modot & patrol employees retirement system · 12/31/2015 · quarter and in 2015, losing 2.07%...

MoDOT & Patrol Employees Retirement System Investment Summary Board Report Quarter Ending December 31, 2015

Kevin Leonard, PartnerWill Forde, CAIA, Senior Analyst

Market Thoughts & Education 1Executive Summary 2Total Fund Performance 3Appendix 4

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Table of Contents

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Market Thoughts & Education

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NEPC, LLC 255 State Street, Boston, MA 02109 Phone: 617.374.1300 Fax: 617.374.1313 www.nepc.com

Introduction

As we ring in the new and ring out the old, let us reflect on the year that was. At this point last year, we emphasized moder-ation, be it in tempering expectations for future investment returns or curtailing the urge to replicate outsized returns with a portfolio of the past. We voiced caution amid expectations that global divergences were likely to highlight stresses in financial markets, ultimately pushing volatility higher off cyclical lows. These trends largely flowed through to asset returns in 2015, producing erratic results for investor portfolios. The S&P 500 was up 1.4% and the Barclays Aggregate Index rose 0.5%, while small-cap equities and high-yield bonds were off nearly 4.5%. Global markets wobbled under the strain of a strong US dollar as the MSCI EAFE Index declined 0.8%, emerging markets equities and local debt were down nearly 15%, and commodities plunged.

Last year was also marked by uncertain-ty surrounding certain globally signifi-cant economic trends in transition: the extension of the US economic cycle, the path of the Federal Reserve’s mon-etary policy tightening, and the extent of the economic slowdown in China. This uncertainty rattled investors, culmi-nating in risk aversion and contributing to a sharp decline in global markets in August. Despite the recovery in equi-ties in the fourth quarter, this rising wave of risk aversion has seeped into 2016 (Exhibit 1) with broad declines across global stocks, credit and com-modities. The uncertainty fueling this risk aversion can be distilled into three broad questions that will likely be at the forefront of investors’ minds this year:

1. The US is in a mid-to-late economic cycle: Will the expansion continue or slow from external pressures and a strongdollar?

2. Global central bank policies are showing signs of divergence: Will the Fed continue on the path of a tightening cycle orneed to reverse course?

3. Emerging market growth expectations are slowing (Exhibit 2): Will growth rates, specifically in China, deteriorate or willthe large-scale economic adjustments be sufficient to stabilize growth?

Quarterly HEDGE FUND INDICATOR

Quarterly EQUITY

INDICATOR

NEPC is an independent, full-service investment consulting firm, providing asset allocation, traditional and alternative asset manager search, performance evaluation and investment policy services to institutional investment programs. We offer our market letters to provide insight into recent market conditions, and to assist your interpretation of investment results. We encourage your comments and feedback, as well as any inquiries you may have about our firm or our consulting services.

Quarterly PENSION LIABILITY

INDICATOR

Up 5.1% Up 0.8%

Quarterly BOND

INDICATOR

Down 0.1% Down 0.6%

FOURTH QUARTER 2015 VOLUME 40

SEEKING RETURNS AMID RISK AVERSION

0

5

10

15

20

25

30

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

90-Day Average VIX

Source: Bloomberg

Exhibit 1: Rising Risk Aversion in Equity Markets

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While we will have greater clarity re-garding these questions over the course of 2016, we believe the American con-sumer can spur economic expansion in the US. With continued domestic growth, the Fed will likely remain on a cautious and gradual path to reducing monetary support, while the European Central Bank and the Bank of Japan are expected to press forward with their accommodative monetary policies. Of greatest concern are the large correc-tions that have occurred in emerging markets in recent years amid greater dollar strength, depressed commodity prices and declining investment flows. These adjustments have been severe and future return expectations appear to adequately compensate investors rel-

ative to the long-term risks. Nevertheless, the strength of the US dollar may force a more aggressive currency adjustment in China and fuel greater volatility in emerging markets in the near term. To this end, we encourage investors to re-affirm their commitment levels to emerging markets and rebalance accordingly to capitalize on attractive entry points.

In light of the market activity so far this year, our calls for moderation in 2015 have shifted. We believe recent declines across global markets have revealed near-term investment opportunities. We encourage investors to actively seek these out to rebalance toward potentially higher return-seeking investments, including long-only equities and credit. In addition, should the market selloff continue, we believe consideration should be given to increasing strategic asset allocation targets to equity and credit exposure.

A willingness to be contrarian amid heightened market volatility will be beneficial for investors who are able to look past market pessimism and rebalance target weights to risk assets. We think the current market environment favors investors willing to take on risk, offering an opportunity to increase exposure to assets that have fallen in price. That said, despite the increased attractiveness of risk assets, forward-looking returns are likely to be subdued relative to historical gains. To this end, we encourage investors to look beyond conventional investment approaches and pursue private market strategies focused on direct lending and opportunities created by dislocations in energy markets. Investors should also consider strategies such as global macro hedge funds, which can benefit from divergent international market trends, and unique credit strategies seeking to exploit volatility in debt markets.

Our outlook reflects an intersection of multiple global themes and, on balance, is relatively positive for risk assets. Howev-er, we are unwavering in our commitment to a diversified investment program, believing it will weather the recent volatility better than one with an equity-focused approach. We build on these themes and provide a broader perspective of our cur-rent views in our recently published annual asset allocation letter—Embrace Opportunities Amidst Uncertainty: NEPC's 2016 Asset Allocation Letter—at www.nepc.com.

Global Equities

US equities ended a volatile 2015 on a strong note. Despite a solid last quarter, the year saw the lowest gains for the S&P 500 since 2008 and for the Russell 2000 since 2011. Earlier in the quarter, equities rallied amid robust corporate earnings and macroeconomic data. Subsequently, stocks faltered amid plunging oil prices and concerns around the impact of a stronger US dollar as the Fed tightens monetary policy. The consumer discretionary sector led performance in large caps in 2015 while healthcare dominated small caps; energy was the worst performing sector in both. Growth bested value in large and small equities.

Meanwhile, developed markets recouped a portion of their third quarter losses, gaining 4.8% in the last quarter. For the year, international equities were down around 0.4%. The energy and materials sectors drove losses, trading down over 16% in 2015; consumer staples and healthcare were the strongest performers, up over 8%.

Emerging economies returned 0.7% as the Fed’s 25 basis points rate hike—its first since 2006—drove markets lower;

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1999 2001 2003 2005 2007 2009 2011 2013 2015

EM Excess Return vs Developed World (LHS)

EM Excess GDP Growth vs. Developed World (RHS)

Exhibit 2: Emerging Equity Returns Correspond with GDP Growth Differentials

Source: IMF, Bloomberg

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healthcare and consumer discretionary sectors gained during the quarter while industrials and staples lagged. For 2015, the materials sector—down over 20%—was a major detractor of performance. Brazil traded off 41% as the real declined sharply amid the country’s political and economic problems.

Global Fixed Income

At home, the Fed’s well telegraphed rate hike drove government yields higher in the fourth quarter, resulting in losses for Treasuries with maturities of less than one year. Within corporate credit, the precipi-tous selloff in commodity-related sectors was unrelenting. Consequently, high-yield debt was the worst performer during the quarter and in 2015, losing 2.07% and 4.47%, respectively; in high yield, energy and metals and mining lost nearly 25% last year. Investment-grade credit spreads wid-ened 34 basis points over the course of 2015 to 165 basis points; contributors in-cluded global growth concerns, falling commodity prices, and record issuance of $1.3 trillion which hampered liquidity.

