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- - - ORDER OF BUSINESS - - -
1. Subject: January 27, 2016 PFRS Audit Committee Meeting Minutes From: Staff of the PFRS Board
Recommendation: APPROVE January 27, 2016 Audit Committee meeting minutes.
2. Subject: Administrative Expenses Report From: Staff of the PFRS Board
Recommendation: ACCEPT an informational report regarding PFRS Administrative Expenses from July 1, 2015 through December 31, 2015.
3. Subject: Annual Report for Fiscal Year ending June 30, 2015 From: Staff of the PFRS Board
Recommendation: RECOMMEND BOARD APPROVAL of printing and publication of the Annual Report of the Oakland Police and Fire Retirement System for the Fiscal Year ending June 30, 2015.
4. Subject: Resolution No. 6881 - Travel Authorization for board member James Cooper to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Five Hundred Forty-two Dollars ($1,542.00)
From: Staff of the PFRS Board
Recommendation: RECOMMEND BOARD APPROVAL of Resolution No. 6881 - Travel Authorization for board member James Cooper to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Five Hundred Forty-two Dollars ($1,542.00).
Retirement Systems 150 Frank H. Ogawa Plaza Oakland, California 94612
All persons wishing to address the Board must complete a speaker's card, stating their name and the agenda item (including "Open Forum") they wish to address. The Board may take action on items not on the agenda only if findings pursuant to the Sunshine Ordinance and Brown Act are made that the matter is urgent or an emergency. Oakland Police and Fire Retirement Board meetings are held in wheelchair accessible facilities. Contact Retirement Systems, 150 Frank Ogawa Plaza, Suite 3332 or call (510) 238-7295 for additional information.
AUDIT COMMITTEE MEMBERS
John C. Speakman Chairman
James F. Cooper Member
Christine Daniel Member
*In the event a quorum of the Board participates in the Committee meeting, the meeting is noticed as a Special Meeting of the Board; however, no final Board action can be taken. In the event that the Audit Committee does not reach quorum, this meeting is noticed as an informational meeting between staff and the Chair of the Audit Committee.
Wednesday, February 24, 2016 – 10:00 am One Frank H. Ogawa Plaza, Hearing Room 3
Oakland, California 94612
SPECIAL MEETING of the AUDIT / OPERATIONS COMMITTEE of the OAKLAND POLICE AND FIRE RETIREMENT SYSTEM (“PFRS”)
AGENDA
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM SPECIAL AUDIT COMMITTEE MEETING FEBRUARY 24, 2016
ORDER OF BUSINESS, continued
Page 2 of 2
5. Subject: Resolution No. 6882 - Travel Authorization for board member Ronald Oznowicz to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Dollars ($1,000.00)
From: Staff of the PFRS Board
Recommendation: RECOMMEND BOARD APPROVAL of Resolution No. 6882 - Travel Authorization for board member Ronald Oznowicz to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Dollars ($1,000.00).
6. Subject: Resolution No. 6883 - Travel Authorization for board member Steve Wilkinson to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Six Hundred Sixty-two Dollars ($1,662.00)
From: Staff of the PFRS Board
Recommendation: RECOMMEND BOARD APPROVAL of Resolution No. 6883 - Travel Authorization for board member Steve Wilkinson to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Six Hundred Sixty-two Dollars ($1,662.00).
7. Subject: Resolution No. 6885 - Travel Authorization for Plan Administrator Katano Kasaine to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Six Hundred Sixty-two Dollars ($1,107.00)
From: Staff of the PFRS Board
Recommendation: RECOMMEND BOARD APPROVAL of Resolution No. 6885 - Travel Authorization for Plan Administrator Katano Kasaine to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Six Hundred Sixty-two Dollars ($1,107.00).
8. Open Forum
9. Future Scheduling
PFRS Audit/Operations Committee Meeting Minutes January 27, 2016
Page 1 of 1
D R A F T
D R A F T
A SPECIAL AUDIT/OPERATIONS COMMITTEE MEETING of the Oakland Police and Fire Retirement System (“PFRS”) was held Wednesday, January 27, 2016 in Hearing Room 1, One Frank Ogawa Plaza, Oakland, California.
Committee Members Present:
• John C. Speakman, Chairman • James F. Cooper, Member • Christine Daniel, Member
Additional Attendees: • Teir Jenkins & David Low, Staff Members • Pelayo Llamas, PFRS legal counsel • Katano Kasaine, Plan Administrator
The meeting was called to order at 10:03 am.
1. Approval of December 6, 2016 Audit Committee meeting minutes – Member Daniel made a motion to approve the December 6, 2016 Audit Committee meeting minutes, second by member Cooper. Motion passed
[SPEAKMAN – Y / COOPER – Y / DANIEL – Y] ( AYES: 3 / NOES: 0 / ABSTAIN: 0 )
2. Administrative Expenses Report through November 30, 2015 – Investment Officer Teir Jenkins presented the PFRS administrative expenses report from July 1, 2015 through November 30, 2015. Member Daniel made a motion to accept the Administrative Expenses Report from July 1, 2015 through October 31, 2015, second by Member Cooper. Motion passed.
[SPEAKMAN – Y / COOPER – Y / DANIEL – Y] ( AYES: 3 / NOES: 0 / ABSTAIN: 0 )
3. Resolution No. 6879 – Travel Authorization for Board Member Jaime Godfrey – The Audit Committee reviewed the Travel Authorization for Member Godfrey’s travel request and reimbursement. Staff noted authorization on the Agenda report by President Johnson. Member Cooper made a motion to recommend Board approval of Resolution No. 6879 authorizing reimbursement for board member Jaime Godfrey to travel and attend the 2015 IMN Global Indexing and ETFs Conference (“2015 IMN Conference”) from/on December 6, 2015 through December 8, 2015 in Scottsdale, AZ with an Estimated Budget of One Thousand One Hundred Thirty-three Dollars ($1,133.00), second by Member Daniel. Motion passed.
[SPEAKMAN – Y / COOPER – Y / DANIEL – Y] ( AYES: 3 / NOES: 0 / ABSTAIN: 0 )
4. Open Forum – Plan Administrator Katano Kasaine recommended PFRS Board attendance to the CALAPRS General Assembly in March 2016 and to contact staff if a board member plans to attend.
5. Future Scheduling – The next audit committee meeting was scheduled for February 24, 2016.
The meeting adjourned at 10:09 am.
JOHN C. SPEAKMAN, COMMITTEE CHAIRMAN DATE
Table 1
OAKLAND POLICE AND FIRE RETIREMENT SYSTEMAdministrative Budget Spent to Date
Fiscal Year as of December 31, 2015
Approved
Budget December 2015 YTD 12/31/2015 Remaining Percent Remaining
Internal Administrative costsPFRS Staff Salaries 675,522$ 74,624$ 398,052$ 277,470$ 41.1%
Board Travel Expenditures 52,500 1,943 4,660 47,840 91.1%
Staff Training 7,500 300 1,624 5,876 78.3%
Annual Report & Duplicating Services 4,000 1,593 1,593 2,407 60.2%
Board Hospitality 2,600 87 618 1,982 76.2%
Payroll Processing Fees 35,000 - - 35,000 100.0%
Miscellaneous Expenditures 50,000 2,073 5,791 44,210 88.4%
Contract Services Contingency 50,000 - 1,200 48,800 97.6%
Internal costs Subtotal : 877,122$ 80,620$ 413,538$ 414,784$ 52.9%
Actuary and Accounting ServicesAudit 45,000$ 4,998$ 4,998$ 40,003$ 88.9%
Actuary 45,000 - 15,325 29,676 65.9%
Actuary and Accounting Subtotal: 90,000$ 4,998$ 20,322$ 69,678$ 77.4%
Legal ServicesCity Attorney Salaries 136,867$ 8,756$ 68,770$ 68,097$ 49.8%
Legal Contingency (a) 178,154 32,049 60,031 118,124 66.3%
Legal Services Subtotal: 315,021$ 40,804$ 128,800$ 186,221$ 59.1%
Investment Services Money Manager Fees 1,595,121$ -$ 349,926$ 1,245,195$ 78.1%
Custodial Fee 126,500 - 29,125 97,375 77.0%
Investment Consultant (PCA) 100,000 25,000 50,000 50,000 50.0%
Investment Subtotal: 1,821,621$ 25,000$ 429,051$ 1,392,570$ 76.4%
Total Operating Budget 3,103,764$ 151,422$ 991,712$ 2,063,252$ 68.05%
(a) Budget increased by $28,154 to reflect prior year carryforward
Table 2
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
Cash in Treasury (Fund 7100)
As of December 31, 2015
FY 2015-2016
Cash as of 11/30/2015 3,098,978$
Additions
City Contributions -$
Incoming Wires 5,000,000
Death Refunds -
Misc. Receipts: Adjustments / Collections 608.16
Total additions: 5,000,608$
Deductions:
Pension payment (Nov pension payable December 1, 2015) 4,746,186
Current month expenses (see Table 1) 151,422
Total deductions 4,897,609$
Ending Cash Balance as of 12/31/2015 3,201,978$
Note: Table includes year-end accrued expenditures
Table 3
CITY OF OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
Census
As of December 31, 2015
COMPOSITION POLICE FIRE TOTAL
Retired Member:
Retiree 404 254 658
Beneficiary 150 140 290
Total Retired Members: 554 394 948
Total Membership: 554 394 948
COMPOSITION POLICE FIRE TOTAL
Retired Member:
Service Retirement 365 216 581
Disability Retirement 176 162 338
Death Allowance 13 16 29
Total Retired Members: 554 394 948
Total Membership as of December 31, 2015: 554 394 948
Total Membership as of June 30 2015: 558 403 961
Annual Difference: -4 -9 -13
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD
Police 726 705 690 672 653 630 617 598 581 558 554
Fire 586 568 549 523 500 477 465 445 425 403 394
Total 1312 1273 1239 1195 1153 1107 1082 1043 1006 961 948
300
350
400
450
500
550
600
650
700
750
800
Oakland Police and Fire Retirement System Pension Plan Membership
Fiscal Year Ended June 30, FY2006 - FY2016
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
$2,000,000
Internal Administrativecosts
Actuary and AccountingServices
Legal Services Investment Services
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM Approved Budget
FY 2015-2016
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
Staff (salaries & training) Board (travel & hospitality) Misc (annual rpt, payroll proc &misc)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM Budget vs Actual as of December 31, 2015
Internal Administrative Costs
Budget
Actual
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
Audit Actuary
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM Budget vs. Actual as December 31, 2015
Actuary and Accounting Services
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
City Attorney Salaries Legal Contingency (Outside Counsel)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM Budget vs. Actual as of December 31, 2015
Legal Services
Budget
Actual
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
Money Manager Fees Custodial Fee: Northern Trust Investment Consultant (PCA)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM Budget vs. Actual as of December 31, 2015
Investment Services
Budget
Actual
CITY OF OAKLAND
TO: Oakland Police and Fire Retirement System Board
SUBJECT: Approve Printing and Distribution of PFRS Annual Report for the Fiscal Year ended June 30, 2015
RECOMMENDATION
AGENDA REPORT
FROM: Katano Kasaine, Plan Administrator Oakland Police and Fire Retirement Systems
DATE: February 17, 2016
The PFRS Annual Report for the Fiscal Year ended June 30, 2015 has been completed and is submitted here for Board approval. The cost to print 41 copies of the annual report is estimated to be 912.25 with production turnaround of approximately one week.
Respectfully submitted,
Jc;J,, o ~If/ I~-: Katano Kasaine, Plan Administrator Oakland Police and Fire Retirement System Board
For questions please contact Teir Jenkins, Investment Officer, at 510-238-6481.
Attachments (1):
Attachment 1: DRAFT Annual Report of the Oakland Police and Fire Retirement System for the Fiscal Year Ended June 30, 2015
Item: D2 PFRS Board Meeting
February 24, 2016
ATTACHMENT 1
• DRAFT Annual Report of the Oakland Police and Fire Retirement System for Fiscal Year Ended June 30, 2016
ANNUAL REPORT Fiscal Year Ended June 30, 2015
POLICE & FIRE RETIREMENT SYSTEM
DRAFT
DRAFT
1
CONTENTS
SECTION 1: INTRODUCTION President of the Board: Letter of Transmittal to the City Council ......................................................... 4
Plan Administrator: Letter of Transmittal to the Board of Trustees ...................................................... 5
Members of the Board of Administration ................................................................................................ 8
Administrative Staff ................................................................................................................................. 9
Professional Services ............................................................................................................................. 9
Board Meeting Information ..................................................................................................................... 9
SECTION 2: FINANCIAL Independent Auditor’s Report for Years Ended June 30, 2015 and 2014 ............................................ 12
Management’s Discussion and Analysis .............................................................................................. 14
Financial Statements
Statements of Fiduciary Net Position – June 30, 2015 and 2014 ........................................................ 22
Statements of Changes in Fiduciary Net Position – Years Ended June 30, 2015 and 2014 ............... 23
Notes to Basic Financial Statements
1. Description of the Oakland Police and Fire Retirement System ............................................... 24
2. Summary of Significant Accounting Policies ............................................................................. 26
3. Contributions .............................................................................................................................. 27
4. Cash, Deposits and Investments ............................................................................................... 28
5. Net Pension Liability .................................................................................................................. 36
6. Reserves .................................................................................................................................... 39
7. Administrative Expenses ........................................................................................................... 39
8. Contingencies ............................................................................................................................ 39
Required Supplementary Information
Schedule of Changes in Employer’s Net Pension Liability and Related Ratios (Unaudited) .... 41
Schedule of Employer Contributions (Unaudited) ..................................................................... 42
Schedule of Investment Returns (Unaudited) ............................................................................ 43
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2
CONTENTS (Continued)
SECTION 3: INVESTMENT Investment Consultant’s Report .......................................................................................................... 46
Investment Performance ..................................................................................................................... 47
List of Investment Professionals ......................................................................................................... 48
Investment Manager Fees and Other Investment Expenses .............................................................. 48
Asset Allocation as of June 30, 2015 .................................................................................................. 48
Largest Stock Holdings, as of June 30, 2015 ...................................................................................... 49
Largest Bond Holdings, as of June 30, 2015 ...................................................................................... 49
Investments by Manager ..................................................................................................................... 50
SECTION 4: ACTUARIAL Actuary’s Certification Letter ............................................................................................................... 52
Summary of Actuarial Value, Assumptions and Funding Methods ..................................................... 55
Purpose of Actuarial Valuation ............................................................................................................ 55
Valuation Summary .......................................................................................................................... 57
Actuarial Definitions .......................................................................................................................... 57
Actuarial Methods and Assumptions ................................................................................................... 58
Actuarial Methods ............................................................................................................................. 58
Actuarial Value of Plan Assets ......................................................................................................... 58
Actuarial Assumptions ...................................................................................................................... 58
Rate of Return .................................................................................................................................. 58
Inflation ............................................................................................................................................. 59
Cost of Living Adjustments ............................................................................................................... 59
Service Retired Participants ................................................................................................................ 60
Disability Retired Participants .............................................................................................................. 61
Beneficiaries ........................................................................................................................................ 61
Participant Data Summary .................................................................................................................. 62
Data Summary ................................................................................................................................. 62
Production Credits -Layout: David Low, Retirement Systems, City of Oakland -Print Production: City of Oakland Copy Services
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SECTION 1 INTRODUCTION
DRAFT
4
LETTERS OF TRANSMITTAL
CITY OF OAKLAND
1 5 0 F R A N K H . O G A W A P L A Z A , 3 R D F L O O R · O A K L A N D , C A L I F O R N I A 9 4 6 1 2 - 2 0 2 1 Finance Department (510) 238-3307 Treasury Bureau FAX (510) 238-7129 Retirement Systems TDD (510) 839-6451
March 1, 2016 Oakland City Council 1 Frank H. Ogawa Plaza Oakland, CA 94612
Honorable Mayor Schaaf and Members of the City Council:
In compliance with Ordinance Number 713 C.M.S., I am pleased to present the annual report of the
Oakland Police and Fire Retirement System for the fiscal year ended June 30, 2015. Provided in this
report are the Plan’s Financial information, Investment Performance, Actuarial Valuations and Statistical
information for the corresponding year.
The members of the Board express their appreciation to the Mayor and City Council, City Manager, City
Attorney, the various City Agencies and Departments and the members of their staff for their
cooperation and assistance.
Respectfully submitted, Walter L. Johnson, Sr., President Oakland Police and Fire Retirement System
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5
CITY OF OAKLAND
1 5 0 F R A N K H . O G A W A P L A Z A , 3 R D F L O O R · O A K L A N D , C A L I F O R N I A 9 4 6 1 2 - 2 0 2 1 Finance Department (510) 238-3307 Treasury Bureau FAX (510) 238-7129 Retirement Systems TDD (510) 839-6451
March 1, 2016 Oakland Police and Fire Retirement Board 150 Frank H. Ogawa Plaza, Suite 3332 Oakland, CA 94612
Board of Trustees:
I am pleased to present the Annual Report of the Oakland Police and Fire Retirement System for the fis-
cal year ended June 30, 2015.
ACCOUNTING SYSTEM
The accompanying financial statements have been prepared in compliance with Section 2600 of the City
Charter and in accordance with the accounting and reporting principles set forth in Governmental Ac-
counting Standards Board Statement No. 67, Financial Reporting for Pension Plans – An Amendment of
GASB Statement No. 25. This Statement establishes financial reporting standards for defined benefits
plans and for the notes to the financial statements of defined contribution plans of state and local enti-
ties.
The method for recording revenues and expenses is on an accrual basis. Revenue is taken into account
when earned, regardless of the date of the collection, and expenses are recorded when the corresponding
liabilities are incurred instead of when payment is made. Amortization of bond premiums and discounts
are over the life of the investment security and actuarial reserves are funded via the entry age normal
cost method.
LETTERS OF TRANSMITTAL
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6
ADDITIONS
Additions to the plan includes all income received into the Plan for the Fiscal Year. The Pension Plan's
sources of income include items such as contributions and investment income. Total additions for the
fiscal year ended June 30, 2015 were $15,438,586. This amount was mostly comprised of net investment
income of $15,335,097. Net investment income includes appreciation in fair value of investments, inter-
est income and dividend income less investment expenses during the fiscal year. As of June 30, 2015 the
System membership consisted of only retirees and beneficiaries.
On July 30, 2012, the City deposited $210 million from the issuance of Pension Obligation Bonds into
the System. As a result of a funding agreement entered into between the System’s Board and the City of
Oakland no additional contributions are required until July 1, 2017.
DEDUCTIONS
Total deductions to the plan in the fiscal year ended June 30, 2015 were $59,992,763. The primary de-
ductions are for pension payments to members and qualified beneficiaries.
RESERVES AND FUNDING
The Police and Fire Retirement System’s most recent actuarial study values the Plan as of July 1, 2014.
Details regarding this actuarial study can be found in Section 4 of this annual report.
As of July 1, 2014 the Plan was 64.6% funded with an actuarial present value of future City contribu-
tions of $230.16 million. The funded status is defined as the difference between the projected City liabil-
ity and the actuarial value of assets. In July 2012, the City contributed $210 million in Pension Obliga-
tion Bond proceeds into the System, which lowered the unfunded liability.
INVESTMENTS
The Police and Fire Retirement System Investment Policy is used as a guideline for all investment activ-
ities. The Investment Policy includes an asset allocation plan. The plan consists of five asset classes:
Large, Mid, and Small Capitalization Domestic Stocks, International Stocks and Fixed Income Instru-
ments. In addition, the Policy also allocates among the different investment management styles.
In November 2006, Oakland voters passed Measure M, which modified the City Charter to allow the
PFRS Board to invest in non-dividend paying stocks and to change the asset allocation structure from
50% equities and 50% fixed income to the Prudent Person Standard.
LETTERS OF TRANSMITTAL
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7
Total Investment Income resulted in an increase of $15,335,097 in fiscal year 2015. The actual time-
weighted annual investment return for fiscal year 2015 was 3.9%. GASB Statement No. 67 requires that
investments be reported at fair value. The appreciation (depreciation) in fair value of investments held
by PFRS is recorded as an increase (decrease) in investment income based on the valuation of invest-
ments at year-end.
The historical rates of return on the portfolios are as follows:
RECENT UPDATES
On August 27, 2014, the PFRS Board diversified their fixed income portfolio by hiring DDJ Capital
Management as their High Yield / Bank Loan Fixed Income Asset Manager.
ACKNOWLEDGEMENTS
The compilation of this report reflects the combined efforts of the Retirement System Administration
Staff, the Board of Trustees, and various professional consultants. Its intent is to provide complete and
reliable information to the beneficiaries of the Plan, to serve as a basis for making management deci-
sions, and to ensure compliance with legal provisions affecting the administration of the Plan.
Respectfully submitted,
Katano Kasaine Plan Administrator
LETTERS OF TRANSMITTAL
Total Returns %
1 Year 3 Year 5 Year
Total Fund 3.9% 9.9% 10.9%
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8
Christine Daniel Mayoral
Designate (replaced Osborn Solitei on
August 19, 2015)
James F. Cooper Police Department
Representative
Ronald Oznowicz Alternating Police/Fire
Department Representative
MEMBERS OF THE BOARD OF ADMINISTRATION
Jaime T. Godfrey Vice President
Bank Representative
John C. Speakman Fire Department Representative
Walter L. Johnson President
Community Representative
Staff Liaison Katano Kasaine
Plan Administrator
Legal Advisor, City of Oakland Pelayo Llamas
Deputy City Attorney
Steve Wilkinson Insurance
Representative
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9
PROFESSIONAL SERVICES
Over the past year the Board of Administration has engaged the following consultants to assist in mak-
ing investments and in developing a sound retirement plan:
BOARD MEETING INFORMATION
Meeting Location .. 1 Frank H. Ogawa Plaza, Oakland, CA 94612 Date ........................ Last Wednesday of each month (except in November & December) Time ....................... 1:00 PM For more information, visit our website at www.oaklandnet.com.
Actuary Cheiron, Inc. Auditors Williams, Adley & Company-CA, LLP Custodial Service The Northern Trust Company Investment Consultant Pension Consulting Alliance, Inc. A complete list of Investment Professionals is included on page 48 of this Annual Report.
ADMINISTRATIVE STAFF
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SECTION 2 FINANCIAL
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INDEPENDENT AUDITOR’S REPORT For The Years Ended June 30, 2015 and 2014
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INDEPENDENT AUDITOR’S REPORT For The Years Ended June 30, 2015 and 2014
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14
As management of the Oakland Police and Fire Retirement System (the System), we offer readers of the
System’s financial statements this narrative overview and analysis of the financial activities of the
System for the fiscal years ended June 30, 2015 and 2014. We encourage readers to consider the
information presented here in conjunction with the System’s financial statements that follow this
section. This discussion and analysis is presented in the following sections:
Organization Overview and Highlights
Financial Statement Overview
Financial Analysis: 2015 vs. 2014
Financial Analysis: 2014 vs. 2013
Requests For Additional Information
ORGANIZATIONAL OVERVIEW AND HIGHLIGHTS
The City of Oakland City Charter established the System and provides for its funding. Accordingly, the
System is an integral part of the City of Oakland (the City) and its operations have been reported as a
Pension Trust Fund in the City’s basic financial statements. The System is a closed, single employer,
defined benefit pension plan that provides retirement, disability and survivor benefits for eligible sworn
safety employees of the City. The System serves the City’s sworn employees hired prior to July 1, 1976
who have not transferred to the California Public Employees’ Retirement System (CalPERS). The
System is governed by a board of seven trustees; the Mayor or his/her designate, three Mayoral
appointees approved by the City Council, an elected active or retired member of the Police Department,
an elected active or retired member from the Fire Department, and an elected member position which
alternates between the Police Department and Fire Department membership. Trustees receive no
compensation.
The System has been funded by periodic employee and City contributions at actuarially determined
amounts sufficient to accumulate the necessary assets to pay benefits when due as specified by the City
Charter, unless the Board and the City have agreed to other funding options. In accordance with the
City Charter, active members hired after July 1, 1951, and prior to July 1, 1976, contribute a percentage
of their earned salaries based upon entry age as determined by consulting actuaries. During the years
ended June 30, 2015 and 2014, the employee contribution rates were 0% and 5.47%, respectively. The
City Charter limits employee contributions to 13.00% of earned salaries. Employee contributions are
refundable with interest at 4.00% if an employee elects to withdraw from the System upon termination
with the City. There are no active participants in the Plan as of June 30, 2015.
Management’s Discussion & Analysis
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15
In July 2012, the City deposited $210 million in pension obligation bond proceeds into the System and
entered into a funding agreement with the System Board, which suspended contribution until the fiscal
year beginning July 1, 2017.
In June 2012, the GASB issued GASB Statement No. 67, Financial Reporting for Pension Plans – An
Amendment of GASB Statement No. 25 to improve financial reporting by state and local governmental
pension plans. The System implemented the provisions of GASB Statement No. 67 for the year ended
June 30, 2014.
As of June 30, 2015, the total pension liability of $635.6 million less the fiduciary net position of $419.3
results in a net pension liability of approximately $216.3 million. The fiduciary net position as a
percentage of the total pension liability is 66.0%.
The System membership is currently 961, which includes 668 retirees and 293 beneficiaries. The
following are the significant assumptions used to compute contribution requirements in the July 1, 2014
Actuarial Valuation Report:
Select and ultimate rates, equal to 6.54% single equivalent investment rate of return
2.75% inflation rate, US
2.85% inflation rate, Bay Area
3.25% long-term post-retirement benefit increases
City contributions are based on spreading costs as a level percentage of the City’s total uniform payroll
to July 1, 2026. The System uses the entry age normal cost method for its disclosure and reporting. The
next required City contribution is projected to be approximately $35.1 million in FY 2017/2018.
FINANCIAL STATEMENT OVERVIEW
This annual financial report consists of three parts – management’s discussion and analysis (this
section), the financial statements and required supplementary information. The financial statements
include Statements of Fiduciary Net Position; Statements of Changes in Fiduciary Net Position; and the
Notes to the Basic Financial Statements.
DRAFT
16
The Statements of Fiduciary Net Position and the Statements of Changes in Fiduciary Net Position
report information to assist readers in determining whether the System’s finances as a whole have
improved or deteriorated as a result of the year’s activities. These statements report the net position of
the System and the activities that caused the changes in the net position during the year, respectively.
The Statements of Fiduciary Net Position present information on all System assets and liabilities, with
the difference between the two reported as net position restricted for pensions. Over time, increases or
decreases in net position restricted for pensions may serve as a useful indicator of whether the financial
condition of the System is improving or deteriorating.
While the Statements of Fiduciary Net Position provide information about the nature and amount of
resources and obligations at year-end, the Statements of Changes in Fiduciary Net Position present the
results of the System’s activities during the fiscal year and information on the change in the net position
restricted for pensions during the fiscal year. The Statements of Changes in Fiduciary Net Position
measure the results of the System’s investment performance as well as its additions from contributions
and deductions for payment of benefits and administrative expenses. The Statements of Changes in
Fiduciary Net Position can be viewed as indicators of the System’s progress on the set goals of fully
funding all current and past service costs and possessing sufficient additional resources to pay for
current refunds of contributions and administrative and investment expenses.
The Notes to the Basic Financial Statements and Required Supplementary Information provide
explanations and other information that is helpful to a full understanding of the data provided in the
financial statements. The Notes to Financial Statements and Required Supplementary Information are
found starting on page 24 and page 41, respectively.
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17
FINANCIAL ANALYSIS: 2015 VS. 2014
Table 1 summarizes net position restricted for pensions as of June 30, 2015 and 2014:
Net position restricted for pensions decreased $44,554,177 from June 30, 2014 to June 30, 2015. The
main sources of this decrease were reductions in the System’s investment portfolio and a reduction in
the System’s security lending activity. The System’s security lending was lower as a result of a
reduction in lendable assets and loan volume. The fluctuations in receivables and investments payable
are primarily due to investment trading at year–end, where the outstanding balances represent
investments either sold or purchased, but not yet settled.
Table 1 Summary of Net Position
As of June 30, 2015 and 2014
June 30 Change 2015 2014 Dollars Percentage Assets:
Cash and deposits $ 3,107,965 $ 4,223,005 $ (1,115,040) (26.4) Receivables 6,056,917 8,717,745 (2,660,828) (30.5) Investments 474,123,475 536,473,057 (62,349,582) (11.6)
Total assets 483,288,357 549,413,807 (66,125,450) (12.0) Liabilities:
Benefits payable 4,767,304 4,708,124 59,180 1.3 Accounts payable 58,590 4,610 53,980 1,170.9 Investments payable 3,587,493 6,282,644 (2,695,151) (42.9) Accrued investment management fees 394,693 31,282 363,411 1,161.7 Securities lending liabilities 55,226,389 74,579,082 (19,352,693) (25.9)
Total liabilities 64,034,469 85,605,742 (21,571,273) (25.2) Net position restricted
for pensions $ 419,253,888 $ 463,808,065 $ (44,554,177) (9.61)
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Table 2 summarizes changes in net position restricted for pensions for the years ended June 30, 2015
and 2014:
The System’s investment income (loss) for the years ended June 30, 2015 and 2014 were $15,335,097
and $66,233,018, respectively. The actual time-weighted annual returns for these two years were 4.0%
and 16.4%, respectively, compared to benchmark returns of 4.0% and 14.6%, respectively.
The System paid $59,007,536 in Police and Fire Retiree pension payments in fiscal year 2015 and
$57,409,113 in fiscal year 2014. This increase is due to mandated increases in Police and Fire Retiree
pension benefits and expiration of Fire Retiree concessions.
Table 2 Summary of Changes in Net Position
For the Years Ended June 30, 2015 and 2014
June 30 Change 2015 2014 Dollars Percentage
Additions: Contributions - members $ - $ 4,441 $ (4,441) (100.0) Total investment income 15,335,097 66,233,018 (50,897,921) (76.8) Other Income 103,489 159,391 (55,902) (35.1)
Total additions 15,438,586 66,396,850 (50,958,264) (76.7) Deductions:
Benefits to members and beneficiaries 59,007,536 57,409,113 1,598,423 2.8 Administrative expenses 985,227 776,112 209,115 26.9
Total deductions 59,992,763 58,185,225 1,807,538 3.1 Changes in net position (44,554,177) 8,211,625 (52,765,802) (642.6)
Net position restricted for pensions:
Beginning of year 463,808,065 455,596,440 8,211,625 1.8 End of year $ 419,253,888 $ 463,808,065 $ (44,554,177) (9.6)
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FINANCIAL ANALYSIS: 2014 VS. 2013
Table 3 summarizes net position restricted for pensions as of June 30, 2014 and 2013:
Net position restricted for pensions increased $8,211,625 from June 30, 2013 to June 30, 2014. The
main source of this increase was an increase in investment income. Securities lending substantially
increased due to a change in the securities lending vendor. As a result of the new vendor, substantially
more of the System’s assets were included in the securities lending program. The fluctuations in
receivables and investments payable are primarily due to investment trading at year-end, where the
outstanding balances represent investments either sold or purchased, but not yet settled.
Table 3 Summary of Net Position
As of June 30, 2014 and 2013 June 30 Change 2014 2013 Dollars Percentage
Assets: Cash and deposits $ 4,223,005 $ 8,621,344 $ (4,398,339) (51.0) Receivables 8,717,745 14,172,093 (5,454,348) (38.5) Investments 536,473,057 463,069,263 73,403,794 15.9
Total assets 549,413,807 485,862,700 63,551,107 13.1 Liabilities:
Benefits payable 4,708,124 4,872,552 (164,428) (3.4) Accounts payable 4,610 23,273 (18,663) (80.2) Investments payable 6,282,644 16,106,693 (9,824,049) (61.0) Accrued investment management fees 31,282 388,326 (357,044) (91.9) Securities lending liabilities 74,579,082 8,875,416 65,703,666 740.3
Total liabilities 85,605,742 30,266,260 55,339,482 182.8
Net position restricted for pensions $ 463,808,065 $ 455,596,440 $ 8,211,625 1.8
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Table 4 summarizes changes in net position restricted for pensions for the years ended June 30, 2014
and 2013:
The System’s net investment income for the years ended June 30, 2014 and 2013 was $66,233,018 and
$37,302,667, respectively. The actual annual returns for these two years were 16.4% and 9.7%,
respectively, compared to benchmark returns of 14.6% and 7.1%, respectively.
In July 2012 the City issued deposited $210 million in pension obligation bond proceeds into the System
and entered into a funding agreement with the System Board which suspends contributions until July 1,
2017.
The System paid $57,409,113 in Police and Fire Retiree pension payments in fiscal year 2014 and
$59,547,296 in fiscal year 2013. This decrease reflects the ongoing reduction in the System’s
membership.
Table 4 Summary of Changes in Net Position
For the Years Ended June 30, 2014 and 2013
June 30 Change 2014 2013 Dollars Percentage
Additions: Contributions - members $ 4,441 $ 7,042 $ (2,601) (36.9) Contributions - City - 210,000,000 (210,000,000) (100.0) Total investment income 66,233,018 37,302,667 28,930,351 77.6 Other Income 159,391 43,302 116,089 268.1
Total additions 66,396,850 247,353,011 (180,956,161) (73.2) Deductions:
Benefits to members and beneficiaries 57,409,113 59,547,296 (2,138,183) (3.6) Administrative expenses 776,112 683,773 92,339 13.5
Total deductions 58,185,225 60,231,069 (2,045,844) (3.4)
Changes in net position 8,211,625 187,121,942 (178,910,317) (95.6) Net position restricted for pensions:
Beginning of year 455,596,440 268,474,498 187,121,942 69.7
End of year $ 463,808,065 $ 455,596,440 $ 8,211,625 1.8
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REQUESTS FOR ADDITIONAL INFORMATION
This financial report is designed to provide a general overview of the System’s finances and to account
for the money that the System receives. Questions concerning any of the information provided in this
report or requests for additional information should be addressed to:
Retirement Systems City of Oakland
150 Frank H Ogawa Plaza, Suite 3332 Oakland, CA 94612
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See accompanying notes to financial statements.
Oakland Police and Fire Retirement System Statements of Fiduciary Net Position
June 30, 2015 and 2014 Assets 2015 2014 Cash and Cash Equivalents: $ 3,107,965 $ 4,223,005
Total Cash and Cash Equivalents 3,107,965 4,223,005
Receivables: Interest Receivable 324,702 488,170 Dividends Receivable 300,684 339,296 Investments Receivable 5,254,432 7,709,405 Miscellaneous 177,099 180,874
Total Receivables 6,056,917 8,717,745
Investments, at Fair Value: Short-Term Investments 8,970,199 4,674,901 Bonds 71,538,669 83,383,353 Domestic Equities and Mutual Funds 206,303,231 238,548,446 International Equities and Mutual Funds 48,115,329 42,389,074 Alternative Investments 83,969,658 92,898,201 Securities Lending Collateral 55,226,389 74,579,082
Total Investments 474,123,475 536,473,057
Total Assets 483,288,357 549,413,807
Liabilities Accounts Payable 58,590 4,610 Benefits Payable 4,767,304 4,708,124 Investments Payable 3,587,493 6,282,644 Accrued Investment Management Fees 394,693 31,282 Securities Lending Liabilities 55,226,389 74,579,082
Total Liabilities 64,034,469 85,605,742
Net Position Restricted for Pensions $ 419,253,888 $ 463,808,065
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See accompanying notes to financial statements.
Oakland Police and Fire Retirement System Statements of Changes in Fiduciary Net Position
Years Ended June 30, 2015 and 2014 Additions (Declines) 2015 2014 Contributions of Plan Members $ - $ 4,441
Total Contributions - 4,441 Investment income:
Net Appreciation (Depreciation) in Fair Value of Investments 9,131,946 59,383,073 Interest 2,414,795 2,895,637 Dividends 5,344,494 5,552,568
Total Investment Income (Loss) 16,891,235 67,831,278
Less: Investment Expenses (1,748,592) (1,769,689)
Net Investment Income, Before Net Securities Lending Income 15,142,643 66,061,589
Income From Securities Lending Transactions 273,953 232,933 Less: Expenses From Securities Lending Activities (81,499) (61,504)
Net Securities Lending Income 192,454 171,429
Net Investment Income (Loss) 15,335,097 66,233,018
Other income 103,489 159,391
Total Additions (Declines) 15,438,586 66,396,850 Deductions
Benefits to Members and Beneficiaries: Retirement 35,669,056 34,739,030 Disability 21,537,455 20,866,414 Death 1,801,025 1,803,669
Total Benefits to Members and Beneficiaries 59,007,536 57,409,113
Administrative Expenses 985,227 776,112
Total Deductions 59,992,763 58,185,225
Change in Net Position (44,554,177) 8,211,625 Net Position Restricted for Pensions
Beginning of Year 463,808,065 455,596,440
End of Year $ 419,253,888 $ 463,808,065
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Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
1. Description of the Oakland Police and Fire Retirement System
The Oakland Police and Fire Retirement System (the System) is a closed, single-employer
defined benefit pension plan (the Plan) established by the City of Oakland (City) Charter. The
System is governed by a board of seven trustees (the Board); the Mayor or his/her designate,
three Mayoral appointees approved by the City Council, an elected active or retired member of
the Police Department, an elected active or retired member from the Fire Department, and an
elected member position which alternates between the Police Department and Fire Department
membership. Trustees receive no compensation. The System covers the City’s uniformed
employees. As a result of a City Charter amendment, known as Measure R approved by the
electorate on June 8, 1976, membership in the plan is limited to uniformed employees hired
prior to July 1, 1976.
The System is exempt from the regulations of the Employee Retirement Income Security Act of
1974 (ERISA). The System is also exempt from federal income taxes and California franchise
tax.
System Membership
At June 30, 2015 and 2014, the System membership consisted of only retirees and beneficiaries.
The System’s membership is as follows:
2015 2014
Retirees and beneficiaries currently receiving benefits:
Police 558 581
Fire 403 425
Total 961 1,006
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Basic Benefit Provisions
The City Charter establishes plan membership, contribution, and benefit provisions. The
System provides that any member who completes at least 25 years of service, regardless of age,
or completes 20 years of service and attains age 55, or has attained age 65 is eligible for
retirement benefits. The basic retirement allowance equals 50% of the compensation attached to
the average rank held during the three years immediately preceding retirement, plus an
additional allowance of 1 and 2/3% of such compensation for each year of service (up to ten)
subsequent to (a) qualifying for retirement and (b) July 1, 1951. However, any member retiring
at age 65 with less than 20 years of service shall receive a reduced retirement allowance based
upon the number of years of service. A member is eligible for early retirement benefits after 20
to 24 years of service with a retirement allowance based upon 40% to 48% of the compensation
attached to the average rank held during the three years preceding retirement. Additionally, a
member with 10 to 19 years of service may retire and, on or after the 25th anniversary of his/her
date of employment may receive a retirement allowance based upon 20% to 38% of the
compensation attached to the average rank held during the three years preceding retirement.
The System also provides for various death, disability and survivors’ benefits. Death and
disability benefits are paid to eligible members who became disabled or passed away prior to
retirement. If the member’s death or disability is duty related, then the member or widow is
paid a pension equivalent to an immediate service retirement. The duty related death or
disability pension is paid at a level no less than 50% of the pay attached to the rank. If a death
occurs after retirement, then a one-time payment of $1,000 is paid to the member’s designated
beneficiary.
After retirement, members receive benefits based on a fixed monthly dollar amount. Pension
amounts change based on changes to the compensation attached to the average rank. Upon a
retiree’s death, benefits are continued to an eligible surviving spouse at a two-thirds level for
service and non-duty disabled retirees and at a 100% level for retirements for duty disability.
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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2. Summary of Significant Accounting Policies
Basis of Presentation
The System is reported as a pension trust fund in the City’s basic financial statements. The
financial statements of the System present only the financial activities of the System and are not
intended to present the financial position and changes in financial position of the City in
conformity with accounting principles generally accepted in the United States of America.
Measurement Focus and Basis of Accounting
The financial statements are prepared on a flow of economic resources measurement focus using
the accrual basis of accounting. Contributions are recognized in the period in which the
contributions are due pursuant to formal commitments as well as statutory or contractual
requirements, and benefits and refunds are recognized when payable under plan provisions.
Methods Used to Value Investments
Investments are reported at fair value. Securities traded on a national or international exchange
are valued at the last reported sales price at current exchange rates. Investments that do not have
an established market are reported at estimated fair values based on the net asset value as
determined by the fund manager based on quoted market prices of fund holdings or values
provided by the custodian or the applicable money manager.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles in the United States of America requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Reclassifications
Certain comparative amounts for the prior period have been reclassified to conform to the
current period presentation. The fiduciary net position was not affected by such
reclassifications.
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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Implementation of New Accounting Pronouncements
In accordance with GASB Statement No. 63, the System renamed net assets held in trust for
pension benefits as net position, held in trust for pension benefits. The System had no deferred
outflows of resources or deferred inflows of resources as of June 30, 2015 and 2014.
The System implemented the provisions GASB Statement No. 65, Items Previously Reported as
Assets and Liabilities, for fiscal year ended June 30, 2014. This statement clarifies the
appropriate reporting of deferred outflows of resources and deferred inflows of resources to
ensure consistency in financial reporting. The implementation of GASB Statement No. 65 had
no impact on the System’s statements of fiduciary net position and changes in fiduciary net
position.
In June 2012, the GASB issued GASB Statement No. 67, Financial Reporting for Pension Plans
– An Amendment of GASB Statement No. 25 to improve financial reporting by state and local
governmental pension plans. The System implemented the provisions of GASB Statement No.
67 for the year ended June 30, 2014. The new standard enhances the note disclosures and
required supplementary information and requires disclosure of the components of the
employer’s net pension liability in the notes and the presentation of multi-year trend information
on (1) the changes in the employer’s net pension liability, (2) components of the employer
contributions, and (3) investment returns in the required supplementary information.
3. Contributions
In accordance with the City Charter, active members hired after July 1, 1951, and prior to July 1,
1976, contribute a percentage of their earned salaries based upon entry age as determined by
consulting actuaries. During the year ended June 30, 2015 there were no employee
contributions. During the year ended June 30, 2014, the member contribution rate was 5.47%.
The City Charter limits employee contributions to 13.00% of earned salaries. Employee
contributions are refundable with interest at 4.00% per year if an employee elects to withdraw
from the System upon termination of employment with the City.
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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In March 1997, the City issued pension obligation bonds and deposited $417 million into the
System to pay the City’s contributions through June 2011. In accordance with an agreement
entered into at the time the Pension Obligation Bonds were issued in 1997, the City was not
expected to contribute until July 2011. In the year ended June 30, 2005, the City transferred
excess proceeds of $17,709,888 from the Oakland Joint Powers Financing Authority Refunding
Revenue 2005 Series B Bond to fund a portion of the City’s future obligation to the System.
Effective July 1, 2011, the City resumed contributing to the System. The City contributed
$45,507,996 in the year ended June 30, 2012. Using the current actuarial cost method, these
contributions are based on spreading costs as a level percentage of all uniformed employees’
compensation through June 30, 2026. Budgeted administrative expenses are included in the City
contribution rates. The City must contribute, at a minimum, such amounts as are necessary, on
an actuarial basis, to provide assets sufficient to meet benefits to be paid to plan members.
On July 30, 2012, the City contributed $210 million to the System. As a result of a funding
agreement entered into between the System’s Board and the City of Oakland no additional
contributions are required until July 1, 2017.
As of June 30, 2015, the System’s Net Pension Liability is approximately $216.3 million.
4. Cash, Deposits and Investments
Investment Policy
The System’s investment policy authorizes investment in U.S. equities, international equities,
U.S. fixed income instruments including U.S. Treasury notes and bonds, government agency
mortgage backed securities, U.S. corporate notes and bonds, collateralized mortgage obligations,
yankee bonds and non U.S.-issued fixed income securities denominated in foreign currencies.
The System’s investment portfolio is managed by external investment managers, except for the
bond iShares which are managed internally. During the years ended June 30, 2015 and 2014,
the number of external investment managers was twelve.
The System investments are also restricted by the City Charter. In November 2006, City voters
passed Measure M to amend the City Charter to allow the System’s Board to invest in non-
dividend paying stocks and to change the asset allocation structure from 50% equities and 50%
fixed income to the Prudent Person Standard as defined by the California Constitution.
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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The System’s Investment Policy limits fixed income investments to a maximum average
duration of 10 years and a maximum remaining term to maturity (single issue) at purchase of 30
years, with targeted portfolio duration of between 3 to 8 years and targeted portfolio maturity of
15 years. The System’s investment policy allows the fixed income managers to invest in
securities with a minimum rating of B- or higher as long as the portfolio maintains an average
credit quality of BBB (investment grade using Standard & Poor’s, Moody’s or Fitch ratings).
The System’s investment policy states that investments in securities known as Collateralized
Mortgage Obligations (CMOs) shall be limited to a maximum of 20% of a broker account’s fair
value with no more than 5% in any one issue. CMOs are mortgage-backed securities that create
separate pools of pass-through rates for different classes of bondholders with varying maturities.
The fair values of CMOs are considered sensitive to interest rate changes because they have
embedded options.
The Investment Policy allows for each fixed income asset manager to have a maximum of 10%
of any single security investment in their individual portfolios with the exception of U.S.
government securities, which is allowed to have a maximum of 25% in each manager’s
portfolio.
The following was the Board’s adopted asset allocation policy as of June 30, 2015:
The Board’s target allocation does not include cash and cash equivalents, which are designated
for approved administrative budget purposes.
Asset Class Target Allocation
Fixed Income 20% Real Return 10 Covered Calls 10 Domestic Equity 43 International Equity 12 Private Equity 5
Total 100%
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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Concentrations
GASB Statement No. 40 and GASB Statement No. 67 require the disclosure of investments in
any one organization that represent 5 percent or more of the System’s fiduciary net position. As
of June 30, 2015 and 2014, no investment in any single issuer exceeded 5% of the System’s
fiduciary net position.
Rate of Return
The money-weighted rate of return is a measure of the rate of return for an asset or portfolio of
assets that incorporates the size and timing of cash flows. For the years ended June 30, 2015
and 2014, the annual money-weighted rates of return on pension plan investments, net of
pension plan investment expense, were 3.9% and 16.4%, respectively.
Cash and Cash Equivalents
As of June 30, 2015 and 2014, cash and cash equivalents consisted of cash in treasury held in
the City’s cash and investment pool as well as cash deposits held in bank and with a custodian.
