Board of Retirement Fresno County Employees’ Retirement Association

BOARD OF RETIREMENT FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION

July 15, 2009

Trustees Present:

Alan Cade, Jr. Michael Cardenas Nick Cornacchia Vicki Crow Eulalio Gomez James Hackett Phil Larson John Souza

Trustees Absent:

Steve Jolly

Others Present:

Ronald S. Frye, Alternate Trustee Michael Cunningham, FCERA Member Les Jorgensen, REFCO Jeffrey Rieger, Reed Smith Jeffrey MacLean, Wurts & Associates Scott Vollmer, Drum Capital Sean Twomey, Drum Capital Brian Murphy, Portfolio Advisors Colleen Casey, Angelo, Gordon & Company Thomas Fuller, Angelo, Gordon & Company David Breazzano, DDJ Capital Management Brian O’Connell, DDJ Capital Management Susan Coberly, Senior Deputy County Counsel Roberto L. Peña, Retirement Administrator Becky Van Wyk, Assistant Retirement Administrator Thanaphat Srisukwatana, Systems & Procedures Analyst Elizabeth Avalos, Administrative Secretary

1. Call to Order

Chair Cade called the meeting to order at 8:35 AM.

2. Pledge of Allegiance

Recited.

3. Public Presentations

None.

Consent Agenda/Opportunity for Public Comment

Trustee Souza pulled Consent Agenda Item 19 for discussion.

071509 Regular Meeting Minutes 2 Trustee Gomez pulled Consent Agenda Item 24 for discussion.

A motion was made by Trustee Larson, seconded by Trustee Souza, to Approve Consent Items 4-18, 20-23. VOTE: Unanimous (Absent – Cardenas Jolly)

*4. Approve the June 17, 2009 Retirement Board Regular Meeting Minutes

RECEIVED AND FILED; APPROVED

*5. Retirements

RECEIVED AND FILED; APPROVED

Kathleen M. Baahindt E&TA 15.59 Sylvia J. Brown Assessor-Recorder 32.20 Iola Crockett VMC, Deferred 7.47 Robert A. Keyes Sheriff 3.45 Suzanne L. Kostrub Community Health 21.23 Elizabeth Lynam E&TA 21.41 Phillip W. Mattox Children & Family Svs, Deferred 14.45 Linda Neely Children & Family Services 30.05 Harry N. Ng Community Health, Deferred 1.90 Linda L. Pullen Community Health, Deferred 6.01 Connie S. Reyes Community Health 10.19 Randolph C. Reyes Community Health 32.62 Linda E. Salinas E&TA 19.04 Steven L. Sher Behavioral Health 25.06 Carole S. Sitze Community Health 23.28 Julian Torres Public Works & Planning 17.44 Lucy Y. Tucker Children & Family Services 22.18 Mary H. Valencia Assessor-Recorder 20.50 Patricia Ann Williams E&TA 16.80 Nancy J. Woodruff Personnel 12.52

*6. Deferred Retirements

RECEIVED AND FILED; APPROVED

Elizabeth Frye Probation 8.26 Janna L. Reis General Services 0.94 Ryan G. Smith Probation 7.32 Walter R. Toner General Services 4.54

*7. Disability Retirements

RECEIVED AND FILED; APPROVED

Brian T. Borchardt Public Works & Planning 4.03

07/15/09 Regular Meeting Minutes 3

*8. Request to Rescind Deferred Retirements

RECEIVED AND FILED; APPROVED

Renna L. Dalman Child Support Services 11.02 Felix Contreras Probation 7.90

*9. Public Records Requests and/or Retirement Related Correspondence from Barbara Kus, FCERA Member; Sandra Brock, FCERA Member; Lucky Begum, Preqin Ltd.; Elizabeth Avery, Kalorama Capital; James Rutherfurd, Veronis Suhler Stevenson; and Gene Lins, FCERA Member

RECEIVED AND FILED

*10. Update of Board of Retirement directives to FCERA Administration

RECEIVED AND FILED

*11. Most recent investment returns, performance summaries and general investment information from investment managers

RECEIVED AND FILED

*12. Summary of monthly statistics from the Retirement Association Office on buybacks, retirement benefits estimates, public service, age adjustments, final compensation calculations, and disability applications for the month of June 2009

RECEIVED AND FILED

*13. Budget Status for the period ended June 30, 2009

RECEIVED AND FILED

*14. Quarterly Trustee Travel Report and Anticipated Trustee Travel for the quarter ended June 30, 2009

