FINANCIAL AND INVESTMENT INSTRUMENTS
Lecture 1
Introduction and Overview
Aims
After this lecture you should:
• Understand the overall process of investment management
• Know the main elements of client objectives
• Know the principal constraints affecting client investments
• Be familiar with typical institutional policy agreements and operating guidelines
• Know the principal instruments available for financial investment
• Know the main properties of these financial instruments
• Know the main forms of investment management institutions.
Reading:
Investment Analysis and Portfolio Management, 7th edition, Frank K. Reilly and Keith C.
Brown (Thomson South-Western, 2003): Chapters 1, 2, 17(652-654; and 25.
Case Studies:
1) Interview with your Portfolio Manager 2) Ednam Products Company
Appendix: “Investment Policy Statement”
Fund Management
Description of the fund management industry
What do fund managers do?
A fund manager is an individual (or company) that performs a range of activities centred
around core service of investing client assets
- managing an investment portfolio
Principal-Agent framework:
Client employs fund manager to invest client’s assets in order to generate superior returns
for a given level of risk or the lowest level of risk to achieve a targeted return
- Locate client on efficiency frontier or
- Generate abnormal returns above a benchmark
Why P-A ?
- Superior skills of fund manager (?)
- Low transactions costs – returns to scale
- In-house fund manager – no P-A
Institutionalisation of the UK Equity Market to 1999.
End year (%)
1963 1975 1981 1989 1994 1999
Pension Funds 6.4 16.8 26.7 30.6 27.8 19.6
Insurance Companies 10.0 15.9 20.5 18.6 21.9 21.6
Unit & Investment
Trusts & other
12.6 14.6 10.4 8.6 10.1 9.7
Banks 1.3 0.7 0.3 0.7 0.4 1.0
TOTAL UK Institutions 30.3 48.0 57.9 58.5 60.2 51.9
Individuals 54.0 37.5 28.2 20.6 20.3 15.3
Other personal sector 2.1 2.3 2.2 2.3 1.3 1.3
Public sector 1.5 3.6 3.0 2.0 0.8 0.1
Industrial &
Commercial Companies
5.1 3.0 5.1 3.8 1.1 2.2
Overseas 7.0 5.6 3.6 12.8 16.3 29.3
TOTAL 100 100 100 100 100 100 Source Myners' Report 2001, from ONS 'Share Ownership: A Report on the Ownership of Shares at
31/12/99', p. 8
The Client
Who is the client?
Types of Client
- Private Client – Individuals, trusts
- Charities/endowments
- Companies
- Mutual Fund
- Insurance Company
- Pension Fund
o Defined Benefit o Defined Contribution
Client Objectives
- Attitude: owner or overseer (e.g. direct client or pension fund trustee)
- Financial Planning
o Life cycle concerns: young/old o Married/single/children o Wealth o Human capital o Other financial commitments
- Return objectives
- Risk tolerance
Risk type
- Market risk
o Interest rate - Business risk
o Operating o Credit risk
- Financial risk
- Currency/Exchange rate
- Country/Political
- Absolute vs. relative?
Note: Investors require compensation for risk: Asset pricing theories; SML
Client constraints
- Time horizon
- Liquidity
- Tax
- Regulatory/legal
- Unique needs, e.g. social or moral concerns
Small Clients/ Individuals
If client is small (an individual), then client may invest funds in a pooled investment
vehicle run by a financial institution.
The financial institution employs fund managers to manage this investment pool
ie unit trusts (mutual funds), investment trusts (Closed-end funds), insurance funds
Large Clients
If client is large, then
- fund manager hired to manage the fund, or
- client may employ a fund manager in-house
- ie large pension funds, insurance companies, large charities
The Fund Manager
Role of Fund Manager:
Structures the client’s portfolio: mix of asset classes/ select assets
Adjust portfolio through time
Provide client with record of portfolio performance
Fund Management Organisation
Front office (marketing, sales, asset allocation, research)
Back Office (settlement, storage, compliance, systems)
- Trend for outsourcing some of these functions
Two types of fund managers:
- Private Management Firms:
o bespoke investment management o individual management of clients’ portfolio o asset managers are custodians
- Investment Companies
o Pooled investment vehicles
What long-term policy or strategy is set?
- Need for a policy statement
- Identify characteristics of investment strategies: small companies,
value strategies etc.
Portfolio Management Process.
