CALPERS – CALSTERS DIVERSITY CONFERENCE APRIL 25, 2006

1. CALPERS – CALSTERS DIVERSITY CONFERENCE APRIL 25, 2006 PRUDENTLY ACHIEVING DIVERSITY THROUGH AN EMERGING MANAGER PROGRAM Tina Byles Williams Chief Investment Officer & Chief Executive Officer FIS Group

2. HISTORICAL PERSPECTIVE: AN UNLEVEL PLAYING FIELD • The average majority-owned firm was substantially more successful in accumulating assets than the average minority-owned firm, even when established in the same year.

3. HISTORICAL PERSPECTIVE: AN UNLEVEL PLAYING FIELD (cont’d) • Significant disparity in the number of accounts obtained by minority firms vs. majority firms; even when other explanatory variables are taken into account. • Therefore, either minority firms choose to participate in fewer searches or they get the opportunity to participate in fewer searches

4. ASSETS UNDER MANAGEMENT • EMERGING MANAGER defined as: Asset ClassAssets no more than: Large Cap Equity $2 billion Mid/Small Cap Equity $0.3 billion Fixed Income $2 billion

5. HOW DOES ANY EMERGING MANAGER ALLOCATION INCREASE DIVERSITY? ALL MANAGERSCOMBINED DATABASE PROPRIETARY DATABASE PRODUCTS1 PRODUCTS1 MBE 58% 56% 67% WBE42% 44% 33% MBE/WBE TOTAL 100% 100% 100% EQUITY256% 80% 93% FIXED INCOME2 44%20% 7% TOTAL 100% 100% 100% • A focus on Emerging Managers generally leads to greater diversity. • FIS has hired 80 Emerging Managers, two-thirds of which are minority or women owned. 1As of January 2006 2Several firms manage multiple asset classes.

6. BUT WHAT ABOUT ALPHA? • Two components to a portfolio’s return – beta (i.e., market exposure) and alpha (i.e., return in excess of the market) • Alpha is the excess return due to active management of systematic (market-based) and idiosyncratic (non market-based) risks. Information Ratio measures the sustainability of alpha or skill. • The sources of alpha are generally breadth of decisions ”skill” implementation efficiency: • SKILL • Manager’s insight and skill into forecasting future returns ALPHA • IMPLEMENTATION • Flexibility to take advantage of • insights and breadth • - Portfolio Construction • - Trading Efficiency • BREADTH • Number of investment opportunities • Range of investment opportunities • Frequency of opportunities

7. WHAT IS THE EMERGING MANAGER ADVANTAGE? • Structural Implementation Advantage: • Absence of conventional institutional patronage results in freedom to be less benchmark-sensitive • “Best ideas” less diluted or constrained by conventional risk mitigation institutional guidelines • Investment insight amplified through more concentrated portfolios • Trade more nimbly with negligible market impact • Personal compensation more directly tied to alpha production; whereas managers at established firms have greater “safety net” from baseline fee income from large asset pools and the firm’s franchise value • Passion for success and focus unencumbered by bureaucracy and “Committee think” Result: Superior investment performance can be garnered from skillfully combining, identifying and monitoring talented investment managers in entrepreneurial firms that channel their investment acumen, focus and passion to achieve long-term success.

8. HISTORICAL EXPERIENCE • Above-median Emerging Managers show superior Alpha and Information Ratios in 2 out of 3 large Cap strategies relative to above-median large managers • The magnitude of the advantage is significant in “Down Markets” or “stock picker” markets in which divergence from the market index tends to outperform

9. BUT SKILLFUL MANAGER SELECTION IS CRITICAL! • The dispersion of returns among above-median Emerging Managers is greater than the dispersion of returns among above-median Large Managers • This suggests that in the Emerging Manager space, specialty manager selection skill and experience is critical!

10. GREATER MANAGER SPECIFIC RISK • Greater portfolio concentration leads to higher manager-specific risk (positive or negative) • Younger and/or smaller firms are more highly impacted by Operational/Business risks • Therefore, manager selection and portfolio construction processes must accurately evaluate business and stock specific risks and optimally manage/mitigate those risks on an ongoing basis

11. MANAGER SELECTION Seven attributes of highly successful Emerging Managers: • Product with clear competitive edge • Well executed, consistent and repeatable process • Principals understand all risk exposures • Sound and stable firm culture • Sound Business Plan • Talented professionals with high integrity and dedication to long-term performance success • Organizational resources • allocated to support • process and people • OPERATIONAL REVIEW • Infrastructure and capacity • Controls and procedures • Clear Reporting lines • Compliance Procedures • QUALITATIVE REVIEW • Process review • Idea generation, evaluation • and implementation • Competitive advantage • Consistency • Repeatability • Firm/Culture • Assets under management • through time • Resource allocation • Business Plan/projection • Compensation structure • Reference checks • QUANTITATIVE REVIEW • Historical holdings analysis • Benchmark specification • Factor variance • Industry variance • Risk - adjusted characteristics • relative to benchmarks & peers • Risk in various market/economic • environments

12. SUMMARY • An Emerging Manager Allocation can be a Prudent and Effective approach to add Alpha and increasing Diversity • Clear framework for mandate • Performance objectives and measurement period • Market Segment • To fill “hole” in plan’s manager structure • Diversity • Implementation plan that is consistent with achieving those objectives, cost and time efficient • Implementation approach should reflect a realistic assessment of: • Time and resources to find and identify managers that consistently generate high active value added (alpha) • Process for consistently measuring fund level and manager specific bets