Illinois Teachers' Retirement System, Springfield, is researching strategic partnerships and might present hiring recommendations to the board of the $40.8 billion pension fund at its next meeting, Feb. 19-21.
Three of Illinois TRS' existing money managers were asked to create models for opportunistic, unconstrained, multiasset portfolios, said Scottie Bevill, senior investment officer who oversees the pension fund's fixed-income portfolio, at an investment committee meeting Thursday.
Mr. Bevill told trustees that in an environment in which core fixed-income strategies are expected to return just 2.5% over the next four years, adding customized separate accounts that gave trusted money managers “flexibility and creativity” would likely result in higher returns.
“Flexibility can generate alpha,” Mr. Bevill said, adding “a lot of interesting opportunities will be coming in the next three months.”
The three Illinois TRS managers — which Mr. Bevill did not identify, but he told trustees they are “well-known names” — were instructed to create a model portfolio “built to take advantage of distressed opportunities” globally. Managers may invest in any asset class, Mr. Bevill said, noting the portfolios will be designed to generate an absolute return and will not be tied to a benchmark.
The model portfolios target very low duration, low interest rate risk and annualized returns of between 8% (unleveraged) and 10% (moderate leverage), Mr. Bevill said.
Using a hybrid private equity vehicle, if Illinois TRS decides to go through with the idea, managers would call capital when needed and at least 50% of the assets of their individual portfolios must remain fairly liquid, he added.
Most importantly, Mr. Bevill said, is that the portfolio construction includes very active participation by Illinois TRS staff. Monthly conference calls with each manager would be part of each relationship and investment discretion would be joint, said R. Stanley Rupnik, chief investment officer.
Mr. Rupnik endorsed the strategic partnership concept, reminding trustees that “we already have most of the investments these partnerships will target in other parts of our portfolio.”
