Outsourced Investment Management

Outsourced Investment Management Quarterly Commentary Second Quarter 2017 The first half of 2017 was a goldilocks environment for investments. United States GDP growth was steady in the first quarter, at a year-over-year rate of 2.1%, and inflation remained under 2%. Consumer confidence has also steadily improved, with positive signs of incremental wage growth, prospects for tax cuts, and unemployment level at 4.4% at the end of June. We are currently 114 months since the last economic peak in December 2007, which is not too far from the record 128-month duration from peak to peak, ending in March 2001. However, the Federal Reserve has only recently begun to raise rates, which makes the current environment feel like the early stage of an economic cycle. Unless we see rapid wage growth or commodity price hikes, this economic backdrop continues to be conducive to positive earnings-per-share growth, and inflation is low enough to allow the Fed to only gradually raise rates. Peak month Historic Economic Cycles in the U.S. Trough month peak to trough trough to peak peak to peak February 1945 October 1945 8 80 93 November 1948 October 1949 11 37 45 July 1953 May 1954 10 45 56 August 1957 April 1958 8 39 49 April 1960 February 1961 10 24 32 December 1969 November 1970 11 106 116 November 1973 March 1975 16 36 47 January 1980 July 1980 6 58 74 July 1981 November 1982 16 12 18 July 1990 March 1991 8 92 108 March 2001 November 2001 8 120 128 December 2007 June 2009 18 73 81 1854-2009 (33 cycles) 17.5 38.7 56.4 1945-2009 (11 cycles) 11.1 58.4 68.5 Recovery in the euro region started later than in the United States, but has been more robust given the lower basis. The European Central bank has remained accommodative, fostering an economic growth of 2.1% on the back of strengthening domestic consumption and investment. Here, too, expectations are for changes in current policy to likely be gradual and incremental, as inflation and inflation expectations remain below target. The year- Source: Nat l Bureau of Econ Research over-year inflation rate in Europe was 1.65% at the end of March 2017, and GDP growth in developing countries was higher, boosted by growing domestic demand as well as higher levels of exports. 9.0 8.0 7.0 6.0 Peaks and troughs are often identified with clarity only in hindsight. While credit spreads and equity valuations seem to reflect the late stages of a bull market, we are still far from interest rate levels that could stifle economic growth. This is particularly true for regions outside the United States. Target Federal Funds Rate (%) Equities With an absence of any large macroeconomic or geopolitical event impacting the marketplace, underlying company fundamentals were positive and equity managers value propositions were rewarded with strong performance. This was distinctly opposite of those periods during which 5.0 4.0 3.0 2.0 1.0 0.0 1.0% - 1.25% investors flocked in and out of market sectors, Source: U.S. Federal Reserve, July 15, 2017 driven by monetary policy, macroeconomic concerns, and near-zero interest rates. The graph below illustrates the aggregate pair-wise correlation of all S&P stocks over the last 30 years. The average correlation over this period has been fairly low at 26%. However, over the last 10 years, the correlation has fluctuated at much higher levels, spiking over 50% on Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Jan-17 CanterburyConsulting 2Q17 OIM Quarterly Commentary 1

