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Jase Auby

lines on the record: 79
first: 2024-09-09
most recent: 2024-09-09
sittings or episodes: 1
sources: podcast

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“Competitive advantages are relationships. Most folks out there are going to pick up our phone when we call, and they're usually going to call us actually before we even call them. So we have access to nearly everything we would ever want to invest in. And that's an incredible resource. A, it gives you access to just interesting investments, but B, it just gives you educational access and market intelligence to everything out there. I mean, that's actually one of the biggest challenges we have is just processing this massive flow of information and knowledge we get from an employee perspective. It's one of the major links of the value proposition for our employees is this intellectual challenge of having the smartest investors in the world walk through our front door and want to spend time with us and want to talk to us. That's a real value. Some of the negatives of being large, it's hard for us to penetrate smaller markets.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, the 26 years just comes from the length of the liability. Texas has the longest liability of any teacher fund in the United States, and that's because Texas is a high-growth state. So we're hiring a lot of teachers. So we have a lot of younger teachers. And so our liability is amongst the longest 26 years. But some other hallmarks of the fund, I say, were large, $200 billion. Those positives and negatives of that lightly levered, that 4% public pension funds are some of the most liquid pools of capital in the world and there's a lot of implications for that. You have liquidity at the times you need it. You can go in liquid when illiquidity is being rewarded.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“Other financial institutions are much more levered than we are. So we're kind of in that stage where we just want to have some leverage. So we have 4% leverage. So we're at 1.04 levered. If you own your own home and you have an 80% mortgage on your home, you're levered four to one. And so that's kind of what we're doing. We're not at 400% leverage like someone buying a home. We're at 1.04% leverage. So from our perspective, we're at such a low level. It just makes sense to have a bit more at this point in time. And it's a journey because public pensions have been unleavered for a very long time. So we want to do it in a measured slow way. But at this point, it probably stands that we could have a little bit more leverage even.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“Versus a cash like benchmark plus a spread, then we measure that directional portfolio versus a full beta, long only equity benchmark. And so we overlay that portfolio with derivatives in order to achieve that full beta. But by having two separate portfolios, one of which is easily measured versus cash, and the other is easily measured versus full beta equity has really worked out well for us. So in that stable value bucket, we have that 5% stable value hedge fund port”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“So there's two components of the stable value portfolio. One is US treasuries, just holding US treasuries outright, can be a diversifier, although there are times when it's not a diversifier. But probably the more interesting one there is our stable value hedge fund portfolio. So we have 11% of our portfolio in hedge funds. And that's in addition, by the way, to that 38% of privates, so total alternatives is 49%, which again is quite high for a public pension, but quite low versus the endowment community. We have two hedge fund portfolios. One is stable value, which has zero beta. So zero market risk. It's in things like equity market neutral, the platforms, some macro funds, some CTAs, that sort of thing. And then we also have a separate portfolio that does have some beta in it. So equity longshore, credit funds that have residual market sensitivity and risk. And so we measure that stable value hedge from.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“We are very much of the mindset that oil and gas will be needed for a very long time and that people have goals for climate change and that people really want to invest in that transition. People want to invest in that solar. They want to invest in wind. We don't necessarily see it as our role to invest in that solar wind. We will, but we'll only do it on a straight return, you know, maximize return, strict fiduciary basis. We'll do it if it's a good investment. But we find that others want to invest in that space. That space has become a little bit crowded. Investing in that space, there's some reliance on innovation there that does amp the risk up a little bit, which makes sense. These are new forms of energy. But somebody needs to invest in the existing forms and the innovation available in the existing forms is there as well. And we're there to do that.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“For us it's a real advantage as other types of investors globally are prohibiting or withdrawing from investing in energy. I mean, we're very much open for business and we see it as a crucial opportunity for us. So we've leaned into that. We have that 6% we call ENRI Energy Natural Resources Infrastructure Portfolio at C to our knowledge is the only dedicated strategic asset allocation portfolio of any of our peers. And so we're able to use that 6% to go where others are divesting and be there very much aligned with Texas. Texas is number one in pretty much every form of energy you can name so number one in oil, number one in gas, number one in solar, number one in wind, number one in batteries. I just read the other day. So we're obviously an energy state that prioritizes that and to the degree to which people are withdrawing from traditional forms of energy. We're there.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, if we look at some of that diversification, that real return bucket, you mentioned energy, you're sitting in Texas. How have you thought about the debate and how you've gone about your energy investing?”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“We really did convert ourselves to be PME investors on the private equity side. That was a big difference. Prior to that, everyone was absolute return investors. So you would just have a return hurdle, 20% for some of the more risky private equity, for example, a little bit lower for less risky. And we just converted fully to that PME idea and measuring managers versus PME we calculated and comparing notes with them if they have their own internal PMEs. I hesitate to emphasize this too much because I think a lot of people have since done this, but we did it 12 years ago and it's something that really has helps us out over time. And you can do the same thing on the real estate side with REITs, for example, energy, natural resources, and infrastructure is tougher, but you can figure out ways to do it there too.