Performance Review as of December 31, 2009

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Performance Review as of December 31, 2009

  1. 1. PERFORMANCE REVIEW AS OF DECEMBER 31, 2009 2/4/10 LACERA Investments
  2. 2. For your convenience, the Table of Contents is linked. Fixed Income Programs .............................................26 Table of Contents Commodities Managers..............................................26 EXECUTIVE SUMMARY DOMESTIC EQUITIES Total Fund Performance .............................................. 1 Risk-Adjusted Return..................................................27 Equity Market Review .................................................. 2 Large Cap: Fixed Income Market Review....................................... 3 BlackRock Institutional Trust Co. - Alpha Tilts............28 Commodities Market Review ....................................... 4 Delta Asset Management ...........................................29 Equity Manager Review ............................................... 5 Goldman Sachs Asset Management, L.P...................30 Fixed Income Manager Review ................................... 8 INTECH Investment Management, LLC .....................31 Commodities Manager Review .................................. 11 Relational Investors, LLC ...........................................32 TOTAL FUND Twin Capital Management, Inc. ..................................33 Annualized and Annual Returns (Gross of Fees) ...... 12 Small/Mid Cap: Annualized and Annual Returns (Net of Fees) .......... 13 Eagle Asset Management, Inc....................................34 Fiscal Year Returns ................................................... 14 Frontier Capital Management Company, LLC ............35 Total Fund vs. Benchmark ......................................... 15 Shamrock Capital Advisors, Inc..................................36 Risk-Adjusted Return ................................................. 16 Stinson Capital Partners L, L.P. .................................37 Westwood Management Corporation .........................38 ASSET ALLOCATION Emerging Manager Program: Total Fund.................................................................. 17 FIS Group, Inc. ...........................................................39 Actual vs. Target ........................................................ 18 Northern Trust Global Advisors, Inc. ..........................40 Domestic Equity Managers ........................................ 19 International Equity Managers ................................... 20 INTERNATIONAL EQUITIES Fixed Income Managers & Programs ........................ 21 Risk-Adjusted Return..................................................41 Commodities Managers ............................................. 22 Non U.S.: ANNUALIZED TOTAL RETURNS Acadian Asset Management, LLC ..............................42 Domestic Equity Managers ........................................ 23 Capital Guardian Trust Company ...............................43 International Equity Managers ................................... 24 Pacific Basin: Fixed Income Managers ............................................ 25 GAM International Management, Ltd..........................44
  3. 3. Europe: COMMODITIES BlackRock Institutional Trust Co.-Europe Alpha Tilts 45 Neuberger Berman Alternative Fund/Gresham ..........67 Emerging Markets: Pacific Investment Management Company ................68 Batterymarch Financial Management, Inc. ................ 46 Capital Guardian Trust Company .............................. 47 PERFORMANCE BANDS Genesis Investment Management, LLP..................... 48 Domestic Equities: Large Cap...................................................................69 FIXED INCOME Small/Mid Cap ............................................................71 Risk-Adjusted Return ................................................. 49 International Equities: Core: Non-U.S......................................................................72 BlackRock Financial Management, Inc...................... 50 Pacific Basin & Europe ...............................................73 Dodge & Cox.............................................................. 51 Emerging Markets ......................................................74 Pugh Capital Management, Inc.................................. 52 Fixed Income: Wells Capital Management ........................................ 53 Core............................................................................75 Core Plus: Core Plus....................................................................76 Dolan McEniry Capital Management, LLC................. 54 Opportunistic ..............................................................78 Goldman Sachs Asset Management, L.P. ................. 55 STIF............................................................................79 GW Capital, Inc.......................................................... 56 Commodities...................................................................80 LM Capital Group, LLC .............................................. 57 APPENDIX Loomis, Sayles & Company, L.P. .............................. 58 Pacific Investment Management Company ............... 59 Estimated Total Fees to be Paid: Principal Global Investors, LLC.................................. 60 Equities.......................................................................81 Western Asset Management Company ..................... 61 Fixed Income ..............................................................82 Opportunistic: Commodities...............................................................83 Oaktree Capital Management, L.P............................. 62 Allocation Ranges: PENN Capital Management Company, Inc................ 63 Strategic vs. Actual.....................................................84 Post Advisory Group, LLC ......................................... 64 Glossary Western Asset Management Company ..................... 65 STIF: Western Asset Management Company ..................... 66
