investment management committee meeting documents/imc_committee_book_apri… · note: data shown as...

April 2019

Investment Management Committee Meeting

Teacher Retirement System of Texas 1000 Red River Street Austin, Texas 78701-2698

TEACHER RETIREMENT SYSTEM OF TEXAS MEETING BOARD OF TRUSTEES

AND INVESTMENT MANAGEMENT COMMITTEE

(Committee Chair and Members: Mr. Colonnetta, Chair; Mr. Corpus; Mr.

Hollingsworth; Mr. Moss and Ms. Ramirez)

All or part of the April 25, 2019, meeting of the TRS Investment Management Committee and Board of Trustees may be held by telephone or video conference call as authorized under Sections 551.130 and 551.127 of the Texas Government Code. The Board intends to have a quorum and the presiding officer of the meeting physically present at the following location, which will be open to the public during the open portions of the meeting: 1000 Red River, Austin, Texas 78701 in the TRS East Building, 5th Floor, Boardroom.

AGENDA

April 25, 2019 – 12:15 p.m.

TRS East Building, 5th Floor, Boardroom

1. Call roll of Committee members.

2. Consider the approval of the proposed minutes of the December 2018 committee meeting – Committee Chair.

3. CIO Update including Fleet Strategy; Talent Management; Accomplishments; Notices; Awards; and Key Dates and Upcoming Events – Jerry Albright.

4. Discuss the Fourth Quarter 2018 Performance Review – Steve Voss, Mike McCormick and Mike Comstock, Aon Hewitt.

5. Overview of Public Equity Markets – Dale West.

6. Annual Update on Hedge Funds – Brad Gilbert.

7. Semi-annual Risk Report – James Nield.

8. Strategic Asset Allocation (SAA) Update and Review of Benchmark Best Practices – Mohan Balachandran, Matt Talbert; Keith Johnson, Reinhart Boerner Van Deuren; Steve Voss and Mike McCormick, AON Hewitt.

NOTE: The Board of Trustees (Board) of the Teacher Retirement System of Texas will not consider or act upon any item before the Investment Management Committee (Committee) at this meeting of the Committee. This meeting is not a regular meeting of the Board. However, because the full Committee constitutes a quorum of the Board, the meeting of the Committee is also being posted as a meeting of the Board out of an abundance of caution.

Minutes of the Investment Management Committee

December 13, 2018

The Investment Management Committee of the Board of Trustees of the Teacher Retirement System of Texas met on December 13, 2018, in the boardroom located on the fifth floor of the TRS East Building offices at 1000 Red River Street, Austin, Texas.

Committee Members present: Mr. Joe Colonnetta, Chair Mr. David Corpus Mr. Jarvis Hollingsworth Mr. Chris Moss Ms. Dolores Ramirez Other Board Members present: Mr. John Elliott Dr. Greg Gibson Mr. James D. Nance Ms. Nanette Sissney Others present: Brian Guthrie, TRS Steve Voss, Aon Hewitt Don Green, TRS Mike McCormick, Aon Hewitt Carolina de Onis, TRS Mike Comstock, Aon Hewitt Jerry Albright, TRS Dr. Keith Brown, Board Investment Advisor Jase Auby, TRS Ann Fickel, TCTA Mohan Balachandran, TRS Cheryl Anderson, AFT James Nield, TRS Mike Bentrott, Aetna Bernie Bozzelli, TRS Avery Saxe, LBB Heather Traeger, TRS Nick Arnold, Humana Katherine Farrell, TRS Keith Johnson, Fiduciary Counsel, Reinhart Boerner Van Deuren s.c. Investment Management Committee Chair Mr. Colonnetta called the meeting to order at 9:13 a.m.

1. Call roll of Committee members.

Ms. Farrell called the roll. A quorum was present.

2. Consider the approval of the proposed minutes of the September 2018 Committee meeting – Committee Chair.

On a motion by Mr. Corpus, seconded by Ms. Ramirez, the committee voted to approve the proposed minutes for the September 20, 2018, Investment Management Committee meeting as presented with Mr. Hollingsworth abstaining.

3. CIO Update including Fleet Strategy, Upcoming Events and Report on Metrics – Jerry Albright.

Mr. Jerry Albright discussed the metrics for the Trust Fund. He stated that for the total trust excess return the goal of 100 basis points was moving in the right direction with 64 basis points. He reported the public equity allocation goal has been met. He noted they were finalizing the private equity strategy, calling it private equity 2.0. Mr. Albright said they would report on net fee savings in April.

Mr. Albright concluded by discussing talent management and the search for the new emerging manger portfolio director. He said they are close to selecting finalists for the position.

4. Discuss the Third Quarter 2018 Performance Review – Steve Voss, Mike McCormick and Mike Comstock, Aon Hewitt.

Mr. Steve Voss presented the Third Quarter Performance. He stated that there are four major pillars that are the building block of the asset allocation. He said global equity is the largest at 57 percent and said there was strong returns for both the quarter and the one-year period. He said the stable value is at 16 percent and said the interest rates continue to increase during the past quarter. He stated the real return has strong returns for the one-year period. Lastly, he said risk parity is at 5 percent and has a reasonable return for the one-year period.

Mr. Voss discussed the U.S. stock market for the past year. He reviewed the policy targets for asset allocation and reported the investment management division (IMD) was in compliance with the targets.

Mr. Voss concluded with showing the consistency of returns on a 20 quarter basis where 13 out of those 20 periods alpha was generated with a reasonable level of risk and compliance with policy.

5. Annual Update on the Trading Group – Bernie Bozzelli.

Mr. Bernie Bozzelli provided an overview of the trading group. He discussed the products traded, trading partners, and the trading performance. He said the primary mandate performed by the trading group is to efficiently implement the investment decisions. He stated that as of September 30, 2018 $212 billion in notional value was traded across equities, futures and foreign exchange. He discussed the factors for having a high-performing trading team. Mr. Bozzelli reviewed the equity trading performance for the last 10 years.

6. Annual Update on the Risk Group – James Nield.

Mr. James Nield discussed the annual update on activities within the Risk Group. He reviewed the plans for this year which included the battle and action plans for key risks. He said there are two key mandates for the group, which includes risk management activities and developing risk strategies. Mr. Nield explained the risk monthly report, key risks, and the development of actions plans. He discussed the risk parity portfolio and said incremental adjustments are made to ensure they are on balance with their target. He reviewed next year’s plan to support the strategic asset allocation process, innovate where possible and to deliver on their mandate to enable efficient risk usage.

7. Annual Update on the Multi-Asset Strategies Group, including an overview of the Strategic Asset Allocation study – Mohan Balachandran.

Dr. Mohan Balachandran reviewed his groups’ areas of focus: the alpha focus portfolios, alternative risk premia, quantitative equities, and special opportunities. He explained alternative risk premia and said the goal of this program is to invest in the assets that have favorable return characteristics. He mentioned the group receiving the U.S. Institutional Risk Premium Manager of the Year award.

Dr. Balachandran reviewed the quantitative equity portfolio which had a strong absolute return. He also reviewed the special opportunities program that had its five year anniversary. This program funneled 202 ideas and invested in about 30 of them. He concluded by reviewing the fixed income portfolio and discussing the kick off of the strategic asset allocation study.

Without further discussion, the meeting adjourned at 10:46 a.m. APPROVED BY THE INVESTMENT MANAGEMENT COMMITTEE OF THE BOARD OF TRUSTEES OF THE TEACHER RETIREMENT SYSTEM OF TEXAS ON THE 25th DAY OF APRIL 2019.

______________________________ _________________ Katherine H. Farrell Date Secretary of the TRS Board of Trustees

1

Jerry Albright, Chief Investment OfficerApril 2019

Teacher Retirement System of Texas

Chief Investment Officer Update

Investment Management Division

2

CIO Update

Trust Value is $145 billion as of Q4 2018

• Fleet Strategy

o 32 planned Fleet hires in FY2019; 18 offers accepted and/or extended to date

Planning for an additional 14 Fleet hires spaced throughout the year

5 current vacancies

o Launched new IT shared services model to focus on IMD priorities

o Howard University partnership

• Talent Management

o Launch of new IMD Onboarding Program

o Developing initiatives to define IMD career path and framework

o Awarded Investor of the Year to Joyce Chow, Real Estate, and Spotlight Award to Horacio Zambrana, Talent Management at IMD annual Town Hall

• Accomplishments

o Hosted Annual Texas Hedge Fund Conference in Austin

o Actively engaged with Texas Legislators to offer IMD subject matter expertise during House and Senate Hearings

o Conducted Semi-Annual Portfolio Reviews in March/April 2019

• Notices

o AON notified that the SEC inquiry was closed resulting in no further action by AON

o Two Private Equity executives at TPG and Lightspeed involved in college bribery investigation

• IMD Awards

o Private Equity Real Estate (PERE) Awards 2018: Winner - “Institutional Investor of the Year: North America”

o EQ Derivatives Awards 2019: Winner - “U.S. Institutional Risk Premia Manager of the Year” (2nd Consecutive Year)

o EQ Derivatives Awards 2019: “Hall of Fame Inductee” – Mohan Balachandran

• Key Dates & Upcoming Events

o Milken Institute Global Conference (Los Angeles), April 28-May 1, 2019

o GCM Grosvenor Emerging and Diverse Manager Conference (New York City), June 12-13, 2019

o SPN Joint Summit (New York City), July 10, 2019

• July Board Meeting

o CIO Update

o Annual Update on External Private Markets

o IMD to propose final recommendations for SAA changes

o Preliminary IPS Recommendations

o First Quarter 2019 Performance Review

General IMD Update Upcoming IMD Items

Source: Trust value from State Street as of 12/31/2018. Fleet metrics as of 4/8/2019.

3

Metrics Reporting

Source: State Street Bank, TRS IMD as of 12/31/2018Note: Data shown as calendar-year. Public equity allocation excludes SPN

Metric Objective Target Q1 Q2 Q3 Q4

Total Trust Excess Return

Return in excess of the benchmark return for the Total Trust (3 Year Rolling) 100 bps 65 bps 60 bps 64 bps 71 bps

Public Equity Allocation Percent of internal public equity allocation 55% 55% 57% 56% 54%

Active Public Markets Excess

Return

Return in excess of the benchmark return for Active Public Markets investmentsrthe 100 bps 23 bps (6mo) -10 bps (9mo) 21 bps (1yr) -32 bps (1yr)

Principal Investments

Percent of portfolio capital plan in principal investments approved (cumulative quarter-over-quarter)1

33% 6% 27% 35% 44%

Private Markets Excess Return

Return in excess of the benchmark return for Private Markets investments (3 Year Rolling) 155 bps 170 bps 174 bps 179 bps 210 bps

EstimatedFee Savings External manager fee savings2 $53M $46M

1 – Q4 represents actual capital commitments vs. approvals and actual capital plan vs. budgeted plan2 – Figure includes estimated external manager fee savings in Public Markets and Private Markets for the twelve months ended December 31, 2018.

4

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Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company.

Nothing in this document should be construed as legal or investment advice. Please consult with your independent professional for any such advice. To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the approval of Aon Hewitt.

Teacher Retirement System of TexasPerformance Review: Fourth Quarter 2018

Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 2

Summary

September 2018 marked the 10th anniversary of the collapse of Lehman Brothers and also marked a turning point in the current economic cycle; beginning in October, and throughout the quarter, markets were challenged by a shift in sentiment

Global equities posted the largest one-quarter declines since the financial crisis as concerns about trade wars and slowing growth were of concern; meanwhile fixed income markets were mixed with Government bonds producing positive returns in light of rising short term rates during the quarter and credit returns slightly negative

Against this challenging environment, TRS returned -4.4% for the quarter which was 0.1 percentage points above its benchmark− Asset allocation value add from underweight positioning to Total USA and an overweight to Other Absolute Return more than

offset negative impacts from active management in Non-US Developed and underweight positioning to Long Treasuries

For the trailing twelve months, TRS returned -1.3% versus the benchmark return of -1.8%− Active management in Real Assets, asset allocation value add from underweight positioning to Total USA and an overweight

to Other Absolute Return more than offset negative impacts from active management in Total USA


1. Market Summary – Fourth Quarter 2018Fourth Quarter One Year Three Years Five Years Ten Years

Global Equity:TF USA Benchmark -14.3% -5.2% 9.0% 8.0% 13.2%MSCI EAFE + Canada Index -12.8 -14.1 3.1 0.3 6.2MSCI Emerging Markets Index -7.5 -14.6 9.3 1.6 8.0HFRI Fund of Funds Composite -5.0 -4.1 1.3 1.4 3.1State Street Private Equity Index (Qtr. Lagged) -3.0 15.0 12.9 11.8 14.4Global Equity Policy Benchmark -8.2 -4.3 8.3 5.6 10.3Stable Value:Bloomberg Barclays Long Treasury Index 4.2 -1.8 2.6 5.9 4.1HFRI Fund of Funds Conservative Composite -3.2 -0.9 1.7 1.7 2.73 Month LIBOR +2% 1.2 4.4 3.5 3.0 2.7Stable Value Policy Benchmark 2.2 -1.2 2.4 4.8 4.0Real Return:Bloomberg Barclays U.S. TIPS Index -0.4 -1.3 2.1 1.7 3.8NCREIF ODCE (Qtr. Lagged) 1.9 7.7 7.8 9.7 5.8Energy, Natural Resources & Infrastructure Benchmark 1.8 8.6 -- -- --Goldman Sachs Commodities Index -22.9 -13.8 0.5 -14.5 -5.8Real Return Policy Benchmark 1.5 6.2 6.8 7.2 7.5Risk Parity:Risk Parity Benchmark -5.7 -6.7 6.3 2.4 --Cash:90 Day U.S. Treasury 0.6 1.9 1.0 0.6 0.4TRS Policy Benchmark -4.5% -1.8% 7.0% 5.8% 8.7%


2. Market Value Change


3. Asset Allocation Detail

Note: Asset allocation information shown above is based upon PureView reporting. The excess returns shown above may not be a perfect difference between the actual and benchmark returns due entirely to rounding.

