fresno county employees’ retirement association€¦ · 7 gmo wm_fresno county era_9-06 gmo fixed...
TRANSCRIPT
![Page 1: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/1.jpg)
0GMOWM_Fresno County ERA_9-06
GMO North America | Europe | Asia-Pacific
Fresno County Employees’Retirement AssociationSeptember 6, 2006
Wendy MalaspinaTina Vandersteel Presentation
![Page 2: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/2.jpg)
1GMOWM_Fresno County ERA_9-06
Presenters
Tina Vandersteel Ms. Vandersteel is a member of the global fixed income group, focusing on product management and research. Prior to joining GMO in 2004, she worked at J.P. Morgan Chase & Co. in fixed income research, developing quantitative arbitrage strategies for emerging markets and high yield bonds. Ms. Vandersteel earned her B.A. from Washington & Lee University. She is a CFA charterholder.
Wendy Malaspina Ms. Malaspina is engaged in client relations. Prior to joining GMO in 2003, she worked at Montgomery Asset Management / Wells Capital Management, most recently as a director in institutional client service and marketing. Previously, she worked as a director of client service, marketing and investor relations at Draper Advisers. Ms. Malaspina received her B.A. in International Trade from Clemson University.
![Page 3: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/3.jpg)
2GMOWM_Fresno County ERA_9-06
GMO Overview
* As of 6/30/2006 ** Asset allocation and absolute return assets are accounted for
within underlying strategies and should not be double-counted.
GMO has successfully managed money since our founding in 1977.
Experience
86 investment professionalsMore than 300 employees worldwide
People
We apply a blend of proven traditional judgments and innovative quantitative methods to find undervalued securities.Our success is based on a disciplined, value-oriented, risk-controlled investment philosophy and a commitment to investment research.
Distinctive Approach
$106 billion in global equities ($78 billion non-U.S.)$15 billion in fixed income$36 billion in asset allocation**$7 billion in absolute return strategies**
Assets of $121 Billion*
Motivation We are a private partnership
Focus Investment management is our only business
Discipline We carefully manage risk, seeking long-term capital appreciation
Stability We have exceptionally low turnover of investment professionals
Defining Characteristics
San San FranciscoFrancisco
BostonBostonLondonLondon
SydneySydney
ZurichZurich
SingaporeSingapore
RotoruaRotorua
![Page 4: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/4.jpg)
3GMOWM_Fresno County ERA_9-06
GMO Investment Strategies
* Strategy is currently closed to new clients and additional cash flows1 Strategy currently capacity constrained2 Privately offered and available only to qualified purchasers. Call GMO for further information.3 New clients and additional cash flows through Emerging Country Debt Investment Fund only. 4 New clients and additional cash flows through World Opportunities Equity Allocation Fund only. Note: Does not include all GMO products.
North America Offices
Currency Hedged International Equity
Foreign(Int’l Active Strategy)1
International Intrinsic Value
InternationalSmall Companies1
Emerging Markets*
Emerging Countries*
Emerging Markets Quality1
International Disciplined Equity
International Growth
Foreign Small Companies(Int’l Active Strategy)*
Global Equity
Sydney Office
Australian Equities1
Australian Core Equities
Australian Market Neutral Trust*Australian Long/Short Equity*
Australian Small Companies*
London Office
UK Equities
World ex-UK Equities
U.S. Value
U.S. Core
Intrinsic Value
Growth
Small/Mid Cap Value
Small/Mid Cap Growth
Tobacco-Free Core
Real Estate Investment Trusts
U.S. Quality
Fixed IncomeAbsolute Return
Long/Short
International Bond
Emerging CountryDebt1, 3
Currency HedgedInternational Bond
Strategic Fixed Income
Domestic Bond
Core Plus Bond
Inflation Indexed PlusBond
Short-Duration Investment
Global Bond
Global Equities
Tax-ManagedInternational Equities
Tax-ManagedU.S. EquitiesTax-Managed Small/Mid Cap
Real Return Global Balanced Asset Allocationvs. benchmark of
60% stocks, 20% bonds, 20% cash
Global Allocation Absolute Return* 2
vs. benchmark of +5% real return per year
Global Equity Allocation1, 4
Global Balanced Allocation
vs. benchmark of65% stocks, 35% bonds
Asset Allocation
Tax-Managed Global
Balanced2
Global Growth
Europe ex-UK
U.S. Equities International Equities
Alternative Assets
Forestry*
Alternative AssetOpportunity1
Global(Int’l Active Strategy)1
Emerging Currency Hedge2
Mean Reversion* 2
Emerging Country Debt Long/Short* 2
Market Neutral2
U.S. Aggressive2
Earnings Outlook2
Global Tactical2
Tax-Managed Absolute Return2
Multi-Strategy1,2
(combination of strategies above)
Pan-European Long/Short1,2
Currency Hedge2
U.S. Tactical Opportunities1,2
Fixed Income Hedge2
International Equity
Allocation1
U.S. Broad Market
Short Term Market Opportunities1,2
Inflation IndexedBond*
Alpha Only
![Page 5: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/5.jpg)
4GMOWM_Fresno County ERA_9-06
Fresno County Employees’ Retirement AssociationPeriods ending July 31, 2006
Performance Gross of Management, Operating, Incentive Fees ($U.S.)
Performance Net of Fees and Expenses ($U.S.)
