9. Presentation by BlackRock Asset Management Annual ...retirement.ladwp.com/AgendaItems/Agenda -...
Transcript of 9. Presentation by BlackRock Asset Management Annual ...retirement.ladwp.com/AgendaItems/Agenda -...
9. Presentation by BlackRock Asset ManagementAnnual Performance Review as of December 31, 2010
9
Russell 1000 Index Fund
13 April 2011
Edward Corallo, Managing DirectorCorin Frost, CFA, Managing DirectorVickie Chan, Associate
For use with institutional and professional investors only — proprietary and confidential
For use with institutional and professional investors only — proprietary and confidential 1
Table of contents
I. BlackRock Update
II. Index Investment Process and Discipline
III. Market Overview
IV. Performance Review
V. Portfolio Review and Characteristics
VI. Fee Schedule
BlackRock Update
FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
For use with institutional and professional investors only — proprietary and confidential 3
BlackRock’s institutional philosophy
Our philosophy is to deliver investment excellence through partnership with clients
We apply our capital markets expertise to benefit clients• Investment professionals share local insights across asset classes and
regions in pursuit of generating strong risk-adjusted returns
• Our broad industry experience enables us to innovate across products, services and vehicles—including mutual funds, ETFs, commingled funds, and separate accounts
Our culture embodies risk management• Firm founded upon rigorous risk management principles
• Independent risk professionals help ensure portfolio risk is deliberate, diversified and appropriately scaled
• BlackRock Solutions® provides independent risk management and enterprise investment services for $9.5 trillion in assets*
We carefully align service with our clients’ needs• We are truly independent – never trading on our own account
• We integrate corporate governance practices to protect and enhance the economic value of the companies in which we invest
• We provide all facets of transition management services to help clients realize new investment strategies while minimizing disruption
Expertise across asset classes
Fixed Income32%
Cash Management
8%
Equity48%
Advisory4%
Multi-Asset5%
Alternatives¹3%
$3.56 trillion in assets as of 31 December 2010¹Includes commodity and currency mandates
* Assets as of 31 December 2010
For use with institutional and professional investors only — proprietary and confidential 4
Corporate Strategy • Corporate Development • Global Communications • Business Operations • Finance
Office of Mutual Funds • Legal & Compliance • Human Resources • Government Relations
Business Management Services • Corporate Services
Global Trading Platform
Financial Markets Advisory
Aladdin® Business
Business Development
Analytics
Portfolio Management Tools
BLK Relationship Management
One BlackRock platform
One BlackRock
BlackRock Solutions®Global Client Group Portfolio & Risk Management
Corporate Infrastructure
Organizational structure supports collaboration, client focus, and investment excellence
Dedicated teams address the specialized needs of each client
Aladdin® & Technology
Equity
Fixed Income
Cash Management
Alternative Investments
Multi-Asset
Transition Management
Securities Lending
Risk & Quantitative Analysis
Institutional
iShares®
International Retail
US & Canada Retail
Cash Management
Marketing
Aladdin® Development • Engineering • Technology Infrastructure • eBusiness • Corporate Systems
For use with institutional and professional investors only — proprietary and confidential 5
Innovative and extensive investment solutions
$3.56 trillion invested on behalf of institutional and individual clients across asset classes• Offer targeted strategies and outcome-based solutions to tackle specific investment challenges
• Flexibility to meet unique risk and return parameters
• Experience serving clients with diverse investment needs
1 Includes commodity and currency mandates AUM in USD as of 31 December 2010
Multiple asset classes and styles
Equity $1,694 billion
Index equity Scientific active equity
Fundamental equity Long/short strategies
Fixed Income $1,141 billion
Index fixed income Long/short strategies
Total return (enhanced and active) Directional trading
Alternatives $110 billion
