Tacoma Employees’ Retirement System Executive Summary of...
Transcript of Tacoma Employees’ Retirement System Executive Summary of...
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Tacoma Employees’ Retirement SystemExecutive Summary of Performance
Third Quarter 2011
Wilshire Associates Incorporated 1299 Ocean Avenue, Suite 700
Santa Monica, CA 90401 Phone: 310-451-3051
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
TABLE OF CONTENTS
Section Tab Numbers in Context 1 Plan Asset Allocation/Investment Performance 2 Investment Manager Exhibits 3 Investment Manager Descriptions 4 Universe Comparisons 5 Investment Policy Statement 6
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Numbers In Context
Third Quarter - 2011
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Asset Class Assumptions UpdateAsset Class Assumptions Update
Risk (%)2011 2011
Total Return (%)Update2011 2011
ACA 30‐Sep Change ACAInvestment Categories:
U.S. Stocks 7.25 7.75 0.50 16.00 Dev ex‐U.S. Stocks 7.25 7.75 0.50 17.00 EmergingMkt Stocks 7.25 7.75 0.50 24.00
Update
Emerging Mkt Stocks 7.25 7.75 0.50 24.00 Global Stocks 7.50 8.00 0.50 16.00 Private Markets 9.70 11.00 1.30 26.00 Cash Equivalents 2.50 1.75 (0.75) 1.25 Core Bonds 3.75 3.00 (0.75) 5.00 LT Core Bonds 4.75 3.25 (1.50) 10.00 ( )TIPS 3.25 1.75 (1.50) 6.00 High Yield Bonds 5.50 5.75 0.25 10.00 Non‐U.S. Bonds (Hdg) 3.40 2.65 (0.75) 4.00 U.S. RE Securities 5.50 4.75 (0.75) 15.00 Private Real Estate 6.30 5.50 (0.80) 12.25 Commodities 4.25 3.75 (0.50) 13.00
Inflation: 2.25 1.75 (0.50) 1.75
Total Returns minus Inflation:U.S. Stocks 5.00 6.00 1.00 U.S. Bonds 1.50 1.25 (0.25) Cash Equivalents 0.25 ‐ (0.25)
Stocks minus Bonds: 3.50 4.75 1.25
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Bonds minus Cash: 1.25 1.25 ‐
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Economic ReviewEconomic ReviewSeptember 30, 2011CPI (all items)Seasonally adjusted Sep-11 0.3 3-Month 1.2
Aug-11 0 4 12-Month 3 9
Monthly Change Cumulative ChangeKey Economic Indicators
Aug-11 0.4 12-Month 3.9Jul-11 0.5 10-Yr Annual 2.5
Breakeven Inflation 10-Year 1.8
Consumer Sentiment Sep-11 59.4Unv. of Michigan Survey Aug-11 55.7
1 Yr Ago 68 2 10 Yr Avg 80 81-Yr Ago 68.2 10-Yr Avg 80.8
Manufacturing Sep-11 51.6 Change in Manufacturing SectorInst. for Supply Mgmt Aug-11 50.6 >50 ExpansionPurchasing Mngrs' Idx 1-Yr Avg 56.6
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Wages and SalariesWages and Salaries
Wages and salaries have not kept up h fl
4.00%
Employment Cost Index
with inflation
2.00%
2.50%
3.00%
3.50%
1-Y
ear
Ch
ang
e
0.00%
0.50%
1.00%
1.50%
Rol
ling
1
Per-capita disposable income
Wages & Salaries: Private W&S: State and Local Gov't
$35,000$10,500
Real Disposable Personal IncomePer capita disposable income recovering more slowly, therefore leaving less for non-essential spending $32,000
$33,000
$34,000
$35,000
$9,500
$10,000
$10,500
apit
a
on
om
y (b
il)
From peak-1%
From peak-3%
$28,000
$29,000
$30,000
$31,000
$8,000
$8,500
$9,000
Per
Ca
Ag
gre
gat
e Ec
Mid-2008
End ofRecession
4
Data sources: Bureau of Labor Statistics, Bureau of Economic Analysis$27,000$7,500
Aggregate Economy (L) Per Capita (R)
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Employment ConditionsEmployment Conditions
After a decades-long, gradual l d
45.0
Average Duration of Unemployment
increase, average time unemployed is now more than double previous highs 25.0
30.0
35.0
40.0
nem
plo
yed
5.0
10.0
15.0
20.0
Wee
ks U
Broader unemployment
0.0
30,000
Unemployed PersonsBroader unemployment measurement (U6) includes workers who are “marginally attached” and “part-time for economic reasons”
20,000
25,000
30,000
ber
(th
ou)
Typical Spread5-6 million
Range of11-12 million
Rate = 16.5%
5,000
10,000
15,000
Tota
l N
um
b
Rate = 9.1%
5
Data sources: Bureau of Labor Statistics0
Unemployed U6 Unemployed
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Effects on Consumer BehaviorEffects on Consumer Behavior
After a moderate rebound in f d
120.0
University of Michigan: Consumer Sentiment
consumer sentiment, U of M index back down to levels not seen since the 1980’s
60.0
80.0
100.0
x Le
vel
20.0
40.0
Ind
ex
Recent decline in real expenditures
0.0
25.0%
Real Personal Consumption Expenditures (ending 2Q11)Recent decline in real expenditures included first decrease in more than 60 years
15.0%
20.0%r
Gro
wth
0.0%
5.0%
10.0%
Rol
ling
1-Y
ea
6
Data sources: Thomson Reuters/University of Michigan,Bureau of Economic Analysis
-5.0%
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Employment ConditionsEmployment Conditions
Labor Force stagnated as employment shrank; based on historical recoveries and a f f h Off f d d l l k l
180 000
Employment Growth Scenarios
recent forecast from the Office of Management and Budget, unemployment is likely to remain high for years
Winter2008
160,000
170,000
180,000
)
Strong Growth
140,000
150,000
kers
(th
ou)
ModerateGrowth
Weak Growth
110,000
120,000
130,000
Wor
k
Unemployment OMB AnnualRate Forecasts Average
2012 9.0%2013 8.5%2014 7.8%
100,000
Jan-
00Sep
-00
May
-01
Jan-
02Sep
-02
May
-03
Jan-
04Sep
-04
May
-05
Jan-
06Sep
-06
May
-07
Jan-
08Sep
-08
May
-09
Jan-
10Sep
-10
May
-11
Jan-
12Sep
-12
May
-13
Jan-
14Sep
-14
May
-15
Jan-
16Sep
-16
May
-17
Jan-
18Sep
-18
May
-19
Jan-
20
Labor Force Trending LF Employed
2015 7.0%
Labor Force Trending LF Employed
7
Data sources: Bureau of Labor Statistics, Office of Management and Budget
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U S and European BanksU.S. and European Banks
Bank stocks still a long way from recovery
Portugalbailout
$1.40
Bank Equity Performance: 5-Year
Bear Stearnsbailout
Lehman filesbankruptcy
Greecebailout QE 2
Irelandbailout
bailout
OperationTwist
$1.00
$1.20
$1
QE 1
$0.60
$0.80
Gro
wth
of
$0.20
$0.40
$0.00
U.S. Banks European Banks LC Wilshire 5000 Index
8
Data sources: MSCI, Wilshire Atlas, Wilshire Compass
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Capital Markets Overviewf O b
8%
10%
12%Domestic Outperform
8%
10%Large Cap Outperform
As of October 21, 2011
‐2%
0%
2%
4%
6%
8%
estic vs. Internatio
nal
‐2%
0%
2%
4%
6%
estic Large vs. Small
‐10%
‐8%
‐6%
‐4%
Dom
e
International Outperform‐10%
‐8%
‐6%
‐4%
Dom
Small Cap Outperform
4% 15%
2%
0%
2%
ue vs. Growth
Large Value Outperform
0%
5%
10%
'l vs. Emerging
Devloped Int'l Outperform
‐6%
‐4%
‐2%
Dom
estic valu
Large Growth Outperform
‐10%
‐5%
0%
Develop
ed Int
Emerging Outperform
‐8%
10/12/10
10/26/10
11/09/10
11/23/10
12/07/10
12/21/10
01/04/11
01/18/11
02/01/11
02/15/11
03/01/11
03/15/11
03/29/11
04/12/11
04/26/11
05/10/11
05/24/11
06/07/11
06/21/11
07/05/11
07/19/11
08/02/11
08/16/11
08/30/11
09/13/11
09/27/11
10/21/11
‐15%
10/12/10
10/26/10
11/09/10
11/23/10
12/07/10
12/21/10
01/04/11
01/18/11
02/01/11
02/15/11
03/01/11
03/15/11
03/29/11
04/12/11
04/26/11
05/10/11
05/24/11
06/07/11
06/21/11
07/05/11
07/19/11
08/02/11
08/16/11
08/30/11
09/13/11
09/27/11
10/21/11
² Indexes used:
¹ Rolling three‐month returns, calculated daily.
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Large Cap: Wilshire US Large Cap Index Large Value: Wilshire US Large Value Index Domestic: Wilshire 5000 Index Developed Int’l: MSCI Developed x‐USSmall Cap: Wilshire US Small Cap Index Large Growth: Wilshire US Large Growth Index International: MSCI ACWI x‐US Index Emerging: MSCI Emerging Markets
† Source: Wilshire Atlas
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U S Capital Markets: EquityU.S. Capital Markets: Equity
September 30, 2011 Qtr Ytd 1 Yr 3 Yr 5 Yr 10 YrWilshire 5000 -15.0 -9.9 0.6 1.5 -0.8 3.8Wilshire U.S. Large Cap -14.2 -9.1 0.9 1.2 -0.9 3.3Wilshire U.S. Small Cap -21.7 -15.9 -2.2 3.9 1.2 8.1
Wilshire U.S. Large Growth -14.9 -10.3 0.1 2.8 0.8 3.1Wilshire U.S. Large Value -13.6 -7.9 1.7 -0.4 -2.7 3.5Wilshire U.S. Small Growth -21.2 -13.4 1.0 5.9 2.7 8.3Wilshire U S Small Value 22 1 18 5 5 4 1 9 0 4 7 9Wilshire U.S. Small Value -22.1 -18.5 -5.4 1.9 -0.4 7.9
Wilshire REIT Index -14.6 -5.4 2.1 -2.0 -3.1 9.1MSCI USA Minimum Volatility Index -6.4 1.4 8.8 3.1 1.4 3.5FTSE RAFI U.S. 1000 Index -15.8 -11.0 -0.4 4.8 0.1 n.a.
5.00%
10.00%
15.00%
mal
l Cap
Large Cap vs. Small Cap
5.00%
10.00%
15.00%
Val
ue
Growth vs. Value
-10.00%
-5.00%
0.00%
p in
exc
ess
of S
m
-10.00%
-5.00%
0.00%
th in
exc
ess
of V
-25.00%
-20.00%
-15.00%
Larg
e C
ap
-25.00%
-20.00%
-15.00%
Gro
wt
10
Data sources: Wilshire Compass, Wilshire AtlasQTD Excess Return Rolling 3-Year Excess Return QTD Excess Return Rolling 3-Year Excess Return
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Returns by Quality SegmentReturns by Quality Segment
After the Q1 tide lifted all boats, higher quality stocks have been fairing better
10.00
Return by S&P Quality Rating
-
5.00
(%
)
(10.00)
(5.00)
erly
Ret
urn
(20.00)
(15.00)
Qu
arte
(25.00)1Q 11 2Q 11 3Q 11
A+ A A- B+ B B- C / D
11
Data sources: Wilshire Atlas
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Historical Bear Markets ( D i )Historical Bear Markets (post Depression)
Credit crisis sell-off most severe since Great Depression; still recovering h kthanks in part to recent correction
$2.20
Bear Markets: Pre & Post Trough
$1.80
$2.00
ve R
etu
rn
$1.40
$1.60
Cu
mu
lati
v
1946‐1949
1962‐1963
1968‐1971
1973‐1978
$1.00
$1.20
U.S
. Eq
uit
y 1987‐19892000‐2006
2007‐?
