Performance Review. Metropolitan St. Louis Sewer District Pension Plan. 4th Quarter 2014

Transcription

1 Performance Review Metropolitan St. Louis Sewer District Pension Plan 4th Quarter 2014 Pavilion Advisory Group Inc. 227 W. Monroe Street, Suite 2020 Chicago, IL Phone: Fax:

2 Table of Contents 1 Performance Summary 1 2 Asset Class Diversification 20 3 Manager Evaluation 26 4 Calendar Performance 66 5 Capital Markets Review 68 6 Appendix 76

3 Performance Summary 1

4 Pension Plan Executive Summary Performance Summary - December 2014 During the fourth quarter, the Metropolitan St. Louis Sewer District pension plan underperformed its benchmark, reporting a decline of -0.4% while the Policy Benchmark reported a gain of 0.3%. On a trailing one-year basis, the plan reported a gain of 2.9%, lagging the Policy Benchmark by 40 basis points. Asset Class Diversification Current asset allocation was within investment policy targets. The Plan was slightly underweight in fixed income and real assets and overweight equities and real estate. Manager Evaluation 2014 was a difficult year for active managers. 12 of 16 active managers (75%) underperformed their benchmark during the one year period. Fourth quarter performance was most significantly impacted by the following managers as they trailed their respective benchmarks by over 200 basis points: Holland Large Cap Growth, Kennedy Mid Cap Value, GMO Asset Allocation Fund, and Wellington Diversified Inflation Hedges. Capital Markets Review The U.S. economy was aided by a combination of strengthening employment and stronger growth of domestic demand; however, The IMF s latest quarterly update to its global economic forecasts contained downgrades to its expectations for global growth to 3.5% in As one of the stronger world economies, the U.S. remained a safe-haven for investors as money flowed out of Europe and Asia and into U.S. securities. World equities performance in 2014 has been dominated by the performance of the US market and the strengthening of the US dollar. The Russell 3000 Index experienced strong gains during the fourth quarter, driven by improved U.S. economic data and the Fed s declaration that it would remain patient before increasing short-term interest rates, given current low inflation expectations. During the quarter, small-cap stocks outperformed their large-cap counterparts, however, large-caps advanced more throughout the year. Non-U.S. equities struggled as the strong U.S. dollar transformed decent local market returns into negative U.S. dollar returns in developed and emerging markets. Disappointing economic data abroad hurt returns, however, significant depreciation of most non-u.s. currencies versus the USD was the main driver of negative performance. Emerging markets were negatively impacted most by depreciating currencies and also were hurt by falling oil and commodity prices. Recommendations or Action Items A resolution to the Board of Trustees was proposed in December 2014 regarding an investment in hedge fund of funds. The resolution formally authorized the District to liquidate assets managed by PIMCO in the All Asset Fund and invest the proceeds in Lighthouse Investment Partners Global Long/Short Ltd as recommended by Pavilion. The Lighthouse Investment Partners subscription documents are still under review and the investment has not yet been made. The pension fund s allocation to hedge funds is 15%. 2

5 Performance Summary Total Composite vs. Policy Benchmark Return (%) Quarter To Date Since Inception Total Composite Policy Benchmark To Date Since Quarter Inception Total Composite y Policy Benchmark N/A Inception Period Performance is reported net of fees. See appendix for full description of the policy benchmark. 3

6 Performance Comparison All Public Plans <= $500 mil Return Quarter To Date Total Composite -0.4 (100) 2.9 (98) 2.9 (98) 8.6 (97) 7.6 (98) 4.7 (92) 6.1 (72) 5th Percentile st Quartile Median rd Quartile th Percentile Performance is reported net of fees. Parentheses contain percentile rankings. Calculation based on monthly periodicity. 4

7 Performance Comparison All Public Plans Return Quarter To Date Total Composite -0.4 (100) 2.9 (98) 2.9 (98) 8.6 (96) 7.6 (97) 4.7 (88) 6.1 (72) 5th Percentile st Quartile Median rd Quartile th Percentile Performance is reported net of fees. Parentheses contain percentile rankings. Calculation based on monthly periodicity. 5

8 Performance Summary Risk and Return Summary Return (%) 9.0 Policy Benchmark (5.9, 9.1) Total Composite (6.2, 8.6) Return (%) 9.0 Policy Benchmark (7.7, 7.9) Total Composite (7.8, 7.6) Risk (Standard Deviation %) Risk (Standard Deviation %) 6

9 Performance Summary Total Pension Fund Asset Allocation and Performance Allocation Market Value ($) % Quarter To Date 1 Performance(%) Since Inception Total Composite 250,685, y Policy Benchmark N/A Inception Period Total Equity Composite 105,063, N/A N/A N/A y 4m MSCI AC World IMI Domestic Equity Composite 71,405, (42) 10.1 (23) 10.1 (23) N/A N/A N/A 19.3 (N/A) 1y 4m Russell 3000 Index 5.2 (21) 12.6 (8) 12.6 (8) 20.5 (13) 15.6 (11) 7.9 (29) 20.7 (N/A) Broad Equity Peer Group Median N/A Large-Cap Equity Composite 56,176, (55) 10.9 (43) 10.9 (43) 18.6 (55) 13.9 (51) 7.7 (37) 8.9 (N/A) 11y 7m Russell 1000 Index 4.9 (33) 13.2 (19) 13.2 (19) 20.6 (26) 15.6 (20) 8.0 (31) 9.3 (N/A) Large-Cap Equity Peer Group Median N/A Small-Cap Equity Composite 15,229, (72) 7.2 (14) 7.2 (14) 19.5 (38) 16.9 (25) 10.3 (3) 12.2 (N/A) 11y 7m Russell 2000 Index 9.7 (25) 4.9 (35) 4.9 (35) 19.2 (41) 15.5 (43) 7.8 (47) 10.5 (N/A) Small-Cap Equity Peer Group Median N/A International Equity Composite 33,657, (84) -5.5 (65) -5.5 (65) N/A N/A N/A 3.8 (N/A) 1y 4m MSCI AC World ex USA Index -3.9 (54) -3.9 (37) -3.9 (37) 9.0 (53) 4.4 (56) 5.1 (65) 5.7 (N/A) International Equity Peer Group Median N/A Developed International Equity Composite 26,735, (81) -5.8 (57) -5.8 (57) 10.7 (45) 5.9 (45) 4.3 (63) 4.8 (N/A) 15y 8m MSCI EAFE Index -3.6 (55) -4.9 (46) -4.9 (46) 11.1 (39) 5.3 (53) 4.4 (62) 3.7 (N/A) Developed International Equity Peer Group Median N/A Emerging International Equity Composite 6,921, (72) -4.5 (69) -4.5 (69) 4.4 (57) 1.9 (55) N/A 7.9 (50) 9y 9m MSCI Emerging Markets Index -4.5 (49) -2.2 (46) -2.2 (46) 4.0 (65) 1.8 (57) 8.4 (37) 8.5 (37) Emerging Markets Equity Peer Group Median Fixed Income Composite 86,639, (100) 2.4 (83) 2.4 (83) 3.7 (24) 4.7 (38) 5.3 (13) 5.0 (17) 11y 6m Barclays Intermediate U.S. Government/Credit 0.9 (43) 3.1 (61) 3.1 (61) 2.0 (74) 3.5 (70) 4.1 (73) 3.8 (73) Intermediate Duration Fixed Income Peer Group Median Performance is reported net of fees. 7

10 Performance Summary Total Pension Fund Asset Allocation and Performance Allocation Market Value ($) % Quarter To Date 1 Performance(%) Since Inception Tactical Asset Allocation Composite 24,737, y 7m 65% MSCI World (Net) / 35% BC Aggregate Alternatives Composite 9,795, N/A N/A N/A 2.5 1y 4m 3 Month T-Bills + 3% Real Estate Composite 13,546, y 7m NCREIF Fund Index-Open End Diversified Core Equity Real Assets Composite 9,553, N/A N/A y 9m Wellington DIH Multi-Asset Inflation Index Cash Account 1,349, y 7m BofA Merrill Lynch 3 Month U.S. T-Bill Inception Period Performance is reported net of fees. 8

11 Performance Summary Manager Asset Allocation and Performance Allocation Market Value ($) % Quarter To Date 1 Performance(%) Since Inception Inception Period Domestic Large-Cap Equity Managers Vanguard Windsor II 13,267, (55) 11.3 (36) 11.3 (36) 19.3 (44) 14.1 (43) 7.3 (37) 6.8 (N/A) 13y 8m Russell 1000 Value Index 5.0 (22) 13.5 (15) 13.5 (15) 20.9 (23) 15.4 (19) 7.3 (37) 6.9 (N/A) Large-Cap Value Equity Peer Group Median N/A Vanguard Institutional Index Fund 16,087, (32) 13.7 (16) 13.7 (16) 20.4 (30) 15.4 (22) 7.7 (38) 5.1 (64) 15y 3m S&P (32) 13.7 (16) 13.7 (16) 20.4 (30) 15.5 (22) 7.7 (38) 5.1 (64) Large-Cap Equity Peer Group Median T. Rowe Price Inst. Large-Cap Core Growth 13,612, (61) 9.3 (61) 9.3 (61) 22.4 (14) 16.7 (15) 8.6 (34) 23.1 (N/A) 1y 10m Russell 1000 Growth Index 4.8 (49) 13.1 (24) 13.1 (24) 20.3 (39) 15.8 (26) 8.5 (36) 21.5 (N/A) Large-Cap Growth Equity Peer Group Median N/A Holland Large Cap Growth 13,208, (89) 7.2 (82) 7.2 (82) 16.5 (85) 13.7 (66) 7.4 (63) 15.8 (N/A) 1y 10m Russell 1000 Growth Index 4.8 (49) 13.1 (24) 13.1 (24) 20.3 (39) 15.8 (26) 8.5 (36) 21.5 (N/A) Large-Cap Growth Equity Peer Group Median N/A Domestic Small-Cap Equity Managers Kennedy Mid Cap Value 8,294, (61) 15.8 (4) 15.8 (4) 20.6 (24) 17.2 (12) N/A 11.7 (1) 7y Russell Midcap Value Index 6.1 (34) 14.7 (6) 14.7 (6) 22.0 (12) 17.4 (10) 9.4 (18) 9.1 (23) Mid-Cap Value Equity Peer Group Median TimesSquare Small Cap Growth Fund 6,935, (34) -2.5 (81) -2.5 (81) 17.7 (53) 16.3 (35) 11.0 (6) 10.5 (N/A) 12y 11m Russell 2000 Growth Index 10.1 (24) 5.6 (25) 5.6 (25) 20.1 (32) 16.8 (31) 8.5 (32) 8.3 (N/A) Small-Cap Growth Equity Peer Group Median N/A Developed International Equity Manager Morgan Stanley International Equity Fund I 26,735, (83) -6.1 (61) -6.1 (61) 10.6 (48) 5.8 (46) 4.4 (62) 4.5 (63) 9y 9m MSCI EAFE Index -3.6 (55) -4.9 (46) -4.9 (46) 11.1 (39) 5.3 (53) 4.4 (62) 4.6 (62) International Equity Peer Group Median Emerging Markets Equity Manager Morgan Stanley Emerging Markets Fund I 6,921, (72) -4.5 (69) -4.5 (69) 4.4 (57) 1.9 (54) 7.9 (54) 7.9 (49) 9y 9m MSCI Emerging Markets Index -4.5 (49) -2.2 (46) -2.2 (46) 4.0 (65) 1.8 (57) 8.4 (37) 8.5 (37) Emerging Markets Equity Peer Group Median Performance is reported net of fees. 9

