Meketa Small Cap Search Presentation PDF

4.
1b(3)
San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search
Finalist Manager Review
E K
E S
E N
5796 ARMADA DRIVE SUITE 110 CARLSBAD CA 92008

760 795 3450
fax 760 795 3445 www.meketagroup.com
3-24-2015
JOINT IC FED ITEM #2b
xxxxxxxxxxxxxxxxxxxxxxx
FCERS 4-16-15

1. International Small Cap Equity Manager Universe Review

2. Manager Due Diligence Process Review
3. Semifinalist Manager Review
Background
Firm Overview
Investment Team Overview
Investment Strategy
Investment Process
Portfolio Characteristics
Performance Analysis
4. Summary
5. Appendix
Fees and Terms
Glossary
International Small Cap

Equity Manager Search
Prepared by Meketa Investment Group

3-24-2015 JOINT IC FED
ITEM #2b

International Small Cap Equity Manager Universe Review


ITEM #2b

Investment Strategy Offerings

Institutional investors can gain access to international small cap equity investments through either pooled
investment vehicles (i.e., commingled funds, mutual funds, etc.) or separate accounts.
Meketa Investment Group recommends that clients invest in international small cap equity through a
commingled fund vehicle for the following reasons:
Total operating costs are often lower for a commingled fund, since expenses can be spread across a
larger asset base.
Commingling funds lowers transaction costs, as the netting of inflows and outflows from different
mandates reduces the volume of securities that need to be traded.
In order to directly buy and sell securities (e.g., within a separate account) in non-U.S. dollar currencies,
agreements must be set up for each country through a custodian, which is administratively burdensome
for investors. With commingled funds, the investment manager will assume this burden and associated
expenses will be shared among all of the commingled funds investors.


ITEM #2b

Manager Due Diligence Process Review


ITEM #2b

Manager Due Diligence Process Introduction

Selecting strong and appropriate investment managers is a key determinant of the overall success of the Fund. Investment
managers are well-compensated advisors of the Fund, chosen to take specific risks. While they are expected to operate
within a clients investment guidelines, investment managers are given a large degree of latitude to achieve the investment
objectives.
Manager selection is a nuanced process and requires extensive due diligence.
managers, Meketa Investment Group evaluates the following areas:
When selecting prospective active
Organization
Investment team
Investment philosophy
Investment process
Investment performance
Management fees
In addition, all managers are evaluated within the context of the Funds overall investment policy.


ITEM #2b

Manager Evaluation Criteria

Organization
While there is no single correct way to organize an asset management effort, we believe that the ideal
investment management organization possesses most of the following elements:
Focused on a single investment style or a focused team within a larger organization.
Appropriately sized for the firms assets under management, with a reasonable growth plan and a
willingness to close capacity-constrained strategies.
Stable, investment driven, independent, and employee-owned (or majority employee-owned).
Performance driven with a team-oriented, supportive culture.
Organized in such a way to ensure that information flows efficiently so that investment decisions can be
made easily and, if necessary, quickly.
Financially and operationally sound.


ITEM #2b

Manager Evaluation Criteria (continued)

Investment Team
Members of the investment team responsible for managing the strategy are evaluated in order to assess their
competitive edge and to determine if they will be able to add value in the future. In a profession where
intellectual capital is the greatest differentiator between managers, an investment strategy is only as good as the
people behind it.
During the course of our due diligence, we review the background of each member of the team. We want to
know what motivated these individuals to work in the international small cap equity market, what experience
they bring, and how long they have been in the industry.
Specific qualities that we believe make a good investor are intelligence, inquisitiveness, analytical ability, and
natural skepticism. A command of the details and an ability to assimilate lots of information, yet tie the
information together and make a decision, are valued. Deep industry knowledge, an ability to articulate their
reasons for buying or selling a security, a non-consensus thought process, and strong decision-making skills are
especially important. Through the interview process, we seek to understand how a manager thinks about
international small cap equities, the broader market, and their portfolio.
Significant time is spent evaluating how the investment team interacts, their tenure together and their depth.
Although some firms have been successful using the generalist model, we prefer specialization. Our belief is that
there is value in having analysts with specific sector expertise who have followed an industry through multiple
cycles.
Compensation structure and incentives are also analyzed. The investment team should be incented to place the
interests of the client first and to maximize performance while assuming an appropriate level of risk.

