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HomeMy WebLinkAboutHandouts_Pension Public Safety_02/10/2004 (2) • VILLAGE OF TEQUESTA PUBLIC SAFETY OFFICERS' PENSION TRUST FUND INVESTMENT POLICY STATEMENT SCOPE & PURPOSE The Board of Trustees maintain 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 investment policy should be made with a view toward performance and return over a number of years. The Board of Trustees recognizes that the general investment objective is to maximize return consistent with risks incumbent in each investment. The risk-adjusted return required by the Retirement System must be achieved by compliance with the Prudent Investment Rule and any other applicable statute or requirement. The Board of Trustees further acknowledges that section 112.661(4), Florida Statutes, shall supersede any conflicting provisions of law guiding investments. • The purpose of this Statement is to establish a clear understanding between the Trustees of the Fund and the Fund's investment manager(s) of the policies and objectives of these assets. This statement will outline an overall philosophy that is specific enough for the Fund's investment manager(s) to know what is expected, but flexible to allow for changing economic conditions. 2. INVESTMENT OBJECTIVES 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 one or two years or less. 3. PERFORMANCE MEASUREMENT The below listed performance measurements will be used as objective criteria fas c;~raluating effectiveness of the Investment Manager. Perfornlance will be measured quarterly: 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 • Page I of 9 • portfolio will be currently compared to the return of a portfolio comprised of 60% Standard & Poor's 500 Index and 40% of the Lehman Brothers Intermediate Bond Index. (2) On a relative basis, it is expected that the investment manager's performance with regard to the total return of combined equity, fixed income and cash portfolio, will be in the top 40% of the Russell 1000 Universe over three to five year periods. (3) On an absolute basis, it is expected that the total return of the combined equity, fixed income and cash portfolio, will equal or exceed the actuarial earnings assumption, and equal or exceed the Consumer Price Index plus 3% over three to five year periods. B. Common Stock Performance The Equity portion of the portfolio, defined as common stocks, is expected to perform at a rate of at least equal to the Standard & Poor's 500 Index. C. Bond Performance The bond portion of the portfolio, defined as fixed income securities and preferred • stock, is expected to perform at a rate at least equal to the Lehman Brothers Government/Credit Bond Index. 4. INVESTMENT AND FIDUCIARY STANDARDS In accordance with Florida Statute 112.661 (4), the Board and its investment managers and investment monitor shall comply with the fiduciary standards set forth in the Employee Retirement Income Security Act of 1974 at 29 U.S.C. s. 1104 (a) (1) (A) - (C), set forth below: Section 1104 -Fiduciary duties (a) Prudent Man Standard of Care (1) Subject to Sections 1103 (c) and (d), 1342 and 1344 of the title, a fiduciary shall discharge its duties with respect to a plan solely in the interest of the participants and beneficiaries and - (A) For the exclusive purpose of: (17 providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan; Page 2 of 9 r • (B) With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aim; (C) By diversityingthe investments ofthe plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. 5. AUTHORIZED INVESTMENTS A. Authorized Investments All investments made or held by the fund shall be limited to: (1) Time, savings and money market deposit accounts of a national Bank, a state bank insured by the Bank Insurance Fund or a savings/building and loan association, insured by the Savings Association Insurance Fund which is administered by the Federal Deposit Insurance Corporation or a state or federal chartered credit union whose share accounts are insured by the National Credit Union Share Insurance Fund and provided the amount • deposited does not exceed the insured amount. (2) Obligations issued by the United States Government or Obligations guaranteed as to principal and interest by the United States Government or by an agency of the United States Government. (3) Stocks, bonds or other evidences of indebtedness issued or Guaranteed by a corporation organized under the laws of the United States, any state or organized territory of theUnited States, or the District of Columbia, provided that: (a) Equities are limited to those traded on a recognized national Exchange or NASDAQ. (b) Fixed income securities are limited to those traded on a recognized national exchange or through the over-the-counter market. (c) The security meets the following ranking criteria: I) Fixed income: Standard & Poor's AAA, AA, A, BAA or Moody's