KATHLEEN RILEY BROWN, Assistant Retirement Administrator

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1 Agenda Item No. Board Meeting January 25, 2017 Reviewed by D-5 Retirement Administrator REPORT TO THE JOINT RETIREMENT BOARDS January 19, 2017 FROM: BY: SUBJECT: ROBERT T. THELLER, Retirement Administrator KATHLEEN RILEY BROWN, Assistant Retirement Administrator REVIEW ASSET ALLOCATION DECEMBER 31, 2016, UPDATE ON JANUARY 2017 DRAWBACK AND FUNDING OF OPERATING AND PAYROLL EXPENSES FOR FEBRUARY 2017 BACKGROUND: Asset Allocation The Boards current target allocations by asset class are 60% equities (30% domestic and 30% international), 19% fixed income (including 4% direct lending, 4% absolute return), 6% high yield, and 15% real estate. Outstanding capital commitments [net of distributions] for direct lending $47.0 million and $25.9 million for value add real estate portfolios. Attached is our asset allocation spreadsheet as of December 31, Activity for the month of December shows a net increase from investments of approximately 1.62 percent or $41.2 million related to monthly activity in global markets. After deducting outstanding benefit payment checks and tax deposits, adding class action settlements and employer and member contributions, the Payroll account balance is ~ $836,476 as of December 31, Drawback/Withdrawals At their meeting on November 22, 2016, the Boards approved the staff recommendation to authorize a drawback from NTAM Russell 1000 Index fund in the amount up to $6.8 million to fund benefit and operating expenses for the month of January The updated projections show that only $6.0 million is needed to fund benefit payments and operating expenses. The trade will be executed on January 27 th for settlement on January 30 th. Current projections also show that $7.4 million is the amount needed to fund benefit and operating expense for the month of February RECOMMENDATION Staff is recommending that the Boards authorize a drawback from NTAM Russell 1000 Index fund in the amount up to $7.4 million to fund benefit and operating expenses for the month of February BOARD ACTION: APPROVED LAID OVER REC REVIEW

2 CITY OF FRESNO RETIREMENT SYSTEMS Manager Current Drawback Withdrawal/ Ending Ending Target Variance Balance Expenses Contributions Balance Pct Pct Pct. BlackRock Russell ,364, ,364, % 14.88% -2.74% BlackRock SP ,071,412 0 (47,052,000) 54,019, % 2.00% 0.09% NTAM Russell 1000 Index 163,974,811 (13,400,000) 0 150,574, % 5.62% 0.21% Eagle 104,041, ,041, % 3.75% 0.28% Kennedy 119,065, ,065, % 3.75% 0.86% BlackRock ACWIxUS 233,677, ,677, % 9.75% -0.70% Baillie Gifford 244,818, ,818, % 9.75% -0.27% Principal EAFE 179,073, ,073, % 7.50% -0.56% Acadian EME 40,466, ,466, % 1.50% 0.07% Axiom EME 38,805, ,805, % 1.50% 0.00% Totals 1,538,357,528 (13,400,000) (47,052,000) 1,477,905, % 60.00% -2.74% Manager Current