RECEIVED AND FILED

*15. Correspondence from Sulema Peterson, SACRS Administrator, regarding Court Furloughs

RECEIVED AND FILED

*16. Correspondence from Robert Palmer, SACRS Interim Executive Director, regarding Actuarial Accrued Liability (AAL) in the Calculating Systems’ Administrative Budgets

RECEIVED AND FILED 07/15/09 Regular Meeting Minutes 4

*17. SACRS Year 2010 Legislative Timelines for submission of proposed legislation to be sponsored by SACRS

RECEIVED AND FILED

*18. Correspondence from Jim Anderson, Mendocino County Employees’ Retirement Association, regarding the survey results of Total Return for the one, three, and five year periods ending June 30, 2008

RECEIVED AND FILED

*19. Memorandum from Steven J. Center, Wurts & Associates regarding Organizational update at Western Asset Management Company

At the request of Trustee Souza, Jeffrey MacLean, Wurts & Associates, gave a brief update on Western Asset Management Company’s (WAMCO) returns. Mr. MacLean noted that, although WAMCO had experienced negative returns in the 1st quarter of 2009, the returns have improved in the 2nd quarter.

A motion was made by Trustee Souza, seconded by Trustee Gomez, to Receive Consent Item 19. VOTE: Unanimous (Absent – Cardenas, Jolly)

RECEIVED AND FILED

*20. Binder of insurance confirmation for FCERA Fiduciary Insurance

RECEIVED AND FILED

*21. Binder of insurance confirmation for FCERA Excess Fiduciary Insurance

RECEIVED AND FILED

*22. Renewal of Property Liability Insurance for the FCERA Administration building

RECEIVED AND FILED; APPROVED

*23. Renewal of Property Liability Insurance for the Fresno Station Business Center

RECEIVED AND FILED; APPROVED

*24. Proposed Board of Retirement Election Voting Procedures for Review and Final Approval by the Board of Supervisors

At the request of Trustee Gomez, Becky Van Wyk, Assistant Retirement Administrator, explained that an “inactive employee” is one that has terminated employment, is not vested, and has not refunded their retirement contributions.

RECEIVED AND FILED; APPROVED 07/15/09 Regular Meeting Minutes 5

25. Discussion and appropriate action on selection of investment management firms for the Distressed Debt mandate

Jeffrey MacLean, Wurts & Associates, opened discussions with a brief overview of the Distressed Debt strategy noting that Distressed Debt consists of investing across the capital structure (debt/equity) in either private or public securities experiencing distress. Types of strategies include short to intermediate term trading strategies as well as more active restructuring and debt-for-control transactions. For the purpose of this discussion, Wurts has focused on private equity-oriented strategies which include Fund of Funds and Direct Investments.

Drum Capital - Fund of Funds

Scott Vollmer, Founder & Chief Executive Officer, reviewed the firm’s history noting that Drum Capital was established in 2005 and is 100% employee owned. There are no affiliations or outside owners.

Drum Capital is a specialized asset management firm dedicated exclusively to distressed and turnaround investments. The principals of Drum Capital have extensive experience investing in the private equity and distressed securities sector. Drum Capital was founded by Mr. Vollmer, who has spent his career in leveraged finance, workout situations, asset backed and distress investing. His experience is complimented by the diverse backgrounds of Drum Capital’s senior investment professionals, a specialized team focused solely on distressed opportunities through marketed or sourced partnerships, secondaries, and co-investment deals.

Special Situation Partners III (target raise of $350 million) is being organized to invest primarily in private equity funds that have been formed to invest in distressed debt or securities of businesses that are experiencing financial or operating difficulties and to make direct investments in such businesses. In particular, the Fund will seek to opportunistically invest in a diversified pool of funds managed by top performing active specialty managers that will make distressed investments in a range of industries with the primary purpose of obtaining influence over and control of the restructuring of financially troubled companies or, with regard to a limited number of funds, trading strategies in distressed debt or other obligations of distressed companies. The General Partner believes that this diversified approach to distressed investing optimizes flexibility in different market environments and mitigates certain concentration risks associates with control investing.

The Fund’s objective remains consistent with that of the previous funds managed by the principals of Drum Capital in that it provides investors with superior, risk-adjusted, long-term capital appreciation through investment in a diversified portfolio of distressed strategies and investments. Drum capital will make commitments over a four-year period, principally in specialized partnerships that invest in distressed restructuring, deep value, and turnaround opportunities. At least 80% of the Fund’s capital contributions will be invested in underlying partnerships that primarily invest in US-domiciled companies and directly in US-domiciled portfolio companies.

