investment management committee documents/imc_committee_book_sept2019.pdfmembers of the board. mr....

INVESTMENT MANAGEMENT COMMITTEE

September 2019

NOTE: The Board of Trustees (Board) of the Teacher Retirement System of Texas will not consider or act upon any item before the Investment Management Committee (Committee) at this meeting of the Committee. This meeting is not a regular meeting of the Board. However, because the full Committee constitutes a quorum of the Board, the meeting of the Committee is also being posted as a meeting of the Board out of an abundance of caution.

TEACHER RETIREMENT SYSTEM OF TEXAS MEETING BOARD OF TRUSTEES

AND INVESTMENT MANAGEMENT COMMITTEE

(Committee Chair and Members: Mr. Colonnetta, Chair; Mr. Corpus; Mr.

Hollingsworth; Mr. Moss and Ms. Ramirez)

All or part of the September 19, 2019, meeting of the TRS Investment Management Committee and Board of Trustees may be held by telephone or video conference call as authorized under Sections 551.130 and 551.127 of the Texas Government Code. The Board intends to have a quorum and the presiding officer of the meeting physically present at the following location, which will be open to the public during the open portions of the meeting: 1000 Red River, Austin, Texas 78701 in the TRS East Building, 5th Floor, Boardroom. The open portions of the September 19, 2019, meeting are being broadcast over the Internet. Access to the Internet broadcast is provided at www.trs.texas.gov.

AGENDA

September 19, 2019 – 11:00 a.m.

TRS East Building, 5th Floor, Boardroom

1. Call roll of Committee members.

2. Consider the approval of the proposed minutes of the July 2019 committee meeting – Committee Chair.

3. CIO Update including Fleet Strategy; Talent Management; Global Offices; General Contractor for finish out of leased space at Austin Office (Indeed Tower); Accomplishments; Notices and Key Dates and Upcoming Events – Jerry Albright

4. Discuss the Second Quarter 2019 Performance Review – Steve Voss, Mike McCormick and Mike Comstock, Aon Hewitt.

5. Market Update – Jase Auby.

6. Review of the Public and Private Strategic Partnership Network – Michael Pia.

7. Semi-Annual Risk Report – James Nield and Stephen Kim.

Minutes of the Investment Management Committee

July 18, 2019

The Investment Management Committee of the Board of Trustees of the Teacher Retirement System of Texas met on July 18, 2019, in the boardroom located on the fifth floor of the TRS East Building offices at 1000 Red River Street, Austin, Texas.

Committee Members present: Mr. Joe Colonnetta, Chair Mr. David Corpus Mr. Jarvis Hollingsworth Mr. Chris Moss Ms. Dolores Ramirez Other Board Members present: Dr. Greg Gibson Mr. James D. Nance Others present: Brian Guthrie, TRS Keith Johnson, Reinhart Boerner Van Deuren s.c. Andrew Roth, TRS Steve Voss, Aon Hewitt Don Green, TRS Mike McCormick, Aon Hewitt Carolina de Onis, TRS Jerry Albright, TRS Jase Auby, TRS Eric Lang, TRS Grant Walker, TRS Carolyn Hansard, TRS Neil Randall, TRS Mohan Balachandran, TRS James Nield, TRS Matt Talbert, TRS Katy Hoffman, TRS Heather Traeger, TRS Katherine Farrell, TRS Dr. Keith Brown, Investment Advisor Investment Management Committee Chair Mr. Colonnetta called the meeting to order at 11:10 a.m.

1. Call roll of Committee members.

Ms. Farrell called the roll. A quorum was present.

2. Consider the approval of the proposed minutes of the April 25, 2019 committee meeting – Committee Chair Mr. Joe Colonnetta

On a motion by Mr. Moss, seconded by Mr. Corpus, the committee voted to approve the proposed minutes for the April 25, 2019, Investment Management Committee meeting as presented.

3. CIO Update – Jerry Albright.

Mr. Jerry Albright provided an overview of the fleet strategy and hiring update noting that the firsy year of hiring was going well and had started on the hiring plan for 2020. He reported Block 71 building was coming along. He stated that they hired an architectural firm to assist with the design and completion of the interior. Mr. Albright noted the SPN summit was well attended including members of the Board. Mr. Brian Guthrie recognized the private equity 2.0 team as the winner of the Executive Director’s Award of Excellence. Mr. Albright stated the semiannual portfolio reviews are upcoming as well as our annual employee offsite where we review performance of the organization. He then reviewed the history of our development of foreign offices including the opening the London office in November 2015. He discussed the possibility of opening an Asian office, specifically Singapore, if the Board agrees, and try to replicate the success in London.

4. Discuss the First Quarter 2019 Performance Review – Steve Voss and Mike McCormick, Aon Hewitt.

Mr. Steve Voss provided an overview of the pension fund’s performance. He noted global equity has had strong returns for this year. He said there was about a 5.6 percent rate of return. He stated a lot of value was added from private equity, private real estate and the energy and natural resources area. Mr. Mike McCormick noted that the assets of the plan were allocated slightly differently than the policy was the primary driver of negative performance for the quarter. He noted U.S. equities were a drag on performance with other asset classes offsetting some of that underperformance. Mr. McCormick reported the program outperformed its benchmark, and outperformed the majority of peers at similar or reduced level of volatility.

5. Annual Update on External Private Markets – Eric Lang, Carolyn Hansard, Neil Randall, and Grant Walker.

Mr. Eric Lang provided the overview of external private markets. He reported private markets were 32 percent of the Trust. He reviewed the private market teams’ core tenets and philosophies. He noted performance had exceeded expectation, with principal investments driving a lot of the excess return. Mr. Lang discussed London’s performance.

Ms. Carolyn Hansard reviewed the history and performance of the energy natural resources (ENRI) portfolio. She reported 65 percent of the portfolio was in funds and 35 percent in principal investments. She discussed midstream, downstream and upstream opportunities. She said for 2019 they will continue to increase the principal investments portfolio.

Mr. Neil Randall reported for private equity reporting the absolute return basis for the three and five year perspective was 11 ½ and 12 ½ percent net returns. He noted they grew the principal investments piece to 26 percent, this year. He concluded by providing an update to the private equity strategic plan.

Mr. Grant Walker reported for the one-year basis they produced 150 basis points of alpha. He said real estate was at 55 percent funds, 45 percent principal investments, with over 200 active investment vehicles. He said their goal was to move from the 55/45 ratio to 50 percent funds, 50 percent principal investments.

6. Consider recommending to the Board adoption of the Strategic Asset Allocation Proposal – Mohan Balachandran, James Nield and Matt Talbert; Steve Voss and Mike McCormick, AON Hewitt.

Mr. Steve Voss reviewed the asset liability study. He said the study was conducted to illustrate the impact and ways the investment program, diversified Trust assets, interact with the liabilities over time. Mr. McCormick reviewed key findings of the study in greater detail. He said from their perspective the program is well aligned to take risk and over medium and long term periods of time it is almost cost prohibitive not to take an investment risk. He noted Senate Bill 12 was fairly significant in terms of ultimately reaching the goal of full funded status. He said ultimately the projections are not a materially different, but slightly enhanced by moving to the new asset allocation.

Dr. Mohan Balachandran reviewed best practices and key findings as discussed at the February and April Board meetings. He pointed out that global equity allocation is going down to 54 percent from 57 percent. He said the stable value allocation is going up from 15 percent to 21 percent, primarily U.S. Treasuries to diversify away from the equity risk. He noted there were three themes in the study. The first was increase private markets, take a little more illiquidity to generate more returns. The second theme was the efficiency. Further discussion was had on hedge funds and changing the benchmark to be against public equities but staying in global equity. The second efficiency discussion was on risk parity recommending increasing its risk from 10 percent to 12 percent. Dr. Balachandran noted that in the new asset allocation numbers, the investment exposure line, would go from 99 percent to 104 percent and the net asset allocation leverage number goes from +1 to -4 percent. He said the net result of these changes based on the capital market survey is returns go up from 6.97 percent to 7.23 percent, volatility goes up a bit as well as the Sharpe ratio.

Mr. James Nield reviewed historical risk metrics and whether the proposal played to TRS core competencies or structural metrics. He noted the global equity is the key driver of the Trust returns, it is the largest dollar allocation and largest risk contribution. He said with the recommended changes, the risk contribution from global equity declines by 10 percent, from 82 to 72 percent. He stated the reason for that is the balance in the portfolio, having leverage come into the portfolio adding more diverse fund assets.

Mr. Matt Talbert presented the transition plan. He estimated that it would take up to a six-month transition process for three of the asset classes with the larger changes. He said, working with Aon, the recommended benchmark for reference rate would be the three-month LIBOR. Further discussion was had around the introduction of leverage and the use of leverage.

On a motion by Mr. Corpus, seconded by Mr. Moss, the committee unanimously voted to recommend to the Board the adoption of the following resolution:

Resolution of Board of Trustees July 19, 2019

Relating to the Strategic Asset Allocation WHEREAS, pursuant to Section 825.103 of the Texas Government Code, the Board of Trustees ("Board") of the Teacher Retirement System of Texas (“TRS”), is the trustee of all assets of the retirement system;

WHEREAS, Pursuant to Section 825.301 of the Texas Government Code, the Board shall develop written investment objectives for the investment of the assets of the Trust to address desired rates of return, risks involved, investment time frames, and any other relevant considerations;

WHEREAS, Pursuant to section 1.6 of the TRS Investment Policy Statement (IPS): The Investment Management Division (IMD) assists the Board in engaging in a strategic asset allocation (SAA) study at least once every five (5) years to review asset classes, return-risk assumptions, and the correlation of returns with applicable benchmarks and across asset classes;

WHEREAS, The Fund objectives, as set forth in Section 1.4 of the IPS, require that the Board control risk through diversification and long-term risk and return expectation and achieve long-term returns that exceed the actuarial assumed rate of return adopted by the Board, the rate of inflation by an annualized 5%, and exceeds the Fund Policy Benchmark;

WHEREAS, The previous SAA study conducted by IMD was approved by the Board in 2014 and incorporated into the current IPS;

WHEREAS, The current SAA study used the same process to set the SAA in 2009 and 2014 and was presented to the Board by IMD over the last four Board meetings in coordination with TRS' investment and actuarial advisors and other strategic partners;

WHEREAS, IMD conducted the SAA study in consultation with TRS' investment consultant, Aon, and utilized Aon's strategic asset review allocation best practice steps, as set forth in the Aon and IMD presentation to the Board at the February 2019 Board meeting; and

WHEREAS, The SAA study conducted by TRS followed a prudent process designed to address applicable fiduciary obligations of the Board; and Now therefore, be it

RESOLVED, That the Board hereby approves the strategic asset allocation plan set forth in Exhibit A, and hereby authorizes and directs the IMD to revise the strategic asset allocation plan in the IPS to reflect the revisions approved in the foregoing paragraph, and to present the revised IPS for Board consideration at the Board’s next regular meeting, with a targeted effective date of October 1, 2019; and

RESOLVED, That the Board hereby authorizes IMD to take all actions necessary to begin the transition to implement the revised strategic asset allocation plan as of October 1, 2019 in accordance with the duties and responsibilities set forth in the IPS as well as in accordance with all other IMD policies and procedures.

