Kevin J. Regan 2016 Fall Conference

Presentation to the Massachusetts Association of Contributory Retirement Systems Kevin J. Regan 2016 Fall Conference Monday, October 3, 2016 Presented by Paul W. Todisco, Senior Client Services Officer Deborah B. Goldberg, Treasurer and Receiver General, Chair Michael G. Trotsky, CFA, Executive Director and Chief Investment Officer

Mission PRIM is a $62 billion investment fund that invests public employee pension benefits. PRIM does not administer benefits. PRIM has a highly talented, experienced and focused investment staff. PRIM s Mission is to relieve the pension funding burden by the taxpayer. PRIM is a self-funded agency that generates asset returns for Massachusetts. In the past five years, PRIM s returns have contributed approximately $29 billion to pension funding. The Project SAVE initiative is producing more than $100+ million in annual value for the fund. PRIM is independent and governed by a nine member Board of Trustees. The Massachusetts State Treasurer is the Chair of the PRIM Board. A robust committee structure lends advice and recommends investments. 2

History The PRIT Fund was created by the Legislature in December 1983 (Chapter 661 of the Acts 1983). M.G.L Chapter 32, Section 23. Governed by By-Laws (1993) and Operating Trust (1998). The PRIT Fund merged with the MA State Teachers and Employees Retirement Systems Trust on January 1, 1997, in accordance with Chapter 315 of the Acts of 1996. The MA State Teachers and Employees Retirement System are mandated by statue to invest all of their assets in the PRIT Fund. Chapter 84 of the Acts of 1996, explicitly confirmed retirement boards authority to invest in individual asset classes of the PRIT Fund. This program is called Segmentation gives local retirement boards the flexibility to invest in selected specific asset classes in whatever proportions they deem appropriate to their needs. 10

Structure The PRIM Board is comprised of a nine member board with staggered terms. Balance of interests on the Board. Board seats are held by the State Treasurer, the Governor or their designees; members appointed by the State Treasurer and Governor who are private citizens or members of a public safety union; and beneficiary members who are representatives of the State Employees and Massachusetts Teachers Retirement Systems, either through direct election to the PRIM Board or by virtue of their positions as elected members of the State Retirement Board and Massachusetts Teachers Retirement Board. All Board members have an equal vote. The PRIM By-Laws established three Committees: Investment Committee; Real Estate and Timberland Committee and the Administration and Audit Committee. A fourth Committee, the Compensation Committee, was established pursuant to Section 41 of Chapter 68 of the Acts of 2011, the fiscal year 2012 State budget. Asset allocation, investment, and procurement decisions are made by a PRIM Board vote upon recommendations from Committees. Each Committee typically includes two Board Members as well as outside professionals. Committee members are appointed by the Chair of the Board after consultation with other members of the Board and ratified by a vote of the Board. 12

Structure (Continued) The Board and Committees are supported by PRIM s investment consultants, auditors, technology consultants and staff. PRIM s Executive Director is hired by vote of the PRIM Board. In turn, the Executive Director has discretion to hire and manage staff. This represents an important separation of duties. The PRIM Board currently holds bi-monthly Board and Committee meetings that are open to the public. Certain portions of the Committee meetings are convened in a closed session to discuss certain trade secrets and/or commercial and financial information relating to the investment of public trust or retirement funds pursuant to Chapter 32 Section 23(6) of M.G.L. Board and Committees are guided by the Board Governance Charters and Policies. All direct investment management functions are outsourced to discretionary managers. Books of records are prepared by BNY Mellon (custodian bank) with PRIM staff reviewing. Outsourcing model provides superior segregation of duties for custody and accounting with continual, detailed review by PRIM staff. 13

Structure (continued) Board meetings are open to the public and are well attended. PRIM s open, competitive procurement processes has a high degree of transparency and our compliance with our procurement protocols is audited annually by a Big 4 firm and there has been no exceptions noted in those audits. In addition to the usual performance and core competence measures, procurement decisions are contingent on evaluation of a manager or consultant s risk environments and back office operations. PRIM s Deputy Chief Investment Officer and Director of Risk Management spearheads this evaluation and attends due diligence visits to prospective and retained managers along with investment staff. Continuous review of managers performance and strategy - in both absolute and relative terms. 14

Audits and Reporting Annual independent audit of both PRIM Board and PRIT Fund by Big 4 firm. PRIM s independent auditor performs a separate engagement (SSAE #16) to review adherence to PRIM policies and protocols for approving new investments and hiring investment managers, advisors, and consultants. Annual third party review (SASE #16) of our custodian s calculation of our custom benchmarks. PRIM commissions annual independent audits of our real estate and timber portfolios. PRIM is routinely audited by two different state agencies the Massachusetts Public Employee Retirement Administration Commission (PERAC) and the Massachusetts State Auditor s Office. PERAC has adopted many of PRIM s operational policies and protocols as standards to be used by other public pension systems throughout the Commonwealth. PRIM has received the Government Finance Officers Association s Excellence in Financial Reporting certification for our Comprehensive Annual Fiscal Report (CAFR) report for each of the 10 consecutive years that we have prepared the report. Our 2016 CAFR will be submitted to GFOA later this year. 18

