investment oversight · 2/28/2017 · managers: $ % $ % fortress investment group llc -

Investment Oversight As at 28 February 2017

Table of Contents

Asset Class Allocation: Actual vs. Target……………………………………………………………………………………....

Asset Class Performance: Actual vs. Policy ………………………………………………………………………………….

Asset Allocation and Performance……………………………………………………………………………………………...

Risk …………………………………..……………………………………………………………………………………………

Long term Risk/Return of Plan vs. 60/40 Portfolio and Policy Returns………………….…………….

VaR, Sharpe and Scenario Analysis………………………………………………………………………

The 4 Factor Model..………………………………………………………………………………………...

Performance Heat Map by Asset Class………….…………………………………………………………………………….

1 Month Performance………………………………………………………………...................................

3 Month Performance………………………………………………………………………………………..

12 Month Performance………………………………………………………………………………………

Global Strategy Overview………………………….………………………………………………..........................................

Global Debt..………………………………….………………………………………………......................

Private Equity..……………………………………………………………………………….......................

Alpha Pool..……………………………………..……………………………………………......................

Global Equity..………………………………….…………………………………………….......................

Real Assets and Real Estate……………………………………………………………………………….

Appendices……………...…………..………………………………………………………………………………………..........

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16

Investment Oversight

As at 28 February 2017

San Bernardino County Employees’ Retirement Association


As at 28 February 2017 San Bernardino County Employees’ Retirement Association

Asset Class Allocation: Actual vs. Target

Physical Synthetic Total

Volatility 17,026,757 17,026,757 0.19% 3.00% 0%-8%

L/S Equity 41,851,953 41,851,953 0.47% 2.00% 0%-7%

Passive Large Cap 645,260,887 367,000,000 1,012,260,887 11.29% 6.00% 0%- 11%

Passive Small Cap 0 302,000,000 302,000,000 3.37% 2.00% -3%- 7%

Sub-Total 704,139,598 1,373,139,598 15.31% 13.00% 8%-18%

Developed Market 0 831,100,000 831,100,000 9.27% 6.00% 1% -11%

Emerging Market Equity 446,295,914 165,400,000 611,695,914 6.82% 6.00% 1% -11%

Volatility 121,924,103 121,924,103 1.36% 3.00% 0%-8%

Sub-Total 568,220,017 1,564,720,017 17.45% 15.00% 10%-20%

US Core 0 277,800,000 277,800,000 3.10% 2.00% -3%-7%

High Yield/Credit 1,013,124,752 1,013,124,752 11.30% 13.00% 8%-18%

Sub-Total 1,013,124,752 1,290,924,752 14.39% 15.00% 10%-20%

International Core 36,905,708 -395,646,775 -358,741,067 -4.00% 1.00% -4%-6%

International Credit 1,111,394,725 -220,353,225 891,041,500 9.94% 11.00% 6%-16%

Emerging Market Debt 649,587,354 649,587,354 7.24% 6.00% 1%-11%

Sub-Total 1,797,887,787 1,181,887,787 13.18% 18.00% 13%-23%

Real Estate Real Estate 545,788,529 545,788,529 6.09% 9.00% 4%-14%

Commodities 146,961,169 146,961,169 1.64% 2.00% -1%-7%

Infrastructure 74,453,828 74,453,828 0.83% 1.00% 0%-6%

Timber 197,483,246 197,483,246 2.20% 2.00% 0%-7%

Sub-Total 418,898,243 418,898,243 4.67% 5.00% 0%-10%

Private Equity Private Equity 1,188,186,087 1,188,186,087 13.25% 16.00% 6%-21%

Absolute Return Absolute Return 2,409,615,022 -1,327,300,000 1,082,315,022 12.07% 7.00% 0%-12%

