Fund Structure So now youre a Trustee. Jennifer Mink Principal - PowerPoint PPT Presentation

2016 Trustee Educational Seminar Fund Structure So now you’re a Trustee…. Jennifer Mink Principal Investment Performance Services Philadelphia, PA

FOLLOW THE YELLOW BRICK ROAD

P Investment olicy A Asset llocation M Performance easurement

Policy • Define Roles and Responsibilities • State Goals and Objectives • Identify Investments –Allowed and Restricted

The Decision Makers • Trustees • Investment managers • Custody bank • Advisory professionals • Actuary • Counsel • Investment Consultant • Chief Investment Officer

What are you trying to accomplish? • Investment objective • Time horizon • Risk tolerance • Liquidity

Guideline Requirements • Permissible assets • Quality standards • Diversification • Restricted assets

Asset Allocation • Targets • Ranges • Rebalancing Strategy

Why the road matters………. Target Allocation of Assets of the Fund Target Allocation of Assets of the Fund Target Allocation of Assets of the Fund Measured at Market Value Measured at Market Value Measured at Market Value Asset Class Target Range Asset Class Target Range Asset Class Target Range Domestic Domestic Domestic 35% Large Cap 30 ‐ 40% 15% Large Cap 30 ‐ 40% 55% Large Cap 50 ‐ 65% Equity Equity Equity Domestic Domestic Domestic 10% Small Cap 5 ‐ 15% 0% Small Cap NA 0% Small Cap NA Equity Equity Equity Investment Investment Investment 65% 35% Grade Fixed 60 ‐ 70% Grade Fixed 30 ‐ 40% 35% Grade Fixed 30 ‐ 40% Income Income Income High Yield High Yield Fixed Income 10% High Yield 5 ‐ 15% Fixed Income 15% Fixed Income 10% 10 ‐ 20% 5 ‐ 15% 10% 10% Real Estate 5 ‐ 10% 0% Real Estate 5 ‐ 10% Real Estate NA Cash Cash Cash Minimal Minimal Minimal Equivalents Equivalents Equivalents March 4, 2009 December 31, 2008 November 30, 2009

Impact of going “off road” Calendar Year Returns Calendar Year Ending December 31 2009 2010 Total Fund Returns % % “Market Timing Client” ‐ 1.2% 9.9% Median DB return 13.4% 12.8% Top Quartile DB return 17.5% 14.2% Index Returns Barclays Aggregate Index 5.9% 6.5% S&P 500 Index 26.4% 15.1% NCREIF NFI ‐ ODCE Index ‐ 29.8% 16.4%

