Suffolk County Council
First Quarter 2008 Current Strategy Review
April 25, 2008
Nicholas Davidson
Senior Portfolio Manager
Les Komaromy
Director — Client Relations and Servicing
Institutional Investments
Jenny Segal
Director — Client Relations
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Your Agenda and Team
Nicholas Davidson
 Your Mandate
 Senior Portfolio Manager, Bernstein Value Equities
 Member UK, European Investment Policy Groups
 Performance Review
 21 years’ professional experience
Les Komaromy
 Portfolio Strategy
 Director - Client Relations
 30 years’ industry experience
Jenny Segal
 Actuary with pensions and investment consulting experience
 17 years’ industry experience
Bernstein Value Equities
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Your Mandate
Mandate Size:
As of 13 June 2005
As of 31 March 2008
Benchmark:
FTSE All-Share
Premium Target:
1.5% to 2% annualized above benchmark over full market cycle
Risk Target:
Tracking error of 3% to 5%
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£130 million
£174 million
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Our Philosophy
Long-Term
Earnings Power
Investment
Controversy
Profits &
Stock Price
Decline
Which?
Research
Conclusion
 Based on enduring patterns of human behaviour...

Loss aversion

Over-reaction to short-term events
 …and economic behaviour
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
Mean reversion of returns