multiple occasions. This made for a very challenging environment for active managers, as stocks moved in clusters, often in response to broad macroeconomic factors. 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% Pair-wise correlation of all S&P stock combinations 2Q1986-2Q2017 Avg Pair-wise Correlation (S&P 500) Correlation Average 26.2% Clustered / macro market Differentiated / stock picker's market The decline in cross-stock correlation over the last few quarters has improved the likelihood of managers generating alpha over the passive benchmarks. Whether the lifting of interest rates from nearzero levels and a more synchronized economic recovery across countries will normalize equity markets remains to be seen, but the correlation data makes the case that active management does have a place in traditional equity investing. Within the U.S. equity segment, we have half of the large cap equities allocated to a passive index and the other half split between value and growth managers. The allocation to small cap equities is entirely with active managers, as there is considerable inefficiency in that segment. During the first half of 2017 there Source: B0A Merrill Lynch was a distinct outperformance of growth sectors over value sectors, with technology (+17.2%), healthcare (+16%), consumer discretionary (+11%) and industrials (+9.5%) sectors driving much of the S&P 500 index performance (+9.3%) for the first six months of the year. Value segments lagged the broad-based indices primarily due to the negative performance of the energy and telecom sectors during this period. Small cap stocks lagged their larger company counterparts, but active managers were able to stay ahead for the most part, with the exception of those with larger allocations to energy or telecom names. The benefits of diversification were also seen, with the outperformance of non-u.s. developed equities (+13.8%) and emerging market equities (+18%). At this time approximately 25% of the non-u.s. equity segment is invested in emerging markets equities. This includes a dedicated allocation to emerging markets equity managers as well as the discretionary allocation to companies domiciled in the emerging markets within the broad non-u.s. developed-equities portfolios. For the period, emerging markets countries that are importers of energy and have diverse economies, such as China and India, were lead performers. Fixed Income Diversification has also been a strong driver of performance in the global fixed income segment. While most fixed income sectors seem rich after a continued decline in spreads since the financial crisis, the most risky segment of the fixed income market is likely to be U.S. Treasuries, in our view. In addition to the Federal Reserve s program of purchasing Treasuries and agency mortgages since the financial crisis, many non-u.s. 16.5% 0.0% Jun-86 Jun-89 Jun-92 Jun-95 Jun-98 Jun-01 Jun-04 Jun-07 Jun-10 Jun-13 Jun-16 Source: B0A Merrill Lynch 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% Pair-wise correlation of all R2000 stock combinations 1Q 1990-2Q 2017 Avg Pair-Wise Correlation (Russell 2000) Correlation Average 17.1% Clustered / macro market Differentiated / stock picker's market 15.2% 0.0% Mar-90 Mar-93 Mar-96 Mar-99 Mar-02 Mar-05 Mar-08 Mar-11 Mar-14 Mar-17 CanterburyConsulting 2Q17 OIM Quarterly Commentary 2

investors have also been turning to Treasuries for yield. Compared to the end of 2013, the 10-year Treasury rate has fallen from 3.0% in December 2013 to 2.3% at the end of June 2017. Much of this is the continued demand for Treasuries by non-u.s. investors, as non-u.s. developed countries sovereign bond rates are still much lower than those in the United States. 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1.6% 1.4% 1.2% 1.0% 1.9% 0.4% 0.8% 3m 1 year 3 yrs 5 yrs 7 yrs 10 yrs 15 yrs 20 yrs 25 yrs 30 yrs The Federal Reserve continues to taper its bond purchase program Source: JP Morgan and raise short-term rates; this will likely put upward pressure on rates all along the yield curve. The prospect of improving global growth and positive inflation trends increases the chance of rates moving up further, which is why we have positioned the fixed income segment to have an overall duration that is shorter than the index, while at the same time generating a higher yield. Credit has continued to benefit from reasonably strong fundamentals from the corporate sector, and rates remain low enough that most companies have been able to refinance debt. Even as spreads have tightened, default rates have hovered at low levels. Within non-u.s. markets, there is greater dispersion of performance across countries, with emerging market bonds faring well as a result of higher real rates as well as improvements in their currency values relative to the U.S. Dollar. At the same time, we recognize that the fixed income segment is also ultimately the anchor of the portfolio and helps reduce overall volatility. Almost half of the segment is made up of U.S. Core plus strategies where the manager has the ability to allocate tactically to Treasuries, TIPs, and other core segments. Hedge Funds and Liquid Alternatives After a few rough years of challenged performance and capital outflows, the environment improved considerably for hedge funds in 2017. The improved environment for active management also improved the performance of many hedge fund strategies. Opportunities in equity, macro, and credit strategies made a number of different hedge strategies positive contributors to overall portfolio performance. Long-short equity managers were able to generate positive alpha on both the long and short segments of their portfolio through stock selection. Managers with global equity mandates were ahead, as non-u.s. developed and developing stocks outperformed U.S. names. Event-driven multi-strategy funds have also seen opportunities increase, as deal announcements have gone up in the merger and acquisition areas. Credit-oriented strategies continue to invest across the capital structure by allocating to short-term senior bank debt as well as structured products. Many funds had picked up select credits in the energy sector at the end of 2015, in the aftermath of the decline in oil prices. As prices recovered in 2016, those bonds have recovered, together with the prospects of the companies businesses. The improvement in equity and credit markets provided a tailwind to the performance of dynamic assetallocation strategies as well. Managers here have been tactically adding to emerging markets, as valuations are still more attractive and growth prospects are better as well. The level of cash in these funds has gone up of late as the robust equity markets have provided more selling opportunities, and managers are being more careful with where they seek to purchase. 2.5% 1.8% 2.1% U.S. Treasury Yield Curve 3.0% 2.3% Dec 31, 2013 Jun 30, 2017 4.0% 2.8% CanterburyConsulting 2Q17 OIM Quarterly Commentary 3

