HomeMy WebLinkAboutDocumentation_Pension Public Safety_Tab 04_11/02/2009Lour, Betty
From: McWilliams, Lori
Sent: Thursday, October 22, 2009 3:04 PM
To: Laur, Betty
Cc: Mayo, Deanna
Subject: FW: Tequesta PSO IPS
Attachments: TequestaPSO_IPS_Nov09.doc; image001.jpg
Betty,
Please make sure this on the agenda for PSO. The draft is attached.
From: Dan Johnson [mailto:danj@bogdahnconsulting.com]
Sent: Thursday, October 22, 2009 3:03 PM
To: Bonni Jensen
Cc: McWilliams, Lori; Laur, Betty
Subject: Tequesta PSO IPS
Hello Bonni-
I wanted to follow up with you regarding the Tequesta PSO Pension Board meeting in a few weeks. As I mentioned at
the last meeting in light of the legislative changes made by the State of Florida, l would be bringing a drafted version of
an proposed Investment Policy Statement. Accordingly, I have attached an initial version of revised Investment Policy
Statement that I would like to review with the Board at the next meeting.
Same of the changes in the document include:
-The addition of a target allocation chart, clearly identifying of target, minimum, and maximum weights to the asset
classes.
--Added 10% dedicated international exposure to the index, and updated maximum "allowed" international exposure
per the new state statute language.
--Added language regarding prohibited investment and compliance required to comply with the "Protecting Florida's
Investments Act" as it relates to the "scrutinized rnmpanies" that we can no longer invest in.
As these changes represent an overhaul to the previous IPS, I did not include line-item changes but a proposed new
document.
Please let me know if any of you have any questions, and I will bring hard copies to review and discuss with the Board.
Thanks you.
Dan
Daniel Johnson
4901 Vineland Road
Spite 600
Orlando, FL 32811
Main Ph: 866-240-7932
VILLAGE OF TEQUESTA
(PLAN SPONSER)
PUBLIC SAFETY OFFICERS' PENSION FUND
Investment Policy Statement
I. PURPOSE OF INVESTMENT POLICY STATEMENT
The Pension Board of Trustees (Board) maintains that an important determinant of future
investment returns is the expression and periodic review of the Village of Tequesta Public Safety
Officers' Pension Fund (the Plan) 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 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 ordinances and statutes.
Reasonable consistency of return and protection of assets against the inroads of inflation are
paramount. However, interest rate fluctuations and volatility of securities markets make it
necessary to judge results within the context of several years rather than over short periods of
five years or less.
The Board will employ investment professionals to oversee and invest the assets of the Plan.
Within the parameters allowed in this document and their agreements with the Board, the
investment management professionals shall have investment discretion over their mandates,
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.
Nov 2009 Page 1
II. TARGET ALLOCATIONS
In order to provide for a diversified portfolio, the Board has engaged investment professional(s)
to manage and administer the fund. The investment manager(s) are responsible for the assets and
allocation of their mandate only and- may be provided an addendum to this policy with their
specific performance objectives and investment criteria. The Board has established the
following asset allocation targets for the total fund:
Asset Class Tar et Rain a Benchmark Index
Domestic E ui 50% 35% - 65% S&P 500
International E ui 10% 0% - 25% MSCI EAFE
Broad Market Fixed Income 40% 30% - 50% Barclays Intermediate
U.S. Govt/Credit
TIPS* 0% 0% - 10% Barcla s TIPS
*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 Board 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, contributions and withdrawals from
the portfolio will be executed proportionally based on the most current market values available.
The Board does 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
The performance of the total portfolio will be measured for rolling three and five year
periods. The performance of the portfolio will be compared to the return of the policy
indexes comprised of 50% S&P 500, 10% MSCI EAFE, 40% Barclays Intermediate
U.S. Government/Credit Bond Index.
2. On a relative basis, it is expected that the total portfolio performance will rank in the top
40~' percentile of the appropriate peer universe over three and five-year time periods.
3. On an absolute basis, the objective is that the return of the total portfolio will equal or
exceed the actuarial earnings assumption (8%), and provide inflation protection by
meeting Consumer Price Index plus 3%.
Nov 2009
Page 2
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 83% S&P 500 and 17% MSCI
EAFE. Individual components of the equity portfolio will be compared to the specific
benchmarks defined in each Investment Manager addendum. 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 and
liquidity to the total portfolio. The fixed income portion of the portfolio is expected to
perform at a rate at least equal to the Barclays Capital U.S. Intermediate Government/Credit
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. Treasury Inflation Protection Security (TIPS) Performance
The overall objective of the TIPS portfolio, if utilized, is to provide inflation protection
while adding stability to the total portfolio. If TIPS are utilized the strategy is expected to
approximate the structure and performance of the Barclays Capital U.S Treasury TIPS
Index.
IV. INVESTMENT GUIDELINES
A. Authorized Investments
Pursuant to the investment powers of the Board of Trustees as set forth in the Florida Statutes and
local ordinances, the Board of Trustees sets forth the following investment guidelines and
limitations:
Equities:
a. Must be traded on a national exchange or electronic network; and
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; and
c. Additional criteria maybe outlined in the manager's addendum.
