The $54.2 billion Illinois Teachers' Retirement System, Springfield, reported investment in new funds and strategies plus additional allocations to existing strategies totaling more than $3 billion and terminations and partial redemptions equaling $2.9 billion during a Feb. 28 board meeting.
Fund CIO R. Stanley Rupnik told trustees at the board's investment committee meeting the large number of changes in the portfolio — 27 in all — primarily were the result of repositioning, although some terminations were due to concerns about performance and personnel changes for some managers.
Mr. Rupnik in an interview declined to identify the managers with performance or personnel issues.
The investment decisions were made by the system's investment staff, which has discretion, after the board's previous meeting on Dec. 11.
The biggest change was in TRS' $19.6 billion public equity portfolio: Six managers were terminated for strategies totaling slightly more than $2 billion.
The bulk of the public equity terminations were of active managers:
- Boston Co. Asset Management was terminated for management of $711 million in active large-cap international equities.
- Mondrian Investment Partners was terminated for a $570 million active large-cap international equity assignment.
- TRS staff terminated J.P. Morgan Asset Management of management of $384 million active large-cap international equity portfolio. J.P. Morgan continues to manage $616 million in other strategies.
- AQR Capital Management's actively managed $217 million U.S. small-cap equity strategy was terminated. AQR continues to manage $1.7 billion for the system in other strategies.
- Brown Capital Management was terminated for management of $66 million in active large-cap international equities.
RhumbLine Advisers was terminated for passive management of $101 million in U.S. small-cap stocks. RhumbLine still manages a total of $6.2 billion for the system.
Mr. Rupnik told trustees about $1.3 billion freed up by the terminations was recycled into passive strategies within the public equity portfolio.
RhumbLine was awarded a total of $799 million for passive investment in U.S. equities, with $318 million going into the firm's existing S&P 1000 fund; $261 million to its S&P 500 Equal-Weighted index account; and $220 million moving to the firm's Russell Mid Cap Growth fund.
Northern Trust Asset Management was awarded a $500 million for management in its existing passively managed large-cap international equity index fund. Northern Trust manages a total of $2.5 billion for the fund.
The system's $6.2 billion private equity portfolio was another area with high activity, with total commitments of $750 million awarded to seven managers.
Trustees were asked to approve a $200 million commitment to existing manager Greenspring Associates. As with the TRS' previous investment with Greenspring, half will be managed in a commingled venture capital fund of funds and the remainder in a separately managed account, Jerry Quandt, senior investment officer for private equity, told trustees. The firm currently manages $220 million for TRS.
Private equity commitments made by Mr. Quandt and his staff between board meetings to existing managers were:
- MBK Partners Fund V received a $200 million commitment for buyout investments in South Korea, Japan and China. MBK Partners currently manages $303 million for TRS.
- Parthenon Capital Partners, which currently manages $233 million for the system, was awarded a $120 million commitment for investment in Parthenon Investors VI, a growth equity fund.
- In addition to the $274 million Clearlake Capital Group currently manages for TRS, a new commitment of $100 million was made to Clearlake Capital Partners VI, a special situations fund.
- A $40 million commitment was made to TA Associates, an existing manager currently running $90 million for TRS. The investment will be in TA Select Opportunities Fund-A.
Mr. Quandt added that Bregal Investments, a new manager for TRS, received a $75 million commitment to Bregal Sagemount III-B, a growth equity fund.
OceanSound Partners, a new manager for the system, will invest a commitment of $15 million in the OceanSound Partners Fund, a technology-oriented private equity fund.
The system's $14.7 billion global income portfolio also saw a total of $550 million in commitments made to two private credit strategies and a $455 million termination of a traditional fixed-income strategy.
Trustees approved the recommendation by Scottie D. Bevill, senior investment officer for global fixed income, to commit $350 million to a separately managed U.S. direct-lending strategy, run by Cerberus Capital Management, a new manager for TRS.
Mr. Bevill's team also committed $200 million to existing manager LCM Partners for investment in LCM Credit Opportunities Fund IV, a special situations strategy. LCM manages $108 million in other credit strategies for TRS.
Pacific Investment Management Co. was terminated for management of $455 million in global-inflation-linked bonds. PIMCO continues to manage $2.8 billion for the fund.
TRS investment officers also made two changes in the $8.1 billion real assets portfolio, the largest of which was the termination of AQR for management of a $270 million real return portfolio. AQR manages $1.7 billion in other strategies for the system.
Fund officers committed $150 million to Oak Street Real Estate Capital Fund V. Portfolio managers at Oak Street, an existing manager for TRS, will seek single-tenant, triple-net-lease properties throughout the U.S. Oak Street currently manages $117 million for the teachers' fund.
The biggest move within TRS' $5.6 billion diversifying strategies portfolio, which includes hedge fund, alternative-risk premium, risk-parity and global macro strategies, was an investment of $150 million in Aspect Capital's systematic global macro fund. Aspect Capital is a new manager for TRS.
Three existing discretionary global macro managers received additional investments in their funds:
- Kirkoswald Asset Management received $75 million for investment in its global macro fund. The firm currently manages $327 million in the fund for TRS.
- Trend Capital Management was given an additional $50 million for the firm's global macro fund. Trend Capital currently runs $272 million in its fund for TRS.
- Light Sky Macro received $25 million in an additional allocation to its global macro fund. The manager currently manages $238 million in the strategy for the teachers' fund.
TRS also took partial redemptions from three existing managers within the diversifying strategies portfolio:
- AQR Capital Management's assets managed in a multistrategy factor-based portfolio were reduced by $75 million to $550 million.
- Assets invested in Cantab Asset Management's Core Macro Fund were cut by $50 million to $227 million.
- PDT Partners received a redemption notice for $12 million from its equity market neutral/statistical arbitrage hedge fund, reducing the total managed to $256 million.
AQR Capital Management wasn't subject to the largest level of terminations/redemptions from the Illinois Teachers' portfolio, but the aggregate reduction of $562 million from three strategies reduced AQR's total managed for TRS by 24.5% to $1.7 billion.
Greg Turk, TRS director of investments, said during the committee meeting that AQR's $270 million real return strategy was a "material underperformer" in the real assets portfolio and that the termination is "a positive step toward improving the profile of the portfolio." Performance of the AQR real return strategy was not provided to the public during the board meeting.
Specific reasons for the termination of AQR's $217 million, actively managed small-cap U.S. equity portfolio and for the reduction by $75 million of the firm's multistrategy factor-based portfolio were not given during the meeting.
AQR spokeswoman Claudia Gray did not immediately respond to a request for comment about the Illinois Teachers fund actions.
Trustees also approved the hire of Aon Hewitt Investment Consulting to provide consulting services and a fiduciary evaluation of the system's investment practices and policies. Funston Advisory Services was the other finalist in the search.
In an update on TRS' new 457 plan, Carlton Lenoir, chief benefits officer, said the launch has been delayed until Jan. 1, 2021, from July 2020 to give the system more time before the rollout.
Richard Ingram, TRS' executive director, said the delayed launch may end up being a good thing because it will provide more time for possible passage of a bill now before the state Legislature which would require state DC plans to add an auto-enrollment feature.
Cammack Retirement Group, TRS' DC plan consultant, presented the board with a preliminary partial lineup of investment options for the plan managed by firms including BlackRock, PGIM, PIMCO and Vanguard Group. Trustees will vote on the final option array later this year, Mr. Lenoir said.