Abroad, emerging market debt remained hindered by a strengthening US dollar, causing the local currency index to lose 0.01% compared to returns of 1.25% for the dollar-denominated index. Within developed markets, weakening currencies aided losses of 1.23%, according to the Citigroup WGBI Index.

Currency Markets

The US dollar strode into the fourth quarter on the back of one of its strongest rallies in history, fueled by a hawkish Fed and con-cerns around growth abroad. This bullish trend persisted for the three months ended December 31. The euro fell modestly during this time to 1.08 from 1.12, testing multi-year lows along the way as the ECB continued its stimulus plan. The Japanese yen was nearly flat, ending the quarter at 120.

Emerging market currencies rebounded briefly in the last quarter only to stumble in December. The Brazilian real experienced modest gains in October and November after hitting multi-year lows in September but then trended downwards. Economies heavily reliant on exporting commodities also saw their currencies depreciate with the protracted decline in commodity prices.

Global Equity Quarter 1 Year 3 Yrs 5 YrsMSCI World 5.1% -2.7% 7.5% 5.4%US Equity Quarter 1 Year 3 Yrs 5 YrsS&P 500 7.0% 1.4% 15.1% 12.6%Dow Jones Industrial Average 7.0% -2.2% 10.0% 8.5%NASDAQ Composite 8.4% 5.7% 18.4% 13.5%Russell 1000 Growth 7.3% 5.7% 16.8% 13.5%Russell 1000 Value 5.6% -3.8% 13.1% 11.3%Russell 2000 3.6% -4.4% 11.7% 9.2%Russell 2000 Growth 4.3% -1.4% 14.3% 10.7%Russell 2000 Value 2.9% -7.5% 9.1% 7.7%International Equity Quarter 1 Year 3 Yrs 5 YrsMSCI EAFE 4.7% -0.8% 5.0% 3.6%MSCI Emerging Markets 0.7% -14.9% -6.8% -4.8%MSCI Europe 2.5% -2.8% 4.5% 3.9%MSCI UK 0.7% -7.6% 1.8% 3.5%MSCI Japan 9.3% 9.6% 10.2% 4.4%MSCI Far East 8.7% 6.7% 8.6% 4.1%

Equity Index Returns as of 12/31/2015

Global Fixed Income Quarter 1 Year 3 Yrs 5 YrsCiti WGBI -1.2% -3.6% -2.7% -0.1%JPM EMBI Plus 1.8% 1.8% -0.3% 5.0%Domestic Fixed Income Quarter 1 Year 3 Yrs 5 YrsBC Aggregate Bond -0.6% 0.5% 1.4% 3.2%BC US Agg. Treasury -0.9% 0.8% 1.0% 2.9%BC US Credit -0.5% -0.8% 1.5% 4.4%BC Mortgage Backed -0.1% 1.5% 2.0% 3.0%BC Interm. Gov't/Credit -0.7% 1.1% 1.1% 2.6%BC 1-10 Yr TIPS -0.7% -0.5% -1.8% 1.6%BC High Yield -2.1% -4.5% 1.7% 5.0%S&P LSTA Lev. Loan -2.1% -0.7% 2.0% 3.4%3 Month T-Bills 0.0% 0.0% 0.1% 0.1%10-Year Bond Yields Dec-15 Sep-15 Dec-14 Dec-13US 2.3% 2.0% 2.2% 3.0%Germany 0.6% 0.6% 0.5% 1.9%UK 2.0% 1.8% 1.8% 3.0%Japan 0.3% 0.4% 0.3% 0.7%

Fixed Income Index Returns as of 12/31/2015

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Commodity Markets

Commodities continued their freefall in the fourth quarter, losing 10.5%, according to the Bloomberg Commodity Index. They ended 2015 down 24.6% with 21 of the 22 single-commodity indexes posting losses. Cotton was the one bright spot while crude oil was the biggest loser with prices falling over 40%. Last year represented the fifth consecutive annual loss for commodities and the longest decline since the index data was first tracked in 1991. Volatility was a way of life in 2015 with monthly returns ranging from gains of 5.7% to losses of 10.6%. Warm winter weather conditions in the Northern Unit-ed States and Europe were detrimental to energy, keeping prices depressed amid an oversupply in crude and natural gas. Weakening manufacturing data out of China, the world’s largest metal consumer, and the devaluation of the yuan kept the price of industrial metals low. The potential for future rate hikes by the Fed kept precious metals in check, while plentiful inventories across a wide array of crops held back agricultural prices.

Pension Liability

Pension discount rates remained relatively flat in the fourth quarter, with the Citigroup Pension Liability Index at 4.34% as of December 31, up two basis points from 4.32% as of September 30. The Treasury curve experienced an almost parallel shift upwards, with 30-year rates rising 14 basis points. The net result was an infinitesimal increase in estimated pension liabilities of 0.8% for the quarter, with an overall net liability decline of 3.04% for 2015.

Pension plan sponsors may derive solace from the Fed’s tightening monetary policy as higher interest rates mean lower liabilities in the future. Clients who have a Liability Driven Investment, or LDI, policy in place should work closely with their NEPC investment consultant to discuss appropriate hedge ratios and strategies. We believe LDI may be a useful hedging tool, especially after interest rates rise.

Hedge Funds

The CS Hedge Fund Index oscillated from positive to negative throughout 2015, end-ing the year with moderate losses of 0.7%. Low interest rates, steep commodity price declines and intense volatility in equities contributed to negative returns last year—a first since 2011—for both the CS Hedge Fund Index and the HFRI Fund Weighted Composite. Hedge fund sub-strategies had mixed results for the fourth quarter with equity-linked approaches outper-forming credit and macro as global equi-ties rebounded from third quarter lows and credit spreads widened.

Event-driven strategies lost 2.3% in the fourth quarter despite a brief rally in Oc-tober. Global macro strategies started off the year on firm footing but were nega-tively affected by choppy, volatile markets. Discretionary strategies outperformed systematic strategies on the quarter, re-turning 0.6% and -1.1%, respectively. The CS Global Macro Index ended the year with gains of 0.6% while the Managed Fu-tures Index posted losses of 0.9%.

Equity long/ short and emerging markets strategies were the best performing sub-strategies in the last quarter. The CS Emerging Markets Index benefited from a recovery in funds focused on China and Brazil, ending the quarter up 2.8%; while the index posted a modest loss of 0.2% in 2015, it outperformed the MSCI EM Index which lost 14.2%.

