Investment Oversight As at 28 February 2017 Investment Oversight - - PowerPoint PPT Presentation

Investment Oversight

As at 28 February 2017

Table of Contents

Asset Class Allocation: Actual vs. Target…………………………………………………………………………………….... Asset Class Performance: Actual vs. Policy …………………………………………………………………………………. Asset Allocation and Performance……………………………………………………………………………………………... Risk …………………………………..…………………………………………………………………………………………… Long term Risk/Return of Plan vs. 60/40 Portfolio and Policy Returns………………….……………. VaR, Sharpe and Scenario Analysis……………………………………………………………………… The 4 Factor Model..………………………………………………………………………………………... Performance Heat Map by Asset Class………….……………………………………………………………………………. 1 Month Performance………………………………………………………………................................... 3 Month Performance……………………………………………………………………………………….. 12 Month Performance……………………………………………………………………………………… Global Strategy Overview………………………….……………………………………………….......................................... Global Debt..………………………………….………………………………………………...................... Private Equity..………………………………………………………………………………....................... Alpha Pool..……………………………………..……………………………………………...................... Global Equity..………………………………….……………………………………………....................... Real Assets and Real Estate………………………………………………………………………………. Appendices……………...…………..……………………………………………………………………………………….......... 1 2 4 5 5 6 7 8 8 9 10 11 11 12 13 14 15 16

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association Asset Class Allocation: Actual vs. Target

Physical Synthetic Total Volatility 17,026,757 17,026,757 0.19% 3.00% 0%-8% L/S Equity 41,851,953 41,851,953 0.47% 2.00% 0%-7% Passive Large Cap 645,260,887 367,000,000 1,012,260,887 11.29% 6.00% 0%- 11% Passive Small Cap 302,000,000 302,000,000 3.37% 2.00%

• 3%- 7%

Sub-Total 704,139,598 1,373,139,598 15.31% 13.00% 8%-18% Developed Market 831,100,000 831,100,000 9.27% 6.00% 1% -11% Emerging Market Equity 446,295,914 165,400,000 611,695,914 6.82% 6.00% 1% -11% Volatility 121,924,103 121,924,103 1.36% 3.00% 0%-8% Sub-Total 568,220,017 1,564,720,017 17.45% 15.00% 10%-20% US Core 277,800,000 277,800,000 3.10% 2.00%

• 3%-7%

High Yield/Credit 1,013,124,752 1,013,124,752 11.30% 13.00% 8%-18% Sub-Total 1,013,124,752 1,290,924,752 14.39% 15.00% 10%-20% International Core 36,905,708

• 395,646,775
• 358,741,067
• 4.00%

1.00%

• 4%-6%

International Credit 1,111,394,725

• 220,353,225

891,041,500 9.94% 11.00% 6%-16% Emerging Market Debt 649,587,354 649,587,354 7.24% 6.00% 1%-11% Sub-Total 1,797,887,787 1,181,887,787 13.18% 18.00% 13%-23% Real Estate Real Estate 545,788,529 545,788,529 6.09% 9.00% 4%-14% Commodities 146,961,169 146,961,169 1.64% 2.00%

• 1%-7%

Infrastructure 74,453,828 74,453,828 0.83% 1.00% 0%-6% Timber 197,483,246 197,483,246 2.20% 2.00% 0%-7% Sub-Total 418,898,243 418,898,243 4.67% 5.00% 0%-10% Private Equity Private Equity 1,188,186,087 1,188,186,087 13.25% 16.00% 6%-21% Absolute Return Absolute Return 2,409,615,022

• 1,327,300,000

1,082,315,022 12.07% 7.00% 0%-12% Cash Cash 322,666,651 322,666,651 3.60% 2.00% 0%-10% 8,968,526,684 8,968,526,684 100.00% 100.00% 0.00% Asset Class Sub-Asset Class

Asset Allocation

Target Range International Fixed Income Real Assets Total Target % Allocation

Target Allocation

US Equities International Equities US Fixed Income Actual $ Allocation Total % Allocation

15.31% 17.45% 14.39% 13.18% 6.09% 4.67% 13.25% 12.07% 3.60% 0.19% 0.47% 11.29% 3.37% 9.27% 6.82% 1.36% 3.10% 11.30%

• 4.00%

9.94% 7.24% 6.09% 1.64% 0.83% 2.20% 13.25% 12.07% 3.60% 13.00% 15.00% 15.00% 18.00% 9.00% 5.00% 16.00% 7.00% 2.00% 3.00% 2.00% 6.00% 2.00% 6.00% 6.00% 3.00% 2.00% 13.00% 1.00% 11.00% 6.00% 9.00% 2.00% 1.00% 2.00% 16.00% 7.00% 2.00%

1

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association Asset Class Performance: Actual vs. Policy

Physical Return Synthetic Overlay Return Weighted Average Net Return Policy Physical Return Synthetic Overlay Return Weighted Average Net Return Policy Volatility

• 23.96%
• 23.96%
• 47.13%
• 47.13%

L/S Equity

• 0.31%
• 0.31%
• 2.72%
• 2.72%

Passive Large Cap 1.87% 1.11% 1.59% 5.05% 6.67% 5.24% Passive Small Cap 1.11% 1.11% 6.67% 6.67% Sub-Total 0.84% 0.97% 3.49% 1.49% 3.41% 7.23% Developed Markets 1.11% 1.11% 6.67% 6.67% Emerging Market Equity 2.61% 1.11% 2.21% 6.83% 6.67% 6.86% Volatility 0.05% 0.05% 0.17% 0.17% Sub-Total 2.05% 1.45% 1.41% 5.33% 6.23% 7.50% US Core 1.11% 1.11% 6.67% 6.67% High Yield/Credit 2.04% 2.04% 3.61% 3.61% Sub-Total 2.04% 1.84% 0.67% 3.61% 4.25% 1.01% International Core