Culture The Board and senior management recognize that even the best business model and process is no substitute for a skilled, capable and engaged staff. This basic idea is part of our ongoing dialogue and is discussed both at the Board level and among staff as we review policy, design process, and as we discuss issues as they arise. Transparency is highly valued in our day-to-day work and is built in to our development of policies and processes. Staff are encouraged to contribute ideas and point out opportunities for improvement. Senior management has shown a commitment to finding ways to reduce operational risk and increase efficiency. PRIM has a reputation among other large public funds and other state agencies for being a very effective, well-run organization. We are proud of this reputation and strive to be best in class. 17

How to Invest in PRIT: Two Basic Options Participating Retirement System Elects to transfer all its assets to PRIM. Mandatory five year period of participation. An affirmative decision by the Retirement Board requires notification to chief executive officer and legislative body having jurisdiction over the Board and the PRIM Board. Purchasing Retirement System Elects to invest some or all of its assets in the total PRIT Fund, or in the asset class sleeves offered by PRIM through Segmentation. A majority vote of the Retirement Board is all that is required to become a Purchasing System. No minimum dollar investment amount or minimum investment period. A Retirement Board may terminate its relationship with 30 days notice per PRIM s Operating Trust. 19

Segmentation Program The following products are currently available to local retirement systems: The General Allocation Account (PRIT Core Fund) Domestic Equity International Equity (Developed Markets) Emerging Markets Equity Core Fixed Income Real Estate Hedge Funds Private Equity (Vintage Year) Value-Added Fixed Income High Yield Bonds Bank Loans Emerging Markets Debt (U.S. Dollar Denominated and Local Currency) 20

PRIT Fund Overview (August 31, 2016) Oversight and staffing: 9 appointed and elected trustees 4 advisory committees consisting of 36 industry professionals and board members Staff of 40 professionals Core Fund Facts $62.9 billion AUM as of 8/31/2016 40 public markets portfolios 14 real estate, timber and REIT managers 100+ private equity managers; 200+ partnerships 29 hedge fund managers Key PRIM Initiatives: Project SAVE: More than $100 million in annual fee savings realized; honored as a national model of public fund innovation. Next phase is exploration of internal management. Bold and timely move to de-risk portfolio Improved manager selection focusing on alpha Hedge fund replication and managed accounts we pay fees only for alpha Portfolio completion strategies seeking equities-like return and fixed income-level risk Private equity repeatedly #1 or #2 in U.S. Michael Trotsky, CFA, Executive Director and Chief Investment Officer, awarded Chief Investment Officer Magazine s CIO Innovation Award. (Dec. 2015) 15 asset classes: U.S. Large Cap Equity U.S. SMID Cap Equity Developed International Equity Emerging Markets Equity Core Bonds 20+ Year STRIPS U.S. TIPS Global Inflation-Linked Bonds High Yield Bank Loans Emerging Markets Debt Private Equity Hedge Funds Timberland Portfolio Completion Strategies PRIT Fund Target Allocation 11

PRIM Board Member Organizational Chart Chair State Treasurer and Receiver-General, Commonwealth of Massachusetts Deborah B. Goldberg Appointee of the State Treasurer (4 years) Designee of the Governor, Ex Officio Member Appointee of the Governor, Non-State Employee or Official (4 years) Appointee of the Governor, Public Safety (4 years) State Retirement Board Member (SRB) (3 years) Teachers Retirement Board Member (TRB) (3 years) Elected Representative State Teachers Retirement System (3 years) Elected Representative State Employees Retirement System (3 years) Ruth Ellen Fitch James B.G. Hearty Peter Monaco Carly Rose Theresa F. McGoldrick, Esquire Dennis J. Naughton Robert L. Brousseau Paul E. Shanley, Esquire Notes: Massachusetts General Laws Chapter 32, Section 23 (2A) (i): at least two members of the PRIT (sic) board shall be minority people, as set forth in the definition of Minority contained in section forty C of chapter seven of the General Laws, as added by section seven of chapter five hundred and seventy-nine of the acts of nineteen hundred and eighty. 4

Committee Membership Investment Committee (12 Members) Real Estate & Timberland Committee (8 Members) Administration & Audit Committee (11 Members) Compensation Committee (5 Members) 1. Deborah B. Goldberg, Chair 2. Joseph Bonfiglio 3. C. LaRoy Brantley 4. Michael Even, CFA 5. Constance M. Everson, CFA 6. Ruth Ellen Fitch 7. James B.G. Hearty 8. Edward W. Kane 9. Peter Monaco 10. Paul E. Shanley, Esq. 11. Glenn P. Strehle, CFA 12. Timothy L. Vaill 1. Jill S. Hatton, CRE, Chair 2. Deborah B. Goldberg 3. Anthony E. Hubbard, Esq. 4. Dennis Kanin 5. Jack Lutz, Ph.D. 6. William F. McCall, Jr., CRE 7. Garlan Morse, Jr., CRE 8. Peter F. O Connell 1. Robert L. Brousseau, Chair 2. Ted C. Alexiades, CFPO 3. Patrick E. Brock 4. Joseph Connolly 5. Karen E. Gershman, CPA 6. Eileen Glovsky 7. Deborah B. Goldberg 8. James B.G. Hearty 9. Theresa F. McGoldrick, Esq. 10. Dennis J. Naughton 11. Michele A. Whitman, Esq. 1. Michele A. Whitman, Esq., Chair 2. Patrick E. Brock 3. Robert L. Brousseau 4. Joseph Connolly 5. Deborah B. Goldberg 13