Composite Quarter 1 Year 3 Yrs 5 YrsDJCS Hedge Fund Composite -0.1% -0.7% 4.3% 3.6%Relative Value Quarter 1 Year 3 Yrs 5 YrsDJCS Convertible Arbitrage -0.6% 0.8% 1.7% 2.8%DJCS Fixed Income Arbitrage 0.0% 0.6% 2.9% 4.8%DJCS Equity Market Neutral 0.0% 1.7% 3.2% 3.0%DJCS Multi-Strategy 0.5% 3.8% 7.0% 6.8%Event Driven Quarter 1 Year 3 Yrs 5 YrsDJCS Event Driven -2.3% -6.3% 3.2% 2.0%DJCS Event Driven - Distressed -1.8% -5.3% 4.1% 3.8%DJCS Event Driven - Risk Arbitrage 0.8% 0.4% 1.3% 1.5%DJCS Event Driven - Multi-Strategy -2.5% -6.7% 2.9% 1.1%Equity Hedge Quarter 1 Year 3 Yrs 5 YrsDJCS Long-Short Equity 1.6% 3.6% 8.8% 5.2%DJCS Emerging Markets 2.8% -0.2% 3.3% 2.6%DJCS Dedicated Short Bias -4.3% 2.4% -10.2% -9.7%Tactical Quarter 1 Year 3 Yrs 5 YrsDJCS Global Macro 0.6% 0.2% 2.5% 3.7%DJCS Managed Futures -1.1% -0.9% 4.5% 1.2%Traditional Markets Quarter 1 Year 3 Yrs 5 YrsBC Aggregate Bond -0.6% 0.5% 1.4% 3.2%S&P 500 7.0% 1.4% 15.1% 12.6%

Hedge Fund Industry Performance Overview as of 12/31/2015

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Private Markets

For venture/ growth equity, top quartile returns are attractive, but access is difficult and the risk-return tradeoff outside of the top quartile is questionable. Valuations, investment volume and average deal sizes have significantly increased over the past two years. Buyouts/ special situation strategies have performed consistently over market cycles but purchase prices hover around record highs in developed geographies (although the amount of equity in these transactions is higher than before the financial crisis). Sponsors have proven their ability to preserve capital, with median investment multiples from the last buyout boom rebounding to 1.5x-1.6x with continued upside potential. Low default rates at home and ready capital are creating a challenging environment for distressed opportunities (except in energy). Conditions in Europe are more attractive because of over $1 trillion of non-performing loans on bank balance sheets and Basel III requirements. We expect lower returns for mezzanine and direct-lending strategies. Creativity and alpha remain important for secondaries, fund of funds and co-investments.

In real assets, we are positive on energy, negative on timber, and neutral on agriculture, infrastructure, and metals and min-ing. NEPC continues to evaluate energy-related investment opportunities given the market dislocation. Our highest convic-tion remains in private equity and credit as these strategies appear best equipped to invest and manage assets as stress continues to build. We are evaluating the midstream (MLP) space, which has experienced a huge selloff but risks remain. For this reason, we believe that asset selection is critical.

In real estate, we remain neutral on US private core real estate and REITS. While valuations in primary markets are above levels seen before the financial crisis, fundamentals are strong and pricing remains attractive on a relative basis to Treasur-ies. We are neutral on real estate debt as competition among traditional lenders keeps yields low. We are positive on value-add and opportunistic real estate and still believe Europe is attractive. For non-core real estate in the US, we favor cash flow-driven, niche-focused managers with a demonstrated ability to navigate volatility.

Final Thoughts

As we enter the seventh year of recovery in the US we remain supportive of global risk assets but are cognizant of the pressures of an advancing economic cycle, the strains of a strong dollar, and slowing growth in China. While 2016 is off to a challenging start, we believe little has changed in the underlying fundamentals driving our outlook with the current market volatility offering a compelling entry point to rebalance back into risk assets. We encourage investors to capture quickly-evolving market opportunities when they present themselves. Each investor’s circumstances are unique but we think core bonds and select diversifiers, such as absolute return-oriented strategies and inflation-sensitive assets, represent a ready funding source for a reallocation to equities. We recommend an overweight exposure to non-US developed market equi-ties as central banks provide a supportive economic backdrop. We remain optimistic over the long term on emerging mar-kets but, despite the attractive valuations, our enthusiasm is tempered in the near term amid concerns around a strong dol-lar and country-specific risks.

The foundation of NEPC’s investment approach is a belief in a diversified risk-balanced portfolio while advocating a con-trarian view. Whether it is patiently deploying private capital to exploit distress in the energy market or a willingness to rebalance during periods of stress, we believe looking beyond short-term pessimism will best serve investors over the long-term horizon.

Disclaimers and Disclosures

Past performance is no guarantee of future results. All investments carry some level of risk. Diversification and other asset allocation techniques do not ensure profit or

protect against losses. The information in this report has been obtained from sources NEPC believes to be reliable. While NEPC has exer-

cised reasonable professional care in preparing this report, we cannot guarantee the accuracy of all source information contained within.

The opinions presented herein represent the good faith views of NEPC as of the date of this report and are subject tochange at any time.

This report contains summary information regarding the investment management approaches described herein but isnot a complete description of the investment objectives, portfolio management and research that supports these ap-proaches. This analysis does not constitute a recommendation to implement any of the aforementioned approaches.

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Executive Summary

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December 31, 2015

Allocations may not add to 100% due to rounding.

MPERSTotal Fund Asset Allocation vs. Current Allocation

Current Asset Allocation vs. Policy Asset AllocationCurrent Policy Current Difference*

_

Equity - Global $563,004,906 30.0% 28.6% -1.4%Fixed Income $464,924,003 25.0% 23.6% -1.4%Private Equity $356,376,627 15.0% 18.1% 3.1%Hedge Funds $205,114,223 15.0% 10.4% -4.6%Real Estate $234,973,618 10.0% 12.0% 2.0%Real Assets $111,878,276 5.0% 5.7% 0.7%Cash $29,793,803 -- 1.5% 1.5%Total $1,966,065,457 100.0% 100.0%

XXXXX

*Difference between Policy and Current Allocation

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December 31, 2015

MPERSTotal Fund Performance Summary

Market Value 3 Mo 1 Yr 3 Yrs 5 Yrs 10 Yrs_

Total Composite $1,966,065,457 1.28% 3.28% 9.56% 9.12% 6.24%Policy Index 0.97% 1.53% 7.25% 7.31% 5.95%

InvestorForce Public DB Net Median 2.64% -0.38% 6.80% 6.39% 5.37%XXXXX

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December 31, 2015

Allocation Effect - The return attributable to the asset allocation of the portfolioSelection Effect - The return attributable to the managers' security selectionInteraction Effect - The return attributable to the interaction between the Allocation and Selection Effects

Note: Plan attribution calculations are returns based and the results shown reflect the compositesshown. As a result, the total returns shown may vary from the calculated return shown on theperformance summary.The target return shown for each composite is a custom index, based on aggregated policy indices.This policy index asset weights the underlying policy indices of each option in the plan and therespective benchmark return.The allocation, selection, and interaction effects are calculated using the custom indexdescribedabove along with the policy or target weight of each composite.May not add due to rounding

MPERSTotal Fund Attribution Analysis

Attribution Summary1 Year Ending December 31, 2015

Wtd.ActualReturn

Wtd. IndexReturn

ExcessReturn

SelectionEffect

AllocationEffect

InteractionEffects

TotalEffects

Global Equity Composite -2.2% -2.4% 0.2% 0.0% -0.1% 0.0% 0.0%Fixed Income Composite 4.1% 0.4% 3.6% 0.9% 0.0% -0.1% 0.8%Real Assets Composite -7.5% 4.8% -12.3% -0.6% 0.0% 0.0% -0.7%Real Estate Composite 11.9% 14.2% -2.3% -0.2% 0.1% 0.0% -0.1%Private Equity Composite 13.2% 2.4% 10.8% 1.5% 0.1% 0.2% 1.8%Hedge Fund Composite -1.1% -0.3% -0.9% -0.1% 0.1% 0.0% 0.0%Cash Composite 0.2% 0.0% 0.2% 0.0% 0.0% 0.0% 0.0%Total 3.3% 1.5% 1.8% 1.5% 0.1% 0.2% 1.8%