  4. 4. EXECUTIVE SUMMARY for the quarter ended December 31, 2009 TOTAL FUND PERFORMANCE economic growth and developing concerns about future inflation. LACERA's commodities composite returned 10.1%, outperforming its LACERA’s Total Fund increased 3.8% in the fourth quarter of benchmark by 110 bps. 2009 and outperformed the Policy Benchmark by 120 basis points (bps) as every asset class either matched or beat its respective benchmark. The biggest PERFORMANCE contributors to the positive relative Annualized HIGHLIGHTS 4th Qtr 1 Yr 3 Yrs 5 Yrs 7 Yrs 10 Yrs results were the Private Equity, Fixed Total Fund: 3.8% Income, and Real Estate portfolios. Domestic Equity 5.9% 28.4% -5.8% 0.6% 6.2% -0.3% Benchmark: 2.6% Russell 3000 5.9 28.3 -5.4 0.8 6.2 -0.2 Outperformed: 120 bps LACERA’s Domestic Equity composite rose 5.9% and matched its International Equity 3.9 43.6 -3.0 6.1 12.3 2.8 benchmark return. Relative MSCI ACWI X U.S. IMI 3.7 43.6 -3.2 6.0 12.5 2.8 performance results for the U.S. managers were very mixed (i.e. across quantitative and fundamental strategies, as well as large Fixed Income 1.9 16.8 6.4 5.5 6.0 6.8 capitalization [cap] and small cap). However, the aggregate F. I. Custom Index 0.6 8.8 6.2 5.2 5.4 6.3 result was flat relative performance for the composite. BlackRock U.S. Universal Index 0.6 8.6 5.8 5.0 5.1 6.4 LACERA’s International Equity composite rose 3.9% versus its Real Estate1 -1.2 -27.5 -6.7 3.6 6.1 6.9 benchmark return of 3.7%, an outperformance of 20 bps. All NPI minus 25 bps -3.4 -22.3 -1.5 5.9 7.0 7.6 except for two of the active managers beat their respective Private Equity1 7.4 -6.5 8.6 15.5 13.5 11.5 benchmarks. P. E. Target Return 1.4 5.7 5.7 5.7 5.7 5.7 LACERA’s Fixed Income composite surpassed its benchmark by Commodities 10.1 29.5 -- -- -- -- 130 bps. This was the result of the relative outperformance of DJ-UBS Commodity Index 9.0 18.9 -- -- -- -- all core and core plus managers. Total Fund (Gross of Fees) 3.8 16.3 -0.5 4.8 8.2 4.0 LACERA’s Real Estate portfolio declined 1.2% but outperformed Total Fund (Net of Fees) 3.7 16.1 -0.7 4.6 8.0 -- its benchmark return of -3.4% by 220 bps. LACERA’s Private Total Fund Policy Benchmark 2.6 18.1 0.6 5.0 8.3 -- Equity portfolio outperformed its benchmark by 600 bps (but short-term quarterly results are not that reliable for this asset class relative to its benchmark). Commodities were the best performing asset class on an absolute basis because of the improved outlook for global 1 See Glossary for all benchmark definitions. One Quarter in arrears. 1 LACERA Investments
  5. 5. EXECUTIVE SUMMARY for the quarter ended December 31, 2009 EQUITY MARKET REVIEW USD weakness will boost foreign equity returns and USD strength will diminish the equity returns. In the fourth quarter, global equity markets continued their rally from the previous two quarters, although at a much more moderate pace. The dynamics of the market rally began to change late in the fourth quarter as investors finally Index focused on company earnings and fundamentals PERFORMANCE and not just cheap stock prices. Russell 3000 5.9% HIGHLIGHTS Domestic Equity: 5.9% Economic data confirmed a return to growth for Benchmark: 5.9% some developed countries and continued strong Russell 1000 6.1% Flat: 0 bps growth for emerging markets countries. The issue S&P 500 6.0% now is whether the economic growth is broad- International Equity: 3.9% based and sustainable enough to lead to Russell 2500 5.1% Benchmark: 3.7% corporate revenue growth and an increase in Russell 2000 3.9% Outperformed: 20 bps employment. LACERA’s U.S. equity benchmark, the Russell 3000 Index climbed 5.9% in the Russell 1000 Growth 7.9% fourth quarter. This was the index’s third consecutive quarterly increase, and although the increase was less than the breakneck 16% pace of the past two Russell 1000 Value 4.2% quarters, it was solidly positive. The best performing market cap segment was 4.1% Russell 2000 Growth large cap, with the Russell 1000 Index up 6.1%. Midcap stocks (as measured by the Russell Midcap Index) were close behind with a return of 5.9%, followed by a Russell 2000 Value 3.6% 3.9% rise in the small cap Russell 2000 Index. For the quarter, growth stocks outperformed value for every market cap segment. MSCI ACWI X U.S. IMI (Net)* 3.7% LACERA’s international equity benchmark, the MSCI ACWI ex-U.S. IMI Index, 9.0% MSCI EMF IMI Custom Index* also delivered another positive quarter, rising 3.7%. All regions posted single- digit gains but results differed noticeably across regions. Emerging markets rose MSCI EMF (Net) 8.5% 9% and was the best performing market segment. In contrast, the Pacific was 6.2% MSCI Canada IMI Custom Index (Net)* weighed down by negative results in Japan and barely eked out a 10 bp return. Developed markets, as measured by the MSCI EAFE + Canada Index, rose MSCI Europe (Net) 3.2% 2.4% MSCI EAFE + Canada (Net) 2.4% The U.S. dollar (USD) had mixed performance. It strengthened 2.2% versus the MSCI Pacific Basin (Net) 0.1% euro and 3.8% versus the Japanese yen, but fell 1.2% versus the British pound and 1.5% versus the Canadian dollar. As a reminder, for dollar based investors, 0% 3% 6% 9% 12% * See Glossary. 2 LACERA Investments
