COMMON INVESTMENT MEETING Public Session · • US Equity market – earnings, breadth. •...
Transcript of COMMON INVESTMENT MEETING Public Session · • US Equity market – earnings, breadth. •...
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THE CITY OF NEW YORKOFFICE OF THE COMPTROLLER
September 17, 2018
COMMON INVESTMENT MEETINGPublic Session
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MARKET RETURNSSecond Quarter 2018
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Market Returns: Q2-2018
Source: State Street
*Average of consultant long-term arithmetic expected returns, as of 2016
Asset Class IndexSecond
Quarter 2018Fiscal Year
Ending 6/18 3 Year 5 Year Expected*
Equities - U.S. Russell 3000 3.9% 14.8% 11.6% 13.3% 7.8%Equities - Developed Intl MSCI World Ex-US 7.0% 4.9% 6.2% 8.9%Equities - Emerging Intl MSCI EMF -8.0% 8.2% 5.6% 5.0% 11.0%Debt - US Govt Long Duration Citigroup Treasury 10+ 0.4% -0.1% 3.5% 4.6%Debt - US Government NYC Treas/Agency +5 0.1% -1.0% 1.9% 2.7% 2.8%Debt - Investment Grade NYC IG Credit -0.9% -0.7% 2.8% 3.3% 3.4%Debt - High Yield Citigroup BB & B 0.9% 2.4% 4.8% 5.1% 6.1%
-0.75 %
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Market Returns: Q2-2018
• Key Market Themes of Q2 1) Strong US equity returns – continued strong profit growth and continued large scale equity buybacks
YOY Earnings Growth
Index Q2 ’18 Q1 ‘18
Russell 3000 27.1 % 25.7 %
MSCI EAFE 25.5 % 38.2 %
MSCI EM 14.1 % 24.22 %
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Market Returns: Q2-2018
2) Global trade and tariff concerns – US- China, US-Europe, US-NAFTA; concerns led to dollar strength and underperformance of foreign equity markets
Dollar vs DM currencies: Q2=+4.8 %; FY= (0.3%)
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Market Returns: Q2-2018
• Dollar vs EM Currencies: Q2= (9.2 %); FY= (6.2%)
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Market Returns: Q2-2018
• Divergent Equity Returns, US vs Global Markets
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Market Returns: Q2-2018
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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• Trade/tariff issues – NAFTA and EU resolutions, China remains an ongoing concern.
• US monetary policy – frequency and amount of additional interest rate increases, balance sheet strategy; US Treasury Yield Curve Flattening.
• US Equity market – earnings, breadth.• Emerging Market risks – Turkey and Argentina concerns, potential for
contagion growth. • Italian politics- fiscal concerns.• Japan Monetary Policy – reversal rate, ability to continue
accommodative monetary policy, expanding 10-yr yield target.• Brexit- ongoing negotiations with EU.
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Current Global Macro Issues
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Current Market Themes• US Monetary Policy - Is flattening of US Treasury Yield curve signaling a recession?
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Current Market Themes
• 3 mo – 18 mo yield curve – market based expectations of future fed funds change, does not indicate recession.
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Current Market Themes
• Term premium – additional yield required by investors for investing in long duration bonds, remains very low.
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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• Real fed funds rate (fed funds – inflation) – historically has risen to 2% - 4% prior to beginning of recessions.
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Current Market Themes
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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• Chicago Fed Financial Conditions Index
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Current Market Themes
Tighter
Accommodative
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Returns of R3KPerform
Contributions to Return of Russell 3000
Q2 FY
Amazon 10.86% 13.48%
Apple 9.97% 7.25%
Facebook 7.78% 2.72%
Google 2.61% 1.93%
Netflix 4.36% 5.71%
Q2 FY3.9 % 14.8 %
Russell 3000 Performance
Performance and Valuation
FY (return %) Market Cap PE Ratio
75% $ 950 B 200 X
28% $ 1 T 20 X
28% $460 B 22 X
20% $800 B 30 X
160% $150 B 160 X
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Index ’17 (actual)
’18 (est.) ’19 (est.)
