board regular meeting - oklahoma7.1. trs ac presentation final 5-15-19.pdf 95 7.2.governance...
TRANSCRIPT
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2500 N. Lincoln Blvd., 5th Floor, Oklahoma City, OK
Board Regular MeetingSchedule Wednesday, May 22, 2019 9:00 AM — 12:00 PM CDTVenue TRS Board Room, 2500 N Lincoln Blvd., 5th Floor,
Oklahoma City, OklahomaOrganizer Phyllis Bennett
Agenda
1. Roll Call for Quorum
2. Discussion and Possible Action on Approval of Minutes: April 24, 2019, BoardRegular Meeting
2. Minutes-042419-BdRegMtg.pdf 1
3. Discussion and Possible Action to Recognize Services of Former Trustees:a. Christa Hughesb. Sharee' Madsenc. Kevin Moored. Bill Peacher
Huges Christa - Resolution-052219.docx 9 Madsen Sharee - Resolution-052219.docx 10 Moore Kevin - Resolution-052219.docx 11 Peacher Bill - Resolution-052219.docx 12
4. Discussion and Possible Action on Investment Consultant Monthly Report
2019-04-30 OTRS (Monthly Report) (004).pdf 13 Artemis Real Estate Partners - Artemis Real Estate Partners Fund III
(Update)_2019-05-13.pdf36
Cushing Asset Management Watch List Memo May 2019.pdf 38
5. Investment Committee Report
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2500 N. Lincoln Blvd., 5th Floor, Oklahoma City, OK
5.1. Discussion and Possible Action on Amendment to the Fee Schedule of theInternational Small Cap with Epoch Investment Partners, Inc.
5.2. Discussion and Possible Action to Approve Settlement Agreement DatedApril 10, 2019, Among Motors Liquidation Company Avoidance Action Trustand All Named Defendants
5.3. Discussion and Possible Action on Chief Investment Officer Report
TRS History Presentation.pdf 39 5.3. CIO Report Manager Mix May Board Meeting.pdf 52
5.4. Discussion and possible action regarding annual review of the TRSInvestment Plan and Policy Statement as required by 70 O.S. Section 17-106.1 (G)
5.4. TRSOK Investment Policy Statement.pdf 58
6. Discussion and Possible Action to Adopt FY 2020 Budget Work Program
6. BudgetWorkProgMemo&Sheets5-17-19.pdf 89
7. Discussion and Possible Action on Committee Reports
7.1. Audit Committee:Discussion and Possible Action on Prior Audit Follow-up Report by Stinnett& Associates
7.1. TRS AC Presentation FINAL 5-15-19.pdf 95
7.2. Governance Committee:Discussion and Possible Action on Proposed Amendment to Board PolicyManual regarding Class Action Securities Litigation Policy
7.2. Bd Ch.11-Securities Fraud Litigation Policy.pdf 104
8. Announcement of Members of Nominating Committee By Chairman
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2500 N. Lincoln Blvd., 5th Floor, Oklahoma City, OK
9. Discussion and Possible Action on Staff Recommendations on ProposedLegislation for the 2019 Session and Presentation by Majority Plus, Inc.
9. MajorityPlus-BillTracking-May2019.pdf 107 9. TRSOpposeSupport5-17-19.pdf 108
10. Discussion and Action on Employer Late Fee Waiver Requests:a. Stilwell Public Schools
10. LFW Req Chart & School Letter-May 2019.pdf 110
11. Discussion and Possible Action on Renewal of Investment ManagerContracts:a. AEW - Core Real Estateb. Allianz Global Investors U.S. LLC - International Equitiesc. Aronson Johnson Ortiz - Domestic Mid Cap Equityd. Causeway Capital Management LLC - International Equitye. Chickasaw Capital Management LLC - Master Limited Partnershipsf. Cushing Asset Management - Master Limited Partnershipsg. Epoch Investment Partners, Inc. - International Small Caph. Frontier Capital - Domestic Mid Cap & Small Cap Equityi. Geneva Capital - Domestic Small Capj. Heitman America Real Estate Trust, LP - Core Real Estatek. Hoisington Investment Management Company - Domestic Fixed Incomel. Hotchkis & Wiley - Domestic Mid Cap & Large Capm. L&B Realty - Core Real Estate and Non-Core Real Estate - Golden Drillern. Loomis Sayles - Core Plus Extended Fixed Incomeo. Lord Abbett - Core Plus Extended Fixed Incomep. MacKay Shields - Core Plus Extended Fixed Incomeq. Neumeier Poma - Domestic Small Cap Equityr. Northern Trust - Domestic Equities - Russell 1000 & Sci-Beta Indexs. Sawgrass Asset Management - Domestic Equity Large Cap Equityt. Shapiro Capital Management - Domestic Small Cap Equityu. State Street Global Advisors - Emerging Markets Small Cap Equityv. Wasatch - Domestic Small Cap & International Small Capw. Wellington Management Company, LLP - Domestic Mid Cap &International Small Cap, International Large Cap
12. Discussion and Possible Action to Renew Custody, Securities Lending,Commission Recapture, and Valuation Agreements With Northern Trust
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2500 N. Lincoln Blvd., 5th Floor, Oklahoma City, OK
13. Discussion and Possible Action to Renew External Auditing ServicesAgreement with Eide Bailly
14. Discussion and Possible Action to Renew Agreement with Stinnett andAssociates to Provide Internal Auditing of Business Processes
15. Discussion and Possible Action to Renew Agreement with BKD to ProvideInternal Auditing of Transactions
16. Discussion and Possible Action to Renew Legal Services Agreement with IceMiller
17. Discussion and Possible Action to Renew Legal Services Agreement withPhillips Murrah
18. Discussion and Possible Action to Renew Administrative Law JudgeServices Agreement with Gay Tudor
19. Discussion and Possible Action to Approve Statement of Work and Contractwith My Consulting Group
20. Discussion and Possible Action to Renew Real Estate Management ServicesAgreement with Price Edwards & Company
21. Discussion and Possible Action to Extend Custodial and Services Agreementwith VOYA for Additional One-Year Term
22. Discussion and Possible Action to Renew Actuarial Services Agreement withGabriel Roeder Smith
23. Discussion and Possible Action to Approve Medical Board Member ServicesAgreements w/ Dr. Jay, Dr. Osborne, and Dr. Livingston
24. Discussion and Action on Agency Reports:
24.1. Client Services
24.1. Client Services Report-May2019.pdf 112
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2500 N. Lincoln Blvd., 5th Floor, Oklahoma City, OK
24.2. Human Resources
24.2. HR Status Report-May2019.docx 115
24.3. Finance
24.3. Finance.pdf 116
24.4. Deputy Director of Operations
24.4. MayMtgDepDirRpt2019.docx 123
24.5. General Counsel
24.5. GC Report May 2019.docx 124
24.6. Executive Director
24.6. ExecDirReport-042419to052019.pdf 125
25. Questions and Comments from Trustees
26. New Business(Any matter not known about or which could not have been reasonablyforeseen prior to the posting. 25 O.S. 2011, SS311)
27. Adjournment
(Note: The Board of Trustees may discuss, vote to approve, vote to disapprove,or decide not to discuss any item on the agenda.)
Next meetings:June 18 Investment CommitteeJune 19 Board Regular Meeting
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MEETING MINUTES APRIL 24, 2019
BOARD OF TRUSTEES REGULAR MEETING TEACHERS’ RETIREMENT SYSTEM OF OKLAHOMA
The regularly scheduled meeting of the Board of Trustees of the Teachers’ Retirement System of Oklahoma was called to order by Vernon Florence, Chairman, at 9:00 a.m. in the Administration Board Room, 5th Floor, Oliver Hodge Education Building, 2500 N. Lincoln Blvd., Oklahoma City, OK. The meeting notice and agenda were posted in accordance with 25 O.S. Section 311(A)(11).
TRUSTEES PRESENT: Vernon Florence, Chairman Roger Gaddis, Vice-Chairman Judie Harris, Secretary Rod Boles Lisa Henderson Michael Kellogg
Steve Massey Chris Rector Mathangi Shankar Stephen Streeter * Drew WilliamsonGreg Winters
TRUSTEES ABSENT: Tim Allen Jill Geiger Myron Pope
TRS STAFF PRESENT: Tom Spencer, Executive Director Sarah Green, General Counsel John Santos, Deputy Director of Operations Dixie Moody, Director of Client Services Kirk Stebbins, Chief Investment Officer
Kim Bold, Human Resources Director Joe Cappello, Sr. Investment Officer David Tinker, Business Analyst Phyllis Bennett, Executive Assistant
OTHERS PRESENT: Mike Welker, AndCo Consulting Doug Anderson, AndCo Consulting Peter Brown, AndCo Consulting Luke Martin, Majority Plus
Jim Dunlap, Majority Plus Sabra Tucker, OREA Wayne Maxwell, RPOE
* Denotes late arrival or early departure.
ITEM 1 – ROLL CALL FOR QUORUM: Chairman Florence asked the recording secretary to call roll to determine if a quorum was present. Trustees responding were Mr. Boles, Mr. Florence, Mr. Gaddis, Ms. Harris, Ms. Henderson, Mr. Kellogg, Mr. Massey, Mr. Rector, Ms. Shankar, Mr. Streeter, and Dr. Winters. A quorum was present.
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ITEM 2 – SWEARING IN OF NEW TRUSTEE CHRIS RECTOR: Chairman Florence welcomed Mr. Rector to the Board. Mr. Rector shared information about his career. Mr. Rector signed his oath and provided it to staff.
ITEM 3 – DISCUSSION AND POSSIBLE ACTION ON APPROVAL OF MINUTES:
A motion made by Mr. Gaddis with a second made by Mr. Winters to approve the minutes of the March 27, 2019, Board of Trustees Regular Meeting carried by a unanimous voice vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Boles, Ms. Henderson, Mr. Kellogg, Mr. Rector, Ms. Shankar, Mr. Streeter, and Dr. Winters.
ITEM 4 – OVERVIEW AND UPDATE OF ANDCO CONSULTING BY MIKE WELKER, PRESIDENT AND CEO: Mr. Welker shared some details about AndCo Consulting and presented an organizational chart of the firm.
Mr. Williamson arrived at 9:10 a.m.
ITEM 5 – DISCUSSION AND POSSIBLE ACTION ON INVESTMENT CONSULTING MONTHLY PERFORMANCE REPORT, QUARTERLY REPORT AND QUARTERLY 403(B) REPORT: Investment Consultant to the Board Doug Anderson presented the monthly report for March 2019. The trailing one-year total fund return, net of fees, was 4.2%. The total fund market value was $16.55B. The Asset Allocation Compliance Summary showed Domestic Equity over allocated .4%; International Equity under allocated -.99%; Fixed Income under allocated -.15%; Real Estate under allocated -1.17%; Private Equity over allocated 2.24%; MLP under allocated -1.15%; and Cash & Cash Equivalents over allocated .86%. The Financial Reconciliation report showed the market value of the total fund on March 1 was $16.468B; Net Flows were $5.5M; Contributions were $58M; and Distributions were $98M; Management Fees were $1.5M; Other Expenses were $28,240; Income was $35M and Appreciation was $90M.
Mr. Anderson reviewed asset allocations by segments, a report showing performance by segments from 2005 through YTD 2019, total allocations for Alternatives and how TRS’ total fund allocations compare to all public plans. The total fund return for the quarter was 9.12%, 51st in the peer universe ranking.
Mr. Anderson presented the quarterly report for TRS’ 403(b) plan. The fund is dominated by retired clients who have most of their assets invested in target date funds. The value of the fund went from $150M to $157.7M in the first quarter of 2019. This plan was a statutory requirement of TRS until a couple of years ago and TRS hopes to wind it down by the end of FY 2020. No action was taken.
ITEM 6 – INVESTMENT COMMITTEE REPORT:
6.1 – DISCUSSION AND UPDATE ON L&B REALTY FUNDS INCLUDING CORE INCOME PROPERTIES AND GOLDEN DRILLER: Investment Committee Chairman Roger Gaddis said the Committee had a follow-up discussion from March on an offer on a property in Florida. He referred to AndCo’s memo related to BOVs (Broker Opinion of Value)
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that were done on the property to find out if the offer was fair and reasonable. No action was taken. 6.2 – DISCUSSION AND POSSIBLE ACTION TO REQUEST ANNUAL APPRAISAL OF GOLDEN DRILLER PROPERTIES: Mr. Gaddis explained that TRS is requesting L&B do appraisals of the properties in the Golden Driller portfolio for TRS’ financial records. A motion out of the Investment Committee to approve requesting an annual appraisal of the Golden Driller properties carried by a unanimous voice vote of the Board. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Boles, Ms. Henderson, Mr. Kellogg, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson, and Dr. Winters. 6.3 – DISCUSSION AND POSSIBLE ACTION ON MANAGER STATUS REPORT: Mr. Gaddis said Cushing continues to be on watch due to a personnel change. No action was taken. 6.4 – DISCUSSION AND POSSIBLE ACTION ON MANAGER STATUS PROCESS AND PROTOCOL: Mr. Gaddis referred to AndCo’s memo, “Investment Manager Watch List Process: Proposed Update,” which outlined their recommendations for ways to notify TRS of potential problems with an investment manager. There was a discussion on the benefits of TRS not having to present and take action on the status of investment managers. A motion out of the Investment Committee to accept AndCo’s recommendation to shift watch list responsibilities to AndCo carried by a unanimous voice vote of the Board. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Boles, Ms. Henderson, Mr. Kellogg, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson, and Dr. Winters. 6.5 – DISCUSSION AND POSSIBLE ACTION TO RENEW AND AMEND COMMERCIAL REAL ESTATE AGREEMENT WITH SCHMOOK APPRAISAL COMPANY: Mr. Gaddis said the commercial real estate agreement with Schmook Appraisal Company relates to TRS’ Harvey Parkway property. Periodic appraisals are needed for TRS’ financial records. A motion out of the Investment Committee to amend the agreement with Schmook Appraisal Company to reflect a cost of $2K per year for FY19, FY 20, and the two following years, carried by a unanimous voice vote of the Board. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Boles, Ms. Henderson, Mr. Kellogg, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson, and Dr. Winters. 6.6 – DISCUSSION AND POSSIBLE ACTION ON 403(B) WIND DOWN: For the benefit of new Board members, TRS Executive Director Tom Spencer explained the history of TRS’ 403(b) plan which is outsourced to VOYA. Since legislation was passed to allow TRS to wind down the plan, Mr. Spencer and some staff have been working with VOYA to transition TRS’ 403(b) plan participants to local 403(b) plans. The goal is to have this completed by June 2020. There was discussion about the current state of the plan. No action was taken.
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6.7 – DISCUSSION AND POSSIBLE ACTION ON INVESTMENT CONSULTANT REVIEW PROCESS: TRS General Counsel Sarah Green said the Board must review the investment consultant annually in April. She reviewed questions on the Investment Consultant Performance Review Survey and explained that the anonymous survey will go out Friday and responses will be reviewed in two weeks. This year the survey includes N/A options due to the Board having several new members. Upon completion of the survey, the Investment Committee will meet with AndCo. Renewal of AndCo’s service agreement will be discussed in the May Board Regular meeting. No action was taken. 6.8 – DISCUSSION AND POSSIBLE ACTION CHIEF INVESTMENT OFFICER REPORT: TRS Chief Investment Officer Kirk Stebbins presented his graph showing TRS’ funded ratio from 1991, when it was 38%, through 2018, where it was 72.9%. Regarding the RFP for a back office reporting service: Mr. Stebbins said they have received 41 questions and will get the answers back to them on April 30. The RFP will be closed May 14 and results will be shared in June. Mr. Massey commented on the great history of TRS and Mr. Gaddis referenced a chart, “Executive Summary Data from Actuarial Valuations FY 2009-2018,” that includes the number of active members, retirees and beneficiaries, and many more details that he finds helpful when answering questions about TRS. ITEM 7 – DISCUSSION AND POSSIBLE ACTION ON FIRST DRAFT OF FY 2020 BUDGET WORK PROGRAM: Mr. Spencer explained that as a non-appropriated state agency, the Legislature doesn’t appropriate TRS’ operating budget, TRS has authority to pay expenses from the trust to be self-sufficient. He presented his TRS Budget Work Program FY 2020, which is based on TRS’ strategic plan, and reviewed TRS’ goals as approved by the Board. Proposed ideas and changes to TRS’ FY 2020 budget include a proposed increase of $138,918 in Salary and Payroll for a possible I.T. hire, an increase of $33,800 in Professional Services, for the built-in increase for TRS’ Investment Consultant; an increase of $500K for the Back Office Provider for Alternative Investments; an increase of $12,700 for all Audit Services; and an increase of $43,300 for TRS’ actuarial firm’s step increase and an experience study. Also under Professional Services is a possible decrease of $8,190 in Employee Travel. Under Administrative Expenses, proposed decreases include $39K for Printing and Binding; $7,820 for Office Supplies; and $8,749 for Miscellaneous Administrative Expenses. Under I.T. (Data Processing), there is a proposed decrease of $139,700 in Professional Services (Software Development, OMES-ISD and Pension Administration System Implementation Development); a proposed decrease of $600 in Telecommunications Expenses; and an increase of $5,875 for Board Software. The proposed FY 2020 budget of $8,576,886, is an increase of $530,334 over the FY 2019 budget. A motion made by Dr. Winters with a second made by Mr. Kellogg to approve the draft of the FY 2020 Budget carried by a unanimous voice vote of the Board. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Boles, Ms. Henderson, Mr. Kellogg, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson, and Dr. Winters.
A break was taken from 10:18 a.m. to 10:31 a.m.
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The next item was taken out of sequence ITEM 9 – DISCUSSION AND POSSIBLE ACTION ON STAFF RECOMMENDATIONS ON PROPOSED LEGISLATION FOR THE 2019 SESSION AND PRESENTATION BY MAJORITY PLUS, INC.: Luke Martin of Majority Plus said SB 772, TRS’ clean-up bill, will be heard later today. HB 2304, the COLA bill, was passed in committee and was sent to the Legislative Actuary. He said there will be no COLA this year but the Legislature is looking for a possible 2% COLA next year. Jim Dunlap of Majority Plus described the ongoing confirmation of gubernatorial appointments and speculated on education items in the proposed state budget. Mr. Spencer added that HB 1090, which would allow TRS members to purchase service credit, is being laid over by the author until next year. ITEM 8 – DISCUSSION AND POSSIBLE ACTION ON COMMITTEE REPORTS: 8.1 – Audit Committee: Committee Chairman Greg Winters said Stinnett & Associates completed their FY18 projects that carried over into FY19. They went over budget 44.75 hours; however, hours from other projects that take less time will offset some of those. Stinnett is now working on the cybersecurity audit and business continuity plan development. They are being slowed down some by waiting on pieces from OMES and My Consulting. The post-retirement process audit will be done soon. Regarding BKD: Mr. Spencer will mention them in his report. Regarding the Audit Committee: Dr. Winters said he will need another member to replace Ms. Harris when her term on the Board expires June 30. He asked interested Trustees to contact him. Mr. Florence and Mr. Boles also serve on the committee. 8.2 – Governance Committee: No report. ITEM 10 – DISCUSSION AND POSSIBLE ACTION ON EMPLOYER LATE FEE WAIVER REQUESTS: TRS General Counsel Sarah Green said if the House passes SB 772 today, the Board will no longer be required to approve late fee waiver requests as of July 1. She reviewed the reasons for each late fee waiver request and gave her recommendation on each one. 10.1 – Connors State College – waiver denied 10.2 – Hanna Public School – waiver granted 10.3 – Moore Public Schools – waiver granted 10.4 – Southeastern Oklahoma State University – waiver granted 10.5 – Straight School – waiver granted A motion made by Dr. Winters with a second made by Mr. Boles to accept the General Counsel’s recommendations on late fee waiver requests carried by a unanimous voice vote of the Board. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Boles, Ms. Henderson, Mr. Kellogg, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson, and Dr. Winters. ITEM 11 – DISCUSSION AND POSSIBLE ACTION AGENCY REPORTS:
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11.1 – Client Services: TRS Director of Client Services Dixie Moody presented performance metrics for March 2019. TRS received almost 600 new retirement requests and completed about 700, including leftover inventory from February. Requests will begin to trend downward as deadlines for summer retirement has passed. This will allow staff to work on special projects and to prepare for fall seminars. The Information Center received 8,458 calls through TRS’ main line, 6,684 (79%) of which were answered by an agent within 15 seconds; 1,643 (19%) elected to go through menu options; and 131 abandoned their call after waiting 6 seconds for an agent. The Information Center received 303 emails in March and there are now 26,446 portal clients, an increase of 574 since February. Of the 60 members who applied for an April 1, 2019, retirement, 2 of the 4 disability retirements were approved by TRS’ medical board, and 2 were approved by the Social Security Administration. There were 156 terminated annuities. 11.2 – Human Resources: TRS Human Resources Director Kim Bold reported there were no personnel changes in March. As of April 25, it will be a full year since TRS hired its last full-time employee. Currently TRS has 38 full-time employees and two temporary employees. She has been working with Ms. Green on updating the employee handbook and preparing HR records for retention or destruction. 11.3 – Finance: In the absence of TRS Employer Reporting Manager Debra Plog, TRS Business Analyst David Tinker reported only delinquent account was Perry Public Schools. A ransom virus resulted in the school losing records back to July 1. The District was not able to submit its February report but was able to submit its March 2019 report because after the district was affected by the virus it stored its records off site. This could result in a late fee waiver request. TRS Chief Financial Officer Sam Moore presented the Balance Sheet as of March 31, 2019, which shows a balance of $16.5B, an increase of $91M since February 28. On the Statement of Revenues, Expenditures and Changes for the Nine Months ended March 31, he pointed out the State Credit difference stems from a change in 2017 that caused amounts in 2018 to be off. On the Comparison of Actual Expenditures FY 2018 and FY 2019 for the Nine Months Ended March 31, the high amount in Miscellaneous Professional Services was due to the high volume of tax forms and letters regarding the stipend resulting in higher postage totals. The increase in Data Processing Professional Services was due to having extra people work on software projects, and the increase in Data Processing Equipment was due to purchasing iPads, PCs and three laptops. Big differences on the Comparison of FY 2019 Budget to Actual Expenses for the Nine Months Ending March 31, were due to an expense being budgeted in one month but being paid in a different month. The Claims for Authorized Expenditures for March 2019 were reviewed without comment. 11.4 – Deputy Director of Operations: TRS Deputy Director of Operations John Santos reviewed his activities for the past month:
• Work on TRS’ member software, ALICE, includes enhancements of the member portal audit trails; adding member statements for active contributing and inactive vested members; resolving the registration problem and clarification of language; and the ability to unlock accounts upon request.
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• Recent activities include analyzing trends over the last three years to confirm that activity related to TRS, estimates and tax withholding increases every February. Also, tax withholding updates for 15,500 forms were completed.
• Regarding audits: Mr. Santos and others met with OMES about the cybersecurity audit. 11.5 – General Counsel: Ms. Green talked about her recent activities:
• She updated Trustees on the GE securities litigation claim. She pointed out that the discussion did not have to be held in executive session due to the public filing. The hearing is set for April 25.
• She presented possible guidelines and policies for monitoring and participating in future class action securities litigation. There was discussion about being lead plaintiff and the amount of losses that would lead to TRS’ participation. It was decided that no changes would be made at this time.
• She continues to work with Ms. Plog on the employer manual and with Ms. Bold on the employee handbook.
11.6 – Executive Director: Mr. Spencer reviewed projects he and staff have worked on:
• Information Technology: The Employer Record Verification project is complete. This gets employer data to TRS quicker and helps avoid over- and under-payments when a member retires.
• Legislation: The Senate gave the COLA bill to the legislative actuary to study for next year.
• Board: a.) There was an orientation for new Board member Chris Rector last week. b.) Information about upcoming educational opportunities has been sent to Board members. c.) A survey about a Board retreat was sent to Board members.
• Internal Audit: a.) Stinnett & Associates has begun a new cybersecurity audit and a business continuity/disaster recovery audit. Mr. Santos has been working with them to follow up on prior audits. b.) Little progress has been made on D’s work in auditing transactions. Mr. Spencer and Mr. Santos have been reviewing a draft of the firm’s audit.
• Investments – Office Building: The cooling tower that was approved is being custom built and could be installed in May or June.
• VOYA/403(b): This was discussed earlier. • Client Services Grievances: Mr. Spencer said none of the three client grievances he and
Ms. Green worked on are likely to come before the Board. • Actuary: TRS’ actuarial firm, Gabriel Roeder Smith & Company, will do an “experience
study” in FY 2020 to see if a change is needed in the actuarial assumptions. • Budget: Mr. Spencer reviewed the budget earlier. He will bring the final proposed budget
to the Board in May. ITEM 12 – DISCUSSION AND POSSIBLE ACTION ON BOARD RETREAT: Mr. Spencer briefed the Board on past retreats and reviewed results from the Board retreat survey. There was discussion about the location for a retreat. A motion made by Dr. Winters with a second made by Mr. Williams to hold a Board retreat on Oct. 21 and 22, and change the October 23 Board Regular meeting to a to-be-determined
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location in Tulsa carried by a unanimous voice vote of the Board. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Boles, Ms. Henderson, Mr. Kellogg, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson, and Dr. Winters. ITEM 13 – QUESTIONS AND COMMENTS FROM TRUSTEES: There were none. ITEM 14 – NEW BUSINESS: There was no new business. ITEM 15 – ADJOURNMENT: A motion made by Dr. Winters with a second mad by Mr. Gaddis to adjourn the meeting at 11:46 a.m. carried by a unanimous voice vote. Trustees responding were Mr. Florence, Mr. Gaddis, Ms. Harris, Mr. Boles, Ms. Henderson, Mr. Kellogg, Mr. Rector, Ms. Shankar, Mr. Streeter, Mr. Williamson, and Dr. Winters.
