Minutes of SamCERA’s Investment Committee

1.0

Call to Order: Mr. Cottle called the Public Session of the Investment Committee of the Board of Retirement to order at 10:35 a.m., April 24, 2001, in SamCERA’s Board Room, Suite 280, 702 Marshall Street, Redwood City, California.

2.0

Roll Call: Mr. Bryan, Ms. Colson, and Mr. Cottle. Mr. Buffington – excused, Ms. Arnott for Mr. Buffington. Board Members in Attendance: Mr. Hoffman, Mr. McMahon and Ms. Stuart. Staff: Mr. Clifton and Mr. McCausland. Consultant: Mr. Anderson Public: One Retirees: One

3.0

Action: With minor wording revisions the Committee unanimously approved the Minutes of the February 26, 2001 meeting of the Investment Committee.

4.0

Oral Communications

5.0

Investment Management Services & Investment Committee Report

5.1

Acceptance of Monthly Portfolio Performance Report

(1) The aggregate is a current return. A variance against the one-quarter lag in the NCREIF in misleading.

· Mr. Cottle noted that SamCERA outperformed the year-to-date Plan Benchmark by 1.47%. However with a total plan return of - 8.37% and an Actuarial Assumption Rate of 8.25%, the Association is down approximately two actuarial interest rates. The poor returns of the past few months greatly impact the two and three year equity returns. It dramatizes how quickly a few months of extremely poor returns can negate a period of positive returns. · Mr. Hoffman suggested providing each Investment Manager with a copy of the monthly performance. The Manager(s) may review the report and offer comment if they desire. Mr. Clifton will implement the suggestion beginning with the April 30, 2001 report.

Action: The Committee unanimously accepted the Monthly Performance Report. By consensus the Committee instructed staff to distribute the monthly performance report to all Investment Managers. The Committee will recommend that the Board accept the report.

5.2

Acceptance of Report on Real Estate Performance Calculation Methodology: Mr. Clifton noted that Gray & Company was asked to compare return calculation methodology for INVESCO Realty Advisors, Gray and Company and State Street Bank and Trust. The report before the Board only compares the Investment Manager and the Custodian. Mr. Anderson was asked to describe his firm’s methodology. Mr. Anderson explained that in the Gray & Company Quarterly Performance Report, State Street’s calculation is used on the summary page. In his supplemental work comparing the property level returns to the specific NCRIEF Index they use INVESCO’s returns because State Street does not calculate returns on a property level. Responding to a question whether his firm calculates the return or whether it uses State Street and INVESCO’s calculation, Mr. Anderson noted that Gray & Company verifies INVESCO’s returns, but not State Street’s return. The State Street bank statement is used to independently calculate returns. He went on to explain that the INVESCO statements provide property level detail, while State Street reports total portfolio performance from data received from INVESCO. - Mr. Cottle summarized Mr. Anderson’s response by stating that Gray & Company calculates a rate of return using the State Street data, but later analyzes the performance data from INVESCO. However the analysis of the INVESCO data does not appear in the Gray & Company Quarterly Report. Mr. Anderson said the INVESCO analysis is not part of the executive summary but it is in the back of the report. He reminded the Committee that State Street does not receive the property detail from INVESCO and to properly analyze the portfolio you need that level of detail.

After a thorough discussion the Committee opined that the INVESCO calculation methodology would be employed when reporting returns for the portfolio. INVESCO will be instructed to provide sufficient data to Gray & Company so it can independently calculate and verify the INVESCO return. Staff will provide State Street with the performance number for inclusion in the State Street monthly performance report. The INVESCO performance calculation since inception will be back loaded into State Street’s database and will be used as the historic returns. Gray and Company will report to the Board regarding their independent verification of those historic returns. The Investment Manager and Consultant will report cash, appreciation and total returns to the Board. State Street’s system can not report both cash and appreciation returns. Therefore, they will report the aggregate return. Staff will ask State Street to work on providing the two components on real estate returns, cash and appreciation.

