Okla. Teachers Selects Northern Trust to Manage Index Portfolios

BlackRock and Rhumbline Advisers were among the finalists considered.

The $15.8 billion Teachers’ Retirement System of Oklahoma selected Northern Trust to manage nearly $1.5 billion of its equity assets at its board meeting on October 25. The plan also received a performance update by its consultant, AndCo.

“There is not an easy ‘why’ Northern was selected,” Tom Spencer, executive director of the fund, told CIO.  “All three candidates were qualified and would do a great job. We have used Northern as an index manager for several years. The fees quoted were quite good, and it was an easy decision to stay with them.”  BlackRock and Rhumbline Advisers were among the finalists considered.

As per its investment policy statement, the fund has a target allocation of 40% to US domestic equities. “The current domestic equity portfolio is about $5.9 billion. Northern will have about 15% of that number ($885 million) in a factor-based index, and 10% ($590 million) in a Russell 1000 cap-weighted index,” Spencer added. “Northern currently manages a $900 million S&P 500 cap weighted index fund, so those funds will go into the firm’s new portfolios.” The factor index to be used is the Scientific Beta US Multi-Beta Multi-Strategy Six Factor Equal Weight index.

Discussions surrounding the changes to the portfolio started a few months ago. In August, the staff received an education session, with representatives from Russell, MSCI, and EDHEC Research to talk about factor investing through an index. “The board accepted our chief investment officer’s analysis that TRS has an excellent chance of getting the same or better net returns in US equities at less cost,” Spencer asserted.

Separately, the board received a monthly and quarterly investment performance update from AndCo. The plan’s one-month, third-quarter, and 10-year annualized returns were 1.95%, 3.76%, and 7.08%, respectively, for the period ending on September 30.

The next board meeting is scheduled for November 15.


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