Cash Cash 322,666,651 322,666,651 3.60% 2.00% 0%-10%

8,968,526,684 8,968,526,684 100.00% 100.00% 0.00%

Asset Class Sub-Asset Class

Asset Allocation

Target Range

International Fixed Income

Real Assets

Total

Target %

Allocation

Target Allocation

US Equities

International Equities

US Fixed Income

Actual $ Allocation

Total %

Allocation

15.31%

17.45%

14.39%

13.18%

6.09%

4.67%

13.25%

12.07%

3.60%

0.19%

0.47%

11.29%

3.37%

9.27%

6.82%

1.36% 3.10%

11.30%

-4.00% 9.94%

7.24%

6.09%

1.64% 0.83% 2.20%

13.25%

12.07%

3.60%

13.00%

15.00%

15.00%

18.00%

9.00%

5.00%

16.00%

7.00%

2.00%

3.00% 2.00%

6.00%

2.00% 6.00%

6.00%

3.00%

2.00%

13.00%

1.00%

11.00%

6.00%

9.00%

2.00%

1.00% 2.00%

16.00%

7.00% 2.00%

1



Asset Class Performance: Actual vs. Policy

Physical

Return

Synthetic

Overlay

Return

Weighted

Average Net

Return

PolicyPhysical

Return

Synthetic

Overlay

Return

Weighted

Average Net

Return

Policy

Volatility -23.96% -23.96% -47.13% -47.13%

L/S Equity -0.31% -0.31% -2.72% -2.72%

Passive Large Cap 1.87% 1.11% 1.59% 5.05% 6.67% 5.24%

Passive Small Cap 1.11% 1.11% 6.67% 6.67%

Sub-Total 0.84% 0.97% 3.49% 1.49% 3.41% 7.23%

Developed Markets 1.11% 1.11% 6.67% 6.67%

Emerging Market Equity 2.61% 1.11% 2.21% 6.83% 6.67% 6.86%

Volatility 0.05% 0.05% 0.17% 0.17%

Sub-Total 2.05% 1.45% 1.41% 5.33% 6.23% 7.50%

US Core 1.11% 1.11% 6.67% 6.67%

High Yield/Credit 2.04% 2.04% 3.61% 3.61%

Sub-Total 2.04% 1.84% 0.67% 3.61% 4.25% 1.01%

International Core -0.61% 1.11% 0.96% 2.19% 6.67% 5.99%

International Credit 2.66% 1.11% 2.40% 3.90% 6.67% 4.40%

Emerging Market Debt 1.07% 1.07% 5.74% 5.74%

Sub-Total 1.90% 1.70% 0.29% 4.43% 5.04% 1.19%

Real Estate Real Estate 0.83% 0.83% 0.00% 0.70% 0.70% 1.77%

Commodities -2.30% -2.30% 0.17% -1.07% -1.07% 2.02%

Infrastructure -0.07% -0.07% 3.49% 4.70% 4.70% 7.23%

Timber 0.00% 0.00% 0.00% 0.00% 0.00% 0.67%

Sub-Total -0.85% -0.85% 0.57% 0.39% 0.39% 2.17%

Private Equity Private Equity 0.47% 0.47% 3.49% 1.96% 1.96% 7.23%

Absolute Return Absolute Return 1.11% 1.11% 0.67% 6.67% 6.67% 1.01%

Cash Cash -0.34% -0.34% 0.04% 0.35% 0.35% 0.12%

1.14% 1.14% 1.44% 3.76% 3.76% 3.80%

US Equities

3 Months1 Month Performance


Month

Total


US Fixed Income

3 Month Performance


Real Assets

-23.96%

-2.30%

-0.34%

-0.31%

-0.07%

0.00%

0.05%

0.47%

0.83%

0.96%

1.07%

1.11%

1.11%

1.11%

1.11%

1.59%

2.04%

2.21%

2.40%

0% 5% 10% 15% 20% 25% 30%

Volatility (US Equities)

Commodities

Cash

L/S Equity

Infrastructure

Timber

Volatility (International)

Private Equity

Real Estate

International Core

Emerging Market Debt

US Core

Passive Small Cap

Developed Markets

Absolute Return

Passive Large Cap

High Yield/Credit

Emerging Market Equity

International Credit

-47.13%

-2.72%

-1.07%

0.00%

0.17%

0.35%

0.70%

1.96%

3.61%

4.40%

4.70%

5.24%

5.74%

5.99%

6.67%

6.67%

6.67%

6.67%

6.86%

0% 10% 20% 30% 40% 50%


L/S Equity

Commodities

Timber


Cash

Real Estate

Private Equity

High Yield/Credit


Infrastructure

Passive Large Cap


International Core

Developed Markets

US Core

Passive Small Cap

Absolute Return


All returns consider both reporting and non-reporting managers 2



Asset Class Performance: Actual vs. Policy (Cont'd)

