Illinois Pension Said to Shop $500 Million in Fund Stakes

Teachers’ Retirement System of the State of Illinois is offering about $500 million in private-equity fund stakes for sale, two people with knowledge of the matter said.

The portfolio is made up mostly of U.S. large-capitalization buyout fund stakes, including some managed by TPG Capital, Warburg Pincus LLC and Elevation Partners, said the people, who asked not to be identified because the information isn’t public. The $500 million estimate includes net asset value and unfunded commitments.

The pension system said in May that it hired Park Hill, Cogent Partners and UBS AG to advise on secondary deals in its private equity and real estate portfolios. Park Hill Group, the placement-agent unit of New York-based Blackstone Group LP, is managing the sales process. Lawrence Thuet, head of the secondary advisory group at Park Hill, declined to comment on the offering. David Urbanek, a spokesman for the Springfield, Illinois-based retirement system, said officials were unavailable.

Pension plans are using the secondary market to cut down on the number of managers they use and their investments in certain strategies. The Florida State Board of Administration recently sold positions in 18 private-equity funds from 2004 and earlier, said John Kuczwanski, a spokesman. Other sellers have included the State of Wisconsin Investment Board, California Public Employees’ Retirement System and New York City’s police, fire civil-employee pension plans.

Funding Shortfall

The Illinois plan faces a funding shortfall that could make it difficult to pay benefits to future retirees. Even as investments produced a 13 percent return, the plan’s unfunded liability rose 7 percent to $55.7 billion in the fiscal year ended June 30. Its funded ratio was 41 percent as calculated under state law.

A Moody’s Investors Service study in June found that the state of Illinois had the highest ratio of retiree obligations to revenue in the U.S., at 241 percent.

The pension system “cannot invest its way out of the funding hole we are in,” Executive Director Dick Ingram said in an Oct. 25 statement. “The increase in the system’s unfunded liability, even with good investment results, is another wake-up call to state officials and our members that TRS long-term finances continue to head in the wrong direction.”

State Contribution

The legally required state contribution is “far short” of what is needed to ensure the system’s sustainability, Ingram said in the statement. The board of trustees approved a $3.4 billion contribution for fiscal 2015, compared with the $5.3 billion needed to prevent an increase in unfunded liabilities, he said.

Private equity accounted for 11.9 percent of the total portfolio as of June 30. Illinois TRS managed $40.97 billion in assets at the end of September.