Month YTD Year Year Year Inception * (000)1 3 5 Since Market Value
Annualized
Global Bond (3/12/99)
0.60 4.37 3.57 8.18 9.64 6.68 70,512
JPMorgan Global Gov't. Bond 0.80 3.41 1.30 5.52 8.03 5.22
Value Added -0.20 0.96 2.27 2.66 1.61 1.46
Month YTD Year Year Year Inception * (000)1 3 5 Since Market Value
Annualized
Global Bond (3/12/99)
0.57 4.13 3.15 7.79 9.25 6.31 70,512
JPMorgan Global Gov't. Bond 0.80 3.41 1.30 5.52 8.03 5.22
Value Added -0.23 0.72 1.85 2.27 1.22 1.09
* Periods of less than a year are not annualized
![Page 6: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/6.jpg)
Fixed Income at GMO
![Page 7: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/7.jpg)
6GMOWM_Fresno County ERA_9-06
GMO Fixed Income Strategies (with Benchmarks)Assets as of August 1, 2006 totaled $14,803 million
Developed Market Fixed Income$8,494 million
J.P. Morgan:EMBI GlobalEMBI Global Diversified
Emerging Country Debt$3,754 million
Absolute Return and Alternative Assets*
$2,218million
Global Fixed Income$2,042 million
J.P. Morgan:Global Government Bond Index
Non-U.S. Government Bond IndexNon-U.S. Government Bond Index (Hedged)—ex Japan
Lehman Brothers Global Aggregate Bond Index
Core U.S. Fixed Income$1,852 million
JPMorgan U.S. 3-Month Lehman Brothers Government Cash Index ($544 Million) Bond Index ($492 million)
*We trade, on behalf of GMO Sydney, the Global Tactical Strategy(assets $518 million).Global Fixed Income
Portable Alpha$4,599 million
TIPS Plus: Lehman Treasury Inflation Notes Index ($792 million)
Short Duration Plus: Lehman U.S. Treasury 1-3 Year Index ($591 million)
U.S. Core Plus: Lehman BrothersU.S. Aggregate Index ($3,216 million)
Lehman BrothersTreasury Inflation Notes Index
($816 million)
Emerging Country Debt
Alternative Asset Opportunity (Commodities)
Emerging Currency HedgeCurrency HedgeFixed Income Hedge
CoreStrategies
![Page 8: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/8.jpg)
7GMOWM_Fresno County ERA_9-06
GMO Fixed Income Team of 16 has years of collective investment management industry experience224
At GMO Industry
Portfolio Management
Bill Nemerever, Partner, Group Co-Manager 13 32Tom Cooper, Partner, Group Co-Manager 13 26Steve Edelstein, Partner 11 24Allan Berliant 3 21Justin Klosek 4 9
Research/Product Management/Technology
Tina Vandersteel 3 16Mark Mueller, Partner 10 14George Estes, Partner 10 10Kim Sullivan 6 8Max Golts 1 2Andy Gossard 1 1
Trading/Support
Madelyn Tucker 9 16Tracey Keenan 4 16Bill O'Connell 7 8Kyle Ciano 2 3
Investment Control
Mark Puorro 13 18
Commodities and Alternatives
Investment Strategy Focus
Years
Bonds and Currencies
Emerging Country Debt
Asset-Backed Securities and
Corporate Credit
![Page 9: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/9.jpg)
8GMOWM_Fresno County ERA_9-06
GMO Core Beliefs and Competitive AdvantagesRelative value is best exploited from the top down
Global Fixed Income
Cheap implementation maximizesalpha, including when
replicating the benchmark
GMO implements using instruments with low transactions costs both for benchmark replication and active management, which allows the portfolios to respond quickly to changing markets but precludes investments in illiquid securities, like corporate bonds.
Global bond markets are lessefficient
There are five times as many managers benchmarked to aggregate-style domestic indices than benchmarked to global government bond indices.
Systematic methods effectivelydeal with complex issues
GMO’s disciplined approach is a consistent, thorough, adaptable way of capturing our investment ideas. Our approach avoids the pitfalls caused by emotion.
GMO evaluates currencies and bonds separately, generating independent sources of alpha. Liking a country’s bonds does not mean we like the currency.
Currencies and bonds shouldbe evaluated separately
Currency markets are particularlyinefficient
Currency markets have relatively few dedicated currency managers. Major market participants – hedgers and Central Banks – are not primarily motivated by currency profits.