Drawback Withdrawal/ Ending Ending Target Variance Balance Expenses Contributions Balance Pct Pct Pct. Prudential 138,788, ,788, % 5.00% 0.38% Dodge & Cox 240,663, ,663, % 6.50% 2.82% Loomis Sayles 144,253, ,253, % 5.50% 0.09% Crescent Capital 37,879, ,552,000 52,431, % 2.00% 0.03% Monroe Capital 19,522, ,500,000 52,022, % 2.00% 0.02% PIMCO COF II 6,155, ,155, % 0.25% -0.01% PIMCO Income Fund 87,666, ,666, % 4.00% -0.60% JPMorgan 217,023, ,023, % 8.00% 0.41% Heitman REIT 57,479, ,479, % 2.50% -0.27% Principal REIT 80,689, ,689, % 3.50% -0.37% Oaktree Value Add RE 1,500, ,500, % 0.25% -0.19% PCCP Value AddReal Estate 5,498, ,498, % 0.25% -0.04% PIMCO BRAVO III 4,800, ,800, % 0.25% -0.06% Payroll 836,476 13,400, ,236, % 0.00% 0.55% Totals 1,042,757,796 13,400,000 47,052,000 1,103,209, % 40.00% 2.74% * 2,581,115, ,581,115, % % 0.00% * Total excludes Operating Account and Domestic/Global Transition accounts Page 1

3 City of Fresno Retirement Systems Asset Reallocation and Drawback Analysis Summary of Total Investments by Portfolio Manager Portfolio Manager Total Investment Pct Total After Rebal. Pct BlackRock 414,436, % 367,384, % BlackRock ACWIxUS 233,677, % 233,677, % Baillie Gifford 244,818, % 244,818, % NTAM Russell 1000 Index 163,974, % 150,574, % Dodge & Cox 240,663, % 240,663, % Eagle 104,041, % 104,041, % Heitman REIT 57,479, % 57,479, % JP Morgan 217,023, % 217,023, % Kennedy 119,065, % 119,065, % Loomis Sayles 144,253, % 144,253, % Oaktree 1,500,028 PCCP 5,498,704 PIMCO UBF/Income Fund/COF II/BRAVO III 98,621, % 87,666, % Principal EAFE 179,073, % 179,073, % Principal REIT 80,689, % 80,689, % Prudential 138,788, % 138,788, % Crescent Capital 37,879, % 52,431, % Monroe Capital 19,522, % 52,022, % Acadian EME 40,466, % 40,466, % Axiom EME 38,805, % 38,805, % Tax Recoverables 9, % 0.00% Dom Transition Accounts 1 1 Global Transition Accounts 4 4 Operating Account 1,444, % 1,444, % Payroll Account 836, % 836, % Total 2,582,569, % 2,551,205, % Page 2

4 CITY OF FRESNO RETIREMENT SYSTEMS - NEW ASSET CLASSES & PRELIMINARY ASSET ALLOCATION Managers Large Cap Small Cap Intern'l Emerging Mkt Total Pct. Pct. Total Portfolio BlackRock Russell ,364, ,364, % 12.14% BlackRock SP ,071, ,071, % 3.92% NTAM Russell 1000 Index 163,974, ,974, % 6.35% Eagle 104,041, ,041, % 4.03% Kennedy 119,065, ,065, % 4.61% BlackRock ACWIxUS 180,866,192 52,811, ,677, % 9.05% Baillie Gifford ACWIxUS 189,979,214 54,839, ,818, % 9.48% Principal EAFE 179,073, ,073, % 6.94% Acadian 40,466,116 40,466, % 1.57% Axiom 38,805,106 38,805, % 1.50% Totals 578,411, ,106, ,918, ,921,640 1,538,357, % 59.60% Actual Pct. Allocation 22.41% 8.64% 21.31% 7.24% 59.60% Target Allocation 22.50% 7.50% 22.00% 8.00% 60.00% Variance -0.09% 1.14% -0.69% -0.76% -0.40% Target Ranges 16-30% 4-12% 16-30% 0-10% Fixed Income & Real Estate Managers Fixed Income Core High Yield/DL Absolute