Executive Summary I. Performance & Implementation Review II. - PowerPoint PPT Presentation

Executive Summary I. Performance & Implementation Review II. Fixed Income Market Update III. Appendix: Manager Scorecards IV. 2

Section I 3

IPS Stated Objective for Core Fixed Income “Diversify the risk of the overall investment portfolio with a secondary goal of capita tal p preserva vati tion on” The performance objective is to exceed the Barclays US Aggregate Bond Index net of fees over rolling five-year periods. IPS Stated Objective for Non-Core Fixed Income “Diversify the risk of the overall investment program and provide both income and cap apital ap appreciation” The performance objective is to exceed the returns of a blended benchmark comprised of the Barclays US Corporate High Yield Index 50%, the JPM GBI- EM Global Diversified Index (USD Unhedged) 25%, and JPM CEMBI Broad Diversified Index 25%, net of fees over rolling five-year periods. 4

Why do we conduct annual reviews? Per the TMRS IPS, comprehensive reviews are to be conducted and documented at least annually. The goal is to formally review managers’ performance, current investment strategy or style relative to that which was communicated, and other issues related to the managers’ organization, personnel, or investment philosophy. The annual review process is part of the IPS manager retention framework. The annual review & ongoing monitoring processes may include but are not limited to: SEC Form ADV reviews The he A Annu nnual R Review p process SSAE16 and other operational audit reviews holds T TMRS a accountab able f for Compliance Certifications Detailed Performance Analyses being se self-crit itic ical o l of its Manager Meetings portfol folio m o management t Quarterly Monitoring Manager Annual Meetings pro rocess in in o ord rder t r to pre reempt Limited Partnership Advisory Committees manager s r specif ific ic, s strategic ic, Strategic Portfolio Reviews Meetings with comparable managers or ot or other p pot otential p prob oblems. Market Research Attending Conferences 5

• Board approved 2 Emerging Market Debt Manager May 2015 Recommendations for $480 million December • Board approved 4 Direct Lending Manager 2015 Recommendations for $950 million • Board approved 3 Opportunistic Credit Manager June 2016 Recommendations (5 strategies) for $700 million September • Board approved 2 High Yield Manager Recommendations 2016 for $600 million December • Board approved 3 Opportunistic Credit & 1 Direct 2016 Lending Manager Recommendations for $700 million 6

* TMRS Portfolio Core fixed income continues • to fund diversification of the 19.2% TMRS portfolio into non- core fixed income and other Core Fixed Income asset classes. 8.3% Non-Core Fixed Income Other Board approved 11managers • 72.5% in 2016 that will largely complete the non-core fixed income allocation. TMRS Target Portfolio Staff will continuously • evaluate existing managers to optimize allocations 10.0% within the non-core portfolio. 20.0% Core Fixed Income Non-Core Fixed Income Other 70.0% *TMRS Portfolio as of 12/31/16 7

2016 Allocation Activity: Non-Co Core Fixed ed Inco come e Alloca cation Marathon SPS - $150mm Highland Marathon ECO - $100mm Guggenheim H.I.G. Whitehorse* Marathon CLO - $50mm 8% 8% White Oak* Beach Point - $200mm Adams Street** 8% 8% Golub* PIMCO COF II - $200mm 3% TCW* 4% Alliance Bernstein** Columbia - $300mm Bluebay** 4% 4% Neuberger Berman - $300mm Columbia** 4% Neuberger Berman** 4% Adams Street – $200mm Marathon CLO* 4% 6% Marathon ECO* Bain - $100mm Bain** GoldenTree - $200mm Marathon SPS* 6% 3% PIMCO COF II* Waterfall - $200mm 2% 5% GoldenTree** 6% 5% 6% Waterfall** 2% Beach Point TOTAL - $2 Billion Ellington 1% Voya Ban ank L Loan an/CLO Emer ergi ging M g Market kets (BL/CLO LO) Direc ect L Lending ( g (DL) Debt De bt (EMD) D) High Yi Yield ( (HY) Y) Opp. C . Credit it RM RMBS/ S/CMBS Guggenheim Adam ams St Street Alliance Bernstein Columb mbia Bai ain Ellington Highland Golub Bluebay Neuberg rger B r Berman Beach P Be Point Voya Golden enTree H.I.G. Whitehorse TCW Mar arat athon SP SPS White Oak Marath thon on E ECO Marath thon on C CLO PIMC IMCO COF II II Waterf rfall ll The highlighted managers were recommended and approved in 2016. *Partially funded **Approved, funding pending 8

Section II 9

Core Fixed Income % of of MKT KT VAL Plan an 1 M Mo. o. QTR TR YTD TD 1 Y Yr. r. 3 Y Yrs. 5 Y Yrs. 7 Y Yrs. 10 Y 10 Yrs. ITD ITD Incept t Date te TMRS - TOTAL CORE FIXED INCOME 4,809,721,532.25 19.16 0.17 -2.86 2.89 2.89 3.08 2.4 3.74 4.23 7.82 1/1/1989 TMRS - Total Fixed Income Index (Daily) 0.14 -2.98 2.65 2.65 3.03 2.23 3.63 4.05 7.27 1/1/1989 EXCESS 0.03 0.11 0.25 0.25 0.05 0.16 0.12 0.18 0.55 TMRS - BLACKROCK CORE FIXED INCOME 3,088,424,493.18 12.3 0.21 -2.79 2.94 2.94 3.19 2.43 3.74 3.64 10/1/2009 TMRS-Custom Core Fixed Income Index (Dai 0.14 -2.98 2.65 2.65 3.03 2.23 3.63 3.53 10/1/2009 EXCESS 0.06 0.18 0.29 0.29 0.16 0.19 0.12 0.11 TMRS PIMCO CORE PLUS FIXED INC 1,721,297,039.05 6.86 0.11 -2.98 2.83 2.83 2.75 2.37 3.65 2/1/2010 Barclays Aggregate (Daily) 0.14 -2.98 2.65 2.65 3.03 2.23 3.44 2/1/2010 EXCESS -0.03 -0.01 0.19 0.19 -0.28 0.14 0.21 10

