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VILLAGE OF TEQUESTA
(Plan Sponsor)
GENERAL EMPLOYEES' RETIREMENT SYSTEM
Investment Policy Statement
I. PURPOSE OF INVESTMENT POLICY STATEMENT
The Pension Board of Trustees maintains that an important determinant of future
investment returns is the expression and periodic review of the Fund's investment
objectives. To that end, the Trustees have adopted this statement of Investment Policy.
In fulfilling their fiduciary responsibility, the Trustees recognize 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 Fund are
long-term and that the 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 Pension Board of Trustees will employ professional Investment Management
firms to invest the assets of the fund. Within the parameters allowed in this IPS and
attached addendums, the Investment Managers have full discretion, including security
selection, sector weightings and investment style.
The Trustees, in performing their investment duties shall comply with the fiduciary
standards set forth in Employee Retirement Income Security Act of 1974 (FRIBA) 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.
II. TARGET ALLOCATIONS
In order to provide for a diversified portfolio, the Board has engaged several
Investment Management firms, with target investment allocations as provided for on
Schedule A, attached hereto. The manager's are responsible for the assets and
allocation of their mandate only. The Investment Consultant shall coordinate the
overall asset allocation and affect rebalancing of the portfolio when necessary with the
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custodian and/or transition manager(s). The board will take into consideration the
cash flows of the plan, and may maintain a money market account for receipts and
disbursements.
III.
INVESTMENT PERFORMANCE OBJECTIVES
The following performance measures will be used as objective criteria for evaluating
the effectiveness of the investment managers and the total fund.
A. Total Fund Performance
1. The performance of the total Fund will be measured for rolling three and five
year periods. These periods are considered sufficient to accommodate the
market cycles experienced with investments. The performance of this
portfolio will be compared to the return of a blended index comprised of 45%
S & P 500, 15%MSCI EAFE, 30% Lehman Brothers Aggregate Bond Index,
5% Lehman Brothers TIPS Index, and 5% NAREIT Index.
2. On a relative basis, it is expected that the total fund performance will be in the
top 40% of the appropriate peer universe over three to five-year periods.
3. On an absolute basis, it is expected that total return of the combined equity,
fixed income, and cash portfolio, will equal or exceed the actuarial earnings
assumption (8.0%), and equal or exceed the Consumer Price Index plus 3%
over three to five year periods.
B. Eauity 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 a blended
index comprised of (75%) S & P 500 Index and (25%) MSCI EAFE Index.
Individual components of the equity portfolio will be compared as outlined in
Schedule A and each individual manager addendum. All portfolios are
expected to perform in the top 40% of an appropriate peer universe.
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 fund. The fixed income portion of
the portfolio, defined as fixed income and preferred stocks, is expected to
perform at a rate at least equal to the Lehman Brothers Aggregate Bond Index,
and be in the top 40% of the appropriate peer universe.
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D. Treasury Inflation Protection Securities (TIPS)
The overall objective of the TIPS portfolio is to provide inflation protection
while adding stability to the total fund. The TIPS portfolio is expected to
perform at a rate equivalent to the Lehman Brothers TIPS Bond Index.
E. Real Estate Performance
The overall objective of the real estate portion of this portfolio 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 NAREIT Index
and be in the top 40% of a universe of other similarly managed portfolios.
Please also see attached addendums for performance objectives.
F. Alternatives (Timber/HedQe Fund of Funds/Income Alternative)
The overall objective of the alternative portion of the portfolio is to provide an
attractive level of income with minimal volatility to the fund. This portion of
the fund is expected to provide an absolute rate of return, and as benchmarked
in Schedule A and attached addendum.
IV. INVESTMENT GUIDELINES
A. Authorized Investments
1. Not withstanding any limitation provided for in Chapters 112, Florida Statutes
to the contrary (unless such limitation may not be amended by local ordinance)
or any limitation in prior VILLAGE ordinances to the contrary, all monies paid
into or held in the Fund may be invested and reinvested in such securities,
investment vehicles or property wherever situated and of whatever kind, as
shall be approved by the Board, including but not limited to common or
prefernd stocks, bonds, and other evidences of indebtedness or ownership.
2. In addition, the Fund may make investments in group mists meeting the
requirements of Internal Revenue Service Revenue Ruling 81-100 or successor
rulings or guidance of similar import, and while any portion of the assets of the
Fund are invested in such a group trust, such group trust is itself adopted as a
part of the System or plan.
a. The individual securities in separate accounts
(Those not included in alternative investment vehicles) must meet the
following ranking criteria:
i. Fixed Income:
a. 90% of all fixed income securities should be rated investment grade
or higher by Moody, S&P or Fitch.
b. The total fixed income portfolio shall have a weighted average credit
quality of AA or better as measured by Moody, S&P or Fitch.
c. The effective duration of the portfolio shall be kept within +/- 25% of
the Lehman Aggregate Index.
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ii. Equities must be traded on a national exchange.
iii. Money Market must be Standard & Poor's Al or Moody's P1.
b, Not more than 5% of the Fund's assets shall be invested in the common
stock or capital 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.
c. The value of bonds issued by any single corporation shall not exceed
3% of the total fund.
