ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM MEMORANDUM. DATE: May 1, Members of the Board of Retirement

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1 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM MEMORANDUM DATE: May 1, 2015 TO: FROM: SUBJECT: Members of the Board of Retirement Girard Miller, CFA, Chief Investment Officer Investment Division Staffing Adjustment and Budget Amendment Recommendation: 1. Authorize the addition of an Investment Analyst position to OCERS staffing plan. 2. Approve an amendment to the 2015 Investment Budget increasing the Personnel Cost category by $70,000. Background: The personnel structure of the investment division has been unchanged since I took office in July 2012 and the staff size has been unchanged since Historically OCERS budgeted two investment analysts, of which one (David Beeson) was reclassified to the Investment Officer position in By action of the Board last year, OCERS has created career ladders in which an analyst can aspire to and achieve internal advancement to the position of Investment Officer. In the past three years, as a result of the NEPC asset allocation and portfolio construction plan of 2012, the number of portfolio management firms we monitor has doubled to 70 presently. Since 2009, our assets under management have grown by 63 percent from $7.6 billion to $12.4 billion. Quality of the staff s products has improved notably: we have implemented award-winning risk management and fee reporting and management programs, and routinely generate higher quality trustee information such as our Economic Dashboards and House Views. This has all been accomplished with a static head-count of four investment professionals and one paraprofessional. To review the chain of events, Ms. Christine Kluger was hired as an Investment Analyst in December 2012 and served in that capacity until October 2014 when she resigned for personal reasons. By that time, the 2015 budget had already included provision for her to be reclassified at the Investment Officer level, as she had climbed the career ladder and had acquired the requisite experience and job skills. To fill the vacancy left by Ms. Kluger s departure, Mr. William Popper was selected as an Investment Officer in January 2015, after a competitive nationwide search for candidates at both the Investment Analyst and the Investment Officer level, and two rounds of interviews by panels that included an external investment expert, the founder of a local investment consultancy. I-7 Investment Division Staffing Adjustment and Budget Amendment Page 1 of 3 May 11, 2015 Regular Board Meeting

2 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM Analysis: In filling the position most recently, I opted to hire at the higher position level on the theory that the new appointee would spend this year acclimating to OCERS, learn the ropes internally, produce routine reports while orienting to OCERS systems and practices. My staffing plan in January was to later request your permission to expand the staff size next year during the 2016 budget with an additional Investment Analyst to be selected at year-end. Eventually, OCERS will need investment talent at a higher level than an Analyst alone can provide presently, especially as we further build out our risk management program and undertake more opportunistic investments such as co-investments in private equity, reduce our reliance on costly funds of funds, and broaden our internal capacity in other disciplines. Experience in the past two months has shown that rather than awaiting the 2016 budget process, OCERS would be better served if we move immediately to budget and fill a new Investment Analyst position to assure a smoother build-out. This new position would be a junior analyst hire, targeting an entry-level investment professional to focus on reports, data collection and presentation, cash flow operations, updates to the Manager Binder, and information requests including FOI, etc. A copy of the Job Description for this position is attached as well as a revised organizational chart showing the addition of the requested position. For some longer-term context, to put this budget amendment into perspective: During the Board s September strategic planning retreat I will describe for trustees where the OCERS Investment operation and organization are likely to be headed over the coming years, as our portfolio will likely grow to approximately $25 billion by then. This doubling of portfolio size reflects relatively predicable growth of OCERS benefit liabilities per our actuarial projections, without even assuming significant population growth in the County -- plus projected investment returns and employer contributions to unfunded liabilities even if investments earn less than the actuarial target. (At the end of the day, public plan actuaries will tell you that over time in a well-designed pension plan, the liabilities will drive the size of the investment portfolio more than market fluctuations: B + E = C + I) We can then benchmark against other public pension plans of comparable size today, for a glimpse into OCERS future. I have to believe that process will ultimately require a significant expansion of investment staff depth that we can discuss in future meetings including the September Board retreat and future budget discussions. The staffing increment recommended today would represent a very minor first step in the direction of building a stronger internal capacity to perform both basic and more advanced functions internally. Eventually we can seek additional expertise at a higher talent level in future years, when succession planning will also become a consideration. In September, we can begin a longer-term discussion of a prudent bigger-picture path to incrementally build-out of our presently lean and limited organizational structure -- most of which would likely occur after the next recession, in part because I am reluctant to over-staff in the 7 th inning of a market cycle and believe we will enjoy better personnel opportunities in the early stages of the next business cycle, I-7 Investment Division Staffing Adjustment and Budget Amendment Page 2 of 3 May 11, 2015 Regular Board Meeting

