FRESNO COUNTY BOARD OF RETIREMENT



BOARD OF RETIREMENT

FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION

February 4, 2009

Trustees Present:

Alan Cade, Jr. Michael Cardenas

Nick Cornacchia Vicki Crow

Eulalio Gomez James Hackett

Steve Jolly Phil Larson

John Souza

Others Present:

Ronald S. Frye, Alternate Trustee

Michael Cunningham, FCERA Member

Roger Greening, FCERA Member

Jeffrey MacLean, Wurts & Associates

Kyle Theodore, Pacific Investment Management Company

Lisa Kim, Pacific Investment Management Company

Ryan Korinke, Pacific Investment Management Company

Curtis Arledge, BlackRock, Inc.

Dan McLaughlin, BlackRock, Inc.

Matt Eagan, Loomis Sayles & Company, LP

Laurie Deaton, Loomis Sayles & Company, LP

Kent Wosepka, Standish Mellon Asset Management Company

Daniel Richter, Standish Mellon Asset Management Company

Conor Hinds, Supervising Accountant

Susan Coberly, Senior Deputy County Counsel

Roberto L. Peña, Retirement Administrator

Becky Van Wyk, Assistant Retirement Administrator

Elizabeth Avalos, Administrative Secretary

1. Call to Order

Chair Cade called the meeting to order at 8:38 AM.

2. Pledge of Allegiance

Recited.

3. Public Presentations

Michael Cunningham, FCERA Member, requested that Administration provide agenda backup material [investment items related to the selection of an investment manager] to the public either by overhead projection or hardcopy when it is not made available to the public prior to the meeting.

Roberto L. Peña, Retirement Administrator, noted that, when appropriate, agenda backup information is available on the FCERA website and in the future Administration will provide backup material either by overhead projection or hardcopy to the public as needed.

Trustees Crow and Jolly joined the Board at 8:41 AM.

Consent Agenda/Opportunity for Public Comment

Consent Agenda Items 4, 13, 14, 15, and 16 were pulled for discussion.

A motion was made by Trustee Souza, seconded by Trustee Larson, to Approve Consent Agenda Items 5-12 and 17. VOTE: Unanimous

*4. Approve the January 21, 2009 Retirement Board Regular Meeting Minutes and the January 28, 2009 Special Meeting Minutes

Trustee Hackett requested that the January 21, 2009 Regular Board Meeting minutes reflect his opposition to the Board direction regarding Item 17 [Tier III discussion]. Administration agreed.

A motion was made by Trustee Crow, seconded by Trustee Souza, to Approve the January 21, 2009 Regular Meeting minutes with the noted correction. VOTE: Unanimous

