AGENDA Investment Committee El Camino Hospital Board Monday, May 12, 2014, 5:30 p.m. Conference Room A, Ground Floor 2500 Grant Road Mountain View, California MISSION: The purpose of the Investment Committee is to develop and recommend to the El Camino Hospital Board of Directors the organization's investment policies, maintain current knowledge of the management and investment of the invested funds of the hospital and its pension plan(s), provide guidance to management in its investment management role, and provide oversight of the allocation of the investment assets. AGENDA ITEM PRESENTED BY 1. CALL TO ORDER/ROLL CALL John Zoglin, Chair 5:30 – 5:31 2. POTENTIAL CONFLICT OF INTEREST John Zoglin, Chair 5:31 – 5:32 DISCLOSURES 3. PUBLIC COMMUNICATION John Zoglin, Chair 5:32 – 5:33 4. CONSENT CALENDAR: John Zoglin, Chair public Motion Any committee member may remove an item for comment 5:33 – 5:35 discussion before a motion is made. Approval: March 3, 2014 Minutes ATTACHMENT 4 5. EL CAMINO HOSPITAL FINANCIAL Matt Harris, Controller Information PERFORMANCE 5:35 – 5:45 ATTACHMENT 5 6. EXECUTIVE DASHBOARD Matt Harris, Controller Discussion ATTACHMENT 6 5:45 – 5:50 7. INVESTMENT REVIEW Antonio DiCosola, Lucas public Possible Motion a. First Quarter Performance Review Mansberger – Pavilion comment 5:50 – 6:30 b. Direct Hedge Fund Review Advisory Group, Inc. c. Additions to Hedge Fund Portfolio ATTACHMENT 7 8. GOALS AND PACING PLAN John Zoglin, Chair public Possible Motion a. 2014 Committee Goals comment 6:30 – 6:45 b. 2014/2015 Pacing Plan c. 2015 Draft Committee Goals ATTACHMENT 8 A copy of the agenda for the Regular Committee Meeting will be posted and distributed at least seventy-two (72) hours prior to the meeting. In observance of the Americans with Disabilities Act, please notify us at 650-988-7504 prior to the meeting so that we may provide the agenda in alternative formats or make disability-related modifications and accommodations. El Camino Hospital Board Investment Committee May 12, 2014 Page 2 AGENDA ITEM PRESENTED BY 9. ADJOURN TO CLOSED SESSION 6:45 John Zoglin, Chair 6:46 – 6:47 10. POTENTIAL CONFLICT OF INTEREST DISCLOSURES 11. Health and Safety Code Section 32106(b) for a John Zoglin, Chair Discussion report involving health care facility trade secret. 6:47 – 7:04 - Committee Self-Assessment Results 12. ADJOURN TO OPEN SESSION John Zoglin, Chair 7:04 – 7:05 To report any required disclosures regarding permissible actions taken during Closed Session. 13. ADJOURNMENT John Zoglin, Chair 7:05 p.m. Tentative 2014/2015 Investment Committee Meetings: . August 11, 2014 . November 10, 2014 . February 9, 2015 . May 11, 2015 Separator Page 4. IC 3-3-14 Open Minutes.docx DRAFT Minutes of the Open Session Investment Committee Meeting Of El Camino Hospital Monday, March 3, 2014 1. Call to Order. The Open Session meeting of the Investment Committee Meeting of El Camino Hospital (the “Committee”) was called to order by Committee Chair John Zoglin at 5:30 p.m. on Monday, March 3, 2014, Conference Room A at El Camino Hospital, 2500 Grant Road, Mountain View, California. 2. Roll Call. Committee members present were John Zoglin, Nicki Boone, Ethan Cohen-Cole, Jeffrey Davis, MD, and Brooks Nelson. 3. Potential Conflict of Interests Disclosures. Committee Chair John Zoglin asked if any Committee member or anyone in the audience believes that a Committee member may have a conflict of interest on any of the items on the agenda. No conflict of interest was reported. 4. Consent Calendar. The Committee reviewed the item on the Consent Calendar. Upon motion duly made by member Brooks Nelson and motion seconded by member Nicki Boone, the November 13, 2013 open minutes were unanimously approved by five members in attendance (Zoglin, Boone, Cohen-Cole, Davis, and Nelson). 5. Agenda Item 5 – El Camino Hospital Financial Performance. Ned Borgstrom, Interim Chief Financial Officer, presented an overview of how El Camino Hospital is performing. He stated the hospital is having a very good year, running several million dollars ahead of budget at the operating margin level and almost $30M ahead of budget at the bottom line level due to good investment performance. The positive variances were mainly caused by one time Medicare cost report settlements and appeals as well as Intergovernmental Transfer payments for Medi-Cal. 6. Agenda Item 6 – Executive Dashboard. Mr. Borgstrom presented the Investment Committee Scorecard. He asked the Committee if they wanted to add a measure of volatility onto the dashboard which would show if we are getting the appropriate amount of returns for the amount of risk taken. There was a discussion on absolute return benchmarks, assumptions, assessment of volatility and risk, and the tools used to make an assessment. Also discussed was how much return has been generated relative to our portfolio benchmark and how much volatility we have suffered in the portfolio compared to the same benchmark. Pavilion