Teachers’ Retirement System of the State of Illinois increased its emerging manager program with an eye towards increasing diversity, equity and inclusion within its investment program, the system said in a press release this week.
The pension plans to take steps to improve its ability to measure investment managers’ diversity in the overall fund, too.
The emerging manager program’s size will increase from $750 million to $1 billion. It is composed of 17 relationships with a total commitment of $724 million.
According to a document obtained by Buyouts, the program’s market value as of September 30 was $369.2 million. The private equity chunk of that was valued at $186.7 million.
The program’s roster of private equity managers included ICV Partners, LiveOak Venture Partners, OceanSound Partners, Palladium Equity Partners, StarVest Partners, Stellex Capital Management and Sunstone Partners. The program takes up 0.7 percent of the pension’s total portfolio, valued at $53.5 billion at the end of the third quarter. The pension’s private equity portfolio was valued at $6.6 billion.
The press release said that in the last five years, total assets across the full fund managed by minority/women-owned business enterprises (MWBEs) increased by almost 18 percent, which was the catalyst for the boost to the emerging manager program.
Across asset classes, Illinois Teachers has commitments of $12.6 billion to these businesses, making up 23.4 percent of its portfolio.
A presentation delivered to the board Wednesday provided more details. Since 2005, the pension committed about $3.44 billion overall to MBWE firms operating in the private markets. Of that amount, $1.27 billion went to African American-owned firms, $1.1 billion to Hispanic-owned firms, $670 million to woman-owned firms and $389 million to firms owned by Asians or other ethnic groups.
In addition to increasing the size of its emerging manager program, the pension plans to send out a request for proposals seeking consulting services to help develop a “standardized measurement and evaluation tool for diversity, equity and inclusion opportunities” for the entire fund.
This will come with some challenges. The presentations said there is “currently no standardized diversity measurements that industry participants can use as a measuring tool for accountability.”
Moreover, Illinois Teachers’ current definition of what constitutes a diverse asset manager or firm “excludes a large group of important participants” by not taking into account firms’ total workforces. The pension must “move beyond firm ownership percentages and towards a more comprehensive assessment of diversity by also incorporating firm leadership and total workforce data,” the presentation said.
A new diversity measurement tool must expand the pool of managers from which it can source candidates, push a greater number of managers through the pipeline funnel, create more opportunities to hire diverse managers who are both developing and more established and build a way to reward asset managers that improve their diversity numbers over time.
The presentation called the current emerging manager pipeline “robust and growing.” However, it tends to be “overweight” to the “Asian/other” designation, while the greatest percentage of African-American ownership comes from the private asset classes, which include private equity, private credit and real estate.
According to the presentation, of the 382 managers in the emerging manager program’s pipeline, 111 are “Asian/other,” 74 are not MWBE, 59 are non-minority female-owned, 48 are Hispanic-owned and 35 are African American-owned.
In private equity, 29.8 percent of the managers in the pipeline are “Asian/other,” 11.5 percent are not MWBE, 17.3 percent are non-minority female, 16.3 percent are Hispanic, and 18.5 percent are African American.
Diversity and inclusion has become a hot-button issue in the private equity industry lately. Buyouts recently reported that a member of the Los Angeles City Employees’ Retirement System board called on staff and consultants to give minority-owned firms more opportunities.
Action Item: read more about Illinois Teachers’ emerging manager program here.