External Advisors Fund Advisors: NEPC- Asset Allocation Callan Associates- Public Markets Aberdeen/Arden - Hedge Fund Investments Hamilton Lane - Private Equity The Townsend Group- Real Estate & Timber Independent Auditors: KPMG, LLP - PRIM Board and PRIT Fund, Real Estate, Timber, and SASE 16 Reviews Deloitte & Touche, LLP PRIM Board tax Consultant Custodian: BNY Mellon Corporation 16

PRIM Organization - Investment Investment: 13 Total PRIM: 37 Executive Director & Chief Investment Officer Michael G. Trotsky, CFA Executive Assistant Amaran C. Soja Deputy Executive Director & General Counsel Chris J. Supple Deputy Chief Investment Officer Sarah N. Samuels, CFA Senior Investment Officer & Director of Private Equity Michael R. Bailey Senior Investment Officer & Director of Real Estate & Timberland Timothy V. Schlitzer, CRE Senior Investment Officer & Director of Hedge Funds & Low Volatility Strategies Eric R. Nierenberg, Ph.D. Senior Investment Officer Public Equities Andre Clapp, Ph.D., CFA Senior Investment Officer Private Equity OPEN Senior Investment Officer Real Estate & Timberland John La Cara Investment Research Analyst Bill Li Senior Investment Officer Fixed Income J. Chuck La Posta, CFA Senior Investment Officer Private Equity Michael M. McGirr, CFA Investment Officer Christina Marcarelli Investment Analyst Open Investment Analyst Open Investment Analyst Andre Abouhala 15

PRIM Organization Finance & Operations Finance & Operations: 24 Total PRIM: 37 Executive Director & Chief Investment Officer Michael G. Trotsky, CFA Executive Assistant Amaran C. Soja Deputy Executive Director & General Counsel Chris J. Supple Communications Director Eric Convey Chief Operating Officer & Chief Financial Officer David M. Gurtz, CFA, CPA Senior Client Services Officer Paul Todisco Director of Risk Management Open Director of Finance & Administration Daniel C. Eckman, CPA Director of Investment Operations Matthew Liposky Chief Technology Officer Anthony J. Falzone Financial Reporting Mgr Qingmei Li Director of HR & Special Projects Deb Coulter, CPA Senior Client Services Officer Open Risk Management Officer Donald Payne Senior Financial Mgr Catherine Hodges Mgr of Investment Reporting Izzy Markov, CPA Help Desk Specialist Carlo Scarpa Mrg of Client Reporting & Cash Management Jennifer Cole Client Services Assistant Open Financial Analyst Veronica Williams Mgr of Real Estate & Timberland Reporting George Tsipakis Compliance Analyst Ellen Hennessy Administrative Assistant Open Mgr of Hedge Fund & Private Equity Eileen Molloy Office Administrator Alyssa Smith Accounting Assistant Morgan D Burns, CPA Accounting Assistant Christina Satcher Receptionist Heather Sweeney Executive Assistant Steffanny Rosario 16

PRIM Investor Advisory Council Consists of participants in the PRIT Fund and the Fund s investment sleeves. A participant is defined as a member of a local retirement board or its staff that is a Participating or Purchasing Retirement System, other than the State Employee s and Massachusetts Teachers Retirement Systems. Representatives of any state agency or authority, other than the State Employee s and Massachusetts Teachers Retirement Systems, that has funds invested in the PRIT Fund, may also be defined as a participant. The Executive Director will serve as Chair of the Investor Council and the Senior Client Services Officer will serve as Vice Chair. The Investor Advisory Council will consist of no less than seven members who will be appointed by the Executive Director and serve for a two-year term. The purpose of the Investor Advisory Council is to advise the Executive Director on issues relating to PRIM operations and the management of the PRIT Fund, including, but not limited to: asset allocation, portfolio strategies, risk management, and legislation. The Investor Advisory Council will plan to meet quarterly. 17