By: ______________________________________ Vernon Florence, Chairman ATTEST: By: _______________________________________ Judie Harris
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RESOLUTION HONORING THE SERVICE OF
CHRISTA HUGHES
WHEREAS, Christa Hughes served as a member of the Board of Trustees of the Teachers’
Retirement System of Oklahoma from February 2016, through February 2019, distinguishing herself as a
devoted member of the Governance Committee; and
WHEREAS, Christa Hughes served the People of Oklahoma, the Teachers’ Retirement
System, and the public schools of the state of Oklahoma with great expertise during her tenure; and
WHEREAS, Through the guidance and knowledge of this dedicated woman, the general
welfare of all was advanced; therefore be it
RESOLVED, That the Board of Trustees of the Teachers’ Retirement System of Oklahoma, in a
formal meeting herein assembled, extends its appreciation to Christa Hughes for her many
excellent contributions made for the people of Oklahoma and for the advancement and growth
of the Retirement System and vital management of its funds; and
RESOLVED, That a copy of this Resolution be forwarded to Christa Hughes and that this
Resolution be placed in the official files of the Board of Trustees as a permanent public record of
the great state of Oklahoma, as a tribute to this distinguished public servant.
ADOPTED BY THE BOARD OF TRUSTEES OF THE TEACHERS’ RETIREMENT SYSTEM
OF OKLAHOMA, THIS 22nd DAY OF May, 2019.
_____________________________________________
Vernon Florence, Chairman
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RESOLUTION HONORING THE SERVICE OF
SHAREÉ MADSEN
WHEREAS, Shareé Madsen served as a member of the Board of Trustees of the Teachers’
Retirement System of Oklahoma from April 2016, through June 2018, distinguishing herself as a devoted
member of the Governance Committee and Audit Committee; and
WHEREAS, Shareé Madsen served the People of Oklahoma, the Teachers’ Retirement
System, and the public schools of the state of Oklahoma in her position as one of two active classroom
teachers on the Board; and
WHEREAS, Shareé Madsen brought her positive attitude to the TRS team through her presence
and dedication to the mission of TRS which contributed to the general welfare of the public educators she
served; therefore be it
RESOLVED, That the Board of Trustees of the Teachers’ Retirement System of Oklahoma, in a
formal meeting herein assembled, extends its appreciation to Shareé Madsen for her many
excellent contributions made for the people of Oklahoma and for the advancement and growth
of the Retirement System and vital management of its funds; and
RESOLVED, That a copy of this Resolution be forwarded to Shareé Madsen and that this
Resolution be placed in the official files of the Board of Trustees as a permanent public record of
the great state of Oklahoma, as a tribute to this distinguished public servant.
ADOPTED BY THE BOARD OF TRUSTEES OF THE TEACHERS’ RETIREMENT SYSTEM
OF OKLAHOMA, THIS 22nd DAY OF May, 2019.
_____________________________________________
Vernon Florence, Chairman
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RESOLUTION HONORING THE SERVICE OF
KEVIN MOORE
WHEREAS, Kevin Moore served as a member of the Board of Trustees of the Teachers’
Retirement System of Oklahoma from February 2015 through December 2018 distinguishing himself as a
skilled member of the Investment Committee and authority in financial matters; and
WHEREAS, Kevin Moore served the Teachers’ Retirement System, with great expertise during
his tenure by engaging in thoughtful discussion and regularly bringing an educated point of view to Board
meetings; and
WHEREAS, Through sharing his talents and presence to the mission of TRS, the general
welfare of the State and the public educators TRS serves were both advanced; therefore be it
RESOLVED, That the Board of Trustees of the Teachers’ Retirement System of Oklahoma, in a
formal meeting herein assembled, extends its appreciation to Kevin Moore for his many
excellent contributions made for the people of Oklahoma and for the advancement and growth
of the Retirement System and vital management of its funds; and
RESOLVED, That a copy of this Resolution be forwarded to Kevin Moore and that this
Resolution be placed in the official files of the Board of Trustees as a permanent public record of
the great state of Oklahoma, as a tribute to this distinguished public servant.
ADOPTED BY THE BOARD OF TRUSTEES OF THE TEACHERS’ RETIREMENT SYSTEM
OF OKLAHOMA, THIS 22nd DAY OF May, 2019.
_____________________________________________
Vernon Florence, Chairman
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RESOLUTION HONORING THE SERVICE OF
BILL PEACHER
WHEREAS, Bill Peacher served as a member of the Board of Trustees of the Teachers’
Retirement System of Oklahoma from December 2011 through March 2019 serving as Board Chair,
Vice-Chair, and Chair of the Investment Committee, and distinguished himself as a devoted public
servant in Oklahoma; and
WHEREAS, Bill Peacher served the Teachers’ Retirement System with great expertise in
financial matters that he developed from a successful business career and shared those talents with TRS;
and
WHEREAS, Bill Peacher not only had outstanding attendance at board meetings and committee
meetings, but also gave of his time participating in due diligence trips to properly evaluate prospective
investment professionals, and
WHEREAS, Through the guidance and knowledge of this dedicated man, the interests of the
Teachers’ Retirement System and of the education professionals it serves was advanced; therefore be it
RESOLVED, That the Board of Trustees of the Teachers’ Retirement System of Oklahoma, in a
formal meeting herein assembled, extends its appreciation to Bill Peacher for his many
excellent contributions made for the people of Oklahoma and for the advancement and growth
of the Retirement System and vital management of its funds; and
RESOLVED, That a copy of this Resolution be forwarded to Bill Peacher and that this
Resolution be placed in the official files of the Board of Trustees as a permanent public record of
the great state of Oklahoma, as a tribute to this distinguished public servant.
ADOPTED BY THE BOARD OF TRUSTEES OF THE TEACHERS’ RETIREMENT SYSTEM
OF OKLAHOMA, THIS 22nd DAY OF MAY, 2019.
_____________________________________________
Vernon Florence, Chairman
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<CBDoc TenantId="2" EntityTypeId="3100" EntityId="2545" DocumentTypeId="2" EffectiveDate="04/30/2019" Interval="1" Description="Net" />
Investment Performance Review
Period Ending April 30, 2019
Oklahoma Teachers Retirement System
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Comparative Performance
Trailing One-Year Total Fund Return
5.3
Comparative Performance
Total Fund Net of Fees
As of April 30, 2019
Returns are expressed as percentages. Net of fee returns.
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Asset Allocation Compliance
AssetAllocation ($)
CurrentAllocation (%)
TargetAllocation (%)
Differences(%)
Domestic Equity 6,711,792,716 39.70 38.50 1.20
International Equity 3,064,089,372 18.13 19.00 -0.87
Fixed Income 3,888,782,813 23.00 23.50 -0.50
Real Estate 1,309,563,707 7.75 9.00 -1.25
Private Equity 1,177,189,054 6.96 5.00 1.96
MLP 620,929,413 3.67 5.00 -1.33
Cash & Cash Equivalents 132,565,737 0.78 0.00 0.78
Total Fund 16,904,912,811 100.00 100.00 0.00
Target Allocation Actual Allocation Allocation Differences
0.0% 6.0% 12.0% 18.0% 24.0% 30.0% 36.0% 42.0% 48.0%-6.0 %-12.0 %
Cash & Cash Equivalents$132,565,737.0
MLP$620,929,413.0
Private Equity$1,177,189,054.0
Real Estate$1,309,563,706.6
Fixed Income$3,888,782,812.8
International Equity$3,064,089,372.0
Domestic Equity$6,711,792,716.0
0.0%
5.0%
5.0%
9.0%
23.5%
19.0%
38.5%
0.8%
3.7%
7.0%
7.7%
23.0%
18.1%
39.7%
0.8%
-1.3 %
2.0%
-1.3 %
-0.5 %
-0.9 %
1.2%
Asset Allocation Compliance Summary
Total Fund Net of Fees
As of April 30, 2019
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Asset Allocation & PerformanceTotal Fund Net of Fees
As of April 30, 2019Asset Allocation & Performance
AllocationMarket % Inception 10 YR 10 YR 3 YR 1 YR FYTD YTD QTR MTH InceptionValue $ Date
Total Fund 16,904,912,811 100.0 8.97 11.02 6.56 9.68 5.30 3.98 11.72 5.21 2.39 12/01/1991 Total Fund Policy (Monthly) 11.25 6.74 9.8 7.02 5.56 12.34 5.69 2.2 Actuarial Assumption 7.81 7.62 7.50 7.50 6.21 2.44 1.82 0.60Total Fund Marketable Asset (including MLPs) 9.65 4.37 3.21 14.02 6.03 2.62 Total Fund Policy ex Alts 14,147,796,096 83.7 8.33 5.91 5.02 11.14 5.14 2.01
Total Equity Composite 9,775,882,088 57.8 10.76 13.42 8.26 12.28 4.10 3.05 17.99 7.67 3.84 04/01/1990 Total Equity Policy 8.91 13.10 8.64 12.69 7.17 6.09 16.85 7.93 3.55
Total Domestic Equity Composite 6,711,792,716 39.7 10.83 15.00 9.89 14.35 9.75 5.97 20.11 8.61 4.34 04/01/1990 Total Domestic Equity Policy 9.98 15.23 11.45 14.56 12.68 8.88 18.60 9.22 3.99Total Domestic Equity Active Composite 5,023,048,648 29.7 9.83 N/A N/A 14.43 9.22 4.98 21.11 8.62 4.70 07/01/2015 Total Domestic Equity Policy 11.77 15.23 11.45 14.56 12.68 8.88 18.60 9.22 3.99Total Domestic Equity Active Large Cap Composite 1,508,558,638 8.9 10.41 14.80 10.37 14.39 12.33 9.86 19.24 9.69 4.73 02/01/1995 Total Domestic Large Cap Equity Active Policy 10.08 15.39 11.41 14.82 13.33 9.80 18.60 9.43 4.04Total Domestic Equity Active Mid Cap Composite 1,855,524,231 11.0 9.79 15.50 8.84 13.66 9.71 5.40 22.32 8.39 4.04 12/01/1998 Total Domestic Mid Cap Equity Policy 9.61 15.65 9.75 12.82 10.69 7.49 20.97 9.19 3.81Total Domestic Equity Active Small Cap Composite 1,658,965,779 9.8 9.10 14.33 10.05 15.27 6.03 0.44 21.49 7.91 5.41 02/01/1998 Total Domestic Small Cap Policy 7.76 14.10 8.63 13.60 4.61 -2.08 18.48 6.50 3.40Total Domestic Equity Indexed Composite 1,688,744,068 10.0 11.04 N/A N/A 13.76 11.36 9.00 17.24 8.59 3.30 07/01/2015 Russell 3000 Index 11.40 15.29 11.20 14.74 12.68 8.88 18.60 9.22 3.99Total Domestic Equity Index Cap Wgt Composite 673,394,880 4.0 13.15 N/A 11.23 14.07 13.34 9.81 18.60 9.43 4.04 04/01/2012 Russell 1000 Index 13.26 15.39 11.41 14.82 13.33 9.80 18.60 9.43 4.04Total Domestic Equity Indexed NonCap Composite 1,015,349,188 6.0 13.72 N/A 10.73 14.00 10.08 8.47 16.36 8.04 2.81 05/01/2012 SciBeta US High FactorExposure Index N/A N/A N/A N/A 10.10 8.52 16.36 8.05 2.80
Total International Equity Composite 3,064,089,372 18.1 7.72 8.29 3.37 7.48 -6.63 -2.93 13.59 5.66 2.77 02/01/1996 Total International Equity Policy 5.41 8.54 3.42 8.42 -3.52 0.44 13.36 5.34 2.66Total International Large Cap Equity Composite 1,956,477,791 11.6 4.35 N/A N/A 8.52 -4.74 -0.11 13.09 5.46 2.27 10/01/2014 Total International Large Cap Equity Policy 4.15 8.54 3.42 8.42 -3.52 0.44 13.36 5.34 2.66Total International Small Cap Equity Composite 1,107,611,581 6.6 9.22 N/A 3.30 5.86 -9.80 -7.54 14.49 6.01 3.68 12/01/2011 Total International Small Cap Equity Policy 8.06 10.75 4.13 7.21 -8.19 -4.75 12.85 4.65 2.26
Total Fixed Income Composite 3,618,418,858 21.4 6.85 6.48 3.61 4.02 5.58 5.05 4.99 2.97 0.45 04/01/1990 Total Fixed Income Policy 5.97 3.84 2.80 2.29 5.38 4.96 3.47 2.06 0.14Total Fixed Income Core Plus Composite 3,064,360,854 18.1 5.27 5.66 2.82 3.19 5.23 5.07 5.41 3.11 0.98 10/01/2004 Total Fixed Income Core Plus Policy 4.03 3.88 2.89 2.44 5.84 5.42 5.08 2.68 0.52Total Fixed Income Active Duration Composite 554,055,416 3.3 6.00 5.63 5.15 0.76 6.28 3.01 2.81 2.23 -2.36 11/01/2004 Total Fixed Income Active Duration Policy 3.75 3.47 2.09 1.11 4.77 3.82 1.83 1.35 -0.28Total Fixed Income High Yield Composite 2,588 0.0 02/01/2009
Total Alternatives Composite 3,378,046,128 20.0 06/01/2015Total Master Limited Partnerships Composite 620,929,413 3.7 4.74 N/A -4.69 1.31 0.58 -4.41 15.75 0.97 -2.41 02/01/2011 Total MLP Policy 1.88 8.83 -5.78 1.61 5.08 1.59 15.27 2.33 -1.33Total Opportunistic Fixed Income Composite 270,363,955 1.6Total Core Real Estate Composite 933,746,539 5.5Total NonCore Real Estate Composite 375,817,168 2.2Total Private Equity Composite 1,177,189,054 7.0
Total Cash Composite 132,565,737 0.8 1.20 1.46 2.33 1.99 0.84 0.62 0.21
06/01/20155.185.09
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Financial Reconciliation
Market Value04/01/2019
Net FlowsNet
TransfersContribution Distributions
ManagementFees
OtherExpenses
IncomeApprec./Deprec.
Market Value04/30/2019
Total Fund 16,568,654,300 772,477 - 70,812,067 -98,000,000 - -11,966 27,972,376 335,486,034 16,904,912,811
Total Equity 9,414,073,539 13,554,580 - - - - - 13,554,580 348,253,969 9,775,882,088
Total Domestic Equity 6,432,652,159 4,812,773 - - - - - 4,812,773 274,327,784 6,711,792,716
Total Domestic Equity Active (ex AllCap) 4,797,814,517 3,046,827 - - - - - 3,046,827 222,187,304 5,023,048,648
Total Domestic Equity Active Large Cap 1,440,465,454 1,606,648 - - - - - 1,606,648 66,486,536 1,508,558,638
Total Domestic Equity Active Mid Cap 1,783,545,836 990,891 - - - - - 990,891 70,987,504 1,855,524,231
Total Domestic Equity Active Small Cap 1,573,803,227 449,288 - - - - - 449,288 84,713,264 1,658,965,779
Total Domestic Equity Indexed 1,634,837,642 1,765,946 - - - - - 1,765,946 52,140,480 1,688,744,068
Total Domestic Equity Index Cap Wgt 647,248,272 736,334 - - - - - 736,334 25,410,274 673,394,880
Total Domestic Equity Indexed NonCap 987,589,370 1,029,612 - - - - - 1,029,612 26,730,206 1,015,349,188
Total International Equity 2,981,421,380 8,741,807 - - - - - 8,741,807 73,926,185 3,064,089,372
Total International Large Cap Equity 1,913,108,452 7,175,273 - - - - - 7,175,273 36,194,066 1,956,477,791
Total International Small Cap Equity 1,068,312,928 1,566,534 - - - - - 1,566,534 37,732,119 1,107,611,581
Total Fixed Income 3,602,206,214 11,290,607 -543 - - - - 11,291,150 4,922,037 3,618,418,858
Total Fixed Income Core Plus 3,034,737,394 10,421,913 1,948 - - - - 10,419,965 19,201,547 3,064,360,854
Total Fixed Income Active Duration 567,470,412 870,642 - - - - - 870,642 -14,285,638 554,055,416
Total Fixed Income High Yield -1,592 -1,948 -2,491 - - - - 543 6,128 2,588
Financial Reconciliation
Total Fund1 Month Ending April 30, 2019
Please note: Total monthly cash flows of plan $98M ($80M + $10M + $8M). Reflected above is cash basis (dependable on when $98M hits account and is paid out).
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Financial Reconciliation
Total Fund
1 Month Ending April 30, 2019
Market Value04/01/2019
Net FlowsNet
TransfersContribution Distributions
ManagementFees
OtherExpenses
IncomeApprec./Deprec.
Market Value04/30/2019
Total Alternatives 3,410,793,343 -14,283,796 -17,398,476 - - - -11,966 3,126,646 -18,463,418 3,378,046,128
Total Opportunistic Fixed Income 267,613,230 2,750,725 2,750,725 - - - - - - 270,363,955
Total Real Estate 1,306,655,462 2,908,244 2,920,210 - - - -11,966 - - 1,309,563,707
Total Core Real Estate 933,746,539 - - - - - - - - 933,746,539
Total Non-Core Real Estate 372,908,923 2,908,244 2,920,210 - - - -11,966 - - 375,817,168
Total Private Equity 1,199,248,613 -22,059,559 -22,059,559 - - - - - - 1,177,189,054
Total Master Limited Partnerships 637,276,038 2,116,793 -1,009,853 - - - - 3,126,646 -18,463,418 620,929,413
Total Cash 141,581,204 -9,788,913 17,399,020 70,812,067 -98,000,000 - - - 773,446 132,565,737
Please note: Total monthly cash flows of plan $98M ($80M + $10M + $8M). Reflected above is cash basis (dependable on when $98M hits account and is paid out).
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Asset Allocation & Performance
Allocation
MarketValue
$
Performance(%)
Inception 10 YR 5 YR 3 YR 1 YR FYTD YTD QTR MTHInception
Date
Total Fund 16,904,912,811
Total Domestic Equity Active Large Cap Composite 1,508,558,638
Hotchkis & Wiley Large Cap Value 746,439,881 10.50 15.36 8.43 12.63 4.82 3.97 20.89 7.55 5.36 04/01/1990
Russell 1000 Value Index 9.92 13.76 8.27 10.97 9.06 8.15 15.90 7.54 3.55
Sawgrass Large Cap Growth 762,118,757 10.03 15.52 12.37 16.18 20.47 16.06 17.66 11.88 4.12 06/01/2006
Russell 1000 Growth Index 10.89 16.96 14.50 18.62 17.43 11.43 21.35 11.34 4.52
Total Domestic Equity Active Mid Cap Composite 1,855,524,231
AJO Mid Cap 444,700,625 10.24 15.39 8.15 11.58 5.69 3.11 18.82 7.46 4.28 09/01/1998
Russell Midcap Index 10.42 15.65 9.75 12.82 10.69 7.49 20.97 9.19 3.81
Frontier Mid Cap Growth 493,170,875 10.38 15.28 11.51 16.09 16.94 13.15 24.69 10.90 3.71 06/01/2002
Russell Midcap Growth Index 10.25 16.56 12.20 16.78 17.64 12.96 25.00 12.12 4.50
Hotchkis & Wiley Mid Cap Value 418,112,523 11.20 15.71 4.29 7.56 -4.76 -7.10 20.69 3.30 4.00 08/01/2002
Russell Midcap Value Index 10.71 14.98 7.83 9.91 5.76 3.79 18.14 7.12 3.30
Wellington Mid Cap Growth 499,540,208 10.54 15.46 11.04 19.14 21.40 12.51 24.67 11.34 4.17 09/01/1998
Russell Midcap Growth Index 9.74 16.56 12.20 16.78 17.64 12.96 25.00 12.12 4.50
Total Domestic Equity Active Small Cap Composite 1,658,965,779
Geneva Small Cap Growth 211,063,183 14.66 - 14.24 18.80 14.23 7.75 21.13 10.10 4.72 06/01/2013
Russell 2000 Growth Index 11.26 15.24 10.22 15.64 6.91 -0.20 20.71 8.22 3.05
Frontier Small Cap Value 215,418,766 9.63 - 7.63 11.02 2.55 -2.75 20.65 7.35 5.61 06/01/2013
Russell 2000 Value Index 8.54 12.87 6.94 11.46 2.19 -4.01 16.16 4.71 3.78
Neumeier Poma Small Value 255,539,661 13.83 - 12.89 16.78 8.36 3.06 19.20 8.34 6.00 06/01/2013
Russell 2000 Value Index 8.54 12.87 6.94 11.46 2.19 -4.01 16.16 4.71 3.78
Shapiro Small Cap 761,305,316 9.65 15.73 8.25 14.46 0.58 -3.94 21.69 5.85 4.82 02/01/1998
Russell 2000 Index 7.76 14.10 8.63 13.60 4.61 -2.08 18.48 6.50 3.40
Wasatch Small Cap Growth 215,638,853 13.68 - 13.91 20.30 19.69 9.97 24.81 13.55 7.34 06/01/2013
Russell 2000 Growth Index 11.26 15.24 10.22 15.64 6.91 -0.20 20.71 8.22 3.05
Asset Allocation & Performance
Total Fund Net of Fees
As of April 30, 2019
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Asset Allocation & Performance
Total Fund Net of Fees
As of April 30, 2019
Allocation
MarketValue
$
Performance(%)
Inception 10 YR 5 YR 3 YR 1 YR FYTD YTD QTR MTHInception
Date
Total Domestic Equity Index Cap Wgt Composite 673,394,880
Northern Trust Russell 1000 673,394,880 9.84 - - - 13.34 9.81 18.60 9.43 4.04 12/01/2017
Russell 1000 Index 9.82 15.39 11.41 14.82 13.33 9.80 18.60 9.43 4.04
Total Domestic Equity Indexed NonCap Composite 1,015,349,188
SciBeta US HFE MBMS 1,015,349,188 7.11 - - - 10.08 8.47 16.36 8.04 2.81 12/01/2017
SciBeta US High FactorExposure Index 7.13 - - - 10.10 8.52 16.36 8.05 2.80
Total International Large Cap Equity Composite 1,956,477,791
Allianz International 991,645,837 10.43 - - - -6.15 -0.36 11.04 3.10 1.83 07/01/2016
MSCI AC World ex USA 10.33 8.24 3.31 8.61 -2.76 1.30 13.44 5.45 2.72
Causeway International 461,343,551 8.35 8.93 2.44 7.77 -6.11 -1.05 13.89 5.55 2.76 05/01/2003
Causeway Intl Policy 8.31 8.14 3.12 8.26 -5.16 0.88 10.84 3.08 2.19
Wellington Quality Growth International 503,472,961 11.85 - - - -0.46 1.27 16.59 10.34 2.68 07/01/2016
Wellington Intl Quality Growth Policy 9.79 9.44 4.79 8.72 -0.34 1.73 16.05 7.83 3.23
Northern Trust International Passive 15,442
Total International Small Cap Equity Composite 1,107,611,581
ARI Small Cap International 891,391
Epoch Small Cap International 264,028,805 7.64 - 2.05 4.81 -12.13 -10.69 14.34 6.33 4.09 12/01/2011
MSCI AC World ex USA Small Cap 8.06 10.75 4.13 7.21 -8.19 -4.75 12.85 4.65 2.26
SSGA Emerging Markets Small Cap 271,566,511 5.17 - - - -9.96 -4.26 7.67 1.93 0.56 09/01/2016
MSCI Emerging Markets Small Cap Index 4.56 8.50 2.04 5.83 -11.83 -3.69 8.04 2.51 0.23
Wasatch Small Cap International 310,646,004 11.87 - 7.05 9.45 -2.13 -3.80 21.19 10.13 5.61 12/01/2011
MSCI AC World ex USA Small Cap 8.06 10.75 4.13 7.21 -8.19 -4.75 12.85 4.65 2.26
Wellington Small Cap International 260,478,870 8.77 - 2.03 3.59 -15.29 -11.63 14.72 5.40 4.37 12/01/2011
MSCI EAFE Small Cap Index 10.30 11.87 5.64 8.15 -7.53 -4.90 14.17 5.65 3.08
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Asset Allocation & Performance
Total Fund Net of FeesAs of April 30, 2019
Allocation
MarketValue
$
Performance(%)
Inception 10 YR 5 YR 3 YR 1 YR FYTD YTD QTR MTHInception
Date
Total Fixed Income Core Plus Composite 3,064,360,854
Loomis Sayles Core Plus 1,013,404,021 5.99 6.46 2.90 3.45 4.11 4.00 4.62 2.49 0.60 08/01/1999
Total Fixed Income Core Plus Policy 4.94 3.88 2.89 2.44 5.84 5.42 5.08 2.68 0.52
Lord Abbett Core Plus 1,038,200,393 5.05 5.40 3.24 3.12 6.38 6.07 5.84 3.69 1.67 11/01/2004
Total Fixed Income Core Plus Policy 4.03 3.88 2.89 2.44 5.84 5.42 5.08 2.68 0.52
Mackay Shields Core Plus 1,012,756,440 4.89 5.14 2.30 2.96 5.22 5.16 5.73 3.15 0.65 11/01/2004
Total Fixed Income Core Plus Policy 4.03 3.88 2.89 2.44 5.84 5.42 5.08 2.68 0.52
Lord Abbett High Yield 2,588
Total Fixed Income Active Duration Composite 554,055,416
Hoisington Active Duration 554,055,416 6.69 6.14 5.11 0.74 6.28 3.01 2.81 2.23 -2.36 11/01/2004
Total Fixed Income Active Duration Policy 3.75 3.47 2.09 1.11 4.77 3.82 1.83 1.35 -0.28
Total Opportunistic Fixed Income Composite 270,363,955
PIMCO Bravo Fund LP 2,019,100 12.31 - 6.50 8.45 -39.83 -37.00 -12.11 -12.11 0.00 04/01/2011
PIMCO Bravo Fund II LP 87,486,440 11.28 - 9.28 7.96 3.16 0.86 5.98 5.98 0.00 04/01/2013
PIMCO Bravo Fund III Onshore Feeder LP 116,340,274 13.24 - - - 7.80 1.51 0.00 0.00 0.00 04/01/2017
PIMCO Corporate Opportunities II Onshore LP 64,518,141 9.83 - - - 2.87 -4.37 0.00 0.00 0.00 09/01/2016
Total Core Real Estate Composite 933,746,539
AEW Real Estate 319,123,531 9.66 - 8.82 7.09 6.95 4.74 1.51 1.51 0.00 08/01/2011
Heitman Real Estate 326,576,618 10.55 - 9.25 7.06 6.07 4.06 1.37 1.37 0.00 05/01/2011
L&B Real Estate 288,046,390 8.78 - 9.68 6.46 4.34 2.93 0.03 0.03 0.00 05/01/2011
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Asset Allocation & Performance
Total Fund Net of Fees
As of April 30, 2019
Allocation
MarketValue
$
Performance(%)
Inception 10 YR 5 YR 3 YR 1 YR FYTD YTD QTR MTHInception
Date
Total Non-Core Real Estate Composite 375,817,168
American Realty 63,962,169 11.34 - - 9.52 8.88 5.81 2.31 2.31 0.00 12/01/2014
Antheus/Lyrical - OTRS Realty Partners IV LP 62,924,703
Artemis Fund III 4,379,456
Dune Real Estate Fund III 58,795,704
FCP Realty Fund IV 3,434,237
GreenOak US II LP 37,001,695
GreenOak US III LP 11,223,011
Harbert Euro Real Estate Fund V 1,431,684
L&B Golden Driller LP 73,072,449
Landmark Real Estate Partners VII LP 18,593,578
Starwood Opportunity Fund X Global LP 22,211,916
Starwood Opportunity Fund XI Global LP 5,329,381
Property ACQ Fund 13,457,184
Total Private Equity Composite 1,177,189,054
OTRS Legacy P-E Assets Fund LP 16,499,121
Franklin Park Private Equity 1,160,689,933
Total Master Limited Partnerships Composite 620,929,413
