Please check your spam or junk folder just in case. Need help signing in? Issues with signing in? Click here. Don't have an account? Register now. Private equity has to outperform all other strategies for us to realise our assumed rate of return of 7. Based on capital market assumptions, other asset classes will help us realise 6. The private equity strategy at Illinois has evolved since inception in In , we established fund-of-one relationships with Abbott and Pantheon to allocate capital in private equity.
When I joined in December , I initiated the direct programme to invest in buyouts, venture capital, special situations and private credit strategies. First we committed only to US-focused funds, then added a bit of Europe and Asia in our portfolio. Last year we added another two separate managed accounts with HarbourVest and Goldman Sachs to further expand our portfolio.
Our portfolio and team construction had to consider our governance structure. We have five or six investment committee meetings every year and take back each recommendation to them for approval. In addition, we have a 15 percent minority-manager allocation, according to the Illinois Pension Code.
On the private equity fund side there are pre-marketing and fundraising cycles. We are careful in mapping out our work, conducting due diligence and preparing recommendations according to those investment committee dates. But our SMAs are always active and can deploy capital to the best opportunities. There is no limit set on how much they can allocate to each strategy. We might all commit to the same fund, but that is not a problem, except that our direct commitments will typically be of a higher amount.
Through our direct programme we are not trying to outperform SMAs. We are trying to outperform. We are selective and have only about 23 GPs in our direct investment programme. The GP knows we are a long-term investor with strong organisational governance. Our funding status is strong, our board is ex-officio, they are elected for a five-year term and we are consistent.
Besides, we have a deal team approach. In the direct investment programme, of the four investment professionals, at least two staff members know the GP. That alleviates GP concerns of having to re-establish relationships with the pension system in case their contact person leaves.
More staff know all the GPs, so we are reducing that risk. We also have an open-door policy and take meetings when requested. Yet, it is not only about the meetings — we know the landscape well and are cognisant of the changes in it. We also have really high-quality people running the plan. Those are the ingredients for long-term success. It fluctuates from year to year. Four trustees of the eight-member board are elected by the nearly 3, employers, Collins says.
Three trustees are elected by the , working active members of the pension plan and one by its , retirees. Over the years, the trustees—and I have been here 29 years—really keep in mind what is in the best interest of the pension plan when making decisions. The pension plan team includes Callan as consultant and Northern Trust as plan custodian. The Illinois state legislature granted IMRF statutory authority to set employer contribution rates based on actuarial best practices, and the pension system has the authority to enforce payment if necessary.
Having the leverage of this enforcement power has put IMRF in a very strong position whereby we have almost never had to use our intercept authority. It has been many years since either of those governmental bodies has paid anywhere approaching the required minimum. By comparison with the other two governmental plans, the Illinois Municipal Retirement Plan uses actuarial guidelines and has the guardrail of being able to enforce payment, Collins notes.
They all realize it is a real-time obligation, and they pay their obligations like clockwork. It has been engrained into their DNA over the past 20 to 30 years. We have always had actuarially required funding. This allows us to be a more conservative long-term investor and keeps us out of short-term cash flow stress.
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The second differentiator is our portfolio construction itself. We are thoughtful about what we add to our portfolio, so that we have time and capital for the investment managers in our portfolio. This approach differentiates us because most institutional private markets portfolios are much larger in terms of number of managers. Trusted Insight: With that maturation, there is a push into different investment vehicles outside of the typical ten-year lock up, two-and-twenty model.
Is that a fundamental shift in private markets away from two-and-twenty and toward a more tailored approach? Or are these just more tools in the toolbox? Dhvani Shah: The institutional investor space has many different investment models. For the larger investors, this new trend in vehicles outside of the ten-year lock up and two-and-twenty model is another tool in the toolbox.
I do believe that the longer lock up periods and the carried interest model may pose an alignment of interest issue. From my perspective, the jury is out whether the new vehicles solve more problems than they create. Dhvani Shah: In your typical private equity fund, with a European waterfall, you actually have a set of mechanisms for the carried interest calculations. But when it's a longer time period, such as a permanent vehicle, how is the carried interest calculated on an open-ended fund?
