The Texas Permanent School Fund Corporation met on June 16 to discuss administrative items and the distribution of the Permanent School Fund. A link to the full meeting and agenda can be found here.


This report is intended to give you an overview and highlight of the discussions on the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.


Item 1: Approval of minutes from April 7, 2022 minutes of the PSF Corporation meeting

  • Minutes approved


Item 2: Selection of board terms for appointed members

  • Chuck Campbell, PSF Counsel – Under SB 1232, there are two appointed members of the board; staggered terms of six years drawn by lot
  • Terms drawn randomly by Patricia Hardy:
  • Brien Smith’s term expires on January 1, 2025
  • Todd A. Williams’ term expires on January 1, 2023
  • Brad Wright’s term expires on January 1, 2027
  • Motion to adopt board terms carries


Item 3: Review of the Permanent School Fund Distribution Process

Mark Shewmaker, Permanent School Fund

  • Two distribution mechanisms available through constitution
  • Annual distribution amount calculated by multiplying sixteen valuations of the fund by the distribution rate
  • Rate cannot be over 6%; ten-year test prohibits distribution during low-returns periods
  • In other distribution method, limitation of distributing 600 million dollars per year
  • Land revenues transferred to PSF from GLO on January 1, 2023
  • Rusty Martin, PSF – Board of Education adopted rule on how much to allocate to PSF; calculated by July 31 on even number years
  • Wright – Is the analysis based on total mineral revenue?
    • Martin – It’s similar to the SBOE framework; based on percentage of average trailing market value of the portfolio
  • 2012 rule broadened SBOE asset base; last two years assets increased value unexpectedly
  • SBOE considers distribution rate over three meetings; final decision by November
  • Total return, inflation, and student population growth most influence in distribution rate determination
  • NEPC and PSF both calculate recommended rates; rate range adopted previously 2.5-3.3%
  • Tom Maynard, Chair PSF – How is the 5G Student Land Board distribution rate calculated? Will we keep determining assets segregated?
    • Holland Timmins, CIO PSF – GLO assets will roll into the PSF corporation; once rolled together board needs to establish policy on how 5G is calculated
  • We study how other endowments calculate their distribution rates
  • Carlos Veintemillas, Deputy CIO TEA – We calculate the distribution rate based on population growth which is unique
  • Maynard – Is the 5G calculated based off mineral revenue?
    • Martin – No, it’s based on asset value
  • If School Land Board sends SBOE money it flows directly into distribution; sends 300 million on average
  • Average adopted SBOE rate has been 3.7%
  • PSF required to adopt distribution rule based on SBOE distribution rate, intergenerational equity, any other relevant factor


Item 4: Discussion of PSF Corporation ethics policy

Holland Timmins, PSF

  • Corporation board tasked with adopting ethics and investment policy
  • Current policy is outdated; recommends starting with fresh slate
  • First draft of language presented at September meeting


Chuck Campbell, PSF

  • Discussion is an overview of what the ethics policy will look like
  • New requirements under law need to be put into policy
  • Statute requires certain articles of ethic policy
  • Maynard – Are these standard for investment funds?
    • Absolutely
  • Conflict of interest requires formal acknowledgement in writing and recusing oneself
  • Presents overview of prohibited transactions, gifts, and no contact periods
  • Provision applies to board, employees, and vendors
  • CEO in charge of enforcement with regards to staff and employees; board in charge of themselves
  • John Wright – We will check with sister agencies and similar corporations and find the best practices of today
  • Maynard – Are these ethics polices for the board standard?
    • Yes
  • Even when you pass this policy, it doesn’t immediately supersede what is in already in place


Item 5: Discussion of PSF Corporation investment policy

Katie Reisman, PSF Staff

  • Investment policy strategic guide for investment management
  • Key components may include scope, purpose, goals, governance, guidelines, restrictions, asset allocation, and performance measurement
  • Asset allocation is considered the most important


Erin Wedephol, Portfolio Manager PSF

  • Current policy sits in chapter 33; written originally in 1996
  • Investment procedures manual overviews internal performance
  • GLO has its own investment policy statement
  • SB 1232 requires board to develop written investment objectives for PSF
  • Corporate board must develop and improve investment policy strategy
  • Draft to be presented for review in September
  • Maynard – This is an opportunity to start over
  • Wright – Is the document drafted internally or does a consultant help?
    • Maynard – We do have external consultants
    • Timmins – We will be coordinating with NEPC
    • Maynard – NEPC is our external fiduciary consultant


Item 6: Selection of location and facilities of operation of the Corporation

  • Board enters closed session
  • Open session resumes
  • Motion for the CEO to execute the lease for facilities on the terms presented to the board subject to legal review
  • Motion passes


Item 7: Overview of PSF Asset Allocation

Holland Timmins, PSF

  • State board policy to do asset allocation every two years
  • Collaborative process with NEPC
  • Maynard – Do we do it every two years because of the timeline of the procurement process? Because of this, in the corporation setting can this be done more often?
    • Because it’s a long-term strategic investment plan, every two years is good
    • Currently we must post an RFP, so 6-8 months followed by legal negotiation and implementation
  • Williams – Can we change the asset allocation for major events in the short term?
    • We can adjust the target within the range the board sets
  • Williams – So a broader range gives you more ability?
    • Range width is a significant factor


Keith Stronkowsky, NEPC

  • NEPC produces outlooks quarterly
  • Fed interest rate increase influences fund; already down 3%
  • Provides overview of asset performance
  • Recommends bringing bank loans into fund, increasing private equity, decreasing debt portfolio
  • Wright – Over five years, how has the emerging market debt portfolio performed?
    • Over ten years, negatively; over five years, flat
  • Wright – Have returns been adjusted for currency?
    • Yes, they are in USD
  • Wright – I am glad we are decreasing it for currency risk
  • Expected return $623 million, recommendation targets would increase to $635 million
  • Goal to limit short duration investments
  • Maynard – Will we wait until 2024 to assess the portfolio once it includes GLO assets?
    • Recommended revisiting in first half of 2023


Item 8: Report of the CEO

Holland Timmins, PSF

  • This is a wonderful opportunity for the fund; thanks to the staff and board