1a. JUNE2011Transfers

TRANSFERS OF CREDITED SERVICE BETWEEN DIFFERENT STATE RETIREMENT SYSTEMS
TRANSACTION
DATE
5/16/2011
5/16/2011
5/16/2011
5/16/2011
5/16/2011
5/16/2011
5/17/2011
5/16/2011
5/16/2011
5/16/2011
5/16/2011
5/16/2011
5/16/2011
5/18/2011
5/18/2011
5/19/2011
5/19/2011
5/18/2011
5/19/2011
5/19/2011
5/19/2011
5/20/2011
5/20/2011
5/20/2011
5/25/2011
5/23/2011
5/24/2011
5/23/2011
5/24/2011
5/25/2011
5/25/2011
5/25/2011
6/3/2011
6/3/2011
MEMBERS NAME
JACK MC CLAREN
ROBERT HEALEY
KIPPY COMPTON
ROBERT RUCKER
PAMELA SWEARINGIN
SHERRICK BADER
NOLAN GALLIGAN
JOSEPH LANZO
GARY SALES
ROBERT FULLER
DUANE HOSKIN
CHARLES HAMMOCK
GRACE MARIN-WOOLSEY
KIP RUSTENBURG
STEVEN STADEL
DANA LINDSEY
JAMES MORAN
BRIAN LEE
VINCENT BINGAMAN
WILLIAM SCHIRA
SCOTT BROWN
VICTOR ESCOTO
THEODORE WYNN
REX PETERSON
THOMAS CARLSON
GERARD INGALLINA
KENNETH SCHEFFNER
JOHN WESTMORELAND
JOHN COLLIER
SCOT DURST
JOSE GALVAN
JEFFREY KNAUP
Robert Furneaux
Timothy Pirtle
PRIOR
SYSTEM
PS
COPERS
CORP
RURAL METRO
CORP
RURAL METRO
COPERS
COPERS
COPERS
COPERS
RURAL METRO
ASRS
CORP
ASRS
ASRS
COPERS
COPERS
COPERS
COPERS
MULTIPLE
COPERS
MULTIPLE
MULTIPLE
ASRS
POSS
MULTIPLE
CORP
ASRS
RURAL METRO
CORP
CORP
COPERS
POSS
POSS
CURRENT
SYSTEM
EORP
PS
PS
PS
CORP
PS
PS
PS
PS
PS
PS
PS
CORP
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
FULL YEARS
OF SERVICE
15.158
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
4.09
0.425
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
TRANSFERRED
AMOUNT
OR REDEEMED YRS TRANSFERRED
3.956
2.605
0.590
2.745
0.251
5.000
0.383
0.082
0.288
0.268
2.320
1.243
0.501
4.090
0.425
0.403
0.307
0.326
0.674
2.124
0.085
1.271
4.288
0.093
4.833
4.858
1.825
0.038
5.000
0.644
0.666
0.134
1.627
10.036
$85,049.00
$75,355.00
$17,875.00
$53,060.00
$3,452.00
$88,328.00
$13,857.00
$4,162.00
$5,825.00
$5,885.00
$37,965.00
$18,649.00
$9,560.00
$108,204.00
$15,276.00
$20,063.00
$6,661.00
$9,247.00
$15,262.00
$66,969.00
$4,602.00
$29,175.00
$81,543.00
$3,461.00
$142,653.00
$103,008.00
$50,030.00
$1,461.00
$104,936.00
$11,993.00
$23,324.00
$6,587.00
$49,924.00
$279,988.00
TRANSFERS OF CREDITED SERVICE BETWEEN DIFFERENT STATE RETIREMENT SYSTEMS
TRANSACTION
DATE
6/3/2011
6/3/2011
6/3/2011
6/6/2011
6/6/2011
6/6/2011
6/6/2011
6/6/2011
6/6/2011
6/6/2011
6/6/2011
6/6/2011
6/8/2011
6/8/2011
6/8/2011
6/8/2011
6/8/2011
6/8/2011
6/8/2011
6/8/2011
6/8/2011
6/13/2011
6/13/2011
6/13/2011
6/13/2011
6/13/2011
6/13/2011
6/13/2011
6/13/2011
6/13/2011
6/13/2011
6/13/2011
MEMBERS NAME
Jack Nielsen
Glenn Burrow
Clinton Zeiner III
Timothy Erickson
Gregory Giangobbe
RICARDO VASQUEZ
JOHN HEINZ
MICHAEL MC DERMOTT
SCOT STETSON
KERRY SWICK
STEPHEN PIECHURA
MICHAEL REARDON
MICHAEL WORRELL
DANIEL HINZ
JON DRUMMOND
DAVID HOLYFIELD
RAUL GARZON
ROBERT RUCKER
MICHAEL LANNING
APRIL FLORES
WILLIAM SCHECKEL
Brandon Burgess
Manuel Guerrero
CHRISTOPHER MC ALEER
STEVEN CAMPBELL
CHRISTOPHER HOUCK
RODNEY GRAY
WAYNE JORDAN
DART CRAYTOR
JEFFREY PERRY
MICHAEL MILLER
CELIA BAROTZ
PRIOR
SYSTEM
COPERS
COPERS
COPERS
PSPRS
COPERS
POSS
RURAL METRO
ASRS
RURAL METRO
RURAL METRO
RURAL METRO
ASRS
COPERS
POSS
ASRS
PSPRS
PSPRS
RURAL METRO
COPERS
CORP
ASRS
COPERS
TSRS
POSS
POSS
ASRS
COPERS
ASRS
RURAL METRO
RURAL METRO
EOSS
ASRS
CURRENT
SYSTEM
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
PSPRS
EORP
EORP
FULL YEARS
OF SERVICE
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
0.978
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
REDEMPTION
15.946
REDEMPTION
REDEMPTION
0.92
REDEMPTION
0.478
REDEMPTION
REDEMPTION
REDEMPTION
2.378
TRANSFERRED
AMOUNT
OR REDEEMED YRS TRANSFERRED
0.309
0.326
0.167
5.029
0.384
2.000
3.085
0.978
5.000
3.000
2.501
0.496
1.650
2.568
1.501
1.000
3.433
2.775
0.085
1.077
0.055
0.440
8.732
1.751
1.389
0.920
0.288
0.478
4.378
5.000
5.000
2.378
$5,409.00
$6,122.00
