MINUTES Meeting of the Investment Committee State Universities … · 2019-03-13 · MINUTES...

MINUTES

Meeting of the Investment Committee of the Board of Trustees of the

State Universities Retirement System Thursday, December 6, 2018, 9:00 a.m.

Northern Trust Global Conference Center – 1st Floor

50 S. LaSalle St., Chicago, Illinois The following trustees were present: Mr. Mark Cozzi, Chair; Mr. Aaron Ammons, Mr. Tom Cross, Mr. Dennis Cullen, Dr. John Engstrom (via conference call), Dr. Fred Giertz, Mr. Craig McCrohon, Dr. Steven Rock (via conference call), Ms. Lisa Schumacher, and Mr. Collin Van Meter. Others present: Mr. Martin Noven, Executive Director; Mr. Doug Wesley, Chief Investment Officer (CIO); Ms. Ellen Hung, Deputy CIO; Ms. Kimberly Pollitt, Mr. Joe Duncan and Mr. Shane Willoughby, Senior Investment Officers; Ms. Bianca Green, General Counsel; Ms. Kristen Houch, Legislative Liaison; Ms. Kelly Carson and Ms. Annette Ackerman, Executive Assistants; Ms. Mary Pat Burns of Burke, Burns & Pinelli; Mr. Neil Rue, Mr. David Sancewich, Mr. Ted Fergusson, Mr. Brandon Ross and Ms. Judy Chambers of PCA; Ms. Sally Haskins, Ms. Jan Mende and Ms. Barbara Bernard of Callan; Mr. Anton Briton of Northern Trust; and Ms. Adiya Lowers with Financial Daily. Investment Committee roll call attendance was taken. Trustee Cozzi, present; Trustee Cross, absent; Trustee Cullen, absent; Trustee Giertz, present; Trustee McCrohon, absent; Trustee Rock, absent; Trustee Schumacher, absent.

CHAIRPERSON’S REPORT Trustee Mark Cozzi recognized the engaging year SURS experienced in 2018 and thanked staff for their continued efforts.

CHIEF INVESTMENT OFFICER REPORT Mr. Doug Wesley reminded trustees that as a follow-up to prior discussions, staff provided a separate supplemental book to streamline the materials for trustees. The supplemental book includes individual manager performance information and questionnaires for requested RFPs. Mr. Wesley stated that staff is currently working to finalize the annual report for the governor and General Assembly regarding the use of MWDBE owned firms. The report will be circulated to board members and posted to SURS’ website after it is complete. Trustee Cozzi then requested that PCA prepare a short 2018 year-end review for the next meeting. Trustee Dennis Cullen physically joined the meeting at 9:05 a.m. Trustee Lisa Schumacher physically joined the meeting at 9:10 a.m. Trustee John Engstrom joined the meeting via conference call at 9:10 a.m. Trustee Steven Rock joined the meeting via conference call at 9:10 a.m.

Trustee Antonio Vasquez joined the meeting via conference call at 9:10 a.m. Trustee Craig McCrohon physically joined the meeting at 9:20 a.m. Trustee Tom Cross physically joined the meeting at 9:25 a.m. Investment Committee roll call attendance was taken again. Trustee Cozzi, present; Trustee Cross, present; Trustee Cullen, present; Trustee Giertz, present; Trustee McCrohon, present; Trustee Rock, present (via conference call); Trustee Schumacher, present. Trustee Cullen made the following motion:

• That the trustees be allowed to participate via conference call for all meetings on December 6, 2018, pursuant to Section 7(a) of the Open Meetings Act due to their unavailability because of personal illness, employment purposes or family or other emergencies.

Trustee Fred Giertz seconded and the motion carried with all trustees present voting in favor.

APPROVAL OF MINUTES

Trustee Cozzi presented the minutes from the Investment Committee meeting of October 18, 2018. Trustee Cullen made the following motion:

• That the minutes from the October 18, 2018 Investment Committee meeting be approved as presented.

Trustee Schumacher seconded and the motion carried with all trustees present voting in favor. Trustee Cullen made the following motion:

• That the closed minutes from the October 18, 2018 Investment Committee meeting be approved as presented and remain closed.

Trustee Giertz seconded and the motion carried with all trustees present voting in favor.

ASSET ALLOCATION POLICY IMPLEMENTATION DISCUSSION Mr. Wesley discussed the recent board approval regarding full redemption from the hedge fund-of-fund (HFOF) portfolio. The hedge fund-of-fund portfolio is part of the stabilized growth portfolio, along with option strategies and credit related fixed income. The stabilized growth portfolio weight was increased in the recently approved asset allocation. In order to maintain the current class weight staff and PCA recommend transferring the HFOF proceeds into the current option strategies accounts. Trustee Cozzi made the following motion.

• That based on the recommendation from staff and PCA, the Investment Committee approve that proceeds from the hedge fund of funds redemption be allocated to AQR (25 percent), Gladius (25 percent) and Neuberger Berman (50 percent), and used to fund benefit payments if needed.

Trustee Giertz seconded and the motion carried with all trustees present voting in favor. Mr. Neil Rue of PCA provided a preliminary outline for future investment policy changes and discussed the process for implementation. A copy of staff’s memorandum titled “Asset Allocation Update” and PCA’s memorandum titled “Asset Allocation Implementation Memo” are incorporated as part of these minutes as Exhibit 1 and Exhibit 2.

REAL ASSET CLASS REVIEW AND STRATEGIC PLAN

Ms. Sally Haskins, Ms. Jan Mende and Ms. Barbara Bernard of Callan presented the strategic plan for real assets including a market overview, performance review and timeline of events.

A copy of Callan’s presentation titled “Callan Real Asset Class Review and Strategic Plan” is incorporated as part of these minutes as Exhibit 3.

PANTHEON ACCESS 2018 FOLLOW UP

Ms. Kim Pollitt provided a follow up report regarding the fee concessions from the Pantheon Access 2018 platform. Key points of each option were discussed. A copy of staff’s memorandum titled “Follow Up on Pantheon Access 2018” is incorporated as part of these minutes as Exhibit 4. Trustee Cullen physically left the meeting at 12:15 p.m.

PRIVATE EQUITY IMPLEMENTATION / PRIVATE EQUITY CONSULTANT SEARCH

Mr. Tad Fergusson and Ms. Judy Chambers of PCA presented an overview of SURS Private Equity Program including a review of SURS current performance and fees. Mr. Fergusson also addressed SURS portfolio construction and provided PCA’s recommendations regarding the portfolio and their approach for implementation. Discussion ensued as Ms. Chambers and Mr. Fergusson addressed SURS private equity resources and needs, including the potential use of a specialty consultant to focus on private equity. Mr. Martin Noven asked for confirmation that the RFP would be crafted broadly enough to include proposals from current fund-of fund providers. Ms. Chambers and staff confirmed that current providers will be eligible to respond to the RFP. Trustee Giertz made the following motion:

• That based on the recommendation from SURS staff and PCA, that a search be conducted to identify a qualified private equity investment consultant.

Trustee Schumacher seconded and the motion carried with a majority of trustees present voting in favor. Trustee Cross opposed.

CLOSED SESSION

Trustee Ammons moved that the Investment Committee go into closed session pursuant to §2(c)(7) of the Open Meetings Act to consider the sale or purchase of securities or investments or to consider an investment contract. Trustee Cullen seconded and the motion carried in a roll call vote.

Trustee Cozzi - aye Trustee Cross - aye Trustee Cullen - absent Trustee Giertz - nay Trustee McCrohon - aye Trustee Rock - aye Trustee Schumacher - aye

RETURN TO OPEN SESSION

At the conclusion of discussion, Trustee Van Meter moved that the meeting resume in open session. The motion was seconded by Trustee Cozzi and carried with all trustees present voting in favor. Trustee Cozzi acknowledged PCA and stated that the board appreciates and values their wisdom in the private equity area and would like their involvement with the RFP.

DIVERSITY PROGRAM UPDATE Ms. Ellen Hung provided follow-up information from the October meeting regarding the diversity program. Ms. Hung discussed data pertaining to fee information for SURS manager of managers program and the development of diversity goals for 2019 based on the new asset allocation. Ms. Hung stated that staff will continue to work on the SURS Manager Diversity Program and continue to look for ways to increase knowledge of the universe of minority managers, promote and assist up and coming minority managers to succeed. A copy of SURS memorandum titled “Diversity Program Update” is incorporated as part of these minutes as Exhibit 5.

SMP / SUPPLEMENTAL PLAN PROVIDER SEARCH

Mr. Joe Duncan provided a brief overview and background regarding the Self-Managed Plan and new requirements to offer an optional, supplemental defined contribution plan due to Public Act 100-0769. The expectations, scope and proposed implementation timeline were discussed amongst staff and trustees. In conclusion it was determined that an RFP for qualified providers of the SMP Plan and Optional Supplemental DC plan would be issued. Trustee Giertz made the following motion.

• That SURS staff and Cammack jointly recommend that a search be conducted to identify qualified providers for the Self-Managed Plan and the Optional Supplemental DC Plan.

Trustee Van Meter seconded and the motion carried with all trustees present voting in favor. A copy of SURS memorandum titled “SMP Provider Search Memo” and a copy of the Cammack presentation titled “SURS Illinois RFP Timeline for SMP” are incorporated as part of these minutes as Exhibit 6 and Exhibit 7.

QUARTERLY PERFORMANCE REPORT

Mr. David Sancewich and Mr. Brandon Ross of PCA provided a brief update to the board with final numbers regarding total fund performance through September 30, 2018.

A copy of PCA’s presentation titled “3Q 2018 Performance Report” and SURS presentation titled “Manager Status and Performance Summary” are incorporated as part of these minutes as Exhibit 8 and Exhibit 9.

INFORMATIONAL ITEMS NOT REQUIRING COMMITTEE ACTION The following items were provided for reference and are incorporated as a part of these minutes:

1. Exhibit 10 – Estimated Funded Status FY2019 2. Exhibit 11 – PCA Investment Market Risk Metrics 3. Exhibit 12 – SURS Executive Summary Risk Memo 4. Exhibit 13 – SURS Executive Summary Risk Report 5. Exhibit 14 – SURS Summary Work Plan FY19

PUBLIC COMMENT

There were no public comments presented to the Investment Committee. There was no further business brought before the committee and Trustee Collin Van Meter moved that the meeting be adjourned. The motion was seconded by Trustee Giertz and carried with all trustees present voting in favor.

Respectfully submitted,

Mr. Martin Noven

Secretary, Board of Trustees MMN/kc

To: Investment Committee From: Investment Staff Date: November 26, 2018 Re: Asset Allocation Update Background At the September 2018 Investment Committee meeting a full redemption from the hedge fund-of-fund (HFOF) portfolio was approved. At the same meeting, new asset allocation policy targets were also approved. Staff requested additional time to evaluate the liquidity profiles of the HFOF portfolio before determining plans to redeploy the HFOF proceeds. Hedge Fund-of-Funds portfolio As of September 30, the HFOF allocation had a market value of $579 million, representing 3% of total SURS assets. Staff provided notice to the managers after the September meeting and expects to begin receiving distributions during the first quarter of 2019. The liquidity targets of the hedge fund allocation require at least 50% of proceeds be available in 6 months, 90% in one year, and the remainder within 2 years. The table below shows the estimated flows over the next several quarters. We are expecting the majority of assets (87%) to be returned over the next three quarters.

Quarter End 3/2019

Quarter End 6/2019

Quarter End 9/2019

Beginning HF Balance ($Millions) $579 $247 $179 Estimated HF Proceeds Received by SURS ($ mil) $332 $68 $105 Cumulative Proceeds Received by SURS (%) 57% 69% 87% Remaining HF Exposure ($Millions) $247 $179 $74 Remaining HF Exposure (% of Total Fund) 1.3% 0.9% 0.4%

Asset Allocation The table below shows the recently approved asset allocation targets as well as the current class weights.

Asset Class Target Weight

Weight as of 10/31/18

Non-Traditional Growth 15% 9.0% Traditional Growth 25% 54.7% Stabilized Growth 26% 21.8% Inflation Protection 6% 5.6% Principal Protection 8% 8.5% Crisis Risk Offset 20% 0.0%

Exhibit 1

Of the liquid classes, the Stabilized Growth portfolio is currently the most underweight relative to the long-term policy target weight of 26%. The Stabilized Growth class currently includes allocations to Emerging Market Debt, Options Strategies, Credit Fixed Income, and Real Assets. In accordance with the new asset allocation targets, Options Strategies are planned to increase from 2% to 6% and Real Assets are expected to increase from 3.5% to 6%. As a result, we are recommending that the proceeds from the HFOF portfolio remain in the Stabilized Growth class to maintain the current allocation. The options strategies portfolio currently consists of 3 mandates, with 25% allocated to AQR, 25% to Gladius, and 50% to Neuberger Berman. Staff and PCA recommend that proceeds from the HFOF redemption be allocated to the three existing managers, increasing the options strategies weight from 2% to approximately 5%. This reallocation of assets would take place in a manner to maintain the 25% / 25% / 50% balance between the three managers and would also accomplish moving the overall exposure to the Options Strategies closer to the 6% target weight. Note that proceeds from the HFOF redemption may also be retained in the cash account and used to fund benefit payments, as necessary, if the options strategies allocation is near target. Consultant Comments Under the new structure, both Options Strategies and HFOFs fall under the Stabilized Growth class. Both components share the common feature of exhibiting equity-like (or near equity) expected returns while incurring lower-than-equity risk. In addition, both strategy types are utilized to mitigate downside risks. As a result, shifting HFOF proceeds to Options Strategies is an intuitive and prudent reallocation of SURS’ assets. As Staff’s discussion highlights, this asset shift is expected to occur over time rather than all at once. Such a phased-in shift is akin to dollar-cost-averaging, which is a highly appropriate method for mitigating risk during major asset adjustments. Recommendation That based on the recommendation from staff and PCA, the Investment Committee approve that proceeds from the HFOF redemption be allocated to AQR (25%), Gladius (25%) and Neuberger Berman (50%), and used to fund benefit payments if needed.

Exhibit 1

M E M O R A N D U M Date: November 20, 2018 To: Illinois SURS Board of Trustees (“SURS”) From: Pension Consulting Alliance, LLC (“PCA”) CC: Doug Wesley, CFA, CIO | Ellen Hung, CFA, Deputy CIO David Sancewich – PCA| Colin Bebee, CFA – PCA | Neil Rue, CFA – PCA RE: Preliminary Outline/Timeline for Future Investment Policy Changes At its September 2018 meeting, the SURS Board approved a new long-term strategic allocation for the System’s assets. At the October 2018 meeting, PCA provided information on an implementation plan and timeline that Staff and PCA would seek to follow in order get the strategic allocation largely in place by approximately the beginning of fiscal year 2020 (i.e., 7/1/2019). To fully execute the implementation plan, a significant number of milestones must be achieved within a relatively short period of time (i.e., in approximately nine months’ time). While it is reasonable and acceptable to allow certain milestones to be delayed by a meeting or two, the objective is to move forward at a relatively steady pace to implement important changes to the SURS asset portfolio in a deliberate and thoughtful manner. The process for implementation follows three basic steps:

(i) Educate and recommend selected structural changes (usually one strategic class at a time);

(ii) Once structural recommendations are approved and/or modified, draft and approve policy/guideline language reflecting those recommendations; and

(iii) Following these needed policy adjustments, search for and retain the appropriate advisors/managers to implement the new policy structure. This step requires several sub-steps, including issuing requests for proposals, conducting due diligence, and drafting/finalizing contracts. Given the timeline, PCA and/or Staff may begin step (iii) prior to (or in conjunction with) finalizing step (ii).

Attachment 1 provides a high-level indication of where and how the SURS investment policy is expected to change. The majority of changes will occur within Section VI, Portfolio Construction and Performance Benchmarks. This section contains the policy language and general guidelines for SURS’ current asset classes. As the redlines show, each class section is going to be modified to reflect the recent October 2018 strategic allocation decision. PCA and Staff expect to make these changes over a roughly sequential basis, following the timeline presented in October and which is reflected in the table on the following page.

Exhibit 2

2

As the above table highlights, there are a relatively high number of tasks to complete before the end of the fiscal year. We note that of the tasks highlighted, those relating to structural

Timeline Item Nbr. Item

December 6-7 2018 Meeting3 Initial outline of functional policy document (PCA)

15 Non-Traditional Growth structure/program recommendations (PCA & Staff)

20 Core/non-core RA strategic plan recommendations (Callan)

January 31-February 1, 2019 Meeting & Forum6 Traditional Growth structure recommendations (PCA & Staff)

22 CRO structure recommendations (PCA)

28 PP class structure recommendations (PCA & Staff)

March 7-8 2019 Meeting8 Approve new Traditional Growth segment investment policy language (PCA & Staff)

13 Credit v1.0 structure recommendations (PCA & Staff)

23 Approve new CRO segment of investment policy language (PCA & Staff)

29 Approve new PP segment investment policy language (PCA & Staff)

April 18 2019 Meeting14 Approve new Credit segment investment policy language (PCA & Staff)

16 Complete Non-Traditional Growth consultant/advisor search (Staff)

32 IS class structure recommendations (PCA & Staff)

June 6-7 2019 Meeting9 Complete Tradtional Growth manager searches (if needed) (PCA & Staff)

11 Approve RA segment investment policy language (Callan & Staff)

21 Approve annual pacing plans for new segments (All)

24 Complete necessary CRO manager searches (PCA & Staff)

33 Approve new IS segment investment policy segment (must allow for privates)

September 12-13 2019 Meeting17 Approve Non-Traditional Growth segment investment policy language (PM Consultants)

December 5-6 2019 Meeting34 Complete necessary IS manager searches (Consultants & Staff)

2 Receive newly-designed SURS performance reports to account for new structure (PCA)

Preliminary 2018 - 2019 Structuring Work Plan, by Meeting Date

Exhibit 2

3

recommendations are likely the most critical because they represent “blueprints” for future implementation steps. The policy language approvals should prove relatively routine in that they will be drafted to reflect prior structural decisions. Other areas of the SURS investment policy document that are slated to change include relatively modest edits to make policy language consistent with the new strategic allocation structure as well as modifications of certain appendices and the glossary to reflect changes in Section VI that make reference to the appendices. As Staff and PCA begin to move forward with this process, there are likely other areas of the policy that might warrant adjustment. In order to streamline the policy approval process it is reasonable to expect that additional draft language may accompany one or more of the policy language-related tasks in the above schedule.

Exhibit 2

Investment Policy March 2018

ATTACHMENT 1

INVESTMENT POLICY

Table of Contents

Section / Page No. Description

I / 3 Statement of Purpose of Investment Policy II / 4 Strategic Objectives

III / 5 Role Definitions

• Board of Trustees • Investment Committee • Executive Director • Internal Investment Staff • External Investment Consultant(s) • External Investment Managers • Custodian • General Counsel’s Office • External Counsel

IV / 8 Asset Strategic Allocation and Rebalancing Strategy [REWRITE]

V / 10 Investment Risk Management [REWRITE]

VI / 11 Portfolio Construction and Performance Benchmarks [REWRITE]

• Public EquityBroad Growth [NEW; rewrite old Public & Private Equity] • Fixed IncomeInflation Sensitive [NEW] • Private EquityPrincipal Protection [REWRITE from old Fixed Income] • Real Estate • Opportunity FundCrisis Risk Offset [NEW] • Hedged Strategies • Commodities • Opportunity Class [EDITS]

VII / 19 Selection and Retention

• Investment Manager and Fund Monitoring VIII / 21 Investment Manager Termination Guidelines

IX / 23 Performance Evaluation and Reporting

X / 25 Safeguard of Assets

XI / 27 General Investment Restrictions and/or Guidelines

XII / 28 Corporate Governance

• Proxy Voting Policy • Securities Litigation Policy

XIII / 31 Emerging Investment Managers, MFDB Managers and Minority-

Owned Broker/Dealers

• Goals for Utilization of Emerging Investment Managers and MFDB Managers

• Goals for Utilization of Minority-Owned Broker/Dealers • Manager-of-Managers Program

Exhibit I / 34 Glossary of Terms [UPDATE] Appendices / 45 [UPDATE]

Exhibit 2

4

DISCLOSURES: This document is provided for informational purposes only. It does not constitute an offer of securities of any of the issuers that may be described herein. Information contained herein may have been provided by third parties, including investment firms providing information on returns and assets under management, and may not have been independently verified. The past performance information contained in this report is not necessarily indicative of future results and there is no assurance that the investment in question will achieve comparable results or that the Firm will be able to implement its investment strategy or achieve its investment objectives. The actual realized value of currently unrealized investments (if any) will depend on a variety of factors, including future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions and circumstances on which any current unrealized valuations are based. Neither PCA nor PCA’s officers, employees or agents, make any representation or warranty, express or implied, in relation to the accuracy or completeness of the information contained in this document or any oral information provided in connection herewith, or any data subsequently generated herefrom, and accept no responsibility, obligation or liability (whether direct or indirect, in contract, tort or otherwise) in relation to any of such information. PCA and PCA’s officers, employees and agents expressly disclaim any and all liability that may be based on this document and any errors therein or omissions therefrom. Neither PCA nor any of PCA’s officers, employees or agents, make any representation of warranty, express or implied, that any transaction has been or may be effected on the terms or in the manner stated in this document, or as to the achievement or reasonableness of future projections, management targets, estimates, prospects or returns, if any. Any views or terms contained herein are preliminary only, and are based on financial, economic, market and other conditions prevailing as of the date of this document and are therefore subject to change. The information contained in this report may include forward-looking statements. Forward-looking statements include a number of risks, uncertainties and other factors beyond the control of the Firm, which may result in material differences in actual results, performance or other expectations. The opinions, estimates and analyses reflect PCA’s current judgment, which may change in the future. Any tables, graphs or charts relating to past performance included in this report are intended only to illustrate investment performance for the historical periods shown. Such tables, graphs and charts are not intended to predict future performance and should not be used as the basis for an investment decision. All trademarks or product names mentioned herein are the property of their respective owners. Indices are unmanaged and one cannot invest directly in an index. The index data provided is on an “as is” basis. In no event shall the index providers or its affiliates have any liability of any kind in connection with the index data or the portfolio described herein. Copying or redistributing the index data is strictly prohibited. The Russell indices are either registered trademarks or tradenames of Frank Russell Company in the U.S. and/or other countries. The MSCI indices are trademarks and service marks of MSCI or its subsidiaries. Standard and Poor’s (S&P) is a division of The McGraw-Hill Companies, Inc. S&P indices, including the S&P 500, are a registered trademark of The McGraw-Hill Companies, Inc. CBOE, not S&P, calculates and disseminates the BXM Index. The CBOE has a business relationship with Standard & Poor's on the BXM. CBOE and Chicago Board Options Exchange are registered trademarks of the CBOE, and SPX, and CBOE S&P 500 BuyWrite Index BXM are servicemarks of the CBOE. The methodology of the CBOE S&P 500 BuyWrite Index is owned by CBOE and may be covered by one or more patents or pending patent applications. The Barclays Capital indices (formerly known as the Lehman indices) are trademarks of Barclays Capital, Inc. The Citigroup indices are trademarks of Citicorp or its affiliates. The Merrill Lynch indices are trademarks of Merrill Lynch & Co. or its affiliates. FTSE is a trademark of the London Stock Exchange Group companies and is used by FTSE under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. No further distribution of FTSE data is permitted with FTSE’s express written consent.

