Nebraska Investment Council

Kathy Dawes

The Council is a centralized state investment agency that provides investment management services for the State of Nebraska. The purpose of the council is to formulate and establish such policies as it may deem necessary and proper which shall govern the methods, practices, and procedures followed by the state investment officer for the investment or reinvestment of state funds and funds described in section 83-133 and the purchase, sale, or exchange of securities as provided by the Nebraska State Funds Investment Act.

Manages the investments of thirty different entities

NA

1967

1969

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Nebraska Revised Statutes Section 72-1237

Nebraska Investment Council

Five appointed members, plus the State Treasurer, the director of the Nebraska Public Employees Retirement Systems, and beginning January 1, 2017, the administrator of each retirement systeme provided for under the Class V School Employees retirment Act s

Governor

Yes

(1) Prior to July 1, 2005, the appointed members of the council shall have at least ten years of experience in the financial affairs of a public or private organization or have at least five years of experience in the field of investment management or analysis. For members appointed on or after July 1, 2005, the appointed members of the council shall have at least seven years of experience in the field of investment management or analysis or have at least twelve years of experience in the financial management of a public or private organization. There is a preference for members who are appointed to have experience in investment management or analysis.

$75day

Yes

Five years that begin on January 1, may be reappointed

Terms Rotate

Meets from time to time as directed by the Governor or chairperson or state investment officer

7

Meets from time to time as directed by the Governor or chairperson or state investment officer

8

Meets from time to time as directed by the Governor or chairperson or state investment officer

