Illinois Police Fund Announces Search for Active Bank Loan Strategy Managers

The Illinois Police Officers’ Pension Investment Fund has announced it is soliciting a request for proposals for active managers of its bank loan strategy as it seeks to increase investments in the asset class. The IPOPIF, created in 2019, is a public pension investment fund managing the assets of 357 downstate and suburban Illinois police pension funds.

The IPOPIF currently has $9.4 billion in assets under passive management, and all public strategies are passively managed, with no allocation to bank loans. The pension fund plans to eventually allocate 3%, or about $300 million, to the bank loans asset class via an active manager, the funding for which will come from passive exposure to high-yield credit investments. The fund currently allocates 10% to high-yield debt but has a long-term strategic target of 3%, or approximately $300 million.

The IPOPIF seeks investments in separately managed accounts, commingled funds, mutual funds, ETFs and other similar vehicles. The fund will accept limited exposure to CLO and high-yield debt but will not accept hybrid strategies such as a 50/50 bank loan and high-yield portfolio or any combination of credit securities, according to the RFP.

The IPOPIF RFP states that the number of managers and the size of allocations will be determined as part of the search process. Individual allocations are expected to be at least $150 million. The pension fund also wants to include emerging managers (managers with a portfolio of at least $10 million but less than $10 billion), women, veteran, minority and disadvantaged managers in the search process. Candidate firms will be screened by several criteria, including:

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Firm background, experience and reputation;
Investment philosophy;
Performance, consistency of performance and risk factors relative to benchmarks;
Size of candidate firms’ fees;
Portfolio management and client services;
Corporate, environmental, social capital, human capital, business models and innovation factors; and
How candidate firms approach, manage and reduce cybersecurity risk.

The RFP was posted on September 18. More information is available on the pension fund’s web site.

Tags: Illinois, Illinois Police Officers’ Pension Investment Fund, IPOPIF

The director of investment management said the definition of covered technology is not as broad as many fear, but that the SEC is taking comments on the proposal’s scope seriously.

Members of both parties criticized the scope of the Securities and Exchange Commission’s proposal on artificial intelligence technology and conflicts of interest in the financial services sector at a Congressional hearing Tuesday.

The proposal would require registered investment advisers to eliminate conflicts of interest in their use of predictive AI technology. Advisers are typically only required to mitigate and disclose conflicts, rather than eliminate them entirely.

The hearing was held by the Capital Markets Subcommittee of the House Committee on Financial Services, with testimony from William Birdthistle, director of the SEC’s division of investment management. Most of the criticism levelled at Birdthistle by policymakers was focused on the scope of the proposal, which opponents in the investment industry have previously said has a “lack of discernible boundaries” concerning which technologies are applicable.

Representative Ann Wagner, R-Missouri, the chair of the subcommittee, said the proposal is a “one-size-fits-all” approach and will “lead to a decline in retail investor participation” in securities markets.

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Representative Wiley Nickel, D-North Carolina, also expressed concern about the breadth of the proposal. He said “the proposal is very broad” and will limit the market of financial advisers for retail investors. Nickel also suggested that concerns about artificial intelligence should already be covered by SEC Regulation Best Interest, and a new proposal should not be necessary.

In many instances, Birdthistle said the scope of the proposal is something being considered closely during the public comment period, which closes on October 10, and that the Representatives’ concerns were well taken.

Birdthistle explained that the “scope of the rule is restricted to machine learning, AI, predictive data analytics […] that puts [the adviser’s] interest ahead of investors,” and that this “cabins in” the scope of the proposal.

The technologies covered by the proposal, as described in the SEC’s proposal, would include any “analytical, technological, or computational functions, algorithms, models, correlation matrices, or similar methods or processes that optimize for, predict, guide, forecast, or direct investment-related behaviors or outcomes of an investor.”

Though Birdthistle indicated the rule is not as sweeping as many of its critics fear, or at least is not intended to be, he repeatedly insisted that reviewing the scope of the proposal and comments that remark upon it are key priorities for the SEC as it prepares to finalize the rule.

At a separate hearing last week held by the Senate Committee on Banking, Housing and Urban Affairs, Senator Mike Rounds, R-South Dakota, described the proposal as a “restrictive regulatory regime that will govern any analytics tool and is inconsistent with decades of legal and commission precedent regarding the handling of conflicts of interest.”

Tags: AI, Artificial Intelligence, SEC