Source: Managing Investment Portfolios: A Dynamic Perspective
Portfolio Management Process
1. Policy Statement a. Identify investors’ needs
2. Context of current and projected economic, political and social conditions a. Is relationship between key factors and expected returns on assets
reviewed?
3. Portfolio construction a. Invest in a range of assets
4. Assessment: Monitoring/feedback a. Are key factors affecting returns in the capital markets monitored? b. Process for constructing & revising portfolio? c. How is portfolio performance monitored? d. What is the BENCHMARK?
Specification and
Quantification of
Client Objectives,
Constraints,
Portfolio Policies and
Strategies
Capital Market
Expectations
Relevant Economic,
Social, Political,
Sector and Security
Considerations
Portfolio
Construction and
Revision
Asset Allocation,
Portfolio
Optimisation,
Security Selection,
Implementation and
Execution
Monitoring Client-
Related Input
Factors
Monitoring
Economic and
Market Input
Factors
Attainment of Client
Objectives
Performance
Measurement
Type of Fund Management:
1. Segregated versus pooled
Under segregated management, assets are managed in a bespoke manner, in which the
individual client’s details are taken into account in designing a portfolio, and the fund
manager acts as a custodian to the investor’s capital. Alternatively, particularly for small
clients, assets are managed on a pooled basis, involving the “commingling” of
investments of different investors
2. Balanced Management:
An individual fund manager is responsible for both the asset allocation of the portfolio,
and the selection of individual securities within each asset class
3. Asset Allocation
Strategic Asset Allocation involves the global and domestic long-term mix of assets,
based long-run forecasts of returns and risks
Tactical Asset Allocation (Market timing) is the temporary adjustments of the portfolio
away from the SAA decision to exploit relative market differentials in te short-term
4. Security Selection: Active Management
The assumption of active fund management is that fund managers have better
information/better skills and are able to outperform the efficiency frontier
Increasingly specialist managers/specialist mandates are an alternative to balanced
management
5. Security Selection: Passive
buy-and-hold
tracks the market portfolio;
Quantitative Investment Management
Programme Trading
Hedge Funds
Note trend to global consolidation of fund management
Asset Management in Europe 2000 ($bn)
UK
Switzerland
France
Germany
The Netherlands
Italy
Sweden
Denmark
Ireland
Others
Source: Charterhouse Securities: ‘Major Themes in Global Fund Management’, May 2000, p.27.
Costs of Fund Management
Management fees charged in different countries for a £100 million mandate
Basis Points per annum
Canada UK Australia US
Equities Fixed
Interest
Equities Fixed
Interest
Equities Fixed
Interest
Equities Fixed
Interest
Upper
Quartile
Fee
28 22 48 23 47 22 50 30
Median
Fee
24 18 40 18 44 19 42 26
Lower
Quartile
Fee
21 16 30 17 40 18 33 23
Source: Frank Russell quoted in Myners’ Report (2001)
Table 5.2: Fifteen largest pension management firms in the UK in 1998
Manager
UK
Pension
Assets
($bn)
Market
Share
(%)
Schroders Investment Management 98.8 11.9
Merrill Lynch Mercury Asset
Management 96.5 11.7
Barclays Global Investors 73.4 8.9
Phillips & Drew 70.0 8.5
Hermes Pension Management 68.5 8.3
Gartmore 48.9 5.9
Deutsche Asset Management 46.5 5.6
Goldman Sachs Asset Management 33.9 4.1
Hill Samuel Asset Management 22.8 2.8
Prudential Portfolio Managers 20.9 2.5
Foreign & Colonial 16.9 2.0
Fidelity International 16.4 2.0
Henderson Investors 15.5 1.9
First Quadrant 13.2 1.6
Fleming Asset Management 13.1 1.6
Definition of Returns
The definition of a return R from holding an asset X over the period t to t+1 is
t
tt
t
t
t
ttt
xp
pp
p
d
p
ppdR
)()( 11 −+=
−+= ++
Rearranging
Gross Return is t
ttx
p
pdR 11 ++
=+
where dt is the cash flow from holding the asset during the period (t,t+1), pt is the price
paid for the asset at time t, and pt+1 the price received for the asset at time t+1. The time
period could be annual, weekly, daily, minute-by-minute.
These returns may be random since the future price and the dividends are uncertain at
time t.
