PENSION INVESTMENT POLICY 2010 - STATEMENT OF INVESTMENT OBJECTIVES AND GUIDELINES STATEMENT OF INVESTMENT
OBJECTIVES AND GUIDELINES
CITY OF CLEARWATER EMPLOYEES'
PENSION PLAN
Adopted April 13, 2010
PURPOSE
The purpose of this Statement of Investment Objectives and Guidelines hereinafter referred to as the
"Policy Statement" or "Policy" is to assist the City of Clearwater Employees' Pension Plan
(hereafter referred to as the fund) in more effectively supervising and monitoring the investment of
the Fund's assets.
In the various sections of this policy document, the Fund defines its investment program by:
• stating in a written document the Fund's attitudes, expectations and objectives in the
investment of Fund assets.
• setting forth an investment "structure" for managing assets. This structure includes
various asset classes and investment management styles that, in aggregate, are expected
to produce a prudent level of diversification and investment return over time.
• providing guidelines for each investment portfolio that control the level of risk assumed
in the portfolio and ensure that assets are managed in accordance with stated objectives.
• encouraging criteria to monitor and evaluate the performance results achieved by the
investment managers.
This Statement represents the Fund's current philosophy regarding the investment of Fund assets. In
addition, although the Fund shall utilize this Policy Statement in making decisions concerning the
Fund, it shall not necessarily be bound solely by its contents.
PRUDENCE AND ETHICAL STANDARDS
The standard of prudence to be applied by the trustees shall be the "Prudent Person" rule, which
states: "Investments shall be made with judgment and care,under circumstances then prevailing,
which persons of prudence, discretion and intelligence exercise in the management of their own
affairs, not for speculation, but for investment, considering the probable safety of their capital as
well as the probable income derived." The"Prudent Person" rule shall be applied in the context of
managing the overall portfolio.
The trustees shall also be governed by the fiduciary standard set forth in the Employee Retirement
Income Security Act of 1974 at 29U.S.C. s. 1104 (a) (1) (A) — (C). In the event of a conflict
between the Policy and Florida Statutes or City ordinances, the statutes and ordinances shall prevail.
Funding Philosophy
The Fund's funding objectives are to be as fully funded as possible so that:
• the ability to pay all benefits and expense obligations from the Fund when due is
ensured;
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• there will be no principal erosion of contributed funds or the purchasing power
thereof.
• a"funding cushion" is maintained within the Fund for unexpected developments and
for possible future increases in benefit structure and expense levels;
• the Fund assets should earn sufficient total rate of return over time to reduce the
fund's dependency on employer contributions to meet all benefit and expense
obligations.
Investment results within the Fund are considered to be the major critical element in achieving these
funding objectives stated above while reliance on contributions is a secondary element.
Liquidity Posture
The investment portfolio shall be structured in such a manner as to provide sufficient liquidity to
pay obligations as they come due. Liquidity considerations are low in the short-term and
intermediate-term resulting in an immaterial impact upon investment policy, objectives and
guidelines.
Authorized Investments
The following is a list of authorized investments:
• Invest and reinvest the assets of the pension fund in annuity (including group annuity
contracts of the pension investment type) and life insurance contracts of legal reserve
life insurance companies, in amounts sufficient to provide, in whole or in part,
benefits to which all of the participants shall be or become entitled to under the
provisions of the Fund, and pay the initial and subsequent premiums thereon.
Provided that the amount invested with a life insurance company shall not exceed three
percent(3%) of the insurance company's assets.
• Invest and reinvest the assets of the pension fund in:
a. Time deposits, savings accounts, money market accounts, funds, certificates of
deposits, or money market certificates of a national bank, a state bank, or a
savings, building and loan association.
b. Negotiable direct obligations of, or obligations the principal and interest of
which are unconditionally guaranteed by, and which carry the full faith and credit
of the United States Government and its agencies. Investments in this category
would include but not be limited to the following: United States Treasury Bills,
Notes and Bonds, and securities issued by the Small Business Administration,
Government National Mortgage Association (Ginnie Mae), Veterans
Administration, and Federal Housing Administration.
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c. Fully collateralized United States Agency obligations, which carry an implied
guarantee and the implied full faith and credit of the United States government.
