The Teachers Retirement System of Texas is considering a new strategic asset allocation that may tweak its hedge fund allocation and boost its risk premia portfolio.

The investment committee members met on 25 April to review portfolio performance and conduct its annual review of the $12bn hedge fund portfolio.

For the year ending 31 December 2018, the entire $155bn Texas TRS portfolio returned -1.3%. CIO Jerry Albright said that an overweight allocation to absolute return strategies more than offset negative impacts from the domestic equity portfolio.

Hedge funds overall make up 8.5% of trust assets and are split between directional hedge funds and stable value hedge funds. The performance of the programme was mixed last year.

The $5.7bn directional hedge fund portfolio returned -5%, while the $6bn allocation to stable value hedge funds gained 2.2%.

Texas TRS senior director Brad Gilbert gave a presentation saying that hedge funds delivered muted absolute returns in 2018 yet provided downside protection in a weak equity environment.

Considering a range of portfolios, trustees discussed the possibility of increasing the allocation to stable value hedge funds as well as to alternative risk premia strategies. Another portfolio under consideration includes cutting directional hedge fund exposure altogether.

A final recommendation will be brought to the board of trustees in July.

Alternative risk premia strategies are projected to provide a median return of 5.8%, compared to directional hedge funds 5.2% in median gains, according to board materials discussed by the trustees.

The current asset allocation mix for TRS is: 57% global equities, including directional hedge funds; 22% real return (including commodities and natural resources; and 16% stable value, which includes stable value hedge funds.

Texas Teachers’ considering HF portfolio changes on HFM InvestHedge.