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HomeMy WebLinkAboutWinter Springs Retirement System Investment Policy Statement 2023 08 28 Adopted: August 2023 Page 1 CITY OF WINTER SPRINGS (Plan Sponsor) GENERAL EMPLOYEES’ RETIREMENT SYSTEM Investment Policy Statement I. PURPOSE OF INVESTMENT POLICY STATEMENT The Pension Board of Trustees, as named fiduciaries, maintains that an important determinant of future investment returns is the expression and periodic review of the Plan's investment objectives. To that end, the Board has adopted this statement of Investment Policy and directs that it apply to all assets under their control. In fulfilling their fiduciary responsibility, the Board recognizes that the retirement system is an essential vehicle for providing income benefits to retired participants or their beneficiaries. The Board also recognizes that the obligations of the Plan are long-term and that investment policy should be made with a view toward performance and return over a number of years. The general investment objective, then, is to obtain a reasonable total rate of return - defined as interest and dividend income plus realized and unrealized capital gains or losses - commensurate with the Prudent Investor Rule and any other applicable statute. Reasonable consistency of return and protection of assets against the inroads of inflation are paramount. However, the volatility of interest rates and securities markets make it necessary to judge results within the context of several years rather than over short periods of two years or less. The Board will employ professional Investment Management firms to invest the assets of the Plan. Within the parameters allowed in this document, the Investment Managers shall have full discretion, including security selection, sector weightings and investment style. The Board, in performing their investment duties, shall comply with the fiduciary standards set forth in Employee Retirement Income Security Act of 1974 (ERISA) at 29 U.S.C. s. 1104(a) (1) (A) – (C). In case of conflict with other provisions of law authorizing investments, the investment and fiduciary standards set forth in this section shall prevail. Adopted: August 2023 Page 2 II. TARGET ALLOCATIONS In order to provide for a diversified portfolio, the Board has engaged several Investment Management firms. The managers are responsible for the assets and allocation of their mandate only and will be provided an addendum to this policy with their specific performance objectives and investment criterea. Asset Class Target Range Benchmark Domestic Equity Securities 50% 45% - 55% Russell 3000 Foreign Equity Securities 15% 10% - 20% MSCI ACW xUS (net) Composite Equity Portfolio 65% 55% - 75% Broad Market Fixed Income 15% 10% - 30% Bloomberg Barclays U.S. Intermediate Aggregate Non - Core Fixed Income* 10% 0% - 20% Strategy Index** Composite Fixed Income Portfolio 25% 10% - 40% Direct Real Estate* 10% 0% - 15% NFI-ODCE (eqwt.) Alternative* 0% 0% -15% Strategy Index** Cash & Cash Equivalents 0% 0% - 5% Citigroup 3-mth U.S. T-bill *Benchmark will default to “broad market fixed income” if these portfolios are not funded. Targets and ranges above are based on market value of total Plan assets. **The “strategy index” for other assets is defined as the most appropriate index, combination of indices, or absolute return target for the investment(s) in question. The Trustees will monitor the aggregate asset allocation of the portfolio, and will rebalance to the target asset allocation based on market conditions. If at the end of any calendar quarter, the allocation of an asset class falls outside of its allowable range, barring extenuating circumstances such as pending cash flows or allocation levels viewed as temporary, the asset allocation will be rebalanced into the allowable range. To the extent possible, cash contributions into and withdrawals from the portfolio will be executed proportionally based on the most current market values available. The Trustees do not intend to exercise short-term changes to the target allocation. III. INVESTMENT PERFORMANCE OBJECTIVES The following performance measures will be used as objective criteria for evaluating the effectiveness of the Investment Managers. A. Total Portfolio Performance 1. The performance of the total portfolio will be measured for rolling three and five year periods. The Target Index for the Plan is defined in the TARGET ASSET ALLOCATION table included within this policy 2. On a relative basis, it is expected that the total portfolio performance will rank in the top 40th percentile of the appropriate peer universe over three and five-year time periods. On an absolute basis, it is expected that total return of the combined portfolio will equal or exceed the actuarial earnings assumption. Adopted: August 2023 Page 3 B. Equity Performance The combined equity portion of the portfolio, defined as common stocks and convertible bonds, is expected to perform