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Quarter Ending June 30, 2017Investment Performance Analysis

James E. Reichert, CFA, PartnerGary A. Wyniemko, CFA, Senior ConsultantChristopher Chow, CFA, Analyst

Eastern Michigan UniversityBoard of Regents

Page

NEPC Update 3

Market Outlook 5

Q2 Executive Summary 25

Total Fund Summary 31

Active vs Passive 50

Appendix 71 - Goals and Objectives- ESG Summary- Market Overview- Disclaimers

Table of Contents

June 30, 2017

Eastern Michigan University - Board of Regents

2

NEPC Update

3

NEPC Insights• 2017 First Quarter Market Thoughts (April 2017)• The French Election – A Sigh of Relief (May 2017)• An Insight into a Goals-Based Asset Allocation Framework

(May 2017)• The Essential Guide to Third-Party Valuations for Hedge Fund

Investors (May 2017)• Market Chatter: What’s Next for Puerto Rico Bondholders?

(June 2017)• Are US Equities Falling out of Favor? (June 2017)

Highlights of Second Quarter Happenings at NEPCJune 30, 2017

Conference Recap• NEPC hosted its 22nd Annual Investment Conference in Boston

in May. This year’s agenda focused on the uncertainty and challenges facing investors today. Over 200 NEPC clients attended the panel discussions, keynote presentations and breakout sessions. Thank you to everyone who took time out of their schedules to make this conference our biggest and, according to our attendees, our best one yet! Check out some pictures from the event here: http://info.nepc.com/nepc-22nd-annual-investment-conference

Webinar Replays• NEPC’s 7th Annual Investment Manager Webinar (May 2017)

Recent Updates• Healthcare Financial Management

Association (HFMA) has awarded NEPC’s Healthcare practice with the “Peer Reviewed by HFMA ®” designation.*

NEPC Gives Back • NEPC's Stacey Flier, CFA, Private Wealth

Senior Consultant, hosted an educational day to discuss the importance of education and preparing for future careers to a group of 7th grade girls that attend St. Andrew Nativity School, a college-prep middle school in Portland, OR, that provides education for low-income, primarily minority, students of all religious backgrounds.

• NEPC participated in the J.P. Morgan Corporate Challenge Series, a world-wide series of 3.5-mile running events open to groups from organizations within the business and public sectors in Boston. The Corporate Challenge is set up to be the world's greenest road race, and this year the race made a donation to the Boston Children's Hospital Trust.

To download NEPC’s recent insights and webinar replays, visit: www.NEPC.com/insights

*HFMA staff and volunteers determined that this business solution has met specific criteria developed under the HFMA Peer Review Process. HFMA does not endorse or guarantee the use of this business solution.

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Market Outlook

5

• The US economy is experiencing an extended economic growth cycle– US consumers and a tightening labor market are driving the US economy– Growth recovery in Europe and the emerging markets reinforces US economic conditions– Stable economic growth is a positive backdrop but expected risk asset returns are subdued

• Federal Reserve monetary policy remains on a gradual normalization path– Despite the June increase, markets continue to price in a slow pace for Fed rate hikes– Market impact of the Fed’s planned reduction of the $4.5T balance sheet is untested– Chair Yellen’s uncertain tenure may stoke market unease has her term expires in Feb. 2018

• China is modestly tightening financial conditions to slow credit growth and manage an orderly transition to a consumer led economy

– Markets have responded positively to the PBOC’s management of a more stable yuan– Capital outflow pressure persists and large scale currency devaluation remains a tail risk– Continued credit expansion and real estate development risk inflating asset price bubbles

• Globalization backlash is disrupting the political and economic orthodoxy– Outcomes of the French and UK elections have eased market fears but conditions driving

anti-establishment political sentiment have not subsided– Capital market fundamentals may not be materially altered but risks stemming from

globalization backlash likely lead to higher levels of currency volatility– Potential changes to US trade policy under the current administration remain uncertain

Key Market ThemesEastern Michigan University - Board of Regents

June 30, 2017

6

• Trim US equity gains as US equity markets continue to rally– Expanding valuations have driven recent gains and profit margins sit near all-time highs

• Maintain overweight exposure to non-US developed market equities– We believe a multi-year earnings recovery offers the potential for an elevated return

• Emerging market equities remain attractive and offer robust total returns– Fundamentals support an overweight relative to index weights (e.g. 15% to 20%)

• Allocate to TIPS as inflation expectations are priced attractively– Preserve US duration exposure with a bias to TIPS over core bonds

• Reduce high yield bonds with credit spreads below long-term medians– Credit markets continue to benefit from high demand in a low rate environment but current

credit spread levels do not provide adequate compensation for the risks

• For tactical investors, look to fund emerging local debt from risk assets– Valuations for many emerging market currencies remain attractive despite the recent rally

• Add macro hedge fund strategies for portfolio diversification benefits– Systematic strategies tend to exhibit low correlation to equity markets

Current OpportunitiesEastern Michigan University - Board of Regents

June 30, 2017

7

Year to Date Performance: All Assets Have Moved Higher

Source: S&P, Russell, MSCI, Barclays, JPM, BloombergAs of 06/30/2017


June 30, 2017

8

US recession concerns are mutedThe US economy appears on a path ofslow but steady growth as excesscapacity is gradually absorbed by theeconomy

The labor market recovery has beenstrong but slack remains as many haveyet to return to the workforce

US household balance sheets haveroom to expand and support furtherconsumer spending gains

Improvement of economic conditions inEurope and emerging markets reinforceUS economic gains as global growthfactors synchronize

US corporate profitability is near all timehighs and may be a challenge forcompanies to boost economic growth rate

Key Market Themes

Source: FRED

Source: Congressional Budget Office, Bloomberg

Extended US Economic Cycle


June 30, 2017

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The Federal Reserve is expected toslowly increase interest rates

Expected path of Fed policy through2019 matters more than timing of thenext hike as the disconnect betweenmarket expectations and Fed signalinghas grown

A relatively accommodative Fed is likelyto continue, unless there is a dramaticacceleration in inflation

Reduction of the Fed balance sheetwill likely be a gradual process

The market impact is untested but theFed has announced a specific scheduleto not reinvest a portion of the balancesheet securities that mature

Politics could intersect with Fed policyas Fed Chair Janet Yellen’s term is setto expire in February 2018

Key Market Themes

Source: Fed, Bloomberg

Source: Fed, Bloomberg, NEPCForecast based on the June Fed Minutes: MBS assumes $4B per month for 3-month intervals over 12 months with a $20B cap; Treasuries

assume $6B per month for 3-month intervals over 12 months with a $30B cap; Other Securities are assumed to stay constant

Federal Reserve Gradualism


June 30, 2017

10

China is the global growth enginebut faces fundamental transitions

China’s economic transition is pivotingfrom a production to a service andconsumption based economy

Fixed investment is required to sustainthe production based economy andsupport labor force migration

Any disruption to these transitions willhave global repercussions due toChina’s role in the global economy

China’s government is negotiatinga balance between deleveragingand near term economic growth

Unrestrained growth in credit and realestate markets pose a systematic risk

Concerns of capital outflows have forcedgreater intervention from the centralbank to limit currency movements

Key Market Themes

Source: China Foreign Exchange Trade System, Bloomberg

Source: Bank for International Settlements

China Transitions

0%

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2006 2008 2010 2012 2014 2016

3‐Month SHIBOR

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China Credit (as % of GDP)

Household Credit (LHS)Non‐Financial Credit (RHS)


June 30, 2017

11

Uneven economic growth andwage gains have fueled politicaldiscontent in the developed world

Election results in France and the UKhave assuaged fears of political gridlockin Europe – but political conventionshave been meaningfully challenged

Despite election outcomes, structuraleconomic issues that stoked unease inEurope remain unresolved

Concern of major trade disruptionsstemming from US policy changeshave diminished

Markets have taken to interpreting theadministrations rhetoric with a grain ofsalt as significant trade policy changeshave yet to materialize

A major change in US trade policyappears unlikely but remains a tail-riskwith outsized repercussions