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Note: Plan attribution calculations are returns based and the results shown reflect thecomposites shown. As a result, the total returns shown may vary from the calculated returnshown on the performance summary.The target return shown for each composite is a custom index, based on aggregated policyindices. This policy index asset weights the underlying policy indices of each option in theplan and the respective benchmark return.The allocation, selection, and interaction effects are calculated using the customindexdescribed above along with the policy or target weight of each composite.May not add due to rounding

December 31, 2015

Allocation Effect - The return attributable to the asset allocation of the portfolioSelection Effect - The return attributable to the managers' security selectionInteraction Effect - The return attributable to the interaction between the Allocation and Selection Effects

MPERSTotal Fund Attribution Analysis

Attribution Summary3 Years Ending December 31, 2015

Wtd.ActualReturn

Wtd. IndexReturn

ExcessReturn

SelectionEffect

AllocationEffect

InteractionEffects

TotalEffects

Global Equity Composite 9.7% 7.7% 2.0% 0.6% 0.0% 0.0% 0.7%Fixed Income Composite 5.7% 1.5% 4.2% 1.1% 0.2% -0.1% 1.1%Real Assets Composite 5.5% 5.0% 0.5% 0.0% 0.0% -0.1% 0.0%Real Estate Composite 15.1% 12.6% 2.4% 0.2% 0.0% 0.1% 0.4%Private Equity Composite 15.8% 15.7% 0.1% 0.0% 0.2% 0.0% 0.2%Hedge Fund Composite 4.2% 3.9% 0.2% 0.0% 0.1% 0.0% 0.2%Cash Composite 0.1% 0.0% 0.1% 0.0% -0.1% 0.0% -0.1%Total 9.6% 7.3% 2.4% 2.0% 0.5% -0.1% 2.4%

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December 31, 2015

MPERSTotal Composite

Total Composite is ranked in the IFx Public DB (peer) Net + Universe

Global Equity Composite is ranked in the eA Global All Cap Equity Net Universe

Fixed Income Composite is ranked in the eA All Global Fixed Inc Net Universe

Policy % % ofPortfolio

Market Value($)

3 Mo(%) Rank 1 Yr

(%) Rank 3 Yrs(%) Rank 5 Yrs

(%) Rank 10 Yrs(%) Rank

_

Total Composite 100.00 100.00 1,966,065,457 1.28 95 3.28 1 9.56 2 9.12 1 6.24 9Policy Index 0.97 97 1.53 7 7.25 39 7.31 21 5.95 18

Global Equity Composite 30.00 28.64 563,004,906 -2.21 66 9.73 42 7.87 39 5.63 53MSCI ACWI -2.36 67 7.69 68 6.09 68 4.76 73

Fixed Income Composite 25.00 23.65 464,924,003 4.06 2 5.68 3 7.31 2 6.16 15Barclays U.S. Universal 0.43 14 1.51 32 3.46 41 4.67 45

Real Assets Composite 5.00 5.96 117,092,471 -7.51 -- 5.52 -- -- -- -- --CPI + 4% (Unadjusted) 4.76 -- 5.03 -- 5.59 -- 5.93 --

Real Estate Composite 10.00 11.69 229,759,423 11.91 -- 15.09 -- 14.10 -- 5.90 --NFI-ODCE Eq Wtd Net Non Lag 14.19 -- 12.65 -- 12.56 -- 5.33 --

Private Equity Composite 15.00 18.13 356,376,627 13.19 -- 15.81 -- 14.50 -- 6.12 --MO Hwy Priv. Equ. Index - Lagged 2.37 -- 15.74 -- 16.71 -- 10.47 --

Hedge Fund Composite 15.00 10.43 205,114,223 -1.15 -- 4.18 -- 3.79 -- -- --HFRI Fund of Funds Composite Index -0.26 -- 3.95 -- 2.10 -- 2.27 --

Cash Composite 0.00 1.52 29,793,803 0.23 -- 0.14 -- -0.02 -- 1.30 --91 Day T-Bills 0.04 -- 0.04 -- 0.05 -- 1.11 --

XXXXX

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December 31, 2015

MPERSTotal Fund Return Summary

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December 31, 2015

MPERSTotal Fund Risk/Return - 10 Years

Statistics Summary10 Years Ending December 31, 2015

Anlzd Ret Rank Anlzd Std Dev Rank_

Total Composite 6.24% 9 8.33% 28Policy Index 5.95% 18 7.84% 20

XXXXX

Statistics Summary10 Years Ending December 31, 2015

Sharpe Ratio Rank Sortino RatioRF Rank

_

Total Composite 0.62 17 0.62 35 Policy Index 0.62 17 0.67 26

XXXXX

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Total Fund Performance

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December 31, 2015

MPERSTotal Fund Performance Detail

Market Value($) % of Portfolio Policy % 1 Yr

(%)3 Yrs

(%)5 Yrs

(%)10 Yrs

(%)_

Total Composite 1,966,065,457 100.00 100.00 3.28 9.56 9.12 6.24Policy Index 1.53 7.25 7.31 5.95Global Equity Composite 563,004,906 28.64 30.00 -2.21 9.73 7.87 5.63

MSCI ACWI -2.36 7.69 6.09 4.76Tortoise 50,245,030 2.56 -26.33 4.89 7.80 --

Alerian MLP Index -32.59 -3.40 1.47 8.74Domestic Equity Composite 287,401,753 14.62 -- -0.25 14.89 12.38 7.03

Russell 3000 0.48 14.74 12.18 7.35Large Cap Composite 202,410,321 10.30 -- 0.58 14.62 12.77 7.60

Cash/S&P Futures 166,735,352 8.48 -0.32 12.36 -- --Intech 35,674,969 1.81 1.52 15.70 13.04 7.66

S&P 500 1.38 15.13 12.57 7.31Small/Mid Cap Composite 84,991,432 4.32 -- -2.72 13.71 11.00 8.16

Bernzott 27,665,286 1.41 -7.30 -- -- --Kennedy Capital 21,083,612 1.07 -0.12 -- -- --Pinnacle 36,242,534 1.84 -0.48 13.94 10.52 9.22

Russell 2500 -2.90 12.46 10.32 7.56International Equity Composite 225,358,123 11.46 -- -0.35 4.31 3.12 4.05

MSCI ACWI ex USA -5.66 1.50 1.06 2.92Silchester 106,915,827 5.44 1.68 8.96 7.64 7.93Acadian Int'l Small Cap 31,886,418 1.62 12.06 -- -- --

MSCI EAFE -0.81 5.01 3.60 3.03Gryphon 48,300,073 2.46 3.80 -- -- --

MSCI EAFE Growth 4.09 6.83 4.60 4.03Acadian Emerging Markets 19,083,643 0.97 -16.08 -6.34 -3.61 --GMO EM 18,730,698 0.95 -8.43 -- -- --

MSCI Emerging Markets -14.92 -6.76 -4.80 3.61Transition Account 441,463 0.02

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(%)3 Yrs

(%)5 Yrs

(%)10 Yrs

(%)_

Fixed Income Composite 464,924,003 23.65 25.00 4.06 5.68 7.31 6.16Barclays U.S. Universal 0.43 1.51 3.46 4.67Core Fixed Income Composite 206,812,450 10.52 10.00 3.44 3.27 4.57 4.16

Aberdeen 25,915,360 1.32Barclays Aggregate

Internal Fixed - Core 147,920,802 7.52 3.79 3.05 -- --Barclays Govt/Credit 0.15 1.21 3.39 4.47

Octagon Senior Debt 4,993,247 0.25 -- -- -- --Barclays Aggregate 0.55 1.44 3.25 4.51