ITEM #2b


Investment Philosophy
An investment philosophy is a set of beliefs about what factors drive changes in equity prices, what factors cause
securities to be mispriced, and how security mispricing can be exploited through active management. A
managers investment philosophy also incorporates their beliefs about what their competitive edge is and how
they distinguish themselves from their peers.
We try to find managers who have a clear investment philosophy, and who can articulate how they are able to
identify undervalued companies and take advantage of the opportunities they uncover. Understanding where
this philosophy comes from, how it has evolved over time, and how the manager identifies and selects attractive
investments using their research process are very important. Some managers may not have formally thought
about their philosophy, and are therefore not able to articulate what they believe. Their philosophy often
becomes evident when they explain their investment process and discuss the stocks they own in their portfolio.
Another element of a managers philosophy is how they think about the benchmark they are evaluated against.
Most managers we recommend are either benchmark aware or believe in managing portfolios in a
benchmark-agnostic manner. We are biased toward managers who have conviction in their ideas and reflect that
conviction by establishing relatively large positions in their portfolios.


ITEM #2b


Investment Process
Every analysis of an investment manager must entail an examination of how they pick stocks for their portfolio,
why they sell stocks from the portfolio, and how their portfolio is constructed. We like investment processes that
are straightforward and easy to understand. Although we want to see consistency in the process, there is
considerable art to investing. A repeatable process, in and of itself, does not guarantee good investment results.
It is in the execution of the process where managers differentiate themselves and add value.
In our analysis, we determine whether the portfolio is bottom-up driven, or if there is a significant top-down
element to the process. Themes can also play a role in how portfolios are managed.
With this information as a backdrop, our analysis of the investment process initially focuses on how new ideas are
generated and how these ideas find their way into the portfolio. Once the opportunity set has been identified,
we seek to understand what kind of fundamental research a manager performs. Superior managers generally
perform intensive due diligence and their level of understanding of the businesses in which they invest often gives
them a research edge. We want to make sure they know what they own in their portfolios.
Once the research on an idea has been completed, an investment decision must be made. Ultimately, successful
active asset management requires exercising good judgment. We always want to know how managers make
investment decisions and who makes them. It is important to us that investment ideas are thoroughly vetted. We
also want the decision-making process to be efficient and responsive to changing dynamics in the market. How
managers construct their portfolios, and think about, as well as control, risk is also evaluated.


ITEM #2b


Investment Performance
Just because a manager has performed well in the past does not guarantee they will be able to continue to do so
in the future. We do feel that if we can find strong organizations with bright, motivated, knowledgeable, and
experienced people, combined with a history of long-term, consistent success, we significantly increase the
chances that managers we recommend to clients will add value in the future. If we are correct in our assessment
of the quality of the organization and the people, then the performance should follow.
Portfolio performance over multiple time horizons is evaluated. We review calendar-year results over as long a
period as possible. We also examine rolling time periods to eliminate the impact of end point bias. We do not
expect a manager to outperform the relevant index every year, but we do believe they should outperform over a
full market cycle. What we are looking for is consistency. In addition, we analyze each managers risk-adjusted
returns. We want to make sure that our clients are being compensated for the risk the manager is taking. For
each manager, we also look at the standard deviation, beta, tracking error, and correlation with the benchmark.
Our analysis of upside and downside capture gives us a sense of which managers can be expected to perform
well in up and down markets.
We review the portfolio holdings of each manager to verify their investment style, to assess where their biases are,
and to determine where they have been able to add value. We always look at security-level performance
attribution. This analysis tells us what helped and hurt the portfolio, and in which industries a manager is
particularly adept. We also look at the distribution of returns within the portfolio.


10
ITEM #2b


Management Fees
The final step in our analysis is evaluating an investment managers fees and the expenses they incur in managing
the portfolio. Minimizing fees and expenses is important because these costs reduce the return to our clients.
This effect can be very pronounced over time, so we seek to negotiate lower fees whenever possible.
Trading costs are another hidden expense to investors and must also be evaluated. In general, portfolio managers
with high turnover trading less liquid stocks will incur the highest trading costs.


11
ITEM #2b

Semifinalist Manager Review


12
ITEM #2b

Background
As of February 28, 2015, the Retirement System had an investment of $24.1 million in the Northern Trust
MSCI EAFE Small Cap Index.
Because international small capitalization stocks represent a less efficient area of the public equity markets,
Meketa Investment Group recommends that clients utilize active management in the space, and we believe that
skilled active managers should be able to add alpha over time.
Advisory, Copper Rock, Driehaus, and Oberweis were identified as semifinalist candidates because each manager
possesses the following characteristics:
Strong investment resources, including team members with experience in international small cap
equities.
Thorough investment processes that seek to add value through active management.
Established, stable organizations with deep resources.
Consistent long-term track record given the investment styles of the strategies.
An investment vehicle which remains open to new investments.
This document provides a review of semifinalist firms that were selected.


