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TRS approves a new 12 month tactical investment plan for its private equity portfolio

by Tom Carr

  • 28 Jun 2011
  • PE

The US public pension fund Teachers' Retirement System of the State of Illinois, which has USD 37.3 billion in total assets, approved the new tactical investment plan at its June 24th 2011 board meeting.  The plan calls for TRS to make new commitments to private equity of between USD 900 million and USD 1.4 billion over each of the next five years. The pension plan has been building up its allocation to private equity over the last few years; in 2009 it increased its allocation to the asset class from 8% of total assets to 10%, and its April 2011 board meeting saw this allocation increase further, from 10% to 12% of total assets. When discussing the reasons for increasing its allocation the pension fund points to private equity having delivered attractive returns since its inception and believes an increased allocation to the asset class provides the greatest risk-adjusted investment returns for its members. Its private equity portfolio returned 19% in the fiscal year 2010.

As a result of committing between USD 900 million and USD 1.4 billion to private equity in 2012, TRS expects its  allocation to private equity to increase, from 9.1% of total assets currently, to 11% in 2012, reaching its long-term target allocation of 12% over the following years. To reach these targets TRS will target a variety of fund types and expects to allocate 60% to 80% of new capital to buyout vehicles, 5% to 20% to venture capital and 10% to 25% to special situations funds, inclusive of distressed debt. It is also looking to expand its co-investment program, which was approved and started in 2010, at that time co-investments were expected to account for 10% of TRS’s annual private equity allocation. It currently holds two co-investments within its portfolio.

Preqin’s Investor Intelligence database shows that TRS target allocation to private equity is larger than that of the aggregate of US-based public pension funds that currently allocate capital to private equity. Investor Intelligence currently tracks 232 US-based public pension funds, with aggregate funds under management of over USD 2.9 trillion, which are actively investing in the private equity asset class. It also lists a further listed nine US-based public pension funds which are considering making a maiden commitment to the asset class. Of those currently investing in private equity the average target allocation is 7.6% of total assets, below TRS’ target of 12%. TRS also has a higher current allocation to private equity than the average of US-based pension funds that are active in the private equity market, which is 6.4% of total assets, compared to TRS’ 9.1% current allocation to private equity.

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