INVESTMENT COMMITTEE MEETING SENATOR FABIAN CHAVEZ …s3.amazonaws.com/boardaudio/November 12, 2019...
Transcript of INVESTMENT COMMITTEE MEETING SENATOR FABIAN CHAVEZ …s3.amazonaws.com/boardaudio/November 12, 2019...
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INVESTMENT COMMITTEE MEETING SENATOR FABIAN CHAVEZ JR. BOARD ROOM
PERA BUILDING
November 12, 2019 at 9:00am MT
COMMITTEE MEMBERS John Melia, Chair Steve Neel, Vice Chair Dan Mayfield Loretta Naranjo-Lopez Shirley Ragin
AGENDA
1. Roll Call2. Approval of Agenda3. Approval of Consent Agenda4. Current Business
ITEM PRESENTER
A Information Item: Performance Update
1. CIO Update2. Quarterly Market Review3. Quarterly Performance Review
Dominic Garcia Chief Investment Officer
Thomas Toth Managing Director, Wilshire
B Information Item: Quarterly Staff Consultant Report (Real Assets)
Kristin Varela Deputy Chief Investment Officer
Heather Christopher, Head of Real Estate, Albourne
Mark White, Head of Real Assets, Albourne
C Information Item: Internal Investment Process Enhancement- Monitoring
LeAnn Larranaga-Ruffy, Co-Head Alpha
Joaquin Lujan, Co-Head Alpha
Frank Mihail, Jr. Portfolio Manager
D Information Item: Benchmarks Review Thomas Toth Managing Director, Wilshire
E Information Item: Investment Division Updates
1. Cash Plan & Rebalance Update(July, August, September 2019)
2. Manager Selection Activity Report3. Securities Lending Update (Q3 2019)
Kristin Varela
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5. Adjournment
Consent Agenda
Approval of minutes of August 29, 2019 Investments Committee meeting.
Any person with a disability who is in need of a reader, amplifier, qualified sign language interpreter, or any other form of auxiliary aid or service to attend or participate in the hearing or meeting, please contact Trish Winter at (505) 476-9305 at least one week prior to the meeting, or as soon as possible. Public documents, including the agenda and minutes, can be provided in various accessible formats. Please contact Trish Winter if a summary or other type of accessible format is needed.
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Chief Investment Officer’s Update
November 12, 2019
Dominic Garcia, Chief Investment Officer
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Slide 2
PERA Long-Term Investment Objectives Scorecard
PERA Investment Objectives Actual Results
Maintain appropriate strategic asset allocation to meet the actuarial discount rate assumption over the long run
Exceeded actuarial hurdle rates for 3 years, 10 years, 30 years, and since data inception (1985)
Meet 10-Year annualized returns to equal or exceed benchmarks
Exceeded Passive “Reference” Portfolio & Internal Benchmarks for 3, 10, 20, 30 years, and since data inception (1985)
For 10 years, PERA produced approximately $1.5 billion in value add over Passive “Reference” Portfolio
Achieve a total investment cost at or below a benchmark cost relative to peers adjusted for fund size and asset mix.
Compared to 317 Global funds (162 U.S. Pension funds, 74 Canadian funds, 70 European funds, 8 Asia-Pacific funds), PERA is low cost and saved approximately $1.7m in fees and costs.
As of 9/30/2019
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Slide 3
Stra
tegi
c Dir
ectio
n1. Reference Portfolio
Set Risk Tolerance@ 10.5% Risk
2. Strategic Asset Allocation
Diversified Systematic (“Beta”) Risk/Return
3. Risk Budget
Illiquid Active Implementation
Liquid Active Structure Allocation
Liquid Active Manager Selection
4. Benchmarks Evaluate Results
IC and Board Investment Strategic Governance: Four Main Decision Points
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Slide 4
PERA Current Total Risk Budget
Reference Portfolio
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
9.00 9.50 10.00 10.50 11.00
Expe
cted
Ret
urn
Expected Risk
10 Year Portfolio Expectations Comparison
Source: Wilshire 10 Year capital market expectations as of 3/31/2019
Total Expected Value Add
1.4%
Expected Value Add Over the Reference Portfolio
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Slide 5
Market Beta Risk
AllocationSelection
• Risk and Return Coming from Passive Asset Allocation
• Risk and Return Coming from Active Allocation to Private Assets
• 10 Year Expected Active Risk = 1.40%
• Risk and Return Coming from Active Allocation to Liquid Strategies
• 10 Year Expected Active Risk = 0.60%
Active Risk = 1.5%, +/- 0.5%
Passive Risk = 9.90%
Total Risk = 10.5%
Risk Budget 2019
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Slide 6
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Passive + Risk Balance + Private Assets + Active = Total
5.60% 5.60%
0.40% 0.40%
0.60% 0.60%
0.40% 0.40%
10 Year Targeted Expected Returns
Passive Reference Portfolio Risk Balance Diversified Private Assets Active Management
7.00%
Strategy #1:Improved Risk Diversification
Beta Risk Budget
Strategy #2: Private Asset Allocation
Allocation RiskBudget
Strategy #3:Selective ActiveManagement
Selection RiskBudget
ValueAdd
Bridging the Return Gap
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Slide 7
Reference Portfolio & Total Risk Budget Active Risk
Absolute Risk Tolerance: Beta + Active Risk = 10.5% Tracking Error 1.5% +/- 0.50%
1 year 6.9% 3.14%
3 year 4.82% 2.09%
5 year 5.56% 1.91%
10 year 7.59% 1.52%
• Realized total risk has been well below 10.5% risk tolerance.
• Why is TE over 2% in short time frames? A: lagging effect in private markets vs. public market benchmarks
Are We Staying Within Our Risk Tolerance?
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Slide 8
TE = 1.52%
Active Return
Tracking Error and Active Return Over Time
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Slide 9
What’s Ahead?
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W i l s h i r e C o n s u l t i n g
WILSHIRE ASSOCIATES
November 2019
Thomas Toth, CFA
Q u a r t e r l y M a r k e t R e v i e w
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©2019 Wilshire Associates. 2
Designed to review the current market environment, propose thought-leading investment strategies, and provide networking opportunities for our clients.
W i l s h i r e C o n s u l t i n g
YOU’RE INVITED!
The Ritz-CarltonMarina del Rey, California
38th Annual Client ConferenceS u n d a y, A p r i l 5 t h – Tu e s d a y, A p r i l 7 t h
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©2019 Wilshire Associates. 3
• Weighted average of 85 monthly indicators including 1) production and income, 2) employment, 3) consumption and housing and 4) sales, orders, and inventories (all inflation adjusted)
• Aims to identify when a recession may begin (during periods of growth) or end (when already experiencing a recession)
W i l s h i r e C o n s u l t i n g
NATIONAL ACTIVITY INDEX
Data sources: Federal Reserve
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50CHICAGO FED NATIONAL ACTIVITY INDEX (3M MA)
Increasing likelihood that a recession has begun
Significant likelihood that a recession has ended
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©2019 Wilshire Associates. 4
Text
W i l s h i r e C o n s u l t i n g
RISK MONITOR
Data sources: Federal Reserve, Bloomberg Barclays
Text
Text Text
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
10-Y
ear
Trea
sury
-3-
Mon
th T
Bill
(%)
YIELD CURVE SLOPE VS RECESSIONS (IN GRAY)
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Opt
ions
Adj
uste
d Sp
read
(%
)
BLOOMBERG BARCLAYS CREDIT INDEXES
Investment Grade
High Yield
< — Investment Grade High Yield — >
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Mar
ket
Stre
ss R
elat
ive
to A
vera
ge (
Zero
)
ST. LOUIS FED FINANCIAL STRESS INDEX
Constructed from seven interest rate series, six yield spreads and five other financial stress indicators.0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
30-D
ay E
xpec
ted
Vola
tility
(%
)
CBOE VOLATILITY INDEX
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©2019 Wilshire Associates. 5
Wi l s h i r e C o n s u l t i n g
GROWTH
• Globally, economic growth has slowed as trade concerns have impacted manufacturing
investment.
• U.S consumption is healthy, though the most recent read on consumer spending
unexpectedly fell.
• Wage growth has improved while inflation remains contained and unemployment is
low.
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©2019 Wilshire Associates. 6
• Earnings growth in the U.S. has moderated for calendar year 2019 after two strong years in 2017-2018.
• Earnings slowdown combined with elevated valuations represents a risk to equity prices.
W i l s h i r e C o n s u l t i n g
EARNINGS EXPECTATIONS
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©2019 Wilshire Associates. 7
• Federal Reserve decreased their short-term rate twice during the 3rd quarter
• Markets are far more dovish, expecting additional decreases this year and next
W i l s h i r e C o n s u l t i n g
SHORT-TERM RATES
Data sources: Federal Reserve, Bloomberg
0.00
0.50
1.00
1.50
2.00
2.50
3.00FEDERAL FUNDS RATE (%)
Effective Rate FOMC year-end est. Market expectations
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©2019 Wilshire Associates. 8
W i l s h i r e C o n s u l t i n g
ASSET CLASS PERFORMANCE
Data sources: Wilshire Compass Note: Developed asset class is developed equity markets ex-U.S., ex-Canada
ANNUALIZED5-YEAR
2014 2015 2016 2017 2018 2019 YTD AS OF 9/2019REITs REITs MLPs Emrg Mrkts T-Bills REITs U.S. Equity31.8% 4.2% 18.3% 37.7% 1.9% 27.2% 10.6%
U.S. Equity U.S. Equity High Yield Developed Core Bond U.S. Equity REITs12.7% 0.7% 17.1% 25.6% 0.0% 20.1% 10.2%
Core Bond Core Bond U.S. Equity U.S. Equity U.S. TIPS Developed High Yield6.0% 0.6% 13.4% 21.0% -1.3% 13.4% 5.4%MLPs T-Bills Commodities High Yield High Yield High Yield Developed4.8% 0.1% 11.8% 7.5% -2.1% 11.4% 3.8%
U.S. TIPS Developed Emrg Mrkts REITs REITs MLPs Core Bond3.6% -0.4% 11.6% 4.2% -4.8% 11.1% 3.4%
High Yield U.S. TIPS REITs Core Bond U.S. Equity Core Bond Emrg Mrkts2.5% -1.4% 7.2% 3.6% -5.3% 8.5% 2.7%T-Bills High Yield U.S. TIPS U.S. TIPS Commodities U.S. TIPS U.S. TIPS0.0% -4.5% 4.7% 3.0% -11.2% 7.6% 2.4%
Emrg Mrkts Emrg Mrkts Core Bond Commodities MLPs Emrg Mrkts T-Bills-1.8% -14.6% 2.6% 1.7% -12.4% 6.2% 1.0%
Developed Commodities Developed T-Bills Developed Commodities Commodities-4.5% -24.7% 1.5% 0.8% -13.4% 3.1% -7.2%
Commodities MLPs T-Bills MLPs Emrg Mrkts T-Bills MLPs-17.0% -32.6% 0.3% -6.5% -14.2% 1.8% -8.6%
ASSET CLASS RETURNS - BEST TO WORST
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©2019 Wilshire Associates. 9
W i l s h i r e C o n s u l t i n g
SEPTEMBER 2019 ASSET CLASS ASSUMPTIONS
Dev Global LT Dev ex-US ex-US Emg ex-US Global Private Core Core High US Bond US Global Private Real US
Stock Stock Stock Stock Stock Equity Cash Bond Bond TIPS Yield (Hdg) RES RES RE Cmdty Assets CPICOMPOUND RETURN (%) 6.00 6.50 6.50 6.75 6.45 8.05 1.60 2.70 3.25 1.90 4.20 0.75 4.70 4.90 6.60 3.15 5.70 1.55ARITHMETIC RETURN (%) 7.30 7.95 9.45 8.35 7.75 11.40 1.60 2.85 3.70 2.10 4.65 0.80 6.05 6.05 7.50 4.20 6.05 1.55EXPECTED RISK (%) 17.00 18.00 26.00 18.80 17.05 28.00 1.25 5.15 9.85 6.00 10.00 3.50 17.00 15.80 14.00 15.00 8.75 1.75CASH YIELD (%) 2.00 3.50 2.50 3.25 2.55 0.00 1.60 2.80 4.05 2.10 7.55 1.35 3.55 3.55 2.60 1.60 2.35 0.00
CORRELATIONSUS Stock 1.00Dev ex-US Stock (USD) 0.81 1.00Emerging Mkt Stock 0.74 0.74 1.00Global ex-US Stock 0.83 0.96 0.86 1.00Global Stock 0.94 0.92 0.82 0.94 1.00Private Equity 0.74 0.64 0.62 0.67 0.74 1.00Cash Equivalents -0.05 -0.09 -0.05 -0.08 -0.07 0.00 1.00Core Bond 0.28 0.13 0.00 0.09 0.20 0.31 0.19 1.00LT Core Bond 0.31 0.16 0.01 0.12 0.23 0.32 0.11 0.93 1.00TIPS -0.05 0.00 0.15 0.05 0.00 -0.03 0.20 0.60 0.47 1.00High Yield Bond 0.54 0.39 0.49 0.45 0.51 0.34 -0.10 0.25 0.32 0.05 1.00Dev ex-US Bond (Hdg) 0.16 0.25 -0.01 0.18 0.18 0.26 0.10 0.67 0.66 0.39 0.26 1.00US RE Securities 0.59 0.47 0.44 0.49 0.56 0.50 -0.05 0.17 0.23 0.10 0.56 0.05 1.00Global RE Securities 0.65 0.59 0.56 0.62 0.66 0.58 -0.05 0.17 0.22 0.11 0.62 0.03 0.94 1.00Private Real Estate 0.54 0.44 0.44 0.47 0.52 0.51 -0.05 0.19 0.25 0.09 0.57 0.05 0.77 0.76 1.00Commodities 0.25 0.34 0.39 0.38 0.32 0.27 0.00 -0.02 -0.02 0.25 0.29 -0.10 0.25 0.28 0.25 1.00Real Assets 0.42 0.43 0.50 0.48 0.47 0.43 0.01 0.24 0.25 0.41 0.53 0.06 0.65 0.69 0.69 0.59 1.00Inflation (CPI) -0.10 -0.15 -0.13 -0.15 -0.13 -0.10 0.10 -0.12 -0.12 0.15 -0.08 -0.08 0.05 0.03 0.05 0.44 0.26 1.00
EQUITY FIXED INCOME REAL ASSETSReal Estate
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APPENDIX
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©2019 Wilshire Associates. 11
W i l s h i r e C o n s u l t i n g
U.S. EQUITY MARKET
Data sources: Wilshire Compass, Wilshire Atlas
AS OF SEPT 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
WILSHIRE 5000 INDEX 1.2 20.1 3.0 12.9 10.6 13.1WILSHIRE U.S. LARGE CAP 1.5 20.6 4.0 13.4 10.9 13.2WILSHIRE U.S. SMALL CAP -1.8 15.8 -7.0 8.2 8.0 12.1WILSHIRE U.S. LARGE GROWTH 0.8 22.1 1.5 16.0 12.3 14.1WILSHIRE U.S. LARGE VALUE 2.2 19.2 6.4 10.8 9.4 12.3WILSHIRE U.S. SMALL GROWTH -2.7 17.6 -6.6 11.0 8.5 12.7WILSHIRE U.S. SMALL VALUE -0.9 13.9 -7.4 5.5 7.4 11.4WILSHIRE REIT INDEX 7.9 27.2 18.4 7.2 10.2 13.1MSCI USA MIN. VOL. INDEX 4.1 23.5 14.0 13.8 12.9 13.7FTSE RAFI U.S. 1000 INDEX 1.7 18.1 1.8 10.6 8.7 12.2
20.1
15.4
24.7
4.0
28.6
21.9
22.0
22.8
20.2
5.8
18.8
30.9
1.2
-0.2
8.1
-7.1
7.6
5.9
2.4
0.7
0.2
-3.8
1.7
2.7
Wilshire 5000
Materials
Utilities
Energy
Real Estate
Consumer Staples
Communication Services
Industrials
Consumer Discretionary
Health Care
Financials
Information Technology
2.5%
3.5%
4.2%
4.6%
7.1%
9.4%
10.1%
10.5%
12.9%
13.9%
21.3%
WILSHIRE 5000 SECTOR WEIGHT & RETURN (%)
3rd Quarter Year to Date
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Larg
e C
ap in
exc
ess
of S
mal
l C
ap
LARGE CAP VS SMALL CAP
QTD Excess Return Rolling 3-Year Excess Return
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Gro
wth
in e
xces
s of
Val
ue
GROWTH VS VALUE
QTD Excess Return Rolling 3-Year Excess Return
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©2019 Wilshire Associates. 12
Higher quality names continue to lead the market during the third quarter
W i l s h i r e C o n s u l t i n g
RETURNS BY QUALITY SEGMENT
Data sources: Wilshire Atlas
(10.00)
(5.00)
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
3Q 19 YTD 2019
Tota
l Ret
urn
(%)
RETURN BY S&P QUALITY RATING
A+ A A- B+ B B- C / D
A+ 6%A 9%A‐ 15%B+ 30%B 16%B‐ 8%C / D 2%N.A. 13%
Segment Weightsas of June 30
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W i l s h i r e C o n s u l t i n g
NON-U.S. EQUITY MARKET
Data sources: Wilshire Compass
AS OF SEPT 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
MSCI ACWI EX-US ($G) -1.7 12.1 -0.7 6.8 3.4 4.9MSCI EAFE ($G) -1.0 13.4 -0.8 7.0 3.8 5.4MSCI EMERGING MARKETS ($G) -4.1 6.2 -1.6 6.4 2.7 3.7MSCI FRONTIER MARKETS ($G) -1.0 11.0 6.2 7.4 -0.9 4.0MSCI ACWI EX-US GROWTH ($G) -0.8 16.6 2.4 7.8 5.2 6.2MSCI ACWI EX-US VALUE ($G) -2.7 7.5 -3.9 5.9 1.5 3.6MSCI ACWI EX-US SMALL ($G) -1.1 10.7 -5.2 5.0 4.5 6.8MSCI ACWI MINIMUM VOLATILITY 2.9 18.2 10.5 10.5 10.1 10.9MSCI EAFE MINIMUM VOLATILITY 0.9 12.4 4.1 6.7 6.8 7.7FTSE RAFI DEVELOPED EX-US -1.3 9.9 -4.2 7.0 2.8 4.2MSCI EAFE LC (G) 1.8 16.2 2.1 8.8 6.5 7.5
13.4
19.9
10.7
24.0
16.9
10.2
11.6
-1.0
-0.9
-4.0
0.3
-1.6
-2.5
3.3
MSCI EAFE
Australia
Germany
Switzerland
France
United Kingdom
Japan
7.0%
8.5%
9.4%
11.4%
16.4%
24.6%
MSCI EAFE: LARGEST COUNTRIES & RETURN (USD)
3rd Quarter Year to Date
6.2
-1.5
10.5
2.2
16.7
-0.7
8.1
-4.1
-11.8
-4.6
-5.2
5.9
-4.5
-4.6
MSCI Emrg Mrkts
South Africa
Brazil
India
Taiwan
South Korea
China
4.7%
7.6%
8.9%
11.5%
12.2%
31.9%
MSCI EM: LARGEST COUNTRIES & RETURN (USD)
3rd Quarter Year to Date
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W i l s h i r e C o n s u l t i n g
U.S. FIXED INCOME
Data sources: Wilshire Compass, Bloomberg Barclays, U.S. Treasury
0
100
200
300
400
500
600
700
800
900
Opt
ion
Adju
sted
Spr
ead
(bps
)
BLOOMBERG BARCLAYS FIXED INCOME INDEXES
Securitized IG Corporate Aa Corporate High Yield
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
0 5 10 15 20 25 30
Yiel
d (%
)
Maturity (yrs)
TREASURY YIELD CURVE
Current Quarter Previous Quarter One Year Ago
AS OF SEPT 30, 2019 YTM DURATION QTR YTD 1 YR 3 YR 5 YR 10 YR
BLOOMBERG BARCLAYS AGGREGATE 2.3 5.8 2.3 8.5 10.3 2.9 3.4 3.7BLOOMBERG BARCLAYS TREASURY 1.7 6.6 2.4 7.7 10.5 2.2 2.9 3.1BLOOMBERG BARCLAYS GOV'T-REL. 2.4 5.8 2.4 8.8 10.1 3.2 3.4 3.5BLOOMBERG BARCLAYS SECURITIZED 2.4 2.9 1.4 5.8 7.9 2.4 2.8 3.3BLOOMBERG BARCLAYS CORPORATE 2.9 7.8 3.1 13.2 13.0 4.5 4.7 5.6BLOOMBERG BARCLAYS LT G/C 3.0 15.9 6.6 20.9 21.9 5.6 6.8 7.4BLOOMBERG BARCLAYS LT TREASURY 2.1 18.3 7.9 19.8 24.8 4.1 6.8 6.9BLOOMBERG BARCLAYS LT GOV't-REL. 3.5 12.7 5.6 18.8 18.8 6.0 6.5 7.3BLOOMBERG BARCLAYS LT CORP. 3.6 14.4 5.6 22.3 20.1 6.5 7.0 7.8BLOOMBERG BARCLAYS U.S. TIPS * 1.6 7.6 1.4 7.6 7.1 2.2 2.4 3.5BLOOMBERG BARCLAYS HIGH YIELD 6.3 3.1 1.3 11.4 6.4 6.1 5.4 7.9TREASURY BILLS 1.9 0.25 0.6 1.8 2.4 1.5 1.0 0.5
* Yield and Duration statistics are for a proxy index based on similar maturity, the Bloomberg Barclays U.S. Treasury 7-10 Year Index
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W i l s h i r e C o n s u l t i n g
NON-U.S. FIXED INCOME
Data sources: Wilshire Compass, Bloomberg Barclays, Federal Reserve Bank of St. Louis
AS OF SEPT 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
DEVELOPED MARKETSBLMBRG BRCLYS GLBL AGGREGATE xUS -0.6 4.4 5.3 0.4 0.9 1.3BLMBRG BRCLYS GLBL AGGREGATE xUS * 2.8 8.8 10.8 4.1 4.6 4.4BLMBRG BRCLYS GLOBAL INF LNKD xUS 2.0 8.4 7.2 2.1 1.9 3.3BLMBRG BRCLYS GLOBAL INF LNKD xUS * 6.0 13.9 15.4 5.5 7.3 6.5EMERGING MARKETS (HARD CURRENCY)BLMBRG BRCLYS EM USD AGGREGATE 1.3 10.8 10.6 4.4 5.0 6.7EMERGING MARKETS (FOREIGN CURRENCY)BLMBRG BRCLYS EM LOCAL CURR. GOV'T -0.6 5.3 7.9 2.4 1.1 3.3BLMBRG BRCLYS EM LOCAL CURR. GOV'T * 2.8 7.9 10.7 3.7 3.8 3.8EURO vs. DOLLAR -4.3 -4.6 -6.1 -1.0 -2.9 -2.9YEN vs. DOLLAR -0.3 1.5 5.1 -2.1 0.3 -1.9POUND vs. DOLLAR -3.2 -3.2 -5.5 -1.7 -5.3 -2.6* Returns are reported in terms of local market investors, w hich removes currency effects.
