2018 ANNUAL REPORT Comprehensive Annual Financial Report Fiscal Years Ended June 30, 2018 and 2017 NYSTRS.org Comprehensive Annual Financial Report Fiscal Years Ended June 30, 2018 and 2017 STNYRS Committed to Providing Educators With a Secure Retirement Since 1921 NEW YORK STATE TEACHERS’ RETIREMENT SYSTEM Comprehensive Annual Financial Report Fiscal Years Ended June 30, 2018 and 2017 Our Mission: To provide our members with a secure pension. Our Vision: To be the model for pension fund excellence and exceptional customer service. Our Values: Integrity Excellence Respect Resourcefulness Diversity Diligence Balance In addition to the above, NYSTRS has five Strategic Objectives. These objectives serve as a guiding light for staff and are a daily reminder of our core beliefs. Each tabbed section divider in this report will examine one of the Strategic Objectives. When taken in concert with our Mission,Vision and Values, these ideals form the fabric of our culture. New York State Teachers’ Retirement System 10 Corporate Woods Drive Albany, NY 12211-2395 (800) 348-7298 NYSTRS.org xxx Table of Contents INTRODUCTION INVESTMENTS (cont.) ACTUARIAL (cont.) 88 Breakdown of Real Estate 117 History of Member Payroll and the 7 Board of Trustees Equity Portfolio Employer Contribution Rate 8 Organizational Structure & Geographic Distribution of the Schedule of Retired Members and Executive Staff Real Estate Equity Portfolio Benefciaries Added to and 9 NYSTRS Staff 89 Private Equity Net Asset Value by Removed from the Beneft Payroll 10 Letter of Transmittal Investment Type 118 Independent Actuarial Review 14 President’s Message Private Equity Net Asset Value 15 Summary of Benefts by Geography 90 Domestic Fixed Income and High STATISTICAL Yield Bonds Distribution FINANCIAL Domestic Fixed Income and High Demographic & Economic Information 23 Independent Auditors’ Report Yield Bonds Quality Distribution 121 Number of Active Members and 25 Management’s Discussion 91 Domestic Fixed Income Retired Members and Analysis Average Maturity 122 Distribution of Active Members by Global Bonds Quality Distribution Basic Financial Statements Age and Years of Service 92 Global Bonds Sector Distribution Distribution of Active Members 32 - Statements of Fiduciary Net Position Ten Largest Fixed Income Holdings by Age 33 - Statements of Changes in 93 Real Estate Debt by Property Type 123 Distribution of Active Members Fiduciary Net Position Breakdown of Real Estate by Service 34 - Notes to Financial Statements Debt Portfolio 126 Active Members and Annuitants 94 Geographic Distribution of the Required Supplementary Information 1922-2018 Real Estate Debt Portfolio 127 Number of Active Members by Tier 60 Schedule of Changes in the Private Debt Net Asset Value by 128 Retirement Statistics School Districts’ Net Pension Investment Type 130 Retirement Beneft Options and Liability (Asset) 95 Private Debt Net Asset Value Percent of Election 62 Schedule of the School Districts’ by Geography Net Pension Liability (Asset) Short Term Sector Distribution Retired Members’ Characteristics Schedule of the School 96 Annual Performance History 131 Distribution of Benefts Paid Districts’ Contributions 97 Investment Performance Results by County 64 Notes to Required 98 Manager Investment 132 Distribution of Retired Members Supplementary Information Performance Results and Benefciaries by Tier 66 Schedule of Investment Returns 100 Corporate Governance Retired Members — Remaining 67 Schedule of NYSTRS’ Net Securities Lending Program Purchasing Power Through 2018 OPEB Liability 101 Schedule of Investment Fees 133 Retired Members and Benefciaries 68 Schedule of NYSTRS and Other and Expenses With Monthly Benefts by Decade of Retirement Contributing Entity Contributions 102 Investment Advisory Committee Real Estate Advisory Committee Distribution of the Annual Beneft Other Supplemental Schedules 103 Investment Consultants of All Retired Members 70 Schedule of Administrative Expenses Master Custodian 134 Distribution of Monthly COLA 71 Schedule of Investment Expenses Securities Lending Increase Commencing External Investment Managers September 2018 & Advisors Distribution of Cumulative INVESTMENTS Monthly COLA Commencing September 2018 75 Report on Investment Activity ACTUARIAL 82 Asset Allocation 111 Actuarial Certifcation Letter Financial Trends Information Changes in Net Asset Value 113 Summary of Actuarial Methods 136 Changes in Fiduciary Net Position 83 Diversifcation of Investments and Assumptions 137 Breakdown of Income Sources 84 Domestic Equity Distribution 114 Actuarial Present Value of 138 Benefts and Return of Domestic Equity Externally Future Benefts Contributions by Type Managed Style Distribution 85 International Equity Funding Progress Operating Information