Non-Core Fixed Income % of of MKT KT VAL Plan an 1 M Mo. o. QTR TR YTD TD 1 Y Yr. r. 3 Y Yrs. 5 Y Yrs. 7 Y Yrs. 10 Y 10 Yrs. ITD ITD Incept t Date te TOTAL NON-CORE FIXED INCOME 2,092,565,799.99 8.34 1.09 2.19 7.62 7.62 3.81 10/1/2014 TOT NON-CORE FIXED INCOME INDEX 1.59 -0.99 13.56 13.56 2.18 10/1/2014 EXCESS -0.49 3.18 -5.94 -5.94 1.64 BANDERA II - GUGGENHEIM 407,591,448.77 1.62 0.85 1.76 8.33 8.33 4.25 10/1/2014 CS Leveraged Loan Index 1.15 2.25 9.88 9.88 3.92 10/1/2014 EXCESS -0.29 -0.49 -1.55 -1.55 0.32 BANDERA I - HIGHLAND 407,970,649.26 1.63 1.98 3.73 12.57 12.57 4.52 10/1/2014 CS Leveraged Loan Index 1.15 2.25 9.88 9.88 3.92 10/1/2014 EXCESS 0.83 1.48 2.69 2.69 0.59 VOYA NON CORE FIXED INCOME 401,097,579.03 1.6 0.51 1.65 4.75 4.75 3.61 1/1/2015 Non Agency RMBS/CMBS Strategy Index 1.46 0.23 13.41 13.41 4.78 1/1/2015 EXCESS -0.95 1.43 -8.66 -8.66 -1.18 ELLINGTON NON CORE FIXED INC 399,825,599.06 1.59 0.58 1.54 5.42 5.42 3.47 1/1/2015 Non Agency RMBS/CMBS Strategy Index 1.46 0.23 13.41 13.41 4.78 1/1/2015 EXCESS -0.88 1.31 -7.99 -7.99 -1.32 GOLUB CAPITAL PEARLS DLP LP 51,765,132.73 0.21 0.28 1.91 4.53 7/1/2016 WHITE OAK SUMMIT FUND, L.P 90,210,750.57 0.36 1.81 1.88 3.54 5/1/2016 TCW Asset Management LLC 9,900,000.01 0.04 12/1/2016 H.I.G. WHITEHORSE CAPITAL, LLC 9,912,500.01 0.04 12/1/2016 MARATHON SPS 66,851,822.25 0.27 -0.25 3.06 4.01 8/1/2016 MARATHON ECO 11,070,389.37 0.04 -0.27 -0.24 -0.24 10/1/2016 MARATHON CLO 4,621,579.21 0.02 0 -0.02 11/1/2016 PIMCO COF II 25,657,149.72 0.1 6.9 4.31 4.31 10/1/2016 BEACH POINT 206,091,200.00 0.82 1.7 2.56 2.56 10/1/2016 11

Core Weighting vs. Target 25.0% Mandate te Mar arket Val alue % of of Tot otal Fund 19.2% 20.0% CORE FIXED 10.0% INCOM OME 15.0% BlackRock $3,088,424,493 12.30% 10.0% 9.2% PIMCO $1,721,297,039 6.86% 5.0% TOT OTAL AL $4, $4,80 809, 9,721 21,532 32 19. 19.16 16% 0.0% Actual Target Difference Core Fixed Income continues to fund non-core fixed income and other asset classes. 12

Non-Core Fixed Income Dec-15 Non-Core Fixed Income Dec-15 (including unfunded allocations) 3.1% 3.1% BL/CLO 7.6% BL/CLO RMBS/CMBS 3.2% RMBS/CMBS 3.2% EMD* Unfunded/Unallocated DL* 13.6% Unallocated 2.0% 4.0% Non-core fixed income investments represented approximately 6% of TMRS • portfolio as of December 2015. 2015 Key 2015 ey Alloca cations: May: EMD Manager recommendation approved for $480 mill. (2% approx.) • June: New Asset Target Allocation approved increasing non-core to 20%. Core • fixed income reduced to 10% Dec: Direct Lending Manager recommendation approved for $950 mill. (4% • approx.) * Committed, funding pending 13

Non-Core Fixed Income Dec-16 Non-Core Fixed Income Dec-15 (including unfunded allocations) (including unfunded allocations) 3.2% 3.2% 3.1% BL/CLO BL/CLO DL** 7.6% RMBS/CMBS EMD* 3.2% EMD* 4.6% 4.8% HY* DL* Opp. Unallocated 2.0% Credit** RMBS/CMBS 1.9% 4.0% 2.4% 2016 2016 Key ey Alloca cations: June: Opportunistic Credit Manager recommendation approved for $700 mill. • (3% approx.) September: High Yield Manager recommendation approved for $600 mill. (2% • approx.) December: Opportunistic Credit & Direct Lending Manager recommendation • approved for $700 mill. (3% approx.) *Committed, funding pending ** Partially funded 14

Opportunistic Credit Expected Return EMD HY DL BL/CLO RMBS/CMBS Core Expected Volatility Capital Preservation Income Capital Appreciation In addition to expected return and volatility, investment staff is constantly evaluating additional factors such as: • Liquidity • Fund structure • Strategy 15