Portfolio Management

Asset Management Group

P R E S E N T E D B Y

M. Corinne Larson, CTPVice President

(914) 765-3505corinne.larson@mbia.com

Asset Management Group

Investing in Today’s Market

Develop a Plan:•Investment Policy•Cash Flow Forecasting•Investment Strategies

Execute the Plan:•Investment Instruments•Investment Options•Spread Analysis

Reevaluate the Plan:•Benchmarks•Portfolio Performance•Portfolio Rebalance

Asset Management Group

Importance of a Benchmark

Control risk in portfolio

Target expected returns

Establish accountability

Promote communication

Asset Management Group

Characteristics of Benchmarks

Faithful to investment style and discipline it represents

Closely mirror the portfolio Types of investments Maturity limits Active or passive management

Verifiable Published Easily calculated

Asset Management Group

Choosing a Benchmark

Choose a security type Come from appropriate industry or sector Have a similar weighted average maturity or

duration

Calculate one-month, six-month, and 12-month averages

Asset Management Group

Choosing a Benchmark

Choose an index Investable Measurable Repeatable Consistent with portfolio guidelines

Asset Management Group

Common Benchmarks

Standard & Poor’s LGIP Index

Public Investor 10-bill Performance Index

Constant Maturity Treasury Rates 3- and 6-months 1-, 2- and 5-years

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Treasury Yield Curve Rates www.treas.gov

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Common Benchmarks

Merrill Lynch U.S. Treasury Indices

Salomon U.S. Treasury Benchmark Indices

Lehman Brothers Government Bond Indices

Merrill Lynch U.S. Corporates A-AAA

Asset Management Group

Where to Find Benchmarks

Wall Street Journal

Barron’s

Bloomberg

Internet

GFOA’s Public Investor newsletter

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Portfolio Performance

Compare returns

Evaluate risk incurred to achieve returns

Determine if returns meet expectations

Reevaluate benchmark at least annually or when investment strategy changes

Asset Management Group

How to Review Performance

Annualized Comparative Rates of Return Fair Value Basis

2.642.50

0.94

1.411.58

1.36

0.92

2.192.49

1.38

2.02

3.74

0

0.5

1

1.5

2

2.5

3

3.5

4

1/2006 2005 2004 2003

Rates of Return

0

100

200

300

400

500

600

700

Weighted Average Maturity

1 Year T-Note Return 2 Year T-Note Return Sample City Return Sample City WAM

Asset Management Group

Portfolio Rebalancing

Evaluate Compliance issues Credit risk Liquidity needs Diversification Market conditions Interest rate risk Investment strategies

Asset Management Group

Portfolio Rebalancing

Diversify Market sectors or issuers Rate Maturity

Match asset allocation goals and tolerance for risk

Adjust WAM for market conditions

Swap out of underperforming securities

Asset Management Group

Putting It All Together

Establish the framework for investing

Understand investment alternatives

Develop cash flow forecasts

Develop investment strategies

Report investment results