Illinois SURS to sell off $1.2 billion in investments

Tuesday, August 24, 2010

Illinois State Universities Retirement System, Champaign, expects to sell $1.2 billion in investments this fiscal year to raise liquidity to pay pension benefits to participants, said Daniel L. Allen, chief investment officer.

SURS could undertake an asset-liability study next year because of the liquidity stress, Mr. Allen said. Its last asset-liability study was three years ago.

Illinois SURS, with $12.2 billion in defined benefit assets, has not received any of the $850 million in state contributions the system requested this fiscal year, which began July 1, Mr. Allen said.

“When we are accessing liquidity, it makes it more challenging to achieve our desired rate of return,” Mr. Allen said. SURS has an 8.5% assumed rate of return on investments. “It does impact the portfolio if we have to access it to pay benefits,” he added.

Mr. Allen expects the system's board over its next several meetings to discuss the impact of the lack of contributions on SURS' investment allocation.

Preparing for a liquidity crisis since earlier this year, the system has restructured its entire fixed-income allocation and is making liquidity analysis part of its review of candidates for an investment consultant search. Both the fixed-income and consultant searches are still under way.

SURS pays annual pension benefits of about $1.5 billion and has been receiving so far pro rata monthly participant contributions, which total about $300 million for this fiscal year.

The system has been paying more in benefits than it receives in contributions, forcing investment sales. In the fiscal year ended June 30, it was forced to liquidate about $500 million in investments to pay participant pension benefits because of shortfalls of $702 million in state contributions and about $275 million in participant contributions.

William E. Mabe, executive director, said the liquidation “is not optimal” to carrying out SURS' strategic investment plans.

“You can't invest if you don't have the contributions,” Mr. Mabe said. “You can't invest your way out of this.”
Mr. Mabe doesn't expect the General Assembly to look at the contribution issue until after the November elections.