Minutes are not final until approved by the Board of Regents at the September 2011 meeting

Transcription

1 Minutes are not final until approved by the Board of Regents at the September 2011 meeting BOARD OF REGENTS and its INVESTMENT AND FACILITIES COMMITTEE NEVADA SYSTEM OF HIGHER EDUCATION Joe Crowley Student Union, Ballroom A University of Nevada, Reno 87 West Stadium Way, Reno Thursday, June 16, 2011 Members Present: Other Regents Present: Others Present: Mr. Michael B. Wixom, Chair Mr. Cedric Crear, Vice Chair Mr. William G. Cobb Dr. Mark W. Doubrava Mr. Ron Knecht Mr. Kevin C. Melcher Dr. Jason Geddes Mr. Daniel J. Klaich, Chancellor Mr. Mark Stevens, Vice Chancellor, Finance Mr. Hank Stone, System Counsel and Director of Real Estate Planning Ms. Ruby Camposano, Director of Banking & Investments Mr. Jamie Hullman, NSHE Banking & Investments Mr. Eric West, NSHE Banking & Investments Ms. Marilyn Delmont, SCS Dr. Stephen G. Wells, President, DRI Mr. Carl A. Diekhans, President, GBC Dr. Lesley A. Di Mare, President, NSC Dr. Maria C. Sheehan, President, TMCC Dr. Neal J. Smatresk, President, UNLV Ms. Patty Charlton, CSN Dr. Darren Divine, CSN Dr. Cleve McDaniel, DRI Mr. Peter Ross, DRI Mr. Glenn Christenson, NSC Foundation Mr. Kyle Dalpe, TMCC Mr. Ric Licata, TMCC Mr. Ted Plaggemeyer, TMCC Mr. Dave Roberts, TMCC Ms. Delores Sanford, TMCC Mr. Gerry Bomotti, UNLV Ms. Roma Patel, UNLV Mr. Nolan Lister, UNLV-Rebel Yell Mr. Rod Aeschlimann, UNR (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 1 of 17

2 Investment and Facilities Committee Minutes Page 2 Ms. Denise Baclawski, UNR Dr. Shannon Ellis, UNR Mr. Jerry Marczynski, UNR Mr. Ron Zurek, UNR Mr. Patrick Baldwin, Clean Energy Center, LLC Mr. David Hertan, Commonfund Mr. Jeffrey Long, Commonfund Mr. David Main, Commonfund Mr. David Breiner, Cambridge Associates Mr. Geoff Dornan, Nevada Appeal Faculty senate chair in attendance was Ms. Mary Arbutina, CSN. Student body presidents in attendance were Ms. Sarah Saenz, CSUN, UNLV; and Mr. Michael Gordon, GPSA, UNLV. Chair Wixom called the meeting to order at 9:08 a.m. with all members present. 1. Approved-Minutes The Committee recommended approval of the minutes from the March 10, 2011, meeting (Ref. IF-1 on file in the Board office). Regent Cedric Crear moved approval of the minutes from the March 10, 2011, meeting. Regent Knecht seconded. Motion carried. 2. Approved-TCW and Wellington Endowment Portfolio Update (Agenda Item #7) The Committee moved approval to terminate the TCW and Wellington Portfolio Managers and to move the funds liquidated from these two accounts within the endowment pool to be invested in a Vanguard Mid Cap Index fund as recommended by Cambridge Associates. Mr. Mark Stevens, Vice Chancellor, Finance, explained that there was a review of the TCW and Wellington endowment portfolios in the Mid Cap area. As a result of that review the funds and partnership was liquidated at the end of May 2011, with the $4 million distributed to cash. Vice Chancellor Stevens stated that TCW is in attendance to make a presentation to the Committee and will ask for a reinvestment into their mutual fund. The Committee will also be reviewing the Wellington Mid Cap Opportunities fund. Chair Wixom explained that between May 23 and May 25, 2011, the position in the specific limited partnership was liquidated, not by NSHE s direction, but by the dissolution of the limited partnership. As Chair of the Committee he was contacted in the matter of reinvesting the funds. Chair Wixom felt the decision required the vote and action of the full Committee. (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 2 of 17

