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Home My WebLink About2007 01 31 Document Given To Board Members On 01/25/07 For Regular 302 - MBIA Asset Mgmt.Date: January 31, 2007 THE FOLLOWING DOCUMENT WAS GIVEN TO THE BOARD OF TRUSTEE MEMBERS AT THE JANUARY 31, 2 00 7 REGULAR BOARD OF TRUSTEES MEETING. MDIA City of Winter Springs General Employees' Pension Plan Presented by: Thomas N. Tight, II Regional Director January 31, 2007 I. MBIA Overview II. Philosophy and Process III. Core Composite Statistics and Performance IV. Biographies Mt31/~ 2 Mt31/a . ~~M~ • Established in 1990 ;, ~~ • $64 billion in assets under management ~ • 118 professionals assigned to asset management • Dedicated to fixed income • World-class manager of credit risk MC31/~ • Unique expertise in structured products and asset/liability management • Member of the MBIA family of companies - MBIA Insurance - World's largest financial guarantor - AAA rated; one of few natural AAAs (Fitch, Moody's, S&P) - MBIA Inc. ranked in top ten by ISS for corporate governance for the past five years; ranked #1 twice (2003, 2005) 4 r~~w Assets by Type Structured Products 56% Liquidity Pools 13% Institutional Separate Accounts 30% Mutual Funds 1% Assets by Style Core 53% M[31/a Money Market 13% Short 24% Intermediate 10% Asset Growth (millions) $63,936 As of 12/31 /06 6 2000 2001 2002 2003 2004 2005 2006 • Corporate - Channel Reinsurance - Ram Reinsurance - MasterCard - Citizens Property Insurance Corp. - Merchants and Farmers Bank • Endowments/Foundations - Miami Children's Hospital - Central Florida Speech and Hearing Center • Public - Jefferson County Commission, AL - Puerto Rico Government Investment Trust Fund - City of Coral Springs, FL - City of Aurora Firefighters and Police, IL • Taft-Hartley - Teamsters Local 282 Pension Trust Fund - International Union of Operating Engineers Local 137 - Joint Industry Board of the Electrical Industry - Gastronomical Workers Union Local 610 7 • City of Fort Lauderdale • City of Miami Beach • City of Coral Springs • City of Daytona Beach • City of Oviedo Police Pension Plan • City of Oakland Park General Employees • City of St. Pete Beach General Employees • City of Dania Beach Police & Fire • City of St. Pete Beach Police & Fire • City of North Port Fire Pension Plan • Central Florida Speech & Hearing Foundation • Miami Children's Hospital MC31/-1 II II~~ILI M[31/~ Generate excess return for clients, while taking below-average risk • Yield-biased investment approach • Spread sectors (corporate, MBS, ABS) emphasized • In-depth, proprietary research capabilities • Sophisticated risk management systems • Diversification of exposures and strategies to control volatility 10 20 15 10 0 c 5 3 0 d ~ (5) (10) (15) <O 00 O N ~ t0 0° O N ~ <O 00 O N ~ t0 h h 00 0° CD 00 00 01 0/ 01 Of 01 O O O O Lehman Brothers Aggregate Bond Index ~ Coupon -~~-Price MC31/~ Price 0.27% Coupon 8.58% Sources: Moody's, Lehman Brothers Aa ~- 32 0.00 300 49 0.01 49 70 0.02 35 ~.... 123 0.21 5.9 ~. __ 237 1.31 1.81 305 5.69 0.5 As of 9/30/06 11 MC31/~ Governments, Mortgages and Corporates: 1986-2006 25.0 0 c 15.0 c~ c 5.0 Q (5.0) 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Governments 15.3 2.2 7.0 14.2 8.7 15.3 7.2 10.7 (3.4) 18.4 2.7 9.6 10.0 (2.6) 13.5 9.3 11.8 2.2 3.5 2.8 2.3 Mortgages 13.4 4.3 8.7 15.4 10.7 15.7 7.0 6.8 (1.6) 16.8 5.4 9.5 7.0 1.9 11.2 8.2 8.8 3.1 4.7 2.6 3.6 ^ Corporates 16.6 5.6 9.2 14.1 7.1 18.5 8.7 12.2 (3.9) 22.3 3.3 10.2 8.6 (2.0) 9.4 10.7 10.1 7.7 5.2 2.0 2.9 YTD 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Aggregate Index Retum 15.3% 2.8°~ 7.9°/, 14.5% 9.0% 16.0°10 7.4% 9.8% -2.9% 18.5% 3.6% 9.7% 8.7% -0.8°i(o 11.6% 