These funds are invested according to the investment policy adopted by the City Council.
Interest earned on these pooled accounts is allocated monthly to all funds based on the average
daily cash balance maintained by the respective funds. Information regarding the characteristics
of the entire investment pool can be found in the City’s June 30, 2015 basic financial statements.
As of June 30, 2015 and 2014, the System’s share of the City’s investment pool totaled
$3,047,327 and $4,155,557, respectively. The System also had cash not included in the City’s
investment pool. As of June 30, 2015 and 2014, the System’s cash and cash deposits not held in
the City’s investment pool totaled $60,638 and $67,448, respectively.
Interest Rate Risk
Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an
investment. As described previously, the System’s Investment Policy limits fixed income
investments to a maximum average duration of 10 years and a maximum remaining term to
maturity (single issue) at purchase of 30 years, with targeted portfolio duration of between 3 to 8
years and targeted portfolio maturity of 15 years. The weighted average duration for the
System’s fixed income investment portfolio excluding fixed income short-term investments and
securities lending investments was 5.19 years as of June 30, 2015 and 4.82 years as of June 30,
2014.
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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The following summarizes the System’s fixed income investments by category as of June 30,
2015 and 2014:
Short-Term Investment Duration
2015 2014
Investment Type Fair Value
Modified Duration (Years)
Fair Value
Modified Duration (Years)
Short-Term Investment Funds $ 8,970,199 n/a $ 4,674,901 n/a
2015 2014
Investment Type Fair Value
Modified Duration (Years) Fair Value
Modified Duration (Years)
Fixed Income Investments Government Bonds
U.S. Treasuries $ 13,338,733 8.41 $ 27,670,606 5.62 Government Agencies 18,743,533 5.20 24,091,078 4.55
Total Government Bonds 32,082,266 51,761,684
Corporate and Other Bonds Corporate Bonds $ 38,785,181 4.09 $ 31,505,544 4.33 Other Government Bonds 671,222 4.16 116,125 4.21
Total Corporate and Other Bonds 39,456,403 31,621,669
Total Fixed Income Investments $ 71,538,669 5.19 $ 83,383,353 4.82 Securities Lending $ 55,226,389 0.00 $ 74,579,082 0.00
Long-Term Investment Duration
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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Fair Value Highly Sensitive to Change in Interest Rates
The terms of a debt investment may cause its fair value to be highly sensitive to interest rate
changes. The System has invested in CMOs, which are mortgage-backed bonds that pay pass-
through rates with varying maturities. The fair values of CMOs are considered sensitive to
interest rate changes because they have embedded options, which are triggers related to
quantities of delinquencies or defaults in the loans backing the mortgage pool. If a balance of
delinquent loans reaches a certain threshold, interest and principal that would be used to pay
junior bondholders is instead directed to pay off the principal balance of senior bondholders,
shortening the life of the senior bonds.
The following are the System’s investments in CMOs at June 30, 2015:
The following are the System’s investments in CMOs at June 30, 2014:
Security Name
Weighted Average Coupon
Rate
Weighted Average Maturity (Years)
2015 Fair Value
Percent of Total
Investments Fair Value
Commercial Mortgage Pass-Through 3.52% 10.38 $2,891,939 0.69%
Security Name
Weighted Average Coupon
Rate
Weighted Average Maturity (Years)
2014 Fair Value
Percent of Total
Investments Fair Value
Commercial Mortgage Pass-Through 4.15% 27.8 $ 4,826,830 1.04%
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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Credit Risk
Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its
obligation.
The following provides information concerning the credit risk of fixed income securities as of
June 30, 2015 and June 30, 2014:
2015 2014
Investment Type S&P Moody's/ Fitch Rating
Fair Value
S&P Moody's/
Fitch Rating
Fair Value
Short-Term Investment Funds Not Rated $8,970,199 Not Rated $ 4,674,901
Short-Term Investment Ratings
S&P / Moody's / Fitch Rating 2015 Fair Value 2014 Fair Value
Not Rated $ 55,226,389 $ 74,579,082
Securities Lending Ratings
2015 2014
S&P/ Moody's/ Fitch Rating
Fair Value
Percent of Total
Fair Value
Fair Value
Percent of Total
Fair Value
AAA/Aaa $36,382,156 50.85% $ 53,830,087 64.56%
AA/Aa 2,886,914 4.04% 6,085,781 7.30%
A/A 9,733,655 13.61% 11,551,900 13.85%
BBB/Baa 11,359,484 15.88% 11,755,612 14.10%
BB/Ba 252,737 0.35% 159,973 0.19%
B/B 10,414,128 14.56% - 0.00%
Not Rated 509,595 0.71% - 0.00%
$71,538,669 100.00% $ 83,383,353 100.00%
Long-Term Investment Ratings
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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Custodial Credit Risk
Custodial credit risk is the risk that, in the event of a failure of a depository financial institution
or counterparty to a transaction, there will be an inability to recover the value of deposits,
investments, or collateral securities in the possession of an outside party.
The California Government Code requires that governmental securities or first trust deed
mortgage notes be used as collateral for demand deposits and certificates of deposit at 110
percent and 150 percent, respectively, of all deposits not covered by federal deposit insurance.
As the City holds cash and certificates of deposit on behalf of the System, the collateral must be
held by the pledging financial institution’s trust department and is considered held in the City’s
name. For all other System deposits, the collateral must be held by the pledging financial
institution’s trust department and is considered held in the System’s name.
The City, on behalf of the System, does not have any funds or deposits that are not covered by
depository insurance, which are either uncollateralized, collateralized with securities held by the
pledging financial institution, or collateralized with securities held by the pledging financial
institution’s trust department or agent, but not in the City’s name. The System does not have
any investments that are not registered in the name of the System and are either held by the
counterparty or the counterparty’s trust department or agent but not in the System’s name.
Foreign Currency Risk
Foreign currency risk is the risk that changes in foreign exchanges rates will adversely affect the
fair values of an investment or deposit. Currency hedging is allowed under the System’s
investment policy for defensive purposes only. The investment policy limits currency hedging
to a maximum of 25% of the portfolio value.
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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The following summarizes the System’s investments denominated in foreign currencies as of
June 30, 2015 and 2014:
Securities Lending Transactions
The System’s investment policy authorizes participation in securities lending transactions,
which are short-term collateralized loans of the System’s securities to broker-dealers with a
simultaneous agreement allowing the System to invest and receive earnings on the collateral
received. All securities loans can be terminated on demand by either the System or the
borrower, although the average term of loans is one week.
The administrator of the System’s securities lending activities is responsible for maintaining an
adequate level of collateral in an amount equal to at least 102% of market value of loaned U.S.
government securities, common stock and other equity securities, bonds, debentures, corporate
debt securities, notes, and mortgages or other obligations. Collateral received may include cash,
letters of credit, or securities. If securities collateral is received, the System cannot pledge or
sell the collateral securities unless the borrower defaults.
Fair Value
June 30, 2015 June 30, 2014
Foreign currency:
Australian Dollar $ 579,216 $ 1,052,756
Brazilian Real 251,268 379,994
Canadian Dollar 490,435 736,479
Danish Krone 888,669 1,037,386
Euro 8,015,340 9,805,601
Hong Kong Dollar 3,580,939 4,691,487
Indonesian Rupiah 435,032 545,805
Japanese Yen 3,862,225 4,032,372
Malaysian Ringgit - 81,840
Mexican Peso 625,894 513,724
Norwegian Kroner 319,907 245,738
Singapore Dollar 530,606 763,021
Swedish Krona 362,154 499,277
Swiss Franc 3,415,640 4,330,955
Turkish Lira 122,092 186,596
United Kingdom Pound 6,214,004 8,364,535
$ 29,693,421 $ 37,267,566
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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36
As of June 30, 2015 and 2014, management believes the System has minimized its credit risk
exposure to borrowers because the amounts held by the System as collateral exceeded the
securities loaned by the System. The System’s contract with the administrator requires it to
indemnify the System if the borrowers fail to return the securities (and if the collateral is
inadequate to replace the securities borrowed) or fails to pay the System for income distributions
by the securities’ issuers while the securities are on loan.
The following summarizes investments in securities lending transactions and collateral received
at June 30, 2015 and 2014:
5. Net Pension Liability
The components of the net pension liability of the City at June 30, 2015, are as follows:
Total pension liability $ 635,589,240
Less: Plan fiduciary net position (419,253,888)
City’s net pension liability $ 216,335,352
Plan fiduciary net position as a percentage of the total pension liability 66.0%
Investment Type June 30, 2015 June 30, 2014
Investments in securities lending transactions:
U.S. Government and agencies $ 11,374,859 $ 15,507,847
U.S. Corporate bonds 2,866,423 3,338,340
U.S. Equity 39,307,641 52,940,660
Non-U.S. Fixed Income 102,393 -
Non-U.S. equity 429,831 1,293,315
Total investments in securities lending transactions $ 54,081,147 $ 73,080,162
Collateral received:
Repurchase Agreements $ 55,226,389 $ 74,579,082
Total collateral received $ 55,226,389 $ 74,579,082
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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Actuarial Method and Assumptions
The total pension liability was determined based on an actuarial valuation as of July 1, 2014,
using the entry age normal actuarial cost method and the following actuarial assumptions,
applied to all periods included in the measurement.
Measurements as of the reporting date are based on the fair value of assets as of June 30, 2015,
and the total pension liability as of the valuation date, June 30, 2014, updated to June 30, 2015.
There were no significant events between the valuation date and the measurement date so the
update procedures only included the addition of interest cost offset by actual benefits payments.
There are no active members of the plan, and thus no service cost.
Mortality rates for healthy lives changed from RP-2000 Combined Healthy Table to CalPERS
Healthy Table from the 2006-2011 Experience Study. Mortality rates for disabled lives changed
from CalPERS Industrial Disability Mortality Table from the 2006-2011 Experience Study.
Mortality improvement tables changed from Scale AA using base years of 2006 (healthy lives)
and 2010 (disabled lives) to MP-2014 from a base year of 2009.
The actuarial assumptions used in the July 1, 2014 valuation were based on the results of an
actuarial experience study for the period July 1, 2011 – June 30, 2014.
The long-term expected rate of return on pension plan investments was determined using a
building-block method in which best-estimates ranges of expected future real rates of return
(expected returns, net of pension plan investment expense and inflation) are developed for each
major asset class. These ranges are combined to produce the long-term expected rate of return
by weighting the expected future real rates of return by the target allocation percentage and by
adding expected inflation.
Investment Rate of Return 6.54%
Inflation Rate, U.S. 2.75%
Inflation Rate, Bay Area 2.85%
Long-term Post-Retirement Benefit Increases 3.25%
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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Best estimates of geometric real rates of return for each major class included in the pension
plan’s target asset allocation as of June 30, 2015 (see the discussion of the pension plan’s
investment policy) are summarized in the following table:
Discount Rate
The discount rate used to measure the total pension liability was 6.54%. The projection of cash
flows used to determine the discount rate assumed that the City would contribute to the Plan
based on its July 1, 2012 funding agreement with the System. This agreement suspends City
contributions until the fiscal year beginning July 1, 2017, after which they will resume, based
upon the recommendation of the actuary, with a City Charter requirement that the Plan’s
liabilities be fully funded by July 1, 2026. A cash flow projection showed that the projected
fiduciary net position would be greater than or equal to the benefit payments projected for each
future period. Therefore, the long-term expected rate of return on Plan investments was applied
to all periods of projected benefit payments to determine the total pension liability.
Sensitivity of the net pension liability to changes in the discount rate
The following presents the net pension liability of the City, calculated using the discount rate of
6.54 percent, as well as what the Plan’s net pension liability would be if it were calculated using
a discount rate of 1-percentage-point lower (5.54 percent) or 1-percentage-point higher (7.54
percent) than the current rate.
Asset Class
Long-Term Expected Real Rate of Return
Fixed Income 2.65%
Domestic Equity 6.90
International Equity 7.20
Real Return 5.20
Covered Calls 6.21
Private Equity 8.80
Cash 2.00
1% Decrease
(5.54%) Current Discount
Rate (6.54%) 1% increase
(7.54%)
City's net pension liability $278,662,554 $216,335,352 $163,583,772
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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6. Reserves
Active Member Contributions Reserve represents total accumulated member contributions.
Additions include member contributions and investment earnings; deductions include refunds of
member contributions and transfers to the Retired Member Contribution Reserve.
Retired Member Contribution Reserve represents the total accumulated transfers from active
member contributions and investments, less payments to retired members and beneficiaries.
Employer Reserve represents the total accumulated employer contributions for retirement
payments. Additions include contributions from the employer, investment earnings and other
income; deductions include payments to retired members and beneficiaries and administrative
expenses.
The aggregate total of the System’s major reserves as of June 30, 2015 and 2014 equals net
position restricted for pensions and comprises the following:
7. Administrative Expenses
The City provides the System with accounting and other administrative services. Staff salaries
included in administrative expenses for the years ended June 30, 2015 and 2014 were $677,791
and $632,304, respectively. Other administrative expenses including accounting and audit
services, legal fees, annual report and miscellaneous expense for the years ended June 30, 2015
and 2014 were $307,436 and $143,808, respectively.
8. Contingencies
City of Oakland v. Oakland Police and Fire Retirement System, et al., Alameda County Superior
Court case number RG 11580626
2015 2014
Active member contribution reserve $ - $ 969,902
Retired member contribution reserve 42,130,490 43,947,738
Employer reserve 377,123,398 418,890,425
$ 419,253,888 $ 463,808,065
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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This lawsuit was initiated by the City of Oakland in June 2011, and sought to stop the System
from paying retirement benefits based on certain holidays and shift differential premium pay
(7.25%) to many police retirees. The City also sought an order requiring the System to collect
overpayments. The trial court ruled in favor of the City and the decision was partially upheld
upon appeal. The Court of Appeal agrees that those elements were overpayments, but limited
the extent to which shift differential overpayments could be recovered back from retirees.
The writ and judgment entered by the trial court after the appeals process directed the System’s
board to cease paying excessive holidays and the shift differential premium. In September and
October 2014, the System’s Board passed resolutions #6819 and #6824 to seek 100% recovery
of the combined overpayments, which totals approximately $3.9 million. On October 28, 2015,
the System’s Board approved a collection methodology that would collect the overpayments
from police members over 48 months. The repayments will commence on the February 2016
pension payment, payable March 1, 2016. These actions could increase the fund by
approximately $3.5 million, depending on the recovery from retirees and survivors.
Retired Oakland Police Officers Association v. Oakland Police and Fire Retirement System, et al., Alameda County Superior Court Action No. RG15758831
This lawsuit is an outgrowth of prior litigation entitled City of Oakland v. Oakland Police and
Fire Retirement System, et al., Alameda County Superior Court case number RG11580626. The
Plaintiffs allege that the System failed to grant them proper notice and an opportunity to be
heard before the Board adopted the resolutions calling for the recoupment of past
overpayments. This lawsuit is pending in the Alameda County Superior Court and a trial date
has been set for March 18, 2016.
Retired Oakland Police Officers Association v. Oakland Police and Fire Retirement System, et al., Alameda County Superior Court Action No. RG14753080
A lawsuit was filed on December 30, 2014, by Petitioners Retired Oakland Police Officers
Association (ROPOA) and several System retirees against the System, the System’s Board, and
the City of Oakland. The lawsuit argues that Master Police Officer Pay (“MPO Pay”) should be
considered “compensation attached to rank” and should be included in the pension pay of
certain police retirees per the City of Oakland Charter. This lawsuit is pending and a merit
hearing has been set for May 23, 2016.
Notes to Basic Financial Statements For Years Ended June 30, 2015 and 2014
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Schedule I: Schedule of Changes in the Employer’s Net Pension Liability and Related Ratios (Unaudited)
Note: This is a 10-year schedule. Information for additional years will be presented when available.
2015 2014 Total Pension Liability
Service cost (MOY) $ 0 0 Interest (includes interest on service cost) 41,262,826 42,333,496 Changes of benefit terms 0 0 Differences between expected and actual experience (21,208,627) 0 Changes of assumptions 34,219,433 0 Benefit payments, including refunds of member contributions (59,007,536) (57,409,113)
Net change in total pension liability (4,733,904) (15,075,617) Total pension liability – beginning 640,323,144 655,398,761 Total pension liability – ending (a) $ 635,589,240 640,323,144 Plan fiduciary net position
Contributions - employer $ 0 0 Contributions - member 0 4,441 Net investment income 15,438,586 66,392,409 Benefit payments, including refunds of member contributions (59,007,536) (57,409,113) Administrative expense (985,227) (776,112)
Net change in plan fiduciary net position (44,554,177) 8,211,625
Plan fiduciary net position – beginning 463,808,065 455,596,440 Plan fiduciary net position – ending (b) $ 419,253,888 463,808,065
City’s net pension liability – ending (a) – (b) $ 216,335,352 176,515,079 Plan fiduciary net position as a percentage of the total pension liability 65.96% 72.43%
Covered employee payroll $ 0 0 Net pension liability as a percentage of covered employee payroll N/A N/A
Required Supplementary Information For Years Ended June 30, 2015 and 2014
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Schedule II: Schedule of Employer Contributions (Unaudited) (dollars in millions)
* Although an actuarial valuation was performed as of June 30, 2013 and June 30, 2014, no Actuarially Determined Contribution was determined for 2015, based on the City’s funding policy
** In July 2012 the City of Oakland contributed $210 million in Pension Obligation Bond (POB) proceeds to the Plan.
2015* 2014 2013** 2012 2011 2010 2009 2008 2007 2006
Actuarially determined contribution N/A $20.3 $34.2 $45.1 $41.4 $37.5 $32.1 $28.6 $23.6 $23.6
Contributions in relation to the actuarially determined contribution 0 0 210.0 45.5 0 0 0 0 0 0
Contribution deficiency (excess) N/A $20.3 $(175.8) $(0.4) $41.4 $37.5 $32.1 $28.6 $23.6 $23.6
Covered employee payroll $ 0 $ 0 $ 0.1 $ 0.1 $ 0.1 $ 0.1 $ 0.4 $ 0.4 $ 0.3 $ 0.3
Contributions as a percentage of Covered employee payroll
N/A N/A 210000% 45500% 0% 0% 0% 0% 0% 0%
Required Supplementary Information For Years Ended June 30, 2015 and 2014
Valuation Date July 1, 2012
Timing Actuarially determined contributions are calculated based on the actuarial valuation one year prior to the beginning of the Plan year.
Key Methods and Assumptions Used to Determine Contributions:
Actuarial Cost Method Entry Age Normal
Asset Valuation Method Recognizes 20% of differences between market value and expected actuarial value each year, with a corridor of 10% around market value
Amortization Method Level dollar closed (23 years remaining as of 07/01/2013)
Discount Rate 6.75% U.S. Inflation 3.25%
Bay Area Inflation 3.375%
Projected Benefit Increases
Following expiration of current MOUs (June 30, 2015 for Police, October 31, 2017 for Fire):
Police - 2% per year, 3% per year for 3 year, then 3.975% (Bay Area inflation plus 0.60% productively increase) per year.
Fire - 3% per year for 3 years, then 3.975% (Bay Area inflation plus 0.60% productivity increase) per year.
Mortality (Healthy) RP-2000 Combined Healthy Table (for males, rates multiplied by 97% and ages set back 1 year), projected to improve with Scale AA using a 2006 base year.
Mortality (Disabled) CalPERS Industrial Disability Mortality Table (from 1997-2007 experience study) projected to improve with Scale AA using 2010 base year.
NOTES TO SCHEDULE
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Schedule III: Schedule of Investment Returns (Unaudited)
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
Annual money-weighted rate of return net of investment expense
3.9% 16.4% 9.7% 1.4% 24.5% 17.2% (19.9)% (5.6)% 14.3% 7.6%
Required Supplementary Information For Years Ended June 30, 2015 and 2014
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SECTION 3 INVESTMENT
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INVESTMENT CONSULTANT’S REPORT
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Asset Allocation As of June 30, 2015
List of Investment Professionals
Domestic Equity Managers: Fixed Income Managers: EARNEST Partners Reams Asset Management Lord Abbett T. Rowe Price Associates Northern Trust DDJ Capital Management Nuveen NWQ
State Street Global Advisors Investment Consultant: Pension Consultant Alliance International Equity Managers:
Hansberger Global Investor Custodian: State Street Global Advisors Northern Trust Fisher Investments Institutional Group
Security Lending: Covered Calls: Northern Trust
Parametric Portfolio Associates, LLC.
Real Return:
Wellington Management Company, LLP
Investment Manager Fees and Other Investment Expenses
Periods ending June 30, 2014 and June 30, 2015
2015 2014
Investment Manager Fees
Domestic Equity Managers $ 1,072,403 $ 956,339
International Equity Managers 281,024 363,002
Domestic Fixed Income Managers 181,165 228,544
Total Investment Manager Fees $ 1,534,592 $ 1,547,885
Other Investment Fees
Investment Consulting $ 97,500 $ 90,000
Custodian Fees 116,500 131,804
Total Other Investment Fees $ 214,000 $ 221,804
Total Investment Fees $ 1,748,592 $ 1,769,689
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As of June 30, 2015
Stock Market Value
1 APPLE INC COM STK $ 4,891,324
2 MICROSOFT CORP COM 2,416,330
3 EXXON MOBIL CORP COM 2,357,971
4 JOHNSON & JOHNSON COM USD1 1,827,570
5 GENERAL ELECTRIC CO 1,810,666
6 WELLS FARGO & CO NEW COM STK 1,775,441
7 JPMORGAN CHASE & CO COM 1,700,369
8 BERKSHIRE HATHAWAY INC-CL B 1,699,878
9 PROCTER & GAMBLE COM NPV 1,434,374
10 PFIZER INC COM 1,395,753
Note: The above schedules do not reflect holdings in index funds. A complete list is available upon request. Largest Bond Holdings (by Market Value) As of June 30, 2015
Description Interest
Rate Maturity
Date Market Value
1 UNITED STATES TREASURY NOTES 1.38% 2/29/2020 $ 2,384,144
2 UNITED STATES OF AMERICA TREASURY BONDS 2.50% 2/15/2045 2,085,790
3 UNITED STATES TREASURY NOTES 2.00% 2/15/2025 1,860,541
4 UNITED STATES TREASURY NOTES 0.25% 4/15/2016 1,124,649
5 US TREASURY INFLATION INDEX TREASURY BONDS 0.63% 1/15/2024 959,024
6 UNITED STATES TREASURY NOTES 3.00% 11/15/1944 865,710
7 UNITED STATES TREASURY NOTES 0.25% 9/30/2015 865,270
8 UNITED STATES TREASURY NOTES 1.75% 4/30/2022 740,844
9 UNITED STATES TREASURY NOTES 1.50% 5/31/2019 698,855
10 GNMA POOL #MA2753 3.00% 4/20/1945 678,910
Note: The above schedules do not reflect holdings in index funds. A complete list is available upon request.
Largest Stock Holdings (by Market Value)
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50
Investments by Manager Year Ended June 30, 2015
Investment Firm Portfolio Type Amount Fixed Income Managers Reams Asset Management Core Plus $24,854,284 T. Rowe Price Associates Core 41,690,086 DDJ High Yield/ Bank Loans 10,264,903 Transition Account Short Term 402,396
Total Fixed Income $77,211,670
Domestic Equity Managers Northern Trust Global Investments Large Cap Core $92,800,397 EARNEST Partners Mid Cap Core 32,801,523 SSGA - Russell 1000 Growth Index Large Cap Growth 30,818,337 SSGA - Russell 1000 Value Index Large Cap Value 29,341,133 Lord, Abbett & Co. Small Cap Growth 10,810,608 Nuveen Investments Small Cap Value 12,324,297
Total Domestic Equity $208,896,295
International Equity Managers Hansberger Global Investors International $17,424,014 Fisher Investments Institutional Group International 17,049,169 State Street Global Advisors Non-US Developed Core 14,123,449
Total International Equity $48,596,632
Alternative Managers Wellington Real Returns $40,823,991 Parametric Covered Calls 43,368,498
Total Alternative Investments $84,192,489
Total Investment $418,897,085
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SECTION 4 ACTUARIAL
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52
ACTUARY’S CERTIFICATION LETTER
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53
ACTUARY’S CERTIFICATION LETTER
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54
ACTUARY’S CERTIFICATION LETTER
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55
SUMMARY OF ACTUARIAL VALUE, ASSUMPTIONS AND FUNDING METHODS
PURPOSE OF ACTUARIAL VALUATION
The Oakland Police and Fire Retirement System (PFRS) is a closed defined benefit pension plan. It was
closed to new members on June 30, 1976. As of July 1, 2014, there are no active member. All members
are retirees and beneficiaries.
The actual costs of a defined benefit plan are determined entirely by the amount of the benefit promise,
the actual salaries and service of the plan participants, and how long they and their beneficiaries live to
receive payments. In addition, the actuarial methodology provides a reasonable plan, or method, towards
funding the expected costs of the plan. This information assists the plan trustees so they can make
informed decisions regarding plan investments and how much in contributions will be required from the
employer to eventually fully pay for the plan’s costs.
The most recent actuarial valuation was as of July 1, 2014. The Key Results of the actuarial valuation
are as follows:
The City of Oakland issued Pension Obligation Bonds (POBs) in July 2012. The City then
contributed $210 million from the bond proceeds to the Plan. These proceeds act as prepayments for
Oakland PFRS contributions from the fiscal year beginning July 1, 2012 through the fiscal year
beginning July 1, 2016. Contributions are expected to resume during the fiscal year beginning July
1, 2017, in accordance with the funding agreement dated July 1, 2012 between the City and the
PFRS.
In accordance with the 2012 funding agreement, the employer contribution amount remains at $0 for
Fiscal Year 2015-2016 due to the $210 million contribution from the POBs.
During the year ended June 30, 2014, the return on Plan assets was 15.53% on a market value basis
net of investment expenses, as compared to the 7.00% assumption. This resulted in a market value
gain on investments of $37.4 million. The Actuarial Value of Assets (AVA) is calculated as the
expected Actuarial Value of Assets plus 20% of the difference between the Market Value and the
expected Actuarial Value of Assets. This smoothed value of assets returned 9.37%, for an actuarial
asset gain of $10.7 million.
The Plan experienced a gain on the actuarial liability of $19.9 million, due primarily to the removal
of shift pay in the determination of the benefit amounts. Combining the liability and asset gains, the
Plan experienced a total gain of $30.6 million.
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56
As a result of higher than expected asset returns, the Plan’s smoothed funded ratio, the ratio of
actuarial assets over actuarial liability, increased from 67.2% last year to 67.8% on an AVA basis as
of June 30, 2014 before any changes in assumptions. The Plan’s funded ratio increased from 69.5%
to 74.8% on a Market Value of Assets (MVA) basis.
The Plan’s funded ratio was reduced from 67.8% to 64.6% on an AVA basis, and from 74.8% to
71.2% on an MVA basis as a result of the various assumption changes adopted as part of the most
recent Experience Study, in particular the change in the discount rate and the implementation of new
generational mortality assumptions.
The unfunded actuarial liability (UAL) is the excess of the Plan’s actuarial liability over the
actuarial value of assets. The Plan experienced a decrease in the UAL from $215.0 million to $199.6
million as of July 1, 2014 before any assumption changes, and increased to $230.2 million after
assumption changes.
Overall participant membership decreased compared to last year. 25 members died, 10 of whom
who had their benefits continue to a surviving spouse. In addition, 22 surviving beneficiaries died.
The last remaining active member of the Plan also retired during the year.
As was done in the prior actuarial valuation, we have projected an actuarially determined
contribution amount for the Fiscal Year 2017-2018, the first year after the POB-based prepayments
have expired, according to the 2012 funding agreement. The estimated contribution for FY 2017-
2018 is $35.1 million, based on the projected value of the liabilities and the projected Actuarial
Value of Assets. This represents a small decrease of $0.5 million from the amount determined in the
prior valuation for the same Fiscal Year. The decrease in the projected contribution is the combined
result of the asset and liability gains described above.
If the contribution were determined using a projected asset value based on the current market (i.e.
non-smoothed) value of assets, the estimated contribution for FY 2017-2018 would be $31.6
million. The contribution is smaller than that determined using the projected AVA, because the
current market value reflects the full amount of the investment gains experienced in FY 2013-2014
and prior years, while under the AVA projection a portion of those gains are deferred until years
after FY 2017-2018.
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57
VALUATION SUMMARY
The table below is a summary of the results of the valuation. See notes following the table for a
definition of terms.
Below we present Table I-1 which summarizes all the key results of the valuation with respect to
membership, assets and liabilities, and contributions. The results are presented and compared for both
the current and prior plan year.
ACTUARIAL DEFINITIONS
The Present Value of Projected Benefits (PVPB) is the present value of all future benefits for current plan participants.
The Actuarial Liability (AL) represents the portion of the PVPB attributable to past service. Since all participants in this plan are either retired or assumed to retire at the valuation date, the Actuarial Liability is equal to the Present Value of Projected Benefits for this plan.
The Actuarial Value of Assets is a smoothed value of assets used to even out market fluctuations in asset values.
The Unfunded Actuarial Liability (UAL) is equal to the difference between the Actuarial Liability and the Actuarial Value of Assets.
Table I-1 Summary of Principal Plan Results
($ in Thousands) July 01, 2013 July 01, 2014 % Change
Participant Counts Active Participants 1 0 -100.00% Participants Receiving a Benefit 1,042 1,006 -3.45% Total 1,043 1,006 -3.55%
Annual Pay of Active Members $ 0 $ 0*
Assets and Liabilities Actuarial Liability (AL) $ 655,399 $ 651,053 -0.66% Actuarial Value of Assets (AVA) 440,383 420,890 -4.43% Unfunded Actuarial Liability (UAL) $ 215,016 $ 230,163 7.04% Funded Ratio (AVA) 67.2% 64.6% -3.79% Funded Ratio (MVA) 69.5% 71.2% 2.48%
Contributions Employer Contribution (FY2015-16) $ 0 $ 0 0.00% Employer Contribution (FY2017-18) $ 35,599 $ 35,148 -1.27%
* One active member as of July 1, 2013 assumed to retire immediately.
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58
ACTUARIAL METHODS AND ASSUMPTIONS
ACTUARIAL METHOD
The actuarial funding method used to determine the System’s normal cost and the unfunded actuarial
liability is the Entry Age Normal cost method. Under this method, the Plan’s Actuarial Liability (AL)
is determined as the Present Value of Future Benefits (PVFB) less the Present Value of Future Normal
Costs (PVFNC). Since all of the Plan’s members are retired or are assumed to retire immediately, the
AL and the PVFB are the same.
Actuarial Value of Plan Assets
The excess of the AL over the Actuarial Value of Assets (AVA) is the Unfunded Actuarial Liability
(UAL). In accordance with the Plan’s funding agreement with the City of Oakland, the UAL must be
amortized by July 1, 2026, with contributions resuming in the 2017-2018 fiscal year. The projected
fiscal year 2017-2018 contribution has been calculated using level percent of pay amortization, based on
total projected City payroll for all Safety employees.
ACTUARIAL ASSUMPTIONS
Rate of Return
The expected annual rates of return, net of investment expenses, on all Plan assets are shown in the table
below. The equivalent single discount rate for these returns using the Plan’s expected projected benefit
payments is 6.54%.
Benefit Payment Year
Expected Return (%)
2014 - 2026 7.000
2027 6.625
2028 6.250
2029 5.875
2030 5.500
2031 5.125
2032 4.750
2033 4.375
2034 4.000
2035 3.625
2036+ 3.250
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Inflation
The assumed rate of general inflation is 2.75% (entire US) and local inflation is 2.85% (Bay Area). The
general inflation rate is used in the determination of the investment return assumptions. The local
inflation rate is used in the determination of the growth in expenses and salaries (which determine the
COLA increases).
Cost of Living Adjustments
Cost-of-living adjustments are based on salary increases for a retiree’s rank at retirement.
The long-term rate of salary increase is assumed to be 3.25% (2.85% inflation plus 0.4% productivity).
The following schedule shows salary increases based on the current Police and Fire contracts, which
expire on June 30, 2015 and October 31, 2017, respectively. All assumed increases after those dates are
as follows:
Post-Retirement Benefit Increases (Based on Salary Increases for Rank at Retirement)
Date of Increase Police Fire
Before July 01, 2014 0.000% 0.000%
July 01, 2014 2.000% 3.000%
January 01, 2015 2.000% n/a
July 01, 2015 2.000% 1.000%
November 01, 2015 n/a 1.000%
March 01, 2016 n/a 1.000%
July 01, 2016 2.000% 2.000%
Annual Increase Starting July 01, 2017 3.250% 3.250%
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60
Service Retired Participants
Rates of Termination, Disability and Retirement : None
Retirement - Active employee assumed to retire at the valuation date
Healthy Mortality (for service retirees and beneficiaries)
CalPERS Health Table from the 2006-2011 Experience Study, excluding the 20 year projection using Scale BB.
Disabled Mortality (for disability retirees)
CalPERS Industrial Disability from the 2006-2011 Experience Study, excluding the 20 year projection using Scale BB.
Mortality Improvement
The mortality tables are projected to improve with the MP-2014 mortality improvement tables, with improvements projected from a base year of 2009 (the mid-point of the CalPERS base tables).
Survivor Continuance
30% of disabled retirees’ deaths are duty-related and thus entitle the surviving spouse to 100% continuance of the retirees’ allowance.
Administrative Expenses
Annual administrative expenses are assumed to be $900,000, growing at 2.85% per year.
Police Fire Total
Number
Total Annual Benefit Number
Total Annual Benefit* Number
Total Annual Benefit*
< 50 0 $0 0 $0 0 $0
50–54 0 $0 0 $0 0 $0
55–59 0 $0 0 $0 0 $0
60–64 33 $2,047,977 2 $124,517 35 $2,172,494
65–69 102 $6,265,065 30 $1,906,215 132 $8,171,280
70–74 83 $5,015,890 39 $2,806,929 122 $7,822,818
75–79 26 $1,790,203 20 $1,498,862 46 $3,289,065
80–84 19 $1,210,608 27 $1,875,692 46 $3,086,300
85–89 14 $897,125 23 $1,824,151 37 $2,721,277
90–94 10 $701,568 18 $1,221,212 28 $1,922,779
95–99 0 $0 4 $281,799 4 $281,799
100+ 0 $0 1 $81,279 1 $81,279
Total 287 $17,928,436 164 $11,620,655 451 $29,549,091
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Disability Retired Participants
Beneficiaries
Police Fire Total
Number
Total Annual Benefit* Number
Total Annual Benefit* Number
Total Annual Benefit*
< 50 0 $0 0 $0 0 $0
50–54 0 $0 0 $0 0 $0
55–59 0 $0 0 $0 0 $0
60–64 12 $681,497 13 $749,189 25 $1,430,686
65–69 55 $3,186,141 36 $2,200,330 91 $5,386,471
70–74 32 $1,818,029 29 $1,910,997 61 $3,729,026
75–79 13 $812,079 11 $780,177 24 $1,592,256
80–84 7 $468,538 12 $817,590 19 $1,286,128
85–89 9 $576,302 4 $276,153 13 $852,455
90–94 6 $407,184 8 $547,268 14 $954,452
95–99 0 $0 2 $123,218 2 $123,218
100+ 0 $0 0 $0 0 $0
Total 134 $7,949,770 115 $7,404,922 249 $15,354,693
Police Fire Total
Number
Total Annual Benefit* Number
Total Annual Benefit* Number
Total Annual Benefit*
< 50 0 $0 0 $0 0 $0
50–54 1 $56,562 1 $73,617 2 $130,179
55–59 2 $97,553 3 $145,916 5 $243,469
60–64 10 $468,890 6 $345,790 16 $814,680
65–69 23 $1,017,994 8 $427,029 31 $1,445,023
70–74 19 $792,017 13 $643,287 32 $1,435,305
75–79 11 $516,867 15 $665,016 26 $1,181,883
80–84 17 $793,288 27 $1,276,974 44 $2,070,262
85–89 42 $1,908,599 43 $2,034,638 85 $3,943,237
90–94 28 $1,198,004 20 $959,214 48 $2,157,218
95–99 6 $291,720 9 $538,247 15 $829,967
100+ 1 $25,352 1 $41,518 2 $99,870
Total 160 $7,166,846 146 $7,184,245 306 $14,351,091
DRAFT
62
PARTICIPANT DATA SUMMARY
Data Summary
Data pertaining to active and inactive Members and their beneficiaries as of the valuation date was supplied by the Plan Administrator on electronic media.
July 1, 2013 July 1, 2014
Active Participants Police Fire Total Police Fire Total Number 1 0 1 0 0 0 Number Vested 1 0 1 0 0 0 Average Age 73.7 0.00 73.7 0.00 0.00 0.00 Average Service 45.4 0.00 45.4 0.00 0.00 0.00 Average Pay $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Service Retirees
Number 293 175 468 287 164 451 Average Age 71.5 78.1 73.9 72.1 78.7 74.5 Average Annual Benefit $ 63,922 $ 62,684 $ 63,459 $ 62,468 $ 70,858 $ 65,519
Disabled Retirees
Number 138 118 256 134 115 249 Average Age 71.8 73 72.3 72.5 73.8 73.1 Average Annual Benefit $ 61,178 $ 56,968 $ 59,237 $ 59,327 $ 64.391 $ 61.665
Beneficiaries
Number 166 152 318 160 146 306 Average Age 80.2 82.2 81.2 80.8 82.5 81.6 Average Annual Benefit $ 45,464 $ 43,672 $ 44,608 $ 44,793 $ 49,207 $ 46,899
All Inactives
Number 597 445 1,042 581 425 1,006 Average Age 74 78.1 75.7 74.6 78.7 76.3 Average Annual Benefit $ 58,155 $ 54,674 $ 56,669 $ 56,876 $ 61,670 $ 58,901
DRAFT
CITY OF OAKLAND
TO: Oakland Police & Fire Retirement Board
SUBJECT: Authorization and Reimbursement of Board/Staff Travel/Education Expenses
MEMORANDUM
FROM: Katano Kasaine
DATE: February 24, 2016
James Cooper, Board Member of the Oakland Police and Fire Retirement System board, requests authorization for reimbursement of travel and/or board education related funds for the event detailed below. Staff has verified that budgeted funds are available for this board member to be reimbursed.
Staff recommends the reimbursement of travel/education funds for the event below be approved by board motion.
Travel I Education Event: 2016 CALAPRS General Assembly
Event Location: Renaissance Indian Wells, Resort, Indian Wells, CA
Event Date: March 5-8 2016
Estimated Event Expense*: ~$~1~,5~4=2~.0~0 ____________________ _
Notes:
* If enrollment, registration or admission expenses are required, the fund will process a check in advance and pay vendor directly; all other board-approved reimbursements will be made upon delivery of receipts to staff by the traveling party. Cancelation of event attendance requires return of all reimbursed funds paid to attendee to the fund.
Respectfully submitted,
{{4/un o (~4th-· Katano Kasine, Plan A:dministrator Oakland Police and Fire Retirement System
For questions please contact David Low, Administrative Assistant, at 510-238-7295.
Attachments (if any): Resolution #6881 Program Agenda
20160305 CALAPRS GenAssmbly CA Cooper Memo
•
OAKLAND POLICE AND FIRE RETIREMENT BOARD CITY OF OAKLAND, CALIFORNIA
RESOLUTION NO. 6881
ON MOTION OF MEMBER SECONDED BY MEMBER
TRAVEL AUTHORIZATION FOR BOARD MEMBER JAMES COOPER TO TRAVEL AND ATTEND THE 2016 CALAPRS GENERAL ASSEMBLY CONFERENCE (“2016
CALAPRS CONFERENCE”) FROM/ON MARCH 5, 2016 THROUGH MARCH 8, 2016
IN INDIAN WELLS, CA WITH AN ESTIMATED BUDGET OF ONE THOUSAND FIVE
HUNDRED FORTY-TWO DOLLARS ($1,542.00)
WHEREAS, Board Member James Cooper wishes to attend the 2016 CALAPRS Conference in Indian Wells, CA from/on March 5, 2016 through March 8, 2016; and
WHEREAS, Board Member Cooper is expected to seek reimbursement of expenses from the Board; and
WHEREAS, in compliance with the Board Travel Policy, which requires that PFRS Board/Staff
Members seek PFRS Board approval prior to travel; and
WHEREAS, in compliance with the Board Travel Policy, the Board/Staff Member has presented costs for travel, lodging and/or registration fees to the 2016 CALAPRS Conference in the amount of approximately $1,542.00; and
WHEREAS, Board Member Cooper seeks Board approval of the fore mentioned estimated costs to travel to Indian Wells, CA to attend the 2016 CALAPRS Conference from/on March 5, 2016 through March 8, 2016; now, therefore, be it
RESOLVED: Board Member James Cooper’s travel request and estimated budget of $1,542.00
to attend the March 5, 2016 through March 8, 2016 2016 CALAPRS Conference is hereby approved.
IN BOARD MEETING, CITY HALL, OAKLAND, CA FEBRUARY 24, 2016
PASSED BY THE FOLLOWING VOTE:
AYES: SPEAKMAN, GODFREY, OZNOWICZ, WILKINSON, DANIEL, PRESIDENT JOHNSON
NOES:
ABSTAIN: COOPER
ABSENT:
ATTEST: PRESIDENT
ATTEST: SECRETARY
HOTEL ACCOMMODATIONS:Renaissance Indian Wells Resort44400 Indian Wells LaneIndian Wells, CA 92210
• Phone: 1-888-236-2427; refer to CALAPRS when making a reservation.
• Online: https://aws.passkey.com/event/13962471/owner/1792/home
Room Rate: $224.00/night** Does not include taxes and a $1/night resort fee.
Cut-Off: February 9, 2016 (or until rooms sell out)
3-WAYS TO REGISTER:
http://www.calaprs.org/content/register
415-764-4860
PLANNING COMMITTEE:Mark Hovey (Chair), David Kehler, Donna Lum, Annette St. Urbain, and Hugo Wildmann
Visit us online at www.calaprs.org/content/general-assembly-2016for updated program information.
CALAPRS General Assembly
MARCH 5-8, 2016 | RENAISSANCE INDIAN WELLS
SATURDAY – MARCH 5, 2016
4:00 – 6:00 PM Early-Bird Registration
SUNDAY – MARCH 6, 2016
7:00 AM – 12:00 PM Optional Golf at Indian Wells Golf Resort
10:00 AM – 4:30 PM Registration
2:00 PM Opening Remarks
2:15 PM CA Pension Reform: What’s Next? Moderator: Mark Hovey, CEO, SDCERSSpeakers: Dan Pellissier, President, CA Pension Reform; Ashley Dunning, Partner, Nossaman LLP; and Graham Schmidt, Consulting Actuary, Cheiron
3:15 PM Networking Break
3:30 PM What in the World is Going On? A Scan of Economic Conditions and Markets Around the Globe
Moderator: Annette St. Urbain, CEO, SJCERASpeaker: Arjun Divecha, Chairman,Board of Directors, GMO InvestmentManagement
7:00 PM – 9:30 PM Strolling DinnerGuests welcome and transportation provided.
MONDAY – MARCH 7, 2016
7:00 AM – 4:00 PM Registration
7:30 AM – 8:25 AM Breakfast
8:30 AM Opening Remarks
8:45 AM Exploring the Pension Landscape withoutGetting Stuck by an Actuarial CactusModerator: Dave Kehler, Administrator, TCERASpeakers: Mark Olleman, Consulting Actuary, Milliman and Graham Schmidt, Consulting Actuary, Cheiron
9:45 AM Networking Break
10:00 AM What’s the Fuss about Private EquityFees?Moderator: Corey Buuhoan, SeniorInvestment Officer, SDCERSSpeakers: Tom Hickey, Partner, Foley & Lardner and Tom Keck, Partner, Stepstone Group, LLC
11:00 AM Alternative Investments: What’s Hot, What’s NotModerator: Hugo Wildmann, Retirement System Manager, AC TransitSpeakers: Wylie Tollette, Chief Operating Investment Officer, CalPERS; Don Pierce, CIO, San Bernardino County ERA; andIan Toner, Managing Director, VerusInvestments
12:15 – 1:30 PM Lunch
1:30 PM Asset-Liability Analysis for the 21stCentury — “Got Correlation?”Moderator: Annette St. Urbain, CEO, SJCERA Speakers: Neil Rue, Managing Director and John Linder, Principal, Pension Consulting Alliance and Robert McCrory, Principal Consulting Actuary, Cheiron
2:45 – 3:00 PM Networking Break
3:00 PM Fixed Income: Should We Tweak theRecipe or Expand the Menu?Moderator: Dave Kehler, Administrator, TCERASpeakers: David Kelly, Partner, Aon Hewitt and Ashish Tiwari, Executive Vice President, PIMCO
5:00 – 6:00 PM Hosted Reception at the Renaissance Indian Wells
TUESDAY – MARCH 8, 2016
7:30 – 8:25 AM Breakfast
8:30 AM National Trends & Forecasts for PublicRetirement SystemsModerator: Donna Lum, Deputy Executive Officer, Customer Services & Support, CalPERSSpeaker: Amy Resnick, Editor,Pensions & Investments
9:30 AM Networking Break
9:45 AM System Governance: Is the Train on itsTrack? Moderator: Mark Hovey, CEO,SDCERSSpeakers: Chris Waddell, Senior Attorney, Olson Hagel & Fishburn LLP and Elaine Reagan, Chief Legal Officer, SDCERA
11:00 AM Closing Remarks & Adjourn
CALAPRS GENERAL ASSEMBLY 2016 | SURVIVING THE PUBLIC PENSION SANDSTORM
CITY OF OAKLAND
TO: Oakland Police & Fire Retirement Board
SUBJECT: Authorization and Reimbursement of Board/Staff Travel/Education Expenses
MEMORANDUM
FROM: Katano Kasaine
DATE: February 24, 2016
Ronald Oznowicz, Board Member of the Oakland Police and Fire Retirement System board, requests authorization for reimbursement of travel and/or board education related funds for the event detailed below. Staff has verified that budgeted funds are available for this board member to be reimbursed.
Staff recommends the reimbursement of travel/education funds for the event below be approved by board motion.
