Permanent School Fund sets record-high value of $41.4 billion

Nov. 28, 2017

The country’s largest educational endowment, the Texas Permanent School Fund (the Fund), just got bigger. Figures released this month show that it has reached a new record high value.

As of Aug. 31, 2017 which is the end of the fiscal year, the Fund was valued at $41.44 billion (unaudited). Of that, $32.73 billion is managed by the State Board of Education and administered by the Texas Education Agency staff. The remaining $8.7 billion is managed by the School Land Board and administered by the General Land Office.

This newest value represents a total increase of $4.16 billion over the past year.

“The Permanent School Fund is the gift that keeps on giving to Texas schools,” said State Board of Education Chair Donna Bahorich. “It was begun in 1854 with an appropriation of $2 million and through careful and wise investments, the Fund today is the country’s preeminent education endowment. With the board’s careful oversight and the continued strong day-to-day administration of the Fund by the Permanent School Fund staff, the Fund will continue to support Texas schools for generations to come,” she said.

It has been the largest U.S. educational endowment each year since 2014 when it surpassed the Harvard endowment.

Each year, based on a distribution rate that seeks intergenerational equity, the Permanent School Fund distributes funds into the Available School Fund. These funds are then used to provide funding for instructional materials, technology and money for every-day operating expenses for Texas’ 1,207 school districts and charter schools.

“During the 2018-2019 biennium, the Permanent School Fund is projected to distribute $2.5 billion to Texas schools,” said State Board of Education member David Bradley, chair of the board’s Committee on School Finance/Permanent School Fund. “This is the largest distribution in the Fund’s 163-year history and is $400 million higher than the distribution made in the 2016-2017 biennium,” he said.

Holland Timmins, executive administrator and chief investment officer, said that the Permanent School Fund’s growth is attributed to strong performance across the portfolio, particularly equities and alternative assets.   He said that most asset classes outperformed their benchmarks during the past year.

The portion of the Fund managed by the State Board currently invests in 12 asset classes. The largest category is domestic large cap equity in which 18 percent of the assets are invested as of Aug. 31, 2017. The smallest category, at 2.5 percent of the Fund, is in commodities.
In contrast, in 1975 the PSF invested in only two asset class categories – domestic fixed income and domestic equity.

The Fund also uses its financial muscle to guarantee school bonds, which provides school districts and charter districts participating in the program with an overlay of the Fund’s AAA credit rating, allowing these districts to issue bonds at a lower interest rate than they otherwise would, based on their underlying credit rating. This saves districts and charters millions of dollars by providing them with lower interest rates.

Since its establishment by an amendment to the Texas Constitution in 1983, the Fund has guaranteed more than $166 billion in bonds.

The Fund’s backing of bonds assures investors that if a district or charter district were to default on a bond, the PSF would guarantee the bonds. However, there has never been a default in the history of the program.