12 Performance Summary Manager Asset Allocation and Performance Allocation Market Value ($) % Quarter To Date 1 Performance(%) Since Inception Inception Period Fixed Income Managers Income Research 36,053, (44) 3.3 (55) 3.3 (55) 2.7 (56) 4.0 (63) 4.9 (20) 5.3 (26) 13y 6m Barclays Intermediate U.S. Government/Credit 0.9 (43) 3.1 (61) 3.1 (61) 2.0 (74) 3.5 (70) 4.1 (73) 4.6 (60) Intermediate Duration Fixed Income Peer Group Median Penn Capital 12,558, (77) 0.2 (88) 0.2 (88) 6.4 (93) 7.6 (88) N/A 6.2 (88) 9y 6m BofA Merrill Lynch US High Yield, Cash Pay Index -1.1 (54) 2.4 (49) 2.4 (49) 8.3 (44) 8.9 (33) 7.5 (25) 7.8 (25) High Yield Fixed Income Peer Group Median Loomis Credit Asset Fund 5,013, (14) 4.3 (13) 4.3 (13) 7.6 (2) N/A N/A 7.7 (1) 4y 10m 50% BC Credit / 25% S&P LSTA / 25% BY High Yield 0.5 (12) 4.8 (13) 4.8 (13) 5.9 (11) 6.8 (1) 6.0 (1) 6.6 (1) Alternative Credit Focus Funds Peer Group Median Brandywine Global Opportunistic Fixed Income 22,143, (25) 6.3 (15) 6.3 (15) 5.4 (16) 7.6 (1) 6.5 (9) 6.5 (9) 10y Citigroup World Government Bond -1.5 (62) -0.5 (79) -0.5 (79) -1.0 (94) 1.7 (87) 3.1 (75) 3.1 (75) Global Fixed Income Peer Group Median Pictet Emerging Local Currency Debt Fund 10,870, (32) -6.3 (59) -6.3 (59) -1.1 (67) N/A N/A -0.9 (75) 3y 3m JPM GBI-EM Global Diversified -5.7 (41) -5.7 (45) -5.7 (45) 0.1 (35) 2.6 (20) 6.7 (N/A) 0.2 (41) Emerging Markets (LC) Fixed Income Peer Group Median N/A -0.2 Tactical Asset Allocation Manager GMO Asset Allocation Fund 24,737, (75) 1.3 (73) 1.3 (73) 8.0 (62) 6.6 (73) 6.1 (31) 5.7 (45) 8y 5m 65% MSCI World (Net) / 35% BC Aggregate 1.3 (33) 5.4 (30) 5.4 (30) 11.0 (27) 8.4 (39) 5.9 (40) 5.6 (50) IM Flexible Portfolio (MF) Median Performance is reported net of fees. 10

13 Performance Summary Manager Asset Allocation and Performance Allocation Market Value ($) % Quarter To Date 1 Performance(%) Since Inception Inception Period Alternatives Manager PIMCO All Asset Fund I 9,795, y Barclays U.S. Treasury Inflation Notes: Real Estate Manager UBS Trumbull Property Fund 13,546, y 7m NCREIF Fund Index-Open End Diversified Core Equity Real Asset Manager Wellington Diversified Inflation Hedges 9,553, N/A N/A y 9m Wellington DIH Multi-Asset Inflation Index Cash Account 1,349, y 7m BofA Merrill Lynch 3 Month U.S. T-Bill Total Composite 250,685, y Performance is reported net of fees. 11

14 Performance Summary Risk and Return Summary - Equity Managers 5 Ending December 31, Return (%) Russell Midcap Value Russell 1000 Growth Russell 1000 Value S&P 500 Vanguard Institutional Index Fund Kennedy Mid Cap Value Russell 2000 Growth T. Rowe Price Inst. Large-Cap Core Growth TimesSquare Small Cap Growth 14.4 Vanguard Windsor II Fund 13.6 Holland Large Cap Growth Risk (Standard Deviation %) 12

15 Performance Summary Risk and Return Summary - Fixed Income Managers 5 Ending December 31, BofA Merrill Lynch US High Yield, Cash Pay Index Penn Capital Brandywine Global 50% BC Credit / 25% S&P LSTA / 25% BY High Yield Return (%) Income Research BC Intermediate U.S. Government/Credit JPM GBI-EM Global Diversified 1.0 Citigroup World Government Bond Risk (Standard Deviation %) 13

16 Performance Summary Risk and Return Summary - Alternative Managers 5 Ending December 31, UBS TPF NCREIF Fund Index-Open End Diversified Core Equity 1 65% MSCI World (Net) / 35% BC Aggregate 8.0 Return (%) 6.0 PIMCO All Asset GMO 4.0 Barclays U.S. Treasury Inflation Notes: Day U.S. Treasury Bill Wellington DIH Multi-Asset Inflation Index Risk (Standard Deviation %) 14

17 Manager Compliance Checklist Fourth Quarter 2014 Managers Vanguard Windsor Vanguard Institutional T. Rowe Price Holland Kennedy TimesSquare Morgan Stanley Int'l Morgan Stanley EM Organizational/Product Issues No material changes to investment team No material organizational changes Accounting or regulatory concerns Currently in adherence to guidelines Portfolio characteristics meet stylistic expectations Relative Performance 1 Three-year return better than benchmark - N/A Three-year ranking better than peer group median Five year return better than benchmark - N/A Five year ranking better than peer group median Performance status Date performance status changed Summary status Sell Date summary status changed 4Q13 1 Manager performance is evaluated net of investment management fees. 15

18 Manager Compliance Checklist Fourth Quarter 2014 Managers Income Research Penn Loomis Brandywine Global Pictet GMO PIMCO UBS Wellington Organizational/Product Issues No material changes to investment team No material organizational changes Accounting or regulatory concerns Currently in adherence to guidelines Portfolio characteristics meet stylistic expectations Relative Performance 1 Three-year return better than benchmark Three-year ranking better than peer group median N/A N/A N/A Five year return better than benchmark + - N/A + N/A N/A Five year ranking better than peer group median - - N/A + N/A - N/A N/A N/A Performance status Date performance status changed 4Q13 4Q13 3Q14 Summary status + Sell Sell + Sell Sell Sell + + Date summary status changed 4Q13 4Q13 4Q13 4Q13 4Q13 1 Manager performance is evaluated net of investment management fees. 16

19 Manager Compliance Checklist Fourth Quarter 2014 Manager Compliance Issue Explanation Recommended Action Comments Morgan Stanley Emerging Market Equity Performance & Investment Team Changes The manager ranked in the 57 th and 54 th percentile over the rolling threeand five-year periods of the emerging market equity peer group universe, respectively. The manager has experienced a number of tenured and experienced portfolio manager departures in recent years. Sell There have been a number of important departures in recent years. In 2012, the team lost three portfolio managers. James Cheng announced his retirement from the Asia team. He had held this role since rejoining the firm in 2006 and was the most senior member of the team. The team also lost Homiyar VasaniaIn from the China team and Vincent Eee, who joined in 2009 and had covered Taiwan. In 2011, the team lost Scott Piper, a long-tenured portfolio manager on their LATAM team. Average performance on a peer relative basis and less consistent downside protection, especially over the long-term, are also concerns to us. Loomis Sayles Credit Asset Fund Asset Flows & Fixed Income Structure Optimization Asset flows have declined from $1 billion in 2009 to $526 in Q3 of From a structural perspective we recommend MSD eliminate their allocation to a dedicated credit manager and instead consider a core plus fixed income manager that can allocate across multiple fixed income sectors and regions. Streamline fixed income manager structure and reduction in the number of managers from 5 to 3 will be required. Sell While we have a high degree of confidence in Loomis Sayles credit research process and investment team, assets have declined significantly and fixed income structure optimization process leaves no place for this strategy on a stand alone basis. 17

