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HomeMy WebLinkAboutMINUTES - 05222012 - C.68RECOMMENDATION(S): ACCEPT quarterly report of the Post Retirement Health Benefits Trust Agreement Advisory Body. FISCAL IMPACT: No specific fiscal impact. This is a quarterly report of the County's assets in the Public Agency Retirement Services (PARS) Public Agencies Post-Retirement Health Care Plan Trust. BACKGROUND: On December 14, 2010 the Board of Supervisors directed the formation of a Post Retirement Health Benefits Trust Agreement Advisory Body (consisting of the County Administrator, County Finance Director, Treasurer-Tax Collector, Auditor-Controller, and Health Services Finance Director). The Advisory Body meets quarterly. At its meeting of August 4, 2011, the body discussed and reviewed final report formats with HighMark Capital Management and made recommendations regarding a final standardized quarterly report. The attached report is in the standardized format. The following is the investment summary presented at the May 3, 2012 quarterly meeting for the period ending March 31, 2012: APPROVE OTHER RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE Action of Board On: 05/22/2012 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYE:John Gioia, District I Supervisor Mary N. Piepho, District III Supervisor Karen Mitchoff, District IV Supervisor Federal D. Glover, District V Supervisor ABSENT:Gayle B. Uilkema, District II Supervisor Contact: Lisa Driscoll, County Finance Director (925) 335-1023 I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown. ATTESTED: May 22, 2012 David Twa, County Administrator and Clerk of the Board of Supervisors By: June McHuen, Deputy cc: Robert Campbell, Auditor-Controller, Russell Watts, Treasurer-Tax Collector, Patrick Godley, Health Services Chief Financial Officer, Lisa Driscoll, County Finance Director, David Twa, County Administrator C.68 To:Board of Supervisors From:David Twa, County Administrator Date:May 22, 2012 Contra Costa County Subject:Quarterly Report of the Post Retirement Health Benefits Trust Agreement Advisory Body BACKGROUND: (CONT'D) In addition to the quarterly review, the Advisory Body also participated in its first annual Trust Funding Client Review with PARS (attached). The Advisory Body is recommending that the relationship continue as is. Additional Materials - A Post Retirement Health Benefits Trust Agreement Advisory Body web-page can be found at the following address: http://ca-contracostacounty.civicplus.com/index.aspx?NID=2915. The page describes the function of the body, posts quarterly meeting materials, and all pertinent trust and plan documents. CONSEQUENCE OF NEGATIVE ACTION: None. CHILDREN'S IMPACT STATEMENT: None. ATTACHMENTS First Quarter 2012 Annual Client Review PARS: County of Contra CostayFirst Quarter 2012Presented byAndrew Brown CFAAndrew Brown, CFA DISCUSSION HIGHLIGHTSDISCUSSION HIGHLIGHTSFor the first quarter, the Plan returned 7.7% net of fees, which exceeded the Contra Costa County blended benchmark return of 6.6% Allequity market segments posted double digit returns. The Plan’s overweight to equities supported Plan returns. Additionally, our large capstock allocation and our international equity segments were two areas that were additive to performance. Small cap stocks and our fixedincome segments also bested their representative benchmark targets. Our mid-cap equities and our REIT investments were the onlytth tdfdth itittididithtsegmentsthatunderperformedtheir respectivetargetindicesduringthe quarter.•During the quarter, the U.S. economy continued to show positive signs with encouraging data being posted across a broad range ofindicators. On the jobs front, an estimated 635,000 new jobs were added during the quarter. Corporate earnings continue to post strong gainsas well. The consumer also seems to be re-energized from the standpoint of the healthy retail spending figures posted during the quarter.While housing statistics still remain sluggish, the underlying tone of the economy was undeniably better. Perhaps the most significant elementtosupportingmarketreturnsduringthequarterwastheimprovingsituationinEuropeThissituationwasaidedbytwocentralbankliquiditytosupportingmarketreturnsduringthequarterwastheimprovingsituationinEurope.Thissituationwasaidedbytwocentralbankliquiditymeasures. The first was a coordinated effort by six central banks, including the Fed and the ECB, to provide increased access to dollarliquidity. The second was the ECB’s creation of the Long Term Refinancing Operation (LTRO) to provide three year, very low cost funding toEurozone banks. The effect of both of these actions was to drastically reduce the risk that the European sovereign debt crisis would topplethe