  6. 6. EXECUTIVE SUMMARY for the quarter ended December 31, 2009 FIXED INCOME MARKET REVIEW Yield % Yield Curve 5.0% The U.S. fixed income market rallied during the fourth quarter as investor risk appetite grew on improving economic news. U.S. Treasurys posted negative 4.5% returns for the period, returning -1.0%, while other fixed income sectors 4.0% delivered positive results. The investment grade fixed income market, as 3.5% measured by the Barclays Aggregate Index, 3.0% PERFORMANCE returned 0.2% compared to high yield bonds 2.5% HIGHLIGHTS that returned a robust 6.2%. The U.S. 2.0% Fixed Income: 1.9% Universal Index, which combines the 1.5% Benchmark: 0.6% Aggregate Index with high yield and emerging 1.0% Outperformed: 130 bps market bonds, rose 0.6% for the quarter. 0.5% 0.0% The Federal Reserve left the overnight lending rate unchanged at its October and December meetings, indicating their 0 5 10 15 20 25 30 commitment to maintaining an accommodative monetary policy while the Maturity (Years) economy recovers. Treasury rates moved higher in response to improved economic conditions as the yield on the 2-year note rose 19 bps (to 1.14%), 9/30/2009 12/31/2009 the 10-year note yield rose 53 bps (to 3.84%) and the 30-year bond yield climbed 59 bps (to 4.64%). Total Returns For the second consecutive quarter, the Commercial Mortgage-Backed BC US Universal 0.6% Securities (CMBS) sector was the best performer within the investment grade BC Aggregate 0.2% market, returning 3.3%. The Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF) and the U.S. Treasury’s Public Private BC CMBS 3.3% Investment Program (PPIP) continued to fuel the sector’s performance by stimulating demand for legacy real estate related assets that had deteriorated BC Invest. Grade Corp 1.3% in last year’s global credit crisis. BC Asset-Backed 1.3% Other notable sectors included Investment Grade Corporate (Corporates) BC Mortgage-Backed 0.6% and Asset-Backed Securities (ABS), which rose 1.3% and 1.3%, respectively. BC Treasury -1.0% Corporates continued their good performance on the strength of Financials, particularly consumer finance companies and banks, which began repaying BC High Yield Ba/B 4.8% money received from Government assistance programs. ABS performed JP Morgan Emrg Mkts 1.4% well as a result of TALF and investors’ demand for the incremental yield provided by AAA-rated ABS as substitutes for short-duration Treasurys. -2% -1% 0% 1% 2% 3% 4% 5% 6% 3 LACERA Investments
  7. 7. EXECUTIVE SUMMARY for the quarter ended December 31, 2009 COMMODITIES MARKET REVIEW DJ-UBS Commodity Index Returns Commodities rallied for the third consecutive quarter on accumulating evidence of a rebound in global growth. Commodities also benefited from the increased Industrial Metals 16.9% appetite for risk that has fueled rallies in global equities and bonds since March. The Dow-Jones UBS (DJ-UBS) Vegetable Oil 16.1% PERFORMANCE Commodity index return of 9.0% for the quarter HIGHLIGHTS raised the calendar year return to 18.9%. Every Grains 13.6% Commodities: 10.1% sector of the index generated positive returns. 7.2% Softs Benchmark: 9.0% Outperformed: 110 bps Energy, the largest sector of the index, Precious Metals 6.1% registered a respectable return of 3.4%, but was the weakest sector on a relative basis. Livestock 3.9% Performance was dragged down by natural gas, which was the worst performing commodity in the entire index for the quarter (-9.3% return) and the Energy 3.4% year (-51.6% return). Crude oil, which constitutes about half of the energy sector, was up 6.7%, ending at a price of just under $80 per barrel. DJ-UBS Comm. Index 9.0% 0% 5% 10% 15% 20% Industrial metals constitute the second-largest sector of the index. For the third quarter in a row, industrial metals were the best performing sector, rising 16.9%. This sector was also the top performer for the year, with a return of 80.0%. This tremendous annual return is attributable mostly to copper (up 130%) and zinc (up 98%). Metals benefited most directly from the improved DJ-UBS Commodity Index Sector Weights outlook for global growth, and the rally was driven primarily by demand from China. Industrial Grains, the third-largest sector of the index, were the third-best performing Energy, 33% Metals, 26% sector, up 13.6%. Despite the quarter’s robust return, poor performance earlier in the year resulted in a -1.7% return for 2009. This decline was attributable primarily to wheat, which was down 26.0% for the year. Precious Precious metals are the fourth-largest sector and generated a return of 6.1%. Metals, 11% Gold was up 8.5%, (ending the quarter at $1,096 per ounce), while silver was up just 0.9%. For the year, however, silver was the better performer, returning 47.6% versus 22.9% for gold. Vegetable Oil, Softs, 10% 2% Grains, 13% Livestock, 5% 4 LACERA Investments
  8. 8. EXECUTIVE SUMMARY for the quarter ended December 31, 2009 EQUITY MANAGER REVIEW Large Cap Large Cap LACERA’s Large Cap managers posted mixed results in the fourth quarter. Two quantitative (quant) managers outperformed while the Domestic Equity Composite 5.9% remaining large cap managers underperformed their respective benchmarks. Russell 3000 5.9% Intech and Twin outperformed by 30 and 20 bps, respectively. Both portfolios benefited mainly from stock selection in and an underweight to INTECH 6.3% financials (the only sector in the S&P 500 Index to post a negative return for the quarter). The BlackRock2 (BTC) Alpha Tilts and Goldman Sachs Twin Capital Enhanced 6.2% Equity mandates were terminated by your Board on January 13, 2010. 5.9% BTC Alpha Tilts Fund Delta’s shortfall of 30 bps was attributable to stock selection in the Goldman Equity 5.7% consumer discretionary and healthcare sectors. Although Delta Delta Asset Mgmt. 5.7% underperformed for the quarter, the manager outperformed its benchmark by 340 bps for the year. Relational, LACERA’s large cap Relational Investors 4.2% activist manager, underperformed by 180 bps as weak stock selection in its health care holdings overshadowed relative gains from its industrials S&P 500 Index 6.0% holdings. Both of LACERA’s emerging manager fund-of-funds advisors FIS Funds Management 6.8% outperformed. Northern Trust’s outperformance of 10 bps was driven by sub-manager stock selection in the financials and industrials sectors. Northern Trust 6.0% FIS beat its benchmark by 90 bps as a result of stock selection in the 5.9% Russell 3000 information technology, financials, and energy sectors. 0% 2% 4% 6% 8% Three large cap managers were outside their calculated performance bands for the quarter: Delta (one observation above), BTC Alpha Tilts (one observation below), and Goldman (one observation below). As a reminder, the latter two mandates were terminated. 2 Formerly named Barclays Global Investors or BGI. 5 LACERA Investments