• 0.61%

1.11% 0.96% 2.19% 6.67% 5.99% International Credit 2.66% 1.11% 2.40% 3.90% 6.67% 4.40% Emerging Market Debt 1.07% 1.07% 5.74% 5.74% Sub-Total 1.90% 1.70% 0.29% 4.43% 5.04% 1.19% Real Estate Real Estate 0.83% 0.83% 0.00% 0.70% 0.70% 1.77% Commodities

• 2.30%
• 2.30%

0.17%

• 1.07%
• 1.07%

2.02% Infrastructure

• 0.07%
• 0.07%

3.49% 4.70% 4.70% 7.23% Timber 0.00% 0.00% 0.00% 0.00% 0.00% 0.67% Sub-Total

• 0.85%
• 0.85%

0.57% 0.39% 0.39% 2.17% Private Equity Private Equity 0.47% 0.47% 3.49% 1.96% 1.96% 7.23% Absolute Return Absolute Return 1.11% 1.11% 0.67% 6.67% 6.67% 1.01% Cash Cash

• 0.34%
• 0.34%

0.04% 0.35% 0.35% 0.12% 1.14% 1.14% 1.44% 3.76% 3.76% 3.80% US Equities 3 Months

1 Month Performance

Asset Class Sub-Asset Class Month Total International Equities US Fixed Income

3 Month Performance

International Fixed Income Real Assets

• 23.96%
• 2.30%
• 0.34%
• 0.31%
• 0.07%

0.00% 0.05% 0.47% 0.83% 0.96% 1.07% 1.11% 1.11% 1.11% 1.11% 1.59% 2.04% 2.21% 2.40%

0% 5% 10% 15% 20% 25% 30% Volatility (US Equities) Commodities Cash L/S Equity Infrastructure Timber Volatility (International) Private Equity Real Estate International Core Emerging Market Debt US Core Passive Small Cap Developed Markets Absolute Return Passive Large Cap High Yield/Credit Emerging Market Equity International Credit

• 47.13%
• 2.72%
• 1.07%

0.00% 0.17% 0.35% 0.70% 1.96% 3.61% 4.40% 4.70% 5.24% 5.74% 5.99% 6.67% 6.67% 6.67% 6.67% 6.86%

0% 10% 20% 30% 40% 50% Volatility (US Equities) L/S Equity Commodities Timber Volatility (International) Cash Real Estate Private Equity High Yield/Credit International Credit Infrastructure Passive Large Cap Emerging Market Debt International Core Developed Markets US Core Passive Small Cap Absolute Return Emerging Market Equity

All returns consider both reporting and non-reporting managers

2

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association Asset Class Performance: Actual vs. Policy (Cont'd)

Physical Return Synthetic Overlay Return Weighted Average Net Return Policy Physical Return Synthetic Overlay Return Weighted Average Net Return Policy Volatility

• 58.04%
• 58.04%
• 77.95%
• 77.95%

L/S Equity

• 6.80%
• 6.80%
• 7.88%
• 7.88%

Passive Large Cap 8.14% 21.30% 9.62% 14.37% 32.78% 17.65% Passive Small Cap 21.30% 21.30% 32.78% 32.78% Sub-Total 1.71% 7.96% 13.44% 0.88% 11.57% 23.75% Developed Markets 21.30% 21.30% 32.78% 32.78% Emerging Market Equity 5.37% 21.30% 10.18% 17.58% 32.78% 21.52% Volatility 4.91% 4.91% 42.63% 42.63% Sub-Total 5.11% 15.36% 9.74% 29.45% 30.54% 16.15% US Core 21.30% 21.30% 32.78% 32.78% High Yield/Credit 7.69% 7.69% 13.69% 13.69% Sub-Total 7.69% 10.37%

• 1.68%

13.69% 17.45% 1.42% International Core

• 1.07%

21.30% 16.83% 2.72% 32.78% 26.52% International Credit 9.15% 21.30% 10.40% 13.56% 32.78% 15.34% Emerging Market Debt 10.56% 10.56% 19.25% 19.25% Sub-Total 8.96% 12.01%

• 7.37%

14.74% 19.08%

• 0.30%

Real Estate Real Estate 4.67% 4.67% 3.84% 11.12% 11.12% 9.22% Commodities

• 1.16%
• 1.16%
• 1.24%
• 2.63%
• 2.63%

15.53% Infrastructure 27.97% 27.97% 13.44% 43.55% 43.55% 23.75% Timber

• 0.84%
• 0.84%

1.66% 4.63% 4.63% 3.28% Sub-Total 3.21% 3.21% 2.08% 7.41% 7.41% 11.42% Private Equity Private Equity 6.85% 6.85% 13.44% 8.61% 8.61% 23.75% Absolute Return Absolute Return 21.30% 21.30%

• 1.68%

32.78% 32.78% 1.42% Cash Cash

• 0.77%
• 0.77%

0.27%

• 0.70%
• 0.70%

0.40% 9.54% 9.54% 3.91% 15.72% 15.72% 10.68% 1 Year

FYTD Performance

Asset Class Sub-Asset Class FYTD Total US Equities International Equities US Fixed Income

1 Year Performance

International Fixed Income Real Assets

• 58.04%
• 6.80%
• 1.16%
• 0.84%
• 0.77%

4.67% 4.91% 6.85% 7.69% 9.62% 10.18% 10.40% 10.56% 16.83% 21.30% 21.30% 21.30% 21.30% 27.97%