Market Value $ in millions)as of 12/31/2018 Interim

PolicyTarget

Relative toInterimPolicy Target

Long TermPolicy Target

Long TermPolicy

Ranges($) (%)Investment Exposure $145,891 100.3% 99.0% +1.3% 99.0% --Total U.S.A. $21,146 14.5% 18.2% -3.6% 18.0 13-23%Non-U.S. Developed $17,677 12.2% 13.2% -1.0% 13.0 8-18%Emerging Markets $12,920 8.9% 9.2% -0.3% 9.0 4-14%Directional Hedge Funds $5,678 3.9% 4.0% -0.1% 4.0 0-10%Private Equity $21,936 15.1% 13.9% +1.2% 13.0 8-18%Global Equity $79,357 54.6% 58.5% -3.9% 57.0 50-64%Long Treasuries $15,300 10.5% 11.2% -0.7% 11.0 0-20%Stable Value Hedge Funds $6,540 4.5% 4.0% +0.5% 4.0 0-10%Absolute Return (including OAR) $5,238 3.6% 0.0% +3.6% 0.0 0-20%Stable Value $27,079 18.6% 15.2% +3.4% 15.0 11-21%TIPS $4,394 3.0% 3.2% -0.2% 3.0 0-8%Real Estate $19,336 13.3% 12.0% +1.3% 14.0 9-19%Energy, Natural Resource and Inf. $8,461 5.8% 5.2% +0.7% 5.0 0-10%Commodities $64 0.0% 0.0% +0.0% 0.0 0-5%Real Return $32,255 22.2% 20.3% +1.9% 22.0 17-27%Risk Parity $7,201 5.0% 5.0% -0.0% 5.0 0-10%Risk Parity $7,201 5.0% 5.0% -0.0% 5.0 0-10%Cash $1,943 1.3% 1.0% +0.3% 1.0 0-5%Asset Allocation Leverage -$2,425 -1.7% 0.0% -1.7% -- --Net Asset Allocation -$482.2 -0.3% 1.0% -1.3% 1.0 --Total Fund $145,409 100% --- 100.0% --


4. Total TRS Performance Ending 12/31/2018


5. Total Fund Attribution – One Quarter Ending 12/31/2018

Net Asset Allocation Leverage*

* Negative value represents average leverage exposure during the period


5. Total Fund Attribution – One Year Ending 12/31/2018

Net Asset Allocation Leverage*

* Negative value represents average leverage exposure during the period


6. Risk Profile: Total Fund Risk-Return vs. Peers

Note: Public Plan peer group composed of 34 and 32 public funds with total assets in excess of $10B as of 12/31/2018 respectively for the periods above. An exhibit outlining the asset allocation of the peer portfolios is provided in the appendix of this report.


6. Risk Profile: Trailing 3-Year and 5-Year Risk Metrics Peer Comparison


7. Global Equity: Performance Summary Ending 12/31/2018

Note: The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.

Fourth Quarter One Year Three YearsTotal Global Equity -8.4% -4.4% 7.9%Global Equity Benchmark -8.2 -4.3 8.3Difference -0.2 -0.1 -0.4Total U.S. Equity -14.2 -6.2 7.8Total U.S. Equity Benchmark -14.3 -5.2 9.0Difference +0.1 -1.0 -1.2Non-U.S. Equity -11.4 -14.2 5.1Non-U.S. Benchmark -10.6 -14.2 5.7Difference -0.8 +0.0 -0.6Non-U.S. Developed -14.0 -14.3 2.1MSCI EAFE + Canada -12.8 -14.1 3.1Difference -1.2 -0.2 -1.0

Emerging Markets -7.6 -14.1 9.5MSCI Emerging Markets -7.3 -14.4 9.3Difference -0.3 +0.3 +0.2

Five Years

5.6%5.6

+0.0

6.48.0

-1.6

1.41.0

+0.4

0.90.3

+0.6

2.2

1.7

+0.5


7. Global Equity: Performance Summary Ending 12/31/2018 (cont’d)Fourth Quarter One Year Three Years Five Years

Directional Hedge Funds -6.8% -4.7% 2.4% 1.4%

HFRI Fund of Funds Composite Index -5.0 -4.1 1.3 1.4

Difference -1.8 -0.6 +1.1 +0.0

Total Public Equity -12.0 -10.1 6.0 3.5

Public Equity Benchmark -11.6 -9.6 6.7 3.9

Difference -0.4 -0.5 -0.7 -0.4

Total Private Equity 2.8 15.2 13.8 13.5

Private Equity Benchmark 2.9 14.6 12.9 11.8

Difference -0.1 +0.6 +0.9 +1.7



8. Stable Value: Performance Summary Ending 12/31/2018Fourth Quarter One Year Three Years

Total Stable Value 2.0% -0.2% 4.0%

Total Stable Value Benchmark 2.2 -1.2 2.4

Difference -0.2 +1.0 +1.6

Long Treasuries 4.1 -1.7 3.0

Treasury Benchmark 4.2 -1.8 2.6


Stable Value Hedge Funds -1.5 2.2 4.6

Hedge Funds Benchmark -3.2 -0.9 1.7

Difference +1.7 +3.1 +2.9

Other Absolute Return 0.6 4.6 6.8

Other Absolute Return Benchmark 1.2 4.4 3.5



Five Years

6.5%4.8

+1.7

6.5

5.9

+0.6

4.7

1.7

+3.0

8.3

3.0

+5.3


9. Real Return: Performance Summary Ending 12/31/2018Fourth Quarter One Year Three Years Five Years

Total Real Return 1.4% 7.8% 9.4% 8.8%

Real Return Benchmark 1.5 6.2 6.8 7.2

Difference -0.1 +1.6 +2.6 +1.6

TIPS -0.5 -1.3 2.3 1.8

U.S. TIPS Benchmark -0.4 -1.3 2.1 1.7

Difference -0.1 +0.0 +0.2 +0.1

Real Estate 2.3 10.2 11.4 12.1

Real Estate Benchmark 1.9 7.7 7.8 9.7

Difference +0.4 +2.5 +3.6 +2.4

Energy, Natural Resource and Infrastructure 1.0 8.9 -- --

Energy and Natural Resources Benchmark 1.8 8.6 -- --

Difference -0.8 +0.3 -- --

Commodities -44.0 -29.0 3.3 -13.4

Commodities Benchmark -22.9 -13.8 0.5 -14.5

Difference -21.1 -15.2 +2.8 +1.1



10. Risk Parity: Performance Summary Ending 12/31/2018Fourth Quarter One Year Three Years

Total Risk Parity -6.2% -6.7% 7.2%

Risk Parity Benchmark -5.7 -6.7 6.3



Five Years

4.4%

2.4%

+2.0


11.Asset Allocation Leverage: Performance Summary Ending 12/31/2018Fourth Quarter One Year Three Years

Cash Equivalents 0.3 2.3 1.9

Cash Benchmark 0.6 1.9 1.0



Five Years

2.7

0.6

+2.1


Appendix – Supplemental Reporting


TRS Commitment Levels vs. Peers (>$10 Billion) as of 12/31/2018

Note: The Public Plan peer universe had 34 observations for the fourth quarter 2018. TRS allocations may not sum to 100.0% which is entirely due to the impact of rounding

The chart below depicts the asset allocation of peer public funds with assets greater than $10 billion.

− The ends of each line represent the 95th and 5th percentile of exposures, the middle light blue and grey lines represent the 25th and 75th percentile of exposures, the purple square represents the median, and the green dot represents TRS exposure.


Historical Excess Performance Ending 12/31/2018

Quarterly and Cumulative Excess Performance Total Fund vs. Total Fund Benchmark


TRS Asset Growth

-10

10

30

50

70

90

110

130

150

170

Mar

ket V

alue

(Billi

ons)Total Fund Historical Growth (September 1997 - December 2018)

$145.4


External Manager Program: Public Equity Performance as of 12/31/2018

Allocation ($ in billions)

FourthQuarter

OneYear

EP Total Global Equity $26.7 -11.1% -10.7%EP Global Equity Benchmark -- -10.3 -9.6Difference -- -0.8 -1.1EP U.S.A. $5.6 -13.9 -5.0EP U.S.A. Benchmark -- -14.3 -5.2Difference -- +0.4 +0.2EP Non-U.S. Developed $3.9 -15.1 -16.7MSCI EAFE + Canada Policy Index -- -12.8 -14.1Difference -- -2.3 -2.6EP Emerging Markets $5.8 -7.7 -15.8MSCI Emerging Markets Policy Index -- -7.3 -14.4Difference -- -0.4 -1.4EP World Equity $5.8 -12.7 -9.7EP World Equity Benchmark -- -12.7 -9.1Difference -- +0.0 -0.6EP Directional Hedge Funds $5.7 -6.8 -4.7HFRI Fund of Funds Composite Index -- -5.0 -4.1Difference -- -1.8 -0.6


Three Years6.2%6.4-0.28.49.0-0.62.43.1-0.79.19.3-0.26.76.9-0.22.41.3

+1.1


External Manager Program: Stable Value/Total Program Performance as of 12/31/2018


FourthQuarter One Year Three

Years

EP Total Stable Value $6.5 -1.5% 2.2% 4.7%

EP Stable Value Benchmark -- -3.2 -0.9 1.7

Difference -- +1.7 +3.1 +3.0

EP Stable Value Hedge Funds $6.5 -1.5 2.2 4.6

EP Stable Value Hedge Funds Benchmark -- -3.2 -0.9 1.7

Difference -- +1.7 +3.1 +2.9

Total External Public Program $33.3 -9.4 -8.5 6.1

EP External Public Benchmark -- -9.0 -8.0 5.7

Difference -- -0.4 -0.5 +0.4



Public Strategic Partnership Program (SPN): Performance Summary as of 12/31/2018

The Public SPNs in aggregate outperformed the benchmark during the first quarter and also over the trailing one and three-year periods.


FourthQuarter

OneYear

Three Years

Public Strategic Partnership $7.5 -8.7% -8.1% 6.0%Public SPN Benchmark -- -7.7% -6.8% 6.0%

Difference -- -1.0 -1.3 +0.0

Blackrock $1.9 -8.9% -6.4% 7.0%J.P. Morgan $2.0 -9.7% -10.6% 5.6%Neuberger Berman $1.8 -9.0% -8.8% 5.6%Morgan Stanley $1.8 -7.1% -6.3% 5.9%



Total Fund Performance Benchmark – 18.2% MSCI U.S.A. IMI, 13.2% MSCI EAFE plus Canada Index, 9.2% MSCI Emerging Markets Index, 4.0% HFRI FoF Composite Index, 13.9% State Street Private Equity Index (1 quarter lagged), 11.2% Blmb. Barc. Long Term Treasury Index, 4.0% HFRI FoF Conservative Index, 1.0% Citigroup 3 Mo. T-Bill Index, 3.2% Blmb. Barc. U.S. TIPS Index, 12.0% NCREIF ODCE Index (1 quarter lagged), 5.2% Energy and Natural Resources Benchmark, and 5.0% Risk Parity Benchmark

Global Equity Benchmark – 31.1% MSCI U.S.A. IMI, 22.6% MSCI EAFE plus Canada Index, 15.7% MSCI Emerging Markets Index, 6.8% HFRI FoF Composite Index, and 23.8% State Street Private Equity Index (1 quarter lagged)– TF U.S. Equity Benchmark - MSCI U.S.A. Investable Markets Index (IMI)– Emerging Markets Equity Benchmark – MSCI Emerging Markets Index– Non-US Developed Equity Benchmark– MSCI EAFE + Canada Index– Directional Hedge Funds – HFRI Fund of Funds (FoF) Composite Index– Private Equity Benchmark - State Street Private Equity Index (1 quarter lagged)

Benchmarks

Note: Returns and market values (based on account level) reported are provided by State Street. Net additions/withdrawals are reported on a gross (adjusted for expenses) total fund level as provided by State Street. All rates of return for time periods greater than one year are annualized. The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.


Benchmarks (cont’d)

Stable Value Benchmark – 69.1% Blmb. Barc. Long Term Treasury Index, 24.7% HFRI FoF Conservative Index, and 6.2% Citigroup 3 mo. T-Bill.– US Treasuries Benchmark – Bloomberg Barclays Long Term Treasury Index– Stable Value Hedge Funds – HFRI Fund of Funds (FoF) Conservative Index– Other Absolute Return Benchmark - 3 Mo. LIBOR + 2%– Cash Benchmark - Citigroup 3 Mo. Treasury Bill Index

Real Return Benchmark – 58.9% NCREIF ODCE Index, 15.7% Blmb. Barc. U.S. TIPS Index, and 25.4% Energy & Natural Resources Benchmark– Real Estate Benchmark – NCREIF ODCE Index (1 quarter lagged) – US TIPS Benchmark – Bloomberg Barclays U.S. TIPS Index– Energy and Natural Resources Benchmark – 75% Cambridge Associates Natural Resources Index (reweighted) and 25%

quarterly Seasonally-Adjusted Consumer Price Index (1 quarter lagged) – Commodities Benchmark – Goldman Sachs Commodity Index

Note: Returns and market values (based on account level) reported are provided by State Street. Net additions/withdrawals are reported on a gross (adjusted for expenses) total fund level as provided by State Street. All rates of return for time periods greater than one year are annualized. The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.


Description of Performance Attribution A measure of the source of the deviation of a fund's performance from that of its policy benchmark. Each bar on the attribution

graph represents the contribution made by the asset class to the total difference in performance. A positive value for a component indicates a positive contribution to the aggregate relative performance. A negative value indicates a detrimental impact. Themagnitude of each component's contribution is a function of (1) the performance of the component relative to its benchmark, and (2) the weight (beginning of period) of the component in the aggregate.

The individual Asset Class effect, also called Selection Effect, is calculated as Actual Weight of Asset Class x (Actual Asset Class Return – Asset Class Benchmark Return)

The bar labeled Allocation Effect illustrates the effect that a Total Fund's asset allocation has on its relative performance. Allocation Effect calculation = (Asset Class Benchmark Return –Total Benchmark Return) x (Actual Weight of Asset Class –Target Policy Weight of Asset Class).

The bar labeled Other is a combination of Cash Flow Effect and Benchmark Effect:– Cash Flow Effect describes the impact of asset movements on the Total Fund results. Cash Flow Effect calculation = (Total

Fund Actual Return – Total Fund Policy Return) – Current Selection Effect – Current Allocation Effect– Benchmark Effect results from the weighted average return of the asset classes' benchmarks being different from the Total

Funds’ policy benchmark return. Benchmark Effect calculation = Total Fund Policy Return – (Asset Class Benchmark Return x Target Policy Weight of Asset Class)

Cumulative EffectCumulative Effect calculation = Current Effect t *(1+Cumulative Total Fund Actual Return t-1) +Cumulative Effect t-1*(1+Total Fund Benchmark Return t)


Disclaimers and Notes


Disclaimers and Notes

Disclaimers:

Please review this report and notify Aon Hewitt Investment Consulting (AHIC) with any issues or questions you may have with respect to investment performance or any other matter set forth herein.

The client portfolio data presented in this report have been obtained from the custodian. AHIC has compared this information to the investment managers’ reported returns and believes the information to be accurate. AHIC has not conducted additional audits and cannot warrant its accuracy or completeness. This document is not intended to provide, and shall not be relied upon for, accounting and legal or tax advice.

Refer to Hedge Fund Research, Inc. www.hedgefundresearch.com for more information on HFR indices

Notes:

The rates of return contained in this report are shown on an after-fees basis unless otherwise noted. They are geometric and time weighted. Returns for periods longer than one year are annualized.

Universe percentiles are based upon an ordering system in which 1 is the best ranking and 100 is the worst ranking.

Due to rounding throughout the report, percentage totals displayed may not sum up to 100.0%. Additionally, individual fund totalsin dollar terms may not sum up to the plan totals.

http://www.hedgefundresearch.com/


Legal Disclosures and Disclaimers

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc. (“AHIC”). The information contained herein is given as of the date hereof and does not purport to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information set forth herein since the date hereof or any obligation to update or provide amendments hereto.