13
ITEM #2b

Firm Overview
As of January 31, 2015
Advisory Research
Copper Rock
Driehaus
Oberweis
Firm Location
Chicago, IL
Boston, MA
Chicago, IL
Chicago, IL
Firm Inception
1994
2005
1982
1981
100% owned by
Piper Jaffray
65% owned by
Old Mutual Asset
Management,
35% employee-owned
100%
employee-owned
100%
employee-owned1
$10.9 billion
$3.1 billion
$10.0 billion
$1.5 billion
1,279
42
135
26
$0.5 billion
$1.0 billion
$0.8 billion
$1.0 billion
21
11
Ownership Structure
Total Assets Managed

Total Number of Clients2
Assets Managed in Intl Small Cap Strategies
Number of Clients invested in Intl Small Cap Strategies
1
2
Includes senior investment professionals, key executives, and their immediate families.
Commingled and mutual funds are counted as one client.

14
ITEM #2b

Firm Overview (continued)

Advisory Research
Advisory Research is a Chicago, Illinois-based investment management firm. The firm manages approximately
$10.9 billion in assets. In March 2010, Advisory Research became a wholly-owned subsidiary of Piper Jaffray
(NYSE: PJC), a publicly traded financial services company.
Copper Rock
Copper Rock is a Boston-based investment management firm jointly owned by Old Mutual Asset Management
and Copper Rock employees. The firms main focus is on small cap equity investing across international, global
and emerging markets strategies. Copper Rock manages approximately $3.1 billion across three small cap equity
strategies and one global all cap equity strategy.
Driehaus
Founded in 1982 by Richard Driehaus, Driehaus Capital Management is a 100% employee-owned, boutique
investment management firm based in Chicago, Illinois. Driehaus has approximately 102 employees and
38 employee owners of the firm. The firm manages roughly $10.0 billion in assets, with $766 million in the
International Small Cap Growth strategy.
Oberweis
Oberweis Asset Management is an independent investment management firm based in suburban Chicago,
Illinois. The firm was founded in 1989 and manages roughly $1.5 billion in five growth-oriented equity strategies,
the largest of which is the International Small Cap strategy at just over $1 billion. The firm is 100% owned by
Oberweis Asset Management senior investment professionals, key executives, and their immediate families.

15
ITEM #2b

Investment Team Overview

Advisory Research
Copper Rock
Driehaus
Oberweis
Portfolio Managers
31
22
Research
None
None
2 analysts
1 analyst
Average Firm Tenure
5 years
6 years
7 years
6 years
Average Industry Tenure
11 years
24 years
12 years
11 years
Firm Overview:
Investment Professionals: International Small Cap
Investment Professional Departures (past 5 years)

Research Staff:
Advisory Research
Advisorys investment team consists of seven dedicated investment team members, all of which are based in
Chicago. Jonathan Brodsky, Drew Edwards, and Marco Priani serve as co-portfolio managers on the strategy and
are supported by a group of three analysts. Advisory works under an absence of veto approach to building
portfolios, where each investment team member has the opportunity to veto any name brought under
consideration.
1
2
Includes Assistant Portfolio Manager.

As of December 31, 2014.

16
ITEM #2b

Investment Team Overview (continued)

Copper Rock
Copper Rocks Boston-based investment team consists of four portfolio managers and two analysts, as well as
two traders. The four portfolio managers have an average of 24 years of investment experience. Stephen Dexter,
lead portfolio manager, has managed international small cap equities since 2002, when the team was employed
at Putnam Investments.
Driehaus
Driehaus Chicago-based investment team consists of two co-portfolio managers and one assistant portfolio
manager; who are supported by a macroeconomic analyst as well as the broader Driehaus global analyst team.
David Mouser is the lead portfolio manager and has 16 years of investment experience, all of which have come at
Driehaus. Daniel Burr serves as co-portfolio manager and carries seven years of investment experience in
growth-oriented equity strategies.
Oberweis
Oberweis investment team consists of a dedicated group of four team members led by portfolio manager,
Ralf Scherschmidt. Mr. Scherschmidt joined Oberweis to launch the International Opportunities strategy in 2006
and is supported by an assistant portfolio manager and three research analysts. Additionally, the International
Opportunities team leverages the support of Oberweis Hong Kong-based Asia team, which consists of
three investment professionals.


17
ITEM #2b

Investment Strategy
Advisory Research
Advisory employs a conservative, long-term bottom-up approach to value investing that includes elements from
the classic Graham & Dodd style. The strategy focuses on capital preservation and requires each stock to have an
identifiable catalyst in the near to medium term to unlock the stocks perceived intrinsic value.
Advisory believes that a relatively concentrated portfolio of individual stocks, sufficiently diversified by country
and sector, is the best way to produce strong risk-adjusted returns over time.
Copper Rock
Copper Rock believes that small cap markets are inefficient and that a fundamental growth approach with a
strong sell discipline provides the best opportunity to outperform in all market conditions.
The team seeks to identify companies that are emerging leaders across various industries. Copper Rock attempts
to buy these companies at an early point in their growth cycle, before widespread investor interest ultimately
drives valuations upward.
Driehaus
Driehaus believes corporate earnings are the primary driver of stock prices over time, but that expectations of
future earnings, relative valuation, macroeconomic and behavioral factors also affect stock prices. Closely tied to
this is their belief that it is crucial to respond quickly to change, both positive and negative.
Therefore, the combination of long-term fundamental drivers and short-term momentum factors is the hallmark
of the Driehaus approach.