Hedge fund strategies Opportunistic products
Fund of hedge fund strategies Real estate
Private Equity Partners Currency & commodity strategies
Special Situations Renewable power
Financial Markets Advisory $151 billion
Multi-Asset $186 billion
BlackRock Multi-Asset Class Solutions (Investment strategies, advisory services, and solutions)
Asset allocation/balanced
Transition Management Securities Lending BlackRock Solutions
Cash Management & Liquidity $279 billion
For use with institutional and professional investors only — proprietary and confidential 6
BlackRock has a global institutional client base
CorporationsAkzo NobelAmeren CorporationApplied MaterialsAT&T Inc.The Boeing CompanyBT Financial GroupCisco Systems (Switzerland) Investments Ltd.CitigroupCoca-Cola EnterprisesComputer Sciences CorporationCSX CorporationDell Computer CorporationDuke EnergyElectronic Arts Inc.Exelon CorporationFedEx CorporationGeneral Electric CompanyHenkel AG & Co. KGaAHome DepotHoneywellIntelInternational Paper Co.Kaiser PermanenteLiechtenstein Global TrustMacy’s, IncNorthrop Grumman CorporationPacific Gas & Electric CorporationPepsiCoPSEG Services Corp.Raytheon CompanyJ. Sainsbury PlcSears Holdings Corporation
The Swire GroupTarget CorporationUnisys CorporationUnited Technologies CorporationTKP InvestmentsValero
Public Funds Arizona State Retirement SystemCalifornia Public Employees' Retirement SystemCalifornia State Teachers' Retirement SystemCity of Cincinnati Retirement SystemCity of Miami Fire and PoliceCivil Aviation Authority (U.K.)Commonwealth of PennsylvaniaFederal Retirement Thrift Investment BoardFederal Employees Retirement SystemFlorida State Board of AdministrationIowa Public Employees' Retirement SystemLondon Pension Fund AuthorityLos Angeles County Employees Retirement AssociationMassachusetts Pension Reserves Investment Management BoardMinnesota State Board of InvestmentMunicipal Employees Retirement System of Michigan
National Rural ElectricCooperative Association (NRECA)Nebraska Investment CouncilNew York City Retirement SystemsNew York State CommonNorth Carolina Retirement SystemsOhio Public Employees’ Retirement SystemOklahoma Public Employees' Retirement SystemOregon Public Employees' Retirement SystemThe Public School & Education Employee Retirement Systemsof MissouriState of AlaskaState of WyomingState of Connecticut Trust FundsState Universities Retirement System of IllinoisTennessee Valley Authority Retirement SystemWashington State Investment Board
Army Air Force ExchangeBoy Scouts of AmericaBureau of Naval PersonnelCal Farley Boys Ranch FoundationThe California EndowmentCarnegie Mellon UniversityChildren’s Hospital of PhiladelphiaConrad N. Hilton FoundationThe Dulwich SchoolsELCA Board of PensionsGreater Glasgow NHS Endowment FundHewlett FoundationInns of CourtJ. Paul Getty EndowmentLondon School of Hygiene and Tropical MedicineThe Metropolitan Museum of ArtPrinceton UniversityPurdue UniversityRockefeller FoundationShriners HospitalsTexas A&M UniversityUniversity of ColoradoUniversity of Texas
Aegis Managing Agency LimitedAetna Inc.American ReAon CorporationAriel Reinsurance Company LimitedAspen Insurance Holdings LimitedAxis Specialty LimitedBlue Shield of CaliforniaCatlin Group LimitedHumana Inc.MAG Mutual Insurance CompanyMassachusetts Mutual Life Insurance CompanyMetLife, Inc.WellPoint Health Networks, Inc.Wilton ReZurich Financial Services
Foundations, Endowmentsand Other Funds
Union / Industry
Carpenters of Western PennsylvaniaDirectors Guild of America Midwest Operating EngineersSF Culinary, Bartenders, & Service Employees Pension TrustUnited Mine Workers of America
Insurance Companies
Official Institutions
Asian Development BankFreddie Mac
Sub-AdvisoryAbbey NationalABN AMRO Holding N.V.Commerzbank AGDeutsche Bank AGGuideStone Capital ManagementHansard Europe LimitedING Groep N.V.INVESCOInvestec Asset Management Ltd.Philips Pension FundRabobank GroupRussell Investment GroupSkandia Insurance Company Ltd.
List is a representative sampling of clients based upon investment mandate, client type, and geographic location who allow their names to be publicly disclosed.Disclosure does not indicate approval or disapproval by such client of BlackRock or of the investment advisory services provided.