Chickasaw MLP 208,431,843 7.20 - -4.61 0.05 -1.25 -4.92 17.43 1.26 -2.84 03/01/2011
Alerian MLP Index 1.47 8.83 -5.78 1.61 5.08 1.59 15.27 2.33 -1.33
Cushing MLP 412,497,570 5.33 - -4.26 2.50 1.70 -4.09 14.89 0.82 -2.19 03/01/2011
Alerian MLP Index 1.47 8.83 -5.78 1.61 5.08 1.59 15.27 2.33 -1.33
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Comparative Performance - IRR
Inception 5 YR 3 YR 1 YR FYTD QTR MTHInception
Date
Opportunistic Fixed Income
PIMCO Bravo Fund LP 22.08 12.25 18.92 -39.36 -37.72 -13.15 0.00 03/15/2011
PIMCO Bravo Fund II LP 8.83 8.48 8.67 3.22 0.49 5.86 0.00 03/19/2013
PIMCO Bravo Fund III Onshore Feeder LP 7.56 - - 4.89 0.82 0.00 0.00 03/10/2017
PIMCO Corporate Opportunities II Onshore LP 6.19 - - 1.15 -4.38 0.00 0.00 09/01/2016
Non-Core Real Estate
American Realty 10.07 - 9.06 8.65 5.81 2.31 0.00 12/16/2014
Antheus/Lyrical - OTRS Realty Partners IV LP 7.32 - 8.94 8.43 6.19 0.00 0.00 11/12/2014
Artemis Fund III 0.00 - - - - 0.00 0.00 01/08/2019
Dune Real Estate Fund III 13.72 - 13.17 12.25 8.28 0.00 0.00 11/07/2014
FCP Realty Fund IV 0.00 - - - - 0.00 0.00 12/03/2018
GreenOak US II LP 6.67 - 7.46 10.83 3.42 0.00 0.00 10/30/2014
GreenOak US III LP -24.59 - - - -6.66 -2.61 0.00 06/25/2018
Harbert Euro Real Estate Fund V -25.52 - - - - 0.00 0.00 12/10/2018
L&B Golden Driller LP -0.03 - -0.01 -0.01 -0.01 0.00 0.00 07/31/2014
Landmark Real Estate Partners VII LP 12.36 - 5.63 2.49 1.43 -0.06 -0.06 12/22/2014
Starwood Opportunity Fund X Global LP 16.00 - 13.97 12.43 5.14 0.00 0.00 10/29/2015
Starwood Opportunity Fund XI Global LP 24.30 - - - 24.30 0.00 0.00 07/09/2018
Private Equity
OTRS Legacy P-E Assets Fund LP 10.11 4.59 4.10 3.31 -1.35 0.00 0.00 10/10/2008
Franklin Park Private Equity 14.18 14.98 16.22 11.44 4.02 0.00 0.00 04/08/2010
Comparative Performance - IRR
Private Investments
As of April 30, 2019
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Risk and Return 5 Years
Total Fund Total Equity Total Domestic Equity Total International Equity
Total Fixed Income Total MLPs Alerian MLP Index MSCI AC World ex USA IMI Index
Russell 3000 BarCap Universal Total Fund Policy
-10.0
-5.0
0.0
5.0
10.0
15.0
Re
turn
(%)
-2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0 26.0Risk (Standard Deviation %)
Total Fund Policy
BarCap Universal
Russell 3000
MSCI AC World ex USA IMI Index
Alerian MLP Index Total MLPs
Total Fixed Income Total International Equity
Total Domestic Equity
Total EquityTotal Fund
Historical Statistics 5 Years
ReturnStandardDeviation
DownsideRisk
MaximumDrawdown
UpMarket
Capture
DownMarket
Capture
Total Fund 6.56 8.19 5.43 -11.96 98.90 100.06
Total Equity 8.26 11.88 7.95 -15.93 133.10 139.12
Total Domestic Equity 9.89 12.76 8.30 -16.69 144.44 139.92
Total International Equity 3.37 11.78 8.11 -21.09 102.82 141.59
Total Fixed Income 3.61 3.65 2.09 -4.30 34.65 18.91
Total MLPs -4.69 21.75 15.87 -48.43 143.44 299.15
Alerian MLP Index -5.78 19.64 14.45 -48.51 123.32 281.85
MSCI AC World ex USA IMI Index 3.42 11.91 7.94 -19.59 106.56 147.77
Russell 3000 11.20 11.48 7.27 -14.30 143.76 125.44
Blmbg. Barc. U.S. Universal Index 2.86 2.68 1.53 -2.90 20.32 1.79
Total Fund Policy 6.74 8.18 5.29 -10.76 100.00 100.00
Risk Return and Statistics
Total Fund Net of Fees
As of April 30, 2019
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Total Fund Performance
0.00% 3.00% 6.00% 9.00%-3.00 %-6.00 %
Total Fund
Total Fund Benchmark
Total Value Added
4.37%
6.81%
-2.44 %
Total Value Added:-2.44 %
0.00% 0.80%-0.80 %-1.60 %-2.40 %-3.20 %
Other
Manager Value Added
Asset Allocation
0.12%
-2.25 %
-0.30 %
Total Asset Allocation:-0.30 %
Average Active Weight
0.00% 2.00% 4.00%-2.00 %-4.00 %
Total Cash Composite
Total Master Limited Partnerships Composite
Total Fixed Income Composite
Total International Equity Composite
Total Domestic Equity Composite
We
igh
t
(%)
1.07%
-0.70 %
-2.01 %
0.00%
1.63%
Asset Allocation Value Added
0.00% 0.08%-0.08 %-0.16 %-0.24 %
-0.07 %
0.00%
-0.15 %
-0.08 %
0.00%
Total Manager Value Added:-2.25 %
Manager Value Added
0.00% 0.50%-0.50 %-1.00 %-1.50 %
0.00%
-0.25 %
0.05%
-0.75 %
-1.30 %
Total Fund Attribution
Total Fund Net of Fees
1 Year Ending April 30, 2019
Benchmark Effect: The difference between the dynamic benchmark (sum of each manager weight * individual benchmark returns) and the benchmark selected on the report (broad market benchmark).
Cash Flow effect: The difference remaining from Total Excess Return less Benchmark Effect less all of the individual manager effects.
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Performance Attribution
0.00% 2.00% 4.00% 6.00% 8.00% 10.00%-2.00 %-4.00 %
Manager's Skill
Style Selection
Tactical Asset Allocation
Strategic Asset Allocation
Investment Pool Performance
-0.70 %
-1.43 %
-0.31 %
6.81%
4.37%
Strategic Asset Allocation: 6.81%
0.00% 4.00% 8.00%-4.00 %
Total Cash Composite
Total Master Limited Partnerships Composite
Total Fixed Income Composite
Total International Equity Composite
Total Domestic Equity Composite
0.00%
0.33%
1.66%
-0.83 %
5.66%
Tactical Asset Allocation: -0.31 %
0.00% 0.10%-0.10 %-0.20 %
0.02%
-0.09 %
-0.06 %
-0.07 %
-0.12 %
Style Selection: -1.43 %
-1.41 % -0.94 % -0.47 % 0.00%
0.00%
-0.05 %
-0.38 %
-1.00 %
Manager's Skill: -0.70 %
0.00% 0.30%-0.30 %-0.60 %
0.00%
-0.25 %
0.13%
-0.34 %
-0.25 %
Total Fund Attribution - IDP- Net
Total Fund Net of Fees
1 Year Ending April 30, 2019
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0.0% 0.5% 1.0% 1.5%-0.5 %-1.0 %-1.5 %-2.0 %-2.5 %-3.0 %-3.5 %-4.0 %
Neumeier Poma Small Value
Frontier Small Cap Value
Wasatch Small Cap Growth
Geneva Small Cap Growth
Shapiro Small Cap
Hotchkis & Wiley Mid Cap Value
AJO Mid Cap
Wellington Mid Cap Growth
Frontier Mid Cap Growth
SciBeta US HFE MBMS
Northern Trust Russell 1000
Sawgrass Large Cap Growth
Hotchkis & Wiley Large Cap Value
Benchmark Effect
Cash Flow Effect
Total Excess Return
0.2%
0.0%
0.4%
0.3%
-0.5 %
-0.8 %
-0.3 %
0.3%
0.0%
0.0%
0.0%
0.3%
-0.5 %
-2.2 %
0.0%
-2.9 %
Asset Class Attribution
Domestic Equity Net of Fees1 Year Ending April 30, 2019
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0.0% 0.7% 1.4% 2.1%-0.7 %-1.4 %-2.1 %-2.8 %-3.5 %-4.2 %-4.9 %
SSGA Emerging Markets Small Cap
Wellington Small Cap International
Wasatch Small Cap International
Epoch Small Cap International
ARI Small Cap International
Wellington Quality Growth International
Allianz International
Northern Trust International Passive
Causeway International
Benchmark Effect
Cash Flow Effect
Total Excess Return
0.2%
-0.7 %
0.6%
-0.4 %
0.0%
0.0%
-1.1 %
0.0%
-0.1 %
-2.3 %
0.0%
-3.9 %
Asset Class Attribution
International Equity Net of Fees1 Year Ending April 30, 2019
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0.0% 0.1% 0.2% 0.3% 0.4% 0.5%-0.1 %-0.2 %-0.3 %-0.4 %
Mackay Shields High Yield
Lord Abbett High Yield
Loomis Sayles High Yield
Hoisington Active Duration
Mackay Shields Core Plus
Lord Abbett Core Plus
Loomis Sayles Core Plus
Benchmark Effect
Cash Flow Effect
Total Excess Return
0.1%
0.0%
0.0%
0.3%
0.0%
0.3%
-0.2 %
-0.2 %
-0.1 %
0.2%
Asset Class Attribution
Fixed Income Net of Fees
1 Year Ending April 30, 2019
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Private Investments Reporting StatusTotal Private Investments
as of 4/30/2019
Manager Call as of MV as ofMost Recent Statement
Date
Legacy Private Equity Portfolio 4/30/2019 12/31/2018 (Estimate) 9/30/2018Franklin Park Private Equity 4/30/2019 12/31/2018 (Estimate) 9/30/2018
AG Realty Value X 4/30/2019 - UnfundedAntheus Capital 4/30/2019 12/31/2018 -Artemis Fund III 4/30/2019 - New as of 1/31Dune III 4/30/2019 12/31/2018 12/31/2018FCP Realty IV 4/30/2019 - New as of 12/31GreenOak Real Estate II 4/30/2019 12/31/2018 12/31/2018GreenOak Real Estate III 4/30/2019 12/31/2018 12/31/2018Harbert RE V 4/30/2019 - New as of 12/31Invesco Strat Opp II 4/30/2019 - UnfundedL&B Golden Driller 4/30/2019 3/31/2019 3/31/2019Landmark Realty 4/30/2019 12/31/2018 (Estimated) 12/31/2018 (Estimated)Starwood X 4/30/2019 12/31/2018 12/31/2018Starwood XI 4/30/2019 12/31/2018 12/31/2018
PIMCO BRAVO 4/30/2019 3/31/2019 3/31/2019PIMCO BRAVO II 4/30/2019 3/31/2019 3/31/2019PIMCO BRAVO III 4/30/2019 12/31/2018 12/31/2018PIMCO Corp Opp II 4/30/2019 12/31/2018 12/31/2018
Alternatives
Real Estate
Opportunistic Fixed Income
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Private Equity Summary of Partnership
PartnershipsVintage
YearInvestment
Strategy
CapitalCommitment
$
MarketValue
$
DrawnDown
$
Distributed$
RecallableCapital
IRR(%)
DPIMultiple
TVPIMultiple
RemainingCommitment
OTRS Legacy P-E Assets Fund LP 2008 Buyouts 97,500,000 16,499,121 100,440,850 125,905,988 - 10.1 1.3 1.4 -1,213,149
Franklin Park Private Equity 2010 Buyouts 1,490,000,000 1,160,689,933 1,151,500,000 547,316,688 - 14.2 0.5 1.5 364,684,226
Angelo Gordon Realty Value Fund X 2018 Real Estate 60,000,000 - - - - - - - 60,000,000
Antheus/Lyrical - OTRS Realty Partners IV LP 2014 Real Estate 53,750,000 62,924,703 53,750,000 4,870,633 - 7.3 0.1 1.3 -
Artemis Fund III 2018 Real Estate 50,000,000 4,379,456 4,502,132 122,676 119,795 0.0 0.0 1.0 45,637,262
Dune Real Estate Fund III 2013 Real Estate 53,750,000 58,795,704 49,108,521 12,792,717 678,687 13.7 0.3 1.5 5,320,166
Dune Real Estate Fund IV 2018 Real Estate 60,000,000 - - - - - - - 60,000,000
FCP Realty Fund IV 2018 Real Estate 35,000,000 3,434,237 3,434,237 - - 0.0 - 1.0 31,565,763
GreenOak US II LP 2013 Real Estate 50,000,000 37,001,695 45,534,427 17,255,089 1,070,269 6.7 0.4 1.2 5,603,695
GreenOak US III LP 2017 Real Estate 60,000,000 11,223,011 13,336,532 - - -24.6 - 0.8 46,663,468
Harbert Euro Real Estate Fund V 2018 Real Estate 50,000,000 1,431,684 2,137,130 196,780 - -25.5 - 0.7 47,890,496
Invesco Strategic Opportunities III 2019 Real Estate 60,000,000 - - - - - - - 60,000,000
L&B Golden Driller LP 2014 Real Estate 75,000,000 73,072,449 73,138,218 - - 0.0 - 1.0 1,861,782
Landmark Real Estate Partners VII LP 2014 Secondaries 35,000,000 18,593,578 32,648,890 21,295,684 1,067,938 12.4 0.7 1.2 3,431,014
Starwood Opportunity Fund X Global LP 2014 Real Estate 53,750,000 22,211,916 45,689,560 38,228,357 21,589,406 16.0 0.9 1.4 31,264,406
Starwood Opportunity Fund XI Global LP 2016 Real Estate 60,000,000 5,329,381 6,000,000 1,347,120 611,471 24.3 0.2 1.1 54,611,471
PIMCO Bravo Fund LP 2011 Distressed 100,000,000 2,019,100 112,369,568 194,328,438 10,167,731 22.1 1.8 1.8 -
PIMCO Bravo Fund II LP 2013 Distressed 150,000,000 87,486,440 138,989,660 101,016,600 98,532,383 8.6 0.7 1.4 109,716,763
PIMCO Bravo Fund III Onshore Feeder LP 2016 Distressed 175,000,000 116,340,274 109,828,519 632,862 - 7.6 - 1.1 65,449,780
PIMCO Corporate Opportunities II Onshore LP 2016 Distressed 100,000,000 64,518,141 60,313,039 222,920 - 6.2 0.0 1.1 40,000,000
Private Equity Summary of Partnership
Private Investment FundsAs of April 30, 2019
Franklin Legacy PE - *Unfunded commitment in manager report does not including the prior contributions in the amount of approximately $25.5M to Aldus. AndCo report reflects this value.
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Manager Watch List As of April 30, 2019
Manager Portfolio Market Value
Status Notes
Cushing Capital Management $412,497,570 On Watch Cushing was added to the watch list in January of 2019 due to the departure of one of its portfolio managers. Returns are being closely tracked. We are in regular contact with management regarding the portfolio, the firm’s investment process and any other personnel issues. Performance has not deteriorated.
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Total Fund Policy
Allocation Mandate Weight (%)
Apr-2017
Russell 3000 Index 38.50
MSCI AC World ex USA IMI Index 19.00
Blmbg. Barc. U.S. Universal Index 23.50
Russell 2000 + 4% 5.00
NCREIF Property Index 9.00
Alerian MLP Index 5.00
Actuarial Assumption
Allocation Mandate Weight (%)
Dec-1991
8.00% Annualized Returns 100.00
Jul-2015
7.50% Annualized Return 100.00
Benchmark History
Investment Policy Benchmarks
As of April 30, 2019
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Disclosures
AndCo compiled this report for the sole use of the client for which it was prepared. AndCo is responsible for evaluating the performance results of the Total Fund along with the investment advisors by comparing their performance with indices and other related peer universe data that is deemed appropriate. AndCo uses the results from this evaluation to make observations and recommendations to the client.
AndCo uses time-weighted calculations which are founded on standards recommended by the CFA Institute. The calculations and values shown are based on information that is received from custodians. AndCo analyzes transactions as indicated on the custodian statements and reviews the custodial market values of the portfolio. As a result, this provides AndCo with a reasonable basis that the investment information presented is free from material misstatement. This methodology of evaluating and measuring performance provides AndCo with a practical foundation for our observations and recommendations. Nothing came to our attention that would cause AndCo to believe that the information presented is significantly misstated.
This performance report is based on data obtained by the client’s custodian(s), investment fund administrator, or other sources believed to be reliable. While these sources are believed to be reliable, the data providers are responsible for the accuracy and completeness of their statements. Clients are encouraged to compare the records of their custodian(s) to ensure this report fairly and accurately reflects their various asset positions.
The strategies listed may not be suitable for all investors. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. Past performance is not an indication of future performance. Any information contained in this report is for informational purposes only and should not be construed to be an offer to buy or sell any securities, investment consulting, or investment management services.
Additional information included in this document may contain data provided by from index databases, public economic sources and the managers themselves.
This document may contain data provided by Bloomberg Barclays. Bloomberg Barclays Index data provided by way of Barclays Live.
This document may contain data provided by Standard and Poor’s. Nothing contained within any document, advertisement or presentation from S&P Indices constitutes an offer of services in jurisdictions where S&P Indices does not have the necessary licenses. All information provided by S&P Indices is impersonal and is not tailored to the needs of any person, entity or group of persons. Any returns or performance provided within any document is provided for illustrative purposes only and does not demonstrate actual performance. Past performance is not a guarantee of future investment results.
This document may contain data provided by MSCI, Inc. Copyright MSCI, 2017. Unpublished. All Rights Reserved. This information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. This information is provided on an “as is” basis and the user of this information assumes the entire risk of any use it may make or permit to be made of this information. Neither MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating this information makes any express or implied warranties or representations with respect to such information or the results to be obtained by the use thereof, and MSCI, its affiliates and each such other person hereby expressly disclaim all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating this information have any liability for any direct, indirect, special, incidental, punitive, consequential or any other damages (including, without limitation, lost profits) even if notified of, or if it might otherwise have anticipated, the possibility of such damages.
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Update Meeting
Manager: Artemis Real Estate Partners (Artemis)
ROB MILLS, CAIASr. Research Analyst
Real Assets
Strategy: Artemis Real Estate Partners Fund III (AREPF III) Current Status: Approved Proposed Status: Approved Peer Review: Evan Scussel Date: 5/8/2019 Subject: Update from the 2019 Annual Investor Conference
It is too early in the life of AREPF III (vintage: 2018) for performance to be meaningful. However, the initial portfolio construction, which has an early concentration in industrial and multifamily, is in-line with our expectations. The team is slightly ahead of the anticipated pace of capital deployment with 33% of fund capital committed to investments. While early, an industrial development project is looking to be a likely realization in the next 12 months at a significant IRR. Additionally, one of the investments in an office portfolio is showing positive results with early sales of three assets and a recent increase in projected return for the entire portfolio. Additionally, the team has identified interesting opportunities in the healthcare and hotel sectors. Overall, all 10 closed investments are performing in-line with or above its respective business plan.
AndCo attended the Artemis 2019 Investor Conference on May 7th and 8th for an update on the firm, its funds, andmany of the current investments. The entire Artemis team was in attendance for the meeting with several membersof the investment team participating in the presentations that provided an update on the firm and its funds.
Artemis continues to add to its team to support the growth of its capital base. Year-over-year the firm experienced20% growth of staff to a total of 51 professionals. It has added a combination of senior professionals that will focuson investing and associate level professionals that provide analytical support.
Artemis closed AREPF III in March 2019 with total commitments of $1.01 billion with 95% of the capital from repeatinvestors. The team has committed 33% of the fund’s capital to ten closed investments and six under contractinvestments. The current portfolio allocation by property type is 23% industrial, 35% multi-family, 26% office, 12%hotel, and 4% healthcare. Based on the current market environment, the team is targeting a portfolio compositionof 25-30% Industrial, 20-25% Multifamily, 15-25% Office, 5-15% Healthcare, 5-10% Hotel, 5-10% Self-storage, and5-10% Retail. The changing market dynamics in retail are causing the team to take a wait and see approach. It hasmade no investments in the space over the past two years and it would not be a surprise to see no investments inthe space.
Targeted industrial investments are development projects that can be built, leased, and sold within 24-36 months,as well as the aggregation of smaller “last mile” facilities. The first industrial investment was a development projectin the Inland Empire in California. The market currently has a sub-4% vacancy rate. The project is two-thirdscomplete and is on time and under budget. Artemis recently received an offer from a tenant to buy the propertyabove the underwritten year three value. An exit is anticipated to occur in the next 12 months at an approximate30% IRR.
Multifamily investments are concentrated on workforce apartments and subordinate financing for development ofhigher-end properties. At this stage of the cycle, for higher-end properties, the team prefers a subordinate positionto minimize exposure to cost overrun and delay risks. Artemis is working on an interesting development strategywithin the workforce apartments space. The firm believes it has a first mover advantage in the space and asked theattendees not to share too many details about it, for now. It has closed on the first investment of what will be aseries of investments with the operating partner, who recently realized its first investment following this strategy ata significant return. The first development project is located outside of Orlando. The team has also made a preferred
Recommendation Summary
Key Takeaways
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Update Meeting equity investment for an apartment development in Irving, Texas. The project is located two miles from the developer’s headquarters. The project is 10% complete and scheduled for completion in 2020.
Office investments are focused on failed-marketing processes, acquisitions of portfolios that can be disaggregated,and potentially subordinate construction financing for urban development projects. The team indicated in the currentenvironment it is having to sort through a much higher volume of deals to get to an acquisition. However, the fund’sfirst office investment, a suburban Minneapolis office portfolio, is on pace to generate solid returns. The portfolio of12 assets was acquired from a distressed owner. The strategy is to disaggregate the portfolio and find the rightbuyer for each asset that will result in the sum of the parts being greater than the whole. To-date, the team has soldthree assets of the Minneapolis portfolio at 15% to 20% above the underwritten value in year three. It has increasedthe return projection for the investment from a 22% gross IRR and 1.5x multiple to a 29% IRR and 1.7x.
Healthcare investments are concentrated on distressed senior housing due to oversupply or mismanagement,value-add medical office, and distressed debt for skilled nursing facilities. Within this space, the team has acquireda senior housing portfolio in Philadelphia. It is comprised of three properties that will require the execution of avalue-add business plan to achieve stabilization. It is underwritten to achieve a 19% IRR and 2.3x.
Hotel investments are focused on assets that are struggling operationally or providing subordinate financing todevelopers. The fund has one investment within the latter category. It has provided a mezzanine loan to a Texas-based owner/operator for a development project in Houston. It sits within the 55% to 71% loan-to-cost (LTC) positionof the capital structure, has a 16% interest rate of which 10% is current pay, and includes 50% recourse to thedeveloper. It is underwritten to achieve a 18% IRR and 1.8x multiple.
Important Notices
© 2019 AndCo Consulting, LLC. All rights reserved.
This contains confidential and proprietary information of AndCo Consulting (AndCo) and is intended for the exclusive use of the parties to whom it was provided by AndCo. Its content may not be modified, sold, or otherwise provided, in whole or in part, to any other person or entity, without AndCo’s written permission. The findings, ratings and/or opinions expressed herein are the intellectual property of a AndCo and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results.
This document does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances.
