INVESTMENT SUBCOMMITTEE
MEETING MINUTES

Date: August 18, 2010 Time: 3:00 p.m.
_x Regularly Scheduled __ Special
Attendees: Was a quorum present? Yes
Commission Other Attendees
Charlie Casella
Robert Baus (by phone)
Steven Greatorex
Sandra Brown-Brewton
Comptroller's Office
Thomas Woodruff, Division Director
Margaret Haering, Assistant Director

Matters Discussed:

The committee discussed the two reports from Milliman and the potential benefits of having 25% of the Stable Value Fund managed by two sub advisors: PIMCO and Prudential. ING will provide a 3% guarantee on the entire portfolio and has negotiated investment guidelines with each firm. Milliman recommends that we allow PIMCO and Prudential to each manage 12.5% of the fund. According to Milliman, the firms have different investment styles that would complement the ING Core Plus strategy and the negotiated investment guidelines play to each firm's strengths.

The committee reviewed the manner in which any transition to the sub advisors would be handled. ING will transfer securities in kind from the Core Plus portfolio to the selected sub advisors. The transitions should begin as soon as the Commission approves the appointment of the sub advisors. The fees for investment management of the Stable Value Fund would be 3 bps higher than if ING managed the entire fund itself. Given the potential benefits of diversification, the committee concluded that the additional cost was justified.

Many large public defined contribution plans use multiple managers for their Stable Value funds. The committee discussed the advantages of diversifying investment management of the Stable Value fund. As Milliman indicated, diversification among managers is customarily thought to dampen volatility and protect against the risk that the fund's overall performance would suffer as a result of poor decisions by a single manager. Both PIMCO and Prudential are well thought of and their managers weathered the 2008-2009 market down turn more effectively than other fixed income managers.

Materials Reviewed:

Milliman's analysis of Supplemental Stable Value managers; Milliman review of Stable Value fees for recommended sub advisors;
Investment performance review for 2nd quarter of 2010.

Decisions voted upon:

The Committee voted unanimously to recommend the appointment of Prudential and PIMCO as sub advisors to ING and to assign each manager 12.5% of the Fund.

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