  9. 9. EXECUTIVE SUMMARY for the quarter ended December 31, 2009 EQUITY MANAGER REVIEW (…cont.) Small/Mid Cap Small/Mid Cap Only one of LACERA’s five small/mid cap managers outperformed its respective benchmark for the quarter. Westwood had a strong quarter, and outpaced its benchmark by 120 bps. The portfolio’s Shamrock consumer discretionary and materials holdings led the relative gain. -6.9% Capital Both Frontier and Eagle lagged their benchmarks by 20 bps and Russell 2000 3.9% 110 bps, respectively. Frontier underperformed due to stock selection in the materials and telecommunications sectors. Eagle’s holdings in information technology, industrials, and consumer staples detracted. While Eagle’s one-year underperformance of 1250 bps was disappointing, 2009 was not the type of market environment in which Westwood 6.3% the manager would perform well. Eagle’s investment approach is to purchase high-quality companies with strong free cash flow, and these companies were not rewarded by investors for most of the year. Frontier Capital 4.9% Shamrock, LACERA’s small-cap activist manager, trailed its benchmark by 1080 bps. The results were attributable to stock Eagle Asset 4.0% selection in the materials, consumer discretionary, and information technology sectors. The materials and consumer related holdings Stinson L 0.8% were also the cause of the significant one-year underperformance. StinsonL, LACERA’s mid-cap activist manager, underperformed by 430 bps primarily due to the portfolio’s consumer discretionary Russell 2500 5.1% holdings. Stock selection in information technology sector also detracted. -12% -8% -4% 0% 4% 8% 12% Two of the small/mid cap managers were outside their calculated performance bands for the quarter: Eagle (one observation below) and Frontier (one observation above). 6 LACERA Investments
  10. 10. EXECUTIVE SUMMARY for the quarter ended December 31, 2009 EQUITY MANAGER REVIEW (…cont.) International International All but two of LACERA’s international equity managers outperformed their International Composite 3.9% respective benchmarks in the fourth quarter as investors shifted their focus MSCI ACWI X U.S. IMI (Net)* 3.7% in November away from cheap stock prices and more towards company fundamentals. Capital Guardian 3.3% Capital Guardian’s EAFE+Canada strategy outperformed by 90 bps. An underweight to Japan and to the financial sector, along with stock selection Acadian Asset Mgmt. 1.3% within each, drove the positive results. Acadian lagged its benchmark by MSCI EAFE + Canada (Net) 2.4% 110 bps due to an overweight to and poor stock selection in Japan and in industrials. Acadian’s investment model delivered strong relative results in December as markets stabilized, but the gains were not enough to offset underperformance in October and November. BTC Europe Alpha Tilts 3.6% MSCI Europe (Net) 3.2% BTC Europe Tilts surpassed its benchmark by 40 bps as its investment model performance benefited from the more stable market conditions and investors’ focus on company fundamentals. Stock selection in the 3.1% GAM International Mgmt. Netherlands and the industrials sector drove the outperformance. GAM’s outperformance of 300 bps was mostly attrbutable to stock selection in MSCI Pacific Basin (Net) 0.1% Japan and financial sector companies. Batterymarch’s outperformance of 240 bps was driven by an overweight to Batterymarch Financial Mgmt. 10.9% and stock selection in Turkey. Stock selection in China, Hong Kong and MSCI EMF (Net) 8.5% Thailand also helped . Genesis beat its benchmark by 220 bps primarily due to an overweight to and positive stock selection in South Africa and stock selection in the materials sector. Capital Guardian’s Emerging 11.2% Markets shortfall of 130 bps was mainly attributable to an overweight to Genesis Investment Mgmt. Russia and stock selection in India. Capital Guardian Emerging Mkts 7.7% MSCI EMF IMI Custom Index* 9.0% Four international equity managers were outside their calculated performance bands for the quarter: Acadian (three observations below), GAM (one observation above), Capital Emerging Markets (one observation 0% 3% 6% 9% 12% 15% below), Genesis (one observation above). * See Glossary. 7 LACERA Investments
  11. 11. EXECUTIVE SUMMARY for the quarter ended December 31, 2009 FIXED INCOME MANAGER REVIEW Core Core Fixed Income 1.9% All of LACERA’s core fixed income managers outperformed their Composite benchmark for the quarter. Dodge & Cox was again the best Fixed Income 0.6% performing core manager, outpacing the index by 200 bps because of Custom Index their overweight exposure to and security selection within Corporates. Wells Capital outpaced the index by 60 bps because of strong security selection within Consumer ABS, CMBS, Corporates, and Mortgage-Backed Securities (MBS). Pugh Capital beat the Dodge & Cox 2.2% benchmark by 50 bps because of their overweight allocation to non-Treasury sectors, particularly Corporates, CMBS, and ABS. BlackRock also generated 50 bps of outperformance for the quarter, Wells Capital 0.8% due to their exposure to non-Agency mortgages, and overweight exposure to CMBS and ABS. Pugh Capital 0.7% All core managers were outside their calculated performance bands for the quarter: Dodge & Cox (three observations above since their BlackRock 0.7% presentation to your Board in June 2009), Pugh Capital (three observations above), BlackRock (two observations above since their Barclays 0.2% presentation in August 2009), Wells Capital (one observation above Aggregate since their presentation in January 2010). 0% 1% 2% 3% 8 LACERA Investments
