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The Bank of Montreal building in Toronto's Financial District, on April 10, 2019.

Fred Lum

The Illinois Municipal Retirement Fund has pulled US$1.1-billion from BMO Global Asset Management, citing its poor performance managing a large-cap equity fund.

The pension, which manages just under US$44-billion for 3,000 local governments and school districts in Illinois, announced the decision Monday. BMO Asset Management U.S., which is based in Chicago, was one of the funds’ biggest Illinois-based equity managers, according to IMRF documents, with 2.7 per cent of the pension’s assets. IMRF paid BMO slightly more than US$3-million in fees in 2018, IMRF documents show.

“BMO was on the Performance Manager Monitoring List. Both performance and the opportunity to save fees were factors in the change,” John Krupa, communications officer for IMRF, said in an e-mail to The Globe and Mail.

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At the same time it terminated BMO, the IMRF board authorized a new domestic equity portfolio, to be managed in-house, with up to US$1-billion in assets.

A spokesman for BMO was unavailable for comment late Tuesday.

IMRF’s current contract with BMO, signed in 2009, gave BMO the objective of outperforming the Russell 1000 Value Index by a full percentage point or more over a three- to five-year term, according to a summary of the document. BMO also was supposed to beat the median return of similar large-cap managers.

While BMO’s large-cap performance in the 10 months ended in October was a gain of 14.09 per cent, the Russell 1000 Value Index increased 19.46 per cent over the same period, according to an IMRF investment performance report. That underperformance of 5.37 percentage points over that period made BMO’s portfolio the pension fund’s second-worst performer in 2019 among stock and bond portfolios, the IMRF report said.

IMRF documents also suggest that BMO outperformed the Russell 1000 Value Index by 1.1 percentage points annually since 2001 – but barely outperformed in over the past 10-year and three-year periods. It lagged the index in a five-year period ending in October, IMRF documents show.

A summary of the contract says IMRF considered BMO’s “demonstrated professional performance” as well as the “reasonableness of fee structure” as motivation to sign the deal in 2009.

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