Exhibit 2

Real Assets Strategic Plan State Universities Retirement System of Illinois

Barbara Bernard Senior Vice President

Sally Haskins Senior Vice President

December 2018

Jan Mende Senior Vice President

Exhibit 3

2 Real Assets Strategic Plan Knowledge. Experience. Integrity.

Real Assets Strategic Plan

● Market Overview

● State Universities Retirement System – Performance Review – Strategy and Pacing – Conclusions and Recommendations

● Manager Selection

● Appendix

Exhibit 3

3 Knowledge. Experience. Integrity. Real Assets Strategic Plan

Market Overview

● 2018 marks the 9th year of the U.S. economic expansion and the U.S. economy continues to thrive. GDP clocked a solid 4.1% gain in the second quarter and the “advance” estimate for the third quarter is 3.5%.

● The unemployment rate dropped to 3.7% in October, the lowest reading since 2000. Wages are inching up; consumer spending remains robust, as does consumer confidence. Housing starts surged to an 11-year high in May, before tapering over the past summer.

● Inflation is gradually trending up but remains contained. Much of the recent rise is attributable to a rebound in oil prices; if prices remain steady, the increase in inflation will abate.

● U.S. real estate fundamentals are healthy. The real estate sector continued to see steady returns driven by above inflation-level rent growth in many metros. In 3Q 2018, the NPI reported a total annual return of 6.9%, above the Barclay’s U.S. Aggregate Bond Index annual return of -1.22% and below the S&P 500 annualized return of 16.3%.

● Within the NPI, the vacancy rate for U.S. property was 5.8% in the third quarter of 2018, near its lowest level since 2001. Vacancies were below their 20-year average in every major sector, however the rate of absorption has flattened.

● Net operating income has been growing annually, and is expected to be the primary driver of returns going forward as the real estate cycle is in a mature phase and appreciation has been moderating.

● Valuations continue to creep higher, although there is a dispersion between property sectors. The office sector has had varying levels of performance based on location, suburban versus CBD, as well as market, primary or secondary/tertiary. Industrial performance has been strong and multi-family may benefit from demand in the presence of declining home affordability.

Exhibit 3


Return Expectations Continue to Moderate

4.5% 4.2% 4.7% 4.3%

5.0% 5.4% 5.0% 4.5% 4.1%

0%

2%

4%

6%

8%

10%

Ap

pra

isal

Cap

Rat

e

NCREIF Cap Rates By Property Type 1982-2018 Q2

Source: PREA, NCREIF, AEW Capital Management. Note: Retail definitions in appendix. Cap rate levels chart shows historic range (hi to low) with the average indicated by the diamond and the current cap rates shown. Red indicates cap rates at historic lows. Width of band represents cap rates over the last year.

Exhibit 3


Market Trends

$109.5 $135.2

$218.9

$371.3 $432.3

$581.5

$180.9

$71.8

$155.0

$260.5 $310.0

$377.9 $452.5

$569.3 $511.4

$490.0

$236.1

5.18% 5.20% 5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

$0

$100

$200

$300

$400

$500

$600

$700

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Q2

Transaction Volume (L) Average Cap Rate (R)All Property Types Transaction Volume And Top Quartile Cap Rates US 2002-2018 Q2

Source: Real Capital Analytics; Heitman Research

Tran

sact

ion

Volu

me

($ B

illion

s)

Top Quartile C

ap Rate

Exhibit 3


Increasing Demand Growth for Property Loans

● Demand for all commercial property loans has increased over the last 6 months due to an uptick in transaction volume.

● Demand for bank construction financing has declined due to investor concerns around asset pricing, supply, and anticipation of potential rate increases for permanent loans due to Federal Reserve tightening.

Net Percentage of Lending Officers Reporting Increasing Demand for Credit

-20%

-10%

0%

10%

20%

30%

40%

50%

Q32013

Q42013

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

Q12017

Q22017

Q32017

Q42017

Q12018

Q22018

Construction Loans Multifamily Loans CRE Loans

Source: Federal Reserve and AEW Capital Management

Exhibit 3


International Markets

Europe ● European real estate markets (ex-U.K.) are gaining momentum due to strong fundamentals in the

major cities of Europe and despite continued political noise across the region.

● Value-add and opportunistic real estate owners and operators continue to see significant opportunity to create and sell core product to a robust market of buyers. Paris, Berlin, Frankfurt, Amsterdam, Stockholm and Madrid continue to see increased levels of investment activity.

Asia ● Asian real estate products are seeing strong fundraising momentum, with existing managers

reaching target fund sizes and an increase in Asia-focused open-end funds.

● Notably in the region, the Chinese government is implementing policies to increase domestic growth and consumption. Over the summer, the Chinese renminbi weakened against the dollar, due to monetary easing in China and global trade tensions and increased capital controls have increased the amount of capital looking to invest within the country; investment activity remains steady in China. Other major markets such as Japan, Australia, Korea and India continue see investment activity across multiple sectors.

Exhibit 3


0

20

40

60

80

100

$0bn

$20bn

$40bn

$60bn

$80bn

$100bn

No.

of f

unds

Aggr

egat

e ca

pita

l rai

sed

Aggregate capital raised No. of funds

Infrastructure Fundraising Momentum Continues

● Open-end infrastructure managers have secured substantial new commitments this year and several new funds have been launched.

● The variety of closed-end infrastructure products continues to increase with new offerings in debt and Emerging Markets-focused strategies.

Infrastructure strategies are raising significant capital

Source: Preqin

Exhibit 3

Portfolio Overview

Exhibit 3


$ Millions (%) Total Plan Assets $19,156.0 100.0%

Real Estate Target $1,915.6 10.0%

Plan's Real Estate Market Value* $1,485.0 7.9%

Unfunded Commitments** $549.0 2.9%

Market Value & Unfunded Commitments $2,054.0 10.7%

Real Estate Portfolio Summary

● The real estate target was 10% of the overall portfolio. – 6% private real estate, 4% public real

estate

● Real estate was included in SURS’ portfolio to generate attractive risk-adjusted returns through stable income and the opportunity for capital appreciation, while providing diversification to the overall portfolio.

● The benchmark for real estate is the NFI-ODCE Index for core real estate and the NFI-ODCE Index plus 1.5% for non-core real estate.

● Subsequent to quarter end a new asset allocation was approved.

June 30, 2018

Core 36%

Non-Core 25%

Debt 2% REITs 37%

Existing SURS Total RE Portfolio (by NAV & unfunded commitments)

*Market value excludes the UBS Trumbull Property Fund NAV ($283 million) which is being redeemed and replaced with two other funds **Unfunded commitments includes commitments to Blackstone Property Partners ($200 million), Carlyle Property Investors ($100 million), and non core funds.

Exhibit 3


Real Estate Investment Positions at June 30, 2018 Based on NAV plus Unfunded

● Good diversification across managers. REITS and JPM Strategic are beta plays. ● Private portfolio is U.S. focused, with global REITS providing most of the non U.S. exposure. ● MWDO managers comprise 9.7% of total real estate portfolio via two Franklin Templeton fund of

funds and a direct commitment to Basis.

By Largest Fund Commitment By Manager Total Commitments

37%

10% 10%

10%

6%

5%

4%

18%

BlackRock REIT

JP Morgan SPF

Heitman HART

Blackstone Property Partners

Dune Real Estate Partners III

Carlyle Property Investors

Franklin Templeton (MDP RE 2015)

All Other Funds

36%

10% 10%

10%

8%

7%

5%

4% 3%

3% 2% 1% 1%

BlackRock

JP Morgan

Heitman

Blackstone

Dune

Franklin Templeton

Carlyle

Brookfield

Stepstone

Crow

Blue Vista

Oaktree

Basis

Exhibit 3


SURS Portfolio June 30, 2018

Fund Type Year SURS Commitment

($m) NAV at 6/30/18

($m) Unfunded at 6/30/18 ($m)

Heitman America Real Estate Trust Core 2013 $150 $214 $0 JP Morgan Strategic Property Fund Core 2013 $150 $216 $0 Blackstone Property Partners Core Plus 2018 $200 $0 $200 Carlyle Property Investors Core Plus 2018 $100 $0 $100 Total – Core/Core Plus $600 $430 $300 Dune Real Estate Partners II Opportunistic 2009 $40 $23 $0 Franklin Templeton Emerging Manager Real Estate Fund Value-Add 2010 $75 $27 $8 Franklin Templeton Private Real Estate Fund Value-Add 2012 $50 $13 $6 Real Estate Global Partnership Fund II (fka: MFIRE II) Value-Add 2012 $60 $35 $21 Dune Real Estate Partners III Opportunistic 2013 $100 $98 $20 Brookfield Strategic Real Estate Partners II Opportunistic 2015 $35 $27 $13 Blue Vista Real Estate Partners IV Value-Add 2015 $35 $27 $9 Crow Holdings Realty Partners VII Value-Add 2015 $35 $29 $4 Franklin Templeton (MDP RE 2015) Value-Add 2015 $90 $36 $53 Basis Investment Group Fund I Debt 2017 $30 $9 $21 Oaktree Real Estate Debt Fund II Debt 2017 $30 $3 $27 Dune Real Estate Partners IV Opportunistic 2017 $20 $0 $20 Crow Holdings Realty Partners VIII Value-Add 2017 $20 $0 $20 Brookfield Strategic Real Estate Partners III Opportunistic 2018 $35 $0 $35 TOTAL – Non-Core $655 $327 $258 BlackRock REIT Public 2013 $748 $748 $0 TOTAL – Public and Private Real Estate $2,003 $1,505 $558

Exhibit 3


Commitment by Vintage Years

050

100150200250300350400450

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

DebtOpportunisticValue AddCore/Core Plus

● Non-Core pacing has followed the fundraising of key managers (Dune, Brookfield, Crow).

● Commitments have been lumpy, recent commitments have been small $20-35 million per fund.

(in $ millions)

Exhibit 3


Core/Core-Plus Portfolio Diversification at June 30, 2018

● Portfolio is diversified with the highest weightings to the primary markets in the east and west coasts which have exhibited historically high growth relative to the middle of the county.

● Portfolio is diversified by property type. – Industrial is underweight to

the ODCE Index. – “Other” at 9.9% is primarily

comprised of self-storage , medical office and student housing

Calculated based on NAV plus unfunded commitments*, as if UBS Trumbull was liquidated

ODCE is a real estate index consisting of open-end funds. *Unfunded core plus commitments to Blackstone Property Partners and Carlyle Property Investors.

29.8%

39.4%

20.5%

7.8%

31.4%

41.1%

18.4%

9.1%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

East West South Midwest

SURS Portfolio

ODCE

30.9% 28.4%

13.6% 17.3%

0.0%

9.9%

24.2%

36.0%

16.2% 19.7%

0.4% 3.5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Residential Office Industrial Retail Hotel Other

SURS Portfolio

ODCE

Exhibit 3


$ Millions (%) Total Plan Assets $19,156 100.0%

Plan's Infrastructure Market Value $94.5 0.5%

Unfunded Commitments $66.1 0.3%

Market Value & Unfunded Commitments $160.6 0.8%

Infrastructure Portfolio Summary

● Infrastructure investments were part of the Opportunity Fund portfolio.

● The benchmark for infrastructure is CPI +5%.

● The portfolio value, including unfunded commitments, of 0.8% is not contributing to diversification or return enhancement.

● Current portfolio is concentrated in North America.

● There is manager concentration with Macquarie.

● Subsequent to quarter end, a new asset allocation was adopted.

June 30, 2018

Macquarie Infrastructure

Partners II 24%

Macquarie Infrastructure Partners III

30%

Macquarie Infrastructure Partners IV

31%

Alinda Infrastructure

15%

Existing SURS Total Infrastructure Portfolio (by NAV & unfunded commitments)

Exhibit 3


Real Estate Stoplight Report

Action Required

Open End Funds Quantitative Qualitative Comments Manager or Investor

Initiated Callan Identified

JP Morgan Strategic Property Fund Fund focuses on four main property types. Lower quartile performance due to relative lack of industrial exposure and outperformance in that sector. Looking to increase Industrial exposure via Fund’s development bucket. Subsequent to quarter end, approved change to funds’ structure to broaden eligible investor base.

None None

Heitman American Realty Trust

Strong in-bound queue activity. Lower share of industrial exposure impacts fund performance compared to ODCE.

None None

Blackstone Property Partners Since Fund inception in November 2014, it has acquired 349 properties. Recent take-private investments in the industrial sector.

None None

Carlyle Property Investors Since Fund inception in October 2015, it has acquired 56 properties. Medical office exposure contributes to strong appreciation.

None None

Notes: Quantitative Color Code Qualitative Color Code Ranked in first quartile vs ODCE for 5 year time period, or longest available if no 5 year history with fund Stable organization, no or minor issues

Ranked in second quartile vs ODCE for 5 year time period, or longest available if no 5 year history with fund Organizational or fund management issues

Ranked in third quartile vs ODCE for 5 year time period, or longest available if no 5 year history with fund Major organizational or fund management issues

Ranked in fourth quartile vs ODCE for 5 year time period, or longest available if no 5 year history with fund

Exhibit 3



Action Required

Closed End Funds Quantitative Qualitative Comments Manager or Investor

Initiated Callan Identified Vintage Year 2009

Dune Real Estate Partners II

20 of the 22 investments had been fully or partially realized and Fund is on schedule to liquidate over 12 months. Remaining portfolio exposure in hospitality, residential land and multi-family sectors. 125% of invested capital has been returned to-date. Fund projected to exceed target return.

None None

Vintage Year 2010 Franklin Templeton Emerging Manager Real Estate Fund (EMREFF)

6 fund investments, 1 co-investment made in 2011-2013. Dispositions are ongoing, final exits not likely until 2020. Performance meeting expectations.

None None

Vintage Year 2012 Franklin Templeton Private Real Estate Fund (FTPREF)

14 underlying fund investments were made, seven have been fully/partially realized to-date. Asian investments with GreenOak Japan and Secured Capital have performed well.

None None

Real Estate Global Partnership Fund II (MFIRE II)

18 underlying fund investments made 2012-2015. Majority international exposure, poor performance for some regional funds (Mexico, Brazil) detracted from performance. Stepstone took over as manager from Courtland in 2018.

None None

Notes: Vintage Year is the first year SURS’ capital was called for each respective fund

Quantitative Color Code Qualitative Color Code Projected to meet original objectives Stable organization, no or minor issues Projected to return capital or better Organizational or fund management issues Projections range around return of capital or slight loss Major organizational or fund management issues Not projected to return capital

Exhibit 3





Action Required


Initiated Callan Identified Vintage Year 2013 Dune Real Estate Partners III 26 investments, seven have been partially/fully

realized. Hospitality, for-sale housing and office represent 23%, 18% and 12%, respectively of invested capital. Pacific, Southeast and Northeast represent 28%, 21% and 17% of invested capital. Fund performing well and is projected to meet target return.

None None

Vintage Year 2015

Brookfield Strategic Real Estate Partners II

27 investments. Globally diversified portfolio, including some China and India investments. Fund is performing well.

None None

Blue Vista Real Estate Partners IV Fund closed on 62 investments and is near full investment. Fund is projected to meet its target return.

None None

Franklin Templeton (MDP RE 2015) Final tranche of capital to be allocated in 2019. Existing exposure includes hospitality (Noble Fund III and IV), GreenOak US III, Long Wharf V and a co-investment with Newport Capital Partners. Performance too early to tell since commitments are relatively new.

None None

Exhibit 3


Action Required


Initiated Callan Identified Vintage Year 2015 Crow Holdings VII Multi-family (including student and senior

housing) and industrial comprise the bulk of the portfolio. Strong realizations activity, fund is performing well.

None None

Vintage Year 2017

Crow Holdings VIII

Fund held final close in Summer 2018 and is in the investment period. 23 investments (largely multi-family and industrial) have been made to date. Performance is too early to evaluate.

None None

Oaktree Real Estate Debt Fund II Early in the investment lifecycle. 38 investments made to-date, 6 new investments in the quarter. Investment period ends 3/13/2020. Manager raised $1.9 billion.

None None

Basis Investment Group Fund I Debt Early in investment lifecycle. 8 investments made to date – which include a CMBS B-piece investment with over 100 underlying loans. Manager expects to reach or exceed $400m fundraise target in Q4 2018.

None None




Exhibit 3





Action Required


Initiated Callan Identified Vintage Year 2017 Dune Real Estate Partners IV Manager expects final close in Q1 2019. Two

initial investments identified. Manager opened a west coast office.

None None

Vintage Year 2018 Brookfield Strategic Real Estate Partners III

Manager raised hard-cap at final close in Fall 2018 to accommodate strong demand. Early in investment lifecycle.

None None

Exhibit 3


Infrastructure Stoplight Report



Action Required


Initiated Callan Identified Vintage Year 2009 Alinda Capital Partners II Performance impacted by vintage year. Large,

remaining midstream asset will drive performance, fund life extended until 2020. The manager raised Fund III after a long hiatus.

None None

Vintage Year 2010 Macquarie Infrastructure Partners II

Five investments. One large electric utility asset in a sale process and could return significant capital in 2019. Remaining portfolio will take several years to wrap up. IRR below expectations, strong multiple.

None None

Vintage Year 2014 Macquarie Infrastructure Partners III Seven investments. Early, favorable exit for

garbage collection investment. Remaining portfolio diversified with ports, roads, power generation, utilities and communication exposure.

None None

Vintage Year 2018 Macquarie Infrastructure Partners IV Final close for this Fund will take place in 2018.

One investment made. Active pipeline. None None

Exhibit 3

Strategy and Pacing

Exhibit 3


Investment Strategy for Emerging, Minority, Women, and Disabled Owned Firms (MWDO)

● Target 20% of all new commitments, per policy, in real assets to MWDO Firms at the end of five years. – Discontinue using fund of funds and make commitments directly. Allow current fund of funds to wind down. – Scale commitment amounts to each manager’s capacity and the portfolio fit. – Target $400-500 million to MWDO managers over five years. – Most MWDO firms operate real estate non core funds, many of which are sector specific, with limited products

in core/core plus real estate. – Limited MWDO firms in infrastructure and other real assets.

● Sourcing MWDO Firms – Direct sourcing by Callan real assets team and SURS staff. – Callan database of Emerging Managers – over $600 million allocated to MWDO real estate strategies in 2017

and 2018 – Callan Connects to meet with new managers regionally. – Ongoing outreach through organizations including: Toigo, NASP, SEO, AAAIM, NBMBAA, GCM Grosvenor

Consortium and Real Estate Executive Council. – Graduate managers with strong track records and stable organizations from Franklin Templeton program.

Exhibit 3


Pacing Study Background

● Diversification across strategies and vintage years is an important risk management tool in real assets investing.

● The pacing study forecasts how much additional capital is required annually to keep SURS invested close to its real assets target.

● Real assets is included in the Broad Growth strategic class of the newly adopted asset allocation in three sub-categories: – Stabilized Growth includes Core Real Assets with a target of 6% of Plan assets – Non-traditional Growth includes Non-Core Real Assets with a target of 25% of a 15% allocation, or 3.75% of

Plan assets – Traditional includes publicly listed real estate investment trusts (REITs) and there is no specific target – Real assets includes real estate, infrastructure, farmland and timberland

● Every year the projection model is adjusted to reflect changes in: – Total Plan assets and growth rate – The uncalled commitment balance – The real asset net asset value – Projected real asset returns

● Callan’s projections are based on a 5.0% net growth rate at the Total Plan level.

Exhibit 3


Preliminary Commitment Targets ($ MM)

Vintage Year Stabilized/Core

Non-Traditional/Non-

Core Traditional/

REITs

2019 $100,000 $250,000 ($125,000)

2020 $175,000 $250,000 ($125,000)

2021 $175,000 $350,000 ($125,000)

2022 $0 $350,000 ($125,000)

2023 $0 $300,000 ($61,813)

Projected Portfolio With Recommended Changes ● Bring Stabilized, Non-Traditional and Traditional

allocations in line with Policy.

● Target of 6% Stabilized/Core: – At year end 2018, Stabilized/Core portfolio is

projected to represent 4.8% of plan assets. – Phase in Stabilized/Core Commitment of

approximately $450 million over the next three years.

● Target of 3.75% Non-Traditional/Non-Core (25% of 15% target allocation): – At year end 2018, Non-Traditional/Non-Core is

projected to represent 1.7% of plan assets. – Phase in Non-Traditional/Non-Core Commitment of

between $250 million to $350 million per year over the next five years to reach the target 3.75% allocation by 2023.

● Liquidate the Traditional/REITs portfolio in a phased manner and optimize pricing. – At year end 2018, Traditional/REITs portfolio is

projected to represent 2.4% of plan assets. – Use proceeds from Traditional/REIT liquidation to

fund core plus commitments to Blackstone and Carlyle.

– Pacing plan assumes exit from Traditional/REITs by 2023, however, actual liquidation will be subject to market conditions and investment needs.

4.8% 4.4% 5.2%

6.0% 6.1% 6.1%

1.7% 1.9%

2.4%

2.8% 3.4%

3.9%

2.4% 1.8%

1.3%

0.8%

0.2%

$-

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

$2,000

$2,250

$2,500

$2,750

2018 2019 2020 2021 2022 2023

NAV

($m

m)

Core Stabilzed Growth (6% target) Non-Core Non-Traditional Growth (3.75% target) REITS-Traditional Growth (target varies)

Exhibit 3


Strategic Plan for Stabilized Growth Real Assets

● To achieve the objectives for Stabilized Growth/Core allocation – Phase in Stabilized/Core commitment of approximately $450 million over the next three years, new individual

commitments of $100-$175 million, depending on the strategy. – In 2019, add an industrial allocation to immediately increase portfolio weight to property sector. – Evaluate benefits of increasing allocations with existing managers. – Consider new infrastructure opportunities. – Diversify portfolio with open end debt fund commitment. – Monitor market for MWDO opportunities.

