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State Universities Retirement System of Illinois

Callan Associates Investment Consulting

October 17, 2013

Greg Allen President

John Jackson, CFA Senior Vice President

Angel Haddad Vice President

Sally Haskins Senior Vice President

Exhibit 5

2 State Universities Retirement System of Illinois Knowledge. Experience. Integrity.

Agenda

I. Executive Summary

II. Relationship Review

III. Strategic Planning

IV. Portfolio Structure

V. Research Capabilities

VI. Defined Contribution Consulting

VII. Portfolio Monitoring & Evaluation

VIII. Fees

IX. Summary

Appendix

Exhibit 5

Executive Summary

Callan - Investment Consulting Services

Exhibit 5


Client Focused Consulting Model

Callan utilizes a custom approach to consulting. By understanding the evolution of each client’s investment program and using a disciplined process, we enable clients to make optimal long-term decisions based on their unique circumstances.

Experience

Callan has been providing clients with custom solutions since 1973. As one of the largest investment consulting firms in the U.S., Callan has the size and scale to keep abreast of the unique challenges of the Public Fund market. Public Funds make up the bulk of our practice and our extensive experience has led to launching programs like Callan Connects to be responsive to client needs.

Dedicated Research Professionals

Callan has 22 dedicated professional whose sole responsibility is manager research. These individuals do not divide time engaging in other consulting activities. In addition, a dedicated DC Group illustrates Callan’s commitment to the industry.

Independent and Focused Callan is independent, well into its third generation of employee ownership, and is solely focused on serving the needs of institutional investors. Our strategic interest is consulting, not managing money.

Executive Summary Exhibit 5


Callan’s Organizational and Consultant History Exceptional Client Service backed by Deep Resources and Unmatched Collective Experience

Independent & Focused

● Established in 1973 ● Investment consulting remains our primary focus ● 100% employee owned ● Third generation of private ownership ● 69 current owner-employees

Experienced

● Over 370 Fund Sponsor clients representing over $1.9 trillion in assets ● Client-focused consultants with 8-12 clients each ● Consultant tenure - Average 10 years Callan/18 years Industry ● Client tenure – Average of 8.5 years

Fully Resourced

● 171 employees ● 35 CFA Charterholders and 7 CFA candidates ● 44 advanced degrees ● 64 research specialists in every area of need ● Proprietary systems and databases

1973 Successfully transitioned a

third generation of employee owners to senior

management positions

Successfully transitioned ownership from Ed Callan to employees, while

remaining an independent consulting firm

Ed Callan and associates founded

company

2007 1990 Callan celebrates 40th anniversary

2013

Exhibit 5


Callan’s Investment Consulting Philosophy

● Customized solutions for each client’s particular needs – not a “one size fits all” approach.

● Direct, open and candid communication on Investments – we believe that our clients are best served by our unbiased and experienced advice.

● Taking a strategic, long-term approach to planning and implementation with documented due diligence is the most prudent way to manage institutional assets.

● Diversification at the total fund level and within each asset class.

● Proven strategies over ones considered “cutting edge” – a conservative approach to risk management in which we perform in-depth due diligence research to ensure that investments are managed by firms with experience, expertise and established track records.

Exhibit 5


Experience with Public Plan Sponsors

• Callan Associates has been providing consulting services to public fund plans since our incorporation in 1973.

• During this time, we have established significant expertise in servicing public funds and currently advise to over 126 public clients plans representing over $1.5 trillion in assets.

Alaska Permanent Fund Corporation Alaska State Board of Investments Arkansas Public Employees’ Retirement System California Public Employees' Retirement System Chicago Fireman’s Annuity Fund Charlotte Firefighters’ Retirement System Cook County Annuity and Benefits Funds Idaho Public Employees’ Retirement System Illinois Municipal Retirement Fund Illinois Student Assistance Commission Lexington-Fayette Urban County Policemen’s & Firemen’s Massachusetts Pension Reserve Investment Board Minnesota State Board of Investment Milwaukee Employees' Retirement System *Real Estate Specialty Consultant

Mississippi Public Employees' Retirement System New York City Employees’ Retirement System New York State Deferred Compensation Plan Nevada Public Employees Retirement System North Dakota State Investment Board Public School Teachers’ Pension and Retirement Fund of Chicago State Teachers Retirement System of Ohio State Universities Retirement System of Illinois Teachers’ Retirement System of Illinois* Utah State Retirement System University of Puerto Rico ERS Washington State Investment Board Wichita Employees’ Retirement Board Wisconsin State Investment Board

Representative Clients

Exhibit 5


Callan’s Investment Consulting Process and Services

Manager Review and Search Dedicated Alternatives Consulting

Custody/Trust/Sec Lending Review Fee/Cost Analysis

Capital Market Analysis and Projections Asset Allocation and Spending Analysis Asset Class Structure Analysis Investment Policies and Guidelines Risk Analysis

Education Conference and Workshops Research Papers and Surveys “Callan College”Custom Topic Education Sessions

Performance Measurement Performance Reporting

Proprietary Database for Evaluation Windows-based Evaluation Software

We believe that every large investor has a distinct set of circumstances. We approach each client with an open mind. We strive to build off of the strengths already embedded in a client’s program. We do not impose a “one-size-fits-all” policy position onto our clients.

Exhibit 5


Callan’s Commitment to Diversity

It has been, and will continue to be the policy of Callan Associates, Inc. to provide Equal Employment Opportunity without regard to race, religion, creed, color, national origin, sex, age, disability, marital status, pregnancy, sexual orientation, citizenship, or veteran status. Further, it is the policy of the Company to undertake affirmative action in compliance with all federal, state and local requirements.

Our commitment to diversity is evidenced by:

● Callan founder, Ed Callan, also founded Progress Trust, the first multi-manager asset management organization committed to promoting diversity within the institutional investment community

● Over 40% of Callan’s shareholders are women or minorities

● Over 50% of Callan’s employees and investment professionals are female or minorities

● 50% of Callan’s Management Committee is comprised of female or minorities

● Callan has taken an active role in helping public pension plans expand their minority, woman and disabled owned investments through programs like “Callan Connects”

Exhibit 5


Research and Education Callan Published Research

A complete listing of Research is available at www.callan.com

Conference/Workshop Presentations − Expanding Global Horizons − Fixed Income – This Time It’s Different − Plan Regulations and Costs

Periodic Surveys − 2013 Risk Management Survey − 2013 DC Trends Survey − 2011 Investment Management Fee Survey

Quarterly Newsletters − Capital Markets Review − Defined Contribution Observer − Hedge Fund Monitor − Private Market Trends

Research Papers − Risk Factors as Building Blocks for Portfolio Diversification: The Chemistry of Asset Allocation − Investments in Database and Performance Measurement Technology: The Value of Stubbornness − Exchange-Traded Funds: A Look at the Shifting Landscape

Exhibit 5

Relationship Review


Exhibit 5


Alternatives Review Committee

Client Focused Consulting Model Proactively Provide Our Collective Expertise and Experience to Client

Global Manager Research

Capital Markets Group

Client Report Services Proprietary Database

Callan Investments Institute and “Callan College”

Callan Consulting Team John Jackson, CFA Angel Haddad Sally Haskins Greg Allen

Strategic Planning

Plan Implementation

Monitoring & Evaluation

Education & Research

6 Dedicated Professionals 35 Dedicated Performance Analysts and Support

30 Dedicated Professionals 7 Dedicated Professionals Most Callan Professionals Participate as Instructors and Research Writers

Client Policy Review Committee Manager Search Committee

Callan DC Consulting Team Lori Lucas, CFA

Jamie McAllister Jim O’Connor Ben Taylor James Veneruso, CFA

Exhibit 5


Primary Consulting Team

Yosangel Haddad ● 13 years in the Industry ● Vice President, Fund Sponsor Consultant ● Experience with corporate & public DB, DC, and

endowments and foundations. ● MBA, Zicklin School of Business

John Jackson, CFA ● 23 years in the Industry ● Senior Vice President, Fund Sponsor Consultant ● Experience with corporate & public DB, DC, and

endowment and foundations ● CFA Charterholder ● MBA, Washington University in St. Louis ● JD, Washington University in St. Louis

Sally Haskins ● 23 years in the industry ● Senior Vice President, Real Assets Group ● Callan Shareholder ● Research lead for Asia and Latin America ● Consulting, Manager Selection, Portfolio

Management, and Marketing Background ● MS, Real Estate – University of Wisconsin-Madison

Greg Allen ● 25 years in the industry ● President, Director of Research ● Member of Alternatives Review and Client Policy

Review Committees ● Callan Shareholder ● MS Economics, University of California at Santa Cruz

Exhibit 5

14State Universities Retirement System of Illinois Knowledge. Experience. Integrity.

Organization Chart Founded in 1973, Callan Associates Inc. is one of the largest independently owned investment consulting firms in the country. Headquartered in San Francisco, Calif., the firm provides research, education, decision support, and advice to a broad array of institutional investors through four distinct lines of business: Fund Sponsor Consulting, Independent Adviser Group, Institutional Consulting Group, and the Trust Advisory Group. Callan employs more than 170 people andmaintains four regional offices located in Denver, Chicago, Atlanta, and Summit, N.J.

Exhibit 5


Relationship Review

● Inception: January 2011

● Achievements: – Asset /Liability Study – Global/International Structure Review – Domestic Equity Structure Review – Fixed Income Structure Review – Private Equity Review – Pacing Study & Searches – Real Estate Review – Pacing Study & Searches – Custodian/Securities Lending Review & Search – Annual Asset Class Reviews – Annual Manager Diversity Program (MDP) Reviews – Annual DC Reviews – Educational Events – Annual On-Site Forums – Participation at Legislative Hearings

● SURS has had access to the depth and breadth of Callan’s resources including frequent interaction with the senior levels throughout the organization. We expect our relationship will likely evolve over time and are completely amenable to your needs. We will continue to operate as an extension of your staff.