Investments in this category would include but not be limited to the following:
obligations of the Federal Home Loan Banks System (FHLB) or its distinct banks
and Financing Corporation (FICO).
d. Other United States Agency obligations, which carry an implied guarantee
(Government Sponsored Entities) and the implied full faith and credit of the
United States Government. Investments in this category would include but not be
limited to the following: obligations of the Federal Farm Credit Bank, Federal
National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage
Corporation (Freddie Mac), Student Loan Marketing Association (Sallie Mae),
Financial Assistance Corporation and Federal Agriculture Mortgage Corporation
(Farmer Mac).
e. Collateralized Mortgage Obligations (CMO) and/or Real Estate Mortgage
Investment Conduits (REMIC), rated investment grade or equivalent by Standard
and Poor's, Moody's Fitch, or other recognized national rating agencies which are
backed by securities otherwise authorized in this ordinance and which are
guaranteed as to the timely payment of principal and interest by the U.S.
Government or its agencies.
£ Securities of countries, states, municipalities and county governments or their
public agencies, which are, rated investment grade or equivalent by Standard and
Poor's, Moody's Fitch, or other recognized national rating agencies.
g. Asset-backed securities, which are, rated investment grade or equivalent by
Standard and Poor's, Moody's Fitch, or other recognized national rating agencies.
h. Common stocks, preferred stocks and bonds and other evidence of
indebtedness issued or guaranteed by a corporation organized under the laws of
the United States, any state, or organized territory of the United States or the
District of Columbia or any non-U.S. corporation, provided:
1. The corporation is listed on any one or more of the recognized national
or international stock exchanges and/or in the case of bonds and mortgage
backed securities, traded among dealers and investors in a recognized and
agreed upon conventional format;
2. Unless an asset allocation for less than investment grade corporate
bonds is established, all corporate bonds shall carry an investment grade
rating as established either by Standard & Poor's, Moody's, Fitch or other
recognized rating agencies; and
3. Not more than three percent (3%) of the equity assets of the pension
Fund shall be invested in the common stock or capital stock of any one
issuing corporation except to the extent a higher percentage of the same
issue is included in a nationally recognized market index, based on market
values, at least as broad as the Standard and Poor's Composite Index of
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500 Companies, or except upon a specific finding by the investment
committee that such higher percentage is in the best interest of the Fund;
nor shall the non-U.S. investments exceed twenty five percent (25%) of
the pension Fund's assets at market; nor shall the aggregate of the
investments under this subparagraph at cost exceed seventy percent (70%)
of the pension Fund's assets at market.
i. Alternative Investments, with no more, in the aggregate, than ten percent
(10%) of the Fund in alternative investments, through participation in securities
or investments or an alternative investment vehicle that is not publicly traded and
is not otherwise authorized by this section. Alternative Investments include
securities which fall outside the scope of traditional investments (stocks, bonds,
and cash) or are strategies investing in securities using alternative means
(derivatives, leverage, short selling), or some combination thereof. An
"alternative investment vehicle" is a limited partnership, limited liability
company, or similar legal structure or investment manager through which the fund
invests in a portfolio company.
Investments not listed above in this section are prohibited.
Bid Requirements
All securities shall be competitively bid where feasible and appropriate. Except as otherwise
required by law, the most economically advantageous bid must be selected. Executions must be
made on a best-execution basis.
Illiquid Investments
The Fund will not invest in illiquid investments. Illiquid investments being defined as an
investment for which there is no generally recognized market or generally accepted pricing
mechanism. Once an investment becomes illiquid the money manager will notify the plan of the
illiquid investment. Included in that notification will be how the money manager will handle the
illiquid investment.
INVESTMENT MANAGEMENT STRUCTURE
Five distinct asset classes will be considered for inclusion in the portfolio which will include
Domestic Equities, International Equities, Domestic Fixed Income, Real Estate, and Alternative
Investments.
A permanent commitment to these five asset classes will be made to ensure diversification at the
Fund level. The Fund may consider investments in other asset classes which offer potential
enhancement to total return at risks no greater than the exposures under the initially selected asset
classes.
It is not the intention of the Fund to become involved in day-to-day investment decisions. Therefore,
the assets will be allocated to professional investment managers in a manner consistent with the
Policy's objectives.
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Each asset class will have its own investment managers. Diversification of the U.S. Market Equity
commitment will be achieved through the employment of managers of complementary investment
styles, Growth and Value. In the U.S. Fixed Income market, at least one core bond manager will be
utilized to stabilize the Fund. In the International Equity market, diversified non-U.S. managers
will be hired to achieve diversification. In the Real Estate market, the Fund will utilize collective
funds or REIT's for purposes of diversification. In the Alternatives market, the Fund will hire fund
of funds managers to optimize strategies and provide adequate safety of capital and diversification.