Summary of Recent National Recognition Recent Recognition and Awards: Eric Nierenberg, Ph.D., Director of Hedge Funds & Low Volatility Strategies, was awarded Institutional Investor magazine s Large Public Fund of the Year Award. The award recognizes performance innovation, achievements and contributions to the industry in the past year. (June 2016) Sarah N. Samuels, CFA, Deputy Chief Investment Officer, was awarded Banker & Tradesman s Women of FIRE award. The award recognizes the most talented, the most ambitious, the most innovative women in key sectors of the economy. (June 2016) David Gurtz, CFA, CPA, Chief Financial Officer and Chief Operating Officer, was award the Government Finance Officer Association s Certificate of Achievement for Excellence in Financial Reporting for the 11 th consecutive year. (June 2016) Michael Trotsky, CFA, Executive Director and Chief Investment Officer, was awarded Chief Investment Officer Magazine s CIO Innovation Award. (December 2015) Sarah Samuels, CFA, Deputy Chief Investment Officer was awarded the Next Generation Award by Chief Investment Officer Magazine. This is a worldwide award which recognizes up and coming asset owners who have made meaningful contributions to their organizations. (December 2015) Michael Bailey, Senior Investment Officer Director of Private Equity, was nominated for the Investor Intelligence Award for Excellence in Private Equity. The award recognizes the most outstanding and innovative public plan sponsors in North America Chris Supple, Deputy Executive Director and General Counsel, was awarded the Commonwealth s Citation for Outstanding Performance. This citation was awarded for Chris s work on Class Action lawsuits in which PRIM was lead plaintiff. Chris was also reappointed to a 2 nd term as Co-Chair of the Securities Litigation Committee at the National Association of Public Pension Attorneys (NAPPA) 18

Top 10 Recent Innovations 1. Risk Management 2. Managers Search 3. Project SAVE 4. HF Revamp 5. Alternative Risk Premia Strategies 6. HF Replication 7. Portfolio Completion Strategies 8. Private Equity Co-Investment 9. Real Estate Co-Investment 10. Portfolio Insurance 19

Project SAVE: Phase I Progress-to-date PROJECT SAVE Annualized Value Target Annualized Value Realized INITIAL PROGRAMS Hedge Fund-of-Funds Unwind $40 mm $38.2 mm 96% Cash Overlay Program $20 mm $26.5 mm 133% Public Markets Fee Negotiations $1.5 mm $1.9mm 129% Private Equity Co-Investment $25 mm $0.6mm 2% Hedge Fund Fee Negotiations $7 mm $33.7 mm 482% Hedge Fund Replication $7 mm $14.8 mm 211% Securities Litigation $0.7mm $0.6 mm 82% INITIAL PROGRAMS TOTALS $101.2 mm $116.3 mm 115% % of Target Achieved FOLLOW-ON PROGRAMS Real Estate direct- or co-investment $2 mm $0 Securities Lending $15.2 mm $10.9 mm Private Equity Stock Distribution $0.3mm $0.1mm TOTAL PROJECT SAVE PROGRAMS $127.3 mm 20

Project SAVE: Phase II Exploration of Internal Management Michael Even, CFA, President and CEO of Numeric Investors and member of the PRIM Investment Committee, is leading an internal task force. Seventeen of the top 20 U.S. public pension funds, ranked by AUM, do some internal management. Potential Benefits: Additional insight into markets Improved manager selection Improved manager monitoring Expanded ability to hire and retain superb employees Fee savings Next Steps: Visits by PRIM staff members leading the inquiry to a small number of funds that are similar to PRIM and do some internal management Ongoing discussions about which asset class or classes at PRIM might be suitable for internal management 21

Total PRIT Fund Fiscal Year Market Value ($Billions) $70.0 $60.0 $50.0 $50.4 $50.6 $50.2 $48.8 $53.2 $60.6 $61.2 $60.7 $40.0 $36.3 $41.9 $37.7 $41.3 $30.0 $20.0 $10.0 $0.0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 AUM (bil) 14

PRIT Core Fund Asset Allocation Targets Adopted by the PRIM Board on February 2, 2016 Return/Risk 5-7 Year Expected Return 6.8% 30-Year Expected Return 7.9% Risk (Standard Deviation) 12.6% Sharpe Ratio 0.40 23

Asset Class Performance Summary Calendar Year To Date Through August 31, 2016 (Gross of Fees) 30% 25% 25.5% 20% 18.3% 15% 10% 14.3% 13.8% 11.5% 10.2% 9.6% 7.6% 7.1% 6.8% 6.2% 6.2% 5.9% 5% 0% 5.0% 3.2% 2.4% 1.1% -5% -2.2% Source: BNY Mellon. All performance figures reflected are PRIM Asset Class returns. 16

Asset Class Performance Summary One Year Ended August 31, 2016 (Gross of Fees) 30% 25% 26.1% 20% 15% 17.1% 14.2% 13.6% 12.2% 12.2% 10.2% 10% 8.9% 8.7% 7.9% 7.5% 6.8% 6.2% 5% 4.2% 2.8% 1.9% 0% -5% -10% -1.2% -5.2% Source: BNY Mellon. All performance figures reflected are PRIM Asset Class returns. 17

Returns Total PRIT Fund Returns Annualized Returns as of August 31, 2016 (Gross of Fees) 10.0% Tim Vaill 9.0% Joe Bonfiglio 8.0% 7.0% 8.7% 8.4% 8.4% 7.0% 8.8% 7.4% 6.0% 5.8% 5.4% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1.4% 1.3% 0.4% 0.4% 1 Year 3 Years 5 Years 10 Years Total Core Benchmark includes private equity benchmark. Source: BNY Mellon. Total Fund Return Total Core Benchmark Value Added 18

