Overview Second Quarter 2016 - Office of the Comptroller ... · Overview –Second Quarter 2016....

THE CITY OF NEW YORK

OFFICE OF THE COMPTROLLER

September 26, 2016

Overview – Second Quarter 2016

Asset Class IndexSecond

Quarter 2016Fiscal YTD 3 Year 5 Year Expected*

Equities - U.S. Russell 3000 2.6% 2.1% 11.1% 11.6% 7.8%

Equities - Developed Intl MSCI EAFE -1.5% -10.2% 2.1% 1.7% 8.9%

Equities - Emerging Intl MSCI EMF 0.7% -12.1% -1.6% -3.8% 11.0%

Debt - US Government NYC Treas/Agency +5 4.0% 12.0% 6.6% 6.5% 2.8%

Debt - Investment Grade NYC IG Credit 3.4% 7.3% 5.1% 5.1% 3.4%

Debt - High Yield Citigroup BB & B 5.0% 0.8% 3.9% 5.6% 6.1%

2

Market Returns: Q2-2016

Source: State Street

*Average of consultant long-term arithmetic expected returns, as of 2016

OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management

1300

1350

1400

1450

1500

1550

1600

1650

1700

1750

1800

1850

Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

700

800

900

1000

1100

1200

1300Equity Indices

Russell 3000 Index : Q2 Return: 2.63%

MSCI Emerging Markets Index: Q2 Return .66%

MSCI EAFE Index: Q2 Return: -1.46%

3

Continuation of Rally

Source: Bloomberg

Equities and fixed income positive.


0

0.2

0.4

0.6

0.8

1

1.2

1.4

-0.5

0

0.5

1

1.5

2

2.5

UST 10YR Yield : -30 bps

Germany 10Yr Yield : -92 bps

JPY 10YR Yield : -69 bps

Sep-16Jun-16Mar-15Dec-15Sep-15

4

Global Government Yields

Source: Bloomberg


Jul-15 Oct-15 Jan-16 Apr-16

100

200

300

400

500

600

700

800

Investment Grade : Q2 Return 3.42% High Yield : Q2 Return 4.97%

Jul-16

5

Investment Grade & High Yield Spreads

Source: Bloomberg


0

10

20

30

40

50

60

2016 2017 2018

18

38

60

0

11

28

Bp

s o

f T

igh

ten

ing

Market Based Expectations Fed Rate Hikes

Amount of Tightening 3/31/16 Amount of Tightening 6/30/16

6

Accommodative Global Monetary Policy Continues

Source: Bloomberg


7

Statement from The Bank of England

• The Bank of England is monitoring developments

closely. It has undertaken extensive contingency

planning and is working closely with HM Treasury,

other domestic authorities and overseas central

banks. The Bank of England will take all necessary

steps to meet its responsibilities for monetary and

financial stability.

24 June 2016


Source: Bank of England

8

China Hard Landing Concerns Abate

7.9

7.6

7.37.4

7.17.2

7 76.9

6.86.7 6.7

6

6.2

6.4

6.6

6.8

7

7.2

7.4

7.6

7.8

8

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

GD

P

China GDP

Source: http://www.tradingeconomics.com/china/gdp-growth-annual


9

China Credit Growth

2,042

1,312 1,260 1,160 1,469

2,659

1,416 1,666

3,454

911

3,243

2,011

1,394

2,869

981

2,400

17,263

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

JAN FEB MAR APR MAY JUN JUL AUG

Adjusted New TSF (Including Govt Bond Issuance), RMB Bn

2015 2016 2016 Aggregate


Jan-16 Apr-16 Jul-16

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

GBP Currency - YTD

British Pound

Sept 14-16

10

Limited Brexit Impact

Source: Bloomberg



5000

5500

6000

6500

7000

7500

FTSE 100 Index

Sept 14-16

11

FTSE 100 Index- YTD

Source: Bloomberg


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00


UK Govt Bonds 10 Year Yield

Sept 14-16

12

UK Govt Bonds 10 Year Yield- YTD

Source: Bloomberg



10

15

20

25

30

35

40

45

SPX Volatility Index FTSE 100 Volatility Index Euro Stoxx 50 Volatility Index

Sept 14-16

13

SPX VIX, FTSE 100 & Euro VIX - YTD

Source: BloombergOFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management

Recent

• Bank of Japan (September 21) - shifted focus of Quantitative Easing from quantity of

assets purchased to interest rate yield targeting, adding yield curve control.

