12 Exhibit A- Investment Policy with tracked changes_20210825

EMPLOYEES RETIREMENT SYSTEM OF TEXAS

INVESTMENT POLICY STATEMENT

Adopted August 21, 2024

Effective September 1, 2024

Table of Contents

Chapter I: Legal Authority and Fiduciary Responsibilities .................................................................... 1

A. Introduction ........................................................................................................................................ 1

B. Legal Authority and Obligations ......................................................................................................... 1

C. Fiduciary Responsibility ..................................................................................................................... 2

D. Delegation .......................................................................................................................................... 3

E. Review of Policy ................................................................................................................................ 3

F. Interpretation of Policy ....................................................................................................................... 3

Chapter II: Philosophy and Objectives .................................................................................................... 4

A. Investment Philosophy ....................................................................................................................... 4

B. Performance Objectives .................................................................................................................... 5

Chapter III: Governance ............................................................................................................................. 6

A. Roles and Responsibilities................................................................................................................. 6

B. Proxy Voting .................................................................................................................................... 11

C. Scrutinized Investments................................................................................................................... 11

D. Securities Litigation .......................................................................................................................... 11

Chapter IV: Asset Allocation ................................................................................................................... 12

A. Asset Allocation Parameters ........................................................................................................... 12

B. Establishing/Reviewing Parameters ................................................................................................ 12

C. Transition Period for Asset Allocation .............................................................................................. 13

D. Rebalancing ..................................................................................................................................... 13

Chapter V: Asset Classes, Leverage, Risk, and Securities Lending .................................................. 15

A. Permissible Investments .................................................................................................................. 15

B. Asset Classes .................................................................................................................................. 15

C. Special Situations ............................................................................................................................ 18

D. Leverage .......................................................................................................................................... 19

E. Risk Philosophy ............................................................................................................................... 19

F. Risk Allocation ................................................................................................................................. 20

G. Risk Committee ............................................................................................................................... 20

H. Liquidity ............................................................................................................................................ 20

I. Use of Derivatives ............................................................................................................................ 21

J. Risk Measurement and Management .............................................................................................. 21

K. Securities Lending ........................................................................................................................... 21

Chapter VI: Trust Monitoring and Reporting ......................................................................................... 22

Performance Evaluation .................................................................................................................. 22

B. Performance Monitoring (Trust) ....................................................................................................... 22

C. Performance Monitoring (Asset Classes) ........................................................................................ 23

D. Performance Reporting.................................................................................................................... 23

E. Trade Execution and Commission Sharing ..................................................................................... 24

Chapter VII: Code of Ethics ..................................................................................................................... 26

A. Standards of Conduct ...................................................................................................................... 27

B. Personal Transactions ..................................................................................................................... 27

C. Gifts, Benefits, and Favors .............................................................................................................. 30

D. Attendance at Business Meetings/Functions .................................................................................. 30

E. Conflicts of Interest .......................................................................................................................... 31

F. Market Manipulation ........................................................................................................................ 32

G. Use of Placement Agents ................................................................................................................ 32

H. Insider Trading and Confidentiality .................................................................................................. 32

I. Ethics Training ................................................................................................................................. 32

J. Compliance and Enforcement ......................................................................................................... 32

Chapter VIII: Funds of the Texas Employees Group Benefits Program ............................................. 33

A. Purpose and Authority ..................................................................................................................... 33

B. Contingency Reserve Fund ............................................................................................................. 33

C. Investment Objectives ..................................................................................................................... 34

D. Asset Allocation ............................................................................................................................... 35

E. Unit Trust Accounting ...................................................................................................................... 35

Addenda:

I. ERS Proxy Voting Policy

II. Scrutinized Investments Program Policy

III. Definition of Securities

IV. Placement Agent and Political Contributions Policies and Procedures

V. Insider Trading and Confidentiality Policy

VI. Investment Advisory Committee Charter

VII. Asset Class Investment Committee Charter

ERS Investment Policy Statement 1 Effective September 1, 2024

Chapter I: Legal Authority and Fiduciary Responsibilities

A. Introduction

The Employees Retirement System of Texas (“ERS” or “the System”) was created by an amendment to the

Texas Constitution in 1946 and is administered in accordance with the Constitution, as well as applicable

laws and administrative rules. ERS provides retirement, disability, and survivorship benefits for state

employees, law enforcement and custodial officers, elected state officials, and two classes of judges. The

System administers trust funds, with a fiduciary obligation to the members and retirees of the System who

are its beneficiaries.

The overall objective of the Investment program of ERS is to invest prudently in securities at a reasonable

and predictable cost to deliver performance that supports the current and future provision of earned benefits

for members, retirees, and beneficiaries (Beneficiaries) of the trust funds managed by the System.

This Investment Policy Statement (Policy) applies to the funds of the retirement plans administered by ERS

and described in this section, which shall collectively be known as the “Trust.” As the purpose of this Policy

is to provide guidance to fiduciaries responsible for investment decisions, this Policy:

I. Defines legal authority and fiduciary responsibility;

II. Defines the Trust’s investment philosophy and objectives;

III. Describes the governance structure;

IV. Discusses the Trust’s asset allocation parameters, as well as liquidity and rebalancing policies;

V. Describes implementation, including permissible investments and risk management;

VI. Describes the processes for monitoring and reporting; and

VII. Includes a Code of Ethics.

This Policy was created as a framework for the management of the Trust, and the statements contained in

this Policy are intended to allow for sufficient flexibility in the investment process to capture opportunities

yet ensure that prudence and care are maintained in the execution of the investment program. The ERS

Board of Trustees (Board) may amend this Policy at its discretion.

B. Legal Authority and Obligations

ERS is a constitutional trust fund established by the Texas Constitution and described in Article XVI, § 67,

thereof. ERS is further organized pursuant to Title 8, Subtitle B, Texas Government Code, as well as Title

34, Part 4, Texas Administrative Code. Under Texas Government Code § 815.101, the Board is responsible

for the general administration and operation of the Trust. The Board may establish committees as

necessary to assist in performing its duties in accordance with Texas Government Code § 815.509.

The Employees Retirement System of Texas plan, the Law Enforcement and Custodial Officer

Supplemental Retirement Fund (LECOS) plan, and the Judicial Retirement System of Texas Plan 2 (JRS

2) plan are the single-employer defined benefit pension plans administered by the System. For investment

purposes, as provided by Texas Government Code § 815.301, the assets of these pension plans are

commingled, but separate accounting records are maintained.

Pursuant to the Texas Insurance Code, the Board also administers all funds within the Texas Employees

Group Benefits Program (GBP). In accordance with Texas Insurance Code §§ 1551.406 and 1551.407,

ERS may manage, invest, and reinvest GBP funds along with the retirement funds so long as separate

accounting is maintained. This Policy therefore also applies to GBP funds managed by the System,

including as specifically outlined in Chapter VIII.

The assets of ERS are held in trust for the exclusive benefit of the Beneficiaries and may not be diverted,

as provided by Article XVI, § 67, of the Texas Constitution. This “exclusive benefit” rule must be followed

when making all investment decisions. Moreover, Trust assets shall be invested and reinvested without

distinction as to their source in accordance with Article XVI, § 67.

ERS Investment Policy Statement 2 Effective September 1, 2024

Investments shall be made in “securities,” as defined in Texas Government Code § 815.301(f), and

evaluated using a prudent person standard as provided by Article XVI, § 67. Every investment is subject

to thorough due diligence. Pursuant to Texas Government Code § 815.3016, Board approval is necessary

for all alternative investments over 0.6% of the total market value of the Trust’s assets as reported in the

most recent ERS Annual Comprehensive Financial Report, an amount that is known as the “Board Approval

Threshold” for the purposes of this Policy.

The Texas Uniform Prudent Investor Act (UPIA), which is set forth in Texas Property Code Chapter 117,

establishes fiduciary standards for the management of investment trusts broadly. In addition, Texas

Government Code § 815.307 applies to ERS specifically. These statutes require a trustee to:

• Evaluate investment and management decisions at the trust level and as part of an overall

investment strategy having risk and return objectives reasonably suited to the trust.

• Diversify the investments of the trust unless the trustee reasonably determines that, because of

special circumstances, the purposes of the trust are better served without diversifying.

• Exercise its duty of care by considering all investments of the trust as a whole and not by

considering the prudence of a single investment in isolation.

Were the Trustees to reasonably determine that, because of special circumstances, the purposes of the

Trust would be better served by not maintaining a diversified portfolio, the total portfolio standard of care

currently applicable to the Board’s administration of the Trust would no longer apply. In that the Board of

Trustees has determined that no such circumstances currently exist with respect to the Trust, and since the

Trust is required to balance long-term growth with the need to make significant distributions consistently, a

diversified portfolio shall be maintained.

As described above, the UPIA and Texas Government Code § 815.307 provide that the determination of

whether prudence has been exercised with respect to an ERS investment decision shall be made taking

into consideration the investment of all assets of the Trust or all assets of the collective investment vehicle,

as applicable, over which the Board has management and control, rather than considering the prudence of

a single investment of the Trust. This statutory “whole portfolio” approach, in addition to the exclusive

benefit rule, shall be the basis upon which ERS investment decisions are made prospectively.

Consistent with the foregoing requirements, the Board shall establish investment policies, objectives, and

strategies for obtaining the optimal return on Trust portfolios in keeping with the assumption of prudent

levels of risk.

C. Fiduciary Responsibility

The Board and its officers and employees shall:

• Manage Trust assets prudently for the exclusive benefit of the Beneficiaries;

• Define investment objectives and strategies;

• Adopt a long-term asset allocation;

• Seek to maximize investment returns while minimizing the risk of loss;

• Provide for short-term liquidity needs while investing for the long term;

• Diversify the Trust’s investments to reduce risk of loss;

• Diligently monitor investment performance;

• Efficiently manage the costs associated with investment of the Trust’s capital; and

• Adhere to the ethical standards set forth in Chapter VII of this Policy.

Investment decisions with respect to individual assets shall be evaluated not in isolation but in the context

of the Trust as a whole and as a part of an overall investment strategy that has risk and return objectives

ERS Investment Policy Statement 3 Effective September 1, 2024

reasonably suited to the Trust. System assets shall not be used to take any action with a purpose of

furthering social, political, or ideological interests.

D. Delegation

Under Texas Government Code § 815.202, the Board is responsible for the general administration and

operation of the Trust. Subject to the limitations on approval of certain alternative investments contained

in Texas Government Code § 815.3016, the Board may specifically delegate any right, power, or duty

imposed or conferred on the Executive Director by law to another ERS employee. If not so specifically

delegated and subject to the limitations on approval of certain alternative investments contained in Texas

Government Code § 815.3016, the Executive Director may delegate to another ERS employee any right,

power, or duty assigned to the Executive Director.

E. Review of Policy

This Policy may be modified, in whole or in part, by the Board at any time. The Board, with the aid of Staff,

the IAC, and the General Investment Consultant, shall formally review this Policy at least annually to ensure

that it continues to reflect the Board’s objectives. Staff shall inform the Board of any suggested revisions

to this Policy that are believed to be prudent, and the Board may vote to amend this Policy accordingly.

F. Interpretation of Policy

This Policy shall be construed and administered to comply with all applicable federal and state laws and

regulations. The Executive Director is authorized to approve variances from this Policy as deemed to be

in the best interest of the System and consistent with its fiduciary duties, the purpose and scope of this

Policy, and applicable law. The Executive Director shall report any variance to the Board at the next

quarterly meeting.

ERS Investment Policy Statement 4 Effective September 1, 2024

Chapter II: Philosophy and Objectives

A. Investment Philosophy

The investment beliefs of the Board are based on the mission of the System to offer competitive benefits

that enhance the lives of Beneficiaries by contributing to their financial security and overall well-being.

These statements represent the core values and principles that form the basis of the investment program.

• The Board takes a long-term perspective. Since ERS is an institutional investor with significant

liability duration, such an approach is consistent with the duration of the financial obligations of the

retirement plans. Even so, the Trust will experience significant net outflows for the foreseeable

future such that maintaining adequate levels of liquidity to meet its near-term payment obligations

shall also be a significant consideration.

• The most important decision the Board makes is setting the parameters of the long-term

asset allocation. Asset/liability studies should regularly assess the trajectory of the Trust’s

liabilities, its risk tolerance and liquidity profile, and the probability of achieving its long-term return

goals. However, the cyclical nature of the economy means asset classes and investment strategies

may be more or less attractive relative to each other in given economic environments.

• Staff is tasked with implementation through prudent and sound strategic decisions. Staff

has defined flexibility within Board-approved asset allocation parameters to preserve Trust assets

and capitalize on market cyclicality within prudent risk constraints. Periods of significant negative

asset returns reduce the likelihood of achieving the long-term funding objectives of the Trust. As

such, short-term drawdown risk shall be attentively managed when developing the long-term asset

allocation and when shifting or rebalancing the portfolio.

• The Board supports a culture that builds upon the input, skills, and talents of Staff. The

success of the investment program benefits by leveraging the competitive advantages of the

investment program, including the use of internal management for an appropriate portion of Trust

assets. Short-term performance differences between asset classes, strategies, and managers will

occur, and Staff should focus on achieving consistently positive long-term performance on long-

term investment horizons while taking on appropriate levels of risk.

• It is the allocation of risk that drives portfolio returns. While returns receive a great deal of

focus, they are in fact the result of this process for which risk-allocation decisions are the primary

input. Understanding and balancing risks across asset classes as an integral part of the portfolio-

construction process improves the consistency of returns for a given level of risk. Investment risk

cannot be avoided, and it is in fact necessary to assume an appropriate level of risk to achieve a

desired level of return.

• Portfolio diversification is critical because the future is uncertain. Effective portfolio

diversification requires a fundamental understanding of the economic drivers of risk and return.

Therefore, it is critical to construct and maintain a portfolio that is positioned for various economic

conditions, including preserving Trust assets during deflationary downturns for equities and

inflationary environments for bonds.

• Costs matter and need to be managed actively and prudently. Investment decisions shall

carefully consider the potential to earn incremental returns that exceed the associated costs to

maximize investment returns. The interests of the System are best served when alignment of

interests and financial transparency exist in contractual relationships with investment managers.

ERS Investment Policy Statement 5 Effective September 1, 2024

B. Performance Objectives

The strategic objective of the Investment program is to deliver performance that supports the current and

future provision of earned benefits for Beneficiaries. That is, the Investment program aims to provide for

long-term obligations of the retirement plans while also fulfilling their short-term payment obligations. The

first goal is achieved by delivering long-term investment returns that are consistent with the Assumed Rate

of Return (ARR), while the second goal is achieved by maintaining sufficient liquidity to ensure that benefit

payments are made regularly.

Within this context, the implementation objective for the Investment program as a whole is to obtain overall

investment returns over rolling five-year periods in excess of the adopted benchmark. Such returns are

expected to exceed benchmark returns net of expenses and to be commensurate with the amount of risk

assumed. Value added by the investment program should be evaluated within a two-step process

framework:

• Strategy: the Strategic Asset Allocation (SAA) process aims to select a set of parameters that will

allow for superior long-term performance relative to a passive mix of publicly traded stocks and

bonds. The expected and realized risk of such a passive mix can also serve as a useful proxy for

the level of market risk implicit in the asset mix. As described in detail in Chapter IV, this process

is overseen by the Board with collaborative input from the Investment Advisory Committee, Staff,

Consultants, and other advisors as deemed appropriate by the Board.

• Implementation: the implementation process aims to select a portfolio of investments that will

allow for superior long-term performance relative to a passive implementation of the SAA

parameters. Such decisions will include allocation tilts (i.e., positioning the Trust within Board-

approved ranges) and security selection (i.e., the identification of investments with superior

risk/return characteristics). This process is overseen primarily by Staff within the context of this

Policy.

The implementation objective within each asset class is to obtain overall investment returns over rolling

five-year periods in excess of the adopted benchmark returns or stated return objective, with such

performance typically measured using time weighted returns (TWR). Active returns relative to the adopted

benchmark returns are expected to exceed the cost of management and be proportionate to the amount of

active risk assumed. The expected excess returns for public market investments are a function of the active

return expected per unit of active risk, as established in the Active Risk Budget that is detailed further in

Chapter V. Private market investments are evaluated over rolling 10-year periods or other specified periods

using realized internal rates of return (IRR) and gross realized multiples.

ERS Investment Policy Statement 6 Effective September 1, 2024

Chapter III: Governance

A. Roles and Responsibilities

Board of Trustees

The Board is responsible for formulating, adopting, and overseeing the investment policies of the Trust.

The Board shall (i) invest the funds as a single Trust without distinction as to their source and (ii) hold

securities purchased with such funds collectively for the proportionate benefit of ERS, LECOS, and JRS 2.

Separate investment objectives, investment guidelines, investment strategy, and accounting are used for

GBP assets. Pursuant to Texas Government Code § 815.3016, Board approval is required for alternative

investments that exceed the Board Approval Threshold as defined in this Policy. The Board exercises its

fiduciary responsibility to invest Trust assets by delegating authority to Staff to implement investment

strategy according to this Policy while maintaining oversight of the investment of Trust assets.

Executive Director

As provided in Chapter 1, Section D, of this Policy and in accordance with Texas Government Code §

815.301(b), the Board has delegated to the Executive Director (ED) full authority and responsibility to invest

and reinvest any of the Trust’s assets, subject to Board policies, rules, regulations, and directives and

consistent with constitutional and statutory limitations. The Executive Director shall employ professional

investment staff, including a Chief Investment Officer (CIO), to provide expert advice and assistance for the

purpose of prudently and efficiently executing the responsibilities set forth in this policy. For purposes of

this Policy, references to the responsibilities of “Staff” in this Policy should be generally construed to mean

that such responsibilities are further delegated to Investment Staff, or other relevant ERS staff as provided

by the ED, subject to the procedures and controls established by the ED, as well as Board policies, rules,

regulations, and directives and consistent with constitutional and statutory limitations.

