Illinois Teachers’ Retirement System, 2019: Private Equity Performance

Cinda Klickna, Trustee of the State of Illinois Teacher Retirement System (TRS), prepared to vote in June 2019 on a proposed $ 75 million investment in a new fund managed by First Light Capital (FLC), a company of medium-sized acquisitions. . Illinois had been under financial pressure for some time, and TRS, the largest state pension in the state, was underfunded. In 2012, the TRS board of directors initiated a plan to strategically increase its allocation to private equity (PE). By 2018, the target allocation for company pensions had reached 15%, well above the 10% average for other public pensions. By increasing the PE, an attempt was made to close the funding gap that was made necessary by insufficient government funding and the generally low interest rate environment. The strategy had not gone unnoticed, and many now openly question the increased risk and cost of these investments. In light of this in-depth review, Klickna considered it important that investments in pension PE produce satisfactory returns by investing in funds with higher quartile returns and public market equivalents (PMEs) greater than one. This case is suitable for courses that cover physical education investments, such as Examples include those that generally cover venture capital or PE topics, or asset management courses that include alternative assets. Introduces students to some of the commonly used physical education performance metrics and challenges associated with measuring the performance of an asset class without liquid. Students are introduced to the Global Investment Performance Standards (GIPS) and their purposes and limitations when evaluating performance. Students are asked to calculate gross and net internal returns (SIIRR), DPI, RVPI, TVPI, and PME for the same outstanding investment in FLC Fund IV and compare how performance is evaluated against these metrics. The case also looks at the pursuit of greater disclosure in the PE industry as its influence grows and public investors want to learn more about its performance.

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