HomeMy Public PortalAbout2006 4th Quarter ReportFourth Quarter 2006 Fourth Quarter 2006 Investment Performance Analysis ReportInvestment Performance Analysis ReportJanuary 2007January 2007One Main Street, Cambridge, Massachusetts 02142-1524(617) 374-1300; F: (617) 374-1313www.nepc.comMetropolitan St. Louis Sewer DistrictMetropolitan St. Louis Sewer DistrictDoris EwingPartner
1L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptAsset Growth and Allocation• At quarter end, the assets in the Fund totaled $174.4 million, an increase of $9.1 million over the quarter, reflecting investment earnings of approximately $8.3 million and net inflows of $842,000.• The Fund’s allocation to equities was 50% at the end of the quarter, below the target allocation of 53% (which includes the target allocation to GTAA) and below the median Public Fund’s allocation to equities of 61.3%.• The Fund’s equity commitment ranked in the 81stpercentile of public funds.Performance• The Total Fund posted a 5.0% return in the quarter, ranking in the 72ndpercentile of Public Funds, nationwide.−Policy ranked in the 68thpercentile of public funds due to underweight to equities versus the median fund. Exposure to the diversifying asset classes added 30 basis points while active management, in the aggregate, detracted 50 basis points. • For the trailing year, the Total Fund’s 12.3% return ranked in the 72ndpercentile of Public Funds.−Policy, most notably the underweight to equities versus the median public fund, detracted from return. Over the full year, asset allocation added 40 basis points. Active management detracted 110 basis points• For the three- and five-year periods, the Fund returned 9.1% and 7.8%, respectively, ranking in the 80thand 73rdpercentiles of Public Funds– Underweight to equities versus the median Fund detracted from return • Returns over the three- and five-year periods were earned with slightly lower levels of risk to the median Public Fund.Executive Summary Executive Summary ––Total FundTotal Fund
2L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptExecutive Summary Executive Summary ––CommentaryCommentaryWhat Helped Performance in the Fourth Quarter•Performance of diversifying asset classes helped return −GMO returned 5.4%, ranking in the 39thpercentile of balanced managers due to the strong performance of domestic and international equities.−PIMCO All Asset strategy outperformed its custom benchmark by 90 bps in the quarter. −UBS Real Estate outperformed the NCREIF Property Index by 90 bps in the quarter.−Strong returns from emerging markets equity and global bonds• MS Emerging Markets equity outperformed its style index by 260 bps and ranked in the 9thpercentile for the quarter and the 6thpercentile for the year. Stock selection in Russia and underweight to South Korea helped.• Brandywine Global Bonds returned 100 bps above the Citigroup WGBI, ranking in the 21stpercentile for the quarter and the 16thpercentile for the year. Emerging markets country exposure (Brazil, Mexico, and Indonesia) and currency exposure (Sweden, Poland, and South Africa) helped return in the quarter.Note – BPS =basis points. 100 basis points is equivalent to 1%. Returns are gross of fees.
3L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptExecutive Summary Executive Summary ––CommentaryCommentaryWhat Hurt Performance in the Fourth Quarter•Poor performance from domestic equity managers−The large cap equity composites ranked in the 78thpercentile of equity managers in the quarter and lagged S&P 500 by 90 basis points due to below average returns from BDH and Vanguard Windsor II. BDH’s performance was hurt by exposure in pharmaceuticals and technology. Weak performance by Equinox and Tukman detracted from Windsor II’s return.−Both small cap managers underperformed in the quarter. Ark and Times Square ranked in the bottom quartile of their respective peer groups in the quarter −Morgan Stanley lagged the MSCI EAFE Index and the median international equity manager in the quarter due to overweight and stock selection in financials as well as overweights to UK and Japan.•The core bond manager, IRM, lagged the Lehman Agg by 10 bps and ranked in the 72ndpercentile of bond managers•Fidelity lagged its benchmark in the quarter, ranking in the 86thpercentile of bond managersNote – BPS =basis points. 100 basis points is equivalent to 1%. Returns are gross of fees.
