HomeMy WebLinkAbout02. Approve (1) updated Board Policy (BP) 005 - Statement of Investment Policy; and (2) Investment Guildeline Documents (IGD) related to the other Post-Employment Benefits (OPEB) Trust and the Pension Pre-funding TrustO��ENTRAL
MEETING DATE: OCTOBER 17, 2024
BOARD OF DIRECTORS
POSITION PAPER
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Item 2.
SUBJECT: APPROVE (1) UPDATED BOARD POLICY (BP)005- STATEMENT OF
INVESTMENT POLICY,' AND (2) INVESTMENT GUIDELINE DOCUMENTS (IGD)
RELATED TO THE OTHER POST -EMPLOYMENT BENEFITS (OPEB) TRUST
AND THE PENSION PRE -FUNDING TRUST
SUBMITTED BY:
INITIATING DEPARTMENT:
KATIE YOUNG, SECRETARY OF THE SECRETARYOF THE DISTRICT
DISTRICT
REVIEWED BY: KEVIN MIZUNO, FINANCE MANAGER
PHILIP LEIBER, DEPUTYGM -ADMINISTRATION
Roger S. Bailey
General Manager
ISSUE
Central San's investment policies for its assets are reviewed and approved annually by the Board of
Directors (Board) in accordance with the District's investment policy.
BACKGROUND
Board Policy 005 (BP 005) - Statement of Investment Policy Review.
California Government Code (the "Code') Section 53646 states that the Treasurer or Chief Fiscal Officer of the
local agency may annually render to the legislative body and any oversight committee of that local agency a
statement of investment policy, which the legislative body of the local agency shall consider at a public meeting.
Although no longer required by statute, it has been the District's practice and policy to render an annual
Statement of I nvestment Policy to the Board for review and approval (Attachment 1). As part of this annual
exercise, staff reviews the policy and relevant external guidance, including publications issued by the
California Debt and I nvestment Advisory Commission (CDIAC), to ensure the District is in compliance.
The latest Local Agency Investment Guidelines publication issued by the CDIAC in early 2024
October 17, 2024 Regular Board Meeting Agenda Packet - Page 12 of 209
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highlighted only one change to Califomia Govemment Code related to municipal investments that is
applicable to the District. Effectuated through Senate Bill 882 (SB 882), the Code was updated to clarify
that mortgage-backed securities issued by federal agencies are exempt from requirements described in
Code Section 53601(o) for privately issued asset and mortgage-backed securities.
In consideration of the relevant statutory change published in the 2024 Local Agency Investment
Guidelines and in consultant with the District's newly appointed investment manager, PFMAM, the
following changes are being recommended to BP 005:
• Reduce minimum credit rating of municipal investments, negotiable certificates of deposit, and
medium term notes from "AA" to "A" to be more in alignment with Government Code, which does
not require a minimum credit rating for such investments. A minimum credit rating of "A" is consistent
with the Code mandated minimum rating requirement for corporate notes and provides for greater
investment flexibility and diversification.
• Add a minimum credit rating of "A-1" for bankers' acceptance notes for prudence and consistency,
although a minimum rating is not required per the Code.
• Reduce the maximum amount that can be invested in the commercial paper or medium term notes of
single issuer from 10 percent to 5 percent to be more conservative and consistent with the per non-
government issuer limitation imposed elsewhere in the policy.
• I nclude a new section for asset backed securities to address the clarifications to the Code achieved
by SB 882 as described previously.
• Update Appendix A to reflect the changes to credit ratings and maximum investment limits proposed
elsewhere in the policy.
Review of Retiree Benefit Trust Investment Guidelines Documents
Several third party partners are involved in the administration and fiduciary oversight of the District's pension
pre -funding and OPEB plan trusts. Public Agency Retirement Services (PARS) is the trust administrator for the
District's Other Post -Employment Benefits (OPEB) and Pension Prefunding Trusts. PARS is responsible for
record keeping/sub-trust accounting, actuarial coordination, monitoring contributions/process distributions,
monitoring plan compliance, and acting as an ongoing client liaison. US Bank is the Plan Trustee, responsible
for the safeguarding of plan assets, oversight protection, serves as a plan fiduciary, and custodian of plan
assets. PFMAM is the Plan Investment Manager, serving as an investment sub -advisor to the trustee,
development of the plan investment and asset allocation strategy, and providing investment policy assistance.
Staff provides reports highlighting retiree benefit trust performance to the Finance Committee on a quarterly
basis, and PFMAM and/or PARS presents highlights of any major developments to the Finance Committee
twice a year.
The OPEB Trust was established by the District in 2009, as the primary trust to hold assets for the OPEB
plan for retirees. The OPEB Trust investment guideline document (IGD) specifies a "moderate"
investment strategy, allowing the fund to accept average, or moderate, price fluctuations to pursue its
investment objectives. Unlike the OPEB Trust, the Pension Pre -funding trust, established in 2017, acts as
a supplemental trust to the primary Contra Costa County Employees' Retirement Association (CCCERA)
trust for the Districts's defined benefit pension plan. The Pension Pre -funding Trust provides a
supplemental tool for depositing assets into an irrevocable pension trust (formed under I RC section 115)
to hedge against unexpected hikes in pension contribution requirements or a growing plan unfunded
liability. The Pension Pre -funding Trust I GD specifies a "moderately conservative" investment strategy,
allowing the fund to accept some price fluctuations to pursue its investment objectives. The trust was set
up similarly to the OPEB Trust I GD in a single vehicle with the OPEB Trust, as part of the Public
Agencies Post -Retirement Health Care Plan Trust. This resulted in economies of scale as to the level of
fees charged by both PFMAM and PARS.
As noted previously, I GDs were established for each trust governing the investment of trust assets and
established for the following purposes:
October 17, 2024 Regular Board Meeting Agenda Packet - Page 13 of 209
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• 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 therein 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 for its identified
investment managers;
• Help maintain a long-term perspective when market volatility is caused by short-term market
movements.
• Assist the Plan Sponsor in formulating an I nvestment Policy Statement (I PS) for the account.
As part of this year's review of the retirement benefit plan I GDs, staff is recommending the Board
authorize the transition away from the existing IGD format and adopt PFMAM's standard benefit trust I GD
template, with appropriate revisions to reflect the unique provisions and objectives of the District's plans.
The current I GD formats were based on I GD templates of HighMark Capital Management (HighMark).
Prior to US Bank's acquisition of Union Bank in 2022, the Investment Manager of the District's OPEB and
Pension Pre -funding trusts was HighMark. As HighMark was a fully owned subsidiary of Union Bank, US
Bank's acquisition of Union Bank also resulted in the acquisition of HighMark, which has subsequently
been consolidated with its PFMAM Investment Management division, dedicated to governmental
investment management and advisory services. Accordingly, the adoption of PFMAM's I GD template is
expected to facilitate smoother oversight of the plan by the new PFMAM team. While the format of the two
I GDs differs significantly, the following is a summary of the more substantive changes by major category:
Area
Summary of Change
Investment
No major changes proposed.
Authority
Statement of
PFMAM version provides more detailed definition of authority and
Objectives
scope.
Asset
Asset allocation classes in the new PFMAM version are reclassified
Allocation
between domestic equity, international equity, and other growth assets.
Previously this was allocated between equities, fixed income, and cash
in the old HighMark version. I n the PFMAM version "other growth
assets" represent an allocation to both RE I Ts (real estate investment
trusts) and global infrastructure. "Global infrastructure" would represent
a new asset class target for the plan. Equities still maintain a range of
40-60 percent. Within fixed income, a 3 percent target allocation to
high yield is established. While cash can range between 0-20 percent
by policy, cash is less emphasized within the new plan. The target
allocation for the moderate allocation for the PFMAM version is 50
percent equity, 48 percent fixed income, and 2 percent cash. The
slight de -emphasis in cash is represented by moving 3 percent of the
cash target to fixed income.
Selection of
PFMAM version offers some background on investment selection,
Investment
whereas HighMark version was silent in this area.
Manager
Fixed Income
No major changes proposed. Language from HighMark version was
Investment
carried over to new PFMAM version.
Objective
October 17, 2024 Regular Board Meeting Agenda Packet - Page 14 of 209
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Benchmarks Benchmark targets are listed in the new PFMAM I GD for each major
investment class but excludes a total portfolio blended performance
benchmark with specific percent targets like in the HighMark I GD.
The new proposed versions of the OPEB and Pension Pre -funding trust I GDs are provided for review as
Attachments 2 and 3. Additionally, the current versions of the OPEB and Pension Pre -funding trust IGDs
proposed to be replaced have also been attached for comparison purposes as Attachments 4 and 5.
ALTERNATIVES/CONSIDERATIONS
Options could be added for the District investments that fall within the permissible investments prescribed
by California Government Code. The Board could also choose not to make the proposed changes or
make other changes to BP 005, and/or the OPEB and Pension Prefunding Trust IGDs.
The current "moderate" and "moderately conservative" investment strategies for the OPEB and Pension Pre -
funding trusts respectively previously adopted by the Board could be changed to more or less aggressive
strategies. No such changes are currently recommended by staff.
The Board may opt to keep the HighMark I GD format for the post-retirement benefit trusts. This is not
recommended however as transitioning to the new format should create more alignment between PFMAM
resources and strategies reducing the risk of misinterpretation of investment directives contained within the
IGD creating non-compliance.
FINANCIAL IMPACTS
The yield earned on Central San's investments and Trust investments may be impacted by the policies
and guidelines being considered, which address the risk tolerance and investment practices of the District.
These policies and guidelines impact the goals of optimizing the return, taking into account the priorities of
safety, liquidity, and yield (in that order). That being said, the changes being proposed in this year's review
of the investment policies will not cause any known immediate fiscal impacts to the District.
COMMITTEE RECOMMENDATION
The Administration Committee reviewed this matter at its meeting on October 1, 2024, and
recommended Board approval.
RECOMMENDED BOARD ACTION
Approve (1) updated Board Policy (BP) 005 - Statement of Investment Policy; and (2) Investment
Guideline Documents (IGD) related to the Other Post -Employment Benefits (OPEB) trust and the
Pension Pre -funding trust.
