INVESTMENTS: INVESTMENT POLICY	BACK TO INVESTMENTS HOME

• Investment Objective
• Investment Beliefs
• Roles and Responsibilities
• Asset Allocation
• Rebalancing
• Risk Controls
• Performance Objectives and Monitoring Process

Total Fund
Generating returns net of expenses in excess of the RRO of 5% after inflation remains the primary performance objective for the total fund over the long-term. The reason for the long-term focus on this objective is to preclude the temptation to overreact to events in the marketplace that have no relevance in long-term asset/liability management. The resulting dilemma is the conflicting need to evaluate investment policy implementation decisions over shorter time frames while maintaining the longer-term focus necessary to manage and measure the fund’s performance relative to the RRO.

To address this problem, the Board evaluates performance relative to policy and strategy benchmarks which help to evaluate the board’s broad policy decisions and the staff and external consultant’s implementation decisions. Policy benchmarks measure broad investment opportunities of each asset class in which MOSERS has chosen to invest. The strategy benchmarks represent decisions made by the CIO to strategically deviate from the midpoint of the policy asset allocation within each sub-asset class. The return of the strategy benchmarks are determined based upon the actual weight of the asset class multiplied by the appropriate benchmark.

The policy and strategy benchmarks are used in the following manner to evaluate decisions made by the board and staff:

• Board Decisions - The value added through board policy decisions is measured by the difference between the total fund policy benchmark return and the RRO. This difference captures the value added by the board through their broad policy asset allocation decisions relative to the required rate of return objective necessary to meet the actuarial assumptions. A policy benchmark return greater than the RRO reflects value added through board decisions. A policy benchmark return less than the RRO reflects losses or shortfalls in performance in funding the liabilities of the system. These policy decisions are measured over long periods of time.
• Staff and External Asset Consultant Decisions - There are two components to decisions made by the staff and external asset consultant which are monitored by the board on an ongoing basis. These include 1) strategic sub-asset class allocation decisions made by the CIO with the approval of the external asset consultant and, 2) implementation decisions which include manager hiring and termination decisions made by the CIO with the approval of the external asset consultant.
  
  Strategy Decisions are sub-asset class allocation choices made by the CIO with the approval of the external asset consultant and certification of the executive director to deviate from the policy benchmark weight. The value added through these decisions to overweight or underweight these sub-asset classes is measured by the difference between the strategy benchmark return and the policy benchmark return. This difference captures the value added by the CIO through sub-asset class strategic decisions relative to the board’s broad policy allocation decisions. A strategy benchmark return greater than the policy benchmark return reflects value added through the sub-asset class allocation decisions. A strategy benchmark return less than the policy benchmark return reflects losses to the fund’s performance based upon strategy decisions. Strategy decisions should be measured over all periods of time, with majority weight placed on outcomes that have occurred over a market cycle.
  
  Implementation Decisions are money manager selection choices made by the CIO with the approval of the external asset consultant and the certification of the executive director. The value added through these manager selection decisions is measured by the difference between the actual portfolio return and the strategy benchmark return. This difference captures the value added through these manager hiring decisions. An actual portfolio return greater than the strategy benchmark return reflects value added through these manager selection decisions. An actual portfolio return less than the strategy benchmark return reflects losses to the fund’s performance based upon implementation decisions. Implementation decisions should be measured over all periods of time, with a majority weight placed on outcomes that have occurred over a market cycle.

The board receives performance information on a quarterly basis to help ensure adequate monitoring of the fund’s overall performance objectives.

Asset Classes
At the broad asset class level, policy and strategy benchmarks have been established to measure board, strategic, and implementation decisions. At the manager level, performance is measured against appropriate benchmarks for each particular investment mandate. Investment guidelines have been established for each manager outlining specific expectations for each portfolio. In addition, many managers are employed with performance-based fee structures which help to align the manager’s interests with the total fund’s objectives.