Investment Advisory Committee

The IAC is established at the discretion of the Board pursuant to Texas Government Code § 815.509 and

34 Texas Administrative Code § 63.17(b). The role of the IAC and the requirements for membership are

further described in Texas Government Code § 815.5091. IAC members serve at the pleasure of the Board

and the functioning of the IAC is detailed in Addendum VI. The Board shall at least annually review the

eligibility status of IAC members pursuant to Texas Government Code § 815.5093. It is grounds for removal

from the IAC if a person is (a) not qualified for appointment to the IAC under Texas Government Code §§

815.5091 and 815.5092; (b) unable to discharge duties because of illness, disability, or other personal

circumstances; or (c) absent for more than half of the scheduled meetings of the IAC.

Asset Class Investment Committees

Each asset class shall have an Asset Class Investment Committee (ACIC), as detailed in Addendum VII,

to review prospective investments within the respective asset class to ensure that they meet the investment

objectives, requirements and guidelines outlined in this Policy. Each ACIC shall review investment

recommendations prepared by Staff and, if applicable, the asset class consultant. ACICs shall approve or

reject recommendations for investment amounts equal to or less than the Board Approval Threshold.

Investment amounts above the Board Approval Threshold shall be presented to the Board for consideration,

and the ACIC shall review the proposal and provide its recommendation, if any, to the Board.

Chief Investment Officer and Investment Staff

The Chief Investment Officer (CIO) reports to the Executive Director and directs the investment program

consistent with this Policy, and within applicable state and federal laws. The CIO has supervisory and

oversight authority over all investment staff in the implementation of this Policy. The CIO is accountable

for the investment process in pursuit of strong performance, cost effectiveness, appropriate diversification,

ERS Investment Policy Statement 7 Effective September 1, 2024

and risk management for the overall portfolio. The CIO also advises and informs the Executive Director on

investment matters and keeps the Executive Director apprised of situations that merit attention.

At the Trust level, Staff responsibilities include review and monitoring of external investment consultants

and their recommendations, as well as maintenance of the ERS Proxy Voting Guidelines. Additional

responsibilities will include the development, recommendation, and implementation of this Policy, as well

as asset allocation, portfolio construction, advisor/consultant selection, and oversight of the custodian,

General Investment Consultant, and other advisors/consultants with whom ERS contracts.

Within internal management, these responsibilities include portfolio management, investment analysis and

research, monitoring of external advisors and their recommendations, trade execution, and voting of

proxies. Within the context of externally advised mandates, these responsibilities include portfolio

construction, performance measurement, and manager selection. Within private markets, these

responsibilities include sourcing and underwriting opportunities in funds, co-investments, and secondaries;

preparing investment memoranda; actively monitoring and managing existing portfolios; developing capital

plans; and performing operational due diligence.

Investment Compliance

The Executive Director shall create an Investment Compliance function with responsibility for the overall

monitoring, testing, and reporting related to compliance with this Policy and each of the asset class capital

plans, which are annual reports submitted by each asset class detailing guidance for investment

implementation over the medium term. Investment Compliance shall notify the Executive Director, the CIO,

the General Counsel, and any other relevant staff of any suspected or actual violations of the Policy. All

actual violations of the Policy shall also be reported to the Board. On a periodic basis not less than annually,

Investment Compliance shall present to the Board the results of compliance activities performed during the

review period and any material compliance issue(s). Investment Compliance also shall develop and

maintain internal policies and procedures related to the ERS compliance program.

Investment Consultants

ERS may periodically retain professional investment consultants to assist and advise the Board and Staff

in connection with the investment of Trust assets.

The General Investment Consultant selected by the Board provides independent review, analysis, and

recommendations to the Board regarding the management of the Trust overall. This may include, but is

not limited to, recommending appropriate strategic policy and implementation structure, conducting

manager due diligence, and assisting with manager searches and selection. The General Investment

Consultant also aids the Board in performing its oversight function and adhering to the guidelines of this

Policy, and makes recommendations regarding the prudence of proposed revisions, including the use of

appropriate performance benchmarks. The General Investment Consultant also makes recommendations

regarding the development and revision of policies to ensure overall consistency, use of best practices, a

system-wide approach, and proper implementation of ERS policies.

Consultants also may be retained to provide industry expertise within specific asset classes. They may

provide investment recommendations and conduct diligence on specific investments, including

recommendations to the ACIC on proposed capital commitments and review of implementation

benchmarks proposed by staff to the Executive Director.

At least annually, any such asset class consultants within private markets shall provide to the Board:

• An annual review of the program and any major sub-programs, including an opinion letter on

performance, risk, fund selection and monitoring processes, internal controls, and staffing;

• Opinion letters on proposed capital plans and the appropriateness of asset class benchmarks;

ERS Investment Policy Statement 8 Effective September 1, 2024

• Regular reports on the outlook for asset class returns, valuation trends, market conditions, and

macro level view of market opportunities; and

• Regular reports regarding investment performance, including relative returns, peer benchmarking,

performance attribution analysis, portfolio risk, and policy compliance.

Consultants engaged by ERS must consider only those factors that relate to economic value and financial

benefits to the Trust in carrying out their duties to ERS. The fiduciary interests of the Trust shall not be

subordinated to unrelated objectives by any consultant in connection with their service to ERS.

Retirement Actuary

The Board selects and retains a pension actuary for the purpose of forecasting asset and liability growth

and assessing the many complex factors included in estimating future pension costs. These factors include

interest rates, inflation, salary growth, mortality rates, employee turnover, and other relevant factors. The

actuary also assists the Board in setting the assumed rate of return (ARR), which is informed by the asset

allocation parameters of the Trust and the outlook for the capital markets. These actuarial assumptions

are reviewed during the actuarial experience study and used as inputs for asset/liability studies.

Custodian

The Board selects the Trust’s custodian subject to the statutory procurement process and with a

recommendation from Staff. The custodian’s primary function is to hold in custody all investments of the

System, other than certain interests in limited partnerships, limited liability companies, and other illiquid

investments that may be held directly by ERS and are typically only accounted for by the custodian. The

custodian also calculates investment performance and benchmark comparisons.

Investment Managers

Staff is responsible for managing the Trust in the best interest of the Beneficiaries by making prudent

investment decisions, adopting investment strategies, and reporting investment results to the Board. Staff

may both internally manage assets and elect to use external management when appropriate. When the

term “Investment Managers” is used in this Policy, it is intended to include both internal and external

managers unless otherwise specified.

Investments shall be made and managed by one or more Investment Managers who meet the requirements

described in Texas Government Code §§ 802.203 and 802.204. Managers shall construct and manage

one or more portfolios of investments consistent with the investment philosophy and strategy they are hired

to implement in compliance with this Policy and any agreement(s) they execute with the System. The

Investment Implementation Policy (IIP) establishes specific processes and procedures with respect to

manager selection, monitoring, and retention.

In public asset classes, external management may be carried out by external advisors where oversight of

the trade approval process is retained by Staff. External advisors are selected, in accordance with

applicable laws, by the appropriate ACIC for inclusion in a Select Pool. From within a Select Pool, Staff

shall recommend external advisors for funding or de-funding, and the CIO, in consultation with the

Executive Director, shall determine whether to approve Staff’s recommendations. Staff shall make

recommendations to the Executive Director regarding the assignment of benchmarks for external advisors,

a process that shall include input from the General Investment Consultant.

Private asset classes may use external managers that may exercise full investment discretion with respect

to buying, managing, and selling assets within the terms of the applicable securities and the approved

guidelines in order to achieve pertinent objectives.

Investment Managers shall act as fiduciaries of the Trust and exercise prudence, care, skill, and due

diligence in the course of selecting investments to buy or sell for the Trust. Investment Managers are

ERS Investment Policy Statement 9 Effective September 1, 2024

responsible for adhering to the contractual terms of their agreements with ERS, as well as all relevant

provisions of this Policy and all applicable laws. Staff shall monitor all Investment Managers for compliance.

Emerging Managers

In selecting managers, advisors, consultants, and other private financial service providers, the Board shall

make a good faith effort to evaluate qualified emerging fund managers as potential contractors and service

providers as set forth in Texas Government Code § 815.301(g), (h), and (i). An “emerging fund manager”

is defined as a private professional investment manager with assets under management of not more than

$2 billion.

In establishing an emerging manager program, Staff shall seek to find smaller investment managers that

can benefit the Trust by enhancing risk-adjusted returns, net of expenses. The Board expects that over the

long term, inclusion of emerging managers as part of external investment management will enhance the

Trust’s expected investment performance by serving to complement the Trust’s internal investment

management. Such relationships shall exhibit strong alignment of interest with investors and seek to

provide ERS with long-term access to the next generation of talent. The ERS emerging manager program

is to be integrated within each asset class.

Staff shall report to the Board annually on the methods and results of efforts to hire emerging fund managers

in accordance with Texas Government Code § 805.301(i), including data disaggregated by race, ethnicity,

gender, and fund size, and the extent to which the emerging manager program has fulfilled the expected

benefits described above.

CHART 1 – ROLES AND RESPONSIBILITIES

ERS Investment Policy Statement 10 Effective September 1, 2024

TABLE 1 – POLICY LEVEL INVESTMENT RESPONSIBILITIES

Investment Responsibility Board IAC ED

CIO /

Staff

Consultant /

Actuary (as

applicable)

Investment Policy Statement

Asset Allocation Parameters

Permissible Asset Classes

Strategic Performance Benchmarks

Decisions about Deviations from Policies

A**

Selection of General Investment Consultant*

N/A

Selection of Asset Class Consultant(s)

N/A

Selection of Custodian Bank*

N/A

Selection of Securities Lending Agent*

N/A

Selection of Assumed Rate of Return

Proxy Voting Policy

Selection of Proxy Agent

N/A

Selection of IAC Members

N/A

A = Approves, R = Provides Recommendation

* Approval is required by law. ** Approval when timing does not allow for presentation to the Board and

such action is in the best interest of the System, which shall be followed by reporting to the Board and IAC.

TABLE 2 – IMPLEMENTATION LEVEL INVESTMENT RESPONSIBILITIES

Investment Responsibility Board

IAC ACIC

ED CIO Staff

Consultants

(as

applicable)

Approve Alternative Investments Over

Board Approval Threshold +*

A R R R R R R

Approve Investments Under Board

Approval Threshold

O O A A R R R

Approve External Advisors

Funding/Defunding of External Advisors

R&I

Contract Execution**

N/A

Rebalancing/Asset Overlays

N/A

R&I

Derivatives – Internally Managed

N/A

R&I

Derivatives – Externally Managed

Risk Management

R&I

Proxy Voting

R&I

A = Approves, O = Provides Oversight, R = Provides Recommendation, I = Responsible for Implementation

* Approval is required by law. **Oversight for contract negotiation and execution is provided by OGC.

+ - Pursuant to Texas Government Code § 815.3016, Board approval is required for alternative

investments that exceed the Board Approval Threshold.

ERS Investment Policy Statement 11 Effective September 1, 2024

B. Proxy Voting

The right to vote proxies for securities held by the Trust has economic value, and ensuring the proper

exercise of this right is part of the Board’s role as a fiduciary. In voting proxies, ERS shall consider only

those factors that relate to the economic value of the Trust, and votes shall be cast in accordance with the

ERS Proxy Voting Policy attached as Addendum I.

C. Scrutinized Investments

Applicable state and federal law may limit the authority of the System to invest in, and require the System

to divest from, certain designated securities. Staff shall follow the procedures set forth in the Scrutinized

Investments Policy (attached as Addendum II) to ensure compliance with applicable law, including Texas

Government Code Chapters 2270, 808, and 809.

D. Securities Litigation

As an institutional investor with a large, diversified portfolio, ERS frequently holds securities that may be

the subject of class-action securities litigation or may provide a basis for other litigation. The Board

recognizes that when such litigation appears to have merit, there can be a number of options available.

Staff shall manage the Trust’s interest in securities litigation as an asset of the Trust and shall review the

materiality of any underlying financial loss. Staff shall consider the costs and benefits of the options

available in accordance with its fiduciary obligations to the Trust.

In most cases, the Trust’s interests in securities claims may be adequately addressed through participation

by ERS as a class member, rather than by taking a lead plaintiff’s role or pursuing litigation individually. In

such cases, the filing of claims usually shall be handled primarily by the Trust’s custodian on behalf of the

Trust, at the direction and with the oversight and approval of Staff. To the extent that the custodian does

not provide these services or another firm appears to be better able to represent the Trust’s interests, other

firms may be retained to handle claims.

In securities matters where financial loss to the Trust is exceptional or where it is advisable to pursue

individual claims or actively participate in litigation in another manner, Staff shall work with the ERS Office

of the General Counsel (OGC) to refer the matter to appropriate outside counsel for further evaluation and

prosecution.

ERS Investment Policy Statement 12 Effective September 1, 2024

Chapter IV: Asset Allocation

A. Asset Allocation Parameters

The most important component of an investment strategy is the asset mix, which is the resource allocation

among the various types of securities available to the Trust for investment purposes. The Board shall set

long-term asset allocation targets that can be expected to generate returns sufficient to fund required benefit

payments. The Board has set these ranges with an expectation that Staff will be tactical in its

implementation decisions in order to manage risk prudently and to maximize the expected return given the

risk budget. Current strategic targets and tactical ranges are outlined below.

TABLE 3 – STRATEGIC TARGETS AND TACTICAL RANGES

Asset Class

Strategic

Target

Tactical

Minimum

Tactical

Maximum

Return Seeking Assets

80%

70%

88%

Global Equity

51%

42%

60%

Public Equity

35%

25%

45%

Private Equity

16%

11%

21%

Global Credit

12%

21%

Public Credit

14%

Private Credit

Real Assets

17%

12%

22%

Public Real Estate

13%

Private Real Estate

14%

Private Infrastructure

10%

Risk Reducing Assets

20%

12%

28%

Liquidity Assets

14%

20%

Rates

12%

17%

Cash & Equivalents

10%

Diversifying Assets

10%

Hedge Funds

11%

Special Situations

Global Total

100%

The Board has found it prudent to diversify both across and within the major asset classes in order to

construct a highly efficient portfolio (i.e., one that delivers strong compound returns on a long-term, risk-

adjusted basis). Each of the asset classes and sub-asset classes outlined above provides a distinct and

purposeful role within the Trust, and careful attention should be paid to the correlations between them so

that high levels of diversification are maintained as market conditions change and regime shifts occur.

B. Establishing/Reviewing Parameters

The Board, with advice from Staff and the General Investment Consultant, is responsible for establishing

the Strategic Asset Allocation (SAA) process and parameters for the Trust. SAA refers to the establishment

of the strategic targets and tactical ranges for the included asset classes (i.e., securities sharing certain

fundamental and risk-based characteristics), which will determine the distribution of investments within the

Trust. The SAA process is intended to optimize expected returns net of expenses for the Trust within the

established risk budget over a long-term horizon by maintaining a prudent and well-diversified portfolio.

ERS Investment Policy Statement 13 Effective September 1, 2024

An actuarial experience study shall be conducted every four years pursuant to Texas Government Code §

815.206(c). The General Investment Consultant shall conduct formal asset/liability studies in connection

with each actuarial experience study. Such studies also shall include a detailed review of the asset

allocation parameters and a comprehensive assessment of the liquidity needs of the Trust as compared to

the potential trajectories of the asset base. These periodic studies shall provide the primary basis upon

which significant changes may be made to the SAA parameters for the Trust. The Executive Director may

direct that additional actuarial studies take place as needed.

The likelihood of superior long-term investment performance arising out of the SAA process depends

greatly on the accuracy of the assumptions used to establish its parameters. As such, these assumptions

should be monitored continually and revisited regularly by Staff with the results reported to the Board at

least annually.

Reviews of the adopted SAA parameters using updated capital market assumptions and other market-

related inputs shall also be provided to the Board by Staff at least annually. These reviews shall discuss

the alignment of the asset allocation parameters with the assumed rate of return and shall discuss how the

implementation plan supports the long-term strategic objectives of the program. These reviews also shall

discuss risk-return assumptions, correlation of returns, and implementation approaches using applicable

strategic benchmarks and other relevant data.

Within each asset class, the CIO, in consultation with the Executive Director, shall adopt portfolio

implementation strategies and investment approaches to meet the overall investment objective of each

asset class. Staff shall present to the Board at least annually an overview of each asset class, including a

long-term capital plan for private markets asset classes with forecasted 12-month tactical ranges.

C. Transition Period for Asset Allocation

This section shall apply during any period following significant changes in the asset allocation parameters.

Recognizing that changes in exposures to illiquid asset classes cannot be implemented immediately, such

changes shall be implemented over time at the discretion of Staff in a manner that minimizes risk and

maximizes expected return. Implementation by Staff of any asset allocation decision by the Board is always

a work-in-progress and shall be executed prudently. Staff shall manage implementation of any new or

revised asset allocation based on available investment opportunities and the liquidity needs of the Trust.

The calculation methodology for benchmarks associated with the above-referenced asset classes during

the transition period shall be established by Staff in advance of each fiscal year and once implemented,

shall not be modified during the applicable fiscal year. During the implementation of any new or revised

strategic target, the actual weight of the asset class at the end of the prior month may be used as the weight

of the relevant asset class to calculate the Policy Benchmark.

Given that there may at times be no allocation within Special Situations, the Policy weight of the Special

Situations asset class for calculating the Policy Benchmark shall be the actual weight of the asset class at

the end of the prior month, up to the tactical maximum for the asset class. The offsetting weight shall be

subtracted from the weight of other established asset classes as specified by Staff, after consideration of

the current market environment and investment opportunity set.