This document is not intended to provide, and shall not be relied upon for, accounting, legal or tax advice or investment recommendations. Any accounting, legal, or taxation position described in this presentation is a general statement and shall only be used as a guide. It does not constitute accounting, legal, and tax advice and is based on AHIC’s understanding of current laws and interpretation.

This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon AHIC’s preliminary analysis of publicly available information. The content of this document is made available on an “as is” basis, without warranty of any kind. AHIC disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. AHIC. reserves all rights to the content of this document. No part of this document may be reproduced, stored, or transmitted by any means without the express written consent of AHIC.

© Aon plc 2019. All rights reserved.

Dale West, Sr. Managing DirectorApril 2019


Overview of Public Equity


2

Overview

• Public Equity in the Trust

• 2018 Performance

• Addressing Active Management in the US

• Growing the Internal Quantitative Portfolios

• Spotlight: Internal Fundamental Emerging Markets

• Priorities

3

G l o b a lEq u i t y

5 5 %

Philosophy

• Active Management: We believe active management will add value over time

• Factors: Targeting factors that are compensated in the long run, such as value, is a key active strategy

• Internal: We can manage certain strategies internally, and we prefer to do so where we are competitive with external managers and properly resourced

• External: When we don’t have internal capabilities, we can select external managers who will add value net of fees

• Efficient Markets: Active management is most successful in less efficient markets, including international and small caps

4Source: State Street Bank

G l o b a lEq u i t y

5 5 %

Global Equity’s role in the Trust:

Global Equity Overview

PUBLIC EQUITY PORTFOLIO

As of 12/31/18Assets Assets Team

Members(in billions) (percent of Trust)

Internal Quantitative $14.8 10.2 12

Internal Fundamental 9.2 6.3 24

External Manager 21.1 14.5 16

Passive & Transition 1.1 0.8

Total Public Equity $46.2 31.7 52

Global Equity Breakdown

5

$0B

$10B

$20B

$30B

$40B

$50B

$60B

$70B

Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 CurrentDec-18

Internal Fundamental

Internal Quant

Passive

External Public Equity

Other (TAA, etc.)

Trust % 43% 42% 39% 40% 48% 36% 32%

Public Equity Over Time

Source: State Street Bank. Due to different reporting frameworks prior to 2017, asset amounts may vary slightly (<1%) from amounts originally reported.

• Public equity has remained roughly constant in value, but is a smaller percentage of the Trust

• With the creation of the Public Markets group in 2017, we reduced Internal Fundamental and External strategies in favor of Internal Quantitative and Passive portfolios

IMD Public Markets group created

Public Equity Allocation

6

54% 55% 52% 49% 51%

43% 46%

4% 3%5%

5% 2%11%

2%

2% 2% 5%7% 7%

26%

32%

40% 40% 38% 39% 39%

19% 20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 CurrentDec-18

Internal Fundamental

Internal Quant

Passive

External Public Equity

54%internallymanaged

Global Equity Best Practices: More Internal Management

Source: State Street Bank. Due to different reporting frameworks prior to 2017, asset amounts may vary slightly (<1%) from amounts originally reported.

• Internal Fundamental assets in US equity were redeployed to Internal Quantitative and Passive strategies

• Passive assets are gradually being redeployed into Internal Quantitative strategies

• Internal management troughed at 44% of Public Equity in 2012. Today it is 54%.

Public Equity Split by Strategy GroupIMD Public Markets group created

7

$0B $5B $10B $15B $20B $25B

Dec-18

Jun-17

Dec-18

Jun-17

Dec-18

Jun-17

Dec-18

Jun-17

Fundamental Quant Passive

80%18%

23%

2%

75%23%

80% 18%

2%

3%

74%

21%77%

75%

40%57%

3%

4%

2%

41%59%

66%34%

22%

22%

No

n-U

SD

eve

lop

ed

Eme

rgin

g M

arke

tsW

orl

d

Global Equity Best Practices: More Quantitative Investing

Source: State Street Bank

We have shifted to a larger proportion of quantitative versus fundamental strategies across Public Equity

In particular, we have reduced fundamental strategies in the US

Public Equity by Region ($AUM)

US

December 18

Quant:50%

June 17Passive: 2%

Fundamental:

47%

Quant:23%

Fundamental:75%

Passive: 3%

Public Equity

8

Public Equity Performance

Source: State Street Bank1Public Equity portfolio inception date is October 1, 2017. Since inception returns are annualized.

• Performance was disappointing in 2018

• Internal and external portfolios suffered from the underperformance of value strategies

• Emerging Markets (EM) alpha was positive. EM was the sole region where value outperformed.

Assets

(percent of Trust)10.3 -5.9 -68 -0.7 -129

-5.2 0.6

9.8 -14.9 -78 -9.0 -56

-14.1 -8.5

7.6 -14.3 +17 -6.3 +20

MSCI Emerging Markets -14.4 -6.5

World Equity 4.0 -9.7 -56 -3.6 -54

MSCI AC World -9.1 -3.1

Total Public Equity 31.7 -10.8 -52 -4.6 -61

-10.2 -4.0

Since Inception1

Return (%) Alpha (bp) Alpha (bp) Return (%)

Public Equity Policy Benchmark

5,766

$46,150

Public Equity Portfolios

As of 12/31/18

1-Year

US $15,026

MSCI US IMI

Assets

(in millions)

Non-US Developed 14,253

MSCI EAFE + Canada

Emerging Markets 11,106

9

1

10

100

1000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Cum

ulat

ive

Perf

orm

ance

(Gro

wth

of $

10)

-50%

-40%

-30%

-20%

-10%

0%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Dra

wdo

wn

Value Performance

Source (Index Performance): BloombergSource (Charts): AQR; Stocks & Industries Value Factor data based on attribution of the Hypothetical Style Premia Standalone Factor Backtest which targets 12% volatility across each factor and is gross of trading costs, undiscounted, excess of cash returns. Data is from January 1, 1990 –December 31, 2018. Hypothetical data has inherent limitations. All performance figures contained herein are in USD unless noted otherwise.

Value Factor Performance Over the Long Term 2018 Equity Index Performance

Value works well over the long term...

...with periodic drawdowns

1-Year (%)

MSCI USA IMI Value -7.9

Growth -2.6

Difference -5.3

MSCI EAFE + Canada Value -15.1

Growth -13.1

Difference -2.0

MSCI Emerging Markets Value -10.7

Growth -18.3

Difference 7.6

MSCI All-Country World Value -10.8

Growth -8.1

Difference -2.7

10

Addressing Active Management in the US

Source: TUCS

• US equity markets have been a difficult area for active management

• Institutional investors have been more successful in international markets

Percent of Institutional Managers Outperforming Benchmark Over 3 Years (June Year-end)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

% o

f To

tal

US Non-US Developed Emerging Markets

11

Successful Active Management in the US

• The active management challenge in the US has been most severe among fundamental “stock pickers.” We believe that in certain limited areas, US active management still makes sense:

o Quantitative strategies including factor-based portfolios

o Activism

o Less efficient market segments such as small cap

• For example, activist and quantitative managers in the US External Manager portfolio have outperformed since inception. We have increased the proportion of these target strategies.

o We have also reduced the number of external managers (from 12 to 8)

December 2018 - $5.0 billion

Activist Quant FundamentalSources: State Street Bank, TRS1Net returns during TRS investment period versus IPS benchmarks through December 2018. Does not include global managers, pre-IPO, Special Opportunities, or emerging managers. Inception is date of the first manager hire for each strategy group: Activist (9/1/2007), Quant (11/1/2009), and Fundamental (3/1/2009).

June 2017 - $6.3 billion

Activist Quant Fundamental

US External ManagersUS External ManagersInvested Annualized Alpha1 (bp) 2018

SinceInception

Activist +491 +226

Quant +188 +205

Fundamental -827 -231

12

USA62%

EAFEC 24%

EM15%

Multi-Factor

USA48%

EAFEC 39%

EM13%

Low Volatility

USA60%

EAFEC 30%

EM10%

Quantitative Equity Strategies

Source: State Street Bank. Alpha versus the blended benchmarks of each mandate.

Internal Quantitative Strategies

Internal Quant(As of 12/31/2018)

Quantitative Equity Strategies Low Volatility Multi-Factor

Alpha Strategy40+ models covering multiple

timeframes, factors, and weightingmethodologies

Low Beta anomaly and volatility risk premium

Equal expression of multiple compensated risk premiums

Assets (in millions) $6,058 $4,076 $4,691

Regional Focus/BenchmarkDeveloped Region/Sector and Emerging

Country ModelsUS, EAFEC, and EM US, EAFEC, and EM

Inception Dates2009 (Strategic and Dynamic) and 2012

(Macro Distance)2013 (US) and 2016 (EAFEC and EM) 2017

Alpha, Since Inception +140bp +285bp -21bp

13

Bringing Internal Quantitative Portfolios to Target Size


$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

6/30/2017 12/31/2018 9/30/2019Projected

Ass

ets

(bill

ion

s)Internal Quantitative Portfolios

Quantitative Equity Strategies USA High Quality Low Volatility Multi-Factor

32% ofPublic Equity

~37% ofPublic Equity

7% ofPublic Equity

14

Multi-Factor: Performance vs. Peers September 2017 – January 2019

Source: Bloomberg1Multi-Factor Program Weighted Average for each firm (55% USA; 28% Non-US Developed; 17% Emerging Markets).

USA Non-US Developed Emerging MarketsTOTAL1

• Challenged performance across the Multi-Factor Universe of Providers (negative annualized excess return in all three regions)

FIRM Excess Returns (bp)

Peer 1 +101

Peer 2 +83

Peer 3 -8

TRS Multi-Factor -40

Peer 4 -53

PEER AVERAGE -121

Peer 5 -214

Peer 6 -278

Peer 7 -479


Peer 1 +95

Peer 2 +93


Peer 4 -94

PEER AVERAGE -198

Peer 3 -198

Peer 5 -360

Peer 6 -392

Peer 7 -584


Peer 3 +183

Peer 1 +124

Peer 5 +65

Peer 2 +47

PEER AVERAGE -5

Peer 4 -23

Peer 6 -29


Peer 7 -405


TRS Multi-Factor +157

Peer 3 +154

Peer 2 +108

Peer 1 +84

Peer 4 +38

PEER AVERAGE -53

Peer 5 -191

Peer 7 -249

Peer 6 -312

15

Emerging Markets: Spotlight on Internal Fundamental


• The Internal Fundamental EM portfolio outperformed by +317bp in 2018, extending a successful long-term track record

• The portfolio is now $3.1 billion. We added approximately $400 million in 2017 as part of our increase in internal strategies.

• Shayne McGuire is the portfolio manager, assisted by four sector specialists and an analyst

• Key decisions that led to outperformance in 2018:

o Adopted a more defensive position after the 34% EM rally in 2017

o Emphasized countries with resilient current accounts

o Reduced exposure to high-flying Chinese tech and consumer stocks

o Focused on quality with a value tilt throughout the portfolio

Internal Fundamental Emerging MarketsCumulative Excess Return Since 2007

-5%

0%

5%

10%

15%

20%

16

Public Markets Top Priorities for 2019

• Bring Internal Quantitative portfolios to full allocations

• Position US portfolio for long-term success

• Improve measurement of decision making in Internal Fundamental with analyst stock ratings and tracking of portfolio management decisions

• Buildout of Internal US Small and Mid-Cap portfolio

APPENDIX

18

Public Markets Senior Leadership Team

• Three distinct groups with one leadership team

• One comprehensive view of portfolio construction

• Improved communication and alignment

• Compensated on one result

Brad Gilbert, CFA, CAIASr. Director, Hedge FundsBBA, UT Austin

Joel Hinkhouse, CFADirectorMBA, University of Chicago

KJ Van Ackeren, CFA Sr. Director MBA, Texas Christian University

Patrick Cosgrove, CFA Sr. Director MBA, St. Mary’s University

Joe Tannehill, CFASr. Investment ManagerMBA, UNC Chapel Hill

Mohan Balachandran, PhDSr. Managing DirectorPhD, Physics, Brown University

Dale West, CFASr. Managing DirectorMBA, Stanford

Ashley Baum, CFA, CPASr. Investment ManagerMPA Accounting, UT Austin

Matt Talbert, PhDSr. Investment Manager PhD, Economics, UT Austin

Mark Albert, CFASr. DirectorMBA, University of Michigan

19

Internal Fundamental Team

David DeStefano, CFA Sr. Director MBA, UT Austin

Ralph Linn, CFA Sr. Director MBA JD, Tulane University

Shayne McGuire Director MBA & MA, UT Austin

Michael Poustovoi, CFA Sr. Investment ManagerMBA, Oklahoma City University

Jared Ryan, Sr. AssociateBS, Trinity University

Chad White Sr. Associate MS, University of Tulsa

Monica LarsonExecutive Assistant

Jeremy Aston, CFA Sr. Associate MBA, UT Austin

Richard Campbell, CFA Sr. Investment ManagerMBA, UT Austin

Lee Carter, CFA Investment Manager MBA, Rice University

Mark Cassens, CFA Sr. Investment ManagerMBA, UT Austin

Frank Crown, CFA Sr. Investment Manager BAA, Georgia State University

Richard Garchitorena, CFA Investment Manager MBA, University of Toronto

Marissa Hogan Sr. Investment Manager MBA, Babson College

Ran Huo, CFA Sr. Associate MBA, Rice University

Adam Kogler, CFA Sr. AssociateMS, University of Florida

Stacey Peot, CFA Sr. Investment Manager MBA, UT Austin

Derek Sbrogna, CFA Investment Manager MBA, UT Austin

Khoi Tran Investment Manager BA, UT Austin

Joseph Vaughan, Sr. Analyst BA, UT Austin

John Watkins, Sr. Investment Manager MS, Johns Hopkins, MBA, UT Austin

Jackson Wu, Investment Manager MBA, Rice University

KJ Van Ackeren, CFA Sr. Director MBA, Texas Christian University

Patrick Cosgrove, CFA Sr. Director MBA, St. Mary’s University

EXPERIENCE SUMMARY15 CFA Charter Holders21 Masters Degrees

Portfolio Management Fundamental Research

20

Internal Quantitative Team

EXPERIENCE SUMMARY4 PhDs7 Masters Degrees2 CFA Charter Holders

Mohan Balachandran, PhDSr. Managing DirectorPhD, Physics, Brown University

Wayne Speer, CFASr. Investment ManagerMBA, SMU

Anthony PaoliniAssociateBBA, MPA UT Austin

Solomon GoldInvestment ManagerMS, Economics, UT Austin

Jingshan Fu, PhDInvestment ManagerPhD, Demography, Harvard University

ANALYTICS/ RESEARCH

Mark Albert, CFASr. DirectorMBA, University of Michigan

Matt Talbert, PhDSr. Investment Manager PhD, Economics, UT Austin

Ryan LearySr. AssociateMBA, Rice University

Paul WaclawskyJr. AnalystBS, AccountingUniversity of Maryland

Gabriel Salinas, PhDSr. AssociatePhD, Economics UT Austin

Kyle SchmidtSr. Investment ManagerMBA, SMU

Sudhanshu Pathak “Sunny”Sr. AssociateMS, Operations ResearchColumbia University

21

External Manager Team

Brad Gilbert, CFA, CAIASr. Director, External Public MarketsBBA, UT Austin

Joel Hinkhouse, CFADirector, External Public MarketsMBA, University of Chicago

Joe Tannehill, CFASr. Investment ManagerMBA, UNC Chapel Hill

INVESTMENTS TEAM ANALYTICS

Lulu Llano, CFASr. Investment ManagerBBA, UT Austin

Steven Wilson, CAIASr. Investment ManagerMBA, Rice University

Scott Gonsoulin, CFAInvestment ManagerMS, Texas A&M

Kevin TaylorSr. AssociateMS, UT Austin

Michael IjehSr. AnalystBBA, Texas Tech

Cason Beckham, CFA, CAIA, CIPMSr. AssociateBBA, Texas A&M

Patty SteinwedellSr. AnalystBA, North Carolina State

Lamont ColterSr. AnalystBS, Texas State University

RELATIONSHIP MANAGEMENT

Jon KlekmanAnalystBA, SUNY Binghamton

EXPERIENCE SUMMARY7 CFA Charter Holders3 CAIAs6 Masters Degrees

Jordyn BeatySr. AnalystBBA, University of Georgia

John Hall, CFAInvestment ManagerMBA, London Business School

Lauren GellhausSr. AnalystBBA, UT Austin

Irma MartinezAnalyst, ContractorBBA, St. Edwards

22

Legislative Authority Detail for Agency AgreementsAs of December 31, 2018


• TRS is limited by law to 30% Agency Agreement authority. 12.8% is currently utilized.