3 Investment and Facilities Committee Minutes Page 3 2. Approved-TCW and Wellington Endowment Portfolio Update (Agenda Item #7) (continued) Regent Knecht appreciated Chair Wixom s diligence and forbearance. He asked if there were any transactions costs and fees as a result of the liquidation and was there a timely notice from the fund and Cambridge Associates. Mr. Alex McCulloch, Managing Director of Private Client Services, TCW, reported that there was an announcement at the end of April 2011 that the former acting portfolio manager for the Value Opportunities Limited Partnership would be retiring at the end of June That created some liquidation in the limited partnership. At the end of May 2011, it appeared that liquidations were going to leave the System as the sole limited partnership. TCW did not feel that it was in NSHE s best interest because fees and expenses could have been incurred. TCW contacted Cambridge Associates and Ms. Ruby Camposano, Director of Banking & Investments, to recommend that the limited partnership be liquidated at the end of May That was done and the proceeds of approximately $4 million was wired to NSHE on June 1, 2011, and another $459,998 was wired on June 14, 2011, for total net proceeds of approximately $4.5 million, with transaction costs of $5,500 or.12%. Transaction costs are always incurred on a net basis at the asset level above and beyond management fees. Mr. McCulloch explained that the TCW team is here to explain why it is in NSHE s interest to stay with TCW and reinvest in the fund. Chair Wixom asked how many partners there were prior to the announcement of the manager s resignation. Mr. McCulloch stated there were four limited partners with a total value of approximately $75 million. All of the limited partners liquidated at the end of May Chair Wixom assumed that there would have been more in costs and fees by not liquidating. Mr. McCulloch stated that was correct because in a limited partnership there are accrual, tax and accounting fees. By not liquidating by the end of May 2011, those costs could have all been accrued to NSHE rather than on a pro rata basis. Mr. McCulloch reported that NSHE joined TCW in The results on a net basis since inception show that TCW achieved a 56% return for the System. However, TCW is not proud of its relative results. There is no question that the benchmark underperformed during that time period. When TCW heard of the manager s retirement at the end of June 2011, there were decisions to be made - either leave the portfolio in the hands of the co-performing managers, look externally outside of TCW to find someone that had the skill to manage the Mid Cap Value Strategies, or look internally to a team that could take over that charge. TCW found that there was actually a fantastic portfolio team internally who would be managing by the strategies in both the Small and the Large Cap space which included some Mid Cap Securities Management as well. At that point the decision was to transition the portfolio over the Relative Value team at the end of June Mr. McCulloch felt this team is much more disciplined. The (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 3 of 17

4 Investment and Facilities Committee Minutes Page 4 2. Approved-TCW and Wellington Endowment Portfolio Update (Agenda Item #7) (continued) recommendation that TCW is requesting is for NSHE to reinvest those proceeds into the mutual fund as was the suggestion made at the end of May Ms. Clare Polidore, Managing Director, U.S. Equities, TCW, stated that the Relative Value strategy has been in place since TCW looks at companies that have had low earnings growth. While that may seem odd, TCW feels it is an advantage because they look where others prefer not to. Instead of focusing on historical earnings growth, TCW looks at strong and improving cash flow which will increase operating margins that will then lead to earnings growth. Ms. Polidore stated that page 8 denotes the investment process. The three main parts are: 1) valuation every name in the portfolio has to meet at least one of the five valuation criteria; 2) fundamental analysis where at least six analysts spend the bulk of their time looking for those company specific catalysts; every name has to have at least 30% appreciation potential; 3) sell discipline pertains to how the portfolio is constructed and when the name is sold with the objective of preserving gains and limiting losses. Regent Knecht understood that TCW is an alpha oriented strategy. Ms. Polidore said that everything is driven from the bottom up. The Value Strategies are that the bulk of the alpha is driven from the stock section, and that is the goal. Chair Wixom said NSHE has been in this investment since 2002 and asked how long it has been underperforming. Mr. McCulloch said the investment has been struggling since Chair Wixom asked if this investment was on the watch list. Mr. David Breiner, Cambridge Associates, said there is no fixed policy approach so it would have to be a case-by-case. Cambridge Associates advice to clients is that when investing in an active manager, it has to be with eyes open, knowing that there will be underperformance, sometimes for extended periods. Often times the very best managers will underperform the benchmark for up to three or more years. Cambridge Associates encourages clients to stay invested through those periods of underperformance if it is felt that the organization is functioning well. Regent Knecht asked what the protocol is for deciding to put something on the watch list, and in that regard, how much is based on long-term past performance. Mr. Breiner said that Cambridge Associates manager research people spend considerable time on-sight and on quarterly conference calls going through the portfolios, stock by stock, in making sure that there has not been style drift, organizational turnover or other issues that could get in the way. If it is determined that the organization is intact and doing the same work that has delivered good results in the past, encouragement will be given to the investors to stay invested if they can tolerate the active risk or the risk of underperforming the benchmark. Mr. Breiner said there is more art than science to it. There is no mechanical approach. (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 4 of 17

