Back And Forth About The Chicago Teachers Pension Fund

The CTU has released a statement in response to a weekend Sun Times report about the CTPF: "The Sun-Times statement that the Fund has lost
money, while factually correct, is clearly misleading. The
article mentions investment losses without fully explaining that
this is a 10 year investment.    As with all real
estate investments, CTPF does not expect an immediate return on
the funds it has invested."

Here's the article: Mayor's nephew cashing in Sun Times
On March 17, 2005, the teachers' pension board voted unanimously to
invest $25 million, contingent on Davis and Vanecko meeting their $100
million goal. When Davis and Vanecko fell short, they convinced the
teachers' pension fund to stick with the $25 million investment,
offering a greater share of profits and lower management fees. 

A message to our current
members and retirees:

The September 23, 2007, Chicago Sun Times ran
a story concerning a $25 million CTPF investment in a real
estate fund - DV Urban. The purpose of the fund is to redevelop
Chicago areas through
investment in the commercial, residential, and industrial
sections that may have been neglected and therefore serve as a
tremendous opportunity for investment return. DV Urban is 51%
owned by Allison Davis and 49% owned by Robert
Vanecko.

CTPF invests with a philosophy of balance and
is clearly diversified in a variety of different investment
vehicles. To put this particular investment into perspective,
the CTPF has over $12.5 billion in investments. Of this $12.5
billion, 9% or $1.1 billion is allocated to real estate. The $25
million invested in DV Urban partners is less than .2% of CTPF
fund assets and less than 2.3% of the real estate investments.
For perspective, this investment is equivalent to a $2
investment for an individual with $1000 in the bank.

The proposed investment of DV Urban was
researched and evaluated by Townsend Real Estate Consultants, of
Cleveland,
Ohio. Townsend
conducted a one-year due diligence process before recommending
the investment in DV Urban to CTPF's Board of Trustees in April
2005. Townsend felt that DV Urban had the potential to bring
strong returns to CTPF through a long-term investment strategy
based on urban renewal. At that time CTPF and its Trustees were
not aware that Vanecko was Mayor Daley's nephew.

In September 2005, CTPF discovered that
Vanecko was the mayor's nephew, and immediately notified the
Board of Trustees. At that time CTPF revisited the investment
with its board members and with its real estate consultant.
  Nothing came to the attention of CTPF or the
consultant that warranted terminating the investment.
There was not anything unethical, illegal, or inappropriate
about this investment or DV Urban as a firm.  CTPF
understood that Vanecko's relationship to the mayor might cast a
political shadow however, the Board of Trustees and investment
consultant determined that the potential return represented in
this partnership more than justified the possible investment and
political risk and moved forward with the commitment.
 

The Sun-Times statement that the Fund has lost
money, while factually correct, is clearly misleading. The
article mentions investment losses without fully explaining that
this is a 10 year investment.    As with all real
estate investments, CTPF does not expect an immediate return on
the funds it has invested.  Buying and developing in real
estate create early expenses and costs that are recovered upon
the sale of the property in later years.    We fully
expect to realize gains on this investment when DV sells
property in the future.

Rest assured that CTPF
followed proper due diligence and relied upon the investment
advice of our consultant, Townsend.  There are many good
things about this investment, including developing the Chicago
areas where our teachers teach and live.  Most importantly,
this investment fits well within our portfolio guidelines and is
expected to produce a handsome return for our
membership.   Our Trustees will not, would not, and
have not jeopardized your pension assets for any political
purposes.
 

It is unfortunate that the Sun Times has
chosen to use this issue to create political turmoil. The real
story at CTPF is one of great success. At the end of FY2007,
CTPF posted a return of 17.3% for our members, the highest
return in a decade. Our 5-year rate of return is 11.5% and our
current funded ratio, 78.0%, is among the state's highest for
pension funds. We believe in making sound investment decisions
based on facts and information. We will continue to pursue
investments that fit within this philosophy of a balanced and
diverse portfolio so we can provide a strong return and lifetime
pensions for our members.

Kevin B. Huber, Executive Director -
CTPF

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