Information contained herein has been obtained from a variety of third party sources. While the information is believed to be reliable, AndCo makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability for any error, omission or inaccuracy in the data supplied by any third party. This does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financial instruments or products.
Research Recommendations
AndCo’s recommendation of an investment strategy signifies The Research Group’s opinion as to the strategy’s prospects for outperforming a suitable benchmark, on a risk-adjusted basis, over a full market cycle. Strategies rated “approved” are assessed as having above average prospects.
The term “strategy’ is used in this context to refer to the process that leads to the construction of a portfolio of investments, regardless of whether it is offered in separate account format or through one or more funds. Cases where the vehicle structure may result in differences between permutations may result in a rating disparity and will be noted and reflected in the recommendation. The rating assigned to a strategy may or may not be consistent with its historical performance. While the rating reflects AndCo’s expectations on future performance relative to its benchmark, AndCo does not provide any guarantees that these expectations will be fulfilled.
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AndCo Consulting | 4901 Vineland Road | Suite 600 | Orlando, FL 32811 | (844) 44-ANDCO | AndCoConsulting.com
Cushing Asset Management is a Dallas based investment manager which specializes in the midstream U.S. Energy Infrastructure sector. The firm manages a $412 million portfolio of energy infrastructure investments for the System. The firm was hired in March 1, 2011. The firm was placed on the OTRS/AndCo Watch List during January of 2019. The cause of the downgrade was the departure of Libby Toudouze, one of two portfolio managers assigned to the OTRS account. Libby had been on the portfolio management team since the firm’s hiring. Cushing’s communications regarding her departure were timely and thorough. Subsequent to Libby’s departure, Cushing appointed John Alban to the new role of Chief Investment Officer. Prior to the appointment, Mr. Alban managed the firm’s operations. He has been at Cushing for nine years. We view this as a structural upgrade and a reflection of the firm’s maturity. In an unrelated issue, the firm recently relocated its offices within Dallas. Personnel – The portfolio management team is now lead by John Musgrave. John’s titles are Partner, Co-Chief Investment Officer (along with Founder, Jerry Swank), and Portfolio Manager. Since the announcement of Libby’s departure, we have had multiple discussions with John about the portfolio, his team and what he plans to do with the portfolio. In broad terms, he plans to continue executing their fundamentally intensive investment process. He has added additional resources, both personnel and systems, to develop what the firm calls their “Quantamental” research tool. The tool is intended to provide additional research focus and decision support to the portfolio management team. Performance – There have been no detectable, material changes to the portfolio’s returns since Libby’s departure. The portfolio features relatively low turnover. We have had discussions with the team following two mergers within the midstream market and the portfolio. One of the transactions involved Buckeye, a recent addition to the portfolio. Cushing claimed that the new Quantamental tool played a role in their investment in Buckeye. Organization – Cushing is a small, specialized, boutique manager. The firm covers a limited number of investments within a narrow sector of the market. It appears the firm has taken steps to expand its resources and retain top talent. We believe the team has adequate resources to execute the strategy. Conclusion – It is too soon to assess fully the long-term impact of Ms. Toudouze’s departure. We are monitoring the organization, the management team, and the portfolio closely. We believe it prudent to maintain Cushing on the watch list until September 30, 2019. We will update our findings if necessary. Please contact your AndCo team if you have any questions or would like additional information. Thank you.
To: Oklahoma Teachers’ Retirement System Investment Committee
From: Doug Anderson, Peter Brown
Date: 5/16/2019
Re: Cushing Asset Management Watch List Status
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OVERVIEW OF TRS FINANCIAL HISTORY
SINCE 1990
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PROGRESS TOWARDS ACTUARIAL SOUNDNESSAt last month’s meeting (4/24/19) we looked at the considerable progress the System has made in moving towards a more actuarially sound footing. In December of 1991 the market value of the portfolio was $2.5 billion (now $16.5 billion), the actuarial value of liabilities was $5.4 billion (now $22.6 billion) and the funded ratio was 38.4% (now 72.9%). Over this period the total return of the portfolio gross of fees was 9.00%.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
$0.0
$2.5
$5.0
$7.5
$10.0
$12.5
$15.0
$17.5
$20.0
$22.5
$25.0
Fund
ed R
atio
%
Billi
ons
Assets, Liabilities and Funded Ratio Starting Funded Ratio of 38%; Current Funded Ratio of 72.9%
Funded Ratio (RHS) Market Value (LHS) Actuarial Assets (LHS) Actuarial Liability (LHS)
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PROGRESS TOWARDS ACTUARIAL SOUNDNESSSomething is not adding up! $2.5 billion compounded at 9% over this period should be $25.7 billion (see light blue line below), so why do we only have $16.5 billion? With $25.7 billion, we would be over 100% funded. So what’s missing? The missing component, as you’ve probably guessed, is cash flows, specifically, contributions (cash flows in) and benefit and expense payments (cash flows out). The System’s historical cash flows are the focus of the slides that follow.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
$0.0
$2.5
$5.0
$7.5
$10.0
$12.5
$15.0
$17.5
$20.0
$22.5
$25.0
Fund
ed R
atio
%
Billi
ons
Assets, Liabilities and Funded Ratio Starting Funded Ratio of 38%; Current Funded Ratio of 72.9%
Funded Ratio (RHS) Market Value (LHS) Actuarial Assets (LHS) Actuarial Liability (LHS) Mkt Val Growth at Gross Return (LHS)
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The data sources for this analysis are the System’s Actuarial Reports going back to 1989. The focus of the cash flow analysis is funds contributed to the investment portfolio and funds distributed from the investment portfolio. Investment income is reinvested and reflected in the growth of the investment portfolio and is therefore not part of the cash flow analysis. The cash flows covered along with their abbreviations (in parenthesis) as they appear on the graphs are listed below.
Positive Cash flows evaluated in the graphs that follow include:• Member Contributions (Member)• Federal & Grant Matching (Grant)• Employer Contributions (ER)• State Dedicated Revenue (State DR)
Negative Cash flows evaluated in the graphs that follow include:• Investment Expenses (Inv Exp)• Refunds of Member Contributions (Refunds)• Benefit Payments (Benefits)• Administrative Expenses (Admin Exp)
ANALYSIS OF SYSTEM CASH FLOWS
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NondiscretionaryPositive Cash Flows• Employer Contributions
• State Contributions
• Member Contributions
• Federal & Grant Matching
PENSION PLUMBING
Nondiscretionary Negative Cash Flows• Benefit Payments
• Refund of contributions
Discretionary Negative Cash Flows• Investment Expenses
• Administration Expenses
Investment Portfolio
(Change in value depends on net investment earnings)
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ANALYSIS OF SYSTEM CASH FLOWSThe graph below shows the year by year contributions in (shaded green) and benefit and expense payments out (shaded red) along with the year by year net cash flow (red line w/yellow circle). By far the dominant component of outflows is benefit payments while administrative expenses barely show up. Contributions in are a bit more evenly distributed apart from Federalmatching funds which are comparatively small. With the exception of 2008 the System has experienced net cash flows out for the entire period and that net negative flow has grown over the last 10 years.
($1,500)
($1,250)
($1,000)
($750)
($500)
($250)
$0
$250
$500
$750
$1,000
$1,250
$1,500
($1,500)
($1,250)
($1,000)
($750)
($500)
($250)
$0
$250
$500
$750
$1,000
$1,250
$1,500
Mill
ions
Mill
ions
Annual System Cash Flows
Match
ER
Member
State DR
Admin Exp
Refunds
Inv Exp
Benefits
Net Cash Flow
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ANALYSIS OF SYSTEM CASH FLOWSThe graph below isolates our focus to the year by year net cash flow. The driving force in the greater negative cash flows is benefits paid out. Benefits paid out tend to be a function of demographics and the fact that TRS is a mature pension fund. In the past ten years, payments out have increased by 68% while contributions in have increased 21.5% resulting in an acceleration in net flows out.
($450)
($400)
($350)
($300)
($250)
($200)
($150)
($100)
($50)
$0
$50
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Mill
ions
Net Annual System Cash Flows
Net CF
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ANALYSIS OF SYSTEM CASH FLOWSTo put the annual net negative cash flow in perspective, we can look at net negative cash flow as a percentage of the average yearly market value of the investment portfolio. At the current rate the portfolio pays out roughly 2.5% of its market value per annum to cover net cash outflows. Trends in net outflows may increase this payout ratio going forward.
(3.50%)
(3.00%)
(2.50%)
(2.00%)
(1.50%)
(1.00%)
(0.50%)
0.00%
0.50%
Net Annual System Cash Flows as % of Avg Yearly MV of Portfolio
Net CF%
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ANALYSIS OF SYSTEM CASH FLOWSCertain System cash flows are “baked in” and beyond the direct control of the Board. For purposes of this discussion these are termed nondiscretionary while those cash flows that are under the control of the Board are termed discretionary. We look at the nondiscretionary cash flows first below. The difference in the growth rate of benefit payments relative to the growth rate in contributions and dedicated revenue is pronounced.
($1,600)
($1,400)
($1,200)
($1,000)
($800)
($600)
($400)
($200)
$0
$200
$400
$600
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Mill
ions
Annual System Nondiscretionary Cash Flows
Member Match State DR ER Refunds Benefits
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ANALYSIS OF SYSTEM CASH FLOWSAs with net cash flows, we can put nondiscretionary cash flows in perspective, by expressing them as a percentage of the average yearly market value of the investment portfolio. The historical percentages for nondiscretionary cash flows are shown in the graph below.
(15.00%)
(12.50%)
(10.00%)
(7.50%)
(5.00%)
(2.50%)
0.00%
2.50%
5.00%
7.50%
10.00%
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Annual System Nondiscretionary Cash Flows as % of Avg Yearly MV of Portfolio
Member% Match% State DR% ER% Refunds% Benefits%
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ANALYSIS OF SYSTEM CASH FLOWSThe Board has direct control over the administration costs of the agency and the investment management expenses. The history of these discretionary expenses are shown below. Administrative expenses tend to be a function of staffing and administrative efficiency while investment expenses tend to be a function of the size of the investment portfolio, asset allocation, asset class structure and types of investments used.
($80)
($70)
($60)
($50)
($40)
($30)
($20)
($10)
$0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Mill
ions
Annual System Discretionary Cash Flows
Admin Exp Inv Exp
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ANALYSIS OF SYSTEM CASH FLOWSAdministration costs of the agency have declined from 8.8 basis points to 2.6 since 1990. Investment expenses in contrast have increased substantially from 8 basis points to 43 basis points. While there may be cases where higher fees can be justified in pursuit of higher net returns, such circumstances are very rare in efficient markets. Staff continues to look forand recommend ways to efficiently reduce investment management expenses.
(0.60%)
(0.50%)
(0.40%)
(0.30%)
(0.20%)
(0.10%)
0.00%
Discretionary Cash Flows as % of Avg Yearly MV of Portfolio
Admin Exp% Inv Exp%
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IMPORTANCE OF INVESTMENT EARNINGSThe preceding charts focused on cash flows into and out of the System while the tables below highlight the importance of earnings within the investment portfolio. The table to the left shows that without investment earnings, the pension fund would have been depleted some time two years ago. The table to the right and the key takeaways below show what has been accomplished with the investment portfolio.
Ann Net Cash Flow 0% return portfolio6/30/1992 $2,512,068,2766/30/1993 ($12,491,371) $2,499,576,905 6/30/1992 Beginning Portfolio Value $2,512,068,2766/30/1994 ($30,974,547) $2,468,602,3586/30/1995 ($92,995,791) $2,375,606,567 $5,541,570,1306/30/1996 ($102,235,171) $2,273,371,396 $6,687,202,0316/30/1997 ($4,932,702) $2,268,438,694 $12,228,772,1616/30/1998 ($31,876,043) $2,236,562,651 $6,230,419,9486/30/1999 ($83,924,122) $2,152,638,529 $675,942,7636/30/2000 ($74,508,319) $2,078,130,210 $19,135,134,8726/30/2001 ($43,969,242) $2,034,160,9686/30/2002 ($16,854,167) $2,017,306,801 ($778,512,419)6/30/2003 ($76,707,572) $1,940,599,229 ($20,892,555,470)6/30/2004 ($97,974,895) $1,842,624,334 ($21,671,067,889)6/30/2005 ($114,245,911) $1,728,378,423 ($776,362,447)6/30/2006 ($80,138,208) $1,648,240,215 ($102,395,381)6/30/2007 ($15,056,962) $1,633,183,253 ($22,549,825,717)6/30/2008 $4,001,610 $1,637,184,863 $17,430,044,6536/30/2009 ($33,837,783) $1,603,347,080 3/31/2019 Ending Portfolio Value $16,527,422,0846/30/2010 ($68,208,322) $1,535,138,7586/30/2011 ($129,987,063) $1,405,151,6956/30/2012 ($134,247,759) $1,270,903,936 * Start with $2.5 billion6/30/2013 ($173,234,601) $1,097,669,335 * OK Contributes $12.2 billion6/30/2014 ($226,615,261) $871,054,074 * Pay out Benefits of $21.7 billion6/30/2015 ($278,739,735) $592,314,339 * Have $16.5 billion left6/30/2016 ($337,377,887) $254,936,4526/30/2017 ($427,805,193) ($172,868,741)6/30/2018 ($404,740,948) ($577,609,689)
Portfolio Point of Depletion w/o Investment Earnings Positive Outcome for OklahomaPlan Net Asset Reconciliation
for the 26.75 year period from 6/30/1992 to 3/31/2019
ContributionsState Contributions
Employer ContributionsTotal State & EmployerMember Contributions
Matching FundsTotal Contributions
Distributions & ExpensesRefunds PaidBenefits Paid
Total Benefits & RefundsInvestment Expenses
Administration ExpensesTotal Distributions & Expenses
Portfolio Investment Earnings
Key Takeaways
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Composite Market Value Market Allocation Target Allocation Min % Allocation Max % Allocation
Cash and Equivalents $143,714,906 0.9% 0.0% 0.0% 0.0%
Fixed Income $3,638,197,369 21.8% 22.0% 17.5% 26.5%
U.S. Equity $6,527,882,343 39.1% 38.5% 34.0% 46.0%
International Equity $2,974,832,729 17.8% 19.0% 12.5% 22.5%
Real Estate $1,280,169,530 7.7% 9.0% 5.0% 11.5%
Master Limited Partnerships $640,571,485 3.8% 5.0% 3.5% 6.5%
Private Debt $273,078,927 1.6% 0‐5% 0.0% 5.0%
Private Equity $1,198,564,098 7.2% 5.0% 3.5% 6.5%
Grand Total 16,677,011,385 100.00% 100.00%
Composite $ Variance to Target
% Variance to
Target Target Market Value $ Below Min Min $ Allocation Max $ Allocation $ Above Max
Cash and Equivalents $143,714,906 0.86% $0 $0 $0 $143,714,906
Fixed Income ‐$7,821,380 ‐0.05% $3,669,000,000 $2,918,000,000 $4,419,000,000
U.S. Equity $107,232,959 0.64% $6,421,000,000 $5,670,000,000 $7,671,000,000
International Equity ‐$193,799,434 ‐1.16% $3,169,000,000 $2,085,000,000 $3,752,000,000
Real Estate ‐$220,761,495 ‐1.32% $1,501,000,000 $834,000,000 $1,918,000,000
Master Limited Partnerships ‐$193,279,084 ‐1.16% $834,000,000 $584,000,000 $1,084,000,000
Private Debt $22,923,756 ‐0.71% $0 ‐ $834,000,000 $0 $834,000,000
Private Equity $364,713,528 2.19% $834,000,000 $584,000,000 $1,084,000,000 $114,564,098
Composite* MTD QTD YTD FYTD
Oklahoma Teachers Total Fund ‐1.35% 1.01% 10.22% 2.58%
Domestic Equity ‐2.74% 1.48% 16.82% 3.08%
International Equity ‐2.88% ‐0.19% 10.35% ‐5.70%
Fixed Income 0.55% 1.00% 5.57% 5.64%
MLPs 3.18% 0.69% 19.42% ‐1.38%* Net of Fee Returns
as of May 16, 2019
Asset Allocation vs Policy Targets & Recent Performance
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Composites & Accounts Market Value MTD QTD YTD FYTD
Oklahoma Teachers' Total Fund 16,677,011,385 ‐1.35 1.01 10.22 2.58
Cash 143,714,906 0.54 0.75 1.38 2.53
Domestic Equity 4,871,748,226 ‐2.74 1.48 16.82 3.08
Active Large Cap 1,471,317,055 ‐2.47 2.14 16.30 7.15
SAWGRASS LG CAP 747,906,876 ‐1.86 2.17 15.47 13.90
HOTCHKIS & WILEY LG CAP 723,410,179 ‐3.09 2.11 17.17 0.77
Active Mid Cap 1,801,225,210 ‐2.93 0.99 18.74 2.31
ARONSON, JOHNSON & ORTIZ 431,872,228 ‐2.88 1.27 15.38 0.12
FRONTIER MID CAP 479,517,660 ‐2.77 0.84 21.24 10.03
WELLINGTON MID CAP 492,738,659 ‐1.36 2.75 22.97 10.98
HOTCHKIS & WILEY MID CAP 397,096,662 ‐5.03 ‐1.23 14.62 ‐11.78
Small Cap 1,599,205,961 ‐3.60 1.61 17.11 ‐3.18
SHAPIRO CAP SMALL CAP 722,722,264 ‐5.07 ‐0.49 15.53 ‐8.83
GENEVA CAPITAL 209,266,936 ‐0.85 3.83 20.11 6.84
WASATCH ADV SMALL CAP 210,373,363 ‐2.44 4.72 21.76 7.30
FRONTIER CAP SMALL CAP 210,870,882 ‐2.11 3.38 18.11 ‐4.80
NEUMEIER POMA SMALL CAP 245,972,517 ‐3.74 2.03 14.74 ‐0.80
Cap Weighted Index 658,714,593 ‐2.18 1.77 16.02 7.41
RUSSELL 1000 658,714,593 ‐2.18 1.77 16.02 7.41
Non‐Cap Weighted Index 997,419,524 ‐1.77 1.00 14.30 6.55
SCI BETA US HFE MBMS 6F 997,419,524 ‐1.77 1.00 14.30 6.55
International Equity 2,974,832,729 ‐2.88 ‐0.19 10.35 ‐5.70
Int'l Large Cap 1,892,969,488 ‐3.25 ‐1.05 9.43 ‐3.35
ALLIANZ INTL 956,063,345 ‐3.59 ‐1.82 7.06 ‐3.92
WELLINGTON INTL 491,534,117 ‐2.37 0.25 13.82 ‐1.14
CAUSEWAY CAPITAL 445,372,026 ‐3.46 ‐0.80 9.95 ‐4.47
Int'l Small Cap 1,081,863,241 ‐2.24 1.35 12.01 ‐9.54
EPOCH INTL 254,955,161 ‐3.44 0.51 10.41 ‐13.75
WASATCH INTL 303,981,841 ‐2.15 3.35 18.91 ‐5.61
WELLINGTON INTL 251,359,728 ‐3.50 0.72 10.72 ‐14.71
SSGA EMSC 271,566,511 0.00 0.56 7.68 ‐4.26
Master Limited Partnerships 640,571,485 3.18 0.69 19.42 ‐1.38
CHICKASAW CAPITAL 215,738,523 3.51 0.57 21.54 ‐1.59
CUSHING ASSET MANAGEMENT 424,832,961 3.01 0.76 18.36 ‐1.21
Fixed Income 3,638,197,369 0.55 1.00 5.57 5.64
Active Duration 567,151,033 2.36 ‐0.06 5.23 5.42
HOISINGTON INVESTMENT 567,151,033 2.36 ‐0.06 5.23 5.42
Core Plus Fixed Income 3,071,043,749 0.22 1.20 5.64 5.32
LOOMIS SAYLES CORE PLUS FD 1,014,849,243 0.14 0.74 4.77 4.14
LORD ABBETT CORE PLUS FD 1,042,469,430 0.41 2.09 6.29 6.51
MACKAY SHIELDS CORE PLUS FD 1,013,725,075 0.10 0.75 5.85 5.29
Investment Portfolio ReturnsNet of Fee as of May 16, 2019
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Cash 143,714,905.58 0.9% 0.0% ‐ 143,714,906 CashFixed Income 3,911,276,296 23.5% 23.5% 3,919,097,676 (7,821,380) Fixed Income
Core Plus Fixed Income 3,638,194,781 21.8% 22.0% 3,668,942,505 (30,747,724) Core Plus Fixed Income
HOISINGTON INVESTMENT 567,151,033 3.4% 4.1% 687,926,720 (120,775,687) Duration
LOOMIS SAYLES CORE PLUS 1,014,849,243 6.1% 6.0% 993,671,928 21,177,315 Core Plus
LORD ABBETT CORE PLUS 1,042,469,430 6.3% 6.0% 993,671,928 48,797,502 Core Plus
MACKAY SHIELDS CORE PLUS 1,013,725,075 6.1% 6.0% 993,671,928 20,053,147 Core Plus
Private Debt 273,078,927 1.6% 1.5% 250,155,171 22,923,756 Private Debt
PIMCO BRAVO III 119,055,246 0.7% 0.3% 55,034,138 64,021,108 Debt ‐ Mtge 175,000,000
PIMCO BRAVO II 87,486,440 0.5% 0.8% 140,086,896 (52,600,456) Debt ‐ Mtge 150,000,000
PIMCO BRAVO 2,019,100 0.0% 0.3% 50,031,034 (48,011,934) Debt ‐ Mtge 100,000,000
PIMCO COF II 64,518,141 0.4% 0.3% 50,031,034 14,487,107 Debt ‐ Credit 100,000,000
Public Equity 9,502,715,072 57.0% 57.5% 9,589,281,546 (86,566,475) Public Equity
Domestic Equity 6,527,882,343 39.1% 38.5% 6,420,649,383 107,232,959 Domestic Equity
Large Cap 3,127,451,172 18.8% 18.3% 3,049,808,457 77,642,715 Large Cap
SAWGRASS LG CAP 747,906,876 4.5% 4.3% 722,323,056 25,583,820 Growth
HOTCHKIS & WILEY LG CAP 723,410,179 4.3% 4.3% 722,323,056 1,087,124 Value
NT RUSSELL 1000 658,714,593 3.9% 3.9% 642,064,938 16,649,655 Passive
SCI BETA US HFE MBMS 997,419,524 6.0% 5.8% 963,097,407 34,322,116 Factor
Mid Cap 1,801,225,210 10.8% 10.6% 1,765,678,580 35,546,629 Mid Cap
ARONSON, JOHNSON & ORTIZ 431,872,228 2.6% 2.6% 441,419,645 (9,547,417) Core
FRONTIER MID CAP 479,517,660 2.9% 2.6% 441,419,645 38,098,015 Growth
WELLINGTON MID CAP 492,738,659 3.0% 2.6% 441,419,645 51,319,014 Growth
HOTCHKIS & WILEY MID CAP 397,096,662 2.4% 2.6% 441,419,645 (44,322,983) Value
Small Cap 1,599,205,961 9.6% 9.6% 1,605,162,346 (5,956,384) Small Cap
SHAPIRO CAP SMALL CAP 722,722,264 4.3% 4.7% 786,529,549 (63,807,286) Core
GENEVA CAPITAL 209,266,936 1.3% 1.2% 204,658,199 4,608,737 Growth
WASATCH ADV SMALL CAP 210,373,363 1.3% 1.2% 204,658,199 5,715,164 Growth
FRONTIER CAP SMALL CAP 210,870,882 1.3% 1.2% 204,658,199 6,212,683 Value
NEUMEIER POMA SMALL CAP 245,972,517 1.5% 1.2% 204,658,199 41,314,318 Value
International Equity 2,974,832,729 17.8% 19.0% 3,168,632,163 (193,799,434) International Equity
Int'l Large Cap 1,892,969,488 11.4% 11.9% 1,980,395,102 (87,425,614) Int'l Large Cap
ALLIANZ INTL 956,063,345 5.7% 6.2% 1,029,805,453 (73,742,108) Factor
WELLINGTON INTLGR EQ 491,534,117 2.9% 2.9% 475,294,824 16,239,293 Growth
CAUSEWAY CAPITAL 445,372,026 2.7% 2.9% 475,294,824 (29,922,798) Value
Int'l Small Cap 1,081,863,241 6.5% 7.1% 1,188,237,061 (106,373,821) Int'l Small Cap
EPOCH INTL 254,955,161 1.5% 1.8% 297,059,265 (42,104,104) Core
WASATCH INTL 303,981,841 1.8% 1.8% 297,059,265 6,922,576 Core
WELLINGTON INTL 251,359,728 1.5% 1.8% 297,059,265 (45,699,538) Core
SSGA EMSC 271,566,511 1.6% 1.8% 297,059,265 (25,492,755) Emerging Market
Master Limited Partnerships 640,571,485 3.8% 5.0% 833,850,569 (193,279,084) MLPs
CHICKASAW CAPITAL 215,738,523 1.3% 2.0% 333,540,228 (117,801,704) Core
CUSHING ASSET 424,832,961 2.5% 3.0% 500,310,342 (75,477,380) Core
Real Estate 1,280,169,530 7.7% 9.0% 1,500,931,025 (220,761,495) Real Estate
Core RE 927,812,063 5.6% 4.5% 750,465,512 177,346,550 Core RE
AEW CORE PROPERTY TRUST 316,147,010 1.9% 1.5% 250,155,171 65,991,839 Core
L&B CORE INCOME 287,784,278 1.7% 1.5% 250,155,171 37,629,108 Core
HEITMAN AMERICA REAL ESTATE 323,880,775 1.9% 1.5% 250,155,171 73,725,604 Core
Non Core RE 352,357,467 2.1% 4.5% 750,465,512 (398,108,045) Non Core RE
AMERICAN STRATEGIC VALUE 63,966,330 0.4% Value Add 53,750,000
ARTEMIS REAL ESTATE III 3,398,157 0.0% Value Add 50,000,000
DUNE REAL ESTATE III 58,795,704 0.4% Value Add 53,750,000
FCP REALTY 2,953,787 0.0% Value Add 35,000,000
GREENOAK US II 37,001,695 0.2% Value Add 50,000,000
GREENOAK US III 11,223,011 0.1% Value Add ‐ Constr. 60,000,000
HARBERT EUROPEAN REAL ESTATE 1,512,394 0.0% Value Add ‐ Europe 44,100,000
HARVEY PARKWAY BUILDING 13,332,184 0.1% Value Add
L&B GOLDEN DRILLER 73,178,099 0.4% Senior Housing
LANDMARK REAL ESTATE VII 18,037,504 0.1% Value Add 35,000,000
Lyrical‐OTRS Realty Partner IV 41,417,305 0.2% Value Add 53,750,000
STARWOOD OPPORTUNITY X 22,211,916 0.1% Value Add 53,750,000
STARWOOD OPPORTUNITY XI 5,329,381 0.0% Value Add 60,000,000
Private Equity 1,198,564,098 7.2% 5.0% 833,850,569 364,713,528 Private Equity
LEGACY LP 16,339,220 0.1% Legacy 97,500,000
FRANKLIN PARK 1,182,224,878 7.1% Fund of Funds 1,490,000,000 Grand Total 16,677,011,385 100.0% 100.0%
Current Portfolio vs Policy Targets
Mandate Style
as of May 16, 2019
% of
fundComposites & Accounts Market Value Target % Target ($) Over (Under) Committed Capital
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Cash 143,714,905.58 0.9%
Fixed Income 3,911,276,296 23.5% 9,156,887 23
Core Plus Fixed Income 3,638,194,781 21.8% 5,443,003 15
HOISINGTON INVESTMENT 567,151,033 3.4% 582,567 10
LOOMIS SAYLES CORE PLUS 1,014,849,243 6.1% 1,306,794 13
LORD ABBETT CORE PLUS 1,042,469,430 6.3% 1,545,076 15
MACKAY SHIELDS CORE PLUS 1,013,725,075 6.1% 2,008,565 20
Private Debt 273,078,927 1.6% 3,713,873 136
PIMCO BRAVO III 119,055,246 0.7% 1,619,151 136
PIMCO BRAVO II 87,486,440 0.5% 1,189,816 136
PIMCO BRAVO 2,019,100 0.0% 27,460 136
PIMCO COF II 64,518,141 0.4% 877,447 136
Public Equity 9,502,715,072 57.0% 38,344,229 40
Domestic Equity 6,527,882,343 39.1% 23,653,115 36
Large Cap 3,127,451,172 18.8% 4,660,219 15
SAWGRASS LG CAP 747,906,876 4.5% 1,925,727 26
HOTCHKIS & WILEY LG CAP 723,410,179 4.3% 1,953,060 27
NT RUSSELL 1000 658,714,593 3.9% 64,333 1
SCI BETA US HFE MBMS 997,419,524 6.0% 717,099 7
Mid Cap 1,801,225,210 10.8% 8,184,719 45
ARONSON, JOHNSON & ORTIZ 431,872,228 2.6% 2,373,478 55
FRONTIER MID CAP 479,517,660 2.9% 2,596,424 54
WELLINGTON MID CAP 492,738,659 3.0% 1,231,164 25
HOTCHKIS & WILEY MID CAP 397,096,662 2.4% 1,983,653 50
Small Cap 1,599,205,961 9.6% 10,808,177 68
SHAPIRO CAP SMALL CAP 722,722,264 4.3% 4,331,087 60
GENEVA CAPITAL 209,266,936 1.3% 1,455,341 70
WASATCH ADV SMALL CAP 210,373,363 1.3% 1,821,970 87
FRONTIER CAP SMALL CAP 210,870,882 1.3% 1,675,054 79
NEUMEIER POMA SMALL CAP 245,972,517 1.5% 1,524,725 62
International Equity 2,974,832,729 17.8% 14,691,115 49
Int'l Large Cap 1,892,969,488 11.4% 6,816,245 36
ALLIANZ INTL 956,063,345 5.7% 2,565,921 27
WELLINGTON INTLGR EQ 491,534,117 2.9% 2,743,108 56
CAUSEWAY CAPITAL 445,372,026 2.7% 1,507,216 34
Int'l Small Cap 1,081,863,241 6.5% 7,874,870 73
EPOCH INTL 254,955,161 1.5% 1,647,965 65
WASATCH INTL 303,981,841 1.8% 2,563,263 84
WELLINGTON INTL 251,359,728 1.5% 1,798,460 72
SSGA EMSC 271,566,511 1.6% 1,865,182 69
Master Limited Partnerships 640,571,485 3.8% 3,244,310 51
CHICKASAW CAPITAL 215,738,523 1.3% 1,397,922 65
CUSHING ASSET 424,832,961 2.5% 1,846,388 43
Real Estate 1,280,169,530 7.7% 11,055,645 86
Core RE 927,812,063 5.6% 8,232,057 89
AEW CORE PROPERTY TRUST 316,147,010 1.9% 3,477,617 110
L&B CORE INCOME 287,784,278 1.7% 2,302,274 80
HEITMAN AMERICA REAL ESTATE 323,880,775 1.9% 2,452,165 76