External Managers Agency LP Total Agency LP Total Agency LP Total

US Portfolio 3 10 13 $1.5 $4.1 $5.6 1.0% 2.8% 3.8%

Non-US Developed 4 3 7 $1.9 $2.0 $3.8 1.3% 1.4% 2.6%

Emerging Markets 7 2 9 $4.5 $1.3 $5.8 3.1% 0.9% 4.0%

World Equity 2 4 6 $2.6 $3.1 $5.8 1.8% 2.2% 4.0%

Total Equity 16 19 35 $10.5 $10.5 $21.0 7.2% 7.2% 14.4%

Public Markets SPN 4 4 $7.5 $7.5 5.2% 5.2%

Other 3 3 $0.5 $0.5 0.4% 0.4%

Totals 23 19 42 $18.6 $10.5 $29.0 12.8% 7.2% 20.0%

# of Portfolios Assets ($ billion) Percentage of Trust

23

$0B

$5B

$10B

$15B

$20B

$25B

Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 CurrentDec-18

Internal Fundamental USA LC

Internal Fundamental Pre-IPO

Internal Fundamental USA SMID

Internal Quant

Passive

External Public USA/World

External Public USA LC

External Public USA SC

US Equity Strategies

Source: State Street. Due to different reporting frameworks prior to 2017, asset amounts may vary slightly (<1%) from amounts originally reported.

• US-focused external assets have been reduced from a peak of $10 billion to $5.6 billion

• The Internal Small and Mid-Cap (SMID) portfolio launched recently

• The Trust is underweight US equity

Public Markets US Equity IMD Public Markets group created

Trust-Level US Equity ($B) Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

Current

Dec-18

Total Public Markets US Equity 17.6 17.6 20.4 22.6 24.9 23.0 24.3 23.7 18.2

Other US Equity 9.2 4.4 2.2 3.3 3.2 2.6 1.5 3.0 2.9

Total US Equity 26.7 22.0 22.6 25.9 28.1 25.6 25.9 26.6 21.1

% of Trust 24.3% 20.2% 19.5% 19.9% 21.4% 19.8% 18.2% 17.6% 14.5%

Trust USA Policy Allocation 25.0% 20.0% 20.0% 20.0% 18.0% 18.0% 18.0% 18.0% 18.0%

Overweight/Underweight Policy -0.7% 0.2% -0.5% -0.1% 3.4% 1.8% 0.2% -0.4% -3.5%

24


25


26


27


28


29


Brad Gilbert, Senior DirectorApril 2019


Annual Update on Hedge Funds


2

Overview

• Total hedge funds have outperformed policy benchmarks over all time periods

• Both hedge fund portfolios have delivered on their objectives since they were split into separate

portfolios in 2011

• Hedge funds offer a differentiated return source to the Trust

• Hedge funds make up 8.5% of Trust assets

3

Performance Update

• Hedge funds delivered muted absolute returns in 2018, but provided downside protection in a weak equity environment

• Strong long-term alpha performance since inception

o Over 1 year, Total Hedge Funds added $143 million in value versus policy benchmarks

o Over 3 years, Total Hedge Funds added $628 million in value versus policy benchmarks

o Since inception, Total Hedge Funds added $951 million in value versus policy benchmarks

• Diversification effect has been additive

o Hedge funds contribute 2.6% to trust-level VaR at 8.5% of assets

Source: State Street Bank1Total Trust hedge fund assets are $12.4B, or 8.5% of Trust assets, including assets in the Risk Parity portfolio that are classified as hedge funds and reported with that portfolio. The current legislative cap for total Trust hedge fund assets is 10%.

-4.8 -67 2.4 +112 4.0 +127

-4.1 1.3 2.8

2.2 +300 4.6 +292 4.2 +145

-0.9 1.7 2.8

Total Hedge Funds 1 -1.2 +115 3.5 +198 4.1 +131

-2.4 1.5 2.8

3-Year

Return (%) Alpha (bp)

$12,218

Total Hedge Funds Benchmark

Stable Value Hedge Funds $6,540

HFRI Fund of Funds Conservative

(in millions)

Directional Hedge Funds $5,678

HFRI Fund of Funds Composite

Assets

Hedge Fund Portfolio

As of 12/31/18

1-Year Since Inception (Oct. 2011)

Alpha (bp) Return (%) Alpha (bp) Return (%)

4

Stable Value Hedge Fund Portfolio

Sources: State Street Bank, BloombergNote: Performance is annualized and is net of fees1Dates: October 2011 (inception) to December 20182MSCI All Country World Index3Bloomberg Barclays US Long Treasury Total Return Index4HFRI Fund of Funds Conservative Index

Stable Value Hedge Fund Objectives Status Details

Hedge Fund TypesFocus on absolute return hedge funds

• Return: 4.3%1

• Sharpe Ratio: 1.5

Market Sensitivity and Risk Core strategies have low to negative market sensitivity

• Correlation to Global Equities2: 0.1• Beta to Global Equities: 0.0

Market Regime PerformanceExpected to have positive returns when markets are down

• Outperformed equities in every down month for stocks, by an average of 2.8%

• Positive returns in 62% of 29 down equity months since October 2011

Performance versus US Treasuries Expected to outperform US Treasuries over the long term

• 4.3% return versus Treasuries3 2.9%• 2.6% volatility versus Treasuries 10.2%• Current 10-year Treasury yield-to-maturity: 2.7%

Performance versus BenchmarkStable Value HF benchmark4 with target tracking error of 4%

• 1.5% ahead of Stable Value HF benchmark since inception

• Tracking Error: 2.4%

5

Stable Value Hedge Fund: 2018 Performance in Context

Sources: State Street Bank, BloombergNote: Beta versus global equities since October 2011

Stable Value Hedge Funds delivered on their goals in 2018: • Positive performance despite weak equity market returns• Outperformed benchmark• Outperformed Treasuries

2018 Performance Stable Value 2018 Summary

Stable Value

Hedge Funds

Stable Value HF

Benchmark

US Treasuries Stable Value HF

Benchmark

US Treasuries

Return 2.2% -0.9% -1.8% +304 +402

Volatility 3.8% 2.7% 10.1%

Beta 0.0 0.1 -0.3

Excess Returns (bp)

-10%

-8%

-6%

-4%

-2%

0%

+2%

+4%

+6%

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Stable Value HF Stable Value HF Benchmark US Treasuries Global Equities

+2.2%

-9.1%

-1.8%

-0.8%

6

Directional Hedge Fund Portfolio

Directional Hedge Fund Objectives Status Details

Hedge Fund TypesFocus on equity and market sensitive hedge funds

• Return: 4.0%1

• Correlation to Global Equities: 0.8• Sharpe Ratio: 0.7

Market Sensitivity and Risk Core strategies have moderate market sensitivity (beta) and lower risk (volatility) than equities

• Beta to Global Equities: 0.4• Directional HF Volatility: 5.1%• Global Equities Volatility: 11.6%

Market Regime PerformanceExpected to outperform equities when markets are down, but will underperform strong markets

• Outperformed equities in 90% of down months for stocks, by an average of 1.6%

• Inception to date return of 4.0% versus Global Equities 9.5%

Performance versus US Treasuries Expected to outperform US Treasuries over the long term

• 4.0 % versus Treasuries 2.9%• Current 10-year Treasury yield-to-maturity: 2.7%

Performance versus BenchmarkDirectional HF benchmark2 with target tracking error of 6%

• 1.3% ahead of Directional HF benchmark since inception

• Tracking Error: 2.3%

Sources: State Street Bank, BloombergNote: Performance is annualized and is net of fees1Dates: October 2011 (inception) to December 20182HFRI Fund of Funds Composite Index

7

Directional Hedge Fund: 2018 Performance in Context

Sources: State Street Bank, BloombergNote: Beta versus global equities since October 2011

Directional Hedge Funds were mixed versus their goals in 2018: • The portfolio protected capital in a down market (-4.7%

vs. -9.1% for global equities)• The portfolio underperformed its benchmark • The portfolio had less than half the volatility of equities

2018 Performance Directional 2018 Summary

Directional

Hedge Funds

Directional HF

Benchmark

Global Equities Global Equities

Beta Adjusted

Directional HF

Benchmark

Global Equities

Beta Adjusted

Return -4.7% -4.0% -9.1% -4.0% -72 -79

Volatility 6.1% 4.6% 13.5% 4.9%

Beta 0.4 0.2 1.0 0.4

Excess Returns (bp)

-10%

-8%

-6%

-4%

-2%

0%

+2%

+4%

+6%

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Directional HF Directional HF Benchmark Beta Adjusted Global Equities Global Equities

-3.2%

-9.1%

-4.7%

-4.1%

8


9

Priorities

• Support legislative process

• Review hedge fund portfolio construction

• Assist Strategic Asset Allocation study

• Implement changes stemming from Strategic Asset Allocation study

APPENDIX

11

Hedge Fund Timeline through December 31, 2018

TRS makes initial allocation to HFs; 2% of Trust

TRS HF allocation increased to 4%, with a Legislative cap

of 5% of Trust

TRS HF Legislative cap is increased to 10% of Trust; introduction of

Directional HF portfolio

TRS current HF allocation is $12.2B, or 8% of Trust

12

Why Hedge Funds: Stable Value

Sources: State Street Bank, BloombergNote: Performance is annualized and is net of fees1Dates: October 2011 (inception) to December 20182Citigroup 3-month Treasury Bill

Stable Value Policy Allocation Risk-Adjusted Returns1

S t a b l e Va l u e1 6 %

Treasuries 11%Stable Value Hedge Funds 4%

Cash 1%

• Hedge funds are a key asset in the Trust’s Stable Value allocation

• Stable Value Hedge Funds have been the best performing asset in absolute and risk-adjusted terms since the hedge fund portfolio split in 2011

Stable Value Hedge Funds Sharpe = 1.5

US Treasuries Sharpe = 0.2

Cash2

Sharpe = 0.0

0%

1%

2%

3%

4%

5%

0% 2% 4% 6% 8% 10% 12%

An

nu

aliz

ed R

etu

rn

Annualized Volatility

13

Why Hedge Funds: Stable Value

Sources: State Street Bank, BloombergNote: Performance is annualized and is net of fees

Protection in down markets... ...while contributing less risk

14

Why Hedge Funds: Directional

Sources: State Street Bank, BloombergNote: Performance is annualized and is net of fees1Dates: October 2011 (inception) to December 2018

Directional HF Policy Allocation

Diversification versus Global Public Equity1

Jensen’s Alpha Comparison1

46% Public Equities:USA 18%

Non-US Developed 14%Emerging Markets 10%

Directional Hedge Funds 4%

15% Private Equity

G l o b a l E q u i t y5 8 %

When Equities are down

When Equities are up

Monthly Returns of Public Equities Portfolios1

1

James Nield, Chief Risk OfficerApril 2019


Investment Risk Report


2

Risk Metric Value In Compliance? Page(s)1. Asset Allocation (AA): Underweight Global Equity Underweight 3.9% 3 - 5

2. Drawdown Risk: VaR estimate declined 6.0% VaR 6 - 8

3. Tracking Error: Total Trust TE stable 149 bp 9 - 10

4. Leverage: Trust AA Net leverage stable 111.7% Gross, 100.3% Net 11 - 13

5. Liquidity: Remained strong 9.4 Coverage Ratio 14

6. Counterparty Risk: Within Policy limit Lowest Rating: BBB+ 15

7. Derivatives Exposure: Increased slightly 21.4% Gross 16 - 17

8. Securities Lending: Earnings decreased 37.2% utilization 18

Agenda

Unless otherwise noted, data presented as of December 31, 2018

3

-10%

10%

30%

50%

70%

90%

110%

Q4-18Q2-18Q4-17Q2-17Q4-16Q2-16

Global Equity Stable Value Real Return Risk Parity Net AA Leverage

54.6%

18.6% 22.2%

5.0%

58.5%

15.2%

20.3%

5.0%1.0%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Global Equity Stable Value Real Return Risk Parity Net AALeverage

Benchmark in italics

-0.3%

Trust asset allocation in line with policy

Asset Class Weights

Source: State Street Bank; note: net AA leverage is -0.3%, which indicates the Trust is levered by 0.3%

Asset Class Weights Trend

4

-3.9%

3.4%

1.9%

-1.3%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18

Global Equity Stable Value Real Return Risk Parity Net AA Leverage

Trust remained underweight Global Equity

Relative Asset Class Positions Through Time

Source: State Street Bank; relative positions shown in comparison to quarter-end Trust benchmark weights as defined in policy

