Tom Tull, CFA, the Chief Investment Officer with the Employees Retirement System of Texas (ERS) presented “Hot Topics from ERS” at the May 20 TSABAA bimonthly meeting. Tull has more than 40 years of investment experience. He was a founding partner of Gulfstream Global Investors, Ltd., and former director of employee benefit fund investments for the LTV Corporation. As the president of the pension asset management subsidiary of LTV, he was responsible for the investment of a $1.2 billion retirement trust. Prior to joining ERS as Director of Strategic Research in 2009, Tull provided expertise to the agency as a member of the Investment Advisory Committee to the ERS Board of Trustees.
Tull gave the history of the ERS pension fund, which was established as a constitutional trust fund in 1947. At that time, a car’s price tag was $1,500, a house cost $13,000 and gasoline was 23 cents a gallon. Minimum wage in 1947 was 40 cents an hour. The Dow Jones Industrial Average was 181 on December 31, 1947; it was 18,277 on May 18, 2015.
Tull said asset allocation continues to evolve. Asset allocation is an investment strategy that balances risk and reward while considering the goals, risk tolerance and investment horizon. According to Tull, in 1960 much of the investment was low-risk fixed income. By 1990 a number of investment strategies were commonly used with varying degrees of risk. A fairly recent investment strategy is infrastructure, with the Trust investing 1 percent in public and 3 percent in private infrastructure.
According to Tull, a bull market has just begun, with a dollar cycle that generally lasts six to 9 years. Bull markets are characterized by investor confidence and optimism.
A definite benefit plan, explained Tull, needs an equal balance between funding and benefits. Contributions from employees and employers make up about a third of the Trust’s value, with the remainder coming from investment earnings. The Trust currently stands at $26.2 billion. Tull said the Trust is meeting its investment goals, with a one-year return of 14.70 percent, and an expected 30-year return of 8.65 percent.
In 2013, ERS estimated the unfunded accrued liability — the difference between what is owed and what is owned — to be $8 billion by 2015. Tull said the amount would have been significantly less if the Trust had received full funding from the Legislature in 19 of the past 20 years.
According to the ERS website, “Recently, actuaries confirmed that the ERS Retirement Trust Fund is in slightly better shape than it was even just a year ago. There are a number of reasons for this, including strong investment returns for the past few years. Those strong returns are due in large part to ERS’ innovative and diverse team of investment professionals, led by Chief Investment Officer Charles “Tom” Tull.”
See the TSABAA website for Tull’s entire presentation, Hot Topics from ERS.