Investment Guidelines Document
City of Ripon
Employee Benefits Fund Pension Plan
August 2022
Exhibit A
City of Ripon Employee Benefit Fund Pension Plan
Investment Guidelines Document – HighMark Capital Management, Inc. (v. 08/17/2022 ARB) 2
Investment Guidelines Document
Scope and Purpose
The purpose of this Investment Guidelines Document is to:
Facilitate the process of ongoing communication between the Plan Sponsor and its plan fiduciaries;
Confirm the Plan’s investment goals and objectives and management policies applicable to the investment portfolio identified below and obtained from the Plan Sponsor; Provide a framework to construct a well-diversified asset mix that can potentially be expected to meet the account’s short- and long-term needs that is consistent with the account’s investment objectives, liquidity considerations and risk tolerance; Identify any unique considerations that may restrict or limit the investment discretion of its designated investment managers;
Help maintain a long-term perspective when market volatility is caused by short-term market movements.
Key Plan Sponsor Account Information as of August 2022
Plan Sponsor: City of Ripon
Governance: City Council for the City of Ripon
Plan Name (“Plan”): City of Ripon Employee Benefits Fund Pension Plan Trustee: US Bank
Contact: Susan Hughes, 949-224-7209
[email protected]
Type of Account: Pension Plan
ERISA Status: Not subject to ERISA
Investment Manager: US Bank, as discretionary trustee, has delegated investment management responsibilities to HighMark Capital Management, Inc. (“Investment Manager”), an SEC-registered investment adviser
Contact: Andrew Brown, CFA, 415-705-7605
[email protected]
Exhibit A
City of Ripon Employee Benefit Fund Pension Plan
Investment Guidelines Document – HighMark Capital Management, Inc. (v. 08/17/2022 ARB) 3
Investment Authority: Except as otherwise noted, the Trustee, US Bank, has delegated investment authority to HighMark Capital Management, an SEC-registered investment adviser.
Investment Manager has full investment discretion over the managed assets in the account.
Investment Manager is authorized to purchase, sell, exchange, invest, reinvest and manage the designated assets held in the account, all in accordance with account’s investment objectives, without prior approval or subsequent approval of any other party(ies).
Investment Objectives and Constraints
The goal of the Plan’s investment program is to provide a reasonable level of growth, which will result in sufficient assets to pay the present and future obligations of the Plan. The following objectives are intended to assist in achieving this goal:
The Plan should seek to earn a return in excess of its policy benchmark over the life of the Plan.
The Plan’s assets will be managed on a total return basis which takes into consideration both investment income and capital appreciation. While the Plan Sponsor recognizes the importance of preservation of capital, it also adheres to the principle that varying degrees of investment risk are generally rewarded with compensating returns. To achieve these objectives, the Plan Sponsor allocates its assets (asset allocation) with a strategic perspective of the capital markets.
The Moderate Investment objective has a long-term (30-year horizon) expected rate of return of 6.0% (August 2022).
Investment Time Horizon:
Anticipated Cash Flows:
Investment Objective:
Long-term investment horizon 10+ years
Initial investment in 2022 of $972,998, which includes all of the CalPERS reserves as of 7/1/2021. In addition, annual savings from refunding Redevelopment bonds, ranging from $53,000- $161,000, will be deposited into the Program until 2026-27. The City anticipates reinvesting earnings each year.
The Primary objective is to generate a reasonable level of growth in Plan assets. The assets in this Plan will eventually be used to fund Pension Plan obligations for assets managed in the CalPERS Trust. Funds in the Program will be used when there is a deficit in the City’s General Fund with City Council concurrence, or as directed by the City Council. This will be the first line of funding in a deficit situation. The amount to be transferred from the 115 Trust will be no more than the greater of the costs of the Unfunded Accrued Liability (UAL) and Normal Cost (NC) for that fiscal year or the amount of the deficit1. 1 If the annual deficit is more than the UAL and NC for the fiscal year, the City Council may use the 115 Trust to reimburse past UAL and NC payments that were previously paid by the General Fund.
Exhibit A
City of Ripon Employee Benefit Fund Pension Plan
Investment Guidelines Document – HighMark Capital Management, Inc. (v. 08/17/2022 ARB) 4
Risk Tolerance: Moderate
The account’s risk tolerance has been rated moderate, which demonstrates that the account can accept price fluctuations to pursue its investment objectives.
Strategic Asset Allocation: The asset allocation ranges for this objective are listed below:
Strategic Asset Allocation Ranges
Cash Fixed Income Equity
0-20% 40%-60% 40%-60%
Policy: 5% Policy: 45% Policy: 50%
Market conditions may cause the account’s asset allocation to vary from the stated range from time to time. The Investment Manager will rebalance the portfolio no less than quarterly and/or when the actual weighting differs substantially from the strategic range, if appropriate and consistent with your objectives.
Security Guidelines:
Equities
With the exception of limitations and constraints described above, Investment Manager may allocate assets of the equity portion of the account among various market capitalizations (large, mid, small) and investment styles (value, growth). Further, Investment Manager may allocate assets among domestic, international developed and emerging market equity securities.
Total Equities 40%-60%
Equity Style Range
Domestic Large Cap Equity 15%-45%
Domestic Mid Cap Equity 0%-10%
Domestic Small Cap Equity 0%-15%
International Equity (incl. Emerging Markets) 0%-15%
Real Estate Investment Trust (REIT) 0%-15%
Fixed Income
In the fixed income portion of the account, Investment Manager may allocate assets among various sectors and industries, as well as varying maturities and credit quality that are consistent with the overall goals and objectives of the portfolio.