$0.80
U
# of Months
12
Data sources: Wilshire Compass
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U S Capital Markets: Fixed IncomeU.S. Capital Markets: Fixed Income
September 30, 2011 Qtr Ytd 1 Yr 3 Yr 5 Yr 10 YrBarclays Aggregate Bond Index 3 8 6 6 5 3 8 0 6 5 5 7Barclays Aggregate Bond Index 3.8 6.6 5.3 8.0 6.5 5.7Barclays Treasury Index 6.5 8.8 6.0 6.5 6.8 5.5Barclays Gov't-Related Index 3.0 5.9 4.1 6.4 6.2 5.5Barclays Securitized Index 2.2 5.2 5.5 7.3 6.5 5.5Barclays Corporate IG Index 2.9 6.1 4.4 12.6 6.7 6.3
Barclays LT Gov't/Credit Index 15.6 19.4 12.7 14.9 9.4 8.3Barclays Long-Term Treasury Index 24.7 27.5 17.1 13.0 10.7 8.5Barclays U.S. TIPS Index 4.5 10.6 9.9 8.1 7.1 7.2Barclays High Yield Index -6.1 -1.4 1.8 13.8 7.1 8.8Treasury Bills 0.0 0.1 0.1 0.2 1.7 2.0
1,400
1,600
1,800
2,000
ad (
bp
s)
Barclays Fixed Income Indexes - OAS
3.50
4.00
4.50
5.00
Treasury Yield Curve
600
800
1,000
1,200
,
n A
dju
sted
Sp
rea
1.50
2.00
2.50
3.00
Yie
ld (
%)
0
200
400
Op
tion
0.00
0.50
1.00
0 5 10 15 20 25 30
Maturity (yrs)
13
Data sources: Wilshire Compass, Barclays Capital, U.S. Treasury
Securitized IG Corporate Aa Corporate High Yield Current Quarter Previous Quarter One Year Ago
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High Yield by QualityHigh Yield by Quality
September 30, 2011 Weight Qtr Ytd 1 Yr 3 YrBarclays High Yield Index 100% 6 1 1 4 1 8 13 8Barclays High Yield Index 100% -6.1 -1.4 1.8 13.8
Quality Distribution
Ba U.S. High Yield 40.1% -3.7 1.2 2.9 13.8B U.S. High Yield 42.7% -5.2 -0.9 2.3 10.4Caa U.S. High Yield 15.2% -11.7 -6.7 -1.2 10.6Ca to D U.S. High Yield 1.9% -25.0 -20.7 -13.4 31.1Non-Rated U.S. High Yield 0.1% -5.5 -2.0 2.6 -1.6
3,000
Barclays High Yield Indexes - OAS
2,000
2,500
pre
ad (
bp
s)
1,000
1,500
on
Ad
just
ed S
p
0
500
Op
tio
14
Data sources: Barclays Capital
HY Index Ba B Caa
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Non U S Capital MarketsNon-U.S. Capital MarketsSeptember 30, 2011 Qtr Ytd 1 Yr 3 Yr 5 Yr 10 YrMSCI ACWI ex-US ($g) -19.8 -16.5 -10.4 1.0 -1.1 7.3MSCI EAFE ($g) -19.0 -14.6 -8.9 -0.7 -3.0 5.5MSCI Emerging Markets ($g) -22.5 -21.7 -15.9 6.6 5.2 16.4MSCI Frontier Markets ($g) -12.0 -16.8 -10.1 -11.0 -4.2 n.a.
MSCI EAFE Minimum Volatility Idx -7.7 -2.0 0.9 4.2 2.3 n.a.FTSE RAFI Developed ex-US Index -21.5 -16.7 -11.4 0.5 -1.7 n.a.
JPM Non US Global Bond 1.4 6.2 4.7 9.0 8.3 8.2JPM Non US Global Bond Hedged 4 1 5 3 2 9 5 4 4 9 4 7JPM Non US Global Bond Hedged 4.1 5.3 2.9 5.4 4.9 4.7JPM EMBI Global -1.8 3.2 1.3 11.7 7.8 10.5
Euro vs. Dollar -7.4 0.0 -1.7 -1.6 1.1 3.9Yen vs. Dollar 4.8 5.2 8.4 11.3 8.9 4.4Pound vs. Dollar -2.9 -0.5 -1.1 -4.4 -3.6 0.6
-10.7
-10.8
-15.4
-6.4
22.2%
23.1%
MSCI EAFE: Largest Countries and Return
Japan
UnitedKingdom -16.7
-24.4
-23.2
-25.2
14.7%
16.8%
MSCI EM: Largest Countries and Return
China
SouthKorea
-9.8
-18.3
-20.1
-17.5
-29.8
8 4%
8.6%
9.1%France
Switzerland
Australia
-21.4
-28.0
-16.8
-18.9
-26.9
7 8%
11.5%
14.6%Brazil
Taiwan
South
-14.6
-20.6
-17.0
-19.0
-31.07.7%
8.4%Australia
Germany
MSCI EAFE -21.7
-26.7
-20.0
-22.5
-19.97.6%
7.8%Africa
India
MSCI EmrgMrkts
15
Data sources: Wilshire Compass, MSCI Barra
Qtr YTD Qtr YTD
-
European Debt IssuesEuropean Debt Issues
Concerns linger in Europe
Government Bond SpreadsVersus German Yield Curve
2,500
3,000
d (
%)
1,500
2,000
on 5
-Yr
Bon
d
500
1,000
Sp
read
o
0
Greece Ireland Portugal Spain Italy
16
Data sources: Barclays Capital, The Economist
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Real AssetsReal Assets
September 30, 2011 Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr
Barclays U S TIPS Index 4 5 10 6 9 9 8 1 7 1 7 2Barclays U.S. TIPS Index 4.5 10.6 9.9 8.1 7.1 7.2Dow Jones UBS Commodity Index -11.3 -13.6 0.0 -5.7 -1.1 5.9Global Public Real Estate* -15.1 -5.9 1.3 -0.2 -2.8 10.0NCREIF Property Index 3.3 11.0 16.1 -1.5 3.4 7.8NCREIF Timberland Index -0.4 1.1 0.3 -0.4 5.8 6.8S&P MLP Index (Oil & Gas) -7.2 -1.6 7.0 23.6 11.9 13.1* Wilshire Global Real Estate Securities from June, 2001 to December, 2004. Wilshire Global REITs from 2004 to present.
Real Estate Valuation NCREIF Property Index Return
6.00%
7.00%
8.00%
9.00%
10.00%
asu
re
5.0
10.0
15.0
20.0
25.0
%)
1 00%
2.00%
3.00%
4.00%
5.00%
Val
uat
ion
Mea
-20.0
-15.0
-10.0
-5.0
0.0
Ret
urn
(%
-1.00%
0.00%
1.00%
NPI Current Value Cap Rate Wilshire RESI E/P Ratio
-30.0
-25.0
20.0
Appreciation Income Total Return
17
Data sources: Wilshire Compass, National Council of Real Estate Investment Fiduciaries
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Private Equity FundraisingPrivate Equity Fundraising
Data sources: Preqin
-
Private Equity Cash on HandPrivate Equity Cash on Hand
19
Data sources: Preqin
-
Commercial Property ( f Q2 2011)Commercial Property (as of Q2 2011)
Office Retail
Industrial Apartment
20
Data sources: CB Richard Ellis
-
TimberTimber
21
Data sources: Forest Investment Associates
-
InfrastructureInfrastructure
22
Data sources: Preqin
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Hedge Fund PerformanceHedge Fund Performance
September 30, 2011 Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr
DJ CS Hedge Fund Index 4 8 3 2 1 3 4 6 4 2 6 6DJ CS Hedge Fund Index -4.8 -3.2 1.3 4.6 4.2 6.6Event Driven Index -10.9 -9.7 -4.3 3.6 3.9 7.4Global Macro Index 4.4 5.8 9.8 9.3 9.3 10.9Long/Short Equity Index -9.8 -9.1 -3.7 3.2 3.0 5.9Multi-Strategy Index -3.7 0.5 4.6 6.2 4.0 6.5
Wilshire 5000 15 0 9 9 0 6 1 5 0 8 3 8Wilshire 5000 -15.0 -9.9 0.6 1.5 -0.8 3.8MSCI ACWI ex-US ($g) -19.8 -16.5 -10.4 1.0 -1.1 7.3Barclays Aggregate Bond Index 3.8 6.6 5.3 8.0 6.5 5.7Dow Jones UBS Commodity Index -11.3 -13.6 0.0 -5.7 -1.1 5.9
23
Data sources: Wilshire Compass, Preqin
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Page 1
Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Total Fund Overview
Expected Return and Risk
6.88% 6.50%
10.80%9.90%
1.57%
0.00%
5.00%
10.00%
15.00%
Target Allocation Actual Allocation
Expected Return Expected Risk Expected Allocation Based TE
♦ Using Wilshire’s 2011 Asset Class Assumptions, the Tacoma Employees’ Retirement System (“TERS, the System”)’s expected return based on its actual asset allocation is currently slightly lower than the expected return based on its target allocation. However, given the current asset allocation level, the System’s calculated expected volatility is also lower than that based on its target allocation.
Total Fund Asset Allocation
23.0%
9.1%
9.1%5.4%21.0%2.5%
9.0%
4.0%4.0%
3.0%
10.0%
0.0%
Target Asset AllocationDomestic Equity
Intl Equity Hedged
Intl Equity Unhedged
Emerging Markets
Core Fixed Income
TIPS
High Yield
REIT
Private Real Estate
Real Assets
Private Equity
Cash
31.1%
7.9%
6.9%4.6%
23.1%
2.5%9.3%
4.4% 4.7%
3.1%
2.3%0.2%
Actual Asset AllocationDomestic Equity
Intl Equity Hedged
Intl Equity Unhedged
Emerging Markets
Core Fixed Income
TIPS
High Yield
REIT
Private Real Estate
Real Assets
Private Equity
Cash
8.1%
‐1.1% ‐2.2%‐0.8%
2.1%
0.0%
0.3% 0.4% 0.7% 0.1%
‐7.7%
0.2%
‐10%
‐5%
0%
5%
10%
TERS Asset Allocation Variance
‐35.7%
5.8% 12.8% 6.4%
‐0.8%
0.0%
‐0.2% ‐0.7% ‐0.7% ‐0.1%
113.2%
0.0%
‐50%
0%
50%
100%
150%
Contribution to Tracking Error
-
Page 2
Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Total Fund Overview (Continued)
Total Fund Asset Allocation (Continued) ♦ At the end of the quarter, the System’s actual asset allocation was overweight in total domestic equity
(+8.1%), core fixed income (+2.1%), high yield (+0.3%), total real estate (+1.1%), real assets (+0.1%) and cash (+0.2%) while underweight in total international equity (-4.1%) and private equity (-7.7%) relative to its asset allocation policy.
