October 25, 2004 – Board Agenda

Call to Order: Ms. Salas, Chair, called the Public Session of the Board of Retirement to order at 1:00pm, October 25, 2004 in SamCERA’s Board Room, Suite 125, 100 Marine Parkway, Redwood Shores.

0410.2

Roll Call: Mr. Bryan, Mr. Buffington, Ms. Colson, Mr. Hooley, Mr. Lewis, Mr. McMahon, Ms. Salas & Ms. Tashman. Ms. Arnott was also in attendance. Excused: Ms. Stuart. Staff: Mr. McCausland, Mr. Hood, Mr. Clifton & Ms. Lamica. Counsel: Ms. Carlson. Consultants: Dr. Fracchia & Mr. Thomas. Retirees: 1, County: 1.

0410.3

Approval of the Minutes: Ms. Tashman submitted the following correction to the Minutes: Under Board Agenda: “~~6.5 Approval for BGI to Transition SamCERA Assets from BGI’s Russell 1000 Index to BGI’s Russell 1000 Alpha Tilts~~”. Ms. Arnott submitted the following corrections to the Minutes: 0409.6.6: “…having to had to trade at the end of the day…”; 0409.7.1: “$1,277,897.71 of which is for retroactive adjustments…”; 0409.9: “~~Ms. Salas~~ Mr. Lewis adjourned the meeting…”. Motion by Bryan, second by Salas, carried unanimously to approve the September Board Minutes as amended.

0410.4.1

Oral Communications From the Board: None.

0410.4.2

Oral Communications From the Public: John Murphy wished to congratulate Mr. McCausland on his management and the professional manner in which he dealt with the overpayment of retroactive benefit enhancements indicated in Agenda Item 5.3. Secondly, Mr. Murphy requested a clarification on the Board’s policy concerning a candidate’s access to the list of voters during the recent trustee election. Thirdly, he commended Mr. Clifton on his thoroughness and dedicated efforts as SamCERA’s Investment & Finance Manager.

Ms. Arnott reported that she had attended a conference hosted by Institutional Investor and recommended it highly to the Board. She indicated that it had an excellent program on the conflict of interests, stressing the importance of disclosure not only with the directly appointed manager, but along with its affiliates and subsidiaries as well.

0410.5

Benefit & Actuarial Services

0410.5.1

Adoption of Consent Calendar: Motion by Bryan, second by Tashman, carried unanimously to adopt the Consent Calendar as submitted, as follows:

Disability Retirements:

The Board finds that Valerie Raines is unable to perform her duties as a Forensic Specialist, finds that her disability is Service-connected, and GRANTS her application for a Service-connected disability.

The Board finds that Victoria Fought is unable to perform her duties as a Group Supervisor II, finds that her disability is Non-service Connected, and GRANTS her application for a Non-service Connected disability.

The Board finds that Gerald Salinas is unable to perform his duties as a System Engineer, finds that his disability is Non-service Connected, and GRANTS his application for a Non-service Connected disability.

The Board finds that Joanne Quirk is unable to perform her duties as a Legal Office Services Supervisor, finds that her disability is Non-service Connected, and GRANTS her application for a Non-service Connected disability.

Routine Actions: The Board ratifies the following actions taken by staff pursuant to the Board's Delegation of Authority and the Regulations of the Board of Retirement:

Service Retirements:

Vincich, Raya

September 30, 2004

Controllers’ Office

Row, Sylvia

October 1, 2004

Environmental Health Services

Anderson, William

October 10, 2004

Health Services

Carranza, Irasema

October 15, 2004

Department of Superior Court

Douglas, Teresa

October 30, 2004

Probation Department

Continuance of Benefits:

Ailio, Carl

Beneficiary of Patricia

Willis, Evelyn

Beneficiary of Beauford

Bjorling, Lilo

Beneficiary of Richard

Polson, Jeanne

Beneficiary of Adam

Deferred Retirements:

Smith, Rachael

G2 vested

Refunds For October 2004:

Guzman, Tatiana

G4 non vested

$16,924.16

Munoz, Rosalinda

G4 non vested

$1,038.28

Pleitez, Yolanda

G4 non vested

$13,050.57

Steagall, Travis

G4 non vested

$643.53

Taruc, Kathleen

G4 non vested

$11,834.52

Taylor, Aurora

G4 non vested

$771.28

Trotter, Elizabeth (C.E.)

G4 non vested

$4,444.77

Vergara, Joseph

G4 non vested

$215.38

Total Refunds October 2004:

$48,922.49

Rollovers for October 2004:

Barba, Kerry

G4 non vested

$13,123.66

Deano, Emcems

G4 non vested

$1,537.71

Guevara, Maria A.

G4 non vested

$237.27

McPhee, Sara

G4 non vested

$10,928.57

Pilotin, Pamela-Christin

G4 non vested

$9,751.81

Seymour, Jeanine

G4 non vested

$2,116.46

Total Rollovers October 2004:

$37,695.48

0410.5.2

Consideration of items removed from Consent Calendar: None

0410.5.3

Approval of Repayment Agreements For Overpayment of Retroactive Benefit Enhancements: Mr. McCausland reported that, in August, twenty retired Sheriffs received $244.837 in Ventura enhancements for shift differential and special duty pay that had already been included in their pre-Ventura benefit. $107,890 from 8 individuals was recovered as of October 25^th. He indicated that 79% of the overpayment has been pledged for immediate repayment. 16% of the overpayment has been pledged for repayment over periods ranging from 12 to 60 months. One individual might require 65 months to repay the overpayment while another might need 121 months. In response to a question from Ms. Colson, Mr. McCausland indicated that should an individual pass away before the total amount has been recovered, the balance due will be deducted from what is owed to the estate. Ms. Carlson reported that a provision indicating that fact has been set forth in the repayment agreements. Mr. McCausland then briefly reviewed the personal situation regarding the individual in the 121 month payment plan. Concerning the individual in the 65 month payment plan, Mr. Bryan urged Mr. McCausland to learn more about the individual’s expenditure of the overpayment. Mr. Buffington then reported on an article indicating that the Vallejo School District had made a $275 million overpayment in employee health benefits and that the unions are not willing to return the money unless given 5 years of free health insurance. In light of that situation, Mr. Buffington commended Mr. McCausland on his ability to recover the majority of the Venturaoverpayment via lump sum and set forth reasonable monthly repayment structures for the rest of the amount. In response to the question of waiving interest in collecting the overpayment, Mr. Lewis and Ms. Colson expressed the concern of inequity between the individuals who repaid via lump sum versus those in extended payment plans. Ms. Carlson indicated that the Board may need to return to the court for authority to charge interest on the overpayments, but may implement a way to collect interest after a certain time interval (eg. 60 months) in order to give individuals an incentive to repay their amount in an expedited manner. Mr. McCausland indicated that he would attempt to negotiate the quickest repayment plan possible for each individual while waiving interest.

