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1818 Society Annual Meeting. Pension Plan Performance October 24, 2007. Road Map. Highlights 2006 Funded status Plan performance Real Estate update Hedge Fund update July/August 07 market stress Concluding Remarks. Highlights 2006. Staff Retirement Plan (SRP)

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1818 society annual meeting

1818 Society Annual Meeting

Pension Plan Performance

October 24, 2007

slide2

Road Map

  • Highlights 2006
  • Funded status
  • Plan performance
  • Real Estate update
  • Hedge Fund update
  • July/August 07 market stress
  • Concluding Remarks
slide3

Highlights 2006

  • Staff Retirement Plan (SRP)
    • Assets increased by $1.6 billion to $14.0 billion
    • Closed Group Liabilities increased by $0.8 billion to $14.3 billion
    • Return of 14.3% outperforming benchmark by 3.1%
    • Funded ratio improved from 92% to 97%
    • Bank contribution rate of 12.23% forFY08 (18.35% in FY07)
  • Retiree Staff Benefits Plan (RSBP)
    • Assets increased by $0.24 billion to $1.45 billion
    • Closed Group Liabilities increased by $0.11 billion to $1.85 billion
    • Return of 15.2% outperforming benchmark by 3.6%
    • Funded ratioimproved from 69% to 78%
    • Bank contribution rate of 6.54% for FY08 (7.82% in FY07)
slide4

SRP - Funded Status

Funded ratio is (MV of Assets)/(Liabilities)

srp asset allocation as of december 31 2006
SRP - Asset Allocation as of December 31, 2006

US Equities

19%

Non-US Equities

16%

Private Equity

9%

Real Estate

5%

Hedge Funds

11%

Global Fixed Income

40%

Strategic Asset Allocation is currently under review

slide7

Plan Performance (2006)

  • Second largest excess return on record for the plan
  • Alternative investments played a key role
plan performance jan 07 sept 07

*Numbers are preliminary

  • Continued strong performance during 2007
  • Alternatives contribution likely to be revised upward at year-end
  • Plan weathered well the July/August market turmoil
*Plan Performance (Jan ‘07 – Sept ‘07)
slide9

Real Estate Portfolio

  • Plan does not invest in residential homes/mortgages
  • Commercial RE has much better fundamentals than residential and is a great long-term diversifier
  • The industry is cyclical but subspaces/geographies follow different cycles
  • Strategy has a 33 year track record and takes advantage of differences in cycles across subspaces
  • RE portfolio is well diversified by geography, property type and investment strategy.
slide11

I

II

III

IV

V

VI

U.S.

  • Office – CBD
  • Industrial
  • Northeast
  • Pacific (ex So. Cal)
  • Office – Suburban
  • Sunbelt
  • Hotels
  • Office – Midtown Manhattan & So. Cal
  • Apartments
  • Pacific – So. Cal
  • Retail – Malls
  • Retail – Strip Ctrs
  • Self Storage
  • Midwest

Bottoming

Recovery

Expansion

Balanced

Slowing

Correction

Europe

  • Germany
  • Netherlands
  • Italy
  • Belgium
  • Austria
  • Sweden
  • Finland
  • Norway
  • Denmark
  • London City & West End Office
  • France Office
  • Spain Office
  • UK Retail
  • Continental European Retail
  • Switzerland

Asia

  • East/Central Australia Residential
  • Japan Office
  • Tokyo Residential
  • Hong Kong
  • China Office
  • Singapore
  • Malaysia
  • China Residential
  • Australia Retail
  • Australia Industrial
  • West Australia Residential
  • Australia Office
  • Indonesia
  • Thailand

Global Cycle Chart, mid 2007

Source: Morgan Stanley

slide13

Hedge Funds Portfolio

  • There are many different types of HF portfolios with dramatically different risk/return profiles
  • WB’s HF portfolio is constructed to have low volatility and to seek positive returns across market environments by limiting downside risk
  • Portfolio rebuilt during 2000-2003--is now very diversified across strategies, geographies and number of managers
  • Equipped to deal with high profile losses but has avoided them so far
  • Hedge funds techniques permeate all asset classes nowadays--useful source of intelligence
slide14

Hedge Fund Diversification

  • Very diversified portfolio: more than 40 managers across all strategies and geographies

Source: Morgan Stanley

slide15

Hedge Fund Risk Adjusted Returns

  • HF provide substantially higher risk-adjusted returns compared with other public asset classes.

Performance and Risk of HF PortfolioJan 2003-2007 (Sept*)

* Numbers are preliminary

slide16

Hedge Fund Performance: Consistency

Returns of SRP HF Portfolio, 2000-2007 (Sept *)

* Numbers are preliminary

  • HF portfolio produced consistent and positive absolute returns
  • Staff choices of managers added significant value
  • Return stream is excellent diversifier for plan

Source: Morgan Stanley

slide17

Stress Test: The July/August 07 Episode

  • Market turmoil was triggered by failure of two funds that invested in CDOs
  • It resulted in a repricing of risk across markets
  • The HF portfolio showed great resilience

Performance of WB PortfolioJuly / August 07 (Sept *)

* Numbers are preliminary

slide18

Concluding Remarks

  • Funded status of the plan continued to improve during 2006 and is currently well funded
  • In 2006: Large value added component from pension team
  • Real Estate and Hedge Funds: high risk-adjusted returns; great diversifiers
  • Plan weathered the July/August market stress well
  • Implications for Plan:
    • diversify
    • take advantage of changes in asset management
    • focus on long term trends
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