RECEIVED AND FILED; APPROVED

*5. Retirements

RECEIVED AND FILED; APPROVED

|Glenda Allen-Hill |Superior Court, Deferred |21.42 |

|Deborah Anderson |District Attorney |18.38 |

|Dan D. Boria |General Services |12.53 |

|Marc Boswell |Community Health, Deferred |6.16 |

|Geraldine Brown |ACTTC |17.41 |

|Charles Thomas Charnock |Probation |32.01 |

|Elva N. Christensen |Superior Court |19.79 |

|B. Susan Cogdill |Behavioral Health |9.37 |

|Kathryn Cordero |Child Support Services |24.13 |

|Sheila M. Gallardo |E&TA |17.59 |

|Robert M. Guerra |E&TA |23.69 |

|Deborah A. Hansen |Children & Family Svs, Deferred |9.76 |

|Lynn Hedrick |Sheriff |12.57 |

|Joyce Hemphill |Administrative Office, Deferred |14.34 |

|Jeff L. Hollis |Sheriff |32.59 |

|Charles Janiel, Jr. |Public Works & Planning |16.57 |

|Lilly Jimenez |Community Health |11.27 |

|Sandra D. Knudson |Community Health |10.01 |

|Randolph W. La Joie |ACTTC, Deferred |26.48 |

|Jose Leon-Barraza |Administrative Office |33.71 |

|Susan S. Macdonald |Sheriff |31.16 |

|Delia Martinez |Children & Family Svs |28.91 |

|Carol E. Mayfield |E&TA, Deferred |17.46 |

|James R. Oppliger |District Attorney, Deferred |27.08 |

|Charles K. Palmer |E&TA |24.56 |

|David L. Parker |NCFPD, Deferred |7.84 |

|Sandra Pellanda |County Counsel |19.41 |

|Cathi J. Peters |General Services |28.27 |

|Robert R. Reed, II |Sheriff, Deferred |14.28 |

|Curtis Replogle |VMC, Deferred |15.13 |

|Janice A. Robinson |Sheriff |20.72 |

|B. Elizabeth Rojas |Superior Court, Deferred |12.66 |

|Mary H. Shepherd |Sheriff |20.39 |

|David C. Stone |Sheriff, Deferred |14.96 |

|Pat Strombeck |General Services, Deferred |6.73 |

|Yok Tea |E&TA, Deferred |3.83 |

|Lydia Verdugo |Public Defender |22.41 |

|Bob Waterston |Board of Supervisors |7.92 |

|Linda Jean Wright |Sheriff |35.84 |

| | | |

*6. Disability Retirement

RECEIVED AND FILED; APPROVED

|Maria McClure |Behavioral Health |10.86 |

*7. Request to Rescind Deferred Retirement

RECEIVED AND FILED; APPROVED

|Raymond Rodriquez |Behavioral Health |6.91 |

| | | |

*8. Public Records Requests and/or Retirement Related Correspondence from Ken Mandler, Public Pay Institute; Mary Frances Johnson, FCERA Member; Sandra Brock, FCERA Member; Dennis and Connie Plann, FCERA Members; Donald Nelson, FCERA Member; Irina Solomonik, Thomas Reuters; and Gilbert Sacks, FCERA Member

RECEIVED AND FILED

*9. Update of Board of Retirement directives to FCERA Administration

RECEIVED AND FILED

*10. Most recent investment returns, performance summaries and general investment information from investment managers

RECEIVED AND FILED

*11. Fresno Station Business Center Financial Update for the period ending December 31, 2008

RECEIVED AND FILED

*12. Annual Report of Trustee Due Diligence Activities for calendar year 2008

RECEIVED AND FILED

*13. Annual Report of Trustee Educational Activities for the calendar year 2008

Chair Cade noted that his participation in the SACRS 2008 Fall Conference had been omitted from the Trustee Educational Activities report and requested that it be updated to reflect his participation. Administration agreed.

A motion was made by Trustee Souza, seconded by Trustee Jolly, to Approve Consent Agenda Item 13 with noted corrections. VOTE: Unanimous

RECEIVED AND FILED

*14. Initiative Constitutional Amendment regarding Renegotiation of Public Employee Pension Contracts

Trustee Gomez stated that the Renegotiation of Public Employee Pension Contracts initiative is an attempt to reform public employee pension contracts and inquired if Administration had made the document available to the membership.

Roberto L. Peña, Retirement Administrator, noted that the document is available on the FCERA website in that it is part of the Agenda material.

Roger Greening, FCERA Member, inquired as to why the item appears on the Agenda and requested that any future information on whether the Board will support or oppose the initiative be agendized for discussion.

Mr. Peña noted that the initiative appears on the Agenda for informational purposes only.

General discussions, questions, and comments ensued. Trustee Crow stated that the initiative is on the State Association of County Retirement System’s (SACRS) “radar” and is being discussed by the legislative committee and noted that SACRS has not taken a position on the issue.

Trustee Jolly stated that, as a policy, the Board has not gotten involved in “shaping” legislation in that the role of the Board is only to administer benefits as outlined in the law.