4L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptManager Executive SummaryManager Executive SummaryIndex Fund. Performance consistent with index.Team and process have been stable.See Windsor IIVanguard Institutional IndexThe one year return is top quartile, but the longer-term three- and five-year returns are 98thand 88thpercentile ranking among large cap growth managers.Team and process have been stable.No organizational changes. Buford, Dickson, Harper & SparrowStrong returns in the quarter, but the longer-term three year return is below the benchmarks.Team and process have been stable.No organizational changes. Waddell & ReedUnderperformed style benchmark and median manager for the quarter and the year ranking in the 66thand 62ndpercentile respectively. Fund overweights to health care hurt in the quarter, as the sector posted a negative return. The longer-term three- and five-year return are at and above the median large cap value manager. Effective 1/ 8/2007, Lazard Asset Management becomes new sub-advisor. Lazard will oversee a majority of the assets formerly managed by 2 terminated managers: Equinox Capital Management, LLC, and Tukman Capital Management, Inc.1/4/07 - Ann Combs, former Assistant Secretary of Labor and head of the Employee Benefits Security Administration (EBSA) will join the firm in February to lead a newly created Institutional Strategic Consulting group with oversight responsibilities for Vanguard’s retirement policy, research, and plan consulting activities. On 4/20/06 –Windsor II closed to new investors.Vanguard Windsor IIPerformance Performance Investment Process & ProductInvestment Process & ProductOrganizationOrganizationManager Manager BLUE TEXT is NEW text added in the quarter
5L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptManager Executive SummaryManager Executive SummaryManager ranked in the bottom quartile for the quarter and all cumulative periods ended December 31, 2006. Team and process have been stable.No changes to Small Cap Team.ArkPortfolio managers, Tony Rosenthal will move from the Small Cap product to the SMID product; Kenneth Duca will manage the Small Cap product with Grant Babyak. Changes are the result of the planned retirement of Yvette Bockstein in 2007. NEPC is comfortable with the changes.Weak return in the quarter; Outperformed the benchmarks over longer periods ranking in the 14thand 28thpercentile in the 1 and 3 year time horizons.No changes to investment process or strategyTimes SquareOutperformed benchmarks in the quarter and longer periods ranking in the top decile due to stock selection in Russia. Underweights to South Korea beneficial. No changes to investment process or strategy. The team led by Ruchir, will continue to invest client assets in emerging markets using the same investment philosophy and process, as has been the case since inception.7/17/06 James Cheng joins EM team as Managing Director/Lead Portfolio Manager for Asian strategies. Ruchir Sharma, co-head of Emerging Market Equity team based in New York will assume sole responsibility as head of the Emerging Market Equity team. Ruchir has been with the Emerging Market Equity team for 10 years and has been co-head since 2003. NEPC is comfortable with the changes.Morgan Stanley Emerging Mkt. EquityUnderperformed index and the median manager in the quarter and the year ranking in the 88thand 69thpercentile respectively. No changes to investment process or strategy5/2/06 Christian Derold, former Director of Research at Milgate Capital, joins MSIM as Executive Director and Portfolio Manager for International Equity. Morgan Stanley International EquityPerformance Investment Process & ProductOrganizationManager
6L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptManager Executive SummaryManager Executive SummaryUnderperformed Lehman Agg in the quarter and the year, ranking the 72ndand 53rdpercentile, respectively. The longer-term three and five-year returns are bottom quartileTeam and process have been stable12/06 John Sommers, co-founder, transferred a portion of his ownership to his sons for estate planning purposes. As a result of this and the increase in key employee ownership, Sommers’ownership stake is below 25%. Sommers continues to be an engaged member of the portfolio management team. No client action recommended at this time. Income ResearchPerformance matched with median manager in the quarter, ranking in the 48thpercentile. Performance ranked in the 39thpercentile over the full year. Performance has lagged the passive index due to emphasis on higher quality issuers within the high yield market.Team and process have been stableNo organizational changes.Penn Capital1/30//07 Announcement of departure of Brandywine Global's Chief Administrative Officer, Larry Kassman. Kassman is leaving be close to his family in New York. Duties will be assumed by Mark Glassman, head of Finance and Business Planning. Mark has been instrumental in some of the enhancements to Brandywine Global's infrastructure during his two plus years with the firm. Ranked in the 39thand 16thpercentiles for the quarter and YTD, respectively. Outperformed median bond manager and the index in all time frames, ranking in the 10th percentile for the year. Team and process have been stableBrandywine Global Bond FundPerformanceInvestment Process & ProductOrganizationManager
