2 - SDIC Presentation - FY16 Sunday, February 01, 2015 10:42 AM SDIC FY 2016 Budget & Investment Performance Presented to Appropriations Committee February 5, 2015 • Organization Chart • Assets • Cost Efficiency • Long Term Plan • Budget Process & Funding Sources • Compensation Overview • FY 2014 Budget Review • FY 2016 Budget Request • Investment Performance • Trust Fund Summaries • Appendix
Organization Chart CU RRL 'IT COU:,CIL ~IE.\ofBERS: Joo. Huc,.te? , ).laJfuclD ( Cha:ir ) J"Wl. M 1;:ilU; , Y anktoc (V ice Chair) D.i sid Hilla.si, Ropid Chy S te ve Kilb),· . Si oux: falli L or,i..n 3~a:: ~ L ennox :l:,ut::IOU:c: ::. Ryan BfU!lnef" , S&Pl Comm:i5 rioc=C ~ ,; ~ ottr.QlltZ=dl Rid Ss:!.E' ~ Swe Tr eJ:rur:r Ro b 'lVyl.i - e, s· DR.5 E. '!: :euih"E' DL~::tor s .. Sul:11";' cn ~ in· O:" Se ;ar R .. cqptioii:.-i ~ h::::~ ~;r .V:11 C" !::rk ..i:.:,, ~.ii.iu J ot ,1~,,C: .'!: i: : .o: .~ .a : !n -. ,;~ : o :f:- 1.<: oa:r A; ;:la ·. -.; '1 : 0 :"5.cc :":x;.i l!:ica n:. : 1 Alt[?,,•: FiudI:!:.:.om"Dmt· C 'lir'..: X ,, .!.u- .. ~r. P anfc:.in :\fai:1i=.:'ill" ~;. ? o:tfoho ?J,&.J;,.r S.r _ P:xnill !:i:, 1[m z.: QT S :.? c:tlb licM =; . u :} lob :t.li:: ,;_'llie:y - G tob d ::: ,;,ui -:; 1 S.m..M :i ::I C z. p i:: q~it)· fix<id ~: , :,m.;1:[E"sp Srt·,.- S .- J! .,.!: ; .V.:.'...:lt: H . lif"c,dJ.': S~r ! ii ui : a.:1. ,- ,.. ,;S .:1.!n,: S:. Po:t fol!.oM.,e::?.::; :: :?o."tfo l!oM.= t;:.:: Pm:"c:fo M:!llz.:2.;r Au. oc i? :, M: clio : M;: ::: Lob z. 1 !:: ,;_'lli-::,· - G lob d ::: ,; ;m-::,· S.ic.?J :i ::IC z.p::: q;il:)· E- ::.;hY:i '-1:i :' u. .. db:. :O ·.""Q i 'J:rl<i!I.: C :i. J<.!ic ,, , •. ,. .. ,. .J: ,-,. ;, ! Ed.d r: ,c .=i::::- . u S:"d ~ ".:1. • .\c,;;-:,=mn: ,J;.,, Ztr :J: .:S : m .i A: i'., :J ? c- :tfriho!J.1.?. ?.5 :: Pc:tfolioPJ.u:..i.;:.: Pllt:c :fo Muiz :2 ,; r Au,:,ei? ::irtfulic ,My G lobz.J ::: ,:_ui -:- j ~m. ?J :i ::I Cz :p ::: q;il:). Globd i:: c 'tl i•:y f.:.pi Yi:.H :'u.<i d I::. :: _ , __ ... _ .s :n ·, "'Q i'J:rl<i !I. ~ j,=./)' £!! .- }1~· !j.,, .. A r..: ~ ,.: , ~t }l/ : ~t D::ot fr!{ .:.' .ft ,., ,..,, • .\c,;;-:,=mn: T. '} ' l! : .'St<' ! t. 11 ?c;: : :i ~s:~r= ?e:tl":o lfob,h .::.::.:;;:.:: MHIZ!r>: k . -lu.1 :,· :.1 Am . ?c;tfuli.o ?J~ Globd S:: c'!li; E q_uit; fa.;l:: Y(;H E~ Y~ o ~:i r :';.~;,i b :. :n· .""Q ;::m.; 11. ~ ;;:~,. .. . 1:;,,.;, .,J,,l f A:i >t .!]! 5;o i~.- L:: &.:,, • .',"i;;, ;o , 1,,,,,: C, ';,- ;, <' - •t ~~. .l.c cou..."'W!. : :~ .J:, =. <.t .... ,, Au:o:. P or.:" al::a M:gr R..;;,;z::r,: :, . -lu.1: ,• :.1 &lli" l... "Ch.-\:tid:, r. 3:..G IG :!J'o: !!. A. Jl .t h~ l! quity, 'Ei.:.): Y: ·;~ :i :J. Lc,b ::.Ji:: c-:iky ::: =11my ::l:i ~h Yi ,; Li Iqu:-r:r'Ei; :=:Y{ ; :.ci: !.r:.:.'ll i' .- f :...:· D: "- 1 d £" !_ ""'" - • t'.:: :-.::." I L.r1. ,J,,l" .,: "9 ':tk 1
