Asset AllocationJuly 27, 2022

Illinois Teachers' Plan Is Looking for EM Managers

The underfunded program wants a diversified portfolio that doesn’t underperform in bad times.

Reported by Larry Light

The Teachers’ Retirement System of the State of Illinois has embarked on a defensive strategy aimed at carefully boosting its low funded status of 46.1%. But it is looking for some ace asset managers that will deliver in emerging market equities.

As of the 2021 fiscal year, just 4.6% was allocated to EM, far below the 19% for U.S. stocks and the 10.6% in developed international equities. In the first nine months of the new fiscal year, through March 30, the plan posted a 4.2% return.

EM stocks haven’t done well lately. For the year as of last week, the MSCI EM index was down 19.6% and the S&P 500 was off 16.9%.

In a recent newsletter, the Illinois retirement program noted that “it would be unwise to implement an aggressive investment strategy that could lead to further declines in the ratio if markets underperform.” A better path, it went on, is “a diversified portfolio that is designed to make money in good economic times but safeguard assets when markets are more volatile.”

Between February and May, the program deployed $5.8 billion of new investment commitments.

TRS said it would evaluate EM manager candidates’ strategies, including such features as regional composition, style and market capitalization profile. The plan’s standards are wide-ranging. Its call for submissions states: “Broad emerging market equity strategies considered may be large or all capitalization. Country specific strategies, which may be large, mid, or all-capitalization also will be considered in this search.”

Consulting firm RVK will assess the candidates, with a proposal submission deadline of August 12.