Illinois Teachers Pension Invests Nearly $1.5 Billion in Alts

The Teachers’ Retirement System of the State of Illinois reported investment commitments of more than $2.6 billion since August, nearly $1.5 billion of which has been earmarked for alternative investments.

The pension fund allocated $800 million to new investments within its $12.4 billion real assets portfolio, including up to $300 million to Starwood Capital Group, up to $200 million to Kohlberg Kravis and Roberts, and $300 million to Brookfield Asset Management.

Illinois TRS allocated a total of $680 million within its $10.2 billion private equity portfolio. This includes $200 million to Apollo Global Management; $150 million to Vista Equity Partners; $75 million to SK Capital Partners, and $65 million to Bessemer Venture Partners for two funds. It also set aside $50 million each to Insight Partners, True Ventures, Scale Venture Partners, and $40 million to Longitude Capital Management.

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The pension fund also earmarked $675 million in investments within its $15.4 billion income portfolio, including $400 million to Finisterre Capital, $150 million to PGIM, Inc., and $125 million to Brookfield Asset Management.

And under its $21 billion public equity portfolio, Illinois TRS committed $475 million to Schroders, and terminated a $162 million international equity small capitalization strategy of Strategic Global Advisors. Within it its $4.3 billion diversifying strategies portfolio, the pension fund reported the full redemption of $264 million from PDT Partners.

TRS also said that its long-term funded ratio rose 1.3% during fiscal year 2022 to 43.8%, despite reporting an annual investment loss of 1.17%. That is also above TRS’ average funded ratio of 40.7% over the past decade. The pension fund said that projections by consulting firm Segalshow “slow but steady improvements” in the funded ratio between fiscal year 2022 and fiscal year 2045, when TRS is required by state law to have a funded ratio of at least 90%. Over the last two years, TRS funded ratio has improved by 3.3%.

“The system’s improved funded ratio is a bright spot in a challenging investment year,” Illinois TRS Chief Investment Officer Stan Rupnik said in a statement. “The TRS funded ratio improved this year primarily because of consistently positive investment returns over the last five years combined with steady state funding that for two years exceeded the statutory minimum.”

Fiscal Year 2022 Brings Outperformance for Illinois State Teachers’ Retirement System

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Tags: Alternative Investments, Funded Ratio, Illinois Teachers’ Retirement System, Pension Funds, Private Equity, Real Assets

The stock market’s wacky volatility is taking a toll on investments, not to mention traders’ peace of mind: For most of this year, the CBOE Volatility Index has been above 20, the level that signals abnormal fluctuation. The VIX hit 34 in mid-October and finished last week at 26.

But for options traders, such as the hedge funds that asset allocators hire, this presents an opportunity. Goldman Sachs has pinpointed a number of companies that it says likely will see their share prices jump when their earnings are released – and investors can profit by taking out calls on them. And Goldman also has focused on those it thinks will fall; so, traders should buy puts for these names.

While third-quarter earnings thus far are underwhelming overall, certain stocks should shine, Goldman argues in a research report. By the same token, others will flag. An added attraction is that, in this bear market, call options tend to be on the cheap side.

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“Looking ahead, we recommend buying calls or replacing stock positions with call options on stocks reporting earnings, as the broad decline in options prices has made volatility buying strategies attractive,” writes Vishal Vivek, head of Goldman’s derivatives research group.

As Vivek explains, “we look for names where implied moves are most underpriced heading into earnings. Our past studies have shown implied moves to be correlated with historical earnings-day moves.” In other words, the earnings announcements will propel some stock prices more than a little. Of course, a call is a bet that a stock will rise, and a put does just the opposite.

A quick sample of Goldman’s suggestions:

Call recommendation: Datadog. Goldman says this big data provider – it stores, organizes and analyzes vast volumes of information—is a long-term winner because, among other reasons, it is steadily gaining customers. Kash Rangan, a Goldman software analyst, “believes Datadog is poised to grow into a preeminent infrastructure software business,” the report notes.

Rangan’s earnings-per-share estimate for the quarter is 6% above the consensus figure and 15% above for the next four quarters. Datadog, which like many growing tech outfits, has run a lot of red ink, is slated to release its earnings on Tuesday. Its earnings were negative in the June-ending quarter but had turned positive for the two previous periods. Goldman suggests buying Datadog’s November 2022 $80 calls, recently offered at $7.20. The stock closed on Friday at $81, slightly above the option’s strike price, but it has been losing altitude. The bet is that it will rise with the earnings release.

Put recommendation: Sprouts Farmers Market. This supermarket chain in the Southwest and Southeast seeks to expand into the mid-Atlantic region and elsewhere. Sprouts has lagged in same-store sales versus peers, according to Goldman retail analyst Kate McShane. The Goldman report quotes her as concluding that costs are burgeoning to the detriment of the bottom line, due to “new stores, increased marketing, higher supply costs, incremental security measures at stores, and [rising] wages.”

Although earnings growth dipped in the June quarter, the stock has been on an uptrend since spring and now is priced at just below $30. McShane projects that EPS will be 4% lower than the consensus. Goldman says to buy November 2022 $28 puts, recently offered at $1.55. Obviously, the Wall Street firm suspects that the third-quarter results, to be released November 8, will disappoint.