7L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptManager Executive SummaryManager Executive SummaryUnderperformed the custom index in the quarter. Performed in line with the custom benchmark for the year but lagged the median bond manager. Team and process have been stable.No organizational changes. 11/06 After review of Fidelity regarding improper acceptance of travel, entertainment, gifts, and gratuities (TEGG) by equity traders Fidelity agrees to $42 million fine. Review did not find that the traders’ receipt of TEGG resulted in excessive execution costs for the affected funds; but found that the funds were at risk of adverse publicity and loss of credibility with regulators and shareholders. We believe that TEGG misbehavior was isolated incident and does not reflect upon Fidelity’s management. No client action recommended.FidelityNew manager. Outperformed the median balanced manager by 60 bps due to equity allocations and the strong performance of US core, established international and emerging international equity markets. Team and process have been stable.No organizational changes.GMO Global Balanced Asset AllocationOutperformed the Lehman Agg and the custom benchmark in the quarter and the year ranking in the 5thand 21stpercentile of Core Plus Bond managers for the quarter and YTD, respectively. No changes to process or strategyNo organizational changes.PIMCO All AssetPerformanceInvestment Process & ProductOrganizationManager
8L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptKey 2007 NEPC Capital Market ObservationsKey 2007 NEPC Capital Market Observations• Conflicting signals in the bond market – Yield curve inversion historically signals recession, yet credit spreads are tight– Emerging demand for long bonds due to pension reforms and foreign buyers• Volatility measures are extraordinarily low – Record post-war equity bull market run without a 10% correction– Buoyant liquidity has compressed risk premiums across a wide range of assets– Significant concerns include:• Housing market outlook, inflation, and the Fed’s next move • Global equity market valuations remain reasonable– Earnings growth has outpaced price appreciation over the last few years – P/E on S&P 500 forward earnings is 14.8x (vs. 15-17x long-term average)– Risk premium over bonds remains near long term averages– International equity markets have had an extended run of out-performance• Mutual fund flows towards international funds has been enormous• Still expect subdued long term returns from traditional investments
9L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptGeneral Actions for ClientsGeneral Actions for Clients• Mixed signals warrant caution and diversification– Strong returns and low volatility breed complacency – “Cash Plus” strategies (e.g. hedge funds) sitting on highest cash rates in 6 years• 5.25% cash plus 3.25% excess return equals expected return from stocks• Can be achieved at half the volatility of stocks • Traditional investment solutions proving inadequate to meet the challenges of tomorrow’s portfolio – Enormous financial pressure to maintain high returns and control risk– High equity ratios are not the best risk adjusted approach– Fiduciaries need to embrace new ideas and re-examine procedures• Innovative solutions for asset allocation and manager implementation– Separation of market exposures (beta) from manager exposures (alpha) – Maximize public market beta exposures through multi-asset class assignments• Provides an opportunity to consolidate assignments– Upgrade traditional manager approaches to portable alpha solutions• Focus and leadership– Concentrate on the highest value added activities– Demand more from your financial advisors“Active management strategies demand un-institutional behavior from institutions, creating a paradox that few can unravel” –David Swenson, Yale
10L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptFocused Actions for ClientsFocused Actions for Clients• Corporate and Taft-Hartley Pension Plans– Pension Protection Act is redefining your benchmarks for “success”• Peer group comparison is losing its relevance– Have you assessed the impact of the PPA on the volatility of annual contributions?• Should you hedge interest rate risk?• Can you withstand the short term volatility of a high equity allocation?• Public Pension Plans– Do changes in private funds foretell similar changes for public funds?– New product developments for private funds may be of interest to public funds– Traditional search processes may encumber the utilization of new strategies• Endowment and Foundation Funds– Minimize the use of traditional fixed income strategies – Re-anchor your conservative portfolio to “cash plus” strategies– Unconventional returns require unconventional ideas“To take early advantage, you have to put your faith in concepts and people, based on logical arguments and analyses but without the benefit of historic performance data. That’s how you make the big bucks.” – Howard Marks, Oaktree Capital
11L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptMarket Environment Market Environment ––Overview Overview (As of 12/31/2006)(As of 12/31/2006)
12L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptMarket Environment Market Environment ––Overview Overview (As of 12/31/2006)(As of 12/31/2006)
13L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptAsset Growth as of 12/31/06Asset Growth as of 12/31/06
14L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.ppt4.0%3%10.7%10%10.3%10%7.7%20%3.1% 9.3% 9.8%10.0% 20%17.0%4.8%5.0%7.5%8% 5.0%5.0%4.0%3.9%5.0%4.9%2.0%Equities 53.0%Fixed Income 33.0%Equities 50.6%**Fixed Income 34.0%Int’l EquityDomestic EquityARK: 5.1% TS: 5.2%BDH&S: 2.2% W&R: 7.1%Windsor IIVGDomestic FICore FixedIncome ResearchCashInt’l EquityDomestic EquitySmall CapLarge Cap EquityDomestic FICore FixedCurrent Asset Allocation*Current Asset Allocation*Policy Target Asset AllocationPolicy Target Asset AllocationGMOEqty: 5.1%FI: 4.7%Asset Allocation as of 12/31/06Asset Allocation as of 12/31/06EM Int’l DevHY GB RE Mk NeutGBBrandy-wineMorgan StanleyMk NeutEMInt’l DevSmall CapLC ValueLCCoreLC GrowthGTAAFidelityPennHYARPIMCOREUBSARTAA*Totals may not add to 100% due to rounding. Totals include manager cash.** Equities include a 0.4%allocation that is included in the PIMCO All Asset product.
