CHAMPAIGN, Ill. - Staff of the State Universities Retirement System of Illinois is identifying and evaluating additional core-plus active fixed-income managers to address trustees' concerns regarding the extensive reliance placed on Pacific Investment Management Co.
"We like (PIMCO) but we have more exposure than we like," said John R. Krimmel, chief investment officer of the $11.5 billion fund, expressing concerns of the system's trustees. PIMCO, Newport Beach, Calif., manages $1.7 billion, or 65% of the system's $2.6 billion in active fixed income.
Staff recommendations likely will go to the board for discussion in September with the expectation of hiring additional fixed-income managers before the end of the year.
The system is looking for more fixed-income core-plus style managers. These managesr will be benchmarked to the Lehman Aggregate bond index and will have the discretion to add, typically up to 30% of the total portfolio, high-yield and international fixed income.
The staff plans initially to look at six managers it culled from a combination of its own analysis on the Plan Sponsor Network database and suggestions from consultant Ennis Knupp & Associates Inc., Chicago. Mr. Krimmel said the staff wants to evaluate these six before it considers whether to conduct a full search for other prospective managers. It isn't soliciting calls at this time.
The managers being considered include Western Asset Management Co., Pasadena, Calif., and TCW Group Inc., Los Angeles. Mr. Krimmel said news of Societe Generale Group's agreement to buy 70% of TCW is a factor to consider in evaluating TCW. BlackRock Inc., New York, also is being considered. It is the only one of the six managers that already manages money for the retirement system. It has three assignments with SURS totaling $1.04 billion, or 9.1% of the system's total assets: $402 million in a mortgage-backed securities portfolio; $355 million in a Lehman Aggregate enhanced index fund; and $283 million in an enhanced equity index fund.
The names of the other three firms weren't available.
Mr. Krimmel said the new manager or managers likely would be started with $50 million or $75 million, which could increase to $500 million to $700 million in about two years, a typical way SURS builds a portfolio.
Apart from this search, SURS is considering adding to the existing fixed-income core-plus assignment of Chicago Capital Management Inc., which runs $175 million for the system. That increase could be done by the end of the year as well.
Initial funding for Chicago Capital and the other new fixed-income assignment would come from reducing PIMCO, he said. Trustees expect to keep the target fixed-income allocation at 29% of the total fund.
PIMCO also runs a $458 million enhanced stock index portfolio and an $83 million Treasury inflation-protected securities portfolio. Neither of these strategies is affected by the core-plus evaluation. In all, PIMCO runs $2.24 billion, or 19.6%, of the system's total fund.
Several years ago, trustees were concerned about the growing share of the system's assets managed by Barclays Global Investors, San Francisco, which then managed the majority of the fund. SURS wound up hiring Northern Trust Investments Inc, Chicago, for some of the domestic index funds, now a $2.9 billion portfolio. Including $98 million in active equity in a manager of emerging managers fund run by Northern Trust Global Advisors, the Northern Trust Co. units now run $3.02 billion, or 26.4%, the largest share of the system's fund.
Mr. Krimmel said trustees aren't as concerned about the large shares of Northern and BGI because they are index funds.