Key Market Themes

Source: IMF, Bloomberg

Globalization Backlash

Source: Eurostat, Bloomberg

35%

38%

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43%

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48%

50%

1995 1998 2001 2004 2007 2010 2013 2016

Wages as % of GDP

EuropeUKUS


June 30, 2017

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US equities have posted strongreturns over the last 5 years,largely due to valuation expansion

With profit margins and valuationshovering near secular highs US stocksare “priced for perfection”

However, a prolonged US economicexpansion can continue to support a USequity rally despite elevated valuations

Look to reduce US equity exposureto fund global equity strategies

Opportunity for alpha generation andtotal return is greater outside the US

US equities are also a viable fundingsource for private market commitments

Should US equity markets declinematerially, look to rebalance to exploitmarket volatility

Current Opportunities

Source: FRED, Bloomberg

Source: S&P, NEPC, Bloomberg

Trim US Equity Gains

6%

8%

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12%

14%

16%

38%

40%

42%

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48% US Corporate Profitability and Wages

Wages as % of GDP (LHS)Corp. Profits % of GNI (RHS)


June 30, 2017

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Europe and Japan carry risks butoffer a meaningful return premium

Catalysts for outperformance are presentwith improving economic conditions inEurope and shareholder friendly actions inJapan

Earnings recovery appears to be takinghold in Europe where an uncertain politicaloutlook has gained some clarity

Non-US small cap and global equityare preferred for implementation

These strategies offer the best opportunityto exploit valuation discrepancies amongstocks across countries and sectors

Hedging a portion of non-US developedcurrency exposure remains a long-termstrategic target


Source: MSCI, Bloomberg


Overweight Non-US DevelopedMarket Equities


June 30, 2017

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Emerging equities offer the highesttotal return potential for investors

Valuation levels and fundamentals suggestan overweight relative to global market capweights (e.g. 15% to 20%)

Growth premium relative to the developedworld persists as economic conditions in EMimprove off fiscal and currency adjustmentsof recent years

Focus implementation on hightracking error strategies rather thanbenchmark focused mandates

Opportunity set for excess return appearsmore abundant in EM versus developedmarkets

Strategies that invest down the market capspectrum can offer investors more purelocal growth exposure


Source: World Bank, Bloomberg


Emerging Market EquitiesRemain Attractive

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120%

140%

160% Market Capitalization as % of GDP

BRIC AverageWorldUnited States


June 30, 2017

15

Duration exposure remains a keyasset allocation building block for adiversified portfolio

TIPS offer safe haven exposure with anexplicit hedge for realized inflation andcan be implemented with a low costpassive strategy

Current core bond yields offer limitedcushion before taking on losses in arising interest rate environment

Increase in inflation expectationsfavor TIPS over nominal bonds

TIPS yields are priced off real rates andsensitive to Fed tightening but agradual path of normalization shouldmitigate the risk of a sharp rise in realinterest rates

An allocation to TIPS diversifies corebond exposure and improves riskbalance across economic environments


Source: Bureau of Labor Statistics, Bloomberg, NEPC

Source: Barclays, Bloomberg, NEPC

Allocate to TIPS from Core Bonds

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2008 2010 2012 2014 2016

Years

Yield Change Causing Capital Loss

Barclays Agg Duration (LHS)Required Yield Change (RHS)


June 30, 2017

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Over the last 16 months, high yieldbonds have provided strong gains

Attractive credit spreads seen in early2016 have now fallen below historicmedians

Credit markets may continue to benefitfrom high demand in a low rateenvironment but do not appear to fullycompensate investors for the risk

Idiosyncratic credit strategies offerthe potential to capture pockets ofvalue but supply is limited

Security selection is critical as somecredit sub-sectors such as structuredcredit offer a better return/risk profile

Reallocation of gains from liquid creditmarkets to other areas of the portfolio(e.g. equity, private markets) isappropriate in the absence of highconviction credit opportunities


Source: Merrill Lynch, Barclays, NEPC

Source: Barclays, S&P, Bloomberg

Reduce High Yield Bond Exposure


June 30, 2017

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EM local debt offers an attractivetotal return opportunity

Above average index yield provides acushion to offset potentially high currencyvolatility

Valuations for many emerging marketcurrencies remain attractive despiterecent rally in select markets

Shift a portion of risk assets to fundemerging local debt exposure

The volatility of EM local debt is equity-like due to the volatility of emergingmarket currencies

Preferred implementation approach is aEM local debt strategy benchmarked to aglobal diversified index

Blended EMD strategies could be moreappropriate for investors with a lower risktolerance


*Earnings Yield measured as inverse of trailing 12M P/ESource: NEPC, Bloomberg

Source: JP Morgan

Fund Emerging Local Debtfrom Risk Assets


June 30, 2017

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Macro hedge fund strategies offerbroad benefits to a total portfolio

Allocations of size (e.g. 5%) help tomitigate the left-tail of a portfolio returndistribution

Investors should be targeted in theirapproach to portfolio construction asmanager selection is paramount

Fund systematic global macro frombroad based GAA and hedge fund offund strategies

Systematic strategies tend to exhibit lowcorrelation to equity markets and arestrong diversifiers within a total portfolio

Many systematic macro strategies exhibit“crisis alpha” or excess performance inrisk-off periods


*Not intended to be an all inclusive Macro sub-strategy list

Source: eVestment, HFRI

Add Macro Hedge Fund Strategies

Global Macro Strategies*

Discretionary

Directional

Relative Value

Systematic

Fundamental Systematic

Trend-Following


June 30, 2017

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Breakout Session: The Great Unwinding

“It will be the policy equivalent of watching paint dry.” – Philadelphia Fed President Patrick Harker 05/23/2017

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• In March, FOMC participants began discussing approaches to reducing the Fed’s balance sheet holdings in a gradual and predictable manner

• The committee outlined a plan to gradually increase caps on the dollaramount of maturing securities that would not be reinvested

– Only the amount of maturities exceeding the caps would be reinvested each month

• The June Minutes outlined specific monthly caps for Treasuries and MBS: – Treasuries: Begins at $6B per month, increasing by $6B at 3-month intervals over 12

months until $30B– MBS: $4B per month, increasing by $4B at 3-month intervals over 12 months until $20B

0500100015002000250030003500400045005000

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Billion

s ($)

Federal Reserve Balance Sheet Assets

Other SecuritiesMBSTreasuries

Balance Sheet Normalization Process

Source: Fed, Bloomberg, NEPCProjections based on caps outlined by the Fed, assumed to begin in October. Other securities are assumed to remain constant.


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When will the normalization process begin?

“The Committee currently expects that, provided the economy evolves broadly as anticipated, it will likely begin to implement the program this year.”

- Fed Chair Janet Yellen July 12th, 2017

What is the long-term target size for the balance sheet?

“The Committee currently anticipates reducing the quantity of reserves balances to a level that is appreciably below recent levels, but larger than before the financial crisis.”

- Fed Chair Janet Yellen July 12th, 2017

Despite Transparency, a Number of Outstanding Questions Remain…

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s of U

S$

Maturing Treasuries and the Projected Maturity Cap Limit

Maturing TreasuriesTreasury Cap

Caps limit the runoff in the first year

Source: Fed, NEPCProjections based on caps outlined by the Fed


June 30, 2017

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What does this mean for thefuture path of rate hikes?

“The evolution of the economy will warrant gradual increases in the federal funds rate over time to achieve and maintain maximum employment and

stable prices.”- Fed Chair Janet Yellen July 12th, 2017

What implications does this havefor other central banks?

