Chicago Teachers’ Pension Fund Annual Report Diversity and Inclusion Presented to Governor Pat Quinn December, 2013 1
Chicago Teachers’ Pension Fund Annual Report
Diversity and Inclusion
Presented to Governor Pat QuinnDecember, 2013
1
Chicago Teachers’ Pension Fund (CTPF) provides retirement benefits for a diverse ethnic population of approximately 34,000 active and
27,500 retired Public School Teachers.
Since the early 1990’s, CTPF is proud to be at the forefront of pension and retirement systems throughout the United States to ensure that minorities, women and persons with disabilities have access to the many opportunities to conduct business with CTPF. CTPF continues to encourage diversity and equality among our employees, vendors,
and investment professionals.
On behalf of the CTPF Fund and our Board of Trustees, we present to Governor Pat Quinn CTPF’s annual Diversity Report for 2013.
Commitment To Diversity
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• EquityHired Earnest Partners ($50M), an African American-owned firm, and DuPont ($150M) for an emerging markets allocationReduced assets by $100M from a Latino-owned firm, Lombardia, due to performance, to fund an emerging markets allocationTerminated an African American-owned firm, Credo, due to performance and organizational concerns, to fund an emerging markets allocationTerminated an African American-owned firm, Piedmont, due to performance to fund CTPF benefits
• Fixed IncomeReduced assets of Western Asset Management by $105M to fund CTPF benefits and increase the mandate of a minority-owned firmIncreased allocation to LM Capital, a Latino-owned firm, by $50M and refocused their mandate to Core Plus
• Real EstateFunded Newport Capital Partners ($5M), a Disabled-owned firm
Changes to the Fund’s Portfolio during Fiscal Year 2013
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20% of Total Fund Assets will be invested with MWDBE firms25% of actively managed assets will be invested with MWDBE firms
Additionally:30% of all equity assets will be invested with MWDBE firms
25% being managed by Minority owned firms5% being managed by Women owned firms
15% of all fixed income assets will be invested with MWDBE firms
12% being managed by Minority owned firms3% being managed by Women owned firms
10% of all alternative assets will be invested with MWDBE firms 10% being managed by Minority owned firmsBest efforts for Women owned firms
Since Public Act 096-0006…CTPF Enhanced our MWDBE Diversity Goals:
4
Trades are to be executed with CTPF approved MWDBE brokers.Non-direct trading is not allowed to meet the Fund’s goals.
CTPF Brokerage goals:
50% of Domestic Equity trades: Active Large, All cap, and MoM’s
35% of Domestic Equity trades: Active Small Cap and Passive
25% of International Equity trades: Active & Passive Large, All Cap, and MoM’s
5% of International Equity trades: Active Small Cap
25% of all Fixed Income Volume
10% Active REIT Managers
Since Public Act 096-0006…CTPF Enhanced our MWDBE Diversity Goals: (continued)
5
CTPF began investing with MWDBE firms in the early 1990’s.
Some of CTPF’s earliest MWDBE dollars were invested with firms such as Ariel Investment (African American), Zevenbergen (Women) and Taplin, Habatch & Canida (Latino)
As of September 2013, the Fund invested $3.2B or 32% of total Fund assets with MWDBE firms
Total MWDBE % Growth Since 1993
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Total MWDBE % Growth Since 1993
FY 93
FY 94
FY 95
FY 96
FY 97
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
FY 08
FY 09
FY 10
FY 11
FY12 FY 13
Sep-13
5.8%6.7%
7.9%6.1%
5.2%5.4%5.7% 5.8%6.3%6.3%7.3%
9.2%
12.7%12.8%
23.2%23.6%
27.5%
33.0%
30.8%31.6%
31.2% 31.6%
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CTPF had $3.2B of the Fund’s total assets invested with MWDBE firms
MWDBE goal for total assets is 20%; actual Fund assets are 32%
CTPF had $2.3B of the Fund’s active assets invested with MWDBE firms
MWDBE goal for active assets is 25%; actual Fund assets are 34% Total Fund Assets Total Fund Active
Assets
0%
5%
10%
15%
20%
25%
30%
35%
32%34%
20%
25%
Actual Goal
Total Fund MWDBE Assets
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As of 9/30/13
$1.24B was managed by African American owned firms$1.17B was managed by Women owned firms$639.2M was managed by Latino owned firms$75.0M was managed by Asian American owned firms$8.4M was managed by a Person with a Disability owned firms
11.7%
0.1%12.5
%
6.4% 0.8%
Women
Asian American
African American
Latino
Person witha Disability
Fund Breakdown by MWDBE Status
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As of 9/30/13
For domestic and international equity assets, CTPF had $2.6B assets invested with MWDBE firms.