18
ITEM #2b

Investment Strategy (continued)

Oberweis
Oberweis believes two pervasive market inefficiencies exist. First, they believe that market participants
systematically underreact to changes in company fundamentals when these changes are contrary to their prior
beliefs and forecasts. Therefore, investors often fall victim to behavioral biases such as anchoring, confirmation
bias, and herding. They believe this inefficiency, termed Post-Earnings Announcement Drift, leads to mispriced
securities.
The first inefficiency is further exacerbated by the second inefficiency, which is the limited research coverage and
publicly available information on international small cap companies, making it easier to find companies trading at
substantial discounts to their intrinsic value.
As such, Oberweis seeks to build a portfolio of stocks in less well-known international small cap companies that
consistently produce earnings surprises.


19
ITEM #2b

Investment Process
Advisory Research
Advisory Researchs idea generation is both structured and ad-hoc. Like most managers, Advisory runs a series of
screens on the investable universe; but they will also get ideas from company management teams and specialized
local financial publications from various countries. Screens focus on value factors, such as price/tangible book
value, as well as quality factors, such as ROE and low debt levels, for example.
Once ideas are identified, the team focuses on what Advisory terms financial analysis. Here the team seeks to
estimate the maximum potential downside of a given company, largely by focusing on financial statements. They
make use of extensive probability analysis to work through potential downside scenarios and their impact.
Next, Advisory conducts business analysis, whereby they seek to estimate the potential upside of a particular
company using a combination of management interviews, company visits, and competitive analysis. At this stage,
Advisory looks for management teams with a commitment to shareholders, a strong operating history, and a
consistent track record of prudent capital allocation decisions. The portfolio holds between 60-80 stocks and,
given their long-term approach, uses low turnover.
Copper Rock
Copper Rock uses the help of an up-front quantitative model to rank the investable universe of international small
cap companies on a variety of different metrics.
The team then performs a detailed analysis of each investment candidate to determine if it is truly a growth
company (e.g., strong revenue/earnings growth, healthy industry), if the growth is sustainable (e.g., quality of
management, competition) and if the growth is already priced into the market (i.e., valuation).
The end result is a broadly diversified portfolio of 80 to 120 companies with a considerable focus on portfolio
construction and risk management.

20
ITEM #2b

Investment Process (continued)

Driehaus
Driehaus looks for stocks that possess three distinct criteria: objective fundamental (screens), subjective
fundamental (research), and security timeliness (momentum). They begin with a series of bottom-up screens used
to isolate potentially attractive investments. Screens are focused on identifying positive change via a combination
of sales/earnings improvements, as well as positive macroeconomic or technical developments.
Second, the team evaluates the companys business model and industry dynamics, and seeks to develop an
investment thesis predicated on the sustainability of growth and potential inefficiencies in investor expectations.
Lastly, Driehaus looks to buy good companies at the right time for the stock, and therefore timeliness is critical.
The team will use stock-specific and industry group technical screens to evaluate potentially timely stocks.
The influence of timeliness and technical analysis in the process results in very high portfolio turnover, typically
averaging 150-300% per year. The strategy typically holds between 60 to 90 stocks.


21
ITEM #2b

Investment Process (continued)

Oberweis
Oberweis investment process is focused on buying good businesses that display solid, improving fundamentals, at
a point when the market is in the early stages of recognizing the companys future potential. Idea generation
starts by screening the universe of international small cap stocks for significant earnings surprises and earnings
revisions.
Fundamental research is predicated on a rigid 16-step research process, focused on 18 key investment criteria.
These criteria include the source and sustainability of revenues, earnings strength and acceleration, margin
expansion, earnings quality, balance sheet fundamentals, industry prospects and competitive position, market
share expansion, as well as quality of management. The team then contrasts their own findings with current
consensus estimates, and identifies the areas of discrepancy.
Valuation is the final consideration as the share price must be trading at an attractive discount to the teams
estimate of NPV. The portfolio is constructed with roughly 50-100 stocks.
To prevent unintended macro exposures, Oberweis optimizes the portfolio monthly using two risk models from
Empirical Research Partners and StarMine Professional. Their portfolio optimization process focuses on portfolio
factor exposures, cross-correlation analysis, and ensures adequate diversification across countries and sectors.


