There are a lot of investments that Angela Miller-May, chief investment officer at the Chicago Teachers’ Pension Fund, wishes her staff could make. The first would be to raise the $10.6 billion pension fund’s 16 percent allocation to alternative assets, which includes $235 million committed to infrastructure.

But Miller-May is short on options. The CTPF, a 125-year-old retirement system serving more than 66,000 schoolteachers in the Windy City, is desperately underfunded, which limits the strategy its investment staff can pursue. Currently, the pension fund is 52.1 percent short of its total funding. “I wish [infrastructure] could be more than 2 percent right now,” she says. “The things we can do, we do in smaller increments, and it just takes longer to overcome the bad years.”

Those bad years include more than two decades of what Miller-May describes as political mismanagement of state contributions that were once set aside for the CTPF, not to mention the aftermath of the 2008 crash.

From 1995 to 2016, when Illinois state lawmakers revised a law that cut a property tax that had funded the pension, Miller-May says it lost out on more than $2 billion in contributions. The only contributions it received during that period were from teachers themselves. “That’s money we could have been investing and never got,” she explains. “Funds that are fully funded can invest in different ways than we can.”

And yet Miller-May has still managed to lead an investment team that puts money to work differently to others in the industry. The CTPF has been one of the most vocal US pension funds in calling for diversity in finance. Forty-two percent of its assets are committed to fund managers that can be classified as minority, women and disadvantaged business enterprises (MWDBEs).

According to Miller-May, the trustees and staff go into due diligence prepared to ask fund managers tough and detailed questions about what they are doing to be inclusive of people from all walks of life, including people from ethnic minorities and people with disabilities.

It is easy to understand the CTPF’s moral reasons for pursuing diversity. However, the pension’s underfunding raises questions about whether it is fiscally responsible to place money with MWDBE firms – many of which are new to fund management – when every penny counts.

“Being underfunded makes us look at creative ways,” says Miller-May. “Not risky ways, but different ways that we can operate within our asset allocation policy and still be productive. We probably invest in diversity and with diverse managers, not in spite of being underfunded, but because we’re underfunded.”

As she and her staff of nine attempt to right the ship at the CTPF, Miller-May says she is convinced that being a good fiduciary and being representative of Chicago’s teachers go hand-in-hand.

Miller-May’s steady demeanour and quiet voice are in stark contrast to her unmissable bright red hair. She says her inspiration in life is her grandmother, the “driver of the family”, who died in 2014, four years after Miller-May joined the CTPF as an analyst.

She recalls leaning on her grandmother’s advice one year later, when she asked her boss, executive director Chuck Burbridge, if she could lead the pension’s investment strategy, after the director of investments position became vacant. She says self-doubt had held her back from asking to fill a position that had become available two years earlier, before repeating the encouragement her grandmother often gave: “You have to believe in yourself when others don’t.”

According to Burbridge, what convinced him to give Miller-May the leadership position was her desire to lead and the respect of her peers that she commanded.

I needed somebody whose [primary] job was investments to report to me […] she took the ball and ran with it, Burbridge explains, adding that she’s been relentless in professionalising the organisation. I’m not sure where we would be without her, but I know we’re in a good place with her.

Miller-May credits her work ethic to her mother, who worked for 37 years in a post office while her only child became the first in the family to graduate from college.

Born and raised in the south Chicago neighbourhood of Englewood, Miller-May says the community was like any other during her childhood days, though now it is at the epicentre of the citys crime epidemic.

After working for Chicago-based corporate bank Northern Trust for 13 years, she was laid off in 2010 during the recovery from the Great Recession. When she joined the CTPF later that year, Miller-May says she realised the position was more than just a job.

“If we don’t do a good job, then we’re limiting the amount of teachers and the quality of teachers that come into the system,” she says. “Our future is in their hands, and if you can’t guarantee them a life after retirement, then what are you doing?”

Defence vs enhancers

Miller-May believes one of the biggest impacts she has had on the portfolio has been switching from making passive investments with index managers to active fund management. “There’s a lot of dislocation in the market and active managers can now perform a little better than an index,” she says.

Miller-May views equities as “return enhancers” and alternatives, and especially infrastructure, as “defensive asset classes”. Even though Miller-May recognises the increasing market volatility, she says the CTPF must maintain high exposure to equities.

“Every month, we have to sell off some equities and raise the cash to pay the pensioners,” she explains. “If we don’t have that, then I look to the managers that we have, and I have to contact them and say, ‘Hey, I need you to sell securities and raise $40 million and put it in our cash account’.” In 2015, before CTPF regained funding from the property tax, Miller-May says it had to liquidate $500 million throughout the year to pay its pensioners. In 2018, the figure had fallen to about $250 million. “All of that is cashflow out,” she says.