41% of all equity assets were managed by MWDBE firms24% of these assets were managed by minority owned firms17% of these assets were managed by women owned firms
MWDBE Equity Managers
MWDBE Equity Assets
Minority Owned Equity Firms
Women Owned Equity Firms
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
41%
24%
17%
30%25%
5%
Actual Goal10
As of 9/30/13
For fixed income assets, CTPF had $328.6M invested with MWDBE firms.
19% of all fixed income assets were managed by MWDBE firms15% of these assets were managed by minority owned firms5% of these assets were managed by women owned firms
MWDBE Fixed Income Assets
Minority Owned Fixed Income
Firms
Women Owned Fixed Income
Firms
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
19%
15%
5%
15%
12%
3%
Actual Goal
MWDBE Fixed Income Managers
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As of 9/30/13
For alternative assets, CTPF had $210.9M invested with MWDBE firms.
12% of all alternative assets were managed by MWDBE firms11% of these assets were managed by minority owned firms2% of these assets were managed by women owned firms.1% of these assets were managed by disabled owned firms
MWDBE Alterna-tive Assets
Minority Owned Alternative Firms
Women Owned Alternative Firms
0%
2%
4%
6%
8%
10%
12%
14% 12%
11%
2%
10% 10%
0%
Actual Goal
MWDBE Alternative Managers
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As of 9/30/13
How We Invest In Minority ManagersCTPF invests in MWDBE firms in four ways:
Direct MandatesThe Fund has direct relationships with 26 MWDBE firms in the public markets and alternative investments area
Manager of Managers (MoM)The Fund has two domestic equity (both African American) and one international equity (Asian American) Manager of Manager programsThrough the MoM program the Fund has relationships with 20 MWDBE firms via 26 investment portfolios
Graduation ProgramSince the inception of the Fund’s MoM program, six firms graduated to direct mandates with the Fund
Fund of Funds (FoF)The Fund is a Limited Partner in two minority focused Private Equity Funds. The General Partner is African American-ownedThe Fund is a Limited Partner in a minority focused Private Real Estate Fund
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As of 9/30/13
CTPF Outreach
CTPF’s First Friday MeetingOccurs the first Friday of each month. Provides opportunities for Emerging and MWDBE manager firms to meet with CTPF’s Investment Consultant, CTPF Trustees, CTPF Investment Staff and Executive Director to highlight their firms products and accomplishments
Manager of Managers (MoM) ProgramsEmerging managers have opportunities to manage CTPF assets. Due to their size, these opportunities would not be available to small firms without the Manager of Managers program
PublicationsEmerging Manager MonthlyFund FirePensions & Investments
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CTPF Outreach - continued
Organizations and Involvement (continued)Robert Toigo FoundationRising Farmworker Dream FundWomen Investment ProfessionalsCouncil of Institutional Investors (November, 2013)Pension Real Estate Association (PREA)Institutional Limited Partners Association (ILPA) (January, 2014)
Institutional Financial Services DaysA 2-day educational program initiated and designed by CTPF to expose underrepresented students to the institutional financial services industry
ConferencesEmerging Manager Conferences (Opal, IMN)Groundbreakers Summit – Women in Leadership (Toigo Foundation)MBDA: Minority Investment Management ForumNational Association of Securities ProfessionalsNew America Alliance
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In calendar year 2012, the Fund paid over $4.5M in domestic
equity and international equity
commissions and $1.9M was directed to
MWDBE brokers.