at a rate at least equal to the 77% Russell 3000 Index, 23% MSCI ACW xUS (net) Index. Individual components of the equity portfolio will be compared as outlined in Schedule A. All portfolios are expected to rank in the top 40th percentile of the appropriate peer universe over three and five-year time periods. C. Fixed Income Performance The overall objective of the fixed income portion of the portfolio is to add stability, consistency, and safety to the total portfolio. The fixed income portion of the portfolio is expected to perform at a rate at least equal to a blend ed index comprised of 60% Bloomberg Barclays Capital U.S. Aggregate Bond Index (a subset benchmark(s) of similarly investable securities may be applied) and 40% Non-Core Fixed Income **strategy index. All portfolios are expected to rank in the top 40th percentile of the appropriate peer universe over three and five-year time periods. D. Non - Core Fixed Income Shall be defined as invests in various classes of fixed income securities oriented towards credit. The role of this pool is to provide growth of capital and income generation, utilizing strategies that fall within the range of traditional fixed income/credit strategies. Some of these strategies may not be liquid allowing the Retirement Plan to take advantage of illiquidity premiums available in these markets. Investments may include Global Fixed Income, unconstrained bond strategies, structured credit securities, high yield corporate bonds, direct lending strategies, opportunistic credit funds, and distressed debt strategies. Eligible investments may include both rated and non-rated securities. Rated securities may include those rated below investment grade. The portfolio is expected to perform at a rate at least equal to a blended index comprised of **the strategy index as defined in the Asset Allocation Table. E. Real Estate Performance The overall objective of the real estate portfolio of the portfolio, if utilized, is to add diversification and another stable income stream to the total fund. The real estate portion of the total fund, defined as core, open ended private real estate, is expected to perform at a rate at least equal to the NFI-ODCE equal weight Index and rank in the top 50th percentile of the appropriate peer universe over three and five-year time periods. Please also see attached addendums for performance objectives. F. Alternatives The overall objective of the alternative portion of the portfolio, if utilized, is to reduce the overall volatility of the portfolio and improve potential absolute returns. This portion of the fund is expected to provide an absolute rate of return and will be benchmarked as outlined in the manager addendum **strategy index. IV. INVESTMENT GUIDELINES A. Authorized Investments Pursuant to the investment powers of the Board of Trustees set forth in the plan and trust documents; and subject to governing Florida Statutes and the governing local ordinances of the City of Winter Springs, the Board of Trustees sets forth the following investment guidelines and limitations on investments: Adopted: August 2023 Page 4 All separately managed investments shall be limited to the following: 1. Equities: a. Traded on a national exchange. b. Not more than 5% of the Plan’s assets, at the time of purchase, shall be invested in the common stock, capital stock or convertible stock of any one issuing company, nor shall the aggregate investment in any one issuing company exceed 5% of the outstanding capital stock of the company. 2. Fixed Income: a. All direct investment in fixed income securities shall have a minimum rating of investment grade or higher as determined by at least one major credit rating service. b. The value of bonds issued by any single corporation shall not exceed 3% of the total fund. 3. Money Market: a. The money market fund or STIF provided by the Plan’s custodian. b. Government paper backed by full faith & credit of the United States Government. 4. Real Estate: a. Shall be limited to commingled funds. Investments must be independently appraised annually. Commingled fund debt holdings shall be considered independently of Fixed Income, and may include both rated and non rated debt. 5. Alternatives a. Investments not described under any other asset class, may be utilized to reduce the overall volatility of the portfolio and improve potential absolute returns. All alternative investments shall be independently custodied and provide for transparency of investment. 6. Foreign Securities: Limited to fully and easily negotiable securities, or commingled funds with investments in such securities. 