European financial system and create a contagion that could have spread to the rest of the world, including the U.S. While nations suchas Portugal and Spain still must overcome some hurdles, the “back-stop” of these measures provided support to both international and equitymarkets duringthequarter.gq• While equity markets posting double digit returns for the second quarter in a row is pleasing, there are still challenges that both markets and economies face. First, it is our view that we are in the midst of a global deleveraging process that could take several years to fully resolve. During that process, global growth is likely to be slower than a typical recovery and more vulnerable to shocks, including (but not limited to) sovereign debt crises, commodity spikes and natural disasters. In that light, notwithstanding the near-term success of the coordinated central bank action and the increased activism of the ECB, we remain concerned about the ability of Europe to resolve its fiscal situation without another crisis. A second issue that concerns us is the balance of global growth. For years, the Chinese financed our consumer-driven growth, which in turn fueled their own export-driven growth. Now, it appears that that model is in transition. Hence, the U.S. must develop a more robust export component to our economy, while China must develop its consumer base. Over time, we would expect the result to be positive for both sides. The near-intermediate term reality, however, is that such a transition will be extremely difficult to manage, especially since the imbalances that China needs to ameliorate were significantly exacerbated by their efforts to stimulate their economy during the financial crisis of 2008-2009. Finally, issues in the fourth quarter of this year such as the elections in the United States, as well as certain tax policies that are set to expire could begin impact marketspolicies that are set to expire, could begin impact markets.PARS: County of Contra CostaMarch 31, 2012PARS: County of Contra Costa DISCUSSION HIGHLIGHTSDISCUSSION HIGHLIGHTSThe first quarter was another strong quarter for large cap stocks. The S&500 posted a 12.6% return. The two leading sectors wereFinancials (+22%) and Technology (+21.5%). Financial stocks rallied in response to the events in Europe. As for Technology, the quarterseemed to be “all about Apple Inc.”. While Apple is considered a growth stock, one can make the argument that with $98 billion in cash onits balance sheet ($103/share in cash), that besides being a growth stock, it has characteristics that would appeal to non-growth stockitllIthfi ttAl48%Athlttit tfthRll1000GthIdthinvestorsaswell.Inthefirstquarter,Apple was up +48%.AsthelargestconstituentoftheRussell1000GrowthIndex, growthmanagersare forced to maintain a large allocation to this investment. Giventhat the company represents roughly 7% of the index, most large capgrowth managers maintained sizable positions in the company. The Harbor Capital Appreciation Fund returned 19.1% (Apple 6.6% offund assets) and the T. Rowe Price Growth Fund returned 19.1% (Apple 9.1% of fund assets) in the first quarter. While certainly othertechnology companies supported returns for both funds, it was the performance of Apple that was the primary driver for performance in thequarter for our two large cap growth funds.While we mentioned that Apple does have some value oriented characteristics, it would be uncommon for a majority of value funds to holda large position in the company. And in fact, only the Loomis Sayles Value Fund has a slight (1.25%) allocation to Apple. Thus, the benefitfrom Apple is modest in the large cap value space. However, both funds maintain healthy allocations to financial stocks, and during thequarter, this was the leading performing sector in the benchmark. The T. Rowe Price Equity Income Fund returned 11.2% and the LoomisSaylesValueFundposteda121%returnforthequarterStockssuchasWellsFargo(+247%)andJPMorgan(+38%)wereleadingSaylesValueFundposteda12.1%returnforthequarter.StockssuchasWellsFargo(+24.7%)andJPMorgan(+38%)wereleadingperformers for both funds. Measured against the benchmark, both funds slightly underperformed the benchmark. The commoncharacteristic that negatively impacted both funds in the quarter was a large allocation to the utilities sector. Utilities were the only sectorthat had a negative return during the first quarter (-1.7%). The Looms Sayles Fund had almost a 10% allocation to utilities, and the T.Rowe Equity Income Fund finished the quarter at close to a 7% allocation to utilities.The managers of the large cap core strategy continue to maintain somewhat of a defensive stance towards their sector positioning. Thestrategy is overweight the consumer