1. Fresno County Employees’ Retirement Association Strategic Planning Session Presented by Tom Iannucci Cortex Applied Research October 17, 2007

2. 2 Agenda 1.Why plan? 2.The planning process: – Strategic planning – Business planning 3.Preliminary discussions: – Mission statement – Strategic positioning – Strategic threats – Business planning projects 4.Conclusion and next steps

3. 3 Benefits of an Effective Planning Process  Clarifies/ confirms our strategy  what business we are in  our general approach to that business  our priorities  Aligns how we spend our time and allocate resources with strategy  Focuses the organization (Board and Staff)  Improves efficiency  Allows us to gauge progress  Orients new board members/staff

4. 4 Identify Strategic Priorities The Planning Process Clarify Our Strategy & Threats (What kind of org. will we be?) Statement of Strategic Direction Business Plan (Specific projects, time- lines, resp. etc.)

5. 5 Outcomes Mission Statement Statement of Strategic Direction Business Plan Concise description of our business (1 paragraph) (long-term view/ seldom changes) More detailed description of what kind of organization we will be and how we will approach our business (5-6 pages) (long-term view/ changes slowly) Detailed description of specific projects we will undertake to achieve our Mission and Strategic direction over the coming 18 months:  Projects  Timelines  Responsibilities  Resources (short-medium term view/ changes often) Review Periodically

6. 6 Strategic Planning  Is about strategic thinking  Defining your business and any threats to it  In private sector, it involves identifying:  Customers  Needs  Markets  Ownership structure  For public sector funds, above issues are generally set in statute

7. 7 The Pension Business Discount Rate Low High Contributions Liabilities Risk High Efficient Frontier

8. 8 Public Retirement Systems Instead, retirement systems should focus on continually ensuring clarity around other strategic issues such as:  Role in influencing legislation  Role in corporate governance  Commitment to service quality  Scope of member communications (narrow vs. holistic)  Approach to risk management  Investment management vs. investment oversight  Independence vis-à-vis sponsor

9. 9 Customer Service Stakeholder Relations Board Governance Investments Strategy Risk Management Stakeholder Relations Board Governance Corporate Governance InvestmentsCustomer Service Human Resources Customer Service Stakeholder Relations InvestmentsCorporate Governance

10. 10 Identifying Threats to the Current Business  Funding/contribution levels  Employer withdrawals  Misinformed sponsors/stakeholder  Competing pension arrangements  Succession  Drains on the fund  Internal governance/management

11. 11 Business Planning  Strategic programming  Defining those projects that will either:  Move the organization in the desired direction  Address threats to the business  Defining project parameters:  Deliverables  Timing  Responsible parties  Reporting  Etc.

12. 12 An Example Statement of Strategic Direction Business Plan XYZCERA will be very proactive in engaging with stakeholders (City Council, City Administration) Projects 1. Develop a Stakeholders Relations Plan. Project description:  Deliverables  Timing  Responsibilities  Budget Implications 2. Hire Stakeholder Liaison Project description:  Deliverables  Timing  Responsibilities  Budget Implications

13. 13 Mission Statements A mission statement should clearly and concisely describe what business an organization is in:  What needs to meet  What products/services to provide  What customers we serve  What market(s) we serve

14. 14 FCERA’s Mission Statement  In essence: To administer the retirement benefits provided for by law to the members and beneficiaries of the Fresno County Employees’ Retirement Association in a prudent, accurate, and timely manner consistent with fiduciary duties.

15. Preliminary Discussions

16. Stakeholder Relations

17. 17 Discussion 1  To what extent if any do you believe FCERA requires greater autonomy or authority to carry out its mission?  Budget  Human resources  Legal services  Management information services

18. 18 Discussion 2  Who are FCERA’s primary stakeholders?  Do we need to be more stakeholder-focused as an organization (i.e. more effort/resources)?  If so: – Which groups shall we emphasize? – What types of efforts do you foresee?

19. Customer Service Quality

20. 20 Customer Service  All retirement systems say they are committed to service quality  Retirement systems are monopolies; therefore commitment and service quality need to be well defined  Significant implications for:  Organizational structure  Staffing  Training & development  Technology

21. 21 Please indicate the appropriate benchmarks for a)identifying best practices and b)assessing customer service quality: Discussion 3 Benchmark AB Fresno City Retirement System Other 37 Act retirement systems Other US retirement systems Private sector financial institutions Private sector service organizations Custom internal benchmarks None of the above

22. 22 Customer Service Criteria 1.Customer service culture 2.Performance evaluation tied to customer service 3.Service quality measurement & reporting 4.Customer service benchmarks 5.Staff training 6.Supporting technology