Style Distribution 115 - Funding Progress Global Equity Style Distribution - Analysis of Funding Progress 141 Average Beneft Payments 86 Public Equity Holdings by - Percent Funded 142 Retired Members and Benefciaries Industry Distribution by Type of Beneft 116 Solvency Test Ten Largest Public Equity Holdings 144 Principal Participating Employers Analysis of Financial Experience 87 Public Equity Country Exposure Distribution Real Estate Equity by Property Type 2 Achievements :r '1 J Govcn1mcnl Finance OtTi ccrs Associmion Certificate of Achievement for Excellence in Financial Reporting Presented 10 New York State Teachers' Retirement System For ilS Comprehensive Annu al Fi nnnci 111 Report fo r the Fi scnl Ycw- Ended June 30, 2017 E~cculiw l)irectorlCEO .J Govcmmcnl Finance Officers Association Award for Outstanding Achievement in Popular Annual Financial Reporting Presented 10 New York State Teachers' Retirement System For i1s Annual Hnancial Rcpon for the Fiscal Year Ended June 30, 2017 F\ecuti~c Din:c1or 'CEO 3 Achievements PP C C Public Pension Coordinating Council Public Pension Standards Award For Funding and Administration 2017 Presented to New York State Teachers’ Retirement System In recognition of meeting professional standards for plan funding and administration as set forth in the Public Pension Standards. Presented by the Public Pension Coordinating Council, a confederation of National Association of State Retirement Administrators (NASRA) National Conference on Public Employee Retirement Systems (NCPERS) National Council on Teacher Retirement (NCTR) Alan H. Winkle Program Administrator 4 INTRODUCTION INTRODUCTION Governance Structure Maintaining a strong governance structure is how we ensure NYSTRS operates effectively, efficiently and ethically. It requires that we be fiscally responsible and transparent, and that we manage risk. The checks and balances built into the structure places a premium on compliance with all applicable laws and regulations. INTRODUCTION Page 7 Board of Trustees 8 Organizational Structure & Executive Staff 9 NYSTRS Staff 10 Letter of Transmittal 14 President’s Message 15 Summary of Benefits Introduction Board of Trustees Sheila Sullivan Buck Paul J. Farfaglia Stephen P. Feehan Rush-Henrietta Jordan-Elbridge Windsor Teacher Member Teacher Member School Boards Elected by NYSTRS Delegates Elected by NYSTRS Delegates Association Member First Elected 2017 First Elected 2009 Elected by Board of Regents First Elected 2016 David P. Keefe President Hempstead Retired Teacher Member Elected by NYSTRS Retirees First Elected 2004 Ron Gross Dr. Phyllis S. Harrington Daniel J. Hogarty Jr. William Floyd Oceanside Troy Teacher Member School Administrator Bank Executive Elected by NYSTRS Delegates Appointed by Elected by Board of Regents First Elected 2017 Commissioner of Education First Elected 2005 First Appointed 2010 Michael J. Masse Vice President Fayetteville School Boards Association Member Elected by Board of Regents First Elected 2009 Dr. L. Oliver Robinson Nicholas Smirensky Clifton Park Delmar School Administrator State Comptroller Appointee Appointed by First Appointed 2007 Commissioner of Education First Appointed 2010 7 Introduction Organizational Structure & Executive Staff Actuary Richard A. Young, Actuary y Actuarial Valuations y Fiscal Notes Chief Financial Offcer Noreen Jones, CFO Retirement Board y Finance y Investment Operations David P. Keefe, President y Risk Management Fixed Income Michael A. Wolfe Jr., Managing Director y Long/Short-Term Fixed Executive Director & Income Securities Chief Investment Offcer y Global Bonds y High Yield Bonds Thomas K. Lee Human Resources Beth Bonacquist, Director y Labor Relations y Personnel Classifcation y Recruitment & Training Legal Internal Audit Member Relations Sheila O. Gardella, Director Joseph J. Indelicato, General Counsel Kenneth R. Kasper, Director y Member and Employer y Assurance Services y Contract Review Services & Communications y Consulting Services y Legislation y Beneft Administration y Litigation y Public Relations y Domestic Relations Orders Operations Kevin J. Schaefer, Managing Director y Information Technology y Facilities Services Private Equity & Debt Gerald J. Yahoudy II, Managing Director y Private Equity Investments y Private Debt Opportunities Public Equity Frederick W. Herrmann, Managing Director y Domestic, International and Global Equity Investments Real Estate Equity & Debt David C. Gillan, Managing Director y Real Estate Equity Investments y Commercial Lending 8 Introduction NYSTRS Staff Executives Beth Bonacquist Kenneth R. Kasper Director of Human Resources Director of Internal Audit Sheila O. Gardella Kevin J. Schaefer Director of Member Relations Managing Director of Operations David C. Gillan