07/15/09 Regular Meeting Minutes 6

The Fund will concentrate on investment managers that actively provide direct hands-on investment experience, proven legal turnaround and negotiating skills, while minimizing the Fund’s participation in passive tactical managers and leveraged vehicles. Historically, Drum has allocated its funds’ capital to proven managers that invest into hard-asset businesses, making vestments in companies with undervalued assets, properties, or plant and equipment, in order to minimize downside investment risks, while actively working to repair the financial and operating problems that caused the financial distress of the companies and securities, obligations, and equity values.

In response to a question from Chair Cade regarding Drum Capital’s future investment expectations, Mr. Vollmer stated that the firm expects a strong opportunity set of investments for the foreseeable future. The abrupt end of the environment of easy credit and excess liquidity in July 2007 and the recent economic crisis have resulted in a significant increase in the number distressed companies, due to the magnitude of low credit quality debt issuance and over-leveraged corporate balance sheets that became prevalent in that environment. Drum Capital believes that investing in select distressed, but improvable, businesses with tangible undervalued assets can offer investors a strategy of downside protection that is typically not available from venture capital or buyouts, providing investment opportunities with little or no leverage and with the potential for attractive risk-adjusted returns.

Understanding the strategies deployed by each distressed manager is vital in evaluating the potential success of a manager and its strategy. For those private equity managers that focus on turnaround and distressed investing, their involvement generally provides a catalyst to the revitalization of a company with troubled operating and financial situations due to their focus on creating value through a successful active turnaround. Drum Capital believes that the ability of its team of distressed specialists to recognize the changing dynamics within the distressed marketplace and to indentify the strength of a manager’s skill set, whether operational of financial, provides its investors with a sophisticated due diligence process and oversight.

Trustee Cardenas joined the Board at 9:34 AM.

Portfolio Advisors - Fund of Funds

Brian Murphy, Managing Director, reviewed the firm’s history noting that Portfolio Advisors was founded in 1994 and is 100% employee owned.

Portfolio Advisors Private Equity Fund VI is a globally diversified private equity fund-of-funds and is menu-driven allowing investors to choose a customized allocation among three fund-of- funds strategies – buyouts, diversified venture capital, and special situations. The offering allows investors to select from two sub-sector funds within the special situations category – diversified special situations and distressed. Each investor may allocate to one or all five sectors in proportion to their investment objectives. The funds may invest in secondary partnership interests as well. As with its prior fund offerings, Portfolio Advisors will seek to invest with top-tier primary funds and opportunistically purchase secondary fund interests while maintaining one of the lowest fee structures in the fund-of-funds market.

07/15/09 Regular Meeting Minutes 7

Commitments will be made to underlying funds over a period of three and one half years from Fund VI’s initial closing and expects an investment period of between three and six years. Additional time diversification can be achieved through secondary investments. The Distressed Debt Sector will consist of investments in portfolio funds that invest predominantly in companies or assets that are near or are currently going through bankruptcy or other extraordinary transactions such as debt restructurings, reorganizations, and liquidations outside of bankruptcy.

Mr. Murphy reviewed the Fund VI Distressed Sector as follows:

• Investment Strategy - Distressed funds (including distressed debt trading, distressed debt for control, and turnaround strategies) - Pursue talented and focused distressed managers that have clear, disciplined, and differentiated strategies - Portfolio Advisors will consider aspects such as demonstrated track record, team continuity, deal sourcing, and differentiated investment strategy when selecting the appropriate managers • Number of Commitments - 8-12 managers • Portfolio Construction - Diversification by strategy, deal size, vintage year, geography • Fund Size - Target $150 - $250 million

Mr. Murphy noted that Portfolio Advisors has produced attractive distressed returns during periods of economic contraction and expects the vintage years 2009-2012 to be particularly attractive for distressed strategies.

Mr. Murphy gave a brief overview of the current Distressed Market situation and noted the following:

• Default rates quadrupled at the end of 2008 to 4.0% and are expected to increase significantly this year as the economic crisis pressures struggling firms • Global economic conditions are now substantially weaker than the previous downturns in the 1990s and 2000s • Increasing default rates may provide attractive investments opportunities for distressed investors • A large amount of debt will be maturing over the next three to five years • Weak operating performance during 2008 and 2009 will make it difficult for many companies to refinance as debt matures • Distressed debt and turnaround funds are becoming increasingly attractive due to the weakening economic and credit environment

07/15/09 Regular Meeting Minutes 8 Mr. Murphy stated that Portfolio Advisors offers two fee schedules – Series I and Series II.