Travel I Education Event: 2016 CALAPRS General Assembly
Event Location: Renaissance Indian Wells, Resort, Indian Wells, CA
Event Date: March 5-8 2016
Estimated Event Expense*: -'$"'--l:..:>,-"-00""""'0"-'-.0-"-0"-------------------------
Notes:
* If enrollment, registration or admission expenses are required, the fund will process a check in advance and pay vendor directly; all other board-approved reimbursements will be made upon delivery of receipts to staff by the traveling party. Cancelation of event attendance requires return of all reimbursed funds paid to attendee to the fund.
Respectfully submitted,
t4'ho llJW~/Y...,' Katano Kasine, Plan Administrator Oakland Police and Fire Retirement System
For questions please contact David Low, Administrative Assistant, at 510-238-7295.
Attachments (if any): Resolution #6882 Program Agenda
20160305 CALAPRS GenAssmbly CA~ Oznowicz Mern(J
OAKLAND POLICE AND FIRE RETIREMENT BOARD CITY OF OAKLAND, CALIFORNIA
RESOLUTION NO. 6882
ON MOTION OF MEMBER SECONDED BY MEMBER
TRAVEL AUTHORIZATION FOR BOARD MEMBER RONALD OZNOWICZ TO TRAVEL AND ATTEND THE 2016 CALAPRS GENERAL ASSEMBLY CONFERENCE
(“2016 CALAPRS CONFERENCE”) FROM/ON MARCH 5, 2016 THROUGH MARCH 8, 2016 IN INDIAN WELLS, CA WITH AN ESTIMATED BUDGET OF ONE THOUSAND
DOLLARS ($1,000.00)
WHEREAS, Board Member Ronald Oznowicz wishes to attend the 2016 CALAPRS Conference in Indian Wells, CA from/on March 5, 2016 through March 8, 2016; and
WHEREAS, Board Member Oznowicz is expected to seek reimbursement of expenses from the Board; and
WHEREAS, in compliance with the Board Travel Policy, which requires that PFRS Board/Staff
Members seek PFRS Board approval prior to travel; and
WHEREAS, in compliance with the Board Travel Policy, the Board/Staff Member has presented costs for travel, lodging and/or registration fees to the 2016 CALAPRS Conference in the amount of approximately $1,000.00; and
WHEREAS, Board Member Oznowicz seeks Board approval of the fore mentioned estimated costs to travel to Indian Wells, CA to attend the 2016 CALAPRS Conference from/on March 5, 2016 through March 8, 2016; now, therefore, be it
RESOLVED: Board Member Ronald Oznowicz’s travel request and estimated budget of $1,000.00 to attend the March 5, 2016 through March 8, 2016 2016 CALAPRS Conference is hereby approved.
IN BOARD MEETING, CITY HALL, OAKLAND, CA FEBRUARY 24, 2016
PASSED BY THE FOLLOWING VOTE:
AYES: SPEAKMAN, GODFREY, COOPER, WILKINSON, DANIEL, PRESIDENT JOHNSON
NOES:
ABSTAIN: OZNOWICZ
ABSENT:
ATTEST: PRESIDENT
ATTEST: SECRETARY
HOTEL ACCOMMODATIONS:Renaissance Indian Wells Resort44400 Indian Wells LaneIndian Wells, CA 92210
• Phone: 1-888-236-2427; refer to CALAPRS when making a reservation.
• Online: https://aws.passkey.com/event/13962471/owner/1792/home
Room Rate: $224.00/night** Does not include taxes and a $1/night resort fee.
Cut-Off: February 9, 2016 (or until rooms sell out)
3-WAYS TO REGISTER:
http://www.calaprs.org/content/register
415-764-4860
PLANNING COMMITTEE:Mark Hovey (Chair), David Kehler, Donna Lum, Annette St. Urbain, and Hugo Wildmann
Visit us online at www.calaprs.org/content/general-assembly-2016for updated program information.
CALAPRS General Assembly
MARCH 5-8, 2016 | RENAISSANCE INDIAN WELLS
SATURDAY – MARCH 5, 2016
4:00 – 6:00 PM Early-Bird Registration
SUNDAY – MARCH 6, 2016
7:00 AM – 12:00 PM Optional Golf at Indian Wells Golf Resort
10:00 AM – 4:30 PM Registration
2:00 PM Opening Remarks
2:15 PM CA Pension Reform: What’s Next? Moderator: Mark Hovey, CEO, SDCERSSpeakers: Dan Pellissier, President, CA Pension Reform; Ashley Dunning, Partner, Nossaman LLP; and Graham Schmidt, Consulting Actuary, Cheiron
3:15 PM Networking Break
3:30 PM What in the World is Going On? A Scan of Economic Conditions and Markets Around the Globe
Moderator: Annette St. Urbain, CEO, SJCERASpeaker: Arjun Divecha, Chairman,Board of Directors, GMO InvestmentManagement
7:00 PM – 9:30 PM Strolling DinnerGuests welcome and transportation provided.
MONDAY – MARCH 7, 2016
7:00 AM – 4:00 PM Registration
7:30 AM – 8:25 AM Breakfast
8:30 AM Opening Remarks
8:45 AM Exploring the Pension Landscape withoutGetting Stuck by an Actuarial CactusModerator: Dave Kehler, Administrator, TCERASpeakers: Mark Olleman, Consulting Actuary, Milliman and Graham Schmidt, Consulting Actuary, Cheiron
9:45 AM Networking Break
10:00 AM What’s the Fuss about Private EquityFees?Moderator: Corey Buuhoan, SeniorInvestment Officer, SDCERSSpeakers: Tom Hickey, Partner, Foley & Lardner and Tom Keck, Partner, Stepstone Group, LLC
11:00 AM Alternative Investments: What’s Hot, What’s NotModerator: Hugo Wildmann, Retirement System Manager, AC TransitSpeakers: Wylie Tollette, Chief Operating Investment Officer, CalPERS; Don Pierce, CIO, San Bernardino County ERA; andIan Toner, Managing Director, VerusInvestments
12:15 – 1:30 PM Lunch
1:30 PM Asset-Liability Analysis for the 21stCentury — “Got Correlation?”Moderator: Annette St. Urbain, CEO, SJCERA Speakers: Neil Rue, Managing Director and John Linder, Principal, Pension Consulting Alliance and Robert McCrory, Principal Consulting Actuary, Cheiron
2:45 – 3:00 PM Networking Break
3:00 PM Fixed Income: Should We Tweak theRecipe or Expand the Menu?Moderator: Dave Kehler, Administrator, TCERASpeakers: David Kelly, Partner, Aon Hewitt and Ashish Tiwari, Executive Vice President, PIMCO
5:00 – 6:00 PM Hosted Reception at the Renaissance Indian Wells
TUESDAY – MARCH 8, 2016
7:30 – 8:25 AM Breakfast
8:30 AM National Trends & Forecasts for PublicRetirement SystemsModerator: Donna Lum, Deputy Executive Officer, Customer Services & Support, CalPERSSpeaker: Amy Resnick, Editor,Pensions & Investments
9:30 AM Networking Break
9:45 AM System Governance: Is the Train on itsTrack? Moderator: Mark Hovey, CEO,SDCERSSpeakers: Chris Waddell, Senior Attorney, Olson Hagel & Fishburn LLP and Elaine Reagan, Chief Legal Officer, SDCERA
11:00 AM Closing Remarks & Adjourn
CALAPRS GENERAL ASSEMBLY 2016 | SURVIVING THE PUBLIC PENSION SANDSTORM
CITY OF OAKLAND
TO: Oakland Police & Fire Retirement Board
SUBJECT: Authorization and Reimbursement of Board/Staff Travel/Education Expenses
MEMORANDUM
FROM: Katano Kasaine
DATE: February 24, 2016
Steve Wilkinson, Board Member of the Oakland Police and Fire Retirement System board, requests authorization for reimbursement of travel and/or board education related funds for the event detailed below. Staff has verified that budgeted funds are available for this board member to be reimbursed.
Staff recommends the reimbursement of travel/education funds for the event below be approved by board motion.
Travel I Education Event: 2016 CALAPRS General Assembly
Event Location: Renaissance Indian Wells, Resort, Indian Wells, CA
Event Date: March 5-8 2016
Estimated Event Expense*: _;$.:..:1=,6""'6=2=.0,_,0'-------------------------
Notes:
* If enrollment, registration or admission expenses are required, the fund will process a check in advance and pay vendor directly; all other board-approved reimbursements will be made upon delivery of receipts to staff by the traveling party. Cancelation of event attendance requires return of all reimbursed funds paid to attendee to the fund.
For questions please contact David Low, Administrative Assistant, at 510-238-7295.
Attachments (if any): Resolution #6883 Program Agenda
20160305 CALAPRS GenAssmbly - CA Wilkinson Memo
OAKLAND POLICE AND FIRE RETIREMENT BOARD CITY OF OAKLAND, CALIFORNIA
RESOLUTION NO. 6883
ON MOTION OF MEMBER SECONDED BY MEMBER
TRAVEL AUTHORIZATION FOR BOARD MEMBER STEVE WILKINSON TO TRAVEL AND ATTEND THE 2016 CALAPRS GENERAL ASSEMBLY CONFERENCE (“2016
CALAPRS CONFERENCE”) FROM/ON MARCH 5, 2016 THROUGH MARCH 8, 2016
IN INDIAN WELLS, CA WITH AN ESTIMATED BUDGET OF ONE THOUSAND SIX
HUNDRED SIXTY-TWO DOLLARS ($1,662.00)
WHEREAS, Board Member Steve Wilkinson wishes to attend the 2016 CALAPRS Conference in Indian Wells, CA from/on March 5, 2016 through March 8, 2016; and
WHEREAS, Board Member Wilkinson is expected to seek reimbursement of expenses from the Board; and
WHEREAS, in compliance with the Board Travel Policy, which requires that PFRS Board/Staff
Members seek PFRS Board approval prior to travel; and
WHEREAS, in compliance with the Board Travel Policy, the Board/Staff Member has presented costs for travel, lodging and/or registration fees to the 2016 CALAPRS Conference in the amount of approximately $1,662.00; and
WHEREAS, Board Member Wilkinson seeks Board approval of the fore mentioned estimated costs to travel to Indian Wells, CA to attend the 2016 CALAPRS Conference from/on March 5, 2016 through March 8, 2016; now, therefore, be it
RESOLVED: Board Member Steve Wilkinson’s travel request and estimated budget of $1,662.00 to attend the March 5, 2016 through March 8, 2016 2016 CALAPRS Conference is hereby approved.
IN BOARD MEETING, CITY HALL, OAKLAND, CA FEBRUARY 24, 2016
PASSED BY THE FOLLOWING VOTE:
AYES: GODFREY, SPEAKMAN, COOPER, OZNOWICZ , DANIEL, PRESIDENT JOHNSON
NOES:
ABSTAIN: WILKINSON
ABSENT:
ATTEST: PRESIDENT
ATTEST: SECRETARY
HOTEL ACCOMMODATIONS:Renaissance Indian Wells Resort44400 Indian Wells LaneIndian Wells, CA 92210
• Phone: 1-888-236-2427; refer to CALAPRS when making a reservation.
• Online: https://aws.passkey.com/event/13962471/owner/1792/home
Room Rate: $224.00/night** Does not include taxes and a $1/night resort fee.
Cut-Off: February 9, 2016 (or until rooms sell out)
3-WAYS TO REGISTER:
http://www.calaprs.org/content/register
415-764-4860
PLANNING COMMITTEE:Mark Hovey (Chair), David Kehler, Donna Lum, Annette St. Urbain, and Hugo Wildmann
Visit us online at www.calaprs.org/content/general-assembly-2016for updated program information.
CALAPRS General Assembly
MARCH 5-8, 2016 | RENAISSANCE INDIAN WELLS
SATURDAY – MARCH 5, 2016
4:00 – 6:00 PM Early-Bird Registration
SUNDAY – MARCH 6, 2016
7:00 AM – 12:00 PM Optional Golf at Indian Wells Golf Resort
10:00 AM – 4:30 PM Registration
2:00 PM Opening Remarks
2:15 PM CA Pension Reform: What’s Next? Moderator: Mark Hovey, CEO, SDCERSSpeakers: Dan Pellissier, President, CA Pension Reform; Ashley Dunning, Partner, Nossaman LLP; and Graham Schmidt, Consulting Actuary, Cheiron
3:15 PM Networking Break
3:30 PM What in the World is Going On? A Scan of Economic Conditions and Markets Around the Globe
Moderator: Annette St. Urbain, CEO, SJCERASpeaker: Arjun Divecha, Chairman,Board of Directors, GMO InvestmentManagement
7:00 PM – 9:30 PM Strolling DinnerGuests welcome and transportation provided.
MONDAY – MARCH 7, 2016
7:00 AM – 4:00 PM Registration
7:30 AM – 8:25 AM Breakfast
8:30 AM Opening Remarks
8:45 AM Exploring the Pension Landscape withoutGetting Stuck by an Actuarial CactusModerator: Dave Kehler, Administrator, TCERASpeakers: Mark Olleman, Consulting Actuary, Milliman and Graham Schmidt, Consulting Actuary, Cheiron
9:45 AM Networking Break
10:00 AM What’s the Fuss about Private EquityFees?Moderator: Corey Buuhoan, SeniorInvestment Officer, SDCERSSpeakers: Tom Hickey, Partner, Foley & Lardner and Tom Keck, Partner, Stepstone Group, LLC
11:00 AM Alternative Investments: What’s Hot, What’s NotModerator: Hugo Wildmann, Retirement System Manager, AC TransitSpeakers: Wylie Tollette, Chief Operating Investment Officer, CalPERS; Don Pierce, CIO, San Bernardino County ERA; andIan Toner, Managing Director, VerusInvestments
12:15 – 1:30 PM Lunch
1:30 PM Asset-Liability Analysis for the 21stCentury — “Got Correlation?”Moderator: Annette St. Urbain, CEO, SJCERA Speakers: Neil Rue, Managing Director and John Linder, Principal, Pension Consulting Alliance and Robert McCrory, Principal Consulting Actuary, Cheiron
2:45 – 3:00 PM Networking Break
3:00 PM Fixed Income: Should We Tweak theRecipe or Expand the Menu?Moderator: Dave Kehler, Administrator, TCERASpeakers: David Kelly, Partner, Aon Hewitt and Ashish Tiwari, Executive Vice President, PIMCO
5:00 – 6:00 PM Hosted Reception at the Renaissance Indian Wells
TUESDAY – MARCH 8, 2016
7:30 – 8:25 AM Breakfast
8:30 AM National Trends & Forecasts for PublicRetirement SystemsModerator: Donna Lum, Deputy Executive Officer, Customer Services & Support, CalPERSSpeaker: Amy Resnick, Editor,Pensions & Investments
9:30 AM Networking Break
9:45 AM System Governance: Is the Train on itsTrack? Moderator: Mark Hovey, CEO,SDCERSSpeakers: Chris Waddell, Senior Attorney, Olson Hagel & Fishburn LLP and Elaine Reagan, Chief Legal Officer, SDCERA
11:00 AM Closing Remarks & Adjourn
CALAPRS GENERAL ASSEMBLY 2016 | SURVIVING THE PUBLIC PENSION SANDSTORM
Plan Administrator Kasaine's will attend from March 5 - 7, 2016
OAKLAND POLICE AND FIRE RETIREMENT BOARDCITY OF OAKLAND, CALIFORNIA
RESOLUTION NO. 6885
ON MOTION OF MEMBER SECONDED BY MEMBER
TRAVEL AUTHORIZATION FOR PLAN ADMINISTRATOR KATANO KASAINE TOTRAVEL AND ATTEND THE 2016 CALAPRS GENERAL ASSEMBLY CONFERENCE(“2016 CALAPRS CONFERENCE”) FROM/ON MARCH 5, 2016 THROUGH MARCH 8,2016 IN INDIAN WELLS, CA WITH AN ESTIMATED BUDGET OF ONE THOUSANDSIX HUNDRED SIXTY-TWO DOLLARS ($1,107.00)
WHEREAS, Plan Administrator Katano Kasaine wishes to attend the 2016 CALAPRSConference in Indian Wells, CA from/on March 5, 2016 through March 8, 2016; and
WHEREAS, Plan Administrator Kasaine is expected to seek reimbursement of expenses from the Board; and
WHEREAS, in compliance with the Board Travel Policy, which requires that PFRS Board/Staff Members seek PFRS Board approval prior to travel; and
WHEREAS, in compliance with the Board Travel Policy, the Board/Staff Member has presented costs for travel, lodging and/or registration fees to the 2016 CALAPRS Conference in the amount of approximately $1,107.00; and
WHEREAS, Plan Administrator Kasaine seeks Board approval of the fore mentioned estimated costs to travel to Indian Wells, CA to attend the 2016 CALAPRS Conference from/on March 5, 2016 through March 8, 2016; now, therefore, be it
RESOLVED: Plan Administrator Katano Kasaine’s travel request and estimated budget of $1,107.00 to attend the March 5, 2016 through March 8, 2016 2016 CALAPRS Conference is hereby approved.
IN BOARD MEETING, CITY HALL, OAKLAND, CA FEBRUARY 24, 2016
PASSED BY THE FOLLOWING VOTE:
AYES: GODFREY, SPEAKMAN, COOPER, OZNOWICZ , WILKINSON, DANIEL , PRESIDENT JOHNSON
NOES:
ABSTAIN:
ABSENT:
ATTEST: PRESIDENT
ATTEST: SECRETARY
HOTEL ACCOMMODATIONS:
Renaissance Indian Wells Resort44400 Indian Wells LaneIndian Wells, CA 92210
Phone: 1-888-236-2427; refer to CALAPRS when making a reservation.
Online: https://aws.passkey.com/event/13962471/owner/1792/home
Room Rate: $224.00/night** Does not include taxes and a $1/night resort fee.
Cut-Off: February 9, 2016 (or until rooms sell out)
3-WAYS TO REGISTER:
http://www.calaprs.org/content/register
415-764-4860
PLANNING COMMITTEE:Mark Hovey (Chair), David Kehler, Donna Lum, Annette St. Urbain, and Hugo Wildmann
Visit us online at www.calaprs.org/content/general-assembly-2016for updated program information.
CALAPRS General Assembly
MARCH 5-8, 2016 | RENAISSANCE INDIAN WELLS
SATURDAY – MARCH 5, 2016
4:00 – 6:00 PM Early-Bird Registration
SUNDAY – MARCH 6, 2016
7:00 AM – 12:00 PM Optional Golf at Indian Wells Golf Resort
10:00 AM – 4:30 PM Registration
2:00 PM Opening Remarks
2:15 PM CA Pension Reform: What’s Next? Moderator: Mark Hovey, CEO, SDCERSSpeakers: Dan Pellissier, President, CA Pension Reform; Ashley Dunning, Partner, Nossaman LLP; and Graham Schmidt, Consulting Actuary, Cheiron
3:15 PM Networking Break
3:30 PM What in the World is Going On? A Scan of Economic Conditions and Markets Around the Globe
Moderator: Annette St. Urbain, CEO, SJCERASpeaker: Arjun Divecha, Chairman,Board of Directors, GMO InvestmentManagement
7:00 PM – 9:30 PM Strolling DinnerGuests welcome and transportation provided.
MONDAY – MARCH 7, 2016
7:00 AM – 4:00 PM Registration
7:30 AM – 8:25 AM Breakfast
8:30 AM Opening Remarks
8:45 AM Exploring the Pension Landscape withoutGetting Stuck by an Actuarial CactusModerator: Dave Kehler, Administrator, TCERASpeakers: Mark Olleman, Consulting Actuary, Milliman and Graham Schmidt, Consulting Actuary, Cheiron
9:45 AM Networking Break
10:00 AM What’s the Fuss about Private EquityFees?Moderator: Corey Buuhoan, SeniorInvestment Officer, SDCERSSpeakers: Tom Hickey, Partner, Foley & Lardner and Tom Keck, Partner, Stepstone Group, LLC
11:00 AM Alternative Investments: What’s Hot, What’s NotModerator: Hugo Wildmann, Retirement System Manager, AC TransitSpeakers: Wylie Tollette, Chief Operating Investment Officer, CalPERS; Don Pierce, CIO, San Bernardino County ERA; andIan Toner, Managing Director, VerusInvestments
12:15 – 1:30 PM Lunch
1:30 PM Asset-Liability Analysis for the 21stCentury — “Got Correlation?”Moderator: Annette St. Urbain, CEO, SJCERA Speakers: Neil Rue, Managing Director and John Linder, Principal, Pension Consulting Alliance and Robert McCrory, Principal Consulting Actuary, Cheiron
2:45 – 3:00 PM Networking Break
3:00 PM Fixed Income: Should We Tweak theRecipe or Expand the Menu?Moderator: Dave Kehler, Administrator, TCERASpeakers: David Kelly, Partner, Aon Hewitt and Ashish Tiwari, Executive Vice President, PIMCO
5:00 – 6:00 PM Hosted Reception at the Renaissance Indian Wells
TUESDAY – MARCH 8, 2016
7:30 – 8:25 AM Breakfast
8:30 AM National Trends & Forecasts for PublicRetirement SystemsModerator: Donna Lum, Deputy Executive Officer, Customer Services & Support, CalPERSSpeaker: Amy Resnick, Editor,Pensions & Investments
9:30 AM Networking Break
9:45 AM System Governance: Is the Train on itsTrack? Moderator: Mark Hovey, CEO,SDCERSSpeakers: Chris Waddell, Senior Attorney, Olson Hagel & Fishburn LLP and Elaine Reagan, Chief Legal Officer, SDCERA
11:00 AM Closing Remarks & Adjourn
CALAPRS GENERAL ASSEMBLY 2016 | SURVIVING THE PUBLIC PENSION SANDSTORM
Page 1 of 2
- - - ORDER OF BUSINESS - - -
1. Subject: January 27, 2016 PFRS Investment Committee Meeting Minutes From: Staff of the PFRS Board
Recommendation: APPROVE January 27, 2016 Investment Committee meeting minutes.
2. Subject: Investment Manager Performance Report – Hansberger Growth Investors
From: Hansberger Growth Investors
Recommendation: ACCEPT an informational report regarding fund performance for PFRS investments with Hansberger Growth Investors, an International Equities asset class Investment Manager.
3. Subject: Investment Manager Overview – Hansberger Growth Investors From: Pension Consulting Alliance
Recommendation: ACCEPT an informational review of Organization and Performance ofHansberger Growth Investors, an International Equities asset class Investment Manager.
4. Subject: Investment Market Overview From: Pension Consulting Alliance (PCA)
Recommendation: ACCEPT an Informational Report regarding overview of the global investment market through February 2016.
5. Subject: Quarterly investment fund performance report for the quarter ending December 31, 2015
From: Pension Consulting Alliance
Recommendation: RECOMMEND BOARD APPROVAL of the quarterly investment fund performance report for the quarter ending December 31, 2015.
Retirement Systems 150 Frank H. Ogawa Plaza Oakland, California 94612
All persons wishing to address the Board must complete a speaker's card, stating their name and the agenda item (including "Open Forum") they wish to address. The Board may take action on items not on the agenda only if findings pursuant to the Sunshine Ordinance and Brown Act are made that the matter is urgent or an emergency. Oakland Police and Fire Retirement Board meetings are held in wheelchair accessible facilities. Contact Retirement Systems, 150 Frank Ogawa Plaza, Suite 3332 or call (510) 238-7295 for additional information.
INVESTMENT COMMITTEE MEMBERS
Jaime T. Godfrey Chairman
Steve Wilkinson Member
Ronald Oznowicz Member
*In the event a quorum of the Board participates in the Committee meeting, the meeting is noticed as a Special Meeting of the Board; however, no final Board action can be taken. In the event that the Investment Committee does not reach quorum, this meeting is noticed as an informational meeting between staff and the Chair of the Investment Committee.
Wednesday, February 24, 2016 – 10:30 am One Frank H. Ogawa Plaza, Hearing Room 3
Oakland, California 94612
SPECIAL MEETING of the INVESTMENT AND FINANCIAL MATTERS COMMITTEE of the OAKLAND POLICE AND FIRE RETIREMENT SYSTEM (“PFRS”)
AGENDA
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM SPECIAL INVESTMENT COMMITTEE MEETING FEBRUARY 24, 2016
ORDER OF BUSINESS, continued
Page 2 of 2
6. Subject: 2016 Asset Class Assumptions From: Pension Consulting Alliance (PCA)
Recommendation: RECOMMEND BOARD APPROVAL of PCA 2016 Asset Class Assumptions.
7. Subject: Staff Changes Memorandum from Lord Abbett and Co., LLC From: Pension Consulting Alliance
Recommendation: ACCEPT an informational report regarding staff changes at PFRS Domestic Equities Investment Manager, Lord Abbett and Co., LLC.
8. Subject: Renewal of Service Contract – Fisher Investments From: Staff of the PFRS Board and Pension Consulting Alliance
Recommendation: RECOMMEND BOARD APPROVAL of staff recommendation to renew the Service Contract of PFRS International Equity Investment Manager, Fisher Investments.
9. Subject: Renewal of Service Contract – T. Rowe Price From: Staff of the PFRS Board and Pension Consulting Alliance
Recommendation: RECOMMEND BOARD APPROVAL of staff recommendation to renew the Service Contract of PFRS Domestic Fixed Income Investment Manager, T. Rowe Price.
10. Open Forum
11. Future Scheduling
PFRS Investment & Financial Matters Committee Minutes January 27, 2016
Page 1 of 2
D R A F T
D R A F T
AN SPECIAL INVESTMENT AND FINANCIAL MATTERS COMMITTEE MEETING of the Oakland Police and Fire Retirement System (“PFRS”) was held January 27, 2016 in Hearing Room 1, One Frank Ogawa Plaza, Oakland, California.
Committee Members Present: • Steve Wilkinson, Member • Ronald Oznowicz, Member
Committee Members Absent: • Jaime T. Godfrey, Chairman
Additional Attendees: • Pelayo Llamas, Deputy City Attorney / PFRS Legal Counsel • David Low & Teir Jenkins, Staff Members • David Sancewich, Pension Consulting Alliance • Katano Kasaine, Plan Administrator
The meeting was called to order at 10:31 AM. Member Oznowicz reported that Chairman Godfrey was excused from today’s Investment Committee meeting and he would act as Chairman Pro Tem in his stead.
1. Approval of Committee meeting minutes – Member Wilkinson made a motion to approve the December 9, 2015 investment committee meeting minutes, second by Chairman Pro Tem Oznowicz. Motion passed.
[GODFREY – ABSENT / WILKINSON – Y / OZNOWICZ – Y] ( AYES: 2 / NOES: 0 / ABSTAIN: 0 )
2. Investment Manager Overview and performance report – DDJ Capital Management, LLC – Laura Zink and Scott McAdam presented their report on the performance of PFRS investment funds managed by DDJ Capital Management, LLC, a Domestic Fixed Asset Class investment manager which currently manages approximately $9.5 million of PFRS investment assets. Mr. McAdam further explained the processes and methodologies utilized by DDJ. Upon conclusion of the presentation and committee discussion, Member Wilkinson made a motion to accept the investment manager performance report from DDJ Capital Management, second by Chairman Pro Tem Oznowicz. Motion passed.
[GODFREY – ABSENT / WILKINSON – Y / OZNOWICZ – Y] ( AYES: 2 / NOES: 0 / ABSTAIN: 0 )
3. Investment Manager review of DDJ Capital Management, LLC: PCA – Sean Copus from PCA presented his review of DDJ Capital Management, LLC following their presentation. David Sancewich added that the Board hired DDJ to fill a void in the Fixed Asset Class portion of the investment portfolio with a long market cycle. After some brief discussion, member Wilkinson made a motion to accept the PCA investment manager review of DDJ Capital Management, LLC, second by Chairman Pro Tem Oznowicz. Motion passed.
[GODFREY – ABSENT / WILKINSON – Y / OZNOWICZ – Y] ( AYES: 2 / NOES: 0 / ABSTAIN: 0 )
4. Review of City Council Resolution No. 85053 regarding City Council Action to recommend PFRS Divestment from Fossil Fuel Investments – David Jones, Principle Financial Analyst for the City of Oakland, presented City Council Resolution No. 85053 regarding City Council Action to recommend PFRS Divestment from Fossil Fuel Investments. Plan Administrator Kasaine further explained the City’s request of the PFRS board regarding this City Council resolution. The Committee discussed the details of Mr. Jones’ review of the Agenda Report. Member Wilkinson made a motion accept the informational report regarding City Council Resolution No. 85053, second by Chairman Pro Tem Oznowicz. Motion passed.
[GODFREY – ABSENT / WILKINSON – Y / OZNOWICZ – Y] ( AYES: 2 / NOES: 0 / ABSTAIN: 0 )
Chairman Pro Tem Oznowicz directed staff to present an analysis of this matter and report back to the Investment Committee at the March 2016 meeting.
PFRS Investment & Financial Matters Committee Minutes January 27, 2016
Page 2 of 2
D R A F T
D R A F T
5. $15.5 Million for 1st Quarter 2016 Member Benefits Payments – Staff presented the recommendation of $15.5 million drawdown for 1st quarter 2016. Mr. Jenkins reported that an additional Five Hundred Thousand Dollars was being allocated for member benefits payments for this period due to the revised MOU that became effective and increased the member benefits payments for PFRS police members. Member Wilkinson made a motion to recommend Board approval of $15.5 million for 1st Quarter 2016 member benefit payments, second by Chairman Pro Tem Oznowicz. Motion passed.
[GODFREY – ABSENT / WILKINSON – Y / OZNOWICZ – Y] ( AYES: 2 / NOES: 0 / ABSTAIN: 0 )
6. Investment Market Overview – David Sancewich reported the global market and economic factors presently affecting the PFRS investment fund. The Committee discussed these global market factors. Member Wilkinson made a motion accept the Investment Market overview report, second by Chairman Pro Tem Oznowicz. Motion passed.
[GODFREY – ABSENT / WILKINSON – Y / OZNOWICZ – Y] ( AYES: 2 / NOES: 0 / ABSTAIN: 0 )
7. Follow-up report about U.S. Securities and Exchange Commission investigation of Wellington Management Company, LLC – David Sancewich reported that PCA previously reported the request for information by the US SEC of Wellington. Mr. Sancewich said the outcome of that reporting yielded no negative information regarding Wellington and the matter was closed. Member Wilkinson made a motion accept the informational report from PCA regarding the SEC investigation of Wellington Management Company, second by Chairman Pro Tem Oznowicz. Motion passed.
[GODFREY – ABSENT / WILKINSON – Y / OZNOWICZ – Y] ( AYES: 2 / NOES: 0 / ABSTAIN: 0 )
8. 2016 Strategic Investment Agenda – David Sancewich presented the PCA 2016 Strategic Investment Agenda. The Committee discussed the details of this agenda. Member Wilkinson made a motion recommend Board approval of the 2016 Strategic Investment Agenda, second by Chairman Pro Tem Oznowicz. Motion passed.
[GODFREY – ABSENT / WILKINSON – Y / OZNOWICZ – Y] ( AYES: 2 / NOES: 0 / ABSTAIN: 0 )
9. Open Forum – Investment Officer Teir Jenkins reported the coming expiration of several investment manager service contracts with the PFRS Board and that staff will be bringing discussing the possible renewal of these contracts in the coming meetings.
10. Future Scheduling – The next investment committee meeting was scheduled for February 24, 2016.
The meeting adjourned at 11:42 am.
JAIME T. GODFREY, COMMITTEE CHAIRMAN DATE
CONFIDENTIALFor Use In One-on-One Presentations Only
February 24, 2016
HGI International Growth Equity
City of Oakland Police and Fire
Retirement System
Greg Zdzienicki
Vice President – Research
2
Investment Team Profile
Experienced International Growth Team
• Six investment professionals
• Founding members together since 1996
• Collectively over 100 years of investment experience
Specialist Institutional Asset Manager
• Separate Accounts and Institutional Mutual Fund vehicles offered
Fully Integrated, Team-Based, Investment Discipline
• Industry and Geographic Expertise
• Consistent Investment Process
• Consistent Adherence to Investment Style
33
International Growth Team
Betty TamDirector of Research
Technology &Vice President, Research– Quantitative Analyst
Greg ZdzienickiVice President Research
Barry Lockhart, CFADeputy Managing Director
Health Care, Consumer Staples (Food Products, Beverages, Food & Staples Retailing), Financials (Banks), Energy (Oil & Gas, Energy Equipment & Services), Materials (Chemicals)
Patrick TanSenior Vice President Research
Information Technology, Financials (Insurance), Consumer Discretionary (Specialty Retail), Materials (Metals & Mining), Energy (Coal & Consumable Fuels), Industrials (Engineering & Equipment)
Thomas Tibbles, CFAChief Executive Officer & Chief Investment Officer
Telecommunication Services, Utilities, Consumer Discretionary (Automobiles & Components, Media, Internet Retail, Consumer Durables, Apparel & Services), Consumer Staples (Household & Personal Products), Information Technology (Internet Software & Services, Games), Financials (Diversified Financials, Real Estate), Industrials (Capital Goods, Professional Services, Transportation)
Alyssa Light, CFA Vice President, Research- Fundamental Analyst
4
Investment Philosophy
We Search For Extraordinary Companies - Industry Leaders That Generate Sustainable Earnings Growth
Our Approach
• Value-Added For Clients Through Bottom-Up Stock Selection
• Fundamental Research Complemented by Quantitative Analysis
• Manage Benchmark Risk by Geographic and Sector Allocation
5
Disciplined Investment Process
Filter
Prioritize
Select stocks
International Equity Universe
“STAR” List
ResearchPipeline
Portfolio
• Identify companies with superior growth characteristics• Focus on historical long-term company fundamentals
• Sustainable competitive advantage
• Industry Leaders
• Higher Secular Growth• Superior Profitability• Lower Balance Sheet Risk
• Attractive valuation80-100 High potential opportunities
• 3-year forecast horizon
• Results in model portfolio action• Emphasis on risk-adjusted returns
Investment Decision Criteria- Sustainable forecast growth- Estimate revisions- Valuation- Momentum- P/E to growth ratio- Upside to target price
Reduction to isolate fundamentally superior companies
Highest probability candidates
On the basis of buy profile and conviction
6
Disciplined Decision Criteria
In Focus Out of Focus
G = EPS growth over 3 yr horizon V = Valuation Peg = P/E to growth ratioR = EPS estimate revisions M = Momentum U = Upside to target price
ABC Company XYZ Company
A A- B+ B B- C+ C
More Attractive Less Attractive
Ranking distribution of portfolio holdings plus actionable candidate stocks as of May 2, 2013
G
R
V
M
Peg
U
C+/C
0
2
4
6
8
10
12
14
1.002.003.004.005.006.007.008.009.0010.0011.0012.0013.0014.0015.0016.0017.0018.0019.00
7
Portfolio Construction
* Individual positions may be below 1% in constrained portfolios.
Guidelines ensure stock selection drives performance while providing adequate diversification
Security Limits • Minimum position size, typically 1%*
• Maximum position size, typically 5%
• Typically 40-70 securities
Sector Diversification
• Stock selection is key to allocation
• Typical allocation range within a modest tilt of the corresponding index weight
Regional Diversification
• Stock selection is key to allocation
• Major regional focus – Developed Europe, Other Developed, Emerging Markets
• Typical allocation range within a modest tilt of the corresponding index weight
Fully Invested • Seek to remain fully invested at all times
• Cash typically represents less than 5%
Currency Management
• We do not employ hedging or cross-hedging strategies
8
Performance ReportCity of Oakland Police and Fire Retirement SystemAs of December 31, 2015
Statistics for periods in excess of one year are annualized. Past performance is no indication of future success.MSCI ACWI ex USA returns have dividends net of local withholding taxes reinvested.
QTD YTD 1 Year 3 Year 5 Year 7 Year Since
Inception
01/31/2006
Portfolio 4.32% 1.48% 1.48% 4.07% 2.29% 9.74% 3.48%
MSCI ACWI ex USA 3.24% -5.66% -5.66% 1.50% 1.06% 7.48% 2.30%
9
Contribution And Attribution by Region
The above is considered supplemental information to the complete performance presentation at the end of these materials. The portfolio performance in the attribution above reflects the actual performance of the portfolio as shown on slide 8 and may or may not differ from that derived from the Factset attribution calculation product we use to prepare this report. The attribution performance can vary from the actual performance of your portfolio due to limitations of the software. For example, Factset uses end of day pricing, which does not account for the intraday pricing of securities that may have applied to a portfolio trade. If applicable, these limitations are the reason that one or more of the columns in the above charts may not exactly equal totals of corresponding columns.This page is prepared exclusively for you based on your portfolio and is not formatted or appropriate for distribution to retail audiences or to the public. Past performance is no guarantee of future results. Attribution Source: Factset Research Systems (see Attribution Explanation at end of presentation) Calculated from a U.S. Dollar perspective. MSCI ACWI ex USA returns have dividends net of local withholding taxes reinvested.
City of Oakland Police and Fire Retirement SystemDecember 31, 2014 to December 31, 2015
Portfolio Index Attribution
Allocation Selection + Total Total
Average Total Contribution Average Total Contribution Effect Interaction Effect Currency Total
Weight Return To Return Weight Return To Return (Local) (Local) ( Local ) Effect Effect
Emerging Markets 21.6 -1.1 0.1 21.1 -14.8 -3.0 0.0 2.0 2.0 1.1 3.1
Europe 51.7 6.3 2.9 47.7 -2.7 -1.3 0.2 4.3 4.4 0.3 4.7
Japan 15.8 6.2 0.8 16.2 9.6 1.0 0.0 -0.4 -0.5 -0.1 -0.5
North America 5.1 -26.0 -1.4 6.6 -24.2 -1.7 0.2 -0.9 -0.7 1.0 0.3
Pacific Ex Japan 5.0 -10.5 -0.6 8.3 -8.5 -0.7 0.1 -0.2 -0.1 0.1 -0.1
Cash 0.9 0.7 0.0 0.0 0.0 0.0 -0.1 0.0 -0.1 0.1 0.0
Total 100.0 1.5 1.5 100.0 -5.7 -5.7 0.4 4.7 5.1 2.4 7.1
10
Contribution And Attribution by Sector
The above is considered supplemental information to the complete performance presentation at the end of these materials. The portfolio performance in the attribution above reflects the actual performance of the portfolio as shown on slide 8 and may or may not differ from that derived from the Factset attribution calculation product we use to prepare this report. The attribution performance can vary from the actual performance of your portfolio due to limitations of the software. For example, Factset uses end of day pricing, which does not account for the intraday pricing of securities that may have applied to a portfolio trade. If applicable, these limitations are the reason that one or more of the columns in the above charts may not exactly equal totals of corresponding columns.This page is prepared exclusively for you based on your portfolio and is not formatted or appropriate for distribution to retail audiences or to the public. Past performance is no guarantee of future results. Attribution Source: Factset Research Systems (see Attribution Explanation at end of presentation) Calculated from a U.S. Dollar perspective. MSCI ACWI ex USA returns have dividends net of local withholding taxes reinvested.
City of Oakland Police and Fire Retirement SystemDecember 31, 2014 to December 31, 2015
Portfolio Index Attribution
Allocation Selection + Total Total
Average Total Contribution Average Total ContributionAverageEffect Interaction Effect Currency Total
Weight Return To Return Weight Return To ReturnWeight(Local) (Local) ( Local ) Effect Effect
Consumer Discretionary 13.8 9.6 1.4 11.7 -1.1 -0.2 0.1 1.1 1.2 0.4 1.6
Consumer Staples 7.1 8.3 0.6 10.3 5.1 0.5 -0.4 -0.1 -0.4 0.3 -0.1
Energy 4.6 -23.5 -1.1 6.8 -22.0 -1.5 0.4 -0.4 0.0 0.4 0.4
Financials 25.3 -0.9 -0.4 27.5 -8.3 -2.4 0.1 1.0 1.1 0.9 2.0
Health Care 9.2 12.9 1.1 9.2 5.6 0.4 0.0 0.9 1.0 -0.3 0.7
Industrials 15.4 2.2 0.0 11.0 -3.9 -0.4 0.0 0.9 0.9 0.1 1.0
Information Technology 13.6 10.3 1.5 7.6 -1.4 -0.1 0.2 1.3 1.5 0.3 1.9
Materials 3.5 -30.2 -1.1 7.2 -19.8 -1.4 0.6 -0.4 0.2 0.0 0.2
Telecommunication Services 5.0 -1.8 0.1 5.4 -4.1 -0.3 0.0 0.1 0.1 0.1 0.2
Utilities 1.7 -26.9 -0.3 3.5 -9.3 -0.3 0.1 -0.3 -0.2 0.1 -0.1
Cash 0.9 0.7 0.0 0.0 0.0 0.0 -0.1 0.0 -0.1 0.1 0.0
Total 100.0 1.5 1.5 100.0 -5.7 -5.7 1.0 4.1 5.1 2.4 7.1
11
Leading And Lagging Contributors To Total Return
The above is considered supplemental information to the complete performance presentation at the end of these materials. This portfolio is actively managed and holdings are subject to change. There is no guarantee the portfolio will continue to invest in the securities referenced. Past performance is no guarantee of future results.
The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that the securities discussed herein will remain in the account's portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed do not represent all of the securities purchased, sold, or recommended for advisory clients or an account's entire portfolio, and in the aggregate may represent only a small percentage of an account's portfolio holdings.
Attribution Source: FactSet Research Systems (see Attribution Explanation at end of presentation). Calculated from a U.S. Dollar perspective.
City of Oakland Police and Fire Retirement SystemDecember 31, 2014 to December 31, 2015
Average
Weight
(%)
Total
Return
(%)
Contribution
to Return
(%)
Average
Weight
(%)
Total
Return
(%)
Contribution
to Return
(%)
1 Tencent Holdings Ltd. 2.7 35.9 0.8 1 Amec Foster Wheeler plc 1.5 -49.4 -0.9
2 Carnival plc 2.5 28.0 0.6 2 Zodiac Aerospace SA 1.3 -27.9 -0.7
3 Fresenius SE & Co. KGaA 2.2 38.3 0.6 3 Canadian Pacific Railway Limited 1.3 -31.6 -0.5
4 Kingspan Group Plc 1.4 53.5 0.6 4 Grupo Mexico S.A.B. de C.V. Class B 1.4 -25.0 -0.4
5 China Unicom (Hong Kong) Limited 1.0 17.7 0.5 5 Manulife Financial Corporation 2.0 -19.1 -0.4
6 Partners Group Holding AG 1.9 27.5 0.5 6 DBS Group Holdings Ltd 1.6 -22.1 -0.4
7 Novo Nordisk A/S Class B 1.4 39.6 0.4 7 Larsen & Toubro Ltd. 1.2 -28.6 -0.4
8 Ping An Insurance (Group) Company of China, Ltd. Class H2.5 10.2 0.4 8 Cameco Corporation 1.6 -23.1 -0.4
9 Michael Page International PLC 2.0 17.2 0.4 9 SoftBank Group Corp. 1.9 -14.6 -0.4
10 KUKA AG 1.6 27.1 0.4 10 Credit Suisse Group AG 1.6 -9.5 -0.4
Leading Equity Contributors Lagging Equity Contributors
12
Fundamental CharacteristicsCity of Oakland Police and Fire Retirement SystemAs of December 31, 2015
Calculations by HGI. Underlying source data supplied by MSCI and FactSet.
12.5%
14.1%
15.9x
13.8% 13.7%
7.1%
11.6%
13.7x
8.5% 8.3%
3 Year Sales GrowthWtd Avg - Trailing
Return on EquityMedian - Trailing
P/EWtd Harm Avg- FY2
Long Term EPS GrowthWtd Avg
EPS GrowthWtd Avg - FY2
Portfolio MSCI ACWI ex USA
13
Portfolio Composition
If exchange traded funds (“ETFs”) are held to equitize cash they are included in “Cash” on this report. The portfolio is actively managed and holdings are subject to change. There is no guarantee that the portfolio continues to invest in the securities referenced. References to specific securities or holdings should not be considered recommendations for action by investors. It should not be assumed that the securities identified in this material, or any investment decisions, will prove to be profitable. Index weights calculated by HGI based on MSCI constituent data.
Index is MSCI ACWI x US
Company Port MSCI Diff Company Port MSCI Diff Company Port MSCI Diff Company Port MSCI Diff
Energy 3.9 6.0 -2.0 2.5 2.9 -0.5 1.5 1.5 -0.1 0.0 1.5 -1.5
BG Group PLC 1.3 Cameco Corp 1.5
Amec Foster Wheeler PLC 1.2
Materials 2.6 6.4 -3.9 1.0 3.1 -2.0 0.0 2.1 -2.1 1.5 1.2 0.3
LafargeHolcim Limited 1.0 Grupo Mexico SAB de CV 1.5
Industrials 15.7 11.2 4.6 9.6 5.3 4.3 4.8 4.4 0.3 1.3 1.4 -0.1
Zodiac Aerospace 2.0 Nidec Corp 2.7 Larsen & Toubro Ltd. Sponsored GDR RegS 1.3
KUKA AG 2.0 Canadian Pacific Railway Limited 2.1
Ashtead Group PLC 1.9
Michael Page International PLC 1.7
Kingspan Group PLC 1.1
Safran SA 1.1
Consumer Discretionary 12.9 12.2 0.7 7.7 5.6 2.1 5.2 4.6 0.7 0.0 2.0 -2.0
Carnival PLC 2.8 Toyota Motor Corp 2.7
Continental AG 1.6 CyberAgent Inc 2.5
Compagnie Financiere Richemont SA 1.2
Christian Dior SA 1.1
Hermes International 1.0
Consumer Staples 7.4 10.8 -3.4 4.9 7.0 -2.1 1.4 2.1 -0.6 1.1 1.7 -0.7
SABMiller PLC 1.5 Seven & I Holdings Co Ltd 1.4 Hengan International Group Co Ltd 1.1
Kerry Group PLC 1.3
Nestle SA 1.1
Pernod Ricard SA 1.1
Health Care 9.1 9.6 -0.4 7.5 7.0 0.5 0.0 1.9 -1.9 1.6 0.6 1.0
Fresenius SE & Co KGaA 2.4 Dr Reddy's Laboratories Ltd- ADR 1.6
Bayer AG - Reg 1.3
Roche Holding AG 1.3
Novo Nordisk A/S Class B 1.3
Grifols S.A. Class A 1.2
Financials 25.6 27.1 -1.5 9.4 10.8 -1.4 7.2 10.5 -3.3 9.0 5.7 3.2
Prudential PLC 2.1 AIA Group Ltd 2.2 HDFC Bank Ltd - ADR 2.3
Credit Suisse Group AG 2.1 Manulife Financial Corporation 2.0 Ping An Insurance Group Company of China Ltd - Class H2.2
Partners Group Holding AG 1.8 Nomura Holdings Inc 1.6 Citic Securities Co Ltd - Class H 1.7
London Stock Exchange Group PLC 1.7 DBS Group Holdings Limited 1.5 Grupo Financiero Banorte SAB de CV 1.6
UBS Group AG 1.6 PT Bank Mandiri (Persero) TBK 1.0
Information Technology 16.0 8.3 7.7 7.3 2.0 5.3 2.4 2.0 0.4 6.3 4.3 2.0
NXP Semiconductors NV 2.3 Keyence Corporation 2.4 Tencent Holdings Ltd 3.2
ASML Holding NV 2.1 Alibaba Group Holding Ltd - Sponsored ADR 3.1
ARM Holdings PLC 1.7
Hexagon AB Class B 1.2
Telecommunication Services 5.1 5.2 -0.1 3.4 2.4 1.0 1.7 1.4 0.3 0.0 1.4 -1.4
Iliad SA 2.1 SoftBank Group Corp 1.7
Telenor ASA 1.2
Utilities 1.2 3.5 -2.2 0.0 1.9 -1.9 0.0 1.0 -1.0 1.2 0.6 0.6
China Longyuan Power Group Corp. Ltd. Class H 1.2
Cash Balance 0.5
Total 100.0 100.0 53.3 48.0 5.3 24.3 31.5 -7.2 22.0 20.5 1.5
Number of Holdings 58 34 12 12
Average Weighting 1.7 1.6 2.0 1.8
The top ten stocks are highlighted and in bold. Total invested in top ten stocks is 26.45%
Oakland Police and Fire Retirement SystemAs of December 31, 2015
Developed Europe Other Developed Emerging Markets
14
Regional AllocationCity of Oakland Police and Fire Retirement SystemAs of December 31, 2015
If exchange traded funds ("ETFs") are held to equitize cash they are included in "Cash" on this report. Index weights calculated by HGI based on MSCI constituent data.
