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Capital Market Assumptions: 10 Consultant Outlooks

February 2018

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IntroductioneVestment Public Plan IQ is a leading resource for aggregating the competitive intelligence of state and local government pension plans. Our database holds over 20,000 investment-related documents authored by asset managers, investment consultants and institutional investors. Portfolio reviews are one of the most common document types added to Public Plan IQ. These reviews, often authored by consultants, can be sources of manager rosters, asset allocation information, performance, general market commentary and capital market assumptions. These assumptions are generally calculated annually and presented to clients in the first few months of each calendar year. Investors will use these assumptions to determine whether any shifts in asset allocation should be conducted.

Public Plan IQ has a broad collection of capital market assumptions and has conducted research to aggregate this data for 2016 and 2017. An aggregation of the data lets consultants, asset managers and institutional investors conduct their own comparisons of these return assumptions. Consultants can view how their own assumptions compare to the assumptions of their peers, asset managers can see which consultants are bullish on the strategies they manage and institutional investors can review and compare the assumptions across various consultants.

While it is useful to note which consultants have the highest assumptions in a specific strategy, it is also important to see the spread of assumptions within an individual consultant and asset class. For example, it’s notable that in 2017 NEPC had one of the highest intermediate term assumptions for Emerging Markets Equity, but it’s even more notable that there’s a +225 bps spread between their assumptions for Emerging Markets Equity and International Equity.

In this paper, we’ll review capital market assumptions from 10 different consultants spanning two years and take a deeper dive into the consultants’ outlook across various asset classes.

Key Findings

• For all consultants analyzed, Emerging Markets Equity had either the highest or second highest return assumptions among Equity strategies

• For 2016 and 2017 intermediate term assumptions, the largest dispersion within consultants’ assumptions for Fixed Income was for Emerging Markets Debt strategies with over a 200 bps difference

• Of the consultants reviewed in this paper for Private Equity, Wilshire was the only one to increase their intermediate term assumptions in 2017

• Hedge Fund assumptions in 2016 and 2017 are notably lower than those of Equity

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Our analysis cover 10 different consultants and utilizes over 1,400 data points from over 30 consultant- and/or institutional investor-authored documents from Public Plan IQ. Nine of the 10 consultants this paper covers are included in the Top 20 of Pension & Investments 2017 Top Global Consultants list.

Each data point was extracted from documents listed in Public Plan IQ. Our dataset ranges from Q1 2016 through Q4 2017 and includes capital market assumptions for the following asset classes:

• Equity• Fixed Income• Real Assets• Private Debt• Private Equity• Hedge Funds

As each individual consultant has their own time horizons for capital market assumptions, this paper defines assumptions for 10 years or less as “intermediate-term assumptions” and assumptions for over 10 years as “long-term assumptions.” Some consultants offered multiple time horizons that would fall under “long-term assumptions.” In these instances, the shortest time horizon assumptions were used —for example, 11- to 20-year assumptions were used rather than 30-year assumptions.

Additionally, geometric returns were used as opposed to arithmetic returns. For any consultant that listed their assumptions as “expected returns” it was interpreted that these assumptions were calculated geometrically.

In the case that multiple capital market assumptions were produced by a consultant in a single year, we used the most recent assumptions for that year. Local currency and unhedged assumptions were used in this research. All observations in the following sections of this paper are limited to the scope of the data covered in this research. Within each asset class, we charted out representative high/low/average for intermediate assumptions as those tend to be more actionable than long-term assumptions. Full data tables for both intermediate and long-term assumptions can be found under each asset class.

Methodology & Data

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Inflation ExpectationsThis research was conducted with the assumption that expected returns as provided by consultants were nominal. Inflation expectations did not vary much among the consultants analyzed in this paper, with each consultant’s assumptions falling within 25 bps of 2% for both 2016 and 2017. Since 2010, inflation in the U.S. has rarely equaled or exceeded 2%.

