smib cover front cover page - michigan...2020/03/19 · state of michigan investment board meeting...

STATE OF MICHIGAN INVESTMENT BOARD MEETING

March 19, 2020 State of Michigan Retirement System

Quarterly Investment Review

Rachael Eubanks, State Treasurer Prepared by Bureau of Investments Michigan Department of Treasury

STATE OF MICHIGAN INVESTMENT BOARD MEETING

MARCH 19, 2020

Agenda

9:30 a.m. Call to Order and Opening Remarks

9:40 a.m. Approval of the 12/19/19 SMIB Meeting Minutes

9:45 a.m. Executive Summary & Performance for Periods Ending 12/31/19

10:00 a.m. Current Asset Allocation Review Markets Review and Outlook 10:15 a.m. Action Item:

Removal of Oakmark Equity and Income Fund from 401(k)/457 DC Plans Investment Manager Lineup

10:25 a.m. Review of Investment Reports

Defined Contribution International Equity Domestic Equity Fixed Income Private Equity – Receive and File Real Estate & Infrastructure – Receive and File Real & Opportunistic Return – Receive and File Absolute Return – Receive and File

Basket Clause – Receive and File

11:00 a.m. Public Comment

Closing Remarks ~ Adjournment

2020 Meeting Schedule

Thursday, June 11, 2020 Thursday, September 10, 2020 Thursday, December 10, 2020

All meetings start at 9:30 a.m.

www.michigan.gov/treasury

State of Michigan Retirement System

MINUTES State of Michigan Investment Board Meeting

March 19, 2020

Robert L. BrackenburyDeputy Chief Investment Officer

Bureau of Investments

1

STATE OF MICHIGAN INVESTMENT BOARD December 19, 2019 Meeting Minutes

Board Members Present:

Chairman – Treasurer Rachael Eubanks Ms. Dina Richard Mr. Chris Kolb Mr. Reginald Sanders Mr. James Nicholson

Members of the Public and Bureau of Investments Staff Present: Molly Jason Jamie Prevo Jack Behar Karl Borgquist Nick Whitman Jim Elkins Clay Davis Anthony Estell Kerrie VandenBosch Taylor Broekstra Todd Warstler Travis Haney Bradley Hartwell Semone James Mark Porrell Matt Hutson Patrick Moraniec Robert Brackenbury Lan Chen Ann Storberg Jennifer Yeung Dick Holcomb Jon Braeutigam Barb Becker Peter Woodford LeAnn Auer Anthony Estell Greg Parker Giles Feldpausch Pavel Stolarczyk Lori Barrett Betty Nicklesen Janet Sudac Dan Quigley

Annette Russell Tim McEnery Dave Klauka

Max Kotary Marc Dietrich Mandy Hitsman

Opening Remarks: Rachael Eubanks called the meeting to order at 9:30 am. Approval of Minutes: Approval of the September 12, 2019 SMIB Meeting Minutes – Motion to approve: James Nicholson. Seconded: Chris Kolb. The vote was unanimous to approve. AGENDA

Executive Summary and Performance Jon Braeutigam, Chief Investment Officer for the Bureau of Investments, reviewed the executive summary performance section discussing returns and markets. He explained that the Plans returns were among the least risky, as measured by standard deviation, but believes they are competitive and compelling. The goal is a 6.8% actuarial targeted rate of return so there is broad equity risk. The BOI strives for a very diversified portfolio which is what it has now. The return since 1979 is 9.4%, the 10-year return is 9.7%. Of course, the last 10 years have been a bull market for the US stock market and it’s not expected that this will be duplicated any time soon. Approximately $1 Billion in new commitments were approved recently. Staff is very busy working through legal documents in almost every division in the Bureau. There is a lot of physical review of partnership agreements along with compliance so that closings can

2

occur now and through the first of the year. He thanked staff for their hard work on locating and pursuing the very best and most appropriate investments for the Plans needs. Asset Allocation Review, Markets Review and Outlook Gregory Parker, Director of Investments - Public Markets reviewed asset allocation very briefly, explaining the graphical presentation chart on page 2 showing allocation changes over the past 12 months. He reminded us that almost $2 billion a year is paid out as benefits to the pensioners. Capital markets were covered very briefly as well. Mr. Parker mentioned that we are making 10-year highs on the stock market and are close to 10-year highs in the US. This leaves a backdrop causing the next year, five years, and the next ten years to be very, very challenging. It is difficult to find value in the markets. This is not to be considered as a warning, it is simply that since there has been a great bull market it will be more difficult to obtain this level of return going forward. Private Equity Review Peter Woodford, Senior Investment Manager discussed the strategies of the Private Equity Division stating that it invests across a broad range of partnerships, geographies and industries. He discussed performance stating it has been quite good, returning 15.4% on an annualized basis for the past 10 years. It also performed well over the past 3, 5, 7, and 10-year time periods, with the one-year return at 11.2%. Mr. Woodford explained that the division made new commitments in the amount of $315 million during the quarter and highlighted two of the largest new investments. He gave a market update relating to private equity and explained the divisions outlook and strategy going forward. Real Estate & Infrastructure Review Todd Warstler, Senior Investment Manager reviewed the division’s performance stating that performance remains strong relative to the benchmark. The division outperformed the one-year benchmark by 310 basis points. The primary drivers for this are: the portfolio is underweight in retail, several favorable sale executions have taken place, and appreciation has occurred across the entire portfolio. Performance of portfolio credit strategies and the performance of infrastructure portfolio have also contributed to this outperformance. Mr. Warstler discussed the current investment strategies used, and the current market environment of real estate and infrastructure. Real & Opportunistic Return Review Jennifer Yeung, Senior Investment Manager gave an overview of the portfolio, breaking it into three strategies. The largest percentage at 64% is comprised of real assets which includes investments in both tangible and intangible assets that are expected to provide inflation protection and diversification benefits to the overall pension system. Then 21% is credit funds which focuses on providing capital to the middle market direct lending space or providing financing in distressed or opportunistic situations. The remaining amount is comprised of opportunistic investments which is investments that offer an attractive risk-return profile and do not fit squarely into private market vehicles. Ms. Yeung discussed the division’s one, three and five-year performance which exceeded the benchmark by 300 to 500 basis points in each of the respective time periods. About one-third of the division’s return can be attributed to current income, specifically income

3

from credit investments, natural resource production-linked funds and royalties from intangible assets. The remainder of the return is driven largely by price appreciation, notably investments in the media and entertainment space, as well as the transportation space that are doing very well resulting in higher marks to valuations. Ms. Yeung explained the strategy for 2020 is to remain focused on finding differentiated strategies that are additive to the current portfolio mix. Stay disciplined and seek investments with attractive risk-adjusted returns with a preference for strategies that have visible cash flows and a high degree of capital protection. She believes it is important to stick to solid investment teams where there is strong alignment of interests. Absolute Return and Fixed Income Review Dan Quigley, Senior Investment Manager reviewed performance of Absolute Return stating that the portfolio returned 4.1% on a one-year basis, beating the HFRI index. The absolute return portfolio is a broad portfolio consisting of 69 funds across four strategies. The portfolio maintains seven relationships. Mr. Quigley explained key objectives going forward as well as themes and opportunities they will be focusing on. Mr. Quigley reviewed fixed income stating performance was strong on an absolute basis for all major fixed income indices on a year-to-date basis as both interest rate declines and spread compression have driven performance. The fixed income division portfolio underperformed slightly on a one-year basis but has outperformed peer group and benchmarks across all other time periods. There were many questions asked by the board members allowing much discussion to take place. Review of Investment Reports – Received and Filed

Public Comment Treasurer Eubanks asked that any attendees wishing to address the Board come forward. No public comment.

Adjournment Treasurer Eubanks adjourned the meeting at 11:07 am. Motion to adjourn by James Nicholson. Seconded: Reggie Sanders. The vote was unanimous to adjourn.

Approved:

Rachael Eubanks, Chairman


EXECUTIVE SUMMARY State of Michigan Investment Board Meeting

March 19, 2020

Gregory J. Parker, CFA Director of Investments – Public Markets

Director of Asset Allocation Bureau of Investments

EXECUTIVE SUMMARYDecember 2019

Performance Great peer comparison.

MPSERS Plan (12/31/19) 1-Year 3-Years 5-Years 7-Years 10-Years

Annualized Returns 15.4% 11.2% 8.7% 10.2% 10.0%

Policy Returns 16.1% 11.1% 9.0% 10.1% 10.1%

Peer Median Returns* 15.4% 9.4% 7.3% 8.3% 8.5% *State Street Universe greater than $10 billion.

Over the past three, five, seven, and ten years, the returns are significantly higher than peermedian returns. For the calendar year ending December 2019, returns matched peer returns.Compared to the State Street Universe of public pension plans greater than $10 billion, thereturns are near the top decile of returns. Also, the plans’ returns were among the least risky,as measured by standard deviation.

The ten-year return begins at the cyclical low of the global financial crisis and because riskassets were trading at depressed prices, the trailing 10-year returns are above average. Overa very long horizon, since 1979, the annualized rate of return on the plan assets has beenapproximately 9.4%.

Compounding at higher than peer returns can add significant value. For example, based onthe $47.1 billion December 2009 market value, a ten-year annualized return of 10.0%compared to the 8.5% peer median return would add about $15.7 billion in excess value.

The returns were generally in-line with the policy benchmark.

Most of the individual asset class returns were better than median, and the domestic equityreturn over the past year was the highest of the 38 domestic equity peer returns in the StateStreet greater than $1 billion universe.

Asset Allocation A low return environment.

Given the low rates of return available in the capital markets for safe assets, and in order toearn the actuarial rate of return, additional risks (primarily equity risk) must be assumed. Atthe end of December 2019, the equity risk (beta) is approximately 0.4 which is the lowestmeasurement in three decades, and it is lower than peer median at approximately 0.6.

Liquidity is another fundamental risk assumed and it is managed through asset allocation.The plans have outstanding capital commitments to fund approximately $13.8 billion in illiquidassets, primarily in private equity. In the December 2019 quarter, $950 million of newcommitments were made.

The combined systems paid out approximately $2.1 billion net of contributions over the pasttwelve months ending in December 2019. Over the past year, fixed income was a netpurchaser of approximately $490 million, private equity $275 million, and real return &opportunistic of approximately $50 million. Over the past year, the allocation to domesticequity was reduced by $2.7 billion, absolute return by $540 million, international equity by$500 million, and real estate decreased by roughly $390 billion. The allocation to short-termcash increased by approximately $1.2 billion.

1

Economy and Capital Markets Potentially slowing economy.

The most recent reading of the annualized U.S. GDP growth was 2.1%, just ahead of the consensus estimate of 2.0%. Current estimates for 2020 GDP growth for the U.S. are around 1.8%, however, there are increasingly more concerns regarding lower than forecasted growth.

The interest rate curve inversion that lasted through the summer of 2019 reverted to a positive slope by mid-October. However, by the end of January 2020, the curve has once again inverted. An inverted yield curve is often cited as a warning indicator of an impending economic recession; however, a reversion of rates normally does not invalidate the power of the signal and in some ways the re-inversion is even more worrisome now than it was last summer.

The past decade, coming out from the Global Financial Crisis, has been characterized as a risk-on market; however, many traditional risk premia have not performed as expected. For example; U.S. small cap stocks have lagged large caps, value styles have lagged growth styles, foreign equities have lagged U.S. equities, and within foreign markets, emerging markets have lagged developed.

Many domestic equity valuation metrics are above historical averages, consequently the

returns over the next cycle may not be as strong as the historical average of 11 – 12% year-over-year total returns.

Defined Contribution A summary.

At the end of December 2019, the Defined Contribution assets were $9.6 billion, up from $7.8 billion the year prior. Index fund strategies represent 41.9% and actively managed funds represent 33.7% of the assets. The default Target Date Funds are 22.3% and the Self-Managed Account is 2.1% of the assets.

In December 2019, the SECURE Act (Setting Every Community Up for Retirement Enhancement) was signed into law with broad bi-partisan support. While there are 29 provisions in the law, they can be categorized into three main provisions which will allow more Americans to participate in workplace plans and empower greater retirement readiness. The three main provisions are; 1) extend retirement plan access, 2) increase savings contributions, and 3) expand savings distribution options.

We recommend removing the Oakmark Equity and Income Fund from the 401(k)/457 investment manager lineup. This recommendation is based on the belief that participants would be better off after the change due to the following reasons:

o Oakmark is a balanced fund, investing in both stocks and bonds; and these types of

funds were at one time used to provide a one-choice diversified portfolio option. Today, the vast majority of Defined Contribution plans use target date funds as the one-choice diversified portfolio option.

o After over ten years, the Oakmark fund has not had much traction. It is one of the least allocated to funds in the lineup.

o Participants would pay lower management fees with an alternative allocation.

o Participants could earn higher returns with an alternative allocation.

2

Investment Update

Highlighting the quarter.

($ Millions)

NEW COMMITMENTS

September 30, 2019 – December 31, 2019

Asset class Fund Name / (Managed By) Commitment

Private Equity

Green Equity Investors VIII, L.P. (Leonard Green & Partners, L.P.) $250.0

Jade Equity Investors, L.P. (Leonard Green & Partners, L.P.) 100.0

Advent International LAPEF VII (Advent International Lux LLC) 60.0

FirstMark Capital OF III (FirstMark Capital V GP, LLC) 35.0

FirstMark Capital V, L.P. (FirstMark Capital V GP, LLC) 35.0

SKCP Catalyst Fund I-A, L.P. (SKCP Catalyst Management I, LP) 35.0

Real Estate and Infrastructure Division

DM2501, LLC (Domain Capital Advisors, LLC) 100.0

Avanath Affordable Housing IV, LLC (Avanath Capital Management, LLC) 35.0

Real & Opportunistic Division

TSSP Agriculture Partners (A), L.P. (TSSP Agriculture Management, LLC) 100.0

TSSP Institutional Credit Partners III, L.P. (TICP Collateral Manager) 100.0

Abernathy Fund II, LLC (Domain Capital Advisors) 100.0

Absolute Return Division

No new commitments 0.0

TOTAL $950.0

3


PERFORMANCE State of Michigan Investment Board Meeting

March 19, 2020



Bureau of Investments Mission Statement

The Bureau of Investments continually strives to provide quality

investment management services, broad professional expertise, and

independent advice to the State of Michigan Investment Board

as fiduciary of the State of Michigan Retirement System, and

independent of the Board, to the State Treasurer for various Michigan

trust funds and the State’s common cash, for which the State Treasurer

is the fiduciary.

SMRS Goals Maintain sufficient liquidity to pay benefits.

Meet or exceed the actuarial assumption over the long term.

Perform in the top half of the public plan universe over the long term.

Diversify assets to reduce risk.

Exceed individual asset class benchmarks over the long term.

1

MPS

ERS

PEN

SIO

NTi

me-

Wei

ghte

d R

ates

of R

etur

nPe

riods

End

ing

Dec

embe

r 31,

201

9

% o

f Te

nSe

ven

Five

Thre

eO

neC

urre

ntPo

rtfo

lio12

/31/

19R

ate

Ran

kR

ate

Ran

kR

ate

Ran

kR

ate

Ran

kR

ate

Ran

kR

ate

Ran

k

TOTA

L PL

AN10

0.0

10.0

1110

.211

8.7

1111

.210

15.4

524.

750

Med

ian

- Gre

ater

than

$10

Billi

on 2

8.5

8.3

7.3

9.4

15.4

4.7

M

PSER

S To

tal P

lan

Polic

y10

.110

.19.

011

.116

.14.

7

DOM

ESTI

C E

QUI

TIES

22.7

13.4

2914

.811

11.5

1115

.713

31.8

39.

114

Med

ian

211

.610

.98.

812

.324

.78.

3

S&P

150

0 In

dex

13.5

14.5

11.5

14.7

30.9

8.9

PRIV

ATE

EQU

ITY

AND

VEN

TUR

E C

APIT

AL17

.814

.77

14.1

712

.810

14.8

98.

832

1.6

49

M

edia

n 2

10.5

9.9

8.5

9.9

7.9

1.6

P

rivat

e Eq

uity

and

VC

Ben

chm

ark

316

.616

.614

.116

.87.

42.

5

INTE

RN

ATIO

NAL

EQ

UIT

IES

16.9

6.2

486.

651

6.7

4110

.848

23.2

4910

.134

Med

ian

26.

16.

66.

510

.823

.29.

3

Inte

rnat

iona

l Ble

nded

Ben

chm

ark

45.

05.

65.

59.

921

.58.

9

FIXE

D IN

CO

ME

13.3

4.9

384.

015

4.6

195.

414

9.7

350.

626

Med

ian

24.

53.

03.

64.

48.

50.

4

Bar

clay

s Ag

greg

ate

3.8

2.7

3.1

4.0

8.7

0.2

REA

L R

ETU

RN

AN

D O

PPO

RTU

NIS

TIC

11.1

12.1

10.3

13.1

8.2

4.5

5

0% (C

PI +

500

bps)

+ 5

0% (6

.8%

act

uaria

l rat

e)7.

27.

27.

26.

71.

4

REA

L ES

TATE

& IN

FRAS

TRU

CTU

RE

9.1

10.4

6011

.239

9.5

449.

336

7.0

521.

368

Med

ian

210

.810

.59.

08.

57.

31.

6

NC

REI

F - P

rope

rty B

lend

ed In

dex

58.

87.

86.

95.

35.

11.

2

NC

REI

F O

pen

Fund

Inde

x N

et10

.49.

28.

06.

14.

41.

3

ABSO

LUTE

RET

UR

N5.

04.

85.

13.

76.

04.

50.

5

HFR

I FO

F C

ons

1 m

onth

lagg

ed2.

73.

22.

23.

14.

40.

6

CAS

H E

QU

IVAL

ENTS

4.0

0.9

1.1

1.4

2.0

2.6

0.5

1

Mon

th T

-Bill

0.5

0.7

1.0

1.6

2.2

0.4

1 An

nual

ized

Ret

urns

and

Per

cent

ile R

ank.

2 C

ompa

rison

uni

vers

e is

the

Stat

e St

reet

Uni

vers

e co

mpr

ised

of P

ublic

Fun

ds g

reat

er th

an $

10 b

illion

on

the

tota

l pla

n le

vel a

nd g

reat

er th

an $

1 bi

llion

for a

sset

cla

sses

.3

SP50

0 +

300

bps

with

a 3

mon

th la

g.4

Inte

rnat

iona

l ble

nded

ben

chm

ark

is S

&P D

evel

oped

BM

I-EPA

C 5

0/50

prio

r to

1/1/

10.

S&P

Dev

elop

ed B

MI-E

PAC

75

USD

/ 25

Loc

al, 1

/1/1

0 to

9/3

0/10

. M

SCI A

CW

I ex

USA

Gro

ss 1

0/1/

10 to

pre

sent

.5

NC

REI

F - P

rope

rty B

lend

ed In

dex

is N

PI m

inus

130

bps

.So

urce

: Sta

te S

treet

Ana

lytic

s; th

e N

CR

EIF

- NPI

(Pro

perty

Inde

x) s

ourc

e is

NC

REI

F; th

e S&

P BM

I-EPA

C In

dex

sour

ce is

S&P

.

Qua

rter

Year

s 1

Year

s 1

Year

s 1

Year

s 1

Year

2

1 Y

ear

2 Y

ear

3 Y

ear

4 Y

ear

5 Y

ear

6 Y

ear

7 Y

ear

8 Y

ear

9 Y

ear

10 Y

ear

MPS

ERS

15.4

8.9

11.2

10.3

8.7

9.2

10.2

10.5

9.7

10.0

Publ

ic P

lan

- Med

ian

(> $

10 b

illio

n)*

15.4

6.7

9.4

9.1

7.3

7.3

8.3

8.9

8.1

8.5

Ran

k52

610

1511

611

116

11bp

Diff

eren

ce -

Med

ian

-721

518

312

214

418

318

915

615

614

2

12/1

912

/18

12/1

712

/16

12/1

512

/14

12/1

312

/12

12/1

112

/10

MPS

ERS

15.4

2.7

16.2

7.4

2.8

11.3

16.4

12.6

3.3

12.7

Publ

ic P

lan

- Med

ian

(> $

10 b

illio

n)*

15.4

-2.0

15.2

7.9

0.4

7.4

15.1

13.3

2.0

12.7

Ran

k52

542

684

536

6918

52bp

Diff

eren

ce -

Med

ian

-747

497

-50

237

393

131

-64

137

-2

1 Y

ear

2 Y

ear

3 Y

ear

4 Y

ear

5 Y

ear

6 Y

ear

7 Y

ear

8 Y

ear

9 Y

ear

10 Y

ear

MSE

RS

15.4

8.9

11.3

10.3

8.8

9.2

10.2

10.5

9.6

9.9

Publ

ic P

lan

- Med

ian

(> $

1 bi

llion

)*16

.66.

59.

59.

17.

26.

87.

88.

98.

08.

3R

ank

654

1616

93

910

79

bp D

iffer

ence

- M

edia

n-1

1923

917

512

415

823

923

515

716

515

8

12/1

912

/18

12/1

712

/16

12/1

512

/14

12/1

312

/12

12/1

112

/10

MSE

RS

15.4

2.7

16.2

7.5

2.8

11.3

16.3

12.6

3.2

12.5

Publ

ic P

lan

- Med

ian

(> $

1 bi

llion

)*16

.6-3

.015

.37.

70.

36.

915

.113

.21.

