IL Teachers' Retirement System to Enter Hedge Fund Arena

January 26, 2007 ( - The Illinois Teachers' Retirement System plans to throw some of its assets into hedge funds as part of its investment strategy shuffle meant to boost returns and dig the system out of a funding shortfall, according to the Chicago Tribune.

According to the newspaper, the Teachers’ Retirement System has not picked its hedge fund managers, but has already said it would invest in hedge funds over one to three years and limit its exposure to 2.5%.

The Tribune reports that the teachers’ system is 62% funded and was forced to liquidate $1.2 billion in assets last year to pay benefits rather than reinvesting the proceeds.

The system, still mired in a kickback scandal involving one of its former trustees (See  Former Illinois TRS Trustee Pleads Guilty to Kickback Charges   – decided to enter the hedge fund arena in December. At the same time, the system decided to decrease its exposure to U.S. stocks and boost its investment in foreign stocks and bonds.

Even if hedge fund investments prove lucrative, making up the shortfall of the system will be difficult, as the Illinois pension system was ranked the most underfunded system in the U.S. (See  NASRA: Public Systems Funding Ratio Drops in 2005 ).