7. Preliminary Investment Policy Statement Recommendations– Katy Hoffman and James Nield.

Ms. Hoffman presented eight proposed modifications to the Investment Policy Statement (IPS) for the review. She noted the majority of the changes are associated with implementing the new strategic asset allocation. She highlighted a few of these proposed changes such as the removal of the public equity constraint and increase in the ranges for stable value and real return. This suggested change is to allow more flexibility to manage the trust through the market cycles. Another change noted was to update the risk parity benchmark from a 10 percent to a 12 percent volatility and implement a benchmark for leverage at the three-month LIBOR as AON has suggested. Another change is to change the U.S. Treasury asset class to one of government bonds. This would house all U.S. and non-U.S., both nominal and global inflation-liked bonds, into one asset class. She noted the benchmark would remain against U.S. Treasuries and we propose adding a tracking error constraint. The final change discussed is to increase the limits on manager concentration based on exposure and add a new limit based on market value. Ms. Hoffman stated in September the proposed changes would be brought before the Policy Committee to recommend adoption to the Board. Without further discussion, the meeting adjourned at 2:36 p.m. APPROVED BY THE INVESTMENT MANAGEMENT COMMITTEE OF THE BOARD OF TRUSTEES OF THE TEACHER RETIREMENT SYSTEM OF TEXAS ON THE 19th DAY OF SEPTEMBER 2019.

______________________________ _________________ Katherine H. Farrell Date Secretary of the TRS Board of Trustees

Jerry Albright, Chief Investment Officer

September 2019

Investment Management Division

Chief Investment Officer Update

2

CIO Update

Trust Value is $156.4 billion as of Q2 2019

• Fleet Strategyo 25 of 32 Phase 1 Fleet hire offers accepted and/or extended in FY2019

Hiring external recruiter for open Legal positions and developing plan for open IT positions 31 Fleet hires planned for Phase 2 (FY2020 – FY2021) 9 current vacancies; hiring in process

• Talent Managemento Completed Management Committee (MC) Annual Offsite Talent Review

Reviewed Diversity and Inclusion data, metrics, and trends

Reviewed salary and potential employee promotions of all IMD people

o Focused on FY2020 full-time and summer internship recruiting efforts

Participated in Howard University Super Day recruiting event in Washington, DC

o Finalized IMD career management ‘role card’ initiative

o Conducted group-level fireside chats across division

• Internal Prioritieso Finalized Strategic Asset Allocation implementation; awaiting Board approval

o Completed Semi-Annual Portfolio Reviews in August/September

o Submitted Sunset Commission self-evaluation report including overview of restrictions on TRS ability to directly own Real Estate

o Singapore Initiative

Source: Trust value from State Street as of 6/30/2019. Fleet metrics from TRS IMD as of September 2019

3

CIO UpdateCelebrating Our New Hires

A variety of degrees and diversity of backgrounds• Over 30 universities represented

• Undergraduate degrees: Business (21), Engineering (3), Computer Science (2), Chemistry (1), Biology (1), Mathematics (1), Sociology (1), Zoology (1), Italian (1)

• Masters degrees: MBA (7), Accounting (2), Engineering (2), Recreation Administration (1), Operations Management (1), Information Systems (1), Music (1), Organizational Development (1)

• Juris Doctor (2), PhD (1)

• 4 CFA, 1 CAIA, 1 CPA

4

Global Office Update

• London Office – Relocation completeo New office address is 53-54 Grosvenor Street, Mayfair, London

• Potential Singapore Office o CIO and Investment Management Committee Chair conducted site visit to meet with peers, external

managers, and the Monetary Authority of Singapore (MAS)o Preliminary office locations reviewed and due diligence continues

• Austin Office (Indeed Tower)o Procurement for General Contractor (GC) for tenant finish out near completiono Selection to be made in September and contract signed in October

APPENDIX

6

Metrics ReportingAs of June 30, 2019

Source: State Street Bank, TRS IMDNote: Data shown as calendar-year. Public equity allocation excludes SPN

Metric Objective Target Q4 2018 Q1 2019 Q2 2019

Total Trust Excess Return Return in excess of the benchmark return for the Total Trust (3 Year Rolling) +100 bp +71 bp +68 bp +67 bp

Private Markets Excess Return

Return in excess of the benchmark return for Private Markets investments (3 Year Rolling) +155 bp +210 bp +206 bp +203 bp

Active Public Markets Excess Return

Return in excess of the benchmark return for Active Public Markets investments (1 Year Rolling) +100 bp -32 bp -98 bp -103 bp

Principal Investments Percent of portfolio capital plan in principal investments approved (cumulative year-to-date)1

2018: 33%2019: 35% 2018: 44% 2019 YTD: 15% 2019 YTD: 27%

Public Equity Allocation Percent of internal public equity allocation 55% 54% 57% 59%

EstimatedFee Savings External manager annual fee savings 2018: $53M

2019: $64M2018: $46M

2019: To be reported April 2020

1 – Q4 represents actual capital commitments vs. approvals and actual capital plan vs. budgeted plan

7

CIO UpdateRecognition and Upcoming IMD Events

• IMD Awardso Texas General Counsel 14th Annual Magna Stella Awards: “General Counsel – Non-Profit/Government” – Carolina de Onís

• Key Dates & Upcoming Eventso National Council on Teacher Retirement Conference (Nashville) – October 12-16, 2019o SPN Public and Private Markets Summit (TRS – 816 Congress) – October 29-30, 2019o GCM Grosvenor Small and Emerging Manager (SEM) Conference (Chicago) – November 14-15, 2019

• December Board Meetingo Investment Management Committee CIO Update Annual Update on the Trading Group Annual Update on the Risk Group Annual Update on the Multi-Asset Strategies Group Aon Hewitt Q3’19 Performance Review

o Policy Committee Commission Credits Policy (Review) Proxy Policy (Review)

o Board Items None

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company.

Nothing in this document should be construed as legal or investment advice. Please consult with your independent professional for any such advice. To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the approval of Aon Hewitt.

Teacher Retirement System of TexasPerformance Review: Second Quarter 2019

Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 2

Summary

Global equities continued to rally off a strong first quarter with optimistic trade talks and a looming U.S. rate cute helping boost returns, with global equities returning 3.5% during the period

The U.S. nominal yield curve shifted downwards over the quarter with yields falling across all maturities, resulting in the strong returns shown for the Stable Value and Risk Parity components

TRS returned 3.2% for the quarter which was 0.2 percentage points below its benchmark− The underweight positionings to Total USA and Long Treasuries were the primary drivers of the return differential during the

period

For the trailing twelve months, TRS returned 6.4% versus the benchmark return of 6.7%− Active management in Total USA and Non-U.S. Developed, along with Private Equity performance were the primary

detractors from relative results


1. Market Summary – Second Quarter 2019


2. Market Value Change


3. Asset Allocation DetailMarket Value $ in millions)

as of 06/30/2019 InterimPolicyTarget

Relative toInterimPolicy Target

Long TermPolicy Target

Long TermPolicy

Ranges($) (%)Investment Exposure -- 99% 99.0% 0.0% 99.0% 99-110%Total U.S.A. $22,682 14.5% 17.7% -3.2% 18.0 13-23%Non-U.S. Developed $20,169 12.9% 12.7% +0.2% 13.0 8-18%Emerging Markets $14,067 9.0% 8.7% +0.3% 9.0 4-14%Directional Hedge Funds $5,725 3.7% 4.0% -0.3% 4.0 0-10%Private Equity $22,848 14.6% 14.4% +0.2% 13.0 8-18%Global Equity $85,491 54.7% 57.6% -2.9% 57.0 50-64%Long Treasuries $15,907 10.2% 10.7% -0.6% 11.0 0-20%Stable Value Hedge Funds $6,678 4.3% 4.0% +0.3% 4.0 0-10%Absolute Return (including OAR) $5,249 3.4% 0.0% +3.4% 0.0 0-20%Stable Value $27,833 17.8% 14.7% +3.1% 15.0 11-21%TIPS $4,231 2.7% 2.7% -0.0% 3.0 0-8%Real Estate $20,658 13.2% 13.2% +0.0% 14.0 9-19%Energy, Natural Resource and Inf. $9,051 5.8% 5.8% +0.0% 5.0 0-10%Commodities $122 0.1% 0.0% +0.1% 0.0 0-5%Real Return $34,062 21.8% 21.7% +0.1% 22.0 17-27%Risk Parity $8,333 5.3% 5.0% +0.3% 5.0 0-10%Risk Parity $8,333 5.3% 5.0% +0.3% 5.0 0-10%Cash $2,059 1.3% 1.0% +0.3% 1.0 0-5%Asset Allocation Leverage -$1,374 -0.9% 0.0% -0.9% -- --Net Asset Allocation $684 0.4% 1.0% -0.6% 1.0 --Total Fund $156,403 100% --- 100.0% --

Note: Asset allocation information shown above is based upon PureView reporting. The excess returns shown above may not be a perfect difference between the actual and benchmark returns due entirely to rounding.


4. Total TRS Performance Ending 06/30/2019


5. Total Fund Attribution – One Quarter Ending 06/30/2019

* Negative value represents average leverage exposure during the period


5. Total Fund Attribution – One Year Ending 06/30/2019

* Negative value represents average leverage exposure during the period


6. Risk Profile: Total Fund Risk-Return vs. Peers

Note: Public Plan peer group composed of 32 and 32 public funds with total assets in excess of $10B as of 06/30/2019 respectively for the periods above. An exhibit outlining the asset allocation of the peer portfolios is provided in the appendix of this report.


6. Risk Profile: Trailing 3-Year and 5-Year Risk Metrics Peer Comparison


7. Global Equity: Performance Summary Ending 06/30/2019

Note: The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.

