ESBD_468598_1764973989972_2022-03-14 Statement of Investment Policy.pdf

Brazos River Authority

RESOLUTION OF THE RETIREMENT COMMITTEE OF

THE BRAZOS RIVER AUTHORITY

MARCH 14, 2022

Agenda Item No. 7 Adoption of the Brazos River Authority Retirement Statement of

Investment Policy

“BE IT RESOLVED that the Retirement Committee of the Brazos River Authority has reviewed and hereby adopts the Brazos River Authority Statement of Investment Policy, for the Brazos River Authority Employee Retirement Trust, as presented to the Retirement Committee of the Brazos River Authority on March 14, 2022, and accepts the changes as presented in the red line copy.”

The aforementioned resolution was approved by the Retirement Committee of the Brazos River Authority on March 14, 2022, to certify which witness my hand and seal.

%(/A\ L’7 Jer HenIdrson Refirement Chairwoman

SUBSCRIBED AND SWORN TO BEFORE ME on this the 1 7’ day of YV1AYZh , 2022, to certify which witness my hand and official seal.

NojWi Public in and forGfFi’ Sfate of Texas

LACEY PETERSON

Notary Public, State of Ta Comm. Expires 07-26-2025

ID 13323211

Statement of Investment Policy The Brazos River Authority Employee Retirement Trust – March 14, 2022

Definition of the Plan

This document refers to The Brazos River Authority Employee Retirement Trust (the “Plan”).

Purpose

The Statement of Investment Policy (“SIP”) for The Brazos River Authority Employee Retirement Trust is set forth to:

• Define and assign the responsibilities of all involved parties

• Establish a clear understanding for all involved parties of the investment goals and objectives of Plan assets

• Provide the Committee (and other Plan fiduciaries) with guidance in making investment related decisions with respect to the assets of the Plan

• Establish asset allocation parameters that will provide for sufficient diversification of asset classes to control investment risk and achieve the investment return objectives

• Establish procedures for selecting, monitoring, evaluating and, if appropriate, replacing investment managers

Identification of the Retirement Committee

Any references to the Committee are intended to mean the Retirement Committee (“the Committee”) as designated from time to time by the Board of Directors.

Assignments of Responsibilities

The Committee will generally be responsible for the following:

• Adopting and executing the Plan’s investment policy.

• Establishing appropriate investment objectives.

• Hiring of trustees, investment consultants, managers and other service providers whose expertise is deemed by the Committee to be appropriate and necessary.

• Monitoring of performance and compliance with this policy by investment managers and other service providers who have been given responsibility over the Plan’s assets.

• Revising investment policy to reflect changing conditions within the Plan, or to refine the policy in order to make it more effective.

The Investment Consultant will generally be responsible for the following:

• Assisting in the development and on-going review of the investment policy, asset allocation strategy and performance of the investment managers

• Conducting investment manager searches when requested by the Committee

• Monitoring the performance of the Investment Manager(s) to provide the

Committee with the ability to determine the progress toward the investment objectives

• Communicating matters of policy, manager research and manager performance to the Committee

• Act as liaison between the Committee and any outside investment managers, consultants, or other advisors in receiving and responding to inquiries, referrals and solicitations.

Investment Consultants must acknowledge in their contract that they are fiduciaries of the plan and be registered with the Securities and Exchange Commission under the Investment Act of 1940.

The Investment Managers will generally be responsible for the following:

• Will be a registered investment advisor appropriate to all sections of the Investment Advisory Act of 1940 or appropriate federal governing agency.

• Have full discretion in the management of those assets of the Plan allocated to the investment manager(s), subject to prospectus or the overall investment guidelines set by the Committee.

• Serve as a fiduciary responsible for specific security decisions.

• Report investment results quarterly to the Consultant and individual portfolio transactions to the master custodian/trustee in the case of separate account management.

• Vote all proxies in their fiduciary discretion. Managers will maintain records of proxy voting activity and notify the Committee of deviations from their stated policy.