Exhibit 5


Asset/Liability Study • Jay Kloepfer/Karen

Harris

MDP Update

Transition Management Educational Presentation • Bo Abesamis

Asset Structure Analysis Phase III: Fixed Income and TIPS • Jay Kloepfer

RREEF Termination Recommendation • Sally Haskins

February 2013

Implementation of Phase III of Asset Structure Analysis • John Jackson • Modify existing mandate to

PIMCO to include an unconstrained mandate

Educational Topic: S&P 500 Buy-Write Strategies • Jim McKee

March 2013

2011

June 2011

Asset Structure Analysis Phase I: Domestic Equity • Greg Allen

Small Cap Growth Search • CastleArk hired

Opportunistic Real Estate Search Pacing Study Sally Haskins • Franklin Templeton and Mesirow

retained

Custodian/Securities Lending Provider Search Approved by Board • Bo Abesamis • NT retained as custodian; Deutsche

Bank hired for securities lending services

September 2011

October 2011 Asset Structure Analysis Phase II: Non-US & Global Equity • Greg Allen

March 2012 Securities Lending Educational Presentation • Bo Abesamis

September 2012 Core Real Estate Search • Sally Haskins • JP Morgan and Heitman

retained

Private Equity Emerging Manager Search Approved by Board • Gary Robertson • Fairview hired

October 2012 Review of Non-US and Global Equity Managers • Mark Kline

SURS’ Expectations● Commitment and

Dedication of Necessary Resources

● Independence of Firm● Provide Quality & Unique

Recommendations ● Expertise of Investment

Management & Public Pension Fund Industries/Provide Education and Training

● In Depth Knowledge of All Asset Classes

● Awareness of the Illinois Legislative Climate

● Extensive Knowledge of Minority, Female and Persons with Disability-Owned Firms

● Insight of the Latest Trends and Topical Issues

● Diversity ● Extensive Manager

Research and Ability to Conduct Complex Searches

Work Plan (Select Events)

• Custodian/Sec Lending Review

• Consideration of Transition Manager

• Global/International Equity Manager Review

• Real Estate Review –Pacing Study

• Private Equity Manager Review & Opportunities

• Fixed Income Mgr. Review

• Small Cap Search

• Core Real Estate Search

• Custody/Sec Lending Search

• MDP Review

2011 2012 2013• Finalist Interviews: Real

Estate Search • Emerging Mgr. Private Equity

Search • Fixed Income Structure

Analysis

2012

Real Estate Educational Presentation • Sally Haskins

February 2011

Transition Manager Review/Search • Bo Abesamis

March 2011

DC Industry Educational Presentation • Jamie McAllister

April 2012

MDP Update Cap Mkts Update • Jay Kloepfer

June 2012

2013 2014

(Select Events)

Timeline: Goals and Achievements Since Inception

DC Industry Educational Presentation • Jamie McAllister

May 2013

MDP Update • Angel Haddad

June 2013

Exhibit 5


SURS Investment Performance As of June 30, 2013

● In the last three years, SURS’ Total Fund performance has exceeded the benchmark and appeared in the top third of its peer universe.

Public Fund - Large (>1B)

Ret

urns

4%

6%

8%

10%

12%

14%

16%

18%

Last Last LastYear 2 Years 3 Years

(42)(48)

(48)(39)

(29)(31)

10th Percentile 15.18 7.72 13.2325th Percentile 13.71 7.31 12.34

Median 12.18 6.52 11.3875th Percentile 10.41 5.81 10.3590th Percentile 8.63 5.33 9.56

Total Fund 12.80 6.60 12.15

Policy Target 12.39 6.82 12.07

Exhibit 5


What’s Next?

● Your consulting team will proactively communicate with IL SURS on a regular basis and is available to address any questions, concerns, or developments that may arise.

● Upcoming Initiatives: – Asset/Liability Update

– Greater funding stability may introduce potential for expanded investment initiatives including less liquid alternatives – Educational Sessions

– Callan College – Trustee Training – Real Assets – infrastructure, timber, farmland, etc.

– Manager Searches consistent with Pacing Studies – Real Estate – Private Equity

– Overlay Manager Search – Increased staff training on PEP – Annual Asset Class & Manager Reviews

– Sec Lending Program Review – Custody Review – Review of Minority Diversity Program (MDP) – Real Estate Review – U.S. Equity Review – Non-U.S. Equity Review – Fixed Income Review

● Callan’s resources and tools will continue to be available to IL SURS at any time.

Exhibit 5


Strategic Planning

Exhibit 5


Research Organizational Structure

Greg Allen President & Director of Research

Global Manager Research 18 Dedicated Professionals Organized by Asset Class: Domestic Equity International Equity Fixed Income Real Assets Client Report Services Analytical Solutions Group Database /Measurement Development 10 Dedicated Database/Analytics Professionals Plus 25 Additional Analysts & Support Information Technology 10 Dedicated Professionals Trust, Custody, Securities Lending 2 Dedicated Professionals

Butch Cliff, CFA Director of Investment Research

& Operations

Jay Kloepfer Director of Capital Markets

& Alternatives Research

Capital Markets Research 6 Dedicated Professionals Hedge Fund Research 2 Dedicated Professionals Private Equity Research 2 Dedicated Professionals

Exhibit 5


Capital Markets Research Group Capital Markets Research Professionals

Eugene Podkaminer BA, MBA, CFA

Julia Moriarty BS, MBA, CFA

Jay Kloepfer BS, MA

Director of Capital Markets and Alternatives Research

Karen Harris BM, ASA, CFA

Jason Ellement BS, FSA, MAAA, CFA

James Van Heuit BA, BS, MA

25 Full asset/liability or spending studies conducted each year

25 Asset allocation-only studies

conducted each year 20 Investment structure studies

conducted each year 50 Custom research projects

conducted each year

● Provide basic capital market research – all asset classes, all strategies

● Develop proprietary capital market expectations

● Conduct a wide array of modeling assignments, including asset allocation, scenario analysis, custom target date glidepaths

● Asset class implementation – strategies and manager structure

● Provide custom client research and education

● Quarterly Capital Market Review and periodic research papers

● Teamed with Callan’s private markets, hedge fund and real estate research groups

● Assist clients in the completion/enhancement of their internal projects

Exhibit 5


Strategic Planning

● The above schematic diagram outlines Callan’s asset-liability process. An asset-liability study for a defined benefit plan takes 2-4 months to complete depending on complexity, issues to address and the degree of client interaction.

● At least two client meetings (in person or conference call) are necessary to assess risk tolerance, develop/affirm investment goals and recommend an appropriate asset allocation.

Overview of the Callan Asset-Liability Process

Assets Liabilities

II. Create Asset Mix Alternatives

IV. Build Actuarial Liability Model

V. Simulate Financial Condition

VI. Define Risk Tolerance

VII. Select Appropriate Asset Allocation

I. Capital Market Assumptions III. Liability Assumptions

Exhibit 5


Summary Findings of 2011 Asset/Liability Study

● Investment policy alone cannot close the Illinois SURS plan deficit over the next 10 (or 25) years.

● The investment and contribution experience in the next 5 years will be crucial in determining whether the trust will remain sustainable or shift to depletion mode.

● Asset/liability analysis suggests key asset allocation decisions –exposure to risk assets, and illiquid strategies in particular –depend on expected contributions: – Statutory Rate contributions are expected to sustain the plan’s funded ratio;

continued underfunding could lead to depletion.

● Recommended course of action for the next five years: – Continue with the System’s current risk posture, which in combination with

active management is expected to meet the actuarial return assumption; – Consider limiting the illiquid asset class exposures to current levels; – Put off funding of any new strategies (such as absolute return) for the next

several years until future funding policy is clear. – Consider creating a liquidity reserve to anticipate annual net outflows (i.e.

marginal cash allocation within the fixed income allocation).

●

●

●

Proposed Target Adopted June 2011

Exhibit 5


Impact of SURS Liquidity Constraints – Asset Allocation ● Risk of depletion limits illiquid allocations

– Issue addressed in 2011 asset-liability study

● Limits imposed on illiquid classes – Limits based on current allocations – Real estate limit = 11% – Private equity limit = 6% – Hedge fund limit = 0%

● The unconstrained allocations have larger exposures to alternatives – 22% to 33% total vs. 13% to 17% for the

constrained mixes – Similar allocations to real estate, but

implementation would be more private-oriented – Higher allocations to private equity – Significant new allocations to hedge funds

● Unconstrained mixes generally exhibit some risk reduction

● Expectations for publicly traded securities represent passive exposure. Actuarial return targets can be achieved through a combination of beta and alpha (manager’s active returns over passive benchmark).

Unconstrained

Asset Classes

Adjusted

SURS Min Max Mix 1 Mix 2 Mix 3 Mix 4

Broad Domestic Equity 36 0 100 23 27 30 33

Global (ex-US) Equity 24 0 100 19 22 25 28

Domestic Fixed 19 0 100 31 23 15 5

TIPS 4 0 100 4 2 0 0

Real Estate 11 0 100 8 9 10 12

Hedge Funds 0 0 100 9 10 11 12

Private Equity 6 0 100 6 7 9 10

Cash Equivalents 0 0 100 0 0 0 0

Totals 100 100 100 100 100

Compound Return 7.0 6.2 6.7 7.1 7.5

Standard Deviation 14.7 11.6 13.4 15.3 17.2

Sharpe Ratio 0.397 0.409 0.402 0.396 0.391

Total Public Equity 60 42 49 55 62

Total Public Fixed 23 35 25 15 5

Total Alternatives 17 22 26 30 33

SURS Constraints

Asset Classes

Adjusted

SURS Min Max Mix 1 Mix 2 Mix 3 Mix 4

Broad Domestic Equity 36 0 100 26 31 35 41

Global (ex-US) Equity 24 0 100 21 24 28 32

Domestic Fixed 19 0 100 34 26 18 10

TIPS 4 0 100 6 4 2 0

Real Estate 11 0 11 7 9 11 11

Hedge Funds 0 0 0 0 0 0 0

Private Equity 6 0 6 6 6 6 6

Cash Equivalents 0 0 100 0 0 0 0

Totals 100 100 100 100 100

Compound Return 7.0 6.2 6.7 7.1 7.5

Standard Deviation 14.7 11.6 13.5 15.4 17.3

Sharpe Ratio 0.397 0.408 0.401 0.396 0.391

Total Public Equity 60 47 55 63 73

Total Public Fixed 23 40 30 20 10

Total Alternatives 17 13 15 17 17

Exhibit 5


Impact of SURS Liquidity Constraints – Risk Budgeting

● Tables show impact of the asset allocation constraints on risk attribution – Top table shows unconstrained risk attribution – Middle table shows above constraints – Bottom table shows impact of constraints

● The SURS liquidity constraints cause risk budget to be concentrated in public equity

● Removing constraints shifts risk from public equity primarily to hedge funds and private equity and secondarily to real estate