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Yiel
d to
Wor
st (
%)
BLOOMBERG BARCLAYS FIXED INCOME INDEXES
U.S. Treasury Global xUS Gov't EM USD Sovereign EM Foreign Gov't
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
0
10
20
30
40
50
60
70
80
90
100
Rolli
ng 1
-Yea
r Re
turn
Inde
x Le
vel
U.S. DOLLAR INDEX: MAJOR CURRENCIES
Index Level Rolling 1-Year Return
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W i l s h i r e C o n s u l t i n g
GLOBAL INTEREST RATES
Data sources: Bloomberg
Much of Europe and Japan exhibit negative rates; Long rates are down globally during the past six months
United States
Germany
FranceUnited Kingdom
Japan
AustraliaCanada
China
South Korea
India Russia
Brazil
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
-2.00 -1.00 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00
10-Y
ear
Yiel
ds (
%)
3-Month Yields (%)
GOVERNMENT BOND YIELDS
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©2019 Wilshire Associates. 17
• Pricing in some markets is such that short-term rates are discounted to remain negative
• Main concern with negative rates is that market participants hold cash rather than bank deposits
– Minimum deposit rates and tiered bank reserves partially protect against negative interest
– However, this limits the effectiveness of rate cuts below zero
• Markets with negative rates are thought to provide less diversification benefits to a diversified portfolio, although low but positive yields can still lower overall portfolio risk
W i l s h i r e C o n s u l t i n g
NEGATIVE RATES
Data sources: Bridgewater
Expected 1‐Year Cash Rate (Years Forward) 0 1 2 3Switzerland ‐0.97% ‐0.99% ‐1.06% ‐1.10%Denmark ‐0.86% ‐0.91% ‐0.94% ‐0.93%Germany ‐0.71% ‐0.91% ‐1.00% ‐0.98%France ‐0.65% ‐0.79% ‐0.80% ‐0.72%Sweden ‐0.64% ‐0.83% ‐0.87% ‐0.81%Japan ‐0.29% ‐0.44% ‐0.56% ‐0.62%United Kingdom 0.49% 0.16% ‐0.01% ‐0.07%Australia 0.69% 0.47% 0.39% 0.44%Canada 1.61% 1.29% 1.10% 1.00%United Stated 1.69% 1.34% 1.21% 1.20%China 2.76% 3.24% 3.10% 3.68%
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W i l s h i r e C o n s u l t i n g
HIGH YIELD BOND MARKET
Data sources: Wilshire Compass, Bloomberg Barclays
AS OF SEPT 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
BLOOMBERG BARCLAYS HIGH YIELD 1.3 11.4 6.4 6.1 5.4 7.9CREDIT SUISSE LEVERAGED LOAN 0.9 6.4 3.1 4.7 4.1 5.4HIGH YIELD QUALITY DISTRIBUTION WEIGHTBa U.S. HIGH YIELD 47.8% 2.0 12.8 9.5 5.8 5.9 7.9B U.S. HIGH YIELD 38.7% 1.7 11.9 7.0 6.2 5.0 7.5Caa U.S. HIGH YIELD 12.7% -1.8 5.6 -4.2 5.5 4.5 8.2Ca to D U.S. HIGH YIELD 0.6% -6.7 7.6 -18.3 10.7 -5.8 0.7Non-Rated U.S. HIGH YIELD 0.2% -0.5 4.3 2.5 5.3 -1.0 5.6
0
200
400
600
800
1,000
1,200
1,400
1,600
Opt
ion
Adju
sted
Spr
ead
(bps
)
BLOOMBERG BARCLAYS HIGH YIELD INDEXES
HY Index Ba B Caa
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W i l s h i r e C o n s u l t i n g
REAL ASSETS
Data sources: Wilshire Compass, National Council of Real Estate Investment Fiduciaries
AS OF SEPT 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
BLOOMBERG BARCLAYS U.S. TIPS 1.4 7.6 7.1 2.2 2.4 3.5BLOOMBERG COMMODITY INDEX -1.8 3.1 -6.6 -1.5 -7.2 -4.3WILSHIRE GLOBAL RESI INDEX 5.2 22.8 15.3 7.1 8.4 10.9NCREIF ODCE FUND INDEX 1.3 3.8 5.6 7.3 9.3 10.9NCREIF TIMBERLAND INDEX 0.2 1.3 2.1 3.1 4.4 4.0ALERIAN MLP INDEX (OIL & GAS) -5.0 11.1 -8.1 -2.5 -8.6 6.3
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Cur
rent
Yie
ld
Cur
rent
Cap
Rat
e
REAL ESTATE VALUATION
NPI Current Value Cap Rate Wilshire RESI Current Yield 10-Year Treasury Yield
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
Retu
rn (
%)
NCREIF ODCE FUND INDEX RETURN
Appreciation Income Total Return
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W i l s h i r e P r i v a t e M a r k e t s
PRIVATE EQUITY – FUNDRAISING & INVESTMENT ACTIVITY
Source: Preqin, as of September 30, 2019.
0100200300400500600700800
$0
$50
$100
$150
$200
$250
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2014 2015 2016 2017 2018 2019
No.
of F
unds
Agg
rega
te C
apita
l Rai
sed
($B
)
Global Quarterly Private Equity Fundraising (Q1 2014 - Q3 2019)
Aggregate Capital Raised ($bn) No. of Funds Closed
02004006008001,0001,2001,4001,6001,800
$0$20$40$60$80
$100$120$140$160$180
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2014 2015 2016 2017 2018 2019
No.
of D
eals
Agg
rega
te D
eal V
alue
($B
) Global Quarterly Private Equity-Backed Buyout Deals (Q1 2014 - Q3 2019)
Aggregate Deal Value ($bn) No. of Deals
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W i l s h i r e P r i v a t e M a r k e t s
PRIVATE EQUITY – PRICING & VALUATIONS
Source: S&P LBO; PitchBook, *as of September 30, 2019.
7.1x 7.3x8.4x 8.4x
9.7x 9.1x7.7x
8.5x 8.8x 8.7x 8.8x9.7x 10.3x 10.0x 10.6x 10.6x
11.5x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
LBO Purchase Price Multiples (2003 - Q3 2019)
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Venture Capital Pre-Money Valuations ($M) (2009 – Q3 2019)
Angel & seed Early VC Late VC
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W i l s h i r e P r i v a t e M a r k e t s
U.S. INVESTMENT ACTIVITY BY DEAL SIZE
• Deal volume continues to be dominated by lower middle market deals with investment sizes below$100 million through the third quarter of 2019
• However, deals with below $100 million check sizes comprised only 15% of all deal volume byamount of capital invested in the third quarter of 2019
Source: PitchBook, *as of September 30, 2019.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016 2017 2018 2019*
Percentage of Deal Volume by Deal Size (by Dollars)*
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016 2017 2018 2019*
Percentage of Deal Volume by Deal Size (by Count)*
$2.5B+
$1B-$2.5B
$500M-$1B
$100M-$500M
$25M-$100M
Under $25M
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W i l s h i r e P r i v a t e M a r k e t s
PRIVATE CAPITAL DRY POWDER
Source: Preqin, *as of October 23, 2019.
• Global private capital dry powder continues to increase, topping $2.5 trillion across all fund types
• Private equity comprises just over 60% of total dry powder in the market as of Q3 2019
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Agg
rega
te D
ry P
owde
r ($B
)
Private Capital Drty Powder by Fund Type (2010 - Q3 2019)
Private Equity Private Debt Private Real Estate Unlisted Infrastructure Unlisted Natural Resources
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W i l s h i r e P r i v a t e M a r k e t s
PRIVATE EQUITY - U.S. DEBT MARKETS
Source: S&P LBO, *as of September 30, 2019.
• 2019 has generated approximately $110 billion in loan volume and is on pace to once againincrease year-over-year through the fourth quarter of 2019
• As debt capital becomes less available, the percentage of debt used to finance leveraged buyoutsof less than $50 million of EBITDA through the third quarter of 2019 has dropped from 2018 marks
$0
$50
$100
$150
$200
$250
Total U.S. LBO Loan Volume ($B) (2003 - Q3 2019)
Pro Rata Institutional
0%
10%
20%
30%
40%
50%
60%
70%
80%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Percentage of Debt Used in LBOs (2007 - Q3 2019)
Less than $50M of EBITDA $50M or more of EBITDA
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W i l s h i r e P r i v a t e M a r k e t s
PRIVATE EQUITY - U.S. LBO PURCHASE PRICE MULTIPLES
• Due to the amount of equity that is readily available, purchase price multiples for U.S. LBOs havecontinued to rise through Q3 2019, relative to 2018 levels
Source: S&P LBO, *as of September 30, 2019.
9.7x9.1x
7.7x
8.5x8.8x 8.7x 8.8x
9.7x10.3x 10.0x
10.6x 10.6x
11.5x
0x
2x
4x
6x
8x
10x
12x
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Purchase Price Multiples of U.S. LBO Transactions (2007 - Q3 2019)
Equity/EBITDA Debt/EBITDA
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W i l s h i r e P r i v a t e M a r k e t s
PRIVATE REAL ESTATE –FUNDRAISING ACTIVITY
Source: Preqin, as of September 30, 2019.
0
20
40
60
80
100
120
140
160
$0$5
$10$15$20$25$30$35$40$45$50
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2014 2015 2016 2017 2018 2019
No.
of F
unds
Agg
rega
te C
apita
l Rai
sed
($B
)
Global Quarterly Closed-End Private Real Estate Fundraising (Q1 2014 - Q3 2019)
Aggregate Capital Raised ($bn) No. of Funds Closed
566
211
72 36
$144$79
$21 $80
100
200
300
400
500
600
North America Europe Asia Rest of World
Closed-End Private Real Estate Fund Actively in Market in Q3 2019 by Primary Geographic Focus
No. of Funds Raising Aggregate Capital Targeted ($B)
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W i l s h i r e P r i v a t e M a r k e t s
UNLISTED INFRASTRUCTURE –FUNDRAISING & INVESTMENT ACTIVITY
Source: Preqin, as of September 30, 2019.
0
50
100
150
200
250
$0
$50
$100
$150
$200
$250
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Oct-19
No.
of F
unds
Agg
rega
te C
apita
l Tar
gete
d ($
B)
Unlisted Infrastructure Funds in Market over Time (Jan 2015 - Oct 2019)
Aggregate Capital Targeted ($bn) No. of Funds Raising
0510152025303540
$0$5
$10$15$20$25$30$35$40$45
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2014 2015 2016 2017 2018 2019
No.
of F
unds
Aggr
egat
e C
apita
l Rai
sed
($B)
Global Quarterly Unlisted Infrastructure Fundraising (Q1 2014 - Q3 2019)
Aggregate Capital Raised ($bn) No. of Funds Closed
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W i l s h i r e C o n s u l t i n g
TIMBER
Data sources: Forest Investment Associates
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©2019 Wilshire Associates. 29
W i l s h i r e C o n s u l t i n g
HEDGE FUND PERFORMANCE
Data sources: Wilshire Compass
AS OF SEPTEMBER 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
DJ CS HEDGE FUND INDEX 0.3 6.7 2.1 3.8 2.3 4.3EVENT DRIVEN -1.5 5.9 -0.7 3.4 0.4 3.8GLOBAL MACRO 2.1 9.6 7.7 5.3 3.1 4.9LONG/SHORT EQUITY 0.1 6.8 -0.4 4.9 3.4 4.9MULTI-STRATEGY 0.7 5.9 1.9 4.2 4.2 6.2WILSHIRE 5000 1.2 20.1 3.0 12.9 10.6 13.1MSCI ACWI EX-US ($G) -1.7 12.1 -0.7 6.8 3.4 4.9BLOOMBERG BARCLAYS AGGREGATE 2.3 8.5 10.3 2.9 3.4 3.7DOW JONES UBS COMMODITY -1.8 3.1 -6.6 -1.5 -7.2 -4.3
DJ CS Hedge Fund Index
Wilshire 5000 Index
Barclays Aggregate Bond Index
Dow Jones UBS Commodity Index
MSCI ACWI ex-US ($g)0.83
0.96
1.03
(0.34)
0.31
-8.00%
-4.00%
0.00%
4.00%
8.00%
12.00%
16.00%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%
Annu
aliz
ed R
etur
n
Annualized Risk
HEDGE FUND 10-YEAR RISK/RETURN
Note: Sharpe Ratio included to the left of each marker.
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Performance and Risk Update: Q1 FY20
November 2019
Thomas Toth, Managing Director – Wilshire AssociatesKristin Varela, Deputy CIO
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Slide 2
Total Fund versus Reference Portfolio – 10 Years
Expectations based on PERA target asset allocation and Wilshire asset class assumptions as of 2009
-50.00%
0.00%
50.00%
100.00%
150.00%
200.00%
Apr
-09
Oct
-09
Apr
-10
Oct
-10
Apr
-11
Oct
-11
Apr
-12
Oct
-12
Apr
-13
Oct
-13
Apr
-14
Oct
-14
Apr
-15
Oct
-15
Apr
-16
Oct
-16
Apr
-17
Oct
-17
Apr
-18
Oct
-18
Apr
-19
Total Fund v. Reference PortfolioCumulative Distribution, 95% confidence interval
7.76% return and 11.24% risk expectation
Cumulative Reference Portfolio Return
Cumulative NOF Total Fund Return
Lower Band
Target
Upper Band
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Slide 3
Total Fund versus Policy Index – 10 Years
-50.00%
0.00%
50.00%
100.00%
150.00%
200.00%
Apr
-09
Oct
-09
Apr
-10
Oct
-10
Apr
-11
Oct
-11
Apr
-12
Oct
-12
Apr
-13
Oct
-13
Apr
-14
Oct
-14
Apr
-15
Oct
-15
Apr
-16
Oct
-16
Apr
-17
Oct
-17
Apr
-18
Oct
-18
Apr
-19
Total Fund v. Policy PortfolioCumulative Distribution, 95% confidence interval
7.76% return and 11.24% risk expectation
Cumulative Policy Index Return
Cumulative NOF Total Fund Return
Lower Band
Target
Upper Band
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Slide 4
Total Fund Active versus Policy Index – 10 Years
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Apr
-09
Oct
-09
Apr
-10
Oct
-10
Apr
-11
Oct
-11
Apr
-12
Oct
-12
Apr
-13
Oct
-13
Apr
-14
Oct
-14
Apr
-15
Oct
-15
Apr
-16
Oct
-16
Apr
-17
Oct
-17
Apr
-18
Oct
-18
Apr
-19
Total Fund v. Policy IndexCumulative Distribution, 95% confidence interval
1.0% active return and 1.5% active risk expectation
Cumulative Excess NOF Total Fund Return
Lower Band
Target
Upper Band
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Slide 5
Selection
Allocation
Market Beta Risk
(Passive)Expected Risk of 9.90% (Expected Return of 6.35%)
Expected Active Risk of 1.4% (Expected Return of 0.6%)
Expected Active Risk of 0.6% (Expected Active Return of 0.4%)
2019 Total Fund Risk BudgetTarget Return= 7.35%Target Risk = 10.2%
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Slide 6
Total Fund versus Reference Portfolio
Cumulative Reference Portfolio Return, 6.52%
Cumulative NOF Total Fund Return, 8.43%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Total Fund v. Reference PortfolioCumulative Distribution, 95% confidence interval
6.75% return and 10.50% risk expectation
Cumulative Reference Portfolio Return
Cumulative NOF Total Fund Return
Lower Band
Target
Upper Band
FYTD value add = 0.42%
PERA Fund volatility (FYTD) = 0.43%
Reference Portfolio volatility (FYTD) = 2.37%
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Slide 7
Total Fund versus Policy Portfolio
Cumulative Policy Index Return, 7.79%
Cumulative NOF Total Fund Return, 8.43%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Total Fund v. Policy PortfolioCumulative Distribution, 95% confidence interval
6.75% return and 10.50% risk expectation
Cumulative Policy Index Return
Cumulative NOF Total Fund Return
Lower Band
Target
Upper Band
FYTD value add = 0.14%
PERA Fund volatility (FYTD) = 0.43%
PERA Policy volatility (FYTD) = 2.18%
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Slide 8
Active Risk versus Expectations – Cumulative Months
Total Fund One-Year Tracking Error as of September 30, 2019 = 3.05%
Cumulative Excess NOF Total Fund Return, 0.65%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Total Fund v. Policy IndexCumulative Distribution, 95% confidence interval
1.0% active return and 1.5% active risk expectation
Cumulative Excess NOF Total Fund Return
Lower Band
Target
Upper Band
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Slide 9
As of 9/30/2019
MarketValue
% MarketValue
% Target
Total Fund Performance
Q1FY20
FYTD 1-yr 3-yr 5-yr 10-yr
Global Equity $6.3b 40.4% 40.8%NOF Return 0.97% 0.97% 3.65% 10.77% 7.71%
Value Add v. 0.67% 0.67% 2.00% 0.76% 0.02%
Risk Reduction $3.3b 21.0% 21.0%
NOF Return 2.43% 2.43% 10.51% 3.25% 3.65%
Value Add v. 0.12% 0.12% 0.20% 0.22% 0.20%
Credit $2.3b 14.6% 15.0%NOF Return 0.66% 0.66% 4.04% 5.00% 3.25%
Value Add v. 0.47% 0.47% -3.06% -0.53% -1.41%
Real Assets $3.1b 19.9% 20.0%NOF Return 0.67% 0.67% 3.70% 4.75% 3.13%
Value Add v. -1.14% -1.14% -2.97% -1.11% 0.35%
Risk Parity $0.6b 4.1% 3.25%NOF Return 6.11% 6.11%
Value Add v. -0.30% -0.30%
Performance Detail – Asset Class
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Slide 10
FYTD Performance Attribution:Active Risk Budget Framework
-0.25% -0.25%
-0.04%
0.15%
-0.84%
0.39%
0.92%
0.16%
0.32%
-0.30%
-1.00%
-0.80%
-0.60%
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
Total Fund Global Equity Risk Reduction &Mitigation
Credit Oriented FixedIncome
Real Assets
Allocation Return Selection ReturnReturns are net of fees
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Slide 11
1-year Performance Attribution:Active Risk Budget Framework
-0.63%
0.61%
-0.12%
-3.12%
-1.00%
0.26%
1.38%
0.32%0.06%
-1.97%
-3.50%
-3.00%
-2.50%
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
Total Fund Global Equity Risk Reduction &Mitigation
Credit Oriented FixedIncome
Real Assets
Allocation Return Selection ReturnReturns are net of fees
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Slide 12
3-year Performance Attribution:Active Risk Budget Framework
-0.10%
0.23%
0.04%
-0.34%
-0.73%
0.20%
0.53%
0.18%
-0.19%
-0.38%
-0.80%
-0.60%
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
Total Fund Global Equity Risk Reduction &Mitigation
Credit Oriented FixedIncome
Real Assets
Allocation Return Selection ReturnReturns are net of fees
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Slide 13
5-year Performance Attribution:Active Risk Budget Framework
-0.42%
-0.15%
0.02%
-0.85%
0.39%
0.22%0.17% 0.18%
-0.56%
-0.05%
-1.00%
-0.80%
-0.60%
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
Total Fund Global Equity Risk Reduction &Mitigation
Credit Oriented FixedIncome
Real Assets
Allocation Return Selection ReturnReturns are net of fees
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Slide 14
Historical Risk Measurements (1-Year)As of Sept 2019 Capital
AllocationVolatility
(𝝈𝝈)Sharpe Ratio
Tracking Error
InformationRatio
Beta Alpha*
Total Fund 100% 7.25% 0.40 3.05% -0.12 0.71 0.60%
Policy Benchmark 10.07% 0.33
Global Equity 40.4% 13.78% 0.09 3.31% 0.59 0.82 1.87%
Risk Reduction 21.0% 3.65% 2.18 0.24% 0.72 1.01 0.11%
Credit 14.6% 1.59% 1.01 5.26% -0.55 0.16 0.90%
Real Assets 19.9% 5.70% 0.23 5.81% -0.47 0.49 -0.75%
Risk Parity 4.1%
*Jensen’s alpha
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Slide 15
Summary • Long term 10 year performance on both an absolute and relative basis remains
strong for the PERA Total Fund
• The PERA fund outperformed the policy benchmark by 14 bps for Q1 FY20, but
underperformed the policy benchmark by 37 for the 1-year period, net of fees
• The PERA fund outperformed the passive reference portfolio by 42 bps for Q1 FY20,
and outperformed by 48 bps for the 1-year period, net of fees
• As of September 30th, the fund is at target weights for all asset classes (+/- 1%)
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Slide 16
Appendix (Formulas)
• Selection return = (portfolio return – dynamically weighted selection benchmark return)
• Allocation return= (dynamically weighted selection benchmark return – policy benchmark return)
• Historical Alpha = (R– Beta*P) *√12Where:Beta is portfolio beta;R - mean of the portfolio real returns (portfolio return- 91 day T-bill return) ;P - mean of the policy real returns (policy return – 91 day T-bill return)
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Slide 2
Total Real Assets Composite Review
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Slide 6
Real Assets Portfolio: Portfolio Exposures
• Portfolio Construction Building Blocks
Liquid Real Estate (60% low TE implementation)- Domestic REITS- Global REITS
Illiquid Real Estate- Balanced risk exposures across strategies and
risk profiles- Opportunistic, value-add and core real estate
across diversified property types
Liquid Real Assets (40% low TE implementation)- Listed infrastructure- Master limited partnerships- Inflation linked bonds- Commodities
Illiquid Real Assets- Diversification away from legacy energy
concentration- Energy (upstream, midstream, downstream,
and renewable)- Infrastructure (core & value-add)- Agriculture (agribusiness, farmland, and
midstream)
as of June 30, 2019 (USD Millions)
Targeted Funded Difference (Funded - Targeted)
Total Fund - $15,648 -
Total Real Assets $3,130 $3,112 ($18)
Liquid Real Estate $313 $361 $48
Illiquid Real Estate $782 $711 ($71)
Core $235 $332 $98
Value-Add $235 $56 ($178)
Opportunistic $313 $323 $10
Liquid Real Assets $782 $1,300 $518
Illiquid Real Assets $1,252 $736 ($516)
Agriculture $313 $65 ($248)
Infrastructure $469 $352 ($118)
Energy $469 $320 ($150)
Market Neutral $0 $3 $3
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Internal Investment Process Enhancement-Monitoring
PERA Investment Team November 12, 2019
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Slide 2
Strategic Direction
• Investment Committee/Board set Risk Budget & Benchmarks• Investment Committee/Board set Active Management (Alpha) target• Investment Committee/Board set Strategic Asset Allocation (Beta) target
Planning
• Work with consultants and strategists to evaluate opportunity set• Identify and build pipeline• Priority-setting, work plan
Manager Selection
• 5- Stage Manager Selection Process• Delegated to staff and staff consultant
Implement
• Final contracting (internal/external legal)• CIO approval• On-boarding and funding
Monitoring&
Attribution
PERA Total Portfolio (Beta +Alpha)
Investment Process Overview
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Slide 3
Monitoring and Review
Driven by the ethos of constant improvement, PERA’s monitoring and review process seeks to measure, monitor, and track performance and risk metrics at the strategy, composite, and fund level. This creates a constant feedback loop that informs our understanding of how our portfolio responds to past, current, and future market environments.
Kaizen – or constant improvement
Each strategy delivers performance, risk, and diversification to the total portfolio and it is the job of each analyst and portfolio manager to understand any attribution thereof. Gone are the days when asset owners could set an asset allocation and forget it. PERA’s monitoring and review process uses knowledge management techniques, state-of-the-art risk techniques, human capital and judgement to continually improve upon our return and risk outcomes, and ultimately improve our funding position.
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Slide 4
Knowledge Management
Portfolio Managers and Associates regularly conduct review calls with asset managers. Areas of focus include:
Qualitative Notes• Asset updates• Strategy updates• Market updates• Team review
Quantitative Notes• Performance
attribution• Risk update• Guideline enforcement• Reconciliation
PERA utilizes a custom knowledge management system - Backstop
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Slide 5
External Risk and Performance Analytics - Liquid
BNY Mellon- Holdings and returns based ex post & ex ante risk analytics and scenario testing
Castle – Returns and factor-based beta and alpha analytics
Portfolio Managers and Associates utilize multiple, specialized risk systems
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Slide 6
External Risk and Performance Analytics –Liquid Cont.
Bloomberg holdings and returns based ex post and ex ante tracking error & factor analytics
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Slide 7
External Risk and Performance Analytics -Illiquid
Burgiss- deal by deal and cash flow based performance, alpha, and PME reporting
TopQ- deal by deal and cash flow based valuation bridge, what if scenarios, and track record attribution analytics
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Slide 8
Internal Risk and Performance Ratings Matrix-LiquidQualitative and quantitative risk statistics culminate into internal, CIO level matrix or dashboard with heat mapped P&L, risk tolerance, and conviction ratings
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Slide 9
Internal Risk and Performance Ratings Matrix-IlliquidQualitative and quantitative risk statistics culminate into internal, CIO level matrix or dashboard with heat mapped alpha, quartile, and conviction ratings
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Slide 10
Annual Review Example
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Annual Rating and Conviction ScoreStrategy – MFS
Policy Benchmark - MSCI ACWISelection Benchmark – MSCI EAFE
Inception: April 2010
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Slide 12
PERA Rating: A/1Wilshire Rating: 1st Decile
Risk Budget Assumptions
Alpha Team Expectations
Excess Return (v Policy) 135 200
TE 400 400
IR 0.34 0.50
Rating
A Manager exemplifies principles and SPORTE. Risk aware, separates Alpha and Beta, independent firm/alignment, fee structure alignment, strong track record/pedigree, skill based (high alpha content)
B Manager meets most principles and SPORTE
C Manager meets some principles and SPORTE
Conviction Score
1 Highest conviction. Manager has proven adept and skillful. Its opportunity set is very strong. Strong belief in out-performance 1-3 years and/or high confidence in information ratio. Size up to maximum within risk budget.
