Master Investment Policy Statement

1. Introduction

Investment Policy for the Sacramento County Employee’s Retirement System is documented in a Master Investment Policy Statement (IPS) and supported by individual asset class policy documents. The Master IPS is designed to establish broad policies that will guide SCERS’ investment program (Investment Program), including Investment Philosophies, Investment Objectives, Plan Governance, Investment Strategy, Risk Management and Portfolio Monitoring.

The Sacramento County Employees’ Retirement System (SCERS or the System) was created on July 1, 1941, by Sacramento County Ordinance #283 as adopted by the Board of Supervisors on April 30, 1941, pursuant to the County Employees’ Retirement Law of 1937. SCERS provides retirement, disability, and death benefits for qualified employees of Sacramento County and eleven participating special districts.

A nine-member Board of Retirement (Board) governs SCERS. The Board has the sole and exclusive responsibility to administer SCERS in a manner that will assure prompt delivery of benefits and related services to the participants and their beneficiaries. See California Constitution at Articles XVI Section 17.

In administering the System, SCERS will value open communication, transparency, and the consideration of different points of view. It will also follow the highest ethical standards in meeting its fiduciary duties of prudence and loyalty to the System’s participants and beneficiaries, and will act solely in the interest of, and for the exclusive purpose of providing benefits and related services to participants and their beneficiaries.

2. Master IPS Purpose

The Master IPS is a principles-based document that establishes broad policies that will guide SCERS’ Investment Program. It is intended to provide guidance to the Board, Staff, Stakeholders, and third-party professionals.

The System’s individual asset categories have their own dedicated investment policy statements that include detailed information specific to the asset categories and underlying asset classes. Individual asset category IPSs contain objectives, investment guidelines, ranges, permissible investments, benchmarks, and monitoring specific to the asset categories and underlying asset classes. The individual asset category IPSs are included as supporting documents to the Master IPS.

3. Investment Philosophies

The Investment Philosophies represent the System’s principles on which the Investment Program is based. All investment decisions for the System are made within the context of these philosophies, which include:

4. Investment Objectives

A. The primary and over-arching goals of the System are to:

B. Investment performance objectives include:

5. Investment Program Governance

A. ROLES AND RESPONSIBILITIES

I. Board

With the authority noted above, the organizational structure of SCERS focuses the attention of the Board on governance and policy and not on the management of the System. The Board’s primary responsibility is to set and direct investment policies set forth in this document, set and direct the strategic direction of the System, and guide its progress in achieving its goals and objectives. The Board has fiduciary responsibility for the System and the Investment Program.

While the Board may delegate certain responsibilities under the Investment Program for purposes of implementation, administrative efficiency and expertise, the following areas are the primary responsibilities of the Board, which may not be delegated:

II. Investment Staff

The Chief Executive Officer (CEO) is responsible for the overall management and administration of the System under the Board’s direction. The Chief Investment Officer (CIO) and other Investment Staff, along with the CEO, are responsible for the implementation and maintenance of the Investment Program. The Investment Staff shall exercise the same fiduciary responsibility under applicable law as the Board. Staff shall act reasonably as custodians of the public trust, and shall recognize that the Investment Program is subject to public review and evaluation. The overall management of the System’s Investment Program shall be designed and managed with a degree of professionalism that is worthy of the public trust.

Key responsibilities of the Investment Staff include:

III. General Consultant

General Consultant responsibilities include, but are not limited to, providing the Board guidance on strategic asset allocation and interim market tactics, selection and monitoring of plan and manager performance, assisting with documentation, and guiding Board education.

The General Consultant is and shall agree to be a fiduciary to the System under California law. The General Consultant works with Investment Staff in the development of recommendations while recognizing its fiduciary duty is to provide prudent investment advice to the Board. The General Consultant provides advice without discretionary authority to execute on its advice. The specific duties of the General Consultant are contained in an Agreement for Investment Consulting Services, and
generally include providing advice with respect to:

IV. Alternative Assets Consultants

The Alternative Assets Consultants are and shall agree to be a fiduciary to the System under California law. The Alternative Assets Consultants works with Investment Staff in the development of recommendations while recognizing their fiduciary duties are to provide prudent investment advice to the Board. The Alternative Assets Consultants provide advice without discretionary authority to execute on their advice. The specific duties of the Alternative Assets Consultants are contained in an Agreement for Investment Consulting Services.

Responsibilities of the Alternative Assets Consultants include, but are not limited to, developing and maintaining strategic plans for the System’s Absolute Return, Private Equity, Credit, Real Assets and Real Estate Investments. This includes manager selection, monitoring and due diligence, maintaining liquidity and pacing projections, and Board education.