D. Rebalancing

The purpose of rebalancing is to position the Trust within the Board-approved asset allocation parameters

in order to maintain a risk/return profile that is consistent with the objectives in this Policy. In exercising its

authority to conduct such rebalancing, Staff shall ensure conformity with the asset allocation parameters

established by the Board by formally reviewing the positioning of the Trust at least monthly.

When conducting rebalancing activities, the Board expects Staff to operate prudently under the following

principles:

ERS Investment Policy Statement 14 Effective September 1, 2024

• To implement the investment strategy, Staff may act to position the Trust closer to or farther away

from the strategic targets, but the asset class positioning of the Trust shall remain within the

approved tactical ranges unless a temporary exception is made by the Board.

• Rebalancing activities may include reallocation between approved Investment Managers within the

Select Pool(s) and the management of overlay portfolios that facilitate the positioning of the Trust

and its constituent asset classes.

• Rebalancing activities may include routine redemptions from liquid investments to make required

benefit payments and to meet other cash flow obligations of the Trust, including the timely funding

of capital calls.

• When the positioning of the Trust drifts outside of the parameters of the Board-approved asset

allocation due to market movement or other factors, Staff shall initiate rebalancing transactions or

promptly seek Board approval to remain outside the prescribed ranges.

• Less liquid private asset types (such as real estate, private equity, and infrastructure) may not be

able to be managed within tactical ranges at all times, but those allocations shall be prudently

managed to the strategic targets over time through distributions and strategic new investments.

• Any aspect of Trust positioning that is outside of the Board-approved asset allocation parameters

as of any month’s end shall be reported to the Board at the next regular meeting.

The intent of this Policy is to implement the Trust’s investment strategies within the asset allocation

parameters at a reasonable cost, recognizing that overly precise management of Trust positioning can

result in transaction costs that are not economically justifiable. As such, the evaluation of decisions related

to rebalancing the Trust shall include consideration of the expenses that can be reasonably expected to

occur as a result.

ERS Investment Policy Statement 15 Effective September 1, 2024

Chapter V: Asset Classes, Leverage, Risk, and Securities Lending

A. Permissible Investments

The Trust may be invested only in “securities,” as that term is defined in Texas Government Code §

815.301(f) and set forth in Addendum II. In determining whether to invest in a security, the following factors

shall be considered in determining whether such investment is appropriate and prudent for the Trust:

a) whether the investment is consistent with Policy and portfolio objectives, including diversification at

the portfolio and Trust levels;

b) Staff and/or Investment Manager competency in evaluating, managing, and trading the investment;

c) The expected effect of the investment on Trust liquidity; and

d) The expected costs of the investment.

Securities shall be screened by Staff to ensure that they meet the above standards, and OGC shall be

consulted regarding any questions about the definition of “securities.”

Investments may be held in separately managed accounts, as well as commingled funds. If held in a

commingled fund or mutual fund, the prospectus, organizational document, or Declaration of Trust

(including the associated list of permissible investments) takes precedence over this Policy solely to the

extent of any conflict with this Policy unless provided otherwise in a written agreement between ERS and

the Investment Manager. If held in a collective investment trust (CIT), the terms of the relevant group trust

governing such CIT shall be incorporated by this reference and become a part of this Policy solely with

respect to the management of the assets held by such CIT.

B. Asset Classes

Overarching Asset Allocation Expectations

The Trust shall be managed in accordance with the guidelines and structure adopted during the most recent

Asset/Liability Study (A/L Study). Implementation within each asset class shall be aligned with the

fundamental assumptions used to determine its risk return profile during the A/L Study, as well as the risk

return profile of the overall investment program. The following sections provide a description of the

diversification framework used during the A/L Study and provide a table with a high-level description of

each asset class, its primary strategic benchmark, a description of its role within the Trust, its primary risk

control, and its management style. Further details on investment implementation for each asset class shall

be included within the capital plan that is presented for approval by the Board on an annual basis.

Return Seeking/Risk Reduction Framework

The Board has adopted the asset allocation parameters reflected in this Policy to improve the long-term

expected return and Sharpe ratio of the Trust relative to a traditional mix of passive liquid assets. This

framework for the asset allocation between return seeking and risk reduction/liquidity assets provides

broader diversification and improved returns in disparate economic cycles. This framework sets forth two

broad categories of asset classes: a category that seeks returns (which includes growth-oriented assets

and real assets) and a category that provides risk reduction, diversification, and/or liquidity as needed.

Performance Benchmarks

Staff and consultants shall review strategic benchmarks with the Board periodically to confirm that the

benchmarks remain appropriate for the investment strategy. Strategic benchmarks shall be specified in

advance of their adoption, consistent with the portfolio objectives, measurable, unambiguous, investable,

and reflective of current market conditions. Since the available benchmarks for private market asset

ERS Investment Policy Statement 16 Effective September 1, 2024

classes often lack many of these characteristics, Staff shall recommend for Board adoption those that are

best suited for the portfolio construction and strategy of the asset class. In all instances, Staff and the

applicable Investment Consultant shall provide the Board with analysis supporting the conclusion that each

adopted strategic benchmark is prudent and appropriate for the applicable asset class and the Trust overall.

TABLE 4 – ASSET CLASSES, STRATEGIC BENCHMARKS AND RISK BUDGET

RETURN SEEKING ASSET CLASSES

GROWTH-ORIENTED ASSETS

Public Equity

Strategic Benchmark

MSCI ACWI IMI with USA Gross Total Return index (M1WDW$GI)

Reference Indices*

Domestic Portfolio: MSCI USA Total Return Index (NDDUUS)

International Portfolio: MSCI ACWI IMI ex-USA Total Return Index (M1WDUIM)

Portfolio Role

Growth, Alpha

Primary Risk Control

200 bps Tracking Error Target / 300 bps Tracking Error Limit

Benchmark Description

A capitalization-weighted index of large, mid, and small cap stocks representing developed

and emerging market countries. The index is the broadest measure of the aggregate global

stock market, covering approximately 99% of the global equity investment opportunity set.

Management Style

Active and Passive

Expected Information Ratio

0.25

Private Equity

Strategic Benchmark

Median of Wilshire Associates Trust Universe Comparison Service’s (TUCS) Total Private

Equity Return of Master Trusts for Public Plans > $5 Billion

Reference Indices*

Public Market Equivalent (PME), Burgiss Private Capital Indices

Portfolio Role

Growth, Enhanced Returns, Illiquidity Premium

Primary Risk Control

Pacing, Regional Diversification, Strategy Diversification

Benchmark Description

The portfolio will benchmark against the median performance of public pension plans with

greater than $5 billion in assets.

Management Style

Active

Additional Information

The portfolio will be implemented with diversification across partners, strategies,

geography, and industry. Strategy exposures include Venture Capital, Buyouts, Distressed

Debt, Mezzanine, Natural Resources, and Secondaries.

Public Credit

Strategic Benchmark

Bloomberg US High Yield 2% Issuer Capped Cash Pay Total Return Index (LF89TRUU)

Portfolio Role

Yield, Diversification

Primary Risk Control

200 bps Tracking Error Target / 300 bps Tracking Error Limit

Benchmark Description

An index composed of non-investment grade corporate debt denominated in U.S. dollars.

The issues have to have an outstanding par value of $150 million or greater and at least one

year of maturity remaining.

Management Style

Active

Additional Information

May tactically allocate loans, emerging market debt, and riskier investment grade bonds to

enhance returns.

Expected Information Ratio

0.20

ERS Investment Policy Statement 17 Effective September 1, 2024

Private Credit

Strategic Benchmark

S&P/LSTA Leveraged Loan Total Return Index (SPBDAL) + 150 bps annually

Portfolio Role

Yield, Diversification, Illiquidity Premium

Reference Indices*

Public Market Equivalent (PME), Burgiss Private Capital Indices

Primary Risk Control

Pacing, Regional Diversification, Strategy Diversification

Benchmark Description

An index designed to mirror the investable universe of the U.S. Dollar denominated

leveraged loan market (senior secured floating rate bonds).

Management Style

Active

REAL ASSETS

Public Real Estate

Strategic Benchmark

FTSE EPRA/NAREIT Developed Total Return Tax Adjusted Valuation Index (TGPGHM4U)

Reference Indices*

Domestic: EPRA Nareit US Total Return Index USD (RUUS)

International: FTSE EPRA Nareit Developed ex US Net Total Return Index (TRGXUU)

Portfolio Role

Diversification, Yield, Potential to Hedge Inflation

Primary Risk Control

200 bps Tracking Error Target / 300 bps Tracking Error Limit

Benchmark Description

Free float adjusted, market capitalization weighted index of global equity real estate

investment trusts (REITs) and real estate operating companies (REOCs). Real estate assets

mostly in the four primary property types: apartments, industrial, office, and retail.

Management Style

Active

Additional Information

Investments in listed REITs with U.S. and non-U.S exposures.

Expected Information Ratio

0.25

Private Real Estate

Strategic Benchmark

NCREIF Fund Index – Open End Diversified Core Equity (NPPIODCE)

Reference Indices*

Public Market Equivalent (PME), Burgiss Private Capital Indices

Portfolio Role

Diversification, Yield, Potential to Hedge Inflation, Enhanced Returns, Illiquidity Premium

Primary Risk Control

Diversification by Vintage Year, Region, Strategy, Property Type

Benchmark Description

The NCREIF ODCE Net Index, an index comprised of open-end core commingled funds

focusing primarily on equity ownership of institutional properties.

Management Style

Active

Additional Information

The portfolio will be implemented with a level of diversification across partners, strategies,

geography, and industry. Investments include core and non-core properties with U.S. and

non-U.S exposures. The portfolio will have a limit of 65% Loan to Value.

Private Infrastructure

Strategic Benchmark

US CPI Urban Consumers NSA Index (CPURNSA) + 400 bps annually

Reference Indices*

Public Market Equivalent (PME), Burgiss Private Capital Indices

Portfolio Role

Diversification, Income-Orientation, Inflation Hedging, Illiquidity Premium

Primary Risk Control

Pacing, Regional Diversification, Strategy Diversification

Benchmark Description

Real return target over inflation

Management Style

Active

Additional Information

The portfolio will be implemented with a level of diversification across partners, strategies,

geography, and industry. Includes non-core and emerging market investments.

ERS Investment Policy Statement 18 Effective September 1, 2024

RISK REDUCTION/LIQUIDITY ASSET CLASSES

LIQUIDITY ASSETS

Rates

Strategic Benchmark

Bloomberg US Intermediate Treasury Total Return Index (LT08TRUU)

Portfolio Role

Downside Protection, Diversification, Liquidity

Primary Risk Control

50 bps Tracking Error Target / 100 bps Tracking Error Limit

Benchmark Description

All publicly issued, U.S. Treasury securities that have a remaining maturity of greater than

or equal to 1 year and less than 10 years, are rated investment grade, and have $250 million

or more of outstanding face value.

Management Style

Active

Expected Information Ratio

0.20

Cash & Equivalents

Strategic Benchmark

ICE BofA U.S. 3-Month Treasury Bill Index (G0O1)

Portfolio Role

Liquidity

Tracking Error Target

Not Applicable

Benchmark Description

An index that measures the average return of the last three-month U.S. Treasury Bill issues.

Management Style

Active

Expected Information Ratio

0.20

DIVERSIFYING ASSETS

Hedge Funds

Strategic Benchmark

HFRI FOF: Conservative Index (HFRIFOFC)

Reference Indices*

HFR Indices including the HFRI 500 Low Beta Index (HFRI5LB)

Portfolio Role

Downside Protection, Diversification, Low Correlation to Trust

Primary Risk Control

Strategy Selection and Diversification

Benchmark Description

Peer benchmark that tracks the performance of hedge fund of funds (FOFs) that exhibit a

conservative investment approach.

Management Style

Active

Additional Information

Diversified hedge fund portfolio with allocations across many strategy types. Targeted net

return beyond cash/short-term instruments. Objective of the portfolio is to have a low beta

and limited directionality to the overall market.

*Reference Indices are used to assess performance against portfolio objectives beyond relative

performance versus the strategic benchmark.

C. Special Situations

The Special Situations asset class exists to improve risk-adjusted returns of the Trust with new investment

strategies and mandates that promote prudent innovation or enhance diversification. By its nature, the

Special Situations asset class will include a broad range of investment strategies that may fall outside of

traditional asset classes but which may represent attractive additions to the portfolio overall.

This category is intended to comprise a small portion of the Trust, and it may grow as suitable investments

are identified based on extensive due diligence and a high level of comfort and knowledge on the part of

the Staff and Board. Any potential investment that is not aligned with an asset class otherwise included in

this Policy shall require approval by the ACIC deemed by the CIO to be most qualified to assess the

proposed investment.

ERS Investment Policy Statement 19 Effective September 1, 2024

Special Situations investments may be considered for permanent inclusion in an established asset class

upon the recommendation of the CIO and approval by the ACIC of the asset class in which the investment

will be included. Oversight of this asset class, which includes implementation oversight for investment

opportunities that fall outside of traditional asset classes, shall be assigned by the Risk Committee within

the IIP.

Each investment strategy adopted within the Special Situations asset class shall have an explicit

implementation benchmark used for performance evaluation. The primary performance objective for the

Special Situations asset class overall is to achieve a rate of return in excess of the weighted average return

of the implementation benchmarks of the underlying investment strategies.

D. Leverage

Leverage is a condition in which the net potential monetary exposure of an obligation exceeds the value of

the underlying assets supporting the obligation. For the purposes of this Policy, leverage is divided into

two primary types:

• Asset Allocation Leverage reflects any excess allocation to the combined cash and investment

exposures of the Trust that is greater than 100% on a net basis. Asset Allocation Leverage is

distinct from Strategy Leverage and is not permitted under this Policy.

• Strategy Leverage is leverage that is used within an asset class or portfolio to achieve the risk-

return characteristics targeted by a particular investment. The use of Strategy Leverage is

permitted only when documented fully in the Investment Manager’s agreement with the System.

The Investment Division shall monitor risk exposures and leverage on both an individual entity and

aggregate basis. Specifically, gross notional and net exposure levels shall be monitored at the asset class

level and at the Trust level.

E. Risk Philosophy

The Board and Staff recognize there are many types of investment risks. As institutional investors with

significant liability duration, the Board and Staff take a long-term perspective. These statements represent

the core values and beliefs that form the basis of the risk philosophy for the Trust.

The program should consider both systematic risk and idiosyncratic risk.

• Systematic risk is addressed over the long term by focusing on expected returns, volatility, and

correlation of asset classes during each asset/liability study and the adoption of asset allocation

parameters. In the shorter term, systematic risk is addressed in portfolio construction via

positioning the Trust and its asset classes within the tactical ranges established by this Policy.

• Idiosyncratic risk is addressed via the maintenance of a well-diversified asset allocation mix and

constituent portfolios. Idiosyncratic risk is also managed via investment guidelines that address

portfolio positioning and the risks specific to asset classes and portfolios.

Some risks are measurable while others are not. For risks that are measurable, Staff shall consider the

various methods for estimating them and incorporate the relevant methods to manage and report these

risks. For the risks that are not measurable (e.g., legal, regulatory, headline, etc.), Staff shall be mindful to

consider these risks within the risk management program and report them to the Board as appropriate.

Risk reporting should be timely, relevant, and understandable. Investment risk can be difficult to

understand because it is multi-faceted. Staff, the IAC, and Investment Consultants shall educate and report

to the Board on risk management at the Trust and asset class levels so the Board can maintain its oversight

ERS Investment Policy Statement 20 Effective September 1, 2024

of the investment program and make strategic decisions as needed. Such collaboration to understand and

manage risks of the investment program aims to establish discipline across market cycles and regimes.

F. Risk Allocation

ERS has adopted a risk budgeting and allocation framework to manage active risk, which for these

purposes is defined as the amount of variation in positioning within a portfolio relative to a prescribed

benchmark. The purpose of this framework is to define risk parameters at the Trust level and to provide a

transparent and measurable methodology for allocating that risk to active strategies in an optimal way.

To establish suitable risk parameters for public market asset classes, the Board approves an Active Risk

Budget that includes tracking error ranges for each asset class. Tracking error is calculated as the standard

deviation of the difference between the portfolio return and return of the applicable strategic benchmark. It

is recognized that statistical measures such as tracking error are estimates and do not guarantee that

observed performance will occur as expected. Targeted tracking error (typically on a one-year forecast

basis) will be the primary metric for managing active risk prospectively while realized tracking error (typically

on a trailing five-year monthly basis) will be used for retrospective measurement and reporting purposes.

For the private asset classes, risk shall be managed through consistent investment pacing, regional

diversification, strategy diversification, manager diversification, and other metrics particular to each private

asset class. To establish suitable risk parameters for private market asset classes, the Board relies on the

asset class capital plans alongside internal guidelines prepared and maintained by Staff that include

parameters specific to each program such as strategy weights, geographic diversification requirements,

manager and concentration limits, and other metrics as appropriate.

G. Risk Committee

The Risk Committee has been established to oversee the implementation of this Policy. The duties and

responsibilities of the Risk Committee shall include its obligations to:

• Develop methods and tools necessary to implement the strategic decisions of the Board;

• Assure that the risk parameters established by the Board in this Policy are being observed;

• Consider relevant information regarding the risk exposures of the Trust;

• Recommend actions that will either minimize negative outcomes or enhance positive outcomes;

• Look both within and across the asset classes to develop a comprehensive view of Trust risk; and

• Investigate and employ best practices in the area of risk management.

The Risk Committee is composed of the CIO and senior investment staff appointed by the CIO. Its

functioning shall be further detailed in the Risk Committee Charter as approved by the CIO. To direct the

efforts of Staff, the Risk Committee shall develop and maintain the Investment Implementation Plan (IIP),

which shall incorporate the asset class guidelines as well as appropriate processes, procedures and

controls for all investment programs.