Series I Fees (no performance allocation)

Based on a commitment of $25 million or more the management fee is 0.625% in years one to three and 0.50% thereafter. With a commitment of up to $25 million the management fee is 0.875% in years one to three and 0.70% thereafter.

Series II Fees (5% performance allocation)

Based on a commitment of $25 million or more the management fee is 0.375% in years one to three and 0.30% thereafter. With a commitment of up to $25 million the management fee is 0.625% in years one to three and 0.50% thereafter.

Fees decline throughout the life of the fund. After seven years of the fund’s final closing date, fees are based on the lower of capital commitment. Series II Performance Allocation has a 5% performance allocation that applies to net gains but is payable only after 100% return of committed capital, plus an 8% Preferred Return on invested capital. The fee structures apply to both primary and secondary investments.

In response to a question from Trustee Souza regarding the management fees, Mr. Murphy noted that the management fees are based on the total commitment and 80% of capital is traditionally drawn in under four years.

At the request of Trustee Cornacchia, Mr. Murphy reviewed Portfolio Advisor’s due diligence process noting that the manager screening process begins with a research team of nine investment professionals who are responsible for reviewing and screening the investment memoranda received by Portfolio Advisors. Deals meeting the screening are funneled up to the Investment Committee for preliminary discussions. A multi-stage process is used to effectively sort through hundreds of private equity investment opportunities for inclusion in their fund-of-funds and portfolios. Portfolio Advisors typically invests in approximately 10% of the deals that it reviews annually to satisfy the needs of all its clients.

It is the responsibility of the team executing full due diligence to conduct on-site visits at the general partners’ offices and reference checks on the firm and its principals with past and present management teams.

Angelo, Gordon & Company - Direct Investment

Colleen Casey, Managing Director, reviewed the firm’s history noting that Angelo, Gordon & Company (Angelo, Gordon) was founded in 1988 and is privately held firm specializing in global alternative investments with an absolute return orientation. The firm’s investment focus centers around two core competencies, credit and real estate, and manages capital across four principal lines: (a) distressed debt and leveraged loans, (b) real estate, (c) private equity and, (d) multi-strategy hedge funds.

The activities of Angelo, Gordon are under the overall supervision of John Angelo and Michael Gordon who are assisted by a professional staff which presently includes approximately 200 employees, including employees of affiliates.

07/15/09 Regular Meeting Minutes 9

Thomas Fuller, Senior Managing Director, gave an overview of the firm’s investment philosophy/methodology noting that it has remained constant throughout the firm’s 20 year history. The firm has an experienced team of investment professionals focused on the distressed securities sector of the fixed income market.

When managing AG Capital Recovery Partners VII, Angelo, Gordon will employ the same investment methodology that it has utilized since inception of the firm. Portfolios are constructed using a bottom up approach on a situation-by-situation basis and not necessarily by looking at a particular industry to see if it is in or out of favor. Angelo, Gordon’s investments typically consist of secured and other senior debt instruments of troubled companies, which, because of their priority in a company’s capital structure, are relatively unaffected by swings in the equity markets, particularly when compared to more junior, higher risk/reward securities such as subordinated debt. The collateral and legal safeguards offered by secured and senior debt provide not only a value oriented margin of safety for the investor, but also offer superior legal leverage in what is often a contentious struggle between senior and junior creditors over a limited pool of assets. They do not employ leverage directly.

Angelo, Gordon employs an active role in managing its distressed investments and oftentimes becomes an active participant in a restructuring in an effort to further maximize the value of its investments. In addition, the firm also employs a strict sell discipline to ensure that investments are sold as they approach full value and, more importantly, to minimize losses in response to changing developments. Adherence to these principals has enabled Angelo, Gordon to consistently generate targeted returns with low volatility in its distressed securities investments.

In response to a question from Mr. MacLean regarding the portfolio structure, Mr. Fuller stated that the portfolio is built from the bottom up, position by position. A typical position would likely represent 2-3% of the portfolio, while a large position may represent 5%. An any given point, one-third of the portfolio represents positions being accumulated, one-third represents positions that are in the workout/restructuring phase, and the last one-third are positions that are winding down.

