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TEACHERS’ RETIREMENT SYSTEM OF OKLAHOMA
Investment Committee Meeting
Tuesday, January 26, 2016 – 3:00 PM
TRS Administration Board Room
2500 N. Lincoln Blvd., 5th
Floor, Oklahoma City, OK
AGENDA
1. CALL TO ORDER
2. DISCUSSION AND POSSIBLE ACTION ON INVESTMENT CONSULTANT
MONTHLY REPORT
3. DISCUSSION AND POSSIBLE ACTION ON MANAGER STATUS REPORT
INCLUDING ADVISORY RESEARCH, INC. (ALL CAP) AND WELLINGTON
MANAGEMENT The Investment Committee may recommend through motion to the Board of
Trustees to make any changes to the status of any manager(on watch, alert, remove them from
that status, or terminate (and select transition manager and reallocate funds if necessary)) based
on the information available at the meeting.
4. DISCUSSION AND POSSIBLE ACTION ON INTERNATIONAL EQUITY RFP
CANDIDATES INCLUDING REVIEW OF INVESTMENT MODELING AND POSSIBLE
SELECTION OF FINALISTS FOR BOARD INTERVIEW
5. DISUCSSION ON AMENDMENT TO INVESTMENT POLICY STATEMENT
6. DISCUSSION ON CHIEF INVESTMENT OFFICER REPORT
7. QUESTIONS AND COMMENTS FROM TRUSTEES
8. ADJOURNMENT
ALL BOARD MEMBERS ARE ENCOURAGED TO ATTEND INVESTMENT
COMMITTEE MEETINGS
INVESTMENT COMMITTEE:
Chair: Vernon Florence
Members: Bill Peacher, Roger Gaddis, Jill Geiger, Gary Trennepohl
1
Mar
ket
Up
dat
eD
ecem
ber
31
, 201
5
Mar
ket
Ove
rvie
w (
Do
mes
tic
Equ
ity
vs. D
om
est
ic F
ixed
)2
01
5 M
arke
t D
aily
Ind
ex
Tota
l Re
turn
Pe
rfo
rman
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Bro
ad E
qu
ity
Mar
ket
Ove
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w
- - - - - -
Bro
ad F
ixed
Mar
ket
Ove
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w
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01
5 M
arke
t M
on
thly
Ind
ex
Tota
l Re
turn
Pe
rfo
rman
ce1/
31/
15
2/2
8/1
53/
31/
15
4/3
0/1
55/
31/
15
6/3
0/1
57/
31/
15
8/3
1/1
59/
30/
15
10/3
1/1
511
/30/
15
12/3
1/1
5YT
D
-R
uss
ell 1
000
-2.7
5%5.
78%
-1.2
5%0.
71%
1.31
%-1
.88%
1.93
%-6
.02%
-2.7
4%8.
09%
0.33
%-1
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0.92
%
Ru
ssel
l 200
0-3
.22%
5.94
%1.
74%
-2.5
5%2.
28%
0.75
%-1
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-6.2
8%-4
.91%
5.63
%3.
25%
-5.0
2%-4
.41%
-M
SCI A
C W
orl
d In
dex
EX
USA
-0.1
5%5.
35%
-1.6
2%5.
05%
-1.5
6%-2
.79%
-0.2
8%-7
.64%
-4.6
4%7.
44%
-2.0
6%-1
.88%
-5.6
6%
BC
Agg
2.10
%-0
.94%
0.46
%-0
.36%
-0.2
4%-1
.09%
0.70
%-0
.14%
0.68
%0.
02%
-0.2
6%-0
.32%
0.55
%
BC
Glo
bal
Agg
ex
USD
-1.8
4%-0
.78%
-2.0
8%2.
17%
-3.0
2%0.
09%
-0.1
4%0.
35%
0.43
%0.
32%
-2.7
8%1.
24%
-6.0
2%
Equ
ity
Sect
or
Per
form
an
ce F
or
The
Mo
nth
-Th
e to
p t
hre
e p
erfo
rmin
g se
cto
rs f
or
larg
e ca
p d
om
esti
c eq
uit
ies
wer
e:
Equ
ity
Sect
or
Pe
rfo
rman
ceM
on
th-T
o-D
ate
Ye
ar-T
o-D
ate
Ru
ssel
l 100
0R
uss
ell 2
000
AC
WI e
x U
SAR
uss
ell 1
000
Ru
ssel
l 200
0A
CW
I ex
USA
-Th
e b
ott
om
th
ree
per
form
ing
sect
ors
fo
r la
rge
cap
do
mes
tic
equ
itie
s w
ere:
Ener
gy-1
0.81
%-1
0.8
1-1
6.01
%-1
6.0
1-7
.38%
-7.3
8-2
2.55
%-2
2.5
5-3
8.80
%-3
8.8
0-2
1.99
%-2
1.9
9
Mat
eria
ls-4
.16%
-4.1
6-9
.42%
-9.4
2-3
.40%
-3.4
0-8
.86%
-8.8
6-2
2.69
%-2
2.6
9-1
9.84
%-1
9.8
4
Ind
ust
rial
s-2
.38%
-2.3
8-7
.79%
-7.7
9-2
.89%
-2.8
9-2
.95%
-2.9
5-1
2.93
%-1
2.9
3-3
.55%
-3.5
5
-Th
e to
p t
hre
e p
erfo
rmin
g se
cto
rs f
or
smal
l cap
do
mes
tic
equ
itie
s w
ere:
Co
nsu
mer
Dis
cret
ion
ary
-2.5
6%-2
.56
-3.9
2%-3
.92
-1.9
7%-1
.97
7.71
%7
.71
-10.
36%
-10
.36
-1.0
8%-1
.08
Co
nsu
mer
Sta
ple
s2.
68%
2.6
8-4
.98%
-4.9
8-1
.43%
-1.4
35.
