(The Center Square) – In an effort to expand opportunities for women and minorities in the financial sector, Illinois’ largest pension fund plans to expand diversity requirements for their investing. A financial analyst says the addition of a non-performance measure could end up costing taxpayers more.
At the board’s Aug. 27 meeting, Teachers Retirement System of Illinois officials reported to the board about the expansion of the system’s Emerging Managers Program, which identifies minority money managers and nurtures their growth using a small portion of the fund’s $51.2 billion investment portfolio. Common in other state pension funds, the program’s goal is to grow the resumes of minority money managers.
In addition, Pension and Investment reported the TRS investment staff would begin to consider diversity and inclusion when evaluating managers in the retirement system’s private equity, real estate and diversifying strategies.
That detail is a concern for Joshua Scharf, senior fellow in fiscal policy for the Independence Institute in Colorado.
“There’s nothing the matter with casting the net wider to make sure that you’re surveying as many potential money managers as you can, that’s going to increase the likelihood of finding good ones,” he said. “The problem is when you start making choices other than performance.”
Scharf said any evidence that superior money managers getting passed over for others who may meet diversity standards could run afoul of the pension board’s fiduciary duty to maximize returns and minimize risks for pensioners’ retirement funds.
“When you start taking into account factors other than the money manager’s returns or their minimization of risk, then you run the risk of having lower returns or higher risks associated with those investments,” he said.
Officials with TRS were not immediately available to comment Thursday.
Since Illinois lawmakers don’t follow actuarial guidelines when contributing tax dollars into the state’s five public pension funds, returns on investment don’t immediately mean a higher tab in the following year. It means the estimated amount of unfunded liability increases, reflected in the “funded ratio” of the pension accounts. TRS’ announced a 40.6 funded ratio for fiscal year 2019. Illinois taxpayers paid $8.9 billion into the state’s five pension funds in the current budget, which accounts for around 20% of the entire state budget.
In late July, the TRS board placed former director Richard Ingram on administrative leave for “performance issues” and announced a week later that he’d resigned.
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September 17, 2020 at 03:19PM