Mr. McCausland thanked the Board for their cooperation throughout this difficult process. Ms. Salas then expressed appreciation for his quick response to the situation. Mr. McCausland stated he was forced to make a decision within 24 hours of the problem’s discovery in order to stop the overpayment of another $400,000 in the September retiree payroll.

Motion by Hooley, second by Bryan, carried unanimously to adopt the Ventura Overpayment Policy, authorizing staff to execute voluntary repayment agreements with the 20 retired Sheriffs who were overpaid in Ventura benefit enhancements, as set forth in Resolution 04-05-10, as follows:

WHEREAS, Resolution 98-99-06 sets forth the Board’s policy regarding the correction of errors involving underpayments and overpayments; and

WHEREAS, the Chief Executive Officer has reported that twenty Retired Sheriffs received overpayments due to the erroneous inclusion of shift differential and special duty pay during the calculation and payment of retroactive Ventura benefit enhancements as ordered by the writ of mandate and judgment in Teamsters Local 856 vs. Board of Retirement; and

WHEREAS, Counsel has noted that said overpayments occurred in the course of implementing the specific provisions of said writ of mandate, which only provides for the collection of interest on past due member contributions. Therefore, be it

Resolved that the Board of Retirement hereby authorizes the Chief Executive Officer to apply the applicable provisions of Resolution 98-99-06 to the collection of said Ventura overpayments, except as otherwise provided below. Be it further

Resolved that the Board of Retirement waives the collection interest on said Venturaoverpayments in those cases where the Retired Sheriff volunteers to repay said overpayment in accordance with the provisions of this Resolution. Be it further

Resolved that the Board of Retirement authorizes the Chief Executive Officer to collect such overpayments in lump sum, partial lump sum and/or any increments mutually acceptable to the Retired Sheriff and the Chief Executive Officer, so long as the agreement includes the Retired Sheriff’s assignment of not less than the full value of the Retired Sheriff’s Ventura enhancement and cost-of-living allowances thereon to SamCERA until said overpayment has been recovered in full.

0410.5.4

Introduction of June 30, 2004 Actuarial Valuation: Mr. Hood reported that Public Pension Professionals has not yet completed the June 30, 2004 Actuarial Valuation and recommended that the presentation be put off until the November Board meeting. He indicated that PPP was still in the process of attempting to reconcile data with Mercer’s methodologies from last year’s Actuarial Valuation. Mr. Summer had indicated to him that there were still “5-8%” variances, but that PPP should be able to complete the Valuation in November. In response to Mr. Buffington’s concern over Mercer’s inability to communicate properly with PPP, Mr. Hood stated that Mr. Summer did not seem to express any further concern with Mercer’s cooperation but will doublecheck with Mr. Summer to ensure that all required information between PPP and Mercer has been exchanged. Mr. Hooley and Mr. McMahon each expressed concern with PPP’s possible lack of resources. Ms. Colson opined that the Board should have placed more pressure on Mercer to provide PPP with the required data much sooner and PPP was not to blame for the delay in the Valuation. Mr. Clifton and Mr. Hood indicated that PPP has been unresponsive to a few of their requests on a couple of occasions. Mr. Bryan stated that he would like PPP to be present at the November Board meeting with or without the June 30, 2004 Actuarial Valuation for the sake of direct dialogue. In response to a question from Ms. Tashman, Mr. McCausland indicated that SamCERA does indeed have a complicated tier structure and reconciling Mercer’s methodologies can be time-consuming. He further indicated that the Board is only statutorily required to provide the Board of Supervisors the new member contribution rated by May 15^th of every year but it has been the Board of Retirement’s policy to give the County the contribution rates early enough for next year’s budget process. He indicated that they are merely up against a self-imposed deadline and there was no immediate need to hurry the Valuation.

Without objection, the June 30, 2004 Actuarial Valuation will be presented by PPP at the November Board meeting.

0410.5.5

Introduction of 2004-2005 Fiscal Year Employer & Member Contribution Rates: Without objection, this agenda item will be heard at the November Board meeting due to the delay in the June 30, 2004 Actuarial Valuation.

0410.6

Investment Services

0410.6.1

Acceptance of Monthly Portfolio Performance Report: Mr. Clifton indicated that the final monthly performance report for the period ending September 30, 2004 will be delayed pending the posting and auditing of the data from the conversion of SamCERA’s separate property accounts into INVESCO’s Core Commingled Real Estate Fund. He indicated that he should have that information within the next 2-3 days. Mr. Clifton then noted an incremental increase of 24 basis points from the addition of the BGI Russell 1000 Alpha Tilts in its first month. He reported that Bank of Ireland was still underperforming its benchmark but, overall, the SamCERA’s Total Fund was only behind its policy benchmark for the month by 2 basis points. Mr. Clifton also advised the Board that the Real Estate component on the market values contains approximately $6.5 million in leverage.

Asset Class

Market Value

1-Month

1-year TTWRR

5-year TTWRR

Domestic Equity

$753,594,092

2.03%

15.03%

1.07%

International Equity

224,478,581

2.28%

18.63%

0.02%

Total Equity

$978,072,673

2.09%

15.83%

0.42%

Fixed Income

452,468,471

0.34%

4.32%

7.52%

Real Estate Aggregate

52,643,501

6.18%

15.35%

10.69%

Cash Equivalents

7,418,369

0.18%

2.20%

3.59%

Total Fund

$1,490,603,015

1.70%

12.48%

3.96%

Benchmark

1.72%

12.69%

3.35%

Without objection, Ms. Salas accepted the report.