2 Strong conviction. Manager is skillful. Opportunity set good. Confidence in long-run IR. Size up when possible.
3 Moderate Conviction. Manager has near universe IR or skill level. Sizing no more than risk budget.
4 No conviction. Manager has less than universe IR or skill level. Terminate when possible.
Annual Meeting Location Manager Rep
October 30, 2019 PERA Office Terry Welch
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Slide 13
MFS Investment ManagementInternational Value Equity Strategy
OrganizationFounded in 1924, MFS is one of the oldest asset management companies in the world and has been credited with pioneering the mutual fund. The very first mutual fund, the Massachusetts Investors Trust fund, is still in operation today. As of 1982, MFS became an independently operated subsidiary of Sun Life Financial. MFS employs over 1,900 professionals with over $448 billion in assets under management.
Investment Team The International Value Equity strategy is managed by Benjamin Stone, Pablo de La Mata (London) and Camille Humphries (Client Facing, Portfolio Specialist, Boston). They are responsible for portfolio construction, final buy and sell decisions and risk management. The portfolio managers are supported by research analysts in 9 offices around the world, that are organized into 8 global sector teams which include equity and fixed income.
Investment StrategyThe team’s strategy employs a fundamental bottom-up investment approach based upon a rigorous and disciplined process that tries to identify opportunities where the long term value of the company is not adequately reflected in the stock price. The team endeavors to make sensible projections for returns over the next 5-10 years. The resulting portfolio typically has a value tilt across all capitalization stocks and fairly concentrated with an average of 80-100 holdings, with very low turnover of 9% a year.
EdgeThe team believes investing in stocks that are underrated in the broader market should result in long-term capital appreciation while limiting the downside risk when markets perform poorly. The strategy has the approach of searching for “steady eddy” companies that perform for the long term in sustainable industries where the consumer has basic needs.
Highlights PERA Inception: April
2010
Focus: Non-U.S. all cap developed markets
Return Target: Active return of 2.00%, residual risk target of 2-8%
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Slide 14
Selection vs. Policy Benchmark
107.70%
56.60%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
Apr
-10
Sep-
10
Feb-
11
Jul-1
1
Dec
-11
May
-12
Oct
-12
Mar
-13
Aug
-13
Jan-
14
Jun-
14
Nov
-14
Apr
-15
Sep-
15
Feb-
16
Jul-1
6
Dec
-16
May
-17
Oct
-17
Mar
-18
Aug
-18
Jan-
19
Jun-
19
MSCI EAFE vs MSCI ACWICumulative Distribution, +/- 1 STDEV
7.50% georeturn and 17.00% risk expectation04/30/2010 - 9/30/2019
Cumulative Policy Return (%)
Cumulative Selection Return (%)
Lower Band
Target (Policy Return)
Upper Band
Cumulative value add-51.10% or ($60M)
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Slide 15
Manager vs. Selection Benchmark
56.60%
133.41%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
Apr
-10
Sep-
10
Feb-
11
Jul-1
1
Dec
-11
May
-12
Oct
-12
Mar
-13
Aug
-13
Jan-
14
Jun-
14
Nov
-14
Apr
-15
Sep-
15
Feb-
16
Jul-1
6
Dec
-16
May
-17
Oct
-17
Mar
-18
Aug
-18
Jan-
19
Jun-
19
MFS vs MSCI EAFECumulative Distribution, +/- 1 STDEV
7.50% return and 17.00% risk expectation04/30/2010 - 09/30/2019
Cumulative Selection Benchmark Return (%)
Cumulative Strategy NOF Return (%)
Lower Band
Target
Upper Band
BMV Apr 2010 = $140MNet Withdrawals = ($115M)EMV Sep 2019 = $188M
Cumulative value add76.81% or $97M
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Slide 16
Cumulative Excess Active Return Distribution
76.81%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
Apr
-10
Oct
-10
Apr
-11
Oct
-11
Apr
-12
Oct
-12
Apr
-13
Oct
-13
Apr
-14
Oct
-14
Apr
-15
Oct
-15
Apr
-16
Oct
-16
Apr
-17
Oct
-17
Apr
-18
Oct
-18
Apr
-19
Cumulative Excess Active Return Distribution +/- 1 St Deviation
04/30/2010 - 9/30/2019200 bps excess return and 400 bps tracking error expectation
Cumulative NOF Excess Return (%)
Lower Band
Target
Upper Band
Annualized Ex-Ante TE as of August 2019 = 4.23%
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Slide 17
Since Inception Fee Analysis & Excess Return Capture
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
MFS vs MSCI EAFE
Net Value Add Fees Capture Ratio
BMV Apr 2010 = $140MNet Withdrawals = ($115M)EMV Jun 2019 = $188M
Gross $107MFees ($10M)Net $97MCapture Ratio 91%
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Slide 18
Excess Return STATs OMEGA RATIO = 1.68
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
-15.00 -10.00 -5.00 0.00 5.00 10.00 15.00
Mon
thly
Exc
ess
Ret
urns
Monthly Benchmark Returns
Excess vs Benchmark Return
y= 0.43 - .23x
R^2 = .37Excess Return Stats
Mean 0.323245614Standard Error 0.145673329Median 0.215Mode 2.3Standard Deviation 1.555365532Sample Variance 2.419161939Kurtosis -0.37411372Skewness -0.08701128Range 7.16Minimum -3.56Maximum 3.6Sum 36.85Count 114
0
2
4
6
8
10
12
14
16
18
-4 -3.5 -3 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3 3.5 4
Freq
uenc
y
Bin
Excess Return vs Selection
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Slide 19
Ex-Ante Idiosyncratic Risk Contribution
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N e w M e x i c o P E R A
WILSHIRE ASSOCIATES
November 2019
Thomas Toth, CFA – Managing DirectorRose Dean – Managing Director
B e n c h m a r k i n g U p d a t e
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©2019 Wilshire Associates. 2
• Benchmarking provides investors and managers a realistic and achievable goal, and serves as a clear and objective means of evaluating performance.
• The purpose of benchmarking can be summarized as follows:
W i l s h i r e C o n s u l t i n g
Purpose of Benchmark ing
Performance Attribution
Manager Evaluation
Insight on Risk/Returns
Measure against which manager performance can be evaluated to assist in retention / termination decisions
Decomposition of sources of return, such as asset allocation, active vs. passive management, manager skill, etc.
Insight into level of risk being taken to generate return and the volatility of return over time
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©2019 Wilshire Associates. 3
W i l s h i r e C o n s u l t i n g
Benchmark Se lec t ion Cons idera t ions
Does it appropriately reflect the objective of the strategy and is it consistent with the asset class objective?
Manager Benchmark
Asset Class Benchmark
Does it reflect a broad universe of investment opportunities in an asset class and offer a “target” for combining multiple managers within the asset class?
Total Fund BenchmarkDoes it appropriately match the plan sponsor’s investment philosophy and objectives and reflect the overall structure of the fund?
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©2019 Wilshire Associates. 4
W i l s h i r e C o n s u l t i n g
Se lec t ing the Appropr ia te Benchmark
• The appropriate benchmark is a function of the return and risk characteristics of the asset class or portfolio being measured.
• Benchmarks may be published market benchmarks or custom benchmarks Published benchmarks are preferable; however, custom benchmarks
may be optimal for some portfolio strategies such as Multi-Asset Risk Allocation
Generally, asset class benchmarks are published market indices which represent a broad investment opportunity set E.g., Wilshire 5000, Bloomberg Barclays Aggregate
• Objective of benchmark selection process is to minimize benchmark “misfit” risk, which is uncompensated risk “Misfit” risk is the return difference attributable to the benchmark
characteristics that are not reflected in the portfolio and vice versao E.g., All cap equity portfolio benchmarked to the S&P 500 Index
• Holdings-based risk and style attribution analyses is one way to determine the optimal portfolio benchmark.
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W i l s h i r e C o n s u l t i n g
Charac te r i s t i cs o f an Idea l Benchmark
Unambiguous
Investable
Measurable
Appropriate
Reflective of current investment
options
Pre-specified
Benchmark components and construction methodology are clearly identifiable.
It is possible to replicate and simply hold the benchmark.
The benchmark’s return is readily calculable on an on-going basis.
The benchmark is consistent with the composite’s objective or manager’s investment style.
The manager is knowledgeable of the securities or factor exposures within the benchmark.
The benchmark is agreed upon prior to the start of the monitoring period.
Source : CFA Institute
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©2019 Wilshire Associates. 6
W i l s h i r e C o n s u l t i n g
Benchmark Ad jus tments in 2019
• In 2019, Total Fund benchmark has been appropriately adjusted to dollar cost average into Multi-Risk allocation
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©2019 Wilshire Associates. 7
W i l s h i r e C o n s u l t i n g
To ta l Fund Benchmark Summary
Custom Blended Benchmark - Current Weights Custom Blended Benchmark - Target Weights
Global Equity Custom Blended Benchmark 39.7% Custom Blended Benchmark 35.5%MSCI ACWI IMI ($net) 32.7% MSCI ACWI IMI ($net) 28.5%MSCI ACWI Minimum Volatility ($net) 7.0% MSCI ACWI Minimum Volatility ($net) 7.0%
Risk Reduction & Mitigation Custom Blended Benchmark 20.6% Custom Blended Benchmark 19.5%Bloomberg Barclays U.S. Aggregate 18.1% Bloomberg Barclays U.S. Aggregate 17.0%Bloomberg Barclays Global Aggregate 2.5% Bloomberg Barclays Global Aggregate (Hedged) 2.5%
Credit Oriented Fixed Income Custom Blended Benchmark 15.0% Custom Blended Benchmark 15.0%Bloomberg Barclays Global High Yield 12.0% Bloomberg Barclays Global High Yield (Hedged) 12.0%50% JP Morgan EMBI Global Diversified ($) / 50% JP Morgan GBI ($) 3.0% 50% JP Morgan EMBI Global Diversified ($) / 50% JP
Morgan GBI ($) 3.0%
Real Assets Custom Blended Benchmark 20.0% Custom Blended Benchmark 20.0%Wilshire Global REITs 7.0% Wilshire Global REITs 7.0%Alerian - MLP Index 2.0% Alerian - MLP Index 2.0%Dow Jones - Brookfield Global Infrastructure Index 3.0% Dow Jones - Brookfield Global Infrastructure Index 3.0%Bloomberg Barclays - U.S. TIPS 3.0% Bloomberg Barclays - U.S. TIPS 3.0%Bloomberg Commodity - Commodity Index (TR) 5.0% Bloomberg Commodity - Commodity Index (TR) 5.0%
Multi Asset Risk Allocation Wilshire Risk Parity (15% Volatility) Index 4.7% Wilshire Risk Parity (15% Volatility) Index 10.0%
• No benchmark changes are being recommended in this update
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©2019 Wilshire Associates. 8
• Used as a benchmark to determine if utilization of additional asset classes and/or taking on illiquidity risk provides benefit
• Reference portfolio concept meets the objectives of a good benchmark– Predefined, investable, unambiguous, measurable, and appropriate
• Serves as a clear and objective means of evaluating performance over a long-term time horizon
• Reference Portfolio targets the same total risk level as the current portfolio– Indicative of the risk tolerance of the Board– Return seeking, but cognizant of continued risk concentration
W i l s h i r e C o n s u l t i n g
Tota l Fund Benchmark - Reference Por t fo l io
Asset Class Target Weight Appropriate Benchmark
Global Equity 58% MSCI AC World IMI
Core Fixed Income 42% Barclays U.S. Aggregate
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W i l s h i r e C o n s u l t i n g
To ta l Fund Benchmark - Look ing Ahead• Synthetic replication of market beta exposure
– Market exposure adheres to PERA’s target asset allocation, but does not hold underlying securities to generate market beta return
– Use derivative instruments such as futures, swaps, or options to replicate the return of an underlying market
• Why consider synthetic market beta replication?– Reduce rebalancing and transaction costs– Enhance liquidity– Free up capital to be deployed in higher alpha seeking strategies– Provide flexibility to improve Total Fund risk adjusted returns through
leverage • Benchmarks for synthetic market replication should align with the characteristics
of available derivatives to reduce or eliminate measured active risk– Region and country– Currency– Credit profile
• More education to come on the topic
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©2019 Wilshire Associates. 10
This material contains confidential and proprietary information of Wilshire Associates Incorporated (Wilshire), and is intended for the exclusive use of the person to whom it is provided. It may not be disclosed, reproduced or redistributed, in whole or in part, to any other person or entity without prior written permission from Wilshire. Third party information contained herein has been obtained from sources believed to be reliable. Wilshire gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in such information and for results obtained from its use. Information and opinions are as of the date indicated, and are subject to change without notice.
This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice.
This report may include estimates, projections and other "forward-looking statements." Due to numerous factors, actual events may differ substantially from those presented.
Wilshire® is a registered service mark of Wilshire Associates Incorporated, Santa Monica, California. All other trade names, trademarks, and/or service marks are the property of their respective holders.
Copyright © 2019 Wilshire Associates Incorporated. All rights reserved.
W i l s h i r e C o n s u l t i n g
IMPORTANT INFORMATION
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NM Public Employees Retirement AssociationCash Flow Projection - FY 20
Actuals
July August September October November December January February March April May June
Month Beginning Cash, BNYM $42 $24 $20 $21 $22 $23 $24 $25 $26 $27 $28 $29
Uses of Cash
Illiquid Asset Capital Calls PE, RE, RA, Credit 59 80 80 80 80 80 80 80 80 80 80 80 Private Asset Drawdowns
Asset Class PurchasesLiquid Asset Purchases 265
Total Benefit Payments 105 105 105 105 105 105 105 105 105 105 105 105Benefit Payments (BNYM) 53 60 60 60 60 60 60 60 60 60 60 60
Benefit Payments (STO) 52 45 45 45 45 45 45 45 45 45 45 45Refunds 4 4 4 4 4 4 4 4 4 4 4 4
Operational Expense 1 2 2 2 2 2 2 2 2 2 2 2 Other 0
Sources of Cash
Asset Class SalesLiquid Asset Redemptions 305 85 90 90 90 90 90 90 90 90 90 90
Illiquid Asset Distributions 49 50 50 50 50 50 50 50 50 50 50 50 Private Asset DistributionsIlliquid Asset Redemptions 2 Hedge Fund / Portable Alpha
Employee / Employer Contributions 51 50 50 50 50 50 50 50 50 50 50 50Other 2 1 1 1 1 1 1 1 1 1 1 1 Suspense Account / Corporate Action / Overlay
Month Ending Cash, BNYM $24 $20 $21 $22 $23 $24 $25 $26 $27 $28 $29 $30
Corporate Action/Suspense 3 4 4 4 4 4 4 4 4 4 4 4 Month Ending Cash, STO 22 20 20 20 20 20 20 20 20 20 20 20
Month-End Capital AllocationsActual Target Var. Range
Global Equity 6,476 6,370 6,299 6,190 6,100 6,010 5,921 5,831 5,742 5,652 5,563 5,475 (72) 41.3% 35.5% 5.8% +/-5%Risk Reduction & Mitigation 3,349 3,278 3,232 3,203 3,178 3,153 3,128 3,103 3,078 3,053 3,028 3,004 (29) 21.4% 19.5% 1.9% +/-3%Credit Oriented Fixed Income 2,286 2,343 2,340 2,337 2,333 2,330 2,326 2,322 2,319 2,315 2,312 2,308 (9) 14.6% 15.0% -0.4% +/-4%Real Assets 3,112 3,125 3,120 3,115 3,111 3,106 3,101 3,097 3,092 3,087 3,082 3,077 0 19.9% 20.0% -0.1% +/-4%Multi-Risk Allocation 421 508 608 732 832 932 1,031 1,130 1,229 1,327 1,426 1,523 106 2.7% 10.0% -7.3% +/-4%STO Cash 22 20 20 20 20 20 20 20 20 20 20 20 (6) 0.1% 0.0% 0.1%
Total (net of cash flows) $15,666 $15,643 $15,620 $15,597 $15,574 $15,551 $15,527 $15,503 $15,479 $15,455 $15,431 $15,407 (10) 100.0% 100.0%
Month-End Percentage AllocationsFund Balance (less STO) $15,644 $15,623 $15,600 $15,577 $15,554 $15,531 $15,507 $15,483 $15,459 $15,435 $15,411 $15,387Global Equity 41.4% 40.8% 40.4% 39.7% 39.2% 38.7% 38.2% 37.7% 37.1% 36.6% 36.1% 35.6%Risk Reduction & Mitigation 21.4% 21.0% 20.7% 20.6% 20.4% 20.3% 20.2% 20.0% 19.9% 19.8% 19.7% 19.5%Credit Oriented Fixed Income 14.6% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%Real Assets 19.9% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%Multi-Risk Allocation 2.7% 3.3% 3.9% 4.7% 5.4% 6.0% 6.7% 7.3% 8.0% 8.6% 9.3% 9.9%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Estimate
Current Month's Weights
Month's Activity
July Change in Value
Global Equity Liquidity Overlay: $40m Global Public Stock: $160m Core Bonds: $60m Liquid Credit: $45m
Multi-Risk: $100m Global Equity Liquidity Overlay: $120m Credit Liquidity Overlay: $45m
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NM Public Employees Retirement AssociationCash Flow Projection - FY 20
July August September October November December January February March April May June
Month Beginning Cash, BNYM $42 $24 $33 $34 $35 $36 $37 $38 $39 $40 $41 $42
Uses of Cash
Illiquid Asset Capital Calls PE, RE, RA, Credit 59 84 80 80 80 80 80 80 80 80 80 80 Private Asset Drawdowns
Asset Class PurchasesLiquid Asset Purchases 265 100
Total Benefit Payments 105 105 105 105 105 105 105 105 105 105 105 105Benefit Payments (BNYM) 53 57 60 60 60 60 60 60 60 60 60 60
Benefit Payments (STO) 52 48 45 45 45 45 45 45 45 45 45 45Refunds 4 4 4 4 4 4 4 4 4 4 4 4
Operational Expense 1 1 2 2 2 2 2 2 2 2 2 2 Other 0 0
Sources of Cash
Asset Class SalesLiquid Asset Redemptions 305 195 90 90 90 90 90 90 90 90 90 90
Illiquid Asset Distributions 49 56 50 50 50 50 50 50 50 50 50 50 Private Asset DistributionsIlliquid Asset Redemptions 2
Employee / Employer Contributions 51 67 50 50 50 50 50 50 50 50 50 50Other 2 0 1 1 1 1 1 1 1 1 1 1 Suspense Account / Corporate Action / Overlay
Month Ending Cash, BNYM $24 $33 $34 $35 $36 $37 $38 $39 $40 $41 $42 $43
Corporate Action/Suspense 3 3 4 4 4 4 4 4 4 4 4 4 Month Ending Cash, STO 22 36 20 20 20 20 20 20 20 20 20 20
Month-End Capital AllocationsActual Target Var. Range
Global Equity 6,476 6,382 6,319 6,210 6,119 6,029 5,939 5,850 5,760 5,671 5,582 5,493 (94) 40.7% 35.5% 5.2% +/-5%Risk Reduction & Mitigation 3,349 3,307 3,242 3,213 3,188 3,163 3,138 3,113 3,088 3,063 3,038 3,013 (42) 21.1% 19.5% 1.6% +/-3%Credit Oriented Fixed Income 2,286 2,298 2,347 2,344 2,340 2,337 2,333 2,330 2,326 2,323 2,319 2,316 12 14.6% 15.0% -0.4% +/-4%Real Assets 3,112 3,129 3,130 3,125 3,120 3,116 3,111 3,107 3,102 3,097 3,092 3,087 17 19.9% 20.0% -0.1% +/-4%Multi-Risk Allocation 421 539 610 734 835 935 1,034 1,134 1,233 1,332 1,430 1,528 118 3.4% 10.0% -6.6% +/-4%STO Cash 22 36 20 20 20 20 20 20 20 20 20 20 14 0.2% 0.0% 0.2%
Total (net of cash flows) $15,666 $15,691 $15,668 $15,645 $15,622 $15,599 $15,576 $15,553 $15,529 $15,505 $15,481 $15,457 25 100.0% 100.0%
Month-End Percentage AllocationsFund Balance (less STO) $15,644 $15,655 $15,648 $15,625 $15,602 $15,579 $15,556 $15,533 $15,509 $15,485 $15,461 $15,437Global Equity 41.4% 40.8% 40.4% 39.7% 39.2% 38.7% 38.2% 37.7% 37.1% 36.6% 36.1% 35.6%Risk Reduction & Mitigation 21.4% 21.1% 20.7% 20.6% 20.4% 20.3% 20.2% 20.0% 19.9% 19.8% 19.7% 19.5%Credit Oriented Fixed Income 14.6% 14.7% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%Real Assets 19.9% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%Multi-Risk Allocation 2.7% 3.4% 3.9% 4.7% 5.4% 6.0% 6.7% 7.3% 8.0% 8.6% 9.3% 9.9%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Actuals Estimate
Current Month's Weights
Month's Activity
August Change in Value
Global Equity Liquidity Overlay: $25m Real Asset Liquidity Overlay: $30m Risk Reduction Liquidity Overlay: $40m Core Bonds: $100m
Multi-Risk: $100m
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NM Public Employees Retirement AssociationCash Flow Projection - FY 20
July August September October November December January February March April May June
Month Beginning Cash, BNYM $42 $24 $33 $43 $44 $45 $46 $47 $48 $49 $50 $51
Uses of Cash
Illiquid Asset Capital Calls PE, RE, RA, Credit 59 84 43 80 80 80 80 80 80 80 80 80 Private Asset Drawdowns
Asset Class PurchasesLiquid Asset Purchases 265 100 100
Total Benefit Payments 105 105 105 105 105 105 105 105 105 105 105 105Benefit Payments (BNYM) 53 57 49 60 60 60 60 60 60 60 60 60
Benefit Payments (STO) 52 48 56 45 45 45 45 45 45 45 45 45Refunds 4 4 5 4 4 4 4 4 4 4 4 4
Operational Expense 1 1 1 2 2 2 2 2 2 2 2 2 Other 0 0 0
Sources of Cash
Asset Class SalesLiquid Asset Redemptions 305 195 165 90 90 90 90 90 90 90 90 90
Illiquid Asset Distributions 49 56 36 50 50 50 50 50 50 50 50 50 Private Asset DistributionsIlliquid Asset Redemptions 2 0 Hedge Funds / Portable Alpha
Employee / Employer Contributions 51 67 56 50 50 50 50 50 50 50 50 50Other 2 0 0 1 1 1 1 1 1 1 1 1 Suspense Account / Corporate Action / Overlay
Month Ending Cash, BNYM $24 $33 $43 $44 $45 $46 $47 $48 $49 $50 $51 $52
Corporate Action/Suspense 3 3 3 4 4 4 4 4 4 4 4 4 Month Ending Cash, STO 22 36 30 20 20 20 20 20 20 20 20 20
Month-End Capital AllocationsActual Target Var. Range
Global Equity 6,476 6,382 6,338 6,233 6,143 6,052 5,962 5,872 5,783 5,693 5,604 5,515 (44) 40.3% 35.5% 4.8% +/-5%Risk Reduction & Mitigation 3,349 3,307 3,299 3,225 3,200 3,175 3,150 3,125 3,100 3,075 3,050 3,025 (8) 21.0% 19.5% 1.5% +/-3%Credit Oriented Fixed Income 2,286 2,298 2,293 2,353 2,349 2,346 2,342 2,339 2,335 2,332 2,328 2,325 (5) 14.6% 15.0% -0.4% +/-4%Real Assets 3,112 3,129 3,128 3,137 3,132 3,128 3,123 3,119 3,114 3,109 3,105 3,100 (1) 19.9% 20.0% -0.1% +/-4%Multi-Risk Allocation 421 539 639 737 838 938 1,038 1,138 1,238 1,337 1,436 1,534 100 4.1% 10.0% -5.9% +/-4%STO Cash 22 36 30 20 20 20 20 20 20 20 20 20 (6) 0.2% 0.0% 0.2%
Total (net of cash flows) $15,666 $15,691 $15,727 $15,704 $15,682 $15,659 $15,636 $15,613 $15,590 $15,566 $15,543 $15,519 36 100.0% 100.0%
Month-End Percentage AllocationsFund Balance (less STO) $15,644 $15,655 $15,697 $15,684 $15,662 $15,639 $15,616 $15,593 $15,570 $15,546 $15,523 $15,499Global Equity 41.4% 40.8% 40.4% 39.7% 39.2% 38.7% 38.2% 37.7% 37.1% 36.6% 36.1% 35.6%Risk Reduction & Mitigation 21.4% 21.1% 21.0% 20.6% 20.4% 20.3% 20.2% 20.0% 19.9% 19.8% 19.7% 19.5%Credit Oriented Fixed Income 14.6% 14.7% 14.6% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%Real Assets 19.9% 20.0% 19.9% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%Multi-Risk Allocation 2.7% 3.4% 4.1% 4.7% 5.4% 6.0% 6.7% 7.3% 8.0% 8.6% 9.3% 9.9%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Current Month's Weights
Month's Activity
September Change in Value
Real Asset Liquidity Overlay: $65m Global Public Stock: $100m
Multi-Risk: $100m
Actuals Estimate
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Manager Selection Activity ReportNovember, 2019
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Slide 2
Overview: Manager Selection Process
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Slide 3
Manager Selection Pipeline In Process - Liquid Allocation Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Transition Management Total Fund Completed Completed In Process Summary: Transition Management (Contract Expiration)
Schroders International Small Cap Global Equity Completed Completed Completed Completed CompletedSummary: Liquid Global Public Stock (Termination)
In Process - Illiquid Allocation Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Single-Family Rental Real Assets In Process Summary: Private Value-Add Real Estate (New Mandate)
Altaris Fund V Global Equity In Process Summary: Private Equity (Follow-On Investment)
Illiquid Farmland Real Assets Completed Completed Completed In Process Summary: Private Farmland (New Mandate)
Contingent Capital Credit Completed Completed Completed In Process Summary: Private Debt (New Mandate)
Madison Dearborn Partners VIII Global Equity Completed Completed Completed Completed CompletedSummary: Private Equity (Follow-On Investment)
IFM Global Infrastructure Real Assets Completed Completed Completed Completed CompletedSummary: Illiquid Infrastructure (Increased Mandate)
New Rock Core Real Estate Fund Real Assets Completed Completed Completed Completed CompletedSummary: Illiquid Core+ Real Estate (Increased Mandate)
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Slide 4
Schroder International Small Cap Mandate Termination
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Slide 5
On October 25, 2019 the Alpha team proposed the termination of Schroders, a liquid international small-cap manager within the Global Equity portfolio. This proposal is in response to the continued underperformance within the portfolio, and the significant team turnover in the last year. Staff shall provide a 30 day notice of termination to the manager, for a contract termination date effective December 08, 2019. The liquidation of this account will be managed through the utilization of a transition manager.
