Ohio Public Employees Retirement System

Transcription

1 Ohio Public Employees Retirement System Opportunistic Fund Policy June 2005August 2004

2 TABLE OF CONTENTS I. SCOPE II. PURPOSE III. INVESTMENT PHILOSOPHY IV. ALLOCATION... 2 V. INVESTABLE INSTRUMENTS AND RESTRICTED INVESTMENTS... 2 VI. PERFORMANCE OBJECTIVES... 2 VII. RISK MANAGEMENT VIII. ROLES AND RESPONSIBILITIES A. BOARD OF TRUSTEES...3 B. INVESTMENT STAFF...3 C. INVESTMENT ADVISOR...4 IX. MONITORING AND REPORTING A. ANNUAL...5 B. QUARTERLY...5 I. PURPOSE... 1 II. ASSET ALLOCATION - TOTAL FUND... 1 III. OBJECTIVE... 1 IV. BENCHMARK... 1 V. RISK MANAGEMENT... 1 VI. INVESTABLE SECURITIES AND RESTRICTED INVESTMENTS... 2 VII. PROGRAM ELEMENTS... 2 A. STRATEGY...2 C. INVESTMENT APPROVAL...2 D. REPORTING...2 VIII. ROLES AND RESPONSIBILITIES... 3 A. BOARD OF TRUSTEES...3 B. INVESTMENT COMMITTEE...3 C. DIRECTOR OF INVESTMENTS...3 D. INVESTMENT STAFF...3 E. INVESTMENT GENERAL CONSULTANT...3 F. LEGAL STAFF OR APPOINTED LEGAL COUNSEL...4

3 Revision History Date Approved Policy Established August 17, 2004 Policy Revised June 14, 2005

4 I. SCOPE This policy applies to the opportunistic assets within the Ohio Public Employees Retirement System ( OPERS ) Defined Benefit Fund. I.II. PURPOSE This policy provides the broad strategic framework for managing the serves as a controlling document for the opportunistic investment program. It defines the asset allocation, expected returns, risks, benchmark, roles, responsibilities, investable securities, strategy, investment process, administration, monitoring and reporting. The Board of Trustees reviews and approves the opportunity fund policy annually. II.III. ASSET ALLOCATION - TOTAL FUNDIII. INVESTMENT PHILOSOPHY Opportunistic investing allows OPERS to conduct controlled experimentation of investment strategies and new instruments that do not fit neatly into one of the traditional asset class categories. The opportunity fund will serve as an incubator of new investment ideas and strategies. Staff will gain hands-on experience and knowledge directly from its involvement with the strategies in the opportunity fund. Staff will determine if any of the programs within the opportunity fund deserve to have a larger and permanent role in the Defined Benefit Fund. The opportunity fund asset allocation is established with a target of 1% market value. The range is set at 0 to 2% with a maximum ceiling of 2% of total fund assets. Opportunistic investing allows OPERS to conduct controlled experimentation of investment strategies and new instruments that do not fit neatly into one of the traditional asset class categories. Objective The objective of the opportunity fund is to serve as an incubator of new investment ideas and strategies. Staff will gain hands-on experience and knowledge directly from its involvement with the strategies in the opportunity fund. Staff will determine if any of the programs within the opportunity fund deserve to have a larger and permanent role in the Total Fund. IV.BENCHMARK The overall benchmark for the opportunity fund is the OPERS performance benchmark. The total fund benchmark serves as the appropriate measure of the opportunity cost of investing funds in this category. Every program approved for experimentation within the opportunity fund will require its own specific performance benchmark. 1

5 IV. ALLOCATION The opportunity fund asset allocation is established with a target of 1% market value. The range is set at 0 to 2% with a maximum ceiling of 2% of total fund assets. V. INVESTABLE INSTRUMENTS AND RESTRICTED INVESTMENTS Programs that may be considered for the opportunity fund would include, but not be limited to: Hedge funds Commodities Derivatives Ohio-based investment managers Minority-owned investment managers Woman-owned investment managers Emerging investment managers Internally-managed experimental funds VI. PERFORMANCE OBJECTIVES The overall benchmark for the opportunity fund is the OPERS performance benchmark. The total fund benchmark serves as the appropriate measure of the opportunity cost of investing funds in this category. Every program approved for experimentation within the opportunity fund will require its own specific performance benchmark. V.RISK MANAGEMENT The limited size of the opportunity fund is its primary risk control mechanism. No single program within the opportunity fund will account for more than 35% of the total market value of the opportunity fund. The individual programs will be closely monitored by staff. Risks may include a loss of a significant portion of the original investment. VI.INVESTABLE PROGRAMS Programs that may be considered for the opportunity fund would include, but not be limited to: 2