Contribution to Total Risk based on Wilshire’s Asset Class Assumptions
32.31%
11.51%
12.05%9.27%
3.36%
0.06%
5.07%
2.61%
2.12%
0.99%20.64%
0.00%
Contribution to Total Risk ‐ Target Allocation
Domestic Equity
Intl Equity Hedged
Intl Equity Unhedged
Emerging Markets
Core Fixed Income
TIPS
High Yield
REIT
Private Real Estate
Real Assets
Private Equity
Cash
48.44%
10.96%
9.85%
8.47%
4.18%0.07%
6.04% 3.23%
2.80% 1.11%4.87% 0.00%
Contribution to Total Risk ‐Actual Allocation
Domestic Equity
Intl Equity Hedged
Intl Equity Unhedged
Emerging Markets
Core Fixed Income
TIPS
High Yield
REIT
Private Real Estate
Real Assets
Private Equity
Cash
♦ TERS’ domestic equity investments are currently the biggest contributor to its total volatility (at
48.4% based on actual allocation as of September 30). This is primarily attributed to the ramp-up process of the System’s new private equity allocation, as most of the capital earmarked for private equity investments have yet to be called down from the S&P 500 parking fund.
Asset Growth
($Mil.)4Q09 918.7 14.0 -13.9 -0.6 42.4 960.6 4.55%1Q10 960.6 9.1 -15.1 -0.7 48.3 1,002.2 5.00%2Q10 1,002.2 12.0 -15.9 -0.7 -55.3 942.3 -5.59%3Q10 942.3 12.7 -15.0 -0.7 86.0 1,025.4 9.07%4Q10 1,025.4 19.9 -22.9 -0.6 60.0 1,081.7 5.79%1Q11 1,081.7 19.1 -24.8 -0.8 39.0 1,114.3 3.56%2Q11 1,114.3 18.5 -18.1 -0.6 14.2 1,128.3 1.22%3Q11 1,128.3 17.3 -34.9 -0.6 -105.5 1,004.7 -9.46%
Invest. Gain/Loss
End. Mkt Value
Total Return
Beg. Mkt Value
Net Contrib.
Net Distrib.
Invest. Fees
♦ As of September 30, 2011, the System’s market value was approximately $1.005 billion, which represented a decrease of $124 million from the beginning of the quarter. The change in market value consisted of $17.3 million in net contributions, $34.9 million in net distribution and administrative fees, $0.6 million in investment fees, and $105.5 million in net investment losses.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Total Fund Overview (Continued) Asset Class Performance
Total Fund -9.46 0.40 3.72 1.13 6.32 6.81Policy Benchmark 1 -9.25 0.02 2.90 0.81 5.49 6.35Actuarial Rate 1.88 7.75 7.75 7.75 7.78 7.69Policy Expected Return 2.04 8.40 8.40 8.40 8.40 8.66
U.S. Equity -15.08 0.94 1.17 -1.22 4.56 5.51International Equity -19.73 -12.71 -3.39 -4.18 4.37 3.69Total Fixed Income 0.69 4.26 10.85 7.78 6.62 7.09 Core Fixed Income 1.74 4.32 10.69 8.08 6.75 7.18 High Yield -3.48 3.50 9.71 6.30 -.- -.- TIPS 4.92 -.- -.- -.- -.- -.-Real Estate -6.54 8.77 -0.41 -3.60 9.04 8.76Real Assets -.- -.- -.- -.- -.- -.-Private Equity -9.47 8.31 -.- -.- -.- -.-Cash/Securities Lending 3.74 13.98 17.46 2.77 2.53 3.31
S&P 500 Index -13.86 1.15 1.22 -1.18 2.81 5.23Russell 3000 Index -15.28 0.55 1.44 -0.92 3.48 5.39Wilshire 5000 Index -15.04 0.58 1.49 -0.75 3.83 5.40MSCI ACWI x US Index -19.85 -10.81 0.52 -1.57 6.83 -.-Barclays Aggregate Bond Inde 3.82 5.26 7.97 6.53 5.67 6.46Merrill Lynch HY BB/B Constr. -5.03 1.93 11.84 6.39 7.93 -.-Wilshire REIT Index -14.64 2.10 -2.05 -3.11 9.11 9.5091-Day Treasury Bill 0.02 0.14 0.21 1.73 2.02 3.12
15-yearPerformance (% )
10-yearQuarter 1-year 3-year 5-year
♦ As the European sovereign debt concern lingered and worries of a global double-dip recession grew,
volatilities spiked during the third quarter and TERS’ portfolios reported an overall decline of -9.5%, just narrowly missing its asset allocation policy benchmark. Over the one-year mark and beyond, the System’s track record has compared favorably to its policy benchmark by outperforming in all measured periods shown. Relative to the actuarial rate of return, TERS’ return has trailed for the quarter as well as longer-term periods shown.
1 The international equity custom benchmark is currently 38.5% MSCI EAFE/38.5% MSCI EAFE Currency Hedged/23% MSCI
Emerging Markets; it is linked historically to its prior benchmarks. Current Total Fund Policy Benchmark is 23.5% Russell 3000, 23.5% international equity custom benchmark, 23% Barclays Aggregate, 3% Barclays U.S. TIPS Index, 9% Merrill Lynch High Yield BB/B Constrained, 4% Wilshire REIT, 4% NCREIF Property Index, 10% private equity custom benchmark.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Total Fund Overview (Continued) Total Fund Attribution
U.S. Equity ‐3.59 ‐0.12 0.05 ‐3.66Core Fixed Income 0.88 ‐0.02 ‐0.46 0.39TIPS 0.14 0.00 0.01 0.15High Yield ‐0.45 0.02 0.13 ‐0.30Non‐U.S. Equity ‐4.41 0.14 ‐0.23 ‐4.50Real Estate ‐0.45 ‐0.04 ‐0.08 ‐0.56Cash 0.00 0.00 0.00 0.00Private Equity ‐1.09 ‐0.03 0.15 ‐0.97Total Fund ‐9.25 ‐0.05 ‐0.43 ‐9.46
Total Fund Return Contribution (%)
Strategic Policy
Actual Allocation
Active Mgmt
Actual Return
♦ The total fund attribution table above displays the return contribution of each asset class to the total
fund. This table will allow the Board to see if tactical allocation and active management within asset classes helped or hurt performance during the quarter.
− Strategic Policy: The policy return for each of the asset classes. − Actual Allocation: The return contribution during the quarter due to differences in the actual
allocation from the policy allocation (i.e. the actual allocation to fixed income was lower than the policy allocation). A positive number would indicate the overweight or underweight helped performance and vice versa.
− Active Management: The return contribution from active management. The number would be positive if the asset class outperformed the designated policy index and vice versa (i.e. the domestic equity segment outperformed the policy index, the S&P 500, during the quarter).
− Actual Return: The actual return of the asset classes if allocations to them were static during the quarter. These returns will not match exactly with the actual segment returns since asset class allocations change during the quarter due to market movement, cash flows, etc.
♦ Per Wilshire’s attribution model, undesirable active management impact was the primary factor that
drove this quarter’s underperformance. The System’s asset allocation variance had a small negative impact primarily due to higher-than-policy target allocation in domestic equity, which was among the worst performing asset classes for the quarter. However, it was really due to poor relative results from core fixed income and international equity that contributed to the System’s underperformance. For the quarter, core fixed income trailed its policy benchmark by 208 bps while international equity was behind by 98 bps. These two major asset classes combined represent over 40% of the System’s invested assets and therefore their weak relative performance was a notable detractor.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Domestic Equity Overview 3 Domestic Equity Structure Total Domestic Equity vs. Custom Benchmark Rolling 3-Year Excess Return
Large Growth12%
Enhanced Index27%
Large Core48%
Small Core13%
-4%
0%
4%
8%
Sep-
02
Jun-
03
Mar
-04
Dec
-04
Sep-
05
Jun-
06
Mar
-07
Dec
-07
Sep-
08
Jun-
09
Mar
-10
Dec
-10
Sep-
11
Composite
QuarterDomestic Equity 232.7 -15.08 0.94 1.17 -1.22 4.56 Custom Benchmark 2 -15.28 0.55 1.31 -1.13 2.84 Value Added vs Index 0.20 0.39 -0.14 -0.09 1.72
Wilshire 5000 Index -15.04 0.58 1.49 -0.75 3.83S&P 500 Index -13.86 1.15 1.22 -1.18 2.81Russell 3000 Index -15.28 0.55 1.44 -0.92 3.48
Assets Performance (% )($Millions) 1-year 3-year 5-year 10-year
Managers
Large Cap Core - PassiveNorthern Trust S&P 500 Composite 111.7 -13.88 1.13 1.48 -1.20 8.32 12/90 S&P 500 Index -13.86 1.15 1.22 -1.18 8.32 12/90 Index Tracking Error -0.02 -0.02 0.26 -0.02 0.00
Large Cap Growth - PassiveNorthern Trust Large Cap Growth 28.8 -13.16 3.78 -.- -.- 19.39 3/09 Russell 1000 Growth Index -13.14 3.78 -.- -.- 19.16 3/09 Index Tracking Error -0.02 0.00 -.- -.- 0.23
Small Cap Core - PassiveNorthern Trust Small Cap Core 29.0 -21.82 -3.37 -0.03 -0.86 9.54 12/90 Russell 2000 Index -21.86 -3.53 -0.37 -1.01 9.44 12/90 Index Tracking Error 0.04 0.16 0.34 0.15 0.10
Inception($Millions)Assets Performance (% )
DateQuarter 1-year 3-year 5-year
2 Domestic Equity Composite Custom Benchmark: 1/2010-current, Russell 3000. 10/1984-12/2009, S&P 500.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Domestic Equity Overview (Continued)
Managers
Enhanced IndexINTECH 28.0 -14.33 1.74 1.22 -.- -2.75 3/07 S&P 500 Index -13.86 1.15 1.22 -.- -2.86 3/07 Value Added vs Benchmark -0.47 0.59 0.00 -.- 0.11 S&P 500 Index + 1% -13.61 2.15 2.22 -.- -1.86 3/07 Value Added vs Objective -0.72 -0.41 -1.00 -.- -0.89
Research Affiliates 35.1 -14.95 1.15 1.97 -.- -2.87 3/07 S&P 500 Index -13.86 1.15 1.22 -.- -2.86 3/07 Value Added vs Benchmark -1.09 0.00 0.75 -.- -0.01 S&P 500 Index + 1% -13.61 2.15 2.22 -.- -1.86 3/07 Value Added vs Objective -1.34 -1.00 -0.25 -.- -1.01
Assets Performance (% )($Millions) Quarter 1-year 3-year 5-year Inception Date
♦ Similar to the broad U.S. equity market, TERS’ domestic equity composite posted another decline
during the third quarter, down -15.1%, but fared slightly better than the -15.3% of its asset allocation policy benchmark, currently the Russell 3000 Index. All of TERS’ domestic equity portfolios, except the small cap index fund, performed better than the Russell 3000 Index and therefore contributed positively to the composite’s relative return. The domestic equity composite has tracked its policy benchmark fairly close over the past five years and continues to do well over the long-term.
♦ Northern Trust manages four U.S. equity index funds for the System, including two large cap core
funds (one participates in security lending while the other one does not; they are grouped into the S&P 500 Composite), a large cap growth fund, and a small cap core fund, designed to track the S&P 500 Index, the Russell 1000 Growth Index, and the Russell 2000 Index, respectively. For the quarter, all funds essentially mimicked their respective benchmarks, and they continue to perform in line with expectations over longer time horizon.
