Ill. Teachers Plans Hedge-Fund Overhaul

May 29 2013 | 9:44am ET

The Illinois Teachers' Retirement System is the latest public pension fund to turn from funds of hedge funds.

The $39.6 billion pension is preparing to move its entire $2.1 billion hedge fund portfolio into direct investments under new absolute-return investment officer Kenneth Musick, who joined TRS in October. The switch will take two to three years, Musick told the pension's trustees last week.

The first order of business is a search for a hedge fund consultant and a hedge fund risk manager, Pensions & Investments reports. Requests for proposals will come within a couple of weeks, with finalists to be interviewed in October.

Prior to that decision, TRS will choose one of its two current fund of funds managers to pick 20 underlying funds from the 60 that TRS invests in through them. The other will be terminated. Both managers, K2 Advisors and Grosvenor Capital Management, have been asked to rebid and the winner will be chosen in August.

K2 currently manages $520 million for TRS and Grosvenor $438 million.

TRS won't wait for the concentration process to be completed before boosting its direct investment activity, however: The pension plans to add between four and six new managers over the next six months, joining the five direct hedge fund investments TRS already boasts.

Musick also told the trustees that TRS would need to hire more staff to handle the new bid. He also said that he's simplifying the pension's hedge fund categorization, from 22 strategies to three: convergent, convex and opportunistic.

At last week's meeting, TRS also made several moves for its private-equity portfolio, retaining consultant CP Cogent Securities and committing to three p.e. managers: $75 million to GI Partners, $75 million to Oaktree Capital Management and $35 million to Great Point Partners.


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