$4,822.00
$28,653.32
$8,479.00
$40,336.00
$116,425.00
$23,647.00
$90,117.00
$82,466.00
$100,511.00
$23,120.00
$43,941.00
$67,562.00
$20,737.00
$22,171.00
$52,032.00
$67,009.00
$3,936.00
$38,963.00
$1,169.00
$16,778.00
$108,982.81
$59,580.00
$59,644.00
$9,882.00
$5,544.00
$6,225.00
$94,209.00
$107,985.00
$259,902.00
$13,899.00
Retirements June 2011
EORP
Name
Retirement Type
Romo, Esequeil
Romo, Mary
Arnold, Patricia
Ward, Deborah
Anderson, Betty Jo
D'Angelo, Peter
D'Angelo, Joyce
Hellman, Cecelia
Oldham, Charles
Chavez, Mary
Hunt, Eugene
Nichols, Burnelle
Normal (Term)
Survivor
Normal
Normal
Normal (Term)
Normal (Term)
Survivor
Survivor (Term)
Normal
Normal (Term)
Ordinary Disability(Term
Survivor (Term)
6.86
6.86
5.77
14.50
12.00
17.76
17.76
16.38
16.73
16.00
13.59
10.00
$
$
$
$
$
$
$
$
$
$
$
$
176.11
132.08
2,158.91
6,227.95
1,818.02
10,317.93
7,738.45
1,501.35
334.58
3,418.99
3,606.52
308.14
Normal
Normal
Normal
Normal
Normal
Normal
Normal
Normal
Normal
Normal
Normal
20.00
19.88
21.75
20.02
8.01
26.44
16.57
20.50
6.42
20.00
15.73
$
$
$
$
$
$
$
$
$
$
$
9,666.67
7,059.65
9,666.67
9,666.67
602.92
9,666.67
7,922.90
9,666.67
2,110.46
10,000.00
438.75 `
Years of Service Benefit Amount
Retirements July 2011
Campoy, Hector
Cruikshank, Michael
Donahoe, Gary
Hauser, Brian
Hershberger, J Peter
Hilliard, Ruth
Hoag, M. Jean
Mangum, J Kenneth
Waugh, Roy Steven
Weisberg, Sheldon
Talley, Van H
Investments Update
Arizona PSPRS Trust
Board of Trustees Meeting
June 22, 2011
For Month Ended June 2011
Table of Contents
Month End & Fiscal YTD
Performance/Portfolio Update
CIO’s Monthly Overview of Investments
by Ryan Parham
TAB3
Page
1
CIO’s Monthly Overview
of Investments
Equities Portfolio Overview
3
Global Tactical Asset Allocation Overview
3
Fixed Income Portfolio Overview
4
Absolute Return
5
Credit Opportunities Portfolio Overview
5
Real Estate Portfolio Overview
6
Private Equity/VC Portfolio Overview
6
Real Assets Portfolio Overview
7
Performance Report
11
Berkshire Fund VII, L.P.
(Confidential & Proprietary)
TAB 4
Greenfield Acquisition Partners VI
(Confidential & Proprietary)
TAB 5
GAM U.S. Institutional Trading II
(Confidential & Proprietary)
TAB 6
Pacific Alliance Asia Fund
(Confidential & Proprietary)
TAB 7
DT Fund 3, LLC
(Confidential & Proprietary)
TAB 8
PSPRS Equity Plan
TAB 9
NOTE: With the change in date of the Board meeting the CIO will not
attend the Board meeting on June 22nd due to previously scheduled
travel. The Deputy CIO will be in attendance and coordinate investment
matters.
May 31, 2011 Performance: The Total PSPRS portfolio
returned -0.59% for the month ending May 31, 2011. This
trailed the benchmark return of -0.40%. Fiscal year-to-date
the Total portfolio has returned 19.06% relative to the
benchmark return of 17.94%. The total outperformance
gross of fees of 112 basis points will be diminished in June
as we take approximately $20 million more of write-downs
in the legacy Real Estate portfolio. We are pleased with the
performance of the Total portfolio as we near the end of the
fiscal year which has generated strong returns with significantly less volatility than our historic allocations.
Fixed Income & Credit Opportunities Portfolios: We
continue to work to close recently approved investments
and to conduct due diligence on strategies and managers
consistent with the plan for fixed income that was presented
to the Board. In Credit Opportunities, the transition is continuing out of some of the structured product investments
that were made near the height of the financial crisis into
other asset types and geographies. Staff and Albourne will
be recommending an investment of $25 million direct and
$25 million co-invest to Pacific Alliance Group, an Asian
based manager with access to unique market opportunities.