612

.7R

ank

654

4357

34

3971

1555

bp D

iffer

ence

- M

edia

n-1

1956

796

-20

247

445

118

-64

161

-17

*Sta

te S

treet

Pub

lic F

unds

Uni

vers

e

Cum

ulat

ive

and

Con

secu

tive

MPS

ERS

Tota

l Fun

d R

etur

ns

Cum

ulat

ive

For Y

ears

End

ing

12/3

1/19

Con

secu

tive

For Y

ears

End

ing

MSE

RS

Cum

ulat

ive

For Y

ears

End

ing

12/3

1/20

19

Con

secu

tive

For Y

ears

End

ing

3

1 Y

ear

2 Y

ear

3 Y

ear

4 Y

ear

5 Y

ear

6 Y

ear

7 Y

ear

8 Y

ear

9 Y

ear

10 Y

ear

MSP

RS

15.3

8.8

11.2

10.3

8.7

9.2

10.1

10.4

9.6

9.9

Publ

ic P

lan

- Med

ian

(> $

1 bi

llion

)*16

.66.

59.

59.

17.

26.

87.

88.

98.

08.

3R

ank

674

1717

104

1110

710

bp D

iffer

ence

- M

edia

n-1

2523

617

412

215

723

723

215

416

315

8

12/1

912

/18

12/1

712

/16

12/1

512

/14

12/1

312

/12

12/1

112

/10

MSP

RS

15.3

2.7

16.2

7.5

2.8

11.3

16.2

12.5

3.3

12.6

Publ

ic P

lan

- Med

ian

(> $

1 bi

llion

)*16

.6-3

.015

.37.

70.

36.

915

.113

.21.

612

.7R

ank

674

4358

44

4072

1554

bp D

iffer

ence

- M

edia

n-1

2556

696

-23

246

441

110

-71

176

-10

1 Y

ear

2 Y

ear

3 Y

ear

4 Y

ear

5 Y

ear

6 Y

ear

7 Y

ear

8 Y

ear

9 Y

ear

10 Y

ear

MJR

S15

.38.

811

.310

.38.

79.

110

.010

.39.

59.

8Pu

blic

Pla

n - M

edia

n (>

$1

billi

on)*

16.6

6.5

9.5

9.1

7.2

6.8

7.8

8.9

8.0

8.3

Ran

k67

416

1610

410

118

12bp

Diff

eren

ce -

Med

ian

-126

234

175

123

157

234

222

144

152

144

12/1

912

/18

12/1

712

/16

12/1

512

/14

12/1

312

/12

12/1

112

/10

MJR

S15

.32.

716

.37.

42.

811

.015

.612

.53.

112

.2Pu

blic

Pla

n - M

edia

n (>

$1

billi

on)*

16.6

-3.0

15.3

7.7

0.3

6.9

15.1

13.2

1.6

12.7

Ran

k67

442

594

446

7216

61bp

Diff

eren

ce -

Med

ian

-126

563

105

-24

246

418

53-7

515

0-4

7

MJR

SC

umul

ativ

e Fo

r Yea

rs E

ndin

g 12

/31/

19

Con

secu

tive

For Y

ears

End

ing

*Sta

te S

treet

Pub

lic F

unds

Uni

vers

e

Cum

ulat

ive

and

Con

secu

tive

Tota

l Fun

d R

etur

ns

MSP

RS

Cum

ulat

ive

For Y

ears

End

ing

12/3

1/19

Con

secu

tive

For Y

ears

End

ing

4


ASSET ALLOCATION REVIEW State of Michigan Investment Board Meeting

March 19, 2020



STAT

E O

F M

ICH

IGAN

RET

IREM

ENT

SYST

EMPR

OFI

LE -

DEC

EMB

ER 2

019

Ass

et A

lloca

tion

By

Mar

ket V

alue

(In M

illio

ns)

12/3

1/20

1912

/31/

2018

D

omes

tic E

quity

$17,

645

22.7

%$1

5,69

322

.6%

Pr

ivat

e Eq

uity

13,8

0117

.8%

12,5

4018

.0%

Pens

ion

Plan

OPE

B**

Com

bine

d

Inte

rnat

iona

l Equ

ity13

,129

16.9

%11

,084

16.0

%M

kt. V

alue

Mkt

. Val

ueM

kt. V

alue

%

Fixe

d In

com

e 10

,305

13.3

%8,

894

12.8

%8,

651

11.1

%8,

017

11.5

%

MPS

ERS

$52,

487

$7,3

05$5

9,79

276

.9%

7,08

49.

1%7,

045

10.1

%

MSE

RS

- (cl

osed

)12

,624

3,20

315

,827

20.4

%

Abso

lute

Ret

urn

3,90

85.

0%4,

280

6.2%

M

SPR

S1,

555

246

1,80

12.

3%

Shor

t Ter

m**

*3,

175

4.1%

1,94

32.

8%

MJR

S - (

clos

ed)

269

927

80.

4%

TOTA

L$7

7,69

810

0.0%

$69,

496

100.

0%

TOTA

L$6

6,93

5$1

0,76

3$7

7,69

810

0.0%

MSE

RS

incl

udes

the

Mili

tary

Pen

sion

Fun

d

S

hort

Ter

m S

trat

egy*

**$3

.2

Sho

rt T

erm

in O

ther

Inv.

Str

ateg

ies

1.7

T

OTA

L SH

OR

T TE

RM

$4.9

6.3%

of T

otal

Fun

ds

*Th

e co

mbi

ned

net p

ayou

t for

the

plan

s fo

r FY

201

8 w

as $

1.7

billio

n w

ith $

22.0

billi

on p

aid

out F

Y 2

009

thru

FY

201

8 (P

ensi

on C

AFR

s).

This

repr

esen

ts th

e am

ount

pai

d to

ben

efic

iarie

s in

exc

ess

of e

mpl

oyer

and

em

ploy

ee c

ontri

butio

ns.

**O

PE

B -

Oth

er P

ost E

mpl

oym

ent B

enef

its

18th

Lar

gest

DB

Pub

lic P

ensi

on F

und

in th

e U

.S.

Pens

ions

& In

vest

men

ts s

urve

y - F

ebru

ary

10, 2

020

issu

e

Inve

stm

ent S

trat

egie

sM

arke

t Val

ue B

y Pl

an ~

12/

31/1

9(in

Mill

ions

)

R

eal E

stat

e &

Infr

astr

uctu

re

Shor

t Ter

m E

quiv

alen

ts (i

n B

illio

ns)

R

eal R

etur

n &

Opp

ort.

Priv

ate

Equi

ty17

.8%

Inte

rnat

iona

l Equ

ity16

.9%

Rea

l Ret

urn

&

Opp

ortu

nist

ic

11.1

% Fixe

d In

com

e 13

.3%

Abso

lute

R

etur

n5.

0%

Shor

t Ter

m4.

1%

Dom

estic

Equ

ity22

.7%

Rea

l Est

ate

&

Infr

astr

uctu

re9.

1%

Ass

et A

lloca

tion

~ 12

/31/

19

$47.1

$49.7

$48.1

$51.0

$56.6

$60.7

$60.1

$62.2

$69.9

$69.5

$77.7

$0$10

$20

$30

$40

$50

$60

$70

$80

Mar

ket V

alue

*(B

illio

ns o

f Dol

lars

)

1

A ne

gativ

e nu

mbe

r in

an a

sset

cat

egor

y in

dica

tes

a us

e of

cas

h, a

pos

itive

num

ber i

ndic

ates

a s

ourc

e of

cas

h.D

olla

rs in

milli

ons$5

38

-$27

5

$2,7

16

$498

-$49

2

$392

-$51

-$2,

093

Sour

ces

and

Use

s of

Cas

hJa

nuar

y 20

19 ~

Dec

embe

r 201

9

Abso

lute

Ret

urn

Fixe

d In

com

e

Priv

ate

Equi

ty

Dom

estic

Equi

ty

Inte

rnat

iona

lEq

uity

Rea

l Est

ate

&In

fras

truc

ture

Rea

l Ret

urn

&O

ppor

tuni

stic

Net

Ben

efit

Paym

ents

1/01

/19

Shor

t-Ter

m C

ash

Bal

ance

: $

1,9

43

12/3

1/19

Sho

rt-T

erm

Cas

h B

alan

ce:

3,17

6

Net

Sho

rt-T

erm

Cas

h In

crea

se:

$ 1

,233

2

SMR

S

Ass

et C

lass

12/3

1/19

Targ

et*

12/3

1/19

Targ

et*

12/3

1/19

Targ

et*

12/3

1/19

Targ

et*

Ran

ges

Dom

estic

Equ

ity22

.7%

28.0

%22

.7%

28.0

%22

.7%

28.0

%22

.7%

28.0

%20

% -

35%

Priv

ate

Equi

ty17

.8%

18.0

%17

.8%

18.0

%17

.8%

18.0

%17

.8%

18.0

%10

% -

20%

Inte

rnat

iona

l Equ

ity16

.9%

16.0

%16

.9%

16.0

%16

.9%

16.0

%16

.9%

16.0

%15

% -

25%

Long

Ter

m F

ixed

In

com

e13

.3%

10.5

%13

.3%

10.5

%13

.3%

10.5

%13

.3%

10.5

%10

% -

20%

Abso

lute

Ret

urn

5.0%

6.0%

5.0%

6.0%

5.0%

6.0%

5.0%

6.0%

3% -

9%

Shor

t Ter

m F

ixed

In

com

e4.

0%2.

0%4.

0%2.

0%4.

0%2.

0%4.

0%2.

0%1%

- 6%

TOTA

L10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%

*Com

plie

s w

ith b

aske

t cla

use

and

inte

rnat

iona

l res

tric

tions

.

As o

f 12/

31/1

9

MJR

S

5% -

15%

Asse

t Allo

catio

n Ta

rget

s

9.1%

10.0

%9.

1%10

.0%

9.1%

10.0

%9.

1%10

.0%

MSP

RS

Rea

l Est

ate

&

Infr

astr

uctu

re

MPS

ERS

MSE

RS

Rea

l Ret

urn

&

Opp

ortu

nist

ic11

.1%

9.5%

11.1

%9.

5%11

.1%

5% -

15%

9.5%

11.1

%9.

5%

3


MARKETS REVIEW AND OUTLOOK State of Michigan Investment Board Meeting

March 19, 2020

Gregory J. Parker, CFA Director of Investments – Public Markets

Director of Asset Allocation Bureau of Investments

CAPITAL MARKETS

Return and Risk Assumptions, Benchmark and Outlook A starting point.

MPSERS Plan

Assumed Return*

(Arithmetic) Standard Deviation* Trailing 10-Year

(Benchmark**) Private Equity 10.6% 25.0% 18.1% International Equity 9.1% 21.4% 4.5% Domestic Equity 7.5% 18.2% 13.2% Real Estate (Core) 8.0% 15.0% 8.4% Absolute Return 5.3% 9.0% 4.5% Real Ret/Opportunistic 8.1% 9.5% 6.7% Long-Term Fixed Income 2.5% 4.0% 3.8% Short-Term 2.0% 1.0% 0.5%

* Aon Investment Consultants 2019 Long-Term Return/Risk Assumptions** Investment Policy Statement; Annualized Returns

*** Actual investments may differ due to changing conditions and the availability of new information

Overview A market update.

Capital market assumptions used for determining strategic asset allocations are beingreduced across the board, and especially for safer, publicly traded fixed incomesecurities. This is the general opinion for most consultants, investment banks, and othermarket participants. The reason for this phenomenon is the low interest rate environmentcaused by the policies of the Federal Reserve (Fed) and other central banks, as well asthe run-up in prices for most risk assets over the past several years.

The interest rate curve inversion that lasted through the summer of 2019 reverted to apositive slope by mid-October. However, by the end of January 2020, the curve has onceagain inverted. An inverted yield curve is often cited as a warning indicator of animpending economic recession; however, a reversion of rates normally does notinvalidate the power of the signal and in some ways the re-inversion is even moreworrisome now than it was last summer.

The past decade, coming out from the Global Financial Crisis, has been characterized asa risk-on market; however, many traditional risk premia have not performed as expected.For example; U.S. small cap stocks have lagged large caps, value styles have laggedgrowth styles, foreign equities have lagged U.S. equities, and within foreign markets,emerging markets have lagged developed.

Many domestic equity valuation metrics are above historical averages, consequently thereturns over the next cycle may not be as strong as the historical average of 11 – 12%year-over-year total returns.

A primary explanation for international equity’s 10-year annualized underperformance of-8.1% is the annualized differences in change in the multiples (-8.2%) of the two indexes.The MSCI ACWI ex USA index multiple contracted at an annualized rate of -9.6% peryear, while the multiple contraction in the U.S. market was approximately -1.4%.

1

Interest Rates The Fed cuts again.

At its October 2019 meeting, the Federal Open Market Committee voted to lower its keyinterest rate by 25 basis points, targeting a range between 1.5% to 1.75%. The marketis currently pricing the probability of just one additional rate cut out one year, in late 2020.

Throughout the fall and winter of 2019 and into the new year, the Fed has addressedproblems which are within the repo market by re-expanding their balance sheet. Thisaction has accelerated money supply growth and led to higher valuations in risk assets.

The interest rate curve inversion that lasted through the summer of 2019 reverted to apositive slope by mid-October. However, by the end of January 2020, the curve has onceagain inverted. An inverted yield curve is often cited as a warning indicator of animpending economic recession; however, a reversion of rates normally does notinvalidate the power of the signal and in some ways the re-inversion is even moreworrisome now than it was last summer.

By the end of January 2020, the U.S. 10-year Treasury was yielding 1.5% which wasroughly 0.04% below the 3-month T-bill rate.

Spreads on investment-grade and high yield fixed income are not bothered by the curveinversion, both spreads ended January at below average levels.

Domestic Equity Size and Style factors in focus.

The broad U.S. stock market return for the one year ending December 2019 was 30.9%;two and a half times higher than its annual average over the past 25 years. Nearly all ofthe stock market returns of 2019 came from multiple expansion as year-over-yearearnings per share growth slightly contracted -1.1%.

Small caps represented by the Russell 2000 index have underperformed larger capsS&P 500 index over the past decade. Over the past one, three, five, seven, and ten yearssmall caps have underperformed large caps by -6.0%, -6.7%, -3.5%, -3.1% and -1.7%annualized, respectively.

Meanwhile, value style in the U.S. continues to perform very poorly relative to the growthstyle. Over the past year ending December 2019, growth stocks outperformed valuestocks by 9.6% and over longer time periods, it has outperformed by 10.6%, 6.0%, 4.6%,and 3.3% annualized over the past three, five, seven and ten years, respectively. Since1985, the return difference between Value and Growth stocks in the U.S. is negligible.

Many domestic equity valuation metrics are above historical averages, consequently thereturns over the next cycle may not be as strong as the historical average of 11 – 12%year-over-year total returns. However, the market’s returns on equity continues to behistorically higher than average and some of the largest companies in the market todayare less cyclical (economically sensitive) than past market leaders. These facts lendsupport to the argument that higher valuations are justified, and therefore the marketcould perhaps continue to deliver historical average rates of returns in the future.

2

International Equity A compelling case.

International equities underperformed domestic equities over the year ending December2019 by -9.4%. Over the past three, five, seven, and ten years, the international marketindex, MSCI ACWI ex USA, underperformed the S&P 1500 index by -4.9%, -5.7%, -8.8%,and -8.1% annualized, respectively.

A primary explanation for international equity’s 10-year annualized underperformance of-8.1% is the annualized differences in change in the multiples (-8.2%) of the two indexes.The MSCI ACWI ex USA index multiple contracted at an annualized rate of -9.6% peryear, while the multiple contraction in the U.S. market was approximately -1.4%.International earnings per share growth and dividend yields both were higher than thedomestic equity index over the past decade.

Based on a price-to-earnings valuation multiple, excluding non-earning companies,developed international markets trade at approximately a 17.2% discount to U.S.counterparts while emerging markets are at a 30% discount.

Within international equities, emerging market returns trailed developed markets over thepast one and ten years by -4.3% and -1.8% annualized, respectively. However, over thepast three years, emerging markets returned 2.1% annualized more than developed andover the past five years the returns were the same at 6.0% annualized.

Real Estate The benefit adding REITs.

Over the one year ending December 2019, the NAREIT index increased by 28.7%including dividends, significantly outpacing private real estate returns as measured by theNCREIF-ODCE Index by 23.3%. Over the past ten, twenty, and thirty years, publiclytraded REITs have out-returned private real estate by 1.1%, 3.4% and 3.5% annualized,respectively, though they are about three times more volatile.

Although investing in similar assets, the returns of publicly traded REITs and private realestate have historically been lowly (and at times are anti-) correlated to one another,meaning much of the REIT volatility is diversifiable.

In fact, had the REID allocated up to 20% of its portfolio to REITs over the past decade,it could have earned approximately 64 basis points annualized higher returns withoutmeaningfully changing the average annual volatility of returns.

Dividend yields on REITs are around 3.5% which is nearly 2.0% higher than the yield ofthe ten-year U.S. Treasury. Historically, REIT dividend yields have averaged 1.2% higherthan the ten-year U.S. Treasury.

3

Hedge Funds Estimating the asset class return.

Since its inception, the Absolute Return portfolio’s return has had a monthly beta ofapproximately 0.15 and annualized net alpha of 2.5%. The fund also has a low correlationto the Fixed Income benchmark, -0.1%, making it a good diversifier to equity and rates.

Based on an expected annualized equity market return of approximately 6.5%, shouldhistorical hedge fund betas and alphas continue, a 5.1% annualized net return seems likea reasonable assumed rate of return for hedge funds. This return is approximately3-month U.S. Libor plus 300 basis points.

Commodities Safe havens on a roll.

Over the past ten years, commodities prices broadly have fallen, as measured by theThomson Reuters CRB Commodity Index, down by roughly -35% from December 2009.Perhaps even more remarkable, commodities are still 7% lower than at the lowest of theGlobal Financial Crisis of 2008-2009.

The price for crude oil has increased over the past year ending December 2019, up 34%year-over-year to approximately $61 per barrel.

The U.S. dollar, as measured by the DXY index, was virtually unchanged since December2018 versus a basket of currencies.

Safe haven commodity assets such as gold have performed well recently. At the end ofSeptember 2019, the dollar price for an ounce of gold was at $1,523. This is 19% higherthan the beginning of the year and 29% higher than five years prior. Over the pastdecade, the precious metal has appreciated by more than 38%, this is in sharp contrastto the broad commodity market in general.

4

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Bes

tG

ov't

Cor

p.G

ov't

Int'

lIn

t'l

Rea

lIn

t'l

Int'

lG

ov't

Int'

lU

.S.

Rea

lIn

t'l

U.S

.U

.S.

Rea

lU

.S.

Int'

lR

eal

U.S

.B

est

Bon

dsB

onds

Bon

dsE

quit

yE

quit

yE

stat

eE

quit

yE

quit

yB

onds

Equ

ity

Equ

ity

Est

ate

Equ

ity

Equ

ity

Equ

ity

Est

ate

Equ

ity

Equ

ity

Est

ate

Equ

ity

13.2

3%10

.40%

11.5

0%40

.82%

20.9

0%20

.06%

26.6

5%16

.65%

12.3

8%41

.44%

16.3

8%14

.26%

16.8

3%32

.80%

13.0

8%13

.32%

11.9

3%27

.19%

6.71

%30

.90%

Rea

lR

eal

Cor

p.U

.S.

Rea

lIn

t'l

Rea

lR

eal

Cas

hU

.S.

Rea

lG

ov't

U.S

.In

t'l

Rea

lU

.S.

Rea

lU

.S.

Infl

a-In

t'l

Est

ate

Est

ate

Bon

dsE

quit

yE

stat

eE

quit

yE

stat

eE

stat

eE

quit

yE

stat

eB

onds

Equ

ity

Equ

ity

Est

ate

Equ

ity

Est

ate

Equ

ity

tion

Equ

ity

12.2

4%7.

28%

10.5

2%29

.58%

14.4

8%16

.62%

16.5

9%15

.84%

2.05

%27

.24%

13.1

1%9.

02%

16.1

7%15

.29%

11.8

1%1.

01%

7.97

%21

.13%

1.91

%22

.13%

Cor

p.G

ov't

Rea

lH

edge

U.S

.U

.S.

U.S

.G

ov't

Infl

a-C

orp.

Int'

lC

orp.

Rea

lR

eal

Cor

p.G

ov't

Cor

p.R

eal

Cas

hC

orp.

Bon

dsB

onds

Est

ate

Fund

sE

quit

yE

quit

yE

quit

yB

onds

tion

Bon

dsE

quit

yB

onds

Est

ate

Est

ate

Bon

dsB

onds

Bon

dsE

stat

eB

onds

9.40

%7.

24%

6.74

%9.

01%

11.7

8%5.

65%

15.3

4%8.

67%

0.10

%16

.05%

11.1

5%8.

35%

10.5

4%10

.99%

7.53

%0.

86%

5.63

%6.

96%

1.88

%14

.54%

Cas

hC

ash

Hed

geR

eal

Hed

geH

edge

Hed

geH

edge

Cor

p.H

edge

Cor

p.In

fla-

Cor

p.H

edge

Gov

'tIn

fla-

Int'

lC

orp.

Gov

'tG

ov't

Fund

sE

stat

eFu

nds

Fund

sFu

nds

Fund

sB

onds

Fund

sB

onds

tion

Bon

dsFu

nds

Bon

dsti

onE

quit

yB

onds

Bon

dsB

onds

6.16

%4.

43%

3.57

%8.

99%

5.83

%5.

13%

9.21

%7.

68%

-3.0

7%9.

65%

8.46

%2.

96%

9.37

%7.

70%

4.92

%0.

66%

4.50

%6.

42%

0.88

%6.

83%

Hed

geH

edge

Infl

a-C

orp.

Cor

p.In

fla-

Cas

hU

.S.

Rea

lIn

fla-

Gov

'tU

.S.

Hed

geIn

fla-

Hed

geH

edge

Infl

a-H

edge

Hed

geR

eal

Fund

sFu

nds

tion

Bon

dsB

onds

tion

Equ

ity

Est

ate

tion

Bon

dsE

quit

yFu

nds

tion

Fund

sFu

nds

tion

Fund

sFu

nds

Est

ate

5.77

%3.

