The State Board of Investment (SBI) adopted a set of Investment Beliefs for managing the assets of the Combined Funds. The Beliefs help provide context for SBI’s actions, reflect SBI’s investment values, and acknowledge SBI’s role in supporting the State’s retirement systems. When relevant, the SBI also uses these Beliefs as a guide when investing the assets of the other investment programs that it manages, as deemed appropriate.

View the    SBI Investment Beliefs (pdf) in PDF format.

SBI Investment Beliefs

When determining an appropriate level of risk that the systems’ assets should bear the SBI must reflect the nature of those systems’ liabilities and funding policy.

Diversification of the SBI investment portfolio takes place across several critical dimensions, such as allocation across global regions and country markets (e.g., U.S. versus Europe, Asia, emerging markets, etc.), allocation among different types of assets (equities, bonds, real estate, etc.), across various sectors and industries (e.g., technology, financials, consumer-oriented, etc.), and weighting of different risk factor premiums (e.g., value vs. growth, small companies vs. big companies, carry, illiquidity, etc.). If the correlation (i.e., relationship) among the returns generated by these factors is less than perfect (i.e., less than 1.0), then diversification is beneficial.

The equity risk premium is also pervasive across several asset classes and its overall exposure should be managed accordingly.

This risk premium can increase the portfolio’s long-term compound return and help diversify the portfolio’s risk.

Passive management should be utilized when there is low confidence that active management can add value. Active management can have potential to add value where information processing is difficult and challenging, allowing for market inefficiencies that are potentially exploitable.

The role of the members of the State Board of Investment (Board) is to establish investment policies that are in compliance with state statute and guide the ongoing management of the funds. The Board delegates implementation of that policy to the Executive Director/CIO, and exercises oversight with respect to the Executive Director/CIO’s implementation activities and the portfolio’s active risk level in the context of the portfolio’s strategic allocation policy. The Board also ensures adequate resources are available to the SBI staff to perform their work;

The Investment Advisory Council (IAC)'s key role is advising the Board and Executive Director/CIO on general policy matters and methods to enhance the management of the investment portfolio;

The Executive Director/CIO’s key role is implementing SBI investment policies and setting the portfolio’s active risk level in a prudent manner to equal or exceed applicable policy benchmarks.

In addition to specific engagement strategies the SBI might apply, proxy rights attached to shareholder interests in public companies are also “plan assets” of the SBI and represent a key mechanism for expressing SBI’s positions relating to specific ESG issues. By taking a leadership role in promoting responsible corporate governance through the proxy voting process, SBI can contribute significantly to implementing ESG best practices which should, in turn, add long-term value to SBI’s investments.

There is no merit-based explanation for the lack of racial and gender diversity in the investment industry.  In fact, research indicates that such diversity adds value.  The SBI must ensure that non-financial biases do not prevent it from working with the best teams.  In this diverse and changing world, organizations that demonstrate a commitment to diversity are more likely to succeed.