102 KAR 1:175. Investment policies.
RELATES TO: KRS 161.430
STATUTORY AUTHORITY: KRS 161.310, 161.430(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS
161.310 requires the Teachers' Retirement System Board of Trustees to promulgate
administrative regulations for the administration of the funds of the
retirement system and for the transaction of business. KRS 161.430(1) requires
the board of trustees to promulgate administrative regulations to establish
investment policies and procedures to carry out its responsibilities and
provides that the board of trustees shall have full power and responsibility
for the purchase, sale, exchange, transfer, or other disposition of the
investments and money of the Teachers' Retirement System. This administrative
regulation establishes investment policies and procedures to carry out these
Section 1. (1)(a) The board of trustees
shall appoint an investment committee in accordance with the provisions of KRS
161.430(1). The trustees shall be named at the beginning of each fiscal year.
(b) The executive secretary shall act on
behalf of the investment committee in administering the investment policies and
procedures established in this administrative regulation.
(c) To ensure a timely market
transaction, the executive secretary and the chief investment officer may make
a purchase or sale of an investment instrument without prior board approval if
the action conforms to the provisions established in this administrative
(2) The staff investment
personnel employed by the board under KRS 161.430(1) may be delegated
transaction responsibilities under the supervision of the chief investment
officer and the executive secretary.
(3)(a) Contracts with contracted investment
counselors employed under KRS 161.430(1) shall be on
a fiscal year basis for twelve (12) month periods, except that contracts entered into on or after the start of a fiscal
year shall not extend beyond the end of the fiscal year in which the contract
(b) The system may invest in either
separately-managed accounts or commingled funds.
(c) The investment committee shall make
recommendations to the board regarding employment of investment counselors and
the renewal or nonrenewal of contracts.
(d)1.The system may utilize the services
of a consultant to advise the investment committee, as well as to assist in
evaluating the effectiveness of investment counselors.
2. A consultant may advise the investment
committee with regard to asset class allocation and the combined effect of the
various portfolios on the system’s overall risk and expected long-term return.
(e) Investment counselors shall provide
reports documenting their results at least quarterly and meet with the
investment committee if requested.
(f) An annual report on the performance
and service of each investment counselor shall be provided to the board with
recommendations from the investment committee.
(4) The following procedures shall be
followed with regard to all investment transactions, whether internally or
(a) The board shall be provided a
quarterly report reflecting a complete record of each investment transaction
that occurred during that quarter;
(b) The investment committee shall be
provided a complete record of each investment transaction or holding;
(c) The staff shall maintain a file of
investment directives that indicates the committee's separate review of each
specific long-term investment; and
(d) An "authorization for
investment" shall be approved or denied by the executive secretary or the
chief investment officer.
Section 2. Asset Allocation. (1) In order
to preserve the assets of the system and produce the required rate of return
while minimizing risk, assets shall be prudently diversified among various
classes of investments.
(2) In determining asset allocation
policy, the investment committee and the board shall be mindful of the system’s
liquidity and its capability of meeting both short and long-term obligations.
The limitations established in this subsection shall apply to the asset classes
in which funds are invested.
(a) There shall not be a limit on the
amount of investments owned by the system if the investments are guaranteed by
the United States government.
(b) The amount invested in corporate debt
obligations shall not equal more than thirty-five (35) percent of the assets of
(c) The amount invested in common stocks
or preferred stocks shall not equal more than sixty-five (65) percent of the assets
of the system.
(d) The amount invested in a stock portfolio
designed to replicate a general stock index shall not equal more than
twenty-five (25) percent of the assets of the system.
(e) More than thirty (30) percent of the
assets of the system shall not be invested in the
stocks of companies domiciled outside of the United States. An amount of this type if invested shall be included in the
sixty-five (65) percent limitation established under this subsection.
(f) The amount invested in real estate
shall not equal more than ten (10) percent of the assets of the system. Real
estate shall include real estate equity, real estate lease agreements, and
shares in real estate investment trusts.
(g) The amount invested in alternative
investments shall not equal more than ten (10) percent of the assets of the
system. This category may include private equity, venture capital, timberland,
and infrastructure investments.
(h)1. The amount invested in an
additional category or categories of investments shall not equal more than
fifteen (15) percent of the assets of the system.
2. The board shall approve or deny by
resolution any additional category or categories of investments.
Section 3. Fixed Income Investments. The
specific guidelines associated with a fixed income investment shall be
established in this section.
(1) Unless the issuer is the United States government or a government sponsored enterprise (GSE), the amount invested in
the securities of a single issuer shall not equal more than five (5) percent of
the assets of the system.
(2)(a) A fixed income investment shall be
rated at the time of purchase as investment grade by at least one (1) of the
major rating services.
(b) A private placement debt investment
shall be subject to the same credit qualifications as each fixed income
(c) The fixed income investment portfolio
as a whole shall maintain an average rating of investment grade by at least one (1) of the
major rating services.
(3) Investments in mortgages or
mortgage-backed securities shall consist of first mortgages on property located
in the United States unless the mortgage is guaranteed by the United States government.
(4) A foreign debt purchase shall comply
other fixed income restrictions in this section. Foreign debt shall not in
aggregate equal more than ten (10) percent of the assets of the system.
Section 4. Equity and Real Estate
Investments. The requirements established in this section shall apply to equity
and real estate investments.
(1)(a) The system's position in a single
stock shall not exceed two and one-half (2.5) percent of the system's assets.
(b) The system's position in a single
stock shall not exceed five (5) percent of the outstanding stock for that
company unless the investment is part of a venture capital program.
(2) A real estate purchase that is conducted
on a triple net lease basis shall involve a company that at the initial agreement
generates one (1) of the three (3) highest credit ratings by a national credit
(3)(a) A real estate investment shall be
judged on its total return potential.
(b) The system shall not acquire
undeveloped land unless development plans are imminent.
(c) This provision shall not preclude
investment in timberland.
(4) The system shall not buy bullion,
stamps, rare coins, or other collectibles, unless approved by the board as an
additional category of investment. The board shall approve these assets as an
additional category of investment only in exceptional circumstances if there is
a potential investment in these assets that provides a high value opportunity
and lowers the risk of the portfolio overall. (TRS-26; 1 Ky.R. 464; eff.
3-12-75; Am. 17 Ky.R. 3214; eff. 7-5-91; 24 Ky.R. 129; 559; eff. 9-4-97; 31
Ky.R. 1873; 32 Ky.R. 45; eff. 8-5-2005; 33 Ky.R. 3431; eff. 7-19-07; 37 Ky.R.
2039; 2375; eff. 5-6-2011.)