1. WURTS & ASSOCIATES PAGE 1 Fresno County Employees’ Retirement Association 2006 Retreat Educational Session on Portable Alpha Harris Ranch November 19, 2006 Jeffrey J. MacLean, President, Chief Executive Officer SEATTLE 999 Third Avenue Suite 3650 Seattle, Washington 98104 206.622.3700 telephone 206.622.0548 facsimile LOS ANGELES 2321 Rosecrans Avenue Suite 2250 El Segundo, California 90245 310.297.1777 telephone 310.297.0878 facsimile Presentation Note: Portions of this presentation from Blackstone Alternative Asset Management

2. WURTS & ASSOCIATES PAGE 2 What is Portable Alpha?

3. WURTS & ASSOCIATES PAGE 3 Portable Alpha: Basic Example Traditional Approach Invest $80 million in market exposure (S&P 500 Index) Invest $20 million in market neutral hedge fund Portable Alpha Approach $100mm exposure via swap (S&P 500 Index) Invest $100 million in market neutral hedge fund $80mm$20mm IndexHFSwapHF Portfolio Expected Return = ($80mm * 4.0%) + ($20mm * 8.0%) = 4.8% Portfolio Expected Return = ($100mm * 4.0%) + ($100mm * 8.0%) = 12% $100 mmLIBOR +/- Example $100MM portfolio invested in US Stocks Would like get a real return of 4%, better if possible Investor has identified a hedge fund of funds likely to generate alpha, with an expected return of 8%

4. WURTS & ASSOCIATES PAGE 4 Swap Counterparty Hedge Fund of Fund Fresno $10MM Index return + fund return less costs LIBOR +/- Spread Return on Index Underlying Hedge Fund Managers or Securities $10MM Return on hedge funds less costs Advantages Access strategy through a single transaction No ongoing management is necessary Access to broadly diversified uncorrelated basket of securities Capture Intelligence Disadvantages Fees for management and execution Alpha sources are limited to one manger Manager fails to outperform benchmark Liquidity/Flexibility is sacrificed Counterparty Credit Risk Portable Alpha: Actual Example

5. WURTS & ASSOCIATES PAGE 5 Alpha & Beta Considerations Alpha: Alpha source should provide superior risk-adjusted returns and lower volatility Focus on absolute return rather than performance relative to a benchmark High attention to risk management to minimize negative returns Highly diversified with low correlation to other asset classes and no concentrated risks Beta: Beta is primarily obtained via Futures or Swaps Many beta exposures are available (S&P 500, Russell 2000, Lehman Agg, EAFE) Beta should be selected from the most efficient segments of the market Cost of beta varies depending on liquidity and pricing Choice of Counterparty is critical, default risk or credit risk must be minimized

6. WURTS & ASSOCIATES PAGE 6 Efficient Markets Large Cap Core and Fixed Income are among the most efficient segments of the market. Market performance is easy to obtain (Beta), but risk adjusted excess return (Alpha) is not.

7. WURTS & ASSOCIATES PAGE 7 Hedge Fund of Funds Provide “Alpha Engines” Hedge Fund of Funds provide possible alpha engines because of their focus on low volatility, diversified strategies and absolute returns: Blackstone Partners NT Since July of 1996, out of 123 monthly observations: Partners NT has had 18 negative months Lehman Agg has had 37 negative months S&P 500 has had 47 negative months Of Partners NT’s 18 negative months, 13 have coincided with S&P 500 negative months and 7 have coincided with Lehman Agg negative months. *July 1996 – September 2006

8. WURTS & ASSOCIATES PAGE 8 Blackstone’s Performance *Funded 12/1/01 Blackstone monthly returns since inception A portable alpha program would have outperformed corresponding investments over the past 4 full calendar years Fresno has experienced 11 negative months while invested in Partners NT