Illinois Teachers Retirement System, Springfield, revamped its fixed-income portfolio, eliminating $484 million in four strategies and adding a new $34 million floating-rate investment.
After a fiscal year-end review of the $41 billion system's $6.9 billion global fixed-income portfolio, trustees on Thursday approved a staff recommendation to partially dismantle a portfolio managed by William H. Gross, managing director and co-chief investment officer of Pacific Investment Management Co. In February 2011, the mandate for the system's $1 billion investment in PIMCO's Total Return strategy was broadened to allow Mr. Gross to invest tactically in the PIMCO Unconstrained Bond strategy and the PIMCO GLADS strategy, which is based on the firm's Global Advantage series of bond indexes.
Scottie Bevill, TRS senior investment senior investment officer for fixed income, told trustees that the GLADS portfolio had “too much beta” and recommended it be dropped from the portfolio. Mr. Gross has not been invested in the GLADS strategy since at least June 30, according to board meeting materials.
TRS has $608 million invested in PIMCO's Total Return strategy and $436 million in the firm's Unconstrained Bond approach. PIMCO manages a total of $2.4 billion in other fixed-income and real return strategies for TRS.
Trustees also terminated a $292 million investment with Loomis Sayles. The global multisector long-duration fixed-income mandate was changed in February 2011 to permit up to 25% of assets in an absolute-return strategy, but Mr. Bevill told trustees it “hasn't worked as anticipated.”
Taplin, Canida & Habacht, which in April began to manage TRS' first floating-rate fixed-income fund that now totals $246 million, was terminated from a $158 million credit tilt strategy. R. Stanley Rupnik, the fund's chief investment officer, said TCH's credit portfolio had too much overlap with other strategies in the core-plus tactical bond subasset class.
Trustees also approved a $34 million floating-rate fixed-income allocation to Garcia Hamilton & Associates, an emerging manager. Funding came from another emerging short-term cash manager, LM Capital Group, which was terminated.
Other changes to the fixed-income portfolio were:
- Manulife Financial's international/emerging markets allocation was raised to 9% of the bond portfolio from 6%;
- TRS' overall allocation to special situations credit was increased by one percentage point to 9%;
- Hartford Investment Management Co.'s U.S. TIPS portfolio was decreased to 5% from 6.5%; and
- Loomis Sayles' tactical duration strategy was reduced to 10.5% from 12%.
Also at the Oct. 24 meeting, the board approved new commitments and investments totaling $390 million:
- $150 million committed to Lone Star Real Estate Fund III, which will invest in the debt of distressed commercial real estate globally;
- $100 million committed to Trident IV, a private equity fund focused on financial services managed by Stone Point Capital, which also manages $155 million in other investments for TRS;
- $100 million committed to Oaktree Real Estate Debt Fund for investment in special situations credit opportunities. Oaktree Capital Management manages a total of $518 million in other fixed-income and private equity strategies for TRS;
- $25 million awarded to Apex Capital Management, a firm in TRS’ emerging manager program, for active domestic smidcap growth equities; and
- $15 million committed to Palladium Equity Partners IV, a private equity fund that invests in Hispanic-owned businesses in the U.S.