updated with correction, Nov. 4, 2011
The $37.4 billion Illinois Teachers' Retirement System, Springfield, approved tactical plans that are adding hundreds of millions of dollars — and new money managers — to the hedge fund and real-return portfolios.
The plans will be implemented during the fiscal year that ends June 30.
The board at its Oct. 28 meeting approved additional direct investments of $150 million each to existing hedge fund managers Claren Road Asset Management LLC, BlueMountain Capital Management LLC and Carlson Capital LP.
As of Sept. 30, TRS had invested $102 million with Claren and $50 million with BlueMountain. Carlson was hired in August and funded on Sept. 1 with $50 million.
The $450 million increase is part of a “scaling plan” that eventually will raise the total of each direct investment hedge fund manager total to $200 million, Kent Custer, senior investment officer for equities, told trustees. Funding for the hires comes from reducing the allocations of other equity managers, Mr. Custer said in a presentation to the investment committee.
An additional investment of $15 million was approved for Flintlock Capital Asset Management LLC's hedge fund, Commodity Opportunity Partners LP, through TRS' emerging managers program. Funding came from reducing the allocation to RhumbLine Advisers' S&P 500 index fund, designated as the funding source for the emerging managers program.
As of Sept. 30, the system had invested a total of $573 million directly in three hedge funds and $932 million in two hedge fund-of-funds managers.
The goal, Mr. Custer said, is to maintain the system's two hedge fund-of-funds managers and to add two or three direct investments in hedge funds each year until the upper limit of 10 direct investments is reached. In current dollars, the fund's 8% target is equivalent to $3 billion, so the system now is more than halfway toward reaching its ultimate allocation.
Other plans for the hedge fund portfolio in the fiscal year ending June 30, 2012, include:
- adding an internal hedge fund analyst;
- working with the fund's hedge fund-of-funds managers K2 Advisors LLC and Grosvenor Capital Management LP, which also serve as consultants to TRS, to improve risk-adjusted returns;
- adding another small or new hedge fund through the emerging manager program; and
- working with Grosvenor, K2 and general investment consultant R.V. Kuhns & Associates Inc. to increase exposure to small or newer hedge funds, possibly resulting in a search for a hedge fund seeding manager.
In the real-return asset class, Scottie Bevill, senior investment officer for fixed income, received approval from the board to search for a global macro manager as part of the 2012 tactical plan.
The size of the portfolio and the funding source have not been determined, R. Stanley Rupnik, chief investment officer, said in an interview. The global macro RFP likely will be posted on the system's website during the week of Nov. 7 and finalists presented to the board in February, Mr. Rupnik said.
But it's possible the system could increase the size of its real-return portfolios —which totaled $3.6 billion as of Sept. 30 — rather than hire any new manager, he said.