EVESTMENT INSTITUTIONAL INVESTMENT INTELLIGENCE CONFERENCE

EVESTMENT INSTITUTIONAL INVESTMENT INTELLIGENCE CONFERENCE 2018

Trends Update: Industry Themes Data Driven Insight Peter Laurelli Global Head of Research, evestment John Molesphini Global Head of Strategic Engagement, evestment

YOUR BUSINESS AND YOUR INDUSTRY

Let s focus on you. 90% of the firms represented here had asset gains in 2017, with a median increase of 15%, and a collective asset gain of $3.9 trillion. How about your peers? Performance-wise: 70% of your products improved Y/Y 90% of your products improved over prior 3YR average.

Did You Outperform Your Peers? % of strategies outperforming peers in 2017 Active Active FI Active Balanced Alts All Attending Managers 51% 50% 49% 34% < $100 billion 49% 46% 37% 20% $100 - $500 billion 52% 51% 48% > $500 billion 51% 52% 54% 39% Active Active FI Active Balanced Alts < $10 billion 54% 56% 75% 17% $10 - $25 billion 56% 33% 67% 22% $25 - $100 billion 46% 47% 29% 22%

Well, You Had Been Doing Better % of strategies outperforming peers based on 3 years ending 2016 Active Active FI Active Balanced Alts All Attending Managers 53% 51% 50% 43% < $100 billion 55% 45% 56% 59% $100 - $500 billion 53% 53% 55% > $500 billion 50% 56% 45% 39% Active Active FI Active Balanced Alts < $10 billion 55% 35% 60% 59% $10 - $25 billion 42% 44% 100% 75% $25 - $100 billion 59% 48% 52% 52%

How About 2017 Flows? All Attending Managers Flows $58,700 < $100 Billion $100 - $500 Billion > $500 Billion - $66,685 - $48,433 $173,818

How About All Asset Classes? All Attending Managers All Products Active Active FI Active Balanced Passive Passive FI Passive Balanced $58,700 -$201,076 $230,843 $8,407 -$18,826 $18,576 $232 $20,543 Alts < $100 B -$66,685 -$68,944 -$8,572 -$158 $2,646 $531 $0 $7,811 $100 - $500 B -$48,433 -$80,486 $27,061 -$365 $2,753 $0 $0 > $500 B $173,818 -$51,646 $212,354 $8,930 -$24,225 $18,045 $232 $12,731

Revenue

YOUR BUSINESS AND YOUR INDUSTRY

All Balanced/Multi- Asset All Fixed Income 50% Q4 08 All 2005 2017

Fixed Income Flows Balanced/Multi- Asset Flows Flows 2005 2017

Outflows US Non- US Last 5 Years $1.6 Trillion

Outflows 100% $0 90% 80% Non- US EQ 70% 60% 50% US 40% 30% 20% 10% Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 0%

Regional Preferences $90,000 $60,000 $30,000 $0 $0 All Japan All Australian All Europe All Canadian All UK All EAFE All Global -$30,000 All Emerging Mkts All Asia Pacific -$60,000 All ACWI ex-us -$90,000 2013 2017

Top/Bottom Universes evestment Universe Last 3YR Last 1YR H2 2017 EAFE $60,146 $20,245 $3,967 ACWI ex-us $59,837 $27,205 $14,979 US All Cap $39,693 $14,119 $4,304 Global Emerging Mkts $25,093 $17,482 $6,991 US Mid Cap $23,889 $7,262 -$910 US Mid Cap Growth -$43,485 -$12,445 -$6,796 Global All Cap Core -$43,890 -$17,059 -$15,659 US Large Cap Core -$98,191 -$43,190 -$19,505 US Large Cap Value -$229,323 -$75,126 -$39,832 US Large Cap Growth -$238,685 -$67,968 -$31,004