staples, materials, and industrial sectors. And they are underweight the financial, health care,telecommunications and utilities sectors. Although the materials and industrial sectors tend to be more cyclical by nature, the underlyingcompanies that comprise the investment selections, have a defensive essence to their business models. For example, in the materialsector, the managers maintain an overweight position in Ecolabs, which is a leader in water hygiene, and energy technological services.Recentlytheyacquired a companybythe name ofNalco,whichgained notorietyas one ofthe companies heavilyinvolved in the BP cleanyyqpyy,gypyup efforts in the Gulf of Mexico. As well, in the industrial sector, one of the main holdings is Stericycle. The defensive nature of thiscompany stems from its market leading position of medical waste products. As long as there are hospitals, there will be medical waste.The large cap core strategy returned 14.1% for the quarter, which outpaced the S&P500 Index return of 12.6%. While the defensive sectorpositioning worked against the strategy, the impact was offset by performance in the technology, consumer, and industrial sectors. Leadingcontributors for the quarter included Apple (+48.0%), Wells Fargo (24.7%), EMC (38.7%), Danaher (19.1%) and US Bancorp (17.8%). ThelargestdetractorswereRoyalDutchShell(-29%)ArchCapitalGroup(003%)WisconsinEnergy(15%)Procter&Gamble(-02%)andlargestdetractorswereRoyalDutchShell(-2.9%),ArchCapitalGroup(0.03%),WisconsinEnergy(1.5%),Procter&Gamble(-0.2%)andITC Holdings (1.8%).PARS: County of Contra CostaMarch 31, 2012PARS: County of Contra Costa DISCUSSION HIGHLIGHTSDISCUSSION HIGHLIGHTSOur mid-cap equity funds returned 12.6% in the first quarter. The HighMark Geneva Mid-Cap Equity Growth Fund, despite postinga strong absolute gain of 13.2% during the first quarter, ranked in the bottom quintile for the Morningstar Mid-Cap Growth category.Lower quality stocks (as characterized by a “C” and “D” rating from S&P) outperformed high quality (“A” rating from S&P) by over13%duringthequarteraccordingtoGenevaCapitalManagementThemanagersnotedthatthisisanenvironmentinwhichthey13%duringthequarter,accordingtoGenevaCapitalManagement.Themanagersnotedthatthisisanenvironmentinwhichtheywould not expect the strategy to outperform. Stock selection in the industrials, energy, and consumer discretionary sectorsdetracted from relative performance during the first quarter. Genesee & Wyoming was a key detractor in the industrial sector.Conversely, stock selection in the technology sector contributed significantly to relative performance during the quarter.Amphenol, Citrix Systems, and Teradata were among the top individual contributors for the quarter. The TIAA-CREF Mid-CapValue Fund posted a respectable 12.2% return which exceeded the Russell Mid-Cap Value Index return of 11.4%. DiscoverFinancial(+389%)wasthetopcontributorinthequarterOtherholdingsthatsupportedperformancewasWRGrace(259%)Financial(+38.9%)wasthetopcontributorinthequarter.OtherholdingsthatsupportedperformancewasW.R.Grace(25.9%),CBS (24.9%) and Mead Johnson Nutrition (+20.0%).Our small cap funds returned 13.5%, which outperformed the Russell 2000 Index return of 12.4%. The T. Rowe Price NewHorizons Fund (small cap growth) posted a strong 15.9% return. Healthcare related issues supported results during the quarterwith Regeneron Pharmaceuticals(+110.4%),Athenahealth(+50.9%),Alexion Pharmaceuticals(+29.9%),and SXC Healthg(),(),(),Solutions (+32.7%) leading performers. The Columbia Small Cap Value Fund lagged the Russell 2000 Index during the quarter,but did outperform the Russell 2000 Value Index, posting a 11.7% return. This performance ranked in the 52ndpercentile ofMorningstar’s Small Cap Value Universe. Stocks that supported returns included Global Cash Access Holdings Inc., Cirrus Logic,Kilroy Realty, and United Rentals.REITsturnedinanotherstrongquarterpostinga10%returnslightlylessthanthe107%returnoftheDowJonesWilshireREITREITsturnedinanotherstrongquarter,postinga10%return,slightlylessthanthe10.7%returnoftheDowJonesWilshireREITIndex. REITs continue to benefit from improving fundamentals within the economy. All property sectors advanced during thequarter, led by the industrial sector, which returned (+23.6%). Regional malls (+15.2%) and shopping centers (+14.9%) also hadstrong returns due in part to the stronger job reports that we have seen year to date. While valuations are beginning to look a little“stretched”, and certain events such as Best Buy’s announcement of pending store closures remind investors that REIT investingis not a perfect story, we still believe REITs are an attractive asset class to maintain our current investment position in. TheNuveen Real Estate Securities Fund