Second Quarter YTD One Year

Three Years

Total Global Equity 3.1% 10.8% 5.2% 11.4%Global Equity Benchmark 3.5 11.8 6.2 11.8Difference -0.4 -1.0 -1.0 -0.4Total U.S. Equity 3.6 17.1 7.0 13.0Total U.S. Equity Benchmark 4.0 18.8 9.0 14.0Difference -0.4 -1.7 -2.0 -1.0Non-U.S. Equity 2.2 12.9 1.0 9.6Non-U.S. Benchmark 2.4 12.9 1.3 9.8Difference -0.2 +0.0 -0.3 -0.2Non-U.S. Developed 2.8 13.8 -0.1 8.6MSCI EAFE + Canada 3.8 14.6 1.3 9.0Difference -1.0 -0.8 -1.4 -0.4

Emerging Markets 1.4 11.5 2.5 10.9MSCI Emerging Markets 0.4 10.4 1.2 10.7

Difference +1.0 +1.1 +1.3 +0.2

Five Years

6.5%6.7

-0.2

8.510.3

-1.8

3.02.3

+0.7

2.82.0

+0.8

3.2

2.5

+0.7


7. Global Equity: Performance Summary Ending 06/30/2019 (cont’d)Second Quarter YTD One Year Three

Years Five Years

Directional Hedge Funds 1.6% 8.2% 2.1% 6.1% 1.9%

HFRI Fund of Funds Composite Index 1.5 6.1 1.1 4.2 2.2

Difference +0.1 +2.1 +1.0 +1.9 -0.3

Total Public Equity 2.7 13.9 3.5 10.6 5.2

Public Equity Benchmark 3.0 14.7 4.5 11.1 5.6

Difference -0.3 -0.8 -1.0 -0.5 -0.4

Total Private Equity 4.3 2.6 10.7 13.7 11.6

Private Equity Benchmark 4.8 3.8 11.9 13.7 10.6

Difference -0.5 -1.2 -1.2 +0.0 +1.0



8. Stable Value: Performance Summary Ending 06/30/2019Second Quarter YTD One Year Three Years

Total Stable Value 4.6% 8.0% 8.8% 2.9%Total Stable Value Benchmark 4.8 9.3 9.8 2.2

Difference -0.2 -1.3 -1.0 +0.7

Long Treasuries 6.4 11.4 12.7 1.3

Treasury Benchmark 6.0 11.0 12.3 1.3

Difference +0.4 +0.4 +0.4 +0.0

Stable Value Hedge Funds 1.5 2.5 2.2 5.3

Hedge Funds Benchmark 1.5 4.7 2.1 3.8

Difference +0.0 -2.2 +0.1 +1.5

Other Absolute Return 3.2 5.0 6.8 6.4

Other Absolute Return Benchmark 1.1 2.3 4.6 3.8

Difference +2.1 +2.7 +2.2 +2.6


Five Years

6.3%4.8

+1.5

6.3

5.7

+0.6

4.72.1

+2.6

7.7

3.3

+4.4


9. Real Return: Performance Summary Ending 06/30/2019Second Quarter YTD One Year Three Years Five Years

Total Real Return 1.9% 3.9% 7.1% 9.2% 8.2%Real Return Benchmark 1.7 2.4 5.4 6.3 6.6

Difference +0.2 +1.5 +1.7 +2.9 +1.6

TIPS 2.8 6.2 4.9 2.2 1.9

U.S. TIPS Benchmark 2.9 6.2 4.8 2.1 1.8

Difference -0.1 +0.0 +0.1 +0.1 +0.1

Real Estate 1.4 3.5 7.7 10.7 11.4

Real Estate Benchmark 1.2 2.7 6.5 7.0 9.2

Difference +0.2 +0.8 +1.2 +3.7 +2.2Energy, Natural Resource and Infrastructure

3.0 3.9 7.9 -- --

Energy and Natural Resources Benchmark 2.2 0.1 3.7 -- --

Difference +0.8 +3.8 +4.2 -- --

Commodities -33.8 -10.7 -46.0 -16.5 -21.1

Commodities Benchmark -1.4 13.3 -11.5 1.6 -13.3

Difference -32.4 -24.0 -34.5 -18.1 -7.8



10. Risk Parity: Performance Summary Ending 06/30/2019Second Quarter YTD One Year

Three Years

Total Risk Parity 4.9% 15.7% 8.5% 8.6%

Risk Parity Benchmark 4.5 15.4 8.8 7.7

Difference +0.4 +0.3 -0.3 +0.9


Five Years

5.1%

4.9%

+0.2


11.Asset Allocation Leverage: Performance Summary Ending 06/30/2019Second Quarter YTD One Year

Three Years

Cash Equivalents 0.7% 1.1% 1.7% 2.2%

Cash Benchmark 0.6 1.2 2.3 1.4

Difference +0.1 -0.1 -0.6 +0.8


Five Years

2.4

0.9

+1.5


Appendix – Supplemental Reporting


TRS Commitment Levels vs. Peers (>$10 Billion) as of 06/30/2019

Note: The Public Plan peer universe had 32 observations for the second quarter 2019. TRS allocations may not sum to 100.0% which is entirely due to the impact of rounding

The chart below depicts the asset allocation of peer public funds with assets greater than $10 billion.

− The ends of each line represent the 95th and 5th percentile of exposures, the middle light blue and grey lines represent the 25th and 75th percentile of exposures, the purple square represents the median, and the green dot represents TRS exposure.


Historical Excess Performance Ending 06/30/2019

Quarterly and Cumulative Excess Performance Total Fund vs. Total Fund Benchmark


TRS Asset Growth

-10

10

30

50

70

90

110

130

150

170

Mar

ket V

alue

(Billi

ons)

Total Fund Historical Growth (September 1997 - June 2019)

$156.4


External Manager Program: Public Equity Performance as of 06/30/2019

Allocation ($ in billions)

SecondQuarter YTD One

YearEP Total Global Equity $26.4 2.7% 13.8% 3.1%EP Global Equity Benchmark -- 2.7 13.3 3.9Difference -- +0.0 +0.5 -0.8EP U.S.A. $5.6 3.7 17.7 7.3EP U.S.A. Benchmark -- 4.0 18.8 9.0Difference -- -0.3 -1.1 -1.7EP Non-U.S. Developed $3.5 2.3 13.9 -2.5MSCI EAFE + Canada Policy Index -- 3.8 14.6 1.3Difference -- -1.5 -0.7 -3.8EP Emerging Markets $5.4 1.6 12.5 1.6MSCI Emerging Markets Policy Index -- 0.4 10.4 1.2Difference -- +1.2 +2.1 +0.4EP World Equity $6.1 3.8 16.8 6.1EP World Equity Benchmark -- 3.7 16.4 6.1Difference -- +0.1 +0.4 +0.0EP Directional Hedge Funds $5.7 1.6 8.2 2.1HFRI Fund of Funds Composite Index -- 1.5 6.1 1.1Difference -- +0.1 +2.1 +1.0


Three Years10.5%10.3+0.212.914.0-1.19.09.00.010.810.7+0.112.912.0+0.96.14.2

+1.9


External Manager Program: Stable Value/Total Program Performance as of 06/30/2019


SecondQuarter YTD One Year Three

Years

EP Total Stable Value $6.7 1.5% 2.5% 2.2% 5.3%

EP Stable Value Benchmark -- 1.5 4.7 2.1 3.8

Difference -- +0.0 -2.2 +0.1 +1.5

EP Stable Value Hedge Funds $6.7 1.5 2.5 2.2 5.3

EP Stable Value Hedge Funds Benchmark -- 1.5 4.7 2.1 3.8

Difference -- +0.0 -2.2 +0.1 +1.5

Total External Public Program $33.1 2.4 11.6 2.9 9.7

EP External Public Benchmark -- 2.4 11.5 3.5 9.2

Difference -- +0.0 +0.1 -0.6 +0.5



Public Strategic Partnership Program (SPN): Performance Summary as of 06/30/2019

The Public SPNs in aggregate outperformed the benchmark during the second quarter and also over the trailing three-year period while underperforming over the trailing one-year period.


SecondQuarter YTD One

YearThree Years

Public Strategic Partnership $8.7 4.2% 15.1% 6.7% 9.6%Public SPN Benchmark -- 3.9% 13.8% 7.0% 8.8%Difference -- +0.3 +1.3 -0.3 +0.8

Blackrock $2.2 3.8% 15.2% 7.5% 10.7%J.P. Morgan $2.3 4.1% 15.0% 5.5% 8.9%Neuberger Berman $2.1 4.1% 14.9% 6.1% 9.3%Morgan Stanley $2.1 4.6% 15.1% 7.9% 9.7%



Total Fund Performance Benchmark – 17.7% MSCI U.S.A. IMI, 12.7% MSCI EAFE plus Canada Index, 8.7% MSCI Emerging Markets Index, 4.0% HFRI FoF Composite Index, 14.4% State Street Private Equity Index (1 quarter lagged), 10.7% Blmb. Barc. Long Term Treasury Index, 4.0% HFRI FoF Conservative Index, 1.0% Citigroup 3 Mo. T-Bill Index, 2.7% Blmb. Barc. U.S. TIPS Index, 13.2% NCREIF ODCE Index (1 quarter lagged), 5.8% Energy and Natural Resources Benchmark, and 5.0% Risk Parity Benchmark

Global Equity Benchmark – 30.8% MSCI U.S.A. IMI, 22.1% MSCI EAFE plus Canada Index, 15.2% MSCI Emerging Markets Index, 6.9% HFRI FoF Composite Index, and 25.0% State Street Private Equity Index (1 quarter lagged)– TF U.S. Equity Benchmark - MSCI U.S.A. Investable Markets Index (IMI)– Emerging Markets Equity Benchmark – MSCI Emerging Markets Index– Non-US Developed Equity Benchmark– MSCI EAFE + Canada Index– Directional Hedge Funds – HFRI Fund of Funds (FoF) Composite Index– Private Equity Benchmark - State Street Private Equity Index (1 quarter lagged)

Benchmarks

Note: Returns and market values (based on account level) reported are provided by State Street. Net additions/withdrawals are reported on a gross (adjusted for expenses) total fund level as provided by State Street. All rates of return for time periods greater than one year are annualized. The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.