![Page 10: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/10.jpg)
9GMOWM_Fresno County ERA_9-06
Investment Process OverviewFirst we replicate the benchmark, then we combine a variety of strategies to add value
Value-Added StrategiesBenchmark Replication
+
Invest in bonds,currencies, short-term high-quality debt &
derivatives to generate benchmark-
like returns
+ +
Emerging Country Debt
Opportunity Set:Emerging Country DebtJ.P. Morgan Emerging
Market Bond Index Globaland related sovereign,
hard currency emergingcountry debt exposures
Asset-backed SecuritiesAAA, floating-rate ABS
with various collateral types
Currencies
Opportunity Set:Australian dollarsCanadian dollar
EuroYen
New Zealand dollarNorwegian krone
Swedish kronaSwiss francU.K. poundU.S. dollar
Relative Value
Momentum-Plus
Security Selection
Bonds
Yield Curve
Market Selection
Rate Anticipation
Volatility
Asset-Backed Securities
Issue Selection
Issue Selection
Opportunity Set:Australian interest ratesCanadian interest ratesEuro-area interest rates
Yen interest rates
Swedish interest ratesSwiss interest ratesU.K. interest rates
U.S. dollar interest rates
![Page 11: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/11.jpg)
Performance Review: Global Bonds
![Page 12: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/12.jpg)
11GMOWM_Fresno County ERA_9-06
1-Year Performance Attribution: Total
Data as of 7/31/2006
Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Total
Global Bond Fund 1.64% -1.15% -1.05% -0.59% 0.24% 0.83% -0.23% -1.06% 3.20% 1.72% -0.90% 0.57% 3.15%J.P. Morgan Global Government Bond Index 1.83% -1.93% -1.80% -1.14% 1.04% 1.28% -0.46% -1.21% 2.19% 1.79% -0.97% 0.80% 1.30%Alpha -0.20% 0.78% 0.76% 0.55% -0.81% -0.46% 0.23% 0.16% 1.01% -0.06% 0.07% -0.23% 1.85%
Bond Market -11 -5 24 6 -14 -10 22 22 33 10 -1 -11 66 Overlays 3 6 -2 3 -12 -18 10 1 0 2 -10 -14 -29Currency -17 79 58 45 -59 -31 -22 -17 -40 0 16 6 19Emerging Markets 0 14 -3 4 3 8 11 -1 3 -6 -1 5 37LIBOR Plus 1 -1 -4 -2 4 1 5 5 -2 0 4 -3 10Trading Costs -1 -1 -1 -2 -2 -2 -2 -2 -2 -2 -1 -1 -18Issue selection/other 5 -14 3 1 -1 5 -1 7 107 -10 -1 -6 167Total alpha -20 78 76 55 -81 -46 23 16 101 -6 7 -23 185
![Page 13: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/13.jpg)
12GMOWM_Fresno County ERA_9-06
1-Year Performance Attribution: Bond Markets
Global bond yields began rising in the second half of 2005, accelerating throughout the first half of 2006 before falling slightly in July. Major, sustained positions included overweight Sweden and underweight U.S. and U.K. We had been underweight briefly in the Euro-area in 2005 but otherwise overweight. U.S., Australian, Swiss and U.K. positions were the largest positive contributors over the past 12 months. The Swedish and Japanese overweights detracted from performance.
Data as of 7/31/2006
JPMorgan Global Government Bond Index Yield
2.7%
2.9%
3.1%
3.3%
3.5%
3.7%
3.9%
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Total of 66 bps
Local Currency Total Bond Returns
2.1% 1.9%
-1.1% -0.9%-2.2%
4.4%
-0.1%
-0.9%
-2.6%
3.1%
0.8%
Australia Canada Denmark Euro-area Japan NewZealand
Norway Sweden Switzerland U.K. U.S.
Bond Active Weights at Quarter Ends and Current
16%
0%
-18%
0% 0%
20%
-6% -9%-15%-2%
8%
Australia Canada Denmark Euro-area Japan NewZealand
Norway Sweden Switzerland U.K. U.S.
Contribution to Performance, bps
30
3 1 8
-17
0 0
-39
25 1737
Australia Canada Denmark Euro-area Japan NewZealand
Norway Sweden Switzerland U.K. U.S.
![Page 14: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/14.jpg)
13GMOWM_Fresno County ERA_9-06
1-Year Performance Attribution: Currency Markets
The U.S. dollar’s 2005 strength has evaporated in 2006, despite its continued yield advantage versus many of the major currencies. Due to the recent decrease in our U.S. dollar position, currency alpha reversed, and now is positive for the trailing 12 months. While overweights in Scandinavian countries hurt performance, underweight positions in Japanese yen and euros as well as a British sterling underweight provided gains.
Data as of 7/31/2006
Total of 19 bps
Weighted U.S. dollar performance
-4.0%
-2.0%
0.0%
2.0%
4.0%
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Currency Returns
0.8%
8.5%5.0% 5.1%
-2.0%
-9.8%
5.0%7.5%
4.4% 6.0%
Australia Canada Denmark Euro-area Japan NewZealand
Norway Sweden Switzerland U.K.
Currency Active Weights at Quarter Ends and Current
6% 2% -1%
-12%-18%
2% 6% 3% 1% 4% 7%
Australia Canada Denmark Euro-area Japan NewZealand
Norway Sweden Switzerland U.K. U.S.
Contribution to Performance, bps
23
-29
35
80
-13-27
-43-62
58
-2
Australia Canada Denmark Euro-area Japan NewZealand
Norway Sweden Switzerland U.K.
![Page 15: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/15.jpg)
14GMOWM_Fresno County ERA_9-06
Performance AttributionPerformance attribution is run daily, providing immediate feedback about the portfolios
Total
-150 b.p.
-100 b.p.
-50 b.p.
0 b.p.
50 b.p.
100 b.p.
150 b.p.
200 b.p.
250 b.p.
300 b.p.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2005
20042006
Currency Markets
-200 b.p.-150 b.p.-100 b.p.
-50 b.p.0 b.p.
50 b.p.100 b.p.150 b.p.200 b.p.250 b.p.300 b.p.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2005
2004
2006
Interest Rate Markets
-80 b.p.
-60 b.p.
-40 b.p.
-20 b.p.
0 b.p.
20 b.p.
40 b.p.
60 b.p.
80 b.p.
100 b.p.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2005
2004
2006
Emerging Debt
-20 b.p.
-10 b.p.
0 b.p.
10 b.p.
20 b.p.
30 b.p.
40 b.p.
50 b.p.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2005
2004
2006
219 b.p.
78 b.p.
19 b.p.43 b.p. 29 b.p.
-15 b.p.
65 b.p.91 b.p.
156 b.p.
-53 b.p.
34 b.p.11 b.p.
-16 b.p.-42 b.p.
95 b.p.
-93 b.p.
62 b.p.
14 b.p. 14 b.p.
-6 b.p.
-4 b.p.
