Jon Bauman, executive director of the $39 billion Teachers' Retirement System of the State of Illinois, last week blasted the Chicago Tribune for distorting the facts surrounding a recent decision by the system to make a “conservative” investment into hedge funds.
An article entitled “Pensions betting on hedge funds,” published Jan. 26, focused on the high-leverage, aggressive hedge funds that carry tremendous investment risks. According to Bauman, there are also different hedge vehicles that the system will consider, which are more conservative hedge products that exhibit less risk than some traditional investments, including stocks.
“Our colleagues at the Illinois Municipal Retirement Fund announced that their initial 2001 $225 million investment in these types of strategies grew to $345 million on Dec. 31 representing a 7.9% annualized return over the last five years,” Bauman wrote in a letter to the Tribune.
Bauman also criticized the article’s characterization of the system as “mired in…scandal,” a reference to a former Teachers' director who recently pleaded guilty to federal charges receiving kickbacks from firms seeking investment business from the fund. Bauman wrote, “I fear the Tribune is mired in old news. We have moved forward from this sad period in our 67-year history with revamped policies, increased disclosure, and not one penny of TRS assets lost.”
In addition, Bauman defended the system’s decision to allocate 2.5% of its portfolio to hedge funds stating, “…investing in additional asset classes will further TRS’s efforts to achieve investment returns that are consistent with our actuarial requirements and reduce risk during adverse market environments.”
In its latest fiscal year, the system earned over 12%, ranking the fund in the top 25% of large public pension funds, according to Bauman.