Benchmarks (cont’d) Stable Value Benchmark – 72.8% Blmb. Barc. Long Term Treasury Index and 27.2% HFRI FoF Conservative Index

– US Treasuries Benchmark – Bloomberg Barclays Long Term Treasury Index– Stable Value Hedge Funds – HFRI Fund of Funds (FoF) Conservative Index– Other Absolute Return Benchmark - 3 Mo. LIBOR + 2%– Cash Benchmark - Citigroup 3 Mo. Treasury Bill Index

Real Return Benchmark – 60.9% NCREIF ODCE Index, 12.6% Blmb. Barc. U.S. TIPS Index, and 26.6% Energy & Natural Resources Benchmark– Real Estate Benchmark – NCREIF ODCE Index (1 quarter lagged) – US TIPS Benchmark – Bloomberg Barclays U.S. TIPS Index– Energy and Natural Resources Benchmark – 75% Cambridge Associates Natural Resources Index (reweighted) and 25%

quarterly Seasonally-Adjusted Consumer Price Index (1 quarter lagged) – Commodities Benchmark – Goldman Sachs Commodity Index

Note: Returns and market values (based on account level) reported are provided by State Street. Net additions/withdrawals are reported on a gross (adjusted for expenses) total fund level as provided by State Street. All rates of return for time periods greater than one year are annualized. The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.


Description of Performance Attribution A measure of the source of the deviation of a fund's performance from that of its policy benchmark. Each bar on the attribution

graph represents the contribution made by the asset class to the total difference in performance. A positive value for a component indicates a positive contribution to the aggregate relative performance. A negative value indicates a detrimental impact. Themagnitude of each component's contribution is a function of (1) the performance of the component relative to its benchmark, and (2) the weight (beginning of period) of the component in the aggregate.

The individual Asset Class effect, also called Selection Effect, is calculated as Actual Weight of Asset Class x (Actual Asset Class Return – Asset Class Benchmark Return)

The bar labeled Allocation Effect illustrates the effect that a Total Fund's asset allocation has on its relative performance. Allocation Effect calculation = (Asset Class Benchmark Return –Total Benchmark Return) x (Actual Weight of Asset Class –Target Policy Weight of Asset Class).

The bar labeled Other is a combination of Cash Flow Effect and Benchmark Effect:– Cash Flow Effect describes the impact of asset movements on the Total Fund results. Cash Flow Effect calculation = (Total

Fund Actual Return – Total Fund Policy Return) – Current Selection Effect – Current Allocation Effect– Benchmark Effect results from the weighted average return of the asset classes' benchmarks being different from the Total

Funds’ policy benchmark return. Benchmark Effect calculation = Total Fund Policy Return – (Asset Class Benchmark Return x Target Policy Weight of Asset Class)

Cumulative EffectCumulative Effect calculation = Current Effect t *(1+Cumulative Total Fund Actual Return t-1) +Cumulative Effect t-1*(1+Total Fund Benchmark Return t)


Disclaimers and Notes


Disclaimers and NotesDisclaimers:

Please review this report and notify Aon Hewitt Investment Consulting (AHIC) with any issues or questions you may have with respect to investment performance or any other matter set forth herein.

The client portfolio data presented in this report have been obtained from the custodian. AHIC has compared this information to the investment managers’ reported returns and believes the information to be accurate. AHIC has not conducted additional audits and cannot warrant its accuracy or completeness. This document is not intended to provide, and shall not be relied upon for, accounting and legal or tax advice.

Refer to Hedge Fund Research, Inc. www.hedgefundresearch.com for more information on HFR indices

Notes:

The rates of return contained in this report are shown on an after-fees basis unless otherwise noted. They are geometric and time weighted. Returns for periods longer than one year are annualized.

Universe percentiles are based upon an ordering system in which 1 is the best ranking and 100 is the worst ranking.

Due to rounding throughout the report, percentage totals displayed may not sum up to 100.0%. Additionally, individual fund totals in dollar terms may not sum up to the plan totals.

http://www.hedgefundresearch.com/


Legal Disclosures and Disclaimers

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc. (“AHIC”). The information containedherein is given as of the date hereof and does not purport to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information set forth herein since the date hereof or any obligation to update or provide amendments hereto.

This document is not intended to provide, and shall not be relied upon for, accounting, legal or tax advice or investment recommendations. Any accounting, legal, or taxation position described in this presentation is a general statement and shall only be used as a guide. It does not constitute accounting, legal, and tax advice and is based on AHIC’s understanding of current laws and interpretation.

This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon AHIC’s preliminary analysis of publicly available information. The content of this document is made available on an “as is” basis, without warranty of any kind. AHIC disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. AHIC. reserves all rights to the content of this document. No part of this document may be reproduced, stored, or transmitted by any means without the express written consent of AHIC.

© Aon plc 2019. All rights reserved.

Jase AubyDeputy Chief Investment Officer

September 2019


Market Update

2

Executive Summary

• The first half of 2019 was characterized by:o Strong rebound in global equity markets, led by the United States (best first half for S&P 500 since 1997)o High geopolitical tensions, especially the US and China trade waro Slowing of global growth and low, stable inflationo Fluctuating US central bank monetary policy tone with steady easing in the rest of the Developed Marketso Slow but resilient US economic expansion (121 months is the longest on record since 1900)

• In the second half of 2019, markets are focused on:o Continued slowing of global growth amid trade tensions and a deterioration in manufacturing activityo Low and subdued global inflation and slowing employment gainso Loosening of global monetary in developed and emerging markets, including the United States o Developed Markets to gain economic momentum over Emerging Markets due to trade tensionso Elevated market volatility, trade concerns, and geopolitical uncertainties heading into the United States 2020 election year

Source: TRS IMD, JP Morgan Asset Management

3

December 2018 March 2019 June 2019

US Box 5 Box 5 Box 5

Europe Box 8 Box 5 Box 2

Japan Box 5 Box 5 Box 5

China Box 5 Box 5 Box 5

EM ex-China Box 8 Box 4 Box 4

Macroeconomic UpdateInflation, Growth, LEI

Source: Bloomberg, FactSet, TRS IMD, Blackrock as of 6/30/20191 Equity Risk Premium is the earnings yield of the local equity market index less applicable 10 year government bond yield2 For USA, 10yr US Treasuries; for Europe, 10yr German gov. bonds; for Japan, 10yr Japanese gov. bonds; for EM, a blend of 10yr Chinese, South Korean, and Brazilian gov. bonds

USA 9-Box Leading Economic Indicators

Global 9-Box Government Bond Yields and ERP1

Region 10yr gov.bond yields2

Equity Risk Premium

Current 10-Year Average

USA 2.0% 3.7% 3.8%Eurozone -0.3% 7.3% 5.8%UK 0.8% 6.8% 5.4%Japan -0.2% 8.0% 5.4%Emerging Markets 3.2% 4.6% 3.6%

4

-5.5

3.1

4.9

9.1

6.7

5.8

7.4

16.6

5.1

2.8

-11.1

0.5

1.8

5.4

6.4

10.1

10.8

12.7

14.3

14.6

12.717.4

15.118.2

19.815.1

9.826.6

12.816.5

-20.0 -10.0 0.0 10.0 20.0 30.0

EnergyMaterialsFinancialsCons Disc

IndustrialsCons Staples

HealthcareInfo Tech

UtilitiesTelecom

1H 2019 1-Year 5-Year

5

10

15

20

25

30

USA Non USDeveloped

EmergingMarkets

Europe Japan

18.814.6

10.6

15.8

7.79.0

1.3 1.2 1.9

-4.2

10.2

2.0 2.5 1.34.5

-10

-5

0

5

10

15

20

USA IMI (18% of BMark)

Non-US Developed(13% of BMark)

Emerging Markets(9% of BMark)

Europe Japan


Public Equities40% of TRS Policy Benchmark (New SAA: 40%)

Source: Bloomberg, FactSetNote: All returns are in US Dollar terms

Regional Performance Regional Valuations

Global Sector Performance Regional EarningsAs of 6/30, USD, % Annualized, Sorted by 1-Year Performance

As of 6/30, USD, % Annualized As of 6/30, Forward PE (1999-2019)

40% of Benchmark

Current3rd Quartile

Median

1st Quartile

Legend

As of 6/30, Forward EPS Indexed to 100, USD

6080

100120140160180200220240

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019USA Japan World Emerging Markets Europe

5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5Today Beg of 2019 5 Years Ago

-5

0

5

10

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Long Treasuries Non-US Govt Bonds TIPS High Yield

2.1 2.4

1.3 1.3

-3-2-101234567

2000 2003 2006 2009 2011 2014 2017 2020 2022

Taylor Rule Fed Funds Eff. Fed Exp Market Exp

11.0

6.2

1.2

5.5

9.9

12.3

4.8

2.3

4.5

7.55.7

1.80.8 0.2

4.7

-202468

101214

Long Treasuries(11% of BMark)

TIPS(3% of BMark)

Cash(1% of BMark)

Non-US GovernmentBonds

High Yield


Fixed Income15% of TRS Policy Benchmark (New SAA: 16%)

Source: Bloomberg, MSCI, FactSet (note all returns are in US Dollar terms)1Taylor Rule Definition: A central bank nominal policy rate set equal to a neutral real rate plus the current level of inflation, which responds to changes in the inflation gap (as measured by the difference between the current rate of inflation and thecentral bank's inflation target) and the output gap (as measured by the difference between NAIRU and the current unemployment rate).

Performance Yields

Cash Rate1 US Yield Curve

As of 6/30, USD, % Annualized

As of 8/31, Yield to Maturity, %

As of 6/30, %

As of 6/30, %

15% of Benchmark

Special Topic: Value

7

Special Topic: ValueOverview

Source: Credit Suisse, Goldman Sachs

Special Topic DateRecession September 2017

Growth February 2018Inflation September 2018

Strategic Asset Allocation February 2019Value September 2019

Value is the fifth Special Topic in our ongoing series

As of 7/26

Update on Recession Special Topic Update on Growth Special TopicAs of 6/30

Update on Inflation Special TopicAs of 6/30

8

Special Topic: ValueWhat is Value?