~ ~s ~ ~ ~ ~ ~1S g: ~ ~ ~ ~;g s~ ~3~ FY73 I $133 FY 74 D $211 •1:Jo •o•• FY7S D $260 FY 76 D $297 r;nov:in rn :z:v:, FY77 0 S337 ~S2.~; . 9-~ FY78 D $392 FY79 n $449 cu 2 ,:, Q ~ (l' ::o FY80 0 ~2g~ . @~~ . $517 FY81 U ~:4~~ ~§3 r . $561 s • .,,, 0.. I'll "'11 fl) :::, fil. c:; '<:. C: ::I .-+ ::l FY82 .. $o U ; ~-< §5.6.~ 2 ~ · :, :4 FY83 ... $791 Q. C. ~ "' gi § 3 C: FY84 ... $861 :, w C. 8 FY8S .... $1.0n :,i V, V, .... .... I: FY 86 ... $1.298 "' .... 0 ... b r,..J .... CJ'\ l,U f',.l Vl FY 87 .... $1,451 .p. 0 <.u V, 0 0 \0 "'"'"' 00 "' "' l,, l.ll b :r.,. :......i :......i FY88 - $1.592 Sl,803 FYS9. 0 00 ....I 0 I.O 0 I-" t,.,) ...._.. o;i I-" FY!>O. $1,879 ......... ... ... ......... bO\Lubbt.oOt-,.:1 FY91. $2,0SS FY92. $2.183 $2,605 FY93. $2,723 FY 94 - Sl, 044 FY9S - $3, 529 FY97 S,4 , 1 4'1 $4,872 FY98 FY99 SS. ,534 FYOO SD,069 FYOl $6,111 FY0 .2 S.S, 811 FY03 $6,3 18 FY 04 $7,168 FY OS $7 , 872 FY06 $8 , SIIO FY07 $10 ,0 4§1 FY08 $9,160 FY09 $7,410 FY10 $8,..304 FY11 $9 ,948 FYl Z $9,903 FY13 s u ,112 FY14 $13,049 "'
Cost Efficiency Management Fees 1.70% ,c;:,c 1.04% 0.73% 0.5 4% 0.40°/a, * 9:1 :0 8en:hrm: it S OJO {Sirr. ·i :!! r : r. ~n:!! I C:~ Si:: e:!l n::I ko: ~ Mix ) Difference between SDIC cost of .40% and benchmark cost of .73% is $43 million per year • SD IC projected ex penses for FY 2016 us in g ad j ust ed ass ets and expected average pe rf orman ce incenti ves •• Plus 20% pr ofit pa rt icipat ion afte r preferred re tu rn 3
o Deve loped Plan in 1987 - has helped guide operations for 27 years o Recommended by Appropriations Committee and Executive Board o Key to development and retention of high-quality internal investment team 4
Long Term Plan Executive Summary Projected LTP Budget Will Will .E:t..,Qji INVESTME NT OFF IC E BUDG ET Personal Services Nurme r of Emii:>1 ,e es 32-25 34.25 34.25 Base Corri:,ensation - Total Staff 4,900, 88 7 6. s2, .7 ea 8,586,546 Intern, Ccun: i I members, Longe• ~!'/ 28 ,673 34,221 38 , 41 3 Flexi b ili fy fu nds.-R e tir e rren ts & Res i gnati on s 148 . 061 1 i ,64.3 198.982 lnv estme~ lnc errtive Ma xi m.ml 8. 03.ij . 52 1 11.940,84 1U 78.995 Benefits 3,664,528 2,077. 124 2.945,4 3 Total Personal Services 15 . 1 89 ,266 21 , 91 5,894 27 ,467, 46 8 Operati ng Expenses Ccnt ra c tua l Services 1,599.548 1,88 -.452 2. 15:5 .654 Trav el 85 .000 10J, O! -B 120,002 Offic e Supples & Postage 15,6"'4 18,182 12.7 33 5 . ,e~ Capilal Asse ts 47. 192 66,262 To ta I Operating Expenses 1.74"4 ,473 2.061 ,852 2,360, 151 To tal In ve stmen t Counci l Budge t '16, 933 . 73Q 23 ,977.756 29 ,827. 61 9 ASSET SUMMA RY• Internal Ass ets 10,319.735, 736 13 , 02 5,807 ,99 16 . 56 7. 729.964 External A ssets 3, 93.!.t , 0~2 .9 0-5 4.965. 63.Q .51 5.315, 87 4 ,Q . 5 -9 Total Assets 14,253. 778. 641 17, 991 ,447 ,5 (12 22 .883.604.9 23 EX PENSE SU M MARY Internal Expenses 16,933,739 23 ,9 77 , 56 29 ,827,619 Externa l Manage r Fees 43 ,274.4 72 54, 622 ,1} 35 69 .474. 62 5 Total Exi;enses 78 ,599, 91 60 ,2 08 .211 99,302.243 UNIT CO ST SUMMARY •• Internal Expenses as % of Total A .dj usted Asse · s 0.0 89 % 0.090% 0.095% Total Exi:enses as% of T otal Adjusted As sets 0.393% 0.402% 0.39 9% • Pr oj ec ticm s b35 ~ ori lonlJ:-t e rm Q.;;sumed re t urn :: app r. ed to o/3011 4 ~= se ts. Up da 1 ed EQ.t h Ju n: 30 . .. 'Un il Co:{ Su rna.ry b ased o 10.1a l as: .- : :s . 3dj ust ed to br.g-:eJm ..-a [u e & ec.xpen ;;es u;; in !;!l -:. ;; su m ed a vg i nv pe li i r,:: e nlL\ <:5 5 Not o: . : FY 5 .amo u nt s d iff <; J f o ac 11r aJ bu dg et eq u e5 - :. e L TP irl clud es an a. ;;s isn : d 3% sa l s.r / p 'I