11%

2.39

%7.

69%

5.25

%3.

42%

4.81

%5.

47%

-6.4

6%2.

72%

5.52

%1.

75%

4.22

%1.

49%

3.14

%0.

37%

2.09

%3.

88%

-1.0

5%6.

42%

Infl

a-In

fla-

Cas

hG

ov't

Gov

'tC

ash

Cor

p.C

orp.

Hed

geC

ash

Hed

geC

ash

Gov

'tC

ash

Infl

a-C

ash

Hed

geG

ov't

Cor

p.H

edge

tion

tion

Bon

dsB

onds

Bon

dsB

onds

Fund

sFu

nds

Bon

dsti

onFu

nds

Bon

dsB

onds

Fund

s

3.39

%1.

55%

1.79

%2.

36%

3.48

%3.

06%

4.27

%5.

10%

-19.

86%

0.19

%5.

07%

0.10

%2.

02%

0.07

%0.

68%

0.01

%1.

89%

2.30

%-2

.51%

6.35

%U

.S.

U.S

.In

t'l

Infl

a-In

fla-

Gov

'tG

ov't

Cas

hU

.S.

Gov

'tIn

fla-

Hed

geIn

fla-

Cor

p.C

ash

Cor

p.G

ov't

Infl

a-U

.S.

Infl

a-E

quit

yE

quit

yE

quit

yti

onti

onB

onds

Bon

dsE

quit

yB

onds

tion

Fund

sti

onB

onds

Bon

dsB

onds

tion

Equ

ity

tion

-6.9

8%-1

0.64

%-1

4.95

%1.

88%

3.25

%2.

65%

3.46

%5.

03%

-36.

72%

-2.1

9%1.

50%

-3.5

5%1.

70%

-2.0

1%0.

04%

-0.7

7%1.

05%

2.12

%-4

.96%

2.29

%In

t'l

Int'

lU

.S.

Cas

hC

ash

Cor

p.In

fla-

Infl

a-In

t'l

Rea

lC

ash

Int'

lC

ash

Gov

'tIn

t'l

Int'

lC

ash

Cas

hIn

t'l

Cas

hE

quit

yE

quit

yE

quit

yB

onds

tion

tion

Equ

ity

Est

ate

Equ

ity

Bon

dsE

quit

yE

quit

yE

quit

y

Wor

st-1

5.31

%-1

9.74

%-2

1.30

%1.

16%

1.33

%1.

95%

2.55

%4.

06%

-45.

52%

-16.

86%

0.13

%-1

3.71

%0.

11%

-2.6

0%-3

.87%

-5.6

7%0.

27%

0.84

%-1

4.20

%2.

28%

Wor

st

Annu

aliz

ed R

etur

ns 2

000

- 201

9C

ash

Infl

.H

edge

Int'

l.G

ov't

.C

orp.

US

Eq.

R.E

.R

etur

n1.

77%

2.15

%3.

16%

4.27

%4.

59%

6.06

%6.

44%

8.73

%R

etur

nR

isk

0.96

%1.

33%

4.79

%18

.66%

4.44

%5.

22%

15.9

3%4.

55%

Ris

k

-Hed

ge F

unds

are

repr

esen

ted

by th

e H

FRI F

OF

Con

serv

ativ

e In

dex

-U.S

. Equ

ity is

repr

esen

ted

by th

e S&

P 15

00 In

dex

-Inf

latio

n is

repr

esen

ted

by th

e U

.S. C

onsu

mer

Pric

e In

dex

(SA)

-Rea

l Est

ate

is re

pres

ente

d by

the

NC

REI

F N

atio

nal P

rope

rty In

dex

-Int

erna

tiona

l Equ

ity is

repr

esen

ted

by th

e M

SCI -

AC

Wor

ld E

X-U

SA In

dex

-Cor

pora

te B

onds

are

repr

esen

ted

by th

e BB

G B

arcl

ays

- U.S

. Cor

p. In

v. G

d. In

dex

-Cas

h is

repr

esen

ted

by 3

0-da

y T-

Bills

-Gov

ernm

ent B

onds

are

repr

esen

ted

by th

e BB

G B

arcl

ays

- U.S

. Gov

ernm

ent I

ndex

Annu

al T

otal

Ret

urns

of K

ey A

sset

Cla

sses

200

0 -2

019

5


ACTION ITEMState of Michigan Investment Board Meeting

March 19, 2020

Woodrow S. TylerSenior Investment Manager

Defined Contribution, Trusts & Agencies Division

STATE OF MICHIGAN INVESTMENT BOARD

RESOLUTION AUTHORIZING REMOVAL OF OAKMARK EQUITY AND INCOME FUND FROM 401(k)/457 DC PLANS INVESTMENT MANAGER LINEUP

Resolution 2020-1

WHEREAS, the State of Michigan Investment Board (the “Board”), pursuant to Executive Order 2018-10 and the Investment Policy Statement approved by the Board on November 27, 2018, is required to approve any changes to the investment options of the State of Michigan’s 401(k) and 457 plans (the “DC Plans”), following recommendations of the Bureau of Investments (the “BOI”) working in consultation with the Michigan Office of Retirement Services (the “ORS”);

WHEREAS, Oakmark Equity & Income Fund, generally categorized as a balanced fund investing in both stocks and bonds, is currently an option within the DC Plan investment lineup;

WHEREAS, the BOI and ORS have determined that, relative to the Oakmark Equity & Income Fund: (i) shifting existing DC Plan participants invested in the Oakmark Equity & Income Fund to a blend of the DC Plan’s current S&P 500 Index Fund and the U.S. Aggregate Bond Index Fund would result in lower fees and an opportunity to generate higher returns over the long-term, and (ii) placing new DC Plan participants in Target Date Funds as a default option would provide more diversified asset allocation, resulting in glide paths better targeted to each participant’s individual retirement date;

WHEREAS, the BOI recommends the removal of the Oakmark Equity & Income Fund as an option in the DC Plans investment lineup; and

WHEREAS, the Board has received the recommendation of the BOI at a public meeting held on the date of this resolution.

NOW, THEREFORE, BE IT RESOLVED, that the Board hereby approves the removal of Oakmark Equity & Income Fund from the DC Plans investment options.

Ayes:

Nays:

Recused:

East Lansing, Michigan

, 2020


DEFINED CONTRIBUTION REVIEW

State of Michigan Investment Board Meeting March 19, 2020

Woodrow S. Tyler Senior Investment Manager

Defined Contribution, Trusts & Agencies Division

EXECUTIVE SUMMARY

Overview

Defined Contribution (DC) plans are participant led investments. The role of the Bureau of Investments is to offer a sufficient range of investment options to allow the participants to diversify their individual retirement accounts and construct portfolios that reasonably span the risk/return spectrum. To this end, the Plans may be comprised of at least one investment option from the categories below.

Investments Options

Tier I: Target Date Funds and Passively Managed Index Funds Target Date Funds (TDFs) are the default option for plan participants. Each TDF seeks to

achieve its objective by investing in a set of underlying index funds representing various assetclasses. Over time, the allocation to asset classes and funds change according to apredetermined "glide path" and will become more conservative as it approaches the targetretirement date.

Passively Managed Index Funds are comprised of low-cost index funds which seek toreplicate the performance of a variety of cash, bond and stock indices with very little trackingerror and at a low fee.

Tier II: Actively Managed Funds These are funds actively managed by investment managers in an attempt to outperform

various cash, bond and stock indices over long periods of time.

Tier III: Self Directed Brokerage Account – Non-Core Options TD Ameritrade provides access to a broad range of investment choices including individual

stocks, bonds, CDs, over 100 commission-free ETFs, and more than 13,000 mutual funds—including more than 2,100 no-load, no-transaction-fee (NTF) mutual funds.

SOM Plans (12/31/19) Number of Participants Combined 401k & 457

401(k) 73,697 $6,768

457 22,649 1,846

Pension Plus 228,329 961

EAA 927 11

Total 195,168* $9,586 ($ in millions) *Adjusted for overlapping participants in Plan

Investment Selection

The selection of each investment option for the Plans is based on the prudence standards setby the Governing Documents and applicable law, with flexibility built-in to allow a search totake full advantage of strategic opportunities. The search will focus on finding opportunitieswhich are tailored to the Plans’ specific needs. The BOI, in consultation with the Office ofRetirement Services (ORS), will establish search criteria that aligns with the purpose andobjective an investment option is seeking to attain. Due diligence will be completed with thegoal of selecting a plan that, in the totality of circumstances, offers fair and reasonableinvestment options for the Plan participants.

With respect to Tier III investments, the universe of available options is extensive. Since theselection of investments is directed solely by the participants which elect the Tier III option,the State does not provide any criteria for selecting or monitoring these non-core investmentoptions.

1

Tier I Line-Up

Tier II Line-Up

Short Term Investments, 1.6

SSgA Bond Fund, 4.0

S&P 500 Index, 15.3

S&P Midcap, 9.2Global Equities Fund, 10.1

Emerging Markets Fund, 11.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

0 0.2 0.4 0.6 0.8 1 1.2

Return %

Beta

Return vs Beta Jan 17 ‐ Dec 19

SV2.5

PIMCO4.3

Prudential7.3

Oakmark7.8

Dodge11.2

T. Rowe6.1

Artisan17.6

Virtus4.3

Voya8.2American

12.5

Jennison22.0

0.02.04.06.08.0

10.012.014.016.018.020.022.024.0

0 0.2 0.4 0.6 0.8 1 1.2 1.4

Return %

Beta

Return vs Beta Jan 17 ‐ Dec 19

2

Market Environment and Outlook

On December 20, 2019, the SECURE Act (Setting Every Community Up for Retirement Enhancement) was signed into law with broad bi-partisan support. While there are 29 provisions in the law, they can be categorized into three main provisions which will allow more Americans to participate in workplace plans and empower greater retirement readiness:

1. Extend Retirement Plan Access a. Authorize open Multiple Employer Plans (MEPs) and repeal of the “one bad apple”

rule (effective January 1, 2021) b. Encourage small employers to adopt plans and auto enroll by providing tax credits

(effective January 1, 2020) c. Establish long-term part-time worker status (effective January 1, 2021)

2. Increase Savings Contributions a. Increase the limit on automatic escalation from 10% to 15% (effective January 1,

2020) b. Allow contributions to a traditional IRA after age 70½ (effective January 1, 2020) c. Change required minimum distributions age from 70½ to 72 (effective January 1,

2020) 3. Expand Savings Distribution Options

a. Modified the fiduciary Safe Harbor for selecting an annuity provider (effective January 1, 2021)

b. Enable portability of lifetime income products (effective January 1, 2021) c. Offer penalty-free distributions upon birth or adoption of a child (effective January

1, 2021) d. Amend wealth transfer strategies by limiting the window of post-death payments

(effective January 1, 2021) e. Feature lifetime income disclosure- (DOL will establish standards by end of 2020)

DC Plan Evolution

Version 1.0 (1990s) - offer a lot of investment choices and options for plan participants to select and invest in

Version 2.0 (2010s) - several behavioral economists like Richard Thaler (University of Chicago) did groundbreaking research which indicated the Version 1.0 approach was not resulting in the best outcome for participants. This resulted in the creation of auto enrollment, auto escalation and default investment options (i.e. professionally managed investment products like Target Date Funds (TDFs))

Version 3.0 (2019) - while the previous designs have focused on accumulation, the passage of the SECURE Act is focused on outcomes and retirement readiness of the individual and the entire lifecycle from accumulation to decumulation.

Turning DC Plan Assets into Retirement Income

The BOI, in consultation with ORS and Aon, will research and review the variety of options available for providing lifetime income solutions for plan participants and determine if one or more of them might be worthwhile incorporating into the DC Plan lineup either as a separate investment or part of the Target Date Funds.

Retirement programs need to go beyond accumulating wealth by creating income to last a lifetime: Income Needs are Increasing

o Fewer employers paying for retirement programs coupled with increasing out-of-pocket medical costs

o Changes in Social Security likely, since current benefits are projected to be unsustainable after ~2023 (based on current laws)

3

Longevity Risk Being Recognized o Increasing life expectancies o Reduced income level and increased lump sum availability from private pensions o Growing savings in defined contribution plans and product availability

The Business Case is Real o Address participant needs as a plan fiduciary o Facilitate retirement to address workforce management concerns o Support broader employee messages about financial wellness

Proposed Changes to Tier II lineup

We recommend removing the Oakmark Equity and Income Fund from the 401(k)/457 Tier II investment manager lineup. Funds which are currently invested, and future contributions would be reallocated to a blend of the S&P 500 Index Fund and U.S. Aggregate Bond Index Fund currently in the Tier I lineup.

This recommendation is based on the belief that participants would be better off after the change due to the following reasons:

Participants would likely earn higher returns Participants would pay lower management fees The Target Date Funds in the lineup offer a more diversified and tailored investment

option for participants in the Plan

4

SMRSDefined Contribution Strategies

Markets

QDIA

12/31/2019 12/31/2018

Total Target Date Fund $2,134 $1,477 22.3% $0.70

Tier I Index Funds

State Street S&P 500 Index Fund $1,335 $1,046 $0.13 State Street Bond Market Index Fund 866 716 0.20 State Street Global All Cap Equity ex-US Index Fund 689 518 0.45 State Street S&P Mid Cap Index Fund 621 501 0.20 BlackRock Government Short-Term Investment CL F 234 227 0.56 BlackRock S&P Small Cap 600 Equity Index CL F 140 125 0.25 BlackRock Emerging Markets Index CL F 130 112 0.69

Total Tier I Index $4,014 $3,243 41.9% $0.26

Tier II Active Funds

Stable Value Fund $1,154 $1,156 $2.23 Dodge & Cox Stock Fund 596 525 4.13 Jennison Large Cap Growth Fund 423 344 2.92 American Funds EuroPacific Growth R6 327 293 4.90 Voya Small Cap Growth Equity Fund 150 131 4.33 Artisan Mid Cap Fund 126 88 7.05T. Rowe Price Mid-Cap Value Fund 119 108 6.30PIMCO Total Return I Fund 117 110 4.60Oakmark Equity & Income I Fund 117 107 4.30Virtus Ceredex Small-Cap Value Eq I 71 67 6.80Prudential High Yield Fund 37 25 3.76

Total Tier II Active $3,236 $2,955 33.7% $3.65

Tier III

Total Self Directed Brokerage Account $202 $166 2.1% NA

Total Defined Contribution Assets $9,586 $7,841 100.0% $1.50

NOTE: Totals may not be exact due to rounding.

12/31/19

($ in Millions)

% of Total

Fee per $1,000

Amount

5

SMRSDefined Contribution by Investment Strategy

12/31/19

Market Value in Millions

12/31/19 12/31/18Passive Strategies $4,014 41.9% $3,243 41.4%Active Strategies 3,236 33.8% 2,955 37.7%Target Date Retirement Fund 2,134 22.3% 1,477 18.8%Self Managed Account 202 2.1% 166 2.1%

Total Investments $9,586 100.0% $7,841 100.0%

*Loan Fund $206M as of 12/31/19

Passive Strategies

41.9%

Active Strategies33.8%

Target Date Retirement Fund

22.3%

Self Managed Account

2.1%

6

Fund Name Market Value 1-Year 3-Years 5-Years 10-Years

State Street Target Retirement Income Fund $43,699,413 13.3% 6.1% 4.5% 5.5%State Street Income Custom Index 13.2% 6.1% 4.5% 5.6%Morningstar Target-Date Retirement 12.9% 5.9% 4.2% 5.1%Variance State Street Income Custom Index 0.1% 0.0% 0.0% -0.1%Variance Morningstar Target-Date Retirement 0.4% 0.2% 0.3% 0.4%

State Street Target Retirement 2015 Fund 56,840,322 13.7% 6.6% 4.9% 7.2%State Street 2015 Custom Index 13.7% 6.6% 4.9% 7.2%Morningstar Target-Date 2015 15.4% 7.2% 5.2% 6.2%Variance State Street 2015 Custom Index 0.0% 0.0% 0.0% 0.0%Variance Morningstar Target-Date 2015 -1.7% -0.6% -0.3% 1.0%

State Street Target Retirement 2020 Fund 140,766,974 16.9% 8.1% 5.9% 8.2%State Street 2020 Custom Index 16.8% 8.1% 5.9% 8.3%Morningstar Target-Date 2020 16.2% 7.5% 5.4% 6.6%Variance State Street 2020 Custom Index 0.1% 0.0% 0.0% -0.1%Variance Morningstar Target-Date 2020 0.7% 0.6% 0.5% 1.6%





State Street Target Retirement 2045 Fund 254,033,883 24.8% 11.5% 8.1% 9.9%State Street 2045 Custom Index 24.8% 11.5% 8.1% 9.9%Morningstar Target-Date 2045 24.3% 11.2% 7.8% 9.1%Variance State Street 2045 Custom Index 0.0% 0.0% 0.0% 0.0%Variance Morningstar Target-Date 2045 0.5% 0.3% 0.3% 0.8%

State Street Target Retirement 2050 Fund 317,437,652 25.0% 11.5% 8.2% 9.9%State Street 2050 Custom Index 25.0% 11.5% 8.1% 9.9%Morningstar Target-Date 2050 24.5% 11.1% 7.8% 8.9%Variance State Street 2050 Custom Index 0.0% 0.0% 0.1% 0.0%Variance Morningstar Target-Date 2050 0.5% 0.4% 0.4% 1.0%

State Street Target Retirement 2055 Fund 308,050,094 25.0% 11.5% 8.2% N/AState Street 2055 Custom Index 25.0% 11.5% 8.1% N/AMorningstar Target-Date 2055 24.9% 11.4% 8.0% N/AVariance State Street 2055 Custom Index 0.0% 0.0% 0.1% N/AVariance Morningstar Target-Date 2055 0.1% 0.1% 0.2% N/A

Defined Contribution Performance by Fund12/31/19

7


State Street Target Retirement 2060 Fund $84,959,089 25.0% 11.5% N/A N/AState Street 2060 Custom Index 25.0% 11.5% N/A N/AMorningstar Target-Date 2060+ 25.2% 11.5% N/A N/AVariance State Street 2060 Custom Index 0.0% 0.0% N/A N/AVariance Morningstar Target-Date 2060+ -0.2% 0.0% N/A N/A

TIER I

State Street S&P 500 Index Fund $1,334,990,716 31.5% 15.3% 11.7% 13.5%S&P 500 Index 31.5% 15.3% 11.7% 13.6%Morningstar Large Blend 28.6% 13.3% 9.5% 11.5%Variance S&P 500 Index 0.0% 0.0% 0.0% -0.1%Variance Morningstar Large Blend 2.9% 2.0% 2.2% 2.0%

State Street Bond Market Index Fund 865,626,076 8.7% 4.0% 3.0% 3.7%Bloomberg Barclays U.S. Aggregate Index 8.7% 4.0% 3.0% 3.7%Morningstar Intermediate-Term Bond 8.3% 3.8% 2.9% 3.8%Variance Bloomberg Barclays U.S. Aggregate Index 0.0% 0.0% 0.0% 0.0%Variance Morningstar Intermediate-Term Bond 0.4% 0.2% 0.1% -0.1%

State Street Global All Cap Equity ex-U.S. Index Fund 688,581,754 21.9% 10.1% 6.0% N/AMSCI ACWI ex USA IMI (Net) 21.6% 9.8% 5.7% N/AMorningstar Foreign Large Blend 21.5% 9.2% 5.2% N/AVariance MSCI ACWI ex USA IMI (Net) 0.3% 0.3% 0.3% N/AVariance Morningstar Foreign Large Blend 0.4% 0.9% 0.8% N/A

State Street S&P Mid Cap Index Fund 621,167,445 26.2% 9.2% 9.0% 12.6%S&P 400 Index 26.2% 9.3% 9.0% 12.7%Morningstar Mid-Cap Blend 25.9% 8.9% 7.0% 10.7%Variance S&P 400 Index 0.0% -0.1% 0.0% -0.1%Variance Morningstar Mid-Cap Blend 0.3% 0.3% 2.0% 1.9%

BlackRock Government Short-Term Investment CL F 234,220,520 2.2% 1.6% 1.1% N/ABofA Merill Lynch US 3-Month Treasury Bill Index 2.3% 1.7% 1.1% N/AVariance BofA Merill Lynch US 3-Month Treasury Bill Index -0.1% -0.1% 0.0% N/A

BlackRock S&P Small Cap 600 Equity Index CL F 139,789,413 22.9% N/A N/A N/A N/AS&P SmallCap 600 Index 22.8% N/A N/A N/A N/AMorningstar Small Blend 23.5% N/A N/A N/A N/AVariance S&P SmallCap 600 Index 0.1% N/A N/A N/A N/AVariance Morningstar Small Blend -0.6% N/A N/A N/A N/A

BlackRock Emerging Markets Index CL F 130,012,063 18.3% 11.7% 5.7% N/AMSCI Emerging Market (Net) 18.4% 11.6% 5.6% N/AMorningstar Diversified Emerging Mkts 19.1% 10.4% 4.6% N/AVariance MSCI Emerging Market (Net) -0.1% 0.1% 0.1% N/AVariance Morningstar Diversified Emerging Mkts -0.8% 1.3% 1.1% N/A

TIER II

Stable Value Fund $1,153,705,500 2.9% 2.5% 2.4% 2.3%Barclays Int Gov/Credit A or Higher Index 5.9% 2.9% 2.3% 2.7%Hueler Universe 2.5% 2.2% 2.0% 2.2%Variance Barclays Int Gov/Credit A or Higher Index -3.0% -0.4% 0.1% -0.4%Variance Hueler Universe 0.4% 0.3% 0.4% 0.1%