Nov 2009
Page 3
2. Fixed Income:
a. All fixed income investments shall have a minimum rating in one of the four
highest classifications by a major rating service; and
b. The value of bonds issued by any single corporation shall not exceed 5% of the
total fund; and
c. Additional criteria maybe outlined in the manager's addendum.
3. Money Market:
a. The money market fund or STIF options provided by the Plan's custodian; and
b. Have a minimum rating of Standard & Poor's Al or Moody's P1.
4. Pooled Funds:
Investments made by the Board may include pooled funds. For purposes of this policy
pooled funds may include, but are not limited to, mutual funds, commingled funds,
exchange-traded funds, limited partnerships and private equity. Pooled funds may be
governed by separate documents which may include investments not expressly
permitted in this Investment Policy Statement. In the event of investment by the Plan
into a pooled fund, the Board will adopt the prospectus or governing policy of that fund
as the stated addendum to this Investment Policy Statement.
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 (70%) of the Plan assets at market.
2. Foreign securities shall not exceed twenty-five percent (25%) of Plan's market value.
3. All equity and fixed income securities must be readily marketable. Commingled funds
must be independently appraised at least annually.
D. Absolute Restrictions
No investments shall be permitted in;
I . Any investment not specifically allowed as part of this policy.
Nov 2009
Page 4
2. Illiquid investments, as described in Chapter 215.47, Florida Statutes.
3. Direct investment in `Scrutinized Companies' identified in the periodic publication by
the State Board of Administration ("SBA list", updated on their website
www.sbafla.com/fsb/ ), is prohibited. Any security identified as non-compliant on or
before January 1, 2010 must be divested by September 1, 2010. Securities identified
after January 1, 2010, are subject to the provisions of section V. (c) below. However, if
divestiture of business activities is accomplished and the company is subsequently
removed from the SBA list, the manager can continue to hold that security. Indirect
investment in `Scrutinized Companies' (through pooled funds) are governed by the
provisions of Section V(G) below.
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.
B. On a quarterly basis, the Investment Managers shall provide a written report affirming
compliance with the security restrictions of Section IV (as well as any provisions outlined in
the Investment Manager's addendum). In addition, the Investment Managers shall deliver a
report each quarter detailing the Plan's performance, 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 the Village, 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 or their
Investment Manager addendum.
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. An action plan outlining the investment `hold or sell' strategy shall be provided
to the Board immediately.
D. The Investment Consultant shall evaluate and report on a quarterly basis the rate of return
net of investment fees and relative performance of the Plan.
E. The Board will meet periodically to review the Investment Consultant 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.
F. 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
Nov 2009
Page 5
the Investment Managers should, to the extent possible, attempt to match investment
maturities with known cash needs and anticipated cash-flow requirements.
G. The Investment Consultant, on behalf of the Plan, shall send a letter to any pooled fund
referring the investment manager to the listing of `Scrutinized Companies' by the State
Board of Administration (`SBA list'), on their website www.sbafla.com/fsb/. This letter
shall request that they consider removing such companies from the fund or create a similar
actively managed fund having indirect holdings devoid of such companies. If the manager
creates a similar fund, the Plan shall replace all applicable investments with investments in
the similar fund in an expedited timeframe consistent with prudent investing standards. For
the purposes of this section, a private equity fund is deemed to be an actively managed
investment fund. However, after sending the required correspondence, the Plan is not
required to sell the pooled fund.
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 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. The investment policy shall require all approved institutions and dealers transacting
repurchase agreements to execute and perform as stated in the Master Repurchase
Agreement. All repurchase agreement transactions shall adhere to the requirements of the
Master Repurchase Agreement.
C. 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.
D. 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 suggested that this education
process begin during each Trustee's first term.
E. 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.
F. 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
Nov 2009
Page 6
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. If, at any time, any three of the following is breached, the
portfolio manager may be warned of the Board's serious concern for the Plan's continued safety
and performance. If any five of these are violated the consultant may 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.
^ Servicing issues -key personnel stop servicing the account without proper
notification.
^ Failure to attain a 60% vote of confidence by the Board.
Nothing in this section shall limit or diminish the Board's right to terminate the manager at any
time for any reason.
VIII. APPLICABLE VILLAGE ORDINANCES
If at any time this document is found to be in conflict with the Village Ordinances or applicable
Florida Statutes, the Ordinances and Statutes shall prevail.
Nov 2009
Page 7
IX. REVIEW AND AMENDMENTS
It is the Board's 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 regard, the Investment 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 Board should be notified in writing. By initialing and
continuing acceptance of this Investment Policy Statement, the Investment Managers concur
with the provisions of this document. By signing this document, the Chairman attests that this
policy has been recommended by the Investment Consultant, reviewed by the plan's legal
counsel for compliance with applicable law, and approved by the Board of Trustees.
X. FILING OF THE INVESTMENT POLICY
Upon adoption by the Board, the investment policy shall be promptly filed with the Florida
Deparhnent of Management Services, the Village, and the plan's actuary. The effective date of
the Investment Policy shall be the 31 days following the filing date with the Village.
VILLAGE OF TEQUESTA PUBLIC SAFETY OFFICERS' PENSION PLAN
Chairman, Board of Trustees Date
Nov 2009 Page 8