ECB: “A very substantial degree of monetaryaccommodation is still needed for underlyinginflation pressures to gradually build…”– ECB President Mario Draghi July 20th, 2017

BoJ: Though the monetary stimulus programremained unchanged in July, the 2% inflationtarget was postponed further – indicatingongoing stimulus measures will continue to benecessary

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Long Term20192017 2018

Despite Transparency, a Number of Outstanding Questions Remain…

Source: Fed, NEPC

Source: Bloomberg, Federal Reserve, Bank of Japan, ECB, NEPC

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June 30, 2017

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The Fed’s Challenge

“With further gradual adjustments in the stance of monetary policy, the economy will continue to expand at a moderate pace over the next couple of years, with the job market strengthening

somewhat further and inflation rising to 2%”- Fed Chair Janet Yellen July 12th, 2017

Source: Bureau of Labor StatisticsRepresents employed persons as a percentage of age 16+ population

Source: Bureau of Labor Statistics, Bloomberg

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1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Employment : Working‐Age Population

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• The ongoing challenge for the Fed will be to balance continued strength in the labor market with lagging inflation

– Even with sustained improvements in unemployment, there has been significant difficulty reaching the 2% inflation target

• Despite historically low unemployment, structural changes in demographics and the labor pool have introduced uncertainty regarding the remaining slack in the labor force


June 30, 2017

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Q2 Executive Summary

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June 30, 2017

Eastern Michigan University - Board of RegentsTotal Fund Performance Summary

Market Value 3 Mo Rank FiscalYTD Rank 1 Yr Rank 3 Yrs Rank 5 Yrs Rank

_

Total Composite $23,697,426 1.4% 53 7.1% 11 7.1% 11 2.3% 65 3.9% 53Allocation Index 1.7% 37 5.9% 23 5.9% 23 2.2% 70 -- --

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Market Value 3 Mo Rank FiscalYTD Rank 1 Yr Rank 3 Yrs Rank 5 Yrs Rank

_

Long Term Investment Pool $21,402,624 2.5% 68 9.9% 79 9.9% 79 3.4% 60 5.7% 88Long Term Allocation Index 3.2% 26 9.5% 82 9.5% 82 4.4% 31 -- --Long Term Balanced Index 3.0% 34 9.7% 81 9.7% 81 4.3% 31 5.7% 89

XXXXX

Year to Date

AnlzdRet Rank Anlzd

Std Dev Rank SharpeRatio Rank

SortinoRatioRF

Rank

_

Total Composite 3.97% 37 1.62% 73 2.22 59 -- -- Allocation Index 4.49% 30 1.37% 62 3.02 26 -- --

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Composite Performance - The Total Composite returned 1.4% for the second quarter and 7.1% for the fiscal year, outperforming the Allocation Index by 120 basis points - The Total Composite ranked in the 11th percentile of the peer group for the fiscal year Allocation Index - The sub-composite over/underweights relative to policy had little impact during the quarter Active Management - PIMCO All Asset outperformed its assigned benchmark by 70 basis points for the quarter and 770 basis points for the fiscal year. Top contributors to the relative outperformance included positions in emerging markets bonds and equities, US core and long maturity bonds, and developed ex-US equities - Franklin Templeton outperformed its assigned benchmark by 1300 basis points for the fiscal year. Major contributors were the Asian and U.S. FX, as well as European and Asian duration exposures - AQR underperformed its assigned benchmark by 390 basis points for the quarter and 850 basis points for the fiscal year. Commodities were the biggest detractor as commodity prices declined, weighed down by losses in energies and metals

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The Total Composite is ranked in the Investorforce Trust funds > 60% Fixed Income Net Universe

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The Long Term Investment Pool is ranked in the Investorforce Endowments and Foundations < 50 Million Net Universe

Eastern Michigan University - Board of RegentsLong Term Investment Pool Asset Allocation vs. Policy Targets

Asset Allocation vs. Target

Current Policy Current Net AssetAllocation Policy Range

_

Domestic Equity $2,269,719 10.0% 10.6% 22.0% 5.0% - 20.0%International Equity $1,000,000 5.0% 4.7% 14.2% 0.0% - 10.0%Emerging Markets Equity $1,351,177 5.0% 6.3% 9.0% 0.0% - 8.0%Global Equity $3,583,489 15.0% 16.7% -- 10.0% - 20.0%Core Fixed Income $1,165,295 5.0% 5.4% 19.8% 0.0% - 10.0%High Yield -- -- -- 1.8% --Multi-sector Fixed Income $1,143,108 5.0% 5.3% -- 0.0% - 10.0%Non-US Developed Bonds -- -- -- 7.2% --Emerging Market Debt $793,377 5.0% 3.7% 8.7% 0.0% - 8.0%GAA/Risk Parity $4,406,296 20.0% 20.6% -- 10.0% - 30.0%Hedge Funds $1,018,656 10.0% 4.8% 10.6% 0.0% - 20.0%Absolute Return $2,372,571 10.0% 11.1% -- 5.0% - 15.0%Real Assets $2,298,935 10.0% 10.7% 4.7% 5.0% - 15.0%Cash -- -- -- 2.2% --Total $21,402,624 100.0% 100.0% 100.0%

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June 30, 2017

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Net Asset Allocation breaks multi-asset investments like GAA and Global Equity into their underlying asset classes providing a look through to your actual asset allocation

Market Value($)

3 Mo(%) Rank

FiscalYTD(%)

Rank 1 Yr(%) Rank 3 Yrs

(%) Rank 5 Yrs(%) Rank

_

Total Composite 23,697,426 1.4 53 7.1 11 7.1 11 2.3 65 3.9 53Allocation Index 1.7 37 5.9 23 5.9 23 2.2 70 -- --

InvestorForce Trust Funds >60% Fixed Income Net Median 1.4 3.7 3.7 3.0 4.1 Short Term Investment Pool 2,294,802 -0.2 -- -0.2 -- -0.2 -- 0.0 -- 0.0 --

91 Day T-Bills 0.2 -- 0.5 -- 0.5 -- 0.2 -- 0.2 --Long Term Investment Pool 21,402,624 2.5 68 9.9 79 9.9 79 3.4 60 5.7 88

Long Term Allocation Index 3.2 26 9.5 82 9.5 82 4.4 31 -- --Long Term Balanced Index 3.0 34 9.7 81 9.7 81 4.3 31 5.7 89

InvestorForce All E&F < $50mm Net Median 2.8 12.2 12.2 3.8 7.6 Total Equity 8,204,385 5.2 39 17.6 50 17.6 50 6.8 26 -- --

MSCI ACWI 4.3 61 18.8 44 18.8 44 4.8 56 10.5 60eA All Global Equity Net Median 4.8 17.6 17.6 5.1 11.0

Total Fixed 5,474,352 0.9 98 6.4 40 6.4 40 2.4 33 -- --BBgBarc US Aggregate TR 1.4 85 -0.3 78 -0.3 78 2.5 30 2.2 55

eA Global Fixed Inc Unhedged Net Median 2.6 3.9 3.9 1.2 2.9 GAA/ Risk Parity 4,406,296 0.3 93 2.0 92 2.0 92 -- -- -- --

60% MSCI World (Net) / 40% CITI WGBI 3.6 26 8.8 39 8.8 39 2.9 33 6.7 24eA Global TAA Net Median 2.5 7.0 7.0 1.6 5.0

Real Assets 2,298,935 1.9 13 10.8 11 10.8 11 -- -- -- --PIMCO All Asset Index 1.2 18 3.1 38 3.1 38 3.0 16 3.6 25Bloomberg Commodity Index -3.0 56 -6.5 99 -6.5 99 -14.8 78 -9.2 91

InvestorForce All E&F Real Assets/Commodities Net Median -2.3 0.6 0.6 -7.3 -0.5 Hedge Funds 1,018,656 0.5 70 6.2 62 6.2 62 -- -- -- --

HFRI Fund of Funds Composite Index 0.6 66 6.3 61 6.3 61 1.5 62 3.8 72eV Alt Fund of Funds - Multi-Strategy Median 1.0 7.7 7.7 2.3 5.4

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Eastern Michigan University - Board of RegentsTotal Fund Performance Summary

Intermediate Term Balanced Index comprised of 50.0% Barclays Intermediate U.S. GV/CR Index and 50.0% BofA ML 1-3 Year Treasury Index.Allocation Index: Used to measure the value add from active management. Calculated as the asset weight from the prior month end mulitiplied by the

specified market index.

