Institutional Federal Compliance Report 2021

______________________________________________________________________________________________ STATE OF NEW YORK • 75

Foreign Currency Risk As of March 31, 2019, the System’s current position in publicly traded international equity securities, invested in directly or through commingled funds, is approximately $31.6 billion. The System also has foreign investments held in U.S. dollars of $11.7 billion; $12.5 billion in private equity, opportunistic, absolute return strategy and real asset funds; $188 million in fixed income investments; and $2.8 billion in real property owned, made, or located outside the United States. The approximate total market value of the System’s investments made outside of the United States is $58.8 billion. Fair Value The System categorizes its fair value measurements within the hierarchy established by generally accepted accounting principles. The hierarchy is based on the nature of valuation inputs used to measure the fair value of the investment. Investments classified in Level 1 of the fair value hierarchy are valued from predetermined external pricing vendors or primary dealers who source quoted prices in active markets which are readily attainable exit values of these securities. Investments classified in Level 2 are subject to alternative pricing sources, including a combination of price sources, descriptive data and pricing models based on attributes such as spread data, sector, quality, duration, and prepayment characteristics. Investments classified as Level 3 are valued using best available sources such as property appraisals, discounted cash flow models and public market comparables of similar assets where applicable. The values are supplied by advisors or general part- ners who hold those or similar assets in investments vehicles they oversee. These pricing sources may or may not be indicative of realizable exit value attainable for the assets. The System’s composition of investments by levels within the fair value hierarchy as of March 31, 2019 were as follows (amounts in billions):

The System lends fixed income, domestic equity, and international equity securities to approved broker/dealers. Collateral for securities loaned equals 102 percent of fair market value for domestic securities and 105 percent for international securities. Credit risk associated with the investment of cash collateral pledged by borrowers is mitigated by the maturity restrictions, percentage limitations, and rating require- ments for individual asset classes included in the System’s reinvestment guidelines. The Custodian acknowledges responsibility to reimburse the System for any losses that might arise from managing the program in a manner inconsistent with the contract. The System manages its market rate risk by recording investments at market value daily and maintaining the value of the collateral held by the System in excess of the value of the securities loaned. As of March 31, 2019, the fair value of securities on loan was $7.2 billion. The associated collateral was $7.4 billion, of which $5.7 billion was cash collateral and $1.7 billion was securities held as collateral. The fair value of the invested cash collateral, as of March 31, 2019, was $5.7 billion and the securities lending obligations were $5.7 billion. The unrealized loss in invested cash collateral on March 31, 2019 was $6.4 million, which is included in the Statement of Changes in Fiduciary Net Position as part of “Net appreciation in fair value of investments.” All open security loans can be terminated on demand by either the System or the borrower. To provide sufficient liquidity, the policy of the System is to maintain a minimum of 10 percent of collateral in overnight investments. While the Securities Lending Investment Guidelines allow investments up to a maximum of three years for U.S. Treasury and federal agency obligations and one full year for all other investments, the average term of open security loans at March 31, 2019 was 31 days. All loans were open loans. There were no direct matching loans. The col- lateral pool is valued at market value as obtained from independent pricing services.

Quoted Prices in Active Markets for Identical Assets

Significant

Other

Significant Unobservable

Observable Inputs (Level 2)

Inputs (Level 3)

Investment Type

Fair Value

(Level 1)

Domestic equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Global fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . International equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities lending collateral, invested . . . . . . . . . . . . . . . . . . . . . Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

73 $

73 $

—00000 $

—00000 —00000 —00000 —00000 —00000

41 32

—00000

41

32

—00000

6 4 1 1

—00000 —00000 —00000 —00000

6 4

—00000 —00000

1 1 2

158 $

105 $

51 $