H. Liquidity

Liquidity is to be managed diligently as part of risk management at the Trust level and shall be reported to

the Board quarterly. Since the Trust pays out significantly more in benefits each year than it receives in

contributions, the investment program shall maintain an emphasis on liquidity to ensure timely payment of

benefits. Since the liquidity needs of the Trust remain consistent regardless of its performance, the SAA

parameters adopted by the Board shall consider these by maintaining a highly liquid segment within the

asset allocation parameters. Staff shall manage liquidity within the other asset classes prudently and

actively with a view toward maintaining adequate liquidity at the Trust level.

ERS Investment Policy Statement 21 Effective September 1, 2024

I. Use of Derivatives

Authorized types of derivatives include futures contracts, options, options on futures contracts, forward

contracts, and any other instrument considered to be a security under Texas Government Code §

815.301(f) and commonly used by institutional investors to manage portfolios. Derivative transactions that

are “swaps” or “security-based swaps” may not be entered into directly by Investment Managers unless

they fall under the definition of “securities.” Investment managers may be permitted to utilize derivatives to

implement their approved investment strategies. Guidelines for each Investment Manager shall generally

specify the permitted amount and type of derivative usage. Derivative usage by Investment Managers shall

be segregated and limited to the underlying portfolio in which the derivatives are approved and shall not be

employed to introduce leverage to the Trust overall. Staff shall establish procedures to monitor compliance

with this Policy by Investment Managers to require prudent investment practice regarding derivative usage,

and to take into account any operational risk associated with various derivatives strategies.

J. Risk Measurement and Management

Risk management is a primary responsibility for Staff, and investment performance shall be reviewed in the

context of risk-adjusted returns. The Risk Management framework is established through (1) the adoption

of this Policy and the strategic asset allocation parameters, (2) the adoption of strategic benchmarks for

each individual asset class, and (3) the establishment of reasonable risk limits within this Policy for

investment implementation. The strategic goal of risk management is not to eliminate risk but rather to

balance risk and return in pursuit of the objectives set forth in this Policy.

The process of risk management involves monitoring the key aspects of the Trust, including:

• Assuring appropriate diversification of the Trust’s assets;

• Maintaining the volatility of the Trust within acceptable levels based on projected volatility and

correlation of asset classes;

• Managing the liquidity of the Trust such that the Trust can satisfy its payment obligations while

taking advantage of market dislocations to buy securities when valuations are attractive; and

• Stress testing the Trust and its constituent portfolios under different market conditions.

The primary risk measurement for the Trust is based on:

• Managing the exposures of the Trust within allowable ranges;

• Managing tracking error and monitoring information ratio (risk-adjusted measure of portfolio active

risk management) of the Trust;

• Reviewing other risk-adjusted measures that address limitations of information ratio, including

Sharpe Ratio (i.e., the average return minus the risk-free rate divided by the standard deviation);

and

• Reviewing qualitative and other characteristics demonstrating portfolio diversification of the private

market asset classes.

The CIO is responsible for reporting risk management results to the Board on a regular basis.

K. Securities Lending

The Board may select one or more commercial banks, depository trust companies, or other entities to lend

the Trust’s securities under rules or policies adopted by the Board in accordance with Texas Government

Code § 815.303. The securities lending agent shall implement the program in accordance with a contract

and written guidelines. The primary objective of the securities lending program shall be to earn the return

associated with the lending of securities while minimizing the risk associated with the collateral pool.

ERS Investment Policy Statement 22 Effective September 1, 2024

Chapter VI: Trust Monitoring and Reporting

The successful delegation by the Board of certain duties to the Executive Director, Staff, and non-

investment staff depends upon accountability and transparency in the implementation of the program.

Accountability comes from clear measurement against well-defined objectives and appropriate

benchmarks. Transparency comes from accurate, timely, and clear reporting to the Board of Trust

positioning, investment returns and risks, portfolio costs, and implementation decisions made by Staff. This

chapter delineates the schedule and content of the core reporting that the Board relies upon to fulfill its

fiduciary duties.

A. Performance Evaluation

Performance evaluation of the Trust is designed to monitor the asset allocation, implementation plan, and

selection decisions related to investment managers and external advisors. The purpose is to test the

continued validity of these decisions and to prompt an analysis of any underperformance or inappropriate

levels of risk.

Performance objectives have been established for the Trust and each asset class in order to guide proper

ongoing diligence with respect to the monitoring and evaluation of managers and strategies, and it is clearly

understood that these objectives are to be viewed over the long term. Rates of return shall be compared

with:

• The risk and return of an appropriate market index;

• The return of an appropriate style benchmark, where applicable; and

• The returns of a universe of comparable investment strategies, where applicable.

Staff, in consultation with the Executive Director, shall provide to the Board in writing, on a quarterly basis,

a summary of the Trust’s performance as calculated by an outside performance measurement service. This

report is prepared by the General Investment Consultant and shall include the return analysis noted above.

It is expected that reporting for private equity, private infrastructure, and private real estate will lag public

markets reporting by one or more quarters.

At least annually, Staff shall review the valuations applied to all investments for reasonableness. If a

valuation method applied to a material part of any portfolio is deemed to be improper or if Staff believes

that a significantly different valuation should be applied, Staff shall follow up with the relevant Investment

Manager. If Staff is unable to resolve any differences in opinion of reasonable valuation for the aggregate

portfolio, Staff may pursue independent valuations to the extent it is reasonable and cost-effective to do so.

Procedures to guide activities of Staff under this section shall be set forth in the IIP.

B. Performance Monitoring (Trust)

The primary implementation objective for the investment program is to obtain risk-adjusted net returns equal

to or greater than the adopted benchmark, including incremental returns that are proportionate to the

amount of additional risk (tracking error or other appropriate risk metric) assumed. Benchmark returns for

composite allocations, including those for the Trust overall, are weighted according to the strategic targets

set forth in the SAA parameters.

Specifically, the net return of the Trust shall aim to meet or exceed the Policy Benchmark. This benchmark

is intended to reflect a passive implementation of the parameters established by the Board during the SAA

process, and outperformance should represent the value added by investment implementation and risk

management activities. The Policy Benchmark is a composite of the performance benchmarks selected to

track the major asset classes target weighted for the strategic targets in the Strategic Asset Allocation.

The performance of the Trust and the Policy Benchmark may also be compared against the Passive Index.

This benchmark is intended to reflect the investment mix prevailing among institutional peer portfolios as

implemented via low-cost passive investable indices. Outperformance relative to this benchmark should

ERS Investment Policy Statement 23 Effective September 1, 2024

represent the value added through decisions made in the Strategic Asset Allocation process and should be

evaluated on a risk-adjusted basis. This index shall also serve as a baseline proxy for the market risk of

the Trust to account for the fact that substantial investments in illiquid assets produce a smoothing effect

on performance that tends to understate reported risk metrics such as volatility.

The baseline measurement period for achieving these outperformance objectives is five years, though

shorter and longer periods should also be considered. Each asset class benchmark should be reviewed

annually for potential adjustment and approval by the Board, with attention paid to the selection of the

constituent indices for continued relevance, applicability, and investability. These benchmarks are not

expected to change frequently, and such changes should reflect substantial changes in the long-term

market environment, composition changes in the benchmarks, and implementation changes by the Trust

or its institutional peers.

Similar to the total Trust, the performance objective of the asset class and sub-asset class composites is

to obtain risk-adjusted returns in excess of those of stated objectives and peer performance, as appropriate.

Active returns relative to the adopted benchmark returns are expected to exceed the cost of management

and be proportionate to the amount of risk assumed.

C. Performance Monitoring (Asset Classes)

The Board shall monitor the performance investment strategies of the Trust through discussions with Staff

and with assistance provided by the General Investment Consultant, as appropriate. Staff shall monitor the

performance of each investment strategy, including relative to strategy benchmarks approved by the

Executive Director, on an ongoing quarterly basis while retaining a long-term focus. Determinations

regarding termination could result from many potential scenarios, including but not limited to:

• Underperformance relative to benchmark over five years or other appropriate time period;

• Underperformance relative to peer group;

• Underperformance relative to the level of risk assumed;

• Substantial changes in assets under management (external advisors);

• Material changes to the Policy or objectives previously approved by the Board;

• Inconsistency between investment holdings and the stated strategy; and

• Lack of stability of the organization or high personnel turnover.

Recommendations for termination of an investment strategy shall be made by Staff to the CIO, who will

make a decision in consultation with the Executive Director.

D. Performance Reporting

Regular evaluation of Trust performance by the Board is necessary to monitor the effectiveness of the

investment program in meeting the strategic and implementation objectives of ERS. The purpose is to

assess effectiveness and to prompt a review of underperformance and excessive risk. All performance

measurement shall be based on total returns, net of expenses, adjusted for risk, as measured over a

sufficient time period to reflect the benefits of any active decisions (typically a minimum of three years and

preferably over five years or more).

Staff and the General Investment Consultant shall provide to the Board frequent updates regarding Trust

performance, as set forth below. These reports shall include a comparison to established benchmarks as

well as the investment performance of appropriate institutional peers. Such performance attribution

analysis shall quantify the extent to which specific allocations, strategies, and managers added to or

detracted from overall Trust performance.

These reports shall also include an annual performance-based review of investment expenses that includes

peer group or industry averages for the Trust and relevant asset classes, investment strategy type. Such

analysis should include an evaluation of expense levels for comparable internally and externally managed

strategies, as well as for comparable actively and passively managed strategies.

ERS Investment Policy Statement 24 Effective September 1, 2024

Such information shall be reported in writing to the Board and shall include:

• Monthly Reports

o A summary of Trust investment performance on an absolute and relative basis;

o The balance of all asset classes and any allocation changes during the period;

o A summary of Trust positioning across the policy asset classes; and

o A summary of investment performance for all asset classes.

• Quarterly Reports

o A summary of investment performance as described elsewhere in this Chapter;

o Summary risk metrics at the Trust level;

o Summary reports on each private market asset class; and

o A report on any violations of or material exceptions to this Policy, if applicable.

• Annual Reports

o A summary of Trust performance as described elsewhere in this Chapter;

o Asset class performance and related capital plans;

o A listing of all investment holdings in the Trust;

o A year-to-year comparison of the Trust’s investments;

o A summary, by broker, of the commissions on all stock transactions, the volume of directed

commission activity, and services funded;

o A summary, by broker, of all fixed income transactions;

o A review of trade costs, including analysis of the impact of commissions, fees, market impact,

and other direct or indirect expenses;

o A summary of securities lending performance;

o A report on the Trust’s liquidity levels, including the results of stress testing analysis;

o A report on methods, efforts, and results of ERS in hiring emerging investment service

providers, including data disaggregated by race, ethnicity, gender, and fund size;

o A summary of the proxy voting process for the year, including a summary of exceptions to the

ERS Proxy Voting Policy;

o A summary of performance for the assets managed on behalf of GBP; and

o A report on this Policy, including changes recommended by Staff, consultants, and the IAC.

All such reporting shall include other information requested by the Board from time to time.

E. Trade Execution and Commission Sharing

Staff shall allocate trades for the benefit and the best interest of the Trust based on the relative ability of

broker/dealers to add value to the Trust through: (a) products or services of benefit to the investment

program, such as research products or portfolio analytics that are used in ERS' investment decision-making

process; (b) trade execution; or (c) a commission sharing arrangement.

Trades allocated to a particular broker-dealer strictly for execution purposes shall be executed at

commission rates acceptable to ERS. All currency and security trade orders shall be placed with firms that

meet all of the requirements listed below, to the extent applicable to the specific firm.

• Firms shall be registered and in good standing with the U.S. Securities and Exchange Commission

(SEC);

• Firms and their designated agents shall be members in good standing with the Financial Industry

Regulatory Authority (FINRA);

• Firms and, to the extent required by law, their designated agents, shall be registered and in good

standing with the Texas State Securities Board;

ERS Investment Policy Statement 25 Effective September 1, 2024

• Firms shall demonstrate a proven and effective execution platform for institutional investors that

has been utilized by the firm for a minimum of three years; and

• Firms and their executing brokers and clearing agents shall each have minimum excess net capital

of $2,500,000.

In order for a firm to be approved or to remain approved, all information shall be provided to ERS upon

request and shall be satisfactory to ERS.

Firms used strictly as crossing networks may be exempt from these requirements with the approval of the

CIO. Notwithstanding the above, orders to effect currency exchanges may also be placed with a banking

institution as long as it has (1) at least a five-year history of serving institutional clients in this capacity and

(2) a high short-term debt rating from at least two nationally recognized statistical rating organizations.

ERS Investment Policy Statement 26 Effective September 1, 2024

Chapter VII: Code of Ethics

Code of Ethics and Personal Investment Activities

Texas Government Code § 815.213 requires that this Policy include a code of ethics that contains standards

of ethical conduct and disclosure requirements applicable to Trustees and ERS employees in the

administration of the investment program. The broad purpose of this section is to fulfill that obligation by

maintaining integrity in the oversight and management of ERS investments and by preventing the misuse

of material, non-public information. High ethical standards are essential to the success of ERS and the

fulfillment of its fiduciary duty to Beneficiaries.

Therefore, all “Covered Persons” shall be governed in their personal investment activities by this Policy, as

well as applicable state and federal laws. Covered Persons include all members of the Board, all members

of the IAC, the Executive Director, the Deputy Executive Director, and all ERS investment-related staff who

the Executive Director determines to have material access to confidential ERS investment trading

information. ERS investment-related staff include members of the following departments: Executive Office,

Investments, Information Systems, Finance, OGC, Internal Audit, Investment Compliance, and Records

and Information Management.

Covered Persons are subject to the ERS Insider Trading and Confidentiality Policy. Each such Covered

Person shall sign a yearly affirmation of compliance.

ERS “Restricted Persons” include the Executive Director, Deputy Executive Director, Investments staff, and

investment-related staff for whom additional restrictions are appropriate.

Restricted Persons are broken down into two component lists designated as either “Restricted Persons I”

or “Restricted Persons II.”

• The Executive Director and Investments staff are classified as “Restricted Persons I.”

• With regard to investment-related staff, ERS Investment Compliance (i) identifies investment-

related staff with either direct or indirect access to confidential ERS investment trading information

and (ii) provides the criteria, assigns numerical values, and tallies the final weights used for

measuring investment-related staff’s overall proximity to confidential ERS investment trading

information. Investment-related staff determined to have direct access and a greater proximity to

confidential ERS investment trading information will generally be designated Restricted Persons I,

while investment-related staff determined to have only indirect access and a lesser proximity to

confidential ERS investment trading information will generally be designated Restricted Persons II.

The Executive Director ultimately determines the classification for each member of investment-

related staff according to the Restricted Person’s access and overall proximity to confidential ERS

investment trading information.

ERS Investment Compliance shall maintain a quarterly updated list of all Covered Persons, Restricted

Persons I, and Restricted Persons II.

Restricted Persons I are subject to the Personal Transactions section below in its entirety. Each Restricted

Person I and Restricted Person II shall submit a quarterly affirmation of compliance with all applicable

portions of this Code of Ethics, including the Insider Trading and Confidentiality Policy (Addendum V).

The provisions of the Personal Transactions Policy do not apply to Trustees, IAC members, or Restricted

Persons II since they do not participate in the selection of publicly traded securities on behalf of ERS.

However, the Insider Trading and Confidentiality Policy does apply to Trustees, IAC members, and

ERS Investment Policy Statement 27 Effective September 1, 2024

Restricted Persons II. To the extent that Trustees and IAC members participate in the evaluation, review,

and approval of private market investments, they must certify that they shall not, either for themselves or

on behalf of any other person or entity, make investments in private investment funds in which ERS has

invested or for which they otherwise received confidential information.

Pursuant to Texas Government Code § 815.210, except for an interest in the Trust as a Beneficiary, a

Trustee or employee of the Board may not have a direct or indirect interest in the gains or profits of any

investment made by the Board and may not receive any pay or emolument for services other than the

person’s designated compensation and authorized expenses.

A. Standards of Conduct

As it relates to the investment activities of the Trust, Covered Persons frequently interact with other ERS

employees, Beneficiaries, colleagues within the investment profession, other participants in financial

markets, and members of the public. In these interactions, Covered Persons shall take care to act with the

highest levels of integrity and respect. When engaging in activities related to ERS, Covered Persons should

exercise independent professional judgment and shall adhere to the following principles:

• Understand and abide by all applicable laws, rules, and regulations, including ERS policies.

• Act in a manner that is consistent with the mission of ERS and the policies that are established to

support that mission.

• Act in good faith, with loyalty, and in the best interests of Beneficiaries.

• Act with judgment, prudence, and reasonable care.

• Avoid conflicts of interest, refrain from self-dealing, and refuse any gift that could reasonably be

expected to impair one’s loyalty.

• Act with diligence, competence, and skill.

• Review regularly the efficiency and effectiveness of the investment program in meeting its goals,

including the performance of service providers such as consultants and actuaries.

• Use reasonable care and judgment to achieve and maintain independence and objectivity in

activities related to ERS.

• Deal fairly, objectively, and impartially with all Beneficiaries.

• Maintain confidentiality of ERS information as required.

• Communicate with stakeholders in a timely, accurate, and transparent manner.

To support these principles and guide their implementation, standards of conduct tailored specifically to the

ERS investment program and applicable to Staff shall be incorporated by the Risk Committee into the

Investment Implementation Plan.

B. Personal Transactions

The requirements included in this section apply only to the Executive Director, Investments staff, and

investment-related staff to the extent and for so long as they are designated “Restricted Persons I” by the

Executive Director.

Restricted Persons I are required to disclose all applicable personal brokerage accounts and make all

related trade confirmations and account statements available to ERS Investment Compliance via direct

broker feed, when available, or otherwise by hard copy via U.S. mail. This disclosure requirement includes

all applicable fully managed accounts (i.e., where the broker has the sole discretion to transact and the

Restricted Person I or family member has no trading authority). Fully managed accounts are monitored but

are not subject to pre-clearance requirements.