Strategic Plan re -In
GOAL FOUR: Governance and Fiscal Responsibility
Strategy 1 - Promote and uphold ethical behavior, openness, and accessibility, Strategy 3 - Maintain financial stability
and sustainability
GOAL FIVE: Safety and Security
Strategy 2 - Protect personnel and assets from threats and emergencies
October 17, 2024 Regular Board Meeting Agenda Packet - Page 15 of 209
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ATTACHMENTS:
1. Board Policy (BP) 005 - Investment Policy (with redlines)
2. OPEB Trust IGD (proposed)
3. Pension Prefunding Trust IGD (proposed)
4. O P E B Trust I G D (current)
5. Pension Prefunding Trust IGD (current)
October 17, 2024 Regular Board Meeting Agenda Packet - Page 16 of 209
Number: BP 005
Authority: Board of Directors
Effective: September 1, 2011
Last Revised: October 6, 2022
Last Reviewed: September 6 20220ctober 1, 2024
Initiating Dept./Div.: Administration/Finance
BOARD POLICY
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STATEMENT OF INVESTMENT POLICY
PURPOSE
The investment policy of the Central Contra Costa Sanitary District (GeRtral sal4the
District) governs investments held with the following:
• Contra Costa County
• Other Post -Employment Benefits (OPEB) Trust*
• Pension Prefunding Trust*
• Debt Reserves — as indicated in the Bond Official Statement (if applicable)
*Trusts are governed by a separate Investment Guidelines Document
provided by Investment Manager on an annual basis.
Investments will be in compliance with the provisions of, but not necessarily limited to
California Government Code Section 53601 and other applicable statutes.
This investment policy is embodied in the following sections:
POLICY
Statement of Objectives
The primary objectives, in priority order, of the Central Sa District's
investment activities shall be:
Safety. Investments of Gem rel -San -the District shall be undertaken in
the manner that seeks to ensure the preservation of capital in the
overall portfolio.
• Liquidity. GeRtFal SaRThe District's portfolio will remain sufficiently
liquid to enable CeRtR l Saethe District to meet all operating
requirements which might be reasonably anticipated.
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Number: BP 005
STATEMENT OF INVESTMENT POLICY
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Return on Investment. The portfolio will be invested to attain a market
average rate of return throughout budgetary and economic cycles,
taking into account the investment risk constraints, liquidity needs, and
cash flow characteristics of the portfolio.
Permissible Investments
Within the constraints prescribed by the California Government Code for
permissible investments, Central nthe District's investment portfolio will
only be invested in the following instruments:
• United States Treasury Obligations. United States Treasury notes,
bonds, bills, or certificates of indebtedness, or those for which the full faith
and credit of the United States are pledged for the payment of principal
and interest.
• United States Government Agency Issues. Federal agency or United
States government-sponsored enterprise obligations, participations, or
other instruments, including those issued by or fully guaranteed as to
principal and interest by federal agencies or United States government-
sponsored enterprises.
• Municipal Investments. Registered state warrants or treasury notes or
bonds of this state, including bonds payable solely out of the revenues
from a revenue-producing property owned, controlled, or operated by the
state or by a department, board, agency, or authority of the state.
Registered treasury notes or bonds of any of the other 49 states in
addition to California, including bonds payable solely out of the revenues
from a revenue-producing property owned, controlled, or operated by a
state or by a department, board, agency, or authority of any of the other
49 states, in addition to California.
Eligible obligations shall be rated in category "AX or its equivalent or
better by a nationally recognized statistical rating organization Nationally
Recognized Statistical Rating Organization (NRSRO). No more than 5%
shall be invested in any single issuer.
• Money Market Funds. Shares of beneficial interest issued by diversified
management companies that are money market funds registered with the
Securities and Exchange Commission under the Investment Company Act
of 1940 (15 U.S.C. See. 80a-1, et seq.) that invest in the securities and
obligations as authorized by California Government Code Section 53601
subdivisions (a) to (k), inclusive, and subdivisions (m) to (q), inclusive, and
October 17, 2024 Regular Board Meeting Agenda Packet - Page 18 of 209
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Number: BP 005
STATEMENT OF INVESTMENT POLICY
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that comply with the investment restrictions of this article and Article 2
(commencing with Section 53630). To be eligible for investment pursuant
to this subdivision, these companies shall either:
i. Attain the highest ranking or the highest letter and numerical
rating provided by not less than two NRSROs;
ii. Retain an investment advisor registered or exempt from
registration with the Securities and Exchange Commission with
not less than five years' experience managing money market
mutual funds with assets under management in excess of five
hundred million dollars ($500,000,000).
A maximum of 20% of Central SaRthe District's portfolio may be invested
in money market funds. No more than 10% of G8Rtral SaRthe District's
portfolio may be invested in any one fund.
• Bankers' Acceptances, otherwise known as bills of exchange or time
drafts, drawn on and accepted by a commercial bank. Purchases of
bankers' acceptances shall be rated in the rating category of "A-1" or
better by an NRSRO and shall not exceed 180 days' maturity or 40% of
GeRtral District's moneys that may be invested pursuant to this
section. However, no more than 5% of GeRtral Saethe District's moneys
may be invested in the bankers' acceptances of any one commercial bank
pursuant to this section.
• Collateralized Time Deposits (Non -Negotiable Certificates of Deposit)
issued by a Federal or State chartered bank or a Federal or State
chartered savings and loan association. Time certificates of deposit shall
meet the requirements for deposit under California Government Code
Section 53635 et. seq., The Director of Finance and Administration, for
deposits up to the current FDIC insurance limit, may waive collateral
requirements if the institution insures its deposits with the Federal Deposit
Insurance Corporation (FDIC). No more than 20% of GeR+nthe
District's moneys shall be invested in a combination of federally insured
and collateralized non-negotiable certificates of deposit.
Fully insured time certificates of deposit placed through a deposit
placement service shall meet the requirements under California
Government Code Section 53601.8.
Negotiable Certificates of Deposit issued by a nationally or state -
chartered bank, a savings association or a federal association (as defined
by Section 5102 of the Financial Code), a state or federal credit union, or
by a federally licensed or state -licensed branch of a foreign bank.
Purchases of negotiable certificates of deposit shall not exceed 30% of
GeRtraf Seethe District's moneys that may be invested pursuant to this
October 17, 2024 Regular Board Meeting Agenda Packet - Page 19 of 209
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Number: BP 005
STATEMENT OF INVESTMENT POLICY
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section and not more than 5% may be invested in any single issuer.
Eligible negotiable certificates of deposit in excess of the FDIC insured
limit shall be rated in the category of ""A"A! or its equivalent or better by a
NRSRO.
• Commercial Paper of prime quality of the highest ranking or of the
highest letter and number rating as provided for by a NRSRO. The entity
that issues the commercial paper shall meet all of the following conditions
in either paragraph (a) or paragraph (b):
a) The entity meets the following criteria: (i) Is organized and operating in
the United States as a general corporation. (ii) Has total assets in
excess of five hundred million dollars ($500,000,000). (iii) Has debt
other than commercial paper, if any, that is rated in a rating category of
"A" or higher by an NRSRO.
b) The entity meets the following criteria: (i) Is organized within the United
States as a special purpose corporation, trust, or limited liability
company. (ii) Has program wide credit enhancements including, but
not limited to, over collateralization, letters of credit, or surety bond. (iii)
Has commercial paper that has a short term rating of "A-1" / "P-1" /
"F1" or higher, or the equivalent, by a NRSRO.
Eligible commercial paper shall have a maximum maturity of 270 days or
less. GeRtraf SaRThe District may invest no more than 25% of its moneys
in eligible commercial paper and no more than 54-0% of its total
investment assets in the commercial paper of any single issuer.
• Medium Term Notes, defined as all corporate and depository institution
debt securities with a maximum remaining maturity of five years or less,
issued by corporations organized and operating within the United States
or by depository institutions licensed by the United States, or any state
and operating within the United States. Notes eligible for investment under
this subdivision shall be rated in a rating categor roof "AA" {or its equivalent
"P 1" / "A 1" / "F! ")-or better by an NRSRO. Purchases of medium-term
notes shall not include other instruments authorized by this section and
shall not exceed 30% of GeRtral Sar4the District's moneys that may be
invested pursuant to this section. Central Sa The District may invest no
more than 54-0% of its total investment assets in the medium-term notes of
any single issuer.
• Government Pools (e.g., California Asset Management Program,
CalTrust, etc.). Shares of beneficial interest issued by a joint powers
authority organized pursuant to California Government Code Section
6509.7 that invests in securities and obligations authorized by California
Government Code Section 53601 subdivisions (a) to (rq), inclusive. Each
share shall represent an equal proportional interest in the underlying pool
October 17, 2024 Regular Board Meeting Agenda Packet - Page 20 of 209
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Number: BP 005
STATEMENT OF INVESTMENT POLICY
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of securities owned by the joint powers authority. To be eligible under this
section, the joint powers authority issuing the shares shall have retained
an investment adviser that meets all of the following criteria:
i. The adviser is registered or exempt from registration with the
Securities and Exchange Commission.
ii. The adviser has not less than five years of experience investing
in the securities and obligations authorized in California
Government Code Section 53601 subdivisions (a) to (q),
inclusive.
iii. The adviser has assets under management in excess of five
hundred million dollars ($500,000,000).
• Local Agency Investment Fund of the State of California. Investment
in LAIF may not exceed the current LAIF limit ($75,000,000) and should
be reviewed periodically.
• Supranationals, defined as United States dollar denominated senior
unsecured unsubordinated obligations issued or unconditionally
guaranteed by the International Bank for Reconstruction and
Development, International Finance Corporation, or Inter -American
Development Bank, with a maximum remaining maturity of five years or
less, and eligible for purchase and sale within the United States.
Supranationals shall be rated "AX (or "P-1" / "A-1" / "F1" short term rating)
or its equivalent or better by a NRSRO. Purchases of supranationals may
not exceed 30% of Geetral Santhe District's investment portfolio, and no
more than 5% may be invested in any single issuer.
• Asset -Backed Securities. A mortaaae oassthrouah securit
collateralized mortgage obligation, mortgage-backed or otherpay-through
bond, equipment lease -backed certificate, consumer receivable
passthrough certificate, or consumer receivable -backed bond.