20 Manager Compliance Checklist Fourth Quarter 2014 Manager Compliance Issue Explanation Recommended Action Comments Penn Performance & Fixed Income Structure Optimization The manager underperformed the BofA Merrill Lynch US High Yield, Cash Pay Index by 190 and 130 basis points over the rolling three- and five-year periods, ranking in the 93 rd and 88 th percentile of the high yield fixed income peer group universe, respectively. Sell Although the product delivers consistent, predictable performance with a focus on downside protection, from a structural perspective we do not support having a manager dedicated to high yield for a portfolio of this size. Pictet Performance & Fixed Income Structure Optimization The manager underperformed the JPM GBI-EM Global Diversified Index by 120 basis points over the rolling threeyear period, ranking in the 67 th percentile of the emerging markets fixed income peer group universe. Sell The strategy lacks compelling performance. The product is expected to provide excellent downside protection, yet generated meaningful underperformance during Pavilion recommends re-allocating to another global bond strategy that provides greater diversification and more consistent performance. Also, from a structural perspective we do not support having a manager dedicated to emerging market local currency debt for a portfolio of this size. 18

21 Manager Compliance Checklist Fourth Quarter 2014 Manager Compliance Issue Explanation Recommended Action Comments GMO Performance The manager underperformed the 65% MSCI World / 35% BC Aggregate Index by 300 and 180 basis points over the rolling three- and five-year periods, ranking in the 62 nd and 73 rd percentile of the flexible portfolio peer group universe, respectively. Sell Pavilion does not believe from a structural perspective that allocating to tactical asset allocation strategies will add value to the overall investment program. PIMCO Investment Team Changes Mohamed El-Erian, the Chief Executive Officer and co-chief Investment Officer of PIMCO, left the firm in mid-march. Mr. El-Erian was a member of PIMCO s 11-person Investment Committee that developed model portfolios and was a prominent contributor to the firm s annual secular forum meetings, known for his high-level global macroeconomic thinking, especially in regards to central banking and public policy. On September 26, 2014, PIMCO announced the departure of Chief Investment Officer (CIO) Bill Gross, who co-founded PIMCO in 1971 and spent over forty years with the firm. As CIO, Gross was responsible for leading the firm s portfolio management team and Investment Committee, while serving as lead portfolio manager for many of the firm s most notable strategies including its flagship Total Return Fund. Sell Pavilion is downgrading PIMCO s manager rating status from negative watch to sell. While PIMCO maintains a very deep investment team with many talented individuals, this change will likely spark heightened professional turnover within the firm. Although it is unknown at this point, we believe there is a strong probability some professionals will follow Bill Gross to Janus. Additionally, we are concerned that asset outflows will spike as investors exit PIMCO strategies, which may ultimately have a negative impact on performance as assets are liquidated. Pavilion initially downgraded PIMCO to negative watch in January following the departure of co- CIO Mohamed El-Erian, and noted we would closely monitor the firm for organizational stability, asset flows, and performance. PIMCO has not made clear improvements in these areas, and the departure of Bill Gross creates a multitude of future unknowns for the firm. 19

22 Asset Class Diversification 20

23 Asset Class Diversification Investment Policy Allocation December 31, 2014 : $250,685,828 Large-Cap Equity Composite $56,176, % 21.0% 22.4% Small-Cap Equity Composite $15,229, % 6.0% 6.1% Developed International Equity Composite $26,735, % 11.0% 10.7% Emerging International Equity Composite $6,921, % 3.0% 2.8% Fixed Income Composite $86,639, % 35.0% 34.6% Tactical Asset Allocation Composite $24,737,029 % 1% 9.9% Alternatives Composite $9,795,969 % 4.0% 3.9% Real Estate Composite $13,546, % 5.0% 5.4% Real Asset Composite $9,553, % 5.0% 3.8% Cash Account $1,349, % -6.0 % % 0.5% 0.5% % 6.0% 12.0% 18.0% 24.0% 3% 36.0% 42.0% Target Allocation Actual Allocation Allocation Differences 21

24 Asset Class Diversification Investment Program Structure Asset Class/Type Manager Total Assets ($, mil.) as of 9/30/2014 Percent of Total Target Allocation Weighting Relative to Target Allowable Range Total Assets ($, mil.) as of 7/1/2014 Large-Cap Equity $ % 21.0% + 1.4% 15-25% $55.9 Core Vanguard Institutional $ % 6.0% + 0.4% $12.3 Value Vanguard Windsor $ % 5.0% + 0.3% $16.0 Growth T. Rowe Price $ % 5.0% + 0.4% $13.6 Growth Holland $ % 5.0% + 0.3% $14.0 Small-Cap Equity $ % 6.0% + 0.1% 2-8% $15.6 Value Kennedy $ % 3.0% + 0.3% $8.9 Growth TimesSquare $ % 3.0% - 0.2% $6.7 International Equity $ % 14.0% - 0.6% $36.3 Developed Morgan Stanley $ % 11.0% - 0.3% 5-15% $28.6 Emerging Markets Morgan Stanley $ % 3.0% - 0.2% 2-8% $7.6 Fixed Income $ % 35.0% - 0.4% $88.5 Domestic Core Income Research $ % 14.0% + 0.4% 10-20% $35.7 High Yield Penn Capital $ % 5.0% + % 0-7% $13.0 Opportunistic Credit Loomis $ % 2.0% - % 0-5% $5.0 Global Brandywine Global $ % 9.0% - 0.2% 4-14% $22.5 Emerging Markets Debt Pictet $ % 5.0% - 0.7% 0-7% $12.2 Tactical $ % 1% - 0.1% $25.8 Balanced GMO $ % 1% - 0.1% 0-12% $25.8 Alternatives $ % 4.0% - 0.1% $10.4 Absolute Return PIMCO $ % 4.0% - 0.1% 0-7% $10.4 Hedge Funds TBD $ % % $ Real Estate $ % 5.0% + 0.4% $12.8 Real Estate UBS Trumbull $ % 5.0% + 0.4% 0-10% $12.8 Real Asset $ % 5.0% - 1.2% $11.8 Real Asset Wellington $ % 5.0% - 1.2% 0-10% $11.8 Cash $ % % + 0.5% $1.3 CashAccount CashAccount $ % % + 0.5% $1.3 Total $ % 10% + % $258.4 *Totals may not add to exactly 10% due to rounding. 22

25 Equity Portfolio - Characteristics Total Equity Composite vs. MSCI AC World IMI Portfolio Characteristics Portfolio Benchmark Wtd. Avg. Mkt. Cap ($M) 81,032 79,061 Median Mkt. Cap ($M) 12,509 1,398 Price/Earnings ratio Price/Book ratio Yr. EPS Growth Rate (%) Current Yield (%) Debt to Equity Number of Stocks 943 8,603 Beta Consistency - - Sharpe Ratio - - Information Ratio - - Up Market Capture - - Down Market Capture - - Top Ten Equity Holdings Portfolio Benchmark Weight Weight (%) (%) Active Weight (%) Quarterly Return (%) Apple Inc British American Tobacco PLC Nestle SA, Cham Und Vevey Unilever NV Reckitt Benckiser Group PLC Visa Inc Sanofi Gilead Sciences Inc Novartis AG Amazon.com Inc % of Portfolio >$75 Bil $20 Bil - $75 Bil Total Equity Composite Distribution of Market Capitalization (%) $5 Bil - $20 Bil MSCI AC World IMI 9.6 $0 - $5 Bil Cash Sector Weights (%) Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Cash 2.2 Other Total Equity Composite MSCI AC World IMI 23

26 Equity Portfolio - Country/Region Allocation Total Equity Composite vs. MSCI AC World IMI Total Equity Composite MSCI AC World IMI Australia Hong Kong Japan New Zealand 0.1 Singapore 0.6 Pacific Austria Belgium Finland 0.3 France Germany Ireland Italy Netherlands Portugal Spain 1.1 EMU Denmark 0.5 Norway 0.3 Sweden Switzerland United Kingdom Europe ex EMU Canada United States Israel 0.2 Middle East 0.2 Developed Markets Total Equity Composite MSCI AC World IMI Brazil Cayman Islands Chile 0.1 Colombia Mexico Peru 0.1 Virgin Islands EM Latin America China India Indonesia Korea Malaysia Philippines Taiwan Thailand EM Asia Czech Republic 0.1 Egypt Greece 0.1 Hungary Poland Qatar 0.1 Russia 0.3 South Africa Turkey 0.2 United Arab Emirates 0.1 EM Europe + Middle East + Africa Emerging Markets Frontier Markets 0.1 Cash 2.2 Other Total

27 Fixed Income Portfolio - Characteristics Total Fixed Income Composite vs. Barclays Intermediate U.S. Government/Credit Portfolio Characteristics Portfolio Benchmark Effective Duration Avg. Maturity Avg. Quality A+ AA+ Yield To Maturity (%) Credit Quality Distribution (%) Risk Characteristics - 3 Up Market Capture Consistency Sharpe Ratio Information Ratio Total Fixed Income Composite Barclays Intermediate U.S. Government/Credit 1.0 N/A Day U.S. Treasury Bill 38.9 N/A Down Market Capture AAA AA A BBB Total Fixed Income Composite BB B Below B Not Rated Barclays Intermediate U.S. Government/Credit Maturity Distribution (%) 6 Sector Distribution (%) < 1 Yr 1 < 3 Yrs 3 < 5 Yrs 5 < 10 Yrs < 20 Yrs 10.7 > 20 Yrs Treasuries TIPS Agencies Credit High Yield MBS ABS Non-US Emerging Municipals Cash Other CMBS Total Fixed Income Composite Barclays Intermediate U.S. Government/Credit Total Fixed Income Composite Barclays Intermediate U.S. Government/Credit 25

28 Manager Evaluation 26

29 Manager Evaluation Vanguard Windsor II vs. Russell 1000 Value Index Historical Performance Quarter To Date Vanguard Windsor II Russell 1000 Value Index Large-Cap Value Equity Peer Group Median Vanguard Windsor II Rank Three Rolling Percentile Ranking Return Percentile Rank /05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 Vanguard Windsor II Russell 1000 Value Index Risk and Return (Jan Dec ) Return (%) Russell 1000 Value Index Vanguard Windsor II Risk (Standard Deviation %) Buy and Hold Attribution Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Other Telecommunication Services Utilities Average Active Weight Allocation (Total: 0.4) Stock (Total: -1.8) Vanguard Windsor II Differences between the manager return and the attribution return are due primarily to the effects of fees and portfolio trading. 27

