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MABE Pooled OPEB Investment Trust

Maryland Government Finance Officers Association Conference

June 18, 2015

Steve James

Maryland Association of Boards of Education

Deputy Director

410-841-5414

sjames@mabe.org

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In The Beginning

Opportunity to provide service to members

Staff already in place administering P & C and WC Pools for 17 School Districts

Trust makes sense to achieve operational and investment economies of scale

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In the Beginning

Started Operations: May, 2008Initially Four School Districts joined

Trust Agreement authorized only Maryland School Districts to joinBoard has affirmed just Maryland School Districts

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Ongoing

Trust has grown from four to nine member School Districts

Allegany County, Caroline County, Cecil County, Charles County, Harford County, Kent County, Prince George’s County, St. Mary’s County, Washington County

Other School Districts have set up their own Trusts, Partnered with their County Government, or done nothing

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OngoingAsset Allocation

• Analyze Member Goals & Risk Tolerance• Determine Group’s willingness to assume Risk• Gain Comfort Level • Develop the Appropriate Allocation & Specific Asset Classes

• Initially Expected 8% Annual Return; 57% Equity/43% Income• Managed Risk: Incoming cash was then dollar cost averaged into investments over

6 months • Modified May, 2014 Expected 7.85% Annual Return 60% Equity, 40% Income• Incoming cash is dollar cost averaged into investments over 3 months

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OngoingTarget Asset Allocation/Asset Classes

May, 2008 May, 2014Intermediate Fixed Income 35% Intermediate Fixed32%Large Cap Core 20% Large Cap Core 23%All Cap Growth 10% All Cap Growth 10%Small/Mid Value 7.5% Small/Mid Value 8%International Value 7.25% International Value 10%International Growth 7.25% International Growth 4%Emerging Markets 5% Emerging Markets 5%High Yield Fixed Income 5% High Yield Fixed Inc 5%Cash 3% Cash 3%

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OngoingOperations

• Members obtain their own actuarial reports, develop their ARC

• Members contribute what they can• Variable contributions• Smallest single contribution: $89,000• Largest Single contribution: $15,000,000

• Trust’s job is to grow the contributions

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OngoingGovernance

• Each Member appoints a Trustee• School District Business Manager or CFO

• MABE, Sponsoring Association appoints one Trustee• School District Board Member

• Each Trustee serves on the Investment Committee

• Conduct Quarterly Business Meetings

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ResultsPerformance

One Year (Annualized) Three Years Five YearsTotal Fund 5.07% 6.94% 6.98% OPEB Index 6.43% 8.63% 8.23% Performance less than index however with lower volatilityBeta: 86

Member AverageReturn on Asset 6.2%Assumption

Philosophy: Error to the Side of Caution Steady as she goes

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ResultsPerformance

Replace Specific Money ManagersPoor PerformanceManagement ChangesStraying from Style

MABE OPEB Trust has replaced five managers since inception

Not looking for Home Run Hitters, who strike out often Need singles and doubles hitters for consistency

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ResultsPerformance

Increased Assets = Lower FeesConsultant Fee includes Consulting, Custody & TransactionsSince Fund Inception: Consultant Fees Reduced 24%

Increased Assets = Ability to Employ Better Performing Money Managers

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Investment Consultant

• Oversees Money Managers• Analyzes and discusses results with Governing Board• Makes recommendations on changes to Managers • Very Important part of the team

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Investment Consultant

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Members Like

• Total representation on the Board of Directors• Meetings by conference call• Monthly updates• Total transparency as all members see all results• Not having to handle this internally• Relying on the Trust to meet this obligation so as to focus on core

responsibilities back home • Annual thorough Financial Audits with no Management Issues

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The Final Word

STAY THE COURSE

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The Final Word

S & P 500 MABE OPEB TrustMay 1, 2008 1440March 1, 2009 798

Loss - 45% Loss -26%

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The Final Word

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The Final Word

Much Consternation. Is the financial world ending? Withdrawal? Stop contributing?

No funds were withdrawn. Members continued to contribute.Withdrawal would have been disastrous locking in losses

Developed a policy to dollar cost average incoming funds

STAY THE COURSE