All Restricted Persons I shall obtain the approval of the CIO or a designee appointed by the CIO prior to

making personal trades in applicable securities. Similarly, the CIO and the Executive Director shall obtain

ERS Investment Policy Statement 28 Effective September 1, 2024

pre-trade approval from Investment Compliance. Pre-trade approvals grant the Restricted Person I

permission to buy, sell, or trade options of the requested security from the time of receipt through the end

of following business day.

The pre-clearance requirement described above applies to trades of the following:

• Publicly traded equity and debt securities; and

• Derivative instruments of such securities, including without limitation, swaps, futures, and options.

The pre-clearance requirement set forth above does not apply to personal investments in:

• Certificates of Deposit (CDs);

• Open-end mutual funds;

• Closed-end funds;

• Trusts;

• Unit trusts;

• Closed-end trusts;

• Exchange-traded funds (ETFs);

• Exchange-traded notes (ETNs);

• Currencies;

• Physical commodities;

• U.S. Government obligations and debt;

• Municipal securities;

• Direct investments in digital assets or cryptocurrencies;

• Derivatives linked to the performance of any of the foregoing; and

• Less than $500.00 of any applicable security transacted over a rolling 30-day period.

Furthermore, the pre-clearance requirement described above does not apply to any acquisition or

disposition of any security that is not deliberate or willful on the part of the Restricted Person I, including

without limitation:

• the purchase or sale of any security that is effected in an account over which a Restricted Person

I has no direct or indirect influence or control;

• the acquisition of any security pursuant to a dividend reinvestment program;

• the acquisition of any security through a stock dividend, stock split, reverse stock split, merger,

consolidation, spin-off, or other similar corporate reorganization or distribution that is generally

applicable to all holders of the relevant class of securities;

• bona fide employee stock transactions by a family member related to their employment;

• the assignment or transfer of shares or other securities between accounts; and

• trades within fully managed accounts.

Pursuant to the Insider Trading and Confidentiality Policy, ERS maintains a list of restricted securities (the

“Restricted List”). The Restricted List includes securities of companies about which staff has received

material non-public information. Covered Persons are prohibited from trading in their personal accounts

securities of any issuer on the Restricted List for so long as the issuer remains on the list. It should be

noted that the Restricted List is separate and distinct from ERS’ statutory prohibitions on transactions in

scrutinized companies (see Scrutinized Investment Program Procedures, Addendum II).

"Personal Trades" means:

• a transaction for a Restricted Person I's own account, including a retirement or self-directed account

(e.g., an IRA), in which the Restricted Person I has direct or indirect influence or control over the

timing of the trade of the security or derivative on a security, and

ERS Investment Policy Statement 29 Effective September 1, 2024

• a transaction for an account in which a Restricted Person I has indirect beneficial ownership (any

interest in which a person indirectly has or shares a pecuniary interest) or direct or indirect influence

or control or discretion over the timing of the trade of the security or a derivative on a security.

Indirect beneficial ownership applies to accounts held by immediate family members. “Immediate

family member” means a Restricted Person I’s spouse, minor children, adults residing with such

Restricted Person I, and any trust or estate in which such Restricted Person I or any other member

of his/her immediate family is a trustee or has a substantial beneficial ownership interest unless

such Restricted Person I or other member of his/her immediate family has fully delegated all

authority over such accounts and, therefore, does not control or participate in the investment

decisions of such trust or estate.

To allow for automation of the compliance monitoring process, Restricted Persons I may be required to

maintain covered accounts at securities firms that have electronic connectivity with the software system

used by ERS.

Front running is prohibited, and these preclearance requirements for personal trades are intended to

prevent front running. For purposes of this section of this Policy, "front running" occurs when a Restricted

Person I buys or sells a security or a derivative on a security for personal financial gain or the financial gain

of a third party other than ERS with advance knowledge of a similar ERS decision or recommendation to

buy or sell a security or a derivative on a security.

Obtaining preclearance for a personal trade does not prevent the transaction from constituting front running

under this Policy if the Restricted Person I knows or should have known that a recommendation or decision

for ERS to trade a security or a derivative on the security is pending or has been made but an order to trade

has not yet been communicated to the ERS trading desk. All Restricted Persons I assume the risk of a

conflict or violation of this Policy by initiating any personal transaction that may be covered under this Policy

despite any lack of intent by the individual to violate this Policy. A determination that this Policy was violated

may be based on circumstantial evidence of such intent.

A Restricted Person I shall not delay, hinder, modify, or cancel any internal ERS recommendation, decision,

or trading order with the intent to facilitate a personal trade. Restricted Persons I also shall not personally

participate in private market investment transactions that benefit from action taken by ERS, including the

purchase or receipt of primary shares in a pending initial public offering (IPO). Exceptions to this rule

include the receipt of IPO shares from a stock dividend on shares already owned, demutualization of a

company in which the individual is already an interested party, and as a result of a family member’s

employment by an IPO issuer.

All Restricted Persons I shall report on a quarterly basis regarding all personal investment activities.

Similarly, Investment Compliance shall report to the Internal Auditor, Chief Investment Officer, and Deputy

Chief Investment Officer on a quarterly basis regarding all personal investment activities. An internal

investigation shall be promptly conducted into any questionable trade for technical violations of this Policy.

If a technical violation is deemed material, Investment Compliance shall document the violation in the

quarterly investment compliance status report.

Potential violations of the pre-clearance requirements within this Policy shall be reviewed on a post-trade

basis. As part of this review, any transaction that was placed in a manner that was technically not in

compliance with the above criteria for “broad-based” securities indices shall be flagged, and Investment

Compliance shall determine whether or not said technical violation constitutes a material violation of this

Policy, in consideration of any evidence of front running, insider trading, or intent to violate policy.

If it is determined that a Restricted Person I has materially violated this Policy, that individual may be

required to reverse the transaction at their expense and disgorge all profits. The individual may also be

subject to the full range of disciplinary actions under the ERS Personnel Policy and Procedure Manual, may

ERS Investment Policy Statement 30 Effective September 1, 2024

be excluded from participation in the Incentive Compensation Plan as outlined in the relevant plan

document(s), and may be reported to applicable regulatory or law enforcement agencies when appropriate.

C. Gifts, Benefits, and Favors

In accordance with Chapter 36 of the Texas Penal Code, Covered Persons shall not solicit, accept, or agree

to accept any gift, personal benefit, or personal favor in connection with their employment at ERS. The

terms “gift,”, “personal benefit,”, and “personal favor” include, without limitation, anything reasonably

regarded as pecuniary gain or pecuniary advantage, including gifts or other economic benefits to any other

person in whose welfare the Covered Person has a direct and substantial interest.

This prohibition does not apply to the following, which may be accepted:

• gifts of books, pamphlets, articles, and other such materials that contain information directly related

to and used in performing the official ERS duties of the individual (provided that such items are less

than $50.00 in value);

• gifts of nominal value (non-cash items of less than $50.00 in value), modest items of food and

refreshments on infrequent occasions so long as the donor is present, unsolicited advertising or

promotional material, and other items of nominal intrinsic value;

• a fee prescribed by law to be received by an individual or any other personal benefit to which the

individual is lawfully entitled or which is given as legitimate consideration in a capacity other than

the individual’s position with ERS; or

• a gift or other personal benefit conferred on account of kinship or a personal, professional, or

business relationship independent of the official status of the individual’s position with ERS.

Gifts, personal benefits, and personal favors provided to investment staff are managed by the Chief

Investment Officer’s office. Gifts, personal benefits, and personal favors provided to non-investment staff

are managed by the Executive Office.

Covered Persons shall not accept non-exempt gifts of $50 in value or greater received by mail. Non-exempt

gifts of $50 in value or greater received by mail that cannot reasonably be returned will be donated or

otherwise dispensed by the managing office.

Covered Persons are required to disclose all gifts, personal benefits, and personal favors to the managing

office. Covered Persons are further required to reaffirm all gifts, personal benefits, and personal favors on

a quarterly basis with Investment Compliance.

Notwithstanding the foregoing, absolutely no gifts, personal benefits, or personal favors may be accepted

from Placement Agents, as defined in Addendum IV.

D. Attendance at Business Meetings/Functions

Covered Persons are prohibited from accepting invitations to functions, the costs of which will be borne by

brokers, dealers, corporations, or the Trust’s master trust custodian, consultants, or external advisors

(donors) except as provided herein.

• Covered Persons may accept invitations, including meals, transportation, and lodging to seminars

and conferences when such event has a presentation or discussion of topics pertinent to the

investment of the Trust’s assets or relates to the official ERS duties of the individual and is not

otherwise prohibited by law. This exception applies only where the services rendered by Covered

Persons are more than merely perfunctory, such as when Staff speak at or actively plan the seminar

or conference, and only with specific approval in advance from the CIO.

ERS Investment Policy Statement 31 Effective September 1, 2024

• Covered Persons may accept invitations, including meals and ground transportation, to receptions

and business meals when the donor or a representative of the donor is present and such event has

a presentation or discussion of topics pertinent to the investment of the Trust’s assets or relates to

the official ERS duties of the individual and is not otherwise prohibited by law.

• The prohibition does not apply to the acceptance of meals, transportation, and lodging in

connection with private market advisory committee meetings, seminars, and conferences, where

the services rendered by Staff are more than merely perfunctory.

• Attendance by Covered Persons at events sponsored by donors that may incidentally involve

entertainment or recreation may in some cases be in the best interest of ERS. However, Staff shall

obtain specific approval in advance for their attendance at such events from the CIO. The CIO

shall obtain such approval from the Deputy Executive Director. This approval will not be given for

elaborate or expensive events.

• All persons to whom this Policy applies shall use reasonable care and judgment not to place

themselves in a situation that might cause, or be perceived to cause, a loss of independence or

objectivity.

E. Conflicts of Interest

All Covered Persons who become aware of a personal conflict of interest that affects their duty owed to

ERS have an obligation not only to disclose that conflict but also to cure it. Listed below are examples of

conflicts of interest that shall be avoided:

• Covered Persons may not under any circumstances accept offers, by reason of their service,

relationship, or employment with ERS, to trade in any security or other investment on terms more

favorable than those available to the general investing public or, in the case of private market

investments, a similarly situated investor.

• Covered Persons may not participate in outside employment or business activities where the

activity interferes with the efficiency of the individual’s performance of, or could be considered to

be in conflict with, the individual’s service, relationship, or employment with ERS, unless such

outside employment or business activities have previously been disclosed and approved. The

Executive Director will provide such approval in the case of ERS investment-related staff, the

Deputy Executive Director, and IAC members, and the Board will provide such approval in the case

of the Executive Director or a Trustee.

• ERS may not enter into a contract with a former ERS Executive Director for four years after such

former ERS Executive Director leaves ERS, or with a person or entity that employs such former

ERS Executive Director, unless the Board approves the contract and otherwise complies with

Texas Government Code § 669.003.

• A person may cure a conflict of interest by promptly addressing it in the following manner. If the

person may prudently withdraw from action on a specific issue in which a conflict exists, the conflict

may be cured in that manner provided that:

o the person may be and is effectively separated from influencing the action taken;

o the action may properly be taken by others; and

o the nature of the conflict is not such that the person shall withdraw regularly and

consistently from decisions that are normally the person’s responsibility with respect to

ERS Investment Policy Statement 32 Effective September 1, 2024

ERS. Trustees and IAC members shall disclose any conflict regarding matters that are

before the Board or IAC and not vote on the matter.

F. Market Manipulation

Covered Persons may not engage in market manipulation, including practices that intend to mislead

market participants by distorting prices or artificially inflating trading volume.

G. Use of Placement Agents

See Addendum IV for Placement Agent and Political Contributions Policies and Procedures.

H. Insider Trading and Confidentiality

See Addendum V for the Insider Trading and Confidentiality Policy.

I. Ethics Training

All Covered Persons shall receive periodic ethics training at least annually.

J. Compliance and Enforcement

• The Board will enforce this Policy through the Executive Director, who is responsible for its

implementation with respect to all staff, the Deputy Executive Director, and IAC members.

• The full range of disciplinary options under the ERS Personnel Policy and Procedure Manual

may be used with respect to employees of ERS who violate this Policy, up to and including

termination.

• The Board is responsible for the enforcement of this Policy with respect to violations by

individual Trustees or the Executive Director through resolutions of reprimand, censure, or

other appropriate parliamentary measures, including requests for resignation.

• Any Covered Person with knowledge of a violation of this Policy shall report such violation to

OGC and Investment Compliance. No retaliatory action will be taken for any such report made

in good faith.

• A violation of this Policy may be reported to applicable regulatory or law enforcement agencies

when appropriate.

• Anyone scrutinizing a transaction or issue for compliance with this Policy and applicable laws

will be undertaking such review after the fact, with the benefit of hindsight. As a practical

matter, before engaging in any transaction, an individual should carefully consider how the

Executive Director, OGC, Investment Compliance, Internal Auditor, state and federal

enforcement authorities, and others might view the transaction or issue in hindsight.

ERS Investment Policy Statement 33 Effective September 1, 2024

Chapter VIII: Funds of the Texas Employees Group Benefits Program

This section defines the investment objectives and guidelines for the assets of the Texas Employees Group

Benefits Program (GBP) administered by ERS for the benefit of GBP participants.

A. Purpose and Authority

On September 1, 1976, the Uniform Group Insurance Program (UGIP) for state employees (Article 3.50-2,

Texas Insurance Code) began operation. In 2001, the UGIP was replaced by the GBP, later codified in

2003 in Chapter 1551 of the Texas Insurance Code as the Texas Employees Group Benefits Act (the Act).

The purposes of the Act are specified under Section 1551.002.

The Act establishes the structure, scope, eligibility and participation provisions of the GBP as well as certain

mandatory benefits. Section 1551.051 of the Act vests sole authority in the Board for the administration

and implementation of the GBP.

Current programs administered for active employees under the GBP include:

• Health Insurance, including Prescription

Drug Coverage

• Dental Insurance

• Voluntary Accidental Death &

Dismemberment (AD&D) Insurance

• Short-term and Long-term Disability

Insurance

• Vision Insurance

• Basic Term Life Insurance

• Optional Term Life Insurance

• Dependent Term Life Insurance

• Flexible Spending Accounts (FSAs)

• Health Savings Accounts (HSAs) for participants

in Consumer Directed HealthSelect

The Act authorizes the Board to provide these life, accident, and health programs through coverage

purchased from an eligible insurance carrier or through self-funding directly from the Employees Life,

Accident and Health Insurance and Benefits Fund. The Board has adopted the Texas Employees Group

Benefits Program Policy and Guidelines (GBP Policy) with the goal of offering competitive benefits at a

reasonable cost. The GBP Policy applies to the basic term life and health insurance programs funded

through the legislative appropriation process, but it does not apply to any of the optional or voluntary benefit

plans.

In 2007, the GBP was separated into two funds (Active and Retiree) due to the implementation of GASB

43. Since that time, funds for retired members and their dependents have been in a fiduciary fund named

the State Retiree Health Plan (SRHP). Through the GBP via the SRHP, ERS provides postemployment

health care, dental, basic life, and optional life insurance benefits to retired employees of the state and

other entities as specified by the Texas legislature.

The SRHP is funded on a pay-as-you-go basis as an Other Post-Employment Benefit Plan that does not

accumulate significant assets, and which is treated as a fiduciary fund for financial reporting purposes.

Other such fiduciary funds that may hold investments but do not accumulate significant assets include the

State Employees Cafeteria Plan Trust Fund (TexFlex).

B. Contingency Reserve Fund

Section 1551.211 of the Act requires ERS to establish a Contingency Reserve Fund (CRF) for self-funded

GBP coverage plans and, prior to the first day of each fiscal biennium, deposit into the CRF an amount

equal to 60 days of estimated average expenditures for those plans. This Statutory Reserve Requirement

(SRR) aims to provide for adverse fluctuations in claims and administrative expenses.

ERS Investment Policy Statement 34 Effective September 1, 2024

Section 1551.211 of the Act requires the Board to include in each request for legislative appropriations for

the GBP the amount deemed necessary to maintain the CRF at the SRR level. To do so, the Board shall

estimate the required expenditures that are anticipated for self-funded GBP coverage plans, considering

projected claims and administrative expenses for those plans over an average 60-day period during the

upcoming biennium.

Section 1551.401 of the Act addresses the Employees Life, Accident, Health Insurance & Benefits Fund

and makes that fund available for all GBP coverage. As such, claims and administrative costs for self-

funded GBP coverage (e.g., HealthSelect plans) are paid out of that fund and the CRF is maintained within

that fund. To account for assets and liabilities associated with that fund, ERS uses a single Internal Service

Fund that is categorized for financial reporting purposes as a proprietary fund.

Based on the funding mechanism set forth in the Act and described above, the GBP is not expected to

accumulate funds significantly in excess of the SRR over the long term. As such, the GBP Policy

establishes a guideline for ERS to consider the use of contingency funds in excess of the SRR to:

• Offset future legislative appropriations requests and related contribution increases. Any such

benefit subsidies should be applied over multiple biennia in order to avoid requesting double-digit

rate increases when the excess is exhausted.

• Fund benefit design changes and/or implement programs with low, reliably predictable costs that

are not expected to necessitate requests for additional state funding in subsequent years.

The GBP Policy requires the Board to consider an increase in member cost share at the beginning of the

fiscal year if such increase would be necessary to maintain a projected CRF balance of at least 15 days of

expenditures for self-funded plans at the end of the biennium for which the Legislature has appropriated

funding. To facilitate this process, Staff shall report to the Board no less frequently than annually the

balance of funds managed on behalf of the GBP and provide the Board with an estimate of the level of

funds significantly in excess of the SRR, if any.

