Annual Report PDF file 2009 - State of Illinois

Note 2Deposits, Investments, and Investment RiskDepositsCustodial credit risk for deposits is the risk that, in the event of afinancial institution failure, ISBI’s deposits may not be returned.All non-investment related bank balances at year-end areinsured or collateralized with securities held by the Illinois StateTreasurer or agents in the name of the State Treasurer. As ofJune 30, 2009 and 2008, ISBI had non-investment relatedbalances of $184,259 and $185,605. Cash held in the investmentrelated bank account is neither insured nor collateralized foramounts in excess of $250,000. During fiscal year 2007, a CreditRisk Policy was implemented by ISBI staff and formally adoptedby the Board in July of 2007. The Policy outlines the controlprocedures used to monitor custodial credit risk. These assetsare under the custody of State Street Bank and Trust. StateStreet Bank and Trust has an AA Long-term Deposit/Debt ratingby Standards & Poor and an Aa2 rating by Moody. Certaininvestments of ISBI with maturities of 90 days or less would beconsidered cash equivalents; these consist of short-terminvestment funds and U. S. Treasury bills with maturities of 90days or less, which are not subject to the custodial credit risk.For financial statement presentation and investment purposes,ISBI reports these types of cash equivalents as Money MarketInstruments in the Statement of Net Assets. As of June 30, theamounts held in the investment related bank account withexposure to custodial credit risk are as follows:2009 2008$ $Carrying amounts and BankBalances at June 30Cash 12,440,740 43,558,219Amount exposed tocustodial credit risk 0 43,458,219Investment PolicyISBI’s investment authority and responsibilities are specifiedin the Illinois Compiled Statutes, 40ILCS 5/22A. These statutesprovide ISBI with the authority to manage and invest theassets of any Illinois pension or education fund.As described in Note 1, ISBI currently manages and invests theassets of the General Assembly Retirement System, Judges’Retirement System, and State Employees’ Retirement System.All investments undertaken by ISBI are governed by 40ILCS 5adopted by the General Assembly in 1982, and other standardscodified in the above reference to the statutes.40ILCS 5/1-109 requires all members of the Board and otherfiduciaries to “… discharge his or her duties with respect tothe retirement system or pension fund solely in the interest ofthe participants and beneficiaries and: With the care, skill,prudence and diligence…By diversifying the investments of theretirement system or pension fund so as to minimize the risk oflarge losses…“Investment CommitmentsReal estate and private equity investment portfolios consist ofpassive interests in limited partnerships. ISBI had outstandingcommitments to these limited partnerships of approximately$486 million and $515 million as of June 30, 2009 and 2008,respectively. At the end of fiscal year 2009 and 2008, the Boardhad outstanding commitments of $159 million and $165 millionto separate real estate funds respectively. Also at the end offiscal year 2009 and 2008, the Board had outstanding amountsof $155 million and $302 million to infrastructure funds.Investment SummaryThe following table presents a summary of the Fund’sinvestments at fair value by type at June 30, 2009 and 2008:2009 2008$ $Government and agency obligations 665,018,889 852,045,701Foreign obligations 33,237,090 113,005,430Corporate obligations 668,047,761 1,058,164,332Common stock & equity funds 2,610,218,733 3,823,791,711Preferred stock 286,429 4,491,500Foreign equity securities 1,482,594,431 1,984,314,463Foreign preferred stock 47,856 603,032Commingled Funds 335,484,184 417,894,222Hedge funds 880,939,190 598,985,402Real estate investments 875,929,700 1,332,081,349Private equity 450,491,810 524,628,589Money market instruments 235,126,490 307,481,504Infrastructure funds 305,969,947 209,975,518Bank loans 197,259,098 202,137,983Forward foreign currency contracts (5,594,545) (72,622)Total investments 8,735,057,063 11,429,528,114ISBI’s investments in Private Equity and Real Estate representinvestment vehicles used for making investments in variousequity and debt securities according to the investmentstrategies as determined by the fund managers at thecommencement of the fund.Investment strategies of Private Equity funds include, but arenot limited to, leveraged buyouts, venture capital, growthcapital and mezzanine capital.Investment strategies of Real Estate investments include, butare not limited to, the purchase, development, ownership,management, rental and/or sale of real estate for profit.ISBI’s investments in Infrastructure funds represent pooledILLINOIS STATE BOARD OF INVESTMENT17