June 30, 2017

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Diligence Monitor

June 30, 2017


Manager Changes/ NEPC DueInvestment Options Announcements Diligence Committee

(Recent Quarter) Recommendations

Acadian Asset Management LLC Loss of Personnel: CEO Succession No ActionEmerging Markets Equity

Artisan Partners Limited PartnershipLoss of Personnel: Artisan Partners Growth Team

Update No ActionArtisan Global Opportunities

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Diligence Monitor

June 30, 2017


Investment Option Commentary NEPC Rating

Acadian Asset Management LLC Acadian announced in April 2017 that Churchill Franklin would be stepping down as the

firm's CEO. This plan has been in place for quite some time, as Mr. Franklin has slowly scaled back his role at the firm. Taking his place will be John Chisholm and Ross Dowd; both are existing Acadian employees. While we do expect the expanded roles for both Mr. Chisholm and Mr. Dowd will have an impact on their current responsibilities, we do not feel the impact will be material enough to warrant any action. Mr. Franklin's role at the firm over the years has been in business development, sales and marketing. We believe Mr. Chisholm and Mr. Dowd can fill this void. No action is recommended.

Preferred

Emerging Markets Equity

Artisan Partners Limited Partnership Andy Stephens, Managing Director on Artisan’s Growth team, has announced his intention

to retire in March 2018. Mr. Stephens was one of the two main architects of the Growth team’s process, dating back to 1997. Over the years, Artisan has built out the team, which now consists of four portfolio managers and seven analysts that together cover Small Cap Growth, Mid Cap Growth, and Global Opportunities. As the team has grown, Mr. Stephens has developed others and has stepped back from his responsibilities, acting instead as an advisor to the team. He has been in this advisory role for the past four years, and will continue to function in this way until his retirement in March 2018. The Growth team remains in good shape, with four experienced portfolio managers in place that have been working together since 2003. Jim Hamel will be the strategic leader of the group. Artisan’s value-added is attributable to the experience of their senior portfolio managers on the team who have applied a disciplined and consistent approach to managing growth assets. We do not anticipate that Mr. Stephen's retirement will impact the team's ability to add value going forward. No action is recommended.

Preferred

Artisan Global Opportunities

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Total Fund Summary

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Eastern Michigan University - Board of RegentsTotal Fund Performance Detail

Market Value($)

% ofPortfolio

3 Mo(%) Rank

FiscalYTD(%)


(%) Rank 5 Yrs(%) Rank 10 Yrs

(%) Rank Return(%) Since

_

Total Composite 23,697,426 100.0 1.4 53 7.1 11 7.1 11 2.3 65 3.9 53 -- -- 5.2 Apr-09Allocation Index 1.7 37 5.9 23 5.9 23 2.2 70 -- -- -- -- -- Apr-09

InvestorForce Trust Funds >60% Fixed Income Net Median 1.4 3.7 3.7 3.0 4.1 4.2 6.0 Apr-09Short Term Investment Pool 2,294,802 9.7 -0.2 -- -0.2 -- -0.2 -- 0.0 -- 0.0 -- -- -- 0.1 Apr-09

91 Day T-Bills 0.2 -- 0.5 -- 0.5 -- 0.2 -- 0.2 -- 0.4 -- 0.1 Apr-09Northern Inst Govt Select MMKT 2,161,758 9.1 -0.2 99 -0.2 99 -0.2 99 -0.1 99 0.0 99 -- -- 0.0 Nov-09

91 Day T-Bills 0.2 67 0.5 86 0.5 86 0.2 86 0.2 90 0.4 99 0.1 Nov-09Bank of Ann Arbor Trust Cash 133,044 0.6 0.0 99 0.0 99 0.0 99 0.0 99 0.0 99 -- -- 0.0 Nov-09

91 Day T-Bills 0.2 67 0.5 86 0.5 86 0.2 86 0.2 90 0.4 99 0.1 Nov-09eA US Cash Management Net Median 0.2 0.8 0.8 0.4 0.3 0.8 0.3 Nov-09

Long Term Investment Pool 21,402,624 90.3 2.5 68 9.9 79 9.9 79 3.4 60 5.7 88 -- -- 5.6 Apr-09Long Term Allocation Index 3.2 26 9.5 82 9.5 82 4.4 31 -- -- -- -- -- Apr-09Long Term Balanced Index 3.0 34 9.7 81 9.7 81 4.3 31 5.7 89 -- -- 5.5 Apr-09

InvestorForce All E&F < $50mm Net Median 2.8 12.2 12.2 3.8 7.6 4.6 9.9 Apr-09Total Equity 8,204,385 34.6 5.2 39 17.6 50 17.6 50 6.8 26 -- -- -- -- 7.7 Jan-14

MSCI ACWI 4.3 61 18.8 44 18.8 44 4.8 56 10.5 60 3.7 63 5.9 Jan-14eA All Global Equity Net Median 4.8 17.6 17.6 5.1 11.0 4.1 6.2 Jan-14

SEG Baxter 1,000,000 4.2 -- -- -- -- -- -- -- -- -- -- -- -- -- Jul-17MSCI ACWI ex USA 5.8 -- 20.5 -- 20.5 -- 0.8 -- 7.2 -- 1.1 -- -- Jul-17

Acadian Emerging Markets Equity 1,351,177 5.7 6.0 59 29.7 9 29.7 9 -- -- -- -- -- -- 3.6 Oct-14MSCI Emerging Markets 6.3 54 23.7 42 23.7 42 1.1 68 4.0 73 1.9 66 2.5 Oct-14

eA Emg Mkts Equity Net Median 6.4 22.8 22.8 1.7 5.2 2.5 3.1 Oct-14Artisan Global Opportunities 1,838,088 7.8 8.3 8 24.4 15 24.4 15 -- -- -- -- -- -- 11.6 Dec-14

MSCI ACWI 4.3 61 18.8 44 18.8 44 4.8 56 10.5 60 3.7 63 5.6 Dec-14eA All Global Equity Net Median 4.8 17.6 17.6 5.1 11.0 4.1 5.9 Dec-14

Hexavest GE 1,745,400 7.4 2.1 90 10.2 81 10.2 81 -- -- -- -- -- -- 6.3 Dec-14MSCI ACWI 4.3 61 18.8 44 18.8 44 4.8 56 10.5 60 3.7 63 5.6 Dec-14

eA All Global Equity Net Median 4.8 17.6 17.6 5.1 11.0 4.1 5.9 Dec-14Vanguard Total Stock Market VIPERs 2,269,719 9.6 3.1 45 -- -- -- -- -- -- -- -- -- -- 11.1 Nov-16

Russell 3000 3.0 46 18.5 55 18.5 55 9.1 27 14.6 34 7.3 47 11.1 Nov-16eA All US Equity Net Median 2.8 19.2 19.2 7.6 13.8 7.1 9.4 Nov-16

Intermediate Term Balanced Index: 50.0% Barclays Intermediate U.S. GV/CR Index and 50.0% BofA ML 1-3 Year Treasury Index.

Allocation Index: Used to measure the value add from active management. Calculated as the asset weight from the prior month end mulitiplied by the specified market index.

Long-Term Balanced Index: (10% - Russell 3000)(5% - MSCI EAFE Small Cap)(5% - MSCI Emerging Markets)(15% - MSCI ACWI)(15% - Barclays Aggregate)(5% - 50%JPM EMBI GD/ 25% JPM ELMI+/ 25% JPM GBI EM GD)(5% - Barclays Multi-verse)(20% - 60% MSCI World (Net)/ 40% CITI WGBI)(10% - HFRI Fund of Funds Composite)(10% - PIMCO All Asset Index).