The CTPF currently has a 7 percent actuarial return target, and its most recent asset allocation plan has it on track to become 90 percent funded by 2059. But, if Miller-May has anything to do with it, this funding target will be reached much sooner.

“I aim for as high as I can get, but I’m only held to 7 percent,” she says. “To me, it’s just a rate. I still have to come in and do the same job. I’m not going to change anything. I still want a 13 percent return.”

A CIO facing an underfunding challenge might look for the most experienced fund managers around. But that is not how things are being done in Chicago.

According to Miller-May, the retirement system’s commitment to diversity starts with Illinois state mandates, which require public pension funds to invest a certain portion of assets with MWDBE-owned firms. The CTPF has embraced that initiative and run with it. “The goal in my mind is to be representative of Chicago’s teachers,” Miller-May says.

She insists her staff’s priority will always be to achieve the best returns. However, she also believes new fund managers representing all walks of life can perform just as well as the world’s largest investment firms.

“There is this idea out there that you can’t hire diverse managers and be a good fiduciary,” Miller-May says. “What’s safer? Are you equating safer with managers that you feel are going to give you good returns, have good stewardship over your allocations? That could be a minority manager as well as a majority manager.”

Fee breaks are another advantage to working with MWDBE firms, she explains, adding that the CTPF negotiates fees that are “helpful to us but not harmful to the manager”. She recognises that many of those fund management firms are just starting out and need a certain amount of fees to “sustain their business”.

Finally, Miller-May adds that MWDBE firms are usually in a similar position to the CTPF. “They can’t fail,” she says, noting that such firms often approach the pension while raising their first fund. “There is no coming back from this fund if it’s not successful, so they’re pretty hungry to do business with us and to learn.”

Forty-two percent of the CTPF’s assets are invested with MWDBE firms, but not much of this is in infrastructure. “It’s hard to find a diverse manager in infrastructure,” says Miller-May. In January, the pension issued a request for proposals seeking just such a firm but only received one response, from JLC Infrastructure.

Still, she says the pension challenges the fund managers it works with to show they are taking steps to increase internal diversity. Last year, it passed over heavyweight managers Blackstone and Brookfield Asset Management, instead committing $35 million to Australian manager IFM Investors and $15 million to Ullico Investment Advisors.

At the time, Miller-May told Infrastructure Investor that “Blackstone and Brookfield are still challenged with some diversity issues. And while they’re working on it, they’re just not there yet.” In response, a Blackstone spokesperson told us that half of the firm’s eight largest businesses have women or “diverse talent” in top leadership positions: “We are optimistic that our steady and growing pipeline of diverse talent will lay the foundation for continued improvements in the future.”

Since then, the CTPF has committed $25 million to Brookfield Infrastructure Fund IV. Miller-May could “see a difference” in the efforts Brookfield was making to increase its diversity. In an emailed statement, Brookfield said: “We have always believed that the best ideas come from diverse perspectives and experiences. Ensuring a diverse, inclusive workforce and a culture that enables all to achieve their potential will continue to be a focus for us.”

Crystal-ball gazing

The CTPF is a long way from being solvent and, in the near term, Miller-May’s focus is on shoring up the fund in case the rumours of recession come to fruition.“ My crystal ball says not this year,” she states, with the caveat that investors should expect to “stomach” recent volatility for a while longer.

“Whether it be tweets, or all kinds of things we can’t control, we just have to follow our investment policy statement and hire managers that are going to be able to perform in down markets and in up markets.”

Miller-May hopes to establish “consistency of thought and process” at the CTPF so the pension will be able to continue to serve Chicago’s teachers for decades to come. “I want to leave an organisation and a legacy that says I added something positive – that the process is the way it is because Angela passed through here,” she says.

For herself, Miller-May sees a possible career move into politics down the road, albeit “from a different aspect” than running for elected office. She says her interests are to work with state and federal lawmakers and the Securities and Exchange Commission to ensure protections for institutional investors are not rolled back.

“I got interested in talking to legislators about how to protect institutional investors and trying to protect the fiduciary duties that are constantly chipped away,” Miller-May says. “I want to be behind the scenes and make some type of impact. Quietly.”

A Chicagoan through and through

Born and raised in south Chicago, Angela Miller-May received a scholarship to attend St Ignatius College Prep, a private Jesuit school. In 1990, she graduated from Northwestern University, located around 14 miles from the city in the suburb of Evanston, with a degree in economics. She would later receive an MBA from DePaul University in north Chicago.

Before pursuing a career in finance, Miller-May wanted to be a paediatrician. But after spending a summer during her college years working at a hospital, she learned that her heart may have been too big for the job. “I found out I was too emotional for that,” she says. “I was just not able to detach myself from the kids and was staying later than I needed to stay.” When it comes to baseball, she considers herself a White Sox fan. For American football, it’s hometown team “Da Bears”, though she also learned to appreciate rugby after her two sons began playing.