-1.0% -1.2% -1.7% 0.0% 0.4% 0.0% 1.2% 1.4% 0.5% 1.9% 4.1% 2.9% 5.4% 7.2% Returns 8.4% 14.2% 13.6% 12.2% 14.2% 13.2% 12.2% PRIT Asset Class Performance One Year Ended August 31, 2016 (Gross of Fees) 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% Total Core Fixed Income Total Real Estate Total Private Equity* Total Global Equity Total Value Added Fixed Income Total Timber Total Hedge Funds** *Benchmark is actual performance. **Hedge Fund returns are net of fees. Source: BNY Mellon. Totals may not add due to rounding. Asset Class Benchmark Value Added 19

PRIT Asset Class Performance Annualized Returns as of August 31, 2016 (Gross of Fees) 1 Year 3 Year 5 Year 10 Year CORE FIXED INCOME 14.2% PRIVATE EQUITY 17.9% PRIVATE EQUITY 15.9% PRIVATE EQUITY 14.4% REAL ESTATE 13.6% REAL ESTATE 13.1% REAL ESTATE 12.6% REAL ESTATE 7.4% PRIVATE EQUITY 12.2% CORE FIXED INCOME 9.2% GLOBAL EQUITY 9.0% VALUE-ADDED FIXED INCOME 7.0% GLOBAL EQUITY 8.4% TIMBER 7.4% CORE FIXED INCOME 6.4% TIMBER 6.8% VALUE-ADDED FIXED INCOME 5.4% GLOBAL EQUITY 7.1% TIMBER 5.3% CORE FIXED INCOME 6.2% TIMBER 1.9% VALUE-ADDED FIXED INCOME 3.7% HEDGE FUNDS (NET OF FEES) 4.8% GLOBAL EQUITY 4.9% HEDGE FUNDS (NET OF FEES) (1.2%) HEDGE FUNDS (NET OF FEES) 3.4% VALUE-ADDED FIXED INCOME 4.4% HEDGE FUNDS (NET OF FEES) 3.3% 20

Growth Asset Classes & Regimes One Year Ended August 31, 2016 GDP Growth: +1.2% Core CPI: +2.2% 30yr yields: -73 bps PRIT Fund +8.7% Falling Rising Return <-10% SMID Cap US Equities +8% International Equities +3% High Yield +8% LEGEND: One Year Return Ended August 31, 2016 Return -10%-5% Emerging Market Equities +14% REITs +19% Large Cap US Equities +12% Barclays Agg +6% Return -5%-0% Return 0%-5% Return 5%-10% Private Equity +12% Hedge Funds -1% Private Debt -5% EMD $ +17% EMD Local +10% Bank Loans +4% Private Real Estate +12% Return >10% Timber +2% Long US Treasuries +26% Inflation- Linked Bonds +9% Low Inflation High Asset class returns represent PRIM s actual returns, gross of management fees (with the exception of hedge funds, which are net of fees). 21

-0.5% -1.2% 0.3% 2.7% 2.8% 2.5% Returns 7.9% 9.1% 11.4% 12.2% 12.7% 14.2% Public Markets Performance Equities (43.2% of PRIT Fund) One Year Ended August 31, 2016 20.0% Public Markets Equity Returns 15.0% 10.0% 5.0% 0.0% -5.0% Emerging Markets Equity US Large Cap Equity US SMID Cap Equity Int'l Equities Source: BNY Mellon Totals may not add due to rounding. Asset Class Benchmark Value Added 22

-1.1% -0.3% -1.7% 0.2% 0.2% 2.3% 0.3% Returns 10.2% 8.9% 7.5% 6.2% 6.0% 4.2% 3.9% 9.2% 9.2% 11.3% 17.1% 14.8% 26.1% 25.9% Public Markets Performance Fixed Income (20.0% of PRIT Fund) One Year Ended August 31, 2016 Public Markets Fixed Income Returns 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 20+ Yr STRIPS EMD $ EMD Local TIPS/ILBs High Yield Core FI (Agg) Bank Loans Source: BNY Mellon. Totals may not add due to rounding. Asset Class Benchmark Value Added 23

Appendix: PRIT Fund Asset Class Detail For Periods Ending August 31, 2016 25

Public Markets Portfolios $39.7 billion, 63.2% of PRIT Fund (as of 8/31/16): Global Equities: $27.1 billion, 43.2% of PRIT Fund Fixed Income: $12.6 billion, 20.0% of PRIT Fund 40 portfolios: 21 equity portfolios 19 fixed income portfolios 12,000 securities: 9,000 stocks (e.g. Apple, Nestle, Boston Scientific) 3,000 bonds (e.g. Wells Fargo, Verizon, AstraZeneca) 4 team members ~300 investment manager meetings per year 12 asset classes: U.S. Large Cap Equity U.S. SMID Cap Equity Developed International Equity Emerging Markets Equity Core Bonds 20+ Year STRIPS U.S. TIPS Global Inflation-Linked Bonds High Yield Bank Loans EMD $ EMD Local Key Initiatives: PRIT FUND TARGET ASSET ALLOCATION Asset allocation models Investment research: Economic Cycle Framework Foreign Currency Hedging Inflation and TIPS Corporate Credit PRIM Professional Development Program Cross-collaboration amongst investment team members. Promote diversity of thought Global Equities, 40.0% TIPS, 3.0% Timber, 4.0% Portfolio Completion Strategies, 4.0% Hedge Funds, 9.0% Core Fixed Income, 10.0% Real Estate, 10.0% Value-Added Fixed Income (incl. 4% Distressed Debt), 10.0% Private Equity, 10.0% 33