For use with institutional and professional investors only — proprietary and confidential 7
BlackRock corporate governance
BlackRock is a public company• Established in 1988 and public since 1999 (NYSE: BLK)
Independent ownership structure• Board composed of 19 Directors: 11 independents, 2 BlackRock, 2 Bank of America, 2 Barclays, and 2 PNC
• No majority shareholder: 7.1% Bank of America; 19.7% Barclays PLC; 20.3% the PNC Financial Services Group, Inc.; 52.9% institutional investors, employees, and the public1
1 Denotes approximate economic ownership interest as of 15 November 2010, based on total shares outstanding at 30 September 2010. The approximate breakdown for voting common stock is as follows: PNC Bancorp and its affiliates owns 25.3%, Barclays owns 2.3%, and institutional investors, employees and the public own 72.4%.
Abdlatif Al-Hamad*
Mathis Cabiallavetta*
Dennis Dammerman*
Bill Demchak
Robert Diamond
Kenneth Dunn*
Laurence Fink
Murry Gerber*
James Grosfeld*
Robert Kapito
Board Members
David Komansky*
Sallie Krawcheck
Mark Linsz
Sir Deryck Maughan*
Thomas O’Brien*
Linda Gosden Robinson*
James Rohr
Ivan Seidenberg*
John Varley
*Independent
Laurence FinkRobert KapitoRohit BhagatJames CharringtonRobert ConnollyRobert FairbairnBen GolubCharles HallacRichard KushelAnn Marie PetachJeff SmithSusan WagnerKendrick Wilson
Global Executive Committee (GEC)
Chairman & Chief Executive OfficerPresidentHead of Asia PacificHead of Europe, Middle East, and AfricaGeneral CounselHead of Global Client GroupChief Risk OfficerChief Operating OfficerHead of Portfolio Management GroupChief Financial OfficerHead of Human ResourcesVice ChairmanVice Chairman
For use with institutional and professional investors only — proprietary and confidential 8
The LADWP Team
Account Management Anthony Freitas, CFA Managing Director Phone: (415) 670-6251 [email protected]
Obie McKenzie Managing Director Phone: (212) 810-8085 [email protected]
Vickie Chan Associate Phone: (415) 670-6156 [email protected]
Portfolio Management
Edward Corallo Managing Director Phone: (415) 670-2189 [email protected]
Corin Frost Managing Director Phone: (415) 670-7640 [email protected]
Name Title Phone Email
San Francisco Office Address
400 Howard StreetSan Francisco, CA 94105
Index Investment Process and Discipline
FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
For use with institutional and professional investors only — proprietary and confidential 10
Amy SchioldagerGlobal Head of Index Equity
Corin Frost, CFAGlobal Head of Strategy
4 Investment Strategists
Eleanor de FreitasHead of Europe Index Equity
Edward CoralloHead of Americas Index Equity
6 Senior Portfolio Managers
1 Senior Research Officer
29 Portfolio Managers
3 Research Analysts
1 Index Analyst Manager
5 Index Analysts
1 Head of Portfolio Management
5 Senior Portfolio Managers
20 Portfolio Managers
3 Investment Strategists
Jane Leung, CFAHead of Asia Pacific Index Equity
Hong Kong / Singapore
1 Senior Portfolio Manager
4 Portfolio Managers
Tokyo
1 Head of Global Index Strategies
1 Senior Portfolio Manager
3 Portfolio Managers
Debbie JelilianChief Operating Officer
By Location
San Francisco/Sao Paolo: 56
London/Munich: 30
Hong Kong/Singapore: 7
Tokyo 5
Total: 98
Global Index Equity Portfolio Management
For use with institutional and professional investors only — proprietary and confidential 11
Institutional Indexing Portfolio Management
Amy SchioldagerGlobal Head of Index Equity
Matt Lee, Ph.D.Head of Index Research
Edward CoralloHead of Americas Index Equity
Creighton Jue, CFAHead of Alternative Beta
Christopher Bliss, CFAHead of Institutional Portfolio Management
Jennifer Hsui, CFA North AmericaSenior Portfolio Manager
Tim Murray, CFAEmergingSenior Portfolio Manager
Rachel AguirreInternationalSenior Portfolio Manager
Lei Zhang, Ph.D.Research Analyst
Yuying Gao, Ph.D.Research Analyst
John Scruggs, Ph.D.Research Analyst
Stephanie AllenHead of IRG
Corette PinarocIndex Analyst
Jim MillardIndex Analyst
John HurabiellIndex Analyst
Derek DeiIndex Analyst
Jason HoltIndex Analyst6 portfolio
managers6 portfolio managers
4 portfolio managers
Corin Frost, CFAHead of Global Index Strategy
Stephanie HillInvestment Strategist
Marco Merz, CFAInvestment Strategist
Sara Shores, CFAInvestment Strategist