2019-2023 Plan

$293

$290

$274

$137

$125

$206

$145

Projected Portfolio – Year 2023 (NAV in millions) JP Morgan

Heitman

Blackstone Property Partners

Carlyle

New Manager 1

New Manager 2

New Manager 3

Exhibit 3


Strategic Plan for Non-Traditional Growth Real Assets

● To achieve the objectives for Non-Traditional/Non-Core allocation – Invest across vintage years. – Target $250 million in new investment in 2019. Add four to five new investments, at $50-100 million per fund. – Target 20% of all new commitments, per policy, directly in emerging and MWDO funds versus fund of funds.

This will bring sector specific managers into the portfolio and reduce fees. – Diversify into Europe, Asia, and infrastructure based on opportunity set. – Maintain relationships with existing strong managers, limit the number of non-core managers to 15. – Maintain flexibility in annual allocation depending on relative opportunities in real assets and private equity.

2019-2023 Plan

$100 $100

$75

$40

$100

$100

$50 $50

$100 $100 $100

$100

$100

$150

$150

Projected New Commitments 2019-2023 (aggregate commitments in millions)

Manager 1 Manager 2

Manager 3 Manager 4

Manager 5 Manager 6

Manager 7 Manager 8

Manager 9 Manager 10



Manager 15

Exhibit 3


Preliminary Investment Policy Statement Changes Policy Parameter Existing Recommended

Portfolio Composition Real estate and infrastructure maintained as separate allocations

Real assets allocation components: Private real estate: 75-100%, target 85% Infrastructure: 10-20%, target 10% Other real assets (e.g. timber and agriculture): up to 10%

Allocation to Real Assets

Real Estate: 10% target; no range 6% private - 3.6% Core (range 25-75% of private RE) - 2.4% Non-Core (range 25-95% of private RE) 4% public (REITS) Infrastructure: Up to 5%, no range

Ranges to be finalized with Staff/PCA as part of ongoing work. Stabilized (“Core”): 6% Non-traditional (“Non-Core”): 3.75% (25% of the 15% non-traditional allocation) Traditional (“REIT”): no allocation (liquidate over several years)

Return Objective Attractive risk-adjusted returns through stable income Any modifications to be developed by PCA, Staff and Callan

Benchmark

Core Real Estate: NFI-ODCE Index Non-Core Real Estate: NFI-ODCE Index +150 bps Infrastructure: CPI+5% REITS: Blended FTSE EPRA/NAREIT Dev Index

Core/Core Plus Real Estate: NFI-ODCE Value Weighted Index Net Non-Core Real Estate: Measured by stated strategy target Core Infrastructure: FTSE Developed Core Infrastructure 50/50 Index Non-Core Infrastructure: Measured by stated strategy target REITS: Blended FTSE EPRA/NAREIT Dev Index

Manager/Fund Limits

Core: No open-end fund may represent more than 40% of this allocation. Non-Core: No non-core fund may represent more than 10% of the non-core fund commitments or more than 20% of the direct real estate portfolio. REITS : No active manager may represent more than 50% of this allocation.

Core/Core Plus: No fund may represent more than 30% of the core NAV. Non-Core: No non-core fund may represent more than 10% of the non-core fund commitments, up to $150 million. Manager: No single manager can represent more than 30% of real asset allocation. MWDO Managers: Target to reach at least 20%, per policy, of all new real asset allocations to MWDO by 2023

Property Type Diversification No limit or target Core/Core Plus Real Estate: Portfolio will be broadly diversified and measured against the ODCE property type weightings (office, retail, industrial, apartment, other)

Geographic Diversification No limit or target

Core/Core Plus Real Estate: Portfolio will be broadly diversified and measured against the ODCE regional weightings (East, South, West, Midwest) Up to 25% of real asset allocation in Non-U.S.

Leverage No limit or target Core/Core Plus Real Estate: Maximum of 50%; target of 40%

Compliance With Policy Not Stated Portfolio will have areas of non-compliance while the REIT portfolio is being liquidated and while core and non-core portfolio is transitioning to new allocations.

Exhibit 3

Manager Selection

Exhibit 3


Callan Manager Selection Overview

● Callan conducts an annual pacing review to determine future new commitment deployment to keep the plan in line with strategic targets.

● Callan maintains dialogue with managers in the sector via existing relationships, public search processes, industry events.

● Callan database collects information from the manager universe, at no cost to the managers.

● Callan and Staff work together to identify best in class managers for the SURS portfolio: – Weekly calls to discuss pipeline and attractive opportunities. – Monitor existing managers to plan for re-investment in successor funds if performance and strategy are

consistent. – Assessment of new investment as detailed on the following page.

Exhibit 3


Callan Manager Selection Process

● Manager screening: – Establishing screen for

manager evaluation based on client’s risk/return objectives and specific property type, geographic or manager diversification needs.

– Apply initial screens to universe of management firms monitored and determine best candidates. Prepare side-by-side comparison analysis to compare all current offerings of a particular strategy.

– Discuss options with client highlighting pros and cons, to determine if a fund warrants detailed due diligence.

● Manager recommendation: – Prepare a summary of the fund

and conclusions condensed into a manager evaluation – outlining the issues considered in making a recommendation covering sponsorship, strategy and structure of the product.

– Callan’s Alternatives Review Committee provides oversight on the due diligence process and provides feedback on the product.

– Final manager evaluation package incorporating Alternatives Review Committee feedback is sent to client for discussion.

– Callan and Staff will present investment recommendations to Board for approval.

● Manager evaluation: – Secure all fund documents i.e.

private placement memorandum, Limited Partnership Agreement, completed Callan due diligence questionnaire and evaluate.

– Conduct due diligence meeting with management team at its office for the product and review strategy, management team, investment process, historical performance, legal structure, alignment of interest and other terms.

Exhibit 3

Appendix

Exhibit 3


● October/November 2018: Ongoing discussions with SURS staff on strategic plan and December board meeting materials during Monday calls. Pipeline discussion for new investment opportunities and SURS process

● October/November 2018: Callan to reconcile NEPC’s Q2 data/report with Callan Q2 data on SURS portfolio.

● December 6, 2018: SURS Board Meeting Presentation: SURS Real Asset Portfolio Manager/Asset Class Review. Strategic Plan, Pacing, and Policy Review (in coordination with PCA’s ongoing work)

● December 19, 2018: Q3 2018 Performance Report

● January 31, 2019: SURS Board Meeting – Real Asset Investment Recommendation(s)

● April 15, 2019: Q4 2018 Performance Report

● June 6, 2019: SURS Board Meeting – Real Assets Investment Policy Review and Recommendations. Real Asset Investment Recommendation(s)

● June 15, 2019: Q1 2019 Performance Report

● June 30, 2019: Final Strategic Plan (pending coordination with PCA)

● September 12, 2019: SURS Board Meeting – Real Asset Investment Recommendation(s)

● September 15, 2019: Q2 2019 Performance Report

● December 10, 2019: Real Assets - Asset Class Review - Board Presentation and Real Asset Investment Recommendation(s)

● December 15, 2019: Q3 2019 Performance Report

● April 15, 2020: Q4 2018 Performance Report:

● June 15, 2020: Q1 2020 Performance Report

Note: Additional education sessions as agreed with the SURS Staff and Board (e.g. benchmarking) and additional investment recommendation presentations to meet fund closing deadlines

Callan Work Timeline

Exhibit 3


SURS Real Asset Investment Positions June 30, 2018

Source: SURS Investment Update June 2018

June-18 Incep (1) Benchmark $

millions %

Fund 6/2018

Mgr 6/2018 Bmark

FYTD Mgr

FYTD Bmark

1 YR (2) Mgr

1 YR (2) Bmark

3 YR (2) Mgr

3 YR (2) Bmark

5 YR (2) Mgr

5 YR (2) Bmark

10 YR (2) Mgr

10 YR (2) Bmark

Core Direct Real Estate Managers Heitman America Real Estate Trust Jul-14 NCREIF ODCE Index (3) 214 1.1% 2.01% 1.97% 7.07% 7.11% 7.07% 7.11% 9.53% 9.00% 10.07% 9.75% 10.07% 9.75% JPMCB Strategic Property Fund Jun-14 NCREIF ODCE Index (3) 216 1.1% 1.98% 1.97% 6.57% 7.11% 6.57% 7.11% 8.63% 9.00% 9.48% 10.29% 9.48% 10.29% UBS Trumbull Property Fund Jun-06 NCREIF ODCE Index (3) 283 1.5% 1.69% 1.97% 6.28% 7.11% 6.28% 7.11% 7.45% 9.00% 8.75% 10.41% 6.09% 4.18%

Non-Core Direct Real Estate Managers Blue Vista Real Estate Partners IV Apr-16 NCREIF ODCE Index + 1.5% (3) 26 0.1% NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Brookfield Strategic RE Partners II Feb-16 NCREIF ODCE Index + 1.5% (3) 27 0.1% NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Crow Holdings Realty Partners VII Jan-16 NCREIF ODCE Index + 1.5% (3) 28 0.1% NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Dune Real Estate Parallel Fund II Apr-09 NCREIF ODCE Index + 1.5% (3) 24 0.1% 2.66% 2.35% 9.81% 8.61% 9.81% 8.61% 11.65% 10.50% 15.40% 11.91% 16.55% 9.37% Dune Real Estate Fund III Jul-13 NCREIF ODCE Index + 1.5% (3) 109 0.6% 0.11% 2.35% 13.30% 8.61% 13.30% 8.61% 12.32% 10.50% 12.48% 11.67% 12.48% 11.67% Franklin Templeton EMREFF Aug-11 NCREIF ODCE Index + 1.5% (3) 29 0.2% 3.65% 2.35% 10.03% 8.61% 10.03% 8.61% 17.38% 10.50% 16.80% 11.91% 14.91% 12.11% Franklin Templeton FTPREF Jun-12 NCREIF ODCE Index + 1.5% (3) 14 0.1% 6.22% 2.35% 20.29% 8.61% 20.29% 8.61% 17.81% 10.50% 25.73% 11.91% 21.87% 12.10% Franklin Templeton MDP RE 2015 Sep-15 NCREIF ODCE Index + 1.5% (3) 35 0.2% NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Courtland/Pru RE Global Ptnrshp II Apr-12 NCREIF ODCE Index + 1.5% (3) 39 0.2% 2.91% 2.35% 9.56% 8.61% 9.56% 8.61% 10.00% 10.50% 11.19% 11.80% 9.70% 11.80%

Real Estate Debt Managers Basis Real Estate Fund I Jan-18 NCREIF ODCE Index + 1.5% (3) 9 0.0% NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Oaktree Real Estate Debt Fund II Dec-17 NCREIF ODCE Index + 1.5% (3) 3 0.0% NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF

Total Direct Real Estate Jun-05 NCREIF ODCE Index (3) 1,055 5.5% 1.88% 1.97% 8.14% 7.11% 8.14% 7.11% 9.36% 9.00% 10.60% 10.41% 6.13% 4.18% Global REITs

BTC Global REIT Fund Mar-13 FTSE EPRA/NAREIT Developed Index 748 3.9% 1.51% 1.43% 6.57% 5.64% 6.57% 5.64% 6.54% 5.71% 6.71% 5.97% 5.97% 5.24%

Total GLOBAL REITs Apr-07 Blended / FTSE EPRA/NAREIT Dev Ind 748 3.9% 1.51% 1.43% 6.57% 5.64% 6.57% 5.64% 6.51% 5.71% 6.64% 5.97% 5.28% 4.64%

TOTAL REAL ESTATE INVESTMENT TRUSTS TOTAL REITs Mar-00 Custom 748 3.9% 1.51% 1.43% 6.57% 5.64% 6.57% 5.64% 7.15% 6.94% 7.37% 7.14% 6.74% 6.31%

Opportunity Fund Alinda Capital Partners Dec-09 CPI + 5% (3) 24 0.1% -4.01% 2.48% -20.49% 7.36% -20.49% 7.36% -4.74% 6.86% 2.02% 6.40% 1.96% 6.73% Macquarie Infrastructure Partners II Apr-10 CPI + 5% (3) 36 0.2% 1.76% 2.48% 8.50% 7.36% 8.50% 7.36% 7.26% 6.86% 4.46% 6.40% 8.16% 6.73% Macquarie Infrastructure Partners III Oct-14 CPI + 5% (3) 44 0.2% 3.95% 2.48% 17.20% 7.36% 17.20% 7.36% 13.81% 6.86% 11.94% 6.36% 11.94% 6.36% Macquarie Infrastructure Partners IV Apr-18 CPI + 5% (3) 2 0.0% NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Infrastructure Dec-09 CPI + 5% (3) 106 0.6% 1.18% 2.48% 2.13% 7.36% 2.13% 7.36% 4.10% 6.86% 4.82% 6.40% 6.15% 6.73% TOTAL OPPORTUNITY FUND Jul-99 Custom 106 0.6% 0.01% 0.64% 3.56% 7.59% 3.56% 7.59% 4.10% 7.07% 5.14% 6.58% 7.99% 4.88%

TOTAL FUND TOTAL FUND Oct-81 Policy Portfolio 19,156 100.0% -0.17% -0.17% 8.25% 7.86% 8.25% 7.86% 6.77% 6.71% 8.14% 8.10% 6.69% 6.78%

Policy Portfolio Benchmark consists of 23% U.S. Equities (Dow Jones U.S. Total Stock Market), 19% Non-U.S. Equities (MSCI ACWI ex-US), 8% Global Equities (MSCI ACWI), 6% Private Equity (Dow Jones U.S. Total Stock Market + 3%), 19% Fixed Income (Bloomberg Barclays U.S. Aggregate), 4% TIPS (Bloomberg Barclays U.S. TIPS), 3% Emerging Market Debt (Blended Benchmark), 6% Direct Real Estate (NCREIF ODCE Index), 4% REITs (Blended Benchmark), 2% Commodities (Bloomberg Commodity Index), 5% Hedge Funds (Blended Benchmark) and 1% Opportunity Fund (Blended Benchmark)

(1) inception date of account (2) or since inception, whichever is less (3) reports quarterly in arrears (4) TIPS benchmark used beginning April 2006 (NMF) not meaningful (FOF) fund of funds

Exhibit 3

Glossary of Terms

Exhibit 3


Glossary of Terms

● Capital stack: Typically the combination of every type of funding which goes into the purchase and improvement of a particular project. This can include equity, preferred equity, mezzanine debt and senior debt.

● Capitalization rate: Commonly known as cap rate, is a rate that helps in evaluating a real estate investment. Cap rate = Net operating income / Current market value (Sales price) of the asset.

● Closed-End Fund: A commingled fund with a stated maturity (termination) date with few or no additional investors after the initial formation of the fund. Closed-end funds typically purchase a portfolio of properties to hold for the duration of the fund and, as sales occur, typically do not invest the sales proceeds. (Source: NCREIF PREA Reporting Standards).

● CMBS: Commercial Mortgage Backed Security (conduit) – debt securities collateralized by a pool of mortgages on commercial real estate in which all principal and interest from the mortgage flow to certificate holders in a defined sequence or manner.

● Co-lending: Two or more lenders providing financing to a borrower typically on a pari passu basis (e.g. Investor providing financing with a life insurance company).

● Commingled Funds: A term applied to all open-end and closed-end pooled investment vehicles designed for institutional tax-exempt investors. A commingled fund may be organized as a group trust, a partnership, a corporation, an insurance company separate account, or another multiple ownership entity.

● Conduit: The financial intermediary that functions as a link, or conduit, between the lender(s) originating loans and the ultimate investor(s). The conduit makes loans or purchase loans from third party correspondent lenders under standardized terms, underwriting and documents, and then, when sufficient volume has been accumulated, pools the loans for sale to investors in the CMBS market.

● Core CRE: Direct investments in operating, stabilized (80% plus leased), office, retail, industrial, or multifamily properties using little or no leverage (normally less than 50%).

● Debt Yield: The debt yield ratio is defined as the net operating income divided by the loan amount. Debt yield is a ratio low interest rate lenders use as a measure of how large a loan a property can support. Debt service coverage ratio, can be misleading, especially in a low interest rate environment.

Exhibit 3


Glossary of Terms

● Direct Investments: Investments that involve the outright purchase of properties or mortgage financing not done through other investment vehicles and include any co-investments. (1) Co-investment occurs when two or more pension funds or groups of funds share ownership of a real estate investment. There are several ways that co-investment can occur: (a) a commingled fund investing with a single investor, a group of investors, an individual fund, or a group of funds; or (b) operating companies (such as a qualified REIT or limited partnership) investing with commingled funds, individual funds, or other operating companies. (2) Also refers to an arrangement in which an investment manager or advisor co-invests its own capital alongside the investor, either on an equal (pari passu) or a subordinated basis. (Source: Institutional Real Estate, Inc.)

● First Loss (Equity) Position: The lowest class or tranche of a CMBS security which will absorb credit losses from a pool of mortgages first before any other classes are affected. Note, this would be senior to any subordinate lending and the borrower’s equity position.

● Investment Grade Security: Securities rated AAA through BBB-, generally safer tranches of securities with higher levels of subordination for regulated institutional investors.

● Joint Venture: A venture formed with an entity that is not an institutional investor but rather a developer or private party.

● Non-Core: Refers to Value-Added and Opportunistic equity investments.

● Open‐End Diversified Core Equity Index (“ODCE”): A core index that includes only open‐end diversified core strategy funds with at least 95% of their investments in U.S. markets. The ODCE is the first of the NCREIF Fund Database products, created in 1978, and is an index of investment returns reporting on both a historical and current basis (25 active vehicles). The ODCE Index is capitalization‐weighted and is reported gross and net of fees. Measurement is time‐weighted and includes leverage.

● Open-End Fund: A commingled fund with no finite life that allows continuous entry and exit of investors, typically on a quarterly basis, and engages in ongoing property operations as well as investment purchase and sale activities.

● Operating Company (REOC): A privately held real estate operating company.

● Opportunistic: Investments that take on additional risk in order to achieve a higher return. Typical sources of risks are: development, land investing, operating company investing, international exposure, high leverage, distressed properties.

● Public Real Estate Securities: A company that is publicly traded on one of the market stock exchanges where their primary business involves owning and operating real estate. The companies are typically C-Corporations or Real Estate Investment Trusts (REITs)

Exhibit 3


Glossary of Terms

● Retail - Community Center: In addition to convenience goods, provides for the sale of goods such as apparel or furniture. Typical area is 100,000 to 350,000 square feet with two or more anchor tenants (primarily Grocery and Drug).

● Retail - Neighborhood Center: Provides for the sale of daily living needs of the immediate area. Typical property is 30,000 to 150,000 square feet with at least one anchor tenant.

● Retail - Regional Center: Provides a variety of goods comparable to those of a central business district in a small city, including general merchandise, apparel and home furnishings, as well as a variety of services and perhaps recreational facilities. Two or more full-line department stores anchor a total area of 400,000 to 800,000 square feet.

● Retail - Super-Regional Center: Provides an extensive variety of shopping goods comparable to those of the central business district of a major metropolitan area. The anchors are three or more full-line department stores, with total area in excess of 800,000 square feet.

● Real Estate Investment Trust (REIT): A corporation or business trust that combines the capital of many investors to acquire or provide financing for all forms of income-producing real estate. (Source: National Association of Real Estate Investment Trusts)

● Value‐Added: Core returning investments that take on moderate additional risk from one or more of the following sources: leasing, re‐development, exposure to non‐traditional property types, the use of leverage.

Exhibit 3


NCREIF Region Map Geographic Regions and Divisions

Source: NCREIF

Exhibit 3


Disclaimers

This report is for informational purposes only and should not be construed as legal or tax advice on any matter. Any decision you make on the basis of this content is your sole responsibility. You should consult with legal and tax advisers before applying any of this information to your particular situation.

This report may consist of statements of opinion, which are made as of the date they are expressed and are not statements of fact.

Reference to or inclusion in this report of any product, service or entity should not be construed as a recommendation, approval, affiliation or endorsement of such product, service or entity by Callan.

Past performance is no guarantee of future results.

The statements made herein may include forward-looking statements regarding future results. The forward-looking statements herein: (i) are best estimations consistent with the information available as of the date hereof and (ii) involve known and unknown risks and uncertainties such that actual results may differ materially from these statements. There is no obligation to update or alter any forward-looking statement, whether as a result of new information, future events or otherwise. Undue reliance should not be placed on forward-looking statements.

Exhibit 3

To: Investment Committee From: Investment Staff Date: November 26, 2018 Re: Follow Up on Pantheon Access 2018 Introduction At the October 2018 Investment Committee meeting, representatives from Pantheon Ventures presented to the SURS Investment Committee regarding, among other things, the Pantheon Access 2018 platform. During the discussion that followed, staff was directed to seek additional fee concessions from Pantheon for this commitment. Update The table on the following page summarizes the existing fee with Pantheon for the 2017 Access platform as well as initial and revised fee proposals for the 2018-19 Access platforms. Key points include:

• Ceasing commitments to Pantheon results in increased fees for the $90 million commitment to the 2017 platform. The increase is projected to be approximately $2.9 million over the 15-year life (Option 1). This is not a desirable option.

• The initial proposal by Pantheon would result in fees of 25 basis points, or approximately $10.2 million, for $270 million in commitments over the 15-year fund life (Option 2).

• After the October 2018 discussions, Pantheon revised their fee proposal on the $270 million in commitments by approximately $435,000 over the life of the fund, resulting in projected fees of 24 basis points, estimated at $9.8 million (Option 3).

• However, if SURS commits a total of $270 million over two years rather than three ($180 million to Access 2018), fees for the $270 million are projected to decrease by $3.5 million over the life of the fund when compared to the initial proposal, resulting in projected fees of 17 basis points, or approximately $6.7 million in total (Option 4).

SURS staff and PCA believe Option 4 is the most attractive option for SURS. Conclusion Staff and PCA believe the fee proposal submitted by Pantheon for a $180 million commitment to the Access 2018 platform is attractive and is materially lower than the initial proposal. The commitment would also increase the annual pacing towards the new 11.25% target while future implementation options are being evaluated. Staff plans to move forward with the commitment to Pantheon and will begin legal work to that end.

.