Dodge & Cox Stock Fund 595,888,438 25.6% 11.2% 9.7% 12.6%Russell 1000 Value Index 26.5% 9.7% 8.3% 11.8%Morningstar Large Value 25.0% 9.9% 7.8% 10.5%Variance Russell 1000 Value Index -0.9% 1.5% 1.4% 0.8%Variance Morningstar Large Value 0.6% 1.3% 1.9% 2.1%

8


Jennison Large Cap Growth Fund 422,591,416 32.5% 22.0% 15.3% N/ARussell 1000 Growth Index 36.4% 20.5% 14.6% N/AMorningstar Large Growth 31.7% 18.1% 12.0% N/AVariance Russell 1000 Growth Index -3.9% 1.5% 0.7% N/AVariance Morningstar Large Growth 0.8% 3.9% 3.3% N/A

American Funds EuroPacific Growth R6 326,921,304 27.4% 12.5% 7.4% 6.7%MSCI EAFE Index - Net Div 22.0% 9.6% 5.7% 5.5%Morningstar Foreign Large Blend 21.5% 9.2% 5.2% 5.1%Variance MSCI EAFE Index - Net Div 5.4% 2.9% 1.7% 1.2%Variance Morningstar Foreign Large Blend 5.9% 3.3% 2.2% 1.6%

Voya Small Cap Growth Equity Fund 150,212,174 25.9% 8.2% 7.5% N/ARussell 2000 Growth Index 28.5% 12.5% 9.3% N/AMorningstar Small Growth 27.7% 13.5% 9.6% N/AVariance Russell 2000 Growth Index -2.6% -4.3% -1.8% N/AVariance Morningstar Small Growth -1.8% -5.3% -2.1% N/A

Artisan Mid Cap Fund 126,072,899 38.7% 17.6% 10.7% 14.1%Russell Midcap Growth Index 35.5% 17.4% 11.6% 14.2%Morningstar Mid-Cap Growth 32.3% 15.4% 10.0% 12.2%Variance Russell Midcap Growth Index 3.2% 0.2% -0.9% -0.1%Variance Morningstar Mid-Cap Growth 6.4% 2.2% 0.7% 1.9%

T. Rowe Price Mid-Cap Value Fund 118,546,838 19.7% 6.2% 7.7% 10.8%Russell Midcap Value Index 27.1% 8.1% 7.6% 12.4%Morningstar Mid-Cap Value 24.8% 7.3% 6.6% 10.7%Variance Russell Midcap Value Index -7.4% -1.9% 0.1% -1.6%Variance Morningstar Mid-Cap Value -5.1% -1.1% 1.1% 0.1%

PIMCO Total Return I Fund 117,292,139 8.3% 4.3% 3.2% 4.2%Bloomberg Barclays U.S. Aggregate Index 8.7% 4.0% 3.0% 3.7%Morningstar Intermediate Core-Plus Bond 8.9% 4.1% 3.1% 4.3%Variance Bloomberg Barclays U.S. Aggregate Index -0.4% 0.3% 0.2% 0.5%Variance Morningstar Intermediate Core-Plus Bond -0.6% 0.2% 0.1% -0.1%

Oakmark Equity & Income I Fund 116,945,730 19.7% 8.1% 6.2% 8.0%60% S&P 500/40% Barclays U.S. Gov/Credit Index 22.6% 11.0% 8.5% 9.9%Morningstar Allocation--50% to 70% Equity 18.9% 8.2% 5.9% 7.4%Variance 60% S&P 500/40% Barclays U.S. Gov/Credit Index -2.9% -2.9% -2.3% -1.9%Variance Morningstar Allocation--50% to 70% Equity 0.8% -0.1% 0.3% 0.6%

Virtus Ceredex Small-Cap Value Eq I 71,146,789 18.1% 4.9% 7.2% 11.0%Russell 2000 Value Index 22.4% 4.8% 7.0% 10.6%Morningstar Small Value 21.2% 3.8% 5.5% 9.9%Variance Russell 2000 Value Index -4.3% 0.1% 0.2% 0.4%Variance Morningstar Small Value -3.1% 1.1% 1.7% 1.1%

Prudential High Yield Fund 36,689,393 16.7% 7.3% 6.6% N/ABloomberg Barclays U.S. Corp. HY 1% Issuer Cap Index 14.3% 6.3% 6.1% N/AMorningstar High Yield Bond 12.5% 5.2% 4.8% N/AVariance Bloomberg Barclays U.S. Corp. HY 1% Issuer Cap Index 2.4% 1.0% 0.5% N/AVariance Morningstar High Yield Bond 4.2% 2.1% 1.8% N/A

TIER III

Self Directed 201,627,132

TOTAL $9,585,966,297

Loan Fund: $206,062,010

9


INTERNATIONAL EQUITY REVIEW State of Michigan Investment Board Meeting

March 19, 2020

Patrick M. Moraniec, CFA Senior Investment Manager International Equity Division

EXECUTIVE SUMMARY

Performance



MSCI ACWI ex USA Returns 21.5% 9.9% 5.5% 5.6% 5.0%

Peer Median Returns 23.2% 10.8% 6.5% 6.6% 6.1%

Percentile Rank vs. Peers* 49 48 41 51 48 *Source: State Street Universe greater than $1 billion

The International Equity Division (IED) portfolio outperformed the benchmark by 1.7% over the last twelve months. Outperformance from the quality factor, momentum factor and financials underweight was offset by underperformance in the value factor.

Asset Class Goals

Construct a non-U.S. equity-focused portfolio to generate, on a consistent basis, ten-year returns that exceed the MSCI ACWI ex USA by 1.0%.

Perform in the top half of the public plan peer universe percentile rankings.

Advance people, processes, and systems to continuously improve investment decisions.

Strategy

The International Equity Division has three distinct portfolio strategies. o Active investments, 38.4% of assets, to gain specific international stock market

exposures.

o Stock plus investments, 36.3% of assets, to implement a portable alpha strategy onto high-level strategic tilts.

o Index investments, 25.3% of assets, to gain broad international stock market exposure with minimal tracking risk.

Current portfolio drivers of risk and return.

o Tracking error of the portfolio is approximately 1.1% which is below the division’s risk

budget of 3.0%.

o The momentum factor, the largest contributor to tracking error, accounts for only 16.0% of the total tracking error indicating the portfolio is not materially exposed to any one single risk.

o Future portfolio returns will be driven by the performance of the quality, value and momentum factors with additional tracking error contributions from the energy, financials and healthcare sectors.

1

Quarterly changes to International Equity Division allocation.

o Rebalanced $1.15 billion of maturing equity swaps to MSCI factor indexes maintaining the portfolio’s exposure to the quality, value and momentum factors.

o Raised $370.0 million from LA Capital Management Emerging Markets portfolio to

fund the IED Quality Equity portfolio. The IED Quality Equity portfolio invests in high quality companies for the long-term. Forward looking estimates for return are 12.9% annualized with an estimated information ratio of 0.9.


Market Performance International stock markets rebounded in 2019, up 21.5%. Earnings per share growth

year-over-year contracted -7.0% but was more than offset by price-to-earnings multiple expansion of 27.0%.

Quality and momentum factors outperformed the MSCI ACWI ex USA in 2019, up 30.1% and 24.0% respectively. Value continued to underperform, up 15.8%. Quality, value, and momentum remain strategically important factors to IED.

Developed markets outperformed the MSCI ACWI ex USA, up 22.5% while emerging markets underperformed, up 18.4%.

The U.S. dollar was essentially flat for 2019 and remains range bound since late 2014.

Commodities returned approximately 7.7% in 2019. Commodities remain down -57.0% from their interim cycle highs back in early 2011. Oil appreciated 34.0% in 2019, copper 6.0%, and gold 18.0%.

Global risk-free interest rates (index weighted) remain subdued at approximately 1.3%.

Outlook

Completion of a phase one trade deal with China has temporarily deescalated the trade tensions between the U.S. and China. Enforcement solutions to key issues such as unfair trade practices, intellectual property theft, and forced technology transfer were only partially addressed. The timing of a complete trade deal remains unknown and this uncertainty will continue to negatively impact global trade.

World trade volumes, a proxy for economic growth, continue to exhibit negative year-over-year growth. Trade volume contracted -1.0% which is below the historical average of 3.4% over the last twenty years. On-going disputes between the U.S., Europe and China may explain the subdued growth.

Europe remains mired in slow growth. Sales growth continued to expand, albeit at 1.5% year-over-year, indicating a bottoming process may be taking place. Europe manufacturing PMIs remain in contraction but are also exhibiting signs of bottoming.

2

Japan manufacturing PMIs contracted for the ninth consecutive month with a reading below 50.0. Sales growth year-over-year was 1.2% and earnings per share growth contracted -8.0% year-over-year indicating sluggish economic activity.

The recent COVID-19 outbreak in China will have a negative impact on China’s GDP in 2020. The second largest economy in the world will most likely see manufacturing PMIs fall back below 50.0.

Global manufacturing PMIs are barely above expansionary territory, currently at 50.4, indicating the global slowdown may not abate until late 2020.

Global growth will be challenging in 2020 given the slow sales growth and contracting manufacturing PMIs in the aforementioned major international economies. Zero to low single digit growth in earnings per share may be the base-case scenario.

On a positive note, major central banks remain accommodative in their monetary

policies. This should provide a first line of defense to slow sales and earnings growth and may partially explain the significant price-to-earnings multiple expansion in 2019.

Analysts continue to project positive earnings growth of about 11.3% over the next

twelve months for the MSCI ACWI ex USA index. Multiples have expanded 13.0% since February 2019 but were off a low price-to-earnings starting number. Investors are paying a forward price-to-earnings of about 14.5x and trailing 16.1x.

Go-forward annualized returns for the MSCI ACWI ex USA index are estimated at 8.7%.

This rate is based on the current price and actual fundamentals over multiple periods to remove fundamental variability, better estimating the earnings power of the index.

A ten-year blended international government yield of 1.3% implies an international equity risk premium of 7.5%. The equity risk premium decreased primarily due to a decrease in forward looking stock returns. The decrease in returns was a direct result of rising stock prices and no change in normalized earnings projections.

Conclusion International economic fundamentals continued to decline in 2019, however, global government bond yields fell as major central banks’ monetary policies remained accommodative. The policies in Japan, Europe, and now the U.S. are an open-ended inflation targeting processes. International stock markets trade at approximately a 26.0% discount relative to their twenty-three-year history and a wide spread relative to global risk-free rates. To capture this upside, international stock investors will need a long investment horizon as the short-term environment could experience increased volatility and a higher probability of a significant drawdown in equity markets should central bank policy not off-set continued macro-economic weakness.

3

SMRSInternational Equity Strategies

12/31/19

Markets

Active

BlackRock MSCI $2,114 Wellington 1,074 Martin Currie 401 Marathon-London 330 SSGA 271 Lazard 265 Effissimo Capital Management 91

Total Active $5,047 38.4%

Stock Plus

Internal $2,813 PIMCO 1,949

Total Stock Plus $4,762 36.3%

Indexed

SSGA $1,884 BlackRock 1,436

Total Indexed $3,320 25.3%

TOTAL $13,129 100.0%

Amount % of TotalTotal

($ in Millions)

4

SMRS International Equities

12/31/19

Date: 12/31/19

9/30/19

6/30/19 3/31/19

Assets ($ in Millions): $13,129 $11,929 $12,131 $12,264 Number of Securities: 2,982 2,711 2,705 2,636 Active Share: 33% 32% 31% 26%

Benchmark: MSCI ACWI ex USA Description: The International Equities Composite represents all International Equity Division investments. Portfolio Characteristics: SMRS MSCI ACWI ex USA LTM Normalized LTM Normalized Return: Annualized Total Return 9.0% 9.5% 8.2% 8.7% Sustainable Growth Rate 5.6% 6.8% 5.0% 6.3% Dividend Yield 2.4% 2.1% 2.7% 2.3% Buyback Yield 0.5% 0.1% 0.5% 0.0% Collateral Yield 0.5% 0.5% 0.0% 0.0% Risk: Beta 0.95 -- 1.00 -- Volatility 11.2% -- 11.8% -- Tracking Error 1.1% -- 0.0% -- Information Ratio 0.7 0.7 -- -- Fundamental: Average Capitalization ($ in Billions) 79.3 -- 77.1 -- Price/Earnings 16.6 18.7 16.6 18.6 Price/Book 1.8 2.1 1.8 2.1 ROE 10.8% 11.3% 10.7% 11.1%

TOP TEN HOLDINGS

($ in Billions* - $ in Millions**)

Portfolio Weight

Market Capitalization*

FY1 P/E

Market Value**

Tencent Holdings Ltd. 2.7% $460.5 34.1 $354.5

Taiwan Semiconductor Manufacturing Co., Ltd. 1.9% 286.3 25.1 249.9

Roche Holding AG 1.7% 278.4 15.8 221.0

Samsung Electronics Co., Ltd. 1.2% 320.4 17.3 154.3

Nestle S.A. 1.1% 321.8 23.8 142.1

ASML Holding NV 1.0% 126.0 42.8 133.8

AstraZeneca PLC 1.0% 132.2 28.1 127.6

CSL Limited 1.0% 88.0 41.3 125.6

LVMH Moet Hennessy Louis Vuitton SE 1.0% 235.0 28.3 124.8

Alibaba Group Holding. Ltd. 0.9% 570.7 28.9 119.1

TOTAL 13.3% $2,819.2

$1,752.6

5

SMRS

12/31/19


Assets Percent Benchmark DifferenceFinancials $2,034 15.5% 21.3% -5.8%Industrials 1,806 13.8% 11.9% 1.9%Consumer Discretionary 1,694 12.9% 11.9% 1.0%Health Care 1,590 12.1% 8.9% 3.2%Consumer Staples 1,441 11.0% 9.4% 1.6%Information Technology 1,431 10.9% 9.5% 1.4%Communication Services 1,002 7.6% 6.7% 0.9%Materials 868 6.6% 7.3% -0.7%Energy 543 4.2% 6.6% -2.4%Utilities 358 2.7% 3.4% -0.7%Real Estate 318 2.4% 3.1% -0.7%Total Investments $13,085 99.7% 100.0%Cash/Other 44 0.3% 0.0% 0.3%Total $13,129 100.0% 100.0%

Benchmark: MSCI ACWI ex USA

International Equity By Sector

12/31/19

Financials15.5%

Industrials13.8%

Consumer Discretionary

12.9%

Health Care12.1%

Consumer Staples11.0%

Information Technology

10.9%

Communication Services

7.6%

Materials6.6%

Energy4.2%

Utilities2.7%

RE2.4%

Cash/ Other0.3%

6

InceptionFund Name Market Value 1-Year 3-Years 5-Years 7-Years Inception Date

Total International Equity $13,129,204,239 22.9% 10.5% 6.5% 6.4% 6.0% 1/1/04MSCI ACWI ex USA 21.5% 9.9% 5.5% 5.6% 6.2%Lipper International Multi-Cap Core 20.8% 8.8% 5.2% 5.8% 5.5%Excess Return 1.3% 0.6% 1.0% 0.7% -0.2%Pct Rank vs. Lipper International Multi-Cap Core 18 4 10 22 22

Total International Active Strategy $5,047,199,069 21.3% 9.4% 5.8% 6.1% 5.2% 5/1/05MSCI ACWI ex USA 21.5% 9.9% 5.5% 5.6% 5.5%Lipper International Multi-Cap Core 20.8% 8.8% 5.2% 5.8% 4.9%Excess Return -0.2% -0.4% 0.3% 0.5% -0.3%Pct Rank vs. Lipper International Multi-Cap Core 51 45 33 48 51

BlackRock MSCI Systematic Return 2,113,605,693 23.3% -- -- -- 17.8% 12/1/18MSCI ACWI ex USA 21.5% -- -- -- 14.7%Lipper International Multi-Cap Core 20.8% -- -- -- 13.5%Excess Return 1.7% -- -- -- 3.1%Pct Rank vs. Lipper International Multi-Cap Core 17 -- -- -- 2

Wellington IRE 643,275,094 23.2% 10.7% 6.3% 7.1% 4.9% 12/1/05MSCI World ex USA 22.5% 9.3% 5.4% 6.0% 5.2%Lipper International Multi-Cap Core 20.8% 8.8% 5.2% 5.8% 4.2%Excess Return 0.7% 1.4% 0.8% 1.1% -0.3%Pct Rank vs. Lipper International Multi-Cap Core 17 2 14 10 16

Martin Currie International Long-Term 400,413,772 34.1% -- -- -- 13.4% 2/1/17MSCI ACWI ex USA 21.5% -- -- -- 8.9%Lipper International Multi-Cap Core 20.8% -- -- -- 7.8%Excess Return 12.6% -- -- -- 4.5%Pct Rank vs. Lipper International Multi-Cap Core 1 -- -- -- 1

Marathon-London International Fund 329,558,410 23.2% 9.4% 7.1% 8.2% 8.6% 2/1/12MSCI World ex USA 22.5% 9.3% 5.4% 6.0% 6.7%Lipper International Multi-Cap Core 20.8% 8.8% 5.2% 5.8% 6.5%Excess Return 0.7% 0.1% 1.7% 2.1% 2.0%Pct Rank vs. Lipper International Multi-Cap Core 17 45 7 3 6

Wellington Emerging Markets Local Equity 305,313,904 18.6% 12.3% 6.2% 5.2% 7.0% 12/1/11MSCI Emerging Market Index 18.4% 11.6% 5.6% 3.3% 4.8%Lipper Emerging Markets 19.5% 10.5% 4.9% 3.1% 4.6%Excess Return 0.2% 0.7% 0.6% 1.9% 2.1%Pct Rank vs. Lipper Emerging Markets 57 30 33 16 12

SSGA International Alpha Small Cap 270,494,148 24.0% 9.1% 7.4% 8.6% 4.1% 5/1/07MSCI World ex USA Small Cap 25.4% 10.4% 8.2% 8.4% 3.7%Lipper International Small/Mid-Cap Core 19.1% 8.0% 6.0% 6.4% 3.4%Excess Return -1.4% -1.3% -0.8% 0.2% 0.5%Pct Rank vs. Lipper International Small/Mid-Cap Core 21 34 36 1 21

Lazard/Wilmington International Equity 264,600,000 21.4% 8.9% 4.8% -- 2.9% 6/1/14MSCI World ex USA 22.5% 9.3% 5.4% -- 3.3%Lipper International Large-Cap Core 20.8% 8.8% 5.2% -- 3.3%Excess Return -1.1% -0.4% -0.6% -- -0.4%Pct Rank vs. Lipper International Large-Cap Core 50 57 73 -- 73

Wellington Select China Equity 125,613,000 -- -- -- -- 4.7% 9/1/19MSCI All China Index -- -- -- -- 3.2%Lipper Emerging Markets -- -- -- -- 12.2%Excess Return -- -- -- -- 1.5%Pct Rand vs. Lipper Emerging Markets -- -- -- -- 96

Effissimo Capital Management Japan 91,323,562 15.0% 5.9% -- -- 5.8% 12/1/15MSCI Japan 19.6% 8.9% -- -- 7.2%Lipper International Small/Mid-Cap value 17.1% 6.6% -- -- 7.1%Excess Return -4.7% -3.0% -- -- -1.4%Pct Rank vs. Lipper International Small/Mid-Cap Value 81 78 -- -- 89

International Equity Performance - Net of Fees12/31/19

7

InceptionFund Name Market Value 1-Year 3-Years 5-Years 7-Years Inception Date

Total International Stock Plus Strategy $4,761,868,499 25.6% 11.5% 7.1% 7.3% 7.9% 1/1/09MSCI ACWI ex USA 21.5% 9.9% 5.5% 5.6% 7.9%Lipper International Multi-Cap Core 20.8% 8.8% 5.2% 5.8% 7.6%Excess Return 4.1% 1.7% 1.6% 1.6% 0.1%Pct Rank vs. Lipper International Multi-Cap Core 3 1 7 10 26

Internal Stock Plus 2,812,997,518 27.0% 11.3% 6.5% 8.2% 6.5% 9/1/11MSCI ACWI ex USA 21.5% 9.9% 5.5% 5.6% 5.5%Lipper International Multi-Cap Core 20.8% 8.8% 5.2% 5.8% 5.9%Excess Return 5.5% 1.4% 1.0% 2.5% 1.1%Pct Rank vs. Lipper International Multi-Cap Core 2 1 11 3 27

PIMCO StocksPLUS 1,948,870,981 -- -- -- -- 12.5% 4/1/19MSCI ACWI ex USA -- -- -- -- 10.2%Lipper International Multi-Cap Core -- -- -- -- 9.8%Excess Return -- -- -- -- 2.3%Pct Rank vs. Lipper International Multi-Cap Core -- -- -- -- 9

Total International Index Strategy $3,320,136,671 21.5% 11.2% 7.0% 6.1% 8.1% 7/1/09MSCI ACWI ex USA 21.5% 9.9% 5.5% 5.6% 6.9%Lipper International Multi-Cap Core 20.8% 8.8% 5.2% 5.8% 7.0%Excess Return 0.0% 1.3% 1.5% 0.5% 1.2%Pct Rank vs. Lipper International Multi-Cap Core 44 1 8 42 9

SSGA MSCI ACWI ex USA Index 1,883,926,963 21.4% -- -- -- 3.5% 11/1/17MSCI ACWI ex USA 21.5% -- -- -- 3.4%Lipper International Multi-Cap Core 20.8% -- -- -- 2.5%Excess Return -0.2% -- -- -- 0.1%Pct Rank vs. Lipper International Multi-Cap Core 50 -- -- -- 31

Blackrock ACWI ex USA Index 1,436,209,708 21.8% -- -- -- 2.3% 3/1/18MSCI ACWI ex USA 21.5% -- -- -- 2.0%Lipper International Multi-Cap Core 20.8% -- -- -- 1.8%Excess Return 0.3% -- -- -- 0.3%Pct Rank vs. Lipper International Multi-Cap Core 38 -- -- -- 47

8


DOMESTIC EQUITY REVIEW State of Michigan Investment Board Meeting

March 19, 2020

Jack A. Behar, CFA Senior Investment Manager Domestic Equity Division

EXECUTIVE SUMMARY

Performance



S&P 1500 30.9% 14.7% 11.5% 14.5% 13.5%

Peer Median Return 24.7% 12.3% 8.8% 10.9% 11.6%

Percentile Rank vs. Peers * 3 13 11 11 29 *State Street Universe greater than $1 billion

Total Domestic Equity outperformed its peer group over all time periods and the S&P 1500over one, three and seven-year periods.