22
ITEM #2b

Portfolio Characteristics
Advisory Research
Copper Rock
Driehaus
Oberweis
MSCI EAFE
Small Cap Index
Price-Earnings Ratio
12.2x
15.8
28.9x
20.5x1
17.3x
Price-Book Value Ratio
1.0x
2.3x
5.0x
2.4x
1.4x
8.8%
12%
19%
36%
11%
Weighted Average Market Cap
$2.8 bn
$2.4 bn
$3.4 bn
$3.3 bn
$2.2 bn
Median Market Cap
$1.8 bn
$1.9 bn
$3.0 bn
$2.6 bn
$0.9 bn
Number of Holdings
77
96
80
81
2,192
30-40%
70-100%
150-250%
150-200%
NA
21%
Historical Earnings Growth
Annual Expected Turnover Rate

Regional Allocation:
UK
13%
18%
9%
16%
Europe ex-UK
35
36
45
34
35
Japan
30
25
25
22
30
Asia ex-Japan
12
Canada
10
11
Emerging Markets
Other
10
Country Weightings
Japan
U.K.
Hong Kong
30%
13%
7%
Japan
U.K.
Germany
25%
18%
9%
Japan
Germany
Canada
25%
16%
10%
Japan
U.K.
Canada
22%
16%
11%
Japan
U.K.
Australia
30%
21%
6%
Sector Weightings
Financials
Materials
Industrials
29%
15%
14%
Industrials
Financials
Cons. Disc.
22%
20%
16%
Cons. Disc.
Financials
Info Tech
24%
20%
19%
Cons. Disc.
Industrials
Info Tech
20%
20%
19%
Financials
Industrials
Cons. Disc.
23%
22%
18%
% Portfolio in Top 5 / Top 10 holdings
12% / 23%
9% / 16%
13% / 24%
14% / 25%
2% / 3%
As of December 31, 2014.


23
ITEM #2b

Historical Performance (Gross of Fees)

Advisory
Research
Copper Rock
Driehaus
Oberweis
MSCI EAFE
Small Cap Index
Trailing Return
4.2
5.6
7.7
11.3
2.0
Best 3-Month Return
34.0
34.0
32.4
38.9
40.3
Worst 3-Month Return
-36.0
-38.6
-43.4
-52.1
-39.6
Standard Deviation
21.1
21.6
24.4
29.3
22.2
Tracking Error
5.3
5.3
9.7
10.8
NA
Beta
0.91
0.92
0.94
1.09
1.00
Correlation to Benchmark
0.97
0.97
0.90
0.91
NA
Upside Capture
95
104
113
147
NA
Downside Capture
90
92
91
101
NA
Sharpe Ratio
0.16
0.22
0.28
0.36
0.05
Information Ratio
0.40
0.66
0.56
0.79
NA
Common Period Performance:
Risk Measures:
Risk-Adjusted Performance:
Over the common period, all investment options have outperformed the MSCI EAFE Small Cap index, but with
varying degrees of portfolio volatility and tracking error.
Data shown is for the longest common period available, from February 2007 through January 2015. Source: eVestment Alliance.

24
ITEM #2b

Trailing and Calendar Year Performance (Gross of Fees)

Advisory
Research
Copper Rock
Driehaus
Oberweis
MSCI EAFE
Small Cap Index
1 year
0.6
4.9
0.2
-1.5
-3.3
3 years
12.2
15.8
11.9
24.4
10.9
5 years
10.5
11.2
12.4
20.1
8.9
NA
10.6
13.5
NA
5.8
5.8/4.0
13.2/9.8
18.6/8.8
11.3/2.0
NA
YTD 2015
-0.8
1.4
1.2
0.5
0.2
2014
-1.3
1.6
-2.4
-2.9
-4.9
2013
25.7
30.6
31.2
59.1
29.3
2012
23.6
23.4
13.3
33.5
20.0
2011
-12.2
-14.5
-9.5
-13.0
-15.9
2010
21.3
16.7
29.0
33.3
22.0
2009
34.7
43.4
57.0
64.6
46.8
2008
-41.4
-43.7
-52.9
-58.3
-47.0
2007
11.9
17.6
51.1
1.4
2006
16.8
40.9
35.3
19.3
26.0
37.7
26.2
Trailing Period Returns:
10 years
1
Since Strategy Inception (vs. Benchmark)

Calendar Year Returns:
2005
Inception dates: Advisory Research- January 2006, Copper Rock- April 2002, Driehaus- July 2001, Oberweis- February 2007. Source: eVestment Alliance.