0410.6.2

Review, Revision & Reaffirmation of Investment Committee Charter: Mr. Clifton presented the Investment Committee Charter and its proposed amendments discussed by the Committee at their September 28^th meeting. The Investment Committee had reviewed the Charter and recommended a few changes while removing some clauses that were no longer applicable. Having given the Board a month to review the recommended changes, the Charter was now again being presented to the Board. Motion by Bryan, second by Salas, carried unanimously to adopt Resolution 99-00-09, as amended as follows:

WHEREAS, Article XVI, §17 of the Constitution of the State of California as amended in 1992 to read, in pertinent part, as follows:

Notwithstanding any other provisions of law or this Constitution to the contrary, the retirement board of a public pension or retirement system shall have plenary authority and fiduciary responsibility for investment of moneys and administration of the system, subject to all of the following:

(a) The retirement board-shall have the sole and exclusive fiduciary responsibility over the assets of the ... system. The retirement board shall also have sole and exclusive responsibility to administer the system in a manner that will assure prompt delivery of benefits and related services to the participants and their beneficiaries. The assets ... are trust funds and shall be held for the exclusive purposes of providing benefits to participants ... and their beneficiaries and defraying reasonable expenses of administering the system.

(b) The members of the retirement board ... shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system. A retirement board's duty to its participants and their beneficiaries shall take precedence over any other duty.

(c) The members of the retirement board ... shall discharge their duties with respect to the system with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.

(d) The members of the retirement board...shall diversify the investments of the system so as to minimize the risk of loss and to maximize the rate of return, unless under the circumstances it is clearly not prudent to do so.

(e) The retirement board..., consistent with the exclusive fiduciary responsibilities vested in it, shall have the sole and exclusive power to provide for actuarial services in order to assure the competency of the assets of the system . ; &

WHEREAS, California Government Code §31595 states, as follows:

The Board has exclusive control of the investment of the employees’ retirement fund. The assets of a public pension or retirement system are trust funds and shall be held for the exclusive purposes of providing benefits to participants in the pension or retirement system and their beneficiaries and defraying reasonable expenses of administering the system. Except as otherwise expressly restricted by the California Constitution and by law, the Board may, in its discretion, invest, or delegate the authority to invest, the assets of the fund through the purchase, holding, or sale of any form or type of investment, financial instrument, or financial transaction when prudent in the informed opinion of the Board…; &

~~WHEREAS~~~~, Article 4 of the Regulations of the Board of Retirement, states as follows:~~

4.1 The Board shall have exclusive control of the investment of the San Mateo County Employees' Retirement Fund, pursuant to the provisions of §17, Article XVI of the Constitution of the State of California and GC§31594, 31595 and 31596.1 et al.

4.2 The Board shall discharge its duties with respect to the system with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims, per §17(c) of Article XVI.

4.3 The Board shall adopt, adhere to, and may amend from time to time, an Investment Plan which shall, at a minimum, establish the Board's Investment Goals, Objectives, Policies, Asset Allocation, Guidelines, and Controls; &

WHEREAS, ~~Article 2.3~~ of the Regulations of tThe Board of Retirement, wishes to exercise these powers ~~states~~ as follows:

Exercise of Powers: The Board shall exercise its investment, management and administrative authority and responsibility through the approval of motions recorded in public meeting in accordance with the provisions of these regulations. Trustees shall be sworn to serve as faithful fiduciaries for all members, retirees and beneficiaries; to serve as prudent administrators of the County's Retirement System; and to support, defend and bear true faith and allegiance to the Constitutions of the United States of America and the State of California; &

WHEREAS, the Board has adopted SamCERA's Investment Plan and amendments thereto to direct the investments of the Retirement Fund and now wishes to establish an Investment Committee to guide the future evolution of SamCERA's Investment Plan. Therefore, be it

RESOLVED that the Board hereby establishes a standing Investment Committee to direct the Board in its ongoing evaluation of SamCERA's Investment Plan, including but not limited to

1.0 Conduct asset allocation studies

1.1 Determine the characteristics of the Plan’s liabilities in regards to the nature of Fund’s cash flows

1.2 Evaluate plan funded status

1.3 Evaluate active & retired member demographics

1.4 Model plan payments for 50-70 years into future

1.5 Project expected contribution rates & variability

2.0 Develop asset mix alternatives to meet liability requirements

2.1 Establish allowable asset classes

2.2 Determine asset class benchmarks

2.3 Develop risk, return & correlation projections

3.0 Evaluate efficient frontier alternatives

3.1 Define risk, return and correlation

3.2 Evaluate mean variance optimization

3.3 Determine low risk alternatives and high risk alternatives

3.4 Scale portfolios between two extremes

3.5 Evaluate optimized efficient frontier

3.6 Integrate optimized efficient frontier with asset-liability relationships

4.0 Analyze Board risk tolerance

4.1 Assess risk/reward trade-offs

4.2 Assess contribution rate sensitivity & variability

4.3 Assess ability to exceed actuarial interest rate

4.4 Assess comfort level with characteristics of specific asset mixes

5.0 Recommend preferred asset mix

5.1 Evaluate differences from current target

5.2 Evaluate Board's willingness to implement new target asset mix

5.3 Evaluate appropriateness of variance from peer public fund norms

6.0 Recommend amendments to SamCERA's Investment Plan

6.1 Adjust target asset mix

6.2 Introduce new benchmarks

6.3 Include required asset class/portfolio modifications

7.0 Recommend revisions to manager structure

7.1 Adjust manager/style line-up as necessary

7.2 Introduce new managers/asset classes

7.3 Terminate managers/asset classes as necessary

7.4 Establish active & passive allocation targets as appropriate

8.0 Implement changes to manager structure

8.1 Recommend time-line & approach to revise structure

8.2 Conduct manager evaluations

8.3 Establish portfolio and asset allocation rebalancing procedures

9.0 Evaluate Manager performance

9.1 Monitor results of managers both gross and net of investment management fees

9.2 Assess consistency of portfolio decision making

9.3 Evaluate organizational, ownership, personnel & other firm developments

10.0 Recommend and Evaluate Investment Consultant Structure & Performance

10.1 Recommend for Board determination the retention and termination of Investment Consultant(s) as necessary

10.2 Define and assign special projects as warranted

10.3 Monitor performance of Investment Consultant

10.4 Conduct evaluations of Investment Consultants

10.5 Evaluate organizational, ownership, personnel and other firm developments

11.0 Evaluate & Recommend Revisions to the Economic Actuarial Assumptions and Other Actuarial Asset Considerations

11.1 Evaluate the data and methodology employed by the Actuary when setting the assumptions for inflation, investment return, salary increase and when establishing the actuarial value of assets and recommend revisions as appropriate.