Proceeds from this liquidation (~$125m) will be reallocated as follows:
1) Reallocate to 2 high conviction small cap managers• $25 million Principal – International Small Cap• $25 million Kayne Anderson Rudnick – U.S. Small Cap
2) Fund Risk Parity with the remainder at the next tranche, approximately $75 million
Proposal:
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Slide 6
Schroders:Performance Review
-1.85%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
May
-12
Sep-
12Ja
n-13
May
-13
Sep-
13Ja
n-14
May
-14
Sep-
14Ja
n-15
May
-15
Sep-
15Ja
n-16
May
-16
Sep-
16Ja
n-17
May
-17
Sep-
17Ja
n-18
May
-18
Sep-
18Ja
n-19
May
-19
Cumulative Excess Active Return Distribution +/- 1 St Deviation
05/31/2012 - 7/31/2019300 bps excess return and 500 bps tracking error expectation
Cumulative NOF Excess Return (%)
Lower Band
Target
Upper Band
Annualized Ex-Ante TE as of July 2019 = 2.77%
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Slide 7
Reallocation of Capital: Principal International Small Cap Equity Organization
A member of the Fortune 500, Principal Financial Group was founded in 1879 and began managing retirement assets in 1941. Principal now manages $667 billion, including $412 billion under the Principal Global Investors umbrella and $96.5 billion within Principal Global Equities.
Investment Team
Headquartered in Des Moines, Iowa, Principal Global Equities has 70 dedicated equity investment professionals with an average of 19 years of experience and 14 years of tenure at Principal. Brian Pattinson serves as lead portfolio manager for the firm's international portfolios while providing oversight to the U.S. small-cap team. Brian also leads the global small-cap team's research and development efforts. Tiffany Lavastida is a portfolio manager for Principal Global Equities. Her responsibilities include portfolio management and analysis on the int'l small-cap team and covers financials, real estate and energy sectors.
Investment Strategy
International Small Cap Equity aims to provide long-term capital growth by primarily investing in small-cap companies domiciled in developed international (ex-U.S.) markets. Principal portfolio managers are bottom-up, earnings focused investors who embrace the principles of behavioral finance. Recognizing that investors are change averse and risk averse, Principal seeks to capitalize on persistent biases, anomalies and inefficiencies by identifying companies exhibiting: (1) Fundamental Change – placing particular emphasis on sustainable earnings trends, (2) Expectation Gaps – opportunities offering the greatest potential for positive earnings surprise and (3) Relative Valuation – focusing on companies offering a valuation discount with re-rating potential. Portfolio profiles typically reflect a compelling simultaneous combination of growth and value characteristics relative to the benchmark.
Edge
With a Global Research Platform and proprietary risk management framework, Principal leverages powerful analytical tools and technology platforms to complement fundamental research, analysis, and insights in order to make well-informed, high conviction stock selection and portfolio construction decisions.
Highlights
Strategy Inception: December 2007 (PERA)
Regional Focus: Non-US small cap developed markets
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Slide 8
Principal: Performance Review
26.12%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
Dec-
07Ju
n-08
Dec-
08Ju
n-09
Dec-
09Ju
n-10
Dec-
10Ju
n-11
Dec-
11Ju
n-12
Dec-
12Ju
n-13
Dec-
13Ju
n-14
Dec-
14Ju
n-15
Dec-
15Ju
n-16
Dec-
16Ju
n-17
Dec-
17Ju
n-18
Dec-
18Ju
n-19
Cumulative Excess Active Return Distribution +/- 1 St Deviation
12/31/2007 - 7/31/2019250 bps excess return and 500 bps tracking error expectation
Cumulative NOF Excess Return (%)
Lower Band
Target
Upper Band
Annualized Ex-Ante TE as of June 2019 = 1.79%
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Slide 9
Reallocation of Capital: Kayne Anderson Domestic Small CapOrganizationKAR is structured as a LLC and a wholly owned subsidiary of Virtus Investment Partners, Inc. The firm provides an array of investment products across equity and fixed income. The AUM for the firm is $20.5 billion., with the small cap core product being $5.7 billion and soft closed for new investors.
Investment Team The investment team as a whole equals 7 professionals based in Los Angeles, CA and the overall investment and research function is cooperative and team oriented. The portfolio managers, Todd Beiley and Jon Christensen, are ultimately responsible for portfolio construction and execution.
Investment StrategyKAR’s goal is to develop unique insight and conviction in each of the companies in the portfolio by evaluating the sustainability of the business model and assess management’s ability to manage the excess capital that the business generates. Stock selection is the most critical factor and while they are cognizant of the macro environment, they only invest in companies that meet their definition of high-quality. Regardless of the trending market cycle, KAR maintains a strict adherence to their high quality investment approach. Ultimately, the portfolio is relatively focused with approximately 20 to 40 companies. The individual holdings are diversified across economic sectors with a sector allocation discipline that allows portfolio sector weights to vary typically within +/-10% of the benchmark (utilizing the Russell sector classifications).
EdgeThe teams goal is to create an approach that results in a focused, low turnover portfolio of companies with durable competitive positions. This approach has been followed since the founding of the firm and believe it will continue to generate attractive risk-adjusted results. Their experience shows that high quality companies typically outperform lower quality companies with less risk over a complete market cycle.
Highlights
PERA Inception: September 2018
Focus: U.S. Small Cap Equity
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Slide 10
Kayne: Performance Review
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Slide 11
Madison Dearborn VIIIFollow-On Investment
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Slide 12
On October 25, 2019 the Alpha Team proposed committing up to $75 million to Madison Dearborn Capital Partners VIII (“MDP VIII”) , L.P. an illiquid private equity partnership which seeks to make buyout and growth investments in established upper-middle market companies located primarily in the United States. The fund will target 15-20 transactions across five industry sectors, basic industries, business & government software and business services, financial & transaction services, healthcare and telecom, media & technology services. The fund will target mid teens net IRR’s and 2.0x MOIC with hold periods of four to five years.
This is a follow-on investment, PERA committed $25 million to MDP VI in 2008.
This recommendation is based on due diligence material and data obtained by the PERA investment division,consultant, and directly from the fund. The due diligence focuses on the strategy of the recommended fund asit fits within the current global equity portfolio. Additionally, PERA defers to the consultant’s primarydiligence on matters relating to the quality and sufficiency of the fund’s back office, compliance, and otheroperational matters.
Proposal
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Slide 13
• Per the Strategic Asset Allocation (SAA), global equity should constituteapproximately 35.5% of the total portfolio, of which private equity is9%. This recommendation would increase the private equity committedallocation bringing the total portfolio closer to approved SAA targets.
Asset Allocation
• MDP has historically outperformed in multiple dimensions. For FundIV- VII the net excess return over MSCI ACWI IMI approximates1370bps (direct alpha) and excess wealth multiple approximates 1.75x(KS-PME ratio). The Alpha target for PE is 260 bps excess return.
Risk Budget/Alpha
• Team of 43 investment professionals in one office in Chicago, IL• Consistent strategy and deal teams with over 15 years experience• Industry focused approach with sector expertise• Trusted partner with longstanding and deep industry relationships in
the Midwest
Seasoned, Stable Management Team
• MDP has a long track record in PE investing across multiple industryverticals
• Proven ability to exit primarily to strategic buyers• Deep experience valuing managers in different market conditions• Midwest proprietary sourcing and deal flow
Edge
Reasons to Invest:
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Slide 14
General PartnerFirm Madison Dearborn Partners, LLC Founded 1992
Locations • Chicago, IL Firm Pedigree
Madison Dearborn was formed as a spin outof First Chicago Venture Capital, the privateequity arm of First National Bank ofChicago. In the early 1980’s the founders ofthe firm worked together at First ChicagoVenture Capital.
Firm AUM Existing GP Yes; $25M in Fund VI
Ownership
Alignment
Firm Summary: MDP VIII, LP
PRIVATE AND CONFIDENTIAL
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Slide 15
Fund
TargetSize
FundraisingStatus
Strategy Buyout and Growth EquityTargetProfile
Team Structure
TrackRecordvs.MSCIACWI(net)
Notable LPs
Fund Summary: MDP VIII, LP
PRIVATE AND CONFIDENTIAL
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Slide 16
ManagementFee
GPCommitment
CarriedInterest LP Advisory
CommitteePreferredReturn
InvestmentPeriod
Key Person
TermSuccessionPlanning
Terms and Governance: MDP VIII, LP
PRIVATE AND CONFIDENTIAL
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Slide 17
Due Diligence Performed: MDP VIIIDate Item
2008 • PERA committed $25 million to Fund VI
2008-2014 • Consultant and Staff reviewed periodically
April 16, 2015 • Met with Co-CEO Paul Finnegan to review potential allocation to Fund VII
2015 – 2018 • Continued review and update calls by Staff
November 14, 2018 • Attendance of Annual Meeting in anticipation of re-up to Fund VIII
March 3, 2019 • Update meeting regarding fundraise in Chicago, IL
September 2019• Torrey Cove conducted primary diligence on matters relating to the quality and sufficiency
of the Fund’s back office, compliance, and other operational matters
August - September 2019• PERA and TorreyCove conduct diligence calls, reference calls with service providers,
lender and limited partners
October 17, 2019 • Staff onsite due diligence
October 25, 2019 • Internal staff review for commitment of up to $75 million;
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Slide 18
Performance Review: MDP Funds IV-VII
PRIVATE AND CONFIDENTIAL
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Slide 19
Performance Review: MDP Funds IV-VII
Net of fee data as of June 30, 2019
PRIVATE AND CONFIDENTIAL
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Slide 20
Performance Review: MDP Funds IV-VII
Net of fee data as of June 30, 2019
PRIVATE AND CONFIDENTIAL
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Slide 21
Performance Review: MDP Fund VI
Net of fee data as of June 30, 2019
PRIVATE AND CONFIDENTIAL
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Slide 22
IFM Global Infrastructure FundIncreased Mandate
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Slide 23
On September 30, 2019 the Alpha Team proposed committing an additional $50 million to IFM GlobalInfrastructure (US), L.P. (“IFM”), an illiquid real assets partnership with a focus on investments in high qualitycore infrastructure assets. IFM seeks to acquire core infrastructure assets with strong market positions, highbarriers to entry, limited demand elasticity and long lives through direct ownership or long-term leases thathave a link to inflation through regulatory price frameworks or contacted terms. IFM is currently invested in23 infrastructure assets diversified across vintage year, geography, and sector. The fund targets a net return of8-12% over rolling three-year periods.
An additional commitment to IFM would constitute an increase to the December 2012 initial commitment of$25 million, and the subsequent September 2016 increased commitment of $75million, resulting in a totalcommitment of $150 million to this open-end core infrastructure fund.
This presentation is based on due diligence material and data obtained by the investment division and consultant, directly from the manager, and focuseson the strategy of the recommended manager as it fits within the current portfolio. Additionally, PERA defers to the consultant’s primary diligence onmatters relating to the quality and sufficiency of the fund’s back office, compliance, and other operational matters.
Proposal
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Slide 24
• PERA and IFM maintain a successful relationship, dating back to 2012,which has contributed to favorable strategy diversification and meaningfuloutperformance, as compared to the portfolio’s policy index; 8.55% directalpha and 1.17 KS PME, net of fees performance for PERA’s currentposition in the fund.
Existing Relationship
• Access to a large scale and highly capable manager that capitalizes on themarket opportunities available due to the substantial imbalance betweenthe capital required to effectively address infrastructure needs and theplanned investment opportunities in the market
Market Opportunity
• An open-end fund structure presents a strategic advantage to PERA,providing the opportunity for vintage year diversification, j-curvemitigation, efficient and prudent capital deployment, and a favorablematching of assets to long-term liabilities
Fund Structure
• Continued utilization of one of the largest infrastructure managers in theworld, with $23.9 billion (at June 30, 2019) in infrastructure investmentsglobally
Firm Pedigree
Reasons to Invest
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Slide 25
Firm Summary: IFM Global Infrastructure (US), L.P.
Firm IFM Investors Founded 2004
HeadquartersMelbourneAdditional offices in: Sydney, New York,London, Berlin, Tokyo and Hong Kong
Firm Pedigree
• One of the earliest investors inAustralian infrastructure
• Contributed significantly to theevolution of the infrastructure market
• One of the largest infrastructuremanagers in the world, with $23.9billion (at June 30, 2019) ininfrastructure investments globally
Firm AUM Existing GP• Yes• $100 million• 100% called and invested
Ownership
Alignment
PRIVATE AND CONFIDENTIAL
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Slide 26
Fund Summary: IFM Global Infrastructure (US), L.P.
Target size Fundraising Status
Strategy
• Construct and maintain a portfolio with long-term, core infrastructure asset that display thefollowing characteristics: monopoly-like,strong market position, consistent regulatoryenvironment, high barriers to entry, limiteddemand-elasticity, exposure to inflation andeconomic growth, and long lives
• Active ownership approach, seeking boardrepresentation for every asset, and utilizingIFM executives within asset managementteams
• Secure and support exceptional managementteams whose compensation is aligned with theasset’s long-term objectives
Target Profile
Team Structure
Track Record
Notable LPs
PRIVATE AND CONFIDENTIAL
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Slide 27
Terms and Governance: IFM Global Infrastructure (US), L.P.
Management Fee GPCommitment
Carried Interest InvestmentCommittee
Preferred Return LP Advisory Committee
Investment Period/Term
Key Person
Liquidity SuccessionPlanning
PRIVATE AND CONFIDENTIAL
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Slide 28
Due Diligence Performed: IFM Global Infrastructure (US), L.P.
Date Item
June 2012 – December 2012• Initial fund diligence, resulting in a $25 million commitment, as approved by the Board of
Trustees
January 2015 • 100% of PERA commitment called and invested
July 2016• PERA receipt of notification of 2016 investor priority period for additional $3 billion
fundraise
July – September 2016• Updated fund diligence, resulting in $75 million additional commitment, as approved by the
Board of Trustees
October 2017 • 100% of PERA commitment called and invested
May 2019• PERA on-site with IFM - visited the Manhattan office and met with Head of
Infrastructure and sector focused team members for an investor update and a review ofindividual responsibilities within the fund
July 2019 • PERA receipt of notification of 2019 investor priority period, expiring September 30, 2019
July – September 2019• PERA and Albourne complete updated diligence on existing portfolio and IFM team for
proposal of increased allocation during priority investor period
Ongoing • Oversight and monitoring of existing investment
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Slide 29
PRIVATE AND CONFIDENTIAL
Performance Review: IFM Global Infrastructure (US), L.P.
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Slide 30
PRIVATE AND CONFIDENTIAL
Performance Review: IFM Global Infrastructure (US), L.P.
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Slide 31
New Rock Core Real Estate FundIncreased Mandate
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Slide 32
On October 25, 2019 the Alpha Team proposed committing an additional $150 million to the New Rock Core RealEstate Fund, an illiquid real estate partnership that will continue their focus on acquiring and managing a portfolio ofhigh-quality, well-located CORE and CORE+ real estate assets that will generate a durable long-term income stream,exclusively for NM PERA through a separate account structure. New Rock will continue to invest across the UnitedStates, with a primary investment objective that will target boutique office and creative workspace in high-qualitycoastal markets. Additionally, New Rock will maintain a secondary investment objective targeting mixed-use real estatewith multi-family exposure.
New Rock’s investment strategy will target a net IRR of 6%-7%, half of which is expected to be comprised of currentincome. Rockwood will seek to expand committed capital to an additional 5-10 properties over the next two to threeyears. Anticipated equity investments will be between $10-$50 million, over the life of the account. This increasedcommitment is an expansion of the current relationship between PERA and the managing member, Rockwood. Todate, PERA has previously committed $20 million to Rockwood Real Estate Partners VIII in 2008, $35 million toRockwood Real Estate Partners Fund IX in 2011, $60 million to Rockwood Real Estate Partners X in 2014, $150million to the initial phase in of the New Rock Core Real Estate Fund in 2017, and $50 million to Rockwood RealEstate Partners Fund XI in 2019.
This presentation is based on due diligence material and data obtained by the investment division and consultant, directly from the manager, and focuses on the strategy ofthe recommended manager as it fits within the current portfolio. Additionally, PERA defers to the consultant’s primary diligence on matters relating to the quality andsufficiency of the fund’s back office, compliance, and other operational matters.
Proposal
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Slide 33
• PERA and Rockwood maintain a successful relationship, dating back to2008, which has contributed to favorable strategy diversification andmeaningful outperformance, as compared to the portfolio’s policy index;10.66% direct alpha and 1.06 KS PME, net of fees performance for PERA’scurrent position in the New Rock Fund. Additionally, PERA’s aggregatedperformance in Rockwood’s value add series has generated a 3.40% directalpha and 1.07 KS PME for the PERA portfolio over the life of therelationship.
Existing Relationship
• PERA continues to seek diversification within the real assets portfolio,with an emphasis on risk-reduction through CORE assets. Thisrecommendation would assist in meeting illiquid core real estate allocationtargets and bringing the portfolio closer to budgeted risk targets.Additionally, this sector focused strategy will further align the Real Estateportfolio more closely with the policy index, as PERA is currentlyunderweight in office properties.
Asset Allocation
• Unique and appropriately designed structure that allows PERA access tooptimal opportunities given current market conditions and currentexposures within the existing PERA real estate portfolio
• Flexibility to redefine execution parameters around changing economic,political and real estate fundamentals
Optimal Investment Structure
• Rockwood’s strong sponsorship and reputation for integrity presents astrategic advantage to PERA, who can leverage Rockwood’s reputation andextensive professional network to gain access to favorable investmentopportunities through proprietary deal flow and creative deal structuring
Firm Pedigree
Reasons to Invest
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Slide 34
Firm Summary: New Rock Core Real Estate Fund
Firm Rockwood Capital, LLC Founded 1995
Locations• Headquartered in New York, NY• Additional locations: San Francisco, CA,
Los Angeles, CA, and Seoul, KoreaFirm Pedigree
• Rockwood’s real estate professionals havediverse skill sets and experience that spanseveral real estate and capital marketscycles
• Rockwood is led by a senior team with anaverage tenure of 23 years of real estateexperience
Firm AUM Existing GP
• Yes• $20 million to Fund VIII in 2008• $35 million to Fund IX in 2011• $60 million to Fund X in 2014• $150 million to New Rock in 2017• $50 million to Fund XI in 2019
Ownership
Alignment
PRIVATE AND CONFIDENTIAL
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Slide 35
Target Size
Fundraising Status
Strategy
• PERA customized separate account focused on theacquisition and management of office and mixed-useresidential properties
• Employ active asset management to reposition, re-lease,rehabilitate, and/or develop real estate assets
• Focus on growing and evolving neighborhoods,especially those driven by a concentration ofknowledge, education, and wealth or population-basedsocioeconomic trends
• Targeted markets will have a combination of growth,government sponsored infrastructure, regulatorysupport for business interests, and supply constraints
• Pursue a mix of assets, some with income in place andothers where the business plan will require some timeto put income in place, in order to construct a diverseand balanced portfolio that has a combination ofcurrent return and value creation upside
Target Profile
Team Structure
Track Record
Notable LPs
Fund Summary: New Rock Core Real Estate Fund
PRIVATE AND CONFIDENTIAL
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Slide 36
Management Fee
GPCommitment
CarriedInterest
GovernanceCommittees
Preferred Return
LP Advisory Committee
Investment Period
Key Person
TermSuccessionPlanning
Terms and Governance: New Rock Core Real Estate Fund
PRIVATE AND CONFIDENTIAL
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Slide 37
Date Item
December 2008 – Ongoing• PERA and Rockwood partnership begins with an initial investment in Rockwood Fund
VIII. PERA and consultant conduct ongoing diligence calls, annual meeting attendance,and periodic onsite meetings with Rockwood to monitor current funds
Early 2016 (and Ongoing)• PERA increases its focus on risk reduction within the real estate portfolio, primarily
focusing on core real estate investment opportunities
May 2016 • Launch of diligence on Rockwood Capital SMA opportunity
May 2016 – March 2017• PERA and consultant conduct ongoing diligence calls with Rockwood, reference calls with
service providers, lender, and limited partners
March 2017• Initial investment of $150m approved by the Board of Trustees and first capital allocation
to California office property
November 2018 • Annual meeting and onsite visits to properties within the Fund
July – October 2019• PERA and Albourne complete updated diligence on existing portfolio and Rockwood team
for proposal of increased allocation
Ongoing • Oversight and monitoring of all existing investments; SMA and flagship funds XIII – XI.
