The analysis primarily concerned the portfolios of the State's Teacher Retirement System ($42.1 billion) and the Employee Retirement System ($12.5 billion).The task force discussed in detail the overall management of Georgia investments as accomplished through the Division of Investment Services (DIS). The analysis included the asset allocation of the retirement systems, the performance of funds, the investment process utilized, operational procedures, and staffing of the Division.

RECOMMENDATIONS:

Asset Allocation
Liberalize the asset allocation guidelines currently set by the State. Recommended changes to the legal list include authorizing new investment options, as well as establishing ranges for each class. (See specifics in Executive Summary)

External Review
On a periodic basis, an appropriate external organization should be engaged to monitor performance versus the larger fund universe, while recognizing that the funds being measured will not be comparable in objectives and constraints.

External Managers
The restriction currently placed on the selection of external managers should be changed to permit selection based on investment criteria alone. Although Georgia-based managers should be given every consideration, they should earn the role based on the Trustees' determination of their ability to add value to the management of funds.

Staffing and Salary
Along with the recommendation for an allocation to alternative investments (Recommendation 1: see Executive Summary), comes the necessity to provide personnel and compensation necessary to manage these assets. Salary ranges and potential incentive pay for senior staff should continue to be reviewed annually to retain and recruit professional staff. While lack of current cash flow and the recent liberalization of manager selection suggest continued use of external managers, past performance warrants continued consideration of additional use of in-house managed assets.

SEC Rules
DIS should confirm that SEC trading rules are consistently being observed, particularly regarding front running. While DIS policy on front running is presently defined by a series of individual agreements with external managers, approved by the Attorney General's Office and the fund managers' legal counsel, the task force recommends that DIS clarify in a statement the process by which trading order is determined by managers (eg., integrated into contracts).