ABOUT LACERA

BOARD OF INVESTMENTS MINUTES 1-14-09

PRESENT

• William R. Pryor, Chair
• Simon S. Russin, Vice Chair
• Herman Santos, Secretary
• Diane Sandoval
• Mark J. Saladino
• Michael Schneider
• Robert L. Spare
• Leonard Unger

ABSENT

• Paul C. Hudson

STAFF, ADVISORS, PARTICIPANTS

• Gregg Rademacher, Chief Executive Officer
• Robert Hill, Assistant Executive Officer
• Janice Golden, Assistant Executive Officer
• Lisa Mazzocco, Chief Investment Officer
• John McClelland, CRE, Principal Investment Officer, Real Estate
• Vache Mahseredjian, CFA, Principal Investment Officer
• Christopher J. Wagner, Senior Investment Officer, Private Equity
• June Kim, Senior Investment Officer, Equities
• Trina Sanders, Investment Officer, Real Estate
• Robert Z. Santos, Investment Officer, Fixed Income
• Gerald Flintoft, Investment Officer, Private Equity
• Stuart Mesnik, Senior Investment Analyst
• Shelly P. Tilaye, Senior Investment Analyst, Private Equity
• Dale Johnson, Senior Investment Analyst, Equities
• David L. Muir, Chief Counsel
• Earl W. Buehner, Senior Staff Counsel
• Milliman Consultants
  • Karen I. Steffen, FSA, EA, MAAA, Consulting Actuary
  • Nick J. Collier, ASA, EA, MAAA, Consulting Actuary
• The Townsend Group
• - Institutional Real Estate Consultants
• Micolyn M. Yalonis, Principal
• Nakeyshia J. Kendall, Consultant

1. ELECTION OF OFFICERS (Election of Chair, Vice Chair, Secretary, and Audit Committee Member)

   The gavel was turned over to Secretary Santos to conduct the election of officers:

   1. Chair of the Board

      Mr. Russin was nominated to the position of Chair of the Board of Investments by Mr. Spare. Mr. Pryor was nominated to the position of Chair of the Board of Investments by Mr. Saladino. Hearing no other nominations the nominations were closed on a motion by Mr. Saladino. A roll call vote was taken for the position of Chair of the Board of Investments with the following results: Votes cast for Mr. Russin: Mr. Russin, Mr. Schneider, Mr. Spare Votes cast for Mr. Pryor:Mr. Unger, Ms. Sandoval. Mr. Saladino, Mr. Santos, Mr. Pryor Secretary Santos announced that Mr. Pryor was elected to the position of Chair of the Board of Investments.

   2. Vice Chair of the Board

      Mr. Santos was nominated to the position of Vice Chair of the Board of Investments by Mr. Pryor. Ms. Sandoval nominated Mr. Russin to the position of Vice Chair of the Board of Investments. Mr. Russin declined the nomination. Hearing no other nominations the nominations were closed on a motion by Mr. Saladino. Mr. Santos was elected to the position of Vice Chair of the Board of Investments.

   3. Secretary of the Board

      Mr. Russin nominated Ms. Sandoval to the position of Secretary of the Board of Investments. Mr. Santos nominated Mr. Schneider to the position of Secretary of the Board. Mr. Schneider declined the nomination. Hearing no other nominations the nominations were closed on a motion by Mr. Saladino. Ms. Sandoval was elected to the position of Secretary of the Board of Investments.

   4. Audit Committee Member

      Mr. Schneider was nominated to the position of Audit Committee member by Mr. Russin. Hearing no other nominations the nominations were closed on a motion by Mr. Pryor. Mr. Schneider was elected to the position of Audit Committee Member of the Board of Investments.

2. APPROVAL OF THE MINUTES
   1. APPROVAL OF THE MINUTES OF THE REGULAR MEETING OF NOVEMBER 19, 2008.

      A motion was made by Mr. Unger, seconded by Mr. Saladino to approve the Minutes of the regular meeting of the Board of Investments of November 19, 2008. The motion carried with Ms. Sandoval abstaining.

