Public Session – The Committee met in Public Session at 10:00 a.m.

Minutes of SamCERA’s Investment Committee

1.0

Call to Order: Ms. Colson called the Public Session of the Investment Committee of the Board of Retirement to order at 10:00 A.M., October 23, 2001, in SamCERA's Board Room, Suite 280, 702 Marshall Street, Redwood City, California.

2.0

Roll Call: Mr. Buffington, Mr. Bryan, Mr. Cottle and Ms. Colson. Board Members in Attendance: Mr. Lewis, Mr. McMahon (10:12), Ms. Stuart and Ms. Salas. Staff: Mr. Clifton and Mr. McCausland. Consultant: Ms. Jadallah, Mr. Thomas and Ms. Ward Custodian: Mr. Chu, Mr. Gleason and Ms. Ng Public: One Retirees: none

3.0

Action: The Committee did not have adequate time to review the minutes of September 25, 2001.

Action: Review of the minutes was held over until the November 27, 2001 meeting.

4.0

Oral Communications From the Committee Ms. Stuart stated that she could not attend the Board Meeting that afternoon. She wished make a brief report regarding her attendance at the California Retired County Employees' Association Conference. A written report will be provided to the Board. During her report she noted that the Legislature pass a bill expanding the scope of GC§31520.5 to allow all 1937 Act Counties to appoint an alternate retiree member to serve in the absence of the eighth member. She would like consideration of this item to be placed on the November board agenda.

5.0

Oral Communications From the Public None

6.1

Acceptance of Monthly Portfolio Performance Report SamCERA's Total Plan Return for the trailing twelve months is -12.16% and for the Fiscal Year To Date -9.21%. In both periods the Total Plan Returns outperform Total Plan Policy Benchmark by +2.72% and +1.33% respectively. The outperformance may be attributed to SamCERA's active managers. The one-year outperformance by active manager is Bank of Ireland Asset Management +4.49%, Deutsche Asset Management +1.70% and INVESCO Realty Advisors +1.07%.

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

Action: The Committee unanimously accepted the Monthly Performance Report. The Committee will recommend that the Board accept the report.

6.2

Acceptance of Strategic Investment Solutions' Performance Analysis for periods ending June 30th. Margaret Jadallah, Patrick Thomas and Anne Ward presented Strategic Investment Solutions' June 30, 2001 Investment Performance Report. Mr. Thomas stated that a good deal of customization goes into the first performance reports for a client. Ms. Colson and Mr. Clifton meet with SIS to help with some of the customization, but to the extent that it is not exactly how the Committee wishes to see it on an ongoing basis SIS will be pleased to provide additional customization.

• The executive summary indicates that it was a good quarter for the Plan. SamCERA rank in the top quartile of Public Funds (24^th), but it did slightly underperform the policy benchmark (4.04% versus 4.25%). The contributing factors include the BGI Equity Index Funds performed at or above median; the Bank of Ireland quarterly return outpaced the MSCI ACWI ex US; BGI's Bond index matched the index and beat the median core manager; and INVESCO outpaced the NCREIF. Deutsche Asset Management trailing the benchmark hindered the Plan results for the quarter. DAMI overweight to asset backed instruments (19% versus the index weight of 4%) contributed to their ranking in the third quartile.
• The report provides a performance summary, which includes a comparison to a Public Fund Universe. This comparison is a welcome addition to SamCERA's Quarterly Performance Report.
• Ms. Ward discussed the sections of the report that provides the BGI portfolio performance and analytics. As one would expect, the performance of the BGI Russell 1000 & 2000 Index Funds was very close to that of the benchmarks. This section of the performance summary includes three and five year risk/reward charts, which depict the portfolio against its index.
• Ms. Jadallah presented Bank of Ireland Asset Management's performance, which over time has beaten the benchmark, but is in the third quartile.
• The fixed income portfolios, BGI US Debt Index and Deutsche Asset Management both beat the index for the quarter and over the time periods shown. Ms. Jadallah stated that over time Deutsche Asset Management has been in the first quartile.
• INVESCO Realty Advisors outperformed the NCREIF benchmark for all periods shown.
• The report appendix contains the portfolio managers stated investment strategy, manager fee schedules, policy index history, manager compliance index, manager performance comparison, a capital market review and a glossary.

