Organization Chart CU RRL 'IT COU:,CIL ~IE.\ofBERS: Joo. Huc,.te? , - - PDF document

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2 - SDIC Presentation - FY16 Sunday, February 01, 2015 10:42 AM SDIC FY 2016 Budget & Investment Performance Presented to Appropriations Committee February 5, 2015 Organization Chart Assets Cost Efficiency Long Term Plan

slide-1
SLIDE 1

2 - SDIC Presentation - FY16

Sunday, February 01, 2015 10:42 AM

SDIC FY 2016 Budget & Investment Performance Presented to Appropriations Committee

February 5, 2015

  • Organization Chart
  • Assets
  • Cost Efficiency
  • Long Term Plan
  • Budget Process & Funding Sources
  • Compensation Overview
  • FY 2014 Budget Review
  • FY 2016 Budget Request
  • Investment Performance
  • Trust Fund Summaries
  • Appendix
slide-2
SLIDE 2

Organization Chart

CURRL

'IT COU:,CIL ~IE.\ofBERS:

  • Joo. Huc,.te?, ).laJfuclD (Cha:ir)

J"Wl. M1;:ilU;, Y

anktoc (Vice Chair) D.isid Hilla.si, Ropid Chy Steve Kilb),· . Sioux: falli

Lor,i..n 3~a::~ Lennox Ryan BfU!lnef", S&Pl Comm:i5rioc=C Rid Ss:!.E' ~ Swe TreJ:rur:r

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slide-3
SLIDE 3

FY73 I $133

FY 74 D $211

FY7S D $260

  • 1:Jo•o••

FY 76 D $297

r;nov:in

rn :z:v:,

FY77 0 S337

s~

~3~

~s

~S2.~;. 9-~

FY78 D $392

~;g

~ ~

FY79 n $449

~

g:

~1S

FY80 0 $517

Q ~

(l' ::o cu 2 ,:,

~2g~. @~~.

FY81 U $561

~:4~~ ~§3

r . s •

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0.. I'll

fil.

FY82 .. $oU

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c:; C:

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;

~-<

FY83 ... $791

Q.

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~

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  • C. ~

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gi §

FY84 ... $861

C:

3

:,

~

w

C.

~

8

FY8S .... $1.0n

V, V,

:,i

FY 86 ...

$1.298

.... ....

I:

"' ....

FY 87 ....

$1,451

b

r,..J

l,U f',.l

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Sl,803

....I

FY!>O.

00

$1,879

I.O

t,.,) ...._..
  • ;i

I-" I-"

bO\Lubbt.oOt-,.:1 FY91.

$2,0SS

......... ... ... .........

FY92.

$2.183

FY93.

$2,605

FY 94 - $2,723

FY9S - Sl,044 $3,529 FY97

S,4, 14'1

FY98 $4,872 FY99

SS.,534 FYOO SD,069

FYOl $6,111

FY0.2 S.S,811

FY03 $6,318

FY 04

$7,168

FY OS $7,872

FY06 $8,SIIO FY07

$10,04§1

FY08 $9,160 FY09 $7,410 FY10

$8,..304

FY11 $9,948 FYlZ $9,903 FY13 s u ,112 FY14 $13,049

"'

slide-4
SLIDE 4

Cost Efficiency

Management Fees

9:1:0 :r.~n:!!I C:~

0.40°/a, *

SOJO

0.54% 0.73%

8en:hrm:it {Sirr.·i:!!r

Si::e:!ln::I ko:~ Mix)

1.70% ,c;:,c 1.04%

Difference between SDIC cost of .40% and benchmark cost of .73% is $43 million per year

  • SDIC projected expenses for FY 2016 using adjusted assets and expected average performance incentives
  • • Plus 20% profit participat ion after preferred return

3

slide-5
SLIDE 5
  • Developed Plan in 1987 - has helped guide operations for 27 years
  • Recommended by Appropriations Committee and Executive Board
  • Key to development and retention of high-quality internal investment team

4

slide-6
SLIDE 6

Long Term Plan Executive Summary

Projected LTP Budget

.E:t..,Qji

Will Will

INVESTMENT OFFICE BUDGET Personal Services Nurmer of Emii:>1,ees 32-25 34.25

34.25

Base Corri:,ensation - Total Staff 4,900,887 6.s2,.7ea 8,586,546 Intern, Ccun: i I members, Longe• ~!'/ 28,673 34,221 38,41 3 Flexibilify funds.-Retirerrents & Resignations 148.061 1 i ,64.3 198.982 lnvestme~ lncerrtive Maxim.ml 8.03.ij.521 11.940,84