73%
5.7
3-3
.14%
-3.1
45.
03%
5.0
3
Hea
lth
Car
e1.
54%
1.5
4-2
.07%
-2.0
71.
20%
1.2
07.
09%
7.0
98.
61%
8.6
15.
81%
5.8
1
-Th
e b
ott
om
th
ree
per
form
ing
sect
ors
fo
r sm
all c
ap d
om
esti
c eq
uit
ies
wer
e:Fi
nan
cial
s-2
.16%
-2.1
6-5
.11%
-5.1
1-1
.48%
-1.4
8-0
.60%
-0.6
0-0
.21%
-0.2
1-8
.36%
-8.3
6
Info
rmat
ion
Tec
hn
olo
gy-2
.52%
-2.5
2-5
.00%
-5.0
0-1
.21%
-1.2
15.
56%
5.5
62.
70%
2.7
0-1
.60%
-1.6
0
Tele
com
mu
nic
atio
n S
ervi
ces
1.85
%1
.85
-4.5
9%-4
.59
-2.2
1%-2
.21
3.56
%3
.56
-1.8
6%-1
.86
-4.3
7%-4
.37
-Th
e to
p t
hre
e p
erfo
rmin
g se
cto
rs f
or
inte
rnat
ion
al e
qu
itie
s w
ere:
Uti
litie
s2.
11%
2.1
11.
28%
1.2
80.
75%
0.7
5-5
.46%
-5.4
6-1
.96%
-1.9
6-9
.25%
-9.2
5
-Th
e b
ott
om
th
ree
per
form
ing
sect
ors
fo
r in
tern
atio
nal
eq
uit
ies
wer
e:Fi
xed
Se
cto
r &
Qu
alit
y P
erf
orm
ance
Mo
nth
-To
-Dat
eY
ear
-To
-Dat
eB
C A
gg.
Glo
bal
ex
USD
BC
Agg
.G
lob
al e
x U
SD
Tre
asu
ry-0
.17%
-0.1
71.
32%
1.3
20.
86%
0.8
6-5
.26%
-5.2
6
MB
S-0
.09%
-0.0
91.
83%
1.8
31.
47%
1.4
7-8
.47%
-8.4
7
Fixe
d In
com
e S
ect
or
Pe
rfo
rma
nce
Fo
r Th
e M
on
thC
orp
ora
te-0
.77%
-0.7
70.
64%
0.6
4-0
.77%
-0.7
7-8
.87%
-8.8
7
-Th
e se
cto
r p
erfo
rman
ce f
or
do
mes
tic
fixe
d in
com
e in
ord
er o
f b
est
per
form
ing
to w
ors
t w
as:
Aaa
-0.1
3%-0
.13
1.00
%1
.00
1.12
%1
.12
-9.4
6%-9
.46
MB
S (r
etu
rn -
0.09
%),
Tre
asu
ry (
retu
rn -
0.17
%)
and
Co
rpo
rate
(re
turn
-0.
77%
)A
a-0
.32%
-0.3
2-0
.22%
-0.2
21.
01%
1.0
1-7
.62%
-7.6
2
-Th
e se
cto
r p
erfo
rman
ce f
or
Glo
bal
ex
US
fixe
d in
com
e in
ord
er o
f b
est
per
form
ing
to w
ors
t w
as:
A-0
.39%
-0.3
92.
49%
2.4
90.
55%
0.5
5-1
.77%
-1.7
7
MB
S (r
etu
rn 1
.83%
), T
reas
ury
(re
turn
1.3
2%)
and
Co
rpo
rate
(re
turn
0.6
4%
)B
aa-1
.35%
-1.3
51.
02%
1.0
2-2
.71%
-2.7
1-8
.45%
-8.4
5
For
the
year
, do
mes
tic
fixe
d s
ecu
riti
es a
re o
utp
erfo
rmin
g gl
ob
al f
ixed
ex
US
secu
riti
es w
ith
the
BC
Agg
re
turn
ing
0.55
%.
On
a y
ear-
to-d
ate
bas
is, l
arge
cap
do
mes
tic
equ
itie
s ar
e th
e b
est
per
form
ing
equ
ity
asse
t
clas
s w
ith
th
e R
uss
ell 1
000
re
turn
ing
0.9
2%.
Smal
l cap
do
mes
tic
equ
itie
s ar
e tr
ailin
g la
rge
cap
do
mes
tic
equ
itie
s fo
r th
e ye
ar (
by
-5.3
3%)
wit
h t
he
Ru
ssel
l 200
0 In
dex
re
turn
ing
-4.4
1%
.
For
the
year
, in
tern
atio
nal
eq
uit
ies
are
trai
ling
bo
th la
rge
cap
do
mes
tic
equ
itie
s (b
y -6
.58%
)
and
sm
all c
ap d
om
esti
c eq
uit
ies
(by
-1.2
5%
) w
ith
th
e A
CW
I ex
USA
Ind
ex r
etu
rnin
g -5
.66%
.
For
the
mo
nth
, glo
bal
fix
ed e
x U
S se
curi
ties
ou
tper
form
ed d
om
esti
c fi
xed
sec
uri
ties
, wit
h t
he
Glo
bal
Agg
ex
US
retu
rnin
g 1
.24%
.
Do
mes
tic
fixe
d t
raile
d g
lob
al f
ixed
ex
US
(by
-1.5
6%)
for
the
mo
nth
wit
h t
he
BC
Agg
re
turn
ing
-
0.32
%.
For
the
mo
nth
, lar
ge c
ap d
om
esti
c eq
uit
ies
un
der
per
form
ed d
om
esti
c fi
xed
inco
me
wit
h t
he
Ru
ssel
l 100
0 In
dex
re
turn
ing
-1.8
0% v
ersu
s -0
.32%
fo
r th
e B
arcl
ays
Agg
rega
te In
dex
.