Russell 3000
12 % 19 % 7 %
MSCI EAFE 19 % 7.5 % 7.5 %
MSCI EM 25.7 14.1 12.1
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Year Over Year Earnings Per Share Growth and Valuations
YOY EPS Growth
1-yr fwdP/E
Current P/B
17.7 X 3.2
13.5 X 1.65
11.3 X 1.68
Valuations
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Current Market Themes
Consumer Discretionary,
6.83%
Consumer Staples, 7.32%
Energy, 3.30%
Financials, 20.42%
Health Care, 9.09%Industrials, 4.25%
Technology, 47.51%
Materials, 0.80%
S&P 500 2018 Share Buybacks
• Buybacks
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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PERFORMANCE REPORTINGSecond Quarter 2018
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NYC Retirement Systems Asset Allocation (% , in millions)
Source: State Street
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
$195,771m Total Asset Allocation for all 5 Systems as of June 30, 2018
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Net of fees in public asset classes are recorded on an accrual basis.Private markets data is reported on a lagged basis
NYC Pension System Portfolio Std Dev - 1 yr.
3 Month Fiscal YTD Three Year Trailing
BERS 5.11% 0.81% 10.37% 8.43%
TRS 4.57% 0.57% 8.12% 7.38%
NYCERS 4.51% 0.66% 8.56% 7.58%
POLICE 4.45% 0.95% 9.41% 7.82%
FIRE 4.36% 1.05% 9.30% 7.74%
Public Mkt Equiv 65/35 1.35% 7.64% 6.75%Median Fund - TUCS 1.11% 8.67% 7.47%
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Total NYC Pension Fund Net Performance as of 06/30/2018
Source: State StreetOFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Asset Allocation Review - Growth
Source: State Street
Relative Mix to Adjusted New Policy Weights
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Asset Allocation Review – Inflation Protection
Source: State Street
Relative Mix to Adjusted New Policy Weights
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Asset Allocation Review - Deflation Protection
Source: State Street
Relative Mix to Adjusted New Policy Weights
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Treasury Duration Actual Vs. Target as of 06/30/2018
TRS, 8.4
NYCERS, 6.1
Police, 8.7 Fire, 8.4
BERS, 5.6
TRS, 17.1
NYCERS, 10.6
Police, 17.1 Fire, 17.1
BERS, 10.6
0.0
3.0
6.0
9.0
12.0
15.0
18.0
21.0
0 1 2 3 4 5 6
Actual Target
Source: State Street
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Fiscal Year to Date Return as of 06/30/2018 – Total Portfolio
-1100
-900
-700
-500
-300
-100
100
300
500
700
900
1100
FYTD Portfolio FYTD Benchmark FYTD Excess
bps
TRS
NYCERS
Police
Fire
BERS
Basis Points of Excess Return (SSB N, p.30; T, F p. 31; P p.32; B p.33)
Source: State StreetOFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Fiscal Year to Date as of 06/30/2018 Excess Return – Total Portfolio
-1,100
-900
-700
-500
-300
-100
100
300
500
700
900
1,100
FYTD Total Excess Return FYTD Asset Allocation FYTD Manager Value Added
bps
TRS
NYCERS
Police
Fire
BERS
Source: State Street
Basis Points of Excess Return (SSB N, p.15; T, F p.16 ; P p.17; B p.18)
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Value Added – Total Domestic Equity
-600
-400
-200
0
200
400
600
QTD FYTD 3 Year Trailing
TRS: 27.47%NYCERS: 27.64%POLICE: 29.94%FIRE: 28.56%BERS: 30.74%
Source: State Street
Weights as of06/30/2018
bps
Basis Points of Excess Return (SSB N, p.30; T, F p. 31; P p.32; B p.33)
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Value Added – Total Domestic Small Cap
-600
-400
-200
0
200
400
600
QTD FYTD 3 Year Trailing
TRS: 2.08%NYCERS: 2.44%POLICE: 2.41%FIRE: 2.3%BERS: 2.51%
Source: State Street
Weights as of06/30/2018
bps
Basis Points of Excess Return (SSB N, p.30; T, F p. 31; P p.32; B p.33)
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Value Added – Total Domestic Mid-Cap
-800
-600
-400
-200
0
200