Consultant Inflation Expectations - Intermediate Assumptions

Definitions of terms as used in this paper• Capital Market Assumptions — Return expectations over a set time period, used to inform

asset allocation decisions.• Intermediate-Term Assumptions – Capital market assumptions for 10 years or less• Long-Term Assumptions – Capital market assumptions for more than 10 years • Geometric Returns — The geometric mean is the average of a set of products, the

calculation of which is commonly used to determine the performance results of an investment or portfolio.

2016 2017

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Traditional Asset ClassesOf the traditional asset classes, our study focuses on Equity and Fixed Income as generally, these asset classes make up the core allocations for many public pension plans’ overall portfolios. The liquidity of Equity and Fixed Income investments is appealing for these types of investors, as they have ongoing commitments for pension payments.

EquityOver the past few years, we’ve seen a strong bull market for Equities. The S&P 500, the Dow Jones Industrial Average, and Nasdaq indicies have hit all-time highs in the past year. Despite historic performance, as recent market events have highlighted, future performance and outlook matters most to these institutional investors.

When looking at consultants’ capital market assumptions for Equity, the assumptions were grouped into seven categories:

• Emerging Markets Equity• International Equity• Domestic (US) Equity• Large Cap (US) Equity• Small Cap (US) Equity• SMID Cap (US) Equity• Global Equity

Further, we did a spread comparison between consultants’ Equity sub-strategy assumptions and their Large Cap (US) Equity and International Equity assumptions. In other words, not only were we able to see a consultant’s outlook for Emerging Markets Equity, but also that consultant’s outlook for Emerging Markets Equity in comparison to both Large Cap (US) Equity and International Equity.

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Equity Intermediate-Term Assumptions

Representative data for intermediate term assumptions was found for eight unique consultants. In both years of data analyzed and for each consultant, Emerging Markets Equity had either the highest or second highest return assumptions. Verus and NEPC have the largest spreads between their 2017 assumptions for Emerging Markets Equity in comparison to Large Cap (US) Equity at 390 bps and 375 bps respectively. Below are representative high/low/averages for three of the equity sub-categories:

Emerging Markets Equity - Intermediate-Term Assumptions

U.S. Large Cap Equity - Intermediate-Term Assumptions

International Equity - Intermediate-Term Assumptions

2016 2017

2016 2017

2016 2017

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Aon Callan Meketa Mercer NEPC PCA RVK Summit Verus Wilshire

Emerging Markets Equity 7.70% 7% 9.60% 9.50% 8.60% 6.50%

Large Cap US Equity 6.40% 6.75% 5.75% 4.70%

Small Cap US Equity 6.60% 4.80%

International Equity 7% 6.75% 6.30% 7.25% 7.25% 9.70% 6.50%

Domestic Equity 6.85% 5.70% 6.25% 6.50%

Small/Mid Cap US Equity 7% 6%

Global Equity 7% 7.00%

2017 Aon Callan Meketa Mercer NEPC PCA RVK Summit Verus Wilshire

Emerging Markets Equity 1.30% 0.2500% 3.75% 3.90%

Large Cap US Equity


International Equity 0.60% 0.0000% 1.50% 5.00%

Domestic Equity 0.1000%

Small/Mid Cap US Equity 0.2500% 0.25%

Global Equity 0.2500% 2.30%

Spread from U.S. Large Cap Equity


Emerging Markets Equity 0.70% 0.2500% 3.30% 2.25% -1.10% 0.00%

Large Cap US Equity -0.60% 0.0000% -1.50% -5.00%

Small Cap US Equity -0.40% -4.90%

International Equity

Domestic Equity 0.1000% -0.60% -1.00% 0.00%

Small/Mid Cap US Equity 0.2500% -1.25%

Global Equity 0.2500% -2.70%

Spread from International Equity

2017 Equity Intermediate-Term Capital Market Assumptions

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2016 Equity Intermediate-Term Capital Market Assumptions