30 Manager Evaluation Vanguard Windsor II vs. Russell 1000 Value Index Portfolio Characteristics Portfolio Benchmark Wtd. Avg. Mkt. Cap ($M) 107, ,441 Median Mkt. Cap ($M) 22,070 7,321 Price/Earnings ratio Price/Book ratio Yr. EPS Growth Rate (%) Current Yield (%) Debt to Equity Number of Stocks Beta (5, Monthly) Consistency (5, Monthly) Sharpe Ratio (5, Monthly) Information Ratio (5, Monthly) Up Market Capture (5, Monthly) Down Market Capture (5, Monthly) Top Ten Equity Holdings Portfolio Benchmark Weight Weight (%) (%) Active Weight (%) Quarterly Return (%) Microsoft Corp JPMorgan Chase & Co Medtronic Inc Wells Fargo & Co Pfizer Inc Intel Corp Citigroup Inc WellPoint Inc Philip Morris International Inc General Dynamics Corp % of Portfolio Distribution of Market Capitalization (%) >$75 Bil $20 Bil - $75 Bil $5 Bil - $20 Bil $0 - $5 Bil Cash Sector Weights (%) Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Cash 2.1 Other Vanguard Windsor II Russell 1000 Value Index Vanguard Windsor II Russell 1000 Value Index *Portfolio characteristics as of 12/31/

31 Manager Evaluation Vanguard Institutional Index vs. S&P 500 Index Historical Performance Quarter To Date Vanguard Institutional Index S&P 500 Index Large-Cap Equity Peer Group Median Vanguard Institutional Index Rank Three Rolling Percentile Ranking 0 Relative Performance 0.2 Return Percentile Rank /05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 Return (%) /05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 Cumulative Annualized Over/Under Relative Performance Vanguard Institutional Index S&P 500 Index Over/Under Performance Historical Statistics (Jan Dec-2014) Return Standard Deviation Excess Return Alpha Beta Sharpe Ratio Tracking Error Information Ratio Downside Risk Consistency Inception Date Vanguard Institutional Index y 3m S&P 500 Index N/A y 3m 90 Day U.S. Treasury Bill N/A y 3m 29

32 Manager Evaluation Vanguard Institutional Index vs. S&P 500 Index Portfolio Characteristics Portfolio Benchmark Wtd. Avg. Mkt. Cap ($M) 133, ,374 Median Mkt. Cap ($M) 18,965 18,669 Price/Earnings ratio Price/Book ratio Yr. EPS Growth Rate (%) Current Yield (%) Debt to Equity Number of Stocks Beta (5, Monthly) Consistency (5, Monthly) Sharpe Ratio (5, Monthly) Information Ratio (5, Monthly) Up Market Capture (5, Monthly) Down Market Capture (5, Monthly) Top Ten Equity Holdings Portfolio Benchmark Weight Weight (%) (%) Active Weight (%) Quarterly Return (%) Apple Inc Exxon Mobil Corp Microsoft Corp Johnson & Johnson Wells Fargo & Co General Electric Co Berkshire Hathaway Inc Procter & Gamble Co (The) JPMorgan Chase & Co Chevron Corp % of Portfolio Distribution of Market Capitalization (%) >$75 Bil $20 Bil - $75 Bil $5 Bil - $20 Bil $0 - $5 Bil Cash Sector Weights (%) Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities 0.5 Cash Vanguard Institutional Index S&P 500 Index Vanguard Institutional Index S&P 500 Index 30

33 Manager Evaluation T. Rowe Price Large-Cap Core Growth vs. Russell 1000 Growth Index Historical Performance Quarter To Date T. Rowe Price LCC Growth Russell 1000 Growth Index Large-Cap Growth Peer Group Median T. Rowe Price LCC Growth Rank Three Rolling Percentile Ranking Return Percentile Rank /05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 T. Rowe Price LCC Growth Russell 1000 Growth Index Risk and Return (Jan Dec ) Return (%) Russell 1000 Growth Index T. Rowe Price LCC Growth Risk (Standard Deviation %) Buy and Hold Attribution Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Average Active Weight Allocation (Total: 1.0) Stock (Total: -1.2) T. Rowe Price LCC Growth Differences between the manager return and the attribution return are due primarily to the effects of fees and portfolio trading. 31

34 Manager Evaluation T. Rowe Price Large-Cap Core Growth vs. Russell 1000 Growth Index Portfolio Characteristics Portfolio Benchmark Wtd. Avg. Mkt. Cap ($M) 83, ,250 Median Mkt. Cap ($M) 26,792 8,642 Price/Earnings ratio Price/Book ratio Yr. EPS Growth Rate (%) Current Yield (%) Debt to Equity Number of Stocks Beta (5, Monthly) Consistency (5, Monthly) Sharpe Ratio (5, Monthly) Information Ratio (5, Monthly) Up Market Capture (5, Monthly) Down Market Capture (5, Monthly) Top Ten Equity Holdings Portfolio Benchmark Weight Weight (%) (%) Active Weight (%) Quarterly Return (%) Amazon.com Inc Gilead Sciences Inc Priceline.Com Inc McKesson Corp Biogen Idec Inc Danaher Corp MasterCard Inc Google Inc (Class C) Visa Inc Facebook Inc % of Portfolio Distribution of Market Capitalization (%) Sector Weights (%) >$75 Bil $20 Bil - $75 Bil $5 Bil - $20 Bil $0 - $5 Bil Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Cash T. Rowe Price Large-Cap Core Growth Russell 1000 Growth Index T. Rowe Price Large-Cap Core Growth Russell 1000 Growth Index 32

35 Manager Evaluation Holland Large Cap Growth vs. Russell 1000 Growth Index Historical Performance Quarter To Date Holland Large Cap Growth Russell 1000 Growth Index Large-Cap Growth Equity Peer Group Median Holland Large Cap Growth Rank Three Rolling Percentile Ranking Return Percentile Rank /05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 Holland Large Cap Growth Russell 1000 Growth Index Risk and Return (Jan Dec ) Return (%) Holland Large Cap Growth Russell 1000 Growth Index Risk (Standard Deviation %) Buy and Hold Attribution Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Average Active Weight Allocation (Total: -0.7) Stock (Total: -2.1) Holland Large Cap Growth Differences between the manager return and the attribution return are due primarily to the effects of fees and portfolio trading. 33

36 Manager Evaluation Holland Capital Management vs. Russell 1000 Growth Index Portfolio Characteristics Portfolio Benchmark Wtd. Avg. Mkt. Cap ($M) 101, ,250 Median Mkt. Cap ($M) 37,750 8,642 Price/Earnings ratio Price/Book ratio Yr. EPS Growth Rate (%) Current Yield (%) Debt to Equity Number of Stocks Beta (5, Monthly) Consistency (5, Monthly) Sharpe Ratio (5, Monthly) Information Ratio (5, Monthly) Up Market Capture (5, Monthly) Down Market Capture (5, Monthly) Top Ten Equity Holdings Portfolio Benchmark Weight Weight (%) (%) Active Weight (%) Quarterly Return (%) Visa Inc Qualcomm Inc Apple Inc Priceline.Com Inc Google Inc (Class C) Adobe Systems Inc Citrix Systems Inc Gilead Sciences Inc Cisco Systems Inc Medtronic Inc % of Portfolio Distribution of Market Capitalization (%) >$75 Bil $20 Bil - $75 Bil $5 Bil - $20 Bil $0 - $5 Bil Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Cash Sector Weights (%) Holland Capital Management Russell 1000 Growth Index Holland Capital Management Russell 1000 Growth Index 34

37 Manager Evaluation Kennedy Mid Cap Value vs. Russell Midcap Value Index Historical Performance Quarter To Date Kennedy Mid Cap Value N/A N/A N/A N/A N/A Russell Midcap Value Index Mid-Cap Value Equity Peer Group Median Kennedy Mid Cap Value Rank N/A N/A N/A N/A N/A Three Rolling Percentile Ranking Return Percentile Rank /05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 Kennedy Mid Cap Value Russell Midcap Value Index Risk and Return (Jan Dec ) Return (%) Russell Midcap Value Index Kennedy Mid Cap Value Risk (Standard Deviation %) Buy and Hold Attribution Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Average Active Weight Allocation (Total: -1.3) Stock (Total: -1.8) Kennedy Mid Cap Value Differences between the manager return and the attribution return are due primarily to the effects of fees and portfolio trading. 35

38 Manager Evaluation Kennedy Capital Management vs. Russell Midcap Value Index Portfolio Characteristics Portfolio Benchmark Wtd. Avg. Mkt. Cap ($M) 8,907 12,031 Median Mkt. Cap ($M) 6,970 5,813 Price/Earnings ratio Price/Book ratio Yr. EPS Growth Rate (%) Current Yield (%) Debt to Equity Number of Stocks Beta (5, Monthly) Consistency (5, Monthly) Sharpe Ratio (5, Monthly) Information Ratio (5, Monthly) -4 - Up Market Capture (5, Monthly) Down Market Capture (5, Monthly) Top Ten Equity Holdings Portfolio Benchmark Weight Weight (%) (%) Active Weight (%) Quarterly Return (%) Hospira Inc Cadence Design Systems Inc Covance Inc Whirlpool Corp Reinsurance Group of America Inc UGI Corp Foot Locker Inc Lincoln National Corp Carlisle Companies Inc Brixmor Property Group Inc % of Portfolio Distribution of Market Capitalization (%) Sector Weights (%) $20 Bil - $75 Bil $5 Bil - $20 Bil 24.7 $0 - $5 Bil Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Cash Kennedy Capital Management Russell Midcap Value Index Kennedy Capital Management Russell Midcap Value Index 36