A motion was made by Trustee Souza, seconded by Trustee Crow, to Accept Consent Agenda Item 14 as presented. VOTE: Unanimous

RECEIVED AND FILED

*15. Letters of apology to the Board of Retirement and FCERA Retired Members from State Street advising that the 1099-R Form contained an error and corrected versions have been distributed

Roberto L. Peña, Retirement Administrator, informed the Board that State Street Retiree Services recently mailed incorrect Form 1099-R to FCERA retirees retiring before January 1, 2003. The forms did not properly indicate that the taxable amount was not determined. Mr. Peña briefly explained the cause of the error.

It was noted that State Street issued letters of apology to the retirees and the Board that explained the error. Corrected forms were mailed the week of February 1, 2009.

In response to a question from Roger Greening, FCERA Member, regarding the impact this error will have on member’s returns, Conor Hinds, Supervising Accountant, stated that the tax implications on individual members who have filed tax returns is not known. It was noted that members are being advised to seek the advice of a tax professional.

Michael Cunningham, FCERA Member, reminded the Board that the same error occurred in the previous year and noted that he had to file an amendment [amended return] with the IRS and incurred additional costs associated with the filing the amendment.

Mr. Peña apologized to the Retirees and the Board for the mishap.

A motion was made by Trustee Crow, seconded by Trustee Gomez, to Accept Consent Agenda Item 15 as presented. VOTE: Unanimous (Absent – Larson)

RECEIVED AND FILED

*16. State Street client communication and financial/investment related information from news sources

Roberto L. Peña, Retirement Administrator, opened discussions by informing the Board that Administration has received client communications from State Street and recent news articles regarding State Street’s financial condition. Mr. Peña noted that the information does not indicate that State Street is in a dire situation but does reflect a decline in stock prices created by the current market crisis.

Jeffrey MacLean, Wurts & Associates, briefly explained the State Street relationship with FCERA and noted that State Street also provides custody services to FCERA in addition to managing FCERA’s Index Funds.

Mr. MacLean stated that State Street appears to be financially sound but is experiencing a decline in stock price due to the current market environment. Despite the challenges of the current market environment, State Street had a record year in terms of revenue and EPS growth and the outlook for 2009 is for a continuation of profitability. General discussions ensued regarding the current market condition as it relates to the government bailout.

Mr. MacLean noted that the most prudent course of action is to not make any changes in regards to State Street at this time in that the asset quality of investment portfolio remains strong.

At the request of Trustee Jolly, Mr. MacLean described how the different assets would be impacted in the unlikely event State Street were to file bankruptcy. Mr. MacLean stated that FCERA would be impacted to some extent but the assets held in custody and managed by State Street are not subject to creditors in the event of bankruptcy.

A motion was made by Trustee Crow, seconded by Trustee Souza, to Accept Consent Agenda Item 16 as presented. VOTE: Unanimous

RECEIVED AND FILED

*17. Approve the Annual Consumer Price Index (CPI) for the Cost of Living Adjustment (COLA) as of April 1, 2009 (G.C. §31870.1) rounded to 3.5% by the Segal Company, granting 3% cost of living to all members retired prior to April 2, 2009 with a carry over of .5% of the cost of living adjustment

RECEIVED AND FILED; APPROVED

18. Discussion and appropriate action on selection of investment management firms for the Opportunistic Fixed Income Search

Jeffrey MacLean, Wurts & Associates, opened discussions by reminding the Board of its January 7, 2009 decision to interview four managers for the Opportunistic Fixed Income mandate with an objective of hiring two of the four candidates. Mr. MacLean noted that the four candidates have gone through an extensive vetting process and all are qualified for this assignment.

Mr. MacLean briefly reviewed the current Opportunistic Fixed Income market environment as it relates to risk and noted that it is a strategy used to boost the overall rate of return in the fixed income portfolio.

In response to a question from Trustee Cornacchia regarding how future interest rate increases might affect the Opportunistic Fixed Income strategy, Mr. MacLean noted that, should interest rates increase, the price of fixed income instruments will decrease. However, the prospect of higher interest rates over the next 12 to 18 months is not likely. General discussions ensued regarding inflation/deflation as it relates to the movement of interest rates.

