Investment Performance Analysis for the period ending March 31, 2015

Transcription

1 Investment Performance Analysis for the period ending May 28, 2015 Allan Martin, Partner Dan LeBeau, Consultant Mike Malchenko, Senior Analyst

2 New Mexico Educational Retirement Board Contents Page Market Environment Update and Outlook 3 Third Party Placement Agent Disclosure 18 Total Fund Performance 21 Total Fund Performance: Net of Fees 43 Appendix: Market Environment 58 2

3 Market Environment Update and Outlook 3

4 Economic Environment First quarter advance estimate of GDP growth printed at a weak+0.2%. Retail sales (ended March) at 0.5% on a year-over-year growth rate basis. The inventory-to-sales ratio increased slightly to 1.4 in February and has remained relatively flat since early Corporate profits as a percent of GDP decreased ended the fourth quarter at 10.4% and remain elevated relative to historical levels. The U.S. trade deficit decreased slightly in February. The unemployment rate fell to 5.5% in Q1 from 5.8% in December 2014; U-6, a broader measure of unemployment, fell to 10.9% during the first quarter. The Case-Shiller Home Price Index (as of 2/28) increased slightly to from fourth quarter levels and is at levels higher than that of pre-financial crisis levels of Rolling 12-month seasonally adjusted CPI decreased to -0.1% from 0.8% at the end of December; Capacity Utilization declined slightly to 77.1% in March. Fed Funds rate remains at 0.25%, while the 10-year Treasury Yield finished Q1 at 1.94%. The Fed balance sheet declined slightly in Q1 2015, while the European Central Bank balance sheet increased in the same period. ECB began asset purchases of 60 billion per month. S&P valuations increased in March remaining above the 10-year and long-term averages Cyclically adjusted Shiller PE ratio is above the long-term average of 16.4x and above the 10-year average of 22.9x. The U.S. Dollar continues to strengthen against a basket of major currencies as the Fed ends its quantitative easing program and the ECB ramps up easing. 4

5 Market Environment Q Overview Qtr. 1 Yr. 3 Yr. 5 Yr. 10 Yr. World Equity Benchmarks MSCI World World 2.3% 6.0% 12.2% 10.0% 6.4% Qtr. 1 Yr. 3 Yr. 5 Yr. 10 Yr. Domestic Equity Benchmarks S&P 500 Large Core 1.0% 12.7% 16.1% 14.5% 8.0% Russell 1000 Large Core 1.6% 12.7% 16.5% 14.7% 8.3% Russell 1000 Growth Large Growth 3.8% 16.1% 16.3% 15.6% 9.4% Russell 1000 Value Large Value -0.7% 9.3% 16.4% 13.8% 7.2% Russell 2000 Small Core 4.3% 8.2% 16.3% 14.6% 8.8% Russell 2000 Growth Small Growth 6.6% 12.1% 17.7% 16.6% 10.0% Russell 2000 Value Small Value 2.0% 4.4% 14.8% 12.5% 7.5% Qtr. 1 Yr. 3 Yr. 5 Yr. 10 Yr. International Equity Benchmarks MSCI EAFE International Developed 4.9% -0.9% 9.0% 6.2% 5.0% S&P EPAC SmallCap Small Cap Int'l 5.6% -1.5% 11.4% 9.2% 7.1% MSCI EM Emerging Equity 2.2% 0.4% 0.3% 1.8% 8.5% MSCI ACWI ex-us World ex-us 3.5% -1.0% 6.4% 4.8% 5.5% Qtr. 1 Yr. 3 Yr. 5 Yr. 10 Yr. Domestic Fixed Income Benchmarks Barclays Aggregate Core Bonds 1.6% 5.7% 3.1% 4.4% 4.9% Barclays US High Yield High Yield 2.5% 2.0% 7.5% 8.6% 8.2% BofA ML US HY BB/B High Yield 2.7% 3.2% 7.4% 8.4% 7.5% CSFB Levered Loans Bank Loans 1.3% 5.0% 5.3% 12.2% 5.0% BofA ML US 3-Month T-Bill Cash 0.0% 0.0% 0.1% 0.1% 1.5% Barclays US TIPS 1-10 Yr Inflation 1.2% 1.1% -0.1% 2.9% 4.0% Qtr. 1 Yr. 3 Yr. 5 Yr. 10 Yr. Global Fixed Income Benchmarks Citigroup WGBI World Gov. Bonds -2.5% -5.5% -1.6% 3.4% 4.1% BC Global Credit Global Bonds -1.2% -0.9% 2.8% 4.4% 4.4% JPM GBI-EM Glob. Diversified Em. Mkt. Bonds (Local) -4.0% -11.1% -3.9% 0.7% 6.3% JPM EMBI+ Em. Mkt. Bonds 1.9% 4.5% 4.0% 6.6% 8.0% Qtr. 1 Yr. 3 Yr. 5 Yr. 10 Yr. Alternative Benchmarks DJ UBS Commodity Index Commodity -6.0% -27.1% -11.6% -5.8% -4.9% DJCS HF Hedge Fund 0.6% 6.1% 2.4% 4.9% 3.1% HFRI FoF Conservative Fund of Funds 1.3% 6.2% 2.8% 4.6% 2.6% Cambridge PE Lagged* Private Equity 0.7% 11.5% 15.3% 15.4% 13.6% NCREIF Property Index* Real Estate 3.0% 11.8% 11.1% 12.1% 8.4% Wilshire REIT Index REIT 4.0% 22.7% 14.0% 15.4% 6.7% CPI + 2% Inflation/Real Assets 0.3% 2.0% 3.0% 3.7% 4.1% * As of 12/31/2014 5