• Federal Reserve (September 21)- signaled rate hike in December, while signaling

slower pace and lower terminal rate.

Future

• US election (November 8)

• Potential for increase in fiscal policy globally, and “coordination” with monetary

policy.

14

Current Events


Gross of fees in public asset classes

(SSB N, T, F p.17; P p19; B p.21)

NYC Pension SystemPortfolio Std

Dev - 1 yr

Second

QuarterFYTD 2016 Three Year Five Year

BERS 10.1% 2.1% 0.4% 7.5% 7.0%

TRS 8.9% 2.2% 1.9% 7.3% 7.1%

POLICE 8.4% 2.0% 1.4% 7.5% 7.1%

NYCERS 8.1% 2.1% 1.8% 7.2% 7.0%

FIRE 8.1% 2.0% 1.7% 7.3% 6.9%

Median Fund - TUCS 1.8% 1.3% 7.2% 7.1%

15

Total NYC Pension Fund Performance: 6/30/16



16

Asset Allocation Second Quarter 2016 - Equity


Relative Mix to Adjusted New Policy Weights (SSB F, T, N p.9; P, p.11; B p.13 )


17

Asset Allocation Second Quarter 2016 - Fixed Income

Relative Mix to Adjusted New Policy Weights (SSB F, T, N p.9; P, p.11; B p.13 )



18

FY Return – Total Portfolio

-600

-400

-200

0

200

400

600

FYTD Benchmark FYTD Portfolio FYTD Excess

bp

s

TRS

NYCERS

Police

Fire

BERS

FISCAL YEAR TO DATE June 30, 2016 (SSB T, F, N p.23; P p.25; B p.27)

Source: State StreetOFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management

19

Excess Return – Total Portfolio

(600)

(400)

(200)

-

200

400

600

FY 2016 Total Excess Return FY 2016 Qtr Asset Allocation FY 2016 Qtr Manager Value Added

bp

s

TRS

NYCERS

Police

Fire

BERS


FY 2016 Basis Points of Excess Return (SSB T, N , F p. 11; P, p. 13; p. 10; B p.15)


20

Manager Value Added- Total Portfolio

-600

-400

-200

0

200

400

600

FY 2016 FY 2015

TRS

NYCERS

Police

Fire

BERS

bp

sBasis Points of Excess Return (SSB T , N p. 11; P, p. 13; F p. 10; B p.15)



21

Value Added – Total U.S. Equities

-600

-400

-200

0

200

400

600

FY 2016 FY 2015

TRS - 33.86%

NYCERS - 33.92%

Police - 35.68%

Fire - 30.90%

BERS - 37.67%


Weights as of

6/30/2016

bp

sBasis Points of Excess Return (SSB T, F, N p.23; P p.25; B p.27)