UK Stock Market Index (FTA/FTO & All Share)
1955-2003
0
500
1000
1500
2000
2500
3000
3500
01/01/1955
01/01/1958
01/01/1961
01/01/1964
01/01/1967
01/01/1970
01/01/1973
01/01/1976
01/01/1979
01/01/1982
01/01/1985
01/01/1988
01/01/1991
01/01/1994
01/01/1997
01/01/2000
01/01/2003
Series1
FTSE All-S
hare In
dex Value
0
500
1000
1500
2000
2500
3000
3500
31/12/1986
31/12/1987
31/12/1988
31/12/1989
31/12/1990
31/12/1991
31/12/1992
31/12/1993
31/12/1994
31/12/1995
31/12/1996
31/12/1997
31/12/1998
31/12/1999
31/12/2000
31/12/2001
31/12/2002
FTSE All-S
hare In
dex Value
Returns on FTSE All-S
hare
-15
-10 -5 0 5
10
02/01/1987
02/07/1987
02/01/1988
02/07/1988
02/01/1989
02/07/1989
02/01/1990
02/07/1990
02/01/1991
02/07/1991
02/01/1992
02/07/1992
02/01/1993
02/07/1993
02/01/1994
02/07/1994
02/01/1995
02/07/1995
02/01/1996
02/07/1996
02/01/1997
02/07/1997
02/01/1998
02/07/1998
02/01/1999
02/07/1999
02/01/2000
02/07/2000
02/01/2001
02/07/2001
02/01/2002
02/07/2002
02/01/2003
All S
hare Returns
Frequency Distribution of FTSE ALL-Share Daily Returns 86-03
0
100
200
300
400
500
600
700
-0.06
-0.0525
-0.045
-0.0375
-0.03
-0.0225
-0.015
-0.0075
2.29677E-15
0.0075
0.015
0.0225
0.03
0.0375
0.045
0.0525
0.06
Frequency
Means and Variances and Basic Portfolio Mathematics
A series of returns, or a frequency distribution, can be characterised by its mean and
variance
Mean ∑=
=T
t
tti RpER1
If we compute the mean from a sample of past returns, it is typically assumed that pi =
1/T.
Variance ∑=
−=T
t
itti ERRpVar1
2)(
Standard Deviation ii VarSD =
If the returns on assets are random, then the returns on the portfolio “P” will also be a random
variable. If there are N assets in the portfolio
RP = w1 R1 + w2 R2 + . . . . . + wN RN
Where wi are the proportions of wealth invested in each asset, and usually
w1 + w2 + . . . . . + wN = 1.
Properties of a Portfolio
Consider the expected return and the variance of the returns on the portfolio, when µX is the mean return on asset X, and
σ2X is the variance of asset X
Expected Return of Portfolio
µP = w1 µ1 + w2 µ2 + . . . . + wN µN
Variance of 3-asset Portfolio
σ2P = [w1 2 σ21 + w2 2 σ22 + w3 2 σ23 + 2w1 w2 σ1,2 + 2w1 w3 σ1,3 + 2w2 w3 σ2,3]
where σXY is the covariance between asset X and asset Y, and is defined as
Covariance ))((1
,,, ∑=
−−=T
t
YtYXtXtYX ERRERRpσ
The covariance between two assets show how their returns move together. Covariance may
also be written as
YXXXYX ,, ρσσσ =
where ρX,Y is the correlation coefficient.
The fact that the variance of the portfolio depends on the covariance of the pairs of asset
returns, means that the standard deviation of the portfolio will be less than the weighted average
of the standard deviations of the assets that make up the portfolio, and this is the basis for
portfolio diversification.
Principal asset classes available to portfolio manager
Financial Assets (in order of Riskinesss)
Category Type Characteristics
Non-Marketable Savings Accounts
Certificates of Deposit
Government Savings Certificates
short term and safe return
Money Market Treasury Bills
Negotiable CDs
Commercial Paper
Repurchase Agreement (Repo)
Bankers Acceptances
Currencies
Short-term
Bond Market Corporate Bonds
Eurobonds
Supranational Bonds
Government Bonds
- fixed interest payments (&
floating)
- face value at maturity
- Returns (slightly) random
- sovereign: safe (?)/inflation
- corporate: risky
Equity Market Preferred Stock (Preference Shares)
Common Stock (Ordinary Shares)
- Random dividend payments
- Stock price fluctuates
- Returns random
- Small cap stocks more
volatile
- Foreign Stocks more volatile
Mutual Funds Open End (UK = Unit Trust)
Closed End (UK = Investment Trust)
- Diversified portfolio
Derivatives
Options
Futures
Swaps
- Depends on other assets pay-
offs
- Levered – hence risky
Alternative
Investments
Real estate,
Venture Capital
Hedge Funds
Commodities, works-of-art
- Illiquid
- Long-term?
