SPRINGFIELD, Ill. The $39.7 billion Teachers Retirement System of the State of Illinois invested more than $1.6 billion in new alternative asset classes.
At their May 18 meeting, trustees hired Bridgewater Associates Inc. to manage $500 million and AQR Capital Management LLC to manage $250 million in global tactical asset allocation or real return assets. Pacific Investment Management Co. was hired to manage $400 million in global inflation-linked bonds.
K2 Advisors LLC and Grosvenor Capital Management LP were hired to manage $250 million each in hedge funds of funds as part of the TRS allocation to absolute-return strategies. Stan Rupnik, chief investment officer, told trustees that more assets likely will be awarded to the hedge fund-of-funds managers if performance is acceptable.
The changes were part of a massive restructuring of the plans domestic and international equity portfolios, which totaled $15.8 billion and $8.5 billion, respectively as of March 31. In December, trustees approved a new asset allocation that dropped domestic equity to 30.5% of assets from 41%; increased international equity to 20% from 15%; decreased fixed income to 14% from 23%; increased private equity to 8% from 6%; added real return at 10% and absolute return at 2.5%; eliminated a 1% allocation to short-term investments; and kept real estate at 14%.
Trustees this month also approved an interim asset allocation, recognizing that implementing a long-term asset allocation takes substantial time to invest prudently, according to board documents. The interim allocation is domestic equity, 40.5%; international equity, 20%; fixed income, 16%; real estate, 12%; private equity, 6%; real return, 4.25%; and absolute return, 1.25%.
Trustees approved the second phase of its equity restructuring plan, but details of the plan were not made public at the board meeting and plan officials declined to provide more information, beyond announcing the terminations of the following equity managers: Byram Capital Management LLC, which managed $221 million in active domestic small-cap value; Delaware Investments, $387 million in active domestic small-cap to midcap growth; Voyageur Asset Management Inc., $800 million in active domestic large-cap growth; Harris Associates LP., $618 million in active international core-enhanced; and INVESCO and Pyramis Global Advisors for $1.2 billion each managed in active international core benchmark aware strategies.
Trustees terminated Robeco Weiss, Peck & Greer because of organizational problems, specifically high staff turnover and underperformance of an $885 million active domestic core fixed-income portfolio. Steven Samet, relationship manager, did not return a call seeking reaction.
TRS also terminated NCM Capital Management Group Inc. from a $60 million active domestic midcap equity mandate for organizational reasons, said Eva Goltermann, TRS public information officer. Maceo K. Sloan, NCM chairman, chief executive officer and CIO, said the termination was precipitated by the departure of portfolio manager Shane John. Mr. Sloan said he will assume Mr. Johns investment duties and will add another portfolio manager or a research analyst to the madcap equity team. Mr. Johns plans could not be learned by press time.
Trustees moved a $507 million small-cap to midcap core index account from State Street Global Advisors to RhumbLine Advisers, which already manages a $947 million S&P 500 ex-Sudan index account for the fund. The change was made because RhumbLine offered a better fee structure, said Mr. Rupnik; he didnt provide details. SSgA still manages $1.9 billion in passive/enhanced domestic and international equities for the system.
Piedmont Investment Advisors LLC was hired to manage $25 million in a domestic enhanced index account, benchmarked to the Standard & Poors 500 index, part of the funds $500 million allocation to its emerging manager program. TRS has so far invested $180 million in the program.
TRS trustees approved committing additional assets to existing private equity managers: $200 million to Carlyle Partners V, a buyout fund; $100 million to MatlinPatterson Global Opportunity Partners III, a distressed debt fund; and $25 million to Evergreen Partners V, an Israeli venture capital fund. New buyout manager New Mountain Partners III was awarded $100 million.
Trustees voted to retain Pacific Corporate Group Asset Management as its private equity consultant. After organizational changes at PCG, TRS conducted a search for a new specialist private equity consultant.
Real estate commitments were approved for $150 million to Beacon Capital Partners V, $100 million to Blackstone Real Estate Partners VI; and an additional $100 million to Lion Industrial Trust for a total of $200 million.
Funding for all new hires will come from cash, passive/enhanced index accounts and rebalancing from other active managers, according to board documents.
Trustees authorized a search for a prime broker to facilitate the funds planned investment in 130/30 strategies. The RFP will be available by June 15 on the TRS website http://trs.illinois.gov.