Performance Review November 20, 2019 Investment Management Division - PowerPoint PPT Presentation

Performance Review November 20, 2019

Investment Management Division Cost-Efficiencies Initiative Update • Goal: • Obtain $100 million of incremental cost-efficiencies for the NCRS investment program, consistent with fiduciary requirements and investment objectives • The $100 million goal would be measured on a cumulative basis over a four-year timeframe, beginning January 2017 • The goal is comprehensive of the Pension and Supplemental Retirement Plans • Progress to date: Fully Executed Activities Realized Savings since Jan 2017 ($000) Investment-related services: renegotiations/restructuring $33,368 Investment manager terminations/renegotiations $192,185 Sub-Total $225,553 Projected Realized savings through December 2020 $344,609 2

Investment Management Division U.S. Economic Environment 3

Investment Management Division U.S. Economic Environment 4

Investment Management Division U.S. and Global Economic Environment 5

Investment Management Division Market Environment 6

Investment Management Division Market Environment Real GDP YoY Unemployment CPI YoY Real GDP YoY Unemployment CPI YoY Countries Date Value Date Value Date Value Countries Date Value Date Value Date Value U.S. 06/19 2.3 09/19 3.5 09/19 1.7 Asia/Pacific/Latam Europe China 09/19 6.0 09/19 3.0 Germany 06/19 0.4 09/19 5.0 09/19 1.2 India 06/19 5.0 08/19 6.3 France 06/19 1.4 08/19 8.5 09/19 0.9 Japan 06/19 1.0 08/19 2.2 09/19 0.2 U.K. 06/19 1.3 08/19 3.9 09/19 1.7 Indonesia 06/19 5.1 09/19 3.4 Italy 06/19 0.1 08/19 9.5 09/19 0.3 Brazil 06/19 1.0 09/19 2.9 Spain 06/19 2.0 08/19 13.8 09/19 0.1 Australia 06/19 1.4 09/19 5.2 06/19 1.6 7

Investment Management Division Assets Under Management ($MM) $136.4 billion as of September 30, 2019 150,000 140,000 3,115 2,570 2,312 130,000 12,235 2,358 12,213 11,480 120,000 2,174 2,139 10,494 18,624 17,676 110,000 9,186 9,304 17,297 16,449 100,000 12,953 15,037 90,000 80,000 70,000 60,000 102,396 102,018 50,000 98,182 94,057 89,576 87,570 40,000 30,000 20,000 10,000 0 June 2015 June 2016 June 2017 June 2018 June 2019 September 2019 NCRS Cash Management Supplemental Retirement Other Note: The Cash Management Program does not include Assets with Fiscal Agent, which are reflected in the Bond Proceeds Fund. These funds, which may have been reported in the Cash Management Program previously, have now been removed for all years shown in this report to more accurately 8 reflect the Cash Management Program balance.

Investment Management Division NCRS Asset Allocation As of September 30, 2019 Range Market Relative $ % Target Relative % Value ($MM) Minimum Maximum ($MM) Growth $47,107 46.00% 58.00% 37.00% 71.00% -12.00% ($12,283) Public Equity 32,695 31.93% 42.00% 37.00% 47.00% -10.07% (10,311) Private Equity 5,465 5.34% 6.00% 0.00% 8.75% -0.66% (679) Non Core Real Estate 3,224 3.15% 3.00% 0.00% 8.00% 0.15% 152 Opportunistic Fixed Income 5,722 5.59% 7.00% 0.00% 7.50% -1.41% (1,445) Rates & Liquidity 41,279 40.31% 29.00% 24.00% 42.00% 11.31% 11,584 IG Fixed Income & Cash 30,915 30.19% 28.00% 24.00% 32.00% 2.19% 2,244 Pension Cash 10,365 10.12% 1.00% 0.00% 10.00% 9.12% 9,341 Inflation Sensitive & Diversifiers 11,907 11.63% 11.00% 4.00% 16.00% 0.63% 643 Inflation Sensitive 6,115 5.97% 6.00% 2.00% 7.50% -0.03% (29) Core Real Estate 5,791 5.66% 5.00% 2.00% 10.00% 0.66% 672 Multi-Strategy 2,103 2.05% 2.00% 0.00% 4.00% 0.05% 55 Grand Total $102,396 100.00% 9

Investment Management Division NCRS Asset Allocation (Unaudited) As of November 13, 2019 Range Market Relative $ % Target Relative % Value ($MM) Minimum Maximum ($000) Growth $47,465 45.91% 58.00% 37.00% 71.00% -12.09% ($12,502) Public Equity 33,084 32.00% 42.00% 37.00% 47.00% -10.00% (10,340) Private Equity 5,435 5.26% 6.00% 0.00% 8.75% -0.74% (768) Non Core Real Estate 3,275 3.17% 3.00% 0.00% 8.00% 0.17% 173 Opportunistic Fixed Income 5,671 5.49% 7.00% 0.00% 7.50% -1.51% (1,566) Rates & Liquidity 41,941 40.57% 29.00% 24.00% 42.00% 11.57% 11,958 IG Fixed Income & Cash 30,902 29.89% 28.00% 24.00% 32.00% 1.89% 1,953 Pension Cash 11,039 10.68% 1.00% 0.00% 10.00% 9.68% 10,005 Inflation Sensitive & Diversifiers 11,832 11.44% 11.00% 4.00% 16.00% 0.44% 459 Inflation Sensitive 6,100 5.90% 6.00% 2.00% 7.50% -0.10% (103) Core Real Estate 5,732 5.54% 5.00% 2.00% 10.00% 0.54% 563 Multi-Strategy 2,152 2.08% 2.00% 0.00% 4.00% 0.08% 84 Grand Total $103,391 100.00% 10