0% 10% 20% 30% 40% 50% 60% 70% Volatility (US Equities) L/S Equity Commodities Timber Cash Real Estate Volatility (International) Private Equity High Yield/Credit Passive Large Cap Emerging Market Equity International Credit Emerging Market Debt International Core Developed Markets Absolute Return Passive Small Cap US Core Infrastructure

• 77.95%
• 7.88%
• 2.63%
• 0.70%

4.63% 8.61% 11.12% 13.69% 15.34% 17.65% 19.25% 21.52% 26.52% 32.78% 32.78% 32.78% 32.78% 42.63% 43.55%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Volatility (US Equities) L/S Equity Commodities Cash Timber Private Equity Real Estate High Yield/Credit International Credit Passive Large Cap Emerging Market Debt Emerging Market Equity International Core Developed Markets Absolute Return Passive Small Cap US Core Volatility (International) Infrastructure

All returns consider both reporting and non-reporting managers

3

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Asset Allocations - Monthly Changes

Assets by Strategy: Largest performance increases Assets by Strategy: Largest underperforming strategies

$ % $ % Overlay Alpha Pool 22,502,527 3.93% Volatility Global Equity

• 5,299,622
• 3.67%

Opportunistic Global Debt 32,999,819 3.17% Commodities Real Assets & Real Estate

• 3,600,688
• 2.30%

Long Equity Global Equity 23,206,379 2.17% Hedged Equity Global Equity

• 269,445
• 0.31%

Managers: Best performing Managers: Worst performing

$ % $ % Cairn Opportunistic 16,465,048 5.55% Highstar Infrastructure

• 1,841,090
• 5.21%

Fortress Investment Group LLC Infrastructure 1,789,427 4.57% Russell (Put/Write) Volatility

• 5,299,622
• 3.67%

Russell (Overlay) Overlay 22,935,683 4.24% Pinnacle Commodities

• 3,600,684
• 2.55%

Performance February

Performance Attribution by Strategy

Performance February Strategy Global Strategy Manager Strategy Performance February Manager Strategy Performance February Strategy Global Strategy

• Value of the portfolio increased by (p1.14%) in February.
• Benefit payments of 20m were paid out in February.
• No new managers were added during the month.
• GAM Emerging Markets left the platform during the month.
• The strategy with the largest cash inflow during the month was Liquidity (p$28million).
• The strategy with the largest cash outflow during the month was Beta Focus (q$79million).
• Over the past 12 months the largest increase in allocation was observed in Long Equity (p$251million).
• The largest decrease in allocation over the past 12 months was observed in Hedged Equity (q$151million).
• The S&P 500 Index was up (p3.72%) in February and is up (p22.34%) for 1 Year.
• Global equity markets made gains in February. Investors were again encouraged by

widespread improvement in global economic data.

• US equities performed very well. President Trump promised a “phenomenal” tax

plan, although further details are yet to emerge. Expectations rose that US interest rates would soon increase.

• In the eurozone, encouraging macroeconomic data supported equity gains. All

sectors aside from financials registered positive returns.

• UK equities were supported by a variety of factors, including robust corporate

results, M&A activity, and positive macroeconomic data. Sterling weakness was a further tailwind.

• Japanese equities posted positive returns, supported by a generally encouraging

results season for corporates.

• Source:www.schroders.com -

12 Month Compound Performance The total NAV of the portfolio at February 28th 2017 is $8,968,526,684 The monthly value add to the portfolio was $101,425,499.22

Market Overview

Hedged Equity Overlay

• 20.00%

0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 120.00% 140.00% Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Alpha Pool Beta Focus Debt Commodities Domestic PE European PE Hedged Equity Infrastructure Liquidity Long Equity Opportunistic Overlay Real Estate Sbcera Completion (PE) Special Situations Timber Volatility

4

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Long Term Risk/Return of Plan vs. 60/40 Portfolio and Policy Returns

FYTD

SBCERA Total Plan 9.54% $786,249,821 60/40 Portfolio 6.81% Policy 3.91%

1Year 2 Years

SBCERA Total Plan 15.72% $1,217,429,230 60/40 Portfolio 13.41% Policy 10.68% SBCERA Total Plan 11.75% $940,201,771 60/40 Portfolio 7.00% Policy 5.67%

3 Years 5 Years

SBCERA Total Plan 17.71% $1,338,385,203 60/40 Portfolio 14.67% Policy 9.97% SBCERA Total Plan 48.02% $2,866,193,140 60/40 Portfolio 40.37% Policy 30.69% 0.0%

2.0% 4.0% 6.0% 8.0% 10.0% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%

FYTD Return Annualized Standard Deviation

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00%

12 Month Return Annualized Standard Deviation

0% 2% 4% 6% 8% 10% 12% 14% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%

2 Year Return Annualized Standard Deviation

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%

3 Year Return Annualized Standard Deviation

0% 10% 20% 30% 40% 50% 60% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%

5 Year Return Annualized Standard Deviation

• The SBCERA Total Plan* is well positioned relative to the risk-adjusted returns of the Policy Index* and 60/40 Portfolio* over

1, 2 and 3 year periods.

• Considering the longer term, SBCERA has for the last 30 years had an annualized return of 8.1%.
• The 60/40 Portfolio has the most volatile return series over the FYTD, 1, 2, 3 and 5 year time frames.
• Volatility on the SBCERA total plan, 60/40 portfolio and policy have all increased over the past year.

