Zepnick, Josh (Co-chair)
Hubler, Mary (Vice-chair)
Hebl, Gary
LeMahieu, Daniel *
Gunderson, Scott
Joint Committee on Employment Relations (3, 1)
Sheridan, Michael (Co-chair)
Nelson, Thomas
Pocan, Mark
Fitzgerald, Jeff *
Joint Committee on Finance (6, 2)
Pocan, Mark (Co-chair)
Colon, Pedro (Vice-chair)
Mason, Cory
Shilling, Jennifer
Sherman, Gary
Grigsby, Tamara
Vos, Robin *
Montgomery, Phil
Joint Legislative Audit Committee (3, 2)
Barca, Peter (Co-chair)
Jorgensen, Andy (Vice-chair)
Pocan, Mark
Kramer, Bill *
Kerkman, Samantha
Joint Committee on Legislative Organization (3, 2)
Sheridan, Michael (Co-chair)
Nelson, Thomas
Seidel, Donna
Gottlieb, Mark
Joint Survey Committee on Retirement Systems (2, 1)
Hubler, Mary (Co-chair)
Ziegelbauer, Bob (Vice-chair)
Gottlieb, Mark *
Joint Survey Committee on Tax Exemptions (2, 1)
Hubler, Mary (Co-chair)
Cullen, David (Vice-chair)
Zipperer, Rich *
__________________
Agency Reports
State of Wisconsin
Department of Employee Trust Funds
Madison
December 15, 2008
To the Honorable, the Assembly:
I am pleased to present the Comprehensive Annual Financial Report (CAFR) of the Wisconsin Department of Employee Trust Funds (ETF) for the year ended December 31, 2006. Management is responsible for both the accuracy of the data and the completeness and fairness of the presentation. I hope you will find this report useful and informative.
This CAFR contains information on the following benefit plans administered by ETF:
• Wisconsin Retirement System
• Employee Reimbursement Accounts
• Group Health Insurance
• Deferred Compensation
• Group Life Insurance
• Accumulated Sick Leave Conversion Credit
• Income Continuation Insurance
• Commuter Benefits
• Duty Disability
• Long-Term Disability Insurance
This report is intended to provide comprehensive and reliable information about ETF, the WRS, and other benefit plans and trust funds administered by the Department. I would like to express my appreciation to the Governor, members of the legislature, members of the boards, staff, employers, participants, and all those whose efforts and interest combine to assure the successful operation of our system, while protecting the integrity of the trust funds.
Sincerely,
DAVID A. STELLA
Secretary
__________________
State of Wisconsin
Investment Board
Madison
January 7, 2009
To the Honorable, the Assembly:
Pursuant to s.
25.17 (14r), Stats., I want to advise you of revisions to SWIB's "Investment Policies, Objectives and Guidelines" approved by the Board of Trustees during the last six months of 2008. These guidelines apply to SWIB's internally managed portfolios. I am sending you electronic copies of the revised guidelines plus a red-lined copy that shows the language added or deleted.
Many of these changes were made as a result of the prudent investor language that was enacted in
2007 Wisconsin Act 212. These changes:
• Replace references to the limitations on external management with a discussion of how SWIB will determine the optimal structure for externally managed assets. The statutes previously restricted external management in separate accounts to 20% of the assets, which limited the Board's ability to manage the funds in the most prudent way.
• Remove limitations on derivatives, which had previously been imposed by reference to the insurance statutes, and allow expanded authority for the Global Fixed Income Portfolio. This expanded authority allows the portfolio manager to use derivatives, within established limits, to manage credit and currency risk as well as the opportunity to short certain currencies. The guidelines also make it clear that all investments, including derivatives, are subject to risk measurement and monitoring. The Investment Committee must review all derivative strategies before they are implemented.
• Authorize trading of equity options on exchanges in developed countries other than the United States.
• Establish an internally managed currency overlay strategy for the internal and external international equity portfolios. This will allow active management of the currency risks in these portfolios and thereby separate the currency risk from the risk associated with asset allocation or security selection. The guidelines make a distinction between the positions permitted for major currencies and the remaining currencies in the index and include risk parameters for the aggregate overlay program.
• Eliminate the restriction that had prohibited the government/credit portfolio from establishing a leveraged position. With this change, the portfolio manager will no longer have to hold cash equal to the notional amount of any derivative position but will be required to provide for adequate margin for the derivative holdings in the portfolio.
• Establish an internally managed multi-asset strategy that provides for broad investment parameters for individual investment strategies but done within a defined vetting process and stated risk and leverage limits. The guidelines also require the Internal Auditor to review the investment strategy guidelines and the staff to report to the Board as the strategies are adopted and implemented.
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In addition to the items listed above, the Board made other less significant changes to the guidelines that reduce active risk, provide more oversight and incorporate changes made by the Board, such as the asset allocations for 2009.
The reporting requirements in the statutes appear to only apply to internal management and not to contracts we initiate with external managers or changes we make to existing contracts. However, because of the significant amount of assets managed by external managers, we decided in 2006 to inform you of any new contracts with external managers or changes to existing contracts. In keeping with that decision, we want to advise you that we amended the contract for a global fixed income portfolio to clarify investments in sovereign and non-sovereign debt instruments. We also changed the strategy with one external manager from core to growth focus and changed the structure of the portfolio from a commingled fund to a separate account, which reduced the management costs. Finally, SWIB signed a contract with a small cap equities fund of funds manager. This manager in turn contracts with a number of small cap managers, which gives SWIB a more diversified exposure to the small company market. All of these changes will further diversify the WRS holdings.
If you have any questions on any of the changes, please contact me at 266-9451 or Sandy Drew at 261-0182.
Sincerely,
KEITH BOZARTH
Executive Director