5

Global Equity UW 3.9% Stable Value OW 3.4% Real Return OW 1.9%

-3.6%

-1.0%

1.2%

-0.3%

-0.1%

-5.0% -2.5% 0.0% 2.5% 5.0%

USA

Non-US Developed

Private Equity

Emerging Markets

Directional HF

-0.7%

0.5%

3.6%

-1.3%

-5.0% -2.5% 0.0% 2.5% 5.0%

US Treasury

Stable Value HF

Absolute Return

Net AA Leverage

1.3%

0.7%

-0.2%

0.0%

-5.0% -2.5% 0.0% 2.5% 5.0%

Real Estate

ENRI

US TIPS

Commodities

Stable Value overweight driven by Absolute Return allocation

Source: State Street Bank; private credit allocation included in Absolute Return

6

6.0%

5.5%

3%

4%

5%

6%

7%

8%

9%

Q4-18Q2-18Q4-17Q2-17Q4-16Q2-16

Total Fund Benchmark Policy Max / Min

54.6%

81.0%

0% 50% 100%

% of Assets

% of VaR

Global Equity

18.6%

-5.3%

-10% 0% 10% 20% 30%

% of Assets

% of VaR

Stable Value

5.0%

3.9%

-10% 0% 10% 20% 30%

% of Assets

% of VaR

Risk Parity

22.2%

20.3%

0% 10% 20% 30%

% of Assets

% of VaR

Real Return

VaR estimate declined to 6.0%

VaR History


7

0.0%

3.0%

5.8%

13.3%

0.1%

-0.3%

6.9%

13.7%

-10% 0% 10% 20% 30%

Commodities

US TIPS *

ENRI

Real Estate

% of VaR % of Assets

3.9%

8.9%

15.1%

12.2%

14.5%

2.0%

15.7%

25.4%

18.0%

19.8%

-10% 0% 10% 20% 30%

Directional HF *

Emerging Markets

Private Equity

Non-US Developed

USA


-0.3%

3.6%

4.5%

10.5%

0.8%

0.6%

-6.7%

-10% 0% 10% 20% 30%

Net AA leverage

Absolute Return *

Stable Value HF *

US Treasury *


Stable Value assets are a key source of diversification

* These assets contribute less risk than their dollar allocationSource: State Street Bank

Global Equity Stable Value Real Return

8

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Worst GFC MonthOct '08

Dot Com BurstJul '98 - Aug '98

Bond CrashFeb '94 - May '94

Taper TantrumMay - Jun '13

Sovereign DebtCrisis

Aug '11

Asian CrisisJul '97

Q4 2018 Dot Com BubbleNov '99 - Jan '00

EM Asia RallyJan '99 - May '99

Best GFC MonthApr '09

Total Fund Benchmark

Trust expected to perform in line with benchmark

Scenario Analysis

Source: State Street Bank; note: data shown are predicted drawdowns given current allocation, except for Q4 2018, which reflects realized performance

9

149

78

0

40

80

120

160

200

Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18

bp

Total Trust Forecast Tracking Error Public Market Stand Alone Forecast Tracking Error

Forecasted Trust tracking error stayed stable


10

78

0

100

200

300

400

500

Total Public US TIPS Non-USDeveloped

USA Equity Directional HF Stable ValueHF

Risk Parity EmergingMarkets

bp

Current Forecast TE 3-Year Realized TE Policy Maximum Policy Neutral

0

150

300

450

600

750

900

1050

TotalPrivate

PrivateEquity

Real Assets ENRI

bp

Current Forecast TE 3-Year Realized TE

Public portfolio forecast tracking error below policy neutral

Source: State Street Bank; current forecast tracking error uses past experiences from January 1, 2008 to December 31, 2018 and therefore includes the effects of the Global Financial Crisis

Public Private

11

111.7%

100.3%

80%

90%

100%

110%

120%

130%

Q4-18Q2-18Q4-17Q2-17Q4-16Q2-16

Total TrustGross Leverage Net Leverage

Source: State Street Bank; note: total Trust leverage excludes securities lending which is reported separately; net leverage includes adjustments for delta-notionalization of options and exclusion of spot forwards of 30 days or less

Trust Net AA leverage stable

12

250%

189%

0%

100%

200%

300%

Q4-18Q2-18Q4-17Q2-17Q4-16Q2-16

Risk ParityGross Leverage Net Leverage

192%

118%

0%

100%

200%

300%

Q4-18Q2-18Q4-17Q2-17Q4-16Q2-16

Public Strategic PartnersGross Leverage Net Leverage

Risk Parity and SPN net strategy leverage ticked up


13

34%

48%

46%

57%

20%

30%

40%

50%

60%

70%

80%

Q3-18Q1-18Q3-17Q1-17Q3-16Q1-16

Real Estate Loan to ValueCore Value-Added Opportunistic Real Asset Special Situation

573%

3%

-200%

0%

200%

400%

600%

800%

Q4-18Q2-18Q4-17Q2-17Q4-16Q2-16

Hedge FundGross Leverage Net Leverage

Hedge Fund and Real Estate strategy leverage range bound

Source: MSCI RiskMetrics, State Street Bank, TRS RE manager data; note: hedge fund leverage data sourced from Risk Metrics as of Q3 2018 with historical data available thru Q3 2017. State Street data shown prior to that date

14

9.4

0

4

8

12

Q4-18Q2-18Q4-17Q2-17Q4-16Q2-16

Sour

ces/

Use

s

Liquidity RatioSources of Liquidity ($, billions)

Market Value

Stressed Value

Internal Cash 1.9$ 1.9$ US Treasuries and TIPS 19.9 18.9 Other Liquid Assets (Equity, Commodities) 50.7 26.2 Risk Parity 7.2 4.8 Total Sources of Liquidity 79.8$ 51.9$

Note: Excluded Illiquid Private Assets and Hedge Funds 65.7$ NA

Uses of Liquidity ($, billions)

Market Value

Stressed Value

Operational Uses of Liquidity (0.1)$ (0.3)$ Stressed Securities Lending (2.4) Stressed Non-collateralized assets - Stressed Derivatives (0.5) Stressed Private Markets (2.3) Total Uses of Liquidity (0.1)$ (5.5)$

Liquidity RatioRatio (Sources/Uses) 9.4Alert Threshhold 2.0Test Result Pass

Note: Net Stressed Liquidity (Sources less Uses) 46.4$ Note: Past 12 Months of Benefit Payments 4.0$

Trust liquidity remained strong

Source: State Street Bank, TRS IMDAssumptions: The stress case assumes liquid assets experience 1.5x the worst rolling monthly return since 2008 plus an additional liquidity stress. Operational uses of liquidity reflects the lesser of forecasted cash flows or monthly benefit payments. Stressed securities lending reflects potential costs associated with termination including a liquidity stress. Stressed non-collateralized assets and derivatives reflect margin calls based on the same market stress applied to Liquid Assets. Private Market investments are assumed to return half as much capital as currently planned and experience capital calls equivalent to total unfunded commitments in equal installments over the course of 12 months.

15

OTC Counterparty Over the CounterBank of America, N.A. A+ Aa3 AA- $0.0

Barclays Bank PLC A A2 A+ 0.0

BNP Paribas SA A Aa3 A+ 14.7

CIBC A+ Aa2 AA- 0.0

Citibank N.A. A+ A1 A+ 0.0

Credit Suisse International A A1 A- 0.0 copy from derivaties

Deutsche Bank AG BBB+ A3 A- 0.0

Goldman Sachs International A+ Aa3 A 24.1

JPMorgan Chase Bank N.A. A+ Aa1 AA 0.0

Macquarie Bank Limited A A1 A 0.1

Morgan Stanley A+ Aa3 A 11.2

Societe Generale A A1 A 0.0

The Toronto-Dominion Bank AA- Aa1 AA- 0.0

UBS AG A+ Aa2 AA- 4.3

FCM Counterparty Exchange Traded Futures

Credit Suisse Securities (USA) LLC A NR NR $211.9

Goldman Sachs & Co A+ NR A+ 157.2JP Morgan Securities LLC A+ Aa3 AA 86.7

Securities Lending/Custodian

State Street Bank AA- Aa1 AA

S&P Moody's

S&P

Exposure

Moody's Fitch

Fitch

Exposure

S&P Moody's Fitch

Paste Into PPT

80

208

-

50

100

150

200

250

300

350

400

Q4-18Q2-18Q4-17Q2-17Q4-16Q2-16bp

Average Counterparty CDS Lowest Rated Counterparty CDS

Counterparty Risk within Policy limits

Source: State Street Bank, Bloomberg; OTC counterparty exposure represents positive market value of all OTC derivative positions less collateral posted; Futures Commission Merchant (FCM) counterparty exposure reflects margin posted

16

21.4%

0%

20%

40%

Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18

Gross Notional by Instrument (% of Total Trust)Swaps Futures Forwards Options

6.7%

-20%

0%

20%

Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18

Net Notional by Instrument (% of Total Trust)Swaps Futures Forwards Options

Gross derivative notional exposure increased slightly

Source: State Street Bank; note: derivative positions represent transactions in which TRS is a counterparty; net leverage includes adjustments for delta-notionalization for options and exclusion of spot forwards of 30 days or less

17

VaR Contribution from Derivatives

● Total Gross = $31.1b ● Total Net = $9.8b

Gross vs Net Derivatives Notional by Portfolio

6.0%

0.3%0%

1%

2%

3%

4%

5%

6%

7%

8%

Q4-18Q2-18Q4-17Q2-17Q4-16Q2-16

Total Trust VaR Contribution from Derivatives

-$10

$0

$10

$20

$30

$40

SPN Risk MSG PrivateMarkets

ExternalManagers

Total

$, b

illio

ns

Gross Net

Derivatives contributed small portion of drawdown risk

Source: State Street Bank; derivative positions represent transactions in which TRS is a counterparty. Note: net leverage includes adjustments for delta-notionalization of options and exclusion of spot forwards of 30 days or less

18


19

In conclusion, key points are the following:

• Trust was levered by 0.3%

• Trust was underweight Global Equity

• Fourth quarter drawdown was in line with benchmark

• Stressed (monthly) liquidity ratio remained strong

• Risk metrics were within desired parameters

© 2019 All Rights Reserved

Reinhart Boerner Van Deuren s.c.1

Fiduciary Duties in the Strategic Asset

Allocation ProcessTeacher Retirement System of Texas

Board of Trustees Meeting

April 25, 2019

Reinhart Boerner Van Deuren s.c.



Strategic Asset Allocation

• One of the most important decisions the Board makes

Board gets expert advice and delegates to staff, but is ultimately

responsible

• Importance of SAA requires evaluation of assumptions, plans and expectations,

whether starting from a clean slate or modifying current asset allocation policy

TRS process includes education, data, analysis, discussion and

documentation

• Time spent on review aligns with importance of SAA

The Trustees are reviewing the SAA over several meetings, with time for

diligence and reflection



Fiduciary Duties in SAA Review

• Trustees have a duty to follow

Plan documents, statutes and legal requirements

• e.g., Statutory fiduciary duties, common law

• “The board shall develop and implement policies that clearly separate the policy-making

responsibilities of the board and the management responsibilities of the executive director

and the staff.” [Government Code § 825.113(b)]

TRS Policies

• Investment Policy Statement §1.6: asset-liability study at least once every 5 years

– Previous study completed in 2014

• Investment Policy Statement §1.4: Fund objectives include

– Control risk thru diversification and long-term risk/return expectations

– Achieve long-term returns that exceed actuarial assumed rate; rate of inflation by 5%;

and Fund Policy Benchmark

Fiduciary obligations apply throughout the process



Fiduciary Duties in SAA Review – cont.

• Trustees must act with the ”judgment and care” that persons of “prudence, discretion and

intelligence” exercise in permanent investment of their funds under the prevailing

circumstances [Sec.67, Art. XVI, Texas Constitution]

Focus is on procedural process and is forward looking

Investment decisions are evaluated “in the context of the trust portfolio as a whole and as

a part of an overall investment strategy having risk and return objectives reasonably suited

to the trust.” [Government Code § 825.301(a) referencing Property Code § 117.004(b)]

• Duty of loyalty requires consideration of both short and long term liability obligations

When there are multiple beneficiaries, trustees owe the same fiduciary duty to protect all

of their interests, without partiality to some at the expense of others. [Texas Property

Code § 117.008]



Strategic Asset Allocation Review

• TRS process incorporates Aon's strategic asset review allocation

best practice steps used by peers

[Aon and IMD Board meeting presentation slides (February 2019)]

1. Review/Update Long-

Term Objectives

4. Consider Implementation

Issues

2. Develop Forward Looking

Capital Market Assumptions

5. Adopt a New Target Asset

Allocation & Commitment

Ranges

3. Evaluate Alternative

Portfolios/Model Results

6. Implement and Monitor



Important Process Considerations

• Trustee education

• Peer and industry

practices/expectations

• Unique TRS attributes

• Expert advice

• Adequate/accurate data

• Forward looking vision

• Changing circumstances

• Market scenarios

• Long-term objectives

• Risk tolerance

• Diversification

• Achieve 7.25% assumed rate of return

• Alternative options

• Risk/return balance

• Effect on contributions

• Funding/sustainability

• Cash flow constraints

• Implementation challenges and

options

[Aon and IMD Board meeting presentation slides (February 2019)]



Deliberation

• Trustees are responsible for independent review and exercising their own judgment

Question staff, experts, fellow Board members

• Consider and raise issues from the perspective you bring to the Board

• There are no stupid questions

Is new SAA reasonable; supported by accurate data, careful analysis and expert

advice?

• Were relevant peer practices examined?

• Have risk and return expectations been addressed?

• Does it meet plan objectives and impartially serve participant obligations now

and over the long term?

• Can it be implemented?

• Ensure the decision of the Board is a composite of all Trustees' independent judgment



Adoption of New SAA Plan

• Adopt new target allocations, variation ranges and any changes in

benchmarks

• Consider need for any related changes in statutes and TRS

practices

e.g., investment authority, cost/fee management, staffing,

technology, outsourcing

• Update Investment Policy Statement to reflect decisions as needed



Implement and Monitor

• Ensure review process was documented

• Duty of prudence includes an ongoing duty to monitor

Continue to monitor effectiveness

Look out for changes in circumstances

• Avoid tactical or oversight micromanagement

• Raise questions; seek information and advice as needed



Conclusion

The TRS plan for reviewing its Strategic Asset Allocation follows a

prudent process designed to address applicable fiduciary obligations.

Mohan Balachandran, Sr. Managing DirectorJames Nield, Chief Risk OfficerMatt Talbert, Sr. Investment ManagerApril 2019


Strategic Asset Allocation Study 2019


2

1

Agenda

Long-Term Asset Return Forecasts

Liquidity Measurement

3

2

4 Key Takeaways and Next Steps

Alternative Portfolios

3

Strategic Asset Allocation (SAA) Study

1 Update / Review Long-Term Objectives

What are long term goals? What has changed? What level of risk is tolerable?