7

Yes

Shared Nebraska Investment Council

$2,503,619

$2,525,955

$2,614,346

NA

Yes

Nebraska Investment Council's accomplishments since 2012:2012 accomplishments:Revised the public equity investment structure to improve the risk adjusted return of this asset class and to improve the monitoring and evaluation of managers policy benchmarks;Increased the use of passive investment management in the non-U.S. equity asset allocation to improve the expected returns and lower costs;Replaced two underperforming equity investment managers;Completed the transfer of the Operating Investment Pool from external investment management back to internal management. This will save the State approximately $800,000 per year in annual management fees;Worked with the Nebraska Public Employees Retirement Systems to successfully complete the transfer of $272 million in assets from the State and County Defined Contribution plans to the State and County Cash Balance plans for the 1,634 members electing to convert on January 2, 2013; Worked with the State Treasurer and First National Bank of Omaha to enhance and improve the Nebraska Educational Savings Trust (529 Plans); Completed a Council member orientationtraining manual; Completed the implementation of the compensation plan improvements for the investment professionals by acting to exempt them from the State Personnel System; As part of the effort to provide professional development, two investment staff completed their current level of the CFA program; Presented an updated analysis of the Health Care Cash Fund sustainability to a joint hearing of the Health and Human Services and Appropriations Committee; Continued to expand the staffs on-sight due diligence of the external investment managers to improve direct oversight of the relationships.2013 Accomplishments:Completed an assetliability study for the DBCBB assets in 2013. The study was prepared by the Councils investment consultant, Hewitt EnnisKnupp (HEK). The study included an analysis of the impact on the risk and return characteristics for the portfolio of changing the asset allocation between Risk Assets (Equity Assets-Stocks, PE and RE) and Risk Mitigating Assets (Fixed Income). Given the cash flow needs of the retirement plans and the expectation (desire) to have the investments pay for a majority of the retirement cost with a reasonable level of certainty, the Council decided to not change the allocation between risk and risk mitigating investments of 70% and 30%, respectively. Adopted a new strategic asset allocation for the DB plans and the CBB Plans which is included under those sections of the report. The new asset allocation increases the asset allocation to Real Estate from 5.0% to 7.5%. The Council approved three changes within the fixed income asset class for the DBCBB Plans. These changes are expected to improve the income yield of the fixed income assets; provide a hedge against a future rise in interest rates; and give greater discretion to the core-plus fixed income managers to tactically position their portfolios as needed given the uncertain economic and financial market environment. The changes were:A. The core-plus fixed income investment manager guidelines were amended to permit more discretion to vary the portfolios duration (shorten or lengthen by 2 years) from the duration of the benchmark Barclays Universal Bond Index.B. Committed funds to two value-add fixed income strategies. One is the PIMCO BRAVO II fund which is a distressed credit fund focusing, but not limited to, RMBS and CMBS opportunities. The second is the Oaktree Real Estate Debt Fund.C. In November the Council approved an allocation of 5% of the total DBCBB Plan assets to senior bank loan investments. The goal is to provide a hedge against an expected rise in interest rates as the Federal Reserve begins to taper its quantitative easing policy by gradually reducing its purchase of mortgage back bonds and Treasury bonds. Made five commitments to private equity funds totaling $135 million. Made a first time commitment to a real estate debt fund of $30 million to diversify the real estate investments and enhance returns. Successfully worked with the Budget Office, State Personnel and the Retirement Systems Committee to add expenditure authority for a new Accountant position and to reclassify the part-time Auditor position to a full-time Internal Auditor position. Relocated the office on August 2nd to 1526 K Street. Conducted a review of the internally managed Operating Investment Pool to update investment guidelines.2014 Accomplishments:During 2014, the NIC, in cooperation with the State Treasurer, completed a request for proposal process for global custodian services. This process resulted in a continuation of the incumbent custodian bank with its low cost and broad service suite for the State.The NIC was active adding mandates for the DBCBB Plans: Added bank loans, as a sub-asset class, to the fixed income portfolio. Bank loans now represent 5% of the total portfolio and the NIC appointed Franklin Templeton and Loomis Sayles to manage these new portfolios. Made real estate commitments to accommodate the increase in the real estate allocation from 5% to 7.5%. This increase will be supported by a 2.5% decrease in the U.S. equity allocation. These commitments include $50 million to Landmark Real Estate Partners, L.P.; $60 million to UBS-Trumbull Property Income Fund; $60 million to Cornerstone Patriot Fund; $30 million to Prudential PRISA II Fund and $40 million to Almanac Realty Securities Fund VII. Made five private equity investments totaling $136 million in new commitments. The investments include The Energy & Minerals Group Fund III, L.P.; Bridgepoint Europe V, L.P.; Quantum Energy Partners Fund VI, L.P.; Wynnchurch Fund IV, L.P. and Francisco Partners IV, L.P.The NIC also made changes to existing mandates: For its lone global fixed income portfolio, the NIC terminated Rogge Global Partners and selected Wellington Management Company, LLP to provide for the management of this fixed income portfolio. In the U.S. equity portfolio, the NIC consolidated its two active portfolio managers, Turner Investments, SmallMid Cap Growth strategy and DFA U.S. Small Cap Value, into a single small cap core strategy, DFA U.S. Small Cap Trust.For the Operating Investment Pool (OIP) Intermediate GovernmentCorporate sub-portfolio, the NIC changed benchmarks. It went from the Barclays U.S. Intermediate Government Corporate Index to a blended approach. The blend is 60% Bank of America (ML) 1-10 Year U.S. Treasury & Agency Index, and 40% Bank of America (ML) 1-10 Year AAA-A Corporate Index.For the General Endowments and the Health Care Endowment, the NIC was active adding to its privatereal estate portfolio and private equity portfolio, and modified its U.S. equity portfolio. In real estate, theNIC committed $5mm to the Cornerstone Patriot Fund and $7.5 million to Landmark Real Estate PartnersFund. In private equity, the NIC committed $20 million to Abbott Capital Private Equity Fund VII. In theU.S. equity portfolio, the NIC consolidated its active investment managers. Turner Investments,SmallMid Cap Growth assets and DFA U.S. Small Value Portfolio assets were transferred to DFA U.S.Small Cap Portfolio.2015 Accomplishments:The Council has built a solid investment program. In 2015, we began a strategic review of the portfolio. The Council investment team will take on an asset class at a time in a multi-year process. We use a "blank sheet" approach that does not simply target underperforming managers. We ask instead: Does the asset class have a place in the portfolio If so, what style What weight And finally, which managers Wechose global equity as our first asset class for review. We have used both existing and potentialinvestment managers as an extension of staff and asked them the simple question, "What type of globalequity portfolio would best serve Nebraska's needs over the next five-year period" The intention is thatafter five years we will repeat the analysis. We have sent the best of the ideas to our consultant AonHewitt for analysis. Together, we will devise a final structure and select best-in-class managers toimplement. This process is methodical investment management that keeps the portfolio fresh and finetuned.Without it, portfolios run the risk of being based on yesterday's best practices and ideas, nottomorrow's.2015 saw other initiatives. We are going to establish an electronic research management system at theCouncil. Also known as "knowledge management," this collaborative database will allow the InvestmentTeam to better track and report due diligence, performance and other financial and statistical information.The Investment Team investigated several systems during 2015. Working with a local provider, we willhave a customized solution to implement in 2016.This year we continued external collaboration with public and private partners. As stated previously, theState's operating funds are managed directly in-house by the Investment Team. The Council hosted aseries of information sessions for Nebraska state government agencies so they could better understandhow we manage that portfolio. The sessions were well-attended, and the Council plans to continue annualsessions beginning in 2016.We have strengthened our relationship with the State Treasurer's Office. On the longer side of theinvestment spectrum, the Council approves investment options available through the Treasurer's collegesavings program, as well as for Enable, a tax-advantaged savings accounts used to pay for qualifieddisability-related expenses. But the Council is also in daily communication with the Treasurer's Office toprovide funds to cover daily spending. This year, we established a clear protocol to ensure adequatenotice for unusually large, one-time capital calls.For the private sector, the Council administers the Time Deposit Open Account program that allowsNebraska banks to draw on state funds for strategic liquidity.