♦ INTECH, one of the domestic equity composite’s two enhanced index managers, reported a 3Q return
of -14.3% and modestly underperformed its benchmark, the S&P 500 Index, as well as its performance objective, benchmark + 1%. For the quarter, INTECH’s sector weighting scheme actually added value, given that it was overweight in Utilities (6.1% portfolio vs. 3.4% benchmark) and Consumer Staples (12.0% portfolio vs. 10.6% benchmark), the two best performing sectors within the S&P 500. However, this gain was not enough to offset unfavorable stock selection impact, particularly in the Consumer Discretionary, Health Care, and Information Technology space, as INTECH’s aggregate performance here lagged the benchmark’s by a large margin. Among this quarter’s notable losers included Netflix, Inc (-56.9%), Agilent Technologies Inc (-38.9%), and First Solar Inc (-52.2%). Over all longer periods since inception, INTECH has outperformed the S&P 500 Index, although it still trails its performance objective.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Domestic Equity Overview (Continued)
Managers ♦ Research Affiliates (RAFI), the larger of the two enhanced index portfolios, returned -15.0% for the
quarter and underperformed its benchmark, the S&P 500 Index, and its performance objective, benchmark + 1%. Poor issue-specific returns drove this quarter’s underperformance as many of RAFI’s selections, large and small, posted steep decline during the 3Q selloff: Bank of America Corp (2.6% weight, -44.1% return), Alcoa Inc (0.5% weight, -39.5% return), and American Airline’s parent company AMR Corp (0.1% weight, -45.2% return). Over all measured periods shown, Research Affiliates’ track record has done well against the S&P 500, although it is still trailing its performance objective through inception.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
International Equity Overview
International Equity Structure Total Int’l Equity vs. Custom Benchmark Rolling 3-Year Excess Return
-4%
-2%
0%
2%
4%
Sep-
02
Jun-
03
Mar
-04
Dec
-04
Sep-
05
Jun-
06
Mar
-07
Dec
-07
Sep-
08
Jun-
09
Mar
-10
Dec
-10
Sep-
11
Active35%
Passive65%
Composite
QuarterInternational Equity (with hedge) 195.2 -19.73 -12.71 -3.39 -4.18 4.37 Custom Benchmark 3 -18.75 -12.35 -2.78 -3.52 4.92 Value Added vs Benchmark -0.98 -0.36 -0.61 -0.66 -0.55
International Equity (Un-hedged) -21.00 -12.25 -1.73 -3.19 4.90
Performance (% )($Millions)
Assets1-year 3-year 5-year 10-year
Managers
PassiveNorthern Trust EAFE Index Fund 79.4 -19.06 -9.13 -.- -.- 14.80 3/09 MSCI EAFE Index -19.01 -9.36 -.- -.- 14.50 3/09 Index Tracking Error -0.05 0.23 -.- -.- 0.30
Northern Trust EAFE Index Fund (Hedged) -15.46 -10.63 -.- -.- 7.97 3/09 MSCI EAFE Hedged -16.34 -13.53 -.- -.- 7.81 3/09 Index Tracking Error 0.88 2.90 -.- -.- 0.16
Northern Trust EM Index Fund 46.4 -22.64 -16.42 -.- -.- 21.60 3/09 MSCI Emerging Markets Index -22.56 -16.15 -.- -.- 21.94 3/09 Index Tracking Error -0.08 -0.27 -.- -.- -0.34
MSCI EAFE Hedged Index -16.34 -13.53 -3.80 -6.97
Assets Performance (% )($Millions) Quarter 1-year 3-year 5-year Inception Date
3 International Equity Composite Custom Benchmark: 10/2010-present, 38.5% MSCI EAFE Index/38.5% MSCI EAFE Index
Currency Hedged/23% MSCI EM Index. 4/2009-9/2010, 40% MSCI EAFE Index/40% MSCI EAFE Index Currency Hedged/20% MSCI EM Index. 4/2006-3/2009, MSCI ACWI x-US Index. 4/1988-3/2006, MSCI EAFE Index.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
International Equity Overview (Continued)
Managers
ActiveDFA Int'l Core Equity Portfolio 35.9 -.- -.- -.- -.- -.- 9/11
TT International 33.0 -.- -.- -.- -.- -.- 3/99
Assets Performance (% )($Millions) Quarter 1-year 3-year 5-year Inception Date
♦ TERS’ international equity composite, which is 38.5% hedged, experienced a broad retreat induced
by the European sovereign debt crisis during the quarter and reported a return of -19.7%, underperforming the -18.8% of its custom benchmark, currently 38.5% MSCI EAFE/38.5% MSCI EAFE Hedged/23% MSCI Emerging Markets. The un-hedged version of the international equity composite returned -21.0% for the same period, also trailing its un-hedged benchmark, MSCI ACW x-US Index, by a similar margin. On an absolute basis, emerging markets continued to be the worst performing segment and was down -22.6%, as rising fear of Europe’s ability to limit potential impact of the debt crisis from spreading to the rest of the world prompted investors to sharply reduce exposure from riskier regions. Over the long-term, the international equity composite’s track record has underperformed for all measured periods.
♦ The System currently utilizes two index funds to help achieve primary exposure to the developed and
emerging markets within the international equity space. These funds, the Northern Trust EAFE Index Fund and the Northern Trust Emerging Markets Index Fund, are managed against the MSCI EAFE Index and the MSCI EM Index, respectively. For the quarter ending September 30, both funds were slightly behind their respective benchmarks while the hedged version of the EAFE fund fared better when compared to the MSCI EAFE Hedged Index. The EAFE fund continues to add value over all longer periods, and the Emerging Markets fund has modestly trailed since its inception.
♦ Due to on-going performance issues, TERS terminated its active EAFE manager TT International and
replaced it with Dimensional Fund Advisors (DFA) and Research Affiliates (RAFI) during the third quarter. Wilshire will begin full performance reporting once the transition process is completed in 4Q.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Fixed Income Overview4
Total Fixed Income Structure
Core66%
TIPS7%
High Yield27%
Composite
Total Fixed Income 349.9 0.69 4.26 10.85 7.78 6.62 Custom Benchmark 4 1.57 4.16 10.89 7.31 6.31 Value Added vs Benchmark -0.88 0.10 -0.04 0.47 0.31
Assets Performance (% )($Millions) Quarter 1-year 3-year 5-year 10-year
♦ TERS’ total fixed income composite was the only major asset class finishing in the positive territory
during the quarter, with a return of 0.7%, although it trailed its asset allocation benchmark primarily due to poor relative performance results from the core fixed income segment. Over longer term time periods, however, the total fixed income composite has done very well against its custom benchmark. Starting May 2011, a new TIPS portfolio was added to complement TERS’ existing investment grade and high yield fixed income exposure.
4 Total Fixed Income Composite Custom Benchmark: Starting 5/2011 the composition is 65.7% Barclays Aggregate Bond Index
/ 8.6% Barclays U.S. TIPS Index / 25.7% Merrill Lynch High Yield BB/B 2% Constrained Index. This custom benchmark is linked historically to its prior components.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Fixed Income Overview (Continued)
Core Fixed Income Structure Core Fixed Income vs. Barclays Aggregate Rolling 3-Year Excess Return
-5%-4%-3%-2%-1%0%1%2%3%4%5%
Sep-
02
Jun-
03
Mar
-04
Dec
-04
Sep-
05
Jun-
06
Mar
-07
Dec
-07
Sep-
08
Jun-
09
Mar
-10
Dec
-10
Sep-
11
Active86%
Passive14%
Composite
Core Fixed Income 231.9 1.74 4.32 10.69 8.08 6.75 Barclays Aggregate Bond Index 3.82 5.26 7.97 6.53 5.67 Value Added vs Index -2.08 -0.94 2.72 1.55 1.08
TIPS 25.0 4.92 -.- -.- -.- -.- Barclays U.S. TIPS Index 4.51 -.- -.- -.- -.- Value Added vs Index 0.41 -.- -.- -.- -.-
Citigroup LPF Index 9.43 9.24 11.51 8.52 7.23Barclays U.S. TIPS Index 4.51 9.87 8.13 7.10 7.17
Assets($Millions)
Performance (% )1-yearQuarter 3-year 5-year 10-year
Managers
Metropolitan West 200.1 1.41 4.19 10.68 8.07 7.17 3/02 Barclays Aggregate Bond Index 3.82 5.26 7.97 6.53 5.96 3/02 Value Added vs Benchmark -2.41 -1.07 2.71 1.54 1.21 Barclays Aggregate + 0.75% 4.01 6.01 8.72 7.28 6.71 3/02 Value Added vs Objective -2.60 -1.82 1.96 0.79 0.46
BlackRock US Debt Index Fund 31.9 3.83 5.27 -.- -.- 6.27 6/10 Barclays Aggregate Bond Index 3.82 5.26 -.- -.- 6.25 6/10 Index Tracking Error 0.01 0.01 -.- -.- 0.02
BlackRock US TIPS Index Fund 25.0 4.92 -.- -.- -.- 4.92 6/11 Barclays U.S. TIPS Index 4.51 -.- -.- -.- 4.51 6/11 Index Tracking Error 0.41 -.- -.- -.- 0.41
Assets Performance (% )5-year Inception Date($Millions) Quarter 1-year 3-year
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Fixed Income Overview (Continued)
Managers ♦ TERS’ core fixed income composite returned a respectable 1.7% during the third quarter but
underperformed its benchmark, the Barclays Aggregate Bond Index, which had a gain of 3.8%. The composite’s one-year return also trailed the benchmark but has otherwise outperformed over all other measure periods.
♦ Metropolitan West, the System’s core fixed income manager, returned 1.4% for the quarter and
significantly trailed both of its benchmark, the Barclays Aggregate Bond Index, and its performance objective, benchmark + 0.75%. From a duration and maturity positioning perspective, MetWest did well as its average effective duration was much higher than the benchmark (7.0 years vs. 5.0 years, respectively) and maintained a much bigger exposure to the strong performing long bonds (% of holdings with maturity > 20 years, 23% MetWest vs. 9% benchmark). However, most of the portfolio’s investments were not in government issues (6% MetWest vs. 43% benchmark) and had a lower-than-benchmark average quality rating, a combination that proved to be ill-timed as spiking volatilities in the market drove investors back to the safer government/agency securities during 3Q. Over the long term, MetWest has performed well and beat the Barclays Aggregate Bond Index as well as its performance objective since inception.
♦ For risk-control purposes, the System added a passive fixed income fund to the core fixed income
composite in 2010. The fund is managed by BlackRock and is indexed against the Barclays Aggregate Bond Index. The BlackRock index fund mirrored its benchmark during 3Q and is performing in line with expectations.