11.2 Assure that the Consultant integrates Actuarial input with all Asset Liability Modeling Studies

11.3 Evaluate the consistency of actuarial-economic and investment policies and processes

12.0 Initiate & Evaluate Special Investment Studies

13.0 Undertake other work assigned to it by the Board Be it further

Resolvedthat the Chair may appoint the members of the Investment Committee per Regulation 2.5.1. Be it further

Resolved that the Chief Executive Officer is hereby instructed to provide the Committee with access to all appropriate County and SamCERA resources and records, so long as such access is consistent with sound fiduciary practices. Be it further

Resolved that the Chief Executive Officer is hereby authorized to provide compensation of $100 per meeting for not more than two meetings per month to the members of the Committee eligible for such compensation, per GC§31521. Be it further

Resolved that the Board hereby reserves to itself sole authority to accept, modify, or reject the recommendations, which the Investment Committee may present from time to time pursuant to the provisions of this Resolution, per Regulation 2.3

0410.6.3

Approval of Revisions to SamCERA’s Investment Plan – Section 12 – Real Estate: Mr. Clifton presented SamCERA’s Investment Plan to the Board to begin its review and amendment process. He reported that the Investment Committee had discussed Section 12 –Real Estate of the Plan. Mr. Clifton then briefly reviewed and outlined the proposed changes to the Plan. He reported that there had been discussion regarding the method of implementing changes in managers in an effective manner as well as the creation of an advisory committee comprised of staff representatives. In response to Ms. Colson’s concern over reinvesting dividends into the commingled fund, Mr. Clifton indicated that SamCERA’s purpose to invest in real estate is for diversification and not cash flow. Ms. Tashman then asked Mr. Clifton if other founding investors were taking cash out of the fund. Mr. Clifton indicated that he will look into the attainment of dividends versus reinvestment into the fund. Ms. Colson expressed her preference to change the term “collective vehicle” to “commingled fund vehicle” in the document. She then asked Mr. Clifton the composition and qualifications of the members on the advisory committee. Mr. Buffington also expressed concern whether or not the committee would be merely a device for communication versus one of power and management. Ms. Colson also wanted language incorporated into the document elaborating the role of the advisory committee. She indicated that she would not want a committee of non-experts to be providing any investment advice and perhaps be subject to litigation or blame for any of INVESCO’s poor investment decisions. Ms. Carlson also wished INVESCO to detail the function of the advisory committee in writing. Mr. Clifton indicated that he will incorporate the Board’s comments into next month’s agenda.

Ms. Salas then took up agenda item 6.7.

0410.6.4

Acceptance of Investment Manager Due Diligence Report: Mr. Clifton reported that the Investment Committee had gone over the details of his due diligence site visits quite extensively. He highlighted the main points of each of his visits to the Board. As a procedural issue, Mr. Buffington had a question regarding the Board’s authorization for the trips. Ms. Tashman and Mr. Bryan indicated that they recalled approving an East Coast and Southern California trip for Staff to perform due diligence at the August Board meeting. Mr. Bryan commended Staff, investment consultants and County Counsel on their excellent work with the recent hiring of so many managers.

Without objection, Ms. Salas accepted the report.

0410.6.5

Approval of BGI Letter of Authorization for Restructure of US and Non-US Equity Portfolios: Mr. Clifton presented the Letter of Authorization to the Board directing BGI to restructure SamCERA’s investment in the BGI Russell 2000 Index into three actively managed portfolios by Goldman Sachs, Brandes (small cap value) and Chartwell (small cap growth) as well as directing them to restructure SamCERA’s Bank of Ireland’s assets to active international mandates managed by Julius Baer (core growth) and Mondrian Investments (core value).

Motion by Bryan, second by Salas, carried unanimously to adopt Resolution 04-05-17 as follows:

Whereas, Article XVI, §17 of the Constitution of the State of California vests the Board with "plenary authority and fiduciary responsibility for the investment of moneys and the administration of the system"; and

Whereas, Government Code §31595 vests in the Board “. . . exclusive control of the investment of the employees retirement fund.” and

Whereas, Government Code §31596.1 (d) authorizes the Board to retain investment managers “. . . in connection with administration of the Board's investment program . . . "; and

Whereas, Board Resolution 03-04-05, as amended, approved a contract between the Board and Barclays Global Investors (BGI) for a term of three-years, effective November 30, 2003; and

Whereas, the Board adopted a manager structure for SamCERA’s small cap equity mandate that invests 50% of the assets in a structured portfolio, 25% in an active value portfolio and 25% in an active growth portfolio; and

Whereas, the Board adopted a manager structure for SamCERA’s international equity mandate that invests 50% of the assets in an active core value portfolio and 25% in an active core growth portfolio; and

Whereas, SamCERA’s small cap equity investments are currently 100% in BGI’s Russell 2000 Index Fund and SamCERA’s international equity investments are currently 100% in the Bank of Ireland Group Trust, therefore the assets need to be restructured into the new mandate. Therefore, be it