Unconstrained

Asset Classes

Adjusted

SURS Mix 1 Mix 2 Mix 3 Mix 4

Broad Domestic Equity 45.2% 36.2% 36.8% 35.7% 35.1%

Global (ex-US) Equity 32.8% 32.9% 33.0% 32.7% 32.8%

Domestic Fixed -0.3% 0.1% -0.2% -0.2% -0.1%

TIPS -0.2% -0.1% -0.1% 0.0% 0.0%

Real Estate 10.5% 9.6% 9.3% 9.0% 9.6%

Hedge Funds 0.0% 6.4% 6.0% 5.8% 5.6%

Private Equity 11.9% 15.0% 15.1% 17.1% 17.0%

Cash Equivalents 0.0% 0.0% 0.0% 0.0% 0.0%

Totals 100.0% 100.0% 100.0% 100.0% 100.0%

SURS Constraints

Asset Classes

Adjusted




Domestic Fixed -0.3% 0.1% -0.2% -0.3% -0.2%

TIPS -0.2% -0.2% -0.2% -0.1% 0.0%

Real Estate 10.5% 8.3% 9.3% 10.0% 8.8%

Hedge Funds 0.0% 0.0% 0.0% 0.0% 0.0%

Private Equity 11.9% 14.9% 12.9% 11.4% 10.1%


Totals 100.0% 100.0% 100.0% 100.0% 100.0%

Differences

Asset Classes

Adjusted




Domestic Fixed 0.0% 0.0% 0.0% 0.0% -0.1%

TIPS 0.0% -0.1% -0.1% -0.1% 0.0%

Real Estate 0.0% -1.3% 0.0% 1.0% -0.9%

Hedge Funds 0.0% -6.4% -6.0% -5.8% -5.6%

Private Equity 0.0% -0.1% -2.2% -5.7% -6.9%


Exhibit 5


2011 Asset/Liability Study

● Two funding policies modeled: – Upper Bound: Statutory appropriations rate (Section 15-155)

– Overall objective of achieving 90% funding ratio by 2045 – Expected to increase to 31% by 2015 using new Experience Study – Rate would vary depending on future market performance, subject to caps.

– Lower Bound: Flat rate contribution equal to current rate of Payroll of 20%. Schedule of Contributions in $Millions

Net ARC State Shortfall Payroll State (% Payroll)1997 433 182 (251) 2,298,029 8%1998 290 228 (63) 2,377,578 10%1999 296 238 (58) 2,411,118 10%2000 325 241 (84) 2,424,209 10%2001 327 247 (79) 2,474,631 10%2002 435 256 (179) 2,607,155 10%2003 598 285 (312) 2,763,428 10%2004 691 1,758 1,067 2,814,071 62%2005 608 285 (322) 2,939,185 10%2006 662 180 (482) 3,054,100 6%2007 706 261 (445) 3,180,985 8%2008 708 345 (363) 3,303,220 10%2009 874 452 (422) 3,463,922 13%2010 1,003 697 (307) 3,491,071 20%2011 1,239 845 (394) 4,080,079 20%

2015 1,585 1,422 (163) 4,569,185 31%2020 1,681 1,641 (40) 5,307,591 31%2030 1,760 2,270 510 7,426,307 31%

Source: Gabriel, Roeder Smith & Company Payroll changes in 2011 from DB Plan only to Total Uncapped

Actuarial Model Funding Policy

Exhibit 5



● Both charts assume investment return of 7.75% in each future year.: – Unlikely scenario of a

constant return each year.

– Study will introduce annual return volatility into the equation.

● Asset growth is going to be driven by the future funding of the Plan: – Both charts indicate

relatively weak asset growth over the next 10 years.

– Majority of funding under statutory policy will come in 2030 and beyond.

Statutory

Flat Rate

As of July 1 each year.

Statutory Projected Funded Status

Exhibit 5



● Net cash flow = Contributions – (Benefit Payments + Expenses)

● Liquidity needs are projected to be manageable under the statutory policy.

● Under the flat rate policy, liquidity becomes an issue 7-10years out. Need to introduce investment volatility into liquidity equation.

● Liquidity needs help define the appropriate time horizon for plan investments and shape the ability of the Plan to commit to illiquid asset classes.

● The current size of benefit payments and the potential for underfunding suggest that it may be prudent to prepare for liquidity in the event of severe market weakness.


Statutory

Flat Rate


Statutory Net Cash Flow

Exhibit 5


Portfolio Structure

Exhibit 5


Guiding Principles of Manager Structure

● Callan’s philosophy is to keep the structure as simple, streamlined as possible

● Manager allocations should be meaningful at the asset class and Total Fund level

● Active management offers the potential to add value over the index and can be complementary to passive management – Excess returns are more difficult to achieve in efficient markets such as Large Cap U.S. equity and Fixed Income (intermediate

duration) – Potential for excess returns are compelling in Small/Mid Cap U.S. equity, Non-US Equity, Emerging equity and Non-US Small

Cap equity

● Well-diversified market-neutral exposure with no unintended biases – Avoid overlapping mandates – May wish to purposefully add bias to Small/Mid Cap U.S. equity and Emerging Markets equity for potential return enhancements

● The appropriate number of managers must balance style and relationship diversification with the lower fees

Review Current

Manager Structure

Consider Strategic Manager Structure

Issues

Capitalization Factors

Style Factors

Manager Performance

Implementation

Evaluate Current

Alternative Manager

Structures

Select New

Manager Structures

Exhibit 5


Summary of Structure Recommendations (2011-2013)

● Domestic Equity – Increase allocation to small/mid cap strategies (+7%) – More balanced approach to sub-portfolios and managers – Significantly Increased allocation to MDP

● Non-U.S. Equity – Decrease allocation to active EAFE Strategies (-11%) – Increase allocation to active ACWI ex US strategies (+10%) – Consolidate passive assets in ACWI ex US mandate (+4%) – Decrease passive emerging markets strategies (-8%) – Move to actively managed mandate for dedicated Emerging Markets (+5%) – More balanced approach to sub-portfolios and managers – Significantly Increased allocation to MDP

● Fixed Income – Introduce unconstrained strategy to enhance return potential in rising interest rate environment. – Reduce passive exposure (-5%) – Significantly Increased allocation to MDP

● Real Estate – Implement 10% allocation: 6% in private real estate and 4% REITS – Of the real estate allocation, dedicate 80% Core (includes REITS) – Of the Real Estate allocation, dedicate 20% Non-Core (value-add and opportunistic)

Exhibit 5


Research Capabilities

Exhibit 5



Inga Sweet BA

Co-lead and Manager of the Global Manager Research Group and Manager of the Published Research Group

Mark Stahl BA, CFA

Domestic Equity

Kelly Cliff BA, CFA, CAIA

CIO of Public Markets, and co-lead of the Global Manager Research Group

Brett Cornwell BA, CFA

Fixed Income

Steve Center BA, MBA, CFA

Fixed Income

Lauren Etcheverry BS, CFA

Domestic Equity MWDO Liaison

Andy Iseri BS, CFA

International Equity

Jessica Ransdall BA


Ho Hwang BA


Public Markets Research Professionals

Exhibit 5



Kelly Cliff BA, CFA, CAIA Public & Multi-Strategy Real Return Commodities

Michael Bise BA Private Equity

Brett Cornwell BA, CFA TIPS, MLPs

Sally Haskins BA, MS General U.S., Asian and Latin American Real Estate

Steve Center BA, CFA, MBA TIPS

Jim McKee BA, MBA Hedge Funds

Jay Nayak BA Public Real Estate Securities , Debt, and European Strategies

Gary Robertson BA, MBA Private Equity Private Energy

Avery Robinson BS, MBA, CAIA Core Real Estate , Infrastructure, and Emerging Managers

Jamie Shen BS General Real Estate, Agriculture

Lauren Sertich BA General Real Estate and Timber

Brian Kmetz BS, BA, CIPM Hedge Funds

Alternative Investment Research Professionals

Jonathan Gould BS New Offerings Research

Exhibit 5


Global Manager Research By the Numbers


● Commitment to dedicated resources. – Sole focus is research – Original research, in-depth due diligence

● Proprietary database and analytics. – Clean, detailed, continuous data is not a commodity – We control how products are analyzed

● Searches are client-driven, customized and disciplined. – “Ratings” determined specifically for client’s unique

considerations, no “buy” list – Existing manager structures are crucial components to

the search process

● Oversight committee for manager searches. – Best thinking across the firm – Leverages knowledge of specialists and generalists – Ensures quality control and adherence to well-defined

and robust process

● Flexible capabilities allow us to work cooperatively to enhance a client’s existing search process

22 Specialty Consultants 3 Support Analysts 9 CFA and/or CAIA Charterholders 7 Masters degrees 703 Manager Searches completed over the last 5 years $150 Billion Assets represented by these searches 1,300 Average number of manager meetings per year 1,300+ Organizations tracked in proprietary database 7,000+ Unique products tracked in proprietary database 20,000+ Individual investment vehicles tracked in proprietary database

Exhibit 5


Manager Search Process

The Process: • Every search starts from scratch, no

“Approved” or “Buy” lists • Backed by extensive due diligence

and accumulated knowledge of specialist and generalist consultants

• Disciplined and Consistent • Client driven, customized • Utilizes peer review - Manager

Search Committee to ensure quality control

The Outcome: • The identification of the managers

and products that are the best fit for the investment program and the specific mandate

Client cooperation: • All parts of this process are

transparent and client involvement is encouraged. Any part of this process can be used to supplement a client’s existing search process.

Exhibit 5


Emerging Manager and MWDO Firm Research*

● Callan Connects – Launched in 2010 to proactively increase coverage of emerging managers and MWDO firms

– One day each quarter is reserved for Callan research and consulting professionals to meet with emerging managers and MWDO firms. Managers are given 30 minutes to present their firm and its products

– Callan Connects rotates across the nation to help increase access

– Supplements ongoing research by the real assets team

● Callan has extensive experience with Emerging Managers, and Minority, Woman, and Disabled Owned (MWDO) Firms – Callan consults to four Illinois plans with legislative requirements for investment management inclusion

– Callan regularly participates in the National Association of Securities Professionals conferences, as well as state sponsored conferences (i.e., New York State Teachers, Texas State Teachers). Callan is also a sponsor of the Robert Toigo Foundation

– Since the inception of the Callan Connects program through December 2012, Callan professionals have participated in 156 meetings with emerging and MWDO firms

– There are 258 firms classified as MWDO in Callan’s database

– MWDO firms manage over $21 billion for Callan clients, $1.6 billion in assets for Callan’s real estate clients

*Information as of September 30, 2012 unless indicated differently.

