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Our Assets

Our asset allocation is designed to achieve our long-term 8% return goal within acceptable levels of risk. Watch this video to learn more about how our portfolio is structured and why.





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Target Asset Allocation

Assets > Equities

Equities

The Big Picture
Equities are shares of stock representing an ownership interest in individual companies. We own shares of funds that actively invest in stocks, but we also invest through passively managed index funds designed to replicate the performance of broad stock market indices. Shares are publicly traded on stock exchanges, and owners make money from dividends and increases in share prices.

Role in Our Portfolio
The TCDRS equity portfolio includes shares of U.S. companies as well as international equities from both developed and emerging markets. Among our investments, this asset class delivers one of the highest expected returns over the long term, but also comes with higher risk.

Investment Style
Active and passive


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32%


EQUITIES

Assets > Hedge Funds

Hedge Funds

The Big Picture
Hedge funds are technically not an asset class but investment strategies applied to a variety of asset classes. Hedge funds employ strategies that perform well regardless of market direction. A key advantage of hedge funds is their ability to “short” or profit from a decline in a security’s value. As a result, they own investments that go up in value or mitigate losses when markets go down. Our hedge fund portfolio is diversified to include multiple strategies, including:

  • Equity long/short: Equity long/short strategies involve taking long positions in stocks expected to gain value and short positions in stocks expected to decline in value.
  • Market neutral: Market neutral is a hedge fund strategy that attempts to balance long and short positions in many different sectors and types of securities to limit risk. Maintaining this balance requires sophisticated management and a high volume of trading.
  • Global macro: Global macro strategies invest, long and short, based on evaluations of global political and economic factors that will influence the direction of individual countries’ interest rates, currencies, bonds, stocks and commodities.
  • Event-driven hedge funds: Event-driven hedge funds derive their profits from capitalizing on specific events such as mergers, acquisitions, buybacks, stock splits and bankruptcies.

Role in Our Portfolio
Because hedge funds perform well across a variety of market conditions, they help reduce overall risk in our portfolio. We expect our hedge fund portfolio to produce equity-like returns with less than half the risk of stocks over a market cycle.

Investment Style
Active

20%


HEDGE FUNDS

Assets > HIGH‐YIELD INVESTMENTS

HIGH‐YIELD INVESTMENTS

The Big Picture
High-yield investments cover a broad range of credit-related securities that we expect to produce higher yields or returns due to risks associated with the issuer, borrower or the securities collateral.

Role in Our Portfolio
High-yield investments play an important role in meeting our long-term investment return goal. In fact, they are one of our best-performing asset classes. High-yield investments carry more risk than investment-grade bonds, but we are compensated for taking that risk with higher returns.

Investment Style
Active


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18%


HIGH-YIELD INVESTMENTS

Assets > PRIVATE EQUITY

PRIVATE EQUITY

The Big Picture
TCDRS participates in partnerships with other institutional investors to purchase existing companies and fund start-up ventures.

Our private equity investments include:

  • Buyout: Buyouts generally involve the use of leverage to purchase public and private companies, improve their financial performance and sell them for a profit.
  • Venture capital: Venture capital investments include seed stage, early stage, expansion stage and growth stage companies with promising technologies or innovations.
  • Real assets: Our private equity real asset investments are largely investments in energy companies exploring for and producing oil and gas. It also includes companies mining and extracting various minerals.
  • Non-U.S.: Non-U.S. buyouts and venture capital are investments in companies located outside the United States.

Role in Our Portfolio
Private equity investments are expected to significantly exceed the return of public market equities over long market cycles. They are illiquid and carry higher risk than public equities.

Investment Style
Active

16%


PRIVATE EQUITY

Assets > REAL ASSETS

REAL ASSETS

The Big Picture
Real assets are physical or tangible assets such as real estate, agricultural commodities, precious metals and energy products. Inflation-protected securities such as Treasury Inflation Protected Securities (TIPS) are also included because they share the inflation protection characteristics of real assets.

Role in Our Portfolio
The value of real assets tends to have low correlation with the value of financial assets such as stocks and bonds. Because of that, real assets help reduce the portfolio’s risk. Real assets also tend to hold their value or increase in value during inflationary periods.

Investment Style
Active


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11%


REAL ASSETS

Assets > INVESTMENT-GRADE BONDS

INVESTMENT-GRADE BONDS

The Big Picture
Investment-grade bonds are debt instruments issued by the U.S. Treasury and governmental agencies, asset-backed securities, and corporate bonds that are rated investment grade by the major ratings agencies.

Role in Our Portfolio
Investment-grade bonds are the lowest risk investment in our portfolio, but also the lowest returning. Our allocation to investment-grade bonds has declined markedly in line with a fall in expected returns resulting from persistently low interest rates following the financial crisis.

Investment Style
Active

3%


INVESTMENT-GRADE BONDS