ABOUT LACERA

BOARD OF INVESTMENTS MINUTES 3-11-09

PRESENT

• William R. Pryor, Chair
• Herman Santos, Vice Chair
• Diane Sandoval, Secretary
• Paul C. Hudson
• Simon Russin
• Mark J. Saladino
• Michael Schneider
• Leonard Unger

ABSENT

• John M. Barger

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
• Shannon O’Connell, Senior Investment Analyst
• David L. Muir, Chief Counsel
• Earl W. Buehner, Senior Staff Counsel
• Johanna M. Fontenot, Senior Staff Counsel
• Michael D. Herrera, Senior Staff Counsel
• Cynthia Lau, Legislative Affairs Officer

1. APPROVAL OF THE MINUTES
   1. APPROVAL OF THE MINUTES OF THE REGULAR MEETING OF THE BOARD OF INVESTMENTS OF FEBRUARY 11, 2009.

      A motion was made by Mr. Unger, seconded by Ms. Sandoval to approve the Minutes of the regular meeting of the Board of Investments of February 11, 2009.

      The motion carried by unanimous vote.

2. PUBLIC COMMENT

   Mr. Melvin Trickey, a retiree from the Los Angeles County Probation Department and a member of the American Federation of State and County Municipal Employees (AFSME) addressed the Board. He expressed his concern over the current economic crisis and asked for an update on LACERA’S portfolio status. Mr. Rademacher, reported that the Fund was well funded and fortunate to have a plan sponsor and employee groups that historically have done a good job funding the plan. Coming into the crisis, LACERA was well funded, at nearly 100%. The current economic crisis has taken a toll on the portfolio, as the funded status was approximately 95% the last time it was measured on June 30, 2008. Investment staff is doing an outstanding job to make sure there is liquidity in the portfolio to meet our monthly payroll obligations.

   A brief discussion followed.

3. REPORT ON CLOSED SESSION ITEMS

   None

4. CONSENT AGENDA

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

   The motion carried without objection.

   1. Recommendation as submitted by Stuart Mesnik, Senior Investment Analyst: Approve attendance of Board Members to attend the 2009 Wilshire Consulting Client Conference; and approve reimbursement of all applicable travel costs associated with attendance at the conference in accordance with the Travel Policy. (Memo dated March 2, 2009.)
   2. Recommendation as submitted by June H. Kim, Senior Investment Officer, Equities: Approve attendance of staff as designated by the Chief Executive Officer, at the Elkind Emerging Markets Forum; and approve reimbursement of all travel costs incurred in accordance with LACERA’s Education and Travel Policy. (Memo dated February 25, 2009.)
   3. Recommendation as submitted by Gregg Rademacher, Chief Executive Officer: Approve attendance of Board members, and staff as designated by the Chief Executive Officer, to attend The Labor and Worklilfe Program at Harvard Law School; and approve reimbursement of all travel costs incurred in accordance with LACERA’s Education and Travel Policy. (Memo dated March 6, 2009.)
5. ACTION ITEMS
   1. Recommendation as submitted by Gregg Rademacher, Chief Executive Officer: (1) Determine whether to ratify attendance by Board member John Barger at the CFA Institute’s conference Asset and Risk Allocation 2009; and (2) If attendance is ratified, approve reimbursement of all conference fees and travel costs associated with conference attendance according to LACERA’s Education and Travel Policy. (Memo dated March 4, 2009.) (Placed on the Agenda at the request of Mr. Barger.)

      A motion to approve the recommendation was made by Mr. Saladino, seconded by Mr. Unger.

      The motion carried by unanimous vote.

      Chair Pryor indicated Action Item C. would be handled before Item B.

   2. Recommendation as submitted by Lisa Mazzocco, Chief Investment Officer: Adopt the proposed changes to the Investment Policy Statement. (Memo dated March 4, 2009.)

      Ms. Mazzocco provided a brief overview on the proposed changes to the Investment Policy Statement. She reported that staff and LACERA’s general consultant, Wilshire Associates reviewed the Investment Policy Statement and that the Policy Statement outlines the fund’s investment objectives. As with all living documents, certain modifications are needed to ensure that it evolves as LACERA’s needs change. Key issues addressed include the Fund’s investment goals and asset allocation policy, which also outlines the duties of the Board, staff, investment managers and consultants. Concerns were raised by Messrs. Russin and Santos relating to delegation of authority and certain investments strategy concerns. A brief discussion followed.