Real Estate: We expect to write-off approximately $6 million in a Phoenix multifamily investment representing the
entirety of our investment. This project has suffered from
the effects of the economic decline combined with high leverage and will be foreclosed upon by the lender. In June,
we expect to write-off approximately $14 million as losses
are more fully realized and properly attributed on assets in
the Apex residential land portfolio. The good news in the
Real Estate portfolio is that the diversifying fund investments made in recent years, pursuant to the new strategy,
Continued on page 2
Investments Update
CIO’s Monthly Overview - continued from page 1
continue to do well and in total to outperform the benchmark. We will be recommending an investment of $30 million in Greenfield Partners, LLC which is a continuation of this diversification, and which also represents a top performing manager.
The distress in regional markets and in many sectors continues to present attractive
risk adjusted opportunities for Desert Troon, our largest joint venture partner. We
will be recommending a small additional investment of $16 million to Desert Troon
in a unique structure that will give us enhanced exposure to these opportunities
without exacerbating our concentration in Arizona centric real estate.
Public Equities: We continue to move closer to target in our equities allocations as
other strategies are funded by equity sales. NEPC and staff are conducting due diligence on small cap active managers and hope to bring recommendations on active
strategies to the next several Board meetings. FrontPoint, a multi-strategy hedge
fund manager of assets allocated to our Portable Alpha portfolio, has announced
that it will be liquidating its funds and returning capital to PSPRS late in June. We
are recommending that we increase our allocation to GAM, one of our other portable alpha managers by an additional $25 million, to be funded from the proceeds of
the FrontPoint redemption.
To maintain our allocation to portable alpha we will be conducting additional due
diligence on several possible “alpha engines” for future consideration. Recognizing
that several members of the Board were not in place during the approval of the portable alpha mandate and the equity plan, we have asked NEPC to conduct a review
of the Equity Plan at the June meeting.
Further, Staff and NEPC will be conducting a review of the separation of beta and
alpha that is the core of portable alpha strategies at the August meeting. This presentation will be prior to the recommendation of any manager to replace FrontPoint.
Private Equity: We have been made aware of the assignment of $20 million in
allocation to the Berkshire Private Equity Fund VIII. This is a fund that is recommended by StepStone and by staff and which is oversubscribed. We are gratified to
get this allocation and will be recommending an approval of this investment at the
June meeting.
Absolute Return: Our allocations to absolute return strategies have continued to
perform well, significantly outperforming its benchmark in this fiscal year. We remain below target in our allocation to absolute return and continue to research
strategies that may prove to be attractive additions.
Staff: We are happy to announce that we have filled an open position on our team
with another exceptional analyst. Anton Orlich will be joining our investment team
in July. We will invite him to introduce himself and review his qualifications with
the Board when he arrives.
Page 2
For Month Ended June 2011
Equities Portfolio Overview - by Mark Selfridge
May was a negative month for both domestic and international equity markets. The equity markets were affected by negative economic news, most of which signaled slower growth. Internationally, markets were affected by European debt concerns, impacting exchange rates and debt costs.
For the month, the Total Equity portfolio had a return of -2.01%, a 12 bps underperformance relative to the
return for the target equity benchmark at -1.89%. The U.S. Equity portfolio (-1.40% vs. Russell 3000 at 1.14%) underperformed last month due to a negative return for the Portable Alpha portfolio. The Non-U.S.
Equity portfolio (-2.87% relative to the MSCI World ex-US at -2.88%) slightly outperformed its benchmark.
The portable alpha deployments with their corresponding beta replication reside in the U.S. equity portfolio
asset class. Staff will recommend a replacement for one of the three portable alpha investment funds in the
next several months. The manager we are replacing will return approximately $80 million in capital at the end
of June, as the fund will cease operating. At the June Board meeting, Staff and NEPC will recommend an additional investment of up to $25 million in GAM US Institutional Trading II L.P., which has made a positive
contribution to the Trust since the investment was made twelve months ago.
The totality of our equity portfolio remains largely indexed. This is an appropriate strategy for the most efficient portions of the equity markets but may represent lost opportunities for value added active management in
certain less efficient equity sectors. Staff and NEPC are actively conducting due diligence for small cap managers and will bring recommendations to the Board for a rotation from passive to active allocations in the coming months.
Global Tactical Asset Allocation - by Mark Selfridge
As of May 31, 2011, the Global Tactical Asset Allocation (GTAA) portfolio was 8.97% of the Total Fund.
The GTAA portfolio had a return of -1.57% in May. The positive contributors to the performance of the
GTAA portfolio were nominal bonds and inflation linked bonds, while the largest negative contributors were
equities and commodities.
The GTAA portfolio consists of two global asset allocating (GAA) hedge fund strategies, one systematic trend
following hedge fund strategy (CTA), and one passively managed risk parity strategy. The main criteria that
the global asset allocation managers consider are value, market sentiment and momentum and trade futures in
global equities, fixed income and commodity markets to exploit perceived inefficiencies. The systematic trend
following manager trades purely on the strength of trading signals created by algorithms, which are created by
in-depth market research and technical analysis of price movements. The objective of the risk parity strategy
is to capture the risk premiums embedded in a variety of asset classes while diversifying away the impact of
unanticipated changes in economic conditions, thereby providing a consistent return stream in all economic
climates.
