The approximately $11 billion Chicago Teachers Pension Fund (CTPF) has a 9% allocation to real estate, 6.9% of which is managed by external asset managers that are general partners (GPs). The fund expends a great deal of time and effort in its selection process for GPs with which to do business. According Angela Miller-May, CTPF’s CIO, CTPF sources managers through multiple channels, drawing on its long experience as a limited partner (LP), leaning on its consultant for leads and pointers, and bringing its internal manager research resources to bear.
“CTPF continues to source managers through multiple channels,” according to Miller-May, who will participate in a keynote panel discussion titled Chief Investment Officers’ Fundamental Factors in GP Selection at Markets Group’s 4th Annual Midwest Institutional Real Estate Forum in Chicago on September 25. Miller-May responded via email to questions from IA regarding how investors source and screen managers in the real estate asset class.
She continued: “We utilize our decades of investment experience as LPs in a number of funds to build relationships with many leaders in the GP community, which acts as a continual source of new ideas and funds. Second, we regularly tap the resources of our real-assets consultant, Callan, and its research team to apprise us of existing and new opportunities which may be a fit for our real estate program. Third, CTPF has dedicated internal staff solely focused on researching and performing due diligence on potential investment managers. We leverage our First Friday event to bring special focus and attention to MWDBE [Minority, Women, Disadvantaged Business Enterprise] and/or emerging managers in real estate that might otherwise fly under the radar.” CTPF holds a meeting on the first Friday of each month to which it invites prospective managers to present their strategies to the fund’s trustees, investment staff and its consultant. The managers are given 15 minutes to present and 5 minutes to field questions.
When asked what criteria investors are using for current due diligence procedures and parameters and how do investors monitor manager activity and compliance with agreements and fees? She responded that CTPF continues to utilize well researched and widely accepted criteria when evaluating investment managers for possible inclusion in its portfolio. “CTPF looks at a multitude of quantitative (performance, risk, liquidity, etc.) and qualitative (strength of team, alignment of interests, fund terms, etc.) factors when performing due diligence and assessing the suitability of managers for its portfolio.”
The fund meets with all its managers on a regular basis, she said, and those interactions involve a review of manager activity and any issues with compliance. Also, on an annual basis, CTPF requires all its managers to complete a compliance package document that serves as a formal review and affirmation that each manager is adhering to all required compliance and fund terms.
When sourcing for emerging managers, CTPF has distinct categories for emerging and MWDBE managers, according to Miller-May. She said that while those categories can overlap, “they are not the same thing to CTPF. An emerging manager to CTPF is one that may lack some of the prerequisite track record, AUM, and/or infrastructure that a larger, more well-established manager exhibits.”
She explained that these are often first-time funds raised by newly formed managers. “Our due diligence process does not differ when evaluating emerging managers from any others, although lacking some of the characteristics of larger and more well-established managers will not preclude CTPF from meeting with those managers, initiating a dialogue, and potentially investing with them at the appropriate time. CTPF’s First Friday event is a perfect example of how that interaction is executed with the emerging manager universe.”