California Public Employees’ Retirement System · Performance Review – December 31, 2016 ....

Item 7a, Attachment 1, of 62

Performance Review – December 31, 2016 California Public Employees’ Retirement System


2

December 2016 Asset Class Assumptions

Dev Global LT ex-US

US ex-US Emg ex-US Global Private Core Core High Bond US Global Private Real US

Stock Stock Stock Stock Stock Markets Cash Bond Bond TIPS Yield (Hdg) RES RES RE Cmdty Assets CPI

Expected Compound Return (%) 6.50 6.50 6.50 6.70 6.70 9.40 1.55 3.65 4.10 2.95 5.35 1.35 5.40 5.60 6.00 3.50 6.30 1.95

Expected Arithmetic Return (%) 7.80 7.95 9.45 8.30 8.05 12.60 1.55 3.80 4.55 3.10 5.80 1.40 6.75 6.75 6.90 4.55 6.65 1.95

Expected Risk (%) 17.00 18.00 26.00 18.75 17.15 27.50 1.25 5.15 9.85 6.00 10.00 3.50 17.00 15.80 14.00 15.00 8.40 1.75

Cash Yield (%) 2.00 3.00 2.25 2.85 2.40 0.00 1.55 3.80 5.05 3.30 8.40 1.80 3.95 3.95 2.85 1.55 2.85

Correlations:

US Stock 1.00

Dev ex-US Stock 0.83 1.00

Emerging Mkt Stock 0.75 0.75 1.00

Global ex-US Stock 0.85 0.96 0.87 1.00

Global Stock 0.96 0.94 0.84 0.96 1.00

Private Markets 0.75 0.65 0.63 0.68 0.74 1.00

Cash Equivalents -0.05 -0.09 -0.05 -0.08 -0.07 0.00 1.00

Core Bond 0.29 0.13 0.00 0.10 0.20 0.32 0.19 1.00

LT Core Bond 0.32 0.16 0.01 0.12 0.23 0.33 0.11 0.95 1.00

TIPS -0.05 0.00 0.15 0.05 0.00 -0.03 0.20 0.61 0.48 1.00

High Yield Bond 0.55 0.40 0.50 0.45 0.52 0.34 -0.10 0.25 0.33 0.05 1.00

Non-US Bond (Hdg) 0.16 0.26 -0.01 0.19 0.18 0.27 0.10 0.68 0.65 0.40 0.27 1.00

US RE Securities 0.60 0.48 0.45 0.50 0.57 0.51 -0.05 0.17 0.23 0.10 0.57 0.05 1.00

Global RE Securities 0.66 0.60 0.57 0.63 0.67 0.58 -0.05 0.16 0.22 0.11 0.63 0.04 0.96 1.00

Private Real Estate 0.55 0.45 0.45 0.48 0.53 0.51 -0.05 0.19 0.26 0.09 0.58 0.05 0.79 0.77 1.00

Commodities 0.15 0.25 0.30 0.28 0.22 0.15 0.00 -0.04 -0.05 0.20 0.20 -0.05 0.26 0.29 0.25 1.00

Real Asset Basket 0.40 0.41 0.48 0.46 0.45 0.38 0.02 0.24 0.26 0.41 0.51 0.08 0.66 0.70 0.70 0.56 1.00

Inflation (CPI) -0.10 -0.15 -0.13 -0.15 -0.13 -0.10 0.10 -0.12 -0.12 0.15 -0.08 -0.08 0.05 0.04 0.05 0.40 0.25 1.00

Real Estate

Equity Fixed Income Real Assets


3

Economic Review

Data sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve Bank of St. Louis, Barclays Capital

December 31, 2016CPI (all items)Seasonally adjusted Dec-16 0.3 3-Month 0.8

Nov-16 0.2 12-Month 2.1Oct-16 0.4 10-Yr Annual 1.8

Breakeven Inflation 10-Year 2.0

Consumer Sentiment Dec-16 98.2Unv. of Michigan Survey Nov-16 93.8

1-Yr Ago 92.6 10-Yr Avg 77.9

Manufacturing Dec-16 54.7 Change in Manufacturing SectorInst. for Supply Mgmt Nov-16 53.2 >50 ExpansionPurchasing Mngrs' Idx 1-Yr Avg 51.5 <50 ContractionNote: Seasonally adjusted CPI data is utilized to better reflect short-term pricing activity. Dec/2016 CPI is based on Federal Reserve of Philadelphia Survey of Professional Forecasters

Monthly Change Cumulative ChangeKey Economic Indicators

Real GDP

Consumer Spending

$(18,000)

$(15,000)

$(12,000)

$(9,000)

$(6,000)

$(3,000)

$-

$3,000

$6,000

$9,000

$12,000

$15,000

$18,000

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

Qu

arte

rly

GD

P (

$b

il)

An

nu

alized

Grow

th

Changes in Real GDP (2009 base year)

Annualized Change in Real GDP Private Investment Series9 Government Spending

(5.0)

-

5.0

10.0

15.0

(200)

(100)

-

100

200

300

400

Un

em

plo

ym

en

t R

ate

(%

)

Job

Grow

th/

Loss (

thou

)