C. Investment Objectives

The Act allows the Board to invest and reinvest any portion of GBP funds under the standard of care

provided by Texas Government Code § 815.307, including a consideration of the functional need to provide

for adverse fluctuations in claims and administrative expenses. The strategic objective of the Investment

program for managing GBP funds is to deliver performance that supports the current and future provision

of benefits for GBP participants. The Act requires that the interest on, earnings of, and proceeds from the

sale of GBP investments be credited to GBP.

• Except for cash held in the state treasury, the investments of the Employees Life, Accident, Health

Insurance & Benefits Fund are consolidated within the Investments pool fund. For the purposes of this

Policy, these funds shall be known as the Insurance & Benefits Fund (IBF). The strategic objective of

the investment program for the IBF is to:

o earn returns consistent with the assumptions used to discount projected benefit payments to

their actuarial present value, and

o provide for the timely payment of claims and the prudent management of interest rate risk and

credit risk.

This objective is achieved by delivering investment returns that are consistent with the actuarial

discount rate while ensuring sufficient liquidity to meet the cash flow needs of the GBP both timely and

ERS Investment Policy Statement 35 Effective September 1, 2024

consistently. This return target can be benchmarked by the Bond Buyer Index for 20-year, tax-exempt

general obligation bonds rated AA/Aa (or equivalent) or higher.

• The SRHP is funded on a pay-as-you-go basis and it is not expected to accumulate significant funds.

Any funds managed on behalf of the SRHP shall be referred to as the Retiree Health Fund (RHF) for

the purposes of this Policy. For the RHF and the other fiduciary funds described above, the strategic

objective of the investment program shall be to provide ample liquidity at all times. As such, all funds

in the RHF shall be invested in cash and benchmarked against 90-day Treasury bills.

The implementation objective for the Investment program as it relates to the IBF and the RHF is to obtain

overall investment returns over rolling five-year periods that are in excess of the adopted policy benchmark.

The adopted policy benchmark for the IBF and the RHF shall be the average of the asset class benchmarks

set forth in Chapter IV of this Policy weighted according to the strategic targets set forth below.

D. Asset Allocation

To fulfill these objectives, the asset class positioning of the IBF and the RHF shall adhere to the allocation

parameters set forth below. Use of these allowable ranges for the IBF shall be calibrated to the level of

excess funds in the IBF such that liquidity is maximized as the funding level approaches the SRR.

TABLE 5 – STRATEGIC TARGETS AND TACTICAL RANGES

INSURANCE & BENEFITS FUND

Asset Class

Strategic

Target

Tactical

Minimum

Tactical

Maximum

Public Credit

10%

30%

Private Credit

10%

Rates

40%

70%

Cash & Equivalents

50%

70%

Global Total

100%

RETIREE HEALTH FUND

Asset Class

Strategic

Target

Tactical

Minimum

Tactical

Maximum

Cash & Equivalents

100%

Global Total

100%

The authority that is delegated to Staff for rebalancing the IBF and the RHF shall be the same as set forth

in Chapter IV of this Policy and shall be exercised with the same level of diligence and care. Performance

reporting for the IBF and the RHF shall be as specified for GBP in Chapter VI of this Policy. On an annual

basis and as otherwise requested, Staff shall apply capital market assumptions to the targets above in order

to estimate the expected rate of return for the IBF and the RHF. This process aims to assist the GBP

actuaries in setting actuarial assumptions for investment income and other such efforts to manage the GBP

programs.

E. Unit Trust Accounting

In order to provide flexibility of asset allocation and effectively invest in a diversified manner, the Board

directed the implementation of investment unit trust accounting. The Trust implemented unit trust

accounting in 2006 and the IBF did so on January 1, 2009.

ERS Investment Policy Statement 36 Effective September 1, 2024

Unit trust accounting involves assigning units to each fund based on the share of that fund’s investment fair

value to the total fair value of the consolidated investments. Investment earnings and appreciation increase

the per unit value of all participating funds. Investment earnings or losses and fees for the total consolidated

fund are allocated to each of the participating funds on a daily basis using the pro rata share of fair value.

Deposits and withdrawals for each fund change the number of units held by each fund. All changes are

recorded at the unit value that is calculated for the transaction date. The custodian bank prepares

consolidated statements that detail all of the unit trust accounting activity.

ERS Investment Policy Statement Addendum I – Page 1 Effective September 1, 2024

EMPLOYEES RETIREMENT SYSTEM OF TEXAS

PROXY VOTING POLICY

(Effective February 22, 2011)

OBJECTIVE

The right to vote proxies for securities held by the Employees Retirement System of Texas (ERS) has

economic value, and the fiduciary act of prudently managing ERS’ securities includes the management of

voting rights appurtenant to those securities. In voting proxies, ERS shall consider only those factors that

relate to the economic value of ERS’ investment, and such votes should be cast in accordance with the

Trust’s economic best interest. In the case of overlapping or conflicting interests within the fund (e.g., ERS

ownership of both equity and debt securities), Staff will consider all holdings and seek to maximize the

expected value of the combined position.

The objective of this policy is to provide direction in voting proxies in a manner that gives the most benefit

to the Trust Beneficiaries and is consistent with the stated goals and objectives of ERS. The objective of

this policy will be accomplished by voting proxies:

• To ensure that management and boards of directors are acting in the best interest of ERS as

a shareholder;

• To ensure compliance with all local laws and regulations of countries in which the company

does business; and

• To ensure accountability to shareholders, board responsiveness, board independence and

director competence.

SCOPE

The ERS Proxy Voting Policy is designed primarily to cover publicly traded securities. Other investment

forms, such as private funds, limited liability corporations, privately held REITs, and bond indentures, are

not specifically covered by this policy; although, broad application of this policy can be used for these more

specialized forms of equity and debt investments when needed. Proxy voting policies will be applied to the

fullest extent possible for companies domiciled in foreign countries, recognizing that differences in

jurisdiction may make it impractical to follow this policy exactly.

ERS may retain an independent third party proxy administrator to assist in voting proxies. ERS maintains

voting authority for proxies of both the internally managed public equity portfolios and the externally advised

public equity portfolios in the External Advisor Program, which will be voted in accordance with the ERS

Proxy Voting Policy and ERS Proxy Voting Guidelines. Voting authority for proxies of the public equity

portfolios that are investments of a limited partnership in which ERS is the sole limited partner will be

specified in the governing documents of the respective limited partnerships.

Because ERS conducts a securities lending program, securities may be on loan when proxies must be

voted. Lent securities will be recalled for purposes of voting proxies only when it is determined that the

proxy requires a vote on a merger, an acquisition, a reorganization or an issue that will significantly affect

the rights of ERS as a shareholder. Recalling lent securities for proxy voting purposes is expected to

represent the exception rather than the general rule.

PROXY VOTING STRATEGIES

The policy classifies management and shareholder proposals included in proxies into six strategies:

Routine/Miscellaneous, Board of Directors, Shareholder Rights and Defenses, Capital/Restructuring,

Compensation, and Social/Environmental Issues. The ERS Proxy Voting Guidelines are consistent with

ADDENDUM I

ERS Investment Policy Statement Addendum I – Page 2 Effective September 1, 2024

the strategies outlined below and provide further detail on voting proposals most likely to be presented in a

proxy.

1. ROUTINE/MISCELLANEOUS

Routine and miscellaneous items concern company standard operating procedures including, but not

limited to: routine bylaw amendments, changes to the company name, and changes in the date, time and

location of the annual meeting, auditor ratification, adjournment of the meeting and “other business.”

Operational issues proposed by management will be supported unless ERS’ review of proposals reveals

attempts to limit shareholder rights, increase takeover protections or reduce shareholder value.

Auditor independence from client firms is essential to achieve an objective and impartial review of financial

statements. Independence of other professional service providers, such as actuaries and law firms, is also

essential to companies receiving objective and impartial service and advice. Proposals to indemnify or limit

the liability of auditors or other similar service providers will be opposed. Proposals to limit non-audit

services will be supported.

2. BOARD OF DIRECTORS

The composition and structure of the board of directors of a public company (board) have a direct impact

on its effectiveness. Votes on the composition of the board, including director nominees and slates of

directors, will be evaluated on a case-by-case basis considering the following important elements of an

effective board:

• Board Accountability: The board should be accountable to shareholders. Policies that promote

accountability include transparency of governance practices, annual board elections, shareholder

ability to remove problematic directors and shareholder vote on takeover defenses and other

charter/bylaw amendments.

• Board Responsiveness: The board should be responsive to shareholders, particularly in regard

to shareholder proposals that receive a majority vote and to tender offers where a majority of shares

are tendered.

• Director Independence: The board should be independent from management and should be,

therefore, willing and able to effectively set company strategy and scrutinize performance and

executive compensation. The audit, compensation, and nominating/corporate governance

committees should be composed entirely of independent directors.

• Director Competence: Directors should have specific skills or expertise that add value to the board

and should devote sufficient time and resources to oversight of the company. Directors who are

unable to attend board and committee meetings or who serve on too many boards) raise concern

as to their ability to serve shareholder interest effectively. Arbitrary limits such as age or term limits

may not be effective measures of director performance or competence. Votes on management

and shareholder proposals regarding board structure will be cast to promote board accountability,

responsiveness to shareholders, board independence and director competence.

3. SHAREHOLDER RIGHTS AND DEFENSES

Shareholder rights and defenses items pertain to anti-takeover devices and the proxy voting process. The

majority of historical evidence regarding individual corporate anti-takeover devices indicates that

companies with management teams more accountable to shareholders and the market outperform

companies with heavily entrenched management teams. Proposals designed to instate or increase

takeover protection or that eliminate, restrict or inhibit shareholder rights will be opposed.

ERS Investment Policy Statement Addendum I – Page 3 Effective September 1, 2024

Proposals that promote a one-share, one-vote standard and the equal treatment of all shareholders will be

supported.

The integrity of the proxy voting process depends on a voting system that protects voters from potential

coercion and reduction of voting power. Proposals that provide a shield against management pressure, re-

solicitation and fraudulent vote tabulation will be supported.

4. CAPITAL/RESTRUCTURING

Proposals involving capital raises, debt restructurings, spin-offs, asset sales and purchases and mergers

and acquisitions will be evaluated on a case-by-case basis.

Financing decisions can have a significant impact on shareholder value when they involve the issuance of

additional common stock, preferred stock or debt facilities. Financing proposals will be opposed that dilute

investment value or include potential anti-takeover measures.

Restructuring proposals where the disadvantages of dilution of future earnings and/or change of control

outweigh the prospective survival of the company will be opposed.

Proposals relating to real or potential mergers and acquisitions, asset sales and purchases, spin-offs and

tender offers will be analyzed to determine their effect on ERS. Any proposal, response by management

or outside interests deemed to be detrimental to ERS will be opposed. Those management proposals

where existing shareholders receive fair remuneration or shareholder value is increased will be supported.

5. COMPENSATION

Proposals involving executive and director compensation programs will be evaluated on a case-by-case

basis for adherence to the following five global principles:

• Maintain appropriate pay-for-performance alignment, with emphasis on long-term

shareholder value. Compensation should be designed to attract, retain and appropriately

motivate key employees. The link between pay and performance, the mix between fixed and

variable pay, performance goals and equity-based plan costs should all be considered.

• Avoid arrangements that risk “pay for failure.” Long or indefinite contracts, excessive

severance packages and guaranteed compensation should be avoided.

• Maintain an independent and effective compensation committee.

• Provide shareholders with clear, comprehensive compensation disclosures.

• Avoid inappropriate pay to non-executive directors. Excessive compensation could

potentially compromise an outside director’s independence and ability to make appropriate

judgments with respect to management pay and performance.

Management and shareholder proposals that fail to meet these guiding principles will be opposed.

6. SOCIAL/ENVIRONMENTAL ISSUES

Intangible factors such as social and environmental issues are increasingly being incorporated into

valuation models to better quantify the risks and opportunities of long-term investing in a company. ERS’

voting of social and environmental proposals will be based solely on enhancing or protecting long-term

value to ERS and not on establishing or endorsing any social, political or ideological interests. As part of

its fiduciary duty, ERS shall consider only those factors that relate to the economic value of ERS’ investment

and shall not subordinate the interests of Beneficiaries to unrelated objectives.

ERS Investment Policy Statement Addendum II – Page 1 Effective September 1, 2024

SCRUTINIZED INVESTMENTS PROGRAM POLICY

A. Introduction

This policy addresses ERS holdings in securities in which investment may be prohibited and divestment

may be required pursuant to applicable state or federal law. Implementation procedures shall be

reviewed by OGC and Investment Compliance and approved by the Executive Director.

B. Identification of Scrutinized Investments

Statutes relating to Scrutinized Investments provide that a designated state or federal government

agency (“Applicable Agency”) will prepare and publish on a periodic basis a list of companies in which

investment may be prohibited, and divestment may be required, pursuant to the applicable law (the

“Listed Companies”). The Applicable Agency generally will make such lists publicly available and

update them on at least an annual basis. Since such laws generally provide different restrictions for

direct investment in Listed Companies and indirect investment in Listed Companies, that distinction

shall be observed for all activities related to these procedures.

C. Procedures for Scrutinized Investments

• Promptly upon receipt of a list of Listed Companies, investment staff will compare this information

to its internal holdings and coordinate with external investment managers to determine whether any

Listed Company is owned either directly or indirectly by the Trust.

• To the extent that investment staff identifies portfolio holdings that are Listed Companies,

Investment Compliance will coordinate notification of applicable government officials and agencies

in accordance with statutory requirements.

• In addition, to the extent that the applicable law directs ERS to engage with Listed Companies

regarding scrutinized business activities, investment staff will coordinate engagement with such

Listed Companies.

• This review and notification process will be completed by investment staff and overseen by

Investment Compliance.

D. Analysis of Scrutinized Investments

• Promptly upon determination that the Trust holds securities of a Listed Company, investment staff

will review and analyze the role that each security fulfills in the Trust’s investment program in order

to determine the impact of the removal of that security from the Trust. Such an assessment shall

be based solely on the economic value of the security within the Trust and its constituent portfolios,

taking into consideration ERS policies, the Board’s constitutional fiduciary duty and exclusive

benefit rule, and the transaction costs associated with divestment. Other relevant criteria may

include, without limitation, the diversification characteristics of the security in the portfolio(s),

including its relative value and relative risk characteristics, and the economic impact to the Trust of

substituting other securities as may be necessary.

• To the extent required by applicable law, following the analysis set forth above, investment staff

will cause the Trust to divest of all Listed Companies from all portfolios for which doing so would

not be expected to have an adverse impact that is material from the perspective of the performance

objectives prescribed by the Board. Divestment will be executed in an orderly fashion in keeping

with fiduciary duty to the Trust and any divestment timing requirements set forth in applicable law.

ADDENDUM II

ERS Investment Policy Statement Addendum II – Page 2 Effective September 1, 2024

• In the event investment staff determines that divestment from a security of a Listed Company would

have a significant adverse impact on one or more portfolios, investment staff will advise the CIO

and present the analysis supporting that conclusion. The CIO and relevant investment staff will,

after consultation with OGC, make a recommendation to the Executive Director to determine how

to proceed, taking into account the fiduciary duty of ERS to manage the Trust in a prudent manner

in accordance with subsection (3) of Art. XVI, Section 67 of the Texas Constitution.

• In the event investment staff reasonably believes that it would be in the best interests of the Trust

or its constituent portfolios to initiate a new purchase of securities of a Listed Company, investment

staff will notify the CIO, who will follow the process set forth) above for divestment decisions.

E. Ongoing Monitoring and Reporting

ERS will follow all requirements related to ongoing monitoring and reporting of its holdings in the

securities of Listed Companies. Such requirements may include periodic engagement with Listed

Companies regarding their active scrutinized business activities, providing notice of Listed Company

holdings to relevant government agencies and officials in accordance with relevant laws, and reporting

to ERS senior staff and the Board the status of holdings in Listed Companies. Investment Compliance

will be responsible for ensuring that investment staff provide all relevant reporting and meet all pertinent

deadlines in this regard.

ERS Investment Policy Statement Addendum III – Page 1 Effective September 1, 2024

STATUTORY DEFINITION OF “SECURITIES”

Pursuant to Texas Government Code § 815.301(f), the term “securities” means any investment instrument

within the meaning of the term as defined by Texas Government Code Section 4001.068, 15 U.S.C. Section

77b(a)(1), or 15 U.S.C. Section 78c(a)(10), which includes:

Texas Government Code Section 4001.068 – The Securities Act:

Sec. 4001.068. SECURITY.

(a) The term “security”:

(1) includes:

(A) a limited partner interest in a limited partnership;

(B) a share;

(D) a treasury stock;

(E) a stock certificate under a voting trust agreement;

(F) a collateral trust certificate;

(G) an equipment trust certificate;

(H) a preorganization certificate or receipt;

(I) a subscription or reorganization certificate;

(J) a note, bond, debenture, mortgage certificate, or other evidence of indebtedness;

(K) any form of commercial paper;

(L) a certificate in or under a profit sharing or participation agreement;

(M) a certificate or instrument representing an interest in or under an oil, gas, or mining

lease, fee, or title;

(N) a certificate or instrument representing or secured by an interest in any of the capital,

property, assets, profits, or earnings of a company;

(O) an investment contract; and

(P) any other instrument commonly known as a security, regardless of whether the

instrument is similar to another instrument listed in this subsection; and

(2) applies regardless of whether the security is evidenced by a written instrument.

(b) “Security” does not include an insurance policy, endowment policy, annuity contract, or optional annuity

contract, or any contract or agreement in relation to and in consequence of any such policy or contract,

issued by an insurance company subject to the supervision or control of the Texas Department of Insurance

when the form of such policy or contract has been filed with the department as required by law.