International Equity 7.25% 7.25% 7.45% 7.11% 9.20% 6.45%

Domestic Equity 7.35% 6.90% 6.21% 6.25%


Global Equity 7.55% 5.60% 7.23% 7.45% 7.70%




Large Cap US Equity


International Equity 0.00% 1.25% 0.86% 3.30%

Domestic Equity 0.10% -0.04%


Global Equity 0.30% 1.23% 1.80%




Large Cap US Equity 0.00% -1.25% -0.86% -3.30%



Domestic Equity 0.10% -0.55% -0.90% -0.20%

Small/Mid Cap US Equity 0.30% -1.00%

Global Equity 0.30% -0.02% 0.00% -1.50%

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The story for consultant’s long-term Equity assumptions is similar to that of their intermediate assumptions. For both 2016 and 2017 Emerging Markets Equity and International Equity were frequently the strategies with the highest return assumptions within Equity. However, Aon, Meketa, and RVK all lowered their assumptions for Emerging Markets Equity in 2017. Each of these consultants’ spreads between their respective assumption for Emerging Markets Equity and International Equity also decreased.

Equity Long-Term Assumptions


Emerging Markets Equity 7.70% 8.50% 10.00% 9.10% 9.50% 7.14% 6.50%



International Equity 7.00% 8.30% 7.60% 7.75% 6.94% 6.50%

Domestic Equity 7.70% 9.30% 5.60% 6.50%

Small/Mid Cap US Equity 7.00% 6.50% 7.75%

Global Equity 7.20% 8.00% 9.10% 6.38% 6.70%

2017 Equity Long-Term Capital Market Assumptions





Large Cap US Equity

Small Cap US Equity 0.50%

International Equity 0.60% 1.30% 0.25%

Domestic Equity 0.10%

Small/Mid Cap US Equity -0.60% 0.20% 0.25%



Emerging Markets Equity 0.70% 1.70% 1.50% 1.75% 0.20% 0.00%

Large Cap US Equity -0.60% -1.30% -0.25%



Domestic Equity 1.00% -1.34% 0.00%

Small/Mid Cap US Equity -1.10% 0.00%

Global Equity 0.20% 0.80% -0.56% 0.20%

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Large Cap US Equity 6.50% 7.50%


International Equity 6.90% 8.10% 8.00% 6.95% 7.90%

Domestic Equity 7.80% 5.60% 7.70%

Small/Mid Cap US Equity

Global Equity 7.00% 8.20% 7.75% 6.37%

2016 Equity Long-Term Capital Market Assumptions




Emerging Markets Equity 1.60% 2.00%

Large Cap US Equity

Small Cap US Equity 0.50%

International Equity 0.40% 0.50%

Domestic Equity





Large Cap US Equity -0.40% -0.50%

Small Cap US Equity 0.10% -1.24%


Domestic Equity -0.30% -1.35% -0.20%


Global Equity 0.10% 0.10% -0.25% -0.58%

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Fixed IncomePublic funds may view Fixed Income investments as a source of reliable income over an extended period. These strategies can also help to reduce or diversify portfolio risk. Fixed Income sub-strategy assumptions for each consultant were compared to their respective assumptions for Core Fixed Income. Across all consultants, Bank Loans, Emerging Markets Debt, and High Yield consistently were the sub-strategies that had the largest dispersion between their assumptions and Core Fixed Income assumptions.

A total of 14 sub-strategies were used to compare assumptions across consultants:

• Core• Core Plus• High Yield• Bank Loan• TIPS• Treasuries• Intermediate Duration• Long Duration • Short Duration • Emerging Markets Debt• US Corporate/Inv Grade• International Fixed Income• Mortgages• Stable Value

In 2017, Verus and Callan both decreased their assumptions for Emerging Markets Debt while NEPC increased their assumptions. Additionally, NEPC decreased their assumptions for High Yield and Bank Loans by 50 bps and 25 bps respectively that same year. Recently hired by Rhode Island State Investment Council, NEPC, recommended that the plan decrease their allocation to Bank Loans/High Yield in their presentation on Asset Allocation in January. PCA and Verus decreased their assumptions for TIPS, while NEPC increased their assumption; Callan’s outlook remained unchanged.