Is it still based on divestments or on valuations over a time period? If it is the latter, the investor is still invested in the asset while the General Partner is getting carried interest. Whether this alignment of interest is strong or not, really depends on the details of those vehicles. Trusted Insight: You have only 40 managers on the private side. To what degree are you shifting away from some of those more monolithic, giant managers toward either a new manager or a niche strategy?
Dhvani Shah: To put our portfolio into perspective, we do have two evergreen separate accounts, where it's a manager program and then the remaining investments are made directly by staff, which is the portfolio of about 40 managers. Our evergreen separate account portfolios give us this broad exposure, and then what we do directly needs to be more opportunistic.
In our direct funds portfolio, we have venture capital, buyout, growth, credit and special situations. And yes, to date, we actually do not have any direct investments in the mega buyout fund. Is it a function of your AUM and average check size?
Is it something else? Dhvani Shah: We found that we already had exposure to the larger funds through our evergreen separate accounts and we decided to focus on the smaller and opportunistic funds. Our strategy is also related to the check size that we write versus the size of the mega funds. We would prefer to have an advisory board seat. We would like to have a voice at the table. So the size of our equity might not be large enough to get that seat at the table, which would prevent us from investing in those mega buyout funds.
How has your mindset, your approach toward the portfolio and markets evolved over that time? Dhvani Shah: There are two major areas of difference. First one is that we now have a direct funds portfolio. Before I joined, there were no direct private equity fund investments. Second is the change in market landscape. There's always something new, whether it's new strategies or new vehicles.
Five years ago, you would not have thought about some of these permanent fund vehicles in a private markets. From the market landscape, some of the terms have changed to be more focused on transparency in the past few years. The market is definitely adapting to what it takes to stay relevant. The private markets landscape has become more mainstream.
I am even seeing more analytical tools than a couple decades ago. We were always doing your own cash flow modeling and attribution analysis, but now there are definitely more tools for due diligence as well as monitoring. Trusted Insight: When there's rapid evolution of a market like you described, both long-term trends and fads will develop.
How are you differentiating between them? Dhvani Shah: I determine whether something is a fad or a long-term trend by evaluating the merits of the strategy and seeing if it stacks up to the fundamentals of investing but, only time will tell. Having investment conviction is important to be able to differentiate fad from trend. Trusted Insight: The number and sophistication of capital allocators continues to grow. What challenges does that present to you or more broadly, to chief investment officers within the industry?
Dhvani Shah: In this space, there's always this question: is there too much capital chasing too few good deals? I think that's always been part of the evaluation of the strategy. I don't know if that is a new risk. I do think that the one thing that has changed over the past couple of decades is alignment of interest between Limited Partners LP. Because I worked at a financial institution, I could compare the difference in how it felt. Only after I was at BofA, I realized although I loved my experience and skill set there, to your point, I wasn't doing something that had a direct impact on something important.
At an endowment fund, it was the operating budget, and I was helping the academic institution. I realized that I do like the idea of having a mission. Within the pension world, I like that my work is important for retirement security. I think retirement security is critical to our society, especially with individuals living longer.
Pension plans are an important part of retirement security, and I like that aspect of my job. There is a burden of operating in a pension plan investment program, but I think that's true in any setting. I just recognize what our constraints are, and I will adapt accordingly. For example, we have a small team, but that's fine. It can actually help attract and retain talented staff because they have an opportunity to work on many different aspects of a very large portfolio. I think the small team part means that everybody gets a lot of work; it actually helps you retain staff.
But, we have to plan. We plan our investment committee meetings in advance so that we can do everything we set-out to do. To summarize my answer, I think there are burdens or challenges, but the overall mission makes it worthwhile. Trusted Insight: Tell me a little bit about your investment team. What is the structure? You said it was a small team. What's the team dynamic like? How might it differ from peer institutions? A small team I would assume you're more generalists than specialists; correct me if I'm wrong.
Dhvani Shah: First, I will describe the structure when I walked in the door four-and-a-half years ago. All of the titles were investment analysts, reporting to an investment manager. By function, some folks focused on certain asset classes over others, but they had generalist titles. In June , I restructured the department, and we did add three junior positions called associate investment analyst.