Top/Bottom Universes evestment Universe Active/Passive Last 3YR Last 1YR H2 2017 EAFE Passive $60,146 $20,245 $3,967 ACWI ex-us Passive $59,837 $27,205 $14,979 US All Cap Passive $39,693 $14,119 $4,304 Global Emerging Mkts Passive $25,093 $17,482 $6,991 US Mid Cap Passive $23,889 $7,262 -$910 US Mid Cap Growth Active -$43,485 -$12,445 -$6,796 Global All Cap Core Active -$43,890 -$17,059 -$15,659 US Large Cap Core Active -$98,191 -$43,190 -$19,505 US Large Cap Value Active -$229,323 -$75,126 -$39,832 US Large Cap Growth Active -$238,685 -$67,968 -$31,004

Fixed Income Flows Balanced/Multi- Asset Flows Flows 2005 2017

Fixed Income Preferences $500,000 $400,000 $300,000 $200,000 $100,000 Non-US (right axis) US (right axis) All US Fixed Income All Global Fixed Income $0 -$100,000 All Europe Fixed Income All Emerging Mkts Fixed Income -$200,000 2013 2017

Drivers of US Fixed Income Demand US Last 3YRs Last 1YR H2 2017 Global Last 3YRs Last 1YR H2 2017 US Core Plus $765 $57,960 $35,442 US Long Duration $39,844 $57,708 $20,507 US Core $41,766 $54,938 $24,324 US Passive Core $62,354 $29,494 $17,065 US FRBL $27,636 $17,335 $1,393 GBL Multi-Sector $84,175 $55,565 $26,207 GBL Unconstrained $30,154 $41,771 $20,541 GBL Agg $4,715 $27,475 $15,557 GBL Credit $36,240 $19,999 $2,532 GBL Passive $17,077 $12,810 $8,009 Europe Last 3YRs Last 1YR H2 2017 Global EM Last 3YR Last 1YR H2 2017 EUR Cash Mgmt $117,110 $47,960 $29,009 EUR Aggregate $3,949 $6,247 $3,825 EUR Sec. Loans $6,482 $6,041 $3,704 EUR Passive $1,788 $2,007 $2,069 EUR Government -$3,291 $898 -$569 EM Hard Ccy -$21,067 $12,161 $2,719 EM Corporate $9,758 $11,311 $4,412 EM Passive $7,905 $2,520 $1,531 EM Blended Ccy -$15,604 $2,395 $2,368 EM High Yield $694 $1,223 $821

Drivers of US Fixed Income Demand US 2017 US Core 58% US Core Plus 54% US Long Duration 47% US Passive Core 86% US FRBL 61% Global 2017 GBL Multi-Sector 63% GBL Unconstrained 64% GBL Credit 59% GBL Agg 60% GBL Passive 58% Europe 2017 EUR Cash Mgmt 62% EUR Aggregate 47% EUR Sec. Loans 60% EUR Passive 64% EUR Government 15% Global EM 2017 EM Hard Ccy 68% EM Corporate 73% EM Passive 64% EM Blended Ccy 71% EM High Yield 50%

CRITICAL TO BE AWARE VIGILANT CONTINUOUSLY EDUCATED

ACTIVE AND PASSIVE

All Balanced/Multi- Asset All Fixed Income 50% Q4 08 All 2005 2017

All Balanced/Multi- Asset Active Fixed Income 50% Passive and Fixed Income Active 2005 2017

Passive : US to International Last 5 Years AUM & Cumulative Net Flows Non-US Passive EQ Flow Passive US EQ AUM Passive Non-US EQ AUM $0 US Passive EQ Flow 2013 2017

Passive Non US ACWI ex-us EAFE Emerging Markets $100,000 $80,000 $60,000 $80,000 $60,000 $40,000 $20,000 $0 -$20,000 $60,000 $40,000 $20,000 $0 -$20,000 -$40,000 -$60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 -$40,000 -$80,000 -$10,000 Passive Active 2013 2017 Cumulative Net Flows

Passive US Fixed Income $600,000 Corporate Government Securitized High Yield $500,000 $400,000 Long Duration $300,000 $200,000 Tips/ Inflation Core $100,000 $0 -$100,000 Intermediate Duration Short Duration Passive Active 2015 2017 Cumulative Net Flows

Despite the apparent success of active core in the last few years passive core strategies have out-raised active core strategies by nearly 50%.