Physical

Return

Synthetic

Overlay

Return

Weighted

Average Net

Return

PolicyPhysical

Return

Synthetic

Overlay

Return

Weighted

Average Net

Return

Policy

Volatility -58.04% -58.04% -77.95% -77.95%

L/S Equity -6.80% -6.80% -7.88% -7.88%

Passive Large Cap 8.14% 21.30% 9.62% 14.37% 32.78% 17.65%

Passive Small Cap 21.30% 21.30% 32.78% 32.78%

Sub-Total 1.71% 7.96% 13.44% 0.88% 11.57% 23.75%

Developed Markets 21.30% 21.30% 32.78% 32.78%

Emerging Market Equity 5.37% 21.30% 10.18% 17.58% 32.78% 21.52%

Volatility 4.91% 4.91% 42.63% 42.63%

Sub-Total 5.11% 15.36% 9.74% 29.45% 30.54% 16.15%

US Core 21.30% 21.30% 32.78% 32.78%

High Yield/Credit 7.69% 7.69% 13.69% 13.69%

Sub-Total 7.69% 10.37% -1.68% 13.69% 17.45% 1.42%

International Core -1.07% 21.30% 16.83% 2.72% 32.78% 26.52%

International Credit 9.15% 21.30% 10.40% 13.56% 32.78% 15.34%

Emerging Market Debt 10.56% 10.56% 19.25% 19.25%

Sub-Total 8.96% 12.01% -7.37% 14.74% 19.08% -0.30%

Real Estate Real Estate 4.67% 4.67% 3.84% 11.12% 11.12% 9.22%

Commodities -1.16% -1.16% -1.24% -2.63% -2.63% 15.53%

Infrastructure 27.97% 27.97% 13.44% 43.55% 43.55% 23.75%

Timber -0.84% -0.84% 1.66% 4.63% 4.63% 3.28%

Sub-Total 3.21% 3.21% 2.08% 7.41% 7.41% 11.42%

Private Equity Private Equity 6.85% 6.85% 13.44% 8.61% 8.61% 23.75%

Absolute Return Absolute Return 21.30% 21.30% -1.68% 32.78% 32.78% 1.42%

Cash Cash -0.77% -0.77% 0.27% -0.70% -0.70% 0.40%

9.54% 9.54% 3.91% 15.72% 15.72% 10.68%

1 YearFYTD Performance


FYTD

Total

US Equities


US Fixed Income

1 Year Performance


Real Assets

-58.04%

-6.80%

-1.16%

-0.84%

-0.77%

4.67%

4.91%

6.85%

7.69%

9.62%

10.18%

10.40%

10.56%

16.83%

21.30%

21.30%

21.30%

21.30%

27.97%

0% 10% 20% 30% 40% 50% 60% 70%


L/S Equity

Commodities

Timber

Cash

Real Estate


Private Equity

High Yield/Credit

Passive Large Cap




International Core

Developed Markets

Absolute Return

Passive Small Cap

US Core

Infrastructure

-77.95%

-7.88%

-2.63%

-0.70%

4.63%

8.61%

11.12%

13.69%

15.34%

17.65%

19.25%

21.52%

26.52%

32.78%

32.78%

32.78%

32.78%

42.63%

43.55%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%


L/S Equity

Commodities

Cash

Timber

Private Equity

Real Estate

High Yield/Credit


Passive Large Cap



International Core

Developed Markets

Absolute Return

Passive Small Cap

US Core


Infrastructure

All returns consider both reporting and non-reporting managers 3



Asset Allocations - Monthly Changes

Assets by Strategy: Largest performance increases Assets by Strategy: Largest underperforming strategies

$ % $ %

Overlay Alpha Pool 22,502,527 3.93% Volatility Global Equity -5,299,622 -3.67%

Opportunistic Global Debt 32,999,819 3.17% Commodities Real Assets & Real Estate -3,600,688 -2.30%

Long Equity Global Equity 23,206,379 2.17% Hedged Equity Global Equity -269,445 -0.31%

Managers: Best performing Managers: Worst performing

$ % $ %

Cairn Opportunistic 16,465,048 5.55% Highstar Infrastructure -1,841,090 -5.21%

Fortress Investment Group LLC Infrastructure 1,789,427 4.57% Russell (Put/Write) Volatility -5,299,622 -3.67%

Russell (Overlay) Overlay 22,935,683 4.24% Pinnacle Commodities -3,600,684 -2.55%

Performance February

Performance Attribution by Strategy

Performance FebruaryStrategy Global Strategy

Manager StrategyPerformance February

Manager Strategy

Performance FebruaryStrategy Global Strategy

• Value of the portfolio increased by (p1.14%) in February. • Benefit payments of 20m were paid out in February. • No new managers were added during the month. • GAM Emerging Markets left the platform during the month.

• The strategy with the largest cash inflow during the month was Liquidity (p$28million). • The strategy with the largest cash outflow during the month was Beta Focus (q$79million). • Over the past 12 months the largest increase in allocation was observed in Long Equity (p$251million). • The largest decrease in allocation over the past 12 months was observed in Hedged Equity (q$151million).

• The S&P 500 Index was up (p3.72%) in February and is up (p22.34%) for 1 Year.

• Global equity markets made gains in February. Investors were again encouraged by widespread improvement in global economic data.

• US equities performed very well. President Trump promised a “phenomenal” tax plan, although further details are yet to emerge. Expectations rose that US interest rates would soon increase.

• In the eurozone, encouraging macroeconomic data supported equity gains. All sectors aside from financials registered positive returns.

• UK equities were supported by a variety of factors, including robust corporate results, M&A activity, and positive macroeconomic data. Sterling weakness was a further tailwind.

• Japanese equities posted positive returns, supported by a generally encouraging results season for corporates.

- Source:www.schroders.com -

12 Month Compound Performance

The total NAV of the portfolio at February 28th 2017 is $8,968,526,684

The monthly value add to the portfolio was $101,425,499.22

Market Overview

Hedged Equity

Overlay

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17

Alpha Pool

Beta Focus Debt

Commodities

Domestic PE

European PE

Hedged Equity

Infrastructure

Liquidity

Long Equity

Opportunistic

Overlay

Real Estate

Sbcera Completion (PE)

Special Situations

Timber

Volatility

4



Long Term Risk/Return of Plan vs. 60/40 Portfolio and Policy Returns

FYTD

SBCERA Total Plan 9.54% $786,249,821 60/40 Portfolio 6.81% Policy 3.91%

1Year 2 Years

SBCERA Total Plan 15.72% $1,217,429,230 60/40 Portfolio 13.41% Policy 10.68% SBCERA Total Plan 11.75% $940,201,771 60/40 Portfolio 7.00% Policy 5.67%

3 Years 5 Years

SBCERA Total Plan 17.71% $1,338,385,203 60/40 Portfolio 14.67% Policy 9.97% SBCERA Total Plan 48.02% $2,866,193,140 60/40 Portfolio 40.37% Policy 30.69%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%

FY

TD

Re

turn

Annualized Standard Deviation

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00%

12

Mo

nth

Re

turn


0%

2%

4%

6%

8%

10%

12%

14%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%

2 Y

ea

r R

etu

rn


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%

3 Y

ea

r R

etu

rn


0%

10%

20%

30%

40%

50%

60%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%

5 Y

ea

r R

etu

rn


• The SBCERA Total Plan* is well positioned relative to the risk-adjusted returns of the Policy Index* and 60/40 Portfolio* over

1, 2 and 3 year periods.