Unemployment Rate and Job Growth/Loss

Job Growth (Loss) Unemployment Rate


U.S. Economic Growth

• Current economic expansion began during the second quarter of 2009

• Annualized real growth during that period is 2.1%

• Although it is one of the lengthiest expansions of the past 100+ years, cycles have been trending longer, in general

• Recessions typically last 1-2 years

4 Source: J.P. Morgan Asset Management

*Chart assumes that growth during Q4 2016 will be positive


Wilshire’s Economic Factor Portfolios

5

• Helpful to examine market behavior through a broad lens of economic factors

• Market performance during 2016 clearly shows the importance of asset class exposure to inflation expectations

Rising Growth6.5%

Falling Growth-0.4%

Net Growth3.7%

Rising Inflation9.2%

Falling Inflation-4.1%

Net Inflation7.5%

-5%

0%

5%

10%

Tota

l Ret

urn

2016 Through Factor Portfolios

Source: U. S. Department of the Treasury


Challenges of Low/Declining Rate Environment

6

Source: Wilshire Compass, Bloomberg-Barclays

0

25

50

75

100

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

Required Risk Taking vs. Bond Yields

% Stocks Bond Yield Exp Ret Target Ret Exp Risk


Global Stocks & Bonds

• Major shift in asset values since November 8th

– Global equity up $1 trillion

– Global investment grade fixed income down $2 trillion

• Various sources have reported strong fund flows into equities

7 Source: Wilshire Atlas, Bloomberg Index Services Limited

$40.0

$42.0

$44.0

$46.0

$48.0

$50.0

$30.0

$32.0

$34.0

$36.0

$38.0

$40.0

Change in Business Debt / Potential GDP

MSCI AC World Index (left) BB Global Aggregate Index (right)

Global Market Value (trillions)

U.S. Presidential Election


8 Forecasts using Wilshire’s 2017 Asset Class Assumptions.

6.23% 6.25%7.51% 7.52%

11.43% 11.59%

0.33%

0.0%

5.0%

10.0%

15.0%

Target Allocation Actual Allocation

Expected Return - 10 Yr Expected Return - 30 Yr

Expected Risk Expected Allocation Based TE

CalPERS Expected Return and Risk Estimates


9

Asset and Risk Allocation

Forecasts using Wilshire’s 2017 Asset Class Assumptions.

82.00%

6.95% 9.87%

1.19% -0.01%0.00%

Contribution to Total Risk - Target Allocation

Growth

Income

Real Assets

Inflation

Liquidity

ARS + Multi-Asset

84.16%

6.28% 8.10%

1.28% -0.01%0.20%

Contribution to Total Risk - Actual Allocation

Growth

Income

Real Assets

Inflation

Liquidity

ARS + Multi-Asset

54.0%

20.0%

13.0%

9.0%4.0%

0.0%

Target Asset Allocation

Growth

Income

Real Assets

Inflation

Liquidity

ARS + Multi-Asset

55.9%

18.9%

10.9%

9.5%

4.4%0.5%

Actual Asset Allocation

Growth

Income

Real Assets

Inflation

Liquidity

ARS + Multi-Asset


10

Drivers of Expected Excess Risk

Forecasts using Wilshire’s 2017 Asset Class Assumptions.

• This excess risk forecast is based on asset allocation variance only. • Other sources of risk (structural within asset classes, manager/program

specific source of tracking error, covariance) are not considered here.

1.92%

-1.15%

-2.10%

0.49% 0.35% 0.49%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Growth Income Real Assets Inflation Liquidity ARS + Multi-Asset

CalPERS Asset Allocation Variance

69.96%

6.51%15.00%

2.67%

-0.03%

5.90%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Growth Income Real Assets Inflation Liquidity ARS + Multi-Asset

Contribution to TF Tracking Error


11

Total Fund – Performance Market Value Qtr 1-Year 3-Year 5-Year 10-Year VaR Sharpe Info

TOTAL FUND $302.8 bil 0.3% 7.7% 4.6% 8.6% 4.4% $36.2 bil 1.4 0.0Total Fund Policy Benchmark 0.2% 8.5% 4.8% 8.6% 5.6% 1.4 0.0Actuarial Rate 1.8% 7.5% 7.5% 7.5% 7.6%

GROWTH 169.3 2.2% 9.3% 4.7% 10.6% 4.9% $34.9 bil 1.1 -0.4Growth Policy Benchmark 2.3% 10.5% 5.0% 11.6% 5.9% 1.2 0.0

PUBLIC EQUITY 143.9 1.9% 9.8% 3.9% 10.6% 4.2% $29.0 bil 0.9 0.9Public Equity Policy Benchmark 1.6% 9.0% 3.7% 10.3% 4.5% 0.9 0.0

PRIVATE EQUITY 25.4 4.0% 6.6% 8.8% 11.5% 9.8% $8.3 bil 3.1 -0.4Private Equity Policy Benchmark 6.3% 16.7% 10.2% 16.4% 12.8% 1.4 0.0

INCOME 57.1 -5.3% 5.4% 4.5% 3.4% 6.1% $6.1 bil 0.7 1.5Income Policy Benchmark -5.4% 4.2% 4.0% 2.4% 5.4% 0.4 0.0