Principal CMBS Fixed 27,983,041 1.42 1.58 3.33 -- --Barclays CMBS ERISA Eligible 0.97 1.68 4.09 5.20

Long Duration Composite 92,845,869 4.72 5.00 3.00 4.04 6.82 --Internal Fixed - Long Duration 92,845,869 4.72 3.00 4.04 7.54 --

Barclays LT Govt/Credit -3.30 1.70 6.98 6.45Opportunistic Debt Composite 140,436,291 7.14 5.00 7.49 14.47 15.02 --

ABRY ASF 140,854 0.01 20.85 26.64 25.31 --Anchorage Capital II 1,748,478 0.09 12.71 18.90 15.92 --Anchorage Capital III 7,038,274 0.36 20.18 16.70 -- --Anchorage Illiquid Opps 750,000 0.04 -- -- -- --Audax Mezzanine II 478,152 0.02 22.47 15.37 12.43 --CVI Credit Value 11,492,468 0.58 11.96 23.64 -- --CVI Credit Value Fund III 3,851,700 0.20 -- -- -- --CVI Global Value 5,710,378 0.29 2.46 12.40 12.59 --GOLUB Capital 25,945,706 1.32 3.95 5.42 -- --GSO Capital Opp II 5,776,006 0.29 3.13 18.45 -- --GSO Credit Alpha Fund 7,574,022 0.39 -11.31 -- -- --GSO Capital Opp 2,051,494 0.10 10.83 18.84 20.89 --GSO Energy Select Opps 781,276 0.04 -- -- -- --Internal Fixed - Nonrated 2,112,716 0.11 2.97 -- -- --M&G III 4,476,638 0.23 -0.74 -- -- --Northern Shipping II 18,079,189 0.92 10.03 -- -- --Och-Ziff II 8,647,901 0.44 0.39 11.02 -- --OCP Asia 12,249,725 0.62 16.37 -- -- --Octagon Opportunistic 14,652,319 0.75 -- -- -- --Riverstone Credit Partners 6,878,995 0.35 -- -- -- --

Barclays High Yield -4.47 1.69 5.04 6.96

December 31, 2015


18


(%)3 Yrs

(%)5 Yrs

(%)10 Yrs

(%)_

Inflation Protection Securities Composite 24,829,394 1.26 5.00 -0.16 -1.80 3.54 --Internal US TIPS 24,829,394 1.26 -0.16 -1.80 3.54 --

Barclays US TIPS -1.44 -2.27 2.55 3.93Real Assets Composite 117,092,471 5.96 5.00 -7.51 5.52 -- --

CPI + 4% (Unadjusted) 4.76 5.03 5.59 5.93American Infrastructure I MLP 17,430,874 0.89 9.55 -1.35 3.13 --American Infrastructure II MLP 6,228,448 0.32 17.42 -- -- --Apollo Aviation III 4,143,905 0.21 -- -- -- --Blue Road 4,502,405 0.23 -- -- -- --EIF - US Power III 9,463,240 0.48 35.01 14.64 9.89 --EMG Fund IV 711,790 0.04 -- -- -- --Energy & Mineral Group III 14,135,610 0.72 6.10 -- -- --Energy & Mineral Group II 13,923,179 0.71 3.90 29.03 -- --Midstream & Resources I 9,836,085 0.50 -29.51 11.86 20.84 --NGP IX 3,973,452 0.20 -40.47 6.83 10.15 --NGP X 6,617,536 0.34 -19.94 4.89 -- --NGP XI 1,195,143 0.06 -12.68 -- -- --Orion Mine Finance Fund I 9,223,679 0.47 12.79 -- -- --Ridgewood Energy 5,815,454 0.30 8.37 -- -- --Ridgewood III 39,421 0.00 -- -- -- --Sciens Marine Investments 4,297,721 0.22 -44.06 -- -- --

CPI + 4% (Unadjusted) 4.76 5.03 5.59 5.93RMK - Timberland 5,554,529 0.28 -9.98 -3.24 6.36 2.25

NCREIF Timberland 1 Qtr Lag 9.26 9.78 6.28 7.94

December 31, 2015


19


(%)3 Yrs

(%)5 Yrs

(%)10 Yrs

(%)_

Real Estate Composite 229,759,423 11.69 10.00 11.91 15.09 14.10 5.90NFI-ODCE Eq Wtd Net Non Lag 14.19 12.65 12.56 5.33Core Real Estate Composite 157,251,952 8.00 -- 13.89 16.92 16.64 5.75

NCREIF Property Index 13.33 12.04 12.18 7.75CBRE Capital Partners 681,923 0.03 -2.31 10.73 10.48 --Clarion Lion 63,732,618 3.24 13.56 12.35 12.90 4.28Principal CMBS 22,776,110 1.16 1.36 23.37 22.05 --Principal Enhanced Property 47,863,831 2.43 23.60 18.02 17.00 4.22

NCREIF Property Index 13.33 12.04 12.18 7.75Principal US Property 22,197,471 1.13 13.54 13.26 13.38 5.44

NCREIF ODCE 15.02 13.81 13.66 6.53Non-Core Real Estate Composite 57,457,545 2.92 -- 10.13 12.68 10.73 3.19

AEW Partners V 356,038 0.02 98.26 49.57 36.80 9.89Apollo European III 2,003,813 0.10 -14.98 1.55 4.27 --Apollo Real Estate 7,972,928 0.41 10.50 15.04 13.10 --Clarion Lion Mexico Fund 3,637,626 0.19 -9.24 -6.22 -3.35 --Colony Capital VIII 2,188,600 0.11 3.40 8.59 -1.15 --M&G II 5,964,592 0.30 2.15 -- -- --Och-Ziff 3,923,920 0.20 22.61 32.33 24.24 20.49Och-Ziff RE III 1,585,539 0.08 -45.28 -- -- --Torchlight Debt Opp II 9,116,441 0.46 12.51 -- -- --Torchlight Debt Opp III 3,501,846 0.18 54.72 -- -- --Torchlight Debt Opps V 2,245,284 0.11 -- -- -- --Tristan EISPO 5,852,081 0.30 38.49 11.11 10.36 --Tristan EPISO 3 7,136,063 0.36 -10.53 -- -- --Tristan EPISO 4 846,471 0.04 -- -- -- --Urdang Value Added Fund II 1,126,304 0.06 3.43 9.74 15.16 --

NCREIF Property Index 13.33 12.04 12.18 7.75REITS Composite 15,049,925 0.77 -- -2.01 5.13 4.37 --

CBRE Investors 15,049,925 0.77 -2.01 5.13 4.37 --FTSE EPRA/NAREIT Developed -0.79 5.76 7.17 4.67

December 31, 2015


20


(%)3 Yrs

(%)5 Yrs

(%)10 Yrs

(%)_

Private Equity Composite 356,376,627 18.13 15.00 13.19 15.81 14.50 6.12MO Hwy Priv. Equ. Index - Lagged 2.37 15.74 16.71 10.47Abry Partners VI 3,104,727 0.16 28.96 30.60 23.48 --Abry Partners VII 4,762,992 0.24 24.47 15.07 -- --Capital Partners II 7,959,461 0.40 11.56 -- -- --Grove Street - MP Ventures 149,644,491 7.61 11.04 14.25 14.18 1.86Grove Street - MP Ventures II 169,209,585 8.61 15.84 17.68 13.14 --KPS IV 671,028 0.03 22.82 -- -- --Ospraie 1,528,732 0.08 -10.04 5.57 6.14 --Shore Capital Partners GP I LP 1,010,901 0.05 -40.08 -- -- --Shoreline China Valu III 5,939,949 0.30 -- -- -- --Turnbridge Capital Partners I 1,469,947 0.07 -27.18 -- -- --Vectis H & L II 11,074,814 0.56 9.11 15.97 12.65 --

December 31, 2015

Performance shown is net of manager fees. All market value data is provided by the custodian.


