Illinois State Universities Retirement System, Champaign, plans to issue RFPs in its first searches for hedge funds and commodities managers under a new asset allocation that includes a more than 25% reduction in U.S. equities, said Daniel L. Allen, chief investment officer.
The SURS board, which oversees $16.9 billion in defined benefit assets, targeted a 5% allocation to hedge funds and 2% to commodities.
The pension fund expects to issue its first RFP for the hedge fund allocation early next year, Mr. Allen said.
The SURS board is developing the structure of the allocation, whether to use hedge funds of funds or direct investments in hedge funds, and the strategies, such as long/short equities, defensive equities or options-based approaches. SURS plans to invest only part of the hedge fund allocation in the first search and expects to do at least one more search sometime later.
“It’s still being ironed out,” Mr. Allen said.
SURS expects to issue an RFP for commodities in the fall of 2015. The board is still developing the structure and strategy for its commodities investments, Mr. Allen said.
NEPC, the pension fund’s investment consultant, will assist in the searches, Mr. Allen said.
SURS’ U.S. equities target will decrease to 23% from the current 31%; the actual allocation now is 33.5%.
The international equities target will fall to 19% from 21%; the current actual allocation is 21.9%.
SURS plans to review this fall how it will restructure its equity managers, including whether any will be terminated, Mr. Allen said.
SURS previously issued an RFP for its other new asset class, a 3% allocation to emerging markets debt.
The rest of SURS’ target allocation is staying the same: 19% fixed income; 10% real estate, including real estate investment trusts; 8% global equities; 6% private equity; 4% Treasury inflation-protected securities; and 1% opportunity strategies.
SURS is moving to the new asset classes based on recommendations from NEPC, Mr. Allen said.
“NEPC believes by utilizing additional asset classes SURS can lower its projected risk level in (its target) portfolio without giving up significant return,” Mr. Allen said.
SURS expects to implement the new allocations over the next 12 to 24 months, Mr. Allen said. SURS’ staff is developing an annual investment plan it expects to submit to the board’s investment committee at its Sept. 18 meeting for its approval, Mr. Allen said.