Pension and Savings Program Investment Review as of December 31, 2017

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1 UNIVERSITY OF CALIFORNIA Office of the Chief Investment Officer Pension and Savings Program Investment Review as of December 31, 2017 Growing Portfolios Building Partnerships UC Investments

Office of the CIO at a glance Office of the Chief Investment Officer Growing Portfolios. Building Partnerships. Delivering value through values.

6 billion (as of 12/31/17) Investing pension assets since 1961 (57 years) Investing defined contribution assets since 1967 (51 years) Investing Endowment

2 Office of the CIO at a glance Office of the Chief Investment Officer Growing Portfolios. Building Partnerships. Delivering value through values. Office of the CIO Facts $118.4 billion across 6 products Pension assets: $66.6 billion (as of 12/31/17) Investing pension assets since 1961 (57 years) Investing defined contribution assets since 1967 (51 years) Investing Endowment assets since 1933 (85 years) Serving more than 200,000 pension members Serving more than 320,000 DC participants Pension: 56%, $66.6B Endowment: 10%, $11.5B Retirement Savings: 20%, $23.8B Working Capital: 13%, $15.6B TRIP: $9.2B STIP: $6.4B Fiat Lux: 1%, $0.9B

3 Our Pension 3

4 UCRP at a Glance Assets Under Management Assets of $66.6 billion have grown by 52% over 5 years Asset Allocation Overweight Public Equities Overweight Cash Underweight Other Investments (Private Equity, Absolute Return, Real Estate, and Real Assets) Underweight Fixed Income Performance Strong absolute performance driven by equity markets Active management particularly in Non-US developed and emerging markets paid off

UCRP Assets grew by 52% in 5 years UCRP Assets 1963-2017 5 Year Growth

5 UCRP Assets grew by 52% in 5 years UCRP Assets Year Growth December 31, 2017 $66.6 billion 1 Year ago $57.1 billion 5 Years ago $43.8 billion

6 AUM growth driven by markets Assets Under Management Attribution Assets Under Management June 30, 2017 Market Gains $61.6 billion $4.9 billion Value Added ($0.2 billion) Net Cash Flow Assets Under Management December 31, 2017 $0.3 billion $66.6 billion

7 Asset Allocation Relative Weight 1 Market Value in $ Billions Percentage Over/Underweight Relative to Policy Policy Weight Public Equity % 4.9% 52.2% Liquidity (Income) % (1.1%) 21.5% Core + Opportunistic % (1.0%) 13.4% High Yield % 0.2% 2.9% Emerging Market Debt % (0.1%) 2.4% TIPS % (0.2%) 2.8% Other Investments % (8.6%) 23.5% Absolute Return % (2.6%) 7.3% Private Equity % (3.2%) 7.5% Real Estate % (1.9%) 6.3% Real Asset % (0.9%) 2.4% 1 Cash % 4.8% 2.8% Total % 0.0% 100.0%

8 Performance: Strong absolute return Net Returns (%) Annualized Returns 3 Month Fiscal YTD 1 Year 3 Year 5 Year 7 Year 10 Year 20 Year UC Pension UC Pension Benchmark Value Added (0.1) (0.2) Net Returns (%) One Year Returns As of June UC Pension 14.5 (2.0) (18.8) (5.7) UC Pension Benchmark 12.7 (0.8) (0.6) (18.9) (4.7) Value Added 1.8 (1.2) (1.0) The Policy Benchmark is a weighted average of investment policy targets

9 Fiscal YTD return driven by Public Equity FYTD Contribution to Return - Percentage (%) Public Equity Fixed Income Private Equity Absolute Return Real Asset Real Estate Cash Total

10 High Level Macroeconomic Risk Factors Factor Name Factor Description EM FX 2% 3% Residual 11% Economic Growth Real Rates Proxied by broad, developed market equity index returns Inflation-linked bond returns 5.9% Volatility Economic Growth 84% Inflation Return of long nominal bonds, short inflation-linked bonds portfolio Credit Return of long corporate bonds, short nominal bonds portfolio Portfolio Standalone Risk Factor Decomposition Commodity Emerging Markets (EM) Weighted GSCI Commodity index returns Equally weighted basket of EM Assets * Residual Risk is any risk which does not load on to the high level macro factors. This risk often corresponds to non-strategic, non-tactical level risk decisions, e.g. individual public equity manager sector tilts and stock selection decisions. This finer scale risk is captured separately, with more granular risk models.