   2. APPROVAL OF THE MINUTES OF THE REGULAR MEETING OF DECEMBER 10, 2008.

      A motion was made by Mr. Unger, seconded by Mr. Spare to approve the Minutes of the regular meeting of the Board of Investments of December 10, 2008. The motion carried by unanimous vote.

3. PUBLIC COMMENT

   None.

4. REPORT ON CLOSED SESSION ITEMS

   None.

5. CONSENT AGENDA

   The following agenda items were placed on the consent agenda and unanimously approved upon a motion by Mr. Santos, seconded by Ms. Sandoval.

   1. Recommendation as submitted by Stuart Mesnik, Senior Investment Analyst: (1) Approve attendance of Board Members and/or staff as designated by the Chief Executive Officer to attend the Second Annual Corporate Governance Roundup to be held on February 23, 2009, at the Sheraton Gateway Hotel at Los Angeles Airport; and (2) Approve reimbursement of all applicable travel costs associated with attendance at the conference in accordance with LACERA's Travel and Education Policy. (Memo dated December 8, 2008.) (Placed on the Agenda at the request of Mr. Pryor.)
   2. Recommendation as submitted by John D. McClelland, Principal Investment Officer, Real Estate: (1) Approve attendance of Board members, and staff as designated by the Chief Executive Officer, at the RREEF Client Conference 2009 on February 24-25, 2009, at the Balboa Bay Club, Newport Beach, California; and (2) Approve reimbursement of all costs associated with Conference attendance in accordance with LACERA's Education and Travel Policy. (Memo dated January 5, 2009.)
6. ACTION ITEMS
   1. Recommendation as submitted by John D. McClelland, Principal Investment Officer, Real Estate: (1) Approve attendance of Board members, and staff as designated by the Chief Executive Officer, at the Institute for Fiduciary Education and seminar "Real Estate Investing - Spring 2009," in Phoenix, Arizona; and (2) Approve reimbursement of all costs associated with Conference attendance in accordance with LACERA's Education and Travel Policy. (Memo dated January 6, 2009.) A motion to approve the recommendation was made by Mr. Unger, seconded by Mr. Schneider.

      The motion carried by unanimous vote.

   2. Recommendation as submitted by Robert Z. Santos, Investment Officer, Fixed Income: (1) Approve attendance of Board members, and staff as designated by the Chief Executive Officer, at the Information Management Network's (15th Annual Beneficial Owners' International Securities Lending & Repo Summit to be held at the Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch in Scottsdale, Arizona; and (2) Approve reimbursement of all costs associated with the Conference attendance in accordance with LACERA's Education and Travel Policy. (Memo dated January 5, 2009.)

      A motion to approve the recommendation was made by Mr. Santos, seconded by Mr. Spare. The motion carried by unanimous vote.

   3. Recommendation as submitted by John D. McClelland, Principal Investment Officer, Real Estate (1) Approve attendance of Board members, and staff as designated by the Chief Executive Officer, at the IREI VIP 2009 Conference, and approve reimbursement of all travel costs incurred in accordance with LACERA's Education and Travel Policy. (Memo dated December 29, 2008.)

      A motion to approve the recommendation was made by Mr. Saladino, seconded by Mr. Santos. The motion carried by unanimous vote.

   4. Recommendation as submitted by Stuart Mesnik, Senior Investment Analyst: (1) Approve attendance of Board members to attend the Pacific Pension Institute's 2009 Winter Roundtable on February 25-27, 2009, at The Lodge at Torrey Pines in La Jolla, California; and (2) Approve reimbursement of all applicable travel costs associated with attendance at the conference in accordance with the Education and Travel Policy. (Memo dated January 8, 2009.)

      A motion to approve the recommendation was made by Mr. Saladino, seconded by Mr. Spare. The motion carried by unanimous vote.

   5. Recommendation as submitted by John D. McClelland, Principal Investment Officer, Real Estate: Adopt the NCREIF Property Index minus 25 basis points measured over rolling five-year periods as the overall benchmark for the real estate investment program effective January 1, 2009. (Memo dated January 6, 2009.)

