CAL POLY CORPORATION
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
INVESTMENT COMMITTEE STATEMENT OF INVESTMENT PHILOSOPHY
AND GUIDELINES
April 23, 2014
I.
INVESTMENT ADVISORY COMMITTEE GOVERNANCE
A. Investment Advisory Committee (IAC) composition, operating process
and requirements for membership are established within General
Investment Policy, Section No. 100, Document No.121 as approved by the
Board of Directors.
B. Other Post-Employment Benefits (OPEB) Investment Policy, Section No.
100, Document No. 131 assigns the establishment of certain OPEB
investment policy guidelines to the Investment Administrator and other
Management Staff in consultation with the Investment Advisory
Committee. Those guidelines are found within this document. The
guidelines within this document are in effect until modified by the
Investment Administrator in consultation with the Investment Advisory
Committee.
C. Investment Advisory Committee meetings are to be held at least semiannually.
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CAL POLY CORPORATION
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
INVESTMENT COMMITTEE STATEMENT OF INVESTMENT PHILOSOPHY
AND GUIDELINES
April 23, 2014
II.
PHILOSOPHY AND APPROACH
A. The Fund will be broadly diversified both by asset class (e.g., U.S. and
foreign, large and small company stocks) and by individual security
holdings within each asset class. Diversification is used as a means to
dampen performance return volatility and provide reasonable assurance
that no single issue or class of asset has a disproportionate impact on
performance.
B. The fund may use active or passive managers.
C. The fund will have an overall value style tilt.
D. The policy preference guiding portfolio design will be to dampen fund
volatility while achieving long-term benchmark returns rather than
minimizing short-term benchmark tracking error.
E. The investment approach generally rejects attempts to time markets.
F. The fund will generally maintain fully invested positions.
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CAL POLY CORPORATION
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
INVESTMENT COMMITTEE STATEMENT OF INVESTMENT PHILOSOPHY
AND GUIDELINES
April 23, 2014
III.
STOCK AND BOND MIX
A. General equity and fixed income allocations will be dictated by the Board
directed return objective detailed in the Other Post-Employment Benefits
Investment Policy, Section No. 100, Document No. 131.
B. The current general asset ratio is determined to be 15% tactical fund and the
remaining 85% at 57% equities and 43% fixed income.
C. Equity sub-allocations (i.e. asset classes) will be diversified as described
in Section IV. of these guidelines.
D. The equity allocation will be further diversified by economic sector,
industry, number of holdings and other investment characteristics such as
investment style and capitalization.
E. The equity allocation may include common stocks or other common
equity substitutes.
F. Other equity types may be considered with the approval of the Investment
Administrator in consultation with the Investment Advisory Committee.
These include venture capital, distressed securities, hedge funds and
private equity.
G. Fixed Income sub-allocations will be diversified as described in Section
IV. of these guidelines.
H. The fixed income allocation may include government or corporate bonds
or other common bond substitutes.
I. The fund may not purchase individual issue commodities, private
placements or engage in short sales or purchases on margin, other than as
they might exist in a diversified fund which has been approved by the
Investment Administrator in consultation with the Investment Advisory
Committee
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CAL POLY CORPORATION
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
INVESTMENT COMMITTEE STATEMENT OF INVESTMENT PHILOSOPHY
AND GUIDELINES
April 23, 2014
IV.
ASSET CLASSES
A. No single security (except those issued or guaranteed by the U.S.
Government) shall exceed 5% of the market value of the fund.
B. Illiquid investments may be allowed with the approval of the Investment
Administrator in consultation with the Investment Advisory Committee.
C. Individual asset class and style targets follow:
Strategic
Target
(%)
IAC
Vetted
Tactical at
4/23/14
Acceptable
Tactical
Target
Variance
Performance Benchmark
15% of the investment pool is invested in a tactical strategy (PIMCO All Asset All Authority).
