Illinois Teachers’ Retirement System, Springfield, will search for a core-plus fixed-income manager later this year.
The timing of the search and the size of the mandate have not been determined, said Scottie Bevill, senior investment officer for fixed income, at the $34.6 billion system’s board meeting Thursday.
As part of a structural review of the $5.2 billion fixed-income portfolio, trustees approved changes to the investment mandates of existing managers PIMCO and Loomis Sayles to permit each manager to add interest-rate hedging and volatility control to their investment strategies.
Bill Gross, PIMCO managing director and co-chief investment officer, will assume management of a $1 billion portfolio that now is invested in the PIMCO Total Return active core bond-plus strategy, Mr. Bevill said. The revised investment mandate requires that a minimum 33% of the portfolio remain invested in the Total Return approach and allows Mr. Gross to make tactical investments of up to 50% of the portfolio in PIMCO’s Unconstrained Bond strategy and up to 33% in its Global Advantage strategy.
Loomis Sayles’ current global multisector long-duration fixed-income mandate was changed to allow portfolio manager Matt Eagan to tactically invest up to 25% of those assets in an absolute-return strategy. Loomis Sayles managed $708 million in the portfolio as of Dec. 31.
R. Stanley Rupnik, the system’s CIO, told trustees that a preliminary estimate puts the system’s portion of Illinois’ most recent sale of pension obligation bonds at about $2.285 billion. Staff has not been told yet when the money will be available.
Because the bond proceeds will be used to meet the system’s cash flow needs, the assets will be managed to insure sufficient liquidity, Mr. Rupnik said, noting that the fund’s overall target allocation to fixed income will be overweight for a period of time until the assets are spent down. The pool will be managed by existing managers, with $1.25 billion going to fixed income, $575 million to cash and $195 million to real return assets. Another $265 million will fund a new 5% allocation to TIPS from the fixed-income portfolio. Staff is interviewing finalists now for the TIPS assignment and a manager likely will be hired in May, he told trustees.
Hedge fund managers BlueMountain Capital Management and Claren Road Asset Management were awarded $50 million each for credit hedge funds. The funding source for the hedge fund hirings was not known. The hires are part of the system’s ongoing hedge fund investment program.
Commitments of $68 million and up to $30 million, respectively, were made to Oaktree European Principal Fund III, a middle-market distressed debt fund, and Sofinnova Venture Partners VIII, a specialty biotechnology and pharmaceuticals fund. Funding for both hires will come from cash, passive accounts or rebalancing. The hires are part of the pension fund’s build-out of its private equity program.
Two new emerging managers were given $25 million each. Herndon Capital Management will manage an active domestic large-cap equity strategy, and Strategic Global Advisors will manage an active international all-cap equity portfolio. Funding comes from the system’s $500 million dedicated emerging managers program.
In other news, Mr. Rupnik said TRS is searching for a replacement for Michael Bartletti, director of real estate, who is retiring at the end of March, Mr. Rupnik said.
Mr. Rupnik also said TRS’ investments returned 13.65% for the year ended Dec. 31 and 6.58% in the fourth quarter. The fund returned 15.84% for the six months ended Dec. 31. The system‘s customized benchmark returned 12.89% for the year ended Dec. 31, 6.29% in the fourth quarter and 15.51% for the six months ended Dec. 31.
For the three years ended Dec. 31, TRS’ -1.82% return trailed the -0.68% custom benchmark return; over five years, the 3.73% return trailed the 4.09% return of the benchmark; and over 10 years, the fund’s 5.04% return topped the 4.75% benchmark return. All multiyear returns are annualized.