During the past year performance was 70 basis points (bps) ahead of the benchmark netof fees, with incurred tracking error of 2.0%.

Outperformance was led by Mellon Capital, which strategically combines high betaS&P 500 exposure with long dated treasuries, both of which significantly outperformed onthe year.

SMRS’ internal Large Cap Consistent Growth Fund had another banner year, returning39% while taking less risk than the S&P 500 index. Large Cap Consistent Growth’sperformance remains in the top 1% of managers on an inception to date basis.

Ark Investments outperformed on the year as well and continues to rank in the top 1% ofits Lipper peer group on an inception to date basis.

Individual contributors to division performance included General Electric, Conagra, AllyFinancial, Safehold, Worldpay, Crisper Therapeutics, Home Depot and long datedtreasuries.

The division also benefitted from having very little oil and gas exposure in the portfolio.

Asset Class Goal

To provide the SMRS with long-term domestic equity market returns or better, by investing in a diversified and attractively valued portfolio of companies at an index fund-like cost.

1

Strategy Update

In response to the large upward move in the markets, the Domestic Equity Portfolio hasshifted its allocation to a slightly more defensive posture than it had in place during 2019,adding to defensive stocks such as utilities and reits, reducing technology exposure andreducing division beta exposure.

The division is overweight the financial sector, defensive stocks and health care andunderweight consumer discretionary, technology and commodity related sectors.

Total Domestic Equity’s portfolio trades at 17x earnings, a 15% discount to the S&P 1500at 20x, generates over $400M of dividend income per year ($100M more than if the entireportfolio were indexed), and is growing its earnings faster than the S&P 1500.

With an estimated portfolio beta of 1.04, a significant market correction would present avery modest headwind to performance.


At ~20x forward earnings, equity markets trade at a premium to both their historicalaverage of 15.7x and their twenty-five-year historical average of 18x.

However, factoring in the existing level of low interest rates, stocks remain reasonablypriced for an environment where long-term bond yields are 4% or lower.

The market is currently paying out 1.8% of its earnings in dividends and reducing sharesoutstanding by 2.5% through share buybacks, for a 4.3% total shareholder yield.

The market is also growing shareholders’ equity at a rate of 2.2% by reinvesting a littlemore than 10% of its earnings back into its underlying businesses. Growth has likely beenimpacted by trade tensions in 2019 and should increase in a more normalizedenvironment.

The market is thus poised to earn roughly 6.5% (shareholder yield of 4.3% + reinvestmentrate of 2.2%) in an environment where stock multiples, growth and returns on equity arestable.

Prospective market returns compare favorably to the 30-year U.S. Treasury at 2.4%, andunfavorably to the historical compound annual return for the S&P 500 from 1928-2018of 9.5%.

2

SMRSDomestic Equity Strategies

12/31/19

Markets

Internal Indexed

Indexed Portfolios $7,413

Total Indexed $7,413 42.0%

Internal Active

Active Portfolios $5,774

Total Internal Active $5,774 32.7%

External Active

Los Angeles Capital $1,343 Mellon Capital 1,122 Seizert Capital Partners 599 Clarkston Capital Partners 514 ARK Investments 483 Attucks Asset Management 148 Bivium Capital 144 Ancora 105

Total External Active $4,458 25.3%

Total Domestic Equity $17,645 100.0%

Amount % of TotalTotal

($ in Millions)

3

SMRS Domestic Equities Composite

12/31/19

Date: 12/31/19 9/30/19 6/30/19 3/31/19

Assets ($ in Millions): $17,645 $16,789 $16,636 $17,963 Number of Securities: 1,354 1,316 1,296 1,314 Active Share: 41% 43% 49% 47%

Description: The Domestic Equities Composite combines both the SMRS’ Actively Managed Composite and its index funds.

Characteristics SMRS S&P 1500 S&P 1500

Value Market Capitalization ($ in Billions) $233.4 $277.2 $130.1P/E FY1 17.2x 20.2x 16.0x P/E upside to S&P 1500 17.7% 0.0 25.9% Price/Book 3.3x 3.4x 2.2xReturn on Equity 18.5% 17.1% 13.9%

Risk Metrics Beta 1.04 1.00 0.88Tracking Error 1.4% 0.0% 3.6%

Projected Returns Dividend Yield 2.4% 1.8% 2.6% Buyback Yield 2.5% 2.5% 2.8% Reinvestment Rate 3.0% 2.2% 2.0% Projected Investment Return 7.9% 6.5% 7.4%

TOP TEN EXPOSURES – Domestic Equities vs S&P 1500 12/31/19

Domestic Equity Portfolio S&P 1500

Company Name Portfolio Weight

FY1 P/E Company Name

Market Weight

FY1 P/E

SPDR S&P 500 ETF Trust 13.2% 20.3 Apple, Inc. 4.2% 24.3 SPDR Port. LT Treasury ETF 4.1% 41.6 Microsoft Corp. 4.1% 30.3 Microsoft Corp. 2.9% 30.3 Amazon.com, Inc. 2.6% 91.5 Apple, Inc. 2.6% 24.3 Facebook, Inc. Class A 1.7% 34.8Berkshire Hathaway, Inc. B 2.1% 15.5 Berkshire Hathaway, Inc. B 1.5% 15.5 AGNC Investment Corp. 2.1% 8.4 JPMorgan Chase & Co. 1.5% 12.9 Amazon.com, Inc. 1.6% 91.5 Alphabet, Inc., Class A 1.4% 30.9Facebook, Inc. Class A 1.6% 34.8 Alphabet, Inc., Class C 1.4% 30.9 Wells Fargo & Company 1.5% 11.5 Johnson & Johnson 1.3% 16.8 Athene Holding Ltd., Class A 1.1% 7.4 Visa, Inc., Class A 1.1% 31.5 TOTAL 32.8% 19.5 TOTAL 20.8% 26.1

4

SMRS

12/31/19


Assets Percent Benchmark Difference

Financials $3,983 22.6% 13.3% 9.3%Information Technology 3,660 20.7% 22.5% -1.8%Health Care 2,475 14.0% 13.9% 0.1%Communication Services 1,566 8.9% 9.6% -0.7%Industrials 1,464 8.3% 9.7% -1.4%Consumer Discretionary 1,370 7.8% 10.1% -2.3%Consumer Staples 1,137 6.4% 6.8% -0.4%Utilities 659 3.7% 3.4% 0.3%Real Estate 488 2.8% 3.6% -0.8%Materials 449 2.6% 2.9% -0.3%Energy 394 2.2% 4.2% -2.0%

Total $17,645 100.0% 100.0%

Benchmark: S&P 1500

Domestic Equity By Sector

12/31/19

Financials22.6%


20.7%

Health Care14.0%


8.9%

Industrials8.3%


7.8%

Consumer Staples

6.4%

Utilities3.7%

RE2.8%

Materials2.6%

Energy2.2%

5

SMRS Actively Managed Composite

12/31/19

Date: 12/31/19 9/30/19 6/30/19 3/31/19

Assets ($ in Millions): $10,232 $9,969 $9,911 $10,005

Number of Securities: 1,069 1,052 1,036 1,086

Active Share: 70% 72% 82% 83%

Description: The Actively Managed Composite is designed to add consistent alpha by investing in managers with value-added, but diverse strategies. While the expectation is that most will outperform over time, the composite is designed such that they do so during differing parts of the business cycle.

Characteristics SMRS S&P 1500 S&P 1500

Value Market Capitalization ($ in Billions) $182.4 $277.2 $130.1P/E FY1 15.4x 20.2x 16.0x P/E upside to S&P 1500 31.4% 0.0 25.9% Price/Book 3.1x 3.4x 2.2xReturn on Equity 19.0% 17.1% 13.9%

Risk Metrics Beta 1.07 1.00 0.88Tracking Error 2.4% 0.0% 3.6%

Projected Returns Dividend Yield 2.9% 1.8% 2.6% Buyback Yield 2.4% 2.5% 2.8% Reinvestment Rate 3.4% 2.2% 2.0% Projected Investment Return 8.7% 6.5% 7.4%

TOP TEN EXPOSURES – Actively Managed Equities vs S&P 1500 12/31/19

Actively Managed Equity Portfolio S&P 1500

Company Name Portfolio Weight

FY1 P/E Company Name

Market Weight

FY1 P/E

SPDR S&P 500 ETF Trust 19.2% 20.3 Apple, Inc. 4.2% 24.3 SPDR Port. LT Treasury ETF 7.1% 41.6 Microsoft Corp. 4.1% 30.3 AGNC Investment Corp. 3.7% 8.4 Amazon.com, Inc. 2.6% 91.5 Berkshire Hathaway, Inc. B 3.0% 15.5 Facebook, Inc. Class A 1.7% 34.8Wells Fargo & Company 2.1% 11.5 Berkshire Hathaway, Inc. B 1.5% 15.5 Microsoft Corp. 2.0% 30.3 JPMorgan Chase & Co. 1.5% 12.9 Athene Holding Ltd. Class A 1.8% 7.4 Alphabet, Inc., Class A 1.4% 30.9 Two Harbors Investment Corp. 1.6% 10.1 Alphabet, Inc., Class C 1.4% 30.9 Exelon Corp. 1.6% 14.8 Johnson & Johnson 1.3% 16.8 Annaly Capital Management, Inc. 1.6% 9.7 Visa, Inc. Class A 1.1% 31.5 TOTAL 43.7% 16.3 TOTAL 20.8% 26.1

6

SMRS

12/31/19



Financials $3,087 30.2% 13.3% 16.9%Information Technology 1,949 19.0% 22.5% -3.5%Health Care 1,471 14.4% 13.9% 0.5%Communication Services 824 8.1% 9.6% -1.5%Industrials 757 7.4% 9.7% -2.3%Consumer Staples 634 6.2% 6.8% -0.6%Consumer Discretionary 595 5.8% 10.1% -4.3%Utilities 409 4.0% 3.4% 0.6%Materials 219 2.1% 2.9% -0.8%Real Estate 213 2.1% 3.6% -1.5%Energy 74 0.7% 4.2% -3.5%

Total $10,232 100.0% 100.0%

Benchmark: S&P 1500

Active Equity By Sector

12/31/19

Financials30.2%


19.0%Health Care

14.4%


8.1%

Industrials7.4%

Consumer Staples

6.2%


5.8%

Utilities4.0%

Materials2.1%

RE2.1%

Energy0.7%

7

InceptionFund Name Market Value 3-Years 5-Years 7-Years Date

SMRS S&P 500 Index $6,843,164,200 31.3% 15.3% 11.8% 14.9% -- N/AS&P 500 31.5% 15.3% 11.7% 14.7% --Style & Risk Adjusted Benchmark 31.3% 15.2% 11.7% 14.7% --Lipper Large-Cap Core 29.7% 14.2% 10.5% 13.5% --Excess Return -0.2% 0.0% 0.1% 0.1% --Alpha 0.1% 0.1% 0.1% 0.1% --Pct. Rank vs. Lipper Large-Cap Core 37 31 16 11 --

SMRS Large-Cap Core 2,529,067,691 29.9% 16.7% 10.3% 15.2% 9.2% 8/31/07S&P 500 31.5% 15.3% 11.7% 14.7% 8.9%Style & Risk Adjusted Benchmark 44.8% 19.7% 13.3% 16.4% 9.6%Lipper Large-Cap Core 29.7% 14.2% 10.5% 13.5% 8.2%Excess Return -1.5% 1.4% -1.4% 0.5% 0.3%Alpha -14.9% -3.0% -3.0% -1.2% -0.4%Pct Rank vs Lipper Large-Cap Core 54 7 58 6 15

SMRS All-Cap Garp 1,811,008,356 26.6% 12.3% 9.1% 13.1% 13.1% 4/30/11S&P 1500 Super Composite 30.9% 14.6% 11.5% 14.5% 12.8%Style & Risk Adjusted Benchmark 29.5% 16.1% 11.6% 15.0% 13.1%Lipper Multi-Cap Core 28.3% 12.3% 9.0% 12.4% 10.6%Excess Return -4.3% -2.3% -2.4% -1.4% 0.3%Alpha -2.9% -3.8% -2.6% -1.9% 0.0%Pct. Rank vs. Lipper Multi-Cap Core 72 55 59 44 4

Mellon US Equity Enhanced 1,122,381,184 66.8% -- -- -- 30.0% 3/1/17S&P 500 31.5% -- -- -- 13.9%Style & Risk Adjusted Benchmark 34.5% -- -- -- 22.0%Lipper Large-Cap Core 29.7% -- -- -- 12.8%Excess Return 35.3% -- -- -- 16.1%Alpha 32.3% -- -- -- 8.0%Pct. Rank vs. Lipper Large-Cap Core 1 -- -- -- 1

SMRS Large-Cap Growth 756,596,328 30.8% 20.4% 12.4% 16.0% 10.5% 5/31/05S&P 500 Growth 31.1% 18.7% 13.5% 16.3% 10.7%Style & Risk Adjusted Benchmark 36.6% 19.3% 14.5% 17.5% 10.9%Lipper Large-Cap Growth 33.0% 19.5% 13.1% 15.7% 10.4%Excess Return -0.3% 1.7% -1.1% -0.3% -0.2%Alpha -5.9% 1.1% -2.1% -1.5% -0.5%Pct Rank vs Lipper Large-Cap Growth 79 39 68 43 42

LA Capital Deep Value 678,270,860 29.9% 9.9% -- -- 8.7% 4/1/15S&P 1500 Value 31.3% 11.1% -- -- 10.0%Style & Risk Adjusted Benchmark 24.7% 7.2% -- -- 10.6%Lipper Multi-Cap Value 25.0% 8.6% -- -- 7.4%Excess Return -1.4% -1.2% -- -- -1.2%Alpha 5.2% 2.7% -- -- -1.9%Pct. Rank vs. Lipper Multi-Cap Value 12 26 -- -- 24

LA Capital All-Cap Growth 665,235,811 27.7% 15.9% 13.2% 16.8% 12.2% 5/31/05S&P 1500 Growth 30.6% 17.9% 13.2% 16.0% 10.7%Style & Risk Adjusted Benchmark 26.0% 16.0% 11.2% 14.2% 9.7%Lipper Multi-Cap Growth 31.5% 17.7% 11.4% 14.3% 10.1%Excess Return -2.9% -2.0% 0.0% 0.8% 1.5%Alpha 1.7% -0.1% 2.0% 2.5% 2.5%Pct. Rank vs. Lipper Multi-Cap Growth 80 68 23 14 9

12/31/19

1-Year Inception

Manager Performance - Net of Fees

8

InceptionFund Name Market Value 3-Years 5-Years 7-Years Date1-Year Inception

Seizert Capital Partners 598,936,176 27.2% 10.5% 8.9% 12.5% 13.5% 11/30/09S&P 1500 Value 31.3% 11.1% 9.4% 12.8% 12.9%Style & Risk Adjusted Benchmark 19.5% 10.6% 9.5% 12.8% 13.0%Lipper Multi-Cap Value 25.0% 8.6% 7.2% 11.0% 11.1%Excess Return -4.1% -0.5% -0.5% -0.3% 0.6%Alpha 5.3% 0.0% -1.1% 0.2% 0.5%Pct. Rank vs. Lipper Multi-Cap Value 59 22 32 12 7

Large-Cap Consistent Growth 569,633,745 39.2% 21.9% -- -- 14.4% 3/1/15S&P 500 31.5% 15.3% -- -- 11.5%Style & Risk Adjusted Benchmark 19.3% 16.3% -- -- 11.8%Lipper Large-Cap Core 29.7% 14.2% -- -- 10.3%Excess Return 7.7% 6.6% -- -- 2.9%Alpha 19.9% 5.5% -- -- 2.7%Pct. Rank vs. Lipper Large-Cap Core 1 1 -- -- 1

SMRS Mid-Cap Index 569,490,610 26.0% 9.6% 9.6% 12.9% -- N/AS&P 400 26.2% 9.3% 9.0% 12.3% --Style & Risk Adjusted Benchmark 26.0% 9.2% 9.0% 12.3% --Lipper Mid-Cap Core 27.1% 9.3% 7.4% 11.3% --Excess Return -0.2% 0.4% 0.5% 0.5% --Alpha 0.0% 0.4% 0.6% 0.6% --Pct. Rank vs. Lipper Mid-Cap Core 69 47 21 22 --

Ark Investments 482,822,912 31.4% 32.1% -- -- 28.0% 3/1/16S&P 1500 Growth 30.6% 17.9% -- -- 17.8%Style & Risk Adjusted Benchmark 51.4% 31.8% -- -- 31.4%Lipper Multi-Cap Growth 31.5% 17.7% -- -- 17.2%Excess Return 0.8% 14.3% -- -- 10.2%Alpha -20.0% 0.3% -- -- -3.3%Pct. Rank vs. Lipper Multi-Cap Growth 52 1 -- -- 1

Clarkston Capital Large-Cap 294,107,835 29.4% 10.9% -- -- 10.4% 4/1/15S&P 500 Value 31.9% 11.5% -- -- 10.2%Style & Risk Adjusted Benchmark 22.3% 9.0% -- -- 8.0%Lipper Large-Cap Value 26.4% 10.8% -- -- 9.1%Excess Return -2.5% -0.6% -- -- 0.2%Alpha 7.2% 1.9% -- -- 2.4%Pct. Rank vs. Lipper Large-Cap Value 20 43 -- -- 13

Clarkston Capital Small/Mid-Cap 219,577,822 26.0% 10.0% 10.5% -- 11.5% 1/1/14S&P 400 25.1% 9.0% 9.2% -- 9.1%Style & Risk Adjusted Benchmark 14.7% 6.4% 6.7% -- 6.7%Lipper Mid-Cap Core 27.1% 9.3% 7.4% -- 7.5%Excess Return 0.8% 1.0% 1.3% -- 2.4%Alpha 11.2% 3.7% 3.8% -- 4.8%Pct. Rank vs. Lipper Mid-Cap Core 69 43 11 -- 1

Attucks Asset Management 148,121,353 28.9% 11.9% 9.0% 12.1% 7.3% 11/30/07S&P 1500 30.9% 14.6% 11.5% 14.5% 8.6%Style & Risk Adjusted Benchmark 28.1% 10.2% 11.4% 14.6% 8.6%Lipper Multi-Cap Core 28.3% 12.3% 9.0% 12.4% 6.9%Excess Return -2.0% -2.8% -2.5% -2.4% -1.3%Alpha 0.8% 1.6% -2.5% -2.5% -1.3%Pct. Rank vs. Lipper Multi-Cap Core 49 62 60 67 49

9

InceptionFund Name Market Value 3-Years 5-Years 7-Years Date1-Year Inception

Bivium Capital Partners 144,345,578 30.4% 10.9% 8.2% 11.4% 6.8% 11/30/07S&P 1500 Value 31.3% 11.1% 9.4% 12.8% 6.8%Style & Risk Adjusted Benchmark 31.8% 11.4% 9.7% 13.2% 8.9%Lipper Multi-Cap Value 25.0% 8.6% 7.2% 11.0% 5.9%Excess Return -0.9% -0.1% -1.2% -1.4% 0.1%Alpha -1.3% -0.5% -1.5% -1.8% -2.1%Pct. Rank vs. Lipper Multi-Cap Value 8 16 26 42 25

Ancora 104,540,989 27.2% -- -- -- 6.6% 10/1/17S&P 1000 25.1% -- -- -- 7.8%Style & Risk Adjusted Benchmark 25.7% -- -- -- 7.4%Lipper Mid-Cap Core 27.1% -- -- -- 7.9%Excess Return 2.0% -- -- -- -1.2%Alpha 1.5% -- -- -- -0.8%Pct. Rank vs. Lipper Mid-Cap Core 59 -- -- -- 68

10


FIXED INCOME REVIEW State of Michigan Investment Board Meeting

March 19, 2020

Daniel J. Quigley Senior Investment Manager

Fixed Income Division

EXECUTIVE SUMMARY

Performance



Bloomberg Barclays US Agg 8.7% 4.0% 3.1% 2.7% 3.8%


Percentile Rank vs. Peers* 35 14 19 15 38

*State Street Universe greater than $1 billion

The fixed income portfolio outperformed its benchmark and peer group for all time periods.This outperformance was driven by strong returns in the credit portfolio as well asoutperformance in the core internal bond fund. The absolute performance was strong duringthe year for both rates-based and credit-based fixed income strategies.

The duration positioning of the internal portfolio helped performance as an overweight to longerduration securities outperformed intermediate duration bonds.

Investment Grade and High Yield credit experienced strong returns for the year. The StructuredFixed Income portion of the portfolio has underperformed the core fixed income benchmarkover the previous year but has outperformed over longer time horizons.

Strategy Update

The objective of the Fixed Income Division portfolio is to meet or exceed the returns of theBloomberg U.S. Aggregate Bond Index while satisfying the overall characteristics of a corefixed income portfolio. These characteristics are: income, liquidity, principal preservation, anddiversification from equity market risk. The portfolio has a higher yield than the benchmarkwithout having meaningfully more risk than the U.S. Aggregate Index. The yield-to-maturity ofthe portfolio is currently 3.4% versus a benchmark yield of 2.3%. In addition to this, the portfoliohas an equity beta of 0.0, in line with the U.S. Aggregate Index.