V. Investment Managers
A. Investment Managers of Custodied Assets

Subject to this IPS and their specific contractual obligations to the System, Investment Managers are responsible for making investment decisions on a discretionary basis (unless stated otherwise within their investment contract) regarding assets placed under their jurisdiction, and will be accountable for achieving their investment objectives.

Decisions include the purchase, sale, and holding of investments in amounts and proportions that are reflective of the stated investment mandate. Investment managers shall maintain (1) errors and omissions insurance, (2) directors and officers liability insurance, (3) cybercrime insurance, and (4) fidelity bond (financial crime), in a commercially reasonable amount not under $5 million each. Staff may, in its reasonable discretion and for good cause, require or accept insurance coverage and/or levels that deviate from those in the foregoing sentence.

In addition, SCERS’ investment managers agree to notify the Board Chairman, SCERS’ CEO, and/or Investment Staff, in writing, if they are unable to continue acting in the capacity of a fiduciary or investment advisor. Investment managers are expected to act as prudent experts in the management of account(s) for SCERS and agree to be fiduciaries to the System. In fulfilling their roles, investment managers will continually educate the Board about capital market developments that pertain to their area of investment expertise.

B. Fund Managers and General Partners

Managers and General Partners of commingled funds in which SCERS is a limited partner have the responsibilities and duties set forth in their respective limited partnership agreements and side letters. With respect to such fund managers and general partners, SCERS will strive to obtain their contractual agreement to a fiduciary duty of care, in accordance with and subject to the provisions of the Alternative Assets Investment Standard of Care Policy.

VI. Custodian Bank

The System’s Custodian Bank is responsible for the safekeeping of assets, trade reconciliation and settlement, income collection, short term investing, securities lending, commission recapture, and compliance monitoring.

The Board may authorize the Custodian Bank to invest in temporary short-term fixed income investments both for the investment strategies and as a part of the cash portion of the System’s assets. Such investments will be managed in general accordance with short-term fixed income investment guidelines as detailed in the custodial agreement. The Custodian Bank, per the custodial bank agreement/ contract, may be authorized to conduct a securities lending program within liquidity and risk constraints as authorized by the custodial agreement.

B. IMPLEMENTATION PROTOCOLS

I. Investment Manager Procurement

The following implementation protocols describes the allocation of investment authority and responsibilities between SCERS’ Board, Staff, and consultants. Overall, the implementation protocols delegates the most time intensive elements of the process to Staff and consultant, while preserving the Board’s oversight of the overall asset categories and their underlying asset classes.

The Board will approve the long-term Asset Allocation Structure for the individual asset classes within the asset categories, as developed and presented by Staff and Consultant. The long-term Asset Allocation Structure for underlying asset classes will articulate the long-term direction and objectives of each asset class including elements such as: (1) asset allocation targets and ranges by strategy, geography and style, and types of investment vehicles; and (2) for alternative assets/private markets asset classes, a target range for the number of investment managers, and the role of Fund of Funds and strategic partners.

On an annual basis, the Board will approve the Annual Investment Plan for the individual asset classes within the asset categories. The Annual Investment Plan will articulate the direction over the next year in taking the necessary steps to achieve the above objectives of the long-term Asset Allocation Structure of the underlying asset classes.

The execution of the long-term Asset Allocation Structure and Annual Investment Plan will vary between that of traditional assets/public markets investments and alternative assets/private markets investments.

Traditional assets/public markets investments include:

Alternative assets/private markets investments include:

The primary difference between the traditional assets/public markets and alternative assets/private markets implementation process is as follows. For alternative assets/private markets investments, the selection of investment managers is delegated to Staff, subject to the Board’s ability to review, discuss, and object to the recommendations of Staff and consultant during the investment protocol process. For traditional assets/public markets investments, the Board makes the final decision at a Board meeting after a presentation by the candidate recommended by Staff and the consultant.

a. Traditional Assets/Public Markets:

Overall, the traditional assets/public markets implementation protocol delegates the most time intensive elements of the process to Staff and consultant, including the screening and evaluation leading to the recommendation to engage or terminate a particular investment manager.  The Board provides oversight of the overall traditional assets/public markets programs and makes the final decision regarding engagement or termination of investment managers. 

The key features of the traditional assets/public markets implementation protocol are as follows: 

b. Alternative Assets/Private Markets:

For the alternative assets/private markets asset classes, the execution of the long-term Asset Allocation Structure and Annual Investment Plan including the selection of investment managers will be delegated to Staff, subject to the Board’s ability to review, discuss, and object to the recommendations of Staff and consultant during the investment protocol process.  

The key features of the alternative assets/private markets investment protocol are as follows: 

c. Cash:
II. Investment Manager Termination
a. General Termination

From time to time it will be necessary for the System to terminate a contractual relationship with an investment manager. The Board has established the following criteria to assist in making termination decisions. The overriding consideration with respect to all decisions is that they shall be made solely in the best interest of the System.