8.4°/u 10.3% 4.1% 4.3°k 2.4°k 3.1% Retum Spread 1.7% 1.5% 1.3°k 0.8% 1.8% 2.5°k 1.3% 2.4°~6 1.3°/6 3.8°h 1.7% 0.6% 1.3°~ 2.7°k 1.9% 2.3°k 1.5°k 3.6% 0.9°k 0.4°k 0.5% As of 9/30106 Based on Lehman Brothers Aggregate Bond Index 12 M [31/-~ Risk-Rew~u d: 5 Yr s 5.8 5.6 5.4 5.2 5.0 ~ 4.8 4.6 4.4 4.2 4.0 3.0 31 3 2 3,3 3,4 3.6 3,6 3,7 3.8 3.9 4.0 4.1 4 2 4 3 4,4 4,5 4,6 4,7 4,8 4.9 6.0 Standard Qevi~ition -+- h4Bl~l ,4sse~ MgRrt Care Fixed Income Product -+- Benchmark- LB ,4ggregate Bond + Universe Median Risk-Reward: 5 Yrs FirmlProduct VT RM Standard Deviation Returns MBIA Asset Mgmt Core Fixed Income P... SA GF 3.49 5.04 Benchmark: LB Aggregate Bond N/A N/A 3.73 4.81 eA Core Fixed Income (Universe Median) 3.71 5.02 As of 9/30/06 13 Results: Consistent and repeatable risk-adjusted returns generated for clients Broad Strategy • Duration • Yield curve positioning • Sector weighting • Macroeconomic trends • Market trends Intensive Research Portfolio Construction MC31/a -. -. ~:_::: „~ _ ~.._ • Relative value approach • Proprietary research • Internal credit tiering ~ Review guidelines Implement investment ,~r strategies ~' ~ Rebalance portfolio as • ' ' needed 'ate f~J....-~- _~ ~ ..., ,..,t,_ ~ ,.. • Interest rate modeling ~' Risk Control • Stress testing Guideline Compliance • Strategy Compliance Establish account • Act as liaison with portfolio management team • Sector dynamics Provide portfolio performance • Structure characteristics reviews • Risk and spread tiering 14 Credit Philosophy • Perform our own credit analysis - Proprietary credit modeling system - Internal credit grade and tiering system MC3!/a • Start with a lender's perspective (Can and will a company pay us back?) - Look for firms with competitive advantages (niche players, low cost producers, favorable regulatory environment) - Emphasize senior secured debt - Avoid declining industries and sectors with high defaults/low recoveries • Diversify credit exposures • Continuously capture risk-adjusted yield advantage 15 Credit Expertise • Six dedicated in-house credit analysts - Over 150 years of combined experience - More than 15 years of average experience MC31/~ • Leverage industry/sector expertise of MBIA Insurance (120 analysts) • Intimate knowledge and understanding of credit ratings and agencies • Breadth of credit product experience/management - CDOs, SIVs, DPC, ALM - $1.5 billion portfolio of single-name credit default swaps (CDS) for MBIA Insurance - 10 bespoke CDO tranches 16 ~~ ~r ^ \i Portfolio managers determine portfolio structure: • Duration range Volatility exposure • Yield curve positions Sector weights Mt31/~ Credit team and portfolio managers create model portfolio with individual securities Portfolio managers leverage superior technology and purchasing power for best execution Portfolio managers continuously monitor and adjust the portfolio and rebalance when market conditions change Multiple parties monitor portfolio for appropriate risk exposures and client guideline compliance 17 MC31/a • Independent risk manager function located on the trading desk to monitor activity • Reports to Chief Risk Officer of MBIA Inc. • Provides reports to Board of Directors of MBIA Inc. • Diversification is fundamental to MBIA's Portfolio Construction Process • Duration ± 10% of index • Strict concentration limits • Sector exposure limited to 25% • Issuer exposure capped at 5% • Typical portfolio has 30-50 holdings, typically <2% per issue • Average credit quality AA ,s • We consider client service a differentiator • MBIA recognizes that we are here to benefit our clients • Every client is assigned a dedicated relationship manager - Acts as liaison between client and