21


(%)3 Yrs

(%)5 Yrs

(%)10 Yrs

(%)_

Hedge Fund Composite 205,114,223 10.43 15.00 -1.15 4.18 3.79 --HFRI Fund of Funds Composite Index -0.26 3.95 2.10 2.27Achievement Asset Management 1,234,982 0.06 -18.36 -- -- --Alyeska Fund 15,556,347 0.79 -- -- -- --AQR Capital 898,484 0.05 -1.21 6.14 6.63 1.07BlueTrend 10,562,148 0.54 3.43 0.95 -- --Brevan Howard 15,028,579 0.76 -1.96 -0.22 2.90 --Bridgewater Pure Alpha 17,743,385 0.90 4.86 4.61 7.70 10.40Cevian 11,381,290 0.58 -5.31 4.91 -- --Indus Pacific Opp. Fund 11,537,555 0.59 10.17 -- -- --Koppenburg Commodity Fund 9,500,273 0.48 -- -- -- --Luxor Capital 14,019,916 0.71 -17.45 -2.81 -1.75 --Metacapital 10,744,115 0.55 -1.66 -- -- --Millenium USA LP 17,421,386 0.89 13.72 -- -- --Pentwater 9,350,840 0.48 -- -- -- --PFM 12,784,906 0.65 8.05 11.14 -- --RK Capital Management LLP 10,709,427 0.54 1.03 -- -- --Shepard International 515,239 0.03 -1.39 -4.42 -3.14 --Stelliam Investment 13,157,122 0.67 -12.06 4.26 -- --Taconic Capital 10,835,223 0.55 0.11 5.46 4.22 --ValueAct 12,133,007 0.62 -2.90 13.66 -- --

HFRI Fund of Funds Composite Index -0.26 3.95 2.10 2.27Cash Composite 29,793,803 1.52 0.00 0.23 0.14 -0.02 1.30

91 Day T-Bills 0.04 0.04 0.05 1.11XXXXX

December 31, 2015

MPERSTotal Composite

22

Appendix

23

December 31, 2015

MPERSTotal Fund Asset Allocation History

24

December 31, 2015

MPERSTotal Fund Return Summary vs. Peer Universe

25

December 31, 2015

MPERSTotal Fund Return Summary vs. Peer Universe

26

2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Q3 OCT NOV DEC Q4 1 YR

Barclays Municipal -2.5% 12.9% 2.4% 10.7% 6.8% -2.6% 9.1% 1.0% -0.9% 1.7% 0.4% 0.4% 0.7% 1.5% 3.3%

FTSE NAREIT Eqty REITs -37.7% 28.0% 28.0% 8.3% 18.1% 2.5% 30.1% 4.8% -10.0% 2.0% 5.9% -0.5% 1.8% 7.3% 3.2%

S&P 500 -37.0% 26.5% 15.1% 2.1% 16.0% 32.4% 13.7% 1.0% 0.3% -6.4% 8.4% 0.3% -1.6% 7.0% 1.4%

Barclays US Agg Interm 4.9% 6.5% 6.1% 6.0% 3.6% -1.0% 4.1% 1.3% -0.7% 1.1% 0.0% -0.2% -0.2% -0.5% 1.2%

JPM EMBI Global Div -12.0% 29.8% 12.2% 7.3% 17.4% -5.3% 7.4% 2.0% -0.3% -1.7% 2.7% -0.1% -1.4% 1.3% 1.2%

Russell 1000 -37.6% 28.4% 16.1% 1.5% 16.4% 33.1% 13.2% 1.6% 0.1% -6.8% 8.1% 0.3% -1.8% 6.5% 0.9%

Barc US Gov/Cred 1-3 Y 5.0% 3.8% 2.8% 1.6% 1.3% 0.6% 0.8% 0.6% 0.1% 0.3% 0.0% -0.2% -0.1% -0.4% 0.7%

Barclays US Agg Bond 5.2% 5.9% 6.5% 7.8% 4.2% -2.0% 6.0% 1.6% -1.7% 1.2% 0.0% -0.3% -0.3% -0.6% 0.5%

Credit Suisse Hedge Fnd -19.1% 18.6% 10.9% -2.5% 7.7% 9.7% 4.1% 2.5% -0.5% -2.5% 0.5% 0.2% N/A -2.5% 0.1%

Credit Suisse Lev Loan -28.8% 44.9% 10.0% 1.8% 9.4% 6.2% 2.1% 2.1% 0.8% -1.2% -0.1% -0.9% -0.9% -2.0% -0.4%

MSCI EAFE -43.4% 31.8% 7.8% -12.1% 17.3% 22.8% -4.9% 4.9% 0.6% -10.2% 7.8% -1.6% -1.3% 4.7% -0.8%

MSCI ACWI -42.2% 34.6% 12.7% -7.3% 16.1% 22.8% 4.2% 2.3% 0.3% -9.4% 7.8% -0.8% -1.8% 5.0% -2.4%

Russell 2500 -36.8% 34.4% 26.7% -2.5% 17.9% 36.8% 7.1% 5.2% -0.3% -10.3% 5.6% 2.0% -4.1% 3.3% -2.9%

Barc US Gov/Cred Long 8.4% 1.9% 10.2% 22.5% 8.8% -8.8% 19.3% 3.4% -7.6% 2.2% 0.4% -0.6% -0.8% -0.9% -3.3%

Citi WGBI 10.9% 2.6% 5.2% 6.4% 1.6% -4.0% -0.5% -2.5% -1.5% 1.7% 0.0% -2.1% 0.9% -1.2% -3.6%

Barc US Strips 20+ Yr 59.5% -36.0% 10.9% 58.5% 3.0% -21.0% 46.4% 5.5% -14.3% 7.6% -0.3% -1.1% 0.4% -1.1% -3.7%

Russell 2000 -33.8% 27.2% 26.9% -4.2% 16.3% 38.8% 4.9% 4.3% 0.4% -11.9% 5.6% 3.3% -5.0% 3.6% -4.4%

Barclays US Corp HY -26.2% 58.2% 15.1% 5.0% 15.8% 7.4% 2.5% 2.5% 0.0% -4.9% 2.7% -2.2% -2.5% -2.1% -4.5%

Barclays US Long Credit -3.9% 16.8% 10.7% 17.1% 12.7% -6.6% 16.4% 3.1% -7.3% 0.5% 1.0% -0.4% -1.2% -0.7% -4.6%

MSCI EM -53.3% 78.5% 18.9% -18.4% 18.2% -2.6% -2.2% 2.2% 0.7% -17.9% 7.1% -3.9% -2.2% 0.7% -14.9%

JPM GBI-EM Global Div -5.2% 22.0% 15.7% -1.8% 16.8% -9.0% -5.7% -4.0% -1.0% -10.5% 4.5% -2.2% -2.2% 0.0% -14.9%

Bloomberg Commodity -35.6% 18.9% 16.8% -13.3% -1.1% -9.5% -17.0% -5.9% 4.7% -14.5% -0.4% -7.3% -3.1% -10.5% -24.7%

Alerian MLP -36.9% 76.4% 35.9% 13.9% 4.8% 27.6% 4.8% -5.2% -6.1% -22.1% 9.7% -8.1% -3.6% -2.8% -32.6%

Index Performance Summary as of 12/31/2015

Source: Morningstar Direct

27

Glossary of Investment Terminology—Risk Statistics

Alpha - Measures the relationship between the fund performance and the per-formance of another fund or benchmark index and equals the excess return while the other fund or benchmark index is zero.