3 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM which would best fit our growth trajectory as long as we avoid classical governmental fallacy of imposing hiring freezes when the opportunities to acquire investment talent are at their very best. During your meeting I will be pleased to take questions about the rationale and timing of this recommendation. On November 5, 2014, the Board approved the 2015 OCERS Administrative and Investment Budget in the amount of $49,374,199; $20,569,935 for administration and $28,804,264 for investment related activities. As a result of the request to provide funding in the amount of $70,000, the 2015 Investment Budget will increase from $28,804,264 to $28,874,264 and the overall budget will increase from $49,374,199 to $49,444,199. The annualized cost at the salary midpoint ($76,400, center of a range of $57,300 - $95,600) would be approximately $117,100 including benefits. The proposed amended budget for Investments will have no impact on the state mandated 21 basis point test as Investment expenses are excluded from this calculation and will remain at 7.97 basis points of the projected actuarial accrued liability. The proposed amended budget will also still meet OCERS Budget Approval Policy limitation of 18 basis points of the projected actuarial value of total assets, as Investment expenses are not included in that calculation and will therefore remain at basis points. As a result of approving the Investment Analyst position the total OCERS approved staffing plan would increase from 72 to 73 employees. Prepared by: Approved by: Girard Miller, CFA Chief Investment Officer Steve Delaney Chief Executive Officer I-7 Investment Division Staffing Adjustment and Budget Amendment Page 3 of 3 May 11, 2015 Regular Board Meeting

4 OCERS Job Description Title: Retirement Plan Investment Analyst Department: Investments Title Code: 7843MR Established: 01/27/11 Reports to: Chief Investment Officer Administrative Revision: 4/28/15 JOB SUMMARY: Under the direction of the Chief Investment Officer (CIO), provides analytical and technical support for the Investment Division in the areas of investment management, investment reporting, performance measurement, special projects and studies; performs related duties as required. DISTINGUISHING CHARACTERISTICS: The Investment Analyst position reports directly to the (CIO) and is expected to uphold the highest standards of integrity and professionalism, plan sponsor focus, and system efficiency. Assists the CIO in the day-to-day operations within the Investment Department; track investment activities, ensure necessary transactions are completed as required, and identify potential areas of concern. PERFORMANCE ATTRIBUTES: (Include but are not limited to the following) Provide technical assistance to the CIO in administering the long-term investment policy, strategic objectives, portfolio guidelines and manager selection. Regularly monitor the investment managers to assess performance, risk and return and evaluate any strategy modification. Review portfolios to assess return and risk attribution and prepare reports, as required. Assist in the search process of investment managers, as required. Monitor compliance to Board-approved investment policies, strategies and portfolio guidelines. Assist CIO in working with pension investment consultants to coordinate asset allocation studies and integrate results into the long-term investment strategy. Monitor portfolios of marketable and non-marketable securities to assess and maintain current valuation in custodian statements. Research and maintain history of drawdowns, distributions, and returns and prepare summary reports. Investment Analyst Page 1 of 4 Revised 4/28/2015

5 Receive and file Reconciliation Statements and Compliance Reports from investment managers for assigned portfolios. Monitor investment performance relative to expected return and risk, ensure compliance consistent with investment policies, strategies and guidelines, and report significant changes and/or discrepancies. Assist the CIO in preparing materials for Investment Committee meetings. Work with financial auditors, legislative and regulatory agencies to fulfill information requests. Provide timely monthly portfolio reports and verify the accuracy of investment manager invoices. Complete various surveys on behalf of the Investment Department. QUALIFICATIONS: (Minimum qualifications necessary for entry into the classification) Education and/or Experience: Graduation from an accredited university or college with a Bachelor s Degree in Economics, Accounting, Finance, Business or a related field. AND Three years of professional level investment management experience including experience evaluating and managing a sophisticated investment portfolio, or two years related investment analyst-level experience with a Master s Degree from an accredited university or college in the fields previously cited. OR Any combination of education and experience that will assist a candidate with meeting the minimal qualifications. Significant prior pension fund or endowment investment experience is highly beneficial. Special Notes, Licenses, Requirements: A valid California class C driver s license or the ability to arrange necessary and timely transportation for field travel. May be required to use personal vehicle. A complete background investigation is required; a felony or misdemeanor conviction may be cause for disqualification. Highly Desirable: A Master s Degree in Business Administration and/or certification as a Chartered Financial Analyst (CFA). Investment Analyst Page 2 of 4 Revised 4/28/2015