6 First Quarter 2015 Market Review Positives With Fed asset purchases coming to an end, divergence in monetary policies signaling different investment environments globally ECB monetary easing begins with 60 billion in monthly asset purchases ECB commits 1.3 trillion in asset purchases in the Eurozone Global risk assets respond positively Negative short dated interest rates in Eurozone Developed world inflation is low In US, CPI for all Urban Consumers on a seasonally adjusted basis was negative in Q1 driven by Energy in January Negatives Geopolitical instability continues to drive volatility Instability in the Mid-East, Eastern Europe, Greece Fed rate hike uncertainty contributed to volatility in domestic markets Timing of Fed rate hike is dependent on market conditions Europe continues to see ongoing political and economic growth challenges Negative currency impacts for US investors as USD appreciates GDP decelerated, posting a +0.2% estimated growth rate Consumer spending decelerated, but still growing Valuations remain above 10 year and long term averages Developed Equity P/Es above median 6

7 Market Environment Global Equity U.S. equities advanced in the first quarter as global monetary accommodation ramps up. Small cap stocks outperformed large cap stocks during the quarter, with the Russell 2000 Index returning 4.3% and the S&P 500 Index returning 1.0%. International equities outperformed U.S. markets during the quarter, returning 3.5%, as measured by the MSCI ACWI ex-u.s. Index. Developed markets returned 4.9% as measured by the MSCI EAFE Index. Japan was the top performer returning 10.0%. Emerging markets returned 2.2% as measured by the MSCI Emerging Markets Index in U.S. dollar terms. India and Russia bolstered returns with Russia returning 18%. Private Equity New private equity commitments totaled $83.1 billion in Q first three month total represents 23% of total PE raised in 2014 Buyout and growth equity fund deal volume in both the U.S. and Europe continues to decelerate. Buyout and growth equity deals totaled $36.7 billion with US buyout and growth equity activity experiencing a sharp reduction in Q1. Venture capital raised $11.8 billion ended March. At 14% of total private equity raised, commitments are just below the 10-year historic relative average and are buoyed by strong IPO and M&A environment. Energy funds raised $3.2 billion representing 16% of capital raised in Q1. Investors are opportunistically approaching the energy market dislocation. Asian private equity commitments slowed to total 8% of total funds raised down from 10% in European commitments comprised 14% of all new PE commitments in Q % of European funds raised were based in the United Kingdom 7

8 Market Environment Fixed Income As yields fell amid declining inflation and monetary easing, global sovereign debt gained in the first quarter. The spread between two and 10-year rates fell 12 basis points to 1.38%. Treasury Inflation-Protected Securities, or TIPS, returned 1.4% during the quarter, as measured by the Barclays US TIPS Index. The Barclays Long Duration Credit Index gained 3.1%, bolstered by falling Treasury yields. Agency mortgage-backed securities benefitted from a decrease in mortgage rates in January and March, and posted quarterly gains of 1.1%. Investment grade credit spreads continued to widen ending March at 129 basis points. High yield bonds returned 2.5% as spreads increased to 433 basis points up from 429 basis points. High yield markets were most significantly impacted by the decline of oil prices as Energy makes up approximately 14% of the Barclays US High Yield Bond Index. Emerging markets debt continued to slow in local currency posting a -4.0% return as measured by the JP Morgan GBI-EM Global Diversified Index. Hard-currency emerging market debt market trumped local currency debt, with the JPMorgan EMBI Global Diversified Index returning 2.0%. After plunging at year-end, Russian debt outperformed as oil prices stabilized and geopolitical tensions cooled. Brazilian debt underperformed amid disappointing growth, high inflation, and concerns around the mismanagement of the state-run oil giant Petrobras. 8

9 Market Environment Real Assets/Inflation-Linked Assets Massive energy market dislocation. Oil prices stabilized mid quarter. Private equity and private debt opportunities attractive. Potential for public stressed/distressed credit, equity and commodity plays. OPEC and Saudi Arabia have indicated a willingness to allow lower oil prices to persist in efforts to cement market share and reduce marginal supply. Select infrastructure opportunities are attractive. Target opportunistic strategies in niche sub-sectors to take advantage of market dislocations. NEPC continues to believe in the long-term demand drivers in agriculture. Long-term commodity prices driven by growing emerging market demand. Timber opportunity set limited but warrants further review 45% increase in housing starts forecasted; timber prices highly correlated 9

10 Market Environment Commodities Commodities continued their losing streak for the third straight quarter with the Bloomberg Commodity Index posting a 5.9% loss. Volatility in the commodity sector trumped other asset classes, including equities, bonds and the US dollar; Brent crude dropped 9.9% in January, then sharply recovered, gaining 14.8% in February, and slipped again in March, losing 12.3% posting at a 9.3% Q1 loss. Real Estate NEPC continues to be neutral on core real estate in the US and remains positive on non-core real estate, that is, value-add and opportunistic strategies. Within U.S. core real estate, strong fundamentals continue to be the story along with attractive income spreads relative to interest rates. The concerns for U.S. core real estate (and U.S. real estate, broadly) continues to be plentiful capital that is driving up pricing; and the market s expectation for higher future interest rates and their impact on capitalization rates and capital values. U.S. REITs posted a strong quarter with a 4.0% return. REITs are trading at slight premiums to NAV FFO multiples are up to approximately 18x remaining above the average of 12.5x since Overall, the non-core real estate investment environment in the U.S. is normalizing; however, select areas remain attractive. Europe is viewed as the best place for a marginal dollar of non-core real estate investment. Europe is emerging from multi-year recession, but recovery is slow and uneven with global markets experiencing large capital inflows. Banks in EU are still overleveraged and have significant real estate exposure to jettison. 10

