Angela Miller-May, Chicago Teachers’ Pension Fund chief investment officer, told affiliate title Private Equity International that the $12.2 billion pension plans to “move a bit away from buyouts” and increase allocations to venture capital firms because of the sheer number of investment opportunities in the space globally.
The pension’s private equity portfolio is heavily invested in the buyout space and “shifting even a little bit will provide more diversification,” she said.
The pension has a 5 percent target allocation to private equity and had an actual allocation of 4 percent as of January this year, according to data from Private Equity International.
Buyouts accounts for 67 percent of the pension’s PE portfolio, while venture represents 27 percent, special situations is 4 percent, and distressed for control/mezzanine combined stand at about 2 percent, according to Chicago Teachers’ latest PE performance report prepared by Callan in June 2020.
The US makes up about two-thirds of Chicago Teachers’ geographic exposure in private equity, while Europe accounts for about 20 percent and Asia makes up the remainder.
In the venture space, Chicago Teachers is particularly interested in women-owned and minority-owned venture firms that are trying to gain access to capital and opportunities similar to established, mainstream firms.
“We’re following these entrepreneurs and asking ourselves: ‘What does it mean for venture capital and for the lower and mid-markets?’” Miller-May said. “We are completing due diligence and research and we want to make sure that if there are opportunities available that we are taking advantage of them.”
The CIO and her nine-person investment team want to gain the capacity for investing with venture funds directly on their own, and not just through funds of funds, she added.
“Our overall goal is to capture the growth and outperformance in private equity by maintaining a diversified exposure to investments that are reasonably valued with competitive fees and terms,” Miller-May said.
Miller-May noted that PE has been one of the pension’s top performers. Since inception to the end of February, PE delivered returns of 18.5 percent net of fees. For the most recent five-year period, private equity returned 12.7 percent for the pension.
“We are pleased with the long-term performance of private equity in the Chicago Teachers portfolio, and as part of a future asset allocation review we would consider increasing the 5 percent target allocation,” she said.
Importance of diversity
The pension is also vigorously pursuing a commitment to diversity and inclusion. Under Miller-May’s leadership, the pension has increased its investment of assets in managers owned by minorities, women and persons with disabilities from 33 percent to 48 percent of its overall portfolio.
While Chicago Teachers does not have a target allocation to invest with women-owned and minority-owned firms, Miller-May noted that Illinois legislators have led the way in their commitment to diversity.
“They are very serious about it here in Illinois,” she said. “There’s a 20 percent aspirational target in our pension code, which we follow, and it trickles down from the legislators to our trustees, our organisation, our members and our staff.”
She added, “Diversity and inclusion is driven by our members. They want to see their money invested by people that are reflective of them.”