Exhibit 5


Proprietary Investment Manager Database Flexibility, Accuracy and Timeliness

You can use Callan data with confidence – we stand behind the data because we own and control it

Performance Measurement Database

Investment Manager Meetings Over 1500 in-house/year Over 350 off-site/year Over 250 conference calls/year Over 145 meetings with emerging or MWDO firms Additional meetings in regional offices and with clients.

Client Related Analyses Approximately 150

searches/year Hundreds of managers

analyzed/year as part of client performance

measurement.

MWDOB Callan’s MWDOB

database includes more than 250 managers that

provide ongoing information on over 650

distinct strategies. MWDOB managers are

automatically included in all searches for which they

qualify. Callan conducts searches

specifically for MWDOB managers on request.

Investment Manager DatabaseA

Number ofProducts

Number of Managers

Domestic Equity Fixed Income Balanced

2,894 1,391

405

713292

79

International/GlobalEquity Fixed Income Balanced

1,697 395

56

655170

28

Additional Real Estate Hedge Funds Other (currency, derivatives, etc.)

227267

56

74120

38

Total 7,388 1,406 A managers are never charged a fee to be in Callan’s database.

(As of 3/31/13)

Exhibit 5


Real Assets Manager Search Activity

● Dedicated team conducts all real assets manager research

● Open door policy with managers

● Coverage assigned by geography or specialty

● 300+ meetings per year, including on-sites and international due diligence

● 124 searches or evaluations; $11 billion allocated since 2008

● Active across the risk spectrum, strategy and vehicle type

● Recent activity was diversified across nearly all categories

Strategy

Number of Searches & Evaluations 2008-YTD

2013

$ Millions Allocated 2008-YTD

2013 Core 43 $5,389

Value Added 21 $1,014

Opportunistic 11 $745

International 12 $370

Debt 10 $450

Specialty 8 $190

Fund of Funds 3 $258

US REITS 3 $150

Global/Intl REITs 3 $129

Energy 7 $350

Infrastructure 4 $1,000

Timber 5 $732

Agriculture 2 $265

TOTAL 125 $10,692

Exhibit 5

Defined Contribution Practice


Exhibit 5


Callan’s Defined Contribution Practice Key Specialists Supporting Callan’s Fund Sponsor Consultants

Lori Lucas, CFA ● Executive Vice President, Defined Contribution

Practice Leader ● 7th Year with Callan; 27th Year in Industry ● Chair of DC Committee, Management Committee ● Callan Shareholder ● MA, University of Illinois

Jamie McAllister ● Vice President ● Defined Contribution Consultant ● 2nd Year with Callan ● 11 Years DC Industry Experience ● BBA, University of Notre Dame

James Veneruso, CFA ● Vice President ● Defined Contribution Consultant ● 6th Year with Callan ● Callan Shareholder ● BS, Vanderbilt University ● MS, University of Illinois

Benjamin Taylor ● Vice President ● Defined Contribution Consultant; 457 / Public DC Plan

Specialist ● 2nd Year with Callan ● 7 Years Industry Experience ● BA, Reed College

MA IPED, Fordham University MPP, Harvard Kennedy School of Government

Jim O’Connor ● Assistant Vice President ● 3rd Year with Callan ● 3 Years Industry Experience ● BS, University of Dayton

Exhibit 5


Callan’s Defined Contribution Practice

● Provide thought leadership and strategic direction for Callan’s DC business – TDVantageTM – Callan Target Date Index – Callan DC IndexTM

– Proprietary recordkeeping database – Proprietary institutional mutual fund database – Callan DC Plan Sponsor Survey

● Support Callan’s clients and consultants on DC projects and issues – DC investment structure issues – Consulting on fiduciary requirements and regulatory updates – Fee analyses – Recordkeeper searches – Advice/managed accounts provider searches – Fund mapping recommendations – Participant communication evaluation – Development/review of investment policy statement – DC Trends Studies / DC Insights

● Formal testimony and commentary on DC topics to regulators – 408(b)2 regulations – DOL/SEC hearings on TDFs – Advice Regulations – SEC Target Date Disclosure Amendment – Stable Value Comment Letter – Senate HELP Subcommittee Testimony on DC plans – ERISA Advisory Council Testimony

Exhibit 5


Investment Structure Evaluation

• Callan’s Philosophical Investment Tenets– Beware of Over Diversification; Simpler can be Better – Give Access to Capitalization and Style Spectrum in Core Options – Cost is Important

Risk Spectrum Tier I Asset Allocation Options Tier II. Core Options Tier III. Specialty OptionsConservative

Target Date Funds Capital Preservation

Core Plus Bond

S&P 500 Index


Small\Mid Cap Core

Aggressive

Clean Sheet Investment Line-Up

Tier II Core Options Tier III Specialty Options

Exhibit 5


Target Date Fund Performance Measurement

● Callan Target Date Index (“CAI Consensus Index”) is constructed using 44 different target date providers' glidepaths (using up to 17 asset classes). – Uses an equal weighted average glidepath asset allocation over the entire possible 80 year span of the

constituent glidepaths (40 pre-retirement accumulation years, 40 post-retirement decumulation years) – The resulting "consensus" glidepath represents the glidepath you would own if you invested equally in each of

the providers' glidepaths

● Performance of a target date fund is measured relative to Callan Target Date Index and the glidepath return. – If the fund’s glidepath return ranks above CAI Consensus Index, the outperformance can be attributed to the

fund’s asset allocation or glidepath – If the fund ranks above its glidepath return, the outperformance is attributable to the performance of the

underlying funds

Overview

Exhibit 5


Target Date Family Performance vs. Peer Families (cheapest net)

Target Date Family Glide Path Returns vs. Peer Families (cheapest net)

The Fidelity funds have lagged peers and have underperformed relative to the Callan Consensus Glidepath in all but the one year period.

The Fidelity funds glidepath returns have likewise featured lackluster performance to peers and the Callan Consensus Glidepath.

Target Date Analytics: Family Performance Breakdown

(4%)(2%)

0%2%4%6%8%

10%12%14%16%

Last Quarter Last Year Last 2 Years Last 3 Years Last 5 Years

(63)(70)

(89)(82)

(73)(45)

(73)(50)

(86)(53)

10th Percentile 0.10 13.02 7.09 12.01 5.9325th Percentile (0.19) 12.27 6.60 11.61 5.53

Median (0.38) 11.72 5.92 11.20 5.1775th Percentile (0.78) 10.81 4.83 10.13 4.4590th Percentile (1.03) 9.53 4.35 9.26 4.00

Fidelity Mgmt Activ e (0.62) 9.96 4.85 10.13 4.03

CAI ConsensusALL Glidepath (0.64) 10.46 6.13 11.19 5.11

(4%)(2%)

0%2%4%6%8%

10%12%14%16%


(77)(51)

(82)(44)

(82)(50)

(74)(42)

(84)(66)

10th Percentile 0.06 12.76 7.61 12.64 5.9325th Percentile (0.10) 11.61 7.08 12.02 5.66


Fidelity Mgmt Activ e (1.04) 9.08 5.43 10.56 4.92


Exhibit 5


Target Date Analytics: Family Performance Breakdown Target Date Family Performance vs. Peer Families (cheapest net)

Target Date Family Glide Path Returns vs. Peer Families (cheapest net)

The TIAA-CREF funds have outperformed peers over all but the 5-year period and have performed well relative to the Callan Consensus Glidepath.

The TIAA-CREF funds glidepath returns have likewise performed well relative to peers and the Callan Consensus Glidepath.

(5%)

0%

5%

10%

15%

20%


(34)(62)

(15)(79)

(19)(46)

(14)(42)

(59)(69)

10th Percentile 0.51 15.31 7.60 13.58 6.0925th Percentile 0.28 14.80 7.18 12.92 5.72

Median 0.03 14.35 6.51 12.26 5.3475th Percentile (0.37) 13.09 5.35 11.39 4.4490th Percentile (0.66) 11.84 4.93 10.90 4.13

TIAA-CREF Activ e 0.17 15.23 7.31 13.41 5.19


(5%)

0%

5%

10%

15%

20%


(5)(55)

(16)(45)

(16)(51)

(1)(28)

(29)(63)



TIAA-CREF Activ e 0.54 14.81 8.08 13.48 5.52


Exhibit 5


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100

103

Effe

ctiv

e Eq

uity

Age

TIAA-Cref Fidelity CAI Consensus

Target Date Analytics: Glidepath Comparison

The Fidelity and TIAA glidepath vary in their equity exposure, with Fidelity being the more conservative of the two.

Exhibit 5


Fee Analysis and Recordkeeper Due Diligence

● Callan regularly conducts defined contribution plan fee analysis for our clients; the process and results can help accomplish four objectives:

– Assist plan fiduciaries in documenting their awareness and understanding of how plan costs are paid

– Benchmark the plan’s current services versus industry best practices

– Establish an appropriate mechanism for paying plan expenses prospectively, given the plan size and asset scale

– Negotiate possibly more competitive fee terms with your provider

● Callan frequently conducts fee analyses and recordkeeper searches and our capabilities are extensive:

– Total fee studies and recordkeeper searches in the past 24 months: 28

– Callan’s recordkeeper database includes two dozen recordkeepers

– Callan’s recordkeeper questionnaire spans over 800 questions for each market segment: core, large, and mega plans

– Questionnaire is updated annually on our online ProposalTech system

Exhibit 5

Portfolio Monitoring


Exhibit 5


Monitoring and Evaluation Performance Measurement, Database, Investment Analytics

35+ year commitment to the business of performance measurement.

25 Dedicated performance analysts

5 Analytical solutions experts 5 Investment Database

specialists 10 Programmers/systems

analysts

Allie Bañuelos BA

Manager of Client Report Services

Ivan “Butch” Cliff BA, CFA

Director of Investment Research & Operations

Brendan Egan BA

Manager of the Analytical Solutions Group

Alpay Soyoguz BA, CFA

Manager of the Database

Denise Steele BS

Director of Information Technology

● Proprietary Data – Comprehensive and dedicated effort ensures accuracy and timeliness

● Innovative Analytical Tools – Facilitates performance and risk evaluation

● Customized, Flexible, Accurate Reporting

● Empower Clients with our Software & Data – Provide and train client staff with sophisticated software, databases, and

“flow-through” of their client-specific performance/risk/holdings data – Help clients enhance their existing internal reporting processes

Exhibit 5


Why Maintain Our Own Proprietary Systems?