15L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptEquity Weighting vs. Median Public FundEquity Weighting vs. Median Public FundAs of December 31, 2006Composite Percentage Excludes Manager Cash.
16L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptAsset Allocation (as of 12/31/06)Asset Allocation (as of 12/31/06)Target Allocation Actual AllocationVariance from TargetEquity 43.0% 45.0% 2.0%Large Cap Equity 20.0% 20.1% 0.1%Small Cap Equity 10.0% 10.2% 0.2%International Equity 10.0% 10.7% 0.7%Emerging Markets Equity 3.0% 4.0% 1.0%Fixed Income33.0% 29.3% -3.7%Core Fixed Income 20.0% 17.0% -3.0%High Yield 5.0% 4.8% -0.2%Global Bonds 8.0% 7.5% -0.5%GTAA 10.0% 9.8% -0.2%Real Estate5.0% 5.0% 0.0%Absolute Return 4.0% 3.9% -0.1%Market Neutral5.0% 4.9% -0.1%Cash0.0% 2.0% 2.0%Total 100% 100%Asset Class
17L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptPolicy Index: Calculated by taking the target asset class weights times the return of the respective passive benchmark (re-balanced monthly). Measures the effectiveness of Plan Structure.Allocation Index: Calculated by taking the actual asset class weights times the return of the respective passive benchmark. Measures the effectiveness of deviating from Target Weights.Composite: Actual Plan results. When compared to the Allocation Index, it measures the effectiveness of the Managers.Total Fund PerformanceTotal Fund Performance**vs. Public Fund Universe vs. Public Fund Universe * ** ** Returns are gross of fees.**The public funds universe included 180 public funds with assets of $780 billion as of September 30, 2006.As of December 31, 2006
18L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptTotal Fund Performance vs. Public Fund UniverseTotal Fund Performance vs. Public Fund UniverseAs of December 31, 2006Policy Index: Calculated by taking the target asset class weights times the return of the respective passive benchmark (re-balanced monthly). Measures the effectiveness of Plan Structure.Allocation Index: Calculated by taking the actual asset class weights times the return of the respective passive benchmark. Measures the effectiveness of deviating from Target Weights.Composite: Actual Plan results. When compared to the Allocation Index, it measures the effectiveness of the Managers.
19L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptTotal Fund Performance vs. Public Fund UniverseTotal Fund Performance vs. Public Fund UniverseAs of December 31, 2006Policy Index: Calculated by taking the target asset class weights times the return of the respective passive benchmark (re-balanced monthly). Measures the effectiveness of Plan Structure.Allocation Index: Calculated by taking the actual asset class weights times the return of the respective passive benchmark. Measures the effectiveness of deviating from Target Weights.Composite: Actual Plan results. When compared to the Allocation Index, it measures the effectiveness of the Managers.