Non- US Fixed Income $200,000 Global Fixed Income $20,000 Emerging Markets Fixed Income $150,000 $0 $100,000 -$20,000 $50,000 -$40,000 $0 -$60,000 -$50,000 -$80,000 Passive Active 2015 2017 Cumulative Net Flows

evestment Universe Active/ Passive H2 2017 ACWI ex-us Passive $ 14,979 Global Emerging Mkts Passive $ 6,991 US All Cap Passive $3,967 EAFE Passive $ 3,746 Australian EQ - Enhanced Index Passive $3,195 ACWI ex-us Large Cap Growth EQ Active $2,765 ACWI ex-us All Cap Growth EQ Active $2,399 Japan All Cap Growth Active $2,372 Global Large Cap Growth Active $2,334 US Large Cap Growth Passive $2,239 US Russell 1000 Passive - $7,597 US All Cap Core Active - $7,994 US Small Cap Value Active - $8,500 EAFE Large Cap Core Active - $8,723 Global Passive - $ 11,338 Global All Cap Core Active - $15,651 US Large Cap Core Active - $19,505 US Large Cap Growth Active - $31,004 US Large Cap Value Active - $39,832 US S&P 500 Passive - $54,466

Fixed Income evestment Universe Active/ Passive H2 2017 US Core Plus Fixed Income Active $ 35,442 Global Multi-Sector Fixed Income Active $ 26,207 US Core Fixed Income Active $ 24,324 Global Unconstrained Fixed Income Active $20,541 US Long Duration Fixed Income Active $20,507 US Short Duration Fixed Income Active $19,215 US Core Fixed Income Passive $ 17,065 Global Agg Fixed Income Active $15,557 US Corporate Fixed Income Active $ 8,353 Global Fixed Income Passive $ 8,009 UK Aggregate Fixed Income Active - $ 1,223 Global Government Fixed Income Active - $ 1,506 US Municipal FI - Interm Duration Active - $1,756 Canadian Core Fixed Income Active - $1,859 Europe Fixed Income - High Yield Active - $2,052 Japan Fixed Income Passive - $2,477 UK Fixed Income Passive - $2,518 US Stable Value (Book Value) FI Active - $4,838 UK Corporate Fixed Income Active - $ 6,454 US High Yield Fixed Income Active - $24,809

Alternatives Factors influencing current demand, and estimating future changes.

Cash Active Fixed Income Alternatives, Multi- Asset, Other Passive and Fixed Income Active 2005 2017

Demand In Action Mandates awarded by US public plans, by asset class in 2017. Asset Class % of Total Mandates in 2017 Private 33% Real Assets 27% Private Debt 13% 11% Hedge Fund 5% Fixed Income 5% Multi Asset 3% Private - FoFs 1% Hedge Fund - FoFs 0.5% Real Assets - FoFs 0.2%

US Public Plan Target Allocations Ongoing Alignment of Current and Target Allocations. Asset Class Current asset allocation Policy AA 54.1% 52.3% Fixed Income 24.9% 25.9% Real Assets 10.8% 11.7% Multi Asset 4.0% 4.3% Hedge Funds 3.5% 3.9%

US Public Plan Target Allocations Asset Class Implied Weight Shift Implied Flow ($MM) Private 0.7% $24,565.34 Multi-Real Asset 0.5% $16,831.45 Hedge Funds 0.3% $10,744.16 Balanced/Multi-Asset 0.3% $10,542.65 Cash & Equivalents 0.3% $8,587.03 Private Debt 0.2% $7,279.20 U.S. Fixed Income 0.2% $7,116.84 Trsy/Core(+) Fixed Income 0.2% $6,012.69 Public/Private Real Estate 0.2% $6,001.86 High Yield/Bank Loan 0.2% $5,584.13 Global Fixed Income 0.1% $3,887.72 Private Real Estate 0.1% $3,653.07 Infrastructure 0.1% $2,476.60 Emerging Markets Fixed Income 0.1% $2,325.02 Mixed Fixed Income 0.1% $2,284.00 Commodities 0.0% $1,227.01 Public Real Estate 0.0% $33.84 Emerging Markets 0.0% -$1,593.32 Global -0.2% -$5,357.61 International -0.8% -$25,977.10 U.S. -1.0% -$34,439.72

Emerging Strategies Where are the best opportunities for growth within active strategies?