A separate account “Investment Manager” hired by the Plan must acknowledge in their contract that they are fiduciaries of the Plan and be registered with the Securities and Exchange Commission under the Investment Act of 1940 or in the case of a banking organization with the Office of the Comptroller of the Currency.

Each Investment Manager hired by the Plan will be provided with a Statement of Investment Guidelines and Objectives consistent with this Statement of Investment Policy, which will become an attachment to this Policy.

“Pooled Funds” are investments that may include, but are not limited to, mutual funds, commingled funds, exchange-traded funds, limited partnerships and private equity. Pooled funds may be governed by separate documents which may include investments not expressly permitted in this Statement of Investment Policy. In the event of approval by the Retirement Committee and investment by the Plan into a pooled fund, the prospectus or governing policy of that pooled fund, as updated from time to time, shall take precedence over this Investment Policy Statement.

The Investment Consultant shall periodically review with the Committee any material changes in the prospectus or governing policy of a pooled fund.

The Custodian/Trustee will generally be responsible for the following:

• Maintain possession of securities, effect receipt/delivery of securities following purchases and sales

• Collect dividend and interest payments

• Administer pension payroll

• Redeem maturing securities, and effect receipt/delivery following purchases and sales

• Accounting of all assets owned, purchased or sold as well as movement of assets into and out of the Plan accounts

• Minimum of monthly reporting of assets and transactions

• Provide on-line access to account holdings and transactions

• Provide any additional data requests

• Meets as required with the Committee or its designated representatives and present reports relative to the status of the Plan

General Investment Principles

• Investments shall be made solely in the interest of and for the participants and beneficiaries of the Plan.

• The Fund shall be invested with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent expert acting in like capacity and familiar with such matters would use in the investment of a fund of like character and with like aims.

• Investment of the Fund shall be diversified as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.

• The Committee will employ one or more investment managers of varying styles and philosophies to attain the Fund's objectives.

• Cash is always to be employed productively, by investment in short-term cash equivalents to provide safety, liquidity, and return.

• The Investment Manager(s) should, always, be guided by the principles of

“best price and execution”, and that the best interests of the Plan are to be their primary consideration.

Investment Objectives

This policy reflects the decisions of the Committee after an in-depth study of the Plan’s future obligations and its ability to meet those obligations. The objectives are to:

• Insulate the Plan’s assets against deterioration of purchasing power caused by inflation

• Over time provide, at a minimum, the Plan actuarially assumed rate of return of the Plan net of fees.

• Provide an acceptable lever of volatility in both long and short-term periods

The Committee understands the cyclical nature of investment markets and that the beginning, ending, or length of these cycles cannot be accurately predicted.

The Committee will seek to review investment results on a quarterly basis;

however, the investment policy will focus on the long-term needs of the Plan and the long-term risks and returns of various asset classes.

This Policy represents the Committee’s prudent study and its conclusions about the most suitable combination of investments which will satisfy both the Plan’s ongoing obligations and the Brazos River Authority’s priorities for their funding.

Asset Allocation

The Committee will consider allocation to various asset classes:

• Domestic Equities

• International Equities

• Domestic Fixed Income

• Global Fixed Income

• Real Estate

• Global Tactical Asset Allocation “GTAA”

• Other Alternative Investments (Private Equity, Managed Futures, Market

Neutral, Merger Arbitrage, etc.)

The Committee will continue to consider the appropriateness of other asset classes.

Long Term Strategic Asset Allocation

Portfolio Performance Vs Goal #1

After significant study of long-term historical capital market performance, the Committee believes that the following target mixture of asset classes can reasonably be expected to produce a nominal rate of return net of fees and should exceed the actuarially required return of 6.5% over the long-term, generally described as five years or more, with acceptable price volatility.

