Seattle City Employees? Retirement System

?m Board of Administration
Cecelia M. Carter, Executive Director

To: Cecelia M. Carter, Executive Director . .4 

From: Mel Robertson CPA, Assistant Executive Digger

Date: Friday, June 06, 2008

Re: Responding to your memo dated Wednesday, June 4, 2008.

This writing is in response to your memo addressed to me dated Wednesday, June 4, 2008,
where you have expressed concerns about my ability to perform as the assistant executive
director.

I have worked for the City since January 1987 when was employed as an Accountant at
Seattle Center. While at Seattle Center i had risen to the level of Principal Accountant and-
was supervising the accounting of?ce. In September 1992 I began working at the Retirement
System as Assistant Executive Director, hired speci?cally to manage the operations. When
Executive Director Roger Howeiler retired in 1999 I began taking on the extra responsibilities
that he performed regarding our investments. I served as acting Executive Director for a little
over a year until the new director was hired. Norm Ruggles had no interest in performing
these extra investment related responsibilities himself. I was enjoying them so I then asked if I
could continue with these extra responsibilities, at least until such time as it appeared we
needed to hire an outside consultant, which is what he would have done had i not asked.

Norm Ruggles stayed until October 2006, at which time I again served as acting Executive
Director until you started with the System at the beginning of January 2008.

 

If now is the time that the System would be better served by having a full-service consultant,
then that is what should be done. However, I don't feel that I should be forced out of my
employment because of that change. I continue to have a large body of work that keeps me
extremely busy outside of investments.

I will now try to address and respond to the concerns that you have articulated in your memo,
in the order that you have written them.

At the April Investment Committee meeting we discussed the lmperium investment which
covered a variety of concerns, issues and questions related to the additional capital they were
seeking to raise and were seeking a non-binding expression of interest. The Committee
decided to not send any written communication to lmperium. After the meeting, I spoke with
Elizabeth Barclay Bekiroglu of Orrick/Fenwick, and in the course of our discussion of the
matter and the recently concluded meeting I asked if she thought that she could draft a memo
that would incorporate the questions and concerns that were brought up at the meeting. I did
circulate the memo to the Committee to see if by chance their seeing the essence of the
meeting reflected in the memo would be of any value. Elizabeth was indeed at the meeting,
even though your memo suggests otherwise. I was a bit surprised on Wednesday with your
implication that fabricated that letter myself.

 

City Employees? Retirement System, 720 Third Avenue, Suite 1000, Seattle, WA 98104
Tel: (206) 336-1293, Fax: (206) 386-1506, Toll Free: (877) 865-0079
An equal employment opportunity. Accommodations for people with disabilities provided.

At the Special Meeting of the Investment Committee held Wednesday, May 14, 2008 you were
indeed granted the authority to approve, or disapprove, the lmperium recapitalization
investment. You were scheduled to leave town and be out of the office beginning Thursday,
May 15, 2008 and be out of the office until Wednesday, May 21, 2008. I was also scheduled
to be out of the office the week beginning Monday, May 19, 2008. During your absence on the
15th and 16th I contacted Alan Smith, of Fenwickhad been in contact, and
if so, was there a resolution. He did say that he believed that you were ?on board? with the
investment. At that point, there was a stated deadline for the necessary papenNork to be in the
hands of counsel by close of business Friday, May 16, 2008. Since you were out of town I
offered to supply a set of executed documents to him to have in hand if you were to indeed
grant your final approval. This effort was undertaken in what I saw as an effort to facilitate the
paperwork process in case it might make it easier for you, since you were on the road. In my
conversation with Alan Smith he was clear that I was not approving the documents, only
facilitating the paperwork process. In fact, when I supplied the documents to Alan Smith I 
you on the email and stated that they were in his care if you were to have approved the deal. I
recall the Committee action authorized you to approve the deal, I don't believe that it was
specific that you and only you could execute the paperwork. I thought I was using some
initiative to help out and hopefully save you the efforts to ?nd a fax machine to send in the
documents. I was in no way trying to usurp or disregard your authority.