3. Pooled Funds: Investments made by the Plan may include pooled funds. For
purposes of this policy pooled funds may include 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 Plan will adopt the prospectus
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.
c. All fixed income funds must have an average credit quality of at least
investment grade to qualify for investment by the Plan.
4. Foreign equity securities shall be actively traded on recognized foreign or
domestic stock exchanges.
B. Limitations
1. Investments in corporate common stock and convertible bonds shall not exceed
70% of the fund assets at market value.
2. Investments in international mutual funds or commingled funds shall not
exceed twenty percent (20%) of fund assets at market.
C. Absolute Restrictions
There will be no investment activity in the following:
1. Any investment prohibited by State or Federal Law.
2. Any investment not specifically allowed as part of this policy.
3. Illiquid investments, as described in Chapter 215.47, Florida Statutes
Approved: October 23, 2008 4
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D. 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.
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 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. In
addition, the manager shall deliver each quarter a report detailing the Fund's
performance, adherence to the investment policy, forecast of the mazket and
economy, portfolio analysis and current assets of the Trust. Written reports shall
be delivered to the Trustees within 60 days of the end of the quarter. A copy of
the written report shall be submitted to the person designated by the VILLAGE,
and shall be available for public inspection. The Investment Managers will
provide immediate written and telephone notice to the Trustees 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.
B. The Investment Managers will disclose any securities that do not comply with
section IV in each quarterly report.
C. If the Fund owns investments, that complied with section IV at the time of
purchase, which subsequently exceed the applicable limit or do not satisfy the
applicable investment standard, such excess or noncompliant investments may
be continued until it is economically feasible to dispose of such investment in
accordance with the prudent man standard of care, but no additional investment
may be made unless authorized by law or ordinance.
D. The Trustees shall retain an Investment Consultant to evaluate and report on a
quarterly basis the rate of return and relative performance of the Fund.
E. The Trustees will meet quarterly to review the Investment Consultant's
Performance Report. The Trustees 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
Fund on a periodic basis.
F. At least annually, the Trustees shall provide the Investment Managers with
projected disbursement needs of the plan, so that the investment portfolio can be
structured in such manner as to provide sufficient liquidity to pay obligations as
they come due. To this end, the Investment Managers should, to the extent
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possible, attempt to match investment maturities with known cash needs and
anticipated cash-flow requirements.
VI. COMPLIANCE
A. It is the direction of the Trustees that the plan assets aze 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 pazt, shall be made from safekeeping except by an authorized
member of the board of Trustees or their designee. Securities transactions
between abroker-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.
B. At the direction of the Trustees, operations of the fund shall be reviewed by
independent certified public accountants, as part of any financial audit
periodically required. Compliance with the Trustees' internal controls shall be
verified. These controls have been designed to prevent losses of funds that
might arise from fraud, error, or misrepresentation by third parties or imprudent
actions by the Boazd or employees of the plan sponsor, to the extent possible.
C. Each member of the Board of Trustees shall participate in a continuing education
program relating to investments and the Trustee's responsibilities to the fund. It
is highly suggested that this education process begin during the Trustees' first
term.
D. With each actuazial valuation, the Board of Trustees 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 Fund. Each 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.
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. Upon violation of any of the following, the portfolio
manager will be warned of the Boazd's serious concern for the Fund's continued safety and
performance. Violation of three individual guidelines shall result in a probation
recommendation. Violation of five individual guidelines shall results in a termination
recommendation:
• 4 consecutive quarters of relative under-performance verses benchmark index.
• 3 and 5 yeaz trailing returns below the 40th percentile and underperforming the index.
• Downside volatility greater than index, measured by up/down market capture ratio.
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• 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 SEC.
• Significant asset flows into or out of the company.
• Merger or sale of firm.
• Fee increases.
• Servicing issues -Key personal stop servicing the account without proper notification.
Nothing in this section shall limit or diminish the Trustees' right to terminate the manager at
any time for any reason.
VIII. FLORIDA STATUTES 112 AND APPLICABLE VILLAGE ORDINANCES
If, at any time, this document is found to be in conflict with Chapters 112 Florida Statutes. or
the applicable VILLAGE Ordinances, the Statutes and Ordinances shall prevail.
IX. REVIEW AND AMENDMENTS
It is the Trustees intention to review this document at least annually subsequent to the
actuarial report and to amend this statement to reflect any changes in philosophy, objectives,
or guidelines. In this regazd, the money manager's interest in consistency in these matters is
recognized and will be taken into account when changes are being considered. If, at any time,
the Investment Manager feels that the specific objectives defined herein cannot be met, or the
guidelines constrict performance, the Trustees should be notified in writing. By initial and
continuing acceptance of this Investment Policy Statement, the Investment Managers concur
with the provisions of this document. This document will become effective 31 days after
adoption by the Board and delivery of policy to the VILLAGE.
VILLAGE OF TEQUESTA GENERAL EMPLOYEES' RETIREMENT SYSTEM
By:
Chairman, Board of Trustees Date:
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