Is this a good time to invest in private equity?

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WEEKLY GUIDANCE FROM OUR I NVESTMENT STRATEGY COMMITTEE Yegin Chen Global Alternative Investment Strategist February 5, 2018 How Have Private Equity Funds Performed Across Cycles? Key takeaways» Private equity funds strive to deliver significant capital appreciation for investors. These funds are only available to qualified investors able to meet certain eligibility requirements. 1» Over a 30-year period, performance data for private equity funds tracked by Preqin show that private equity funds in the first and second quartile of performance have been able to deliver attractive returns over the life of the fund. What it may mean for investors» Overall, private equity funds can deliver strong returns regardless of the stage of the economic cycle, likely because the funds long-term structure does not require them to be forced buyers at high valuations or forced sellers at low valuations.» A program of sustained, regular commitments to private equity funds over time can potentially provide better vintage year diversification, manager diversification, and performance than an effort to market time private equity fund investments can. Is this a good time to invest in private equity? Asset Group Overviews Equities... 5 Fixed Income... 6 Real Assets... 7 Alternative Investments... 8 Meaningful capital appreciation, sometimes with a healthy income component, has made private capital an important growth driver in portfolios of qualified investors. As one of the primary private capital strategies (along with private debt, private real estate, and private real assets), private equity historically has provided significant capital appreciation by acquiring equity stakes in promising companies. What returns have private equity funds actually posted and how do those returns relate to economic cycles? Is this a good time to invest in private equity? We will share our thoughts on these questions in today s report. Although Wells Fargo Investment Institute is not forecasting a U.S. economic slowdown or recession, the first question may be pertinent for investors that are committing capital to long-lockup vehicles and who may encounter an economic slowdown or recession during their lifetimes. 1 In general, a key eligibility requirement for most private equity funds involves being a qualified purchaser: individuals need investments of $5 million, while entities need investments of $25 million. Other requirements may apply. 2018 Wells Fargo Investment Institute. All rights reserved. Page 1 of 10

How Have Private Equity Funds Performed Across Cycles? We also will review 30 years of performance data to see whether private equity funds have been able to realize their theoretical structural advantages, particularly the ability to avoid being a forced buyer or a forced seller of assets. This review demonstrates that first and second-quartile private equity funds historically have performed solidly across market cycles. Historical private equity fund performance Chart 1 displays summary return information, as of early 2018, for the median private equity fund in terms of performance (the fund ranked at the midpoint for performance). These funds represent the Preqin universe of private equity funds globally, from vintage years 1986 to 2015, with performance data (totaling 5,581 funds). 2 They include funds in all of the main private equity sub-strategies (including venture capital, growth equity, buyouts, and secondaries) with vintage years 1986 to 2015 (the most recent vintage year with meaningful data available). Returns are measured by an industrystandard performance metric: the fund s net internal rate of return (IRR) per year to investors since inception. 3 Chart 1. Private equity performance by fund vintage year (median performance) 30 25 Net IRR (% per annum) 20 15 10 5 0 198619881990199219941996199820002002200420062008201020122014 Source: Preqin, January 2018. Performance shown is for illustrative purposes only and does not constitute advice or a recommendation of the suitability of any investment strategy, including private equity strategies. The data should not be relied upon as a measure of the performance other private equity funds may achieve within or outside the Preqin universe, and should not be considered a prediction of future rates of returns or serve as the basis of an investment decision. Please see the information on calculating private equity returns at the end of this report. Past performance is no guarantee of future results. 2 Preqin is a leading source of data and intelligence for the alternative investment industry. Preqin tracks private equity funds globally through public filings with the Securities and Exchange Commission, financial reports from publicly-traded private equity managers, Freedom of Information Act requests to public pension investors, and direct communications with private equity managers, with fund performance data ultimately provided by both limited partners and general partners. The author believes that funds not tracked by Preqin or without performance data in the Preqin system are generally smaller or closely-held vehicles without a widespread institutional or high net worth investor base. 3 The IRR takes into account the timing of when capital is invested, the timing of when capital is distributed back to investors, and how the unrealized portfolio is valued on a quarterly basis. Net IRRs to investors are the IRRs to investors from the fund s aggregate gross investment cash flows after deducting management fees, incentive compensation/carried interest, taxes, transaction expenses, and other fund-level expenses. Carried interest is the manager s share in the profits that the manager generates for the fund. 2018 Wells Fargo Investment Institute. All rights reserved. Page 2 of 10