Pacific Investment Management Company (PIMCO)

Kyle Theodore, PIMCO, began the presentation with an overview of PIMCO’s value added proposition which included investment performance, service, and client service innovation. Mr. Theodore briefly reviewed PIMCO’s expertise and secular investment processes and noted that PIMCO’s size provides unique benefits such as greater access to information and implementation efficiencies.

Lisa Kim, PIMCO, reviewed the proposed Unconstrained Bond strategy which is designed to provide higher alpha or risk-adjusted return over the long-term due to the lack of benchmark oriented restrictions and tracking error targets and greater active manager discretion.

The Unconstrained Bond strategy is an absolute return-oriented, investment grade quality, fixed-income strategy that is unconstrained by a benchmark or significant sector/instrument limitations which allows for significant discretion to actively adjust duration exposure, allocate across sectors, and otherwise express PIMCO’s views regarding both attractive value and downside risk in the global fixed income markets.

In response to a question from Trustee Jolly regarding potential high yield exposure, Ms. Kim stated that PIMCO has broad investment guidelines to provide direction as to where a high yield strategy might fit the Plan’s asset allocation. The limits on high yield exposure are designed with the goal that the overall quality of the portfolio will always be investment grade, the capital loss potential will be limited, and the strategy is not likely to exhibit a high correlation with the equity market. Discussions ensued regarding the guidelines and processes for gaining exposure to high yield such as cash bonds and synthetic derivative instruments.

Ms. Kim noted that the Unconstrained Bond strategy is guided by the same process that has enabled PIMCO to consistently perform in the Bond Market for over 30 years. As of December 31, 2008 the PIMCO total return Full Opportunity composite has outperformed the Barclays Capital Aggregate Bond Index in 120 out of 121 rolling three-year periods.

Ryan Korinke, PIMCO, stated that PIMCO’s Global Integrated investment process supports the ability to indentify new opportunities and helps to avoid downside risk with an extensive opportunity set that includes both top-down and bottom-up strategies. Top down strategies incorporate the firm’s core “macro” positions on duration, country selection, curve selection, curve positioning, currency, and sector spreads while bottom up strategies draw on the expertise of PIMCO’s specialist teams in an effort to take advantage of structural inefficiencies, market mispricing, and cross-country or cross-sector spread movements across all sectors.

Mr. Korinke reviewed PIMCO’s Unconstrained Bond strategy and noted that the nature of this strategy allows for significant active manager discretion to allocate to the areas of the global fixed income marketplace that are most attractive, reduce or eliminate exposures that pose heightened downside risk, and tactically express a wide variety of relative value positions.

In response to a question from Trustee Crow regarding PIMCO’s fee structure, Mr. Theodore offered two fee options: 1) fixed fee of 60 basis points and 2) performance fee with a base fee of 20 basis points plus 15% of outperformance above LIBOR. It is PIMCO’s expectation to outperform LIBOR by approximately 300 basis points over an entire market cycle.

In response to PIMCO’s presentation, Mr. MacLean noted that PIMCO’s outlook is significantly conservative in that in an unconstrained portfolio, PIMCO is allowed to pursue their best ideas, but are just not taking credit risks at this time.

In response to a question from Roberto L. Peña, Retirement Administrator, regarding the Plan’s return expectations compared with PIMCO’s return expectations, Mr. MacLean noted, that overall, each has the same return expectations.

BlackRock, Inc.

Dan McLaughlin, BlackRock, began the presentation with an overview of BlackRock’s Fixed Income Global Opportunities Fund and noted that it is designed to address the needs of investors seeking absolute returns over a market cycle from their traditional fixed income investments. The strategy was launched on July 1, 2004 and has attracted $1.1 billion from a wide variety of institutional investors and seeks to achieve its objective by actively allocating capital among the best opportunities in the global fixed income markets with no leverage and no net shorting of securities.