returned 10.7% forthe quarter, matching the benchmark. The fund was helped by anoverweight to Simon Property Group (+13.0%), as well as holdings in Prologis (+26.0%) and DDR Corp (+20.0%). The fundranked in the 30thpercentile of the Morningstar Real Estate Fund Universe.PARS: County of Contra CostaMarch 31, 2012PARS: County of Contra Costa DISCUSSION HIGHLIGHTSDISCUSSION HIGHLIGHTSGlobal equity markets posted strong returns during the quarter, on the back of the LTRO. All developed and emerging market countrieswere up in local currency except for Portugal and Spain. The MSCI-EAFE Index returned 10.9% for the quarter, and the MSCI-EmergingMarket Index returned 14.1%. The global economic landscape seemed to offer investors an inconsistent picture. The Japaneseeconomy is beginning to heal from the Earthquake/tsunami of2011.Additionally, while investors worry about the growth rate ofChina,the country will still likely post growth in excess of 7% this year. The United States is seen as a region capable of growing GDPsomewhere in the 2% region. On the other hand, while the LTRO went a long ways to stave off a financial meltdown in Europe, it doesappear as if the region is headed for a recession. Additional uncertainty from the region comes in the form of elections that will takeplace in France and Greece during the second quarter of this year.All three of our “developed market” international funds outperformed the MSCI-EAFE Index during the quarter. The MFS InternationalGrowth Fund was the leading international equity fund for the Plan, returning 14.6% in the quarter. The fund maintained a largeoverweight allocation to Europe, with significant investments in Switzerland, France, United Kingdom, and Germany. Performance wasled by automakers: BMW and Honda. Additionally, consumer related names such as Danone, Heineken N.V. and LVMH also stood outduring the quarter. The other two international equity funds in the Plan, the HighMark International Opportunities Fund (+12.7%) andthe Dodge & Cox International Fund (+12.7%) registered identical returns during the quarter. Dodge & Cox was aided by strongcontributorsfromthefinancialandmaterialssectors.TheHighMarkInternationalFundmaintainedaslight“growth”stocktilt,whichwascontributorsfromthefinancialandmaterialssectors.TheHighMarkInternationalFundmaintainedaslightgrowthstocktilt,whichwasa positive for performance. Emerging market exposure for the fund is now 18% of fund assets.The RS Emerging Market Fund posted a strong 17.4% return for the quarter. This performance placed the fund in the 9thpercentile ofthe Morningstar emerging market equity universe. The RS Emerging Market Fund benefitted from stock selection in the technology, oilservices, and telecommunication sectors. Africa and Taiwan were two regions highlighted by the managers as strong contributors toperformanceasellThefndispositionedalongaprocclicaltiltithemphasisinthetechnologandenergsectorsThemesthatperformanceaswell.Thefundispositionedalongapro-cyclicaltilt,withemphasisinthetechnologyandenergysectors.Themesthatthe managers are following include: the sustainable growth of China, the emerging middle class of emerging markets, and the changeshappening due to the impact of technology in emerging market nations.Within global equities, the Templeton Global Opportunities Fund returned 12.5%, outperforming the MSCI-ACWI Index return of 11.9%.The Fund’s positioning in financials and to a lesser extent consumer discretionary and consumer staples offset underperformance in bothhealth care and telecommunication services. The managerspointed towards German truck makerMAN SE,American cable TVgpcompany Time WarnerCable, and several holdings in the European insurance industry that supported returns. The Fund’s performanceranked in the 50thpercentile of Morningstar’s World Stock Universe.PARS: County of Contra CostaMarch 31, 2012PARS: County of Contra Costa DISCUSSION HIGHLIGHTSDISCUSSION HIGHLIGHTSFixed IncomeThe Barclays U.S. Aggregate Bond Index gained 0.30% in the first quarter, as investment-grade corporate bonds and agency mortgage-backedsecurities posted positive returns, while U.S.Treasury returns were negative. While the Treasury sector declined -1.3% for the quarter,investmentgradecorporatebondsgained21%outperformingequivalentdurationTreasuriesby378basispointsandrecoveringalloftheinvestment-gradecorporatebondsgained2.1%,outperformingequivalentdurationTreasuriesby378basispointsandrecoveringalloftheunderperformance experienced during 2011. High yield corporate bond returns were even more robust, gaining 5.3% for the quarter andoutperforming Treasuries by 591 basis points, more than sufficient to offset last year’s 240 basis points of underperformance.The quarter was characterized by a global