Non Core RE 352,357,467 2.1% 2,823,588 80
AMERICAN STRATEGIC VALUE 63,966,330 0.4% 719,663 113
Lyrical‐OTRS Realty Partner IV 41,417,305 0.0% ‐ ‐
DUNE REAL ESTATE III 58,795,704 0.2% 647,530 110
L&B GOLDEN DRILLER 73,178,099 0.1% 196,403 27
GREENOAK US II 37,001,695 0.1% ‐ ‐
LANDMARK REAL ESTATE VII 18,037,504 0.4% 182,945 101
STARWOOD OPPORTUNITY X 22,211,916 0.1% 180,375 81
GREENOAK US III 11,223,011 0.2% 621,260 554
STARWOOD OPPORTUNITY XI 5,329,381 0.1% 222,119 417
HARVEY PARKWAY BUILDING 13,332,184 0.0% 53,294 40
ARTEMIS REAL ESTATE III 3,398,157
HARBERT EUROPEAN REAL ESTATE V 1,512,394
Private Equity 1,198,564,098 7.2% ‐ ‐
LEGACY LP 16,339,220 0.1% ‐ ‐
FRANKLIN PARK 1,182,224,878 7.1% ‐ ‐
Grand Total 16,677,011,385 100% 61,801,071 37
Using Market Values as of May 16, 2019
Allocation and Investment Manager Fee Estimates
Composites & Accounts Market Value % of fund Annual Est Fee Bps
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Investment Manager Total Market Value
Total Remaining
Commitment # of Firms
NORTHERN TRUST 1,799,849,022 ‐
WELLINGTON 1,235,632,504 ‐
FRANKLIN PARK 1,198,564,098 425,681,077
HOTCHKIS & WILEY 1,120,506,841 ‐
LORD ABBETT 1,042,472,018 ‐
LOOMIS SAYLES 1,014,849,243 ‐
MACKAY SHIELDS 1,013,725,075 ‐
ALLIANZ 956,063,345 ‐
SAWGRASS 747,906,876 ‐
SHAPIRO CAP 722,722,264 ‐
FRONTIER 690,388,542 ‐
HOISINGTON INVESTMENT 567,151,033 ‐
WASATCH 514,355,204 ‐
CAUSEWAY CAPITAL 445,372,026 ‐
ARONSON, JOHNSON & ORTIZ 431,872,228 ‐
CUSHING ASSET 424,832,961 ‐
L&B REAL ESTATE 360,962,377 ‐
HEITMAN REAL ESTATE 323,880,775 ‐
AEW REAL ESTATE 316,147,010 ‐
PIMCO 273,078,927 254,765,676
SSGA 271,566,511 ‐
EPOCH INVESTMENTS 254,955,161 ‐
NEUMEIER POMA 245,972,517 ‐
CHICKASAW CAPITAL 215,738,523 ‐
GENEVA CAPITAL 209,266,936 ‐
AMERICAN REALTY ADV 63,966,330 53,750,000
DUNE REAL ESTATE 58,795,704 67,677,327
GREENOAK REAL ESTATE 48,224,706 57,692,960
ANTHEUS CAPITAL 41,417,305 ‐
STARWOOD CAPITAL 27,541,297 87,989,107
LANDMARK REALTY ADV 18,037,504 35,000,000
TRS 13,332,184 ‐
ARTEMIS REAL ESTATE III 3,398,157 46,601,843
FCP Realty 2,953,787 32,046,213
HARBERT EUROPEAN REAL ESTATE V 1,512,394 42,587,606
Grand Total 16,677,011,385 1,103,791,809 35
as of May 16, 2019
Allocation by Investment Management Firm
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Investment Policy Statement adopted December 12, 2018
INVESTMENT POLICY STATEMENT AS OF DECEMBER 2018
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Investment Policy Statement adopted December 12, 2018
Table of Contents
I. INTRODUCTION AND STATEMENTS OF PURPOSE, PHILOSOPHY AND ETHICS .............................. 1
A. Legal Authority and System Description ........................................................................ 1
B. Statement of Purpose ...................................................................................................... 2
C. Statement of Investment Philosophy .............................................................................. 3
D. Statement of Ethical Standards ....................................................................................... 4
II. STATEMENT OF DUTIES AND RESPONSIBILITIES ........................................................................ 5
A. Board of Trustees ............................................................................................................ 5
B. Staff ................................................................................................................................. 5
C. Investment Consultant .................................................................................................... 6
D. Investment Managers ...................................................................................................... 7
E. Custodian ........................................................................................................................ 8
F. Securities Lending Agent ................................................................................................ 9
G. Transition Manager ....................................................................................................... 10
III. PROCEDURES .......................................................................................................................... 11
A. Investment Policy Review ............................................................................................ 11
B. Investment Manager Policy Exceptions........................................................................ 11
C. Third Party Marketing and Referrals Disclosure Policy ............................................... 11
D. Request for Proposal Policy .......................................................................................... 12
E. Additional allocations to a previously retained manager: ............................................. 13
IV. INVESTMENT GOALS AND OBJECTIVES ................................................................................... 14
V. INVESTMENT GUIDELINES AND CONSTRAINTS ........................................................................ 15
A. Public Market Separate Account Investments .............................................................. 15
B. Private Market Partnership Interests and Commingled Account Investments ............. 20
VI. EVALUATION AND REVIEW ..................................................................................................... 23
A. Investment Staff Reporting Requirements .................................................................... 23
B. Investment Consultant Reporting Requirements .......................................................... 23
C. Investment Manager Reporting Requirements ............................................................. 23
APPENDIX A - PERFORMANCE BENCHMARKS .................................................................................. 25
APPENDIX B - STRATEGIC ASSET ALLOCATION ............................................................................... 26
APPENDIX C - REBALANCING POLICY .............................................................................................. 27
APPENDIX D - INVESTMENT MANAGER EXCEPTIONS TO INVESTMENT GUIDELINES ........................ 29
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Investment Policy Statement adopted December 12, 2018
I. INTRODUCTION AND STATEMENTS OF PURPOSE, PHILOSOPHY AND ETHICS
The Board of Trustees of the Teachers’ Retirement System of Oklahoma, as the governing bodyfor the System, deems it prudent and necessary to maintain this Investment Policy Statement to actas the principal governing document for the investment of System assets.
A. Legal Authority and System Description
The System is established by statute; the legal authority and description of the System are detailedbelow.
Constitutional AuthoritySection 62 of Article 5 of the Oklahoma Constitution was added as a result of the passage of StateQuestion 306 on July 14, 1942. This section reads:
“The Legislature may enact laws to provide for the retirement for meritorious service of teachers and other employees in the public schools, colleges and universities in this State supported wholly or in part by public funds, and may provide for payments to be made and accumulated from public funds, either of the State or of the several school districts. Payments from public funds shall be made in conformity to equality and uniformity within the same classifications according to duration of service and remuneration received during such service.”
Statutory Authority As a result of the passage of State Question 306, the Legislature enacted House Bill 297 in the 1943 legislative session that created the Oklahoma Teachers Retirement System (“System”). The legislation has been changed substantially in the years since its creation and is currently codified in Oklahoma Statutes Title 70, Sections 17-101 et. seq. (NOTE: In the remainder of this document, statutory references will follow the notation O.S. 70 § 17-101 to reference Oklahoma Statutes Title 70, Section 17-101.)
Purpose of System In O.S. 70 § 17-102, paragraph 1 creates the Oklahoma Teachers Retirement System and outlines the purpose of the System as follows:
“A retirement system is hereby established and placed under the management of the Board of Trustees for the purpose of providing retirement allowances and other benefits under the provisions of this act for teachers of the State of Oklahoma.”
Board of Trustees Powers The second paragraph of O.S. 70 § 17-102 provides the broad terms of the powers entrusted to the Board of Trustees (“Board”):
“The Board of Trustees shall have the power and privileges of a corporation and shall be known as the "Board of Trustees of the Teachers' Retirement System of Oklahoma", and by such name all of its business shall be
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Investment Policy Statement adopted December 12, 2018
transacted, all of its funds invested, and all of its cash and securities and other property held in trust for the purpose for which received.”
Further powers vested upon the Board are set forth in O.S. 70 § 17-106, in part:
“(1) The general administration and responsibility for the proper operation of the retirement system and for making effective the provisions of the act are hereby vested in a Board of Trustees which shall be known as the Board of Trustees and shall be organized immediately after a majority of the trustees provided for in this section shall have qualified and taken the oath of office.”
and:
“(10) Subject to the limitations of this act, the Board of Trustees shall, from time to time, establish rules and regulations for the administration of the funds created by this act and for the transaction of its business.
Finally, O.S. 70 § 17-106.1, in part, defines the duties of the Board in relation to investment of fund assets:
“A. The Board of Trustees of the Teachers’ Retirement System of Oklahoma shall discharge their duties with respect to the System solely in the interest of the participants and beneficiaries and: 1. For the exclusive purpose of:a. providing benefits to participants and their beneficiaries, andb. defraying reasonable expenses of administering the System;2. With the care, skill, prudence, and diligence under the circumstancesthen prevailing that a prudent person acting in a like capacity and familiarwith such matters would use in the conduct of an enterprise of a likecharacter and with like aims;3. By diversifying the investments of the System so as to minimize the riskof large losses, unless under the circumstances it is clearly prudent not todo so; and4. In accordance with the laws, documents and instruments governing theSystem.”
B. Statement of Purpose
A primary purpose of this investment policy statement is to guide fiduciaries, including the Boardof Trustees, System staff, investment managers, consultants and others responsible for overseeingand investing the assets of the Fund. This policy also communicates foundational tenets underlyingits formulation. This policy provides specific guidance regarding investment objectives, assetallocation, risk management and the means by which investment objectives are intended to beachieved. Additional specific guidance is given in defining roles, delegated duties andaccountabilities of System fiduciaries as well as setting forth logical, disciplined procedures formaking decisions.
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Investment Policy Statement adopted December 12, 2018
C. Statement of Investment Philosophy
Since this policy is a communication tool for System fiduciaries, interested stakeholders as well asother external parties, the Board recognizes that it is important to articulate the underlying beliefsthat are foundational in its formulation. Key aspects of the Board’s investment philosophy aresummarized in the following statements.
1. The Fund has an infinite time horizon and the assets should be invested and managedaccordingly.
2. A central tenet in investing is the tradeoff between risk and return, meaning that the pursuitof higher expected returns is accompanied with higher expected risk. Bearing some degreeof investment risk is necessary in the pursuit of investment return objectives.
3. Investment risk comes in many forms. The most common risk is the volatility of periodicreturns measured by the statistical term known as standard deviation. Additionally, there area variety of other risks to be considered. A partial list of these risks would include the riskof permanent loss of capital, the risk of not meeting objectives, illiquidity risk, credit risk,interest rate risk, inflation risk, leverage risk, concentration risk and manager risk. A primaryfocus of this investment policy is to balance, manage and, to the extent possible, controlthese various risks.
4. Funds with long term investment horizons are able to pursue higher expected returnsassociated with higher risk portfolios because they are able to remain invested when periodicdeclines in market values occur.
5. The Fund will best contribute to the primary goal of providing benefits to participants andtheir beneficiaries by realizing high risk-adjusted net returns.
6. The Board acknowledges that while other institutions may make investment decisions topursue various worthy causes that may be admirable in their own right, the Board’sinvestment decisions are made to achieve the primary goal of providing benefits toparticipants and their beneficiaries and defraying reasonable expenses.
7. Long-term investing success is best accomplished by adhering to a long-term strategic assetallocation rather than engaging in short term tactical market timing among asset classes.
8. Diversification among asset classes and securities is the primary means of controlling therisk of an investment portfolio.
9. The primary factor determining portfolio risk and return is how the portfolio is allocatedamong asset classes.
10. The decision-making process for investments should be both disciplined and logicalderiving support from current academic theory and the application of rigorous analysis.
11. In less efficient markets where the probabilities of achieving net-of-fee outperformancerelative to a passive market index are higher, active management is preferred. In moreefficient markets where the probabilities of achieving net-of-fee outperformance relative toa passive market index are lower, low-cost index management is preferred.
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Investment Policy Statement adopted December 12, 2018
12. Certain asset classes are only accessible in the form of private market interests which havevery limited liquidity and normally higher costs relative to public market instruments.Investing a portion of the Fund in these illiquid asset classes is reasonable to the extent thatthey offer some desirable combination of the following relative to available public marketasset classes: higher expected net return and/or risk reduction through diversification.
D. Statement of Ethical Standards
The Board of Trustees is committed to maintaining and promoting the highest ethical standardsamong Board members and among all parties involved in the administration of fund assets.
The Board expects all parties involved in the administration of fund assets, including all Systemfiduciaries, to conduct their activities according to the highest ethical standards adhering likewiseto the principles expressed in the Board of Trustee Policy Manual Chapter 5 – Code of Conductand Chapter 6 – Ethical and Fiduciary Conduct. Given the nature of fund management andinvesting, particular attention will be given to conflicts of interest. All parties involved in theadministration of fund assets should be free of conflicts of interest to avoid even the appearance ofnot acting in the sole interests of System participants and their beneficiaries. Where any involvedparty becomes aware of an actual or potential conflict of interest it is their duty to disclose theconflict to the Board so that the Board may assess its seriousness.
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Investment Policy Statement adopted December 12, 2018
II. STATEMENT OF DUTIES AND RESPONSIBILITIES
A. Board of Trustees
The Board of Trustees has the final decision making authority for the System. The InvestmentCommittee of the Board has the authority to make investment recommendations to the Board. TheBoard evaluates and decides whether or not to take action on recommendations from the InvestmentCommittee. The Investment Committee’s authority and responsibilities are set forth in theInvestment Committee Charter contained in the Board of Trustees Policy Manual.
Trustee duties and responsibilities are listed in summary as follows:
1. Adopt, and when deemed necessary, amend this Investment Policy Statement.
2. Determine delegated duties to be performed by other qualified fiduciaries in order to ensurethat the Fund is properly administered and regularly evaluated to assess progress towardsachieving established objectives.
3. Receive and evaluate reports, presentations and other materials provided by investmentconsultant(s), staff, investment managers, and other retained advisors to monitor theadministration of Fund assets in accordance with policy objectives and to regularly assessprogress towards achieving the goals and objectives defined herein.
4. Select and contract with qualified professional advisory organizations to perform functionsdeemed necessary by the Board to manage the Fund in accordance with policy. Commonprofessional advisory organizations would include investment consultant(s), investmentmanagers, global custodians and securities lending agents.
5. Evaluating the performance of retained professional advisory organizations and staff toassess fulfillment of duties, achievement of goals and compliance with policy guidelines.
6. Annually conduct a formal review of the performance of Investment Consultant(s),normally to be performed in the month of April.
7. Terminating the contracts with any retained professional advisory organization whendeemed necessary.
8. Review all costs of investment operations at least annually.
B. Staff
A summary of the duties and responsibilities of the staff is as follows:
1. Provide the Board and the Investment Committee with reports, presentations and any othermaterials to assist them in the fulfillment of their duties and responsibilities. The generalcontent and focus of reporting from Staff is further described in Section VI.
2. Serve as the primary liaison between the Board of Trustees and the investment consultant(s),investment managers, custodian, securities lending agent and transition manager(s).
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Investment Policy Statement adopted December 12, 2018
3. Implement Board decisions regarding asset allocation, investment structure, portfoliorebalancing procedures and retention of investment consultant(s), investment managers,custodian and securities lending agent.
4. Coordinate the search, selection and evaluation processes for investment consultant(s),investment managers, custodian and securities lending agent on behalf of the Board ofTrustees.
5. Monitor and review the performance of the total fund, asset class composites, andinvestment managers to evaluate achievement of objectives and compliance with policyguidelines.
6. Monitor and review all costs of investment operations including, but not limited to, feespaid to investment consultant(s), investment managers, and custodian, as well as portfoliotransactions costs.
7. Manage the liquidity in the Total Portfolio as necessary to ensure timely payment of benefitpayments, plan expenses and capital calls, etc. consistent with established asset allocationand portfolio rebalancing policies. The raising of cash amounts greater than two months’worth of benefit payments shall be subject to Board approval.
8. Conduct the search and selection of transition manager(s) in collaboration with theinvestment consultant(s) as directed by the Board.
9. Conduct due diligence in collaboration with the investment consultant(s) when investmentmanagers fail to meet the expectations of the Board or are formally placed ‘On Alert’ or‘On Notice’.
10. Research and review innovative investment ideas and concepts in collaboration with theinvestment consultant(s) in an effort to identify potential modifications to improve theinvestment portfolio.
11. Monitor the performance of the total fund, asset class composites and investment managersto determine if any issues need to be addressed by the Investment Committee or the Boardof Trustees.
C. Investment Consultant
A summary of the duties and responsibilities of the investment consultant(s) retained by the Boardis as follows:
1. Acknowledge status as a fiduciary to the System and remain in compliance both with thisinvestment policy and with the current executed contract with the System.
2. Provide the Board and the Investment Committee with reports, presentations and any othermaterials to assist them in the fulfillment of their duties and responsibilities. The generalcontent and focus of reporting from Investment Consultant is further described in SectionVI.
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Investment Policy Statement adopted December 12, 2018
3. Assist the Board in developing and modifying policy objectives and guidelines, includingthe development of asset allocation strategies, recommendations on long-term assetallocation and the appropriate mix of investment manager styles and strategies.
4. Assist the Board by monitoring compliance with this Investment Policy.
5. Provide assistance in investment performance calculation, evaluation, and analysis.
6. Provide assistance in investment manager searches and selection.
7. Provide assistance in custodian, securities lending agent, transition manager andcommission recapture agent searches and selection.
8. Provide timely information, written and/or oral, on investment strategies, instruments,managers and other related issues, as requested by the Board.
9. Monitor the Board's investment managers and notify the Board and staff of any materialchanges in the investment managers' organizational structure, their personnel or if there areperformance issues.
10. Certify in writing to the Board on an annual basis as of the System’s June 30 fiscal year end,the investment consultant’s compliance with this Policy during the fiscal year period endingJune 30.
11. Review with the staff the status and performance of current investment managers anddetermine if any issues need to be addressed by the staff or the Board of Trustees.
12. Provide assistance in the search and selection of transition manager(s) as directed by theBoard.
13. Provide assistance in the conduct of due diligence when investment managers fail to meetthe expectations of the Board or are placed ‘On Alert’ or ‘On Notice’.
14. Explore, research, analyze and review new investment ideas and managers in collaborationwith the staff in an effort to keep the system current with investment options.
D. Investment Managers
A summary of the duties and responsibilities of each separate account, public markets investmentmanager retained by the Board is listed below. Commingled account and private market investmentmanagers whose investment activities are governed by subscription agreements or commingledtrust documents should adhere to the duties and responsibilities contained herein to the extentpossible and to the extent that they are not superseded by, or in conflict with, subscriptionagreements or commingled trust documents defining the relationship with the System.
1. Acknowledge status as a fiduciary to the System and remain in compliance both with thisinvestment policy and with the current executed contract with the System.
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Investment Policy Statement adopted December 12, 2018
2. Provide the Board, the Investment Committee, the staff and the investment consultant(s)with reports, presentations and any other materials to assist them in the fulfillment of theirduties and responsibilities. The general content and focus of reporting from InvestmentManagers is further described in Section VI.
3. Manage the Fund’s assets in accordance with the policy guidelines and objectives expressedherein.
4. Prudently select investments based on thorough evaluation of all risks applicable to statedmandate.
5. Work with the custodian and the investment consultant to verify monthly accounting andperformance reports.
6. Certify in writing to the Board on an annual basis as of the System’s June 30 fiscal year end,the Investment Manager’s compliance with this Policy during the fiscal year period endingJune 30.
7. Act as a fiduciary in adopting and adhering to proxy voting policies, acknowledging that itsproxy voting policies may affect the value of their respective portfolio.
8. Seek to obtain best execution in all securities transactions to minimize the costs of trading.
E. Custodian
A summary of the duties and responsibilities of the custodian bank(s) retained by the System is asfollows:
1. Acknowledge status as a fiduciary to the System and remain in compliance both with thisinvestment policy and with the current executed contract with the System.
2. Provide the Board, the Investment Committee, the staff and the investment consultant(s)with reports, presentations and any other materials to assist them in the fulfillment of theirduties and responsibilities.
3. Accept daily instructions from designated staff.
4. Notify investment managers of proxies, tenders, rights, fractional shares or otherdispositions of holdings.
5. Safekeeping of securities.
6. Timely collection of interest and dividends.
7. Daily cash sweep of idle principal and income cash balances.
8. Process and maintain records of all investment manager transactions.
9. Collect proceeds from maturing securities.
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Investment Policy Statement adopted December 12, 2018
10. Disburse all income or principal cash balances as directed.
11. Perform regular reconciliations of holdings and transactions with the System’s retainedinvestment managers on at least a monthly basis.