Total Currency Markets Interest Rate Markets Emerging Debt LIBOR Plus Trading Costs Issue/Other
2004
2005
First Half 2006
![Page 16: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/16.jpg)
15GMOWM_Fresno County ERA_9-06
Global Bond Performance: Frank Russell Universe
Performance data quoted represents past performance. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Yield will fluctuate. There are risks associated with investing in a fund of this type that invests in securities of foreign countries, such as erratic market conditions, economic and political instability, and fluctuations in currency exchange rates. Performance shown is gross. Composite Inception Date: 12/31/95.
8.59
GMO Global Bond CompositeUniverse of Global Fixed Income Composites – Unhedged
Periods Ending June 30, 2006
GMO Global Bond Composite (U.S. $)JPMorgan Global Gov’t. Bond (U.S. $)
Rat
e of
Ret
urn
(%)
Periods
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
10 Years 9 Years 8 Years 7 Years 6 Years 5 Years 4 Years 3 Years 2 Years 1 Year Current Quarter
Min/Max
GMO6.115.695.35
6.67
10.72
GMO5.985.695.37
6.30
9.56
GMO5.825.665.47
6.29
9.01 GMO
6.075.895.41
6.89
9.93GMO
7.156.626.35
7.68
11.79GMO
8.349.34
10.02
14.19
GMO7.887.256.95
8.24
12.06
GMO
4.974.494.14
5.43
7.83
GMO4.223.503.42
5.276.71
GMO
0.23-0.41-0.61
1.902.90
GMO2.892.562.29
3.524.25
![Page 17: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/17.jpg)
16GMOWM_Fresno County ERA_9-06
GMO Sources of Value AddedA diverse set of strategies adds breadth to our process
Bond Market Selection
Emerging Debt
Exposure (5%)
Currency Market
Selection (51%)
Global Bond
MarketStrategies
(44%)
Rate Anticipation
Yield curve
Volatility
Relative Value
Momentum Plus
![Page 18: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/18.jpg)
Portfolio Positioning
![Page 19: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/19.jpg)
18GMOWM_Fresno County ERA_9-06
Current Portfolio: Global Bond Fund
Data as of 7/31/2006
0% 2% 1%
37%
29%
0% 0% 1% 0%
6%
23%
0%
18%
0% 0%
45%
11%
0% 0%
21%
-6%-3%
9%4%
Australia Canada Denmark Euro-area Japan NewZealand
Norway Sweden Switzerland U.K. U.S.A. Emerging
JPMorgan Global Government Bond Index
GMO Global Bond Fund
0%2% 1%
37%
29%
0% 0% 1% 0%
6%
23%
0%
9%
3%0%
24%
11%
2%
6%4%
-0%
12%
31%
0%
Australia Canada Denmark Euro-area Japan NewZealand
Norway Sweden Switzerland U.K. U.S.A. Emerging
JPMorgan Global Government Bond Index
GMO Global Bond Fund
Currencies
Bond Markets
![Page 20: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/20.jpg)
Investment Process
![Page 21: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/21.jpg)
20GMOWM_Fresno County ERA_9-06
Benchmark ReplicationBenchmark exposures are replicated in the least expensive way to minimize tracking error
We can add value to any benchmark that can be replicated
The return of the benchmark forms the base of our portfolio’s return
We use bond futures, currency forwards, swaps, options and other instrumentsto replicate the returns of the benchmark with limited risk. When they are inexpensive, we will use index total return swaps or synthetic indices to generate benchmark exposures
Because our replication of the benchmark requires only small amountsof cash, we invest the balance of our clients’ assets in a very high-quality cash management pool, the GMO Short-Duration Collateral Fund
![Page 22: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/22.jpg)
21GMOWM_Fresno County ERA_9-06
Benchmark ReplicationIt’s not the number of instruments in the benchmark, but rather the number of unique risks
Benchmark type Examples Replication instruments
Domestic or global government and government-related bond
•JPMorgan Government Bond Indices•Citigroup Government Bond Indices•Lehman U.S. Agency Index
Government bond and Agency bond futures, interest-rate swaps
Inflation-protected government bond
•Lehman U.S. Treasury Inflation Notes Index•Lehman Global TIPs
Bonds, inflation swaps, index total return swaps
Aggregate-style (by subcomponent)
•Lehman domestic or Global Aggregate Indices•Citigroup domestic or Global Broad Investment Grade Indices
Index total return swaps (rarely available at the aggregate level)
Securitized •Lehman Fixed-Rate MBS Index
•Lehman ABS, CMBS Indices
Mortgage TBAs, bonds, index total return swapsBonds
Investment-grade corporate credit
•Lehman U.S. or Global Corporate Index•Citigroup U.S. or Global Credit Index
Index total-return swaps, synthetic CDX indices, single-name CDS
Specialized Liability-driven Nominal pension liabilities Interest-rate swaps
Broad
Narrow
![Page 23: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/23.jpg)
22GMOWM_Fresno County ERA_9-06
Currency Management
We believe that the fact that there are relatively few long-term investors in global currency markets allows us to exploit continuing inefficiencies
We have developed models that enable us to add value consistently by buying currencies we find undervalued and selling their overvalued counterparts
Currencies outside our clients’ benchmark universes can be sources of value-added (e.g., U.S. dollar is traded in our non-U.S. portfolios)
Approximately half of our added-value comes from this strategy
![Page 24: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/24.jpg)
23GMOWM_Fresno County ERA_9-06
What Makes a Currency Attractive?