RAPID GROWTH UNIVERSES SHOW Greater tendency for inflows Higher probability of success Consistently over time

Okay but, is there any momentum in rapid growth?

Rapid Growth Momentum 3 YRS OF RAPID GROWTH 1YR 2YR 3YR 4YR 5YR 6YR 7YR 8YR 9YR 10YR 11YR 12YR 13YR 2004 68% 72% 48% 52% 68% 36% 32% 36% 36% 56% 36% 12% 24% 2005 80% 56% 60% 56% 40% 48% 44% 28% 48% 32% 4% 24% 2006 52% 52% 44% 40% 32% 52% 24% 44% 32% 0% 28% 2007 56% 52% 52% 40% 52% 32% 44% 36% 4% 28% 2008 64% 60% 44% 72% 52% 56% 48% 4% 36% 2009 56% 44% 80% 52% 64% 44% 12% 32% 2010 60% 84% 60% 64% 64% 16% 56% 2011 92% 68% 60% 44% 36% 60% 2012 76% 72% 52% 44% 60% 2013 76% 56% 56% 56% 2014 56% 56% 60% 2015 60% 68% YEARS SINCE RAPID GROWTH MEASURED 2016 56% Proportion of Top 25 fastest growing universes with win- rate >50% Proportion of Top 25 fastest growing universes with win- rate >50% Proportion of Top 25 fastest growing universes with win-rate >50%

Rapid Growth Momentum 3 YRS OF RAPID GROWTH YEARS SINCE RAPID GROWTH MEASURED 1YR 2YR 3YR 4YR 5YR 6YR 7YR 8YR 9YR 10YR 11YR 12YR 13YR 2004 $16.1 $4.5 $15.7 -$6.6 $16.8 -$5.6 -$19.4 -$21.8 -$25.5 -$8.1 -$38.7 -$37.9 -$17.0 2005 $14.9 $32.0 $7.1 -$2.8 -$21.3 -$45.4 -$31.1 -$28.8 -$21.6 -$53.2 -$45.9 -$32.8 2006 $28.9 -$7.9 -$13.4 -$55.5 -$23.2 -$20.4 $14.0 -$14.8 -$50.1 -$65.5 -$21.0 2007 $6.2 $5.1 $4.3 $4.6 $23.0 $20.5 -$24.6 -$17.2 -$36.8 -$0.1 2008 -$9.5 $16.7 $18.2 $56.0 $85.2 $19.6 $0.8 -$3.2 $48.1 2009 $0.7 $14.9 $33.3 $78.0 $13.7 -$9.8 -$9.9 $41.4 2010 $5.5 $8.1 $7.0 $4.2 $3.4 -$27.6 $7.1 2011 $111.3 $101.6 $46.7 $17.3 -$40.8 -$4.6 2012 $177.1 $95.6 $28.1 -$59.9 $37.3 2013 $112.2 $61.0 -$43.2 $72.0 2014 $61.7 -$41.7 $73.3 2015 -$8.7 $94.4 2016 $83.6 Net Flow For Top 25 Fastest Growing Universes, USD Billions

Top 25 Fastest Growing Universes EAFE Small Cap Value Global Emerging Mkts Small Cap Canadian Core Plus Fixed Income Infrastructure Global EM High Yield Fixed Income EAFE Small Cap Growth South East Asia Africa ex-south Africa Global EM Fixed Income Blended Currency Global Small Cap Core Global Small Cap Growth US Unconstrained Fixed Income Global All Cap Core ACWI ex-us Small Cap Growth All Lifestyle/Target Risk Conservative Global Unconstrained Fixed Income Australian Shares Small Cap Diversified Growth Funds Global Enhanced Global High Yield Fixed Income Global Emerging Mkts All Cap Value ACWI ex-us All Cap Growth All Lifestyle/Target Risk Aggressive Global EM Fixed Income Hard Currency US Multi-Sector Fixed Income

Your Advantage Recognizing demand in emerging strategies as it happens.

Visible Demand 2013 2017

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You re here, and so are we.