20L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptTotal Public Funds Total Public Funds ––Total Return vs. Risk Total Return vs. Risk --3 Years Ending 12/31/06 3 Years Ending 12/31/06 Total Fund Risk/ReturnTotal Fund Risk/ReturnS&P 500LB AggregateMSD CompositeAllocation IndexPolicy Index
21L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptTotal Public Funds Total Public Funds ––Total Return vs. Risk Total Return vs. Risk --5 Years Ending 12/31/06 5 Years Ending 12/31/06 S&P 500LB AggregateMSD CompositeAllocation IndexPolicy IndexTotal Fund Risk/ReturnTotal Fund Risk/Return
22L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptDomestic Stocks Style and Size MapDomestic Stocks Style and Size MapAs of December 31, 2006R 2000Small Cap EqtyArkWaddell & ReedLarge Cap GrowthS&P 500CompositeBDH&SLarge Cap EqtyVanguard Inst FundTimes Square
23L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptPerformance Summary (12/31/06)Performance Summary (12/31/06)Last QtrRank1 YearRank3 YearRank5 YearRankMarket ValueAllocationCOMPOSITE 5.0% 72 12.3% 72 9.1% 80 7.8% 73$174,434,536 100.0%ALLOCATION INDEX5.5%5413.2%559.2%798.4%54POLICY INDEX5.2%6812.9%619.8%697.5%78TAA Composite 5.4% 39 13.2% 32 10.1% 37 n/a$17,068,436 9.8%GMO 5.4% 39 n/a n/a n/a$17,068,436 9.8%65% MSCI World / 35% Lehman Agg 5.5% 13.5% 9.9% 7.7%Median Balanced Manager 4.8% 11.3% 9.0% 7.1%LARGE CAPLarge Cap Equity Composite 5.8%7812.7%649.5%81n/a$35,101,68220.1% S&P 500 6.7% 15.8% 10.4% 6.2%Vanguard Windsor II 6.7% 66 18.8% 62 14.9% 51 10.6% 44$13,461,504 7.7% Russell 1000 Value8.0%22.2%15.1%10.9%Median Large Cap Value Manager 7.4% 19.4% 15.0% 10.4%BDH&S 3.1% 84 9.3% 25 3.9% 98 1.9% 88$3,785,350 2.2%Waddell & Reed5.4%496.4%55 7.1%68n/a$12,385,0297.1% Russell 1000 Growth5.9%9.1%6.9%2.7%Median Large Cap Growth Manager 5.3%7.5%8.4%4.2%Vanguard Institutional Index6.7%4215.9%3310.5%556.3%59$5,469,7993.1% S&P 5006.7%15.8%10.4%6.2%Median Large Cap Core Manager 6.7% 15.8% 10.5% 6.4%SMALL CAPSmall Cap Equity Composite6.8%5415.2%5114.4%32n/a$17,973,09710.3% Russell 20008.9%18.3%13.6%11.4%Ark7.4%9112.8%9113.8%8913.4%94$8,818,375 5.1% Russell 2000 Value9.0%23.5%16.5%15.4%Median Small Cap Value Manager 8.8% 18.4% 16.5% 16.1%Times Square6.2%8417.7%1414.8%28n/a$9,154,7225.2% Russell 2000 Growth8.8%13.4%10.5%6.9%Median Small Cap Growth Manager 8.0% 13.3% 12.7% 10.6%ST. LOUIS MSDPERIODS ENDING December 31, 2006INVESTMENT PERFORMANCE "FLASH REPORT"TAA MANAGERSEQUITY MANAGERS
24L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptPerformance Summary (12/31/06)Performance Summary (12/31/06)Last QtrRank1 YearRank3 YearRank5 YearRankMarket ValueAllocationInternational Equity Composite8.2%8823.7%6916.8%9513.5%91$18,634,16210.7% Citigroup PMI EPAC 9.6% 25.2% 20.2% 15.2%Morgan Stanley International8.2%8823.7%69n/an/a$18,634,16210.7% MSCI EAFE10.4%26.3%19.9%15.0%Median International Developed Manager10.3% 26.2% 21.2% 16.3%Morgan Stanley Emerging20.2%939.8%6n/an/a$6,947,0434.0% MSCI Emerging Mkts Free17.6%32.2%30.6%26.7%Median Emerging Manager 16.9% 31.3% 31.5% 28.5%FIXED INCOME Fixed Income Composite 1.7% 23 5.7% 22 4.1% 52 n/a$38,055,188 21.8%Income Research 1.1% 72 4.5% 53 3.7% 80 5.0% 83$29,675,851 17.0% Lehman Aggregate1.2%4.3%3.7%5.1%Median Core Fixed Income Manager 1.3% 4.6% 4.0% 5.5%Penn Capital 3.7% 48 9.8% 39 n/a n/a$8,379,337 4.8% Merrill Lynch High Yield Cash Pay4.2%11.6%8.3%9.8%Median High Yield Manager 3.7% 9.4% 7.5% 9.5%Brandywine Global Bond Fund2.8%218.4%16n/an/a$13,112,3327.5% Citi World