LGIP FY13Q1 pt1

LGIP QUARTERLY MEETING & CONFERENCE CALL

OFFICE OF THE ARIZONA STATE TREASURER

11.1.2012

CONFERENCE CALL

AGENDA

� LGIP Performance

� Endowment Performance

� Endowment Distribution Formula

State Cash Flow

ARIZONA STATE TREASURER DOUG DUCEY

� State Cash Flow

� Guest Presentation: Dr. Jim Paulsen, Chief Investment Strategist for Wells Capital Management

� Q & A

INVESTMENT PHILOSOPHY

SAFETYbefore

LIQUIDITY


LIQUIDITYbefore

YIELD

EARNINGS FOR FY 2013 YTD

$29,673,076


$29,673,076

LGIP PERFORMANCEQ1 FY2013Q1 FY2013

POOL 5


POOL 7


POOL 500


POOL 700


Separately Managed Accounts (SMAs)

� Designed for those seeking a customized investing solution based on your risk tolerance, liquidity needs and duration target.

� Monthly Liquidity

� Requires $100 million minimum deposit


� Requires $100 million minimum deposit

� Pre-Meeting with Portfolio Manager to set up Account and determine investing needs.

� Costs: Standard 6 basis points, plus yearly accounting charges of $20,000 out of earnings (equivalent to 2 basis points.)

� Contact Deputy Treasurer Mark Swenson

OPERATING UPDATES

New key phone numbers:

� Main number 602-542-7800� LGIP Line 602-542-7834


� Mark Swenson 602-542-7877� Dale Stomberg 602-542-7833

ENDOWMENT PERFORMANCE


PERFORMANCEQ1 FY2013

$2.00

$2.50

$3.00

$3.50

$4.00

Bil

lio

ns

Endowment Market Value

ENDOWMENT MARKET VALUE $3.7

Billion


$0.00

$0.50

$1.00

$1.50

De

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6

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20

07

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7

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20

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7

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20

08

Jun

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8

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20

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8

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9

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20

09

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9

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10

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01

0

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20

10

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20

11

Jun

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1

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20

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1

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12

Jun

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2

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$0.60

$0.80

$1.00

$1.20

Bil

lio

ns

Total Endowment Unrealized gains/losses

ENDOWMENT UNREALIZED GAINS

$1.05 Billion


-$0.20

$0.00

$0.20

$0.40

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8

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ENDOWMENT ASSET ALLOCATION

$1,600.04M $502.79M$1,549.4 million

$542.2 million

40.4%14.9%

8.7%Fixed Income

$3.7 Billion


$1,052.42M$1,122.1 million

40.4%

35.9%

14.9%S&P 500

S&P 400

S&P 600

As of 9/30/2012

PROPOSED ENDOWMENT DISTRIBUTION


DISTRIBUTION FORMULA

SMOOTHER, CONSISTENT DISTRIBUTIONS

5-YearAverage

Market Value

X

2.5%


Takes 2.5% of the average monthly market value from each of the previous five years