15 U.S.C. Section 77b(a)(1) – 1933 Act:

The term “security” means any note, stock, treasury stock, security future, security-based swap, bond,

debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement,

collateral-trust certificate, preorganization certificate or subscription, transferable share, investment

contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas,

or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or

group or index of securities (including any interest therein or based on the value thereof), or any put, call,

straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or,

in general, any interest or instrument commonly known as a “security”, or any certificate of interest or

participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe

to or purchase, any of the foregoing.

ADDENDUM III

ERS Investment Policy Statement Addendum III – Page 2 Effective September 1, 2024

15 U.S.C. Section 78c(a)(10) – 1934 Act:

The term “security” means any note, stock, treasury stock, security future, security-based swap, bond,

debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other

mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription,

transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put,

call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities

(including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege

entered into on a national securities exchange relating to foreign currency, or in general, any instrument

commonly known as a “security”; or any certificate of interest or participation in, temporary or interim

certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not

include currency or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the

time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the

maturity of which is likewise limited.

ERS Investment Policy Statement Addendum IV – Page 1 Effective September 1, 2024

PROXY VOTING PO

AGT AND POLITICAL CONTRIBUTIONS POLICIES

PLACEMENT AGENT AND POLITICAL CONTRIBUTIONS

POLICIES AND PROCEDURES

Purpose and Scope

ERS recognizes that Placement Agents work to establish dialogue and facilitate communication

between private investment funds and investors. However, ERS requires transparency and

accountability of the roles Placement Agents play in sourcing investment opportunities to be offered

to ERS. To this end, ERS’ Placement Agent and Political Contributions Policies and Procedures

(these “Policies and Procedures”) require (a) the broad, timely, and updated disclosure of all

Placement Agent relationships (b) certain practices by Funds with respect to Placement Fees.

Furthermore, these Policies and Procedures also apply to attempts to influence ERS investment

decisions through contact with members of the Board of Trustees or IAC or contact with, or

Contributions made for the benefit of, Texas Elected Officials.

The goals of these Policies and Procedures are to help ensure that ERS investment decisions are

made exclusively on the merits of the investment opportunity by individuals who owe a fiduciary

duty to ERS and to ensure that all investment decisions and recommendations are free from

improper influence or the appearance thereof. Any capitalized terms used but not defined herein

have the meanings ascribed to such terms in the ERS Investment Policy.

Required Disclosures

Consultants: These Policies and Procedures apply to all third party consultants assisting in the

diligence on any Fund in which ERS invests or is considering investing. The contractual agreement

between ERS and each consultant shall contain representations and warranties acceptable to ERS

regarding such consultant’s relationships with any placement agent, and the contractual agreement

shall further contain requirements acceptable to ERS regarding disclosures regarding placement

agent relationships and other ethical issues that shall be made by the consultant to ERS in

connection with its work for ERS on any Fund prior to making a recommendation on that Fund.

Funds: These Policies and Procedures also apply to all Funds in which ERS invests. Any Fund in

which ERS is considering investing shall submit to ERS a disclosure statement stating whether the

Fund has engaged a Placement Agent and whether it is obligated to pay any Placement Fees with

respect to ERS’ investment in such Fund. The disclosure statement shall further state whether the

Fund and/or its Placement Agent is or has been subject to any present or past civil or criminal

litigation, administrative proceeding, or, to the Fund’s knowledge, inquiry or investigation related to

the payment of or the incurrence of an obligation to pay any Placement Fees.

Any Fund in which ERS is considering investing shall also submit to ERS a disclosure statement

regarding (a) any payment of or the incurrence of an obligation to pay any Contribution by the Fund

and/or its Placement Agent to any Texas Elected Official within the two year period prior to ERS’

investment in the Fund or (b) the engagement in any Bundling with respect to any Texas Elected

Official within the two year period prior to ERS’ investment in the Fund. Such disclosure statement

shall also contain information regarding any communications regarding ERS’ potential investment

in the Fund that the Fund and/or its Placement Agent had with any Texas Elected Official or any

member of the Board of Trustees or IAC during the two year period prior to ERS’ investment in the

Fund. The disclosure statement shall further state whether the Fund or its Placement Agent is or

has been subject to any present or past civil or criminal litigation, administrative proceeding, or, to

the Fund’s knowledge, inquiry or investigation related to the payment of or the incurrence of an

obligation to pay any Contribution to, or any Bundling with respect to, any Texas Elected Official or

any public pension official in any other state.

ADDENDUM IV

ERS Investment Policy Statement Addendum IV – Page 2 Effective September 1, 2024

Staff will provide each Fund in which ERS may invest a copy of these Policies and Procedures at

or near the commencement of due diligence. A Fund shall make the disclosures described above

to ERS contemporaneously with ERS’ investment in such Fund. All such disclosure statements

shall include any actions taken indirectly which, if taken directly, would be required to be disclosed

under these Policies and Procedures. ERS hereby notifies Funds and Placement Agents that ERS

is subject to the Texas Public Information Act, and they should be aware that information provided

to ERS under these Policies and Procedures may not be confidential.

Placement Agent Registration, Compliance with Laws, and Relationships

Placement Agents used by Funds shall register with the SEC or the Financial Industry Regulatory

Authority if required by applicable law. A Placement Agent that is not registered as required may

not receive a Placement Fee in connection with an investment in a Fund by ERS.

Funds and Placement Agents shall certify that they are in compliance with all applicable laws and

regulations, including, but not limited to, the Investment Advisers Act of 1940 and any rules or

regulations promulgated thereunder,

as such may be amended from time to time.

A Fund shall further disclose whether any person or entity included in the definition of Placement

Agent herein is a current or former member of the Board of Trustees or IAC; employee of ERS;

officer, director, principal, partner, manager, member, shareholder, employee, consultant, or

affiliate of an ERS consultant; or member of the immediate family of any such natural person.

Placement Fee and Contribution Practices by Funds

Unless such amounts are completely offset by reductions to management fees or other fees

payable by ERS to a Fund, neither ERS nor any ERS investment in a Fund may be burdened with

or liable for any Placement Fee or any expenses or other amounts paid, payable, reimbursed, or

reimbursable to a Placement Agent (including with respect to indemnification of a Placement Agent

for any reason).

No ERS investment may be made in a Fund if it is determined by ERS that:

• any contacts with any Texas Elected Official or member of the Board of Trustees or IAC,

• any Contributions to any Texas Elected Official, either directly or through Bundling, or

any payments to or relationships with an ERS consultant assisting ERS with the investment

in such Fund

have created an unacceptable risk to, or the appearance of impropriety with respect to, the integrity

or reputation of ERS or its investment program or have been made in violation of these Policies

and Procedures or applicable laws or regulations.

Violations

All Funds in which ERS invests shall agree in writing upon ERS’ admittance to such Fund that,

should any of the disclosures made by the Fund be found to be materially false or misleading or

should any aspect of these Policies and Procedures be materially violated by the Fund or its

Placement Agent (any such occurrence, as determined by ERS, being a “Violation”), ERS shall

have the option to exercise any or all of the following remedies, which shall be cumulative rather

than exclusive and which shall be in addition to any other remedies available pursuant to applicable

law:

• ERS shall have the right to withdraw without penalty from the Fund;

• ERS shall have the right to cease making any further capital contributions to the Fund

(including for management fees, expenses, investments, and recalls of previously

distributed amounts) without penalty; and/or

Such rules or regulations to include, but not be limited to, 17 C.F.R. 275.206(4)-5, 17 C.F.R. 275.204-2, and

17 C.F.R. 275.206(4)-3, as such may be amended from time to time.

ERS Investment Policy Statement Addendum IV – Page 3 Effective September 1, 2024

• ERS shall have the right to require the Fund to repay to ERS the aggregate amount of

management fees paid by ERS to the Fund for the two-year period preceding either the

Violation or the discovery by ERS of the Violation, whichever is greater, along with any

carried interest or incentive payable to the Fund for investments made during the two-year

period.

If at any time after initial disclosures are made pursuant hereto, any consultant, Fund, or other party

subject to these Policies and Procedures discovers that there has been a Violation, such party shall

immediately deliver written notice of such Violation to ERS. For purposes of this paragraph,

“Violation” shall refer to a materially false or misleading disclosure or a material violation of these

Policies and procedures by any consultant, Fund, Placement Agent, or other party subject to these

Policies and Procedures.

Policy Interpretation

It is intended that these Policies and Procedures be construed and administered so that they

comply with all applicable federal and state laws and regulations, as such may be amended from

time to time. The Executive Director is authorized to approve from time to time variances from the

disclosures and procedures set forth above in furtherance of such compliance or as he/she deems

to be in the best interest of ERS, consistent with both ERS’ fiduciary responsibilities and the

purpose and scope of these Policies and Procedures.

All parties responsible for complying with and making disclosures pursuant to these Policies and

Procedures should consider the spirit as well as the literal text hereof. In cases where uncertainty

exists as to whether a particular disclosure should be made to ERS, these Policies and Procedures

should be interpreted to require disclosure.

Definitions

“Bundling” means to coordinate Contributions from one or more persons, entities, or political action

committees or to solicit any person, entity, or political action committee to make any Contribution.

“Contribution” means any payment, gift, subscription, loan, advance, or deposit of money or

anything of value made for the purpose of influencing any election for any federal, state, or local

office; paying a debt incurred in connection with any such election; or paying the transition or

inaugural expenses of a successful candidate for office. The size of a Contribution shall not be

taken into account when determining whether a disclosure of a Contribution shall be made, and the

entitlement of the contributor to vote for a Texas Elected Official likewise shall not be taken into

account. Any Contribution that has been returned by a Texas Elected Official shall be included in

disclosure statements as well.

“Fund” means a private equity fund, a private real estate fund, private infrastructure fund, private

credit fund, separate account, hedge fund, co-investment vehicle, or any other type of private

investment vehicle and, with respect to the disclosures to be made pursuant hereto, also refers to

any such Fund’s general partner, sponsor, manager, and affiliates, and the respective officers,

directors, members, principals, partners (other than unaffiliated limited partners who are investors

only), employees who solicit ERS for business, and managers of each, as well as any political

action committee controlled by any of the foregoing. Any time periods set forth herein applicable

to any person or entity described in this definition of “Fund” shall fully apply to such person or entity,

even if such person or entity was not associated with the private investment vehicle for the entire

time period.

“Placement Agent” means any placement agent, finder, or other party that is not affiliated with a

Fund that receives a Placement Fee or that is a party to an agreement or arrangement, written or

oral, to receive a Placement Fee. The term Placement Agent also includes affiliates of the

Placement Agent and the officers, directors, principals, partners, managers, members, and

shareholders of both the Placement Agent and such affiliates. The term Placement Agent also

ERS Investment Policy Statement Addendum IV – Page 4 Effective September 1, 2024

includes any employees of any such entities who solicit ERS for investment in a Fund. Any party

that shares in any amount of a Placement Fee or that has an agreement or arrangement, written

or oral, to share in any amount of a Placement Fee is also included in the term Placement Agent.

Any person or group of people who become employees of a Fund or an affiliate of a Fund for a

temporary period during such Fund’s fund-raising period and who would be a Placement Agent

under these Policies and Procedures if not so hired are included in the term Placement Agent as

well.

“Placement Fees” means placement fees, finder’s fees, brokerage fees, retainer fees, success

fees, commissions, incentive compensation, or any other compensation or consideration, or any

obligation or liability, contingent or otherwise, for any such compensation or consideration.

“Texas Elected Official” means:

a) any elected official of the State of Texas, including, but not limited to, the Governor, the

Lieutenant Governor, the Comptroller of Public Accounts, the Attorney General, any

member of the Texas Supreme Court, or any member of the Texas Legislature (or any

candidate for any such office),

b) any election committee, campaign fund or political action committee for any person

described in subsection (a) that funds or is eligible to fund such person’s candidacy for any

political office (federal, state, or local), or any political party, to the extent any contributions

thereto are earmarked for such person’s candidacy for any political office (federal, state,

or local),

c) any spouse, parent, child, or sibling of any person described in subsection (a), or

d) any person employed under any Texas state political office named in subsection (a).

ERS Investment Policy Statement Addendum V – Page 1 Effective September 1, 2024

INSIDER TRADING AND CONFIDENTIALITY POLICY

Applicability

All Covered Persons and other persons designated as having access to any ERS Information or any other

Material, Non-Public Information (MNPI) are subject to this Insider Trading and Confidentiality Policy.

Definitions

“Covered Persons” means all members of the ERS Board of Trustees, IAC members, the Executive

Director, the Deputy Executive Director, ERS investment-related staff, and any other non-investment staff

who have access to ERS Information.

“ERS Information” means any MNPI regarding specific ERS investment transactions or proposals and

related activity; potential ERS contracts with outside consultants, advisors, contractors, or vendors; or any

other MNPI arising out of a person’s work for ERS.

“Material,” with respect to information, means any information that a reasonable investor would consider

important in making a decision to buy, hold, or sell securities. For purposes of this policy, any information

that could be expected to affect the price of a security, whether positively or negatively, should be

considered Material.

“Non-Public,” with respect to information, means information that is not widely available to the public. In

the event of a question about whether information is considered Non-Public, such question should

immediately be brought to the attention of OGC and Investment Compliance. OGC, in consultation with

Investment Compliance, upon review of applicable facts and laws and after consultation with outside

counsel and other persons as appropriate, shall make the determination of whether the information is Non-

Public for purposes of this policy.

“Restricted List” means a list of securities for which ERS may possess MNPI. The Restricted List will be

maintained by staff and updated promptly when Covered Persons are in receipt of MNPI. Staff will review

the list periodically and may include any other securities if ERS determines there is a risk of an appearance

of impropriety or a conflict of interest. The CIO retains discretion in determining when to add issuers to and

remove issuers from the list.

Insider Trading and Confidentiality Policy

Covered Persons shall treat as confidential any information that is Non-Public and whose premature

disclosure could affect ERS, an actual or potential business opportunity or relationship of ERS, or a

company the securities of which ERS owns or is considering buying. Covered Persons should assume that

all MNPI gained as a result of association with ERS is confidential. Covered Persons shall safeguard this

MNPI whether generated internally or acquired from outside sources and shall use it only for ERS-related

matters.

In order to control access to this Non-Public information, business-related communications between ERS

investment-related staff and other employees in different divisions of ERS should be kept to a minimum.

ERS employees should generally be highly sensitive to the potential for disclosure of any MNPI when

discussing ERS matters with persons outside of their own divisions.

Each Covered Person having access to any ERS Information or any other MNPI:

1) shall consider the information to be proprietary to ERS and confidential in nature and shall

safeguard that information as such person would any other property of ERS, and

2) shall be aware that:

a) any purchase or sale

ADDENDUM V

ERS Investment Policy Statement Addendum V – Page 2 Effective September 1, 2024

i) by ERS of securities as a result of such person’s actions while aware of MNPI relating to

those securities, or

ii) by such person of securities while aware of MNPI relating to those securities, and

b) any disclosure of that information to others (“tippees”) who may then trade in those securities

is prohibited by the federal securities laws as “insider trading” and punished severely by both

civil (money) and criminal penalties, including at least the following:

i) for Covered Persons (or their tippees) who trade or cause ERS to trade on MNPI, a civil

penalty of up to three times the profit gained or loss avoided, a criminal fine of up to

$1,000,000 (no matter how small the profit), and a jail term of up to ten years; and

ii) for ERS and its supervisory personnel, if applicable, if any such person fails to take

appropriate steps to prevent insider trading, a civil penalty of up to $1,000,000 or, if greater,

three times the profit gained or loss avoided as a result of the Covered Person’s violation;

and a criminal penalty of up to $2,500,000.

A Covered Person who tips information to a tippee who then trades is subject to the same penalties as the

tippee, even if the Covered Person did not trade and did not profit from the tippee’s trading.

No Covered Person having access to ERS Information or any other MNPI related to particular securities

may, directly or through family members or other persons or entities:

a) use that information in making decisions related to buying or selling securities, or engaging in

other actions, on behalf of ERS,

b) buy or sell those securities or engage in any other action to take personal advantage of that

information, or

c) pass that information on to others outside ERS, including family and friends, in each case until

the information is no longer Non-Public or is no longer Material.

When a Covered Person believes that he or she has received MNPI related to a security, the Covered

Person should immediately contact their supervisor, Investment Compliance, or the Director of Investment

Operations to determine if the security should be placed on the Restricted List.

The use of MNPI is also restricted by Texas Penal Code § 39.06 in the following ways:

1) A person commits an offense if such person, in reliance on MNPI to which the person has access

by virtue of the person’s state office or state employment:

a) acquires or aids another to acquire a pecuniary interest in any property, transaction, or

enterprise that may be affected by the information;

b) speculates or aids another to speculate on the basis of the information; or

c) as a public servant, coerces another into suppressing or failing to report that information to

a law enforcement agency.

2) A person commits an offense if, with intent to obtain a benefit or with intent to harm or defraud

another, the person discloses or uses, for a nongovernmental purpose, MNPI that the person has

access to by means of such person’s state office or state employment.

ERS Investment Policy Statement Addendum V – Page 3 Effective September 1, 2024

3) An offense described in Texas Penal Code § 39.06 is a felony of the third degree, provided that a

public servant coercing another into suppressing or failing to report information to a law

enforcement agency is a Class C misdemeanor.

Compliance and Enforcement

OGC and Investment Compliance are responsible for enforcement of this policy, including oversight of

training for Covered Persons and periodic review of this policy to determine its effectiveness and the

adequacy of its implementation. In the event that either OGC or Investment Compliance has any conflict

or appearance thereof in enforcing or administering any aspect of this policy, the Internal Auditor shall

perform any act that they are required to perform.