credit rally as European sovereign debt concerns waned and the U.S. economic recovery continued todisplay positive momentum. Italian and Spanish bonds yields were sharply lower during the quarter as the European Central Bank injected anadditional€530billionoffundingthroughthreeyeartermauctionsinto800differentbanksFederalReserveofficialschangedtheirviewonshortadditional€530billionoffundingthroughthree-yeartermauctionsinto800differentbanks.FederalReserveofficialschangedtheirviewonshort-term interest rates during the quarter and now anticipate the Federal Funds rate to be at exceptionally low levels at least through late 2014.Financial markets took comfort in the short-term prevention of a disorderly default by a European sovereign. Additionally, the Fed continues toexecute “Operation Twist”, announced in September 2011, aimed at driving down long-term interest rates by replacing $400 billion of short-termdebt held in their portfolio with longer-dated Treasuries.RelativetotheBarclaysUSAggregateIndexthePimcoTotalReturnBondFund(+29%)hadastrongquarterTheFundwashelpedbyanRelativetotheBarclaysU.S.AggregateIndex,thePimcoTotalReturnBondFund(+2.9%)hadastrongquarter.TheFundwashelpedbyanunderweight to longer maturities, an emphasis on finance related issues, an overweight to agency mortgage-backed securities, and holdings inreal return bonds. The Fund also benefited from a 10% allocation to emerging market debt, specifically to Brazilian issues. With respect toduration, the managers are neutral with respect to the Barclays Aggregate Index (5-year duration for the index as of quarter-end). The Fund istargeting their foreign exposure in countries where they view the balance sheets as being healthier; Brazil, Canada, Australia, and Brazil. TheFund ranked in the 12thpercentile as measured by Morningstar’s Intermediate-Term Bond Universe.The core bond strategy returned 0.98% in the first quarter. The strategy was helped by an underweight to Treasuries. Corporate bondweightings supported returns with the best performance coming from the financial sector (providing an excess of 622 basis points of return overtreasuries). Issuers such as Bank of America produced double digit returns for the quarter. Other top performing sectors included insurance,airlines, oil refining, and paper producers. While capital goods, consumer non-cyclical, utilities and technology trailed on a relative basis. Thestrategy ended the quarter with an average credit rating of AA-,and a duration that was roughly 90% of the benchmark (4.58 years).High yield bonds posted another strong quarter in the first quarter. The Merrill Lynch U.S. High Yield BB-B Index returned4.1%.ThePimcoHighYield Fund returned 5.1% for the quarter. On a relative basis, this performance placed the fund in the 59thpercentile of Morningstar’s High YieldBond Universe). The Fund currently maintains an effective duration of 3.1 years, with an average coupon of 7.6%. The distribution yield of theFund at quarter-end stood at 6.31%. In an environment where low interest rates will be maintained for the foreseeable future, and where theeconomy could likely post growth at around 2%, high-yield bonds should offer attractive opportunities as a defensive alternative to equities, aswellasanoffensivealternativetointermediate-terminvestmentgradebondswellasanoffensivealternativetointermediate-terminvestmentgradebonds.PARS: County of Contra CostaMarch 31, 2012PARS: County of Contra Costa INVESTMENT STRATEGY AS OF March 31 2012INVESTMENT STRATEGY AS OF March 31, 2012Tactical Asset Allocation Asset Class% Portfolio WeightingRationaleAsset ClassRationaleTargetCurrent PortfolioOver/Under WeightingCash1%2%1%Cash1%2%Fixed Income45% 42%-3%Bonds still appear overvalued, with potential returns for intermediate-term bonds at 2-3% over the next five years. We also remain cautious on inflationary readings which could also put pressure on bonds.gppHigh Yield0% 3.5%3.5%High yield should continue to offer attractive opportunities as the U.S. economy continues to show strength. Default rates are predicted to remain low.Real Estate (REITS)4%5%1%With funding costs likely to remain low and demandReal Estate (REITS)4%5%1%With funding costs likely to remain low and demand showing signs of strength, the fundamentals should support the REIT sector. Earning will need to continue to show growth as this sector is becoming fairly valued.March 31, 2012PARS: County of Contra Costa Tactical Asset AllocationTactical Asset Allocation Asset Class% Portfolio WeightingRationaleTtCurrent PtfliOver/Under WihtiTargetPortfolioWeightingGlobal Equity8% 5.4%-2.6%While the positive events surrounding financial and sovereign support in Europe this quarter supported market prices, there are still numerous challenges (China slowdown, Spain/Italy/Portugal fiscal situation, and a potential regime change in Greece and France)and a potential regime change in Greece and France).International (Developed)10% 4.5%-5.5%See aboveInternational (Emerging)0% 3%3%We maintain the maximum allocation to emerging markets (by Plan Policy). We believe that emerging markets represent an attractive combination of growth at reasonable valuations.Total Domestic Equity32% 38.2%6.2%58%Gi th i k f t t f i t ti lLarge Cap18% 23.8%5.8%Given the risk factors present from international markets, and given the current valuations of large cap domestic stocks, we have increased our overweight position to large cap domestic equities. U.S. EPS is in an upward trend relative to the world.Mid Cap6%74%1.4%Mid-cap stocks are trading at 15X based on earningsMid Cap6%7.4%Midcap stocks are trading at 15X based on earnings estimates for 2013. Small Cap8% 7%-1%After another strong quarter, valuations are getting stretched. The Russell 2000 is currently at 19X next year’s earnings estimates.March 31, 2012PARS: County of Contra Costa Investment SummaryInvestment Summary First QuarterPeriod Ending March 31, 2012Beginning Value 65,491,131.78$ Net Contributions/Withdrawals 4,935,441.29 Fees Deducted -26,972.43 Income Received 288,979.74 Market Appreciation 5,039,863.71 Net Change in Accrued Income 41,471.86Ending Market Value 75,769,915.95$ March 31, 2012PARS: County of Contra Costa AtAllti12/31/2011 12/31/2011 3/31/2012 3/31/2012 TargetAsset Allocation Market Value % of Total Market Value % of Total AllocationAsset AllocationPeriod Ending March 31, 2012Domestic EquityLarge Cap Core Holdings 8,228,005$ 12.6% 10,271,575$ 13.6% -T. Rowe Price Equity Income Fund 2,360,456 3.6% 2,677,130 3.5% -Loomis Sayles Value Fund 2,261,406 3.5% 2,689,279 3.6% -Harbor Capital Appreciation Instl 1,144,514 1.8% 1,178,323 1.6% -T. Rowe Price Growth Stock Fund 1,153,403 1.8% 1,176,898 1.6% -TIAA-CREF Mid-Cap Value Instl 2,659,968 4.1% 3,167,107 4.2%HighMark Geneva Mid Cap Growth Fund1,969,4673.0%2,402,5123.2%-HighMark Geneva Mid Cap Growth Fund1,969,4673.0%2,402,5123.2%Columbia Small Cap Value Fund II 2,608,851 4.0% 3,016,108 4.0% -T. Rowe Price New Horizons Fund 1,940,450 3.0% 2,250,622 3.0% -Total Domestic Equity 24,326,518$ 37.3% 28,829,553$ 38.2% 32.0%Range Range 21-57%International HighMark International Opportunity Fund 649,105 1.0% 1,133,658 1.5% -Dodge & Cox International Stock Fund 665,920 1.0% 1,117,679 1.5% -MFS International Growth Fund695 01911%1 168 83515%-MFS International Growth Fund695,0191.1%1,168,8351.5%-RS Emerging Markets Y 1,814,775 2.8% 2,212,128 2.9% -Total International 3,824,819$ 5.9% 5,632,301$ 7.5% 10.0%Range Range 4-19%GlobalTempleton Global Opportunities A LW 3,443,124 5.3% 4,093,344 5.4% -Total Real Estate 3,443,124$ 5.3% 4,093,344$ 5.4% 8.0%Range Range 4-12%RlEttReal EstateNuveen Real Estate Secs I Fund 3,618,264 5.5% 3,853,595 5.1% -Total Real Estate 3,618,264$ 5.5% 3,853,595$ 5.1% 4.0%Range Range 0-8%Fixed IncomeCore Fixed Income Holdings 20,494,147$ 31.4% 22,671,035$ 30.0% -PIMCO Total Return Instl Fund 5,225,921 8.0% 6,417,773 8.5% -PIMCO High Yield Instl 1,953,399 3.0% 2,622,963 3.5% -Total Fixed Income 27,673,468$ 42.4% 31,711,770$ 42.0% 45.0% Range Range 35-67%CashHighMark Diversified MM Fund 2,414,081$ 3.7% 1,417,156 1.9% -Total Cash 2,414,081$ 3.7% 1,417,156$ 1.9% 1.0%Range Range 0-5%TOTAL 65,300,274$ 100.0%75,537,718$ 100.0%100.0%March 31, 2012PARS: County of Contra Costa,,$,,$ Inception*Selected Period PerformancePARS/COUNTY OF CONTRA COSTA PRHCPAccount 6746038001Period Ending: 03/31/20123 Months 1 YearInception* (14 Months)Cash Equivalents .01 .02 .02 iMoneyNet, Inc. Taxable .00 .00 .00Total Fixed Income 1.66 7.85 7.53BC US Aggregate Bd Index31773687 BC US Aggregate Bd Index.317.736.87Total Equities 13.27 4.17 4.91Domestic Common Stock 14.16 8.50 7.28Large Cap Funds 13.99 7.29 5.49 S&P 500 Composite Index 12.58 8.53 10.46Mid Cap Funds 12.61 5.44 6.84 Russell Midcap Index 12.94 3.29 7.54Small Cap Funds 13.50 4.76 7.81 Russell 2000 Index 12.44 -.17 6.84REIT Funds 9.96 12.26 11.22 Wilshire REIT Index 10.79 13.40 14.33International Equities 14.22 -5.01 -2.33 MSCI EAFE Index 10.86 -5.76 -4.16Total Managed Portfolio 7.74 5.24 4.97Total Account Net of Fees 7.70 5.09 4.83*Inception Date: 02/01/2011**Benchmark: 18% Russell 1000 Index, 6% Russell Midcap Index, 8% Russell 2000 Index, 8% MSCI AC World ex US Index, 10% MSCI EAFE Index, 45% Barclays Aggregate Index, 4% DJ Wilshire REIT Index, 1% Citigroup 3 Month T-Bill Index.Returns are gross-of-fees unless otherwise noted. Returns for periods over one year are annualized. The information presented has been obtained from sources believed to be t d li bl P t f i t i di ti f f