• The basic principal of value investing is the belief that inexpensive assets should outperform more expensive assets in the long-term

• The value factor seeks to identify assets with low prices relative to their true “intrinsic value”

Metric Calculated As Value Characteristics

High Book to Price (B/P) Book Value Per ShareMarket Share Price

• Share price could be cheap compared to book (accounting) value

High Earnings to Price (E/P) Earnings Per ShareMarket Share Price

• Could indicate that share price is low relative to earnings

High Cash Flow to Price (CF/P) Cash Flow Per ShareMarket Share Price

• May indicate that share price is low relative to operating cash flows

High Dividend Yield (DY) Annual DividendMarket Share Price

• Share price may have fallen below fair value

• High (and growing) DY is a sign of quality

“Price is what you pay; value is what you get”– Benjamin Graham

“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price”

– Warren Buffett

The Value Factor Common Equity Value Factor Characteristics

9

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Exce

ss R

etur

n in

%

US Europe Asia

-5.0

0.0

5.0

10.0

15.0

Exce

ss R

etur

n (V

alue

-G

row

th) i

n %

Excess Return (Value - Growth)

Source: Fama FrenchNote: Excess returns (LHS), calculated using Fama French HML portfolios, (RHS) calculated using the mean value of Fama French B/P,E/P, CF/P, DY portfolios.

Special Topic: ValueHistorical Performance

3.58%

US Value Outperforms

US Growth Outperforms

USEurope

Asia

Excess Return of Value Over Growth (Rolling 10 Year Annualized) Excess Return of Value Over Market (Rolling 10 Year Annualized)

Over the long-term, Value has outperformed Growth… …And the overall Market

10

Special Topic: ValuePerformance of US Companies With Negative Cash Flows or High R&D Costs

Source: AQR. Utilizing AQR’s US Large Cap universe, which is roughly equivalent to the Russell 1000. Returns are beta-adjusted for companies with Negative Cash Flows and Negative Earnings.Note: *Negative CF companies returns are shown relative to an equal-weighted average of stocks within the Russell 1000 Index. **Tech Bubble period is defined Jan 1999-Feb 2000.

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1980-1998 Tech Bubble(1999-2000**)

2000**-2017 Recent Period(2018-2019 YTD)

Long Term Average

Average Annualized Excess Returns for U.S. Companies with Negative Cash Flows* January 1, 1980 – June 30, 2019

-5%

0%

5%

10%

15%

20%

25%

30%

1980-1998 Tech Bubble(1999-2000*)

2000*-2017 Recent Period(2018-2019 YTD)

Long Term Average

Average Annualized Returns for U.S. Companies Based on R&D IntensityJanuary 1, 1980 – June 30, 2019

Tech Bubble(1999-2000**)

Tech Bubble(1999-2000**)

2000**-2017

2000**-2017

11

100

200

300

400

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Value Growth MSCI US

Source: Bloomberg, FOMCNote: Value and Growth indices represented by MSCI US Value and MSCI US Growth

Special Topic: ValueWhy Is Value Currently Not Working?

2.1 2.4

1.3 1.3

0

1

2

3

4

5

6

7

2000 2003 2006 2009 2011 2014 2017 2020 2022

Fed Funds Eff. Fed Exp Market Exp

1. Low interest rates have reduced the cost of capital… …Allowing growth companies to outperform

• The penalty for delaying earnings into the future rather than generating them today is lower

• This environment favors growth companies over value companies

-80%-60%-40%-20%

0%20%40%60%80%

100%120%140%

Value Growth MSCI US

Cumulative Returns since 2000 (Value, Growth, MSCI US)

• Innovative and technology focused companies have fueled investor’s willingness to pay for future growth

Value vs. Growth vs. MSCI US Since 2009 (Indexed to 100)

12Source: Credit Suisse1 – TECH+ is (1) the Technology Sector plus (2) the Internet Retail, Interactive Media & Services, Interactive Home Entertainment industries plus (3) Netflix

Special Topic: ValueWhy Is Value Currently Not Working? (cont.)

2. Disruption By Big Tech’s Growth Potential Other Possible Reasons For Value’s Recent Underperformance

“Tech+” vs. S&P 500 Revenue Growth (Indexed to 100)

• Revenue growth of “Tech+1” companies has surpassed the broad market since 2009

• Technology companies have scaled and inexpensively funded revenue growth while disrupting traditional value industries

3. Moats. New companies have created enduring “moats” around their businesses while disrupting established companies (value industries)

4. Patience. Investors are patient with stocks that aren’t yet profitable but have high growth prospects

5. Value Less Relevant. Central banks have kept the cost of capital artificially low, allowing unprofitable “zombie” companies to survive and delay mean reversion for value companies

6. Accounting. Book to price (B/P) ratios no longer capture the full value of intellectual capital and other intangible assets of fast-growing companies

7. Good Stuff Gone. Private equity firms have acquired the most attractive small value companies and removed them from public markets

13

Source: AllianceBernstein, Credit Suisse, Fama French, as of 6/30/20191 – Calculated using Fama French HML portfolio returns

Special Topic: ValueWhy We Expect Value to Come Back

Reasons Supporting Value Our Long-Term Orientation

1. Mean Reversion. A wide valuation gap has formed between the most expensive and cheapest quintiles in the US market

• We still retain a conviction in the long-term expected outperformance of value...

S&P 500 P/E Ratios (as of 6/30)TECH+ Disc Tech REITs Stap Util Comm Mat S&P Ind Ene H.C. Fin21.6x 21.2x 19.3x 19.2x 19.2x 18.7x 17.5x 16.9x 16.7x 15.7x 15.7x 15.3x 11.7x

2. Fundamentals matter. Technology cannot form an ever-increasing percentage of the market and eventually value sectors will outperform

• Over longer periods of time, higher starting multiples (such as many current priced growth companies) typically lead to weaker returns

Years Value Has Outperformed Growth Since 19271

Value Outperformed

Growth Outperformed Total

No. of Years 56 37 93Percent 60% 40% 100%

P/E

Ratio

Dot Com Bubble

Today

3. Regulation. Increased regulatory scrutiny of big technology and growth companies

Financials Energy S&P Tech+

Dotted Line = Today

14

Conclusion

• Market Updateo The first half of 2019 was characterized by strong performance in global equity markets, especially the US, amid a

worldwide slowdown in growth and low inflationary pressureso Over the second half of 2019, global markets are expected to be tested by heightened global volatility and geopolitical

uncertainties

• Special Topic: Valueo Investors believe in the value factor as history has proven that inexpensive assets outperform more expensive assets in the

long-runo Historically, value stocks have outperformed both growth stocks and the broad market but value has recently

underperformed due to easy monetary policy, patient capital, and technological disruptiono As long-term investors, we believe reversion to the mean will run its course and eventually value sectors will outperform as

investment returns ultimately come from positive cash flows and strong fundamentals

APPENDIX

16

Source: AQR Capital ManagementNote: Excess returns calculated from long/short Value and Momentum factors using the definitions of Asness, Moskowitz and Pedersen (2013)

Special Topic: ValueValue Across Asset Classes

Value is everywhere... …And has overperformed on average in select asset classes

• The same principals of equity value investing can be applied beyond individual stock selection to other asset classes

• Value risk premia continues to be harvested in other asset classes, including government bonds, currencies, and commodities

Cumulative Excess Value Returns Across Asset ClassesAsset Class Value Characteristics

Bonds

• Cheap bonds (relative to fundamentals) tend to outperform expensive bonds

• Buying bonds with a higher spread than bonds with similar ratings in the same industry

Currencies

• Buying undervalued currencies and selling overvalued currencies using Purchasing Power Parity (PPP)

• PPP theory explains that price differences between countries should narrow over time by exchange rate or inflation rate movements

Commodities • Selecting commodities whose prices are believed todiverge from supply-demand dynamics

Excess Returns (Annualized)Asset Class Excess Returns

Fixed Income 0.5%Currencies 2.7

Commodities 5.2Mean 2.8

-50

0

50

100

150

200

250

300

350

400

Fixed Income Currencies Commodities

358%

119%

22%

17

1

10

100

1000

Jan-

90O

ct-9

0Ju

l-91

Apr-9

2Ja

n-93

Oct

-93

Jul-9

4Ap

r-95

Jan-

96O

ct-9

6Ju

l-97

Apr-9

8Ja

n-99

Oct

-99

Jul-0

0Ap

r-01

Jan-

02O

ct-0

2Ju

l-03

Apr-0

4Ja

n-05

Oct

-05

Jul-0

6Ap

r-07

Jan-

08O

ct-0

8Ju

l-09

Apr-1

0Ja

n-11

Oct

-11

Jul-1

2Ap

r-13

Jan-

14O

ct-1

4Ju

l-15

Apr-1

6Ja

n-17

Oct

-17

Jul-1

8Ap

r-19

Cum

ulat

ive

Perfo

rman

ce(G

row

th o

f Hyp

othe

tical

$10

)

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

Jan-

90O

ct-9

0Ju

l-91

Apr-9

2Ja

n-93

Oct

-93

Jul-9

4Ap

r-95

Jan-

96O

ct-9

6Ju

l-97

Apr-9

8Ja

n-99

Oct

-99

Jul-0

0Ap

r-01

Jan-

02O

ct-0

2Ju

l-03

Apr-0

4Ja

n-05

Oct

-05

Jul-0

6Ap

r-07

Jan-

08O

ct-0

8Ju

l-09

Apr-1

0Ja

n-11

Oct

-11

Jul-1

2Ap

r-13

Jan-

14O

ct-1

4Ju

l-15

Apr-1

6Ja

n-17

Oct

-17

Jul-1

8Ap

r-19

Dra

wdo

wn

Source: AQR, Bloomberg, as of 6/30/2019

Special Topic: ValueValue Over the Long-Term

Value Factor Performance Over the Long Term Last 24 Months Equity Index Performance

Value works well over the long term...

...with periodic drawdowns

Last 24-Months (Annualized %)MSCI USA IMI Value 7.5

Growth 16.3Difference -8.8

MSCI EAFE + Canada Value 2.1Growth 4.7Difference -2.6

MSCI Emerging Markets Value 4.7Growth 4.5Difference 0.2

MSCI All-Country World Value 5.6Growth 11.9Difference -6.3

18

This slide was intentionally left blank.

