The $33.2 billion Illinois Teachers Retirement System, Springfield, is searching for the system's first dedicated TIPS manager to run $265 million to $318 million, confirmed R. Stanley Rupnik, acting executive director and chief investment officer.
The new portfolio was approved by TRS trustees at their board meeting Dec. 9, Mr. Rupnik said in an interview. The plan had about $3.2 billion invested in domestic and international inflation-protected securities as of Sept. 30. The source of the funding will be a reduction in the enhanced passive and total return accounts in the fixed-income portfolio.
The selected firm's portfolio would be between 5% and 6% of the fund's $5.3 billion fixed-income portfolio, according to the RFP which is available at the system's website, http://trs.illinois.gov/subsections/investments/searches.htm. Proposals are due Dec. 31.
Separately, the system increased allocations to two existing global inflation-linked bond managers, adding $284 million to Pacific Investment Management Co. and $86 million to New Century Advisors. PIMCO now runs a $676 million portfolio for the system; New Century, $160 million.
The system added $133 million to Franklin Advisors to manage in active international fixed income, bringing the manager's total to $919 million.
Mr. Rupnik also said trustees approved committing up to $100 million to Morgan Creek Partners Asia fund, the system's first to a dedicated Asian-focused fund. Up to $75 million was committed to EnerVest Institutional Fund XII, an oil and gas specialty private equity fund.
Also on Dec. 9, trustees approved changes that “fine-tune” the system's $7 billion international equity portfolio following an annual review of the asset class, according to a TRS news release.
Allocations were reduced for active international large-cap value equity managers Brandes Investment Partners and Mondrian Investment Partners; and for active international large-cap growth equity manager McKinley Capital Management. Allocations were increased for active international large-cap core equity manager Aberdeen Asset Management; and for passive international equity managers State Street Global Advisors in small-cap core and Northern Trust Global Investments in large-cap core.
Temporary allocations to passive international equity were eliminated, resulting in the closure of a $405 million large-cap growth fund managed by SSgA and of a $148 million large-cap core portfolio managed by BlackRock, the release said.
In other news, trustees approved an investment policy change that shifts responsibility for public markets manager searches and hiring to the fund's staff within previously approved asset classes and target investment ranges, Mr. Rupnik said in the interview. The new policy does not delegate hiring managers for the fund's $500 million emerging managers program to staff.
Previously, initiation of manager searches and subsequent hiring required full board approval. Now, TRS staff will follow the same rigorous RFP and search processes and may select managers, but funding of selected managers will require approval of the chairman of the fund's investment committee, currently Cynthia O'Neill, Mr. Rupnik said. He stressed that trustees will be informed regularly about manager search and hiring activity.
With the approval of the investment committee chair, the new policy also permits staff to terminate public markets managers that are on the fund's watch list or for immediate concerns, such as a major organizational change, Mr. Rupnik said.
“Trustees said they need to spend more time during meetings focused on asset allocation and liquidity issues. By cutting the amount of time spent on manager presentations to the board, more meeting time can be devoted to discussion and education, especially on alternative investments,” said Mr. Rupnik.
Liquidity issues persist for TRS, said Dave Urbanek, spokesman, noting the fund has received only $180 million in state contributions since the start of the plan's fiscal year July 1. The state's total annual required contribution for fiscal year 2011 is $2.4 billion.
Trustees authorized the cash withdrawal of up to 4%, or $1.2 billion, of the main TRS trust fundwhich totaled $33.2 billion as of Sept. 30. Earlier this year, trustees authorized cash withdrawals of up to 2% from the main trust fund.
Due to the lack of sufficient contributions, TRS has been forced to sell $1.8 billion of total plan assets fiscal year-to-date through Dec. 3, Mr. Urbanek said.