Maximizing Investment Returns for Texas School Funds

The Texas Permanent School Fund (PSF) is a $48.3 billion endowment designated for the benefit of public schools, funding classrooms on a per-student basis, as well as technology and instructional materials. It was established in 1894 with a $2 million investment from the Texas Legislature, and while the fund is increasing, it has not grown at the same rate as many peer funds. Although the PSF has grown larger than Harvard University’s endowment, it missed out on over $12 billion in growth according to a yearlong Houston Chronicle investigation.

The fund is run by two separate entities that invest independently of each other: The State Board of Education (SBOE), which oversees the $35.8 billion of the assets with broad investment authority, and the School Land Board (SLB), which manages $12.5 billion with limited investment authority.

SB 1232 would establish a new entity under the SBOE to oversee the Permanent School Fund: The Texas Permanent School Fund Corporation (TPSFCO). TPSFCO would be modeled after the University of Texas/Texas A&M Investment Management Company (UTIMCO) that oversees the Permanent University Fund.

What are the benefits of combining the funds?

  1. Integrating the two funds will allow for investment returns to be maximized, which will increase the amount of money available for school districts. Current statutory limits and collateral requirements have prevented the split investment funds from maximizing their investment returns.
  2. The state can also reduce investment risk alongside its increased investment returns with a full merger, which would bring in another estimated $100 million per year in annual investment returns.
  3. Unifying the funds also helps ensure that the state’s investments are properly diversified, managed efficiently, and best prepared to handle potential volatility in oil and gas royalty payments. This will ensure that the PSF is prepared to help fund our schools for decades to come.

SB 1232 accomplishes this by merging two investment pools into one under TPSFCO and creating a new board that includes SBOE leadership, General Land Office (GLO) leadership, and investment professionals. Importantly, this bill maintains the important historical and constitutional role of the SBOE and GLO. It is also consistent with this year’s Texas Voter Poll finding that 78% of Texans believe we should reform our education investment funds by streamlining management.