How Have Private Equity Funds Performed Across Cycles? Similar in concept to a wine s vintage, a fund s vintage is the year that the fund starts investing, which can impact the fund s ultimate outcome. For example, investors who made commitments to a vintage year 1986 fund that performed at the median level experienced an IRR of 14% per annum over the life of the fund. For investors who committed to the median fund just one year later, in vintage year 1987, a slightly higher annual return of 15% was seen over the fund s life. Chart 1 shows that top private equity funds have been able to post solid returns across economic cycles. Over a 30-year span that encompassed several market disruptions, mild recessions, and the Great Recession, median private equity funds generated net IRRs that ranged from a low of 5.2% per year (for funds that started investing in 1999 just prior to the dot-com crash) to a high 28.1% per year (for vintage year 1993). There is no vintage year in which the median fund (and, by extension, the funds in the top or second quartile) lost money for its investors. Further, there were several years in which even the median fund surpassed the common return target of 20% IRR per year. Chart 2 shows data for the same universe of private equity funds as Chart 1 does. The only difference is that Chart 2 displays net IRR data for the top quartile funds for a given vintage year. It displays the net IRR of the bottom fund in the top quartile for a given vintage year, much like Chart 1 displays the net IRR of the bottom fund in the second quartile (the median fund) for a given vintage year. Investors that were able to select and invest in funds that ended up in the top quartile enjoyed significantly higher returns than investors in funds with a median return did. Top quartile funds posted net IRRs ranging from at least 12.3% per annum (for funds that started investing in 2006) to at least 45% per annum (for funds in vintage year 1993). In many years, top quartile private equity funds surpassed the common return target of 20% IRR per year. Chart 2. Private equity performance by fund vintage year (top quartile) 50 45 40 Net IRR (% per annum) 35 30 25 20 15 10 5 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: Preqin, January 2018. Performance shown is for illustrative purposes only and does not constitute advice or a recommendation of the suitability of any investment strategy, including private equity strategies. The data should not be relied upon as a measure of the performance that other private equity funds within or outside the Preqin universe may achieve, and should not be considered a prediction of future rates of returns or serve as the basis of an investment decision. See information on calculating private equity returns at the end of this report. Past performance is no guarantee of future results. 2018 Wells Fargo Investment Institute. All rights reserved. Page 3 of 10

How Have Private Equity Funds Performed Across Cycles? Private equity funds can weather even significant market downturns due to their longterm structure, with a typical five year investment period (so that the fund can invest at attractive times) plus a typical realization period of five years (during which the fund can select attractive times to sell). Investment implications The 30 years of data that we have examined include three recessions and market disruptions, each with different causes and characteristics (those of 1990-1991, 2001 and 2008-2009). Even with these three downturns, private equity fund investors in the 1986-2015 period enjoyed net IRRs of at least 5.2% per year over the funds lives, provided that they were able to select a fund that became a top or second quartile performer. Investors in funds that performed in the top quartile experienced significantly higher IRRs of at least 12.3% per annum over those funds lives, underscoring the key role that manager selection can play in private equity investment. This analysis suggests that private equity funds can deliver strong returns even in periods of economic weakness and that trying to market time private equity investments has limited value (when compared to selecting good fund managers). One caveat is that qualified investors considering private equity need to accept illiquidity, since the funds do not provide redemption rights over their lives (during which they may pay out dividends and sale proceeds). Qualified investors also need to consider the risk of poor fund selection (particularly selecting a bottom-quartile fund that may post losses). One strategy with the potential to help mitigate this risk is to diversify portfolios across managers, strategies, and vintage years. Overall, a program of regular commitments to top private equity managers over time may provide solid returns for qualified investors able to meet eligibility requirements. 2018 Wells Fargo Investment Institute. All rights reserved. Page 4 of 10