Cash and cash equivalents will be managed either by the Investment Managers or the custodian. In
addition the City uses the pooling concept to meet the immediate cash needs of the city and to
maximize the interest earnings. All cash placed in the City's pooled cash account shall be separately
accounted for and listed as an asset of the Fund. The Fund will keep sufficient funds in the City's
pooled cash account to meet the current obligations of the Fund.
The guidelines for the allocation of assets, at market, to investment managers are as follows:
Asset Class Lower Limit Upper Limit Market
U.S. Market Equities 20% 60% Market
Growth 10% 30% Market
Value 10% 30% Market
International Equity 10% 25% Market
Domestic Fixed Income 30% 40% Market
Real Estate 0% 15% Market
Alternative Investments 0% 10% Market
Because the asset classes do not move in concert, deviations from the normal commitments will
occur through normal market activity. The Upper and Lower Limits define the ranges within which
market activity will be allowed to shift the allocations. The ranges are designed to allow for a
reasonable period of time to elapse before rebalancing the portfolio. When the investments are out
of policy the assets will be moved from the over-allocated to the under-allocated in a prudent
manner.
When in market equilibrium, cash flows will be deployed in a manner that returns the portfolio to its
normal commitments.
Internal Controls
As part of the City's annual financial audit the external CPA firm will review the internal controls
of the Fund. The hiring or termination of all money managers, consultants or safekeeping
custodians must be made by the trustees. No individual associated with the Fund may authorize any
movement of monies or securities without the approval of the trustees, if required, or by the
approval of the Pension Investment Committee if trustee approval is not required. Trustee approval
is not required for rebalancing of the portfolio. Internal controls will be designed to prevent losses
of funds which might arise from fraud, error, and misrepresentation by third parties or imprudent
actions by the trustees or City employees.
Makeup of the Investment Committee
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The Pension Investment Committee shall consist (at a minimum) of the following: Finance Director
(Treasurer for the Trustees), Assistant Finance Director, the Cash & Investments Manager and one
member from the general public appointed by the Trustees. The Treasurer for the Trustees shall
appoint/remove other Finance professionals as needs warrant. One representative for each of the
unions may also serve on the Investment Committee. The Finance Director or its designee will
chair the committee.
The Treasurer for the Trustees will make recommendations to the Trustees as to any changes in
the makeup of the committee.
Continuing Education
The annual budget for the Pension Fund will include sufficient funding for the trustees and
members of the Pension Investment Committee to participate in pension education opportunities.
These educational opportunities will include education on the individual's duties and
responsibilities as well as investments in general. The chief investment officer will complete no less
than eight(8)hours of continuing educational opportunities on pension investments each fiscal year.
E VESTMENT RETURN OBJECTIVES
In formulating investment return objectives for the Funds' assets, the Fund placed primary emphasis
on the following goals:
• Achieve investment performance that exceeds the rate of inflation over time thereby
providing a real rate of return.
• Achieve investment results of at least the actuarial rate of return.
• Achieve investment performance that is materially above average when compared
to:
- Other investment managers
- Other investment manager peers of related investment style
- Other public retirement plans
- Several capital market indices
• The Trustees will determine the expected rate of return of the current year, and
future years. The expected rate of return for the foreseeable future is 7.5%. The total
Fund and asset segment return expectations are as follows:
a. Total Fund Return Objectives
The following minimum comparative objectives have been established for
the total Fund:
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1.The total fund should rank in the upper fiftieth(50th)percentile compared
to a recognized performance measure company's total public plan sponsor
database measured over a minimum period of three (3) or maximum five (5)
years.
2.The Fund's overall annualized total return should perform at least at the
upper fiftieth (50th)percentile compared to investment style peers of similar
type as found in recognized performance measurement style database for
each asset class segment.
3.The Fund's overall annualized total return (which is defined as all price
changes plus all income and/or dividends) should exceed the actuarial
assumption over a rolling three(3) or maximum of five(5) year period.
4.The Fund's overall annualized total return should exceed the returns that
would have collectively been achieved if the Fund had been fully invested in
the appropriate percentage of
- Standard&Poor's 500 Stock Index
- Lehman Brothers Aggregate Bond Index
- Morgan Stanley Capital International EAFE Index
This is a custom benchmark that will be calculated relative to
the actual collective asset class mix of the Fund measured over a
minimum of three(3) or maximum of five(5) years.
b. Equity Segment Return Objectives
The following minimum performance goals have been established
for the Fund's domestic equity segment:
1.The domestic equity segment total return should perform at least at the
upper fiftieth (50th) percentile compared to a recognized performance
measurement company's total U.S. equity database measured over a
minimum period of three(3) or maximum of five(5)years.