Page 3
Investments Update
Fixed Income Portfolio Overview - by Mark Steed
Performance for the Fixed Income portfolio this month was up by 1.15%, below its
benchmark by 0.16%. The Trust’s exposure to lower quality credit reduced performance relative to the benchmark as investors opted for higher quality credit
amidst disappointing economic reports.
Staff and our consultants continue to work on moving from passive allocations to
active management with searches and due diligence continuing for several fixed income strategies consistent with the Fixed Income Plan.
Markets were entirely unsettled in May due to downward revisions to GDP growth,
higher unemployment, and continued value destruction in real estate. This means
that the “risk on” trade that was so ubiquitous for the last six months was reversed in
May to “risk off”. Nominal yields on Treasuries are comprised of two components,
real output and inflation expectations. Since investor’s expectations for both were
reduced, nominal yields moved down and prices moved up. High quality corporate
credit enjoyed broad success as retail inflows to taxable mutual funds increased by
2.5% in May. Many large-caps took advantage of the increased demand for yield as
the primary market was particularly robust, pricing several “covenant-lite” deals.
We expect volatility to increase in the domestic market generally as the Fed terminates its program of quantitative easing.
The economic situation in Europe is still concerning. Several countries, Ireland,
Portugal and Greece, are not able to service their debt and will be faced with imminent default or compulsory restructurings. Given the systemic risks to the EU in the
event of a default, experts are predicting lenders to those three countries will allow
them to restructure their debt, though the timing of those restructurings is uncertain.
Investment Staff believe that markets are pricing the direct costs of restructurings
into asset prices. However, Spain is another country that may potentially need assistance. The Spanish debt obligation is larger than that of Ireland, Portugal and
Greece combined, such that a required bailout could put tremendous pressure on financial markets and the Euro.
The degree to which monetary tightening in the U.S. and potential restructuring in
the EU affect the portfolio depends in part on the level of confidence investors have
in the capacity of authorities to control systemic risks. So far, asset prices indicate
investors are confident consumers and businesses will recover, and that sustainable
global growth will prevail. The Trust remains diversified so as to perform under
multiple eventualities and Investment Staff is optimistic that good prospects for high
returns exist. Page 4
For Month Ended June 2011
Absolute Return Portfolio Overview - by Mark Steed
The Absolute Return portfolio comprises about 2.5% of the Trust’s AUM. Its objective is to achieve a rate of
return above the 91-day T-bill plus 200 basis points. In May, the portfolio was up 0.99%, substantially above
the benchmark return of 0.17%. Calendar-year-to-date performance is almost 5.5%.
The portfolio currently consists of three multi-strategy hedge funds, a secondary fund, and the recently approved Goldman Hedge Fund Seeding investment. Though it is too early to determine the success of the secondary fund, the three multi-strategy funds are off to a good start. To date the multi-strategy funds have benefitted from the high-yield/distressed debt rally. Moving forward, we expect the termination of QE2 to create
greater uncertainty, which potentially increases the opportunity pool for multi-strategy managers. These funds
are not constrained in their abilities, as they are able to deploy capital in assets that will succeed under numerous economic landscapes. We remain optimistic regarding the potential for positive absolute returns regardless of directional global currents.
The portfolio’s target allocation is 4%. We continue to perform due diligence on quality managers in this asset
class and hope to add some additional exposures to the portfolio.
Credit Opportunities Portfolio Overview - by Mark Steed
For the month of May, performance was 1.19% compared to the benchmark return of 0.59%. As noted in the
Fixed Income commentary, increasing volatility sent investors to perceived safe-haven vehicles and away from
“risky” trades. The Trust’s active managers were able to identify acute dislocations and position their trading
books according. However, contrary to the first half of the year, structured product experienced significant
headwinds in May due to the government’s auction of the Maiden Lane II portfolio (legacy assets from the
AIG bankruptcy). The Maiden Lane portfolio, with over $30 billion of face value, surprised many buyers,
who instead of bidding on the portfolio, opted to wait for more attractive pricing. With such an unprecedented
increase in supply, leverage shifted from the sellers to the buyers, which meant wider spreads and less liquidity
in the market broadly. Though we expect returns to be somewhat muted, we think there will continue to be
robust demand for the asset class from investors looking for yield.
We anticipate healthy deal flow will continue throughout this year. Investment Staff is presenting an opportunity in the Pacific Alliance Asia Special Situations Fund, which buys portfolios of Asian assets from forced
European and U.S. sellers. The Trust also received a full distribution from an existing partner with which to
make additional commitments. Overall, investor apprehension continues to produce unique opportunities for
arbitrage and good prospects for high returns exist. Page 5
Investments Update
Real Estate Portfolio Overview - by Mark Selfridge
The Real Estate portfolio has continued to achieve broader diversification in the past
year, both by manager and geography. On May 31, 2010, the Real Estate portfolio
for the joint venture investments represented greater than 76% of the total Real Estate portfolio. As of May 31, 2011, the joint venture portfolio has decreased to less
than 56% of the total Real Estate portfolio.
The added diversification within the Real Estate portfolio has been driven in part by
net contributions but also due to relative performance. For example, for the trailing
one year period through May 31, 2011, the return of the limited partnerships Real
Estate portfolio has been 17.88%. Over the same time period, the return for the legacy Joint Venture Real Estate portfolio has been -12.58%.