EQUITIES Stuart Freeman, CFA Co-Head of Global Equity Strategy U.S. Small Cap Equities U.S. Large Cap Equities U.S. Mid Cap Equities Developed Market Ex-U.S. Equities Emerging Market Equities Consumer Discretionary sector outperformance should continue Over the past 12 months, the cyclically sensitive S&P 500 Consumer Discretionary sector has outperformed the more defensive S&P 500 Consumer Staples sector by 16.5 percentage points. Consumer Discretionary stocks tend to be those whose businesses sell products that consumers are more likely to buy when consumer confidence and the economy are healthy. Companies in the Consumer Staples sector sell products that often are bought on a consistent basis over the course of a full economic cycle. For instance, homebuilders fall into the discretionary camp, while food retailers tend to be more defensive and less impacted by the rise and fall of the U.S. economy. Looking back to 1984, when the Consumer Discretionary sector has outperformed the Consumer Staples sector by 14-19% over a 12-month period, the former has continued to outperform over the next six months 81% of the time. The overall average and median outperformance were 8 and 11 percentage points, respectively. When the Consumer Discretionary sector outperformed over that next six-month period (81% of the time), it was ahead by an average and median of 13 percentage points. When it underperformed Consumer Staples (19% of the time), the average and median underperformance were -13 and -6 percentage points, respectively. The material difference between the average and median declines resulted from the mid-2000 to mid-2001 period, during which the overall market was responding aggressively to recession. Today, we foresee low odds of recession over the next 12 months. This increases the odds of Consumer Discretionary sector outperformance versus Consumer Staples, and of overall outperformance of cyclically sensitive stocks over defensive equities. Key takeaways» We expect the Consumer Discretionary sector to continue outperforming the Consumer Staples sector in the coming months.» Consumer Discretionary stocks tend to outperform Consumer Staples equities when the economy is healthy and expanding. When the Consumer Discretionary sector has outperformed Consumer Staples by 14%- 19%, this tends to continue near term Consumer Discretionary versus Consumer Staples - Relative Performance 50 40 30 20 10 0-10 -20-30 -40 Consumer Discretionary versus Consumer Staples Next 6 Months Consumer Discretionary underperforming Consumer Staples January 2018, 16.5% Consumer Discretionary outperforming Consumer Staples -50 Sources: S&P Capital IQ, Bloomberg, Wells Fargo Investment Institute; January 31, 2018. The chart above illustrates the number of occurrences when the 12-month return (purple lines) of the Consumer Discretionary sector has either outperformed or underperformed the Consumer Staples sector. The subsequent 6-month return following this over (under) performance is illustrated with the green line. Past performance is no guarantee of future results. An index is unmanaged and not available for direct investment. Please see index definitions at the end of the report. 2018 Wells Fargo Investment Institute. All rights reserved. Page 5 of 10

FIXED INCOME Brian Rehling, CFA Co-Head of Global Fixed Income Strategy Underweight High Yield Taxable Fixed Income Underweight Developed Market Ex.-U.S. Fixed Income U.S. Short Term Taxable Fixed Income U.S. Long Term Taxable Fixed Income Emerging Market Fixed Income Seasonal trends in the bond market Ten-year Treasury yields have come under pressure in recent weeks. The 10-year Treasury yield traded near 2.75% last week, after starting the year at 2.45%; this is the highest level since 2014. It is helpful to add some perspective to this move; even after this increase, the 10-year Treasury yield is only about 10 basis points higher than we saw last March. Last year, 10-year Treasury yields rose through the March high before moving lower throughout the summer and then stabilized into year-end. Seeing higher rates early in the year before rates fall at midyear is not unusual when considering seasonal trends. The chart shows the 20-year monthly average of the 10-year Treasury yield relative to its yield at the beginning the year. The data supports a clear trend of rates rising over the first five months of an average year before declining throughout the summer. This seasonal bond-market pattern likely has some basis in the stock-market adage sell in May and go away. When the stock market declines, investors generally move away from risk, and a natural landing spot is Treasury securities. Not all years hold to this pattern, but investors should understand seasonal factors that can influence