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Investment <strong>Report</strong> MINNESOTA STATE BOARD OF INVESTMENT Board Members: Governor Mark Dayton <strong>State</strong> Auditor Rebecca Otto Secretary of <strong>State</strong> Mark Ritchie Attorney General Lori Swanson Executive Director: Howard J. Bicker 60 Empire Drive Suite 355 St. Paul, MN 55103 (651) 296-3328 FAX (651) 296-9572 E-mail: minn.sbi@state.mn.us. www.sbi.state.mn.us. An Equal Opportunity Employer Investment Authority The assets of the Public Employees Retirement Association (PERA) are invested along with the assets of the Teachers Retirement Association and the <strong>Minnesota</strong> <strong>State</strong> Retirement System under the direction and authority of the <strong>State</strong> Board of Investment (SBI) in accordance with <strong>Minnesota</strong> Statutes, Chapters 11A and 356A. The SBI includes <strong>Minnesota</strong>’s Governor, <strong>State</strong> Auditor, Secretary of <strong>State</strong>, and Attorney General. The Legislature has established a 17-member Investment Advisory Council (IAC) to advise the SBI and its staff on investment-related matters. PERA’s Executive Director is a member of the IAC. Investment Policy Investment policy states that the SBI will operate within standard investment practices of the prudent person. The SBI is to “exercise that degree of judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived therefrom.” (See M.S., Section 11A.09.) The SBI is authorized to own government obligations, corporate obligations, various short-term obligations, corporate stocks, venture capital interests, resource investments, and real estate interests subject to specific constraints. (See M.S., Section 11A.24.) In particular, pension fund assets are to be invested for the exclusive benefit of the members of the fund. Investment Objectives & Performance PERA’s pension contributions from members and employers are invested in the Combined Funds. The Combined Funds include the assets of both active and retired public employees who participate in the defined benefit plans administered by PERA, the <strong>Minnesota</strong> <strong>State</strong> Retirement System, and the Teachers Retirement Association. PERA does not own any underlying assets, but instead owns a participation in the pooled Combined Funds. Because these assets normally accumulate for thirty to forty years, SBI’s objective is to take advantage of the long investment time horizon offered by equities and alternative assets in order to meet its actuarial return target and ensure that sufficient funds are available to finance promised benefits at the time of retirement. The 2012 legislature lowered the actuarial return assumption from 8.5 percent to 8.0 percent annually for the period July 1, 2012 through June 30, 2017. I nvestment Section The long term objectives of the Combined Funds are: (1) Provide returns that are 3-5 percentage points greater than inflation over the latest 20-year period; and (2) Outperform a composite market index weighted in a manner that reflects the actual asset mix of the Combined Funds over the latest 10year period. Based on values on June 30, 2012, the Combined Funds returned 5.7 percentage points above the CPI over the last 20 years and returned 0.1 percentage point above the composite index over the past 10 years. Investment returns ranked in the 35th percentile over the past 10 years, compared to similar funds in the Trust Universe Comparison Service. Investment Presentation Investment returns were prepared using a timeweighted rate of return methodology based upon fair market values, net of investment expenses. Respectfully submitted, Howard Bicker Executive Director <strong>State</strong> Board of Investment October 30, 2012 Public Employees Retirement Association of <strong>Minnesota</strong> 45