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Asset Management Committee Dec. 12, 2013

Asset Management Committee: Nov. 18 and Dec. 12, 2013

Chairman Kevin Lockett presided at the regularly scheduled teleconference meeting on Nov. 18, 2013. Standard performance reports were presented and highlights are as follows:

  • Board committee rotations were completed at this meeting as Kevin Lockett began his term as Asset Management Committee chair and Rand Berney and Carl Ice joined as new committee members.
  • Endowment Pool annualized returns for the periods ending Sept. 30, 2013, were 12.78 percent, 9.02 percent, 6.28 percent and 7.84 percent for the one-, three-, five- and 10-year periods respectively. The expendable funds pool returned 5.80 percent, 5.03 percent and 4.89 percent for the one-, three-, and 5-year periods respectively.

Chairman Kevin Lockett presided at the regularly scheduled meeting on Dec. 12, 2013. The following are reports received and actions taken:

  • Staff introduced the topical discussion for the February meeting for the committee’s consideration and preparation. February’s discussion will revolve around review of the investment policy statement and developing the plan for an updated asset allocation study.
  • Current portfolio positioning in the endowment pool would indicate a continued overweight in private capital due to the funding of the overlay from more liquid assets. Also, the government securities pool continues to overweight cash to short duration government bonds as hints of the end of quantitative easing by the Fed pressures longer term government rates. Rebalancing in the growth engine portion of the allocation continues as valuation metrics would indicate historically high valuations in developed markets equities and undervaluation in certain emerging markets sectors, like energy and financials.
  • Staff presented a series of slides to highlight the prospects for a long period of rising interest rates given current monetary and fiscal policy and various strategies to consider in an investment portfolio to earn positive net real returns in such a scenario.
  • Staff detailed a shift in sub-strategies for the deflation hedge allocation in the endowment pool given the prospects for rising interest rates going forward. A fund of funds consisting of managers investing in high quality credit and government securities will be replaced by an opportunistic fixed income manager, an emerging market debt manager, and an unconstrained fixed income manager.
  • The Asset Management Committee approved a shift of 2 percent from the deflation hedge into the diversifiers in the strategic asset allocation of the endowment pool.
  • Staff presented the annual report on investment management costs. Total investment management costs, including direct management fees plus performance incentive fees remain above 200 bps on the total endowment pool. Of those costs, expenses incurred to manage the investment department operations and fees paid to consultants represent approximately 20 bps.
  • Minutes from the most recent Trust Management Advisory Group were included for the committee’s review. It should be noted that this group as well is considering potential repositioning in portfolio strategies to address the potential for a rising rate environment.
  • The committee is charged with executing on several organizational priorities this fiscal year, including two enterprise risk topics and a comprehensive review of the reserves strategies, to be completed in conjunction with the Governance Committee and the Finance and Audit Committee.