State Treasurer Chip Flowers Releases Independent Report

Press Release Issued by Delaware State Treasury

Delaware State Treasury Releases Investment Consultant’s Independent Report on State Investment Portfolio
Credit Suisse Presents Objective View of Historical Performance, Recommends Changes

DOVER, DE — Delaware State Treasurer Chip Flowers today released an independent report (the “Report”) on the State of Delaware‟s investment portfolio (the “Portfolio”), invested by the Treasury pursuant to certain guidelines adopted by the State‟s Cash Management Policy Board (the “Board”). The extensive 60-page Report conducted by Credit Suisse Securities (USA) LLC (“Credit Suisse”) presents an objective view of the risk and performance of the Portfolio and the State‟s investment managers, from a historical and state-by-state comparison. The Report also provides a number of substantive recommendations for (i) improving returns of the Portfolio while maintaining or reducing the current level of risk and (ii) addressing potential shortcomings in the Portfolio.

In short, from a historical perspective, the Report found that while the Portfolio performed close to certain benchmarks over the past seven (7) years, there was an overall decline in absolute (and in some cases, relative) performance of the Portfolio in recent years. Though a portion of the Portfolio‟s decline was attributable in part to market conditions, the Report found structural issues that can be addressed to optimize the Portfolio. Further, compared to other states similar in size of invested funds and/or “AAA” credit rating, Delaware‟s Portfolio ranked below the average and median in overall performance over the last five (5) years.

Other areas highlighted in the Report are as follows: (i) the need for benchmarking with improved risk management and performance criteria; (ii) the lack of specific guidelines issued to the State‟s investment managers; (iii) the lack of ability to adapt the asset allocation to achieve higher potential returns without increased risk; and (iv) the need for improvement in transparency and disclosure practices surrounding the Portfolio. The Report provides recommendations for incremental changes to the State‟s current investment policy to allow for a more efficient Portfolio structure with the potential to access higher returns at a lower or similar level of risk. In addition, the Report suggests asset allocation targets, risk management policies and the adoption of criteria to allow for the open and competitive selection and monitoring of the State‟s investment managers to execute such strategy.

“This independent report provides further evidence beyond the Delaware State Treasury‟s public reports and analysis that there are structural issues with the State‟s investment portfolio that need to be addressed. We are pleased that Credit Suisse diligently evaluated all aspects of the State‟s portfolio with regards to performance, investment objectives and optimal asset allocation and the report provides significant and concrete recommendations for change. Many of the findings and recommendations outlined in the Report align with the concerns and suggestions previously expressed by the Treasury. While the Treasury‟s multiphase plan has substantially improved the performance of the portfolio over the past year, we are now at a point where action is required by the Governor, his Administration and the Cash Management Policy Board to support the recommendations of the independent report. In these challenging fiscal times, the recommendations of this report will enable the State to potentially achieve a higher level of return by maintaining or some in cases, reducing our risk exposure.” State Treasurer Chip Flowers stated.

Treasurer Flowers further stated, “We look forward to a productive analysis and discussion of the report with the Governor, his Administration and the Board and are hopeful that these incremental changes will be implemented in a timely fashion. As Credit Suisse notes in the report, the safety and stability of public credit funds is instrumental to the financial health of the State of Delaware.‟ It is the Treasury‟s hope that this report will inspire action on this important issue so we can best manage our state funds in a manner that best serves the People of the State of Delaware.”

In the interest of transparency and full disclosure, the Report is available in full on the Treasury‟s website (treasury.delaware.gov). The Treasury has also separated the Report by topic and included graphs and charts on its website to assist Delawareans in the analysis and review of the Report‟s findings.

For more information on the Delaware State Treasury, you can visit www.treasury.delaware.gov, send an email to statetreasurer@state.de.us, or call 302-672-6700. Information about Credit Suisse can be found at www.credit-suisse.com.

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