* See Appendix III

5

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Risk Profile (VaR) Risk Profile (Risk Adjusted Returns)

5% chance of losing $ Overlay 100,712,043 Long Equity 37,664,045 Alpha Pool 17,134,386 5% chance of losing $ Hedged Equity 1,232,421 Commodities 3,119,132 Liquidity 3,468,968 Scenario P&L ($) P&L (%) Stress MV P&L ($) P&L (%) Stress MV PnL Difference Lehman Default - 2008 831,382,424

• 9.27%

8,137,144,261 1,317,476,570

• 14.69%

7,651,050,114 486,094,146 Debt Ceiling Crisis & Downgrade 2011 338,113,456

• 3.77%

8,630,413,228 866,359,678

• 9.66%

8,102,167,007 528,246,222 US 10yr Treasury up 100bps 77,129,329

• 0.86%

8,891,397,355 141,702,722 1.58% 9,110,229,406 218,832,051

• Greece Financial Crisis - 2010

399,996,290

• 4.46%

8,568,530,394 668,155,238

• 7.45%

8,300,371,446 268,158,948 Oil Prices Drop - May 2010 306,723,613

• 3.42%

8,661,803,072 567,707,739

• 6.33%

8,400,818,945 260,984,127 Equities down 10% 200,894,998

• 2.24%

8,767,631,687 575,779,413

• 6.42%

8,392,747,271 374,884,415 Libya Oil Shock - Feb 2011 21,524,464 0.24% 8,990,051,148 51,120,602

• 0.57%

8,917,406,082 72,645,066 Equities up 10% 201,791,850 2.25% 9,170,318,535 575,779,413 6.42% 9,544,306,098 373,987,563

• Equity Markets Rebound - 2009

1,036,761,685 11.56% 10,005,288,369 2,120,159,708 23.64% 11,088,686,393 1,083,398,023

• Strategy

Strategy SBCERA Portfolio 60/40 Portfolio

Scenario Analysis

Alpha Pool Fixed Income Equity

Domestic PE

European PE Long Equity Opportunistic Overlay Volatility

50 100 150 200 250 300 SBCERA 60/40 Millions

Beta Focus Debt Alpha Pool Beta Focus Debt Commodities Domestic PE European PE Hedged Equity Infrastructure Liquidity Long Equity Opportunistic Overlay Rtn 115.14%

• Std. Dev 32.90%

Real Estate SBCERA Completion (PE) Special Situations Timber Volatility Plan 60/40 Portfolio

• 60%
• 40%
• 20%

0% 20% 40% 60% 0% 5% 10% 15% 20% 25% 30% 12 Month Return Annualized Standard Deviation

• The portfolio has a 5% chance of losing $249 million (or more) in a month.
• The portfolio has a 1% chance of losing $382 million (or more) in a month.
• Alpha Pool , Special Situations and Real Estate have the highest risk adjusted returns.
• Hedged Equity , Commodities and Volatility have the lowest risk adjusted returns.
• 1,500
• 1,000
• 500
• 500

1,000 1,500 2,000 2,500 Equity Markets Rebound - 2009 Equities up 10% Libya Oil Shock - Feb 2011 Equities down 10% Oil Prices Drop - May 2010 Greece Financial Crisis - 2010 US 10yr Treasury up 100bps Debt Ceiling Crisis & Downgrade 2011 Lehman Default - 2008 Millions 60/40 Portfolio SBCERA Portfolio

6

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Risk Profile (4 Factor Model)

ITD Factors Portfolio Credit Risk-Free Volatility Equity Market R-squared SBCERA Total Plan 0.64 0.39 0.28

• 0.81

0.69 60/40 Portfolio 0.77 0.24 0.40

• 0.91

0.75 12 Month Factors Portfolio Credit Risk-Free Volatility Equity Market R-squared SBCERA Total Plan 0.47 0.34 0.28

• 0.74

0.57 60/40 Portfolio 0.48 0.09 0.54

• 0.92

0.70

12 Month Rolling 4 Factor for the SBCERA Portfolio 12 Month Rolling 4 Factor for the 60/40 Portfolio

• 0.8
• 0.6
• 0.4
• 0.2

0.0 0.2 0.4 0.6 0.8 1.0 Portfolio 60/40 ALPHA POOL BETA FOCUS COMMODITIES DOMESTIC PE EUROPEAN PE HEDGED EQUITY INFRASTRUCTURE LIQUIDITY LONG EQUITY OPPORTUNISTIC OVERLAY REAL ESTATE SBCERA COMPLETION (PE) SPECIAL SITUATIONS TIMBER Credit Risk-Free Volatility Equity Market

The below graph shows how each risk factor in the sample set impacts the various portfolio strategies. Factor Analysis is calculated using the monthly return over the previous 12 months.

• The model analyses historical returns of the portfolio against the returns and volatility of key

indicators:

• Credit is benchmarked against the High Yield North American CDX Index.
• Risk-Free is benchmarked against the Treasury Yield Curve Rate.
• Volatility is benchmarked against the VIX Squared Index (VVIX).
• Equity Markets is benchmarked against the Russell 3000.
• The model shows that the SBCERA plan is highly correlated to the 4 factors.
• The 60/40 portfolio is also highly correlated to the model. However, the SBCERA plan achieves more

asset class diversification than a 60/40 portfolio for a similar correlation.