The Core-plus strategy implemented to achieve this goal includes:

o Core: As of December 31, 2019, the portfolio’s allocation to U.S. Treasuries,Investment Grade corporate bonds, government-guaranteed U.S. AgencyDebentures, RMBS, and Commercial Mortgage Backed Securities (CMBS) was62.1%. This includes a 23.9% allocation to U.S. Treasuries, TIPS, and cash.

o Plus: The portfolio maintains a strategic out-of-benchmark allocation to high-yieldcorporate debt, securitized credit, and global fixed income strategies as marketopportunities allow. This allocation increases the portfolio yield and total returnpotential, but will result in lower liquidity and higher volatility. The allocation to thePlus portfolio was 37.9% as of December 31, 2019.

Tactical Update

The allocation to securitized credit, primarily in CMBS, ABS, non-agency RMBS, and CLOsecurities, was 27.4% of the portfolio at the end of the quarter. The combination of low interestrate duration and high coupon income (often floating rate) offers attractive characteristics forthe overall fixed income portfolio. This portion of the portfolio had a return of 7.0% on aone-year basis, underperforming the benchmark on a relative basis by 2.7%.

1

The allocation to high-yield strategies was 5.6% at the end of the quarter. Thisout-of-benchmark position has benefitted portfolio performance on a long-term basis and wasa key driver to the strong one-year portfolio performance. The high yield portion of the portfoliohad a return of 16.5% on a one-year basis, beating the core index by 7.8%.

The portfolio has a meaningful allocation to floating rate securities, including AAA CLOinvestments and investment-grade floating rate corporate bonds. This allocation accounts forapproximately 20% of portfolio assets. This allocation will underperform in a falling interest rateenvironment, but should exhibit strong risk-adjusted return characteristics in many marketenvironments.

The allocation to U.S. TIPS was flat for the quarter at 3.2% of the fixed income portfolio. TheTIPS allocation has underperformed nominal U.S. Treasuries on a one-year basis as inflationexpectations have declined. We believe that this allocation offers an attractive hedge to theportfolio should inflation expectations increase in the future.


The yield curve for U.S. Treasury securities steepened for the quarter and the three-month toten-year portion of the yield curve is no longer inverted with three-month U.S. Treasury Billsending the quarter down 27 bp to 1.55%. Ten-year U.S. Treasury Bond yields increased by25 bp to 1.92%.

Inflation expectations increased during the quarter with ten-year breakeven inflationexpectations ending December at 1.79%. This was a 27 bp increase for the quarter.

Credit markets continued their recovery with high-yield spreads ending December at 336 bp.This represented a 190 bp decrease for spread for the year. These spread levels are roughly100 bp tighter than their five-year average. Investment grade credit spreads tightened by60 bp for the year to 93 bp, 34 bp tighter than the five-year average. The annual performanceof the Investment Grade index is 14.5% and the High Yield index return is 14.3%.

Emerging Markets debt outperformed during the quarter with EM spreads tightening by 42 bpfor the year. The EM USD index has returned 13.1% for the year.

Conclusion

The portfolio maintains a defensive position for rising interest rates. The duration remains shortof the benchmark and the portfolio maintains an underweight to long-term debt. This positionis offset through a larger allocation to structured and corporate debt securities which increasesthe income of the portfolio. The portfolio has also reduced corporate credit exposure due topoor valuations in various credit markets. The portfolio will continue to look for attractiverisk-adjusted opportunities within the fixed income opportunity set.

2

SMRSFixed Income by Strategy

12/31/19

Amount Total % of Total

Core ($ in Millions)

FID Internal $5,225 PIMCO Mortgage Fund 471 PGIM Investment Grade Credit 261 Total Core $5,957 57.8%

Tactical

Pyramis $586 Total Tactical $586 5.7%

Securitized Debt

Met West Securitized Ops $485 Napier Park CLO Debt 479 Napier Park ABS Income 437 Principal CMBS 427 TICP CLO Debt 375 Fortress Credit ABI 354 Putnam DMS 156 Napier Park Strategic Loan 112 Total Securitized Debt $2,825 27.4%

High Yield

PGIM High Yield $272 Columbia Management 257 Crescent Direct Lending 49 Total High Yield $578 5.6%

Global

T. Rowe Global Multi-Sector $252PGIM Global Liquid Relative Value 106

Total Global $358 3.5%

TOTAL $10,305 100.0%

NOTE: Totals may not be exact due to rounding.

3

Characteristic Portfolio Benchmark

Average Maturity (Yrs) 7.7 7.8

Duration (Yrs) 4.5 5.8

Spread Duration (Yrs) 5.6 6.1

Coupon (%) 3.5 3.2

Yield to Maturity (%) 3.4 2.3

Credit Rating A AA

VaR (%) 4.1 5.2

Tracking Error 1.3 NA

Beta (vs S&P 500) 0.01 -0.04

Objectives

Income:

Liquidity:

Principal Preservation:

Diversification:

SMRS Fixed Income Holdings

Portfolio Characteristics

Benchmark: Barclays Aggregate

12/31/19

The coupon of the portfolio is approximately 30 bps higherthan the benchmark. Price appreciation has been the maindriver of U.S. bond market returns YTD but Income is theprimary driver of long-term performance.

23.9% of the portfolio is invested in cash, U.S. Treasuries,and TIPS. These investments can be liquidated via same-day trading.

The portfolio has a large allocation to U.S. Treasuries andcarries an investment-grade credit rating.

The equity beta of the portfolio is roughly 0.0 meaning thatthe portfolio returns are uncorrelated with equity marketmovements, and in line with the benchmark bond index.

Commentary

Highlights

4

SMRSFixed Income By Rating

12/31/19



AAA $4,747 46.0% 71.2% -25.2%AA 782 7.6% 3.2% 4.4%A 1,512 14.7% 10.8% 3.9%BBB 1,719 16.7% 12.4% 4.3%

* Below Investment Grade 1,031 10.0% 0.7% 9.3%Not Rated 514 5.0% 1.7% 3.3%

Total Investments $10,305 100.0% 100.0%

* Comprised of approximately 8.0% High Yield Credit and 2.0% High Yield RMBS/ABS

Benchmark: Barclays US Aggregate

12/31/19

AAA46.0%

BBB16.7%

A14.7%

Below Investment Grade10.0%

AA7.6%

Not Rated5.0%

5

SMRSFixed Income By Asset Type

12/31/19



Securitized $4,275 41.5% 29.5% 12.0%Corporate 3,037 29.5% 25.2% 4.3%U.S. Treasuries 1,996 19.4% 39.5% -20.1%U.S. TIPS 327 3.2% 0.0% 3.2%Government Related 274 2.6% 5.8% -3.2%Unassigned 260 2.5% 0.0% 2.5%Cash 136 1.3% 0.0% 1.3%

Total Investments $10,305 100.0% 100.0%


12/31/19

Securitized41.5%

Corporate29.5%

U.S. Treasuries19.4%

U.S. TIPS3.2%

Government Related

2.6%

Unassigned2.5% Cash

1.3%

6

SMRSDuration Distribution

Fixed Income Composite Versus Benchmark12/31/19

Source: Factset

Portfolio Benchmark Portfolio BenchmarkWeight Weight Duration* Duration*

<1 $2,608 25.3% 1.2% 0.2 0.91 to 3 1,615 15.7% 33.0% 2.1 2.13 to 5 2,147 20.8% 31.2% 4.0 3.95 to 7 1,502 14.6% 11.2% 6.0 6.07 to 10 1,220 11.8% 6.7% 8.0 7.9>10 857 8.3% 16.7% 18.3 16.3NA 356 3.5% 0.0% 0.0 0.0

Total $10,305 100.0% 100.0% 5.0 5.8* Effective Duration


Assets


Duration

25.3%

15.7%

20.8%

14.6%11.8%

8.3%

3.5%1.2%

33.0%31.2%

11.2%

6.7%

16.7%

0.0%0%

10%

20%

30%

40%

<1 1 to 3 3 to 5 5 to 7 7 to 10 >10 NA

Portfolio % Benchmark

# of Years

7

Total Fixed Income Performance - Net of Fees (MPSERS)

12/31/19

Market Value 1-Year 3-Years 5-Years 7-Years 10-Years

Total Fixed Income $10,304,592,948 9.41% 5.16% 4.45% 3.87% 4.77%

Bloomberg/Barclays Agg. Bond Index N/A 8.72% 4.03% 3.05% 2.72% 3.75%

Internal Core Fixed Income 5,225,231,026.38 9.47% 4.95% 4.21% 3.64% 4.42%

Externally Managed Core Fixed Income $471,099,345 9.27% 5.47% 4.77% 4.10% 5.27%

PIMCO Mortgage Fund 471,099,345 6.79%


Investment Grade Credit $260,869,152 14.43% 5.97% 4.83% 4.31% 5.78%

PGIM Investment Grade 260,869,152 14.43% 5.97% 4.83% 4.39% 5.85%

Bloomberg/Barclays Credit Index N/A 13.80% 5.75% 4.39% 3.89% 5.32%

Tactical Fixed Income $585,796,936 11.71% 5.53% 4.54% 5.35% 11.28%

Loomis Sayles CorePlus 1,260,599

Fidelity Tactical Bond Fund 584,536,337 12.94% 5.95% 5.28%


High Yield Fixed Income $577,922,349 16.49% 6.69% 6.33%

Columbia Management High Yield 256,843,203 16.48% 6.42% 6.15%

PGIM High Yield 272,284,491 16.84% 7.13% 6.60%

Crescent Direct Lending 48,794,655 6.67%

Bloomberg/Barclays US HY BA/B 2% Cap N/A 15.18% 6.51% 6.05%

Structured Fixed Income $2,825,292,348 7.01% 5.49%

Principal CMBS 427,311,956 8.74% 6.19% 4.73% 5.94% 11.72%

MetWest Securitized Opportunities 484,802,774 4.96% 4.92% 3.99%

Napier Park ABS Income 437,365,141 10.02% 10.09%

Napier Park Strategic Loan LP 112,483,744 6.08% 5.95%

Napier Park CLO Debt 478,611,101 5.51%

TICP CLO Debt 374,861,522 6.42%

Fortress ABI 353,716,587

Putnam DMS 156,139,523


Blended CMBS Benchmark N/A 10.40% 2.62% 4.51% 3.56% 6.25%

Global Fixed Income $358,381,792 8.96% 5.11%

T. Rowe Global Multi-Sector 252,042,492 10.65% 5.55%

PGIM GLRV 106,339,300 5.14%

Custom GMS Benchmark N/A 8.72% 5.51%

8


PRIVATE EQUITY REVIEW State of Michigan Investment Board Meeting

March 19, 2020

Peter A. Woodford Senior Investment Manager

Private Equity Division

EXECUTIVE SUMMARY

Performance



PE Benchmark Returns 7.4% 16.8% 14.1% 16.6% 16.6%


Percentile Rank vs. Peers* 32 9 10 7 7 *State Street Universe greater than $1 billion

Private Equity returns have been strong relative to peer median returns, ranking in the top 7% of peers over the past ten years. Outperformance to peers is attributable to fund selectivity and strategy.

It is not unusual for private equity returns to lag the public benchmark returns during periods of expansion and lead the public benchmark during periods of contraction. The past ten years have been no exception due to the longest expansion in U.S. history. Over this period, the Private Equity Division has outperformed the S&P by 1.1% (ten-year S&P 500 return 13.6%) and underperformed the benchmark by 1.9%.

For the twelve months ending December 31, 2019, the Private Equity Division made contributions of approximately $275 million, net of distributions. Although the pace of distributions continues to slow, distribution activity should remain healthy for as long as the economic expansion continues with General Partners incentivized to exit investments at current valuations. This, however, is offset by newly raised funds continuing to deploy capital at the valuations.

Commitments closed during the quarter include: o $250 million to Green Equity Investors VIII, an upper-middle-market buyout fund

focused on North America. o $100 million to Jade Equity Investors, a middle-market buyout fund focused on North

America. o $60 million to Advent International LAPEF VII, a buyout fund focused on Latin America. o $35 million to FirstMark Capital V, an early-stage venture capital fund. o $35 million to FirstMark Capital OF III, a late-stage venture capital fund. o $35 million to SKCP Catalyst Fund I-A, a lower-middle-market buyout fund.

Strategy Update

The strategy for the next twelve months will focus on new sponsors raising capital and existing sponsors raising successor funds. This may be a combination of buyout, venture capital, secondary, and growth equity funds seeking new commitments. The Private Equity Division continues to tilt slightly toward the middle and lower-middle market to diversify its exposure to large funds. Co-investments continue to play an important role in both averaging down costs and targeting specific investments with attractive risk/return characteristics.

1

SMRSPrivate Equity

12/31/19

Market Value in Millions12/31/19 12/31/18

Buyout Funds $6,391 46.3% $5,662 45.1%Fund of Funds 2,610 18.9% 1,939 15.5%Special Situation Funds 1,862 13.5% 1,850 14.8%Venture Capital Funds 1,490 10.8% 1,511 12.0%Liquidation Portfolio 938 6.8% 1,136 9.1%Mezzanine Funds 297 2.2% 238 1.9%Cash/Other 213 1.5% 204 1.6%

Total $13,801 100.0% $12,540 100.0%

Buyout Funds46.3%

Fund of Funds18.9%

Special Situation Funds13.5%

Venture Capital Funds10.8%

Liquidation Portfolio

6.8%

Mezzanine Funds2.2%

Cash/ Other1.5%

2

12/31/19Outstanding

Commitments

OtherRecallableReturnedCapital

FXChange

CapitalCalls

New Deals

9/30/19Outstanding

Commitments

$8,029

$173$72$11

($736)

$515$7,994

($ in Millions)

12/31/19Reported

Value

CashBalanceChange

ReportedValue

Change

StockDist.

Received

Cash Dist.

Received

Capital Calls

9/30/19Reported

Value

$13,801

($179)

$206

($209) ($646)

$736$13,893

($ in Millions)

SMRSPrivate Equity

12/31/19

3

SMRS Private Equity

12/31/19

These numbers are based on the most recent available General Partner Data; primarily 9/30/19 and are subject to change.

Investments by Industry


25.2%

Health Care16.8%

Industrials13.2%


10.4%

Other10.4%

Financials7.0%

Energy5.3%

Materials3.5%

Consumer Staples3.3%

Telecom Services2.6%

Utilities1.3% Real Estate

1.0%

4

Geo

grap

hic

Rep

ort:

Nor

th A

mer

ica

75%

, Eur

ope

15%

, Asi

a 7%

, Oth

er 3

%

12/3

1/19

Pri

vate

Eq

uit

yS

MR

S

Asi

a/A

fric

a 7.

1%

Uni

ted

Kin

gdom

4.

6%

Wes

tern

E

urop

e 10

.4%

Eas

tern

E

urop

e 0.

3% Latin

A

mer

ica

0.5%

U.S

. N

orth

wes

t 13

.7% U

.S.

Sou

thw

est

17.1

%

U.S

. N

orth

C

entr

al

11.4

%

U.S

. S

outh

east

8.

5%

U.S

. M

id-

Atla

ntic

3.

7%

U.S

. N

ew

Eng

land

20

.5%

Can

ada

1.6%

U.S

. O

ffsh

ore

0.2%

0.4%

Rep

rese

nts

Com

pani

es w

ith

Unt

rack

able

Reg

ions

, i.e

.; Fu

nd o

f Fu

nds

Inve

stm

ents

by

Reg

ion

5

($ in Millions)

Asset Vintage

1986-2005 342$ 127$ 469$ 2006* 374 171 5452007 266 126 3922008 461 89 5502009 16 1 172010 194 4 1982011 650 88 7382012 1,175 82 1,2572013 321 109 4302014 1,447 317 1,7642015 4,842 891 5,7332016 1,860 647 2,5072017 767 968 1,7352018 692 2,188 2,8802019 181 2,221Income Accruals 1 0 1Cash 187 0 187Act. Small Cap - Stock Dist 25 0 25

Total 13,801$ 8,029$ 21,830$

*Liquidation portfolio is 2006 vintage

($ in Millions)

Reported Value

Euro ($1.12/ €) € 389 $806€ 718€ 329

Outstanding Commitment

Total Exposure

Total (USD)

12/31/19

SMRSPrivate Equity

Reported Value


Total Exposure

Portfolio by Vintage Year

FX Exposure

6

2,402

($ in Millions)

HarbourVest PartnersBlackstone Capital PartnersWarburg, Pincus CapitalKKRThe Carlyle GroupAdvent International Grosvenor Capital ManagementLeonard Green & Partners, L.P.Flagship VenturesThe Riverside Company

Top 10 Total Value

BuyoutFund of FundsMezzanineSpecial SituationsVenture Capital

*These numbers are based on most recent available General Partner reported data; primarily 9/30/19 and are subject to change.

10.4%12.1%20.7%

14.0%11.8%8.5%9.5%

11.6%

0.2%0.1%0.7%0.2%0.0%

10-Year

212 129

3,616$

12.6%

13.1%5.7%

10.1%10.8%

15.9%12.8%12.5%10.6%15.7%

15.6%11.9%

(Net IRR) Current Qtr. 1-Year 3-Year 5-Year

675 292 355

$ 7,365

411 126 549

504 484

10,981$

316 265 451 335

811

895 879 861 824

579 614 410 489 400

555

Asset Type

3,122$ 946$ 4,068$ 425 980


Reported Value Total

SMRSPrivate Equity

12/31/19

Top 10 Sponsors

Cash Weighted Rates of Return*

7

5AM Opportunities I, L.P. $ 5,063,662 $ 24,750,0005AM Ventures VI, L.P. 2,787,343 16,700,000Accel Europe I, L.P. 3,038,360 1Accel Europe II 21,027,971 3,300,000Accel Growth Fund II, L.P. 16,507,945 0Accel Growth Fund III, L.P. 15,836,393 1,120,000Accel Growth Fund IV L.P. 24,723,994 990,000Accel Growth Fund V L.P 9,981,538 17,718,750Accel IX, L.P. 3,650,074 3,000,000Accel Leaders Fund II L.P. 4,029,780 5,343,750Accel Leaders Fund L.P. 10,554,267 0Accel London V L.P. 17,368,438 2,400,000Accel London VI, L.P. 1,397,677 11,000,000Accel VI-S 2,138,029 652,611Accel VI, L.P. 873,318 0Accel VIII, L.P. 45,058 4,782,499Accel X, L.P. 16,053,305 0Accel XI, L.P. 10,638,901 1,440,000Accel XII, L.P. 10,384,362 1,190,000Accel XIII, L.P. 6,858,236 3,900,000Accel XIV L.P. 1,918,272 7,950,000Advent Global Private Equity V 6,504,151 8,700,000Advent International GPE IX, L.P. 28,750,000 221,250,000Advent International GPE VI-A LP 30,829,059 0Advent International GPE VII-B, L.P. 147,818,971 12,000,000Advent International GPE VIII-B, L.P. 248,793,409 24,862,501

** Advent International LAPEF VII 0 60,000,000Advent Latin American Private Equity Fund VI, L.P. 26,823,105 8,505,000Affinity Asia Pacific Fund III, L.P. 24,773,775 9,592,941Affinity Asia Pacific Fund IV, L.P. 65,847,109 19,875,697Affinity Asia Pacific Fund V L.P. 32,014,519 140,396,722AIP VII, L.P. 1,123,216 73,876,784Apax Digital, L.P. 11,630,525 37,935,642Apax Europe Fund VI 20,719,323 2,373,861Apax Europe VII, L.P. 5,636,562 1,671,830Apax IX, L.P. 175,916,030 15,247,386Apax US VII 4,802,521 417,509

SMRSPrivate Equity

12/31/19

Reported ValueUnfunded

Commitment

Net Market Values by Ownership Entity

Adjusted

8


CommitmentAdjusted

Apax VIII - B, L.P. 73,467,182 4,584,180Apax X USD L.P. 0 150,000,000Apollo Investment Fund IX, L.P. 16,383,434 81,297,627Apollo Investment Fund VIII L.P. 81,334,751 16,031,253Arboretum Ventures II 1,056,014 0Arboretum Ventures III, L.P. 16,327,482 0Arboretum Ventures IV, L.P. 24,195,182 10,770,000Arboretum Ventures V, L.P. 397,071 34,335,000Ares Corporate Opportunities Fund II 176,937 11,423,773Ares Corporate Opportunities Fund III, LP 22,467,889 7,048,927Ares Corporate Opportunities Fund IV, L.P. 90,532,729 14,790,645ASF VIII B 11,235,308 139,964,803AXA ASF Miller Co-Investment 400,327 6,656,684Axiom Asia Co-Investment Fund I, L.P. 3,674,605 46,248,591Axiom Asia IV, L.P. 47,844,605 13,565,886Axiom Asia Private Capital Fund III, L.P. 50,643,116 5,729,639Axiom Asia V, L.P. 11,413,857 38,750,000BC European Capital IX 58,458,219 1,201,732BC European Capital VII, L.P. 591,816 0BC European Capital VIII, L.P. 5,868,177 8,751,510Berkshire Fund IX Coinvestment Fund, L.P. 16,929,985 27,421,161Berkshire Fund IX, L.P. 92,402,514 78,258,212Berkshire Fund VI, L.P. 13,716,928 7,600,677Berkshire Fund VII, L.P. 4,899,395 2,444,220Berkshire Fund VIII, L.P. 86,376,794 3,583,545Blackstone Capital Partners IV 4,287,573 4,580,765Blackstone Capital Partners V 9,218,175 13,069,148Blackstone Capital Partners V-S 1,121,807 712,476Blackstone Capital Partners VI, LP 227,064,842 36,775,575Blackstone Capital Partners VII, L.P. 229,858,037 86,859,230Blackstone Capital Partners VIII L.P. 0 200,000,000Bridgepoint Europe IV 11,860,909 5,993,356Carlyle Europe Partners II 559,852 4,150,943Carlyle Europe Partners III 11,556,558 5,133,793Carlyle Europe Partners IV, L.P. 108,771,337 12,561,347Carlyle Europe Partners V, S.C.SP. 18,071,734 119,226,446Carlyle Partners IV, L.P. 5,171,394 16,009,296Carlyle Partners V L.P. 40,781,388 54,261,025Carlyle Partners VI, L.P. 161,326,928 11,787,259Carlyle Partners VII, L.P. 53,949,395 187,940,522Centerbridge Capital Partners III, LP 56,129,884 33,963,161Cerberus SMRS Partners, L.P. 36,169,873 23,304,657Charlesbank Equity Fund IX, L.P. 31,122,201 66,934,491Charlesbank Fund IX Overage Allocation Program 15,974,281 33,799,569CircleUp Credit Fund I, LP 19,193,231 6,249,525Clearlake Opportunities Partners II, LP 8,901,740 65,999,887CM Liquidity Fund, L.P. 0 25,000,000