REAL ASSETS 33.0 1.9% 5.8% 10.8% 11.3% -0.8% $4.8 bil 1.6 0.1Real Assets Policy Benchmark 1.7% 8.3% 10.6% 10.7% 7.4% 2.6 0.0

INFLATION 28.7 -1.6% 6.3% -3.7% -2.2% -.-% $2.0 bil -0.3 0.2Inflation Policy Benchmark -1.6% 6.3% -4.5% -2.5% -.-% -0.4 0.0

LIQUIDITY 13.2 0.1% 0.5% 0.8% 0.4% 1.5% $0.1 bil 0.3 -0.6Liquidity Policy Benchmark 0.1% 0.3% 1.2% 0.7% 1.7% 0.4 0.0

ABSOLUTE RETURN STRATEGIES 0.3 -3.5% -6.5% 0.0% 2.4% 1.8% 0.6 -0.7Absolute Return Strategies Policy Benchmark 1.3% 5.8% 5.4% 5.3% 6.5% 25.7 0.0

MULTI-ASSET CLASS COMPOSITE 1.2 0.7% 2.9% 4.5% -.-% -.-% N/A N/AAbsolute 7.5% 1.8% 7.5% 7.5% -.-% -.-% N/A N/A

CURRENCY + ASSET ALLOCATION TRANSITION 0.0 -.-% -.-% -.-% -.-% -.-% N/A N/A

TERMINATED AGENCY POOL 0.1 -4.6% 5.0% 5.2% -.-% -.-% N/A N/A

TOTAL FUND PLUS TAP 302.9 0.3% 7.7% 4.6% 8.6% 4.4% N/A N/A

5-Year Ratios


12

Total Fund – Attribution (Quarter)

Growth 55.83 2.19 54.00 2.32 1.83 -0.12 0.00 0.00 -0.06 -0.06

Public Equity 47.37 1.87 46.00 1.61 1.37 0.25 -0.02 0.01 0.11 0.10

Private Equity 8.47 4.03 8.00 6.25 0.47 -2.23 0.02 -0.01 -0.18 -0.16

Income 19.87 -5.27 20.00 -5.43 -0.13 0.17 -0.01 0.00 0.03 0.02

Real Assets 10.86 1.88 13.00 1.69 -2.14 0.19 -0.03 0.00 0.02 -0.01

Inflation 7.90 -1.60 9.00 -1.62 -1.10 0.02 0.04 0.00 0.00 0.04

Absolute Return 0.50 -3.54 0.00 1.28 0.50 -4.82 0.01 -0.02 0.00 -0.02

Liquidity 5.04 0.15 4.00 0.09 1.04 0.06 0.00 0.00 0.00 0.00

Monthly Linked Return 100.00 0.19 100.00 0.22 -0.03 0.00 -0.03 0.00 -0.03

Trading/Hedging/Other 0.09 0.00 0.09 0.09

Total 0.28 0.22 0.06 0.06

California Public Employees' Retirement SystemTotal Fund Attribution - Quarter

As of 12/31/2016

Asset Class

Actual (%) Policy (%) Difference (%) Total Fund Return Contribution (%)

Weight Return Weight Return Weight Return Actual Allocation Interaction Active

Management Total


13

Total Fund – Attribution (Calendar YTD)

Growth 60.13 9.32 59.25 10.50 0.88 -1.19 -0.15 0.06 -0.65 -0.74

Public Equity 51.13 9.77 49.75 9.00 1.38 0.76 -0.12 0.01 0.36 0.26

Private Equity 9.01 6.61 9.50 16.66 -0.49 -10.05 -0.01 0.06 -1.06 -1.01

Income 20.02 5.36 20.00 4.17 0.02 1.19 -0.09 0.01 0.24 0.16

Real Assets 10.74 5.77 12.25 8.31 -1.51 -2.54 -0.03 0.02 -0.29 -0.30

Inflation 6.18 6.32 6.75 6.32 -0.57 0.00 0.02 -0.01 0.00 0.02

Absolute Return 0.54 -6.50 0.00 5.79 0.54 -12.29 -0.01 -0.07 0.00 -0.08

Liquidity 2.39 0.55 1.75 0.33 0.64 0.22 -0.02 0.00 0.00 -0.01

Monthly Linked Return 100.00 7.54 100.00 8.49 -0.95 -0.27 0.01 -0.70 -0.95


Total 7.67 8.49 -0.82 -0.82

Weight Return Weight Return Actual Allocation Interaction

California Public Employees' Retirement SystemTotal Fund Attribution - Calendar Year-to-Date

As of 12/31/2016

Asset Class


Weight Return Active Management Total


14

Total Fund – Attribution (Fiscal YTD)

