HomeMy WebLinkAbout(0011) OPEB Investment Policy and Strategy adopted 09.11.18 Redline.pdfCity of Fort Worth FORT WORTH®
Department of Finance lr000�
Investment Policy and Strategy
OPEB Trust
I. OVERVIEW AND PURPOSE
This investment policy and strategy applies to all accumulated assets for the City of
Fort Worth Other Post -Employment Benefits Trust ("Trust") created by the Fort Worth
City Council by Resolution No. 3779-08-2009, and its consultants, agents, investment
managers, advisory boards, Trustees, Trust Administrator and assigned staff.
All investment activities shall be conducted in full compliance with applicable City
ordinances as well as state and federal rules and regulations.
The purpose of this document is to provide the Trustee and its Sub Advisors with a set
of objectives, parameters and guidelines to assist in the administration of the Trust; to
guide investment managers in structuring portfolios consistent with desired performance
result and acceptable risk levels; to assure the assets are managed in a prudent fashion
and to serve as the framework for all investment activities related to the Trust.
II. INVESTMENT POLICY AND OBJECTIVES
The primary obligations of the City's governing body in investing assets are to do so for
the exclusive benefit of the beneficiaries. Emphasis must be placed upon the consistent
protection of the Trust's assets and growth performance, i.e., the achievement of adequate
investment growth must not be at the expense of the protection of the assets over the
investment horizon. Specific objectives of investment activities carried out by the Trustee
and its Sub Advisors include the following:
A. The expected annual rate of return for the portfolio will be equal to----- Formatted: Indent: Left: I", Hanging: 0.5"
the actuarial assumption, until amended by the City Council
("Council").
B. Individual investment managers will not be measured against they Formatted: Indent: LeR: i Hanging: o.s
aggregate fund objective stated in section 11. A., but will be compared
to appropriate market indices and a blended Plan Target Benchmark
outlined in Section III, subsection 67 of the Policy.
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1. AUTHORITY AND OVERSIGHT PROCEDURES Formatted: Indent: First line: 0.5"
A. By law, the City Council retains ultimate fiduciary responsibility fors- Formatted: Indent: LeR: r'
the OPEB Trust Fund regardless of management assignment. The Council
shall receive quarterly reports and annually review and adopt this Policy.
The Investment Committee designated by the City Council is responsible
for reviewing and authorizing all broker/dealers. The City Council has
delegated the responsibility for conducting investment transactions with
the Trustee and its Sub Advisors. The Trustee and its Sub Advisors will
provide investment information to the Council concerning investment
decisions, including rebalancing asset allocation, and portfolio
performance on a quarterly basis.
B. The Chief Financial Officer/Director of Financial Management
Services is responsible for monitoring the portfolio and reports submitted
by the Trustee and its Sub Advisor.
C. The Trustee and its Sub Advisor shall maintain responsibility for
investing the assets in the Trust. All assets will be held by the Trustee. The
advisor will provide performance analysis that will include, but not be
limited to, a strategic analysis including a report on asset allocation, risk
analysis, and appropriate, if any, changes to the percentages therein. This
study will be used to assist the Chief Financial Officer/Director of Financial
Management Services and Investment Committee in the determination of
the appropriate investment Policy.
D. Any business organization offering to engage in an investment
transaction with the Trust must be provided with a copy of this Investment
Policy and Strategy, with "business organization' defined as "an
investment pool or investment management firm under contract with an
investing entity to invest or manage the entity's investment portfolio that
has accepted authority granted by the entity under the contract to exercise
investment discretion in regard to the investing entity's funds." The
business organization must provide the City with a written instrument (in
a form acceptable to both parties) executed by a representative of the
business organization that substantially acknowledges that the business
organization has: (a) received and reviewed this Investment Policy and
Strategy; and (b) implemented reasonable procedures and controls in an
effort to preclude investment transactions with the Trust that are not
authorized by this Investment Policy and Strategy. Any material changes
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to this Investment Policy and Strategy will require re -certification by each
business organization.
E. The City's Investment Committee will perform a strategy and
performance review at least semi-annually. The Committee will review and
act on any potential need for refinement or revision of the OPEB Trust's
policies or strategies.