Region / Country Portfolio Index
Developed Europe 53.3 47.5
Austria - 0.1
Belgium - 1.1
Denmark 1.3 1.4
Finland - 0.7
France 8.3 7.2
Germany 7.3 6.7
Ireland 2.4 0.3
Italy - 1.7
Netherlands 4.3 2.1
Norway 1.2 0.4
Portugal - 0.1
Spain 1.2 2.3
Sweden 1.2 2.1
Switzerland 10.2 6.9
United Kingdom 15.8 14.3
Emerging Markets 22.0 20.4
Emg - Asia 18.9 14.9
Emg - EMEA - 3.1
Emg - L. America 3.2 2.4
Other Developed 24.3 32.1
Australia - 5.0
Canada 5.6 5.9
Hong Kong 2.2 2.3
Israel - 0.6
Japan 15.1 17.3
New Zealand - 0.1
Singapore 1.5 0.9
53.3
22.0
24.3
0.5
47.5
20.4
32.1
0.0
Developed
Europe
Emerging
Markets
Other
Developed
Cash
MSCI ACWI ex USA
Portfolio
15
Sector AllocationCity of Oakland Police and Fire Retirement SystemAs of December 31, 2015
If exchange traded funds ("ETFs") are held to equitize cash they are included in "Cash" on this report. Index weights calculated by HGI based on MSCI constituent data.
Sector Portfolio Index Sector Portfolio Index
Consumer Discretionary 12.9 12.2 Industrials 15.7 11.2
Auto Components 1.6 1.3 Aerospace & Defense 3.1 0.9
Automobiles 2.7 3.7 Air Freight & Logistics -- 0.3
Distributors -- 0.0 Airlines -- 0.3
Diversified Consumer Services -- 0.1 Building Products 1.1 0.5
Hotels Restaurants & Leisure 2.8 1.1 Commercial Services & Supplies -- 0.5
Household Durables -- 0.9 Construction & Engineering 1.3 0.8
Internet & Catalog Retail -- 0.2 Electrical Equipment 2.7 1.0
Leisure Products -- 0.2 Industrial Conglomerates -- 1.5
Media 2.5 2.0 Machinery 2.0 1.9
Multiline Retail -- 0.5 Marine -- 0.2
Specialty Retail -- 0.9 Professional Services 1.7 0.5
Textiles Apparel & Luxury Goods 3.3 1.3 Road & Rail 2.1 1.3
Consumer Staples 7.4 10.7 Trading Companies & Distributors 1.9 0.9
Beverages 2.5 2.3 Transportation Infrastructure -- 0.6
Food & Staples Retailing 1.4 1.8 Information Technology 16.0 8.3
Food Products 2.4 2.9 Communications Equipment -- 0.4
Household Products -- 0.8 Computers & Peripherals 3.7 1.4
Personal Products 1.1 1.5 Electronic Equipment & Instruments 6.3 1.3
Tobacco -- 1.4 Internet Software & Services -- 1.0
Energy 3.9 5.9 It Services 6.0 1.6
Energy Equipment & Services 1.2 0.2 Semiconductors & Semiconductor Equipment -- 1.0
Oil Gas & Consumable Fuels 2.8 5.8 Software -- 1.6
Financials 25.6 27.1 Materials 2.6 6.4
Banks 6.5 14.3 Chemicals -- 3.2
Capital Markets 8.9 1.8 Construction Materials 1.0 0.7
Consumer Finance -- 0.1 Containers & Packaging -- 0.2
Diversified Financial Services 1.7 1.3 Metals & Mining 1.5 2.1
Insurance 8.5 5.8 Paper & Forest Products -- 0.2
Real Estate Investment Trusts (Reits) -- 1.4 Telecommunication Services 5.1 5.1
Real Estate Management & Development -- 2.2 Diversified Telecommunication Services 3.4 2.8
Thrifts & Mortgage Finance -- 0.2 Wireless Telecommunication Services 1.7 2.4
Health Care 9.1 9.6 Utilities 1.2 3.5
Biotechnology 1.2 0.4 Electric Utilities -- 1.6
Health Care Equipment & Supplies -- 0.7 Gas Utilities -- 0.5
Health Care Providers & Services 2.4 0.6 Independent Power And Renewable Electricity Producers1.2 0.3
Health Care Technology -- 0.0 Multi-Utilities -- 0.9
Life Sciences Tools & Services -- 0.1 Water Utilities -- 0.2
Pharmaceuticals 5.6 7.8
12.9
7.4
3.9
25.6
9.1
15.7
16.0
2.6
5.1
1.2
0.5
12.2
10.7
5.9
27.1
9.6
11.2
8.3
6.4
5.1
3.5
0.0
Consumer
Disc.
Consumer
Staples
Energy
Financials
Health Care
Industrials
Information
Tech
Materials
Telecomm
Services
Utilities
Cash
MSCI ACWI ex USA Portfolio
Current Topics
17
IMF Projected Economic Growth
Source: http://www.imf.org/external/datamapper/index.php IMF Data Mapper update by IMF twice yearly in April and October.
18
Long Term Valuation of International Equities
Source: Factset Research Systems Inc. using MSCI data.
19
Valuation of UK Equities vs. UK Bonds
Source: Chart created by HGI using Bloomberg data. Annotation by HGI.
* Calculated by HGI: 3-Year average UK bond yield over the cash earnings yield ratio.
-
0.2
0.4
0.6
0.8
1.0
1.2
12/1
969
12/1
970
12/1
971
12/1
972
12/1
973
12/1
974
12/1
975
12/1
976
12/1
977
12/1
978
12/1
979
12/1
980
12/1
981
12/1
982
12/1
983
12/1
984
12/1
985
12/1
986
12/1
987
12/1
988
12/1
989
12/1
990
12/1
991
12/1
992
12/1
993
12/1
994
12/1
995
12/1
996
12/1
997
12/1
998
12/1
999
12/2
000
12/2
001
12/2
002
12/2
003
12/2
004
12/2
005
12/2
006
12/2
007
12/2
008
12/2
009
12/2
010
12/2
011
12/2
012
12/2
013
12/2
014
12/2
015
10/2
016
Ratio of 10 Year Bond Yield over Cash Earnings Yield
UK
Extreme Risk in 1987 and 1999
*Estimated Equilibrium
Relative under valuation
December 31, 2015
Extreme Risk in 1987 and 1999
*Estimated Equilibrium
Relative under valuation
December 31, 2015
20
Credit Spread
Source: Chart created by HGI using Bloomberg data.
Ending date of chart: December 31, 2015
Low quality companies tend to outperform (underperform) high quality companies when spread of low grade Bond Yield relative to Treasury Yield declines (increases).
0.50
1.50
2.50
3.50
4.50
5.50
6.50
7.50
12/1
992
07/1
993
02/1
994
09/1
994
04/1
995
11/1
995
06/1
996
01/1
997
08/1
997
03/1
998
10/1
998
05/1
999
12/1
999
07/2
000
02/2
001
09/2
001
04/2
002
11/2
002
06/2
003
01/2
004
08/2
004
03/2
005
10/2
005
05/2
006
12/2
006
07/2
007
02/2
008
09/2
008
04/2
009
11/2
009
06/2
010
01/2
011
08/2
011
03/2
012
10/2
012
05/2
013
12/2
013
07/2
014
02/2
015
09/2
015
04/2
016
11/2
016
Credit Spread (Moodys BAA less 10 Yr US Treasury)
21
TED spread is calculated as the difference between the three-month government bill interest rate and three-month LIBOR.
Source: Chart created by HGI using Bloomberg data.
Ending date of chart: December 31, 2015
TED Spreads
(0.10)
0.40
0.90
1.40
1.90
2.40
2.90
3.40
3.90
4.40
4.90
12/1
984
12/1
985
12/1
986
12/1
987
12/1
988
12/1
989
12/1
990
12/1
991
12/1
992
12/1
993
12/1
994
12/1
995
12/1
996
12/1
997
12/1
998
12/1
999
12/2
000
12/2
001
12/2
002
12/2
003
12/2
004
12/2
005
12/2
006
12/2
007
12/2
008
12/2
009
12/2
010
12/2
011
12/2
012
12/2
013
12/2
014
12/2
015
12/2
016
TED
Sp
read
US TED Spread
EURO TED Spread
22
Indices that measure volatility using implied volatility on multiple expirations and strike prices of traded options.
Source: Chart created by HGI using Bloomberg data.
Ending date of chart: December 31, 2015
Volatility Indices
(0.10)
9.90
19.90
29.90
39.90
49.90
59.90
69.90
79.90
89.90
99.90
12/1
998
12/1
999
12/2
000
12/2
001
12/2
002
12/2
003
12/2
004
12/2
005
12/2
006
12/2
007
12/2
008
12/2
009
12/2
010
12/2
011
12/2
012
12/2
013
12/2
014
12/2
015
12/2
016
US
an
d E
urozo
ne V
ola
tili
ty I
nd
ex
VSTOXX Index VIX Index
23
Composite Leading Indicator Index of OECD + Major Six NME Normalized against MSCI AC World ex USA = 20 Year Look
Source: Chart created by HGI using Bloomberg data.
Composite Index Leading Indicator of OECD + Major Six NME Normalized, start date is September 30, 1995 and end date is November 30, 2015. Subject to one month lag.
MSCI AC World ex USA - Total Return Index level gross dividends reinvested in USD terms, start date is September 30, 1995 and end date is November 30, 2015.
Recession band data: National Bureau of Economic Research (NBER).
Leading Economic Indicators vs. MSCI (20 years)
96
97
98
99
100
101
102
103
50
100
150
200
250
300
350
400
450
500
550
600
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Recession BandsMSCI AC World ex USAOECD + Major Six NME Normalized
Leading Economic Indicators vs MSCI (20 Years)
24
S&P/Case-Shiller Home Price Indices
Source: Chart created by HGI using Bloomberg data. S&P/Cash-Shiller Home Price Indices subject to 2 months lag.
Ending date of chart: October 31, 2015
S&P/Case-Shiller Home Price Indices
The indices are designed to be a reliable and consistent benchmark of housing prices in the United States. Their purpose is to measure the average change in single-family home prices in a particular geographic market. The monthly indices cover 20 major metropolitan areas, which are also aggregated to form two composites – one an aggregation of 10 of the major metropolitan areas; the other including all 20.
The S&P/Case-Shiller Home Price Indices are calculated monthly and published with a two month lag.
0.0
50.0
100.0
150.0
200.0
250.0
01/1
987
10/1
987
07/1
988
04/1
989
01/1
990
10/1
990
07/1
991
04/1
992
01/1
993
10/1
993
07/1
994
04/1
995
01/1
996
10/1
996
07/1
997
04/1
998
01/1
999
10/1
999
07/2
000
04/2
001
01/2
002
10/2
002
07/2
003
04/2
004
01/2
005
10/2
005
07/2
006
04/2
007
01/2
008
10/2
008
07/2
009
04/2
010
01/2
011
10/2
011
07/2
012
04/2
013
01/2
014
10/2
014
07/2
015
04/2
016
01/2
017
10/2
017
S&P/Case-Shiller Composite - 10 Home Price Index
S&P/Case-Shiller Composite - 20 Home Price Index
25
ADP National Employment Report
Source: Chart created by HGI using Bloomberg data.
Ending date of chart: December 31, 2015
Seasonally Adjusted Private Nonfarm Level Change
(950.00)
(750.00)
(550.00)
(350.00)
(150.00)
50.00
250.00
450.00
01/2
008
03/2
008
05/2
008
07/2
008
09/2
008
11/2
008
01/2
009
03/2
009
05/2
009
07/2
009
09/2
009
11/2
009
01/2
010
03/2
010
05/2
010
07/2
010
09/2
010
11/2
010
01/2
011
03/2
011
05/2
011
07/2
011
09/2
011
11/2
011
01/2
012
03/2
012
05/2
012
07/2
012
09/2
012
11/2
012
01/2
013
03/2
013
05/2
013
07/2
013
09/2
013
11/2
013
01/2
014
03/2
014
05/2
014
07/2
014
09/2
014
11/2
014
01/2
015
03/2
015
05/2
015
07/2
015
09/2
015
11/2
015
01/2
016
26
The Citigroup Economic Surprise Indices measure data surprises relative to market expectations. A positive reading means that data releases have been stronger than expected and a negative reading means that data releases have been worse than expected.
Source: Citigroup Global Markets, Bloomberg.
Ending date of chart: January 4, 2016
Citigroup Economic Surprise Index
-100
-80
-60
-40
-20
0
20
40
60
80
100
01/2
013
02/2
013
03/2
013
04/2
013
05/2
013
06/2
013
07/2
013
08/2
013
09/2
013
10/2
013
11/2
013
12/2
013
01/2
014
02/2
014
03/2
014
04/2
014
05/2
014
06/2
014
07/2
014
08/2
014
09/2
014
10/2
014
11/2
014
12/2
014
01/2
015
02/2
015
03/2
015
04/2
015
05/2
015
06/2
015
07/2
015
08/2
015
09/2
015
10/2
015
11/2
015
12/2
015
01/2
016
02/2
016
03/2
016
04/2
016
05/2
016
06/2
016
Cit
igrou
p E
con
om
ic S
urp
ris
e I
nd
ex
EM USA Euro Zone G10
27
Periods from January 31, 1992 to December 31, 2015
Source: Chart created on Factset Research Systems Inc. using float-weighted MSCI data.
Regional Crossover
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Mar
ket W
eigh
t Per
cent
age
Europe
Japan
Canada
Pacific ex Japan
Emerging Markets
28
Monthly data from December 2003 to December 2015
Alpha is the monthly HGI International Growth Equity Composite gross of fees return minus the MSCI ACWI ex USA (with gross dividends reinvested) return. FY2 P/E Premium is the percentage the HGI Representative International Growth Equity Portfolio ‘s fiscal year 2 projected price to earnings ratio (FY2 P/E) is above or below the ACWI ex USA’s FY2 P/E. ACWI ex USA FY2 P/E is calculated by HGI based on MSCI index constituent data. FY2 P/E data taken from the FactSet Estimates database.
This information is supplemental to the included fully compliant performance presentation on the Hansberger Growth Investors, LP (“HGI”) International Growth Equity Composite.
Relative Valuation and Relative Performance1
2/0
3
4/0
4
8/0
4
12
/04
4/0
5
8/0
5
12
/05
4/0
6
8/0
6
12
/06
4/0
7
8/0
7
12
/07
4/0
8
8/0
8
12
/08
4/0
9
8/0
9
12
/09
4/1
0
8/1
0
12
/10
4/1
1
8/1
1
12
/11
4/1
2
8/1
2
12
/12
4/1
3
8/1
3
12
/13
4/1
4
8/1
4
12
/14
4/1
5
8/1
5
12
/15
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Alpha FY2 P/E Premium Ratio
29
Monthly data from December 2003 to December 2015
Alpha (right axis) is the monthly HGI International Growth Equity Composite (gross of fees) return minus the MSCI ACWI ex USA (with gross dividends reinvested) return. Rep. Portfolio P/E (left axis) is the fiscal year 2 projected price to earnings ratio of an HGI Representative International Growth Equity Portfolio. ACWI ex USA P/E (left axis) is the Fiscal Year 2 projected price to earnings ratio of the MSCI ACWI ex USA calculated by HGI based on MSCI index constituent data. FY2 P/E data taken from the FactSet Estimates database. This information is supplemental to the included fully compliant performance presentation on Hansberger Growth Investors, LP (“HGI”) International Growth Equity Composite.
Valuation and Relative Performance
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
-4X
-2X
0X
2X
4X
6X
8X
10X
12X
14X
16X
18X
20X
12
/03
4/0
4
8/0
4
12
/04
4/0
5
8/0
5
12
/05
4/0
6
8/0
6
12
/06
4/0
7
8/0
7
12
/07
4/0
8
8/0
8
12
/08
4/0
9
8/0
9
12
/09
4/1
0
8/1
0
12
/10
4/1
1
8/1
1
12
/11
4/1
2
8/1
2
12
/12
4/1
3
8/1
3
12
/13
4/1
4
8/1
4
12
/14
4/1
5
8/1
5
12
/15
Alpha Rep Portfolio FY2 P/E ACWI ex USA FY2 P/E
30
Relative Industrial Production compared with Relative Equity Index Return
Chart created by HGI using Bloomberg data.Source for Equity Index Returns: MSCI World and Emerging Markets Total Return Indices (gross dividends reinvested ) in USD terms. End date is October 31, 2015.Source for Industrial Production: CPB Netherlands Bureau for Economic Policy Analysis. “CPB World Trade Monitor” (www.cpb.nl/en/world-trade-monitor). End date is October 31, 2015. CPB data subject to 2 months lag.
* Emerging Economies includes: Armenia, Belarus, Bulgaria, Croatia, Czech Republic, Hungary, Kazakhstan, Latvia, Lithuania, Poland, Romania, Russia, Turkey, Ukraine, China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Singapore, Taiwan, Thailand, Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Trinidad and Tobago, Uruguay, Venezuela, Algeria, Angola, Egypt, Gabon, Iran, Iraq, Israel, Jordan, Kuwait, Libya, Morocco, Nigeria, Oman, Qatar, Saudi Arabia, South Africa, Syria, Tunisia, and United Arab Emirates.
** Advanced Economies includes: Australia, Austria, Belgium, Canada, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, United Kingdom, and United States.
Emerging Markets vs. Developed Markets
31
The chart indicates the percentage the MSCI ACWI ex USA’s sector’s valuation statistic is above or below the same valuation statistic for the overall ACWI ex USA. Valuation statistics are calculated by HGI based on MSCI index constituent data. Underlying data taken from FactSet and MSCI.
Relative Valuation of ACWI ex USA Sector
Quarterly data from September 2007 to December 20159
/28
/20
07
12
/31
/20
07
3/3
1/2
00
8
6/3
0/2
00
8
9/3
0/2
00
8
12
/31
/20
08
3/3
1/2
00
9
6/3
0/2
00
9
9/3
0/2
00
9
12
/31
/20
09
3/3
1/2
01
0
6/3
0/2
01
0
9/3
0/2
01
0
12
/31
/20
10
3/3
1/2
01
1
6/3
0/2
01
1
9/3
0/2
01
1
12
/30
/20
11
3/3
0/2
01
2
6/2
9/2
01
2
9/2
8/2
01
2
12
/31
/20
12
3/2
8/2
01
3
6/2
8/2
01
3
9/3
0/2
01
3
12
/31
/20
13
3/3
1/2
01
4
6/3
0/2
01
4
9/3
0/2
01
4
12
/31
/20
14
3/3
1/2
01
5
6/3
0/2
01
5
9/3
0/2
01
5
12
/31
/20
15
0%
10%
20%
30%
40%
50%
60%Consumer Staples FY2 P/E Premium
32
The chart indicates the percentage the MSCI ACWI ex USA’s sector’s valuation statistic is above or below the same valuation statistic for the overall ACWI ex USA. Valuation statistics are calculated by HGI based on MSCI index constituent data. Underlying data taken from FactSet and MSCI.
Relative Valuation of ACWI ex USA Sector
Quarterly data from September 2007 to December 2015
9/2
8/2
00
7
12
/31
/20
07
3/3
1/2
00
8
6/3
0/2
00
8
9/3
0/2
00
8
12
/31
/20
08
3/3
1/2
00
9
6/3
0/2
00
9
9/3
0/2
00
9
12
/31
/20
09
3/3
1/2
01
0
6/3
0/2
01
0
9/3
0/2
01
0
12
/31
/20
10
3/3
1/2
01
1
6/3
0/2
01
1
9/3
0/2
01
1
12
/30
/20
11
3/3
0/2
01
2
6/2
9/2
01
2
9/2
8/2
01
2
12
/31
/20
12
3/2
8/2
01
3
6/2
8/2
01
3
9/3
0/2
01
3
12
/31
/20
13
3/3
1/2
01
4
6/3
0/2
01
4
9/3
0/2
01
4
12
/31
/20
14
3/3
1/2
01
5
6/3
0/2
01
5
9/3
0/2
01
5
12
/31
/20
15
-10%
0%
10%
20%
30%
40%
50%
60%
70%Consumer Discretionary FY2 P/E Premium
33
The chart indicates the percentage the MSCI ACWI ex USA’s sector’s valuation statistic is above or below the same valuation statistic for the overall ACWI ex USA. Valuation statistics are calculated by HGI based on MSCI index constituent data. Underlying data taken from FactSet and MSCI.
Relative Valuation of ACWI ex USA Sector
Quarterly data from September 2007 to December 2015
9/2
8/2
00
7
12
/31
/20
07
3/3
1/2
00
8
6/3
0/2
00
8
9/3
0/2
00
8
12
/31
/20
08
3/3
1/2
00
9
6/3
0/2
00
9
9/3
0/2
00
9
12
/31
/20
09
3/3
1/2
01
0
6/3
0/2
01
0
9/3
0/2
01
0
12
/31
/20
10
3/3
1/2
01
1
6/3
0/2
01
1
9/3
0/2
01
1
12
/30
/20
11
3/3
0/2
01
2
6/2
9/2
01
2
9/2
8/2
01
2
12
/31
/20
12
3/2
8/2
01
3
6/2
8/2
01
3
9/3
0/2
01
3
12
/31
/20
13
3/3
1/2
01
4
6/3
0/2
01
4
9/3
0/2
01
4
12
/31
/20
14
3/3
1/2
01
5
6/3
0/2
01
5
9/3
0/2
01
5
12
/31
/20
15
-25%
-23%
-21%
-19%
-17%
-15%
-13%
-11%
-9%
-7%
-5%
-3%
-1%
1%
Financials FY2 P/E Premium
34
The chart indicates the percentage the MSCI ACWI ex USA’s sector’s valuation statistic is above or below the same valuation statistic for the overall ACWI ex USA. Valuation statistics are calculated by HGI based on MSCI index constituent data. Underlying data taken from FactSet and MSCI.
Relative Valuation of ACWI ex USA Sector
Quarterly data from September 2007 to December 2015
9/2
8/2
00
7
12
/31
/20
07
3/3
1/2
00
8
6/3
0/2
00
8
9/3
0/2
00
8
12
/31
/20
08
3/3
1/2
00
9
6/3
0/2
00
9
9/3
0/2
00
9
12
/31
/20
09
3/3
1/2
01
0
6/3
0/2
01
0
9/3
0/2
01
0
12
/31
/20
10
3/3
1/2
01
1
6/3
0/2
01
1
9/3
0/2
01
1
12
/30
/20
11
3/3
0/2
01
2
6/2
9/2
01
2
9/2
8/2
01
2
12
/31
/20
12
3/2
8/2
01
3
6/2
8/2
01
3
9/3
0/2
01
3
12
/31
/20
13
3/3
1/2
01
4
6/3
0/2
01
4
9/3
0/2
01
4
12
/31
/20
14
3/3
1/2
01
5
6/3
0/2
01
5
9/3
0/2
01
5
12
/31
/20
15
0%
10%
20%
30%
40%
50%
60%
70%
80%Information Technology FY2 P/E Premium
35
Fundamental Characteristics – China Highlighted
Calculations by HGI. Underlying source data supplied by MSCI and FactSet. China Subset measures the Chinese securities held in the broader HGI Representative International Growth Equity Portfolio.
Representative International Growth PortfolioAs of December 31, 2015
36
HANSBERGER GROWTH INVESTORS, LP (“HGI”) INTERNATIONAL GROWTH EQUITY COMPOSITEANNUAL DISCLOSURE PRESENTATION
Composite Disclosures
N.A – Information is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year.International Growth Equity Composite contains fully discretionary accounts invested according to HGI LP’s growth equity style in equities of companies domiciled outside the U.S. Cash is a residual of the investment process. For comparison purposes the composite is measured against the MSCI All Country World Index Excluding U.S.A. (“MSCI ACWI ex USA), which measures the returns of equities of companies which are domiciled outside the U.S., and the MSCI EAFE (Net) Index, which measures the returns of equities of companies domiciled in developed markets in Europe, Australasia, and the Far East. Both indexes are compiled by Morgan Stanley Capital International, and are float weighted with net dividends reinvested. Due to net of withholding tax returns not being available prior to January 1, 1999, the returns presented for the MSCI ACWI ex USA are a blend of the gross of withholding taxes from inception thru December 31, 1998 and net of withholding taxes from January 1, 1999 thru the current date. Prior to January 1, 2015, the composite was measured against the MSCI ACWI (Gross) ex USA Index, and the MSCI EAFE (Gross) Index. The benchmark changes were applied retroactively to provide a better comparison to the composite for which the return is net of withholding taxes. Investors may not invest directly in these indexes. For the period from July 31, 1996 through January 12, 1999, the track record presented here consists of portfolios with substantially similar investment objectives, policies and strategies managed by three senior members of HGI LP’s management team while they were employed by Indago Capital Management in Toronto, Ontario, an affiliate of The Canada Life Assurance Company, an advisor not affiliated with HGI LP. For periods between January 13, 1999 and July 31, 2014, the track record presented here consists of the composite of the same name maintained by Hansberger Global Investors, Inc., (“HGI Inc.”) an advisor not affiliated with HGI LP. See the disclosures below regarding the acquisition of the international growth strategy assets of HGI Inc. by HGI LP after July 31, 2014.(continued on the next page)
ⁱPartial Year: 7/31/1996 – 12/31/1996
Year
End
Gross of
Fee
Return
(%)
Net of
Fee
Return
(%)
Blended
MSCI
ACWI ex
USA
Index
Return
(%)
MSCI
EAFE
Index
Retur
n (%)
# of ports.
Total
composite
assets at
period end
($Billion)
Total firm
assets at
period end
($Billion)*
Composite
Dispersion
(%)
Composite
3-Yr. Ex-
Post
Standard
Deviation
(%)
MSCI
ACWI ex
USA Index
3-Yr. Ex-
Post
Standard
Deviation
(%)
MSCI
EAFE
Index 3-
Yr. Ex-
Post
Standard
Deviation
(%)
% of Non-
Fee Paying
Accounts
2014 -7.6% -8.3% -3.9 -4.9 8 0.46 1.12 0.9 13.6 12.8 13.0 Less than 1%
2013 20.3 19.4 15.3 22.8 16 3.15 * 0.4 18.1 16.2 16.3 Less than 1%
2012 19.2 18.3 16.8 17.3 20 3.50 * 0.3 21.5 19.3 19.4 Less than 1%
2011 -16.8 -17.4 -13.7 -12.1 20 3.15 * 0.3 25.2 22.7 22.4 Less than 1%
2010 9.6 8.8 11.2 7.8 24 4.30 * 0.2 30.4 27.3 26.2 Less than 1%
2009 54.9 53.8 41.5 31.8 22 3.54 * 1.2 28.2 25.2 23.6 Less than 1%
2008 -50.4 -50.8 -45.6 -43.4 26 2.59 * 0.5 23.1 20.9 19.2 Less than 1%
2007 20.3 19.4 16.8 11.2 25 4.89 * 0.2 10.7 10.6 9.4 Less than 1%
2006 25.3 24.3 26.7 26.3 23 3.55 * 0.3 10.5 10.2 9.3 Less than 1%
2005 17.5 16.6 16.6 13.5 14 2.10 * 0.5 12.4 11.6 11.4 Less than 1%
2004 15.0 14.2 20.9 20.3 9 0.45 * N.A 17.4 15.3 15.4 Less than 1%
2003 40.6 39.6 40.8 38.6 Five or fewer 0.14 * N.A 21.3 17.9 17.8 Less than 1%
2002 -12.9 -13.6 -15.0 -15.9 Five or fewer 0.09 * N.A 20.3 16.4 16.0 Less than 1%
2001 -18.9 -19.5 -19.7 -21.4 Five or fewer 0.06 * N.A 19.0 15.9 15.2 Less than 1%
2000 -2.8 -3.5 -15.3 -14.2 Five or fewer 0.08 * N.A 18.2 16.5 15.8 Less than 1%
1999 54.4 53.3 30.6 27.0 Five or fewer 0.05 * N.A 19.4 16.7 15.9 Less than 1%
1998 17.0 16.1 14.5 20.0 Five or fewer 0.04 * N.A - - - Less than 1%
1997 3.9 3.2 2.0 1.8 Five or fewer 0.01 * N.A - - - Less than 1%
1996ⁱ 11.4 11.3 4.8 4.5 Five or fewer 0.01 * N.A - - - Less than 1%
37
HANSBERGER GROWTH INVESTORS, LP (“HGI”) INTERNATIONAL GROWTH EQUITY COMPOSITEANNUAL DISCLOSURE PRESENTATION
Composite Disclosures
*The firm is defined as Hansberger Growth Investors, LP (HGI LP), a subsidiary of Madison Asset Management, LLC, and an investment adviser registered with the Securities and Exchange Commission pursuant to the Investment Advisors Act of 1940. (Registration does not imply a certain level of skill or training.) The firm maintains a list of composite descriptions, which is available upon request. The International Growth Equity Composite was created on August 1, 2014 and continues the performance of the same composite created on December 2008 by HGI Inc. The international growth management team of HGI Inc. who were responsible for composite performance prior to August 1, 2014 joined HGI LP on August 1, 2014.
HGI LP claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. HGI LP has been independently verified from August 1, 2014 through December 31, 2014. HGI Inc. was independently verified for the periods from January 1 1995 through December 31, 2013.
Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The International Growth Equity Composite has been examined for the periods August 1, 2014 through December 31, 2014. The verification and performance examination reports are available upon request. The International Growth Equity Composite, while being maintained by HGI Inc., was examined for the periods from July 31, 1996 through December 31, 2013. The HGI Inc. verification and performance examination reports are available upon request.
Results are based on fully discretionary accounts under management, including those no longer with the firm. Beginning with August 1, 2014, composite policy requires the temporary removal of any portfolio incurring a client-initiated significant cash inflow or outflow of greater than 75% of portfolio assets. Prior to August 1, 2014, there was not a significant cash flow policy. The returns presented represent past performance and do not indicate future results, which may vary.
Valuations and returns are computed and stated in U.S. Dollars. Returns are presented gross and net-of-fees and include the reinvestment of all income and are net of withholding taxes on dividends. Net returns are calculated using the highest fee of 0.75% within the product’s standard fee schedule, deducted quarterly in arrears. From inception thru December 31, 1998, the performance presented contains a certain percentage of portfolios that were mutual funds. During this time period, the net of fee mutual fund performance was used to calculate the gross of fee composite performance which was reduced by fund investment advisory fees, other fund expenses and then reduced again by the highest fee (0.75%). Period-end composite accounts using net mutual fund performance to calculate gross composite performance as a percent of total composite assets were as follows: 100% in 1996, 100% in 1997 and 28% in 1998. During some periods after December 1998 but prior to August 2014, the composite contained at least one portfolio which was net of a bundled fee consisting of trading expenses and custody costs. Both the gross and the net returns are net of the entire bundled fee. Period-end composite accounts with bundled fees as a percent of total composite assets were as follows: 0.5% in 2007, 0.5% in 2008, 0.5% in 2009, 0.5% in 2010, 0.5% in 2011, 0.3% in 2012 and 0.3% in 2013. The annual composite dispersion presented is an equal-weighted standard deviation calculated for the accounts in the composite the entire year, however, is not presented for periods when the statistic is not meaningful due to an insufficient number of portfolios in the composite over given time periods. On January 1, 2015, the three-year annualized ex-post standard deviation of the benchmarks were adjusted retroactively to coincide with the change from gross to net of withholding taxes as stated above. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.
This product’s standard fee schedule is 0.75% on the first 50 million, 0.50% on the next 100 million and 0.40% thereafter. Actual investment advisory fees incurred by clients may vary. Additional information regarding HGI LP’s fees is included in its Disclosure Brochure.
GIPS08132015
38
HANSBERGER GROWTH INVESTORS, LP (“HGI”)INTERNATIONAL ADR ONLY GROWTH EQUITY SUB-ADVISORY COMPOSITEANNUAL DISCLOSURE PRESENTATION
Composite Disclosures
N.A – Information is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year.
International ADR Only Growth Equity Sub-Advisory Composite contains fully discretionary, bundled fee accounts that invest in U.S. traded equities ofcompanies domiciled outside the U.S. Portfolio sector and regional weights are managed within a range relative to the benchmark. Cash is a residual of theinvestment process. For comparison purposes, the composite is measured against the MSCI All Country World Index Excluding U.S.A. (“MSCI ACWI exUSA), which measures the returns of equities of companies which are domiciled outside the U.S., and the MSCI EAFE Index, which measures the returns ofequities of companies domiciled in developed markets in Europe, Australasia, and the Far East. Both indexes are compiled by Morgan Stanley CapitalInternational, and are float weighted with net of dividends taxation. Investors may not invest directly in these indexes. For periods prior to August 1, 2014,the track records included here were maintained by Hansberger Global Investors, Inc., (“HGI Inc.”), an adviser not affiliated with HGI LP. See thedisclosures below regarding the acquisition of the international growth strategy assets of HGI Inc. by HGI LP after July 31, 2014. Specifically, results prior toAugust 1, 2014 are that of its International ADR Only Growth Equity Composite which contained no bundled fee accounts. The International ADR OnlyGrowth Equity Sub-Advisory Composite was created on August 1, 2014. Beginning August 1, 2014, bundled fee accounts make up 100% of the composite andthe account representing the results of the prior composite was removed.
*The firm is defined as Hansberger Growth Investors, LP (“HGI LP”), a subsidiary of Madison Asset Management, LLC, and an investment adviser registeredwith the Securities and Exchange Commission pursuant to the Investment Advisors Act of 1940. (Registration does not imply a certain level of skill ortraining.) The firm maintains a list of composite descriptions, which is available upon request. The international growth management team of HGI Inc., whowere responsible for composite performance prior to August 1, 2014, joined HGI LP on August 1, 2014.
(continued on the next page)
ⁱPartial Year: 5/31/2007– 12/31/2007
Year
End
Gross of
Fee
Return
(%)
Net of
Fee
Return
(%)
MSCI
ACWI ex
USA
Index
Return
(%)
MSCI
EAFE
Index
Return
(%)
# of
ports.
Total
composite
assets at
period
end
($Million)
Total firm
assets at
period end
($Billion)*
Composite
Dispersion
(%)
Composite 3-
Yr. Ex-Post
Standard
Deviation
(%)
MSCI
ACWI ex
USA Index
3-Yr. Ex-
Post
Standard
Deviation
(%)
MSCI EAFE
Index 3-Yr.
Ex-Post
Standard
Deviation
(%)
% of Non-
Fee
Paying
Accounts
2014 -5.2 -8.0 -3.9 -4.9 127 55.8 1.12 N.A 13.4 12.8 13.0 Less than 1%
2013 19.1 15.7 15.3 22.8 1 88.3 * N.A 19.0 16.2 16.3 Less than 1%
2012 20.9 17.4 16.8 17.3 1 75.6 * N.A 22.5 19.3 19.4 Less than 1%
2011 -18.9 -21.2 -13.7 -12.1 1 57.9 * N.A 26.2 22.7 22.4 Less than 1%
2010 14.5 11.1 11.2 7.8 1 48.4 * N.A 30.4 27.3 26.2 Less than 1%
2009 48.2 43.9 41.5 31.8 1 43.1 * N.A - - - Less than 1%
2008 -47.5 -49.3 -45.6 -43.4 1 35.5 * N.A - - - Less than 1%
2007ⁱ 8.5 6.9 4.8 0.5 1 74.2 * N.A - - - Less than 1%
39
HANSBERGER GROWTH INVESTORS, LP (“HGI”)INTERNATIONAL ADR ONLY GROWTH EQUITY SUB-ADVISORY COMPOSITEANNUAL DISCLOSURE PRESENTATION
Composite Disclosures
HGI LP claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with theGIPS standards. HGI LP has been independently verified from August 1, 2014 through December 31, 2014. The verification reports are available uponrequest. HGI Inc. was independently verified for the periods from January 1, 1995 through December 31, 2013. The HGI Inc. verification reports are availableupon request.
Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2)the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure theaccuracy of any specific composite presentation.
Results are based on fully discretionary accounts under management, including those no longer with the firm. Beginning with August 1, 2014, compositepolicy requires the temporary removal of any portfolio incurring a client-initiated significant cash inflow or outflow of greater than 75% of portfolio assets.Prior to August 1, 2014, there was not a significant cash flow policy. The returns presented represent past performance and do not indicate future results,which may vary.
Valuations and returns are computed and stated in U.S. Dollars. Returns are presented gross and net-of-fees and include the reinvestment of all income and arenet of withholding taxes on dividends. Gross returns are shown as supplemental information. Net returns are reduced by the highest annual bundled fee of3.00%, deducted quarterly in arrears. Benchmark returns are presented net of withholding taxes. Dispersion is calculated using the standard deviation of allaccounts in the composite for the entire period, however, is not presented for periods when the statistic is not meaningful due to an insufficient number ofportfolios in the composite over given time periods. Policies for valuing portfolios, calculating performance, and preparing compliant presentations areavailable upon request.
This product’s standard fee schedule is as follows: 0.75% annually on the first 50 million; 0.50% annually on the next 100 million; 0.40% annually on thebalance. Wrap fee schedules are provided by independent wrap sponsors and are available upon request from the respective wrap sponsor. Actual investmentadvisory fees incurred by clients may vary. Additional information regarding HGI LP’s fees is included in its Disclosure Brochure.
GIPS08132015
40
Attribution Explanation
The attribution report can provide insight into the source of a portfolio’s performance relative to the benchmark. The model attributes return by dividing the market into categories based on sectors or regions. The report breaks the return down into three components: allocation, security selection, and currency. Using different categories and components will yield different results.
Allocation Contribution is the portion of the active return (portfolio return minus benchmark return) attributable to having different sector/regional weights than the benchmark. The calculation is the portfolio’s active weight in the sector/region (portfolio weight minus benchmark weight) times the sector/region’s excess return (benchmark sector/region return minus the overall benchmark return).
Security Selection Contribution is the portion of the active return resulting from holding different securities, or having different weights on individual securities, than the benchmark. The calculation is the portfolio’s weight in the sector/region times the portfolio’s active return in the sector/region (portfolio sector/region return minus the benchmark’s sector/region return). This formula combines security selection with the interaction effect.
Currency Contribution is the portion of the active return attributable to holding a different mix of currencies than the benchmark. Due to system limitations, in order to correctly calculate the currency impact the underlying (parent) securities are used for ADRs and similar issues. However, in cases where the underlying security also does not trade in the local currency, the currency will be incorrect and some of the return may be reflected under Selection.
This attribution is calculated on a daily buy-and-hold basis using each day’s portfolio and benchmark holdings. Actual transactions, and their costs, are not included in the analysis. Individual day results are linked together to produce longer period reports. Total portfolio return is calculated externally and input into the finished report. The portfolio return calculated by the attribution system may differ.
For periods in excess of one year, returns are annualized. Other effects such as contribution are scaled to have the same relative impact on the active return as they had prior to being annualized.
FactSet’s attribution methodology employs the GRAP method of “smoothing” residuals in order to make the items on the report add up to the correct number.
When ETFs are held in the portfolio, FactSet “looks-through” to the underlying index’s holdings.
Caribbean countries are included in Latin America for emerging market portfolio attribution and in Emerging Markets in attribution for portfolios that include developed markets. Developed Middle Eastern countries appear in Europe for portfolios that include developed markets.
41
Important Disclosures
Benchmark Disclosures
The MSCI All-Country World ex USA Index (MSCI ACWI ex USA), an equity index calculated by Morgan Stanley Capital International, measures the total
returns (net of local withholding taxes reinvested) of equity securities of companies domiciled outside the US. Securities included in the index are
weighted according to their float (available shares outstanding times price).
The MSCI EAFE Index (MSCI EAFE), an equity index calculated by Morgan Stanley Capital International, measures the total returns (net of local
withholding taxes reinvested) of equity securities of companies domiciled in developed markets in Europe, Australasia and the Far East. Securities
included in the index are weighted according to their float (available shares outstanding times price).
The MSCI All-Country World (MSCI ACWI), an equity index calculated by Morgan Stanley Capital International, measures the total returns (net of local
withholding taxes reinvested) of equity securities globally. Securities included in the index are weighted according to their float (available shares
outstanding times price).
Past performance does not guarantee future results.
The commentary reflects the opinions of Hansberger Growth Investors, LP (HGI) and has been developed from sources that HGI believes to be reliable.
MSCI index weights and characteristics calculated by HGI are based on index constituent data. HGI does not guarantee the accuracy or completeness of
such information. This economic overview is provided for informational purposes only and is not meant as investment advice. There is no assurance that
any predictions or projections will occur. This material is dated as indicated, and opinions and viewpoints may change as economic conditions change.
The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance
that any securities discussed herein will remain in the portfolio at the time you receive this report or that securities sold have not been repurchased. The
securities discussed do not represent the entire portfolio and in the aggregate may represent only a small percentage of the portfolio’s holdings.
It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable, or that the investment
recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.
M E M O R A N D U M
Date: February 24, 2016
To: Oakland Police and Fire Retirement System (OPFRS)
From: Pension Consulting Alliance, LLC (PCA)
CC: David Sancewich – PCA
Sean Copus – PCA
Teir Jenkins – OPFRS
Katano Kasaine - OPFRS
RE: Hansberger Global Investors – Update
Discussion
In reviewing Hansberger, PCA considered investment performance and recent organizational /
personnel issues.
Investment Performance (as of 12/31/2015)
Manager Mkt Value
($000) Asset Class Quarter 1 YR 3 YR 5 YR
Since
Inception*
Inception
Date**
Hansberger 15,185 International 4.2 1.6 4.1 2.2 3.6 1/2006
MSCI ACWI x US --- --- 3.3 -5.3 1.9 1.5 3.4 ---
** Inception date reflects the month when portfolio received initial funding.
Peer Performance Comparison – Annualized Returns (as of 12/31/2015)
Manager Quarter Rank 1 Year Rank 3 Year Rank 5 Year Rank 7 Year Rank
Hansberger1 4.5 55 2.0 34 4.3 62 2.4 75 9.7 54
MSCI ACWI ex-US Median2 4.7 --- -0.5 --- 5.3 --- 4.1 --- 10.1 ---
MSCI EAFE Median3 4.7 --- 1.4 --- 6.4 --- 5.1 --- 9.7 ---
1 Represents eVestment Alliance composite returns, Ranking is vs. MSCI ACWI ex-US peer group
2 Peer group represents all eVestment Alliance ACWI ex-US Equity Managers
3 For comparison purposes only
Since being retained as OPFRS’s active international equity manager in January 2006,
Hansberger has outperformed its benchmark, the MSCI ACWI ex-US index, over all time periods
measured. This includes a very strong 2015, which saw Hansberger outperform its benchmark by
6.9% over the calendar year. When compared to its eVestment Alliance peers, the Hansberger
International Growth Equity performed well over the past year, but lagged the median manager
over the 3-, 5-, and 7-year periods.
Organizational Issues
Since being installed as one of OPFRS’s active international equity managers in 2011, there has
been considerable change to the organization and investment team. In early 2013,
Hansberger’s value equity product lost over a billion in assets when one of its largest clients,
2
Vanguard, pulled out of the product. This led to a downsizing and then eventual separation of
the value equity product from the Hansberger origination. However, despite this disruption, the
Hansberger growth equity team and product did not experience any changes. Later, in April
2014, Hansberger Global Investors announced that it would partner with Madison Asset
Management to form a new stand-alone entity titled Hansberger Growth Investors, LP. The
Hansberger Growth team completed its transition to Madison Asset Management’s back office
system on August 1, 2014.
The significant organization changes resulted in the loss of several clients, a significant reduction
in product AUM, and a downsizing of the investment team; all of which resulted in Hansberger’s
current “Watch” status. Although the changes were troubling, PCA believed that the new
organizational structure and increased employee ownership was a positive attribute and could
help to reinvigorate investment performance. Since PCA’s last Watch memo regarding
Hansberger in September 2015, there have been no further changes to the investment team
and the international growth product’s total AUM and number of institutional clients seems to
have stabilized at approximately $500 million and 14, respectively.
Investment Philosophy & Process, per manager
Hansberger’s international growth equity philosophy is founded on the premise that superior
growth companies with attractive valuations provide the best opportunities for investment.
Hansberger believes that investors should seek to identify those companies, internationally, that
have consistently exhibited the ability to maintain a competitive market advantage through
innovative product design, exceptional management, strong market share and superior
profitability. Hansberger starts from a higher quality investment universe than most managers,
and their philosophy is applied using a disciplined mix of proprietary quantitative and qualitative
methodologies.
