Minutes

Investment Committee Meeting

Fire and Police Pension Fund, San Antonio

Tuesday, May19, 2009

Pension Office – 9:00a.m.

Roll Call:Mr. Moczygembacalled the meeting to order at 9:00A.M.

Committee

Members

Present:Lieutenant Bart Moczygemba, Fire Representative; Shawn Ury, Police Representative; Justin Rodriguez, Councilman

Committee

Members

Absent:None

Others

Present:Alex Perez, RetiredPolice Representative; Larry Reed, Retired Fire Representative; Ronny Partain, Consulting Services Group; A.C. Berry, Investment Analyst and Mr. Warren Schott, Executive Director/CIO.

Approval of Minutes from March 17th, April 16th, 17th, 20th, and 21st, 2009

Mr. Ury made the motion to approve the minutes of the March 17th, April 16th, 17th, 20th, and 21st, 2009Investment Committee Meetings. Motion carried unanimously.

Emerging Manager-of-Manager program

Representing Capital Prospects were Marilyn Freeman and Elizabeth Knope. San Antonio Fire & Police Pension Fund (SAFP) nominated Capital Prospects as a manager in the Fund’s Emerging Manager-of-Manager program. Capital Prospects was formed in October 2002 and is 100% women-owned and controlled. Capital Prospects’ business model has an emphasis on manager-of-manager investment programs while specializing in domestic emerging managers and minority/woman-owned managers. Capital Prospects currently has 9 clients, with the capacity to serve up to 15 clients. In managing the emerging manager-of-manager mandate, Capital Prospects has a pool of roughly 170 firms from which to invest. For the Fund’s allocation, Capital Prospects invests the portfolio with five investment firms. The Committee discussed what other institutions are doing within the emerging manager space. Capital Prospects informed the Committeethat some institutions expand their benchmark to include fixed income or the international equity space.Mr. Rodriguez made a motion to continue the Emerging Manager program while continuing to search for opportunities to enhance the program. The motion removes the 3-year sunset provision and invites other firms to present before the Committee on ways to enhance the program. Motion carried unanimously.

Townsend Group

Mr. Jack Koch and Seth Marcus presented to the Committee on behalf of the Townsend Group. Townsend provided an opinion on the current San Antonio Fire & Police Pension Fund’s (SAFP) real estate allocation and portfolio modeling. SAFP established the Real Estate Investment Program to participate in long-term equity real estate opportunities and to diversify the Fund’s overall investment portfolio. As of December 31, 2008, the (market value) allocation to real estate is 49.9% Core, 32.4% Enhanced, and 17.7% Opportunistic/High Return. As of December 31, 2008, SAFP’s $164.7M Real Estate allocation generated a ‘gross’ return of -18.7% for the quarter, -21.6% for the one-year period, and 1.8% for the three-year period. Townsend stated the last six months have been amongst the most turbulent economic times since the Great Depression. The re-pricing of commercial real estate which began in the first quarter 2008 accelerated during the fourth quarter. To better understand market risk in conjunction with the Fund’s portfolio, Townsend provided a risk assessment of the Fund’s entire portfolio, fund by fund.

The assessment ranked each investment into categories (one through four) with corresponding risk/return expectations. In aggregate, the Fund faired well with the exception of allocations to Colony Investors III and Intercontinental Real Estate Investment Fund IV. Both were categorized as a Category 4 with diminished potential going forward. No action was taken.

Portable Alpha Program

The Committee discussed its portable alpha program in light of recent events impacting the program. At the May SpecialBoard meeting, the Fund terminated CSG as manager of the Fund’s portable alpha program. Since then, the program has remained invested without sufficient oversight. Staff discussed the program’s impact to the Fund since inception with the recommendation that it be discontinued. According to CSG’s report covered earlier in the meeting, the program had underperformed its benchmark by over 1,300 basis points (bps) since inception. Portable alpha was undertaken as a means of outperforming the London Interbank Offered Rate (LIBOR), though failed to realize its goal. Detractors to the program’s success were the financial markets’ broad-based selloff giving way to discounted valuations. This demolished the alpha generating sideof the program which is key in outperforming LIBOR on a consistent basis.A discussion ensued after staff’s recommendation which led to Mr. Moczygemba’s motion to terminate Declaration’s beta replication component of the strategy and Mesirow’s $20M notional currency allocation. Motion carried unanimously. No action was taken with regard to hedge funds in the program until a new firm is nominated to serve as a alternative consultant for the Fund. Additionally, Mr. Moczygemba made a motion to move $10M in cash from Declaration’s enhanced cash investment to the Fund’s cash account. The Pension Fund continues to harvest cash from this investment as securities mature. Motion carried unanimously.

Consulting Services Group (CSG)

RonnyPartain presented before the Committee on behalf of Consulting Services Group (CSG). CSG began the presentation with (Fund) performance measurement. CSG briefed the Committee on the Fund’s performance during its second quarter of the fiscal year (FYQ2-09) / first quarter of the calendar year (CY Q1-09). During that period, the Fund achieved a -6.8% return.Major markets continued in their downward trend as the Fund’s equity allocation (both international and domestic) realized a -10.1% return during the period. Domestic equities were down -9.3% while the Fund’s international equity allocation was down -11.9%. Even with the heightened volatility, the Fund was able to realize positive returns in its hedge fund and fixed income allocations for the quarter. No action was taken.

Adjournment:Mr. Urymade the motion to adjourn the meeting.

The Investment Committee adjourned at 11:55A.M.

Approved this ____ day of ______, 2009.

______

Bart Moczygemba, Investment Committee Chairman

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