Investment Management Division NCRS Total Net Portfolio Return vs. Benchmarks As of September 30, 2019 8.0 7.5 7.4 6.9 6.6 7.0 6.5 6.5 6.5 6.2 6.1 6.0 6.0 5.9 5.7 6.0 5.6 5.6 5.3 5.3 5.2 Percent Total Return 5.0 4.0 3.0 2.0 1.4 1.2 1.1 1.0 0.0 3 Month 1 Year 3 Year 5 Year 10 Year 15 Year 20 Year NCRS Implementation Benchmark Long-Term Policy Benchmark Actuarial Assumed Investment Return (7.0%) Notes: Actuarial Assumed Investment Return was lowered from 7.2% to 7.0% in April 2018 Returns for periods greater than one year are annualized. Implementation Benchmark is a blend of the Asset Class Benchmarks at policy weights. It is currently weighted as follows: 58% Growth Benchmark; 29% Rates & Liquidity Benchmark; 11% Inflation Sensitive & Diversifiers Benchmark; and 2% Multi-Strategy Benchmark. Long-Term Policy Benchmark is comprised of 57% MSCI ACWI IMI Net; 33% BOAML 5+ Years U.S. Treasury Index; 6% Bloomberg Commodity 11 Index; and 4% BOAML 1-3 Years U.S. Inflation-Linked Treasury Index.

Investment Management Division Growth of a Dollar Through September 30, 2019 Notes: Long-Term Policy Benchmark is comprised of 57% MSCI ACWI IMI Net; 33% BOAML 5+ Years U.S. Treasury Index; 6% Bloomberg Commodity 12 Index; and 4% BOAML 1-3 Years U.S. Inflation-Linked Treasury Index.

Investment Management Division Growth of a Dollar 5 Years Ending September 30, 2019 10 Years Ending September 30, 2019 1.5 2.4 1.45 2.2 1.4 2 1.35 1.3 1.8 1.25 1.6 1.2 1.4 1.15 1.1 1.2 1.05 1 1 0.8 0.95 0.9 0.6 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19 NCRS Long-Term Policy Benchmark NCRS Alternatives NCRS Long-Term Policy Benchmark NCRS Alternatives Note: NCRS Alternatives includes the following: Core Real Estate; Inflation Sensitive – Private Natural Resources; Inflation Sensitive – Real Assets and Other Diversifiers; Multi-Strategy Investments; Non Core Real Estate; Opportunistic Fixed Income; Private Equity; Equity Hedge Strategies; and closed- end Public Natural Resource funds. 13

Investment Management Division Estimated Contribution to Total Plan Return – 1 Year As of September 30, 2019 Contribution to Total Plan $ Earnings * Contribution to Total Plan % Returns Total Pension Total Pension 5.59% 5,641 3.51% IG Fixed Income 3,543 IG Fixed Income Cash Cash 177 0.18% Public Equity Public Equity 373 0.37% Total Alternatives Total Alternatives 1,548 1.53% Private Equity Private Equity 553 0.55% Non Core Real Estate Non Core Real Estate 325 0.32% Opportunistic Fixed Income Opportunistic Fixed Income 93 0.09% Inflation Sensitive 122 Inflation Sensitive 0.12% Core Real Estate 434 Core Real Estate 0.43% Multi-Strategy Multi-Strategy 22 0.02% *Millions Notes: 1.) Estimated Contributions are based on average market value and the total return for the period. Contribution to Total Plan $ Earnings = Average $ Market Value * % Total Return for each asset class Contribution to Total Plan % Returns = Average Market Value % weight * % Total Return for each asset class 2.) Alternatives for this analysis include the following: Private Equity, Non Core Real Estate, Opportunistic Fixed Income, Inflation Sensitive, Core Real Estate, and Multi-Strategy investments. 14

Investment Management Division NCRS Net of Fees Return Attribution Total Fund vs. Implementation Benchmark: 1 Year Ending September 30, 2019 Total Fund Performance Attribution Value Add Value Add 0.24 0.24 5.34 Benchmark Return Selection Effect 0.38 Portfolio Return 5.59 Allocation Effect -0.13 0.00 1.00 2.00 3.00 4.00 5.00 6.00 -0.20 -0.10 0.00 0.10 0.20 0.30 0.40 0.50 Avg Active Weight Allocation Effect Selection Effect -4.7 Public Equity 0.04 0.31 Private Equity -0.5 -0.05 0.08 Non Core Real Estate 0.3 -0.01 0.14 Opportunistic FI -1.2 0.04 0.00 Investment Grade FI 1.2 -0.04 -0.23 Cash -0.08 4.0 0.01 Core Real Estate 0.6 -0.01 0.06 Inflation Sensitive 0.3 -0.01 -0.04 Multi-Strategy 0.0 0.00 0.04 -0.10 -0.05 0.00 0.05 0.10 -5 -4 -3 -2 -1 0 1 2 3 4 5 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4 15