Q:  What is your investment philosophy? A: Vantagepoint Investment Advisers manages its funds on a multiple manager basis to achieve a better return with lower volatility over long periods of time. Every one of our funds has subadvisers including some of the best investors in their fields. We combine outside subadvisers who have strong processes, philosophies, and performance, but low correlations to one another. Q:  What are the advantages of the multi-managed approach? A: Even the best investment minds are going to have times when they may not be performing well. The key to building successful funds is finding managers that have the ability to add value over a benchmark over long periods of time. We combine them so that when one may be out of favor, the others are experiencing a great stretch of performance, which will balance out the fund’s total rate of return and enhance risk-adjusted returns. Q:  How do you select these managers? A: On the equity side we start with a universe of over 2,000 managers. We winnow that down based on a number of factors. First, we consider whether they have a disciplined approach to managing an investment portfolio and whether that has resulted in strong performance over long periods of time. We try to understand their process and philosophy and stay with them for long periods of time so you’ll see relatively low turnover. We focus on the factors that we believe produce great future performance. Q:  What are the philosophies of your sub-advisors and how do they not overlap? A: There are four managers subadvising the Aggressive Opportunities Fund. The asset allocation currently is 33 percent at T Rowe Price, Southeastern Asset Management has 17 percent and Times Square and Legg Mason both have 25 percent. Jack LaPorte at T Rowe Price Associates believes he will achieve superior long term performance by investing in the fastest growing small cap companies in the U.S. early in their corporate life cycles and holding on to them for long periods of time to allow their earnings to compound at above average rates. He’s looking at very small companies. The stocks need to exhibit earnings or cash flow growth that exceeds 15 percent and enjoys a positive industry environment. The portfolio holdings are typically diversified and include between 65 and 85 stocks. The turnover is low. His benchmark is the Russell 2000. The Southeastern Asset Management team, led by Mason Hawkins and Staley Gates, is a well-known and seasoned asset manager. The group pursues superior long-term performance by investing worldwide in companies with strong balance sheets, well-managed companies whose stock prices are significantly below their business values. The team is a great diversifier when combined with the other more aggressive strategies in the Fund. So, in Aggressive Opportunities, T Rowe Price is essentially an emerging growth manager focusing in the small growth space and Southeastern is much more value oriented, investing up to 20 percent of the portfolio in mid- to large- cap companies outside the U.S. They represent opposite ends of the spectrum. We added two new managers this year. One of them is Times Square Capital Management, led by Tony Rosenthal who invests in classic mid-cap growth companies. They utilize a traditional bottom up research method and augment it with quantitative screens. It’s very much a fundamental analysis. They focus on mid-cap companies - $1.5 to $10 billion with at least 15 percent sales growth. Times Square spends a lot of time conducting on-site evaluations of management and production facilities. The fourth and final group running assets for Aggressive Opportunities is Legg Mason Capital Management, led by Sam Peters investing in “opportunistic growth.” The opportunistic growth investments consist of between 30 and 50 stocks that trade at large discounts to their intrinsic business value. Legg Mason looks at companies offering the best opportunity for the highest long-term risk-adjusted returns. The securities identified by their investment process as having the great est expected return are determined by describing probabilities to multiple estimates of the company’s future revenue growth, profit margins, capital intensity. They stress-test their theories to make sure that the companies they invest in are those that have great intrinsic business value and the ability to grow at dramatic rates over a 3 to 5 year period of time. They employ a Warren Buffet-like approach to buying businesses and sticking with them. So, we have four great managers, each with a unique process and philosophy to help us meet our long-term objective of having much higher risk-adjusted returns than the Russell Mid Cap Growth Index. Q:  What is the process you employ in monitoring and selecting managers? A: We don’t have a formal requirement given our long-term orientation and the understanding that when you undertake manager changes there’s always a cost. We like to do a very indepth quantitative and qualitative analysis of subadvisers and, once we find those we have confidence in, we tend to stay with them for long periods of time. We use a number of quantitative sources and tools internally. We have a staff of 17 investment professionals at Vantagepoint Investment Advisers. Each one of them is tracking a particular fund or sector and it’s their responsibility to make sure they know the managers that would potentially be a consideration for us. We invite those managers into our offices to talk about the process and philosophy. The initial interviews will last anywhere from an hour to an hour and a half. Second interviews last double that amount of time. If they continue to make it through the screening process, we make on-site visits to finalist candidates and spend anywhere from three to five hours in their offices looking at all facets of the investment manager process. We look at the trading facilities and how trading is handled within the firm. We look at the organizational structure. There are many components but at the end of the day we also make judgment calls. Q:  You allocate money to the fund manager on a long-term basis. How long is that period? A: We’re going to hold on to these great managers as long as the process and philosophy remains intact and the right people continue to be responsible for the assets under management. If people leave or as organizations grow too big or other factors impede the ability of these firms to maintain the special qualities that we’ve identified, we have the diligence and methodology to replace a manager when required. In most cases, replacement of the manager isn’t a performance driven decision - it’s more a decision to change something about the way the firm is managing the portfolio. Straying from the established process and philosophy, or the loss of key investment individuals, tend to be the biggest reasons we make changes. We like to replace managers before they under perform, not after. Q:  What kind of risks do you monitor and how do you try to mitigate them? A: The risks that we monitor are multi-dimensional. We’re watching at the manager level how the firms are managing their businesses. When you have multiple subadvisers, you have an extra level of detail that you have to pay attention to. We look at what the volatility in the portfolios is versus the return over 1-, 3- and 5-year periods of time. We look at the quantitative statistics in the portfolio and we try to understand what the statistics are relative to the relevant benchmark, which, in the case of Aggressive Opportunities, is the Russell Mid Cap Growth Index. We do a lot of work each month to identify how these portfolios are performing and whether are they in line with our expectations. In addition, we look at the risks associated with trading individual securities in the portfolio. We watch in real time as the portfolio trades occur and make sure that our trading costs are reasonable and in line with our expectations. Execution is very important in terms of our ability to help manage the process. Better execution means lower expenses and, hopefully over long periods of time, equals higher returns for our investors. We try to keep our expenses low and mitigate any activities that may either inhibit our ability to increase the level of return. One of the things we pride ourselves on is looking at how our portfolios perform - not only to the benchmark but also relative to our peer groups. We also take into account volatility and returns of our peer groups when we’re looking at the level of success that we hope to achieve.