Due Diligence Performed: Rockwood Capital
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Slide 38
PRIVATE AND CONFIDENTIAL
Performance Review: New Rock Core Real Estate Fund
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Slide 39
PRIVATE AND CONFIDENTIAL
Performance Review: New Rock Core Real Estate Fund
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Slide 40
PRIVATE AND CONFIDENTIAL
PME vs. Policy Index: New Rock Core Real Estate Fund
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Slide 41
PRIVATE AND CONFIDENTIAL
PME vs. Sector Specific Index: New Rock Core Real Estate Fund
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INVESTMENT COMMITTEE MEETING SENATOR FABIAN CHAVEZ JR. BOARD ROOM
PERA BUILDING
November 12, 2019 at 9:00am MT
COMMITTEE MEMBERS John Melia, Chair Steve Neel, Vice Chair Dan Mayfield Loretta Naranjo-Lopez Shirley Ragin
AGENDA
1. Roll Call2. Approval of Agenda3. Approval of Consent Agenda4. Current Business
ITEM PRESENTER
A Information Item: Performance Update
1. CIO Update2. Quarterly Market Review3. Quarterly Performance Review
Dominic Garcia Chief Investment Officer
Thomas Toth Managing Director, Wilshire
B Information Item: Quarterly Staff Consultant Report (Real Assets)
Kristin Varela Deputy Chief Investment Officer
Heather Christopher, Head of Real Estate, Albourne
Mark White, Head of Real Assets, Albourne
C Information Item: Internal Investment Process Enhancement- Monitoring
LeAnn Larranaga-Ruffy, Co-Head Alpha
Joaquin Lujan, Co-Head Alpha
Frank Mihail, Jr. Portfolio Manager
D Information Item: Benchmarks Review Thomas Toth Managing Director, Wilshire
E Information Item: Investment Division Updates
1. Cash Plan & Rebalance Update(July, August, September 2019)
2. Manager Selection Activity Report3. Securities Lending Update (Q3 2019)
Kristin Varela
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5. Adjournment
Consent Agenda
Approval of minutes of August 29, 2019 Investments Committee meeting.
Any person with a disability who is in need of a reader, amplifier, qualified sign language interpreter, or any other form of auxiliary aid or service to attend or participate in the hearing or meeting, please contact Trish Winter at (505) 476-9305 at least one week prior to the meeting, or as soon as possible. Public documents, including the agenda and minutes, can be provided in various accessible formats. Please contact Trish Winter if a summary or other type of accessible format is needed.
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Chief Investment Officer’s Update
November 12, 2019
Dominic Garcia, Chief Investment Officer
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Slide 2
PERA Long-Term Investment Objectives Scorecard
PERA Investment Objectives Actual Results
Maintain appropriate strategic asset allocation to meet the actuarial discount rate assumption over the long run
Exceeded actuarial hurdle rates for 3 years, 10 years, 30 years, and since data inception (1985)
Meet 10-Year annualized returns to equal or exceed benchmarks
Exceeded Passive “Reference” Portfolio & Internal Benchmarks for 3, 10, 20, 30 years, and since data inception (1985)
For 10 years, PERA produced approximately $1.5 billion in value add over Passive “Reference” Portfolio
Achieve a total investment cost at or below a benchmark cost relative to peers adjusted for fund size and asset mix.
Compared to 317 Global funds (162 U.S. Pension funds, 74 Canadian funds, 70 European funds, 8 Asia-Pacific funds), PERA is low cost and saved approximately $1.7m in fees and costs.
As of 9/30/2019
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Slide 3
Stra
tegi
c Dir
ectio
n1. Reference Portfolio
Set Risk Tolerance@ 10.5% Risk
2. Strategic Asset Allocation
Diversified Systematic (“Beta”) Risk/Return
3. Risk Budget
Illiquid Active Implementation
Liquid Active Structure Allocation
Liquid Active Manager Selection
4. Benchmarks Evaluate Results
IC and Board Investment Strategic Governance: Four Main Decision Points
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Slide 4
PERA Current Total Risk Budget
Reference Portfolio
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
9.00 9.50 10.00 10.50 11.00
Expe
cted
Ret
urn
Expected Risk
10 Year Portfolio Expectations Comparison
Source: Wilshire 10 Year capital market expectations as of 3/31/2019
Total Expected Value Add
1.4%
Expected Value Add Over the Reference Portfolio
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Slide 5
Market Beta Risk
AllocationSelection
• Risk and Return Coming from Passive Asset Allocation
• Risk and Return Coming from Active Allocation to Private Assets
• 10 Year Expected Active Risk = 1.40%
• Risk and Return Coming from Active Allocation to Liquid Strategies
• 10 Year Expected Active Risk = 0.60%
Active Risk = 1.5%, +/- 0.5%
Passive Risk = 9.90%
Total Risk = 10.5%
Risk Budget 2019
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Slide 6
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Passive + Risk Balance + Private Assets + Active = Total
5.60% 5.60%
0.40% 0.40%
0.60% 0.60%
0.40% 0.40%
10 Year Targeted Expected Returns
Passive Reference Portfolio Risk Balance Diversified Private Assets Active Management
7.00%
Strategy #1:Improved Risk Diversification
Beta Risk Budget
Strategy #2: Private Asset Allocation
Allocation RiskBudget
Strategy #3:Selective ActiveManagement
Selection RiskBudget
ValueAdd
Bridging the Return Gap
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Slide 7
Reference Portfolio & Total Risk Budget Active Risk
Absolute Risk Tolerance: Beta + Active Risk = 10.5% Tracking Error 1.5% +/- 0.50%
1 year 6.9% 3.14%
3 year 4.82% 2.09%
5 year 5.56% 1.91%
10 year 7.59% 1.52%
• Realized total risk has been well below 10.5% risk tolerance.
• Why is TE over 2% in short time frames? A: lagging effect in private markets vs. public market benchmarks
Are We Staying Within Our Risk Tolerance?
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Slide 8
TE = 1.52%
Active Return
Tracking Error and Active Return Over Time
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Slide 9
What’s Ahead?
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W i l s h i r e C o n s u l t i n g
WILSHIRE ASSOCIATES
November 2019
Thomas Toth, CFA
Q u a r t e r l y M a r k e t R e v i e w
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©2019 Wilshire Associates. 2
Designed to review the current market environment, propose thought-leading investment strategies, and provide networking opportunities for our clients.
W i l s h i r e C o n s u l t i n g
YOU’RE INVITED!
The Ritz-CarltonMarina del Rey, California
38th Annual Client ConferenceS u n d a y, A p r i l 5 t h – Tu e s d a y, A p r i l 7 t h
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©2019 Wilshire Associates. 3
• Weighted average of 85 monthly indicators including 1) production and income, 2) employment, 3) consumption and housing and 4) sales, orders, and inventories (all inflation adjusted)
• Aims to identify when a recession may begin (during periods of growth) or end (when already experiencing a recession)
W i l s h i r e C o n s u l t i n g
NATIONAL ACTIVITY INDEX
Data sources: Federal Reserve
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50CHICAGO FED NATIONAL ACTIVITY INDEX (3M MA)
Increasing likelihood that a recession has begun
Significant likelihood that a recession has ended
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©2019 Wilshire Associates. 4
Text
W i l s h i r e C o n s u l t i n g
RISK MONITOR
Data sources: Federal Reserve, Bloomberg Barclays
Text
Text Text
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
10-Y
ear
Trea
sury
-3-
Mon
th T
Bill
(%)
YIELD CURVE SLOPE VS RECESSIONS (IN GRAY)
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Opt
ions
Adj
uste
d Sp
read
(%
)
BLOOMBERG BARCLAYS CREDIT INDEXES
Investment Grade
High Yield
< — Investment Grade High Yield — >
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Mar
ket
Stre
ss R
elat
ive
to A
vera
ge (
Zero
)
ST. LOUIS FED FINANCIAL STRESS INDEX
Constructed from seven interest rate series, six yield spreads and five other financial stress indicators.0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
30-D
ay E
xpec
ted
Vola
tility
(%
)
CBOE VOLATILITY INDEX
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©2019 Wilshire Associates. 5
Wi l s h i r e C o n s u l t i n g
GROWTH
• Globally, economic growth has slowed as trade concerns have impacted manufacturing
investment.
• U.S consumption is healthy, though the most recent read on consumer spending
unexpectedly fell.
• Wage growth has improved while inflation remains contained and unemployment is
low.
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©2019 Wilshire Associates. 6
• Earnings growth in the U.S. has moderated for calendar year 2019 after two strong years in 2017-2018.
• Earnings slowdown combined with elevated valuations represents a risk to equity prices.
W i l s h i r e C o n s u l t i n g
EARNINGS EXPECTATIONS
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©2019 Wilshire Associates. 7
• Federal Reserve decreased their short-term rate twice during the 3rd quarter
• Markets are far more dovish, expecting additional decreases this year and next
W i l s h i r e C o n s u l t i n g
SHORT-TERM RATES
Data sources: Federal Reserve, Bloomberg
0.00
0.50
1.00
1.50
2.00
2.50
3.00FEDERAL FUNDS RATE (%)
Effective Rate FOMC year-end est. Market expectations
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W i l s h i r e C o n s u l t i n g
ASSET CLASS PERFORMANCE
Data sources: Wilshire Compass Note: Developed asset class is developed equity markets ex-U.S., ex-Canada
ANNUALIZED5-YEAR
2014 2015 2016 2017 2018 2019 YTD AS OF 9/2019REITs REITs MLPs Emrg Mrkts T-Bills REITs U.S. Equity31.8% 4.2% 18.3% 37.7% 1.9% 27.2% 10.6%
U.S. Equity U.S. Equity High Yield Developed Core Bond U.S. Equity REITs12.7% 0.7% 17.1% 25.6% 0.0% 20.1% 10.2%
Core Bond Core Bond U.S. Equity U.S. Equity U.S. TIPS Developed High Yield6.0% 0.6% 13.4% 21.0% -1.3% 13.4% 5.4%MLPs T-Bills Commodities High Yield High Yield High Yield Developed4.8% 0.1% 11.8% 7.5% -2.1% 11.4% 3.8%
U.S. TIPS Developed Emrg Mrkts REITs REITs MLPs Core Bond3.6% -0.4% 11.6% 4.2% -4.8% 11.1% 3.4%
High Yield U.S. TIPS REITs Core Bond U.S. Equity Core Bond Emrg Mrkts2.5% -1.4% 7.2% 3.6% -5.3% 8.5% 2.7%T-Bills High Yield U.S. TIPS U.S. TIPS Commodities U.S. TIPS U.S. TIPS0.0% -4.5% 4.7% 3.0% -11.2% 7.6% 2.4%
Emrg Mrkts Emrg Mrkts Core Bond Commodities MLPs Emrg Mrkts T-Bills-1.8% -14.6% 2.6% 1.7% -12.4% 6.2% 1.0%
Developed Commodities Developed T-Bills Developed Commodities Commodities-4.5% -24.7% 1.5% 0.8% -13.4% 3.1% -7.2%
Commodities MLPs T-Bills MLPs Emrg Mrkts T-Bills MLPs-17.0% -32.6% 0.3% -6.5% -14.2% 1.8% -8.6%
ASSET CLASS RETURNS - BEST TO WORST
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W i l s h i r e C o n s u l t i n g
SEPTEMBER 2019 ASSET CLASS ASSUMPTIONS
Dev Global LT Dev ex-US ex-US Emg ex-US Global Private Core Core High US Bond US Global Private Real US
Stock Stock Stock Stock Stock Equity Cash Bond Bond TIPS Yield (Hdg) RES RES RE Cmdty Assets CPICOMPOUND RETURN (%) 6.00 6.50 6.50 6.75 6.45 8.05 1.60 2.70 3.25 1.90 4.20 0.75 4.70 4.90 6.60 3.15 5.70 1.55ARITHMETIC RETURN (%) 7.30 7.95 9.45 8.35 7.75 11.40 1.60 2.85 3.70 2.10 4.65 0.80 6.05 6.05 7.50 4.20 6.05 1.55EXPECTED RISK (%) 17.00 18.00 26.00 18.80 17.05 28.00 1.25 5.15 9.85 6.00 10.00 3.50 17.00 15.80 14.00 15.00 8.75 1.75CASH YIELD (%) 2.00 3.50 2.50 3.25 2.55 0.00 1.60 2.80 4.05 2.10 7.55 1.35 3.55 3.55 2.60 1.60 2.35 0.00
CORRELATIONSUS Stock 1.00Dev ex-US Stock (USD) 0.81 1.00Emerging Mkt Stock 0.74 0.74 1.00Global ex-US Stock 0.83 0.96 0.86 1.00Global Stock 0.94 0.92 0.82 0.94 1.00Private Equity 0.74 0.64 0.62 0.67 0.74 1.00Cash Equivalents -0.05 -0.09 -0.05 -0.08 -0.07 0.00 1.00Core Bond 0.28 0.13 0.00 0.09 0.20 0.31 0.19 1.00LT Core Bond 0.31 0.16 0.01 0.12 0.23 0.32 0.11 0.93 1.00TIPS -0.05 0.00 0.15 0.05 0.00 -0.03 0.20 0.60 0.47 1.00High Yield Bond 0.54 0.39 0.49 0.45 0.51 0.34 -0.10 0.25 0.32 0.05 1.00Dev ex-US Bond (Hdg) 0.16 0.25 -0.01 0.18 0.18 0.26 0.10 0.67 0.66 0.39 0.26 1.00US RE Securities 0.59 0.47 0.44 0.49 0.56 0.50 -0.05 0.17 0.23 0.10 0.56 0.05 1.00Global RE Securities 0.65 0.59 0.56 0.62 0.66 0.58 -0.05 0.17 0.22 0.11 0.62 0.03 0.94 1.00Private Real Estate 0.54 0.44 0.44 0.47 0.52 0.51 -0.05 0.19 0.25 0.09 0.57 0.05 0.77 0.76 1.00Commodities 0.25 0.34 0.39 0.38 0.32 0.27 0.00 -0.02 -0.02 0.25 0.29 -0.10 0.25 0.28 0.25 1.00Real Assets 0.42 0.43 0.50 0.48 0.47 0.43 0.01 0.24 0.25 0.41 0.53 0.06 0.65 0.69 0.69 0.59 1.00Inflation (CPI) -0.10 -0.15 -0.13 -0.15 -0.13 -0.10 0.10 -0.12 -0.12 0.15 -0.08 -0.08 0.05 0.03 0.05 0.44 0.26 1.00
EQUITY FIXED INCOME REAL ASSETSReal Estate
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APPENDIX
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W i l s h i r e C o n s u l t i n g
U.S. EQUITY MARKET
Data sources: Wilshire Compass, Wilshire Atlas
AS OF SEPT 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
WILSHIRE 5000 INDEX 1.2 20.1 3.0 12.9 10.6 13.1WILSHIRE U.S. LARGE CAP 1.5 20.6 4.0 13.4 10.9 13.2WILSHIRE U.S. SMALL CAP -1.8 15.8 -7.0 8.2 8.0 12.1WILSHIRE U.S. LARGE GROWTH 0.8 22.1 1.5 16.0 12.3 14.1WILSHIRE U.S. LARGE VALUE 2.2 19.2 6.4 10.8 9.4 12.3WILSHIRE U.S. SMALL GROWTH -2.7 17.6 -6.6 11.0 8.5 12.7WILSHIRE U.S. SMALL VALUE -0.9 13.9 -7.4 5.5 7.4 11.4WILSHIRE REIT INDEX 7.9 27.2 18.4 7.2 10.2 13.1MSCI USA MIN. VOL. INDEX 4.1 23.5 14.0 13.8 12.9 13.7FTSE RAFI U.S. 1000 INDEX 1.7 18.1 1.8 10.6 8.7 12.2
20.1
15.4
24.7
4.0
28.6
21.9
22.0
22.8
20.2
5.8
18.8
30.9
1.2
-0.2
8.1
-7.1
7.6
5.9
2.4
0.7
0.2
-3.8
1.7
2.7
Wilshire 5000
Materials
Utilities
Energy
Real Estate
Consumer Staples
Communication Services
Industrials
Consumer Discretionary
Health Care
Financials
Information Technology
2.5%
3.5%
4.2%
4.6%
7.1%
9.4%
10.1%
10.5%
12.9%
13.9%
21.3%
WILSHIRE 5000 SECTOR WEIGHT & RETURN (%)
3rd Quarter Year to Date
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Larg
e C
ap in
exc
ess
of S
mal
l C
ap
LARGE CAP VS SMALL CAP
QTD Excess Return Rolling 3-Year Excess Return
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Gro
wth
in e
xces
s of
Val
ue
GROWTH VS VALUE
QTD Excess Return Rolling 3-Year Excess Return
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Higher quality names continue to lead the market during the third quarter
W i l s h i r e C o n s u l t i n g
RETURNS BY QUALITY SEGMENT
Data sources: Wilshire Atlas
(10.00)
(5.00)
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
3Q 19 YTD 2019
Tota
l Ret
urn
(%)
RETURN BY S&P QUALITY RATING
A+ A A- B+ B B- C / D
A+ 6%A 9%A‐ 15%B+ 30%B 16%B‐ 8%C / D 2%N.A. 13%
Segment Weightsas of June 30
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W i l s h i r e C o n s u l t i n g
NON-U.S. EQUITY MARKET
Data sources: Wilshire Compass
AS OF SEPT 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
MSCI ACWI EX-US ($G) -1.7 12.1 -0.7 6.8 3.4 4.9MSCI EAFE ($G) -1.0 13.4 -0.8 7.0 3.8 5.4MSCI EMERGING MARKETS ($G) -4.1 6.2 -1.6 6.4 2.7 3.7MSCI FRONTIER MARKETS ($G) -1.0 11.0 6.2 7.4 -0.9 4.0MSCI ACWI EX-US GROWTH ($G) -0.8 16.6 2.4 7.8 5.2 6.2MSCI ACWI EX-US VALUE ($G) -2.7 7.5 -3.9 5.9 1.5 3.6MSCI ACWI EX-US SMALL ($G) -1.1 10.7 -5.2 5.0 4.5 6.8MSCI ACWI MINIMUM VOLATILITY 2.9 18.2 10.5 10.5 10.1 10.9MSCI EAFE MINIMUM VOLATILITY 0.9 12.4 4.1 6.7 6.8 7.7FTSE RAFI DEVELOPED EX-US -1.3 9.9 -4.2 7.0 2.8 4.2MSCI EAFE LC (G) 1.8 16.2 2.1 8.8 6.5 7.5
13.4
19.9
10.7
24.0
16.9
10.2
11.6
-1.0
-0.9
-4.0
0.3
-1.6
-2.5
3.3
MSCI EAFE
Australia
Germany
Switzerland
France
United Kingdom
Japan
7.0%
8.5%
9.4%
11.4%
16.4%
24.6%
MSCI EAFE: LARGEST COUNTRIES & RETURN (USD)
3rd Quarter Year to Date
6.2
-1.5
10.5
2.2
16.7
-0.7
8.1
-4.1
-11.8
-4.6
-5.2
5.9
-4.5
-4.6
MSCI Emrg Mrkts
South Africa
Brazil
India
Taiwan
South Korea
China
4.7%
7.6%
8.9%
11.5%
12.2%
31.9%
MSCI EM: LARGEST COUNTRIES & RETURN (USD)
3rd Quarter Year to Date
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W i l s h i r e C o n s u l t i n g
U.S. FIXED INCOME
Data sources: Wilshire Compass, Bloomberg Barclays, U.S. Treasury
0
100
200
300
400
500
600
700
800
900
Opt
ion
Adju
sted
Spr
ead
(bps
)
BLOOMBERG BARCLAYS FIXED INCOME INDEXES
Securitized IG Corporate Aa Corporate High Yield
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
0 5 10 15 20 25 30
Yiel
d (%
)
Maturity (yrs)
TREASURY YIELD CURVE
Current Quarter Previous Quarter One Year Ago
AS OF SEPT 30, 2019 YTM DURATION QTR YTD 1 YR 3 YR 5 YR 10 YR
BLOOMBERG BARCLAYS AGGREGATE 2.3 5.8 2.3 8.5 10.3 2.9 3.4 3.7BLOOMBERG BARCLAYS TREASURY 1.7 6.6 2.4 7.7 10.5 2.2 2.9 3.1BLOOMBERG BARCLAYS GOV'T-REL. 2.4 5.8 2.4 8.8 10.1 3.2 3.4 3.5BLOOMBERG BARCLAYS SECURITIZED 2.4 2.9 1.4 5.8 7.9 2.4 2.8 3.3BLOOMBERG BARCLAYS CORPORATE 2.9 7.8 3.1 13.2 13.0 4.5 4.7 5.6BLOOMBERG BARCLAYS LT G/C 3.0 15.9 6.6 20.9 21.9 5.6 6.8 7.4BLOOMBERG BARCLAYS LT TREASURY 2.1 18.3 7.9 19.8 24.8 4.1 6.8 6.9BLOOMBERG BARCLAYS LT GOV't-REL. 3.5 12.7 5.6 18.8 18.8 6.0 6.5 7.3BLOOMBERG BARCLAYS LT CORP. 3.6 14.4 5.6 22.3 20.1 6.5 7.0 7.8BLOOMBERG BARCLAYS U.S. TIPS * 1.6 7.6 1.4 7.6 7.1 2.2 2.4 3.5BLOOMBERG BARCLAYS HIGH YIELD 6.3 3.1 1.3 11.4 6.4 6.1 5.4 7.9TREASURY BILLS 1.9 0.25 0.6 1.8 2.4 1.5 1.0 0.5
* Yield and Duration statistics are for a proxy index based on similar maturity, the Bloomberg Barclays U.S. Treasury 7-10 Year Index
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W i l s h i r e C o n s u l t i n g
NON-U.S. FIXED INCOME
Data sources: Wilshire Compass, Bloomberg Barclays, Federal Reserve Bank of St. Louis
AS OF SEPT 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
DEVELOPED MARKETSBLMBRG BRCLYS GLBL AGGREGATE xUS -0.6 4.4 5.3 0.4 0.9 1.3BLMBRG BRCLYS GLBL AGGREGATE xUS * 2.8 8.8 10.8 4.1 4.6 4.4BLMBRG BRCLYS GLOBAL INF LNKD xUS 2.0 8.4 7.2 2.1 1.9 3.3BLMBRG BRCLYS GLOBAL INF LNKD xUS * 6.0 13.9 15.4 5.5 7.3 6.5EMERGING MARKETS (HARD CURRENCY)BLMBRG BRCLYS EM USD AGGREGATE 1.3 10.8 10.6 4.4 5.0 6.7EMERGING MARKETS (FOREIGN CURRENCY)BLMBRG BRCLYS EM LOCAL CURR. GOV'T -0.6 5.3 7.9 2.4 1.1 3.3BLMBRG BRCLYS EM LOCAL CURR. GOV'T * 2.8 7.9 10.7 3.7 3.8 3.8EURO vs. DOLLAR -4.3 -4.6 -6.1 -1.0 -2.9 -2.9YEN vs. DOLLAR -0.3 1.5 5.1 -2.1 0.3 -1.9POUND vs. DOLLAR -3.2 -3.2 -5.5 -1.7 -5.3 -2.6* Returns are reported in terms of local market investors, w hich removes currency effects.