● Control – Timeliness and accuracy – Content, design, upgrades, development schedule – Business continuity – no reliance on the fortunes of outside vendors

● Flexibility – Peer group construction, custom peer groups, custom indices – Report design and client specific needs – Changing industry needs

● Intellectual capital – We retain the knowledge and understanding that comes from building and maintaining a robust institutional

performance measurement and database platform – Robust data at your fingertips – historical performance, holdings, and organizational data on virtually every firm

and product that has been marketed to institutional investors over the last 30 years – We continually advance the art and science of monitoring/evaluating complex institutional investment funds

● Wiser, fairer, better informed consulting advice and decisions – We create what we need asap to stay on top of a constantly changing investment/industry landscape – Objective, verified, thorough, and timely information

● Client Focus – Control allows us to deliver customized services to clients based on their needs, not what a vendor offers

Exhibit 5


Callan has a robust, detailed fund sponsor database with a long history of tracking return, risk, and asset allocation data on a vast array of fund types and sizes

Proprietary Fund Sponsor Database

Vendor Data Full BNY Mellon fund sponsor database feed

Non-Client Data Survey Collect quarterly asset allocation, performance data Participants get a summary report.

Supplemental Non-Client Data

Client Fund Sponsor Data

Detailed performance, risk, asset allocation data

flows directly from our reporting system on DB

and DC clients.

Robust, Flexible Peer Groups Definitions

Any size, any type, tracked over time, total

return vs. LDI, open/closed, etc.

Fund Sponsor Database*# of

FundsAssets ($bn)

Public FundsLarge Publics

311129

1,396 1,367

Corporate FundsLarge Corporates

675183

690588

Endows/FoundsLarge Endows/Founds

58762

297259

Taft-Hartleys Large Taft-Hartleys

24830

114 81

All Large Funds 404 2,296

Total Funds 1,821 2,499

All DC Plans (DC Index) 78 118

*As of March 31, 2013

Customized Analytics and Reporting

Vendor Data InvestorForce fund sponsor database feed

Exhibit 5


Performance Measurement and Evaluation

● Style-Based Peer Groups

● Portfolio Characteristics Rankings versus Peer Groups

● Performance Attribution for Global Equity Portfolios

● Total Fund Attribution for Global Multi-Asset Class Portfolios

● Holdings-Based Global Equity Style Analysis

● Asset Allocation Adjusted Total Fund Rankings

● Active Share Analysis for Global Equity Portfolios

● Target Date Indices, Peer Groups, and GlidePath Evaluation Tools

● Total Fund Risk Attribution and Diversification Analysis (forward-looking)

● Drawdown Risk Analysis

● Portfolio “ESG” Analysis and Scoring Metrics

● Portfolio Quality Analysis and Scoring Metrics

● Future improvements and breakthroughs…

A Heritage of Reporting Innovation

Exhibit 5


History of Analytical Innovation

The f ollowing is f orward-looking analy sis of the projected long-term total f und risk, return, and div ersif ication benef its(improv ement in risk and Sharpe ratio) using long-term capital market assumptions. The top table display s the projectedresults and div ersif ication benef its f or the total f und using both the actual and target asset allocations. The middle and bottomexhibits giv e a detailed attribution by asset class of the sources of projected total f und risk and return. This analy sisjuxtaposes dollar weights with projected risk weights and examines the projected risk and return contribution by asset class.

0%

20%

40%

60%

80%

100%

120%

140%

Current $ Weights Current Risk Weights0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Current Return Contrib Current Risk Contrib

State Universities Retirement System of IllinoisTotal Fund Projected Risk Analysisas of June 30, 2013

Capital Market Assumptions: Callan 2013Total Fund Projected Risk Profile

Proj ected Proj ected Proj ected Risk w/o Risk SharpeReturn Risk Sharpe Div ersification Div ersification Div ersification

Current Asset Allocation 6.84% 14.69% 0.33 16.58% 1.89% 0.04%

Target Asset Allocation 6.75% 14.32% 0.33 16.27% 1.95% 0.04%

Projected Risk and Return Sources

Domestic Broad Eq Intl Equity Private Equity Global Equity Broad Domestic REIT Real Estate Opportunistic Other Dom Fixed TIPSDomestic Fixed

Detailed Risk and Return Sources by Asset ClassCurrent Target Current Target Proj ected Proj ected Proj ectedDollar Dollar Proj ected Proj ected Risk Risk Return Risk Rtn/RiskWeight Weight Return Risk Weight Weight Contrib Contrib Contrib

Domestic Broad Eq 33.25% 32.00% 7.63% 18.94% 41.18% 40.59% 2.72% 6.05% 0.45x

Intl Equity 20.35% 21.00% 7.50% 20.10% 26.33% 27.90% 1.64% 3.87% 0.42x

Private Equity 7.20% 6.00% 8.63% 30.90% 14.39% 12.27% 0.67% 2.11% 0.32x

Global Equity Broad 8.26% 8.00% 7.50% 20.10% 10.84% 10.79% 0.67% 1.59% 0.42x

Domestic REIT 3.95% 4.00% 7.26% 21.00% 4.95% 5.16% 0.31% 0.73% 0.42x

Real Estate 2.54% 3.00% 6.21% 17.50% 2.36% 2.87% 0.17% 0.35% 0.49x

Opportunistic 0.52% 1.00% 6.21% 17.50% 0.48% 0.96% 0.03% 0.07% 0.49x

Other Dom Fixed 2.85% 2.85% 2.51% 3.75% (0.04% ) (0.04%) 0.08% (0.01%) (12.87x)

TIPS 3.84% 4.00% 2.30% 5.00% (0.17% ) (0.17%) 0.09% (0.02%) (3.91x)

Domestic Fixed 17.23% 18.15% 2.51% 3.75% (0.33% ) (0.33%) 0.46% (0.05%) (9.65x)

State Universities Retirement System of Illinois 201

Exhibit 5


History of Analytical Innovation Sample Projected Risk Profile

The f ollowing is f orward-looking analy sis of the projected long-term total f und risk, return, and div ersif ication benef its(improv ement in risk and Sharpe ratio) using long-term capital market assumptions. The top table display s the projectedresults and div ersif ication benef its f or the total f und using both the actual and target asset allocations. The middle and bottomexhibits giv e a detailed attribution by asset class of the sources of projected total f und risk and return. This analy sisjuxtaposes dollar weights with projected risk weights and examines the projected risk and return contribution by asset class.

0%

20%

40%

60%

80%

100%

120%

140%

Current $ Weights Current Risk Weights0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Current Return Contrib Current Risk Contrib

State Universities Retirement System of IllinoisTotal Fund Projected Risk Analysisas of June 30, 2013

Capital Market Assumptions: Callan 2013Total Fund Projected Risk Profile

Proj ected Proj ected Proj ected Risk w/o Risk SharpeReturn Risk Sharpe Div ersification Div ersification Div ersification

Current Asset Allocation 6.84% 14.69% 0.33 16.58% 1.89% 0.04%

Target Asset Allocation 6.75% 14.32% 0.33 16.27% 1.95% 0.04%

Projected Risk and Return Sources

Domestic Broad Eq Intl Equity Private Equity Global Equity Broad Domestic REIT Real Estate Opportunistic Other Dom Fixed TIPSDomestic Fixed

Detailed Risk and Return Sources by Asset ClassCurrent Target Current Target Proj ected Proj ected Proj ectedDollar Dollar Proj ected Proj ected Risk Risk Return Risk Rtn/RiskWeight Weight Return Risk Weight Weight Contrib Contrib Contrib

Domestic Broad Eq 33.25% 32.00% 7.63% 18.94% 41.18% 40.59% 2.72% 6.05% 0.45x

Intl Equity 20.35% 21.00% 7.50% 20.10% 26.33% 27.90% 1.64% 3.87% 0.42x

Private Equity 7.20% 6.00% 8.63% 30.90% 14.39% 12.27% 0.67% 2.11% 0.32x

Global Equity Broad 8.26% 8.00% 7.50% 20.10% 10.84% 10.79% 0.67% 1.59% 0.42x

Domestic REIT 3.95% 4.00% 7.26% 21.00% 4.95% 5.16% 0.31% 0.73% 0.42x

Real Estate 2.54% 3.00% 6.21% 17.50% 2.36% 2.87% 0.17% 0.35% 0.49x

Opportunistic 0.52% 1.00% 6.21% 17.50% 0.48% 0.96% 0.03% 0.07% 0.49x

Other Dom Fixed 2.85% 2.85% 2.51% 3.75% (0.04% ) (0.04%) 0.08% (0.01%) (12.87x)

TIPS 3.84% 4.00% 2.30% 5.00% (0.17% ) (0.17%) 0.09% (0.02%) (3.91x)

Domestic Fixed 17.23% 18.15% 2.51% 3.75% (0.33% ) (0.33%) 0.46% (0.05%) (9.65x)

State Universities Retirement System of Illinois 201

Exhibit 5


History of Analytical Innovation Sample ESG Characteristics

Portfolio Characteristics Percentile RankingsRankings Against CAI Large Cap Core Styleas of June 30, 2013

Perc

entil

e R

anki

ng

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

0%

Absolute Industry Adj usted Env ironmental Social Resp. Gov ernanceESG Score ESG Score Score Score Score

(14)(13) (17)(17) (16)(17)

(31)(23)

(48)(43)


Median 4.44 4.42 5.50 3.95 6.1875th Percentile 4.36 4.28 5.34 3.81 6.0290th Percentile 4.28 4.09 5.22 3.67 5.81

SURS T. Rowe Price 4.62 4.74 5.73 4.06 6.19

S&P 500 Index 4.63 4.73 5.72 4.09 6.24

Exhibit 5


History of Analytical Innovation Sample ESG Characteristics

Sector AllocationJune 30, 2013

0% 5% 10% 15% 20% 25%

Information Technology17.8%17.8%

18.5%

Financials15.9%

16.7%16.2%

Consumer Discretionary13.0%

12.2%13.6%

Health Care12.4%

50%

Mgr

MV

50%

Mgr

MV

12.7%13.9%

Consumer Staples10.7%10.5%

9.7%

Energy10.4%10.5%10.6%

Industrials10.1%10.1%10.3%

Materials4.2%

3.3%2.9%

Utilities2.9%

3.3%1.9%

Telecommunications2.8%2.8%

2.4%

SURS T. Rowe Price S&P 500 Index CAI Large Cap Core Style

DiversificationJune 30, 2013

0

50

100

150

200

250

300

Number of IssueSecurities Div ersification

(9)

(8)

10th Percentile 255 4325th Percentile 147 33

Median 98 2675th Percentile 58 2190th Percentile 38 15

SURS T. Rowe Price 257 46

S&P 500 Index 500 54

Sector WeightsThe graph below contrasts the manager's sector weights with those of the benchmark and median sector weights across themembers of the peer group. The magnitude of sector weight dif f erences f rom the index and the manager's sectordiv ersif ication are also shown. Div ersif ication by number and concentration of holdings are also compared to the benchmarkand peer group. Issue Div ersif ication represents by count, and Div ersif ication Ratio by percent, the number of holdings thatcomprise half of the portf olio's market v alue.