Its benchmark is the S&P 500. The remaining 85% of the pool is invested 57% in equities and
43% in fixed income as presented below:
Equities
Large cap stocks
Small cap stocks
International large cap stocks
International small cap
stocks
Emerging markets stocks
Inflation-Hedges:
Commodities (mutual funds)
Real estate domestic
(REITs)
Real estate international
(REITs)
Total Equities
22.50
4.00
11.00
24.50
3.50
11.00
±3.67
±2.00
±2.00
S&P 500
Russell 2000
MSCI EAFE
1.50
1.50
±2.00
MSCI EAFE Small Cap
3.00
3.50
±2.00
MSCI Emerging Markets
0.00
3.00
±2.00
DJ UBS Commodity
10.00
6.25
±2.00
FTSE NAREIT Equity REITS
5.00
3.75
±2.00
S&P Developed, ex U.S. BMI
Property
57.00
57.00
±5.00
Fixed Income
Government-quality bonds
15.00
10.00
±2.00
BarCap U.S. Intmdt Govt/Credit
Investment-grade Bonds
11.75
21.50
±3.22
BarCap U.S. Intmdt Govt/Credit
Non-US bonds (hedged)
High yield bonds (U.S.)
8.25
5.00
9.00
2.50
±2.00
±2.00
BarCap U.S. Intmdt Govt./Credit
BarCap U.S. Intmdt Govt/Credit
Cash
3.00
0.00
±2.00
Citi 1 Month CD
43.00
43.00
±5.00
100.00
100.00
Total Fixed Income
Grand Total
Multi-Asset + Traditional
Note: totals may vary slightly due to rounding
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CAL POLY CORPORATION
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
INVESTMENT COMMITTEE STATEMENT OF INVESTMENT PHILOSOPHY
AND GUIDELINES
April 23, 2014
V.
REBALANCING GUIDELINES
A. In general, asset ranges will be maintained to target levels within the parameters
described below regardless of calendar or timing of Investment Advisory Committee
meetings.
B. Additions to the portfolio may be averaged-in at the direction of the Investment
Administrator in consultation with the Investment Advisory Committee or the
discretion of the Investment Consultant.
C. The portfolio will be rebalanced periodically and any sustained variance from the
overall equity or fixed income targets greater than 5% of the portfolio value must
be approved by the Investment Administrator after consultation with the
Investment Advisory Committee. i.e., an equity target allocation of 71.0% will
be considered in balance if actual assets are between 76.0% and 66.0% of the
portfolio. Sustained variance is defined as a period of one calendar quarter or
greater.
D. Tactical or opportunistic adjustments to the portfolio’s long term target mix can
present opportunities as well as risk to achieving the target return. Generally, such
adjustments should only be in conformance with the following criteria:
1. The investment meets the criteria for strategic inclusion in the portfolio.
2. The specific purpose of the adjustment is clear (e.g., increase return, reduce risk,
hedge a specific risk.)
3. Thorough analysis suggests the adjustment is warranted.
4. The opportunity cost of being wrong is understood and is acceptable.
5. The conditions for moving back to the normal target allocation (i.e., removing
the adjustment) are clear.
E. The Investment Administrator in consultation with the Investment Advisory
Committee may direct the Investment Consultant to implement tactical or
opportunistic adjustments to the strategic target mix, subject to the criteria
above. The Investment Consultant may independently make such adjustments at his
discretion, subject to the criteria above, within the following limits:
1. Up to 2% tactical variance for any individual asset class or up to 15% of the
asset class target, whichever is greater. For example, if the high yield bonds asset
class has a target allocation of 4%, the tactical adjustment could be plus or minus
up to 2%. If domestic large company stocks have an allocation of 30%, the tactical
adjustment could be plus or minus 4.5%.
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CAL POLY CORPORATION
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
INVESTMENT COMMITTEE STATEMENT OF INVESTMENT PHILOSOPHY
AND GUIDELINES
April 23, 2014
REBALANCING GUIDELINES
(continued)
2. The individual asset class limits identified in item E.1., above are
subject to an overall limit of plus or minus 5% of the total portfolio value
at the overall equity and fixed income levels. That is, if the overall target
for equities is 71%, the individual equity tactical adjustments cannot
cause the overall equity target to exceed 76% or fall below 66% without
Investment Administrator approval after having been reviewed with the
Investment Advisory Committee.
3. In any asset class with a specified style tilt target (i.e. value or growth
rather than neutral), the Investment Consultant may make tactical
adjustments to the style exposure (i.e. from value to neutral or value to
growth) of up to 10% of the total portfolio value within each such asset
class.
4. Tactical adjustments to target allocations made at the discretion of the
Investment Consultant will be reported to the Investment Advisory
Committee, Investment Administrator and Management Staff as soon as
practical.
