Illinois Pension Contributions To Rise By $700 Million in 2015

Illinois flag

Illinois’ payments to its pension systems will jump by almost $700 million in 2015 after three of its state-level systems lowered their assumed rates of return.

From the Journal-Standard:

The total state contribution to the five state-funded pension systems next year is $7.537 billion. That’s an increase of more than $680 million over the amount the state had to contribute to the systems in the current fiscal year.

The numbers are compiled by the pension systems, but were reviewed and contained in a report by the state actuary issued Wednesday by Auditor General William Holland’s office.

The increase for next year’s budget is sharply higher than the increase in the current state budget. This year, lawmakers only needed to find an additional $100 million to meet the pension obligations. It was the smallest increase in years after a series of $1 billion hikes.

No reason was identified for the increase, although the report did note that three of the five systems lowered the estimated rate of return they expect to receive on their investments. Pension systems get their money through employee contributions, state contributions and investment income. When the systems expect to make less on their investments, the difference is usually made up with higher state contributions.

Cheiron, the state’s actuary, said last year it thought the three biggest pension systems were being overly optimistic about how much investment income they could earn. Since then, the Teachers Retirement System, State Universities Retirement System and State Employees Retirement system, all cut their expected rate of return on investments.

The Judges Retirement System and General Assembly Retirement System had previously cut their estimates.

Illinois shoulders approximately $111 billion in pension debt.

Illinois Teachers’ Pension Official Praises Asian Private Equity


Speaking at the AVCJ Private Equity & Venture Forum last week, Illinois Teachers Retirement System investment officer Kenyatta Matheny expressed his bullishness on Asian private equity. Recapped by Asian Investor:

Matheny is very positive on the region. “If you’re building a global private equity portfolio, you would be remiss to not earnestly look to having an allocation to Asia and, quite frankly, with China as the anchor,” he said.     

The Illinois fund last month struck a partnership with Asia Alternatives, one of the biggest Asia-focused PE fund-of-funds managers with $3 billion in AUM. At the end of October it approved a $200 million commitment to the manager. This followed a period of 18 months to two years spent developing the relationship, Matheny noted.

Illinois Teachers had spent two or three years visiting the region to understand the landscape in the mid-2000s and subsequently made direct investments in PE funds and sought a local investment partner. It now has $5 billion of assets invested in private equity and another $3 billion of unfunded commitments, amounting to an $8 billion portfolio overseen by Matheny.

He was effusive about the benefits of the relationship with Asia Alternatives. “We think alike, we’re looking at the same managers, underwriting from the same perspective, but now you’ve got this piece that we don’t have: you can access small managers, you’ve helped fund a few start-ups” he said.

Matheny also spoke about an increased number of partnerships between U.S. and Asian private equity firms. From Asian Investor:

Kenyatta Matheny, who co-runs the PE portion of Illinois Teachers, has seen more cross-border partnering taking place between PE firms in Asia and the US, in both directions.

“This has been more recent, within the past 12 months, where there may be an Asia-specific PE fund with an asset that can continue to scale, but they’re looking to exit.” One route for them has been for an international PE firm taking on the asset and expanding it beyond China to other markets, such as Southeast Asia.

Matheny has also seen such deals originating outside Asia. “With an asset that has 5-10% exposure to China, we can pick up the phone and call counterparts in Asia. We’ve scaled the asset via acquisitions at home.”

The conference also featured a panel discussion on “Why Asia Still Matters for Private Equity.” The audio of the panel can be heard here.


Photo Credit: “Asia Globe NASA”. Licensed under Public domain via Wikimedia Commons

Illinois Teachers’ Fund Returns 17 Percent; Unfunded Liabilities Still Growing


The Illinois Teachers’ Retirement System announced over the weekend its investments had returned over 17 percent in fiscal year 2013-14.

As a result, the system’s funding ratio improved – climbing from 42.5 percent to 44.2 percent.

But unfunded liabilities grew, as well.

From Reuters:

The funded ratio for Illinois’ biggest public worker pension fund improved slightly in fiscal 2014 due to strong investment returns, but the system still ranks among the worst funded major retirement systems, the Teachers’ Retirement System (TRS) said on Friday.

The system for teachers and other school workers outside of the Chicago Public Schools reported that its funded ratio rose to 44.2 percent in the fiscal year that ended June 30 from 42.5 percent. While that marked the first improvement since fiscal 2006, the funded ratio remains far below the 80 percent level considered healthy.

“An improved funded ratio is always good news, but it doesn’t mean by any means that the financial problems at TRS have been solved. We cannot invest our way out of this problem,” TRS Executive Director Dick Ingram said in a statement.

The retirement system said its investment rate of return was 17.4 percent, net of fees. But its unfunded liability grew by 10.51 percent from $55.73 billion at the end of fiscal 2013 to $61.59 billion.

“TRS members still face a fiscal day of reckoning in the future unless a dramatic improvement is seen over time in the funded status,” Ingram said.

TRS manages $45.3 billion in assets for its nearly 400,000 members.