1U78.995

Benefits 2,077. 124 2.945,4 3 3,664,528 Total Personal Services

  • 15. 189,266

21 ,91 5,894 27,467,468

Operating Expenses Ccntrac

tual Services 1,599.548 1,88 -.452

  • 2. 15:5.654

Travel

85.000 10J,O!-B 120,002 Offic e Supples & Postage 12.733 15,6"'4 18,182 Capilal Assets

  • 47. 192

5 .,e~ 66,262

Tota I Operating Expenses

1.74"4,473 2.061 ,852 2,360, 151

Total Investment Council Budget

'16,933. 73Q 23,977.756 29,827.61 9

ASSET SUMMARY• Internal Assets 10,319.735, 736 13,025,807 ,99 16.567. 729.964 External Assets

3,

93.!.t,

0~2.90-5 4.965.63.Q.51 5.315,87 4 ,Q . 5-9

Total Assets 14,253. 778.641 17,991 ,447 ,5(12 22.883.604.923 EXPENSE SUMMARY Internal Expenses 16,933,739 23,977, 56 29,827,619 External Manager Fees 43,274.472

54,622 ,1}35 69.474.625

Total Exi;enses 60,208.211 78,599, 91 99,302.243 UNIT CO ST SUMMARY •• Internal Expenses as % of Total A.djusted Asse · s 0.089% 0.090% 0.095% Total Exi:enses as% of Total Adjusted Assets

0.393% 0.402% 0.399%

  • Projecticms b35~ ori lonlJ:-term Q.;;sumed return:: appr.ed to o/3011 4 ~=sets. Upda1

ed EQ.th Jun: 30 . .. 'Unil Co:{ Su rna.ry based o 10.1al as:.-: :s . 3djusted to br.g-:eJm ..-a[ue & ec.xpen;;es u;;in!;!l -:.;;sumed avg inv peli ir,::enlL\<:5 Noto:.

: FY 5 .amounts diff<;J f o ac

11raJ

budget eque5- :. e L TP irlcludes an a. ;;sisn: d 3% sals.r / p 'I

5

slide-7
SLIDE 7

Budget Process & Funding Sources

  • Budget approved by Investment Council before presenting to LRC

Executive Board, then submitted to Bureau of Finance and Management for Governor's recommendation, with final approval by Appropriations Committee (SDCL 4-5-22)

  • Budget deducted from assets under management, no general fund

appropriations (SDCL 4-5-30)

6

slide-8
SLIDE 8

Budget Funding Sources

  • South Dakota Retirement System - 80.5%
  • Cash Flow Fund - 10.3%
  • Dakota Cement Trust - 2.4%
  • Education Enhanc1

ement Trust - 3.8%

  • Health Care Trust - 1.0%
  • School & Public Lands - 2.0%

Budget funded by assets under management 0% General Fund appropriation

Notes: S&PL share of SDIC expenses paid from earnings of Cash F low Fund

CFF share of SDIC expenses would change if SB9 becomes law

7

slide-9
SLIDE 9

Compensation Overview

  • Long term results have significantly exceeded benchmarks
  • Ad ded over 30% beyond benchmark to SDRS ;issets in the past 16 yea rs
  • Continued success dependent on high caliber team
  • Internally manage most assets using internally generat ed resea rch
  • Future team depends on retention of talent pipeline and trainers

Develop interna lly ;is c;innot compete for top tier experienced talent

  • Compensation plan aligned with goal of adding val ue over long term
  • Motiv;it e superior long-term perform;i nce and ret;i in successful staff
  • Compensation plan revised in 2006, updated in 2010 and 2013
  • Council ta rget is 70% of cost of living adjusted median ind ustry pay to b;i l;ince gett ing ;i

good de;i l for South Dakota with out losing the good dea l if we can not keep ou r people

  • lncorpor;ites perform;i nce incentives (range of 0% to 200%) which ;i re expected to

;iver;ige 80% with continu;ition of SDIC historic level of superior perform;i nce

  • Pay w;is incre;ised to 70% t;i rget ;ifter 2006 study and by 2013 st udy h;id fallen to 55%

