Illinois Pension Plans Dumps $1 Billion In Value-Stocks, Shift To Self-Manage

Authored by Mike Shedlock via MishTalk,

An Illinois pension plan just pulled a billion dollars from an underperforming value fund to seek better returns.

If you have been waiting for a bell-ringer, perhaps Illinois is singing your tune.

Please note Illinois Municipal Pension Fund Pulls About $1 Billion From BMO

The Illinois Municipal Retirement Fund is pulling about $1.1 billion from BMO Global Asset Management due to poor performance.

The pension fund is terminating a portfolio of U.S. large cap value stocks managed by BMO and plans to oversee the money internally, according to a statement issued on Monday.

“Both performance and the opportunity to save fees by managing the money internally were factors,” John Krupa, a spokesman for the Oak Brook, Illinois-based organization, said in an email.

Earlier this month, the California Public Employees’ Retirement System said it would reduce the use of external emerging equity fund managers.

The top chart is from Tax Foundation analysis on July 17, 2019 as of 2017 (the most recent data).

Circling the Wagons

Recall that on October 10, Illinois Governor asked for Major Local Pension Fund Consolidation.

Illinois Governor J.B. Pritzker on Thursday called on state lawmakers to pass legislation this fall to consolidate nearly 650 police and firefighter retirement systems that are causing funding headaches for many local governments.

The Democratic governor said the current system of governments maintaining their own pension funds “is failing,” noting that the formation of two new statewide funds would generate as much as $2.5 billion in additional investment returns over the next five years.

“If adopted by the General Assembly, it would be a monumental achievement in the history of our state,” Pritzker told reporters.

Monumental Achievement Coming Up

I cannot possibly think of a better time to dump value and plow into risk than now.

What can possibly go wrong?

Meanwhile please note

The aggregate funded ratio for firefighter and police retirement systems outside of Chicago fell to 55.47% in 2017 from 57.58% in the prior year, according to a July report from the Illinois Legislature’s Commission on Government Forecasting and Accountability.
Unfunded liabilities rose by $1 billion to $11 billion.

Bear in mind after the biggest bull market in history, the average municipal funding ratio outside of Chicago is 55.47%.

Some plans are 30% funded.

Chicago and State Pensions a Separate Issue

Pritzker said Chicago’s problem as well as the state’s own $133.5 billion unfunded pension liability will be examined in the future.

That alleged $133.5 billion is actually understated.

Illinois Pension Debt Soars to $137 Billion

The Illinois Policy Institute reports Illinois Pension Debt Soars to $137 Billion Despite Record Taxpayer Contributions.

In fiscal year 2019, state estimates of Illinois’ total unfunded pension liability rose to $137 billion from $131 billion, despite paying more than $10 billion to the funds – the largest annual contribution in state history. Those contributions include both pension benefits and interest payments on debt the state issued to make past pension payments.

While taxpayers poured record amounts into the state retirement systems during the fiscal year that ended in June, the systems’ average funding levels held flat, remaining just 40% funded. The record contribution and growing debt came despite a robust stock market that should have yielded solid investment returns to the five plans.

What’s more, the severity of Illinois’ pension crisis could be obscured by the state’s highly generous accounting. Independent researchers such as Moody’s Investors Service put the state’s pension debt nearly twice as high as state estimates, at $241 billion, by using more disciplined analyses.