400
600
800
QTD FYTD 3 Year Trailing
TRS: N/ANYCERS: N/APOLICE: 1.54%FIRE: 2.14%BERS: 2.66%
Source: State Street
Weights as of06/30/2018
bpsBasis Points of Excess Return (SSB F p.31 ; P p.32; B p.33)
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Value Added – Total World Ex-USA
-1,000
-800
-600
-400
-200
0
200
400
600
800
1,000
QTD FYTD 3 Year Trailing
TRS: 11.93%NYCERS: 12.69%POLICE: 9.32%FIRE: 8.75%BERS: 12.39%
Source: State Street
Weights as of06/30/2018
bps
Basis Points of Excess Return (SSB; T, N p.32; F p.33; P, B p.34)
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Value Added – Total Emerging Markets
-600
-400
-200
0
200
400
600
QTD FYTD 3 Year Trailing
TRS: 8.93%NYCERS: 7.22%POLICE: 6.15%FIRE: 6.33%BERS: 7.54%
Source: State Street
Weights as of06/30/2018
bps
Basis Points of Excess Return
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Value Added – Total Structured Fixed Income
-600
-400
-200
0
200
400
600
QTD FYTD 3 Year Trailing
TRS: 23.06%NYCERS: 21.68%POLICE: 19.23%FIRE: 19.05%BERS: 21.58%
Source: State Street
Weights as of06/30/2018
bps
Basis Points of Excess Return (SSB; T p 35; N, B p.36; F, p.37; P p.38)
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Value Added – High Yield
-600
-400
-200
0
200
400
600
QTD FYTD 3 Year Trailing
TRS: 4.86%NYCERS: 4.01%POLICE: 4.58%FIRE: 4.62%BERS: 4.54%
Source: State Street
Weights as of06/30/2018
bps
Basis Points of Excess Return (SSB; T p 35; N, B p.36; F, p.37; P p.38)
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Value Added – Bank Loans
-600
-400
-200
0
200
400
600
QTD FYTD 3 Year Trailing
TRS: 2.42%NYCERS: 1.76%POLICE: 1.63%FIRE: 1.53%BERS: 1.99%
Source: State Street
Weights as of06/30/2018
bps
Basis Points of Excess Return (SSB; T p 35; N, B p.36; F, p.37; P p.38)
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Value Added – Economically Targeted Investments
-600
-400
-200
0
200
400
600
QTD FYTD 3 Year Trailing
TRS: 0.87%NYCERS: 1.26%POLICE: 1%FIRE: 0.74%BERS: 0.58%
Source: State Street
Weights as of06/30/2018
bps
Basis Points of Excess Return (SSB; T, B p 36; N, F p.38; P p.39)
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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Value Added- Hedge FundsBasis Points of Excess Return
-600
-400
-200
0
200
400
600
QTD FYTD 3 Year Trailing
POLICE: 5.02%
FIRE: 4.51%
Source: State Street
Weights as of06/30/2018
36
bps
Value Added - Hedge FundsBasis Points of Excess Return (SSB F p.61; P p.63)
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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FY 2018 Hedge Fund Returns
Performance shown net of fees
2Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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PRIVATE MARKET DATA
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Value Added - Opportunistic Fixed Income (OFI)
-600
-400
-200
0
200
400
600
Excess Return Since Inception; PME Benchmark: 50% JP Morgan Global High Yield 50% CS Leveraged Loans as of 6/30/18
TRS - 10/24/2007
NYCERS - 10/24/2007
Police - 10/24/2007
Fire - 10/24/2007
BERS - N/A
Inception Date
300bps Target
Source: State Street
Basis Points of Cumulative IRR above Public Market Equivalent
bps
The PME Spread is the difference between the IRR and the PME Benchmark.
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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40
Value Added - Private Equity
-600
-400
-200
0
200
400
600
Excess Return Since Inception; The PE Benchmark is the Russell 3000 + 300 bps as of 03/31/18
TRS - 07/08/99
NYCERS - 03/29/99
Police - 03/29/99
Fire - 03/29/99
BERS - 07/20/06
Inception Date
300bps Target
Source: StepStone Group & Hamilton Lane
Basis Points of Cumulative IRR above Public Market Equivalent
bps
The PME Spread is the difference between the IRR and the PME Benchmark.