t t S iti t FDIC i d h b ktdll County of Contra Costa** 6.59 4.996.24March 31, 2012PARS: County of Contra Costaaccurate and reliable. Past performance is not indicative of future returns. Securities are not FDIC insured, have no bank guarantee, and may lose value. PARS/COUNTY OF CONTRA COSTA PRHCP1-Month 3-Month Year-to- 1-Year 3-Year 5-Year 10-YearFund Name Return Return Date Return Return Return ReturnT. Rowe Price Equity Income (1) 2.60 11.23 11.23 4.51 23.58 0.92 4.71PARS/COUNTY OF CONTRA COSTA PRHCPFor Periods Ending March 31, 2012LARGE CAP EQUITY FUNDSLoomis Sayles Value (2) 2.83 12.13 12.13 1.91 19.01 0.44 5.65Harbor Capital Appreciation Instl 4.52 19.08 19.08 14.50 24.02 5.76 4.72T. Rowe Price Growth Stock 4.75 19.13 19.13 12.15 25.40 4.57 5.63Russell 1000 Index 3.13 12.90 12.90 7.86 24.03 2.19 4.53HighMark Geneva Mid Cap Growth 2.98 13.22 13.22 9.01 28.66 7.71 8.08TIAA-Cref Mid-Cap Value Instl25612 1512 1525126 20180--MID CAP EQUITY FUNDSTIAA-Cref Mid-Cap Value Instl2.5612.1512.152.5126.201.80--Russell Mid Cap Index 2.24 12.94 12.94 3.31 29.13 3.03 7.85Columbia Small Cap Value II Z 2.75 11.66 11.66 -0.68 27.09 2.48 --T. Rowe Price New Horizons 2.98 15.98 15.98 12.18 35.62 8.49 9.41Russell 2000 Index 2.56 12.44 12.44 -0.18 26.90 2.13 6.45SMALL CAP EQUITY FUNDSINTERNATIONAL EQUITY FUNDSDodge & Cox Intl Stock 0.15 12.72 12.72 -7.61 22.20 -2.07 8.48HighMark Int'l Opportunities Fid 0.30 12.78 12.78 -7.25 17.17 -2.91 7.22RS Emerging Markets Y -1.89 17.37 17.37 -6.68 29.10 6.11 14.73MFS International Growth I 1.79 14.57 14.57 1.25 22.08 1.87 8.96MSCI EAFE Index -0.46 10.86 10.86 -5.77 17.13 -3.51 5.70Templeton Global Opportunities A LW 0.46 12.52 12.52 -4.80 16.43 -1.39 5.46MSCI ACWI Index06611 8811 88-07320 75-019533INTERNATIONAL EQUITY FUNDSMSCI ACWI Index0.6611.8811.880.7320.750.195.33Nuveen Real Estate Secs I 5.16 10.75 10.75 12.37 42.28 1.81 12.57DJ US Select REIT Index 5.24 10.76 10.76 13.53 44.48 -0.75 10.36Pimco Total Return Inst'l 0.04 2.88 2.88 5.99 9.36 8.34 7.03BarCap US Aggregate Bond Index-055030030771683625580REIT EQUITY FUNDSBOND FUNDSBarCap US Aggregate Bond Index0.550.300.307.716.836.255.80PIMCO High Yield Instl 0.01 5.11 5.11 5.74 21.46 6.85 8.13Merrill Lynch US High Yield BB-B Index -0.45 4.12 4.12 6.28 20.11 7.11 8.04Source: SEI Investments, Morningstar Investments(1) Fund was added to the Plan in March 2011(2) Fund was added to the Plan in June 2011Returns less than one year are not annualized. Past performance is no indication of future results. The information presented has been obtained from sources March 31, 2012PARS: County of Contra Costayp pbelieved to be accurate and reliable. Securities are not FDIC insured, have no bank guarantee and may lose value. PARS: County of Contra CostaRevision to ReportMay 7, 2012Presented byAndrew Brown CFAAndrew Brown, CFA Investment SummaryInvestment SummaryFirst QuarterPeriod Ending March 31, 2012Beginning Value65,491,131.78$ Net Contributions/Withdrawals4,935,441.29 Fees Deducted-26,972.43 Income Received288,979.74 Market Appreciation5,039,863.71 Net Change in Accrued Income41,471.86Ending Market Value75,769,915.95*$ *Totals may differ from the custodial statement of record due to accruals, and potentially other timing factors May 7, 2012PARS: County of Contra Costa PARS/COUNTY OF CONTRA COSTA PRHCP3-MonthYTD1-Year3-Year5-YearFund NameReturn Rank Return Rank Return Rank Return Rank Return RankT. Rowe Price Equity Income (1)11.23 50 11.23 50 4.51 44 23.58 17 0.92 27Loomis Sayles Value (2)12 133612 13361917319 018104437PARS/COUNTY OF CONTRA COSTA PRHCPFor Periods Ending March 31, 2012LARGE CAP EQUITY FUNDSLoomis Sayles Value (2)12.133612.13361.917319.01810.4437Harbor Capital Appreciation Instl19.08 11 19.08 11 14.50 6 24.02 32 5.76 16T. Rowe Price Growth Stock11.23 50 11.23 50 4.51 44 23.58 17 0.92 27Russell 1000 Index12.90 -- 12.90 -- 7.86 -- 24.03 -- 2.19 --HighMark Geneva Mid Cap Growth13.22 78 13.22 78 9.01 6 28.66 20 7.71 9TIAA-Cref Mid-Cap Value Instl12.15 42 12.15 42 2.51 29 26.20 42 1.80 38MID CAP EQUITY FUNDSRussell Mid Cap Index12.94 -- 12.94 -- 3.31 -- 29.13 -- 3.03 --Columbia Small Cap Value II Z11.66 52 11.66 52 -0.68 56 27.09 60 2.48 40T. Rowe Price New Horizons15.98 20 15.98 20 12.18 1 35.62 1 8.49 2Russell 2000 Index12.44 -- 12.44 -- -0.18 -- 26.90 -- 2.13 --Dodge & Cox Intl Stock12 72912 7297615722 20320716SMALL CAP EQUITY FUNDSINTERNATIONAL EQUITY FUNDSDodge & Cox Intl Stock12.72912.729-7.615722.203-2.0716HighMark Int'l Opportunities Fid12.78 25 12.78 25 -7.25 64 17.17 45 -2.91 49RS Emerging Markets Y17.37 9 17.37 9 -6.68 30 29.10 12 6.11 9MFS International Growth I14.57 21 14.57 21 1.25 11 22.08 22 1.87 11MSCI EAFE Index10.86 -- 10.86 -- -5.77 -- 17.13 -- -3.51 --Templeton Global Opportunities