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Yiel
d to
Wor
st (
%)
BLOOMBERG BARCLAYS FIXED INCOME INDEXES
U.S. Treasury Global xUS Gov't EM USD Sovereign EM Foreign Gov't
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
0
10
20
30
40
50
60
70
80
90
100
Rolli
ng 1
-Yea
r Re
turn
Inde
x Le
vel
U.S. DOLLAR INDEX: MAJOR CURRENCIES
Index Level Rolling 1-Year Return
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W i l s h i r e C o n s u l t i n g
GLOBAL INTEREST RATES
Data sources: Bloomberg
Much of Europe and Japan exhibit negative rates; Long rates are down globally during the past six months
United States
Germany
FranceUnited Kingdom
Japan
AustraliaCanada
China
South Korea
India Russia
Brazil
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
-2.00 -1.00 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00
10-Y
ear
Yiel
ds (
%)
3-Month Yields (%)
GOVERNMENT BOND YIELDS
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• Pricing in some markets is such that short-term rates are discounted to remain negative
• Main concern with negative rates is that market participants hold cash rather than bank deposits
– Minimum deposit rates and tiered bank reserves partially protect against negative interest
– However, this limits the effectiveness of rate cuts below zero
• Markets with negative rates are thought to provide less diversification benefits to a diversified portfolio, although low but positive yields can still lower overall portfolio risk
W i l s h i r e C o n s u l t i n g
NEGATIVE RATES
Data sources: Bridgewater
Expected 1‐Year Cash Rate (Years Forward) 0 1 2 3Switzerland ‐0.97% ‐0.99% ‐1.06% ‐1.10%Denmark ‐0.86% ‐0.91% ‐0.94% ‐0.93%Germany ‐0.71% ‐0.91% ‐1.00% ‐0.98%France ‐0.65% ‐0.79% ‐0.80% ‐0.72%Sweden ‐0.64% ‐0.83% ‐0.87% ‐0.81%Japan ‐0.29% ‐0.44% ‐0.56% ‐0.62%United Kingdom 0.49% 0.16% ‐0.01% ‐0.07%Australia 0.69% 0.47% 0.39% 0.44%Canada 1.61% 1.29% 1.10% 1.00%United Stated 1.69% 1.34% 1.21% 1.20%China 2.76% 3.24% 3.10% 3.68%
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W i l s h i r e C o n s u l t i n g
HIGH YIELD BOND MARKET
Data sources: Wilshire Compass, Bloomberg Barclays
AS OF SEPT 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
BLOOMBERG BARCLAYS HIGH YIELD 1.3 11.4 6.4 6.1 5.4 7.9CREDIT SUISSE LEVERAGED LOAN 0.9 6.4 3.1 4.7 4.1 5.4HIGH YIELD QUALITY DISTRIBUTION WEIGHTBa U.S. HIGH YIELD 47.8% 2.0 12.8 9.5 5.8 5.9 7.9B U.S. HIGH YIELD 38.7% 1.7 11.9 7.0 6.2 5.0 7.5Caa U.S. HIGH YIELD 12.7% -1.8 5.6 -4.2 5.5 4.5 8.2Ca to D U.S. HIGH YIELD 0.6% -6.7 7.6 -18.3 10.7 -5.8 0.7Non-Rated U.S. HIGH YIELD 0.2% -0.5 4.3 2.5 5.3 -1.0 5.6
0
200
400
600
800
1,000
1,200
1,400
1,600
Opt
ion
Adju
sted
Spr
ead
(bps
)
BLOOMBERG BARCLAYS HIGH YIELD INDEXES
HY Index Ba B Caa
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W i l s h i r e C o n s u l t i n g
REAL ASSETS
Data sources: Wilshire Compass, National Council of Real Estate Investment Fiduciaries
AS OF SEPT 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
BLOOMBERG BARCLAYS U.S. TIPS 1.4 7.6 7.1 2.2 2.4 3.5BLOOMBERG COMMODITY INDEX -1.8 3.1 -6.6 -1.5 -7.2 -4.3WILSHIRE GLOBAL RESI INDEX 5.2 22.8 15.3 7.1 8.4 10.9NCREIF ODCE FUND INDEX 1.3 3.8 5.6 7.3 9.3 10.9NCREIF TIMBERLAND INDEX 0.2 1.3 2.1 3.1 4.4 4.0ALERIAN MLP INDEX (OIL & GAS) -5.0 11.1 -8.1 -2.5 -8.6 6.3
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Cur
rent
Yie
ld
Cur
rent
Cap
Rat
e
REAL ESTATE VALUATION
NPI Current Value Cap Rate Wilshire RESI Current Yield 10-Year Treasury Yield
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
Retu
rn (
%)
NCREIF ODCE FUND INDEX RETURN
Appreciation Income Total Return
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W i l s h i r e P r i v a t e M a r k e t s
PRIVATE EQUITY – FUNDRAISING & INVESTMENT ACTIVITY
Source: Preqin, as of September 30, 2019.
0100200300400500600700800
$0
$50
$100
$150
$200
$250
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2014 2015 2016 2017 2018 2019
No.
of F
unds
Agg
rega
te C
apita
l Rai
sed
($B
)
Global Quarterly Private Equity Fundraising (Q1 2014 - Q3 2019)
Aggregate Capital Raised ($bn) No. of Funds Closed
02004006008001,0001,2001,4001,6001,800
$0$20$40$60$80
$100$120$140$160$180
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2014 2015 2016 2017 2018 2019
No.
of D
eals
Agg
rega
te D
eal V
alue
($B
) Global Quarterly Private Equity-Backed Buyout Deals (Q1 2014 - Q3 2019)
Aggregate Deal Value ($bn) No. of Deals
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©2019 Wilshire Associates. 21
W i l s h i r e P r i v a t e M a r k e t s
PRIVATE EQUITY – PRICING & VALUATIONS
Source: S&P LBO; PitchBook, *as of September 30, 2019.
7.1x 7.3x8.4x 8.4x
9.7x 9.1x7.7x
8.5x 8.8x 8.7x 8.8x9.7x 10.3x 10.0x 10.6x 10.6x
11.5x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
LBO Purchase Price Multiples (2003 - Q3 2019)
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Venture Capital Pre-Money Valuations ($M) (2009 – Q3 2019)
Angel & seed Early VC Late VC
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©2019 Wilshire Associates. 22
W i l s h i r e P r i v a t e M a r k e t s
U.S. INVESTMENT ACTIVITY BY DEAL SIZE
• Deal volume continues to be dominated by lower middle market deals with investment sizes below$100 million through the third quarter of 2019
• However, deals with below $100 million check sizes comprised only 15% of all deal volume byamount of capital invested in the third quarter of 2019
Source: PitchBook, *as of September 30, 2019.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016 2017 2018 2019*
Percentage of Deal Volume by Deal Size (by Dollars)*
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016 2017 2018 2019*
Percentage of Deal Volume by Deal Size (by Count)*
$2.5B+
$1B-$2.5B
$500M-$1B
$100M-$500M
$25M-$100M
Under $25M
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©2019 Wilshire Associates. 23
W i l s h i r e P r i v a t e M a r k e t s
PRIVATE CAPITAL DRY POWDER
Source: Preqin, *as of October 23, 2019.
• Global private capital dry powder continues to increase, topping $2.5 trillion across all fund types
• Private equity comprises just over 60% of total dry powder in the market as of Q3 2019
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Agg
rega
te D
ry P
owde
r ($B
)
Private Capital Drty Powder by Fund Type (2010 - Q3 2019)
Private Equity Private Debt Private Real Estate Unlisted Infrastructure Unlisted Natural Resources
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©2019 Wilshire Associates. 24
W i l s h i r e P r i v a t e M a r k e t s
PRIVATE EQUITY - U.S. DEBT MARKETS
Source: S&P LBO, *as of September 30, 2019.
• 2019 has generated approximately $110 billion in loan volume and is on pace to once againincrease year-over-year through the fourth quarter of 2019
• As debt capital becomes less available, the percentage of debt used to finance leveraged buyoutsof less than $50 million of EBITDA through the third quarter of 2019 has dropped from 2018 marks
$0
$50
$100
$150
$200
$250
Total U.S. LBO Loan Volume ($B) (2003 - Q3 2019)
Pro Rata Institutional
0%
10%
20%
30%
40%
50%
60%
70%
80%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Percentage of Debt Used in LBOs (2007 - Q3 2019)
Less than $50M of EBITDA $50M or more of EBITDA
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©2019 Wilshire Associates. 25
W i l s h i r e P r i v a t e M a r k e t s
PRIVATE EQUITY - U.S. LBO PURCHASE PRICE MULTIPLES
• Due to the amount of equity that is readily available, purchase price multiples for U.S. LBOs havecontinued to rise through Q3 2019, relative to 2018 levels
Source: S&P LBO, *as of September 30, 2019.
9.7x9.1x
7.7x
8.5x8.8x 8.7x 8.8x
9.7x10.3x 10.0x
10.6x 10.6x
11.5x
0x
2x
4x
6x
8x
10x
12x
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Purchase Price Multiples of U.S. LBO Transactions (2007 - Q3 2019)
Equity/EBITDA Debt/EBITDA
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©2019 Wilshire Associates. 26
W i l s h i r e P r i v a t e M a r k e t s
PRIVATE REAL ESTATE –FUNDRAISING ACTIVITY
Source: Preqin, as of September 30, 2019.
0
20
40
60
80
100
120
140
160
$0$5
$10$15$20$25$30$35$40$45$50
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2014 2015 2016 2017 2018 2019
No.
of F
unds
Agg
rega
te C
apita
l Rai
sed
($B
)
Global Quarterly Closed-End Private Real Estate Fundraising (Q1 2014 - Q3 2019)
Aggregate Capital Raised ($bn) No. of Funds Closed
566
211
72 36
$144$79
$21 $80
100
200
300
400
500
600
North America Europe Asia Rest of World
Closed-End Private Real Estate Fund Actively in Market in Q3 2019 by Primary Geographic Focus
No. of Funds Raising Aggregate Capital Targeted ($B)
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©2019 Wilshire Associates. 27
W i l s h i r e P r i v a t e M a r k e t s
UNLISTED INFRASTRUCTURE –FUNDRAISING & INVESTMENT ACTIVITY
Source: Preqin, as of September 30, 2019.
0
50
100
150
200
250
$0
$50
$100
$150
$200
$250
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Oct-19
No.
of F
unds
Agg
rega
te C
apita
l Tar
gete
d ($
B)
Unlisted Infrastructure Funds in Market over Time (Jan 2015 - Oct 2019)
Aggregate Capital Targeted ($bn) No. of Funds Raising
0510152025303540
$0$5
$10$15$20$25$30$35$40$45
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2014 2015 2016 2017 2018 2019
No.
of F
unds
Aggr
egat
e C
apita
l Rai
sed
($B)
Global Quarterly Unlisted Infrastructure Fundraising (Q1 2014 - Q3 2019)
Aggregate Capital Raised ($bn) No. of Funds Closed
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©2019 Wilshire Associates. 28
W i l s h i r e C o n s u l t i n g
TIMBER
Data sources: Forest Investment Associates
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©2019 Wilshire Associates. 29
W i l s h i r e C o n s u l t i n g
HEDGE FUND PERFORMANCE
Data sources: Wilshire Compass
AS OF SEPTEMBER 30, 2019 QTR YTD 1 YR 3 YR 5 YR 10 YR
DJ CS HEDGE FUND INDEX 0.3 6.7 2.1 3.8 2.3 4.3EVENT DRIVEN -1.5 5.9 -0.7 3.4 0.4 3.8GLOBAL MACRO 2.1 9.6 7.7 5.3 3.1 4.9LONG/SHORT EQUITY 0.1 6.8 -0.4 4.9 3.4 4.9MULTI-STRATEGY 0.7 5.9 1.9 4.2 4.2 6.2WILSHIRE 5000 1.2 20.1 3.0 12.9 10.6 13.1MSCI ACWI EX-US ($G) -1.7 12.1 -0.7 6.8 3.4 4.9BLOOMBERG BARCLAYS AGGREGATE 2.3 8.5 10.3 2.9 3.4 3.7DOW JONES UBS COMMODITY -1.8 3.1 -6.6 -1.5 -7.2 -4.3
DJ CS Hedge Fund Index
Wilshire 5000 Index
Barclays Aggregate Bond Index
Dow Jones UBS Commodity Index
MSCI ACWI ex-US ($g)0.83
0.96
1.03
(0.34)
0.31
-8.00%
-4.00%
0.00%
4.00%
8.00%
12.00%
16.00%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%
Annu
aliz
ed R
etur
n
Annualized Risk
HEDGE FUND 10-YEAR RISK/RETURN
Note: Sharpe Ratio included to the left of each marker.
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Performance and Risk Update: Q1 FY20
November 2019
Thomas Toth, Managing Director – Wilshire AssociatesKristin Varela, Deputy CIO
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Slide 2
Total Fund versus Reference Portfolio – 10 Years
Expectations based on PERA target asset allocation and Wilshire asset class assumptions as of 2009
-50.00%
0.00%
50.00%
100.00%
150.00%
200.00%
Apr
-09
Oct
-09
Apr
-10
Oct
-10
Apr
-11
Oct
-11
Apr
-12
Oct
-12
Apr
-13
Oct
-13
Apr
-14
Oct
-14
Apr
-15
Oct
-15
Apr
-16
Oct
-16
Apr
-17
Oct
-17
Apr
-18
Oct
-18
Apr
-19
Total Fund v. Reference PortfolioCumulative Distribution, 95% confidence interval
7.76% return and 11.24% risk expectation
Cumulative Reference Portfolio Return
Cumulative NOF Total Fund Return
Lower Band
Target
Upper Band
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Slide 3
Total Fund versus Policy Index – 10 Years
-50.00%
0.00%
50.00%
100.00%
150.00%
200.00%
Apr
-09
Oct
-09
Apr
-10
Oct
-10
Apr
-11
Oct
-11
Apr
-12
Oct
-12
Apr
-13
Oct
-13
Apr
-14
Oct
-14
Apr
-15
Oct
-15
Apr
-16
Oct
-16
Apr
-17
Oct
-17
Apr
-18
Oct
-18
Apr
-19
Total Fund v. Policy PortfolioCumulative Distribution, 95% confidence interval
7.76% return and 11.24% risk expectation
Cumulative Policy Index Return
Cumulative NOF Total Fund Return
Lower Band
Target
Upper Band
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Slide 4
Total Fund Active versus Policy Index – 10 Years
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Apr
-09
Oct
-09
Apr
-10
Oct
-10
Apr
-11
Oct
-11
Apr
-12
Oct
-12
Apr
-13
Oct
-13
Apr
-14
Oct
-14
Apr
-15
Oct
-15
Apr
-16
Oct
-16
Apr
-17
Oct
-17
Apr
-18
Oct
-18
Apr
-19
Total Fund v. Policy IndexCumulative Distribution, 95% confidence interval
1.0% active return and 1.5% active risk expectation
Cumulative Excess NOF Total Fund Return
Lower Band
Target
Upper Band
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Slide 5
Selection
Allocation
Market Beta Risk
(Passive)Expected Risk of 9.90% (Expected Return of 6.35%)
Expected Active Risk of 1.4% (Expected Return of 0.6%)
Expected Active Risk of 0.6% (Expected Active Return of 0.4%)
2019 Total Fund Risk BudgetTarget Return= 7.35%Target Risk = 10.2%
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Slide 6
Total Fund versus Reference Portfolio
Cumulative Reference Portfolio Return, 6.52%
Cumulative NOF Total Fund Return, 8.43%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Total Fund v. Reference PortfolioCumulative Distribution, 95% confidence interval
6.75% return and 10.50% risk expectation
Cumulative Reference Portfolio Return
Cumulative NOF Total Fund Return
Lower Band
Target
Upper Band
FYTD value add = 0.42%
PERA Fund volatility (FYTD) = 0.43%
Reference Portfolio volatility (FYTD) = 2.37%
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Slide 7
Total Fund versus Policy Portfolio
Cumulative Policy Index Return, 7.79%
Cumulative NOF Total Fund Return, 8.43%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Total Fund v. Policy PortfolioCumulative Distribution, 95% confidence interval
6.75% return and 10.50% risk expectation
Cumulative Policy Index Return
Cumulative NOF Total Fund Return
Lower Band
Target
Upper Band
FYTD value add = 0.14%
PERA Fund volatility (FYTD) = 0.43%
PERA Policy volatility (FYTD) = 2.18%
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Slide 8
Active Risk versus Expectations – Cumulative Months
Total Fund One-Year Tracking Error as of September 30, 2019 = 3.05%
Cumulative Excess NOF Total Fund Return, 0.65%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Total Fund v. Policy IndexCumulative Distribution, 95% confidence interval
1.0% active return and 1.5% active risk expectation
Cumulative Excess NOF Total Fund Return
Lower Band
Target
Upper Band
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Slide 9
As of 9/30/2019
MarketValue
% MarketValue
% Target
Total Fund Performance
Q1FY20
FYTD 1-yr 3-yr 5-yr 10-yr
Global Equity $6.3b 40.4% 40.8%NOF Return 0.97% 0.97% 3.65% 10.77% 7.71%
Value Add v. 0.67% 0.67% 2.00% 0.76% 0.02%
Risk Reduction $3.3b 21.0% 21.0%
NOF Return 2.43% 2.43% 10.51% 3.25% 3.65%
Value Add v. 0.12% 0.12% 0.20% 0.22% 0.20%
Credit $2.3b 14.6% 15.0%NOF Return 0.66% 0.66% 4.04% 5.00% 3.25%
Value Add v. 0.47% 0.47% -3.06% -0.53% -1.41%
Real Assets $3.1b 19.9% 20.0%NOF Return 0.67% 0.67% 3.70% 4.75% 3.13%
Value Add v. -1.14% -1.14% -2.97% -1.11% 0.35%
Risk Parity $0.6b 4.1% 3.25%NOF Return 6.11% 6.11%
Value Add v. -0.30% -0.30%
Performance Detail – Asset Class
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Slide 10
FYTD Performance Attribution:Active Risk Budget Framework
-0.25% -0.25%
-0.04%
0.15%
-0.84%
0.39%
0.92%
0.16%
0.32%
-0.30%
-1.00%
-0.80%
-0.60%
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
Total Fund Global Equity Risk Reduction &Mitigation
Credit Oriented FixedIncome
Real Assets
Allocation Return Selection ReturnReturns are net of fees
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Slide 11
1-year Performance Attribution:Active Risk Budget Framework
-0.63%
0.61%
-0.12%
-3.12%
-1.00%
0.26%
1.38%
0.32%0.06%
-1.97%
-3.50%
-3.00%
-2.50%
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
Total Fund Global Equity Risk Reduction &Mitigation
Credit Oriented FixedIncome
Real Assets
Allocation Return Selection ReturnReturns are net of fees
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Slide 12
3-year Performance Attribution:Active Risk Budget Framework
-0.10%
0.23%
0.04%
-0.34%
-0.73%
0.20%
0.53%
0.18%
-0.19%
-0.38%
-0.80%
-0.60%
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
Total Fund Global Equity Risk Reduction &Mitigation
Credit Oriented FixedIncome
Real Assets
Allocation Return Selection ReturnReturns are net of fees
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Slide 13
5-year Performance Attribution:Active Risk Budget Framework
-0.42%
-0.15%
0.02%
-0.85%
0.39%
0.22%0.17% 0.18%
-0.56%
-0.05%
-1.00%
-0.80%
-0.60%
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
Total Fund Global Equity Risk Reduction &Mitigation
Credit Oriented FixedIncome
Real Assets
Allocation Return Selection ReturnReturns are net of fees
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Slide 14
Historical Risk Measurements (1-Year)As of Sept 2019 Capital
AllocationVolatility
(𝝈𝝈)Sharpe Ratio
Tracking Error
InformationRatio
Beta Alpha*
Total Fund 100% 7.25% 0.40 3.05% -0.12 0.71 0.60%
Policy Benchmark 10.07% 0.33
Global Equity 40.4% 13.78% 0.09 3.31% 0.59 0.82 1.87%
Risk Reduction 21.0% 3.65% 2.18 0.24% 0.72 1.01 0.11%
Credit 14.6% 1.59% 1.01 5.26% -0.55 0.16 0.90%
Real Assets 19.9% 5.70% 0.23 5.81% -0.47 0.49 -0.75%
Risk Parity 4.1%
*Jensen’s alpha
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Slide 15
Summary • Long term 10 year performance on both an absolute and relative basis remains
strong for the PERA Total Fund
• The PERA fund outperformed the policy benchmark by 14 bps for Q1 FY20, but
underperformed the policy benchmark by 37 for the 1-year period, net of fees
• The PERA fund outperformed the passive reference portfolio by 42 bps for Q1 FY20,
and outperformed by 48 bps for the 1-year period, net of fees
• As of September 30th, the fund is at target weights for all asset classes (+/- 1%)
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Slide 16
Appendix (Formulas)
• Selection return = (portfolio return – dynamically weighted selection benchmark return)
• Allocation return= (dynamically weighted selection benchmark return – policy benchmark return)
• Historical Alpha = (R– Beta*P) *√12Where:Beta is portfolio beta;R - mean of the portfolio real returns (portfolio return- 91 day T-bill return) ;P - mean of the policy real returns (policy return – 91 day T-bill return)
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Slide 2
Total Real Assets Composite Review
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Slide 6
Real Assets Portfolio: Portfolio Exposures
• Portfolio Construction Building Blocks
Liquid Real Estate (60% low TE implementation)- Domestic REITS- Global REITS
Illiquid Real Estate- Balanced risk exposures across strategies and
risk profiles- Opportunistic, value-add and core real estate
across diversified property types
Liquid Real Assets (40% low TE implementation)- Listed infrastructure- Master limited partnerships- Inflation linked bonds- Commodities
Illiquid Real Assets- Diversification away from legacy energy
concentration- Energy (upstream, midstream, downstream,
and renewable)- Infrastructure (core & value-add)- Agriculture (agribusiness, farmland, and
midstream)
as of June 30, 2019 (USD Millions)
Targeted Funded Difference (Funded - Targeted)
Total Fund - $15,648 -
Total Real Assets $3,130 $3,112 ($18)
Liquid Real Estate $313 $361 $48
Illiquid Real Estate $782 $711 ($71)
Core $235 $332 $98
Value-Add $235 $56 ($178)
Opportunistic $313 $323 $10
Liquid Real Assets $782 $1,300 $518
Illiquid Real Assets $1,252 $736 ($516)
Agriculture $313 $65 ($248)
Infrastructure $469 $352 ($118)
Energy $469 $320 ($150)
Market Neutral $0 $3 $3
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Internal Investment Process Enhancement-Monitoring
PERA Investment Team November 12, 2019
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Slide 2
Strategic Direction
• Investment Committee/Board set Risk Budget & Benchmarks• Investment Committee/Board set Active Management (Alpha) target• Investment Committee/Board set Strategic Asset Allocation (Beta) target
Planning
• Work with consultants and strategists to evaluate opportunity set• Identify and build pipeline• Priority-setting, work plan
Manager Selection
• 5- Stage Manager Selection Process• Delegated to staff and staff consultant
Implement
• Final contracting (internal/external legal)• CIO approval• On-boarding and funding
Monitoring&
Attribution
PERA Total Portfolio (Beta +Alpha)
Investment Process Overview
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Slide 3
Monitoring and Review
Driven by the ethos of constant improvement, PERA’s monitoring and review process seeks to measure, monitor, and track performance and risk metrics at the strategy, composite, and fund level. This creates a constant feedback loop that informs our understanding of how our portfolio responds to past, current, and future market environments.
Kaizen – or constant improvement
Each strategy delivers performance, risk, and diversification to the total portfolio and it is the job of each analyst and portfolio manager to understand any attribution thereof. Gone are the days when asset owners could set an asset allocation and forget it. PERA’s monitoring and review process uses knowledge management techniques, state-of-the-art risk techniques, human capital and judgement to continually improve upon our return and risk outcomes, and ultimately improve our funding position.
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Slide 4
Knowledge Management
Portfolio Managers and Associates regularly conduct review calls with asset managers. Areas of focus include:
Qualitative Notes• Asset updates• Strategy updates• Market updates• Team review
Quantitative Notes• Performance
attribution• Risk update• Guideline enforcement• Reconciliation
PERA utilizes a custom knowledge management system - Backstop
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Slide 5
External Risk and Performance Analytics - Liquid
BNY Mellon- Holdings and returns based ex post & ex ante risk analytics and scenario testing
Castle – Returns and factor-based beta and alpha analytics
Portfolio Managers and Associates utilize multiple, specialized risk systems
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Slide 6
External Risk and Performance Analytics –Liquid Cont.
Bloomberg holdings and returns based ex post and ex ante tracking error & factor analytics
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Slide 7
External Risk and Performance Analytics -Illiquid
Burgiss- deal by deal and cash flow based performance, alpha, and PME reporting
TopQ- deal by deal and cash flow based valuation bridge, what if scenarios, and track record attribution analytics
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Slide 8
Internal Risk and Performance Ratings Matrix-LiquidQualitative and quantitative risk statistics culminate into internal, CIO level matrix or dashboard with heat mapped P&L, risk tolerance, and conviction ratings
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Slide 9
Internal Risk and Performance Ratings Matrix-IlliquidQualitative and quantitative risk statistics culminate into internal, CIO level matrix or dashboard with heat mapped alpha, quartile, and conviction ratings
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Slide 10
Annual Review Example
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Annual Rating and Conviction ScoreStrategy – MFS
Policy Benchmark - MSCI ACWISelection Benchmark – MSCI EAFE
Inception: April 2010
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Slide 12
PERA Rating: A/1Wilshire Rating: 1st Decile
Risk Budget Assumptions
Alpha Team Expectations
Excess Return (v Policy) 135 200
TE 400 400
IR 0.34 0.50
Rating
A Manager exemplifies principles and SPORTE. Risk aware, separates Alpha and Beta, independent firm/alignment, fee structure alignment, strong track record/pedigree, skill based (high alpha content)
B Manager meets most principles and SPORTE
C Manager meets some principles and SPORTE
Conviction Score
1 Highest conviction. Manager has proven adept and skillful. Its opportunity set is very strong. Strong belief in out-performance 1-3 years and/or high confidence in information ratio. Size up to maximum within risk budget.