For
the
year
, th
e R
uss
ell 1
000
Ind
ex is
ou
tper
form
ing
the
Bar
clay
s A
ggre
gate
Ind
ex w
ith
a
retu
rn o
f 0.
92%
vs.
0.5
5%, r
esp
ecti
vely
.
Larg
e ca
p d
om
esti
c eq
uit
ies
wer
e th
e b
est
equ
ity
per
form
ers
for
the
mo
nth
wit
h t
he
Ru
ssel
l
100
0 In
dex
re
turn
ing
-1.8
0%.
Inte
rnat
ion
al e
qu
itie
s u
nd
erp
erfo
rmed
larg
e ca
p d
om
esti
c eq
uit
ies
for
the
mo
nth
(b
y -0
.08%
)
wit
h t
he
AC
WI e
x U
SA In
dex
re
turn
ing
-1.8
8%
.
For
the
mo
nth
, sm
all c
ap d
om
esti
c eq
uit
ies
un
der
per
form
ed b
oth
larg
e ca
p d
om
esti
c
equ
itie
s (b
y -3
.22%
) an
d in
tern
atio
nal
eq
uit
ies
(by
-3.1
4%)
wit
h t
he
Ru
ssel
l 200
0 In
dex
retu
rnin
g -5
.02%
.
Ener
gy (
retu
rn -
7.38
%),
Mat
eria
ls (
retu
rn -
3.40
%)
and
Ind
ust
rial
s (r
etu
rn -
2.89
%)
Year
-to
-dat
e, g
lob
al f
ixed
ex
US
secu
riti
es a
re t
raili
ng
do
mes
tic
fixe
d s
ecu
riti
es b
y -6
.57%
wit
h t
he
Glo
bal
Agg
ex
US
retu
rnin
g -6
.02
%.
Co
nsu
mer
Sta
ple
s (r
etu
rn 2
.68%
), U
tilit
ies
(re
turn
2.1
1%)
and
Tel
eco
mm
un
icat
ion
Serv
ice
s (r
etu
rn 1
.85%
)
Ener
gy (
retu
rn -
10.8
1%),
Mat
eria
ls (
retu
rn -
4.16
%)
and
Co
nsu
mer
Dis
cret
ion
ary
(re
turn
-2.5
6%)
Uti
litie
s (r
etu
rn 1
.28%
), H
ealt
h C
are
(re
turn
-2.
07%
) an
d C
on
sum
er D
iscr
etio
nar
y
(re
turn
-3.
92%
)
Ener
gy (
retu
rn -
16.0
1%),
Mat
eria
ls (
retu
rn -
9.42
%)
and
Ind
ust
rial
s (r
etu
rn -
7.79
%)
Hea
lth
Car
e (r
etu
rn 1
.20
%),
Uti
litie
s (r
etu
rn 0
.75%
) an
d In
form
atio
n T
ech
no
logy
(re
turn
-1.2
1%)
-15
.00
%
-10
.00
%
-5.0
0%
0.0
0%
5.0
0%
10
.00
%
15
.00
% 1/1
/20
15
2/1
/20
15
3/1
/20
15
4/1
/20
15
5/1
/20
15
6/1
/20
15
7/1
/20
15
8/1
/20
15
9/1
/20
15
10
/1/2
01
51
1/1
/20
15
12
/1/2
01
5
Ru
ssel
l 10
00
Ru
ssel
l 20
00
MSC
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The
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ager
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file
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Sayl
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igh
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:A
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Cla
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Stat
us:
Portf
olio
Size
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cept
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Dat
e:In
itial
Fun
din
g:C
ontri
butio
nsW
ithd
raw
als:
$175
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,974
Ann
ual M
anag
emen
t Fee
:Fe
es P
aid
12
Mon
th T
railin
g:Lo
catio
n:St
ruct
ure:
Portf
olio
Man
agem
ent T
eam
:
Foun
ded
: 192
6A
UM 1
2.31
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5: $
229.
1 bi
llion
High
Yie
ld F
ixed
Inco
me
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12.
31.2
015:
$9.
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llion
Repr
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by:
Retu
rn P
rofil
eSi
nce
Ince
ptio
nLa
st 5
Yea
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st 3
Yea
rsLa
st Y
ear
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omis
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es H
igh
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d11
.24.
51.
5-5
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L HY
Mas
ter I
I12
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81.
6-4
.6-2
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.6
Risk
Cha
ract
erist
ics
Num
ber o
f Iss
ues
Cre
dit
Qua
lity
Yiel
d to
Mat
urity
Mod
ified
Dur
atio
nTim
e to
Mat
urity
Loom
is Sa
yles
Hig
h Yi
eld
419
BB7.
1%4.
26.
0M
L HY
Mas
ter I
I22
75B+
8.8%
4.2
5.7
Con
tact
Info
rmat
ion:
Vic
e Pr
esid
ent a
nd P
ortfo
lio M
anag
er
617.
310.
3633
Vic
e Pr
esid
ent a
nd C
lient
Por
tfolio
Man
ager
617-
748-
1742
Mat
t Eag
an, C
FA, V
ice
Pres
iden
t and
Por
tfolio
Man
ager
High
Yie
ld F
ixed
Inco
me
In C
ompl
ianc
e$2
42,3
45,0
712/
1/20
09$1
99,0
00,0
00
0.50
%
Who
lly-O
wne
d b
y N
ATIX
ISBo
ston
, Mas
sach
uset
ts
$39,
000,
000
Loom
is m
anag
es th
eir H
igh
Yiel
d m
and
ate
with
a v
alue
driv
en, o
ppor
tuni
stic
app
roac
h. T
he fu
nd h
as a
long
te
rm in
vest
men
t hor
izon,
usin
g al
loca
tions
to o
ut o
f ben
chm
ark
secu
ritie
s in
ord
er to
pro
vid
e va
lue
and
d
iver
sific
atio
n. T
he fu
nd se
eks h
igh
curre
nt in
com
e pl
us th
e op
portu
nity
for c
apita
l app
reci
atio
n to
pro
duc
e hi
gh to
tal r
etur
n.
