Illinois Teachers' Retirement System, Springfield, approved rebalancing the system's $14.6 billion equity portfolio by increasing the assets of four managers, decreasing another manager's target allocation and cutting the allocation of three managers to zero.
Trustees of the $33.5 billion system on Tuesday accepted staff recommendations to shift target allocations within the $8.3 billion domestic equity portfolio.
Levin Capital Strategies and MFS Institutional Advisors each will see their allocations increase to 6% from 4% of the total asset class. In current dollars, each manager's new target will be $495 million. As of Sept. 30, Levin managed $309 million in an active large-cap core, while MFS managed $314 million in a large-cap core enhanced fund.
The S&P 500 index fund managed by RhumbLine Advisors will increase by two percentage points to 25% of the total domestic equity allocation, or about $2.1 billion. As of Sept. 30, RhumbLine managed $1.7 billion in the S&P 500 index strategy.
The board also increased a U.S small- to midcap index fund benchmarked to the Russell Small Capitalization Completion index. RhumbLine will manage $165 million, which represents 2% domestic equity assets, up from 1.5%; as of Sept. 30, it had $111 million in the strategy.
Kent Custer, senior investment officer-equities, told trustees the allocations were being cut for “structural reasons only” not because of performance problems or “a lack of conviction.”
R. Stanley Rupnik, chief investment officer, stressed in an interview that EARNEST, Fred Alger and AQR Capital are not being terminated, despite the plan to eliminate their current mandates.
“We are reducing small-cap equities because we are overweight in the asset class. If we decide to increase small-cap exposure in future, we may invest with these managers again,” Mr. Rupnik said.
As of Sept. 30, EARNEST Partners managed $172 million in active large-cap core equities; Fred Alger ran $178 million in active small- to midcap growth; and AQR Capital managed $149 million in active small-cap value.
In the $6.3 billion international equity portfolio, a three-percentage-point allocation was moved to emerging markets manager Aberdeen Asset Management to bring its target allocation to 7.5%, an increase of $173 million. The move decreased Grantham, Mayo, Van Otterloo & Co.'s emerging markets target allocation to 9% from 12%. As of Sept. 30, Aberdeen managed $303 million in active emerging markets equity, and GMO managed $701 million.
TRS staff is considering a move to add passive emerging markets exposure before the end of the June 30 fiscal year but is not ready to request a manager search, Mr. Custer said during the meeting.