February: review goals, market conditions, risk tolerance

Reviewed by GRS in 2018: Liability, liability risks, actuarial assumptions

2 Develop Forward Looking Capital Market Assumptions (CMA)

Which asset classes to add or eliminate? Develop return, risk, correlation assumptions

February: Preliminary CMA results Today: Review asset classes, finalized CMAs

3 Evaluate Alternative Portfolios / Model Results

Determine metrics for comparing alternatives Review benchmarks and ranges Consider practices of peers

February: Peer comparison, risk considerations Today: Comparing alternate portfolios July: Review Benchmarks

4 Consider Implementation Issues

Active vs. passive; currency hedging; internal vs. external

Review risk budgets Incorporate investor competitive advantages

July: Alpha assumptions, currency considerations, internal vs. external, risk tolerance & budgeting

5 Adopt a New Policy Asset Allocation & Commitment Ranges

Review current target relative to alternatives Formally adopt a new target in IPS

July: Review conclusions to SAA study; Board consider adoption of policy weights

September: Review and consider adoption of changes to Investment Policy: benchmarks, ranges, any other changes

6 Implementation and Monitoring

Design plan for implementation of any changes Monitor compliance with new targets and ranges

over time

Q4 2019: Execute on any changes Ongoing: Compliance monitoring, updating CMAs

Aon Best Practice TRS SAA Study Timeline

4

Capital Markets Assumptions – Key Assets

0%

2%

4%

6%

8%

10%

12%

14%

16%

75%/25% Median

Source: Responses to TRS CMA Survey

Median Max Min

USA 6.4% 7.9% 1.7%

Non-US Dev 6.3% 8.6% 2.6%

Emerging Markets 7.3% 9.3% 5.1%

Directional Hedge Funds 5.2% 7.1% 4.5%

Private Equity 8.4% 13.3% 4.8%

US Treasury 3.1% 7.2% 0.4%

Stable Value Hedge Funds 4.5% 7.7% 2.9%

Inflation Linked Bonds 3.3% 4.5% 1.8%

Real Estate 8.5% 14.7% 5.6%

ENRI 7.3% 12.6% 4.9%

Risk Parity 5.8% 8.9% 2.9%

Cash 2.5% 3.3% 1.6%

Expected Total Trust 7.0% 10.4% 3.9%

Expected Inflation 2.1% 2.3% 1.7%

Long-Term Expected Returns

5

Current SAA Policy Framework

TRS Competitive Advantages

1. Large

2. Long-term

3. Liquid

4. Low Levered

5. Local

Source: TRS, Center for Retirement Research, Annual Reports. Global peers are 10 large Canadian pensions listed in appendix

S t a b l e Va l u e1 6 %

G l o b a l Eq u i t y5 7 %

R e a l R e t u r n2 2 %

TreasuriesStable Value Hedge Funds

CashAbsolute Return

Public Equities:USA

Non-US DevelopedEmerging Markets

Directional Hedge Funds

Private Equity

Global TIPSReal Estate & Other Real Assets

Energy & Natural ResourcesCommodities

REITS

Risk Parity 5%

Net Asset Allocation Leverage 1%

Peer Comparison

PortfoliosLong-Term

Return Forecast

Volatility Forecast

Expected Passive

Sharpe Ratio

Current TRS Policy 7.0% 11.3% 0.40

US Pension Peers 6.7% 12.0% 0.34

Endowment Peers 7.3% 12.2% 0.39

Global Peers 6.9% 9.8% 0.47

60/40 (Stocks/Bonds) 5.5% 8.8% 0.34

6

What could we do with our current SAA?

• Stay with current allocation

• Evaluate ways to facilitate increased alpha generation

• Strategies to improve returns:

1. Increase allocation to Private Markets

2. Use leverage to improve efficiency and balance of portfolio

• A combination of the above can raise the return but will impact:

1. Volatility

2. Drawdown

3. Liquidity

Liquidity

8

1

SAA Risk Metrics fit into 4 main categories

Return Distribution 32Stability of Returns Absolute Risk 4Operational

Average Return

Kurtosis

Median Return

Probability >7.25%

Rolling Returns

Skew

Asset Betas

Cycle Analysis

Diversification Index

Environmental Analysis

Volatility

Sharpe Ratio

Liquidity

Counterparty

Currency Exposure

Derivative Usage

Historical Scenarios

Hypothetical Scenarios

Median Drawdown

Max Drawdown

% Time in Drawdown

Value at Risk (VaR) Relative Risk

Tracking Error

Risk Contributions

Implementation

Items in blue will be discussed in more detail throughout the presentation

9

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Allo

cati

on

to

So

urc

es o

f Li

qu

idit

yAllocation to Illiquid Assets

Could the Trust have a 100% allocation to illiquid assets?

Answer: No

Liquid public market capital (Sources) needed to:

• Meet private market capital calls

• Meet operational needs

• Deploy capital opportunistically

• Make benefit payments

Trust’s ability to allocate to illiquid assets is informed by SAA Liquidity Stress Test:

Uses

Benefit Payment Reserves

Potential Capital Calls

Opportunistic Capital

Note: Operational needs include liquidity to settle trades, meet margin calls, etc.

Operational Capital

Long-Term Sources of Liquidity

Long-Term Uses of Liquidity

Current Policy Allocation

10

SAA Liquidity Stress Test indicates additional illiquidity merits more attention

If the SAA Liquidity Stress Test (Sources/Uses) is:

• Above 2: Excess capacity to allocate to illiquid assets

• Below 1: No additional capacity

• Between 1 and 2: Reduced capacity, which reflects liquidity needs while maintaining balance and flexibility

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Cap

acit

y to

Allo

cati

on

Mo

re t

o Il

liqu

id A

sset

s

Allocation to Illiquid Assets

Capacity to Allocate More to Illiquid Assets

Low

H

igh

1 to 2:Reduced capacity


Above 2:Excess

capacity

Below 1:No additional capacity

11

0%

10%

20%

30%

40%

50%

60%

70%

Global Equity Stable Value Real Return

% o

f Tr

ust

Policy Range Neutral Post-Stress

64%

50%

21%

11%

27%

16%

0%

10%

20%

30%

40%

50%

60%

Public Equity Private Equity

% o

f Tr

ust

Policy Range Neutral Post-Stress

49%

39%

18%

8%

One practical consideration is to widen policy range

Need to buy Public

Equities

Near minimum of Global Equity

Limited flexibility to deploy Real Return

Limited capacity to deploy Private Equity

1. After a stress event, we would have limited capacity to allocate capital to private markets

2. We may also be constrained at the major asset class level

Note: Assumes 50% drawdown in public equity (translating to a 33% drawdown in the Total Trust), $3.3B of capital calls in Private Equity funded from Stable Value, and $4.8B of capital calls in Real Estate and ENRI funded out of TIPS and Stable Value

Private Equity Example:• Pre-stress: PE = 20/150 = 13%• Post-stress: PE = 18/100 = 18%

Real Return Example:• Pre-stress: RR = 33/150 = 22%• Post-stress: RR = 26/100 = 26%

12

Liquidity key points

1. A long-term SAA Liquidity Stress Test informs our liquidity needs

2. SAA Liquidity Stress Test indicates any additional allocation to illiquid assets merits attention

3. Wider policy bands would provide:

• Increased capacity to deploy capital in a drawdown

• Flexibility to rebalance

Alternative Portfolios

14

Strategy 1: Increased Allocation to Private Markets

Private Premium is return of Private Equity minus USA Equity returnsSource: Bloomberg, TRS, State Street, Annual Reports

0%

10%

20%

30%

40%

50%

60%

% o

f Fu

nd

Real Assets Private Equity

Global Pensions have higher allocation to Real Assets

• Global pensions have a similar total allocation to Private Markets to TRS, however they tend to allocate a higher fraction of total private assets to Real Assets (Real Estate, Energy, Natural Resources, and Infrastructure)

0%

10%

20%

30%

40%

50%

60%

% o

f Fu

nd

Private Equity Public Equity

Endowments have higher allocation to Private Equity

20yr

Return

10yr

Return

Long-Term

Forecast

USA Equity 6.1% 13.3% 6.4%

Private Equity 11.0% 9.8% 8.4%

Private Premium 4.9% -3.5% 1.9%

15

Current

Policy Neutral

+5% Private

Equity

+5% Real

Assets

+10% Private

Markets Total

Long-Term Return Forecast 7.0% +0.11% +0.17% 7.3%

Long-Term Volatility Forecast 11.3% +0.17% +0.18% 11.6%

Trailing 20yr Return 7.4% +0.23% +0.19% 7.9%

Trailing 20yr Volatility 7.7% -0.59% -0.22% 7.0%

Max Historical Drawdown -26.4% +1.48% +0.61% -24.3%

SAA Liquidity Ratio 1.9 -0.2 -0.2 1.5

Impact of

Current Policy

Neutral

+5% Private

Equity

+5% Real

Assets

USA 18% -2.0% -1.0%

EAFE + Canada 13% -2.0% -1.0%

Emerging Markets 9% -1.0% 0.0%

Directional Hedge Funds 4% 0.0% 0.0%

Private Equity 13% +5.0% 0.0%

US Treasuries - Long 11% 0.0% 0.0%

Stable Value Hedge Funds 4% 0.0% 0.0%

Real Estate 14% 0.0% +2.5%

US TIPS 3% 0.0% -3.0%

ENRI 5% 0.0% +2.5%

Risk Parity 5% 0.0% 0.0%

Cash 1% 0.0% 0.0%

Asset Allocation Leverage 0% 0.0% 0.0%

Total Public 68% -5.0% -5.0%

Total Private 32% +5.0% +5.0%

Strategy 1: Increased Allocation to Private Markets

• For this example we look at the impact of increasing Private Equity and Real Assets (split evenly between Real Estate and ENRI)

• Increased allocation to Private Markets increases expected return but will decrease liquidity

Source: TRS. Total impact of changes may not be additive due to interaction effects

16

Strategy 2: Use Leverage to Add Balance and Make Trust More Efficient

• The use of strategy and asset allocation leverage allows the portfolio to be more efficient and balanced without reducing expected returns.

2A: More Efficient

o Change Directional Hedge Fund Benchmark to an equity benchmark and use derivatives to match beta

o Increase Risk Parity risk target to 12% volatility from 10% volatility

2B: More Balanced

o Diversify away from equity risk by levering non-equity assets

o Allocate additional capital to Risk Parity

17

Current Policy

Neutral

Change HF

Benchmark

Risk Parity to

12% Vol

USA 18% +2.0% 0.0%

EAFE + Canada 13% +2.0% 0.0%

Emerging Markets 9% 0.0% 0.0%

Directional Hedge Funds 4% -4.0% 0.0%

Private Equity 13% 0.0% 0.0%

US Treasuries - Long 11% 0.0% 0.0%


Real Estate 14% 0.0% 0.0%

US TIPS 3% 0.0% 0.0%

ENRI 5% 0.0% 0.0%

Risk Parity 5% 0.0% 0.0%

Cash 1% 0.0% 0.0%

Asset Allocation Leverage 0% 0.0% 0.0%

Total Public 68% 0.0% 0.0%

Total Private 32% 0.0% 0.0%

Strategy 2A: More Efficient

• Changing Hedge Fund benchmark increases overall beta of Global Equity sleeve

• Increasing the volatility target for Risk Parity increases return without requiring additional capital to be taken from other asset classes

Current Policy

Neutral

Change HF

Benchmark

Risk Parity to

12% Vol

More

Efficient Total


Long-Term Volatility Forecast 11.3% +0.21% +0.09% 11.6%


Trailing 20yr Volatility 7.7% 0.43% 0.05% 8.2%

Max Historical Drawdown -26.4% -1.20% -0.16% -27.8%

SAA Liquidity Ratio 1.9 0.0 0.0 1.9

Impact of


18

Current Policy

Neutral

Increase Risk

Parity

Lever

Diversifying

Assets

More

Balanced

Total


Long-Term Volatility Forecast 11.3% +0.20% -0.10% 11.4%


Trailing 20yr Volatility 7.7% -0.11% -0.13% 7.5%

Max Historical Drawdown -26.4% +0.24% +0.55% -25.7%

SAA Liquidity Ratio 1.9 -0.0 +0.1 1.9

Impact ofCurrent Policy

Neutral

Increase Risk

Parity

Lever

Diversifying

Assets

USA 18% -1.0% 0.0%

EAFE + Canada 13% -1.0% 0.0%

Emerging Markets 9% -1.0% 0.0%

Directional Hedge Funds 4% 0.0% 0.0%

Private Equity 13% 0.0% 0.0%

US Treasuries - Long 11% -1.0% +4.0%


Real Estate 14% 0.0% 0.0%

US TIPS 3% -1.0% +1.0%

ENRI 5% 0.0% 0.0%

Risk Parity 5% +5.0% 0.0%

Cash 1% 0.0% 0.0%

Asset Allocation Leverage 0% 0.0% -5.0%

Total Public 68% 0.0% 0.0%

Total Private 32% 0.0% 0.0%

Strategy 2B: More Balanced

• Increasing Risk Parity and levering low-risk diversifying assets (US Treasuries and TIPs) improves returns while reducing historical drawdowns and volatility, providing more balance across regimes


19

Bringing it all together

Target7.15%

Target7.25%

Target7.35%

Real Estate +1%ENRI +1%

Change Directional Hedge Fund Benchmark

Private Equity +1%

US Treasuries +5%Risk Parity +3%

Change Risk Parity Volatility to 12%

Private Equity +1%Real Estate +1%

US TIPs +3%

Increase Allocation to Private Markets

More Efficient

More Balance

7.15% Changes Plus:

7.25% Changes Plus:

7.0% Current Policy Plus:

1.

2A.

2B.

20

Current Policy

Neutral

Target

7.15%

Target

7.25%

Target

7.35%

Long-Term Return Forecast 7.0% 7.14% 7.25% 7.36%

Long-Term Volatility Forecast 11.3% 11.7% 11.6% 11.8%

Trailing 20yr Return 7.4% 7.7% 8.0% 8.2%

Trailing 20yr Volatility 7.73% 8.17% 7.73% 7.65%

Max Drawdown -26.4% -27.7% -26.3% -26.1%

SAA Liquidity Ratio 1.9 1.8 1.8 1.8

Current Policy

Neutral

Target

7.15%

Target

7.25%

Target

7.35%

Total Global Equity 57% 56% 54% 54%

Total Stable Value 15% 16% 21% 21%

Total Real Return 22% 22% 21% 25%

Total Risk Parity 5% 5% 8% 8%

Net Asset Allocation Leverage 1% 1% -4% -8%

Total Public 68% 66% 65% 63%

Total Private 32% 34% 35% 37%

Bringing it all together

Incremental increases to Private Markets decreases SAA Liquidity Ratio

Leverage allows the portfolio to achieve more balance among regime buckets, improving volatility and drawdown characteristics

Source: TRS

21

2019 SAA Study: Where are we going?

1 Update / Review Long-Term Objectives

What are long term goals? What has changed? What level of risk is tolerable?