On the related matter of the wire transfer, was again trying to use some initiative and facilitate
getting the details set up, if they were indeed needed. The current requirements for a wire
transfer request, includes dual signatures. During that time frame of May 15th and 16th, the
closing was stated as possibly going to occur on Monday, May 19th. Since both you and I were
scheduled to be out of town on that date, I took the initiative to put together the wire request
document based on the wire instructions that were included in the documentation provided by
counsel. affixed your electronic signature to the document that requires dual signatures, and
attached the document to an email to the Treasury section with instructions that you, and only
you, could authorize the release of these funds, and expressly stated that I had affixed your
electronic signature since I was including you on the communication. You were on the
email.

have attached a copy of the aforementioned emails.

The next several paragraphs in your memo involve the Investment Summary report. It
is true that the report continued to reflect the name on the account at the custodian, The Bank
of New York Mellon, of the managers that had previously managed the accounts. Even though
there is a discussion of what has occurred with each of these accounts at the Investment
Committee meetings, and usually at least a summary is then relayed to the Board at their
meeting, you are correct that we should have renamed the lines on the report to indicate that
this was now a transition account and no longer under the management of Bear Stearns,
Wellington, etc. There was no deliberate attempt to mislead or mis-represent. This practice of
leaving the names on the line items that reflect that of the previous manager is one that has
been in place for many years, and it has only recently become an issue. These line items on
the report have been renamed subsequent to the request 2008 Board
meeting.

When an active manager is terminated, a transition manager is engaged to take care of the
liquidation. During the transition process, the transition manager will acquire 500 Spiders

with the proceeds, to avoid these funds being ?out of the market?. 500 Spiders track the
500 index and provide essentially the same returns. Normally these Spiders would
subsequently be liquidated to either be added to another active manager or moved to the index
currently held at Barclays. Since the 1St quarter of 2008 was a very dif?cult investment period
it was not easy to identify an ideal candidate to recommend for these fundsmove these funds to another active manager. Some of the Spiders were sold in the normal
course of rebalancing when funds were needed elsewhere. I don?t recall any discretionary
purchases in these transition accounts subsequent to the liquidation process. The remaining
Spiders will be sold in June and re-invested at Barclays. Some of the cash will remain in
Seattle for our cash allocation.

The next couple of paragraphs relate to the investment with MKA and their delinquent audited
financial statements. The Investment Committee has been apprised of this matter during 2007
and were kept apprised. There was always someone asking if the statements have been
provided. It is not unusual for audited statements to be provided in June, or after, of the year
following the year end. As of June 2007 the investment still appeared sound, which is why the
Committee increased the investment with MKA by $8 million. This $8 million increase was
related to the internal portable alpha test program.

A review of the 1St quarter of 2008 shows the domestic equities performance is actually within
0.1% of its benchmark. The actual return of the domestic equity portfolio returned a negative
9.6% whereas the Policy benchmark was a negative The Spiders track the 500
index and during the quarter that index lost 9.4% which is the same return of the Russell 3000
index, a negative Having these Spiders actually added value of 0.1% in the quarter.
These numbers can be found on pages 10 and 12 of the quarterly report.

The process of positioning the Fund is based on standing instructions of the Investment
Committee and is not something that make up on my own as go. The Committee is aware
that the non-traditional asset classes have less liquidity than that of the traditional classes.
There are times where we wait a quarter of 2 to be able to draw down funds from some of
these vehicles. The Committee also decided to commit funds to the non-traditional classes at
a level that exceeds the target, with the knowledge that there would be times that the allocation
may exceed the target, but over time the total of the average investments within the class
would tend to approximate the target. The cause for the Mezzanine class to exceed its target
is the fact that the portion of the MKA investment that was being used for the internal portable
alpha test program was moved back to the mezzanine category in February. The MKA vehicle
was intended to be the vehicle in that class that provided the relative liquidity. For the real
estate class we will be drawing down funds from JP Morgan and the RREEF REIT funds in
the rebalancing processTarget

Equities 36.56 35.63 33.64 32.84 38
lnt'l Equities 19.00 18.09 18.48 18.47 20
Fixed 13.81 14.54 14.63 14.64 14
Real Estate 13.51 14.06 14.35 14.48 12
AlternativeNenture 11.02 11.28 11.38 11.18 10
Mezzanine 5.40 5.64 7.11 7.28 5
Cash 0.70 0.75 0.41 1.11 1

Total 100 100 100 100 100

The auditor?s recommendation is actually related to a recommendation that they made while
auditing the 2006 ?nancial statements and was related to newly promulgated auditing
procedures regarding alternatives. The recommendation was not raised out of concern in
2007, but rather one to document our processes with regards to the due diligence and
monitoring of our alternatives. This recommendation is the impetus for the item on the Board
agenda regarding the Investment Policy revisions. It was suggested that this would be a good
item for the new director to take on, whenever he or she was hired.