• 1.00
• 0.80
• 0.60
• 0.40
• 0.20
• 0.20

0.40 0.60 0.80 1.00 Equities Credit Risk-Free Volatility

• 1.00
• 0.80
• 0.60
• 0.40
• 0.20
• 0.20

0.40 0.60 0.80 1.00 Equities Credit Risk-Free Volatility

7

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Monthly Performance Heat Map (showing physical assets only)

0% 0%

Notes

S Current month valuations not available from Custodian € Performance impacted by currency movements

Russell (Put/Write) Mondrian Bluebay San Bernardino - Cash Oaktree Standard Life Cash Volatility Gramercy Oaktree International Core Partners Group Russell (Overlay) Emerging Market Equity Waterfall Apollo Overlay Passport Stone Tower Cairn Pinnacle Aurora SSGA Russell (Put/Write) Tricadia Marathon Oaktree Industry Ventures Liquidity L/S Equity Volatility Mackay Knieff Tower American Realty I.M.A Lexington SSGA Tobam Declaration York Commodities Neuberger Berman Ares Passive Large Cap Golden Tree I.M.A International Credit Highstar Pathway Golden Tree Distressed Gramercy Invesco Infrastructure TCW Stone Tower Beach Point Ashmore Timbervest Corrum Hancock Tennenbaum Zais High Yield Credit Strategies

Prudential Investment Mgmt Fortress Investment Group LLC

Ares Private Equity Zais Group Emerging Market Debt Prudential Timber Birch Grove Halcyon Catalyst Capital Russell (Interest Hedge) Private Equity Apollo Starwood SL Capital Walton Street Fortress Japan Partners Group Real Estate 0.0 0.5 1.0 1.5 2.0 2.5 3.0

Market Value (Billions $)

Domestic Equities International Equity US Fixed Income Real Assets Private Equity Absolute Return € € Int'l Fixed Income Real Estate

Alpha Pool

S S

€

S S S S S S S S S S S S

8

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

3 Month Performance Heat Map (showing physical assets only)

0% 0%

Notes

S Current month valuations not available from Custodian € Performance impacted by currency movements

Russell (Put/Write) Mondrian Bluebay San Bernardino - Cash US Core Oaktree Standard Life Cash Volatility Gramercy Oaktree International Core Partners Group Russell (Overlay) Emerging Market Equity Waterfall Apollo Overlay Passport Stone Tower Cairn Pinnacle Aurora SSGA Russell (Put/Write) Tricadia Marathon Oaktree Industry Ventures Liquidity L/S Equity Volatility Mackay Kneiff Tower American Realty I.M.A Lexington SSGA Tobam Declaration York Commodities Neuberger Berman Ares Passive Large Cap Golden Tree - IMA International Credit Highstar Pathway Golden Tree Distressed Gramercy Invesco Infrastructure TCW Stone Tower Beach Point Ashmore Timbervest Corrum Hancock Tennenbaum Zais High Yield/Credit Strategies

Prudential Investment Mgmt

Timber Ares Private Equity Zais Group Emerging Market Debt Prudential

Fortress Investment Group LLC

Birch Grove Halcyon Catalyst Capital Russell (InterestHedge) Private Equity Apollo Starwood SL Capital Walton Street Fortress Japan Partners Group Real Estate 0.0 0.5 1.0 1.5 2.0 2.5 3.0

Market Value (Billions $)

Alpha Pool

Domestic Equities International Equity US Fixed Income Int'l Fixed Income Real Estate Real Assets Private Equity Absolute Return € € €

S S S S S S

9

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

12 Month Performance Heat Map (showing physical assets only)

0% 0%

Notes

S Current month valuations not available from Custodian € Performance impacted by currency movements

Russell (Put/Write) Mondrian Bluebay San Bernardino - Cash US Core Oaktree Standard Life Cash Volatility Gramercy Oaktree International Core Partners Group Russell (Overlay) Emerging Market Equity Waterfall Apollo Overlay Passport Stone Tower Cairn Pinnacle Aurora SSGA Russell (Put/Write) Tricadia Marathon Oaktree Industry Ventures Liquidity L/S Equity Volatility Mackay Knieff Tower American Realty I.M.A Lexington SSGA Tobam Declaration York Commodities Neuberger Berman Ares Passive Large Cap Golden Tree - IMA International Credit Highstar Pathway Golden Tree Distressed Gramercy Invesco Infrastructure TCW Stone Tower Beach Point Ashmore Timbervest Corrum Hancock Tennenbaum Zais High Yield Credit Strategies

Prudential Investment Mgmt

Timber Ares Private Equity Zais Group Emerging Market Debt Prudential

Fortress Investment Group LLC

Birch Grove Halcyon Catalyst Capital Russell (Interest Hedge) Private Equity Apollo Starwood SL Capital Walton Street Fortress Japan Real Estate Partners Group 0.0 0.5 1.0 1.5 2.0 2.5 3.0

Market Value (Billions $)

Real Assets Domestic Equities International Equity US Fixed Income Int'l Fixed Income Real Estate Private Equity Absolute Return € €

Alpha Pool

€

10

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Global Debt

Overview and Risk Profile by Strategy and Manager

2 4 6 8 10 12 14 16 18 Beta Focus Opportunistic Special Situations

Waterfall Oaktree Mariner Stone Tower York Beach Point Golden Tree Distressed Mackay Declaration Golden Tree Halcyon Prudential Ashmore Gramercy Cairn Marathon Kneiff Tower Global Debt

• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 0% 2% 4% 6% 8% 10% 12% 14% 16%

Annualized Standard Deviation Value at Risk (Millions)

• The Global Debt portfolio is composed of Beta Focus Debt, Opportunistic Credit and Special Situations.
• Beta Focus Debt focuses on exposure to attractively priced assets. Opportunistic Credit takes

advantage of perceived mispricing in securities, asset classes and investment structures. Special Situations tends to be comprised of investment structures that face a liquidity crisis or critical event. Commentary *Graphical representation can be found in the appendix

• Average daily trading volume for shorter-termed U.S. Treasuries jumped in January, while volume for

longer-termed issues continued sliding off November's highs. Volume of issues with maturities between three and six years in January was up 53% from the previous month to $169.6 billion; issues maturing in three years or less saw a more modest 6% increase to $135.2 billion.

• Average daily trading volume for all Treasury securities in January was $537.4 billion, down 0.8% from

January 2016.