Staff, in conjunction with ORG Portfolio Management LLC, continues to search for
real estate investment opportunities that will add value and provide further diversification to the Trust. As the legacy joint venture projects are rationalized, and some
investments sold, we expect to enhance our ability to continue to make new commitments to diversifying and higher expected return investments. At the June Board
meeting, Staff and ORG Portfolio Management LLC will recommend an investment
of up to $30 million in Greenfield Acquisition Partners VI, L.P.
New Investment with Existing Manager: In June Staff will be presenting a recommendation for an investment in a new entity, partnering with one of our existing
managers. This new entity will provide PSPRS with the opportunity to deploy a
smaller amount of equity into attractive new investments while enjoying the higher
expected returns by virtue of participation in the manager’s expected 20% carry.
This investment continues to maintain alignment of the interests of PSPRS and the
existing manager that might otherwise diverge as legacy assets are harvested.
Private Equity/Venture Capital Portfolio Overview - by Shan
Chen
Page 6
The market value of our Private Equity portfolio was $552.8 million at the end of
May 2011, similar to the market value in the previous month. The percentage of private equity in our Total portfolio is 7.98%, nearly identical to the 8% target. Placeholder equity ETFs accounted for 31% of the Private Equity portfolio, or about $170
million. The return of the Private Equity portfolio for May was 0.81%, while the
benchmark Russell 3000 was down ‑1.03%. The benchmark return for the fiscal
year to date is 35.7% while our portfolio has returned 29.4% in the same period.
The difference largely reflects the ‘youth’ of our Private Equity portfolio and the
concomitant ‘J-curve’ effect where returns are low in the early years of a private equity portfolio. Our portfolio will ultimately benefit from a strong equity market,
since such markets create a favorable exit environment for the portfolio companies.
We think that our general partners can take advantage of the current market opportunities while properly manage the downside risks.
Continued on page 7
For Month Ended June 2011
Private Equity Overview - continued from page 6
In aggregate, about $10.1 million of capital was called and $2.4 million of capital was returned during May.
The net cash outflow is what should be expected for a private equity portfolio that is in the ramp up phase.
Both academic research and our experience indicate that returns derived from PE investments are cyclical, i.e.
PE returns are lower following large capital inflows to private equity as compared to the size of the overall
market. There is also strong evidence that performance is persistent for a given private equity firm, although
significant growth in the firm’s asset size in general may decrease the fund’s expected return. Usually private
equity investors can expect top quartile funds to outperform average funds by 5% per year. On the another
hand, general partners of top quartile funds often demand better economic terms, which reduces the net returns
received by the limited partners. While building our PE portfolio, Staff is fully aware of these aspects, and
strives to strike a balance between them.
Staff has expended much effort in seeking overseas managers since the beginning of this year to add diversity to the
portfolio. During this period, the Board has approved $150
million in commitments, of which $120 million will be invested outside the U.S. The chart to the right shows the current commitment breakdown to the US, Europe and emerging markets. Going forward, Staff will continue to research
the growth opportunities in emerging markets, which may
provide attractive returns while further diversifying the System’s PE portfolio.
Real Assets Portfolio Overview - by Paul Corens
What is the big deal about shale gas? It seems like markets are constantly being bombarded by news of new
natural gas discoveries, new drilling technology, and potential negative side effects of drilling for natural gas.
A recent news article was titled “Shale Gas Will Rock the World: Huge Discoveries of Natural Gas Promise
to Shake up the Energy Markets and Geopolitics…and that’s Just for Starters.” Although we can’t believe
everything we read, we may be witnessing a shale gas revolution.
“In the early 1980s, George P. Mitchell, a Houston-based independent energy producer, could
see his company was going to run out of natural gas. Almost three decades later, the results of
his effort to do something about the problem are transforming America’s energy prospects. Back
in those years, Mr. Mitchell’s company was contracted to deliver a substantial amount of natural
gas, but the reserves he depended upon were running down. Mr. Mitchell had a strong hunch
based on recent geological reports…perhaps the natural gas was locked in shale, a dense sedimentary rock, and could be made to flow. The payoff came in the late 1990s. Using a specialized version of a technique called hydraulic fracturing or ‘fracking,’ his team found an economiContinued on page 8
Page 7
Investments Update
Real Assets Overview - continued from page 7
cal way to expand fractures in the shale and release trapped gas (see
the “Tapping the Gas” pictorial below).” (Source: Wall Street Journal, April 2nd, 2011, “Stepping on the Gas” )
Mr. Mitchell’s shortage 30 years ago has turned into a natural gas revolution. It
was estimated in 2000 that shale gas represented less than 1% of the total U.S. supply of natural gas. Today, shale gas is estimated to represent 25% of our total reserves and could be as high as 50% of total gas reserves by 2030. Some estimates
believe the U.S. now has over a 200 year supply of natural gas. These new discoveries may affect energy geopolitics as, until just recently, most believed the U.S.
would be a net gas importer for the foreseeable future. Now some experts believe
the U.S. could become a net exporter.