The observation that have an apparent attraction to alternatives is fair. The alternatives that
our System has chosen are mostly ones with lower volatility. The Committee adopted a core 
satellite approach with the bulk of the group to be within core with others taking on varying
levels of additional risk as part of the satellite. The Investment Committee and Board
consciously decided, with input from outside experts, to move funds from the traditional ?xed
income space to alternatives that tend to have ?xed income like volatility but with returns that
tend to be greater than fixed income and closer to those of equity. One might notice on page
11 of the recent quarterly report that the expansion of the real estate holdings have provided
returns that are far in excess of those of ?xed income. Except for the most recent periods, one
would also notice that the mezzanine and alternative categories have added value over those
of ?xed income.

I do tend to bring the recommendations to the Committee for consideration. The Committee
goes through an education process to learn more about the ideas that they are willing to
consider before action is taken. Input from the Performance Measurement consultant is also
considered in the process. There was an article in one of the industry publications not too long
ago that pointed out that our Plan was among the more sophisticated plans of our size. At the
urging of our outside counsel, Bill Song, we expect to bring on more outside expert resources
to assist with the due diligence and monitoring of our assets. That urging prompted an RFP for
differing types of consultants to assist us with implementing anything that may arise from the
current 5?year planning strategic review process that has recently begun. I will have no
problem taking a back seat and having new consultants guide us going forward.

I believe that the characterization of the hiring process for the Finance Analyst is an unfair
representation. The ?rst time this position was advertised the applications submitted did not
yield a sufficient pool to consider. The position was then re?advertised. have reviewed the
new applications that were submitted, and made a ?rst cut. I am looking forward to being able
to delegate a variety of items to this new position once it is ?lled.

With regards to my supervisory abilities and delegation I would like to recall our discussion
about how I was looking forward to having the new secretarial position filled so that I could
delegate the process of preparing the Board meeting agenda/minutes package.
Some months this process takes the better part of week to pull all the pieces together. I have
tried many times over the years to delegate this, and each time it has proved unsuccessful.
The person that used to prepare the agenda/minutes before I began doing them was
Jeannette?s predecessor, on a typewriter. Like the Finance Analyst position, the secretarial
(Spec l) position was re-advertised since January.

 have a schedule that I am interested in having Selam assist with that is the result of some of
the newly developed due diligence routines shared with us during this years audit. There is
also a couple of processes/routines that I had envisioned delegating to the new Finance
Analyst that Selam could take on if her workload were to permit.

have worked hard over the years to care for the System and continue to work hard. I look
forward to being able to continue working for the Retirement System until I am able to retire
with at least 30 years of service credit. I enjoy my work and hope to find a way that we can
work together. One way that we could be proactive with regards to the needs of the Board is
try and provide them additional information along with the Investment Summary report. We
could describe the types of holdings that remain in each of the transition accounts, we could
also highlight managers that are on watch, or in transition, etc.

(I will take the opportunity to amend this document, prior to my returning from my vacation, as
you offered.)

Thank you.

Page 1 of 1

Mel Robertson - signature pages attached

   

From: Mel Robertson

To: Smith, Alan

Date: 5/16/2008 8:32 AM
Subject: signature pages attached
CC: Carter, Cecelia

Attachments: SCERS Signature pages.pdf

 

 

Hi Alan,
I have attached a of the executed signature pages for you to have at your ready, if Cecelia

were to give the go?ahead.

Thank you Alan.

6/5/2008

Page 1 of 1

Mel Robertson - Monday's tentative wire

   

From: Mel Robertson

To: Minato, Marilyn

Date: 5/16/2008 1:18 PM
Subject: Monday's tentative wire
CC: Carter, Cecelia

Attachments: cash disbursement Imperium.xls; Imperium 20080519.pdf

 

 

Hi Marilyn,

I have attached the disbursement document along with the wire transfer information
and request.

Ihjs.muest..is__curtentlv tentative and Cece?egarter has the final sav as_t_o_y_v_hemer__h_
wire is to be sentgr not. Please do not send the_wire unless you

have heard from Ms. Carter. For this reason I have affixed the electronic signature for Ms.
Carter on the attached wire transfer document, since she has the authority to release this wire.

 

Thanks Marilyn.

6/5/2008