102 KAR 1:175 - Investment policies
RELATES TO: KRS 161.430
NECESSITY, FUNCTION, AND CONFORMITY: KRS 161.310 requires the Teachers' Retirement System Board of Trustees to promulgate administrative regulations for the administration of the funds of the retirement system and for the transaction of business. KRS 161.430(1) requires the board of trustees to promulgate administrative regulations to establish investment policies and procedures to carry out its responsibilities and provides that the board of trustees shall have full power and responsibility for the purchase, sale, exchange, transfer, or other disposition of the investments and money of the Teachers' Retirement System. This administrative regulation establishes investment policies and procedures to carry out these responsibilities.
Section 1.
(1)
(a) The
board of trustees shall appoint an investment committee in accordance with the
provisions of
KRS
161.430(1). The trustees
shall be named at the beginning of each fiscal year.
(b) The executive secretary shall act on
behalf of the investment committee in administering the investment policies and
procedures established in this administrative regulation.
(c) To ensure a timely market transaction,
the executive secretary and the chief investment officer may make a purchase or
sale of an investment instrument without prior board approval if the action
conforms to the provisions established in this administrative
regulation.
(2) The
staff investment personnel employed by the board under
KRS
161.430(1) may be delegated
transaction responsibilities under the supervision of the chief investment
officer and the executive secretary.
(3)
(a)
Contracts with contracted investment counselors employed under
KRS
161.430(1) shall be on a
fiscal year basis for twelve (12) month periods, except that contracts entered
into on or after the start of a fiscal year shall not extend beyond the end of
the fiscal year in which the contract is entered.
(b) The system may invest in either
separately-managed accounts or commingled funds.
(c) The investment committee shall make
recommendations to the board regarding employment of investment counselors and
the renewal or nonrenewal of contracts.
(d)
1.The
system may utilize the services of a consultant to advise the investment
committee, as well as to assist in evaluating the effectiveness of investment
counselors.
2. A consultant may
advise the investment committee with regard to asset class allocation and the
combined effect of the various portfolios on the system's overall risk and
expected long-term return.
(e) Investment counselors shall provide
reports documenting their results at least quarterly and meet with the
investment committee if requested.
(f) An annual report on the performance and
service of each investment counselor shall be provided to the board with
recommendations from the investment committee.
(4) The following procedures shall be
followed with regard to all investment transactions, whether internally or
externally managed:
(a) The board shall be
provided a quarterly report reflecting a complete record of each investment
transaction that occurred during that quarter;
(b) The investment committee shall be
provided a complete record of each investment transaction or holding;
(c) The staff shall maintain a file of
investment directives that indicates the committee's separate review of each
specific long-term investment; and
(d) An "authorization for investment" shall
be approved or denied by the executive secretary or the chief investment
officer.
Section
2. Asset Allocation.
(1) In order
to preserve the assets of the system and produce the required rate of return
while minimizing risk, assets shall be prudently diversified among various
classes of investments.
(2) In
determining asset allocation policy, the investment committee and the board
shall be mindful of the system's liquidity and its capability of meeting both
short and long-term obligations. The limitations established in this subsection
shall apply to the asset classes in which funds are invested.
(a) There shall not be a limit on the amount
of investments owned by the system if the investments are guaranteed by the
United States government.
(b) The
amount invested in corporate debt obligations shall not equal more than
thirty-five (35) percent of the assets of the system.
(c) The amount invested in common stocks or
preferred stocks shall not equal more than sixty-five (65) percent of the
assets of the system.
(d) The
amount invested in a stock portfolio designed to replicate a general stock
index shall not equal more than twenty-five (25) percent of the assets of the
system.
(e) More than thirty (30)
percent of the assets of the system shall not be invested in the stocks of
companies domiciled outside of the United States. An amount of this type if
invested shall be included in the sixty-five (65) percent limitation
established under this subsection.
(f) The amount invested in real estate shall
not equal more than ten (10) percent of the assets of the system. Real estate
shall include real estate equity, real estate lease agreements, and shares in
real estate investment trusts.
(g)
The amount invested in alternative investments shall not equal more than ten
(10) percent of the assets of the system. This category may include private
equity, venture capital, timberland, and infrastructure investments.
(h)
1. The
amount invested in an additional category or categories of investments shall
not equal more than fifteen (15) percent of the assets of the system.
2. The board shall approve or deny by
resolution any additional category or categories of investments.
Section 3.
Fixed Income Investments. The specific guidelines associated with a fixed
income investment shall be established in this section.
(1) Unless the issuer is the United States
government or a government sponsored enterprise (GSE), the amount invested in
the securities of a single issuer shall not equal more than five (5) percent of
the assets of the system.
(2)
(a) A fixed income investment shall be rated
at the time of purchase as investment grade by at least one (1) of the major
rating services.
(b) A private
placement debt investment shall be subject to the same credit qualifications as
each fixed income investment.
(c)
The fixed income investment portfolio as a whole shall maintain an average
rating of investment grade by at least one (1) of the major rating
services.
(3)
Investments in mortgages or mortgage-backed securities shall consist of first
mortgages on property located in the United States unless the mortgage is
guaranteed by the United States government.
(4) A foreign debt purchase shall comply with
all other fixed income restrictions in this section. Foreign debt shall not in
aggregate equal more than ten (10) percent of the assets of the
system.
Section 4.
Equity and Real Estate Investments. The requirements established in this
section shall apply to equity and real estate investments.
(1)
(a) The
system's position in a single stock shall not exceed two and one-half (2.5)
percent of the system's assets.
(b)
The system's position in a single stock shall not exceed five (5) percent of
the outstanding stock for that company unless the investment is part of a
venture capital program.
(2) A real estate purchase that is conducted
on a triple net lease basis shall involve a company that at the initial
agreement generates one (1) of the three (3) highest credit ratings by a
national credit rating service.
(3)
(a) A real estate investment shall be judged
on its total return potential.
(b)
The system shall not acquire undeveloped land unless development plans are
imminent.
(c) This provision shall
not preclude investment in timberland.
(4) The system shall not buy bullion, stamps,
rare coins, or other collectibles, unless approved by the board as an
additional category of investment. The board shall approve these assets as an
additional category of investment only in exceptional circumstances if there is
a potential investment in these assets that provides a high value opportunity
and lowers the risk of the portfolio overall.
Notes
STATUTORY AUTHORITY: KRS 161.310, 161.430(1)
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