Hansberger’s approach to portfolio construction incorporates a matrix framework that allows
them to maintain clarity and precision regarding industry and regional weightings. Hansberger’s
matrix system is proprietary and provides them with the ability to monitor portfolio weightings
across industries and regions. Industry and regional considerations are top-down and are driven
by macro-economic considerations. A proprietary matrix was developed as a tool for analyzing
the overall portfolio structure relative to the benchmark, and allows Hansberger to analyze the
portfolio structure from a regional as well as industry perspective. The matrix is constructed with
regions depicted in columns and industries depicted in rows with appropriate data provided for
the portfolio as well as for the index (ACWI ex US) in the columns and rows. This information is
used to identify unintended exposures within the portfolio and monitor allocations to both
regions and industries on an ongoing basis.
3
DISCLOSURES: This document is provided for informational purposes only. It does not constitute an offer of securities of any of the issuers
that may be described herein. Information contained herein may have been provided by third parties, including investment firms
providing information on returns and assets under management, and may not have been independently verified. The past performance
information contained in this report is not necessarily indicative of future results and there is no assurance that the investment in question
will achieve comparable results or that the Firm will be able to implement its investment strategy or achieve its investment objectives. The
actual realized value of currently unrealized investments (if any) will depend on a variety of factors, including future operating results, the
value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of
which may differ from the assumptions and circumstances on which any current unrealized valuations are based.
Neither PCA nor PCA’s officers, employees or agents, make any representation or warranty, express or implied, in relation to the accuracy
or completeness of the information contained in this document or any oral information provided in connection herewith, or any data
subsequently generated herefrom, and accept no responsibility, obligation or liability (whether direct or indirect, in contract, tort or
otherwise) in relation to any of such information. PCA and PCA’s officers, employees and agents expressly disclaim any and a ll liability
that may be based on this document and any errors therein or omissions therefrom. Neither PCA nor any of PCA’s officers, employees or
agents, make any representation of warranty, express or implied, that any transaction has been or may be effected on the terms or in the
manner stated in this document, or as to the achievement or reasonableness of future projections, management targets, estimates,
prospects or returns, if any. Any views or terms contained herein are preliminary only, and are based on financial, economic, market and
other conditions prevailing as of the date of this document and are therefore subject to change.
The information contained in this report may include forward-looking statements. Forward-looking statements include a number of risks,
uncertainties and other factors beyond the control of the Firm, which may result in material differences in actual results, performance or
other expectations. The opinions, estimates and analyses reflect PCA’s current judgment, which may change in the future.
Any tables, graphs or charts relating to past performance included in this report are intended only to illustrate investment performance for
the historical periods shown. Such tables, graphs and charts are not intended to predict future performance and should not be used as
the basis for an investment decision.
All trademarks or product names mentioned herein are the property of their respective owners. Indices are unmanaged and one cannot
invest directly in an index. The index data provided is on an “as is” basis. In no event shall the index providers or its affiliates have any
liability of any kind in connection with the index data or the portfolio described herein. Copying or redistributing the index data is strictly
prohibited.
The Russell indices are either registered trademarks or tradenames of Frank Russell Company in the U.S. and/or other countries.
The MSCI indices are trademarks and service marks of MSCI or its subsidiaries.
Standard and Poor’s (S&P) is a division of The McGraw-Hill Companies, Inc. S&P indices, including the S&P 500, are a registered trademark
of The McGraw-Hill Companies, Inc.
CBOE, not S&P, calculates and disseminates the BXM Index. The CBOE has a business relationship with Standard & Poor's on the BXM.
CBOE and Chicago Board Options Exchange are registered trademarks of the CBOE, and SPX, and CBOE S&P 500 BuyWrite Index BXM are
servicemarks of the CBOE. The methodology of the CBOE S&P 500 BuyWrite Index is owned by CBOE and may be covered by one or more
patents or pending patent applications.
The Barclays Capital indices (formerly known as the Lehman indices) are trademarks of Barclays Capital, Inc.
The Citigroup indices are trademarks of Citicorp or its affiliates.
The Merrill Lynch indices are trademarks of Merrill Lynch & Co. or its affiliates.
FTSE is a trademark of the London Stock Exchange Group companies and is used by FTSE under license. All rights in the FTSE indices and/or
FTSE ratings vest in FTSE and/or its licensors. No further distribution of FTSE data is permitted with FTSE’s express written consent.
February 2016
PCA INVESTMENT MARKET RISK METRICS
Monthly Report
PENSION CONSULTING ALLIANCE, LLC.• Investment Market Risk Metrics 2
• Equity volatility rose significantly in January 2016, and the U.S. equity market declined by over 5% .
• Prices of all growth risk exposed assets (equities, credit) declined.
• Commodity prices continued their five-year decline, as equities and oil prices traded in tandem for much of the month.
• The PCA Market Sentiment Indicator turned red at month end. The spread element of the indicator has been negative since last year; and, year-over-year equity returns followed suit in January. (page 4) PCA will be looking to see if this sentiment signal is confirmed in coming months.
• While U.S. public equity valuations dropped out of top decile levels, they are still at high valuation levels relative to history. Non-U.S. equity valuations continue to cheapen.
• Credit spreads have widened to above average levels, indicating falling valuation levels for credit(cheaper relative to their history).
• Low levels of global inflation, driven by commodity price declines, are weighing on markets. Breakeven inflation (page 10) dropped below 1.5% to levels not seen since the financial crisis.
Takeaways
1See Appendix for the rationale for selection and calculation methodology used for the risk metrics.
Monthly Report - February 2016
Risk Overview
US Equity(page 5)
Dev ex-USEquity
(page 5)
EM EquityRelative toDM Equity
(page 6)
PrivateEquity
(page 6)
PrivateReal
EstateCap Rate(page 7)
PrivateReal
EstateSpread
(page 7)
US IG CorpDebt
Spread(page 8)
US HighYield Debt
Spread(page 8)
Valuation Metrics versus Historical Range A Measure of Risk
Top Decile
Bottom Decile
Average
UnfavorablePricing
Favorable Pricing
Neutral
Equity Volatility(page 9)
Yield Curve Slope(page 9)
Breakeven Inflation(page 10)
Interest Rate Risk(page 11)
Other Important Metrics within their Historical RangesPay Attention to Extreme Readings
Top Decile
Bottom Decile
Average
Attention!
Attention!
Neutral
PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 3
Monthly Report - February 2016
Market Sentiment
Information Behind Current Sentiment Reading
Bond Spread Momentum Trailing‐Twelve Months Negative
Equity Return Momentum Trailing‐Twelve Months Negative
Agreement Between Bond Spread and Equity Spread Momentum Measures? Agree -1
Growth Risk Visibility (Current Overall Sentiment) Negative
PCA Market Sentiment Indicator (1995‐Present)
Avoid Growth Risk Growth Risk Neutral Embrace Growth Risk PCA Sentiment Indicator
Positive
Negative
Neutral
Positive
Neutral
Negative
PCA Market Sentiment Indicator ‐ Most Recent 3‐Year Period
Avoid Growth Risk Growth Risk Neutral Embrace Growth Risk PCA Sentiment Indicator
Positive
Negative
Neutral
Positive
Neutral
Negative
PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 4
Monthly Report - February 2016
Developed Public Equity Markets
(Please note the different time scales)
0
5
10
15
20
25
30
35
40
45
P/E
Rat
io
Developed ex-US Equity Market P/E Ratio1
versus Long-Term Historical Average2
Long-Term Average
Historical 2
P/E = 16.9x
Intl Developed Markets Current P/E as of 1/2016
= 13.1x
1 P/E ratio is a Shiller P/E-10 based on 10 year real MSCI EAFE earnings over EAFE index level.
2 To calculate the LT historical average, from 1881 to 1982 U.S. data is used as developed market proxy. From 1982 to present, actual developed ex-US market data (MSCI EAFE) is used.
Average 1982-1/2016 EAFE
Only P/E = 23.8x
0
5
10
15
20
25
30
35
40
45
50
P/E
Rat
io
U.S. Equity Market P/E Ratio1
versus Long-Term Historical Average
1966
2000
19811921
1929
US MarketsLong-term Average
(since 1880) P/E = 16.6x
US Markets Current P/E
as of 1/2016 = 24.3x
1 P/E ratio is a Shiller P/E-10 based on 10 year real S&P 500 earnings over S&P 500 index level.
2009
1901
PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 5
Monthly Report - February 2016
Emerging Market Public Equity Markets
US Private Equity Quarterly Data, Updated to Dec. 31st
0%
25%
50%
75%
100%
125%
150%
175%
200%
225%
250%
275%
Emerging Markets PE / Developed Markets PE(100% = Parity between PE Ratios)
EM/DM PE Average EM/DM PE ParitySource: Bloomberg, MSCI World, MSCI EMF
Asian Crisis
Russian Crisis, LTCM implosion, currency devaluations
Technology and Telecom Crash
Commodityprice runup
WorldFinancial Crisis
EM/DM relative PE ratio is slightly below
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Price to EBITDA Multiples Paid in LBOs
(updated to Dec 31st)
Source: S&P LCD study, data presented is on 1-month lag
Average since 1997.
0
50
100
150
200
250
Bill
ion
s ($
)
Disclosed U.S. Quarterly Deal Volume*
Source: Thomson Reuters Buyouts* quarterly total deal size (both equity and debt)
Deal volumeremains in an upward trend.
Multiples have risen above the pre-crisis highs.
Mexican Peso Crisis
PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 6
Monthly Report - February 2016
Private Real Estate Markets Quarterly Data, Updated to Dec. 31st
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%
10.0%
Cap
Rate
Core Real Estate Current Value Cap Rates1
Core Cap RateLT Average Cap Rate10 Year Treasury Rate
Sources: NCRIEF, www.ustreas.gov 1A cap rate is the current annual income of the property divided by an estimate of the current value of the property . It is the current yield of the property. Low cap rates indicate high valuations.
Core real estate cap rates remain low by historical standards (expensive).
0.00%
5.00%
10.00%
15.00%
20.00%
Transactions as a % of Market Value Trailing-Four Quarters (a measure of property turnover activity)
Source: NCREIF, PCA calculation
Activity has plateaued over the last 2-year period.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Cap
Rate
Sp
read
Core Cap Rate Spread over 10-Year Treasury Interest Rate
Core Cap Rate Spread to Treasuries
LT Average Spread
Spread to the 10-year Treasury is in-line with the long-term average level.
PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 7
Monthly Report - February 2016
Credit Markets US Fixed Income
0
100
200
300
400
500
600
700
Spre
ad O
ver
Tre
asu
rie
s (b
asis
po
ints
)
Investment Grade Corporate Bond Spreads
InvestmentGrade BondSpreads
Averagespreadsince 1994(IG Bonds)
Source: LehmanLive: Barclays Capital US Corporate Investment Grade Index Intermediate Component.
Investment grade spreads widened considerably during January, ending the month moderately above the long-term average level.
0
200
400
600
800
1000
1200
1400
1600
1800
Spre
ad O
ver
Tre
asu
rie
s (b
asis
po
ints
)
High Yield Corporate Bond Spreads
High YieldBondSpreads
Averagespreadsince 1994(HY Bonds)
Source: LehmanLive: Barclays Capital U.S. Corporate High Yield Index.
High yield spreads also expanded markedly during January and remain meaningfully above the long-term average level.
PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 8
Monthly Report - February 2016
Other Market Metrics
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
VIX - a measure of equity market fear / uncertainty
Source: http://www.cboe.com/micro/vix/historical.aspx
Equity market volatility (VIX) rose during January but ended the month in-line with the long-term average level (≈ 20) at 20.2.
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Yield Curve Slope
Source: www.ustreas.gov (10 yr treasury yield minus 1 year treasury yield)Recession Dating: NBER http://www.nber.org/cycles.html
Yield curve slopes that are negative (inverted) portend a recession.
The average 10-year and one-year Treasury interest rates slightly decreased in January.
PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 9
Monthly Report - February 2016
Measures of Inflation Expectations
(Please note the different time scales)
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
10-Year Breakeven Inflation(10-year nominal Treasury yield minus 10-year TIPS yield)
Source: www.ustreas.gov
Breakeven inflation ended January at 1.41%, decreasing from the end of December. The 10-year TIPS real-yield decreased to 0.53% and the nominal 10-year Treasury yield decreased to 1.94%.
0
20
40
60
80
100
120
140
160
Inflation Adjusted Dow Jones UBS Commodity Price Index (1991 = 100)
Broad commodity prices continued to fall during January, ending the month
Source: Bloomberg Commodity Index, St. Louis Fed for US CPI all urban consumers.
PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 10
Monthly Report - February 2016
Measures of U.S. Treasury Interest Rate Risk
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Exp
ect
ed
Re
al Y
ield
of
10
-Ye
ar T
reas
ury
Estimate of 10-Year Treasury Forward-Looking Real Yield
Sources: www.ustreas.gov for 10-year constant maturity rates*Federal Reserve Bank of Philadelphia survey of professional forecasts for inflation estimates
The forward-looking annual real yield on 10-year Treasuries is estimated at approximately -0.06% real, assuming 10-year annualized inflation of 2.15%* per year.
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10
-Ye
ar T
reas
ury
Bo
nd
Du
rati
on
10-Year Treasury Duration (Change in Treasury price with a change in interest rates)
Source: www.ustreas.gov for 10-year constant maturity rates, calculation of duration
Lower Risk
Higher RiskInterest rate risk is off the 30 year high but not by much.
If the 10-year Treasury yield rises by 100 basis points from today's levels, the capital loss from the change in price is expected to be -8.9%.
PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 11
PENSION CONSULTING ALLIANCE, LLC • Investment Market Risk Metrics
Appendix
PENSION CONSULTING ALLIANCE, LLC • Investment Market Risk Metrics
Appendix
METRIC DESCRIPTION, RATIONALE FOR SELECTION AND CALCULATION METHODOLOGY
US Equity Markets:
Metric: P/E ratio = Price / “Normalized” earnings for the S&P 500 Index
To represent the price of US equity markets, we have chosen the S&P 500 index. This index has thelongest published history of price, is well known, and also has reliable, long-term, published quarterlyearnings. The price=P of the P/E ratio is the current price of the market index (the average daily price ofthe most recent full month for the S&P 500 index). Equity markets are very volatile. Prices fluctuatesignificantly during normal times and extremely during periods of market stress or euphoria. Therefore,developing a measure of earnings power (E) which is stable is vitally important, if the measure is toprovide insight. While equity prices can and do double, or get cut in half, real earnings power does notchange nearly as much. Therefore, we have selected a well known measure of real, stable earningspower developed by Yale Professor Robert Shiller known as the Shiller E-10. The calculation of E-10 issimply the average real annual earnings over the past 10 years. Over 10 years, the earnings shenanigansand boom and bust levels of earnings tend to even out (and often times get restated). Therefore, thisearnings statistic gives a reasonably stable, slow-to-change estimate of average real earnings power forthe index. Professor Shiller’s data and calculation of the E-10 are available on his website athttp://www.econ.yale.edu/~shiller/data.htm. We have used his data as the base for our calculations.Details of the theoretical justification behind the measure can be found in his book Irrational Exuberance[Princeton University Press 2000, Broadway Books 2001, 2nd ed., 2005].
Developed Equity Markets Excluding the US:
Metric: P/E ratio = Price / “Normalized” earnings for the MSCI EAFE Index
To represent the price of non-US developed equity markets, we have chosen the MSCI EAFE index. Thisindex has the longest published history of price for non-US developed equities. The price=P of the P/Eratio is the current price of the market index (the average daily price of the most recent full month for theMSCI EAFE index). The price level of this index is available starting in December 1969. Again, for thereasons described above, we elected to use the Shiller E-10 as our measure of earnings (E). Since12/1972, a monthly price earnings ratio is available from MSCI. Using this quoted ratio, we have backedout the implied trailing-twelve month earnings of the EAFE index for each month from 12/1972 to thepresent. These annualized earnings are then inflation adjusted using CPI-U to represent real earnings inUS dollar terms for each time period. The Shiller E-10 for the EAFE index (10 year average real earnings) iscalculated in the same manner as detailed above.
However, we do not believe that the pricing and earnings history of the EAFE markets are long enough tobe a reliable representation of pricing history for developed market equities outside of the US. Therefore,in constructing the Long-Term Average Historical P/E for developed ex-US equities for comparisonpurposes, we have elected to use the US equity market as a developed market proxy, from 1881 to 1982.This lowers the Long-Term Average Historical P/E considerably. We believe this methodology provides amore realistic historical comparison for a market with a relatively short history.
PENSION CONSULTING ALLIANCE, LLC • Investment Market Risk Metrics
Appendix
METRIC DESCRIPTION, RATIONALE FOR SELECTION AND CALCULATION METHODOLOGY
Emerging Market Equity Markets:
Metric: Ratio of Emerging Market P/E Ratio to Developed Market P/E Ratio
To represent the Emerging Markets P/E Ratio, we have chosen the MSCI Emerging Market Free Index, whichhas P/E data back to January 1995 on Bloomberg. To represent the Developed Markets PE Ratio, we havechosen the MSCI World Index, which also has data back to January 1995 on Bloomberg. Although thereare issues with published, single time period P/E ratios, in which the denominator effect can cause largemovements, we feel that the information contained in such movements will alert investors to market activitythat they will want to interpret.
US Private Equity Markets:
Metrics: S&P LCD Average EBITDA Multiples Paid in LBOs and US Quarterly Deal Volume
The Average Purchase Price to EBITDA multiples paid in LBOs is published quarterly by S&P in their LCD study.This is the total price paid (both equity and debt) over the trailing-twelve month EBITDA (earnings beforeinterest, taxes, depreciation and amortization) as calculated by S&P LCD. This is the relevant, high-levelpricing metric that private equity managers use in assessing deals. Data is published monthly.
US quarterly deal volume for private equity is the total deal volume in $ billions (both equity and debt)reported in the quarter by Thomson Reuters Buyouts. This metric gives a measure of the level of activity inthe market. Data is published quarterly.
U.S Private Real Estate Markets:
Metrics: US Cap Rates, Cap Rate Spreads, and Transactions as a % of Market Value
Real estate cap rates are a measure of the price paid in the market to acquire properties versus theirannualized income generation before financing costs (NOI=net operating income). The data, published byNCREIF, describes completed and leased properties (core) on an unleveraged basis. We chose to usecurrent value cap rates. These are capitalization rates from properties that were revalued during thequarter. This data relies on estimates of value and therefore tends to be lagging (estimated prices areslower to rise and slower to fall than transaction prices). The data is published quarterly.
Spreads between the cap rate (described above) and the 10-year nominal Treasury yield, indicate ameasure of the cost of properties versus a current measure of the cost of financing.
Transactions as a % of Market Value Trailing-Four Quarters is a measure of property turnover activity in theNCREIF Universe. This quarterly metric is a measure of activity in the market.
Credit Markets US Fixed Income:
Metric: Spreads
The absolute level of spreads over treasuries and spread trends (widening / narrowing) are good indicatorsof credit risk in the fixed income markets. Spreads incorporate estimates of future default, but can also bedriven by technical dislocations in the fixed income markets. Abnormally narrow spreads (relative tohistorical levels) indicate higher levels of valuation risk, wide spreads indicate lower levels of valuation riskand / or elevated default fears. Investment grade bond spreads are represented by the Barclays CapitalUS Corporate Investment Grade Index Intermediate Component. The high yield corporate bond spreadsare represented by the Barclays Capital US Corporate High Yield Index.
PENSION CONSULTING ALLIANCE, LLC • Investment Market Risk Metrics
Appendix
METRIC DESCRIPTION, RATIONALE FOR SELECTION AND CALCULATION METHODOLOGY
Measure of Equity Market Fear / Uncertainty
Metric: VIX – Measure of implied option volatility for U.S. equity markets
The VIX is a key measure of near-term volatility conveyed by implied volatility of S&P 500 index optionprices. VIX increases with uncertainty and fear. Stocks and the VIX are negatively correlated. Volatilitytends to spike when equity markets fall.
Measure of Monetary Policy
Metric: Yield Curve Slope
We calculate the yield curve slope as the 10 year treasury yield minus the 1 year treasury yield. When theyield curve slope is zero or negative, this is a signal to pay attention. A negative yield curve slope signalslower rates in the future, caused by a contraction in economic activity. Recessions are typicallypreceded by an inverted (negatively sloped) yield curve. A very steep yield curve (2 or greater)indicates a large difference between shorter-term interest rates (the 1 year rate) and longer-term rates(the 10 year rate). This can signal expansion in economic activity in the future, or merely higher futureinterest rates.
Measures of US Inflation Expectations
Metrics: Breakeven Inflation and Inflation Adjusted Commodity Prices
Inflation is a very important indicator impacting all assets and financial instruments. Breakeven inflation iscalculated as the 10 year nominal treasury yield minus the 10 year real yield on US TIPS (treasury inflationprotected securities). Abnormally low long-term inflation expectations are indicative of deflationary fears.A rapid rise in breakeven inflation indicates an acceleration in inflationary expectations as marketparticipants sell nominal treasuries and buy TIPs. If breakeven inflation continues to rise quarter overquarter, this is a signal of inflationary worries rising, which may cause Fed action and / or dollar decline.
Commodity price movement (above the rate of inflation) is an indication of anticipated inflation causedby real global economic activity putting pressure on resource prices. We calculate this metric byadjusted in the Dow Jones UBS Commodity Index (formerly Dow Jones AIG Commodity Index) by US CPI-U.While rising commodity prices will not necessarily translate to higher US inflation, higher US inflation will likelyshow up in higher commodity prices, particularly if world economic activity is robust.
These two measures of anticipated inflation can, and often are, conflicting.
Measures of US Treasury Bond Interest Rate Risk
Metrics: 10-Year Treasury Forward-Looking Real Yield and 10-Year Treasury Duration
The expected annualized real yield of the 10 year U.S. Treasury Bond is a measure of valuation risk for U.S.Treasuries. A low real yield means investors will accept a low rate of expected return for the certainly ofreceiving their nominal cash flows. PCA estimates the expected annualized real yield by subtracting anestimate of expected 10 year inflation (produced by the Survey of Professional Forecasters as collectedby the Federal Reserve Bank of Philadelphia), from the 10 year Treasury constant maturity interest rate.
Duration for the 10-Year Treasury Bond is calculated based on the current yield and a price of 100. This is ameasure of expected percentage movements in the price of the bond based on small movements inpercentage yield. We make no attempt to account for convexity.
Definition of “extreme” metric readings
A metric reading is defined as “extreme” if the metric reading is in the top or bottom decile of its historicalreadings. These “extreme” reading should cause the reader to pay attention. These metrics havereverted toward their mean values in the past.
PCA Market Sentiment Indicator
Explanation, Construction and Q&A
© 2012 Pension Consulting Alliance, LLC. Reproduction of all or any part of this report is permissible ifreproduction contains notice of Pension Consulting Alliance’s copyright as follows: “Copyright © 2012by Pension Consulting Alliance, LLC.” Information is considered to be reliable but not guaranteed.This report is not intended to be an offer, solicitation, or recommendation to purchase any security ora recommendation of the services supplied by any money management organization unlessotherwise noted.
By:
Pension Consulting Alliance, LLC.
John Linder, CFA, CPA
Neil Rue, CFA
PCA has created the PCA Market Sentiment Indicator (PMSI) tocomplement our valuation-focused PCA Investment Market RiskMetrics. This measure of sentiment is meant to capture significantand persistent shifts in long-lived market trends of economic growthrisk, either towards a risk-seeking trend or a risk-aversion trend.
This paper explores:
What is the PCA Market Sentiment Indicator (PMSI)? How do I read the indicator graph? How is the PCA Market Sentiment Indicator (PMSI) constructed? What do changes in the indicator mean?
PENSION CONSULTING ALLIANCE, LLC • Investment Market Risk Metrics
PCA has created a market sentiment indicator for monthly publication (the PMSI – see below) tocomplement PCA’s Investment Market Risk Metrics.
PCA’s Investment Market Risk Metrics, which rely significantly on standard market measures ofrelative valuation, often provide valid early signals of increasing long-term risk levels in the globalinvestment markets. However, as is the case with numerous valuation measures, the Risk Metricsmay convey such risk concerns long before a market corrections take place. The PMSI helps toaddress this early-warning bias by measuring whether the markets are beginning to acknowledgekey Risk Metrics trends, and / or indicating non-valuation based concerns. Once the PMSIindicates that the market sentiment has shifted, it is our belief that investors should considersignificant action, particularly if confirmed by the Risk Metrics. Importantly, PCA believes the RiskMetrics and PMSI should always be used in conjunction with one another and never in isolation.The questions and answers below highlight and discuss the basic underpinnings of the PCA PMSI:
What is the PCA Market Sentiment Indicator (PMSI)?The PMSI is a measure meant to gauge the market’s sentiment regarding economic growth risk.Growth risk cuts across most financial assets, and is the largest risk exposure that most portfoliosbear. The PMSI takes into account the momentum (trend over time, positive or negative) of theeconomic growth risk exposure of publicly traded stocks and bonds, as a signal of the futuredirection of growth risk returns; either positive (risk seeking market sentiment), or negative (riskaverse market sentiment).
How do I read the PCA Market Sentiment Indicator (PMSI) graph?Simply put, the PMSI is a color coded indicator that signals the market’s sentiment regardingeconomic growth risk. It is read left to right chronologically. A green indicator on the PMSIindicates that the market’s sentiment towards growth risk is positive. A gray indicator indicates thatthe market’s sentiment towards growth risk is neutral or inconclusive. A red indicator indicates thatthe market’s sentiment towards growth risk is negative. The black line on the graph is the level ofthe PMSI. The degree of the signal above or below the neutral reading is an indication the signal’scurrent strength.
Momentum as we are defining it is the use of the past behavior of a series as a predictor of itsfuture behavior.
PCA Market Sentiment Indicator (1995 - Present)
Avoid Growth Risk Growth Risk Neutral Embrace Growth Risk PCA Sentiment Indicator
Positive
Negative
Neutral
Positive
Neutral
Negative
PCA Market Sentiment Indicator
PENSION CONSULTING ALLIANCE, LLC • Investment Market Risk Metrics
How is the PCA Market Sentiment Indicator (PMSI) Constructed?
The PMSI is constructed from two sub-elements representing investor sentiment in stocks andbonds:
1. Stock return momentum: Return momentum for the S&P 500 Equity Index (trailing 12-months)2. Bond yield spread momentum: Momentum of bond yield spreads (excess of the measured
bond yield over the identical duration U.S. Treasury bond yield) for corporate bonds (trailing12-months) for both investment grade bonds (75% weight) and high yield bonds (25% weight).The scale of this measure is adjusted to match that of the stock return momentum measure.
The black line reading on the graph is calculated as the average of the stock return momentummeasure and the bonds spread momentum measure. The color reading on the graph isdetermined as follows:
1. If both stock return momentum and bond spread momentum are positive = GREEN (positive)2. If one of the momentum indicators is positive, and the other negative = GRAY (inconclusive)3. If both stock return momentum and bond spread momentum are negative = RED (negative)
What does the PCA Market Sentiment Indicator (PMSI) mean? Why might it be useful?
There is strong evidence that time series momentum is significant and persistent. In particular,across an extensive array of asset classes, the sign of the trailing 12-month return (positive ornegative) is indicative of future returns (positive or negative) over the next 12 month period. ThePMSI is constructed to measure this momentum in stocks and corporate bond spreads. A readingof green or red is agreement of both the equity and bond measures, indicating that it is likely thatthis trend (positive or negative) will continue over the next 12 months. When the measuresdisagree, the indicator turns gray. A gray reading does not necessarily mean a new trend isoccurring, as the indicator may move back to green, or into the red from there. The level of thereading (black line) and the number of months at the red or green reading, gives the useradditional information on which to form an opinion, and potentially take action.
I Momentum as we are defining it is the use of the past behavior of a series as a predictor of its future behavior.
ii “Time Series Momentum” Moskowitz, Ooi, Pedersen, August 2010
http://pages.stern.nyu.edu/~lpederse/papers/TimeSeriesMomentum.pdf
PCA Market Sentiment Indicator
4Q 2015 OAKLAND POLICE & FIRE RETIREMENT SYSTEM
QUARTERLY PERFORMANCE REPORT
This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Pension Consulting Alliance, LLC Nothing herein is intended to serve as investment advice, a recommendation of any particular investment or type of investment, a suggestion of the merits of purchasing or selling securities, or an invitation or inducement to engage in investment activity.
OPFRS Quarterly Report – 4Q 2015
2
TABLE OF CONTENTS
A TOTAL PORTFOLIO SUMMARY
B INVESTMENT MARKET RISK METRICS
C ECONOMIC OVERVIEW
D TOTAL PORTFOLIO REVIEW
E MANAGER MONITORING / PROBATION LIST
F INDIVIDUAL MANAGER PERFORMANCE
Appendix
OPFRS Quarterly Report – 4Q 2015
3
TOTAL PORTFOLIO SUMMARY As of December 31, 2015, the City of Oakland Police and Fire Retirement System (OPFRS) portfolio had an aggregate value of $386.8 million. This represents a ($1.1) million decrease in value, which includes ($15) million in benefit payments, over the quarter. During the previous one-year period, the OPFRS Total Portfolio decreased by ($57.3) million, including ($60) million in withdrawals during the period. Asset Allocation Trends The asset allocation targets (see table on page 80) reflect those as of December 31, 2015. Target weightings reflect the Plan’s evolving asset allocation (effective 3/31/2014). With respect to policy targets, the portfolio ended the latest quarter overweight Domestic Equity, Covered Calls, and cash, while underweight International Equity, Fixed Income, and Real Return. Recent Investment Performance During the most recent quarter, the OPFRS Total Portfolio generated an absolute return of 3.6%, gross of fees, underperforming its policy benchmark by (20) basis points. The portfolio has also underperformed its benchmark over the fiscal YTD and latest 1-year period, while continuing to outperform over the 3- and 5-year periods. The Total Portfolio outperformed the Median fund’s return over the most recent quarter, 1-, and 3-year periods, while underperforming the Median fund’s return over the fiscal YTD and 5-year period. Performance differences with respect to the Median Fund continue to be attributed largely to differences in asset allocation.
Quarter Fiscal YTD 1 Year 3 Year 5 Year
Total Portfolio1 3.6 -2.4 0.3 7.3 6.7 Policy Benchmark2 3.8 -1.4 0.8 6.8 6.2 Excess Return (0.2) (1.0) (0.5) 0.5 0.5 Reference: Median Fund3 2.6 -2.3 0.2 7.1 7.0 Reference: Total Net of Fees4 3.5 -2.8 -0.1 6.9 6.3
1 Gross of Fees. Performance since 2005 includes securities lending. 2 Evolving Policy Benchmark consists of 43% Russell 3000, 12% MSCI ACWI ex U.S., 20% BC Universal, 15% CBOE BXM and 10% CPI+3%. 3 Mellon Total Funds Public Universe. 4 Net of fee returns are estimated based on OPFRS manager fee schedule.
OPFRS Quarterly Report – 4Q 2015
4
INVESTMENT MARKET RISK METRICS Takeaways
• The Fed hiked short term rates in December, as expected.
• Prices of all growth risk exposed assets (equities, credit) declined well into January.
• U.S. public equity, private equity, and real estate corporate based valuations are all at top decile levels, while non-U.S. equity valuations declined and are below historical average valuation levels (cheap relative to the U.S.).
• Commodity prices continued their five-year decline, and the 10-year breakeven inflation level remained near 1.5% in December – a level of anticipated inflation not seen since the 2008 global financial crisis.
• The PCA Market Sentiment Indicator remained neutral at month end. The spread element of
the indicator has been negative since last year; however, year-over-year equity returns remain slightly positive.
• A sustained year-over-year decline in U.S. equities could send sentiment into a tailspin. • The yield curve remains upward sloping but not as steeply as last year. • Low levels of global inflation, driven by commodity price declines, are weighing on markets.
Credit spreads for companies related to energy continued to expand, impacting other market sectors.
• The PCA Market Sentiment Indicator turned red at month end. The spread element of the indicator has been negative since last year; and, year-over-year equity returns followed suit in January. PCA will be looking to see if this sentiment signal is confirmed in coming months.
Any change in the PCA Market Sentiment Indicator needs to be confirmed for a couple of months prior to making any judgements. While not a market timing indicator, should this negative reading be sustained, clients should consider this to be a less favorable growth environment.
OPFRS Quarterly Report – 4Q 2015
5
Risk Overview
US Equity(page 5)
Dev ex‐USEquity(page 5)
EM EquityRelative toDM Equity(page 6)
PrivateEquity(page 6)
PrivateRealEstate
Cap Rate(page 7)
PrivateRealEstateSpread(page 7)
US IG CorpDebtSpread(page 8)
US HighYield DebtSpread(page 8)
Valuation Metrics versus Historical Range A Measure of Risk
Top Decile
Bottom Decile
Average
UnfavorablePricing
Favorable Pricing
Neutral
Equity Volatility(page 9)
Yield Curve Slope(page 9)
Breakeven Inflation(page 10)
Interest Rate Risk(page 11)
Other Important Metrics within their Historical RangesPay Attention to Extreme Readings
Top Decile
Bottom Decile
Average
Attention!
Attention!
Neutral
OPFRS Quarterly Report – 4Q 2015
6
Market Sentiment
Information Behind Current Sentiment Reading
Bond Spread Momentum Trailing‐Twelve Months Negative
Equity Return Momentum Trailing‐Twelve Months Negative
Agreement Between Bond Spread and Equity Spread Momentum Measures? Agree
Growth Risk Visibility (Current Overall Sentiment) Negative
OPFRS Quarterly Report – 4Q 2015
7
Developed Equity Markets
(Please note time scale difference)
0
5
10
15
20
25
30
35
40
45
50
P/E Ratio
U.S. Equity Market P/E Ratio1
versus Long‐Term Historical Average
1966
2000
19811921
1929
US MarketsLong‐term Average
(since 1880) P/E = 16.6x
US Markets Current P/E
as of 1/2016 = 24.3x
1 P/E ratio is a Shiller P/E‐10 based on 10 year real S&P 500 earnings over S&P 500 index level.
2009
1901
0
5
10
15
20
25
30
35
40
45
P/E Ratio
Developed ex‐US Equity Market P/E Ratio1
versus Long‐Term Historical Average2
Long‐Term Average
Historical 2
P/E = 16.9x
Intl Developed Markets Current P/E as of 1/2016
= 13.1x
1 P/E ratio is a Shiller P/E‐10 based on 10 year real MSCI EAFE earnings over EAFE index level.
2 To calculate the LT historical average, from 1881 to 1982 U.S. data is used as developed market proxy. From 1982 to present, actual developed ex‐US market data (MSCI EAFE) is used.
Average 1982‐1/2016 EAFE Only P/E = 23.8x
OPFRS Quarterly Report – 4Q 2015
8
Emerging Market Equity Markets
US Private Equity
0%
25%
50%
75%
100%
125%
150%
175%
200%
225%
250%
275%
Emerging Markets PE / Developed Markets PE(100% = Parity between PE Ratios)
EM/DM PE Average EM/DM PE ParitySource: Bloomberg, MSCI World, MSCI EMF
Asian Crisis
Russian Crisis, LTCM implosion, currency devaluations
Technology and Telecom Crash
Commodityprice runup
WorldFinancial Crisis
EM/DM relative PE ratio is slightly below the historical average
Mexican Peso crisis
OPFRS Quarterly Report – 4Q 2015
9
Private Real Estate Markets
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%
10.0%
Cap
Rat
e
Core Real Estate Current Value Cap Rates1
Core Cap Rate
LT Average Cap Rate
10 Year Treasury Rate
Sources: NCRIEF, www.ustreas.gov 1A cap rate is the current annual income of the property divided by an estimate of the current value of the property . It is the current yield of the property. Low cap rates indicate high valuations.
Core real estate cap rates remain low by historical standards (expensive).
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
Transactions as a % of Market Value Trailing‐Four Quarters (a measure of property turnover activity)
Source: NCREIF, PCA calculation
Activity has plateaued over the last 2‐year period.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Cap
Rat
e S
pre
ad
Core Cap Rate Spread over 10‐Year Treasury Interest Rate
Core Cap Rate Spread to Treasuries
LT Average Spread
Spread to the 10‐year Treasury is in‐line with the long‐term average level.
OPFRS Quarterly Report – 4Q 2015
10
US Fixed Income
0
100
200
300
400
500
600
700
Spread
Over Treasuries (basis points)
Investment Grade Corporate Bond Spreads
InvestmentGrade BondSpreads
Averagespreadsince 1994(IG Bonds)
Source: LehmanLive: Barclays Capital US Corporate Investment Grade Index Intermediate Component.
Investment grade spreads widened considerably during January, ending the month moderately above the long‐term average level.
0
200
400
600
800
1000
1200
1400
1600
1800
Spread
Over Treasuries (basis points)
High Yield Corporate Bond Spreads
High YieldBondSpreads
Averagespreadsince 1994(HY Bonds)
Source: LehmanLive: Barclays Capital U.S. Corporate High Yield Index.
High yield spreads also expanded markedly during January and remain meaningfully above the long‐term average level.
OPFRS Quarterly Report – 4Q 2015
11
Other Market Metrics
(Please note time scale difference)
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
VIX ‐ a measure of equity market fear / uncertainty
Source: http://www.cboe.com/micro/vix/historical.aspx
Equity market volatility (VIX) rose during January but ended the month in‐line with the long‐term average level (≈ 20) at 20.2.
‐3.0
‐2.0
‐1.0
0.0
1.0
2.0
3.0
4.0
5.0
Yield Curve Slope
Source: www.ustreas.gov (10 yr treasury yield minus 1 year treasury yield)Recession Dating: NBER http://www.nber.org/cycles.html
Yield curve slopes that are negative (inverted) portend a recession.
The average 10‐year and one‐year Treasury interest rates slightly decreased in January. The change in slope for the month was down and the yield curve remains upward sloping.
OPFRS Quarterly Report – 4Q 2015
12
Measures of Inflation Expectations
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
10‐Year Breakeven Inflation(10‐year nominal Treasury yield minus 10‐year TIPS yield)
Source: www.ustreas.govDaily Yield Curve Rates (10‐year nominal treasury yield minus 10‐year TIPS yield)
Breakeven inflation ended January at 1.41%, decreasing from the end of December. The 10‐year TIPS real‐yield decreased to 0.53% and the nominal 10‐year Treasury yield decreased to 1.94%.
0
20
40
60
80
100
120
140
160
Inflation Adjusted Dow Jones UBS Commodity Price Index (1991 = 100)
Broad commodity prices continued to fall during January, ending the month at the lowest levels (inflation adjusted) since the dataset began in 1991.
Source: Bloomberg Commodity Index, St. Louis Fed for US CPI all urban consumers.
OPFRS Quarterly Report – 4Q 2015
13
Measures of US Treasury Interest Rate Risk
‐2.0
0.0
2.0
4.0
6.0
8.0
10.0
Expected Real Yield of 10‐Year Treasury
Estimate of 10‐Year Treasury Forward‐Looking Real Yield
Sources: www.ustreas.gov for 10‐year constant maturity rates*Federal Reserve Bank of Philadelphia survey of professional forecasts for inflation estimates
The forward‐looking annual real yield on 10‐year Treasuries is estimated at approximately ‐0.06% real, assuming 10‐year annualized inflation of 2.15%* per year.
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10‐Year Treasury Bond Duration
10‐Year Treasury Duration (Change in Treasury price with a change in interest rates)
Source: www.ustreas.gov for 10‐year constant maturity rates, calculation of duration
Lower Risk
Higher RiskInterest rate risk is off the 30 year high but not by much.
If the 10‐year Treasury yield rises by 100 basis points from today's levels, the capital loss from the change in price is expected to be ‐8.9%.
OPFRS Quarterly Report – 4Q 2015
14
ECONOMIC OVERVIEW
US GDP growth for the fourth quarter (advanced estimate) has slowed since the fourth quarter, falling from 2.0% to 0.7%. Ggrowth during the fourth quarter was driven mostly by consumer spending in healthcare, which was partly offset by an increain imports, which is a subtraction in the GDP calculation. The unemployment rate dropped to 5.0% as of the quarter encontinuing its downward trend over the last 2+ years. After decreasing by 0.4 percent last quarter, the Consumer Price Index All Urban Consumers increased by 0.5% in the quarter. Commodities continued to decrease as they returned (10.5%) for tquarter. The US dollar appreciated against the Euro, British Pound, and the Yen this quarter. After floundering in the thquarter, US Equities were able to rebound strongly as they posted positive returns across the board. Global Equities performwell for the quarter, but a strong quarter was not enough to establish positive returns for the trailing 1-year period. The BUniversal Index returned (0.6%) during the quarter, but performance in the 1-year period managed to stay slightly positive 0.4%. Economic Growth
Real GDP increased at an annualized rate of 0.7 percent in the fourth quarter of 2015, which is the lowest rate of growth since the first quarter of 2015.
Consumer spending on health care, non-durable goods, and durable goods such as vehicles and recreational goods had the largest impact on GDP.
Business investment, residential investment, inventory investment, state and local government spending, and exports also contributed to an increase in GDP during the quarter.
Inflation The Consumer Price Index for All Urban
Consumers (CPI-U) increased by 0.5 percent in the quarter on an annualized basis after seasonal adjustment.
Quarterly percent changes may be
adjusted between data publications due to periodic updates in seasonal factors.
Core CPI-U increased by 2.1 percent for
the quarter on an annualized basis. Over the last 12 months, core CPI-U
increased 2.1 percent after seasonal adjustment.
Unemployment The US economy gained approximately
851,000 jobs in the quarter.
The unemployment rate dropped to 5.0% at quarter end.
The majority of jobs gained occurred in professional and business services, construction, health care, and food services and drinking places.
0.7%2.0%
3.9%
0.6%
2.1%
4.3%
-2.0%
0.0%
2.0%
4.0%
6.0%
2015 Q4Adv. Est.
2015 Q32015 Q22015 Q12014 Q42014 Q3
Annualized Quarterly GDP Growth
0.5%
-0.4%
3.5%
-0.9%-2.2%
0.5%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
2015 Q42015 Q32015 Q22015 Q12014 Q42014 Q3
CPI-U After Seasonal Adjustment
5.0%5.1%5.3%5.5%5.6%5.9%
2.0%
4.0%
6.0%
8.0%
2015 Q42015 Q32015 Q22015 Q12014 Q42014 Q3
Unemployment Rate
OPFRS Quarterly Report – 4Q 2015
15
Interest Rates & U.S. Dollar
US Treasury yields rose on average over the quarter.
The Federal Reserve has increased the federal funds rate for the first time since 2006 by 25 basis points.
The US dollar appreciated against the Euro, British Pound, and the Yen by 2.8%, 2.6% and 0.28%, respectively.
Treasury Yield Curve Changes
Source: U.S. Treasury Department
Fixed Income
US bond markets delivered negative returns for the quarter with high yield performing the worst, which had a return of (2.1%).
High yield started the year with strong returns in the first quarter but slumped throughout the year as it trailed all other bond sectors. Over the trailing 1-year period, MBS performed well relative to other sectors with a return of 1.5%.
US Fixed Income Sector Performance (BC Aggregate Index)
Sector Weight QTR 1 Year
Governments* 40.4% -0.91% 0.86%
Agencies 4.3% -0.65% 0.99%
Inv. Grade Credit 24.3% -0.52% 0.86%
MBS 28.6% -0.10% 1.51%
ABS 0.6% -0.57% 0.55%
CMBS 1.8% -1.24% 0.97%
-0.6
%
0.6%
-0.9
%
0.9%
-0.5
%
-0.8
%
-0.1
%
1.5%
-2.1
%
-4.5
%
-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%
10.0%
QTR 1-Year
Fixed Income Returns
BC Agg BC Govt BC Credit BC Mortgage BC High Yield*U.S. Treasuries and Government Related
OPFRS Quarterly Report – 4Q 2015
16
U.S. Equities
During the quarter, all market capitalizations provided positive returns, with large cap stocks slightly outperforming small cap stocks.
During the 1-year period, growth outperformed value stocks across all market capitalizations. Large cap growth stocks performed the best over the quarter and 1-year periods with returns of 7.3% and 5.7%, respectively.
US Equity Sector Performance (Russell 3000 Index)
Sector Weight QTR 1 Year Information Tech. 19.9% 10.2% 11.6%
Financials 18.1% 5.7% 1.6%
Health Care 14.8% 10.1% 10.4%
Consumer Disc. 13.5% 6.3% 18.3%
Industrials 10.7% 7.9% 0.9% Consumer Staples 8.8% 7.8% 8.4%
Energy 5.9% 1.3% -16.2%
Utilities 3.1% 3.1% -2.3%
Materials 3.1% 10.9% -4.3%
Telecomm. Serv. 2..1% 7.3% 5.1%
International Equities
International equities reversed their negative trend from last quarter as all regions performed positively in the fourth quarter with the Pacific leading all regions with a return of 9.0%. One year returns were negative across all international equities with the exception of the Pacific at 3.2%.
A slightly positive performance in the fourth quarter for emerging markets was not enough to curb their double digit negative performance for the trailing 1-year period.