• Considering the longer term, SBCERA has for the last 30 years had an annualized return of 8.1%.

• The 60/40 Portfolio has the most volatile return series over the FYTD, 1, 2, 3 and 5 year time frames. • Volatility on the SBCERA total plan, 60/40 portfolio and policy have all increased over the past year. * See Appendix III

5



Risk Profile (VaR) Risk Profile (Risk Adjusted Returns)

5% chance of losing

$

Overlay 100,712,043

Long Equity 37,664,045

Alpha Pool 17,134,386

5% chance of losing

$

Hedged Equity 1,232,421

Commodities 3,119,132

Liquidity 3,468,968

Scenario P&L ($) P&L (%) Stress MV P&L ($) P&L (%) Stress MV PnL Difference

Lehman Default - 2008 831,382,424- -9.27% 8,137,144,261 1,317,476,570- -14.69% 7,651,050,114 486,094,146

Debt Ceiling Crisis & Downgrade 2011 338,113,456- -3.77% 8,630,413,228 866,359,678- -9.66% 8,102,167,007 528,246,222

US 10yr Treasury up 100bps 77,129,329- -0.86% 8,891,397,355 141,702,722 1.58% 9,110,229,406 218,832,051-

Greece Financial Crisis - 2010 399,996,290- -4.46% 8,568,530,394 668,155,238- -7.45% 8,300,371,446 268,158,948

Oil Prices Drop - May 2010 306,723,613- -3.42% 8,661,803,072 567,707,739- -6.33% 8,400,818,945 260,984,127

Equities down 10% 200,894,998- -2.24% 8,767,631,687 575,779,413- -6.42% 8,392,747,271 374,884,415

Libya Oil Shock - Feb 2011 21,524,464 0.24% 8,990,051,148 51,120,602- -0.57% 8,917,406,082 72,645,066

Equities up 10% 201,791,850 2.25% 9,170,318,535 575,779,413 6.42% 9,544,306,098 373,987,563-

Equity Markets Rebound - 2009 1,036,761,685 11.56% 10,005,288,369 2,120,159,708 23.64% 11,088,686,393 1,083,398,023-

Strategy

Strategy

SBCERA Portfolio 60/40 Portfolio

Scenario Analysis

Alpha Pool

Fixed Income

Equity

Domestic PE

European PE

Long Equity

Opportunistic

Overlay

Volatility

0

50

100

150

200

250

300

SBCERA 60/40

Mill

ion

s

Beta Focus Debt

Alpha Pool

Beta Focus Debt

Commodities

Domestic PE

European PE

Hedged Equity

Infrastructure

Liquidity

Long Equity Opportunistic

Overlay Rtn 115.14%

Std. Dev 32.90%

Real Estate

SBCERA Completion (PE) Special Situations

Timber

Volatility

Plan

60/40 Portfolio

-60%

-40%

-20%

0%

20%

40%

60%

0% 5% 10% 15% 20% 25% 30%

12 M

onth

Retu

rn


• The portfolio has a 5% chance of losing $249 million (or more) in a month.

• The portfolio has a 1% chance of losing $382 million (or more) in a month.

• Alpha Pool , Special Situations and Real Estate have the highest risk adjusted returns.

• Hedged Equity , Commodities and Volatility have the lowest risk adjusted returns.

-1,500 -1,000 -500 - 500 1,000 1,500 2,000 2,500

Equity Markets Rebound - 2009

Equities up 10%

Libya Oil Shock - Feb 2011

Equities down 10%

Oil Prices Drop - May 2010

Greece Financial Crisis - 2010

US 10yr Treasury up 100bps

Debt Ceiling Crisis & Downgrade 2011

Lehman Default - 2008

Millions

60/40 Portfolio SBCERA Portfolio

6



Risk Profile (4 Factor Model)

ITD Factors

Portfolio Credit Risk-Free Volatility Equity Market R-squared

SBCERA Total Plan 0.64 0.39 0.28- 0.81 0.69

60/40 Portfolio 0.77 0.24 0.40- 0.91 0.75

12 Month Factors

Portfolio Credit Risk-Free Volatility Equity Market R-squared

SBCERA Total Plan 0.47 0.34 0.28- 0.74 0.57

60/40 Portfolio 0.48 0.09 0.54- 0.92 0.70

12 Month Rolling 4 Factor for the SBCERA Portfolio 12 Month Rolling 4 Factor for the 60/40 Portfolio

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

Portfolio 60/40 ALPHA POOL BETA FOCUS COMMODITIES DOMESTIC PE EUROPEAN PE HEDGED EQUITY INFRASTRUCTURE LIQUIDITY LONG EQUITY OPPORTUNISTIC OVERLAY REAL ESTATE SBCERACOMPLETION (PE)

SPECIAL SITUATIONS TIMBER

Credit

Risk-Free

Volatility

Equity Market

The below graph shows how each risk factor in the sample set impacts the various portfolio strategies.

Factor Analysis is calculated using the monthly return over the previous 12 months.

• The model analyses historical returns of the portfolio against the returns and volatility of key indicators:

- Credit is benchmarked against the High Yield North American CDX Index. - Risk-Free is benchmarked against the Treasury Yield Curve Rate. - Volatility is benchmarked against the VIX Squared Index (VVIX). - Equity Markets is benchmarked against the Russell 3000.