For securities eligible for investment under this subdivision not issued or
guaranteed by an agency or issuer identified in California Government
Code Section 53601 subdivision (b) or (f), the following limitations apply:
a) The security shall be rated in a rating category of "AX or its equivalent
or better by an NRSRO and have a maximum remaining maturity of
five years or less.
&)b) Purchase of securities authorized by this paragraph shall not
exceed 20%-perGePA-of the agenGy's surplus mE)no\/s that mo i be
ins
-sted pursuantethi?seGtwnnGentrol Sa- the District's investment
portfolio, and, no more than 5% may be invested in any single issuer.
A summary matrix of permissible investments and restrictions associated with
each is provided in Appendix A.
October 17, 2024 Regular Board Meeting Agenda Packet - Page 21 of 209
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Number: BP 005
STATEMENT OF INVESTMENT POLICY
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III. Bank and Dealers
GentralSar4The District has the option of investing funds internally, using the
services of the Treasurer's Office of the County of Contra Costa or a
registered investment advisor to transact Geatral Saethe District's
investments in compliance with the requirements described in this investment
Policy. If GeRtral Sai4the District uses the services of the County, the County
Treasurer's Office will execute Central District's investments through
such brokers, dealers and financial institutions as are approved by the County
Treasurer, and through the State Treasurer's Office for investment in the
Local Agency Investment Fund.
The General Manager, with the approval of the Board, may appoint an
independent investment advisor registered with the Securities and Exchange
Commission pursuant to the Investment Advisers Act of 1940 and the rules
adopted thereunder, or a "Municipal Advisor" as defined by Section 975 of
the Dodd -Frank Wall Street Reform and Consumer Protection Act, amending
Section 15B of the Securities Exchange Act of 1934, and interpreted by the
Securities and Exchange Commission in its final rules adopted September 10,
2013, to advise the Gentral Sa-pthe District on investment activities. The
investment advisor will be selected through a competitive process. The terms
and conditions of such a relationship shall be set out in a contract. The duties
and responsibilities of the investment advisor at a minimum shall include the
following.
• Providing advice and analysis on the GeRtral SaRthe District's Investment
Policy, portfolio management techniques, portfolio structures, and new
investment securities and products;
• Assistance in developing or improving and implementing cash flow
modeling;
• Providing advice on investment benchmarking and performance reporting;
• Evaluation of the capabilities and usage of software utilized in
management of and accounting for the investments;
• Assisting in any investment related presentations to the Finance
Committee and/or Board, including, but not limited to, the quarterly
investment portfolio report; and
• Providing analysis, advice, and assistance on other investment -related
matters, including investment of bond proceeds.
IV. Settlements
October 17, 2024 Regular Board Meeting Agenda Packet - Page 22 of 209
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Number: BP 005
STATEMENT OF INVESTMENT POLICY
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The settlement date of an investment transaction is the date when a trade is
final. The ownership of the security is transferred to the buyer and the
payment of funds is transferred to the seller. The settlement date establishes
a legal transfer of ownership. Security purchases with a forward settlement
date exceeding 45 days from the time of the investment are prohibited.
V. Maturities
To the extent possible, Central -Sa Tthe District shall attempt to match its
investments with anticipated cash flow requirements. Unless stated otherwise
in this Policy or approval made by GeRtral Sai4the District's executive body,
the maximum maturity of Central Sa the District's eligible investments will not
exceed five years. The calculation of an investment's remaining maturity/term
is to be measured from the settlement date to final maturity.
VI. Diversification
GeRtFal The District's investments shall be diversified by:
• Limiting investments to avoid over concentration in securities from a
specific issuer or sector.
• Limiting investments in securities that have higher credit risks.
• Investing in securities with varying maturities.
• Continuously investing a portion of the portfolio in readily available
funds such as local government investment pools or money market
funds to ensure that appropriate liquidity is maintained in order to meet
ongoing obligations.
LTA x:019
Credit and market risks will be minimized through adherence to the list of
permissible investments, a limit on maximum maturities, and the limitation on
the total investment in a single issuer.
VIII. Delegation and Authority
GeRtral SaRThe District's Board of Directors (Board) is responsible for the
investment of Central nthe District's funds. The Board hereby delegates
responsibility for investment transactions for the investment program to the
General Manager or designee, for a one-year period.
The General Manager or designee may delegate the day-to-day execution of
investments to a registered investment advisor, via written agreement
approved by the Board. The Advisor in coordination with the General
October 17, 2024 Regular Board Meeting Agenda Packet - Page 23 of 209
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Number: BP 005
STATEMENT OF INVESTMENT POLICY
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Manager or designee will manage on a daily basis Ge—Atral District's
investment portfolio pursuant to the specific and stated investment objectives
of Central Santhe District. The Advisor shall follow the policy and such other
written instructions provided by the General Manager or designee.
IX. Prudence
Prudent judgment must be exercised by the General Manager or designee
and all investment staff responsible for investment transactions undertaken in
accordance with this investment policy. The standard of prudence to be
applied by the investment officer shall be the "prudent person" rule:
"Investments shall be made with judgment and care, under
circumstances then prevailing, which persons of prudence,
discretion and intelligence exercise in the management of their own
affairs, not for speculation, but for investment, considering the
probable safety of their capital as well as the probable income to be
derived." The prudent person rule shall be applied in the context of
managing the overall portfolio.
X. Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from
personal business activity that could conflict with the proper execution and
management of the investment program, or that could impair their ability to
make impartial decisions. Employees and investment officials shall disclose
any material interests in financial institutions with which they conduct
business. They shall further disclose any personal financial/investment
positions that could be related to the performance of the investment portfolio.
Employees and officers shall refrain from undertaking personal investment
transactions with the same individual with whom business is conducted on
behalf of Centras Sar the District.
1:/ 1111111111111111154 9072une0
The General Manager or designee will establish subsidiary accounting
records of each investment which will enable the determination of income
earned monthly and through maturity, and the balancing of the principal
amounts to a control account in the general ledger. Internal control
procedures require the General Manager or designee to sign all transactions,
which are then countersigned by the General Manager. Such internal
controls are to be reviewed by Central SaRthe District's independent auditors
annually.
October 17, 2024 Regular Board Meeting Agenda Packet - Page 24 of 209
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Number: BP 005
STATEMENT OF INVESTMENT POLICY
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XII. Safekeeping and Custody
All investment transactions will be executed on a delivery versus payment
basis. Securities will be held in safekeeping by a third party custodian
designated by (;8RtFal Sai4the District. The custodian will be required to
provide timely (written or on-line) confirmation of receipt and monthly position
and transaction reports.
XIII. Reporting
The General Manager or designee will annually render a statement of
investment policy to the Board. Additionally a quarterly investment portfolio
report shall be prepared showing the type of investment, issuer, date of
maturity, par (or face), dollar amount invested, current market value of all
securities, and the source of this same valuation, and a statement of
compliance of the portfolio with the investment policy. The quarterly
investment portfolio report shall be delivered to Cep r�Rthe District's
Internal Auditor, the General Manager, and the Board for review within 45
days of the end of the quarter to which it pertains.
Also, annually, the OPEB and Pension Prefunding Trust Investment
Guidelines Documents (IGD) will be brought before the Board Administration
Committee for review. Quarterly statements for both Trusts are reviewed by
the Board Finance Committee. At least, twice a year the investment manager
and/or the Trust Administrator meets with the Finance Committee.
XIV. Performance Evaluation
The investment portfolio shall be designed with the objective of obtaining a
rate of return throughout budgetary and economic cycles, commensurate with
the investment risk constraints and the cash flow needs.
XV. Policv Considerations
This policy shall be reviewed on an annual basis. Any changes must be
approved by the Board after review by the Administration Committee, as well
as the individual(s) charged with maintaining internal controls.
Appendix A: Permissible Investment Restrictions Summary Matrix
[Original Retained by the Secretary of the District]
October 17, 2024 Regular Board Meeting Agenda Packet - Page 25 of 209
Appendix A
Permissible Investment Restrictions Summary Matrix
Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the matrix below:
Authorized Investment Type
Maximum
Remaining
Maturity
Maximum
Percentage of
Portfolio
Maximum
Investment in
One Issuer
Minimum Credit
Quality
Banker's Acceptances
180 days
40%
55%
e/aA-1
Certificates of Deposit — Collateralized /
Non-negotiable
5 years
2010%
5%tea
AAAN/A
Certificates of Deposit - Negotiable
5 years
30%
5%
AA3
Commercial Paper'
270 days
25%
485%
A-1
County Investment Pool
n/a
n/a
n/a
n/a
Government Investment Pools
(CAMP, Cal Trust, etc.)
n/a
n/a
n/a
n/a
Local Agency Investment Fund (LAIF)Z
n/a
n/a
n/a
n/a
Medium Term Notes
5 years
30%
405%
AA
Asset -Backed Securities
5 years
20%
5%
AA
Money Market Funds
n/a
20%
10%
ASee Policy
Municipal Investments
5 years
n/a
5%
AA
S perp Supranational
5 years
30%
5%
AA
U.S. Government Agency Issues
5 years
n/a
n/a
n/a
U.S. Treasury Obligations
5 years
n/a
n/a
n/a
' Prime quality; limited W , ratiGRS With assets ever $tion 000,nsee additional Policy requirements99.
2 As of Jae July 319, 2024_2, the maximum amount an agency could invest with LAIF was $75,000,000.
3 Credit rating requirement not applicable for issuer if under FDIC insurance coverage, currently $250,000.
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Attachment 2
INVESTMENT POLICY STATEMENT
FOR
CENTRAL CONTRA COSTA SANITARY DISTRICT
OTHER POST -EMPLOYMENT BENEFITS TRUST
kw
me
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TABLE OF CONTENTS
SECTION
Page 17 of 55
PAGE
Purpose.........................................................................................................................................3
InvestmentAuthority.................................................................................................................... 3
Statement of Investment Objectives.............................................................................................4
InvestmentGuidelines.................................................................................................................. 5
Time Horizon
Liquidity and Diversification
Asset Allocation
Rebalancing Philosophy
Risk Tolerance
Performance Expectations
Selection of Investment Managers................................................................................................7
Guidelines for Portfolio Holdings................................................................................................ 8
Direct Investments by Advisor
Limitations on Managers' Portfolios
Portfolio Risk Hedging
Prohibited Portfolio Investments
Safekeeping
Control Procedures...............................................................................................................11
Review of Investment Objectives
Review of Investment Performance
Voting of Proxies
Adoption of Investment Policy Statement...............................................................12
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The Central Contra Costa Sanitary District (the District) has established the Central Contra Costa
Sanitary District Other Post -Employment Benefits Trust (the "Trust"). This Trust is intended to
provide funding of non -pension post -employment benefits ("OPEB") for those employees who meet
the age and service requirements outlined in the plan document. The Trustees of the Trust hereby
adopt this Investment Policy Statement ("Policy Statement") for the following purposes.
