ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM
BOARD OF RETIREMENT
2223 E. WELLINGTON AVENUE, SUITE 100
SANTA ANA, CALIFORNIA
INVESTMENT COMMITTEE MEETING
March 25, 2015
MINUTES
Attendance was as follows:
Present:
Roger Hilton, Chair; David Ball, Vice Chair; Frank E. Eley, Chuck Packard, Thomas Flanigan,
Ray Geagan, Wayne Lindholm, Chris Prevatt, Thomas Beckett, and Shari Freidenrich.
Also
Present:
Steve Delaney, Chief Executive Officer; Girard Miller, CFA, Chief Investment Officer;
Shanta Chary, Director of Investment Operations; David Beeson, Investment Officer;
William Popper, Investment Officer; Robert Valer, Chief Legal Counsel; Anthony Beltran,
Visual Technician; and Stina Walander-Sarkin, Recording Secretary
Don Stracke, CFA, NEPC, LLC
Andrew Brett, NEPC, LLC
The Chair called the meeting to order at 9:05 a.m. and read the opening statement into the record.
Mr. Ball led the Pledge of Allegiance.
CONSENT AGENDA
All matters on the Consent Agenda are to be approved by one action unless a Committee Member or a
member of the public requests separate action on a specific item.
A motion was made by Mr. Ball and seconded by Mr. Lindholm to approve the Consent Agenda. The
motion carried unanimously.
C-1
COMMITTEE MEETING:
Approval of Meetings and Minutes
Investment Committee Meeting
Manager Monitoring Subcommittee Meeting
Recommendation: Authorize meeting and approve minutes.
C-2
INVESTMENT MANAGER FEE STRUCTURE UPDATES
Recommendation: Receive and file.
February 25, 2015
February 26, 2015
Orange County Employees Retirement System
March 25, 2015
Investment Committee Meeting – Minutes
C-3
QUIET PERIOD – INVESTMENT RELATED SEARCHES
Recommendation: Receive and file.
C-4
CIO PRO-FORMA PORTFOLIO AUM PROJECTIONS
Recommendation: Receive and file.
C-5
ECONOMIC DASHBOARDS & HOUSE VIEWS
Recommendation: Receive and file.
* * * * * * * END OF CONSENT AGENDA * * * * * * *
INDIVIDUAL ITEMS AGENDA
I-1
INDIVIDUAL ACTION ON ANY ITEM TRAILED FROM THE CONSENT AGENDA
I-2
CIO COMMENTS
Mr. Miller asked that the recommendation to liquidate Mondrian, under item I-6, be moved
forward due to instruction deadlines with the custodian.
Mr. Miller briefly introduced the agenda highlights, and discussed the Energy RFP and upcoming
meetings topics.
Mr. Packard arrived at 9:09 a.m.
Mr. Ball asked that the risk consultant, BlackRock Solutions, provide the Committee with more
proactive advice in terms of the portfolio and risk management.
I-6
SECOND QUARTER 2015 PORTFOLIO MANAGER CONSOLIDATION STRATEGY
Presentation by Girard Miller, CFA
A motion was made by Mr. Ball, seconded by Mr. Lindholm to approve the staff recommendation
to terminate Mondrian. The motion carried unanimously.
Mr. Prevatt arrived at 9:18 a.m.
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Orange County Employees Retirement System
March 25, 2015
Investment Committee Meeting – Minutes
I-3
PORTFOLIO ACTIVITY REPORT
Presentation by Girard Miller, CFA
Mr. Miller presented the preliminary performance and the asset allocation for February 2015, and
the index performance as of March 20, 2015.
A motion was made by Mr. Prevatt, seconded by Mr. Packard to receive and file Item I-3. The
motion carried unanimously.
I-4
ENERGY MARKETS DISLOCATION OPPORTUNITIES INVESTMENTS – FINALISTS
Mr. Miller briefly reviewed the investment opportunities available from to the energy markets
dislocation request for proposal (RFP) and discussed the presenting managers.
Mr. Brett presented NEPC’s views on the energy markets dislocation, including the recent market
events that have caused the falling oil prices, a perspective on the oil supply and demand balance,
and the factors that affect oil prices long-term. He also presented a scenario analysis of the
investment opportunity and environment, and discussed OCERS’ current real return exposure.
Mr. Brett stated that OCERS’ investment pacing to illiquid real return strategies could potentially
be impacted by the “Energy Opportunities Investments”. He stated that OCERS’ current illiquid
real return target allocation allows for $150 million in commitments in both 2015 and 2016,
separately.
The Committee recessed at 10:17 a.m.
The Committee reconvened at 10:33 a.m.
ENERVEST
Presentation by Dave Kyte & Rainey Janke
KAYNE ANDERSON CAPITAL ADVISORS
Presentation by Chuck Yates, Michael Heinz, Greg Davis & Kevin Welsh
Mr. Geagan left at 12:14 p.m.
The Committee recessed at 12:14 p.m.
The Committee reconvened at 12:19 p.m.
RIDGEWOOD ENERGY
Presentation by Kenny Lang, Robert Gold & Leslie Golden
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Orange County Employees Retirement System
March 25, 2015
Investment Committee Meeting – Minutes
The Committee recessed for lunch at 1:36 p.m.
The Committee reconvened at 2:21 p.m.
BLACKROCK PRIVATE EQUITY PARTNERS
Presentation by Leo Chenette, Craig Payne & Jeremy Watt
Mr. Miller discussed the recommendations and stated that his preference is option 1B: $35 million
to EnerVest Fund XIV, $65 million to Kayne Anderson Energy Fund VII, $50 million to Ridgewood
Fund III, and $50 million expandable to $100 million in a BlackRock Private Equity Platform (PEP)
oil, equity co-investment strategy.