• The model shows that the SBCERA plan is highly correlated to the 4 factors.

• The 60/40 portfolio is also highly correlated to the model. However, the SBCERA plan achieves more asset class diversification than a 60/40 portfolio for a similar correlation.

-1.00

-0.80

-0.60

-0.40

-0.20

-

0.20

0.40

0.60

0.80

1.00

Equities

Credit

Risk-Free

Volatility

-1.00

-0.80

-0.60

-0.40

-0.20

-

0.20

0.40

0.60

0.80

1.00

Equities

Credit

Risk-Free

Volatility

7



Monthly Performance Heat Map (showing physical assets only)

0%

0%

Notes S Current month valuations not available from Custodian € Performance impacted by currency movements

Russell (Put/Write) Mondrian

Bluebay

San Bernardino - Cash

Oaktree Standard Life

Cash

Volatility

Gramercy

Oaktree International Core

Partners Group

Russell (Overlay)


Waterfall

Apollo

Overlay

Passport

Stone Tower Cairn

Pinnacle

Aurora

SSGA

Russell (Put/Write)

Tricadia

Marathon

Oaktree

Industry Ventures

Liquidity

L/S Equity

Volatility

Mackay

Knieff Tower

American Realty I.M.A

Lexington

SSGA

Tobam

Declaration

York

Commodities

Neuberger Berman

Ares

Passive Large Cap Golden Tree I.M.A


Highstar

Pathway

Golden Tree Distressed

Gramercy

Invesco Infrastructure

TCW

Stone Tower

Beach Point

Ashmore

Timbervest

Corrum

Hancock

Tennenbaum

Zais

High Yield Credit Strategies

Prudential Investment Mgmt

Fortress Investment Group LLC

Ares Private Equity

Zais Group


Prudential Timber

Birch Grove

Halcyon Catalyst Capital

Russell (Interest Hedge)

Private Equity

Apollo

Starwood

SL Capital

Walton Street Fortress Japan Partners Group

Real Estate

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Mar

ket

Val

ue

(B

illio

ns

$)

Domestic Equities International Equity US Fixed Income Real Assets Private Equity Absolute Return €

€

Int'l Fixed Income Real Estate

Alpha Pool

S

S

€ S

S

S S

S

S S

S

S

S

S

S

8



3 Month Performance Heat Map (showing physical assets only)

0%

0%



Bluebay


US Core Oaktree Standard Life

Cash

Volatility

Gramercy


Partners Group

Russell (Overlay)


Waterfall

Apollo

Overlay

Passport

Stone Tower Cairn

Pinnacle

Aurora

SSGA

Russell (Put/Write)

Tricadia

Marathon

Oaktree

Industry Ventures

Liquidity

L/S Equity

Volatility

Mackay

Kneiff Tower


Lexington

SSGA

Tobam

Declaration

York

Commodities

Neuberger Berman

Ares

Passive Large Cap Golden Tree - IMA


Highstar

Pathway


Gramercy


TCW

Stone Tower

Beach Point

Ashmore

Timbervest

Corrum

Hancock

Tennenbaum

Zais

High Yield/Credit Strategies


Timber

Ares Private Equity

Zais Group


Prudential


Birch Grove


Russell (InterestHedge)

Private Equity

Apollo

Starwood

SL Capital

Walton Street Fortress Japan Partners Group Real Estate

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Mar

ket

Val

ue

(B

illio

ns

$)

Alpha Pool

Domestic Equities International Equity US Fixed Income Int'l Fixed Income Real Estate Real Assets Private Equity Absolute Return €

€

€ S

S

S S S

S

9



12 Month Performance Heat Map (showing physical assets only)

0%

0%



Bluebay


US Core Oaktree Standard Life

Cash

Volatility

Gramercy


Partners Group

Russell (Overlay)


Waterfall

Apollo

Overlay

Passport

Stone Tower Cairn

Pinnacle

Aurora

SSGA

Russell (Put/Write)

Tricadia

Marathon

Oaktree

Industry Ventures

Liquidity

L/S Equity

Volatility

Mackay

Knieff Tower


Lexington SSGA

Tobam

Declaration

York

Commodities

Neuberger Berman

Ares

Passive Large Cap Golden Tree - IMA


Highstar

Pathway


Gramercy


TCW

Stone Tower

Beach Point

Ashmore

Timbervest

Corrum

Hancock

Tennenbaum

Zais

High Yield Credit Strategies


Timber

Ares Private Equity

Zais Group


Prudential


Birch Grove



Private Equity

Apollo

Starwood

SL Capital

Walton Street Fortress Japan Real Estate

Partners Group

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Mar

ket

Val

ue

(B

illio

ns

$)

Real Assets Domestic Equities International Equity US Fixed Income Int'l Fixed Income Real Estate Private Equity Absolute Return €

€

Alpha Pool

€

10



Global Debt

Overview and Risk Profile by Strategy and Manager

0

2

4

6

8

10

12

14

16

18

Beta Focus Opportunistic Special Situations

Waterfall

Oaktree

Mariner

Stone Tower York

Beach Point


Mackay

Declaration

Golden Tree

Halcyon Prudential

Ashmore Gramercy

Cairn Marathon

Kneiff Tower

Global Debt

-30%

-20%

-10%

0%

10%

20%

30%

40%

0% 2% 4% 6% 8% 10% 12% 14% 16%


Va

lue a

t R

isk (

Mill

ions)

The Global Debt portfolio is composed of Beta Focus Debt, Opportunistic Credit and Special Situations. Beta Focus Debt focuses on exposure to attractively priced assets. Opportunistic Credit takes

advantage of perceived mispricing in securities, asset classes and investment structures. Special Situations tends to be comprised of investment structures that face a liquidity crisis or critical event.