High short-term yields…when risk aversion is low
Strong current account …when risk aversion is high
Positive price momentum
Positive bond market momentum
Relative Value
Momentum-Plus
![Page 25: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/25.jpg)
24GMOWM_Fresno County ERA_9-06
Current Account/Gross Domestic Product (GDP)17.8%
7.0%3.8% 2.7%
-0.3%
-2.7%-5.9% -7.0% -7.8%
13.5%
Norway Switzerland Sweden Japan Canada Euro land U.K. Australia U.S.A. NewZealand
Safest Riskiest
Risk Aversion Index
0.0
0.2
0.4
0.6
0.8
1.0
Jul 05 Oct 05 Jan 06 Apr 06 Jul 06
Three-Month Libor7.4%
5.5%4.8% 4.3%
3.2% 3.1% 2.6%1.6%
0.4%
6.1%
NewZealand
Australia U.S.A. U.K. Canada Euro land Norway Sweden Switzerland Japan
Risk Aversion Index
Current AccountBalance (Riskiness)
Currency Relative Value ModelWe prefer high-yielding currencies especially when risk aversion is low, but we move to safe currencies when risk aversion is high
Relative Short-term Interest Rate
Risk averse:Reduce weight inrisky currencies
Risk Seeking: rank by yield
Data as of 7/31/2006
With risk aversion low, we pay less
attention to a currency’s
riskiness and go for yield
![Page 26: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/26.jpg)
25GMOWM_Fresno County ERA_9-06
Currency Valuation: Risk Aversion ExampleCurrency active weights are modulated by changes in the risk aversion weight
Source: GMO, updated through 12/31/2003
Risk Aversion and Currency Active Weights
-20%
-10%
0%
10%
20%
Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-040.00
0.25
0.50
0.75
1.00
Australian dollar
weight (left)
Swiss franc weight (left)
Risk Aversion
Index (right)
![Page 27: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/27.jpg)
26GMOWM_Fresno County ERA_9-06
Yield Momentum in 10-Year Bonds2.2%
1.5% 1.5%0.9% 0.9% 0.8%
0.5%0.1%
-0.2%
1.9%
Switzerland Japan Euro land Australia U.S.A. U.K. Sweden NewZealand
Canada Norway
Currency Momentum: Range of Short-to-Long Moving Averages
-4%-2%0%2%4%
Australia U.K. Sweden Euro land NewZealand
Norway Switzerland Canada Japan
Yield Curve Slope: 10-Year Swap versus 3-Month LIBORBasis Points 165151124100100
3
(18)(29)(48)
(158)
NorwayJapanSwedenSwitzerlandEuro landCanadaU.K.AustraliaU.S.A.NewZealand
Currency Momentum-Plus ModelsCurrency momentum alone tells only part of the story
Relative Bond Yield Momentum
Relative Yield Curve Slope
Relative Currency Momentum
Data as of 7/31/2006
![Page 28: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/28.jpg)
27GMOWM_Fresno County ERA_9-06
Global Bond Management
Our valuation models rank daily eight global bond markets
We over and underweight markets in the same fashion as absolute return managers
Our bond markets universe includes more countries than are in the various benchmarks we use
We rigorously manage risk and invest primarily using low-cost derivatives such as bond futures, interest rate and total return swaps
![Page 29: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/29.jpg)
28GMOWM_Fresno County ERA_9-06
What Makes a Bond Market Attractive?
High real yields
Steep yield curve slopes
Recent underperformance
Market Selection
![Page 30: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/30.jpg)
29GMOWM_Fresno County ERA_9-06
Yield Curve Slope: 10-Year Swap versus 3-Month LIBORBasis Points151
124100 100
3
(18) (29) (48)
Japan Sweden Switzerland Euro land Canada U.K. Australia U.S.A.
6-Month Change in 10-Year YieldBasis Points
50 48 4742 39 38
16
49
Euro land U.S.A. Switzerland Australia U.K. Japan Sweden Canada
Real 10-Year Yields
3.0%2.2% 2.1% 2.1%
1.8%1.3% 1.3%
2.4%
Australia Canada U.K. Sweden U.S.A. Euro land Japan Switzerland
Relative Recent Bond Market Performance
Relative Yield Curve Slope
Relative Real Yield
Bond Market Selection ModelsWe like high real yields, steep slopes, and recently lagging bond markets
Data as of 7/31/2006
![Page 31: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/31.jpg)
30GMOWM_Fresno County ERA_9-06
Bond Market Selection ExampleWhen all factors line up, the over/underweights are unambiguous
Source: GMO, updated through 4/30/2003
Yield curve slopes: 10-year less 3 months
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3/12/2003 3/26/2003 4/9/2003 4/23/2003
Canada
U.K.
Universe
Real yields
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3/12/2003 3/26/2003 4/9/2003 4/23/2003
Universe Average
Canada
U.K.
Yield trend
-0.5%
-0.4%
-0.3%
-0.2%
-0.1%
0.0%
0.1%
0.2%
3/12/2003 3/26/2003 4/9/2003 4/23/2003
U.K.
Canada
Universe Average
Active weights
-12%
-8%
-4%
0%
4%
8%
12%
3/12/2003 3/26/2003 4/9/2003 4/23/2003
Canada
U.K
Universe Average
![Page 32: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/32.jpg)
31GMOWM_Fresno County ERA_9-06
Downward yield momentum
Steep slopes
U.S. dollar strength
Equity markets weakness
Rate Anticipation
What Makes Global Bonds Attractive?
![Page 33: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/33.jpg)
32GMOWM_Fresno County ERA_9-06
Bond Rate Anticipation ModelWe like bonds in general when yields have positive downward momentum, when slopesare high, when the U.S. dollar is strong, and when equity markets are weak
Moving Average Change in Global Yields
-0.3%-0.2%-0.1%0.0%0.1%0.2%0.3%0.4%0.5%
Jul 05 Oct 05 Jan 06 Apr 06 Jul 06
Data as of 7/31/2006Sources: J.P. Morgan, Morgan Stanley
Average Slope of Yield Curves in Euroland, U.K. and U.S.A.