5 Investment and Facilities Committee Minutes Page 5 2. Approved-TCW and Wellington Endowment Portfolio Update (Agenda Item #7) (continued) Regent Crear asked if NSHE placed TCW on the watch list rather than Cambridge Associates. Mr. Breiner replied that Cambridge Associates instructed the System to put TCW on the watch list. Regent Crear said that for five years TCW has been underperforming and now TCW has come to recommend that the System invest in a different fund. Mr. Breiner said it is the same strategy led by a different team. Regent Crear asked how to verify that the System will not wait another five years to find out there is an underperformance. He felt that NSHE should have the highest level of attention possible. He would like a better understanding of how this is going to be monitored so this will not happen again. He was unsure of what else might be underperforming. Mr. Breiner said Cambridge Associates is recommending that the proceeds from this liquidation go into an Index fund so this issue will not happen. He cannot guarantee that there will not be another underperformance in the next five years. Mr. McCulloch said that TCW does look at these issues as well. There are investment policy committees that check relative performance and make sure the portfolio teams are doing what they should. Clearly TCW made a decision here respecting that. While the manager did retire, the decision was made to terminate the co-portfolio managers of that team and move to another portfolio team whose results have shown to be better. Mr. McCulloch referred to page 14 which looks at the performance of the Relative Value teams Mid Cap stocks. Over the five year period relative Morningstar Mid Cap Value Index had fantastic results, which is where the System s portfolio is being transitioned to at the end of June Mr. Breiner recommended investing the proceeds of this liquidated strategy and to liquidate the other Mid Cap manager, Wellington, and reinvest the proceeds of both Mid Cap portfolios into a Vanguard Mid Cap Index fund. He explained that in the case of TCW it needs to be said that Cambridge Associates knows the new portfolio manager and team quite well and hold them in high esteem. Cambridge Associates is encouraged by this change. However, it is a different strategy and change that needs to be monitored under its new leadership, so an investment at this time is not recommended. Mr. Breiner continued that in the case of Wellington, that manager has actually performed very well, however, it is not actively monitored by Cambridge Associates. Coupled with that, there has been a change in their portfolio management team. As a result, Cambridge Associates is not in a position to assess whether the new portfolio manager can continue to perform as in the past, so the recommendation is to liquidate that investment and rotate those proceeds into a Vanguard Mid Cap Index fund. (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 5 of 17

6 Investment and Facilities Committee Minutes Page 6 2. Approved-TCW and Wellington Endowment Portfolio Update (Agenda Item #7) (continued) Regent Crear asked if there was available information on the Vanguard Mid Cap Index fund. Mr. Breiner referred to page 5 of the report where there is information on the Mid Cap managers that have been in the portfolio alongside the proposed Vanguard Mid Cap Index fund. The fees are lower than the others at 0.08%. There is an analysis on the performance of the Mid Cap managers that were in place on the following pages. Page 9 looks at the long-term, nine year returns and volatility for the two Mid Cap managers and the Index fund. It shows Wellington at a high return and low volatility. TCW is in the low returns, high volatility area. The Index is on top of the benchmark. Regent Crear asked for Vice Chancellor Stevens recommendation. Vice Chancellor Stevens agreed with Cambridge Associates to liquidate the two Mid Cap managers and invest in the Vanguard Mid Cap Index fund. Regent Crear did not understand why Cambridge Associates does not monitor Wellington Mid Cap Opportunities. Mr. Breiner responded that Wellington handles many strategies, and while Cambridge Associates monitors quite a few, it does not monitor this particular strategy. This manager was hired nine years ago, and since then governance standards have tightened somewhat. Regent Knecht stated that, aside from the asset allocation, he would like to see how well the investment actually tracks the Index relevant to that portion of the allocation. He would like to have it tracked well with low fees. Mr. Breiner said the fees are 8 basis points for the Vanguard Mid Cap Index fund. Page 8 shows, on a year-to-year basis, how closely Vanguard has done relative to the benchmark. Regent Knecht moved approval to terminate the TCW and Wellington Portfolio Managers and to move the funds liquidated from these two accounts within the endowment pool to be invested in a Vanguard Mid Cap Index fund as recommended by Cambridge Associates. Regent Crear seconded. Regent Cobb asked the difference between the Mid Cap Value Index, the Mid Cap Index and Spliced Mid Cap Index. Mr. Breiner said the Value Index expresses a style weighting towards cheaper stocks in the benchmark universe where as the Mid Cap Index, with no designated value, is a broader core benchmark. There are some differences in terms of the weightings and values designed to reflect what a value manager would look to compete with. The Spliced Mid Cap Index is a combination of two benchmarks. Regent Knecht noted that on page 9, the Index points are clustered together and the real (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 6 of 17