We created a layer where certain analysts, three positions, turned into investment officers, and that investment manager title also became an officer. Today, this is how it looks: The investment team fully staffed is a team of 14 and is organized by key function areas: private markets, public markets, emerging manager program and total portfolio, and operations.
Public Markets and Private Markets officers, each have two analysts and one associate analyst reporting to them, an associate analyst reports to the Investment Officer for Emerging Manager and Total Portfolio. Two administrative professionals report to the Investment Officer for Operations. The department is structured such that there is opportunity for growth and advancement. An associate analyst can move up two levels under the existing structure. By creating that growth opportunity, you can attract and retain staff.
How is it different than other institutions? I think a lot of institutions have it organized by function area. But because we are a team of 14 investment professionals, it is just large enough to specialize in something, yet small enough that you can be part of broader projects. The annual asset allocation and the tri-annual asset liability study are two examples of broad projects where everyone is involved.
I really modeled the structure from my experience at Northwestern, where I had a chance to work on so many different things. That was great for Northwestern, but it was also great for my professional development not just being pigeonholed to one thing. Trusted Insight: These are tough markets to navigate both on the public and private side. To what degree are you concerned about or reacting to the near-term market volatility?
Dhvani Shah: has definitely been a tough year in terms of performance, so what are we doing? Last year, real estate investments were one of our major efforts based on being under target in terms of asset allocation and attractive market opportunity. We committed to real estate to adjust to the environment with modest return expectations. You're seeing increased volatility in the equity markets. It helps to have a more diversified portfolio.
Trusted Insight: When you're approaching an investment on the private side what primary characteristics are you looking for in a manager and how does that differ when you're approaching other public markets? Dhvani Shah: For private markets, I am looking for skill, expertise in a given strategy and competitive terms—we will negotiate the LPA. For public markets, I am looking for skill, particularly the ability to consistently perform and not deviate from target strategy and competitive terms.
All investments are evaluated in terms of people, performance, price and process. Or are there any? Dhvani Shah: Sustained growth, that's a tough one. Some of our activities have been in the real estate area where the current income component provides downside protection. We like that. We have invested in private debt funds and real estate debt funds. Trusted Insight: What is the biggest challenge of pension investing that is unique to pensions? Dhvani Shah: Defined benefit pension plans are not the favorite due to the large unfunded pension liabilities across various states.
Short-term returns and the impact it has on employer contribution rates and the pension fund liabilities add to the unfavorable image of defined benefit pension plans. I think a challenge unique to pensions is planning for that long-term performance, while being able to sustain the short-term volatility in the returns. Trusted Insight: What trends have you identified in your time at public pensions? Dhvani Shah: Consistent with this challenge of the returns and the volatility, I do see a trend toward more risk measurement and risk management efforts.
I see a trend toward evaluating alternative models for asset allocations. Many institutional investors utilize mean variance optimization models, and there has been more interest in multi-factor based investment strategies. Trusted Insight: One of the goals that Trusted Insight has is to foster the next generation of chief investment officers.
Each CIO emphasizes the importance of culture, process, and governance to support their fund objectives and take advantage of a long time horizon. The conversation covers both public and private markets and a range of traditional and alternative strategies. In addition, Mr.
Stern School of Business. Kim Y. While at Carnegie, she has also served as co-chief investment officer and director of investments, with responsibility for private equity. Previously, Ms. In addition, Ms. Learn More. It includes your annual increase, your pension amount, current beneficiary information and information about your R tax form. Access the document from the "Display Annual Documents" link under the "Documents" section of your Employer Access account.
If you have questions about your employer's rate notice, contact IMRF at She is one of 24 public pension CIOs included on this year's list of the most influential chief investment officers. CIOs on this list have "distinguished themselves in navigating a changing, and often perilous, market landscape," according to CIO Magazine.
Their ability to collaborate also continues to play an important role. View the Power list here. John Krupa Communications Officer jkrupa imrf. Member Access. Home Wages and Contributions. Tiers and Plans.