For both 2016 and 2017 the largest discrepancy among consultants’ sub-strategy assumptions was within Emerging Markets Debt at 225 bps and 220bps respectively. In both instances, Callan had the lowest return assumption for the strategy.

Fixed Income Intermediate-Term Assumptions

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Core Fixed Income - Intermediate Assumptions

High Yield - Intermediate Assumptions

Bank Loan - Intermediate Assumptions

Emerging Markets Debt - Intermediate Assumptions

2016 2017

2016 2017

2016 2017

2016 2017

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Core 3% 3.00% 2.65% 2.90% 3.30% 3.50%

Core Plus 3.90%

High Yield 4.30% 4.75% 5.00% 4.75% 4.50% 4.90%

Bank Loan 4.80% 5.10% 5.25% 4.50%

TIPS 2.90% 3.00% 3% 3% 2.75% 2.60% 2.75%

Treasuries 2.00% 2.10% 2.40%

Intermediate Duration

Long Duration 4.00% 3.20% 3.70% 3.80%

Short Duration 2.60% 2.80%

Emerging Markets Debt 4.50% 5.10% 6.75% 6.50%

US Corporate/Inv Grade 2.50% 3.75%

International Fixed Income 1.60% 1.40% 1.40%

Mortgages 2.25%

Stable Value

2017 Fixed Income Intermediate-Term Capital Market Assumptions


Core

Core Plus 0.60%

High Yield 1.30% 1.75% 2.10% 1.20% 1.40%

Bank Loan 1.80% 2.60% 1.20%

TIPS -0.10% 0.00% 0.35% -0.15% -0.70% -0.75%

Treasuries -0.65% -0.80% -0.90%


Long Duration 1.00% 0.20% 0.40% 0.30%

Short Duration -0.40% -0.50%

Emerging Markets Debt 1.50% 4.10% 3.20%

US Corporate/Inv Grade 1.10%

International Fixed Income -1.40% -1.60% -2.10%

Mortgages -0.40%

Stable Value

Spread from Core Fixed Income

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Core 3.00% 2.40% 2.46% 2.90% 3.00% 3.20% 2.75%

Core Plus 3.30% 4.20% 2.95%

High Yield 5.00% 5.25% 6.33% 4.50% 5.65%

Bank Loan 5.50% 5.79% 4.75% 4.10% 4.55%

TIPS 3.00% 2.50% 3.00% 2.50% 2.70%

Treasuries 1.75% 1.90% 2.30%


Long Duration 3.70% 4.20%

Short Duration 2.60% 2.90%

Emerging Markets Debt 4.60% 6.50% 6.75% 6.80% 4.85%

US Corporate/Inv Grade 3.75% 3.43% 3.75%

International Fixed Income 1.40% 3.00%

Mortgages 2.00%

Stable Value

2016 Fixed Income Intermediate-Term Capital Market Assumptions



Core

Core Plus 0.30% 1.00% 0.20%

High Yield 2.00% 2.79% 3.43% 1.50% 2.90%

Bank Loan 3.04% 2.89% 1.75% 0.90% 1.80%

TIPS 0.00% 0.04% 0.10% -0.50% -0.50%

Treasuries -0.71% -1.00% -0.90%



Short Duration -0.40% -0.30%


US Corporate/Inv Grade 1.29% 0.53% 0.75%

International Fixed Income -1.60% 0.00%

Mortgages -0.46%

Stable Value

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High Yield and Emerging Markets Debt had the highest return expectations among consultants in 2016 and 2017. That being said Aon, Meketa, RVK, and Wilshire all decreased their assumptions for High Yield in 2017. When comparing these assumptions with those of Core Fixed Income, the spread between the return assumptions also decreased. For TIPS, Aon and Meketa both increase their assumptions while NEPC and RVK decreased their assumptions

