The Board recognizes that bearing prudent levels of compensated investment risk is critical in meeting the Fund’s long-term return objectives, which are in turn essential to the sustainable provision of adequate benefits.  Indeed, while risk is typically defined in terms of market volatility or potential for loss, risk for the System is also defined more broadly to include the probability of not meeting its primary investment objective, which to enable the provision of promised benefits in perpetuity.  To this end, the investment program seeks (1) to identify the key sources of uncertainty with the greatest potential impact on Fund performance and (2) to measure, monitor and manage those risks in view of the level of compensation that has been realized and is expected for bearing those risks. 

Diversification across a variety of asset classes in conjunction with a strategic rebalancing process is the primary means of managing investment risk.  The Board also takes several steps throughout the investment process to identify, measure, and report on investment risk at a variety of different levels.  A number of key risks are also identified and detailed in the internal procedures of the Investment Staff.

Regular performance evaluation of the Fund by the Board is designed to monitor the effectiveness of the strategic asset allocation in meeting the long-term objectives of the System.  The purpose is to test the continued validity of the associated decisions and to prompt a review of underperformance or excessive risk.  All performance measurement should be based on total returns, net of fees, adjusted for risk, as measured over a sufficient time period to reflect the benefits of any active decisions (typically a minimum of three years and preferably over five or more years and/or a full market cycle).

The Board follows a systematic decision-making process where investment decisions are prioritized according to their impact on long term returns of the System's total portfolio. Accordingly, asset allocation is the highest priority. Next in priority is asset class structure which followed by investment manager and finally ancillary services. A periodic review cycle is followed for asset allocation and asset class structure where investment manager and ancillary service decisions are made on an as needed basis. All investment-related decisions will be in the form of recommendations from the Investment Committee to the Board. The Board has the final authority for approving all non-delegated investment decisions.

The actuarial expected rate of return is 7.0%. It is the sum of the expected inflation rate of 2.5% and the expected real return on investments of 4.5%. The expected real return on investments is determined by the expected real returns of the asset classes and their respective proportions according to the System's Strategic Asset Allocation.

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