  12. 12. EXECUTIVE SUMMARY for the quarter ended December 31, 2009 FIXED INCOME MANAGER REVIEW (…cont.) Core Plus Core Plus All of LACERA’s core plus fixed income managers outperformed their respective benchmarks for the quarter. Western Asset was the best Western Asset 3.2% performing core plus manager, outpacing their index by 300 bps Principal 2.0% because of their overweight to, and security selection in Corporates, Loomis Sayles 2.0% High Yield, and non-Agency MBS. Principal, GW Capital, and Loomis 1.6% PIMCO Sayles beat their respective benchmarks by 180 bps for the quarter. Goldman Sachs 1.5% Principal’s overweight allocation and security selection within High Yield, Corporates, and CMBS contributed to their outperformance. Barclays Aggregate 0.2% The GW and Loomis results were attributable to the managers’ overweight allocations to Corporates and High Yield, and underweight Dolan McEniry 2.6% allocations to U.S. Treasurys. PIMCO’s below benchmark duration, 1.7% Dolan McEniry Custom Index overweight allocation to Corporates, and exposure to High Yield contributed to their 140 bps of outperformance. GW Capital 3.6% Goldman Sachs outpaced the index by 130 bps because of their GW Custom Index* 1.8% exposure to non-Agency mortgages (which are not part of the index). Dolan’s security selection within Corporates and overweight exposure LM Capital 1.2% to High Yield accounted for 90 bps of outperformance. LM Capital’s 90 bps of outperformance was achieved through their underweight LM Capital Custom Index* 0.3% allocation to U.S. Treasurys and overweight to High Yield and 0% 1% 2% 3% 4% Emerging Market Debt. The following managers were outside their calculated performance bands for the quarter: GW Capital (one observation above since their presentation to your Board in December 2009), Dolan (one observation above), Goldman Sachs and Loomis Sayles (each had two observations above since their presentation in July 2009), LM Capital (two observations above since their presentation in August 2009), PIMCO (two observations above), Principal (two below and one above since their presentation in July 2009), Western (one below and two above since their presentation in May 2009). * See Glossary. 9 LACERA Investments
  13. 13. EXECUTIVE SUMMARY for the quarter ended December 31, 2009 FIXED INCOME MANAGER REVIEW (…cont.) Opportunistic Opportunistic The opportunistic composite is currently comprised of four strategies: three high yield and one non-traditional fixed income. Of the high Oaktree Capital 5.2% yield managers, Oaktree outperformed their benchmark by 40 bps due to an overweight to Consumer Products and an allocation to European high yield bonds. Post lagged the index by 20 bps due to 4.6% Post Advisory Group their underweight exposure to the Insurance, and Metals & Mining sectors. Penn Capital underperformed the index by 20 bps as a result of the strategy’s underweight to Cable, Utilities, Chemicals, and PENN Capital 4.6% Building Materials sectors. Barclays High Yield 4.8% Post had one observation below their calculated performance band Ba/B since they presented to your Board in September 2009. Penn Capital had three observations below their lower band. In addition to the high yield managers, LACERA’s opportunistic investments consist of a portfolio managed by Western Asset Western Opportunistic 4.4% Management. Although Western underperformed its benchmark by 60 bps due to security selection, the portfolio added considerable Western Opportunistic 5.0% value to LACERA’s fixed income composite. Western’s return of 4.5% Custom* outpaced LACERA’s fixed income composite benchmark by 387 bps for the quarter. 0% 2% 4% 6% * See Glossary. 10 LACERA Investments
  14. 14. EXECUTIVE SUMMARY for the quarter ended December 31, 2009 COMMODITIES MANAGER REVIEW LACERA’s commodities manager composite outperformed its benchmark, the Dow Jones-UBS (DJ-UBS) Commodity Index, by Commodities 1.1% in the fourth quarter, with a return of 10.1% versus the index return of 9.0%. Both managers outperformed the index for the quarter: Neuberger/Gresham by 1.5% and PIMCO by 0.8%. For the Commodities calendar year, both managers beat the index by substantial margins: 10.1% Composite PIMCO outperformed by 12.6% and Neuberger/Gresham outperformed by 7.4%. PIMCO added value in both components of the strategy: commodity Neuberger/Gresham 10.5% management, as well as management of the underlying fixed income collateral. However, the overwhelming majority of PIMCO’s outperformance, both for the quarter and the year, came from the fixed income portfolio. Bonds bearing credit risk enjoyed a PIMCO 9.8% remarkable rebound in 2009 following their dismal performance in 2008. As a result, PIMCO’s exposure to corporate bonds and MBS accounted for approximately 80% of its outperformance for the DJ-UBS Comm. 9.0% quarter. The remaining 20% is attributable to PIMCO’s active Index commodity strategies. In the Neuberger/Gresham portfolio, Neuberger manages the fixed 0% 3% 6% 9% 12% 15% income collateral in a conservative manner, and Gresham manages the commodity exposure. Gresham’s active selection and trading of commodity futures is the main generator of outperformance. Gresham’s outperformance for the quarter is attributable primarily to allocation and trading in two commodities: natural gas and copper. Gresham has consistently held an underweight position in natural gas, and this added value because natural gas was the worst performing commodity in the index. Similarly, Gresham had an overweight position in copper, the top performing commodity in the index. 11 LACERA Investments