portfolio manager • Portfolio manager access is available • Clients receive comprehensive portfolio updates - Quarterly and annual performance reports - Market and strategy updates - Regular informal, in-person reviews - Formal investment committee meeting • Consider us an extension of your staff Mt31/a 19 Mava Experience, resources and technology of a world class fixed income manager with the feel and service of a boutique asset manager • Comprehensive research and credit analysis process - Generates superior risk-adjusted returns • Fully customized separate accounts that fit each client's specific needs • Intense focus on risk management 20 ~z ~~w Maturity Distribution Composite Benchmark 22% 23% ~1% As of 12!31/2006 Total Returns for Periods Ending December 31, 2006 iii Maturity (Years) MBIA Core Composite 4.59% 4.59% 3.51% 3.72% 5.11% 3.48 0.81 0.88 _, _., , ~~ a .-. Excess Return 0.26% 0.26% 0.13% 0.02% 0.05% Notes: 1. Standard Deviation is a gauge of risk that measures the spread of the difference of returns from their average. 2. Sharpe Ratio measures excess return per unit of risk. 3. Tracking error is defined as annualized standard deviation of the difference between the monthly returns of the portfolio and its benchmark. Standard Deviation, Sharpe Ratio and Tracking Error statistics are based on 5-year return numbers. Performance figures are gross of fees. Past performance is not a guarantee of future results. Mava Sector Distribution Money Market 3% Treasuries Agencies g°~ 75% di MBS/CMBS 38% Composite Ciuality BAA TSY 12% 9% A AGY 10% _ 15% AA 6% I AAA 48% As of 12/37!'1006 22 ABS I CMO 0-1 1-3 3-5 5-7 7-10 10+ 6°/ ML3t/a 1 Morgan Stanley Capital I Series 2006 2.40% Aaa 2 FG Pool #A32417 2.40% Aaa 3 Wachovia Bank Comm Mtg Trust Series 2.09% Aaa 4 CNA Financial 2.08% Baa3 5 JP Morgan Chase Commercial Mtg Series 2005 2.01% Aaa 6 Popular North America Inc Notes 1.93% A3 7 Citigroup, Inc 1.88% Aa2 8 Credit Suisse First Boston USA 1.80% Aaa 9 HBOS Treasury Services PLC 1.79% Aaa 10 Freddie Mac Series 3099 Class PA 1.76% Aaa As of 12/3112006 23 Nrto Ratio 3.9 i ----------- 3.6 - - 3.3 3.0 2.7 2.4 2.1 1.8 1 .5 1 .2 ' 0.9 0.6 0.3 • O.0 -0.3 -0.6 -0.9 Info Ratio Excess Retrwri 2.0 1 .8 1.6 - -------- - 1.4 ~ ----------- 1.2 ... 1 .O - 0.8 - 0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 -0.8 -1 .O Excess Retwn -~- 1A81A Asset h.+k~mt -~- h.461,~, ?=.:_set Adgrrd MPT Stats: 3 Yrs vs. Lehman Aggregate Bond Alpha 2.0 ------------ 1.8 ------•------~ 1.6--...---------- 1.4-- 1.2 1.0 0.8 O.6 i 0.4 ~ 0.2 O.O -0.2 -0.4 -0.6 -0.8 Alptx. t hIt31A Asset Mgrrrt MC31/~ Sharpe Ratio 2A 1.8-1------------- 1 I 1.6 ~ ----------- 1.4-------------- 1.2 j- ----------- i 1.0 ----------- 0.8-~ ----------- I O.6' -...----- 0.4 - 0.2 - 0.0 Sharpe Ratro ~- A461,4 Asset Mgmt eA Core Fixed Income Info Ratio Excess Return Alpha Sharpe Ratio 5th Percentile 2.95 0.80 1.16 0.45 25th Percentile 1.21 0.44 0.62 0.32 Median 0.54 0.20 0.30 0.25 75th Percentile -0.16 -0.09 -0.03 0.17 95th Percentile -0.90 -0.62 -0.71 0.04 # of Observations 231 231 231 231 FirmlProduct VT RM Info Ratio Rank Excess Return Rank Alpha Rank Sharpe Ratio Rank MBIA Asset Mgmt Core Rxed Income Product SA GF 0.29 60 0.11 61 0.36 44 0.24 52 As of 9130/06 24 MC31/~ Clifford D. Corso President and Chief Investment Officer Mr. Corso joined the firm in 1994 and is President of MBIA Asset Management and Chief Investment Officer of MBIA Insurance Corp. He is a member of the Executive Policy Committee and the senior policy-making arm of the company. He developed the company's fixed income asset management platform and now directs the investment of over $55 billion infixed income assets. In