Gov't Index1.8%6.1%2.9%8.4%Median Global Bond Manager 2.2% 6.2% 4.1% 8.8%MARKET NEUTRALFidelity 1.2% 86 7.2% 81 n/a n/a$8,546,512 4.9% 90 Day T-Bill + 300bps 2.0% 7.8% 6.1% 5.4%ABSOLUTE RETURNPimco All Asset 2.2% 5 6.2% 21 n/a n/a$6,800,343 3.9% CPI + 500bps 1.3% 7.7% 8.3% 7.9%REAL ESTATEUBS Realty 5.4%21n/an/an/a$8,733,5155.0% NCREIF Property4.5%16.6%17.0%13.3%Cash1.3%284.8%572.8%73n/a$3,462,2262.0% 90 Day T-Bill 1.3% 4.8% 3.1% 2.4%Notes: Results for periods longer than one year are annualized. Total percentages may add to more than 100% due to rounding. All Returns are gross of fees.ALTERNATIVE ASSETSST. LOUIS MSDPERIODS ENDING December 31, 2006INVESTMENT PERFORMANCE "FLASH REPORT"FIXED INCOME MANAGERS
25L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptDomestic Equity Total Rates of ReturnDomestic Equity Total Rates of Return
26L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptDomestic Equity Total Rates of ReturnDomestic Equity Total Rates of Return
27L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptDomestic Equity Total Rates of ReturnDomestic Equity Total Rates of Return
28L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptDomestic Equity Total Rates of ReturnDomestic Equity Total Rates of Return
29L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptBond Funds Total Rates of ReturnBond Funds Total Rates of Return
30L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptBond Funds Total Rates of ReturnBond Funds Total Rates of Return
31L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptBond Funds Total Rates of ReturnBond Funds Total Rates of Return
32L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptBond Funds Total Rates of ReturnBond Funds Total Rates of Return
33L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptGlobal Bond Funds Total Rates of ReturnGlobal Bond Funds Total Rates of Return
34L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptTOP TEN EQUITY PORTFOLIO HOLDINGS*SECTOR OVER/UNDER WEIGHTS VS. RUSSELL 1000 VALUE-1.03.7-6.95.04.00.11.80.0-9.2-1.33.8-20-15-10-5 0 5 101520Cons DiscretionaryConsumer StaplesEne rgyFinancialsHealth CareIndustrialsInfo TechnologyMaterialsTelecom ServicesUtilitiesMiscManager Performance Manager Performance ––Windsor II FundWindsor II FundSecurityWeightGeneral Electric Co. 3.6%Citigroup, Inc. 2.8%Bank of America Corp. 2.7%Altria Group, Inc. 2.7%Pfizer Inc. 2.5%ConocoPhillips Co. 2.4%Wells Fargo & Co. 2.4%Imperial Tobacco Group ADR 2.3%Bristol-Myers Squibb Co. 2.1%JPMorgan Chase & Co. 2.0%Armstrong Shaw Associates Inc. (2006)Hotchkis & Wiley Capital Management, LLC(2003)Vanguard Quantitative Equity Group (1991)Lazard Asset Management (2007)**Barrow, Hanley, Mewhinney & Strauss, Inc. (1985)WINDSOR II SUB- ADVISORS** Top 10 equals 2.5% of net assets * Top 10 equals 2.5% of net assets * Inception year of sub-advisory relationship in parenthesis.**Manager added 1/07 and replaced Equinox and Tukman Capital Management
35L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptEQUITY PORTFOLIO CHARACTERISTICSTOP TEN EQUITY PORTFOLIO HOLDINGSTEN BEST AND WORST PERFORMERSSECTOR OVER/UNDER WEIGHTS VS. RUSSELL 1000 GROWTH-9.33.24.24.81.8-3.60.6-1.4-0.90.8-15 -10 -5 0 5 10 15Cons DiscretionaryConsumer StaplesEnergyFinancialsHealth CareIndustrialsInfo TechnologyMaterialsTelecom ServicesUtilitiesManager Performance Manager Performance ––Waddell & ReedWaddell & Reed