Total Fixed Income 40%-60%
Fixed Income Style Range
Long-term bonds (maturities >7 years) 0%-25%
Intermediate-term bonds (maturities 3-7 years) 25%-60%
Short-Term bonds (maturities <3 years) 0%-25%
High Yield bonds 0%-10%
Exhibit A
City of Ripon Employee Benefit Fund Pension Plan
Investment Guidelines Document – HighMark Capital Management, Inc. (v. 08/17/2022 ARB) 5
Performance Benchmarks:
The performance of the total Plan shall be measured over three and five-year periods. These periods are considered sufficient to accommodate the market cycles experienced with investments. The performance shall be compared to the return of the total portfolio blended benchmark shown below.
Total Portfolio Blended Benchmark
26.50% S&P 500 Index
5.00% Russell Mid Cap Index
7.50% Russell 2000 Index
3.25% MSCI Emerging Market Index
6.00% MSCI EAFE Index
1.75% Wilshire REIT Index
33.50% Bloomberg U.S. Aggregate Bond Index
10.00% ICE BofA 1-3 Year US Corp/Gov’t Index
1.50% ICE BofA US High Yield Master II Index
5.00% FTSE 1Mth T-Bill Index
Asset Class/Style Benchmarks
Over a market cycle, the long-term objective for each investment strategy is to add value to a market benchmark. The following are the benchmarks used to monitor each investment strategy:
Large Cap Equity S&P 500 Index
Growth S&P 500 Growth Index
Value S&P 500 Value Index
Mid Cap Equity Russell Mid Cap Index
Growth Russell Mid Cap Growth Index
Value Russell Mid Cap Value Index
Small Cap Equity Russell 2000 Index
Growth Russell 2000 Growth Index
Value Russell 2000 Value Index
REITs Wilshire REIT Index
International Equity MSCI EAFE Index
Investment Grade Bonds Bloomberg U.S. Aggregate Bond Index High Yield ICE BofA High Yield Master II Index
Security Selection
Investment Manager may utilize a full range of investment vehicles when constructing the investment portfolio, including but not limited to individual securities, mutual funds, and exchangetraded funds. In addition, to the extent permissible, Investment Manager is authorized to invest in shares of mutual funds in which the Investment Manager serves as advisor or sub-adviser.
Exhibit A
City of Ripon Employee Benefit Fund Pension Plan
Investment Guidelines Document – HighMark Capital Management, Inc. (v. 08/17/2022 ARB) 6
Investment Limitations:
The following investment transactions are prohibited:
• Direct investments in precious metals (precious metals mutual funds and exchange-traded funds are permissible).
• Venture Capital
• Short sales*
• Purchases of Letter Stock, Private Placements, or direct payments • Leveraged Transactions*
• Commodities Transactions Puts, calls, straddles, or other option strategies* • Purchases of real estate, with the exception of REITs • Derivatives, with exception of ETFs*
*Permissible in diversified mutual funds and exchange-traded funds Duties and Responsibilities
Responsibilities of Plan Sponsor
The Plan Administrator for City of Ripon is responsible for:
Confirming the accuracy of this Investment Guidelines Document, in writing. Advising Trustee and Investment Manager of any change in the plan/account’s financial situation, funding status, or cash flows, which could possibly necessitate a change to the account’s overall risk tolerance, time horizon or liquidity requirements; and thus would dictate a change to the overall investment objective and goals for the account. Monitoring and supervising all service vendors and investment options, including investment managers.
Avoiding prohibited transactions and conflicts of interest. The Investment strategy will be review by City Council, the Plan Administrator, and Staff at least every three years. However, updates will be given to the City Council quarterly.
Responsibilities of Trustee
The plan Trustee is responsible for:
Valuing the holdings.
Collecting all income and dividends owed to the Plan. Settling all transactions (buy-sell orders).
Responsibilities of Investment Manager
The Investment Manager is responsible for:
Assisting the Plan Administrator with the development and maintenance of this Investment Policy Guideline document annually.
Meeting with the Plan Administrator annually to review portfolio structure, holdings, and performance.
Designing, recommending and implementing an appropriate asset allocation consistent with the investment objectives, time horizon, risk profile, guidelines and constraints outlined in this statement.
Researching and monitoring investment advisers and investment vehicles. Purchasing, selling, and reinvesting in securities held in the account. Monitoring the performance of all selected assets.
Exhibit A
City of Ripon Employee Benefit Fund Pension Plan
Investment Guidelines Document – HighMark Capital Management, Inc. (v. 08/17/2022 ARB) 7
Voting proxies, if applicable.
Recommending changes to any of the above.
Periodically reviewing the suitability of the investments, being available to meet with the committee at least once each year, and being available at such other times within reason at your request.
Preparing and presenting appropriate reports.
Informing the committee if changes occur in personnel that are responsible for portfolio management or research.
Acknowledgement and Acceptance
I/We being the Plan Sponsor with responsibility for the account(s) held on behalf of the Plan Sponsor specified below, designate Investment Manager as having the investment discretion and management responsibility indicated in relation to all assets of the Plan or specified Account. If such designation is set forth in the Plan/trust, I/We hereby confirm such designation as Investment Manager.
I have read the Investment Guidelines Document, and confirm the accuracy of it, including the terms and conditions under which the assets in this account are to be held, managed, and disposed of by Investment Manager. This Investment Guidelines Document supersedes all previous versions of an Investment Guidelines Document or investment objective instructions that may have been executed for this account.
__________________________________________________ Date:________________ Plan Sponsor: City of Ripon
__________________________________________________ Date:________________ Investment Manager: Andrew Brown CFA, Senior Portfolio Manager, (415) 705-7605 Exhibit A