12. Work with the System’s staff and the investment consultant to ensure accuracy in reporting.
13. Manage and administer the System’s directed brokerage program.
14. Monitor compliance with this Investment Policies Statement, provide applicable research toensure the validity of suspected breaches, and submit appropriate commentary offering arecommendation to the reported breach.
15. Participate in an annual review of compliance with the System’s staff, to determine theeffectiveness of investment policy testing. Providing required reports to assist the System’sstaff and vendors with compliance with the Governmental Accounting Standards Board, theInternal Revenue Service, the Securities and Exchange Commission, the Financial IndustryRegulatory Authority and other regulatory agencies.
16. Monitor, file and report on securities class action lawsuits and collect and record settlementproceeds.
17. Process and file Foreign Tax Reclaims on behalf of the System.
F. Securities Lending Agent
A summary of the duties and responsibilities of the securities lending agent retained by the Systemis as follows:
1. Acknowledge status as a fiduciary to the System and remain in compliance both with thisinvestment policy and with the current executed contract with the System.
2. Provide the Board, the Investment Committee, the staff and the investment consultant(s)with reports, presentations and any other materials to assist them in the fulfillment of theirduties and responsibilities.
3. Arrange terms and conditions of securities loans.
4. Monitor the market value of the securities lent and mark to market at least daily and ensurethat any necessary calls for additional collateral are made and that such collateral is obtainedon a timely basis.
5. Direct the investment of cash received as collateral in accordance with direction from theBoard, provided that such investments are consistent with guidelines provided in thisdocument.
6. Notify the Board of any changes to the investment guidelines in the Securities and ExchangeCommission’s rule 2A7 for consideration by the Board.
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Investment Policy Statement adopted December 12, 2018
7. Notify the System’s staff in the event that a recalled security has not been returned by aborrowing party within 10 days of the request.
G. Transition Manager
The transition managers shall manage the transition of assets from one or more investmentmanagers or asset categories to one or more other investment managers or asset categories.Transition managers shall be selected among those approved by the Board. Transition managersshall be utilized when such employment is likely to present significant opportunities for costsavings, technical efficiencies or other benefits to the System.
A summary of the duties and responsibilities of Transition Managers retained by the System is asfollows:
1. Acknowledge status as a fiduciary to the System and remain in compliance both with thisinvestment policy and with the current executed contract with the System.
2. Provide a pre-trade analysis, which will include, among other things, a trading liquidityanalysis, portfolio sector analysis, volatility analysis, and estimated transaction costs.
3. Provide a detailed written plan of transition execution.
4. Provide a post-trade analysis, comparing the actual costs with the pre-trade estimates. Thereport will also include various trading statistics, benchmarking information, and detailedtrade reports.
5. In all securities transactions, transition managers shall seek to obtain best execution tominimize the costs of trading.
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Investment Policy Statement adopted December 12, 2018
III. PROCEDURES
A. Investment Policy Review
In order to keep the Investment Policy current, the Board will at least annually, review and modify,as deemed necessary any portions of the policy. The annual review will consider, but not be limitedto, the following: objectives and guidelines, the development of asset allocation strategies,recommendations on long-term asset allocation and the appropriate mix of investment managerstyles and strategies.
The Board, both upon their own initiative and upon consideration of the advice andrecommendations of staff, consultants, the investment managers and other fund professionalsinvolved with the assets, may amend policy guidelines. Proposed modifications should bedocumented in writing to the Board.
B. Investment Manager Policy Exceptions
Requests for an exception to invest in securities precluded by section V. A. or the applicablemandate’s specific policies, should be submitted in writing to the System and include justificationfor such request, , and a requested time period, up to three years. Exception requests will undergoa reevaluation and approval process at the end of each term. Staff and investment consultant willdetermine the investment manager’s process for providing quarterly reporting on attributionanalysis of the contribution of the allowed exception.
C. Third Party Marketing and Referrals Disclosure Policy
The Teachers’ Retirement System of Oklahoma requires transparency and full disclosure of allrelationships in proposed and committed investments with any third parties. A “third partymarketer” is a person who represents an asset management firm or any other type of investmentservices provider, as an independent contractor rather than as an employee of the firm, for thepurpose of making presentations or securing contracts with the System for the firm or provider.Any such third party marketer must disclose himself or herself as a third party marketer before orat the same time as contacting any member of the Board of Trustees, employee of the System orthe outside investment consultant for the System. In addition, firms submitting investmentproposals for consideration by Teachers’ Retirement System of Oklahoma (including any sub-managers or consultants engaged by such firms) are hereby required to disclose the identity of allthird-party marketers and/or individuals by whom the firm has been referred to Teachers’Retirement System of Oklahoma and further indicate those so identified that stand to receive feesor other consideration in the event that a contract between the firm and the Teachers’ RetirementSystem of Oklahoma is secured. Any consideration paid or benefits received, or any relationshipbetween such firm (including any sub-managers or consultants engaged by such firms) and thirdparty marketing entities and/or individuals, shall be disclosed. The disclosure requirementsestablished by this Policy apply throughout the term of any contractual relationship Teachers’Retirement System of Oklahoma may have with any firm and represents a continuing obligation ofdisclosure. This Policy becomes effective immediately and applies to all firms currently managingTeachers’ Retirement System of Oklahoma assets. All firms submitting investment proposals must
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Investment Policy Statement adopted December 12, 2018
make the disclosures required by this Policy prior to any action being taken on the firm's investment proposal by the Board, as well as comply with the continuing obligation of disclosure.
D. Request for Proposal Policy
70 O.S. § 17-106.1(E) provides “The Board of Trustees may retain qualified investment managersto provide for the investment of the monies of the System. The investment managers shall bechosen by a solicitation of proposals on a competitive bid basis pursuant to standards set by theBoard of Trustees. Subject to the overall investment guidelines set by the Board of Trustees, theinvestment managers shall have full discretion in the management of those monies of the Systemallocated to the investment managers[…]”
While TRS statutes provide that investment managers must be retained on a competitive bid basis,this process is not required to conform to the Oklahoma Central Purchasing Act. The process forinvestment manager selection and allocation shall conform to the following process:
1. The Board shall approve all request for proposals (RFPs) issued by the System.
2. Respondents to a proposal shall comply with the procedures and conform to the standardsset forth in the RFP.
3. The issuance of an RFP does not commit the Board to award a contract or make anallocation to a manager or strategy. The Board reserves the right to accept or reject any orall proposals received, to negotiate with any and all qualified bidders, and to cancel in partor in its entirety a solicitation if it is in the best interests of the System to do so.
4. The Board shall award contracts to the most suitable bidder at a specified time and placewhich shall be open to the public pursuant to the Oklahoma Open Meetings Act.
5. Proposals shall be evaluated by the Investment Consultant and the Chief InvestmentOfficer. An evaluation report to identify potential managers shall be presented to theInvestment Committee for recommendation to the Board.
6. Except for the purposes of seeking clarification of RFP responses, no member of theBoard, staff, or Investment Consultant shall knowingly communicate concerning anymatter that is material to the selection process with any party having a direct financialinterest in the award of the contract, an officer or employee of that party, or a placementagent retained or employed by that party, unless the communication is part of the processexpressly described in the RFP or part of any Board meeting prior to the award of thecontract. Any bidder who knowingly participates in a communication that is prohibited bythis subsection shall be disqualified from the contract award.
7. Due diligence shall be conducted on potential managers prior to the award of the contract.The nature of the due diligence shall be recommended to the Board by the InvestmentCommittee with the advice of the Investment Consultant, Chief Investment Officer, andExecutive Director.
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Investment Policy Statement adopted December 12, 2018
E. Additional allocations to a previously retained manager:
1. The Board may at any time make an additional allocation to a manager currently undercontract at its discretion in accordance with this Policy.
2. Additional allocations to subsequent or follow-on closed-end funds of a manager may bemade without the necessity of an additional RFP provided the investment thesis andstrategy of the subsequent or follow-on fund is substantially similar to the fund that wasoriginally allocated on a competitive bid basis. To be substantially similar a fund musthave the same benchmark, the same type of assets, and the investment decisions must bemade by substantially the same people as were managing the original fund/strategy.Closed-end funds are generally in the form of ownership interests in limited partnershipsand may include, but are not limited to, private equity, venture capital, mezzanine anddistressed debt, real estate funds, and natural resource funds.
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Investment Policy Statement adopted December 12, 2018
IV. INVESTMENT GOALS AND OBJECTIVES
To fulfill the System’s Mission Statement set forth in Chapter 2 of the Board of Trustees Policy Manual, the Board has a goal of earning a nominal, long-term, time-weighted, annualized, net total return of 7.5% on the investment portfolio while maintaining liquidity necessary to fund net benefits and operations.
To achieve the goal above the Board believes that several investment objectives need to be attained. In setting the objectives the Board follows the criteria as recommended in “A Primer for Investment Trustees” (Bailey, Jeffery, Jesse Phillips and Thomas Richards. A Primer for Investment Trustees. Charlottesville: Research Foundation of CFA Institute, 2011). Specifically, investment objectives should be
unambiguous and measurable,
specified in advance,
actionable and attainable,
reflective of the Trustees’ risk tolerance and consistent with the System’s mission.
The Board has established several objectives for the investment portfolio that meet the criteria above. These objectives listed below are specified at the Total Fund, Asset Class Composite and individual mandate/Investment Account level.
Total Fund Investment Objectives Achieve or exceed on a three year rolling basis, absolute and risk-adjusted, net excess returns
relative to the Total Fund Policy Index as specified in Appendix A. On a three year rolling basis, maintain relative risk levels equal to or below that of the Total
Fund Policy Index.
Asset Class Investment Objectives Achieve or exceed on a three year rolling basis, absolute and risk-adjusted, net excess returns
relative to the Asset Class Index as specified in Appendix A. On a three year rolling basis, maintain relative risk levels equal to or below that of the Asset
Class Index.
Investment Account Objectives Achieve or exceed on a three year rolling basis, absolute and risk-adjusted, net excess returns
relative to the Investment Account Index as specified in Appendix A. On a three year rolling basis, maintain relative risk levels equal to or below that of the
Investment Account Index.
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Investment Policy Statement adopted December 12, 2018
V. INVESTMENT GUIDELINES AND CONSTRAINTS
The System maintains a diversified portfolio with investments in multiple asset classes as definedby its strategic asset allocation. Investments in some asset classes can be made through publicsecurities markets while investments in other asset classes are only possible through private marketinvestment vehicles.
Generally the System’s public market investments are held by the System’s Custodian in separateaccounts managed by retained investment management firms. For these public market investmentsin separate accounts at the System’s custody bank, the System defines the parameters within whichthe retained investment managers can manage the portfolio. In addition to public marketinvestments held in separate accounts the System may choose to invest in commingled orpartnership structures alongside other institutional investors where the System does not define theinvestment management parameters but rather accepts the investment management parameters asspecified in commingled trust documents or in partnership agreements.
With the above distinctions in mind, this section of the Policy covering guidelines and constraintsis divided into two subsections and further grouped by asset class. The first subsection addressespublic market investments held in separate accounts by the System’s Custodian. It communicatesto the investment management firms retained to manage these accounts the parameters within whichthey are permitted to manage the portfolio.
The second subsection addresses commingled and private market investments where the Systemaccepts the investment parameters as defined in trust documents or partnership agreements andother associated legal documents. This subsection documents the rationale for choosing acommingled or partnership structure and the general boundaries within which the System will seekto structure its private markets investments.
A. Public Market Separate Account Investments
1. Discretion and Prohibited Investments
Full discretion, within the parameters of these guidelines is granted to the investmentmanagers regarding the allocation of their portfolios, the selection of securities, and thetiming of transactions. Any exception requests to the guidelines listed herein should becommunicated to the System’s Investment staff and Investment Consultant. Due to the everexpanding variety of financial instruments and financial engineering methods, the followinglist of ineligible investments is not considered to be exhaustive. Any instrument, to whichthese Investment Guidelines do not explicitly prohibit, that is not expressly allowed by theapplicable mandate specific guidelines, should be requested through the exception process,detailed in section III. B, prior to investment.
a. Privately placed or other non-marketable debt, except securities issued under Rule144A.
b. Securities denominated in non-US currency, unless provided in accordance with anapplicable mandate.
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Investment Policy Statement adopted December 12, 2018
c. Lettered, legend or other so-called restricted stock
d. Physical commodities and commodity derivatives
e. Short sales and purchases on margin; leverage is not allowed unless the System hasexpressly given the right to lever to a manager.
f. Direct investments in private placements, real estate, oil and gas and venture capital,unless provided in accordance with an applicable mandate.
2. Index Portfolios
a. All index portfolios characteristics and returns are expected to closely resemble thedesignated benchmark.
b. Index managers may use both full replication and stratified sampling portfolioconstruction methodologies.
3. Cash Rule for Equity Portfolios
a. Investment managers of portfolios consisting of equity securities including MLPsshould seek to remain fully invested. Fully invested for the purposes of this documentshall mean normally maintaining a portfolio allocation to cash investments of 5% orless. Should the investment manager desire to maintain cash investments at a levelgreater than 5% for an extended period of time, the investment manager shall provideadvanced written notification and explanation to the Investment Staff and InvestmentConsultant.
b. No violation shall be deemed to occur if cash investment levels exceed the 5% due toinstructions received from the System. If cash investments breach the 5% threshold forten consecutive business days or 7% for three consecutive business days the managershall submit a written notice and explanation of each such event to Investment Staff andInvestment Consultant.
4. Derivatives
a. Investment managers may be permitted, under the terms of individual investmentcontracts, to use derivative instruments as set forth in each manager’s investmentguidelines. A derivative is a security or contractual agreement that derives its value fromsome underlying security, commodity, currency or index. Some examples of derivativesfor purposes of this Policy are (a) contracts such as forwards, futures, put and calloptions, and swaps and (b) non-traditional securities with embedded options such ascollateralized mortgage obligations (CMOs) and structured note products. Traditionalsecurities with options such as convertible bonds and preferred stock are not consideredderivatives under this policy, nor are warrants.
b. Derivatives shall not be used to introduce leverage, that is, the notional value ofderivatives positions cannot exceed the cash or securities values available from the
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Investment Policy Statement adopted December 12, 2018
System’s assets. Derivatives may not be used to create levered exposure to the assets being managed. Derivatives may be used for the purpose of reducing effective cash exposure and for hedging currency risk and interest rate risk.
c. Managers must ascertain and carefully monitor the creditworthiness of any third partiesinvolved in derivative transactions.
d. Foreign exchange forward contracts or currency swaps are permitted for currencyhedging purposes. Posting of a “margin” deposit for these contracts is permitted inconnection with foreign exchange forward contracts or currency swaps as such a depositis not considered to be “purchases on margin” or “leverage”.
5. Domestic Equity
a. Domestic Equity portfolios will not concentrate more than the greater of a 2%benchmark-relative active weight or 7% of market value of funds under advisement inholdings of a single issuer.
b. Domestic Equity portfolios will not hold greater than 5% of the outstanding shares of asingle issuer.
c. Domestic Equity portfolios will be limited to holdings of common stock, AmericanDepository Receipts (ADRs) listed on a domestic exchange, non-midstream MLP unitsand any security type that is a constituent in the portfolio’s benchmark index.
d. Domestic Equity portfolios may hold, sell or exercise rights, warrants or otherinstruments received by virtue of corporate actions.
e. Domestic Equity portfolios may purchase unlevered Exchange Traded Funds (ETFs)linked to the portfolio’s benchmark index solely for the purpose of reducing temporarilyhigh cash exposure.
6. International Equity
a. International Equity portfolios will not concentrate more than the greater of a 2%benchmark-relative active weight or 7% of market value of funds under advisement inholdings of a single issuer.
b. International Equity portfolios will not hold greater than 5% of the outstanding sharesof a single issuer.
c. International Equity portfolios will not concentrate more than the greater of a 5%benchmark-relative active weight or 35% of the market value of funds under advisementin issuers from the UK or Japan and no more than 30% of the market value of fundsunder advisement in issuers from any other single country.
d. International Equity portfolios will invest no less than 50% of the portfolio in companieslocated in developed markets as determined by MSCI.
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Investment Policy Statement adopted December 12, 2018
e. International Equity portfolios will be limited to holdings of common stock, AmericanDepository Receipts (ADRs) listed on a domestic exchange and any other security typethat is a constituent in the portfolio’s benchmark index.
f. International Equity portfolios may hold, sell or exercise rights, warrants or otherinstruments received by virtue of corporate actions.
g. International Equity portfolios may purchase unlevered Exchange Traded Funds (ETFs)linked to the portfolio’s benchmark index or country sub index solely for the purpose ofreducing temporarily high cash exposure. International Equity portfolios may also holdcommingled fund units to gain exposure to markets where individual company sharepurchases are either inefficient or not possible.
7. Fixed Income
a. Fixed Income portfolios will not concentrate greater than 5% of market value of fundsunder advisement in holdings of a single issuer. This restriction does not apply tosovereign issues.
b. Fixed Income portfolios will not hold greater than 5% of the issued securities of a singleissuer.
c. Fixed Income portfolios will not concentrate greater than 20% in non-USD denominatedobligations.
d. Fixed Income portfolios will not concentrate greater than 10% in developing oremerging markets issuers as determined by MSCI.
e. Fixed Income portfolios may hold shares of common stock converted from embeddedcorporate actions. At the time of conversion, managers should communicate issuesconverted into common shares to the System’s Investment staff and InvestmentConsultant.
f. Core Plus Full Discretion Fixed Income
i. Core Plus portfolios will not concentrate greater than 50% in issues which are ratedBa1 or lower by Moody’s, or Moody’s equivalent rating by an SEC registeredNRSRO. If the ratings assigned to an instrument by an SEC registered NRSROare not the same, the highest rating of these rating agencies will be used. If aninstrument is not rated by an SEC registered NRSRO, the equivalent ratingdetermined by the Manager’s internal rating system will be used.
ii. Core Plus portfolios may hold up to 5% of the market value of the account in anycombination of the following: issues which internally or externally are ratedbelow Caa2 Moody’s, or Moody’s equivalent rating by an SEC registeredNRSRO, common stock, preferred stock, closed-end funds or exchange-tradedfunds..
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Investment Policy Statement adopted December 12, 2018
iii. All holdings of unrated securities and securities subject to the 5% limitation aboveshall be subject to monthly reporting requirements as set forth in Section VI. 3. ofthis Policy.
iv. The Core Plus portfolio manager may not invest more than 10% of the portfolioin unrated securities.
g. Active Duration Fixed Income
i. Active duration portfolios may concentrate holdings up to 100% at any maturityalong the U.S. Treasury term structure.
ii. Active duration portfolio accounts are limited to holding securities backed by thefull faith and credit of the U.S. government and units of the short term investmentfund of the System’s custodial bank.
h. Securities Lending Collateral Pool
i. The investments of the securities lending collateral are governed by a separateinvestment policy document therefore they are not addressed herein.
8. Master Limited Partnership (Midstream Energy Infrastructure)
a. Master Limited Partnership (MLP) portfolios will be limited to the purchase ofinvestments in midstream energy infrastructure, which include: (a) securities such asunits and other ownership instruments issued by MLPs that are organized as partnershipsor limited liability companies which elect to be taxed as a partnership; (b) securities thatoffer economic exposure to MLPs from entities holding primarily general partner ormanaging member interests in MLPs; and (c) equity securities in companies that focuson energy infrastructure and the midstream energy sector.
b. MLP portfolios will not concentrate greater than 15% of market value of funds underadvisement in holdings of unregistered, privately placed securities of publicly tradedMLPs at the time of purchase.
c. MLP portfolios will be permitted to invest in Initial Public Offerings and SecondaryPublic Offerings of MLP securities.
d. MLP portfolios will not concentrate greater than 10% of market value of funds underadvisement in holdings of a single issue. A “single issue” is defined by shares in eitherthe limited partner, or shares in the general partner; or equity securities of midstreamenergy infrastructure companies but shares in the limited partnership and generalpartnership should not be taken in aggregate.
e. MLP portfolios will not hold greater than 5% of the outstanding shares of a singleissuer.
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Investment Policy Statement adopted December 12, 2018
B. Private Market Partnership Interests and Commingled Account Investments
The System recognizes that private market investments and commingled fund investments are governed by subscription agreements, limited partnership agreements, trust documents and other related legal documents. Additionally, the System recognizes that in the event of a conflict between the aforementioned documents and this Investment Policy Statement, the subscription agreements, limited partnership agreement and other related legal documents shall take precedence in the governance of these investments.
The System determines how it will select and structure its private market and commingled fund investments this section sets forth the guidelines the System will follow for structuring the portion of the portfolio invested in private market and commingled fund investments.
1. Private Equity and Private Debt
a. Private Equity portfolios will be comprised of buyout funds, growth capital funds,turnaround funds venture capital funds and other primarily equity focused strategiesapproved by the System.
b. Private Debt will be comprised of distressed debt funds, mezzanine debt funds, asvarious types of credit funds and other primarily debt focused strategies approved bythe System.
c. For Strategic Asset Allocation purposes the System regards Private Equity as an assetclass and Private Debt as a sub-category of the Fixed Income asset class.
d. In order to achieve a diversified private equity portfolio, the following sub-allocationsshall be used as an overall target for commitment levels within the portfolio:
Segment Long-Term Allocation Ranges Corporate Finance1 80% - 100% Venture Capital 0% - 20% 1 Includes buyout, turnaround and debt related strategies
Region Long-Term Allocation Ranges U.S. and Western Europe 80% - 100% Other 0% - 20%
e. The minimum Private Equity or Private Debt commitment is $10 million.
f. Commitments will not be made to a primary fund which exceeds an amount equal to20% of the total amount raised for a proposed fund.
g. Aggregate commitments to a General Partner may not be greater than 25% of fundsunder advisement.
h. For potential new commitments identified by a retained private markets consulting firm,the private markets consulting firm shall, prior to any commitment, provide detailed
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Investment Policy Statement adopted December 12, 2018
information on the opportunity, including a final memorandum summarizing all due diligence performed, to Staff, the Investment Consultant, and the Board.
i. The System will not invest funds into opportunities that intend to purchase remainingassets from a previous fund.
j. Funds that meet the following criteria will not be considered eligible for initialevaluation or potential funding commitments:
i. Vehicles which are not backed by accredited investors, as that term is defined inSection 2 of the Federal Securities Act of 1933, as amended, (15 U.S.C. Section77(b)) and rules and regulations promulgated under that section.
ii. Investments representing direct equity ownership in individual companies or otherbusiness entities, without the benefit of an intermediate partnership or otherindirect ownership structure. However, this exception shall not include directequity ownership which results from the distribution of securities frompartnerships to the System. This rule does not restrict the possibility of a co-investment in Private Equity; contingent upon a third party consultant providingthe recommendation and vehicle for investment.
iii. Investments which would violate resolutions passed by the System’s Board.
iv. Investments in which the General Partner has committed to invest no personal orfirm assets.
2. Real Estate
a. Real estate investments will be categorized as Core and Non-Core. The objectives ofreal estate investments are to provide diversification benefits to the overall portfolio,provide protection against inflation, generate stable income, produce attractive risk-adjusted return and preserve capital.
b. Real estate exposure shall be acquired primarily through comingled fund vehicles,both open end and closed end, and, to a lesser extent, joint venture limited partnershipsand separate accounts.
c. The real estate portfolio will be diversified by property type, geographic region andinvestment strategy.
d. Real estate funds will not concentrate, in any single property, an amount exceeding25% of the total Gross Asset Value (GAV) of the overall investment fund.
e. Core real estate funds will include investments that are operating and substantiallyleased, primarily invested in the four main property types including office, industrial,retail and multi-family. Other property types may be included to a lesser extent.Current income will comprise a majority of the total return over an investment cycle.
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Investment Policy Statement adopted December 12, 2018
f. Core real estate funds will not concentrate greater than 20% of the total GAV of theinvestment fund in Non-Core properties.
g. Core real estate funds will not carry leverage in excess of 35% of the GAV of theinvestment fund.
h. Non-Core real estate funds will include Value-add and Opportunistic investmentstrategies. Non-core funds may purchase and manage, in addition to the four mainproperty types, other specialty properties that may require renovation, rehabilitation ordevelopment. Current income may comprise a minority and appreciation may representthe majority of the total return of these investments.
3. Opportunistic Private Market Investments
a. The Opportunistic Investment category describes investments that are not adequatelyclassified within the other investment mandates. Allocations to opportunisticinvestments may range from 0% to 5% of total portfolio. The Board shall determineappropriate commitment levels subject to the constraints below.
b. The Board shall not make commitments to a single portfolio greater than 20% of thetotal amount of the proposed portfolio.
c. The Board shall not concentrate aggregate commitments to a single investmentmanager’s firm greater than 25% of the firm’s total assets under management.
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Investment Policy Statement adopted December 12, 2018
VI. EVALUATION AND REVIEW
A. Investment Staff Reporting Requirements
The Investment Staff will at regular periodic Board and Investment Committee meetings report as needed on the following: asset class and manager account variances relative to targets, updates regarding changes within the portfolio including rebalancing and transition events, portfolio risk exposures, asset class structure reviews, special project reports and any other areas of investment portfolio analysis as directed by the Board.
B. Investment Consultant Reporting Requirements
The Investment Consultant will report on investment portfolio performance at regular periodic Board and Investment Committee meetings. These reports will cover the following: recent capital markets developments and consequent impacts on investment portfolio performance both gross and net of fees, asset allocation, return attribution, multi-period analyses of the performance of all investment portfolio accounts and composites relative to benchmarks and comparable universes, analyses of the risks of investment portfolio accounts and composites relative to benchmarks. The Investment Consultant will also prepare and present special reports covering the System’s private markets alternatives investments as well as the System’s 403(b) plan.