2.The individual domestic equity managers total return should perform at
least at the upper fifth (50th) percentile compared to investment style peers
of similar type as found in a recognized performance measure company's
total U.S. equity database measured over a minimum period of three (3) or
maximum of five(5)years.
3.The domestic equity segment total return should exceed the total return of
the Standard&Poor's 500 Stock Index by at least 100 basis points per year
measured over a minimum period of three(3) or maximum of(5)years.
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C. International Equity Segment Return Objectives
The following minimum performance goals have been established
for the Fund's international equity segment:
l.The international equity segment total return should perform at least at the
upper fiftieth (50th) percentile compared to recognized performance
measure company's total non U.S. equity database measured over a
minimum period of three(3) or maximum of five(5)years.
2.The individual international equity managers total return should perform
at least at the upper fiftieth (50th) percentile compared to the investment
style peers of similar type as found in a recognized performance measure
company's total non U.S. equity database measured over a minimum
period of three(3) or maximum of five(5) years.
3.The international equity segment total return should exceed the total
return of the Morgan Stanley Capital International Europe, Australia, Far
East Index (EAFE) by at least 200 basis points per year over a minimum of
three(3) or maximum of five(5)years.
d. Fixed Income Segment Return Objectives
The following minimum performance goals have been established
for the Fund's domestic fixed-income segment:
l.The domestic fixed-income segment total return should perform at least at
the upper fiftieth (50th)percentile compared to the recognized performance
measure company's total domestic fixed income database measured over a
minimum period of three(3) or maximum of five(5)years.
2.The individual domestic fixed income managers total return should
perform at least at the upper fiftieth (50th) percentile compared to
investment style peers of similar type as found in a recognized performance
measure company's total domestic fixed income database measured over a
minimum period of three(3) or maximum of five(5)years.
3.The domestic fixed income segment total returns should exceed the total
return of the Barclays Aggregate Bond Index by at least 50 basis points per
year measured over a minimum period of three (3) or maximum of five (5)
years.
e. Real Estate Segment Return Objectives
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The following minimum performance goals have been established for the
Fund's Real Estate Segment:
1.The Real Estate segment total return should perform at least at the upper
fiftieth(50th)percentile compared to recognized performance measurement
database measured over a minimum period of three (3) or maximum of five
(5)years.
2.The Real Estate managers total return should perform at least at the upper
fiftieth (50th) percentile compared to the investment style peers of similar
type as found in a recognized performance measurement company's
database measured over a minimum period of three (3) or maximum of five
(5)years.
3.The Real Estate managers total return should exceed the total return for
comparable strategies of the Wilshire RESI Index over a minimum of three
(3) or maximum of five(5)years.
f. Alternative Segment Return Objectives
The following minimum performance goals have been established for the
Fund's alternative investment segment.
l.The Alternative total return should perform at least at the upper fiftieth
(50th) percentile compared to recognized performance measurement
database measured over a minimum period of three (3) or maximum of
five(5)years.
2.The alternative manager's total return should perform at least at the
upper fiftieth (50th) percentile compared to the investment style peers of
similar type as found in a recognized performance measurement
company's database measured over a minimum period of three (3) or
maximum of five(5)years.
3.The alternative manager's total return should exceed the total return for
comparable strategies of the Credit Suisse/Tremont Hedge Fund Index
over a minimum of three(3) or maximum of five(5) years.
Criteria for Investment Manager Review
• Consistent under-performance of the stated target index over rolling 3-year periods.
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• Loss by the Manager of any senior personnel deemed detrimental to the Manager's
ability to perform required duties or any potentially detrimental organizational issues
that may arise and have an effect on the management of the Plan's assets.
• Substantial change in basic investment philosophy by the Manager.
• Substantial change of ownership of the firm deemed detrimental to the Manager's
ability to perform the required duties.
• Failure to observe any guidelines as stated in this policy.
ROLES AND RESPONSIBILITIES
Responsibilities of the Third Party Custodian
A third party custodian will hold all Fund assets other than commingled accounts.
In order to maximize the Fund's return, no money should be allowed to remain idle.
Dividends, interest, proceeds from sales, new contributions and all other monies are to be
invested or reinvested promptly. If funds are not reinvested, then they will be placed in
money market instruments or a money market Fund immediately by the designated cash
manager working in concert with the custodian.
