Searches and Hires

Illinois Municipal targets $238 million for 5 managers, reports 13.8% return

Illinois Municipal Retirement Fund, Oak Brook, on Friday approved commitments totaling up to $238 million to five alternative funds.

The board of the $38.6 billion pension fund committed up to €100 million ($118 million) to Blackstone Property Partners Europe, a core-plus European real estate fund managed by Blackstone Group, and up to $50 million to Torchlight Debt Opportunity Fund VI, an opportunistic real estate debt fund managed by Torchlight Investors.

Both firms already manage real estate assets for IMRF; Blackstone received a total of $550 million in commitments to six other funds, while Torchlight has received a total of $100 million to two previous funds.

In alternatives, IMRF committed up to $25 million each to Sterling Group Credit Fund, a mezzanine debt fund, and New MainStream Fund III, a lower midmarket buyout fund managed by New MainStream Capital. Also, up to $20 million was committed to Beecken Petty O'Keefe V, a midmarket health-care fund.

The Sterling fund commitment is the pension fund's first directly to the firm; $10 million was committed previously to Sterling through Abbott Capital Management's manager-of-managers separate account. New MainStream has received a combined $12 million in previous IMRF commitments — $5 million in a direct investment and $7 million indirectly through Abbott and manager-of-managers Pantheon Ventures. IMRF previously committed $10 million to Beecken Petty O'Keefe IV.

Illinois Municipal had actual allocations of 5.4% in real estate and 3.5% in alternative investments, both as of June 30, vs. target allocations of 8% each.

Separately, IMRF terminated Holland Capital Management, a minority-owned manager which ran $943 million in active domestic large-cap growth equity. Holland announced Aug. 15 that it was closing.

Illinois Municipal was Holland's largest client, according to Dhvani Shah, chief investment officer. The pension fund had $16.7 billion in U.S. equities as of June 30.

Holland had been on watch for performance since February 2015, although since inception of the strategy in 1994, Holland outperformed its Russell 1000 Growth index return by an annualized 122 basis points, gross of fees, Ms. Shah said.

Ms. Shah said that, long term, the pension fund will be able to still reach its goal of a 20% overall allocation to emerging managers despite the termination.

The assets will be reallocated at Ms. Shah's discretion, she said. Most likely, the assets will be distributed to the pension fund's existing domestic equity and fixed-income managers, with some proceeds to be used to pay benefits, Ms. Shah said.

The commitments and termination were recommended by the investment committee on Thursday.

Also, Illinois Municipal returned a net 3.18% in the second quarter and a net 13.83% for the 12 months ended June 30, according to a report from investment consultant Callan Associates. Both are above the pension fund's custom benchmark returns of 2.78% and 11.42%, respectively.

As of June 30, the overall portfolio returned a net 5.35% for three years vs. the custom benchmark's 5.98% return, 9.6% vs. 9.08% for five years, and 6.03% vs. 6.1% for 10 years. All multiyear returns are annualized. IMRF works under a calendar fiscal year.

U.S. equity returned a net 20.81% for the 12 months ended June 30, while international equity returned a net 20.02%; fixed income, 1.95%; real estate, 8.92%; and alternatives, 11.7%.

The pension fund's actual asset allocation as of June 30 was 43% domestic equity, 27% fixed income, 20% international equity, 5% real estate, 4% alternative investments and 1% cash. Its targets are 38% domestic equity, 29% fixed income, 16% international equity, 8% each alternatives and real estate, and 1% cash.