Board Room Best and Worst Practices Presented by

Board Room Best and Worst Practices Presented by: Aaron Lally, CFA, CAIA Gustavo Bikkesbakker Executive Vice President Senior Vice President Meketa Investment Group, Inc. LAPERS September 2018

Gustavo Bikkesbakker – Senior Vice President Mr. Bikkesbakker has more than 20 years of client services experience. A Senior Vice President of Meketa Investment Group, Mr. Bikkesbakker has contributed to the firm’s client services efforts and research responsibilities since 2011. He is an active member of the Florida Public Pension Trustee Association (FPPTA) Advisory Board, and a Certified Public Pension Trustee (CPPT). Mr. Bikkesbakker oversees the operations of the Miami office and the firm’s private markets efforts in Latin America. Previously, he worked as an investment analyst at Ernst Research and Management, a Bostonbased hedge fund. He also has extensive client services experience domestically and in Latin America, where he held various positions at EMC in services, business development, and marketing. Mr. Bikkesbakker earned an MS in Finance from Carroll Graduate School of Management at Boston College, an MBA from the Arthur D. Little School of Management, and an Analista de Sistemas degree from the Fundación Bank. Boston School of Information Science in Buenos Aires, Argentina. Mr. Bikkesbakker is fluent in English and Spanish, and is conversant in Portuguese. In addition, he is an avid endurance athlete having 1

Aaron Lally, CFA, CAIA – Executive Vice President Mr. Lally joined Meketa Investment Group in 2013 and has been in the investment industry since 2008. A Consultant based in the firm’s Florida office, Mr. Lally works with non-profits, public pension funds, and multiemployer clients primarily located across the southeastern United States. His work includes investment policy development, asset allocation studies, performance measurement and manager selection/due-diligence. In addition, he conducts investment research and contributes to the firm’s marketing and business development efforts. Prior to joining the firm, Mr. Lally spent three years at JP Morgan Chase and two years at Westfield Capital Management. Mr. Lally earned an undergraduate degree in Economics from Boston College. Mr. Lally holds the Chartered Financial Analyst designation, the Chartered Alternative Investment Analyst designation, and the Certificate in Performance Measurement designation. Mr. Lally is a frequent speaker at the Florida Public Pension Trustees Association (FPPTA) and is a member of the Texas Association of Public Employee Retirement Systems (TEXPERS). 2

Introduction ∙ It is not easy being a Board Trustee. ∙ You are expected to attend quarterly or monthly meetings (possibly far away from home). ∙ You are expected to understand investments, actuarial science, pension laws, disability rules, and a variety of other topics that will undeniably come up. ∙ You shoulder blame if things don’t go well, but receive no praise when things do…. ∙ … and you do it all FOR FREE. 3

Introduction ∙ Meketa Investment Group works with Boards of all sizes and degrees of experience across the country. ∙ Some settings are extremely formal, while others are very laid back. ∙ Some Boards are quite political, while quite collegial. others are ∙ No two Boards are the same…. ∙ … and no Board is perfect. ∙ Today’s topic will focus on some of the pitfalls we have observed over 4 decades in business with an emphasis on lessons that can be applied to your 4

Overview ∙ Our industry is (with good reason) quite focused on “Best Practices”. ∙ People often read or hear the phrase “Best Practices” but don’t always comprehend apply. ∙ The best way to learn how to behave is to learn what NOT to do. ∙ We have identified ten common “worst practices” that Boards are susceptible to repeating. 5

Outline ∙ The first five worst practices are broad issues that could be applied to Board Rooms anywhere, regardless of industry. ∙ The second five are focused on issues unique to investing. ∙ For the first five, Gustavo will be the troublemaker – falling into the trap of worst practices. Aaron will serve as the voice of reason. ∙ For the second five, the roles will be reversed. Aaron will serve as the guilty party committing worst practices. 6

First Five Worst Practices – Board Rooms The first five worst practices are broad issues Anywhere that could be applied to board rooms anywhere,

Number One: Dominant Member ∙ Strong personality. ∙ Possibly greater technical knowledge or political power. ∙ In the absence of reason at times, this person’s views often win. 8

Number Two: Decision Obsessing ∙ Constantly revisiting decisions that didn’t go “their’ way. ∙ Bringing up past actions that are off topic. 9