Motion by Colson, second by Bryan, to recommend to the Board that the INVESCO Methodology be utilized for portfolio performance. INVESCO’s return calculations since inception will be back-loaded into State Street’s database and detailed on the monthly performance report. Gray & Company will provide an independent verification of INVESCO’s performance calculation and report to the Board. The motion carried unanimously.

5.3

Mr. Clifton provided a revised Compliance Certification Statement from INVESCO. He noted that some questions on the Statement are subjective. It is not unusual for Managers to contact staff with inquiries regarding the intent of a question. In addition it may be clear to staff that the Manager missed the intent of a question or did not provide a complete response in which case the Manager must provide clarification. INVESCO’s response to question five on page one stated that there has been no significant change in organizational structure. The response was amended to include information on a December 31, 1999 corporate restructuring.·In response to a question from Mr. Cottle staff was unable to provide a detailed explanation of the corporate restructure that INVESCO reported · The Committee did not have adequate time to review the amended Statement. Mr. Cottle recommended that it be held over. · Mr. Hoffman suggested that INVESCO be asked to attend the Board meeting and participate in a discussion regarding the corporate restructure.· Ms. Colson suggested that the Real Estate Compliance Certification Statement exclude the extraneous questions such as those referring to equities and fixed income. After a brief discussion the Committee concluded that SamCERA’s Investment Plan contains a standard format for the Compliance Certification Statement. Each Manager will be asked to review the entire Statement and respond to each question. · Ms. Colson asked that INVESCO be prepared to respond to a hybrid of question five on page four. She wishes to see SamCERA’s industry exposure represented by signatories of the lease agreements.

Action: Review of the Compliance Certification Statement will be held over for the May Board Meeting. INVESCO will be asked to provide additional detail on their corporate restructure and lease exposure by industry.

5.4

· Mr. Cottle pointed out that BGI responded by sector not industry to the question regarding the largest percentage of the portfolio represented by a single industry.

Action: By consensus the Committee accepted BGI’s Compliance Certification Statement. Staff will request BGI to amend question five on page four by providing industry exposure rather than sector exposure.

5.5

Approval of Report Regarding Risk Budgeting and Manager Structure. Ms. Colson, Mr. Cottle, and Mr. Clifton presented a report on the continuation of the manager restructure. The Committee agreed to table the Fixed Income discussion until April and the Equities until May.

The Manager Restructuring Subcommittee reintroduced the recommendation for Fixed Income. Their report states that SamCERA’s Performance Reports demonstrate Deutsche Asset Management’s ability to add value. The subcommittee recommends reversing the allocations to 60% active and 40% passive, which will provide a better probability to outperform the benchmark. During the next phase of the manager restructure, staff will analyze historic performance of a core-plus mandate and report to the Committee within six months. · Mr. Cottle requested additional performance data to demonstrate DAMI’s historic outperformance. Without objection he asked to table this item until May.

Action: Without objection the asset allocation and manager structure review and recommendations will be held over. It will be placed on the May 22nd Investment Committee/Board agenda.

5.6

Annual Review of the Investment Committee Charter. Mr. Cottle suggested that the Charter be amended to include an article specifically designed for the Investment Consultant including the appropriate procedures to evaluate the Investment Consultant. Reference to the Investment Consultant will be eliminated from items seven, eight and nine. Mr. Cottle will draft a Charter Article, which governs Investment Consultants and present it to the Committee for review. · Ms. Colson believes responsibility for the actuarial data should be a shared by the Investment Committee and the Audit Committee. The Audit Committee would govern liability, integration with PensionGold and audit responsibility. The Investment Committee would oversee the Actuarial Assumptions, Consumer Price Index and data that tie into the Asset Liability Modeling Study. Staff will draft an amendment to the Investment Committee Charter authorizing governance of the Actuarial Assumptions, CPI and asset or investment related data.

Action: The Chair and staff will draft amendments to the Investment Committee Charter and bring the amendments to the Committee in May.

6.0

Other Business: There was no other business.

7.0

Adjournment: There being no further business Mr. Cottle adjourned the Committee at 12:08 p.m.