Exhibit 4

Options Total Cost (over 15 years)

Average Rate

1. No additional investments with Pantheon2017 Fund $90m $6,428,340 0.48%

Difference from initial proposal: $2,918,707 0.22%

2. Make Commitments of $270mm (initial Proposal)2017 Fund $90m $3,509,633 0.26%2018 Fund $90m $3,365,762 0.25%2019 Fund $90m $3,365,762 0.25%

$270m $10,241,158 0.25%

3. Make Commitments of $270mm (revised Proposal 1)2017 Fund $90m $3,509,633 0.26%2018 Fund $90m $3,148,193 0.23%2019 Fund $90m $3,148,193 0.23%

$270m $9,806,019 0.24%Difference from initial proposal: -$435,139 -0.01%

4. Make Commitments of $270mm (revised Proposal 2)2017 Fund $90m $3,509,633 0.26%2018 Fund $180m $3,238,141 0.12%

$270m $6,747,774 0.17%Difference from initial proposal: -$3,493,384 -0.08%

Pantheon Commitment Options With Fee Variations

Exhibit 4

To: Investment Committee From: Investment Staff Date: November 26, 2018 Subject: Diversity Program Update Background On October 17, 2018, staff and PCA reported SURS utilization of minority- and women-owned investment firms to the Special Committee on State and Pension Fund Investments. The Committee requested three follow-up items from SURS: (1) updated fee information for our manager of managers program; (2) updated investment policies that include goals based on fees paid to minority investment managers (in addition to the existing goals based on assets under management); and (3) measurable goals for minority investment managers across all asset classes, as well as specific plans on how to achieve those goals across all asset classes. Effective August 17, 2018, Public Act 100-0902 requires each retirement system, pension fund and investment board to make its best efforts to ensure that the racial and ethnic makeup of its senior administrative staff represents the racial and ethnic makeup of its membership. This requirement was added to the diversity of fiduciaries section in 40 ILCS 5/1-109.1. Fee Information MWDBE managers utilized by SURS include African-American, Latino, Asian-American and Women-owned firms. The table below shows the percentage of fees paid to MWBDE managers. This table was sent to the Special Committee on October 31, 2018 in response to their request for further information on October 31, 2018.

% OF FEES PAID TO MWDBE

FY 18 (originally reported) FY 18

African-American 9.6 7.7 Latino 2.2 2.8 Asian-American 3.6 4.0 Women 6.7 7.4 Other 0.7 1.0

Exhibit 5

Investment Goals and Policy The development of SURS’ diversity goals for 2019 will be different from years past because of the new asset allocation approved by the Board at the August Board meeting. The reassignment of managers into functional classes will require past goals to be recalculated. In addition, implementation of the new allocation will require the completion of several functional structure studies and recommendations approved by the Board over the next several months. As part of the structure studies, changes to the investment policy will be proposed. Each proposed functional class policy change will include diversity goals for assets under management (aum) and fees. These changes will be presented to the Board over several meetings in 2019. In preparation for the development of goal recommendations, staff is in the process of obtaining relevant manager universes and population data to develop goals that are meaningful and achievable. This will form the basis for documenting the methodology for the development of the goals. Plans For Goal Achievements Staff will continue to work diligently on the SURS Manager Diversity Program. To increase the chance of the program’s success, staff continues to look for different ways to 1) increase SURS’ knowledge of the universe of minority managers and 2) promote and assist up-and-coming minority managers to succeed. Staff is researching a few ideas and is still in the data-gathering phase. Some of the ideas are listed below but they may change as more information is gathered to determine its efficacy. Staff is researching the database model used by private markets consultants to track funds based on data entered by general partners. We are working with IT to determine the feasibility of developing a similar platform where minority managers can enter information regarding their firm directly on the SURS website. This would include data on the firm’s ownership structure, strategies, performance, etc. The database will keep track of managers that could be included in searches or have the potential to be included in SURS’ line-up of managers. There is a group of Illinois pension funds that meets periodically to share information and staff participates on a regular basis. We are also planning to reach out to other systems that have had effective minority manager outreach programs to learn best practices. The use of focus groups made up of minority managers could help staff identify special programs that would be effective. In addition, staff will continue to implement the Graduation Program as stated in SURS Investment Policy. Several factors are considered to determine appropriate candidates for graduation. Staff will coordinate with Progress to identify one manager per year to be considered for a meaningful, direct allocation. This would ensure more money is allocated to diverse managers in two ways. First, allocations are made to a proven minority manager as shown by success in the Progress line-up. Second, it allows Progress to add another minority manager to SURS fund. Diversity of Fiduciaries Illinois Pension Code 40 ILCS 5/1-109.1 covers the diversity of fiduciaries. SURS Inclusion Policy, updated September 2015 and reaffirmed by the Board annually, addresses this section of

Exhibit 5

the Code. It describes the framework for the inclusion of increased diversity of SURS fiduciaries. The new goal that the system make its best efforts to ensure that senior administrative staff reflects the racial and ethnic makeup of system membership was added by Public Act 100-0902 (effective August 17, 2018). This new law may take some time to implement as there are currently no vacancies in SURS’ senior staff. Any changes to the makeup would require resignation or retirement of key individuals. SURS current senior staff makeup is listed in the table below.

Race/Ethnicity Total Count Percent African-American 0 0.0 Asian-American 0 0.0 Latino 1 12.5 Caucasian 7 87.5 Multi-Racial 0 0.0 Total 8 100

Although Public Act 100-0902 does not address gender diversity, 4 members of SURS’ senior administrative staff (or 50%) are women. Staff has been working with constituent groups to collect information on membership. SURS membership participants as reported to date by universities and community colleges are listed in the table below.

Race/Ethnicity Total Count Percent African-American 10,244 12.2 Asian-American 5,923 7.1 Latino 6,895 8.2 Caucasian 56,927 67.8 Multi-Racial 980 1.2 American Indian/Alaskan Native 170 0.2 Native Hawaiian or Pacific Islander 55 0.1 No Response 2,539 3.0 Nonresident Alien 181 0.2 Total 83,914 100.0

SURS will strive to increase its efforts in recruitment to reach a broader pool of applicants. SURS shall recruit from a diverse, qualified pool of potential applicants to secure a high-performing workforce drawn from all segments of the community. Diversity will be promoted from the top down and the bottom up to ensure a culture of inclusivity is encouraged at every level of the organization.

Exhibit 5

To: Investment Committee From: Investment Staff Date: November 22, 2018 Re: Self-Managed Plan & Supplemental Plan Provider Search Overview and Recommendation The Self-Managed Plan (SMP) is a defined contribution plan that became available to SURS participants on April 1, 1998. The current providers are Teachers Insurance and Annuity Association (TIAA) and Fidelity Investments (Fidelity). TIAA has served as a provider since the inception of the Plan. Fidelity became a provider April 2003. As of June 30, 2018, the SMP had 21,040 participants, comprised of 13,286 active and 7,754 inactive participants, and assets of approximately $2.4 billion. On August 10, 2018, HB 5137, Optional Supplemental DC Plan, became law in the form of Public Act 100-0769 creating an optional supplemental defined contribution plan that will be available to all employees who participate in SURS (including Tier 1, Tier 2, and the SMP). Implementation of the new supplemental plan is required to occur as soon as practicable. The Chairman of the Illinois House Personnel and Pensions Committee plans to introduce a bill during the Spring 2019 legislative session that would allow for automatic enrollment into the SURS supplemental plan. Among members in consideration for auto enrollment would be new SMP members at a set percentage and defined benefit members after they hit the Tier 2 or IRS salary cap at their employee contribution rate, most often 8%. SURS Staff and Cammack Retirement Group (Cammack) are requesting that the Board approve the issuance of a Request for Proposal (RFP) to competitively bid the existing SMP and the new Optional Supplemental DC Plan to ensure that the two plans complement each other, and allow for operational efficiencies, by combining vendors and administrative functions among the plans. Staff and Cammack recently held introductory meetings with several qualified potential candidate firms, including the two existing providers. It is anticipated that each of these firms will respond to the RFP. Finalist interviews for the search are currently planned to be conducted at the September 12, 2019, Investment Committee meeting.

Exhibit 6

Evaluation Team In addition to the service team from Cammack, SURS Staff assembled a multi-disciplinary search team to prepare and evaluate the RFP. Members of the search team include: Martin Noven, Executive Director Suzanne Mayer, Chief Benefits Officer Keith Johnson, SMP Processing Manager Albert Lee, Associate General Counsel Joe Duncan, Senior Investment Officer Additional SURS resources, including Accounting and Information Technology, will be utilized as needed. Expectations of the SMP and Optional Supplemental DC Plan Providers Areas of evaluation to be considered when selecting providers include the following:

• Organization • Resources • Experience • Service Team • Commitment to Diversity • Customized Solutions • Administration and Recordkeeping • Participant Communication and Educational Assistance • Investment Platform • Fees

Scope of Services: The services required of the providers include, but are not limited to, the following:

• Assignment of a dedicated Relationship Manager to serve as a primary point of contact • Full administration, recordkeeping/plan servicing and custodial services through the

contractor’s preferred financial organization • Allow for the secure transmission of data between SURS and the recordkeeper • Ability to accommodate multiple payroll remittance files with differing payroll

processing schedules (e.g., daily, weekly and semi-monthly) • Data storage and safeguarding in accordance with the State, including an annual audit

and assessment of overall systems • Annual disaster recovery testing • Daily account valuation and participant account reconciliation • Daily access to account information, including balances, exchanges, withdrawals and

investment mix election, updated on a daily basis via the plan sponsor and participant websites

• Ability to provide administrative functions and transactions subject to service standards and performance guarantees with limited involvement of SURS staff

• Extensive monthly, quarterly and annual reporting and data mining to be mutually agreed upon

Exhibit 6

• Ability to track, report and automatically process participant Minimum Required

Distributions on an annual basis. • Provide call center services across (at a minimum) two fully redundant call centers • Ability to customize call center voice prompts, call center representative scripts and

website content as requested • Provide secure participant and plan sponsor website • Ability to maintain and store beneficiary designations online including the display on

the website and participant statement • Development and management of a fully customized, integrated micro-site (pre-login

website). The lead/sole recordkeeper will create, maintain, manage, support, host and serve as webmaster for a clearly branded SURS website, with content approved by the System

• Development and maintenance of an administrative manual for all processes pertaining to the plans

• Develop an annual business plan in collaboration with designated staff • Coordination, as necessary to provide the administration and recordkeeping services,

with the custodian of the plan assets • Develop and execute a comprehensive outreach and engagement program using a

multichannel approach to all eligible members/participants and participating employers to promote the plans and their benefits. The System expects to approve all messaging

• Develop, design and host scheduling and online registration software for all outreach efforts

• Work with SURS to design and develop all communications materials relating to the new Supplemental 457(b) Plan

• Provide all educational services and develop an education program incorporating multiple delivery strategies/methods

• Provide targeted communications developed using data mining that provide pertinent and actionable messaging at various stages of the participant’s employment lifecycle

• Distribution of Form 1099 for all withdrawals • Compliance coordinator services (to be offered by the lead recordkeeper if a multi-

recordkeeper structure is maintained) • Annual limits monitoring • Compliance with any changes that may occur as a result of new legislation or

regulations passed at the Federal and/or State level • Ability to timely provide all necessary data to an independent auditor of the System

and assign an internal resource to respond to inquiries by the auditor in a timely manner

• Open architecture mutual fund and investment platform that complies with the National Securities Clearing Corporation (NSCC) and other generally accepted trading requirements for deferred compensation/defined contribution plans

• Flexibility to offer lifetime income investment and annuity products and services (to be determined through separate process)

• Ability to recordkeep white label funds, custom target date, or other custom portfolios as desired by the Board

Exhibit 6

Proposed Timeline: The proposed timeline for the search is as follows:

Schedule of Events Quiet Period Begins December 6, 2018 RFP Issued January 21, 2019 Deadline for Responder Questions January 29, 2019 Response to Questions February 6, 2019 RFP Responses due 4:30pm CT February 25, 2019 Evaluations March/April/May 2019 Candidate Interviews Late June 2019 Optional Onsite Visits Mid July 2019 Selection September 12, 2019

It is anticipated that Staff and Cammack will ask the Board for direction regarding implementation decisions at the April and/or June Board meetings following the submission and evaluation of the RFP responses. Implementation decisions may include the following:

• Provider Structure • Plan Goals • Investment Options • Distribution Options

Quiet Period Policy Guidelines The Quiet Period Policy is intended to establish guidelines by which Board Members and Staff will communicate with prospective service providers during the search process. The objectives of the policy are to ensure that prospective service providers competing to become employed by SURS have equal access to information regarding the search parameters; communications related to the selection are consistent and accurate; and the process of selecting service providers is efficient, diligent, and fair. The following guidelines will be instituted during a search process for a service provider:

1. A Quiet Period will commence upon Board authorization and end once a selection has been made by the Board and the completion of successful contract negotiations with a respondent;

2. Initiation, continuation and conclusion of the Quiet Period shall be publicly communicated to prevent inadvertent violations;

3. All Board members, and Staff other than the Chief Procurement Officer or their designee, shall refrain from communicating with respondents regarding any product or service related to the search in process. All Board members and Staff shall refrain from accepting meals, travel, hotel, or other value from such respondents;

4. Throughout the Quiet Period, if any Board member is contacted by a respondent, the Board member shall refer such party to the Chief Procurement Officer;

5. All authority related to the search process shall be exercised solely by the Investment Committee or Board as a whole, and not by individual Board members;

Exhibit 6

6. The Quiet Period does not prevent Board approved due diligence, client conference

attendance or communications with an existing vendor; provided, however, that discussions related to the procurement and pending selection shall be avoided during those activities;

7. The provisions of this Policy shall apply throughout the Quiet Period and shall be communicated to respondents in conjunction with any search; and

8. A respondent may be disqualified from a search process for a violation of the Quiet Period or any portion of this Policy.

Recommendation

• SURS Staff and consultant recommend that a search be conducted to identify qualified providers for the Self-Managed Plan and the Optional Supplemental DC Plan.

Exhibit 6

SURS OF ILLINOIS | REQUEST FOR PROPOSAL TIMELINE

The preliminary timeline below highlights key milestones to be completed in issuing an RFP for a third-party administrator to provide recordkeeping services for the Self-Managed plan and Supplemental Plan.

•Develop Recordkeeping RFP• Establish weekly/bi-weekly conference calls with key members to discuss and review elements of the RFP• Develop scope of services, minimum qualifications, performance metrics, customized scoring parameters and questionnaire • SURS approves documents for release

Nov – Dec 2018

•Issue RFP• Procurement posts RFP on the state website• Review questions received from potential bidders• Cammack provides recommendations to Procurement to produce responses to bidder questions• Procurement posts question responses on the website

Mid Jan 2019

•RFP Due Date• Receive all proposals received from biddersMid Feb 2019

•RFP Response Evaluations• Review all proposals received from bidders• Onsite meeting to discuss evaluations and evaluate the optimal recordkeeping structure• Present recommended recordkeeping structure to the Board for approval (June 2019 meeting)

Late Feb – Early June 2019

•Finalist Presentation Preparation• Procurement notifies selected finalists• Cammack conducts prep calls (subject to procurement) with finalists to ensure finalist meetings address the topics desired by SURS and to communicate the vendor scenario selected

•Late June 2019

•Finalist Presentations• Onsite meeting to interview finalistsEarly July 2019

Exhibit 7

SURS OF ILLINOIS | REQUEST FOR PROPOSAL TIMELINE

•Site visits at Selected Finalists’ Headquarters (If needed)• Coordinate and attend onsite due diligence meetings at selected finalists’ headquarters or other locations of operationMid July 2019

•Selection of Recordkeeper(s)• SURS selects recommended recordkeeper(s) to be presented to the Board at September meeting

August-September 2019

•Contracting• Legal and procurement work with selected recordkeeper(s) to negotiate and sign a contract• Cammack provides assistance with negotiations and best practices relating to the Terms and Conditions, administrative services agreement, and investment contracts

•Investment Array Review and Development• Review the investment array for the SMP • Prepare a proposed investment array for the Supplemental plan• Discuss various investment products, including income replacement solutions, white-labeling, and custom funds, with SURS and the recordkeeper(s)• Present the recommended investment solutions and products to the Board (October 2019 meeting)

Sept-Oct 2019

•Transition/Implementation of Plans• Develop plan of action to make the transition as smooth and cost efficient as possible• Develop weekly/bi-weekly calls and periodic status reports, and discuss best practices• Onsite meetings at key milestones throughout the process

Oct 2019 – April 2020

•Effective Date of Implementation•May 1, 2020

Exhibit 7

2019 BOARD MEETINGS

April 18, 2019

June 6-7, 2019

September 12-13, 2019

October 17, 2019

• Recordkeeper(s) Recommendation to commence contract negotiations

• Update on RFP responses received

• Investment Recommendations and Solutions

The following outlines key decision points that are expected to be presented to and discussed with the Board for approval.

• Recordkeeping Structure Recommendation

Exhibit 7

State Universities Retirement System of

Illinois (SURS)

Quarterly Report

This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval fromPension Consulting Alliance, LLC.

Nothing herein is intended to serve as investment advice, a recommendation of any particular investment or type of investment, a suggestion of purchasing or selling securities, or an invi-tation or inducement to engage in investment activity.

Q3 2018

Exhibit 8

TABLE OF CONTENTS

INTRODUCTION/PORTFOLIO REVIEW

ECONOMIC OVERVIEW

PORTFOLIO DETAILPerformance Results RiskAttributionPrivate Markets

INVESTMENT MARKET RISK METRICS

APPENDIX Legacy AccountsGlossary of Terms Risk Metrics Description

Exhibit 8

INTRODUCTION / PORTFOLIO REVIEW

Exhibit 8

3-YR Statistics (Rank)

5-YR Statistics (Rank)

· The SURS Total Portfolio matched or outperformed the Policy Benchmark over 4 of the 6 measured periods, net of fees. The Total Portfoliooutperformed the Median Public Fund over 2 of the 6 measured time periods, net of fees.

(1) Investment Metrics (IM) Median [Gross of Fees] - Public Fund >$1 Bilion Universe includes BNY Mellon Total Public Fund Greater than $1Billion Universe and IM client data.(2) Parametric Overlay program Inception Date: September 2014

3 Mo (Rank) 1 YR (Rank) 3 YR (Rank) 5 YR (Rank) 7 YR (Rank) 10 YR (Rank)Total Fund w/ Overlay 2.5 (54) 7.1 (64) 9.6 (65) 7.5 (61) 9.7 (44) 8.0 (46) Policy Benchmark 2.6 (53) 6.9 (68) 9.6 (65) 7.5 (61) 9.8 (41) 8.0 (46)

Excess Return vs. Policy Index -0.1 0.2 0.0 0.0 -0.1 0.0 Public Fund Median (1) 2.6 7.8 10.0 7.8 9.5 7.9

Return StandardDeviation

SharpeRatio

InformationRatio

Total Fund w/ Overlay 9.6 (64) 5.6 (68) 1.5 (88) 0.1 (59)Policy Benchmark 9.6 (65) 5.6 (60) 1.5 (84) -

Public Fund Median (1) Median 10.0 5.3 1.7 0.3

Portfolio Valuation ($000's)1

QuarterTotal Fund w/ Overlay Beginning Market Value 19,156,225 Net Cash Flow -140.505 Fees/Expenses Income Gain/Loss

-10,711 94,452

404,821 Ending Market Value 19,504,282Return Standard

DeviationSharpeRatio

InformationRatio

Total Fund w/ Overlay 7.5 (61) 6.0 (68) 1.2 (75) 0.0 (61)SURS Policy Benchmark 7.5 (60) 5.8 (61) 1.2 (71) -

Public Fund Median (1) Median 7.7 5.6 1.3 0.1

SURS Portfolio Review - Net-of-FeesAs of September 30, 2018

State Universities Retirement System of Illinois (SURS) 4

Exhibit 8

ECONOMIC OVERVIEW

Exhibit 8

ECONOMIC & MARKET OVERVIEW – 3Q 2018

Overview: Real U.S. GDP increased by 3.5% (advance estimate) in the third quarter of 2018. GDP growth was driven by increases in personal consumption expenditures, private inventory investments, government spending, and nonresidential fixed investment, while a decrease in exports and residential fixed investments detracted from GDP growth over the quarter. At quarter-end, the unemployment rate decreased to 3.7%. The seasonally adjusted Consumer Price Index for All Urban Consumers increased by 1.8% on an annualized basis during the quarter. Commodities fell during the second quarter, but the 1-year return for a basket of commodities remains positive at 2.6%. Global equity returns were positive for the quarter at 4.4% (MSCI ACWI). The U.S. Dollar appreciated against the Euro, Pound, and Yen by 0.7%, 1.3%, and 2.7%, respectively.

Economic Growth

Real GDP increased at an annualized rate of 3.5 percent in the third quarter of 2018.

Real GDP growth was driven by increases in personal consumption expenditures, private inventory investments, government spending, and nonresidential fixed investment.

GDP growth was partially offset during the quarter by a decrease in

exports and residential fixed investments.

Inflation

The Consumer Price Index for All Urban Consumers (CPI-U) increased

by 1.8 percent during the third quarter on an annualized basis after seasonal adjustment.

Quarterly percentage changes may be adjusted between data publications due to periodic updates in seasonal factors.

Core CPI-U increased by 1.8 percent for the quarter on an

annualized basis after seasonal adjustment.

Over the last 12 months, core CPI-U increased by 2.2 percent after seasonal adjustment.

Unemployment

The U.S. economy gained approximately 512,000 jobs in the third quarter of 2018.

The unemployment rate declined to 3.7% at quarter-end, the lowest rate since 1969.

The majority of jobs gained occurred in professional services,

educational and health services, and construction. The primary contributors to jobs lost were in retail trade, utilities, and information.

3.5%4.2%

2.2%2.9%3.2%3.1%

0.0%

2.0%

4.0%

6.0%

2018 Q32018 Q22018 Q12017 Q42017 Q32017 Q2

Annualized Quarterly GDP Growth

1.8%2.3%2.5%2.5%

3.9%

0.5%

0.0%1.0%2.0%3.0%4.0%5.0%

2018 Q32018 Q22018 Q12017 Q42017 Q32017 Q2

CPI-U After Seasonal Adjustment

3.7%4.0%4.1%4.1%4.1%4.4%

0.0%

2.0%

4.0%

6.0%

2018 Q32018 Q22018 Q12017 Q42017 Q32017 Q2

Unemployment Rate

6

Exhibit 8


Interest Rates & US Dollar

Treasury Yield Curve Changes

The yield curve flattened over the quarter with shorter yields rising faster than intermediate and long-term yields.

On September 26th, the Federal Reserve raised the federal funds rate for the third time this year. The current target is between 2.00 and 2.25 percent.

The U.S. Dollar appreciated against the Euro, Pound, and Yen by

0.7%, 1.3%, and 2.7%, respectively.

Source: US Treasury Department

Fixed Income

U.S. bonds were mixed over the quarter as most sectors produced returns of +/- 1% over the period. High Yield provided the strongest return with 2.4% over the quarter.

Over the trailing 1-year period, High Yield materially outperformed all other sectors with a 3.1% return. Investment grade bonds experienced a more challenging environment over the 1-year period.