Exhibit 5


Performance Measurement – Manager Analysis Exhibit 5


Active Share 12.26%

Passive Share

87.74%

Sector Level Share Analysis

Index Active Share

40.61%

Non-Index Active Share

3.39%

Passive Share

56.00%

Holdings-Level Share Analysis

Index Active Share Within

Sector

Non-Index Active Share within

Sector

Total Active Share within

Sector Index Weight Manager Weight

Contribution to Total Portfolio Active Share

Consumer Discretionary 40.81% 4.64% 45.45% 11.02% 15.98% 6.80% Consumer Staples 28.46% 2.45% 30.91% 8.18% 6.78% 2.72% Energy 43.67% 1.70% 45.37% 10.51% 10.66% 5.06% Financials 43.48% 2.97% 46.44% 19.66% 13.53% 6.80% Health Care 35.29% 6.59% 41.88% 11.54% 13.38% 5.37% Industrials 49.99% 0.00% 49.99% 12.11% 10.32% 5.47% Information Technology 32.11% 1.96% 34.07% 16.05% 20.56% 6.58% Materials 42.01% 10.16% 52.17% 3.69% 4.47% 2.33% Pooled Vehicles 50.00% 50.00% 100.00% - 0.03% 0.02% Telecommunications 50.77% 5.62% 56.39% 3.54% 2.57% 1.54% Utilities 32.09% 0.00% 32.09% 3.69% 1.72% 1.33% Total 40.61% 3.39% 44.00% 100.00% 100.00% 44.00%

History of Analytical Innovation Active Share Analysis – Domestic Equity Composite vs. Russell 3000

Total Active Share: 44.00%

Exhibit 5


Performance Evaluation Program (PEP)

● PEP for Windows™ is Callan’s industry-leading performance, risk, and style analysis software application. Designed by Callan from the ground up, PEP is a highly flexible software tool for analyzing investment performance and producing analysis to meet the needs of today’s investment professionals – Return/Risk Analysis - Performance and risk can be measured relative to any of Callan’s style groups or

databases, or over 450 market indices – Style Analysis - PEP can effectively quantify manager style for domestic, international, and global equity

portfolios through the use of both holdings-based and multi-factor regression analysis – Holdings Based Analysis and Attribution - Managers routinely send their periodic portfolio holdings to

Callan for analysis and characteristic computation. These statistical results are then sent back to PEP users in their PEP database for in-house analysis

– Searchbooks - PEP’s newest manager search tool, facilitate the ability to run statistics on many managers or funds at one time

– Database - PEP provides immediate access to valuable data from Callan’s separate account and mutual fund databases. With over 14,000 products across these two databases, you can access information on virtually every available investment vehicle

Exhibit 5

Fees

Exhibit 5


Proposed Fees for IL SURS Retainer Relationship

Project based services for DB Plan:

– Additional Asset/Liability Studies - $55,000 (one has been included in the retainer) – Real Estate Advisory – included in retainer – Public Markets Manager Search - $30,000 – Private Markets Manager Search - $40,000 – Custodian/Securities Lending Search - $80,000 – Due Diligence to re-up with existing manager – included in retainer – Custody Search - $60,000 – Transition Manager Search - $20,000 – Securities Lending Search (if done separately from Custodian Search) - $65,000 – Monthly Flash Report - $18,000

Project based services for SMP DC Plan:

– Public Markets Manager Search - $30,000 – Recordkeeper Search - $85,000 – Board Education – included in retainer – Due Diligence on Current DC Providers – included in retainer – DC Investment Policy Review – included in retainer – Access to DC Research – included in retainer

Callan proposes a total retainer fee of $395,000 annually for a five-year contract; with an annual inflation adjustment that is standard in all our contracts. This fee is in hard dollars and would not be supplemented with any brokerage or soft dollar payments. Billing occurs on a quarterly basis in arrears.

Exhibit 5


Proposed Fees for IL SURS Retainer Relationship

– Managed Accounts / Advice Search – Due to the infrequent nature of these types of searches, Callan typically excludes these from typical retainer arrangements. Each such search would cost $30,000. In addition to the service cost, travel by members of our Defined Contribution team to SURS’ office for associated meetings and to onsite due diligence meetings at the service provider’s facilities (if required), would be additional and billed at cost.

– Fund Fact Sheets – Callan can provide custom quarterly fund fact sheets for participants. Our cost is $4,000 per option, plus additional set up fee. Costs vary depending on how many funds will receive fact sheets. The schedule is as follows: $20,000 for the implementation of up to 5 funds; $30,000 for the implementation of up to 10 funds; $35,000 for the implementation of up to 15 funds. Anything over 15 funds will be negotiated between SURS and Callan.

– Comprehensive Fee Review – This includes a comprehensive review of retirement plan service provider (recordkeeping/administration), including competitive fee analysis/benchmarking with mini-surveys to providers; assistance with contract negotiations with recordkeeper and other service providers. Each fee review is $30,000.

– Communication Review - A communication review consists of a comprehensive examination of existing DC plan communication and education resources available to SURS employees. Gaps are identified in the existing education and communication programs. Callan uses its recordkeeper database—which contains communication best practices and samples from more than a dozen leading record keepers—as the basis of its gap analysis and as a source of recommendations for any improvements to the plans’ communication and educations programs. Each such review would cost $20,000.

Consulting Services that would require an additional fee for the SMP DC Plan

Exhibit 5

Summary

Exhibit 5


Quality The quality of Callan’s consulting will exceed industry standards and your expectations.

Delivery Callan’s services will be delivered promptly, accurately, and will be fully customized for your needs.

Cost Callan’s consulting fees will be fairly priced for the services provided.

Client Service Callan’s consulting team will be highly responsive, direct, professional, and focused on meeting your unique needs and expectations.

Innovation Callan’s heritage, culture, and philosophy promote unique solutions.

Ethical Conduct and Transparency

Callan will operate with the highest level of ethical conduct and transparency.

Flexibility Callan’s consulting approach is built on developing custom solutions to meet unique client needs. We will be very flexible in meeting your needs.

Callan’s Commitment to SURS Our Goal is to Exceed Your Expectations

Exhibit 5

Appendix

Exhibit 5


Callan Biographies

Yosangel G. Haddad is a Vice President in Callan's New Jersey Fund Sponsor Consulting office. He joined Callan in June 2012. Yosangel works with a variety of fund sponsor clients, including corporate and public defined benefit plans, corporate defined contribution plans, and endowments and foundations. His client responsibilities include strategic planning, plan implementation, investment monitoring and coordination of special client projects. Prior to joining Callan, Yosangel worked at Fischer, Francis, Trees & Watts, Inc., a specialty fixed income global investment management firm, as a Relationship Manager focusing on Central Bank and Official Institution clients. Prior to this, Yosangel was a Principal with Mercer Investment Consulting, Inc., where he spent 11 years working with corporate defined benefit and defined contribution plans, endowments and foundations in the US, the Caribbean, and a large sovereign wealth fund in South America. Yosangel earned his Bachelor's degree in Business Administration and his MBA from the Zicklin School of Business in New York.

John P. Jackson, CFA, is a Senior Vice President in Callan’s Chicago Fund Sponsor Consulting office with over twenty years of experience in the pension and investment industry. John works with a variety of clients including defined benefit plans, defined contribution plans, multi-employer plans, endowments and foundations. His responsibilities include strategic planning, implementation, performance evaluation, and continuing education. Prior to joining Callan, John was most recently with Asset Consulting Group in St. Louis Missouri as director and senior consultant where he worked with public, insurance and not for profit institutions. Previously, John was a principal and senior consultant at DeMarche Associates and worked with corporate and not for profit institutions to develop customized investment solutions. Prior experience included working with institutional clients for The Northern Trust Company in Chicago and Boatmen’s Trust Company in St. Louis, Missouri. John has earned a Juris Doctorate from Washington University in St. Louis as well as his MBA from the John Olin School Business at Washington University in St. Louis. He also attended the University of Illinois where he earned a Bachelor’s of Arts degree in Political Science. John has earned the right to use the Chartered Financial Analyst designation from CFA Institute and is a member of the CFA Society of Chicago.

Exhibit 5


Callan Biographies

Sally Haskins is a Senior Vice President and a consultant in Callan's Real Assets Consulting group. She is responsible for strategic planning, implementation, and performance oversight of client's real estate portfolios. She heads manager due diligence and strategy research for Asian real estate markets and investment products. Her role also includes new business development for the real estate consulting group. Sally is a shareholder of the firm. Sally joined Callan in 2010 from ING Clarion Partners where she was a Director in the Marketing and Client Service Group. Prior to joining ING Clarion in 2007, Sally enjoyed a 15 year career with Russell Investments and Institutional Property Consultants, Inc. (IPC). While at Russell, Sally held multiple positions including consulting, manager research, and portfolio management. Most recently, she served as the Head of Property, Asia-Pacific and was located in Russell's Sydney office. There she led the strategy and launch of Russell's Global Property Fund, an opportunistic real estate fund of funds for Australian superannuation investors. In addition, she evaluated real estate property and capital markets for the Asia-Pacific region and directed manager research for Asian private equity real estate funds. While working in the US, she designed Russell's comparative analysis and ranking of the core and value added open-end commingled fund universe as well as evaluated European open and closed end funds. At IPC, Sally developed strategy and implementation plans for pension plans and conducted manager due diligence with a focus on opportunistic real estate funds. Her clients included New York State Common Retirement Fund and State of Wisconsin Investment Board. She started her real estate career in 1989 at the State Teachers Retirement System of Ohio. Sally received an MS in Real Estate Appraisal and Investment from the University of Wisconsin-Madison and a BA (Magna cum Laude and Phi Beta Kappa) from St. Olaf College.

