How TIAA’s General Account allocates up to $30 billion in new money annually

Time to read: 6 minutes

Talking fixed income with the TIAA General Account’s Wen-Fu Wu and Mike DeBello

It takes a finely calibrated investment process to reliably deliver guaranteed payments to millions of savers and retirees for decades into the future. This is precisely the function of TIAA’s nearly $300 billion General Account, or GA.¹

We chatted with Wen-Fu Wu, the TIAA GA’s deputy chief investment officer and head of fixed income, and Mike DeBello, the TIAA GA’s head of asset allocation and third-party investments. Our conversation covered how the GA puts tens of billions of dollars to work each year, and what market volatility and U.S. budget deficits mean for the GA’s investment program.

Wen-Fu - Sure. For starters, we run a liability-driven investment process. That means we’re investing to meet the liquidity and asset-liability management requirements of our retirement products. We’re simultaneously investing to deliver competitive yields to savers in TIAA Traditional² and other guaranteed income products, and to annuitants who often receive payments for as long as they live.

Our mission requires that we emphasize capital preservation to reinforce our financial strength, and to ensure our capacity to deliver on our mission for the next 100 years and beyond. To that end, we invest mostly in long-duration, high-quality bonds to generate a stable, recurring stream of predictable income.

We don’t actively trade bonds, nor do we try to follow any specific portfolio benchmark. There are several reasons why traditional benchmarks aren’t terribly helpful for what we’re trying to accomplish. For one thing, we don’t value our portfolio on a mark-to-market basis, so benchmarks that produce returns by using real-time asset prices don’t reflect what’s happening in our portfolio or our approach to investing.

Rather, we operate a highly customized global portfolio and set allocations within specific risk limits and return targets. Our industry-leading capital buffer³ and long-term liabilities allow us to seek higher returns with less liquid assets. An example of this is private credit, which provides a higher yield than comparable public credit and can generate diversification advantages.⁴ The high yield private credit portion of the GA’s portfolio has grown to around 3% from 1% about seven or eight years ago. As of the end of last year, our allocation to private credit, including both high yield and investment grade, was approximately 24% of the GA.

Mike - We invest around $25-$30 billion annually, the sum of new contributions from plan participants, income earned from our investments, and turnover from existing investments in the portfolio. This is a lot of new money to put to work each year—an amount on par with two or three large corporate defined benefit plans combined.⁵ Our scale can be advantageous to retirement plan participants since we can access asset classes and investment opportunities that smaller investors can’t, and it means we’re better able to diversify across the entire investment universe.

With that in mind, we think about asset allocation in three ways. First, there’s our strategic, or long-term, asset allocation. This is geared toward meeting our liabilities—payouts to savers and annuitants. For this, we’re thinking about how to be invested to pursue return and risk objectives far into the future under a wide range of economic scenarios. Next, there’s our dynamic asset allocation, which, while informed by the strategic long-term view, really focuses on how we’re going to invest in a given year. Here, we look at factors like new supply across asset classes, what we want risk-based capital to look like at year-end, and how we can provide our participants with attractive crediting rates. We’ll create target allocation ranges for the different asset classes that Wen-Fu just mentioned, including public and private investment grade and high yield bonds, structured credit, and safe haven assets such as U.S. Treasuries.

Last, we have a tactical allocation that allows us the flexibility to shift new money around within the target ranges to adapt in real-time to evolving market conditions. We can be opportunistic and potentially take advantage of short-term disruptions in the market, for instance, credit spread dislocations. The shorter-term allocation processes ladder up into what we are trying to do over the longer term.

Wen-Fu - This year has really been about uncertainty and how long the uncertainty will last. Off-and-on tariff announcements raise questions about corporate behavior and earnings, and consumer confidence—whether companies and consumers are going to pause big purchases and for how long. Anecdotally, we hear that CEOs are in wait-and-see mode, pausing on making investments and not hiring in anticipation of an economic downturn. While labor market and inflation readings for now have been controlled, at some point concerns may gain traction about a recession, and this could become a self-fulfilling prophecy.

Mike -There’s been a lot of policy-induced stress. And there’s been a bit of a disconnect between the credit markets, where spreads [the difference between corporate bond yields and comparable Treasuries representing a risk premium] remain relatively tight, and most of the volatility has been confined to the public equity market. Remember, the GA doesn’t have public equity holdings, so day-to-day stock market volatility isn’t directly impacting the GA’s performance.

Wen-Fu - We currently have the highest available rating from all four rating agencies.⁸

Moody’s affirmed TIAA’s ratings, including our insurance financial strength. They cited our ‘dominant position’ in the higher education retirement market, plus the capital strength and predictable liability structure we talked about earlier in their latest review.⁹

We weren’t surprised by the downgrade since they had foreshadowed it for over a year, and they were the third ratings firm to act. That said, we did see a few knock-on effects in that Moody’s did make a handful of related downgrades to U.S. insurers and banks.

Wen-Fu -We’re always thinking far ahead about potential risks, whether we want to diversify into other AAA-rated government issuers or corporates, but we’re a long way off from making any changes. U.S. debt will remain a safe and highly liquid investment for a long time.

I will say that the risk of a technical default in the U.S. is growing. By this I mean Congress for whatever reason doesn’t authorize sufficient payments to meet its obligations. It’s an open question what that would mean for how the risk-premium of U.S. Treasuries would adjust and we would likely see pricing adjustments throughout the markets and the global economy. At this point, we believe this would be a short-lived event, so, for us, it’s a thought experiment and we’re not currently making allocation decisions with this specific concern in mind.