(Bloomberg) -- The Chicago Teachers’ Pension Fund, Illinois’s oldest public retirement system, wants to enter the hot private credit market with an initial investment of as much as $350 million.

The fund on Monday said it has issued a request for proposals to split the total among multiple private credit investment managers, setting Jan. 19 as the deadline for bids, according to a document on its website. 

Chicago Teachers’ is the latest pension to join those flocking to the $1.6 trillion private credit market as a slowdown in mergers and acquisitions stifle growth in private equity. Public pensions are attracted to the market’s outperformance and regular cash distributions that can come in handy for benefit payments.

Read more: Banking Escapees Make Billions From Private Credit Boom

Private credit is the latest addition to state and local pension portfolios, which have been diversifying beyond public stock and bond markets to improve returns and curb volatility. These plans increased their holdings of alternative assets to 34% in 2022 from 9% in 2001, according to the Center for Retirement Research at Boston College.

The fund and its trustees decided to invest in private credit following results of a study spurred by changing expectations for returns from higher interest rates and inflation, Fernando Vinzons, chief investment officer for the Chicago Teachers’ Pension Fund, said in an emailed statement Monday. The future allocation, with no exact deadline, of $300 million to $350 million will represent about 3% of the fund’s assets.

“This is the first time that the CTPF will meaningfully invest in private credit,” Vinzons said.

The pension system is seeking investment managers with a minimum fund size of $500 million and a so-called evergreen or draw-down structure, according to the request for proposals. The fund doesn’t plan to consider secondaries strategies, trigger funds or niche products such as fossil fuels, life settlements — also known as death bonds — or real estate.

The board of trustees “voted to adopt a new strategic asset allocation for the fund,” trimming its equities holdings outside the US and introducing private credit, according to a second quarter performance report issued in June by Callan, the fund’s investment consultant that will evaluate bids from managers.

The Chicago Teachers’ Pension Fund serves more than 94,000 members and paid out nearly $1.6 billion in retirement benefits and health insurance in fiscal 2023, according to its website. Assets of about $12.1 billion on June 30, 2023 only cover about 47% of the fund’s long-term liability.

--With assistance from Paula Seligson.

(Updates with context on public pension investments in alternatives in fourth paragraph.)

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