Resolved that the Board hereby approves a Letter of Authorization (LOA) with Barclays Global Investors that directs BGI to restructure an investment portfolio of domestic securities and cash from an investment in the BGI Russell 2000 Index Fund into portfolios managed by Goldman Sachs Asset Management, Brandes Investment Partners and Chartwell Investment Management and to restructure an investment portfolio of international securities and cash from an investment in the Bank of Ireland Group Trust into portfolios managed by Julius Baer Investment Management and Mondrian Investment Partners on or around October 29, 2004 and subsequent funding dates as necessary. Be it further

Resolved that the Board hereby approves the costs as specified in BGI’s October 8, 2004 analysis of transition from the BGI Russell 2000 Index Fund to portfolios managed by Goldman Sachs Asset Management, Brandes Investment Partners and Chartwell Investment Management and BGI’s October 20, 2004 analysis of transition from BIAM’s Group Trust to portfolios managed by Julius Baer Investment Management and Mondrian Investment Partners. Be it further

Resolved that the Board hereby authorizes the Chair, to execute the Letter of Authorization on behalf of the Board. Be it further

Resolved that the Board hereby designates the Investment & Finance Manager as its designee to perform those functions so identified in the Letter of Authorization and hereby authorizes the Investment and Finance Manager to take all actions necessary to initiate, implement and monitor assignments, approve payments and provide the Board with timely reports regarding the progress and satisfactory completion of the assignments authorized pursuant to the Letter of Authorization.

0410.6.6

Approval for Staff to Execute BGI Letter of Authorization for an Alternative Restructure Strategy: Mr. Clifton presented an alternate restructure strategy should unforeseen events occur during the reconstructing of the portfolio that will authorize staff to perform the necessary tasks to complete the restructuring in a manner as close as possible to the mandate of the Board.

Motion by Bryan, second by Salas, carried unanimously to adopt Resolution 04-05-18 as follow:

Whereas, Government Code §31595 vests in the Board “. . . exclusive control of the investment of the employees retirement fund.” and

Whereas, Government Code §31596.1 (d) authorizes the Board to retain investment managers “. . . in connection with administration of the Board's investment program . . . "; and

Whereas, the Board recognizes that cross trading may reduce transition costs during a portfolio restructure; and

Whereas, the Board recognizes that unforeseen events may occur during the restructuring of the portfolio. Therefore, be it

Resolved that the Board hereby authorizes staff to execute a Letter of Authorization with Deutsche Asset Management (DAMI)to allow cross trading as a one-time event to help facilitate the pending restructure. Be it further

Resolved that the Board hereby authorizes staff to take the steps require to complete the restructuring of SamCERA’s portfolio as closely as possible to the manager structure described above. These steps may require and include executing binding agreements, as it related to the restructuring, on behalf of the Board. Be it further

Resolved that the Board hereby authorizes staff to take the steps require to complete the restructuring of SamCERA’s portfolio as close as possible to the manager structure described above. These steps may require and include executing binding agreements, as it related to the restructuring, on behalf of the Board. Be it further

Resolved that the Board hereby designates the Investment & Finance Manager as its designee to perform those functions and hereby authorizes the Investment and Finance Manager to take all actions necessary to initiate, implement and monitor assignments, approve payments and provide the Board with timely reports regarding the progress and satisfactory completion of the assignments.

Mr. McCausland stated that he had never seen SamCERA hire so many managers in so short of a time period. He opined that the Board, consultants and Mr. Clifton should be commended. Ms. Salas then took up agenda item 7.1.

0410.6.7

Approval of Investment Management Agreement – Goldman Sachs Asset Management: Agenda Items 6.7 through 6.12 were primarily discussed collectively. Mr. Clifton presented some background regarding SamCERA’s Investment Management Agreement. He indicated that in 1994, Ms. Carlson and himself had generated the template of the agreement when the Board of Retirement elected to change from 100% fixed income to various different asset classes. Several amendments have been to the document, including Mr. Buffington’s most current proposal to clarify that no manager shall be able to “make profit” to “be compensated” for making transaction with affiliates in order to disallow the use of soft dollars.

Mr. Clifton reported that Julius Baer, Goldman Sachs and Mondrian each asked to use their institutional shareholders guidelines for voting proxies. He indicated that their guidelines closely matched those to SamCERA’s.

He later indicated that Julius Baer, Goldman Sachs and Western Asset Management each had changes to the agreement give them guidelines to the breadth of investments that allow them to employ their strategy. These changes were needed due to the fact that SamCERA’s current investment plan is currently not up to date.

Motion by Colson, second by Bryan, carried unanimously to adopt Resolution 04-05-11 as follows:

Whereas, Government Code §31595 vests in the Board ". . . exclusive control of the investment of the employees retirement fund."; and

Whereas, Government Code §31596.1 (d) authorizes the Board to retain investment managers ". . . in connection with administration of the Board's investment program . . . "; and

Whereas, on May25, 2004, the Board considered proposals from four firms for investment management services under a small cap enhanced index mandate. Citigroup Asset Management and PanAgora Asset Management were eliminate and Goldman Sachs Asset Management and JPMorgan Fleming Asset Management were invited to return for a second interview ; and

Whereas, on June 22, 2004, the Board interviewed representatives from Goldman Sachs Asset Management and JPMorgan Fleming Asset Management, selecting Goldman Sachs Asset Management for the small cap enhanced index mandate funded at approximately $75 million; and

Whereas, an Investment Management Agreement has been approved by County Counsel as to form and the Investment & Finance Manager has recommended approval of the Agreement. Therefore, be it

Resolved that the Board hereby approves the contract between the Board and Goldman Sachs Asset Management for a term of three years, the Board may terminate the contract on thirty days written notice. Be it further

Resolved that the Board hereby delegates full discretionary authority to Goldman Sachs Asset Management to manage the assets of the Retirement Fund as allocated by the Board in accordance with the terms of the Agreement, the Investment Plan (as incorporated into the Agreement), and applicable law governing the conduct of fiduciaries entrusted with the management of public employees' retirement funds. Be it further

Resolved that the Board hereby approves the fees as specified in the contract and authorizes the disbursement of funds as provided for in GC§31596.1 in accordance with SamCERA's internal controls. Be it further

Resolved that the Board hereby authorizes the Chair, to execute the Agreement on behalf of the Board. Be it further

Resolved that the Board hereby designates the Investment & Finance Manager as its designee to perform those functions so identified in the Agreement and hereby authorizes the Investment & Finance Manager to take all actions necessary to initiate, implement and monitor assignments, approve payments and provide the Board with timely reports regarding the progress and satisfactory completion of the assignments authorized pursuant to the contract.

