Comprehensive Annual Financial Report - Minnesota State ...

å The aggregate value of these obligations
may not exceed five percent of the fund
for which the state board is investing;
å Participation is limited to 50 percent of a
single offering; and
å Participation is limited to 25 percent of
an issuer’s obligations.
SBI may also invest in bankers acceptances,
deposit notes of U.S. banks, certificates
of deposit, mortgage securities, and asset
backed securities rated in the top four quality
categories by a nationally recognized
rating agency. Commercial paper must be
rated in the top two quality categories.
PERA’s share of SBI’s exposure to credit
risk, based on the lower of Moody's or S&P
Quality Ratings for debt securities and shortterm
investments, is shown in Figure 2.
b) Concentration of credit risk is the risk of
loss that may be attributed to the magnitude
of a government’s investment in a single
issuer. SBI determined concentration of
credit risk based on security identification
number. PERA’s defined benefit plans do not
have a concentration of credit risk. PERA
also administers an agency fund to track
the investments placed in a trust by various
entities with the State Board of Investment
to cover future other postemployment benefit
costs. Approximately $15.7 million of
the $309 million in assets is invested in 27
Collateralized Mortgage Obligations (CMO)
issued by the Federal Home Loan Mortgage
Corporation (Freddie Mac).
Fig. 5 Derivative Financial Instruments (in thousands)
c) Interest rate risk is the risk that changes
in interest rates of debt investments could
adversely affect the fair value of an investment.
The State Board of Investment does
not have a policy on interest rate risk.
Retirement plan and OPEB debt securities
are held in external investment pools
and PERA’s share has the weighted average
maturities shown in Figure 3.
d) Foreign currency risk is the risk that
changes in exchange rates between
the U.S. dollar and foreign currencies
could adversely affect the fair value of
an investment. Most foreign currency
risk resides within SBI’s international
equity investment holdings. In order to
reduce foreign currency risk, the State
Board of Investment has developed the
following policies. Government obligations,
including guaranteed or insured
issues of the International Bank for
Reconstruction and Development, the
Inter-American Development Bank, the
Asian Development Bank, and the African
Development Bank, must pay interest and
principal in U.S. dollars. The principal
and interest of obligations of corporations,
including those corporations incorporated
or organized under the laws of
the Dominion of Canada or any province
thereof, must also be paid in U.S. dollars.
SBI has less than a 15 percent exposure to
currency risk. PERA’s share of investments
at June 30, 2012 was distributed among
the currencies shown in Figure 4.
Changes in Fair Value Fair Value at Notional
Derivative Investment Type During FY 2012 June 30, 2012 Amount
Futures:
Equity Futures—Long $9,256 $ 0 $ 948
Equity Futures—Short 1,647 0 (11)
Fixed Income Futures—Long 6,220 0 63,498
Fixed Income Futures—Short (12,403) 0 (157,196)
Options:
Futures Options Bought (201) 15 377
Futures Options Written 712 (86) (286)
Foreign Currency Forwards 2,247 (186) 189,957
Stock Warrants and Rights:
Stock Warrants (187) 0 102
Stock Rights 375 118 172
Financial Section
PERA's defined
benefit plans do
not have a concentration
of credit risk.
Public Employees
Retirement Association
of Minnesota
33