Illinois Teachers' Retirement System invested, committed or reallocated a total of $860 million to eight strategies.
The decisions were made at a board of trustees meeting Thursday at the $46 billion pension fund's Springfield headquarters.
The biggest single manager change was for AQR Capital Management, which managed a total of $1.6 billion in three strategies for the pension fund as of June 30.
The largest of these investments — $896.4 million — is invested in AQR's flagship risk-parity strategy, Global Risk Premium Tactical, which is in TRS' $3.9 billion real-return portfolio.
About 50% of the GRP-T strategy is currently invested in money market funds. Trustees approved a transfer of that allocation — about $450 million — to AQR's Style Premia strategy, a long/short global macro hedge fund.
One of the primary reasons for the move is higher expected annual performance — 10.1% over cash — of the combination of GRP-T and Style Premia, compared to 6.7% for GRP-T alone, said Kenneth L. Musick, investment officer-diversifying strategies, which includes hedge funds and the global macro funds in the real-return portfolio. Expected annual volatility of the combination portfolio is 12.2% vs. 12% for GRP-T.
Riverstone Holdings received $50 million from the real-return portfolio for investment in Riverstone Credit Partners, which will make direct loans in energy-related companies. TRS previously committed a total of $268.3 million to three Riverstone private equity funds.
Taurus Funds Management, another private equity manager offering direct loans, received an additional commitment of $50 million to Taurus Mining Finance Fund from the real-return portfolio. The pension fund committed $30 million to the fund in April.
The board committed $100 million from the real-return portfolio to Westbrook Real Estate Fund X, a value-added fund managed by Westbrook Partners. It is the pension fund's first commitment to a Westbrook fund.
From the $3.5 billion hedge fund portfolio, a $100 million investment was approved for Penso Advisors' High-Convexity Global Macro Opportunities strategy.
Trustees also approved Mr. Musick's 2016 strategic plan for the diversified strategy portfolio, which includes reducing TRS' $670 million hedge fund-of-funds portfolio by $300 million by the third quarter of next year. Grosvenor Capital Management's portfolio will be reduced by $50 million to about $370 million. The remainder is in legacy funds of funds that are winding down and currently overseen by Grosvenor. Proceeds from the reductions will be invested directly in single and multistrategy hedge funds, Mr. Musick said.
Changes also were also made in the pension fund's $8.1 billion fixed-income portfolio, based on the recommendations of Scottie Bevill, senior investment officer-fixed income and real return.
The pension fund's existing $343 million investment in Prudential Fixed Income's U.S. relative value strategy will be reduced by $50 million. Those assets will be invested in a new global version of the strategy, which will widen the fund's geographic focus to include Japan, Germany, the U.K. and other developed countries. Mr. Bevill said that over time, the entire allocation could shift to Prudential's global approach.
Trustees approved Mr. Bevill's suggestion to change the target allocations of some existing fixed-income managers, but the largest adjustment was a portfolio-level increase in the pension fund's target allocation to special situations strategies to 16% from 12%.
From TRS' $5.3 billion private equity portfolio, up to $30 million was earmarked for Scale Venture Partners V.
Trustees also ratified a decision by investment staff to commit up to $30 million in a co-investment with Stone Point Capital in conjunction with the manager's Trident VI. Jerry Quandt, investment officer for private equity, said he couldn't identify the company in which the co-investment will be made, but noted that it was in the insurance distribution sector. TRS has committed a total of $138 million in three Stone Point Capital private equity funds.
The board ratified the decision of the investment team to terminate Herndon Capital Management, which experienced performance problems this year in the $272 million active U.S. large-cap core strategy it manages for TRS.
Herndon's allocation was reduced by $100 million in July, and after TRS conducted the firm's annual review in August, the decision was made to redeem the entire allocation, said Bill Thomas, investment officer for domestic equity. Drake Craig, a principal, portfolio manager and president of Herndon Capital, did not respond to a request for comment.