Annual Distribution

STATE CASH FLOW


$1,500

$2,000

$2,500

$3,000Jul '90-Mar '91

Recession

Mar'01-Nov '01

Recession

Dec'07-June '09

Recession

STATE CASH FLOWTOTAL OPERATING ACCOUNT AVERAGE MONTHLY BALANCE

Up 70% in First Quarter YOY

$1.42 billion in September


-$1,000

-$500

$0

$500

$1,000

$1,500

Millio

ns

STATE CASH FLOW

$1,000

$1,500

$2,000

$2,500

$3,000State Operating BalanceFY 2007 - September 2012


-$1,000

-$500

$0

$500

$1,000

Ju

l-06

Oct-

06

Jan

-07

Ap

r-07

Ju

l-07

Oct-

07

Jan

-08

Ap

r-08

Ju

l-08

Oct-

08

Jan

-09

Ap

r-09

Ju

l-09

Oct-

09

Jan

-10

Ap

r-10

Ju

l-10

Oct-

10

Jan

-11

Ap

r-11

Ju

l-11

Oct-

11

Jan

-12

Ap

r-12

Ju

l-12

STATE CASH FLOW

$1,500,000

$2,000,000

$2,500,000

$3,000,000

YTD FY 2013 Cash Flow vs. Last Two Fiscal Years


$-

$500,000

$1,000,000

$1,500,000

7/1 8/1 9/1 10/1 11/1 12/1 1/1 2/1 3/1 4/1 5/1 6/1

FY 2011 FY 2012 Actual FY 2013 Actual

AZ NON-FARM EMPLOYMENT

1750

2000

2250

2500

2750

3000

Jul '90-Mar '91

Recession

Mar'01-Nov '01

Recession

Dec '07-Jun 09

Recession

AZ Job growth returning


750

1000

1250

1500

1750

Fe

b-8

2

Fe

b-8

3

Fe

b-8

4

Fe

b-8

5

Fe

b-8

6

Fe

b-8

7

Fe

b-8

8

Fe

b-8

9

Fe

b-9

0

Fe

b-9

1

Fe

b-9

2

Fe

b-9

3

Fe

b-9

4

Fe

b-9

5

Fe

b-9

6

Fe

b-9

7

Fe

b-9

8

Fe

b-9

9

Fe

b-0

0

Fe

b-0

1

Fe

b-0

2

Fe

b-0

3

Fe

b-0

4

Fe

b-0

5

Fe

b-0

6

Fe

b-0

7

Fe

b-0

8

Fe

b-0

9

Fe

b-1

0

Fe

b-1

1

Fe

b-1

2

Source:

Bloomberg

2012 L.P.

Jul '81-Nov '82

Recession

AZ UNEMPLOYMENT AT 8.2%

7%

8%

9%

10%

11%

12%

Jan '80-Jul '80

Recession

Jul '81-Nov '82

RecessionJul '90-Mar '91

Recession

Mar'01-Nov '01

Recession

Dec'07-June 09

Recession

National rate of 7.8%

AZ Rate at 8.2%


2%

3%

4%

5%

6%

7%

Fe

b-7

6F

eb

-77

Fe

b-7

8F

eb

-79

Fe

b-8

0F

eb

-81

Fe

b-8

2F

eb

-83

Fe

b-8

4F

eb

-85

Fe

b-8

6F

eb

-87

Fe

b-8

8F

eb

-89

Fe

b-9

0F

eb

-91

Fe

b-9

2F

eb

-93

Fe

b-9

4F

eb

-95

Fe

b-9

6F

eb

-97

Fe

b-9

8F

eb

-99

Fe

b-0

0F

eb

-01

Fe

b-0

2F

eb

-03

Fe

b-0

4F

eb

-05

Fe

b-0

6F

eb

-07

Fe

b-0

8F

eb

-09

Fe

b-1

0F

eb

-11

Fe

b-1

2

Source:Bloomberg2012 L.P.

AZ HOUSING PRICES

150

200

250

S & P/Case Schiller Housing Price Index for Phoenix


0

50

100

Source: Bloomberg 2012 L.P.

Guest Presentation:

Dr. Jim Paulsen, Chief Investment Strategist for


Dr. Jim Paulsen, Chief Investment Strategist for Wells Capital Management

November 2012www.wellscap.com

Economic & Financial Market Update

James W. Paulsen, Ph.D., Chief Investment Strategist

Older Demographics Have Altered EconomicRecoveries in Three Major Ways!!!

1. Slower SPEED LIMIT!

2. Delayed Recoveries!!

“Slow Starters… But, Long FINISHERS”

Economic and Financial Market Update – November 2012

“Slow Starters… But, Long FINISHERS”

3. YEAR “4” GEARING!!?

“New-Normal” Working-Age PopulationGrowth!??!

U.S. Working Age PopulationShown on a natural log scale


Annual Growth in U.S. Real GDP

Contemporary Recovery Weaker, But Similar to 1991/2001 Pattern!?

Cumulative Percent Recovery Gain in Real GDP Current Recovery vs. 1990/2001 Average

Cumulative Percent Recovery Gain in Real GDI Current Recovery vs. 1990/2001 Average


TOTAL Cumulative Percent Job Creation Current Recovery vs. 1990/2001

Private Cumulative Percent Job Creation Current Recovery vs. 1990/2001 Average

Jobs & Confidence Recoveries Delayed!?!

U.S. Unemployment Rate & RecoveriesConsumer Confidence Index* & Recoveries

*Conference Boards Consumer Confidence Index. Shown on a natural log scale.

Shaded areas represent recessions.


“DELAYED” WAGE/GAINS WILL SOON END?!??


Federal Reserve Following Playbook of Last Two Recoveries!?!

Federal Reserve Policy ResponseFed Funds Rate2001 Recovery

Federal Reserve Policy ResponseFed Funds Rate1991 Recovery


How to GEAR?? Jobs & Confidence!!!

Consumer Confidence vs. U.S. Unemployment Rate


ECONOMY is GEARING: #1 JOB MARKET!!

Total U.S. Household Employment In Millions

Total U.S. Labor ForceIn Millions


U.S Labor Unemployment Rate

ECONOMY is GEARING: #2 CONFIDENCE!!

Conference Board Consumer ConfidencePresent Situation Index


ECONOMY IS GEARING: #3 Net WORTHS & #4 Debt BURDENS!!

U.S. Household Financial Obligations Ratio

Total Household Net Worth In Trillions of U.S. Dollars


ECONOMY is GEARING: #5 Housing Activity & #6 Home Prices!!

FHFA U.S. House Price IndexNational Association of Homebuilders Market Survey Index


Documents

LGIP FY13Q1 pt1