Alpha Jensen - The average return on a portfolio over and above that predict-ed by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. Also known as the abnormal return or the risk adjusted excess return.

Annualized Excess Return over Benchmark - Annualized fund return minus the annualized benchmark return for the calculated return.

Annualized Return - A statistical technique whereby returns covering periods greater than one year are converted to cover a 12 month time span.

Beta - Measures the volatility or systematic risk and is equal to the change in the fund’s performance in relation to the change in the assigned index’s perfor-mance.

Information Ratio - A measure of the risk adjusted return of a financial security, asset, or portfolio.

Formula: (Annualized Return of Portfolio - Annualized Return of Benchmark)/Annualized Standard Deviation(Period Portfolio Return – Period Benchmark Return). To an-nualize standard deviation, multiply the deviation by the square root of the number of periods per year where monthly returns per year equals 12 and quar-terly returns is four periods per year.

R-Squared – Represents the percentage of a fund’s movements that can be explained by movements in an index. R-Squared values range from 0 to 100. An R-Squared of 100 denotes that all movements of a fund are completely ex-plained by movements in the index.

Sharpe Ratio - A measure of the excess return or risk premium per unit of risk in an investment asset or trading strategy.

Sortino Ratio - A method to differentiate between good and bad volatility in the Sharpe Ratio. The differentiation of up and down volatility allows the calcu-lation to provide a risk adjusted measure of a security or fund's performance without upward price change penalties.

Formula: Calculation Average (X-Y)/Downside Deviation (X-Y) * 2 Where X=Return Series X Y = Return Series Y which is the risk free return (91 day T-bills)

Data Source: InvestorForce

Standard Deviation - The standard deviation is a statistical term that de-scribes the distribution of results. It is a commonly used measure of volatility of returns of a portfolio, asset class, or security. The higher the standard deviation the more volatile the returns are.

Formula: (Annualized Return of Portfolio – Annualized Return of Risk Free) / Annualized Standard Deviation (Portfolio Returns)

Tracking Error - Tracking error, also known as residual risk, is a measure of the degree to which a portfolio tracks its benchmark. It is also a measure of consistency of excess returns. Tracking error is computed as the annualized standard deviation of the difference between a portfolio's return and that of its benchmark.

Formula: Tracking Error = Standard Deviation (X-Y) * √( # of periods per year) Where X = periods portfolio return and Y = the period’s benchmark return For monthly returns, the periods per year = 12 For quarterly returns, the periods per year = 4

Treynor Ratio - A risk-adjusted measure of return based on systematic risk. Similar to the Sharpe ratio with the difference being the Treynor ratio uses beta as the measurement of volatility.

Formula: (Portfolio Average Return - Average Return of Risk-Free Rate)/Portfolio Beta

Up/Down Capture Ratio - A measure of what percentage of a market's re-turns is "captured" by a portfolio. For example, if the market declines 10% over some period, and the manager declines only 9%, then his or her capture ratio is 90%. In down markets, it is advantageous for a manager to have as low a cap-ture ratio as possible. For up markets, the higher the capture ratio the better. Looking at capture ratios can provide insight into how a manager achieves ex-cess returns. A value manager might typically have a lower capture ratio in both up and down markets, achieving excess returns by protecting on the downside, whereas a growth manager might fall more than the overall market in down markets, but achieve above-market returns in a rising market.

UpsideCapture = TotalReturn(FundReturns)/TotalReturns(BMReturn) when Peri-od Benchmark Return is > = 0

DownsideCapture = TotalReturn(FundReturns)/TotalReturns(BMReturn) when Benchmark <0

28

Glossary of Investment Terminology

# Of Portfolios/Observations1 – The total number of data points that make up a specified universe

Allocation Index3 - The allocation index measures the value added (or sub-tracted) to each portfolio by active management. It is calculated monthly: The portfolio asset allocation to each category from the prior month-end is multi-plied by a specified market index.

Asset Allocation Effect2 - Measures an investment manager’s ability to effec-tively allocate their portfolio’s assets to various sectors. The allocation effect determines whether the overweighting or underweighting of sectors relative to a benchmark contributes positively or negatively to the overall portfolio return. Positive allocation occurs when the portfolio is over weighted in a sector that outperforms the benchmark and underweighted in a sector that underperforms the benchmark. Negative allocation occurs when the portfolio is over weighted in a sector that underperforms the benchmark and under weighted in a sector that outperforms the benchmark.

Agency Bonds (Agencies)3 - The full faith and credit of the United States gov-ernment is normally not pledged to payment of principal and interest on the majority of government agencies issuing these bonds, with maturities of up to ten years. Their yields, therefore, are normally higher than government and their marketability is good, thereby qualifying them as a low risk-high liquidity type of investment. They are eligible as security for advances to the member banks by the Federal Reserve, which attests to their standing.

Asset Backed Securities (ABS)3 - Bonds which are similar to mortgage-backed securities but are collateralized by assets other than mortgages; com-monly backed by credit card receivables, auto loans, or other types of consumer financing.

Attribution3 - Attribution is an analytical technique that allows us to evaluate the performance of the portfolio relative to the benchmark. A proper attribution tells us where value was added or subtracted as a result of the manager’s deci-sions.

Data Source: 1InvestorForce, 2Interaction Effect Performance Attribution, 3NEPC, LLC, 4Investopedia, 5Hedgeco.net

Average Effective Maturity4 - For a single bond, it is a measure of maturity that takes into account the possibility that a bond might be called back to the issuer.

For a portfolio of bonds, average effective maturity is the weighted average of the maturities of the underlying bonds. The measure is computed by weighing each bond's maturity by its market value with respect to the portfolio and the likelihood of any of the bonds being called. In a pool of mortgages, this would also account for the likelihood of prepayments on the mortgages.

Batting Average1 - A measurement representing an investment manager's ability to meet or beat an index.

Formula: Divide the number of days (or months, quarters, etc.) in which the manager beats or matches the index by the total number of days (or months, quarters, etc.) in the period of question and multiply that factor by 100.

Brinson Fachler (BF) Attribution1 - The BF methodology is a highly accepted industry standard for calculating the allocation, selection, and interaction effects within a portfolio that collectively explains a portfolio’s underlying performance. The main advantage of the BF methodology is that rather than using the overall return of the benchmark, it goes a level deeper than BHB and measures wheth-er the benchmark sector, country, etc. outperformed/or underperformed the overall benchmark.

Brinson Hood Beebower (BHB) Attribution1 - The BHB methodology shows that excess return must be equal to the sum of all other factors (i.e., allocation effect, selection effect, interaction effect, etc.). The advantage to using the BHB methodology is that it is a highly accepted industry standard for calculating the allocation, selection, and interaction effects within a portfolio that collectively explains a portfolio’s underlying performance.

Corporate Bond (Corp) 4 - A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the compa-ny, which is typically money to be earned from future operations. In some cas-es, the company's physical assets may be used as collateral for bonds.