2 Strong conviction. Manager is skillful. Opportunity set good. Confidence in long-run IR. Size up when possible.
3 Moderate Conviction. Manager has near universe IR or skill level. Sizing no more than risk budget.
4 No conviction. Manager has less than universe IR or skill level. Terminate when possible.
Annual Meeting Location Manager Rep
October 30, 2019 PERA Office Terry Welch
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Slide 13
MFS Investment ManagementInternational Value Equity Strategy
OrganizationFounded in 1924, MFS is one of the oldest asset management companies in the world and has been credited with pioneering the mutual fund. The very first mutual fund, the Massachusetts Investors Trust fund, is still in operation today. As of 1982, MFS became an independently operated subsidiary of Sun Life Financial. MFS employs over 1,900 professionals with over $448 billion in assets under management.
Investment Team The International Value Equity strategy is managed by Benjamin Stone, Pablo de La Mata (London) and Camille Humphries (Client Facing, Portfolio Specialist, Boston). They are responsible for portfolio construction, final buy and sell decisions and risk management. The portfolio managers are supported by research analysts in 9 offices around the world, that are organized into 8 global sector teams which include equity and fixed income.
Investment StrategyThe team’s strategy employs a fundamental bottom-up investment approach based upon a rigorous and disciplined process that tries to identify opportunities where the long term value of the company is not adequately reflected in the stock price. The team endeavors to make sensible projections for returns over the next 5-10 years. The resulting portfolio typically has a value tilt across all capitalization stocks and fairly concentrated with an average of 80-100 holdings, with very low turnover of 9% a year.
EdgeThe team believes investing in stocks that are underrated in the broader market should result in long-term capital appreciation while limiting the downside risk when markets perform poorly. The strategy has the approach of searching for “steady eddy” companies that perform for the long term in sustainable industries where the consumer has basic needs.
Highlights PERA Inception: April
2010
Focus: Non-U.S. all cap developed markets
Return Target: Active return of 2.00%, residual risk target of 2-8%
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Slide 14
Selection vs. Policy Benchmark
107.70%
56.60%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
Apr
-10
Sep-
10
Feb-
11
Jul-1
1
Dec
-11
May
-12
Oct
-12
Mar
-13
Aug
-13
Jan-
14
Jun-
14
Nov
-14
Apr
-15
Sep-
15
Feb-
16
Jul-1
6
Dec
-16
May
-17
Oct
-17
Mar
-18
Aug
-18
Jan-
19
Jun-
19
MSCI EAFE vs MSCI ACWICumulative Distribution, +/- 1 STDEV
7.50% georeturn and 17.00% risk expectation04/30/2010 - 9/30/2019
Cumulative Policy Return (%)
Cumulative Selection Return (%)
Lower Band
Target (Policy Return)
Upper Band
Cumulative value add-51.10% or ($60M)
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Slide 15
Manager vs. Selection Benchmark
56.60%
133.41%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
Apr
-10
Sep-
10
Feb-
11
Jul-1
1
Dec
-11
May
-12
Oct
-12
Mar
-13
Aug
-13
Jan-
14
Jun-
14
Nov
-14
Apr
-15
Sep-
15
Feb-
16
Jul-1
6
Dec
-16
May
-17
Oct
-17
Mar
-18
Aug
-18
Jan-
19
Jun-
19
MFS vs MSCI EAFECumulative Distribution, +/- 1 STDEV
7.50% return and 17.00% risk expectation04/30/2010 - 09/30/2019
Cumulative Selection Benchmark Return (%)
Cumulative Strategy NOF Return (%)
Lower Band
Target
Upper Band
BMV Apr 2010 = $140MNet Withdrawals = ($115M)EMV Sep 2019 = $188M
Cumulative value add76.81% or $97M
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Slide 16
Cumulative Excess Active Return Distribution
76.81%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
Apr
-10
Oct
-10
Apr
-11
Oct
-11
Apr
-12
Oct
-12
Apr
-13
Oct
-13
Apr
-14
Oct
-14
Apr
-15
Oct
-15
Apr
-16
Oct
-16
Apr
-17
Oct
-17
Apr
-18
Oct
-18
Apr
-19
Cumulative Excess Active Return Distribution +/- 1 St Deviation
04/30/2010 - 9/30/2019200 bps excess return and 400 bps tracking error expectation
Cumulative NOF Excess Return (%)
Lower Band
Target
Upper Band
Annualized Ex-Ante TE as of August 2019 = 4.23%
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Slide 17
Since Inception Fee Analysis & Excess Return Capture
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
MFS vs MSCI EAFE
Net Value Add Fees Capture Ratio
BMV Apr 2010 = $140MNet Withdrawals = ($115M)EMV Jun 2019 = $188M
Gross $107MFees ($10M)Net $97MCapture Ratio 91%
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Slide 18
Excess Return STATs OMEGA RATIO = 1.68
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
-15.00 -10.00 -5.00 0.00 5.00 10.00 15.00
Mon
thly
Exc
ess
Ret
urns
Monthly Benchmark Returns
Excess vs Benchmark Return
y= 0.43 - .23x
R^2 = .37Excess Return Stats
Mean 0.323245614Standard Error 0.145673329Median 0.215Mode 2.3Standard Deviation 1.555365532Sample Variance 2.419161939Kurtosis -0.37411372Skewness -0.08701128Range 7.16Minimum -3.56Maximum 3.6Sum 36.85Count 114
0
2
4
6
8
10
12
14
16
18
-4 -3.5 -3 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3 3.5 4
Freq
uenc
y
Bin
Excess Return vs Selection
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Slide 19
Ex-Ante Idiosyncratic Risk Contribution
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N e w M e x i c o P E R A
WILSHIRE ASSOCIATES
November 2019
Thomas Toth, CFA – Managing DirectorRose Dean – Managing Director
B e n c h m a r k i n g U p d a t e
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©2019 Wilshire Associates. 2
• Benchmarking provides investors and managers a realistic and achievable goal, and serves as a clear and objective means of evaluating performance.
• The purpose of benchmarking can be summarized as follows:
W i l s h i r e C o n s u l t i n g
Purpose of Benchmark ing
Performance Attribution
Manager Evaluation
Insight on Risk/Returns
Measure against which manager performance can be evaluated to assist in retention / termination decisions
Decomposition of sources of return, such as asset allocation, active vs. passive management, manager skill, etc.
Insight into level of risk being taken to generate return and the volatility of return over time
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©2019 Wilshire Associates. 3
W i l s h i r e C o n s u l t i n g
Benchmark Se lec t ion Cons idera t ions
Does it appropriately reflect the objective of the strategy and is it consistent with the asset class objective?
Manager Benchmark
Asset Class Benchmark
Does it reflect a broad universe of investment opportunities in an asset class and offer a “target” for combining multiple managers within the asset class?
Total Fund BenchmarkDoes it appropriately match the plan sponsor’s investment philosophy and objectives and reflect the overall structure of the fund?
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©2019 Wilshire Associates. 4
W i l s h i r e C o n s u l t i n g
Se lec t ing the Appropr ia te Benchmark
• The appropriate benchmark is a function of the return and risk characteristics of the asset class or portfolio being measured.
• Benchmarks may be published market benchmarks or custom benchmarks Published benchmarks are preferable; however, custom benchmarks
may be optimal for some portfolio strategies such as Multi-Asset Risk Allocation
Generally, asset class benchmarks are published market indices which represent a broad investment opportunity set E.g., Wilshire 5000, Bloomberg Barclays Aggregate
• Objective of benchmark selection process is to minimize benchmark “misfit” risk, which is uncompensated risk “Misfit” risk is the return difference attributable to the benchmark
characteristics that are not reflected in the portfolio and vice versao E.g., All cap equity portfolio benchmarked to the S&P 500 Index
• Holdings-based risk and style attribution analyses is one way to determine the optimal portfolio benchmark.
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©2019 Wilshire Associates. 5
W i l s h i r e C o n s u l t i n g
Charac te r i s t i cs o f an Idea l Benchmark
Unambiguous
Investable
Measurable
Appropriate
Reflective of current investment
options
Pre-specified
Benchmark components and construction methodology are clearly identifiable.
It is possible to replicate and simply hold the benchmark.
The benchmark’s return is readily calculable on an on-going basis.
The benchmark is consistent with the composite’s objective or manager’s investment style.
The manager is knowledgeable of the securities or factor exposures within the benchmark.
The benchmark is agreed upon prior to the start of the monitoring period.
Source : CFA Institute
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©2019 Wilshire Associates. 6
W i l s h i r e C o n s u l t i n g
Benchmark Ad jus tments in 2019
• In 2019, Total Fund benchmark has been appropriately adjusted to dollar cost average into Multi-Risk allocation
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©2019 Wilshire Associates. 7
W i l s h i r e C o n s u l t i n g
To ta l Fund Benchmark Summary
Custom Blended Benchmark - Current Weights Custom Blended Benchmark - Target Weights
Global Equity Custom Blended Benchmark 39.7% Custom Blended Benchmark 35.5%MSCI ACWI IMI ($net) 32.7% MSCI ACWI IMI ($net) 28.5%MSCI ACWI Minimum Volatility ($net) 7.0% MSCI ACWI Minimum Volatility ($net) 7.0%
Risk Reduction & Mitigation Custom Blended Benchmark 20.6% Custom Blended Benchmark 19.5%Bloomberg Barclays U.S. Aggregate 18.1% Bloomberg Barclays U.S. Aggregate 17.0%Bloomberg Barclays Global Aggregate 2.5% Bloomberg Barclays Global Aggregate (Hedged) 2.5%
Credit Oriented Fixed Income Custom Blended Benchmark 15.0% Custom Blended Benchmark 15.0%Bloomberg Barclays Global High Yield 12.0% Bloomberg Barclays Global High Yield (Hedged) 12.0%50% JP Morgan EMBI Global Diversified ($) / 50% JP Morgan GBI ($) 3.0% 50% JP Morgan EMBI Global Diversified ($) / 50% JP
Morgan GBI ($) 3.0%
Real Assets Custom Blended Benchmark 20.0% Custom Blended Benchmark 20.0%Wilshire Global REITs 7.0% Wilshire Global REITs 7.0%Alerian - MLP Index 2.0% Alerian - MLP Index 2.0%Dow Jones - Brookfield Global Infrastructure Index 3.0% Dow Jones - Brookfield Global Infrastructure Index 3.0%Bloomberg Barclays - U.S. TIPS 3.0% Bloomberg Barclays - U.S. TIPS 3.0%Bloomberg Commodity - Commodity Index (TR) 5.0% Bloomberg Commodity - Commodity Index (TR) 5.0%
Multi Asset Risk Allocation Wilshire Risk Parity (15% Volatility) Index 4.7% Wilshire Risk Parity (15% Volatility) Index 10.0%
• No benchmark changes are being recommended in this update
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©2019 Wilshire Associates. 8
• Used as a benchmark to determine if utilization of additional asset classes and/or taking on illiquidity risk provides benefit
• Reference portfolio concept meets the objectives of a good benchmark– Predefined, investable, unambiguous, measurable, and appropriate
• Serves as a clear and objective means of evaluating performance over a long-term time horizon
• Reference Portfolio targets the same total risk level as the current portfolio– Indicative of the risk tolerance of the Board– Return seeking, but cognizant of continued risk concentration
W i l s h i r e C o n s u l t i n g
Tota l Fund Benchmark - Reference Por t fo l io
Asset Class Target Weight Appropriate Benchmark
Global Equity 58% MSCI AC World IMI
Core Fixed Income 42% Barclays U.S. Aggregate
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©2019 Wilshire Associates. 9
W i l s h i r e C o n s u l t i n g
To ta l Fund Benchmark - Look ing Ahead• Synthetic replication of market beta exposure
– Market exposure adheres to PERA’s target asset allocation, but does not hold underlying securities to generate market beta return
– Use derivative instruments such as futures, swaps, or options to replicate the return of an underlying market
• Why consider synthetic market beta replication?– Reduce rebalancing and transaction costs– Enhance liquidity– Free up capital to be deployed in higher alpha seeking strategies– Provide flexibility to improve Total Fund risk adjusted returns through
leverage • Benchmarks for synthetic market replication should align with the characteristics
of available derivatives to reduce or eliminate measured active risk– Region and country– Currency– Credit profile
• More education to come on the topic
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©2019 Wilshire Associates. 10
This material contains confidential and proprietary information of Wilshire Associates Incorporated (Wilshire), and is intended for the exclusive use of the person to whom it is provided. It may not be disclosed, reproduced or redistributed, in whole or in part, to any other person or entity without prior written permission from Wilshire. Third party information contained herein has been obtained from sources believed to be reliable. Wilshire gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in such information and for results obtained from its use. Information and opinions are as of the date indicated, and are subject to change without notice.
This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice.
This report may include estimates, projections and other "forward-looking statements." Due to numerous factors, actual events may differ substantially from those presented.
Wilshire® is a registered service mark of Wilshire Associates Incorporated, Santa Monica, California. All other trade names, trademarks, and/or service marks are the property of their respective holders.
Copyright © 2019 Wilshire Associates Incorporated. All rights reserved.
W i l s h i r e C o n s u l t i n g
IMPORTANT INFORMATION
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NM Public Employees Retirement AssociationCash Flow Projection - FY 20
Actuals
July August September October November December January February March April May June
Month Beginning Cash, BNYM $42 $24 $20 $21 $22 $23 $24 $25 $26 $27 $28 $29
Uses of Cash
Illiquid Asset Capital Calls PE, RE, RA, Credit 59 80 80 80 80 80 80 80 80 80 80 80 Private Asset Drawdowns
Asset Class PurchasesLiquid Asset Purchases 265
Total Benefit Payments 105 105 105 105 105 105 105 105 105 105 105 105Benefit Payments (BNYM) 53 60 60 60 60 60 60 60 60 60 60 60
Benefit Payments (STO) 52 45 45 45 45 45 45 45 45 45 45 45Refunds 4 4 4 4 4 4 4 4 4 4 4 4
Operational Expense 1 2 2 2 2 2 2 2 2 2 2 2 Other 0
Sources of Cash
Asset Class SalesLiquid Asset Redemptions 305 85 90 90 90 90 90 90 90 90 90 90
Illiquid Asset Distributions 49 50 50 50 50 50 50 50 50 50 50 50 Private Asset DistributionsIlliquid Asset Redemptions 2 Hedge Fund / Portable Alpha
Employee / Employer Contributions 51 50 50 50 50 50 50 50 50 50 50 50Other 2 1 1 1 1 1 1 1 1 1 1 1 Suspense Account / Corporate Action / Overlay
Month Ending Cash, BNYM $24 $20 $21 $22 $23 $24 $25 $26 $27 $28 $29 $30
Corporate Action/Suspense 3 4 4 4 4 4 4 4 4 4 4 4 Month Ending Cash, STO 22 20 20 20 20 20 20 20 20 20 20 20
Month-End Capital AllocationsActual Target Var. Range
Global Equity 6,476 6,370 6,299 6,190 6,100 6,010 5,921 5,831 5,742 5,652 5,563 5,475 (72) 41.3% 35.5% 5.8% +/-5%Risk Reduction & Mitigation 3,349 3,278 3,232 3,203 3,178 3,153 3,128 3,103 3,078 3,053 3,028 3,004 (29) 21.4% 19.5% 1.9% +/-3%Credit Oriented Fixed Income 2,286 2,343 2,340 2,337 2,333 2,330 2,326 2,322 2,319 2,315 2,312 2,308 (9) 14.6% 15.0% -0.4% +/-4%Real Assets 3,112 3,125 3,120 3,115 3,111 3,106 3,101 3,097 3,092 3,087 3,082 3,077 0 19.9% 20.0% -0.1% +/-4%Multi-Risk Allocation 421 508 608 732 832 932 1,031 1,130 1,229 1,327 1,426 1,523 106 2.7% 10.0% -7.3% +/-4%STO Cash 22 20 20 20 20 20 20 20 20 20 20 20 (6) 0.1% 0.0% 0.1%
Total (net of cash flows) $15,666 $15,643 $15,620 $15,597 $15,574 $15,551 $15,527 $15,503 $15,479 $15,455 $15,431 $15,407 (10) 100.0% 100.0%
Month-End Percentage AllocationsFund Balance (less STO) $15,644 $15,623 $15,600 $15,577 $15,554 $15,531 $15,507 $15,483 $15,459 $15,435 $15,411 $15,387Global Equity 41.4% 40.8% 40.4% 39.7% 39.2% 38.7% 38.2% 37.7% 37.1% 36.6% 36.1% 35.6%Risk Reduction & Mitigation 21.4% 21.0% 20.7% 20.6% 20.4% 20.3% 20.2% 20.0% 19.9% 19.8% 19.7% 19.5%Credit Oriented Fixed Income 14.6% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%Real Assets 19.9% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%Multi-Risk Allocation 2.7% 3.3% 3.9% 4.7% 5.4% 6.0% 6.7% 7.3% 8.0% 8.6% 9.3% 9.9%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Estimate
Current Month's Weights
Month's Activity
July Change in Value
Global Equity Liquidity Overlay: $40m Global Public Stock: $160m Core Bonds: $60m Liquid Credit: $45m
Multi-Risk: $100m Global Equity Liquidity Overlay: $120m Credit Liquidity Overlay: $45m
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NM Public Employees Retirement AssociationCash Flow Projection - FY 20
July August September October November December January February March April May June
Month Beginning Cash, BNYM $42 $24 $33 $34 $35 $36 $37 $38 $39 $40 $41 $42
Uses of Cash
Illiquid Asset Capital Calls PE, RE, RA, Credit 59 84 80 80 80 80 80 80 80 80 80 80 Private Asset Drawdowns
Asset Class PurchasesLiquid Asset Purchases 265 100
Total Benefit Payments 105 105 105 105 105 105 105 105 105 105 105 105Benefit Payments (BNYM) 53 57 60 60 60 60 60 60 60 60 60 60
Benefit Payments (STO) 52 48 45 45 45 45 45 45 45 45 45 45Refunds 4 4 4 4 4 4 4 4 4 4 4 4
Operational Expense 1 1 2 2 2 2 2 2 2 2 2 2 Other 0 0
Sources of Cash
Asset Class SalesLiquid Asset Redemptions 305 195 90 90 90 90 90 90 90 90 90 90
Illiquid Asset Distributions 49 56 50 50 50 50 50 50 50 50 50 50 Private Asset DistributionsIlliquid Asset Redemptions 2
Employee / Employer Contributions 51 67 50 50 50 50 50 50 50 50 50 50Other 2 0 1 1 1 1 1 1 1 1 1 1 Suspense Account / Corporate Action / Overlay
Month Ending Cash, BNYM $24 $33 $34 $35 $36 $37 $38 $39 $40 $41 $42 $43
Corporate Action/Suspense 3 3 4 4 4 4 4 4 4 4 4 4 Month Ending Cash, STO 22 36 20 20 20 20 20 20 20 20 20 20
Month-End Capital AllocationsActual Target Var. Range
Global Equity 6,476 6,382 6,319 6,210 6,119 6,029 5,939 5,850 5,760 5,671 5,582 5,493 (94) 40.7% 35.5% 5.2% +/-5%Risk Reduction & Mitigation 3,349 3,307 3,242 3,213 3,188 3,163 3,138 3,113 3,088 3,063 3,038 3,013 (42) 21.1% 19.5% 1.6% +/-3%Credit Oriented Fixed Income 2,286 2,298 2,347 2,344 2,340 2,337 2,333 2,330 2,326 2,323 2,319 2,316 12 14.6% 15.0% -0.4% +/-4%Real Assets 3,112 3,129 3,130 3,125 3,120 3,116 3,111 3,107 3,102 3,097 3,092 3,087 17 19.9% 20.0% -0.1% +/-4%Multi-Risk Allocation 421 539 610 734 835 935 1,034 1,134 1,233 1,332 1,430 1,528 118 3.4% 10.0% -6.6% +/-4%STO Cash 22 36 20 20 20 20 20 20 20 20 20 20 14 0.2% 0.0% 0.2%
Total (net of cash flows) $15,666 $15,691 $15,668 $15,645 $15,622 $15,599 $15,576 $15,553 $15,529 $15,505 $15,481 $15,457 25 100.0% 100.0%
Month-End Percentage AllocationsFund Balance (less STO) $15,644 $15,655 $15,648 $15,625 $15,602 $15,579 $15,556 $15,533 $15,509 $15,485 $15,461 $15,437Global Equity 41.4% 40.8% 40.4% 39.7% 39.2% 38.7% 38.2% 37.7% 37.1% 36.6% 36.1% 35.6%Risk Reduction & Mitigation 21.4% 21.1% 20.7% 20.6% 20.4% 20.3% 20.2% 20.0% 19.9% 19.8% 19.7% 19.5%Credit Oriented Fixed Income 14.6% 14.7% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%Real Assets 19.9% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%Multi-Risk Allocation 2.7% 3.4% 3.9% 4.7% 5.4% 6.0% 6.7% 7.3% 8.0% 8.6% 9.3% 9.9%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Actuals Estimate
Current Month's Weights
Month's Activity
August Change in Value
Global Equity Liquidity Overlay: $25m Real Asset Liquidity Overlay: $30m Risk Reduction Liquidity Overlay: $40m Core Bonds: $100m
Multi-Risk: $100m
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NM Public Employees Retirement AssociationCash Flow Projection - FY 20
July August September October November December January February March April May June
Month Beginning Cash, BNYM $42 $24 $33 $43 $44 $45 $46 $47 $48 $49 $50 $51
Uses of Cash
Illiquid Asset Capital Calls PE, RE, RA, Credit 59 84 43 80 80 80 80 80 80 80 80 80 Private Asset Drawdowns
Asset Class PurchasesLiquid Asset Purchases 265 100 100
Total Benefit Payments 105 105 105 105 105 105 105 105 105 105 105 105Benefit Payments (BNYM) 53 57 49 60 60 60 60 60 60 60 60 60
Benefit Payments (STO) 52 48 56 45 45 45 45 45 45 45 45 45Refunds 4 4 5 4 4 4 4 4 4 4 4 4
Operational Expense 1 1 1 2 2 2 2 2 2 2 2 2 Other 0 0 0
Sources of Cash
Asset Class SalesLiquid Asset Redemptions 305 195 165 90 90 90 90 90 90 90 90 90
Illiquid Asset Distributions 49 56 36 50 50 50 50 50 50 50 50 50 Private Asset DistributionsIlliquid Asset Redemptions 2 0 Hedge Funds / Portable Alpha
Employee / Employer Contributions 51 67 56 50 50 50 50 50 50 50 50 50Other 2 0 0 1 1 1 1 1 1 1 1 1 Suspense Account / Corporate Action / Overlay
Month Ending Cash, BNYM $24 $33 $43 $44 $45 $46 $47 $48 $49 $50 $51 $52
Corporate Action/Suspense 3 3 3 4 4 4 4 4 4 4 4 4 Month Ending Cash, STO 22 36 30 20 20 20 20 20 20 20 20 20
Month-End Capital AllocationsActual Target Var. Range
Global Equity 6,476 6,382 6,338 6,233 6,143 6,052 5,962 5,872 5,783 5,693 5,604 5,515 (44) 40.3% 35.5% 4.8% +/-5%Risk Reduction & Mitigation 3,349 3,307 3,299 3,225 3,200 3,175 3,150 3,125 3,100 3,075 3,050 3,025 (8) 21.0% 19.5% 1.5% +/-3%Credit Oriented Fixed Income 2,286 2,298 2,293 2,353 2,349 2,346 2,342 2,339 2,335 2,332 2,328 2,325 (5) 14.6% 15.0% -0.4% +/-4%Real Assets 3,112 3,129 3,128 3,137 3,132 3,128 3,123 3,119 3,114 3,109 3,105 3,100 (1) 19.9% 20.0% -0.1% +/-4%Multi-Risk Allocation 421 539 639 737 838 938 1,038 1,138 1,238 1,337 1,436 1,534 100 4.1% 10.0% -5.9% +/-4%STO Cash 22 36 30 20 20 20 20 20 20 20 20 20 (6) 0.2% 0.0% 0.2%
Total (net of cash flows) $15,666 $15,691 $15,727 $15,704 $15,682 $15,659 $15,636 $15,613 $15,590 $15,566 $15,543 $15,519 36 100.0% 100.0%
Month-End Percentage AllocationsFund Balance (less STO) $15,644 $15,655 $15,697 $15,684 $15,662 $15,639 $15,616 $15,593 $15,570 $15,546 $15,523 $15,499Global Equity 41.4% 40.8% 40.4% 39.7% 39.2% 38.7% 38.2% 37.7% 37.1% 36.6% 36.1% 35.6%Risk Reduction & Mitigation 21.4% 21.1% 21.0% 20.6% 20.4% 20.3% 20.2% 20.0% 19.9% 19.8% 19.7% 19.5%Credit Oriented Fixed Income 14.6% 14.7% 14.6% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%Real Assets 19.9% 20.0% 19.9% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%Multi-Risk Allocation 2.7% 3.4% 4.1% 4.7% 5.4% 6.0% 6.7% 7.3% 8.0% 8.6% 9.3% 9.9%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Current Month's Weights
Month's Activity
September Change in Value
Real Asset Liquidity Overlay: $65m Global Public Stock: $100m
Multi-Risk: $100m
Actuals Estimate
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Manager Selection Activity ReportNovember, 2019
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Slide 2
Overview: Manager Selection Process
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Slide 3
Manager Selection Pipeline In Process - Liquid Allocation Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Transition Management Total Fund Completed Completed In Process Summary: Transition Management (Contract Expiration)
Schroders International Small Cap Global Equity Completed Completed Completed Completed CompletedSummary: Liquid Global Public Stock (Termination)
In Process - Illiquid Allocation Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Single-Family Rental Real Assets In Process Summary: Private Value-Add Real Estate (New Mandate)
Altaris Fund V Global Equity In Process Summary: Private Equity (Follow-On Investment)
Illiquid Farmland Real Assets Completed Completed Completed In Process Summary: Private Farmland (New Mandate)
Contingent Capital Credit Completed Completed Completed In Process Summary: Private Debt (New Mandate)
Madison Dearborn Partners VIII Global Equity Completed Completed Completed Completed CompletedSummary: Private Equity (Follow-On Investment)
IFM Global Infrastructure Real Assets Completed Completed Completed Completed CompletedSummary: Illiquid Infrastructure (Increased Mandate)
New Rock Core Real Estate Fund Real Assets Completed Completed Completed Completed CompletedSummary: Illiquid Core+ Real Estate (Increased Mandate)
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Slide 4
Schroder International Small Cap Mandate Termination
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Slide 5
On October 25, 2019 the Alpha team proposed the termination of Schroders, a liquid international small-cap manager within the Global Equity portfolio. This proposal is in response to the continued underperformance within the portfolio, and the significant team turnover in the last year. Staff shall provide a 30 day notice of termination to the manager, for a contract termination date effective December 08, 2019. The liquidation of this account will be managed through the utilization of a transition manager.