$1,2
49,2
11
Mat
t Eag
an, C
FA
Mat
t Eag
an, C
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ice
Pres
iden
t and
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tfolio
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ager
Chr
istop
her L
azar
ro, V
ice
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iden
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lient
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tfolio
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Dan
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s, C
FA, E
xecu
tive
Vic
e Pr
esid
ent,
Vic
e C
hairm
an a
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p Weighted Passive
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10.5
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3 Year Annualized Return
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ard Deviatio
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f Dec
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Thre
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view
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tand
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Plea
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7
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e d
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ence
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and
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re
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3 Year Annualized Return
Annu
alized
Stand
ard Deviatio
n of Returns
As o
f Dec
embe
r 31,
201
5
11
Janu
ary Manager Status Re
port
Manager
Mandate
Strategy
AUM
% of
Portfolio
Curren
t Status
Reason
for S
tatus
Change
Status Change
Effective Da
teDa
te of Last
Review
Date of N
ext
Review
Expe
ctations
Advisory Research
Domestic
Equity
All Cap
449,70
8,67
53.40
%On Alert
Performance
July 201
5De
cembe
r 20
15Janu
ary 20
16Im
provem
ent in pe
rformance
compared to peers and
ben
chmark.
All other m
anagers curren
tly ra
ted In Com
pliance
12
TEACHERS’ RETIREMENTSYSTEM OF OKLAHOMA
INVESTMENT POLICY STATEMENT
REVISED JULY, 2015DRAFT REVISION STAGE 2 JANUARY, 2016
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Table of Contents
I. INTRODUCTION AND STATEMENTS OF PURPOSE, PHILOSOPHY AND ETHICS ............................. 1 A. Legal Authority and System Description ....................................................................... 1 B. Statement of Purpose ...................................................................................................... 2 C. Statement of Investment Philosophy .............................................................................. 3 D. Statement of Ethical Standards ....................................................................................... 4
II. STATEMENT OF DUTIES AND RESPONSIBILITIES ....................................................................... 6A. Board of Trustees ........................................................................................................... 6 B. Staff ................................................................................................................................ 7 C. Investment Consultant .................................................................................................... 9 D. Investment Managers ................................................................................................... 12 E. Custodian ...................................................................................................................... 14 F. Securities Lending Agent ............................................................................................. 15 G. Transition Manager ...................................................................................................... 15 H. Securities TransactionsCommission Recapture and Directed Brokerage Relationships 16
III. PROCEDURES .......................................................................................................................... 17A. Investment Policy Review ............................................................................................ 17 B. Manager Policy Exceptions .......................................................................................... 17 C. Third Party Marketing and Referrals Disclosure Policy .............................................. 17
IV. INVESTMENT OBJECTIVES ...................................................................................................... 19V. INVESTMENT GUIDELINES AND CONSTRAINTS ....................................................................... 23
A. Ineligible Investments .................................................................................................. 23 B. Universal Cash Rule for all OTRS Accounts ............................................................... 23 C. Index Portfolios ............................................................................................................ 24 D. Domestic Equity Portfolios .......................................................................................... 24 E. International Equity ...................................................................................................... 24 F. Fixed Income ................................................................................................................ 25 G. Securities Lending ........................................................................................................ 26 H. Private Equity ............................................................................................................... 26 I. Real Estate .................................................................................................................... 27 J. Master Limited Partnership (Energy Infrastructure) .................................................... 28 K. Opportunistic Investments ............................................................................................ 28 L. Derivatives.................................................................................................................... 29
VI. EVALUATION AND REVIEW ..................................................................................................... 29A. Investment Staff Reporting Requirements ................................................................... 29
14
B. Investment Consultant Reporting Requirements .......................................................... 30 C. Investment Manager Reporting Requirements ............................................................. 31
VII. APPENDIX A - STRATEGIC ASSET ALLOCATION ..................................................................... 34VIII. APPENDIX B - REBALANCING POLICY .................................................................................... 35
A. Overall Fund Allocation ............................................................................................... 35 B. Allocation among Equity Styles ................................................................................... 35
IX. APPENDIX C – INVESTMENT MANAGER EXCEPTIONS TO INVESTMENT GUIDELINES .............. 36X. APPENDIX D – INVESTMENT MANAGER PERFORMANCE BENCHMARKS ................................. 38 I. Introduction ............................................................................................................................. 1
A. Legal Authority .............................................................................................................. 1 B. Purpose ........................................................................................................................... 2
II. Statement of Goals and Objectives ......................................................................................... 3 III. Roles and Responsibilities ...................................................................................................... 4
A. Board of Trustees ........................................................................................................... 4 B. Staff ................................................................................................................................ 4 C. Investment Consultant .................................................................................................... 7 D. Investment Managers ..................................................................................................... 9 E. Custodian ...................................................................................................................... 12 F. Securities Lending Agent ............................................................................................. 13 G. Transition Manager ...................................................................................................... 13
IV. Asset Allocation .................................................................................................................... 15V. Rebalancing Policy ................................................................................................................ 17
A. Overall Fund Allocation ............................................................................................... 17 B. Allocation among Equity Styles ................................................................................... 17
VI. Securities Transactions .......................................................................................................... 18VII. Investment Guidelines ........................................................................................................... 19
A. Ineligible Investments .................................................................................................. 19 B. Manager Policy Exceptions .......................................................................................... 19 C. Universal Cash Rule for all OTRS Accounts ............................................................... 19 D. Index Portfolios ............................................................................................................ 20 E. Domestic Equity Portfolios .......................................................................................... 20 F. International Equity ...................................................................................................... 20 G. Fixed Income ................................................................................................................ 21 Core Plus Fixed Income ........................................................................................................ 21 High Yield Fixed Income ...................................................................................................... 21 H. Securities Lending ........................................................................................................ 22
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I. Private Equity ............................................................................................................... 22 J. Real Estate .................................................................................................................... 23 K. Master Limited Partnership (Energy Infrastructure) .................................................... 24 L. Opportunistic Investments ............................................................................................ 24 M. Derivatives.................................................................................................................... 25
VIII. Third Party Marketing and Referrals Disclosure Policy ....................................................... 25 IX. Appendix A – Investment Manager Exceptions to Investment Guidelines .......................... 27X. Appendix B – Investment Manager Performance Benchmarks ............................................ 31
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OTRS Investment Policy Page 1 of 39
I. INTRODUCTION AND STATEMENTS OF PURPOSE, PHILOSOPHY AND ETHICS
The Board of Trustees of the Teachers’ Retirement System of Oklahoma, as the governing body for the System, deems it prudent and necessary to maintain this Investment Policy Statement to act as the principal governing document for the investment of System assets.