Mr. Fuller summarized Fund VII’s fee structure as follows:

Targeted Size: $2 billion core fund; $1 billion reserve capital

Term: 3 year investment period following initial closing; 4 year liquidation period with the option to extend up to two additional one year periods

Management Fee: Core fund – 1.5% of committed capital Reserve capital – 1.5% of net funded capital 1.25% for commitments of $250 million or greater

Incentive Distributions: 20% to Angelo, Gordon subject to an 8% cumulative preferred return and an 80/20 catch-up

07/15/09 Regular Meeting Minutes 10 DDJ Capital Management - Direct Investment

Brian O’Connell, Vice President, Client Development, gave an overview of the firm’s history noting that DDJ Capital Management (DDJ) was formed in 1996. The firm currently manages four core strategies: (a) control distressed, (b) high yield debt, (c) non-traditional corporate loans, and (d) credit focused hedge funds. All of their strategies are focused on the small and mid-cap portion of the lower equity debt markets. They currently employ 18 investment professionals involved in research, investment management, trading, and legal structuring of complex distressed transactions. DDJ is independently owned and managed by its co- founders and key employees.

DDJ’s senior investment professionals have over 100 years of collective experience in the securities of distressed companies and managing the bankruptcy process. They believe their focus and distressed investment experience, coupled with their detailed knowledge of bankruptcy law, provide them with a significant competitive advantage in analyzing, structuring, negotiating, and exiting investments.

David Breazzano, President & Chief Investment Officer, gave a brief investment overview noting that DDJ Capital Partners will seek capital appreciation by investing primarily in the distressed debt of publicly traded and privately held securities and other obligations of financially troubled companies. The fund will utilize a control style of distressed investing whereby it will seek to establish at least a blocking position in the debt security, and then utilize the restructuring process to create a control equity stake in the reorganized company. A private equity approach will be used once control is obtained to implement operational and financial improvements and ultimately to exit the investment.

Mr. Breazzano reviewed the portfolio construction approach noting that DDJ monitors the capital markets to identify companies that are experiencing financial distress and often follows and analyzes companies before financial difficulties, covenant defaults, or bankruptcy filings occur. When a covenant default is announced or a bankruptcy filing appears likely, DDJ evaluates the company for its merits, which might include a competent management team, a sustainable market position, and/or a stable base asset value. Additionally, DDJ utilizes its large network of turnaround consultants, restructuring advisors, bankruptcy lawyers, senior executives, and investment bankers to source and evaluate potential distressed opportunities.

Mr. Breazzano reviewed the fund terms as follows:

Target Fund Size: $400 million

Investment Period: 4 years from date of final closing

Term: 7 years (3 years after investment period) with two one-year extensions with Advisory Board approval

Preferred Return: 8.0%

Management Fee: 1.5%

Distributions: 80% LP / 20% GP after full return of LPs’ capital (including management fee) and preferred return; 50/50 catch-up 07/15/09 Regular Meeting Minutes 11

The Board engaged in detailed discussions regarding the firms’ various strategies (fund of funds versus direct investments), manager identification processes, and risk controls as well as terms/fees of each fund.

A motion was made by Trustee Souza, seconded by Vice Chair Gomez to use the Direct Investment approach. VOTE: Unanimous (Abstain – Cardenas) (Absent – Jolly)

A motion was made by Chair Cade, seconded by Trustee Larson, to direct Administration to begin contract negotiations with Angelo, Gordon & Company. VOTE: Unanimous (Abstain – Cardenas) (Absent – Jolly)

RECEIVED AND FILED; APPPROVED

26. Discussion and appropriate action on Term Asset-Backed-Securities Loan Facility (TALF) investment strategy and allocation

Jeffrey MacLean, Wurts & Associates, opened discussion by reminding the Board of its decision to allocate $100 million to the TALF strategy using PIMCO. Mr. MacLean noted that, unfortunately, PIMCO will not be able to accommodate the entire $100 million allocation into the recently closed TALF partnership. Due to strong investor demand and their intention to limit the size of the partnership, they will only permit an allocation of $60 million by FCERA. This leaves an approximate shortfall of $40 million to complete the 5% allocation previously agreed upon.

Mr. MacLean reminded the Board that Wurts had performed thorough due diligence on two firms offering TALF strategies; PIMCO and Metropolitan West. Mr. MacLean noted that, although, there are many good firms now offering TALF strategies, including BlackRock and Standish, Wurts had to limit the scope of due diligence in order to timely exploit this opportunity.

Based on Wurt’s on-site due diligence visit, Mr. MacLean recommended that the Board employ Metropolitan West for the balance of the TALF assignment. Mr. MacLean noted that, although he is sensitive to the due diligence processes established by the Board, he believes that the TALF strategy deserves special consideration. Detailed discussions ensued regarding the limited timeframe in which to invest in the TALF strategy.