The custodian will be responsible for performing the following functions:
• Accept daily instructions from the investment managers;
• Advise investment managers daily of changes in cash equivalent balances;
• Immediately advise investment managers of additions or withdrawals from account;
• Dispositions of holdings;
• Resolve any problems that investment managers may have relating to custodial
account;
• Safekeeping of securities;
• Interest and dividend collection;
• Daily cash sweep of idle principal and income cash balance;
• Process all investment manager transactions on a delivery vs.payment basis;
• Collect proceeds from maturing securities;
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• Provide monthly statements by investment manager account;
• All securities purchased by the Fund shall be properly designated as an asset of the
Fund;
• No withdrawal of securities, in whole or in part shall be made except by an
authorized member of the committee or the committee's designee.
Responsibilities of Investment Managers
The duties and responsibilities of each of the registered investment advisors retained by the
Fund include:
• Managing the assets under its management in accordance with the policy guidelines
and objectives expressed herein, or expressed in a separate written agreement when
deviation is deemed prudent and desirable.
• Exercising full investment discretion within the guidelines and objectives stated
herein. Such discretion includes decisions to buy, hold or sell securities in amounts
and proportions reflective of the manager's current investment strategy and
compatible with investment objectives.
Promptly informing the Fund regarding all significant matters pertaining to the investment
of the Fund assets, for example:
a.changes in investment strategy, portfolio structure and market value of managed
assets;
b.the manager's progress in meeting the investment objectives set forth in this
document; and
c.significant changes in the ownership, affiliations, organizational structure, financial
condition, professional personnel staffing and clientele of the investment
management organizations.
No deviation from guidelines and objectives established in the Statement
should occur until after such communication has occurred and the Fund has
approved such deviation in writing.
• The Fund formally delegates full authority to each investment manager for
exercising all proxy and related actions of the Fund's investment assets assigned to
it. Each manager shall promptly vote all proxies and related actions in a manner
consistent with the long-term interests of the Fund and its Participants and
Beneficiaries. Each investment manager shall keep detailed records of all said
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voting of proxies and related actions and will comply with all regulatory obligations
related thereto. The Fund shall periodically audit and review each investment
manager's policies and actions in this area.
• Each Investment Manager shall utilize the same due care, skill, prudence and
diligence under the circumstances then prevailing that experienced, investment
professionals acting in a like capacity, as a fiduciary, and fully familiar with such
matters would use in like activities for like Funds with like aims, while maintaining
appropriate diversification to avoid the risks of large losses, in accordance and
compliance with all applicable laws, rules and regulations from local, state, federal
and international political entities as it pertains to fiduciary duties and
responsibilities.
• Notifying the Fund of the filing of a lawsuit by a client against the manager alleging
breach of fiduciary duty or other willful conduct.
EVALUATION AND REVIEW
On a timely basis, but not less than four times a year, the Fund will review actual investment results
achieved by each manager (with a perspective toward a five-year time horizon) to determine
whether:
• the investment managers performed in adherence to the investment philosophy and
policy guidelines set forth herein; and
• the investment managers performed satisfactorily when compared with:
a.the objectives set forth in Appendix "A", as a primary consideration,
b.their own previously stated investment style,
c.other investment managers, both in asset class and in style group,
d.other retirement funds,
e.several different market indices.
In addition to reviewing each investment manager's results, the Fund will re-evaluate, from time to
time, its progress in achieving the total Fund, equity, fixed-income, international, and cash and
equivalents segment objectives previously outlined. The periodic re-evaluation also will involve an
evaluation of the continued appropriateness o£ (1)the manager structure set forth in Appendix "A";
(2) the allocation of assets among the managers; and (3) the investment objectives for the Fund's
assets.
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The Fund may appoint investment consultants to assist in the on-going evaluation process. The
consultants selected by the Fund are expected to be familiar with the investment practices of other
similar retirement plans and will be responsible for suggesting appropriate changes in the Fund's
investment program over time.
Filing of Investment Policy
Upon adoption by the trustees, the investment policy shall be promptly filed with the Department of
Management Services, the City Clerk, and the consulting actuary. The effective date of changes to
the Investment policy will be 31 days after the filing date with the city.