Global Equity: Total Assets $27.1 Billion (Target Allocation: 40.0%; Actual allocation 43.2% as of August 31, 2016) Active/Passive Portfolio Asset Allocation 36% 64% Emerging Markets, $4,620,449 17% International Developed, $10,560,464 39% Domestic Large Cap, $9,299,922 34% Domestic Small/SMID Cap Equity, $2,574,510 10% Active Passive Domestic Large Cap Domestic Small/SMID Cap Equity International Developed Emerging Markets * $ in 000 s 34

Global Equity: Total Assets $27.1 Billion Gross of Fees Performance as of August 31, 2016 10.0% 9.0% 8.0% 8.37% 8.98% 8.17% 7.0% 6.0% 5.0% 6.77% 6.33% 5.51% 5.25% 7.18% 7.09% 6.50% 4.85% 4.36% 4.0% 3.0% 2.0% 1.0% 0.0% 1.19% 0.81% 0.59% 0.44% 0.26% 0.49% CYTD FYTD 1 Year 3 Years 5 Years 10 Years Total Global Equity Total Global Equity Benchmark Value Added 35

Domestic Equity: Total Assets $11.8 Billion (Target Allocation: 18.0%; Actual allocation 18.9% as of August 31, 2016) Small Cap Active, $948,049 8% Asset Allocation Small Cap Passive, $1,626,461 14% Large Cap Passive, $9,299,922 78% Large Cap Passive Small Cap Active Small Cap Passive 36

Domestic Equity: Total Assets $11.9 Billion Gross of Fees Performance as of August 31, 2016 16.0% 14.0% 14.30% 14.46% 12.0% 11.98% 11.34% 11.39% 11.80% 10.0% 8.0% 6.0% 8.03% 8.53% 4.53% 4.54% 6.37% 7.20% 4.0% 2.0% 0.0% -2.0% -0.01% -0.50% -0.64% -0.41% -0.16% -0.83% CYTD FYTD 1 Year 3 Years 5 Years 10 Years Total Domestic Equity Total Domestic Equity Benchmark Value Added 37

Developed International Equity: Total Assets $10.6 Billion (Target Allocation: 16.0%; Actual allocation 16.8% as of August 31, 2016) Active/Passive Portfolio Baillie Gifford, $1,983,834 19% Asset Allocation Mondrian, $856,743 8% FIS, $105,860 1% 51.6% 48.4% SSgA Custom World Ex-US IMI, $5,109,416 48% Active Passive Marathon, $2,504,033 24% SSgA Custom World Ex-US IMI Baillie Gifford FIS Marathon Mondrian 38

Developed International Equity: Total Assets $10.6 Billion Gross of Fees Performance as of August 31, 2016 7.0% 6.46% 6.0% 5.0% 4.0% 5.41% 5.18% 4.29% 4.59% 3.0% 2.44% 2.84% 2.53% 2.59% 3.08% 2.0% 1.0% 1.13% 1.31% 1.70% 1.87% 1.80% 1.28% 0.0% 0.23% 0.31% CYTD FYTD 1 Year 3 Years 5 Years 10 Years Total Int'l Equity Total Int'l Equity Benchmark* Value Added *Total International Equity Benchmark: 50% Custom MSCI World Ex-US IMI Net Dividends/50% Custom MSCI EAFE Standard Index Net Dividends 39

Emerging Markets Equity: Total Assets $4.6 Billion (Target Allocation: 7.0%; Actual allocation 7.4% as of August 31, 2016) Active/Passive Portfolio 74.8% 25.2% Acadian Smal Cap, $140,000 3% Emerging Markets Transition $841 0% Pzena, $633,983 14% Harding Loevner, $460,331 10% Wasatch Small Cap, $104,575 2% Asset Allocation Acadian Frontier, $110,904 2% Baillie Gifford EMM, $679,964 15% SSgA Emerging Markets, $1,165,070 25% City of London Frontier, $101,065 2% AQR Emerging, $594,858 13% Active Passive Driehaus Capital, $628,321 14% SSgA Emerging Markets AQR Emerging Baillie Gifford EMM Driehaus Capital Harding Loevner Pzena Emerging Markets Transition Acadian Smal Cap Wasatch Small Cap Acadian Frontier City of London Frontier 40