Curtis Arledge, Managing Director, stated that BlackRock uses multiple strategies to add value and its diversified exposures are designed to deliver consistent outperformance using traditional strategies in measured ways and focusing on exploiting relative value strategies. Value is added primarily through sector and sub-sector rotation and security selection. BlackRock’s relative value approach encompasses a broad range of sub-sectors and all securities are evaluated within the risk management framework.

Mr. Arledge reviewed the Fixed Income portfolio management team and noted that research analysts are embedded within the investment team. BlackRock’s global research database allows analysts to share, store, and access information and insights across asset classes and locations. In addition, BlackRock’s risk monitor enables portfolio managers to view issuer exposure across portfolios on a real-time basis. Mortgage prepayment modeling provides option-based valuations and scenario analysis across a wide variety of mortgage types.

Mr. Arledge stated that BlackRock is a leader in risk management and noted that because recent events have increased investor awareness and sensitivity to risk, BlackRock focuses on providing consistent, risk-adjusted returns in all market environments.

The current market outlook and strategy were reviewed and it was noted that record low consumer confidence levels coupled with rising unemployment data have highlighted concerns over the global economic slowdown. In addition, credit sectors have suffered from strained funding markets and ongoing deleveraging pressures. It was noted that global governments addressed the rapidly deteriorating economic fundamentals with coordinated interest rate cuts and capital injections into banks.

Discussions ensued regarding the proposed performance based fee structure and it was noted that the base fee is similar to the fee that is paid in the existing Core Plus assignment but also includes a performance component of a 20% performance hurdle of 3-month LIBOR plus 225 basis points. In addition, Mr. McLaughlin noted that BlackRock could provide a “relationship” discount of approximately 5% on the existing assignment.

At the request of Roberto L. Peña, Retirement Administrator, Mr. McLaughlin clarified the differences between the existing Core Plus mandate and the proposed opportunistic fixed income mandate by noting that the existing mandate is tied to a benchmark versus the proposed strategy not being tied to an index and having no restrictions on the maturity of securities that can be bought.

In response to BlackRock’s presentation, Mr. MacLean noted that unlike PIMCO, BlackRock’s outlook consists of significantly more risk and double digit returns given the types of risk adjusted yields. Mr. MacLean raised concerns that the incentive part of the fee structure is particularly attractive for BlackRock and not the Plan in that the LIBOR may not be the appropriate benchmark. General discussions ensued regarding BlackRock’s fee structure and whether the fees are negotiable. Mr. MacLean noted that because the Plan currently employs BlackRock, the proposed fee structure may be negotiable.

Loomis Sayles & Company (Loomis)

Laurie Deaton, Loomis, began the presentation with an overview of the firm’s experience and resources and noted that Loomis has established one of the richest investment management traditions in the industry serving institutional investors for 80 years with $106 billion in assets under management. Loomis offers a broad and comprehensive range of domestic and global fixed income and equity products. As of December 31, 2008, Loomis has $95 billion in fixed income assets under management.

Ms. Deaton reviewed the Fixed Income portfolio management team and noted that research is the cornerstone of their business which supports Loomis’ strength and security selection. It was noted that Loomis has dedicated $50 million to its 2009 research budget.

Matt Eagan, Loomis, gave a brief overview of the investment product overview noting the objective of maximizing absolute return while managing downside risk. The drivers of return include yield advantage and the compounding of that yield advantage, capital appreciation form bottom-up selection of undervalued securities, and opportunistic allocations to emerging markets, non-US dollars, convertibles, and high yield.

Mr. Eagan stated that the Multisector Full Discretion investment process is a practical approach to quantitative research and risk management with research complementing the investment process. The types of research include risk management & attribution, relative value, and portfolio construction.

Mr. Eagen reviewed the Multisector Full Discretion composite characteristics compared to the Barclays Government Credit Index as of December 31, 2008 and noted that the composite reflects the opportunity that is available in this style of investing. Mr. Eagan noted that this style requires extending risk in order to pick up greater absolute return over time.