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
![Page 41: COMMON INVESTMENT MEETING Public Session · • US Equity market – earnings, breadth. • Emerging Market risks – Turkey and Argentina concerns, potential for contagion growth.](https://reader033.fdocuments.in/reader033/viewer/2022042020/5e77983d2073b32df95c4f35/html5/thumbnails/41.jpg)
41
Private Equity Value Added – PME Spread By Vintage Year as of 03/31/18
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
PRE-2011 2011 2012 2013 2014 2015
Pre-2011 2011 2012 2013 2014 2015 TRS - PME Spread -1.20% 3.20% 4.90% 2.40% 4.70% 6.80% NYCERS - PME Spread -1.20% 2.50% 5.50% 2.40% 4.90% 4.40% Police - PME Spread 0.00% 2.90% 6.80% 2.20% 5.20% 4.30% Fire - PME Spread 0.40% 2.90% 7.20% 2.00% 5.40% 4.60% BERS - PME Spread -0.40% 0.00% 7.50% 2.10% 5.10% 5.10%
TRS - PME Spread NYCERS - PME Spread Police - PME Spread Fire - PME Spread BERS - PME Spread
Perc
enta
ge
Source: StepStone Group & Hamilton Lane
Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
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42
Value Added - Private Real Estate – Non-Core
-900
-700
-500
-300
-100
100
300
500
700
900
Excess Return Since Inception; Non-core = 60% Equities Russell 3000 & 40% Barclay Agg. as 03/31/18
TRS - 12/6/2002
NYCERS - 12/6/2002
Police - 12/6/2002
Fire - 12/6/2002
BERS - 04/11/2011
Inception Date
Source: State Street
Basis Points of Cumulative IRR above Public Market Equivalentbp
s
The PME Spread is the difference between the IRR and the PME Benchmark.
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
![Page 43: COMMON INVESTMENT MEETING Public Session · • US Equity market – earnings, breadth. • Emerging Market risks – Turkey and Argentina concerns, potential for contagion growth.](https://reader033.fdocuments.in/reader033/viewer/2022042020/5e77983d2073b32df95c4f35/html5/thumbnails/43.jpg)
43
Private Real Estate (Non-Core) Value Added - PME Spread By Vintage Year as of 03/31/18
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%8.00%
10.00%12.00%14.00%
PRE-2011 2011 2012 2013 2014 2015Pre-2011 2011 2012 2013 2014 2015
TRS - PME Spread 1.84% 7.45% 5.90% 6.25% 4.05% 2.18% NYCERS - PME Spread -1.38% 7.45% 7.81% 6.68% 5.61% 4.17% Police - PME Spread -3.80% 7.31% 9.14% 6.88% 11.24% 4.19% Fire - PME Spread -6.70% 7.65% 8.98% 7.57% 12.50% 4.11% BERS - PME Spread 10.36% 11.85% 4.79% 2.27% 4.08%
TRS - PME Spread NYCERS - PME Spread Police - PME Spread Fire - PME Spread BERS - PME Spread
Perc
enta
ge
Source: State Street
N/A
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44
Value Added - Infrastructure
-1000
-800
-600
-400
-200
0
200
400
600
800
1000
Excess Return Since Inception; PME Benchmark: 50% R3000 & 50% Barclays Agg. as of 03/31/18
TRS - 11/19/2013
NYCERS - 11/19/2013
Police - 11/19/2013
Fire - 11/19/2013
BERS - 11/19/2013
Inception Date
Source: StepStone Group
Basis Points of Cumulative IRR above Public Market Equivalentbp
s
The PME Spread is the difference between the IRR and the PME Benchmark.
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
![Page 45: COMMON INVESTMENT MEETING Public Session · • US Equity market – earnings, breadth. • Emerging Market risks – Turkey and Argentina concerns, potential for contagion growth.](https://reader033.fdocuments.in/reader033/viewer/2022042020/5e77983d2073b32df95c4f35/html5/thumbnails/45.jpg)
45
Infrastructure Value Added – PME Spread By Vintage Year as of 03/31/18
OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
VINTAGE -2013 VINTAGE -2014
Vintage -2013 Vintage -2014 TRS - PME Spread 6.4% 9.9% NYCERS - PME Spread 6.3% 9.1% Police - PME Spread 6.3% 10.7% Fire - PME Spread 6.3% 10.4% BERS - PME Spread 6.3% 10.4%
TRS - PME Spread NYCERS - PME Spread Police - PME Spread Fire - PME Spread BERS - PME Spread
Perc
enta
ge
Source: StepStone Group
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QUESTIONS?