Heather AppersonAssistant Investment Strategist
3 portfoliomanagers
For use with institutional and professional investors only — proprietary and confidential 12
We believe that superior investment outcomes are best achieved through a disciplined, objective process to managing return, risk and cost
Return• Performance as planned with value added portfolio management
• Flexible strategies and solutions
Risk• Proprietary portfolio & risk management systems controls
investment and operational risk
Cost• Trading costs integrated into portfolio construction using
proprietary transaction cost models
• Transaction costs minimized through use of internal crossing network
• For all external trading including FX, focus on best execution
BlackRock’s Core investment philosophyTotal performance management
Total Performance Management
Risk
Cost
Return
For use with institutional and professional investors only — proprietary and confidential 13
The investment management cycleDedicated expertise and resources
Detailed knowledge of benchmark
• Daily updates from index providers• Index changes• Corporate Actions• Dividend Reinvestment• Research
Thorough performance analysis Strategy design and oversight
• Product development and innovation• Investment Review Committee• Quarterly Global Performance Review
Rigorous portfolio construction to match benchmark
• Technology• Portfolio analysis
Efficient trading
• Smart trading strategies• Economies of scale• Unit exchange opportunities• Research
For use with institutional and professional investors only — proprietary and confidential 14
BlackRock advantages and benefits Not all index managers are created equal
Better returns
Global insight into index changes, corporate actions and index flowsCoordinated global trading strategyGlobal securities lending relationshipsStable and sizeable securities lending inventory
Less risk
One global trading and technology platformBetter index methodology reflecting a practitioners’ perspective Index Research GroupStraight through processing — no manual intervention Ability to monitor/pass trades and portfolios globally
Lower cost
Currency trades with best execution Diverse client base affords crossing opportunitiesScale and leverage in negotiating market tradesProduct flexibility and special pricing Transition services Economies of scale
BlackRock Advantage Benefits
For use with institutional and professional investors only — proprietary and confidential 15
Summary of LADWP Investment Guidelines
Index: Russell 1000 Index
Fund Guidelines:
The Russell 1000 Index Fund shall be invested and reinvested in a portfolio of
Equity Securities with the objective of approximating as closely as practicable
the capitalization weighted total rate of return of the segment of the United
States market for publicly traded equity securities represented by the 1,000
largest capitalized companies. The criterion for the selection of investments
shall be the Russell 1000 Index. When deemed appropriate by the Manager, the
Manager may invest a portion of the Russell 1000® Index Fund in stock index
futures contracts for the purpose of acting as a temporary substitute for
investment in equity securities. The Russell 1000 Index Fund will not engage in
speculative futures transactions. For the purposes of these investment
guidelines the defined term "Equity Securities" shall mean common stocks and
forms of equity securities (e.g., preferred stock), American Depository
Receipts, European Depository Receipts, Global Depository Receipts and
Investment Company Shares (as defined below) where such investment
company portfolio seeks to replicate or outperform the performance of an equity
Manager.
Tracking Error: +/- 10 basis points annually
The LADWP accounts are managed in strict compliance with the Plan’s guidelines
Market Overview
FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
For use with institutional and professional investors only — proprietary and confidential 17
Market Review for Q4 2010
Russell 1000 Index advanced 11.2% for the quarter, finishing the year up 16.1%. Growth stocks marginally outperformed value stocks as the Russell 1000 Growth Index gained 11.8% for the quarter and 16.7% for the year, while the Russell 1000 Value Index gained 10.5% for the quarter and 15.5% for the year.