Any action to terminate an investment manager may be based on one or more
but not limited to, the following primary criteria:

The ability to terminate an investment manager is defined within the contractual agreement with each investment manager. Within the traditional assets/public markets, most of SCERS’ separate account mandates are structured with immediate termination rights, while most commingled funds have specific redemption schedules, varying from daily to quarterly.

Within the alternative assets/private markets asset classes, the ability to terminate an investment manager is defined within the contractual agreement with the manager. Open- end funds, including Absolute Return and Real Estate investments, typically have monthly and quarterly termination rights, subject to lock-up periods and investor level gates. Closed-end funds within the private markets, including Private Equity, Credit, Real Assets and Real Estate, are generally illiquid structures with five to fifteen year holding periods. Any early liquidity within closed-end funds is typically achieved through the dissolving of the fund, by either the limited partners or the general partner prior to the end of a fund’s term, or selling a limited partner stake in a fund in the secondary market.

b. Emergency Termination – traditional assets/public markets

In the case of an emergency within the traditional/liquid asset classes, SCERS may immediately terminate an investment manager for any reason without prior notice, subject to the termination language within the investment contract with the manager, and subject to liquidity provisions of the investment strategy. In most cases, any action to terminate a manager should be taken by the Board upon the recommendation for termination by Staff, with the concurrence of the Investment Consultant at either a regularly scheduled or specially called Board meeting. If the CEO and the CIO determine, in consultation with the Investment Consultant and the General Counsel, and with the concurrence of the Board President or one or more Vice-Presidents if the President is not available, that: (1) it is necessary to immediately terminate an investment manager in order to protect the assets under the control of the investment manager; (2) it is not feasible to convene a meeting of the Retirement Board for that purpose in a timely manner; and (3) delay could result in detrimental impact to SCERS’ assets or interests, the CEO or the CIO may terminate the agreement with the investment manager. The CEO or the CIO shall immediately report such termination to the Board, along with a report of the circumstances that prompted such action.

Whenever the CEO or the CIO exercise the authority to terminate an agreement with an investment manager as provided above, he or she may also take whatever actions he or she may determine, in consultation with the Investment Consultant and the General Counsel, and with the concurrence of the Board President or one or more Vice-Presidents if the President is not available, are reasonable and necessary to transition the assets under the control of the investment manager to alternate management, including, without limitation: (1) temporarily assigning the assets to another existing contracted investment manager; (2) identifying and engaging an alternate investment manager to manage the assets until a permanent replacement for the terminated manager can be engaged; or (3) contracting for the services of a transition manager to facilitate an efficient and cost effective transition of the assets between the former and interim manager. The CEO, or in his or her absence, the CIO, may execute any and all agreements reasonably necessary to facilitate an orderly and efficient transition of the affected assets, so that they will be managed and protected until they are assigned to one or more alternate investment managers.

The CEO, or in his or her absence the CIO, shall immediately report any and all steps taken to transition the assets and to protect the interests of SCERS to the Board.

III. Portfolio Rebalancing – Overlay Program and Physical

On a quarterly basis, the Investment Staff will report all rebalancing activity, either physical or via the Overlay Program.

a. Overlay Program
b. Physical Rebalancing

6. Investment Strategy

An important component of the System’s investment strategy is to view risk exposures through multiple lenses, including functional and common factor exposures, in order to manage and maintain allocations that are aligned with its investment philosophy and objectives. The multiple lens approach allows the System to better understand the sources of its returns and risks and to make informed adjustments to exposures when
appropriate. Appendix One shows the Board approved desired functional asset category and asset class (Policy Index) exposures. Common factor exposure will be included in the performance reviews.

The Board will conduct periodic reviews (at least every five years) of its strategic asset allocation linked with projected liability behavior.

7. Asset Allocation

A. Growth Asset Category

The Growth asset category includes assets that are exposed to equity and credit risk factors. They tend to perform best when economic growth is average or above and/or rising, and inflation is moderate and/or falling. Asset classes within the Growth asset category include:

B. Diversifying Asset Category

The Diversifying asset category includes assets that are expected to help preserve capital in periods of market distress, particularly in periods of low and falling growth. In such periods, diversifying assets may experience negative returns but are expected to perform better than growth assets, and are expected to enhance diversification by exhibiting low or negative correlation with both equity and credit markets. Diversifying assets are expected to have a positive return profile over market cycles. Asset classes within the Diversifying asset category include:

C. Real Return Asset Category

The Real Return asset category includes assets that should perform well in periods of unexpectedly rising inflation while producing positive net real returns over complete market cycles. The category should also provide moderate levels of income and cash flow generation. Additionally, Real Return assets should enhance diversification by exhibiting low or negative correlation with both equities and nominal bonds. Asset classes within the Real Return asset category include:

8. Risk Management

Risk is inherent in a defined benefit pension plan’s investment portfolio, putting a high premium on maintaining the appropriate risk level throughout market cycles. However, the System recognizes that there may be infrequent periods when risk levels become extreme and expected risk premia do not justify the exposure. While the System’s primary risk management approach is broad diversification and disciplined rebalancing, the System will assign ranges around exposures to accommodate asset preservation during
periods of market unrest, allowing for the ability to increase liquid defensive positions (i.e. Treasuries) and reduce liquid growth exposures (i.e. Equities and Credit). The System views risk through multiple lenses in order to address the following circumstances:

In periodic performance reports, the System will monitor the following characteristics to
keep track of various portfolio risks:

9. Portfolio Monitoring

A. Reporting

I. Quarterly Reporting

The Board will receive quarterly performance and exposure reports from its General and Alternative Assets Consultants. The reports will generally include performance results and comparisons to benchmarks and peers, as well as asset class and risk exposure relative to policy allocations.

II. Annual Reporting

On an annual basis, Staff, with assistance from the Investment Consultants, will provide an ‘Investment Year in Review’ for the Board. This report and presentation will highlight investment activity for the total fund and individual asset categories and asset classes during the prior calendar year, and preview anticipated investment objectives and expected activity for the upcoming calendar year. The report will also present new investment/commitment budgets within the alternative/private market asset classes for the Board to approve.

B. Portfolio and Compliance Monitoring

Monitoring of compliance with manager investment guidelines will be performed monthly by the CIO and Investment Staff relying on data provided by the custodian, consultants, and investment managers. In addition, the CIO and Investment Staff will monitor portfolio exposures, risk, performance, and attribution characteristics. On an annual basis, the CIO and Investment Staff will request and review each manager’s form ADV Part II and will inform the Board of significant changes and apparent conflicts of interest.

C. Watch List

The Watch List status will be determined and monitored by the Investment Staff and Consultants, focusing on relative performance and organizational instability. Decisions to add or remove an investment manager to/from the Watch List will be less rules-based and more a function of analyzing both quantitative and qualitative factors related to the investment manager. Investment managers on the Watch List will be subject to enhanced scrutiny and are subject to termination upon Board approval of Staff recommendation.

Investment manager additions and removals from the Watch List will be communicated to SCERS’ Board prior to any action being taken, and a report on any managers on the Watch List will be presented quarterly to the Board.

D. Manager Due Diligence

The Investment Staff and Investment Consultants will monitor individual investment managers’ performance quarterly and annually. The Investment Staff and Consultants will meet with all investment managers periodically. Typically, these meetings will occur in the SCERS/Consultants’ office or through a web conferencing platform (i.e., Zoom). However, manager on-site meetings may be scheduled for existing managers, Watch Listed managers, and as a part of new investment manager due diligence.

10. Other Investment Considerations

SCERS recognizes that corporate business practices associated with an underlying investment or investment firm, including approaches to environmental or ethically responsible strategies—commonly referred to as “ESG” (environmental, social, governance)—may present financial risks or opportunities for the System. SCERS will identify, evaluate, and manage material and financially relevant factors in its investment process to safeguard and enhance System performance. Consideration of these factors shall be conducted in conjunction with other relevant factors in a manner that helps SCERS achieve its strategic objectives.

If the Legislature, by statute, prohibits any investments by boards operating under the County Employees Retirement Law of 1937 (CERL) under the authority of section (g) of article XVI, section 17 of the California Constitution, then the SCERS Board will undertake an independent investment analysis to determine whether such a prohibition satisfies the standards of fiduciary care and loyalty required of the SCERS Board pursuant to the California Constitution and Government Code sections 31594 and 31595 of CERL.

11. Limited Partner Advisory Committees

General partners often invite SCERS, as a limited partner in an investment fund, to serve as a voting member or observer (through Investment Staff) on a Limited Partner Advisory Committee (LPAC). Serving on an LPAC can provide value to SCERS through a better understanding of the general partner, fund issues, and the market in general. Subject to approval of the CEO, and General Counsel where appropriate, the decision to serve on an LPAC is delegated to the CIO, who shall consider no fewer than the following factors to determine whether Staff and SCERS should serve on an LPAC:

No individual Staff member may serve on more than five (5) LPACs at any given time. The CIO will advise the Board of any LPAC participation at his or her earliest opportunity.

History

Amended August 20, 2025
Amended February 21, 2024
Amended June 21, 2023
Amended June 15, 2022
Amended March 17, 2021
Amended September 18, 2019
Amended on March 20, 2019
Restated on July 19, 2017 as “SCERS Master Investment Policy Statement”
Amended on February 18, 2010
Amended on December 18, 2008
Adopted on January 17, 2008 as “SCERS Investment Policy & Objectives”

Appendix