36L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptEQUITY PORTFOLIO CHARACTERISTICSTOP TEN EQUITY PORTFOLIO HOLDINGSTEN BEST AND WORST PERFORMERSSECTOR OVER/UNDER WEIGHTS VS. RUSSELL 1000 GROWTH0.9-7.35.94.6-5.1-3.011.713.7-0.9-20.1-25 -15 -5 5 15 25Cons DiscretionaryConsumer StaplesEne rgyFinancialsHealth CareIndustrialsInfo TechnologyMaterialsTelecom ServicesUtilitiesManager Performance Manager Performance ––BDH&SBDH&S
37L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptEQUITY PORTFOLIO CHARACTERISTICSTOP TEN EQUITY PORTFOLIO HOLDINGSSector Over/Under Weights vs. Russell 2000 Value2.0-1.00.57.28.2-2.3-2.5-14.5-1.64.0-20-15-10-505101520Cons DiscretionaryConsumer StaplesEnergyFinancialsHealth CareIndustrialsInfo TechnologyMaterialsTelecom ServicesUtilitiesManager Performance Manager Performance ––Ark Asset ManagementArk Asset ManagementTEN BEST AND WORST PERFORMERS
38L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptEQUITY PORTFOLIO CHARACTERISTICS*TOP TEN EQUITY PORTFOLIO HOLDINGS*Sector Over/Under Weights vs. Russell 2000 Growth*-6.31.40.0-0.33.7-2.7-0.10.24.70.1-0.7-20-15-10-505101520Cons DiscretionaryConsumer StaplesEnergyFinancialsHealth CareIndustrialsInfo TechnologyMaterialsTelecom ServicesUtilitiesMiscellaneousTEN BEST AND WORST PERFORMERS*Manager Performance Manager Performance ––TimesSquareTimesSquare
39L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptManager Performance Manager Performance --GMO Global Balanced Asset AllocationGMO Global Balanced Asset AllocationRISK PROFILE*STRATEGY COMPOSITION*Strategy BenchmarkAlpha3.47 0.00Beta0.80 1.00R20.82 1.00Sharpe Ratio0.93 0.54* As of 12/31/06
40L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptManager Performance Manager Performance ––Morgan Stanley Intl. EquityMorgan Stanley Intl. EquityTOP TEN HOLDINGSCOUNTRY ALLOCATIONAsia/Pacific2.5% (8.4%)UK34.1% (23.7%)Cash3.7% (0.0%)Other Europe12.1% (17.5%)Netherlands6.2% (3.4)Germany6.0% (7.4%)France7.8% (10.1%)Japan19.6% (22.6%)Switzerland8.0% (6.9%)**Numbers in Parenthesis ( ) reflect benchmark weights.STOCK % HOLDINGImperial Tobacco Group 3.5%Nestle SA 3.1%Cadbury Schweppes PLC 3.0%Unilever 2.9%Holcim Ltd 2.6%British American Tobacco 2.5%Scottish Power plc 2.3%Total Fina SA 2.2%Telefonaktiebonaget 2.2%Royal Bank of Scotland 2.1%
41L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptUBS Realty Investors UBS Realty Investors ––RESARESA33.6%36.5%22.5%7.4%EastSouthMidwestWestPROPERTY TYPE DIVERSIFICATIONGEOGRAPHIC DIVERSIFICATION*All data was provided by managers. Numbers may not add to 100% due to rounding. Inception 6/30/2006PERFORMANCE SUMMARYPORTFOLIO SIZE ($ millions)31.3%24.3%28.2%6.3%10.0%ApartmentHotelsIndustrialsOffice Retail- The UBS RESA was funded in June 2006.- UBS RESA fund returned 3.9% in the quarter, ranking in the 35thpercentile of real estate funds. 1.7%39.8%38.4%3.5%16.6%0% 20% 40% 60% 80% 100%$0 - 10$10 - 20$20 - 50$50 - 100Over $100
42L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptManager Performance Manager Performance ––Morgan Stanley Emerging Mkts.Morgan Stanley Emerging Mkts.TOP TEN HOLDINGSCOUNTRY ALLOCATIONTOP TEN HOLDINGS%Sberbank 3.0Petroleo Brasilero 3.0Wal-Mart de Mexico 2.9America Movil S.A. de Cv 2.8Grupo Televisa S.A. 2.7Oao Gazprom 2.2Samsung Electronics 2.1Unified Energy System 1.9Novatek Oao 1.6China Construction Bank 1.5Taiwan7.1% (12.5%)Cash2.8% (0.0%)Poland4.5% (1.7%)Russia13.4% (10.6%)Brazil11.5% (10.5%)South Korea9.4% (15.5%)India7.8% (6.5%) South Africa7.5% (8.5%)China11.1% (7.6%)Mexico10.6% (6.2%)Other14.3% (20.4%)**Numbers in Parenthesis ( ) reflect benchmark weights.