A. Legal Authority and System Description
The System is established by statute; the legal authority and description of the System are detailed below.
Constitutional Authority Section 62 of Article 5 of the Oklahoma Constitution was added as a result of the passage of State Question 306 on July 14, 1942. This section reads:
“The Legislature may enact laws to provide for the retirement for meritorious service of teachers and other employees in the public schools, colleges and universities in this State supported wholly or in part by public funds, and may provide for payments to be made and accumulated from public funds, either of the State or of the several school districts. Payments from public funds shall be made in conformity to equality and uniformity within the same classifications according to duration of service and remuneration received during such service.”
Statutory Authority As a result of the passage of State Question 306, the Legislature enacted House Bill 297 in the 1943 legislative session that created the Oklahoma Teachers Retirement System (“System”). The legislation has been changed substantially in the years since its creation and is currently codified in Oklahoma Statutes Title 70, Sections 17-101 et. seq. (NOTE: In the remainder of this document, statutory references will follow the notation O.S. 70 § 17-101 to reference Oklahoma Statutes Title 70, Section 17-101.)
Purpose of System In O.S. 70 § 17-102, paragraph 1 creates the Oklahoma Teachers Retirement System and outlines the purpose of the System as follows:
“A retirement system is hereby established and placed under the management of the Board of Trustees for the purpose of providing retirement allowances and other benefits under the provisions of this act for teachers of the State of Oklahoma.”
Board of Trustees Powers The second paragraph of O.S. 70 § 17-102 provides the broad terms of the powers entrusted to the Board of Trustees (“Board”):
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OTRS Investment Policy Page 2 of 39
“The Board of Trustees shall have the power and privileges of a corporation and shall be known as the "Board of Trustees of the Teachers' Retirement System of Oklahoma", and by such name all of its business shall be transacted, all of its funds invested, and all of its cash and securities and other property held in trust for the purpose for which received.”
Further powers vested upon the Board are set forth in O.S. 70 § 17-106, in part:
“(1) The general administration and responsibility for the proper operation of the retirement system and for making effective the provisions of the act are hereby vested in a Board of Trustees which shall be known as the Board of Trustees and shall be organized immediately after a majority of the trustees provided for in this section shall have qualified and taken the oath of office.”
and:
“(10) Subject to the limitations of this act, the Board of Trustees shall, from time to time, establish rules and regulations for the administration of the funds created by this act and for the transaction of its business.
Finally, O.S. 70 § 17-106.1, in part, spells outdefines the duties of the Board in relation to investment of fund assets:
“A. The Board of Trustees of the Teachers’ Retirement System of Oklahoma shall discharge their duties with respect to the System solely in the interest of the participants and beneficiaries and: 1. For the exclusive purpose of:a. providing benefits to participants and their beneficiaries, andb. defraying reasonable expenses of administering the System;2. With the care, skill, prudence, and diligence under thecircumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; 3. By diversifying the investments of the System so as to minimizethe risk of large losses, unless under the circumstances it is clearly prudent not to do so; and 4. In accordance with the laws, documents and instrumentsgoverning the System.”
A.B. Statement of Purpose
This A primary purpose of this investment policy statement is issued for theto guideance of fiduciaries, including the members of the Board of Trustees, System staff, investment managers, consultants and others responsible for overseeing and investing the assets of the Fund. This policy also communicates foundational tenants underlying its formulation.
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OTRS Investment Policy Page 3 of 39
This policy provides specific guidance regarding investment objectives, asset allocation, risk management and the means by which investment objectives are intended to be achieved. Additional specific guidance is given in defining roles, delegated duties and accountabilities of System fiduciaries as well as setting forth logical, disciplined procedures for making decisions.
C. Statement of Investment Philosophy
Since this policy is a communication tool for System fiduciaries, interested stakeholders as well as other external parties, the Board recognizes that it is important to articulate the underlying beliefs that are foundational in its formulation. Key aspects of the Board’s investment philosophy are summarized in the following statements.
1. The Fund has an infinite time horizon and the assets should be invested andmanaged accordingly.
2. A central tenet in investing is the tradeoff between risk and return, meaning thatthe pursuit of higher expected returns is accompanied with higher expected risk.
3. Funds with long term investment horizons are able to pursue higher expectedreturns associated with higher risk portfolios because they are able to remain invested when periodic declines in market values occur.
4. The Fund will best contribute to the primary goal of providing benefits toparticipants and their beneficiaries by realizing high risk-adjusted net returns.
5. The Board acknowledges that while other institutions may make investmentdecisions to pursue various worthy causes that may be admirable in their own right, the Board’s investment decisions are made to achieve the primary goal of providing benefits to participants and their beneficiaries and defraying reasonable expenses.
