Strategic Asset Allocation

Strategic Asset Allocation refers to process by which the Fund is allocated among various types of investments that have in common certain fundamental and risk-based characteristics.

The Board, with advice from Investment Consultant(s) and Investment Staff, is responsible for establishing the Strategic Asset Allocation (“SAA”) process and parameters for the Fund. SAA refers to the establishment of neutral weights and suitable ranges for the appropriate asset types that determine the distribution of investments within the Fund. The SAA process will seek to optimize expected return net of fees for the Fund within the established risk budget over a long-term horizon by maintaining a highly efficient portfolio.

Since the Fund is designed to benefit both current and future generations of beneficiaries, its time horizon is long. More specifically, the Board should calibrate the SAA process toward the aim of meeting the System’s investment objectives and risk budget over a time horizon of twenty years or more. However, since the benefit payment obligations of the System must be met on a timely and regular basis, cash flow considerations (including the potential for a sustained period of net outflows) will generally be balanced with the long-term liability stream when setting the SAA parameters and the associated risk budget.

 

Asset/Liability Study

At least every five years (or more frequently if warranted by a material event in either the liability structure of the Fund, the contribution policy, and/or the capital markets) the Board will conduct a formal Asset/Liability Study to review asset classes, risk-return assumptions, and correlation of returns, and implementation styles in light of the System’s expected liability stream. These periodic studies will provide the primary basis for material changes to the Fund’s strategic asset allocation parameters and overall risk posturing. 

 

Rebalancing

Rebalancing activities ensure that the long-term investment objectives of the System are achieved by allowing Investment Staff the flexibility to adjust for market movements and to incorporate current market conditions into the asset allocation. The Board has chosen to adopt a rebalancing policy that allows Investment Staff to rebalance the portfolio between major asset classes as well as within the sub-asset classes, a framework that is governed by the Board approved ranges rather than fixed time periods.