Trustees of the Teachers’ Retirement System of the State of Illinois, Springfield, proved themselves up to the challenge of rebalancing the fund’s $28 billion portfolio despite turbulent markets.
At their Dec. 4 meeting, the TRS board approved a one percentage point increase in the allocation to hedge funds, including hiring the fund’s first direct investment, funding the change through rebalancing of the fixed-income portfolio, and continued the fund’s commitments to private equity and emerging managers.
Another change to the fixed-income portfolio was the hiring of Prudential Fixed Income Management to manage approximately $700 million in a fixed-income enhanced index account. Funding for the hire will come from the termination of Neuberger Investment Management (formerly Lehman Brothers Asset Management) for performance and organizational concerns regarding the firm’s new ownership structure. Neuberger will continue to manage a commodities account that totaled $164 million as of Sept. 30. Randall B. Whitestone, a Neuberger spokesman, said “we retain a relationship with Illinois Teachers’ Retirement System and are hopeful of expanding it in the future.”
Neuberger Investment managed $903 million as of Sept. 30 in a fixed-income enhanced index account. The remaining assets from the Neuberger termination will be reallocated to existing fixed-income managers that are below their target allocations, said Stan Rupnik, chief investment officer, during the Dec. 3 TRS investment committee meeting.
At their Dec. 4 board meeting, TRS trustees approved an increase in the target allocation to absolute-return strategies to 2.5% of assets, from 1.5%. The previous target allocation was split evenly between two existing hedge fund-of-funds managers: K2 Advisors LLC, which managed $236 million as of Sept. 30, and Grosvenor Capital Management LLC, which managed $227 million. Under the new target, K2 will manage 50% of the total and was awarded an additional $100 million. Grosvenor will manage 25% of the total; its dollar amount did not change. To fill the other 25% of the allocation, trustees approved the plan’s first direct hedge fund investment, committing $179 million to Bridgewater Associates Inc. Bridgewater currently manages a $506 million global tactical asset allocation account for TRS. Funding for the increase in absolute-return investments will come from rebalancing within the fixed-income portfolio.
As part of the plan’s ongoing expansion of its private equity allocation, $50 million was committed to Onex Partners III LP, a buyout fund. Funding will come from cash and passive/enhanced index accounts. StarVest Partners II LP, a venture capital fund, received a $15 million commitment from the fund’s $500 million allocation to emerging and woman- and minority-owned managers. StarVest is the first private equity manager within that program, which now totals $240 million of investments or commitments.
