William Atwood, executive director and chief investment officer of the $8.4 billion Illinois Firefighters’ Pension Investment Fund, Lombard, is building out a private markets portfolio, now that a long-simmering lawsuit is over.
The pension investment fund was created by a December 2019 law that consolidated municipal police and fire pension plans outside the city of Chicago into the Illinois Police Officers’ Pension Investment Fund, Peoria, and IFPIF.
A Kane County lawsuit, filed in February 2021 by the boards of 16 Illinois municipal police pension funds and two firefighters pension funds, alleged that the law violated Illinois Constitution clauses by terminating "plaintiffs' authority to exclusively manage and control their investment expenditures and income," according to the original court filing.
Following a long legal battle, the Illinois Supreme Court in January ruled that the consolidation of investment management responsibilities did not violate the constitution’s clause prohibiting the diminishment or impairment of benefits.
The lawsuit had delayed the transition of pension fund assets beyond the original deadline of June 30, 2022 mandated by the law. Following that transition, the firefighters’ pension investment fund was able to begin its move from an interim investment policy consisting of a temporary. highly-liquid portfolio consisting of 97% passive equities and fixed income.
Atwood, who was one of IFPIF’s very first hires at the beginning of 2020 following the formation of its board, said the interim allocation has done exactly what it was intended to do.
“It’s long equities, and it’s short fixed income,” said Atwood. “So we underperformed in a down market but more recently — dramatically — outperformed only because we’re heavily weighted to stocks and stocks have run well.”
Long-term allocation
With the interim allocation in place and all assets finally transferred, IFPIF is building out its long-term target allocation, which will include some actively managed public equities and fixed income, as well as a total target of 31% to private markets, consisting of targets of 10% each to private equity and real estate, 7% to private credit and 4% to infrastructure.
Atwood said the key to building out the private markets portfolio was establishing relationships with both discretionary and non-discretionary investment consultants for those asset classes.
“One of the critical issues about private markets is, unlike large-cap equities, we can’t just go out to deploy the capital,” said Atwood. “It’s going to be a lengthy process, but before we can even start that process, we need to have these relationships in place. It’s no secret we have a very small staff who made a strategic decision to rely on outside providers.” Including Atwood, IFPIF has three investment professionals in its staff.
IFPIF originally issued an RFP in February 2023 for a non-discretionary private markets consultant and three OCIOs to oversee portions of the overall portfolio.
In May of that year, the board hired Meketa Investment Group as its non-discretionary private markets consultant, which will work with staff to provide recommendations to the board for half the private equity and real estate portfolios and the entire infrastructure portfolio.
Regarding the choice to have staff discretion over infrastructure, Atwood said, “There’s not a large number of providers, it’s pretty transparent, pretty easy to get your arms around, so we figured we could do that.”
His staff and Meketa then worked together to find OCIOs for the other halves of private equity and real estate as well as the entire private credit portfolio. Atwood said it was “fairly intuitive” how he and his staff determined which private markets investments he felt could remain non-discretionary based on his and his staff’s expertise.
“We think we can make decisions on mega-cap private equity and core real estate, as well as the entire infrastructure space internally without paying the cost of the discretionary relationships,” Atwood said. Within private equity, smaller deals would go under the auspices of an OCIO, and in real estate, non-core and value-added deals would also be turned over to an OCIO.
“We decided to allocate the entire private credit allocation to one provider, mainly because we felt like an informed discretionary adviser could add value through tilting the portfolio one way or another between more conventional private credit like direct lending and tilting toward more aggressive types of products depending on their view of the markets,” Atwood said.
In February, the board hired Adams Street Partners as OCIO to provide discretionary services for the other half of the private equity portfolio and in May, the board hired Townsend Group to provide discretionary services for half the real estate portfolio and RockCreek Group to provide those services for the entire private credit portfolio.
On May 24, IFPIF issued RFPs for open-end infrastructure and real estate managers, and Meketa Investment Group will assist in recommending commitments to the board later this year.
While the work is far from over, Atwood said he remains enthusiastic about being able to build a new pension fund from the ground up.
“To be at this stage in my life and have the opportunity to start up a brand-new pension fund, it’s just very fortunate intellectually and professionally,” said Atwood. “It’s just a great thing, really, and I’m very proud of the work we’re doing and I’m very confident we’re on the side of the angels. This is really good public policy.”
