The document outlines the investment manager selection process by the Multnomah Group, emphasizing a philosophy grounded in modern portfolio theory, risk and return correlation, and cost efficiency. It details a structured approach that includes quantitative analysis, qualitative due diligence, and a comprehensive review of investment managers based on factors like expenses, tenure, and skill. Finally, it stresses the importance of aligning investment choices with client objectives and ensuring operational integrity in fund recommendations.

1. Investment Manager Selection
February 20, 2013
©2003 – 2013 Multnomah Group, Inc. All Rights Reserved.

2. Agenda
• Investment Philosophy
• Process Overview
• Quantitative Analysis
• Qualitative Due Diligence
2 Investment Manager Selection

3. Scott Cameron, CFA
Scott is the Chief Investment Officer for the Multnomah Group and a Founding
Principal of the firm. In that role, Scott leads Multnomah Group’s Investment
Committee, is responsible for the development of the firm’s investment
research methodology, and conducts investment manager due diligence. Scott
also consults with plan sponsors on investment menu design, investment
manager selection, fiduciary governance, and vendor fees/services.
Prior to founding the Multnomah Group, Scott was an investment consultant
with a national retirement services firm.
Scott is a member of the CFA Institute, the CFA Society of Portland, the
Investment Management Consultants Association, and the Portland Chapter of
the Western Pension & Benefits Council. Scott holds a B.S in Management
from Purdue University.
3 Investment Manager Selection

4. Investment Philosophy
• Grounded in Modern Portfolio Theory (MPT)
• Risk and return are highly correlated
• Index funds are prevalent across asset classes
• Provide asset class exposure
• Low cost
• Minimize “active” risk (tracking error)
Annualized Return (Last 10 Years)
14.00
12.00
S&P 500 Index
10.00 (7.10%)
8.00
6.00
4.00
2.00
0.00
Source: MPI Stylus, Morningstar US Mutual Fund Database, The peer range shows distinct Large Value, Large Blend, and Large
Growth funds with a 10 year track record
4 Investment Manager Selection

5. Process Overview
Define the Investment Universe
• Investment Style Purity
• Investment Style Consistency
• Expenses
• Manager Tenure
Conduct the Quantitative Analysis • Diversification
• Manager Skill
• Consistency of Manager Skill
• Risk
• Investment Philosophy and Process
• Investment Staff Tenure and Experience
• Firm Stability
Complete the Qualitative • Shareholder Friendliness
Due Diligence • Asset Base and Asset Growth
Recommend
Funds
5 Investment Manager Selection

6. Define the Investment Universe
• 10,000+ distinct mutual funds in U.S.
• 2,000+ collective investment trusts (CITs)
• Insurance company separate accounts and ETFs
• Filter out non-institutional investment products (B and C share funds, etc.)
• Sort into peer groups
• Morningstar Category™ is common industry methodology
• Currently maintain 53 peer groups in our internal database
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7. Conduct the Quantitative Analysis
• Investment Style Purity
• Investment Style Consistency
• Expenses
• Manager Tenure
• Diversification
• Manager Skill
• Consistency of Manager Skill
• Risk
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8. Investment Style Purity
• Participant Focus on Asset Allocation
• Investment Products are Tools for Building Asset Allocation
• Lack of Style Purity Indicates Potential Future Risk
8 Investment Manager Selection

9. Investment Style Consistency
• Lack of Style Consistency at Odds with Asset Allocation Decisions
• Market Timing is a Difficult Method for Active Managers to Add Value
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10. Expenses
• Net of Fee Performance is What Investors Care About
• High Expenses Create Hurdle for Active Management
• Need to Earn Higher Gross Returns to Deliver Equivalent Net Returns
• Rewards Should Accrue to Investors, Not Investment Manager
• Expense Ratio May Include Revenue Sharing
• Focus on Institutional Share Class for Apples-to-Apples Analysis
• Revenue Sharing is a Separate Decision From Investment Manager Selection
• Turnover Ratio
• Proxy for Trading Costs and Market Impacts
• Impact is Dependent on Liquidity of the Market and Size of the Portfolio
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11. Manager Tenure
• Is the Performance Track Record Relevant?
• Longer Tenure:
• Historical Performance is Less Attributable to Market Dynamics
• Stability is Indicative of Future Stability
• Tenure is a Flag for Qualitative Analysis of Investment Team.
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12. Diversification
• Measure of Risk Management
• Concentrated Portfolios Are Generally Not Appropriate in DC Investment Menu
• Total Number of Holdings
• % of Assets in Top 10 Holdings
• Level of Diversification May Vary by Asset Class
• Government Bond Funds
• REITS
• Sector Funds
• TIPS
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13. Manager Skill
• Seeking to Identify Managers that Can Outperform the Market on a Risk-
Adjusted Basis
• Fund’s Returns are attributable to:
• Market Performance – performance attributable to market exposure (available
through index fund)
• Market Timing – performance attributable to deviations from long-term style
• Security Selection – performance attributable to picking securities within
benchmark
• Different Measures of Manager Skill
• Excess Return – simplest measure comparing fund’s performance against
benchmark performance
• Security Selection – used style-adjusted customized benchmark to evaluate
value added (subtracted) through security selection decisions
• Alpha – style-adjusted customized benchmark that identifies whether a fund has
outperformed expectations given its style exposure
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14. Manager Skill (cont…)
24M Rolling Selection and Timing Returns Quarterly Excess Returns
4.0 8.00
6.00
3.0
4.00
2.0
A n n u a liz e d R e t u rn s
2.00
Excess Return, %
1.0
0.00
0.0
-2.00
-1.0 -4.00
-6.00
-2.0
Jan-10 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12
Selection Timing -8.00
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
24M Rolling Alpha
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
-6.0
Jan-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
USD, 36-month centered window; exp. weighted
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15. Consistency of Manager Skill
• Past Performance Can Be
Misleading
• One Strong Period Can Skew
Results for Many Years 24M Rolling Batting Average
• Seeking to Identify Managers that
Can Consistently Add Value
• Batting Average
• # of months a fund outperforms the
benchmark divided by the total # of
months in the measurement
window
• Does not address magnitude of
outperformance
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16. Risk
• Risk is Defined Many Ways
• Volatility
• Loss of Principal
• By Type of Risk
• Inflation Standard Deviation (Annualized)
• Credit
• Interest Rate
• Opportunity Costs
• Standard Deviation is Common
Measure of “Risk”
• Measures volatility of returns
• Other Risk Types are Captured
Through our Quantitative Analysis
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17. Quantitative Analysis Results
17 Investment Manager Selection