June 30, 2017

32


Market Value($)

% ofPortfolio

3 Mo(%) Rank

FiscalYTD(%)




_

Total Fixed 5,474,352 23.1 0.9 98 6.4 40 6.4 40 2.4 33 -- -- -- -- 3.3 Jan-14BBgBarc US Aggregate TR 1.4 85 -0.3 78 -0.3 78 2.5 30 2.2 55 4.5 48 3.3 Jan-14

eA Global Fixed Inc Unhedged Net Median 2.6 3.9 3.9 1.2 2.9 4.4 2.6 Jan-14Franklin Templeton- Global Multi-Sector Plus 1,143,108 4.8 -1.0 99 11.6 1 11.6 1 -- -- -- -- -- -- 1.9 Oct-14

BBgBarc Multiverse 2.6 61 -1.4 79 -1.4 79 -0.2 56 1.1 66 3.8 72 1.0 Oct-14eA Global Agg Fixed Inc Net Median 2.8 -0.2 -0.2 0.0 1.5 4.2 1.0 Oct-14

BlackRock- SIO 2,372,571 10.0 1.0 98 5.2 12 5.2 12 -- -- -- -- -- -- 2.3 Oct-14BBgBarc US Aggregate TR 1.4 82 -0.3 99 -0.3 99 2.5 71 2.2 98 4.5 90 2.6 Oct-14

eA US Core Plus Fixed Inc Net Median 1.8 2.1 2.1 2.7 3.3 5.3 3.0 Oct-14Baird - Core Bond 1,076,218 4.5 1.7 23 0.6 32 0.6 32 -- -- -- -- -- -- 2.7 Dec-14

BBgBarc US Aggregate TR 1.4 66 -0.3 72 -0.3 72 2.5 60 2.2 74 4.5 77 2.2 Dec-14eA US Core Fixed Inc Net Median 1.5 0.2 0.2 2.6 2.5 4.8 2.4 Dec-14

Ashmore EM Blended Debt Strategy 793,377 3.3 2.4 57 11.2 5 11.2 5 -- -- -- -- -- -- 5.1 Nov-1450% JPM EMBI GD/ 25% JPM ELMI+/ 25% JPM GBI EM GD 2.5 48 5.9 83 5.9 83 1.4 58 2.6 57 5.2 67 2.5 Nov-14

eA All Emg Mkts Fixed Inc Net Median 2.5 7.3 7.3 2.5 3.7 6.4 3.7 Nov-14Treasury Strips 89,077 0.4 1.4 99 -2.7 93 -2.7 93 3.5 97 1.8 99 -- -- 5.0 Apr-09

BBgBarc US Treasury Long TR 4.0 85 -7.2 98 -7.2 98 5.6 34 2.8 96 7.3 85 5.5 Apr-09eA US Long Duration Fixed Inc Net Median 4.6 0.7 0.7 5.3 4.9 8.5 9.5 Apr-09

GAA/ Risk Parity 4,406,296 18.6 0.3 93 2.0 92 2.0 92 -- -- -- -- -- -- 0.2 Dec-1460% MSCI World (Net) / 40% CITI WGBI 3.6 26 8.8 39 8.8 39 2.9 33 6.7 24 4.1 64 4.0 Dec-14

eA Global TAA Net Median 2.5 7.0 7.0 1.6 5.0 4.3 2.1 Dec-14AQR GRP EL 2,122,566 9.0 -0.2 99 0.7 97 0.7 97 -- -- -- -- -- -- -0.2 Dec-14

60% MSCI World (Gross) / 40% CITI WGBI 3.7 25 9.2 37 9.2 37 3.2 27 7.1 22 4.5 40 4.3 Dec-14eA Global TAA Net Median 2.5 7.0 7.0 1.6 5.0 4.3 2.1 Dec-14

Standard Life GARS 2,283,730 9.6 0.8 92 3.6 87 3.6 87 -- -- -- -- -- -- 0.5 Dec-1460% MSCI World (Gross) / 40% CITI WGBI 3.7 25 9.2 37 9.2 37 3.2 27 7.1 22 4.5 40 4.3 Dec-14

eA Global TAA Net Median 2.5 7.0 7.0 1.6 5.0 4.3 2.1 Dec-14

June 30, 2017

33

Market Value($)

% ofPortfolio

3 Mo(%) Rank

FiscalYTD(%)




_

Real Assets 2,298,935 9.7 1.9 13 10.8 11 10.8 11 -- -- -- -- -- -- 2.8 Dec-14PIMCO All Asset Index 1.2 18 3.1 38 3.1 38 3.0 16 3.6 25 5.2 2 3.2 Dec-14Bloomberg Commodity Index -3.0 56 -6.5 99 -6.5 99 -14.8 78 -9.2 91 -6.5 96 -11.1 Dec-14

InvestorForce All E&F Real Assets/Commodities Net Median -2.3 0.6 0.6 -7.3 -0.5 -0.9 -4.1 Dec-14PIMCO All Asset 2,298,935 9.7 1.9 60 10.8 29 10.8 29 -- -- -- -- -- -- 2.8 Dec-14

PIMCO All Asset Index 1.2 80 3.1 90 3.1 90 3.0 28 3.6 68 5.2 14 3.2 Dec-14Bloomberg Commodity Index -3.0 99 -6.5 99 -6.5 99 -14.8 99 -9.2 99 -6.5 99 -11.1 Dec-14

eA Global TAA Net Median 2.5 7.0 7.0 1.6 5.0 4.3 2.1 Dec-14Hedge Funds 1,018,656 4.3 0.5 70 6.2 62 6.2 62 -- -- -- -- -- -- 0.0 Dec-14

HFRI Fund of Funds Composite Index 0.6 66 6.3 61 6.3 61 1.5 62 3.8 72 0.9 92 1.4 Dec-14eV Alt Fund of Funds - Multi-Strategy Median 1.0 7.7 7.7 2.3 5.4 2.9 2.4 Dec-14

Prisma Spectrum Fund Ltd 1,018,656 4.3 0.5 70 6.2 62 6.2 62 -- -- -- -- -- -- 0.7 Dec-14HFRI Fund of Funds Composite Index 0.6 66 6.3 61 6.3 61 1.5 62 3.8 72 0.9 92 1.4 Dec-14

eV Alt Fund of Funds - Multi-Strategy Median 1.0 7.7 7.7 2.3 5.4 2.9 2.4 Dec-14XXXXX


June 30, 201734

Quarter Ending June 30, 2017

BeginningMarket Value Contributions Withdrawals Net Cash Flow Net Investment

ChangeEnding

Market Value_

Acadian Emerging Markets Equity $1,274,351 $0 $0 $0 $76,826 $1,351,177AQR GRP EL $2,127,190 $0 $0 $0 -$4,624 $2,122,566Artisan Global Opportunities $1,697,674 $0 $0 $0 $140,415 $1,838,088Ashmore EM Blended Debt Strategy $775,113 $0 $0 $0 $18,264 $793,377Baird - Core Bond $1,058,655 $0 $0 $0 $17,563 $1,076,218Bank of Ann Arbor Trust Cash $70,729 $1,063,790 -$1,001,475 $62,315 $0 $133,044BlackRock- SIO $2,349,072 $0 $0 $0 $23,499 $2,372,571Dreyfus Institutional Preferred $0 $0 $0 $0 $0 $0Franklin Templeton- Global Multi-Sector Plus $1,154,843 $0 $0 $0 -$11,735 $1,143,108Hexavest GE $1,709,640 $0 $0 $0 $35,761 $1,745,400Northern Inst Govt Select MMKT $23,168,051 $0 -$21,000,000 -$21,000,000 -$6,293 $2,161,758PIMCO All Asset $2,256,852 $0 $0 $0 $42,084 $2,298,935Prisma Spectrum Fund Ltd $1,013,981 $0 $0 $0 $4,675 $1,018,656SEG Baxter -- $1,000,000 $0 $1,000,000 $0 $1,000,000Standard Life GARS $2,266,010 $0 $0 $0 $17,720 $2,283,730Treasury Strips $87,848 $0 $0 $0 $1,229 $89,077Vanguard Prime MMKT Fund- Admiral $0 $0 $0 $0 $0 $0Vanguard Total Stock Market VIPERs $2,212,634 $0 -$10,487 -$10,487 $67,572 $2,269,719Z TERMINATED - CopperRock International Small Cap $933,951 $0 -$1,022,870 -$1,022,870 $88,920 $0Total $44,156,593 $2,063,790 -$23,034,832 -$20,971,042 $511,875 $23,697,426

XXXXX

Eastern Michigan University - Board of RegentsTotal Fund Asset Growth Summary by Manager

June 30, 2017

35

Attribution Summary3 Months Ending June 30, 2017

Wtd.ActualReturn

Wtd. IndexReturn

ExcessReturn

SelectionEffect

AllocationEffect

InteractionEffects

TotalEffects

Total Equity 5.2% 4.7% 0.4% 0.2% 0.0% 0.0% 0.2%Total Fixed 0.9% 1.9% -1.0% -0.3% 0.0% 0.0% -0.3%GAA/ Risk Parity 0.3% 3.6% -3.3% -0.7% 0.0% 0.0% -0.7%Real Assets 1.9% 1.2% 0.6% 0.1% 0.0% 0.0% 0.1%Hedge Funds 0.5% 0.6% -0.2% 0.0% 0.1% 0.0% 0.1%Total 2.5% 3.0% -0.6% -0.7% 0.2% 0.0% -0.6%

Eastern Michigan University - Board of RegentsLong Term Investment Pool

June 30, 2017

36

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The GAA Composite contributed negatively to performance for the quarter. This was driven by both AQR and Standard Life's relative underperformance.

