CHAMPAIGN, Ill. - Illinois House Speaker Michael J. Madigan is scheduled to meet with the trustees of the State Universities Retirement System of Illinois this month in an effort to pressure them to hire more Illinois-based minority investment firms, his latest of such meetings with trustees of all the major retirement systems in the state.
Black-owned firms in Chicago, at the same time, have been continuing meetings with officials of the same pension funds, making more specific demands that at least 15% of all assets and 15% of brokerage business be assigned to black-owned firms, as opposed to broader minority-owned firms (Pensions & Investments, March 5.)
The state has no minority- or emerging-manager requirement. Mr. Madigan's press spokesman Steve Brown declined to say if the Chicago Democrat would seek such legislation, if the funds' follow-through doesn't meet his level of approval.
Xcylur R. Stoakley, co-founder and general partner at Ark Capital Management, a venture capital firm, and a member of the Chicago group, said the small amount the state funds have assigned to black-owned firms isn't satisfactory. "There is an assumption our investment skills are less capable. It's prevalent. It's a stigma," he said.
Mr. Stoakley blamed the lack of such assignments on the fact that few trustees of the state pension systems are black. "Take a look at the composition of the boards," Mr. Stoakley said. "You have limited or no representation of African-Americans."
"We're skeptical that legislation is the solution" to assign more business to Illinois-based black managers, he said. "But if that is needed, so be it. We will take that approach."
Working at understanding
James M. Hacking, executive director at Illinois SURS in Champaign - whose trustees are scheduled to hear Mr. Madigan March 22 - said of the Chicago group: "I can understand their perspective. We'd like to engage in a dialogue with them to see if there is a way we can come up with a positive response."
He pointed out that all of SURS' actively run domestic equities are "managed by firms that meet the definition of emerging managers in the statute." While Illinois has no requirement for hiring emerging managers, a statute requires state funds to report annually to the Legislature on their use of emerging managers.
That emerging manager allocation totals $311 million of SURS' total $4.95 billion in domestic equities. Of the total, $3.87 billion is in passive index funds and $476 million in enhanced index fund.
Mr. Hacking said it is unfair to compare the SURS' minority-managed component with the entire fund, "because more than half of SURS' assets are in firms that track indexes. Only big banks like Northern and BGI do that work." SURS' index fund managers are Northern Trust Global Investments Inc., Chicago, and Barclays Global Investors, San Francisco.
The statute defined emerging managers as minority- or female-owned firms with between $10 million and $400 million under management.
On brokerage, Mr. Hacking said, SURS "would be open to intermediary arrangements" with black-owned firms that work with other brokerage firms to trade.
Critical of Illinois state funds' practices, Mr. Stoakley said, "Reporting wasn't the objective of the Legislature," adding the emerging manager reporting law was meant to encourage more hiring.
The first meeting of a subcommittee on minority managers formed recently by the board of trustees of the Teachers' Retirement System of the State of Illinois, Springfield, in response to meetings with Mr. Madigan and the Chicago group, will be March 20 in Chicago.
Among the Chicago group's demands, Mr. Stoakley said, is for the pension funds to scrap the use of emerging mangers, because the designation leaves out bigger black-owned firms and implies a lowering of investment standards.
Speaking generally about the state funds, Mr. Stoakley said, "Clearly there is a fiduciary responsibility that can't be ignored. But there is ample evidence that African-American firms in the state are capable."
"When you look at the allocation of resources, it looks grossly disproportionate to the managerial talent," he said. "It also is not representative of the beneficiaries of the trust."
"It's not a confrontational process," Mr. Stoakley said of the meetings with state fund officials. "It's a collaborative process."