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| INVESTMENTS: INVESTMENT POLICY |
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Asset Allocation
The system’s asset allocation is regarded as one of the most
important decisions in the investment management
process. The current asset allocation is designed to achieve
the long-term required return objectives of the system,
given certain risk constraints. The current asset allocation
reflects the need for a diversified portfolio which will
perform well in a variety of economic conditions and will
help reduce the portfolio’s overall volatility. In determining
the optimum mix of assets, the board considers five factors:
- The expected rate of return for each asset class.
- The expected risk of each asset class.
- The correlation between the rates of return of the asset
classes.
- The investment objectives and risk constraints to the
fund.
- The impact of the portfolio’s volatility on the
contribution rate.
In September of 2002, the board took steps to provide for flexibility at the
sub-asset class level by granting authority to the chief investment officer,
with the approval of the external asset consultant, to make sub-asset class
allocation decisions based upon expectations for each sub-asset class. This
flexibility has allowed the system to take advantage of changing market conditions.
The board has placed ranges on the sub-asset class allocations in order to maintain
appropriate risk controls. These ranges are included in the following chart.
Click here to view chart illustrating
the Asset Allocation as of March 31, 2006.
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