bond-market yields. Higher interest rates early in the year do not necessarily indicate that those higher yields will persist. Our forecast is for the 10-year Treasury yield to end 2018 in a range of 2.50-3.00%. Rate volatility inevitably will pick up at some point, and yields trading both above and below our forecast range throughout 2018 should be expected. Yet, we still believe that systemic issues are likely to conspire to keep U.S. rates relatively contained over the next decade. Key takeaways» It is important to plan for potential risks in fixed-income markets, even as we anticipate only gradually rising interest rates.» Given the current low-yield environment, fixed-income investors are likely to experience lower returns in the future than they have experienced over the past decade.» We favor a neutral duration profile for bond allocations across the yield curve. Seasonal trend of 10-year Treasury yield changes 0.1 U.S. Taxable Investment Grade Fixed Income U.S. Intermediate Term Taxable Fixed Income Average change in yield 0.05 0-0.05-0.1-0.15-0.2-0.25 January February March April Source: Bloomberg, Wells Fargo Investment Institute, January 29, 2018. Chart shows the 20-year monthly average of the 10-year Treasury yield relative to its yield at the beginning of the year. 2018 Wells Fargo Investment Institute. All rights reserved. Page 6 of 10 May June July August September October November December

REAL ASSETS John LaForge Head of Real Asset Strategy None but a coward dares to boast that he has never known fear. -- Marshal Ferdinand Foch Underweight Commodities Private Real Estate Overweight Public Real Estate Commodities and the U.S. dollar One of the woeful underperformers in 2017, and again so far in 2018, has been the U.S. dollar. From December 2016 (the last peak) through January 2018, the U.S. dollar dropped nearly 14 percent. Dollar drops of more than 10% are shown in Table 1. Of the 22 times that the U.S. dollar has fallen by more than 10%, since 1980, today s 14% drop is about the average performance. While the dollar s downside performance recently has been average, the time it has taken to fall is not. At just over 13 months, today s dollar drop is the fourth longest, since 1980. What is interesting about this is that past dollar drops lasting greater than 13 months also were the steepest dollar drops in terms of performance. In other words, today s 14% drop is fairly mild, when compared to other long drawn-out dollar declines. The reaction by the commodity complex in the past 13 months has pretty much tracked history, as shown in the table. Commodities tend to react positively to U.S. dollar drops, as most are priced in U.S. dollars globally. Of the major commodities, gold is traditionally the most sensitive to dollar moves, followed by oil, and then copper. As for the rest of 2018, we still see major supply headwinds ahead for most commodities, which should keep their prices capped. Any additional U.S. dollar weakness, however, could keep a bid underneath commodity prices. We re not expecting more U.S. dollar carnage in 2018, but should it happen, our bearish commodity call could be wrong. Key takeaways» The U.S. dollar has dropped nearly 14%, since late 2016, which has helped commodity prices.» Should the U.S. dollar continue to fall throughout 2018 (not our base case), our bearish commodity call could be wrong. Select commodity performance during U.S. dollar drops Peak date Trough date Dollar return (%) Commodity return (%) Gold return (%) Oil return (%) Copper return (%) Apr-80 Jul-80-11.3 12.5 28.1 3.8 Aug-81 Nov-81-10.2-5.7 2.8-9.5 Feb-85 Apr-85-12.1 2.6 16.3 5.3 10.2 May-85 Aug-85-12.3-8.1 8.1 3.7-3.7 Sep-85 Mar-86-21.1-3.7 7.2-57.2 8.0 Apr-86 May-87-21.4 8.7 38.0 48.5-1.9 Aug-87 Dec-87-15.7 3.6 4.7-20.6 54.0 Jun-89 Feb-91-23.8-7.4 0.9 10.2-4.7 Jul-91 Jan-92-14.8 0.6-5.0-12.2-2.4 Mar-92 Sep-92-13.9-4.9 0.8 15.7 11.7 Feb-94 Oct-94-12.2 2.7 1.8 19.1 39.5 Dec-94 Apr-95-10.8 1.2 3.6 18.0-1.4 Aug-98 Oct-98-10.1 3.8 6.3 3.6 1.7 Jul-01 Jun-03-23.7 13.9 34.5 13.2 7.9 Sep-03 Feb-04-14.2 10.7 11.5 18.8 57.4 May-04 Dec-04-12.5 4.9 16.7 5.9 23.3 Nov-05 Apr-08-22.7 65.5 92.8 106.0 109.9 Nov-08 Dec-08-11.0 3.8 15.9-17.8-12.9 Mar-09 Nov-09-16.7 36.9 29.3 64.3 94.1 Jun-10 Nov-10-14.2 29.7 11.6 20.9 40.8 Nov-10 Apr-11-10.2 21.5 12.4 34.8 9.4 Dec-16 Jan-18-13.7 3.0 18.0 25.8 28.2 Average -15.0 8.9 16.2 15.3 21.1 % of Time Positive Return 77.3 95.5 80.0 68.2 Sources: Bloomberg, Ned Davis Research Group, Wells Fargo Investment Institute. Commodity return represented by the CCI Index, Gold by spot price, Oil by WTI spot price, Copper by perpetual futures price. Data as of January 31, 2018. Ten percent or larger drops in the Federal Reserve Traded Weighted U.S. Dollar Index. Past performance is no guarantee of future results. An index is unmanaged and not available for direct investment. Please see index definitions at the end of this report. 2018 Wells Fargo Investment Institute. All rights reserved. Page 7 of 10