International Equity Region Performance (in USD) (MSCI ACW Index ex US)
Sector Weight QTR 1 Year
Europe Ex. UK 33.2% 3.3% 0.1%
Emerging Markets 20.6% 0.7% -14.6%
Japan 17.3% 9.4% 9.9%
United Kingdom 14.4% 0.7% -7.5%
Pacific Ex. Japan 8.5% 8.3% -8.4%
Canada 6.0% -4.9% -23.6%
OPFRS Quarterly Report – 4Q 2015
17
Market Summary – Long-term Performance*
Indexes 1 Year 3 Year 5 Year 10 Year 20 Year Global Equity
MSCI All Country World 5.2% -1.8% 8.3% 6.7% 5.3% Domestic Equity
S&P 500 7.0% 1.4% 15.1% 12.6% 7.3% Russell 3000 6.3% 0.5% 14.7% 12.2% 7.4% Russell 3000 Growth 7.1% 5.1% 16.6% 13.3% 8.5% Russell 3000 Value 5.4% -4.1% 12.8% 11.0% 6.1% Russell 1000 6.5% 0.9% 15.0% 12.4% 7.4% Russell 1000 Growth 7.3% 5.7% 16.8% 13.5% 8.5% Russell 1000 Value 5.6% -3.8% 13.1% 11.3% 6.2% Russell 2000 3.6% -4.4% 11.7% 9.2% 6.8% Russell 2000 Growth 4.3% -1.4% 14.3% 10.7% 8.0% Russell 2000 Value 2.9% -7.5% 9.1% 7.7% 5.6% CBOE BXM 4.0% 5.3% 8.0% 7.0% 4.9%
International Equity MSCI All Country World ex US 3.3% -5.3% 1.9% 1.5% 3.4% MSCI EAFE 4.8% -0.4% 5.5% 4.1% 3.5% MSCI Pacific 9.0% 3.2% 6.0% 3.4% 2.6% MSCI Europe 2.5% -2.3% 5.1% 4.5% 4.0% MSCI EM (Emerging Markets) 0.7% -14.6% -6.4% -4.5% 4.0%
Fixed Income
BC Universal Bond -0.6% 0.4% 1.5% 3.5% 4.7% BC Global Agg – Hedged 0.1% 1.0% 2.8% 3.9% 4.4% BC Aggregate Bond -0.6% 0.6% 1.4% 3.3% 4.5% BC Government -0.9% 0.9% 1.0% 2.8% 4.1% BC Credit Bond -0.5% -0.8% 1.5% 4.4% 5.2% BC Mortgage Backed Securities -0.1% 1.5% 2.0% 3.0% 4.6% BC High Yield Corporate Bond -2.1% -4.5% 1.7% 5.0% 7.0% BC WGILB - Hedged -1.0% -1.1% 0.6% 3.6% 4.2% BC Emerging Markets 0.1% 1.3% 0.6% 5.1% 6.7%
Real Estate NCREIF (Private RE) 2.9% 13.3% 12.0% 12.2% 7.8% NAREIT (Public RE) 7.1% 2.3% 10.3% 11.6% 6.9%
Commodity Index
Bloomberg Commodity (formerly DJUBS) -10.5% -24.7% -17.3% -13.5% -6.4% * Performance is annualized for periods greater than one year.
OPFRS Quarterly Report – 4Q 2015
18
TOTAL PORTFOLIO REVIEW OPFRS Portfolio Performance This section includes an overview of the performance of the OPFRS investment portfolio, as well as a detailed analysis of asset classes and specific mandates. Portfolio Performance Overview During the latest quarter ending December 31, 2015, the OPFRS Total Portfolio generated a return of 3.6%, gross of fees, underperforming its benchmark by (20) basis points. The Plan’s Domestic Equity allocation underperformed its benchmark by (40) basis points, while the Plan’s International Equity and Covered Calls allocations outperformed their respective benchmarks by 1.3% and 1.7%. The Plan’s Fixed Income and Real Return allocations each underperformed their benchmarks by (0.6%) and (2.2%), respectively. The Total Portfolio produced negative relative results versus the policy benchmark over the quarter and 1-year periods while outperforming over the 3- and 5-year periods, gross of fees. Relative to the Median Fund, the Total Portfolio outperformed over the quarter, 1-, and 3-year periods, and underperformed over the 5-year period. Relative performance with respect to the Median Fund can be largely attributed to differences in asset allocation.
Periods Ending December 31, 2015 (annualized)
---------------------------------------------------------------------------- * Net of fee returns are estimated based on OPFRS manager fee schedule. ** The Evolving Policy Benchmark consists of 43% Russell 3000, 12% MSCI ACWI ex U.S., 20% BC Universal, 15% CBOE BXM and 10%
CPI+3%. *** Asset Allocation Benchmark by Asset Class is calculated using actual weightings of the broad asset classes. **** Asset Allocation Benchmark by Manager consists of weighted average return of individual manager benchmarks, based on
managers’ actual allocations. ***** Median Fund is the Mellon Total Public Funds Universe.
3.6%
0.3%
7.3%6.7%
3.5%
-0.1%
6.9%6.3%
3.8%
0.8%
6.8%6.2%
3.0%
-0.8%
8.6%7.9%
3.2%
0.1%
8.9%
8.1%
2.6%
0.2%
7.1% 7.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Quarter 1 Year 3 Year 5 Year
OPFRS Net of Fees*
Policy Benchmark** Asset Allocation Benchmark by Asset Class***
Asset Allocation Benchmark by Manager**** Median Fund*****
OPFRS Quarterly Report – 4Q 2015
19
Absolute performance results have been positive in all of the last five 12-month periods ending December 31. The Plan also outperformed its policy benchmark in three out of the last five periods, gross of fees. 12-Month Performance – Periods Ending December 31 *Net of fee returns are estimated based on OPFRS manager fee schedule
Portfolio Valuation The OPFRS portfolio had an aggregate value of $386.8 million as of December 31, 2015. During the latest quarter, the portfolio decreased by ($1.1) million, including ($15) million in net benefit payments. Over the latest year, the portfolio decreased by ($57.3) million, including ($60) million in net benefit payments. Investment Portfolio Valuation as of December 31, 2015*
December 31, September 30, Quarterly Percentage December 31, Annual Percentage 2015 2015 Change Change 2014 Change Change OPFRS $386.8 $387.9 ($1.1) (0.3%) $444.1 ($57.3) (12.9%)
*The calculations listed above represent change in dollar value and not investment returns.
0.8%
11.0%
15.7%
6.5%
0.3%0.4%
10.6%
15.1%
6.1%
-0.1%
0.6%
10.1%12.3%
7.6%
0.8%
-3.0%
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
2011 2012 2013 2014 2015
OPFRS Net of Fees* Policy Benchmark
OPFRS Quarterly Report – 4Q 2015
20
Actual vs. Target Allocations
With respect to policy targets, the portfolio ended the latest quarter overweight Domestic Equity, Covered Calls, and cash, while underweight International Equity, Fixed Income, and Real Return. Target weightings reflect the Plan’s evolving asset allocation (effective 3/31/2014). As of December 31, 2015
Segment Actual $(000) Actual %* Target % Variance Total Investment Portfolio 386,750 100.0% 100.0% --- Domestic Equity 167,371 43.3% 43.0% 0.3% Large Cap Equity 114,641 29.7% 29.0% 0.7% Mid Cap Equity 31,935 8.3% 8.0% 0.3% Small Cap Equity 20,795 5.4% 6.0% -0.6% International Equity 42,211 10.9% 12.0% -1.1% Total Equity 209,582 54.2% 55.0% -0.8% Fixed Income 70,883 18.3% 20.0% -1.7% Covered Calls 66,173 17.1% 15.0% 2.1% Real Return 36,901 9.5% 10.0% -0.5% Cash 3,211 0.8% 0.0% 0.8%
* In aggregate, asset class allocations equal 100% of total investment portfolio. Differences due to rounding. During the latest quarter, Domestic Equity increased its weighting by 0.1%, Fixed Income decreased its weighting by (1.2%), and International Equity’s weighting increased by 0.5%. Actual weighting for Covered Calls increased by 1.0%, while the acual weighting for Real Return decreased by (0.2%). Cash weighting decreased by (0.3%).
Investment Portfolio Actual Asset Allocation Comparison
Fixed Income, 18.3%
Cash, 0.8%
Real Return, 9.5%
Intl. Equity, 10.9%Dom.
Equity, 43.3%
Covered Calls, 17.1%
December 31, 2015
Fixed Income, 19.5%
Cash, 1.1%
Real Return, 9.7%
Intl. Equity, 10.4%
Dom. Equity, 43.2%
Covered Calls, 16.1%
September 30, 2015
OPFRS Quarterly Report – 4Q 2015
21
Asset Class Performance The Domestic Equity asset class underperformed its benchmark by (40) and (10) basis points over the most recent quarter and 1-year period, respectively. Over the longer term, the Domestic Equity portfolio slightly underperformed its benchmark by (10) basis points over the 3-year period and matched its benchmark over the 5-year period.
The International Equity portfolio outperformed its policy benchmark by 1.3% during the most recent quarter and by 5.2% over the 1-year period. The International Equity portfolio also outperformed over the 3- and 5-year periods by 2.5% and 1.3%, respectively.
The Fixed Income asset class underperformed its benchmark by (60) basis points over the most recent quarter, and underperformed by (40) basis points over the 1-year period. Over the longer-term, the Fixed Income portfolio underperformed its benchmark by (30) basis points over the 3-year period, and matched its benchmark over the 5-year period.
The Covered Calls asset class outperformed by 1.7% and 0.3% over the most recent quarter and 1-year period, respectively.
The Real Return asset class performance continues to trail its benchmark, underperforming by (2.2%) over the most recent quarter, and by (8.6%) over the 1-year period.
Periods ending December 31, 2015
Asset Class Quarter 1-Year 3-Year 5-Year Total Investment Portfolio 3.6 0.3 7.3 6.7 Policy Benchmark1 3.8 0.8 6.8 6.2 Public Equity 5.6 0.3 12.4 10.1 Policy Benchmark2 5.7 -0.7 11.9 9.8
Domestic Equity 5.9 0.4 14.6 12.2 Blended Benchmark4 6.3 0.5 14.7 12.2
Large Cap 6.5 1.1 14.8 12.5 Russell 1000 6.5 0.9 15.0 12.4 Mid Cap 4.9 1.3 13.7 11.1 Russell Midcap 3.6 -2.4 14.2 11.4 Small Cap 3.7 -4.8 14.9 11.8 Russell 2000 3.6 -4.4 11.7 9.2
International Equity 4.6 -0.1 4.4 2.8 Blended Benchmark5 3.3 -5.3 1.9 1.5 Fixed Income -1.1 0.0 1.2 3.5 BC Universal (blend)6 -0.5 0.4 1.5 3.5 Covered Calls 5.7 5.5 --- --- CBOE BXM 4.0 5.2 --- --- Real Return -2.1 -4.9 --- --- CPI + 3% 0.1 3.7 --- ---
1 The Evolving Policy Benchmark consists of 43% Russell 3000, 12% MSCI ACWI ex U.S., 20% BC Universal, 15% CBOE BXM, and 10% CPI+3%. 2 The Public Equity benchmark consists of 80% Russell 3000 and 20% MSCI ACWI ex U.S. 4 Domestic Equity Benchmark consists of S&P 500 thru 3/31/98, 29% R1000, 57% R1000V, 14% RMC from 4/1/98 - 12/31/04, and Russell 3000 from 1/1/05 to the present. 5 International Equity Benchmark consists of MSCI EAFE thru 12/31/04, and MSCI ACWI x U.S. thereafter. 6 Fixed Income Benchmark consists of BC Aggregate prior to 4/1/06, BC Universal prior to 7/1/2012, and a blend of 75%tbills, 25% BC Universal thereafter.
OPFRS Quarterly Report – 4Q 2015
22
Asset Class Performance The Domestic Equity portfolio outperformed the policy benchmark in two out of five of latest 12-month periods. The Plan finished the latest 12-month period ending December 31, 2015, with a return of 0.4%, underperforming the policy benchmark by (10) basis points. Domestic Equity 12-Month Performance – Periods Ending December 31 The International Equity portfolio outperformed or matched the policy benchmark in three of the five latest 12-month periods. The Plan finished the latest 12-month period ending December 31, 2015, with a return of (0.1%), outperforming the policy benchmark by (5.2%). International Equity 12-Month Performance – Periods Ending December 31 The Fixed Income portfolio outperformed or matched the policy benchmark in three of the last five 12-month periods. The Plan finished the latest 12-month period ending December 31, 2015, with a return of 0.0%, underperforming the policy benchmark by (40) basis points. Fixed Income 12-Month Performance – Periods Ending December 31
1.8%
16.0%
33.8%
11.9%
0.4%1.0%
16.4%
33.6%
12.6%
0.5%0.0%
10.0%
20.0%
30.0%
40.0%
2011 2012 2013 2014 2015
OPFRS--Dom. Equity Benchmark
-14.4%
17.9% 19.2%
-4.6%-0.1%
-13.3%
17.4% 15.8%
-3.4% -5.3%
-25.0%
-15.0%
-5.0%
5.0%
15.0%
25.0%
2011 2012 2013 2014 2015
OPFRS--Int'l Equity Benchmark
7.5% 6.5%
-2.0%
5.8%
0.0%
7.4%5.5%
-1.3%
5.6%
0.4%
-5.0%-2.5%0.0%2.5%5.0%7.5%
10.0%
2011 2012 2013 2014 2015
OPFRS--Fixed Income Benchmark
OPFRS Quarterly Report – 4Q 2015
23
Manager Performance Domestic Equity – Periods ending December 31, 2015
Manager Mkt Value ($000) Asset Class Quarter 1 YR 3 YR 5 YR Since
Inception* Inception
Date**
Northern Trust R1000 Index 54,844 Large Cap Core 6.5 1.2 15.0 12.4 13.3 5/2010
Russell 1000 Index --- --- 6.5 0.9 15.0 12.4 12.4 ---
SSgA Russell 1000 Value 28,436 Large Cap Value 5.7 -3.6 --- --- -0.9 10/2014
Russell 1000 Value Index --- --- 5.6 -3.8 --- --- -1.1 ---
SSgA Russell 1000 Growth 31,321 Large Cap Growth 7.3 5.6 --- --- 6.7 10/2014
Russell 1000 Growth Index --- --- 7.3 5.7 --- --- 6.7 ---
Earnest 31,935 Mid Cap Core 4.9 1.3 13.7 11.1 7.8 3/2006
Russell MidCap --- --- 3.6 -2.4 14.2 11.4 7.6 ---
NWQ 11,682 Small Cap Value 8.1 -2.3 14.7 12.6 6.5 1/2006
Russell 2000 Value Index --- --- 2.9 -7.5 9.1 7.7 4.8 ---
Lord Abbett 9,113 Small Cap Growth -1.4 -7.8 15.0 10.8 16.4 6/2010
Russell 2000 Growth Index --- --- 4.3 -1.4 14.3 10.7 15.4 --- * Performance is calculated based on the first full month of performance since funding. ** Inception date reflects the month when portfolio received initial funding. During the latest three-month period ending December 31, 2015, two of OPFRS’ three active domestic equity managers outperformed their respective benchmarks. Northern Trust, the Plan’s passive large cap core transition account continues to perform in-line with its benchmark over all time periods measured. This performance is within expectations for a passive mandate. SSgA Russell 1000 Value, the Plan’s passive large cap value account has continued to perform within expectations for a passive mandate. SSgA Russell 1000 Growth, the Plan’s passive large cap growth account has continued to perform within expectations for a passive mandate. Earnest Partners, the Plan’s mid cap core manager, completed the quarter with an 4.9% return, outperforming the Russell Midcap Index by 1.3%. Over the latest 1-year period, Earnest outperformed its benchmark by 3.7%, while underperforming over the 3- and 5-year periods by (0.5%), and (0.3%), respectively. NWQ, the Plan’s small cap value manager, outperformed the Russell 2000 Value Index by 5.2% over the latest 3-month period. NWQ also outperformed its benchmark return over the 1-, 3-, and 5-year periods by 5.2%, 5.6%, and 4.9%, respectively. Lord Abbett, the Plan’s small cap growth manager, underperformed the Russell 2000 Growth Index by (5.7%) over the quarter. Over the 1-year period, Lord Abbett underperformed the benchmark by (6.4%) while outperforming over the 3- and 5-year periods by 0.7% and 0.1%, respectively.
OPFRS Quarterly Report – 4Q 2015
24
International Equity – Periods ending December 31, 2015
Manager Mkt Value ($000) Asset Class Quarter 1 YR 3 YR 5 YR Since
Inception* Inception
Date** SSgA 12,235 International 4.7 -0.5 5.3 3.9 7.2 7/2002
MSCI EAFE Index --- --- 4.7 -0.4 5.5 4.1 7.3 ---
Hansberger 15,185 International 4.2 1.6 4.1 2.2 3.6 1/2006
MSCI ACWI x US --- --- 3.3 -5.3 1.9 1.5 3.4 ---
Fisher 14,791 International 5.1 -1.3 4.1 --- 2.3 4/2011
MSCI ACWI x US --- --- 3.3 -5.3 1.9 --- 0.9 --- * Performance is calculated based on the first full month of performance since funding. ** Inception date reflects the month when portfolio received initial funding. During the latest three-month period ending December 31, 2015, both of OPFRS’ two active International Equity managers outperformed their benchmark. The SSgA account has performed roughly in-line with its benchmark over all time periods measured. This performance is within expectations for a passive mandate. Hansberger, one of OPFRS’ active international equity managers, outperformed the MSCI ACWI x US Index during the quarter by 0.9%. The portfolio has also outperformed over the 1-, 3-, and 5-year periods by 6.9%, 2.2%, and 0.7%, respectively. Fisher, one of OPFRS’ active international equity managers, outperformed the MSCI ACWI x US Index by 1.8% during the quarter. Over the latest 1-year period, Fisher beat its benchmark target by 4.0%, and outperformed by 2.2% over the 3-year period.
OPFRS Quarterly Report – 4Q 2015
25
Fixed Income – Periods ending December 31, 2015
Manager Mkt Value ($000) Asset Class Quarter 1 YR 3 YR 5 YR Since Inception
** Inception Date ***
Reams 23,002 Core Plus -1.4 0.5 1.4 4.1 5.9 1/1998
BC Universal Index (blend)* --- --- -0.5 0.4 1.5 3.5 5.2 ---
T. Rowe Price 38,315 Core -0.2 1.0 1.8 --- 3.4 5/2011
BC Aggregate Index --- --- -0.6 0.5 1.4 --- 3.1 ---
DDJ 9,527 H.Y. / B.L. -4.1 --- --- --- -4.5 1/2015
BofAML US HY Master II --- --- -2.2 --- --- --- -5.3 --- * Previously the benchmark for Reams was the BC Aggregate; this was changed to the BC Universal beginning 4/1/2006. ** Performance is calculated based on the first full month of performance since funding. *** Inception date reflects the month when portfolio received initial funding. During the latest three-month period ending December 31, 2015, one of OPFRS’ two active Fixed Income managers outperformed its benchmark. Reams, the Plan’s core plus fixed income manager, produced a quarterly loss of (1.4%), underperforming the BC Universal (blend) Index by (90) basis points. During the latest 1-year period, the portfolio beat its benchmark by 10 basis points while underoutperforming over the 3-year period by (10) basis points. Reams outperformed its benchmark over the 5-year period by 60 basis points. T. Rowe Price, the Plan’s core fixed income manager, produced a quarterly loss of (0.2%), outperforming the BC Aggregate Index by 40 basis points . The portfolio also outperformed its benchmark over the most recent 1- and 3-year periods by 50 and 40 basis points, respectively. DDJ, the Plan’s High Yield & Bank Loan manager, underperformed its benchmark, the BofAML US High Yield Master II index, by (1.9%) over the most recent quarter, and outperformed by 0.8% since inception. Covered Calls & Total Real Return – Periods ending December 31, 2015
Manager Mkt Value ($000) Asset Class Quarter 1 YR 3 YR 5 YR Since Inception
** Inception Date ***
Parametric 66,173 Covered Calls 5.7 5.5 --- --- 6.0 3/2014
CBOE BXM --- --- 4.0 5.2 --- --- 4.8 ---
Wellington 36,901 Total Real Return -2.1 -4.9 --- --- -4.1 1/2014
CPI + 3% --- --- 0.1 3.7 --- --- 3.6 --- ** Performance is calculated based on the first full month of performance since funding. *** Inception date reflects the month when portfolio received initial funding. During the latest three-month period ending December 31, 2015, OPFRS’ Covered Calls manager outperformed its benchmark, while OPFRS’ Real Return manager underperformed its benchmark. Parametric, the Plan’s Covered Calls manager, produced a quarterly return of 5.7%, outperforming its benchmark by 1.7%. Over the most recent 1-year period, the portfolio has outperformed by 30 basis points. Wellington, the Plan’s Total Real Return manager, produced a quarterly loss of (2.1%), underperforming its benchmark by (2.2%). The portfolio also trailed its benchmark by (8.6%) over the 1-year period.
OPFRS Quarterly Report – 4Q 2015
26
OPFRS Risk/Return Analysis Period ending December 31, 2015
Growth of a Dollar
Past 5 Years
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
10Q
4
11Q
1
11Q
2
11Q
3
11Q
4
12Q
1
12Q
2
12Q
3
12Q
4
13Q
1
13Q
2
13Q
3
13Q
4
14Q
1
14Q
2
14Q
3
14Q
4
15Q
1
15Q
2
15Q
3
15Q
4
PortfolioReturn
PortfolioBenchmark
6.50% Actuarial Rate*
Total Portfolio
Policy Benchmark
Risk Free Rate
Median Fund
U.S. Equity Agg.
Non-U.S. Agg.
Fixed Income Agg.
U.S. Bench
Non-U.S. Bench
Fixed Bench
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Ann
ualiz
ed R
etur
n
Standard Deviation
Five-Year Annualized Risk/Return
* The actuarial expected rate of return was 8% through 6/30/2009, 7.5% through 6/30/2010, 7% through 6/30/2011, 6.75% through 6/30/2014, and 6.5% currently
OPFRS Quarterly Report – 4Q 2015
27
City of Oakland Police & Fire Retirement, Asset Allocation as of December 31, 2015
Manager Style Market Value $(000) Target Actual1 Difference
Total Plan $386,750 100.0% 100.0% 0.0%
Public Equity $209,582 55.0% 54.2% -0.8%
Domestic Equity $167,371 43.0% 43.3% 0.3%
Large Cap Equity
Northern Trust Large Cap Core 54,884 14.2% 14.2% 0.0%
SSgA Russell 1000 Value Large Cap Value 28,436 7.4% 7.4% 0.0%
SSgA Russell 1000 Growth Large Cap Growth 31,321 7.4% 8.1% 0.7%
Mid Cap Equity
Earnest Partners Mid Cap Core 31,935 8.0% 8.3% 0.3%
Small Cap Equity
NWQ Small Cap Value 11,682 3.0% 3.0% 0.0%
Lord Abbett Small Cap Growth 9,113 3.0% 2.4% -0.6%
International Equity $42,211 12.0% 10.9% -1.1%
SSgA International 12,235 3.6% 3.2% -0.4%
Hansberger International 15,185 4.2% 3.9% -0.3%
Fisher International 14,791 4.2% 3.8% -0.4%Fixed Income $70,883 20.0% 18.3% -1.7%
Reams Core Plus 23,002 8.0% 5.9% -2.1%
T. Rowe Price Core 38,315 10.0% 9.9% -0.1%
DDJ High Yield/Bank Loans 9,527 2.0% 2.5% 0.5%
Transition (Reams)3 Transition Portfolio 39 0.0% 0.0% ---
Covered Calls $66,173 15.0% 17.1% 2.1%
Parametric (Eaton Vance) Active/Replication 66,173 --- 17.1% ---
Real Return $36,901 10.0% 9.5% -0.5%
Wellington 36,901 --- 9.5% ---
Total Cash2 $3,211 0.0% 0.8% 0.8%y y
1. In aggregate, asset class allocations equal to 100% of total investment portfolio.
2. Includes cash balance w ith City Treasury and Torrey Pines Bank as of 9/30/2015.
3. Includes a residual $39,322 in the Reams transition account.
OPFRS Quarterly Report – 4Q 2015
28
MANAGER MONITORING / PROBATION LIST
Monitoring/Probation Status
As of December 31, 2015 Return vs. Benchmark since Corrective Action
^ Annualized performance if over one year. * Approximate date based on when Board voted to either monitor a manager at a heightened level or place it on probation.
Investment Performance Criteria For Manager Monitoring/Probation Status
Asset Class Short-term
(rolling 12 mth periods) Medium-term
(rolling 36 mth periods) Long-term
(60 + months)
Active Domestic Equity Fd return < bench return – 3.5%
Fd annlzd return < bench annlzd return – 1.75% for 6 consecutive months
VRR < 0.97 for 6 consecutive months
Active International Equity
Fd return < bench return – 4.5%
Fd annlzd return < bench annlzd return – 2.0% for 6 consecutive months
VRR < 0.97 for 6 consecutive months
Passive International Equity Tracking Error > 0.50% Tracking Error > 0.45% for 6
consecutive months
Fd annlzd return < bench annlzd return – 0.40% for 6 consecutive months
Fixed Income Fd return < bench return – 1.5%
Fd annlzd return < bench annlzd return – 1.0% for 6 consecutive months
VRR < 0.98 for 6 consecutive months
Portfolio Status Concern
Months Since Corrective
Action
Performance^ Since
Corrective Action
Date of Corrective
Action* Hansberger On Watch Organizational 19 -3.8% 5/28/2014
MSCI ACWI ex-US --- --- 19 -7.8% ---
All critelized basis. VRR – Value Relative Ratio – is calculated as: manager cumulative return / benchmark cumulative return.
OPFRS Quarterly Report – 4Q 2015
Oakland Police & FirePerformance Summary and Universe Rankings
Period Ending December 31, 2015
Notes:Source: Mellon Total Public Funds UniverseAll performance is shown gross of fees.
Mellon Total Funds - Public UniverseQuarter 1- Year 3-Year 5-Year
Maximum 4.6 2.9 10.9 9.7Percentile 25 3.3 1.0 8.4 7.7Median 2.6 0.2 7.1 7.0Percentile 75 2.0 -0.9 6.0 6.2Minimum -0.4 -2.9 0.7 1.5Number of Portfolios 117 111 104 98
Oakland Police & Fire TotalReturn 3.6 0.3 7.3 6.7Quartile Rank 1st 2nd 2nd 3rd
29
OPFRS Quarterly Report – 4Q 2015
Oakland Mid Cap Core Manager Comparisonsas of December 31, 2015
5-Year Total Risk/Return
0
5
10
15
20
Tota
l Ann
ualiz
ed
Re
turn
, %
0 5 10 15 20
Tot al Annualized St dDev , %
Earnest Part ners Russell M id-Cap I ndex
5-Year Excess Risk/Return
-10
-8
-5
-3
0
3
5
Exc
ess
Ann
ualiz
ed
Re
turn
, %
3 5 8 10 13 15 18 20 23 25
Ex cess Annualized St dDev , %
Earnest Part ners Russell M id-Cap Index
AnnualizedReturn, %
AnnualizedStdDev, %
SharpeRatio
Earnest Part ners 11.15 14.42 0.77Russell M id-Cap I ndex 11.44 13.05 0.88M id Cap Core U niverse M edian 11.64 13.76 0.87
AnnualizedExcess
Return, %
AnnualizedExcess
StDev, %
SharpeRatio,
ExcessEarnest Part ners -0.29 3.02 -0.10Russell M id-Cap I ndex 0.00 0.00 NAM id Cap Core U niverse M edian 0.20 3.45 0.04
30
OPFRS Quarterly Report – 4Q 2015
Annualized Universe Returns
-10
-5
0
5
10
15
20
Tota
l Ann
ualiz
ed
Re
turn
, %
Qt r 1 Year 3 Years 5 Years
5t h t o 25t h Percent ile
25t h t o M edian
M edian t o 75t h Percent ile
75t h t o 95t h Percent ile
Earnest Part ners
Russell M id-Cap Index
12-Month Performance
-10
0
10
20
30
40
50
Tota
l Ann
ualiz
ed
Re
turn
, %
2011 2012 2013 2014 2015
Oakland Mid Cap Core Manager Comparisonsas of December 31, 2015
31
OPFRS Quarterly Report – 4Q 2015
Oakland Small Cap Value Manager Comparisonsas of December 31, 2015
5-Year Total Risk/Return
-5
0
5
10
15
20
25
Tota
l Ann
ualiz
ed
Re
turn
, %
5 10 15 20 25
Tot al Annualized St dDev , %
NW Q Russell 2000 V alue Index
5-Year Excess Risk/Return
-15
-10
-5
0
5
10
15
Exc
ess
Ann
ualiz
ed
Re
turn
, %
0 5 10 15
Ex cess Annualized St dDev , %
NW Q Russell 2000 V alue I ndex
Annua lizedReturn, %
Annua lizedS td Dev, %
Sha rp eRa tio
NW Q 12.64 16.02 0.79Russell 2000 Value I ndex 7.67 15.33 0.50Small Cap Value U niverse M edian 9.81 15.45 0.63
Annua lizedExcess
Return, %
Annua lizedExcess
S tDev, %
Sha rp eRa tio,Excess
NW Q 4.97 4.65 1.07Russell 2000 Value I ndex 0.00 0.00 NASmall Cap Value U niverse M edian 2.14 4.38 0.54
32
OPFRS Quarterly Report – 4Q 2015
Oakland Small Cap Value Manager Comparisonsas of December 31, 2015
Annualized Universe Returns
-20
-15
-10
-5
0
5
10
15
20
Tota
l Ann
ualiz
ed
Re
turn
, %
Qt r 1 Year 3 Years 5 Years
5t h t o 25t h Percent ile
25t h t o M edian
M edian t o 75t h Percent ile
75t h t o 95t h Percent ile
NW Q
Russell 2000 V alue Index
12-Month Performance
-20
-10
0
10
20
30
40
50
Tota
l Ann
ualiz
ed
Re
turn
, %
2011 2012 2013 2014 2015
33
OPFRS Quarterly Report – 4Q 2015
5 -Year Total Risk/Return
0
5
10
15
20
25
Tota
l Ann
ualiz
ed
Re
turn
, %
0 5 10 15 20 25
Tot al Annualized St dDev , %
Lord Abbet t Russell 2000 Grow t h Index
5 -Year Excess Risk/Return
-10
-8
-6
-4
-2
0
2
4
6
8
10
Exc
ess
Ann
ualiz
ed
Re
turn
, %
0 2 4 6 8 10 12 14
Ex cess Annualized St dDev , %
Lord Abbet t Russell 2000 Grow t h I ndex
Annua lizedReturn, %
Annua lizedS td Dev, %
Sha rp eRa tio
Lord Abbet t 10.76 17.31 0.62Russell 2000 Grow t h I ndex 10.67 16.90 0.63Small Cap Grow t h U niverse M edian 11.38 16.63 0.69
Annua lizedExcess
Return, %
Annua lizedExcess
S tDev, %
Sha rp eRa tio,Excess
Lord Abbet t 0.08 5.82 0.01Russell 2000 Grow t h I ndex 0.00 0.00 NASmall Cap Grow t h U niverse M edian 0.71 5.35 0.16
Oakland Small Cap Growth Manager Comparisonsas of December 31, 2015
34
OPFRS Quarterly Report – 4Q 2015
Oakland Small Cap Growth Manager Comparisonsas of December 31, 2015
Annualized Universe Returns
-10
-5
0
5
10
15
20
Tota
l Ann
ualiz
ed
Re
turn
, %
Qt r 1 Year 2 Years 3 Years 5 Years
5t h t o 25t h Percent ile
25t h t o M edian
M edian t o 75t h Percent ile
75t h t o 95t h Percent ile
Lord Abbet t
Russell 2000 Grow t h Index
12-Month Performance
-10
0
10
20
30
40
50
60
Tota
l Ann
ualiz
ed
Re
turn
, %
2011 2012 2013 2014 2015
35
OPFRS Quarterly Report – 4Q 2015
3-Year Total Risk/Return
-10
-5
0
5
10
15
20
25
30
Tota
l Ann
ualiz
ed
Re
turn
, %
0 5 10 15 20
Tot al Annualized St dDev , %
Hansberger Fisher M SCI AC W orld I ndex ex U SA
3-Year Excess Risk/Return
-15
-10
-5
0
5
10
15
20
25
Exc
ess
Ann
ualiz
ed
Re
turn
, %
0 2 4 6 8 10 12 14 16
Ex cess Annualized St dDev , %
Hansberger Fisher M SCI AC W orld I ndex ex U SA
Annua lizedReturn, %
Annua lizedStd Dev, %
Sha rp eRa tio
Hansberger 4.15 12.37 0.34Fisher 4.13 12.62 0.33M SCI AC W orld I ndex ex U SA 1.94 12.30 0.16Int ernat ional Equit y U niverse M edian 6.15 12.03 0.51
Annua lizedExcess
Return, %
Annua lizedExcess
S tDev, %
Sha rp eRa tio,Excess
Hansberger 2.21 3.33 0.66Fisher 2.19 2.97 0.74M SCI AC W orld Index ex U SA 0.00 0.00 NAI nt ernat ional Equit y U niverse M edian 4.21 4.11 1.11
Oakland International Equity Manager Comparisonsas of December 31, 2015
36
OPFRS Quarterly Report – 4Q 2015
Oakland International Equity Manager Comparisonsas of December 31, 2015
Annualized Universe Returns
-10
-5
0
5
10
15
Tota
l Ann
ualiz
ed
Re
turn
, %
Qt r 1 Year 3 Years 5 Years
5t h t o 25t h Percent ile
25t h t o M edian
M edian t o 75t h Percent ile
75t h t o 95t h Percent ile
Hansberger
Fisher
M SCI AC W orld I ndex ex U SA
12-Month Performance
-20
-10
0
10
20
30
40
Tota
l Ann
ualiz
ed
Re
turn
, %
2011 2012 2013 2014 2015
37
OPFRS Quarterly Report – 4Q 2015
Oakland Fixed Income Manager Comparisonsas of December 31, 2015
5-Year Total Risk/Return
0
2
4
6
8
10
12
14
Tota
l Ann
ualiz
ed
Re
turn
, %
-2 0 2 4 6 8 10 12 14 16 18
Tot al Annualized St dDev , %
Reams Oakland BC U niv ersal Blend
5-Year Excess Risk/Return
-4
-2
0
2
4
6
8
10
Exc
ess
Ann
ualiz
ed
Re
turn
, %
0 2 4 6 8 10 12 14 16 18
Ex cess Annualized St dDev , %
Reams Oakland BC U niv ersal Blend
Annua lizedReturn, %
Annua lizedStd Dev, %
Sha rp eRa tio
Reams 4.06 2.73 1.49Oakland BC U niversal Blend 3.46 2.63 1.32U .S. Fixed Income M anager U niverse M edian 3.57 2.66 1.40
Annua lizedExcess
Return, %
Annua lizedExcess
S tDev, %
Sha rp eRa tio,Excess
Reams 0.60 1.19 0.50Oakland BC U niversal Blend 0.00 0.00 NAU .S. Fixed Income M anager U niverse M edian 0.11 1.03 0.13
38
OPFRS Quarterly Report – 4Q 2015
Oakland Fixed Income Manager Comparisonsas of December 31, 2015
Annualized Universe Returns
-4
-3
-2
-1
0
1
2
3
4
5
6
7
Tota
l Ann
ualiz
ed
Re
turn
, %
Qt r 1 Year 3 Years 5 Years
5t h t o 25t h Percent ile
25t h t o M edian
M edian t o 75t h Percent ile
75t h t o 95t h Percent ile
Reams
Oakland BC U niv ersal Blend
12-Month Performance
-10
-5
0
5
10
15
20
Tota
l Ann
ualiz
ed
Re
turn
, %
2012 2013 2014 2015
39
OPFRS Quarterly Report – 4Q 2015
Oakland Fixed Income Manager Comparisonsas of December 31, 2015
3-Year Total Risk/Return
0
2
4
6
8
10
12
14
Tota
l Ann
ualiz
ed
Re
turn
, %
0 2 4 6 8 10 12 14
Tot al Annualized St dDev , %
T. Row e Price BC Aggregat e Bond
3-Year Excess Risk/Return
-4
-2
0
2
4
6
8
10
Exc
ess
Ann
ualiz
ed
Re
turn
, %
0 2 4 6 8 10 12
Ex cess Annualized St dDev , %
T. Row e Price BC Aggregat e Bond
Annua lizedReturn, %
Annua lizedStd Dev, %
Sha rp eRa tio
T. Row e Price 1.78 2.90 0.61BC Aggregat e Bond 1.44 2.92 0.49U .S. Fixed I ncome M anager U niverse M edian 1.61 2.80 0.63
Annua lizedExcess
Return, %
Annua lizedExcess
StDev, %
Sha rp eRa tio,Excess
T. Row e Price 0.34 0.36 0.94BC Aggregat e Bond 0.00 0.00 NAU .S. Fixed I ncome M anager U niverse M edian 0.17 1.10 0.12
40
OPFRS Quarterly Report – 4Q 2015
Annualized Universe Returns
-4
-3
-2
-1
0
1
2
3
Tota
l Ann
ualiz
ed
Re
turn
, %
Qt r 1 Year 3 Years
5t h t o 25t h Percent ile
25t h t o M edian
M edian t o 75t h Percent ile
75t h t o 95t h Percent ile
T. Row e Price
BC Aggregat e Bond
12-Month Performance
-10
-5
0
5
10
15
20
Tota
l Ann
ualiz
ed
Re
turn
, %
2013 2014 2015
Oakland Fixed Income Manager Comparisonsas of December 31, 2015
41
Ass
et L
oadi
ngs
- Man
ager
Jan-
13 -
Dec
-15
0102030405060708090100
Rescaled Weight, %
Jan-
13M
ay-1
3Sep
-13
Jan-
14M
ay-1
4Sep
-14
Jan-
15M
ay-1
5Sep
-15
Dec
-15
Gov
1-3
Y B
ond
Gov
Int B
ond
Gov
Lon
g B
ond
Cor
pora
te B
ond
Mor
tgag
e-B
acke
d S
ecur
ities
Hig
h Yi
eld
Bon
dsS
m G
row
thS
m V
alue
Mid
Gro
wth
Mid
Val
ueTo
p G
row
thTo
p Va
lue
Cas
h
Ass
et L
oadi
ngs
- Ben
chm
ark
Jan-
13 -
Dec
-15
0102030405060708090100 Jan-
13Ju
n-13
Sep
-13
Dec
-13
Mar
-14
Jun-
14Sep
-14
Dec
-14
Mar
-15
Jun-
15Sep
-15
Dec
-15
Sty
le M
ap
-2-1012
Small - Large
-2-1
01
2
Val
ue - G
rowth
Top
Val
ueTop
Gro
wth
Mid
Val
ueM
id G
rowth
Sm
Val
ueSm
Gro
wth
Rus
sell
Style
Indi
ces
Dom
estic
Equi
tyO
akla
nd R
3000
Ble
nd
Cu
mu
lati
ve E
xces
s P
erfo
rman
ce
Dec
-12
- Dec
-15
100
110
120
130
140
150
160
Growth of $100
Dec
-12
Mar
-13
Jun-
13Sep
-13
Dec
-13
Mar
-14
Jun-
14Sep
-14
Dec
-14
Mar
-15
Jun-
15Sep
-15
Dec
-15
Dom
estic
Equ
ity
Oak
land
R30
00 B
lend
Do
mes
tic
Eq
uit
y
Mo
nth
ly A
dd
ed V
alu
e
Jan-
13 - D
ec-1
5
-1.0
-0.8
-0.5
-0.30.0
0.3
0.5
0.8
1.0
Excess Return, %
Jan-
13Ju
n-13
Dec
-13
Jun-
14D
ec-1
4Ju
n-15
Dec
-15
Mo
nth
ly A
dd
ed V
alu
e fr
om
Sel
ecti
on
Jan-
13 - D
ec-1
5
-0.5
-0.30.0
0.3
0.5
Selection Return, %
Jan-
13Ju
n-13
Dec
-13
Jun-
14D
ec-1
4Ju
n-15
Dec
-15
Mo
nth
ly A
dd
ed V
alu
e fr
om
Sty
le T
imin
g
Jan-
13 - D
ec-1
5
-0.8
-0.5
-0.30.0
0.3
0.5
0.8
Timing Return, %
Jan-
13D
ec-1
3Ju
n-14
Dec
-14
Jun-
15D
ec-1
5
Annu
alize
d R
etur
n, %
-0.2
Annu
alize
d St
dDev
, %
1.0
Info
rmat
ion
Rat
io-0
.2Si
gnif
ican
ce L
evel
, %60
.9
Annu
alize
d R
etur
n, %
0.0
Annu
alize
d S
tdD
ev, %
0.4
Info
rmat
ion
Rat
io0.
0Si
gnifi
canc
e Le
vel,
%51
.1
Ann
ualiz
ed R
etur
n, %
-0.2
Ann
ualiz
ed S
tdD
ev, %
0.9
Info
rmat
ion
Rat
io-0
.2S
igni
fica
nce
Leve
l, %
63.7
42
Ass
et L
oadi
ngs
- Man
ager
Jan-
13 -
Dec
-15
0102030405060708090100
Rescaled Weight, %
Jan-
13M
ay-1
3Sep
-13
Jan-
14M
ay-1
4Sep
-14
Jan-
15M
ay-1
5Sep
-15
Dec
-15
EU
RO
PE
VAL
UE
EU
RO
PE
GR
OW
THP
AC e
x JP
VL
PAC
ex
JP G
RJA
PAN
VAL
UE
JAP
AN G
RO
WTH
Cas
h
Ass
et L
oadi
ngs
- Ben
chm
ark
Jan-
13 -
Dec
-15
0102030405060708090100 Jan-
13Ju
n-13
Sep
-13
Dec
-13
Mar
-14
Jun-
14Sep
-14
Dec
-14
Mar
-15
Jun-
15Sep
-15
Dec
-15
Sty
le M
ap
-2-1012 -2-1
01
2
JAPAN
GR
OW
TH
JAPAN
VALU
E
PAC
ex JP
GR
PAC
ex JP
VL
EU
RO
PE G
RO
WTH
EU
RO
PE V
ALU
E
Inte
rnat
iona
l Equi
tyO
akla
nd M
SC
I AC
WI e
x U
S B
lend
Cu
mu
lati
ve E
xces
s P
erfo
rman
ce
Dec
-12
- Dec
-15
100
110
120
130
Growth of $100
Dec
-12
Mar
-13
Jun-
13Sep
-13
Dec
-13
Mar
-14
Jun-
14Sep
-14
Dec
-14
Mar
-15
Jun-
15Sep
-15
Dec
-15
Inte
rnat
iona
l Equ
ity
Oak
land
MSC
I AC
WI e
x US
Blen
d
Inte
rnat
ion
al E
qu
ity
Mo
nth
ly A
dd
ed V
alu
e
Jan-
13 - D
ec-1
5
-2-1012
Excess Return, %
Jan-
13Ju
n-13
Dec
-13
Jun-
14D
ec-1
4Ju
n-15
Dec
-15
Mo
nth
ly A
dd
ed V
alu
e fr
om
Sel
ecti
on
Jan-
13 - D
ec-1
5
-1.5
-1.0
-0.50.0
0.5
1.0
1.5
Selection Return, %
Jan-
13Ju
n-13
Dec
-13
Jun-
14D
ec-1
4Ju
n-15
Dec
-15
Mo
nth
ly A
dd
ed V
alu
e fr
om
Sty
le T
imin
g
Jan-
13 - D
ec-1
5
-1.5
-1.0
-0.50.0
0.5
1.0
1.5
Timing Return, %
Jan-
13D
ec-1
3Ju
n-14
Dec
-14
Jun-
15D
ec-1
5
Annu
alize
d R
etur
n, %
2.4
Annu
alize
d St
dDev
, %
2.2
Info
rmat
ion
Rat
io1.
1Si
gnif
ican
ce L
evel
, %96
.7
Annu
alize
d R
etur
n, %
-0.7
Annu
alize
d S
tdD
ev, %
1.2
Info
rmat
ion
Rat
io-0
.6Si
gnifi
canc
e Le
vel,
%82
.6
Ann
ualiz
ed R
etur
n, %
2.2
Ann
ualiz
ed S
tdD
ev, %
1.7
Info
rmat
ion
Rat
io1.
3S
igni
fica
nce
Leve
l, %
98.3
43
Ass
et L
oadi
ngs
- Man
ager
Jan-
13 -
Dec
-15
0102030405060708090100
Rescaled Weight, %
Jan-
13M
ay-1
3Sep
-13
Jan-
14M
ay-1
4Sep
-14
Jan-
15M
ay-1
5Sep
-15
Dec
-15
Gov
1-3
Y B
ond
Gov
Int B
ond
Gov
Lon
g B
ond
Cor
pora
te B
ond
Mor
tgag
e-B
acke
d S
ecur
ities
Hig
h Yi
eld
Bon
dsC
ash
Ass
et L
oadi
ngs
- Ben
chm
ark
Jan-
13 -
Dec
-15
0102030405060708090100 Jan-
13Ju
n-13
Sep
-13
Dec
-13
Mar
-14
Jun-
14Sep
-14
Dec
-14
Mar
-15
Jun-
15Sep
-15
Dec
-15
Sty
le M
ap
-2-1012
Credit Risk
-2-1
01
2
Sho
rt - L
ong
Hig
h Yie
ld B
onds
Mor
tgag
e-Bac
ked
Sec
uriti
es
Cor
pora
te B
ond
Gov
Lon
g B
ond
Gov
Int B
ond
Gov
1-3
Y Bon
d
Style
Map
Fixed
Inco
me
Oak
land
BC
Uni
vers
al B
lend
Cu
mu
lati
ve E
xces
s P
erfo
rman
ce
Dec
-12
- Dec
-15
95100
105
110
Growth of $100
Dec
-12
Mar
-13
Jun-
13Sep
-13
Dec
-13
Mar
-14
Jun-
14Sep
-14
Dec
-14
Mar
-15
Jun-
15Sep
-15
Dec
-15
Fixe
d In
com
eO
akla
nd B
C U
nive
rsal
Ble
ndF
ixed
In
com
e
Mo
nth
ly A
dd
ed V
alu
e
Jan-
13 - D
ec-1
5
-0.5
-0.30.0
0.3
0.5
Excess Return, %
Jan-
13Ju
n-13
Dec
-13
Jun-
14D
ec-1
4Ju
n-15
Dec
-15
Mo
nth
ly A
dd
ed V
alu
e fr
om
Sel
ecti
on
Jan-
13 - D
ec-1
5
-0.5
-0.30.0
0.3
0.5
Selection Return, %
Jan-
13Ju
n-13
Dec
-13
Jun-
14D
ec-1
4Ju
n-15
Dec
-15
Mo
nth
ly A
dd
ed V
alu
e fr
om
Sty
le T
imin
g
Jan-
13 - D
ec-1
5
-0.2
-0.10.0
0.1
Timing Return, %
Jan-
13D
ec-1
3Ju
n-14
Dec
-14
Jun-
15D
ec-1
5
Annu
alize
d R
etur
n, %
-0.3
Annu
alize
d St
dDev
, %
0.5
Info
rmat
ion
Rat
io-0
.6Si
gnif
ican
ce L
evel
, %84
.5
Annu
alize
d R
etur
n, %
-0.4
Annu
alize
d S
tdD
ev, %
0.3
Info
rmat
ion
Rat
io-1
.2Si
gnifi
canc
e Le
vel,
%97
.1
Ann
ualiz
ed R
etur
n, %
0.0
Ann
ualiz
ed S
tdD
ev, %
0.2
Info
rmat
ion
Rat
io0.