US equity markets continued their rally through the fourth quarter as the economic recovery gained traction and accelerated toward year end. During the quarter, the Federal Reserve Board (the “Fed”) launched a second round of quantitative easing measures, the Republicans won control of the House of Representatives in the November election, and the Bush-era tax cuts were extended and supplemented with some fiscal sweeteners. Given these market-friendly developments, coupled with stronger economic data and continued positive surprises on the corporate earnings front, US equity markets posted strong gains for the quarter despite a correction through the month of November due to concerns about the European sovereign debt crisis and heightened geopolitical tensions in Korea. The large-cap
Recent economic data indicates that growth levels are accelerating in the United States. Third quarter gross domestic product (“GDP”) beat expectations with a 2.6% annualized growth rate, representing a marked improvement over the prior quarter growth rate of 1.7%. Growth in the third quarter was fueled by personal consumption, private inventory investment, nonresidential fixed investment, exports, and federal government spending.
The corporate sector has been an important area of strength for the US economy and consumer spending has shown improvement, although weakness in the housing and labor markets continues to burden the economy. The housing sector remains plagued with declining home prices and depressed levels of sales, starts, and overall construction activity. Excess supply and the weak labor market continue to hinder growth in the housing market.
The labor market, which remains a key variable for economic growth in the United States, has been slow to improve. The unemployment rate increased slightly in November to 9.8% while non-farm payrolls wavered over the quarter between exceeding and falling short of expectations, but initial jobless claims demonstrated an overall downward drifting trend.
Deflationary risk continues to threaten the momentum of economic growth in the United States, while inflation remains muted. The seasonally adjusted Consumer Price Index (“CPI”) was up only 0.1% in November, leaving the year-over-year rate at 1.1%. The high degree of excess capacity in labor and manufacturing leaves little potential for widespread inflation taking hold. The Fed has demonstrated its efforts to combat deflation and unemployment by maintaining an easy monetary policy for eight consecutive quarters. At its policy meeting in November, the Fed announced its second program of quantitative easing (known informally as “QE2”), which has thus far failed to make an impact on the unemployment situation, but has successfully boosted confidence and stimulated equity markets.
Performance Review
FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
For use with institutional and professional investors only — proprietary and confidential 19
LADWP Performance Overview
Our investment objective for the Los Angeles Department of Water and Power Fund is to replicate the risk and return of the Russell 1000 Index.
Fund (Gross) Fund (Net) Index Difference
Net Assets: $889, 511,2193 Month 12.57% 12.57% 12.56% 0.01%
Year-to-Date 5.89% 5.89% 5.88% 0.01%
12 Months Trailing 22.99% 22.99% 22.94% 0.05%
2 Years Annualized 38.58% 38.56% 38.52% 0.06%
5 Years Annualized 3.19% 3.17% 3.17% 0.02%Since Inception Annualized 6.26% 6.24% 6.25% 0.01%
Source: BlackRock
As of 2/28/2011
Inception Date: 08/07/2003
For use with institutional and professional investors only — proprietary and confidential 20
LADWP Performance Overview
Our investment objective for the Los Angeles Department of Water and Power Fund is to replicate the risk and return of the Russell 1000 Index.
Fund (Gross) Fund (Net) Index Difference
Net Assets: $889,511,2192004 11.33% 11.32% 11.40% -0.07%
2005 6.27% 6.26% 6.27% 0.00%
2006 15.62% 15.60% 15.46% 0.16%
2007 5.76% 5.74% 5.77% -0.01%
2008 -37.63% -37.65% -37.60% -0.03%
2009 28.48% 28.46% 28.43% 0.05%
2010 16.80% 16.78% 16.75% 0.05%
Since Inception Annualized* 6.26% 6.24% 6.25% 0.01%
Source: BlackRock
*Inception Date: 08/07/2003
For use with institutional and professional investors only — proprietary and confidential 21
LADWP Performance Overview
Our investment objective for the Los Angeles Department of Water and Power Fund is to replicate the risk and return of the Russell 1000 Index.