Correlation1 - A range of statistical relationships between two or more random variables or observed data values. A correlation is a single number that de-scribes the degree of relationship between variables.

29


Coupon4 – The interest rate stated on a bond when it is issued. The coupon is typically paid semiannually. This is also referred to as the "coupon rate" or "coupon percent rate."

Currency Effect1 - Is the effect that changes in currency exchange rates over time affect excess performance.

Derivative Instrument3 - A financial obligation that derives its precise value from the value of one or more other instruments (or assets) at the same point of time. For example, the relationship between the value of an S&P 500 futures contract (the derivative instrument in this case) is determined by the value of the S&P 500 Index and the value of a U.S. Treasury bill that matures at the expiration of the futures contract.

Downside Deviation1 - Equals the standard deviation of negative return or the measure of downside risk focusing on the standard deviation of negative re-turns.

Formula: Annualized Standard Deviation (Fund Return - Average Fund Return) where average fund return is greater than individual fund returns, monthly or quarter-ly.

Duration3 - Duration is a measure of interest rate risk. The greater the dura-tion of a bond, or a portfolio of bonds, the greater its price volatility will be in response to a change in interest rates. A bond’s duration is inversely related to interest rates and directly related to time to maturity.

Equity/Debt/Cash Ratio1 – The percentage of an investment or portfolio that is in Equity, Debt, and/or Cash (i.e. A 7/89/4 ratio represents an investment that is made up of 7% Equity, 89% Debt, and 4% Cash).

Foreign Bond3 - A bond that is issued in a domestic market by a foreign entity, in the domestic market's currency. A foreign bond is most often issued by a foreign firm to raise capital in a domestic market that would be most interested in purchasing the firm's debt. For foreign firms doing a large amount of business in the domestic market, issuing foreign bonds is a common practice.

Hard Hurdle5 – is a hurdle rate that once beaten allows a fund manager to charge a performance fee on only the funds above the specified hurdle rate.


High-Water Mark4 - The highest peak in value that an investment fund/account has reached. This term is often used in the context of fund manager compensation, which is performance based. Some performance-based fees only get paid when fund performance exceeds the high-water mark. The high-water mark ensures that the manager does not get paid large sums for poor perfor-mance.

Hurdle Rate4 - The minimum rate of return on an investment required, in order for a manager to collect incentive fees from the investor, which is usually tied to a benchmark.

Interaction Effects2 - The interaction effect measures the combined impact of an investment manager’s selection and allocation decisions within a sector. For example, if an investment manager had superior selection and over weighted that particular sector, the interaction effect is positive. If an investment manag-er had superior selection, but underweighted that sector, the interaction effect is negative. In this case, the investment manager did not take advantage of the superior selection by allocating more assets to that sector. Since many invest-ment managers consider the interaction effect to be part of the selection or the allocation, it is often combined with the either effect.

Median3 - The value (rate of return, market sensitivity, etc.) that exceeds one-half of the values in the population and that is exceeded by one-half of the val-ues. The median has a percentile rank of 50.

Modified Duration3 - The percentage change in the price of a fixed income security that results from a change in yield.

Mortgage Backed Securities (MBS)3 - Bonds which are a general obligation of the issuing institution but are also collateralized by a pool of mortgages.

Municipal Bond (Muni) 4 - A debt security issued by a state, municipality or county to finance its capital expenditures.

Net Investment Change1 – Is the change in an investment after accounting for all Net Cash Flows.

Performance Fee4 - A payment made to a fund manager for generating posi-tive returns. The performance fee is generally calculated as a percentage of investment profits, often both realized and unrealized.

30


Policy Index3 - A custom benchmark designed to indicate the returns that a passive investor would earn by consistently following the asset allocation targets set forth in this investment policy statement.

Price to Book (P/B)4 - A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share, also known as the "price-equity ratio".

Price to Earnings (P/E)3 - The weighted equity P/E is based on current price and trailing 12 months earnings per share (EPS).

Price to Sales (P/S)4 - A ratio for valuing a stock relative to its own past per-formance, other companies, or the market itself. Price to sales is calculated by dividing a stock's current price by its revenue per share for the trailing 12 months.

Return on Equity (ROE)4 - The amount of net income returned as a percent-age of shareholders equity. Return on equity measures a corporation's profita-bility by revealing how much profit a company generates with the money share-holders have invested.

Selection (or Manager) Effect2 - Measures the investment manager’s ability to select securities within a given sector relative to a benchmark. The over or underperformance of the portfolio is weighted by the benchmark weight, there-fore, selection is not affected by the manager’s allocation to the sector. The weight of the sector in the portfolio determines the size of the effect—the larger the sector, the larger the effect is, positive or negative.

Soft Hurdle rate5 – is a hurdle rate that once beaten allows a fund manager to charge a performance fee based on the entire annualized return.

Tiered Fee1 – A fee structure that is paid to fund managers based on the size of the investment (i.e. 1.00% fee on the first $10M invested, 0.90% on the next $10M, and 0.80% on the remaining balance).

Total Effects2 - The active management (total) effect is the sum of the selec-tion, allocation, and interaction effects. It is also the difference between the total portfolio return and the total benchmark return. You can use the active management effect to determine the amount the investment manager has add-ed to a portfolio’s return.


Total Return1 - The actual rate of return of an investment over a specified time period. Total return includes interest, capital gains, dividends, and distributions realized over a defined time period.

Universe3 - The list of all assets eligible for inclusion in a portfolio.

Upside Deviation1 – Standard Deviation of Positive Returns

Weighted Avg. Market Cap.4 - A stock market index weighted by the market capitalization of each stock in the index. In such a weighting scheme, larger companies account for a greater portion of the index. Most indexes are con-structed in this manner, with the best example being the S&P 500.

Yield (%)3 - The current yield of a security is the current indicated annual divi-dend rate divided by current price. Yield to Maturity3 -The discount rate that equates the present value of cash flows, both principal and interest, to market price.

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Information Disclaimer

• Past performance is no guarantee of future results.

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

• Some index returns displayed in this report or used in calculation of a policy, allocation or custom benchmark may notbe available from the source or may be preliminary and subject to change.

• NEPC’s source for portfolio pricing, calculation of accruals, and transaction information is the plan’s custodial bank.Information on market indices and security characteristics is received from other sources external to NEPC. While NEPChas exercised reasonable professional care in preparing this report, we cannot guarantee the accuracy of all sourceinformation contained within.

• This report is provided as a management aid for the client’s internal use only. Performance contained in this report doesnot constitute a recommendation by NEPC.

• This report may contain confidential or proprietary information and may not be copied or redistributed to any party notlegally entitled to receive it.

Reporting Methodology

• The client’s custodian bank is NEPC’s preferred data source unless otherwise directed. NEPC reconciles custodian data tomanager data. If the custodian cannot provide accurate data, manager data may be used.

• Trailing time period returns are determined by geometrically linking the holding period returns, from the first full monthafter inception to the report date. Rates of Return are annualized when the time period is longer than a year.Performance is presented gross and/or net of manager fees as indicated on each page.

• For managers funded in the middle of a month, the “since inception” return will start with the first full month, althoughactual inception dates and cash flows are taken into account in all Composite calculations.

• This report may contain forward-looking statements that are based on NEPC’s estimates, opinions and beliefs, but NEPCcannot guarantee that any plan will achieve its targeted return or meet other goals.

Information Disclaimer and Reporting Methodology

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modot & patrol employees retirement system · 12/31/2015 · quarter and in 2015, losing 2.07%...

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