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Note: Plan attribution is a static, return based calculation and the results reflect the composites shown. As a result, the total returns shown may vary from the calculated returns shown on the performance summary

Eastern Michigan University - Board of RegentsLong Term Investment Pool

Attribution Summary1 Year Ending June 30, 2017

Wtd.ActualReturn

Wtd. IndexReturn

ExcessReturn

SelectionEffect

AllocationEffect

InteractionEffects

TotalEffects

Total Equity 17.6% 20.1% -2.5% -0.8% 0.1% 0.0% -0.7%Total Fixed 6.4% 0.7% 5.7% 1.5% -0.1% 0.1% 1.4%GAA/ Risk Parity 2.0% 8.8% -6.7% -1.4% 0.0% -0.1% -1.5%Real Assets 10.8% 3.1% 7.7% 0.8% -0.1% 0.0% 0.7%Hedge Funds 6.2% 6.3% -0.1% 0.0% 0.2% 0.0% 0.2%Total 9.8% 9.7% 0.1% 0.1% 0.1% 0.0% 0.1%

June 30, 2017

37

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The Fixed Income Composite contributed positively to performance for the fiscal year. This was driven by Franklin Templeton's relative outperformance

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Note: This page details attribution for the trailing year

June 30, 2017

Eastern Michigan University - Board of RegentsTotal Fund Asset Allocation History

38

Last ThreeMonths Fiscal Year-To-Date One Year Three Years

_

Beginning Market Value $44,156,593 $19,097,941 $19,097,941 $35,501,272Contributions $2,063,790 $78,955,263 $78,955,263 $221,153,741Withdrawals -$23,073,220 -$76,365,967 -$76,365,967 -$235,721,591Net Cash Flow -$21,009,430 $2,589,295 $2,589,295 -$14,567,851Net Investment Change $550,263 $2,010,190 $2,010,190 $2,764,005Ending Market Value $23,697,426 $23,697,426 $23,697,426 $23,697,426

_

Eastern Michigan University - Board of RegentsTotal Fund Asset Growth Summary

June 30, 2017

39

3 Years Ending June 30, 2017

Anlzd Ret Rank Anlzd StdDev Rank Sharpe

Ratio Rank_

Long Term Investment Pool 3.43% 60 5.75% 26 0.56 49Long Term Allocation Index 4.35% 31 6.01% 31 0.68 24Long Term Balanced Index 4.33% 31 5.97% 30 0.69 24

Eastern Michigan University - Board of RegentsLong Term Investment Pool Risk/Return


Anlzd Ret Rank Anlzd StdDev Rank Sharpe

Ratio Rank_

Long Term Investment Pool 5.73% 88 5.14% 18 1.08 67Long Term Allocation Index -- -- -- -- -- --Long Term Balanced Index 5.69% 89 5.03% 17 1.10 65

June 30, 2017

40


Anlzd Ret Rank Anlzd StdDev Rank

_

Total Composite 3.91% 53 3.38% 53 Allocation Index -- -- -- --

XXXXX


Anlzd Ret Rank Anlzd StdDev Rank

_

Total Composite 2.32% 65 3.47% 65 Allocation Index 2.22% 70 3.67% 70

XXXXX

Eastern Michigan University - Board of RegentsTotal Fund Risk/Return

June 30, 2017

41

June 30, 2017

Eastern Michigan University - Board of RegentsLong Term Investment Pool Return Summary vs. Peer Universe

42

Eastern Michigan University - Board of RegentsLong Term Investment Pool Return Summary vs. Peer Universe

June 30, 2017

43

Long Term Investment Pool vs. InvestorForce All E&F < $50mm Net3 Years

Eastern Michigan University - Board of RegentsLong Term Investment Pool Risk Statistics vs. Peer Universe

June 30, 2017

44

Long Term Investment Pool vs. InvestorForce All E&F < $50mm Net5 Years

Eastern Michigan University - Board of RegentsLong Term Investment Pool Risk Statistics vs. Peer Universe

June 30, 2017

45

June 30, 2017

Eastern Michigan University - Board of RegentsTotal Fund Return Summary vs. Peer Universe

46

Eastern Michigan University - Board of RegentsTotal Fund Return Summary vs. Peer Universe

June 30, 2017

47

Eastern Michigan University - Board of RegentsTotal Fund Risk Statistics vs. Peer Universe

Total Composite vs. InvestorForce Trust Funds >60% Fixed Income Net 3 Years

June 30, 2017

48

Eastern Michigan University - Board of RegentsTotal Fund Risk Statistics vs. Peer Universe

Total Composite vs. InvestorForce Trust Funds >60% Fixed Income Net 5 Years

June 30, 2017

49

Active vs Passive

50

• In general, we believe there are opportunities to add value through active investment decision-making

NEPC Approach:• We seek to help clients build the most efficient portfolio that meets

their unique risk and return objectives

• We believe that, over time, there will exist opportunities to improve performance through superior strategy, structure, and implementation

• We seek to add value to client decision-making at each step in the process:

– Asset allocation– Portfolio structuring and positioning– Investment selection and monitoring

Active vs. Passive - IntroductionEastern Michigan University - Board of Regents

June 30, 2017

51

• We believe it is critical to focus key decisions and allocate resources consistent with the opportunity to add value

• Scarce resources for an investment program:– Capital– Market risk budget– Active risk budget– Management fees– Time - Board, Committee, Staff, Consultant

NEPC Investment Philosophy - Active vs. PassiveEastern Michigan University - Board of Regents

June 30, 2017

52

A Challenge of Investment Program Management

Asset Allocation

Portfolio Structuring & Positioning

Manager Selection and Monitoring

Impact on Program(Risk and Return)

Typical Time Allocation


June 30, 2017

53

• NEPC believes there is no one “right” answer– Depends on investment program characteristics

• Available resources – time, active risk, management fees• Governance structure in place to:

• Seek excess return in all components of plan structure• Be patient with short-term underperformance

– Depends on asset class• Focus active risk, management fee, and time budget on:

• Most inefficient markets• Less constrained mandates

– Depends on market environments• Active and passive management involve biases that will drive periods of over- and under-

performance

Active vs. Passive ManagementEastern Michigan University - Board of Regents

June 30, 2017

54

• Difficult to draw hard and fast conclusions despite many analysesperformed over the years

• Analytical challenges include:– Universe selection– Survivorship bias– Time period sensitivity

• Analyses can be created to prove the case of the interested party

• Recommend taking retrospective analyses with a “grain of salt”

• Test intuitively consistent hypotheses

• Be wary of secular extremes that can lead to wrong conclusion at the worst time

Active vs. Passive AnalysesEastern Michigan University - Board of Regents

June 30, 2017

55

• Characteristics of more efficient investment categories:

– Smaller, more homogeneous opportunity set

– Well-researched– Highly liquid– Tightly constrained– Inexpensive index vehicles and

derivatives readily available

• Examples:– U.S. Large Cap Stocks– U.S. Core Bonds (particularly

Treasuries & Agencies)