ALTERNATIVE INVESTMENTS Justin Lenarcic Global Alternative Investment Strategist Private Equity Hedge Funds-Macro Hedge Funds-Event Driven Overweight Hedge Funds-Relative Value Overweight Hedge Funds-Equity Hedge Alternative investments, such as hedge funds, private equity, private debt and private real estate funds are not suitable for all investors and are only open to accredited or qualified investors within the meaning of U.S. securities laws. Capturing a rise in volatility with the Macro strategy On Monday, January 29, the CBOE Volatility Index, or VIX, jumped nearly 25% in the largest single-day move since August 2017. This was followed by a nearly 7% move higher on Tuesday, January 30. While we expect the recent decline in equities to affect Macro strategy performance, the gradual rise in volatility for much of January has coincided with the development of trends within commodity, currency, and fixed income markets. In other words, it is possible that some of the concern we recently have voiced about the highly leveraged long equity exposure within certain Macro strategies may be mitigated by gains in other sectors. A gradual increase in volatility, coinciding with trends in multiple asset classes, would indeed be a positive development for the Macro strategy. If the recent VIX increase proves to be the early stages of a new (and long awaited) volatility regime, then investors may want to consider initiating or right-sizing the recommended allocation to the Macro strategy. In the chart below, we have highlighted four distinct periods of rising volatility (defined as a sustained move above the two-year moving average of the VIX). In each of these periods, the Macro strategy not only delivered positive returns, but it was the best-performing hedge fund strategy in three of those four periods. Volatility is a critical driver of returns for the Macro strategy. While it may be too early to call a new regime, it is not too early to begin paying attention. Key takeaways» Macro strategy returns were affected by the recent decline in equities, but exposure to trends in other asset classes may have muted the losses.» Importantly, the recent VIX increase may be an indication of a better environment for the Macro strategy, especially if it produces multi-asset trends. Macro strategy has performed well in rising volatility environments CBOE Volatility Index (VIX) 70 60 50 40 30 20 CBOE Volatility Index Two Year Moving Average 10 +32% +24% +19% +4% 0 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Source: HFR, Inc., Bloomberg, February 1, 2018. Performance shown is for the HFRI Macro (Total) Index from the following periods: February 29, 1996 through January 29, 1999; November 30, 2000 through April 30, 2003; April 30, 2007 through May 29, 2009; and September 30, 2014 through March 31, 2016. Past performance is no guarantee of future results. An index is unmanaged and not available for direct investment. Please see index definitions at the end of this report. 2018 Wells Fargo Investment Institute. All rights reserved. Page 8 of 10

Risks Considerations Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets. Small- and mid-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. High yield (junk) bonds have lower credit ratings and are subject to greater risk of default and greater principal risk. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value which may result in greater share price volatility. Real estate has special risks including the possible illiquidity of underlying properties, credit risk, interest rate fluctuations and the impact of varied economic conditions. Alternative investments, such as hedge funds and private equity funds, are not suitable for all investors and are only open to accredited or qualified investors within the meaning of U.S. securities laws. They are speculative and involve a high degree of risk that is suitable only for those investors who have the financial sophistication and expertise to evaluate the merits and risks of an investment in a fund and for which the fund does not represent a complete investment program. An investor's ability to withdraw capital from funds or partnerships may be subject to specific limitations, including initial lock-up periods, advance notification requirements and predetermined windows for redemptions. While most alternative strategies impose lock-ups, the practice tends to be most restrictive for participants in private equity funds where holding periods can be quite long (more than a decade in some cases) and the indivisibility of positions. Some other risks involve in private equity investment include loss of all or a substantial portion of the investment due to leverage, short selling, or other speculative practices; lack of liquidity in that there may be no secondary market for the fund; volatility of returns; restrictions on transferring interests; potential lack of diversification; absence of information regarding valuations and pricing; complex tax structures and delays in tax reporting; less regulation and higher fees than mutual funds; and risks associated with the operations, personnel and processes of the manager. Private equity investments often demand long holding periods to allow for a turnaround and exit strategy. A fund s offering documents should be carefully reviewed prior to investing. Hedge fund strategies, such as Equity Hedge, Event Driven, Macro and