ABOUT LACERA

BOARD OF INVESTMENTS MINUTES 8-12-09

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

• Robert Hill, 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
• Robert Z. Santos, Investment Officer, Fixed Income
• Shannon O’Connell, Senior Investment Analyst
• Dale Johnson, Senior Investment Analyst, Equities
• Robb Van Der Volgen, Chief Counsel
• Michael D. Herrera, Senior Staff Counsel
• Christine Roseland, Staff Counsel
• Cynthia Lau, Legislative Affairs Officer

1. APPROVAL OF THE MINUTES
   1. APPROVAL OF THE MINUTES OF THE MEETING OF THE BOARD OF INVESTMENTS OF JUNE 10, 2009.

      A motion was made by Mr. Saladino, seconded by Mr. Unger, to approve the Minutes of the meeting of the Board of Investments of June 10, 2009.

      The motion carried by unanimous vote.

   2. APPROVAL OF THE MINUTES OF THE MEETING OF THE BOARD OF INVESTMENTS OF JULY 8, 2009.

      A motion was made by Mr. Unger, seconded by Ms. Sandoval, to approve the Minutes of the meeting of the Board of Investment of July 8, 2009.

      The motion carried by unanimous vote.
2. PUBLIC COMMENT

   None.

3. REPORT ON CLOSED SESSION ITEMS

   None.

4. REPORTS
   1. Manager Reviews – Fixed Income Robert Z. Santos, Investment Officer, (Memo dated July 28, 2009.)

      LM Capital Management
      Luis Maizel, Co-Founder and Senior Managing Director
      John Chalker, Co-Founder and Managing Director
      Richard Deary, Director Business Development

      Robert Santos gave a brief overview on the performance of LM Capital Management (LM Capital) and reported that pursuant to LACERA’s Manager Monitoring and Review Policy, investment managers must conduct a formal portfolio review when their one-year rolling excess returns are outside pre-determined performance bands for three consecutive quarters. He introduced the principals, Messrs. Luis Maizel, John Chalker, and Richard Deary who gave a presentation on LM Capital’s historical background, investment process and strategy.

      LM Capital is based in San Diego, California and they have managed a core-plus fixed income mandate for LACERA since January 2002. They have been a leading proponent of the Core Plus strategy since the firm’s inception in 1989. LM Capital utilizes a global macro-economic approach to their investing strategy. LM Capital believes in a global approach to managing fixed income securities, based upon a fundamental analysis of global macro-economic factors of the G-7 which consists of (the world’s seven largest industrial market economies, being the United States, Japan, Germany, France, United Kingdom, Italy, Canada and other selected countries to determine the most attractive fixed income markets.

      Their investment strategy group includes two foreign nationals, which enables them to gain a better understanding of the business culture in foreign markets and to benefit from the association with the senior management of many foreign companies. Another key aspect of LM Capital’s investment process is their concentrated approach to portfolio construction. This approach allows the team to focus on the portfolio’s securities and invest only in its best investment ideas As of June 30, 2009, LM Capital underperformed its benchmark by 3 and 73 bps annualized, net-of-fees, for one and two year periods respectively. Since inception, the portfolio has outperformed the benchmark by nearly 43 bps, annualized, net of fees. This portfolio has rebounded since its underperformance ending on March 31, 2009. A brief discussion followed and the Report was received and filed.

   2. Manager Reviews – Fixed Income Shannon O’Connell, Senior Investment Analyst, Fixed Income (Memo dated July 30, 2009.)

      BlackRock, Inc.
      Diane E. Parish, Managing Director
      Andrew J. Phillips, Managing Director

      Robert Santos presented a brief overview on the performance of BlackRock, Inc. (BlackRock) and reported that pursuant to LACERA’s Manager Monitoring and Review Policy, investment managers must conduct formal presentations when their one-year rolling excess returns are outside pre-determined performance bands for three consecutive quarters. This is BlackRock’s first presentation for underperformance since they were hired by LACERA in March of 1997.

      The principals of BlackRock, Diane Parish and Andrew Phillips, followed with a presentation on BlackRock’s historical background, investment strategy and the portfolio’s performance.

      BlackRock began managing a core fixed income mandate for LACERA in March 1997.

      Ms. Parish and Mr. Phillips reported that Barclays PLC accepted BlackRock’s offer to purchase Barclays Global Investors (BGI). The combined firm will be renamed BlackRock Global Investors. BGI’s fixed income assets are largely passive and thus are complementary to BlackRock’s active fixed income management business. With little overlap between the two businesses, BlackRock does not expect to make significant changes to the core bond investment team or process as a result of the BGI acquisition. The deal is expected to close in the fourth quarter of 2009.

      BlackRock’s investment process utilizes a risk-controlled, relative value, sector rotation and security selection approach to the management of core bond portfolios. This investment process requires collaboration between their portfolio and investment teams. These teams are responsible for research, bottom-up idea generation, ongoing monitoring of all positions, and trade execution. Research analysts are part of the Investment Teams and are responsible fore credit and macroeconomic research, implementing the investment strategy to determine security selection, timing, and execution, in accordance with the clients’ investment objectives and guidelines.

      BlackRock’s core fixed income portfolio performance as of June 30, 2009, (on a gross-and net-of-fee basis) underperformed the BC Aggregate by 193, 103, and 47 bps (annualized and net of fees) on a one, three, and five year basis respectively. BlackRock consistently outperformed the benchmark in ten of the twelve years that they managed core fixed income assets for LACERA.