19


20

Source: Fama French

Special Topic: ValueUS Historical Value Returns vs. Overall Market

US Historical Value Returns vs. Overall Market

Since 1952 Since GFC YTD 6/30/2019

Metric Total Return Over Market Total Return Over Market Total Return Over Market

B/P 13.8% 3.0% 12.9% -2.7% 13.4% -5.2%

E/P 15.1% 4.3% 15.3% -0.3% 12.6% -6.0%

CF/P 14.2% 3.3% 13.7% -1.9% 14.8% -3.8%

DY 12.4% 1.6% 14.1% -1.5% 13.6% -5.0%

Value Mean 13.9% 3.0% 14.0% -1.6% 13.6% -5.0%

Market 10.8% 15.6% 18.6%

21

TRS Strategic Asset Allocation

Source: TRS IMD

Strategic Asset AllocationDiversification Framework

22

6.24.7

9.3

4.7 4.14.9

1.22.1

0.3

2.81.9 2.42.2 2.1

3.4 3.32.5

1.4

-2

0

2

4

6

8

10

12

Directional(4% of BMark)

Stable Value(4% of BMark)

EquityLong/Short

Credit CTA Macro


398209

335 291 257

581

925 91811391225

801634

-812

-239

192338 235 156 176

-11

-328-49 -98 -77

-1000

-500

0

500

1000

1500

100

120

140

160

180

200

Directional HFs (HFRI FOF Index) Stable Value HF (HFRI FOFC Index)

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Equity Hedge Event Driven Macro Relative Value Fund of Funds

Hedge Funds8% of TRS Policy Benchmark (New SAA: 5%)

Source: Bloomberg, HFR1Jensen’s alpha is a measure of alpha versus the equity market at equivalent risk. For example, if hedge funds are 20% as risky as the market then they are judged to have a 20% equity/80% cash benchmark.

Performance Alpha Versus Equivalent Risk Equity1

Average Hedge Fund Fees Hedge Fund Launches v. Liquidations

As of 6/30, % Annualized As of 6/30, Cumulative Jensen’s Alpha, Indexed to 100

8% of Benchmark

As of 3/31, Count of Net Launches (Launches – Liquidations)As of 3/31, Average Management Fee per Strategy (%)

23

493437

0

100

200

300

400

500

600

Equity Invested ($bn) Average

3.8 2.7

6.6

2.6

11.9 10.8

19.1

5.8

10.6 11.713.9

8.3

0

5

10

15

20

25

Private Equity (13% ofBMark)

Buyout Venture Private Debt


-2x

0x

2x

4x

6x

8x

10x

12x

14x

16x

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Public to Private Spread Russell 1000 Index Large US Buyouts (>$500M)

199

98

0

40

80

120

160

200

240

Equity Raised ($bn) Average

Private Equity13% of TRS Policy Benchmark (New SAA: 14%)

Source: State Street, Preqin, S&P, DealogicMarket data for US Large Buyout Market unless specified otherwise1PE Benchmark performance shown as TWRs, PE Strategy performance shown as IRRs. PE Benchmark and Strategy performance (Buyout, Venture, Private Debt) valuations as of 3/31/2019.

Performance1 Multiples

Transaction Volume Fundraising Activity

As of 6/30, % Annualized As of 6/30

As of 12/31 As of 6/30

24

-15

-10

-5

0

5

10

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Income Appreciation Total Return

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Average Apartments Industrial Office Retail

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Average Apartments Industrial Office Retail

2.7 3.3 2.71.3

6.56.6 6.7 5.9

3.2

14.0

9.2 8.5 8.2 8.4

13.7

0

2

4

6

8

10

12

14

16

Real Assets(14% of BMark)

Office Apartment Retail Industrial


Real Estate14% of TRS Policy Benchmark (New SAA: 15%)

Source: Bloomberg, NCREIF, Real Capital Analytics, State Street1Property Type Return Indices are Property-level indices and do not reflect leverage or asset management fees, whereas NCREIF ODCE is a fund-level index and is levered and net of fees. Returns are for US-based properties only. Real Estate Benchmark and Strategy performance (Office, Apartment, Retail, Industrial) shown as TWRs based on valuations as of 3/31/2019.

Performance1 Cap Rates

Income Growth Composition of Returns

As of 6/30, %

As of 6/30, %As of 6/30, %

As of 6/30, % Annualized

25

-0.3

-5.1

5.03.0

0.4

7.6

4.2

0.5

10.8

-8-6-4-202468

1012

ENRI(5% of BMark)

Natural Resources Infrastructure


20

25

30

35

40

5

8

10

13

15

18

20

2011 2012 2013 2014 2015 2016 2017 2018 2019

OPE

C Pr

oduc

tion

(mm

bbls

/d)

US

/ Sa

udi P

rodu

ctio

n (m

mbb

ls/d

)

US Saudi Arabia OPEC

0

1

2

3

4

5

6

0

20

40

60

80

100

120

2013 2014 2015 2016 2017 2018 2019

Crude Spot (LHS, $/bbl) Natural Gas Spot (RHS, $/mmbtu)

- 20 40 60 80 100 120 140 160

0

200

400

600

800

1,000

1,200

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

S&P 500 Energy Total Return (LHS) Crude Spot (RHS, $/bbl)

Energy, Natural Resources and Infrastructure5% of TRS Policy Benchmark (New SAA: 6%)

Source: State Street, Bloomberg, Cambridge, Tudor Pickering Holt, EIA1ENRI Benchmark and Strategy (Natural Resources and Infrastructure) performance shown as IRRs based on valuations as of 3/31/2019.

Performance1 Energy Equity Performance

Energy Prices Oil Market Production

As of 6/30, % Annualized As of 6/30

As of 6/30 As of 3/31

Mike Pia, Managing Director

September 2019


Strategic Partnerships & Research

2

Agenda

• SPR Attributes

• SPR Overview

• Performance

• Public SPN

• Private SPN

3

SPR Attributes

• Mission: Focus on dual mandate:

o Returns: Contribute to Trust’s return objectives (relative and absolute)

o Delivering Full Firm: Access total firm capabilities and disseminate information and resources throughout IMD

• Network: Create multi-dimensional connections and drive improvement through unique, competitive interactions

• Diversification: Diversified methodologies, strategies, and capabilities lead to improved outcomes

• Thought-Leaders: Provide key market insights via headlight systems, support Trust innovation initiatives, be the go-to partner (client) and the first call

4

Global Equity57%

Real Return22%

Stable Value15%

Net Asset Allocation Leverage 1%

Risk Parity 5%

Stable Value Global Equity Real Return Total

Portfolio NAV($, mm)

%Trust

NAV($, mm)

%Trust

NAV($, mm)

%Trust

NAV($, mm)

%Trust

Public SPN 1,905 1.2% 5,890 3.7% 866 0.6% 8,661 5.6%

Private SPN 1,784 1.1% 3,309 2.1% 1,087 0.7% 6,179 3.9%

Total 3,689 2.3% 9,199 5.8% 1,953 1.3% 14,840 9.4%

SPN in the Trust

• Public SPN

o 4 Partners, Global Tactical Asset Allocation-focused

o 200bp net alpha target

o >40 investment strategies

o 77% alpha share since inception

o 64 research projects completed

o Investor Days, 1 Joint Summit, 1 Summit

• Private SPN

o 2 Partners, 2 implementations:

Strategic, 13% net return target

Tactical Value, 10% net return target

o >40 investment strategies

o Investor Days, 1 Joint Summit, 1 Summit

o Over 20 TRS employee exchanges completed

Source: State Street Bank and TRS IMD.

SPR Overview As of June 30, 2019

5

SPR Overview Summary Performance as of June 30, 2019

Source: State Street and TRS IMD; Public SPN performance and capital as of 6/30/19; Private SPN capital amounts as of 6/30/19 (Performance as of 3/31/19). SI dates are 6/30/08 for Public SPN; 4/23/12, 5/14/12 and 9/30/13 for SPN Strategic PE,RA and ENRI strategies, respectively and 6/25/15 for SPN Tactical Value. 1 IRR alpha for SPN Tactical Value is benchmarked against a 10% net target return.

7.0% -23 78 137 137 -0.2 0.6

-360

-140370N/A

20

-20210N/A

N/A

5-Year

- - --720450

6.4% 10.2% N/A

1-Year 3-Year 5-Year

4.7% 13.2% 11.5%11.1% 10.8% 11.3%

5.5% 13.2% 11.0%

3-Year

112

Annualized Returns (IRR) Annualized Alpha (IRR, bp)

ENRI 489 0.3% 13.6% 2.9%

SPN-Tactical Value1 1,784 1.1% — —

Private Equity 3,309 2.1% 75.3% 14.7% Real Estate 598 0.4% 11.1% 5.4%

($, millions) SPN-Strategic 4,395 2.8% 100.0% 8.4%

1-Year 3-Year% of Trust Private SPN % TRS Private Markets

Private Markets SPN Portfolio

PortfolioAssets % of Portfolio (NAV)

NAV

SI($, millions)

Public SPN 8,661 5.6% 6.7% 9.6%

3-Year

0.7

SI 1-Year SI 1-Year% of Trust 1-Year 3-Year SI 1-Year

Public Markets SPN Portfolio

PortfolioAssets Annualized Returns (TWR) Annualized Alpha Tracking Error Information Ratio

NAV

5.6% 16.6% 8.0% 190

83

3-Year

• Public SPN has added $665 million in value over the SPN benchmark since inceptiono 1-Year performance negatively impacted by 4Q18 volatility, but 2019 YTD performance is strong (+125 bp net alpha)

• SPN-Strategic has realized a 11.1% since inception IRRo Outside SPN-Strategic, co-investments with KKR and Apollo have returned 13.5% since inceptiono 1-Year/3-Year Private Equity underperformance largely driven by public holdings and credit-related strategies

Public Markets SPN Portfolio

7

Public Markets SPN Performance as of June 30, 2019

ProgramAssets Annualized Return Annualized Alpha Tracking Error Information Ratio

NAV($, millions) % of Trust 1-Year 3-Year Since

Incept. 1-Year 3-Year Since Incept. 1-Year 3-Year Since

Incept. 1-Year 3-Year Since Incept.

BlackRock $2,230 1.4% 7.5% 10.7% 7.3% +56bp +189bp +111bp 235bp 186bp 198bp 0.2 1.0 0.6

JP Morgan 2,253 1.4 5.4 8.9 7.3 -155 +7 +108 220 166 210 -0.7 0.1 0.5

Morgan Stanley 2,103 1.4 7.9 9.7 6.7 +92 +88 +53 113 168 191 0.8 0.5 0.3

Neuberger Berman 2,075 1.3 6.1 9.3 6.5 -83 +49 +35 173 127 200 -0.5 0.4 0.2

Total Public SPN $8,661 5.6% 6.7% 9.6% 7.0% -23bp +83bp +78bp 137bp 112bp 137bp -0.2 0.7 0.6

Target Portfolio/Firm: 200bp Firm: 250bp Firm: 0.8

Public Markets SPN Assets Under Management Total Public SPN Cumulative Alpha

Source: State Street Bank and TRS IMD.Inception of Public SPN: June 2008.

8

Performance Key Drivers:• US/China trade tensions and growth concerns created volatile markets in 2018-2019.