Return and Volatility of Financial Assets (1990-2000) (% p.a.)
Yields Instrument Mean
(% pa)
SD Min Max
UK Treasury Bill
(3 months)
6.8 1.9 4.4 13.4
UK Government Bond
(10 year)
7.3 1.8 4.4 10.4
US Treasury Bill
(3 months)
4.7 0.9 2.8 6.8
US CD (3 months) 6.2 1.1 3.1 7.8
US Government Bond
(10 year)
6.8 0.8 0.8 8.5
US Corporate Bond (AAA) 7.5 0.7 6.2 9.1
Returns (Monthly) % per
month
UK FTSE All Share 1.3 3.9 -10.4 11.3
US S&P Composite 500 1.4 3.9 -14.5 11.5
Source: Datastream
Long-run US Average Rates of Return 1926-2000
Annual
Geometric
Mean Rate of
Return
Annual Average Rate of
Return
Standard
Deviation
Average
Nominal
Risk
Premium
Nominal Nominal Real Nominal Nominal
US Treasury
Bills
3.8 3.9 0.8 3.2 0
Intermediate-
-Term US
Government
Bonds
5.3 5.5 2.2 5.7 1.6
Long-Term
US
Government
Bonds
5.3 5.7 2.7 9.4 1.8
Long-term
US
Corporate
Bonds
5.8 6.1 3.1 8.6 2.2
S&P 500 10.7 13.0 9.7 20.2 9.1
Small cap
stocks
17.3 13.8 33.4 13.4
Source: Ibbotson Associates Inc., 2002 Yearbook
Average risk premium is the extra return over and above the return on Treasury bills that
the asset yields:
Ri = rf + risk premium
Annualised Returns
To obtain the annual return from the monthly return, simply compound Rm
RA = (1+Rm)12 - 1
Similarly to obtain quarterly return from annual:
RQ = (1+RA)1/4 - 1
Arithmetic and Geometric Averages
As above, the arithmetic mean is ∑=
=T
t
ti RT
AM1
1
Geometric mean is 1)1(
/1
1
−
+= ∏
=
TT
t
ti RGM
GM is better estimate of true long-run return that an investor would actually achieve. AM
is the better indication of what an investor will achieve in any particular year.
Cases
1. Seligman Common Stock Fund
2. Margaret Custer a. She is young with a long time horizon to retirement
i. So unaffected by short and medium term stock market performance ii. Ie risk-tolerant
b. Mortgage: Already has exposure to real estate c. Suggests aggressive risk exposure, heavily weighted towards stocks,
including small cap and overseas. These are more risky that large domestic
stocks, but should give higher return in the long run
d. Suggested solution i. Domestic Stocks 40%
ii. Small cap stocks 20%
iii. Overseas equity 20%
iv. Domestic bonds 10%
v. Real Estate 10%
e. Bonds are included to give some stability, and in case Custer needs to use fund as collateral against a future loan. Real estate will provide some
hedge against inflation, and diversification in the portfolio
1) Classwork
1. In the Ednam Products case, select one of the individuals (NOT Margaret Custer), and make a suggested allocation for them based on objectives, risk tolerance,
personal circumstances and the assets they already own.
2. Use the data on Vodaphone, Tesco and Barclays to calculate the mean and variance of a portfolio, which is invested 60% Tesco; 20% Barclays and 20%
Vodaphone.
3. Repeat question 2, using capital returns, and compare your answer to that in question 2.
4. Calculate the geometric mean return for Vodaphone, Tesco and Barclays, and compare it with the arithmetic mean for each company
Appendix
Example of an Investment Policy Statement
Statement of Investment Objectives, Guidelines, and Policies for Investment Managers
Adopted by the Retirement System Board of Trustees on December X 199_
This Statement is issued by the Board of Trustees of for guidance in the management
of that portion of the System’s total assets that are managed to fund post-June 1988
liabilities.
