Pension fund makes some Texas-size bets

After working for almost two decades as a money manager, Britt Harris, at 45, was what most people would consider a success. Bridgewater Associates’s Ray Dalio and Bob Prince had just tapped him to be chief executive of the world’s largest hedge fund.

A father of four, Harris also found time to coach his kids’ baseball teams and teach Bible classes at his church. Still, something was gnawing at him. “I didn’t sleep for one night,” the Texas native recalled. “I didn’t sleep for a week. Then, after not having slept for three months, I told Bob and Ray I wanted to resign.”

Although Prince and Dalio urged ­Harris to remain, he quit Bridgewater in June 2005 after just six months. Harris says he felt that he wasn’t contributing enough to the firm or the wider world, so he embarked on an 18-month-long search for meaning. He traveled to Asia and New Zealand. He tried teaching, setting up a class on investing at Texas A&M University, his alma mater.

Then, in late 2006, a headhunter approached him about taking the top investing job at the Teacher Retirement System of Texas (TRS).

It was a place where he could make an impact. With $110.3 billion under management as of March 31, TRS is the fifth-largest public pension plan in the nation.

When Harris joined TRS in 2007, the teachers fund wanted someone who could boost returns without making risky bets that could jeopardize the pensions of its 1.3 million public school teachers and state university employees. “It’s a plan I really care about,” said Harris, now 54. “It’s my home state, a place I love.”

Pension funds across the United States are facing an unprecedented double squeeze: Baby boomers entering retirement are placing growing demands on resources, while investment returns during the past decade have dropped. Nationwide, public pensions faced more than $4 trillion in unfunded liabilities as of October, according to Joshua Rauh, an associate professor of finance at Northwestern University.

At TRS, Harris is reacting by ramping up stakes in so-called alternative assets, ranging from private equity to real estate to hedge funds. The Texas fund had about a third of its money in these investments at the end of March — more than any of the 10 largest public pension funds, according to London researcher Preqin. The California Public Employees’ Retirement System has 25 percent of its $237.6 billion of assets in such investments.

Bridgewater stake

Harris, a Christian with a taste for Texas barbecue, is also forming partnerships with Wall Street firms. He has pledged $3 billion each to two private-equity joint ventures, with Apollo Global Management and KKR. He’ll be investing in individual deals with them rather than solely placing money in their funds, as other pension plans do. And in February, the Texas fund bought a 2.5 percent private-equity stake in Bridgewater, Harris’s former employer, for $250 million.

The moves are controversial. “Are they in the business of managing employee pensions, or are they in the business of running hedge funds on Wall Street?” asked Edward Siedle, a former Securities and Exchange Commission attorney who’s now in the private sector, investigating pension fraud. “When you look at public pension partnerships with Wall Street, generally they end up bad for the public pensions and good for Wall Street.”