Seeking return and/or reducing risk Alternatives Seeking return and/or reducing risk November 15, 2011 Dedicated to providing promised retirement benefits and exceptional services while sustaining our members’ trust

Seeking Return or Reducing Risk? YES! Can you have your cake and eat it too?

Why use Alternatives? Alternatives are typically considered to have low correlation to traditional asset classes. By combining asset classes whose risk (volatility) follow patterns that are different from each other you smooth the return path of the overall portfolio. Over time a portfolio following a smoother, less volatile path compounds at a faster rate. Courtesy RV Kuhns & Associates

What are Alternatives? An evolving market with many different forms and focus. Private Equity Real Estate Commodities Infrastructure MLPs Absolute Return/Hedge Funds

How has Fort Worth implemented its Absolute Return strategy? Initial investment through a custom fund of funds in 2004. Why initially through a fund of funds structure? No investment staff New asset class for Fund Quicker implementation of diversified portfolio Converted fund of funds to a direct portfolio in 2008. Why convert to direct investments? Increased investment staff Lowered fees Improve ability to make changes within portfolio

What has experience been? Since Fort Worth ERF’s implementation of its Absolute Return portfolio the returns have been positive with lower volatility compared to equity returns. Absolute Return Performance Statistics 1 Yr Return 3 Yr Return Since Inception Return 1 Year Std Dev. 3 Year Std Dev. Since Inception Std Dev. FWERF 1.68% 3.82% 4.44% 4.30% 5.72% 5.20% HFRI FoF Composite -1.79% 0.15% 2.35% 5.41% 6.22% 6.12% MSCI World -0.25% -0.17% 1.41% 15.08% 23.32% 16.78% Returns through September 30, 2011 Sources: Albourne America & Bloomberg

Make sure you understand the purpose of your structure and evaluate its performance against its design. Annual Returns FWERF S&P 500 MSCI World 2004 4.00% 10.88% 15.25% 2005 6.27% 4.91% 10.02% 2006 11.77% 15.79% 20.65% 2007 9.04% 5.49% 9.57% 2008 -16.02% -37.00% -40.33% 2009 16.63% 26.46% 30.79% 2010 7.04% 15.06% 9.55% CYTD 2011 -2.27% -8.68% -13.75%

Make sure you know what you are eating before you take a bite!