US Fixed Income Sector Performance (BB Aggregate Index)

Sector Weight QTR 1 Year

Governments* 41.4% -0.4% -1.4%

Agencies 2.9% 0.3% -0.5%

Inv. Grade Credit 25.1% 1.0% -1.2%

MBS 28.1% -0.1% -0.9%

ABS 0.5% 0.5% 0.5%

CMBS 1.9% 0.5% -0.6%

0.0%

1.0%

2.0%

3.0%

4.0%

3 mo

6 mo

1 yr

2 yr

3 yr

5 yr

7 yr

10 yr

20 yr

30 yr

6/28/2018 9/28/2018

0.0%

-1.2

%

-0.6

%

-1.6

%

0.9%

-1.1

%-0.1

%

-0.9

%

2.4% 3.1%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

QTR 1-Year

Fixed Income Returns

BB Agg BB Govt* BB Credit BB Mortgage BB High Yield

*U.S. Treasuries and Government Related *U.S. Treasuries and Agencies

7

Exhibit 8


0.8% 2.3%

1.4% 3.

2%

0.8%

0.3%2.

4%

8.5%

-0.9

%

-0.4

%

-10%

-5%

0%

5%

10%

15%

QTR 1-Year

International Equity Returns (GD in USD)

MSCI ACWI Ex U.S. MSCI EAFE MSCI Europe MSCI Pacific MSCI EM

U.S. Equities

During the quarter, growth stocks outperformed value stocks across market capitalizations. In terms of market capitalization, large cap stocks provided the strongest returns across styles. Large cap growth stocks returned this quarter’s strongest return at 9.2%, and small cap value stocks provided the weakest result at 1.6%.

During the trailing 1-year period, core and growth U.S. equities provided positive double-digit returns, with the top performer, large cap growth, returning 26.3%. Conversely, small cap value trailed all other market caps and styles with a return of 9.3%.

0.4%

U.S. Equity Sector Performance (Russell 3000 Index)

Sector Weight QTR 1 Year Information Tech. 20.7% 12.1% 36.3% Health Care 14.3% 13.6% 20.0% Financials 14.2% 3.7% 8.6% Consumer Disc. 10.5% 7.2% 30.5% Industrials 10.3% 9.1% 11.6% Comm. Services 9.0% 1.7% 13.5% Consumer Staples 6.0% 5.1% 3.3% Energy 5.6% 0.7% 15.2% Real Estate 3.7% 0.5% 4.6% Materials 2.9% 0.0% 3.9% Utilities 2.8% 2.5% 4.2%

International Equities

International Equity Region Performance (GD in USD) (MSCI ACWI ex US)

Sector Weight QTR 1 Year Europe Ex. UK 31.4% 1.8% -0.7% Emerging Markets 24.7% -0.9% -0.4% Japan 16.9% 3.8% 10.6% United Kingdom 12.1% -1.7% 2.9% Pacific Ex. Japan 8.2% -0.5% 4.4% Canada 6.7% 1.0% 2.7%

International equities provided moderate returns over the quarter. Emerging Markets trailed all other regions with a return of -0.9%.

Over the trailing 1-year period, the Pacific led all other regions with a return of 8.5%, while Emerging Markets trailed all other regions with a -0.4% return.

7.1%

17.6

%

8.9%

25.9

%

5.4% 9.

5%

7.4%

17.8

%

9.2%

26.3

%

5.7% 9.

5%

3.6%

15.2

%

5.5%

21.1

%

1.6%

9.3%

-5%0%5%

10%15%20%25%30%

QTR 1-Year

U.S. Equity Returns

R3000 (Broad Core) R3000G (Broad Gr) R3000V (Broad Val)R1000 (Lg Core) R1000G (Lg Gr) R1000V (Lg Val)R2000 (Sm Core) R2000G (Sm Gr) R2000V (Sm Val)

8

Exhibit 8


*Performance is annualized for periods greater than one year.

Market Summary – Multi-term Performance*

Indexes Month Quarter 1 Year 3 Years 5 Years 10 Years 20 Years Global Equity MSCI AC World Index 0.5% 4.4% 10.3% 14.0% 9.2% 8.8% 6.7% Domestic Equity S&P 500 0.6% 7.7% 17.9% 17.3% 13.9% 12.0% 7.4% Russell 3000 0.2% 7.1% 17.6% 17.1% 13.5% 12.0% 7.8% Russell 3000 Growth 0.3% 8.9% 25.9% 20.4% 16.2% 14.2% 7.3% Russell 3000 Value 0.0% 5.4% 9.5% 13.7% 10.6% 9.8% 7.8% Russell 1000 0.4% 7.4% 17.8% 17.1% 13.7% 12.1% 7.7% Russell 1000 Growth 0.6% 9.2% 26.3% 20.6% 16.6% 14.3% 7.2% Russell 1000 Value 0.2% 5.7% 9.5% 13.6% 10.7% 9.8% 7.6% Russell 2000 -2.4% 3.6% 15.2% 17.1% 11.1% 11.1% 9.4% Russell 2000 Growth -2.3% 5.5% 21.1% 18.0% 12.1% 12.7% 8.6% Russell 2000 Value -2.5% 1.6% 9.3% 16.1% 9.9% 9.5% 9.8% Russell Microcap -3.3% 0.8% 13.6% 16.4% 10.5% 10.8% --- Alerian MLP Index -1.6% 6.6% 4.9% 4.4% -2.7% 9.2% --- CBOE BXM Index 0.0% 4.9% 9.8% 10.3% 9.0% 6.6% 6.3% International Equity MSCI ACWI ex USA 0.5% 0.8% 2.3% 10.5% 4.6% 5.7% 6.3% MSCI EAFE 0.9% 1.4% 3.2% 9.8% 4.9% 5.9% 5.6% MSCI Europe 0.4% 0.8% 0.3% 8.4% 4.3% 5.5% 5.4% MSCI Pacific 1.9% 2.4% 8.5% 12.7% 6.0% 6.8% 6.4% MSCI EM (Emerging Markets) -0.5% -0.9% -0.4% 12.8% 4.0% 5.8% 10.2% Fixed Income BB Universal -0.4% 0.3% -1.0% 2.0% 2.5% 4.2% 4.8% Global Agg. - Hedged -0.4% 0.0% 0.8% 2.4% 3.1% 4.1% 4.5% BB Aggregate Bond -0.6% 0.0% -1.2% 1.3% 2.2% 3.8% 4.5% BB Government -0.9% -0.6% -1.6% 0.3% 1.3% 2.7% 4.0% BB Credit Bond -0.3% 0.9% -1.1% 3.0% 3.4% 5.9% 5.2% BB MBS -0.6% -0.1% -0.9% 1.0% 2.0% 3.3% 4.5% BB High Yield 0.6% 2.4% 3.0% 8.1% 5.5% 9.5% 6.9% BBWGIL All Maturities - Hedged -0.8% -0.8% 2.1% 3.9% 3.8% 4.4% --- Emerging Markets Debt 1.3% 1.6% -1.7% 5.5% 4.5% 7.4% 9.6% Real Estate NCREIF 0.7% 2.0% 8.4% 9.4% 11.0% 5.3% 8.7% FTSE NAREIT All Equity Index -2.4% 0.7% 4.2% 9.2% 9.7% 8.1% 9.7% Commodity Index Bloomberg Commodity Index 1.9% -2.0% 2.6% -0.1% -7.2% -6.2% 1.5%

9

Exhibit 8


Annual Asset Class Performance

10

Exhibit 8

PORTFOLIO DETAIL Performance Results RiskAttributionPrivate Markets

Exhibit 8

PERFORMANCE RESULTS

Exhibit 8

Total Fund w/ Overlay Policy Benchmark Actuarial Rate

($5.0)

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

12/82 12/84 12/86 12/88 12/90 12/92 12/94 12/96 12/98 12/00 12/02 12/04 12/06 12/08 12/10 12/12 12/14 12/16 9/18

$15.2

$22.2

$23.8

Total Fund Growth of $1 Since Inception

As of September 30, 2018


Exhibit 8

Actual vs. Target Allocations As of 9/30/2018

Policy Current Overlay Current Value

Cash 0.0% 1.2% 0.5% $241,745,9660

Commodit ies 2.0% 1.9% 1.9% $362,418,8910

Hedge Funds 5.0% 5.0% 5.0% $975,335,4890

Opportunity Fund 1.0% 0.6% 0.6% $111,531,6420

Private Equity 6.0% 6.1% 6.1% $1,191,889,8950

Real Estate 6.0% 5.3% 5.3% $1,031,686,1520

REITs 4.0% 3.9% 3.8% $749,434,4280

TIPs 4.0% 3.5% 3.5% $688,897,0650

Emerging Market Debt 3.0% 2.9% 2.9% $562,317,3750

Fixed Income 19.0% 16.9% 19.0% $3,277,885,6020

Global Equity 8.0% 9.1% 8.2% $1,778,658,1350

Non US Equity 19.0% 19.4% 19.2% $3,780,908,5330

Domest ic Equity 23.0% 24.1% 23.7% $4,694,211,2590

Overlay 0.0% 0.4% 0.0% $57,361,9170

Total 100% 100% 100% $19,504,282,347

Asset Allocation vs. Target

14

Exhibit 8

MarketValue

($)

AssetAllocation

(%)

LowerRange

(%)

Target(%)

UpperRange

(%)Total Fund w/ Overlay 19,504,282 100.0 - 100.0 -Domestic Equity Composite w/ Overlay 4,694,211 24.1 20.0 23.0 26.0International Equity Composite w/ Overlay 3,780,909 19.4 16.0 19.0 22.0Global Equity Composite w/ Overlay 1,778,658 9.1 5.0 8.0 11.0Fixed Income Composite w/ Overlay 3,277,886 16.8 16.0 19.0 22.0Emerging Market Debt 562,317 2.9 0.0 3.0 6.0TIPS 688,897 3.5 1.0 4.0 7.0REITs 749,434 3.8 1.0 4.0 7.0Real Estate 1,031,686 5.3 3.0 6.0 9.0Private Equity 1,191,890 6.1 3.0 6.0 9.0Opportunity Fund 111,532 0.6 0.0 1.0 4.0Hedge Funds 975,335 5.0 2.0 5.0 8.0Commodities Composite w/ Overlay 362,419 1.9 0.0 2.0 5.0Cash 241,746 1.2 0.0 0.0 3.0Total Overlay 57,362 0.3 0.0 0.0 3.0

Target% Actual%

0.0% 10.0% 20.0% 28.0%

Asset Allocation vs. Target Allocation with OverlayAs of September 30, 2018


Exhibit 8

Cash Commodities Domestic Equity

Emerging Market Debt Fixed Income Global Equity

Hedge Funds International Equity Opportunistic

Overlay Private Equity Real Estate

REITs TIPS

0

15

30

45

60

75

90

All

oc

ati

on

(%)

Nov

2013May

2014

Nov

2014May

2015

Nov

2015May

2016

Nov

2016May

2017

Nov

2017Sep

2018

Historical Asset Allocation

5 Years Ending September 30, 2018


Exhibit 8

Trailing Period Perfomance (annualized)

12-Month Period As of September 30, 2018

(1) Investment Metrics (IM) Median [Gross of Fees] - Public Fund Greater than $1 Billion Universe includes BNY Mellon Public Funds >$1 Billion Universe and IM client data.

Total Fund w/ Overlay - Gross Total Fund w/ Overlay - Net Policy Benchmark Public Fund Median (1)

0.0

3.0

6.0

9.0

12.0

Retu

rn

1Quarter

FYTD 1Year

3Years

5Years

Since Inception

2.64.0

7.8

10.0

7.8

2.6 3.1

6.9

9.6

7.5

2.5 3.1

7.1

9.6

7.59.2

2.6 3.3

7.4

9.9

7.89.3

Total Fund w/ Overlay - Gross Total Fund w/ Overlay - Net Policy Benchmark Public Fund Median (1)

0.0

5.0

10.0

15.0

-5.0

Retu

rn

2014 2015 2016 2017 2018

10.0

-0.5

9.712.5

7.8

11.0

-1.5

10.111.8

6.9

10.5

-1.2

9.612.1

7.1

10.8

-1.0

10.012.4

7.4

SURS Portfolio Relative Performance ResultsAs of September 30, 2018


Exhibit 8

(1) The Fixed Income composite returns consist of returns provided by NEPC through September 2017 and are calculated by PCA beginning in October 2017.

MarketValue($000)

1Quarter

1Year

3Years

5Years

7Years

10Years

15Years

Total Fund w/ Overlay 19,504,282 2.5 7.1 9.6 7.5 9.7 8.0 7.8Policy Benchmark 2.6 6.9 9.6 7.5 9.8 8.0 7.8

Domestic Equity 4,694,211 6.8 17.2 16.7 13.1 16.7 12.2 9.8Dow Jones U.S. Total Stock Market Index 7.1 17.6 17.0 13.4 16.8 12.0 10.0

Total Non US Equity 3,780,909 0.5 1.5 9.9 4.8 8.1 5.5 7.3International Equity Custom Benchmark 0.7 1.8 10.0 4.1 7.2 5.2 7.2

Global Equity 1,778,658 4.0 13.1 15.0 10.6 12.8 9.2 8.4Global Equity Benchmark 4.3 9.8 13.4 8.7 11.6 8.3 8.0

Fixed Income(1) 3,277,886 0.2 -0.3 2.1 2.4 2.6 4.7 4.5Fixed Income Custom Benchmark 0.0 -1.2 1.3 2.2 2.0 3.8 3.9

Emerging Market Debt 562,317 -0.4 -5.4 5.8 - - - -50% JPM GBI-EM GD / 25% KPM EMBI GD / 25% JPM Corp Broad 0.0 -4.3 5.7 - - - -

TIPS 688,897 -0.8 0.4 2.2 1.3 1.4 3.7 4.1Bloomberg Barclays U.S. TIPS Index -0.8 0.4 2.0 1.4 1.3 3.3 3.9

REITs 749,434 0.1 4.8 7.0 7.3 10.6 6.8 8.7Total REITs Custom Benchmark -0.3 3.7 6.7 7.0 10.3 6.4 8.2

Real Estate 1,031,686 1.7 9.3 9.0 10.8 10.9 4.7 6.9SURS Real Estate Index 1.8 7.5 8.4 10.0 10.4 4.3 7.3

Private Equity 1,191,890 4.0 16.8 10.5 11.2 10.2 8.7 11.4Dow Jones US Total Stock Market + 3% QTR Lag 4.6 18.2 14.9 16.6 16.3 13.6 13.0

Opportunity Fund 111,532 2.9 2.8 4.5 5.7 9.2 8.3 9.3Opportunity Fund Custom Benchmark 2.2 8.1 7.0 6.7 6.8 - -

Hedge Funds 975,335 2.0 4.3 - - - - -Hedge Funds Custom Benchmark 2.5 7.7 - - - - -

Commodities 362,419 -1.4 4.9 - - - - -Bloomberg Commodity Index Total Return -2.0 2.6 - - - - -

Cash 241,599 1.3 3.3 1.6 1.0 0.7 0.6 1.7FTSE 3 Month T-Bill 0.5 1.6 0.8 0.5 0.4 0.3 1.2

Asset Class Performance (Net-of-Fees)


State Universities Retirement System of Illinois (SURS)18

Exhibit 8

Private Markets PerformanceA As of 6/30/2018

AData provided by Northern Trust. BTime Weighted Return

Composite Level IRRs

1-Year 3-Year 5-Year 10-Year Since Inception

Real Estate 8.3% 8.8% 10.2% 6.4% 7.1% Infrastructure 2.3% 4.2% 5.3% -- 6.2% Private Equity 15.3% 9.9% 11.3% 7.6% 18.1%

Composite Level (Since Inception)

Capital Commitment ($) Draw Down ($) Remaining

Commitment ($) Distributed ($) Market Value ($) TVPI Multiple

Real Estate 1,281,658,779 1,144,824,320 136,834,458 622,449,720 1,033,215,154 1.5 Infrastructure 180,000,000 106,014,653 73,985,347 62,876,983 94,511,247 6.1B Private Equity 3,542,758,071 2,737,922,377 835,559,435 3,390,414,472 1,087,863,955 1.6

19

Exhibit 8

-4.0

-1.0

2.0

5.0

8.0

11.0

14.0

17.0Re

turn

3 Mo (Rank) 1 YR (Rank) 3 YR (Rank) 5 YR (Rank) 7 YR (Rank) 10 YR (Rank)Total Fund w/ Overlay 2.6 (53) 7.4 (58) 9.9 (52) 7.8 (45) 10.0 (36) 8.3 (30)¢

Policy Benchmark 2.6 (53) 6.9 (68) 9.6 (65) 7.5 (61) 9.8 (41) 8.0 (46)�

5th Percentile 3.6 9.9 11.6 9.0 11.4 9.01st Quartile 3.1 8.8 10.7 8.4 10.4 8.3 Median 2.6 7.8 10.0 7.8 9.5 7.9

3rd Quartile 2.2 6.7 9.1 7.1 8.8 7.695th Percentile 1.2 3.9 6.2 5.3 6.9 6.5

Population 88 88 82 80 77 71

Plan Sponsor Peer Group AnalysisTotal Fund w/ Overlay vs. Investment Metrics Public Plans > $1B Gross

Calculation based on monthly periodicity.Median is the Investment Metrics(IM) Gross of Fees Total Public Fund Greater than $1 Billion Universe which includes BNY Mellon Public Fund >$1Bil Universe and IMclient data. 20

Exhibit 8

-12.0

-4.0

4.0

12.0

20.0

28.0

36.0

Retu

rn

2009(Rank) 2010 2011 2012 2013 2014 2015 2016 2017Total Fund w/ Overlay 23.4 (14) 14.0 (33) 0.3 (74) 14.2 (24) 17.3 (35) 6.8 (44) 0.4 (45) 6.9 (77) 16.5 (37)¢

SURS Policy Benchmark 23.1 (18) 13.5 (47) 0.2 (75) 14.7 (7) 16.4 (41) 7.2 (33) -0.6 (73) 7.8 (54) 15.5 (58)�

5th Percentile 25.5 16.2 8.4 14.8 22.0 9.0 2.2 9.7 18.31st Quartile 21.5 14.3 2.4 14.1 18.1 7.5 1.1 8.5 16.8 Median 19.1 13.2 1.0 13.3 15.4 6.6 0.3 7.9 16.0

3rd Quartile 15.4 12.1 0.2 12.1 12.2 5.4 -0.9 7.0 14.695th Percentile 6.5 8.3 -0.8 8.7 4.9 4.5 -2.0 2.1 9.3

Population 43 50 53 61 72 79 100 114 108

Calendar Year Returns

Plan Sponsor Peer Group AnalysisTotal Fund w/ Overlay vs. Investment Metrics Public Plans > $1B Gross

Parenthesis contain percentile rankings.Calculation based on quarterly periodicity.Median is the Investment Metrics(IM) Gross of Fees Public Fund Greater than $1 Billion Universe which includes BNY Mellon Public Fund > $1Bil Universe and IM client data. 21

Exhibit 8

-25.0

-10.0

5.0

20.0

35.0

50.0

65.0

80.0

Allo

catio

n (%

)

US Equity Intl. Equity US FixedIncome

Intl. FixedIncome Alternative Inv. Real Estate Cash

Total Fund w/ Overlay 25.4 (60) 28.8 (14) 21.0 (52) 2.2 (55) 9.6 (75) 9.1 (21) 1.5 (50)¢

5th Percentile 49.8 35.3 57.8 11.3 36.6 13.5 8.91st Quartile 38.4 25.0 25.7 5.8 24.0 8.6 3.1Median 30.0 19.9 21.7 2.4 17.0 5.9 1.53rd Quartile 20.6 15.3 15.0 0.6 9.5 3.8 0.895th Percentile 12.0 7.5 7.4 0.0 4.3 1.1 0.2

Population 85 85 87 51 71 67 72

Total Plan Allocation vs. Investment Metrics Public Plans > $1 BillionAs of September 30, 2018

Parentheses contain percentile rankings.Calculation based on monthly periodicity.Median is the Investment Metrics(IM) Gross of Fees Total Public Greater than $1 Billion Fund Universe which includes BNY Mellon Public Fund >$1Bil Universe and IM client data.Alternative Inv. class includes all funds not allocated to the other listed classes. 22

Exhibit 8

RISK

Exhibit 8

0.0

3.0

6.0

9.0

12.0

15.0

Retu

rn (%

)

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0Risk (Standard Deviation %)

Return(Rank) StandardDeviation(Rank)

SharpeRatio(Rank)

InformationRatio(Rank)

Total Fund w/ Overlay 8.0 (46) 10.0 (82) 0.8 (87) 0.0 (45) Public Fund Median (1) Median 7.9 9.1 0.9 -0.1

Policy Benchmark 8.0 10.3 0.8 -

Total Fund Risk/Return - 10 YearsAs of September 30, 2018

State Universities Retirement System of Illinois (SURS)

(1) Investment Metrics (IM) Median [Gross of Fees] - Total Public Fund Greater than $1 Billion Universe includes BNY Mellon Total Public Fund >$1Bil Universe and IM client data.

24

Exhibit 8

0.0

3.0

6.0

9.0

12.0

15.0

Retu

rn (%

)

0.0 0.7 1.4 2.1 2.8 3.5 4.2 4.9 5.6 6.3 7.0 7.7 8.0Risk (Standard Deviation %)

Return (Rank) StandardDeviation (Rank)

SharpeRatio (Rank)

InformationRatio (Rank)

Total Fund w/ Overlay 7.5 (61) 6.0 (68) 1.2 (75) 0.0 (61) Policy Index 7.5 (61) 5.8 (61) 1.2 (71) -

All Public Plans > $1B-Total Fund Median 7.7 5.6 1.3 0.1

Total Fund Risk/Return - 5 YearsAs of September 30, 2018

State Universities Retirement System of Illinois (SURS)

(1) Investment Metrics (IM) Median [Gross of Fees] - Total Public Fund Greater than $1 Billion Universe includes BNY Mellon Public Fund >$1Bil Universe and IM client data.

