By Muskan Arora
The State Universities Retirement System of Illinois (SURS) will
begin its search for an extended equity manager to increase capital efficiency.
While the date of the release remains unknown, Michael
Schlacter, CIO of $24 billion system will keep the RFP non-specific to allow
for a wide response from the equity market.
“The portfolio size and funding source will be determined,
depending on market selected, liquidity, fit within overall portfolio, and
other considerations,” presented Schlacter, in the recent board meeting.
The equity manager will assist to overcome the challenges of
active management which include indexes being dominated by a handful of
securities and challenging meaningful underweight for most securities including
others.
The CIO will lookout for short extension strategies which
would use limited amount of portfolio leverage to efficiently invest capital
alongside allowing the manager to sell short undesirable securities and make
use the negative information.
Further, additional capital would be used to increase
positions in desired securities alongside having a higher active share.
Shorting requires expertise, and the manager the system
hires would have to have an in-depth understanding of the strategy, which is
also one of the reasons for a broader search.
However, this comes with its own set of risks of all
underperformance and market risks of an equity strategy.
Moreover, wrong calls on stocks would be magnified. Shorting
has a different loss profile than buying stocks.
The system allocates 49.8% to active strategies within its
traditional growth portfolio, as of December 31.