      The Townsend Group Institutional Real Estate Consultants

      Micolyn M. Yalonis, Principal

      Nakeyshia J. Kendall, Consultant

      Mr. McClelland provided a brief overview on the proposed real estate benchmark change and reported that if the new benchmark was approved, staff would modify the Real Estate Strategic Plan to reflect the new Benchmark. He introduced Mmes. Yalonis and Kendall who followed with a presentation in support of the recommendation. LACERA's consultant reported that LACERA currently utilizes the consumer price index (CPI) +5% net-of-fees, measured over rolling five-year periods as the benchmark return objective for real estate investments. This was intended to reflect the investment risk of the asset class and its ability to hedge inflation. Staff and Townsend recommend adopting a market-based benchmark, the National Council of Real Estate Investment Fiduciaries (NCREIF) NCREIF Property Index (NPI) minus 25 basis points (BS), as the benchmark for the composite real estate portfolio. The NPI represents the best index available for use by LACERA as a benchmark and is superior to the current CPI+5 benchmark. Its use will facilitate higher quality performance measurement by allowing significant attribution analysis and risk assessment to be completed. This recommendation also responds to LACERA's Fiduciary Review of April 2008, Task 7: Risk Management and Internal Controls. The current benchmarks are computed net of inflation (CPI) net of investment management fees and cover a rolling five-year period. The proposed recommended benchmark (NPI-25bps) will be used for LACERA's composite real estate portfolio and will not impact the individual separate account managers or commingled fund investments.

      The Townsend Group also reported that the recommended benchmark was realistic and would serve to control risk in the portfolio, reflecting a reasonable return expectation which should not lead to assumption of higher risk in order to achieve the expected returns.

      A brief discussion followed with emphasis on real estate return expectations. A motion to approve the recommendation was made by Mr. Spare, seconded byMs. Sandoval. The motion carried with Mr. Pryor abstaining.

   6. Recommendation as submitted by Christopher J. Wagner, Senior Investment Officer, Private Equity: That your Board approve the Private Equity Strategic Plan. (Memo dated January 7 , 2009.)

      Mr. Wagner provided a brief overview on the proposed Private Equity Strategic Plan ("Strategic Plan"). He reported that the Strategic Plan sets forth the strategy for investing in private equity assets by outlining investment objectives. Each year LACERA's private equity investment requirements, the Strategic Plan and the private equity marketplace are reviewed by staff to determine whether the Strategic Plan is applicable in the current investment environment. Staff will review the Strategic Plan annually and LACERA's target allocation to the various sub-asset classes of private equity and, if needed, make the necessary revisions for Board approval.

      A brief discussion followed on fee reduction issues. A motion to approve the recommendation was made by Mr. Spare, seconded by Ms. Sandoval. The motion carried by unanimous vote.

   7. Recommendation as submitted by Christopher J. Wagner, Senior Investment Officer, Private Equity: That your Board adopt the 2009 Private Equity Investment Plan. (Memo dated January 7, 2009.)

      Mr. Wagner provided a brief overview on the proposed Private Equity Investment Plan ("Plan") and reported that the primary purpose of the Plan is to establish an appropriate commitment pace, review and ensure appropriate diversification to private equity investment strategies (e.g. corporate finance and venture), and determine the capital allocation between the core portfolio and discretionary separate accounts. The proposed Plan should result in LACERA reducing its current allocation to private equity below the policy range. Mr. Wagner also reported that staff would continue to closely monitor the private equity allocation and commitment level, and keep the Board apprised of changes.

      A brief discussion followed. A motion to approve the recommendation was made by Mr. Unger, seconded by Ms. Sandoval. The motion carried by unanimous vote.

   8. Recommendation as submitted by June H. Kim, Senior Investment Officer, Equities, and Shannon O'Connell, Senior Investment Analyst, Equities: (1) Authorize Staff to modify the mandate for the enhanced equity portfolio managed by Western Asset Management Company from a U.S. Equity to a fixed income mandate by:(a) Removing the S&P 500 Index futures overlay; and (b) Transferring the portfolio's fixed income assets from LACERA's U.S. equity composite to the fixed income composite; and (2) Authorize LACERA's Chief Investment Officer to sign all necessary legal documents to implement the change, subject to review and approval by LACERA's Legal Office. (Memo dated January 7, 2009.)