Roberto L. Peña, Retirement Administrator, clarified that at the time due diligence was conducted on PIMCO and Metropolitan West, BlackRock and Standish were not offering a TALF strategy.

A motion was made by Trustee Hackett, seconded by Trustee Crow, to approve the recommendation to allocate the $40 million TALF mandate balance to Metropolitan West. VOTE: Unanimous (Absent – Jolly)

RECEIVED AND FILED; APPROVED

07/15/09 Regular Meeting Minutes 12

27. Discussion and appropriate action on Hedge Fund of Funds due diligence visits and selection of Hedge Fund of Funds managers - Aetos Capital Management, Common Sense Investment Management, and Grosvenor Capital Management

Jeffrey MacLean, Wurts & Associates, opened discussions with a summary of the on-site Hedge Fund of Funds due diligence visits. The meetings were conducted by Chair Alan Cade, Trustee Nick Cornacchia, Retirement Administrator Roberto L. Peña, and Jeffrey MacLean, Wurts & Associates (FCERA delegation).

At the January 7, 2009 Regular Board Meeting, Mr. MacLean presented five Hedge Fund of Funds candidates. The Board decided to interview all five firms at the April 1, 2009 Regular Board Meeting. Of those five firms, the Board authorized due diligence visits for Aetos Capital (Aetos), Common Sense Investment Management (Common Sense), and Grosvenor Capital Management (Grosvenor). The due diligence visits were conducted on May 26-28, 2009.

The main objectives of these visits were to meet the key portfolio management team members, as well as the firm’s investment and non-investment professionals, gain a better understanding of their investment philosophy and process, experience, investment style, working environment, resources, ownership structure, and level of commitment by the firms for the $80 million investment mandate FCERA is considering.

Mr. MacLean recommended that the Board select Common Sense and Grosvenor for the Hedge Fund of Funds mandate based on their diversification qualities and their abilities to minimize operational risks such as fraud.

Roberto L. Peña, Retirement Administrator, also recommended the selection of Common Sense and Grosvenor for the Hedge Fund of Funds mandate. Mr. Peña noted that all three firms are very capable options for this mandate; however, Common Sense has a focused niche of long/short managers and a long-standing reputation in this strategy and Grosvenor’s size, experience and distinctive approach of separate investment and operational tracks in the due diligence process are the main reasons for “tipping the scale” in their favor.

Mr. Peña noted that given Common Sense’s 100% allocation to the long/short strategy and the 33% allocation of Grosvenor’s underlying managers to the long/short strategy, the combined impact of these two managers translates to about a 67% allocation to a long/short strategy in the hedge fund of funds mandate, which is probably less of the diversification impact being sought in a multi-strategy approach of a hedge fund of funds mandate. However, because not all long/short strategies are the same, the allocation will provide diversification even within the long/short strategy approach.

Mr. Peña stated that, in terms of Aetos, he felt that despite their competitive investment results and experienced investment team, Aetos’ due diligence process did not have sufficient resources to properly monitor all the investment strategies employed by all their underlying hedge funds managers.

Trustee Cornacchia noted that he was impressed with the Hedge Fund of Funds managers and supports the mandate. However, he differs on the recommendation in that he supports allocating the full $80 million to Grosvenor based on, among other qualities, their due diligence and auditing processes. 07/15/09 Regular Meeting Minutes 13

At the request of Trustee Hackett, Mr. MacLean reviewed the objectives in conducting on-site due diligence visits. Mr. MacLean noted that meeting key portfolio management team members, as well as the firm’s investment and non-investment professionals, gaining a better understanding of investment philosophies and processes, experiences, investment styles, working environments, resources, ownership structures, and level of commitments are valuable tools when deciding which firm to select for an investment allocation.

Chair Cade supported the recommendation to select Common Sense and Grosvenor based on their transparency of their audit processes and risk controls.

A motion was made by Trustee Souza, seconded by Trustee Crow, to Approve the recommendation to select Commons Sense and Grosvenor for the Hedge Fund of Funds mandate and to terminate the Hedge Fund of Funds position with Blackstone. VOTE: Unanimous (Absent – Jolly)

RECEIVED AND FILED; APPROVED

28. Discussion and appropriate action on Linea Solutions IT Roadmap General Ledger phase

Roberto L. Peña, Retirement Administrator, opened discussions by noting that the proposed IT Roadmap Assessment project presented to the Board by Linea Solutions last April 15, 2009 estimated that the process will take about six years to complete at a total cost of a little over $6 million. Upon further communications and discussions with Linea, Administration learned that the total “soft” costs for consulting services for the six-year IT Roadmap process was about $2.94 million.