7 Investment and Facilities Committee Minutes Page 7 2. Approved-TCW and Wellington Endowment Portfolio Update (Agenda Item #7) (continued) comparison is to compare the extreme values of Wellington and TCW to the cluster in the middle that shows that weighting does not make a lot of difference. Ms. Camposano clarified that the motion would be to terminate TCW and Wellington and then rotate the combined funds of approximately $9 million to the Vanguard Mid Cap Index fund. Motion carried. 3. Information Only-Commonfund International Equity and Real Return Portfolios Update (Agenda Item #6) Commonfund Securities, Inc., presented a report to the Committee on the Commonfund International Equity and the Commonfund Real Return portfolio strategies (Ref. IF-6 on file in the Board office). Mr. Breiner explained that Commonfund will make a presentation regarding two strategies in which the operating fund is invested. Chair Wixom requested that the item be bifurcated to hear about the International Equity and the Real Return separately. Mr. David Main, Managing Director, Commonfund Securities, Inc., said Mr. Jeff Long, Managing Director, Head of Equities and Mr. David Hertan, Managing Director, Fixed Income, will present their reports. Mr. Long reported that the International Equity fund was established in It is a five manager, multi-manager fund managed by Commonfund. The way that money is managed at Commonfund is to take a core satellite approach to the portfolio in order to best manage the characteristics and also to control the risk characteristics of the fund. The core is an intelligent exposure to the asset class so it is desirable to have a manager that will be in all the markets of the asset class and make basically single and doubles as a portfolio and provide an anchor which can be managed with the more opportunistic exposure to the portfolio. The satellites provide more differentiated sources of return. They tend to be less constrained, focus on distinct aspects of the market, and have a particular skill set which is appealing in the portfolio. There are four satellites right now. J.P. Morgan is one-third of the core of the portfolio. The largest satellite manager in the portfolio is GLG Partners. It is a London based manager that operates from the top-down, bottom-up approach to stock picking with a view of regions and particular markets important in the international arena. GLG has a very strong team. The second largest satellite is a firm called Odey that runs the European, Continental Europe and UK portfolio, with a bottom-up, stock picking type of approach. The next is Japan Advisory, a sub-advisor to J.H. Whitney, one of the few, and one of the best, stock picking organizations in Japan that selects Japanese stocks. The portfolio manager has lived in Japan for over 20 years and is very skilled. The last satellite is a small allocation to a firm called Symphony, (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 7 of 17

8 Investment and Facilities Committee Minutes Page 8 3. Information Only-Commonfund International Equity and Real Return Portfolios Update (Agenda Item #6) (continued) which is a Tokyo based active manager that takes positions in small and midsized Japanese companies where there are governance issues. Mr. Long said all of these managers are long-time, top-notch managers that Commonfund has known for long periods of time. They have all outperformed their perspective benchmarks since being in the Commonfund portfolio. Regent Knecht asked if there was any Index oriented elements. Mr. Long said the closest was the London based J.P. Morgan. They operate from a discount model approach with very tight risk control and a low tracking error approach. If Commonfund does not see the opportunity set in active management with any of these satellites it can be increased. Mr. Long continued that Commonfund pays close attention to the managers. There are daily downloads, readings of cash balances and day-to-day trading in real time. Face to face regular contact with the managers is done before they are hired and regularly afterwards. These are typically on-site meetings so their environment and team can be observed. There are portfolio reviews that last an hour or so. Commonfund is interested in hearing their philosophies and recent activities in the portfolios. It is all documented. The vast majority of the funds, everything except Symphony in this portfolio, are held in State Street, Boston. The accounts are separate with daily s from State Street. Mr. Long referred to page 7 of the report (on file in the Board office) which indicates the International Equity fund s net performance comparisons at various times. He reported that net returns were total returns net of all fees and expenses. Mr. Long stated that as of May 31, 2011, the portfolio benchmark is ahead of one- threefive- and ten-years and since inception. Commonfund tries to manage this portfolio so that it does not take a lot of risk as measured by volatility relative to the Index. Chair Wixom stated that there was approximately $54 million in the International Equity fund which is not actively monitored by Cambridge Associates. He asked about meeting the benchmark since inception of June Mr. Breiner reported that 10 years through March 31, 2011, Cambridge Associates has them at.2 percentage points ahead of the EAFE benchmark over that period of time with slightly lower volatility. Regent Knecht asked about the capability of monitoring this portfolio. Mr. Breiner said Cambridge Associates does not formally track or monitor the Commonfund International Equity fund nor does it actively monitor or know very well the underlying managers that are in the strategy. Commonfund is responsible for overseeing this part of the portfolio and responsible for contacting the System. (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 8 of 17