February: review goals, market conditions, risk tolerance

Reviewed by GRS in 2018: Liability, liability risks, actuarial assumptions

2 Develop Forward Looking Capital Market Assumptions (CMA)

Which asset classes to add or eliminate? Develop return, risk, correlation assumptions

February: Preliminary CMA results Today: Review asset classes, finalized CMAs

3 Evaluate Alternative Portfolios / Model Results

Determine metrics for comparing alternatives Review benchmarks and ranges Consider practices of peers

February: Peer comparison, risk considerations Today: Comparing alternate portfolios July: Review Benchmarks

4 Consider Implementation Issues

Active vs. passive; currency hedging; internal vs. external

Review risk budgets Incorporate investor competitive advantages

July: Alpha assumptions, currency considerations, internal vs. external, risk tolerance & budgeting

5 Adopt a New Policy Asset Allocation & Commitment Ranges

Review current target relative to alternatives Formally adopt a new target in IPS

July: Review conclusions to SAA study; Board consider adoption of policy weights

September: Review and consider adoption of changes to Investment Policy: benchmarks, ranges, any other changes

6 Implementation and Monitoring

Design plan for implementation of any changes Monitor compliance with new targets and ranges

over time

Q4 2019: Execute on any changes Ongoing: Compliance monitoring, updating CMAs

Aon Best Practice TRS SAA Study Timeline

22

Key Takeaways and Next Steps

• Current Trust Policy is well-balanced and expected to return close to actuarial rate of return over the next twenty years

• The Policy improvements that could be prudently made include:

o Increase allocation to Private Markets

o Use leverage to improve efficiency and balance of portfolio

• These changes improve historical and forward-looking returns with limited impact on risk metrics

• The SAA Team will continue to explore these options, stress-test various scenarios, and will bring our final recommendation to the Board at the July meeting

• Additional research items:

o Modifying the Policy tactical bands to improve SAA liquidity

o Weights in ENRI Benchmark

APPENDIX

24

SAA Liquidity Stress Test Assumptions

• 58% public equity drawdown (asset betas to drawdown in table to left)

• Sources:

• Sources scaled according to % of liquid assets represented as of 12/31/18 Liquidity Report

• 10% leverage added as additional source and linearly scaled out of starting at 70% allocation to illiquid assets

• Uses:

• 3 years of benefit payments based on 2018 benefit payments

• Operational capital:

• Stressed securities lending estimated as 12% loss on pre-stress US Treasuries and TIPS allocation

• Stressed derivatives estimated as 1% loss on pre-stress liquid market assets

• Opportunistic capital is $7.5 billion of post-stress funds

• Total committed capital estimated as 50% of pre-stress private markets assets of which 33% are estimated to be called (for a total of 17% of pre-stress private markets assets)

Beta to Public

Equity Stress

USA 1.0

EAFE + Canada 1.0

Emerging Markets 1.0

Directional Hedge Funds 0.5

Private Equity 0.5

US Treasuries - Long 0.2

Absolute Return 0.8

Stable Value Hedge Funds 0.3

US TIPS 0.2

Real Estate 0.5

ENRI 0.5

Commodities 0.7

Risk Parity 0.8

Cash 0.1

25

SAA Liquidity Stress Test indicates additional illiquidity merits more attention

If SAA Liquidity Stress Test (Sources/Uses) is:

• Above 2: Excess capacity to allocate to illiquid assets

• Below 1: No additional capacity

• Between 1 and 2: Reduced capacity, which reflects liquidity needs while maintaining balance and flexibility

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Sou

rces

/ U

ses

Rat

io

Allocation to Illiquid Assets

SAA Liquidity Stress Test Thresholds

Low

H

igh

Excess capacity

Reduced capacity

No additional capacity


Cap

acit

y to

Allo

cati

on

Mo

re t

o Il

liqu

id A

sset

s

26

Weights in Target Return Portfolios

Current Policy

Neutral

Target

7.15%

Target

7.25%

Target

7.35%

USA 18% +1.0% 0.0% -1.0%

EAFE + Canada 13% +1.0% 0.0% 0.0%

Emerging Markets 9% +1.0% 0.0% 0.0%

Directional Hedge Funds 4% -4.0% -4.0% -4.0%

Private Equity 13% 0.0% +1.0% +2.0%

US Treasuries - Long 11% 0.0% +5.0% +5.0%

Stable Value Hedge Funds 4% +1.0% +1.0% +1.0%

Real Estate 14% +1.0% +1.0% +2.0%

US TIPS 3% -2.0% -3.0% 0.0%

ENRI 5% +1.0% +1.0% +1.0%

Risk Parity 5% 0.0% +3.0% +3.0%

Cash 1% 0.0% 0.0% 0.0%

Asset Allocation Leverage 0% 0.0% -5.0% -9.0%

Total Global Equity 57% 56% 54% 54%

Total Stable Value 15% 16% 21% 21%

Total Real Return 22% 22% 21% 25%

Total Risk Parity 5% 5% 8% 8%

Net Asset Allocation Leverage 1% 1% -4% -8%

Total Public 68% 66% 65% 63%

Total Private 32% 34% 35% 37%

27

Peer Universe

Endowment Peers

University AUM ($bn)

Harvard $39

UTIMCO $29

Yale $27

Stanford $27

Princeton $25

MIT $16

Michigan $12

Global Pension Peers

Pension AUM ($CAD bn) AUM ($USD bn)

Canada Pension Plan Investment Board

$356 $267

Caisse de dépôt et placement du Québec

$298 $224

Ontario Teachers $194 $146

PSP Investments $153 $115

British ColumbiaInvestment Management

$146 $110

Alberta Investment Management

$104 $78

Ontario Municipal $95 $71

Healthcare of Ontario $78 $59

Ontario Pension Board $27 $20

OPTrust $24 $18

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. Nothing in this document should be construed as legal or investment advice. Please consult with your independent professional for any such advice. To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the approval of Aon.

Benchmarking Discussion Teacher Retirement System of Texas - First Quarter 2019


Table of Contents

Section 1 Benchmarking Overview Section 2 TRS Current Benchmarks Section 3 Appendix


Section 1: Benchmarking Overview


Purpose & Types of Benchmarks Benchmarks are used to measure the performance of the Total Fund, asset classes, and individual managers over

various time periods and across methodologies to determine the effectiveness of implementation of an investment program

Benchmarks are Board approved, and form an important backbone of the incentive compensation program

There are many types of benchmarks that can be used to analyze relative performance of an investment

― Broad market (MSCI ACWI IMI Index)

― Style-specific (S&P 500 Value Index)

― Risk adjusted returns (vs. benchmark Sharpe ratio)

― Absolute return metric (i.e. 7% return target)

― Real return target (i.e. CPI + 3%)

― Peer universe (i.e. Public Funds >$1 billion)

Careful attention should be paid to appropriateness when selecting the benchmark for a given asset class, manager, or strategy


Properties of a Valid Benchmark12

Specified in advance: the benchmark is specified prior to the start of an evaluation period and known to all interested parties

Appropriate: the benchmark is consistent with the manager’s investment style or area of expertise

Measurable: the benchmark’s return is readily calculable on a reasonably frequent basis

Unambiguous: the identities and weights of securities constituting the benchmark are clearly defined

Reflective of current investment opinions: the manager has current knowledge of the securities or factor exposures within the benchmark

Accountable: the manager is aware of and accepts accountability for the constituents and performance of the benchmark

Investable: it is possible to forgo active management and simply hold the benchmark

1 As per CFA Institute’s SAMURAI characteristics. The criteria commonly referenced as industry standard is based on research conducted by Jeffrey Bailey and others. Mr. Bailey published an initial paper titled “Are Manager Universes Acceptable Performance Benchmarks?” in the May-June, 1992, edition of the Financial Analysts Journal. 2 The criteria listed above mostly apply to publicly traded asset classes. Existing benchmarks for private assets (private equity, private real estate, hedge funds, etc.) lack the attributes of good benchmarks due to the inherent nature of these assets


Benchmarking Principles

Aon Hewitt Investment Consulting’s (AHIC) benchmarking philosophy is built on research conducted by Sharpe and others and is consistent with Modern Portfolio Theory which identifies the market portfolio as the most efficient portfolio to own

We believe the benchmark for any asset class or strategy should include all, or substantially all, the investment opportunities in that particular market and be constructed without bias

Investors should stray away from the market portfolio only when they believe they are compensated to do so

It is important to note that there are certain markets, mainly the private markets, where broad published benchmarks either do not exist or are of limited value. In these markets, appropriate benchmarks would represent the opportunity cost of the allocation or mode of implementation


Total Fund Benchmarking We believe the best Total Fund Policy Benchmark should be a passive representation of the broad asset classes

included in the established asset allocation policy

We believe that all benchmarks and policy allocations should be determined in advance

– Asset transition timelines and weights should be determined in advance

– If an investor decides to deviate from the policy allocation, the effect of maintaining an asset allocation which deviates from policy should be measured and reported (i.e. measure whether being overweight public equities detracted or added to overall performance for the Total Fund relative to the Policy Benchmark)

– If the policy allocation is determined to be no longer appropriate, the policy should be amended in advance of the change

– Changes to the asset class benchmarks should flow through to the Total Fund Policy Benchmark

Other Total Fund Benchmarks (mainly used for long-term periods: 20+ years):

– Absolute Return Target (i.e. Actuarial Assumed Rate of Return)

– Real Return Target

– Opportunity Cost Benchmark (e.g. mix of public stocks and bonds)


Trends In Benchmarking

Transitioning to broader investment mandates

– All cap investment mandates within U.S. and non-U.S. equity (MSCI Investable Market Index)

– Global equity mandate as opposed to separate U.S. equity and non-U.S. equity components

Private equity

– Use of peer benchmarks

– Reduced premium over public equity “opportunity cost” index

• And utilization of a global equity index (i.e. U.S. & Non-U.S. benchmark) vs. U.S. equity index (i.e. Russell 3000 Index) as “opportunity cost” index

Private real estate

– Use of the NCREIF ODCI (vs. NPI) to benchmark core real estate exposure

– NCREIF ODCI + premium for non-core real estate

– To some extent utilization of a peer universe (challenges: depth of universe, timing of data availability, & applicability)


Alternative Investments Benchmarking in Practice

Source: State Street Global Services, Alternative Benchmarking: The Choices and Challenges of Performance Measurement (July 2016). Based on a survey conducted by State Street among a subset of their asset-owner clients

Asset owners choose universe-based and asset class-specific benchmarks more frequently than market-based and absolute return based benchmarks

The choice is often based more on necessity and the investors’ audience than their actual performance

For private equity, investors are just as likely to choose a market-based benchmark as one that’s universe-based (peer group)

Within private debt, majority of investors use an asset-based benchmark as opposed to other benchmark types


Section 2: TRS Current Benchmarks


TRS Benchmark Evaluation

Asset Class Global Equity Stable Value Real Return Cash Risk Parity

Sub -Asset Class U.S Equity Non-U.S.

Equity Developed

Non-U.S. Equity

Emerging

Directional Hedge Funds

Private Equity

U.S. Treasuries

Stable Value HFs

Other Absolute Return

Real Estate U.S. TIPS Energy Nat. Res. Infra Commodities Cash Equiv. Risk Parity

Benchmark Custom MSCI U.S.A. IMI

Custom MSCI EAFE + Canada

Custom MSCI Emerg. Mkts.

HFRI FoF Composite

State Street Private Equity

BB Long-Term

Treasury

HFRI FoF Conserv

3 Mo. LIBOR +2%

NCREIF ODCE (lagged) BB U.S. TIPS

80% Cambridge +

20% CPI (lagged)

GS Commodity

90 Day Treasury bill

HFR Risk Parity Vol 10

Index

Long-Term Target 18% 13% 9% 4% 13% 11% 4% 0% 14% 3% 5% 0% 1% 5% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments None Consider

adding small cap exposure

Consider adding small cap exposure

None None None None None Portfolio

includes non-core real estate

None Asset Weights May Change in

the Future None None None

Benchmark for Current Current Current

Include Allocation

Within Public EQ

Current Current Current Current

Evaluate Potential

Return Premium

Current Current Current Current Current Consideration

Property of the benchmark is valid Property of the benchmark is nuanced Property of the benchmark is not valid


Section 3: Appendix


U.S. Equity: Custom MSCI U.S.A. IMI*

Benchmark: Covers 2,414 securities of the large, mid, and small cap U.S. equity market, the index is customized to include only securities that are investable by TRS

Pros: Broad diversified equity market coverage meeting the requirements of a valid benchmark

Opinion: AHIC views the MSCI U.S.A IMI as the best available domestic equity benchmark available

Recommendation: Maintain the Custom MSCI U.S.A. IMI as the primary benchmark

Asset Class U.S. Equity

Benchmark Custom MSCI U.S.A.

IMI Long-Term Target 18% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments None

Recommended Benchmark Current

U.S.A 54.4%

Non U.S. Developed

35.1%

Non U.S. Emerging

10.5%

MSCI ACWI IMI

U.S.A 40.8%

Non U.S. Developed

34.2%

Non U.S. Emerging

25.0%

TRS Portfolio


*The global public equity benchmarks are customized to exclude restricted securities that TRS may not invest in


Non-U.S. Developed Equity: Custom MSCI EAFE + Canada*

Benchmark: Includes 1,012 large and mid cap stocks across developed market countries including Canada, the index is customized to include only securities investable by TRS

Pros: Broad diversified non-U.S. developed market equity market coverage meeting the requirements of a valid benchmark

Cons: The index does not include small cap securities, which represent approximately 15% of the opportunity set

Opinion: Consider adding small cap exposure and moving to the IMI version of the benchmark

Recommendation: Maintain Custom MSCI EAFE + Canada as the primary benchmark

Asset Class Non U.S. Developed

Equity

Benchmark Custom MSCI EAFE +

Canada Long-Term Target 13% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments Consider adding small cap exposure


U.S.A 54.4%

Non U.S. Developed

35.1%

Non U.S. Emerging

10.5%

MSCI ACWI IMI

U.S.A 40.8%

Non U.S. Developed

34.2%

Non U.S. Emerging

25.0%

TRS Portfolio




Non-U.S. Emerging Equity: Custom MSCI Emerging Markets*

Benchmark: With 1,125 constituents, captures large and mid cap stocks across 24 Emerging Market countries, base index is customized to include only securities investable by TRS

Pros: Broad diversified emerging market equity market coverage meeting the requirements of a valid benchmark

Cons: The index does not include small cap securities, which represent approximately 15% of the opportunity set

Opinion: Consider adding small cap exposure and moving to the IMI version of the benchmark

Recommendation: Maintain Custom MSCI Emerging Markets as the primary benchmark

Asset Class Non U.S. Emerging

Equity

Benchmark Custom MSCI

Emerging Mkts Long-Term Target 9% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments Consider adding small cap exposure


U.S.A 54.4%

Non U.S. Developed

35.1%

Non U.S. Emerging

10.5%

MSCI ACWI IMI

U.S.A 40.8%

Non U.S. Developed

34.2%

Non U.S. Emerging

25.0%

TRS Portfolio




Directional Hedge Funds: HFRI FoF Composite

Benchmark: An equal weighted index with over 800 constituents

Pros: Measurable and broadly diversified index that is specified in advance

Cons: The index is uninvestable and may not be reflective of the TRS portfolio (i.e. direct fund investments), also suffers from survivorship bias

Opinion: AHIC cites several potential shortcomings in the HFRI FoF Composite in that it includes multi-layered fee structures and is not passively investable

Recommendation: Consider including the strategies within the Directional Hedge Fund component within the public equity asset class, and measure their ability enhance the return profile of the equity portfolio over time

Asset Class Directional Hedge

Funds

Benchmark HFRI FoF Composite Long-Term Target 4% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments None

Recommended Benchmark Include Allocation Within Public EQ

Long Short Equity 28.0%

Event Driven 24.4%

Fixed Income 20.1%

Multi- strategy 27.5%

TRS Portfolio


Conserv FoFs

14.4%

Diversified FoFs

48.5%

Market Defensive

FoFs 4.4%

Strategic FoFs

32.6%

HFRI FoF Composite


Private Equity: Custom State Street Private Equity

Benchmark: Global composite index representing 2,906 private equity limited partnerships with over $2.77 trillion in commitments