APPENDIX A:
FUND SEGMENT AND INDIVIDUAL MANAGER GUIDELINES
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CITY OF CLEARWATER EMPLOYEES PENSION FUND
INVESTMENT STRUCTURE
February 12, 2010
Target
Investment Manager Allocation
Domestic Equity
Value Orientation 10% - 30%
Domestic Equity
Growth Orientation 10% - 30%
International Equity 10% -25%
Domestic Fixed Income 30% -40%
Real Estate 0% - 15%
Alternative Investments 0% - 10%
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APPENDIX A: FUND SEGMENT AND INDIVIDUAL MANAGER GUIDELINES
1. Manager Structure
The Fund will retain investment managers that specialize in the use of particular asset
classes. The targeted distribution of Fund assets among specialist managers will be as
illustrated on the previous page. The Fund believes that the established structure:
• is consistent with the practices of other similar-sized retirement funds; and
• offers an appropriate "blend" of investment styles that will produce a
sufficient level of diversification and investment return over time.
2. Cash Flow Allocation
The allocation of assets is consistent with the Fund's desire to diversify its investment
management program.
The Fund intends to review on a periodic basis the allocation of assets among its investment
managers. To the extent that it is practical, it is expected that any cash flow will be allocated
to or taken from the managers in the same proportions that each manager's assets represent
to total Fund assets in the target asset allocation outlined previously.
3. Trustee Utilization Restrictions
All domestic Fund assets, in any form, shall be solely and exclusively: (a) settled at, (b)
held in custody at, and (c) safe-kept only at custodians designated by the Fund at its sole
discretion. International Fund assets may be held in commingled accounts provided that all
of the normal protection of the Fund's assets is provided for.
4. Transaction Agent Assignment Restrictions
Assignment of specific brokerage firms, dealers, financial institutions, and other transaction
execution agents to all investment managers shall be the sole responsibility of the Fund.
From time to time, the Fund at its sole discretion may specify certain transaction agents that
investment transactions shall be executed through.
5. Short Selling and Related Restrictions
There shall be no: short selling, non-collateralized and/or non-delivered repurchase
agreements, use of financial futures or options, non-marketable direct investments in equity
or debt private placements or lease-backs or any other specialized investment activity
without the prior written consent of the Fund.
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6. Liquidity and Marketability Restrictions
Liquidity and marketability frequently are perceived to be a function of the quality and the
market capitalization of each security holding. From the Fund's perspective, liquidity and
marketability also may be a function of a manager's aggregate holdings in a particular
security. The Plan believes that an investment manager should not buy or hold a security for
the Funds portfolio if the aggregate holdings among all of that manager's other accounts in
that same security would restrict the manager's ability to expeditiously liquidate the position
at any time.
From a total Fund perspective, the Fund believes the collective holdings among all Fund
managers' accounts in that same security would restrict all managers' collective ability to
expeditiously liquidate their respective positions in that same security. Therefore, the Fund
retains the sole right to limit any manager's holding of any security in the Fund at any time
in order to prevent the potential for said Fund's collective liquidation and market risk.
7. Usage of Custodian STIF on all Idle Cash Restrictions
Any idle cash not invested by the investment managers shall be invested daily via an
automatic sweep STIF managed by the Custodian or by others in behalf of each investment
manager. It is the Fund's objective to have no idle cash at any time in any manager's
portfolios.
8. Usage of Cross Asset Segment Investment Guideline Restrictions
When a manager's holdings include Fund assets outside of their primary assigned asset
segment assignment (e.g. a primary domestic equity manager also holds some cash
equivalents or fixed income securities as well as equities) the guidelines stated therein for
the non primary asset segment shall fully apply to the manager, in addition to the primary
asset assigned segment guidelines.
9. Diversification Restrictions
Except for criteria noted elsewhere in this Policy and in specific written contracts with each
manager, the appropriate and reasonable diversification of securities by such factors as
geography, region, sovereign risk, native currency, quality, coupon, country risk, maturity,
industry, duration, and sector is within the full discretion and responsibility of the
investment managers.
10. Other Objectives, Guidelines and Restrictions Forthcoming
The Fund may develop additional objectives, guidelines and restrictions and may amend the
Policy from time to time.
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11. Fund Segment Guidelines
Following are guidelines and objectives established for the Fund segments and for each
investment manager retained by the Fund. Individual manager guidelines are designed to be
consistent, in aggregate, with the total Fund asset allocation guidelines and investment
objectives set forth in the Statement of Investment Objectives and Guidelines.
a. Domestic Equity Segment
Each equity manager is expected to adhere to the following guidelines:
• Equity holdings in any one company (including common and preferred
stock, convertible securities and debt) should not exceed ten percent (10%)
of the market value of the manager's portion of the Fund without the consent
of the Fund.