Purpose
The main investment objective of the Trust is to achieve long-term growth of Trust assets by
maximizing long-term rate of return on investments and minimizing risk of loss to fulfill the District's
current and long-term OPEB obligations.
The purpose of this Policy Statement is to achieve the following:
1. Document investment objectives, performance expectations and investment guidelines for
Trust assets.
2. Establish an appropriate investment strategy for managing all Trust assets, including an
investment time horizon, risk tolerance ranges and asset allocation to provide sufficient
diversification and overall return over the long-term time horizon of the Trust.
3. Establish investment guidelines to control overall risk and liquidity.
4. Establish periodic performance reporting requirements to monitor investment results and
confirm that the investment policy is being followed.
5. Comply with fiduciary, prudence, due diligence and legal requirements for Trust assets.
Investment Authority
The Board of Directors of the District has oversight responsibility for the Plan as plan sponsor. The
Board receives oversight support from the Finance Committee (the "Committee") to oversee certain
policies and procedures related to the operation and administration of the Trust. The Board has
authorized the General Manager to implement the investment policy and guidelines in the best interest
of the Trust to best satisfy the purposes of the Trust. In implementing this Policy Statement, the
General Manager believes it may delegate certain functions to:
1. The District's Treasurer to enforce of the investment policy and recommend amendments as
needed to reflect changes in the District's objectives, externals laws and regulations, as well as
other factors. The Treasurer provides direction and oversight to the Finance Manager, who
serves as Plan Administrator over the plan.
2. The Finance Manager, to manage the day-to-day administration of the plan serving as Plan
Administrator. In this capacity, the Plan Administrator shall support the Treasurer in enforcing
the investment policy and recommending changes thereto as needed. Following Board
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authorization, the Plan Administrator is authorized to execute the investment policy and other
plan documents. The Plan Administrator shall serve as the primary contact with the investment
advisor, custodian, trustee, and specialists.
3. An investment advisor ("Advisor") to assist the Plan Administrator in the investment process
and to maintain compliance with this Policy Statement. The Advisor may assist the Plan
Administrator in establishing investment policy objectives and guidelines. The Advisor will
adjust asset allocation for the Trust subject to the guidelines and limitations set forth in this
Policy Statement. The Advisor will also select investment managers ("Managers") and
strategies consistent with its role as a fiduciary for the Trust. The investment vehicles allowed
may include mutual funds, commingled trusts, separate accounts, limited partnerships and other
investment vehicles deemed to be appropriate by the Advisor. The Advisor is also responsible
for monitoring and reviewing investment managers; measuring and evaluating performance;
and other tasks as deemed appropriate in its role as Advisor for Trust assets. The Advisor may
also select investments with discretion to purchase, sell, or hold specific securities, such as
Exchange Traded Funds, that will be used to meet the Trust's investment objectives. The
Advisor shall never take possession of securities, cash or other assets of the Trust, all of which
shall be held by the custodian. The Advisor must be registered with the Securities and
Exchange Commission.
4. A custodian selected by the Trust to maintain possession of physical securities and records of
street name securities owned by the Trust, collect dividend and interest payments, redeem
maturing securities, and effect receipt and delivery following purchases and sales. The
custodian may also perform regular accounting of all assets owned, purchased, or sold, as well
as movement of assets into and out of the Trust.
5. A trustee appointed by the Trust, such as a bank trust department, if the Trust does not have its
own Trustees, to assume fiduciary responsibility for the administration of Trust assets;
provided, however, that if the Plan Administrator shall have appointed an investment advisor,
then any trustee appointed under this paragraph shall have no authority with respect to selection
of investments.
6. Specialists such as attorneys, auditors, actuaries and, retirement plan consultants to assist the
Plan Administrator in meeting its responsibilities and obligations to administer Trust assets
prudently.
Statement of Investment Obiectives
The investment objectives of the Trust are as follows:
1. To invest assets of the Trust in a manner consistent with the following fiduciary standards:
(a) all transactions undertaken must be for the sole interest of Trust beneficiaries, and (b)
assets are to be diversified in order to minimize the impact of large losses from individual
investments.
2. To provide for funding and anticipated withdrawals on a continuing basis for payment of
benefits and reasonable expenses of operation of the Trust.
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3. To enhance the value of Trust assets in real terms over the long-term through asset
appreciation and income generation, while maintaining a reasonable investment risk profile.
4. Subject to performance expectations over the long-term, to minimize principal fluctuations
over the Time Horizon (as defined below).
5. To achieve a long-term level of return commensurate with contemporary economic
conditions and equal to or exceeding the investment objective set forth in this Policy
Statement under the section labeled "Performance Expectations".
6. The account's risk tolerance has been rated moderate, which demonstrates that the account
can accept average, or moderate, price fluctuations to pursue its investment objectives.
7. The current target rate of return for the Trust is 5.25%.
Investment Guidelines
Within this section of the Policy Statement, several terms will be used to articulate various investment
concepts. The descriptions are meant to be general and may share investments otherwise considered to
be in the same asset class. They are:
"Growth Assets" - a collection of investments and/or asset classes whose primary risk and return
characteristics are focused on capital appreciation. Investments within the Growth Assets category can
include income and risk mitigating characteristics, so long as the predominant investment risk and
return characteristic is capital appreciation. Examples of such investments or asset classes are:
domestic and international equities or equity funds, private or leveraged equity, certain real estate
investments, and hedge funds focused on equity risk mitigation or equity -like returns.
"Income Assets" - a collection of investments and/or asset classes whose primary risk and return
characteristics are focused on income generation. Investments within the Income Assets category can
include capital appreciation and risk mitigating characteristics, so long as the primary investment risk
and return characteristic is income generation. Examples of such investments or asset classes are:
fixed income securities, guaranteed investment contracts, certain real estate investments, and hedge
funds focused on interest rate risk mitigation or income investment -like returns.
"Real Return Assets" - a collection of investments and/or asset classes whose primary risk and return
characteristics are focused on real returns, net of inflation. Investments within the Real Return
category may include, but are not limited to, inflation protected securities, commodities, certain real
estate investments, natural resources, liquid alternatives and hedge funds.
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Time Horizon
The Trust's investment objectives are based on a long-term investment horizon ("Time Horizon") of
five years or longer. Interim fluctuations should be viewed with appropriate perspective. The Board
has adopted a long-term investment horizon such that the risks and duration of investment losses are
carefully weighed against the long-term potential for appreciation of assets.
Liquidity and Diversification
In general, the Trust may hold some cash, cash equivalent, and/or money market funds for near-term
Trust benefits and expenses (the "Trust Distributions"). Remaining assets will be invested in longer-
term investments and shall be diversified with the intent to minimize the risk of long-term investment
losses. Consequently, the total portfolio will be constructed and maintained to provide diversification
with regard to the concentration of holdings in individual issues, issuers, countries, governments or
industries.
Asset Allocation
The Board believes that to achieve the greatest likelihood of meeting the Trust's investment objectives
and the best balance between risk and return for optimal diversification, assets will be invested in
accordance with the targets for each asset class as follows to achieve an average total annual rate of
return that is equal to or greater than the Trust's target rate of return over the long-term, as described in
the section titled "Performance Expectations".
A QQPt CinQQPQ
Asset Weightings
Range Target
Growth Assets
Domestic Equity 15%-45% 30%
International Equity 5%-30% 15%
Other 0%-15% 5%
Income Assets
Fixed Income 40%-60% 48%
Other 0%-20% 0%
Real Return Assets 0%-20% 0%
Cash Equivalents 0%-20% 2%
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The Advisor and each Manager will be evaluated against their peers on the performance of the total
funds under their direct management.
Rebalancing Philosophy
The asset allocation range established by this Policy Statement represents a long-term perspective. As
such, rapid unanticipated market shifts or changes in economic conditions may cause the asset mix to
fall outside Policy Statement ranges. When allocations breach the specified ranges, the Advisor will
rebalance the assets within the specified ranges. The Advisor may also rebalance based on market
conditions.
Risk Tolerance
Subject to investment objectives and performance expectations, the Trust will be managed in a style
that seeks to minimize principal fluctuations over the established Time Horizon.
Performance Expectations
Over the long-term, five years or longer, the performance objective for the Trust will be to achieve an
average total annual rate of return that is equal to or greater than the Trust's actuarial discount rate.
Additionally, it is expected that the annual rate of return on Trust assets will be commensurate with the
then prevailing investment environment. Measurement of this return expectation will be judged by
reviewing returns in the context of industry standard benchmarks, peer universe comparisons for
individual Trust investments and blended benchmark comparisons for the Trust in its entirety.
Selection of Investment Managers
The Advisor shall prudently select appropriate Managers to invest the assets of the Trust. Managers
must meet the following criteria:
The Manager must provide historical quarterly performance data compliant with Global Investment
Performance Standards (GIPS®), Securities & Exchange Commission ("SEC"), Financial Industry
Regulatory Agency ("FINRA") or industry recognized standards, as appropriate.
The Manager must provide detailed information on the history of the firm, key personnel, support
personnel, key clients, and fee schedule (including most -favored -nation clauses). This information
can be a copy of a recent Request for Proposal ("RFP") completed by the Manager or regulatory
disclosure.
The Manager must clearly articulate the investment strategy that will be followed and document
that the strategy has been successfully adhered to over time.
— The investment professionals making the investment decisions must have a minimum of three (3)
years of experience managing similar strategies either at their current firm or at previous firms.
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— Where other than common funds such as mutual funds or commingled trusts are utilized, the
Manager must confirm receipt, understanding and adherence to this Policy Statement and any
investment specific policies by signing a consent form provided to the Manager prior to investment
of Trust assets.