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“We knew we would find this, but it was really about unpacking the smoothing in private markets. So everyone knows of the smoothing. There's one type of smoothing in that evaluations don't occur as regularly as you do in the public market. The other thing that occurs is everything's lagged as well. So both of those things are going to show you to be more diversified than you actually are. And so we knew that when we public proxied everything and you basically reversed out all of that smoothing, you would have a completely different risk picture than otherwise.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“Once you got your hands around a better fine tuned metrics around the private portfolio, integrating that with what you're already doing on the public side, what did you find that might have been similar or different than what you could have expected before you had been able to do that granular work?”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“That was all developing proxies. So we worked with our risk provider and thought about one example is private equity and just thought about what's the most appropriate public market proxy do you proxy by industry? Do you proxy by geography? How do you adjust for leverage? All those sorts of things. You can get as granular as you want. Some private equity firms actually do this where they will build a public markets proxy for every investment that they own and they'll track it through time like that. And you can use that for your PEME, your public markets equivalent to manage performance over time.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“The first one is obvious. It's Sval, so arrive there and figured out how to calculate Vall. And as so often happens in a quantitative world, there was a rudimentary risk system up and running, but everyone said there's no data for private markets. So we're going to solve out the risk of public markets to the penny. But for private markets, we're just going to wing that one. That might have been valid at the very beginning when private markets was four or five percent. But over time, Texas teachers at our height, we were 42% private versus a 35% neutral. We're down to about 38% private versus silver versus 35% neutral now. And it really became tail wagging the dog because there's more risk in private markets than there is in public markets. And if you're kind of winging the private part and solving the public to the penny, so we really had to think a lot about how to proxy risk and think very intelligently about how we were.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“You think about tackling that type of lens of looking at the pool, you have to think about measuring the risks and then deciding what choices you're going to make. When you got there, what were you looking at measuring to roll up and understand before you could even decide, are we taking the right types of risks?”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“Most public pensions have some allocation to credit. We don't have any. We also have risk parity. Eight percent is risk parity. And finally, we are levered about 4%. So we're up to 104% of assets versus 100% of NAV value. And I also did not mention the stable value hedge fund portfolio. 5%.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, absolutely so two hundred billion approximately right now. Very large pool of money. It's the fifth largest public pension in the United States. Two million members. So one in 20 Texans is a member of the fund. So just a very important fund to the citizens of Texas. When you have a fund that big, it's going to be highly diversified. So you're going to end up pretty much owning the market portfolio with some tweaks here and there. And you hope that those tweaks can add value on the market portfolio. But we're in every asset class. So public equity is the cornerstone. That's 40% of what we own. Privates as another 35 within that private we have real estate private equity and energy nut resources and infrastructure. We have US Treasury bonds. And then we also have, which is pretty interesting.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“That it's going to tip us over. We are very strong hands, a massively liquid, unlevered pool of capital, but it's just making sure that the risks we take are prudent and compensated well.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“These are the unleverse capital. Every other financial entity is levered. So a bank or an insurance company, they all use leverage and that's a tool that they can use. But that's why they need very sophisticated risk management at those places. But when you're not leveraged, you can weather nearly any storm. Combine that with having, we have a 26-year time horizon that Texas teachers. You can really weather that storm. So it was thinking about risk in that context. What it shifts from is not so much catastrophic risk, not so much existential risk run on the bank type risks that turns into more how do you most efficiently use risk most efficiently deploy it. And so that ultimately is how we added value at Texas teachers and we continue to do in our risk group. Are there any sources of uncompensated risk in our system? Are there risks we're taking that we don't understand? Let's make sure we understand it. And it's not so much.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“So the global financial crisis that just happened and large public funds, funds that have the resources said, wow, it sure would have been nice to have had a risk group in place through the global financial crisis. So they hired a few folks to start risk groups and Texas teachers was no different. And then everyone said, well, what does a risk group do exactly? And it had not been defined. And one of the reasons why it hadn't been defined is a good reason. It's a pension fund is not levered. So it's one of the only pools of capital on the planet that doesn't actually have balance sheet leverage. So you're talking about a public pension funds, endowments, and sovereign wealth funds.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“And I'm sure Ruby's doing fine. I'm sure there's lots of web stuff out there built in that. But having moved on to financial services since, I mean, Python has certainly taken over everything that we do on the finance side, even at Texas teachers. I mean, kids show up and it's not necessarily just Excel anymore. It's Python programming.