11 Our Savings Program

UC Retirement Savings Program at a Glance UC Retirement Savings Program Deliver the best in class DC plan focused on participant outcomes through superior performance and cost management UC

12 UC Retirement Savings Program at a Glance UC Retirement Savings Program Deliver the best in class DC plan focused on participant outcomes through superior performance and cost management UC Retirement Savings Program Facts $23.8 billion across 3 plans Established in 1967 Over 320,000 Participants $23.8 billion in assets 3 Plans: 403(b), 457(b), DC Plan $23.8B 2 nd largest public DC plan in the US Largest 403(b) plan in the US Target Date Fund () default since 2014 $8.8 billion in Target Date Funds Tax Deferred 403(b) Plan: $16.7B 71% 457(b) Deferred Compensation Plan: $2.7B 11% Defined Contribution Plan: $4.4B 18% 12

UC Retirement Savings Program Evolution UCRSP Assets and Evolution 1967-2017 2015 Lineup streamlined from 64 to 16 funds 2017 3 rd

13 UC Retirement Savings Program Evolution UCRSP Assets and Evolution Lineup streamlined from 64 to 16 funds rd Party manager for 2014 becomes default 2013 Lineup streamlined (b) Plan added 1987 Added Fidelity Mutual Funds 1967 Plan Inception 13

14 Investment Options at a Glance TARGET DATE FUNDS - $8.8 billion UC Funds UC Income Fund UC Fund 2015 UC Fund 2020 UC Fund 2025 UC Fund 2030 UC Fund 2035 UC Fund 2040 UC Fund 2045 UC Fund 2050 UC Fund 2055 UC Fund 2060 Bond Investments Short-Term UC Savings Fund Intermediate-Term UC Bond Fund Inflation-Protected UC Short Term TIPS Fund UC TIPS Fund CORE FUNDS - $13.5 billion Bond and Stock Investments Domestic Stock Large Cap UC Domestic Equity Index Fund UC Growth Company Fund Small Cap UC Domestic Small Cap Equity Fund Foreign Stock Developed Markets UC International Equity Index Fund UC Diversified International Fund Emerging Markets UC Emerging Markets Equity Fund Specialty Stock UC Real Estate Fund UC Social Equity Fund BROKERAGE WINDOW - $1.5 billion Fidelity BROKERAGELINK 14

15 Our Target Date Fund Designed to support participants spending throughout retirement Long Time Horizon Short Key Features An equity landing point of 30% with static allocations at and through retirement 2040 Focus on diversification with broad asset class exposures 2035 Utilizes a strategic glidepath to help mitigate the risks associated with market timing 2030 U.S. Large Cap Equity U.S. Small/Mid Cap Equity International Equity Emerging Market Equity Real Estate U.S. Bonds/Short Term U.S. TIPS Key Benefits for Participants Constructed to navigate the major sources of uncertainty participants face Seeks to reduce volatility in an effort to keep participants saving and investing across market cycles d Income Continuous research to anticipate, assess and adapt ahead of evolving conditions to help meet participant needs now and in the future Higher Investment Risk Lower 15

16 Performance - Summary Q performance relative to policy benchmarks Net of fee returns (%) Income Fund Return Policy Benchmark Return Value Added One year performance relative to policy benchmarks Net of fee returns (%) - 12/30/ /30/2017 Income Fund Return Policy Benchmark Return Value Added

17 Core Line-Up Performance - Summary US Large Equity Market Value ($M) % of Plan 3 Months One Year Three Year Five Year Ten Year UC Domestic Equity Index Fund $4, % UC Social Index Fund $ % US Small/Mid Cap Equity UC Domestic Small Cap Index Fund $ % Global/World ex-us Equity UC International Equity Index Fund $1, % Capital Preservation UC Savings Fund $3, % Inflation Sensitive UC Short Term TIPS Fund $ % UC TIPS Fund $ % Diversified Fixed Income UC Bond Fund $1, % New Large Equity UC Growth Company Fund $ % World ex-us Equity UC Diversified Intl. Fund $ % UC Emerging Markets Fund $ % Real Estate UC Real Estate Fund $ % Total $13,475 48% Annualized Total Return (%) 17

18 2017 lineup changes Overview of Changes Implementation Date I. Eliminated Calvert Fund moved assets to Vanguard Social Fund 2/28/2017 II. Repackaged Fidelity and DFA funds to institutional funds 10/02/2017 III. Renamed 3 Vanguard funds to easier naming convention 10/02/2017 IV. Eliminated the UC Balanced Growth and UC Global funds 10/02/2017 V. Implemented 3rd party manager for 12/31/2017 Lineup changes highlights: Transitioned $7.9 billion into new funds (35% of UCRSP plan assets); Completed a multi-stage communication campaign that reached over 300,000 participants; Reduced fees by over $6 million annually; Reduced operational complexity and risk; Allow participants to better understand their risk exposure; and Implement an easy to understand and consistent naming convention for all funds. 18

UC Retirement Savings Program Investment Performance and Program Review as of June 30, 2017

UNIVERSITY OF CALIFORNIA Office of the Chief Investment Officer ATTACHMENT 3 UC Retirement Savings Program Investment Performance and Program Review as of June 30, 2017 Growing Portfolios Building Partnerships