Growth 58.22 7.44 57.50 7.70 0.72 -0.26 0.04 0.00 -0.18 -0.15

Public Equity 49.63 7.67 48.50 7.53 1.13 0.14 0.00 0.00 0.06 0.06

Private Equity 8.58 5.92 9.00 8.78 -0.42 -2.86 0.04 -0.01 -0.24 -0.21

Income 20.02 -3.95 20.00 -4.58 0.02 0.63 -0.02 0.00 0.13 0.11

Real Assets 10.72 3.49 12.50 3.58 -1.78 -0.08 -0.01 0.00 -0.01 -0.02

Inflation 6.92 -1.70 7.50 -1.07 -0.58 -0.64 0.03 0.00 -0.04 0.00

Absolute Return 0.51 -7.33 0.00 2.58 0.51 -9.91 -0.01 -0.05 0.00 -0.06

Liquidity 3.62 0.30 2.50 0.18 1.12 0.12 -0.03 0.00 0.00 -0.02

Monthly Linked Return 100.00 3.74 100.00 3.87 -0.14 0.00 -0.05 -0.09 -0.14


Total 3.85 3.87 -0.02 -0.02

California Public Employees' Retirement SystemTotal Fund Attribution - Fiscal Year-to-Date

As of 12/31/2016

Asset Class


Weight Return Weight Return Weight Return Actual Allocation Interaction Active

Management Total


15

Total Fund – Rolling Excess Returns


16

Total Fund – Rolling Tracking Error


17

U.S. Equity Market

Data sources: Wilshire Compass, Wilshire Atlas

December 31, 2016 Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr

Wilshire 5000 4.5 13.4 13.4 8.8 14.7 7.2Wilshire U.S. Large Cap 4.1 12.5 12.5 8.9 14.6 7.1Wilshire U.S. Small Cap 8.3 22.4 22.4 7.5 15.5 8.7

Wilshire U.S. Large Growth 3.9 9.0 9.0 8.7 15.2 8.2Wilshire U.S. Large Value 4.4 15.4 15.4 9.0 14.1 5.8Wilshire U.S. Small Growth 7.6 17.0 17.0 4.9 14.1 8.8Wilshire U.S. Small Value 9.0 27.7 27.7 10.0 16.7 8.5

Wilshire REIT Index -2.3 7.2 7.2 13.8 12.0 4.8MSCI USA Minimum Volatility Index 0.0 9.8 9.8 10.1 12.8 7.5FTSE RAFI U.S. 1000 Index 7.3 17.6 17.6 8.9 15.5 8.0

13.4

25.1

17.6

22.6

-4.5

27.6

6.1

20.2

7.8

-2.1

25.7

13.9

4.5

6.0

0.7

5.7

-2.9

7.6

-1.5

8.3

2.9

-3.6

21.2

1.6

Wilshire 5000

Telecom

Utilities

Materials

Real Estate

Energy

Cnsmr Stpls

Industrials

Cnsmr Discr.

Healthcare

Financials

Info. Tech.

2.6%

3.1%

3.2%

4.5%

7.2%

8.8%

10.6%

12.2%

12.7%

15.7%

19.5%

Wilshire 5000 Sector Weight & Return (%)

4th Quarter Year to Date

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

Larg

e C

ap

in

excess o

f S

mall C

ap

Large Cap vs. Small Cap

QTD Excess Return Rolling 3-Year Excess Return

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

Grow

th i

n e

xcess o

f V

alu

e

Growth vs. Value

QTD Excess Return Rolling 3-Year Excess Return


U.S. Corporate Earnings

• Troubling trend in the U.S. equity market reversed course during the year

• Operating earnings had been on the decline for approximately a year and a half before returning to growth in 2016

18 Source: S&P Dow Jones Indices

-15%

-10%

-5%

0%

5%

10%

15%

20%

S&P 500 Index: Operating Earnings Growth

Quarterly Change Year-over-Year


Annual Equity Returns

• U.S. Equity has now produced 8 straight years of positive returns since 2008

• Median selloff during the periods included below is -12%

19

21

31

24 24

-11 -11

-21

32

13

6

16

6

-37

28

17

1

16

33

13

1

13

-9 -10

-22

-12

-21

-29-32

-13

-8 -7 -8 -10

-49

-27

-16-20

-10

-6-7

-12 -11

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Wilshire 5000 IndexWorst Intra-period Selloff vs Annual Return (%)

Annual Return Largest Selloff


20

Returns by Quality Segment

Relatively strong returns across most quality ratings for 2016; best performers in the B-range

Data sources: Wilshire Atlas

(5.00)

-

5.00

10.00

15.00

20.00

25.00

4Q 16 YTD 2016

Tota

l R

etu

rn

(%

)

Return by S&P Quality Rating

A+ A A- B+ B B- C / D

A+ 6%

A 12%

A- 16%

B+ 27%

B 13%

B- 9%

C / D 3%

N.A. 15%

Segment Weights

as of September 30


21

Non-U.S. Equity Market

Data sources: Wilshire Compass


MSCI ACWI ex-US ($g) -1.2 5.0 5.0 -1.3 5.5 1.4MSCI EAFE ($g) -0.7 1.5 1.5 -1.2 7.0 1.2MSCI Emerging Markets ($g) -4.1 11.6 11.6 -2.2 1.6 2.2MSCI Frontier Markets ($g) 0.5 3.2 3.2 -1.7 5.6 0.0

MSCI ACWI ex-US Growth ($g) -5.7 0.5 0.5 -0.9 5.7 1.9MSCI ACWI ex-US Value ($g) 3.4 9.6 9.6 -1.9 5.2 0.9MSCI ACWI ex-US Small ($g) -3.5 4.8 4.8 1.3 8.2 3.3

