Senator requests attorney general’s opinion and state audit of TRS investment in real estate

The request from state Sen. John Whitmire followed last week’s Senate Finance Committee hearing in which Whitmire and other senators ripped into the Teacher Retirement System for leasing expensive office space in the Indeed Tower in downtown Austin for its investment management division. Following an angry public outcry from retired educators as well as lawmakers, TRS now will sublease that space and extend its existing lease for the investment management division at another downtown location.

If Whitmire’s remarks at the hearing are any indication, his legal inquiry seems aimed at the secrecy surrounding the Indeed Tower lease and the possibility that TRS may have invested in the property. He is critical of TRS’ lack of transparency with current limited partnerships.

Before the senator filed his request, TRS Executive Director Brian Guthrie relayed the pension fund’s desire to have real estate designated as an asset class for pension fund investments. Currently, TRS can invest in real estate only through limited partnerships, which limit TRS’ ability to disclose certain information related to these transactions.

In his letter to the attorney general, Whitmire:

  • Asks whether TRS’ practices, using limited partnerships to invest in real estate, run afoul of the Texas Constitution and state law.
  • Asks, regardless of their legality, whether the fund’s investments in real estate are wise, given their lack of transparency.
  • Questions whether current law should be amended to “ensure no one is hiding behind a limited partnership or other financial arrangement in order to invest pension funds in real estate.”

The senator asked the state auditor to review the fund’s current limited partnerships and contracts and/or investments between TRS and any real estate firm to ensure “prudent decision making, sound contract negotiations, and transparency.”

TRS said it would cooperate with the inquiry, but it noted a separate portion of the law, which could be read to allow the investment in real estate through limited partnerships. The agency said its private real estate holdings are an “important part of [the pension fund’s] Strategic Asset Allocation, making up about 13.7% of the total Trust value, or about $21.7 billion, as of 9/30/2019.”

TSTA will continue to monitor the ongoing situation.

State senator calls for inquiries into TRS practices