• Source: SIFMA -

Value at Risk The portfolio has a 5% chance of losing $32mm in a month. Special Situations has the lowest value at risk. Sharpe Ratio The manager with the highest Sharpe is Beach Point followed by Marathon and Waterfall. The managers with the lowest Sharpe are Golden Tree Distressed, Mariner and Cairn. 12 Month Return Key: Best Performing Manager* Worst Performing Manager* Most Volatile* Least Volatile* * Relative to sub-Strategy only

Oaktree Mackay Ashmore Gramercy Bluebay Prudential Tricadia Beach Point Declaration Golden Tree Cairn Halcyon AG Capital Waterfall Stone Tower York Golden Tree - Distressed Marathon Kneiff Tower

12 Month Compound Performance

Beta Focus Debt

12 Month Compound Performance

Opportunistic Credit

12 Month Compound Performance

Special Situations

Declaration Mariner Halcyon

• 5%

0% 5% 10% 15% 20% 25% Feb-16 May-16 Aug-16 Nov-16 Feb-17

Golden Tree - Distressed York

• 5%

0% 5% 10% 15% 20% Feb-16 May-16 Aug-16 Nov-16 Feb-17

Risk vs. Returns (Manager) Value at Risk (Strategy)

Ashmore Oaktree Mackay Prudential

• 2%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% Feb-16 May-16 Aug-16 Nov-16 Feb-17

11

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Private Equity

Overview and Risk Profile by Strategy and Manager

2 4 6 8 10 Domestic PE European PE SBCERA Completion (PE)

Value at Risk (Millions)

• The Private Equity portfolio is comprised of a core allocation to Standard Life and Pathway Capital

Management (exposure to domestic private equity) and Partners Group (exposure to European private equity).

• In addition, the allocation is complemented by a direct investment program that focuses on generating

cash flows in the shorter term. Commentary *Graphical representation can be found in the appendix

• Looking at the top-level metrics, the industry remained healthy in 2016, although some of the aggregate

figures retreated from 2015.

• Exit activity was strong, but the totals for 2016 declined as deals that had been on hold during the global

financial crisis and its immediate aftermath were finally digested.

• Returns had another strong showing, continuing to outperform public markets by a sizable gap over both

short-term and long-term time horizons, thus reinforcing investor confidence.

• Global buyout activity, on the other hand, declined. Persistently high asset valuations and stiff competition

from corporate buyers, complicated by macroeconomic and political uncertainties across regions, made deal making challenging in 2016.

• Source: Bain & Company-

Value at Risk

• The portfolio has a 5% chance of losing $22mm in a month with the European Mandate responsible for

most of the VaR. Sharpe Ratio

• The manager with the highest Sharpe over the last 3 Years is Pathway. The manager with the lowest

Sharpe is Ares. 3 Year Return Annualized Standard Deviation

Pathway Partners Group Standard Life Aurora Lexington Industry Ventures Tennenbaum Catalyst Capital Ares SL Capital Private Equity

• 60%
• 40%
• 20%

0% 20% 40% 60% 80% 100% 120% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Aurora Lexington Neuberger Berman Industry Ventures TCW Alcentra Tennenbam Siguler Catalyst Capital Apollo Ares SL Capital

SBCERA Completion

3 Year Compound Performance

Domestic Mandate European Mandate

3 Year Compound Performance 3 Year Compound Performance

Risk vs. Returns (Manager)

Key: Best Performing Manager* Worst Performing Manager* Most Volatile* Least Volatile* * Relative to sub-Strategy only

Value at Risk (Strategy)

Pathway

• 10%

0% 10% 20% 30% 40% 50% 60%

Partners Group Standard Life

• 15%
• 10%
• 5%

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

Aurora Lexington Tennenbaum Catalyst Capital

• 10%

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

12

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Alpha Pool

Overview and Risk Profile by Strategy and Manager

20 40 60 80 100 120 Alpha Pool Liquidity Overlay

Value at Risk

• The Alpha Pool core strives to develop a low volatility pool of assets with the objective of consistently
• utperforming cash returns.
• The Liquidity Strategy should be comprised of cash plus return positions that may be tapped for liquidity if

needed for other parts of the portfolio.

• The objective of the Alpha Pool Core is to provide returns of 200-300 basis points above cash or LIBOR

based returns. Commentary *Graphical representation can be found in the appendix

• The U.S. investment industry shed 1,500 research analyst jobs in 2016, or 9.2% of its staff from the end of

2015, according to data from eVestment. The industry saw steady increases coming out of the recession, reaching 16,431 analysts by 2015.

• The decline has been attributed to veteran analysts leaving the industry and younger professionals

choosing different careers. There has also been a move by investment firms to depend less on internal resources and look outward to the increasing number of reliable third-party research mediums available.

• Futhermore, the use of such third-party research is viewed more favorably by some who feel relationships

between subject firms and investment managers might impede objectivity.

• Source: eVestment-

Value at Risk

• The Alpha Pool Portfolio has a 5% chance of losing $121mm in a month.