      Mmes. Kim and O'Connell provided an executive summary on the proposed recommendation and reported that Western Asset Management Company ("Western") has managed an enhanced equity portfolio for LACERA since December 2006. Western was asked to by staff to address the strategy's severe underperformance. Staff continued to provide the Board with performance and organization updates for this account. Since May 2008, the Western enhanced equity portfolio has underperformed its benchmark because of the portfolio's bond holdings. The bonds have experienced more price declines, mainly due to the condition of the fixed income market which worsened in September 2008. Due to the underperformance and the significant lag in the enhanced equity strategy benchmark, staff is recommending the mandate be modified to a pure fixed income mandate by removing the equity futures overlay.

      A brief discussion followed. A motion to approve the recommendation was made by Mr. Unger, seconded by Ms. Sandoval. The motion carried by unanimous vote.

   9. Recommendation as submitted by Bob Proctor, Director of Human Resources: (1) That the Board provide the LACERA Chief Executive Officer (CEO) with a 3% salary increase, effective January 1, 2009, and (2) That the Board adopt an Executive Compensation Policy and Program that establishes clear and comprehensive executive compensation guidelines that are in accordance with LACERA's mission, vision and values. (Memo dated January 7, 2009.)

      Mr. Procter provided a brief overview of the proposed recommendation. The Board commended Mr. Rademacher on his overall performance. They also expressed disappointment in that the current economic climate hinders bringing Mr. Rademacher's salary to the current market level.

      A motion to approve the recommendation was made by Mr. Saladino, seconded by Mr. Spare. The motion carried by unanimous vote.

7. VII. REPORTS
   1. Actuarial Funding Policy Gregg Rademacher, Chief Executive Officer (Memo dated January 6, 2009.)

      Milliman Consultants

      Karen I. Steffen, FSA, EA, MAAA, Consulting Actuary

      Nick J. Collier, ASA, EA, MAAA, Consulting Actuary

      Mr. Rademacher provided a brief overview on the proposed long term funding policy for retirement benefits. He reported that LACERA's current actuarial funding policy is a compilation of Board decisions. The approach is to develop a long-term actuarial funding policy by using a draft funding policy as a starting point and discuss key funding topics over a series of meetings. Mr. Rademacher introduced Karen Steffen and Nick Collier, actuaries of Milliman, Inc., LACERA's actuary. They followed with a presentation on the proposed policy. The funding goal establishes the funding status the Board of Investments would like LACERA to achieve. The main goal is to provide benefit security for LACERA's members as well as to achieve and maintain stable employer contributions that are as low as possible. The policy is also intended to provide guidance as to when adjustments to LACERA's contributions and funding for discretionary benefits should be considered by the Board of Investments. It is meant to assist in establishing a contribution rate that is relatively stable over the long term, and provide LACERA members with superior retirement benefit security, minimizing both the size and volatility of the employer contributions. The issues to consider are the asset smoothing period, the funding approach if there is an unfunded actuarial accrued liability (UAAL).

      A brief discussion followed and the Report was received and filed.

   2. FIS Group - Fourth Year Review June Kim, Senior Investment Officer, Equities Dale Johnson, Senior Investment Analyst, Equities (Memo dated June 5, 2009.)

      FIS Group

      Tina Byles Williams, Chief Executive Officer & Chief Investment Officer

      Diallo Johnson, Senior Vice President & Director of Manager Research

      June Kim reported that pursuant to LACERA's Manager Monitoring and Review Policy, investment managers must appear before the Board after the second and fourth anniversaries of their initial funding. FIS began managing a U.S. equity emerging manager fund of funds mandate for LACERA in September 2004. Ms. Kim introduced the principals of the FIS Group who followed with a presentation on the fund's performance.