Fixed Income Long-Term Assumptions


Core 3.80% 4.00% 3.60% 4.00% 4.40%

Core Plus

High Yield 5.60% 5.70% 6.00% 5.75% 4.95% 6.28%

Bank Loan 5.10% 5.50% 4.78%

TIPS 3.50% 4% 3.20% 3.75% 3.56% 4.03%

Treasuries 3.50%

Intermediate Duration 3.33%


Short Duration 2.44%

Emerging Markets Debt 5.70% 6.50%


International Fixed Income 2.80% 2.90% 3.30%

Mortgages 3.50%

Stable Value 3.60%

2017 Fixed Income Long-Term Capital Market Assumptions



Core

Core Plus

High Yield 1.80% 1.70% 1.75% 1.88%

Bank Loan 1.30%

TIPS -0.30% -0.40% -0.25% -0.37%

Treasuries -0.50%



Short Duration

Emerging Markets Debt 2.50%

US Corporate/Inv Grade 1.00%

International Fixed Income -1.00% -1.10% -1.10%

Mortgages -0.50%

Stable Value 0.00%

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Core 3.60% 3.60% 3.89% 4.50%

Core Plus 4.65%

High Yield 6.70% 6.80% 5.75% 5.46% 7.00%

Bank Loan 4.70% 5.70% 6.00% 4.78% 5.45%

TIPS 3.40% 3.30% 4.00% 3.81%

Treasuries 3.25%

Intermediate Duration 3.33%


Short Duration 2.44%



International Fixed Income 2.90% 1.72%

Mortgages 3.50%

Stable Value

2016 Fixed Income Long-Term Capital Market Assumptions



Core

Core Plus 0.15%

High Yield 3.10% 3.20% 1.86% 2.50%

Bank Loan 1.10% 2.10% 2.11% 0.95%

TIPS -0.20% -0.30% 0.11%

Treasuries -0.64%


Long Duration 1.20%

Short Duration

Emerging Markets Debt 1.90% 2.70% 2.61% 1.80%


International Fixed Income -0.70%

Mortgages -0.39%

Stable Value

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In order to review and compare capital market assumptions for Real Assets, assumptions were placed into 13 different categories. While some consultants provide assumptions for specific Real Assets sub-strategies, others only release assumptions for broad strategies such as overall Real Assets or Real Estate.

• Real Estate - Core• Real Estate - Core Private• Real Estate• Value Added• Opportunistic• REITs - Global• REITs - US

• Commodities• MLPs• Infrastructure• Energy• Real Estate Debt/High Yield RE Debt • Real Assets

Real AssetsThe role of Real Assets in a public plan’s portfolio may vary. Inflation linkage, diversification, cash yield, and the long-life of these investments are qualities of Real Assets that may be attractive to public funds.

Holistically, Real Assets strategies have seen decreases to their return assumptions in 2017. For overall Real Estate, six consultants decreased their assumptions. Most notably, Wilshire decreased their assumptions by 150 bps. Within Meketa’s 2017 assumptions, Energy (Oil and Gas E&P) had the highest return expectations for Real Assets followed by Opportunistic Real Estate. Verus also showed Opportunistic Real Estate to have the highest return expectations of their assumptions. In both years, Callan had the lowest assumptions for Commodities.

Real Assets Intermediate-Term Assumptions

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Real Estate - Intermediate Assumptions

2016 2017


Real Estate - Core 5.10% 5.00% 4.60%

Real Estate - Core- Private 4.00%

Real Estate 5.40% 5.75% 5.70% 6.00% 5.00% 5.15%

Value Added 6.00% 6.60%

Opportunistic 7.50% 8.60%

REITs - Global

REITs - US 6.30% 6.00% 4.60%

Commodities 4.80% 2.65% 4.40% 4.75% 4.30% 3.20%

MLPs 6.90% 8.90%

Infrastructure 5.90% 6.60%

Energy 8.80%

Real Estate Debt/ High Yield RE Debt 7.00%

Real Assets 5.75% 7.09% 6.05%

2017 Real Assets Intermediate-Term Capital Market Assumptions


Real Estate - Core 5.49% 5.75% 4.70%

Real Estate - Core- Private

Real Estate 6.00% 6.50% 5.10% 5.75% 6.65%

Value Added 6.70%

Opportunistic 8.70%

REITs - Global

REITs - US 6.78% 5.25% 4.70%

Commodities 2.75% 4.50% 4.75% 4.00%

MLPs 8.25%

Infrastructure 6.39% 6.50% 7.00%

Energy

Real Estate Debt/ High Yield RE Debt

Real Assets 5.50% 7.65% 5.70%

2016 Real Assets Intermediate-Term Capital Market Assumptions

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Real Assets Long-Term Assumptions

