Tweet
Home > Investigations > Headlines
Texas teachers’ pension fund invests in casinos, loses $99 million
A Text Size
By STEVE McGONIGLE
Staff Writer
smcgonigle@dallasnews.com
Published: 12 May 2012 10:21 PM
Related
As public investments go, this one looked like a roll of the dice.
But the Teacher Retirement System of Texas wanted a big win, so it put $100 million into the buyout of a Las Vegas gaming company called Station Casinos.
The company went bankrupt, and like many an unlucky jackpot-chaser, the state’s largest pension fund walked away a loser. More than $99 million of Texas teachers’ retirement money had vanished.
“There is no getting around it,” said Britt Harris, the fund’s chief investment officer. “This was a bad investment.”
It wasn’t the only one. Between April 2006 and last September, the teacher fund saw the value of its “opportunistic,” or high-risk, real estate deals drop by $599 million, a data analysis by The Dallas Morning News found.
In all categories of real asset investments, including real estate, the worth of the TRS portfolio fell by more than $1 billion over that same period, according to the evaluation by The News.
A spokesman for the teacher fund disputed the newspaper’s calculations The News on Friday, contending the decreases in high-risk real estate values were much less.
TRS is the nation’s fifth-largest public pension provider, with current assets of $110 billion. It serves 1.3 million public education employees, about one-fourth of whom are retired.
Like many pension plans, TRS faces a widening gap between assets and long-term obligations, a result of market volatility, tight state budgets and a rising tide of retirees. Last year, this unfunded liability reached $24 billion and forced the teacher fund to continue a decadelong freeze on increases in benefit payments.
The response by TRS and other funds has been to shift from traditional stocks and bonds toward alternatives that offer higher returns but present larger risks.
TRS has a higher share invested in alternative assets — 31 percent — than any of the 10 largest public pension funds, according to Preqin, a London-based research firm.
Harris and other Texas fund officials credit the diversification with helping TRS to weather the global financial crisis better than most pension funds. In 2011, TRS had one of the highest returns of any state pension fund.
TRS spokesman Howard Goldman, in a summary provided Friday, said more recent data than his office initially released to The News paints an upbeat picture of the last six years. When earnings are included, Goldman said, opportunistic investments have dropped $250 million, and the entire real asset portfolio gained $430 million.
Critics contend alternatives are too risky, too costly and not transparent enough. They predict the investments will falter, leaving taxpayers with a massive bailout bill.
Edward Siedle, a Florida lawyer who has investigated several public pension systems, including TRS, said the Texas fund’s alternative investments were typical. “We see every single day public pensions investing in schemes that make no sense and are doomed to fail,” he said.
The $99 million Station Casinos loss was modest by TRS standards, said Harris, the chief investment officer. “No loss is insignificant. It’s still real money,” he said. “But it hasn’t affected the [overall] return on the fund.”
Texas teachers’ pension fund invests in casinos, loses $99 million
A Text Size
By STEVE McGONIGLE
Staff Writer
smcgonigle@dallasnews.com
Published: 12 May 2012 10:21 PM
Related
As public investments go, this one looked like a roll of the dice.
But the Teacher Retirement System of Texas wanted a big win, so it put $100 million into the buyout of a Las Vegas gaming company called Station Casinos.
The company went bankrupt, and like many an unlucky jackpot-chaser, the state’s largest pension fund walked away a loser. More than $99 million of Texas teachers’ retirement money had vanished.
“There is no getting around it,” said Britt Harris, the fund’s chief investment officer. “This was a bad investment.”
It wasn’t the only one. Between April 2006 and last September, the teacher fund saw the value of its “opportunistic,” or high-risk, real estate deals drop by $599 million, a data analysis by The Dallas Morning News found.
In all categories of real asset investments, including real estate, the worth of the TRS portfolio fell by more than $1 billion over that same period, according to the evaluation by The News.
A spokesman for the teacher fund disputed the newspaper’s calculations The News on Friday, contending the decreases in high-risk real estate values were much less.
TRS is the nation’s fifth-largest public pension provider, with current assets of $110 billion. It serves 1.3 million public education employees, about one-fourth of whom are retired.
Like many pension plans, TRS faces a widening gap between assets and long-term obligations, a result of market volatility, tight state budgets and a rising tide of retirees. Last year, this unfunded liability reached $24 billion and forced the teacher fund to continue a decadelong freeze on increases in benefit payments.
The response by TRS and other funds has been to shift from traditional stocks and bonds toward alternatives that offer higher returns but present larger risks.
TRS has a higher share invested in alternative assets — 31 percent — than any of the 10 largest public pension funds, according to Preqin, a London-based research firm.
Harris and other Texas fund officials credit the diversification with helping TRS to weather the global financial crisis better than most pension funds. In 2011, TRS had one of the highest returns of any state pension fund.
TRS spokesman Howard Goldman, in a summary provided Friday, said more recent data than his office initially released to The News paints an upbeat picture of the last six years. When earnings are included, Goldman said, opportunistic investments have dropped $250 million, and the entire real asset portfolio gained $430 million.
Critics contend alternatives are too risky, too costly and not transparent enough. They predict the investments will falter, leaving taxpayers with a massive bailout bill.
Edward Siedle, a Florida lawyer who has investigated several public pension systems, including TRS, said the Texas fund’s alternative investments were typical. “We see every single day public pensions investing in schemes that make no sense and are doomed to fail,” he said.
The $99 million Station Casinos loss was modest by TRS standards, said Harris, the chief investment officer. “No loss is insignificant. It’s still real money,” he said. “But it hasn’t affected the [overall] return on the fund.”
Comment