In addition to reporting on investment portfolio performance, the Investment Consultant will report to the Board any material recent organizational or personnel developments at the investment firms retained by the System. The Investment Consultant will also report to the Board regarding the investment firms retained by the System any significant changes in clients and assets under management.
To assist the Board in their annual review of the Investment Consultant, the Investment Consultant will provide a report covering material organizational or personnel developments at the firm as well as any significant changes in number of clients and/or assets under advisement. The Investment Consultant will also provide a certification signed by the investment consultant firm’s Chief Compliance Officer or designee that the firm has for the fiscal year remained in compliance with all applicable elements of this Policy, the investment consulting agreement between the firm and the System and any other contractual instruments defining the relationship between the investment consultant and the System. The Investment Consultant will also provide any additional information or disclosures the Board determine necessary to conduct their annual review.
C. Investment Manager Reporting Requirements
Each Investment Manager will timely report to Staff and Investment Consultant any material organizational or personnel developments at their firm as well as any significant changes in number of clients and/or assets under management either for the mandate in which the System is invested or for the entire firm.
In addition to the requirements stated herein, each investment manager will provide any reports as may be required in the investment management agreement or subscription agreement between the
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Investment Policy Statement adopted December 12, 2018
firm and the System and any other contractual instruments defining the relationship between the investment manager and the System.
On a quarterly basis each Investment Manager will provide to Staff and Investment Consultant performance, transaction and market value data as requested in electronic or hardcopy form to assist Staff and the Investment Consultant in their roles of monitoring the investment portfolio on behalf of the Board. The data requested will be designed by Staff and Investment Consultant to correspond with the Investment Manager’s particular asset class assignment. In their regular quarterly reporting, Core Plus Full Discretion Fixed Income managers will provide a line-item holdings report for unrated securities and investments subject to the 5% limitation as referenced in Section V. A. 7. f. iii.
On a yearly basis for the System’s June 30 fiscal year each Investment Manager shall provide the Staff and the Investment Consultant an annual report consisting of the following:
1. A certification signed by the investment management firm’s Chief Compliance Officer ordesignee that the firm has for the fiscal year remained in compliance with all applicable elementsof this Policy, and any investment guidelines within the investment management agreement orsubscription agreement and any other contractual instruments defining the relationship between theinvestment manager and the System.
2. For firms that cast proxy votes on behalf of the System, a summary of the firm’s philosophywith respect to voting proxies along with a detailed report showing all proxy votes cast during thefiscal year.
3. A detailed report showing investment management fees and expenses charged by the firmto the System whether invoiced or deducted during the fiscal year.
4. A disclosure of any payments, monetary or otherwise, to System fiduciaries including Staff,Investment Consultant or Trustees.
5. A review of the Investment Manager’s investment philosophy and process as well as a June30 fiscal year summary of any material organizational or personnel developments at the firm aswell as any significant changes in number of clients and/or assets under management either for themandate in which the System is invested or for the entire firm during the fiscal year.
6. Each investment manager is required to report to the System’s Investment Staff andInvestment Consultant the types of derivative instruments used along with a narrative explanationof the rationale for using such instruments in their portfolio management process during the pastyear highlighting risks mitigated and or efficiencies achieved.
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Investment Policy Statement adopted December 12, 2018
APPENDIX A - PERFORMANCE BENCHMARKS
Composite Benchmark Index
Total Portfolio Policy Index* U.S. Equities Russell 3000 International Equities MSCI ACWI ex.US IMI Fixed Income Bloomberg Barclays U.S. Universal Real Estate NCREIF Property Master Limited Partnerships Alerian MLP Private Equity Russell 2000 + 4% Large Cap U.S. Equities Russell 1000 Mid Cap U.S. Equities Russell Mid Cap Small Cap U.S. Equities Russell 2000 Small Cap International Equities MSCI World ex US Small Cap
*The Policy Index is a composite index composed of the monthly asset class benchmark returns weighted by their respectivestrategic asset allocation targets.
A current listing of the System’s investment managers, accounts and benchmarks can be found on the System’s website at https://www.ok.gov/TRS/Publications/index.html
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Investment Policy Statement adopted December 12, 2018
APPENDIX B - STRATEGIC ASSET ALLOCATION
The assets of the Plan shall be invested with a focus on meeting long-term objectives in order to fulfill the System’s Mission Statement. Recognizing the goals and objectives of the System, the following strategic asset allocation target has been adopted:
U.S. Equities 38.5%
International Equities 19.0%
Fixed Income 23.5%
Real Estate 9.0%
Master Limited Partnerships 5.0%
Private Equity 5.0%
Cash 0%
While the Board of Trustees has adopted the strategic asset allocation above and the rebalancing policy below, the number of investment managers or mandates used is not specifically set forth by policy. The number and type of investment managers to be hired within an asset class shall be determined by the Board of Trustees based upon periodic analyses of asset class portfolio structures.
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Investment Policy Statement adopted December 12, 2018
APPENDIX C - REBALANCING POLICY
In the event the Plan’s market values change to the extent that asset class percentage allocations fall below defined minimum percentage allocations or exceed defined maximum percentage allocations, staff shall prepare a plan to rebalance the portfolio according to the guidelines shown below:
Minimum Low
Rebalance Point
Target High
Rebalance Point
Maximum
U.S. Equity 32.5% 35.5% 38.5% 41.5% 44.5%
International Equity 14.0% 16.5% 19.0% 21.5% 24.0%
Fixed Income 18.5% 21.0% 23.5% 26.0% 28.5%
Real Estate 6.5% 7.8% 9.0% 10.3% 11.5%
Master Limited Partnerships 3.5% 4.3% 5.0% 5.8% 6.5%
Private Equity 3.5% 4.3% 5.0% 5.8% 6.5%
When allocations move outside minimum or maximum boundaries they will be rebalanced half of the way back to the target percentage. Due to the asymmetrical nature of maximum and minimum boundaries, a full rebalancing of each asset class may not be possible. In such cases, rebalancing asset classes up from their minimums shall take priority. Cash held in short-term investments with the Custodian shall be considered as domestic fixed income for rebalancing purposes. In highly stressed market environments where volatility and transaction costs are elevated, a rebalancing plan designed to reduce tracking error and transaction costs may be developed and substituted for the normal rebalancing approach defined by the boundaries above.
In rebalancing the portfolio, staff shall consider asset class liquidity in determining the timeframe over which the rebalancing should take place in an attempt to reduce transaction costs. Securities may be transferred in lieu of cash, if feasible, to achieve lower transaction costs. Staff and the investment consultant may consult with those managing the affected investment accounts to determine the appropriate incremental amounts to be transferred as well as the appropriate duration of the rebalancing. The primary goal of rebalancing will be to control risk by correcting variances from minimum and maximum asset class allocations: minimizing transaction costs and diversifying across time will be secondary goals. In the event that Plan asset market values change to correct variances from minimum and maximum asset class allocations, rebalancing programs may be halted prior to the anticipated date of completion.
Upon the development of a rebalancing plan consistent with these guidelines, staff will advise the Plan's Custodian of the upcoming changes and direct affected investment managers to implement the required purchases and sales in a manner that leaves the resulting portfolios in concert with their current strategies.
The Staff may defer any element of the rebalancing with concurrence of the Chairman of the Board of Trustees under circumstances where percentage allocation variances outside of minimum and maximum
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Investment Policy Statement adopted December 12, 2018
boundaries are minimal and appear to be only temporary in nature or in the event that such rebalancing would not be in the best interest of the Plan.
Annually, staff may present an optional strategy for rebalancing all asset classes near target allocations, giving due consideration to potential transaction costs.
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Investment Policy Statement adopted December 12, 2018
APPENDIX D - INVESTMENT MANAGER EXCEPTIONS TO INVESTMENT GUIDELINES
Any exception requests subsequent to the approval of these guidelines should be submitted according to the framework established in Section III, B.
Requesting firm: Loomis, Sayles & Company (Core Plus Full Discretion Fixed Income)
Exception requested: Section V.A.7.d.; Increase the maximum portfolio concentration in developing or emerging markets from 10% to 15%.
Proposition for attribution: Attribution from the allocation reported quarterly as a component of portfolio total return.
Requested term: 12/31/2020
Requesting firm: Hotchkis & Wiley Large and Mid Cap Equity
Exception requested: Section V.A.5.c.; Allow non-U.S. dollar denominated securities traded in local markets and securities of non-U.S. companies (including ADRs) traded over the counter in the U.S. market.
Proposition for attribution: Provide quarterly reporting with and without non-U.S. holdings.
Requested term: 12/31/2021
Requesting firm: Wellington Management International Small Cap Equity
Exception requested: Section V.A.6.c.; Increase the maximum portfolio exposure in Japan from 35% to 40%.
Proposition for attribution: When the portfolio exposure in Japan exceeds 35%, provide quarterly reporting illustrating the contribution to total return.
Requested term: 12/31/2021
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Audit Committee PacketMay 15, 2019
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INTERNAL AUDIT PLAN UPDATE
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FY 19 Audit Plan Status & Budget
Project29. Status Budget Hours Actual Hours
Est. to Complete
Under (Over) Budget
FY 18 Carry Over Projects Complete 0.00 44.75 0.00 (44.75)
Project Administration & Internal Audit Plan Update In Progress 150.00 93.25 35.00 21.75
Prior Audit Follow-Up (Quarterly Update) Complete 50.00 105.00 0.00 (55.00)
Cybersecurity In Progress 225.00 66.25 158.75 0.00
Business Continuity Plan & Disaster Recovery* In Progress 350.00 83.00 100.00 167.00
Post Retirement Process In Progress 225.00 75.00 150.00 0.00
Total Hours 1,000.00 467.25 443.75 89.00
* Due to planned system and server updates, it is anticipated that the disaster recovery portion of this project will not becompleted in FY 2019. This project will be budgeted for in FY 2020.
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PRIOR AUDIT FOLLOW-UP STATUS UPDATE
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Report Total Observations
In Progress Closed Issues Open Issues
Count % Count % Closed Revised2 Not Due Total
Clients Services & Alice Implementation Review (FY 2015) 31 0 0% 29 94% 2 0 2
Employer Portal Internal Control Review (FY 2016) 8 0 0% 6 75% 1 1 2
Cybersecurity Review1 (FY 2017) 11 5 45% 6 55% 0 0 0
Financial Reporting (FY 2017) 5 0 0% 5 100% 0 0 0
Clients Services Reconciliation Review (FY 2018) 8 0 0% 8 100% 0 0 0
Information Center & Client Portal Review (FY 2019)2 7 0 0% 7 100% 0 0 0
Accounts Payable, P-card, and Procurement Review (FY 2019) 2 0 0% 2 100% 0 0 0
72 65 7% 63 86% 3 1 4
Prior Audit Follow-Up Status
1 As Internal Audit is currently performing a Cybersecurity review, status to previous recommendations remain “In Progress” as Stinnett is performing follow-up procedures in conjunction with this audit.2Recommendation and status updates for the one recommendation that was closed with no action and the three recommendations with revised completion dates have been included in the following pages.
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Recommendation – Closed with No Action
Report: Information Center
Recommendation Response
Management may want to consider purchasing a ticketingsystem software that could provide a higher level of visibilityand performance measurement. Should managementdetermine a ticketing system software is not cost beneficial,alternative tracking procedures should be considered toensure emails are timely addressed and maintained in ALICE.Additionally, performance metrics should be developed toproperly monitor and evaluate email communications.
Management agrees that it can improve the method oftracking inbound email communications from members andclients by implementing a tracking system such as a casemanagement system or enhancing ALICE to incorporate thisfunctionality. We will explore the most cost-efficientmethod.
Update: This functionality has been put on-hold due to higher priority changes needed to fix system issues or providingmore important functionality for operations. A cost estimate was obtained and determined to wait on the potentialpurchase of a new application to replace ALICE.
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Management continues to work on implementing procedures to address the recommendations. Management’s status update and a revised estimate date of completion has been provided.
Recommendation – Open with Revised Completion Dates
Report: Client Services & ALICE Implementation Review
Recommendation Response Original Est. Date of Completion
Management should work with the Consultantto ensure the auto-reconciliation process errorshave been captured and appropriatelyprioritized on the Task Backlog List. Additionally,Management should evaluate whetheradditional resources should be designated forthe manual reconciliation process to reduce theexisting backlog and resulting risks associatedwith potential over/under-payment of retireebenefits.
Management is aware of this issue and agreesthat the process needs to be fixed. When it isready to be tested, management will require theconsultant to generate an exception report thatwill highlight the changes between what thebenefit is before reconciliation and after. Thisshould highlight accounts where a largediscrepancy exists. It will be tested for areasonable time before being put in production.
8/1/2015
Update: The electronic ERV process was deployed into production on 2/7/2019 and has been utilized since then and isworking as expected. A member needs to be retired using the new electronic ERV process to determine if this issue isresolved, the estimated date of completion has been extended to allow for a member to retire utilizing this new process.
First Revised Est. Date of Completion: 12/31/2018
Second Revised Est. Date of Completion: 06/30/2019.
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Recommendation – Open with Revised Completion Dates
Report: Client Services & ALICE Implementation Review
Recommendation Response Original Est. Date of Completion
Management should work with the Consultantto obtain an understanding of the 59 roleswithin ALICE. In addition, a full User AccessReport should be developed for use byManagement in properly aligning ALICE useraccess. Until the User Access Report can becreated, OTRS Management should develop aperiodic (i.e. annual) process to review andassess the appropriateness of a select numberof employees’ access to ALICE and ensure it isappropriate in relation to their current jobresponsibilities.
Management agrees with this finding. It iscritical that TRS have the ability to establishdifferent roles within Alice and to be able torevise access and roles when needed.Management is currently discussing this issuewith the consultant to ensure that “roles” andaccess within Alice are properly defined andassigned to the correct staff members.
06/01/2015
Update: The process and documentation for the user access review process has been approved by management. Useraccess review will be conducted by supervisors and certification pages will be utilized to indicate review has beenperformed and if any changes should be made. This review will be performed semi-annually in January and July, with thefirst review being completed in July 2019.
First Revised Est. Date of Completion: 01/31/2019
Second Revised Est. Date of Completion: 07/31/2019
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Recommendation – Open with Revised Completion Dates
Report: Employer Portal Internal Control Review
Recommendation Response Original Est. Date of Completion
Management should give considerationto developing additional system editchecks designed to ensurecompleteness of employer reporting.Such edits could compare existingALICE data to employer reportsubmissions to assess whether allactive OTRS members have beenincluded on any given monthlyemployer report.
While desirable, the implementation of such a system willtake substantial programming. Staff recommends thatthis enhancement be done after a change in OTRS’administrative rules. The staff’s goal is to change theEmployer Reporting requirements in the rules. We believethat monthly reporting of specific compensation andcontribution information will give OTRS the ability toverify information closer to the time of reporting andmake needed inquiries or corrections more quickly. Themonthly process of OTRS staff will include a comparisonof current monthly contributions to previous monthlycontributions for each individual employee. A newfeature could be added requiring the employer to check abox to explain why a client is being dropped from payroll.(i.e. death, termination, etc.). It might also be designed toexplain increases or decreases in compensation orcontributions. (i.e. unpaid leave, workers comp, etc.).
07/01/2016
Update: We are compiling a list of proposed validation changes that may bring some efficiencies in the future. However this may be postponed until either a statute or rule change mandates the new validations or we move to another product. The estimated date of completion has been extended to allow management sufficient time to evaluate the best solution.
First Revised Est. Date of Completion: 08/31/2019
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CLASS ACTION SECURITIES FRAUD LITIGATION POLICY BOARD OF TRUSTEES POLICY MANUAL – CHAPTER 11
PURPOSE
This policy establishes guidelines for monitoring and participating in class action securities litigation. The Board of Trustees (the “Board”) of the Oklahoma Teachers’ Retirement System of Oklahoma (the “System”) recognizes the importance of appropriate monitoring of and/or participation in class action securities litigation in fulfilling its constitutional and statutory fiduciary duty to administer the retirement system System for the exclusive benefit of the Clients and their beneficiaries.
As an institutional investor, the System may, from time to time, suffer losses caused by alleged violations of federal and state securities laws relating to fraud, disclosure obligations and/or breaches of fiduciary or other duties. In cases where a class action lawsuit is filed to recover damages for violations of securities and other laws, the System may have the opportunity to participate in the litigation. This policy provides guidelines for monitoring litigation and for determining the appropriate participation by the System.
This Class Action Securities Litigation Policy is intended to be applied and interpreted in compliance with applicable law and in harmony with the mission statement, policies and guidelines of the System as approved by the Board from time to time.
GUIDELINES
MONITORING CLASS ACTION FILINGS
The System shall monitor the filing and settlement of securities class actions to determine whether the System may be a class member in any such litigation. Monitoring may be done by staff, the custodian, by retaining one or more law firms and/or a securities litigation consultant. Staff shall make a determination of the System’s level of interest in the litigation, based on its own monitoring, or based on a recommendation from a firm or service that is monitoring securities litigation on the System’s behalf.
System staff, working with the custodian, outside counsel and/or securities litigation consultant, will monitor pending cases where the System is a member of the class, file appropriate paperwork as required, and evaluate proposed settlements. To the extent that staff finds a proposed settlement inadequate to the interests of the System, staff shall make a recommendation to the Board to file legal objections.
Staff shall report to the Board, at least annually, on new class action litigation, pending class action claims, and litigation resolved or closed since the previous report, including the dollar amount of settlements received during the year.
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ACTIVE CLASS MONITORING
Where the potential amount the System could recover in a case is sufficiently large and the case has merit, staff shall determine whether the System should actively participate in the litigation. In doing so, the System shall weigh the materiality of the potential financial loss that gave rise to the litigation against the expected costs and benefits of the litigation options available. The litigation options generally are:
• Monitor litigation as a member of the class.
• Monitor litigation as a member of the class, but object to an unreasonable settlement.
• Participate as lead plaintiff of the class or co-lead plaintiff with one or more other investors.
• Pursue separate legal action apart from the class.
Three tests may be considered when determining a course of action. An affirmative response to all questions could result in a recommendation to the Board to pursue either lead or co-lead plaintiff status, or a separate legal action apart from the class. From a general perspective, a negative response to any of the three individual questions will likely result in the System assuming a passive role in the class action suit:
Test:
1. Does the potential financial loss to the System that gave rise to the litigation exceed 5 milliondollars calculated by both the FIFO (First In First Out) and LIFO (Last In First Out) methods?
2. Does the System have a superior legal basis for serving as lead plaintiff compared to otherinstitutional holders?
3. Does the expected benefit from assuming lead plaintiff status, or pursuing a separate legal action, materially outweigh the benefit of participating as a passive member of the class and adequately compensate the System for the risks and costs incurred?
The System will, with the assistance of portfolio monitoring firm or service, review all class action litigation to establish whether the System is a member of the class. Where the potential financial loss is less than 5 million dollars, the System will become a member of the class, file appropriate paperwork to establish a claim, and monitor the litigation.
For each case where the potential financial loss as calculated by both the FIFO and LIFO methods is $5 million dollars or greater, System staff will prepare a summary report of the research performed by the firm or service that is monitoring securities litigation consistent with the established tests. A recommendation to the Board to pursue lead plaintiff status, co-lead plaintiff status, or a separate legal action will include a detailed analysis of expected costs and benefits, an analysis of the size of the System’s holding relative to other investors, and other supporting rationale. The Board’s decision to seek lead plaintiff status will be based upon the totality of the circumstances. The referenced dollar loss thresholds are guidelines and not intended to be the sole factor in any such determination. As an integral
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part of this review process, the System may retain one or more law firms to review the matter. The firm shall report its findings to the System with a written recommendation as to whether or not the System should actively monitor the case, seek lead plaintiff status, seek co-lead plaintiff status, or pursue separate legal action. When the Board determines that the System should seek designation as lead plaintiff, co-lead plaintiff, or opt out of a class action, the System shall appoint special counsel to the matter.
If the System determines not to participate in the litigation, active monitoring of the litigation may include regular reports from counsel to staff regarding the status of a case, settlement discussions and/or the proceedings.
Where the potential recovery is not significant, the staff shall monitor the litigation to take the steps necessary to insure that the System will share in any recovery.
PARTICIPATION IN SETTLEMENT
Staff shall develop and implement procedures for ensuring the timely submission of claims on behalf of the System in all appropriate securities class action settlements.
REPORTS TO BOARD
Staff shall report to the Board as necessary, but at least semi-annually, to keep the Board fully informed of those cases that are being monitored or in which the System is actively participating. Staff shall keep the Board apprised of any unusual or extraordinary events as they occur.
RETENTION OF OUTSIDE COUNSEL
The Board may retain one or more consultants to serve as Securities Monitoring and Litigation Counsel (Counsel), monitoring consultant, or in another capacity, as necessary to advise and/or represent the System in class action securities litigation matters. When the Board determines that the System should seek designation as lead plaintiff, co-lead plaintiff, or opt out of a class action, the Board shall appoint special counsel to the matter. In instances where the Board has a Portfolio Monitoring Agreement with the appointed law firm, a separate contract shall be executed specific to the litigation.
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TRS05-10-2019 - 09:12:27
- Action in the date range - Link to Related Information ( ) - Priority
Teachers Retirement System
HB 1246 McBride, Mark(R)Smalley, Jason(R)
Allows retired members employed by the Department ofEducation to continue receiving retirement benefits subject torelated limitations, or to participate in the Public EmployeesRetirement System.
Bill History: 04-17-19 S Passed/Adopted (Vote: Y: 46/N: 0)04-22-19 G Sent to the Governor04-25-19 G Signed by the Governor (Chap: 141 )
SB 1 Treat, Greg(R)McCall, Charles(R)
Creates the Legislative Office of Fiscal Transparency (LOFT),provides for an oversight committee structure and outlinesduties and responsibilities of the office and the agencies itoversees; EMERGENCY.
Bill History: 05-06-19 S Senate rejected House amendments05-07-19 S Referred to Senate conference committee SenateConference Committee05-07-19 S Senate appointed a conference committeeTreat, David, Thompson, Paxton, Floyd, and Matthews
SB 772 Pugh, Adam (F)(R)Baker, Rhonda(R)
Updates definitions, references, and removes obsoletelanguage pertaining to teacher retirement, allows the Board ofTrustees to hire an actuarial firm to make certainrecommendations related to teachers' retirement;EMERGENCY.
Position: Support
Bill History: 04-24-19 H Emergency Passed (Vote: Y: 89/N: 0)04-25-19 G Sent to the Governor04-30-19 G Signed by the Governor (Chap: 268 )
Total Bills: 3
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M E M O R A N D U M
TO: TRS Board of Trustees
FROM: Tom Spencer, Executive Director
DATE: May 17, 2019
RE: Staff Comments on legislation in 2019 --------------------------------------------------------------------------------------------------------------------- The following is a summary of relevant bills that were considered during the 2019 legislative session. In the “staff comment” section under each bill is the position the staff is taking absent a contrary direction and vote of the Board. There will be an item on the agenda for the board meeting under which these bills can be discussed. If any board member would like the Board to take a position on a particular bill, such a motion would be in order under that agenda item as well. The material in yellow highlights has been added since my report at the April board meeting.
Bills Impacting Benefits or TRS Administration
HOUSE BILLS
HB 1246 (Rep. McBride; Sen. Smalley) This bill permits TRS retirees who go to work for the State Department of Education on or after November 1, 2019, to remain members subject to Return to Work restrictions, or join the Oklahoma Public Employees Retirement System. Position/Staff comments: Neutral. This bill creates a small exception to TRS Return to Work restrictions with the option to escape the restrictions by becoming a member of OPERS when they return to work. Status: Passed the full House 97-0 on 3/11/19. Passed out of the Senate Retirement and Insurance Committee on April 8, 2019. The bill passed the full Senate unanimously on April 17. The Governor signed the bill on April 25, 2019.
HB 2304 (Rep. Frix) This bill relates to the Oklahoma Pension Legislation Actuarial Analysis Act & modifies it. It takes the COLA granted by this bill outside of OPLAAA. It also authorizes an 8% COLA to TRS retirees who were receiving benefits as of November 30, 2019, effective November 1, 2020. Staff position & comments: Opposed. The price tag on an 8% COLA last year was $850 million, and would have lowered our funded ratio between 2%-3%. Status: Passed unanimously out of the House Banking, Fin. Serv. & Pensions Committee on 2/27/19. A floor amendment was adopted making the COLA amount 4%. The amended bill passed 98 to 3 on 3/11/19. Introduced in the Senate the same day. The bill was not on the agenda of the last scheduled meeting of the Senate Retirement and Insurance Committee. However, President Pro-Tem Treat appointed a working group of senators to look at the COLA issue and the affect they might have on the retirement system. A special meeting of the Senate Retirement and Insurance Committee was held on Thursday, April 11. A committee substitute for a 2% COLA for all state pension system retirees was considered by the committee solely for referral to the Legislative Actuary. That motion passed so a 2% COLA will be analyzed for fiscal impact and come back for possible consideration in the 2020 session.
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HB 2485 (Rep. McCall) – This bill was filed as a shell bill called “Oklahoma Pension Systems Benefit Adjustment Act of 2019.” It was assigned to the Rules Committee. It was never heard in any committee during the normal committee process. A proposed committee substitute was filed on May 2, 2019 and heard in the House Rules Committee the same day. The amended bill was to grant 4% COLAs in all of the state retirement systems. “Any person receiving benefits from the Teachers’ Retirement System as of December 31, 2018, who continues to receive benefits on or after January 1, 2020, shall receive a four-percent increase in said benefits beginning in January 2020.” The Rules Committee unanimously voted to send the bill to the Legislative Actuary for a determination of the fiscal impact of the bill. The bill can be heard in the 2020 session.