• An overweight to fixed income contributed positively, but a mis-timed overweight to equities detracted in December 2018.

• Currency strategies detracted, while underlying equity security selection added value.

• 2019 YTD performance significantly improved (125bp net alpha).

Public Markets SPN Performance as of June 30, 2019

Source: State Street Bank and TRS IMD.Note: Fiscal year for the Public Markets SPN runs from July to June due to inception of the structure in June 2008.

Return by Public Markets SPN Alpha by Public Markets SPN

8 of 11 years with positive alpha

9

TRS | CONFIDENTIAL

0.40

0.45

0.50

0.55

0.60

0.65

0.70

1 2 3 4 5 6 7 8 9 10

Shar

pe R

atio

Time Trigger (yrs)

Strategic Asset Allocation Support (SAA)

• Public SPN instrumental to 2019 SAA study

o All partners submitted capital market assumptions

o Deep dives with partners on forecasts, changes, and implications

o 2 partners conducted research projects focused on SAA

Frequency of SAA review

SAA Governance

Tactical vs. Strategic views

Detailed review at ‘Investor Day’ in April 2019

Sharpe falls as updates become less frequent;Larger decrease when SAA skill level is higher

Example - Long Term Capital Market Assumptions

Example - Time Trigger Impact on Portfolio Sharpe Ratio

Source: TRS IMD.

10

• Information Ratio (IR) is a key metric used to judge investment skill:

• Individual partners have realized on average a 0.55 IR…a good result, with the total portfolio realizing a 0.8 IR.

• Our 200bp net alpha expectation remains a stretch goal (1.0 IR). A good result (0.5 IR) has been accretive to the overall Trust, but we acknowledge the cyclicality of alpha.

IR = Excess Returns Over BenchmarkTracking Error

Special Topic: Setting Alpha Expectations

IR: 0.0Weak

IR: 0.5Good

IR: 1.0Great

IR: 0.55Individual

partner

IR: 0.80Total

Portfolio

Experience:

Expectations:

Private Markets SPN Portfolio

12

MARKET VALUE BY STRATEGY

• Portfolio is 57% invested to date with ~$3.8 billion of dry powder to invest• Initial SPN capital has been fully committed; future commitments dependent on the recycling of distributions• Currently focused on deploying capital in Asia, global public-to-private transactions, and real assets

Private Equity69%

ENRI14%

Real Estate17%

$0.0

$2.0

$4.0

$6.0

$8.0

2012 2013 2014 2015 2016 2017 2018 6/30/19

Apollo KKR NAV

MARKET VALUE BY GEOGRAPHY

Domestic75%

International Developed

11%

International Emerging

14%

GROWTH IN COMMITMENTS AND NAV

Source: State Street Bank as of 6/30/19.

Private Markets SPN (SPN Strategic) Portfolio Snapshot

13


14


APPENDIXAPPENDIX

16

Mike Pia, CFA, CAIAManaging DirectorBS Mechanical Engineering,

United States Naval AcademyMS Software Engineering,

University of West FloridaMBA, Texas Christian University

.

Sibei Wen, CFA, FRMContractorBA Statistics, Hunan UniversityMS Statistics, UT Austin

PUBLIC MARKETS PRIVATE MARKETS

Courtney Villalta Senior Investment ManagerBS Finance, St. Edward’s University

Susan White Analytics and Support BS French, Penn State UniversityCFA Investments Foundation

CertificateCAIA Fundamentals of Alternative

Investment Foundations Certificate

Curt Rogers, CAIA, CFA, FRMDirectorBS and MS Aeronautical Engineering,

Massachusetts Institute of TechnologyMBA Finance, UT Austin

Jean-Benoit Daumerie, CFASenior Investment ManagerBS Electrical Engineering,

University of PennsylvaniaMBA Finance, Rice University

Mikhael Rawls, CFASenior AssociateBA Economics, Harvard University

Dan Judd, CFASenior Investment ManagerBachelor of Business, Finance &

Financial Economics, Griffith University

MBA Bond University

INVESTMENTS TEAM

MARKET INTELLIGENCE TEAM SUPPORT

SPR Team Experience Summary7 Masters Degrees

5 Engineering Degrees6 CFA, 2 CAIA, 2 FRM

SPR Overview Organization

17

• Summits: held three times per year for Public SPN (two for Private SPN), one of which is a joint Public/Private

• Views: Public SPN positioning shared to inform IMD

• Insights: Market commentary from all aspects of partner firms

• Research: Proprietary projects with each partner

• Exchange: Institutionalized training program with Private SPN

TRS Profit Center

Force Multiplier Partner

Exchange

SPR

Positioning

External Public

Markets

Research Projects

Summits

Multi-Asset

Strategies Group

Forward Views & Themes

Private Markets

Risk

Internal Fundam-

ental

MarketCommentary

Partnership Activities

18

2008Public SPN

$4bn approved by TRS Board and allocation made on 6/30

2011Benchmark

Change

2015Benchmark

Change

2017Public SPN portfolio

double in size from original

allocation

2011Barclay’s added

as 5th Public SPN portfolio

2013Barclay’s

removed as Public SPN portfolio

2019Aladdin

Implemented

2013SPR Team spin-off from MSG

2011Risk Parity Research Project

(example)

2013Alternative Risk

PremiaResearch Project

(example)

2016Blank Canvas

Research Project

2015Common Language

Begins

2015Mike Pia

named head of SPR Group

Public SPN Timeline

2019Benchmark

Change

19

Summits

Knowledge Transfer

Research

Common Language

Two Summits, One Research-Based Investor Day

• Foster environment of competition and debate on challenging investment issues in current environment

• Portfolio performance review with Management Committee and discuss special topics

• 2018-2019 Topics: SAA, Trade Wars, Brexit, Generating Returns in Uncertain Times

Enhanced Portfolio Analytics

• Understand trends and themes across partners

• Identify trade rationale

• Improved communication to MC and Trust

Finding Solutions to Investment Problems

• 64 projects completed since inception of Partnership

• Develop models, valuation frameworks, risk management, and investment strategies

• Transparency and access to entire partner firms

2019 Investor Power Hours1

• Trust-wide, intentional engagement from full partner firms

1 (Left to right): Jamie Dimon (JPM), Jonathan McBride (BR), Carla Harris (MS), Ruchir Sharma (MS), Jennifer Easterly (MS).

Partnership ActivitiesPublic SPN

20

Public Markets SPN Positioning

Full Transparency on Positioning Leads to Better Insights:• Regular reporting from partners results in a “Common Language.”

• Common reporting tool helps identify themes, trends, and high conviction trades across the portfolio.o Sharing data and information across Trust acts as Force Multiplier.

• Trends in past year: o The partners continue to reduce risk as they are cautious about late-cycle sentiment and heightened trade concerns.o Portfolio positions have shifted away from equity and towards fixed income and credit.

June 2019 Active Risk ContributionsJune 2018 Active Risk Contributions

Source: TRS IMD.Note: Risk contributions are calculated using average positioning within a month and a 120 month trailing covariance matrix. ‘Other’ contributions are not shown: EM equities and commodities.

21


22

Private SPN – Historical Timeline

November 2011SPN-Strategic$6bn Approved by TRS Board

March 2015SPN-TV $2bn Approved by Board

February 2012SPN-StrategicClosed (Began Investing)

December 2015SPN-TVInitial deployment

March 2015SPN-Strategic$2bn Upsize Approved by Board

January 2018SPN-TV$1bn Upsize (Approved by IIC)

March 2018$1Bn Co-investment sidecar approved (IIC)

Private SPN Timeline

Pre-SPN Timeline2006First investments with KKR and Apollo: $550m (total) to their flagship PE Funds

2008Approved ~$1.2bn in “dislocated credit” mandates ($800 to KKR, $400 to Apollo) $750M approved to Apollo PE Fund VII

2010Combined commitments to Apollo and KKR grows to ~$3.3bn

2011~$3.8bn in existing (total) commitments; SPN negotiations commenced

23


24

Research

Knowledge Transfer

Strategic Initiatives

Team Development

Three Projects

• KKR Research Project – Private Equity Portfolio Construction

• Apollo Research Project – Post IPO Security Management

• Project ANT – Streamlining of operational processes

SPN Exchange

• 2019 – 3 participants

• 1 Senior placement in Private Equity – industrials

• 2 Placements in Real Estate

Assisting with TRS Strategic Priorities

• PE 2.0 – Private Equity, building the fleet initiative

• Co-investment reference calls

• Early calls on co-investment opportunities

Strategic Engagement1

• Trust-wide, intentional engagement from full partner firms

Partnership ActivitiesPrivate SPN

1 (Left to right): Scott Nuttall (KKR), Joe Bae (KKR), General David Petraeus (KKR), Josh Harris (Apollo), Marc Rowan (Apollo).

25


James Nield, Chief Risk OfficerStephen Kim, Sr. Investment Manager

September 2019


Investment Risk Report

2

Risk Metric Value In Compliance? Page(s)

1. Asset Allocation (AA): Underweight Global Equity Underweight 2.9% P 3 - 5

2. Drawdown Risk: VaR estimate declined 5.7% VaR P 6 - 8

3. Tracking Error: Total Trust TE stable 127 bp P 9 - 10

4. Leverage: Trust unlevered by 0.4% 117.7% Gross, 0.4% Net P 11 - 13

5. Liquidity: Remained strong 8.6 Coverage Ratio P 14

6. Counterparty Risk: Within Policy limit Lowest Rating: BBB+ P 15

7. Derivatives Exposure: Decreased slightly 20.4% Gross P 16 - 17

8. Securities Lending: Earnings decreased 35.3% Utilization P 18

All metrics in compliance

Unless otherwise noted, data presented as of June 30, 2019

3

-10%

10%

30%

50%

70%

90%

110%

Q2-19Q4-18Q2-18Q4-17Q2-17Q4-16

Global Equity Stable Value Real Return Risk Parity Net AA Leverage

54.7%

17.8%21.8%

5.3% 0.4%

57.6%

14.7%

21.7%

5.0%1.0%

0%

10%

20%

30%

40%

50%

60%

70%


Benchmark

Trust unlevered by 0.4%

Asset Class Weights

Source: State Street Bank; note: Net AA leverage is 0.4%, which indicates the Trust is unlevered by 0.4%

Asset Class Weights Trend

4

-2.9%

3.1%

0.1%

0.3%

-0.6%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19


Trust remained underweight Global Equity

Relative Asset Class Positions Through Time

Source: State Street Bank; relative positions shown in comparison to quarter-end Trust benchmark weights as defined in policy