Asset Class Minimum Maximum Target

Domestic Large Cap Equity

Domestic Small/Mid Cap Equity

International Equity

15% 40% 30%

7.5% 12.5% 10%

12.5% 17.5% 15%

Total Fixed Income

15% 40% 25%

Real Estate 0% 20% 10%

GTAA

0% 15% 10%

Portfolio Performance Vs Goal #2

The Committee believes that the total portfolio gross return should exceed the Policy Benchmark for the five-year period. Plan Asset Class performance of the portfolio will be compared to the return of a Policy Benchmark, which mirrors the overall asset allocation targets consistent with the table of above and stated as follows: 30.0% S&P 500 Index, 10.0% Russell 2500, 15.0% MSCI ACWI Ex U.S., 25.0% Bloomberg U.S. Aggregate Index, 10.0% NCREIF ODCE Index, and 10.0% to 50% MSCI World Index/50% Bloomberg Global Aggregate.

Unallocated Cash

The Committee will see that the Plan’s assets include a cash reserve sufficient to meet its current benefit and expense obligations. Therefore, the investment managers should not accumulate a significant cash position of more than 10%.

Re-balancing Among Asset Classes and Allocation of Net Contributions

Understanding that different asset classes will perform at different rates and at different times, the Committee will closely monitor the asset allocation shifts caused by performance and market cycles. Therefore:

• Whenever there is to be a net contribution to the fund, generally the allocation will be made to the category(ies) which are furthest away from the target allocations in this policy, and

• To the extent that adequate re-balancing among asset classes cannot be effected via the allocation of contributions, the Chief Financial Officer in consultation with the Investment Consultant and in line with the resolution to rebalance assets toward target allocations adopted by the Retirement Committee of the Brazos River Authority on May 15, 2017, may move money from one manager or asset class to another, when necessary, to rebalance to the target ranges in this policy.

Investment Manager Selection Guidelines:

The Committee will attempt to observe these guidelines when selecting managers:

• Investment management organizations should have at least five years of investment history

• Individual managers or management teams will be expected to have a tenure of at least three years

• Investment managers should have performance above investment style median and/or benchmark indices for the preceding five-year period

• Investment managers’ portfolios should have characteristics which have consistently stayed within their respective investment styles during the most recent three-year period

• Investment managers’ fees should be competitive with industry standards

Frequency of Meeting

The Committee will meet, no less frequently than annually, but will seek to meet quarterly, to review the investment portfolio and its performance relative to the long-term objectives.

Manager’s Adherence to Historical Investing Style

The Committee will carefully monitor its investment managers on several key indicators to ensure a consistent investment approach including:

• Changes in portfolio managers, change in firm ownership, change in fee or internal compensation structure;

• Performance patterns not logically explainable in terms of the managers expressed investment style, or performance out-of-step with manager’s style peer group; and

• Inconsistency in portfolio risk measures.

None of these indicators will by itself be taken as conclusive evidence of inconsistency. Such a finding would be based upon the particular facts and individual situation.

Expected Performance vs. Peer Groups & Benchmarks

The Committee expects the individual managers to perform credibly compared to a peer group of other managed funds with similar investment styles, and/or appropriate benchmark. The following targets will be applied in measuring manager performance:

Manager Asset Class/ Objective Expected Ranking Time Horizon

Domestic Equities

Upper 50% of Peer Group or above appropriate benchmark 5 years

Fixed Income

International Equities

Policy Review Frequency

The Committee will use each of its investment performance evaluations as occasions to also consider whether any elements of existing policy need to be modified. Occurrences which could result in a policy modification include but are not limited to the following:

• Material changes in expected patterns of the Plan’s funded ratio

• Rationale for change presented by investment consultants or industry specialists that have merit

• New areas found to be important, which are not covered by this policy

Conflict of Interest Policy

All decisions are to be made in the best interest of the Plan participants. Any or all providers of services to the Plan are to immediately notify the Committee of any business or relationship issues that create the possibilities of a conflict of interest. Failure to comply may subject the provider to immediate termination.

Committee’s Policy Modification Overview

The Committee considers its investment policy as a basic tool for the implementation of a long-range investment program, but also as a dynamic document which is responsive to any needs for any fundamental changes. The Committee recognizes that the most potentially damaging inconsistency of all would occur if the policy itself were to undergo substantive change over relatively short periods, or if the policy were to attempt to “react” to current short-term market conditions. This policy will be reviewed on an ongoing basis and may be modified at any time.

General Investment Principles