6. Long term investing success is best accomplished by adhering to a long termstrategic asset allocation rather than engaging in short term tactical market timing among asset classes.
7. Diversification among asset classes and securities is the primary means ofcontrolling the risk of an investment portfolio.
8. The primary factor determining portfolio risk and return is how the portfolio isallocated among asset classes.
9. The decision-making process for investments should be both disciplined andlogical deriving support from current academic theory and the application of rigorous analysis.
10. In less efficient markets where the probabilities of achieving net-of-feeoutperformance relative to a passive market index are higher, active management is preferred. In more efficient markets where the probabilities of achieving net-of-fee outperformance relative to a passive market index are lower, low-cost index management is preferred.
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OTRS Investment Policy Page 4 of 39
11. Certain asset classes are only accessible in the form of private market interestswhich have very limited liquidity and normally higher costs relative to public market instruments. Investing a portion of the Fund in these illiquid asset classes is reasonable to the extent that they offer some desirable combination of the following relative to available public market asset classes: higher expected net return and/or risk reduction through diversification.
D. Statement of Ethical Standards
The Board of Trustees is committed to maintaining and promoting the highest ethical standards among Board members and among all parties involved in the administration of fund assets.
The Board expects all parties involved in the administration of fund assets including all System fiduciaries to conduct their activities according to the highest ethical standards adhering likewise to the principles expressed in the Board of Trustee Policy Manual Chapter 6 – Ethical and Fiduciary Conduct. Given the nature of fund management and investing, particular attention will be given to conflicts of interest. All parties involved in the administration of fund assets should be free of conflicts of interest to avoid even the appearance of not acting in the sole interests of System participants and their beneficiaries. Where any involved party becomes aware of an actual or potential conflict of interest it is their duty to disclose the conflict so that the Board may assess its seriousness.
The Board, both upon their own initiative and upon consideration of the advice and recommendations of the investment managers and other fund professionals involved with the assets, may amend policy guidelines. Proposed modifications should be documented in writing to the Board.
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Accoun
tsMarket V
alue
Accrua
lsMarket V
alue
and
Accr
%Allocatio
nTarget Allo
catio
nMin % Allo
catio
nMax % Allo
catio
nCash and
Equ
ivalen
ts$6
8,80
4,37
4.16
$8,780
.76
$68,81
3,15
4.92
0.56
%0.0%
0.0%
0.0%
Core Plus F
ixed
Income
$2,120
,098
,771
.14
$18,47
3,58
5.06
$2,138
,572
,356
.20
17.47%
17.5%
15.8%
19.3%
Domestic
All Cap Equity
$859
,415
,472
.58
$580
,199
.07
$859
,995
,671
.65
7.03
%7.0%
6.3%
7.7%
Domestic
Large Cap
Equ
ity$1
,398
,091
,327
.21
$1,771
,965
.41
$1,399
,863
,292
.62
11.44%
10.0%
9.0%
11.0%
Domestic
Mid Cap
Equ
ity$1
,728
,741
,430
.84
$642
,442
.98
$1,729
,383
,873
.82
14.13%
13.0%
11.7%
14.3%
Domestic
Small Cap
Equ
ity$1
,235
,828
,272
.30
$465
,249
.05
$1,236
,293
,521
.35
10.10%
10.0%
9.0%
11.0%
High
‐Yield Fixed
Income
$707
,024
,177
.00
$12,21
8,68
2.46
$719
,242
,859
.46
5.88
%6.0%
5.4%
6.6%
International Lg Cap Equity
$1,157
,207
,796
.82
$4,409
,035
.61
$1,161
,616
,832
.43
9.49
%11
.5%
10.4%
12.7%
International Sm Cap
Equ
ity$7
43,624
,409
.59
$1,579
,458
.54
$745
,203
,868
.13
6.09
%6.0%
5.4%
6.6%
Master Lim
ited Partne
rships
$536
,005
,608
.95
$1,689
.16
$536
,007
,298
.11
4.38
%7.0%
6.3%
7.7%
Opp
ortunistic
$160
,344
,496
.59
$0.47
$160
,344
,497
.06
1.31
%0.0%
0.0%
5.0%
Private Equity
$617
,930
,160
.00
$0.00
$617
,930