Proceeds from this liquidation (~$125m) will be reallocated as follows:
1) Reallocate to 2 high conviction small cap managers• $25 million Principal – International Small Cap• $25 million Kayne Anderson Rudnick – U.S. Small Cap
2) Fund Risk Parity with the remainder at the next tranche, approximately $75 million
Proposal:
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Slide 6
Schroders:Performance Review
-1.85%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
May
-12
Sep-
12Ja
n-13
May
-13
Sep-
13Ja
n-14
May
-14
Sep-
14Ja
n-15
May
-15
Sep-
15Ja
n-16
May
-16
Sep-
16Ja
n-17
May
-17
Sep-
17Ja
n-18
May
-18
Sep-
18Ja
n-19
May
-19
Cumulative Excess Active Return Distribution +/- 1 St Deviation
05/31/2012 - 7/31/2019300 bps excess return and 500 bps tracking error expectation
Cumulative NOF Excess Return (%)
Lower Band
Target
Upper Band
Annualized Ex-Ante TE as of July 2019 = 2.77%
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Slide 7
Reallocation of Capital: Principal International Small Cap Equity Organization
A member of the Fortune 500, Principal Financial Group was founded in 1879 and began managing retirement assets in 1941. Principal now manages $667 billion, including $412 billion under the Principal Global Investors umbrella and $96.5 billion within Principal Global Equities.
Investment Team
Headquartered in Des Moines, Iowa, Principal Global Equities has 70 dedicated equity investment professionals with an average of 19 years of experience and 14 years of tenure at Principal. Brian Pattinson serves as lead portfolio manager for the firm's international portfolios while providing oversight to the U.S. small-cap team. Brian also leads the global small-cap team's research and development efforts. Tiffany Lavastida is a portfolio manager for Principal Global Equities. Her responsibilities include portfolio management and analysis on the int'l small-cap team and covers financials, real estate and energy sectors.
Investment Strategy
International Small Cap Equity aims to provide long-term capital growth by primarily investing in small-cap companies domiciled in developed international (ex-U.S.) markets. Principal portfolio managers are bottom-up, earnings focused investors who embrace the principles of behavioral finance. Recognizing that investors are change averse and risk averse, Principal seeks to capitalize on persistent biases, anomalies and inefficiencies by identifying companies exhibiting: (1) Fundamental Change – placing particular emphasis on sustainable earnings trends, (2) Expectation Gaps – opportunities offering the greatest potential for positive earnings surprise and (3) Relative Valuation – focusing on companies offering a valuation discount with re-rating potential. Portfolio profiles typically reflect a compelling simultaneous combination of growth and value characteristics relative to the benchmark.
Edge
With a Global Research Platform and proprietary risk management framework, Principal leverages powerful analytical tools and technology platforms to complement fundamental research, analysis, and insights in order to make well-informed, high conviction stock selection and portfolio construction decisions.
Highlights
Strategy Inception: December 2007 (PERA)
Regional Focus: Non-US small cap developed markets
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Slide 8
Principal: Performance Review
26.12%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
Dec-
07Ju
n-08
Dec-
08Ju
n-09
Dec-
09Ju
n-10
Dec-
10Ju
n-11
Dec-
11Ju
n-12
Dec-
12Ju
n-13
Dec-
13Ju
n-14
Dec-
14Ju
n-15
Dec-
15Ju
n-16
Dec-
16Ju
n-17
Dec-
17Ju
n-18
Dec-
18Ju
n-19
Cumulative Excess Active Return Distribution +/- 1 St Deviation
12/31/2007 - 7/31/2019250 bps excess return and 500 bps tracking error expectation
Cumulative NOF Excess Return (%)
Lower Band
Target
Upper Band
Annualized Ex-Ante TE as of June 2019 = 1.79%
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Slide 9
Reallocation of Capital: Kayne Anderson Domestic Small CapOrganizationKAR is structured as a LLC and a wholly owned subsidiary of Virtus Investment Partners, Inc. The firm provides an array of investment products across equity and fixed income. The AUM for the firm is $20.5 billion., with the small cap core product being $5.7 billion and soft closed for new investors.
Investment Team The investment team as a whole equals 7 professionals based in Los Angeles, CA and the overall investment and research function is cooperative and team oriented. The portfolio managers, Todd Beiley and Jon Christensen, are ultimately responsible for portfolio construction and execution.
Investment StrategyKAR’s goal is to develop unique insight and conviction in each of the companies in the portfolio by evaluating the sustainability of the business model and assess management’s ability to manage the excess capital that the business generates. Stock selection is the most critical factor and while they are cognizant of the macro environment, they only invest in companies that meet their definition of high-quality. Regardless of the trending market cycle, KAR maintains a strict adherence to their high quality investment approach. Ultimately, the portfolio is relatively focused with approximately 20 to 40 companies. The individual holdings are diversified across economic sectors with a sector allocation discipline that allows portfolio sector weights to vary typically within +/-10% of the benchmark (utilizing the Russell sector classifications).
EdgeThe teams goal is to create an approach that results in a focused, low turnover portfolio of companies with durable competitive positions. This approach has been followed since the founding of the firm and believe it will continue to generate attractive risk-adjusted results. Their experience shows that high quality companies typically outperform lower quality companies with less risk over a complete market cycle.
Highlights
PERA Inception: September 2018
Focus: U.S. Small Cap Equity
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Slide 10
Kayne: Performance Review
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Slide 11
Madison Dearborn VIIIFollow-On Investment
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Slide 12
On October 25, 2019 the Alpha Team proposed committing up to $75 million to Madison Dearborn Capital Partners VIII (“MDP VIII”) , L.P. an illiquid private equity partnership which seeks to make buyout and growth investments in established upper-middle market companies located primarily in the United States. The fund will target 15-20 transactions across five industry sectors, basic industries, business & government software and business services, financial & transaction services, healthcare and telecom, media & technology services. The fund will target mid teens net IRR’s and 2.0x MOIC with hold periods of four to five years.
This is a follow-on investment, PERA committed $25 million to MDP VI in 2008.
This recommendation is based on due diligence material and data obtained by the PERA investment division,consultant, and directly from the fund. The due diligence focuses on the strategy of the recommended fund asit fits within the current global equity portfolio. Additionally, PERA defers to the consultant’s primarydiligence on matters relating to the quality and sufficiency of the fund’s back office, compliance, and otheroperational matters.
Proposal
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Slide 13
• Per the Strategic Asset Allocation (SAA), global equity should constituteapproximately 35.5% of the total portfolio, of which private equity is9%. This recommendation would increase the private equity committedallocation bringing the total portfolio closer to approved SAA targets.
Asset Allocation
• MDP has historically outperformed in multiple dimensions. For FundIV- VII the net excess return over MSCI ACWI IMI approximates1370bps (direct alpha) and excess wealth multiple approximates 1.75x(KS-PME ratio). The Alpha target for PE is 260 bps excess return.
Risk Budget/Alpha
• Team of 43 investment professionals in one office in Chicago, IL• Consistent strategy and deal teams with over 15 years experience• Industry focused approach with sector expertise• Trusted partner with longstanding and deep industry relationships in
the Midwest
Seasoned, Stable Management Team
• MDP has a long track record in PE investing across multiple industryverticals
• Proven ability to exit primarily to strategic buyers• Deep experience valuing managers in different market conditions• Midwest proprietary sourcing and deal flow
Edge
Reasons to Invest:
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Slide 14
General PartnerFirm Madison Dearborn Partners, LLC Founded 1992
Locations • Chicago, IL Firm Pedigree
Madison Dearborn was formed as a spin outof First Chicago Venture Capital, the privateequity arm of First National Bank ofChicago. In the early 1980’s the founders ofthe firm worked together at First ChicagoVenture Capital.
Firm AUM Existing GP Yes; $25M in Fund VI
Ownership
Alignment
Firm Summary: MDP VIII, LP
PRIVATE AND CONFIDENTIAL
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Slide 15
Fund
TargetSize
FundraisingStatus
Strategy Buyout and Growth EquityTargetProfile
Team Structure
TrackRecordvs.MSCIACWI(net)
Notable LPs
Fund Summary: MDP VIII, LP
PRIVATE AND CONFIDENTIAL
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Slide 16
ManagementFee
GPCommitment
CarriedInterest LP Advisory
CommitteePreferredReturn
InvestmentPeriod
Key Person
TermSuccessionPlanning
Terms and Governance: MDP VIII, LP
PRIVATE AND CONFIDENTIAL
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Slide 17
Due Diligence Performed: MDP VIIIDate Item
2008 • PERA committed $25 million to Fund VI
2008-2014 • Consultant and Staff reviewed periodically
April 16, 2015 • Met with Co-CEO Paul Finnegan to review potential allocation to Fund VII
2015 – 2018 • Continued review and update calls by Staff
November 14, 2018 • Attendance of Annual Meeting in anticipation of re-up to Fund VIII
March 3, 2019 • Update meeting regarding fundraise in Chicago, IL
September 2019• Torrey Cove conducted primary diligence on matters relating to the quality and sufficiency
of the Fund’s back office, compliance, and other operational matters
August - September 2019• PERA and TorreyCove conduct diligence calls, reference calls with service providers,
lender and limited partners
October 17, 2019 • Staff onsite due diligence
October 25, 2019 • Internal staff review for commitment of up to $75 million;
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Slide 18
Performance Review: MDP Funds IV-VII
PRIVATE AND CONFIDENTIAL
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Slide 19
Performance Review: MDP Funds IV-VII
Net of fee data as of June 30, 2019
PRIVATE AND CONFIDENTIAL
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Slide 20
Performance Review: MDP Funds IV-VII
Net of fee data as of June 30, 2019
PRIVATE AND CONFIDENTIAL
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Slide 21
Performance Review: MDP Fund VI
Net of fee data as of June 30, 2019
PRIVATE AND CONFIDENTIAL
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Slide 22
IFM Global Infrastructure FundIncreased Mandate
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Slide 23
On September 30, 2019 the Alpha Team proposed committing an additional $50 million to IFM GlobalInfrastructure (US), L.P. (“IFM”), an illiquid real assets partnership with a focus on investments in high qualitycore infrastructure assets. IFM seeks to acquire core infrastructure assets with strong market positions, highbarriers to entry, limited demand elasticity and long lives through direct ownership or long-term leases thathave a link to inflation through regulatory price frameworks or contacted terms. IFM is currently invested in23 infrastructure assets diversified across vintage year, geography, and sector. The fund targets a net return of8-12% over rolling three-year periods.
An additional commitment to IFM would constitute an increase to the December 2012 initial commitment of$25 million, and the subsequent September 2016 increased commitment of $75million, resulting in a totalcommitment of $150 million to this open-end core infrastructure fund.
This presentation is based on due diligence material and data obtained by the investment division and consultant, directly from the manager, and focuseson the strategy of the recommended manager as it fits within the current portfolio. Additionally, PERA defers to the consultant’s primary diligence onmatters relating to the quality and sufficiency of the fund’s back office, compliance, and other operational matters.
Proposal
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Slide 24
• PERA and IFM maintain a successful relationship, dating back to 2012,which has contributed to favorable strategy diversification and meaningfuloutperformance, as compared to the portfolio’s policy index; 8.55% directalpha and 1.17 KS PME, net of fees performance for PERA’s currentposition in the fund.
Existing Relationship
• Access to a large scale and highly capable manager that capitalizes on themarket opportunities available due to the substantial imbalance betweenthe capital required to effectively address infrastructure needs and theplanned investment opportunities in the market
Market Opportunity
• An open-end fund structure presents a strategic advantage to PERA,providing the opportunity for vintage year diversification, j-curvemitigation, efficient and prudent capital deployment, and a favorablematching of assets to long-term liabilities
Fund Structure
• Continued utilization of one of the largest infrastructure managers in theworld, with $23.9 billion (at June 30, 2019) in infrastructure investmentsglobally
Firm Pedigree
Reasons to Invest
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Slide 25
Firm Summary: IFM Global Infrastructure (US), L.P.
Firm IFM Investors Founded 2004
HeadquartersMelbourneAdditional offices in: Sydney, New York,London, Berlin, Tokyo and Hong Kong
Firm Pedigree
• One of the earliest investors inAustralian infrastructure
• Contributed significantly to theevolution of the infrastructure market
• One of the largest infrastructuremanagers in the world, with $23.9billion (at June 30, 2019) ininfrastructure investments globally
Firm AUM Existing GP• Yes• $100 million• 100% called and invested
Ownership
Alignment
PRIVATE AND CONFIDENTIAL
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Slide 26
Fund Summary: IFM Global Infrastructure (US), L.P.
Target size Fundraising Status
Strategy
• Construct and maintain a portfolio with long-term, core infrastructure asset that display thefollowing characteristics: monopoly-like,strong market position, consistent regulatoryenvironment, high barriers to entry, limiteddemand-elasticity, exposure to inflation andeconomic growth, and long lives
• Active ownership approach, seeking boardrepresentation for every asset, and utilizingIFM executives within asset managementteams
• Secure and support exceptional managementteams whose compensation is aligned with theasset’s long-term objectives
Target Profile
Team Structure
Track Record
Notable LPs
PRIVATE AND CONFIDENTIAL
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Slide 27
Terms and Governance: IFM Global Infrastructure (US), L.P.
Management Fee GPCommitment
Carried Interest InvestmentCommittee
Preferred Return LP Advisory Committee
Investment Period/Term
Key Person
Liquidity SuccessionPlanning
PRIVATE AND CONFIDENTIAL
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Slide 28
Due Diligence Performed: IFM Global Infrastructure (US), L.P.
Date Item
June 2012 – December 2012• Initial fund diligence, resulting in a $25 million commitment, as approved by the Board of
Trustees
January 2015 • 100% of PERA commitment called and invested
July 2016• PERA receipt of notification of 2016 investor priority period for additional $3 billion
fundraise
July – September 2016• Updated fund diligence, resulting in $75 million additional commitment, as approved by the
Board of Trustees
October 2017 • 100% of PERA commitment called and invested
May 2019• PERA on-site with IFM - visited the Manhattan office and met with Head of
Infrastructure and sector focused team members for an investor update and a review ofindividual responsibilities within the fund
July 2019 • PERA receipt of notification of 2019 investor priority period, expiring September 30, 2019
July – September 2019• PERA and Albourne complete updated diligence on existing portfolio and IFM team for
proposal of increased allocation during priority investor period
Ongoing • Oversight and monitoring of existing investment
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Slide 29
PRIVATE AND CONFIDENTIAL
Performance Review: IFM Global Infrastructure (US), L.P.
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Slide 30
PRIVATE AND CONFIDENTIAL
Performance Review: IFM Global Infrastructure (US), L.P.
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Slide 31
New Rock Core Real Estate FundIncreased Mandate
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Slide 32
On October 25, 2019 the Alpha Team proposed committing an additional $150 million to the New Rock Core RealEstate Fund, an illiquid real estate partnership that will continue their focus on acquiring and managing a portfolio ofhigh-quality, well-located CORE and CORE+ real estate assets that will generate a durable long-term income stream,exclusively for NM PERA through a separate account structure. New Rock will continue to invest across the UnitedStates, with a primary investment objective that will target boutique office and creative workspace in high-qualitycoastal markets. Additionally, New Rock will maintain a secondary investment objective targeting mixed-use real estatewith multi-family exposure.
New Rock’s investment strategy will target a net IRR of 6%-7%, half of which is expected to be comprised of currentincome. Rockwood will seek to expand committed capital to an additional 5-10 properties over the next two to threeyears. Anticipated equity investments will be between $10-$50 million, over the life of the account. This increasedcommitment is an expansion of the current relationship between PERA and the managing member, Rockwood. Todate, PERA has previously committed $20 million to Rockwood Real Estate Partners VIII in 2008, $35 million toRockwood Real Estate Partners Fund IX in 2011, $60 million to Rockwood Real Estate Partners X in 2014, $150million to the initial phase in of the New Rock Core Real Estate Fund in 2017, and $50 million to Rockwood RealEstate Partners Fund XI in 2019.
This presentation is based on due diligence material and data obtained by the investment division and consultant, directly from the manager, and focuses on the strategy ofthe recommended manager as it fits within the current portfolio. Additionally, PERA defers to the consultant’s primary diligence on matters relating to the quality andsufficiency of the fund’s back office, compliance, and other operational matters.
Proposal
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Slide 33
• PERA and Rockwood maintain a successful relationship, dating back to2008, which has contributed to favorable strategy diversification andmeaningful outperformance, as compared to the portfolio’s policy index;10.66% direct alpha and 1.06 KS PME, net of fees performance for PERA’scurrent position in the New Rock Fund. Additionally, PERA’s aggregatedperformance in Rockwood’s value add series has generated a 3.40% directalpha and 1.07 KS PME for the PERA portfolio over the life of therelationship.
Existing Relationship
• PERA continues to seek diversification within the real assets portfolio,with an emphasis on risk-reduction through CORE assets. Thisrecommendation would assist in meeting illiquid core real estate allocationtargets and bringing the portfolio closer to budgeted risk targets.Additionally, this sector focused strategy will further align the Real Estateportfolio more closely with the policy index, as PERA is currentlyunderweight in office properties.
Asset Allocation
• Unique and appropriately designed structure that allows PERA access tooptimal opportunities given current market conditions and currentexposures within the existing PERA real estate portfolio
• Flexibility to redefine execution parameters around changing economic,political and real estate fundamentals
Optimal Investment Structure
• Rockwood’s strong sponsorship and reputation for integrity presents astrategic advantage to PERA, who can leverage Rockwood’s reputation andextensive professional network to gain access to favorable investmentopportunities through proprietary deal flow and creative deal structuring
Firm Pedigree
Reasons to Invest
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Slide 34
Firm Summary: New Rock Core Real Estate Fund
Firm Rockwood Capital, LLC Founded 1995
Locations• Headquartered in New York, NY• Additional locations: San Francisco, CA,
Los Angeles, CA, and Seoul, KoreaFirm Pedigree
• Rockwood’s real estate professionals havediverse skill sets and experience that spanseveral real estate and capital marketscycles
• Rockwood is led by a senior team with anaverage tenure of 23 years of real estateexperience
Firm AUM Existing GP
• Yes• $20 million to Fund VIII in 2008• $35 million to Fund IX in 2011• $60 million to Fund X in 2014• $150 million to New Rock in 2017• $50 million to Fund XI in 2019
Ownership
Alignment
PRIVATE AND CONFIDENTIAL
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Slide 35
Target Size
Fundraising Status
Strategy
• PERA customized separate account focused on theacquisition and management of office and mixed-useresidential properties
• Employ active asset management to reposition, re-lease,rehabilitate, and/or develop real estate assets
• Focus on growing and evolving neighborhoods,especially those driven by a concentration ofknowledge, education, and wealth or population-basedsocioeconomic trends
• Targeted markets will have a combination of growth,government sponsored infrastructure, regulatorysupport for business interests, and supply constraints
• Pursue a mix of assets, some with income in place andothers where the business plan will require some timeto put income in place, in order to construct a diverseand balanced portfolio that has a combination ofcurrent return and value creation upside
Target Profile
Team Structure
Track Record
Notable LPs
Fund Summary: New Rock Core Real Estate Fund
PRIVATE AND CONFIDENTIAL
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Slide 36
Management Fee
GPCommitment
CarriedInterest
GovernanceCommittees
Preferred Return
LP Advisory Committee
Investment Period
Key Person
TermSuccessionPlanning
Terms and Governance: New Rock Core Real Estate Fund
PRIVATE AND CONFIDENTIAL
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Slide 37
Date Item
December 2008 – Ongoing• PERA and Rockwood partnership begins with an initial investment in Rockwood Fund
VIII. PERA and consultant conduct ongoing diligence calls, annual meeting attendance,and periodic onsite meetings with Rockwood to monitor current funds
Early 2016 (and Ongoing)• PERA increases its focus on risk reduction within the real estate portfolio, primarily
focusing on core real estate investment opportunities
May 2016 • Launch of diligence on Rockwood Capital SMA opportunity
May 2016 – March 2017• PERA and consultant conduct ongoing diligence calls with Rockwood, reference calls with
service providers, lender, and limited partners
March 2017• Initial investment of $150m approved by the Board of Trustees and first capital allocation
to California office property
November 2018 • Annual meeting and onsite visits to properties within the Fund
July – October 2019• PERA and Albourne complete updated diligence on existing portfolio and Rockwood team
for proposal of increased allocation
Ongoing • Oversight and monitoring of all existing investments; SMA and flagship funds XIII – XI.
Due Diligence Performed: Rockwood Capital
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Slide 38
PRIVATE AND CONFIDENTIAL
Performance Review: New Rock Core Real Estate Fund
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Slide 39
PRIVATE AND CONFIDENTIAL
Performance Review: New Rock Core Real Estate Fund
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Slide 40
PRIVATE AND CONFIDENTIAL
PME vs. Policy Index: New Rock Core Real Estate Fund
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Slide 41
PRIVATE AND CONFIDENTIAL
PME vs. Sector Specific Index: New Rock Core Real Estate Fund
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