Aaa, Aa, A, Baa. ii) Cash Reserves: Short term investments due less than 1 year • Page 3 of 9 • where overall quality and minimal risk guidelines apply. Investments which may be used are: money market funds of custodians, Certificates of Deposit, U.S. Government Obligations and Commercial Paper rated A-1(Standard & Poor's) or P-1 (Moody's). (d) 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. (4) Foreign stocks, bonds or other evidence of indebtedness. (5) Co-mingled stock, bond or money market funds whose investments are restricted to securities meeting the criteria in this Section 3. B. Limitations (1) Investments in foreign and domestic corporate common stock (including American Depository Receipts) and convertible bonds shall not exceed 60% of the Fund assets at cost. However, the investment manager will promptly notify the Chairman of the Trustees if the portion of the Fund invested in • common stock declines below 40% at market value or exceeds 70% at market value. (2) Not more than 25% of the market value of the Bond Portfolio may be invested in bonds rated BAA/Baa (investment grade) at time of purchase. (3) Not more than 10% of the market value of the equity and fixed income portions of the assets in the fund shall be invested in foreign securities. (4) The following investments are expressly prohibited: (a) Investing in Real Estate, private placements, lettered stock or from speculating in fixed income or interest rate futures. (b) Repurchase agreements. (c) Investments not specifically described in Section 3A above. (d) Or any investments that are prohibited under Florida Statutes 112.661. (5) If the fund owns securities, which complied with this Section 3 at time of purchase, but which are subsequently downgraded or become non -compliant • Page 4 of 9 while held, the manager will dispose of such securities when economically feasible, but no additional investment in such securities shall be made. 6. MATURITY AND LIQUIDITY REQUIlZEMENTS It is also the obligation of the Plan and the duty of the Board of Trustees to structure the portfolio to provide sufficient liquidity to pay obligations as they come due without compromising the long-term investment objectives of the Plan. To achieve this goal, the Board will attempt to match known cash needs and anticipated cash flow requirements. The guidelines and limits on the maturities listed are designed to accomplish this goal. 7. PORTFOLIO COMPOSITION The Trustees believe that it should be the function of the investment managers to allocate the Fund's assets among common stocks, fixed income instruments and cash reserves. Accordingly, it is the philosophy of the Trustees that the asset mix of the Fund should be: Maximum 60% Equity Minimum 0% Equity Maximum 60% Fixed Income • Minimum 35% Fixed Income Maximum 50% Cash Equivalents Minimum 0% Cash Equivalents Percentages shall be based on market value at the end of each quarter. RISK AND DIVERSIFICATION Investments held shall be diversified to the extent practicable to control the risk of loss resulting from over concentration of assets. Diversification strategies within the following established guidelines shall be reviewed and revised periodically, as deemed necessary by the Board. The asset classes listed below represent the Board's policy of investing in a broadly diversified portfolio of assets. 9. EXPECTED ANNUAL RATE OF RETURN The Board has determined, in consultation with its actuary, consultant and investment professionals, to use eight percent (S.0%) as the actuarial assumption for return on this Pension Fund. • Page 5 of 9 10. THIRD-PARTY CUSTODIAL AGREEMENTS The Board has retained athird-party to custody the fund's assets. All securities shall be designated as an asset of the Board, and no withdrawal of securities, in whole or in part, shall be made from safekeeping except by an authorized member of the Board or the Board's 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, if applicable, to ensure that the custodian will have the security or money, as appropriate in hand at the conclusion of the transaction. In order to further guarantee the safe delivery and holding of all securities and Plan assets, it is the policy of the Board that no withdrawal of securities shall be made except by an authorized member of the Board or the Board's designee. 11. MASTER REPURCHASE AGREEMENTS All approved institutions that transact master repurchase agreements on behalf of the Fund, including short term investments by the Fund's custodian, shall execute and adhere to the requirements of the Master Repurchase Agreement. 