Source: BlackRock
As of 2/28/2010
*Inception Date: 08/07/2003
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
Fund Gross
Fund Net
Russell 1000
Fund Gross 12.57% 5.89% 22.99% 38.58% 6.26%
Fund Net 12.57% 5.89% 22.99% 38.56% 6.24%
Russell 1000 12.56% 5.88% 22.94% 38.52% 6.25%
3 Month YTD 1 Year 2 Year *SI Ann
For use with institutional and professional investors only — proprietary and confidential 22
LADWP Performance Overview
Our investment objective for the Los Angeles Department of Water and Power Fund is to replicate the risk and return of the Russell 1000 Index.
Source: BlackRock
*Inception Date: 08/07/2003
-60.00%-40.00%-20.00%
0.00%20.00%40.00%
Fund GrossFund NetRussell 1000
Fund Gross 6.27% 15.62 5.76% -37.63 28.48 16.80 6.26%
Fund Net 6.26% 15.60 5.74% -37.65 28.46 16.78 6.24%
Russell 1000 6.27% 15.46 5.77% -37.60 28.43 16.75 6.25%
2005 2006 2007 2008 2009 2010 *SI
Portfolio Characteristics
FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
For use with institutional and professional investors only — proprietary and confidential 24
LADWP Portfolio Attribution - Sectors
Our investment objective for the Los Angeles Department of Water and Power Fund is to replicate the risk and return of the Russell 1000 Index.
As this is a passive portfolio, portfolio attribution of sectors is not applicable.
For use with institutional and professional investors only — proprietary and confidential 25
LADWP Portfolio Attribution - Top Contributor/Detractors
Our investment objective for the Los Angeles Department of Water and Power Fund is to replicate the risk and return of the Russell 1000 Index.
As this is a passive portfolio, contributors/detractors are at index levels. There are no active over/underweights for attribution.
For use with institutional and professional investors only — proprietary and confidential 26
LADWP Attribution - Stock Selection
Our investment objective for the Los Angeles Department of Water and Power Fund is to replicate the risk and return of the Russell 1000 Index.
As this is a passive portfolio, stock selection is not performed. Individual securities are weighted at index levels, thereforeattribution is not applicable.
For use with institutional and professional investors only — proprietary and confidential 27
Russell 1000® Equity Index Fund Characteristics
Sector diversification
This information is unaudited and intended for analytical purposes onlySources: BlackRock, Bloomberg, Frank Russell Company
Ru-
1K-Id
x-A
-Ch
Characteristics
Strategy Russell 1000® Index
Beta vs. S&P 500® 1.06
Yield 1.79%
Assets Retirement Plan: $767,012,978Health Plan: $122,498,107
Number of holdings 976
Top 10 holdings
Fund % Index %
Exxon Mobil Corp 3.17 3.17
Apple Inc 2.34 2.34
General Electric Co 1.62 1.62
Chevron Corp 1.51 1.51
Intl Business Machines Corp 1.51 1.51
Microsoft Corp 1.48 1.48
JPMorgan Chase&Co 1.35 1.35
Procter&Gamble Co 1.32 1.32
Johnson&Johnson 1.23 1.23
AT&T Inc 1.22 1.22
0 5 10 15 20 25
Utilities
Technology
Industrial
Financial
Energy
Diversified
Consumer non-cyclical
Consumer cyclical
Communications
Basic materials
Percent
Index Fund
As of 28 February 2011
For use with institutional and professional investors only — proprietary and confidential 28
Industry Diversification
INDUSTRY WEIGHTS FUND INDEX INDUSTRY WEIGHTS FUND INDEX
Information Technology 11.14% 11.14% Medical Equipment & Services 2.34% 2.34%
Non-Renewable Energy 10.17% 10.17% Telecommunication 2.32% 2.32%
Pharmaceuticals & Biotech 6.59% 6.59% Leisure 2.07% 2.07%
Utilities 5.86% 5.86% Chemicals and Synthetics 2.06% 2.06%
Food/Beverage & Tobacco 5.26% 5.26% Health Care Services 1.84% 1.84%
Investment Banking & Brokerage Services 5.20% 5.20% Consumer Finance & Credit Services 1.65% 1.65%
Retail 4.21% 4.21% Scientific Instruments & Services 1.52% 1.52%
Transportation & Freight 4.14% 4.14% Consumer Products 1.50% 1.50%
Insurance 3.99% 3.99% Metals & Minerals 1.46% 1.46%
Banks 3.92% 3.92% Machinery 1.21% 1.21%
Manufacturing & Production 3.82% 3.82% Commercial Services 1.15% 1.15%