In 2012, the Fund had 9.0B in fixed income volume and 2.6B was
directed MWDBE brokerage firms
Domestic Equity Large Cap & Mid
Cap
Domestic Equity Small Cap &
Passive Large Cap
Fixed Income International Equity
0%
10%
20%
30%
40%
50%
60%
59%
52%
30% 30%
50%
35%
25% 25%
Total Paid Goal
Brokerage Commissions for 2012
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CTPF’S MWDBE Brokerage Programs
CTPF maintains a list of approved MWDBE brokerage firms. To be an approved MWDBE broker with CTPF, the following qualifications must be met:
Certified MWDBE brokerage firmRegistered with FINRA (Financial Industry Regulatory authority) for a minimum of 1 yearHave a Chicago or metro area office with at least one dedicated full time staff person that holds a Series 7 license
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Mary S. Reilly Jerry Travlos Raymond Wohl Andrea Zopp
Carlos Azcoitia Jeffrey Blackwell Bernie Eshoo Walter Pilditch
James WardRecording Secretary
Tina PadillaFinancial Secretary
Jay RehakPresident
Lois AshfordVice President
The Chicago Teachers’ Pension Fund Board of Trustees
As of 9/30/13
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Diversity Of The CTPF Board
CTPF Total Board of Trustees0
1
2
3
4
5
6
77
5
3
7
2
0
MenWomenAfrican AmericanCaucasianLatinoAsian American
42% 58% 25% 58% 17%
19
As of 9/30/13
Diversity Of The CTPF Fund Staff
CTPF Total Staff0
10
20
30
40
50
60
15
53
2226
11 9
MenWomenAfrican AmericanCaucasianLatinoAsian American
22%
20
FT EmployeesAs of 9/30/13
78% 32% 38% 16% 13%
The CTPF Investment Management Staff
has 6 employees
6 are Women2 are African American2 are Latino
CTPF Investment Management Department Employee Diversity
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As of 9/30/13
CTPF Investment Mgmt Staff0
1
2
3
4
5
66
2 2 2
Women African American Caucasian Latino
100% 33% 33% 33%
CTPF’S METROPOLITAN CHICAGO RECRUITING AREA
CTPF’s goal is to develop a workforce that more closely reflects the minority and women demographics of the CTPF’s metropolitan Chicago recruiting area
The metropolitan recruiting area includes Cook, DuPage, Lake, and Will counties in Illinois
CTPF CurrentHeadcount Ratio
Metro RecruitingArea Ratio
African American 22 32% 17.8%
Asian American 9 13% 6.0%
Caucasian 25 37% 56.6%
Latino 11 16% 19.7%
Women 53 78% 51.3%
Men 15 22% 48.7%Data as of October 1, 2013 Metro Data – 2010 U.S. Census
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Management is directed to pursue diversity in the recruitment of staff that reflects our area demographicsThe Board of Trustees recognizes that knowledge and understanding of diversity is the cornerstone of a successful diversity strategy. It is the policy of the Fund to provide Diversity Training to Human Resources and management staffThe Board of Trustees recognizes that achievement of the Fund’s diversity goals is contingent upon the Fund gaining exposure to a large and broad pool of qualified candidatesWhen no internal candidate applies for, and/or no internal candidate is identified as the best candidate for a position, CTPF shall expand the pool of candidates on the Fund’s websiteIn all cases, CTPF will seek to hire the best qualified candidate for each positionWhen two or more candidates have comparable qualifications for a position, CTPF will seek to hire the qualified candidate that lends to achievement of the State of Illinois’ public policy goals and the Fund’s diversity goals
Staff Diversity Recruitment Guidelines
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CTPF fully supports the public policy considerations of SB364 (Public Act 96-0006) which among other provisions, mandates the establishment of procurement policies by all major public pension funds in Illinois that promotes inclusion and diversity. The law also mandates establishment of incremental goals for the inclusion of minorities, women, and disabled persons when pension funds seek fiduciaries and services.
Diversity Procurement and Purchasing Policy
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The primary objective of the CTPF diversity policy is to ensure that minorities, women and disabled persons are provided an equal opportunity to provide services to and do business with CTPF.
Diversity Policy Objectives promote and ensure:Prospective service providers have an equal opportunity to compete and have access to information regarding the search parameters;
Fair competition among qualified fiduciaries and service providers;
Communications related to the selection of service providers are accessible, consistent and accurate;
The process of selecting service providers is efficient, diligent, and fair;
Transparency in the process of selection and retention of service providers.
