CHAMPAIGN, Ill. - The State Universities Retirement System of Illinois, Champaign, adopted an asset allocation that increases its exposure to active international equities by $225 million and real estate investment trusts by $120 million and gives leeway to add to private equity.
John R. Krimmel, chief investment officer of the $12 billion pension fund, said the new allocation is 46% domestic equity, down from 48.5%; 20% international equity, up from 18.5%; 2% REITs, up from 1%; 4% private equity; and 28% fixed income Although the fixed-income target remained the same, the allocation has risen to more than 31% and will be cut back to the policy target.
The fund plans to increase its private equity exposure beyond the 4% allocation, he said, as the policy allows a band of plus or minus three percentage points from the target for all asset classes.
In private equity, Mr. Krimmel said, "We try to target $90 million to $100 million in new commitments each year and will continue to do that for the next three to four years."
The system will look for new opportunities in private equity. "We view private equity as a U.S. equity portfolio on steroids," he said. "New funding will generally come from cash flow."
"We will continue to invest year over year," he said of private equity, noting the fund wants to take advantage of new investments opportunistically. It may go to 5% or somewhat higher, he said. But "we don't expect to hit the 7% band."
The new allocation is the work of Watson Wyatt Investment Consulting Inc., which was hired on a project basis for the study, with some contribution by Ennis, Knupp & Associates Inc., the system's retainer consultant, and the system's staff.
The system, which hired its first REIT managers last year, expects to fund the increased allocation among existing managers. Barclays Global Investors runs a passive portfolio; RREEF, an active core portfolio; and Clarion CRA Real Estate Securities, a concentrated active portfolio. Mr. Krimmel said the staff will make a proposal to the trustees next month. Most likely the two active managers will receive most of the new allocation. Funding could come from a $900 million domestic equity index fund managed by BGI, which the system uses for allocation liquidity.
In international equities, trustees raised the assignments of four existing active managers: Martin Curie Inc. got $100 million, bringing its core assignment to $500 million; Dresdner RCM Global Investors LLC and Oechsle International Advisors Inc., $50 million each, raising their growth-oriented portfolios to $100 million each; and ValueQuest/TA LLC, $25 million, increasing its value portfolio to $50 million.
Funding for the additional active international assignments can from reducing an international equity index fund to $1.1 billion and a fixed-income index fund to $750 million. Both are run by BGI.