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Surviving the Turbulent EconomyEconomic outlook
and sustaining investment yields and value
Association of California Water Agencies
December 3, 2008
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ModeratorTom Scaglione, Finance Director,
Vallecitos Water DistrictParticipantsDaniel
Dowell, Director of Investments, Pooled Money
Investment Account, CA State Treasurers
OfficeBrian Thomas, Chief Financial Officer,
Metropolitan Water District of So. CalDaniel
Wiles, Principal, Fieldman, Rolapp Associates
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What happened when it hit the fan?

• Liquidity went downway, way down
• Flight to qualityultra quality
• Spreads between Treasuries and everything widened
  
• Rates on Bonds up
• Unfortunately, rates on Treasuries down
• Players have exited the field
• Bye, Bye, GICs (useful for bond proceeds)no new
  bids, AIG out

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State Treasurers Response
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What Investments Went Bad?

• How are those financials doing? E.g., Lehman,
  WaMu, Citi, Goldman, Morgan, Wachoviathe list
  goes on

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Safety, Liquidity, Yield Does Yield have any
validity as a goal in the current market?

• In other words, is the prime directive now to
  cover your tuckus?
• Is the credit spread sufficient to justify the
  risks of going for greater yield?
• Spreads exist between Treasuries and Corporate
  Bonds
• Are we down to stashing money in mattresses?
• Remember, the negative yield on short term
  Treasuries during parts of September

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Short Term FundsWhat Sectors do you buy today?

• How about LAIF?
• Does the CDARs program provide any options? How
  has it worked out in the real world?
• Query Are we moving to a world where munis are
  so cheap that they become suitable even for
  governments?

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What Happens with Long Term MoneyPensions, OPEB,
Bond Reserves?

• Adjust asset allocations. Should long term
  managers increase
• Private equity
• Real estate holdings (commercial real estate)
• Hedge funds
• International
• Mortgage obligations ??
• GICs are dead (generally), what will replace
  them?

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What are the traps in the current markets?
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Are there any opportunities in the current market?

• Widened spreads between Treasuries and Corporates.

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Will we see long term returns in the 7.75
range?
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Are Pension/OPEB Obligation Bonds Viable Now?

• Most of the time, POBs and OPEB bonds depend on
  arbitraging the market
• Do I feel lucky todayand for the next 20-30
  years?

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Do the changes imply that active management is
not a superior alternative?
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Questions