Illinois Teachers’ Pension to Prioritize Liquidity, Volatility Protection in New Asset Allocation Plan

The fund also made up to $570 million in commitments to new and existing managers. 



The board of the Teachers’ Retirement System of the State of Illinois approved a new asset allocation plan at its June 18 board meeting, with the aim of enhancing the pension fund’s liquidity, as well as protecting the portfolio from volatile markets. 

As a part of the new asset allocation target, the fund will raise its long-term target allocation to diversifying strategies to 6% from 4%. The fund currently has a 2.2% asset allocation to this asset class, with interim and long-term target allocations of 5% and 4% respectively. 

The fund aims to decrease its long-term target for fixed income by 2 percentage points, from a target of 26% to a target of 24%. The fund currently allocates 28.5% of its assets to its income portfolio, which includes the funds fixed income holdings. 

In the long term, the fund aims to increase its allocation to public equities and lower its allocation to private equity. The fund currently allocates 34.6% of its portfolio to public stocks, and 17.1% to private equity, with long-term targets of 37% and 15% respectively.

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The fund anticipates its real assets portfolio will remain relatively unchanged, with a current allocation of 17.7%, TRS has a long-term target of 18%, however plans to increase its real estate assets to 16% from 14.8% and decrease other real assets to 2% from 2.9%. 

“Our investment strategy prioritizes protecting our members’ money because they count on us every month,” said Stan Rupnik, executive director and CIO of TRS, in a news release. “We continue to see growth within our investment portfolio, while working to minimize the impact of market volatility. This approach has successfully delivered results for our more than 448,000 members.” 

At the end of the first quarter, assets of the pension fund reached $70.4 billion. At the end of May, the fund’s assets reached a high of $70.98 billion. The fund manages retirement benefits for more than 448,000 beneficiaries, current and retired educators and education personnel in Illinois.

The pension fund, like many Illinois suffers from being severely underfunded; TRS had a funded ratio of 44.8% at the end of fiscal year 2023. With such a low ratio, liquidity is increasingly important with the fund’s significant liabilities. 

Manager Selection & New Commitments 

The board of the pension fund also approved up to $570 million in commitments to new and existing and new private equity, real assets and fixed income investment managers. 

As a part of its private equity portfolio, the fund made $95 million in commitments to managers. The fund made a $30 million commitment to existing manager Bregal Sagemount, a middle-market growth equity investor.  

The pension fund also approved a $50 million commitment to Singapore-based TPG Partners, a new relationship with the pension fund and $15 million to existing emerging manager Mac Venture Capital. 

The fund only made one commitment for its real assets portfolio; committing up to $300 million to Starwood Capital Group, which already manages $817.9 million of the fund’s assets.  

The fund made commitments to two managers for its global income portfolio. It committed $75 million to public finance investor Fundamental Advisors, and another $100 million was made to Sixth Street Advisors, both existing managers for TRS. 

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IRS Announces Intent to Close Basis-Shifting Tax Loopholes

The IRS and Treasury say the changes could raise about $50 billion over 10 years.



The Internal Revenue Service and Treasury Department announced Monday a new regulatory initiative that they intend to issue proposed regulations focusing on basis-shifting tax strategies used by partnerships. The IRS says the forthcoming guidance will address “hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and many other industries.”

“Treasury and IRS guidance released today kicks off a multi-stage regulatory effort that will stop large, complex partnerships from using opaque business structures to inflate tax deductions and avoid taxes,” the agencies wrote in a press statement.

Basis-shifting transactions are considered abusive when “high-income taxpayers and corporations strip basis from assets they own where the basis is not generating tax benefits and then move the basis to assets they own where it will generate tax benefits without causing any meaningful change to the economics of their businesses,” according to the IRS.

The IRS announcement contained a revenue ruling that would “inform taxpayers that certain transactions will be challenged for lack of economic substance.”

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One example of this is pass-through businesses. A pass-through is an entity, such as an S-Corporation, that is not subject to corporate income tax, and income can be passed to them and then on to the corporate owners. The IRS says that “income is passed through onto the income tax returns of the individual or corporate owners and taxed at their income tax rates.”

Another related strategy the IRS identified as potentially abusive is when taxpayers “shift tax basis from property that does not generate tax deductions (such as stock or land) to property that does (such as equipment). Taxpayers may also use these techniques to depreciate the same asset over and over.”

To address these issues, the IRS says it intends to:

  1. Issue “mechanical rules” related to the “effects of basis adjustments resulting from related party partnership basis-shifting transactions.”
  2. Apply a single entity approach to a partnership held by members of a consolidated group, “which are groups of corporations that share an 80 percent vote and value stock ownership and file a consolidated tax return.”
  3. Require taxpayers and advisers to “report if they and their clients are participating in these abusive partnership basis-shifting transactions” if the total amount is $5 million or more in a year.
  4. Challenge partnerships on the economic basis of certain basis-shifting transactions.

The IRS estimates that closing these loopholes would raise about $50 billion in revenue over ten years, and the agency says it currently has billions of dollars’ worth of basis-shifting transactions under audit.

The agencies are seeking written public comment on the proposed rules.

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