0 b.p.
40 b.p.
80 b.p.
120 b.p.
Jul 05 Oct 05 Jan 06 Apr 06 Jul 06
1-Year Change in USD and MSCI World Equity
-15%-10%
-5%0%5%
10%15%20%
Jul 05 Oct 05 Jan 06 Apr 06 Jul 06
USD Real Effective Exchange Rate
MSCI World Equity Index
Equity Weakness
U.S. Dollar Strength
Yield Curve Slope
Yield Momentum
Flat yield curves are negative for
bonds
Global yields are no longer moving upward, which is less negative for
bonds
Currently equity weakness is neutral for
bonds, while USD weakness is negative
![Page 34: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/34.jpg)
33GMOWM_Fresno County ERA_9-06
Other Ways We Make Money in Bonds
Global yield curve slopes
Opportunistic butterfly positionsYield Curve
Volatility Mean reversion in interest-rate volatility
![Page 35: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/35.jpg)
34GMOWM_Fresno County ERA_9-06
Three-Month Change in 3-month, 3-month Forward RatesBasis Points43
3530 28
20 1914
9
Sweden Australia Euro land Japan Switzerland U.S. U.K. Canada
Other Bond Models: ExampleAn additional risk budget is given to a series of bond strategies designed to addrelatively uncorrelated sources of value to the portfolios: slope model example
Relative Swap Slopes
Data as of 7/31/2006
Forward Markets
Inclined to flatten Inclined to steepen
Static Return
Static Carry Including Rolldown(Duration Neutral Hedge Ratio)1.3%
0.6%
-0.3%-1.3%
-2.6% -2.7%
-4.4%-5.3%
U.S. (4.1) Canada (4.2) Australia (3.9) U.K. (4.2) Japan (4.5) Euro land (4.2) Switzerland (4.4)
Sweden (4.2)
Yield Curve Slope: 10-Year Swap versus 2-Year SwapBasis Points118
75 7145 38
14
-5 -8
Japan Switzerland Sweden Euro land Canada U.S. Australia U.K.
![Page 36: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/36.jpg)
35GMOWM_Fresno County ERA_9-06
Portfolio Allocation
We have built a customized risk management system to model the active risks in our portfolios
We budget our portfolio risks in a structured fashion, targeting specific tracking errors for each strategy
Each trading day new market information is incorporated in our portfolios to accommodate changing economic and market conditions
On a daily basis we attribute performance to our various strategies, gaining valuable information to control and allocate risk
While allocations are performed based on the underlying strategies, an added layer of risk control exists to limit exposures by bond market, by currency, and by the deviation of the portfolio duration from the benchmark
![Page 37: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/37.jpg)
36GMOWM_Fresno County ERA_9-06
Risk ModelRisk model transforms alpha forecasts into bond and currency active weights
Data as of 7/31/2006
18%
-2%
7%
-18%
0%
-6%
-9%
-15%
8%
1%
-13%
-18%
2%
6%
3%
0%
6%
7%
20%
0%
-25% -15% -5% 5% 15% 25%
Australia
Canada
Euro land
Japan
NewZealand
Norway
Sweden
Switzerland
U.K.
U.S.A.
Covariance Matrix
* 1.5%-2.5% for global bond portfolios, 15% for Currency Hedge Fund and Fixed Income Hedge Fund
Currency MarketForecasts
Bond MarketForecasts
Risk ModelMaximizes expected
return subject totracking error*
constraint
Active Weights
Trading Costs
![Page 38: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/38.jpg)
37GMOWM_Fresno County ERA_9-06
Exposure Risk Statistics
Current & Range
Tracking error 1.5% ▐ 2.5%
Duration difference -2yr ▐ +2yr
Bond weights -25% ▐ ▐ +25%
Currency weights -25% ▐ ▐ +25%
Portfolio Risk Exposures and ImplementationTracking error is the primary risk measure, while credit rating distribution qualifies the cash collateral backing derivatives exposures
![Page 39: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/39.jpg)
38GMOWM_Fresno County ERA_9-06
Active Management is Key to Capturing ValuePortfolio positions adjust to pick up relative opportunities on a daily basis
Data as of 7/31/2006
Daily Active Weight: Switzerland Bond Market
-8%
-6%
-4%
-2%
0%
2%
4%
6%
7/3 7/4 7/5 7/6 7/7 7/10 7/11 7/12 7/13 7/14 7/17 7/18 7/19 7/20 7/21 7/24 7/25 7/26 7/27 7/28 7/31
Daily Active Weight: Australian dollar
-4%
-2%
0%
2%
4%
6%
8%
10%
7/3 7/4 7/5 7/6 7/7 7/10 7/11 7/12 7/13 7/14 7/17 7/18 7/19 7/20 7/21 7/24 7/25 7/26 7/27 7/28 7/31
![Page 40: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/40.jpg)
39GMOWM_Fresno County ERA_9-06
Implementing global bond and currency allocations:-To minimize transaction costs we typically gain our exposure to currency and bond markets using derivatives such as forwards, futures, swaps and options
-The choice of instrument rests on relative value models as well as on our strategy of adding well-priced convexity when available to limit downside risks
Investing underlying cash collateral:-Given our macro views on the outlook for asset-backed sectors, and current portfolio positioning, we select complementary AAA-rated issues that carry a liquidity or complexity yield premium
-We do not reach for yield by reducing asset credit quality
Earning a credit spread:We use a small (0-5%), relatively stable allocation to our Emerging Country Debt fund to earn the asset class’ yield spread and take advantage of the Fund’s alpha, generated almost exclusively through security selection