25
ITEM #2b

Advisory Research has generated solid performance since inception, outperforming the index by 1.8%. The
strategys trailing period performance is strong as well, with the strategy outperforming the index over all trailing
periods. The strategy protected capital during the 2008 bear market, outperforming the index by 5.6%, and had
the strongest relative performance during that calendar year amongst the group. However, the strategy
subsequently underperformed both the index and the group during the market rally in 2009.
Copper Rocks relative returns have been strong over all trailing periods, but struggled to keep pace with the
index in 2009 and 2010. Since inception, the strategy has outperformed the index by 3.4%.
Despite underperformance in 2012, which was their worst calendar year relative return since inception,
Driehaus trailing returns are very strong and have meaningfully exceeded the index over all trailing periods.
Since inception, the strategy has outperformed the index by nearly 10% per year. With the notable exception of
2008, Driehaus has performed relatively well in down markets historically.
Oberweis trailing period performance exceeds both the index and the group by a wide margin over all trailing
periods. Since inception, the strategy has outperformed the index by 9.3% on an annualized basis. Although the
strategy outperformed the index in the 2011 down market by 2.9%, 2008 serves to illustrate just how volatile the
strategy could be, underperforming the index by 11.3%, with absolute performance of -58.3%.


26
ITEM #2b

Summary


27
ITEM #2b

Summary
There are a number of compelling implementation options for the Retirement System in the international small
cap space. Choosing the most appropriate option is largely a function of risk tolerance.
Oberweis has produced the most impressive track record of the finalist managers, on both an absolute and riskadjusted basis. The strategy, however, has proven to be one of the most volatile in the asset class.
Utilizing Oberweis as a standalone manager would require a truly long-term time horizon and willingness to ride
out the inevitable volatility.
Other potential options include pairing Oberweis with a complementary manager, or passively investing a portion
of the allocation.


28
ITEM #2b

Rolling Three-Year Period Performance (gross of fees)

Inception to January 31, 2015
Advisory
Driehaus
Copper Rock
Oberweis
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Advisory
Copper Rock
Driehaus
Oberweis
74
119
128
61
Jun-14
Dec-14
Jun-13
Dec-13
Dec-12
Jun-12
Jun-11
Dec-11
Jun-10
Dec-10
Dec-09
Jun-09
Jun-08
Dec-08
Jun-07
Dec-07
Dec-06
Jun-06
Jun-05
Dec-05
Jun-04
Total Periods
Dec-04
-5.0%
Periods
Outperformed
Percentage
(%)
Average Ann.
Excess Return
(%)
Maximum
(%)
Minimum
(%)
Range
(%)
67
89
120
52
91
75
94
85
1.7
4.1
8.6
8.0
6.2
14.0
26.6
15.7
-2.7
-2.8
-1.1
-2.1
8.9
16.8
27.7
17.8
Driehaus has the longest track record and has produced the most consistent rolling three-year excess returns, at
94%.

29
ITEM #2b

Rolling Period Excess Returns of a 50% Advisory/50% Oberweis Portfolio

1-Year
3-Year
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
Rolling 1-Year
Rolling 3-Year
85
61
72
54
Percentage
(%)
Average Ann.
Excess Return
(%)
Maximum
(%)
85
89
5.7
4.7
21.6
9.1
Jan-15
Sep-14
Jan-14
May-14
Sep-13
Jan-13
May-13
Sep-12
Jan-12
May-12
Sep-11
Jan-11
May-11
Sep-10
Jan-10
May-10
Sep-09
Jan-09
Periods
Outperformed
May-09
Sep-08
Jan-08
Total Periods
May-08
-15.0%
Minimum
(%)
-10.9
-0.5
Range
(%)
32.5
9.7
The common period excess return patterns of Advisory and Oberweis have complemented each other very well
historically, outperforming in 85% of rolling one-year periods and 89% of rolling three-year periods.
The monthly excess return correlation between Advisory and Oberweis illustrates how complementary their
excess return patterns have been, with a correlation of -0.18.

30
ITEM #2b

Rolling Period Excess Returns of a 50% Advisory/50% Driehaus Portfolio

1-Year
3-Year
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
Total Periods
Rolling 1-Year
Rolling 3-Year
85
61
Jan-15
Sep-14
May-14
Jan-14
Sep-13
Jan-13
May-13
Sep-12
May-12
Jan-12
Sep-11
Jan-11
May-11
Sep-10
May-10
Jan-10
Sep-09
Jan-09
May-09
Sep-08
May-08
Jan-08
-10.0%
Periods
Outperformed
Percentage
(%)
Average Ann.
Excess Return
(%)
Maximum
(%)
Minimum
(%)
Range
(%)
58
61
68
100
3.0
2.4
24.4
6.8
-7.3
0.2
31.8
6.6
The common period excess return patterns of Advisory and Driehaus have complemented each other fairly well
historically, outperforming in 68% of rolling one-year periods and 100% of rolling three-year periods.
The excess return correlation between Advisory and Driehaus has been very low, with a correlation of 0.08.

