Illinois Teachers' Retirement System, Springfield, committed a total of $375 million to four managers, approved a search for its first private equity secondary market consultant and began a discussion about lowering its assumed rate of return, confirmed spokesman David Urbanek.
The $37 billion pension fund committed $150 million Advent International GPE VII, a private equity fund that invests in companies in Europe and Latin America; $100 million to Walton Street Real Estate Fund VII, managed by Walton Street Capital; $75 million to Oaktree Enhanced Income Fund, a fund managed by Oaktree Capital Management that focuses on investments in financial institution securities; and $50 million to Clearlake Capital Partners III, a private equity fund managed by Clearlake Capital Group that invests in small- and midsize companies.
The pension fund already has $200 million invested with Walton Street and $47.5 million with Oaktree.
Separately, the board approved issuing an RFP in September for its first private equity secondary market consultant. TorreyCove Capital Partners is the pension fund's private equity consultant and will be invited to bid on the RFP, Mr. Urbanek said in a telephone interview. The RFP will be posted on the pension fund's website; a hiring decision is expected in December.
Also, the board received recommendations from Buck Consultants, the pension fund's actuary, to reduce the assumed rate of return to either 8.25%, 8% or 7.75%, from 8.5%. The board will take a final vote at the September meeting.
The current return rate was first approved by the board in 1997. The actual 30-year rate of return from 1981 to 2011 is 9.3%. The current unfunded liability of 54.8% will increase to 56.2% or 58.9% depending on which lower rate the board could adopt. A change in the return rate would also result in the fiscal year 2014 state contribution increasing to a range of $3.7 billion to $4.1 billion from the current projected $3.5 billion.
The recommendations from Buck were the result of a 10-month review. The assumed rate of return is revisited every five years.
The board also approved terminating two managers and placing an additional five on the watchlist. The board terminated KBS Realty Advisors, which managed 19 real estate properties representing $345 million. “We believed it was in the best interest to transfer the properties to Lincoln Property,” Mr. Urbanek said. Lincoln currently manages $418 million for TRS. Bob Ochsner, spokesman for KBS Realty, did not return a telephone call by press time for comment.
The board also terminated Credo Capital Management's $37 million domestic equity portfolio for performance. Tedd Alexander, Credo's founder, managing member and portfolio manager, said the firm does not comment on client decisions.
The board removed Hartford Investment Management from its watchlist. Hartford manages $274 million in fixed income.
Five equity managers were added to the watchlist: Levin Capital Strategies, $547 million in domestic equity; Boston Co. Asset Management, $278 million in domestic smidcap value equity; Frontier Capital Management, $213 million in domestic equity; Putnam Investments, $212 million in international equity; and Denali Advisors, $140 million in domestic equity.
