Illinois Municipal pulls pledge to Oaktree infra after changes, turnover

  • Assets under management: $41.3 bln
  • Actual allocation to alternatives: 3.9 pct
  • Target allocation to alternatives: 7 pct
  • Whom to contact: Dhvani Shah, chief investment officer:
  • Why this is important: Public pensions sometimes pull tentative commitments after legal negotiations.

Illinois Municipal Retirement System pulled a $100 million commitment to Oaktree Capital Management’s Transportation Infrastructure Fund after changes in team and structure of the pool, the system said at its Aug. 23 meeting.

Beginning in 2015 Oaktree had been marketing a pool called Transportation and Energy Infrastructure Fund, targeting $3 billion with a $4 billion hard cap.

The firm decided to split the fund in two — one pursuing transportation-infrastructure assets and one for energy infrastructure, Buyouts reported in June 2017.

How much each fund targeted is unclear. Oaktree decided not to raise the commingled energy pool, the firm said on an earnings call in July.

Oaktree raised more than $1 billion for the transport-infrastructure fund, its Q2 earnings report shows.

Several executives who were associated with Oaktree’s infrastructure efforts are no longer on the team. These include ex-Oaktree Managing Directors Andrew Nevin and Scott Litman.

Senior executives focusing on transportation infrastructure include Managing Directors and Co-Portfolio Managers Josh Connor and Emmett McCann.

“There have been significant changes to the team in terms of senior-level turnover and to the strategy in terms of investing a fund solely focused on transportation investments,” Dhvani Shah, chief investment officer at Illinois Municipal, said about the system’s decision to withdraw its commitment.

The Oaktree commitment was part of Illinois Municipal’s $1.6 billion alternatives portfolio, which includes PE, absolute returns, agriculture, timberland and unlisted infrastructure funds, pension documents said.

A spokeswoman for Oaktree declined to comment.

Other withdrawals

Oaktree wasn’t the only GP Illinois Municipal put on the chopping block. The system pulled commitments of $150 million to Heitman’s real estate fund and 50 million euros ($58.5 million) to CBRE’s Pan-European fund.

The board approved the commitment to Heitman’s America real estate trust fund in November 2017. The fund had raised $124 million as on June 27, its Form D said.

“Unfavorable legal terms of the investment” was the reason Illinois Municipal withdrew its commitment, Shah said.

Despite prior relationships with other CBRE funds, Illinois Municipal decided to withdraw its commitment to CBRE’s Pan-European core fund, which it had approved in 2016.

The fund was not in the pension system’s best interest, “due to the general partner’s ability to amend the governing documents without IMRF’s consent,” Shah said.

The Heitman and CBRE commitments were part of Illinois Municipal’s $2.3 billion real estate portfolio.

Allocations to alternatives, RE

Alternatives had a 3.9 percent allocation compared with its target of 7 percent as of June 30, 2018, documents said.

Illinois Municipal’s alternatives portfolio returned 11.11 percent over one year, 8.61 percent over 3 years and 9.28 percent over 5 years for the period ended June 30, 2018.

Real estate had an allocation of 5.8 percent compared to its target of 9 percent as of June 30, 2018, pension documents said.

Illinois Municipal’s real estate returned 8.73 percent over one year, 9.93 percent over 3 years and 10.62 percent over 5 years for the period ended June 30, 2018.

Heitman and CBRE did not return requests for comment.

Chris Witkowsky contributed to this report.

Action Item: Read more on Illinois Municipal’s investments here