Guidelines for Portfolio Holdings
Direct Investments by Advisor
Every effort shall be made, to the extent practical, prudent and appropriate, to select investments that
have investment objectives and policies that are consistent with this Policy Statement (as outlined in
the following sub -sections of the "Guidelines for Portfolio Holdings"). However, given the nature of
the investments, it is recognized that there may be deviations between this Policy Statement and the
objectives of these investments.
Limitations on Portfolio Holdings
EQUITIES
No more than 5% of the total equity portfolio valued at market may be invested in the common equity
of any one corporation; ownership of the shares of one company shall not exceed 5% of those
outstanding; and not more than 40% of equity valued at market may be held in any one sector, as
defined by Bloomberg (BB) Sector standards.
Domestic Equities. Other than the above constraints, there are no quantitative guidelines as to issues,
industry or individual security diversification. However, prudent diversification standards should be
developed and maintained by the Manager.
International Equities. The overall non -U.S. equity allocation should include a diverse global mix that
is comprised of the equity of companies from multiple countries, regions and sectors.
FIXED INCOME
Fixed income securities of any one issuer shall not exceed 5% of the total bond portfolio at time of
purchase. The 5% limitation does not apply to issues of the U.S. Treasury or other Federal Agencies.
Eligible Investments
• Debt obligations of the U.S. Government, its agencies, and Government Sponsored Enterprises
• Mortgage -Backed Securities (MBS)
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• Asset Backed Securities (ABS)
• Collateralized Mortgage Obligations (CMO)
• Commercial Mortgage -Backed Securities (CMBS)
• Corporate debt securities issued by U.S. or foreign entities including, but not limited to, limited
partnerships, equipment trust certificates and enhanced equipment trust certificates
• Eligible instruments issued pursuant to SEC Rule 144(a)*
• Municipal Bonds
• Fixed Income mutual funds
uali
The individual securities portfolio will maintain a minimum weighted average effective quality of A -
at all times. At the time of purchase, individual securities shall have a minimum effective quality rating
BBB-.
For purposes of determining an effective rating, when three agencies rate a security (S&P, Moodys,
Fitch) the middle rating will be used. When only two of the three agencies rate a security the lower of
the two ratings will be used. When only one agency rates a security that rating will be used.
Duration
The manager will maintain the portfolio duration within +/- 25% of the Bloomberg U.S. Aggregate
Bond Index duration at all times for the individual securities portfolio.
Diversification
• No more than 30% of the portfolio may be invested in securities issued under Rule 144A*
without registration rights (no limit on Rule 144a securities with registration rights).
* Note: Rule 144A is an administrative rule under the SEC allowing, under certain circumstances, for
qualified institutional investors to trade certain securities with other institutional investors without
registering the trade with the SEC. Specifically, the rule allows private companies, both domestic and
international, to sell unregistered securities, also known as Rule 144 securities, to qualified institution
buyers (QIBs) through a broker-dealer.
OTHER ASSETS
Diversi ing (Liquid Alternatives Primary objective shall be to enhance the risk -return profile of the
overall portfolio. This can be accomplished by using liquid alternative strategies that may enhance
returns at a reasonable level of risk or reduce volatility while providing a reasonable level of return.
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These asset classes may differ from traditional public market asset classes due to the use of certain
strategies including short -selling, leverage, and derivatives. Liquid alternatives may also invest across
asset classes. For purposes of asset allocation targets and limitations, liquid alternatives funds will be
categorized under the specific asset class of the fund. For example, a long/short U.S. equity fund will
be categorized as "Other" in the Growth Assets category while a long/short credit fund will be
categorized as "Other" in the Income Assets category. Multi -strategy hedge funds and multi -strategy
liquid alternatives funds that cannot be easily categorized under one asset class will be included in
"Other" under either the Growth Assets or Income Assets category depending on the risk -return profile
of the strategy.
Real Assets: Real assets are typically physical assets that have intrinsic worth due to their substance
and properties. Real assets are primarily used for their lower correlation to traditional assets (i.e. stocks
and bonds) and their inflation hedging properties. Categories of real asset investments include, but are
not limited to, real estate, infrastructure, land, farmland, timberland, precious metals, and commodities.
Real assets includes securities and assets with varying levels of liquidity. Private real assets are illiquid
and long-term in nature, whereas public real assets are publicly traded and more liquid. The benefit of
lower correlation investments is that, when implemented correctly, these investments can potentially
improve a portfolio's expected risk-adjusted return over the long-term. The real assets category can be
extended to include other forms of assets that offer similar inflation hedging properties such as pooled
vehicles holding: commodities contracts, Treasury Inflation Protected Securities ("TIPS"), index-
linked derivative contracts, certain forms of intellectual property, and the equity of companies in
businesses thought to hedge inflation. For purposes of asset allocation targets and limitations, real
assets may be categorized as "Other" under either the Growth Assets or Income Assets category or in
the Real Return Assets category, depending on the nature and risk/return profile of the investment.
CASH EQUIVALENTS
Cash equivalents shall be held in funds complying with Rule 2(a)-7 of the Investment Company Act of
1940.
Portfolio Risk Hedging
Portfolio investments designed to hedge various risks including volatility risk, interest rate risk, etc. are
allowed to the extent that the investments are not used for the sole purpose of leveraging Trust assets.
One example of a hedge vehicle is an exchange traded fund ("ETF") which takes short positions.
Prohibited Investments
Except for purchase within authorized investments, securities having the following characteristics are
not authorized and shall not be purchased: letter stock and other unregistered securities, direct
commodities or commodity contracts, or private placements (with the exception of Rule 144A
securities). Further, derivatives, options, or futures for the sole purpose of direct portfolio leveraging
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are prohibited. Direct/physical ownership of real estate, natural resource properties such as oil, gas or
timber and the purchase of collectibles is also prohibited.
Safekeeping
All assets of the Trust shall be held by a custodian approved by the Plan Administrator for safekeeping
of Trust assets. The custodian shall produce statements on a monthly basis, listing the name and value
of all assets held, and the dates and nature of all transactions in accordance with the terms in the Trust
Agreement. Investments of the Trust not held as liquidity or investment reserves shall, at all times, be
invested in interest-bearing accounts. Investments and portfolio securities may not be loaned.
Control Procedures
Review of Investment Obiectives
The Advisor shall review annually and report to the Plan Administrator the appropriateness of this
Policy Statement for achieving the Trust's stated objectives. It is not expected that this Policy
Statement will change frequently. In particular, short-term changes in the financial markets should not
require an adjustment in this Policy Statement.
Review of Investment Performance
The Advisor shall report on a quarterly basis to the Plan Administrator to review the investment
performance of the Trust. In addition, the Advisor will be responsible for keeping the Plan
Administrator advised of any material change in investment strategy, Managers, and other pertinent
information potentially affecting performance of the Trust.
The Advisor shall compare the investment results on a quarterly basis to appropriate peer universe
benchmarks, as well as market indices in both equity and fixed income markets. Examples of
benchmarks and indexes that will be used include the Russell 3000 Index for broad U.S. equity
strategies; S&P 500 Index for large cap U.S. equities, Russell 2000 Index for small cap U.S. equities,
MSCI ACWI ex -U.S. Index for broad based non -U.S. equity strategies, MSCI Europe, Australasia, and
Far East (EAFE) Index for developed markets international equities, Bloomberg Barclays U.S.
Aggregate Bond Index for fixed income securities, and the U.S. 91 Day T-bill for cash equivalents.
The Russell 3000 Index will be used to benchmark the U.S. equities portfolio; the MSCI ACWI ex -
U.S. Index will be used to benchmark the non -U.S. equities portfolio; the Bloomberg Barclays U.S.
Aggregate Bond Index will be used to benchmark the fixed income portfolio. The categories "Other"
will be benchmarked against appropriate indices depending on the specific characteristics of the
strategies and funds used.
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Voting of Proxies
The Board recognizes that proxies are a significant and valuable tool in corporate governance. The
voting rights of individual stocks held in separate accounts or collective, common, or pooled funds will
be exercised by the investment managers in accordance with their own proxy voting policies. The
voting rights of funds will be exercised by the Advisor.
Adoption of Investment Policy Statement
Any changes and exceptions to this Policy Statement will be made in writing and adopted by the
Board. Once adopted, changes and exceptions will be delivered to each Manager, as appropriate, by
the Advisor.
Executed by the Central Contra Costa Sanitary Plan Administrator (following Board approval):
Plan Administrator
Date
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Attachment 3
INVESTMENT POLICY STATEMENT
FOR
CENTRAL CONTRA COSTA SANITARY DISTRICT
SECTION 115 TRUST PENSION FUND
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TABLE OF CONTENTS
SECTION
Page 29 of 55
PAGE
Purpose.........................................................................................................................................3
InvestmentAuthority.................................................................................................................... 3
Statement of Investment Objectives.............................................................................................5
InvestmentGuidelines.................................................................................................................. 5
Time Horizon
Liquidity and Diversification
Asset Allocation
Rebalancing Philosophy
Risk Tolerance
Performance Expectations
Selection of Investment Managers................................................................................................7
Guidelines for Portfolio Holdings................................................................................................ 8
Direct Investments by Advisor
Limitations on Managers' Portfolios
Portfolio Risk Hedging
Prohibited Portfolio Investments
Safekeeping
ControlProcedures..................................................................................................................11
Review of Investment Objectives
Review of Investment Performance
Voting of Proxies
Adoption of Investment Policy Statement...............................................................12
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Central Contra Costa Sanitary District (the District) has established a section 115 Trust known as the
Central Contra Costa Sanitary District Section 115 Pension Trust (the "Trust"). This Trust will be
used to invest monies to fund the District's unfunded liability in the Contra Costa Employees'
Retirement Association ("CCCERA"). The Trustees of the Trust hereby adopt this Investment Policy
Statement ("Policy Statement") for the following purposes.
Purpose
Funds set aside in the Section 115 Trust are safeguarded from diversion to other budgetary uses and
generally may be invested in a broader range of securities than would typically be permitted for public
agency operating funds, potentially increasing earnings. Therefore, higher returns can improve The
District's ability to meet future pension obligations. An additional advantage of holding funds in the
Trust rather than contributing an equivalent amount directly to CCCERA is that the District retains
control over the timing and amount of disbursements from the Trust. Retaining control of the funds in
the Trust provides the flexibility to meet current or accrued liabilities based on the financial
circumstances at that time. The District also controls the timing of contributions to the Trust.