8

slide-10
SLIDE 10

Compensation Overview, continued

  • Council changes implemented in 2014 to get back to target
  • Expanded incentive compe nsation plan as opposed to adjust ing base co mpensat ion
  • Incentives expanded t o include longer t erm and stretch incentives and expect ed to

average 80% (0% t o 200%)

  • Incentives aligned wit h the goal of adding value and only paid if add value
  • Cost efficient due to internal management capabi lities
  • Securi ng t eam t o preserve internal ca pabilit ies best chance to remain cost efficient
  • Expected internal costs under .1% even with increased incentives

9

slide-11
SLIDE 11

FV14 Budget and Actual

Unexpended credited against FY15

Actual Exp Budget Rec'd FY 2014 FY 2014 Unex(!!l:nded PER SONAL SERVICES Base Compensation Base Compensa ·on - Investment Slaff 3,343,512.56 3,661,973 318,460.44 • Base Compensa ·on - Accounting & Administra ·ve 348,855.88 353,941 5,085.12 TOTAL STAFF 3,692,368.44 4,015,914 323,545.56 Retiremen & resignation ilexibili y funds a.OJ 140,431 140,431.00 Total Intern, Council, Longevity 26,156.0D 35,582 9,426.00 Benefits 803,608.65

7~397

(11,211.65) Total Base Compensation 4 522133.09 4 984 324 462.190.91 Investment Performance Incentives aximum Po ential lnvestmen Pelf Incentive 2,813,172.93 3,261,124 447,951.07 Benefits 338 218.96 448,582 110.363.04 Total Investment Pertonnance Incentives 3,151,391.89 3,709,706 558,314.11 T otal Persona l Services 7 673 524.98 8694 030 1,020.505.02 O PERATING EXPENSES Contrac tual Total (sec appendix for flS!her details) 1,228,596.41 1,434,815 206,218.59 Travel 70,870.91 85,000 14,129.09 Office Supplies & Postage 8,566.85 12,733 4,166.15 Capital . Assets 46.338.47 48500 2 161.53 T otal Operatin g Expenses 1.354.372.64 1 581 048 226.675.36 TOTA L BUDGET 9,027.697.62 10275 078 1,247,180.38 10

~ Includes $51 ,231 A ianz re.imt:n.r semen.t & 1.n.JSed c.ompensation due to tumver
slide-12
SLIDE 12

FY16 Budget Request

Summary

Received Request FY 2015

FY2016

% Change

PERSONAL SERVICES Base Compensation Base Compens.aOOn - lnvesbnent Staff

4.017,261 4,373.255

::.a:. ....

Base Compensaiicn -Accol/11ling, Admin & Longevify

392,595 395.623

0.77""

TOTAL STAFF - FULL rn,E

4.409,856 4,768.878

i.. 1-''ll>

Staff A omey - Part Time

30.108

I ntems & Investment Counc ii

28,011 28.673

2.;f',,

Retirement & resignation flexibilfy funds

148,001 148.001

""""

Benefits 8';8,082 950.1 43

s..i.::"'°

T

  • t.a1

Base Compensation

5.454,010 5,925.863

::.m

...

Investment Performance lncentive·s Maximum Potential lnveslme"t Perf Incentive

7.323,946 8,034.522

S.;c.<Jli,

Benefits

1.022,536 1,108.764

S..'1<:to

Tot.al Investment Performance Incentives 8.34ll.<82 9,143.2116

!:. :l:'.tio

Total Personal Services

13.800,492 15,069.149

5'.1S,C,,.

OPERATING EXPENSES Cor.tractual Total (s-'* ne:ia ps.g e

forfurtlErdetai 1,557,693 1,599.54S

,

.

....

Travel 85,000 85.000

""""

Office Supplies & Postage 12,733

12.733

""""

Capital Assets

43,000 47.192

!:,7:,,..

Total Operating Expenses 1 6li8<26 1 744 473

2.71'!1,;

TOT AL BUDGET

15.498,918 16,813.'>22

.....

UNIT CO ST SUMMARY'

lr11emal Experaes as% of Total Adjusted Assets

0.C.::Si'i 0.0.SAE.

