Illinois State Board of Investment, Chicago, plans to allocate to index funds and some active managers the $960 million in proceeds it could receive from its share of a possible $3.7 billion to $4.1 billion sale of state pension bonds, said William R. Atwood, ISBI executive director.
Proceeds will go in large part to buy back stocks and bonds the $10.2 billion ISBI sold since July 1, the start of the current fiscal year, to pay pension benefits because the state hasn't made any of its required pension contributions to the state retirement systems, he said.
Proceeds could go to RhumbLine Advisers, which manages four index funds — a $630 million S&P 500, a $520 million Russell 1000 value, $368 million Russell 1000 growth and a $77 million Russell 2000 value — and State Street Global Advisors, which manages a $512 million MSCI All-Country World, ex-U.S., index fund, Mr. Atwood said.
Eventually, ISBI would redeploy the proceeds to active managers from the index funds. But LSV Asset Management, which manages $463 million in active large-cap value domestic equities, and Chicago Equity Partners, which manages $900 million in active intermediate government and credit fixed income, could also receive some of the proceeds immediately, depending on their capabilities to invest the new money, said Mr. Atwood. ISBI officials are discussing the issue with the managers, he added.
The board plans to hold off new investing in private equity and real estate for at least six months because of the liquidity issue caused by the lack of state pension contributions this fiscal year and the uncertainty about state contributions for the next fiscal year.
Anticipating liquidity needs, ISBI has told ING Clarion, a separate account real estate manager, to hold off investing some $300 million in uncalled commitments. ING Clarion manages $500 million in all, including the commitments.
“We want to see what transpires (in the Illinois General Assembly) for long-term funding objectives,” Mr. Atwood said. Without confidence in receiving state contributions, ISBI, meantime, has to plan its asset allocation for a greater liquidity need to pay benefits, he added.
Marquette Associates, ISBI's general investment consultant, and Townsend Group, ISBI's real estate consultant, are assisting.
ISBI expects it would receive its proceeds in March, if the General Assembly approves the pension bond sale in the next week, Mr. Atwood said.
The state Senate has yet to vote on the pension bond bill, which the House passed 71-44, with two voting present, May 25.
State Senate President John J. Cullerton “fully expects to have a vote” on a bill to sell the bonds before the General Assembly concludes Jan. 11, said John Patterson, deputy press secretary for Mr. Cullerton. Mr. Patterson said an exact date wasn't available.
State Senate leaders would like to take action on the bill by Jan. 7, ahead of the close of the General Assembly session, the last chance to act on the pension bond sale bill. A new General Assembly is scheduled to be inaugurated Jan. 12, which would require introduction of a new bill for consideration.
The bill calls for selling the bonds to finance the state's required contribution for this fiscal year to the five state retirement systems.
Aside from ISBI — which oversees the investments of the Illinois State Employees' Retirement System, the Illinois Judges' Retirement System and the Illinois General Assembly Retirement System — the $33.2 billion Illinois Teachers' Retirement System, Springfield, would receive $2.358 billion and the $12.9 billion Illinois State Universities Retirement System, Champaign, $777 million, from the proposed sale.
David Urbanek, public information officer for the Illinois Teachers system, wrote in an e-mail that TRS executives aren't releasing detail on how it would invest its share of the proceeds because the legislation is still pending and “at this time we don't know if the proposal will pass the Senate or what the size of any bonding program could be.”
Daniel L. Allen, CIO of Illinois SURS, couldn't be reached for comment.
