Teachers' Retirement System of the State of Illinois, Springfield, kicked off its 2015 fiscal year with investments and commitments totaling $1.1 billion and set the stage to tactically deploy at least another $1 billion with real estate and hedge fund managers.
The system's longest-tenured manager, Pacific Investment Management Co., Newport Beach, Calif., was awarded $500 million for management in a new strategic partnership by trustees of the $45.3 billion fund.
PIMCO will manage the allocation in a customized strategy that will invest in corporate and mortgage-related credit opportunities globally with an annual net return target between 10% and 12%.
“This opportunistic strategy is flexible enough to take advantage of attractive investments wherever the investment team finds them,” Jennifer Bridwell, managing director and head of PIMCO's alternative products business, told trustees at their Aug. 26 board meeting.
The strategic part of the partnership includes PIMCO setting up an internal investment committee made up of senior portfolio managers and strategists from relevant strategies to manage the new TRS portfolio as well as monthly conference calls between PIMCO and the fund's fixed-income investment team.
Ms. Bridwell said part of the strategic approach to managing the special situations credit fund is the absence of a rush to get all of the allocation invested right away. Instead, it likely will take between 12 and 18 months to fully invest the TRS allocation.
The latest PIMCO investment brings the total the firm manages for the fund to nearly $3 billion; PIMCO managed a total of $2.4 billion in eight different strategies for TRS as of June 30. PIMCO has managed money for TRS since 1982.
Trustees also gave the nod to commitments of up to $100 million each to private equity funds Baring Asia Private Equity Fund VI and NGP Natural Resources Fund XI, both follow-on funds from existing managers Baring Private Equity Asia Group and NGP Energy Capital Management LLC.
A $75 million commitment was awarded to another energy-focused private equity fund, Sheridan Production Partners III, TRS' first investment with Sheridan Production Partners Manager LLC. The investment is part of the retirement system's real assets category, said Scottie Bevill, senior investment officer for fixed income.
Another change in the real assets category was the decision by trustees not to renew the contract of AQR Capital Management LLC for investment in the firm's reinsurance strategy. AQR's two-year contract will expire in December. Mr. Bevill told trustees that the pension fund's investment team lacks conviction that reinsurance strategies will do well in the near future. TRS had $40.9 million invested in the AQR reinsurance strategy as of June 30.
Regarding the $9.5 billion global equity portfolio, the board terminated Loomis Sayles & Co. LLP for management of an active U.S. large-cap value equity strategy that accounts for about 2.7% of the global equity portfolio, or $255 million.