11 Building Blocks for US Equities Source: Bloomberg, NEPC Source: Bloomberg, NEPC 11

12 Launch of Quantitative Easing in Eurozone is a New Catalyst for International Equities 12

13 Currencies Have Been Volatile (and mostly negative versus the US Dollar) Source: Bloomberg 13

14 Currency Pressure Remains; Historic Movements Exhibit Persistence Source: Bloomberg Source: Bloomberg 14

15 Treasury Curve Has Been in Flux, Seesawing in the First Quarter Source: Bloomberg 15

16 Market Outlook and Recommendations Be judicious with risk Avoid chasing risk for only marginal return enhancements Less liquid opportunities may provide the best risk-adjusted approach, but liquidity needs should be incorporated (e.g., substituting direct lending for high yield) Catalysts are present to drive international equity markets above prefinancial crisis highs Encourage an equal weight exposure to international developed and US equities If currency hedged, encourage larger international developed equity exposure relative to US equities Question the traditional approach; different investment environments require different perspectives of risk and return A low-return environment may require a fresh perspective Continue to remove traditional portfolio constraints by adding active managers with skill to exploit inefficiencies within and across asset classes (e.g., flexible global equity, global asset allocation, absolute return fixed income) Rethink fixed income portfolio structure in light of current market environment Use of an unconstrained/multi-sector fixed income portfolio may provide sound diversification and enhanced liquidity Examine if alternatives are available to traditional portfolio positions (e.g., combining cash and long treasuries vs. holding core bond portfolio) 16

17 NEPC Updates First Quarter 2015 Highlights of First Quarter Happenings at NEPC NEPC Research Recent White Papers Posted Six Years Later: A Time for Moderation? NEPC's 2015 Asset Allocation (January 2015) - NEPC s Asset Allocation Committee A Primer on US Equity REITs and Their Role in an Institutional Investment Portfolio (April 2015) - Sean Ruhmann, Director of Real Assets Research; Tim Bruce, Director of Traditional Research; Matt Ritter, Research Analyst, Real Assets Research; Larissa Davy, Research Associate, Traditional Research - The NEPC research paper provides an overview of US REITs and examines their place in institutional portfolios. Professional Staff Updates We are also pleased to announce that Aarish Patell has joined NEPC as a Research Consultant located in our Boston, MA office. Aarish will be focusing on private markets research. NEPC has also added two new Research Analysts to our hedge fund research team, Christian Pieri and Victoria Margosian. NEPC Client Recognitions We are immensely gratified to consistently achieve your favorable client satisfaction ratings in relation to our peers. Last year, you ranked NEPC #1 among the 10 largest firms in the investment consulting business, as measured by the Greenwich Quality Index (GQI). We remain the only firm among the 10 largest investment consultancies with rankings in the top three in 10 of the last 11 years, according to Greenwich Associates annual survey of over 1,000 large plan sponsors regarding their investment consulting relationships. 1 Orange County Employee Retirement System has won the Government Finance Officers Association s Award for Excellence in Government Finance, for its investment fee transparency and management initiatives. Upcoming Events NEPC s 20th Annual Client Conference May 19-20, 2015 in Boston at the Boston Convention & Exhibition Center (BCEC) Headline Speakers: Liz Ann Sonders, Senior Vice President, Chair of the Investment Committee, Windhaven Investment Management, Inc. Don Yaeger, Sports Journalist Rick Rieder, Chief Investment Officer, Fundamental Fixed Income, BlackRock Register at 1 Source: Greenwich Associates, 2014 Evaluations by U.S. Institutional Investors. Greenwich Associates is an independent research firm. Its rankings do not represent an endorsement of NEPC. Past performance is no guarantee of future results. 17

18 Third Party Placement Agent Disclosure 18

19 New Mexico Educational Retirement Board Third Party Placement Agent Disclosure The New Mexico Educational Retirement Board Policy Regarding Placement Agent Disclosures requires that quarterly performance reports to the Board include information regarding any third-party marketers that were used by recipients of investments including any fee, commission or retainer paid by the hired fund to the third-party marketer for services rendered. These fees are not paid by NMERB but are paid by the hired funds for marketing services to the third-party. The following investments were approved by the NMERB Investment Committee during the quarter, with disclosures made under the policy: Robeco Institutional Asset Management - was approved for investment on October 30, 2014 as part of the Fund s allocation to Emerging Markets Equity. The existing contract expired and the new contract became effective April 1, Robeco has provided documentation confirming no placement agents were engaged in connection with the NMERB s investment. Robeco has completed the ERB Campaign Contribution Disclosure and reports no applicable campaign contributions. Sares Regis Multifamily Value Add Fund II - was approved for a $30 million commitment on March 26, 2015 as part of the Fund s allocation to Real Estate. Sares Regis has provided documentation confirming no placement agents were engaged in connection with the NMERB s investment. Sares Regis has completed the ERB Campaign Contribution Disclosure and reports no applicable campaign contributions. RAM Realty Partners IV - was approved for a $40 million commitment on March 26, 2015 as part of the Fund s allocation to Real Estate. RAM Realty Partners has provided documentation confirming no placement agents were engaged in connection with the NMERB s investment. RAM Realty Partners has completed the ERB Campaign Contribution Disclosure and reports no applicable campaign contributions. EnerVest Energy Institutional Fund XIV - was approved for a $37.5 million commitment on March 26, 2015 as part of the Fund s allocation to Real Assets. EnerVest has provided documentation confirming no placement agents were engaged in connection with the NMERB s investment. EnerVest has completed the ERB Campaign Contribution Disclosure and reports a $5,200 contribution to Susana Martinez in April, 2014 and a $10,000 contribution to Advance New Mexico Now, a political action committee without a specific candidate or individual contribution. TPG Growth III LP - was approved for a $100 million commitment on March 26, 2015 within the Fund s allocation to Private Equity. TPG has provided documentation confirming no placement agents were engaged in connection with the NMERB s investment. Certain employees of TPG Global, LLC or affiliates of TPG Global, LLC serve as registered representatives of TPG Capital BD, LLC. TPG Capital BD, LLC is an affiliate of the general partner and TPG Global, LLC. TPG has completed the ERB Campaign Contribution Disclosure and reports no applicable campaign contributions. 19