Exhibit 5


Callan Biographies

Gregory C. Allen, is President and Director of Research. As President, Greg is responsible for overseeing Callan’s Fund Sponsor Consulting group, the Trust Advisory Group, and all of the firm’s research groups which include: Global Manager Research, Alternative Investment Research, Capital Markets Research, Database, Client Report Services, and Operations. Greg is also a member of Callan’s Management Committee, the Alternatives Review Committee, and the Client Policy Review Committee. He is also a member of the Investment Committee which has oversight responsibility for all of Callan’s discretionary multi-manager solutions. Greg joined the San Francisco office of Callan in 1988 as an analyst in the Capital Markets Research group where he focused on capital market research, quantitative analysis, product development, and asset allocation liability analysis. In 1993, Greg took over the Operations and Capital Markets Research groups. He has managed a wide variety of projects for Callan, including the development of the firm’s performance measurement service, the development of Callan’s web site and web-based performance reporting capabilities, and the development and launch of Callan’s PEP for WindowsTM software. In 2000, Greg was promoted to Manager of Specialty Consulting (Now Director of Research) and in 2007 was promoted to President. Greg is a shareholder with the firm. Greg earned an MS in Applied Economics and a BA in Economics (Honors, Phi Beta Kappa) from the University of California at Santa Cruz. He is a frequent speaker on investment related topics, and has numerous publications. These include "Performance Attribution for Global Portfolios" published in the Fall 1991 issue of the Journal of Portfolio Management, "The Active Premium in Small-Cap U.S. Equities" published in the Spring 2005 issue of the Journal of Portfolio Management, and “Does Size Matter?” published in the Spring 2007 issue of the Journal of Portfolio Management.

Exhibit 5


Callan Biographies

Lori Lucas, CFA, is an Executive Vice President and Defined Contribution Practice Leader at Callan Associates. Lori is responsible for setting the direction of Callan's DC business, providing DC support both internally to Callan's consultants and externally to Callan's clients, and developing research and insights into DC trends for the benefit of clients and the industry. Lori is a member of Callan's Management Committee and is a shareholder of the firm. Formerly, Lori was Director of Retirement Research at Hewitt Associates. Lori has also served as a vice president at Ibbotson Associates, a pension fund consultant at J.H. Ellwood & Associates, and an analyst and product development leader at Morningstar, Inc. Lori received a Bachelor of Arts from Indiana University and earned a Masters from the University of Illinois. Additionally, she earned the right to use the Chartered Financial Analyst® designation. Lori is a former columnist for Workforce Management online magazine, serves on the editorial advisory board of Benefits Quarterly, and her views have been featured in numerous publications. She is Executive Vice Chair of the Employee Benefit Research Institute's Retirement Research Committee, she is a member of NAGDCA's Survey Committee, and she is on the Executive Board of Defined Contribution Institutional Investment Association. Lori is also a frequent speaker at pension industry conferences.

Jay V. Kloepfer is an Executive Vice President and the Director of Capital Market and Alternatives Research. Jay oversees Callan's Capital Markets, Hedge Fund and Private Markets research groups. The Capital Markets group helps Callan's fund sponsor clients with their strategic planning, conducting asset allocation and asset/liability studies, developing optimal investment manager structures, evaluating defined contribution plan investment lineups and providing custom research on a variety of investment topics. The Hedge Fund and Private Markets groups are responsible for specialized consulting including asset class and strategy research, manager searches, portfolio reviews, and performance evaluation. Jay is the author of the "Callan Periodic Table of Investment Returns," which he created in 1999. He is a member of Callan's Management Committee and is a shareholder of the firm. Prior to joining Callan, Jay was a Senior Economist and the Western Regional Manager for Standard & Poor's DRI. Jay earned a BS with honors in Economics from the University of Oregon and an MA in Economics from Stanford.

Exhibit 5


Education and Research

● The Callan Investments Institute was formally established in 1980 to provide continuing education and research to the investment industry.

● Formal research is conducted and disseminated by field consultants and dedicated research professionals: – 30 Original Research Papers published over the last 5 years – 10 Major Surveys conducted during last 5 years

● Annual client conference and regional breakfasts workshops. – Continuing education for all staff members

● Center for Investment Training, or the “Callan College,” was established in 1994 to provide relevant and practical educational opportunities to all professionals involved in the investment decision-making process. – Perfect forum for the onboarding of newer staff members – We also offer customized, single client sessions based on the client’s specific needs

Overview

Exhibit 5


Education and Research Callan Insights/Callan DC Insights

Exhibit 5


2011 Asset/Liability Study - Asset Mix Alternatives

● The six alternative mixes above are “efficient” - each asset mix maximizes return for a given level of risk.

● Your current target mix is similar in risk and return as efficient Mix 4 (highlighted). Alternative mix(es) suggest a slightly higher allocation to non-US equity relative to public equity.

● Mix 5 is expected to meet your nominal actuarial discount rate target.

● Liquidity concerns suggest two potential portfolio impacts: that allocation to illiquid asset classes be capped and that more conservative mixes be considered for the study.

MEAN-VARIANCE FRONTIER

Asset ClassAdjusted

SURSMinimum

Allocation

Maximum

Allocation Mix 1 Mix 2 Mix 3 Mix 4 Mix 5 Mix 6

Broad U.S. Equity 36.5% 0% 100% 23% 28% 31% 34% 37% 41%Non-US Equity 23.5% 0% 100% 18% 22% 24% 26% 29% 32%US Core Fixed Income 19% 0% 100% 40% 30% 25% 20% 14% 8%TIPS 4% 0% 100% 9% 7% 5% 4% 3% 2%Real Estate 11% 0% 11% 7% 8% 9% 10% 11% 11%Private Equity 6% 0% 6% 3% 5% 6% 6% 6% 6%Cash Equivalents 0% 0% 100% 0% 0% 0% 0% 0% 0%Total 100% 100% 100% 100% 100% 100% 100%

Geometric Returns (Nominal) 7.5% 6.5% 7.0% 7.3% 7.5% 7.7% 8.0%Real Return 5.0% 4.0% 4.5% 4.8% 5.0% 5.2% 5.5%Standard Deviation of Nominal Return 14.2% 9.6% 11.9% 13.0% 14.2% 15.4% 16.6%Sharpe Ratio 0.318 0.362 0.340 0.329 0.319 0.309 0.299

Equity 60% 41% 50% 55% 60% 66% 73%Fixed Income/Cash 23% 49% 37% 30% 24% 17% 10%REITS 4% 4% 4% 4% 4% 4% 4%Alternatives / Illiquid 13% 6% 9% 11% 12% 13% 13%

% Non-US Equity 39% 44% 44% 44% 43% 44% 44%

Mean Variance Optimization using Current Asset Classes

Exhibit 5


● Mix 5 is closer to your actuarial (nominal) discount rate target, and has more volatility than your current SURS Target.

● Mix 4 is closer to your real return target, and is similar in volatility as your current SURS Target.

● Actuarial return targets can be achieved through a combination of beta (asset allocation with passive benchmarks) and alpha (manager’s active returns over passive benchmark).

Efficient Frontier

2011 Asset/Liability Study - Asset Mix Alternative Exhibit 5


● Using simulation analysis, Callan measured your liability return to be a compounded 7.60% over the next 10 year period.

● Liability returns are expected to be less than the nominal actuarial discount rate. Liability gains are due to Callan’s more favorable inflation expectations relative to the actuary’s assumptions. Lower inflation is expected to impact salary increases (not COLAs) over the next 10 year horizon.

2011 Asset/Liability Study - Create Asset Mix Alternatives Surplus Frontier

Exhibit 5



● A plan that is heavily weighted to inactive liabilities is considered mature. Mature plans have shortening investment time horizon.

● For Illinois SURS, the active liability share decreases over time while the inactive liability increases. The increasing size of benefit payments is indicative of maturity.

● Duration measures the timing of future cash flows. Future cash flows extend for life of all beneficiaries of the Plan.

● Duration also measure how sensitive the liabilities are to changes in the discount rate (e.g. for a 1% drop in yields, total liabilities will increase by roughly 10%).

● These charts indicate that, despite Plans’ maturity, the payout horizon is still very long.

As of July 1, each year.

Plan Maturity and Duration

Exhibit 5


2013 Capital Market Expectations - Return and Risk

Source: Callan

Summary of Callan's Long-Term Capital Market Projections (2013 - 2022)

PROJECTED RETURN PROJECTED RISK 2012 - 2021

Asset Class Index1-Year

Arithmetic10-Year

Geometric* RealStandard Deviation

Projected Yield

10-Year Geometric*

Standard Deviation

EquitiesBroad Domestic Equity Russell 3000 9.15% 7.65% 5.15% 18.95% 2.00% 7.75% 18.70%Large Cap S&P 500 8.90% 7.50% 5.00% 18.30% 2.20% 7.60% 18.00%Small/Mid Cap Russell 2500 10.15% 7.85% 5.35% 22.90% 1.40% 7.90% 23.00%International Equity MSCI EAFE 9.25% 7.50% 5.00% 20.10% 3.00% 7.60% 20.00%Emerging Markets Equity MSCI EMF 11.45% 7.95% 5.45% 27.75% 2.50% 8.00% 27.75%Global ex-US Equity MSCI ACWI ex-US 9.80% 7.85% 5.35% 21.25% 2.90% 7.90% 21.15%

Fixed IncomeDefensive BC Gov't 1-3 2.30% 2.30% -0.20% 2.25% 2.80% 3.00% 2.50%Domestic Fixed BC Aggregate 2.55% 2.50% 0.00% 3.75% 4.00% 3.25% 4.25%TIPS BC TIPS 2.40% 2.30% -0.20% 5.00% 4.00% 3.00% 5.60%High Yield BC High Yield 5.70% 5.05% 2.55% 12.60% 7.00% 5.35% 12.50%Non-US Fixed Citi Non-US Gov't 2.65% 2.25% -0.25% 9.40% 3.80% 2.85% 9.50%

OtherReal Estate Callan Real Estate 7.55% 6.20% 3.70% 17.50% 5.00% 6.40% 16.95%Private Equity VE Post Venture Cap 13.00% 8.65% 6.15% 30.90% 0.00% 8.80% 30.60%Hedge Funds Callan Hedge FoF 5.50% 5.10% 2.60% 10.20% 0.00% 5.55% 10.00%Commodities DJ-UBS Commodity 4.35% 2.75% 0.25% 18.25% 2.00% 3.25% 17.90%Cash Equivalents 90-Day T-Bill 2.00% 2.00% -0.50% 0.90% 2.00% 2.75% 0.90%

Inflation CPI-U 2.50% 2.50% 1.50% 2.50% 1.40%

* Geometric returns are derived from arithmetic returns and the associated risk (standard deviation).