$200 Million To Asia Private Equity Among Series of Moves By Illinois Teachers’ Fund

Flag of IllinoisThe Illinois Teachers’ Retirement System (TRS) made a series of moves at Thursday’s board meeting that included making $300 million in commitments to two private equity funds and approving the hire of a firm to manage domestic stocks.

The system made several new commitments, including $300 million to two private equity funds, one focusing on Asia and the other on technology. From Pensions & Investments:

Siris Capital Group […] graduated from the emerging managers program with a commitment of $100 million to its technology-focused private equity fund, Siris Partners III. TRS invested $12.5 million in Siris Partners II.

TRS committed up to $200 million to a customized Asia-focused private equity strategy managed in a strategic partnership by Asia Alternatives Management. The allocation will be split evenly between a diversified fund of funds and a co-investment fund. The goal is to eventually move some of the Asian private equity managers from the fund of funds into TRS’ direct investment portfolio, Stefan Backhus, private equity investment officer, told trustees.

Taurus Funds Management, a new manager for the TRS, right, received a $30 million commitment to its Taurus Mining Finance Fund.

Active large-cap value equity managers Affinity Investment Advisors and Lombardia Capital Partners each received $25 million commitments from the emerging managers program for domestic and international portfolios, respectively.

Trustees ratified staff-initiated co-investments of $18.5 million and $20 million to existing managers Carlyle Group and Natural Gas Partners, respectively.

Funding for the Siris, Asia Alternatives, Taurus, Affinity, Lombardia, Carlyle Group and Natural Gas Partners hires will come from cash, index funds and rebalancing.

TRS also hired a new firm to manage domestic equities, promoted one other firm and fired another. From P&I:

Trustees of the $43.5 billion pension fund ratified the hire of LSV Asset Management by investment staff in August to manage $360 million in active domestic large-cap value stocks. LSV, which already managed $1.3 billion for TRS in two other equity strategies, replaced Loomis Sayles & Co., which was terminated in August.

Active bond manager Garcia Hamilton & Associates, was promoted from the pension fund’s $732 million emerging managers program to manage a 4% allocation from the fund’s $7.7 billion fixed-income portfolio. The $61 million Garcia Hamilton previously managed will be returned to the emerging managers program. Funding for the new account will come from reducing Prudential Asset Management’s core-plus bond portfolio and rebalancing among other fixed-income managers.


In further changes to the fixed-income portfolio, Hartford Investment Management was terminated as manager of a $350 million U.S. Treasury inflation-protected securities portfolio. Investment staff “believes the net-of-fees results from these mandates can be improved through two mandates. Further, staff prefers to utilize global inflation-linked mandates, while Hartford’s portfolio is U.S. only,” said R. Stanley Rupnik, chief investment officer, in an answer to a request for clarification.

The Illinois Teachers’ Retirement System manages $43.5 billion in assets.

Illinois Teachers’ Fund To Stick With PIMCO, But Backup Plan Remains in Place

Flag/map of Illinois

In the weeks since Bill Gross’ departure from PIMCO, dozens of public pension funds around the country have carefully considered whether to stay with the firm or move on.

In late September, one of the largest plans in the country, the Florida Retirement Systems, announced it was cutting PIMCO in favor of BlackRock.

The Illinois Teachers’ Retirement System announced Thursday it would keep its assets with PIMCO, but would still be watching the firm closely. From Pensions & Investments:

Illinois Teachers’ Retirement System, Springfield, will not terminate any of the nine strategies managed for it by Pacific Investment Management Co., but likely will keep the company on its watchlist.

The $45.3 billion pension fund’s investment staff has had “backup portfolio managers” lined up since rumors started swirling earlier this year of the departure of William H. Gross, co-founder and former chief investment officer, said Scottie Bevill, senior investment officer for fixed income and real assets, to trustees at an investment committee meeting on Wednesday.


PIMCO manages a total of about $3 billion for the pension fund — all fixed-income, credit or global tactical asset allocation approaches — representing about 6.6% of total fund assets.

PIMCO has been on the pension fund’s watchlist for personnel changes since February, when Mohamed El-Erian, PIMCO’s former co-chief investment officer, announced he would leave the firm.

Trustees approved the proposed watchlist, with PIMCO on it, during the investment committee meeting. The full board must approve the committee’s recommendation at its Friday meeting.

Pension funds that have PIMCO on their watchlists include: the Texas Municipal Retirement System, Indiana Public Retirement System, New York City Employee Retirement System, and the Hawaii Employees’ Retirement System.

Dozens of Pension Funds Are Reviewing PIMCO Investments After Bill Gross Departure

scissors cutting a one dollar bill in half

The United States’ public pension funds have tens of billions of dollars invested with PIMCO. But dozens of funds have put PIMCO on their “watch” lists – if they haven’t exited PIMCO already. From Bloomberg:

Illinois’s teacher retirement system, with $3 billion invested with Newport Beach, California-based Pimco, has had the money manager on its watch list since February, when former Chief Executive Officer Mohamed El-Erian left, according to an article published today. Texas Municipal Retirement System put Pimco on watch after Gross’s departure.