0410.6.8

Approval of Investment Management Agreement – Chartwell Investment Partners: Mr. Clifton indicated that Chartwell had asked to lower the amount for worker compensation insurance, and having been reviewed by Staff, County Counsel and Risk Management, Chartwell’s request was approved.

Motion by Bryan, second by Colson, carried unanimously to adopt Resolution 04-05-12 as follows:

Whereas, Government Code §31595 vests in the Board ". . . exclusive control of the investment of the employees retirement fund."; and

Whereas, Government Code §31596.1 (d) authorizes the Board to retain investment managers ". . . in connection with administration of the Board's investment program . . . "; and

Whereas, on March 23, 2004, the Board considered proposals from four firms for investment management services under a small cap growth mandate. Wellington Management Company, and Westcap Investors were eliminated. Chartwell Investment Partners and Next Century Growth Investors were invited to return for a second interview as finalists.; and

Whereas, before the final interviews on April 27, 2004 Next Century Growth Investors requested that it be excused from the finalist selection process due to uncertainty surrounding its relationship with Strong Funds and the Security Exchange Commission’s investigation into market timing.; and

Whereas, The Board interviewed representatives from Chartwell Investment Partners on April 27, 2004 before offering it SamCERA’s small cap growth mandate to be funded with approximately $37 million; and

Whereas, an Investment Management Agreement has been approved by County Counsel as to form and the Investment & Finance Manager has recommended approval of the Agreement. Therefore, be it

Resolved that the Board hereby approves the contract between the Board and Chartwell Investment Partners for a term of three years, the Board may terminate the contract on thirty days written notice. Be it further

Resolved that the Board hereby delegates full discretionary authority to Chartwell Investment Partners to manage the assets of the Retirement Fund as allocated by the Board in accordance with the terms of the Agreement, the Investment Plan (as incorporated into the Agreement), and applicable law governing the conduct of fiduciaries entrusted with the management of public employees' retirement funds. Be it further

Resolved that the Board hereby authorizes the Chair, to execute the Agreement on behalf of the Board. Be it further

0410.6.9

Approval of Investment Management Agreement – Brandes Investment Partners: Mr. Clifton reported that Brandes requested the elimination of crime coverage from the agreement already possessing a fiduciary liability policy that covers crime. There was an addition of language to cover fraud and dishonesty.

Motion by Bryan, second by Hooley, carried unanimously to adopt Resolution 04-05-13 as follows:

Whereas, Government Code §31595 vests in the Board ". . . exclusive control of the investment of the employees retirement fund."; and

Whereas, Government Code §31596.1 (d) authorizes the Board to retain investment managers ". . . in connection with administration of the Board's investment program . . . "; and

Whereas, on March 23, 2004, the Board considered proposals from five firms for investment management services under a small cap value mandate. Donaldson Smith & Company, Osprey Partners Investment Management, and Thompson, Siegel & Walmsley were eliminated. American Century Investment Management and Brandes Investment Partners were invited to return for a second interview as finalists; and

Whereas, on April 27, 2004, the Board interviewed representatives from American Century Investment Management and Brandes Investment Partners, selecting Brandes Investment Partners for a small cap value mandate to be funded with approximately $37 million; and

Whereas, an Investment Management Agreement has been approved by County Counsel as to form and the Investment & Finance Manager has recommended approval of the Agreement. Therefore, be it

Resolved that the Board hereby approves the contract between the Board and Brandes Investment Partners for a term of three years, the Board may terminate the contract on thirty days written notice. Be it further

Resolved that the Board hereby delegates full discretionary authority to Brandes Investment Partners to manage the assets of the Retirement Fund as allocated by the Board in accordance with the terms of the Agreement, the Investment Plan (as incorporated into the Agreement), and applicable law governing the conduct of fiduciaries entrusted with the management of public employees' retirement funds. Be it further

Resolved that the Board hereby authorizes the Chair, to execute the Agreement on behalf of the Board. Be it further

0410.6.10

Approval of Investment Management Agreement – Mondrian Investment Partners Ltd.: Mr. Clifton indicated that Mondrian will gain exposure through emerging markets through the Deleware pool of trust in which Mondrian is a sub-advisor. The Board needs to enter into a separate agreement with the Deleware pool of trust in order to approve the emerging market portion of the portfolio.

Motion by Bryan, second by Hooley, carried unanimously to adopt Resolution 04-05-14 as follows:

Whereas, Government Code §31595 vests in the Board ". . . exclusive control of the investment of the employees retirement fund."; and

Whereas, Government Code §31596.1 (d) authorizes the Board to retain investment managers ". . . in connection with administration of the Board's investment program . . . "; and

Whereas, on April 27, 2004, the Board considered proposals from six firms for equity investment management services under an international core growth mandate. Alliance Bernstein Institutional Investment Management, INVESCO Global Asset Management (N.A.), Inc. Philadelphia International Advisors and The Boston Company Asset Management. LLC. were eliminated. Delaware International Advisors, Ltd., and LSV Asset Management were invited to return for a second interview as finalists.; and

Whereas, on May 25, 2004 the Board interviewed representatives from Delaware International Advisors, Ltd., and LSV Asset Management, selecting Delaware International Advisors, Ltd. for an international core value mandate to be funded with approximately $110 million; and

Whereas, on September 27, 2004, Delaware International Advisors, Ltd. changed its name to Mondrian International Investors; and

Whereas, an Investment Management Agreement has been approved by County Counsel as to form and the Investment & Finance Manager has recommended approval of the Agreement. Therefore, be it

Resolved that the Board hereby approves the contract between the Board and Mondrian Investment Partners for a term of three years, the Board may terminate the contract on thirty days written notice. Be it further