25

Exhibit 8


SharpeRatio

InformationRatio

SortinoRatio

TrackingError

Total Fund w/ Overlay 7.54 5.98 1.17 0.01 2.04 0.70Policy Index 7.54 5.83 1.20 - 2.10 0.00

Domestic Equity 13.14 9.69 1.28 -0.39 2.31 0.62Dow Jones U.S. Total Stock Market Index 13.42 9.58 1.32 - 2.41 0.00

Total Non US Equity 4.79 10.85 0.44 0.60 0.69 1.02International Equity Custom Benchmark 4.12 11.10 0.38 - 0.57 0.00

Global Equity 10.57 9.74 1.03 0.92 1.81 1.89Global Equity Benchmark 8.67 9.70 0.86 - 1.42 0.00

Fixed Income 2.38 2.27 0.82 0.28 1.36 0.72Fixed Income Custom Benchmark 2.16 2.68 0.62 - 1.00 0.00

TIPS 1.27 3.63 0.23 -0.24 0.35 0.39Bloomberg Barclays U.S. TIPS Index 1.37 3.58 0.26 - 0.40 0.00

REITs 7.34 11.12 0.65 1.05 1.03 1.77FTSE EPRA/NAREIT Developed Index (Net) 5.43 10.55 0.51 - 0.78 0.00

Real Estate 10.79 2.34 4.13 0.31 275.90 2.31SURS Real Estate Index 10.03 0.79 9.92 - - 0.00

Private Equity 11.22 4.49 2.31 -0.46 14.51 11.12Dow Jones US Total Stock Market + 3% QTR Lag 16.58 9.88 1.56 - 3.07 0.00

Opportunity Fund 5.70 5.31 0.98 0.78 2.34 5.32CPI - All Urban Consumers (SA) QTR Lag 1.54 0.99 1.08 - 1.79 0.00

Cash 0.98 0.42 1.76 1.77 6.60 0.28FTSE 3 Month T-Bill 0.49 0.18 -0.16 - -0.07 0.00

Total Fund Risk Statistics (Net-of-Fees)5 Years



Exhibit 8


SharpeRatio

InformationRatio

SortinoRatio

TrackingError

Total Fund w/ Overlay 9.62 5.65 1.52 0.07 2.97 0.70Policy Index 9.57 5.57 1.53 - 3.05 0.00

Domestic Equity 16.67 9.33 1.63 -0.45 3.22 0.69Dow Jones U.S. Total Stock Market Index 17.05 9.17 1.69 - 3.43 0.00

Total Non US Equity 9.90 10.64 0.87 -0.06 1.53 1.07International Equity Custom Benchmark 9.97 10.73 0.87 - 1.53 0.00

Global Equity 15.05 9.63 1.43 0.74 2.78 2.01Global Equity Benchmark 13.40 9.24 1.33 - 2.56 0.00

Fixed Income 2.06 2.16 0.58 1.06 0.83 0.68Fixed Income Custom Benchmark 1.31 2.62 0.20 - 0.28 0.00

Emerging Market Debt 5.82 8.91 0.59 0.18 0.89 1.4850% JPM GBI-EM GD / 25% KPM EMBI GD / 25% JPM Corp Broad 5.65 7.65 0.65 - 1.01 0.00

TIPS 2.16 2.95 0.47 0.37 0.72 0.33Bloomberg Barclays U.S. TIPS Index 2.04 2.95 0.43 - 0.66 0.00

REITs 7.00 10.41 0.63 1.10 1.02 0.70FTSE EPRA/NAREIT Developed Index (Net) 6.19 10.37 0.56 - 0.88 0.00

Real Estate 9.02 1.82 4.28 0.35 167.48 1.72SURS Real Estate Index 8.38 0.66 9.50 - - 0.00

Private Equity 10.54 4.35 2.18 -0.38 12.70 11.40Dow Jones US Total Stock Market + 3% QTR Lag 14.87 10.16 1.35 - 2.43 0.00

Opportunity Fund 4.46 4.45 0.82 0.59 1.64 4.49CPI - All Urban Consumers (SA) QTR Lag 1.83 0.83 1.30 - 2.47 0.00

Cash 1.57 0.48 2.28 2.26 11.58 0.33FTSE 3 Month T-Bill 0.80 0.18 0.04 - 0.02 0.00

Total Fund Risk Statistics (Net-of-Fees)3 Years



Exhibit 8

ATTRIBUTION

Exhibit 8

Total Fund Performance

0.0% 1.5% 3.0% 4.5%-1.5 %

Total Fund

Total Fund Benchmark

Total Value Added

2.5%

2.5%

-0.1 %

Total Value Added:-0.1 %

0.0% 0.4% 0.8%-0.4 %

Other

Manager Value Added

Asset Allocation

-0.1 %

-0.1 %

0.2%

Average Active Weight

0.0% 3.0% 6.0%-3.0 %-6.0 %

Total OverlayCash & Transition

CommoditiesHedge Funds

Opportunity FundPrivate Equity

Real EstateREITsTIPS

Emerging Market DebtFixed IncomeGlobal Equity

Total Non US EquityDomestic Equity

0.3%0.4%

-0.1 %0.0%

-0.4 %-0.2 %

-0.7 %-0.1 %

-0.4 %-0.1 %

-2.0 %1.4%

-0.4 %2.1%

Total Asset Allocation:0.2%

0.0% 0.1% 0.2%-0.1 %-0.2 %

0.0%0.0%0.0%0.0%0.0%

0.0%0.0%0.0%

0.0%0.0%

0.1%0.0%

0.0%0.1%

Total Manager Value Added:-0.1 %

0.0% 0.1%-0.1 %-0.2 %-0.3 %

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

-0.1 %

Total Fund Attribution1 Quarter Ending September 30, 2018


Exhibit 8

PortfolioWeight

PolicyWeight

ExcessWeight

PortfolioReturn

PolicyReturn Allocation Selection Interaction Total

Domestic Equity 25.1 23.0 2.1 6.8 7.1 0.1 -0.1 0.0 0.0Total Non US Equity 18.6 19.0 -0.4 0.5 0.7 0.0 0.0 0.0 0.0Global Equity 9.4 8.0 1.4 4.0 4.3 0.0 0.0 0.0 0.0Fixed Income 17.0 19.0 -2.0 0.2 0.0 0.1 0.0 0.0 0.1Emerging Market Debt 2.9 3.0 -0.1 -0.4 0.0 0.0 0.0 0.0 0.0TIPS 3.6 4.0 -0.4 -0.8 -0.8 0.0 0.0 0.0 0.0REITs 3.9 4.0 -0.1 0.1 -0.3 0.0 0.0 0.0 0.0Real Estate 5.3 6.0 -0.7 1.7 1.8 0.0 0.0 0.0 0.0Private Equity 5.8 6.0 -0.2 4.0 4.6 0.0 0.0 0.0 0.0Opportunity Fund 0.6 1.0 -0.4 2.9 1.8 0.0 0.0 0.0 0.0Hedge Funds 5.0 5.0 0.0 2.0 2.5 0.0 0.0 0.0 0.0Commodities 1.9 2.0 -0.1 -1.4 -2.0 0.0 0.0 0.0 0.0Cash & Transition 0.4 0.0 0.4 0.0 0.5 0.0 0.0 0.0 0.0Total Overlay 0.3 0.0 0.3 0.0 0.5 0.0 0.0 0.0 0.0Total Fund w/ Overlay 100.0 100.0 0.0 2.5 2.5 0.2 -0.1 0.0 -0.1

Total Fund Attribution1 Quarter Ending September 30, 2018


Exhibit 8

Total Fund Performance

0.0% 3.0% 6.0% 9.0% 12.0%

Total Fund

Total Fund Benchmark

Total Value Added

7.1%

6.9%

0.2%

Total Value Added:0.2%

0.0% 0.4% 0.8%-0.4 %

Other

Manager Value Added

Asset Allocation

-0.2 %

0.2%

0.1%

Average Active Weight

0.0% 2.0% 4.0%-2.0 %-4.0 %

Total OverlayCash & Transition

CommoditiesHedge Funds

Opportunity FundPrivate Equity

Real EstateREITsTIPS

Emerging Market DebtFixed IncomeGlobal Equity

Total Non US EquityDomestic Equity

0.4%1.0%

-0.1 %-0.2 %

-0.5 %-0.7 %

-0.5 %-0.2 %

-0.4 %0.1%

-1.9 %1.2%

0.3%1.4%

Total Asset Allocation:0.1%

0.0% 0.2% 0.4%-0.2 %-0.4 %

0.0%0.0%0.0%

0.0%0.0%

-0.1 %0.0%0.0%

0.0%0.0%

0.1%0.0%

0.0%0.1%

Total Manager Value Added:0.2%

0.0% 0.3% 0.6%-0.3 %-0.6 %

0.0%

0.0%

0.0%

-0.2 %

0.0%

0.0%

0.1%

0.0%

0.0%

0.0%

0.2%

0.3%

0.0%

-0.1 %

Total Fund Attribution1 Year Ending September 30, 2018


Exhibit 8

PortfolioWeight

PolicyWeight

ExcessWeight

PortfolioReturn

PolicyReturn Allocation Selection Interaction Total

Domestic Equity 24.4 23.0 1.4 17.2 17.6 0.1 -0.1 0.0 0.1Total Non US Equity 19.3 19.0 0.3 1.5 1.8 0.0 0.0 0.0 -0.1Global Equity 9.2 8.0 1.2 13.1 9.8 0.0 0.3 0.0 0.3Fixed Income 17.1 19.0 -1.9 -0.3 -1.2 0.1 0.2 0.0 0.3Emerging Market Debt 3.1 3.0 0.1 -5.4 -4.3 0.0 0.0 0.0 0.0TIPS 3.6 4.0 -0.4 0.4 0.4 0.0 0.0 0.0 0.0REITs 3.8 4.0 -0.2 4.8 3.7 0.0 0.0 0.0 0.0Real Estate 5.5 6.0 -0.5 9.3 7.5 0.0 0.1 0.0 0.1Private Equity 5.3 6.0 -0.7 16.8 18.2 -0.1 0.0 0.0 -0.1Opportunity Fund 0.5 1.0 -0.5 2.8 7.9 0.0 0.0 0.0 0.0Hedge Funds 4.8 5.0 -0.2 4.3 7.7 0.0 -0.2 0.0 -0.2Commodities 1.9 2.0 -0.1 4.9 2.6 0.0 0.0 0.0 0.0Cash & Transition 1.0 0.0 1.0 1.8 1.6 0.0 0.0 0.0 0.0Total Overlay 0.4 0.0 0.4 -1.6 1.6 0.0 0.0 0.0 0.0Total Fund w/ Overlay 100.0 100.0 0.0 7.1 6.9 0.1 0.2 0.1 0.2

Total Fund Attribution1 Year Ending September 30, 2018


Exhibit 8

Portfolio CharacteristicsPortfolio Benchmark

Wtd. Avg. Mkt. Cap ($M) 180,728 204,454Median Mkt. Cap ($M) 1,669 1,831Price/Earnings ratio 20.2 21.1Price/Book ratio 3.3 3.45 Yr. EPS Growth Rate (%) 12.3 11.8Current Yield (%) 1.8 1.8Beta (5 Years, Monthly) 1.0 1.0Number of Stocks 3,496 3,024Debt to Equity 3.1 5.4

Top Ten Equity HoldingsPortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)Apple Inc 3.0 3.7 -0.7 22.4Microsoft Corp 2.9 2.9 0.0 16.4Amazon.com Inc 2.5 2.7 -0.2 17.8Alphabet Inc 1.3 1.2 0.1 7.0Facebook Inc 1.2 1.3 -0.1 -15.4Johnson & Johnson 1.1 1.2 -0.1 14.6Exxon Mobil Corp 1.1 1.2 -0.1 3.8JPMorgan Chase & Co 1.0 1.3 -0.3 8.9Alphabet Inc 0.9 1.2 -0.3 6.9Berkshire Hathaway Inc 0.9 1.4 -0.5 14.7

% of Portfolio 15.9 18.1 -2.2

Sector Weights (%)

Domestic Equity Russell 3000 Index

0.0 5.0 10.0 15.0 20.0 25.0

OtherUtilities

Real EstateMaterials

Information TechnologyIndustrials

Health CareFinancials

EnergyConsumer Staples

Consumer DiscretionaryCommunication Services

0.0

2.9

3.9

3.4

20.3

11.2

14.4

14.1

5.7

5.8

10.3

8.0

0.0

2.8

3.6

2.9

20.7

10.4

14.6

13.7

5.7

6.0

10.5

9.0

Distribution of Market Capitalization (%)


0.0

15.0

30.0

45.0

60.0

>100 Bil 75 Bil - 100 Bil

25 Bil - 75 Bil

15 Bil - 25 Bil

2 Bil - 15 Bil

0 - 2 Bil

44.7

5.4

20.1

8.8

17.7

3.4

39.0

4.3

19.5

9.4

23.2

4.6

Domestic Equity Portfolio CharacteristicsAs of September 30, 2018


Exhibit 8

Region


0.0 25.0 50.0 75.0 100.0 125.0

Other

United Kingdom

Pacific ex Japan

North America

Middle East

Europe ex UK

EM Latin America

EM Asia

0.0

0.8

0.0

97.0

0.0

2.1

0.0

0.0

0.0

0.7

0.0

96.9

0.0

2.3

0.0

0.0

Top Ten ContributorsPortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)Apple Inc 2.9 3.3 -0.4 22.4Microsoft Corp 2.6 2.7 -0.1 16.4Amazon.com Inc 2.3 2.5 -0.2 17.8Pfizer Inc 0.8 0.8 0.0 22.5Johnson & Johnson 1.2 1.2 0.0 14.6Berkshire Hathaway Inc 1.0 1.3 -0.3 14.7SPDR S&P 500 ETF Trust 1.7 0.0 1.7 7.7Cisco Systems Inc 0.8 0.7 0.1 13.9Eli Lilly and Co 0.4 0.3 0.1 26.4Visa Inc 0.7 0.8 -0.1 13.5

% of Portfolio 14.4 13.6 0.8

Top Ten DetractorsPortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)Facebook Inc 1.7 1.7 0.0 -15.4General Electric Co 0.3 0.4 -0.1 -16.3Wells Fargo & Co 0.7 0.9 -0.2 -4.5Intel Corp 0.7 0.8 -0.1 -4.3Micron Technology Inc. 0.2 0.2 0.0 -13.7E*TRADE Financial Corporation 0.2 0.1 0.1 -14.3Twitter Inc 0.1 0.1 0.0 -34.8Netflix Inc 0.5 0.6 -0.1 -4.4Lam Research Corp 0.2 0.1 0.1 -11.6Newmont Mining Corp 0.1 0.1 0.0 -19.5

% of Portfolio 4.7 5.0 -0.3

Sector Allocation

Sector Number ofAssets

Market Value($000)

PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)Communication Services 139 361,795 8.0 9.0 -0.9Consumer Discretionary 375 464,634 10.3 10.5 -0.2Consumer Staples 115 260,269 5.8 6.0 -0.2Energy 201 255,274 5.7 5.7 -0.1Financials 586 634,690 14.1 13.7 0.4Health Care 548 647,604 14.4 14.6 -0.2Industrials 423 504,363 11.2 10.4 0.8Information Technology 417 911,947 20.3 20.7 -0.5Materials 135 152,693 3.4 2.9 0.5Real Estate 203 173,185 3.9 3.6 0.3Utilities 78 130,922 2.9 2.8 0.1Total 3,220 4,497,377 100.0 100.0 0.0

Domestic Equity Portfolio CharacteristicsAs of September 30, 2018


Exhibit 8


Wtd. Avg. Mkt. Cap ($M) 56,001 64,560Median Mkt. Cap ($M) 7,103 8,009Price/Earnings ratio 13.3 14.1Price/Book ratio 2.2 2.25 Yr. EPS Growth Rate (%) 14.1 11.3Current Yield (%) 3.1 3.1Beta (5 Years, Monthly) 1.0 1.0Number of Stocks 2,386 2,166Debt to Equity 0.9 1.1


(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)Roche Holding AG 1.2 0.8 0.4 9.7Samsung Electronics Co Ltd 1.1 1.0 0.1 0.5Nestle SA 1.0 1.2 -0.2 8.3Tencent Holdings LTD 0.9 1.1 -0.2 -17.7Taiwan Semiconductor 0.9 1.0 -0.1 21.1Total SA Oil & Gas 0.8 0.7 0.1 7.7SAP AG 0.8 0.6 0.2 6.7Alibaba Group Holding Ltd 0.8 0.9 -0.1 -11.2Novartis AG 0.7 0.9 -0.2 14.1Allianz SE 0.7 0.5 0.2 8.0

% of Portfolio 8.9 8.7 0.2

Sector Weights (%)

Total Non US Equity

MSCI AC World ex USA

0.0 5.0 10.0 15.0 20.0 25.0 30.0

UtilitiesReal Estate

MaterialsInformation Technology

IndustrialsHealth Care

FinancialsEnergy

Consumer StaplesConsumer Discretionary

Communication Services

2.4

3.8

8.3

8.6

13.3

9.1

20.3

7.9

8.2

10.3

7.6

3.0

3.1

8.1

8.4

11.9

8.5

22.0

7.6

9.5

10.4

7.5


Total Non US Equity MSCI AC World ex USA

0.0

10.0

20.0

30.0

40.0

>100 Bil 75 Bil - 100 Bil

25 Bil - 75 Bil

15 Bil - 25 Bil

2 Bil - 15 Bil

0 - 2 Bil

17.8

8.8

33.0

13.2

26.7

0.6

14.7

7.3

30.1

15.7

29.9

2.4

Non-U.S. Equity Portfolio CharacteristicsAs of September 30, 2018


Exhibit 8

Region

Total Non US Equity

MSCI AC World ex USA

0.0 8.0 16.0 24.0 32.0 40.0 48.0

OtherUnited Kingdom

Pacific ex JapanNorth America

Middle EastJapan

Frontier MarketsEurope ex UK

EM Mid East+AfricaEM Latin America

EM EuropeEM Asia

0.3

8.3

11.7

4.9

0.7

18.1

0.0

36.3

1.7

2.6

1.4

14.1

0.3

9.8

12.1

6.7

0.4

16.9

0.0

33.4

1.9

2.7

1.5

14.3


(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)Taiwan Semiconductor 0.6 0.8 -0.2 21.1Softbank Group Corp 0.3 0.3 0.0 40.8Roche Holding AG 1.0 0.7 0.3 9.7Novartis AG 0.6 0.8 -0.2 14.1Shionogi & Co Ltd 0.2 0.1 0.1 28.2Sanofi 0.6 0.4 0.2 11.1Peugeot SA 0.3 0.1 0.2 18.3Nestle SA 0.8 1.1 -0.3 8.3Safran SA 0.4 0.2 0.2 15.5Amadeus IT Group SA 0.3 0.2 0.1 17.9



(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)Tencent Holdings LTD 0.5 1.4 -0.9 -17.7Alibaba Group Holding Ltd 0.7 1.0 -0.3 -11.2Bayer AG 0.4 0.5 -0.1 -19.2Continental AG 0.3 0.1 0.2 -23.6Rightmove PLC 0.1 0.0 0.1 -91.2Naspers Ltd 0.4 0.5 -0.1 -14.8Danske Bank As 0.3 0.1 0.2 -16.0Tokyo Electron Ltd 0.3 0.1 0.2 -17.9SK Hynix Inc 0.3 0.2 0.1 -14.5Covestro AG 0.5 0.1 0.4 -8.6

% of Portfolio 3.8 4.0 -0.2

Sector Allocation


Market Value($000)

PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)Communication Services 146 255,277 7.6 7.5 0.2Consumer Discretionary 269 343,906 10.3 10.4 -0.2Consumer Staples 188 275,107 8.2 9.5 -1.3Energy 116 264,376 7.9 7.6 0.3Financials 419 678,325 20.3 22.0 -1.7Health Care 146 303,967 9.1 8.5 0.6Industrials 381 444,684 13.3 11.9 1.4Information Technology 173 288,968 8.6 8.4 0.2Materials 230 278,579 8.3 8.1 0.2Real Estate 152 128,503 3.8 3.1 0.8Utilities 110 81,731 2.4 3.0 -0.5Total 2,330 3,343,423 100.0 100.0 0.0

Non-U.S. Equity Portfolio CharacteristicsAs of September 30, 2018


Exhibit 8


Wtd. Avg. Mkt. Cap ($M) 140,051 64,560Median Mkt. Cap ($M) 20,146 8,009Price/Earnings ratio 19.5 14.1Price/Book ratio 3.2 2.25 Yr. EPS Growth Rate (%) 13.1 11.3Current Yield (%) 2.0 3.1Beta (5 Years, Monthly) 0.8 1.0Number of Stocks 431 2,166Debt to Equity 0.9 1.1


(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)Amazon.com Inc 2.3 0.0 2.3 17.8Visa Inc 1.8 0.0 1.8 13.5Microsoft Corp 1.7 0.0 1.7 16.4Alphabet Inc 1.6 0.0 1.6 6.9Allergan PLC 1.4 0.0 1.4 14.7Boeing Co 1.2 0.0 1.2 11.4Becton Dickinson and Co 1.2 0.0 1.2 9.3Exxon Mobil Corp 1.1 0.0 1.1 3.8Taiwan Semiconductor 1.1 1.0 0.1 21.1JPMorgan Chase & Co 1.0 0.0 1.0 8.9

% of Portfolio 14.4 1.0 13.4

Sector Weights (%)

Global Equity

MSCI AC World ex USA (Net)

0.0 5.0 10.0 15.0 20.0 25.0 30.0

OtherUtilities

Real EstateMaterials

Information TechnologyIndustrials

Health CareFinancials

EnergyConsumer Staples

Consumer DiscretionaryCommunication Services

0.7

3.4

1.7

3.5

18.2

12.2

16.0

14.0

5.1

6.0

11.6

7.7

0.0

3.0

3.1

8.1

8.4

11.9

8.5

22.0

7.6

9.5

10.4

7.5


Global Equity


0.0

10.0

20.0

30.0

40.0

>100 Bil 75 Bil - 100 Bil

25 Bil - 75 Bil

15 Bil - 25 Bil

2 Bil - 15 Bil

0 - 2 Bil

17.8

8.8

33.0

13.2

26.7

0.6

32.6

5.9

27.2

10.7

22.0

1.6

Global Equity Portfolio CharacteristicsAs of September 30, 2018


Exhibit 8

Region

Global Equity


0.0 15.0 30.0 45.0 60.0 75.0

OtherUnited Kingdom

Pacific ex JapanNorth America

Middle EastJapan

Frontier MarketsEurope ex UK

EM Mid East+AfricaEM Latin America

EM EuropeEM Asia

0.3

7.5

5.5

55.6

0.6

9.3

0.0

15.9

0.3

0.0

0.1

4.8

0.3

9.8

12.1

6.7

0.4

16.9

0.0

33.4

1.9

2.7

1.5

14.3


(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)Amazon.com Inc 2.3 0.0 2.3 17.8Microsoft Corp 1.9 0.0 1.9 16.4Visa Inc 1.7 0.0 1.7 13.5Apple Inc 1.0 0.0 1.0 22.4Corning Inc 0.7 0.0 0.7 29.0Pfizer Inc 0.8 0.0 0.8 22.5Allergan PLC 1.2 0.0 1.2 14.7Taiwan Semiconductor 0.7 0.8 -0.1 21.1Advanced Micro Devices Inc 0.1 0.0 0.1 106.1Intuitive Surgical Inc 0.7 0.0 0.7 20.0

% of Portfolio 11.1 0.8 10.3


(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)Facebook Inc 2.1 0.0 2.1 -15.4Tencent Holdings LTD 1.0 1.4 -0.4 -17.7Ctrip.com International Ltd 0.6 0.1 0.5 -22.0Alibaba Group Holding Ltd 1.1 1.0 0.1 -11.2Largan Precision Co Ltd 0.6 0.1 0.5 -17.8Kingfisher PLC 0.7 0.0 0.7 -14.1Tesla Inc 0.4 0.0 0.4 -22.8H D F C Bank Ltd 0.8 0.0 0.8 -10.4Vulcan Materials Co 0.6 0.0 0.6 -13.6Omnicom Group Inc. 0.8 0.0 0.8 -10.0


Sector Allocation


Market Value($000)

PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)Communication Services 26 130,802 7.7 7.5 0.3Consumer Discretionary 40 196,144 11.6 10.4 1.2Consumer Staples 28 101,216 6.0 9.5 -3.6Energy 29 85,719 5.1 7.6 -2.6Financials 64 236,454 14.0 22.0 -8.0Health Care 62 270,114 16.0 8.5 7.5Industrials 59 205,708 12.2 11.9 0.3Information Technology 67 306,915 18.2 8.4 9.8Materials 34 59,542 3.5 8.1 -4.6Real Estate 10 29,306 1.7 3.1 -1.3Utilities 7 56,931 3.4 3.0 0.4Total 426 1,678,852 99.3 100.0 -0.7

Global Equity Portfolio CharacteristicsAs of September 30, 2018


Exhibit 8

Credit Quality Distribution (%)

Fixed Income

Blmbg. Barc. U.S. Aggregate Index

0.0

20.0

40.0

60.0

80.0

AAA/Aaa

AA/Aa A

BBB/

BaaBB/

Ba B

Sector Distribution (%)

Fixed Income

Blmbg. Barc. U.S. Aggregate Index

0.0

20.0

40.0

60.0

-20.0

Treas

Agy MBS ABS

CMBSCorp

Other


Avg. Maturity 8.3 7.7Effective Duration 5.7 5.8Yield To Maturity (%) 3.3 N/A

Fixed Income Portfolio Characteristics



Exhibit 8

SURS Manager Status Review Summary

Status Manager(s) Strategy CommentsReassessment Mesirow Small Cap Core Performance

# of ManagersEnhanced Review 15

Good Standing 13

Good Standing: A Manager's three (3) year and five (5) year rolling Annualized Alpha (net of fees) each exceed their Active Manager Premiums (AMPs) for such periods. Managers with less than a five (5) year performance history will be consdier in Good Standing.