Aon’s long-term assumptions for Real Assets show a decrease to Core Real Estate, Real Estate, and Infrastructure in 2017. Aon’s return assumption for Infrastructure fell 100 bps, while Meketa’s return assumption for Infrastructure increased by 110 bps. Commodities was the only Real Assets strategy where Aon increased the return assumption. RVK also increased their return assumption for Commodities by 100 bps.


Real Estate - Core 5.10% 5.52%

Real Estate - Core- Private 7.40% 6.85%

Real Estate 5.40% 8.20% 6.50% 6.20%

Value Added 8.40%

Opportunistic 10.40%

REITs - Global 4.59%

REITs - US 6.20% 7.00% 6.50%

Commodities 5.50% 4.60% 3.20% 5.50% 4.48%

MLPs 8.10% 6.34% 9.58%


Energy 9.40%


Real Assets 6.60% 7.27% 6.98%

2017 Real Assets Long-Term Capital Market Assumptions


Real Estate - Core 5.70% 5.77%

Real Estate - Core- Private

Real Estate 6.60% 7.10% 6.50% 8.25%

Value Added

Opportunistic

REITs - Global 6.70%

REITs - US 4.84%

Commodities 5.00% 5.50% 4.21%

MLPs


Energy


Real Assets 8.40% 7.37% 7.40%

2016 Real Assets Long-Term Capital Market Assumptions

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Private Equity and Private DebtPrivate Equity and Private Debt are sources of return enhancement for public funds. Private Equity investments allow public funds to invest in an array of companies, therefore diversifying their portfolio. Private Debt investing is a way for public funds to generate income through loaning capital without using a middleman like an investment bank. Similar to Private Equity, Private Debt is less liquid than its public counterpart.

Limited capital markets data was available for Private Equity and Private Debt. Our analysis includes eight consultants’ Private Equity data and four consultants’ Private Debt data.

Private Markets & AlternativesPublic funds typically use Private Market and Alternative investments as a means of obtaining alpha and diversification. These strategies are generally viewed as less liquid that other investment options, and therefore are expected to generate higher returns.

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Private Equity - Intermediate Assumptions

2016 2017

Callan, NEPC, PCA, and Verus all lowered their assumptions for Private Equity in 2017. The largest decrease came from PCA who lowered their assumptions by 150 bps. Of the consultants we have data for, Wilshire was the only one to raise their assumptions for Private Equity that year. Assumptions for Private Debt also fell in 2017 with Verus and NEPC lowering assumptions by 260 bps and 25 bps respectively. In 2016 there was a 160 bps dispersion between the lowest and highest assumption for Private Debt, followed by a 115 bps dispersion in 2017.

Private Markets Intermediate-Term Assumptions


Private Equity 8.50% 7.35% 9.30% 8.35% 8.50% 7.80% 9.05%

Private Equity/VC

Private Debt 6.10% 7.25% 6.50%

Opportunistic Private Credit

Direct Lending - First Lien

Direct Lending - Second Lien

Distressed Debt

Mezzanine Debt

2017 Private Equity & Private Debt Intermediate-Term Capital Market Assumptions


Private Equity 8.15% 8.50% 10% 8.50% 8.20% 8.90%

Private Equity/VC 9.05%

Private Debt 7.50% 6.33% 9.10%

Opportunistic Private Credit 8.38%



Distressed Debt

Mezzanine Debt

2016 Private Equity & Private Debt Intermediate-Term Capital Market Assumptions

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Long-term assumptions for Private Equity followed a similar pattern to intermediate term assumptions. Aon, RVK, and Wilshire all lowered their assumptions in 2017 while Meketa was the only consultant to raise their assumptions. NEPC’s assumptions remained the same. Wilshire lowered their assumptions by about 55bps in 2017. Transitioning to Private Debt, Meketa’s long term assumptions decreased for Distressed Debt and Mezzanine Debt by 80 bps and 10 bps respectively.