Policy Objectives
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In fiscal year 2013, minorities and women-owned businesses received:
• 12% of the business expenditures made by the fund for goods and services
• 32% of the expenditures made to investment managers.
Fiduciaries and Service Providers
Table data as of June 30, 2013
Service Expense MWDBE Status and Allocation
Actuarial Services 164,753 Independent Auditor 210,750 Investment Consulting and Services Master Custodian 501,250 Investment Consulting 374,814 Real Estate Investment Consulting 166,598 Health Insurance Consulting 50,000 Legal Services 164,800 Information Services Consulting 947,196 Communications and Publications 316,979 MWDBE 214,047 (6%)
Document Processing and Mailing 194,384 MWDBE 153,939 (4%)
Election Administration 197,117
Legislative Lobbyists 164,800 MWDBE 61,800 (2%)
Total $3,453,441
Total MWDBE Participation 429,786.00 12%
Total Investment Manager Fees $39,317,322.00
Total Investment Fees Paid to MWDBE managers.
$12,478,563.54 32%26
It is CTPF’s goal is to have a minimum of 20% of all fund expenditures forfiduciaries, suppliers, consultants and service providers paid to firms owned by minorities, women and persons with disabilities. This goal is comparable to the percentage of investment related allocations to MWDBE investment professionals.
Goal
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The Policy Guidelines below apply to the selection of all fiduciaries and service providers.
Procurement of all goods and services budgeted or proposed individually or in the annual aggregate for an amount in excess of $25,000, shall be subject to a formal bid process including:
Announcement of issuance of a Request for Proposal in appropriate trade journals and periodicals as applicable
Issuance of a formal Request for Proposal in the format appropriate for the goods or services being sought and including all selection criteria to be considered in the evaluation of the proposal
A Proposal Evaluation Committee, made up of organizational stakeholders for the goods or services being sought , who shall develop criteria and an objective tool for proposal evaluation
Posting of the formal Request for Proposals on the Fund’s website
Formal Bid Process
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Observance of a quiet period during which communications with potential providers is limited
A quiet period will commence upon the initiation of a search for goods or services and end once a selection has been made by the Board and accepted by the service provider
Initiation, continuation and conclusion of the quiet period shall be publicly communicated to prevent inadvertent violations
All Board members, and Staff not directly involved in the search process, shall refrain from communicating with provider candidates regarding any product or service related to the search offered by the candidate throughout the quiet period and shall refrain from accepting meals, travel, hotel, or other value from the candidates
Throughout the quiet period, if any Board member is contacted by a candidate, the Board member shall refer the candidate to CTPF Staff directly involved in the search process
Authority related to the search process shall not be exercised by management or by individual staff members, but shall be exercised solely by the bid evaluation committee
All information related to the search process shall be communicated by Staff to the relevant Committee as a whole, and not to individual staff members
The quiet period does not prevent due diligence, or communications with an existing service provider that happens to be a candidate in the ordinary course of services provided by such service provider; however, discussions related to the pending selection shall be avoided during those activities
The provisions of this policy will apply to service provider candidates throughout the quiet period and shall be communicated to candidates in conjunction with any Request For Proposal or Request For Information
A service provider may be disqualified from a search process for a knowing violation of this policy
Formal Bid Process - continued
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Evaluation of submitted bids by the Proposal Evaluation Committee using of an objective evaluation tool
Submission of a statement of due diligence and recommendation to the Board of Trustees by CTPF management and staff
Approval of selected service provider by the Board of Trustees
Retention in the organizational archives of all materials distributed, created, collected and evaluated in the search process for a period of at least 5 years
Formal Bid Process - continued
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Procurement of all goods and services budgeted or anticipated individually for an amount between $10,000 and $24,999 shall be subject to an informal bid process including but not limited to:
Development of a Needs, Requirements and Evaluative Criteria document prior to the initiation of discussion with potential providers or issuance of a request for information
Posting of a Request for Information on the fund website
Documentation of the need for services, criteria used in the evaluative process, and basis for selection of a particular vendor or service provider
Retention in the purchasing records of CTPF of all written materials for a period of at least 5 years
Informal Bid Process
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