Media 3.38% 3.38% Auto & Auto Parts 0.96% 0.96%
Electronics 3.17% 3.17% Industrial Materials & Processes 0.66% 0.66%
Personal Care/Drug & Grocery Stores 2.82% 2.82% Consumer Services 0.53% 0.53%
Energy Equipment & Services 2.49% 2.49% Building Materials & Services 0.18% 0.18%
Real Estate 2.39% 2.39%
Source: BlackRockAs of February 28, 2011
For use with institutional and professional investors only — proprietary and confidential 29
LADWP Diversification: Comparison of Risk Exposures to Benchmark
The portfolio is fully replicating, and therefore closely matches the benchmark’s characteristics
Predicted (ex-Ante) Tracking Error: 0.02%
Number of Stocks held in Portfolio: 974
Beta: 1.00
Source: Barra, BlackRockAs of February 28, 2011
Barra Style Factors (Standard Deviation) Fund Benchmark Active
Volatility -0.09 -0.09 0.00
Momentum -0.05 -0.05 0.00
Size 0.16 0.16 0.00
Size NL 0.07 0.07 0.00
Trading Activity 0.05 0.05 0.00
Growth -0.03 -0.03 0.00
Earnings Yield 0.07 0.07 0.00
Earnings Variability -0.04 -0.04 0.00
Leverage -0.06 -0.06 0.00
Currency Sensitivity 0.04 0.04 0.00
Dividend Yield 0.04 0.04 0.00
Non Estimation 0.02 0.02 0.00
Fee Schedule
FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
For use with institutional and professional investors only — proprietary and confidential 31
LADWP Fee Schedule
Total Assets Annual Fee (bps)
First $500,000,000 1.0
Above $500,000,000 0.75
LADWP Management Fee Schedule
Appendix
FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
For use with institutional and professional investors only — proprietary and confidential 33
Current Equity Market Outlook
Equity Market Overview
• February was a mixed month for equities as developed markets continued to outperform their developing counterparts. The S&P 500 managed to trade above 1332; a level of significance as it is double its nadir of 666 in early 2009. Developed equities surged over the first part of the month before later falling back as geopolitical tensions in North Africa dominated headlines. These tensions led oil prices sharply higher. Developing equities were down particularly heavily in Asia while Russia gained due to commodity strength. .
• US macro data showed continued strength. Significantly, the headline unemployment rate fell to 9% despite consensus suggesting that it would print 9.5%. This is significant as the FOMC (Federal Open Market Committee) has clearly signaled that labor market conditions will play a key role in determining future policy. The month also saw both ISM (Institute for Supply Management) manufacturing and non-manufacturing surprise to the upside providing further evidence that the US recovery is continuing in a robust fashion. There was, however, some evidence of this spilling over into increased inflationary pressure as the gross domestic purchases price index printed an increase of 2.1%; ahead of consensus estimates of only 0.3%.
Equity Views
• The recent geopolitical issues in the middle-east and northern Africa have generated a lot of headlines regarding their impact for the oil price. The issues in Algeria and Libya could potentially affect approximately three million barrels per day. This is less than 3% of global requirements. Saudi Arabia alone produces nearly 9 million barrels per day. The implications for the oil price thus clearly become a lot more severe if violence spreads to Saudi Arabia.
• Before the current risks developed a few weeks ago, the global economy had pretty solid momentum, and fundamentals remain strong. At the Federal Reserve’s policy meeting last week, central bankers acknowledged the risks of higher oil prices, but also indicated that the Fed had a more upbeat assessment of the overall economy. Corporate profits have remained strong and preliminary indications are that corporations are not being negatively affected by the increase in energy costs. Indeed, corporate hiring plans have been accelerating, and we believe that jobs growth should continue.