39 Manager Evaluation TimesSquare Small Cap Growth vs. Russell 2000 Growth Index Historical Performance Quarter To Date TimesSquare Small Cap Growth Russell 2000 Growth Index Small-Cap Growth Equity Peer Group Median TimesSquare Small Cap Growth Rank Three Rolling Percentile Ranking Return Percentile Rank /05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 TimesSquare Small Cap Growth Russell 2000 Growth Index Risk and Return (Jan Dec ) Return (%) TimesSquare Small Cap Growth Russell 2000 Growth Index Risk (Standard Deviation %) Buy and Hold Attribution Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Average Active Weight Allocation (Total: ) Stock (Total: 0.7) TimesSquare Small Cap Growth Differences between the manager return and the attribution return are due primarily to the effects of fees and portfolio trading. 37

40 Manager Evaluation TimesSquare Small Cap Growth vs. Russell 2000 Growth Index Portfolio Characteristics Portfolio Benchmark Wtd. Avg. Mkt. Cap ($M) 2,165 2,083 Median Mkt. Cap ($M) 1, Price/Earnings ratio Price/Book ratio Yr. EPS Growth Rate (%) Current Yield (%) Debt to Equity Number of Stocks 101 1,205 Beta (5, Monthly) Consistency (5, Monthly) Sharpe Ratio (5, Monthly) Information Ratio (5, Monthly) 8 - Up Market Capture (5, Monthly) Down Market Capture (5, Monthly) Top Ten Equity Holdings Portfolio Benchmark Weight Weight (%) (%) Active Weight (%) Quarterly Return (%) Albany International Corp On Assignment Inc Ultimate Software Group Inc Solera Holdings Inc CoStar Group Inc Henry (Jack) & Associates Inc j2 Global Inc PolyOne Corp Corporate Executive Board Company (The) Monro Muffler Brake Inc % of Portfolio Distribution of Market Capitalization (%) Sector Weights (%) $5 Bil - $20 Bil $0 - $5 Bil Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Cash TimesSquare Small Cap Growth Russell 2000 Growth Index TimesSquare Small Cap Growth Russell 2000 Growth Index 38

41 Manager Evaluation Morgan Stanley International Equity vs. MSCI EAFE Index Historical Performance Quarter To Date Morgan Stanley International Equity MSCI EAFE Index International Equity Peer Group Median Morgan Stanley International Equity Rank Three Rolling Percentile Ranking Return Percentile Rank /05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 Morgan Stanley International Equity MSCI EAFE Index Risk and Return (Jan Dec ) Return (%) Morgan Stanley International Equity MSCI EAFE Index Risk (Standard Deviation %) Buy and Hold Attribution Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Average Active Weight Allocation (Total: ) Stock (Total: -1.1) Morgan Stanley International Equity Differences between the manager return and the attribution return are due primarily to the effects of fees and portfolio trading. 39

42 Manager Evaluation Morgan Stanley International Equity vs. MSCI EAFE Index 1 Quarter Ending December 31, 2014 Total Attribution Cash 0.1 EM Asia EMU -0.2 Europe ex EMU 0.1 Middle East North America -0.3 Other Pacific Performance Attribution Cash EM Asia 1.3 EMU Europe ex EMU Middle East -0.6 North America Other -0.3 Pacific Average Active Weight Allocation (Total: -0.5) Stock (Total: -0.7) 40

43 Manager Evaluation Morgan Stanley International Equity vs. MSCI EAFE Index Portfolio Characteristics Portfolio Benchmark Wtd. Avg. Mkt. Cap ($M) 77,033 60,779 Median Mkt. Cap ($M) 29,681 8,971 Price/Earnings ratio Price/Book ratio Yr. EPS Growth Rate (%) Current Yield (%) Debt to Equity Number of Stocks Beta (5, Monthly) Consistency (5, Monthly) Sharpe Ratio (5, Monthly) Information Ratio (5, Monthly) 6 - Up Market Capture (5, Monthly) Down Market Capture (5, Monthly) Top Ten Equity Holdings Portfolio Benchmark Weight Weight (%) (%) Active Weight (%) Quarterly Return (%) British American Tobacco PLC Nestle SA, Cham Und Vevey Unilever NV Reckitt Benckiser Group PLC Sanofi Novartis AG Roche Holding AG Diageo PLC Toyota Motor Corp SAP AG Systeme Anwendungen % of Portfolio Morgan Stanley International Equity Distribution of Market Capitalization (%) >$75 Bil $20 Bil - $75 Bil $5 Bil - $20 Bil $0 - $5 Bil MSCI EAFE Index Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Cash Sector Weights (%) Morgan Stanley International Equity MSCI EAFE Index 41

44 Manager Evaluation Morgan Stanley International Equity vs. MSCI EAFE Index Morgan Stanley International Equity MSCI EAFE Index Australia Hong Kong Japan New Zealand 0.2 Singapore 1.6 Pacific Austria 0.2 Belgium 1.3 Finland 0.9 France Germany Ireland Italy Netherlands Portugal 0.1 Spain 3.5 EMU Denmark 1.5 Norway 0.7 Sweden Switzerland United Kingdom Europe ex EMU Canada 1.1 United States Israel 0.6 Middle East 0.6 Developed Markets Morgan Stanley International Equity MSCI EAFE Index Brazil Cayman Islands Chile Colombia Mexico Peru Virgin Islands EM Latin America China 1.3 India Indonesia Korea Malaysia Philippines Taiwan Thailand EM Asia 1.3 Czech Republic Egypt Greece Hungary Poland Qatar Russia South Africa Turkey United Arab Emirates EM Europe + Middle East + Africa Emerging Markets 1.3 Frontier Markets Cash 2.5 Other 0.3 Total

45 Manager Evaluation Morgan Stanley Emerging Markets vs. MSCI Emerging Markets Index Historical Performance Quarter To Date Morgan Stanley Emerging Markets MSCI Emerging Markets Index Emerging Markets Equity Peer Group Median Morgan Stanley Emerging Markets Rank Three Rolling Percentile Ranking Return Percentile Rank /05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 Morgan Stanley Emerging Markets MSCI Emerging Markets Index Risk and Return (Jan Dec ) Return (%) Morgan Stanley Emerging Markets MSCI Emerging Markets Index Risk (Standard Deviation %) Buy and Hold Attribution Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Average Active Weight Allocation (Total: 1.0) Stock (Total: -2.1) Morgan Stanley Emerging Markets Differences between the manager return and the attribution return are due primarily to the effects of fees and portfolio trading. 43

46 Manager Evaluation Morgan Stanley Emerging Markets vs. MSCI Emerging Markets Index 1 Quarter Ending December 31, 2014 Total Attribution Cash 0.1 EM Asia -0.6 EM Europe + Middle East + Africa 0.6 EM Latin America -0.6 EMU -0.2 Europe ex EMU Frontier Markets North America Other Pacific Performance Attribution Cash EM Asia EM Europe + Middle East + Africa EM Latin America EMU Europe ex EMU Frontier Markets 1.3 North America 1.3 Other 1.6 Pacific Average Active Weight Allocation (Total: -0.4) Stock (Total: -0.6) 44

47 Manager Evaluation Morgan Stanley Emerging Markets vs. MSCI Emerging Markets Index Portfolio Characteristics Portfolio Benchmark Wtd. Avg. Mkt. Cap ($M) 33,948 41,144 Median Mkt. Cap ($M) 8,290 5,233 Price/Earnings ratio Price/Book ratio Yr. EPS Growth Rate (%) Current Yield (%) Debt to Equity Number of Stocks Beta (5, Monthly) Consistency (5, Monthly) Sharpe Ratio (5, Monthly) Information Ratio (5, Monthly) -2 - Up Market Capture (5, Monthly) Down Market Capture (5, Monthly) Top Ten Equity Holdings Portfolio Benchmark Weight Weight (%) (%) Active Weight (%) Quarterly Return (%) Bank of China Ltd Taiwan Semiconductor Manufacturing Tencent Holdings LTD BRF - Brasil Foods S.A Samsung Electronics Co Ltd Naspers Ltd Fomento Economico Mex China Mobile Ltd China Construction Bank Corp Cemex SAB de CV % of Portfolio Distribution of Market Capitalization (%) Sector Weights (%) >$75 Bil $20 Bil - $75 Bil $5 Bil - $20 Bil 19.5 $0 - $5 Bil Cash Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Cash Morgan Stanley Emerging Markets MSCI Emerging Markets Index Morgan Stanley Emerging Markets MSCI Emerging Markets Index 45

48 Manager Evaluation Morgan Stanley Emerging Markets vs. MSCI Emerging Markets Index Morgan Stanley Emerging Markets MSCI Emerging Markets Index Australia Hong Kong Japan 0.3 New Zealand Singapore Pacific Austria 2.1 Belgium Finland France Germany Ireland Italy Netherlands 0.4 Portugal 0.8 Spain EMU 3.3 Denmark Norway Sweden Switzerland 1.0 United Kingdom 0.8 Europe ex EMU 1.8 Canada United States Israel Middle East Developed Markets Morgan Stanley Emerging Markets MSCI Emerging Markets Index Brazil Cayman Islands Chile Colombia Mexico Peru Virgin Islands EM Latin America China India Indonesia Korea Malaysia Philippines Taiwan Thailand EM Asia Czech Republic Egypt 0.2 Greece 0.5 Hungary 0.2 Poland Qatar Russia South Africa Turkey 1.8 United Arab Emirates 0.6 EM Europe + Middle East + Africa Emerging Markets Frontier Markets 1.2 Cash 2.4 Other 1.6 Total

49 Manager Evaluation Income Research vs. Barclays Intermediate U.S. Government/Credit Historical Performance Quarter To Date Income Research Barclays Intermediate U.S. Government/Credit Intermediate Duration Fixed Income Peer Group Median Income Research Rank Three Rolling Percentile Ranking 0 Risk and Return (Jan Dec-2014) 4.8 Return Percentile Rank Return (%) Income Research Barclays Intermediate U.S. Government/Credit 100 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/ Income Research Barclays Intermediate U.S. Government/Credit Risk (Standard Deviation %) Historical Statistics (Jan Dec-2014) Return Standard Deviation Excess Return Alpha Beta Sharpe Ratio Tracking Error Information Ratio Downside Risk Consistency Inception Date Income Research y 11m Barclays Intermediate U.S. Government/Credit N/A y 11m 90 Day U.S. Treasury Bill N/A y 11m 47

