The LAGERS Board of Trustees, operating within the “prudent person” framework, has adopted a Statement of Investment Policy and Objectives for the investment managers and others who serve in a fiduciary capacity to the Fund. A summary of that policy follows. For a complete copy of the investment policy, please contact the LAGERS office.
The goal of the Fund shall be to achieve a rate of return, net of manager fees, of at least 7.25% per annum as measured over a full market cycle. The Trustees and Investment Staff will use the Fund’s asset allocation as the primary tool to achieve this goal. As this is a long-term projection and investments are subject to short-term volatility, the main investment focus of the Trustees and Investment Staff will be towards the Total Fund. Each asset manager, individual investment and/or security selection (together known as ‘investment(s)’) will be judged on performance relative to its asset class and to its relative benchmark over a full market cycle, usually 3-5 years. With respect to the given purpose, the System’s liquidity requirement, and the source and predictability of contributions, the Board elects to target portfolio risk of 10% standard deviation in pursuing the investment program. LAGERS is unwilling to undertake investment strategies that might jeopardize the ability of the Fund to finance the pension benefits promised to the System’s participants. Thus, LAGERS’ actively seeks to lower/stabilize the cost of funding the System’s pension promise by prudently taking on types of risk that best serves the long-run interest of the Fund and, therefore, of the System’s participants.
The Trustees have established the following asset-mix guidelines for the Pension Fund:
Asset Class Target Guidelines
Equity Investments 35.00%
Fixed Income Investments 31.00%
Real Assets/Real Return 36.00%
Strategic Assets 8.00%
Alpha Portfolio** 15.00%
Cash Portfolio* 10.00%
Leverage Portfolio* -35.00%
* LAGERS targets 30% of the leveraged portfolio to be held in cash.
** Alpha Portfolio allocation is based on a volatility adjusted exposure targeting 8% overall.
The Trustees have established the following liquidity guidelines for the Pension Fund:
Liquidity Time Frame Target Guidelines
Short-term (<1 week) 40.00%
Medium-term (1 week – 3 years) 20.00%
Long-term (> 3 years) 40.00%
The Pension Fund’s total return should exceed the total return of an index composed as follows:
10.00% Russell 3000 Index
10.00% CPI + 5.5% (Private Equity)
5.00% MSCI All Country World Index ND (non-hedged)
5.00% MSCI All Country World Index ex US ND (non-hedged)
5.00% MSCI Emerging Markets Index ND (non-hedged)
7.00% CPI + 4% (Private Fixed Income)
6.00% Barclays Capital US Aggregate Bond Index
4.00% Barclays Capital Global Aggregate Bond Index
10.00% Barclays Capital U.S. 20+ Year Treasury Bond Index
4.00% 1/3 JP Morgan EMBI Global Div; 1/3 JP Morgan GBI- EM Global Div; 1/3 JP Morgan CEMBI Broad Div
7.00% CPI + 4% (Infrastructure)
14.00% CPI + 4.5% (Real Estate)
6.00% Barclays Capital Global Inflation-Linked Bond Index
5.00% Bloomberg Commodity Index
2.00% CPI + 2.5% (Timber)
2.00% CPI + 5% (Natural Resources)
5.00% CPI + 6% (Private Strategic)
3.00% CPI + 4.5% (Public Strategic Portfolio)
15.00% CPI + 3.5% (Alpha Portfolio)
10.00% CPI (Cash Portfolio)
-35.00% -(CPI + 0.5%) (Leverage Portfolio)
General Portfolio Guidelines
The diversification of securities among sectors and issuers is the responsibility of the investment manager and Investment Staff. The Investment Staff has further diversification responsibility at the asset manager and asset class level and the Trustees have diversification responsibility at the total portfolio level. All investments made shall be subject to the quality and diversification restrictions established by Section 70.745, 70.746, 70.747, 105.687, 105.688, 105.689 and 105.690 of the Revised Statutes of Missouri.
Individual assets and/or investment mandates, excluding leverage and its associated cash collateral, will be grouped into three different liquidity classifications. These classifications are based on the time frame it takes to liquidate the investment at prevailing market prices (i.e. not at a discount) and receive cash back. The classifications include:
Illiquid assets carry a theoretical illiquidity premium that is demanded by investors for securities that cannot be easily converted into cash. Therefore, these assets that are more illiquid should earn a higher return. Consistent with LAGERS’ liquidity requirements and long-term nature of the fund, LAGERS has established liquidity allocation ranges.
The most important feature any individual manager brings to a multi-manager portfolio is style adherence. At least quarterly, fundamental portfolio characteristics and style benchmark comparisons will be monitored for adherence to a manager’s identified style. The Trustees and Investment Staff recognize that different maturity ranges and sectors within the broad market categories go in and out of favor. Therefore, short-term examination of each investment’s performance will review style adherence relative to similar style or duration, peer comparisons, and style benchmarks whilst maintaining a focus on the long-term return objective relative to their respective style benchmark.
Primary emphasis is to be placed on relative rates of return. Performance shall be evaluated over a market cycle, usually 3 5 years, the following are the performance expectations for the portfolio:
32.00% Barclays Capital U.S. 20+ Year Treasury Bond Index
22.50% CPI + 4% (Private Fixed Income)
19.50% Barclays Capital US Aggregate Bond Index
13.00% Barclays Capital Global Aggregate Bond Index
13.00% 1/3 JP Morgan EMBI Global Div; 1/3 JP Morgan GBI-
EM Global Div; 1/3 JP Morgan CEMBI Broad Div
29.00% Russell 3000 Index
29.00% CPI + 5.5% (Private Equity)
14.00% MSCI All Country World Index ND (non-hedged)
14.00% MSCI All Country World Index ex US ND (non-hedged)
14.00% MSCI Emerging Markets Index ND (non-hedged)
19.50% CPI + 4% (Infrastructure)
39.00% CPI + 4.5% (Real Estate)
16.50% Barclays Capital Global Inflation-Linked Bond Index
14.00% Bloomberg Commodity Index
5.50% CPI + 2.5% (Timber)
5.50% CPI + 5% (Natural Resources)
62.50% CPI + 6.0% (Private Strategic)
37.50% CPI + 4.5% (Public Strategic Portfolio)
Securities Lending Guidelines
The Investment Staff may select a firm(s) to lend financial securities of the Fund. The firm shall have full discretion over the selection of borrowers and shall continually review credit worthiness of potential borrowers through adequate analysis of all material provided to them. The securities lending program shall in no way inhibit the trading activities of the investment managers of the System. The securities lending agent and Investment Staff will create investment guidelines for the investment of cash collateral to adhere to this document. The Investment Staff will review, at least quarterly, the performance of the program and ensure that proper collateralization procedures are adhered to as stated in the investment guidelines.
The Investment Staff has authority to manage the Security Lending’s cash collateral. This collateral will be invested at Staff’s discretion in the eligible investments permitted under this Statement of Investment Policy and Objectives, while also taking into the account the liquidity needs of the Security Lending program.