Toial Expenses as% of Total Adjusted Assets

L)_)E;:l'!i 0.3S!'!!rio

  • 3-ased

co1al a:S:setsadjus:: d

to lc:ng-:erm '131 ue ar.cl ~e.ns.es u:ing

11

35·:;um: :il 3~r3ge in"P-5':rnern performall::e [r.ca,rrti\':'.:i

slide-13
SLIDE 13

FV16 Budget Request

Contractual services detail

CONTRACTUAL SERVICES

ln'll'estment Services Consutling Servic es Investment Accounting, Performance S.encllmarking lnves ment Da1abases, ewsfeeds & Quote Fees

lnves~ ment Researcll Services Flexibi y - From Brokerage to Independent Research Total Investment Services (;;e: AJ:p::mllx .ir

r!lrth:!r de-1.311:o)

Admin istrative Expenses Offic e Rent Bcnd/Uabi y lnsuran<e Telephone Offic e Equip Ren.tal/Maintenanc.e Bureau of Info & Telecommuric alions (BIT) State Central Ser,ices Leg is lafi:ive Audit Attorney General's Office . Legal Sen.ices Custodial Fees - Global Seminars/Educa ions.I Programs Bus.ine.ss Publications Total Administrative Expens es TOTAL CO NTRACTUAL SERVICES Received FY 2015

30,000

191.000 435.189

254.232 83 139 993,560 115,148 7,410 10,000 6,000 48,028 9,513 50,000 18,509 263,025 33,500 3 000 564 133 1 557 693 Request FY 2016 % Change 30,000

181.000 471.765

256.782 83.139 1,022,686 120,554 7,800 12,000 6,000 50,430 10,544 51,500 18,509 263,025 33,500 3 ODO 576.862 1 599 548

  • 5.24%

8.40%

I.CO%

0.00% 4.!'1.1% 5.(0% 10.84% 3.00% 0.(0% 0.(0% 0.(0% 0.(0%

12

slide-14
SLIDE 14

Investment Performance

Returns vs. Benchmarks

  • SDRS Total Fund

Capital Market Benchmark Added Value State Fund Universe Added Value SDRS Beginning FY14 Assets SDRS Ending 6/30/14 Assets

FY 20 14 18.90% 17.49% 1.41% 16.87% 2.03% 4 Years Annualized FY 11-14 16.19% 13.33% 2.86% 12.92% 3.27%

$ 9.08 billion $ 10.60 billion 10 Years Annualized

FY 05 -14 9.37% 7.47% 1.90% 7.41% 1.96%

13

slide-15
SLIDE 15

Investment Performance

Earnings vs. Benchmarks

  • Total SDRS dollars earned Fiscal Year 2014
  • Total SDRS dollars earned last 4 years
  • Total SDRS dollars earned last 1

O years

  • Extra eamings resulting from last 1, 4 and 10 years of

perfonuance over benchmark (not including compounding) $1.73 billion $5 .03 billion $6.88 billion 1 vear 4 years 10 vears

  • vs. Capital Markets Benchmark

$128 million $897 million $1.40 billion

  • vs. State Funds

$184 million $1.06 billion $1.44 billion

14

slide-16
SLIDE 16

STATE FUND U\IIVERSE ANNUALIZED RATES OF RETURN

12 .0% ~----------------~

  • 10.0%
  • ~
  • g

8.0% • § 6.0%

ANNUALIZED RETURNS

10 Years 20Years 41 Years ZQQS-ZQ !i

12'..IS-ZQ Ii I

2Z:l::ZQ l1

I Otll'l-Wle 8.2 9.0 10.1 25th %tile 7.7 8.8 9.5 Median 7.4 8.5 9.1 7Stll 'M:iile 7.1 7.9 8.8 90tll 'M:iile 6.7 7.6 8.3

  • SDRS Fund

9.4 10.0 108 SDRS %tile Rank 15

slide-17
SLIDE 17

Superior returns add up over time

Cumulative returns for SDRS, Benchmark, Corporate plans, and other States

$70 $60 $50 An nualized Return 41 yrs ended FY14 ':; $40

  • -SDRS (10.8%)

"'

  • - Be nchmark (9.8%)

~

  • -corp Plans (9.3%)

e $30

<!)

  • -state Plans (9.2%)

$20 $10

so

1973 1975 1977 19791981 1983 1985 1987 1989 19911993 1995 1997 1999 2001 2003 2005 2007 2009 20112013 16

slide-18
SLIDE 18

Potential Excess Earnings

9,001} 8,000 7,000 6,001} 5,000 4,001} 3,001} 2,000 1,001}

  • 1,000
  • 2,000
  • 3,000
  • 4,000
  • 5,000
  • 6,000
  • 7,000
  • 8,000

Exce..s; Earnings {In Millk-ns)

  • --- Average + _,00%
  • .-Average

0.50%

  • -Average Returns
  • -e- Average - O. S

O~'c.