23. 23 Discussion 4 Please indicate with an X the number of customer service criteria listed in the previous slide that you feel are currently satisfied at FCERA. 0 63 Current

24. 24 Discussion 5 Please indicate with an X the number of customer service criteria you believe FCERA should strive to satisfy over the coming 2-3 years: 0 63 Target

25. 25 Discussion 6 Assuming FCERA has approximately $100 000 available for new discretionary projects, what amount would you be prepared to dedicate to enhancing customer service over the coming year (e.g. customer service training, establishing service quality benchmarks, measuring service quality; but not technology projects). Such funds, of course, would be permanently unavailable to fund plan liabilities a) Less than $25,000 b) $25,000 - $50,000 c) $50,000 - $100,000 d) 100,000 - $150,000 e) Greater than $150,000

26. Investments & Funding

27. 27 Discussion 7  How do you hope the FCERA investment program will look in 5 years:  Internal investment resources  Consulting resources  Asset classes  Risk management practices  Board practices  Other

28. Risk Management

29. 29 Two Basic Approaches Boards and/or organizations can be focused on:  performance management,  risk management, or  they can allocate effort to both.

30. 30 Risk Management Focus Examples:  Defining risks  Asset allocation and diversification  Policy (investment/operations)  Risk budgeting  Planning  Due diligence process and oversight  Business continuity and disaster recovery  Internal controls and audit: – Investment controls – Operational controls  Investment compliance  Monitoring service providers  Organizational structure

31. 31 Performance Management Focus Examples:  Manager interviews  Manager selection  Manager allocations  Conducting due diligence  Resolving member complaints  Approving purchases and contracts

32. 32 Discussion 8  How does the Board currently define the risk associated with the investment portfolio?  To what extent is the Board able to measure and control the amount of risk in the investment portfolio?

33. 33 Discussion 9  To what extent do you believe FCERA needs to devote more resources to evaluating the performance of its advisors and service providers:  Actuary  Investment consultant  Custodian  Investment managers  Other

34. 34 Discussion 10  Please discuss the need for, or feasibility of, establishing an internal audit function at FCERA in the foreseeable future

35. 35 Discussion 11 Please provide a general indication of how you believe the Board allocates its time among risk management and performance management currently and ideally: Risk management:_____% _____% Performance mgmt.:_____% _____% TOTAL100 % 100 % TodayIdeally

36. 36 Discussion 12  What sorts of risk management activities, if any, would the Board like to devote more resources to?

37. Role in Pension Benefit Policy

38. 38 Discussion13 Role in Benefit Policy  Retirement boards normally do not have authority over benefit design/levels  Boards may however attempt to play some role influence  Boards may decide to stick to one strategy or switch strategies over time  Please indicate FCERA’s position on the scale below (both currently and ideally) Administer Benefits Only Expert source of Info. on Request Provide Info. Proactively Advocate

39. 39 Role in Benefit Policy Administer Only Focus on operations. No need for an internal policy function. Rely on actuary/investment consultant as needed Provide Info. on Request Need to have policy function capability even if there are no requests. Provide Info. Proactively Need to build policy function Develop a process to determine which issues will be addressed Need to develop ability to present info in an even- handed manner Advocacy Need to build policy function Develop a process to determine priorities Develop expertise in persuasion

40. Corporate Governance/ Shareholder Activism

41. 41 Corporate Governance  Retirement systems are major shareholders in the U.S. and world economies and have a duty to exercise their duties as shareholders  There are a range of approaches retirement systems may take to exercising their duties

42. 42 Range of Approaches Low-level activism Mid-level activism High-level activism  Vote proxies in the best interests of the beneficiaries  Active in CII  Letter campaigns  Class action lawsuits  Meet with corporate mgmt.  Lead plaintiff status  Proxy battles

43. 43 Discussion 14 With respect to shareholder activism: 1. Please indicate how active you believe FCERA is today: – LowMediumHigh 2. How active should FCERA be in the future? – LowMediumHigh

44. Strategy, Core Competencies, and Threats

45. 45 Discussion 15  In what ways do you believe FCERA should differentiate itself (if at all) from other retirement systems of similar size?

46. 46 Discussion 16  What specific skills or expertise do you believe FCERA needs to develop or refine over the next five years in order for the organization to most effective or successful?

47. 47 Discussion 17  What are the biggest threats facing FCERA over the coming 2-3 years?

48. Strategic Priorities

49. 49 Discussion 18  Please identify the top 3 issues you believe FCERA should focus on in the next 12-18 months.

50. 50 Next Steps To be discussed