Return Real Estate Total Pct.Fixed Income Pct. Total Portfolio Prudential 138,788, ,788, % 5.38% Dodge & Cox 222,228,939 18,434, ,663, % 9.32% Loomis Sayles HY Bonds 144,253, ,253, % 5.59% Crescent 37,879,493 37,879, % 1.47% Monroe 19,522,302 19,522, % 0.76% PIMCO COF II 6,155,076 6,155,076 PIMCO - UBF and Income Fund 87,666,913 87,666, % 3.40% J.P. Morgan Real Estate 217,023, ,023, % 8.41% Heitman REIT 57,479,028 57,479, % 2.23% Principal REIT 80,689,574 80,689, % 3.13% Oaktree Value Add RE 1,500,028 1,500, % 0.06% PCCP Value Add RE 5,498,704 5,498, % 0.21% PIMCO BRAVO III 4,800,000 4,800, % 0.19% Payroll Account 836, % 0.03% Totals 361,017, ,090,484 93,821, ,990,982 1,042,757, % 40.16% Actual Pct. Allocation 13.99% 8.53% 3.63% 14.22% 40.40% Target Allocation 11.00% 10.00% 4.00% 15.00% 40.00% Variance 2.99% -1.47% -0.37% -0.78% 0.40% Target Ranges 5-20% 4-12% 0-8% 5-20% 2,581,115, % Page 2 1/19/2017

5 CITY OF FRESNO RETIREMENT SYSTEMS PORTFOLIO REALLOCATION WITH NEW ASSET CLASSES SHOWN BUT NOT ALLOCATED Pct. Pct. Pct Low High Range Adj. Withdrawal/ Balance Variance Manager Total of of Total Target Band Band to Target Drawback Contribution After Pct. Total From Holdings Portfolio Alloc. Range Range Allocation Amount Amounts Drawback Portfolio Target BlackRock Russell ,364, % 12.14% 14.88% 14.13% 15.63% 70,705, ,364, % -2.74% BlackRock SP ,071, % 3.92% 2.00% 1.25% 2.75% (49,449,106) (47,052,000) 54,019, % 0.09% NTAM R1000 Index 163,974, % 6.35% 5.62% 4.87% 6.37% (18,916,130) JAN/FEB (13,400,000) 150,574, % 0.21% Eagle 104,041, % 4.03% 3.75% 3.00% 4.50% (7,249,338) 104,041, % 0.28% Kennedy 119,065, % 4.61% 3.75% 3.00% 4.50% (22,273,346) 119,065, % 0.86% BlackRock ACWIxUS 233,677, % 9.05% 9.75% 8.55% 10.95% 17,981, ,677, % -0.70% Baillie Gifford 244,818, % 9.48% 9.75% 8.55% 10.95% 6,840, ,818, % -0.27% Principal EAFE 179,073, % 6.94% 7.50% 6.30% 8.70% 14,510, ,073, % -0.56% Acadian EME 40,466, % 1.57% 1.50% 0.75% 2.25% (1,749,386) 40,466, % 0.07% Axiom 38,805, % 1.50% 1.50% 0.75% 2.25% (88,376) 38,805, % 0.00% Totals 1,538,357, % 59.60% 60.00% 10,311,666 (13,400,000) (47,052,000) 1,477,905, % -2.74% Actual Pct. Allocation 59.60% Target Allocation 60.00% Variance -0.40% Note: ` If actual is over or under range limits, model adjusts to target. Pct. Pct. Pct Low High Range Adj. Withdrawal/ Balance Variance Manager Total of of Total Target Band Band to Target Drawback Contribution After Pct. Total From Holdings Fixed Income Portfolio Alloc. Range Range Allocation Amounts Drawback Portfolio Target Prudential 138,788, % 5.38% 5.00% 3.74% 6.26% (9,733,160) 138,788, % 0.38% Dodge & Cox 240,663, % 9.32% 6.50% 5.24% 7.76% (72,891,288) 240,663, % 2.82% Loomis Sayles 144,253, % 5.59% 5.50% 4.00% 7.00% (2,292,501) 144,253, % 0.09% Crescent 37,879, % 1.47% 2.00% 0.50% 3.50% 13,742,813 14,552,000 52,431, % 0.03% Monroe 19,522, % 0.76% 2.00% 