MSCI EAFE Minimum Volatility Idx -6.5 -1.4 -1.4 3.9 8.0 4.2FTSE RAFI Developed ex-US Index 3.7 7.3 7.3 -0.9 7.2 1.9

MSCI EAFE LC (g) 7.1 5.9 5.9 6.0 12.4 2.7MSCI Emerging Markets LC (g) -1.4 10.1 10.1 3.2 6.0 4.7

1.5

13.3

-4.0

3.4

5.9

-0.2

2.7

-0.7

1.1

-3.9

1.5

3.1

-0.9

-0.1

MSCI EAFE

Australia

Switzerland

Germany

France

United Kingdom

Japan

7.4%

8.7%

9.3%

10.2%

18.3%

24.1%

MSCI EAFE: Largest Countries and Return (USD)


11.6

18.6

66.6

-1.4

19.6

8.7

1.0

-4.1

-4.0

2.2

-8.0

-2.2

-5.5

-7.2

MSCI Emrg Mrkts

South Africa

Brazil

India

Taiwan

South Korea

China

7.1%

7.7%

8.3%

12.2%

14.4%

26.5%

MSCI EM: Largest Countries and Return (USD)



22

Growth: Public Equity – Performance

Market Value Qtr 1-Year 3-Year 5-Year 10-Year VaR

5-year Sharpe Ratio

5-year Info Ratio

PUBLIC EQUITY 143.9 1.9% 9.8% 3.9% 10.6% 4.2% $29.0 bil 0.9 0.9Public Equity Policy Benchmark 1.6% 9.0% 3.7% 10.3% 4.5% 0.9 0.0Value Added 0.3% 0.8% 0.2% 0.3% -0.3%

US Equity Composite 77.7 4.5% 13.4% 8.1% 14.7% 7.1% 1.3 0.5Custom US Equity Benchmark 3.9% 12.5% 8.0% 14.5% 7.0% 1.3 0.0Value Added 0.6% 0.9% 0.1% 0.2% 0.1%

Total Int'l Equity 66.2 -1.0% 5.8% -0.5% 6.4% 1.7% 0.5 -0.2Custom Int'l Equity Benchmark -0.8% 5.4% -0.6% 6.5% 1.6% 0.5 0.0Value Added -0.2% 0.4% 0.1% -0.1% 0.1%


23

Growth: Public Equity – Rolling Excess Returns


24

Growth: Public Equity – Rolling Tracking Error


25

Growth: US Equity – Rolling Excess Returns


26

Growth: US Equity – Rolling Tracking Error


27

Growth: International Equity – Rolling Excess Returns


28

Growth: International Equity – Rolling Tracking Error


29 Source: Preqin, as of December 31, 2016.

Global Quarterly Private Equity Fundraising (2010 - 2016)

Global Private Equity-Backed Buyout Activity (2007 – 2016)

050100150200250300350400

$0

$20

$40

$60

$80

$100

$120

$140

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2010 2011 2012 2013 2014 2015 2016

No.

of F

unds

Cap

ital R

aise

d ($

bn)

Aggregate Capital Raised (bn USD) No. of Funds

05001,0001,5002,0002,5003,0003,5004,0004,500

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Agg

rega

te D

eal V

alue

($bn

)

No.

of D

eals

Aggregate Deal Value ($bn) No. of Deals

Private Equity – Fundraising & Investment Activity


Private Equity – Pricing & Valuations

30

Global LBO Multiples (2006 – 2016)

U.S. Venture Capital Median Pre-Money Valuations (2006 – August 2016)

Sources: S&P LCD, through December 31, 2016; PitchBook, as of August 1, 2016.

$0

$50

$100

$150

$200

$250

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Serie

s C

, D+

Valu

atio

ns ($

m)

Seed

, Ser

ies

A, B

Val

uatio

ns

($m

)

Seed Series A Series B Series C Series D+

8.4x

9.7x 9.1x

7.7x 8.5x 8.8x 8.7x 8.8x

9.7x 10.3x 10.0x

8.8x 9.7x 9.7x

8.9x 9.2x 8.8x 9.3x

8.7x 9.7x

9.2x 9.9x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Purc

hase

Pric

e M

ultip

les

U.S. Europe


• Smaller deals continue to dominant deal activity by count

• Deals between $100 million-$1 billion make up the majority of deal volume by size in 2016

Private Equity – U.S. Investment Activity by Deal Size

31

Percentage of Deal Volume (count) by Deal Size

Source: PitchBook, as of December 31, 2016.

Percentage of Deal Volume (dollars) by Deal Size

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

$2.5B+

$1B-$2.5B

$500M-$1B

$100M-$500M

$25M-$100M

Under $25M

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016


32

Private Equity – Capital Overhang

• As of December 31, 2015, aggregate private equity dry powder across North America and Europe remains elevated at $749 billion, a 3% decline from the end of 2014

• While the overhang slightly decreased across 2007 to 2010, the overhang has increased back to 2007-2008 peak levels

Source: PitchBook, as of December 31, 2015.

