Real estate, private equity getting major attention from fund
The $48.7 billion Teachers' Retirement System of the State of Illinois, Springfield, approved fiscal year 2018 pacing plans for its private equity and real estate investment programs totaling up to $2.1 billion during an Aug. 22 board meeting.
Trustees approved the tactical plan for real estate investments developed by retirement system investment staff and real estate consultant Courtland Partners that would commit between $100 million and $500 million in the fiscal year ending June 30, 2018. The pacing plan in 2017 was for $100 million to $450 million.
The tactical plan also includes a search for real estate co-investment consultants. Contracts for the current two, ORG Portfolio Management and Real Asset Portfolio Management, expire June 30, 2018, Timothy Hayes, senior investment officer – real estate, told trustees during a meeting of the board's investment committee.
No further information was available about the upcoming search.
TRS has committed more than $130 million to real estate co-investments since 2013.
Within the real estate tactical plan, the retirement system's real estate investment team has the go-ahead to invest up to $100 million in real estate-oriented co-investments in the fiscal year.
As of March 31, the $7 billion real estate portfolio represented 14.7% of total assets; the target allocation to the asset class is 16%.
The first commitment from the real estate portfolio for FY 2018 was a commitment of up to $100 million earmarked for Blackstone Real Estate Partners Asia II, an opportunistic fund managed by Blackstone Group LP. TRS committed $100 million to the first fund in the series. Blackstone managed a total of $592 million as of June 30 in various strategies for the pension fund.
TRS 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%.
Private equity commitments
The fund's initial private equity commitments for the fiscal year ending June 30, 2018, were:
up to $100 million to energy private equity fund NGP Natural Resources XII, managed by NGP Energy Capital Management LLC. TRS previously committed $100 million each to the 10th and 11th funds;
between $50 million and $75 million to Institutional Venture Partners XVI. TRS committed $50 million to the previous venture capital fund; and
$50 million to private equity fund ICV Partners IV, , managed by managed by ICV Partners LLC, from the pension plan's $750 million emerging managers program.
In other news from the August board meeting, TRS will restructure its $5.9 billion diversifying strategies portfolio — currently 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, splits the portfolio into five categories compared to three in the current format.
Existing assets will move into the following categories with portfolio weightings of 35% for opportunistic alpha (existing weighting, 29.6%); systematic macro; 25% (25.4%); alternative risk premiums, 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 specialist hedge fund consultant, Albourne Partners, spent the past year "redefining the key components of the portfolio," Mr. Turk said during an investment committee meeting on Aug. 22.
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 TRS portfolio by increasing diversification and sticking to a volatility target of between 7% and 8% of the Standard & Poor's 500 index, Mr. Turk said.
Messrs. Shim and Turk will provide specific recommendations about existing manager mandates and new managers at the Oct. 26-27 meeting.