9 Investment and Facilities Committee Minutes Page 9 3. Information Only-Commonfund International Equity and Real Return Portfolios Update (Agenda Item #6) (continued) Regent Knecht asked if Cambridge Associates ever tracked this area of Commonfund. Mr. Breiner said the System has been invested for so long it predates his work but thought the answer was no for this particular fund and the underlying managers. Chair Wixom asked about communication with Commonfund in relation to the portfolio. Ms. Camposano reported that there has been phone communication with Commonfund quarterly since Regent Knecht asked that if the decision is not to continue with the asset allocation, will the parameters be revisited or is there a suggestion of where the $54 million will be placed. Mr. Breiner does not see a need to revisit the asset allocation policy. If the Committee chooses, Cambridge Associates can make a recommendation, but they would choose what they know. He suggested two active managers that were included in the materials which are MFS International Equity and Manning & Napier. If the Committee felt that would be a consideration there should be a full discussion and review of those options at the September 2011 meeting. Mr. Breiner added that those managers have performed extraordinarily well over the past 10 years and expectation is for them to do well in the years ahead. Chair Wixom said there are a number of options. He felt the Committee should not be rushed into a decision. He recommended not taking action that day and to leave the $54 million with Commonfund until the September 2011 meeting when a more informed decision could be made. Regent Knecht was concerned about fees between the consultant and the manager. He does not want too many layers. He requested a presentation from Cambridge Associates and Commonfund at the September 2011 meeting with the goal of making an explicit decision at that time. Regent Cobb requested that the staff create an overall summary of investments so the Committee can have a better understanding. Mr. David Hertan, Managing Director of the Fixed Income and Commodities team at Commonfund, said he will be discussing the Real Return Bond funds. Commonfund has been managing Real Return Strategy since The particular fund that NSHE is invested in began in August There is approximately $153 million invested in the fund which is spread among 60 clients. The objective of the fund is to invest primarily in inflation-indexed securities. Barclays U.S. Inflation-Linked Index is used as the benchmark. Mr. Hertan continued that Western Asset Management Company (WAMCO) is the sole manager in the fund. They have been involved in this portfolio since its inception. WAMCO is an active manager who seeks to add value through duration, term structure exposure and security selection. WAMCO is a fixed income manager that has over $450 billion in assets under management and (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 9 of 17

10 Investment and Facilities Committee Minutes Page Information Only-Commonfund International Equity and Real Return Portfolios Update (Agenda Item #6) (continued) manages six separate fixed income portfolios that total well in excess of $1 billion. That includes approximately $15 billion that they manage in inflation link strategies. Mr. Hertan reported that Commonfund has a significant relationship with WAMCO. Commonfund has direct access to all portfolio managers at WAMCO. The Commonfund team has regular interactions with the portfolio managers. There have been at least 18 documented meetings over the past two years. WAMCO and Commonfund have a mutual understanding of what is expected from the portfolio, the objective from the fund and the needs of clients. Mr. Hertan stated that given the scale of the relationship, Commonfund benefits from very competitive fee structures from the portfolios that WAMCO manages. The real return portfolio is a separate account with State Street as the custodian. Commonfund oversees portfolio analytics using the Blackrock Solutions platform. There are also internal, independent reviews of all portfolios by the risk management team. Commonfund continually monitors the competitive universe in various market segments where it has investments, and speaks with many managers that are involved with Inflation-Indexed Securities. Mr. Hertan said the performance is like the International Equity fund, net of all fees. The chart indicates the fund has underperformed over the past year, primarily due to the fourth quarter of 2010, which was a very difficult quarter for the fund. Over five years this fund was essentially flat with the Index and, considering the recent rough patch over the past year the performance was not bad and it did demonstrate that WAMCO has been able to add value over other time periods. Mr. Hertan continued that the fund invests at least 80% of its assets in Inflation- Linked Securities. Investments to Government Securities are limited so there is no corporate credit exposure in this fund. There is some corporate credit exposure in other so-called TIPS funds, but this is a more pure portfolio. Duration of the fund in year to maturity was very Index-like at the end of March 2011, although WAMCO has been tactical in terms of duration. The report showed approximately one half a year short of duration as of May 2011 given the value of the drop seen in interest rates down to approximately a 3% ten year note. The other position worth noting is that the fund does own a 2% position in Austrian Inflation Linked Securities. These provide a high wheel yield as well as offering the fund diversification. There is no currency exposure in the fund that is hedged back to U.S. dollars. Responding to Chair Wixom s question, Mr. Breiner confirmed that there is approximately $62 million dollars in the TIPS fund. The TIPS performance is indicated in the report on pages 25 and 26. The conclusion is that there does not seem to be an issue with performance. While Cambridge Associates does not (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 10 of 17