In response to a question from Trustee Souza regarding Loomis’ fee structure, Ms. Deaton offered two fee options: 1) fixed fee with a possible “relationship” discount in the Core Plus portfolio and 2) performance fee with a base fee (yet to be determined) plus 250 basis points performance above Lehman Government Credit. Mr. MacLean noted that the proposed fee structure may be negotiable.

In response to Loomis’ presentation, Mr. MacLean stated that Mr. Eagan has done the best job, thus far, in explaining “illiquidity premiums” as they relate to the Plan’s thesis in terms of this long-term investment. It was noted that Loomis’ outlook consists of significant exposure to risk with double digit returns.

Standish Mellon Asset Management Company (Standish)

Daniel Richter, Standish, began the presentation with a brief overview of the firm and noted that it was founded in 1933 and is dedicated exclusively to fixed income portfolio management with $186 billion in assets under management.

Mr. Richter reviewed Standish’s active fixed income strategies which include single sector, multi-sector total return and absolute return. It was noted that, as part of the firm’s philosophy, the search for value drives the investment process in that value is realized most often when supported by both fundamental and technical factors and identifying best ideas.

Kent Wosepka, Standish, reviewed the proposed strategy parameters noting that the opportunistic total return strategy is focused on rotation between high yield, investment grade credit, emerging markets, mortgages, and non-US bond sectors. Other sectors including municipal bonds, structured products, and TIPS are utilized to a lesser degree.

Mr. Wosepka stated that Standish devotes significant resources to all sectors of the global bond markets yet remains sufficiently medium-sized that security selection decisions contribute positively to returns. In addition, sector allocation is enhanced by proprietary quantitative models that are continuously tested, updated, and improved.

Detailed discussions ensued regarding the proposed fee structure of 50 basis points on a co-mingled account or separate fund. It was noted that, in the event Standish is chosen for this mandate, the proposed fee structure may be negotiable.

In response to Standish’s presentation, Mr. MacLean noted the Standish’s outlook is somewhat neutral compared to the other presenters but is more in line with Loomis as a true Global Opportunistic Fixed Income manager.

Detailed discussions ensued regarding the prior and current performance and the various strategies of each firm. Trustees Jolly and Crow and Chair Cade spoke in favor of the Loomis and Standish strategies in that they are more in line with FCERA’s goals.

A motion was made by Trustee Jolly, seconded by Trustee Crow, to Authorize Wurts & Associates to enter into discussions with Loomis and Standish regarding the proposed strategies and fee structures and to report the outcome of the discussions to the Board at a later meeting.

Detailed discussions ensued regarding the Barclays index/benchmark versus the LIBOR in that Mr. Peña raised concerns that, in the event the Barclays index has a negative return, managers could potentially earn performance fees based on a negative return by outperforming a negative benchmark.

The motion was restated as follows:

A motion was made by Trustee Jolly, seconded by Trustee Crow, to Authorize Administration and Wurts & Associates to begin negotiations and enter into discussions with Loomis and Standish regarding the proposed strategies and fee structures and to report the outcome of the discussions to the Board at a later meeting.

In response to a question from Trustee Hackett as to why Wurts is only negotiating with two of the four managers, Trustee Crow stated that, in the event the negotiations are unsuccessful, the Board has the authority to begin negotiations with either of the other two firms.

VOTE: Unanimous

RECEIVED AND FILED; APPROVED

Trustee Jolly departed at 12:20 PM.

19. Discussion and appropriate action on 2009 Capital Market Assumptions, implications for FCERA portfolio

Jeffrey MacLean, Wurts & Associates (Wurts), opened discussions with an overview of the 2009 return assumptions which included Domestic and International Equities, Fixed Income and Cash, and Real Assets, Alternatives and Inflation and noted any major changes in return expectations. Mr. MacLean stated that the assumption time frame is based on a ten year outlook.