      A motion to approve the recommendation was made by Mr. Unger, seconded by Ms. Sandoval.

      The motion carried with Messrs. Russin and Santos voting no.

   3. Recommendation as submitted by Robert Z. Santos, Investment Officer, Fixed Income, and Shannon O’Connell, Senior Investment Analyst: Adopt the Barclays Capital U.S. Universal Index as the new benchmark for the fixed income composite, effective March 31, 2009. (Memo dated March 4, 2009.)

      Mr. Robert Santos provided a brief overview on the proposed recommendation and reported that staff had previously informed the Board of the intent to adopt Barclays Capital U.S. Universal Index (“Universal”) as the new benchmark for LACERA’s fixed income composite. Universal is a comprehensive, dollar-denominated fixed income benchmark which includes all components of the Barclays capital aggregate index (Aggregate) as well as non-Aggregate sectors such as high yield and emerging market debt. Universal offers the broadest measure of the U.S. fixed income market. Staff views it as the most appropriate benchmark to gauge the risk-adjusted performance of LACERA’s fixed income composite. Rather than adjusting the benchmark each time a change is made to the high yield allocation, LACERA should adopt a benchmark that includes a high yield component and is more inclusive of other sectors in the U.S. bond market. Universal also supports the Board’s recent approval of a new fixed income structure (Core, Core Plus, and Opportunistic) and as part of the structure implementation, LACERA’s fixed income managers will invest across a larger breadth of fixed income securities in order to improve the portfolio’s risk-adjusted returns. Consequently, the composite’s benchmark should reflect the broadest available set of U.S. fixed income investment opportunities. The adoption of Universal as LACERA’s benchmark will improve Staff’s ability to measure market risk and return while remaining consistent with LACERA’s approach to benchmarking the domestic equity portfolio. A brief discussion followed on fixed income issues.

      A motion to approve the recommendation was made by Ms. Sandoval, seconded by Mr. Unger.

      The motion carried by unanimous vote.

      Having acted on Item C, Chair Pryor indicated the Board would return to the regular order of business.

   4. Recommendation as submitted by June Kim, Senior Investment Officer, Equities, and Shannon O’Connell, Senior Investment Analyst: Authorize Staff to terminate American Century Investment Management’s small capitalization core mandate. (Memo dated March 3, 2009.)

      Ms. Kim provided a brief overview on the proposed termination of American Century Investment Management (“American”). She reported that American presented before the Board on September 24, 2008, to address its continue and substantial underperformance. American’s performance has not improved since its September 2008 presentation. Instead, American continued to generate significant underperformance through January 2009,while most of LACERA’s quantitative managers demonstrated stability during the same volatile period; in fact some managers contributed positive relative returns to the U.S. equity composite. A brief discussion followed on with emphasis on transition costs.

      A motion to approve the recommendation was made by Mr. Russin, seconded by Mr. Saladino.

      The motion carried by unanimous vote.

   5. Recommendation as submitted by David L. Muir, Chief Counsel: Approve the attached ballot insert entitled “POWERS AND DUTIES OF INVESTMENTS BOARD MEMBERS” to be included with the ballot materials for the election of the Third Member of the Board of Investments. (Memo dated February 24, 2009.)

      Ms. Fontenot provided a brief overview of the proposed Powers and Duties of Investments Board Members to be included with the ballot materials for the election of the Third Member of the Board of Investments. A discussion followed during which it was suggested that the document include the Board’s responsibilities regarding security litigation issues.

      A motion was made by Mr. Schneider, seconded by Ms. Sandoval to Approve the Powers and Duties of Invest-ments Board Members as amended to include a reference to the Board’s responsibilities regarding securities litigation.

      The motion carried by unanimous vote.

   6. Recommendation as submitted by Cynthia Lau, Legislative Affairs Officer: That your Board adopt a “Watch” position on HR 710. (Memo dated February 26, 2009.)