11 Investment and Facilities Committee Minutes Page Information Only-Commonfund International Equity and Real Return Portfolios Update (Agenda Item #6) (continued) track WAMCO s TIPS Strategy, per se, so as long as the Committee is comfortable and aware that Commonfund is tracking the investment on NSHE s behalf, there is not a performance issue. He felt that based on the numbers there is not a strong case to switch. Chair Wixom stated that he does not want to rush into a decision and would like to contemplate what has been presented and evaluate and continue this discussion at the September 2011 meeting. He requested that staff direct the presentations in September 2011 to be responsive to the questions raised that day to allow a final decision at that time. 4. Withdrawn-Proposal Regarding Distributions from the Operating Pool Regent Crear left the meeting. 5. Information Only-Asset Allocation and Investment Returns (Agenda Item #2) Mr. David Breiner, Cambridge Associates, presented a report on asset allocation and investment returns for the pooled endowment and pooled operating funds for the quarter ended March 31, Mr. Breiner referred to the endowment fund on page i. In the first quarter the endowment return was 3.3% net or 13.3% trailing one year basis. Returns in the quarter lagged the policy benchmarks and a stock bond portfolio primarily due to the underweight in public stocks and, to a lesser degree, attributable to the underperformance of the International and Emerging Market Mangers. Returns, however, did meet or exceed the benchmarks over other periods except for the three-year period with respect to the primary policy benchmark. The asset allocation continues to reflect an underweight to U.S. Stocks and International Stocks of approximately 4% relative to the targets. Those are deliberate because it is counterbalanced by an overweight to private equity, which is something that is not easily controlled. Cambridge Associates is trying to keep overall public and private risk in check and are trying to offset the overweight Private Equity with a underweight to U.S. International Equity. There is also a slight underweight to bonds that is offset by an overweight to absolute return. Overall Cambridge Associates is comfortable with the positioning in those allocations and consequently do not have any recommendations. 6. Approved-Operating Pool Reserve Update (Agenda Item #3) The Committee moved approval to reinstate the monthly investment income distributions to the institutions from the operating pool, effective July 2, 2011, at a rate of 2%. Vice Chancellor Stevens said that as of June 15, 2011, the operating pool reserve was $24.7 million. The Committee may want this opportunity to reinstate the monthly distributions to the institutions from the operating pool. There has not (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 11 of 17

12 Investment and Facilities Committee Minutes Page Approved-Operating Pool Reserve Update (Agenda Item #3) (continued) been a distribution for quite some time and the operating budgets of the institutions, and based on the letter of intent that was received from the 2009 Legislature, a distribution was anticipated effective July 1, There is approximately $1.8 million total in all of the institutions budgets within the states operating budget. Based on a distribution from the operating, what happens is that state funds are received at the beginning of the month, those funds are invested, then that portion that relates to those state fund investments are returned to the operating pool as a revenue source within each institutions operating budget. If the operating pool distributions are not reinstated, then that will be a revenue loss within the institutions budget. The information that was included in the operating budgets for next year included a 2% investment income distribution. An assumption had to be determined in order to develop the numbers put into the budget request that was approved by the Board in September The assumption of 2% does not require that the Committee has to approve it. Chair Wixom clarified that the budget adopted by the Legislature, and approved by the Governor, anticipates distributions from the operating pool and the Committee and the Board would have to approve those distributions or there will be a hole in the institutions budgets. The amount of the distributions required to keep the budget intact is approximately 2% of the average cash balance of the operating pool, or approximately $1.2 million. Vice Chancellor Stevens added that based on the amount of money each institution has in the pool, they would receive a 2% distribution. Regent Knecht said that if the distributions are not made now, there can be a one-time compensatory distribution in the future, if things look more optimistic. Vice Chancellor Stevens responded that there are alternative methods of distribution that would address the amount of revenue that is built into each institution s budget. Traditionally it has been through a monthly distribution from the operating pool. Chair Wixom did not believe that a 2% distribution over time would create an issue. He felt the institutions need to plan forward for the next two years and to fill it on a quarter-by-quarter basis would create an uncertainty. Regent Knecht would be more comfortable with a quarterby-quarter basis to act as a monitor. He would agree to a commitment for this quarter but would like to have this issue on the September 2011 agenda. He felt it should be addressed each quarter rather than have automatic distributions. Chair Wixom explained the options: 1) to make the distributions on a quarter-byquarter basis or 2) to have a 2% distribution over time on the assumption that the reserve in the account at this time will be sufficient to cover any issues with respect to fluctuations in the account. (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 12 of 17