31
ITEM #2b

Rolling Period Excess Return of Blended Portfolio Summary
Total Periods
Periods
Outperformed
Percentage
(%)
Average Ann.
Excess Return
(%)
Maximum
(%)
Minimum
(%)
Range
(%)
50% Oberweis / 50% Advisory
85
72
85
5.7
21.6
-10.9
32.5
50% Oberweis / 50% Copper Rock
85
71
84
5.8
24.5
-15.0
39.6
50% Oberweis / 50% Driehaus
85
72
85
7.4
35.9
-18.0
53.8
50% Driehaus / 50% Advisory
85
58
68
3.0
24.4
-7.3
31.8
50% Driehaus / 50% Copper Rock
85
61
72
3.2
27.1
-10.1
37.1
50% Advisory / 50% Copper Rock
85
54
64
1.5
11.7
-10.3
22.0
Total Periods
Periods
Outperformed
Percentage
(%)
Average Ann.
Excess Return
(%)
Maximum
(%)
Minimum
(%)
Range
(%)
50% Oberweis / 50% Advisory
61
54
89
4.7
9.1
-0.5
9.7
50% Oberweis / 50% Copper Rock
61
50
82
4.7
9.7
-2.1
11.8
50% Oberweis / 50% Driehaus
61
59
97
5.8
11.5
-0.5
12.0
50% Driehaus / 50% Advisory
61
61
100
2.4
6.8
0.2
6.6
50% Driehaus / 50% Copper Rock
61
57
93
2.4
7.7
-0.4
8.1
50% Advisory / 50% Copper Rock
61
48
79
1.3
4.4
-2.5
6.9
Rolling 1-Year
Rolling 3-Year


32
ITEM #2b

Monthly Excess Return Correlations

Advisory
Research
Copper Rock
Driehaus
Advisory Research
1.00
Copper Rock
0.18
1.00
Driehaus
0.08
0.53
1.00
Oberweis
-0.18
0.45
0.59
Oberweis
1.00
Advisory Research and Oberweis have displayed the lowest monthly excess return correlation among the
investment options. Therefore, these managers have displayed the most complementary monthly excess return
patterns over the common period.
Driehaus and Oberweis have displayed the highest monthly excess return correlation among the investment
options. Therefore, these managers have displayed the least complementary monthly excess return patterns over
the common period.


33
ITEM #2b

Manager Comparison Summary

Advisory Research
Organization
Investment Team
Investment Philosophy
Copper Rock
Wholly-owned subsidiary of
Piper Jaffray (NYSE: PJC).
Joint ownership between

Old Mutual and firm
employees.
Oberweis
100% employee-owned firm.
100% employee-owned firm.
$10
billion
under
management.
Displayed
willingness to close strategies
at conservative asset levels.
$1.5
billion
under
management, with majority
of assets in International
Opportunities strategy.
Roughly $11 billion in assets

across
a
spectrum
of
value-oriented
investment
strategies.
$3.1
billion
under
management, focused on
small cap equities.
Dedicated investment team

with
three
portfolio
managers and four analysts.
Four portfolio managers and

two analysts manage the
strategy.
Three portfolio managers

supported by group of shared
global analysts.
Dedicated team with an

experienced
portfolio
manager.
Portfolio managers average

10 years experience.
Portfolio managers average

30 years experience.
Lead portfolio manager has

spent entire career at
Driehaus.
Team
includes
dedicated analysts.
Long-term,
conservative,
value-oriented.
Growth-oriented.
Aggressive growth-oriented.
Aggressive growth-oriented.
Focused on best-of-class
companies at an early point
in their growth cycle.
Uses
combination
of
long-term fundamentals and
short-term momentum.
Focuses on behavioral and

information
asymmetry
inefficiencies.
Bottom-up
approach.
Bottom-up
fundamental
approach that is cognizant of
short-term momentum.
Bottom-up
fundamental
approach. Look for quality,
earnings surprises/revisions,
and reasonable price.
Focused on value stocks

with a discernable catalyst.
Investment Process
Driehaus
Bottom-up
fundamental
approach focused on capital
preservation.
Benchmark-agnostic,
~60-80 stocks.
turnover.
with
Low
fundamental
~90
securities
annual turnover.
~80%
Relatively
concentrated
portfolio with high turnover.
three
High active share. ~50-100

stocks.