20 New Mexico Educational Retirement Board Third Party Placement Agent Disclosure The New Mexico Educational Retirement Board Policy Regarding Placement Agent Disclosures requires that quarterly performance reports to the Board include information regarding any third-party marketers that were used by recipients of investments including any fee, commission or retainer paid by the hired fund to the third-party marketer for services rendered. These fees are not paid by NMERB but are paid by the hired funds for marketing services to the third-party. The following investments were approved by the NMERB Investment Committee during the quarter, with disclosures made under the policy: Ecosystem Investment Partners III - was approved for a $50 million commitment on April 23, 2015 as part of the Fund s allocation to Real Assets. Ecosystem Investment Partners has provided documentation confirming no placement agents were engaged in connection with the NMERB s investment. Ecosystem Investment Partners has completed the ERB Campaign Contribution Disclosure and reports no applicable campaign contributions. BP Natural Gas Opportunity Partners, L.P. - was approved for a $30 million commitment on April 23, 2015 as part of the Fund s allocation to Real BP provided documentation confirming McCarvill Capital Partners as placement agents were engaged in connection with the NMERB s investment and were compensated $525,000. BP has completed the ERB Campaign Contribution Disclosure and reports a $10,400 contribution to Susana Martinez made by T. Boone Pickens. 20

21 Total Fund Performance 21

22 New Mexico Educational Retirement Board Total Fund Performance Summary (Gross of Fees) Over the past five years, the Fund returned 9.1% per annum, outperforming the policy index by 0.9% and ranking in the 65th percentile of the InvestorForce Public Funds > $1 Billion universe. The Fund s volatility was 6.9%, which ranks in the 16 th percentile of its peers over this period. The Fund s risk-adjusted performance, as measured by the Sharpe Ratio, ranks in the 19 th percentile of its peers. Therefore, the Fund has produced more return per unit of risk taken over this period than 81% of its peers. Over the past three years, the Fund returned 9.3% per annum, outperforming the policy index by 1.1% and ranking in the 62nd percentile of its peer group. Over the past three years, the Fund has reduced its volatility on both an absolute and relative basis, resulting in a three-year Sharpe Ratio of 2.0, which ranks in the 7 th percentile. For the year ending, the Fund experienced a net investment gain of $851 million, which includes a net investment gain of $246 million during the first calendar quarter. Assets increased from $10.9 billion twelve months ago to $11.4 billion on, with $309 million in net distributions during the year. The Fund returned 7.8%, outperforming the policy index by 1.4% and ranking in the 19 th percentile of its peers. All asset classes were within policy range as of. The InvestorForce Public Funds > $1 Billion Universe contains 103 observations for the period ending, with total assets of $1,653.3 billion. 22

23 New Mexico Educational Retirement Board Total Fund Asset Growth Summary Sources of Portfolio Growth Last Three Months Fiscal Year-To-Date One Year Three Years Five Years Since 10/1/05 Beginning Market Value $11,263,769,807 $11,274,476,583 $10,895,435,490 $9,573,502,847 $8,553,662,221 $7,694,652,364 Net Additions/Withdrawals -$72,836,158 -$243,120,765 -$308,893,008 -$940,328,875 -$1,520,465,981 -$2,367,803,518 Investment Earnings $246,449,511 $406,027,343 $850,840,678 $2,804,209,187 $4,404,186,920 $6,110,534,314 Ending Market Value $11,437,383,160 $11,437,383,160 $11,437,383,160 $11,437,383,160 $11,437,383,160 $11,437,383,160 23

24 New Mexico Educational Retirement Board Total Fund Asset Allocation vs. Policy Targets 1Long-Term Policy Target approved by the Board in September Note: Allocations shown here include cash held in separately managed portfolios. Totals may not add to 100% due to rounding. Total Plan included Legacy Assets portfolio totaling $332,

25 New Mexico Educational Retirement Board Total Fund Asset Allocation History 25

26 New Mexico Educational Retirement Board Total Fund Allocations vs. Peer Universe 26

27 New Mexico Educational Retirement Board Total Fund Risk/Return Note: s are based on gross returns. 27

28 New Mexico Educational Retirement Board Total Fund Risk/Return Note: s are based on gross returns. 28

29 New Mexico Educational Retirement Board 3 Year Risk/Return Profile Note: Returns are gross of fees. 29

30 New Mexico Educational Retirement Board 5 Year Risk/Return Profile Note: Returns are gross of fees. 30

31 New Mexico Educational Retirement Board Total Fund Risk Statistics vs. Peer Universe Total Fund vs. IFx Public DB > $1B Gross (USD) (peer) 1 Year Note: s are based on gross returns. 31

32 New Mexico Educational Retirement Board Total Fund Risk Statistics vs. Peer Universe Total Fund vs. IFx Public DB > $1B Gross (USD) (peer) 3 Years Note: s are based on gross returns. 32

33 New Mexico Educational Retirement Board Total Fund Risk Statistics vs. Peer Universe Total Fund vs. IFx Public DB > $1B Gross (USD) (peer) 5 Years Note: s are based on gross returns. 33

34 New Mexico Educational Retirement Board Total Fund Risk Statistics vs. Peer Universe Total Fund vs. IFx Public DB > $1B Gross (USD) (peer) 10 Years Note: s are based on gross returns. 34