The importance of rebalancing 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 EM EM EM EM EM EM Small EM Small Large RE Fx Inc Fx Inc Fx Inc RE RE Equity Equity Equity Equity Equity Equity Cap Equity Cap Cap 14.3% 8.4% 10.3% 5.2% 16.0% 15.2% 55.8% 25.6% 34.0% 32.2% 39.4% 78.5% 26.9% 18.2% 38.8% 13.7% Small Large Fx Inc RE RE Mid Cap RE Int'l RE RE HY Mid Cap Fx Inc Int'l Mid Cap Mid Cap Cap Cap 11.6% 5.6% 5.5% 20.2% 21.4% 26.3% 16.0% ‐ 10.0% 57.5% 25.5% 7.8% 17.3% 34.8% 13.2% 47.3% 1.4% Small EM Large Mid Cap HY HFoF Mid Cap Int'l Int'l Int'l SD HY Mid Cap HY Mid Cap RE SD HY Cap Equity Cap 8.3% 4.5% 1.0% 40.1% 20.2% 13.5% 11.2% ‐ 14.0% 40.5% 4.4% 17.3% 12.5% 1.2% 18.4% 18.9% 32.4% Small Small HFoF HFoF HY Int'l Mid Cap RE HFoF HFoF SD HY RE SD HY Int'l Fx Inc Fx Inc Cap Cap 4.1% 2.8% ‐ 1.9% 38.6% 12.6% 16.3% 10.3% ‐ 21.4% 36.1% 16.4% 4.4% 22.8% 6.0% 0.6% 18.3% 16.3% Small Small EM Large Large Large Large Small GTAA HFoF GTAA GTAA Int'l HY GTAA HFoF Cap Cap Equity Cap Cap Cap Cap Cap 13.2% 7.5% 9.9% ‐ 25.4% 31.8% 15.2% 15.3% ‐ 0.3% ‐ 3.0% 2.5% ‐ 6.2% 28.7% 15.8% 2.1% 16.1% 4.9% EM Large Small Large HY GTAA HY RE Mid Cap Fx Inc HY GTAA HY RE HFoF Int'l Equity Cap Cap Cap ‐ 5.2% ‐ 7.2% 28.1% 13.0% 15.3% 7.0% ‐ 26.4% ‐ 0.9% 15.6% 14.0% 3.4% ‐ 0.8% ‐ 2.6% 4.9% 27.2% 15.1% Large Small Small Large GTAA Mid Cap Int'l GTAA GTAA Mid Cap SD HY Mid Cap RE HFoF GTAA GTAA Cap Cap Cap Cap ‐ 8.1% ‐ 5.6% ‐ 15.9% 26.7% 15.1% 5.6% 11.7% ‐ 1.6% 10.9% 9.0% 3.0% ‐ 1.6% 10.9% 4.6% ‐ 33.8% 26.5% Large Large Large Small GTAA Mid Cap HFoF HY GTAA HY GTAA GTAA GTAA HY HY Mid Cap Cap Cap Cap Cap ‐ 10.8% ‐ 16.2% 11.6% 10.8% 3.6% 11.7% 20.1% 9.8% 10.9% 7.4% 2.5% ‐ 2.4% ‐ 9.1% 5.5% ‐ 37.0% ‐ 4.2% Large Small Small Int'l RE HFoF HY HFoF SD HY Mid Cap HFoF Int'l HFoF SD HY SD HY SD HY Cap Cap Cap ‐ 14.2% 9.3% 6.9% 2.7% 10.4% 3.9% ‐ 41.5% 11.5% 7.8% ‐ 5.7% 10.2% 5.6% 1.9% ‐ 11.9% ‐ 20.5% ‐ 4.4% EM Large EM Int'l Fx Inc Fx Inc Fx Inc SD HY HY Int'l Fx Inc Fx Inc Int'l HFoF Fx Inc HY Equity Cap Equity ‐ 21.5% 4.1% 4.3% 2.4% 9.9% 2.2% ‐ 43.4% 5.9% 6.5% ‐ 12.1% 4.8% ‐ 2.0% ‐ 4.6% ‐ 30.8% ‐ 22.1% ‐ 2.2% Small EM EM EM EM SD HY Fx Inc RE HFoF Fx Inc Int'l Cap Equity Equity Equity Equity 2.4% 4.3% ‐ 29.8% 5.7% 4.2% ‐ 4.9% ‐ 1.6% ‐ 53.3% ‐ 18.4% ‐ 2.6% ‐ 14.9% * Large Cap Equity = S&P 500 Index *Fixed Income = Barclays Aggregate Index *Mid Cap Equity = Russell Midcap Index *High Yield = Merrill Lynch High Yield Master II Index *Small Cap Equity = Russell 2000 Index *Real Estate = NCREIF ODCE Index *International Equity = MSCI EAFE Index *Hedge Fund of Funds = HFRI ROF Index *Emerging Markets = MSCI EM Index *Global Tactical Asset Allocation = 65%MSCI World Equity/35% Citi World Gov’t Bond Index *Short Duration High Yield = ML High Yield Cash Pay 1-3 Yr BB Index. Index inception date was January 1, 2005.

Measurement • Total Fund • Investment Managers • Compliance

Investment Program Evaluation • Performance • Total Fund • Relative to actuarial assumption • Peer universe ranking • Median or above Other important factors to consider… • Growth of assets • Liquidity needs are met • Compliance with investment policy

Public Funds Defined Benefit Universe Rank 1 yr 3 yrs 5 yrs 10 yrs 2015 2014 2013 2012 2011 5th Percentile 2.2% 9.4% 8.5% 6.7% 2.2% 8.0% 20.8% 14.6% 3.6% 25th Percentile 0.9% 8.3% 7.7% 6.1% 0.9% 6.8% 18.0% 13.4% 1.9% Median 0.1% 7.2% 6.9% 5.7% 0.1% 5.8% 15.5% 12.4% 0.9% 75th Percentile ‐ 0.9% 6.1% 6.1% 5.3% ‐ 0.9% 4.6% 13.3% 10.7% ‐ 0.3% 95th Percentile ‐ 2.6% 3.9% 4.4% 4.3% ‐ 2.6% 3.2% 8.5% 7.8% ‐ 2.5% InvestorForce Universe Data

Investment Manager Evaluation • Performance • Absolute & Relative to index; consistency • Peer universe ranking • Median or above • Risk statistics • Standard deviation, capture ratios, tracking error • Style drift • Portfolio holdings attribution • Firm stability • Ownership, insurance, regulatory, investment team • Compliance with investment policy • Consistency; communication

Investment Manager Compliance • Permissible assets • Communication & reporting • Proxy voting • Trading costs • Commingled fund guidelines • Liquidity Who monitors?

What you need to succeed… • Know your role • Work with experienced professionals • Clearly define your investment policy • Establish meaningful asset allocation guidelines • Monitor and measure your performance • Know what is going on…get educated! • attend meetings • go to conferences • ask questions