Private Equity Overhang by Vintage Year

$623

$765 $760 $741 $680 $703 $697

$759 $773 $749

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ B

illio

ns

2016

2015

2014

2013

2012

2011

2010

2009

2008

CUMULATIVE OVERHANG

OVERHANG BY VINTAGE


• The amount of capital available for leverage has decreased considerably since its peak volume in 2007; loan volume appears consistent in the last few years

• Historically, middle-market transactions apply less leverage than large-cap deals

Private Equity – U.S. Debt Markets

33 Source: S&P LCD, as of December 31, 2016.

Percentage of Debt Used in Buyouts (2006 – 2016)

Total U.S. Leveraged Buyout Loan Volume ($bn) (2006 – 2016)

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

USD

Bill

ions

Funded Bank Debt Unfunded Bank Debt

35%

40%

45%

50%

55%

60%

65%

70%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Perc

enta

ge o

f Deb

t

$50M or more of EBITDA Less than $50M of EBITDA


• As debt has become more readily available, purchase price multiples have increased and remained high from the low point in 2009

• Pricing in 2016 decreased slightly by 0.3x from the recent high in 2015

Private Equity – U.S. LBO Purchase Price Multiples

34

Purchase Price Multiples of U.S. LBO Transactions (2006 – 2016)

Source: S&P LCD, as of December 31, 2016.

5.2x 6.1x

5.0x 3.8x

4.6x 4.9x 5.1x 5.3x 5.7x 5.6x 5.4x

3.1x

3.5x

4.0x

3.8x

3.8x 3.7x 3.5x 3.4x 3.9x 4.5x 4.5x

8.4x

9.7x 9.1x

7.7x

8.5x 8.8x 8.7x 8.8x

9.7x 10.3x 10.0x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Debt/EBITDA Equity/EBITDA Others


35

Growth: Private Equity – Performance


5-year Sharpe Ratio

5-year Info Ratio

PRIVATE EQUITY 25.4 4.0% 6.6% 8.8% 11.5% 9.8% $8.3 bil 3.1 -0.4PE Policy Benchmark 6.3% 16.7% 10.2% 16.4% 12.8% 1.4 0.0Value Added -2.3% -10.1% -1.4% -4.9% -3.0%

Private Equity Partnership Investments 25.4 4.1% 6.7% 8.9% 11.6% 9.9%

Private Equity Distribution Stock 0.0 -19.5% -37.6% -35.1% -31.5% -13.7%


36

Growth: Private Equity – Rolling Excess Returns


37

Growth: Private Equity – Rolling Tracking Error


38

U.S. Fixed Income Market

Data sources: Wilshire Compass, Bloomberg Barclays, U.S. Treasury

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Op

tion

Ad

juste

d S

pread

(b

ps)

Bloomberg Barclays Fixed Income Indexes

Securitized IG Corporate Aa Corporate High Yield

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

0 5 10 15 20 25 30

Yie

ld (

%)

Maturity (yrs)

Treasury Yield Curve

Current Quarter Previous Quarter One Year Ago

December 31, 2016 YTM Duration Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr

Bloomberg Barclays Aggregate 2.6 5.9 -3.0 2.6 2.6 3.0 2.2 4.3Bloomberg Barclays Treasury 1.9 6.1 -3.8 1.0 1.0 2.3 1.2 4.0Bloomberg Barclays Gov't-Related 2.6 5.4 -3.1 2.7 2.7 2.8 2.1 4.1Bloomberg Barclays Securitized 2.8 4.6 -2.0 1.8 1.8 3.0 2.1 4.2Bloomberg Barclays Corporate IG 3.4 7.3 -2.8 6.1 6.1 4.2 4.1 5.5

Bloomberg Barclays LT Gov't/Credit 4.0 15.0 -7.8 6.7 6.7 7.2 4.1 6.9Bloomberg Barclays LT Treasury 3.0 17.4 -11.7 1.3 1.3 7.8 2.5 6.7Bloomberg Barclays LT Gov't-Rel. 4.5 12.0 -7.5 6.0 6.0 6.6 4.2 6.7Bloomberg Barclays LT Corp. IG 4.5 13.8 -5.0 11.0 11.0 7.0 5.4 6.9

Bloomberg Barclays U.S. TIPS 0.6 8.2 -2.4 4.7 4.7 2.3 0.9 4.4Bloomberg Barclays High Yield 6.5 4.1 1.8 17.1 17.1 4.7 7.4 7.4Treasury Bills 0.5 0.25 0.1 0.3 0.3 0.1 0.1 0.8


39

High Yield Bond Market

Data sources: Bloomberg Barclays

0

500

1,000

1,500

2,000

2,500

3,000

Op

tion

Ad

juste

d S

pread

(b

ps)

Bloomberg Barclays High Yield Indexes

HY Index Ba B Caa

December 31, 2016 Weight Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr

Bloomberg Barclays High Yield Idx 100% 1.8 17.1 17.1 4.7 7.4 7.4

Quality Distribution

Ba U.S. High Yield 45.4% 0.4 12.8 12.8 5.6 7.2 7.8B U.S. High Yield 38.1% 2.0 15.8 15.8 3.8 6.8 6.2Caa U.S. High Yield 15.6% 4.7 31.5 31.5 4.5 9.0 6.7Ca to D U.S. High Yield 0.7% 12.2 83.1 83.1 -21.1 -7.7 -2.4Non-Rated U.S. High Yield 0.3% 1.4 5.8 5.8 -4.0 3.2 0.3


