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1818 Society Annual Meeting

1818 Society Annual Meeting. Pension Plan Performance October 24, 2007. Road Map. Highlights 2006 Funded status Plan performance Real Estate update Hedge Fund update July/August 07 market stress Concluding Remarks. Highlights 2006. Staff Retirement Plan (SRP)

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1818 Society Annual Meeting

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  1. 1818 Society Annual Meeting Pension Plan Performance October 24, 2007

  2. Road Map • Highlights 2006 • Funded status • Plan performance • Real Estate update • Hedge Fund update • July/August 07 market stress • Concluding Remarks

  3. Highlights 2006 • Staff Retirement Plan (SRP) • Assets increased by $1.6 billion to $14.0 billion • Closed Group Liabilities increased by $0.8 billion to $14.3 billion • Return of 14.3% outperforming benchmark by 3.1% • Funded ratio improved from 92% to 97% • Bank contribution rate of 12.23% forFY08 (18.35% in FY07) • Retiree Staff Benefits Plan (RSBP) • Assets increased by $0.24 billion to $1.45 billion • Closed Group Liabilities increased by $0.11 billion to $1.85 billion • Return of 15.2% outperforming benchmark by 3.6% • Funded ratioimproved from 69% to 78% • Bank contribution rate of 6.54% for FY08 (7.82% in FY07)

  4. SRP - Funded Status Funded ratio is (MV of Assets)/(Liabilities)

  5. Total Bank Contribution Rates for FY03 - FY08

  6. SRP - Asset Allocation as of December 31, 2006 US Equities 19% Non-US Equities 16% Private Equity 9% Real Estate 5% Hedge Funds 11% Global Fixed Income 40% Strategic Asset Allocation is currently under review

  7. Plan Performance (2006) • Second largest excess return on record for the plan • Alternative investments played a key role

  8. *Numbers are preliminary • Continued strong performance during 2007 • Alternatives contribution likely to be revised upward at year-end • Plan weathered well the July/August market turmoil *Plan Performance (Jan ‘07 – Sept ‘07)

  9. Real Estate Portfolio • Plan does not invest in residential homes/mortgages • Commercial RE has much better fundamentals than residential and is a great long-term diversifier • The industry is cyclical but subspaces/geographies follow different cycles • Strategy has a 33 year track record and takes advantage of differences in cycles across subspaces • RE portfolio is well diversified by geography, property type and investment strategy.

  10. Commercial RE Vacancy Rates by Sector

  11. I II III IV V VI U.S. • Office – CBD • Industrial • Northeast • Pacific (ex So. Cal) • Office – Suburban • Sunbelt • Hotels • Office – Midtown Manhattan & So. Cal • Apartments • Pacific – So. Cal • Retail – Malls • Retail – Strip Ctrs • Self Storage • Midwest Bottoming Recovery Expansion Balanced Slowing Correction Europe • Germany • Netherlands • Italy • Belgium • Austria • Sweden • Finland • Norway • Denmark • London City & West End Office • France Office • Spain Office • UK Retail • Continental European Retail • Switzerland Asia • East/Central Australia Residential • Japan Office • Tokyo Residential • Hong Kong • China Office • Singapore • Malaysia • China Residential • Australia Retail • Australia Industrial • West Australia Residential • Australia Office • Indonesia • Thailand Global Cycle Chart, mid 2007 Source: Morgan Stanley

  12. Real Estate Portfolio by Property Type Source: Morgan Stanley

  13. Hedge Funds Portfolio • There are many different types of HF portfolios with dramatically different risk/return profiles • WB’s HF portfolio is constructed to have low volatility and to seek positive returns across market environments by limiting downside risk • Portfolio rebuilt during 2000-2003--is now very diversified across strategies, geographies and number of managers • Equipped to deal with high profile losses but has avoided them so far • Hedge funds techniques permeate all asset classes nowadays--useful source of intelligence

  14. Hedge Fund Diversification • Very diversified portfolio: more than 40 managers across all strategies and geographies Source: Morgan Stanley

  15. Hedge Fund Risk Adjusted Returns • HF provide substantially higher risk-adjusted returns compared with other public asset classes. Performance and Risk of HF PortfolioJan 2003-2007 (Sept*) * Numbers are preliminary

  16. Hedge Fund Performance: Consistency Returns of SRP HF Portfolio, 2000-2007 (Sept *) * Numbers are preliminary • HF portfolio produced consistent and positive absolute returns • Staff choices of managers added significant value • Return stream is excellent diversifier for plan Source: Morgan Stanley

  17. Stress Test: The July/August 07 Episode • Market turmoil was triggered by failure of two funds that invested in CDOs • It resulted in a repricing of risk across markets • The HF portfolio showed great resilience Performance of WB PortfolioJuly / August 07 (Sept *) * Numbers are preliminary

  18. Concluding Remarks • Funded status of the plan continued to improve during 2006 and is currently well funded • In 2006: Large value added component from pension team • Real Estate and Hedge Funds: high risk-adjusted returns; great diversifiers • Plan weathered the July/August market stress well • Implications for Plan: • diversify • take advantage of changes in asset management • focus on long term trends

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