Mr. MacLean reviewed US High Yield Credit and noted that the current yield to maturity for the Barclay’s high yield debt index is 19.5% as of December 2008. The default rates for high yield debt are highly variable over time, and have reached as high as 15% during the Great Depression and around 10% over the last few decades.

On average high yield debt defaults are around 4%-5%. Because Wurts believes the current economic environment will be difficult for lower quality borrowers, Wurts takes an extremely conservative approach with this asset class by assuming default rates well in excess of those seen historically. Wurts assumed default rate for high yield debt is 7.5% over the next ten years.

Mr. MacLean reviewed the impact of the changes to Adopted Mix with 2008 Capital Market Assumptions, Adopted Mix with 2009 Capital Market Assumptions, and Revised Mix with 2009 Capital Market Assumptions [not yet approved by the Board] and noted that the change in assumptions from 2008 to 2009 increases the expected return of the adopted target policy by 28 basis points and decreases the expected volatility by 42 basis points. The revised target increases the expected return of the adopted target by 8 basis points and increases the standard deviation by 16 basis points.

A motion was made by Trustee Souza, seconded by Trustee Crow, to Accept Item 19 as presented. VOTE: Unanimous (Absent – Jolly)

RECEIVED AND FILED; APPROVED

20. Discussion and appropriate action on Revised Asset Allocation and Rebalancing Recommendation presented by Jeffrey MacLean, Wurts & Associates

Jeffrey MacLean, Wurts & Associates, opened discussions by reminding the Board that the asset allocation policy recommended by Wurts and adopted by the Board allocated 9% to Hedge Fund of Funds. Wurts now recommends that the Board trim this allocation to 5%.

The rational for this recommendation is: 1) the dramatic changes in the capital markets during the last six months of 2008 make traditional investments much more attractive relative to hedge funds and 2) hedge funds will experience a re-rationalization as institutional investors grabble with the Madoff scandal, deleveraging, and their lower liquidity. While Wurts doesn’t rule out a 9% allocation sometime in the future, Wurts believes that the current environment makes the revised allocation much more prudent.

Therefore, Wurts recommended reallocating the 4% from Hedge Fund of Funds as follows:

o 1% into large capitalization domestic equity, increasing the allocation from 24% to 25%

o 1% into emerging market equity, increasing the allocation from 2% to 3%

o 1% into global fixed income, increasing the allocation from 1% to 2%

o 1% into opportunistic fixed income, increasing the allocation from 6% to 7%

The net effect of these changes, as well as Wurts’ revised capital market assumptions, is that the expected return of the portfolio increases from 8.55% to 8.91% with lower expected volatility, changing from 11.47% to 11.21%. General discussions ensued.

Mr. MacLean reviewed the rebalancing recommendation and noted that there is a little rebalancing required in the equity component of the portfolio except for international small cap which should be deferred until the due diligence phase of the implementation is complete. However, given the imminent allocation to TIP’s and Opportunistic Fixed Income, the Board needs to rebalance some of the fixed income assets to fund these mandates.

A motion was made by Trustee Crow, seconded by Trustee Souza, to Approve Item 20 as recommended. VOTE: Unanimous (Absent – Jolly)

RECEIVED AND FILED; APPROVED

21. Discussion and appropriate action on Bradford & Marzec portfolio termination recommendation presented by Jeffrey MacLean, Wurts & Associates

Jeffrey MacLean, Wurts & Associates, opened discussions by reminding the Board that in 2007 Wurts recommended that the Board consider reducing one of the small cap growth managers and one of the fixed income managers to gain some economies of scale. Last year the Board terminated Artisan Partners, a small cap growth manager, and decided to defer action on fixed income manager Bradford & Marzec (Bradford) given the illiquid fixed income markets at the time. Given the anticipated funding of the Opportunistic Fixed Income mandates and TIPS, Wurts recommended that the Board now consider reducing the core fixed income managers from four to three.