Sharpe Ratio

• The manager with the highest Sharpe over the last 12 months is Zais Group. San Bernardino - Cash has

the lowest risk adjusted returns. 12 Month Return

Ares Corrum Stone Tower Zais Fund Birch Grove Zais Group Apollo San Bernardino

• Cash

State Street Global Advisors Russell (Interest Hedge) Russell (Overlay)

12 Month Compound Performance

Alpha Pool

Liquid Assets Over 12 Months

Liquidity

12 Month Exposure Over Time

Overlay

San Bernardino - Cash State Street Global Advisors Ares Corrum Stone Tower Zais Fund Birch Grove Zais Group Apollo Alpha Pool

• 60%
• 40%
• 20%

0% 20% 40% 60% 80% 100%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00%

Russell (Overlay) Return 125.01%

• Std. Deviation 35.51%

Russell (Interest Hedge Return 6.11%

• Std. Deviation 29.76%

Annualized Standard Deviation

• 50

100 150 200 250 300 350 400 450 500 Feb-16 May-16 Aug-16 Nov-16 Feb-17

Millions

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 Feb-16 May-16 Aug-16 Nov-16 Feb-17

Billions Birch Grove ZAIS Group

• 10%

0% 10% 20% 30% 40% 50% 60% Feb-16 May-16 Aug-16 Nov-16 Feb-17

Risk vs. Returns (Manager)

Key: Best Performing Manager* Worst Performing Manager* Most Volatile* Least Volatile* * Relative to sub-Strategy only 12 Month Return

Value at Risk (Strategy) 13

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Global Equity

Overview and Risk Profile by Strategy and Manager

5 10 15 20 25 30 35 40 Long Equity Volatility Hedged Equity

Value at Risk (Millions)

• The Global Equity portfolio is comprised of volatility strategies, long equity strategies and hedged equity

strategies.

• Volatility seeks to take advantage of excessively high or low price levels in index based option.
• Long Equity strategy holds assets or asset classes without hedging or holding offsetting short exposures.
• Hedged Equity strategy involves holding a stock with an offsetting short exposure. The offsetting short

exposure may be for alpha generation purposes rather than for risk management. Commentary *Graphical representation can be found in the appendix

• As equity indexes climb ever higher, all but one of the major sectors of the S&P 500 are trading at multiples

above their 24-month averages. The resurgence of the energy sector has driven multiples to their highest levels since at least 2000. Health care is the only sector trading at a relative discount.

• Source: Bloomberg-

Value at Risk

• The Global Equity Portfolio has a 5% chance of losing $54mm in a month.

Sharpe Ratio

• The best performing manager from a risk adjusted returns perspective is State Street Global Advisors.

Passport has the lowest Sharpe within Global Equity. 12 Month Return

Passport Mondrian State Street Global Advisors Gramercy Tobam Russell (Put/Write)

12 Month Compound Performance

Hedged Equity

12 Month Compound Performance

Long Equity

12 Month Compound Performance

Volatility

Russell (Put/Write) Mondrian State Street Global Advisors Passport Gramercy Tobam Global Equity

• 20%
• 10%

0% 10% 20% 30% 40% 50%

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

Annualized Standard Deviation

• 14%
• 12%
• 10%
• 8%
• 6%
• 4%
• 2%

0% Feb-16 May-16 Aug-16 Nov-16 Feb-17

Mondrian State Street Global Advisors Gramercy

0% 5% 10% 15% 20% 25% 30% 35% Feb-16 May-16 Aug-16 Nov-16 Feb-17

• 5%

0% 5% 10% 15% 20% Feb-16 May-16 Aug-16 Nov-16 Feb-17

Risk vs. Returns (Manager)

12 Month Return Key: Best Performing Manager* Worst Performing Manager* Most Volatile* Least Volatile* * Relative to sub-Strategy only

Value at Risk (Strategy) 14

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Real Assets and Real Estate

Overview and Risk Profile by Strategy and Manager

1 2 3 4 5 6 7 Real Estate Commodities Timber Infrastructure

American Realty I.M.A Prudential Walton Street Starwood Pinnacle Hancock Timbervest Highstar Fortress Investment Group Return: 21.06%

• Std. Deviation: 64.12%

Partners Group Fortress Japan Invesco Apollo Real Assets & Real Estate

• 75%
• 25%

25% 75% 125% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Annualized Standard Deviation Value at Risk (Millions)

• The Real Asset Portfolio is made up of investments in Timber, Infrastructure, Commodities and Real

Estate.

• Timber is designed as an inflation hedge and an asset class that delivers a consistent yield.
• Infrastructure takes on a more Private Equity approach to the asset class as opposed to an income
• riented structure.
• Commodities are designed as an inflation hedge and diversifier.

Commentary * Graphical representation can be found in the appendix

• The median public pension plan allocation to real estate was $1.3 billion as of Sept. 30, while corporate

plans allocated a median $191 million, according to data collected by Pensions & Investments. Both figures are up from their 2015 medians, and significantly higher than where they were in 2011. The maximum public and corporate plan allocations were $27.7 billion and $3.3 billion, respectively.

• Public plans have shown renewed appetite for the asset class in the years following the recession.

Corporate plans have been less enthusiastic about real estate, particularly as many plans move to liability- driven investment platforms.

• Over the one-year period ended Sept. 30, the NCREIF Property index was up 9.22%, and 11.17% over the

trailing five-year period on an annualized basis.

• Source: Pensions & Investments -

Value at Risk

• The Real Assets and Real Estate Portfolio has a 5% chance of losing $20mm in a month.

Sharpe

• The best performing manager from a risk adjusted returns perspective is Fortress Japan.
• The worst performing manager from a risk adjusted returns perspective is Timbervest.