Number Three: Sold on the Sales Pitch ∙ Over-emphasis on vendor’s 30 minute sales pitch. ∙ Picking the best storyteller, not the best investor. 10

Number Four: Time Mismanagement ∙ Time wasted on inconsequential issues. ∙ Long-spirited debate on unimportant items, but rushed decision-making on important issues. ∙ Only scratching the surface of the iceberg. Missing the important underlying issues. 11

Number Five: Meeting Fatigue ∙ Too many meetings. ∙ Participants lose focus. ∙ Fall into “routine” trap. ∙ As a result, Trustees use laptop/phone/i. Pad during the meeting. ∙ Come to meetings prepared with non-Board work to review. 12

The Worst five Practices worst practices are broadto issues Last Five – Unique Investing that could be applied to board rooms anywhere,

Number Six: Overconfidence ∙ Inability to time markets, managers, or risks. ∙ “We need to get out of (headline of the week)”. ∙ “Markets have gone up for three straight years, time to go to cash…. ” ∙ “We should stay the course now, but get out before it goes down. ” 14

Number Seven: Peer Pressure ∙ Following the herd. ∙ Fascination with the decisions of other Boards. ∙ Obsession with performance of other pension Boards. ∙ They invested in it, so it must be a solid investment…. ∙ Only looking at manager peer rankings. 15

Number Eight: Clean Slate Effect ∙ Appeal to terminate a manager to expunge its record from the quarterly report. ∙ Start fresh with a new manager. ∙ Can lead to roller coaster effect (hiring at peak performance). 16

Number Nine: Media Driven Investing ∙ Making investment decisions based on recent news coverage. ∙ Bitcoin? – “Bitcoin is up 2 zillion percent, why aren’t we invested? ” ∙ Interest rates? “Interest rates are guaranteed to go up, we need to sell our bonds. ” ∙ Malls are dead? “Amazon is taking over the world. Why does our real estate manager 17

Number Ten: Anchoring ∙ We can’t sell now, we lost money on the investment. ∙ If we can just break even, then we should get out. ∙ Digging yourself deeper – unwilling to accept the loss and move on. 18

Summary ∙ You serve a valuable role as a Trustee. ∙ It is not an easy task. ∙ There are many potential pitfalls. ∙ It is important to remain humble and learn from mistakes. 19

Recap ∙ ∙ ∙ ∙ ∙ Dominant Member Decision Obsessing Sold on the Sales Pitch Time Mismanagement Meeting Fatigue Overconfidence Peer Pressure Clean Slate Effect Media-Driven Investing Anchoring 20

Keep this in Mind 21

10 Best Practices 1. Explicit understanding of Retirement System purpose 2. Develop a well-thought-out Investment Policy Statement 3. Follow the Investment Policy Statement! 4. Clear parameters for hiring and firing managers 5. Focus on the big picture 6. Come to meetings prepared 7. Focus on meeting quality over quantity 8. Prioritize important items vs. urgent items 9. Clear understanding of roles and responsibilities 10. Common sense and discipline 22

Questions? Aaron Lally, CFA, CAIA Executive Vice President Meketa Investment Group, Inc. Tel: (305) 341 -2900 Email: ALally@meketagroup. com Gustavo Bikkesbakker Senior Vice President Meketa Investment Group, Inc. Tel: (305) 341 -2900 Email: GBikkesbakker@meketagroup. com 23

Contact Information M E K E T A I N VE S T M E N T G R O U P BOSTON CHICAGO SAN DIEGO 100 Lowder Brook Drive Suite 1100 Westwood, MA 02090 One E Wacker Drive Suite 1210 Chicago, IL 60601 5796 Armada Drive Suite 110 Carlsbad, CA 92008 Tel: (781) 471 -3500 Tel: (312) 474 -0900 Tel: (760) 795 -3450 PORTLAND MIAMI LONDON 205 SE Spokane Street Suite 300 Portland, OR 97202 5200 Blue Lagoon Drive Suite 120 Miami, FL 33126 41 -43 Brook Street London W 1 K 4 HJ U. K. Tel: (971) 202 -5082 Tel: (305) 341 -2900 Tel: +44 (0)20 3841 6255 www. meketagroup. com 24