Cash flow ultimately determines value
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Suffolk County Council: Performance Summary
In Sterling
Q1
2008
Six
Months
Suffolk County Council
(9.9)%
(12.5)%
FTSE All-Share
(9.9)
(10.2)
Relative Performance
(0.0)%
(2.3)%
Periods Ended March 31, 2008
Since
One Year
Inception*
(10.9)%
8.6%
(7.7)
8.9
(3.1)%
(0.3)%
*Inception date: 133-00295 Suffolk County Council – June 10, 2005
Periods of more than one year are annualized. Numbers may not sum due to rounding. Past performance is no guarantee of future results. The returns presented above are gross of fees. The
results do not reflect the deduction of investment-management fees; the client’s return will be reduced by the management fees and any other expenses incurred in the management of its account.
For example, a £100 million account, paying a 0.50% annual fee, with a given rate of 10% compounded over a 10-year period would result in a net-of-fee return of 9.5%.
Source: FTSE and Bernstein; see Performance Disclosure.
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First-Quarter 2008: Returns Spread Out Across Several Sectors
Detractors
 Fears of a UK consumer slowdown hurt pub
companies, while some financials suffered
from fears of more credit losses
Consumer Cyclicals
Energy
 Punch Taverns
 Royal Dutch Shell
 Marston’s
 BG*
Financials
 Royal Bank of Scotland
 HBOS
 HSBC**
Contributors
 But other financials contributed to
performance. Strong demand from emerging
markets ensured that industrial commodities
stocks fared better than the broader market
Industrial Commodities
Utilities
 ArcelorMittal
 British Energy
 Rio Tinto
Energy
Financials
 StatoilHydro
 Catlin
 Lloyds TSB
 Barclays
*Not held
**Underweight position
Based on Suffolk County Council UK Value Plus account
Source: FTSE and Bernstein; see Disclosures and Important Information.
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One Year: Global Credit Crisis Drives Underperformance
Detractors
 Financials and pub companies suffered from
the effects of the credit crisis
Financials
Consumer Cyclicals
 Royal Bank of Scotland
 Punch Taverns
 HBOS
 Mitchells & Butlers
 Barclays
Construction & Housing
 Taylor Wimpey
Contributors
 Strong demand from emerging markets
helped industrial commodities stocks
Industrial Commodities
Utilities
 Rio Tinto
 British Energy
 ArcelorMittal
Telecommunications
 Antofagasta
 Vodafone
*Not held
**Underweight position
Based on Suffolk County Council UK Value Plus account
Source: FTSE and Bernstein; see Disclosures and Important Information.
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Portfolio Strategy: Responding to Evolving Opportunities
New Opportunities
Trimmed
Price to 2008E
Earnings
Consumer Cyclicals
Yell Group
 Stock pressured by exaggerated concern
about advertising recession
G4S
 Market leader in fragmented industry
3.8×
14.6
Consumer Staples
Unilever
Consumer Cyclicals
Marston’s
Construction & Housing
Industrial Commodities
 Well positioned to ride out housing slowdown
7.3
 New projects coming online
8.9
Prudential
 Potential listing of Asian business could unlock
value
8.3
HBOS
 Stock pressured by financial-market turmoil
5.6
Persimmon
Rio Tinto
Energy
StatoilHydro
Financials
10.9×
As of March 31, 2008
Based on Suffolk County Council UK Value Plus account
Source: MSCI, Thomson I/B/E/S and Bernstein; see Disclosures and Important Information.
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Persimmon: Putting the Housing Downturn Into Perspective
UK House Prices are Poised to Fall
Index
 UK house prices have surged beyond income
gains, suggesting that mortgage payments are
unsustainable and a collapse is imminent
6
5
4
3
2
1
0
Index = Real House Price
Disposable Income Trend*
72
78
84
90
96
02
08E
 But the internal dynamics of household spending
are a better barometer of how far prices are
stretched. Our research suggests more moderate
house price declines than doomsday forecasts
Share of Household
Disposable Income (%)
Household Budgets Can Absorb High House Prices**
Total
Average
80
60
Housing
40
20
Other Necessities
0
96
98
00
02
04
06
08E
10E
12E
Price/Forward Earnings 2008 Discount
 With good defensive characteristics to ride out a
slowdown, Persimmon’s shares look attractively
valued
7.3×
Persimmon
8.7×
10.9×
UK Homebuilders FTSE All Share
As of March 31, 2008
Average
*As of December 31, 2007. Trend in real disposable income per household since 1970
**Necessities exclude motoring and leisure goods and services.
Source: Datastream, Department of Communities and Local Government, Family Spending Survey/Office of National Statistics, FTSE, Halifax, Nationwide and Bernstein
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Bank Valuations Are Attractive, Even Under Extreme Stress
HBOS: Credit Losses*
 Our forecast assumes worse losses than during
the 1990s crisis
Basis Points
150
P/E (2008)
5.6×
100
50
0
91
93
95
97 99 01
UK Banks
03 05 07 09
HBOS Model
11
Medium- and Long-Term Debt Funding**
1Q:07
Lloyds TSB
1Q:08
RBS
 Concerns of a fatal liquidity squeeze appear to be
overdone
Barclays
HBOS
0
5
£ in Billions
10
15
UK Banks’ Price/Book Value
2.0×
 Bank valuations remain depressed
As of March 31, 2008
*Credit losses are impairments as a percentage of loans and advances on all mortgage and
commercial loans. Historical losses based on industry loss rates averaged using current HBOS loanbook weights; forecast losses are for HBOS.
**Excluding short-term money market instruments. ***FTSE UK Banks Index
Source: Company reports and Bernstein
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1.3×
1.3×
Barclays
UK Banks***
1.0×
0.6×
Royal Bank
of Scotland
HBOS
FTSE All
Share Index
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Non-UK Holdings
Stock Name
Country
Sector
ArcelorMittal
Netherlands
Industrial Commodities
1.3%
ING Groep
Netherlands
Finance
1.2
StatoilHydro
Norway
Energy
1.1
BASF
Germany
Industrial Commodities
1.0
Allianz
Germany
Finance
0.7
Greencore
Ireland
Consumer Staples
0.6
Dow Chemical
United States
Industrial Commodities
0.6
Renault
France
Capital Equipment
0.6
Total
Suffolk County Council
Weight (%)
7.0%*
As of March 31, 2008
*May not sum due to rounding
Based on Suffolk County Council UK Value Plus account
Source: Bernstein. See Stock Examples Disclosure.
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Our Portfolio: Attractive Valuations and Solid Profitability
Price/Earnings
Price/Book
Return on Equity
Current*
2008E
10.9×
17.6%
17.3%
Suffolk County
Council
FTSE All-Share
2.0×
8.6×
1.5×
Suffolk County
Council
FTSE All-Share
Suffolk County
Council
FTSE All-Share
As of March 31, 2008
Based on Suffolk County Council UK Value Plus account
*Based on PB/PE
Source: FTSE and Bernstein
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Appendix
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Suffolk County Council: Stock and Sector Weights
Largest Stock
Largest Sector
Overweights
Overweights & Underweights
HBOS
2.9%
Finance
+5.0%
Barclays
2.8
Energy
+2.0
Royal Bank of Scotland
2.5
Industrial Commodities
+1.3
Royal Dutch Shell
2.5
Transportation
+0.8
BP
1.7
Telecommunications
-0.4
British Energy Group
1.7
Utilities
-0.5
AVIVA
1.4
Capital Equipment
-0.7
Lloyds
1.4
Technology/Electronics
-1.2
Antofagasta
1.3
Construction & Housing
-1.8
ArcelorMittal
1.3
Consumer Staples
-4.1
Relative Position Limits
±3%
Relative Position Limits
±7%
As of March 31, 2008
Based on Suffolk County Council UK Value Plus account versus FTSE All-Share.
Source: FactSet, FTSE and Bernstein; see Disclosures and Important Information.
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Sector Weights: Modest Tilts Versus Benchmark
Sector Weights
December 31, 2007
Active Weight (%)
Finance
0.0
0.2
(1.5)
Telecommunications
(0.3)
(0.4)
0.2
(0.5)
(1.3)
Capital Equipment
Consumer Staples
0.8
0.9
Medical
Construction & Housing
1.3
5.0
Transportation
Technology/Electronics
1.9
0.8
Industrial Commodities
Utilities
5.0
2.0
Energy
Consumer Cyclicals
March 31, 2008
Active Weight (%)
(0.7)
(0.4)
(1.2)
(1.2)
(1.8)
(2.3)
(2.1)
(4.1)
As of March 31, 2008
The portfolio allocation excludes cash unless otherwise shown. Based on Suffolk County Council UK Value Plus account.
Source: FTSE and Bernstein
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