Page 8
Continued on page 9
For Month Ended June 2011
Real Assets Overview - continued from page 8
In February the Board of Trustees approved a commitment to the Energy Investors Fund IV, a U.S. focused
power generation and transmission private equity opportunity fund. Although EIF does not explore or drill for
natural gas, the team does buy, operate, and develop natural gas fired power plants. According to their research and the Investment Staff’s due diligence, most new investment in U.S. power generation is and will
continue to be in natural gas fired plants. NatGas plants can be operated very efficiently, being turned “on”
and “off” with daily and seasonal demand, have significantly less carbon emissions compared to coal fired
plants, and, of course, doesn’t have any of the potential political or catastrophic issues associated with nuclear
power. In addition, because of significant supply increases due to hydro fracking, the price of natural gas has
plummeted in recent years making NatGas power very attractive to utilities and end users. Hydro fracking is
not consequence free; however, as environmental groups have raised concern about the mix of water, sand, and
fluids injected into the ground to fracture the shale, and its potential impact on ground water.
The Real Assets portfolio currently has exposure to shale gas via multiple hedge funds investing across the
global energy spectrum (including natural gas) and via related energy funds like EIF IV, core capital asset
funds (investments in long-lived leased assets required by large public and private corporations), and traditional infrastructure funds. The Investment Staff continues to diligence potential oil and gas exploration, drilling, and operating investment opportunities.
The Trust's allocation components for the Real Assets portfolio are: Core Capital Assets, Commodities, Currency, Infrastructure, Timber, and TIPS. The Real Assets portfolio has a policy target weighting of 6.0% of
the Total fund and as of May 31, comprised 5.17% of the Total fund. The Real Assets portfolio had a preliminary return of -1.05% for the month of May. The Real Assets portfolio has returned 11.92% versus 5.14% the
benchmark for the trailing one year period.
Page 9
Arizona PSPRS Trust - Performance as of 5/31/2011 (Gross of Fees)
Description
7/1/2010
Range (%)
Asset Allocation
Market Values ($)
Target (%)
%
Month Ending 3 Month Ending
Arizona PSPRS Trust - Total Fund
Target Fund Benchmark
$6,924,241,568
100.00%
Total Equity
Target Equity Benchmark
$2,503,805,881
36.16%
35%
U.S. Equity
Russell 3000
$1,485,494,731
21.45%
Non-U.S. Equity
MSCI ACWI Ex-US Net
$1,018,311,150
Performance %
Fiscal YTD Calendar YTD
1 Year
3 Years
5 Years
-0.59%
-0.38%
2.76%
1.95%
19.06%
17.97%
5.65%
4.87%
17.25%
15.71%
0.95%
-0.62%
3.99%
2.55%
25-50%
-2.01%
-1.89%
1.77%
2.00%
32.19%
33.49%
6.59%
7.03%
27.17%
28.20%
1.91%
0.47%
4.56%
3.47%
20%
15-30%
-1.40%
-1.14%
1.99%
2.26%
32.65%
34.79%
7.84%
8.30%
25.63%
27.04%
N/A
1.67%
N/A
3.77%
14.71%
15%
10-20%
-2.87%
-2.88%
1.47%
1.63%
31.63%
31.64%
4.87%
5.33%
29.78%
29.95%
N/A
-2.68%
N/A
3.95%
$621,102,173
8.97%
8%
5-11%
-1.57%
0.27%
3.74%
0.82%
22.68%
3.05%
5.68%
1.37%
25.79%
3.35%
N/A
3.90%
N/A
5.48%
$1,195,057,371
17.26%
20%
15-25%
1.15%
1.31%
2.86%
2.65%
4.58%
4.21%
3.42%
3.02%
6.17%
5.84%
5.50%
6.53%
5.42%
6.63%
Absolute Return
91-Day T-Bill + 200 bps
$175,129,754
2.53%
4%
0-8%
0.99%
0.17%
3.16%
0.55%
7.77%
1.98%
5.50%
0.90%
N/A
2.17%
N/A
2.50%
N/A
4.13%
Credit Opportunities
ML US High Yield BB-B Constrained
$581,994,047
8.41%
9%
2-12%
1.19%
0.59%
3.79%
2.46%
19.35%
15.56%
7.17%
5.73%
18.95%
17.23%
N/A
10.02%
N/A
8.35%
Private Equity
Russell 3000 + 100 bps
$552,815,814
7.98%
8%
4-12%
0.81%
-1.03%
7.13%
2.56%
29.44%
35.68%
9.16%
8.69%
25.33%
28.04%
4.87%
2.67%
N/A
4.77%
Real Assets
CPI + 200 bps
$357,666,626
5.17%
6%
2-10%
-1.05%
0.33%
2.77%
1.62%
8.25%
5.45%
4.00%
2.87%
11.92%
5.49%
N/A
3.44%
N/A
4.20%
Real Estate
NCREIF NPI *
$727,458,287
10.51%
8%
4-12%
-0.31%
N/A
0.94%
N/A
-2.47%
12.31%
2.58%
3.36%
-3.75%
13.54%
-12.61%
-3.75%
N/A
2.91%
Short Term Investments
ML Treasury 91 day Actual
$209,211,614
3.02%
2%
0-5%
0.01%
0.01%
0.04%
0.05%
0.20%
0.15%
0.06%
0.08%
0.22%
0.16%
0.62%
0.48%
2.35%
2.07%
GTAA
3-Month LIBOR + 300 bps
Fixed Income
BC Aggregate
Target Fund Benchmarks (Effective Dates)
July 1, 2010 - Present: 20% Russell 3000, 15% MSCI World Ex-US Net, 8% 3-Month LIBOR + 300 bps, 20% BC Aggregate, 4% 91-Day T-Bill + 200 bps, 9% ML US High Yield BB-B Constrained, 8% Russell 3000 + 100 bps,
6% CPI + 200 bps, 8% NCREIF NPI and 2% 91-Day T-Bill.