Enhanced Review: A Manager's three (3) year or five (5) year rolling Annualized Alphas (net of fees) are above their respective Benchmarks but below their AMPs.

Reassessment: A Manager’s (i) three (3) year and five (5) year rolling Annualized Alphas (net of fees) are below their respective Benchmarks for the preceding two consecutive quarters, and (ii) three (3) year and five (5) year Information Ratios are negative for the preceding two consecutive quarters; or other performance metrics reflect a significant negative trend.

1

Exhibit 9

Performance Analysis (Net of Fees)Description 1-Year 3-Year 5-Year 7-Year 10-Year Since Inc. Inception Date

Mesirow - Gross 9.11 12.49 9.91 15.08 --- 10.30 5/31/2011Mesirow - Net 8.52 11.88 9.29 14.43 --- 9.69

Annualized Fee 0.59 0.61 0.62 0.65 --- 0.61Russell 2000 15.24 17.12 11.07 16.43 --- 11.45

Excess Return -6.71 -5.24 -1.78 -2.00 --- -1.76

Annualized Alpha -5.80 -3.37 -0.51 -0.27 --- -0.71Active Manager Premium 2.00 2.00 2.00 2.00 --- 2.00Excess Risk Adjusted Returns -7.80 -5.37 -2.51 -2.27 --- -2.71Risk and Regression

Description 1-Year 3-Year 5-Year 7-Year 10-Year Since Inc.Standard Deviation 9.65 12.38 12.31 13.14 --- 14.24Standard Deviaiton - Benchmark 9.36 13.11 13.47 14.10 --- 15.14Beta 0.98 0.91 0.88 0.90 --- 0.91R-Squared 0.91 0.94 0.93 0.93 --- 0.94Efficiency Measures

Description 1-Year 3-Year 5-Year 7-Year 10-Year Since Inc.Sharpe Ratio 0.72 0.89 0.71 1.07 --- 0.65Treynor Ratio 7.06 12.07 9.93 15.62 --- 10.21Sortino Ratio 1.16 1.68 1.27 2.07 --- 1.20Tracking Error 2.94 3.29 3.51 3.80 --- 3.73Information Ratio -2.28 -1.59 -0.51 -0.53 --- -0.47Upside Market Capture 69.67 76.21 81.12 81.52 --- 81.63Downside Market Capture 101.33 90.77 82.55 78.03 --- 81.91

Status Evaluation:

3yr Alpha 5yr Alpha AMP3yr Alpha vs.

AMP5yr Alpha vs.

AMP StatusCurrent Quarter -3.37 -0.51 2.00 -5.37 -2.51Prior Quarter -2.18 -0.49 2.00 -4.18 -2.49

Mesirow Financial / Small Cap U.S. EquitySeptember 30, 2018

Reassessment

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

Rolling 3-year Excess Return vs Benchmark

Mesirow - Excess Mesirow - Alpha 2.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

Rolling 5-year Excess Return vs Benchmark

Mesirow - Excess Mesirow - Alpha 2.00%

2

Exhibit 9

SURS Manager Status Review

Manager Strategy Status

CastleArk U.S. Small Cap Growth Enhanced Review

Mesirow U.S. Small Cap Core Reassessment

T. Rowe Price Large Cap Structured Active U.S. Equity Enhanced Review

Matarin U.S. Small Cap Core Good Standing

Channing U.S. Small-Mid Cap Value Good Standing

Earnest U.S. Mid Cap Core Good Standing

Denali U.S. Large Cap Value Good Standing

Piedmont Large Cap Structured Active U.S. Equity Enhanced Review

Gladius U.S. Equity Good Standing


Ativo All Cap Non-U.S. Equity Enhanced Review

Strategic Global Advisors Large Cap Non-U.S. Developed Enhanced Review

BlackRock Structured Active Non-U.S. Equity Enhanced Review

Fidelity Structured Active Non-U.S. Equity Enhanced Review

GlobeFlex All Cap Non-U.S. Equity Enhanced Review

Progress Large Cap Non-U.S. Developed Good Standing

U.S. Equity Managers

Non-U.S. Equity Managers

3

Exhibit 9

SURS Manager Status Review


Mondrian Global Equity Enhanced Review

Wellington Global Equity Enhanced Review

T. Rowe Price Global Equity Good Standing


Pugh Core Fixed Income Enhanced Review

Smith Graham Core Fixed Income Enhanced Review

LM Core Plus Fixed Income Enhanced Review

PIMCO Total Return Core Plus Fixed Income Enhanced Review

TCW Core Plus Fixed Income Enhanced Review

Garcia Hamilton Core Fixed Income Good Standing

Progress Core Fixed Income Good Standing

Neuberger Berman Core Plus Fixed Income Good Standing


Colchester EM Debt Good Standing

Progress EM Debt Good Standing

Prudential EM Debt Good Standing

Global Equity Managers

Core Fixed Income Managers

Emerging Market Debt Managers

4

Exhibit 9

STATE UNIVERSITIES RETIREMENT SYSTEM

MarketValue

Estimated Unfunded FundingAssets Liabilities Liabilities Ratio Month FYTD

Jun-18 19.04$ 43.15$ 24.12$ 44.1%Jul-18 19.38 43.26 23.88 44.8% 1.55% 1.55%

Aug-18 19.23 43.37 24.14 44.3% 0.72% 2.28%Sep-18 19.38 43.48 24.10 44.6% 0.21% 2.50%Oct-18 18.42 43.59 25.17 42.3% -4.71% -2.33%

Note: Assets and liabilities are estimated and unaudited through October 31, 2018. The fund had an actuarial value funding ratio of 42.8% at the end of Fiscal Year 2018, utilizing a 7.25% assumed rate of return.

Rate of Return

0%

20%

40%

60%

80%

100%

$0$2$4$6$8

$10$12$14$16$18$20$22$24$26$28$30$32$34$36$38$40$42$44

Jun-18 Jul-18 Aug-18 Sep-18 Oct-18

Perc

ent F

unde

d

$Bill

ions

SURS Projected Funding Status2019 Fiscal Year-to-Date Results

Assets Liability Funding Ratio

Exhibit 10

November 2018(as of 10/31/18)

PCA INVESTMENT MARKET RISK METRICS

Monthly Report

Exhibit 11

PENSION CONSULTING ALLIANCE, LLC • Investment Market Risk Metrics 2

• October was a challenging month across the board, with broad U.S. equity marketsdown nearly 7% as geopolitical fears and interest rates both picked up as we headinto November. Other asset types and regions were more challenged, with MLPs andEmerging Markets equity producing negative returns in the high single digits.

• Implied equity market volatility (i.e., VIX) spent the majority of October above its long-term average level of 19.3, ending the month at 21.2.

• PCA’s U.S. Market sentiment indicator (page 4) switched to neutral (gray) as the year-over-year changes in bond spreads dipped into negative territory. Holding the bondspread indicator constant, it would require an ~-7% U.S. equity decline in Novemberor ~-3% decline through year end to turn the indicator to red.

• U.S. Treasury interest rates increased by roughly 10-20 basis points across the yieldcurve during October. The yield curve is currently fairly flat, with the spread between30-year and 3-month U.S. Treasury yields at 1.1% as of month-end.

• Non-U.S. Developed and Emerging Markets equity valuations are currently below theirlong-term averages, and still remain cheap relative to U.S. levels.

• The global economic system is in the early stages of a transition. This change is froman environment of easy monetary policy, strong asset returns, and robust growth to aperiod of tighter monetary policy, heightened return uncertainty, and more disparateand challenging growth. Monitoring this transition will be crucial to institutionalportfolio management.

Takeaways

1See Appendix for the rationale for selection and calculation methodology used for the risk metrics.

Exhibit 11

Monthly Report - November 2018

Risk Overview

US Equity(page 5)

Dev ex‐USEquity(page 5)

EM EquityRelative toDM Equity(page 6)

PrivateEquity(page 6)

PrivateRealEstate

Cap Rate(page 7)

PrivateRealEstateSpread(page 7)

US IG CorpDebtSpread(page 8)

US HighYield DebtSpread(page 8)

Valuation Metrics versus Historical Range A Measure of Risk

Top Decile

Bottom Decile

Average

UnfavorablePricing

Favorable Pricing

Neutral

Equity Volatility(page 9)

Yield Curve Slope(page 9)

Breakeven Inflation(page 10)

Interest Rate Risk(page 11)

Other Important Metrics within their Historical RangesPay Attention to Extreme Readings

Top Decile

Bottom Decile

Average

Attention!

Attention!

Neutral

PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 3

Exhibit 11


U.S. Market Sentiment

Information Behind Current Sentiment Reading Bond Spread Momentum Trailing‐Twelve Months NegativeEquity Return Momentum Trailing‐Twelve Months PositiveAgreement Between Bond Spread and Equity Spread Momentum Measures? Disagree

Growth Risk Visibility (Current Overall Sentiment) Neutral

PCA U.S. Market Sentiment Indicator (1995‐Present)

Avoid Growth Risk Growth Risk Neutral Embrace Growth Risk PCA Sentiment Indicator

Positive

Negative

Neutral

Positive

Neutral

Negative

PCA U.S. Market Sentiment Indicator ‐ Most Recent 3‐Year Period


Positive

Negative

Neutral

Positive

Neutral

Negative


Exhibit 11


Developed Public Equity Markets

(Please note the difference in time scales)

05

101520253035404550

P/E Ra

tio

U.S. Equity Market P/E Ratio1

versus Long‐Term Historical Average

1966

2000

19811921

1929

US MarketsLong‐term Average

(since 1880) P/E = 16.8x

US Markets Current P/E

as of 10/2018= 30.9x

1 P/E ratio is a Shiller P/E‐10 based on 10 year real S&P 500 earnings over S&P 500 index level.

2009

1901

0

5

10

15

20

25

30

35

40

45

P/E Ra

tio

Developed ex‐U.S. Equity Market P/E Ratio1

versus Long‐Term Historical Average2

Long‐Term Average

Historical 2

P/E = 16.9x

Intl Developed Markets Current P/E as of 10/2018

=16.1x

1 P/E ratio is a Shiller P/E‐10 based on 10 year real MSCI EAFE earnings over EAFE index level.

2 To calculate the LT historical average, from 1881 to 1982 U.S. data is used as developed market proxy. From 1982 to present, actual developed ex‐US market data (MSCI EAFE) is used.

Average 1982‐10/2018 EAFE

Only P/E = 23.1x


Exhibit 11


Emerging Market Public Equity Markets

US Private Equity Quarterly Data, Updated to September 30th

0%25%50%75%

100%125%150%175%200%225%250%275%

Emerging Markets PE / Developed Markets PE(100% = Parity between PE Ratios)

EM/DM PE Average EM/DM PE ParitySource: Bloomberg, MSCI World, MSCI EMF

Asian Crisis

Technology and Telecom Crash

Commodity price runup

WorldFinancial Crisis

EM/DM relative PEratio is below thehistorical average

Russian Crisis, LTCM implosion, currency devaluations

Mexican Peso Crisis

5.00

6.00

7.00

8.00

9.00

10.00

11.00

Price to EBITDA Multiples Paid in LBOs

Source: S&P LCD study

(Updated to Sep 30th)

Multiples remain above the pre‐crisis highs.

Average since 1997.

0

50

100

150

200

250

Billions ($)

Disclosed U.S. Quarterly Deal Volume*

Source: Thomson Reuters Buyouts* quarterly total deal size (both equity and debt)

Deal volume fell during the third quarter.


Exhibit 11


Private Real Estate Quarterly Data, Updated to September 30th.

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%

Cap

Rat

e

Core Real Estate Current Value Cap Rates1

Core Cap RateLT Average Cap Rate10 Year Treasury Rate

Sources: NCRIEF, www.ustreas.gov 1A cap rate is the current annual income of the property divided by an estimate of the current value of the property . It is the current yield of the property. Low cap rates indicate high valuations.

Core real estate cap rates remain low by historical standards (expensive).

Spread

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Cap

Rat

e Sp

read

Core Cap Rate Spread over 10‐Year Treasury Interest Rate

Core Cap Rate Spread to Treasuries

LT Average Spread

Spread to the 10‐year Treasury decreased during the third quarter as interest rates increased.

0.00%

5.00%

10.00%

15.00%

20.00%

Transactions as a % of Market Value Trailing‐Four Quarters (a measure of property turnover activity)

Source: NCREIF, PCA calculation

Activity has decreased in recent quarters.


Exhibit 11


Credit Market US Fixed Income

0

100

200

300

400

500

600

700

Spread

Over Treasuries (basis points)

Investment Grade Corporate Bond Spreads

InvestmentGradeSpreadBonds

AverageSpreadsince 1994(IG Bonds)

Source: LehmanLive: Barclays Capital US Corporate Investment Grade Index Intermediate Component.

Investment grade spreads widened during October but remain below the long‐term average level.

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Spread

Over Treasuries (basis points)

High Yield Corporate Bond Spreads

High YieldBondSpreads

Averagespreadsince 1994(HY Bonds)

Source: LehmanLive: Barclays Capital U.S. Corporate High Yield Index.

Similarly, high yield spreads increased in October but still remain below the long‐term average level.


Exhibit 11


Other Market Metrics


0

10

20

30

40

50

60

70

80

VIX ‐ a measure of equity market fear / uncertainty

Source: http://www.cboe.com/micro/vix/historical.aspx

Equity market volatility (VIX) increased inOctober and ended the month above thelong‐term average level (≈ 19.3) at 21.2.

‐3.0

‐2.0

‐1.0

0.0

1.0

2.0

3.0

4.0

5.0

Yield Curve Slope

Source: www.ustreas.gov (10 yr treasury yield minus 1 year treasury yield)

Yield curve slopes that are negative(inverted) portend a recession.

The average 10‐year Treasury interest rate increased in October. The average one‐year Treasury interest rate increased during the month. The slope also increased for the month, and the yield curve remains upward sloping.


Exhibit 11


Measures of Inflation Expectations


‐1.00%

‐0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

10‐Year Breakeven Inflation(10‐year nominal Treasury yield minus 10‐year TIPS yield)

Source: www.ustreas.gov

Breakeven inflation ended October at 2.05%, decreasaing since the end of September. The 10‐year TIPS real‐yield increased to 1.10%, and the nominal 10‐year Treasury yield rose to 3.15%.

0

20

40

60

80

100

120

140

160

Inflation Adjusted Dow Jones UBS Commodity Price Index (1991 = 100)

Broad commodity prices decreased in October and continue to remain near the historical lows set in early 2016.

Source: Bloomberg Commodity Index, St. Louis Fed for US CPI all urban consumers.

Long Term Average


Exhibit 11


Measures of U.S. Treasury Interest Rate Risk

‐2.0

0.0

2.0

4.0

6.0

8.0

10.0

Expected Real Yield of 10‐Year Treasury

Estimate of 10‐Year Treasury Forward‐Looking Real Yield

Sources: www.ustreas.gov for 10‐year constant maturity rates*Federal Reserve Bank of Philadelphia survey of professional forecasts for inflation estimates

The forward‐looking annual real yield on 10‐year Treasuries is estimated at approximately 0.95% real, assuming 10‐year annualized inflation of 2.20%* per year.

Long Term Average

4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

8.00

8.50

9.00

9.50

10‐Year Treasury Bond Duration

10‐Year Treasury Duration (Change in Treasury price with a change in interest rates)

Source: www.ustreas.gov for 10‐year constant maturity rates, calculation of duration

Lower Risk

Higher RiskInterest rate risk is off all‐time highs.

If the 10‐year Treasury yield rises by 100 basis points from today's levels, the capital loss from the change in price is expected to be ‐8.5%.


Exhibit 11

PENSION CONSULTING ALLIANCE, LLC • Investment Market Risk Metrics

Appendix

Exhibit 11


Appendix

METRIC DESCRIPTION, RATIONALE FOR SELECTION AND CALCULATION METHODOLOGY

US Equity Markets:

Metric: P/E ratio = Price / “Normalized” earnings for the S&P 500 Index

To represent the price of US equity markets, we have chosen the S&P 500 index. This index has thelongest published history of price, is well known, and also has reliable, long-term, published quarterlyearnings. The price=P of the P/E ratio is the current price of the market index (the average daily price ofthe most recent full month for the S&P 500 index). Equity markets are very volatile. Prices fluctuatesignificantly during normal times and extremely during periods of market stress or euphoria. Therefore,developing a measure of earnings power (E) which is stable is vitally important, if the measure is toprovide insight. While equity prices can and do double, or get cut in half, real earnings power does notchange nearly as much. Therefore, we have selected a well known measure of real, stable earningspower developed by Yale Professor Robert Shiller known as the Shiller E-10. The calculation of E-10 issimply the average real annual earnings over the past 10 years. Over 10 years, the earnings shenanigansand boom and bust levels of earnings tend to even out (and often times get restated). Therefore, thisearnings statistic gives a reasonably stable, slow-to-change estimate of average real earnings power forthe index. Professor Shiller’s data and calculation of the E-10 are available on his website athttp://www.econ.yale.edu/~shiller/data.htm. We have used his data as the base for our calculations.Details of the theoretical justification behind the measure can be found in his book Irrational Exuberance[Princeton University Press 2000, Broadway Books 2001, 2nd ed., 2005].

Developed Equity Markets Excluding the US:

Metric: P/E ratio = Price / “Normalized” earnings for the MSCI EAFE Index

To represent the price of non-US developed equity markets, we have chosen the MSCI EAFE index. Thisindex has the longest published history of price for non-US developed equities. The price=P of the P/Eratio is the current price of the market index (the average daily price of the most recent full month for theMSCI EAFE index). The price level of this index is available starting in December 1969. Again, for thereasons described above, we elected to use the Shiller E-10 as our measure of earnings (E). Since12/1972, a monthly price earnings ratio is available from MSCI. Using this quoted ratio, we have backedout the implied trailing-twelve month earnings of the EAFE index for each month from 12/1972 to thepresent. These annualized earnings are then inflation adjusted using CPI-U to represent real earnings inUS dollar terms for each time period. The Shiller E-10 for the EAFE index (10 year average real earnings) iscalculated in the same manner as detailed above.

However, we do not believe that the pricing and earnings history of the EAFE markets are long enough tobe a reliable representation of pricing history for developed market equities outside of the US. Therefore,in constructing the Long-Term Average Historical P/E for developed ex-US equities for comparisonpurposes, we have elected to use the US equity market as a developed market proxy, from 1881 to 1982.This lowers the Long-Term Average Historical P/E considerably. We believe this methodology provides amore realistic historical comparison for a market with a relatively short history.

Exhibit 11

http://www.econ.yale.edu/~shiller/data.htm


Appendix


Emerging Market Equity Markets:

Metric: Ratio of Emerging Market P/E Ratio to Developed Market P/E Ratio

To represent the Emerging Markets P/E Ratio, we have chosen the MSCI Emerging Market Free Index, whichhas P/E data back to January 1995 on Bloomberg. To represent the Developed Markets PE Ratio, we havechosen the MSCI World Index, which also has data back to January 1995 on Bloomberg. Although thereare issues with published, single time period P/E ratios, in which the denominator effect can cause largemovements, we feel that the information contained in such movements will alert investors to market activitythat they will want to interpret.

US Private Equity Markets:

Metrics: S&P LCD Average EBITDA Multiples Paid in LBOs and US Quarterly Deal Volume

The Average Purchase Price to EBITDA multiples paid in LBOs is published quarterly by S&P in their LCD study.This is the total price paid (both equity and debt) over the trailing-twelve month EBITDA (earnings beforeinterest, taxes, depreciation and amortization) as calculated by S&P LCD. This is the relevant, high-levelpricing metric that private equity managers use in assessing deals. Data is published monthly.

US quarterly deal volume for private equity is the total deal volume in $ billions (both equity and debt)reported in the quarter by Thomson Reuters Buyouts. This metric gives a measure of the level of activity inthe market. Data is published quarterly.