Pros: Broadly diversified and specified in advance

Cons: The index is not investable and may not be reflective of the opportunity set available to TRS

Opinion: AHIC cites several issues with the State St. Private Equity index but these are also found in other composite indices designed to measure the performance of these investments

Recommendation: Maintain the Custom State St. Private Equity index as the primary benchmark

Asset Class Private Equity

Benchmark State Street Private

Equity Long-Term Target 13% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments None


Buyout 48.0%

Venture Capital 38.0%

Private Debt

14.0%

State Street Private Equity

Buyout 66.4%

Venture Capital 18.5%

Private Debt

10.8%

Emerging Mgrs 4.3%

TRS Portfolio



U.S. Treasuries: Bloomberg Barclays Long-Term Treasury

Benchmark: Includes all publicly issued U.S. Treasury securities that have a remaining maturity of 10 or more years, are rated investment grade, and have $250 million or more of outstanding face value

Pros: Complete coverage of the segment and meets the requirements of a valid benchmark

Opinion: AHIC views the Bloomberg Barclays Long-Term Treasury index as the best available long Treasury index

Recommendation: Maintain the Bloomberg Barclays Long-Term Treasury index as the primary benchmark

Asset Class U.S. Treasuries

Benchmark BB Long Term

Treasury Long-Term Target 11% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments None


U.S. Treasuries

100.0%

Bloomberg Barclays Long Term Treasury Index

U.S. Treasuries

100.0%

TRS Portfolio



Stable Value Hedge Funds: HFRI FoF Conservative Composite

Benchmark: Seeks consistent returns by primarily investing in funds that generally engage in more conservative strategies such as equity market neutral, fixed income arbitrage, or convertible arbitrage, and exhibits a lower historical annual standard deviation than the HFRI FOF Composite

Pros: Appropriately reflective of the sectors represented in the TRS portfolio

Cons: The index is comprised of Fund of Funds while TRS holds direct fund investments, index also suffers from survivorship bias

Opinion: AHIC views the HFRI FoF Conservative Composite index as an appropriate stable value hedge fund index

Recommendation: Maintain HFRI FoF Conservative Composite as the primary benchmark

Asset Class Stable Value Hedge

Funds

Benchmark HFRI FoF

Conservative Long-Term Target 4% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments None


CTA (Trend) 15.0%

Equity Market Neutral 34.9% Fixed

Income 12.1%

Macro & Volatility 22.4%

Multistrat 6.5%

Reinsure 9.1%

TRS Portfolio

Cons. Focus Fund

of Hedge Funds

100.0%

HFRI FoF Conservative



Other Absolute Return: 3 Mo. LIBOR + 2%

Benchmark: Measures the average interest rate at which leading banks borrow funds from other banks in the London market

Pros: LIBOR is the most widely used global benchmark for short term interest rates, and reflects the objective of the investments

Cons: Fails many of the tests used to determine benchmark appropriateness

Opinion: AHIC views the 3 Month LIBOR +2% index as an appropriate benchmark for the Other Absolute Return investments

Recommendation: Maintain the 3 Month LIBOR +2% index as the primary benchmark

Asset Class Other Absolute

Return

Benchmark 3 Mo. LIBOR +2% Long-Term Target 0% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments None


Credit Related 73.4%

Non-Credit Related 26.6%

TRS Portfolio



Real Estate: NCREIF ODCE (Lagged)

Benchmark: A capitalization-weighted, time-weighted return series reflecting the net-of-fee performance of 36 open-ended diversified core real estate funds

Pros: Reflects the performance of open-ended diversified core real estate funds

Cons: Does not include non-core real estate exposures

Opinion: The benchmark could be refined by adding a return premium to account for the out-of-benchmark non-core real estate investments in the TRS portfolio

Recommendation: Evaluate adding a return premium over the ODCE

Asset Class Real Estate

Benchmark NCREIF ODCE

(Lagged) Long-Term Target 14% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments Portfolio includes

allocations to non-core assets

Recommended Benchmark Evaluate Potential Return Premium

Core 100.0%

NCREIF ODCE Index

Core 35.9%

Value Added 14.5%

Opp. 31.0%

Special Situations

14.9%

Emerging Managers

2.6%

Other 1.0%

TRS Portfolio



U.S. TIPS: Bloomberg Barclays U.S. TIPS

Benchmark: Measures the performance of the US Treasury Inflation Protected Securities (TIPS) market, Federal Reserve holdings of U.S. TIPS are not index eligible

Pros: Accurate representation of the U.S. TIPS market and the opportunity set

Cons: Does not include non-U.S. TIPS

Opinion: AHIC views the Bloomberg Barclays U.S. TIPS index as an appropriate U.S. TIPS index

Recommendation: Maintain the Bloomberg Barclays U.S. TIPS index as the primary benchmark

Asset Class U.S. TIPS

Benchmark BB U.S. TIPS Long-Term Target 3% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments None


U.S. TIPS 100.0%

Bloomberg Barc. U.S. TIPS Index

U.S. TIPS 77.9%

Non-U.S. TIPS

22.1%

TRS Portfolio



Energy, Natural Res., & Infra: 80% Cambridge + 20% CPI (Lagged)

Benchmark: A composite of private Cambridge benchmarks and inflation

Pros: Blended benchmark is measureable, includes similar investment types as TRS portfolio

Cons: The blended benchmark is not investable and may not be the most appropriate representation but other approaches are similarly flawed

Opinion: AHIC views the blended index as an appropriate for the Energy & Natural Resource asset class

Recommendation: Maintain the blended index as the primary benchmark

Asset Class

Energy, Natural Resources, and Infrastructure

Benchmark 80% Cambridge +

20% CPI Long-Term Target 5% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments Asset Weights May

Change in the Future


Cambridge Inf.

40.0%

Cambridge Natural

Resources 40.0%

CPI (lagged) 20.0%

Blended Benchmark

Inf. 39.0%

Natural Resources

54.2%

Energy 6.8%

TRS Portfolio



Commodities: Goldman Sachs Commodity

Benchmark: Measures a fully collateralized production weighted commodity futures investment (24 nearby futures contracts) that is rolled forward from the fifth to the ninth business day each month

Pros: Broadly utilized as a representative measure of a (energy dominated) basket of commodities

Cons: TRS Portfolio currently holds gold, and is materially different from the benchmark

Opinion: AHIC views the Goldman Sachs Commodity index as an appropriate commodity index, and the gold position held within the portfolio as tactical

Recommendation: Maintain the Goldman Sachs Commodity index as the primary benchmark

Asset Class Commodities

Benchmark Goldman Sachs

Commodity Long-Term Target 0% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments None


Energy 58.6%

Agriculture 18.3%

Livestock 7.5%

Ind. Metals 10.9%

Precious Metals 4.7%

Goldman Sachs Commodity Index

Gold 100%

Commodity Core

(Short 33%)

TRS Portfolio



Cash: 90 Day Treasury

Benchmark: Represents monthly return equivalents of yield averages of the last 3 month Treasury Bill issues

Pros: Reflects desired risk and liquidity profile

Opinion: AHIC views the 90 Day Treasury index as the best available cash equivalent index

Recommendation: Maintain the 90 Day Treasury index as the primary benchmark

Asset Class Cash

Benchmark 3 Mo. Treasury Long-Term Target 1% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments None


U.S. Treasuries

100.0%

90 Day Treasury Bill

U.S. Treasuries

100.0%

TRS Portfolio



Risk Parity: HFR Risk Parity Vol. 10

Benchmark: Equal weighted composite of 14 risk parity strategies targeting 10% volatility

Pros: Reflects the targeted risk/return of the investment strategy

Cons: Index is uninvestable and may not be entirely reflective of the TRS portfolio

Opinion: AHIC views the HFR Risk Parity Vol. 10 index as the best available Risk Parity index

Recommendation: Maintain the HFR Risk Parity Vol. 10 index as the primary benchmark

Asset Class Risk Parity

Benchmark HFR Risk Parity Vol.

10 Long-Term Target 5% Specified in Advance Appropriate Measurable Unambiguous Reflective Accountable Investable Overall View

AHIC Comments None



Externally Managed

40.8%

Internal Risk Parity

59.2%

TRS Portfolio $12m 7.1% $21m

7.1%

$204m 7.1%

$391m 7.1%

$471m 7.1%

$660m 7.1% $685m

7.1% $695m 7.1%

$1,338m 7.1%

$2,943m 7.1%

$3,038m 7.1%

$7,470m 7.1%

$8,086m 7.1%

$52,241m 7.1%

HFR RP Vol10 - Fund Sizes


Alternative Investments Benchmarking Options Benchmark Options Example Pros Cons

Absolute return Cash (T-bill or LIBOR) or Inflation plus a risk premium

Reasonable measure of performance for an investment category with broad latitude as to what is included in it

Benchmark returns not directly related to traditional asset class returns

Does not measure opportunity cost Intended for long-term performance

measurement Difficult to measure success of implementation of

strategies Does not reflect success in diversifying the Total

Fund

Public market comparables with/without risk premium (opportunity cost)

MSCI ACWI IMI + 300 bps Captures market exposure and risk of certain private assets

Readily explainable to stakeholders Fully transparent as to composition of

benchmark Daily performance available with no lag

Uninvestable (return cannot be earned with a passive index-type investment, especially the premium)

No universally accepted “science” to size of risk premium over public indices

Not directly related to performance of alternative assets

Not ideal for short-term performance measurement

Universe (or peer-group) based

Burgiss (PE)1

NCREIF ODCE2 (RE) HFR3 suite of indices

(HFs)

Directly captures performance of (peer) alternative investments

Readily explainable Customizable to Client’s portfolio structure if

desired

Uninvestable Limited transparency Database biases and shortcomings

1 Burgiss Private iQ indices are based on the Burgiss Manager Universe, a quarterly-updated database and provides a wide variety of measures, including standard and public-market comparisons, including ICM, Kaplan-Schoar PME, and Direct Alpha

2 National Council of Real Estate Investment Fiduciaries (NCREIF) Open-End Diversified Core Equity (ODCE) Index is a capitalization-weighted (of about 30 open-end commingled funds), time-weighted return index that is most widely used to benchmark core private real estate 3 Hedge Fund Research (HFR) is the global leader in the indexation, analysis and research of the hedge fund industry. With over 150 indices ranging from broad composites down to specific, niche areas of sub-strategy and regional investment focus, the HFR suite of indices are considered the industry standard benchmarks of hedge fund performance


Private Equity Benchmarking: Typical Approaches and Usage Portfolio Component Recommended Best Practice

(Metric) What’s Being Measured Pros Cons

Total Portfolio Public market + premium (TWR) Opportunity cost • Can be aggregated into total program performance

• Captures market exposure and risk of private equity

• Readily explainable and daily performance available with no lag

• TWRs can produce misleading returns for closed-end funds (capital not at work over entire measurement period)

• Only meaningful over long time horizons • Not investable

Total Portfolio Public market + premium (PME IRR)

Opportunity cost • IRR is a more meaningful metric for private equity

• Can’t be aggregated into total program • Only meaningful over long time horizons • Not investable

Vintage Year Performance

Peer universe by vintage year (IRR, TVPI, DPI)

Portfolio construction relative to opportunity set

• Meaningful metrics • Directly captures performance of

vintage year peers • Readily explainable • Customizable to Client’s portfolio

structure if desired

• Not investable • Limited transparency • Database biases and shortcomings

Fund Peer universe by strategy, vintage year and geography (IRR, TVPI, DPI)

• Fund selection • Fund manager skill

• Meaningful metrics • Directly captures performance of

peers by vintage year, geography and strategy

• Readily explainable

• Not investable • Limited transparency • Database biases and shortcomings


Private Equity Benchmarking: Typical Approaches and Usage (Cont’d) Challenges of Private Equity Benchmarking: Unlike traditional market asset classes, there are no perfect or universally accepted

benchmarks for private equity investments.

‒ Varied cash flows and no daily valuations

‒ Performance takes time to materialize

Two major benchmarking options

‒ Public market index plus a premium

‒ Peer benchmark

Public market index plus a premium

‒ Measures the opportunity cost of the decision to invest in private equity

‒ Premium added to compensate for higher risk associated with illiquidity and other factors

‒ Unbiased measure

‒ Tends to be less meaningful in the early years of a private equity investment and can result in high tracking error over short term periods

Peer benchmark

‒ Customized portfolios to provide performance for like-invested funds (i.e., based on vintage years and geographical allocation)

‒ IRR is the standard performance metric provided

‒ Data typically only available on a 4-5 month lag


Real Assets: Benchmarking Options Benchmark Options Example Attractive features Challenges

Absolute return (Current)

Cash (T-bill or LIBOR) or Inflation plus a risk premium Current = CPI + 4%

Reasonable measure of performance for an investment category with broad latitude as to what is included in it

Benchmark returns not directly related to traditional asset class returns

Does not measure opportunity cost Intended for long-term performance measurement Difficult to measure success of implementation of

strategies Does not reflect success in diversifying the Total

Fund

Strategy-Weighted Weighted average of benchmarks of investment strategies included in the Real Assets bucket (currently Real Estate, Infrastructure & Resources)

Good measure of shorter-term performance Directly captures performance of (peer)

alternative investments Readily explainable Customizable to Client’s portfolio structure if

desired

Does not measure opportunity cost Uninvestable Limited transparency Database biases and shortcomings Does not reflect success in diversifying the Total

Fund

Public market comparables with/without risk premium (opportunity cost)

MSCI ACWI IMI + 300 bps Captures market exposure and risk of certain private assets

Readily explainable to stakeholders Fully transparent as to composition of

benchmark Daily performance available with no lag

Not directly related to performance of alternative assets

Not ideal for short-term performance measurement Difficult to measure success of implementation of

strategies


Legal Disclosures and Disclaimers

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc. (“AHIC”). The information contained herein is given as of the date hereof and does not purport to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information set forth herein since the date hereof or any obligation to update or provide amendments hereto.

This document is not intended to provide, and shall not be relied upon for, accounting, legal, or tax advice. Any accounting, legal, or taxation position described in this presentation is a general statement and shall only be used as a guide. It does not constitute accounting, legal, and tax advice and is based on AHIC’s understanding of current laws and interpretation.

This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon AHIC’s preliminary analysis of publicly available information. The content of this document is made available on an “as is” basis, without warranty of any kind. AHIC disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. AHIC. reserves all rights to the content of this document. No part of this document may be reproduced, stored, or transmitted by any means without the express written consent of AHIC.

Aon Hewitt Investment Consulting, Inc. is a federally registered investment advisor with the U.S. Securities and Exchange Commission. AHIC is also registered with the Commodity Futures Trading Commission as a commodity pool operator and a commodity trading advisor, and is a member of the National Futures Association. The AHIC ADV Form Part 2A disclosure statement is available upon written request to:

Aon Hewitt Investment Consulting, Inc. 200 E. Randolph Street Suite 1500 Chicago, IL 60601 ATTN: AHIC Compliance Officer © Aon plc 2019. All rights reserved.

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