April 1, 2009 - June 30, 2010: 30% Russell 3000, 20% MSCI World Ex-US Net, 20% BC Aggregate, 8% NCREIF NPI, 8% Russell 3000 + 100 bps, 8% ML US High Yield BB-B Constrained, 5% CPI + 200 bps and 1% 91-Day T-Bill
July 1, 2007 - March 31, 2009: 46% Wilshire 5000, 21% MSCI World Ex-US Net, 20% BC Gov/Cred, 6% NCREIF NPI, 6% Wilshire 5000 +300 bps and 1% 91-Day T-Bill
July 1, 2006 - June 30, 2007: 50% S&P 500, 10% S&P 400, 5% S&P 600, 20% BC Gov/Cred, 10% Expected Annual Return for Real Estate of 8.00% and 5% 91-Day T-Bill
July 1, 2002 - June 30, 2006: 45% S&P 500, 45% BC Gov/Cred and 10% 91-Day T-Bill
* The NCREIF NPI index return is published on a quarterly basis approximately six weeks after the end of the quarter and will be updated as soon as it is available. The monthly returns shown above are based on geometric smoothing of the quarterly data.
Target Equity Benchmarks (Effective Dates)
July 1, 2010 - Present: 57.14% Russell 3000 and 42.86% MSCI World Ex-US Net
April 1, 2009 - June 30, 2010: 60% Russell 3000 and 40% MSCI World Ex-US Net
July 1, 2007 - March 31, 2009: 67.69% Wilshire 5000 and 32.31% MSCI World Ex-US Net
July 1, 2006 - June 30, 2007: 76.92% S&P 500, 15.39% S&P 400 and 7.69% S&P 600
July 1, 2002 - June 30, 2006: 100% S&P 500
SECOND AMENDMENT TO AGREEMENT FOR PROVISION OF
PROFESSIONAL SERVICES
(Lobbying and Public Relations Services)
This Second Amendment to Agreement for Provision of Professional Services
(“Amendment”) is by and between (1) the Board of Trustees (“Board”) of the (i) Public
Safety Personnel Retirement System (“PSPRS”), (ii) Elected Officials’ Retirement Plan
(“EORP”), (iii) Corrections Officer Retirement Plan (“CORP”) and (iv) the Arizona
PSPRS Trust (“TRUST”), a group trust commingling the assets of the PSPRS, EORP
and CORP (collectively, the “System”), an agency of the State of Arizona and (2) John
Kaites d/b/a Public Policy Partners (“P3”), an Arizona sole proprietorship. Individually,
System and P3 are each a “Party” and collectively, System and P3 are the “Parties.”
This Amendment is effective as of July 1, 2010.
A. WHEREAS the System and P3 entered into an Agreement for Provision of
Professional Services effective December 1, 2008 (the “Agreement”);
B. WHEREAS the Agreement will expire by its terms June 30, 2010;
C. WHEREAS in accordance with Section 4 of the Agreement, the Parties want to
extend the term of the Agreement until June 30, 2011;
D. WHEREAS the parties wish to make other minor changes to the Agreement, as
more particularly described below, but otherwise retain all other provisions of the
Agreement as originally written;
NOW THEREFORE, in consideration of the foregoing and the terms, covenants
and conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which hereby acknowledged, the Parties agree as follows,
1. Capitalized Terms. Unless otherwise expressly defined herein all capitalized
terms used in this Amendment shall have the same meanings assigned to such
terms in the Agreement.
2. Change in Monthly fee. The first sentence of Section 2 of the Agreement is
hereby stricken in its entirety to be replaced with the following:
“Compensation to P3. In exchange for its provision of the Services to the
Board of Trustees, the Board shall pay P3 the following amounts (the
“Monthly Fee”) during the periods described:
--From July 1, 2010 through December 31, 2010: Ten Thousand Dollars
($10,000) per month
--From January 1, 2011 through June 30, 2011: Seven Thousand Five
Hundred Dollars ($7,500) per month”.
3. Change of Term. Section 4 of the Agreement is hereby stricken in its
entirety and replaced with the following language:
“Term. Unless earlier terminated in accordance with Section 9, this
Agreement shall be effective from July 1, 2010 until June 30, 2011, unless the
term of this Agreement is thereafter extended through a written amendment
signed by authorized representatives of the Company and the System.”
4. Immigration Laws. Section 29 of the Agreement is amended to include the
following sentence at the end of said Section:
As a “contractor” as that term is defined in Arizona Revised Statute § 414401, P3 shall comply with, and hereby makes all the warranties described in
§ 41-4401, the terms of which are hereby incorporated into this Agreement as
if fully rewritten herein”
5. No Further Changes. Except as otherwise set forth above, the Agreement
shall remain unchanged and, from the effective date of this Amendment, in
full force and effect.
6. Binding Effect. This Amendment shall be binding upon and inure to the
benefit of the Parties and their respective successors and permitted assigns.
