Service Providers

Risk Parity – Diversified Beta

The Risk Parity manager utilizes a risk premium capture strategy that seeks to generate returns by investing in equity, bond and commodity markets using a risk-balanced investment process. Specifically, the manager selects the appropriate assets for the strategy, allocates them based on their proprietary risk management and portfolio construction techniques, and then applies an active position process to improve expected returns. The MBTA Retirement Fund invests in Risk Parity / Diversified Beta products because it provides the Fund with diversification and attractive returns. Additionally, the strategy provides daily liquidity, no lock-up, high capacity, and high transparency-all of which are attractive qualities for the Fund.

Domestic Equity

The domestic equity portfolio is invested in both large capitalization equity strategies (large cap) and small capitalization equity strategies (small cap). The Fund’s domestic equity portfolio is actively managed in an attempt to outperform a diverse set of indices. Each investment manager’s performance is measured against an assigned index based on the stated investment strategy.

Fixed Income

The Fund’s fixed income portfolio is benchmarked against the Barclays Aggregate Bond Index, BC GOV/Credit, BC MBS, S&P/LSTA Leveraged Loan, BC U.S. TIPS and Barclays Multiverse. Fixed income managers serve in a specialist role managing debt securities. Domestic core fixed income managers’ investments may include (i) U.S. dollar denominated obligations of the United States Government and its Agencies and instrumentalities, and U.S. corporations, (ii) mortgage-backed securities including CMOs and commercial mortgage backed securities (“CMBS”), (iii) Asset Backed Securities(“ABSs”), (iv) registered 144A securities if applicable, (v) municipal bonds, (vi) short term securities, (vii) securities of foreign companies or foreign countries (sovereigns or supranational) denominated in U.S. dollars, trading in the U.S. markets and capable of settlement in U.S. markets (Yankee bonds), and (viii) dollar denominated obligations of U.S. companies trading outside the U.S. (“Eurobonds”).

Global Equity & Emerging Markets

The MBTA Retirement Fund measures global equity against the MSCI ALL Country World Index and emerging markets against the MSCI Emerging Markets Index.

Hedge Funds – Fund of Funds

The objective of the MBTARF’s hedge fund program is to reduce the volatility of the total fund while attempting to maximize returns in a variety of market conditions. As a group of strategies, hedge funds represent a broad set of investment styles, mandates, and products that focus primarily on the liquid equity, fixed income, and derivatives markets, but that may also include allocations to non-traditional investments, including illiquid securities and investments. There are two primary methods for investing in hedge funds: funds of hedge funds; and single manager funds. The MBTARF primarily utilizes funds of hedge funds in an effort to significantly reduce risk through diversification.

International Equity

The international equity managers are benchmarked against the MSCI EAFE index, which includes the developed markets of Europe, Australia and the Far East. International small cap managers are benchmarked against the MSCI World Ex US Small Cap index. The international equity portfolio is comprised of three actively managed accounts. The primary strategy is to invest in international equity funds to achieve consistent, positive real returns and to maximize long-term total return within prudent levels of risk through a combination of income and capital appreciation.

Private Equity

The private equity portfolio is used to increase the expected long-term return of the MBTARF portfolio, while generating cash flow and providing diversification. The private equity portfolio is diversified among sub-classes which include: venture capital, growth equity, buyouts, mezzanine, secondary strategies, distressed, energy, and special situations. The MBTARF private equity portfolio is benchmarked to a State Street Customized Benchmark, which takes into account the portfolio’s allocations to the various private equity sub-classes.

Real Estate

The equity real estate program is comprised primarily of two separate but complementary investment strategies – core and specialty. Core investments include property types in multi-family housing, retail, industrial and office buildings. These assets are characterized by stable and increasing income levels and are located in major metropolitan areas which exhibit reasonable economic diversification. Specialty investments include property types in hotels, assisted-living and congregate care facilities. Specialty strategies enhance returns of assets capable of, but not currently, exhibiting core type characteristics. The MBTA Retirement Fund’s allocation to real estate equity is intended to enhance the return, risk and portfolio diversification characteristics of the Fund’s total portfolio. It is anticipated that investments in equity real estate will, over a full market cycle, produce an income return that is in excess of the yield of an investment grade, core fixed income investment combined with some level of equity appreciation. In addition, it is expected that equity real estate will exhibit a lower correlation with traditional equity and fixed income securities.

KPMG, LLP

www.kpmg.com
Two International Place
23rd Floor

Tel: +1 617 849 6501
Fax: +1 617 849 6500

Segal Marco Advisors

Investment Consulting Services

All investment managers wishing to do business with the MBTARF should contact Julian Regan at:

Segal Marco Advisors
25 Braintree Hill Office Park
Suite 103
Braintree, MA 02184
Phone: (617) 298-0967
Fax: (781) 228-5871

http://www.segalmarco.com

Buck Global, LLC.

Actuary services

101 Federal St #900, Boston, MA 02110
Tel: (617) 275-8050

Holland & Knight

www.hklaw.com

10 St James Ave
Boston, MA 02116

Tel: (617) 523-2700

State Street Bank & Trust Company

www.statestreet.com

Crown Colony Office Park
1200 Crown Colony Drive
Quincy, Massachusetts 02169

Tel: (617) 786-3000

Mailing Address:
Box 5501
Boston, Massachusetts 02206-5501