N.M. Admin. Code § 2.60.25.10

Current through Register Vol. 35, No. 23, December 10, 2024

Section 2.60.25.10 - INVESTMENT PHILOSOPHY AND OBJECTIVES

A. Principal Objectives: Based upon the two purpose statements in Section II [now Section 2.60.25.9 NMAC] above, the principal objectives of both funds are:

(1) the preservation of capital in real terms, while providing reasonable levels of income distribution to the beneficiaries;

(2) to obtain maximum returns within reasonable and acceptable levels of risk for all market rate investments; and

(3) to maintain a prudent and diversified portfolio of differential rate investments that stimulate the economy of the state while providing reasonable diversification and yield. In keeping with the permanent trust fund nature of both funds, all market rate investment objectives are based on a long term investment horizon.

B. Other Basic Goals and Objectives: The following goals and objectives are based on modern financial and portfolio theory and are common to both funds:

(1) Diversification is one of the fundamental principles of modern portfolio theory which focuses on minimizing risk and maximizing return. In accordance with this principle, the SIC's portfolios will be constructed by the individual portfolio managers to attain prudent diversification in all equity and fixed income holdings while remaining within statutory and constitutional limitations.

(2) Consistent with the need for adequate diversification, the SIC's investment policy is based on the assumption that the volatility of the combined portfolio will be similar to that of the market. Consequently, it is expected that the total portfolio volatility, in the aggregate, will be reasonably close to the volatility of a commitment-weighted composite of the market indexes selected for performance evaluation purposes.

(3) Due to the permanent nature of the funds and the limitations on allowable investments imposed by the Constitution and statutes on both funds, it is anticipated that the quality levels in both funds will be maintained at or above the average quality of the indexes they are compared with. The overriding objective for both funds is preservation of principal, and this will generally translate over time into higher average allocations to government and other high quality securities. Riskier investments such as equity and venture capital will be monitored closely to insure that the long term expected returns justify the implied risks.

(4) Due to the long term time horizon of both funds and the monthly distribution of all cash dividend and interest income (adjusted for accounting amortization and accretion), cash availability or liquidity (the cash positions in the two funds) is not a significant factor in determining asset allocations or acceptable investments. The liquidity (or marketability) of the securities in the funds' portfolios is a concern, and it is expected that the characteristics of the securities held by the council will individually and collectively approximate the characteristics of the market in general. Investment policy will be designed to avoid large swings in annual distributable income as much as market conditions will permit. The actual distributable income growth rate will depend primarily on:

(a) the revenues (new money) received into the corpus of both funds, and

(b) the asset allocations as determined by council policy.

C. Performance: Fund performance is measured by comparison with broad market indexes appropriate to each asset class. The following indexes are currently used for this purpose:

(1) ASSET CLASS INDEX

Equities Standard & Poor's 500

Fixed Income Shears on Lehman Aggregate

Cash Equivalents Average 90-day U.S. T-bill rate

(2) These benchmarks will be used to evaluate the performance of both funds. In the STPF, only the market rate portion is evaluated, since market prices are generally unreliable or not available for the differential rate investments. The general goals are to exceed the performance of each of these indexes. Managing against specified benchmarks provides clearly defined objectives and measures of performance. The benchmarks also provide a starting point for formulating strategy. The appropriateness of the selected indexes will be periodically reviewed as the composition of the SIC portfolios change over time.

N.M. Admin. Code § 2.60.25.10

Recompiled 10/1/01