      In 2006, they underperformed by only 2 bps and in 2008 they lagged the benchmark. The period from July 2007 to March 2009 was challenging for most fixed income managers, and in particular those that overweighted non-Treasury sectors. Moreover, the corporate, asset-backed and mortgage-backed sectors experienced their worst performance on record. In the second quarter of 2009, non-treasury sectors rebounded strongly, which benefited managers that continued to hold overweight positions in high quality non-Treasury securities. BlackRock’s performance reflects the very difficult period in the bond market. As commercial mortgage-backed securities (CMBS) and non-agency residential mortgage-backed securities (non-agency RMBS) performed extremely poorly during the credit crisis, BlackRock’s portfolio underperformed due to its overweight positions in these securities. However, their continued overweight in CMBS and non-agency RMBS through the end of the second quarter led the portfolio to a solid second quarter rebound, where they outperformed the benchmark by 239 bps. Additionally, BlackRock’s overweight position in U.S. credit and their non-dollar exposure also contributed to their strong second quarter performance. A brief discussion followed and the Report was received and filed.

   3. Performance Review as of June 30, 2009

      Lisa Mazzocco, Chief Investment Officer

      Wilshire Associates Incorporated
      William Bensur, CFA, Managing Director

      Ms. Mazzocco, Ms. Kim and Mr. Mahseredjian provided an executive summary on the fund’s performance for the second quarter 2009. They reported that LACERA’s Total Fund returned 10.1%, but lagged its Policy Benchmark return of 11.4%. The underperformance of 130 basis points (bps) was mainly due to weight differences between components of the actual asset allocation and the target asset allocation. The Fund was underweight public equities and commodities (the quarter’s best performing asset classes) and overweight private equity and real estate (the worst performers). The Domestic Equity composite rose 16.6% and slightly trailed its benchmark by 20bps as most of the active managers underperformed their respective benchmarks; however the International Equity composite returned 28.7% and was the best performing asset class for the quarter. The composite beat its benchmark by 10 bps, helped by strong relative results from the active regional investment managers. The fixed Income composite surpassed the benchmark by 430 bps for the quarter. This was the result of the relative outperformance of all core and core plus managers.

      The Real Estate portfolio declined 8.2% versus its benchmark return of -7.6%, an underperformance of 60 bps.

      LACERA’s Private Equity portfolio returned -5.3% and underperformed its benchmark return of 0.7% by 600 bps. The private equity benchmark uses a rolling ten-year return of the Russell 3000 Index.

      A brief discussion followed on the current domestic and international market environment and the Report was received and filed.

      June Kim introduced Bill Benzur of Wilshire Associates, LACERA’s Consultant, who followed with an Investment Review and Capital Market Review for the period ending June 30, 2009, with emphasis on US Equity, Non-US Equity and Fixed Income. A brief discussion followed with emphasis on skill analysis, risk management and risk control. The Board commended staff and Mr. Benzur on the Reports, which were received and filed.

   4. Trust Universe Comparison Services (TUCS) Data Lisa Mazzocco, Chief Investment Officer (For information only.)

      The Trust Universe Comparison Services (TUCS) Data is for information only and was received and filed.

   5. Real Estate Performance Measurement Quarter Ended March 31, 2009 John McClelland, Principal Investment Officer, Real Estate (Memo dated August 3, 2009.) (For information only.)

      The Townsend Group
      Micolyn Yalonis, Principal

      The Real Estate Performance Measurement Report is for information only and is received and filed.

5. EXECUTIVE SESSION
   1. CONFERENCE WITH LABOR NEGOTIATORS (Government Code Section 54957.6)

      Agency designated representatives:
      Robert Hill, Assistant Executive Officer
      Robert Proctor, Director of Human Resources
      John Nogales, Senior Human Resources Analyst
      Sharon Norton, Senior Human Resources Analyst
      Robb Van Der Volgen, Chief Counsel

      Employee organization:
      Service Employees International Union (SEIU), Local 721

      The Board met in Executive Session pursuant to Government Code Section 54957.6 to discuss labor negotiations with Service Employees International Union (SEIU), Local 721. The Board reconvened in open session, at which time Mr. Hill indicated that there was nothing to report at this time.

6. GOOD OF THE ORDER

   (For discussion purposes only.)

   The Board extended a warm welcome to LACERA’s new Chief Counsel, Robb Van Del Volgen, who comes from the California Department of Corporations, and has a long history with CalSTRS.

   Mr. Santos stated he received a letter from the Board of Supervisors asking that investments in Iran-related securities be addressed and respectfully requests that staff place this item on the Agenda for the October Investment Board meeting, unless the County ask that it be handled sooner. Staff has agreed to handle this matter. The Board extended their congratulations to Mr. Russin for winning re-election and will continue to serve on the Board of Retirement, representing the General Members.

   Informational Items

   1. Memo dated July 24, 2009, from Dale Johnson, Senior Investment Analyst regarding Corporate Governance Quarterly Review Volume 5, Issue #2: April 1, 2009 – June 30, 2009.
   2. Memo dated July 30, 2009, from John McCelland, Principal Investment Officer, Real Estate, regarding Single Family Home Building Program, Revised Performance Measurement methodology.

   Green Folder Items

   1. Chief Executive Officer’s Report.
   2. Memo dated August 11, 2009 from Lisa Mazzocco, Chief Investment Officer, regarding Trust Universe Comparison Service (TUCS) Data.
   3. Memo dated August 10, 2009, from Nai-len Ishikawa, Acting Manager, Financial and Accounting Services Division regarding the Semi-Annual Interest Crediting Rate as of June 30, 2009 (Unaudited).
   4. Memo dated August 6, 2009, from Michael D. Herrera, Senior Staff Counsel, regarding LACERA v. Motorola, Inc., Scientific-Atlanta, et al., Case No. 04 Civ 10252 (S.D.N.Y.)
7. 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.