SENATE BILLS
SB 772 (Sen. Pugh) – This is the TRS cleanup bill. Staff position & comments: Support. Status: Assigned to the Senate Insurance & Retirement Committee 2/5/19. Effective date. Emergency. Status: Assigned to the Senate Retirement & Insurance Committee 2/5/19. Passed out of the Senate committee by an 8-0 vote on 2/11/19. Passed the full Senate by a 48-0 vote with an emergency clause on 2/18/19. Second reading in the House on 3/19/19 & assigned to the House Banking, Fin. Services and Pensions Committee. The Bill and the Emergency passed the House by an 89 to 0 vote on April 24, 2018. It was signed by the Governor on April 30, 2019.
Bills Impacting TRS and Other State Agencies
HOUSE BILLS
SB 1 (Sen. Treat; Rep. McCall) This bill creates the Legislative Office of Fiscal Transparency (LOFT). Its purpose is to do performance audits on agencies. Status: Assigned to Senate Appropriations Committee. Passed the full Senate with an emergency clause 38-10 on 3/11/19. Second reading and referred to the House Rules committee on 3/19/19. It was never heard by any House Committee and has been referred directly to the Floor Calendar as of April 15, 2019. The bill and emergency passed the House on April 25, 2019 with title stricken. House amendments were rejected by the Senate on May 6, 2019. Senate conferees named to a Conference Committee on May 7, 2019.
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LATE FEE WAIVER REQUESTS MAY 2019
School Month Fee Amount Reason for Request Recommendation
Stilwell Public Schools
Aug. 2018 – Oct. 2018
$142.03 New school treasurer omitted paying contributions for one employee for 3 months. Payroll error/oversight.
No waiver.
No prior late fees.
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CLIENT SERVICES PERFORMANCE METRICS THROUGH APRIL 2019
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ESTIMATE REQUESTS THROUGH APRIL 2019
New Requests Completed Outstanding Avg time to complete = 19.70 hrs
Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19
Num
ber o
f Cal
ls
INCOMING CALLS SERVED THROUGH TRS MAIN NUMBER
Total Incoming Answered Routed Abandoned
73%
25%
2%
INFORMATION CENTER PERFORMANCE APRIL 2019
TOTAL CALLS QUEUED THROUGH THE OTRS
MAIN LINE : 9298
TOTAL E-MAILS RECEIVED THROUGH OTRS WEB LINK:
520
PORTAL CLIENTSWITH CONFIRMED PINs:
8109
INCOMINGE-MAILS: 392
TOTAL E-MAILS RECEIVED THROUGH OTRS WEB LINK:
520
2340 Calls Routed Through Menu Options.
6792 Calls Answered. Average Speed of Answer: 17 seconds.Target Speed: 20 Seconds
166 Callers Abandoned in Queue. Average Abandon Time: 10 seconds.
CONFIRMED PORTAL PINs3/31/2019: 26,446April 2019: + 593 Total Confirmed: 27,039
INCOMINGE-MAILS: 374
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Count Benefit Total
Average
Benefit
Average Years
of Service
Average
Age
Disability 4 $5,930.59 $1,482.65 20.24 56.75
Normal 101 $176,196.59 $1,744.52 20.54 63.89
Total 105 $182,127.18 $1,734.54 20.53 63.62
177 ($241,102.65) $1,362.16 23.49 82.16
Monthly Retirement Status Report
From 5/1/2019 to 5/31/2019
New Retirements
Terminated Annuities
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Client
Number
Years Of
Service Age
Estimate
Ret. Date
Retirement
Number BenefitQ0205077 19 62 D116554 $676.98
Q0010050 25 56 D116552 $3,433.25
Q0185420 15 54 D116553 $1,009.66
Q0208213 22 55 D116555 $810.70
Averages 20.24 56.75 $1,482.65
Totals 4 $5,930.59
DISABILITY RETIREMENTS From 5/1/2019 to 5/31/2019
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HR STATUS REPORT 5/22/2019
HR STATUS REPORT
New Hires (April 2019):
n/a
Resignations/Terminations/Retirements (April 2019):
n/a
Promotions/Transfers/Salary Adjustments/Changes (April 2019):
Employee: 280519 (title change only) Title From: Financial Accountant – Level II Title To: Senior Financial Accountant Salary From: $53,550 Salary To: $53,550 Effective: 4/5/2019
EMPLOYEE RECOGNITION LUNCHEON
An Employee Recognition Luncheon was held 4/17/2019.
MISCELLANEOUS PAYMENTS
Severance Payments:
n/a
NEW HIRES, RESIGNATIONS, RETIREMENTS OR OTHER CHANGES PENDING
n/a
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Employer ReportingAnalysis of Employee and Employer Contributions Received
0 0 0 0 0 0 0 0 0 00
2
4
6
8
10
July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June TOTAL
Number of Delinquent Reports FY19
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0
$100,000
$200,000
$300,000
$400,000
$500,000
July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June TOTAL
Estimated Delinquent Funds FY19
$58,605,936.12
$44,189,159.21
$49,149,963.82
$61,753,914.10
$57,618,726.75
$71,024,864.30
$60,941,296.83
$54,020,533.31
$64,288,394.05
$521,592,788.49
$56,958,732.55
$45,855,983.88
$55,179,306.98
$67,184,000.42
$71,776,342.78
$73,927,982.84
$61,967,329.86
$64,557,353.44
$67,369,202.30
$564,776,235.05
$0
$200,000,000
$400,000,000
$600,000,000
$800,000,000
$1,000,000,000
July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June TOTAL
Comparison of Contributions ReceivedFor Eight Months Ended March 31, 2018 and March 31, 2019
2018 2019
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CURRENT ASSETS:
Cash Not Available For Investment $16,198,961.30
Equities (At Market Value) 12,914,872,509.54
Fixed Income (At Market Value) 3,608,621,125.46
Short-Term Investment Account 561,304,195.28
Due From/(To) Broker (253,969,928.44)
Accounts Receivable Installment Payments 815,461.12
Accrued Income 64,053,628.30
Total Current Assets 16,911,895,952.56
CAPITAL ASSETS:
Office Furniture and Equipment 4,965,309.18
Accumulated Depreciation (465,185.00)
TOTAL ASSETS $16,916,396,076.74
CURRENT LIABILITIES:
Teachers' Savings Fund $5,468,754,093.92
Retirement Benefit Fund 10,769,020,836.76
Interest Fund 601,974,693.06
Expense Fund 21,026,310.81
Suspense Fund 50,464,539.69
Total Current Liabilities 16,911,240,474.24
TRS Capital Investment 5,155,602.50
TOTAL LIABILITIES AND CAPITAL INVESTMENT $16,916,396,076.74
BALANCE SHEET
APRIL 30, 2019
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Year to Date Year to Date % Change
(FY 2019) (FY 2018)
Balance of Cash and Investments
Net Position, Beginning of Year $16,584,571,799.91 $15,459,843,579.42
RECEIPTS:
Members' Deposits 231,060,933.42 208,698,040.41 10.72%
Employer Contributions 354,220,684.91 323,257,786.79 9.58%
State Credits 24,572,883.61 30,646,304.07 -19.82%
Reimbursed Administrative 137,862.37 145,196.16 -5.05%
Matching Funds from Schools 22,132,658.23 20,075,648.85 10.25%
Lottery Revenue 3,590,264.00 2,998,904.25 19.72%
Cigarette Sales Tax Revenue 1,069,402.99 1,338,597.73 -20.11%
Dedicated Revenue 266,201,044.46 245,886,419.91 8.26%
Total Retirement Receipts 902,985,733.99 833,046,898.17 8.40%
Interest Income (Fixed Income and Short-Term) 152,238,143.33 155,715,874.94 -2.23%
Dividend Income 139,514,877.27 125,489,511.50 11.18%
Master Limited Partnerships 29,699,511.96 38,912,800.48 -23.68%
Net Realized Gain/(Loss) 221,966,392.12 761,845,042.37 -70.86%
Net Unrealized Gain/(Loss) 131,814,827.28 217,619,683.32 -39.43%
Investment Operations Income:
Class Action Lawsuit Proceeds 216,869.56 279,283.91 -22.35%
Other Income (2,030,963.77) 3,634,506.06 -155.88%
Securities Lending Income 5,341,285.44 6,244,960.51 -14.47%
Total Investment Income 678,760,943.19 1,309,741,663.09 -48.18%
TOTAL RECEIPTS 1,581,746,677.18 2,142,788,561.26 -32.71%
DISBURSEMENTS:
Retirement Benefits 1,133,836,020.86 1,082,802,961.43 4.71%
Insurance Premiums Paid for Retirees 30,348,008.84 31,021,340.56 -2.17%
Death Benefits 16,675,418.78 16,616,323.78 0.36%
Withdrawals of Accounts 34,116,199.75 38,096,902.49 -10.45%
Total Benefit Payments 1,214,975,648.23 1,168,537,528.26 3.97%
Administrative Expense:
General Operations 4,613,829.64 4,040,563.34 14.19%
Investment Expense 34,833,046.66 34,319,802.50 1.50%
Total Administrative Expenses 39,446,876.30 38,360,365.84 2.83%
TOTAL DISBURSEMENTS 1,254,422,524.53 1,206,897,894.10 3.94%
NET INCREASE/(NET DECREASE) 327,324,152.65 935,890,667.16 -65.03%
Balance of Cash and Investments, April 30 $16,911,895,952.56 $16,395,734,246.58
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES
FOR THE TEN MONTHS ENDED APRIL 30
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FY-2018 YTD FY-2019 YTD
Actual Actual Increase Increase
Expenditures Expenditures (Decrease) (Decrease)
Object of Expenditure 4/30/2018 4/30/2019 Amount Percentage
Personnel Services
Salary and Longevity Pay Expenses 1,891,750 2,090,240 198,490 10.5%
Taxes, Benefits, and Other Expenses 892,340 1,016,602 124,262 13.9%
Subtotal Personnel Services 2,784,090 3,106,842 322,752 11.6%
Professional Services
Investment Consultant Expenses 708,000 751,117 43,117 6.1%
Investment Custodian Expenses 14,000 7,000 (7,000) 0.0%
Pension Commission Expenses 30,330 30,663 333 1.1%
Subtotal Investment Expenses 752,330 788,780 36,450 4.8%
Legal Services - Special Projects 36,024 51,362 15,338 42.6%
Legal Services - Attorney General 0 0 0 0.0%
Administrative Hearings 1,620 0 (1,620) 0.0%
Auditing Services 168,409 178,167 9,758 5.8%
Actuarial Services 64,125 54,382 (9,743) -15.2%
Medical Hearings 6,900 6,600 (300) -4.3%
Communications Firm 0 0 0 0.0%
Contract Lobbyist 33,750 33,750 0 0.0%
Disability Retirement Management 0 0 0 0.0%
Miscellaneous Services 19,485 44,838 25,353 130.1%
Subtotal Professional Services 330,313 369,099 38,786 11.7%
Total Professional Services 1,082,643 1,157,879 75,236 6.9%
Travel and Per Diem Expenses
Non-Employee Travel Expenses 6,221 9,513 3,292 52.9%
Employee Training 10,453 10,691 238 2.3%
Employee Travel Expenses 12,214 15,607 3,393 27.8%
Subtotal Travel and Per Diem Expenses 28,888 35,811 6,923 24.0%
Administrative Expenses
Postage 156,767 181,971 25,204 16.1%
Printing and Binding Contracts 35,910 28,450 (7,460) -20.8%
Informational Services 10,349 11,043 694 6.7%
Rent and Maintenance 135,261 123,243 (12,018) -8.9%
Office Supplies 17,521 18,334 813 4.6%
Equipment 0 0 0 0.0%
Office Relocation 0 0 0 0.0%
Miscellaneous Administrative Expenses 28,985 28,674 (311) -1.1%
Subtotal Administrative Expenses 384,793 391,715 6,922 1.8%
Data Processing Expenses
Professional Services 276,951 430,310 153,359 55.4%
Telecommunication Services 4,216 4,955 739 17.5%
Rent and Maintenance 3,853 2,064 (1,789) -46.4%
Office Supplies 0 0 0 0.0%
Equipment - Telecommunications 3,609 51,088 47,479 1315.6%
Subtotal Data Processing Expenses 288,629 488,417 199,788 69.2%
Total Expenses 4,569,043 5,180,664 611,621 13.4%
Total Investment Expenses Only 752,330 788,780 36,450 4.8%
Total Data Processing Expenses Only 288,629 488,417 199,788 69.2%
Total except Investment & Data Processing Expenses 3,528,084 3,903,467 375,383 10.6%
Wednesday, May 22, 2019
SCHEDULE I
Comparison of Actual Expenditures Fiscal Year 2018 and Fiscal Year 2019
10 Months Ended April 30, 2019
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10 Months 10 Months Over Over
FY-2019 YTD FY-2019 YTD (Under) (Under)
Object of Expenditure Budget Actual Amount Percentage
Personnel Services
Salary and Longevity Pay Expenses 2,226,004 2,090,240 (135,764) -6.1%
Taxes, Benefits, and Other Expenses 1,123,785 1,016,602 (107,183) -9.5%
Subtotal Personnel Services 3,349,789 3,106,842 (242,947) -7.3%
Professional Services
Investment Consultant Expenses 958,900 751,117 (207,783) -21.7%
Investment Custodian Expenses 28,000 7,000 (21,000) -75.0%
Pension Commission Expenses 52,500 30,663 (21,837) -41.6%
Subtotal Investment Expenses 1,039,400 788,780 (250,620) -24.1%
Legal Services - Special Projects 83,334 51,362 (31,972) -38.4%
Legal Services - Attorney General 6,250 0 (6,250) -100.0%
Administrative Hearings 5,000 0 (5,000) -100.0%
Auditing Services 332,168 178,167 (154,001) -46.4%
Actuarial Services 62,750 54,382 (8,368) -13.3%
Medical Hearings 12,500 6,600 (5,900) -47.2%
Communications Firm 41,668 0 (41,668) 0.0%
Contract Lobbyist 37,500 33,750 (3,750) -10.0%
Disability Retirement Management 41,668 0 (41,668) 0.0%
Miscellaneous Services 21,910 44,838 22,928 104.6%
Subtotal Professional Services 644,748 369,099 (275,649) -42.8%
Total Professional Services 1,684,148 1,157,879 (526,269) -31.2%
Travel and Per Diem Expenses
Non-Employee Travel Expenses 28,300 9,513 (18,787) -66.4%
Employee Training 17,889 10,691 (7,198) -40.2%
Employee Travel Expenses 25,990 15,607 (10,383) -39.9%
Subtotal Travel and Per Diem Expenses 72,179 35,811 (36,368) -50.4%
Administrative Expenses
Postage 162,600 181,971 19,371 11.9%
Printing and Binding Contracts 108,916 28,450 (80,466) -73.9%
Informational Services 21,991 11,043 (10,948) -49.8%
Rent and Maintenance 139,160 123,243 (15,917) -11.4%
Office Supplies 32,134 18,334 (13,800) -42.9%
Equipment 7,750 0 (7,750) 0.0%
Office Relocation 100,000 0 (100,000) 0.0%
Miscellaneous Administrative Expenses 41,384 28,674 (12,710) -30.7%
Subtotal Administrative Expenses 613,935 391,715 (222,220) -36.2%
Data Processing Expenses
Professional Services 969,752 430,310 (539,442) -55.6%
Telecommunication Services 25,498 4,955 (20,543) -80.6%
Rent and Maintenance 19,250 2,064 (17,186) -89.3%
Office Supplies 4,580 0 (4,580) 0.0%
Equipment - Telecommunications 43,000 51,088 8,088 18.8%
Subtotal Data Processing Expenses 1,062,080 488,417 (573,663) -54.0%
Total Expenses 6,782,131 5,180,664 (1,601,467) -23.6%
Total Investment Expenses Only 1,039,400 788,780 (250,620) -24.1%
Total Data Processing Expenses Only 1,062,080 488,417 (573,663) -54.0%
Total except Investment and Data Processing Expenses 4,680,651 3,903,467 (777,184) -16.6%
Wednesday, May 22, 2019
SCHEDULE II
Comparison of FY2019 Budget to Actual Expenses
10 Months Ended April 30, 2019 Year to Date Comparison
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Expenses of Board
Trustee March Trustee Meeting 93.00$
Trustee March Trustee & Investment Comittee Meetings 241.18
Trustee March Trustee Meeting 149.40
Trustee March Trustee Meeting 119.80
Trustee March Trustee & Investment Comittee Meetings 228.00
Trustee March Trustee & Investment Comittee Meetings 114.00
945.38
Communications
AT&T Wireless, OneNet phone service charges 492.19
Bancfirst Remote deposit scanner service charges 18.38
Convene Inc. Trustee meetings - management software 2/2019 - 6/30/2019 2,541.41
Cox Communications Cable charges - March 49.58
Dow Jones - Wall Street Journal Information service subscription 443.88
Office of Management and Enterprise Services Server, disk storage, scanning & network support - March 13,301.85
Simplify Compliance, LLC OK Employment Law Letter subscription 511.00
17,358.29
Contingency, Maintenance, Insurance, Rent, Etc.
Brooks Industries Ice machine repair and maintenance 365.05
Dell Marketing, LP Battery backups (UPSs) - 15 units 1,289.85
Department of Libraries Records storage: February 484.50
Donut Nest February Board meeting 11.77
Great Plains Technology Center Refreshments for ERV Workshop 76.00
Kiamichi Opportunities Kitchen/office meeting supplies 69.60
McAlister's Deli Catering - March trustee meeting 215.03
Office of Management and Enterprise Services Office rent - March 13,195.27
Oklahoma Correctional Industries Office chair replacement 557.00
Standley Systems, LLC Copier Leases - January - March 3,701.56
Staples Office supplies/paper 1,122.28
Walker Companies Office supplies, notaries, stamps 80.00
Walmart Refreshments for trustee meetings 20.59
21,188.50
CLAIMS FOR AUTHORIZED EXPENDITURES
APRIL 30, 2019
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Professional Services, Workers Comp Insurance
BKD LLP ALICE transaction audit risk assessment: February 9,604.50$
Gabriel, Roeder, Smith, & Co. Actuarial services - February 5,608.33
ICE Miller Legal fees - February 1,488.77
J. P. Livingston, MD Medical Board - April 300.00
Majority Plus, LLC Lobbyist service - March 3,750.00
MY Consulting Inc. ALICE/Client server development 36,055.75
Office of Management and Enterprise Services Interagency mail/postage/printing 5,632.99
Peyton Osborne, MD Medical Board - April 300.00
Phillips Murrah, PC Services rendered - General legal svcs., AG Realty, Invesco Strat. Opp. 8,000.00
Stinnett & Associates LLC Internal Audit services: January 3,737.50
74,477.84
Salaries and Fringe Benefits
Salaries Administrative department 43,257.99
Salaries Finance/Accounting department 36,686.61
Salaries Client Services department 99,733.72
Salaries Investment department 21,753.08
Salaries IT department 6,823.75
Longevity Payroll 1,500.00
Excess Benefit Allowance 2,460.37
FICA/MQFE Social Security and Medicare 15,990.86
Oklahoma State Deferred Savings Incentive Plan Savings incentive plan and administrative fee 976.68
Oklahoma Group Insurance Employee health, dental, and life 42,066.96
Teachers' Retirement System of Oklahoma Employees' retirement contributions 44,503.63
315,753.65
Grand Total 429,723.66$
APRIL 30, 2019
CLAIMS FOR AUTHORIZED EXPENDITURES
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Operations Report for May 2019 Board Meeting
1. ALICE
a. Annual Member Statements language is being updated. And we are removing
statements for members with less than 1 year of service credit since it causes the salary
to be misleading being shown as year-to-date instead of annual.
b. Waiting on enhanced audit trails to be completed. Expected within 2 weeks.
c. Working with OMES to upgrade our servers to current Windows Server operating
system and current SQL Server database software. Awaiting their resource availability.
2. Activity
a. Applications to Retire still much higher than the rest of the year but down slightly since
last month. Same for Estimates.
b. 50 retirements have been completed thus far using the electronic ERV process. The
count will increase to several hundred for June and July.
c. Tax Withholding changes have greatly increased again due to the changes we made per
IRS regulations for people who submitted invalid forms.
3. Audits
a. BKD –Meetings to review our processes and calculations with them.
b. Stinnett – Continuation of BC/DR planning and Cybersecurity audit and started the Post-
Retirement Earnings phase. We have also been reviewing the rules and possible changes
needed for post-retirement to clarify the process.
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GENERAL COUNSEL REPORT MAY 2019 SARAH GREEN
1. GE Class Action
a. TRS filed motion for lead plaintiff on April 2, 2019 ($7.1M loss).
b. TRS appointed lead plaintiff and two actions consolidated at hearing
before Judge Cote (U.S. Southern Dist. NY) on April 25th.
c. Scheduling Order issued – amended complaint, motions, replies from
now through Sept. 20, 2019.
2. Status Rule Making
a. Permanent Rules have been published in April 1, 2019 volume of the
Oklahoma register. Awaiting Legislature/Governor final approval.
b. Emergency Rulemaking – starting process of drafting emergency rules
for legislation from 2019 session.
3. Investment Consultant Evaluation
a. Survey Closed 5.10.19 – 12 responses.
b. IC will meet to review responses then go over results with AndCo.
c. Responses and recommendations will be presented at June meeting.
4. Other Projects
a. Unclaimed Property – State Treasurer
b. Employer Manual / Reporting – continuing to work with Debra Plog to
update manual and associated policies in preparation for 2019/2020
school year.
i. Membership
ii. Contributions
c. Employee Handbook – continuing to work with Kim Bold to update
handbook and associated policies.
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M E M O R A N D U M TO: The Board of Trustees of OTRS FROM: Tom Spencer, Executive Director DATE: May 20, 2019 RE: Monthly Report for April 24, 2019 through May 20, 2019 -------------------------------------------------------------------------------------------------------------------- Here are a few of the highlights of my activities since my last report at the April Board meeting. 1. Investments - Office Building a. Cooling Tower - The cooling tower is supposed to be installed on Saturday, June 1. I may go down and “supervise.” The work is being done by Butler Mechanical. b. Harvey Parkway Budget – The appraisal contract has been finalized with Schmook Appraisals. The field work will be done in June. The budget on the building will be presented at the June meeting. Because of two tenants leaving at the end of 2019, and TRS moving in several months into calendar 2020, we will have a loss in rental income. We are talking about ways to minimize that time but we’ll have to prepare two spaces for occupancy and there will be some period of time where a paying tenant won’t be in the space. 2. Internal Audit a. Stinnett – This has been covered but John Santos and I finalized the management response to Stinnett’s follow-up audit. We also met with Stinnett field auditors about the approach of the Cyber Security audit and what we and staff regard as potential vulnerabilities. We later met with Stinnett lead auditors about the Bus. Continuity/Disaster Recovery audit. b. BKD – John Santos and I put together a management response to BKD’s first audit draft. We then talked to senior BKD partners about this draft and the need to tighten it up and correct several matters quite a bit. The firm has been doing more follow-up to correct certain observations in this draft. 3. Communication a. Retired College presidents presentation – I spoke to a group of retired college presidents giving them a status of TRS financial condition & discussed legislation in 2019. They asked very good questions. b. Tulsa County retirees – Tulsa County has a pretty active and engaged retiree group. I met with a couple of their officers about COLAs and gave them a little education about dedicated revenue and other matters. 4. Legislation – This has already been covered but we had a good legislative session. Our cleanup bill passed and no harmful legislation has passed yet. One bill that was dropped by the author for now was HB 1090 that would loosen restrictions on purchasing years of credit. In putting together relevant information for the House author, I ended up doing a small survey of other Teachers’ plans. Most plans permit the purchase of out-of-state service and charge full actuarial cost. The most common number of years permitted to purchase is 5 to 10. Next year the
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author may try something like 10 years instead of an unlimited number. I also prepared a fact sheet with a summary of TRS dedicated revenue for a state senator on the Senate Retirement & Insurance Committee. 5. Board a. Appointments, etc. – I attended Brandon Meyer’s confirmation hearing at the State Senate Retirement & Insurance committee. He was asked a handful of questions and passed unanimously out of committee and the full Senate. The Governor’s office has not found any person who they want to appoint to fill Judie’s place on the Board. They have advised me that they can’t get anything done before the Senate leaves. We are taking a second look at whether Judie can hold over as a trustee until next year. b. Board Retreat – We’ve started scouting out venues. The Gathering Place doesn’t have a place large enough to accommodate the Board and they don’t do reservations yet. It’s all first come, first served. 6. TRS Office Policies & Procedures – One of the items in the review of previous audits was a Purchasing Policy. Our Business Manager Jessica Malloy, Sarah and I worked on that and it has been submitted to the State Central Purchasing Department for review and approval. 7. VOYA/403(b) wind down – We sent out an initial letter to more than 400 employers who have at least one participant in the TRS 405(b) plan. The purpose of the letter is to summarize the legislation that passed in 2018 and also to secure a single point of contact for all future correspondence that will go out to the schools and/or participants. The OSSBA was very thoughtful and they sent the letters and forms out for us to all of their membership. 8. Governor Stitt a. Executive Orders – The Governor has renewed several of Governor Fallin’s Executive Orders. We still have to get our Cabinet Secretary to approve all out-of-state travel and membership in associations. He raised the dollar amount of purchases that must be approved from $10,000 to $25,000. b. Governor’s Leadership retreat – The Governor is putting on a “Leadership Retreat” that will be held at Metro Tech on June 3, 2019. There will be many speakers but there also will be an opportunity for agencies to discuss issues with our Cabinet Secretaries. 9. Client Services – Grievances – I have received several requests to waive the 60-day deadline to file an “Intent to Retire” prior to the desired retirement date. I have turned most of them down for a lack of “good cause” shown. These members may appeal my decisions to the Board.
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