Active management less likely to add value

• Characteristics of less efficient investment categories:

– Larger, more heterogeneous opportunity set

– Not well-researched– Poor/intermittent liquidity– Less constrained– Index vehicles and derivatives

unavailable, expensive, and/or involve high tracking error

• Examples:– U.S. small company stocks– Non-US stocks, including Emerging

Markets– High yield bonds/bank loans– Hedge funds– Private equity and real estate

Active management more likely to add value

Active vs. Passive - Intuitive HypothesesEastern Michigan University - Board of Regents

June 30, 2017

56

• Evaluated performance of active managers over rolling 1, 3, and 5-year periods ending 12/31/15

– Net of fees*– Attempts to minimize “survivorship bias”, particularly over one and three year periods

• Evaluated ranking of indexes in universe over calendar year periods– Net of fees*– Attempts to minimize “survivorship bias”

• Used data from eVestment Alliance for 2012 and after– Encompasses over 10,000 investment products, 1,900 different investment firms– Industry’s largest provider or traditional and hedge fund data– Data prior to 2012 is from the Independent Consultants Cooperative universe

Active vs. Passive Analysis – Data

* Fees from 2008 eVestment Alliance manager fee study; used fee for $25 million mandate


June 30, 2017

57

U.S. Large Cap Core Equity – Rolling Periods

¹ Annualized net-of-fee results are calculated by subtracting the average manager fee, respective of asset class and style, from the eVestment or ICC gross-of-fee performance. The average manager fees used prior to 2009 were obtained from the 2008 eVestment Alliance manager fee study. For periods after to 2009, the 2009 eVestment Alliance manager fee study was used.² The universe data shown includes only actively managed portfolios. The minimum sample size used for each time period is 20 portfolios.

The median large cap core equity manager has outperformed the S&P 500, net of fees¹, in:

- 36 of 95 rolling one-year periods (or, 38% of the time)- 35 of 87 rolling three-year periods (or, 40% of the time)- 43 of 79 rolling five-year periods (or, 54% of the time)


June 30, 2017

58

U.S. Large Cap Core Equity – Benchmark Rank

The S&P 500 ranked below median 6 out of the last 16 years¹ eVestment and ICC universes shown. Benchmark rankings are relative to the respective actively managed gross-of-fee universe. Rankings reflect the gross-of-fee results of the benchmark. For periods prior to 2009 results were calculated by adding the respective asset class and style annual fee as obtained from the 2008 eVestment Alliance manager fee study to the annual benchmark return. For periods after to 2009, the 2009 eVestment Alliance manager fee study was used.

Percen

tile Ra

nk


June 30, 2017

59

U.S. Small Cap Core Equity – Rolling Periods


The median small cap core equity manager has outperformed the Russell 2000, net of fees¹, in:



June 30, 2017

60

U.S. Small Cap Core Equity – Benchmark Rank

The Russell 2000 ranked below median 11 out of the last 16 years

¹ eVestment and ICC universes shown. Benchmark rankings are relative to the respective actively managed gross-of-fee universe. Rankings reflect the gross-of-fee results of the benchmark. For periods prior to 2009 results were calculated by adding the respective asset class and style annual fee as obtained from the 2008 eVestment Alliance manager fee study to the annual benchmark return. For periods after to 2009, the 2009 eVestment Alliance manager fee study was used.

Percen

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June 30, 2017

61

International Equity – Rolling Periods

Passive Outperforms


The median international equity developed manager has outperformed the MSCI EAFE, net of fees¹, in:



June 30, 2017

62

International Equity – Benchmark Ranks

MSCI EAFE ranked below median 12 out of the last 16 years


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June 30, 2017

63

Emerging Markets – Rolling Periods


The median international equity emerging market manager has outperformed the MSCI EM Market, net of fees¹, in:



June 30, 2017

64

Emerging Markets – Benchmark Ranks

MSCI EM Index ranked below median 6 out of the last 16 years


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June 30, 2017

65

Domestic Fixed Income – Rolling Periods


The median domestic fixed income manager has outperformed the BC Aggregate, net of fees¹, in:



June 30, 2017

66

Domestic Fixed Income – Benchmark Ranks

BC Aggregate ranked at or below median 10 out of the last 16 years


Percen

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June 30, 2017

67

• Data appear broadly consistent with intuitive hypotheses:– US Large cap stock managers exhibit lowest probability of active management

outperformance; margins are relatively tight– Small cap, Non-US stocks exhibit higher probability of active management

outperformance; margins are wider• Emerging markets stocks are an outlier – requires further consideration

– Core fixed income demonstrated modest outperformance until big fall-off in 2008 followed by rebound in 2009 and 2010

• Success of active management can appear cyclical– Can be based on relative trends of performance related to biases of active strategies

versus indexes– Lower probability of active management success in short-term periods does not

preclude longer-term success– Trending nature of active management success indicates some alpha may be disguised

beta• Example of fixed income – 2008 vs. 2009

Active vs. Passive – ObservationsEastern Michigan University - Board of Regents

June 30, 2017

68

Asset ClassMarket

EfficiencyDiversity of

Opportunity SetActive

ConstraintsExcess Return

ExpectationEase of Indexing Comments/Recommendation

US Large Cap Stocks High Low High Low High

Most obvious choice for indexing (and /or portable alpha)

US Small Cap Stocks Moderate Moderate Moderate Moderate Moderate

In general seek active; can index core exposure

Non-US Developed Market Stocks Moderate Moderate High Moderate Moderate


Emerging Market Stocks Moderate Moderate Moderate Moderate Moderate


Core Bonds (Gov't/Credit) High/Moderate Low/Moderate High Low / Moderate Moderate

Evaluate index components; potentially seek active in less efficient sectors

Emerging Market Bonds Moderate Moderate Moderate Moderate Low Seek active

High Yield/Bank Loans Low High Moderate Moderate Low Seek active

Hedge Funds Low High Low High LowHedge fund beta replication emerging, but unproven; seek active

Private Equity Low High Low High N/A Must use active

Real Estate Low High Low High N/A Must use active

Active vs. Passive – Summary by Asset CategoryEastern Michigan University - Board of Regents

June 30, 2017

69

• We believe in seeking to add value at every step in the investment management process

– Asset allocation– Portfolio structuring and positioning– Active portfolio management

• It is critical for plan sponsors to focus resources on the highest value-added components of the investment management process

• Active management is more likely to add value in less-efficient areas of the capital markets

• Active management is less likely to add significant value in more efficient areas of the capital markets

– These areas may be candidates for indexing or portable alpha solutions

• Relative performance of active and passive management can appear cyclical

– Example of fixed income in 2008-9; may lead to re-evaluation of fixed income benchmarks and strategies

SummaryEastern Michigan University - Board of Regents

June 30, 2017

70

Appendix

71

Goals and Objectives

72

Eastern Michigan University’s investment objective shall be to preserve investment principal while deriving a reasonable return consistent with the prevailing market and economic conditions. Investment decisions shall be based on specific guidelines which incorporate quality, safety, diversity and liquidity of funds.