  15. 15. TOTAL FUND ANNUALIZED AND ANNUAL RETURNS Gross of Fees Annualized Annual for the quarter ended December 31, 2009 4th Qtr 1 Yr 3 Yrs 5 Yrs 7 Yrs 10 Yrs 2008 2007 2006 2005 2004 Domestic Equity 5.9 % 28.4 % -5.8 % 0.6 % 6.2 % -0.3 % -37.5 % 4.2% 16.2 % 6.0 % 10.8 % Russell 3000 Index 5.9 28.3 -5.4 0.8 6.2 -0.2 -37.3 5.1 15.7 6.1 11.9 International Equity 3.9 43.6 -3.0 6.1 12.3 2.8 -45.5 16.5 26.5 16.9 20.3 MSCI ACWI X U.S. IMI (Net) 3.7 43.6 -3.2 6.0 12.5 2.8 -45.9 16.7 26.7 16.6 20.9 Fixed Income 1.9 16.8 6.4 5.5 6.0 6.8 -3.0 6.3 5.5 2.9 5.8 F. I. Custom Index 0.6 8.8 6.2 5.2 5.4 6.3 3.1 6.7 5.0 2.6 5.2 Barclays U.S. Universal Index 0.6 8.6 5.8 5.0 5.1 6.4 2.4 6.5 5.0 2.7 5.0 Real Estate1 -1.2 -27.5 -6.7 3.6 6.1 6.9 -0.5 12.6 20.9 21.9 14.8 NPI minus 25 bps -3.4 -22.3 -1.5 5.9 7.0 7.6 5.0 17.0 17.3 18.9 12.1 Private Equity1 7.4 -6.5 8.6 15.5 13.5 11.5 -0.5 37.8 26.7 26.7 22.5 P. E. Target Return 1.4 5.7 5.7 5.7 5.7 5.7 8.8 12.6 13.5 15.1 16.7 Commodities 10.1 29.5 -- -- -- -- -40.0 -- -- -- -- DJ-UBS Commodity Index 9.0 18.9 -- -- -- -- -35.6 -- -- -- -- Total Fund (Gross of Fees) 3.8 16.3 -0.5 4.8 8.2 4.0 -23.5 10.7 16.4 10.1 12.6 Total Fund Policy Benchmark 2.6 18.1 0.6 5.0 8.3 -- -21.5 9.8 14.8 9.2 12.1 See Glossary for all benchmark definitions. 1 One Quarter in arrears. 12 LACERA Investments
  16. 16. TOTAL FUND ANNUALIZED AND ANNUAL RETURNS Net of Fees Annualized 1 Annual for the quarter ended December 31, 2009 4th Qtr 1 Yr 3 Yrs 5 Yrs 7 Yrs 2008 2007 2006 2005 2004 Domestic Equity 5.8 % 28.3 % -5.9 % 0.5 % 6.1 % -37.6 % 4.1% 16.0 % 5.9 % 10.7 % Russell 3000 Index 5.9 28.3 -5.4 0.8 6.2 -37.3 5.1 15.7 6.1 11.9 International Equity 3.8 43.4 -3.2 6.0 12.2 -45.6 16.3 26.4 16.7 20.1 MSCI ACWI X U.S. IMI (Net) 3.7 43.6 -3.2 6.0 12.5 -45.9 16.7 26.7 16.6 20.9 Fixed Income 1.9 16.6 6.2 5.3 5.8 -3.2 6.1 5.4 2.7 5.6 F. I. Custom Index 0.6 8.8 6.2 5.2 5.4 3.1 6.7 5.0 2.6 5.2 Barclays U.S. Universal Index 0.6 8.6 5.8 5.0 5.1 2.4 6.5 5.0 2.7 5.0 Real Estate2 -1.4 -27.8 -7.1 2.7 5.0 -0.5 11.7 18.7 19.8 13.3 NPI minus 25 bps -3.4 -22.3 -1.5 5.9 7.0 5.0 17.0 17.3 18.9 12.1 Private Equity2 7.4 -6.5 8.6 15.5 13.5 -0.5 37.8 26.7 26.7 22.5 P. E. Target Return 1.4 5.7 5.7 5.7 5.7 8.8 12.6 13.5 15.1 16.7 Commodities 10.0 29.0 -- -- -- -40.2 -- -- -- -- DJ-UBS Commodity Index 9.0 18.9 -- -- -- -35.6 -- -- -- -- Total Fund (Net of Fees) 3.7 16.1 -0.7 4.6 8.0 -23.6 10.5 16.1 9.8 12.4 Total Fund Policy Benchmark 2.6 18.1 0.6 5.0 8.3 -21.5 9.8 14.8 9.2 12.1 See Glossary for all benchmark definitions. 1 Ten-year net-of-fees returns are not available. 2 One Quarter in arrears. 13 LACERA Investments
  17. 17. TOTAL FUND FISCAL YEAR RETURNS FYTD 08/09 07/08 06/07 05/06 04/05 Domestic Equity 22.9 % -26.3 % -14.1 % 20.5 % 10.1 % 6.9 % Russell 3000 Index 23.2 -26.6 -12.7 20.1 9.6 8.1 International Equity 24.6 -30.8 -6.4 30.4 27.9 16.2 MSCI ACWI X U.S. IMI (Net) 24.5 -30.5 -6.6 29.6 27.9 16.5 Fixed Income 8.7 4.1 5.3 6.7 0.6 7.7 F. I. Custom Index 5.1 5.8 6.6 6.4 -0.1 7.4 Barclays U.S. Universal Index 5.1 4.9 6.2 6.6 -0.3 7.4 Real Estate1 -12.3 -19.1 11.4 18.1 23.1 13.7 NPI minus 25 bps -8.5 -14.9 13.3 16.3 19.9 15.3 Private Equity1 13.7 -23.5 23.6 31.2 26.3 24.1 P. E. Target Return 2.3 2.7 11.2 13.6 14.2 17.0 Commodities 16.3 -47.7 42.9 -- -- -- DJ-UBS Commodity Index 13.7 -47.1 41.6 -- -- -- Total Fund (Gross of Fees) 13.9 -18.2 -1.4 19.1 13.4 11.0 Total Fund (Net of Fees) 13.8 -18.3 -1.6 18.8 12.9 10.7 Total Fund Policy Benchmark 12.9 -14.4 -0.9 16.9 11.8 11.0 See Glossary for all benchmark definitions. 1 One Quarter in arrears. 14 LACERA Investments
  18. 18. TOTAL FUND TOTAL FUND vs. BENCHMARK for the one-year ended December 31, 2009 Total Fund Benchmark Return Attribution 1 Year 1 Year Average 1 Year Policy 1 Year Allocation Selection Weight Return Weight Return Decision1 Decision2 Total Domestic Equity 28.3% 28.4% 0.0% -0.1% -0.1% Russell 3000 Index 30.0% 28.3% International Equity 20.0% 43.6% -0.6% 0.0% -0.6% MSCI ACWI X U.S. IMI (Net) 21.0% 43.6% Fixed Income 28.7% 16.8% 0.0% 2.1% 2.1% F. I. Custom Index 28.0% 8.8% Real Estate 11.6% -27.5% -0.9% -0.9% -1.8% NPI minus 25 bps 10.0% -22.3% Private Equity 8.6% -6.5% -0.3% -1.3% -1.6% P. E. Target Return 7.0% 5.7% Commodities 1.4% 29.5% 0.0% 0.1% 0.1% DJ-UBS Commodity Index 2.0% 18.9% Cash 1.3% 4.2% 0.1% 0.0% 0.1% Citigroup 6-Month T-Bill 2.0% 0.5% Total Fund 100.0% 16.3% -1.7% -0.1% -1.8% Total Fund Policy Benchmark 100.0% 18.1% See Glossary for all benchmark definitions. 1 Allocation decision reflects the asset class over or underweight (versus the policy weight) multiplied by the difference between the asset class and total fund return. 2 Selection decision reflects the fund's asset class return versus the asset class benchmark return, multiplied by the fund's asset class weight. 15 LACERA Investments
  19. 19. TOTAL FUND RISK-ADJUSTED RETURN for the quarter ended December 31, 2009 January 2003 - December 2009 (7 Years) 9% 8% 7% 6% Return 5% 4% 3% 2% 1% 0% 0% 2% 4% 6% 8% 10% 12% Standard Deviation Total Fund Policy Cash Equivalent: Capital Market Total Fund Benchmark 3-month T-bill Line 16 LACERA Investments
  20. 20. ASSET ALLOCATION TOTAL FUND for the quarter ended December 31, 2009 Commodities, Private Equity, 2.3% 8.9% Cash, 0.8% Domestic Equity, 29.4% Real Estate, 8.9% Fixed Income, 26.2% International Equity, 23.5% 17 LACERA Investments
  21. 21. ASSET ALLOCATION ACTUAL vs. TARGET December 31, 2009 Target Market Value % of Market Value % of Rebalancing ($ millions) Total Fund ($ millions) Total Fund Range EQUITIES Domestic1 10,129.8 29.4% 9,996.0 29.0% International1 8,088.7 23.5% 7,927.9 23.0% Total Public Equities 18,218.5 52.9% 17,923.9 52.0% 42-62% PRIVATE EQUITY2 3,082.0 8.9% 2,412.8 7.0% 4-10% FIXED INCOME 9,054.4 26.2% 8,962.0 26.0% 23-29% CASH 274.2 0.8% 689.4 2.0% 0-4% Total Fixed Income 9,328.6 27.0% 9,651.4 28.0% 23-33% REAL ESTATE2 3,059.3 8.9% 3,446.9 10.0% 7-15% COMMODITIES 780.8 2.3% 1,034.1 3.0% 0-3% TOTAL FUND $ 34,469.1 100.0% $ 34,469.1 100.0% 1 Interim global equity target weights. 2 One Quarters in arrears. 18 LACERA Investments