♦ The recently created TIPS portfolio had $25 million at the end of the third quarter, representing
approximately 7% of the System’s total fixed income assets (it has a target of 8.6%). The TIPS allocation is invested through an index strategy managed by BlackRock, benchmarked against the Barclays U.S. TIPS Index. The fund outpaced its benchmark during the quarter.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Fixed Income Overview (Continued) 5
Total High Yield Structure Total High Yield vs. Custom Benchmark Rolling 3-Year Excess Return
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
Sep-
08
Dec
-08
Mar
-09
Jun-
09
Sep-
09
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
Jun-
11
Sep-
11
High Yield69%
Bank Loan31%
Composite
High Yield 93.0 -3.48 3.50 9.71 6.30 -.- Custom Benchmark 5 -5.03 1.93 13.85 7.03 -.- Value Added vs Index 1.55 1.57 -4.14 -0.73 -.-
Merrill Lynch HY BB/B Constrained -5.03 1.93 11.84 6.39 7.93Merrill Lynch High Yield Master II -6.31 1.32 13.68 6.94 8.57
Assets Performance (% )($Millions) Quarter 1-year 3-year 5-year 10-year
Managers
Post Advisory Group 63.7 -3.99 2.96 9.52 6.19 6.20 9/05 Custom Benchmark 5 -5.03 1.93 13.85 7.03 7.18 9/05 Value Added vs Benchmark 1.04 1.03 -4.33 -0.73 -0.98 Benchmark + 1.75% -4.59 3.68 15.60 8.78 8.93 9/05 Value Added vs Objective 0.60 -0.72 -6.08 -2.59 -2.73
Eaton Vance 29.3 -2.37 -.- -.- -.- -2.37 6/11 S&P/LSTA Leverage Loan Index -4.81 -.- -.- -.- -4.81 6/11 Value Added vs Benchmark 2.44 -.- -.- -.- 2.44 Benchmark + 0.5% -4.68 -.- -.- -.- -4.68 6/11 Value Added vs Objective 2.31 -.- -.- -.- 2.31
3-yearAssets Performance (% )
5-year Inception Date($Millions) Quarter 1-year
5 High Yield Composite and Post Advisory Portfolio Custom Benchmark: 1/2010-current, Merrill Lynch High Yield BB/B Constrained Index. 10/2005-12/2009, Merrill Lynch High Yield Master II.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Fixed Income Overview (Continued)
Managers ♦ Post Advisory Group, the System’s traditional high yield manager, generated a -4.0% return for the
quarter and outperformed relative to its custom benchmark, currently the Merrill Lynch High Yield BB/B Constrained Index (-5.0% return), and its performance objective, benchmark + 1.75%). European debt concerns weighed heavily on high yield bonds’ valuations, particularly towards the second half of the quarter. Investors continued to retreat from all high yield sectors as Greece’s debt crisis worsened after the European governments struggled to reach consensus on the expansion of the bailout fund for indebted PIIGS countries. For the quarter, the portfolio’s average quality rating was lower than the benchmark (B rating vs. BB rating), and that was a small detractor as the lower grade of the high yield securities suffered the most losses during 3Q’s selloff. However, Post’s average effective duration was lower than the benchmark (4.0 years vs. 4.7 years) and had an overall positive issue selection impact, which combine helped the portfolio to eke out a relative outperformance during the quarter. Over the three-year and longer term periods, Post’s track record continued to trail its custom benchmark and performance objective.
♦ In the interest of further developing a diversified exposure to fixed income securities, the System
added Eaton Vance, a bank loan fund that focuses on senior secured floating rate loans, during the 2Q to complement its existing high yield allocation. For the fund’s first full quarter, Eaton Vance generated a return of -2.4% and fared better than its benchmark, the S&P/LSTA Leveraged Loan Index, which was down -4.8% for the same period.
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Real Estate Overview6
Composite
Real Estate 91.0 -6.54 8.77 -0.41 -3.60 9.04 Custom Benchmark 6 -5.67 9.40 0.24 -1.76 9.87 Value Added vs Index -0.87 -0.63 -0.65 -1.84 -0.83
Wilshire Real Estate Securities Index -15.08 1.76 -2.20 -3.27 9.16NCREIF Property Index 3.30 16.10 -1.45 3.40 7.82
10-yearAssets Performance (% )
($Millions) Quarter 1-year 3-year 5-year
Managers
Adelante Capital Management 44.3 -14.11 1.36 -2.73 -4.95 7.65 12/97 Wilshire REIT Index -14.64 2.10 -2.05 -3.11 7.53 12/97 Value Added vs Benchmark 0.53 -0.74 -0.68 -1.84 0.12 Wilshire REIT Index + 1% -14.39 3.10 -1.05 -2.11 8.53 12/97 Value Added vs Objective 0.28 -1.74 -1.68 -2.84 -0.88
INVESCO Core Real Estate-USA, LLC 46.7 1.96 16.76 -.- -.- 16.76 9/10 NCREIF Property Index 3.30 16.10 -.- -.- 16.10 9/10 Value Added vs Benchmark -1.34 0.66 -.- -.- 0.66
Date3-year 5-year InceptionAssets
($Millions) Quarter 1-yearPerformance (% )
♦ The System’s real estate composite returned -6.5% during the quarter and lagged behind its custom
benchmark, currently 50% NCREIF Property Index/50% Wilshire REIT Index. While the composite’s recent performance has made notable recovery and its long-term track record remains positive, it has underperformed the custom benchmark over all periods measured.
♦ Adelante Capital, the System’s real estate securities manager, generated a 3Q return of -14.1% and
outperformed comparing to the Wilshire REIT Index, as well as its performance objective, benchmark + 1%. Favorable sector exposure helped contribute to this relative outperformance, primarily due to Adelante’s notable underweight in Hotel (1.7% portfolio vs. 5.7% benchmark) and Industrial 0.1% portfolio vs. 3.4% benchmark), which were among the worst performing real estate sectors during the quarter. Against the Wilshire REIT Index, Adelante has added value since inception, but its track record continued to trail its benchmark and performance objective for all other measured periods.
♦ The INVESCO Core Real Estate-USA LLC fund, TERS’ private real estate portfolio, returned 2.0%
for the third quarter of 2011, reflecting a gradual, but continued recovery of the commercial real estate market. This performance, however, trailed the 3.3% return of the NCREIF Property Index.
6 Real Estate Composite Custom Benchmark: 10/2010-current, 50% NCREIF Property Index and 50% Wilshire REIT Index.
4/1988-9/2010, 100% Wilshire REIT Index
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Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Private Equity Overview Composite
Private Equity 103.1 -9.47 8.31 -.- -.- -.- Custom Benchmark 7 -10.91 7.18 -.- -.- -.- Value Added vs Index 1.44 1.13 -.- -.- -.-
10-yearAssets Performance (% )
($Millions) Quarter 1-year 3-year 5-year
Funds
Private Equity Parking FundNorthern Trust Large Cap Core 79.6 -13.85 1.17 -.- -.- 17.59 3/09 S&P 500 Index -13.86 1.15 -.- -.- 17.39 3/09 Value Added vs Index 0.01 0.02 -.- -.- 0.20
Private Equity Investments 8
HarbourVest Dover Street VII 15.2 8.10 43.93 -.- -.- 20.82 3/09 Capital Commitment 20.0 Contributions Since Inception 11.9 Cumulative Distributions 1.0 Unfunded Capital Commitment 8.1 Investment Multiple 1.4 IRR (Since Inception) 30.9
HarbourVest Intl Private Equity Part VI 0.5 -3.11 -7.59 -.- -.- -19.19 6/10 Capital Commitment 8.7 Contributions Since Inception 0.6 Cumulative Distributions 0.0 Unfunded Capital Commitment 8.1 Investment Multiple 0.8 IRR (Since Inception) -14.5
HarbourVest IX Venture 0.1 -.- -.- -.- -.- -.- 12/10 Capital Commitment 2.2 Contributions Since Inception 0.1 Cumulative Distributions 0.0 Unfunded Capital Commitment 2.1 Investment Multiple 0.9 IRR (Since Inception) N/A
Inception DateAssets Performance (% )
($Millions) Quarter 1-year 3-year 5-year
7 Private Equity Composite Custom Benchmark: dynamically calculated based on the actual weights of the private equity investments and the private equity source fund. To coincide with private equity investments reporting, 1-quarter lagged market values are used for the private equity component in the custom benchmark calculation.
8 Performance, fund size, and capital called down for private equity investments are presented on a 1-quarter lag basis.
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Page 17
Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Private Equity Overview (Continued) Funds
HarbourVest IX Buyout 0.0 -.- -.- -.- -.- -.- 3/11 Capital Commitment 4.5 Contributions Since Inception 0.0 Cumulative Distributions 0.0 Unfunded Capital Commitment 4.5 Investment Multiple 0.6 IRR (Since Inception) N/A
HarbourVest IX Credit Opportunities 0.0 -.- -.- -.- -.- -.- 3/11 Capital Commitment 0.8 Contributions Since Inception 0.0 Cumulative Distributions 0.0 Unfunded Capital Commitment 0.8 Investment Multiple 0.9 IRR (Since Inception) N/A
Hamilton Lane VII Series A 1.3 3.97 -.- -.- -.- 3.65 3/11 Capital Commitment 9.0 Contributions Since Inception 1.3 Cumulative Distributions 0.2 Unfunded Capital Commitment 7.9 Investment Multiple 1.1 IRR (Since Inception) 9.4
Hamilton Lane VII Series B 1.4 2.85 -.- -.- -.- 1.59 3/11 Capital Commitment 6.0 Contributions Since Inception 1.5 Cumulative Distributions 0.2 Unfunded Capital Commitment 4.7 Investment Multiple 1.1 IRR (Since Inception) 9.8
Pantheon Global Secondary IV 5.0 24.96 68.39 -.- -.- 68.39 9/10 Capital Commitment 20.0 Contributions Since Inception 3.7 Cumulative Distributions 0.0 Unfunded Capital Commitment 16.3 Investment Multiple 1.4 IRR (Since Inception) 88.9
DateAssets Performance (% )
($Millions) Quarter 1-year 3-year 5-year Inception
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Page 18
Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Private Equity Overview (Continued) Funds
♦ Based on asset allocation policy adopted in 2008, the System started a Private Equity investment
program during 1Q 2009. The Plan selected HarbourVest and Pantheon to be the first managers for this program and will use the existing Northern Trust Large Cap Core Fund as the source of funds for future capital calls. Wilshire will continue to report on HarbourVest and Pantheon as these funds deploy called down capital.
♦ The Private Equity Composite produced a return of -9.5% and outperformed relative to its custom
benchmark (-10.9%) for the third quarter. The “parking fund” for future private equity investments, the Northern Trust Large Cap Core Fund, returned -13.9% and matched the S&P 500 Index for the quarter. Since inception (3/09), the fund continues to add value relative to the S&P 500 Index.
Real Assets Overview Funds
♦ Continuing to implement the new asset allocation policy adopted by the Board earlier this year, the
System selected and funded a portfolio managed by Tortoise Capital Advisors during the third quarter, to represent the new real assets asset class. Tortoise is a master limited partnership (MLP) vehicle that focuses on energy infrastructure, specifically on long-haul natural gas/natural gas liquids pipelines and storage. The MLP was funded during September and had approximately $31 million at the end of the quarter, representing 3.1% of TERS’ total assets (it has an asset allocation target of 3%). Wilshire will begin to report official performance on Tortoise starting in 4Q.
