Fiscal Year 2022 Brings Outperformance for Illinois State Teachers’ Retirement System

A conservative strategy proved effective in mitigating losses in a tough market.

The Teachers’ Retirement System of the State of Illinois has avoided a significant portfolio downswing despite the equity slowdown that has burdened asset managers with thus far in 2022. Through the second quarter, the fund has returned-1.17% net of fees, a favorable rate of return compared to other public pension systems across the country in fiscal year 2022.

At the end of FY 2022, the 40-year rate of return was 9.3%. This 40-year annualized return eclipses the system’s estimated long-term investment rate of 7%.

The net investment loss will not impact the plans’ ability to pay out benefits to its more than 434,000 members. In 2022, TRS will pay more than $7 billion in benefits to more than 128,000 members and their families.

The fund ended FY 2022 with $62.7 billion in assets, representing a 19.9% increase in the past two years, and a 38.4% increase since 2016. The system is 42.5% funded.

The funding status of the pension guides its investment philosophy. To produce the outperformance, the plan implemented conservative investment strategies. TRS Executive Director and Chief Investment Officer Stan Rupnik shared regarding investment strategy that, “the most prudent strategy is a diversified portfolio that seeks to participate in the upside of the market but also is positioned to better protect assets in times of high market volatility.”

Instead of focusing its investments within a single asset class that presents downside risks, such as public stocks, TRS commits assets to a variety of investment types. At the end of FY 2022, TRS had 32.6% of the portfolio invested in domestic and international stocks, 24.3% in bonds and short-term assets, 19.7% in real estate and other tangible assets, 16.2% in private equity, and 7.2% in hedge funds and other diversifying strategies.

Rupnik stated that “the system’s primary objective is to protect member assets against large market drawdowns caused by economic volatility, such as we have seen this year.” The median investment return rate for public pension plans comparable to TRS for the 12 months ended on June 30 was -7.56%, according to the pension’s general investment consultant RVK, Inc, while data from the Wilshire Trust Comparison Service indicated that FY 2022 median rate of return for large public pension plans was -7.25%.

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