7. Commingled Funds/Mutual Funds & Exchange Traded Funds: Investments made by the Board may include commingled funds. For purposes of this policy such funds may include, but not be limited to, mutual funds, commingled funds, and exchange-traded funds. a. Such funds may be governed by separate policy which may include investments not expressly permitted in this Investment Policy Statement. In the event of investment by the Plan into a fund the Board will adopt the prospectus or governing policy of that fund as the stated addendum to this Investment Policy Statement. b. The asset classification of the fund will be based upon its investment objective. Adopted: August 2023 Page 5 B. Trading Parameters When feasible and appropriate, all securities shall be competitively bid. Except as otherwise required by law, the most economically advantageous bid shall be selected. Commissions paid for purchase of securities must meet the prevailing best-execution rates. The responsibility of monitoring best price and execution of trades placed by each manager on behalf of the Plan will be governed by the Portfolio Management Agreement between the Plan and the Investment Managers. C. Limitations 1. Investments in corporate common stock and convertible bonds shall not exceed seventy-five percent (75%) of the Fund assets at market. 2. Foreign securities shall not exceed twenty percent (25%) of the value at market of the Fund. 3. Alternative investments shall not exceed 15% of the value at market of the Fund D. Absolute Restrictions There will be no investment activity in the following: 1. Any investment prohibited by State or Federal Law. 2. Illiquid investments in excess of limitations as described in Chapter 215.47 (15), Florida Statutes; 2019. 3. The Board and its Investment Managers shall comply with the applicable requirements of Chapter 2023-28, Laws of Florida, including Section 112.662, along with regulations adopted by the Department of Management Services. The term “pecuniary factor” is defined as a factor that a named fiduciary “prudently determines is expected to have a material effect on the risk or returns of an investment based on appropriate investment horizons consistent with the investment objectives and funding policy of the investment program. The term does not include the consideration of the furtherance of any social, political, or ideological interests.” [112.662(1)]. In selecting Investment Managers, only pecuniary factors may be considered and the interests of the participants and beneficiaries of the system may not be subordinated to other objectives, including sacrificing investment return or undertaking additional investment risk to promote any nonpecuniary factor. The weight given to any pecuniary factor must appropriately reflect a prudent assessment of its impact on risk or returns. [112.662(2)]. Only pecuniary factors may be considered when voting proxies. [112.662(3)] V. COMMUNICATIONS A. On a monthly basis, the custodian shall supply an accounting statement that will include a summary of all receipts and disbursements and the cost and the market value of all assets. On a quarterly basis, the Investment Managers shall provide a written report affirming compliance with the security restrictions of Section IV above and a summary of common stock diversification and attendant schedules. B. In addition, the Investment Managers shall deliver each quarter a report detailing the Plan's performance, adherence to the investment policy, forecast of the market and economy, portfolio analysis and current assets of the Plan. Written reports shall be delivered to the Board within 30 days of the end of the quarter. A copy of the written report shall be submitted to the person designated by Adopted: August 2023 Page 6 the City, and shall be available for public inspection. The Investment Managers will provide immediate written and telephone notice to the Board of any significant market related or non-market related event, specifically including, but not limited to, any deviation from the standards set forth in Section IV above. C. The Investment Managers will disclose any securities that do not comply with section IV in each quarterly report. D. If the Plan owns investments at the end of a calendar quarter that complied with section IV at the time of purchase, which do not satisfy the applicable investment standard, then such investment shall be disposed of at the earliest economically feasible opportunity in accordance with the prudent man standard of care and no additional investment may be made. However, an action plan outlining the disposition strategy shall be provided to the Board immediately. E. The Investment Consutlant shall evaluate and report on a quarterly basis the rate of return and relative performance of the Plan. F. The Board will meet quarterly to review the monitoring service's performance report. The Board will meet with the investment manager and appropriate outside consultants to discuss performance results, economic outlook, investment strategy and tactics and other pertinent matters affecting the Plan on a periodic basis. G. At least annually, the Board shall provide the Investment Managers with projected disbursement needs of the Plan so that the investment portfolio can be structured in such a manner as to provide sufficient liquidity