Commentary *Graphical representation can be found in the appendix

Average daily trading volume for shorter-termed U.S. Treasuries jumped in January, while volume for longer-termed issues continued sliding off November's highs. Volume of issues with maturities between three and six years in January was up 53% from the previous month to $169.6 billion; issues maturing in three years or less saw a more modest 6% increase to $135.2 billion.

Average daily trading volume for all Treasury securities in January was $537.4 billion, down 0.8% from January 2016.

- Source: SIFMA -

Value at Risk The portfolio has a 5% chance of losing $32mm in a month. Special Situations has the lowest value at risk. Sharpe Ratio The manager with the highest Sharpe is Beach Point followed by Marathon and Waterfall. The managers with the lowest Sharpe are Golden Tree Distressed , Mariner and Cairn.

12

Mo

nth

Retu

rn

Key: Best Performing Manager* Worst Performing Manager* Most Volatile* Least Volatile* * Relative to sub-Strategy only

Oaktree

Mackay

Ashmore

Gramercy

Bluebay

Prudential Tricadia

Beach Point

Declaration

Golden Tree

Cairn

Halcyon AG Capital

Waterfall

Stone Tower

York

Golden Tree - Distressed

Marathon

Kneiff Tower


Beta Focus Debt


Opportunistic Credit


Special Situations

Declaration

Mariner

Halcyon

-5%

0%

5%

10%

15%

20%

25%

Feb-16 May-16 Aug-16 Nov-16 Feb-17


York

-5%

0%

5%

10%

15%

20%


Risk vs. Returns (Manager)

Value at Risk (Strategy)

Ashmore

Oaktree

Mackay

Prudential

-2%0%2%4%6%8%

10%12%14%16%18%20%22%24%


11



Private Equity


0

2

4

6

8

10

Domestic PE European PE SBCERA Completion (PE)

Valu

e a

t R

isk (

Mill

ions)

The Private Equity portfolio is comprised of a core allocation to Standard Life and Pathway Capital Management (exposure to domestic private equity) and Partners Group (exposure to European private equity).

In addition, the allocation is complemented by a direct investment program that focuses on generating cash flows in the shorter term.


Looking at the top-level metrics, the industry remained healthy in 2016, although some of the aggregate figures retreated from 2015.

Exit activity was strong, but the totals for 2016 declined as deals that had been on hold during the global financial crisis and its immediate aftermath were finally digested.

Returns had another strong showing, continuing to outperform public markets by a sizable gap over both short-term and long-term time horizons, thus reinforcing investor confidence.

Global buyout activity, on the other hand, declined. Persistently high asset valuations and stiff competition from corporate buyers, complicated by macroeconomic and political uncertainties across regions, made deal making challenging in 2016.

- Source: Bain & Company-

Value at Risk

The portfolio has a 5% chance of losing $22mm in a month with the European Mandate responsible for most of the VaR.

Sharpe Ratio

The manager with the highest Sharpe over the last 3 Years is Pathway. The manager with the lowest Sharpe is Ares.

3 Y

ear

Retu

rn


Pathway

Partners Group Standard Life

Aurora

Lexington

Industry Ventures

Tennenbaum

Catalyst Capital

Ares

SL Capital Private Equity

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Aurora

Lexington

Neuberger Berman

Industry Ventures

TCW

Alcentra

Tennenbam

Siguler

Catalyst Capital

Apollo

Ares

SL Capital

SBCERA Completion

3 Year Compound Performance

Domestic Mandate

European Mandate






Pathway

-10%

0%

10%

20%

30%

40%

50%

60%

Partners Group

Standard Life

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Aurora

Lexington

Tennenbaum

Catalyst Capital

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

12



Alpha Pool


0

20

40

60

80

100

120

Alpha Pool Liquidity Overlay

Valu

e a

t R

isk

The Alpha Pool core strives to develop a low volatility pool of assets with the objective of consistently outperforming cash returns.

The Liquidity Strategy should be comprised of cash plus return positions that may be tapped for liquidity if needed for other parts of the portfolio.

The objective of the Alpha Pool Core is to provide returns of 200-300 basis points above cash or LIBOR based returns.


The U.S. investment industry shed 1,500 research analyst jobs in 2016, or 9.2% of its staff from the end of 2015, according to data from eVestment. The industry saw steady increases coming out of the recession, reaching 16,431 analysts by 2015.

The decline has been attributed to veteran analysts leaving the industry and younger professionals choosing different careers. There has also been a move by investment firms to depend less on internal resources and look outward to the increasing number of reliable third-party research mediums available.

Futhermore, the use of such third-party research is viewed more favorably by some who feel relationships between subject firms and investment managers might impede objectivity.

- Source: eVestment-

Value at Risk

The Alpha Pool Portfolio has a 5% chance of losing $121mm in a month.