0.50% 3.50% 32,100,004 32,500,000 52,022, % 0.02% PIMCO COF II 6,155, % 0.24% 0.25% -1.25% 1.75% 297,712 6,155, % -0.01% PIMCO - Income Fund 87,666, % 3.40% 4.00% 2.50% 5.50% 15,577,700 87,666, % -0.60% J.P. Morgan Real Estate 217,023, % 8.41% 8.00% 6.50% 9.50% (10,534,422) 217,023, % 0.41% Heitman REIT 57,479, % 2.23% 2.50% 1.00% 4.00% 7,048,855 57,479, % -0.27% Principal REIT 80,689, % 3.13% 3.50% 2.00% 5.00% 9,649,462 80,689, % -0.37% Oaktree Value Add RE 1,500, % 0.06% 0.25% -1.25% 1.75% 4,952,760 1,500, % -0.19% PCCP Value Add RE 5,498, % 0.21% 0.25% -1.25% 1.75% 954,084 5,498, % -0.04% PIMCO BRAVO III 4,800, % 0.19% 0.25% -1.25% 1.75% 1,652,788 4,800, % -0.06% Payroll Account 836, % 0.03% 0.00% 0.00% 0.00% (836,476) JAN/FEB 13,400,000 14,236, % 0.55% Totals 1,042,757, % 40.40% 40.00% (10,311,666) 13,400,000 47,052,000 1,103,209, % 2.74% Actual Pct. Allocation 40.40% Target Allocation 40.00% (0) 0 0 2,581,115, % 0.00% Variance 0.40% 2,581,115,324 Page 3

6 CITY OF FRESNO RETIREMENT SYSTEMS Variance Managers: Current Month Prior month Net Change Pct. from Index Index Benchmark BlackRock Russell ,364, ,568,556 5,796, % 0.00% 1.88% Russell 1000 BlackRock SP ,071,412 99,110,770 1,960, % 0.00% 1.98% SP 500 NTAM Russell ,974, ,770,043 3,204, % 0.01% 1.98% SP 500 Eagle 104,041, ,072,183 (31,020) -0.03% -1.39% 1.36% Russell 2000 Growth Kennedy 119,065, ,881,621 5,183, % 0.42% 4.13% Russell 2000 Value BlackRock ACWIxUS 233,677, ,809,944 5,867, % -0.01% 2.59% MSCI ACWIxUS Baillie Gifford 244,818, ,234,914 1,583, % -1.94% 2.59% MSCI ACWIxUS Principal EAFE 179,073, ,122,266 4,950, % -0.60% 3.44% MSCI EAFE Acadian EME 40,466,116 39,992, , % 0.90% 0.29% MSCI Emerging Mrkts Axiom EME 38,805,106 38,839,978 (34,872) -0.09% -0.38% 0.29% MSCI Emerging Mrkts Totals 1,538,357,528 1,509,402,388 28,955, % Variance Managers: Current Month Prior Month Net Change Pct. from Index Index Benchmark Prudential 138,788, ,614, , % -0.01% 0.14% BC US Aggregate Dodge & Cox 240,663, ,411,546 1,252, % 0.38% 0.14% BC US Aggregate Loomis Sayles 144,253, ,268,100 1,985, % -0.45% 1.85% BC US Corporate High Yield Crescent 37,879,493 37,878,355 1, % -0.62% 0.62% Libor % Monroe 19,522,302 19,519,831 2, % -0.61% 0.62% Libor % PIMCO COF II 6,155,076 6,155, % 0.00% TBD PIMCO Income Fund 87,666,913 86,767, , % 0.90% 0.14% BC US Aggregate J.P. Morgan Real Estate 217,023, ,409,626 1,614, % NCREIF Qtrly Return Heitman REIT 57,479,028 54,969,673 2,509, % -0.31% 4.87% WRESI Principal REIT 80,689,574 77,050,493 3,639, % -0.15% 4.87% WRESI Oaktree Value Add RE 1,500,028 1,500, % 0.00% TBD PCCP Value Added RE 5,498,704 5,498, % 0.00% TBD PIMCO BRAVO III 4,800,000 4,800,000 0 TBD Payroll Account 836, , ,815 Fixed Income and Real Estate 1,042,757,796 1,030,502,220 12,255, % Totals 2,581,115,324 2,539,904,608 41,210, % Prior month Drawback 6,700,000 Totals 2,546,604,608 Page 4