Resolved that the Board hereby delegates full discretionary authority to Mondrian Investment Partners to manage the assets of the Retirement Fund as allocated by the Board in accordance with the terms of the Agreement, the Investment Plan (as incorporated into the Agreement), and applicable law governing the conduct of fiduciaries entrusted with the management of public employees' retirement funds. Be it further

Resolved that the Board hereby authorizes the Chair, to execute the Agreement on behalf of the Board. Be it further

0410.6.11

Approval of Investment Management Agreement – Julius Baer Investment Management LLC: Motion by Bryan, second by Colson, carried unanimously to adopt Resolution 04-05-15 as follows:

Whereas, Government Code §31595 vests in the Board ". . . exclusive control of the investment of the employees retirement fund."; and

Whereas, Government Code §31596.1 (d) authorizes the Board to retain investment managers ". . . in connection with administration of the Board's investment program . . . "; and

Whereas, on April 27, 2004, the Board considered proposals from six firms for equity investment management services under an international core growth mandate. BPI Global Asset Management, Clan Finlay, Inc, JPMorgan Fleming Asset Management and New Star Institutional Managers were eliminated. Capital Guardian Trust Company and Julius Baer Investment Management were invited to return for a second interview as finalists.; and

Whereas, on May 25, 2004 the Board interviewed representatives from Capital Guardian Trust Company and Julius Baer Investment Management, selecting Julius Baer Investment Management for an international core growth mandate to be funded with approximately $110 million; and

Whereas, an Investment Management Agreement has been approved by County Counsel as to form and the Investment & Finance Manager has recommended approval of the Agreement. Therefore, be it

Resolved that the Board hereby approves the contract between the Board and Julius Baer Investment Management for a term of three years, the Board may terminate the contract on thirty days written notice. Be it further

Resolved that the Board hereby delegates full discretionary authority to Julius Baer Investment Management to manage the assets of the Retirement Fund as allocated by the Board in accordance with the terms of the Agreement, the Investment Plan (as incorporated into the Agreement), and applicable law governing the conduct of fiduciaries entrusted with the management of public employees' retirement funds. Be it further

Resolved that the Board hereby authorizes the Chair, to execute the Agreement on behalf of the Board. Be it further

0410.6.12

Approval of Investment Management Agreement – Western Asset Management Company: Mr. Clifton reported that the Board will have to enter into separate agreements with various LLCs in order for Western Asset Management to implement their investment strategies with certain limitations. Mr. Thomas from SIS reviewed the guidelines set forth in Exhibit C of the agreement. He wished to highlight the Western Asset Management’s non-mainstream investment style which the Board had known when they chose to select them for that particular mandate. Mr. Buffington expressed concern over the language indicated in the Public Information portion of the agreement regarding the ability of the “Investment Manager and any of its officers, affiliates and employees from buying, selling or trading in any securities for its or their own account”. Mr. Thomas did opine that, in light of current SEC litigation, the language seemed too broad. After extensive discussion, Mr. Clifton stated that he will ask Western Asset Management to strike “officers” and “employees” from the paragraph in question or ask them clarify and narrow the language to indicate that the transactions can only be within their own funds.

Motion by Bryan, second by Hooley, carried unanimously to adopt Resolution 04-05-16 subject to the proposed changes to aforementioned paragraph, as follows:

Whereas, Government Code §31595 vests in the Board ". . . exclusive control of the investment of the employees retirement fund."; and

Whereas, Government Code §31596.1 (d) authorizes the Board to retain investment managers ". . . in connection with administration of the Board's investment program . . . "; and

Whereas, on July 27, 2004, the Board considered proposals from six firms for fixed income investment management services under a core plus mandate. Hartford Investment Management, Payden & Rygel, Inc., PIMCO (Pacific Investment Management Company LLC), and TCW (Trust Company of the West Group, Inc.) were eliminated. Deutsche Asset Management, and Western Asset Management Company were invited to return for a second interview as finalists.; and

Whereas, on September 28, 2004 the Board interviewed representatives from Deutsche Asset Management, and Western Asset Management Company, selecting Western Asset Management Company for an core-plus fixed income mandate to be funded with approximately $145 million; and

Whereas, an Investment Management Agreement and Subscription Booklet have been approved by County Counsel as to form and the Investment & Finance Manager has recommended approval of both. Therefore, be it

Resolved that the Board hereby approves the contract between the Board and Western Asset Management Company for a term of three years, the Board may terminate the contract on thirty days written notice. Be it further

Resolved that the Board hereby delegates full discretionary authority to Western Asset Management Company to manage the assets of the Retirement Fund as allocated by the Board in accordance with the terms of the Agreement, the Subscription Booklet, the Investment Plan (as incorporated into the Agreement), and applicable law governing the conduct of fiduciaries entrusted with the management of public employees' retirement funds. Be it further

Resolved that the Board hereby authorizes the Chair, to execute the Agreement and the Subscription Booklet on behalf of the Board. Be it further

Resolved that the Board hereby designates the Investment & Finance Manager as its designee to perform those functions so identified in the both and hereby authorizes the Investment & Finance Manager to take all actions necessary to initiate, implement and monitor assignments, approve payments and provide the Board with timely reports regarding the progress and satisfactory completion of the assignments authorized pursuant to the contract.

Mr. Lewis departed the meeting. Ms. Salas then took up agenda item 6.4.

0410.7

Board & Management Support Services

0410.7.1

Acceptance of Monthly Financial Reports: Mr. Clifton then presented the preliminary monthly financial report for the period ending September 30, 2004. He reported that Phase Two of the negotiated employee shared contribution expense had just been implemented under the MOU and employee’s negotiated enhanced benefit.

Without objection, Ms. Salas accepted the report.

0410.7.2

Acceptance of First Quarter 2003-2004 Administrative & Professional Budget Reports: In the first quarter, Mr. Clifton reported that several of the budget objectives have been completed or are well under way of being completed and with a number of budget initiatives ahead of schedule. He noted that budget expenditures are relatively under budget. He noted that the professional services budget will look quite different next month with the recent hiring of the new managers.