3 Year Return

Commodities Infrastructure Timber Real Estate

Pinnacle Starwood Energy Spectrum Hancock Timbervest American Realty I.M.A Prudential Walton Street Apollo Starwood BCSP Oaktree Fillmore Square Mile Partners Partners Group Other Fortress Japan Invesco Highstar Fortress Investment Group LLC

3 Year Compound Performance

Risk vs. Returns (Manager)

3 Year Compound Performance 3 Year Compound Performance 3 Year Compound Performance

Value at Risk (Strategy)

Key: Best Performing Manager* Worst Performing Manager* Most Volatile* Least Volatile* * Relative to sub-Strategy only

Pinnacle

• 2%

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

Highstar

• 30%
• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 10%

American Realty I.M.A Starwood Fortress

• 20%

0% 20% 40% 60% 80% 100% 120% 140%

Timbervest Hancock

• 5%

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

Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17

15

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Appendix I: Monthly Performance by Strategy

0% 0%

Notes

S Current month valuations not available from Custodian € Performance impacted by currency movements

Russell (Put/Write) San Bernardino - Cash Standard Life Cash Volatility Mackay Partners Group Russell (Overlay) Bluebay Apollo Overlay Passport Oaktree Aurora SSGA Gramercy Oaktree Industry Ventures Liquidity Hedged Equity Ashmore American Realty I.M.A Lexington SSGA Neuberger Berman Ares Mondrian Prudential Investment Mgmt Pathway Gramercy Beta Focus Debt Invesco TCW Stone Tower Long Equity Corrum Tobam Tricadia Tennenbaum Zais Declaration Ares Private Equity Zais Group Golden Tree - IMA Prudential Birch Grove Beach Point Russell (Interest Hedge) Cairn Private Equity Apollo Opportunistic Starwood SL Capital Halcyon Waterfall Stone Tower Walton Street Golden Tree - Distressed Fortress Japan Real Estate Marathon Kneiff Tower York Special Situations Pinnacle Commodities Highstar Infrastructure Timbervest Hancock Partners Group Fortress Investment Group LLC Timber

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Market Value (Billions $)

Global Equity Real Assets & Real Estate Global Debt Private Equity Alpha Pool € €

Alpha Pool

S

Catalyst Capital

S S

€

S S S S S S S S S S

16

Investment Oversight

As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Appendix II: Strategy Commentary Graphical Representations

Global Equity Real Assets and Real Estate Global Debt Alpha Pool Private Equity 17

Appendix III: Calculation Methodologies

Synthetic Calculation Methodology 1) Calculate absolute returns to calculate synthetic benefit. 2) Input benefit to all sub-asset classes with a synthetic exposure. 3) Calculate an adjusted weighted net return for sub-asset class and asset class. SBCERA Total Plan The SBCERA Total Plan performance calculation uses the monthly returns as calculated by Maples for the 1 year time period. For the 2, 3 and 5 year time horizons, the performance returns have been sourced from the monthly State Street Summary of Manager Performance reports. 60/40 Portfolio The 60/40 Portfolio is a weighted average of 2 indices that have been chosen to benchmark the Equity and Fixed Income asset classes. The MSCI AC World Daily Total Return Gross Ex US Index is used as the Equity benchmark with an allocation weighting of 60%. The Barclays Capital U.S. Aggregate Bond Index is used as the Fixed Income benchmark with an allocation weighting of 40%. Performance Calculation Methodology

• Performance returns over all time horizons have been calculated by geometrically compounding the monthly returns series.
• SBCERA $ value added figures are taken directly from State Street and are not calculated by Maples.

Stress/Scenario Test Methodology

• The SBCERA portfolio is a model portfolio comprised of SBCERA policy indices. The weightings are determined based on current asset allocation amounts. The methodology

incorporates the protection gained from the Put Options positions.

Investment Oversight

San Bernardino County Employees’ Retirement Association As at 28 February 2017

Policy Index The Policy Index return is composed of a weighted basket of Asset Class benchmarks - R3000 (29%), Barclays Aggregate (22%), Global Aggregate (ex US) (18%), MSCI AC World (ex US) (15%), NCREIF (9%), NCREIF timber (2.5%), DJ/UBS Commodity Index (2.5%) and 91 day T-Bill (2 %). 18

Investment Oversight

San Bernardino County Employees’ Retirement Association

Stress/Scenario Test Methodology

• The following table gives some background to the events that have had significant impact on markets over the past decade:

Appendix III: Calculation Methodologies (cont’d)

Scenario/Stress Calculation Period Description Lehman Default - 2008 Scenario: 09/15/2008 to 10/14/08 Month immediately following default of Lehman brothers in 2008. Russian Financial Crisis - 2008 Scenario: 08/07/2008 to 10/06/2008 War with Georgia and rapidly declining oil prices raise fears of an economic recession within the region. US 10yr Treasury up 100bps Stress Test This scenario shocks the US Treasury Curves Parallel + 100bps and uses the Bloomberg multi asset factor model to propagate that shock to other curves and asset classes. Debt Ceiling Crisis & Downgrade 2011 Scenario: 07/22/2011 to 08/08/2011 Debt ceiling crisis that led to USA credit downgrade. This stress scenario describes a 17 day period starting from 7/22/2011 when market began to react to debt ceiling impasse. 8/8/2011 is the first business day after downgrade announcement. Greece Financial Crisis - 2010 Scenario: 04/26/2010 to 06/08/2010 Greece was one of the fastest growing economies in the Eurozone from 2000-2007. The cost of financing this growth however resulted in alarming high government deficits and debt levels relative to GDP. On April 27th, 2010 the Greek Debt rating was downgraded. Oil Prices Drop - May 2010 Scenario: 05/03/2010 to 05/20/2010 The price of oil drops 20% due to concerns over how European countries would reduce budget deficits in the wake of the European economic crisis. Equities down 10% Stress Test Global market factors down 10%. Libya Oil Shock - Feb 2011 Scenario: 02/14/2011 to 02/23/2011 Civil war in Libya breaks out on February 15th 2011, causing oil prices to surge. Equities up 10% Stress Test Global market factors up 10%. Equity Markets Rebound - 2009 Scenario: 03/04/2009 to 06/01/2009 Global equity markets rebound following 2008 drawdown.

As at 28 February 2017

19