West Virginia Investment Management Board 2008 Annual Report
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West Virginia Investment Management Board 2008 Annual Report Table of Contents Introduction Message From Chairman .....................................................................................................1 Message From Executive Director ......................................................................................2 Organization Board of Trustees.................................................................................................................5 Representatives and Committee Members ..........................................................................6 Staff Members......................................................................................................................7 Organizational History.........................................................................................................8 Statutory Mandate..............................................................................................................10 Administrative Mandate ....................................................................................................11 Investment Philosophy.......................................................................................................13 Investment Objectives and Financial Highlights Short-Term Fixed Income Pool ........................................................................................15 Fixed Income Pool ............................................................................................................17 Equity Pool .......................................................................................................................20 Alternatives Pool ...............................................................................................................26 Real Estate Pool ................................................................................................................29 Participant Plans Death, Disability and Retirement Fund for Deputy Sheriffs ............................................31 Judges’ Retirement System ...............................................................................................33 Public Employees’ Retirement System .............................................................................35 Public Safety Death, Disability and Retirement Fund (Plan A) .......................................37 State Police Retirement System (Plan B) .........................................................................39 Teachers’ Retirement System and Teachers’ Employers Contribution Collection Account .................................................................................41 West Virginia Retiree Health Benefit Trust Fund ............................................................44 Emergency Medical Services Retirement System ............................................................46 Pneumoconiosis Fund .......................................................................................................48 Workers’ Compensation Old Fund ..................................................................................50 Workers’ Compensation Self-Insured Guaranty Risk Pool .............................................52 Workers’ Compensation Uninsured Employers’ Fund ....................................................54 Wildlife Endowment Fund ................................................................................................56 West Virginia Prepaid Tuition Trust Fund and West Virginia Prepaid Tuition Trust Escrow Account ........................................................................58 Revenue Shortfall Reserve Fund ......................................................................................62 Revenue Shortfall Reserve Fund - Part B .........................................................................64 Board of Risk and Insurance Management Fund .............................................................66 Public Employees’ Insurance Agency .............................................................................68 Audited Financial Statements DEFINITION OF TERMS AND ABBREVIATIONS The following terms and abbreviations are used throughout the West Virginia Investment Management Board’s annual report and are listed here to help with the overall readability of this document. Board – The thirteen-member Board of Trustees that governs the West Virginia Investment Management Board. BrickStreet – BrickStreet Mutual Insurance Company, a private, for-profit employers’ mutual insurance company in West Virginia. Cap – Abbreviation for “capitalization,” referring to the size of the investment market for that particular asset style. IMB – The West Virginia Investment Management Board including the Trustees, Plan Representatives, Committee Members, and staff. Participant Plan – A specific group of assets entrusted to the IMB. Retirement plans, endowments, and insurance trusts, for example, are all participant plans. Pool – Refers to the specific investment pool created and operated by the IMB for a specific investment asset class. Introduction West Virginia Investment Management Board Phone: (304) 345-2672 500 Virginia Street, East — Suite 200 Fax: (304) 345-5939 Charleston, West Virginia 25301 Website: www.wvimb.org September 3, 2008 Dear Fellow West Virginians: On behalf of the Board of Trustees of the West Virginia Investment Management Board, I am pleased to present the Board’s annual financial report for the fiscal year ending June 30, 2008. Please note that additional information about the Investment Management Board may be accessed electronically on its website, www.wvimb.org. The 2008 fiscal year has been a challenging one for the Investment Management Board. As most of you are well aware, the major financial markets deteriorated rapidly throughout the course of the year. Given that, the Investment Management Board is relatively fortunate to only be down 6.5 percent for the year (using the Public Employees’ Retirement System as a proxy for all long-term assets). A longer term perspective is more important, however, and from that perspective I am happy to report a return for the five-year period ending June 30, 2008 of 8.9 percent. Through great teamwork, I am confident that the Investment Management Board will successfully navigate its way through these difficult markets. Four years ago two of our defined pension plans, the Teachers’ Retirement System and Public Safety Death, Disability and Retirement Fund, were funded at 22.2 percent and 25.6 percent, respectively. In those four years, we have reopened the Teachers’ Retirement System to new hires, provided a mechanism for teachers in the Defined Contribution Plan to transfer over to the Teachers’ Retirement System, contributed excess revenue in the millions of dollars to the plans, securitized Tobacco Settlement revenue to further contribute to the Teachers’ Retirement System, invested well and passed legislation to give the Investment Management Board more investment tools. By fiscal year 2007, the Public Safety, Death, Disability and Retirement fund was 90 percent funded and as of the end of fiscal year 2007, the Teachers’ Retirement System’s funded level increased by over 100 percent. It is exciting to be a part of the dramatic changes that have been made to improve the health of these retirement plans over the past few years. Finally, I wish to thank the staff of the Investment Management Board for its dedicated service. I am pleased, as are the other trustees, with their professionalism, commitment to our mission, and customer service. Very truly yours, Joe Manchin III Governor, State of West Virginia Chairman, Board of Trustees West Virginia Investment Management Board Phone: (304) 345-2672 500 Virginia Street, East — Suite 200 Fax: (304) 345-5939 Charleston, West Virginia 25301 Website: www.wvimb.org September 3, 2008 Dear Trustees: It is with great pleasure that I submit the Annual Report of the West Virginia Investment Management Board (IMB). The IMB is considered an internal service fund of the State of West Virginia for financial reporting purposes and, as such, the significant financial information contained in this report is also included in the State of West Virginia’s comprehensive annual financial report. The information presented in this report is the responsibility of the management of the IMB, and sufficient internal accounting controls exist to provide reasonable assurance regarding the safekeeping of assets and fair presentation of the financial statements, supporting schedules, and statistical tables. The report is also designed to comply with the reporting requirements of Chapter 12, Article 6, Section 6 of the West Virginia Code, as amended. This report is divided into the following sections: • The Organization section which contains general information regarding the trustees and staff, history of the IMB, statutory mandate, and investment philosophy. • The Investment Objectives and Financial Highlights section, which outlines the more specific objectives and performance of each of the investment pools. • The Participant Plans section, which contains a brief description of each of the participants whose assets are entrusted to the IMB. • The Audited Financial Statement, which contains the independent auditor’s report, the financial statements and notes thereto, and required supplementary information regarding the funds administered by the IMB. As an investment organization, the IMB’s constant focus is the performance of its investments