Illinois State Board of Investment, Chicago, hired State Street to run $789 million in a Lehman Government/Credit index fund and a $500 million Lehman aggregate index fund and as master custodian of the $10.1 billion system. Also, Amalgamated Bank and RhumbLine were hired as S&P 500 index fund managers; each will handle $750 million. The hirings are pending contract negotiations, said William Atwood, executive director. Northern Trust Global Investments, which had managed the S&P 500 and Lehman index funds, was terminated for organizational reasons. Northern Trust also was dropped as master custodian for misreporting use of minority brokerge firms, Mr. Atwood said.
We are disappointed," Richard Jurek, Northern Trust vice president-corporate communications, said in part in a statement. "It is important to note that the quality of Northern Trust's custody service and investment return performance never came into question."
"As we have previously stated, Northern Trust provided ISBI with accurate data. Fundamentally, we believe that ISBI's concerns arose through a misunderstanding of that data," the statement added.
Harris Investment Management, Chicago Equity and LM Capital were hired to run $170 million each in active intermediate fixed income. Funding will come from reducing the State Street intermediate fixed-income index fund and from termination of a $200 million Harris core fixed-income portfolio, dropped because of a change in board strategy. Harris continues to handle a $150 million high-yield portfolio for the board.
The board approved the hirings of active domestic large-cap growth equity managers Profit Investment Management and Lynmar Capital, each to handle $20 million, and Howland & Associates to run $10 million.Also, current large-cap growth manager Buford Dickson's portfolio was boosted to $20 million, from $10 million. All are emerging minority- and women-owned managers.
Separately, the board will initiate searches for managers to run a total of $300 million in international small-cap equities and $100 million in mortgage-backed securities. More than one manager could be hired for each asset class. RFPs could go out in a few weeks, said Mr. Atwood. The board could make decisions at its meeting in late October or in December, he added. Funding for the international small-cap portfolio will come from reallocating among the board's international large-cap equity managers, he said; none will be dropped. Funding for the MBS portfolio would come from the intermediate fixed-income index fund.
Marquette Associates is consultant.