Illinois Teachers' Retirement System, Springfield, authorized a search for the $36 billion system's first third-party securities lending agent.
State Street Securities Finance, a division of the fund's global custodian State Street Corp., is TRS' current securities lending agent.
Internal investment staff and investment consultant R.V. Kuhns & Associates recommended issuing an RFP because they think the fund's securities lending income could be improved by using a dedicated third-party agent.
Scottie Bevill, senior investment officer for fixed income, said at an investment committee meeting Wednesday that TRS has averaged about $20 million in securities lending revenue annually over the 25 years the fund's securities lending activity has been tracked.
Mr. Bevill said it's possible that after the search, State Street Securities Finance could still conduct some securities lending activity for the fund.
An RFP likely will be posted on the TRS website within a few weeks and finalists presented to the board at its August meeting, said R. Stanley Rupnik, chief investment officer, in an interview after Wednesday's investment committee meeting. At Thursday's TRS board meeting, trustees ratified a staff decision to terminate Wellington Management for poor performance of an active domestic large-cap growth equity portfolio that totaled $275 million as of Dec. 31. Sara Lou Sherman, a Wellington spokeswoman, declined to comment about the company's termination.
The assets were split between two existing active domestic equity managers: an active domestic large-cap growth equities portfolio managed by T. Rowe Price and an active domestic large-cap value stock fund managed by Boston Partners. As of Dec. 31, T. Rowe Price managed $427 million in the growth strategy and Boston Partners managed $445 million in the value approach.
OakBrook Investments, which managed $31.6 million in domestic large-cap core enhanced equities within TRS' emerging manager program as of Dec. 31, was moved into the main domestic equity portfolio. OakBrook will manage a 2% allocation of the main portfolio, about $187.2 million in current dollars. Funding for the new allocation comes from rebalancing and a reduction in an S&P 500 index fund managed by RhumbLine Advisers to $1.7 billion. The assets OakBrook previously managed were returned to the fund's $500 million emerging managers program.
As part of the fund's expansion of its private equity portfolio, TRS committed $100 million to NGP Natural Resources X. The first $50 million will be committed in February, but the balance will not be committed until the second quarter, contingent on energy portfolio structuring issues, Zak Doehla, senior investment officer for private equity, told trustees during the investment committee meeting on Thursday.
A commitment of $30 million was made to Lightspeed Venture Partners IX, an early stage, technology-focused venture capital fund, and $40 million was committed to Parthenon Investors IV, a private equity fund focused on service companies in the health-care, financial, insurance and business sectors.
The board also ratified a decision by investment staff to commit up to $40 million in a co-investment in Chinese e-commerce specialist Alibaba Group in conjunction with its existing private equity manager Silver Lake Partners.
TRS' real estate portfolio was further expanded with a commitment up to $150 million to Starwood Distressed Opportunity IX fund and up to €20 million ($27 million) to Niam Nordic V, an opportunistic real estate fund focused on investment in Scandinavian countries.
Mr. Rupnik also said Kent Custer, senior investment officer for global equities for TRS, who left in December, will not be directly replaced. Instead, his duties have been reassigned to existing investment officers. However, Mr. Rupnik said the system is searching for its first dedicated absolute-return investment officer, who will oversee the fund's $1.6 billion hedge fund portfolio.
As part of the teachers' fund's commitment to using more women- and minority-owned brokers, Mr. Rupnik said an RFI was sent to eight firms seeking information about their transition management services. Investment staff members are interviewing semifinalists for a recently concluded search for up to six transition managers for a preapproved pool and minority brokers might be considered for one or more of the spots in the pool, Mr. Rupnik told trustees.
According to a report to the board from R.V. Kuhns, TRS returns, net of fees, as of Dec. 31 were: three months, 4.26%; one year, 1.41%; three years, 9.79%; five years, 1.2%; 10 years, 5.65%; 20 years, 7.38%. Figures for periods of more than one year are annualized.