• Equity holdings in any one industry (as defined by Standard & Poor's)
should not exceed fifty percent (50%) of the market value of the manager's
portion of the Fund.
• Cash equivalents and fixed income positions should not exceed twenty five
percent (25%) of the manager's portfolio. A manager may invest in fixed
income securities if projected returns on such securities are perceived to be
competitive with potential equity returns. However, fixed income securities
will not represent more than twenty-five percent (25%) of a manager's
portfolio without the prior written consent of the Fund.
• No purchase shall be made by an investment manager that would cause a
holding to exceed five percent(5%) of the issue outstanding.
b. International Equity Segment
Each international equity manager is expected to adhere to the following minimum
guidelines:
• Equity holdings in any one company and all of its subsidiaries and affiliates
(including equities, convertible securities and debt) should not exceed five
percent (5%) of the market value of the manager's portion of the Fund
portfolio without the prior written consent of the Fund.
• Equity holdings in any one industry should not exceed fifty percent (50%) of
the market value of the manager's portion of the Fund portfolio. Equity
holdings in any one sector(e.g., consumer cyclical, energy, technology, etc.)
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should not exceed fifty percent (50%) of the market value of the manager's
portfolio without the prior written consent of the Fund.
• Cash equivalents and fixed income positions should not exceed fifty percent
(50%) of the manager's portion of the Fund assets. A manager may invest in
fixed income securities (i.e. securities with more than two years to maturity)
if projected returns on such securities are perceived to be competitive with
potential equity returns.
• The manager may enter into foreign exchange contracts on currency
provided that: (a) such contracts have a maturity of one year or less, and (b)
use of such contracts is limited solely and exclusively to hedging currency
exposure existing within the manager's portfolio. The intent is to dampen
portfolio volatility and prevent currency loss. There shall be no direct
foreign currency speculation or any related investment activity.
• The manager may purchase or sell currency on a spot basis to accommodate
specific securities settlements.
C. Fixed Income Segment
Each fixed income manager is expected to adhere to the following guidelines:
• All Fixed Income Securities held in each portfolio should have a Moody's, or
Standard & Poor's quality rating of no less than Investment Grade from any
of these rating services. For an issue which is split-rated, the lower quality
designation will govern. Once a security falls below investment grade the
money manager will notify the plan of the downgrade as soon as practical.
Included in that notification will be how the money manager will handle the
below investment grade security.
• The diversification of securities by maturity, quality, sector, coupon and
geography is the responsibility of the manager.
• The exposure of each manager's portfolio to any single security other than a
security backed by the full faith and credit of the U.S. Government or any of
its instrumentalities should be limited to five percent (5%) of the manager's
portion of the Fund measured at market value.
• No purchase shall be made by a Fixed Income Manager, which would cause
a holding to exceed ten percent(10%) of the issue outstanding.
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• There shall be no use of options, financial futures, derivatives or other
specialized investment activity without the prior written approval of the
Fund.
• Not more than ten percent (10%) of an investment manager's portfolio,
valued at market, shall be invested in certificates of deposit, time deposits,
bankers acceptances, commercial paper, or related investments of a single
issuer financial institution or financial institution holding company family.
d. Real Estate Segment
Each Real Estate manager is expected to adhere to the following guidelines:
• REIT managers will limit holdings in any one company to fifteen percent
(15%) of the market value of the manager's Fund, cash equivalents and
positions in fixed income vehicles should not exceed twenty five percent
(25%) of the managers portfolio and no purchase shall be made that would
cause a holding to exceed ten percent(10%) of the issues outstanding.
• Managers of direct investments in real estate structured as limited
partnerships, limited liability companies or separate accounts will operate
strictly within conformance to the regulations of their state of domicile and
comply with any applicable federal or state security laws.
• Managers of direct investments in real estate may be income oriented or
capital gains oriented but in no event will the manager apply average
leverage in excess of forty percent(40%) of the value of the total portfolio.
• Managers of direct investments in real estate shall seek to diversify the
portfolio in terms of geographic location, tenant usage, and lease schedules.
• Timberland managers shall maintain portfolios of geographically diversified
stands of biological tree growth with the potential for land value
appreciation, alternative use and leasing potential, diversified product
opportunities and long term land appreciation possibilities.
e. Alternative Investment Segment
Academic research supports the use of alternative investments as a mechanism to
potentially reduce the volatility and/or enhance the expected return of an
investment portfolio. However, the use of alternative investments can introduce
unique types of risks due to their inherent structure and characteristics which
include but are not limited to: leverage, illiquidity, short sales, derivatives, and
lack of transparency and regulation. In light of these unique risks, the Fund does
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not attempt to define or limit the manager's discretion as to the use of financial
instruments. The Fund will actively monitor the investment manager's
performance and activities to limit exposure to these unique risks.