Relative Value, may expose investors to the risks associated with the use of short selling, leverage, derivatives and arbitrage methodologies. Short sales involve leverage and theoretically unlimited loss potential since the market price of securities sold short may continuously increase. The use of leverage in a portfolio varies by strategy. Leverage can significantly increase return potential but create greater risk of loss. Derivatives generally have implied leverage which can magnify volatility and may entail other risks such as market, interest rate, credit, counterparty and management risks. Arbitrage strategies expose a fund to the risk that the anticipated arbitrage opportunities will not develop as anticipated, resulting in potentially reduced returns or losses to the fund. Strategy Definitions Private Equity Strategies: Common private equity strategies target different stages of a company s lifecycle and include: Venture Capital & Growth Equity: Investments in new and emerging companies are usually classified as venture capital. Growth capital typically refers to minority investments in companies with more established operations than venture capital investments, but with faster growth prospects and less leverage than traditional buyouts. Key attributes of these investments include involving minority stakes in earlystage companies; company may be nearing profitability or still building-out management team and corporate infrastructure. These strategies are subject to technology and market risks, among others. Buyouts: Control investments in established, cash flow positive companies are usually classified as buyouts. Buyout funds may range in size, roughly corresponding to an investment focus on small-, mid- or large-capitalization companies. Collectively, buyout funds represent a substantial majority of the capital raised in the overall private equity market. Key attributes of successful buyouts often include stable revenues, consistent cash flows, seasoned management teams and established corporate infrastructure. The strategy is subject to leverage and execution risks, among others. Secondaries: Secondary investments are interests in existing private equity funds that are acquired in privately negotiated transactions after the end of the private equity fund's fundraising period. Typically, these funds have portfolios of existing investments as well as unfunded capital commitments available for new investments. Key aspects of secondaries include generally involving more mature assets with shorter time to liquidity, as well as investing at discounts to net asset value. 2018 Wells Fargo Investment Institute. All rights reserved. Page 9 of 10

Index Definitions The CBOE Volatility Index (VIX ) is a key measure of market expectations of near-term volatility conveyed by S&P 500 Index (SPX) option prices. HFRI Macro (Total) Index is composed of a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency, and commodity markets. Managers employ a variety of techniques, both discretionary and systematic analysis, combinations of top-down and bottom-up theses, quantitative and fundamental approaches, and long- and short-term holding periods. S&P 500 Consumer Staples Index comprises those companies included in the S&P 500 that are classified as members of the GICS consumer staples sector. S&P 500 Consumer Discretionary Index comprises those companies included in the S&P 500 that are classified as members of the GICS consumer discretionary sector. The Thompson Reuters Continuous Commodity Index (CCI Index) comprises 17 commodity futures that are continuously rebalanced: Cocoa, Coffee Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Live Cattle, Lean Hogs, Natural Gas, Orange juice, Platinum, Silver, Soybeans, Sugar No. 11, and Wheat. Performance Information Measuring private equity returns is complicated and has inherent limitations because of the unique nature of its return distributions. Investors should bear in mind that, unlike the annualized performance of a traditional portfolio, evaluating private equity performance is more nuanced due to the timing of private equity investments and the illiquidity associated with them. Other measures of performance, such as the multiple of invested capital which is used to measure the profitability of an investment, among others, should also be taken into consideration, when evaluating the performance of a private equity fund. It is important to remember that there is no guarantee any investment will meet its investment objective or be profitable. Investors should therefore consider the limitations of the investment performance shown above before considering investing in a private equity fund. General Disclosures Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company. The information in this report was prepared by Global Investment Strategy. Opinions represent GIS opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Wells Fargo Advisors is registered with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions or communications made with Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company. CAR 0218-00284. 2018 Wells Fargo Investment Institute. All rights reserved. Page 10 of 10