Emerging Markets Equity: Total Assets $4.6 Billion Gross of Fees Performance as of August 31, 2016 16.0% 14.0% 14.30% 14.15% 13.31% 12.0% 11.41% 10.0% 8.0% 8.39% 7.41% 6.0% 4.0% 2.0% 0.0% -2.0% 4.08% 3.38% 2.74% 2.16% 0.99% 0.98% 1.50% 0.66% 0.34% 0.42% -0.08% -0.70% CYTD FYTD 1 Year 3 Years 5 Years 10 Years Total EM Equity Total EM Equity Benchmark* Value Added *Total EM Equity Benchmark: 25% Custom MSCI EM IMI Net Dividends/64% MSCI EM Standard Index Net Dividends/7% Custom MSCI EM Small Cap Net Dividends/4% Custom MSCI FM (15% Country Capped Index Net Dividends - Current blend is maintained by MSCI) 41

Domestic Investment Grade & Inflation-Linked Fixed Income: Total Assets $8.6 Billion (Target Allocation: 13.0%; Actual allocation 13.7% as of August 31, 2016) Active/Passive Portfolio Asset Allocation 43% 57% Aggregate (Core), $3,177,650 37% Long STRIPS, $3,394,550 40% Global ILBs, $1,381,353 16% US TIPS, $623,609 7% Active Passive Aggregate (Core) Long STRIPS US TIPS Global ILBs 42

Domestic Grade Fixed Income & Inflation-Linked Fixed Income: Total Assets $8.6 Billion Gross of Fees Performance as of August 31, 2016 16% Total Core Fixed Income Composite Total Core Fixed Income Benchmark Value Added 14% 14.26% 14.23% 14.16% 14.16% 12% 10% 8% 9.15% 8.94% 6% 6.37% 5.93% 6.15% 5.93% 4% 2% 0% 2.06% 1.85% 0.03% 0.21% 0.00% 0.21% 0.44% 0.22% CYTD FYTD 1 Year 3 Years 5 Years 10 Years 43

Value Added Fixed Income: Total Assets $5.2 Billion (Target Allocation: 10.0%; Actual allocation 8.3% as of August 31, 2016) Private Debt, $1,219,291 24% High Yield Bonds, $997,979 19% EMD Local Currency Denominated, $1,204,171 23% EMD US$ Denominated, $794,380 15% Bank Loans, $969,374 19% High Yield Bonds Bank Loans EMD US$ Denominated EMD Local Currency Denominated Private Debt 44

Value Added Fixed Income: Total Assets $5.2 Billion Gross of Fees Performance as of August 31, 2016 20% 15% 14.52% 10% 5% 0% 8.24% 1.92% 4.82% 5.42% 4.06% 1.36% 3.65% 0.54% 2.14% 4.44% 3.01% 7.01% 5.43% 1.43% 1.58% -5% -2.90% -6.28% -10% CYTD FYTD 1 Year 3 Years 5 Years 10 Years Value Added Fixed Income Total Value Added Benchmark Value Added 45

Private Markets Portfolios Private Equities: $6.6 billion, 10.5% of PRIT Fund (as of 8/31/2016) Private Debt: $1.2 billion, 1.9% of PRIT Fund (as of 8/31/2016) 117 investment managers 2 team members ~ 30 investment decisions/year 5 core investment strategies: Large buyouts Small and mid cap buyouts Growth equity Venture capital Distressed debt Key Initiatives: PRIT FUND TARGET ASSET ALLOCATION In 2015, committed $1.5 billion to private equity and $375 million to distressed debt Launched first PRIM co-investment program and made initial co-investment Global Equities, 40.0% Core Fixed Income, 10.0% Private Equity, 10.0% Completed investment research: Small and mid market buyouts Corporate credit and loan portfolios Strengthen decision making and idea sharing TIPS, 3.0% Timber, 4.0% PCS, 4.0% Real Estate, 10.0% Cross-collaboration with other asset class teams Distressed Debt, 4.0% Value-Added Fixed Income, 6.0% Hedge Funds, 9.0% 46

Private Equity: Total Assets $6.6 Billion (Target Allocation: 10.0%; Actual allocation 10.5% as of August 31, 2016) $1,575,034, 24% $144,211 2% $4,841,913 74% Special Equity Venture Capital Private Equity Cash 47

Private Equity: Total Assets $6.6 Billion (Target Allocation: 10.0%; Actual allocation 10.5% as of August 31, 2016) Gross of Fees Performance 25% 22.43% 20% 15% 17.93% 17.26% 12.82% 12.24% 12.70% 12.35% 11.26% 18.48% 15.93% 15.72% 14.72% 15.41% 14.35% 14.60% 10% 7.96% 7.52% 5% 5.68% 4.96% 3.01% 3.97% 0% -0.22% -0.26%-0.11% CYTD FYTD 1Year 3Year 5Year 10Year -5% PRIT Total Private Equity PRIT Special Equity PRIT Venture Capital S&P 500 48