Private Markets Long-Term Assumptions


Private Equity 8.50% 9.90% 9.50% 7.16% 9.98%

Private Equity/VC

Private Debt 6.90% 8.00%

Opportunistic Private Credit

Direct Lending - First Lien 5.70%

Direct Lending - Second Lien 7.30%

Distressed Debt 6.90%

Mezzanine Debt 6.80%

2017 Private Equity & Private Debt Long-Term Capital Market Assumptions


Private Equity 8.90% 9.40% 9.50% 7.41% 10.55%

Private Equity/VC

Private Debt 8.00%

Opportunistic Private Credit 8.38%



Distressed Debt 7.70%

Mezzanine Debt 6.90%

2016 Private Equity & Private Debt Long-Term Capital Market Assumptions

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Hedge FundsHedge Funds are historically a controversial asset class for U.S. public fund investment. With commonly higher fees than most investments vehicles and lower transparency, institutional investors will generally look for above average returns from these investments.

In 2017, Meketa disclosed the most granular assumptions for Hedge Fund strategies. Hedge Funds on average had lower return expectations in both years than the other Alternative asset classes analyzed in this research.

Hedge Funds Intermediate-Term AssumptionsFor overall Hedge Funds RVK and Callan decreased their assumptions whereas NEPC increased their assumptions in 2017. Verus also raised their Risk Parity assumptions that year. Additionally, Callan’s assumptions were the lowest for overall Hedge Funds at 5.05%, the highest assumption belonged to Verus at 6.00%. In 2016 both Summit’s Risk Parity and Hedge Fund of Fund assumptions were lower than those of Verus. The same year, there was a 180bps dispersion between PCA and Summit’s outlook on overall Hedge Funds.

Hedge Funds - Intermediate Assumptions

2016 2017

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Hedge Fund 5.30% 5.05% 5.95% 5.83% 6.00%

Long/Short Equity 2.80%

Macro 3.30%

Event Driven 4.60%

CTA (STF + Managed Futures) 3.00%

Long/Short Credit 6.00% 4.00%

Relative Value/Arbitrage 4.80%

Risk Parity 4.50% 7.20%

Direct Hedge Funds

Hedge FoF 3.80% 5.00%

2017 Hedge Fund Intermediate-Term Capital Market Assumptions


Hedge Fund 5.25% 5.75% 4.95% 6.08% 6.75%

Long/Short Equity

Macro

Event Driven


Long/Short Credit

Relative Value/Arbitrage

Risk Parity 6.75% 7.00%

Direct Hedge Funds

Hedge FoF 4.25% 5.00%

2016 Hedge Fund Intermediate-Term Capital Market Assumptions

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Hedge Fund 5.80% 5.90% 6.47%

Long/Short Equity 6.40%

Macro 7.70%

Event Driven 7.40%


Long/Short Credit 6.70% 5.30%

Relative Value/Arbitrage 6.80%

Risk Parity 6.90%

Direct Hedge Funds

Hedge FoF 4.30%


Hedge Fund 4.30% 6.50%

Long/Short Equity

Macro

Event Driven

CTA (STF + Managed Futures)

Long/Short Credit

Relative Value/Arbitrage

Risk Parity

Direct Hedge Funds 7.10%

Hedge FoF

Hedge Fund Long-Term AssumptionsIn 2016, Aon’s long-term assumption for the Hedge Fund Universe was 4.3%, but was raised to 5.8% in 2017. Additionally, NEPC’s assumptions only slightly decreased for Hedge Funds in 2017. Of note was that Meketa’s 2017 intermediate term assumptions are considerably less than their long-term assumptions.

2017 Hedge Fund Long-Term Capital Market Assumptions

2016 Hedge Fund Long-Term Capital Market Assumptions

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