40

Non-U.S. Fixed Income Market

Data sources: Wilshire Compass, Bloomberg Barclays


Developed MarketsBloomberg Barclays Global Aggregate xUS -10.3 1.5 1.5 -2.6 -1.4 2.4Bloomberg Barclays Global Aggregate xUS * -1.9 4.9 4.9 5.0 4.5 4.4Bloomberg Barclays Wrld Govt xUS IL Bond -7.4 3.3 3.3 -0.2 1.1 3.0Bloomberg Barclays Wrld Govt xUS IL Bond * -1.8 14.4 14.4 9.0 5.9 5.9

Emerging Mrkts (Hard Currency)Bloomberg Barclays EM USD Aggregate -2.6 9.9 9.9 5.3 5.7 6.7Emerging Mrkts (Foreign Currency)Bloomberg Barclays EM Local Currency Gov't -7.5 5.9 5.9 -2.4 0.5 n.a.Bloomberg Barclays EM Local Currency Gov't * -2.8 3.3 3.3 2.7 2.5 n.a.

Euro vs. Dollar -6.1 -2.9 -2.9 -8.5 -4.1 -2.2Yen vs. Dollar -13.2 3.1 3.1 -3.4 -8.0 0.2Pound vs. Dollar -4.9 -16.2 -16.2 -9.3 -4.5 -4.5* Returns are reported in terms of local market investors, w hich removes currency effects.

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Yie

ld t

o W

orst

(%

)

Bloomberg Barclays Fixed Income Indexes

U.S. Treasury Global xUS Gov't EM USD Sovereign EM Foreign Gov't

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

10

20

30

40

50

60

70

80

90

100

Rollin

g 1

-Y

ear R

etu

rn

In

dex L

evel

U.S. Dollar Index: Major Currencies

Index Level Rolling 1-Year Return


41

Income – Performance


5-year Sharpe Ratio

5-year Info Ratio

INCOME 57.1 -5.3% 5.4% 4.5% 3.4% 6.1% $6.1 bil 0.7 1.5Income Policy BenchmarK -5.4% 4.2% 4.0% 2.4% 5.4% 0.4 0.0Value Added 0.1% 1.2% 0.5% 1.0% 0.7%

U.S. Income 51.4 -4.9% 5.7% 5.4% 4.0% 6.4% 0.8 1.3U.S. Income Policy BenchmarK -5.1% 4.3% 4.9% 3.0% 5.7% 0.5 0.0Value Added 0.2% 1.4% 0.5% 1.0% 0.7%

Non-U.S. Income 5.7 -8.4% 2.9% -3.0% -2.3% 3.0% -0.3 0.8Non-US Income Policy Benchmark -8.6% 2.6% -3.7% -2.9% 2.0% -0.4 0.0Value Added 0.2% 0.3% 0.7% 0.6% 1.0%


42

Income – Rolling Excess Returns


43

Income – Rolling Tracking Error


44

US Income – Rolling Excess Returns


45

US Income – Rolling Tracking Error


46

International Income – Rolling Excess Returns


47

International Income – Rolling Tracking Error


48

Real Assets

Data sources: Wilshire Compass, National Council of Real Estate Investment Fiduciaries


Barclays U.S. TIPS Index -2.4 4.7 4.7 2.3 0.9 4.4Bloomberg Commodity Index 2.7 11.8 11.8 -11.3 -9.0 -5.6Wilshire Global RESI Index -3.9 5.8 5.8 9.0 11.2 3.2NCREIF ODCE Fund Index 2.1 8.7 8.7 12.0 12.2 5.8NCREIF Timberland Index 1.2 2.6 2.6 6.0 7.1 5.8Alerian MLP Index (Oil & Gas) 2.0 18.3 18.3 -5.8 2.2 8.0

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Cu

rren

t Y

ield

Cu

rren

t C

ap

Rate

Real Estate Valuation

NPI Current Value Cap Rate Wilshire RESI Current Yield 10-Year Treasury Yield

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

Retu

rn

(%

)

NCREIF ODCE Fund Index Return

Appreciation Income Total Return


49

Inflation – Performance


5-year Sharpe Ratio

5-year Info Ratio

INFLATION 28.7 -1.6% 6.3% -3.7% -2.2% -.-% $2.0 bil -0.3 0.2Inflation Policy Benchmark -1.6% 6.3% -4.5% -2.5% -.-% -0.4 0.0Value Added 0.0% 0.0% 0.8% 0.3% -.-%

Internal Commodities 5.3 5.8% 10.9% -20.4% -13.3% -.-%GSCI Total Return Index 5.8% 11.4% -20.6% -13.1% -.-%Value Added 0.0% -0.5% 0.2% -0.2% -.-%

Core Inflation Linked Bonds 18.9 -4.3% 4.0% 1.2% 1.1% -.-%Custom Benchmark -4.2% 4.2% 0.8% 0.9% -.-%Value Added -0.1% -0.2% 0.4% 0.2% -.-%

Tactical Commodities 2.5 7.9% 9.8% -20.9% -.-% -.-%GSCI Total Return Index 5.8% 11.4% -20.6% -.-% -.-%Value Added 2.1% -1.6% -0.3% -.-% -.-%