The main investment objective of the Trust is to achieve long-term growth of Trust assets by
maximizing long-term rate of return on investments and minimizing risk of loss.
The purpose of this Policy Statement is to achieve the following:
1. Document investment objectives, performance expectations, and investment guidelines for
Fund assets.
2. Establish an appropriate investment strategy for managing all Trust assets, including an
investment time horizon, risk tolerance ranges, and asset allocation to provide sufficient
diversification and overall return over the long-term time horizon of the Trust.
3. Establish investment guidelines to control overall risk and liquidity.
4. Establish periodic performance reporting requirements to monitor investment results and
confirm that the investment policy is being followed.
5. Comply with fiduciary, prudence, due diligence, and legal requirements for Trust assets.
Investment Authority
The Board of Directors of the District has oversight responsibility for the Plan as plan sponsor. The
Board receives oversight support from the Finance Committee (the "Committee") to oversee certain
policies and procedures related to the operation and administration of the Trust. The Board has
authorized the General Manager to implement the investment policy and guidelines in the best interest
of the Trust to best satisfy the purposes of the Trust. In implementing this Policy Statement, the
General Manager believes it may delegate certain functions to:
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1. The District's Treasurer to enforce of the investment policy and recommend amendments as
needed to reflect changes in the District objectives, externals laws and regulations, as well as
other factors. The Treasurer provides direction and oversight to the Finance Manager, who
serves as Plan Administrator over the plan.
2. The Finance Manager, to manage the day-to-day administration of the plan serving as Plan
Administrator. In this capacity, the Plan Administrator shall support the Treasurer in enforcing
the investment policy and recommending changes thereto as needed. Following Board
authorization, the Plan Administrator is authorized to execute the investment policy and other
plan documents. The Plan Administrator shall serve as the primary contact with the investment
advisor, custodian, trustee, and specialists.
3. An investment advisor ("Advisor") to assist the Plan Administrator in the investment process
and to maintain compliance with this Policy Statement. The Advisor may assist the Plan
Administrator in establishing investment policy objectives and guidelines. The Advisor will
adjust asset allocation for the Trust subject to the guidelines and limitations set forth in this
Policy Statement. The Advisor will also select investment managers ("Managers") and
strategies consistent with its role as a fiduciary for the Trust. The investment vehicles allowed
may include mutual funds, commingled trusts, separate accounts, limited partnerships and other
investment vehicles deemed to be appropriate by the Advisor. The Advisor is also responsible
for monitoring and reviewing investment managers; measuring and evaluating performance;
and other tasks as deemed appropriate in its role as Advisor for Trust assets. The Advisor may
also select investments with discretion to purchase, sell, or hold specific securities, such as
Exchange Traded Funds, that will be used to meet the Trust's investment objectives. The
Advisor shall never take possession of securities, cash or other assets of the Trust, all of which
shall be held by the custodian. The Advisor must be registered with the Securities and
Exchange Commission.
4. A custodian selected by the Trust to maintain possession of physical securities and records of
street name securities owned by the Trust, collect dividend and interest payments, redeem
maturing securities, and effect receipt and delivery following purchases and sales. The
custodian may also perform regular accounting of all assets owned, purchased, or sold, as well
as movement of assets into and out of the Trust.
5. A trustee appointed by the Trust, such as a bank trust department, if the Trust does not have its
own Trustees, to assume fiduciary responsibility for the administration of Trust assets;
provided, however, that if the Plan Administrator shall have appointed an investment advisor,
then any trustee appointed under this paragraph shall have no authority with respect to selection
of investments.
6. Specialists such as attorneys, auditors, actuaries and, retirement plan consultants to assist the
Plan Administrator in meeting its responsibilities and obligations to administer Trust assets
prudently.
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Statement of Investment Objectives
The investment objectives of the Trust are as follows:
1. To invest assets of the Trust in a manner consistent with the following fiduciary standards:
(a) all transactions undertaken must be for the sole interest of Trust beneficiaries, and (b)
assets are to be diversified in order to minimize the impact of large losses from individual
investments.
2. To provide for funding and anticipated withdrawals on a continuing basis for payment of
benefits and reasonable expenses of operation of the Trust.
3. To enhance the value of Trust assets in real terms over the long-term through asset
appreciation and income generation, while maintaining a reasonable investment risk profile.
4. Subject to performance expectations over the long-term, to minimize principal fluctuations
over the Time Horizon (as defined below).
5. To achieve a long-term level of return commensurate with contemporary economic
conditions and equal to or exceeding the investment objective set forth in this Policy
Statement under the section labeled "Performance Expectations".
6. The account's risk tolerance has been rated moderately conservative, which demonstrates
that the account can accept some price fluctuations to pursue its investment objectives.
7. The current target rate of return for the Trust is 5.14%.
V
Investment Guidelines
Within this section of the Policy Statement, several terms will be used to articulate various investment
concepts. The descriptions are meant to be general and may share investments otherwise considered to
be in the same asset class. They are:
"Growth Assets" - a collection of investments and/or asset classes whose primary risk and return
characteristics are focused on capital appreciation. Investments within the Growth Assets category can
include income and risk mitigating characteristics, so long as the predominant investment risk and
return characteristic is capital appreciation. Examples of such investments or asset classes are:
domestic and international equities or equity funds, private or leveraged equity, certain real estate
investments, and hedge funds focused on equity risk mitigation or equity -like returns.
"Income Assets" - a collection of investments and/or asset classes whose primary risk and return
characteristics are focused on income generation. Investments within the Income Assets category can
include capital appreciation and risk mitigating characteristics, so long as the primary investment risk
and return characteristic is income generation. Examples of such investments or asset classes are:
fixed income securities, guaranteed investment contracts, certain real estate investments, and hedge
funds focused on interest rate risk mitigation or income investment -like returns.
5
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Page 33 of 55
"Real Return Assets" - a collection of investments and/or asset classes whose primary risk and return
characteristics are focused on real returns, net of inflation. Investments within the Real Return
category may include, but are not limited to, inflation protected securities, commodities, certain real
estate investments, natural resources, liquid alternatives and hedge funds.
Time Horizon
The Trust's investment objectives are based on a long-term investment horizon ("Time Horizon") of
five years or longer. Interim fluctuations should be viewed with appropriate perspective. The Board
has adopted a long-term investment horizon such that the risks and duration of investment losses are
carefully weighed against the long-term potential for appreciation of assets.
Liquidity and Diversification
In general, the Trust may hold some cash, cash equivalent, and/or money market funds for near-term
Trust benefits and expenses (the "Trust Distributions"). Remaining assets will be invested in longer-
term investments and shall be diversified with the intent to minimize the risk of long-term investment
losses. Consequently, the total portfolio will be constructed and maintained to provide diversification
with regard to the concentration of holdings in individual issues, issuers, countries, governments or
industries.
Asset Allocation
The Board believes that to achieve the greatest likelihood of meeting the Trust's investment objectives
and the best balance between risk and return for optimal diversification, assets will be invested in
accordance with the targets for each asset class as follows to achieve an average total annual rate of
return that is equal to or greater than the Trust's target rate of return over the long-term, as described in
the section titled "Performance Expectations".
Asset Weightings
Asset Classes Range Target
Growth Assets
Domestic Equity
10%-35%
18%
International Equity
3%-20%
9%
Other
0%-20%
3%
Income Assets
Fixed Income
50%-80%
68%
Other
0%-20%
0%
Real Return Assets
0%-20%
0%
Cash Equivalents 0%-20% 2%
6
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Page 34 of 55
The Advisor and each Manager will be evaluated against their peers on the performance of the total
funds under their direct management.
Rebalancing Philosophy
The asset allocation range established by this Policy Statement represents a long-term perspective. As
such, rapid unanticipated market shifts or changes in economic conditions may cause the asset mix to
fall outside Policy Statement ranges. When allocations breach the specified ranges, the Advisor will
rebalance the assets within the specified ranges. The Advisor may also rebalance based on market
conditions.
Risk Tolerance
Subject to investment objectives and performance expectations, the Trust will be managed in a style
that seeks to minimize principal fluctuations over the established Time Horizon.
Performance Expectations
Over the long-term, five years or longer, the performance objective for the Trust will be to achieve an
average total annual rate of return that is equal to or greater than the Trust's actuarial discount rate.
Additionally, it is expected that the annual rate of return on Trust assets will be commensurate with the
then prevailing investment environment. Measurement of this return expectation will be judged by
reviewing returns in the context of industry standard benchmarks, peer universe comparisons for
individual Trust investments and blended benchmark comparisons for the Trust in its entirety.
Selection of Investment Managers
The Advisor shall prudently select appropriate Managers to invest the assets of the Trust. Managers
must meet the following criteria:
The Manager must provide historical quarterly performance data compliant with Global Investment
Performance Standards (GIPS®), Securities & Exchange Commission ("SEC"), Financial Industry
Regulatory Agency ("FINRA") or industry recognized standards, as appropriate.
The Manager must provide detailed information on the history of the firm, key personnel, support
personnel, key clients, and fee schedule (including most -favored -nation clauses). This information
can be a copy of a recent Request for Proposal ("RFP") completed by the Manager or regulatory
disclosure.
The Manager must clearly articulate the investment strategy that will be followed and document
that the strategy has been successfully adhered to over time.
— The investment professionals making the investment decisions must have a minimum of three (3)
years of experience managing similar strategies either at their current firm or at previous firms.
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Page 35 of 55
— Where other than common funds such as mutual funds or commingled trusts are utilized, the
Manager must confirm receipt, understanding and adherence to this Policy Statement and any
investment specific policies by signing a consent form provided to the Manager prior to investment
of Trust assets.
Guidelines for Portfolio Holdings
Direct Investments by Advisor
Every effort shall be made, to the extent practical, prudent and appropriate, to select investments that
have investment objectives and policies that are consistent with this Policy Statement (as outlined in
the following sub -sections of the "Guidelines for Portfolio Holdings"). However, given the nature of
the investments, it is recognized that there may be deviations between this Policy Statement and the
objectives of these investments.
Limitations on Portfolio Holdings
EQUITIES
No more than 5% of the total equity portfolio valued at market may be invested in the common equity
of any one corporation; ownership of the shares of one company shall not exceed 5% of those
outstanding; and not more than 40% of equity valued at market may be held in any one sector, as
defined by Bloomberg (BB) Sector standards.