  22. 22. ASSET ALLOCATION DOMESTIC EQUITY MANAGERS December 31, 2009 September 30, 2009 Assets % of Policy Assets % of ($ millions) Composite Range ($ millions) Composite PASSIVE BTC Russell 1000 Index 5,539.8 54.7% 5,221.8 51.7% BTC Russell 2000 Index 472.5 4.7% 454.8 4.5% BTC S&P 500 Index 1,178.0 11.6% 1,637.0 16.2% Total Passive 7,190.4 71.0% 35%-75% 7,313.6 72.4% LOW RISK BTC Alpha Tilts 460.7 4.5% 435.6 4.3% Goldman Sachs 244.7 2.4% 231.5 2.3% INTECH 262.7 2.6% 247.3 2.4% Twin Capital 135.6 1.3% 127.8 1.3% Total Low Risk 1,103.6 10.9% 0%-25% 1,042.2 10.3% MODERATE/HIGH RISK Delta Asset Mgmt. 404.7 4.0% 383.1 3.8% Eagle Asset Mgmt. 229.6 2.3% 220.9 2.2% FIS Funds Mgmt. 148.1 1.5% 138.7 1.4% Frontier Capital Mgmt. 410.2 4.0% 391.7 3.9% Northern Trust Global Advisors 188.7 1.9% 178.0 1.8% Relational Investors 84.5 0.8% 80.8 0.8% Shamrock Capital Advisors 68.8 0.7% 65.5 0.6% Stinson Capital Partners 78.1 0.8% 77.5 0.8% Westwood Mgmt. Corp. 223.1 2.2% 210.1 2.1% Total Moderate/High Risk 1,835.8 18.1% 10%-30% 1,746.3 17.3% TOTAL DOMESTIC EQUITY $ 10,129.8 100.0% $ 10,102.1 100.0% 19 LACERA Investments
  23. 23. ASSET ALLOCATION INTERNATIONAL EQUITY MANAGERS December 31, 2009 September 30, 2009 Assets % of Policy Assets % of ($ millions) Composite Range ($ millions) Composite PASSIVE BTC Canada Index IMI 547.5 6.8% 487.7 6.6% BTC EAFE Index IMI 3,830.9 47.4% 3,536.1 48.1% BTC Emerging Markets Index 332.9 4.1% 178.4 2.4% BTC Europe Index 307.0 3.8% 263.0 3.6% Total Passive 5,018.3 62.0% 40%-70% 4,465.2 60.8% NON-US DEVELOPED Acadian Asset Mgmt. 425.8 5.3% 420.6 5.7% Capital Guardian 215.6 2.7% 209.0 2.8% Total Non U.S. Developed 641.3 7.9% 0%-40% 629.6 8.6% REGIONAL DEVELOPED BTC Europe Alpha Tilts 560.8 6.9% 542.1 7.4% GAM International Mgmt. 500.4 6.2% 485.6 6.6% Total Regional Developed 1,061.1 13.1% 10%-20% 1,027.8 14.0% EMERGING MARKETS Batterymarch Financial Mgmt. 276.8 3.4% 249.7 3.4% Capital Guardian Emerging 692.9 8.6% 643.6 8.8% Genesis Investment Mgmt. 398.2 4.9% 334.2 4.5% Total Emerging Markets 1,367.9 16.9% 10%-20% 1,227.5 16.7% TOTAL INTERNATIONAL EQUITY $ 8,088.7 100% $ 7,350.0 100% 20 LACERA Investments
  24. 24. ASSET ALLOCATION FIXED INCOME MANAGERS & PROGRAMS December 31, 2009 September 30, 2009 Assets % of Policy Assets % of ($ millions) Total Fixed Range ($ millions) Total Fixed CORE BTC Aggregate Index 340.8 3.8% 340.0 3.7% BTC Intermediate Credit Index 35.3 0.4% 34.8 0.4% BlackRock 1,053.5 11.6% 1,046.0 11.4% Dodge & Cox 1,083.2 12.0% 1,060.5 11.5% Pugh Capital Mgmt. 63.7 0.7% 63.3 0.7% Wells Capital Mgmt. 997.6 11.0% 990.5 10.8% Total Core 3,574.2 39.5% 40%-60% 3,535.0 38.5% CORE PLUS Dolan McEniry Capital Mgmt. 67.2 0.7% 65.5 0.7% Goldman Sachs Asset Mgmt. 645.2 7.1% 636.0 6.9% GW Capital 84.0 0.9% 81.1 0.9% LM Capital Group 579.6 6.4% 597.5 6.5% Loomis, Sayles & Co. 726.3 8.0% 830.6 9.0% PIMCO 816.9 9.0% 882.8 9.6% Principal Global Investors 536.5 5.9% 525.9 5.7% Western Asset Mgmt. 771.4 8.5% 820.9 8.9% Total Core Plus 4,226.9 46.7% 25%-45% 4,440.5 48.3% OPPORTUNISTIC High Yield Oaktree Capital Mgmt. 425.7 4.7% 405.0 4.4% PENN Capital Mgmt. 63.8 0.7% 61.1 0.7% Post Advisory Group 424.2 4.7% 405.7 4.4% Other Western Asset Mgmt. (Opp.) 117.7 1.3% 112.7 1.2% Total Opportunistic 1,031.4 11.4% 5%-20% 984.4 10.7% PROGRAMS Member Home Loan Program (MHLP) 221.8 2.4% 231.4 2.5% Whole Loan Program (WLP) 0.1 0.0% 0.1 0.0% Total Programs 221.9 2.5% 231.5 2.5% 1 TOTAL FIXED INCOME $ 9,054.4 100.0% $ 9,191.3 100.0% 1 Does not include cash. 21 LACERA Investments
  25. 25. ASSET ALLOCATION COMMODITIES MANAGERS December 31, 2009 September 30, 2009 Assets % of Assets % of ($ millions) Commodities ($ millions) Commodities Neuberger Berman 305.3 39.1% 202.3 39.0% PIMCO 475.6 60.9% 316.8 61.0% TOTAL COMMODITIES $ 780.8 100.0% $ 519.1 100.0% 22 LACERA Investments
  26. 26. ANNUALIZED TOTAL RETURNS DOMESTIC EQUITY MANAGERS for the quarter ended December 31, 2009 Gross of Fees Net of Fees Expected Excess Style 4th Qtr 1 Yr 3 Yrs 5 Yrs Return (bps) 4th Qtr 1 Yr 3 Yrs 5 Yrs LARGE CAP BTC Alpha Tilts Core 5.9 % 25.1% -7.1% 0.4% 25-50 5.8 % 24.7 % -7.3 % 0.1 % Delta Asset Mgmt. Core 5.7 29.8 -4.3 1.1 25-50 5.6 29.6 -4.4 1.0 Goldman Sachs Core 5.7 24.4 -6.6 -- 25-50 5.7 24.1 -6.8 -- INTECH Core 6.3 25.5 -4.9 -- 25-50 6.2 25.1 -5.2 -- Twin Capital Core 6.2 25.9 -4.8 -- 25-50 6.2 25.7 -5.0 -- Relational Investors Value 4.2 29.1 -6.3 -- 50-75 4.2 29.1 -6.3 -- BTC S&P 500 Index Index 6.1 26.8 -5.5 0.5 -- 6.1 26.8 -5.5 0.5 S&P 500 Index 6.0 26.5 -5.6 0.4 6.0 26.5 -5.6 0.4 BTC Russell 1000 Index Index 6.1 28.5 -- -- -- 6.1 28.5 -- -- Russell 1000 Index 6.1 28.4 -5.4 0.8 6.1 28.4 -5.4 0.8 SMALL/MID CAP Eagle Asset Mgmt. Core 4.0 21.9 -2.6 -- 50-75 3.9 21.2 -3.1 -- Frontier Capital Mgmt. Growth 4.9 48.9 -0.4 6.2 50-75 4.7 47.9 -1.2 5.4 Stinson Capital Value 0.8 44.5 -8.9 -- 50-75 0.8 44.5 -8.9 -- Westwood Mgmt. Corp. Core 6.3 -- -- -- 50-75 6.2 -- -- -- Russell 2500 Index 5.1 34.4 -4.9 1.6 5.1 34.4 -4.9 1.6 Shamrock Capital Value -6.9 2.1 -11.2 -- 50-75 -6.9 2.1 -11.2 -- BTC Russell 2000 Index Index 3.9 27.5 -- -- -- 3.9 27.4 -- -- Russell 2000 Index 3.9 27.2 -6.1 0.5 3.9 27.2 -6.1 0.5 EMERGING MANAGER PROGRAM FIS Funds Mgmt. -- 6.8 26.7 -4.9 1.4 40-60 6.7 25.9 -5.5 0.8 Northern Trust Global Advisors -- 6.0 29.5 -4.2 1.8 40-60 5.9 29.0 -4.7 1.4 Russell 3000 Index 5.9 28.3 -5.4 0.8 5.9 28.3 -5.4 0.8 23 LACERA Investments
  27. 27. ANNUALIZED TOTAL RETURNS INTERNATIONAL EQUITY MANAGERS for the quarter ended December 31, 2009 Gross of Fees Net of Fees Expected Excess 4th Qtr 1 Yr 3 Yrs 5 Yrs Return (bps) 4th Qtr 1 Yr 3 Yrs 5 Yrs NON U.S. Acadian Asset Mgmt. 1.3 % 27.7% -10.4 % -- % 50-75 1.2 % 27.2 % -10.7 % -- % MSCI EAFE + Canada (Net) 2.4 33.7 -5.3 -- 2.4 33.7 -5.3 -- Capital Guardian 3.3 30.0 -5.2 4.1 50-75 3.2 29.6 -5.6 3.7 EAFE Custom Index 2.4 33.7 -5.3 3.9 2.4 33.7 -5.3 3.9 BTC EAFE Index IMI1 1.9 33.7 -5.5 4.0 -- 1.9 33.7 -5.5 4.0 MSCI EAFE IMI Custom Index (Net) 1.8 33.2 -5.9 3.6 1.8 33.2 -5.9 3.6 BTC Canada Index IMI1 6.3 61.4 4.3 -- -- 6.3 61.4 4.2 -- MSCI Canada IMI Custom Index (Net) 6.2 60.3 3.7 -- 6.2 60.3 3.7 -- PACIFIC BASIN GAM International Mgmt. 3.1 46.4 -0.2 7.6 75-100 3.0 45.8 -0.7 7.1 MSCI Pacific Basin (Net) 0.1 24.2 -6.0 2.7 0.1 24.2 -6.0 2.7 EUROPE BTC Europe Alpha Tilts 3.6 35.1 -6.7 -- 25-50 3.4 34.4 -7.1 -- BTC Europe Index 3.3 36.7 -5.6 4.3 -- 3.3 36.6 -5.6 4.3 MSCI Europe (Net) 3.2 35.8 -6.1 3.9 3.2 35.8 -6.1 3.9 EMERGING MARKETS Batterymarch Financial Mgmt.2 10.9 81.2 -- -- 50-100 10.9 81.2 -- -- BTC Emerging Markets Index 8.3 77.4 4.8 15.2 -- 8.2 77.1 4.5 14.9 MSCI EMF (Net) 8.5 78.5 5.1 15.5 8.5 78.5 5.1 15.5 Capital Guardian Emerging2 7.7 77.8 7.6 18.7 50-100 7.7 77.8 7.6 18.7 Genesis Investment Mgmt. 11.2 91.1 -- -- 50-100 11.0 89.6 -- -- MSCI EMF IMI Custom Index 9.0 82.4 5.8 16.0 9.0 82.4 5.8 16.0 See Glossary for all benchmark definitions. 1 BTC EAFE & Canada Funds; 8/31/08 - Present: BTC EAFE & Canada IMI Funds. 2 Returns reflect fees (they are taken directly from the commingled fund). 24 LACERA Investments