6 Hedge funds Commodities Derivatives Ohio-based investment managers Minority-owned investment managers Woman-owned investment managers Emerging investment managers Internally-managed experimental funds All potential programs would be researched by staff and the consultant and then submitted to the Board for approval into the opportunity fund. Initial funding would start out at a small level. VII. RISK MANAGEMENT The limited size of the opportunity fund is its primary risk control mechanism. It is envisioned that once the opportunity fund is mature, no single program within the opportunity fund will account for more than 35% of the total market value of the opportunity fund. Staff will closely monitor the individual programs. Risks may include a loss of a significant portion of the original investment. VIII. ROLES AND RESPONSIBILITIES A. Board of Trustees The Board is responsible for approving the Opportunistic Fund Policy. The Board will also review this document periodically and approve any changes as well as participate in the presentation of opportunistic fund research reports. Commitments for the individual programs require approval of the Board of Trustees. B. Investment staff Staff is responsible for recommending the Policy and managing the Opportunistic Program under the framework of the Board approved Policy. Staff is also responsible for monitoring and reporting to the Board in accordance with the requirements of the OPERS Investment Policy. Staff will be required to outline the program s alpha opportunities, educational objectives, timelines for implementation, monitoring process and performance benchmark in its recommendation memorandum to the Board. Due diligence, legal review, compliance and administration are reviewed with the Director of Investments and the investment advisor before submitted to the Board of Trustees. 3

7 Reports to the Investment Committee address whether the goals of experience and learning are being met, as well as risks decomposition, performance and activity. These reports are presented through a comprehensive annual review. These reports will also discuss the status of a potential permanent role for each of the programs within the opportunity fund. C. Investment advisor The investment advisor assists staff with the policy recommendations and provides advice to the Board. The investment advisor also assists staff in monitoring the investments and researching new ideas. VII.PROGRAM ELEMENTS A.Strategy Staff will be required to outline the program s alpha opportunities, educational objectives, timelines for implementation, monitoring process and performance benchmark in its recommendation memorandum to the Board. C.Investment Approval Commitments for the individual programs require approval of the Board of Trustees. Due diligence, legal review, compliance and administration are reviewed with the Director of Investments and the consultant before submitted to the Board of Trustees. D.Reporting Reports to the Investment Committee address whether the goals of experience and learning are being met, as well as risks decomposition, performance and activity. These reports are presented through a comprehensive annual review. These reports will also discuss the status of a potential permanent role for each of the programs within the opportunity fund. 4

8 VIII.IX. ROLES AND RESPONSIBILITIESIX. MONITORING AND REPORTING A. Quarterly Performance report prepared by investment advisor Investment report prepared by staff Compliance report prepared by staff B. Annual OPERS Annual Investment Plan submitted by staff. Year-end program review submitted by staff. A.Board of Trustees Approves the opportunity fund policy annually. Approves the Annual Investment Plan. Delegates investment approval authority to the Director of Investments B.Investment Committee Annually, approves and recommends to the Board of Trustees the opportunity fund policy. Annually, approves and recommends to the Board of Trustees the Annual Investment Plan. Participates in the presentation of opportunity fund reports. C.Director of Investments Reviews the opportunity fund policy annually. Reviews the Annual Investment Plan. Reviews the opportunity fund reports. D.Investment Staff Prepares the opportunity fund policy and reviews annually. 5

9 Prepares the Annual Investment Plan. Prepares the opportunity fund reports. F.Investment General Consultant Reviews the opportunity fund policy. Reviews the Annual Investment Plan. Reviews the opportunity fund reports. G.Legal Staff or Appointed Legal Counsel Reviews the opportunity fund policy. Reviews contracts and assists with actions as required. 6