,160
.00
5.05
%5.0%
4.5%
5.5%
Real Estate
$864
,700
,845
.32
$0.00
$864
,700
,845
.32
7.07
%7.0%
6.3%
7.7%
Grand
Total
$12,19
7,81
7,14
2.5 0
$40,15
1,08
8.57
$12,23
7,96
8,23
1.07
100.00
%
Accoun
ts$V
ariance to Target
%Va
riance to Target
Target M
kt Value
$ Be
low M
in$ Ab
ove Max
Min $ Allo
catio
nMax $ Allo
catio
nCash and
Equ
ivalen
ts$6
8,81
3,15
4.92
0.56
%$0
.00
$68,81
3,15
4.92
$0.00
$0.00
Core Plus F
ixed
Income
‐$3,07
2,08
4.2 4
‐0.03%
$2,141
,644
,440
.44
$1,927
,479
,996
.39
$2,355
,808
,884
.48
Domestic
All Cap Equity
$3,337
,895
.48
0.03
%$8
56,657
,776
.17
$770
,991
,998
.56
$942
,323
,553
.79
Domestic
Large Cap
Equ
ity$1
76,066
,469
.51
1.44
%$1
,223
,796
,823
.11
$53,68
6,78
7.20
$1,101
,417
,140
.80
$1,346
,176
,505
.42
Domestic
Mid Cap
Equ
ity$1
38,448
,003
.78
1.13
%$1
,590
,935
,870
.04
$1,431
,842
,283
.04
$1,750
,029
,457
.04
Domestic
Small Cap
Equ
ity$1
2,49
6,69
8.2 4
0.10
%$1
,223
,796
,823
.11
$1,101
,417
,140
.80
$1,346
,176
,505
.42
High
‐Yield Fixed
Income
‐$15
,035
,234
.40
‐0.12%
$734
,278
,093
.86
$660
,850
,284
.48
$807
,705
,903
.25
International Lg Cap Equity
‐$24
5,74
9,51
4.1 4
‐2.01%
$1,407
,366
,346
.57
$105
,012
,879
.49
$1,266
,629
,711
.92
$1,548
,102
,981
.23
International Sm Cap
Equ
ity$1
0,92
5,77
4.27
0.09
%$7
34,278
,093
.86
$660
,850
,284
.48
$807
,705
,903
.25
Master Lim
ited Partne
rships
‐$32
0,65
0,47
8.06
‐2.62%
$856
,657
,776
.17
$234
,984
,700
.45
$770
,991
,998
.56
$942
,323
,553
.79
Opp
ortunistic
$160
,344
,497
.06
1.31
%$0
.00
$0.00
$611
,898
,411
.55
Private Equity
$6,031
,748
.45
0.05
%$6
11,898
,411
.55
$550
,708
,570
.40
$673
,088
,252
.71
Real Estate
$8,043
,069
.15
0.07
%$8
56,657
,776
.17
$770
,991
,998
.56
$942
,323
,553
.79
Grand
Total
$0.00
0.00
%$1
2,23
7,96
8,23
1.07
Investmen
t Portfolio as o
f Jan
uary 20, 2016
Asset a
llocatio
n vs Policy Targets
21
Accounts Market Value Accruals Market Value and Accruals %Allocation Accounts*OTRS‐CUSTOM CASH FLOW‐SL*OTRS‐CUSTOM CASH FLOW‐SL $68,804,374.16 $8,780.76 $68,813,154.92 0.56%
*OTRS‐CUSTOM CASH FLOW‐SL Total $68,804,374.16 $8,780.76 $68,813,154.92 0.56% 1Core Plus Fixed IncomeOTRS‐HOISINGTON INVESTMENT $334,091,509.51 $2,628,705.96 $336,720,215.47 2.75%OTRS‐LOOMIS SAYLES CORE PLUS $588,986,465.71 $5,124,377.90 $594,110,843.61 4.85%OTRS‐LORD ABBETT CORE PLUS $609,686,325.06 $4,308,149.92 $613,994,474.98 5.02%OTRS‐MACKAY SHIELDS CORE PLUS $587,334,470.86 $6,412,351.28 $593,746,822.14 4.85%
Core Plus Fixed Income Total $2,120,098,771.14 $18,473,585.06 $2,138,572,356.20 17.47% 4Domestic All Cap EquityOTRS‐ADVISORY RESEARCH ALL $410,339,288.48 $242,486.20 $410,581,774.68 3.35%OTRS‐EPOCH INVESTMENTS $449,076,184.10 $337,712.87 $449,413,896.97 3.67%
Domestic All Cap Equity Total $859,415,472.58 $580,199.07 $859,995,671.65 7.03% 2Domestic Large Cap EquityOTRS‐HOTCHKIS & WILEY LG CAP $503,011,103.26 $532,066.12 $503,543,169.38 4.11%OTRS‐NORTHERN TRUST S&P 500 $184,489,059.11 $230,633.55 $184,719,692.66 1.51%OTRS‐SAWGRASS LG CAP $528,701,790.90 $875,205.60 $529,576,996.50 4.33%OTRS‐SSGA S&P EQUAL WEIGHT $181,889,373.94 $134,060.14 $182,023,434.08 1.49%
Domestic Large Cap Equity Total $1,398,091,327.21 $1,771,965.41 $1,399,863,292.62 11.44% 4Domestic Mid Cap EquityOTRS‐ARONSON, JOHNSON & ORTIZ $476,889,650.86 $410,881.61 $477,300,532.47 3.90%OTRS‐FRONTIER MID CAP $458,184,891.82 $23,381.74 $458,208,273.56 3.74%OTRS‐HOTCHKIS & WILEY MID CAP $402,796,880.74 $70,881.21 $402,867,761.95 3.29%OTRS‐WELLINGTON MID CAP $390,870,007.42 $137,298.42 $391,007,305.84 3.20%
Domestic Mid Cap Equity Total $1,728,741,430.84 $642,442.98 $1,729,383,873.82 14.13% 4Domestic Small Cap EquityOTRS‐COVE STREET $92,338,010.18 $72,389.96 $92,410,400.14 0.76%OTRS‐FRONTIER CAP SMALL CAP $144,712,122.77 $41,328.41 $144,753,451.18 1.18%OTRS‐GENEVA CAPITAL $195,487,862.07 $55,358.45 $195,543,220.52 1.60%OTRS‐NEUMEIER POMA SMALL CAP $115,263,341.47 $30,715.36 $115,294,056.83 0.94%OTRS‐SHAPIRO CAP SMALL CAP $505,316,478.79 $187,191.88 $505,503,670.67 4.13%OTRS‐WASATCH ADV SMALL CAP $182,710,457.02 $78,264.99 $182,788,722.01 1.49%
