Chicago Teachers' to hire first PE consultant

The $9.6bn Chicago Teachers' Pension Fund plans to hire its first dedicated private equity consultant to assist in manager selection.

Against a backdrop of intense political and public scrutiny, the $9.6 billion Chicago Teachers' Pension Fund is in the process of selecting its first-ever consultant to advise on the selection of private equity managers, part of a wider move aimed at boosting portfolio returns and strengthening its beleaguered balance sheet.

Contenders for the consulting post include PCG Asset Management and Cliffwater, according to CTPF officials.
“Our first private equity investment was in 1996, but this is the first time we will be using a specialist, rather than a generalist consultant to help in the process and offer us an objective viewpoint,” CTPF Director of Investments Carmen Heredia-Lopez told PEO.

There is plenty of room to grow alternative-investment exposure at CTPF. Only 2.8 percent of the pension system’s assets, or some $237 million, is targeted at private equity. That figure could climb as the cash-strapped system seeks higher returns. The pension has no hedge fund investments.

Formerly of JPMorgan Investment Management, Heredia-Lopez was hired in August to oversee external managers for the pension system, including private equity groups. She reports to CTPF’s executive director Kevin Huber, who faces intense pressure to reassure politicians, the public and his union membership that the pension system remains on solid fiscal ground.

That is a difficult proposition given that, last year, CTPF’s overall investment portfolio declined in value by $3.1 billion, a drop of 22.4 percent.

All investments involve risk. The Chicago Teachers' Pension is not in the business of taking risks – we are in the business of managing risks.

Kevin Huber

The retirement system’s private equity portfolio fared worse with a 24.7 percent loss. Despite the losses in fiscal 2009, CTPF’s private equity portfolio has managed a five-year return of 10.4 percent. Returns were 19.7 percent in 2008 for the private equity portfolio.

Some of the larger private equity plays in the CTPF portfolio include HarbourVest Partners VI Buyout Partnership, to which the pension committed $32 million, HarbourVest VI Partnership Fund, with a $21.9 million pledge and the Mesirow Partnership Fund II, for a $29.5 million commitment. Smaller stakes include Pantheon, Adams Street, Brinson Partnership and ICV Partnership funds.

On several occasions of late, Chicago Mayor Richard Daley has described local pension funds as woefully underfunded. The mayor has gone so far as to say in public that it would be easier to restructure them in bankruptcy.

Daley’s remarks followed in the wake of a series of critical articles by the Chicago Tribune that openly questioned the solvency of local pension funds. A 17 November article specifically focused on private equity, citing its lack of transparency as a cause of concern.

The following day, CTPF’s executive director Kevin Huber fired off a letter to members. “All investments involve risk. The Chicago Teachers' Pension is not in the business of taking risks – we are in the business of managing risks,” he wrote in that letter.