      FIS provided an overview on their historical background, investment strategy and philosophy. They are based in Philadelphia, Pennsylvania, specializing in identifying and investing with attractive emerging manager firms. FIS outperformed its benchmark on a relative basis over all annualized time periods, with a mixed calendar year. Year-to-date 2008 through November. They did underperform by 40 bps net-of-fees, however, over the same time period, the portfolio slightly outperformed by 20 bps on a gross-of-fee basis. In addition, good selection among value stocks, as well as a slight underweight in the overall portfolio to large cap stocks, contributed positively. A brief discussion followed with emphasis on transparency concerns.

      The Report was received and filed.

   3. Operational Safeguards to Prevent Fraud Lisa Mazzocco, Chief Investment Officer (Memo dated January 5, 2009.)

      (For information only.)

      The memorandum on Operational Safeguards to Prevent Fraud is for information only and is received and filed.

   4. Securities Lending Program - 2008 Annual Review Robert A. Santos, Investment Officer, Fixed Income (Memo dated January 7, 2009.)

      (For information only.)

      The 2008 Annual Review on the Securities Lending Program is for information only and is received and filed.

8. GOOD OF THE ORDER

   (For discussion purposes only.)

   The Board congratulated the newly elected officers and extended a warm welcome to Mr. Schneider on his reappointment to the Board of Investments.

   Mr. Spare reported that he attended the Fiduciary College at Stanford and indicated that LACERA was well represented at the college with Mr. Muir, Chief Counsel and Johanna Fontenot, Senior Staff Counsel, also attending. Mr. Spare recommended the sessions at Fiduciary College to his colleagues.

   Mr. Rademacher congratulated the new officers and extended a warm welcome to Mr. Schneider on his return to the Investment Board. He also reminded the Board of the Board Offsite and encouraged them to attend. He reported that some of the topics to be discussed are the fiduciary review and policy discussions. He commended Lisa Mazzocco on preparation of information for said discussions.

   Ms. Mazzocco congratulated the new officers and extended a warm welcome to Mr. Schneider.

   Informational Items

   1. Memo dated January 6, 2009, from Robert Z. Santos, Investment Officer, Fixed Income regarding Loomis Sayles.

   2. Memo dated January 5, 2009, from Amit Aggarwal, Investment Officer, Real Estate, regarding Real Estate Independent Fiduciaries - Search Update.

   Green Folder Items

   1. Chief Executive Officer's Report dated January 7, 2009.

   2. Memo dated January 13, 2009, from Gregg Rademacher, Chief Executive Officer, regarding Board Offsite Agenda.

   3. Memo dated January 13, 2009, from Lisa Mazzocco, Chief Investment Officer, regarding LACERA total fund performance compared to the Wilshire Associates Pension Fund Universe.

   4. Memo dated January 12, 2009, from Goldman Sachs Asset Management, L.P.

   5. Memo dated January 9, 2009, from June Kim, Senior Investment Officer, Equities, Shannon O'Connell, Senior Investment Analyst, Equities regarding Intech Investment Management LLC.

   6. Memo dated January 13, 2009, from Beulah S. Canevari, Manager, Financial and Accounting Services Division regarding Semi-Annual Interest Crediting Rate as of December 31, 2009.

   7. Memo dated January 2, 2009, from David L. Muir, Chief Counsel, regarding Executive Compensation.

   8. Copy of Washington Post article dated January 9, 2009, entitled Troubles in Service Workers' Union May Dim Hopes for Labor.

9. ADJOURNMENT

Documents subject to public disclosure that relate to an agenda item for an open session of the Board of Investments that are distributed to members of the Board of Investments less than 72 hours prior to the meeting will be available for public inspection at the time they are distributed to a majority of the Board of Investments Members at LACERA’s offices at 300 N. Lake Avenue, Suite 820, Pasadena, CA 91101, during normal business hours of 9:00 a.m. to 5:00 p.m. Monday through Friday.

Listening Devices are available at days notice before the meeting date. Persons requiring an alternative format of this public notice pursuant to Section 202 of the Americans with Disabilities Act of 1990 may request one by contacting Cynthia Guider at (626) 564-6000, x3327 from 8:30 a.m. to 5:00 p.m. Monday through Friday, but no later than 48 hours prior to the time the meeting is to commence.