50 Manager Evaluation Income Research vs. Barclays Intermediate U.S. Government/Credit Portfolio Characteristics Portfolio Benchmark Effective Duration Avg. Maturity Avg. Quality AA- AA+ Yield To Maturity (%) Credit Quality Distribution (%) 25.0 AAA 9.6 AA A BBB 0.7 BB B Below B Not Rated Income Research Barclays Intermediate U.S. Government/Credit Maturity Distribution (%) Sector Distribution (%) < 1 Yr 1 < 3 Yrs 3 < 5 Yrs 5 < 10 Yrs < 20 Yrs > 20 Yrs Treasuries TIPS Agencies Credit High Yield MBS ABS Non-US Emerging Municipals Cash Other CMBS Income Research Barclays Intermediate U.S. Government/Credit Income Research Barclays Intermediate U.S. Government/Credit 48

51 Manager Evaluation Penn Capital vs. BofA Merrill Lynch US High Yield, Cash Pay Index Historical Performance Quarter To Date Penn Capital N/A N/A N/A BofA Merrill Lynch US High Yield, Cash Pay Index High Yield Fixed Income Peer Group Median Penn Capital Rank N/A N/A N/A Three Rolling Percentile Ranking 0 Risk and Return (Jan Dec-2014) 12.0 Return Percentile Rank /05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 Return (%) Penn Capital BofA Merrill Lynch US High Yield, Cash Pay Index Penn Capital BofA Merrill Lynch US High Yield, Cash Pay Index Risk (Standard Deviation %) Historical Statistics (Jan Dec-2014) Return Standard Deviation Excess Return Alpha Beta Sharpe Ratio Tracking Error Information Ratio Downside Risk Consistency Penn Capital y 6m BofA Merrill Lynch US High Yield, Cash Pay Index N/A 3.0 9y 6m 90 Day U.S. Treasury Bill N/A y 6m Inception Date 49

52 Manager Evaluation Penn Capital vs. BofA Merrill Lynch US High Yield, Cash Pay Index Portfolio Characteristics Portfolio Benchmark Effective Duration Avg. Maturity Avg. Quality B B Yield To Maturity (%) Credit Quality Distribution (%) AAA AA A BBB BB B Below B 3.3 Not Rated Penn Capital BofA Merrill Lynch US High Yield, Cash Pay Index Maturity Distribution (%) Sector Distribution (%) < 1 Yr 1 < 3 Yrs < 5 Yrs < 10 Yrs < 20 Yrs > 20 Yrs High Yield Cash Other Penn Capital BofA Merrill Lynch US High Yield, Cash Pay Index Penn Capital BofA Merrill Lynch US High Yield, Cash Pay Index 50

53 Manager Evaluation Loomis Credit Asset Fund vs. 50% BC Credit / 25% S&P LSTA / 25% BY High Yield Historical Performance Quarter To Date Loomis Credit Asset Fund N/A N/A N/A N/A N/A N/A N/A N/A N/A 50% BC Credit / 25% S&P LSTA / 25% BY High Yield Alternative Credit Focus Funds Peer Group Median Loomis Credit Asset Fund Rank N/A N/A N/A N/A N/A N/A N/A N/A N/A Three Rolling Percentile Ranking 0 Risk and Return (Apr Dec-2014) 8.8 Return Percentile Rank /05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 Loomis Credit Asset Fund 50% BC Credit / 25% S&P LSTA / 25% BY High Yield Return (%) % BC Credit / 25% S&P LSTA / 25% BY High Yield 5.6 Loomis Credit Asset Fund Risk (Standard Deviation %) Historical Statistics (Apr Dec-2014) Return Standard Deviation Excess Return Alpha Beta Sharpe Ratio Tracking Error Information Ratio Downside Risk Consistency Loomis Credit Asset Fund y 9m 50% BC Credit / 25% S&P LSTA / 25% BY High Yield N/A 1.1 4y 9m 90 Day U.S. Treasury Bill N/A y 9m Inception Date 51

54 Manager Evaluation Loomis Credit Asset Fund Portfolio Characteristics Portfolio Effective Duration 4.3 Avg. Maturity 9.8 Avg. Quality BBB- Yield To Maturity (%) Credit Quality Distribution (%) AAA AA A BBB BB B Below B Not Rated Loomis Credit Asset Fund Maturity Distribution (%) Sector Distribution (%) < 1 Yr 1 < 3 Yrs 3 < 5 Yrs 5 < 10 Yrs < 20 Yrs > 20 Yrs 2.3 Treasuries TIPS Agencies Credit High Yield MBS ABS Non-US Emerging Municipals Cash Other 3.7 CMBS Loomis Credit Asset Fund Loomis Credit Asset Fund 52

55 Manager Evaluation Brandywine Global Opportunistic Fixed Income vs. Citigroup World Government Bond Historical Performance Quarter To Date Brandywine Global Opportunistic Fixed Income N/A Citigroup World Government Bond Global Fixed Income Peer Group Median Brandywine Global Opportunistic Fixed Income Rank N/A Three Rolling Percentile Ranking 0 Risk and Return (Jan Dec-2014) 15.0 Return Percentile Rank Return (%) Citigroup World Government Bond Brandywine Global Opportunistic Fixed Income 100 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/ Brandywine Global Opportunistic Fixed Income Citigroup World Government Bond Risk (Standard Deviation %) Historical Statistics (Jan Dec-2014) Return Standard Deviation Excess Return Alpha Beta Sharpe Ratio Tracking Error Information Ratio Downside Risk Consistency Brandywine Global Opportunistic Fixed Income y Citigroup World Government Bond N/A y 90 Day U.S. Treasury Bill N/A y Inception Date 53

56 Manager Evaluation Brandywine Global Opportunistic Fixed Income vs. Citigroup World Government Bond Portfolio Characteristics Portfolio Benchmark Effective Duration Avg. Maturity Avg. Quality A AA Yield To Maturity (%) Credit Quality Distribution (%) AAA 22.7 AA 3 A BBB BB B Below B Not Rated Brandywine Global Opportunistic Fixed Income Citigroup World Government Bond Maturity Distribution (%) Sector Distribution (%) < 1 Yr 1 < 3 Yrs < 5 Yrs 5 < 10 Yrs < 20 Yrs > 20 Yrs Treasuries TIPS Agencies Credit High Yield MBS ABS Non-US Emerging Municipals Cash Other CMBS Brandywine Global Opportunistic Fixed Income Citigroup World Government Bond Brandywine Global Opportunistic Fixed Income Citigroup World Government Bond 54

57 Manager Evaluation Pictet Emerging Local Currency Debt Fund vs. JPM GBI-EM Global Diversified Historical Performance Quarter To Date Pictet Emerging Local Currency Debt Fund N/A N/A N/A N/A N/A N/A N/A N/A N/A JPM GBI-EM Global Diversified Emerging Markets LC Peer Group Median N/A N/A N/A N/A N/A N/A Pictet Emerging Local Currency Debt Fund Rank N/A N/A N/A N/A N/A N/A N/A N/A N/A Three Rolling Percentile Ranking 0 Risk and Return (Jul Dec-2014) 4.0 Return Percentile Rank Return (%) 2.0 Pictet Emerging Local Currency Debt Fund JPM GBI-EM Global Diversified 100 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 12/14 Pictet Emerging Local Currency Debt Fund JPM GBI-EM Global Diversified Risk (Standard Deviation %) Historical Statistics (Jul Dec-2014) Return Standard Deviation Excess Return Alpha Beta Sharpe Ratio Tracking Error Information Ratio Downside Risk Consistency Pictet Emerging Local Currency Debt Fund y 6m JPM GBI-EM Global Diversified N/A 6.5 4y 6m 90 Day U.S. Treasury Bill N/A y 6m Inception Date 55

58 Manager Evaluation Pictet Emerging Local Currency Debt Fund vs. JPM GBI-EM Global Diversified Portfolio Characteristics Portfolio Benchmark Effective Duration Avg. Maturity Avg. Quality BBB BBB+ Yield To Maturity (%) AAA AA Credit Quality Distribution (%) Pictet Emerging Local Currency Debt Fund A JPM GBI-EM Global Diversified BBB BB 5.7 B Below B Not Rated Sector Distribution (%) Country/Region Distribution (%) Treasuries -0.9 Credit 6.6 Cash 15.0 Asia Eastern Europe Latin America 11.3 Africa Others Pictet Emerging Local Currency Debt Fund JPM GBI-EM Global Diversified Pictet Emerging Local Currency Debt Fund JPM GBI-EM Global Diversified 56

59 Manager Evaluation GMO Asset Allocation Fund vs. 65% MSCI World (Net) / 35% BC Aggregate Historical Performance Quarter To Date GMO Asset Allocation Fund % MSCI World (Net) / 35% BC Aggregate Comparative Performance and Rolling Return 24.0 Risk and Return (Jan Dec-2014) 12.0 Active Return (%) Return (%) GMO Asset Allocation Fund 65% MSCI World (Net) / 35% BC Aggregate /97 9/98 3/00 9/01 3/03 9/04 3/06 9/07 3/09 9/10 3/12 9/13 12/14 Rolling 3 Active Return Quarterly Active Return Risk (Standard Deviation %) Historical Statistics (Jan Dec-2014) Return Standard Deviation Excess Return Alpha Beta Sharpe Ratio Tracking Error Information Ratio Downside Risk Consistency Inception Date GMO Asset Allocation Fund y 2m 65% MSCI World (Net) / 35% BC Aggregate N/A y 2m 90 Day U.S. Treasury Bill N/A y 2m 57