addition to the portfolios of MBIA Insurance Corp. and its affiliates, Mr. Corso's responsibilities include the direction of investments for outside clients such as pension funds, sovereign governments, state and local governments, and large institutional investors. He was previously the co-head of fixed income at a subsidiary of Alliance Capital Management. Throughout his 20- year career, Mr. Corso has managed a wide array of fixed income products, including corporate, asset-backed, government, mortgage and derivative products. Mr. Corso has a bachelor's degree from Yale University and a master's degree from Columbia University. He holds his Series 7, 24 and 63 licenses from the NASD. E. Gerard Berrigan Managing Director Head of Trading M[31/~ Mr. Berrigan joined the firm in 1994 and is a managing director and head of portfolio management of MBIA Asset Management Group. A member of the firm's Investment Strategy Committee, he manages MBIA's asset/liability management products and is responsible for structured investments across all managed portfolios. He is also a member of MBIA's Investment Review and Market Risk Committees. Mr. Berrigan has more than 15 years of experience in securities trading and portfolio management, including positions at the Federal National Mortgage Association and CS First Boston. He has a bachelor's degree from Bucknell University and a master's degree from Columbia Business School. He holds his Series 7 and 63 licenses from the NASD. 26 Eric C. Williamson Managing Director Global Head of Credit Mr. Williamson joined the firm in 1990 and is a managing director and head of Global Credit for the MBIA Asset Management Group. He has previously held several positions at MBIA Insurance Corporation, including head of the Consumer/Mortgage Structured Finance group. Prior to his role within Structured Finance, Mr. Williamson served in the Risk Management area as head credit officer for MBIA's structured finance business and was a senior vice president in the Risk Management area of CapMAC prior to its merger with MBIA. Before joining the Risk Management area, he was the real estate product manager within CapMAC's Credit Enhancement group, where he executed business on a broad range of residential and commercial mortgage securitizations. He also spent four years in Standard & Poor's Residential Mortgage Group. Mr. Williamson has both a bachelor's and master's degree from Lehigh University. Robert Claiborne Director, Credit MC31/~ Mr. Claiborne joined the firm in 2000 and is head of corporate credit research for Asset Management and a member of the firm's Investment Strategy Committee responsible for collateralized bond obligations (CBOs) and high-yield products. Prior to joining MBIA, Mr. Claiborne managed various high-yield portfolios for Orion Capital Corp., a specialty property and casualty insurance company, and Northstar Investment Management Corp., where he managed $2 billion in high-yield mutual funds and $900 million in high-yield CBOs. He has 15 years of experience in the high-yield market and 10 years of experience in corporate banking. Mr. Claiborne is also a member of the Association for Investment Management and Research (AIMR) and the New York Society of Security Analysts. He has a bachelor's degree from the University of Virginia and a master's degree from The American Graduate School of International Management. He holds the designation of Chartered Financial Analyst (CFA) through the CFA Institute. 