City of LA 457 Plan Plan Structure Review

Transcription

1 June 15, 2010 City of LA 457 Plan Plan Structure Review Susan Dalton, Los Angeles

2 Proposed Investment Structure Contents Overview Proposed Investment Structure Mid Cap Equity Appendix 1

3 Overview

4 Proposed Investment Structure Overview City of LA is considering moving to a fund structure where investment options would be generically rebranded to City of LA DCP Create investment options by asset class using a single or multi-manager approach; result is a style neutral portfolio Mutual funds are the primary investment vehicle Goal is not to exceed investment options Rationale for moving towards this fund structure is to: Reduce the number of investment options within the Plan structure Promote investor focus on diversification and risk tolerance The investment committee has met and reviewed the structures available for consideration. The following slide outline the decisions made and those pending 3

5 Overview Decision Review NEW DCP INVESTMENT MENU DESIGN Investment Option Structure Status Bank-Deposit Account Blend of 3 Underlying Bank Providers Stable Value Fund Single vendor with broadly diversified holdings DCP Bond Fund 50% Active/50% Passive Approved DCP Ultra-Conservative Asset Allocation Fund Blend of Stable Value & passive funds DCP Conservative Asset Allocation Fund Blend of Stable Value & passive funds DCP Moderate Asset Allocation Fund Blend of Stable Value & passive funds DCP Aggressive Asset Allocation Fund Blend of Stable Value & passive funds DCP Ultra-Aggressive Asset Allocation Fund Blend of Stable Value & passive funds DCP Large-Cap Stock Fund 100% Passive Management (S&P 500 Index) Approved DCP Mid-Cap Stock Fund TBD Board Discussion Pending DCP Small-Cap Stock Fund 34% Passive/ 33% Value Active / 33% Growth Active Approved DCP International Fund TBD Board Discussion Pending Self-Directed Brokerage Option Broad universe of funds, stocks and bonds 4

6 Mid Cap Equity

7 Mid Cap Equity Portfolio Structuring Portfolio Options 100% % % % % % % Passive 67% Passive 50% Passive 33% Passive 100% Active Mid Cap Index Mid Cap Value Mid Cap Growth 100% Passive 67% Passive 50% Passive 33% Passive 100% Active Mid Cap (MC) Scenario Portfolio Allocations Mid Cap Index Mid Cap Value Mid Cap Growth Expected Risk and Return Characteristics Total Arithmetic Return Total Geometric Return Total Risk Reward to Risk Ratio (Geometric) Arithmetic Alpha (Excess Return) Geometric Alpha (Excess Return) Tracking Error Information Ratio (Geometric) NA

8 Mid Cap Equity Proposed Investment Structure NEW DCP INVESTMENT MENU DESIGN Investment Option DCP Mid-Cap Stock Fund Structure Select 50% Passive, 25% Active Growth, 25% Active Value Rationale Goal is for participants to focus on asset allocation Mid Cap Growth 25% Mid Cap Value 25% Mid Cap Index 50% 50% Mid Cap (MC) Scenario Passive Portfolio Allocations Mid Cap Index 50.0 Mid Cap Value 25.0 Mid Cap Growth 25.0 Expected Risk and Return Characteristics Total Arithmetic Return 11.0 Total Geometric Return 8.6 Total Risk 23.3 Reward to Risk Ratio (Geometric) 0.4 Arithmetic Alpha (Excess Return) 0.3 Geometric Alpha (Excess Return) 0.3 Tracking Error 1.7 Information Ratio (Geometric) 0.2 7

9 Mid Cap Equity Supporting Data 1.0% Mid Cap Equity Excess Return in Mutual Fund US Equity Mid Cap Core from May 1995 to Apr 2010 Russell MC versus Russell MC (after fees) 8.0% 6.0% 0.5% 4.0% Monthly Excess Return (%) 2.0% -2.0% Excess Return (%) -0.5% -4.0% -6.0% -1.0% May 1995 May 1996 May 1997 May 1998 May 1999 May 2000 May 2001 May 2002 May 2003 May 2004 May 2005 May 2006 May 2007 May 2008 May 2009 Monthly Excess Return 5 Year Rolling Excess Return Upper Quartile Lower Quartile Median -8.0% Created on 26 May Data Source: Lipper, Inc. 1.0% Mid Cap Value Excess Return in Mutual Fund US Equity Mid Cap Value from May 1995 to Apr 2010 RUMCV versus RUMCV (after fees) 9.0% 1.0% Mid Cap Growth Excess Return in Mutual Fund US Equity Mid Cap Growth from May 1995 to Apr 2010 RUMCG versus RUMCG (after fees) 9.0% 6.0% 6.0% 0.5% 0.5% 3.0% 3.0% Monthly Excess Return (%) Excess Return (%) Monthly Excess Return (%) Excess Return (%) -3.0% -3.0% -0.5% -0.5% -6.0% -6.0% -1.0% May 1995 May 1996 May 1997 May 1998 May 1999 May 2000 May 2001 May 2002 May 2003 May 2004 May 2005 May 2006 May 2007 May 2008 May % -1.0% May 1995 May 1996 May 1997 May 1998 May 1999 May 2000 May 2001 May 2002 May 2003 May 2004 May 2005 May 2006 May 2007 May 2008 May % Monthly Excess Return 5 Year Rolling Excess Return Upper Quartile Lower Quartile Median Monthly Excess Return 5 Year Rolling Excess Return Upper Quartile Lower Quartile Median Created on 26 May Data Source: Lipper, Inc. Created on 26 May Data Source: Lipper, Inc. 8

10 Mid Cap Equity Supporting Data Russell Mid Cap Growth Index Minus Russell Mid Cap Value Index for Rolling Three-Year Periods Dec-88 Jun-89 Dec-89 Jun-90 Dec-90 Jun-91 Dec-91 Jun-92 Dec-92 Jun-93 Dec-93 Jun-94 Dec-94 Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Annualized Return Difference Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Growth Stocks Outperform Value Stocks Outperform

11 Appendix

12 Active vs. Passive Management Manager Research Alpha opportunities exist through Manager Selection Value Added Through Manager Research Recommendations ending March 31, % Since Inception 2.5% 2.0% 2.1% 2.3% 2.1% 2.1% 2.2% 1.5% 1.5% 1.6% 1.2% 1.0% 0.7% 0.5% 0.1% -0.5% -0.1% -0.2% -0.5% -0.7% -1.0% -1.5% Core Fixed Income Core Plus Fixed Income Large Cap Growth -1.0% Large Cap Value Large Cap Core Mid Cap Growth Mid Cap Value Mid Cap Core Small Cap Growth Small Cap Value Small Cap Core Non-US Equity Emerging Markets Equity REITS High Yield Fixed Income Note: As of March 31, Value added is calculated as the average return per annum for the A and A- rated strategies since inception less the average return of the style specific benchmark. Since inception dates for all asset classes shown above is January 1996 except for REITS which is September

13 Portfolio Modeling Modeling Assumptions Equity Source: Capital Market Outlook, January