Chicago Teachers’ plans ‘conservative pacing’ for investing during the crisis

CTPF’s chief investment officer says interruptions to pension contributions is a big concern amid ongoing market volatility.

Chicago Teachers’ Pension Fund committed $25 million to a new Macquarie infrastructure fund last week in line with a conservative but continuing investment strategy amid ongoing market volatility, its chief investment officer told Infrastructure Investor.

See all Infrastructure Investor’s coverage of coronavirus and its impact here.

At a CTPF board meeting, held on a video conference call, trustees approved a re-up commitment to Macquarie Infrastructure Partners V as part of an asset allocation policy being deployed that chief investment officer Angela Miller-May calls “conservative pacing.” She said Macquarie Infrastructure and Real Asset’s latest fundraise was around the “same strategy” as previous CTPF commitments to MIP II and the Macquarie European Infrastructure Fund III, so due diligence was easier to manage.

According to a regulatory filing, MIP V launched in January, a year after MIRA closed the fund’s predecessor on $5 billion, exceeding a $3.5 billion target. MIP IV targeted 10-12 percent net returns and a yield of 4-6 percent. Sectors the fund targeted include utilities, renewables, transportation, midstream, communications and waste management. MIRA has set MIP V’s fundraising target at $5 billion.

A spokesman for MIRA declined to comment for this story.

Miller-May told Infrastructure Investor that CTPF is “currently getting as many distributions as we’ve been able to put capital to work”, so the pension fund will continue with an investment strategy to gradually fill under-allocated targets to the private equity, real estate and infrastructure asset classes.

“The minute that slows down, as we expect it will, we will of course re-evaluate, but everything seems to be on track right now,” Miller-May said.

If the downturn drags on, Miller-May said interruptions to CTPF contributions would be “what really impacts the fund”. CTPF’s two main sources of contributions come from the city school district, Chicago Public Schools, and a portion of state property taxes.

CTPF, which was 52.1 percent short of its total funding last year, has sought to increase its allocation to alternatives. In 2019, the pension fund’s alternatives allocation reached 16 percent, with 2.1 percent allocated to infrastructure.

Miller-May said these were “defensive” and “diversifying” moves which should put CTPF “in a position where we can participate in the recovery when it comes – hopefully soon”.

With ongoing economic uncertainty, Miller-May said its hard to predict what the public markets investment horizon will look like over the next year, so LPs may “stick to their pacing studies and asset allocation policies” for private markets. “Volatility in public markets is rapidly increasing on a daily basis. I think there needs to be some stabilisation,” she explained.

However, if LPs entered this period of market volatility over-allocated to private markets, they “may pull back or delay commitments”, Miller-May said.

CTPF isn’t alone in its keep-calm-and-carry-on investment strategy. Nearly two-thirds of 80 institutional investors and 120 fund managers surveyed by sister publication Private Equity International, said they weren’t planning on reducing their planned average commitment to private equity strategies this year. Forty-five percent said they weren’t planning to reduce their new private equity fund commitments either.