  • -+-Average - 1.

00% 2014 2017 2020 2023 2026 2029

  • SDIC 41-year outperformance = 1

% annualized vs. benchmark

  • If 1

% outperformance continues next 20 years= extra $8 billion

  • Outperformance of even half that amount = extra $3 9 billion

2032

  • Underperformance of 1

% = cost to retirement system of $6 8 billion.

2035 17

slide-19
SLIDE 19

Many pistons contribute

Cumulative added value by source FY99 to FY14

35% 30% 25% 20% 15% 10% 5% 0% FY99 FYOl FY03 fYO S FY07 FY09

FYll

FY13

  • Asset Allocation
  • Private equity
  • Real estate
  • Arbitrage
  • Fi.xed Income
  • Global equity

18

slide-20
SLIDE 20

Every asset category has good and bad years

Annual added or detracted value by source

Asset Class FY99

FYOO FYOl FY02 FY03 FY04 FYOS FY06 FY07 FY08 FY09 FYlO

FYll FYU FY13 FY14 Global equity 0.8%

  • 0.1%

2.9% 1.9% 0.0%

  • 0.4%

0.8%

  • 0.3%
  • 0.1%
  • 6.2%

5.6% 2.1%

  • 0.8%

1.1% 3.7% 0.3%

Fi,ed Income

  • 0.1%
  • 0.1%
  • 0.3%
  • 0.6%

0.3% 0.0% 0.3% 0.1% 0.0% 0.2%

  • 0.9%

0.6% 0.4%

  • 0.3%

1.2% 0.1% Arbitrage 0.5% 0.7% 0.0%

  • 0.1%

0.1%

  • 0.1%
  • 0.3%

0.3%

  • 0.1%
  • 0.2%

0.2% 0.1% 0.3% 0.0% 0.0% 0.0% Real estate 1.0% 0.6% 0.5% 0.1% 0.0% 0.5% 2.1% 0.9% 3.0%

  • 1.0%
  • 7.0%

2.1% 2.3%

  • 1.3%

0.6% 1.2% Private equity

  • 0.3%

0 .0%

  • 0.2%

0.2%

  • 0.2%

0.3% 0.7% 0.6%

  • 0.1%

L8%

  • 1.8%

1.2%

  • 0.2%
  • 1.1%
  • 0.8%
  • 0.1%

Asset Allocation

  • 0.6%

0.0%

  • 0.6%
  • 0.6%
  • 0.7%

0.8% 0.1% 0.8% 1.0%

1.0% 1.5% 1.4% 1.9%

1.5% 2.1%

  • 0.1%

Total 1.3% 1.1% 2.3% 1.0%

  • 0.4%

1.1% 3.7% 2.4% 3.8%

  • 4.5%
  • 2.4%

7.6% 3.8%

  • 0.1%

6.8% 1.4% 19

slide-21
SLIDE 21

Trust Funds (pre1iminarv estimates)

Health Care Trust (established April 2001} Principal as of 12/31/1 4 Principal as of 12/31/1 4 adjusted for inflation Fair Value (FV) as of 121311 14 Difference - FV less principal Difference - FV less infl. adj. prin. Fiscal year to date return Longterm expected mean return Payout of 4% plus expected inflation of 3% Expected return cushion/shortfall Distribution for FY 16 (July 1, 2015) EST Distribution for FY 15 (July 1, 2014) Education Enhancement Trust (established April 2001} Principal as of 12/311 14 Principal as of 12/311 14 adjusted for inflation Fair Value (FV) as of 121311 14 Difference - FV less principal Difference - FV less infl. adj. prin. Fiscal year to date return Longterm expected return (lower due to tax exempts) Payout of 4% plus expected inflation of 3% Expected return cushion/shortfall Distribution for FY 16 (July 1, 2015) EST Distribution for FY 15 (July 1, 2D14) $ 85,631,024 $ 111,635,286 $ 133,31 O ,ODO $ 47,678,976 $ 21,674,714 1.30% 6.58% 7.00%

  • 0.42%

4,670,000 4,322,835 $ 341,732,154 $ 442,458,912 $ 493,040,000 $ 151 ,307,846 $ 50,581,088 1.10% 6.50% 7.00%

  • 0.50%

17,000,000 15,699,869

FY 15 Ass et AJ location Current Benchmark Global Equity 46% 53% Private Equity 3% 00'

,.