Real Estate and Timberland Portfolios $8.3 billion, 13.3% of PRIT Fund (as of 8/31/16): Real Estate: $6.3 billion, 10.1% of PRIT Fund Timberland: $2.0 billion, 3.2% of PRIT Fund 15 portfolios: 4 core portfolios 5 non-core portfolios 4 global REIT portfolios 2 timberland portfolios Property investments: Real estate 90 properties Timberland 19 properties Key Initiatives: 120 global real estate securities 4 primary strategies: Core and non-core U.S. private real estate Global real estate securities Global timberland 3 team members: PRIT FUND TARGET ASSET ALLOCATION Ongoing capital allocation AEW Transition Account Recommendation Research: Global real estate regional allocation research Timberland portfolio construction and acquisition strategy Monitor real estate development projects Benchmark review Global Equities, 40.0% TIPS, 3.0% Timber, 4.0% Portfolio Completion Strategies, 4.0% Hedge Funds, 9.0% Core Fixed Income, 10.0% Real Estate, 10.0% Value-Added Fixed Income (incl. 4% Distressed Debt), 10.0% Private Equity, 10.0% 49

Real Estate Asset Allocation As of August 31, 2016 Non-Core, 8.0% REITs, 24.1% Core, 67.3% 50

Total Real Estate Performance (Gross of Fees) As of August 31, 2016 20.0% 18.8% 18.0% 16.0% 14.0% 12.0% 12.5% 12.0% 13.6% 13.2% 13.4% 13.4% 13.1% 12.6% 11.8% 11.9% 11.3% 10.5% 10.0% 8.0% 6.8% 6.6% 8.2% 7.4% 7.0% 6.0% 5.0% 4.0% 2.7% 4.0% 2.0% 0.0% 1.3% 1.3% 0.9% 0.8% 0.3% 0.5% 0.8% 0.4% CYTD FYTD 1 Year 3 year 5 year 10 Year 0.3% Private Real Estate (Total) REITs Total Real Estate Real Estate Benchmark Value Added Returns 51

REITs Exposure by Country Canada, 2.0% Other, 5.4% Germany, 4.2% France, 3.9% U.K., 5.8% Australia, 6.0% Hong Kong, 6.9% U.S., 54.9% Japan, 10.9% 52

Timberland Performance (Gross of Fees) As of August 31, 2016 11.0% 9.0% 7.0% 7.7% 7.4% 6.6% 9.1% 6.8% 7.0% 7.0% 5.0% 5.3% 3.0% 3.2% 1.6% 1.6% 1.9% 2.9% 2.1% 1.0% 0.7% 0.7% 0.0% -1.0% -1.0% -0.3% -1.3% -0.2% -3.0% -5.0% CYTD FYTD 1 Year 3 Years 5 Years 10 Years Inception (1/31/2002) Timber NCREIF Timber Index (QTR Lag) Value Added Returns 53

Hedge Funds Portfolios $5.0 billion, 8.0% of PRIT Fund (as of 8/31/16): Hedge Fund of Funds: $0.9 billion, 18% of Hedge Funds Direct Hedge Funds: $4.1 billion, 82% of Hedge Funds The rest in liquidating portfolios and cash 29 managers: 1 FoHF Manager 28 direct hedge fund managers 2 team members. Key Initiatives: PRIT FUND TARGET ASSET ALLOCATION PRIM managed account platform Alternative beta analysis framework Hedge fund replication strategy Global Equities, 40.0% Core Fixed Income, 10.0% Value-Added Fixed Income (incl. 4% Distressed Debt), 10.0% Position-based portfolio risk monitoring TIPS, 3.0% Timber, 4.0% Private Equity, 10.0% Portfolio Completion Strategies, 4.0% Hedge Funds, 9.0% Real Estate, 10.0% 54

Hedge Funds: Total Assets $5.0Billion (Target Allocation: 9.0%; Actual allocation 8.0% as of August 31, 2016) $878,479 18% $4,134,349 82% PAAMCO Direct Hedge Funds 55

Hedge Funds: Total Assets $5.0 Billion Net of Fees Performance as of August31, 2016 6.00% 5.00% 4.77% 4.00% 3.44% 3.34% 3.76% 3.00% 2.00% 1.72% -2.50% 2.04% 2.51% 2.73% 2.04% 1.00% 0.00% 1.13% 0.26% 0.54% 0.93% -1.00% -0.59% -1.15% -0.42% -2.00% -1.69% -3.00% CYTD FYTD 1 Year 3 Years 5 Years 10 Years** Hedge Funds Total Asset Class Benchmark* Value Added *Benchmark: Merrill Lynch (ML) 90 Day T-Bill + 4% thru 12/31/09, currently, HFRI Fund of Funds Composite Index **HFRI Fund of Funds Composite Index Annualized 10-Year Return as of August 31, 2016 was 1.73% 56

Portfolio Completion Strategies (PCS) Portfolios $0.7 billion, 1.2% of PRIT Fund (as of 8/31/16): 5 managers: 3 invested in alternative risk premia strategies, 1 residential land & home building, and 1 agriculture investment Collaboration across all PRIM teams Key Initiatives: PRIT FUND TARGET ASSET ALLOCATION Alternative risk premia Agriculture investing Other real assets Global Equities, 40.0% Core Fixed Income, 10.0% Value-Added Fixed Income (incl. 4% Distressed Debt), 10.0% TIPS, 3.0% Timber, 4.0% Private Equity, 10.0% Portfolio Completion Strategies, 4.0% Hedge Funds, 9.0% Real Estate, 10.0% 57