Investment Policy

Goals and Objectives

June 30, 2017


Asset Class Target RangeEquity 35% 20%‐50%

Domestic All Cap 10% 5%‐20%International Equities 5% 0%‐10%Emerging International Equities 5% 0%‐8%Global Equity 15% 10%‐20%

Fixed Income 25% 20%‐50%Core Fixed 5% 0%‐10%Absolute Return Fixed Income 10% 5%‐15%Emerging Market Debt 5% 0%‐8%Global Multi‐Sector Fixed Income 5% 0%‐10%

Global Asset Allocation/Risk Parity 20% 10%‐30%Alternatives 20% 5%‐25%

Hedge Funds 10% 0%‐20%Real Assets 10% 5%‐15%

Expected Return (5‐7 years)Standard Deviation

6.0%11.1%

73

Goals and Objectives – Long Term Investment Pool

June 30, 2017


‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

50%

60%

Apr‐14 Jul‐14 Oct‐14 Jan‐15 Apr‐15 Jul‐15 Oct‐15 Jan‐16 Apr‐16 Jul‐16 Oct‐16 Jan‐17 Apr‐17

Cumulative Re

turns

Long Term Investment Pool (Net)

Actual Expected +1 Std Dev +2 Std Dev ‐1 Std Dev ‐2 Std Dev

74

ESG Summary

75

Long Term Investment Pool – ESG products

Firm/ProductStrategy is Managed with

ESG Considerations(Y/N)

Acadian Emerging Markets Equity Yes

AQR GRP EL No

Aritisan Global Opportunities No

Ashmore EM Blended Debt Strategy No

Baird Core Bond No

BlackRock SIO No

Comerica Treasury Strips No

Franklin Templeton Yes

Hexavest Global Equity Yes

PIMCO All Asset No

Prisma Spectrum Fund No

Select Baxter Street Fund No

Vanguard No

William Blair No


June 30, 2017

76

Market Overview

77

Index Performance Summary as of 06/30/2017

Source: Bloomberg, Barclays, Alerian, Nareit, MSCI, JP Morgan, Credit Suisse

2009 2010 2011 2012 2013 2014 2015 2016 Q1 April May June Q2 YTDMSCI EM 78.5% 18.9% -18.4% 18.2% -2.6% -2.2% -14.9% 11.2% 11.4% 2.2% 3.0% 1.0% 6.3% 18.4%

MSCI EAFE 31.8% 7.8% -12.1% 17.3% 22.8% -4.9% -0.8% 1.0% 7.2% 2.5% 3.7% -0.2% 6.1% 13.8%

MSCI ACWI 34.6% 12.7% -7.3% 16.1% 22.8% 4.2% -2.4% 7.9% 6.9% 1.6% 2.2% 0.5% 4.3% 11.5%

JPM GBI-EM Global Div 22.0% 15.7% -1.8% 16.8% -9.0% -5.7% -14.9% 9.9% 6.5% 1.2% 2.0% 0.5% 3.6% 10.4%

S&P 500 26.5% 15.1% 2.1% 16.0% 32.4% 13.7% 1.4% 12.0% 6.1% 1.0% 1.4% 0.6% 3.1% 9.3%

Russell 1000 28.4% 16.1% 1.5% 16.4% 33.1% 13.2% 0.9% 12.1% 6.0% 1.1% 1.3% 0.7% 3.1% 9.3%

BC US STRIPS 20+ Yr -36.0% 10.9% 58.5% 3.0% -21.0% 46.4% -3.7% 1.4% 1.8% 1.8% 3.1% 1.1% 6.1% 8.0%

BC US Long Credit 16.8% 10.7% 17.1% 12.7% -6.6% 16.4% -4.6% 10.2% 1.7% 1.6% 2.1% 1.0% 4.7% 6.4%

JPM EMBI Glob Div 29.8% 12.2% 7.3% 17.4% -5.3% 7.4% 1.2% 10.2% 3.9% 1.6% 0.9% -0.1% 2.2% 6.2%

BC US Govt/Cred Long 1.9% 10.2% 22.5% 8.8% -8.8% 19.3% -3.3% 6.7% 1.6% 1.6% 2.0% 0.8% 4.4% 6.0%

Russell 2500 34.4% 26.7% -2.5% 17.9% 36.8% 7.1% -2.9% 17.6% 3.8% 0.8% -1.1% 2.5% 2.1% 6.0%

Russell 2000 27.2% 26.9% -4.2% 16.3% 38.8% 4.9% -4.4% 21.3% 2.5% 1.1% -2.0% 3.5% 2.5% 5.0%

BC US Corporate HY 58.2% 15.1% 5.0% 15.8% 7.4% 2.5% -4.5% 17.1% 2.7% 1.2% 0.9% 0.1% 2.2% 4.9%

BC Global Agg -6.5% -5.3% -5.3% -4.1% 2.7% -0.6% 3.3% 2.1% 1.8% 1.1% 1.5% -0.1% 2.6% 4.4%

BC Municipal 12.9% 2.4% 10.7% 6.8% -2.6% 9.1% 3.3% 0.2% 1.6% 0.7% 1.6% -0.4% 2.0% 3.6%

CS Hedge Fund 18.6% 10.9% -2.5% 7.7% 9.7% 4.1% -0.7% 1.2% 2.1% 0.4% 0.8% - 1.3% 3.4%

FTSE NAREIT Eqy REITs 28.0% 28.0% 8.3% 18.1% 2.5% 30.1% 3.2% 8.5% 1.2% 0.1% -0.8% 2.2% 1.5% 2.7%

BC US Agg Bond 5.9% 6.5% 7.8% 4.2% -2.0% 6.0% 0.5% 2.6% 0.8% 0.8% 0.8% -0.1% 1.4% 2.3%

CS Leveraged Loan 44.9% 10.0% 1.8% 9.4% 6.2% 2.1% -0.4% 9.9% 1.2% 0.4% 0.4% -0.1% 0.8% 2.0%

BC US Agg Interm 6.5% 6.1% 6.0% 3.6% -1.0% 4.1% 1.2% 2.0% 0.7% 0.6% 0.5% -0.3% 0.9% 1.6%

BC TIPS 11.4% 6.3% 13.6% 7.0% -8.6% 3.6% -1.4% 4.7% 1.3% 0.6% 0.0% -0.9% -0.4% 0.9%

BC US Govt/Cred 1-3 Yr 3.8% 2.8% 1.6% 1.3% 0.6% 0.8% 0.7% 1.3% 0.4% 0.2% 0.2% 0.0% 0.3% 0.7%

Alerian MLP 76.4% 35.9% 13.9% 4.8% 27.6% 4.8% -32.6% 18.3% 3.9% -1.3% -4.5% -0.6% -6.4% -2.7%

BBG Commodity 18.9% 16.8% -13.3% -1.1% -9.5% -17.0% -24.7% 11.8% -2.3% -1.5% -1.4% -0.3% -3.2% -5.6%

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Near Term Broad Market Performance Summary as of 06/30/20172015

Source: Bloomberg, Standard and Poors, Russell, MSCI, Barclays, JP Morgan *1 Yr Range: Represents range of cumulative high/low daily index returns for an investment made one year ago

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

25%

30%

S&P 500 Russell 2500 MSCI EAFE MSCI EM Barclays Agg BarclaysLong

Treasury

BarclaysHigh Yield

BarclaysGlobal Agg

GBI‐EM GlobDiv

BloombergCommodity

1 Yr Range1 Year Return3 Month Return

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Long Term Broad Market Performance Summary as of 06/30/2017

Source: Bloomberg, Standard and Poors, Russell, MSCI, Barclays, JP Morgan

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Information Disclaimer

• Past performance is no guarantee of future results.

• The goal of this report is to provide a basis for substantiating asset allocation recommendations. The opinions presented herein represent the good faith views of NEPC as of the date of this report and are subject to change at any time.

• Information on market indices was provided by sources external to NEPC. While NEPC has exercised reasonable professional care in preparing this report, we cannot guarantee the accuracy of all source information contained within.

• All investments carry some level of risk. Diversification and other asset allocation techniques do not ensure profit or protect against losses.

• This report is provided as a management aid for the client’s internal use only. This report may contain confidential or proprietary information and may not be copied or redistributed to any party not legally entitled to receive it.

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It is important that investors understand the following characteristics of non-traditional investment strategies including hedge funds and private equity:

1. Performance can be volatile and investors could lose all or a substantial portion of their investment

2. Leverage and other speculative practices may increase the risk of loss3. Past performance may be revised due to the revaluation of investments 4. These investments can be illiquid, and investors may be subject to lock-ups

or lengthy redemption terms5. A secondary market may not be available for all funds, and any sales that

occur may take place at a discount to value6. These funds are not subject to the same regulatory requirements as

registered investment vehicles7. Managers may not be required to provide periodic pricing or valuation

information to investors8. These funds may have complex tax structures and delays in distributing

important tax information9. These funds often charge high fees10.Investment agreements often give the manager authority to trade in

securities, markets or currencies that are not within the manager’s realm of expertise or contemplated investment strategy

Alternative Investment Disclosures

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