As a result of the total consulting services costs associated with the full IT Roadmap project, Administration requested an updated proposal from Linea Solutions that only included the costs associated with the related work for the current FY 2009-10. The not-to-exceed estimated costs associated with Phase I of the IT Roadmap project for the current FY total $293,075, of which $94,635 are related to the General Ledger (GL) project alone. The bulk of the Phase I costs, about $240,000, was included in the recent administrative budget approved by the Board for the work to be performed during the current FY.

Mr. Peña stated that are a couple of approaches to deal with this process going forward. Administration could issue a Request for Proposal (RFP) for consulting services, either for the full IT Roadmap project at an estimated cost of $2.94 million or just for the costs associated with Phase I of the project at an estimated cost of about $293,000. The RFP approach is clearly appropriate and meets the Board’s past practice on similar situations. However, since Administration has begun the initial assessment of the IT systems and needs, it could be detrimental to the success and efficiency of the overall initiative to potentially utilize another consulting firm, if selected through the RFP process, as a new firm could have different IT assessment views and recommendations and a lot of the initial project could end up being redone or undone.

In addition, given the need to begin the process for the GL project as soon as possible to meet the June 30, 2010 deadline for implementation, the RFP process approach most certainly will limit the chances to meet the June 30, 2010 deadline.

07/15/09 Regular Meeting Minutes 14 Mr. Peña stated that given Administration’s positive experience with Linea Solutions during the development of the IT Roadmap, the fact that Linea developed the IT Roadmap assessment and gained knowledge of FCERA’s systems and operations during the process, Linea’s vast IT experience within the ‘37 Act community and the number of positive reviews Administration received from peer systems of their experiences in dealing with Linea in a number of different IT projects, another option would be to hire Linea Solutions for either the full IT Roadmap project estimated at a cost $2.94 million or Phase I of the project estimated at about $293,000 or, to the very least, the work associated with the GL project estimated at about $95,000.

Mr. Peña noted that he is in favor and strongly recommends one of the last two options, either hiring Linea Solutions without issuing an RFP for either Phase I of the project for the 2009-10 FY or for only the GL project given that time is of the essence to meet the June 30, 2010 implementation deadline.

This approach will give Administration the opportunity to further experience first hand the strengths of Linea Solutions while at the same time give Administration the opportunity to find out if it can work and develop a team concept approach with Linea in the event the Board eventually hires them for the rest of the IT Roadmap project.

Trustee Larson raised concerns regarding whether Administration should be using the services of the County’s IT department.

Detailed discussions ensued regarding the reasons why Administration is not utilizing the County’s IT services and it was noted that Administration will continue to have a limited relationship with the County’s IT department. However, the Information & Technology Services Department (ITSD) does not offer consulting services and can not provide the dedication needed to complete the IT Roadmap Assessment project as outlined in the project processes.

A motion was made by Trustee Cornacchia, seconded by Chair Cade, to Approve the recommendation to hire Linea Solutions to perform the consulting services for the General Ledger portion of the IT Roadmap Assessment project. VOTE: Unanimous (Abstain – Larson) (Absent – Jolly)

RECEIVED AND FILED; APPROVED

29. Discussion and appropriate action on length of Retirement Board meeting as compared to other 1937 Act Counties

Roberto L. Peña, Retirement Administrator, opened the discussion by reminding the Board of its April 1, 2009 direction to Administration to agendize a discussion on potential methods for reducing the time commitment for Board of Retirement Meetings.

Mr. Peña reviewed a comparison of annual number of meetings and commitment times of other 1937 Act systems to that of FCERA. The comparison shows that FCERA is slightly above average compared with the other systems with 28 annual meetings and an average meeting time of 3.51 hours.

To reduce the Regular Board Meeting time commitment, Chair Cade suggested that the Board consider implementing an Investment Committee that would make recommendations to the full Board. Discussions ensued.

07/15/09 Regular Meeting Minutes 15 Trustee Cornacchia raised concerns that discussion items may not get full/proper consideration due to the number of issues being discussed at one time and suggested limiting the number of discussion items per meeting.

Vice Chair Gomez noted that the Board members have a role in the length of the meetings and that the time could be reduced by staying on topic and not repeating questions that have already been addressed.

Chair Cade requested that the Board members forward any suggestions for reducing the time commitment to Administration.

