Annual Report PDF file 2009 - State of Illinois

oker/dealers by ISBI investment managers far exceeded thepolicy goals, with 57.4% for domestic equity trades. Of thosetrades, 94.8% were executed through Illinois-basedbroker/dealers. Similarly, 30.0% of fixed income transactions,based on par value, were placed through minority or femaleowned broker/dealers, of which 73.5% were with Illinois-basedfirms. In the international portfolio 7.3% of trades were placedwith minority or female owned broker/dealers, of which 100%were with Illinois based firms.ISBI is currently working to update the Minority Broker andMoney Managers Policy in accordance with Public Act 96-0006 which was enacted June 2, 2009. The updated Policy willexpand reporting to include a quantifiable goal for each assetclass and goals for utilization in each of the minority classes.The updated policy will be effective prior to January 1, 2010.Public Act 96-0006On April 3, 2009 Governor Quinn signed into law Public Act 96-0006, which had a material effect on the construction of theBoard, as well as operational elements at ISBI.Numerous changes occurred as a result of this Act includingchanges in how the Board is structured. The first of thesechanges occurred when, under this statute, the StateComptroller, Dan Hynes, became Chairman of the StateEmployees’ Retirement System, and so a member of thisBoard. Subsequently, as a result of the Act, the terms of ISBI’sfive gubernatorial appointees expired. On June 3, 2009, theGovernor made five appointments: Michelle Bush, John Casey,Fred Montgomery, Heather D. Parish and Ronald Powell. As aresult of these changes the Board elected a new Chair, RonaldPowell.Besides these changes in Board membership, PA 96-0006made operational changes to ISBI, including changes to howthe Board utilizes and selects emerging and minoritymanagers; changes to how ISBI identifies and retainsinvestment professionals; and establishes requirements forfiduciary training of Board members. ISBI is in compliance, oris in the process of complying, with the various provisions ofPA 96-0006.ConclusionThe last two fiscal years have been among the mostchallenging since ISBI’s inception in 1970. Prudent investors,among them ISBI, have historically sought to constructportfolios out of assets with low or negative correlation, sothat through various points in the business cycle downwardpressure would be mitigated by a negatively correlated assetthe would generatesome value. Unfortunately, through the current episode, suchefforts have been essentially futile: Virtually all assets havedeclined in value, and have correlated favorably with eachother.Last year this section of the FY 2008 Annual Report containedthe following paragraph:Unfortunately, as of this writing there is little evidence tosuggest that the challenges investors experienced in FY2008 might abate in FY 2009. Rather, such issues seem tobe coming more acute. While in FY 2008 the driving forcesthat harmed global investors were related to the deleveringof financial institutions, businesses, andindividuals, going into FY 2009 the portfolio has been, andwill continue to be, effected by a global economicslowdown in the midst of this continued de-levering.We stand by that description of the situation confronting ISBI,and all investors, one year ago. Fortunately, since preparationof the FY 2008 Annual Report, the global economy seems tohave stepped back from the abyss, and while investors are stillconfronted with great challenges, it is our opinion that theworst is behind us. Given the disruptions and lossesexperienced by investors over the last few years, thetemptation exists to make precipitous changes to one’sinvestment approach. However, it is our conviction that, issuesdescribed here not withstanding, the portfolio has performedin a manner consistent with prudent expectations. Given thatreality, and despite reflexive responses to the contrary, nostructural change to ISBI’s investment policy is currentlyanticipated.The Board, the staff, and the investment professionalsretained by ISBI continue to monitor the portfolio and managethese and other challenges as aggressively as possible.Our sincerest appreciation is extended to the Board Membersand all the Staff, for their cooperation and diligence during thefiscal year. Further, the Board extends appreciation to theformer Board Members Michael Goetz, Chairman; JohnGordon Mazzotti, Vice Chairman; Guy Alongi and Allison Davis;for their dedicated service.The following sections of the report present detailed financialstatements and supplemental information on a basisconsistent with past reports.Respectfully submitted November 20, 2009,Ronald E. Powell,ChairmanWilliam R. Atwood,Executive DirectorILLINOIS STATE BOARD OF INVESTMENT7