Exhibit 5


2013 Capital Market Expectations - Correlation Coefficient Matrix

Source: Callan

Broad Lg Cap Sm/Mid Int'l Eq Emerge GlobxUS Defensive Dom Fix TIPS Hi Yield NUS Fix Real Est Pvt Eqt Hedge Fd Comm Cash Eq Inflation

Broad Domestic Equity 1.000

Large Cap 0.996 1.000

Small/Mid Cap 0.953 0.920 1.000

International Equity 0.852 0.850 0.805 1.000

Emerging Markets Equity 0.836 0.830 0.805 0.840 1.000

Global ex-US Equity 0.878 0.874 0.834 0.984 0.923 1.000

Defensive -0.299 -0.295 -0.295 -0.280 -0.300 -0.297 1.000

Domestic Fixed -0.106 -0.100 -0.120 -0.100 -0.140 -0.117 0.700 1.000

TIPS -0.166 -0.160 -0.175 -0.150 -0.175 -0.164 0.480 0.635 1.000

High Yield 0.632 0.630 0.600 0.600 0.575 0.614 -0.030 0.000 -0.010 1.000

Non-US Fixed -0.074 -0.065 -0.100 0.000 -0.090 -0.029 0.380 0.400 0.300 0.050 1.000

Real Estate 0.746 0.740 0.720 0.650 0.630 0.667 -0.120 -0.010 -0.060 0.550 0.020 1.000

Private Equity 0.910 0.905 0.870 0.860 0.840 0.885 -0.270 -0.150 -0.185 0.630 -0.020 0.730 1.000

Hedge Funds 0.755 0.750 0.725 0.695 0.700 0.722 -0.130 0.080 0.020 0.540 0.000 0.575 0.685 1.000

Commodities 0.157 0.155 0.155 0.145 0.155 0.154 -0.250 -0.010 0.200 0.120 -0.050 0.150 0.130 0.180 1.000

Cash Equivalents -0.043 -0.030 -0.080 -0.010 -0.100 -0.040 0.350 0.100 0.070 -0.110 0.000 -0.060 0.000 -0.070 0.070 1.000

Inflation -0.048 -0.060 -0.010 -0.110 0.030 -0.068 -0.360 -0.320 0.130 0.070 -0.220 0.170 -0.060 0.210 0.470 0.150 1.000

Exhibit 5


93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13(20.0)

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

Exc

ess

Ret

urn

for 20 Years Ended June 30, 2013Rolling 12 Quarter Excess Return Relative To S&P 500

CAI Large Cap Broad Style

S&P 500

Large Cap Broad Equity Style versus S&P 500

● Percent of Three-Year periods where Manager Beat Benchmark by more than Hurdle – by Percentile

Hurdle 0.25% 0.30% 0.35% 0.40% 0.45% 0.50% 0.55% 0.60% 0.65% 0.70%Median 46% 45% 43% 41% 39% 39% 38% 34% 33% 31%

45th Percentile 59% 59% 56% 54% 53% 53% 51% 48% 46% 45%

40th Percentile 71% 71% 69% 69% 69% 69% 66% 65% 61% 60%

35th Percentile 75% 75% 74% 73% 73% 73% 73% 73% 70% 70%

30th Percentile 83% 83% 80% 79% 79% 76% 75% 74% 73% 73%

25th Percentile 88% 86% 86% 86% 86% 86% 86% 84% 84% 83%

Average Annualized Excess Return – Median Manager: -0.12%

Exhibit 5


93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13(18.0)(14.0)(10.0)

(6.0)(2.0)

2.06.0

10.014.018.022.026.030.0

for 20 Years ended June 30, 2013Rolling 12 Quarter Excess Return relative to Russell 2000

Exc

ess

Ret

urn

CAI Small Cap Broad Style

Russell 2000

Small Cap Broad Equity Style versus Russell 2000


Hurdle 0.50% 0.55% 0.60% 0.65% 0.70% 0.75% 0.80% 0.85% 0.90% 0.95%Median 81% 80% 80% 76% 73% 73% 71% 69% 69% 65%

45th Percentile 94% 90% 90% 89% 88% 86% 86% 85% 85% 84%

40th Percentile 98% 98% 98% 98% 96% 95% 94% 91% 91% 91%

35th Percentile 98% 98% 98% 98% 98% 98% 98% 98% 98% 98%

30th Percentile 99% 98% 98% 98% 98% 98% 98% 98% 98% 98%

25th Percentile 100% 100% 100% 100% 100% 99% 99% 99% 99% 99%

Average Annualized Excess Return – Median Manager: 1.94%

Exhibit 5


International Equity Core Plus Broad Style vs MSCI ACWI ex-US


93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13(9.0)(6.0)(3.0)

0.03.06.09.0

12.015.018.021.024.027.0

for 20 Years ended June 30, 2013Rolling 12 Quarter Excess Return relative to MSCI ACWI ex-US

Exc

ess

Ret

urn

CAI Intl Equity Core Plus Broad Style

MSCI ACWI ex-US

Hurdle 0.45% 0.50% 0.55% 0.60% 0.65% 0.70% 0.75% 0.80% 0.85% 0.90%Median 59% 59% 58% 58% 58% 56% 55% 54% 54% 54%

45th Percentile 65% 65% 65% 65% 61% 58% 58% 58% 58% 58%

40th Percentile 73% 71% 71% 71% 71% 69% 69% 68% 65% 64%

35th Percentile 85% 83% 81% 80% 79% 76% 76% 75% 75% 74%

30th Percentile 95% 95% 95% 94% 94% 94% 94% 91% 86% 83%

25th Percentile 100% 100% 100% 100% 100% 100% 99% 98% 98% 98%

Average Annualized Excess Return – Median Manager: 2.00%

Exhibit 5


Callan’s Business Model

A diversified revenue stream has been critical to our ability to continue to reinvest in our people and our proprietary systems. It is what allows us to deliver greater capability to our clients at more competitive fees.

Clients include defined contribution, pension, foundation and operating assets

372 funds

$1.9 trillion in assets

69% of Callan’s revenues

Clients include “middle market”consulting firms and financial intermediaries

30 clients


Clients include very large defined benefit plans

New business line in 2006

$3.9 billion in assets


Fund Sponsor Consulting Independent Advisor Group (IAG)

Trust Advisory Group (TAG)

FundSponsor

IAG

TAG

ICGClients are investment management organizations

181 clients

$7 trillion in assets


Institutional Consulting Group (ICG)

As of June 30, 2013

contribution, pension, foundation


Clients include “middle market”

consulting firms and financial intermediaries

30 clients


Clients include very large defined benefit plans

New business line in 2006

Fund Sponsor Consulting Independent Advisor Group (IAG)

Trust Advisory Group (TAG)

FundSponsor

IAG

TAG TAG TAG

ICGClients are investment management organizations

181 clients

$7 trillion in assets


Institutional Consulting Group (ICG)

Exhibit 5


Callan’s Ethics Policy

● Separate P&L: Each business unit has their own personnel and their own P&L. A fund sponsor consultant's compensation is entirely dependent on the health of the Fund Sponsor consulting business and the satisfaction of Fund Sponsor clients. They have a massive personal financial disincentive against their clients ever receiving conflicted advice from the firm.

● Peer Review: Every manager search is a collective effort involving the client, the general consultant, a team of specialists, and ultimately a peer review committee. This environment of complete transparency absolutely requires a well-documented process. Unsupported personal opinions and biases are eradicated.

● Disclosure: Callan sets the standard for disclosure in our industry. Every manager search report and performance report has a complete listing of every manager that does business with Callan's ICG division. Clients can request fee information on manager clients from our compliance department at any time.

● Code of Ethical Responsibility: We hire ethical people at Callan. On an annual basis we require every employee to review and acknowledge their required adherence to our Code of Ethical Responsibility. Any breach of the Code of Ethical Responsibility can result in immediate termination and potential legal action against the individual.

Protecting Our Clients and Our Firm

Exhibit 5


Industry-Wide Analysis of Search Activity Percent of Mandates Awarded to Callan Manager Clients 2010 – 2012

73%

72%

68%

67%

66%

66%

65%

65%

64%

55%

53%

52%

51%

45%

40%

40%

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

Pension Consulting Alliance

Wilshire Associates

Strategic Investment Solutions

Segal Rogerscasey

Mercer

Hewitt EnnisKnupp

NEPC

Callan Associates

R.V. Kuhns & Associates

Industry-Wide

The Bogdahn Group

Summit Strategies Group

Marquette Associates

Cambridge Associates

Gray & Co.

Dahab Associates

Source: Represents reported public market searches for U.S. defined benefit plans, endowments, foundations and Taft-Hartley plans where a manager winner was identified. Search statistics provided by finsearches; list of Callan manager clients provided by Callan.

29 of 40

79 of 110

39 of 57

44 of 66

47 of 71

72 of 109

164 of 253

85 of 131

91 of 142

1554 of 2817

45 of 85

34 of 66

24 of 47

40 of 89

23 of 57

48 of 119

Exhibit 5


Disclaimer

This report is for informational purposes only and should not be construed as legal or tax advice on any matter. Any decision you make on the basis of this content is your sole responsibility. You should consult with legal and tax advisers before applying any of this information to your particular situation.

This report may consist of statements of opinion, which are made as of the date they are expressed and are not statements of fact.

Reference to or inclusion in this report of any product, service or entity should not be construed as a recommendation, approval, affiliation or endorsement of such product, service or entity by Callan.

Past performance is no guarantee of future results.

The statements made herein may include forward-looking statements regarding future results. The forward-looking statements herein: (i) are best estimations consistent with the information available as of the date hereof and (ii) involve known and unknown risks and uncertainties such that actual results may differ materially from these statements. There is no obligation to update or alter any forward-looking statement, whether as a result of new information, future events or otherwise. Undue reliance should not be placed on forward-looking statements.

Exhibit 5

state universities retirement system of illinois … 5- 5d callan...state universities retirement...

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