35 New Mexico Educational Retirement Board Total Fund Rolling 5-Year Excess Returns Note: Returns are gross of fees. 35

36 New Mexico Educational Retirement Board Total Fund Attribution Analysis Wtd. Actual Return Attribution Summary 3 Months Ending Wtd. Index Excess Return Return Selection Effect Allocation Effect Total Effects U.S. Large Cap Equity 1.0% 1.0% 0.0% 0.0% 0.0% 0.0% U.S. Small/Mid Cap Equity 3.3% 5.2% -1.8% 0.0% 0.0% 0.0% Non-U.S. Developed Mkts Equity 5.2% 4.9% 0.4% 0.0% 0.0% 0.0% Non-U.S. Emerging Mkts Equity 0.9% 2.2% -1.3% -0.1% 0.0% -0.1% Core Fixed Income 1.8% 1.6% 0.2% 0.0% 0.0% 0.0% Non-U.S. Emerging Market Debt -2.4% -4.0% 1.5% 0.0% 0.0% 0.0% Opportunistic Credit 1.7% 2.4% -0.7% -0.1% 0.0% -0.1% Absolute Return 1.3% 0.5% 0.8% 0.0% 0.0% 0.0% Global Asset Allocation/Risk Parity 4.5% 2.5% 2.1% 0.2% 0.0% 0.2% Public Real Estate 4.3% 4.6% -0.3% 0.0% 0.0% 0.0% Private Real Estate 4.4% 3.6% 0.8% 0.0% 0.0% 0.0% Private Equity 3.9% 0.7% 3.3% 0.3% 0.0% 0.3% Real Assets 0.0% 1.0% -1.0% 0.0% 0.0% 0.0% Cash 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 2.1% 2.0% 0.2% 0.2% 0.0% 0.2% Note: Plan attribution calculations are net returns based and the results shown reflect the composites shown. As a result, the total returns shown may vary from the calculated return shown on the performance summary. May not add due to rounding. 36

37 New Mexico Educational Retirement Board Total Fund Attribution Analysis Attribution Summary FYTD Ending Wtd. Actual Return Wtd. Index Return Excess Return Selection Effect Allocation Effect Total Effects U.S. Large Cap Equity 6.9% 7.1% -0.3% -0.1% 0.1% 0.0% U.S. Small/Mid Cap Equity 5.9% 6.3% -0.4% 0.0% 0.0% 0.0% Non-U.S. Developed Mkts Equity -4.4% -4.8% 0.4% 0.0% 0.0% 0.0% Non-U.S. Emerging Mkts Equity -5.1% -5.8% 0.7% 0.1% 0.0% 0.1% Core Fixed Income 3.5% 3.6% -0.1% 0.0% 0.0% 0.0% Non-U.S. Emerging Market Debt -9.4% -14.6% 5.2% 0.1% 0.0% 0.1% Opportunistic Credit 2.9% 1.0% 1.8% 0.4% 0.0% 0.4% Absolute Return 4.3% 1.5% 2.8% 0.1% 0.0% 0.0% Global Asset Allocation/Risk Parity 1.6% 0.9% 0.7% 0.1% 0.0% 0.1% Public Real Estate 15.2% 16.8% -1.6% 0.0% -0.2% -0.2% Private Real Estate 13.1% 9.5% 3.5% 0.1% 0.0% 0.1% Private Equity 12.2% 8.1% 4.0% 0.3% 0.0% 0.3% Real Assets 0.3% 3.0% -2.8% -0.1% 0.0% -0.1% Cash 0.4% 0.0% 0.3% 0.0% 0.0% 0.0% Total 3.6% 2.8% 0.8% 0.9% -0.1% 0.8% Note: Plan attribution calculations are net returns based and the results shown reflect the composites shown. As a result, the total returns shown may vary from the calculated return shown on the performance summary. May not add due to rounding. 37

38 New Mexico Educational Retirement Board Total Fund Attribution Analysis Attribution Summary 1 Year Ending Wtd. Actual Return Wtd. Index Return Excess Return Selection Effect Allocation Effect Total Effects U.S. Large Cap Equity 12.4% 12.7% -0.3% -0.1% 0.1% 0.0% U.S. Small/Mid Cap Equity 8.4% 10.1% -1.7% 0.0% 0.0% -0.1% Non-U.S. Developed Mkts Equity -0.4% -0.9% 0.5% 0.0% 0.0% 0.0% Non-U.S. Emerging Mkts Equity 2.4% 0.4% 1.9% 0.2% 0.0% 0.2% Core Fixed Income 5.9% 5.7% 0.2% 0.0% 0.0% 0.0% Non-U.S. Emerging Market Debt -6.9% -11.1% 4.2% 0.1% 0.0% 0.1% Opportunistic Credit 5.4% 3.0% 2.3% 0.5% 0.0% 0.4% Absolute Return 4.9% 2.0% 2.8% 0.1% 0.0% 0.0% Global Asset Allocation/Risk Parity 6.6% 3.5% 3.0% 0.3% 0.0% 0.3% Public Real Estate 24.8% 25.2% -0.4% 0.0% -0.2% -0.2% Private Real Estate 13.5% 12.7% 0.8% 0.0% 0.0% 0.0% Private Equity 17.0% 11.5% 5.5% 0.4% 0.0% 0.4% Real Assets 2.6% 5.0% -2.4% -0.1% 0.1% 0.0% Cash 0.4% 0.0% 0.4% 0.0% 0.0% 0.0% Total 7.7% 6.4% 1.3% 1.4% -0.1% 1.3% Note: Plan attribution calculations are net returns based and the results shown reflect the composites shown. As a result, the total returns shown may vary from the calculated return shown on the performance summary. May not add due to rounding. 38