The recommendation last year to terminate Bradford was based upon their long term performance results, the higher correlation of their strategy to the other firms employed, and Wurts’s determination that they didn’t have the depth of analytical resources as WAMCO, BlackRock, and Loomis Sayles.

Mr. MacLean stated that during 2008, Bradford’s performance has been superior to the other firms. This has been largely due to the fact that their portfolio consisted of nearly 25% Treasuries and Agency securities, thereby having significantly less credit sensitive securities in their portfolios than the other three managers. Wurts does not believe the unprecedented investment environment should become determinative in this decision for two primary reasons. First, even with their good recent relative returns, Bradford has underperformed (at best matched net of fees) their benchmark on a since inception basis (5/21/96-9/30/08). Bradford has consistently ranked below median on a rolling three-year basis since 2004. Second, success in the future is going to be driven by assuming credit risk as Treasury securities are overpriced and therefore are positioned to earn negative real returns into the future.

Given the lack of trust in rating agencies and anticipated lower liquidity in the fixed income markets, Wurts believes that the firms with large proprietary research and trading personnel will have an edge in fixed income. While Wurts respects Bradford and appreciates their service to FCERA, unfortunately Wurts has to stand by the recommendation to dismiss their services.

Trustee Souza stated that he is strongly opposed to terminating Bradford in that they have consistently ranked in the top third of their peers.

Mr. MacLean noted that the decision to terminate Bradford is based on Bradford having the highest correlation to the other firms and the long term since inception performance has not delivered any incremental net of fee returns over the Lehman Aggregate Index. Loomis, BlackRock, and WAMCO have better scale and superior breadth of product offerings to aid FCERA in implementing further fixed income diversification.

A motion was made by Trustee Larson, seconded by Trustee Gomez, to Approve the recommendation to terminate Bradford & Marzec. VOTE: Yes – Cade, Cardenas, Cornacchia, Crow, Gomez, Hackett. No – Souza. (Absent – Jolly)

Discussion ensued regarding the transition process and time frame, it was noted that the transition will take approximately six weeks. The process has yet to be determined.

RECEIVED AND FILED; APPROVED

Trustee Gomez departed at 2:14 PM.

Roberto L. Peña, pulled Closed Session Agenda Items 22.A.2. and 22.A.3. as there was nothing to discuss.

22. Closed Session:

A. Conference with Legal Counsel – Actual Litigation - pursuant to G.C. §54956.9(a)

1. Fresno County Employees’ Retirement Association v. Public Pension Professionals

2. North Central Fire Protection District v. Fresno County Employees’ Retirement Association

3. Marsha Stillman v. Fresno County Employees’ Retirement Association

B. Conference with Real Property Negotiators – pursuant to G.C. §54956.8

1. Property: 1713 Tulare Street, Fresno, CA 93721

Agency Negotiators: Brian Decker of Colliers Tingey

Negotiating Party: Any potential qualified buyer

Under Negotiation: Price and terms of sale

22. Report from Closed Session

22.A.1. Nothing to Report.

22.A.2. Pulled.

22.A.3. Pulled.

22.B.1. Nothing to Report.

Trustee Crow departed at 2:37 PM.

23. Report from FCERA Administration

Roberto L. Peña, Retirement Administrator, reported on the following:

1. Administration has been working with Counsel and State Street to fund the TIPS mandate by the end of this month. The mandate calls for approximately $40-$45 million.

2. Administration has selected Linea Solutions to begin work on the IT Roadmap.

3. FCERA won a $3000 judgment in a small claims case against a former Fresno Station Business Center tenant for non payment of rent.

4. The County has begun discussions on potentially implementing a Mandatory Furlough program that may impact FCERA.

24. Report from County Counsel

Susan Coberly, Senior Deputy County Counsel, had nothing to report.

25. Board Member Announcements or Reports

Nothing to Report.

There being no further business, the meeting adjourned at 2:40 PM.

Roberto L. Peña

Secretary to the Board

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