22

Value Added – U.S. Equities – Small Cap

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 1.27%

NYCERS - 3.07%

Police - 2.49%

Fire - 1.61%

BERS - 1.45%


Weights as of

6/30/2016

bp



23

Value Added – U.S. Equities – Mid Cap

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 2.22%

NYCERS - 3.15%

Police - 1.98%

Fire - 1.89%

BERS - 3.13%


Weights as of

6/30/2016

bp



24

Value Added – Emerging Manager Program

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 0.58%

NYCERS - 1.89%

Police - 0.56%

Fire - 1.44%

BERS - 3.35%


Weights as of

6/30/2016

bp



25

Value Added – Total International Equities

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 16.88%

NYCERS - 16.37%

Police - 15.41%

Fire - 15.78%

BERS - 20.98%


Weights as of

6/30/2016

bp



26

Value Added – Developed Growth

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 3.57%

NYCERS - 3.35%

Police - 3.12%

Fire - 3.93%

BERS - 6.97%


Weights as of

6/30/2016

bp



27

Value Added – Developed Value

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 2.97%

NYCERS - 3.01%

Police - 2.84%

Fire - 3.45%

BERS - 7.14%


Weights as of

6/30/2016

bp



28

Value Added – Developed Small Cap

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 0.89%

NYCERS - 1.21%

Police - 1.39%

Fire - 1.3%

BERS - 1.84%


Weights as of

6/30/2016

bp



29

Value Added – Active Emerging Markets

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 5.6%

NYCERS - 3.99%

Police - 3.37%

Fire - 4.06%

BERS - 5.03%


Weights as of

6/30/2016

bp



30

Value Added – Structured Fixed Income

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 17.23%

NYCERS - 16.53%

Police - 16.61%

Fire - 17.45%

BERS - 15.25%


Weights as of

6/30/2016

bp

sBasis Points of Excess Return (SSB T p.28; F, N p.29; P, B p.31)


31

Value Added – Enhanced Yield

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 4.96%

NYCERS - 3.8%

Police - 3.98%

Fire - 3.75%

BERS - 5.29%


Weights as of

6/30/2016

bp

sBasis Points of Excess Return (SSB T p.28; F, N p.29; P, B p.31)


32

Value Added – Bank Loans

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 2.55%

NYCERS - 1.87%

Police - 1.72%

Fire - 1.69%

BERS - 2.37%


Weights as of

6/30/2016

bp

sBasis Points of Excess Return (SSB T p.28; N p.29; F p30; B p.31 P p.32)


33

Value Added – Economically Targeted Investments

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

FY 2016 FY 2015

TRS - 0.95%

NYCERS - 1.41%

Police - 1.12%

Fire - 0.81%

BERS - 0.66%


Weights as of

6/30/2016

bp

sBasis Points of Excess Return (SSB T p.29; N, F p30; B p.31 P p.32)


Value Added- Hedge FundsBasis Points of Excess Return

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

FY 2016 FY 2015

TRS - N/A

NYCERS - 2.39%

Police - 3.85%

Fire - 3.60%

BERS - N/A


Value Added - Hedge FundsBasis Points of Excess Return (SSB N, F p.27; P p.29)

Weights as of

6/30/2016

34

bp

s


PRIVATE MARKET DATA

36

Value Added – Private Equity

-600

-400

-200

0

200

400

600

Excess Return Since Inception PME Benchmark: PME is the Russell 3000 Total Return Index as of 3/31/16

TRS - 07/08/99

NYCERS - 03/29/99

Police - 03/29/99

Fire - 03/29/99

BERS - 07/20/06

Inception Date

300bps Target

Basis Points of Cumulative IRR above Public Market Equivalent

bp

s

The PME Spread is the difference between the IRR and the PME Benchmark for each respective partnership.


37

Value Added – Opportunistic Fixed Income (OFI)

-600

-400

-200

0

200

400

600

Excess Return Since Inception; PME Benchmark: JP Morgan Global High Yield as of 6/30/16

TRS - 10/24/2007

NYCERS - 10/24/2007

Police - 10/24/2007

Fire - 10/24/2007

BERS - N/A

Inception Date

300bps Target

Basis Points of Cumulative IRR above Public Market Equivalentb

ps



38

Value Added – Private Real Estate - Core

-600

-500

-400

-300

-200

-100

0

100

200

300

400

500

600

Excess Return Since Inception; Core = 40% Equities- Russell 3000 /60% BarcAgg as of 3/31/16