2._—STANDARDS OF CARE �- Formatted: Indent: First line: 0.5"
The standard of care to be used shall be the "prudent person" standard as' Formatted: Indent: Left: o.s"
established by the Act and shall be applied in the context of managing the overall
OPEB Trust Fund. The "prudent person" standard states that,
"Investments shall be made with judgment and care, under prevailing--- Formatted: Indent: Left: r"
circumstances, that a person of prudence, discretion and intelligence would
exercise in the management of the persons own affairs, not for speculation,
but for investment, considering the probable safety of capital and the
probable income to be derived."
In determining whether a Trustee has exercised prudence with respect to ari`- Formatted: Indent: Left: 0.5"
investment decision, the determination shall be made taking into consideration:
(1) the investment of all funds, or funds under the Trustee's control, over which
the Trustee had responsibility rather than a consideration as to the prudence of a
single investment; and (2) whether the investment decision was consistent with
this written investment Policy.
3. ETHICS AND CONFLICTS OF INTEREST Formatted: Indent: First line: 0.5"
Employees of the City of Fort Worth, the Trustee or its Sub Advisors involved im- Formatted: Indent: Left: os°
the investment process shall refrain from personal business activity that could
conflict with proper execution of the investment program, or which could impair
their ability to make impartial investment decisions. Also, employees of the City
of Forth Worth involved in the investment process shall disclose any material
financial interests in financial institutions that conduct business with the City, and
they shall further disclose any material personal financial/investment positions
that could be related to the performance of the City's investment program.
III. INVESTMENT GUIDELINES
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III-. Except as provided by Texas Government Code Chapter 2270, the Ci . is -
not required to liquidate investments that were authorized investments at the time
2-1. AUTHORIZED INVESTMENTS
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numbering, Adjust space between Latin and Asian text, Adjust
space between Asian text and numbers
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Investments consistent with the objectives contained in Section II, herein, Other'— Formatted: Indent: Left: 0.5"
than those specifically prohibited shall be authorized. Equities will comprise a
diversified portfolio of domestic small, mid and large cap equity, Real Estate
Investment Trusts ("REITs "), and international equity investments.
o Domestic listed securities
o Equity and equity -related securities of non -US corporations, in theme- Formatted: Indent: Left: 1s°
form of American Depository Receipts ("ADRs")
o Equity Mutual Funds and Exchange Traded Funds (ETFs) Formatted: Indent: Left: 1"
o Large Cap
o Mid Cap
o Small Cap
o International
o Emerging Markets
o REITs
Fixed Income Securities
o Fixed Income Mutual Funds and Exchange Traded Funds (ETFs)
$ o Corporate
e o Government
e o High Yield
e o International
e o Bank Loan
�— Formatted: Indent: Left: 1", First line: 0.5"
-----Formatted. Indent: Left: 1.25", First line:
bullets or numbering
If individual fixed income securities are purchased, the following parameters will'-- Formatted: Indent: Left: 0.5"
be followed:
Eligible Securities: Formatted: Underline
--------------
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o —Debt obligations of the U.S. Government, its agencies, and- - Formatted: Indent: First line: 0"
Government Sponsored Enterprises
o —mortgage-Backed Securities (MBS) Formatted: Indent: Left: 0.5"
o —Asset Backed Securities (ABS)
o —Collateralized Mortgage Obligations (CMO)
o —Commercial Mortgage -Backed Securities (CMBS)
o —corporate debt securities issued by U.S. or foreign entities including, ---
but not limited to, limited partnerships, equipment trust certificates and
enhanced equipment trust certificates
Formatted: Indent: First line: 0"
o —Securities issued under SEC Rule 144A Formatted: Indent: Left: 0.5"
1 o Municipal Bonds
Uall Formatted: Indent: Left: 0.5", First line: 0.5"
The portfolio will maintain a minimum weighted average quality of A- at' Formatted: Indent: Left: 1"
all times. Individual securities shall have a minimum quality rating of Baa3
by Moody's or BBB- by Standard & Poor's (S&P). Note, high yield fixed
income can be purchased only in a diversified mutual fund or exchange
traded fund.
Duration — Formatted: Indent: Left: 0.5", First line: 0.5"
The manager will maintain the portfolio duration within +/- 25% of the' Formatted: Indent: Left: 1"
benchmark duration at all times.
Diversification �- Formatted: Indent: Left: 0.5", First line: 0.5"
No more than 5% of the portfolio assets may be invested in any Formatted: Indent: First line: 0"
individual issuers with the exception of securities issued or guaranteed by
the U.S. Government, its agencies, and Government Sponsored Enterprises.