NO ACTION TAKEN

30. Report on Final Compensation Project – Deceased Members

Roberto L. Peña, Retirement Administrator, reported that the “Deceased Members” portion of the Final Compensation project has been completed and summarized the final results of the full project.

Mr. Peña noted that the deceased member subgroup of 331 people was reduced to 198 when it was determined that:

1. 120 people were included on the original list due to a continuing benefit provided to an eligible beneficiary 2. Twelve were confirmed to have died prior to March 2, 2001 3. One member’s recalculation resulted in an overpayment of final compensation however the member died prior to September 1, 2004

In compliance with the policy adopted by the Board on December 20, 2006 on Underpayments to Members Who Died Before Payment is Processed, letters were mailed via certified mail, return receipt requested, to the last known address of each person(s) entitled to payment. As a result, FCERA was able to close out 54 of the outstanding overpayment by issuing additional payments to the person(s) entitled to payment. There remain 144 deceased people who were underpaid during their retirement to which FCERA owes funds to the person(s) entitled to payment.

Mr. Peña stated that, on the advice of legal counsel, FCERA has established a listing of the deceased people for whom underpayments are available. Five years after the date of mailing of the letters described in the previous paragraph, the outstanding funds will be deposited in the pension reserve fund unless a completed claimant statement is received.

Mr. Peña noted that during the finalization process, Administration discovered that the Cost of Living (COL) bank was .5% lower than it should have been for the years 1977, 1978, and 1980. This error was carried each year from 2002, Public Pension Professionals (PPP) first valuation report, to the final Actuarial Valuation in 2005. As a result, approximately 169 retirees receiving a supplemental COL have been underpaid.

Administration will return to the Board when more information is available on this issue.

RECEIVED AND FILED 07/15/09 Regular Meeting Minutes 16

Trustee Crow departed at 1:05 PM.

31. Closed Session:

A. Conference with Legal Counsel – Actual Litigation - pursuant to G.C. §54956.9(a)

1. Fresno County Employees’ Retirement Association v. Public Pension Professionals 2. North Central Fire Protection District v. Fresno County Employees’ Retirement Association 3. Marsha Stillman v. Fresno County Employees’ Retirement Association

B. Conference with Legal Counsel – Significant Exposure to Litigation – pursuant to G.C. §54956.9(b) – (one potential case)

C. Conference with Real Property Negotiators – pursuant to G.C. §54956.8

Property: 1713 Tulare Street, Fresno, CA 93721 Agency Negotiators: Brian Decker of Colliers Tingey Negotiating Party: BNR Properties

D. Disability Retirement Applications – Personnel Exception (G.C. §54957):

1. Patrick Kelly O’Brien 2. John Massicci 3. Catherine Ruff 4. Mary Lou Rubio-Jimenez

32. Report from Closed Session

31.A.1. Nothing to Report 31.A.2. Nothing to Report 31.A.3. Nothing to Report 31.B. Nothing to Report 31.C. Nothing to Report 31.D.1. Patrick Kelly O’Brien – Decision – To Approve Applicant’s Service Connected Disability benefits based on the Findings of Fact and Decision. M – Souza. Second – Gomez. VOTE: Unanimous (Absent – Crow, Jolly) 31.D.2. John Massicci – Decision – To Approve Applicant’s Service Connected Disability benefits based on the Findings of Fact and Decision. M – Souza. Second Gomez. VOTE: Unanimous (Absent – Crow, Jolly) 31.D.3. Catherine Ruff – Decision – To direct the Administrator to notify the Applicant that the Service Connected Disability will be denied unless the Applicant requests a hearing in accordance with the Hearings Policy. M – Souza. Second – Gomez. VOTE: Unanimous (Absent – Crow, Jolly) 31.D.4. Mary Lou Rubio-Jimenez – Decision - To direct the Administrator to notify the Applicant that the Service Connected Disability will be denied unless the Applicant requests a hearing in accordance with the Hearings Policy. M – Larson. Second – Gomez. VOTE: Unanimous (Absent – Crow, Jolly) 07/15/09 Regular Meeting Minutes 17

Trustee Souza departed during closed session. Ronald S. Frye, Alternate Trustee, joined the Board.

33. Report from FCERA Administration

Roberto L. Peña, Retirement Administrator, reported on the following:

1. Thanked the FCERA Staff for their efforts in completing the Final Compensation Project. 2. A Special Board Meeting is scheduled for August 21, 2009 to continue discussions on the Actuarial Value of Assets. 3. At the end of July, the FCERA web-site will be enhanced to include audio broadcasts of past Board meetings.