1. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Turbulent Violently agitated or disturbed; tumultuous: turbulent rapids. Having a chaotic or restless character or tendency: a turbulent period in history. Causing unrest or disturbance; unruly: turbulent, revolutionary undercurrents.

2. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Signs of Turbulence Bear Stearns, Lehman Brothers, Merrill Lynch, Wachovia, Washington Mutual, National City, Goldman Sachs, AIG, Morgan Stanley, Bank of Iceland, Fifth Third, Comerica, GMAC, Barclays, Northern Rock, Fannie Mae, Freddie Mac, Constellation Energy, Citigroup, Credit Agricole, Societe Generale, Nataxis, UBS, Credit Suisse, IndyMac Bank, National Bank of Greece, Sachsen, Countrywide, GM, Viacom, Chrysler LLC, General Electric, Ford Motor, KeyCorp, Regions

3. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Signs of Turbulence MSCI World Index: (24) % S&P 500:(19) Russell 2000:(10) International Stocks:(29) Emerging Market Stocks:(36) Virtually every stock market in the world is down double digits in 2008.

4. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Signs of Turbulence Hedge Fund Aggregate Index:(9.90) % Global Macro Index(2.10) Long – Short Index(13.3) Event Driven Index(9.30) Managed Futures Index6.70 Most ‘safe’ hedge fund strategies lost value in 2008

5. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Signs of Turbulence TED Spread Negative Treasury Yields Negative TIP Yields Muni v. Taxable Yields ‘Breaking the Buck’

6. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Signs of Turbulence

7. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Signs of Turbulence TARP Temporary Guarantee Program for Money Market Term Securities Lending Facility FDIC Coverage Expansion Commercial Paper Funding Facility

8. MCCBOA November 6, 2008‘Investing In Turbulent Times’ The Perfect Storm Risk Management Fundamentals Going Forward

9. MCCBOA November 6, 2008‘Investing In Turbulent Times’ The Perfect Storm Risk Management Fundamentals Going Forward

10. MCCBOA November 6, 2008‘Investing In Turbulent Times’ The Perfect Storm Irrational Optimism Uneven Regulatory System Emergence of Complex Securities Absolute Low Level of Interest Rates

11. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Complacency and Optimism The VIX – The Fear Gauge “No Fear” “Panic”

12. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Uneven Regulatory System Unregulated Institutions Hedge Funds / Private Equity SWF Regulated Institutions Banks Insurance Companies Thrifts

13. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Variety of Regulatory Agencies Treasury Department OCC Independent Agencies FDIC Federal Reserve SEC CFTC FASB / GASB PCAOB FINRA

14. MCCBOA November 6, 2008‘Investing In Turbulent Times’ How Much Complexity?

15. MCCBOA November 6, 2008‘Investing In Turbulent Times’ “Behind AIG’s Fall, Risk Models Failed to Pass Real-World Test” Headline in WSJ – 11/3/08

16. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Absolute Low Level of Interest Rates One Month Bills

17. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Pension Plan Returns (Assumed!)

18. MCCBOA November 6, 2008‘Investing In Turbulent Times’ The Perfect Storm Risk Management Fundamentals Going Forward

19. MCCBOA November 6, 2008‘Investing In Turbulent Times’ What Is Risk?

20. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Risk: exposure to the chance of injury or loss; a hazard or dangerous chance: It's not worth the risk

21. MCCBOA November 6, 2008‘Investing In Turbulent Times’ What Is Risk?

22. MCCBOA November 6, 2008‘Investing In Turbulent Times’ “To me, risk management is not about measurement at all. It is how we make decisions. What matters in thinking about risk is the quality of the decisions we make in the face of uncertainty.” ‘Risk: The Hottest Four-Letter Word in Financial Markets’ -Peter L. Bernstein 2006

23. MCCBOA November 6, 2008‘Investing In Turbulent Times’ A Return To Risk Management Principles Management Measurement Oversight

24. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Management of Risk Fiduciary Responsibility Approved Policies Independent Oversight Defined Structure Consistency Education and Resources Understand Key Risks Setting Risk Limits Routine and Exception Reporting

25. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Risk Management Cycle Frequent Cashflow Positions Annually Assess Environment –State Fiscal Situation –Enrollment –Fund Balance Review Policies

26. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Measurement of Risk Valuation Procedures Measurement and Attribution Risk Adjusted Returns Stress Testing Back Testing Assess Model Risk “Not Measured, Not Managed”

27. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Oversight of Risk Due Diligence Independent Review Review Processes

28. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Ten Commandments of Risk Management 1.Training 2.Self-Assessment 3.Written Policies 4.Independent Oversight 5.Simulation 6.Mark to Market 7.Establish Reserves 8.Establish Limits 9.Define Roles and Responsibilities 10.DEW

29. MCCBOA November 6, 2008‘Investing In Turbulent Times’ The Perfect Storm Risk Management Fundamentals Going Forward

30. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Going Forward Inflation Fiscal Policy ?? Monetary Policy Recession/Deflation De-Leveraging Plunge in Commodity Prices Asset Write-offs Re-Regulation Constrained Credit TIP Spreads

31. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Forward Curve Data

32. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Accomodative Monetary Policy

33. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Portfolio Construction Return on Capital v. Return of Capital Watch Key Risks: –Market Risk –Credit Risk –Headline Risk Diversification

34. MCCBOA November 6, 2008‘Investing In Turbulent Times’ Bibliography In An Uncertain World, Robert E. Rubin The Black Swan, Nassim N. Taleb The (Mis)Behavior of Markets, Benoit Mandelbrot