13 Investment and Facilities Committee Minutes Page Approved-Operating Pool Reserve Update (Agenda Item #3) (continued) Regent Crear returned to the meeting. Regent Cobb moved approval to reinstate the monthly investment income distributions to the institutions from the operating pool, effective July 2, 2011, at a rate of 2%. Regent Melcher seconded. Regent Crear asked if the Legislature would have to grant approval if distributions were made to the institutions quarterly rather than monthly. Chair Wixom said that is up to the discretion of the Board. Regent Knecht understood from the motion that there will be a commitment, on an indefinite basis, and would make the monthly distributions from now going forward unless and until this Committee would decide to reconsider the distributions. Chair Wixom agreed that to stop the distributions the Committee would have to take action. He indicated that the Operating Pool Reserve update is automatically on the agenda. Upon a roll call vote the motion passed unanimously. 7. Approved-Contract for Investment Consultant Services (Agenda Item #5) The Committee moved approval to develop a request for proposal to solicit bids to provide consultant services effective October 1, 2011, to be reviewed at the September 2011 meeting. Vice Chancellor Stevens explained that this item was intended to obtain direction from the Committee to either extend the contract with Cambridge Associates for two additional years or to solicit bids by release of a Request for Proposal (RFP) for investment consultant services. Cambridge Associate s contract runs through September 30, Regent Knecht moved approval to develop a Request for Proposal (RFP) to solicit bids to provide consultant services effective October 1, Regent Cobb seconded. Chair Wixom felt that as a public body there is an obligation to go out to bid, from time to time, as part of the fiduciary responsibility of the Committee. Regent Cobb suggested that bids include the monitoring process. Chair Wixom stated that Cambridge Associates will not monitor what it is not asked to monitor. An RFP will help the Committee to understand the scope of the responsibilities. (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 13 of 17

14 Investment and Facilities Committee Minutes Page Approved-Contract for Investment Consultant Services (Agenda Item #5) (continued) Upon a roll call vote the motion carried unanimously. Regent Knecht asked staff to issue the RFP, review the proposals and bring a recommendation for action at the Committee s September 2011 meeting. He would expect the staff to give proper notification to Cambridge Associates if the advisors are changed. Ms. Camposano said they intend to come back with two finalists. 8. Approved-Multimodal Transit Center Project UNLV The Committee moved approval for the construction of Phase I of a UNLV Multimodal Transit Center Project (Ref. IF-8 on file in the Board office). Mr. Gerry Bomotti, Senior Vice President, Business & Finance, UNLV, said when the campus Master Plan was updated and approved by the Board in 2006, it included the midtown vision and a major transit center located on the campus. A study was performed in 2007 to determine if it was possible, through phases, to get a major transit center on campus to include north-south on Maryland Parkway and east-west through the campus to line up with Harmon Avenue. The Federal Government, through RTC, received a $2.8 million grant. Phase 1 would be an improvement of approximately $3.5 million as the first phase of a multimodal transit center for the campus. UNLV wanted to familiarize the Committee with this project before the lease is brought forth. Mr. Bomotti said there would be no cost to UNLV for the construction or the operation of the transit center. RTC will assume those responsibilities. Regent Knecht noted that there were street extensions and various improvements and asked who would be responsible for those costs. Mr. Bomotti said the anticipation is that this is the first phase, which is primarily the bus and bikes phase, of what will be multiple phases to submit to the Federal Government. This phase does not require any of those other improvements that were in the broader study. The broader study was planned so that the four phases of requests would go to the Federal Transportation Authority. This particular phase will not support an east-west route through the campus. That will be included in the next phase, and there will be costs associated with those improvements. Costs for the first phase are not anticipated. Regent Crear moved approval of the construction of Phase I of a UNLV Multimodal Transit Center Project. Regent Knecht seconded. Motion carried. (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 14 of 17

15 Investment and Facilities Committee Minutes Page Information Only-Southern Nevada Water Authority (SNWA) Turf Reduction Project UNLV The Committee discussed the Declaration of Restrictive Covenant easement between UNLV and the SNWA and agreed to continue this item until the September 2011 meeting (Ref. IF-9 on file in the Board office). Regent Cobb moved approval of the Declaration of Restrictive Covenant associated with the SNWA application and agreement for turf reduction of 24,000 square feet at the UNLV Carlson Education Building under the Water Smart Landscapes Program. Regent Crear seconded. Chair Wixom expressed concern about the easement and wanted to be certain that UNLV could buy out of the easement if it was necessary. Mr. Bomotti reported that the UNLV legal counsel said that the SNWA is not willing to change the wording in the agreement that was drafted by the bond counsel. He reported that UNLV did a number of turf rebate programs that were funded by cash that the SNWA had from developer tap fees. In order to continue the program the SNWA is now using bond fees. The SNWA bond counsel said there has to be something to the equivalent of a surface easement so that if the SNWA gives UNLV money to take out the turf, then UNLV will have to return the money if the turf is put back in. The bottom line is the SNWA is not willing to make any changes in the agreement. Changes can be made as long as the net water used is not increased. Chair Wixom understood that there will be a permanent restriction to the property. Mr. Bomotti said that legal counsel felt there was very minimal risk and the worse case would be to reimburse the SNWA with money they paid to UNLV for the turf reduction. Chair Wixom is concerned about a restrictive covenant that prevents UNLV from taking turf out or putting turf back in. Mr. Bomotti said some months were spent with the SNWA attorneys to create a different structure, but the SNWA said to take it or leave it. Mr. Bomotti felt the risk was low and UNLV would like to continue to remove turf. Most of the UNLV activities and programs are reducing utilities so putting turf back in would be minimal, but what will happen in the future is unknown. Mr. Bomotti indicated that the analysis is that this is a reasonable risk to move forward in order to get the rebates and continue to be able to use the rebate money to remove turf. Regent Knecht wondered if the fees from the SNWA of $36,000 are covering, and will continue to cover, UNLV s costs. Mr. Bomotti said that 23 acres have been removed and the costs have been covered. There has been accounting that shows the rebates basically cover the costs and the savings are in the water use reductions. (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 15 of 17