39 New Mexico Educational Retirement Board Total Fund Attribution Analysis Attribution Summary 3 Years Ending Wtd. Actual Return Wtd. Index Return Excess Return Selection Effect Allocation Effect Total Effects U.S. Large Cap Equity 16.0% 16.1% -0.1% 0.0% 0.0% 0.0% U.S. Small/Mid Cap Equity 16.5% 17.1% -0.7% 0.0% 0.0% 0.0% Non-U.S. Developed Mkts Equity 8.2% 9.0% -0.8% 0.0% 0.0% -0.1% Non-U.S. Emerging Mkts Equity -1.2% 0.3% -1.5% -0.1% 0.0% -0.1% Core Fixed Income 4.0% 3.1% 0.9% 0.1% 0.0% 0.1% Non-U.S. Emerging Market Debt -1.4% -3.9% 2.4% 0.0% 0.0% 0.1% Opportunistic Credit 11.1% 6.5% 4.6% 0.8% 0.0% 0.8% Absolute Return 3.8% 2.0% 1.7% 0.1% 0.0% 0.0% Global Asset Allocation/Risk Parity 4.9% 6.5% -1.6% 0.0% 0.0% 0.0% Public Real Estate 15.0% 14.2% 0.8% 0.0% -0.1% 0.0% Private Real Estate 15.3% 11.5% 3.8% 0.1% 0.0% 0.1% Private Equity 17.1% 15.3% 1.8% 0.1% 0.0% 0.1% Real Assets 0.9% 6.1% -5.2% -0.1% 0.1% 0.0% Cash 0.5% 0.0% 0.5% 0.0% -0.1% 0.0% Total 9.2% 8.2% 1.0% 0.9% 0.0% 1.0% Note: Plan attribution calculations are net returns based and the results shown reflect the composites shown. As a result, the total returns shown may vary from the calculated return shown on the performance summary. May not add due to rounding. 39

40 New Mexico Educational Retirement Board Total Fund Attribution Analysis Attribution Summary 5 Years Ending Wtd. Actual Return Wtd. Index Return Excess Return Selection Effect Allocation Effect Total Effects U.S. Large Cap Equity 14.4% 14.5% 0.0% 0.0% 0.1% 0.1% U.S. Small/Mid Cap Equity 14.2% 15.1% -0.9% 0.0% 0.0% 0.0% Non-U.S. Developed Mkts Equity 5.7% 6.2% -0.4% 0.0% 0.1% 0.1% Non-U.S. Emerging Mkts Equity -0.4% 1.7% -2.1% -0.2% -0.1% -0.3% Core Fixed Income 5.5% 4.4% 1.1% 0.2% -0.2% 0.0% Non-U.S. Emerging Market Debt % 0.0% 0.0% Opportunistic Credit 9.0% 7.8% 1.1% 0.3% 0.0% 0.3% Absolute Return 3.0% 2.1% 1.0% 0.0% 0.0% 0.0% Global Asset Allocation/Risk Parity 10.1% 6.3% 3.7% 0.2% 0.0% 0.2% Public Real Estate 16.6% 16.1% 0.4% 0.0% 0.0% 0.0% Private Real Estate 14.8% 12.8% 2.0% 0.0% 0.0% 0.0% Private Equity 15.0% 15.4% -0.5% 0.0% 0.1% 0.1% Real Assets 2.8% 6.8% -3.9% -0.1% 0.1% 0.0% Cash 0.7% 0.1% 0.7% 0.0% 0.0% 0.0% Total 8.9% 8.2% 0.7% 0.4% 0.2% 0.6% Note: Plan attribution calculations are net returns based and the results shown reflect the composites shown. As a result, the total returns shown may vary from the calculated return shown on the performance summary. May not add due to rounding. 40

41 New Mexico Educational Retirement Board Total Fund Risk Statistics 3 Years Ending % of Tot Anlzd Ret Anlzd Std Dev Anlzd AJ Tracking Error Info Ratio Beta Sharpe Ratio U.S. Large Cap Equity 18.7% 16.0% % % % S&P % % % % U.S. Small/Mid Cap Equity 2.2% 16.5% % % % NMERB Small/Mid Cap Equity Blended Index Non-U.S. Developed Mkts Equity _ % % % % % 8.2% % % % MSCI EAFE % % % % Non-U.S. Emerging Mkts Equity 9.5% -1.2% % % % MSCI Emerging Markets % % % % Core Fixed Income 9.5% 4.0% % % % Barclays Aggregate % % % % Non-U.S. Emerging Market Debt 1.6% -1.4% % % % JP Morgan GBI - EM Diversified % % % % XXXXX 3 Years Ending % of Tot Anlzd Ret Anlzd Std Dev Anlzd AJ Tracking Error Info Ratio Beta Sharpe Ratio Opportunistic Credit 21.1% 11.1% % % % % Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Global Asset Allocation/Risk Parity _ % % % % % 4.9% % % % GAA/Risk Parity Custom Index % % % % XXXXX *Performance for Equity, Fixed Income, and Emerging Mkt Debt, Opportunistic Credit and GAA/Risk Parity composites are Net of fees. Note: Percent of Total equals 77.4% because Absolute Return, Real Estate, Private Equity and Real Assets s are not included. 41

