CHICAGO -- The Public School Teachers' Pension and Retirement Fund of Chicago restructured its equity and fixed-income portfolios, boosting its target equity allocation to 65% from 51%.
The fixed-income target was reduced to 35% from 40%.
In the equity restructuring, the $9.4 billion fund hired two large-cap value equity managers, reduced the portfolios of four managers, reclassified the portfolios of two firms and dropped an emerging markets equity portfolio.
In fixed income, trustees changed from a core active approach for domestic bonds to one that uses passive and enhanced index portfolios and opportunistic strategies.
At the board meeting held April 8, consultant William M. Mercer Investment Consulting Inc. also recommended the board watch Woodford Gayed Management Inc., New York, an active growth equity manager, because of the firm's failure to add alpha over long periods of time. Scudder Kemper Investments Inc., New York, also was placed on the watch list for its core international equity portfolio, for performance reasons.
Peggy Woodford Forbes, chairman and founder of Woodford Gayed, said, "Things are going well in terms of performance." The firm is ahead of their S&P 500 benchmark, she added.
A spokeswoman at Scudder declined to comment.
Chicago-based firms UBS Brinson and Harris Investment Management Inc. were hired to manage approximately $280 million each, funded by reducing existing equity portfolios, including reducing a large-cap value portfolio run by New York-based Oppenheimer Capital to $100 million.
Reclassifications
Trustees reclassified the portfolios of Waddell & Reed Asset Management Co., Overland Park, Kan., and New Amsterdam Partners, New York, as large-cap core equity, changing the benchmark to the Standard & Poor's 500 index from the S&P Value index. Waddell & Reed's large-cap core equity portfolio was reduced by $150 million, to total $500 million.
An S&P 500 index fund managed by Northern Trust Quantitative Advisors Inc., Chicago, was reduced by $60 million to total $2.4 billion; and Boston-based Fidelity Management Trust Co.'s. large-cap growth mandate will shrink by $120 million to total $520 million.
Morgan Stanley Asset Management, New York, was dropped from the emerging markets roster. The approximately $94 million in assets were split evenly between existing emerging markets managers Scudder Kemper and Schroder Capital Management International Inc., New York. The change was meant to reduce managers and fees in the asset class, said Anita Andren, the fund's consultant. Morgan Stanley will continue to manage $300 million in core international equity.
Mike Nehf, executive director of the pension fund, did not return calls requesting comment on the changes.
Trustees changed the core active domestic bond allocation in favor of a passive approach and the use of an enhanced index portfolio and opportunistic strategies. Fee reduction and better performance was the motive for the move.
An NTQA passive bond portfolio was reduced by 5% to total approximately $1.3 billion. Core active portfolios managed by Bank of America, Chicago, and Smith, Graham & Co. Asset Managers LP, Houston, were changed to include opportunistic investments. Their portfolios were reduced by $60 million and $30 million, respectively, to help fund the higher equity allocation. BofA will manage $120 million, while Smith Graham will handle $60 million in the new mandate. The fund's third core bond manager, Lincoln Capital Management, Chicago, had its mandate changed to run $536 million in an enhanced index strategy.
Foreign bond exposure
The new bond strategy will give the fund more exposure to international bonds, although the exact amount is not yet known and is subject to contract negotiations. The fund does invest overseas in its "augmented fixed-income" portfolios, although high-yield bonds and international bonds are no more than a combined 25% of each manager's portfolio. Miller Anderson & Sherrerd, West Conshohocken, Pa., and Wellington Management Co., Boston, are the managers for the mandate.
The fund also invests in real estate investment trusts, as well as opportunistic private real estate funds. Approximately 2% is devoted to public REITs and 5% is the target allocation to private real estate.
Overall the fund's actual asset allocation at the end of 1998 was 38% fixed income, 46% domestic equity, 1% emerging markets, 8% international equity, 2% public REITs, 4.5% private real estate and 0.5% short term investments.