U.S Private Real Estate Markets:

Metrics: US Cap Rates, Cap Rate Spreads, and Transactions as a % of Market Value

Real estate cap rates are a measure of the price paid in the market to acquire properties versus theirannualized income generation before financing costs (NOI=net operating income). The data, published byNCREIF, describes completed and leased properties (core) on an unleveraged basis. We chose to usecurrent value cap rates. These are capitalization rates from properties that were revalued during thequarter. This data relies on estimates of value and therefore tends to be lagging (estimated prices areslower to rise and slower to fall than transaction prices). The data is published quarterly.

Spreads between the cap rate (described above) and the 10-year nominal Treasury yield, indicate ameasure of the cost of properties versus a current measure of the cost of financing.

Transactions as a % of Market Value Trailing-Four Quarters is a measure of property turnover activity in theNCREIF Universe. This quarterly metric is a measure of activity in the market.

Credit Markets US Fixed Income:

Metric: Spreads

The absolute level of spreads over treasuries and spread trends (widening / narrowing) are good indicatorsof credit risk in the fixed income markets. Spreads incorporate estimates of future default, but can also bedriven by technical dislocations in the fixed income markets. Abnormally narrow spreads (relative tohistorical levels) indicate higher levels of valuation risk, wide spreads indicate lower levels of valuation riskand / or elevated default fears. Investment grade bond spreads are represented by the Barclays CapitalUS Corporate Investment Grade Index Intermediate Component. The high yield corporate bond spreadsare represented by the Barclays Capital US Corporate High Yield Index.

Exhibit 11


Appendix


Measure of Equity Market Fear / Uncertainty

Metric: VIX – Measure of implied option volatility for U.S. equity markets

The VIX is a key measure of near-term volatility conveyed by implied volatility of S&P 500 index optionprices. VIX increases with uncertainty and fear. Stocks and the VIX are negatively correlated. Volatilitytends to spike when equity markets fall.

Measure of Monetary Policy

Metric: Yield Curve Slope

We calculate the yield curve slope as the 10 year treasury yield minus the 1 year treasury yield. When theyield curve slope is zero or negative, this is a signal to pay attention. A negative yield curve slope signalslower rates in the future, caused by a contraction in economic activity. Recessions are typicallypreceded by an inverted (negatively sloped) yield curve. A very steep yield curve (2 or greater)indicates a large difference between shorter-term interest rates (the 1 year rate) and longer-term rates(the 10 year rate). This can signal expansion in economic activity in the future, or merely higher futureinterest rates.

Measures of US Inflation Expectations

Metrics: Breakeven Inflation and Inflation Adjusted Commodity Prices

Inflation is a very important indicator impacting all assets and financial instruments. Breakeven inflation iscalculated as the 10 year nominal treasury yield minus the 10 year real yield on US TIPS (treasury inflationprotected securities). Abnormally low long-term inflation expectations are indicative of deflationary fears.A rapid rise in breakeven inflation indicates an acceleration in inflationary expectations as marketparticipants sell nominal treasuries and buy TIPs. If breakeven inflation continues to rise quarter overquarter, this is a signal of inflationary worries rising, which may cause Fed action and / or dollar decline.

Commodity price movement (above the rate of inflation) is an indication of anticipated inflation causedby real global economic activity putting pressure on resource prices. We calculate this metric byadjusted in the Dow Jones UBS Commodity Index (formerly Dow Jones AIG Commodity Index) by US CPI-U.While rising commodity prices will not necessarily translate to higher US inflation, higher US inflation will likelyshow up in higher commodity prices, particularly if world economic activity is robust.

These two measures of anticipated inflation can, and often are, conflicting.

Measures of US Treasury Bond Interest Rate Risk

Metrics: 10-Year Treasury Forward-Looking Real Yield and 10-Year Treasury Duration

The expected annualized real yield of the 10 year U.S. Treasury Bond is a measure of valuation risk for U.S.Treasuries. A low real yield means investors will accept a low rate of expected return for the certainly ofreceiving their nominal cash flows. PCA estimates the expected annualized real yield by subtracting anestimate of expected 10 year inflation (produced by the Survey of Professional Forecasters as collectedby the Federal Reserve Bank of Philadelphia), from the 10 year Treasury constant maturity interest rate.

Duration for the 10-Year Treasury Bond is calculated based on the current yield and a price of 100. This is ameasure of expected percentage movements in the price of the bond based on small movements inpercentage yield. We make no attempt to account for convexity.

Definition of “extreme” metric readings

A metric reading is defined as “extreme” if the metric reading is in the top or bottom decile of its historicalreadings. These “extreme” reading should cause the reader to pay attention. These metrics havereverted toward their mean values in the past.

Exhibit 11

PCA Market Sentiment Indicator

© 2017 Pension Consulting Alliance, LLC. Reproduction of all or any part of this report is permissible if reproduction contains notice of Pension Consulting Alliance’s copyright as follows: “Copyright © 2012 by Pension Consulting Alliance, LLC.” Information is considered to be reliable but not guaranteed. This report is not intended to be an offer, solicitation, or recommendation to purchase any security or a recommendation of the services supplied by any money management organization unless otherwise noted.

Explanation, Construction and Q&A

By:

Pension Consulting Alliance, LLC.

PCA has created the PCA Market Sentiment Indicator (PMSI) tocomplement our valuation-focused PCA Investment Market RiskMetrics. This measure of sentiment is meant to capture significantand persistent shifts in long-lived market trends of economic growthrisk, either towards a risk-seeking trend or a risk-aversion trend.

This paper explores:

What is the PCA Market Sentiment Indicator (PMSI)? How do I read the indicator graph? How is the PCA Market Sentiment Indicator (PMSI) constructed? What do changes in the indicator mean?

Exhibit 11


PCA has created a market sentiment indicator for monthly publication (the PMSI – see below) tocomplement PCA’s Investment Market Risk Metrics.

PCA’s Investment Market Risk Metrics, which rely significantly on standard market measures ofrelative valuation, often provide valid early signals of increasing long-term risk levels in the globalinvestment markets. However, as is the case with numerous valuation measures, the Risk Metricsmay convey such risk concerns long before a market corrections take place. The PMSI helps toaddress this early-warning bias by measuring whether the markets are beginning to acknowledgekey Risk Metrics trends, and / or indicating non-valuation based concerns. Once the PMSIindicates that the market sentiment has shifted, it is our belief that investors should considersignificant action, particularly if confirmed by the Risk Metrics. Importantly, PCA believes the RiskMetrics and PMSI should always be used in conjunction with one another and never in isolation.The questions and answers below highlight and discuss the basic underpinnings of the PCA PMSI:

What is the PCA Market Sentiment Indicator (PMSI)?The PMSI is a measure meant to gauge the market’s sentiment regarding economic growth risk.Growth risk cuts across most financial assets, and is the largest risk exposure that most portfoliosbear. The PMSI takes into account the momentum (trend over time, positive or negative) of theeconomic growth risk exposure of publicly traded stocks and bonds, as a signal of the futuredirection of growth risk returns; either positive (risk seeking market sentiment), or negative (riskaverse market sentiment).

How do I read the PCA Market Sentiment Indicator (PMSI) graph?Simply put, the PMSI is a color coded indicator that signals the market’s sentiment regardingeconomic growth risk. It is read left to right chronologically. A green indicator on the PMSIindicates that the market’s sentiment towards growth risk is positive. A gray indicator indicates thatthe market’s sentiment towards growth risk is neutral or inconclusive. A red indicator indicates thatthe market’s sentiment towards growth risk is negative. The black line on the graph is the level ofthe PMSI. The degree of the signal above or below the neutral reading is an indication the signal’scurrent strength.

Momentum as we are defining it is the use of the past behavior of a series as a predictor of itsfuture behavior.

PCA Market Sentiment Indicator (1995 - 2011)


Positive

Negative

Neutral

Positive

Neutral

Negative


Exhibit 11


How is the PCA Market Sentiment Indicator (PMSI) Constructed?

The PMSI is constructed from two sub-elements representing investor sentiment in stocks andbonds:

1. Stock return momentum: Return momentum for the S&P 500 Equity Index (trailing 12-months)2. Bond yield spread momentum: Momentum of bond yield spreads (excess of the measured

bond yield over the identical duration U.S. Treasury bond yield) for corporate bonds (trailing12-months) for both investment grade bonds (75% weight) and high yield bonds (25% weight).The scale of this measure is adjusted to match that of the stock return momentum measure.

The black line reading on the graph is calculated as the average of the stock return momentummeasure and the bonds spread momentum measure. The color reading on the graph isdetermined as follows:

1. If both stock return momentum and bond spread momentum are positive = GREEN (positive)2. If one of the momentum indicators is positive, and the other negative = GRAY (inconclusive)3. If both stock return momentum and bond spread momentum are negative = RED (negative)

What does the PCA Market Sentiment Indicator (PMSI) mean? Why might it be useful?

There is strong evidence that time series momentum is significant and persistent. In particular,across an extensive array of asset classes, the sign of the trailing 12-month return (positive ornegative) is indicative of future returns (positive or negative) over the next 12 month period. ThePMSI is constructed to measure this momentum in stocks and corporate bond spreads. A readingof green or red is agreement of both the equity and bond measures, indicating that it is likely thatthis trend (positive or negative) will continue over the next 12 months. When the measuresdisagree, the indicator turns gray. A gray reading does not necessarily mean a new trend isoccurring, as the indicator may move back to green, or into the red from there. The level of thereading (black line) and the number of months at the red or green reading, gives the useradditional information on which to form an opinion, and potentially take action.

I Momentum as we are defining it is the use of the past behavior of a series as a predictor of its future behavior.

ii “Time Series Momentum” Moskowitz, Ooi, Pedersen, August 2010

http://pages.stern.nyu.edu/~lpederse/papers/TimeSeriesMomentum.pdf


Exhibit 11

To: Investment Committee From: Investment Staff Date: November 28, 2018 Re: Summary Risk Report

Attached is the Summary Risk Report for the quarter ending September 30, 2018. Highlights for the quarter include:

• Liquidity – The portfolio remains highly liquid with 82.52% of assets estimated to have liquidity of less than two weeks under normal market conditions.

• Value at Risk (1 Year Forward) – Tail risk decreased during the quarter from 11.69% to 11.22%. This parameter indicates that, at a confidence level of 95%, the maximum estimated asset loss over a one-year period would be of 11.22%.

• Standard Deviation (5 Year Historical) – Total portfolio volatility slightly decreased from the

prior quarter from 6.39% to 6.03%. Per Northern Trust, risk decreased across most major asset classes. On the sub-asset class level, Equity, Fixed Income, Hedge Funds and Real Estate all decreased in their risk estimate for the quarter, while the Opportunity Fund and Commodities increased. Risk contribution to the total plan of the asset classes did not change materially during the quarter.

• Tracking Error: The forecasted and actual tracking error for the total fund coincided at 0.73 for

the quarter. The portfolio’s tracking error has been decreasing at a steady pace since early 2014. The lower active risk of the portfolio during the last few years can be partially explained by the increase in fund allocations to passive strategies.

• Global Financial Stress Index (GFSI) was 0.18, slightly higher from last quarter’s 0.08,

indicating that the market is experiencing more stress than during 2Q 2018. The index remains well below the peak of 3.01 during the Global Financial Crisis.

• U.S. Treasury Yield Curve – The yield curve increased slightly during the quarter. The yield

on the 10-Year Treasury increased from 2.85% to 3.05% during the quarter.

• Appropriation Summary – FY 2019 state appropriations received were approximately $208 million, or 50.3% of the anticipated $414 million due, as of September 30, 2018. The total FY 2019 appropriation is $1,655,154,000. The total FY 2018 appropriation was paid in full by July 12, 2018. The actuarial benefit payment projection for FY 2019 was $2,716.848 million.

• Cash Account Summary – Ending cash on hand was approximately $242 million as of

September 30, 2018. Net private partnership cash flows during the quarter were negative and approximately $64 million.

Exhibit 12

Summary Risk Report

Quarter Ending September 30, 2018

Exhibit 13

Risk Dashboard

Liquidity VaR StandardDeviation

100%0%

70%

50%

82.52%

20%

50%0%

18%

11.22%

12%

10%

0% 30%

6.03%

o Liquidity Green = > 70.00% Highly Liquid, Yellow = 69.90% - 50.00%, Red = < 50.00%.

Liquidity Estimates Under Normal Market Conditions. Stressed Market Conditions Will Impact Both Liquidity & Pricing.

o Value at Risk (VaR) Green = < 18.00%, Yellow = 18.01% to 20.00%, Red = > 20.00%.

1 Year Forward Looking Maximum Data Point = 21.50% (March 2013). 1 Year Forward Looking Minimum Data Point = 11.69% (December 2017).

o Standard Deviation Green = < 10.00%, Yellow = 10.01 – 11.80%, Red = > 6.39%.

5 Year Historical Rolling Maximum = 13.89% (June 2012). 5 Year Historical Rolling Minimum = 5.74% (December 1996).

Exhibit 13

Liquidity Profile

0%

10%

20%

30%

40%

50%

60%

Cash Passive < 2 Weeks 1 Month + Illiquid

Estimated Days to Liquidate82.52%

Liquidity risk is the risk that SURS would not be able to meet short term financial demands due to cash flow and/or the inability toconvert securities or other assets to cash without a loss of capital and/or income in the process. Currently, approximately 82.6% ofthe portfolio is highly liquid under normal market conditions.Data Source: SURS

Exhibit 13

Value at Risk (VaR)

VaR is the estimated maximum loss over a one year period given a certain level of confidence (95%).Data Source: Northern Trust

0 1 2 3-1-2-3

68%

95%

99.7%

Downside Risk (Left Tail)

11.00%

13.00%

15.00%

17.00%

19.00%

21.00%

23.00%

Mar

-13

Jun-

13Se

p-13

Dec-

13M

ar-1

4Ju

n-14

Sep-

14De

c-14

Mar

-15

Jun-

15Se

p-15

Dec-

15M

ar-1

6Ju

n-16

Sep-

16De

c-16

Mar

-17

Jun-

17Se

p-17

Dec-

17M

ar-1

8Ju

n-18

Sep-

18

Total Fund (1 Year Forward Looking)

VaR

21.50%

11.22%

Exhibit 13

Standard Deviation

Standard deviation measures the variability of investment returns. A low standard deviation indicates that the data points tend to be veryclose to the mean, while high standard deviation indicates that the data are spread out over a large range of values. The expected standarddeviation of the SURS portfolio based on the target asset allocation is 12.5%.Data Source: SURS

6.03%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Mar

-13

Jun-

13Se

p-13

Dec-

13M

ar-1

4Ju

n-14

Sep-

14De

c-14

Mar

-15

Jun-

15Se

p-15

Dec-

15M

ar-1

6Ju

n-16

Sep-

16De

c-16

Mar

-17

Jun-

17Se

p-17

Dec-

17M

ar-1

8Ju

n-18

Sep-

18

Total Fund (5 Years Ending)

Total Fund

• Total Fund Annualized Standard Deviation (5 Years Ending) is 6.03% as of September 30, 2018

• Total Fund (5 Year Rolling) Standard Deviation ranges from 5.74% (Dec. 1996) to 13.89% (June 2012)

• Based on the current asset allocation, portfolio volatility is lower than the expected 12.5%

Key Observations:13.89%

5.74%

Exhibit 13

Tracking Error

0.73

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80M

ar-1

3

May

-13

Jul-1

3

Sep-

13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep-

14

Nov

-14

Jan-

15

Mar

-15

May

-15

Jul-1

5

Sep-

15

Nov

-15

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep-

16

Nov

-16

Jan-

17

Mar

-17

May

-17

Jul-1

7

Sep-

17

Nov

-17

Jan-

18

Mar

-18

May

-18

Jul-1

8

Sep-

18

Trac

king

Err

or %

5 yr Ex-Post Total Fund Tracking Error 5 yr Ex-Ante Total Fund Tracking Error

Tracking error is the standard deviation od the difference between the returns of an investment and its benchmark. It is also refered to as active risk. The 5yr ex-ante tracking error, is typically used to describe the range of annualized returns a portfolio will have around the benchmark two thirds of the time. Sources: Investopedia and Northern Trust

Exhibit 13

Global Financial Stress Index

Global Financial Stress Index (GFSI) Chart – The GFSI composite index aggregates over twenty measures of stress across fiveasset classes and various geographies, measuring three separate kinds of financial market stress: risk, as indicated by cross-assetmeasures of volatility, solvency, and liquidity; hedging demand, from activity in equity and currency options; and investor appetitefor risk, as measured by trading volumes as well as flows in and out of equities, high-yield bonds, and money markets. GFSI > 0means more stress than normal. GFSI < 0 means less stress than normal.Data source: BofA Merrill Lynch and Bloomberg

2.72

0.50

-0.50

0.000.18

Exhibit 13

Treasury Yield Curve

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturitydates. The U.S. Treasury yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lendingrates. The curve is also used to predict changes in economic output and growth. A normal yield curve is one in which longermaturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. An inverted yield curve isone in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession. A flat (orhumped) yield curve is one in which the shorter- and longer-term yields are very close to each other, which is also a predictor of aneconomic transition. The slope of the yield curve is also seen as important: the greater the slope, the greater the gap between short-and long-term rates.Data Source: U.S. Department of the Treasury and Investopedia

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

1 Month 3 Month 6 Month 1 Year 2 Year 3 Year 5 Year 7 Year 10 Year 20 Year 30 Year

6/29/2018 9/28/2018

Exhibit 13

Appropriation Summary

SURS Fiscal Year 2019 Appropriation $1,655,154,000

Month Amount Due Amount Received (Under) / Over % ReceivedJuly $137,929,500 $758,000 ($137,171,500) 0.5%

August $137,929,500 $69,343,750 ($68,585,750) 50.3%

September $137,929,500 $137,971,500 $42,000 100%

FYTD Total $413,788,500 $208,073,250 ($205,715,250) 50.3%

Monthly appropriation payments can be volatile, making cash management and liquidity an area of focus. Data Source: SURS

Actuarial benefit payments projection for FY 2019: $2,716,848,000

Exhibit 13

Cash Account SummarySURS Cash Account Summary

July 1, 2018 – September 30, 2018

Beginning Balance $105,750,227

Cash In:

Partnership Distributions 21,491,658

Benefit Payments andReallocation to Non-US Fund

480,000,000

Funds from Closed Accounts 57,200,268

Other Income 1,472,430

Total Cash In: $560,164,355

Cash Out:

Partnership Capital Calls (85,587,939)

Reallocation to Non-US Fund (200,000,000)

Net Contributions (Contributions less Benefit Payments)

(138,362,159)

Total Cash Out: (423,950,098)

Ending Balance $241,964,484Cash flow detail is provided in the Quarterly Board Report Data Source: SURS

Key Observations:

• Net private partnership (Private Equity, Real Estate, and Infrastructure) cash flows were negative and approximately $64 million for the quarter.

• Benefit payments were approximately $476 million for the quarter.

Exhibit 13

Fiscal Year 2019-20 Summary Work Plan

Investment Committee Schedule State Universities Retirement System

Denotes recurring items - Denotes non-recurring items

FISCAL YEAR 2019 December 6, 2018 Receipt of Annual Report to the Governor and General Assembly on Utilization of Emerging

Investment Managers Annual Real Estate Asset Class Review Diversity Program Update - Consideration of Search for Private Equity Consultant - Consideration of Search for SMP and Supplemental Plan Providers - Initial Outline of Functional Policy Document (PCA) - Non-Traditional Growth Structure/Program Recommendations (PCA & Staff) - Core/Non-Core Real Assets Pacing Plan(s) Recommendations (Callan) - Educational Topic (TBD) January 31, 2019 Annual Fixed Income & Emerging Market Debt Asset Class Reviews - Traditional Growth Structure Recommendations (PCA & Staff) - CRO Structure Recommendations (PCA) - Principal Protection Class Structure Recommendations (PCA & Staff) - Educational Topics – Trustee Educational Forum (TBD) March 7, 2019 Annual Hedged Strategies Asset Class Review Annual Commodities Asset Class Review - Approve New Traditional Growth Segment Investment Policy Language (PCA & Staff) - Real Asset Segment Structure Recommendations (Callan) - Credit v. 1.0 Structure Recommendations (PCA & Staff) - Approve New CRO Segment of Investment Policy Language (PCA & Staff) - Approve New Principal Protection Investment Policy Language (PCA & Staff) - Educational Topic (TBD)

Exhibit 14

April 18, 2019 Annual U.S. Equity Asset Class Review - Consideration of Finalists in Private Equity Consultant Search - Approve New Credit Segment Investment Policy Language (PCA & Staff) - Inflation Protection Class Structure Recommendations (PCA & Staff) - Educational Topic (TBD) June 6, 2019 SURS FY ’20 Budget Annual Private Equity Asset Class Review Annual Opportunity Fund Asset Class Review - Complete Traditional Growth Manager Searches (if needed) (PCA & Staff) - Approve Real Assets Segment Investment Policy Language (Callan & Staff) - Approve Annual Pacing Plans for New Segments (All) - Complete Necessary CRO Manager Searches (PCA & Staff) - Approve New Inflation Protection Segment Investment Policy Language (Must Allow for Privates) - Educational Topic (TBD)

FISCAL YEAR 2020 September 12, 2019 Annual Review of SURS Portfolio Consideration of SURS Fiscal Year 2020 Investment Plan Annual Investment Review of Self-Managed Plan (SMP) - Consideration of Finalists in SMP and Supplemental Plan Providers Search - Approve Non-Traditional Growth Segment Investment Policy Language (PE Consultant) - Educational Topic (TBD) October 17, 2019 Annual Broker/Dealer Review Annual Global/International Equity Asset Class Reviews Annual Review of Securities Lending, Cash Overlay Program and Custodian - Educational Topic (TBD)

December 10, 2019 Receipt of Annual Report to the Governor and General Assembly on Utilization of Emerging

Investment Managers Annual Real Estate Asset Class Review Annual Review of Investment Policy and Minority Brokerage Goals - Complete Necessary Inflation Protection Manager Searches (Consultants & Staff) - Receive Newly Designed SURS Performance Reports to Account for New Structure (PCA) - Educational Topic (TBD)

Exhibit 14

January 30, 2020 Annual Fixed Income & Emerging Market Debt Asset Class Reviews - Educational Topics – Trustee Educational Forum (TBD) March 5, 2020 Annual Hedged Strategies Asset Class Review Annual Commodities Asset Class Review - Educational Topic (TBD) April 16, 2020 Annual U.S. Equity Asset Class Review - Educational Topic (TBD) June 4, 2020 SURS FY ’21 Budget Annual Private Equity Asset Class Review Annual Opportunity Fund Asset Class Review - Educational Topic (TBD)

Exhibit 14

MINUTES Meeting of the Investment Committee State Universities … · 2019-03-13 · MINUTES...

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