60 Manager Evaluation GMO Asset Allocation Fund Fund Composition Asset Class Weights Alpha Only 6.9% Emerging Country Debt 3.6% Cash and Cash Equivalents 5.6% US Quality 14.5% US Opportunistic Value 2.4% 35.0% 3% 25.0% 25.4% 30.2% Asset Backed Securities 4.4% Europe Value 18.7% 2% 15.0% 1% 5.0% 16.9% 9.4% 5.5% 12.5% Developed Rates 22.2% % Risk Premium 2.5% Systematic Global Macro 3.0% Emerging Markets 9.4% Japan 5.2% Other International Opportunistic Value 1.5% 58

61 Manager Evaluation PIMCO All Asset Fund I vs. Barclays U.S. Treasury Inflation Notes: 1-10 Historical Performance Quarter To Date PIMCO All Asset Fund I Barclays U.S. Treasury Inflation Notes: Comparative Performance and Rolling Return 24.0 Risk and Return (Jan Dec-2014) 12.0 Active Return (%) Return (%) Barclays U.S. Treasury Inflation Notes: 1-10 PIMCO All Asset Fund I /02 3/04 6/05 9/06 12/07 3/09 6/10 9/11 12/12 12/14 Rolling 3 Active Return Quarterly Active Return Risk (Standard Deviation %) Historical Statistics (Jan Dec-2014) Return Standard Deviation Excess Return Alpha Beta Sharpe Ratio Tracking Error Information Ratio Downside Risk Consistency Inception Date PIMCO All Asset Fund I y 5m Barclays U.S. Treasury Inflation Notes: N/A y 5m 90 Day U.S. Treasury Bill N/A y 5m 59

62 Manager Evaluation PIMCO All Asset Fund I Sector Allocations Alternative Strategies 16.3% U.S. Equity Strategies 4.0% Global Equity Strategies 19.8% Inflation Related Strategies 12.6% Short-Term Strategies 1.5% U.S. Core & Long Maturity Bond Strategies 12.3% EM & Global Bond Strategies 19.3% Credit Strategies 14.1% 60

63 Manager Evaluation UBS Trumbull Property Fund vs. NCREIF Fund Index-Open End Diversified Core Equity Historical Performance Quarter To Date UBS Trumbull Property Fund NCREIF Fund Index-Open End Diversified Core Equity Comparative Performance and Rolling Return 8.0 Risk and Return (Jan Dec-2014) 16.0 Active Return (%) Return (%) UBS Trumbull Property Fund NCREIF Fund Index-Open End Diversified Core Equity /78 6/81 9/84 12/87 3/91 6/94 9/97 12/00 3/04 6/07 9/10 12/14 Rolling 3 Active Return Quarterly Active Return Risk (Standard Deviation %) Historical Statistics (Jan Dec-2014) Return Standard Deviation Excess Return Alpha Beta Sharpe Ratio Tracking Error Information Ratio Downside Risk Consistency UBS Trumbull Property Fund y NCREIF Fund Index-Open End Diversified Core Equity N/A 37y 90 Day U.S. Treasury Bill 0.1 N/A y Inception Date 61

64 Manager Evaluation UBS Trumbull Property Fund vs. NCREIF Property Index Portfolio Characteristics Portfolio Benchmark # Properties 198 7,170 # Investors 411 N/A Total Fund Assets 15, , Property Type Office Apartment Retail 9.0 Industrial 13.7 Other 5.0 Hotel 1.7 UBS Trumbull Property Fund NCREIF Property Index Property Location East West South Midwest UBS Trumbull Property Fund NCREIF Property Index *Portfolio information is represented as of 9/30/2014. Data as of 12/31/2014 was not yet available at the time of report production. 62

65 Manager Evaluation UBS Trumbull Property Fund 20 Largest Investments Type City Acquisition Date % Occupancy Cost ($000) Fair Market Value ($000) Office New York Jun % $ 664,900 $ 664,900 Office Boston Dec-11 89% $ 657,691 $ 657,691 Retail Cambridge May-89 96% $ 559,300 $ 561,377 Retail Dallas Dec-02 90% $ 505,000 $ 505,000 Apartments New York Jul-11 95% $ 463,000 $ 463,000 Office New York Jul-11 97% $ 275,213 $ 457,308 Retail Chicago Nov-13 95% $ 249,108 $ 444,227 Office New York Sep-14 92% $ 273,599 $ 443,349 Office Chicago Dec % $ 435,000 $ 435,768 Retail Emeryville Aug-14 99% $ 305,442 $ 305,442 Retail Montebello Dec-88 97% $ 281,000 $ 281,000 Office Washington May-06 80% $ 262,000 $ 262,000 Office Denver Jun-06 94% $ 250,000 $ 250,000 Office Seattle Oct-84 80% $ 250,000 $ 250,000 Apartments Brooklyn Dec-07 95% $ 240,000 $ 240,000 Office San Francisco Dec-85 89% $ 214,000 $ 216,504 Office Denver Apr-82 91% $ 213,000 $ 213,000 Office Pasadena May-84 97% $ 209,000 $ 209,000 Retail Millbury Sep-04 97% $ 190,800 $ 190,800 Apartments Arlington Mar-13 94% $ 66,628 $ 188,953 All other investments $ 10,688,765 $ 10,692,363 Total Properties $ 17,253,446 $ 17,931,682 *Portfolio information is represented as of 9/30/2014. Data as of 12/31/2014 was not yet available at the time of report production. 63

66 Manager Evaluation Wellington Diversified Inflation Hedges vs. Wellington DIH Multi-Asset Inflation Index Historical Performance Quarter To Date Wellington Diversified Inflation Hedges N/A N/A N/A N/A N/A N/A N/A N/A N/A Wellington DIH Multi-Asset Inflation Index Comparative Performance and Rolling Return 4.0 Risk and Return (Apr Dec-2014) -0.8 Active Return (%) Return (%) Wellington DIH Multi-Asset Inflation Index Wellington Diversified Inflation Hedges /10 12/10 6/11 12/11 6/12 12/12 6/13 12/13 6/14 12/14 Rolling 3 Active Return Quarterly Active Return Risk (Standard Deviation %) Historical Statistics (Apr Dec-2014) Return Standard Deviation Excess Return Alpha Beta Sharpe Ratio Tracking Error Information Ratio Downside Risk Consistency Wellington Diversified Inflation Hedges y 9m Wellington DIH Multi-Asset Inflation Index N/A y 9m 90 Day U.S. Treasury Bill N/A y 9m Inception Date 64

67 Manager Evaluation Wellington Diversified Inflation Hedges Sector Allocation Fund Composition Fund Weights Relative to Benchmark Emerging Markets Inflation-Linked Bonds 5.4% TIPS 5.5% Cash 0.5% Energy 29.0% 2% 15.0% 1% 5.0% % 8.3% 5.4% 0.5% Commodities 30.4% Metals & Mining 8.1% -5.0% -1% Inflation Opportunities 7.1% Precious Metals 2.1% Enduring Assets 7.5% Agriculture 4.4% -15.0% -2% -14.1% Equities Fixed Income Commodities Cash Global Inflation-Sensitive Equities Commodities Fixed Income & Cash 65

68 Calendar Performance 66

69 Calendar Performance Composite Performance Total Composite Policy Benchmark Total Equity Composite 4.7 N/A N/A N/A N/A N/A N/A N/A N/A N/A MSCI AC World Index Domestic Equity Composite 10.1 (23) N/A N/A N/A N/A N/A N/A N/A N/A N/A Russell 3000 Index 12.6 (8) 33.6 (40) 16.4 (26) 1.0 (16) 16.9 (39) 28.3 (59) (38) 5.1 (62) 15.7 (31) 6.1 (63) Broad Equity Peer Group Median International Equity Composite -5.5 (65) N/A N/A N/A N/A N/A N/A N/A N/A N/A MSCI AC World ex USA Index -3.9 (37) 15.3 (54) 16.8 (72) (32) 11.2 (74) 41.4 (64) (36) 16.7 (66) 26.7 (55) 16.6 (86) International Equity Peer Group Median Fixed Income Composite 2.4 (83) -1.7 (82) 10.9 (1) 3.8 (72) 8.7 (10) 18.9 (8) -3.4 (70) 6.4 (26) 5.6 (8) 2.8 (1) Barclays Intermediate U.S. Government/Credit 3.1 (61) -0.9 (55) 3.9 (70) 5.8 (22) 5.9 (54) 5.2 (100) 5.1 (13) 7.4 (9) 4.1 (42) 1.6 (46) Intermediate Duration Fixed Income Peer Group Median Tactical Asset Allocation Composite % World / 40% Agg Alternatives Composite 1.5 N/A N/A N/A N/A N/A N/A N/A N/A N/A 3 Month T-Bills + 3% See appendix for a description of the benchmarks and universe. Performance is reported net of fees. 67

70 Capital Markets Review 68

71 Capital Markets Review Economy Real Wage Growth Relatively Flat Consumer Price Index Falls Percent Sources: Bureau of Labor Statistics; Federal Reserve Percent Core CPI CPI Sources: Federal Reserve Mar-2007 Sep-2007 Mar-2008 Sep-2008 Mar-2009 Sep-2009 Mar-2010 Sep-2010 Mar-2011 Sep-2011 Mar-2012 Sep-2012 Mar-2013 Sep-2013 Mar-2014 Sep World Currencies Weaken Percent Euro -4 Yen -5 Franc -6 Pound -7 CAD -8 Oct-2014 Nov-2014 Nov-2014 Nov-2014 Nov-2014 *Relative to the U.S. dollar Source: Bloomberg Dec-2014 Dec-2014 Dec-2014 Dec-2014 Crude Oil s Fall Continues to Shift Economic Policies U.S. inflation fell for a second consecutive quarter, leaving full-year 2014 inflation at 0.7%. The fall in oil prices, combined with weakening foreign currencies, led to the low reading. Wages fell in December, inflation contracted further and consumers purchasing power growth remained anemic. The rapid fall in energy prices contributed to a short-term fall in overall prices, and likely will keep real wage growth below 1%. The Federal Reserve prefers that real wages grow more significantly before it considers raising interest rates. China s economy expanded at a 7.3% rate during the quarter, and 7.4% for While slower than its long-term average, the Chinese government expressed the need for rapid growth to continue the country s transformation from an agricultural to an industrial nation. Russia s central bank raised its key interest rate from 10.5% to 17%, as it looked to stem capital outflows from the country amidst international opposition to the Ukraine invasion. Ongoing Saudi Arabian support for lower crude oil prices added uncertainty to the economic outlook for many economies. The U.S. economy was aided by lower oil imports, though weaker foreign economies began to take a toll on exports. As one of the stronger world economies, the U.S. remained a safe-haven for investors as money flowed out of Europe and Asia and into U.S. securities. Lower mortgage rates led to a surge in mortgage activity, while homebuilders saw a small uptick in demand. 69