Real Estate 10%

10%

Fixed lncome-lG 20% 26% Fixed Income-HY 7% 70,

,.

Fixed Income-Tips 4% 20,

,.

Money Market 12% 2% Total

100% 100%

Law allows up to 4% of the 1

G

quarter average to be distributed as long as principal is not violated as of December 31 each year. Avg= $116.Bmm FY 15 Asset AJlocation Current Benchmark Global Equity

46% 53%

Private Equity 3% 0% Real Estate 10%

10%

Fixed lncome-lG 10%

16%

Fixed Income-tax ex 10%

10%

fixed Income-HY 6% 7% Fixed Income-Tips 3%

2%

Money Market 12%

2%

Total 100%

100%

Law allows up to 4% of the 1

G

quarter average to be distributed as long as principal is not violated as of December 31 each year. Avg= M25.8mm 20

slide-22
SLIDE 22

Trust Funds (pre1iminarv estimates)

Dakota Cement Trust !established April 20011 Principal as of 12/311 14 Principal as of 12/311 14 adjusted for inflation Fair Value (F\0 as of 12131/14 Difference - FV less principal Difference - FV less infl. adj. principal Fiscal year to date return Longterm expected mean return Payout of 4% plus expected inflation of 3% Expected return cushion/shortfall Distribution for FY 15 EST (June 2015 to GF} Distribution for FY 14 (June 14, 2014 to GF) School & Public Lands $ 238,000,000 $ 317,892 ,885 $ 305,240,000 $ 68,240,000 $ (1 1,552,885) 1.20% 6.58% 7.00%

  • 0.42%

10,800,000 10,063,456 Inflation protection mandated by Constitutiona l Amendment - (payout is reduced by inflation to extent inflation not offset by realized gains) Fair Value as of 12/3 1/ 14 Fiscal year to date return Longterm expected mean return Distribution for FY 14 K-12 (2/2/15) Distribution for FY 14 Board of Regents (G/16/1 4) TOTAL $ 263,140,000 1.20% 6 .58% 9,969,231 2,043,790 12,013,021 FY 15 Asset Allocation Current Benchmark Global Equity 44% 53% Private Equity 30,

,.

0% Real Estate 10% 10% Fixed lncome-lG 20% 25% Fixed Income-HY 7% 7% Fixed Income-Tips 4% 2% Money Market 13% 2% T otal 100% 100% Constitution allows 4 % of the lesser of 1) 11,e 16 quarter average balance or 2} the current December 31 fair value, be distributed by June of the following year. Avg = $270 rrvn FY 15 Asset Allocation Current Benchmark Global Equity 47% 53% Private Equity

3%

0% Real Estate 8% 10% Fixed lncome-lG 19% 25% Fixed lncome-non-m 1% Fixed Income-HY 6% 7% Fixed Income-Tips 3% 2% Money Market 13% 2% Total 100% 100% 21

slide-23
SLIDE 23
  • Investment performance incentives
  • Target discount rationale
  • FY14 Budget and Actual - Contractual Services details
  • FY16 Budget - Investment Services details

22

slide-24
SLIDE 24

Investment performance incentives

Aligns compensation with goal of adding value

  • Encourage superior performance
  • Counters underperformance ca reer risk that can discou rage efforts to add value
  • Multiyear t imeframes encourage investing for the long term
  • Encourage retention of successfu l staff
  • Team is most attractive t o other organizations when winning
  • Shifts compensation higher when people more sought and down when losing
  • Incentives paid only for added value
  • Important to encourage add ing value in good and bad markets
  • Ad ded value in down markets more importa nt than in up markets
  • Encourages adding value by reducing risk when markets expensive

