The Teachers' Retirement System of the State of Illinois, Springfield, will invest nearly $6 billion in three new asset classes over the next three years: $3.9 billion in real return strategies; $975 million in hedge funds; and nearly $800 million in international small-cap to midcap equities. Following an asset allocation review that recommended more alternative and uncorrelated asset classes, trustees of the $39 billion plan today approved a major shift in target allocations that will affect 19% of total assets over the next five years. Because of overweighting, 21% of plan assets, or more than $8 billion, will be shifted, said Rebecca A. Gratsinger, president and senior consultant, R.V. Kuhns & Associates.
TRS trustees authorized a search that will begin in February for an undetermined number of hedge fund managers to split an initial investment of $500 million. Greg Turk, director of investments, told trustees the system will likely use a combination of hedge fund of funds and customized direct hedge fund investment portfolios. The allocation will likely be increased over time as staff gains more experience with the asset class, Mr. Turk said.
Trustees will be asked at their February meeting to authorize a search, to begin in April, for real return managers offering global tactical asset allocation and strategic real asset/natural resources portfolios. Sizes of the portfolios have not been set.
In conjunction with the new asset allocation, TRS staff and R.V. Kuhns are conducting a structural review of the plan's equity allocation, which represented 51% of assets as of Sept. 30. The results of that review may affect existing managers and active searches, said Stan Rupnik, CIO.
Also at today's meeting, trustees approved private equity commitments of $100 million to Providence Equity Partners VI and $50 million to J.C. Flowers II. Trustees also hired Copper Rock Capital Partners to run $50 million in active domestic smidcap growth equities as part of the system's emerging manager program; funding came from reducing an S&P 500 index account run by RhumbLine Advisors, leaving it with $449 million.