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Mr. Schmidt told the Board that the future is uncertain.<br />
He reviewed the portfolio characteristics as of December 31, 2010. The five-year historical<br />
growth rate of 6% for their stocks is significantly higher than the benchmark’s 1%, this hopefully<br />
will mean great things for their investors. Long-term future growth rates are 9% versus 9%.<br />
The portfolio’s p/e ratio is 11.5% versus 14.6% for the benchmark, which is relatively<br />
inexpensive. Market capitalization is larger than the index at $75,646 million versus $70,624<br />
million. Based on the expected growth rates and cash flow projections, their companies can self<br />
fund future growth and have superior return on capital metrics (12.6% versus the index at 7.9%).<br />
Their quality bias leads to a portfolio with a lower debt to equity ratio of 33% versus 38% for the<br />
index.<br />
He reviewed their exposure to various sectors. The market has 6% exposure to utilities where<br />
they have no exposure. These stocks offer relatively high yields.<br />
They have a different view of large banks and see them as growth vehicles in the future. They<br />
will provide decent yields and extend credit when they find good lending opportunities; this will<br />
lead to earnings growth.<br />
Chairman Harrison said that he appreciated the managers taking their time and thanked them for<br />
their participation. He acknowledged that they provide the trustees with more knowledge which<br />
is appreciated.<br />
The managers left at 3:48 p.m.<br />
Gray & Company Wrap-up<br />
Chairman Harrison asked about the managers’ performance and how much downside protection<br />
is needed in the portfolio.<br />
Mr. Kuhn said that defense wins; managers that can provide consistent downside protection tend<br />
to generate better long-term total performance. During 2010 it was not a good stock picking<br />
market. Managers provided a lot of protection on the downside in 2008 and early 2009. Some<br />
managers put up 10% performance in bad markets. If the market was up 15%, the managers<br />
tended to slightly under perform.<br />
Ms. Zimmermann reminded the Board that 15% is twice the actuarial valuation requirement for<br />
returns.<br />
Mr. Kuhn asked the Board if they preferred the new format.<br />
Chairman Harrison said that the overall market overview works out good.<br />
Mr. Kuhn also asked if the manager summary information was helpful.<br />
GERS Special Meeting Minutes<br />
February 22, 2011 - 25 -
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