A. Management and Investment
1) The goal of the Retirement System is to maximise the investment returns on the Plan’s
assets over an extended investment horizon, with prudent weight given to portfolio and
market risks, while ensuring that portfolio income and liquidity are appropriate to meet
the plan’s benefit payments, and other expenses.
2) The investment objectives of the Retirement System are to prudently invest the Plan’s
assets in a manner that will enable to satisfy its obligations to the Plan Participants,
Beneficiaries, and participating Employers; that will afford reasonable latitude for benefit
improvements; and that will minimise fluctuations in the amounts of required Employer
contributions. To achieve these objectives, the fund should attain total portfolio returns
(net of fees) in excess of the actuarial investment assumption over the long term (defined
as running five-year periods) within the boundaries of prudent risk. The actuarial
investment return assumption is currently
7 3/4 percent.
B. Composition of Plan Liabilities
The System’s pre-June 1988 liabilities have been annuitised fully via a participating
annuity contract with Insurance Company. All other liabilities of are funded by the
actively managed portfolio. The participating annuity contract does permit the system to
convert to a non-participating contract at anytime. It should be noted that Insurance
Company’s method of calculating the cost of liabilities differs from that of the consulting
actuarial firm. Thus, the par annuity takes on added complexity.
Investments funding for the par annuity will be managed by Insurance Company and
will consist of public or private placement bonds. The only limitation is that bonds
eligible for a rating of Ba/BB may not exceed 10 percent of the total portfolio. The
objective will be to duration match (assets/liabilities) to minimise interest rate risk while
striving to earn the investment return assumed by the plan actuaries.
A surplus of no less than 5 percent will be acquired by Insurance Company and
excess surplus, which currently is 10 percent, will be actively managed to capture sector
spread variations. The active manage(s) will match the liability duration, which will be
monitored monthly. The objective will be to maintain or increase the excess surplus,
which may be withdrawn periodically at the discretion of the sponsor.
C. Portfolio Composition and Risk
The post-June 1988 liabilities are to be funded through professional asset management,
which can be divided into two parts: a fixed-income segment and an equity segment.
1) The objective of the fixed-income segment (bonds and short-term cash equivalents) is
to provide: a) diversification to reduce return volatility; b) increased current income
relative to an all-equity fund; and c) under certain conditions, an attractive and
competitive total return. A separately managed short-term cash equivalent portfolio will
be maintained to meet Retirement System liquidity needs, which are quite modest at this
time. If or when appropriate, the short-term portfolio may be increased as part of a
tactical asset allocation strategy and treated as a distinct asset class.
2) The equity segment is expected to provide the highest returns in the portfolio during an
extended period of time and consequently is to be the predominant asset class. It is
recognised that this entails the assumption of short-term market value volatility and other
manifestations of risk, which are tolerable given the extremely long duration of the
liabilities that are funded by the actively managed portion of the system’s portfolio.
3) The equity segment may be subdivided further by the Finance Committee into
separately managed portfolios consisting of: large-capitalisation growth stocks; large-cap
value stocks; small-cap growth stocks; small-cap value stocks; foreign stocks; and one or
more index funds. Foreign stock holdings also may be permitted in the portfolios of
domestic stock manager accounts with written permission form the Finance Committee.
All foreign stocks held by managers whose portfolios are composed primarily of US
common stocks must be either listed on a US stock exchange or be in the form of
American Depositary Receipts (ADRs). Special custodial relationships may be
established to facilitate the use of a specialised global or international equity manager
whose investment universe would not be constrained to listed securities or ADRs.
4) A portion of the equity segment may be invested in managed pools of equity real estate
investments. Equity real estate is a relatively illiquid investment but does provide under
certain conditions the opportunity to achieve attractive returns relative to inflation and the
system’s actuarial investment return assumption and competitive returns relative to
common stock investments.
5) The System’s investments shall be diversified both by asset class (e.g. equities, bonds,
cash equivalents, real estate) and within asset classes (e.g. by economic sector, industry,
quality, and size). The purpose of diversification is to provide reasonable assurance that
no single investment or class of investments will have a disproportionate impact on the
total portfolio or any segment thereof.