6 KNOWLEDGE/SKILLS/ABILITIES: (KSA s necessary to perform essential duties of the position) Knowledge of: Investment concepts, terminology, styles, models, and strategies, including portfolio theory, asset allocation and performance measurement, and a solid understanding of capital markets. Principles and practices of institutional investment management. Modern portfolio theory and application. Institutional real estate and other non-traditional investment areas. Analytical techniques and tools commonly utilized in the management of equity and fixed income portfolios. Extensive knowledge of statistical concepts, methods, and models, and their application to investments. Statistical and computer techniques/programs applicable to financial data in evaluating investment managers and portfolios. Telephone, office and online etiquette. Skills/Ability to: Establish and maintain professional relationships with members of the Board of Retirement, OCERS management and professional staff, and consultants. Isolate critical investment data to assess financial risk of investment options. Evaluate overall performance of external investment managers and consultants. Analyze the economic, financial and market trends worldwide on an ongoing basis in order to determine the highest overall investment returns consistent with OCERS long term goals and risk tolerances. Prioritize conflicting timelines and ensure that projects are completed as required. Interact with external service providers such as, actuarial and investment consultants, money managers and custodian. Utilize and coordinate the delivery of custodial services. Communicate in English clearly, concisely and effectively both orally and in writing. Perform job functions with a high degree of independence and in an ethical and objective manner. Assist CIO with quantitative research projects and evaluate risk models. Investment Analyst Page 3 of 4 Revised 4/28/2015

7 Use both keyboards and computer software proficiently to accurately compose spreadsheets, graphs, flowcharts, calculations and time reports, etc. Possess journey-level competency, accuracy and speed to type, perform data entry and use common and required software and proprietary systems to prepare reports with meticulous accuracy and minimal supervision. Ability to thoroughly, efficiently and professionally detect errors of others in performing peer reviews of co-worker s work products. Ability to check one s own work to assure accuracy. PHYSICAL, MENTAL AND ENVIRONMENTAL CONDITIONS: The following is a description of the physical and mental abilities that are customarily required to perform the essential job functions of this position. Physical and Mental Requirements: Speak and hear well enough to communicate clearly and understandably in person, over the telephone and in small groups. Manual dexterity sufficient to use hands, arms and shoulders repetitively to operate a telephone, keyboard, write, and use a calculator. Mental stamina to interact professionally with members of the Board of Retirement, Plan Sponsors, peers and consultants. Vision sufficient to read fine print and a computer monitor. Independent body mobility, agility, and stamina to stand, walk, stoop, bend, and twist, to access a standard office environment. Ability to sit for prolonged periods of time. Body strength sufficient to lift up to 15 pounds and carry files. Environmental Conditions: The primary work place is in an office environment, working with standard office equipment. Peripheral office equipment generates a quiet to moderate noise level. Operates in an environment that includes elected officials, non-elected officials, government agencies, community interest groups and the general public in the development and coordination of OCERS affairs. Out of area travel may be required to attend professional conferences, due diligence, and meetings. Investment Analyst Page 4 of 4 Revised 4/28/2015

8 Board of Retirement Chief Executive Officer Steve Delaney Executive Secretary I Michelle Brinker Internal Audit David James Chief Investment Officer Girard Miller Assistant CEO External Operations Suzanne Jenike Chief Legal Officer Robert Valer Assistance CEO Finance & Internal Operations Brenda Shott Internal Auditor Mark Adviento Staff Specialist Secretary II Investment Operations Shanta Chary Investment Officer William Popper Investment Officer David Beeson Investment Analyst Recommended Addition Deputy Chief Counsel David Lantzer Staff Attorney Dawn Matsuo Staff Attorney Jerry Weisburg Administrative Services Cynthia Hockless Staff Specialist (1) Staff Assistant (1) Catherine Fairley Communications Manager Robert Kinsler Finance Tracy Bowman Staff Assistant PT (1) Store Clerk (1) Information Technology Jenny Sadoski Manager Heidi Halbur Manager Adina Bercaru Disability Coordinator Megan Cortez Senior Staff Development Specialist Toishe Merida Finance Manager Diane Dillard Finance Manager Darlene Huynh Finance Manager Jennifer Reyes IT Manager Jon Gossard IT Supervisor Operations Javier Lara IT Supervisor Programming Allan Browning Supervisor Mirtha Arredondo Supervisor Teresa Panameno Accounting Technician (1) Sr. Accountant Auditor I (1) Vacant Accountant Auditor II (1) Senior Applications Developer (1) Information Technologist II (1) Systems Programmer Analyst II (1) Senior Retirement Program Specialist(1) Retirement Program Specialist(8) Office Technician (3) Office Specialist (1) Benefits Technician (3) Accounting Technician (2) Disability Investigator (2) Office Specialist (2) Staff Specialist (1) Sr. Accounting Assistant (1) Vacant Accountant Auditor II (1) Accounting Technician (1) Information Technology Project Contractors (11) Network Engineer II (1) Systems Engineer II (1) Systems Programmer Analyst II (1) OCERS Organizational Chart Total Budgeted EE s 72 Recommended Budgeted EE s County - 24 OCERS Direct Vacant 2 - Filled 70