Security SelectionSome of our value-added comes from diverse security selection choices
![Page 41: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/41.jpg)
40GMOWM_Fresno County ERA_9-06
Short-Duration Collateral Fund (SDCF): Quality and Diversification
Quality Distribution
Interest Rate Duration
Percent Floating RateSpread to LIBOR 0.1%Market Value $5.9 billion
92%
Portfolio Breakdown
0.25 yearsSpread Duration 0.1 years
Please see Appendix for SDCF guidelinesData as of July 31, 2006
Cash 1.1%
AAA Non-Insured 87.8%
US Agency 1.2%
U.S. Treasury 0.0%
Non-AAA 0.5%
AAA Insured 9.4%
All Triple-A Rated 99.5%
UK Residential
Business Loans 6%CDO 10%
CMBS 6%
MBS Residential 2%
Other 5%
Student Loans 7% ABS Residential 23%
6%Treasury 0%
Agency 1%
Auto 12%
Australian Residential 4%
Insurance Financing 1%
Credit Cards 17%
![Page 42: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/42.jpg)
41GMOWM_Fresno County ERA_9-06
Summary
Global currency and bond markets offer fixed income managers dramatically more opportunities to add value than domestic bond markets
Opportunities in currency and bond markets can be exploited independently
Our valuation models and implementation techniques give us the ability to outperform any benchmark
The value we add using our valuation models can be enhanced through thoughtful security selection
Our team of experienced investment professionals focuses on investment strategies where we have a significant competitive advantage
The value we add complements and diversifies that of other managers
![Page 43: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/43.jpg)
Appendix
![Page 44: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/44.jpg)
43GMOWM_Fresno County ERA_9-06
GMO Fixed Income PerformanceThrough July 2006
Performance data quoted represents past performance. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Yield will fluctuate. Performance shown is net of fees and expenses after reimbursement from the manager. The Fund may have a transaction fee at purchase and/or redemption which is paid to the Fund to cover trading costs. Average Annual Total Return figures reflect these fees; Total Return figures net of fees do not. There are risks associated with investing in a fund that invests in securities of foreign countries, such as erratic market conditions, economic and political instability, and fluctuations in currency exchange rates. J.P. Morgan EMBI Global represents the J.P. Morgan EMBI prior to 8/95, J.P. Morgan EMBI + through 12/31/99 and the J.P. Morgan EMBI Global thereafter.
As of 7/31/2006Total Return Net of Fees Average Annual Total Returns (Net Trans. Costs)
Fixed Income Fund/ Inception Month YTD YTD Value One Five Ten Since
Benchmark Date 2006 2006 Added Year Year Year Inception
Domestic Bond Fund 8/18/1994 1.12 0.53 0.24 1.47 5.02 6.53 6.74Lehman Brothers U.S. Government 1.19 0.29 1.24 4.48 6.14 6.42Core Plus Bond Fund 4/30/1997 1.17 0.48 -0.14 2.63 6.22 N/A 6.81Lehman Brothers U.S. Aggregate 1.35 0.62 1.46 4.79 N/A 6.24International Bond Fund 12/22/1993 0.51 4.21 -0.37 2.16 10.79 6.19 7.86JPMorgan Non-U.S. Gov't. Bond 0.67 4.57 1.46 9.21 4.81 5.85Currency Hedged Int'l. Bond Fund 9/30/1994 1.35 -0.66 -0.25 1.82 5.84 8.22 9.99JPMorgan Non-U.S. Gov't ex-JPN Hdg Bond + 1.34 -0.41 1.27 4.70 7.02 7.97Global Bond Fund 12/28/1995 0.57 4.13 0.72 3.15 9.25 6.69 6.68JPMorgan Global Gov't. Bond 0.80 3.41 1.30 8.03 5.45 5.20Emerging Country Debt Fund 4/19/1994 3.37 5.59 3.02 11.90 20.55 17.95 19.83JPMorgan EMBI Global + 3.27 2.56 8.31 12.75 11.66 13.12Inflation Indexed Plus Bond Fund 5/31/2006 1.28 1.40 -0.52 N/A N/A N/A 1.40Lehman Brothers U.S. Treasury Inflation Notes 1.63 1.92 N/A N/A N/A 1.92Strategic Fixed Income Fund 5/31/2006 0.52 0.60 -0.33 N/A N/A N/A 0.60Lehman Brothers U.S. Treasury 1-3 Year 0.75 0.93 N/A N/A N/A 0.93
![Page 45: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/45.jpg)
44GMOWM_Fresno County ERA_9-06
GMO Short-Duration Collateral Fund: GuidelinesEffective 9/2/2004
Pre NPF Current
I. Issue/Issuer Limits Asset-Backed Securities Single Issue None 3% Corporate Securities Single Issuer 5% 3% Total per Issuer None 5% All Single Issues > 2% None 25%
II. Servicer limit* None 5%
III. Industry Limits Total (Including Insured)
Credit Card 25% 25% 40% Auto Financing 25% 25% 40% US Residential Home Equity None 25% 40% US Residential Prime Mortgages None 25% 40% CMBS None 25% 40% CDO None 25% 40%
Other 25% 15% 25%
Pre NPF CurrentIV. Sector Limits
CBO: Emerging Collateral 25% 10%CBO: High-Yield Collateral 25% 10% USAid None 20%Gov’t Sponsored Enterprises None 15% eachGovernment Repo None 15%
V. Credit LimitsIssues Rated Below AA- ** 2% per issuerAll Issues Rated Below AA- None 10%All Issues Rated Below A- 5% 5%
VI. Insurance Wrap Limits Per Insurer*** None 25%
* No Issues will be purchased whose servicer does not meet the standards set forthin the Fund’s investment guidelines.
