1. 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

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

3. 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

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

5. 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

6. 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

7. 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%

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