A LW12.52 50 12.52 50 -4.80 79 16.43 88 -1.39 67MSCI ACWI Index11.88 -- 11.88 -- -0.73 -- 20.75 -- -0.19 --REIT EQUITY FUNDSNuveen Real Estate Secs I10.75 30 10.75 30 12.37 41 42.28 47 1.81 8DJ US Select REIT Index10.76 -- 10.76 -- 13.53 -- 44.48 -- -0.75 --Pimco Total Return Inst'l 2.88 12 2.88 12 5.99 75 9.36 50 8.34 3BarCap US Aggregate Bond Index0.30 -- 0.30 -- 7.71 -- 6.83 -- 6.25 --PIMCO High Yield Instl5.11 59 5.11 59 5.74 31 21.46 36 6.85 28REIT EQUITY FUNDSBOND FUNDSMerrill Lynch US High Yield BB-B Index4.12 -- 4.12 -- 6.28 -- 20.11 -- 7.11 --Source: SEI Investments, Morningstar Investments(1) Fund was added to the Plan in March 2011(2) Fund was added to the Plan in June 2011Returns less than one year are not annualized. Past performance is no indication of future results. The information presented has been obtained from sources believed to be accurate and reliable. Securities are not FDIC insured, have no bank guarantee and may lose value.May 7, 2012PARS: County of Contra Costa Contra Costa County May 3, 2012 PARS Post Retirement Healthcare Plan Trust Funding Client Review 2 PARS Mitch Barker, Executive Vice President mitch.barker@pars.org 800.540.6369 ext. 116 Lauren Muschetto, Client Services Coordinator lauren.muschetto@pars.org 800.540.6369 ext. 141 Union Bank / HighMark Capital Management Andrew Brown, CFA, Vice President, Senior Portfolio Manager andrew.brown@highmarkcapital.com 415-705-7605 Program Overview & Responsible Parties OPEB Trust Team Role Trust Administrator and Consultant • Recordkeeping/Sub-trust accounting • Actuarial Coordination • Legal/Compliance • Ongoing Client Liaison Trustee • Safeguard plan assets • Oversight protection • Effective 2/1/2012 acquired Union Bank’s Retirement Plan Services business, which includes trustee services for all PARS programs Investment Manager • An investment sub-advisor to U.S. Bank • Open architecture • Investment policy assistance Corporate Experience 29 years (1983 – 2012) 149 years (1863 – 2012) 93 years (1919 – 2012) OPEB Experience 16 years 7 years 16 years Number of plans under administration 1,137 plans for 611 public agencies Dollars under administration More than $1.06 billion More than $4 trillion More than $17.5 billion under management 4 PARS Trustee Change •U.S. Bank purchased Union Bank’s Retirement Plan Services business, which includes trustee services for all PARS programs effective February 1, 2012. •The change should not have a noticeable impact on your Agency or plan participants. No actions are required at this point by your Agency. •U.S. Bank has now assumed the same fiduciary and investment responsibility as Trustee for the ARS program that had been previously held by Union Bank. •U.S. Bank will continue to use the same investment management company, HighMark Capital Management, in a subadvisory role to manage your plan’s investments. No change to your plan’s investments will occur. •Anticipated conversion from Union Bank to U.S. Bank systems will take place in September, 2012. Until further notice from PARS, continue to send PARS contributions as you would normally do. 5 6 Trust Overview PARS received an IRS Private Letter Ruling on the Section 115 Trust in May 2007. Established as an irrevocable exclusive benefit trust: •Assets can revert back to employer only when no beneficiaries of the plan remain •Assets are legally protected from creditors of the employer and beneficiaries Plan Review Type of Plan: IRC Section 115 Irrevocable Exclusive Benefit Trust Trustee Approach: Discretionary Plan Effective Date: January 1, 2011 Plan Administrator: Russell Watts – County Treasurer/Tax Collector Current Investment Strategy: Custom Strategy - Selected February 2011 As of 02/29/2012: Initial Contribution: January 2011 – $51,070,366.18 Additional Contributions: $20,570,659.25 Total Contributions: $71,641,025.43 Reimbursements: $0.00 Total Investment Earnings: $3,325,005.09 Account Balance: $74,774,255.39 *Additional Contribution made April 2012 in the amount of $4,992,826.74 Plan Overview 8 9 Actuarial Results Valuation Date: January 1, 2010 January 1, 2012 Active Participants 8,013 7,720 Retirees and Survivors 5,251 5,941 Total Plan Members 13,264 13,661 We have received the actuarial reports prepared by Buck Consultants on April 9, 2012 with a valuation date of January 1, 2012. In the tables below, we have summarized the results. Demographic Study 10 January 1, 2010 6.32% Discount Rate January 1, 2012 6.32% Discount Rate Actuarial Accrued Liability (AAL) $1,047,028,000 $1,033,266,000 Actuarial Value of Assets $25,048,000 $65,491,000 Unfunded AAL $1,021,980,000 $967,775,000 Normal Cost $29,232,000 $27,504,000 Annual Required Contribution (ARC) $63,298,000 $59,763,000 Actuarial Results (continued)