18. Qualitative Due Diligence
• Quantitative Analysis is the Guide
• Qualitative Review is Ultimately Most Important Step
• Trying to Understand “Why” a Fund Behaves the Way it Does
• Areas of Focus
• The Firm
• Investment Personnel
• Investment Strategy
• Shareholder Friendliness
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19. The Firm
• What Type of Firm is It?
• Small, boutique investment manager
• Insurance company
• Publicly traded asset manager
• Bank subsidiary
• One Size Does Not Fit All
• What is the Ownership Structure of the Firm?
• How does ownership impact the culture?
• Is a transition/succession plan in place?
• Is the business core to the parent organization?
• How Stable has the Firm Been Historically?
• Have their been changes in ownership structure?
• Have their been changes in leadership?
• What is the Firm’s Culture?
• How does the firm’s structure support or demonstrate its culture?
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20. Investment Personnel
• Funds Don’t Have Track Records, People Do.
• What is the Structure of the Investment Team?
• Single portfolio manager or team?
• Centralized research analysts or team-specific?
• Analysts assigned a sector or generalists?
• What is the Experience of the Investment Team Together?
• Portfolio Manager(s) [Manager tenure is a limited measure of experience]
• Research analysts
• How Does the Team Interact?
• Is there a king?
• Does the team strive for consensus?
• Does everyone understand their roles and responsibilities
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21. Investment Strategy
• How Do They View the Market?
• What is Their Unique Edge in Adding Value?
• Is it Consistent with Their Investment Philosophy?
• Is it Reasonably Grounded in Fundamental Research?
• What is the “Buy” Discipline?
• How do securities end up in the portfolio?
• What is the “Sell” Discipline?
• How do securities leave the portfolio?
• Is the Historical Track Record Consistent with the Articulated Investment
Strategy?
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22. Shareholder Friendliness
• What is the Capacity of the Fund?
• How Do They Manage Capacity?
• Have they implemented fund closures?
• Do they compensate managers for performance or asset growth?
• Do They Charge Reasonable Fees?
• Have they lowered fees as funds grow in size?
• Do They Communicate Changes in a Timely Manner?
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23. Recommend Fund
• There is No “Best” Fund.
• Is it Consistent With the Client’s Investment Objectives?
• How Does it Compare to the Rest of the Investment Menu?
• Are There Any Operational Issues with the Fund?
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24. Disclosures
Multnomah Group, Inc. is an Oregon corporation and SEC registered investment
adviser.
Investment performance and returns are based on historical information and are not
a guarantee of future performance. Investing contains risk. Some asset classes
involve significantly higher risk because of the nature of the investments and the
low liquidity/high volatility of the securities.
Any information and materials contained herein or on our website are provided for
general informational purposes only and are not intended to be comprehensive for
any particular subject. Multnomah Group utilizes information from third party
sources believed to be reliable but not guaranteed, and as a result, information is
provided to you "as is." We do not represent, guarantee, or provide any warranties
(either express or implied) regarding the completeness, accuracy, or currency of
information or its suitability for any particular purpose. Multnomah Group shall not
be liable to you or any third party resulting from any use or misuse of information
provided.
Receipt of information or materials provided herein or on our website does not
create an adviser-client relationship between Multnomah Group and you.
Multnomah Group does not provide tax or legal advice or opinions. You should
consult with your own tax or legal adviser for advice about your specific situation.
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