Worldwide equity markets faltered in August and September, closing their worst quarter since the collapse of Lehman Brothers in 2008. Investors’ flight from equity was driven by uncertainty surrounding the debt crisis (Sovereign) in Europe, potential inflation and slowing GDP in Asia, and double-dip recession fears domestically. The Dow Jones Industrial Average fell -11.5%. The Standard & Poor’s 500 and NASDAQ Composite stock indices were down, -13.9 % and -12.9%, respectively.The MSCI EAFE was down -19.0% and Emerging Markets (EM) decreased -22.6%.The markets continued to react negatively to the economic and geopolitical uncertainty. In August, Standard & Poor’s downgraded the United States Government from its list of risk-free borrowers. Unemployment remains a disappointing 9.1%, a slight improvement from September 2010’s level of 9.6%. ACERA’s investment staff monitors capital markets very closely.
ACERA is a long-term investor with a well-diversified and conservative portfolio. For the quarter ending September 30, 2011, ACERA’s Total Fund was down -11.5% with the portfolio’s international and domestic small caps underperforming domestic large caps, which were also down. Overall, Domestic Equities were down -16.2%, International Equities were down -19.6%; Fixed Income increased by 0.3%. ACERA’s Real Estate managers (composite) were up 2.8%* and Private Equity and Alternatives Return Leading Strategies* (PEARLS) composite were down slightly -1.5%. For the year ending 9/30/2011, the Total Fund returned 0.4% and ranked in the 74th percentile among public funds greater than $100 million and finished the 3rd quarter at $4,795,432,390.
During the period July-September 2011, the Retirement Board approved the amended 2011 Real Estate Strategic Plan and the 2011 Investment Plan for Real Estate; adopted the Amended PEARLS Policy (August 2011) and the 2011 Investment Plan for ACERA’s PEARLS; adopted ACERA’s Real Return Pool Policy; made one new PEARLS investment (currency); and approved one investment in Real Return Pool (commodities). As part of its continuing portfolio monitoring and due diligence, the Investment Committee reviewed one real estate portfolio. ACERA’s consultant, Strategic Investment Solutions, also provided an additional education session on Fund of Hedge Funds. Staff also rebalanced the Total Fund according to the General Investment Guidelines, Policies, and Procedures. Please refer to the Investment Committee Meeting minutes found on this website.
*Real Estate and PEARLS composite returns are subject to a quarter lag in reporting valuations and performances.