Domestic Small Cap Equity Total $1,235,828,272.30 $465,249.05 $1,236,293,521.35 10.10% 6High‐Yield Fixed IncomeOTRS‐LOOMIS SAYLES HIGH YIELD $226,154,879.06 $3,614,616.14 $229,769,495.20 1.88%OTRS‐LORD ABBETT HIGH YIELD $242,643,368.17 $4,312,034.72 $246,955,402.89 2.02%OTRS‐MACKAY SHIELDS HIGH YIELD $238,225,929.77 $4,292,031.60 $242,517,961.37 1.98%
High‐Yield Fixed Income Total $707,024,177.00 $12,218,682.46 $719,242,859.46 5.88% 3International Lg Cap EquityOTRS‐CAUSEWAY CAPITAL $437,060,709.03 $1,512,502.95 $438,573,211.98 3.58%OTRS‐NORTHERN TRUST INTL $720,147,087.79 $2,896,532.66 $723,043,620.45 5.91%
International Lg Cap Equity Total $1,157,207,796.82 $4,409,035.61 $1,161,616,832.43 9.49% 2International Sm Cap EquityOTRS‐ADVISORY RESEARCH INTL $181,242,348.53 $676,299.16 $181,918,647.69 1.49%OTRS‐EPOCH INTL $180,244,073.00 $314,325.10 $180,558,398.10 1.48%OTRS‐WASATCH INTL $192,619,963.98 $255,466.47 $192,875,430.45 1.58%OTRS‐WELLINGTON INTL $189,518,024.08 $333,367.81 $189,851,391.89 1.55%
International Sm Cap Equity Total $743,624,409.59 $1,579,458.54 $745,203,868.13 6.09% 4Master Limited PartnershipsOTRS‐ADVISORY RESEARCH $156,686,951.22 $381.70 $156,687,332.92 1.28%OTRS‐CHICKASAW CAPITAL $199,368,585.71 $802.33 $199,369,388.04 1.63%OTRS‐CUSHING ASSET $179,950,072.02 $505.13 $179,950,577.15 1.47%
Master Limited Partnerships Total $536,005,608.95 $1,689.16 $536,007,298.11 4.38% 3Opportunistic*OTRS‐PIMCO BRAVO II‐SL $134,122,093.77 $0.00 $134,122,093.77 1.10%*OTRS‐PIMCO BRAVO‐SL $26,222,402.82 $0.47 $26,222,403.29 0.21%
Opportunistic Total $160,344,496.59 $0.47 $160,344,497.06 1.31% 2Private Equity*OTRS‐LEGACY LP‐SL $43,864,159.00 $0.00 $43,864,159.00 0.36%OTRS‐FRANKLIN PARK‐SL $574,066,001.00 $0.00 $574,066,001.00 4.69%
Private Equity Total $617,930,160.00 $0.00 $617,930,160.00 5.05% 2Real Estate*OTRS‐AEW REAL ESTATE‐SL $249,188,473.50 $0.00 $249,188,473.50 2.04%*OTRS‐AMERICAN REALTY ADV‐SL $15,367,499.92 $0.00 $15,367,499.92 0.13%*OTRS‐ANTHEUS CAPITAL‐SL $26,875,000.00 $0.00 $26,875,000.00 0.22%*OTRS‐DUNE REAL ESTATE‐SL $31,962,173.00 $0.00 $31,962,173.00 0.26%*OTRS‐GREENOAK REAL ESTATE‐SL $20,537,053.00 $0.00 $20,537,053.00 0.17%*OTRS‐HEITMAN REAL ESTATE‐SL $255,070,474.90 $0.00 $255,070,474.90 2.08%*OTRS‐L&B GOLDEN DRILLER‐SL $26,742,549.00 $0.00 $26,742,549.00 0.22%*OTRS‐L&B REAL ESTATE‐SL $221,081,223.00 $0.00 $221,081,223.00 1.81%*OTRS‐LANDMARK REALTY ADV‐SL $13,155,244.00 $0.00 $13,155,244.00 0.11%*OTRS‐STARWOOD CAPITAL‐SL $4,721,155.00 $0.00 $4,721,155.00 0.04%
Real Estate Total $864,700,845.32 $0.00 $864,700,845.32 7.07% 10Grand Total $12,197,817,142.50 $40,151,088.57 $12,237,968,231.07 100.00% 47
Investment Portfolio as of January 20, 2016Allocation by Investment Account and Asset Class
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Firms Market Value and Accruals %Allocation # FirmsADVISORY RESEARCH $749,187,755.29 6.12%AEW REAL ESTATE $249,188,473.50 2.04%AMERICAN REALTY ADV $15,367,499.92 0.13%ANTHEUS CAPITAL $26,875,000.00 0.22%ARONSON, JOHNSON & ORTIZ $477,300,532.47 3.90%CAUSEWAY CAPITAL $438,573,211.98 3.58%CHICKASAW CAPITAL $199,369,388.04 1.63%COVE STREET $92,410,400.14 0.76%CUSHING ASSET $179,950,577.15 1.47%DUNE REAL ESTATE $31,962,173.00 0.26%EPOCH INVESTMENTS $629,972,295.07 5.15%FRANKLIN PARK $617,930,160.00 5.05%FRONTIER $602,961,724.74 4.93%GENEVA CAPITAL $195,543,220.52 1.60%GREENOAK REAL ESTATE $20,537,053.00 0.17%HEITMAN REAL ESTATE $255,070,474.90 2.08%HOISINGTON INVESTMENT $336,720,215.47 2.75%HOTCHKIS & WILEY $906,410,931.33 7.41%L&B REAL ESTATE $247,823,772.00 2.03%LANDMARK REALTY ADV $13,155,244.00 0.11%LOOMIS SAYLES $823,880,338.81 6.73%LORD ABBETT $860,949,877.87 7.04%MACKAY SHIELDS $836,264,783.51 6.83%NEUMEIER POMA $115,294,056.83 0.94%NORTHERN TRUST $976,576,468.03 7.98%PIMCO $160,344,497.06 1.31%SAWGRASS $529,576,996.50 4.33%SHAPIRO CAP $505,503,670.67 4.13%SSGA $182,023,434.08 1.49%STARWOOD CAPITAL $4,721,155.00 0.04%WASATCH $375,664,152.46 3.07%WELLINGTON $580,858,697.73 4.75%Grand Total $12,237,968,231.07 100.00% 32
Investment Portfolio as of January 20, 2016Allocation by Investment Management Firm
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