�- Formatted: Indent: Left: 0.5", First line: 0"
No more than 10% of the portfolio may be invested in securities' Formatted: Indent: First line: 0"
issued under --Rule 144A.
32.= MATURITY AND LIQUIDITY
�- Formatted: Indent: First line: 0.5"
The OPEB trust assets shall provide sufficient liquidity, if necessary, for payment. -- Formatted: Indent: Left: os°
of direct medical benefits and expenses.
43.= PORTFOLIO COMPOSITION, RISK AND DIVERSIFICATION Formatted: Indent: First line: 0.5"
Assets of the OPEB Trust Fund shall be invested in a broadly diversified portfolio ---
consisting of equity, debt, and cash equivalent securities. The portfolio shall also
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be structured in a manner to provide diversification within each asset class and be
allocated within the ranges specified below:
Range Target
Equities 20%-40% 30% Formatted: Indent: First line: 0.5"
FixedFixed -Income 50%-80% 65%
Cash and Cash Equivalents 0%-20% <5%
The Trustee and its Sub Advisor is authorized by this policy to make asset,- Formatted: Indent: Left: 0.5"
allocation decisions to reallocate or redirect either contributions or investments
held by the OPEB Trust Fund in order to take advantage of changing market
conditions. Any move that will cause the allocation of the investment classes to
vary from the above allocation percentages of any asset class requires approval by
the City Council.
The following are prohibited purchases/transactions:
Formatted: Font: Bold J
1.
More than 5% of the total equity allocation invested in individual .,
Formatted: Indent: Left: 0.5^, First line: 0.5"
equity securities of any one company at market value
'' Formatted: Indent: Left: 1"
2.
More than 5% of the total debt allocation invested in debt
instruments in any single issuer with the exception of US Treasuries
and agencies
3.
Short sales —
Formatted: Indent: Left: 0.5", First line: 0.5"
4.
Margin or leveraged purchases
5.
Commodities
6.
Real estate (with the exception of REITs)
7.
Art objects or collectables
8.
Options
9.
Warrants
10.
Derivative investments
11.
Oil and Gas Leases
12.
Hedge Funds
13.
Private Equity Funds
14.
Precious Metals
15.
Privately negotiated investment agreements with financial--
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institutions
16.
Other investments classified as 'alternative'
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54. —AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS �-
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Purchases and sales of authorized investments will only be made through financial -
institutions that are qualified as public depositories by the State of Texas or are
"primary dealers' as designated by the Federal Reserve Bank of New York or are
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broker/dealers that qualify under Securities and Exchange Commission, or by
direct purchases of an approved open-ended mutual fund family.
The Trustee will perform due diligence and maintain information on each-- Formatted: Indent: Left: 0.5"
broker/dealer, including a process to ensure best execution. The Trustee shall
review the performance, financial condition and registration of all qualified
counter -parties on an ongoing basis. Results will be provided to the Investment
Committee for review upon request.
SAFEKEEPING AND CUSTODY
� — Formatted: Indent: Left: 0.5", First line: 0.5"
All securities purchased by the Trustee or its Sub Advisors shall be properly-- Formatted: Indent: Left: 1"
designated as an asset of the OPEB Trust Fund and held by the Trustee,
chartered by the United States Government or the State of Texas, and/or a
financial institution approved by the National Association of Security
Dealers. No withdrawal of such securities, in whole or in part, shall be made
from safekeeping except by the City Council or Trust Administrator.
The City Council or the Trustee will execute third party custodial Formatted: Indent: Left: 1"
agreements with banks or financial institutions. Such agreements will
include details as to the responsibilities of each party, the costs to be
borne by each party, notification of security purchases, sales, delivery,
repurchase agreements and wire transfers, safekeeping and transaction
costs, and procedures in case of unforeseen circumstances.
65.— BID REQUIREMENTS FOR DEBT INSTRUMENTS
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After the Trust Administrator and/or the investment manager has selected one ors- Formatted: Indent: Left: os^
more optimal types of investments based on maturity date(s) to meet cash flow
needs and market conditions, a minimum of three qualified brokers and/or
dealers will be contacted and asked to provide bids on the securities to be
purchased.
In most situations the competitive bid process shall be utilized, except when-- Formatted: Indent: Left: os"
securities are purchased as an initial offering. The investment manager will choose
the appropriate brokers or dealers from among those on the approved
broker/dealer list based on expertise, competitiveness and the ability to execute
the transaction and deliver the securities on a timely basis. A minimum of three
(3) bids will be obtained.