42 New Mexico Educational Retirement Board Total Fund Risk Statistics 5 Years Ending % of Tot Anlzd Ret Anlzd Std Dev Anlzd AJ Tracking Error Info Ratio Beta Sharpe Ratio U.S. Large Cap Equity 18.7% 14.4% % % % S&P % % % % U.S. Small/Mid Cap Equity 2.2% 14.2% % % % NMERB Small/Mid Cap Equity Blended Index Non-U.S. Developed Mkts Equity _ % % % % % 5.7% % % % MSCI EAFE % % % % Non-U.S. Emerging Mkts Equity 9.5% -0.4% % % % MSCI Emerging Markets % % % % Core Fixed Income 9.5% 5.5% % % % Barclays Aggregate % % % % Non-U.S. Emerging Market Debt 1.6% JP Morgan GBI - EM Diversified % % % % XXXXX 5 Years Ending % of Tot Anlzd Ret Anlzd Std Dev Anlzd AJ Tracking Error Info Ratio Beta Sharpe Ratio Opportunistic Credit 21.1% 9.0% % % % % Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Global Asset Allocation/Risk Parity _ % % % % % 10.1% 2 6.3% % 1 7.8% GAA/Risk Parity Custom Index % % % % XXXXX *Performance for Equity, Fixed Income, and Emerging Mkt Debt, Opportunistic Credit and GAA/Risk Parity composites are Net of fees. Note: Percent of Total equals 77.40% because Absolute Return, Real Estate, Private Equity and Real Assets composites are not included. 42

43 New Mexico Educational Retirement Board Performance Detail - Total Fund and U.S. Equity Market Value ($) % of Portfolio 3 Mo Total Fund 11,437,383, Jul-83 Policy Index Jul-83 Over/Under Allocation Index Jul-83 60% MSCI World (Gross) / 40% CITI WGBI Jul-83 U.S. Equity 2,392,023, Jan-85 Russell Jan-85 Over/Under ea All US Equity Net Median Jan-85 U.S. Large Cap Equity 2,139,103, Aug-99 S&P Aug-99 Over/Under ea US Large Cap Equity Net Median Aug-99 S&P 500 Index Fund 2,139,103, Jan-00 S&P Jan-00 Over/Under ea US Large Cap Core Equity Net Median Jan-00 U.S. Small/Mid Cap Equity 252,920, Aug-99 NMERB Small/Mid Cap Equity Blended Index Aug-99 Over/Under ea US Small-Mid Cap Core Equity Net Median Aug-99 Lord Abbett 126,290, Aug-10 Russell 2500 Value Aug-10 Over/Under ea US Small-Mid Cap Value Equity Net Median Aug-10 Pinnacle 126,629, Dec-11 Russell 2500 Growth Dec-11 Over/Under ea US Small-Mid Cap Growth Equity Net Median Dec-11 Fiscal YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 1 - U.S. Small/Mid Cap Equity includes the performance history of the U.S. Small Cap Equity through November NMERB Small/Mid Cap Equity Blended Benchmark is the Russell 2000 Index through November 2011 and the Russell 2500 Index from December forward. 3 - Total Fund market value includes $332,368 from Legacy Assets. *Performance shown is net of fees. Fiscal year ends June

44 New Mexico Educational Retirement Board Performance Detail - Non-U.S. Equity Market Value ($) % of Portfolio 3 Mo Non-U.S. Equity 1,630,330, Jul-95 MSCI ACWI ex USA Jul-95 Over/Under ea All ACWI ex-us Equity Net Median Jul-95 Non-U.S. Developed Mkts Equity 547,078, Sep-95 MSCI EAFE Sep-95 Over/Under ea All EAFE Equity Net Median Sep-95 Pyramis 270,102, Jun-03 MSCI EAFE Jun-03 Over/Under ea All EAFE Equity Net Median Jun-03 BlackRock MSCI EAFE 276,976, Aug-13 MSCI EAFE Aug-13 Over/Under ea All EAFE Equity Net Median Aug-13 Fiscal YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since *Performance shown is net of fees. *Fiscal year ends June

45 New Mexico Educational Retirement Board Performance Detail - Non-U.S. Emerging Market Equity Market Value ($) % of Portfolio 3 Mo Non-U.S. Emerging Mkts Equity 1,083,251, Sep-00 MSCI Emerging Markets Sep-00 Over/Under ea Emg Mkts Equity Net Median Sep-00 Robeco 408,239, Nov-08 MSCI Emerging Markets Nov-08 Over/Under ea Emg Mkts Equity Net Median Nov-08 Neuberger Berman Emerging Markets 332,277, Aug-13 MSCI Emerging Markets Aug-13 Over/Under ea Emg Mkts Equity Net Median Aug-13 Mondrian Emerging Markets Small Cap 342,735, Aug-13 MSCI Emerging Markets Small Cap Aug-13 Over/Under ea Emg Mkts Small Cap Equity Net Median Aug-13 Fiscal YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since *Performance shown is net of fees. *Fiscal year ends June

46 New Mexico Educational Retirement Board Performance Detail - Total Fixed Income and Core Fixed Income Market Value ($) % of Portfolio 3 Mo Fixed Income 3,685,721, Jan-85 Barclays Aggregate Jan-85 Over/Under ea All US Fixed Inc Net Median Jan-85 Core Fixed Income 1,086,330, Dec-99 Barclays Aggregate Dec-99 Over/Under ea US Core Fixed Inc Net Median Dec-99 Core Fixed Income 1,067,681, Apr-15 Barclays Aggregate Apr-15 Over/Under ea US Core Fixed Inc Net Median Apr-15 Fiscal YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 1 - Residual amounts remain in Neuberger Berman, Pyramis, and WAMCO. Assets were transferred to internally managed Core Fixed Income in February *Performance shown is net of fees. *Fiscal year ends June

47 New Mexico Educational Retirement Board Performance Detail - Emerging Market Debt Market Value ($) % of Portfolio 3 Mo Non-U.S. Emerging Market Debt 187,203, Sep-11 JP Morgan GBI - EM Diversified Sep-11 Over/Under ea All Emg Mkts Fixed Inc Net Median Sep-11 Pictet 104,199, Sep-11 JP Morgan GBI - EM Diversified Sep-11 Over/Under ea All Emg Mkts Fixed Inc Net Median Sep-11 EMSO 83,003, Sep-11 JP Morgan GBI - EM Diversified Sep-11 Over/Under ea All Emg Mkts Fixed Inc Net Median Sep-11 Fiscal YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since *Performance shown is net of fees. *Fiscal year ends June

