to get over there and figure it out.”
To mitigate this, Albright needed support to make the operation a “good trade” for the nearly 1.6 million active and retired educators in the system which the fund serves—five of whom are family (his wife, daughter, parents and son in-law). With the Singapore government effectively offsetting some of the cost to open the office, the proposal “is virtually cost-free,” he said, allowing three of the fund’s staff to relocate and train overseas, further reducing the costs.
“We’re actually planning to work opportunities in real time there which would reduce our risk and we’re going to learn a lot while we’re there,” he said. “So the value I believe is definitely there.”
Albright’s research also led to the discovery that not only is Singapore cheaper to live in than Hong Kong, his original first consideration, but that it’s also a large international financial hub.
“You’d be really surprised when you walk around and the names you see on all the doors,” he said. “You walk down Park Avenue, you’ll see the same names.”
Related Stories:
Brexit Is a Mess, but Texas Teachers Is Keeping Its London Outpost
Hiring for Texas Teachers’ Private Equity Fleet ‘On Schedule’
‘The Texas Model’: Texas Teachers Plans Transition to Direct Investing