Budget Process & Funding Sources o Budget approved by Investment Council before presenting to LRC Executive Board, then submitted to Bureau of Finance and Management for Governor's recommendation, with final approval by Appropriations Committee (SDCL 4-5-22) o Budget deducted from assets under management, no general fund appropriations (SDCL 4-5-30) 6
Budget Funding Sources • South Dakota Retirement System - 80.5% • Cash Flo w F und - 10 .3% • Dakota Cement Trust - 2.4% • Education Enhanc1 ement Trust - 3.8% • Health C are Trust - 1.0% • Sch oo l & Public La nd s - 2.0% Budget funded by assets under management 0% General Fund appropriation Note s: S& PL share of SD IC e xp e ns es pa id from earni ngs of Cas h F l ow F un d CFF sh are of SDIC expenses wo ul d chan ge if SB9 beco mes l aw 7
Compensation Overview • Long term res u lts have significa ntly exceeded benchmarks - Ad ded over 30% beyond bench ma rk to SD RS ;issets in the pas t 16 y ea rs • Continued success dependent on hi gh caliber team - Internally manage m os t assets us i ng inte rn ally ge nerat ed resea rch • Future team depends on retention of ta lent pipeli ne and tra in ers Develop interna ll y ;is c;innot co mpete for top tier experienced talent • Compensat i on plan aligned with goal of adding val ue over long term - Motiv ;i t e su perior long-term perform;i n ce and ret;i in successful staff • Compensat i on plan revised in 2006, updated in 2010 and 2013 - Cou ncil ta r ge t is 7 0% of cos t of li ving adjust ed medi an i nd ustry pay to b;i l;ince ge tt in g ;i good de;i l for Sou th Da kota with out los in g the good dea l if we can not k ee p ou r people - lncorpor;ites pe rform;i n ce in ce nti ves (ran ge of 0% to 200% ) which ;i re ex p ec t ed to ;iver;ige 80% with continu;ition of S DI C hist or ic level of superior perform ;i n ce - Pay w;is incre;ised to 7 0% t ;i r ge t ;i ft er 2 00 6 s tu dy a nd by 2013 st ud y h;id fall en to 55% 8
Compensation Overview, continued • Council changes implemented in 2014 to get back to target - Expanded in ce ntive compe n sa ti on pl an as opposed to adj us t ing base co m pe n sa t ion - Incenti ves expanded t o include lon ge r t erm and stret ch in cen tiv es and expect ed to average 80% ( 0% t o 200%) - Incentiv es al ig ned wit h the goa l of add in g value and only paid if add va lu e • Cost efficient due to internal ma nagement capabi li ti es - Secu ri ng t ea m t o preserve internal ca pabilit ies best chan ce to re m ai n cos t effici en t - Exp ected intern al cos ts under .1% even with in creased in ce ntives 9
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