1S
igni
fica
nce
Leve
l, %
56.7
44
OPFRS Quarterly Report – 4Q 2015
Appendix
45
OPFRS Quarterly Report – 4Q 2015
Glossary
Alpha
The premium an investment
earns above a set standard. This
is usually measured in terms of a
common index (i.e., how the
stock performs independent of
the market). An Alpha is usually
generated by regressing a
security’s exces s return on the
S&P 500 excess return.
Annualized Performance
The annual rate of return that
when compounded t times
generates the same t -period
holding return as actually
occurred from period 1 to period
t.
Batting Average
Percentage of periods a port folio
outperforms a given index.
Beta
The measure of an asset’s risk in
relation to the Market (for
example, the S&P 500) or to an
alternative benchmark or factors.
Roughly speaking, a security with
a Beta of 1.5, will have moved,
on average, 1.5 times t he market
return.
Bottom-up
A management style that de -
emphasizes the significance of
economic and market cycles,
focusing instead on the analysis
of individual stocks.
Dividend Discount Model
A method to value the common
stock of a company that is based
on the present value of the
expected future dividends.
Growth Stocks
Common stock of a company that
has an opportunity to invest
money and earn more than the
opportunity cost of capital.
Information Ratio
The ratio of annualized expected
residual r eturn to residual risk. A
central measurement for active
management, value added is
proportional to the square of the
information ratio.
R-Squared
Square of the correlation
coefficient. The proportion of the
variability in one series that can
be explaine d by the variability of
one or more other series a
regression model. A measure of
the quality of fit. 100% R-square
means perfect predictability.
Standard Deviation
The square root of the variance.
A measure of dispersion of a set
of data from its mean.
Sharpe Ratio
A measure of a portfolio`s excess
return relative to the total
variability of the portfolio.
Style Analysis
A returns -based analysis using a
multi-factor attribution model.
The model calculates a product’s
average exposure to particular
investment styles over time (i.e.,
the product’s normal style
benchmark).
Top-down
Investment style that begins with
an assessment of the overall
economic environment and
makes a general asset allocation
decision regarding various
sectors of the financial markets
and various industries.
Tracking Error
The standard deviation of the
difference between the
performance of a portfolio and an
appropriate benchmark.
Turnover
For mutual funds, a measure of
trading activity during the
previous year, expressed as a
percentage of the average total
assets of the fund. A turnover
rate of 25% means that the value
of trades represented one -fourth
of the assets of the fund.
Value Stocks
Stocks with low price/book ratios
or price/earnings ratios.
Historically, value stocks have
enjoyed higher average returns
than growth stocks (stocks with
high price/book or P/E ratios) in a
variety of countries.
46
OPFRS Quarterly Report – 4Q 2015
Barclays Capital Universal: includes market coverage by the Aggregate Bond Index fixed rate debt issues, which are rated investment grade or higher by Moody’s Investor Services, Standard and Poor’s Corporation, or Fitch Investor’s Service, in that order with all issues having at least one year to maturity and an outstanding par value of at least $100 million) and includes exposures to high yield CMBS securities. All returns are market value weighted inclusive of accrued interest.
MSCI ACWI x US: MSCI ACWI (All Country World Index) Free excluding US (gross dividends): is a free-floating adjusted market capitalization index designed to measure equity performance in the global developed and emerging markets. As of April 2002, the index consisted of 49 developed and emerging market country indices.
MSCI EAFE (Europe, Australasia, Far East): is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada.
Russell 1000: measures the performance of the 1,000 largest securities in the Russell 3000 Index. Russell 1000 is highly correlated with the S&P 500 Index and capitalization-weighted.
Russell 1000 Growth: measures the performance of those Russell 1000 securities with a greater-than-average growth orientation. Securities in this index tend to exhibit higher price-to-book and price-earnings ratios, lower dividend yields and higher forecasted growth values than the Value universe.
Russell 1000 Value: measures the performance of those Russell 1000 securities with a less-than-average growth orientation. Securities in this index tend to exhibit lower price-to-book and price-earnings ratios, higher dividend yields and lower forecasted growth values than the Growth universe.
Russell MidCap: measures the performance of the smallest 800 companies in the Russell 1000 Index, as ranked by total market capitalization.
Russell 2000: measures the performance of the 2,000 smallest securities in the Russell 3000 Index. Russell 2000 is market capitalization-weighted.
Russell 2000 Growth: measures the performance of those Russell 2000 securities with a greater-than-average growth orientation. Securities in this index tend to exhibit higher price-to-book and price-to-earnings ratios.
Russell 2000 Value: measures the performance of those Russell 2000 securities with a less-than-average growth orientation. Securities in this index tend to exhibit lower price-to-book and price-to-earnings ratios.
CBOE BXM: measures the performance of a hypothetical buy-write strategy on the S&P 500 Index.
CPI + 3%: measures changes in the price level of the Consumer Price Index (CPI) with the addition of an additional 300 basis points. The CPI is a sample estimate which tracks the price level changes of a market basket of consumer goods and services purchased by households.
Benchmark Definitions
47
OPFRS Quarterly Report – 4Q 2015
US Equity Markets:
Metric: P/E ratio = Price / “Normalized” earnings for the S&P 500 Index
To represent the price of US equity markets, we have chosen the S&P 500 index. This index hasthe longest published history of price, is well known, and also has reliable, long-term, publishedquarterly earnings. The price=P of the P/E ratio is the current price of the market index (theaverage daily price of the most recent full month for the S&P 500 index). Equity markets are veryvolatile. Prices fluctuate significantly during normal times and extremely during periods of marketstress or euphoria. Therefore, developing a measure of earnings power (E) which is stable is vitallyimportant, if the measure is to provide insight. While equity prices can and do double, or get cut inhalf, real earnings power does not change nearly as much. Therefore, we have selected a wellknown measure of real, stable earnings power developed by Yale Professor Robert Shiller knownas the Shiller E-10. The calculation of E-10 is simply the average real annual earnings over the past10 years. Over 10 years, the earnings shenanigans and boom and bust levels of earnings tend toeven out (and often times get restated). Therefore, this earnings statistic gives a reasonably stable,slow-to-change estimate of average real earnings power for the index. Professor Shiller’s data andcalculation of the E-10 are available on his website at http://www.econ.yale.edu/~shiller/data.htm.We have used his data as the base for our calculations. Details of the theoretical justificationbehind the measure can be found in his book Irrational Exuberance [Princeton University Press2000, Broadway Books 2001, 2nd ed., 2005].
Developed Equity Markets Excluding the US:
Metric: P/E ratio = Price / “Normalized” earnings for the MSCI EAFE Index
To represent the price of non-US developed equity markets, we have chosen the MSCI EAFEindex. This index has the longest published history of price for non-US developed equities. Theprice=P of the P/E ratio is the current price of the market index (the average daily price of the mostrecent full month for the MSCI EAFE index). The price level of this index is available starting inDecember 1969. Again, for the reasons described above, we elected to use the Shiller E-10 as ourmeasure of earnings (E). Since 12/1972, a monthly price earnings ratio is available from MSCI.Using this quoted ratio, we have backed out the implied trailing-twelve month earnings of the EAFEindex for each month from 12/1972 to the present. These annualized earnings are then inflationadjusted using CPI-U to represent real earnings in US dollar terms for each time period. The ShillerE-10 for the EAFE index (10 year average real earnings) is calculated in the same manner asdetailed above.
However, we do not believe that the pricing and earnings history of the EAFE markets are longenough to be a reliable representation of pricing history for developed market equities outside of theUS. Therefore, in constructing the Long-Term Average Historical P/E for developed ex-US equitiesfor comparison purposes, we have elected to use the US equity market as a developed marketproxy, from 1881 to 1982. This lowers the Long-Term Average Historical P/E considerably. Webelieve this methodology provides a more realistic historical comparison for a market with arelatively short history.
RISK METRIC DESCRIPTION – Rationale for selection and calculation methodology
48
OPFRS Quarterly Report – 4Q 2015
Emerging Market Equity Markets:
Metric: Ratio of Emerging Market P/E Ratio to Developed Market P/E Ratio
To represent the Emerging Markets P/E Ratio, we have chosen the MSCI Emerging Market Free Index,which has P/E data back to January 1995 on Bloomberg. To represent the Developed Markets PE Ratio,we have chosen the MSCI World Index, which also has data back to January 1995 on Bloomberg.Although there are issues with published, single time period P/E ratios, in which the denominator effect cancause large movements, we feel that the information contained in such movements will alert investors tomarket activity that they will want to interpret.
US Private Equity Markets:
Metrics: S&P LCD Average EBITDA Multiples Paid in LBOs and US Quarterly Deal Volume
The Average Purchase Price to EBITDA multiples paid in LBOs is published quarterly by S&P in their LCDstudy. This is the total price paid (both equity and debt) over the trailing-twelve month EBITDA (earningsbefore interest, taxes, depreciation and amortization) as calculated by S&P LCD. This is the relevant, high-level pricing metric that private equity managers use in assessing deals. Data is published monthly.
US quarterly deal volume for private equity is the total deal volume in $ billions (both equity and debt)reported in the quarter by Thomson Reuters Buyouts. This metric gives a measure of the level of activity inthe market. Data is published quarterly.
U.S Private Real Estate Markets:
Metrics: US Cap rates and Annual US Real Estate Deal Volume
Real estate cap rates are a measure of the price paid in the market to acquire properties versus theirannualized income generation before financing costs (NOI=net operating income). The date is published byNCREIF. We chose to use current value cap rate. These are capitalization rates from properties that wererevalued during the quarter. While this data does rely on estimates of value and therefore tends to belagging, (estimated prices are slower to rise and slow to fall than transaction prices), the data series goesback to1979, providing a long data series for valuation comparison. Data is published quarterly.
Annual US real estate deal volume is the total deal transaction volume in $ billions (both equity and debt)reported by Real Capital Analytics during the trailing-twelve months. This metric gives the level of activityin the market. Data is published monthly.
Measure of Equity Market Fear / Uncertainty
Metric: VIX – Measure of implied option volatility for U.S. equity markets
The VIX is a key measure of near-term volatility conveyed by implied volatility of S&P 500 index optionprices. VIX increases with uncertainty and fear. Stocks and the VIX are negatively correlated. Volatilitytends to spike when equity markets fall.
49
OPFRS Quarterly Report – 4Q 2015
Measure of Monetary Policy
Metric: Yield Curve Slope
We calculate the yield curve slope as the 10 year treasury yield minus the 1 year treasury yield. When theyield curve slope is zero or negative, this is a signal to pay attention. A negative yield curve slope signalslower rates in the future, caused by a contraction in economic activity. Recessions are typically precededby an inverted (negatively sloped) yield curve. A very steep yield curve (2 or greater) indicates a largedifference between shorter-term interest rates (the 1 year rate) and longer-term rates (the 10 year rate).This can signal expansion in economic activity in the future, or merely higher future interest rates.
Definition of “extreme” metric readings
A metric reading is defined as “extreme” if the metric reading is in the top or bottom decile of its historicalreadings. These “extreme” reading should cause the reader to pay attention. These metrics have revertedtoward their mean values in the past.
Credit Markets US Fixed Income:
Metric: Spreads
The absolute level of spreads over treasuries and spread trends (widening / narrowing) are good indicatorsof credit risk in the fixed income markets. Spreads incorporate estimates of future default, but can also bedriven by technical dislocations in the fixed income markets. Abnormally narrow spreads (relative tohistorical levels) indicate higher levels of valuation risk, wide spreads indicate lower levels of valuation riskand / or elevated default fears. Investment grade bond spreads are represented by the Barclays CapitalUS Corporate Investment Grade Index Intermediate Component. The high yield corporate bond spreadsare represented by the Barclays Capital US Corporate High Yield Index.
Measures of US Inflation Expectations
Metrics: Breakeven Inflation and Inflation Adjusted Commodity Prices
Inflation is a very important indicator impacting all assets and financial instruments. Breakeven inflation iscalculated as the 10 year nominal treasury yield minus the 10 year real yield on US TIPS (treasury inflationprotected securities). Abnormally low long-term inflation expectations are indicative of deflationary fears. Arapid rise in breakeven inflation indicates acceleration in inflationary expectations as market participantssell nominal treasuries and buy TIPs. If breakeven inflation continues to rise quarter over quarter, this is asignal of inflationary worries rising, which may cause Fed action and / or dollar decline.
Commodity price movement (above the rate of inflation) is an indication of anticipated inflation caused byreal global economic activity putting pressure on resource prices. We calculate this metric by adjusted inthe Dow Jones UBS Commodity Index (formerly Dow Jones AIG Commodity Index) by US CPI-U. Whilerising commodity prices will not necessarily translate to higher US inflation, higher US inflation will likelyshow up in higher commodity prices, particularly if world economic activity is robust.
These two measures of anticipated inflation can, and often are, conflicting.
50
OPFRS Quarterly Report – 4Q 2015
Measures of US Treasury Bond Interest Rate Risk
Metrics: 10-Year Treasury Forward-Looking Real Yield and 10-Year Treasury Duration
The expected annualized real yield of the 10 year US Treasury Bond is a measure of valuation risk for USTreasuries. A low real yield means investors will accept a low rate of expected return for the certainly ofreceiving their nominal cash flows. PCA estimates the expected annualized real yield by subtracting anestimate of expected 10 year inflation (produced by the Survey of Professional Forecasters as collected bythe Federal Reserve Bank of Philadelphia), from the 10 year Treasury constant maturity interest rate.
Duration for the 10-Year Treasury Bond is calculated based on the current yield and a price of 100. This isa measure of expected percentage movements in the price of the bond based on small movements inpercentage yield. We make no attempt to account for convexity.
51
OPFRS Quarterly Report – 4Q 2015
RISK METRICS DESCRIPTION – PCA Market Sentiment Indicator
What is the PCA Market Sentiment Indicator (PMSI)?
The PMSI is a measure meant to gauge the market’s sentiment regarding economic growth risk. Growthrisk cuts across most financial assets, and is the largest risk exposure that most portfolios bear. The PMSItakes into account the momentum (trend over time, positive or negative) of the economic growth riskexposure of publicly traded stocks and bonds, as a signal of the future direction of growth risk returns;either positive (risk seeking market sentiment), or negative (risk averse market sentiment).
How do I read the PCA Market Sentiment Indicator (PMSI) graph?
Simply put, the PMSI is a color coded indicator that signals the market’s sentiment regarding economicgrowth risk. It is read left to right chronologically. A green indicator on the PMSI indicates that the market’ssentiment towards growth risk is positive. A gray indicator indicates that the market’s sentiment towardsgrowth risk is neutral or inconclusive. A red indicator indicates that the market’s sentiment towards growthrisk is negative. The black line on the graph is the level of the PMSI. The degree of the signal above orbelow the neutral reading is an indication the signal’s current strength.
How is the PCA Market Sentiment Indicator (PMSI) Constructed?
The PMSI is constructed from two sub-elements representing investor sentiment in stocks and bonds:
1.Stock return momentum: Return momentum for the S&P 500 Equity Index (trailing 12-months)
2.Bond yield spread momentum: Momentum of bond yield spreads (excess of the measured bond yieldover the identical duration U.S. Treasury bond yield) for corporate bonds (trailing 12-months) for bothinvestment grade bonds (75% weight) and high yield bonds (25% weight). The scale of this measure isadjusted to match that of the stock return momentum measure.
The black line reading on the graph is calculated as the average of the stock return momentum measureand the bonds spread momentum measure. The color reading on the graph is determined as follows:
1.If both stock return momentum and bond spread momentum are positive = GREEN (positive)
2.If one of the momentum indicators is positive, and the other negative = GRAY (inconclusive)
3.If both stock return momentum and bond spread momentum are negative = RED (negative)
What does the PCA Market Sentiment Indicator (PMSI) mean? Why might it be useful?
There is strong evidence that time series momentum is significant and persistent. In particular, across anextensive array of asset classes, the sign of the trailing 12-month return (positive or negative) is indicativeof future returns (positive or negative) over the next 12 month period. The PMSI is constructed to measurethis momentum in stocks and corporate bond spreads. A reading of green or red is agreement of both theequity and bond measures, indicating that it is likely that this trend (positive or negative) will continue overthe next 12 months. When the measures disagree, the indicator turns gray. A gray reading does notnecessarily mean a new trend is occurring, as the indicator may move back to green, or into the red fromthere. The level of the reading (black line) and the number of months at the red or green reading, gives theuser additional information on which to form an opinion, and potentially take action.
Momentum is defined as the persistence of relative performance. There is a significant amount of academic evidence indicating that positive momentum (e.g.,strong performing stocks over the recent past continue to post strong performance into the near future) exists over near-to-intermediate holding periods. See,for example, “Understanding Momentum,” Financial Analysts Journal, Scowcroft, Sefton, March, 2005.
52
OPFRS Quarterly Report – 4Q 2015
DISCLOSURES: This document is provided for informational purposes only. It does not constitute an offer of securities of any of theissuers that may be described herein. Information contained herein may have been provided by third parties, including investmentfirms providing information on returns and assets under management, and may not have been independently verified. The pastperformance information contained in this report is not necessarily indicative of future results and there is no assurance that theinvestment in question will achieve comparable results or that the Firm will be able to implement its investment strategy or achieveits investment objectives. The actual realized value of currently unrealized investments (if any) will depend on a variety of factors,including future operating results, the value of the assets and market conditions at the time of disposition, any related transactioncosts and the timing and manner of sale, all of which may differ from the assumptions and circumstances on which any currentunrealized valuations are based.
Neither PCA nor PCA’s officers, employees or agents, make any representation or warranty, express or implied, in relation to theaccuracy or completeness of the information contained in this document or any oral information provided in connection herewith, orany data subsequently generated herefrom, and accept no responsibility, obligation or liability (whether direct or indirect, in contract,tort or otherwise) in relation to any of such information. PCA and PCA’s officers, employees and agents expressly disclaim any andall liability that may be based on this document and any errors therein or omissions therefrom. Neither PCA nor any of PCA’sofficers, employees or agents, make any representation of warranty, express or implied, that any transaction has been or may beeffected on the terms or in the manner stated in this document, or as to the achievement or reasonableness of future projections,management targets, estimates, prospects or returns, if any. Any views or terms contained herein are preliminary only, and arebased on financial, economic, market and other conditions prevailing as of the date of this document and are therefore subject tochange.
The information contained in this report may include forward-looking statements. Forward-looking statements include a number ofrisks, uncertainties and other factors beyond the control of the Firm, which may result in material differences in actual results,performance or other expectations. The opinions, estimates and analyses reflect PCA’s current judgment, which may change in thefuture.
Any tables, graphs or charts relating to past performance included in this report are intended only to illustrate investmentperformance for the historical periods shown. Such tables, graphs and charts are not intended to predict future performance andshould not be used as the basis for an investment decision.
All trademarks or product names mentioned herein are the property of their respective owners. Indices are unmanaged and onecannot invest directly in an index. The index data provided is on an “as is” basis. In no event shall the index providers or itsaffiliates have any liability of any kind in connection with the index data or the portfolio described herein. Copying or redistributingthe index data is strictly prohibited.
The Russell indices are either registered trademarks or tradenames of Frank Russell Company in the U.S. and/or other countries.
The MSCI indices are trademarks and service marks of MSCI or its subsidiaries.
Standard and Poor’s (S&P) is a division of The McGraw-Hill Companies, Inc. S&P indices, including the S&P 500, are a registeredtrademark of The McGraw-Hill Companies, Inc.
CBOE, not S&P, calculates and disseminates the BXM Index. The CBOE has a business relationship with Standard & Poor's on theBXM. CBOE and Chicago Board Options Exchange are registered trademarks of the CBOE, and SPX, and CBOE S&P 500BuyWrite Index BXM are servicemarks of the CBOE. The methodology of the CBOE S&P 500 BuyWrite Index is owned by CBOEand may be covered by one or more patents or pending patent applications.
The Barclays Capital indices (formerly known as the Lehman indices) are trademarks of Barclays Capital, Inc.
The Citigroup indices are trademarks of Citicorp or its affiliates.
The Merrill Lynch indices are trademarks of Merrill Lynch & Co. or its affiliates.
53
Pension Consulting Alliance, Inc. | | 2016 Ten-Year Capital Market Assumptions page
2016 TEN-YEAR CAPITAL MARKET ASSUMPTIONS
PENSION CONSULTING ALLIANCE, INC.
TABLE OF CONTENTS
2016 vs. 2015 Assumptions 2
Summary & Highlights 2
Creating Arithmetic Returns 3
Creating Geometric Returns 3
Detailed Assumptions Appendix
Pension Consulting Alliance, Inc. | | 2016 Ten-Year Capital Market Assumptions page 2
ASSET CLASSIFICATION 2015
COMPOUND EXPECTED
RETURN
2016 COMPOUND EXPECTED
RETURN
CHANGE from
2015 to 2016
Cash 2.00 2.00 0.00 Treasury Inflation Protected Securities 3.00 3.00 0.00 US Treasuries Only Fixed Income 2.00 1.90 -0.10 US Core Fixed Income 2.65 2.90 0.25 US Credit Fixed Income 3.30 3.85 0.55 Core Real Estate 5.60 5.10 -0.50
Domestic Equity 6.90 6.90 0.00
International Equity 7.20 7.45 0.25
Global Equity 7.20 7.45 0.25 Hedged International Equity 7.40 7.65 0.25 Private Equity/Venture Capital 8.80 9.05 0.25 Inflation 2.50 2.25 -0.25
2016 vs. 2015 ASSUMPTIONS
A comparison of PCA’s 2016 10-year compound asset class total return assumptions versus those in 2015.
1. We use a building block method for estimating arithmetic returns as detailed on page 3: (Inflation) + (Real Risk Free Rate of Cash) + (Premium over Real Risk Free Rate)
2. All risky-asset class return expectations (all asset classes that are not cash) are built as risk premiums over cash. Our expectations for long-term cash returns are 25 basis points below inflation at 2.00%.
3. Compound expected return estimates are the result of first estimating arithmetic average asset class returns and volatilities, which are then converted to geometric return estimates.
4. We project cash to return less than inflation over the next 10-year period.
5. Based on these assumptions, an allocation of 60% global public equities, 20% core bonds, 10% core real estate, and 10% private equity, has an expected long-term compound return of approximately 6.9%.
6. Mean-variance analysis is a reasonable starting point for portfolio analysis; other approaches are warranted.
2016 SUMMARY & HIGHLIGHTS
Pension Consulting Alliance, Inc. | | 2016 Ten-Year Capital Market Assumptions page 3
CREATING ARITHMETIC RETURNS
CREATING GEOMETRIC RETURNS
ASSET CLASS INFLATION + REAL RISK-FREE RATE + RISK
PREMIUM = ARITHMETIC RETURN
US Treasuries Only Fixed Income
2.25 + -0.25 +
0.00 = 2.00
US Core Fixed Income 1.00 = 3.00
US Credit Fixed Income 2.00 = 4.00
Core Real Estate 3.50 = 5.50
Domestic Equity 6.50 = 8.50
International Equity 7.50 = 9.50
Global Equity 7.10 = 9.10
Hedged International Equity 7.40 = 9.40
Alt. Inv./Private Equity 10.10 = 12.10
(ARITHMETIC RETURN ESTIMATE) – (VOLATILITY PENALTY) = (GEOMETRIC RETURN ESTIMATE)
ASSET CLASSIFICATION ARITHMETIC
RETURN ESTIMATE
VOLATILITY PENALTY
GEOMETRIC RETURN
ESTIMATE
EXPECTED
STANDARD
DEVIATION
Cash 2.00 n/a 2.00 1.00
Treasury Infl. Protected Securities 3.15 -0.15 3.00 6.00
US Treasuries Only Fixed Income 2.00 -0.10 1.90 5.00
US Core Fixed Income 3.00 -0.10 2.90 4.00
US Credit Fixed Income 4.00 -0.15 3.85 6.00
Core Real Estate 5.50 -0.40 5.10 9.00
Domestic Equity 8.50 -1.60 6.90 18.50
International Equity 9.50 -2.05 7.45 21.00
Global Equity* 9.10 -1.65 7.45 19.00
Hedged International Equity 9.40 -1.75 7.65 19.50
Private Capital/Venture Capital 12.10 -3.05 9.05 26.00
Inflation 2.25 n/a 2.25 1.00
*Not a simple average of international and domestic equity compound returns. Lower volatility penalty due to diversification leads to higher compound return.
20
16
Ten
-Year
Retu
rn, R
isk,
an
d C
orr
ela
tion
Assum
ptio
ns
Last
revi
sion
: 2/
2016
Sum
mar
y of
Inve
stm
ent C
lass
Ass
umpt
ions
Ex
pect
ed
Arith
met
ic
Aver
age
Nom
inal
An
nual
R
etur
n
Expe
cted
G
eom
etric
1 C
ompo
und
Nom
inal
An
nual
R
etur
n
Expe
cted
R
isk
of
Nom
inal
R
etur
ns
(Ann
l. SD
)
Cas
h TI
PS
TSY
Cor
eFxd
C
redi
t R
ealE
st
USE
q In
tlEq
Glb
lEq
HIn
tlEq
Priv
Eq
Cas
h 2.
00
2.00
1.
00
Trea
sury
Infl.
Pro
tect
ed S
ecur
ities
3.
15
3.00
6.
00
0.20
U
S T
reas
urie
s O
nly
Fixe
d In
com
e 2.
00
1.90
5.
00
0.30
0.
50
US
Cor
e Fi
xed
Inco
me
3.00
2.
90
4.00
0.
25
0.60
0.
30
US
Cre
dit F
ixed
Inco
me
4.00
3.
85
6.00
0.
00
0.65
0.
00
0.75
C
ore
Rea
l Est
ate
5.50
5.
10
9.00
0.
30
0.00
0.
00
0.00
0.
00
Dom
estic
Equ
ity
8.50
6.
90
18.5
0 0.
00
0.00
-0
.25
0.20
0.
40
0.40
In
tern
atio
nal E
quity
9.
50
7.45
21
.00
0.00
0.
00
-0.3
50.
10
0.20
0.
30
0.80
G
loba
l Equ
ity2
9.10
7.
45
19.0
0 0.
00
0.00
-0
.30
0.15
0.
30
0.35
0.
90
0.90
H
edge
d In
tern
atio
nal E
quity
9.
40
7.65
19
.50
0.00
0.
00
-0.3
00.
10
0.30
0.
35
0.85
0.
90
0.90
P
rivat
e E
quity
/Ven
ture
Cap
ital
12.1
0 9.
05
26.0
0 0.
00
0.00
-0
.30
0.00
0.
30
0.30
0.
85
0.80
0.
80
0.80
In
flatio
n 2.
25
2.25
1.
00
0.50
0.
45
-0.1
00.
00
0.10
0.
35
0.20
0.
20
0.20
0.
20
0.10
Sign
ifica
nt C
hang
es fr
om L
ast Y
ear’s
Jan
uary
201
5 Te
n-Ye
ar A
ssum
ptio
ns U
pdat
e
In
flatio
n ex
pect
atio
ns d
eclin
ed w
ith lo
wer
mar
ket b
reak
even
infla
tion
leve
ls, l
ower
real
ized
infla
tion,
and
low
er c
onse
nsus
pro
ject
ions
.
Cor
e fix
ed in
com
e ex
pect
ed re
turn
s ha
ve in
crea
sed
due
to a
yea
r-ov
er-y
ear i
ncre
ase
in y
ield
s.
U.S
. equ
ity e
xpec
tatio
ns re
mai
n un
chan
ged,
follo
win
g a
year
of l
ow re
turn
s an
d lit
tle c
hang
e in
val
uatio
ns.
N
on-U
.S. e
quity
exp
ecta
tions
hav
e ris
en, f
ollo
win
g a
year
of n
egat
ive
retu
rns,
lead
ing
to im
prov
ed v
alua
tions
out
side
of t
he U
.S.
Indi
ces
Use
d in
Mod
elin
g As
set C
lass
Ass
umpt
ions
As
set C
lass
In
dex
Cas
h C
itigr
oup
3 m
onth
US
Tre
asur
y B
ill In
dex
TIP
S
Bar
clay
s C
apita
l TIP
S, s
imul
ated
TIP
S s
erie
s pe
r Brid
gew
ater
U
S T
reas
urie
s O
nly
Fixe
d In
com
e B
arcl
ays
Cap
ital U
S T
reas
urie
s In
dex
US
Cor
e Fi
xed
Inco
me
Bar
clay
s C
apita
l Uni
vers
al, B
arcl
ays
Cap
ital A
ggre
gate
Inde
x, B
arcl
ays
Cap
ital G
/C In
dex,
Bar
clay
s C
apita
l In
term
edia
te G
ovt.
Inde
x, B
arcl
ays
Cap
ital C
orp/
Cre
dit I
ndex
U
S C
redi
t Fix
ed In
com
e B
arcl
ays
Cap
ital U
S U
nive
rsal
Spr
ead
1-10
Inde
x, B
arcl
ays
Cap
ital C
orp/
Cre
dit I
ndex
C
ore
Rea
l Est
ate
NC
RE
IF N
PI I
ndex
, Prio
r Ind
ices
D
omes
tic E
quity
R
usse
ll 30
00 In
dex,
S&
P 5
00 In
dex
Inte
rnat
iona
l Equ
ity
MS
CI/B
arra
AC
WI e
x-U
S In
dex,
MS
CI/B
arra
EA
FE In
dex
Glo
bal E
quity
M
SC
I/Bar
ra A
CW
I Ind
ex
Hed
ged
Intl.
Equ
ity
Hed
ged
MS
CI/B
arra
EA
FE In
dex,
MS
CI/B
arra
AC
WI e
x-U
S In
dex,
MS
CI/B
arra
EM
F In
dex
Priv
ate
Equ
ity
Prio
r Brin
son
Ven
ture
Cap
ital I
ndex
, VC
J P
ost V
entu
re C
apita
l Ind
ex
1 Geo
met
ric re
turn
s ar
e co
mpa
rabl
e to
act
uaria
l ass
umpt
ion
rate
s fo
r pen
sion
fund
s.
2 The
com
poun
d re
turn
est
imat
e of
Glo
bal E
quity
is n
ot a
sim
ple
aver
age
betw
een
Dom
estic
Equ
ity a
nd In
tern
atio
nal E
quity
com
poun
d re
turn
s. In
tern
atio
nal E
quity
and
Dom
estic
Equ
ity a
re
not p
erfe
ctly
cor
rela
ted.
The
refo
re, a
Glo
bal E
quity
por
tfolio
has
low
er v
olat
ility
than
the
wei
ghte
d av
erag
e of
com
pone
nt v
olat
ilitie
s. L
ower
vol
atili
ty re
sults
in h
ighe
r com
poun
d re
turn
s.
page 4
20
16
Ten
-Year
Retu
rn, R
isk,
an
d C
orr
ela
tion
Assum
ptio
ns
L
ast r
evis
ion:
2/2
016
Expe
cted
Infla
tion,
Ave
rage
Ann
ual R
isk
Free
Rat
es &
Ann
ual R
isk
Prem
ium
s fo
r Var
ious
Cla
sses
- %
C
ateg
ory
Expe
ctat
ion
– An
nual
%
Com
men
ts
Infla
tion
2.25
Long
-term
infla
tion
expe
ctat
ions
hav
e be
en r
evis
ed d
ownw
ard
(25
bps)
fro
m la
st y
ear.
The
TIP
S b
reak
even
in
flatio
n ra
te, o
ne im
porta
nt d
ata
poin
t ind
icat
ive
of e
quili
briu
m p
ricin
g of
infla
tion
expe
ctat
ions
, was
1.5
% a
s of
D
ecem
ber
2015
. Th
e re
al r
ate
of 1
0-ye
ar T
IPS
inc
reas
ed i
n 20
15 t
o ap
prox
imat
ely
0.75
% a
s of
yea
r en
d.
Rea
lized
inf
latio
n ha
s al
so b
een
very
low
, <1
.0%
on
an a
nnua
lized
bas
is a
fter
seas
onal
adj
ustm
ent.
Thi
s m
arks
the
firs
t tim
e si
nce
the
1960
s th
at r
ealiz
ed in
flatio
n ha
s be
en b
elow
2%
for
fou
r co
nsec
utiv
e ca
lend
ar
year
s. T
he U
nive
rsity
of M
ichi
gan
Sur
vey
of 5
-to-1
0 ye
ar a
nnua
l inf
latio
n ex
pect
atio
ns re
gist
ered
at 2
.6%
as
of
Dec
embe
r 20
15 d
eclin
ing
20bp
s fro
m t
he p
rior
year
. C
omm
odity
pric
es (
broa
dly)
con
tinue
d to
fal
l dur
ing
the
year
s, w
ith o
il pr
ices
falli
ng b
elow
$30
afte
r ye
ar e
nd. T
he U
.S. u
nem
ploy
men
t rat
e ha
s co
ntin
ued
to d
eclin
e (d
ropp
ing
to 5
.0%
in D
ecem
ber
2015
from
5.6
% in
Dec
embe
r 20
14).
Fina
lly, t
he F
ed r
aise
d th
eir
targ
et s
hort-
term
inte
rst
rate
by
25 b
asis
poi
nts
at t
heir
Dec
embe
r m
eetin
g, a
mov
e no
t w
ell r
ecei
ved
by c
omm
odity
and
eq
uity
mar
kets
in e
arly
201
6, in
dica
ting
dow
nwar
d pr
essu
re o
n gr
owth
and
inf
latio
n ex
pect
atio
ns.
Rea
l Ris
k-Fr
ee R
ates
Sho
rt-te
rm (C
ash)
-0
.25
Fede
ral R
eser
ve r
aise
d sh
ort-t
erm
lend
ing
rate
s in
Dec
embe
r to
app
roxi
mat
ely
35bp
s af
ter
float
ing
betw
een
0.05
% a
nd 0
.15%
dur
ing
the
year
. Thi
s le
vel i
s st
ill m
uch
low
er th
an lo
ng-te
rm in
flatio
n ex
pect
atio
ns a
nd re
cent
re
aliz
ed i
nfla
tion.
Th
us,
the
Fed’
s cu
rrent
sho
rt-te
rm r
ates
est
ablis
h re
al l
endi
ng r
ates
tha
t ar
e si
gnifi
cant
ly
nega
tive.
E
xpec
tatio
ns a
re f
or t
hese
low
sho
rt-te
rm l
endi
ng r
ates
(th
us n
egat
ive
real
rat
es)
to r
ise
slow
ly,
lead
ing
to n
egat
ive
real
rate
s ov
er th
e in
vest
men
t hor
izon
on
aver
age.
Long
er-te
rm (1
0-ye
ar T
IPS
yie
ld)
0.75
Th
e ex
pect
ed lo
ng-te
rm r
eal y
ield
is p
roje
cted
as
the
curre
nt 1
0-ye
ar T
IPS
rea
l yie
ld.
As
of D
ecem
ber
2015
, th
e 10
-Yea
r TIP
S re
al y
ield
was
app
roxi
mat
ely
0.75
%, i
ncre
asin
g fro
m 0
.50%
in D
ecem
ber 2
014.
Ris
k Pr
emiu
ms
over
Sho
rt-te
rm R
isk-
free
Rat
e:
US
Tre
asur
ies
Onl
y Fi
xed
Inco
me
US
Cor
e Fi
xed
Inco
me
US
Cre
dit F
ixed
Inco
me
0.00
1.
00
2.00
As
of D
ecem
ber
2015
, the
yie
ld-to
-mat
urity
(YT
M)
on th
e U
.S. T
reas
ury
Inde
x w
as 1
.7%
. The
YTM
on
the
10-
year
tre
asur
y w
as 2
.3%
and
fel
l to
belo
w 1
.9%
afte
r ye
ar e
nd 2
015.
The
YTM
on
the
Bar
clay
s C
apita
l U.S
. U
nive
rsal
as
of D
ecem
ber
2015
was
3.2
%.
The
YTM
on
the
U.S
. U
nive
rsal
Spr
ead
1-to
-10
year
Ind
ex w
as
4.25
%. 2
015
saw
cre
dit s
prea
ds w
iden
yea
r-ove
r-yea
r, m
ovin
g ab
ove
long
-term
ave
rage
leve
ls. I
nter
est r
ates
on
sho
rt-te
rm U
.S. T
reas
ury
debt
incr
ease
d w
hile
long
term
rate
s fe
ll, f
latte
ning
the
yiel
d cu
rve.
The
Fed
rais
ed
inte
rest
rate
s in
201
5 bu
t exp
ecta
tions
are
for a
slo
w ri
se o
ver t
he in
vest
men
t hor
izon
. Cur
rent
exp
ecte
d re
turn
s re
pres
ent n
o lo
ng-te
rm s
prea
d co
mpr
essi
on a
nd n
omov
emen
t in
long
er-te
rm in
tere
st ra
tes.
Cor
e R
eal E
stat
e 3.
50
Ass
umes
a m
ix o
f priv
ate
core
rea
l est
ate
and
an a
lloca
tion
of 1
5% to
pub
lic r
eal e
stat
e se
curit
ies.
Est
imat
e as
sum
es s
tabl
e in
tere
st ra
tes,
and
a s
tabl
e to
risi
ng c
ap ra
te le
vel,
reve
rting
tow
ards
his
toric
al a
vera
ges.
D
omes
tic E
quity
In
tern
atio
nal E
quity
G
loba
l Equ
ity
6.50
7.
50
7.10
On
aver
age
over
the
pas
t 7
year
s, t
he r
ealiz
ed U
.S.
equi
ty r
isk
prem
ium
has
bee
n w
ell
abov
e hi
stor
ical
av
erag
es. A
fter a
yea
r of m
uted
rea
lized
retu
rns,
we
expe
ct s
ome
cont
inue
d m
ean
reve
rsio
n to
occ
ur o
ver t
he
next
sev
eral
yea
rs in
thi
s pr
emiu
m.
Fun
dam
enta
l exp
ecta
tions
are
in li
ne w
ith t
hese
exp
ecta
tions
. C
urre
nt
U.S
. val
uatio
ns a
re w
ell a
bove
his
toric
al a
vera
ges
and
mos
tly u
ncha
nged
from
a y
ear a
go.
Whi
le, t
he n
on-U
.S.
equi
ty v
alua
tions
are
bel
ow h
isto
rical
ave
rage
s. F
or l
onge
r-te
rm p
lann
ing
purp
oses
, w
e as
sum
e no
n-U
.S.
equi
ties
to d
eliv
er s
light
ly h
ighe
r ret
urns
.
Hed
ged
Inte
rnat
iona
l Equ
ity
7.40
In
tern
atio
nal
equi
ty p
rem
ium
les
s fri
ctio
nal
cost
of
hedg
ing.
Not
e th
at n
o lo
ng-te
rm i
mpa
ct f
rom
cur
renc
y m
ovem
ents
is a
ssum
ed o
n U
.S. D
olla
r-ba
sed
inte
rnat
iona
l equ
ity re
turn
s.
Alte
rnat
ive
Inve
stm
ents
/Priv
ate
Equ
ity
10.1
0 E
xpec
ted
long
-term
illiq
uidi
ty p
rem
ium
ove
r glo
bal p
ublic
equ
ity o
f 3.0
%.
page 5
20
16
Ten
-Year
Retu
rn, R
isk,
an
d C
orr
ela
tion
Assum
ptio
ns
L
ast r
evis
ion:
2/2
016
Not
es:
PC
A d
evel
oped
its
aver
age
annu
al r
etur
n pr
emiu
ms
and
stan
dard
dev
iatio
n es
timat
es u
sing
a c
ombi
natio
n of
app
roac
hes.
Fi
rst,
for
maj
or a
sset
cla
sses
with
an
appr
opria
te a
mou
nt o
f hi
stor
y, P
CA
stu
died
his
toric
al t
ime
serie
s ov
er b
oth
one-
year
and
fiv
e-ye
ar h
oldi
ng p
erio
ds t
o un
cove
r an
y sp
ecifi
c tre
nds
in t
he t
ime
serie
s da
ta.
For
exa
mpl
e, d
omes
tic s
tock
ret
urn
prem
ium
s ex
hibi
t cyc
lical
beh
avio
r, w
ith e
ach
full
cycl
e la
stin
g ap
prox
imat
ely
40-5
0 ye
ars.
Sta
tistic
al p
roce
dure
s w
ere
used
to id
entif
y su
ch tr
ends
and
ext
rapo
late
thes
e tre
nds
10-1
5 ye
ars
forw
ard.
S
econ
d, P
CA
exa
min
ed f
unda
men
tal v
aria
bles
und
erly
ing
seve
ral m
ajor
ass
et c
lass
es a
nd c
ompu
ted
expe
ctat
ions
bas
ed o
n co
nsen
sus
view
s of
the
se v
aria
bles
. P
CA
als
o re
view
ed o
utlo
ok o
pini
ons
from
a h
andf
ul o
f lea
ding
inve
stm
ent b
anks
and
inve
stm
ent a
dvis
ory
firm
s. P
CA
com
pile
d th
ese
opin
ions
to d
evel
op c
onse
nsus
exp
ecta
tions
for t
he m
ajor
ass
et
clas
ses.
PC
A th
en u
sed
thes
e co
nsen
sus
expe
ctat
ions
as
refe
renc
e ch
ecks
aga
inst
its
own
expe
ctat
ions
. Fi
nally
, PC
A p
rofe
ssio
nals
dis
cuss
ed a
nd d
ebat
ed a
sset
exp
ecta
tions
inte
rnal
ly
until
a c
onse
nsus
vie
w d
evel
oped
. In
reco
gniz
ing
that
ass
et c
lass
risk
s ar
e no
t alw
ays
stab
le, P
CA
als
o ex
amin
ed ri
sk tr
ends
util
izin
g si
mila
r sta
tistic
al p
roce
dure
s. P
CA
als
o ca
lcul
ated
risk
s w
eigh
ting
mor
e re
cent
per
iods
he
avie
r th
an e
arlie
r pe
riods
. I
n ce
rtain
ins
tanc
es,
wei
ghte
d st
anda
rd d
evia
tions
diff
ered
mat
eria
lly f
rom
bas
ic s
tand
ard
devi
atio
ns.
In
thes
e ca
ses,
PC
A u
tiliz
ed w
eigh
ted
stan
dard
de
viat
ions
as
a ba
se li
ne fo
r ana
lysi
s.
In r
ecog
nizi
ng th
at c
orre
latio
ns a
re a
lso
not a
lway
s st
able
, PC
A a
naly
zed
the
curre
nt b
ehav
ior
of th
e co
rrela
tions
am
ong
maj
or p
airs
of a
sset
cla
sses
. In
ana
lyzi
ng th
e co
rrela
tion
trend
s am
ong
pairs
of a
sset
s, w
e fo
cuse
d on
cor
rela
tion
trend
s ac
ross
non
-ove
rlapp
ing
five-
year
hol
ding
per
iods
. U
sing
sta
tistic
al p
roce
dure
s hi
ghlig
hted
abo
ve, w
e ex
trapo
late
d th
e tre
nds
of
thes
e co
rrela
tions
into
the
fut
ure
to g
ain
a se
nse
of t
heir
leve
l and
dire
ctio
n.
For
corre
latio
n pa
irs c
onta
inin
g sh
ort
annu
al r
etur
n hi
stor
ies,
we
anal
yzed
cor
rela
tions
of
annu
al r
etur
ns.
Sim
ilar t
o an
alyz
ing
risks
, we
also
app
lied
a de
cay
fact
or to
retu
rn h
isto
ry a
nd c
alcu
late
d w
eigh
ted
corre
latio
ns w
here
app
ropr
iate
. Th
e in
vest
men
t cla
ss r
isk
prem
ia e
stim
ated
for
clas
ses
that
con
sist
of p
ublic
ly tr
aded
sec
uriti
es a
re m
arke
t “be
ta”
retu
rns,
and
do
not a
ssum
e re
turn
s to
act
ive
man
agem
ent,
nor
activ
e m
anag
emen
t fee
s. T
he ri
sk p
rem
ia fo
r inv
estm
ent c
lass
es th
at, b
y de
finiti
on, a
re a
ctiv
ely
man
aged
(e.g
. priv
ate
real
est
ate,
hed
ge fu
nd o
f fun
ds, p
rivat
e eq
uity
), ha
ve b
een
deve
lope
d “n
et”
of c
usto
mar
y in
vest
men
t man
agem
ent f
ees,
whi
ch a
re in
trins
ic to
the
indi
ces
from
whi
ch th
e pr
emia
wer
e de
velo
ped.
G
iven
the
com
plex
ities
ass
ocia
ted
with
dev
elop
ing
capi
tal m
arke
t exp
ecta
tions
, we
advi
se u
sers
of t
he a
bove
info
rmat
ion
to re
ly o
n ju
dgm
ent a
s w
ell a
s op
timiz
atio
n ap
proa
ches
in s
ettin
g st
rate
gic
allo
catio
ns to
any
set
of i
nves
tmen
t cla
sses
. P
leas
e no
te th
at a
ll in
form
atio
n sh
own
is b
ased
on
qual
itativ
e an
d qu
antit
ativ
e an
alys
es.
Exc
lusi
ve r
elia
nce
on th
e ab
ove
is n
ot
advi
sed.
Thi
s in
form
atio
n is
not
inte
nded
as
a re
com
men
datio
n to
inve
st in
any
par
ticul
ar a
sset
cla
ss o
r as
a p
rom
ise
of fu
ture
per
form
ance
. R
efer
ence
s to
futu
re r
etur
ns fo
r eith
er a
sset
al
loca
tion
stra
tegi
es o
r ass
et c
lass
es a
re n
ot p
rom
ises
or e
ven
estim
ates
of a
ctua
l ret
urns
a c
lient
por
tfolio
may
ach
ieve
. A
ssum
ptio
ns, o
pini
ons
and
estim
ates
are
pro
vide
d fo
r illu
stra
tive
purp
oses
onl
y. T
hey
shou
ld n
ot b
e re
lied
upon
as
reco
mm
enda
tions
to in
vest
in o
r avo
id c
erta
in in
vest
men
ts. F
orec
asts
of
finan
cial
mar
ket t
rend
s th
at a
re b
ased
on
curre
nt m
arke
t con
ditio
ns c
onst
itute
our
judg
men
t and
are
sub
ject
to c
hang
e.