** ALF represented that it primarily owned investment -grade securities.*** Wrapped issues are not coun ted in issuer, servicer , industry or sector limits above.
However, within wrapped issues the limits above apply.Note: All limits apply at time of purchase.
![Page 46: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/46.jpg)
45GMOWM_Fresno County ERA_9-06
Capsule Biographies: Fixed IncomeWilliam Nemerever Mr. Nemerever is a member of the executive committee and co-manages GMO’s global fixed income area with Tom
Cooper. Prior to joining GMO in 1993, he worked at Boston International Advisors where he founded the quantitative global fixed income effort. Previously, he was in charge of several Fidelity Investments fixed income groups, head of the fixed income department at State Street Bank & Trust Co., a portfolio manager at Wells Fargo, and a portfolio manager, equity analyst and actuary at John Hancock. Mr. Nemerever earned his B.S. in Mathematics at the University of Washington and his M.S. in Actuarial Science from Northeastern University. He is a CFA charterholder.
Thomas Cooper Mr. Cooper co-manages GMO’s global fixed income area with Bill Nemerever. Before joining GMO in 1993, he was a managing director at Boston International Advisors. Prior to joining Boston International, he worked at Goldman Sachs Asset Management, Western Asset Management and State Street Bank & Trust Co. Mr. Cooper received his M.B.A. from the University of California (Berkeley) and earned a B.A. from Oberlin College. He is a CFA charterholder.
Steve Edelstein Mr. Edelstein works with GMO’s global fixed income group as a portfolio manager. Prior to joining GMO in 1995, he was a vice president and fixed income options and futures strategist with Morgan Stanley. Mr. Edelstein has also worked with First Boston in the fixed income proprietary trading, government trading and risk management groups, and as a financial model builder and programmer with Lehman Brothers’ Kuhn Loeb. He holds his M.S. in Economic and Social Statistics from Cornell University and earned a B.S. from the State University of New York at Oneonta.
George Estes Mr. Estes is responsible for credit analysis for GMO’s emerging country debt portfolios. Prior to joining GMO in 1996, he was director for Latin America and Canada for the Burger King Corporation. Mr. Estes holds a B.A. in German from the University of Virginia and an M.B.A. in Finance from the University of California at Berkeley.
Mark Mueller Dr. Mueller is the director of research for the algorithmic trading group and is a consulting director of research for the fixed income group. Since joining GMO in 1997, he has also served as the director of research for the fixed income group. Prior to joining GMO, he worked at Goldman Sachs in the fixed income proprietary trading group, and earlier at Morgan Stanley as a quantitative analyst in equity derivatives. Dr. Mueller holds a B.S. in Physics from the Massachusetts Institute of Technology and a Ph.D. in Physics from Stanford University.
![Page 47: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/47.jpg)
46GMOWM_Fresno County ERA_9-06
Capsule Biographies: Fixed IncomeAllan Berliant Mr. Berliant is a member of the global fixed income group. Prior to joining GMO in 2003, he worked at Hartford
Investment Management Company as director of asset-backed securities. Previously, he was a vice president within Structured Asset Research at Zurich Scudder Investments. Mr. Berliant earned his B.S. from The Johns Hopkins University and his M.B.A. from University of Chicago.
Max Golts Dr. Golts is a member of GMO’s global fixed income group, focusing on quantitative research. Prior to joining GMO in 2005, he worked on fixed income analytics and strategies for State Street Global Markets. Previously, he did volatility research at Fort Hill Capital Management. Dr. Golts earned his undergraduate degree from Kiev University and his Ph.D. in Mathematics from Yale University.
Tracey Keenan Ms. Keenan works with GMO’s global fixed income group as a finance/repo trader. Prior to joining GMO in 2002, she held various positions at Standish Mellon, most recently as assistant vice president of fixed income trading. She earned her B.A. in political science from Stonehill College and her M.B.A. in Finance from Suffolk University.
Justin Klosek Mr. Klosek is a member of the global fixed income group. Prior to joining GMO in 2002, he worked on the fixed income teams of both Morgan Stanley Asset Management and Long-Term Capital Management. Mr. Klosek earned his B.S.E. in Civil Engineering and Operations Research from Princeton University and his M.S. in Civil Engineering from Massachusetts Institute of Technology. He is a CFA charterholder.
Madelyn Tucker Ms. Tucker is a trader for the global fixed income group. Prior to joining GMO in 1997, she worked at Fidelity Investments where she traded asset backed corporate and mortgage securities, and monitored benchmarks for trust funds. Prior to that, she was director of financial systems development at Cherry Webb. Ms. Tucker earned her M.B.A. from the Simmons School of Management.
Tina Vandersteel Ms. Vandersteel is a member of the global fixed income group, focusing on product management. Prior to joining GMO in 2004, she worked at J.P. Morgan Chase & Co. in fixed income research, developing quantitative arbitrage strategies for emerging markets and high yield bonds. Ms. Vandersteel earned her B.A. from Washington & Lee University. She is a CFA charterholder.
![Page 48: Fresno County Employees’ Retirement Association€¦ · 7 GMO WM_Fresno County ERA_9-06 GMO Fixed Income Team of 16 has years of collect224 ive investment management industry experience](https://reader033.vdocuments.us/reader033/viewer/2022042407/5f22a2b8219e3c6fca238cf8/html5/thumbnails/48.jpg)
47GMOWM_Fresno County ERA_9-06
40 Rowes Wharf Boston, Massachusetts 02110
(617) 330-7500 | www.gmo.com
GMONorth America | Europe | Asia-Pacific