At the time of hiring or other association with ERS and on a yearly basis thereafter, each Covered Person

shall be provided with a copy of this policy, and each such Covered Person shall sign a certification

regarding receipt and review of the policy and responsibility for compliance. In addition, Investment

Compliance shall conduct or arrange for training sessions to discuss compliance with this policy no less

than once per year.

ERS’ Internal Audit division shall also maintain the following records:

• updated and historical archival copies of this policy as amended and supplemented from time to

time;

• signed acknowledgements of receipt of this policy by all Covered Persons;

• records of any violations of this policy by Covered Persons and the corrective action taken in

response;

• complaint files containing complaints from employees or others having dealings with Covered

Persons related to this policy and

• any other records in connection with the maintenance or enforcement of this policy as may be

deemed necessary by Investment Compliance.

Investment Compliance shall be responsible for ensuring that ERS and Covered Persons are informed of

the requirement to comply with this policy.

Any Covered Person or other ERS employee who has information that tends to indicate a violation of this

policy shall promptly bring this information to the direct attention of OGC and Investment Compliance, who

may decide to enlist the aid of outside counsel or other appropriate person to further evaluate the

circumstances and decide on any further action.

If, upon investigation, OGC or Investment Compliance determines that a Covered Person has violated any

provision of this policy, the full range of disciplinary options under ERS’ Personnel Policy and Procedure

Manual may be used against such Covered Person, up to and including termination. OGC may also refer

the violation to the relevant state or federal enforcement authorities for civil or criminal prosecution.

Anyone scrutinizing a transaction for compliance with this policy and the securities laws will be undertaking

such review after the fact, with the benefit of hindsight. As a practical matter, before engaging in any

transaction, a Covered Person should carefully consider how OGC or Investment Compliance (or Internal

Audit, when applicable) and state and federal enforcement authorities and others might view the transaction

in hindsight.

ERS Investment Policy Statement Addendum VI – Page 1 Effective September 1, 2024

INVESTMENT ADVISORY COMMITTEE CHARTER

A. Purpose: The purpose of the Investment Advisory Committee (IAC) is to support and assist the Board

in carrying out its fiduciary duties with regard to the investment of the Trust.

B. Authority: The IAC is established at the discretion of the Board pursuant to Texas Government Code

§ 815.509 and 34 Texas Administrative Code § 63.17(b). IAC membership is further described in Texas

Government Code §§ 815.5091 and 815.5092.

C. Scope: The IAC shall review the investment policies and implementation strategies of ERS in order to

provide advice that assists the Board in its oversight of the investment program. In addition, the IAC

shall provide advice to the Board regarding asset allocation parameters, portfolio strategy, investment

policies, and permissible securities. The IAC shall also provide advice to the Board regarding the

Incentive Compensation Plan, the Texa$aver program, and other investment-related matters as

requested by ERS. Specific areas of responsibility are included in Chapter III of the Policy, including

as set forth in Table 1 and Table 2.

D. Other Duties: Individual IAC members shall also be selected to serve as members of the Texa$aver

Product Review Committee (PRC) and one or more Asset Class Investment Committees (ACICs) as

outlined in their respective charters. IAC members shall be considered to serve on ACICs based on

their professional areas of expertise by the Chief Investment Officer, the Executive Director, and the

Board IAC Working Group. In carrying out their duties to the Board, IAC members shall also provide

general investment advice to Staff and specific investment advice to their respective ACIC(s).

E. Eligibility: As set forth in Texas Government Code § 815.5091, a person appointed to serve as an IAC

member must be (1) a person with expertise in the management of a financial institution or other

business in which investment decisions are made; or (2) a prominent educator in the field of economics,

finance, or another investment-related area.

F. Composition: The IAC shall be composed of at least five and not more than seven members unless

an exception has been previously approved by the Board. IAC members serve at the pleasure of the

Board for staggered terms of three years.

G. Selection: Referrals by Board members, existing IAC members, Staff, consultants, peers, and industry

organizations shall be the primary source of candidates for IAC membership. The Board Chair shall

appoint two Board members to serve on the Board IAC Working Group. In consultation with the Chief

Investment Officer and Executive Director, the Board IAC Working Group shall nominate IAC members

for approval by the full Board.

H. Structure: The Board shall select a Chair and Vice Chair of the IAC for terms of two years to serve as

liaisons to the Board and to preside over IAC meetings.

I. Quorum: A quorum of the IAC consists of a majority of eligible members.

J. Annual Review: Pursuant to Texas Government Code § 815.5093, the Board shall review the

composition of the IAC at least annually. As provided by Texas Government Code § 815.509(c), if the

Executive Director or an IAC member has knowledge that a potential ground for removal exists, the

Executive Director or IAC member shall notify the Board Chair of the potential ground for removal.

The Board’s annual review shall be accompanied by a survey of all current members of the Board

regarding the functioning of the IAC at the individual and aggregate level. The purpose of this survey

ADDENDUM VI

ERS Investment Policy Statement Addendum VI – Page 2 Effective September 1, 2024

is to assess, at regular intervals, whether the IAC is meeting the needs of the Board; to consider the

reappointment of IAC members; and to provide feedback in pursuit of continuous improvement.

K. Authority and Responsibilities: The IAC shall consider investment recommendations developed by

Staff for presentation to the Board to ensure that they align with the philosophy and objectives outlined

in the Policy. IAC members are expected to review and evaluate written materials prior to each

meeting, and to ask probing and relevant questions of Staff and consultants regarding the information

presented and any related recommendations. After such consideration, the IAC shall vote to:

• Recommend that the Board approve Staff’s recommendation as submitted;

• Recommend that the Board approve Staff’s recommendation with contingencies or modifications;

• Recommend that the Board postpone consideration of Staff’s recommendation in order to allow for

resolution of specified issues; or

• Recommend that the Board reject the Staff recommendation.

IAC members have the authority to request additional information related to the investment

recommendation as is necessary or desirable to fulfill their roles and responsibilities.

L. Meetings: The IAC shall convene at least quarterly in person for joint meetings with the Board. The

IAC shall also convene either virtually or in person prior to each quarterly joint meeting in order to review

any upcoming recommendations from Staff and, with the assistance of Staff, prepare a written summary

of the IAC’s recommendations to the Board in advance of each joint meeting.

The IAC Chair and Vice Chair shall also meet with the Board IAC Working Group quarterly.

Ad hoc meetings of the IAC may be held in person and/or attended by Members via telephone or video

conference as agreed upon by the IAC. IAC members shall be provided at least five business days’

notice of a meeting whenever possible.

M. Meeting Materials: Staff shall make every effort to provide IAC members with meeting materials at

least 72 hours in advance of a meeting unless such schedule is not feasible given the timing of the

proposal. Meeting materials include, but are not limited to, the agenda item, related appendices,

relevant background materials/analysis, reports, and a Staff recommendation when applicable.

N. Minutes: Each meeting of the IAC shall be documented with minutes that record the Members present,

material issues of significant discussion, and any actions taken (including decisions to reject a proposal

or hold approval until contingencies are met). Minutes shall be provided to the Board on at least a

quarterly basis or as needed to facilitate discussion on a matter under consideration by the Board.

O. Approval: Approval of a proposed investment recommendation or other action requires a majority vote

of the IAC in all cases except where unanimous approval is required.

P. Limitations: The IAC serves the Board solely in an advisory capacity and shall have no authority to

enter into contracts on behalf of ERS.

Q. Reporting: On at least a quarterly basis, the IAC shall provide to the Board a written summary of the

IAC’s recent activity and any resulting recommendations.

ERS Investment Policy Statement Addendum VI – Page 3 Effective September 1, 2024

R. Compliance: IAC members are considered Restricted Persons II for purposes of the Policy and are

therefore subject to the Conflicts of Interest Policy and Insider Trading and Confidentiality Policy. IAC

members shall notify Investment Compliance of any actual or perceived conflict of interest arising in

the matters discussed, prior to and during any meeting. Ethics provisions in ERS policies and federal

and state law shall govern participation in or recusal from any IAC meeting or vote if necessary.

S. Amendment: This Charter shall be reviewed as updates are made to the Policy to determine whether

any modifications are necessary or desirable. Any proposed changes shall be subject to approval by

the Board.

T. Interpretation: It is intended that this Charter be construed and administered so that it complies with

all applicable federal and state laws and regulations. The Executive Director is authorized to approve

variances from the policies, practices, and procedures set forth above in furtherance of such

compliance or as the Executive Director deems to be in the best interests of ERS, consistent with both

the fiduciary responsibilities of ERS and the purpose and scope of this Charter and the Policy.

U. Confidentiality: IAC members shall safeguard and maintain strict confidentiality of all non-public

information provided by ERS in connection with service as an IAC member. Confidentiality shall not

apply to information that IAC members are required to disclose pursuant to a legally binding order or

other similar requirement of a court, administrative agency, or other governmental body. An IAC

member shall avoid taking any investment action or cause others to take any investment action based

on such information.

V. Compensation: During the annual agency budgeting process, the Board shall determine the

compensation to be paid to IAC members for future service.

W. Reimbursement: IAC members shall be reimbursed for all expenses reasonably incurred in

furtherance of their official duties. Travel for IAC purposes shall be reimbursed under the same policy

that applies to the Board.

X. Payments: Unless otherwise authorized by the Executive Director, payments to IAC members for

compensation and expense reimbursement as authorized above shall be made quarterly in arrears

based on an itemized invoice provided to Staff by an IAC member and certified by the Chief Investment

Officer.

Y. Independent Contractor: IAC members shall serve as independent contractors and are not

employees of ERS or the state of Texas for any purpose. Contracts with IAC members may be

terminated at any time with or without cause at the pleasure of the Board as provided by Texas

Government Code § 815.509(a).

ERS Investment Policy Statement Addendum VII – Page 1 Effective September 1, 2024

ASSET CLASS INVESTMENT COMMITTEE CHARTER

A. Purpose: The purpose of each Asset Class Investment Committee (each, an ACIC) is to support the

Board in fulfilling its oversight responsibilities, in accordance with the Policy. ACICs are delegated the

authority to review and approve Staff recommendations for alternative investments (as defined by

Texas Government Code § 815.3016) that do not exceed the Board Approval Threshold set forth in the

Policy.

B. Scope: As part of the Board’s framework for delegation of authority to staff, ACICs review and approve

Staff recommendations within each of the asset classes for:

• Commitments to alternative investments,

• Redemptions from alternative investments that are greater than $25 million,

• Extensions to the term of alternative investments greater than $25 million that would cause the

resulting term to be greater than two years over the fully extended original term,

• Addition of investment strategies to the Select Pool(s),

• Removal of investment strategies from the Select Pool(s), and

• Other proposed investment-related actions at the discretion of the CIO or Executive Director.

This process is to be conducted in a manner consistent with ERS’ established investment objectives

and strategies with the goal of achieving strong risk-adjusted performance by the programs that

comprise the Trust while keeping with the assumption of prudent levels of risk, as described in the

Policy.

The provisions of this Charter shall conform to the Policy and any related policies approved by the

Board or the Executive Director (ED).

C. Composition: Each alternative asset class will be assigned an ACIC, which for the purposes of this

policy includes Private Equity, Private Real Estate, Private Credit, Private Infrastructure, and Hedge

Funds. For the purposes of this Policy, Public Equity (which shall also include Public Real Estate) and

Public Credit will also be assigned to an ACIC that will oversee the selection of Investment Managers

within their respective Select Pools as well as significant changes in overall portfolio structure.

Each ACIC will include at least four Voting Members.

• The three permanent Members of each ACIC include the Executive Director, the CIO, and a

member of the IAC with expertise in the relevant asset class. In the event the appointed IAC

member is not available for a particular ACIC meeting, the CIO will appoint another IAC member

for that particular ACIC meeting.

• A fourth Voting Member with expertise valuable to that ACIC shall be appointed to each ACIC by

the CIO, in consultation with the Executive Director. The fourth member shall be a senior member

of the investment staff from a different asset class than the asset class under review. The Executive

Director shall have the final authority to approve or deny the composition of each ACIC.

Investment Consultant: If an investment consultant provides a recommendation for the specific asset

class investment being reviewed, a representative from the Investment Consultant will attend the ACIC

meeting in person or via telephone or video conference.

Non-Voting Members: Non-Voting Members of each ACIC will include (1) a staff member from the

Operational Risk Management team, (2) a staff member from OGC, and (3) a staff member from

Investment Compliance or the Director of Internal Audit. Non-Voting Members may provide written or

oral commentary, if applicable, but have no voting privileges related to investment actions.

ADDENDUM VII

ERS Investment Policy Statement Addendum VII – Page 2 Effective September 1, 2024

Quorum: At least a majority of the Voting Members of an ACIC shall attend for a quorum, with the

Executive Director or designee required to attend. The attendance of Non-Voting Members is not

required to meet quorum. However, Investment Compliance or the Director of Internal Audit shall certify

prior to any vote that the pending investment complies with the Policy.

D. Authority and Responsibilities: Pursuant to the Policy, each ACIC has the authority to review and

approve the below recommendations from Staff to ensure that they conform to the objectives outlined

in the Policy and are prudent given current and anticipated market conditions. ACICs will consider the

alignment of the proposed investment with the philosophy and objectives outlined in the Policy. After

such consideration, the relevant ACIC will vote to:

• Approve the recommendation as submitted;

• Approve the recommendation with contingencies and/or modifications, with such approval taking

effect once the applicable ERS asset class director represents in writing to the Executive Director

via the CIO that all such conditions have been fulfilled;

• Postpone consideration of the recommendation to allow for resolution of specified issues; or

• Reject the recommendation as submitted.

ACICs will not consider any proposed investment that has not gone through the applicable ERS

investment and operational due diligence processes as well as the meeting procedures described in

this Charter. All Voting and Non-Voting Members of each ACIC have the authority to request additional

information related to the investment recommendation as is necessary or desirable to fulfill their roles

and responsibilities.

The ACIC may also be consulted regarding material post-closing investment matters to the extent

permitted or required by other ERS policies.

E. Meetings: ACICs will meet as needed when a proposed investment is ready for consideration. ACIC

meetings may be held in person and/or attended by members via telephone or video conference as

agreed upon by the ACIC. ACIC Members will be provided at least five business days’ notice of the

meeting whenever possible.

Approval by email may occur for:

• Co-Investments in an amount of $25 million or less. A Co-investment is defined as any direct or

indirect investment into a single asset or group of assets alongside or otherwise in connection with

an investment in such asset(s) made by a private fund or alongside an existing fund sponsor. Co-

investments may also include co-investment vehicles intended to hold multiple investments.

• “Top-up” investments in an amount of $25 million or less. A Top-up Investment is defined as an

additional commitment to an existing fund or co-investment to which ERS has previously made a

commitment.

• Fund term extensions or continuation vehicles in an amount of $50 million or less with respect to

the ERS NAV in the Fund.

• Redemptions in an amount of $50 million or less, and/or larger redemptions of the ERS commitment

in the case of urgent circumstances as designated by the CIO.

Investments approved by Voting Members via email shall satisfy the following conditions:

ERS Investment Policy Statement Addendum VII – Page 3 Effective September 1, 2024

• the proposed criteria are consistent with the amounts specified above;

• it is made with an Investment Manager with which ERS has made a previous investment and has

an existing relationship, and

• it is approved unanimously by the Voting Members.

All other provisions of this Charter apply to Co-investments and Top-ups reviewed and approved via

email. The Executive Director shall have the authority to require any investment to be reviewed and

voted on at a regular ACIC meeting instead of by email.

If any Top-up Investment results in a total aggregate commitment to such vehicle in excess of the Board

Approval Threshold, the Top-up Investment will be subject to the Board approval procedures described

in Item VIII of this Charter.

F. Meeting Materials: Staff will make every effort to provide ACIC Members with meeting materials at

least 72 hours in advance of the meeting unless such schedule is not feasible given the timing of the

potential investment. Meeting materials include, but are not limited to, an investment recommendation

from staff and, when appropriate, a separate recommendation or report from Operational Risk

Management team and/or the applicable consultant.

G. Minutes: Each meeting of an ACIC will be documented with minutes that record the Members present,

material issues of significant discussion, and any actions taken, including but not limited to decisions

to reject an investment or not approve until contingencies are met.

H. Approval: Other than any approvals by email that require unanimous approval, at least a majority of

the Voting Members shall approve all investment recommendations or actions, one of whom shall be

the Executive Director or a designee.

I. Limitations: Any proposed investment that exceeds the Board Approval Threshold will first be

presented to the applicable ACIC in accordance with this Charter, but only for the purpose of

recommending the investment to the Board. If so recommended, the proposed investment will then be

presented by staff to the Board at a regularly scheduled Board meeting or a meeting called for the

express purpose of reviewing and approving said investment.

J. Reporting: On a quarterly basis, staff will provide to the Board a summary of investment activity within

each pertinent asset class, as set forth in the Policy.

K. Conflicts of interest and declarations of interests: ACIC members are subject to the Conflicts of

Interest Policy and Insider Trading and Confidentiality Policy. ACIC members shall notify Investment

Compliance of any actual or perceived conflict of interest arising in the matters discussed, prior to and

during the meeting. Consultants that participate in ACIC meetings are also required to disclose any

conflicts. Ethics provisions in ERS policies and state law shall regulate participation in or recusal from

the ACIC meeting and/or vote if necessary.

L. Amendment: This Charter shall be reviewed at least annually to determine if modifications are

necessary or desirable. Any proposed changes will be subject to approval by the Board.

M. Interpretation: It is intended that this Charter be construed and administered so that it complies with

all applicable state laws and regulations, as such may be amended from time to time. The Executive

Director is authorized to approve from time to time variances from the policies, practices, and

procedures set forth above in furtherance of such compliance or as the Executive Director deems to be

in the best interests of ERS, consistent with both the fiduciary responsibilities of ERS and the purpose

and scope of this Charter and the Policy.