9


CommitmentAdjusted

Coller International Partners V, L.P. 13,124,617 43,600,000Coller International Partners VI, L.P. 32,772,250 29,723,267Coller International Partners VII, L.P. 123,037,906 38,264,915Crescent Mezzanine Partners VI, L.P. 26,744,284 5,681,254Crescent Mezzanine Partners VII 58,760,061 88,288,570CVC Capital Partners VII, L.P. 92,999,041 83,832,119Dover Street IX, L.P. 73,852,793 28,000,000Dover Street X, L.P. 0 150,000,000EnCap Energy Capital Fund X, L.P. 39,955,195 7,474,420FIMI Opportunity 6, L.P. 24,387,636 27,727,275FirstMark Capital I, L.P. 74,928,863 196,596FirstMark Capital IV, L.P. 21,243,429 15,225,000FirstMark Capital OF I, L.P. 24,505,009 0FirstMark Capital OF II, L.P. 28,781,193 7,875,000

** FirstMark Capital OF III 0 35,000,000FirstMark Capital P2, L.P. 127,645,475 0

** FirstMark Capital V, L.P. 0 35,000,000Flagship Pioneering Special Opportunities Fund II, L.P. 17,353,596 82,000,000Flagship Pioneering VI 73,424,150 37,500,000Flagship Ventures Fund 2004 32,207 0Flagship Ventures Fund 2007, L.P. 5,592,650 0Flagship Ventures Fund IV, L.P. 106,332,455 0Flagship Ventures Fund V 108,732,470 0Flagship Ventures Opportunities Fund I, L.P. 42,971,354 9,250,000Fox Paine Capital Fund II, LP 21,112,198 15,382,699FS Equity Partners VII, L.P. 96,389,036 14,387,164FS Equity Partners VIII, L.P. 7,041,538 67,258,683G-IV Acquisition Holdings, LLC 9,121,776 0GCM Grosvenor Fund Investment Program I, L.P. 6,844,912 1,288,800GCM Grosvenor Fund Investment Program II, L.P. 22,441,447 13,767,284GCM Grosvenor Fund Investment Program III - 2004 37,333,726 4,469,827GCM Grosvenor Fund Investment Program III - 2006 36,437,522 6,870,459GCM Grosvenor Fund Investment Program V, L.P. 45,424,018 9,582,489GCM Grosvenor Fund Investment Program VI, L.P. 24,675,475 5,326,985GCM Grosvenor Fund Investment Program VIII, L.P. 79,860,892 24,987,370GCM Grosvenor SeasPriFIP LP (PIS06-10) 42,971,199 16,686,939GCM Grosvenor SeasPriFIP LP (PIS14) 227,965,151 26,503,616GCM Grosvenor SeasPriFIP LP (Seed) 25,255,307 16,556,088Genstar Capital Partners IX, L.P. 17,123,231 57,639,739Genstar Capital Partners VIII, L.P. 63,405,316 1,566,312Genstar IX Opportunities Fund I, LP 14,931,774 35,052,957Genstar VIII Opportunities Fund I, L.P. 59,250,657 4,541,834Green Equity Investors V 113,867,953 25,966,435Green Equity Investors VI, L.P. 137,039,254 12,751,237Green Equity Investors VII, L.P. 159,424,124 62,245,687

** Green Equity Investors VIII, L.P. 0 250,000,000Greenspring Master G, L.P. 45,478,382 104,500,000

10


CommitmentAdjusted

Greenspring Micro II, L.P. 7,795,208 17,216,263GSO Capital Opportunities Fund II, L.P. 12,778,292 8,095,124GSO Capital Opportunities Fund III, L.P. 50,981,184 42,833,908GSO COF III Co-Investment Fund, L.P. 19,245,102 31,726,358HarbourVest Credit Opportunities Fund II, LP 0 75,000,000HarbourVest Dover Street VIII, L.P. 24,967,020 6,075,000HarbourVest Int'l III Partnership 158,655 1,200,000Harbourvest Partners Co-Investment Fund IV L.P 91,758,054 19,107,835HarbourVest Partners Co-Investment Fund V L.P 27,372,677 170,000,000HarbourVest Partners Mezzanine Income Fund 77,414,431 16,310,000HarbourVest V Partnership 153,787 300,000HarbourVest VI - Direct Fund LP 2,207,283 750,000HarbourVest VI Partnership 563,004 2,000,000Harvest Partners VII, L.P. 70,045,676 10,120,372Harvest Partners VIII 9,729,879 90,267,118HPS Mezzanine Partners III, L.P. 45,096,246 8,372,976Insight Venture Partners GBC Fund, L.P. 90,552,106 7,578,566Insight Venture Partners IX, L.P. 190,322,343 2,828,363Insight Venture Partners X, L.P. 95,118,068 17,500,000

** Jade Equity Investors, L.P. 0 100,000,000Kelso Investment Associates IX, L.P. 85,238,263 11,676,803Kelso Investment Associates VII 1,952,956 0Kelso Investment Associates VIII 30,450,930 22,039,494Kelso Investment Associates X, L.P. 18,132,027 82,226,354Khosla Ventures III, L.P. 13,857,814 750,000Khosla Ventures IV, L.P. 73,334,582 950,000Khosla Ventures Seed D, L.P. 3,743,485 6,150,000Khosla Ventures V, L.P. 61,143,686 2,750,000Khosla Ventures VI, L.P. 28,357,181 46,650,000KKR 2006 Fund, L.P. 94,870,046 4,751,870KKR Americas Fund XII, L.P. 103,176,287 104,334,027KKR Asian 2,481,591 0KKR Asian Fund II, L.P. 52,998,717 2,346,005KKR Asian Fund III 58,031,517 55,283,534KKR China Growth Fund 23,281,780 3,383,656KKR European Fund II 981,802 0KKR European Fund III 10,404,006 5,747,264KKR European Fund IV L.P. 115,324,933 7,839,437KKR European Fund V (USD) SCSp 0 125,000,000KKR Millennium Fund 256,392 0KKR North America Fund XI, L.P. 117,670,994 7,525,249Lead Edge Capital IV, L.P. 16,752,889 8,916,224Lightspeed Opportunity Fund, L.P. 6,375,000 18,625,000Lightspeed Venture Partners VII, L.P. 12,286,621 0Menlo Special Opportunities Fund II, L.P. 4,934,649 24,900,000Menlo Ventures IX, L.P. 1,479,946 0Menlo Ventures X, L.P. 12,160,492 0

11


CommitmentAdjusted

Menlo Ventures XI, L.P. 35,636,324 0Menlo Ventures XIV, L.P. 4,017,990 2,800,000Meritech Capital Partners III, L.P. 322,675 0Meritech Capital Partners IV, L.P. 16,041,550 600,000Meritech Capital Partners V, L.P. 30,131,027 1,450,000Meritech Capital Partners VI, L.P. 23,343,535 17,156,250Michigan Growth Capital Partners II, L.P. 165,256,417 4,345,808Michigan Growth Capital Partners III, L.P. 69,801,111 53,364,370Michigan Growth Capital Partners, LP 52,667,355 10,292,319Midtown Fund III, L.P. 0 0New Leaf Biopharma Opportunities II, L.P. 94,665,702 12,000,000New Leaf Growth Fund I, L.P. 94,150,723 0New Leaf Ventures II, L.P. 9,312,333 0New Leaf Ventures III, L.P. 35,785,796 1,875,000New Leaf Ventures IV, L.P. 21,564,812 26,937,500Nordic Capital VI, L.P. 217,379 1Nordic Capital VII 621,181 3,139,239Nordic Capital VIII, L.P. (Alpha) 42,382,244 6,622,432Oak Investment Partners X, L.P. 457,574 0Oak Investments Partners IX, L.P. 251,654 0Oaktree Opportunities Fund X, L.P. 28,268,616 5,100,000Oaktree Opportunities Fund Xb, L.P. 16,299,715 52,500,000OCM Opportunities Fund IX, L.P. 53,012,489 0OCM Opportunities Fund VII (B), L.P. 878,023 5,000,000OCM Opportunities Fund VII, L.P. 2,142,251 0OCM Opportunities Fund VIII B, L.P. 12,309,205 0OCM Opportunities Fund VIII, L.P. 1,613,794 0OCM Principal Opportunities Fund IV 683,554 4,998,467Ocqueoc Holdings, LLC 10,116,919 49,029,369Parthenon Investors II 530,970 3,186,779Parthenon Investors III 26,107,274 2,682,182Parthenon Investors IV, L.P. 51,876,160 3,592,740Peninsula Capital Fund IV 119,272 2,201,026Peninsula Fund VI, L.P. 35,201,959 6,124,373Permira Growth Opportunities I, L.P.1 10,528,387 39,880,918Permira VII L.P. 1 0 84,187,496PPC Fund II 41,034,773 38,789,236Public Pension Capital, LLC 62,176,671 51,921,746Rhone Partners V, L.P. 74,814,812 30,739,665Riverside Capital Appreciation Fund VI, LP 47,437,330 7,189,562Riverside Capital Appreciation Fund VII, L.P. 40,803,774 58,655,964Riverside Micro Cap Fund I, LP 17,814,558 5,782,975Riverside Micro-Cap Fund II, L.P. 27,585,944 2,735,834Riverside Micro-Cap Fund III, L.P. 67,878,784 1,212,404Riverside Micro-Cap Fund IV 59,455,549 3,890,438Riverside Micro-Cap Fund IV B, L.P. 9,669,556 5,330,444Riverside Micro-Cap Fund V, L.P. 17,805,364 79,793,444

12


CommitmentAdjusted

Science Ventures Fund II, L.P. 21,494,217 5,400,000Science Ventures Fund III, LP 0 25,000,000Shamrock Capital Content Fund I, L.P 30,011,919 18,383,125Shamrock Growth Capital Fund IV, L.P. 25,429,394 24,386,137Silver Lake Partners II 194,530 3,531,586Silver Lake Partners III 23,185,203 13,199,137Silver Lake Partners IV, L.P. 64,139,740 2,615,731Silver Lake Partners V, L.P. 34,308,965 36,885,234Silver Lake SL SPV-2 35,714,867 13,847,947SK Capital Partners V, L.P. 13,493,257 35,980,344

** SKCP Catalyst Fund I-A, L.P. 0 35,000,000SM/TCP L.P. 23,581,823 15,316,740SMRS - TOPE LLC 2,142,982,986 235,491,815SMRS-CAPP LLC 39,262,404 61,300,000SMRS-NCRP LLC 641,583,904 180,958,521Summit Partners Growth Equity Fund X, L.P. 0 100,000,000Sycamore Partners III, L.P. 9,785,586 86,442,202TCW/Crescent Mezzanine Partners IV, L.P. 0 13,660,773TCW/Crescent Mezzanine Partners IVB Secondary 0 0TCW/Crescent Mezzanine Partners V, LLC 4,799,849 12,395,466TCW/Crescent Mezzanine Partners VC Secondary 1,549,203 0The Huron Fund III, L.P. 7,076,479 4,207,756The Huron Fund IV, L.P. 34,049,587 1,503,225The Huron Fund V, L.P. 10,406,975 25,952,500The Shansby Group 5 (TSG5) 492,506 4,261,291Thoma Bravo Discover Fund II, L.P. 36,634,094 36,946,928Thoma Bravo Fund XII, L.P. 185,936,948 8,058,089Thoma Bravo Fund XIII, L.P. 44,522,663 79,882,572TI Platform BOV, L.P. 3,949,060 10,882,507TI Platform Fund II, L.P. 3,765,087 11,120,048TI Platform SMRS SMA, L.P. 14,746,362 45,329,687TPG Healthcare Partners, L.P. 594,878 24,405,122TPG IV (Texas Pacific Group IV) 1,513,346 211,725TPG Partners III, LP 465,784 2,087,002TPG Partners VI, L.P. 62,504,384 10,239,556TPG Partners VIII, L.P. 1,016,983 123,983,017TPG Partners, VII, L.P. 148,347,162 21,352,664TPG V (Texas Pacific Group V) 16,252,963 5,841,509Trilantic Capital Partners V (North America) Fund A, L.P. 31,118,854 3,594,193Trilantic Capital Partners VI (North America) L.P. 16,405,929 57,276,813TSG6, L.P. 105,039,034 23,221,103TSG7 A L.P. 110,661,091 31,910,736TSG8, L.P. 3,930,899 146,069,101Turnbridge Capital Partners I , LP 79,076,249 37,927,757Veritas Capital Fund V, L.P. 150,708,046 11,358,273Veritas Capital Fund VI, L.P. 130,062,646 23,772,543Veritas Capital Fund VII, LP 0 100,000,000

13


CommitmentAdjusted

Veritas V Co-Investors, L.P. 49,104,113 4,990,000Vista Equity Endeavor Fund I, L.P. 42,311,195 12,097,349Vista Equity Endeavor Fund II, LP 4,378,079 60,101,767Vista Equity Partners Fund V, L.P. 48,424,420 14,544,149Vista Equity Partners Fund VI, L.P. 90,216,091 11,596,399Vista Equity Partners VII, L.P. 17,871,104 59,742,359Vista Foundation Fund III, L.P. 23,099,485 4,709,389Warburg Pincus China-Southeast Asia II, L.P. 2,515,581 72,375,000Warburg Pincus China, L.P. 46,853,245 4,477,500Warburg Pincus Energy MCIP, L.P. 0 10,396,887Warburg Pincus Energy, L.P. 82,589,738 16,900,000Warburg Pincus Equity Partners, L.P. 1,171,920 0Warburg Pincus Financial Sector, L.P. 22,505,721 22,365,000Warburg Pincus Global Growth, L.P. 22,106,602 125,925,000Warburg Pincus International Partners 582,105 0Warburg Pincus Private Equity IX 9,355,910 0Warburg Pincus Private Equity VIII, L.P 273,467 0Warburg Pincus Private Equity X, L.P. 87,601,198 0Warburg Pincus Private Equity XI, L.P. 125,749,794 0Warburg Pincus Private Equity XII Secondary, L.P. 26,529,497 1,487,500Warburg Pincus Private Equity XII, L.P. 185,931,507 10,412,500WestAm COREplus Private Equity QP 393,130 2,086,719

Total Private Equity $ 13,588,406,620 $ 8,029,317,814

Cash 148,356,607 0Active Small Cap Cash 38,335,955Active Small Cap 25,062,251 0Income Accruals 1,255,782 0

Grand Total $ 13,801,417,215 $ 8,029,317,814

Total Private Equity amounts do not include Cash and Active Small Cap

** New Commitments made during quarter reported

14


REAL ESTATE AND INFRASTRUCTURE REVIEW State of Michigan Investment Board Meeting

March 19, 2020

Todd A. Warstler Senior Investment Manager

Real Estate and Infrastructure Division

EXECUTIVE SUMMARY

Performance

MPSERS Plan (12-31-19) 1-Year 3-Years 5-Years 7-Years 10-Years


NCREIF NPI 5.1% 5.3% 6.9% 7.8% 8.8%


Percentile Rank vs. Peers* 52 36 44 39 60 *State Street Universe greater than $1 billion

Outperformance relative to the one-year benchmark resulted from the Real Estate andInfrastructure Division’s (REID) strategy of being underweight in retail, performance ofcredit strategies, and appreciation and gains across the entire portfolio.

The portfolio occupancy was at or above the national average for the hotel, industrialand apartment sectors where the portfolio is weighted to core properties and below thenational average for the office and retail sectors where the portfolio is weighted tovalue-add/opportunistic properties.

Strategy Update

The REID is focusing on sourcing off-market opportunities through its extensive networkand reducing risk in the portfolio through early income-generating investments includingcredit strategies that are higher in the capital stack with a shorter projected hold period.The REID has selectively acquired properties where it can add value throughmanagement and leasing and has continued to develop properties at attractiverisk-adjusted returns. The REID will continue its strategy of assembling portfolios inboth traditional and non-traditional real estate sectors that we believe will becomeinstitutional property types, providing above market appreciation and total returns.

The REID has been actively managing the portfolio with dispositions in excess of $1.0billion, and funding for new or existing investments of nearly $807 million over the past12 months. The REID was a net seller and is working with its advisors in executing thedisposition of properties and realizing gains from the sale of assets at historically lowcapitalization rates where these opportunities exist.

The REID has approximately $1.5 billion in unfunded commitments. Newcommitments during the quarter include:

o $100 million in DM2501, LLC, a separately managed account that will focus oninvestments in smaller sized real estate investment opportunities, managed byDomain Capital Advisors, LLC.

o $35 million in Avanath Affordable Housing IV, LLC, a closed-end commingled fundspecializing in investments in the affordable/workforce multifamily housing sector inthe U.S., managed by Avanath Capital Management, LLC.

1

Market Environment

Fund flows to the real estate sector set a new 12-month record for the period endingDecember 31, 2019 at $151 billion, above the previous peak of $148 billion. The drypowder in the system did decline slightly from $331 billion at the end of 2018 to $319billion at the end of 2019. This high level of dry power should continue to act as a supportfor pricing. Fund sizes continue to increase with the three largest funds raising $43.5billion between them. Retail properties continue to be less attractive to investors ase-commerce sales continue to grow, with investors instead favoring warehouse/logistics(as a retail substitute in some cases) and the apartment sector. Senior housing, studenthousing, data centers and medical office once considered niche sectors are attractingmore investor attention. Supply of new buildings in all property types, except retail,has increased in many markets and is beginning to raise concern from investors.However, a strong economy has so far kept demand for space high enough to absorbnew supply. Additionally, lenders have become more selective in quality and locationof the collateral and have been disciplined in their underwriting standards forconstruction lending. The cost of new construction in land, labor and materials hassteadily increased, making it more difficult for developers to meet return thresholds.

Capital flows into the infrastructure sector remain strong, as the asset class matures,and investor interest continues to grow. Opportunities include power generation,decarbonization efforts, the rising need for data, and emerging market fundamentalinfrastructure projects. Much of the capital raised in 2018/2019 is in very large fundformat and this may impact (lower) returns as there is a limited opportunity set at thelargest investment sizes. The REID believes there may be more opportunities foroutperformance for regional and/or midsize funds or those with niche strategies. Theindustry has gained attention from the Federal Administration’s intent on rebuilding U.S.infrastructure; however, details on legal and financial framework of Public PrivatePartnerships (P3) are limited and will take time to develop. A tight labor market forconstruction workers, rising wage and materials cost, budget considerations and politicalgridlock in Washington could inhibit timing of funding and completions.

Tightening lending standards combined with heightened bank regulations after theglobal financial crisis have worked to constrain lending activity in many instances.Demand for private credit from non-traditional capital providers, particularly when afinancial sponsor requires speed and certainty of execution is expected to continue togrow. Real estate credit in the U.S., Europe and Asia in various forms should continueto present opportunities.

2

SMRSReal Estate and Infrastructure

12/31/19


12/31/19 12/31/18Apartment $3,003 42.4% $2,747 39.0%Hotel 910 12.9% 927 13.2%Infrastructure 830 11.7% 826 11.7%Office 819 11.6% 857 12.2%Industrial 767 10.8% 610 8.7%Retail 329 4.6% 346 4.9%Single Family Residential (SFR) 195 2.8% 564 8.0%Land 86 1.2% 108 1.5%

$6,939 98.0% $6,985 99.2%Cash/Other 145 2.0% 60 0.8%

Total Investments $7,084 100.0% $7,045 100.0%

Apartment42.4%

Hotel12.9%

Infrastructure11.7%

Office11.6%

Industrial10.8%

Retail4.6%

SFR2.8%

Land1.2%

Cash/ Other2.0%

3

Pac

ific

20.1

%

Sou

thw

est

14.2

%

Sou

thea

st

10.4

%

Mid

east

12.8

%

Nor

thea

st

13.9

%E

ast N

. Cen

tral

7.5%

Wes

t N. C

entr

al

2.0%

Mou

ntai

n

10.7

%

Inte

rnat

iona

lco

mpr

ises

8.4

%

SM

RS

Rea

l E

stat

e b

y R

egio

nB

ased

on

Mar

ket

Val

ue

(exc

lud

es c

ash

& c

ash

eq

uiv

alen

ts)

12/3

1/19

Geo

grap

hic

regi

ons

defi

ned

by N

CR

EIF

, who

se p

rope

rty

inde

x co

mpo

siti

on is

: Pac

ific

33.

7%, M

ount

ain

6.4%

,W

est N

. Cen

tral

1.2

%, S

outh

wes

t 10.

5%, E

ast N

. Cen

tral

7.0

%, S

outh

east

9.7

%, N

orth

east

20.