6) Strategic allocation policy is to be reviewed at least once every two years, at the
December meeting (in even-numbered calendar years). In developing strategic allocation,
the longer-term risk-return expectations for various asset classes, the duration of the plan
liability, and the near- and intermediate-term net cash flow projections for the plan will
be considered. A tactical asset allocation review will occur at least twice a year at the
June and December meetings. This review will establish specific percentage allocations
and acceptable ranges for individual investment managers. Tactical asset allocations will
consider modification to the established strategic allocation based on near-term market
conditions. Portfolio tactical allocation should not vary significantly from the established
strategic allocation unless there is strong evidence of the existence of an anomalous risk-
return relationship for a particular asset class or subclass. Staff will monitor manager and
asset class allocations on a monthly basis and will reallocate funds from, or to, any
manager whose allocation falls outside of the established tactical allocation guideline.
7) Managers will be informed by the Finance Committee as far as practical in advance of
requirements to transfer cash out of an account. Withdrawals may be necessary to provide
cash flows for benefit payments.
8) The Investment Managers are to discharge their duties with the care, skill, prudence,
and diligence under the circumstances then prevailing that a prudent man 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. Investment managers are named fiduciaries under ERISA.
Source: Anonymous US pension fund
Example of Operating Guidelines for Investment Managers
A. Guidelines for Fixed-Income Manages
1) The investment objective of the fixed-income segment is to outperform actuarial
investment return assumptions, the Lehman Government/Corporate Bond Index, and
appropriate manager peer groups on a net-of-fees basis. Manager performance is to be
measured during running five-year periods.
2) Money market instruments as well as bonds may be used in the fixed-income segment
but preferred stocks and convertible bonds are not authorised. The fixed-income segment
Managers are expected to employ active management techniques. Managers may alter
portfolio duration at their discretion and may purchase fixed-income securities without
call protection. Use of Treasury futures to adjust duration is restricted to use by those
managers who receive written approval to do so from the Finance Committee.
3) Investment in bonds shall be only in securities rated “Baa” or higher by Moody’s or
“BBB” or higher by Standard & Poor’s Corporation. At least 80 percent of the portfolio
should be in bonds rated “A” or higher. The assumption of undue credit risk or risk of
permanent loss shall be avoided. Tax-exempt bonds are not authorised.
4) Bond Investment Managers may hold at their discretion up to 10 percent of their
portfolio in cash equivalents, with the understanding that their performance win be
measured against the bond index described in A1 above.
5) Portfolio risk control measures using—but not limited to—cash reserves (in excess of
10 percent), options, or futures shad be submitted in writing to the Finance Committee for
approval prior to implementation.
6) In general, the fixed-income segment shall be diversified prudently with respect to
type, industry, and issuer in order to minimise risk exposure. However, obligations issued
or guaranteed by the US government or agencies thereof may be held without limitation.
B. Guidelines for Equity Managers
1) The long-term investment objective for both the total equity segment and an
subdivisions thereof is to outperform (net of fees) the actuarial investment return
assumption of the Retirement System and the S&P 500 stock index. To ensure that this
objective is met, the performance of individual equity managers will be measured against
appropriate manager peer groups and mutually acceptable benchmark indexes. Manager
performance is to be measured during running five-year periods.
2) Decisions as to individual equity investment selections, quality, number of industries
or holdings, current income levels, and turnover are left to broad manager discretion,
subject to usual standards of fiduciary prudence. However, in no case except mutual fund
shares shall a single investment exceed 10 percent of the market value of the manager’s
total portfolio at purchase. Additionally, no single industry (as defined by S&P’s ten
broad industry groupings) shall represent more than 25 percent of the market value of an
individual manager’s portfolio, except with the advance approval of the Finance
Committee.
3) Equity Investment Managers may hold at their discretion investment reserves of up to
10 percent of their portfolio in cash equivalents, with the understanding that performance
will be measured as described in paragraph B1 above.
4) Portfolio risk control measures using—but not limited to—cash reserves (in excess of
10 percent), options, or futures shall be submitted in writing to the Finance Committee-
for approval prior to implementation.
5) The Named Fiduciary has requested the Manager to accept discretion to vote or abstain
from voting all proxies received by the Plan from issuers of common stocks held in their
portfolio. The Named Fiduciary agrees not to attempt to influence the Manager’s voting
and agrees to forward or instruct its Custodian to forward all proxies to the Manager,
affording the Manager reasonable time in which to determine whether and how to vote
such proxies. The Manager agrees to exercise discretion in connection with voting or
abstaining from voting such proxies in a manner serving the best interest of the plan
participants. A summary of a Manager’s proxy voting policies and voting record or
summary are to be provided annually to the Retirement System’s Finance Committee.
Source: Anonymous US pension fund