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I N V E S T M E N T S / C H I E F I N V E S T M E N T O F F I C E R ’ S R E P O R T The current asset allocation policy of the SDCERA is, as follows: Investment Description Allocation Domestic Equity 24.0% International Equity 19.0% Emerging Markets Equity 6.0% Alternative Equity 5.0% Total Equity 54.0% Real Estate 10.0% TIPS/Core 10.0% High Yield 7.0% Emerging Market Debt 6.0% Non-US Fixed Income (unhedged) 8.0% Total Fixed Income 31.0% Commodities 5.0% Total Assets 100.0% Expected Compound Annual Return 7.00%* 8.17%** Expected Risk 11.49%* 10.28%** *Based on EnnisKnupp Capital Market Expectations (Second Half 2007) **Based on Rocaton Investment Advisors long term expectations (2006) Thank you. David J. Deutsch, CFA Chief Investment Officer November 30, 2007 48 COMPREHENSIVE ANNUAL FINANCIAL REPORT 2007
I N V E S T M E N T P O L I C I E S A N D A S S E T A L L O C A T I O N / I N V E S T M E N T S OVERVIEW OF SDCERA’S INVESTMENT POLICIES SDCERA’s investment program is managed in accordance with the California Government Code, Section 31450, et.seq. (County Employees Retirement Law of 1937), which provides, in part: The Board, its officers and employees shall discharge their duties with respect to the system: (a) Solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system. (b) With the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims. (c) Shall diversify the investments of the system so as to minimize the risk of loss and to maximize the rate of return, unless under the circumstances it is clearly prudent not to do so. The Board has adopted an investment policy statement and related policies to ensure that the plan is managed to the prudent expert standard, required in California. These policies set investment return and risk objectives, both at the manager and plan level, and provide for the extensive diversification of assets, securities lending, commission recapture, value added strategies, proxy voting and corporate governance issues. ASSET ALLOCATION JUNE 30, 2007 TARGET ASSET ALLOCATION 24.5% Domestic Equity 27.2% Int’l. Equity 29.3% Fixed Income 5.1% Commodities 6.0 % Real Estate 3.7% Alt. Equity 4.2% Cash & Overlays 24.0% Domestic Equity 25.0% Int’l. Equity 31.0% Fixed Income 10.0% Real Estate 5.0 % Commodities 5.0% Alt. Equity Percent Target Percent Asset Type Fair Value of Total of Total Domestic Equity $ 2,068,736 24.5% 24.0% International Equity 2,293,961 27.2% 25.0% Fixed Income 2,474,891 29.3% 31.0% Real Estate 507,152 6.0% 10.0% Alternative Equity 311,718 3.7% 5.0% Commodities 428,682 5.1% 5.0% Currency Overlay 156,468 1.8% 0.0% Cash and other assets and liabilities 202,898 2.4% 0.0% Total $ 8,444,505 100.0% 100.0% Investment data are presented using the accrual accounting method. COMPREHENSIVE ANNUAL FINANCIAL REPORT 2007 49
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