48 New Mexico Educational Retirement Board Performance Detail - Opportunistic Fixed Income Market Value ($) % of Portfolio 3 Mo Opportunistic Credit 2,412,188, May-08 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index May-08 Over/Under BofA Merrill Lynch US High Yield BB-B Rated Constrained Index May-08 Beachpoint Combined 636,861, Mar-04 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Mar-04 Over/Under Beachpoint Total Return 636,861, Jun-08 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Jun-08 Over/Under Pimco Disco Combined 342,192, Jul-08 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Jul-08 Over/Under Pimco Disco II 342,192, Oct-11 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Oct-11 Over/Under GoldenTree Combined 142,449, Oct-09 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Oct-09 Over/Under Goldentree II 142,449, Sep-11 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Sep-11 Over/Under Fiscal YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since *Performance shown is net of fees. *Fiscal year ends June

49 New Mexico Educational Retirement Board Performance Detail - Opportunistic Fixed Income Market Value ($) % of Portfolio 3 Mo Medley Capital 159,009, Aug-11 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Aug-11 Over/Under GSO Capital 24,019, Sep-11 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Sep-11 Over/Under Waterfall - Eden 236,052, Aug-11 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Aug-11 Over/Under Waterfall - Victoria 135,930, Aug-11 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Aug-11 Over/Under Marathon European Credit Opportunity I 107,008, Oct-11 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Oct-11 Over/Under Marathon European Credit Opportunity II 83,967, Mar-14 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Mar-14 Over/Under Elegantree Fund 175,882, Mar-12 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Mar-12 Over/Under Gramercy Distressed Opp II 135,022, Jul-12 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Jul-12 Over/Under Fiscal YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 1 - Marathon European Credit Opportunity II was funded in March *Performance shown is net of fees. *Fiscal year ends June

50 New Mexico Educational Retirement Board Performance Detail - Opportunistic Fixed Income Market Value ($) % of Portfolio 3 Mo ICE Canyon 72,814, Jun-12 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Jun-12 Over/Under Lone Star VIII 47,279, Oct-13 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Oct-13 Over/Under Kildare European Partners I LP 26,264, May-14 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index May-14 Over/Under Black Forest 34,176, Aug-14 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Aug-14 Over/Under Gramercy Dist Argentina FD II 52,609, Dec-14 50% Credit Suisse Leveraged Loan Index / 50% BofA ML US HY BB-B Rated Constrained Index Dec-14 Over/Under Lone Star IX 648, Fiscal YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 1 - Kildare European Partners I LP was funded in May Black Forest was funded in July Gramercy Dist Argentina FD II funded in November 2014 with $50 M. 4 - Lone Star IX was funded in March 2015 with $1.5 M. *Performance shown is net of fees. *Fiscal year ends June

51 New Mexico Educational Retirement Board Performance Detail - Absolute Return Market Value ($) % of Portfolio 3 Mo Absolute Return 147,934, Jan-07 HFRI FOF Conservative (1 Mo Lag) Jan-07 Over/Under Day T-Bill + 2% (1 Mo Lag) Jan-07 DB Advisors (in liquidation) 1,525, Jan-07 Gottex Market Neutral (in liquidation) 1,102, Jan-07 Absolute Return (ex Liquidating funds) 144,056, Jan-07 HFRI FOF Conservative (1 Mo Lag) Jan-07 Over/Under Day T-Bill + 2% (1 Mo Lag) Jan-07 Benchmark Plus 143,014, Feb-07 HFRI FOF Conservative (1 Mo Lag) Feb-07 Over/Under Day T-Bill + 2% (1 Mo Lag) Feb-07 ACSHQP Holdings LLC 1,041, Sep-14 HFRI FOF Conservative (1 Mo Lag) Sep-14 Over/Under Fiscal YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 1 - Absolute Return s, underlying managers and benchmark performance are lagged one month. Absolute Return includes $1,250,135 in a transfer account. 2 - ACSHQP Holdings LLC was funded in September *Performance shown is net of fees. *Fiscal year ends June

52 New Mexico Educational Retirement Board Performance Detail - Global Asset Allocation and Risk Parity Market Value ($) % of Portfolio 3 Mo Global Asset Allocation/Risk Parity 1,144,270, Oct-09 GAA/Risk Parity Custom Index Oct-09 Over/Under ea Global TAA Net Median Oct-09 Global Asset Allocation 542,942, Nov-12 Credit Suisse Hedge Global Macro Nov-12 Over/Under ea Global TAA Net Median Nov-12 Bridgewater Pure Alpha 273,902, Oct-09 Credit Suisse Hedge Global Macro Oct-09 Over/Under ea Global TAA Net Median Oct-09 Bridgewater Pure Alpha Major Markets 14,288, Dec-10 Credit Suisse Hedge Global Macro Dec-10 Over/Under ea Global TAA Net Median Dec-10 PIMCO All Asset All Authority 254,751, Jul-13 Credit Suisse Hedge Global Macro Jul-13 Over/Under ea Global TAA Net Median Jul-13 Risk Parity 601,328, Nov-12 GAA/Risk Parity Custom Index Nov-12 Over/Under ea Global TAA Net Median Nov-12 Bridgewater All Weather 410,314, Oct-09 60% MSCI World (Gross) / 40% CITI WGBI Oct-09 Over/Under ea Global TAA Net Median Oct-09 PanAgora 191,013, Dec-13 GAA/Risk Parity Custom Index Dec-13 Over/Under Fiscal YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since *PanAgora was funded in December *Performance shown is net of fees. *Fiscal year ends June