to pay obligations as they come due. To this end the Investment Managers should, to the extent possible, attempt to match investment maturities with known cash needs and anticipated cash- flow requirements. H. The Board shall timely comply with the reporting requirement of Section 112.662 by filing a comprehensive report by December 15 of each odd-numbered year. [112.662(4)]. Investment managers and the Board’s Investment Consultant shall assist in the preparation of required reports and shall annually confirm to the Board their compliance with Chapter 2023-28. VI. COMPLIANCE A. It is the direction of the Board that the plan assets are held by a third party custodian, and that all securities purchased by, and all collateral obtained by the plan shall be properly designated as Plan assets. No withdrawal of assets, in whole or in part, shall be made from safekeeping except by an authorized member of the Board or their designee. Securities transactions between a broker-dealer and the custodian involving purchase or sale of securities by transfer of money or securities must be made on a "delivery vs. payment" basis to insure that the custodian will have the security or money in hand at conclusion of the transaction. Provided that all approved vendors transacting repurchase agreements perform as stated in any Master Repurchase Agreement. B. At the direction of the Board operations of the Plan shall be reviewed by independent certified public accountants as part of any financial audit periodically required. Compliance with the Board’s internal controls shall be verified. These controls have been designed to prevent losses of assets that might arise from fraud, error, or misrepresentation by third parties or imprudent actions by the Board or employees of the plan sponsor, to the extent possible. C. Each member of the Board shall participate in a continuing education program relating to investments and the Board’s responsibilities to the Plan. It is highly suggested that this education process begin during each Trustee’s first term. Adopted: August 2023 Page 7 D. With each actuarial valuation, the Board shall determine the total expected annual rate of return for the current year, for each of the next several years and for the long term thereafter. This determination shall be filed promptly with the Department of Management Services, the plan’s sponsor and the consulting actuary. E. The proxy votes must be exercised for the exclusive benefit of the participants of the Plan. Each Investment Manager shall provide the Board with a copy of their proxy voting policy for approval. On a regular basis, at least annually, each manager shall report a record of their proxy vote. F. Investments for which there is no generally recognized market or consistent accepted pricing mechanism shall be valued at 50% cost. Assets without a fair market value shall be excluded from determination of annual funding cost. G. The Investment Consultant will provide Investment Managers for consideration based solely on pecuniary factors as defined by Florida Statutes §112.662. H. If a Request for Proposals document is issued for Investment Manager services, the solicitation document must include the following: The Board of Trustees may not request documentation of or consider a vendor’s social, political, or ideological interests when determining if the vendor is a responsible vendor. Additionally, the Board of Trustees may not give preference to a vendor based on vendor’s social, political, or ideological interests. VII. CRITERIA FOR INVESTMENT MANAGER REVIEW The Board wishes to adopt standards by which judgments of the ongoing performance of a portfolio manager may be made. If, at any time, any three of the following is breached, the portfolio manager will be warned of the Board's serious concern for the Fund's continued safety and performance. If any five of these are violated the consultant will recommend a manager search for that mandate.  Four (4) consecutive quarters of relative under-performance verses the benchmark.  Three (3) year trailing return below the top 40th percentile within the appropriate peer group and under performance verses the benchmark.  Five (5) year trailing return below the top 40th percentile and under performance verses the benchmark.  Three (3) year downside volatility greater than the index (greater than 100), as measured by down market capture ratio.  Five (5) year downside volatility greater than the index (greater than 100), as measured by down market capture ratio.  Style consistency or purity drift from the mandate.  Management turnover in portfolio team or senior management.  Investment process change, including varying the index or benchmark.  Failure to adhere to the IPS or other compliance issues.  Investigation of the firm by the Securities and Exchange Commission (SEC).  Significant asset flows into or out of the company.  Merger or sale of firm.  Fee increases outside of the competitive range.