Retirement System Board Presentation/Executive Summary Quarter - - PowerPoint PPT Presentation

Texas Municipal Retirement System

Board Presentation/Executive Summary

Quarter Ended: June 30, 2016

Capital Markets Update

Page 1

Capital Markets Update

Breakeven Inflation does not have 20 years of history; therefore, its 20-year average is shown as "N/A." Treasury data courtesy of the US Department of the Treasury. Economic data courtesy of Bloomberg Professional Service. Page 2

Annual Asset Class Performance

Page 3

TMRS Total Fund

Page 4

Total Fund Composite

Allocations shown may not sum up to 100% exactly due to rounding. Asset Allocation vs. Target Allocation charts reflect targets approved in July 2015 and do not include the Transition

• Account. Domestic Equity includes Citi Global Markets, Inc.

Page 5

Total Fund Composite

Allocations shown may not sum up to 100% exactly due to rounding. Page 6

TMRS Historical Asset Allocation

Page 7

TMRS Asset Allocation vs. Peers

• The TMRS actual allocation has more exposure to fixed income than its peers, but the portfolio

continues to move towards a well-diversified structure.

• A slow pace into new asset classes and strategies via ongoing research and due diligence efforts,

coupled with dollar cost averaging into new investments over multiple time periods continues to be prudent.

Universe Median allocation is based on actual plan allocations. Allocations may not sum to 100% due to rounding. All Public Plans >$10B universe has a population of 28. Page 8

Total Fund Performance vs. Benchmarks

• The Total Fund Composite returned 5.57% over the trailing five-year period ending June 30, 2016,

lagging the Investment Policy Objective for performance relative to the Policy Index.

– The Total Fund outperformed the Actual Allocation Benchmark by 28 basis points over the five-year period – The Total Fund underperformed the Policy Index (Target Allocation) by 22 basis points over the same period.

Please see Supplemental Information for custom benchmark definitions. Performance shown is gross of fees as of June 30, 2016. Page 9

Total Fund vs. Long-Term Target

Performance shown is gross of fees and based on monthly periodicity.

• The assumed long-term rate of return established by the actuary is currently 6.75%.

– In September 2009, the System shifted return objectives from income generation to a total return approach. – Prior to that date, Total Fund performance on a total return basis versus the assumed actuarial rate is of interest, but is a less meaningful comparison as the Policy objectives were different at that time.

• As of June 30, 2016, the Total Fund Composite has underperformed the assumed long term rate over

a rolling five-year period.

Page 10

Total Fund Performance vs. Peers

• While performance relative to other systems is not an objective of the TMRS fund given the wide

range in investment objectives and different benefit plan structures, it is generally of interest to be aware of the performance of other public pension systems.

Populations data refers to All Public Plans > $1B-Total Fund Median / All Public Plans > $10B-Total Fund Median. Please see Supplemental Information for custom benchmark definitions. Performance shown is gross of fees as of June 30, 2016. Page 11

Performance shown is gross of fees. Calculation based on quarterly periodicity. Parenthesis contain percentile ranks.

Total Fund Composite vs. All Public Funds > $1B-Total Fund

Page 12

Performance shown is gross of fees. Calculation based on quarterly periodicity. Parenthesis contain percentile ranks.

Total Fund Composite vs. All Public Funds > $10B-Total Fund

Page 13

TMRS Asset Class Composites

Page 14

Asset Class Composite Performance

• The International Equity, Real Estate, and Absolute Return composites were the key contributors to relative

performance over the trailing one-year period.

• The Absolute Return Composite had the highest relative return during the same trailing period, while Real

Estate had the largest absolute gain.

Performance is as of June 30, 2016 and is shown net of fees. Please see Supplemental Information for custom benchmark definitions. As the Real Return asset class structure becomes diversified, the performance objective will be the Consumer Price Index + 4%. Real Estate and Private Equity fund and composite returns are calculated by Private Edge. Private Real Estate fund returns are lagged 1 quarter.

1 Quarter Year To Date 1 Year 3 Years 5 Years 7 Years 10 Years 15 Years Since Inception Inception Date Total Fund Composite 1.95 3.29 1.54 5.64 5.42 6.82 6.51 6.91 8.48 01/01/1989 Actual Allocation Benchmark 1.77 3.51 1.35 5.59 5.29 6.55 6.22 6.42 7.91 Difference 0.18

• 0.22

0.19 0.05 0.13 0.27 0.29 0.49 0.57 Global Equity Composite 1.73 2.47

• 1.94

7.30 6.60 10.45 N/A N/A 3.88 02/01/2008 Global Equity Benchmark 1.37 1.89

• 2.52

7.04 6.42 10.29 N/A N/A 3.73 Difference 0.36 0.58 0.58 0.26 0.18 0.16 N/A N/A 0.15 Domestic Equity Composite 2.80 3.91 1.73 10.77 11.37 14.77 N/A N/A 7.41 02/01/2008 Russell 3000 Index 2.63 3.62 2.14 11.12 11.60 14.95 7.40 6.09 7.54 Difference 0.17 0.29

• 0.41
• 0.35
• 0.23
• 0.18

N/A N/A

• 0.13

International Equity Composite

• 0.01

0.15

• 7.78

2.67 1.12 5.58 N/A N/A

• 0.12

02/01/2008 International Equity Benchmark

• 0.68
• 0.91
• 9.61

1.65 0.41 4.98 0.92 3.86

• 0.65

Difference 0.67 1.06 1.83 1.02 0.71 0.60 N/A N/A 0.53 Core Fixed Income Composite 2.25 5.26 5.77 4.03 3.87 4.80 5.37 6.15 8.06 01/01/1989 Fixed Income Benchmark 2.21 5.31 6.00 4.06 3.76 4.58 5.12 5.68 7.50 Difference 0.04