Domestic Equities. Other than the above constraints, there are no quantitative guidelines as to issues,
industry or individual security diversification. However, prudent diversification standards should be
developed and maintained by the Manager.
International Equities. The overall non -U.S. equity allocation should include a diverse global mix that
is comprised of the equity of companies from multiple countries, regions and sectors.
FIXED INCOME
Fixed income securities of any one issuer shall not exceed 5% of the total bond portfolio at time of
purchase. The 5% limitation does not apply to issues of the U.S. Treasury or other Federal Agencies.
Eligible Investments
• Debt obligations of the U.S. Government, its agencies, and Government Sponsored Enterprises
• Mortgage -Backed Securities (MBS)
• Asset Backed Securities (ABS)
• Collateralized Mortgage Obligations (CMO)
• Commercial Mortgage -Backed Securities (CMBS)
October 17, 2024 Regular Board Meeting Agenda Packet - Page 46 of 209
Page 36 of 55
• Corporate debt securities issued by U.S. or foreign entities including, but not limited to, limited
partnerships, equipment trust certificates and enhanced equipment trust certificates
• Municipal Bonds
• Fixed income mutual funds.
• Eligible instruments issued pursuant to SEC Rule 144a (only if the Client is a documented
Qualified Institutional Buyer; QIB)
uali
The individual securities portfolio will maintain a minimum weighted average effective quality of A -
at all times. At the time of purchase, individual securities shall have a minimum effective quality rating
of BBB-.
For purposes of determining an effective rating, when three agencies rate a security (S&P, Moodys,
Fitch) the middle rating will be used. When only two of the three agencies rate a security the lower of
the two ratings will be used. When only one agency rates a security that rating will be used.
Duration
The manager will maintain the portfolio duration within +/- 25% of the Bloomberg U.S. Aggregate
Bond Index duration at all times for the individual securities portfolio.
Diversification
IL"&
• No more than 30% of the portfolio may be invested in securities issued under Rule 144A*
without registration rights (no limit on Rule 144a securities with registration rights).
* Note: Rule 144A is an administrative rule under the SEC allowing, under certain circumstances, for
qualified institutional investors to trade certain securities with other institutional investors without
registering the trade with the SEC. Specifically, the rule allows private companies, both domestic and
international, to sell unregistered securities, also known as Rule 144 securities, to qualified institution
buyers (QIBs) through a broker-dealer.
OTHER ASSETS (ALTERNATIVES)
Diversi Being Liquid Alternatives Primary objective shall be to enhance the risk -return profile of the
overall portfolio. This can be accomplished by using liquid alternative strategies that may enhance
returns at a reasonable level of risk or reduce volatility while providing a reasonable level of return.
These asset classes may differ from traditional public market asset classes due to the use of certain
strategies including short -selling, leverage, and derivatives. Liquid alternatives may also invest across
asset classes. For purposes of asset allocation targets and limitations, liquid alternatives funds will be
categorized under the specific asset class of the fund. For example, a long/short U.S. equity fund will
9
October 17, 2024 Regular Board Meeting Agenda Packet - Page 47 of 209
Page 37 of 55
be categorized as "Other" in the Growth Assets category while a long/short credit fund will be
categorized as "Other" in the Income Assets category. Multi -strategy liquid alternatives funds that
cannot be easily categorized under one asset class will be included in "Other" under either the Growth
Assets or Income Assets category depending on the risk -return profile of the strategy.
Real Assets: Real assets are typically physical assets that have intrinsic worth due to their substance
and properties. Real assets are primarily used for their lower correlation to traditional assets (i.e. stocks
and bonds) and their inflation hedging properties. Categories of real asset investments include, but are
not limited to, real estate, infrastructure, land, farmland, timberland, precious metals, and commodities.
Public real assets are publicly traded and liquid. The benefit of lower correlation investments is that,
when implemented correctly, these investments can potentially improve a portfolio's expected risk-
adjusted return over the long-term. The real assets category can be extended to include other forms of
assets that offer similar inflation hedging properties such as pooled vehicles holding: commodities
contracts, Treasury Inflation Protected Securities ("TIPS"), index-linked derivative contracts, certain
forms of intellectual property, and the equity of companies in businesses thought to hedge inflation.
For purposes of asset allocation targets and limitations, real assets may be categorized as "Other"
under either the Growth Assets or Income Assets category or in the Real Return Assets category,
depending on the nature and risk/return profile of the investment.
CASH EQUIVALENTS
Cash equivalents shall be held in funds complying with Rule 2(a)-7 of the Investment Company Act of
1940.
Portfolio Risk Hedging
Portfolio investments designed to hedge various risks including volatility risk, interest rate risk, etc. are
allowed to the extent that the investments are not used for the sole purpose of leveraging Trust assets.
One example of a hedge vehicle is an exchange traded fund ("ETF") which takes short positions.
Prohibited Investments
Except for purchase within authorized investments, securities having the following characteristics are
not authorized and shall not be purchased: letter stock and other unregistered securities, direct
commodities or commodity contracts, or private placements (with the exception of Rule 144A
securities). Further, derivatives, options, or futures for the sole purpose of direct portfolio leveraging
are prohibited. Direct/physical ownership of real estate, natural resource properties such as oil, gas or
timber and the purchase of collectibles is also prohibited.
Safekeeping
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Page 38 of 55
All assets of the Trust shall be held by a custodian approved by the Plan Administrator for safekeeping
of Trust assets. The custodian shall produce statements on a monthly basis, listing the name and value
of all assets held, and the dates and nature of all transactions in accordance with the terms in the Trust
Agreement. Investments of the Trust not held as liquidity or investment reserves shall, at all times, be
invested in interest-bearing accounts. Investments and portfolio securities may not be loaned.
Control Procedures
Review of Investment Objectives
The Advisor shall review annually and report to the Plan Administrator the appropriateness of this
Policy Statement for achieving the Trust's stated objectives. It is not expected that this Policy
Statement will change frequently. In particular, short-term changes in the financial markets should not
require an adjustment in this Policy Statement.
Review of Investment Performance
The Advisor shall report on a quarterly basis to the Plan Administrator to review the investment
performance of the Trust. In addition, the Advisor will be responsible for keeping the Plan
Administrator advised of any material change in investment strategy, Managers, and other pertinent
information potentially affecting performance of the Trust.
The Advisor shall compare the investment results on a quarterly basis to appropriate peer universe
benchmarks, as well as market indices in both equity and fixed income markets. Examples of
benchmarks and indexes that will be used include the Russell 3000 Index for broad U.S. equity
strategies; S&P 500 Index for large cap U.S. equities, Russell 2000 Index for small cap U.S. equities,
MSCI ACWI ex -U.S. Index for broad based non -U.S. equity strategies, MSCI Europe, Australasia, and
Far East (EAFE) Index for developed markets international equities, Bloomberg U.S. Aggregate Bond
Index for fixed income securities, and the U.S. 91 Day T-bill for cash equivalents. The Russell 3000
Index will be used to benchmark the U.S. equities portfolio; the MSCI ACWI ex -U.S. Index will be
used to benchmark the non -U.S. equities portfolio; the Bloomberg Barclays U.S. Aggregate Bond
Index will be used to benchmark the fixed income portfolio. The categories "Other" will be
benchmarked against appropriate indices depending on the specific characteristics of the strategies and
funds used.
Voting of Proxies
The Board recognizes that proxies are a significant and valuable tool in corporate governance. The
voting rights of individual stocks held in separate accounts or collective, common, or pooled funds will
be exercised by the investment managers in accordance with their own proxy voting policies. The
voting rights of funds will be exercised by the Advisor.
11
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Page 39 of 55
Adoption of Investment Policy Statement
Any changes and exceptions to this Policy Statement will be made in writing and adopted by the
Board. Once adopted, changes and exceptions will be delivered to each Manager, as appropriate, by
the Advisor.
Executed by the Central Contra Costa Sanitary Plan Administrator (following Board approval):
Plan Administrator
Date
II
Wd
��Y
12
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J HIGHMARKO
CAPITAL MANAGEMENT
Investment Guidelines Document
Page 40 of 55
Attachment 4
Central Contra Costa County Sanitary District
Other Post -Employment Benefits Trust
Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 51 of 209
Page 41 of 55
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.
• Assist the Plan Sponsor in formulating an Investment Policy Statement ("IPS") for the
account.
Key Plan Sponsor Account Information as of October 2023
Plan Sponsor:
Central Contra Costa County Sanitary District
Governance:
Board of Directors of the Central Contra Costa County
Sanitary District
Plan Name ("Plan'):
Central Contra Costa County Sanitary District Other Post -
Employment Benefits Trust
Trustee:
US Bank
Contact: Susan Hughes, 949-224-7209
Susan. Hughes(@Usbank.com
Account Number ("Account"):6746055900
Type of Account:
Other Post -Employment Benefits Trust
ERISA Status:
Not subject to ERISA
Market Value of Account:
$81,342,131 as of June 30, 2023
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, 415-796-5057 or 925-683-8366
Andrew.Brown 1 @usbank.com
Central Contra Costa County Sanitary District —Other Post -Employment Benefits Trust
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023 2
October 17, 2024 Regular Board Meeting Agenda Packet - Page 52 of 209
Page 42 of 55
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 generate adequate long-term returns that, when
combined with contributions, 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 earn, on a long-term average basis, a rate of return equal to or in excess
of the target rate of return of 5.75%.
• The Plan should seek to earn a return in excess of its policy benchmark over the long-
term.
• 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, long-
term perspective of the capital markets.
Investment Time Horizon: Long-term
Anticipated Cash Flows: The Plan has modest monthly liquidity requirements for
beneficiary distributions.
Target Rate of Return: 5.75% annual target
Investment Objective: The primary objective is to maximize total Plan return, subject to
the risk and quality constraints set forth herein. The investment
objective the Plan Sponsor has selected is the Moderate
Objective, which has a dual goal to seek moderate growth of
income and principal.
Risk Tolerance: Moderate
The account's risk tolerance has been rated moderate, which
demonstrates that the account can accept average, or moderate,
price fluctuations to pursue its investment objectives.