27 Jon Moll Managing Director Mr. Moll joined the firm in 2006 and is a managing director within MBIA's Asset Management Division. He oversees MBIA's marketing, client servicing, and consultant relations efforts and is actively involved in new product development. Prior to joining MBIA, Mr. Moll was an Executive Vice President at Pacific Investment Management Company (PIMCO), where he was a senior member of the firm's management team. At PIMCO, Mr. Moll managed a marketing and client service team that was responsible for approximately $50 billion in assets. In this role, he and his team were responsible for selling and servicing a wide range of investment strategies across all major asset classes. Mr. Moll graduated summa cum laude with a bachelor's degree from Gettysburg College and earned a master's degree from Carnegie Mellon University where he graduated with distinction. He holds his Series 3, 6, 22, 26 and 63 licenses from the NASD and the designation of Chartered Financial Analyst (CFA) through the CFA Institute. John Cutting Managing Director M131/~ Mr. Cutting joined the firm in 2006 and is Managing Director and Head of the CDO Group whose responsibilities include running the collateralized debt obligation (CDO) platform and managing a portfolio of investment grade CDO securities. Prior to joining MBIA, he was a Managing Director at Eurohypo AG where he built the U.S. Asset Management Group that purchases mortgage-backed and asset-backed securities (ABS) and issues ABS CDOs. Before that, Mr. Cutting was a Managing Director and Head of the ABS Group at HSBC Bank USA. He was also a Director and one of the founding members of the Principal Finance and Credit Arbitrage group at UBS Warburg. Mr. Cutting began his career at Merrill Lynch in the real estate investment banking division and later was the head of the commercial mortgage-backed securities (CMBS) trading desk. He has a bachelor's degree from Denison University and a master's degree from New York University. He holds his Series 7, 24 and 63 licenses from the NASD. 28 Thomas D. Jordan Managing Director Mr. Jordan joined the firm in 1991 and is a managing director and national sales manager for the MBIA Asset Management Group. He joined MBIA to help expand a pilot program designed to help New York State municipalities and school districts more effectively manage their operating cash. Mr. Jordan is now responsible for marketing and selling the firm's $50 billion asset management product line, focusing on short- to intermediate-term fixed income products which range from third-party customized accounts to short-term investment pools, and a host of structured fixed income options with clients nationwide. Prior to joining MBIA, Mr. Jordan worked on Wall Street as a securities and repurchase agreement specialist and manager of a commercial paper department. He was also a corporate cash management marketing officer, working with Fortune 500 customers in New York and the Midwest. Mr. Jordan has a master's degree from Fordham University and earned degrees from Mercy College and the University of New Hampshire. He is a Registered Investment Advisor and holds his Series 65 license from the NASD. Thomas N. Tight II Regional Director ML31/~ Mr. Tight, Regional Director, joined the firm in July 2002. He is responsible for providing investment management services and maintaining client relationships. Mr. Tight has over 12 years of asset management and public finance experience. His specific areas of expertise include portfolio management, trading and underwriting fixed income securities and providing investment banking services to public sector clients. Mr. Tight is both Series 7 and 63 registered and is currently a Level Three candidate for the designation of Chartered Financial Analyst (CFA). He received both his bachelor's degree and his master's degree from St. Louis University. 29