* Looks like the depositing state assets in the pension funds idea we discussed the other day is getting a close look…

Governor JB Pritzker today appointed leaders of two new taskforces created to make several specific recommendations to improve the standing of the state’s pensions funds.

“The enormity of Illinois’ pension problems at all levels of government cannot be overstated, and these two taskforces will provide concrete recommendations on two ideas that will improve the health of pension funds around the state: potential consolidation of funds to achieve the highest investment returns and transferring valuable state-owned assets to the pension funds to help address our nearly $134 billion in unfunded liabilities,” said Deputy Governor Dan Hynes, who will receive the recommendations. “Illinois has a long way to go to dig out of the fiscal mess we inherited, but with discipline and focus, we can take commonsense steps that will make life better for the hardworking people of this state and restore fiscal stability.”

Pension Consolidation Feasibility Taskforce

The state is home to 671 separate public pension funds, which each make decisions impacting their respective members. This results in a fractured system that often duplicates functions across pension funds, and that limits the smaller funds to a narrow range of potential investments. Smaller funds also pay higher fees because the amount in their funds is too low to meet institutional investor thresholds.

In total, these funds manage $170 billion in assets and have accrued liabilities totaling more than $355 billion. Of all those funds, 656 are suburban and downstate police and fire pension funds that are regulated by the Illinois Pension Code.

These liabilities have placed increased pressure on local governments and the State of Illinois, driving up property taxes and crowding out funding for critical public services. Consolidation could provide improved returns on investment, and increased efficiencies on investment and administrative fees; thereby increasing assets to pay for obligatory public workers’ pensions and alleviating the burden of growing property taxes.

The Pension Consolidation Feasibility Taskforce will be co-chaired by William Brodsky, former Chairman and CEO of the Chicago Board Options Exchange (now known as CBOE Global Markets); Pat Devaney, President of the Associated Fire Fighters of Illinois; and Christine Radogno, former Illinois Senate Minority Leader. The taskforce’s mandate is to explore and make recommendations for consolidation of pension funds, beginning with downstate police and fire funds, as well as evaluating the state’s three pension funds, in order to achieve the greatest value for pensioners and taxpayers.

Pension Asset Value and Transfer Taskforce

Currently, the state’s five pension systems have unfunded liabilities of nearly $134 billion and growing, while the state owns and maintains tens of billions of dollars in real estate and infrastructure assets, according to the Department of Insurance’s biennial pension report. These assets could be used in a way that is far more financially responsible for the state, its pension systems and the taxpayers of Illinois.

The Asset Assessment Taskforce will be co-chaired by Jaqueline Avitia-Guzman and Jamie Star. The taskforce’s mandate is to analyze state assets across Illinois and make recommendations as to their best use to help stabilize the state’s finances. Recommendations could include, but are not limited to, the repurposing or sale of these assets or transfer to state pension systems to improve their levels of funding.

Background

Jaqueline Avitia-Guzman

Jackie Guzman is a finance executive with 20 years of experience leading, creating, and implementing financial and operational strategies for Fortune 500 companies located in the Chicagoland area. Currently, she serves as Head of Corporate Development for Sears Holdings Corporation where she is responsible for M&A, inclusive of joint ventures and divestitures. Prior to Sears Holdings, she was at the University of Chicago, pursuing an MBA, where she interned for two private equity firms in Chicago. Before business school, Jackie worked in the financial services industry. She received her master’s in business administration from the University of Chicago and her bachelor’s in economics from the University of Illinois at Urbana-Champaign School.

William Brodsky

William J. (Bill) Brodsky has been a leader in the Chicago financial community since 1982. He is the Chairman of Cedar Street Asset Management LLC. After serving as Executive Vice President and Chief Operating Office of the Chicago Mercantile Exchange, (CME), he was President and CEO of CME from June 1, 1985 until February 1997 when he became Chairman and CEO of the Chicago Board Options Exchange (now known as CBOE Global Markets). He was in that position until May 2013, when he became Chairman, a position he served until his retirement in March 2017. He is the only exchange executive from Chicago to be elected as Chairman of the World Federation of Exchanges.

For over 20 years, he has served in various board positions at Northwestern Memorial Healthcare, including Chairman of the Investment Committee for 14 years, and later as Chairman of Northwestern Memorial Hospital. Since May 2013, he has been Chairman of Navy Pier, Inc. He is a member of the Commercial Club of Chicago and the Civic Committee. Bill is an attorney and member of the Bar in both New York and Illinois.

Pat Devaney

Pat Devaney is the President of the Associated Fire Fighters of Illinois. Devaney first started his career with the Champaign Fire Department and IAFF Local 1260 in 1995. He served as an elected firefighter pension fund trustee for a decade and has advocated for firefighter pension policies in Springfield for the last fifteen years.

Christine Radogno

Christine Radogno is a former Republican member of the Illinois Senate, representing a Legislative District in Cook, DuPage, and Will Counties from 1997 to 2017. Radogno served as the Minority Leader, the first female leader of a political party in the Illinois Legislature.

Prior to serving in the state senate Radogno served for eight years as a Village Trustee in LaGrange. Radogno received a bachelor’s degree and a master’s in social work from Loyola University in Chicago. She was employed in the field of mental health before entering politics.

Jamie Star

James Star is Chairman of Longview Asset Management LLC, an investment firm that oversees public and private investments on behalf of individuals, trusts, and charitable foundations. In this role and his prior role as President and CEO, Mr. Star has managed portfolios of publicly traded securities and investments in private equity and hedge funds. He has also overseen direct investments in private companies. Prior to this, he ran a top-performing securities partnership. He began his investing career as a securities analyst and portfolio manager at Harris Associates, a leading advisor to mutual funds and private clients.

Mr. Star is a director of Equity Commonwealth, a publicly-traded real estate investment trust that owns commercial office space. He is also a director of Petsmart/Chewy, the nation’s largest on line and traditional retailer of pet products and services, and Teaching Strategies, a provider of educational assessment software and curricula. He is a trustee of several pension funds and a private trust company, and formerly served on the boards of two public mutual fund complexes and multiple private companies. His non-profit work includes service as a member of the Global Advisory Board of the Kellogg Graduate School of Management and as president of the Star Family Foundation, which he founded in 2012.

A lawyer by training, Mr. Star practiced corporate law at Kirkland & Ellis following his clerkship with a federal court judge. He is a graduate of the Kellogg Graduate School of Management at Northwestern University, Yale Law School and Harvard College.

* Meanwhile, the Illinois Public Pension Fund Association warned against consolidation last week…

The studies also concluded that any move to consolidate all 641 downstate Illinois police and firefighter pension funds into one massive state pension system would be expensive and fraught with risk. Such a consolidation would require that almost all assets from each local fund be liquidated and then re-invested in the larger fund. This move could generate a one-time cost of up to $155 million in commissions, taxes, fees and potential market losses, which would increase the pension funds’ unfunded liability by that amount as well. It would take many years to recoup that cost in the minor administrative savings realized by consolidation.

Consolidation poses a particularly high risk if the transfer occurs during a period of stock market growth and the local pension funds miss out on the resulting gains from their existing investments, the studies found. In addition, economies may suffer when the local banks and asset managers who handle individual pension funds are set aside in favor of larger, out-of-state investment firms that would likely handle the consolidated pension fund.

The IPPFA would essentially be out of a job if the 641 funds consolidated. Its study is here.