Ms. Colson then expressed her concern over the auditing of the financial statements and other financial documents. Mr. Clifton noted that the Audit Committee is no longer a standing committee but merely an ad hoc committee. Should it be the pleasure of the Board to expand the committee’s duties, the Board can adopt a charter at next month’s Board meeting. Mr. McCausland reported that there is a SACRS legislative proposal to upgrade the audit committee’s status to standing so as to allow them meet in closed session as they discuss audit findings, internal security and control issues with privacy. Mr. McCausland will distribute a copy of the Audit Committee’s previous charter to the members of the committee to allow them to work on a draft charter for the proposed adoption at the November Board meeting.

Without objection, Ms. Salas accepted the report.

0410.7.3

Acceptance of Auditor’s Report and Acceptance of SamCERA's Financial Statements: Mr. Clifton reported that the delay in the completion of the June 30, 2004 Actuarial Valuation has resulted in an unusual request to its Auditor, Brown Armstrong, to prepare two opinions this year: (1) the first opinion will be on “stand alone” financial statements which contain actuarial data from the June 30, 2003 Valuation, while (2) the second opinion will be on SamCERA’s Comprehensive Annual Financial Report containing the results of the June 30, 2004 Valuation data. The County requested SamCERA financial data to fold with the County’s financial statements. The unusual request to issue two statements was due to in part because the County’s auditor will only accept audited information. Other than that, Mr. Clifton did not find anything worthy to note during the audit. He added that the second opinion did not bear any additional cost to SamCERA.

Motion by Bryan, second by Salas, carried unanimously to accept the audited Financial Statements for the year ended June 30, 2004 and to approve that Staff forward the information to the County.

0410.7.4

Introduction of SamCERA’s Comprehensive Annual Financial Report: Mr. Clifton introduced a draft of SamCERA’s Comprehensive Annual Financial Report without data from the June 30, 2004 Actuarial Valuation. He requested that trustees review the CAFR and submit their comments to him by the second week of November. The Board will return to this agenda item at next month’s Board meeting.

0410.7.5

Approval for Staff to Negotiate and Execute Contract for Electronic Document Management System Vendor: Mr. Hood requested that the Board allow Staff to conduct a search for a 3^rd party EDMS vendor who could work with Staff and ISD to create an interface between SamCERA and the County’s FileNet application. He noted that the County Manager’s Office had procured a license for the use of FileNet by all county departments. By using the County’s FileNet system, he indicated that SamCERA would merely have to pay for the burden of the interface and its ongoing maintenance. The license itself would have cost SamCERA roughly $700,000 and by utilizing the County’s procurement of the license Mr. McCausland opined that the stand alone system was an outstanding value. Mr. Hood also noted that SamCERA would easily be the largest user of the system.

Motion by Colson, second by Bryan, carried unanimously to authorize Staff to conduct a search for an EDMS vendor and bring a proposed contract to a future Board meeting for approval.

0410.8

Approval or Acceptance of Reports

0410.8.1

Chief Executive Officer's Report: Mr. McCausland reported that Present Value of the Retroactive Ventura benefits is estimated to be under $15 million, much less than the actuaries expected. He noted that the total impact in liabilities would be approximately 1% and that the Board made a prudent choice when it authorized staff to research each retiree’s payroll records rather than grant a monetary settlement to all retirees.

Mr. McCausland then reviewed each of the seven 2005 SACRS Legislative Proposals. He noted that the Board cannot vote on the proposals but engage in a discussion. He further noted that SamCERA’s delegate by default would be the Chair of the Board, followed by the Vice Chair, then Secretary. Ms. Salas, Chair, indicated that she would not be able to attend SACRS. Mr. Clifton indicated that it seems that Mr. Lewis, Vice Chair, is still planning to attend and therefore would be positioned as SamCERA’s delegate.

Regarding Agenda Item 5.3 and SamCERA’s VenturaOverpayments, Ms. Colson indicated that she would have felt more comfortable had Mr. McCausland contacted County Counsel much sooner than he had. She opined that it would have been more prudent had Ms. Carlson been able to review the letters sent to the affected retirees before the initial mailing to have avoided potential liabilities.

0410.8.2

Assistant Executive Officers’ Report: Mr. Hood reported that he had worked with Ms. Lamica to improve the formatting of the disability items in the Consent Calendar. The Board indicated their appreciation of the improved layout. Mr. Hood then informed the Board that SamCERA’s Office Specialist, Carolyn Welch, has left SamCERA to take up employment with Alameda County. He noted that staff will be seeking a replacement soon and that, during the interim, the front desk duties have been allocated to other staff members.

0410.8.3

Investment & Finance Manager’s Report: Mr. Clifton reported on the success of the initial closing of the INVESCO Core Commingled Fund with all five Founding Investors having committed. He also noted that the INVESCO Core Fund was in the finals and won a small mandate from the Boys Scouts of America for $12.5 million. Mr. Clifton then reported that BGI will liquidate $100 million in assets and DeAM will liquidate $45 million to transition a total $145 million into Western Asset Management’s portfolio. He noted that the transition will occur during the first couple days in November without the use of a transition manager. Lastly, Mr. Clifton reported on the email dated October 19^th informing the Board that Tony Freitas, SamCERA’s Client Representative at DeAM has left the firm for a position with Blackrock. Heidi Walker will support SamCERA until a senior person can be hired for DeAM’s San Francisco office.

0410.8.4

County Counsel's Report: None.

0410.9

Adjournment in Memory of the following Deceased Members: There being no further business, Ms. Salas adjourned the meeting at 4:30pm, in memory of the following deceased members:

O’kelley, Herman

July 26, 2004

Department Of Custodial Services

Chamberlain, Mildred

September 2, 2004

Chope Community Hospital

O’brien, Helen

September 19, 2004

Department Of Social Services

Bal, Aldona

September 22, 2004

Department Of Health Services

Lyons, Patricia

September 21, 2004

Department Of Mental Health

Senitte, Bonnie

September 22, 2004

Library Department

Ailio, Patricia

September 23, 2004

County Manager’s Office

Robleto, Arnold

October 2, 2004

General Services Administration

Giles, Lillian

October 13, 2004

Probation Department

Williams, Johnnie

October 17, 2004

Human Services Agency

ALMA R. SALAS, Chair

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