Jersey Teachers' Superannuation Fund: Investment Strategy

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A decision made 20 October 2015:

Decision Reference: MD-TR-2015-0113
Decision Summary Title:	JTSF Investment Strategy		Date of Decision Summary:	20th October 2015
Decision Summary Author:	Head of Investment Management and Charitable Funds		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title:	JTSF Investment Strategy		Date of Written Report:	20th October 2015
Written Report Author:	Head of Investment Management and Charitable Funds		Written Report : Public or Exempt?	Public
Subject: Alter the Jersey Teachers’ Superannuation Fund’s (the Fund’s) investment strategy to decrease the reliance on equities and invest in alternatives.
Decision(s): The Minister decided to increase the Fund’s alternative asset allocation from 0% to 20% and reduce the amount allocated to equities from 70% to 50%.
Reason(s) for decision: Under the Teachers’ Superannuation (Administration) (Jersey) Order 2007, Article 8, (paragraph 4), the Management Board with the agreement of the Minister for Treasury and Resources shall agree with each investment manager an investment strategy. This paragraph has been interpreted that the Minister is required to approve the investment strategy of the Fund. Accordingly the Management Board has asked the Minister to consent to adjust the investment strategy. The Management Board decisions are based on advice from AON Hewitt, JTSF Investment Advisor.
Resource Implications: There are no staffing or financial implications. The above decision will be actioned by the existing staff in Treasury Operations and include asset transfers within existing pools.
Action required: The Head of Investment Management and Charitable Funds to send a copy of the decision to the JTSF Management Board as evidence of this decision.
Signature:		Position: Senator A J H Maclean, Minister for Treasury and Resources
Date Signed:		Date of Decision:

Jersey Teachers' Superannuation Fund: Investment Strategy

Treasury and Resources

Ministerial Decision Report

JTSF Investment STRATEGY

Purpose of Report

To alter the Jersey Teachers’ Superannuation Fund’s (the Fund’s) investment strategy to decrease the reliance on equities and invest in alternatives.

Background

Under the Teachers’ Superannuation (Administration) (Jersey) Order 2007, regulation 8, (paragraph 4), the Management Board with the agreement of the Minister for Treasury and Resources shall agree with each investment manager an investment strategy. This paragraph has been interpreted that the Minister is required to approve the investment strategy of the Fund. Accordingly the Management Board has asked the Minister to consent to adjust the investment strategy.

Proposal to invest in alternatives

The Management Board accept that the current strategy runs a high degree of risk due to the 70% allocation to equities. The Fund joined the States of Jersey Common Investment Fund (the CIF) in August 2013. This has given the Fund the ability to invest in a diverse range of assets classes. The CIF is currently building the capability to invest in the alternative asset class by building an absolute return pool and has plans to build an opportunity pool. The Management Board agreed this during its meeting on 6th October 2015 to invest in this asset class.

The absolute return pool has the dual aim of capital preservation and constancy of returns. To enable this to occur the CIF is building a pool with 11 separate managers focusing in four different areas; long/short equity, event driven, global macro and multi strategy. With this diverse range of managers it is hoped that the pool will return 5 - 6% above libor with a volatility of 6% (this compares to a volatility of 20% for equities).

The opportunities pool will access the illiquidity premium that funds such as JTSF can exploit by being able to be lock up assets for a long time (7-10 years). The pool will invest in non-traditional asset classes that have attractive diversification characteristics being uncorrelated to equities. It is aimed that this pool will, over the long term, have a greater efficiency [1] to equities. It is proposed that the pool will invest in the following areas; property debt, mid-market lending or reinsurance.

Investing in this pool will enable the Fund to reduce its reliance on equities and provide returns that are less correlated to other asset classes.

The Management Board has been advised by Aon Hewitt, the investment advisor, to alter the investment strategy as below: -

Asset class	Current allocation (%)	Proposed allocation (%)	Proposed range (%)
Equities	70	50	40 – 60
Bonds / Cash	10	10	5 – 15
Property	20	20	0 – 22
Alternatives	0	20	10 – 25

Recommendation

The Minister is recommended to increase the Fund’s alternative asset allocation from 0% to 20% and reduce the amount allocated to equities from 70% to 50%.

Reason for Decision

Reducing the allocation to equity will reduce the reliance the Fund has on equities and investing in alternatives will provide returns that are not correlated to equities that focus on capital protection whilst accessing the illiquidity premium.

Resource Implications

There are no staffing or financial implications. The above decision will be actioned by the existing staff in Treasury Operations and include asset transfers within existing pools.

Report author : Head of Investment Management & Charitable Funds	Document date : 20th October 2015
Quality Assurance / Review : Head of Decision Support	File name and path: L:\Treasury\Sections\Corporate Finance\Ministerial Decisions\DS,WR and SD
MD sponsor : Director of Treasury Operations

[1] Have higher return for the same level of risk or the same level of return for a lower level of risk.