5

Global Equity UW 2.9% Stable Value OW 3.1% Real Return OW 0.1%

-3.2%

0.2%

0.2%

0.3%

-0.3%

-5.0% -2.5% 0.0% 2.5% 5.0%

USA

Non-US Developed

Private Equity

Emerging Markets

Directional HF

-0.6%

0.3%

3.4%

-0.6%

-5.0% -2.5% 0.0% 2.5% 5.0%

US Treasury

Stable Value HF

Absolute Return

Net AA Leverage

0.0%

0.0%

0.0%

0.1%

-5.0% -2.5% 0.0% 2.5% 5.0%

Real Estate

ENRI

US TIPS

Commodities

Stable Value overweight driven by Absolute Return

Source: State Street Bank; private credit allocation included in Absolute Return

6

5.7%

5.4%

3%

4%

5%

6%

7%

8%

9%

Q2-19Q4-18Q2-18Q4-17Q2-17Q4-16

Total Fund Benchmark Policy Max / Min

54.7%

79.8%

0% 50% 100%

% of Assets

% of VaR

Global Equity

17.8%

-11.0%

-15% -5% 5% 15% 25%

% of Assets

% of VaR

Stable Value

5.3%

5.0%

-15% -5% 5% 15% 25%

% of Assets

% of VaR

Risk Parity

21.8%

26.0%

0% 10% 20% 30%

% of Assets

% of VaR

Real Return

VaR estimate declined to 5.7%

VaR History

Source: State Street Bank

7

0.1%

2.7%

5.8%

13.2%

0.0%

-0.5%

8.4%

18.1%

-15% -5% 5% 15% 25%

Commodities

US TIPS *

ENRI

Real Estate

% of VaR % of Assets

3.7%

14.6%

9.0%

12.9%

14.5%

1.9%

24.9%

14.5%

18.5%

19.9%

-15% -5% 5% 15% 25% 35%

Directional HF *

Private Equity

Emerging Markets

Non-US Developed

USA


0.4%

3.4%

4.3%

10.2%

1.2%

0.2%

-12.5%

-15% -5% 5% 15% 25%

Net AA leverage

Absolute Return *

Stable Value HF *

US Treasury *


Stable Value assets remain a key source of diversification

* These assets contribute less risk than their dollar allocationSource: State Street Bank

Global Equity Stable Value Real Return

8

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Worst GFC MonthOct '08

Dot ComCorrection

Jul '98 - Aug '98

Bond CrashFeb '94 - May '94

Taper TantrumMay - Jun '13

Asian CrisisJul '97

Q4 2018 Sovereign DebtCrisis

Aug '11

Dot Com BubbleNov '99 - Jan '00

EM Asia RallyJan '99 - May '99

Best GFC MonthApr '09

Total Fund Benchmark

Stressed Trust returns expected to perform in line with benchmark

Scenario Analysis

Source: State Street Bank; note: data shown are predicted drawdowns given current allocation, except for Q4 2018, which reflects realized performance

9

127

78

0

40

80

120

160

200

Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19

bp

Total Trust Forecast Tracking Error Public Market Stand Alone Forecast Tracking Error

Forecasted Trust tracking error stayed stable


10

78

0

100

200

300

400

500

Total Public US TIPS Non-USDeveloped

USA Equity EmergingMarkets

Risk Parity Directional HF Stable ValueHF

bp

Current Forecast TE 3-Year Realized TE Policy Maximum Policy Neutral

0

150

300

450

600

750

900

1050

TotalPrivate

PrivateEquity

Real Assets ENRI

bp

Current Forecast TE 3-Year Realized TE

Public portfolio tracking error forecast at 78 bps, below policy neutral

Source: State Street Bank; note: current forecast tracking error uses past experiences from January 1, 2008 to June 30, 2019 and therefore includes the effects of the Global Financial Crisis; ENRI realized TE reflects period from October 2016 to June 2019

Public Private

11

0.4%

117.7%

80%

90%

100%

110%

120%

130%-20%

-10%

0%

10%

Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19

Total TrustNet AA Leverage Gross Leverage (RHS)

←

Un

leve

red

Leve

red

→

Source: State Street Bank; note: total Trust leverage excludes securities lending which is reported separately; Net AA Leverage includes adjustments for delta-notionalization of options and exclusion of spot forwards of 30 days or less

Trust Gross leverage increased while Net AA Leverage decreased

12

262%

196%

0%

100%

200%

300%

Q2-19Q4-18Q2-18Q4-17Q2-17Q4-16

Risk ParityGross Leverage Net Leverage

194%

109%

0%

100%

200%

300%

Q2-19Q4-18Q2-18Q4-17Q2-17Q4-16

Public Strategic PartnersGross Leverage Net Leverage

Risk Parity and SPN net strategy leverage in expected range


13

34%

51%

48%

57%

20%

30%

40%

50%

60%

70%

80%

Q4-18 Q2-18 Q4-17 Q2-17 Q4-16 Q2-16

Real Estate Loan to ValueCore Value-Added Opportunistic Real Asset Special Situation

523%

68%

0%

200%

400%

600%

800%

Q1-19Q3-18Q1-18Q3-17Q1-17Q3-16

Hedge FundGross Leverage Net Leverage

Hedge Fund and Real Estate strategy leverage range bound

Source: MSCI RiskMetrics, State Street Bank, TRS RE manager data; note: Hedge Fund leverage data sourced from Risk Metrics as of Q3 2018 with historical data available thru Q3 2017. State Street data shown prior to that date

14

Sources of Liquidity

($, billions)

Market

Value

Stressed

Value

Internal Cash 0.7$ 0.7$

US Treasuries and TIPS 21.2 20.2

Other Liquid Assets (Equity, Commodities) 55.6 28.7

Risk Parity 8.3 5.5

Total Sources of Liquidity 85.8$ 55.1$

Note: Excluded Illiquid Private Assets and Hedge Funds 70.6$ NA

Uses of Liquidity

($, billions)

Market

Value

Stressed

Value

Operational Uses of Liquidity 0.1$ (0.4)$

Stressed Securities Lending (2.9)

Stressed Non-collateralized assets -

Stressed Derivatives (0.7)

Stressed Private Markets (2.5)

Total Uses of Liquidity 0.1$ (6.4)$

Liquidity Ratio

Ratio (Sources/Uses) 8.6

Alert Threshold 2.0

Test Result Pass

Note: Net Stressed Liquidity (Sources less Uses) 48.7$

Note: Past 12 Months of Benefit Payments 4.3$

8.6

0

4

8

12

Q2-19Q4-18Q2-18Q4-17Q2-17Q4-16

Sou

rces

/ U

ses

Liquidity Ratio

Threshold

Trust liquidity remained strong

Source: State Street Bank, TRS IMDAssumptions: The stress case assumes liquid assets experience 1.5x the worst rolling monthly return since 2008 plus an additional liquidity stress. Operational uses of liquidity reflects the lesser of forecasted cash flows or monthly benefit payments. Stressed securities lending reflects potential costs associated with termination including a liquidity stress. Stressed non-collateralized assets and derivatives reflect margin calls based on the same market stress applied to Liquid Assets. Private Market investments are assumed to return half as much capital as currently planned and experience capital calls equivalent to total unfunded commitments in equal installments over the course of 12 months.

15

OTC Counterparty

Over the Counter

Bank of America, N.A. A+ Aa2 AA- $0.0

Barclays Bank PLC A A2 A+ 7.6

BNP Paribas SA A+ Aa3 A+ 0.0

CIBC A+ Aa2 AA- 9.8

Citibank N.A. A+ Aa3 A+ 7.4

Credit Suisse International A+ A1 A- 0.9 copy from derivaties

Deutsche Bank AG BBB+ A3 BBB+ 0.5

Goldman Sachs International A+ Aa3 A 15.6

JPMorgan Chase Bank N.A. A+ Aa1 AA 9.8

Macquarie Bank Limited A A1 A 0.0

Morgan Stanley A+ A1 A 0.0

Societe Generale A A1 A+ 0.0

The Toronto-Dominion Bank AA- Aa1 AA- 0.1

UBS AG A+ Aa2 AA- 0.0

FCM Counterparty

Exchange Traded Futures

Credit Suisse Securities (USA) LLC A+ NR NR $253.7

Goldman Sachs & Co A+ NR A+ 159.2

JP Morgan Securities LLC A+ Aa1 AA 51.1

Securities Lending/Custodian

State Street Bank AA- Aa2 AA

S&P Moody's

S&P

Exposure

Moody's Fitch

Fitch

Exposure

S&P Moody's Fitch

Paste Into PPT

46

151

-

50

100

150

200

250

300

350

400

Q2-19Q4-18Q2-18Q4-17Q2-17Q4-16

bp

Average Counterparty CDS Lowest Rated Counterparty CDS

Counterparty Risk within Policy limits

Source: State Street Bank, Bloomberg; OTC counterparty exposure represents positive market value of all OTC derivative positions less collateral posted; Futures Commission Merchant (FCM) counterparty exposure reflects margin posted

16

20.4%

0%

20%

40%

Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19

Gross Notional by Instrument (% of Total Trust) Swaps Futures Forwards Options

6.1%

-20%

0%

20%

Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19

Net Notional by Instrument (% of Total Trust) Swaps Futures Forwards Options

Derivative notional exposure decreased slightly

Source: State Street Bank; note: derivative positions represent transactions in which TRS is a counterparty; net leverage includes adjustments for delta-notionalization for options and exclusion of spot forwards of 30 days or less

17

VaR Contribution from Derivatives

● Total Gross = $32.0b ● Total Net = $9.6b

Gross vs Net Derivatives Notional by Portfolio

5.7%

0.3%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Q2-19Q4-18Q2-18Q4-17Q2-17Q4-16

Total Trust VaR Contribution from Derivatives

-$10

$0

$10

$20

$30

$40

SPN Risk MSG PrivateMarkets

ExternalManagers

Total

$, b

illio

ns

Gross Net

Derivatives contributed small portion of drawdown risk

Source: State Street Bank; derivative positions represent transactions in which TRS is a counterparty. Note: net leverage includes adjustments for delta-notionalization of options and exclusion of spot forwards of 30 days or less

18


19

In conclusion, key points are the following:

• Trust was unlevered by 0.4%

• Strategy leverage levels remained stable

• Stressed (monthly) liquidity ratio remained strong

• Risk metrics were within desired parameters

investment management committee documents/imc_committee_book_sept2019.pdfmembers of the board. mr....

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