34
ITEM #2b

Appendix


35
ITEM #2b

Fees and Terms

Advisory Research
Copper Rock
Driehaus
Oberweis
International Small Cap Value
International Small Cap Growth
International Opportunities
Commingled Fund
Commingled Fund
Separate Account
Separate Account or Mutual Fund
Minimum Account Size
$0.5 million
$1 million (CF)
$1 million
$50 million (SA) /

$1 million (MF)
Liquidity (e.g. daily, monthly, etc.)
Monthly (CF)
Monthly (CF)
Daily (SA)
Daily (SA) / Daily (MF)
1.00% on first $20mm,

0.80% thereafter
0.95% on all assets
1.00% on all assets
1.00% on first $50mm,

0.90% on next $50mm,
0.80% thereafter (SA) /
1.10 % on all assets (MF)
0.96% on all assets
0.95% on all assets
1.00%1
1.00% (SA) 1/
1.10% on all assets (MF)
53rd (CF)
42nd (CF)
56th (SA)
56th (SA) / 35th (MF)
Vehicle Name
Proposed Investment Vehicle
Fee Schedule
Effective Fee on $25 million

Peer Group Percentile Ranking
Potential Advantages of a Commingled Fund

Less time required to establish initial legal contracts
Lower overhead costs associated with accounting and custody
Less custody administration (e.g. setting up custody accounts in each country of investment)
Pooling of assets may (and currently would) provide transaction cost savings, including a cap on expenses
Does not include other expenses, such as custody, audit & administration fees.

36
ITEM #2b

Glossary
Downside Deviation: Similar to standard deviation, it is a measure of downside risk that focuses on returns that fall below a minimum threshold or
minimum acceptable return (MAR).
Effective Duration: Measure of the sensitivity of the price of a bond to a change in its yield to maturity, taking into account embedded options. Duration
summarizes, in a single number, the characteristics that cause bond prices to change in response to a change in interest rates. For example, the price of a
bond with a duration of three years will rise by approximately 3% for each 1% decrease in its yield to maturity. Conversely, the price will decrease 3% for
each 1% increase in the bonds yield. Price changes for two different bonds can be compared using duration. A bond with a duration of six years will
exhibit twice the percentage price change of a bond with a three-year duration. The actual calculation of a bonds duration is somewhat complicated, but
the idea behind the calculation is straightforward. The first step is to measure the time interval until receipt for each cash flow (coupon and principal
payments) from a bond. The second step is to compute a weighted average of these time intervals. Each time interval is measured by the present value of
that cash flow. This weighted average is the duration of the bond measured in years.
Hard Currency: A currency, usually from a highly industrialized country, that is widely accepted around the world as a form of payment for goods and
services. A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex market. For the
purposes of this document, hard currency includes only the U.S. Dollar.
Information Ratio: This statistic is a measure of the consistency of a portfolios performance relative to a benchmark. It is calculated by subtracting the
benchmark return from the portfolio return (excess return), and dividing the resulting excess return by the standard deviation (volatility) of this excess
return. A positive information ratio indicates outperformance versus the benchmark, and the higher the information ratio, the more consistent the
outperformance.
Maturity: The date on which a loan, bond, mortgage or other debt/security becomes due and is to be paid off.
Sharpe Ratio: A measure of risk-adjusted return, calculated by subtracting the risk-free rate (e.g. U.S. Treasury) from a portfolio return, divided by the
portfolios standard deviation.
Tracking Error: A divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark, as defined by the difference
in standard deviation.
Yield to Worst: The lowest potential yield that can be received on a bond without the issuer actually defaulting. The yield to worst is calculated by making
worst-case scenario assumptions on the issue by calculating the returns that would be received if provisions, including prepayment, call or sinking fund, are
used by the issuer.


37
ITEM #2b

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4.

San Jose Federated City Employees Retirement System

5796 ARMADA DRIVE SUITE 110 CARLSBAD CA 92008

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

1. International Small Cap Equity Manager Universe Review

International Small Cap

Prepared by Meketa Investment Group

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

International Small Cap Equity Manager Universe Review

International Small Cap

Prepared by Meketa Investment Group

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

Investment Strategy Offerings

International Small Cap

Prepared by Meketa Investment Group

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

Manager Due Diligence Process Review

International Small Cap

Prepared by Meketa Investment Group

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

Manager Due Diligence Process Introduction

When selecting prospective active

International Small Cap

Prepared by Meketa Investment Group

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

Manager Evaluation Criteria

International Small Cap

Prepared by Meketa Investment Group

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

Manager Evaluation Criteria (continued)

Prepared by Meketa Investment Group

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

Manager Evaluation Criteria (continued)

International Small Cap

Prepared by Meketa Investment Group

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

Manager Evaluation Criteria (continued)

International Small Cap

Prepared by Meketa Investment Group

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

Manager Evaluation Criteria (continued)

International Small Cap

Prepared by Meketa Investment Group

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

Manager Evaluation Criteria (continued)

International Small Cap

Prepared by Meketa Investment Group

San Jose Federated City Employees Retirement System

International Small Cap Equity Manager Search

Semifinalist Manager Review

International Small Cap