THE BOARD OF TRUSTEES
PUBLIC SAFETY PERSONNEL
RETIREMENT SYSTEM
PUBLIC POLICY PARTNERS
By __________________________
James M. Hacking
Administrator
By _________________________
John Kaites
SECOND AMENDMENT TO AGREEMENT FOR SERVICES
This Second Amendment to Agreement For Services (“Second Amendment”) is between LRS
Consulting, LLC, an Arizona limited liability company (Federal Tax ID No 80-0311403)
(“Company”) and the Public Safety Personnel Retirement System, an agency of the State of
Arizona and its affiliated governmental pension plans and trusts (“System”), and is effective July
1, 2011 (the “Effective Date”).
RECITALS
WHEREAS the System is one of three (3) governmental pension plans administered by a
board of trustees (the “Board”);
WHEREAS the Board, on behalf of the System and one other of its associated governmental
pension plans-- the Corrections Officer Retirement Plan (“CORP”), retained Company during
the period July 9, 2009 through June 30, 2010 (the “Initial Term”), to assist the System’s staff
to train various local boards (“Local Boards”) charged with administering the System and
CORP (collectively, the “Plans”) for their members; and
WHEREAS the parties executed an Agreement For Services (“Agreement”) to memorialize the
terms relating to Company’s performance of services for the Plans, as otherwise described in the
Agreement;
WHEREAS upon expiration of the Initial Term of the Agreement, the parties entered into a First
Amendment to the Agreement (the “First Amendment”) which (i) renewed the term of the
Agreement for an additional one (1) year period beyond the Initial Term (the “First Renewal
Period”), (ii) changed the compensation payable by the System to Company under the Agreement
during the First Renewal Period and (iii) except as otherwise specified in the First Amendment,
retained as effective all other terms of the Agreement;
WHEREAS the First Renewal Period has now expired, but the parties wish (i) to renew the term of
the Agreement for an additional one (1) year period beyond the First Renewal Period (the “Second
Renewal Period”), (ii) maintain during the Second Renewal Period the same Fees payable by the
System to Company as were in effect during the First Renewal Period and (iii) except as otherwise
specified in this Second Amendment, retain as effective all other terms of the Agreement as
amended by the First Amendment and this Second Amendment;
NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows, with all terms defined in the Agreement having the
same meaning herein as set forth in the Agreement, unless otherwise defined herein or in the First
Amendment or this Second Amendment:
1.
Extension of Term. The first sentence of Section 4 (“Term”) of the Agreement is hereby
amended and restated to read as follows:
“As required by Arizona Revised Statute (“A.R.S.”) § 38-848(L)(6), the term of this
Agreement shall be renewed so that it continues from July 1, 2011 until June 30, 2012,
unless earlier terminated in accordance with Section 10 herein or further extended through
4822-0424-0137.1
Second Amendment to Agreement for Services
Public Safety Personnel Retirement System and LRS Consulting, LLC
a written amendment signed by the Administrator and authorized representatives of the
Company.”
2.
Fees. During the Second Renewal Period, the first sentence of Exhibit 2 (“Fees”) of
the Agreement will continue to provide as follows:
“Company shall be paid in arrears the fixed sum of Two Thousand Eighty Three
dollars and 33 cents ($2,083.33) for each full month of Services performed by
Company for the Plans (the “Fee”).”
3.
Residual Effectiveness and Counterparts. Except as otherwise provided in this Second
Amendment (including the Recitals, which are incorporated herein by this reference as if fully set
forth), the terms and provisions of the Agreement (as amended by the First Amendment) shall
remain in full force and effect. This Second Amendment may be executed in any number of
counterparts, all of which together, shall constitute a single contract binding all parties.
PUBLIC SAFETY
PERSONNEL RETIREMENT
SYSTEM
LRS CONSULTING, LLC
By ________________________________
James M. Hacking, Administrator
By_____________________________
Ron Snodgrass, Managing Member
2
4822-0424-0137.1
Board of Trustees
Brian Tobin, Chairman
Gregory Ferguson, Trustee
Alan Maguire, Trustee
Jeff Allen McHenry, Trustee
Richard J. Petrenka, Trustee
Randie A. Stein, Trustee
Lauren Kingry, Trustee
PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
CORRECTIONS OFFICER RETIREMENT PLAN
Administration
ELECTED OFFICIALS' RETIREMENT PLAN
3010 East Camelback Road, Suite 200
Phoenix, Arizona 85016-4416
www.psprs.com
TELEPHONE: (602) 255-5575
FAX: (602) 255-5572
James M. Hacking
Administrator
Ryan Parham
Tracey D. Peterson
Chief Investment Officer Assistant Administrator-COO
Local Board Training
Recap for June 2011
Robert Ortega, Training Coordinator
Ron Snodgrass, Consultant
Local Board Training, Visits and Contacts
 Currently assisting Active Members Department on employer groups who have/will
complete a Joinder to PSPRS Plan:
1. Huachuca City PD: Next step, schedule training for board on duties and
responsibilities.
2. Palominas Fire District: Board of Trustee approval of Joinder, working with
employer to establish local board.
 Assisting reestablishment of local boards for the following groups, as there are members
currently seeking application for benefits:
1. Town of Miami PD
2. Yavapai County Attorney Investigators
3. Town of Mammoth PD
 Currently conducting annual Local Board Update.
Current Projects
 In the programming process with development of Local Board module in internal database
system (EPIC) for tracking and compliance purposes.
 Establishing system and process on employers reporting return to work retirees requiring
Alternate Contribution.
 Ron, in conjunction with Benefit staff is redeveloping disability applications to ensure boards
are complying with statutory provisions.