TRS - 12/6/2002

NYCERS - 12/6/2002

Police - 12/6/2002

Fire - 12/6/2002

BERS - 12/13/2010

Inception Date


ps



39

Value Added – Private Real Estate – Non-Core

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

Excess Return Since Inception; Non-core = 60% Equities- Russell 3000/40% BarcAgg as of 3/31/16

TRS - 12/6/2002

NYCERS - 12/6/2002

Police - 12/6/2002

Fire - 12/6/2002

BERS - 12/13/2010

Inception Date


ps



40

Value Added - Infrastructure

0

200

400

600

800

1000

Excess Return Since Inception; PME Benchmark: 50% R3000 & 50% Barclays Agg. as of 3/31/16

TRS - 11/19/2013

NYCERS - 11/19/2013

Police - 11/19/2013

Fire - 11/19/2013

BERS - 11/19/2013

Inception Date


ps



THE CITY OF NEW YORK

OFFICE OF THE COMPTROLLER

September 26, 2016

Statement of Investment Principles

42

Statement of Investment Principles

Establish principles to appropriately execute the 2016 Implementation Plans, guidelines to ensure thorough

management of investment decisions and best practices standards for evaluating/ monitoring investment results.

Presents a framework for achieving the investment strategy approved by the Boards based on the 2016 Asset

Allocation Study

Objective Philosophy

Asset Allocation –

Strategic Allocation

Policy

Roles & Responsibilities

Risk Management

ReportingAsset Class Strategies

Purpose

Roadmap


Growth of contributed assets utilizing prudent

investment practices that is sufficient to meet current

and future benefit obligations net of fund

expenses.

Limit the severity of potential asset drawdowns to minimize market driven increases in the required annual contribution to the

funds.

43

Objective


Target asset allocation should be chosen that balances the twin objectives of adequate return and minimal asset drawdowns,

consistent with the assumed investment return adopted by the Pension Board. Diversification of asset classes, geographic exposure

and other relevant factors should be pursued as a means of controlling drawdown risk.

Variations from target allocations should be minimized through regular re-balancing; Purposeful tactical bets should be rare and

fully disclosed to the Board.

All securities held in the portfolio should be included in the relevant Board approved investable universe. This is designed to ensure

that portfolio holdings are consistent with the Board’s values as expressed in ESG guidelines and responsible contracting policies.

Investment Manager contracts should be designed with the objective of returning a large majority of excess return to fund

participants.

Every effort should be made to employ managers who practice diversity in their staffing. This includes all minority and women

owned businesses.

44

Philosophy


Reference Allocation chosen that is consistent with long

term passive execution of investment objectives, subject

to New York State Laws.

Strategic Allocation chosen that is expected to best

achieve objectives over the next five to ten years.

The Board will re-evaluate the strategic asset

allocation at least every three years in order to ensure

that the fund objectives are being properly served.

45

Asset Allocation


• Investment results will be reported to the Board quarterly at the Common Investment Meeting. Additionally, the

Bureau of Asset Management will provide the Board with annual updates on risk management, compliance, and

operations during the quarterly Common Investment Meeting BAM reports.

• Reporting Responsibilities

• Report will include attribution analysis separating excess return into Strategic, Implementation, and manager effects.

• Purposeful variances from the approved strategic asset allocation should be reviewed with the Board at every CIM.

• Manager value added analysis will seek to identify the percentage of manager gross excess return that is absorbed by manager fees and

charges of all types.

• Bureau of Asset Management staff will highlight unusual investment results among sectors or managers to inform Board discussion.

• At the Common Investment Meeting (CIM), the Board will review manager recommendations from the Bureau of Asset

Management and appropriate external consultants.

• First time managers outside of BAM discretionary programs will present to the Boards during the CIM. Managers being presented for

mandate renewal will make a presentation if specifically requested to do so by the Board.

46

Reporting


Questions?

47

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