TRS said in a news release, the recommendation as outlined could cost the state of Illinois hundreds of millions of dollars, noting that over the short-term, in the down market, moving assets from separate funds into a consolidated entity creates the potential for significant market-related losses. In addition, TRS said the proposal fails to account at all for transition costs in calculating the “savings” associated with the move.
The news release pointed out that maintaining separate investment pools ensures greater diversification, promotes higher returns, and lowers overall investment risk, and separate pension boards increase accountability to their members. Consolidating the investment functions would completely remove any input into the investment decisionmaking process from active teachers and other public employees, decrease the input of annuitants, and increase the influence of elected officials and investment experts.
“The current structure of having three separate boards to oversee the portfolios of the five state pension systems is a prudent and reasonable approach to protecting the assets, which is even more important now during the unprecedented volatility in the global financial markets,” said TRS Executive Director Jon Bauman, in the news release.
The system said the consolidation would threaten further growth of its program to maintain a large stable of Emerging Managers — younger investment firms that are often women and minority-owned and are typically awarded investment amounts based on the scale of the overall portfolio.