Susan B. Sweeney Chief Investment Officer Connecticut Retirement Plans and Trust Funds

1. BUILDING A DIVERSE PORTFOLIO CalPERS and CalSTRS Diversity Conference April 24 – 25, 2006 Susan B. Sweeney Chief Investment Officer Connecticut Retirement Plans and Trust Funds

2. Connecticut Retirement Plans & Trust Funds (CRPTF) • State Treasureris sole fiduciary, with a 12-member external advisory board • Treasury Reform Act of 2001 added several restrictions to contracting for investment-related services • Total fund size of $23 billion, and is an aggregate of 10 retirement plans and trust funds • All assets are managed externally • Publicly traded asset classes have mandates ranging from $69 million to $4 billion; the average size is about $750 million. • Private Equity and Real Estate commitments are rarely less than $30 million

3. The Challenge of Building a Diverse Bank of Managers • Minority-owned, women-owned and emerging firms tend to be smaller and may not have a sufficient track record for analysis • These firms have traditionally had difficulty accessing large plans such as the CRPTF where a typical portfolio is $200 million at the time of the initial contract • There are limited resources for evaluating, selecting and monitoring these firms from an administrative perspective

4. The Opportunity • Given funding crisis experienced by many public and private pension funds, there is continued need to add alpha through the management of the investment portfolio • The CRPTF portfolio, in its structure, uses active management where there is significant opportunity for added value • Smaller/emerging/developing/undiscovered managers offer some of the compelling opportunities for additional alpha for an institutional portfolio

5. The Solution Connecticut has addressed the issue in several ways: • Adoption of the Diversity Principles • Introduction of the Connecticut Horizon Fund (CHF) • Adding diversity in the Private Equity and Real Estate portfolios • Implementation of the Domestic Equity Brokerage Program

6. Diversity Principles • Scheduled to be endorsed by the Investment Advisory Council on April 12, 2006 • Expands on the Investment Policy Statement and reaffirms Connecticut’s commitment to “establishing relationships with firms having racial, ethnic and gender diversity among its owners and workforce” • Having a broad exposure to all types of business opportunities will enhance performance over time

7. Connecticut Horizon Fund – Phase I • Seeks to afford opportunities for women and/or minority owned, emerging and Connecticut-based investment managers • Funded in August 2005 with 4 fund-of-funds managers and 31 sub-managers • As of December 31, 2005 CHF totaled $448 million in assets (2% of total) • $302 million in U.S. equities • $ 62 million in international equities • $ 84 million in fixed income

8. Private Equity and Real Estate (CHF- Phase II) • CHF will eventually be implemented in Private Equity and Real Estate • In the interim, CRPTF has made commitments to a number of women/minority-owned and emerging firms • Evaluating the merits of a separate account fund-of-funds in Private Equity to target the smaller funds

9. Domestic Equity Brokerage Program • Implemented in 2002 • Encourage Connecticut’s domestic equities managers to comply with certain commission targets: • 30% to Connecticut based brokers • 25% to minority or women-owned brokers • 5% to emerging brokers • Compliance is monitored and used in evaluation of the managers

10. Nappier Administration Progress • 1999 • 4 women/minority owned/emerging vendors • $570 million of assets under contract • $3.8 million annual fees ($2.0 million of which was a performance fee) • 2006 (estimate) • 13 women/minority owned/emerging vendors • $1.8 billion of assets under contract • $8.2 million of annual fees