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August 1, 2013
Bar alters market strategy for long-term investments

With an expectation that inflation and interest rates will begin returning to normal levels, the Bar’s Investment Committee has recommended and the Board of Governors has approved revisions to the market strategy for the Bar’s long-term investment portfolio.

Committee Chair Ian Comisky told the board at its Sarasota meeting that the Bar’s investment advisors, Morgan Stanley, recently completed a seven-year projection of the U.S. and global economies.

“Their view is interest rates [which have been near zero] have to go up,” Comisky said, noting that this upturn has implications for bond investments because as interest rates rise, the price of a bond goes down.

“They also believe that inflation has to increase because it has been at a historic low,” he added. “And that means commodity prices will rise.”

Currently, the Bar’s investments are divided into 16 different categories, such as large-cap equity, emerging markets equity, and fixed income, and then invested with various managers or funds within those categories. There is a targeted goal for each category, plus a minimum and maximum level for which that category can range, Comisky said.

Morgan Stanley also helps the Investment Committee review the performance of the various managers and funds that oversee the Bar’s investments, he said. Investment performances are measured against an index in each category and managers and funds are expected to outperform their benchmarks over a significant amount of time.

The largest category for the Bar will continue to be fixed-income securities. Under the previous guidelines, the goal was to have 29 percent of the portfolio invested there, although that could fluctuate between a minimum of 20.3 percent and a maximum of 37 percent. Under the new guidelines, that will be reduced to a goal of 22 percent with a minimum of 15 percent and a maximum of 29 percent.

The new allocation guidelines slightly reduce investments in U.S. large-cap stocks and inflation-protected securities and increases it slightly in mid- cap stocks, emerging market equities, and commodities. It also, Comisky said, adds a new category of “liquid alternatives” — mutual funds that are traded daily — and this category will initially have a targeted goal of 3 percent of the portfolio and an allowed range between 0 and 6 percent.

The Bar’s investment portfolio continues to be conservative, he noted, and is designed to be much less volatile that the overall market. “This is diversified, and it’s balanced,” Comisky added.

Overall, he said the Bar’s long-term portfolio — which contains funds the Bar does not need for immediate operations — has more than $39 million and is up 4.5 percent year to date.

Comisky said the committee will continue to review the investment policies and was to make additional recommendations at the board’s next meeting.

[Revised: 05-28-2015]