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Page 19
Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Tacoma Historical Investment Performance Periods Ending September 30, 2011
Total Fund
5-year 10-year
Total Fund -9.5 0.4 3.7 1.1 6.3 1,004.7$ Policy Return -9.3 0.0 2.9 0.8 5.5
Market Value($Millions)Quarter 1-year 3-year
Domestic Equity Total Domestic Equity -15.1 0.9 1.2 -1.2 4.6 232.7$
Northern Trust S&P 500 Composite -13.9 1.1 1.5 -1.2 2.8 111.7$ S&P 500 Index -13.9 1.2 1.2 -1.2 2.8
Northern Trust Russell 1000 Growth -13.2 3.8 -.- -.- -.- 28.8$ Russell 1000 Growth Index -13.1 3.8 -.- -.- -.-
Northern Trust Small Cap Core -21.8 -3.4 0.0 -0.9 6.2 29.0$ Russell 2000 Index -21.9 -3.5 -0.4 -1.0 6.1
INTECH -14.3 1.7 1.2 -.- -.- 28.0$ S&P 500 Index -13.9 1.2 1.2 -.- -.-
Research Affilliates -15.0 1.2 2.0 -.- -.- 35.1$ S&P 500 Index -13.9 1.2 1.2 -.- -.-
S&P 500 Index -13.9 1.2 1.2 -1.2 2.8Wilshire 5000 Index -15.0 0.6 1.5 -0.8 3.8Russell 3000 Index -15.3 0.6 1.4 -0.9 3.5 International Equity Total International Equity (with Hedge) -19.7 -12.7 -3.4 -4.2 4.4 195.2$
Northern Trust EAFE Index Fund (Hedged) -15.5 -10.6 -.- -.- -.- 79.9$ MSCI EAFE Index Hedged -16.3 -13.5 -.- -.- -.-
Northern Trust EM Index Fund -22.6 -16.4 -.- -.- -.- 46.4$ MSCI Emerging Markets Index -22.6 -16.2 -.- -.- -.-
DFA Int'l Core Equity Portfolio -.- -.- -.- -.- -.- 35.9$
TT International -.- -.- -.- -.- 4.8 33.0$
Custom Benchmark - International Equity -18.8 -12.4 -2.8 -3.5 4.9MSCI EAFE Index -19.0 -9.4 -1.1 -3.5 5.0MSCI EAFE Index Hedged -16.3 -13.5 -3.8 -7.0 -0.3MSCI Emerging Markets Index -22.6 -16.2 6.3 4.9 16.1 Fixed Income
5-year 10-year
Total Fixed Income 0.7 4.3 10.9 7.8 6.6 349.9$
Core Fixed Income 1.7 4.3 10.7 8.1 6.8 231.9$
Metropolitan West 1.4 4.2 10.7 8.1 -.- 200.1$ Barclays Aggregate Bond Index 3.8 5.3 8.0 6.5 -.-
Market ValueQuarter 1-year 3-year ($Millions)
-
Page 20
Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
Tacoma Historical Investment Performance (Continued) Periods Ending September 30, 2011
Fixed Income
5-year 10-year
BlackRock US Debt Index Fund 3.8 5.3 -.- -.- -.- 31.9$ Barclays Aggregate Bond Index 3.8 5.3 -.- -.- -.-
Barclays Aggregate Bond Index 3.8 5.3 8.0 6.5 5.7
Total High Yield -3.5 3.5 9.7 6.3 -.- 93.0$
Post Advisory Group -4.0 3.0 9.5 6.2 -.- 63.7$ Custom Benchmark -5.0 1.9 13.9 7.0 -.-
Eaton Vance -2.4 -.- -.- -.- -.- 29.3$ S&P LSTA Leverage Loan Index -4.8 -.- -.- -.- -.-
ML High Yield BB/B Constrained -5.0 1.9 11.8 6.4 7.9ML High Yield Master II -6.3 1.3 13.7 6.9 8.6
TIPS 4.9 -.- -.- -.- -.- 25.0$
BlackRock US TIPS Index Fund 4.9 -.- -.- -.- -.- 25.0$ Barclays U.S. TIPS Index 4.5 -.- -.- -.- -.-
Barclays U.S. TIPS Index 4.5 9.9 8.1 7.1 7.2
Market ValueQuarter 1-year 3-year ($Millions)
Real Estate Total Real Estate -6.5 8.8 -0.4 -3.6 9.0 91.0$
Adelante Capital Management -14.1 1.4 -2.7 -5.0 8.3 44.3$ Wilshire REIT Index -14.6 2.1 -2.1 -3.1 9.1
INVESCO Core Real Estate-USA, LLC 2.0 16.8 -.- -.- -.- 46.7$
Wilshire REIT Index -14.6 2.1 -2.1 -3.1 9.1NCREIF Property Index 3.3 16.1 -1.5 3.4 7.8 Private Equity Total Private Equity -9.5 8.3 -.- -.- -.- 103.1$
Northern Trust S&P 500 -13.9 1.2 -.- -.- -.- 79.6$ S&P 500 Index -13.9 1.2 -.- -.- -.-
HarbourVest Dover Street VII 8.1 43.9 -.- -.- -.- 15.2$
HarbourVest Int'l Private Equity VI -3.1 -7.6 -.- -.- -.- 0.5$
HarbourVest IX Venture -.- -.- -.- -.- -.- 0.1$
HarbourVest IX Buyout -.- -.- -.- -.- -.- 0.0$
HarbourVest IX Credit Opportunities -.- -.- -.- -.- -.- 0.0$
Hamilton Lane VII Series A 4.0 -.- -.- -.- -.- 1.3$
Hamilton Lane VII Series B 2.9 -.- -.- -.- -.- 1.4$
Pantheon Ventures 25.0 68.4 -.- -.- -.- 5.0$
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Page 21
Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
23.50% Russell 3000 = 7.75% Annually23.50% International Equity Custom Benchmark9.00% ML US High Yield BB/B Constrained 2%
23.00% Barclays US Aggregate Bond3.00% Barclays US TIPS4.00% Wilshire REIT4.00% NCREIF Property Index 100.00% Russell 3000 65.71% Barclays US Aggregate Bond
10.00% Private Equity Custom Benchmark 8.57% Barclays US TIPS25.71% ML US High Yield BB/B Constrained 2%
100.00% S&P 500 Index23.50% Russell 300023.50% International Equity Custom Benchmark 71.43% Barclays US Aggregate Bond7.00% ML US High Yield BB/B Constrained 2% 8.57% Barclays US TIPS
25.00% Barclays US Aggregate Bond 20.00% ML US High Yield BB/B Constrained 2%3.00% Barclays US TIPS4.00% Wilshire REIT 38.50% MSCI EAFE Index (N)4.00% NCREIF Property Index 38.50% MSCI EAFE Hedged (N) 80.00% Barclays US Aggregate Bond
10.00% Private Equity Custom Benchmark 23.00% MSCI Emerging Markets Index (N) 20.00% ML US High Yield BB/B Constrained 2%
23.50% Russell 3000 40.00% MSCI EAFE Index (N) 62.50% Barclays US Aggregate Bond23.50% International Equity Custom Benchmark 40.00% MSCI EAFE Hedged (N) 37.50% ML US High Yield BB/B Constrained 2%7.00% ML US High Yield BB/B Constrained 2% 20.00% MSCI Emerging Markets Index (N)
28.00% Barclays US Aggregate Bond4.00% Wilshire REIT 62.50% Barclays US Aggregate Bond4.00% NCREIF Property Index 10.00% MSCI ACWI x-US Index (N) 37.50% ML High Yield Master II
10.00% Private Equity Custom Benchmark
10.00% MSCI EAFE Index (N) 66.67% Barclays US Aggregate Bond23.50% Russell 3000 33.33% ML High Yield Master II23.50% International Equity Custom Benchmark7.00% ML US High Yield BB/B Constrained 2%
28.00% Barclays US Aggregate Bond 75.00% Barclays US Aggregate Bond8.00% Wilshire REIT 25.00% ML High Yield Master II
10.00% Private Equity Custom Benchmark 50.00% Wilshire REIT Index50.00% NCREIF Property Index
83.33% Barclays US Aggregate Bond21.00% Russell 3000 16.67% ML High Yield Master II21.00% International Equity Custom Benchmark 100.00% Wilshire REIT Index15.00% ML US High Yield BB/B Constrained 2%25.00% Barclays US Aggregate Bond 91.67% Barclays US Aggregate Bond8.00% Wilshire REIT 8.33% ML High Yield Master II
10.00% Private Equity Custom Benchmark
100.00% 100.00% Barclays US Aggregate Bond21.00% S&P 500 Index21.00% International Equity Custom Benchmark15.00% ML High Yield Master II25.00% Barclays US Aggregate Bond8.00% Wilshire REIT
10.00% Private Equity Custom Benchmark
Q4 2010 through April 2011
April 2010 to Q3 2010
Tacoma Employees' Retirement SystemPolicies and Benchmarks
Domestic Equity Composite
Total Fund Total Fund Actuarial Return
Q1 2003 to Present
Total Fixed Income Composite
May 2011 to Present
Q1 2010
Q2 2009 to Q4 2009
May 2011 to Present
Q1 2010
Private Equity CompositeDynamically calculated based on actual
weights of the private equity investments and the private equity source fund
Q2 1988 to Q1 2006
Q2 2006 to Q4 2008
Q1 2009 to Present
Q2 1988 to Q3 2010
Q3 2011
Q3 2011
May 2009 to Q4 2009
Real Estate Composite
Q4 2010 to Present
Q3 2001 to Q3 2005
Q4 2005
Q1 2006
Q2 2006
Q3 2006 to Q1 2009
Q4 1984 to Q4 2009
Q1 2010 to Present
Q1 2009 to Q3 2010
Q4 2010 to Present
International Equity Composite
Q2 2010 through April 2011
-
Page 22
21.00% S&P 500 Index21.00% MSCI ACWI x-US (N)15.00% ML High Yield Master II25.00% Barclays US Aggregate Bond8.00% Wilshire REIT
10.00% Private Equity Custom Benchmark
40.00% S&P 500 Index15.00% MSCI ACWI x-US (N)10.00% ML High Yield Master II20.00% Barclays US Aggregate Bond15.00% Wilshire REIT
40.00% S&P 500 Index15.00% MSCI Eur/Pac 50/50 (N)5.00% ML High Yield Master II
25.00% Barclays US Aggregate Bond15.00% Wilshire REIT
40.00% S&P 500 Index15.00% MSCI Eur/Pac 50/50 (N)2.50% ML High Yield Master II
27.50% Barclays US Aggregate Bond15.00% Wilshire REIT
Tacoma Employees' Retirement SystemPolicies and Benchmarks
(Continued)
Q4 2005
Q1 2006 to Q2 2006
Q3 2006 to Q4 2008
Total FundFebruary through
April 2009
Wilshire Consulting Executive Summary of Performance – September 30, 2011 Prepared for Tacoma Employees’ Retirement System
-
Performance Review: Tacoma - INTECH
Investment Philosophy:
Sources of Value Added:% Style% Sector% Stock Selection
Contact:Phone:E-Mail:
Open for New Business:Product Inception:
Assets Under Management:% Active Asset Allocation
Investment Philosophy:Annualized Ended 09/30/2011 Annual Returns
Historical Returns 1 Year 3 Years 5 Years 10 Years 2010 2009 2008 2007 2006 2005 2004 2003 2002 20011.74 1.21 -0.96 N/AIntech 15.07 24.41 -36.58 6.92 14.64 9.18 15.58 28.82 N/A N/A1.15 1.23 -1.17 2.82S&P 500 15.05 26.45 -36.99 5.54 15.81 4.89 10.87 28.69 -22.12 -11.88
Risk - Standard Deviation13.42 20.90 18.14 N/AIntech 18.67 21.65 21.82 9.15 5.82 7.54 7.57 10.76 N/A N/A13.70 21.25 18.32 15.74S&P 500 19.26 22.28 21.01 9.65 5.63 7.91 7.30 11.40 20.64 19.88
Risk - Semi-Variance10.28 16.36 14.19 N/AIntech 13.99 17.70 16.90 6.89 4.54 5.14 5.87 7.07 N/A N/A10.08 16.38 14.09 12.11S&P 500 14.38 17.99 16.33 7.12 4.61 5.20 5.68 7.46 13.85 14.02
Excess Returns0.59 -0.01 0.22 N/AArithmetic Excess 0.01 -2.04 0.40 1.38 -1.16 4.29 4.71 0.13 N/A N/A0.58 -0.01 0.22 N/AGeometric Excess 0.01 -1.61 0.64 1.31 -1.00 4.09 4.25 0.10 N/A N/A
1 Year 3 Years 5 Years 10 YearsExcess StatisticsManager vs. Benchmark
Annualized Ended 09/30/2011
Tracking Error 1.92Information Ratio 0.30Downside Deviation 1.40Skewness -0.09Kurtosis -1.27Alpha 0.61
1.48
Beta 0.97
-0.01
Residual Risk 1.88
1.03
R Squared 0.98
