Illinois State Board of Investment, Chicago, authorized issuing an RFP for a money market fund for its 457 plan, while separately restructuring $2.6 billion in defined benefit assets, hiring two managers and dropping nine.
ISBI plans to issue the RFP on May 16 for a money market fund for the $4.1 billion Illinois State Employees' 457 Deferred Compensation Plan. The fund would replace the Vanguard Prime Money Market Fund institutional shares, which had $35 million in plan assets and is managed by Vanguard Group.
Vanguard changed “how they were handling gates and lockups in the event of a stress period,” a revision that T. Rowe Price Group, the record keeper, “was unable to handle,” said William R. Atwood, ISBI executive director.
Vanguard can rebid with a money market fund that complies with ISBI's constraints.
ISBI plans to post the RFP on its website. It expects to make a hiring decision this summer, Mr. Atwood said.
Meketa Investment Group, which was hired as the new 457 plan consultant to replace Marquette Associates, is assisting with the search.
Meketa will also review an RFP for target-date fund managers, Mr. Atwood said. ISBI postponed a decision on hiring a target-date fund manager until hiring a consultant. Meketa is expected to present its 457 plan review in September, Mr. Atwood said.
Separately, for the $15.2 billion in defined benefit assets it oversees, ISBI hired State Street Global Advisors to manage three new passive funds, totaling nearly $2 billion — a $917 million fund, split evenly to track the Barclays Capital Intermediate Term U.S. Treasury index and the Barclays Capital Long-Term U.S. Treasury index; $760 million in a Barclays Capital U.S. Treasury Inflation Protected Securities index fund; and $304 million in a Barclays Capital U.S. Aggregate Bond index fund.
Northern Trust Asset Management was hired to manage two passive funds, totaling $624 million — a $457 million MSCI Emerging Markets Equity index fund and a $167 million MSCI EAFE Small Cap equity index fund.
The hirings are the result of RFPs issued in March to implement a new asset allocation adopted in February. They were recommended by Meketa, investment consultant to the DB plan.
Funding for the two managers will come gradually as portfolios of terminated managers are liquidated or transitioned, Mr. Atwood said.
Funding in part will come from terminating Segall Bryant & Hamill, which managed $262 million in active small-cap core equities; SSgA, $537 million in an MSCI emerging markets small-cap equity index fund; and Mesirow Financial, $79 million in active small-cap value equities, which had taken over the portfolio managed by Fiduciary Management Associates, a firm it acquired March 31. The three managers were dropped because of the change in asset allocation, Mr. Atwood said.
Funding also will come from a reduction in the hedge fund target allocation to 3% from 10% and consolidation of hedge fund-of-funds assets with Rock Creek Group, which currently manages $677 million.
ISBI previously terminated Appomattox Advisory, which managed $50 million; Entrust Partners, $564 million; and Mesirow Advanced Strategies, $375 million. The allocation reduction could take a year to achieve, Mr. Atwood said.
In addition, ISBI terminated Wellington Management, which managed $489.3 million in active international bonds, and Standish Mellon Asset Management, $327 million in emerging markets debt. Wellington was terminated for performance and Standish for organizational changes. ISBI plans to reallocate the assets of the two managers to move toward the new allocation, splitting the assets among a Standard & Poor's 500 index fund, managed by RhumbLine Advisers, which before the addition managed $882 million; and to three core fixed-income mangers — Chicago Equity Partners, which managed $513 million; Garcia Hamilton & Associates, which managed $411 million; and LM Capital Group, which managed $467 million. The pro rata share each of the four managers will receive is still being figured out, Mr. Atwood said.
In addition, ISBI terminated Vontobel Asset Management, which ran $534 million in active large-cap international equities, for organizational changes. Its assets were reallocated to an SSgA-managed MSCI All-Country World ex-U.S. index fund, which had $537 million before the addition.
Aside from the reduction in the hedge fund allocation, ISBI's new allocation targets drop U.S. equities to 23% from 30%; international equity to 13% from 16.5%; high-yield bonds and bank loans to 3% from 4%; and eliminates a 3% international bonds allocation. The new allocation raises emerging markets equities to 7% from 3.5%; private equity to 10% from 5%; intermediate investment-grade bonds to 11% from 7%; and emerging markets debt to 3% from 2%. It also adds new targets of 5% for TIPS and 3% for long-term government bonds.