PLETF INVESTMENT PERFORMANCE, ASSET ALLOCATION, AND STRATEGY
UPDATED: November 30, 2018
Investing the Endowment
- Proposition 102 in 1998 made two significant changes in how the Endowment can be invested.
- It allowed up to 60% of the endowment to be invested in equities.
- It changed the distribution formula to protect the principal from inflation.
- Contained a 4-year transition from the old formula to the new.
- The United States Congress amended the Enabling Act (the Act that admitted Arizona into the Union) to allow Prop 102 changes to go into effect.
- Any change in distribution, management, or investment of the State Trust Land Endowment requires BOTH an Arizona Constitutional change and a Federal Enabling Act change.
Current Constitutional Guidelines
- Article 10, Section 7 of the Arizona Constitution outlines the requirements for the investment and distribution of Endowment Funds.
- “Prudent Person” investment standard
- Up to 60% may be invested in equity securities
- Up to 100% may be invested in fixed income securities
- Standards established for calculating ‘total return’ and ‘distributions’
- Distributions equal to 5-year average total return – LESS – inflation (‘net return’),
- Multiplied by the average (prior) 5-year market value of each Fund
- Proposition 118 in 2012 amended the distribution formula to be 2.5% of the 5-year market value for each Fund for Fiscal Years 2013 through 2021.
- Proposition 123, passed by voters in May 2016, added an additional 4.4% to this distribution, for a total of 6.9% per year from FY 2016 through FY 2025 and making permanent the 2.5% per year distribution starting in FY 2026.
- The Board of Investment serves as the trustee of the Endowment.
- The State Treasurer’s Office manages the investment activities.