0.09-0.75-0.02
1.00
1.84
-0.591.160.170.991.810.99
0.981.44
0.121.39
N/AN/AN/AN/AN/AN/AN/AN/AN/A
-
Holdings Analysis: Tacoma Employes' Retirement System - INTECH September 30, 2011Most Appropriate Benchmark:Investment Philosophy:Style Focus:
Open for New Business:Product Inception:
Assets Under Management:Capitalization Focus:
< Unknown >< Unknown >< Unknown >
Period EndTACINTECH S&P 500
StyleScore
SizeScore
StyleScore
SizeScore
09/30/2011 -17.13 89.32 -8.75 105.4306/30/2011 -1.51 89.94 1.71 105.5903/31/2011 3.67 89.15 1.81 105.8112/31/2010 -5.44 89.44 -2.40 105.0809/30/2010 -8.42 91.96 -3.24 105.0606/30/2010 1.75 95.93 -7.01 104.8203/31/2010 7.82 97.03 -4.78 104.9512/31/2009 4.93 94.40 -5.26 104.2009/30/2009 -20.45 94.86 -15.43 101.5406/30/2009 -19.74 94.33 -13.40 103.2903/31/2009 -18.86 97.64 -13.89 105.2612/31/2008 3.55 96.05 -7.35 104.3909/30/2008 7.87 97.13 -5.84 105.2506/30/2008 6.09 99.72 -0.02 105.9903/31/2008 5.47 100.02 -5.69 106.0912/31/2007 5.90 97.55 -4.08 105.1909/30/2007 -2.62 97.12 -8.89 106.3606/30/2007 -9.67 86.39 -9.80 102.7103/31/2007 -9.81 85.56 -9.31 106.3812/31/2006 -12.75 106.13
Min -20.45 85.56 -15.43 101.54Max 7.87 100.02 1.81 106.38Avg -3.51 93.87 -6.72 104.98
Median -1.51 94.86 -6.43 105.22Stddev 10.00 4.40 4.96 1.25
-
Performance Review: Tacoma - RAFI
Investment Philosophy:
Sources of Value Added:% Style% Sector% Stock Selection
Contact:Phone:E-Mail:
Open for New Business:Product Inception:
Assets Under Management:% Active Asset Allocation
Investment Philosophy:Annualized Ended 09/30/2011 Annual Returns
Historical Returns 1 Year 3 Years 5 Years 10 Years 2010 2009 2008 2007 2006 2005 2004 2003 2002 20011.15 1.97 -0.91 N/ARafi 18.59 27.49 -37.49 4.00 20.17 6.94 N/A N/A N/A N/A1.15 1.23 -1.17 2.82S&P 500 15.05 26.45 -36.99 5.54 15.81 4.89 10.87 28.69 -22.12 -11.88
Risk - Standard Deviation14.34 23.28 19.75 N/ARafi 20.06 25.98 22.28 9.42 5.02 8.35 N/A N/A N/A N/A13.70 21.25 18.32 15.74S&P 500 19.26 22.28 21.01 9.65 5.63 7.91 7.30 11.40 20.64 19.88
Risk - Semi-Variance10.43 17.86 15.11 N/ARafi 15.24 20.69 17.45 7.10 4.10 5.72 N/A N/A N/A N/A10.08 16.38 14.09 12.11S&P 500 14.38 17.99 16.33 7.12 4.61 5.20 5.68 7.46 13.85 14.02
Excess Returns0.00 0.74 0.26 N/AArithmetic Excess 3.54 1.05 -0.50 -1.54 4.36 2.05 N/A N/A N/A N/A0.00 0.73 0.26 N/AGeometric Excess 3.08 0.83 -0.80 -1.46 3.77 1.96 N/A N/A N/A N/A
1 Year 3 Years 5 Years 10 YearsExcess StatisticsManager vs. Benchmark
Annualized Ended 09/30/2011
Tracking Error 1.76Information Ratio 0.00Downside Deviation 1.43Skewness -1.39Kurtosis 3.33Alpha 0.01
3.68
Beta 1.04
0.20
Residual Risk 1.68
2.31
R Squared 0.99
1.012.860.91
0.98
3.23
1.083.280.621.072.990.98
1.083.22
0.082.02
N/AN/AN/AN/AN/AN/AN/AN/AN/A
-
Holdings Analysis: Tacoma Employes' Retirement System - Research Affiliates September 30, 2011Most Appropriate Benchmark:Investment Philosophy:Style Focus:
Open for New Business:Product Inception:
Assets Under Management:Capitalization Focus:
< Unknown >< Unknown >< Unknown >
Period EndTACRAF S&P 500
StyleScore
SizeScore
StyleScore
SizeScore
09/30/2011 -43.96 87.23 -8.75 105.4306/30/2011 -33.78 80.36 1.71 105.5903/31/2011 -32.55 80.31 1.81 105.8112/31/2010 -40.11 70.52 -2.40 105.0809/30/2010 -41.96 71.20 -3.24 105.0606/30/2010 -47.33 69.77 -7.01 104.8203/31/2010 -46.84 69.79 -4.78 104.9512/31/2009 -45.68 77.11 -5.26 104.2009/30/2009 -50.29 80.34 -15.43 101.5406/30/2009 -48.66 74.16 -13.40 103.2903/31/2009 -56.29 78.59 -13.89 105.2612/31/2008 -50.01 74.30 -7.35 104.3909/30/2008 -52.01 71.61 -5.84 105.2506/30/2008 -36.75 74.73 -0.02 105.9903/31/2008 -38.90 75.81 -5.69 106.0912/31/2007 -41.86 83.47 -4.08 105.1909/30/2007 -46.26 94.35 -8.89 106.3606/30/2007 -46.09 95.42 -9.80 102.7103/31/2007 -46.62 94.28 -9.31 106.3812/31/2006 -12.75 106.13
Min -56.29 69.77 -15.43 101.54Max -32.55 95.42 1.81 106.38Avg -44.52 79.12 -6.72 104.98
Median -46.09 77.11 -6.43 105.22Stddev 6.16 8.39 4.96 1.25
-
Performance Review: Tacoma - Metropolitan West
Investment Philosophy:
Sources of Value Added:% Style% Sector% Stock Selection
Contact:Phone:E-Mail:
Open for New Business:Product Inception:
Assets Under Management:% Active Asset Allocation
Investment Philosophy:Annualized Ended 09/30/2011 Annual Returns
Historical Returns 1 Year 3 Years 5 Years 10 Years 2010 2009 2008 2007 2006 2005 2004 2003 2002 20014.19 10.68 8.07 N/AMetropolitan West 11.55 16.95 -1.46 7.17 6.60 2.81 5.59 13.70 N/A N/A5.29 7.99 6.53 5.67BC Aggregate 6.56 5.93 5.24 6.96 4.33 2.43 4.34 4.11 10.27 8.42
Risk - Standard Deviation2.35 4.88 4.29 N/AMetropolitan West 3.63 4.76 6.11 2.69 2.34 2.46 2.93 4.65 N/A N/A2.96 4.05 3.62 3.79BC Aggregate 2.91 3.34 6.09 2.64 2.70 3.14 4.04 5.26 3.75 3.79
Risk - Semi-Variance1.80 3.59 3.03 N/AMetropolitan West 2.52 3.66 3.86 1.90 1.61 1.89 2.38 3.83 N/A N/A2.12 2.90 2.56 2.83BC Aggregate 2.21 2.72 3.83 1.89 1.90 2.31 3.42 4.17 3.05 2.83
Excess Returns-1.10 2.70 1.54 N/AArithmetic Excess 4.99 11.01 -6.70 0.21 2.27 0.38 1.25 9.60 N/A N/A-1.05 2.50 1.45 N/AGeometric Excess 4.68 10.39 -6.37 0.20 2.17 0.37 1.20 9.22 N/A N/A
1 Year 3 Years 5 Years 10 YearsExcess StatisticsManager vs. Benchmark
Annualized Ended 09/30/2011
Tracking Error 1.81Information Ratio -0.58Downside Deviation 1.35Skewness -0.41Kurtosis -0.52Alpha 0.82
3.76
Beta 0.63
0.66
Residual Risk 1.45
3.02
R Squared 0.62
-1.606.274.18
0.43
3.02
-1.558.922.120.873.020.53
0.793.73
0.482.34
N/AN/AN/AN/AN/AN/AN/AN/AN/A
-
Holdings Analysis: Tacoma Employes' Retirement System - Metropolitan West September 30, 2011Most Appropriate Benchmark:Investment Philosophy:Duration Focus:
Open for New Business:Product Inception:
Assets Under Management:Sector Focus:
< Unknown >< Unknown >< Unknown >
Period EndTACMW BC Aggregate
AverageQuality
EffctvDuration
AverageQuality
EffctvDuration
09/30/2011 5.14 6.97 6.48 4.9606/30/2011 5.31 6.68 6.49 5.1903/31/2011 5.56 6.72 6.50 5.1212/31/2010 5.46 5.53 6.52 4.9809/30/2010 5.61 5.90 6.52 4.6706/30/2010 6.13 4.85 6.53 4.3003/31/2010 6.15 5.45 6.53 4.6812/31/2009 5.98 5.30 6.52 4.5709/30/2009 5.97 6.58 6.52 4.4306/30/2009 5.89 4.34 6.54 4.1903/31/2009 5.55 5.66 6.58 3.7312/31/2008 5.90 4.48 6.58 3.7109/30/2008 6.08 4.57 6.58 4.4706/30/2008 5.71 5.38 6.55 4.6803/31/2008 6.14 5.04 6.57 4.3812/31/2007 6.11 5.62 6.57 4.4109/30/2007 6.02 5.79 6.43 4.6206/30/2007 6.01 5.18 6.45 4.7003/31/2007 5.74 4.96 6.44 4.5012/31/2006 5.87 4.91 6.42 4.46
Min 5.14 4.34 6.42 3.71Max 6.15 6.97 6.58 5.19Avg 5.82 5.50 6.52 4.54
Median 5.90 5.42 6.52 4.54Stddev 0.29 0.77 0.05 0.38
-
Performance Review: Tacoma - Post Advisory Group
Investment Philosophy:
Sources of Value Added:% Style% Sector% Stock Selection
Contact:Phone:E-Mail:
Open for New Business:Product Inception:
Assets Under Management:% Active Asset Allocation
Investment Philosophy:Annualized Ended 09/30/2011 Annual Returns
Historical Returns 1 Year 3 Years 5 Years 10 Years 2010 2009 2008 2007 2006 2005 2004 2003 2002 20012.97 9.52 6.19 N/APost Advisory Group 12.43 38.74 -19.95 4.17 8.58 3.66 9.70 18.84 N/A N/A1.92 11.84 6.40 7.93Merrill HY BBBC 14.25 46.06 -23.31 3.24 9.24 3.41 9.93 22.90 1.09 5.43
Risk - Standard Deviation5.94 11.90 9.93 N/APost Advisory Group 5.13 7.17 16.21 4.59 1.89 3.87 2.69 3.07 N/A N/A6.47 14.12 11.99 9.51Merrill HY BBBC 6.11 10.62 19.18 5.08 2.35 4.51 3.68 5.16 10.17 10.99
Risk - Semi-Variance4.74 10.14 8.24 N/APost Advisory Group 4.12 4.29 13.63 3.78 1.59 3.07 2.30 2.31 N/A N/A5.29 11.57 9.62 7.57Merrill HY BBBC 4.98 7.20 15.55 4.14 1.88 3.59 3.10 3.79 7.27 8.07
Excess Returns1.04 -2.32 -0.21 N/AArithmetic Excess -1.83 -7.32 3.37 0.93 -0.66 0.25 -0.23 -4.06 N/A N/A1.02 -2.07 -0.20 N/AGeometric Excess -1.60 -5.01 4.39 0.90 -0.60 0.24 -0.21 -3.30 N/A N/A
1 Year 3 Years 5 Years 10 YearsExcess StatisticsManager vs. Benchmark
Annualized Ended 09/30/2011
Tracking Error 1.28Information Ratio 0.80Downside Deviation 0.73Skewness 1.54Kurtosis 4.30Alpha 1.19
3.41
Beta 0.90
-0.61
Residual Risk 1.09
2.37
R Squared 0.97
0.353.66
-0.31
0.96
3.10
0.715.540.560.812.080.96
0.832.43
-0.062.05
N/AN/AN/AN/AN/AN/AN/AN/AN/A
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Holdings Analysis: Tacoma Employes' Retirement System - Post Advisory Group September 30, 2011Most Appropriate Benchmark:Investment Philosophy:Duration Focus:
Open for New Business:Product Inception:
Assets Under Management:Sector Focus:
< Unknown >< Unknown >< Unknown >
Period EndTACPOST ML HIYLD MSTR II
AverageQuality
EffctvDuration
AverageQuality
EffctvDuration
09/30/2011 2.52 3.98 2.33 4.5206/30/2011 2.34 4.33 2.31 4.6403/31/2011 2.35 4.01 2.27 4.5612/31/2010 2.39 4.01 2.26 4.5509/30/2010 2.39 4.14 2.28 4.4306/30/2010 2.46 3.89 2.22 4.3703/31/2010 3.08 3.07 2.21 4.3412/31/2009 2.29 3.43 2.18 4.3009/30/2009 2.33 3.21 2.19 4.2406/30/2009 2.65 3.11 2.23 4.1003/31/2009 2.80 3.04 2.23 3.7912/31/2008 2.67 3.56 2.24 3.8309/30/2008 2.73 3.66 2.23 4.2406/30/2008 2.53 3.80 2.24 4.5003/31/2008 2.46 4.07 2.24 4.5212/31/2007 2.59 4.02 2.21 4.7409/30/2007 2.60 3.91 2.24 4.8306/30/2007 2.44 4.00 2.23 4.8903/31/2007 2.47 3.68 2.23 4.6712/31/2006 2.58 3.48 2.22 4.68
Min 2.29 3.04 2.18 3.79Max 3.08 4.33 2.33 4.89Avg 2.53 3.72 2.24 4.44
Median 2.50 3.85 2.23 4.51Stddev 0.19 0.39 0.04 0.30
