Illinois State Board of Investment, Chicago, authorized nine separate RFPs to be issued for managers to run a total of $3.2 billion, or 22%, of the pension fund’s $14.6 billion in assets, said William R. Atwood, executive director.
For passive management, the RFPs are for managers to run $725 million each in an MSCI Emerging Markets index fund and Barclays Capital U.S. Treasury Inflation Protected Securities index fund; $435 million each in a Barclays Capital Intermediate U.S. Treasury index fund and Barclays Capital Long U.S. Treasury index fund; $290 million in a Barclays Capital U.S. Aggregate Bond index fund; and $165 million in an MSCI EAFE Small-Cap index fund.
In addition, ISBI plans to issue three other RFPs to manage a total $435 million for active emerging markets debt and passive emerging markets debts, denominated in local currencies, and passive emerging markets debt, denominated in major-markets currencies. Depending on “how the RFPs shake out,” ISBI could hire one to three managers for the portfolio strategies sought in the three RFPs, Mr. Atwood said.
ISBI could issue the RFPs, all on its website, March 21.
Most of the funding would come from terminating equity, fixed income and hedge fund-of-fund managers.
ISBI terminated Vontobel Asset Management, which ran $534 million in active large-cap international equities, and Standish Mellon Asset Management, which ran $327 million in active emerging markets debt. Both Vontobel and Standish were dropped for organizational reasons.
In addition, funding will come from Wellington Management, which manages $489.3 million in an active international aggregate bond portfolio. Wellington was terminated in December after being put on watch for performance last June and was continuing to manage the assets until changes are implemented.
In addition, funding will come from a reduction in its hedge fund target allocation to 3% from 10% and consolidation of its hedge fund managers, all funds of funds, with a single manager, Rock Creek Group.
ISBI hired Rock Creek, which already managed $677 million for ISBI, to manage the hedge fund allocation reduction and manage the remaining consolidated assets, which could be about $440 million. ISBI is terminating Appomattox Advisory, which manages $50 million; EnTrust Capital, which manages $564 million, and Mesirow Advanced Strategies, which manages $375 million. It could take 12 to 18 months to move to the lower hedge fund-of-funds target, Mr. Attwood said.
The RFPs are the result of a new asset allocation ISBI adopted last month. It was recommended by investment consultant Meketa Investment Group, which is assisting in the searches.
The new asset targets also include reducing publicly traded equities to 43% from the current 50%. That change calls for dropping U.S. equities to 23% from the current 30% and developed international equities to 13% from 16.5%, while raising emerging markets equities to 7% from 3.5%.
In fixed income, the new allocation raised rate-sensitive fixed income to 19% from 7%. That change consists of raising intermediate investment-grade bonds to 11% from 7%, while adding a new 5% allocation to TIPS and a new 3% allocation to long-term government bonds.
ISBI lowered the allocation in the credit segment of fixed income to 9% from 13%.
In real assets, the new allocation increases real estate to 11% from 10%, while keeping infrastructure at 5%.
The new allocation raises private equity to 10% from 5%.