  Mr. Cottle asked if the historical data used to generate the report was received from State Street. Ms. Ward confirmed that it was with the exception of INVESCO Realty Advisors. The INVESCO data was received from the manager. Mr. Cottle restated that the Board has approved INVESCO as the source of the real estate return.

• Mr. Cottle asked Ms. Ward if SIS experienced any difficulties in working with SamCERA's custodian, State Street. Ms. Ward responded that they have a very good relationship with State Street.
  

Action: Without objection the Committee will recommend that the Board accept Strategic Investment Solutions' Quarterly Performance Report for the period ending June 30, 2001.

6.3

Annual Investment Manager Review - Barclays Global Investors. The Manager review will be held at the Board Meeting.

Action: None is required.

6.4

Approval of Schedule for Asset / Liability Modeling Study. The Board asked Strategic Investment Solutions to initiate an Asset Liability Study the results of which are to be presented at the January 22, 2002 board meeting. Strategic Investment Solutions prepared a draft of the key tasks and timetable that would result in the completion of the study by the January meeting.

Mr. Buffington suggested that the study should be put off pending a better understanding of the County's intent regarding retroactive benefits for the Ventura Decision and labor negotiations as pertains to a change in the benefit formula.

• Mr. Bryan stated that negotiations will begin in perhaps March and last as long as into November. There is no way of knowing the outcome of the negotiations until they are completed.
• Mr. McCausland offered that the study could factor in various benefit or retroactive scenarios.
• Mr. Cottle and Ms. Colson noted that waiting for the negotiations would mean delaying the study for a year. Since 1994 this plan has reviewed the asset allocation every year and the asset liability mix every three years. They believe it would be prudent to move ahead with the study. Mr. Cottle pointed out that the cost of the study is covered by the full retainer contract. This is a very interesting time to do the report because there is uncertainty in the capital market. The information this study will provide will aid the Board in working through the uncertainty. It would be worthwhile even if the study needs to be updated a year from now.
• SIS was asked what would be the implications to their work and the cost if the Board chose to revise the study a year from now. SIS stated that the work is covered by the contract there would be no additional cost. Mr. Thomas stated SIS recommends that a Plan review the mix every year.

The consensus of the Committee was to review the schedule next month.

Action: The consensus of the Committee is this item will be placed on next months agenda.

6.5

Approval of Asset/Liability Modeling Study Phase One: Determination of Suitable Asset Classes, Constraints and Weighting Scheme for Integration of Sub-Classes. In light of the previous agenda item Mr. Thomas was asked to provide at brief overview of the proposed study. He stated that the study is a reasonable way to look at the mix of assets and put those instruments together in a way to maximize return for a given level of risk. The study will utilize projections from both the asset and the liabilities. Liability assumptions are collected from the actuary.

The study views the markets strategically over the next two to three market cycles, which may be ten to fifteen years. Inflation is important to the study in that one wants to view the real return and real liability growth, growth after inflation. The assets and liabilities are projected randomly through a technique known as a Monte Carlo Simulation. This provides a range of results under various scenarios. Understanding the assumptions and how the Model works is crucial to the decision making process.

Strategic Investment Solutions

Action: None is required.

6.6

Acceptance of Report on San Mateo County Housing Finance Workshop. Mr. Zhoverboff was available to discuss the Boards cocerns.

Action: The consensus of the Committee is that the proposed investment does not meet the Plans criteria for risk and return or methodology for will recommend to the Board that staff be directed to work with to invited Mr. Coe and Mr. Zhovreboff to return next month.

7.0

Other Business:

8.0

Adjournment: There being no further business Mr. Colson adjourned the Committee at 12:00 p.m.