MABE Pooled OPEB Investment Trust Maryland Government Finance

MABE Pooled OPEB Investment Trust Maryland Government Finance Officers Association Conference June 18, 2015 Steve James Maryland Association of Boards of Education Deputy Director 410 -841 -5414 sjames@mabe. org 1

In The Beginning Opportunity to provide service to members Staff already in place administering P & C and WC Pools for 17 School Districts Trust makes sense to achieve operational and investment economies of scale 2

In the Beginning Started Operations: May, 2008 Initially Four School Districts joined Trust Agreement authorized only Maryland School Districts to join Board has affirmed just Maryland School Districts 3

Ongoing Trust has grown from four to nine member School Districts Allegany County, Caroline County, Cecil County, Charles County, Harford County, Kent County, Prince George’s County, St. Mary’s County, Washington County Other School Districts have set up their own Trusts, Partnered with their County Government, or done nothing 4

Ongoing Asset Allocation • Analyze Member Goals & Risk Tolerance • Determine Group’s willingness to assume Risk • Gain Comfort Level • Develop the Appropriate Allocation & Specific Asset Classes • Initially Expected 8% Annual Return; 57% Equity/43% Income • Managed Risk: Incoming cash was then dollar cost averaged into investments over 6 months • Modified May, 2014 Expected 7. 85% Annual Return 60% Equity, 40% Income • Incoming cash is dollar cost averaged into investments over 3 months 5

Ongoing Target Asset Allocation/Asset Classes May, 2008 Intermediate Fixed Income 35% Large Cap Core 20% All Cap Growth 10% Small/Mid Value 7. 5% International Value 7. 25% International Growth 7. 25% Emerging Markets 5% High Yield Fixed Income 5% Cash 3% May, 2014 Intermediate Fixed 32% Large Cap Core 23% All Cap Growth 10% Small/Mid Value 8% International Value 10% International Growth 4% Emerging Markets 5% High Yield Fixed Inc 5% Cash 3% 6

Ongoing Operations • Members obtain their own actuarial reports, develop their ARC • Members contribute what they can • Variable contributions • Smallest single contribution: $89, 000 • Largest Single contribution: $15, 000 • Trust’s job is to grow the contributions 7

Ongoing Governance • Each Member appoints a Trustee • School District Business Manager or CFO • MABE, Sponsoring Association appoints one Trustee • School District Board Member • Each Trustee serves on the Investment Committee • Conduct Quarterly Business Meetings 8

Results Performance One Year (Annualized) Three Years Total Fund 5. 07% 6. 94% OPEB Index 6. 43% 8. 63% Performance less than index however with lower volatility Beta: 86 Member Average Return on Asset Assumption Five Years 6. 98% 8. 23% 6. 2% Philosophy: Error to the Side of Caution Steady as she goes 9

Results Performance Replace Specific Money Managers Poor Performance Management Changes Straying from Style MABE OPEB Trust has replaced five managers sinception Not looking for Home Run Hitters, who strike out often Need singles and doubles hitters for consistency 10

Results Performance Increased Assets = Lower Fees Consultant Fee includes Consulting, Custody & Transactions Since Fund Inception: Consultant Fees Reduced 24% Increased Assets = Ability to Employ Better Performing Money Managers 11

Investment Consultant • Oversees Money Managers • Analyzes and discusses results with Governing Board • Makes recommendations on changes to Managers • Very Important part of the team 12

Investment Consultant 13

Members Like • Total representation on the Board of Directors • Meetings by conference call • Monthly updates • Total transparency as all members see all results • Not having to handle this internally • Relying on the Trust to meet this obligation so as to focus on core responsibilities back home • Annual thorough Financial Audits with no Management Issues 14

The Final Word STAY THE COURSE 15

The Final Word May 1, 2008 March 1, 2009 Loss S & P 500 1440 798 - 45% MABE OPEB Trust Loss -26% 16

The Final Word 17

The Final Word Much Consternation. Is the financial world ending? Withdrawal? Stop contributing? No funds were withdrawn. Members continued to contribute. Withdrawal would have been disastrous locking in losses Developed a policy to dollar cost average incoming funds STAY THE COURSE 18