• Regarding Japan, the current problems will no doubt act as a short-term drag on Japanese economic growth levels, but over the longer term we expect reconstruction efforts will help to make lower growth a temporary problem. As a result of all of these, we do not believe that the current risks dominating the headlines will have an overly significant impact. Should conditions worsen (particularly in terms of the nuclear crisis getting worse and/or a significant run up in oil prices) that may change, but for now we remain cautiously optimistic.
• For many investors, the shift into equity markets is still in the early stages and equity valuations are hardly stretched, suggesting that the upward moves have further to run. While pullbacks and corrections will no doubt occur along the way, we believe they should be short and shallow and should be taken advantage of to add to positions.
Source: BlackRock. As of Feb, 2011
For use with institutional and professional investors only — proprietary and confidential 34
Russell Reconstitution 2010
New Methodology Changes• Russell’s special exception to exclude Berkshire Hathaway Class B shares
(BRK.B) was lifted. The result was the addition of BRK.B at an index weight of 1.3% to the Russell 1000 index.
• Russell amended its rules regarding country classification to consider country of incorporation, headquarters, and primary exchange. Companies that were previously excluded due to their incorporation outside of the U.S. (e.g., Covidien (COV) and Ace (ACE)) were added back to the index this year.
• The rule to determine the primary vehicle for dual share class companies was amended to include the most liquid share class.
Turnover • Russell 1000 additions increased to 24 names versus 2 names in 2009.
One-way turnover was 3.92% this year versus 1.96% last year due to addition of BRK.B and re-inclusion of companies based on the new country classification rules.
• The number of Russell 2000 additions increased to 125 names versus 49 names in 2009, while one-way turnover was lower at 9.5% versus 12.25% last year.
Trading• On effective day, all baskets moved in the direction of indexer flows, with
the exception of the Russell 1000 deletes.
• BRK.B rallied on Friday and closed at the day’s high, driving the Russell 1000 add basket to close up 2.14%.
• The spread between Russell 1000 additions versus the deletions closed up 1.9% on a trade-weighted basis.
• For the second consecutive year, the Russell 2000 additions outperformed deletions on effective day, although as expected, the +2.8% spread was significantly smaller than the 21.9% spread last year.
• Despite the volatility of the rebalance, BlackRock successfully managed the 2010 Russell Reconstitution by maintaining tight risk controls and minimizing impact while adding value through specific trading strategies.
June 25 Intra-day Performance
Sources: BlackRock, Russell, Bloomberg, Barclays Capital.
Performance calculated on a trade-weight basis.
For use with institutional and professional investors only — proprietary and confidential 35
Important notes
This material is for distribution only to those types of recipients as provided below and should not be relied upon by any other persons. This material is provided for informational purposes only and does not constitute a solicitation in any jurisdiction in which such solicitation is unlawful or to any person to whom it is unlawful. Moreover, it neither constitutes an offer to enter into an investment agreement with the recipient of this document nor an invitation to respond to it by making an offer to enter into an investment agreement.This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of yields or returns, and proposed or expected portfolio composition. Moreover, certain historical performance information of other investment vehicles or composite accounts managed by BlackRock, Inc. and/or its subsidiaries (together, “BlackRock”) has been included in this material and such performance information is presented by way of example only. No representation is made that the performance presented will be achieved by any BlackRock Funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or the historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein by way of example.This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. 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It does not constitute an offer of securities to the public in New Zealand for the purpose of New Zealand securities law. BFM believes that the information in this document is correct at the time of compilation, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BFM, its officers, employees or agents. Strategies or capabilities may include those of BlackRock Institutional Trust Company, N.A. (“BTC”), which is a U.S. national banking association operated as a limited purpose trust company. BTC believes that the information in this document is correct at the time of compilation, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BFM, its officers, employees or agents. This document contains general information only and is not intended to represent general or specific investment advice. The information does not take into account your financial circumstances. An assessment should be made as to whether the information is appropriate for you having regard to your objectives, financial situation and needs.Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to fluctuate.THIS MATERIAL IS HIGHLY CONFIDENTIAL AND IS NOT TO BE REPRODUCED OR DISTRIBUTED TO PERSONS OTHER THAN THE RECIPIENT.©2010 BlackRock, Inc., All Rights Reserved