Sharpe Ratio

The manager with the highest Sharpe over the last 12 months is Zais Group. San Bernardino - Cash has the lowest risk adjusted returns.

12 M

onth

Retu

rn

Ares

Corrum

Stone Tower

Zais Fund

Birch Grove

Zais Group

Apollo


State Street Global Advisors


Russell (Overlay)


Alpha Pool

Liquid Assets Over 12 Months

Liquidity

12 Month Exposure Over Time

Overlay


State Street Global Advisors Ares

Corrum Stone Tower

Zais Fund

Birch Grove

Zais Group

Apollo

Alpha Pool

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00%

Russell (Overlay) Return 125.01% Std. Deviation 35.51%

Russell (Interest Hedge Return 6.11% Std. Deviation 29.76%


-

50

100

150

200

250

300

350

400

450

500


Mill

ion

s

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00


Bill

ion

s

Birch Grove

ZAIS Group

-10%

0%

10%

20%

30%

40%

50%

60%




12 M

onth

Retu

rn


13



Global Equity


0

5

10

15

20

25

30

35

40

Long Equity Volatility Hedged Equity

Va

lue a

t R

isk (

Mill

ion

s) The Global Equity portfolio is comprised of volatility strategies, long equity strategies and hedged equity

strategies. Volatility seeks to take advantage of excessively high or low price levels in index based option. Long Equity strategy holds assets or asset classes without hedging or holding offsetting short exposures. Hedged Equity strategy involves holding a stock with an offsetting short exposure. The offsetting short

exposure may be for alpha generation purposes rather than for risk management.


As equity indexes climb ever higher, all but one of the major sectors of the S&P 500 are trading at multiples above their 24-month averages. The resurgence of the energy sector has driven multiples to their highest levels since at least 2000. Health care is the only sector trading at a relative discount.

- Source: Bloomberg-

Value at Risk The Global Equity Portfolio has a 5% chance of losing $54mm in a month.

Sharpe Ratio The best performing manager from a risk adjusted returns perspective is State Street Global Advisors.

Passport has the lowest Sharpe within Global Equity.

12

Mo

nth

Re

turn

Passport

Mondrian


Gramercy

Tobam

Russell (Put/Write)


Hedged Equity


Long Equity


Volatility

Russell (Put/Write)

Mondrian State Street Global

Advisors

Passport

Gramercy

Tobam

Global Equity

-20%

-10%

0%

10%

20%

30%

40%

50%

0% 5% 10% 15% 20% 25%


-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%


Mondrian


Gramercy

0%

5%

10%

15%

20%

25%

30%

35%

Feb-16 May-16 Aug-16 Nov-16 Feb-17-5%

0%

5%

10%

15%

20%



12 M

onth

Retu

rn



14



Real Assets and Real Estate


0

1

2

3

4

5

6

7

Real Estate Commodities Timber Infrastructure

American Realty I.M.A Prudential

Walton Street

Starwood

Pinnacle

Hancock

Timbervest Highstar

Fortress Investment Group Return: 21.06%

Std. Deviation: 64.12% Partners Group

Fortress Japan

Invesco

Apollo

Real Assets & Real Estate

-75%

-25%

25%

75%

125%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%


Valu

e a

t R

isk (

Mill

ions)

The Real Asset Portfolio is made up of investments in Timber, Infrastructure, Commodities and Real Estate.

Timber is designed as an inflation hedge and an asset class that delivers a consistent yield. Infrastructure takes on a more Private Equity approach to the asset class as opposed to an income

oriented structure. Commodities are designed as an inflation hedge and diversifier.

Commentary * Graphical representation can be found in the appendix

The median public pension plan allocation to real estate was $1.3 billion as of Sept. 30, while corporate plans allocated a median $191 million, according to data collected by Pensions & Investments. Both figures are up from their 2015 medians, and significantly higher than where they were in 2011. The maximum public and corporate plan allocations were $27.7 billion and $3.3 billion, respectively.

Public plans have shown renewed appetite for the asset class in the years following the recession. Corporate plans have been less enthusiastic about real estate, particularly as many plans move to liability-driven investment platforms.

Over the one-year period ended Sept. 30, the NCREIF Property index was up 9.22%, and 11.17% over the trailing five-year period on an annualized basis.

- Source: Pensions & Investments -

Value at Risk The Real Assets and Real Estate Portfolio has a 5% chance of losing $20mm in a month.

Sharpe The best performing manager from a risk adjusted returns perspective is Fortress Japan. The worst performing manager from a risk adjusted returns perspective is Timbervest.

3 Y

ear

Retu

rn

Commodities Infrastructure Timber Real Estate

Pinnacle

Starwood

Energy Spectrum

Hancock

Timbervest American

Realty I.M.A

Prudential Walton Street

Apollo

Starwood BCSP

Oaktree Fillmore

Square Mile Partners

Partners Group

Other

Fortress Japan

Invesco

Highstar




3 Year Compound Performance 3 Year Compound Performance 3 Year Compound Performance



Pinnacle

-2%

0%

2%

4%

6%

8%

10%

Highstar

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%


Starwood

Fortress

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Timbervest

Hancock

-5%

0%

5%

10%

15%

20%

25%

Feb

-14

May

-14

Au

g-1

4

No

v-1

4

Feb

-15

May

-15

Au

g-1

5

No

v-1

5

Feb

-16

May

-16

Au

g-1

6

No

v-1

6

Feb

-17

15



Appendix I: Monthly Performance by Strategy

0%

0%


Russell (Put/Write)


