Teachers Retirement System of Texas – Governance for Alternative Investments and Derivatives

Warbird performed an internal audit for one of the country’s largest public retirement systems to evaluate the controls it had in place regarding its alternative investment classes, those asset classes without quoted prices in the active markets that would typically be categorized as level 3 by the FAS 157 standards.  These classes include: private equity, real estate, hedge funds, and over-the-counter derivatives.  Further, Warbird benchmarked the client’s internal controls to the industry and made recommendations in order to best assess and monitor risks to the organization from these asset classes.  The internal audit also examined controls residing at the client’s bank to provide guidance on how the client could monitor these controls without duplicating the effort.

The work was performed in 2 distinct phases:

Phase I:

  • Evaluating the reasonableness of the procedures and controls used to account for and value the alternative assets and derivatives.
  • Evaluating the degree of transparency by which TRS is able to support its valuation process for alternative assets and derivatives.
  • Providing recommendations for improving related procedures and controls.

Phase II:

  • Auditing the existence and valuation assertions made by management for financial reporting of alternative investments and derivatives for the year ending August 31, 2008.