Education Session on Risk Parity
April 30, 2010
COMMITTEE ON SCHOOL FINANCE/PERMANENT SCHOOL FUND: DISCUSSION
STATE BOARD OF EDUCATION: NO ACTION
SUMMARY: This item provides an opportunity for the committee to receive educational information about risk parity investment strategy.
BOARD RESPONSE: None.
PREVIOUS BOARD ACTION: In July 2008, the board voted to readopt the target allocation as approved in July 2006 with a 24% allocation to large cap domestic equities, 7% to small/mid cap domestic equities, 14% in large cap international equities, 4% in small/mid cap international equities, 4% in emerging markets, 19% in domestic fixed income, 6% in real estate, 6% in real return, 10% absolute return, and 6% in private equity.
FUTURE ACTION EXPECTED: None.
BACKGROUND INFORMATION AND SIGNIFICANT ISSUES: One of the primary duties of the board in its oversight of the Permanent School Fund is to establish the long-term asset allocation policy of the Fund. The allocation of the Fund’s assets between various classes of securities will explain over 90% of the Fund’s variation of returns. The overall risk assumed by the Fund is managed through the diversification of asset classes in which the Fund is invested.
At the March meeting, the Committee of the Full Board held a work session with NEPC who made a presentation on the long-term strategic asset allocation plan.
FISCAL IMPACT: The income of the Permanent School Fund is projected to be $60.7 million during fiscal year 2010. The distribution earned by the Fund is affected by the asset allocation of the Fund and the capital market environment.
PROCEDURAL AND REPORTING IMPLICATIONS: Not applicable.
PUBLIC COMMENTS: None.
ALTERNATIVES: No alternative actions are proposed regarding this item.
OTHER COMMENTS AND RELATED ISSUES: None.
Commissioner of Education
Staff Member Responsible:
Holland Timmins, Executive Administrator
and Chief Investment Officer of the
Texas Permanent School Fund