Comprehensive Annual Financial Report - Minnesota State ...

Investment Report
MINNESOTA
STATE
BOARD OF
INVESTMENT
Board Members:
Governor
Mark Dayton
State Auditor
Rebecca Otto
Secretary of State
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 Minnesota
State Retirement System under the direction and
authority of the State Board of Investment (SBI) in
accordance with Minnesota Statutes, Chapters 11A and
356A. The SBI includes Minnesota’s Governor, State
Auditor, Secretary of State, 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 Minnesota
State 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
State Board of Investment
October 30, 2012
Public Employees
Retirement Association
of Minnesota
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