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“This is very obvious, but you have to do everything. You're the cliche. Maybe I'll say it anyway. Chief Cook and Bottle Washer. So you're getting the company incorporated and figuring out whether you need a lawyer or not to do that, whether you want to spend that money because the money is yours that's coming out of your pocket. In technology world, just making a lot of technological choices. So at the time, I had to choose between Ruby on Rails or Python. Python Dijango was the choice. And I spent a lot of time on that. I thought this is a really important decision. I don't want to get this wrong. And then I got it wrong because I chose Ruby.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's really interesting. Your partners are really important. So, my first entrepreneurial experience had some good partners. Ultimately, it probably wasn't a business that had legs long term. The second entrepreneurial thing I did was I really did want to circle back to my computer past, the internet had happened without me while I was on Wall Street. So I did a very small internet startup and learned a lot about being an entrepreneur. I mean, all of my experience before then had been at these big huge banks and being part of a big underwriting machine. So it was fun to just be an entrepreneur for once.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so that was a great nine year run started out in modeling and then just became a full-fledged banker, structuring deals, closing deals, selling the equities, placing the debt, moving across different asset classes, high yield bonds, lever loans, investment grade bonds, CDOs of mortgage-backed asset-backed, then CDOs of CDOs did it all there. But I was from Austin, Texas, and I always did want to move home. So in total, I spent 12 years on Wall Street and wanted to move back to Austin, my hometown, and had two children in Manhattan, and my wife and I decided it was time. And so moved back to Austin, did some entrepreneurial stuff in Austin had fun doing that. It wasn't particularly lucrative at the end of the day, but it was good enough, and I'm glad to have done it. And then I circled back around and decided I wanted to be back in finance, be back in investings, and got a job.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“My progression is I spent three years at Goldman and then some folks left Goldman and went over to Lehman Brothers. I really wanted to focus on doing deals, doing transactions. I was in a more research oriented role at Goleman. One of the great things about being young is whoever's hiring, that's where the innovation is. That's the next market. So when you're 18 years old, you're not necessarily thinking, I want to be a CDO banker, but age 24, I was a CDO banker at Lehman Brothers. And that was a brand new market. It was a lot of fun to do that. I ended up being the number two guy in the cash flow CDO business at Lehman and built the first Lehman Brothers CDO model and just was there at the beginning is that whole CDO CLO industry took off.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, that progression definitely predated me because Liar's poker, I mean, computers are what really did drive the MBS market and kind of started everyone down that path. But at the time, it very much was still a relationship business. I was in fixed income, but we dealt with the bankers a lot and the bankers, it was about the size of your Rolodex. And it was literally the size of your Rolodex. They had these foot diameter rolling Rolodexes and whoever had the most number of those on their desks was probably the most important, I guess. And that was really important. That old style relationship banking, but you started to see it. You started to see the technologists start to take over some of the more quantitatively driven products like derivatives, all those sorts of things. And I haven't been connected with the place like Goldman in a long time or Lehman in a long time, but my understanding is technologists are all over the trading.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was really interesting because it was that transitional period. It was only a couple years removed from people being able to smoke on the trading floor. Relationship, everything done over the phone. All that sort of thing. So, As somebody who was computer oriented arriving there, technology oriented, it was still a little bit of the idea of. Computers are like the typing pool. People go off and do something with them and then they come back. But I was able to be productive almost immediately with just some things that we would call very basic tools today, running a database of data instead of using an Excel spreadsheet, that kind of thing. Early days, that was an innovation.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“Developers now at Goleman, which is just an astronomical number, if you think about that. But there were nascent days. So got my first job at Goleman in the fixed income division.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“I really started. Loving computers a lot And so in high school All in for computers. I joined the yearbook staff in 1984 because they had Macintosh computers. Had no interest in the yearbook stuff, but I really wanted to get my hands on those computers, got to college, majored in electrical and computer systems engineering. At the end of that time, I thought, okay, I've learned how computers work, but now I really want to. Didn't necessarily want to design and build them. I also really wanted to come to New York too, so it was very destination focused. Got a job at Goldman Sachs. Goldman at the time was really interested in I shouldn't say really interested because they're actually much more interested now. I heard a statistic saying they have 12,000.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source
“I guess on today's show is Jace Auby, Chief Investment Officer of the Teacher Retirement System of Texas, where he oversees the $200 billion pension fund that's the fifth largest in the United States. TRS manages assets that support the retirement security of over 2 million public education employees in Texas and has long been known as a thought-leading steward of capital in the pension community, including engagement with emerging managers and innovation in fee structures. Our conversation covers Jace's background and path to TRS, including his early working with computers on Wall Street and entrepreneurship. We discussed TRS's organizational structure, competitive advantages, and investment approach, and closed with Jace's role and accomplishments in his tenure as CIO.”
2024-09-09 · Capital Allocators · Jase Auby - Risk, Size, and Talent at Texas Teachers (EP.404) · IDENTIFIED FROM THE TRANSCRIPT · source