We
belie
ve th
e in
form
atio
n pr
ovid
ed h
ere
is r
elia
ble,
but
do
not
war
rant
its
accu
racy
or c
ompl
eten
ess.
Thi
s m
ater
ial h
as b
een
prep
ared
for i
nfor
mat
ion
purp
oses
onl
y.
page 6
Lord, Abbett & Co. LLC | 90 Hudson Street | Jersey City, NJ 07302-3973 | T 1.888.522.2388 | lordabbett.com
Lord Abbett mutual funds are managed by Lord, Abbett & Co. LLC, and shares are distributed by Lord Abbett Distributor LLC.
Lord Abbett Investment Team Update
Robert I. Gerber Announces Retirement as CIO; Robert A. Lee Will Transition to Top Role
JERSEY CITY, NJ – February 4, 2016 − Lord Abbett & Co. LLC (“Lord Abbett”), an independent, privately held investment management firm, announced that Robert I. Gerber, Ph.D., Partner & Chief Investment Officer, will retire from the firm, effective June 30, 2016. As a result, Robert A. Lee, Partner & Deputy Chief Investment Officer, will assume the role of Chief Investment Officer on July 1, 2016. Mr. Gerber joined Lord Abbett in 1997, and was named a Partner in 1998. He came to the firm to build its taxable fixed-income capabilities, an important area wherein he achieved notable success. Based on the strength of his leadership, Mr. Gerber, in 2005, was given additional responsibility for overseeing and expanding the firm’s tax-free, fixed-income capabilities. In 2007, Mr. Gerber became Chief Investment Officer. In this crucial role, he has served as an outstanding leader for the firm’s investment professionals. Over the past nine years, Mr. Gerber diversified Lord Abbett’s capabilities across fixed income and equities, broadened the firm’s knowledge base, and introduced new tools and investment approaches, all of which have strengthened and elevated the overall investment organization. In the months ahead, Mr. Gerber will be working to ensure Mr. Lee’s successful transition to his new role as Chief Investment Officer.
About Lord Abbett
Lord, Abbett & Co. LLC is an independent, privately held firm with a singular focus on the management of money. Founded in 1929, Lord Abbett is one of the oldest money management firms in the United States, and has forged a culture that is investment-led and investor-focused. Lord Abbett manages approximately $125.5 billion in assets (as of December 31, 2015) across a full range of mutual funds, institutional and separately managed accounts, including $1.5 billion for which Lord Abbett provides investment models to managed account sponsors.
M E M O R A N D U M Date: February 24, 2016 To: Oakland Police and Fire Retirement System (OPFRS) From: Pension Consulting Alliance, LLC (PCA) CC: David Sancewich – PCA Sean Copus – PCA Teir Jenkins – OPFRS Katano Kasaine - OPFRS RE: Fisher Investments – Contract Renewal Summary and Recommendation
PCA recommends that OPFRS renew its contract with Fisher before the current contract date of expiration. OPFRS contracts reserve the right for the Board to terminate the agreement, with or without cause, at any time upon 30 calendar day’s prior written notice.
Discussion In making this recommendation, PCA considered investment performance and recent organizational / personnel issues. PCA believes that there are no issues that should prevent a contract extension for this manager.
Investment Performance (as of 12/31/2015)
Manager Mkt Value ($000) Asset Class Quarter 1 YR 3 YR 5 YR Since
Inception* Inception
Date** Fisher Investments 14,491 International 5.1 -1.3 4.1 --- 2.3 4/2011
MSCI ACWI ex-US --- --- 3.3 -5.3 1.9 --- 0.9 --- ** Inception date reflects the month when portfolio received initial funding.
Since being retained as OPFRS’s active international equity manager in April 2011, Fisher has performed well, having strongly outperformed its benchmark, the MSCI ACWI ex-US index, over all time periods measured.
Organizational Issues
Since the last manager update memo in July 2015, there has been minimal turnover among research analysts at Fisher but no turnover among portfolio managers. Since being installed as one of OPFRS’s active international equity managers in 2011, one portfolio manager left the investment team, which occurred in 2013. Over the same period, Fisher has added 29 research analysts, while losing 11. Fisher’s company culture involves constant rotation of employees, which helps explain the relatively high number of analysts added since 2011. There has also continued to be no change to the Investment Policy Committee, which is responsible for
2
directing all of the firm’s strategic investment decisions. PCA does not see any material concerns with the Fisher organization at this time.
Investment Philosophy, per manager
Fisher Investment’s International Equity strategy utilizes a top-down investment process based on applying capital markets technology to the analysis of a wide range of economic, political, and sentiment drivers to formulate forecasts and develop portfolio themes. The firm attempts to exploit the structure of foreign markets and capitalize on country and sector/industry cycles as they come into and out of favor. The firm also seeks to add value at the security level, but believes individual security research is most effective when used to complement higher-level portfolio themes and characteristics rather than as the sole focus of the investment process. Fisher expects approximately one-third of the strategy’s performance will be attributable to each of the country, sector, and security decisions. Fisher also adheres to a strict application of portfolio management discipline such that it remains continuously cognizant of the composition of the relevant benchmark and the relative risks engineered into portfolios against the benchmark.
Investment Process, per manager
Fisher’s International strategy focuses on three basic decisions that are ultimately made by the Investment policy Committee based on research conducted by the Capital Markets Research and Securities Research teams. The process begins by using certain economic indicators, known as “drivers” in order to determine country and sector allocations based on risk and return expectations. These indicators are continuously monitored in order to recognize shifts and determine if the market has discounted them. Next, a prospect list of individual securities is created using a quantitative screening process to minimize risk and screen out securities with insufficient liquidity or solvency. Finally, The Investment Policy Committee then further narrows the prospect list based on fundamental research performed by the Securities Research Team.
The fundamental research process includes an outlier analysis where buy candidates are examined to ensure their revenue streams and lines of business are closely linked to the strategy’s top-down themes. Companies are then subject to a "strategic attribute" review where a company’s comparative advantages are identified. Examples of "strategic attributes" include niche market, consolidator, regional advantage, high market share, etc. Next, an attribute execution analysis is conducted to understand how the company’s management is exploiting their advantage. Stocks are subjected to a relative valuation analysis to understand the stock's current price relative to the market, its peers, and its history. Finally, the firm examines the risks, if any, to the company’s operations. Fisher looks for “red flags" like customer concentration, environmental concerns, poor labor relations, etc. Based on the above analyses the Investment Policy Committee selects stocks for the portfolio.
Stocks are sold based on three disciplines: strategic shifts in country or sector allocations that require the sale of securities, changes in the stocks fundamentals that cause them to shift from
3
the strategic attributes that originally warranted their purchase, and partial sales related strictly to portfolio management risk control.
4
DISCLOSURES: This document is provided for informational purposes only. It does not constitute an offer of securities of any of the issuers that may be described herein. Information contained herein may have been provided by third parties, including investment firms providing information on returns and assets under management, and may not have been independently verified. The past performance information contained in this report is not necessarily indicative of future results and there is no assurance that the investment in question will achieve comparable results or that the Firm will be able to implement its investment strategy or achieve its investment objectives. The actual realized value of currently unrealized investments (if any) will depend on a variety of factors, including future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions and circumstances on which any current unrealized valuations are based. Neither PCA nor PCA’s officers, employees or agents, make any representation or warranty, express or implied, in relation to the accuracy or completeness of the information contained in this document or any oral information provided in connection herewith, or any data subsequently generated herefrom, and accept no responsibility, obligation or liability (whether direct or indirect, in contract, tort or otherwise) in relation to any of such information. PCA and PCA’s officers, employees and agents expressly disclaim any and all liability that may be based on this document and any errors therein or omissions therefrom. Neither PCA nor any of PCA’s officers, employees or agents, make any representation of warranty, express or implied, that any transaction has been or may be effected on the terms or in the manner stated in this document, or as to the achievement or reasonableness of future projections, management targets, estimates, prospects or returns, if any. Any views or terms contained herein are preliminary only, and are based on financial, economic, market and other conditions prevailing as of the date of this document and are therefore subject to change. The information contained in this report may include forward-looking statements. Forward-looking statements include a number of risks, uncertainties and other factors beyond the control of the Firm, which may result in material differences in actual results, performance or other expectations. The opinions, estimates and analyses reflect PCA’s current judgment, which may change in the future. Any tables, graphs or charts relating to past performance included in this report are intended only to illustrate investment performance for the historical periods shown. Such tables, graphs and charts are not intended to predict future performance and should not be used as the basis for an investment decision. All trademarks or product names mentioned herein are the property of their respective owners. Indices are unmanaged and one cannot invest directly in an index. The index data provided is on an “as is” basis. In no event shall the index providers or its affiliates have any liability of any kind in connection with the index data or the portfolio described herein. Copying or redistributing the index data is strictly prohibited. The Russell indices are either registered trademarks or tradenames of Frank Russell Company in the U.S. and/or other countries. The MSCI indices are trademarks and service marks of MSCI or its subsidiaries. Standard and Poor’s (S&P) is a division of The McGraw-Hill Companies, Inc. S&P indices, including the S&P 500, are a registered trademark of The McGraw-Hill Companies, Inc. CBOE, not S&P, calculates and disseminates the BXM Index. The CBOE has a business relationship with Standard & Poor's on the BXM. CBOE and Chicago Board Options Exchange are registered trademarks of the CBOE, and SPX, and CBOE S&P 500 BuyWrite Index BXM are servicemarks of the CBOE. The methodology of the CBOE S&P 500 BuyWrite Index is owned by CBOE and may be covered by one or more patents or pending patent applications. The Barclays Capital indices (formerly known as the Lehman indices) are trademarks of Barclays Capital, Inc. The Citigroup indices are trademarks of Citicorp or its affiliates. The Merrill Lynch indices are trademarks of Merrill Lynch & Co. or its affiliates. FTSE is a trademark of the London Stock Exchange Group companies and is used by FTSE under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. No further distribution of FTSE data is permitted with FTSE’s express written consent.
M E M O R A N D U M Date: February 24, 2016 To: Oakland Police and Fire Retirement System (OPFRS) From: Pension Consulting Alliance, LLC (PCA) CC: David Sancewich – PCA Sean Copus – PCA Teir Jenkins – OPFRS Katano Kasaine - OPFRS RE: T. Rowe Price – Contract Renewal Summary and Recommendation
PCA recommends that OPFRS renew its contract with T. Rowe Price before the current contract date of expiration. OPFRS contracts reserve the right for the Board to terminate the agreement, with or without cause, at any time upon 30 calendar day’s prior written notice.
Discussion
In making this recommendation, PCA considered investment performance and recent organizational / personnel issues. PCA believes that the issues identified below do not warrant contract expiration for this manager.
Investment Performance (as of 12/31/2016)
Manager Mkt Value ($000) Asset Class Quarter 1 YR 3 YR 5 YR Since
Inception* Inception
Date** T. Rowe Price 38,315 Core -0.2 1.0 1.8 --- 3.4 5/2011
BC Aggregate Index --- --- -0.6 0.5 1.4 --- 3.1 --- ** Inception date reflects the month when portfolio received initial funding.
Since being retained as OPFRS’s core fixed income manager in May 2011, T. Rowe Price has outperformed its benchmark by 30 basis points since inception. T. Rowe Price has also outperformed over the most recent quarter, 1-, and 3-year periods by 40, 50, and 40 basis points, respectively.
Organizational Issues
Since being installed in 2011 as OPFRS’s core fixed income manager, there has continued to be zero turnover among T. Rowe Price’s core investment team. Some turnover among the large analyst team has occurred during 2015 but not more than in prior years. More importantly, no portfolio managers have departed or been added to the management team since T. Rowe
2
Price was obtained as the OPFRS core fixed income manager. PCA does not see any material concerns with the T. Rowe Price organization at this time.
Investment Process, per manager
T. Rowe Price believes consistent, long-term alpha generation and attractive risk-adjusted returns can be captured through exposure to diversified sources of return. T. Rowe Price begins its process with a combination of macro-economic analysis, credit analysis, and security selection research efforts. These factors are evaluated within a framework of T. Rowe Price’s fundamental and quantitative global fixed-income and equity research capabilities with accurate risk management as a control mechanism for decisions and allocations. The objective of the investment team is to construct a well-diversified portfolio based on the best investment opportunities identified by a dedicated fixed-income research team. T. Rowe’s extensive research effort allows them to identify bond pricing anomalies in a particular issuer’s valuation where valuation is divergent from others in the same industry, and with the same credit quality. Inefficiencies existing between sectors of the bond market and along the yield curve also can contribute to returns. Through active management, these mispricings, predicated on disciplined risk management processes and understanding of headline factors that may be causing the mispricing, present opportunities for positive returns in the long term.
The portfolio managers are responsible for implementation of the overall portfolio strategy and day-to-day risk management, ensuring that portfolios are within risk and investment guidelines and exposures are in line with targets. Security selection responsibility resides with the heads of the various sector teams, who manage their sector exposures within risk guidelines and look to add alpha versus sector benchmarks.
In order to identify when a relative value opportunity exists between sectors, or when to sell an individual security, the portfolio strategy and analyst team continually monitors sector and individual security valuations. Economic outlooks, price valuations, technical indicators, liquidity, and transactional costs are all included in these determinations. Analysts will identify and communicate liquidity issues or rating changes that affect the portfolio to the portfolio management team. If a bond is identified for sale for credit reasons, the team will talk to the analyst to ascertain the urgency of the situation. Then the team will discuss the best method of liquidation, devise a plan, and implement it. Most importantly, the decision makers will have input from all relevant parties—the analyst, portfolio manager(s), and trader(s). By reviewing a credit before purchasing, the team generally mitigates selling for credit reasons. Once a decision is reached on a position, traders execute the trade most advantageously contingent upon needs for speed, liquidity, or transaction cost economization.
3
DISCLOSURES: This document is provided for informational purposes only. It does not constitute an offer of securities of any of the issuers that may be described herein. Information contained herein may have been provided by third parties, including investment firms providing information on returns and assets under management, and may not have been independently verified. The past performance information contained in this report is not necessarily indicative of future results and there is no assurance that the investment in question will achieve comparable results or that the Firm will be able to implement its investment strategy or achieve its investment objectives. The actual realized value of currently unrealized investments (if any) will depend on a variety of factors, including future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions and circumstances on which any current unrealized valuations are based. Neither PCA nor PCA’s officers, employees or agents, make any representation or warranty, express or implied, in relation to the accuracy or completeness of the information contained in this document or any oral information provided in connection herewith, or any data subsequently generated herefrom, and accept no responsibility, obligation or liability (whether direct or indirect, in contract, tort or otherwise) in relation to any of such information. PCA and PCA’s officers, employees and agents expressly disclaim any and all liability that may be based on this document and any errors therein or omissions therefrom. Neither PCA nor any of PCA’s officers, employees or agents, make any representation of warranty, express or implied, that any transaction has been or may be effected on the terms or in the manner stated in this document, or as to the achievement or reasonableness of future projections, management targets, estimates, prospects or returns, if any. Any views or terms contained herein are preliminary only, and are based on financial, economic, market and other conditions prevailing as of the date of this document and are therefore subject to change. The information contained in this report may include forward-looking statements. Forward-looking statements include a number of risks, uncertainties and other factors beyond the control of the Firm, which may result in material differences in actual results, performance or other expectations. The opinions, estimates and analyses reflect PCA’s current judgment, which may change in the future. Any tables, graphs or charts relating to past performance included in this report are intended only to illustrate investment performance for the historical periods shown. Such tables, graphs and charts are not intended to predict future performance and should not be used as the basis for an investment decision. All trademarks or product names mentioned herein are the property of their respective owners. Indices are unmanaged and one cannot invest directly in an index. The index data provided is on an “as is” basis. In no event shall the index providers or its affiliates have any liability of any kind in connection with the index data or the portfolio described herein. Copying or redistributing the index data is strictly prohibited. The Russell indices are either registered trademarks or tradenames of Frank Russell Company in the U.S. and/or other countries. The MSCI indices are trademarks and service marks of MSCI or its subsidiaries. Standard and Poor’s (S&P) is a division of The McGraw-Hill Companies, Inc. S&P indices, including the S&P 500, are a registered trademark of The McGraw-Hill Companies, Inc. CBOE, not S&P, calculates and disseminates the BXM Index. The CBOE has a business relationship with Standard & Poor's on the BXM. CBOE and Chicago Board Options Exchange are registered trademarks of the CBOE, and SPX, and CBOE S&P 500 BuyWrite Index BXM are servicemarks of the CBOE. The methodology of the CBOE S&P 500 BuyWrite Index is owned by CBOE and may be covered by one or more patents or pending patent applications. The Barclays Capital indices (formerly known as the Lehman indices) are trademarks of Barclays Capital, Inc. The Citigroup indices are trademarks of Citicorp or its affiliates. The Merrill Lynch indices are trademarks of Merrill Lynch & Co. or its affiliates. FTSE is a trademark of the London Stock Exchange Group companies and is used by FTSE under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. No further distribution of FTSE data is permitted with FTSE’s express written consent.
Page 1 of 4
- - - ORDER OF BUSINESS - - -
A. CLOSED SESSION
B. Report of PFRS Board Action from Closed Session (if any).
C. Subject: January 27, 2016 Special PFRS Board Meeting Minutes From: Staff of the PFRS Board Recommendation: APPROVE January 27, 2016 Special Board meeting minutes.
D. FEBRUARY 24, 2016 – AUDIT & BUDGET MATTERS COMMITTEE AGENDA
D1. Subject: Administrative Expenses Report From: Staff of the PFRS Board Recommendation:
ACCEPT an informational report regarding PFRS Administrative Expenses from July 1, 2015 through December 31, 2015.
D2. Subject: Annual Report for Fiscal Year ending June 30, 2015 From: Staff of the PFRS Board Recommendation:
APPROVE printing and publication of the Annual Report of the Oakland Police and Fire Retirement System for the Fiscal Year ending June 30, 2015.
Retirement Systems 150 Frank H. Ogawa Plaza Oakland, California 94612
All persons wishing to address the Board must complete a speaker's card, stating the agenda item (including "Open Forum") they wish to address. The Board may take action on items not on the agenda only if findings pursuant to the Sunshine Ordinance and Brown Act are made that the matter is urgent or an emergency. Oakland Police and Fire Retirement Board meetings are held in wheelchair accessible facilities. Contact Retirement Systems, 150 Frank Ogawa Plaza, Suite 3332 or call (510) 238-7295 for additional information.
RETIREMENT BOARD MEMBERS
Walter L. Johnson, Sr. President
Jaime T. Godfrey Vice President
James F. Cooper Member
Steven Wilkinson Member
Ronald Oznowicz Member
John C. Speakman Member
Christine Daniel Member
Wednesday, February 24, 2016 – 11:30 am One Frank H. Ogawa Plaza, Hearing Room 1
Oakland, California 94612
SPECIAL MEETING of the BOARD OF ADMINISTRATION of the OAKLAND POLICE AND FIRE RETIREMENT SYSTEM (“PFRS”)
AGENDA
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM SPECIAL BOARD MEETING FEBRUARY 24, 2016
ORDER OF BUSINESS, continued
Page 2 of 4
D3. Subject: Resolution No. 6881 - Travel Authorization for board member James Cooper to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Five Hundred Forty-two Dollars ($1,542.00)
From: Staff of the PFRS Board
Recommendation: APPROVE Resolution No. 6881 - Travel Authorization for board member James Cooper to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Five Hundred Forty-two Dollars ($1,542.00).
D4. Subject: Resolution No. 6882 - Travel Authorization for board member Ronald Oznowicz to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Dollars ($1,000.00)
From: Staff of the PFRS Board
Recommendation: APPROVE Resolution No. 6882 - Travel Authorization for board member Ronald Oznowicz to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Dollars ($1,000.00).
D5. Subject: Resolution No. 6883 - Travel Authorization for board member Steve Wilkinson to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Six Hundred Sixty-two Dollars ($1,662.00)
From: Staff of the PFRS Board
Recommendation: APPROVE Resolution No. 6883 - Travel Authorization for board member Steve Wilkinson to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Six Hundred Sixty-two Dollars ($1,662.00).
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM SPECIAL BOARD MEETING FEBRUARY 24, 2016
ORDER OF BUSINESS, continued
Page 3 of 4
D6. Subject: Resolution No. 6885 - Travel Authorization for Plan Administrator Katano Kasaine to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Six Hundred Sixty-two Dollars ($1,662.00)
From: Staff of the PFRS Board
Recommendation: APPROVE Resolution No. 6885 - Travel Authorization for Plan Administrator Katano Kasaine to travel and attend the 2016 CALAPRS General Assembly Conference (“2016 CALAPRS Conference”) from/on March 5, 2016 through March 8, 2016 in Indian Wells, CA with an estimated budget of One Thousand Six Hundred Sixty-two Dollars ($1,662.00).
E. FEBRUARY 24, 2016 – INVESTMENT & FINANCIAL MATTERS COMMITTEE AGENDA
E1. Subject: Investment Manager Performance Report – Hansberger Growth Investors
From: Hansberger Growth Investors
Recommendation: ACCEPT an informational report regarding fund performance for PFRS investments with Hansberger Growth Investors, an International Equities asset class Investment Manager.
E2. Subject: Investment Manager Overview – Hansberger Growth Investors
From: Pension Consulting Alliance
Recommendation: ACCEPT an informational review of Organization and Performance ofHansberger Growth Investors, an International Equities asset class Investment Manager.
E3. Subject: Investment Market Overview From: Pension Consulting Alliance (PCA)
Recommendation: ACCEPT an Informational Report regarding overview of the global investment market through February 2016.
E4. Subject: Quarterly investment fund performance report for the quarter
ending December 31, 2015 From: Pension Consulting Alliance
Recommendation: APPROVE the quarterly investment fund performance report for the quarter ending December 31, 2015.
E5. Subject: 2016 Asset Class Assumptions
From: Pension Consulting Alliance (PCA)
Recommendation: APPROVE PCA 2016 Asset Class Assumptions.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM SPECIAL BOARD MEETING FEBRUARY 24, 2016
ORDER OF BUSINESS, continued
Page 4 of 4
E6. Subject: Staff Changes Memorandum from Lord Abbett and Co., LLC From: Pension Consulting Alliance
Recommendation: ACCEPT an informational report regarding staff changes at PFRS Domestic Equities Investment Manager, Lord Abbett and Co., LLC.
E7. Subject: Renewal of Service Contract – Fisher Investments From: Staff of the PFRS Board and Pension Consulting Alliance
Recommendation: APPROVE staff recommendation to renew the Service Contract of PFRS International Equity Investment Manager, Fisher Investments.
E8. Subject: Renewal of Service Contract – T. Rowe Price From: Staff of the PFRS Board and Pension Consulting Alliance
Recommendation: APPROVE staff recommendation to renew the Service Contract of PFRS Domestic Fixed Income Investment Manager, T. Rowe Price.
F. Subject: Resolution No. 6886 – Amendment of Resolution No. 6866 to Change to June 1, 2016, the Implementation Date of the Recovery of Overpayments .
From: Staff of the PFRS Board
Recommendation: APPROVE Resolution No. 6886 – Amendment of Resolution No. 6866 to change to June 1, 2016, the implementation date of the recovery of overpayments.
G. Subject:From:
Proposed Hearing Schedule Staff of the PFRS Board
Recommendation: APPROVE Staff Recommendation of Proposed Hearing Schedule.
H. Subject: Resolution No. 6884From: Staff of the PFRS Board
Recommendation: APPROVE Resolution No. 6884
H1. Resolution No. 6884
Resolution Approving Death Benefit Allowance Payments to: (1) David Sewell, Son of Robert Sewell (F), and (2) Kathy Taylor, Step-Daughter of Roger L. Dietz (F)
I. New Business
J. Open Forum
K. Future Scheduling
PFRS Board Meeting Minutes January 27, 2016
Page 1 of 5
D R A F T
D R A F T
A SPECIAL BOARD MEETING of the Oakland Police and Fire Retirement System (“PFRS”) was held January 27, 2016 in Hearing Room 1, One Frank Ogawa Plaza, Oakland, California
Board Members Present: • Walter L. Johnson, President • John C. Speakman, Member • James F. Cooper, Member • Steven Wilkinson, Member • Ronald Oznowicz, Member • Christine Daniel, Member
Board Members Absent: • Jaime T. Godfrey, Vice President
Additional Attendees: • Pelayo Llamas, Deputy City Attorney / PFRS Legal Counsel • Katano Kasaine, Plan Administrator • David Low & Teir Jenkins, Staff Members • David Sancewich & Sean Copus, Pension Consulting Alliance (PCA)
The meeting was called to order at 11:40 am.
A. Closed Session – Public Speaker Robert Muszar, President of the Retired Oakland Police Officers Association (ROPOA), advised the PFRS Board that the ROPOA is prepared and willing to engage in settlement discussion regarding both Writs of Mandate addressing the current lawsuits. President Johnson advised Mr. Muszar that he should direct settlement negotiations of any lawsuits through and between the respective attorneys for the involved parties, and avoid such comments from the PFRS board meetings.
Closed Session convened at 11:48 am.
B. Report of Board Action (if any) from Closed Session – The regular session of the PFRS board meeting reconvened at 1:04 pm. PFRS Legal Counsel Pelayo Llamas stated that there is was no reportable Board action from Closed Session.
C. Approval of December 9, 2015 Board meeting minutes – Member Daniel made a motion to approve the December 9, 2015 board meeting minutes, second by member Speakman. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
D. Approval of January 6, 2016 Special Board meeting minutes – Member Speakman made a motion to approve the January 6, 2016 Special board meeting minutes, second by member Daniel. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
PFRS Board Meeting Minutes January 27, 2016
Page 2 of 5
D R A F T
D R A F T
E. PFRS AUDIT COMMITTEE MEETING – JANUARY 27, 2016
E1. Administrative Expenses Report through November 30, 2015 – Investment Officer Teir Jenkins presented the PFRS administrative expenses report for the fiscal year through November 30, 2015. Member Speakman made a motion to accept the Administrative Expenses Report from July 1, 2015 through November 30, 2015, second by Member Cooper. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
E2. Resolution No. 6879 – Travel Authorization for Board Member Jaime Godfrey – Member Speakman made a motion to approve Resolution No. 6879 authorizing reimbursement for board member Jaime Godfrey to travel and attend the 2015 IMN Global Indexing and ETFs Conference (“2015 IMN Conference”) from/on December 6, 2015 through December 8, 2015 in Scottsdale, AZ with an Estimated Budget of One Thousand One Hundred Thirty-three Dollars ($1,133.00), second by Member Daniel. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
F. PFRS INVESTMENT COMMITTEE MEETING – JANUARY 27, 2016
F1. Investment Manager Overview and performance report – DDJ Capital Management, LLC – Member Oznowicz reported that representative from DDJ Capital Management, LLC summarized their performance as investment managers for the PFRS Domestic Fixed Income account. Member Oznowicz made a motion to accept the investment manager performance report from DDJ Capital Management, second by member Wilkinson. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
F2. Investment Manager review of DDJ Capital Management, LLC: PCA – Member Oznowicz reported that PCA presented a summary of the performance and management of PFRS Fixed Income investments by DDJ Capital Management. Member Oznowicz made a motion to accept the informational report from PCA, second by member Wilkinson. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
F3. Review of City Council Resolution No. 85053 regarding City Council Action to recommend PFRS Divestment from Fossil Fuel Investments – Member Oznowicz reported that David Jones from the City of Oakland summarized City Council Resolution No. 85053 regarding City Council Action to recommend PFRS Divestment from Fossil Fuel Investments. After some board discussion, Member Oznowicz made a motion accept the informational report regarding City of Oakland Resolution No. 85053, second by Member Wilkinson. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
Member Oznowicz stated that staff and PCA were directed to prepare an analysis of this matter and report back to the Investment Committee at the March 2016 meeting.
PFRS Board Meeting Minutes January 27, 2016
Page 3 of 5
D R A F T
D R A F T
F4. $15.5 Million for 1st Quarter 2016 Member Benefits Payments – Member Oznowicz reported that staff presented the recommendation of $15.5 million drawdown for 1st quarter 2016. Mr. Jenkins reported that an additional Five Hundred Thousand Dollars was being allocated for member benefits payments for this period due to the revised MOU that became effective and increased the member benefits payments for PFRS police members. Member Oznowicz made a motion to approve $15.5 million for 1st Quarter 2016 member benefit payments, second by Member Wilkinson. Motion passed. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
F5. Preliminary Quarterly Investment Fund Performance Report – Sean Copus reported quarterly investment fund performance report for the period ending December 31, 2015. Mr. Sancewich said the fund provided investment returns of 3.6 percent (gross of fees) for the quarter, trailing the benchmark by 20 basis points. He explained that the final report will be presented at the next meeting. Member Oznowicz made a motion accept the preliminary quarterly investment fund performance report through December 31, 2015, second by Member Wilkinson. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
F6. Investment Market Overview – David Sancewich reported the global market and economic factors presently affecting the PFRS investment fund. Member Oznowicz made a motion accept the Investment Market overview report, second by Member Wilkinson. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
F7. Follow-up report about U.S. Securities and Exchange Commission investigation of Wellington Management Company, LLC – David Sancewich reported that PCA previously reported the request for information by the Securities and Exchange Commission of Wellington. Mr. Sancewich said the outcome of that reporting yielded no negative information regarding Wellington and the matter was closed. Member Oznowicz made a motion accept the informational report from PCA regarding the SEC investigation of Wellington Management Company, second by member Wilkinson. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
F8. 2016 Strategic Investment Agenda – David Sancewich presented the PCA 2016 Strategic Investment Agenda. The Board reviewed the details of the PCA strategic agenda. Member Oznowicz made a motion to approve of the 2016 Strategic Investment Agenda, second by Member Wilkinson. Motion passed.
[ JOHNSON – Y / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 6 / NOES: 0 / ABSTAIN: 0 )
G. Resolution No. 6880 – Adoption of procedures for Hearings to be conducted pursuant to Resolution No. 6866 – Plan Administrator Katano Kasaine recommended Board adoption of Resolution No. 6880 adopting procedures for hearings to be conducted pursuant to Resolution No. 6866. She reported that 224 PFRS Police retirees and beneficiaries sent hearing requests to staff. She recommended allocating 10 minutes per hearing applicant and explained the development and reasoning for the hearing procedures as a map that streamlines the hearing process.
PFRS Board Meeting Minutes January 27, 2016
Page 4 of 5
D R A F T
D R A F T
Ms. Kasaine summarized the details of the proposed hearing procedures and invited the Board to amend it as they wish. She noted that financial hardship applicants who sent incomplete information on their hearing request forms would be contacted to affirm these applicants’ submitted information. Ms. Kasaine said her office would review the financial hardship cases with the provided information and provide the Board with its recommendation regarding the financial hardship claim. Ms. Kasaine added that retirees who requested hearings not related to financial hardship do not have any additional paperwork for submission to the PFRS Board and staff will not have any recommendation for Board consideration on these cases.
Public Speaker Raymond Miller said there is no provision in the City Charter for consolidation of member hearings. He said each member requesting a hearing has unique circumstances regarding their hearing requests and should be afforded individualized hearings before the Board. He addressed the matter of denial of claimant evidence regarding Resolution No. 6866 and asked what grounds would the Board base the denial to a claimant, and are those grounds available for examination prior to the claimant’s hearing. Member Oznowicz asked Mr. Miller where he received the notice of group hearing. Mr. Miller said it was stated in the agenda report on today’s agenda.
Public Speaker and ROPOA President Muszar presented reasons why the Board should postpone all proceedings and actions regarding recovery of overpayments scheduled to begin with the March 1, 2016 Member Pension Payments. He also spoke at length about the reasons the board should not approve Resolution No. 6880 in its present form.
The Board discussed the guidelines set forth in proposed Resolution No. 6880. Members Cooper and Oznowicz asked questions about how the planned hearings would be conducted based on these procedures. Members Cooper and Oznowicz believed further discussion on these hearing procedures is required.
MOTION: Member Oznowicz made a motion to suspend consideration of Resolution No. 6880 until the March 2016 Board meeting, second by Member Cooper.
Member Oznowicz said his motion would allow further expansion of the concerns presented by the ROPOA to be brought forth and utilized to assist staff with creating more practical hearing guidelines. President Johnson acknowledged Mr. Muszar’s views on Resolution No. 6880 and the hearing procedures but said the Board reliance on the ROPOA to recommend guidelines for hearing procedures is not merited and the board needs only to rely on its expert staff, which it has historically done in years past.
AMENDED MOTION: Member Oznowicz amended his motion as follows: Suspend consideration of Resolution No. 6880 until the February 2016 Board meeting, second by member Cooper.
The Board discussed how staff and the Board will review financial hardship cases, focusing on how the board and staff manage the information that retirees choose to submit to the staff. Also discussed was the financial hardship status evaluation in the case of non-liquid assets, such as family heirlooms and whether there is an expectation that such assets would possibly be included for liquidation regarding financial hardship.
Member Wilkinson stated that loan eligibility reviews focus on the individual’s ability to pay for their fixed liabilities with liquid assets, and that non-liquid assets are not considered when assessing a person’s ability to make payments. Member Cooper said if questions of such non-liquid assets aren’t considered in evaluations, perhaps they can then be removed from the financial hardship form. He believed this form should be rewritten because he thinks that a retiree who receives this form as it appears now and may qualify for a financial hardship would be discouraged from completing it and may choose not to do so. Member Cooper said he would prefer the board to be responsive to their members.
PFRS Board Meeting Minutes January 27, 2016
Page 5 of 5
D R A F T
D R A F T
Member Oznowicz said he hopes a retiree that who comes before the board to discuss a financial hardship case, even if their financial hardship declaration is not complete, that the Board will still hear their case and not automatically turn down their case. Ms. Kasaine clarified that staff will be contacting retirees who submitted financial hardship declaration forms to clarify the information they submitted.
A call for the question of the substitute motion was made and a hand vote was taken. Motion failed.
[JOHNSON – N / GODFREY – ABSENT / COOPER – Y / OZNOWICZ – Y SPEAKMAN – N / DANIEL – N / WILKINSON – N ]
( AYES: 2 / NOES: 4 / ABSTAIN: 0 )
MOTION: Member Wilkinson made a motion to approve Resolution No. 6880, second by member Speakman. A hand vote was taken. Motion passed.
[JOHNSON – Y / GODFREY – ABSENT / COOPER – N / OZNOWICZ – N SPEAKMAN – Y / DANIEL – Y / WILKINSON – Y ]
( AYES: 4 / NOES: 2 / ABSTAIN: 0 )
Ms. Kasaine asked the Board for direction to schedule hearings for the retirees who have submitted hearing requests. President Johnson said the next board meeting should present a calendar showing the hearing dates.
H. New Business – No Report.
I. Open Forum – Public Speaker Robert Muszar provided an answer to a question he did not believe was answered to Member Daniel about communication to retirees regarding the financial hardship declaration form. He also criticized the financial hardship declaration form for its invasive use of questions that are likely not used for the evaluation of financial hardship. Mr. Muszar told the story of a previous financial hardship case he managed between a member and Ms. Kasaine which did not require an invasive form and was negotiated equitably.
J. Future Scheduling – The next PFRS Committee and Board meetings was scheduled for Wednesday, February 24, 2016
The meeting adjourned at 2:33 pm.
KATANO KASAINE, BOARD SECRETARY DATE
CITY OF OAKLAND
TO: Oakland Police and Fire Retirement System Board
SUBJECT: Resolution No. 6886 Amending Resolution No. 6866 To Change To June 1, 2016, the Implementation Date Of The Recovery of Overpayments
BACKGROUND
AGENDA REPORT
FROM: Katano Kasaine, Plan Administrator Oakland Police and Fire Retirement Systems
DATE: February 08, 2016
At its October 28, 2015 Board meeting, the Oakland Police and Fire Retirement System Board ("PFRS Board") adopted Resolutions No. 6866, which set forth a repayment plan for certain benefit overpayments corresponding to Holiday Pay and Shift Differential Pay ("SSD Pay"). March 1, 2016 was the date to initiate recovery of these overpayments, as set forth in the Resolution.
The PFRS Board has filed a cross-complaint in the Superior Court of Alameda County in matter number RG 15758831 seeking a judicial declaration as to the legality of recovering said benefit overpayments through deductions from future retirement benefit payments. The trial of the cross-complaint is scheduled to take place on March 18, 2016, with a decision expected to be issued within approximately 30 days.
In order to avoid potential duplication of staff efforts, depending on the Court's decision, staff recommends that the date to initiate the recovery of overpayments under Resolution No. 6866 be amended from March 1, 2016, to June 1, 2016.
RECOMMENDATION
Staff Recommends the Board adopt Resolution No. 6886 amending Resolution No. 6866 to change the date to June 1, 2016, rather than March 1, 2016, to implement the recovery of overpayments.
Respectfully submitted,
/141-t"l-1 ..: I c "'? /j 11-,__, Katano Kasaine, Plan Administrator Oakland Police and Fire Retirement System Board
For questions please contact Teir Jenkins, Investment Officer, at 510-238-6481.
Attachments ( 1 ):
Attachment 1: Draft Resolution No. 6886 -Resolution Amending Resolution No. 6866 to Change to June 1, 2016, the Implementation Date of the Recovery of Overpayments
Item: F PFRS Board Meeting
February 24, 2016
ATTACHMENT 1
• DRAFT RESOLUTION NO. 6886 - RESOLUTION AMENDING RESOLUTION NO. 6866 TO CHANGE TO JUNE 1, 2016, THE IMPLEMENTATION DATE OF THE RECOVERY OF OVERPAYMENTS
OAKLAND POLICE AND FIRE RETIREMENT BOARD CITY OF OAKLAND, CALIFORNIA
RESOLUTION NO. 6886
ON MOTION OF MEMBER SECONDED BY MEMBER
RESOLUTION AMENDING RESOLUTION NO. 6866 TO CHANGE TO JUNE 1, 2016, THE IMPLEMENTATION DATE OF THE RECOVERY OF OVERPAYMENTS
WHEREAS, On October 28, 2015, the PFRS Board adopted Resolution No. 6866 wherein it
adopted a method to recover certain overpayments made to police retirees and beneficiaries over a 48-month period; and
WHEREAS, Resolution No. 6866 set an implementation date for benefit payment due on March 1, 2016; and
WHEREAS, the PFRS Board has filed a cross-complaint in the Superior Court of Alameda County in matter number RG15758831 seeking a judicial declaration as to the legality under California Law of recovering said benefit overpayments through deductions from future retirement benefit payments; and
WHEREAS, the trial of the cross-complaint is scheduled to take place on March 18, 2016, with a decision expected to be issued within approximately 30 days; and
WHEREAS, it is in the best interest of PFRS to modify the implementation date of Resolution No. 6866 to June 1, 2016, rather than the original date of March 1, 2016; now, therefore, be it
RESOLVED: that the following language in the last paragraph of Resolution No. 6866 is modified as follows. Additional text is indicated by underscored type and deleted text is indicated by strikethrough type. Text not appearing below remains unchanged:
“. . . , recovery of these overpayments shall begin with the benefit payment due on June 1, 2016 for the month of May 2016. . . .”; and be it
FURTHER RESOLVED: that written notice of the revised implementation date shall be sent to each affected retiree and beneficiary.
IN BOARD MEETING, CITY HALL, OAKLAND, CA FEBRUARY 24, 2016
PASSED BY THE FOLLOWING VOTE:
AYES: GODFREY, SPEAKMAN, COOPER, OZNOWICZ, WILKINSON, DANIEL, PRESIDENT JOHNSON
NOES:
ABSTAIN:
ABSENT:
ATTEST: PRESIDENT
ATTEST: SECRETARY
AGENDA REPORT CITY OF OAKLAND
TO: Oakland Police and Fire Retirement System Board
FROM: Katano Kasaine, Plan Administrator Oakland Police and Fire Retirement Systems
SUBJECT: Proposed Hearing Schedule DATE: February 16, 2016
BACKGROUND
At their October 28, 2015 Board meeting, the Oakland Police and Fire Retirement System Board ("PFRS Board") adopted Resolutions No. 6866, which set forth a repayment plan for certain overpayments for Holiday Pay and Shift Differential Pay ("SSD Pay").
Staff has received over 200 requests for Hearings, related to Resolution 6866. At the January 27, 2016 PFRS Board meeting, the Board passed Resolution 6880, which adopted procedures for conducting hearings related to Resolution 6866. Based on documentation received, these are the hearing request categories:
HEARING REQUESTS RECEIVED
as of 01/08/2016
Financial Hardship Requests Non-Financial
Hearin2 Requests
Number of Requests RO PO A Self- RO PO A Self-
l
Received Represented 1 Represented Represented 1 Represented
224 5 16 178 25
.. These requests included vanous forms of statements md1catmg that the md1v1dual has appomted the Retired Oakland Pohce Officers Association to represent him/her for the requested hearing, and that all further communications should be with the ROPOA.
Item: G PFRS Board Meeting
February 24, 2016
AGENDA REPORT - Proposed Hearing Schedule FEBRUARY 24, 2016 PAGE2
HEARING SCHEDULE
To help facilitate the large volume of hearing requests, staff recommends that the PFRS Board schedule several all-day hearing dates. Staff recommend the following hearing dates.
Date Type Citv Hall Hearing:s Rooms
1. Tue, April 12,2016 \Jon-ROPOA Hearim!s: Financial Hardship Hearing Room 2
2. Wed, April 13, 2016 and other non-ROPOA Represented Hearings Hearing Room 1
3. Thu, April 14, 2016 ROPOA Financial Hardships
and other distinct ROPOA Hearings Hearing Room 3
4. Wed, April 20, 2016 Hearing Room 3 All identical ROPOA Hearings
5. Thu, April 21, 2016 (all attached the same Hearing Room 2
6. Fri, April 22, 2016 ROPOA Statement of Objection)
Hearing Room 1
Based on the recommended hearing schedule above, staff recommends that the PFRS Board consolidate hearing requests that are identical. These hearings are currently scheduled for April 20, 21 and 22.
Respectfully submitted,
Katano Kasaine, Plan Administrator Oakland Police and Fire Retirement System Board
For questions please contact Teir Jenkins, Investment Officer, at 510-238-6481.
Item: G PFRS Board Meeting
February 24, 2016
OAKLAND POLICE AND FIRE RETIREMENT BOARD CITY OF OAKLAND, CALIFORNIA
PASSED BY THE FOLLOWING VOTE:
AYES: GODFREY, SPEAKMAN, COOPER, OZNOWICZ, WILKINSON, DANIEL PRESIDENT JOHNSON
NOES:
ABSENT:
ATTEST: PRESIDENT
ATTEST: SECRETARY
RESOLUTION NO. 6884
ON MOTION OF MEMBER SECONDED BY MEMBER
RESOLUTION APPROVING DEATH BENEFIT ROLL NUMBER 8610 AND DIRECTING WARRANTS THEREUNDER IN THE TOTAL SUM OF $1,000.00.
WHEREAS, due proof having been received of the death of the person(s) named in Column (1) below, active or retired member(s) of the Police and Fire Department, under Article XIV, XV or XXVI of the Charter of the City of Oakland; and
WHEREAS, the beneficiary(ies) to whom the death benefit provided in Charter Section stated in Column (3) is payable, is the person(s) whose name(s) is/are stated in Column (4) opposite the respective name(s) of the deceased active or retired member; and
WHEREAS, the amount of said death benefit is stated in Column (6) opposite said respective name(s); now, therefore, be it
RESOLVED: That the Retirement Board approves, and it does hereby approve Death Benefit Roll Number 8610, a copy of which is attached hereto, providing for payment of such death benefit to the person(s) named in Column (4); and be it
FURTHER RESOLVED: That the Director of Finance, be and is hereby directed to draw and sign warrant(s) for the amount in Column (6) payable to the respective person(s) whose name(s) appear(s) in Column (4):
(1) (2) (3) (4) (5) (6)
Name of Deceased Member
Status of Member
Charter Section
Name of Beneficiary
Relationship of Beneficiary
Death
Benefit Amount
Robert Sewell (F)
Roger L. Dietz (F)
Retired
Retired
2612
2612
David Sewell
Kathy Taylor
Son
Step - Daughter
$1,000.00
$1,000.00
IN BOARD MEETING, CITY HALL, OAKLAND, CA FEBRUARY 24,2016
- - - ORDER OF BUSINESS - - -
THE PFRS BOARD WILL MEET IN CLOSED SESSION
DURING ITS SCHEDULED BOARD MEETING Please see the meeting agenda for open session items. The board will convene in open session prior to the closed session. Speakers may address the items of business on the closed session agenda prior to closed session. All speakers must fill out a speaker’s card and submit it to the Secretary to the Board. The Board will reconvene in open session following the closed session to report any final decisions that the board makes in closed session. Pursuant to California Government Code Section 54956.9(d)(1): 1. CONFERENCE WITH LEGAL COUNSEL – PENDING LITIGATION
Retired Oakland Police Officers Association v. Oakland Police and Fire Retirement System, et al., Alameda County Superior Court Action No. RG14753080
2. CONFERENCE WITH LEGAL COUNSEL – PENDING LITIGATION
Retired Oakland Police Officers Association v. Oakland Police and Fire Retirement System, et al., Alameda County Superior Court Action No. RG15758831
Retirement Systems 150 Frank H. Ogawa Plaza Oakland, California 94612
All persons wishing to address the Board must complete a speaker's card, stating their name and the agenda item (including "Open Forum") they wish to address. The Board may take action on items not on the agenda only if findings pursuant to the Sunshine Ordinance and Brown Act are made that the matter is urgent or an emergency. Oakland Police and Fire Retirement Board meetings are held in wheelchair accessible facilities. Contact Retirement Systems, 150 Frank Ogawa Plaza, Suite 3332 or call (510) 238-7295 for additional information.
RETIREMENT BOARD MEMBERS
Walter L. Johnson, Sr. President
Jaime T. Godfrey Vice President
James F. Cooper Member
Steven Wilkinson Member
Ronald Oznowicz Member
John C. Speakman Member
Christine Daniel Member
CLOSED SESSION of the BOARD OF ADMINISTRATION of the OAKLAND POLICE AND FIRE RETIREMENT SYSTEM (“PFRS”)
Wednesday, February 24, 2016 –during regular meeting starting at 11:30 am One Frank H. Ogawa Plaza, Hearing Room 1
Oakland, California 94612
AGENDA