Managers of New York City’s retirement systems are reviewing $7.08 billion in Pimco investments, while those overseeing plans in Michigan, Indiana and North Dakota are monitoring the situation, according to the article.

A San Francisco city and county plan’s committee this week will hear from a consultant about $82 million invested in Pimco’s Total Return Fund. (PTTRX) A termination would mark the first time it has eliminated an offering, according to the interview with Jay Huish, the system’s executive director.

Gross, 70, who co-founded Pimco more than four decades ago, left last month for Janus Capital Group Inc. (JNS) after deputies threatened to quit and management debated his ouster. His departure prompted investors to review their Pimco holdings and triggered $23.5 billion in redemptions in September from the $201.6 billion Total Return Fund, which he previously ran.

Gross’s new Janus Global Unconstrained Bond Fund received $66.4 million in subscriptions last month, according to Morningstar Inc.

The Florida Retirement Systems, one of the largest public funds in the country, announced last week it would cut its investments with PIMCO.

Governorship Presents Conflict of Interest For Bruce Rauner, Pension System


Illinois’ GOP candidate for governor, Bruce Rauner, touts in a recent ad (above) that his investment firm, GTCR, made millions for the state by helping the Teacher’s Retirement System (TRS) invest its pension assets in private equity investments.

The investments apparently returned 17 percent – but returns aren’t the issue.

There may be a serious conflict of interest if Rauner is eventually elected governor. That’s because the governor appoints six trustees to the TRS Board—and GTCR still manages investments for the fund.

That wouldn’t be a big problem, except Rauner is still a partner at a GTCR subsidiary.

David Sirota explains:

Despite assertions that Rauner has retired from GTCR, SEC documents confirm that Rauner remains a partner in a GTCR subsidiary. There are other ownership stakes in GTCR funds listed in Rauner’s campaign finance disclosure forms. And according to state documents, GTCR currently manages Illinois pension funds, meaning that if elected, Rauner would appoint the board of a pension system that employs — and pays fees to — his firm.

If Rauner became governor, he would elect nearly half of the board of trustees of the Teacher’s Retirement System. From the TRS website:

TRS is governed by a 13-member Board of Trustees. Trustees include the state superintendent of education, six trustees appointed by the governor, four trustees elected by contributing TRS members, and two trustees elected by TRS annuitants. Two appointed positions are vacant.

As David Sirota writes, there are other issues surrounding Rauner’s tenure at GTCR, as well:

Rauner’s campaign ad comes as his investments hold center stage in a federal civil trial. Chicago’s NBC affiliate says that the suit involves allegations “that GTCR, the Chicago-based firm where Rauner served as managing partner for decades before retiring in 2012, may have masterminded an operation to allegedly avoid responsibility for the deaths of elderly patients residing in nursing homes it had invested in.”  The Chicago Tribune says that GTCR is being “accused by attorneys for the estates of several former nursing home patients of engineering a complicated 2006 sale to avoid wrongful death judgments.”

GTCR denies the allegations.

Rauner promotes a pension plan that would freeze the pensions of current workers and shift all workers into a 401(k)-type plan.


Photo by By Steven Vance via Wikimedia Commons

Illinois Governor, Challenger Spar over Pension Links to Cayman Islands

It’s become a tradition for politicians of either party: on the campaign trail, at some point, you need to accuse your challenger of dodging taxes. The race for Illinois governor is no exception, but there’s an interesting spin on this one.

Current Illinois Gov. Pat Quinn earlier this week accused wealthy challenger Bruce Rauner of dodging U.S. taxes by placing his money in offshore accounts in the Cayman Islands.

A Chicago Tribune investigation had previously revealed that Rauner paid a tax rate of around 15 percent on much of his fortune, even though his wealth made him eligible for tax brackets above 30 percent.

But Rauner fought back, first claiming that his offshore investments did not impact the tax rate he paid. Then, he claimed Quinn himself had money in the Caymans. His pension, to be exact.

Rauner claims that Illinois pension funds have hundreds of millions of dollars in Cayman-based investments.

From the Chicago Sun-Times:

Rauner’s campaign said the Teachers Retirement System has invested $433.5 million in Cayman Islands-based funds while the State Board of Investment has $2.3 billion in offshore holdings, which includes some Caymans-related funds though the agency could not specify how much.

Both are tax-exempt entities and, unlike individual investors, derive no direct tax benefit from investing in funds based there, spokesmen for both agencies said. TRS invests on behalf of current and retired suburban and downstate teachers. The State Board of Investment oversees pension investments for current and retired state workers, university employees, judges, lawmakers and state officials, including the governor.

“If Pat Quinn refuses to apologize and tell the truth, he should immediately move to divest all state investments from companies and funds domiciled overseas, including in the Cayman Islands,” Rauner’s campaign said.

As was bolded, pensions systems are tax-exempt and so there’s no tax benefit from putting money offshore.

Quinn’s camp, when pushed for a statement, declined to say whether Quinn would like the pension systems to stop investment in Cayman-related funds. But the Governors spokeswoman told the Sun-Times:

“The governor has no authority to direct pension fund investments, and he’s not about to start getting involved. That’s really not the issue.”