4%, M

idea

st 1

1.1%

4

Top TenAdvisors or Entity

($ in millions)

Advisor or Entity Market Value

MWT Holdings LLC Clarion Partners Principal Real Estate InvestorsFive Star Realty Partners LLCDomain Capital Advisors IncBlackstone GroupRialto Capital Management LLCCIM Investment Advisors LLCTranswestern Investment ManagementL&B Realty Advisors

Occupancyby Property Type

Apartment Office Industrial Retail Hotel

SMRS Portfolio 93.2% 81.3% 95.8% 91.1% 72.7%

National Average 93.6% 87.9% 92.8% 95.4% 70.1%

12/31/19Real Estate and Infrastructure

SMRS

2,278$

5,105$

212

679 457

278

251

345

173 176

256

5

Unfunded Market Value Commitment

801 Grand Avenue Capital, LLC 70,460,752$ 0$AEW Senior Housing III 4,019,526 790,989 AEW Senior Housing Investors IV 1,863,841 47,853,618 Apollo Asia Real Estate Fund 46,292,164 30,234,574 Asana Partners Fund I 27,374,445 5,416,828Asana Partners Fund II 3,191,773 45,967,905Avanath Affordable Housing II, LLC 31,455,288 0Avanath II SMRS Co-Investment Fund LLC 14,045,132 0Avanath Affordable Housing III 44,033,787 5,516,898

* Avanath Affordable Housing IV 2,106,712 32,436,349Blackstone R/E Partners V, LP 3,437,231 0Blackstone R/E Partners VI, LP 5,908,040 3,680,930Blackstone R/E Partners VIII, LP 74,126,571 14,872,368Blackstone R/E Partners IX, LP 34,022,526 165,951,099Capri Urban Investors, LLC 8,302,930 0CIM Commercial Trust Corp 8,521,853 0CIM Fund III, LP 38,752,975 0CIM Fund VIII, L.P. 112,041,028 1,487,563CIM VI (Urban REIT), LLC 32,574,706 0Clarion Gables Multifamily Trust, LP 32,621,974 0Columbus Circle Holdings, LLC 169,478,895 176,964,029Crown Small Cap Real Estate 16,848,830 8,375,000

* DM2501, LLC 0 0Domain GVA-1, LLC 39,654,891 2,387,761Domain Hotel Properties, LLC 402,512,654 0Gateway Capital Real Estate Fund II, LP 4,219,442 0Great Lakes Property Group Trust 8,094,277 9,565,475Heitman Credit 50,769,961 0IDR Core Property Index Fund LLC 25,417,274 0India Property Fund II, LLC 22,387,689 2,212,118Invesco Mortgage Recovery Feeder Fund 3,809,037 0Invesco Mortgage Recovery Fund II, L.P. 23,215,805 34,249,727Invesco Strategic Opportunities III, L.P. 18,789,323 82,461,385IPF II Co-Invest LP 22,779,651 1,720,897JBC Funds North LaSalle LLC 18,718,445 0JBC Opportunity Fund III, LP 495,673 0KBS/SM Fund III, LP 50,386,419 0KBS/SM Fund IV 143,775 0L-A Saturn Acquisition 36,462,939 0Landmark Real Estate Partners V, LP 6,721,477 0LaSalle Asia Opportunity Fund II, LP 282,964 0LaSalle Asia Opportunity Fund III, LP 1,206,584 0Lion Industrial Trust 238,326,003 0

SMRS Market Values by Ownership Entity

REAL ESTATE

12/31/19

6


Lion Mexico Fund, LP 5,166,298 0Lombard GVA0016 (former AGL Annuity) 344,556,924 0Lone Star Fund X LP 167,319,326 30,483,414Lone Star Fund XI LP 5,374,097 187,254,621Lubert-Adler Real Estate Fund VII, LP 61,854,016 6,538,662M1 Westgate CoInvest LLC 17,284,259 0M301W CoInvest LLC 3,294,882 0MERS Acquisitions Ltd. 173,145,570 24,344,500MG Alliance, LLC 50,994 0MIP Holdco LLC 138,617,687 14,446,169MSREF V - International 2,317,631 0MSRESS Fund III Institutional LP 6,498,537 0MWT Holdings, LLC 2,278,005,194 0Northpark Land Associates 33,535,596 7,744,171Orange Investors LLC 432,703 0Paladin Realty Brazil Investors III (USA), LP 10,595,207 0Paladin Realty Latin America Investors IV-CI, LP 39,235,134 0Paladin Realty TB COINV V LP 11,693,291 0Penmain Office LLC 35,458,260 0Principal Separate Account 386,682,931 168,699,881Proprium RE Spec. Situations Fund, LP 83,376,059 16,143,656Rialto Absolute Partnership I 68,744,928 0Rialto Credit Partshp LP 38,698,385 1,374,858Rialto Real Estate Fund, LP 21,631,048 0Rialto Real Estate Fund II, LP 34,390,382 0Rialto Real Estate Fund III-Debt, LP 49,655,827 0Rialto Real Estate Fund III-Property, LP 34,932,855 14,931,507Rialto Mezzanine Partners Fund 3,068,657 0SM Brell II LP 21,134,278 0Stockbridge RE Fund II-C, LP 24,328,914 0Strategic LP 720,814 0Strategic II LLC 38,802,494 49,205,779TPG RE Finance Trust Inc. (TRTX) 97,690,901 0TPG Real Estate Partners II 30,901,717 13,317,190TPG Real Estate Partners III 4,482,510 48,517,490TSP Spartan C-I LLC 7,154 0TSP Spartan C-II LLC 19,088,645 0TSP Value & Income Fund II, LP 18,568,276 32,197,172True North High Yield Invest. Fund II, LLC 3,293,346 0True North Real Estate Fund III, LLC 37,921,679 5,000,000Venture Center, LLC 16,140 0

6,108,448,805$ 1,292,344,583$ Short-Term Investments and Other 128,211,313 0

Total Real Estate Investments 6,236,660,118$ 1,292,344,583$

* New or additional commitment made during the quarter reported

7


Arclight Energy Partners VI, LP 45,941,274$ 6,953,820$ ASF VI Infrastructure B LP 21,532,292 9,689,503ASF VII Infrastructure Fund B L.P. 12,079,033 19,200,123 ASF Como Co-Investment LP 5,463,006 2,405,051 Basalt Infrastructure Partners, LP 37,968,325 2,219,045 Blackstone Energy Partners, LP 34,243,923 4,728,291 Blackstone Energy Partners II, LP 75,282,817 23,154,571 Brookfield Infrastructure Fund II-B, L.P. 53,639,630 5,001,882Customized Infrastructure Strategies, LP 36,562,448 4,712,903 Dalmore Capital Fund 61,707,810 0GCM Grosvenor Infrastructure Investment Program, L.P. 77,925,129 0GCM Grosvenor Customized Infrastructure Strategies II, L.P. 46,697,749 14,106,005Global E&P Infrastructure Fund II L.P. 56,394,638 6,206,202 GSO Energy Select Opportunities Fund LP 25,853,767 25,250,151 GSO Energy Select Opportunities Fund II, LP 3,522,063 46,638,959 JPMorgan AIRRO India SideCar Fund US, LLC 82,233,259 3,187,421 JPMorgan AIRRO Fund II 10,450,734 7,440,094 KKR Eagle CoInvest L.P. 36,528,945 1,853,268 KKR Global Infrastructure Investors, LP 40,126,805 4,182,224 Ridgewood Water & Strategic Infrastructure Fund LP 7,607,732 45,137,013 RPEP SMRS Infra II, LLC 6,300,718 500,000StonePeak Infrastructure Fund LP 51,974,325 10,232,593

830,036,423$ 242,799,119$ Short-Term Investments and Other 17,156,365 0

Total Infrastructure Investments 847,192,789$ 242,799,119$

TOTAL INVESTMENTS 7,083,852,907$ 1,535,143,702$ * New or additional commitment made during the quarter reported

Market Values by Ownership Entity12/31/19

INFRASTRUCTURE

SMRS

8


REAL & OPPORTUNISTIC RETURN REVIEW

State of Michigan Investment Board Meeting March 19, 2020

Jennifer Yeung Senior Investment Manager Real & Opportunistic Division

EXECUTIVE SUMMARY

Performance

• The portfolio value is $8.4 billion with a one-year return of 8.2%. Performance for the

year was driven by current income from credit investments, natural resource production-linked and lending strategies and music royalties, as well as capital appreciation of transportation and media and entertainment assets.

Strategy Update • The objective of the Real Return & Opportunistic portfolio is to provide an inflation

hedge and/or to gain exposure to attractive opportunities that may not fit in another plan portfolio.

• The Real Return & Opportunistic portfolio has approximately $4.2 billion of unfunded

commitments. Three new commitments closed during the quarter.

o $100 million to TSSP Agriculture Partners (A), L.P. (Sixth Street Partners), a comingled fund that invests in niche agriculture opportunities. Target investments are expected to generate steady current income resulting in a mid-single digit percentage cash yield.

o $100 million to TSSP Institutional Credit Partners III, L.P. (Sixth Street Partners),

a comingled fund that will retain an equity investment in a series of collateralized loan obligations managed by Sixth Street Partners.

o $100 million to Abernathy Fund II, LLC (Domain Capital Advisors), a separately

managed account allowing SMRS to partner with Domain Capital Advisors on niche investment opportunities.

• We remain focused on finding differentiated strategies that are additive to the current

portfolio mix. o We continue to like private credit opportunities, niche strategies with some

scalability, and contractual cash flow. Specifically, we like opportunities that have defensible cash flows and offer structural downside protection. We continue to be selective and favor investment teams that are disciplined and have experience investing over multiple cycles.

MPSERS Plan (12/31/19) 1-Year 3-Years 5-Years 7-Years 10-Years Real & Opportunistic 8.2% 13.1% 10.3% 12.1% N/A Custom Benchmark 6.7% 7.2% 7.2% 7.2% N/A

1

($ in Millions)

Advisor or Entity

Barings Alternative Investments $ 2,761Apollo Global Management 1,084Domain Capital Advisors 771ICG Advisors 696Sixth Street Partners 324Kayne Anderson Capital Partners 308Fortress Investment Group 237Ridgewood Energy 222Orion Resource Partners 221Czech Management 219

Total Market Value $ 6,843

Top Ten Advisors or Entities

SMRSReal Return and Opportunistic

12/31/19

Market Value

2

12/31/19Real Assets $5,424

Credit 1,795

Opportunistic 1,182

Short Term Investments 250

Total Investments $8,651



Investments By Strategy

12/31/19

Real Assets62.7%

Credit20.7%

Opportunistic13.7%

Short Term Investments

2.9%

3

SMRS Real Return and Opportunistic

12/31/19

9/30/19Reported Value

Capital Calls Cash Dist.Received

Reported ValueChange

Short TermInvestments

12/31/19Reported Value

($116 )

$7,955

$312 $250 $250

$8,651

$ Millions Invested Commitmentsaa

9/30/19Outstanding

Commitments

New Deals Capital Calls Recallable ReturnedCapital and Other

12/31/19Outstanding

Commitments

($312)

$4,186 $300 $32 $4,206

$ Millions Outstanding Commitments

4

Net Market ValueUnfunded

Commitment* Abernathy 280,393,562$ 44,036,974$

** Abernathy Fund II, LLC 0 100,000,000Altus Midstream 10,010,000 0Angelo Gordon Credit Solutions Fund 18,953,334 81,500,000Apollo European Principal Finance Fund II 13,712,087 8,183,358Apollo HK TMS Investments Holdings LP 1 0Apollo Offshore Credit Fund 14,127,338 0Axton Holdings 1,852,074,992 0Barings Asset Based Income Fund I 164,263,769 135,675,627Barings Global Real Asset Fund I 61,690,664 40,158,269Blackstone Strategic Capital Holdings, LP 62,500,308 67,481,268Blue Peninsula Fund LP 146,568,871 58,838,113Broadriver III 34,131,937 191,210,169BSCH Parallel (MLG) I LP 154,484,485 0BSCH II 0 250,000,000BSCH II Co-Invest 0 100,000,000Carlyle Energy Mezzanine Opportunity Fund II 22,888,404 23,543,234Carlyle IEP Co-Invest (Varo) 18,195,655 861,225Carlyle International Energy Partners 46,354,635 24,008,247Carlyle International Energy Partners II 0 150,000,000Castle Credit SMRS Holdings LLC 46,128,421 146,783,562Centerbridge SCP III 22,020,606 12,532,213Content Holdings, LLC 371,419,082 32,818,918Credit Opportunity Fund III 27,188,939 20,261,207Energy Recap and Restructuring 23,895,453 7,085,025ERR MI Holdings LP 3,009,818 2,269,933FCO MA MI LP 162,638,693 36,730,025Financial Credit Investment II 244,859,131 184,797,353Financial Credit Investment III 223,564,496 136,804,737Flywheel Energy Co-Invest 27,986,663 7,000,000Fortress Transportation & Infrastructure 73,801,075 0Greatrock LLC 59,783,362 0Global Maritime 76,235,555 3,414,854GSO Credit Alpha Fund 45,188,694 37,910,063Hopen Life Science Fund II 4,072,673 640,000HPS Red Cedar Fund 180,485,613 121,724,330Kayne Anderson Energy Fund VII, LP 52,431,536 19,407,908Kayne Anderson Private Energy Income Fund 119,663,388 26,110,234Kayne Anderson Private Energy Income Fund II 24,787,703 124,035,141Kayne Solutions Fund 53,476,324 195,050,317KKR Energy Income & Growth Fund 41,759,613 1,953,202KKR Lending Partners 10,656,064 11,930,723KKR Lending Partners II 29,902,653 11,737,239Lakewater 105,243,305 76,518,504


12/31/19Net Market Value by Entity

5

Net Market ValueUnfunded

CommitmentLakewater II 76,400,576 22,022,365Lakewater III 291,471,405 89,179,025Lakewater IV 32,526,275 16,108,084Lakewater V 117,100,855 23,323,672Marathon CLO Equity Fund 15,333,803 7,029,470Merit Energy Partners I LP 35,512,912 0MidCap Finco Holdings LTD 304,316,457 0Mortgage Servicing Rights 74,236,058 0Napier Park Aircraft Leasing Vehicle I, LLC 46,256,633 18,394,243Napier Park AL Rollover Fund I 13,370,541 63,069,512Nash Co-Investment 13,427,080 94,259New Fortress Energy HLDGS 649,463,625 0New Fortress Energy LLC 6,786,771 0NGP Natural Resources XII 68,423,317 113,917,155Orion Co-Investments III, LP 4,398,382 0Orion Mine Finance 62,873,833 2,982,344Orion Mine Finance 1A 38,411,019 1,550,660Orion Mine Finance Co-Fund II LP 20,075,369 35,000,000Orion Mine Finance II 85,290,044 26,846,836Orion Mine Finance III LP 10,290,399 63,815,181Redding Ridge Holdings, LP 65,345,134 37,443,359

* Ren Venture Fund II 28,327,052 1,500,000* Ren Venture Fund III 6,878,988 18,000,000

Ridgewood Energy Oil & Gas II 79,898,622 15,438,077Ridgewood Energy Oil & Gas III 94,629,060 144,208,979Ridgewood Fund II Co-Invest (REOG) 23,456,460 5,575,415Riverside Credit Solutions FD I LP 28,458,476 20,771,187RPEP Energy Opportunistic Institutional Partners 23,928,060 13,892,572SJC Direct Lending Fund II 4,924,578 38,261,315SJC Direct Lending Fund III 194,463,461 37,895,307SJC Direct Lending Fund III Co-Invest G-III 20,000,000 0

* Social Network Holdings 119,584,141 5,590,289Specialty Loan Fund III 8,956,614 6,113,323Sprott Private Resource Lending (US), LP 31,577,075 71,491,830Sprott PRL(M) LP 2,638,663 22,526,888Sprott PRL(M-Co-Invest) LP 7,486,858 17,687,500Structured Credit Recovery Fund IV 191,253,814 59,115,789Terra Co-Investment 29,599,750 14,000,000TICP CLO Partners II 44,386,648 1,751,293

** TSSP Institutional Credit Partners III, L.P. 0 100,000,000** TSSP Agriculture Partners (A), L.P. 0 100,000,000

TSSP Adjacent Opportunties Partners 182,641,797 132,435,377TSSP Capital Solutions 79,837,072 221,959,699TSSP Opportunities Partners IV 16,996,478 83,817,654Turning Rock Fund I, LP 27,428,131 47,571,869Vida Insurance Credit Opportunity Fund II 97,810,975 6,181,404Warwick (SMRS) Co-Invest, L.P. 35,378,815 2,089,081Warwick Partners III 58,908,170 4,511,027Total Real Return and Opportunistic 8,401,309,149$ 4,206,174,012$ Short-Term Investments & Other 250,155,464 0

Grand Total 8,651,464,612$ 4,206,174,012$ * Fund of Funds

** New Commitment

6


ABSOLUTE RETURN REVIEW State of Michigan Investment Board Meeting

March 19, 2020

Daniel J. Quigley Senior Investment Manager Absolute Return Strategy

EXECUTIVE SUMMARY

Performance

The value of the Absolute Return portfolio is $3.9 billion with a one-year return of 4.5%.Manager selection and exposure to multi-strategy/event-driven and credit strategiescontributed to positive fourth quarter performance. There were no strategy leveldetractors during the quarter.

Multi-Strategy/Event managers were the top contributor to performance during thequarter. Performance was materially driven by a position in GP stakes, with returnscoming from underlying GP management fees and carry. Event-driven managers had astrong quarter driven by positive returns from opportunistic strategies and a few activistequity positions. A hedge fund seeding portfolio also generated returns given strongunderlying manager performance.

Credit strategies were the second largest contributor to performance for the quarter,primarily driven by residential mortgages exposure. Mortgage Servicing Rights (MSR)exposure was positive due to cash flows from underlying MSR investments and carrygeneration. Managers also remain active in issuing Reperforming Loan (RPL) mortgagesecuritizations while capital markets remain open and the managers are able to issueliabilities at attractive spreads. In addition to mortgage strategies, structured creditperformance was broadly positive and driven by direct sourcing of distressed seniorsecured investments.

Strategy Update

The objective of the Absolute Return portfolio is to diversify the total plans’ holdings,targeting returns above investment-grade fixed income with lower volatility than theequity portfolio. The portfolio utilizes a diverse mix of managers that invest both long andshort to target specific exposures and seek to hedge out unwanted risk.

No new commitments for the quarter.

In terms of allocation priorities, we continue to be focused on high quality diversifiers andtargeted opportunities in niche credit. Due to lower alpha expectations, we are continuingto reduce our exposure to fundamental equity strategies. We have slightly increased ourexposure to multi-strategy, macro and emerging markets managers.

Overall, we will continue to focus on opportunities that seek to provide diversification, protect the downside and deliver absolute return.


Absolute Return 4.5% 6.0% 3.7% 5.1% 4.8%

HFRI FOF Conservative 4.4% 3.1% 2.2% 3.2% 2.7%

1

* Tahquamenon Fund, LP $ 3,678,019,708

JM IV, LP 73,044,084

MP Securitized Credit Master Fund, LP 52,856,245

SJC Direct Lending Revolver Fund III, LP 62,610,072

* EnTrust White Pine Partners, LP 14,271,514

Visium Balanced Fund, LP 299,801

Total Absolute Return $ 3,881,101,423

Short-Term Investments & Other 26,404,402

Grand Total $ 3,907,505,825

* Fund of Funds

Absolute ReturnSMRS

12/31/19

Net Market Values by Entity

Net Market Value

2

Underlying Funds: 71 Median Position Size: 0.6%

Strategies: 4 Average Position Size: 1.4%

Relationships: 6 Largest Position Size: 7.3%

Strategy Breakdown

SMRSAbsolute Return

12/31/19

Investments By Strategy

Multi-Strategy / Event34.8%

Credit35.4%

Equity16.6%

Diversifying13.2%

3

SMRS

Absolute Return

12/31/19

Liquidity Analysis

Redeemable Marginal Allocation Aggregate Allocation

(% each period) (% since Analysis Date)

By 4/1/20 27.85% 27.85%

By 7/1/20 24.41% 52.26%

By 1/1/21 25.08% 77.34%

By 7/1/21 4.84% 82.18%

By 7/1/22 6.34% 88.52%

After 7/1/22 9.55% 98.07%

Illiquid 1.93% 100.00%

Total 100.00% N/A

27.85%

52.26%

77.34%

82.18% 88.52%

0%

20%

40%

60%

80%

100%

120%Jan

2020

Apr 2

020

Jul 2020

Oct 2

020

Jan 2021

Apr 2

021

Jul 2021

Oct 2

021

Jan 2022

Apr 2

022

Jul 2022

Oct 2

022

Jan 2023

Apr 2

023

Jul 2023

Oct 2

023

Jan 2024

Apr 2

024

Jul 2024

Oct 2

024

Jan 2025

Apr 2

025

Jul 2025

Oct 2

025

Monthly % Period

4


BASKET CLAUSE REVIEW State of Michigan Investment Board Meeting

March 19, 2020

Karen M. Stout, CPA, CGFM Administrator

Trust Accounting Division

Asset Class

Total Absolute Return

Total Real Return and Opportunistic

Total International Equity

Total Fixed Income

Total Basket Clause Investments

The Public Employees Retirement System Investment Act, 1965, PA 314, MCL38.1132 et seq , authorizes the State Treasurer to invest up to 30% of the system'sassets in investments "not otherwise qualified under the act." MCL 38.1140d (1)commonly referred to as Section 20d (after the authorizing section of PA 314) orBasket Clause investments, gives the State Treasurer the flexibility to take advantageof market opportunities not specifically authorized in PA 314 while conservingprotections against imprudent investment.

SMRSBasket Clause Investments

12/31/19

Value

3,881,101,423$

590,918,961

91,323,575

79,352,036

4,642,695,995$

The basket clause investments on December 31, 2019, were $4.6 billion or 6.0% ofthe total portfolio value of $77.7 billion.

Disclaimer

This presentation was given solely for the purpose of explaining the structure, investment process, and returns for the State of Michigan Retirement System. It should not be interpreted in any way as financial advice.