• 0.05
• 0.23
• 0.03

0.11 0.22 0.25 0.47 0.56 Non-Core Fixed Income Composite 2.08 1.73 0.04 N/A N/A N/A N/A N/A 1.61 10/01/2014 Non-Core Fixed Income Benchmark 4.43 10.05 2.08 N/A N/A N/A N/A N/A 1.67 Difference

• 2.35
• 8.32
• 2.04

N/A N/A N/A N/A N/A

• 0.06

Real Return Composite 2.60 7.37 2.83 2.58 2.54 N/A N/A N/A 3.36 02/01/2011 Barclays Wrld Gov't Infl Lnkd Index (Unhedged) 1.70 6.57 2.76 2.76 2.02 3.95 4.29 6.41 3.16 Difference 0.90 0.80 0.07

• 0.18

0.52 N/A N/A N/A 0.20 Real Estate Composite 2.52 6.62 16.08 13.93 N/A N/A N/A N/A 11.80 01/01/2012 Real Estate Benchmark 2.18 5.50 13.55 13.62 13.25 9.06 6.36 7.93 12.81 Difference 0.34 1.12 2.53 0.31 N/A N/A N/A N/A

• 1.01

Absolute Return Composite 1.47

• 2.45
• 3.25

N/A N/A N/A N/A N/A 0.64 08/01/2014 Absolute Return Benchmark 0.46

• 2.40
• 5.90

2.04 1.84 2.92 1.70 3.17

• 0.40

Difference 1.01

• 0.05

2.65 N/A N/A N/A N/A N/A 1.04 Private Equity Composite 2.51 5.12 N/A N/A N/A N/A N/A N/A 5.12 01/01/2016 Russell 3000 Index + 3% 3.39 5.17 5.20 14.46 14.94 18.39 10.62 9.27 5.17 Difference

• 0.88
• 0.05

N/A N/A N/A N/A N/A N/A

• 0.05

TMRS Unallocated Cash (SA) 0.06 0.44 1.12 0.49 0.33 0.27 N/A N/A 0.36 06/01/2008 BofA ML 3 Mo US T-Bill Index 0.07 0.15 0.19 0.09 0.09 0.11 1.04 1.44 0.23 Difference

• 0.01

0.29 0.93 0.40 0.24 0.16 N/A N/A 0.13

Page 15

Domestic Equity Composite Performance and Allocation

Performance shown is gross of fees. Allocations shown may not sum up to 100% exactly due to rounding. Total Domestic Equity market value excludes Citigroup Global Markets, Inc. Page 16

Domestic Equity Composite Performance Continued

Performance shown is gross of fees. Page 17

Domestic Equity Composite vs. IM U.S. Equity (SA+CF)

Performance shown is gross of fees. Calculation based on quarterly periodicity. Parenthesis contain percentile ranks. Page 18

Domestic Equity Composite vs. Russell 3000 Index

Data shown is as of June 30, 2016. Page 19

International Equity Composite Performance and Allocation

Performance shown is gross of fees. Allocations shown may not sum up to 100% exactly due to rounding. Page 20

International Equity Composite Performance Continued

Performance shown is gross of fees. Page 21

International Equity Composite vs. IM International Equity (SA+CF)

Performance shown is gross of fees. Calculation based on quarterly periodicity. Parenthesis contain percentile ranks. Page 22

International Equity Composite vs. MSCI ACW Ex US Investable Market Index (Net)

Data shown is as of June 30, 2016. Allocation to “Other” consists of holdings domiciled in countries/regions that do not meet the economic development, size, liquidity, or market accessibility criteria as defined by the MSCI region standards. Page 23

Core Fixed Income Performance and Allocation

Performance shown is gross of fees. Allocations shown may not sum up to 100% exactly due to rounding. Page 24

Core Fixed Income Composite vs. IM U.S. Broad Market Core Fixed Income (SA+CF)

Performance shown is gross of fees. Calculation based on quarterly periodicity. Parenthesis contain percentile ranks. Page 25

Core Fixed Income Composite vs. Barclays U.S. Agg Bond Index

Allocation to “Other” consists of Euro/Yankees and covered bonds. Page 26

Non-Core Fixed Income Performance and Allocation

Performance shown is gross of fees. Allocations shown may not sum up to 100% exactly due to rounding. Page 27

Non-Core Fixed Income Performance Continued

Performance shown is gross of fees. Page 28

Non-Core Fixed Income Composite

Bond characteristics exclude White Oak Summit Fund, LP and Golub Capital Pearls DLP, LP. Allocation to "Other" consists of miscellaneous differences between the account’s net asset value and its trade date based clean holdings. Negative sector allocation represents reflects manager's use of derivatives, short selling, or interest rate swaps. Page 29

Real Return Performance and Allocation

Performance shown is gross of fees. Page 30

Colchester Global Inflation Linked Bond vs. Barclays World Government Inflation-Linked Index

Data as of June 30, 2016. Page 31

Absolute Return Performance and Allocation

Performance shown is gross of fees. Page 32

Private Equity Performance and Allocation

Performance shown is gross of fees. Page 33