43L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptCREDIT DISTRIBUTIONSECTOR ALLOCATION20.8%5.0%14.7%30.3%28.8%0.4%0% 20% 40%CashBaaAAaAaaGov'tPORTFOLIO ANALYSISAVERAGE MATURITY % HELD22.8%6.5%25.2%23.2%21.6%0.6%0% 20% 40%10.0+7.0 - 10.05.0 - 7.03.0 - 5.01.0 - 3.00.0 - 1.0YearsManager Performance Manager Performance ––Income ResearchIncome ResearchABS1.6%(0.0%)CMBS18.7%(0.0%)Corporates44.4%(36.8%)Govt.24.6%(41.6%)Agency3.6% (21.6%)ARMS3.7%(0.0%)Cash0.4%(0.0%)Municipals3.0%(0.0%)**Numbers in Parenthesis ( ) reflect benchmark weights.
44L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptManager Performance Manager Performance ––Penn CapitalPenn CapitalAverage Maturity 6.7Average Duration 4.8Average Coupon 8.8%Average Yield to Maturity 8.4%Average Credit Quality B2Number of Issues 11710.2%3.6%35.0%9.3%33.8%8.0%0% 20% 40%Other10.0+8.0 - 10.06.0 - 8.04.0 - 6.02.0 - 4.0PORTFOLIO ANALYSISAVERAGE MATURITY % HELDCREDIT DISTRIBUTION23.0%7.1%27.1%5.8%3.4%2.2%4.0%19.4%8.0%0% 20% 40%OtherCaa1B3B2B1Ba3Ba2Ba1Baa3
45L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptManager Performance Manager Performance ––BrandywineBrandywinePORTFOLIO CHARACTERISTICU.S.24%Australia11%Canada9%Germany11%Singapore7%Poland7%Sweden7%Mexico5%U.K.4%Other15%CREDIT DISTRIBUTIONCOUNTRY ALLOCATION14.1%5.9%1.5%73.7%2.6%0% 20% 40% 60% 80% 100%BaBaaAAaAaaAVERAGE MATURITY % HELD8.8%20.6%12.1%10.5%17.3%12.5%0% 20% 40%10.0 - 20.07.0 - 10.05.0 - 7.03.0 - 5.01.0 - 3.00.0 - 1.0
46L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptManager Performance Manager Performance ––PIMCO All AssetPIMCO All AssetPORTFOLIO CHARACTERISTICSPORTFOLIOTotal Fund Net Assets ($US MM) 1,899.4Duration (Years) 6.16Expense Ratio - Inst Class (%) 0.75
47L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptManager Performance Manager Performance ––Fidelity Market NeutralFidelity Market NeutralPORTFOLIO CHARACTERISTICSSECTOR ALLOCATION-2.81.0-2.1-2.81.21.2-0.60.42.01.7-4 -3 -2 -1 0 1 2 3Consumer Disc.Info TechnologyFinancialsHealth CareIndustrialsConsumer StaplesEnergyMaterialsTelecom ServicesUtilities
48L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptEquity Funds 3 Year Risk AnalysisEquity Funds 3 Year Risk AnalysisR2000BDH&SVG Windsor IIVG Inst Index/ S&P 500Waddell & ReedSmall Cap EqtyLarge Cap Eqty
49L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptEquity Funds 3 Year Risk AnalysisEquity Funds 3 Year Risk AnalysisTimesSquareARKR2000Large Cap GwthS&P 500Large Cap Value
50L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptEquity Funds 5 Year Risk AnalysisEquity Funds 5 Year Risk AnalysisBDH&SVG Inst Index / S&P 500R 2000VG Windsor IIArk
51L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptBond Funds 3 Year Risk AnalysisBond Funds 3 Year Risk AnalysisIncome ResearchLB AggregateLB Govt/CR IntFixed Inc Comp
52L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptBond Funds 5 Year Risk AnalysisBond Funds 5 Year Risk AnalysisIncome ResearchLB AggregateLB Govt/CR Int
53L:\Clients/St Louis MSD/IPA/Executive Reports /2006/MSD 3Q 2006 Executive Report.pptInformation Disclosure• New England Pension Consultants, Inc. (NEPC) uses, as its data source, the plan’s custodian bank or fund service company, and NEPC relies on those sources for security pricing, calculation of accruals, and all transactions, including income payments, splits, and distributions. While NEPC has exercised reasonable professional care in preparing this report, we cannot guarantee the accuracy of all source information contained within.• The Investment Performance Analysis (IPA) is provided as a management aid for the client’s internal use only. Portfolio performance reported in the IPA does not constitute a recommendation by NEPC.• Information in this report on market indices and security characteristics is received from sources external to NEPC. While efforts are made to ensure that this external data is accurate, NEPC cannot accept responsibility for errors that may occur.