  28. 28. ANNUALIZED TOTAL RETURNS FIXED INCOME MANAGERS for the quarter ended December 31, 2009 Gross of Fees Net of Fees Expected Excess 4th Qtr 1 Yr 3 Yrs 5 Yrs Return (bps) 4th Qtr 1 Yr 3 Yrs 5 Yrs CORE BTC Aggregate Index 0.2 % 6.0% 6.2 % 5.2% -- 0.2% 6.0 % 6.2 % 5.1 % BlackRock 0.7 10.1 6.1 5.0 15-30 0.7 10.0 5.9 4.9 Dodge & Cox 2.2 16.8 7.4 6.1 15-30 2.1 16.7 7.3 6.0 Pugh Capital Mgmt. 0.7 9.0 7.1 -- 15-30 0.7 8.8 6.8 -- Wells Capital Mgmt. 0.8 12.2 7.9 6.2 15-30 0.7 12.0 7.7 6.0 Barclays Aggregate 0.2 5.9 6.0 5.0 0.2 5.9 6.0 5.0 BTC Intermediate Credit Index 1.6 -- -- -- 15-30 1.6 -- -- -- Barclays 1-3 Year Credit 1.3 11.6 5.9 4.8 1.3 11.6 5.9 4.8 CORE PLUS Goldman Sachs Asset Mgmt. 1.5 12.0 5.9 -- 30-60 1.4 11.8 5.7 -- Loomis, Sayles & Co. 2.0 22.8 5.6 5.0 30-60 2.0 22.6 5.5 4.8 PIMCO 1.6 13.5 8.0 6.5 30-60 1.5 13.3 7.8 6.3 Principal Global Investors 2.0 17.6 2.4 -- 30-60 2.0 17.5 2.3 -- Western Asset Mgmt. 3.2 23.2 5.2 4.9 30-60 3.1 23.0 5.1 4.8 Barclays Aggregate 0.2 5.9 6.0 5.0 0.2 5.9 6.0 5.0 Dolan McEniry Capital Mgmt. 2.6 24.4 8.5 -- 30-60 2.5 24.1 8.1 -- Dolan McEniry Custom Index1 1.7 16.0 6.2 5.2 1.7 16.0 6.2 5.2 GW Capital 3.6 32.5 6.8 6.0 30-60 3.5 32.2 6.5 5.7 GW Custom Index1 1.8 19.6 5.7 5.3 1.8 19.6 5.7 5.3 LM Capital Group 1.2 12.0 6.6 5.6 30-60 1.2 11.8 6.4 5.4 LM Custom Index1 0.3 7.8 6.1 5.3 0.3 7.8 6.1 5.3 OPPORTUNISTIC High Yield Oaktree Capital Mgmt. 5.2 44.4 5.9 6.5 30-50 5.1 43.8 5.4 6.0 PENN Capital Mgmt. 4.6 38.5 4.2 -- 30-50 4.5 37.9 3.8 -- Post Advisory Group 4.6 38.5 5.7 6.1 30-50 4.6 38.1 5.4 5.7 Barclays High Yield BB/B Index 4.8 45.4 4.9 5.7 4.8 45.4 4.9 5.7 Other Western Asset Mgmt. (Opp.) 4.4 -- -- -- 30-60 4.4 -- -- -- 1 Western Opportunistic Custom 5.0 -- -- -- 5.0 -- -- -- Continues… 1 See Glossary. 25 LACERA Investments
  29. 29. ANNUALIZED TOTAL RETURNS FIXED INCOME PROGRAMS for the quarter ended December 31, 2009 ...Continued Gross of Fees Net of Fees Excess Return 4th Qtr 1 Yr 3 Yrs 5 Yrs Expectation (in bps) 4th Qtr 1 Yr 3 Yrs 5 Yrs MORTGAGE PROGRAMS Member Home Loan Program (MHLP) 0.6% 6.7% 6.4% -- -- 0.5% 6.5% 6.2% -- Whole Loan Program (WLP) 4.2 16.0 12.6 -- -- 4.0 15.2 11.5 -- COMMODITIES MANAGERS Gross of Fees Net of Fees Excess Return 4th Qtr 1 Yr 3 Yrs 5 Yrs Expectation (in bps) 4th Qtr 1 Yr 3 Yrs 5 Yrs COMMODITIES MANAGERS Neuberger Berman 10.5 % 26.3 % -- -- 100-200 10.4 % 25.9 % -- -- PIMCO 9.8 31.5 -- -- 100-200 9.8 31.0 -- -- DJ-UBS Commodity Index 9.0 18.9 -- -- 9.0 18.9 -- -- 26 LACERA Investments
  30. 30. DOMESTIC EQUITIES RISK-ADJUSTED RETURN for the quarter ended December 31, 2009 January 2000 - December 2009 (10 Years) 3% 2.5% 2% 1.5% Return 1% 0.5% 0% -0.5% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Standard Deviation Domestic Equity Market Benchmark: Cash Equivalent: Capital Market (Gross) Russell 3000 3-month T-bill Line 27 LACERA Investments
  31. 31. DOMESTIC EQUITIES - LARGE CAP BLACKROCK INSTITUTIONAL TRUST COMPANY, N.A. - ALPHA TILTS for the quarter ended December 31, 2009 Manager vs Benchmark: Return through Decem ber 2009 Manager Profile (not annualized if less than 1 year) Firm: BlackRock Institutional Trust Co., N.A. Analysis Since 1 quarter 1 year 3 years 5 years Location: San Francisco, CA Period Inception Year Founded: 1985 BT C Contact: Lilian Wan, Managing Director Alpha T ilts 5.88% 25.10% -7.07% 0.39% 2.80% Assets Managed: $460.7 million Inception Date: December 2003 T UCS Large Assigned Role: Enhanced Index - Alpha Tilts Cap Core 5.90% 26.61% -5.42% 1.09% 3.40% NA Benchmark: S&P 500 Investment Style: Core S&P 500 6.04% 26.46% -5.63% 0.42% 2.92% M anager Risk/Return Calendar Year Returns December 2003 - December 2009 As of December 2009 3% 40% 25.1% 26.5% 2.5% 20% 16.5% 15.8% 2% 9.1% 5.5% 4.9% Return Returns 0.8% 1.5% 0% 1% -20% 0.5% -40% -36.4%-37.0% 0% 0% 2% 4% 6% 8% 10% 12% 14% 16% 2009 2008 2007 2006 2005 Standard Deviation Market Benchmark: Cash Equivalent: Capital Market BTC Alpha Tilts BTC Alpha Tilts S&P 500 S&P 500 3-month T-bill Line 28 LACERA Investments
  32. 32. DOMESTIC EQUITIES - LARGE CAP DELTA ASSET MANAGEMENT for the quarter ended December 31, 2009 Manager vs Benchmark: Return through December 2009 Manager Profile (not annualized if less than 1 year) Firm: Delta Asset Management Since 1 quarter 1 year 3 years 5 years 7 years 10 years Location: Los Angeles, CA Inception Year Founded: 1991 Contact: Marla K. Ryan, Vice President Delta 5.67% 29.85% -4.28% 1.12% 6.17% 0.23% 11.71% Assets Managed: $404.7 million Inception Date: July 1984 TUCS Larg e Assigned Role: Large Cap Equity 5.90% 26.61% -5.42% 1.09% NA NA NA -0.43% Cap Core Benchmark: S&P 500 Investment Style: Core S&P 500 6.04% 26.46% -5.63% 0.42% 5.52% -0.95% 10.80% Manager Risk/Return Calendar Year Returns July 1984 - December 2009 As of December 2009 1% 2 40% 29.8% 26.5% 1% 0 20% 15.0% 15.8% 8% 9.0% 5.5% 4.8% 4.9% Returns Return 6% 0% 4% -20% 2% -40% -38.0%-37.0% 0% 0% 2% 4% 6% 8% 1% 0 1% 2 1% 4 1% 6 Standard Deviation 2009 2008 2007 2006 2005 Market Benchmark: Cash Equivalent: Capital Market Delta Delta S&P 500 S&P 500 3-month T -bill Line 29 LACERA Investments

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