Illinois Teachers' Retirement System, Springfield, on Friday approved new asset allocation targets that raise alternative investments for the $34.6 billion fund by an aggregate five percentage points.
The target for hedge funds rose to 8% from 5% of total plan assets, and private equity, to 12% from 10%. The fixed-income target also will be raised, to 16% from 15%.
Domestic equity was cut to 20% from 26% of total plan assets. International equity, real return asset and real estate allocations remain the same at 20%, 10% and 14%, respectively.
The changes follow the fund's normal five-year review of the portfolio allocations.
The “general theme” of the new asset mix is a gradual increase in the fund's alternative investments in order to minimize risk and maximize returns, R. Stanley Rupnik, chief investment officer, said in a telephone interview.
“We will modestly increase our private equity allocation by (two percentage points) and will pace investments over a two- to three-year schedule,” Mr. Rupnik said.
As for hedge funds, Mr. Rupnik said investment staff will mostly make direct investments in hedge funds, rather than in funds of funds, over a three-year period to bring the absolute-return allocation up to the new target.
The increase in the fixed-income allocation will be allocated to existing managers, Mr. Rupnik said, noting the size of the bond portfolio already is nearly at the new 16% target through investment returns.
The reduction of the domestic equity allocation will be accomplished by trimming mandates of existing managers. Manager terminations are not planned, Mr. Rupnik said.
With regard to the system's public equity portfolio, Mr. Rupnik said staff has for several years been taking “a more global view … the new allocation reflects that with equal 20% targets for both domestic and international public market equities, but there may be some play with those targets. We may have 22% in international and 18% in domestic equities, for example, depending on the market environment. The key is that the total public equity allocation remains at 40%.”