Tactical TIPS 2.0 -2.4% 4.3% 2.1% -.-% -.-%CalPERS TIPS -2.4% 4.7% 2.3% -.-% -.-%Value Added 0.0% -0.4% -0.2% -.-% -.-%


50

Inflation – Rolling Excess Returns


51

Inflation – Rolling Tracking Error


Private Real Estate – Fundraising Activity


1,632

754

410 234

596

252 160

52 0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

North America Europe Asia Rest of World

No. of Funds Closed Aggregate Capital Raised ($bn)

Global Quarterly Closed-End Private Real Estate Fundraising (2010 – 2016)

0

20

40

60

80

100

120

$0$5

$10$15$20$25$30$35$40$45


2010 2011 2012 2013 2014 2015 2016

Num

ber o

f Fun

ds

Cap

ital R

aise

d ($

bn)


Closed-End Private Real Estate Fundraising by Primary Geographic Focus (2006 - 2016)


53

Commercial Property (as of Q3 2016)

Source: CB Richard Ellis

Office Retail

Industrial Apartment


Unlisted Infrastructure – Fundraising & Investment Activity


Global Quarterly Unlisted Infrastructure Fundraising (2010 - 2016)

0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

30


2010 2011 2012 2013 2014 2015 2016

No.

of F

unds

Cap

ital R

aise

d ($

bn)


Unlisted Infrastructure Fundraising by Primary Geographic Focus (2006 - 2016)

153

204

138

106

188

116

50 36

0

50

100

150

200

250

North America Europe Asia Rest of World

No. of Funds Closed Aggregate Capital Raised ($bn)


55

Timber

Source: Forest Investment Associates


56

Real Assets – Performance


5-year Sharpe Ratio

5-year Info Ratio

REAL ASSETS 33.0 1.9% 5.8% 10.8% 11.3% -0.8% $4.8 bil 1.6 0.1Real Assets Policy Benchmark 1.7% 8.3% 10.6% 10.7% 7.4% 2.6 0.0Value Added 0.2% -2.5% 0.2% 0.6% -8.2%

Real Estate 27.9 1.8% 6.8% 11.7% 12.5% -1.2% $4.5 bil 1.6 0.1Real Estate Policy Benchmark 1.8% 9.1% 11.4% 11.6% 8.3% 2.5 0.0Value Added 0.0% -2.3% 0.3% 0.9% -9.5%

Forestland 2.0 0.4% -9.4% -2.1% -1.8% -.-%NCREIF Timberland Index 0.7% 3.3% 7.6% 6.9% -.-%Value Added -0.3% -12.7% -9.7% -8.7% -.-%

Infrastructure 3.1 4.0% 8.3% 14.0% 12.0% -.-%CPI + 400 BPS 1Qtr Lag 1.2% 5.5% 5.1% 5.3% -.-%Value Added 2.8% 2.8% 8.9% 6.7% -.-%


57

Real Assets – Rolling Excess Returns


58

Real Assets – Rolling Tracking Error


59

Real Estate – Rolling Excess Returns


60

Real Estate – Rolling Tracking Error


61

Hedge Fund Performance

Data sources: Wilshire Compass


DJ CS Hedge Fund Index 1.2 1.2 1.2 1.5 4.3 3.8Event Driven Index 2.3 2.7 2.7 -0.8 4.5 3.7Global Macro Index 4.6 3.6 3.6 2.3 3.1 5.8Long/Short Equity Index -0.2 -3.4 -3.4 1.8 6.1 4.0Multi-Strategy Index 1.2 4.4 4.4 4.8 7.3 5.2

Wilshire 5000 4.5 13.4 13.4 8.8 14.7 7.2MSCI ACWI ex-US ($g) -1.2 5.0 5.0 -1.3 5.5 1.4Barclays Aggregate Bond Index -3.0 2.6 2.6 3.0 2.2 4.3Dow Jones UBS Commodity Index 2.7 11.8 11.8 -11.3 -9.0 -5.6

DJ CS Hedge Fund

Index

Wilshire 5000 Index

Barclays Aggregate

Bond Index

Dow Jones UBS

Commodity Index

MSCI ACWI ex-US

($g)

0.41

0.38

1.03

(0.31)

0.03

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

An

nu

alized

Retu

rn

Annualized Risk

Hedge Fund 10-Year Risk/Return

Note: Sharpe Ratio included to the left of each marker.


62

ARS – Distribution of Performance

Market Value Qtr 1-Year 3-Year 5-Year 10-Year

5-Year Info

Ratio

5-Year Up Capture

Ratio

5-Year Sharpe Ratio

5-Year Sortino Ratio

Absolute Return Strategies 0.3 -3.5% -6.5% 0.0% 2.4% 1.8% -0.7 0.4 0.6 0.8ARS Policy Benchmark 1.3% 5.8% 5.4% 5.3% 6.5%Value Added -4.8% -12.3% -5.4% -2.9% -4.7%

Total Direct Investments 0.3 -3.5% -6.2% 0.0% 2.4% 2.1%

Total Funds of Funds 0.0 -6.4% -14.1% 0.5% 2.7% 1.3%

HFRI Fund of Funds Index 0.6% -0.4% 3.9% 2.1% 2.3%

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