5. Tactical adjustments made by the Investment Consultant will not
result in benchmark changes, however, the Consultant will report to the
Committee and Staff whether or not the adjustments added to or detracted
from performance.
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CAL POLY CORPORATION
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
INVESTMENT COMMITTEE STATEMENT OF INVESTMENT PHILOSOPHY
AND GUIDELINES
April 23, 2014
VI.
PERFORMANCE EVALUATION CRITERIA
A. The fund as a whole will be compared quarterly to a weighted benchmark
matching the specific target asset allocations.
B. The fund as a whole will be compared to the median performance of a
group of peers.
C. Results for each asset class will be measured and assigned a market
benchmark and a target return relative to the benchmark, to be achieved
over three to five year periods. Style exposure will be considered in the
return evaluation.
D. Each manager will be assigned a market benchmark, a target for outperformance and an evaluation horizon. The horizon will generally be in
moving three and five year periods. Cash held by the managers will be
included in their total return calculation.
E. Each manager will be measured against a style benchmark and group of
peers.
F. Performance at the portfolio, asset class and manager levels will be
evaluated on both return and risk using measures such as standard
deviations and Sharpe ratios.
G. Individual asset class benchmarks are as follows (style benchmarks will be
included as appropriate):
Large cap stocks
Small cap stocks
International large cap stocks
International small cap stocks
Emerging markets stocks
Commodities
Real estate, domestic (REITs)
Real estate, internat’l (REITs)
Balanced
Government-quality bonds
Investment-grade bonds
Non-US bonds (hedged)
High yield bonds
Combined Fixed Income
Cash
Fund Total
Style
Active/Passive
Active/Passive
Active
Active
Active
Active
Active
Active
Active
Passive
Active
Active
Active/Passive
Benchmark
S&P 500
Russell 2000
EAFE
EAFE Small Cap
MSCI Emerging Markets
Dow Jones UBS Commodity
FTSE NAREIT Equity REITs
S&P Developed ex U.S. BMI Property
S&P 500
BarCap U.S. Intmdt Govt/Credit
BarCap U.S. Intmdt Govt/Credit
BarCap U.S. Intmdt Govt/Credit
BarCap U.S. Intmdt Govt/Credit
BarCap U.S. Intmdt Govt/Credit
Citi 1 Month CD
Multi-Asset + Traditional
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CAL POLY CORPORATION
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
INVESTMENT COMMITTEE STATEMENT OF INVESTMENT PHILOSOPHY
AND GUIDELINES
April 23, 2014
VII.
RECOMMENDATION OF POLICY TO THE BOARD OF
DIRECTORS
A. General OPEB investment policy is defined and ratified by the Board of
Directors in Other Post-Employment Benefits Investment Policy, Section
No. 100, Document No. 131.
B. The Investment Administrator with advice and consultation with the
Investment Advisory Committee is responsible for recommending
investment objectives, spending policy and general asset allocation policy
to the Board of Directors.
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CAL POLY CORPORATION
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
INVESTMENT COMMITTEE STATEMENT OF INVESTMENT PHILOSOPHY
AND GUIDELINES
April 23, 2014
VIII.
DELEGATION OF AUTHORITY
A. The Investment Administrator may hire advisors and managers after
review with the Investment Advisory Committee. Staff and the
Investment Advisory Committee may also delegate some of its review
and advisory responsibilities to consultants. Staff and Committee retain
the responsibility for monitoring the activities delegated and their results.
B. Responsibilities delegated to the Investment Consultant include:
1. Recommendation to the Investment Advisory Committee,
Investment Administrator and other Management Staff of
policies and guidelines.
2. The execution of all policies and guidelines.
3. The hiring, monitoring and terminating of investment managers
and rebalancing among managers.
4. Performance reporting on managers, asset classes and fund.
C. Investment Managers are authorized to vote proxies on the Cal Poly
Corporation’s behalf.
D. In general, managers will be encouraged to not initiate transactions that
could generate unrelated business taxable income (UBTI.)
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CAL POLY CORPORATION
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
INVESTMENT COMMITTEE STATEMENT OF INVESTMENT PHILOSOPHY
AND GUIDELINES
April 23, 2014
IX.
FEES
A. The Cal Poly Corporation shall be entitled to reasonable compensation for
services rendered in the management of the OPEB investment fund.
B. Material changes in Cal Poly Corporation or external management fees
will be reported to the Investment Advisory Committee.
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