In addition to your concern about the calamity for Ukraine, I am sure you are wondering how this event is impacting the portfolio. 

The System does own a small number of Russian stocks and bonds, including stocks of companies impacted by sanctions. As of February 18, those assets had a market value of $197 million or 0.28% of the System’s $69.3 billion in assets under management. The exposure is predominantly through stocks, with only $500,000 (est.) in Russian government bonds making up the bond portion. Approximately $90 million of this was holdings in six companies directly impacted by sanctions. By the close of business February 24, the total Russian position was valued at approximately $96 million—a loss of $101 million. Values increased on Friday as markets continue to be roiled by announcements and there were talks of potential negotiations.

The System’s investment staff is in contact with the managers holding the largest positions to understand how they plan on proceeding. We are also working to understand the sanction mechanisms and how they are likely to impact asset values for affected companies. Many of the sanctions are targeted to financial companies which, because of their leveraged nature, are very sensitive to potential credit losses and loss of liquidity. 

The small weight of Russia in the portfolio is a testament to the broad diversification strategy the Board has adopted. We tend to focus on these instances of heightened risk in one portion of the portfolio but miss the positive impact other exposures bring. For example, the System’s weight in Brazilian stocks is nearly double the size of Russia. The Brazilian stock market was up 18% YTD, providing a meaningful offset to the losses in Russia and broad U.S. and other developed market stocks. In fact, the overall Emerging Market index was down 4.8% through the 25th, despite Russia being down 40%, while the S&P 500 was down 7.8%.

I will continue to keep you apprised of any actions taken by our asset managers or staff to manage through this difficult time and welcome your questions and feedback.