Advisory Group was asked how the calculation of volatility contributes to the assessment of risk and what metrics can be provided on an ongoing basis for risk adjustment and returns. Mr. Thomas Dodd, from Pavilion Advisory Group, stated that the Sharpe ratio would be one of the starting measures. They would compare the Sharpe ratio with the actual return and actual volatility vs. the Sharpe ratio of the benchmark by creating a three year rolling graph. The Committee agreed that the Scorecard should show the Sharpe ratio to indicate risk against benchmarks, the measure of absolute risk and exposure to show what the budget numbers are, Minutes: Investment Committee of the Board March 3, 2014 Page 2 and the forecast performance against the actuals (one year forward for the budget numbers and three years forward for the investments). 7. Agenda Item 7– Performance Review and Market Commentary. – Mr. Dodd provided an overview of investment markets during the fourth quarter of 2013 and year to date in 2014. Equity markets experienced a very strong fourth quarter, with the 10.5% return of the S&P 500 Index bringing the Index’ return to 32.4% for the year. Economic data year to date in 2014 had been somewhat weaker, but most market participants attributed the weak economic data to severe winter weather in the U.S. Lucas Mansberger, also from Pavilion Advisory Group, reviewed the performance of the El Camino Hospital pools. He indicated that both of the El Camino Hospital pools, the Surplus Cash and the Cash Balance Plan, continued to perform well on an absolute basis and relative to their respective benchmarks. The Surplus Cash and Cash Balance Plan pools outperformed their benchmarks by 50 and 30 basis points, respectively. In both plans, asset allocation aided performance during the quarter, as slight overweight allocations to domestic equities and underweight exposure to market duration fixed income aided returns. Within both plans, equity manager selection detracted from relative performance while fixed income manager selection contributed positively to performance. Mr. Mansberger noted that most investment managers were outperforming or performing in-line with their respective benchmarks since the restructuring of the El Camino Hospital portfolios in 2012. However, he indicated that Pavilion was disappointed with the recent performance of the international equity manager Walter Scott, as the strategy significantly underperformed during 2013. Mr. Mansberger said that Walter Scott’s underperformance was largely due to emerging markets exposure within the portfolio. He indicated that while Walter Scott’s direct exposure to equities of companies domiciled in the emerging markets was relatively modest during the year, its exposure to developed markets companies whose growth prospects were dependent on emerging markets growth has been fairly significant. Mr. Mansberger said that Pavilion still retained confidence in the firm and that there were no organizational or process issues and recommended no changes at this time. The Committee discussed the emerging markets exposure of the portfolios at length and requested that Pavilion keep them apprised of Pavilion’s views on the space. Mr. Anthony DiCosola, Pavilion Advisory Group, explained that our equity allocation target in the surplus cash portfolio is 30% of equities. Out of the 30%, ten is the target for international managers. Out of that ten, the maximum invested in emerging markets is twenty of the ten, or 2%. Mr. Borgstrom asked if, as a U.S. domiciled hospital, would it be preferable to have our investments equal the world portfolio or have it heavily weighted to the U.S. or would we prefer it the other way around. It was suggested that additional criteria be discussed at a future meeting. $21.1 million was contributed to the Surplus Cash pool during the fourth quarter. Walton Street RE Fund VII called $1.1 million in capital during the month. There were additions to the Direct Hedge Fund Portfolio during the quarter. The Indus Japan Fund was funded on December 1st with an initial contribution of $5.0 million, while additional contributions of $1.5 million each Minutes: Investment Committee of the Board March 3, 2014 Page 3 were made to the York Credit Opportunities Unit Trust and the Fir Tree International Value Fund. The Cash Balance Plan received an employer contribution of $3.0 million during the quarter. 8. Agenda Item 8 – Asset Allocation Review. Mr. DiCosola reviewed the asset allocation study conducted for the Surplus Cash pool. He described the methodology for the asset allocation study, and indicated that the projected cash flow into (or out of) the Surplus Cash account as well as the non-investment financial data utilized in the projected financial ratios were provided by El Camino Hospital staff. He discussed the background for the analysis, offering detail on the rationale behind the Committee’s previous asset allocation election.