In our view, hedge funds and liquid alternatives help reduce overall volatility in the portfolio, and therefore we are not overly concerned with managers tactically increasing their cash positions, as long as they are proactive in seeking opportunities to deploy the cash. Real Assets After a strong rebound of commodity prices in 2016, the segment has pulled back in the first six months of this year. Companies whose businesses are sensitive to oil prices were hurt during the period amidst strong volatility in the commodity price. Crude oil started the year at $54 a barrel and went down to $42 before ending June at $46. In the near term, oil prices also put downward pressure on the price of Master Limited Partnerships, particularly those involved in upstream operations. It is unlikely, given the rebound in global growth, that there will be steep declines in commodity prices. However, the marginal price of commodities is sensitive to incremental supply and demand dynamics, which can be volatile in the short run. We continue to see this segment as our hedge against future inflation, but have limited exposure to 5%, given its inherent volatility. Private Equity Many funds have taken advantage of the robust equity markets to exit their positions and return capital to their investors. The pace of IPO activity also went up during the first six months. Source: Pitchbook, Prequin We saw the pace of deal-making slow as valuations rose amidst higher purchase multiples and higher debt levels. The number of deals declined dramatically during the first quarter of 2017, which may be an aberration, but our research also shows that funds have been more cautious about putting money to work and therefore still have a lot of cash to deploy. We have been looking at small-mid market buyout funds for potential allocations, as they can be more nimble and can sift through a broader universe of deal opportunities. We also believe that sector specialists have an advantage, as they can use their expertise to look at deals that are too complex or nuanced for generalist buyout managers. Overall Remarks The performance generated today is the result of investment decisions that were made some time ago. While equity valuations are high relative to history and bond yields are low, we also see stable corporate fundamentals and enough excess capacity and unemployment outside the United States that can foster further global growth. We remain cautious about valuations, but do not feel that making an arbitrary decision to become more Source: Pitchbook, Prequin conservative solely on the basis of valuation or the duration of the bull market is prudent. It is possible that the equity markets will rise further before peaking. At the same time, the risk remains for geopolitical events that can shock the markets. Our allocations have remained stable, and we continue to maintain a balanced portfolio that takes advantage of risk assets to meet CanterburyConsulting 2Q17 OIM Quarterly Commentary 4

the long-term return-investment objectives and at the same time has elements of capital preservation to mitigate near-term volatility. We don t see making tactical moves based on valuation as a winning strategy. However, should there be a dislocation in the market, we have enough liquidity to quickly tilt the portfolio toward those segments that have become more attractively valued. We thank you for your trust in us. Please feel free to call with any questions or concerns. Poorvi Parekh Director of Outsourced Investments Poorvi R. Parekh Director of Outsourced Investments Ms. Parekh serves as a member of the Board of Directors and manages Canterbury s Outsourced Investment Management (OIM) platform, which caters to institutions and private clients who have decided to outsource the management of their portfolios to Canterbury. In that role, she is a member of the Investment Committee and each of the firm s five manager-research committees, which recommend specific managers for Canterbury s Approved Manager List. Ms. Parekh came to Canterbury in 1996 as the Manager of Analytics with responsibility for directing the firm s account analysts and client services group. During this period, Ms. Parekh was instrumental in securing many of the asset allocation modeling and research software tools we use today. In 2001, she assumed the Director of Manager Research role, in which she was responsible for oversight of all manager, fund, and product research, maintenance of Canterbury s proprietary research database, and chairing the Investment Manager Research Committee. Ms. Parekh graduated from the University of Hong Kong with a BA in economics. She completed her MBA at Shenandoah University, and is a Canterbury Shareholder. About Canterbury Through our Outsourced Investment Management (OIM) platform, Canterbury provides a full outsourced solution for managing custom portfolios through an open-architecture investment implementation. Canterbury offers each client a customized asset allocation that is closely monitored and adjusted to meet the client s investment and liquidity goals. As a firm, Canterbury has over 28 years of experience selecting and monitoring investment managers and incorporating them in client portfolios. For clients on the OIM platform, Canterbury assumes the day-to-day responsibility of making manager selections and changes, instituting a comprehensive risk management system, and enacting the administrative and back office functions. Canterbury effectively becomes a co-fiduciary, an investment partner and extension of the investment staff, by taking on the management and administrative functions of an internal investment office. CanterburyConsulting 2Q17 OIM Quarterly Commentary 5