7 1 P a g e
A. Bids will be held in confidence until the best bid is determined and- Formatted: Indent: Left: 1 Hanging: 0.5
awarded,
B. Documentation will be retained for all bids, with the winning bid----- Formatted: Indent: Left: r'
clearly identified,
C. If for any reason the highest bid (on sales of investments) or the
lowest bid (on purchases of investments) is not selected, then the
reasons leading to that decision will be clearly documented.
76. PERFORMANCE MEASURES �— Formatted: Indent: First line: 0.5"
The Investment Committee will meet with the Trustee or its Sub Advisor at least -- Formatted: Indent: Left: 0.5"
annually to review portfolio performance. The Trustee or its Sub Advisor will
review results quarterly to confirm adherence to the policy guidelines; compare
the investment results with funds using similar policies and benchmarks; and
identify risks and opportunities occurring in the equity and debt markets.
The following events indicate risk to the safety and performance of the Trust.- Formatted: Indent: Left: os^
Failure to appropriately address risk may result in termination of the Trustee or
its Sub Advisor.
A. Consistent under -performance of the stated target index for three• Formatted: Indent: Left: r'
consecutive quarters.
B. Material changes in the managers' organization including personnel,
ownership, acquisitions or losses of major accounts.
C. Substantial changes in basic investment philosophy. Formatted: Indent: Lett: os"
D. Failure to observe any guidelines as stated in this policy.
The City of Fort Worth blended benchmark will be defined as the target portfolio
return, based on the following allocation targets:
Portfolio Blended Benchmark Formatted: Indent: Left: 1"
15.50% S&P500 Index
_3.00% Russell Mid -Cap Index
_4.50% Russell2000Index
_2.00%_ MSCI Emerging Market Index
4.00% MSCI EAFE Index
_1.00% Wilshire REIT Index
51.00% Bloomberg Barclays Capital US Aggregate Index
14.00% ML 1-3 Year US Corp/Gov't
5.00% Citi 1Mth T-Bill.
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IV. INTERNAL CONTROLS
The Chief Financial Officer/Director of Financial Management Services and
Trustee are responsible for mutually establishing and maintaining an internal and
external control structure designed so that assets are reasonably protected from
loss, theft, or misuse. Such internal controls shall consist, at a minimum, of the
following:
A. All securities purchased or sold will be transferred only under Formatted: Indent: Lent: is^
tth,—he "delivery versus payment" (DVP) method to ensure
that funds or securities are not released until all criteria
relating to the specific transaction are met,
B. The Trustee is authorized to accept, on behalf of and in they Formatted: Indent: Left: is^
name of the City of Fort Worth OPEB Trust Fund, securities
in return for investment of funds,
C. Securities transaction confirmations shall fully describe the---- Formatted: Indent: Left: 1.5^
various securities held. The receipt or confirmation shall state
that the investment is held in the name of Trustee, or its
depository nominee name, for the benefit of the City of Fort
Worth OPEB Trust, and
D. The written system of internal controls and operational- Formatted: Indent: Left: 1.5"
procedures shall be subject to review by the City's internal
and external auditors as part of the annual financial audit.
V. REPORTING
Quarterly reports concerning the investment activities, investment portfolio and
performance will be submitted to the Investment Committee and placed on the agenda
of the City Council. Other information may include recent market conditions, economic
developments, and anticipated investment conditions.
VII. POLICY REVIEW
The Fort Worth OPEB Trust Investment Policy shall be reviewed by the Investment
Committee and adopted by the City Council at least annually. The adopting resolution
shall include any changes made to the Policy. Any modification to the Investment
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Policy shall be provided to the Trustee and its Sub Advisor and acknowledged in
writing via Appendix A.
Policy Adopted: October 10, 2017 (M&C G-19127)
Policy Adopted: September 11, 2018 (No change)
Appendix A
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Trustee, Sub Advisor or Investment Manager's Acknowledgment
I, the undersigned, acknowledge that I have received the investment policy for City of Fort Worth
OPEB Trust Fund, dated I affirm that I have read
and understand said Policy, and do hereby agree to abide to the guidelines expressed in the Policy.
Name of Trustee
Signed
Name of Sub Advisor
Signed
Date
Date
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