Central Contra Costa County Sanitary District —Other Post -Employment Benefits Trust
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 53 of 209
3
Page 43 of 55
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%
Fixpd InrnmP
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%
If individual fixed income securities are purchased for the Plan, the following guidelines will be
adhered to in the management of the fixed income segment:
Central Contra Costa County Sanitary District —Other Post -Employment Benefits Trust
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 54 of 209
Page 44 of 55
Eligible Investments
• Debt obligations of the U.S. Government, its agencies, and Government Sponsored
Enterprises
• Mortgage -Backed Securities (MBS)
• Asset Backed Securities (ABS)
• Collateralized Mortgage Obligations (CMO)
• Commercial Mortgage -Backed Securities (CMBS)
• Corporate debt securities issued by U.S. or foreign entities including, but not limited to,
limited partnerships, equipment trust certificates and enhanced equipment trust
certificates
• Eligible instruments issued pursuant to SEC Rule 144(a)*
• Municipal Bonds
Quality
The individual securities portfolio will maintain a minimum weighted average effective quality of A -
at all times. At the time of purchase, individual securities shall have a minimum effective quality
rating BBB -
For purposes of determining an effective rating, when three agencies rate a security (S&P,
Moodys, Fitch) the middle rating will be used. When only two of the three agencies rate a
security the lower of the two ratings will be used. When only one agency rates a security that
rating will be used.
Duration
The manager will maintain the portfolio duration within +/- 25% of the Bloomberg U.S. Aggregate
Bond Index duration at all times for the individual securities portfolio.
Diversification
No more than 5% of the portfolio assets may be invested in any individual issuer, with the
exception of securities issued or guaranteed by the U.S. Government, its agencies, and
Government Sponsored Enterprises.
No more than 30% of the portfolio may be invested in securities issued under Rule 144A*
without registration rights (no limit on Rule 144a securities with registration rights).
* Note: Rule 144A is an administrative rule under the SEC allowing, under certain circumstances, for qualified institutional
investors to trade certain securities with other institutional investors without registering the trade with the SEC.
Specifically, the rule allows private companies, both domestic and international, to sell unregistered securities, also known
as Rule 144 securities, to qualified institution buyers (QIBs) through a broker-dealer.
Central Contra Costa County Sanitary District —Other Post -Employment Benefits Trust
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 55 of 209
Page 45 of 55
Performance Benchmarks:
The performance of the total Plan shall be measured over a 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&P500Index
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 US Aggregate Bond Index
10.00%
ICE BofA 1-3 Year US Corp/Gov't Index
1.50%
ICE BofA US High Yield Master II
5.00%
FTSE 1 Mth T -Bill
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
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 US Aggregate Bond Index
High Yield ICE BofA US High Yield Master II
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 exchange -
traded 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.
Central Contra Costa County Sanitary District —Other Post -Employment Benefits Trust
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 56 of 209
6
Page 46 of 55
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 Finance Committee of the Central Contra Costa Sanitary District 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.
■ Providing Trustee and Investment Manager with an approved IPS for the account and
providing any updates to the IPS.
■ Monitoring and supervising all service vendors and investment options, including
investment managers.
■ Avoiding prohibited transactions and conflicts of interest.
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 Finance Committee with the development and maintenance of this
Investment Policy Guideline document annually.
■ Meeting with the Finance Committee semi-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.
■ Voting proxies, if applicable.
Central Contra Costa County Sanitary District —Other Post -Employment Benefits Trust
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 57 of 209
Page 47 of 55
■ Recommending changes to any of the above.
■ Periodically reviewing the suitability of the investments, being available to meet with the
Finance Committee at least twice a year, and being available at such other times within
reason at your request.
■ Preparing and presenting appropriate reports.
■ Informing the Finance 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.
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: Central Contra County Sanitary District Board President
Date:
Investment Manager: Andrew Brown, CFA, Senior Portfolio Manager, (415) 796-5057
Central Contra Costa County Sanitary District —Other Post -Employment Benefits Trust
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 58 of 209
J HIGHMARKO
CAPITAL MANAGEMENT
Investment Guidelines Document
Page 48 of 55
Attachment 5
Central Contra Costa County Sanitary District
Pension Prefunding Trust
Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 59 of 209
Page 49 of 55
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.
• Assist the Plan Sponsor in formulating an Investment Policy Statement ("IPS") for the
account.
Key Plan Sponsor Account Information as of October 2023
Plan Sponsor.
Central Contra Costa County Sanitary District
Governance:
Board of Directors of the Central Contra Costa County
Sanitary District
Plan Name ("Plan'):
Central Contra Costa County Sanitary District
Employee Benefits Pension Plan
Trustee:
US Bank
Contact: Susan Hughes, 949-224-7209
Susan.Hughes(c Usbank.com
Account Number ("Account'):6746055901
Type of Account:
Pension Plan
ERISA Status:
Not subject to ERISA
Market Value of Account:
$43,662 as of June 30, 2023
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, 415-796-5057 or 925-683-8366
Andrew.Brown 1(@usbank.com
Central Contra Costa County Sanitary District — Employee Benefits Pension Plan
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 60 of 209
Page 50 of 55
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 long-term expected rate of return for the target allocation for the Plan's Moderately
Conservative investment objective currently is 5.14%. This should not be confused with
the expected rate of return for the CCCERA Pension 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.
Investment Time Horizon: Over 10 years
Anticipated Cash Flows: The initial contribution into the Plan was $3.35 million with
subsequent contributions totaling an estimated $5.5 million. This
has resulted in a total of approximately $8.83 million in
contributions to date as of May 2020. Assets in the Plan will
seek to mitigate the impact of future rate increases from
CCCERA. On June 23, 2021 $12,763,669 was transferred to the
CCCERA Plan.
Target rate of return: 5.14% annual target
Investment Objective: The primary objective is to generate a reasonable level of
growth. The assets in this Plan will eventually be used to fund
Pension Plan obligations for assets managed in the CCCERA
Trust.
Risk Tolerance: Moderately Conservative
The account's risk tolerance has been rated moderately
conservative, which demonstrates that the account can accept
some price fluctuations to pursue its investment objectives.
Central Contra Costa County Sanitary District — Employee Benefits Pension Plan
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023 3
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Strategic Asset Allocation: The asset allocation ranges for this objective are listed below:
Strategic Asset Allocation Ranges
Cash
Fixed Income
Equity
0-20%
50%-80%
20%-40%
Policy: 5%
Policy: 65%
Policy: 30%
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
20%-40%
Equity Style
Range
Domestic Large Cap Equity
10%-30%
Domestic Mid Cap Equity
0%-10%
Domestic Small Cap Equity
0%-12%
International Equity (incl. Emerging Markets)
0%-12%
Real Estate Investment Trust (REIT)
0%-8%
Fixpd InrnmP
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 50%-80%
Eligible Investments
• Debt obligations of the U.S. Government, its agencies, and Government Sponsored
Enterprises
• Mortgage -Backed Securities (MBS)
• Asset Backed Securities (ABS)
• Collateralized Mortgage Obligations (CMO)
• Commercial Mortgage -Backed Securities (CMBS)
• Corporate debt securities issued by U.S. or foreign entities including, but not limited to,
limited partnerships, equipment trust certificates and enhanced equipment trust
certificates
• Eligible instruments issued pursuant to SEC Rule 144(a)
• Municipal Bonds
Central Contra Costa County Sanitary District — Employee Benefits Pension Plan
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 62 of 209
Page 52 of 55
Quality
The individual securities portfolio will maintain a minimum weighted average effective quality of A -
at all times. At the time of purchase, individual securities shall have a minimum effective quality
rating of BBB-.
Duration
The manager will maintain the portfolio duration within +/- 25% of the Bloomberg U.S. Aggregate
Bond Index duration at all times for the individual securities portfolio.
Diversification
No more than 5% of the portfolio assets may be invested in any individual issuer, with the
exception of securities issued or guaranteed by the U.S. Government, its agencies, and
Government Sponsored Enterprises.
• No more than 30% of the portfolio may be invested in securities issued under Rule 144A*
without registration rights (no limit on Rule 144a securities with registration rights).
* Note: Rule 144A is an administrative rule under the SEC allowing, under certain circumstances, for qualified institutional
investors to trade certain securities with other institutional investors without registering the trade with the SEC.
Specifically, the rule allows private companies, both domestic and international, to sell unregistered securities, also known
as Rule 144 securities, to qualified institution buyers (QIBs) through a broker-dealer.
Performance Benchmarks:
The performance of the total Plan shall be measured over a 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
15.5%
S&P500Index
3.00%
Russell Mid Cap Index
4.50%
Russell 2000 Index
2.00%
MSCI Emerging Market Index
4.00% MSCI EAFE Index
1.00% Wilshire REIT Index
49.25% Bloomberg US Aggregate Bond Index
14.00% ICE BofA 1-3 Year US Corp/Gov't Index
1.75% ICE BofA US High Yield Master II
5.00% FTSE1 Mth T -Bill
Central Contra Costa County Sanitary District — Employee Benefits Pension Plan
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 63 of 209
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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 US Aggregate Bond Index
High Yield ICE BofA US High Yield Master II
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 exchange -
traded 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 subadviser.
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
Central Contra Costa County Sanitary District — Employee Benefits Pension Plan
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 64 of 209
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Duties and Responsibilities
Responsibilities of Plan Sponsor
The Finance Committee of the Central Contra Costa Sanitary District 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.
■ Providing Trustee and Investment Manager with an approved IPS for the account and
providing any updates to the IPS.
■ Monitoring and supervising all service vendors and investment options, including
investment managers.
Avoiding prohibited transactions and conflicts of interest.
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 Finance Committee with the development and maintenance of this
Investment Policy Guideline document annually.
■ Meeting with the Finance Committee semi-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.
■ 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 twice a 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.
Central Contra Costa County Sanitary District — Employee Benefits Pension Plan
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 65 of 209
Page 55 of 55
Acknowledgement and Acceptance
/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.
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: Central Contra County Sanitary District Board President
Date:
Investment Manager: Andrew Brown, CFA, Senior Portfolio Manager, (415) 796-5057
Central Contra Costa County Sanitary District — Employee Benefits Pension Plan
Investment Guidelines Document — HighMark Capital Management, Inc.
(v. July 2018 ARB) Revised October 2023
October 17, 2024 Regular Board Meeting Agenda Packet - Page 66 of 209