Standard Life

Cash

Volatility

Mackay

Partners Group

Russell (Overlay)

Bluebay

Apollo

Overlay

Passport Oaktree

Aurora

SSGA

Gramercy

Oaktree

Industry Ventures

Liquidity

Hedged Equity

Ashmore


Lexington

SSGA

Neuberger Berman

Ares

Mondrian


Pathway

Gramercy

Beta Focus Debt

Invesco

TCW

Stone Tower

Long Equity

Corrum

Tobam

Tricadia Tennenbaum

Zais

Declaration Ares Private Equity

Zais Group

Golden Tree - IMA

Prudential

Birch Grove

Beach Point


Cairn

Private Equity

Apollo

Opportunistic

Starwood

SL Capital

Halcyon

Waterfall

Stone Tower

Walton Street


Fortress Japan Real Estate

Marathon

Kneiff Tower

York

Special Situations

Pinnacle

Commodities Highstar

Infrastructure Timbervest

Hancock

Partners Group


Timber

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Mark

et

Valu

e (

Bill

ions $

)

Global Equity Real Assets & Real Estate Global Debt Private Equity Alpha Pool €

€

Alpha Pool

S

Catalyst Capital

S

S

€

S

S

S

S

S

S

S

S

S

S

16




Appendix II: Strategy Commentary Graphical Representations

Global Equity

Real Assets and Real Estate

Global Debt

Alpha Pool

Private Equity

17

Appendix III: Calculation Methodologies

Synthetic Calculation Methodology

1) Calculate absolute returns to calculate synthetic benefit.

2) Input benefit to all sub-asset classes with a synthetic exposure.

3) Calculate an adjusted weighted net return for sub-asset class and asset class.

SBCERA Total Plan

The SBCERA Total Plan performance calculation uses the monthly returns as calculated by Maples for the 1 year time period. For the 2, 3 and 5 year time horizons, the performance

returns have been sourced from the monthly State Street Summary of Manager Performance reports.

60/40 Portfolio

The 60/40 Portfolio is a weighted average of 2 indices that have been chosen to benchmark the Equity and Fixed Income asset classes. The MSCI AC World Daily Total Return Gross

Ex US Index is used as the Equity benchmark with an allocation weighting of 60%. The Barclays Capital U.S. Aggregate Bond Index is used as the Fixed Income benchmark with an

allocation weighting of 40%.

Performance Calculation Methodology

• Performance returns over all time horizons have been calculated by geometrically compounding the monthly returns series.

• SBCERA $ value added figures are taken directly from State Street and are not calculated by Maples.

Stress/Scenario Test Methodology

• The SBCERA portfolio is a model portfolio comprised of SBCERA policy indices. The weightings are determined based on current asset allocation amounts. The methodology

incorporates the protection gained from the Put Options positions.




Policy Index

The Policy Index return is composed of a weighted basket of Asset Class benchmarks - R3000 (29%), Barclays Aggregate (22%), Global Aggregate (ex US) (18%), MSCI AC World

(ex US) (15%), NCREIF (9%), NCREIF timber (2.5%), DJ/UBS Commodity Index (2.5%) and 91 day T-Bill (2 %).

18



Stress/Scenario Test Methodology

• The following table gives some background to the events that have had significant impact on markets over the past decade:

Appendix III: Calculation Methodologies (cont’d)

Scenario/Stress Calculation Period Description

Lehman Default - 2008 Scenario: 09/15/2008 to 10/14/08 Month immediately following default of Lehman brothers in 2008.

Russian Financial Crisis - 2008 Scenario: 08/07/2008 to 10/06/2008 War with Georgia and rapidly declining oil prices raise fears of an economic recession within the region.

US 10yr Treasury up 100bps Stress Test This scenario shocks the US Treasury Curves Parallel + 100bps and uses the Bloomberg multi asset

factor model to propagate that shock to other curves and asset classes.

Debt Ceiling Crisis &

Downgrade 2011 Scenario: 07/22/2011 to 08/08/2011

Debt ceiling crisis that led to USA credit downgrade. This stress scenario describes a 17 day period

starting from 7/22/2011 when market began to react to debt ceiling impasse. 8/8/2011 is the first business

day after downgrade announcement.

Greece Financial Crisis - 2010 Scenario: 04/26/2010 to 06/08/2010

Greece was one of the fastest growing economies in the Eurozone from 2000-2007. The cost of financing

this growth however resulted in alarming high government deficits and debt levels relative to GDP. On

April 27th, 2010 the Greek Debt rating was downgraded.

Oil Prices Drop - May 2010 Scenario: 05/03/2010 to 05/20/2010 The price of oil drops 20% due to concerns over how European countries would reduce budget deficits in

the wake of the European economic crisis.

Equities down 10% Stress Test Global market factors down 10%.

Libya Oil Shock - Feb 2011 Scenario: 02/14/2011 to 02/23/2011 Civil war in Libya breaks out on February 15th 2011, causing oil prices to surge.

Equities up 10% Stress Test Global market factors up 10%.

Equity Markets Rebound -

2009 Scenario: 03/04/2009 to 06/01/2009 Global equity markets rebound following 2008 drawdown.


19

investment oversight · 2/28/2017 · managers: $ % $ % fortress investment group llc -

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