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Performance Review: Tacoma - Adelante
Investment Philosophy:
Sources of Value Added:% Style% Sector% Stock Selection
Contact:Phone:E-Mail:
Open for New Business:Product Inception:
Assets Under Management:% Active Asset Allocation
Investment Philosophy:Annualized Ended 09/30/2011 Annual Returns
Historical Returns 1 Year 3 Years 5 Years 10 Years 2010 2009 2008 2007 2006 2005 2004 2003 2002 20011.37 -2.73 -4.95 8.27Adelante 30.03 26.43 -45.30 -17.31 37.16 16.00 35.42 35.34 3.81 10.882.09 -2.04 -3.11 9.11WIL REIT 28.60 28.61 -39.20 -17.56 35.99 13.82 33.14 36.18 3.60 12.36
Risk - Standard Deviation16.64 39.10 32.58 25.49Adelante 19.46 47.55 43.24 20.95 12.22 18.01 21.31 7.89 13.34 10.6217.70 41.54 34.21 26.38WIL REIT 20.28 49.95 47.69 20.64 13.09 16.41 20.93 7.97 12.91 11.89
Risk - Semi-Variance13.61 30.16 24.78 20.05Adelante 14.15 34.06 35.73 14.75 9.39 13.91 18.64 6.35 9.81 7.2614.20 31.64 25.81 20.56WIL REIT 15.03 35.68 38.88 14.41 10.23 12.60 18.44 6.28 9.65 8.50
Excess Returns-0.73 -0.68 -1.84 -0.84Arithmetic Excess 1.42 -2.18 -6.10 0.25 1.17 2.18 2.28 -0.84 0.21 -1.48-0.71 -0.70 -1.90 -0.77Geometric Excess 1.11 -1.70 -10.03 0.30 0.86 1.92 1.71 -0.62 0.20 -1.32
1 Year 3 Years 5 Years 10 YearsExcess StatisticsManager vs. Benchmark
Annualized Ended 09/30/2011
Tracking Error 2.04Information Ratio -0.35Downside Deviation 1.67Skewness -1.37Kurtosis 3.12Alpha -0.66
4.18
Beta 0.93
-0.17
Residual Risk 1.75
3.52
R Squared 0.99
-2.208.96
-1.26
0.99
4.23
-1.976.69
-2.380.953.990.99
0.943.68
-0.453.56
3.29-0.232.73
-2.2310.62-0.590.963.240.98
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Holdings Analysis: Tacoma Employes' Retirement System - Adelante Capital Mgmnt September 30, 2011Most Appropriate Benchmark:Investment Philosophy:Style Focus:
Open for New Business:Product Inception:
Assets Under Management:Capitalization Focus:
< Unknown >< Unknown >< Unknown >
Period EndTACROSWC Wil REIT
StyleScore
SizeScore
StyleScore
SizeScore
09/30/2011 -49.68 22.6406/30/2011 -132.52 20.19 -155.71 16.2503/31/2011 -133.41 16.33 -154.59 11.6712/31/2010 -143.91 20.38 -161.61 10.6809/30/2010 -149.19 21.98 -162.54 13.7806/30/2010 -164.46 20.76 -185.23 14.2803/31/2010 -167.92 14.20 -187.83 9.3112/31/2009 -124.59 15.84 -134.34 8.2009/30/2009 -130.72 14.61 -92.94 -6.7406/30/2009 -86.22 7.14 -86.58 -4.1203/31/2009 -87.87 -2.67 -81.84 -12.3112/31/2008 -63.32 3.37 -74.96 -2.0709/30/2008 -69.84 20.65 -78.33 10.3806/30/2008 -69.73 15.83 -98.32 -0.9603/31/2008 -64.07 25.26 -96.50 4.2512/31/2007 -58.24 15.32 -74.13 -9.0109/30/2007 -44.11 22.85 -81.04 2.4306/30/2007 -37.94 19.54 -70.56 -1.6503/31/2007 -19.82 28.72 -45.01 9.5012/31/2006 -1.58 29.94 -58.53 10.33
Min -167.92 -2.67 -187.83 -12.31Max -1.58 29.94 -45.01 22.64Avg -92.08 17.38 -106.51 5.34
Median -86.22 19.54 -89.76 8.76Stddev 50.15 8.08 45.85 9.28
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Page 1
Tacoma Managers
Domestic Equities: common stock represents equity ownership in a public traded US corporation. Wilshire’s long term expected return for US equities is 7.25%, a 25 bps decline from the prior year.
A. Index Managers- Index Managers seek to build portfolios that replicate the movement of the index being tracked. Tracking can be achieved by holding all of the securities in the index, or by holding representative securities. Index portfolios should earn the return of the index and have the risk characteristics of the index. This is a passive approach to investing and is attractive because of its lower fees and tracking error.
1. Northern Trust – S&P 500 Index (Lending/Non-lending) Inception Date: 12/1990
This manager seeks to earn the return and have the risk characteristics of the S&P 500 Index.
2. Northern Trust – Russell 1000 Growth Index Inception Date: 3/2009
This manager seeks to earn the return and have the risk characteristics of the Russell 1000 Growth Index.
3. Northern Trust – Small-cap Core Index Inception Date: 12/1990
This manager seeks to earn the return and have the risk characteristics of the Russell 2000 Index. The Russell 2000 Index is used as a performance benchmark by small cap managers.
B. Enhanced Index Managers-Enhanced Index Managers seeks to add small amounts of incremental return above a specified benchmark by creating portfolios that have more attractive characteristics than the index without taking significant “bets” against the benchmark in terms of sector weightings, style, or market cap size.
1. INTECH: Enhanced Plus Index Inception Date: 3/2007
This quantitative manager seeks to outperform the S&P 500 Index by 2% annually with a tracking error of less than 2%. INTECH’s strategy is unique because it is purely mathematical and focuses on volatility and covariance (other quantitative managers look to exploit security mis-pricing). The portfolio is constructed by weighting stocks based on their expected volatility and covariance but INTECH ensures that this volatility is well diversified within the portfolio, so that the total portfolio does not have volatility that is meaningfully different than the S&P 500. The portfolio is optimized and rebalanced regularly to ensure tracking error is controlled.
2. Research Affiliates – Enhanced Large Company Index Inception Date: 3/2007
This fundamental index manager seeks to outperform the S&P 500 Index by 2% annually. Using data, this manager weights securities based on accounting fundamentals instead of the traditional market capitalization weighting used by most index managers. This manager determines the weight for each security based on: cash flow, total book value, dividends, and sales on a trailing 5 year basis. The portfolio is constructed based on selecting the 1000 US securities with the highest weights determined using the fundamental approach.
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Page 2
International Equities: common stock represents equity ownership in a non-US public traded corporation. Wilshire’s long term expected return for International equities is 7.25%, a 25 bps decline from the prior year.
1. Northern Trust – EAFE Index – Passive International Equity Inception Date: 3/2009
This manager seeks to earn the return and have the risk characteristics of the Morgan Stanley Capital International’s Europe, Australia & Far East Index (MSCI EAFE Index)
2. Northern Trust – Emerging Markets Index – Passive International Equity Inception Date: 3/2009
This manager seeks to earn the return and have the risk characteristics of the Morgan Stanley Capital International’s Emerging Markets Index (MSCI EM Index)
3. Dimensional Fund Advisors – International Core Equity Portfolio – Active International Equity Inception Date: 9/2011
Designed to achieve long-term capital appreciation, this portfolio seeks to purchase a broad and diverse range of non-US companies in developed markets with an increased exposure to small cap and value stocks, relative to the market universe. In assessing value, the portfolio manager considers factors such as the issuer’s securities having a high book value in relation to their market value, as well as price-to-cash flow or price-to-earnings ratios.
Fixed Income: bonds are debt instruments that are contractually required to be repaid at maturity by the issuer. Wilshire’s long term expected return for US bonds is 3.75%, a 50 bps decline from the prior year.
1. Metropolitan West Asset Management: Total Return Bonds Inception Date: 3/2002
Metropolitan West manages an investment grade fixed income portfolio. This active fixed income manager adds value by 1) varying the duration of the portfolio from the benchmark’s duration, 2) yield curve management, 3) sector rotation, 4) individual security selection, 5) proprietary buy/sell execution strategies. The portfolio is constructed based on macro themes. Duration changes are constrained to be +/- 1 year of the benchmark. Individual positions are limited to 1% at purchase and may rise to 2.5% of portfolio over time. This manager typically holds 75 – 95 issues.
2. BlackRock: Barclays Aggregate Bond Index Inception Date: 6/2010
This manager seeks to earn the return and have the risk characteristics of the Barclays Aggregate Bond Index.
3. Post Advisory Group – High Yield Bonds Inception Date: 9/2005
This active high yield bond manager ranks bonds based on 100 point quantitative and qualitative system. Industry position accounts for (20%), Company position (60%), and Security position (20%). The portfolio is constructed by consensus team decision, it is well diversified with individual positions range from 1%-2% of the portfolio. Post is not allowed to hold CCC rated bonds (very low credit quality) in this portfolio.
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Page 3
4. Eaton Vance – Bank Loan Inception Date: 6/2011
This strategy invests in senior, secured floating-rate bank loans, the majority of which earn high-yield equivalent credit ratings. The fund focuses on companies with strong cash flows and positive earnings while shying away from those that rely heavily on outside capital to finance their businesses. Eaton Vance also places emphasis on diversification by spreading assets widely ac