16 Investment and Facilities Committee Minutes Page Information Only-Southern Nevada Water Authority (SNWA) Turf Reduction Project UNLV (continued) Chair Wixom stated that the easement language indicates that any modification whatsoever constitutes a violation. If UNLV would like to build something on the property, that would be a modification and would be a violation of the restrictive covenant. Mr. Bomotti felt that Chair Wixom s interpretation was correct, although the SNWA said their focus was on turf. Chair Wixom did not feel comfortable supporting the easement because there could be repercussions in the future. Mr. Bomotti felt the language was not ideal, but it is what the SNWA uses for the rebate program. Chair Wixom restated that the options were to take the easement on the assumption that there is a relatively low risk for the $36,000. Mr. Bomotti noted that there were two action items to be considered: 1) the SNWA easement and 2) to delegate these activities to the Chancellor for the future project. Regent Knecht suggested placing this item on the September 2011 agenda given the discomfort of the Committee. Mr. Bomotti said there was nothing so urgent that it cannot wait until then. Regent Crear felt it best that this item be brought back to the September 2011 meeting. Regent Cobb and Regent Crear agreed to withdraw the motion to postpone consideration until the September meeting of the Committee. Regent Geddes asked if anything would change between now and the September 2011 meeting. He noted that the SNWA seemed to be firm about the agreement. Chair Wixom felt that the issue was broader. He is concerned that what is being delegated in the language of the easement includes a restrictive covenant. Regent Crear did not feel the money was a sufficient incentive to restrict UNLV s development of land. The turf can still be removed without the rebate or the Declaration of Restrictive Covenant. Regent Knecht added that circumstances may change and the county may not be relying on bond issues as its source of funds and the easements may not be needed. 10. Approved-Wind Turbine Installation TMCC The Committee moved approval to erect two wind turbines on TMCC land (Ref. IF-10 on file in the Board office). Regent Cobb moved approval to erect two wind turbines on TMCC land. Regent Knecht seconded. Motion carried. (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 16 of 17

17 Investment and Facilities Committee Minutes Page Approved-Cell Phone Antenna Rooftop Lease Agreement with Verizon Wireless - UNR The Committee moved approval of UNR s lease agreement with Verizon Wireless for the leasing of rooftop space for antennas and associated equipment (Ref. IF-11 on file in the Board office). Regent Cobb moved approval of UNR s lease agreement with Verizon Wireless for the leasing of a rooftop space for antennas and associated equipment. Regent Crear seconded. Motion carried. 12. Approved-Renewal of Cell Phone Antenna Rooftop Lease Agreement with Cricket Communications - UNR The Committee moved approval to renew UNR s lease agreement with Cricket Communications for the rooftop use of cellular antennas and associated equipment on a portion of Nye Hall (Ref. IF-12 on file in the Board office). Regent Cobb moved approval to renew UNR s lease agreement with Cricket Communications for the rooftop use of cellular antennas and associated equipment on a portion of Nye Hall. Regent Crear seconded. Motion carried. 13. Postponed-Housing Master Plan Update UNR (Ref. IF-13 on file in the Board office). 14. Postponed-Fire Science Academy Progress Report UNR (IF-14 on file in the Board office). 15. Public Comment None. 16. New Business None. The meeting adjourned at 11:38 a.m. Prepared by: Submitted for approval by: Nancy Stone Administrative Assistant IV Scott G. Wasserman Chief Executive Officer & Special Counsel to the Board of Regents (INVESTMENT AND FACILITIES COMMITTEE 09/08/11) Ref. IF-2a(1), Page 17 of 17