23

slide-25
SLIDE 25

Target discount rationale

  • Need top caliber people long term
  • Unsuccessful people or job hoppers always ava ilable but no barga in, even if free
  • Compensation is too low to recruit veteran high-performers from elsewhere
  • Must develop team interna lly by traini ng cream of crop loca l University graduates
  • Takes 15 to 20 years to fully develop seasoned talent
  • If lose talent pipeline or trainers, will jeopardized handoff to next generation
  • Our past history and observation of others suggest 70% target
  • No way to know for sure how large discounts can be without damaging team
  • Had difficulties in the past when discount got too close to 50%
  • Less opportunity than in past to design own approach may increase sensitivity
  • 30% discount believed large relative to other high-end professionals
  • Industry subject to intense performance measurement with significant consequences for

winning and losing which intensifies desire for fin ancial security

  • Industry pay for top quartile performers can be double the median. SDIC performance is

better than t op quart ile, discount versus top quartile is large

24

slide-26
SLIDE 26

FV14 Budget and Actual

Contractual services detail

Actual Exp Budget Rec'd FY 2014 FY 2014 Unexl!§:nded CONTRACTUAL SERVICES Investment Services Consulting SerAc es D .00 30,000

30,000.00

tmestmer.t Ac counting, Performance Benchmarking 90,014.53 94,000

3,985.47

lmestmer.t Da abases, Newsfeeds & Quote Fees 4'03.244.eo

415,213 11,968.05 lm'estmeri Research Services

212,gs5_ S4

247,572 34,586.16

Flexibility - From Brokerage to Independent Research D .00

83,139 83,139.00

Total Investment Services 706,245.32

869,924 163.678.68

Administrative Expenses Office Rent 115.147.80

129,125 13,977.20

Borxl/Lia.biley lns=nc e 5,700.00

7,410 1,710.00

Telejlhonie

16.161 .b'7

10,000

(6,161.97)

Office Eqli;> RentaV 1aintenance 2, IQ0.22

6,000 3,809.78

Bureau of Info & T eleccmmt.r1ic aliens {Bil) 39,945.74

43,335 3,389.26

Stale Central SerAces 9,841.68

8,351 (1,490.68)

Legisla1 ive Audit 46,069.75

55,700 9,630.25

Attorney General's Office . Legal Services 17,445.DJ

17,970 525.00

Cus1odial Fees - Global 250.499.84

250,500 0.16

Seminars/Educa ional Programs 17,542.25

33,500 15,957.75 Business Publications

1,805.84

3,000 1.193.16

Total Administrative Expenses 522.351.C9

564,891 42,539.91

TOTAL CONT RACTUAL SERVICES 1,228,5'J6.4' 1

1.434,815 206.218.59 25

slide-27
SLIDE 27

Received Request FY 2015 FY 2016 % Change

Investment Services-Detailed

Consulting S.e.M ces Cor,sulting/Comp Analysis/Asse Allocletc. 30.000 30,000

OJIO%

Sub1

  • ·a1

30 ODO 30000

0.00%

Investment Accounting, Perlormance, Benchmarking BNYI •

1ellon Pertormance & Risk Analysis

20,000 10,000

  • .50JI0%

S&P 1200 12,000 12,000

0.(10%

S&P 1000 2,000 2,000

1)_

(10%

S&P USA 10,000 10,000

OJIO%

Trade Order Mgmi System 85,000 85,000

0.00%

Portia 62.000 62000

0.00%

Subiotal 191.000 181.000

  • 5-2!%

lnvesimeni Databases, Newsleeds & Quote Fees Bloon berg 112,800 122,311

6.4J%

Factset 205,700 215,985

5.(10%

Reuters Fundamental Index 28,580 45,360

58_ 71%

Quole Fees (incL Bloomberg;Factset) 45,125 45,125

OJIO%

Oow Jones ews Service 42.984 42.984

  • 0%

Sublotal 435.189 471,765

8.40%

Investment Research Sef"Vlc es KOP igh Yield 20,000 20,000

0.(10%

S one • 1 c Carthy

0.00%

Gimme Credit Fl Research 25,000 25,000

O JI0%

Citigroup Yield Book I BB Index 10,000 10,000

0.(10%

Credrt Sighs 77,500 79,825

  • 3. 0%

lndie Research-Insider Score 26,525 26,525

1)_ (10%

Morningstar Equity 75,000 75,000

O JI0%

The Marke s. com 15,692 15,692

0.(10%

Value Line 4,515 4,740

4.98%

Global Purchasing Companies Research Calls

0.00%

Flexibility - From Brokerage to lndeapenden Research 83 139 83,1 39

0.00%

Subiotal 337.371 339,921

I)_ 6%

Total Contractual - Investment 993 560 1022686

2.'9;;%

26