72 Capital Markets Review Equities 4 th Quarter and YTD 2014 Sector Returns 2014 World Equity Returns (USD) Utilities Cons. Disc. Health Care Cons. Staples Financials Industrials Info Tech Russell 3000 Materials Telecom Energy 4Q14 YTD -13.1% -1% -0.8% -3.9% 13.0% 8.9% 9.2% 8.6% 8.4% 15.9% 7.8% 14.4% 7.0% 8.0% 5.4% 17.8% 5.2% 12.6% 5.7% 2.5% 26.9% 25.1% Developed Markets Emerging Markets % -1% % 1% 2% 3% Historic Volatility Levels 40 U.S. Equity a Cut Above; Appreciating USD Impact Felt Globally VIX Volatility Index 10 Average Source: CBOE The Russell 3000 Index experienced strong gains during the fourth quarter, driven by improved economic data and the Fed s declaration that it would remain patient before increasing short-term interest rates, given current low inflation expectations. During the quarter, small-cap stocks outperformed their large-cap counterparts, however, large-caps advanced more throughout the year. The utility and consumer sectors were standout performers during the quarter, while energy companies declined in value due to falling oil prices. Non-U.S. equities struggled as both developed and emerging markets declined in USD terms during the quarter. Disappointing economic data abroad hurt returns, however, significant depreciation of most non-u.s. currencies versus the USD was the main driver of negative performance. Emerging markets were negatively impacted most by depreciating currencies and also were hurt by falling oil and commodity prices. Equity market volatility, as measured by the VIX Index, started to tick higher in the fourth quarter after a period of historically low levels. The first signs of heightened volatility occurred in October as the Fed completed its quantitative easing program. Plunging oil prices and uncertain global economic prospects further increased volatility throughout the quarter. 70

73 Capital Markets Review Fixed Income Duration-adjusted Excess Returns to Treasuries (bps) Q14 Aggregate Agency MBS ABS CMBS Credit High Yield Emerging Best Period Second Best Period Worst Period Second Worst Period Trailing Ten- Credit Spreads Option-Adjusted Spread (OAS) Barclays U.S. Credit U.S. Credit 10- Average Barclays U.S. HY HY 10- Average Source: Barclays Date Source: Barclays US Treasury Yield Curve Yield to Maturity 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% % 12/31/2013 9/30/ /31/ Maturity () Source: U.S. Dept of The Treasury Rates Defy Experts in 2014 Despite Wall Street forecasts calling for higher interest rates in 2014, the 10- year U.S. Treasury yield fell from 3.04% to 2.17% during the year. The yield curve continued to flatten during the fourth quarter, driven by weak global growth, safe-haven demand and low domestic inflation expectations. Shortterm rates rose slightly as investors prepared for a Fed Funds rate hike in While long rates rallied, U.S. yields remained attractive to investors given the significant yield advantage versus other major developed markets such as Germany, Spain, Japan, and the United Kingdom. Corporate credit spreads widened during the quarter. Record new issuance, coupled with shrinking dealer balance sheets and reduced trading in the secondary markets, contributed to increased volatility. Higher quality and longer duration credits performed best, while the high yield segment suffered due to a large proportion of energy-related companies. CMBS and ABS generated positive duration-adjusted excess returns to Treasuries during the quarter. Commercial property prices generally improved, resulting in strong collateral performance, while ABS benefitted from supportive consumer credit quality. Despite the end of the Fed s QE MBS purchases, a significant issuance slowdown buoyed Agency MBS prices. 71

74 Capital Markets Review Hedge Funds HFRI Index Performance Fourth Quarter and 2014 Convertible Arbitrage Distressed Securities Equity Hedge Equity Market Neutral Event Driven Global Macro Merger Arbitrage Hedge Fund Composite Fund of Funds MSCI All-Country World Index BC Aggregate Bond Index -3.5% Q % -1.1% -0.2% 0.2% % 0.5% 0.4% 0.9% 2.1% 1.6% 1.4% 2.0% 1.7% 1.8% 2.9% 3.5% 3.3% 3.4% 4.2% 6.2% 6.0% -6% -4% -2% 0% 2% 4% 6% 8% Calendar Performance by Hedge Fund Strategy Macro Distressed Distressed Multi-Strategy Relative Value Long/Short Macro 4.8% 28.1% 12.1% 4.2% 1% 14.6% 6.2% Relative Value Relative Value Event Driven Relative Value Distressed Distressed Relative Value -18.0% 25.8% 11.9% 0.1% 10.3% 13.6% 4.2% Fund of Funds Event Driven Relative Value Distressed Multi-Strategy Event Driven Multi-Strategy -21.4% 25.0% 11.4% -1.8% 9.2% 12.5% 3.8% Event Driven Long/Short Long/Short Event Driven Event Driven Multi-Strategy Fund of Funds -21.8% 24.6% 10.5% -3.3% 8.5% 11.2% 3.4% Multi-Strategy Multi-Strategy Multi-Strategy Macro Long/Short Fund of Funds Long/Short -23.6% 24.6% 9.3% -4.2% 7.4% 9.0% 2.1% Distressed Fund of Funds Macro Fund of Funds Fund of Funds Relative Value Event Driven -25.2% 11.5% 8.1% -5.7% 5.3% 7.2% 1.4% Long/Short Macro Fund of Funds Long/Short Macro Macro Distressed -26.7% 4.3% 5.7% -8.4% -0.2% -0.3% -1.0% Source: HFR Assets ($MM) Hedge Fund Assets and Flows $3,000,000 Net Asset Flow Estimated Assets $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 -$500,000 Source: HFR Inc. Global Macro Shines in Fourth Quarter Overall hedge fund performance was muted during the fourth quarter, with the HFRI Hedge Fund Composite Index returning 0.5%. For the year, the Index returned 3.3%, underperforming global equities and fixed income. After three years of underperformance, global macro advanced 2.9% for the quarter and 6.2% for the year, making it the top-performing hedge fund strategy for the year. In November, Commodity Trading Advisors (CTA) experienced their best monthly return since 2002, fueled by strong trending behavior in oil and energy commodities. Additionally, managers with long U.S. dollar exposure benefited from the dollar s continued appreciation relative to other major currencies. Global macro managers in aggregate outpaced both global equities and fixed income in In contrast, distressed (-3.5%) and event driven (-1.1%) strategies declined during the quarter. Distressed managers were negatively impacted by underperformance of lower quality bonds, long energy positions amid falling oil prices. Event driven managers, which place directional and arbitrage trades on mergers, acquisitions and other corporate shake-ups, were hurt by the unraveling of a number of large deals. The hedge-fund industry saw inflows of $3.6 billion during the fourth quarter according to Hedge Fund Research. According to evestment s 2015 Hedge Fund Outlook Report, the hedge fund industry is positioned for estimated growth of $90 to $110 billion, with distressed managers likely to see the most asset growth. 72

75 Capital Markets Review Real Assets Real Estate Returns as of September 30, 2014 NCREIF 3 Mon. YTD 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. NCREIF 2.6% 8.5% 11.3% 11.1% 11.0% 8.5% Apartments 2.5% 7.3% 1% 10.9% 12.1% 8.3% Industrials 2.9% 9.2% 12.4% 11.7% 10.6% 8.3% Office 2.8% 8.2% 10.7% 10.1% 1% 8.2% Retail 2.3% 10.2% 13.1% 12.8% 12.0% 9.7% Hotel 2.9% 6.5% 8.9% 8.2% 7.8% 6.9% East 2.2% 6.7% 9.2% 9.4% 10.3% 8.3% Midwest 2.6% 8.2% 10.4% 10.6% 9.8% 7.2% South 2.8% 9.7% 12.8% 12.2% 11.3% 8.7% West 3.0% 9.7% 12.7% 12.2% 11.8% 9.2% Source: NCREIF Commodity Index Returns for Periods Ended December 31, % -2% -4% -6% -8% -10% -12% -14% -16% -18% -20% -1.9% -5.5% -9.4% -12.1% -17.0% Source: Bloomberg 4Q No Stopping the Decline in Cap Rates REITs Dominate, Commodities Hit the Skids The global search for yield continued to provide a tailwind for publicly traded real estate during the fourth quarter as U.S. and global REITs advanced 12.4% and 6.9%, respectively. U.S. REITs experienced a stellar year with an annual return of 27.2%, which was well ahead of all other broad market asset classes. In general, low levels of new supply, strengthening tenant demand, and an earnings season that handily exceeded expectations contributed to REITs strong performance during the quarter. Private real estate returned 2.6% during the third quarter, slightly down from the second quarter. Through the first three quarters of the year, the Index produced an 8.5% return driven by capitalization rate compression in conjunction with net operating income growth. The South and West regions experienced higher than average returns as these areas benefited from the energy and technology markets. Given the collapse of oil prices, growth rates could start to decline for these markets. Source: CBRE Global Investors, Real Capital Analytics Heavy exposure (23%) to the energy sector led the Bloomberg Commodity Index to post abysmal fourth quarter and full year returns. The energy sector lost 36.6% and 39.3% for the quarter and year, respectively, due to an accommodative production stance from the Middle East. Metals also witnessed an upswing in volatility. Both the industrial (-6.2%) and precious metals (-3.9%) sectors lost ground due to the persistence of a strong U.S. dollar and slower demand. Agriculture and grains were the only sectors to experience positive performance during the quarter supported by cuts to corn production and yield estimates. 73