      HR 710

      Ms. Lau reported that HR 710 would provide a guaranteed investment opportunity for state and local pension plans. The bill would encourage state and local retirement plan investment in TARP approved financial institutions. In return for investing in a class of preferred stock, the retirement plans would receive an 8.5% guaranteed rate of return as well as a guarantee of principal. The goal is to provide an infusion of non U.S. government capital into the banking system, which would create additional capital for consumer loans. The investments would be a guarantee directly by the U.S.Treasury rather than a deposit guarantee through the FDIC. Another goal of the bill is to provide a guaranteed investment opportunity for state and local plans which have been hard hit by the capital markets. A detailed analysis of this proposal is not yet available, therefore, staff recommends that LACERA continue to monitor this bill.

      A motion was made by Mr. Saladino, seconded by Ms. Sandoval to adopt a “Watch” position on HR 710.

      The motion carried with Mr. Hudson abstaining. (Mr. Hudson is the President and Chief Executive Officer of Broadway Federal Bank, which was the recipient of TARP funds.)

   7. Recommendation as submitted by Cynthia Lau, Legislative Affairs Officer: That your Board adopt a “Watch” position on AB 137. (Memo dated February 23, 2009.)

      AB 137

      Ms. Lau reported that the Ralph M. Brown Act requires that all meetings of a legislative body of a local agency be open and public and all persons be permitted to attend unless a closed session is authorized. In defining a legislative body for this purpose, the act excludes ad hoc advisory committees composed solely of the members of the legislative body that are less than a quorum of the legislative body. AB 137 would amend Government Code Section 54952 to require that ad hoc advisory committees that are less than a quorum hold their meetings in public if the committee has been established for more than two years. LACERA has occasionally appointed ad hoc committees to review specific issues in closed session. It is not anticipated that such committees would last longer than two years. However, if an advisory or ad hoc committee lasted longer than two years, this bill would require such committee meetings to be conducted in open session after the two-year mark.

      A motion was made by Mr. Saladino, seconded by Ms. Sandoval, to take a “watch” position on AB 137.

      The motion carried by unanimous vote.

6. VI. REPORTS
   1. Implementation of New Fixed Income Structure Vache Mahseredjian, Principal Investment Officer (Memo dated March 1, 2009.) (For information only.)

      The Report is for information only and was received and filed.

   2. Annual Report on Securities Litigation Michael D. Herrera, Senior Staff Counsel (Memo dated February 20, 2009.) (For information only.)

      The Report is for information only and was received and filed.

   3. Assembly Concurrent Resolution 4 Cynthia Lau, Legislative Affairs Officer (Memo dated February 23, 2009.) (For information only.)

      The Resolution is for information only and was received and filed.

   4. Update on Corporate Governance Items Dale Johnson, Senior Investment Analyst – Equities (For information only.)

      The Update on Corporate Governance Items is for information only and was received and filed.

7. GOOD OF THE ORDER (For discussion purposes only.)

   Mr. Russin reported on his attendance at the Pacific Pension Institute and the Corporate Governance Roundup indicating that it was excellent. He commended Mr. Pryor on hosting the Roundup.

   Ms. Sandoval reported that the RREEF Client Conference was also a very informative session.

   Mr. Hudson asked that Wilshire Consultants provide a report for the Board on concerns relating to Westridge Capital Management.

   Green Folder Items

   1. Chief Executive Officer’s Report
   2. Memo dated March 10, 2009, from Lisa Mazzocco, Chief Investment Officer, regarding Wilshire Associates News Article.
   3. Memo dated February 23, 2009, from Cynthia Lau, Legislative Affairs Officer regarding Assembly Concurrent Resolution 4.
   4. Copy of Voice of San Diego article dated March 2, 2009, from David L. Muir, Chief Counsel, entitled PensionBonds Still on San Diego’s Radar Screen.
   5. Copy of Berman DeValerio Monitor, dated Winter 2009, from David L. Muir, Chief Counsel entitled Proposed Bill Would Let Public Funds Invest in Troubled Banks.
   6. Copy of Voice of San Diego article dated March 5, 2009, from David L. Muir, Chief Counsel, entitled County Pension Investment Guru Resigns.
   7. Copy of San Diego County Employees Retirement Association new release dated February 26, 2009, from David L. Muir, Chief Counsel, regarding SDCERA Issues Statement Regarding WG Trading. 8. Copy of Voice of San Diego article dated March 3, 2009, from David L. Muir, Chief Counsel, entitled Hedge Fund Woes Gore San Diego County Again.
8. 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.