Illinois Municipal Retirement Fund, Oak Brook, next month will consider changing its U.S. equity benchmark to the Russell 3000 from the Dow Jones Total Stock Market index.
Dhvani Shah, chief investment officer of the $34.9 billion pension fund, told the IMRF board Friday that the recommendation would be part of a review of the defined benefit plan's investment policy statement in January.
The pension fund's investment staff “most likely will recommend the change,” Ms. Shah said. “We already compare our active managers to Russell indexes, but in aggregate we compare to the Dow Jones.” She said standardizing under one index family “all dovetails to our strategic plan. This is the first part of the discussion.”
Illinois Municipal had used the Wilshire 5000 index, which was acquired in 2004 by Dow Jones but was then spun off in 2009; IMRF officials at the time chose to stay with Dow Jones.
Janet Becker-Wold, senior vice president at Callan Associates, IMRF's investment consultant, said a broad-market index would be preferable to a custom benchmark for U.S. equities, as a customized index “neutralizes the ability to compare with a broad market.”
Ms. Shah added that a customized benchmark is better for more tactical moves, while a broad-market index is a better strategic measure.
Separately, Ms. Shah said the IMRF investment staff expects to look at the pension fund's overall U.S. equity allocation in 2015. It was 44% of assets, six percentage points above its target, as of Nov. 30.
In November, its U.S. equity investments returned 1.71%, compared to the Dow Jones Total Stock Market index's 2.42% return. Overall, the pension fund returned 1.2% vs. its custom benchmark's 1.38%. In Callan's monthly report, IMRF's small-cap investments “had a negative effect” of domestic equity performance for the month, returning 0.22% vs. the 2.29% return for large caps.