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Pension Funds

Illinois Teachers sets 2018 pacing schedule, restructures diversifying strategies portfolio

The $48.7 billion Illinois Teachers' Retirement System, Springfield, approved fiscal year 2018 pacing plans for its private equity and real estate investment programs totaling up to $2.1 billion during its board meeting Tuesday.

Trustees approved the tactical plan for real estate investments developed by investment staff and real estate consultant Courtland Partners that would commit between $100 million and $500 million in the fiscal year ended June 30, 2018. The pacing plan in 2017 was for $100 million to $450 million.

As of March 31, the $7 billion real estate portfolio represented 14.7% of total assets. The target allocation is 16%.

Trustees also approved the private equity tactical plan for fiscal year 2018 with a commitment pace of between $1.2 billion and $1.6 billion, the same as for 2017 and for each fiscal year through 2022.

As of March 31, the $6.3 billion private equity portfolio represented 12.9% of plan assets; the target weighting is 15%.

In other news from the August board meeting, TRS will restructure its $5.9 billion diversifying strategies portfolio — which currently is about half hedge funds and half global tactical asset allocation strategies — increasing exposure to opportunistic alpha-generating funds and adding a dedicated allocation to alternative risk premium approaches to cut costs.

The most recent iteration of the 10-year old portfolio, approved by trustees on a 7-4 vote at the board meeting, splits the portfolio into five new categories.

Existing assets will move into the following categories with target portfolio weightings of 35% for opportunistic alpha (existing weighting, 29.6%); systematic macro, 25% (25.4%); alternative risk premium, 20% (7.3%); discretionary macro, 15% (16.2%); and risk parity, 5% (20.9%).

The existing portfolio structure as of June 30 was 27.3% convergent hedge fund strategies, 24.9% convex hedge fund strategies and 47.7% in GTAA approaches.Assets managed in the portfolio totaled 12.1% of plan assets; the target allocation is 14%.

Greg Turk, director of investments, and Edward Shim, investment officer-hedge funds, along with its specialist hedge fund consultant, Albourne Partners, spent the past year "redefining the key components of the portfolio," Mr. Turk said during a meeting of the fund's investment committee on Tuesday.

The goal of the new structure, the first phase of which will be implemented over the next nine to 12 months, is to reduce the growth equity tilt of the entire portfolio by increasing diversification and sticking to a volatility target of between 7% and 8% of the S&P 500, Mr. Turk said.

Messrs. Shim and Turk will provide trustees with specific recommendations about existing manager mandates and new managers at the board's Oct. 26-27 meeting.