A motion was made by Mr. Packard, seconded by Mr. Prevatt to approve option 1B subject to onsite due diligence for BlackRock and Ridgewood.
Mr. Stracke discussed the energy commitments and stated that the co-investment strategy that
BlackRock has offered is a unique strategy, but with a short track record. Mr. Stracke also stated
that NEPC has not vetted the co-investment strategy that BlackRock has offered.
Mr. Miller discussed the energy commitments and stated that he believes the energy markets
investment opportunities are in 2015 and would therefore prefer a larger commitment in 2015
than in 2016.
Mr. Brett stated that generally co-investments in theory are a great idea and enhance the return
profile, given the lower cost basis and direct access to investments compared to the general
partner model.
Mr. Eley stated that he favors the $200 million allocation and would leave it up to staff to allocate
the amount among EnerVest, Kayne Anderson, and Ridgewood. He also stated that he would like
to take a pass on the BlackRock co-investment strategy given the short track record.
A substitute motion was made by Mr. Flanigan, to approve $50 million each to EnerVest,
Ridgewood, and BlackRock. The motion died for lack of a second.
Mr. Delaney asked what the due diligence process is in regards to BlackRock and Ridgewood.
Mr. Miller discussed the planned due diligence for the two managers.
Mr. Brett stated that Ridgewood is the only fund currently on NEPC’s focused placement list (FPL),
but both EnerVest’s and Kayne Anderson’s previous funds are on their FPL. He also stated that
BlackRock is the only manager that NEPC does not have previous experience with in regards to
energy.
The original motion made by Mr. Packard, seconded by Mr. Prevatt to approve option 1B subject
to on-site due diligence for BlackRock and Ridgewood carried unanimously.
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Orange County Employees Retirement System
March 25, 2015
Investment Committee Meeting – Minutes
Mr. Miller asked the Investment Committee about their interest in liquid energy focused
investments if energy prices declined further and if they would like staff and NEPC to research the
space.
A motion was made by Mr. Prevatt, seconded by Mr. Ball to direct the CIO to conduct contingency
research, confer with NEPC and report to the Committee on potential liquid-markets investment
strategies. The motion carried unanimously.
The Committee recessed at 4:12 p.m.
The Committee reconvened at 4:22 p.m.
I-5
DOMESTIC DIRECT LENDING MANAGER
Mr. Miller briefly introduced Monroe and discussed their new fund, Private Credit Fund II. Mr.
Miller stated that OCERS has committed $70 million to their Senior Secured Direct Loan Fund and
are satisfied with the investment.
Mr. Stracke stated that NEPC has a discounted fee for clients investing with Monroe. He also
stated that Monroe is a recommended manager by NEPC and they think highly of Monroe.
MONROE CAPITAL
Presentation by Ted Koenig
Mr. Stracke stated that Monroe has a long and steady track record and NEPC is comfortable in
supporting the leveraged option.
A motion was made by Mr. Flanigan, seconded by Mr. Packard to approve a commitment of $50
million to the Monroe Capital Private Credit Fund II. The motion carried unanimously.
A motion was made by Mr. Eley, seconded by Mr. Ball to approve the full leverage option.
Mr. Stracke stated that OCERS has committed $70 million, unleveraged, in the Monroe Senior
Secured Direct Loan Fund and NEPC would comfortably support the 100% leverage option for the
$50 million allocation to the Private Credit Fund II.
A substitute motion was made by Mr. Flanigan, seconded by Ms. Freidenrich to approve the 50%
leverage option. The motion failed 1-8 with Mr. Flanigan voting yes.
The original motion made by Mr. Eley, seconded by Mr. Ball to approve the full leverage option
carried 8-1 with Mr. Flanigan voting no.
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Orange County Employees Retirement System
March 25, 2015
Investment Committee Meeting – Minutes
I-6
SECOND QUARTER 2015 PORTFOLIO MANAGER CONSOLIDATION STRATEGY
Presentation by Girard Miller, CFA
Mr. Miller discussed the second quarter 2015 portfolio manager transitional consolidation
strategy.
A motion was made by Mr. Ball, seconded by Mr. Beckett to approve the CIO-recommended
second quarter 2015 portfolio manager transitional consolidation strategy. The motion carried
unanimously.
I-7
J.P. MORGAN – WATCH LIST STATUS
Presentation by Girard Miller, CFA
Mr. Miller briefly discussed J.P. Morgan’s watch list status and stated that they are performing in
line with expectations and staff recommends that J.P. Morgan be removed from watch.
A motion was made by Mr. Ball, seconded by Mr. Flanigan to remove J.P. Morgan from watch list.
The motion carried unanimously.
I-8
CIO COMMENTS
Mr. Miller discussed the currency hedging and stated that he has added the last position, $15
million, in the yen hedge, now totaling $90 million. He intends to retain a strategic 50% hedge
position, as authorized, unless markets move to a favorable extreme similar to 1984.
* * * * *END OF INDIVIDUAL ITEMS AGENDA * * * * *
PUBLIC COMMENTS: At this time members of the public may address the Committee of Retirement
regarding any items within the subject matter jurisdiction of the Committee, provided that no action may
be taken on non-agendized items unless authorized by law.
None
COMMITTEE MEMBER COMMENTS
None
STAFF COMMENTS
None
COUNSEL COMMENTS
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