Illinois Teachers' Retirement System, Springfield, approved searches for large-cap core domestic and international equity managers, the result of the $31.3 billion fund's annual review of its $14.3 billion global equity portfolio.
Both searches will seek enhanced index, active and 130/30 managers, and in addition, the international search will seek passive managers. Details about the number of managers sought, the size of the mandates and the timing of the searches have not been determined.
Trustees also authorized a search for a specialty hedge fund consultant to advise on TRS' $774 million absolute-return portfolio, which has a target allocation of 5% of total assets. The timing of the search was not set.
Separately, trustees awarded existing hedge fund-of-funds manager K2 Advisors up to an additional $50 million, bringing the manager's total run for the fund to about $396 million. Funding came from rebalancing the domestic equity portfolio; information was not available about which equity domestic equity manager mandates were affected.
Also hired for a $25 million domestic enhanced index mandate was OakBrook Investments, with funding coming from TRS' $500 million emerging managers program. Trustees also set a goal of 12.5% of total assets under management by woman- and minority-owned money managers. As of June 30, woman- and minority-owned firms managed 11.2% of total assets.
Among rebalancing moves, the allocation to the StocksPlus strategy of Pacific Investment Management Co. was reduced to 4% from 7% of the total U.S. equity allocation to reduce risk in the portfolio, said Kent Custer, senior investment officer, at the system's Oct. 29 board meeting.
The following targets were set for fixed-income strategies to reassign 9% of the portfolio, resulting from terminations earlier this year of Dodge & Cox and ING. Core plus was reduced by nine percentage points to 52% of the total bond portfolio, with international bonds increasing four percentage points to 13% and long-duration bonds getting the balance to bring its target to 15%. The enhanced index fixed-income target remained at 20% of the total bond portfolio.
In other news, TRS experienced a second consecutive quarter of strong performance.
Based on preliminary return calculations for periods ended Sept. 30, the fund was up 9.5% for the quarter, compared with 5.7% in the quarter ended June 30, Stan Rupnik, chief investment officer and interim executive director, told trustees. TRS' one-year return as of Sept. 30 was -5.4%; three-years, -2.2%; five-years, 3.8%; and 10-years, 4.5%. (Figures for more than one year are annualized.)
Both domestic and international equity asset classes were strong contributors to third-quarter performance at 17.6% and 19.3%, respectively, based on preliminary returns. Fixed income also had a strong quarter with an 8.5% return and absolute-return/hedge funds also were up 5.3% in the three-months ended Sept. 30. One-year returns as of Sept. 30 included -4.2% for domestic equity; 4.3%, international equity; 18.6%, fixed income; and -1% for hedge funds.
Trustees approved the results of the 2009 actuarial valuation performed by TRS' actuary, Buck Consultants, which reported that the system's funded ratio stood at 52% as of June 30, the end of the fund's fiscal year. That represents a decrease from the system's 56% funded ratio at the end of the fiscal year 2008. TRS' unfunded liability swelled to $35 billion as of June 30 from $30 billion the prior year, according to the Buck Consultants' report.
The TRS board updated its investment management agreement document to reflect changes to Illinois' state ethics laws that were passed earlier this year. The board's code of ethics and conduct also was rewritten in compliance with the new laws and now requires that TRS trustees annually undergo eight hours of ethics training, file a statement of their economic interest with the state, and reiterate that they are subject to a gift ban. “The board's code of ethics now more clearly documents the prohibition of trustees or their relatives from personally benefiting from any TRS investment,” according to a TRS release.