Investment Update – 3rd Quarter 2012

Investment Update

Fears over the U.S. fiscal cliff and a pronounced slowdown in China have limited upside gains in risk markets in the wake of the quantitative easing throughout the developed world. The Federal Reserve announced QE3, which allows for unlimited MBS purchases, until the labor market improves.As a result, US equities rose during the 3rd quarter.The S&P 500 outperformed during the quarter, returning 6.4%, the NASDAQ followed with 6.2% and the DJIA returned 5.0%.Both quantitative easing and accommodative fiscal policy in Asia helped boost sentiment across markets.The MSCI EAFE increased 7.0%. The decline in risk aversion due to the Federal Reserve’s easing actions spilled over into the emerging markets, where the MSCI Emerging Market Index rose 7.9%. Corporate bonds returned 3.9% and outperformed the Barclays Capital Aggregate Bond Index, which gained 1.6%.

ACERA is a long-term investor with a well-diversified, conservative portfolio. For the quarter ending September 30, 2012, ACERA’s Total Fund returned 5.7%, ranking in the upper 4th percentile among public funds greater than $100 million and finished the third quarter at a market value of $5,572,589,629. Domestic Equities returned 6.0%, International Equities returned 7.7%, and Fixed Income returned 4.6%. ACERA’s Real Estate managers and Private Equity and Alternatives Return Leading Strategies (PEARLS) composites1 returned 2.6% and 2.2%, respectively. The Real Return Pool Composite returned 5.1%.

[1] Real Estate and PEARLS composite returns are subject to a quarter lag in reporting results.