12. BID REQUIREMENT The Board requires that the Investment Manager(s), in accordance with their fiduciary • relationship to the Board, competitively bid securities as appropriate and to select the most advantageous bid. The relationship between the Board and its investment managers is documented in the agreements between the Fund and the investment managers 13. INTERNAL CONTROLS The Fund shall be governed by a set of written internal controls and operational procedures, which shall be periodically reviewed by the Fund's Certified Public Accountant. The Board has the services of the City's retained independent Certified Public Accountant on an annual basis and requires reports from the Fund's Investment Consultant quarterly. This policy is designed to safeguard the Fund from losses that might arise from fraud, error or misrepresentations by third parties, or imprudent actions by the Boadd or employees of the plan sponsor. 14. CONTINUING EDUCATION The Board acknowledges the importance of continuing education. To that end, board members are encouraged to attend educational conferences in connection with their investment duties and responsibilities astrustees. • Page 6 of 9 15. REPORTING The Fund's Investment Consultants shall provide quarterly reports of the Fund's investment activities. These reports shall be public records and shall be submitted to the plan sponsor as required by law. 16. VALUATION OF ILLIQUID INVESTMENTS No illiquid investments shall be utilized by this Fund. 17. COMMUNICATIONS A. The custodian shall apprise the Trustees of all transactions and shall forward all proxies to the manager within 14 calendar days. On a monthly basis, the custodian shall supply an accounting statement which will include a summary of all receipts and disbursements and the cost and the market value of all assets. On a quarterly basis, the manager shall provide a written report affirming compliance with the security restrictions of Section 3 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 market and economy, portfolio analysis and the current assets of the • Trust. Written reports and personal presentations shall be delivered to the Trustees at their request following the end of the quarter. B. The manager will disclose any securities which are not in compliance with Section 3 in each quarterly report if requested. C. The Trustees shall retain a monitoring service to evaluate and report on a quarterly basis the rate of return and relative performance of the Fund. D. The Trustees will meet periodically with the monitoring service's representative to review the 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 quarterly basis. E. The equity manager shall report to the Trustees on a quarterly basis with respect to proxies, the issues, votes and dates, and if not voted, a written explanation. 18. DISCRETIONARY AUTHORITY The manager(s) have full discretion to invest in any particular investment, subject to this statement, the pension plan ordinance, and applicable State law. • Page 7 of 9 • 19. PROXY VOTING In general, proxies shall be voted in accordance with the Trustees proxy policy, which is: "The Board of Trustees of the V illage of Tequesta Public Safety Pension Trust Fund recognizes that proxy voting powers are an asset of the Fund and must be exercised for the exclusive benefit of the participants in the Fund." On a regular basis, no less frequently than annually, each manager shall report a record of his or her proxy vote. 20. POLICIES AND GUIDELINES REVIEW It is the Trustees intention to review this document periodically 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. ff at any time any portfolio manager feels that the specific objectives defined herein cannot be met, or the guidelines constrict performance, the Tnistees should be notified in writing. By initial and continuing acceptance of this Investment Policy Statement, the investment manager concurs with the provisions of this document. • 21. CRITERIA FOR INVESTMENT MANAGER REVIEW The Board wishes to adopt standards by which judgments of the ongoing performance of a portfolio manager maybe made. With this in mind, the following are adopted: If, at any time, any one of the following is breached, the portfolio manager will be notified of the Board's serious concern for the Fund's continued safety and performance. A. Four consecutive quarters of total Fund performance below the 50th percentile in manager's performance rankings. B. Standard deviation for the Fund in excess of 120% of the benchmark index. C. Loss by the manager of any senior investment personnel servicing the account. D. Any change in basic investment philosophy by the manager. E. Failure to attain a 60% vote of confidence by the Board of Trustees. F. Failure to observe the security quality restrictions of Section 3. Page 8 of 9 r • The signatures below affirm that this statement and addenda have been read, understood, and accepted. In witness whereof the Board of Trustees has adopted this Statement of Investment Policies and Objectives this day of , 2003. TRUSTEES Chairn~an The signatures below affirm that this statement and addenda have been read, understood, and accepted. Investment Manager • • Page 9 of 9