FROM: Lisa Sorani, Manager of HR Employee Services LS -

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THE CURRENT INTEREST RATE ENVIRONMENT • Longest and most painful drawdown was in the period from 1954 to 1960 which featured a slow but steady rise in interest rates o During the period, interest rates only increased 1.8% but spanned 6 years of increasing rates resulting in a drawdown which continued over 8 years Source: Welton Inv. Corp Pension Consulting Alliance, Inc. ││ EBMUD Fixed Income Discussion │ 12
THE CURRENT INTEREST RATE ENVIRONMENT • So why was the 1954 to 1960 drawdown so severe? Why was a 15.3% capital loss with a 8+ year drawdown period associated with an environment where interest rates went up slowly and by only 1.8%? • The answer is the low 2.85% starting interest rates of the period o o Return on Fixed Income is composed of two components: capital gain/loss and interest When interest rates are low there is less interest to offset a portfolio capital loss as well as less money to reinvest at the higher interest rates • From the previous slides we can see that the slow grind from a low interest rate can be a more bearish environment for Fixed Income than a more volatile period with higher rates (late 1970s & early 1980s) • The key lesson to remember is that a slow rise in interest rates from a low starting rate can be very harmful for a Fixed Income portfolio o Potentially eliminating any return from a Fixed Income portfolio for quite a long period of time Pension Consulting Alliance, Inc. ││ EBMUD Fixed Income Discussion │ 13
Page 21 and 22: M E M O R A N D U M Date: April 29,
Page 23 and 24: Recent Investment Performance Barro
Page 25: Additional Considerations Barrow Ha
Page 29 and 30: For example, as of the most recent
Page 31 and 32: Q1 - 2013 Preliminary Recent Invest
Page 33 and 34: Q1 - 2013 Preliminary Periods endin
Page 35: Q1 - 2013 Preliminary Fixed Income
Page 38 and 39: AGENDA ITEMS Section Tab Current In
Page 40 and 41: THE CURRENT INTEREST RATE ENVIRONME
Page 50 and 51: SECTION 2 LOOKING FORWARD Source: W
Page 52 and 53: LOOKING FORWARD: INTRODUCTION r •
Page 54 and 55: LOOKING FORWARD: POSSIBLE OUTCOMES
Page 56 and 57: POSSIBLE OUTCOMES: ALTERNATIVE SCEN
Page 78 and 79: LOOKING FORWARD: CONCLUSIONS r •
Page 80 and 81: INVESTMENT OPTIONS r • In light o
Page 82 and 83: INVESTMENT OPTION 2 r • Option 2:
Page 84 and 85: INVESTMENT OPTION 4 r • Option 4:
Page 86 and 87: INVESTMENT OPTION 4-A r • Option
Page 88 and 89: INVESTMENT OPTION 4-B r • Option
Page 90 and 91: INVESTMENT OPTION 4-C r • Option
Page 92 and 93: CONCLUSIONS r • There are a few a
Page 95 and 96: Considering a Real Return Class Eas
Page 97 and 98: Defining Inflation • Inflation is
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Expert Views 5
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Expert Views: Inflation Doves • B
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Expert Views: Inflation Doves The E
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Expert Views: Inflation Hawks • B
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Expert Views: Inflation Hawks The E
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Expert Views: Summary • Experts a
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Institutional Investor Response •
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Modeling the Real Return Class •
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Modeling the Real Return Class •
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Implementing a Real Return Class
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Appendix 25 25
Page 121 and 122:
Modeling a Real Return Class SUMMAR
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A Brief Description of Global Infla
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A Brief Description of Absolute Ret
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A Brief Description of Absolute Ret
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A Brief Description of Commodities
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A Brief Description of Oil & Gas RE
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A Brief Description of Oil & Gas RE
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FROM: Lisa Sorani, Manager of HR Employee Services LS -

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