£ Cash and Equivalents Segment
Although investment managers will be retained for their expertise in a certain
investment segment, it is expected that from time-to-time each will have some cash
and equivalents in their portfolios as a result of discretionary asset allocation
decisions. Any idle cash not invested by the investment managers shall be invested
daily via an automatic sweep STIF managed by the custodian. It is the Fund's
objective to have no idle cash at anytime in any manager's portfolio.
g. Pooled Vehicles
To the extent that the Fund invests a portion of the Fund's assets in commingled
vehicles or institutional mutual funds, then the investment guidelines of the fund's
prospectus will be adopted as this fund's guidelines.
h.. Master Repurchase Agreement
The money managers and safekeeping custodian will use a master repurchase
agreement whenever appropriate. All repurchase agreements transactions shall
adhere to the requirements of the master repurchase agreement.
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12. Individual Manager Descriptions and Five-Year Expectations
All expectations are minimums. All investment managers shall exceed the stated
expectations.
Investment Manager Percentile Percentile
Expectation Expectation
Relative To Relative To
Other Managers Style Peers
Domestic Equity Specialist Manager 50th 50th
Value Orientation
Domestic Equity Specialist Manager 50th 50th
Growth Orientation
International Equity 50th 50th
Specialist Manager
Domestic Fixed Income Specialist Manager 50th 50th
Core Fixed Income Orientation
Real Estate Specialist Manager 50th 50th
Alternatives Specialist Manager 50th 50th
In addition, each domestic equity and fixed income manager is expected to achieve
positive risk-adjusted(alpha)performance over a three(3) or five(5)year period.
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13. Reporting Requirements:
a. Consultant Reporting
The Pension Fund's Consultant will provide quarterly reports to the Pension Fund
which, at a minimum, will review the following information about each Investment
Manager and the total Fund:
• Overview of the most recent quarter and year-to-date investment indicators
• Total Fund asset allocation
• Comparison of total Fund return versus the customized benchmark
• Performance results by individual Manager and Total Fund compared to
appropriate benchmarks.
b. Investment Reporting;
• On not less that an annual basis the Trustees will receive a report showing a list
of all of the securities held by investment manager. This report will be provided
by the safekeeping custodians and shall include the portfolio by class or type,
book value, income earned, and market value as of the date of the report. This
report will be filed with the City.
C. Proxy Voting:
• On not less that a quarterly basis, money managers will report to the Plan their
proxy voting during the last period.
14. Review of Policy
This Statement of Investment Policy must be reviewed annually by the Pension Investment
Committee with a recommendation to revise or confirm to the Trustees.
15. Meeting Agenda
At each meeting, the written and oral presentations shall cover the following points:
• A report of performance for past periods. Standard time periods for each
report will be last quarter, last year, year to date, latest twelve (12) months,
two years, three years, etc., and since inception and by calendar year.
Returns should be annualized and calculated on a time-weighted basis for the
total portfolio. All returns should include price change plus income and/or
dividends.
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• Discussion of the rationale for performance results by relating them
specifically to investment strategy and tactical decisions implemented during
the current review period.
• Discussion of the investment manager's specific strategy for the portfolio
over the next six to twelve months with specific reference to asset allocation
and sector weighting, as appropriate.
• Supporting discussion of the next period's strategy with reference to
investment manager's capital market and economic assumptions, if
applicable.
Twelve (12) copies of the written summary should be received by the Fund at least
five(5)business days prior to the meeting.
The Fund is interested in fostering an effective working relationship with its
investment managers through a discipline of good communication. The
establishment of Objectives, Performance Standards, Policies and Guidelines, and
Reporting Requirements is intended to provide the Fund with a good foundation
from which to understand specific management styles and strategies, evaluate results
and oversee progress toward overall investment objectives.
The Fund shall be using a third party consultant selected, hired and directed by the
Fund to: (1) assist in appraising performance, (2) to provide performance
comparison data with other retirement plans, several capital market indices, and to
other investment managers, (3) assist in evaluating manager style discipline and peer
comparisons, (4) assist in strategic Funding and management of the Fund, and (5)
other factors the Fund deems appropriate. Investment managers are required to
support and assist the consultant with their fullest cooperation.
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