state of new mexico state investment council · 2014-07-02 · new mexico state investment council:...

State of New Mexico STATE INVESTMENT COUNCIL

41 Plaza La Prensa Santa Fe, New Mexico 87507

Phone: (505) 476-9500 Fax: (505) 424-2510

STATE INVESTMENT COUNCIL MEETING AGENDA GOVERNOR’S CABINET ROOM, STATE CAPITOL

SANTA FE, NEW MEXICO

MONDAY, JUNE 30, 2014, 2:30 PM

1. Opening Matters a. Roll call & introduction of guests (Governor Martinez, Chair) (5 min) b. Approval of agenda c. Approval of minutes, May 27, 2014

2. Investment Matters: Investment Performance, Market Updates & Private Equity Reporting (120 min) a. Investment Committee report (Harold Lavender) b. SIC performance report & monthly activity summary (Vince Smith & RV Kuhns) c. RV Kuhns Return Assumption Review (Smith & RV Kuhns) d. Peer Review (Smith) e. Financial Models (Smith & RV Kuhns) f. New Mexico PE program reporting items (informational)

3. Closing Matters (Governor Martinez) (5 min)

a. Old or new business b. Next SIC meeting date: Tuesday, July 1, 9:00 am, Santa Fe, NM

4. Public Comment Period (Governor Martinez) (10 min)

5. Vote to Enter Executive Session Pursuant to NMSA, 1978: (Governor Martinez) (30 min)

a. 10-15-1(H)(2) Limited Personnel Matters: employee hiring, retention & compensation b. 10-15-1(H)(7) Ongoing or pending litigation: investment matters & related legal issues

6. Vote: Personnel matters

7. Adjournment

SUSANA MARTINEZ

GOVERNOR

STEVEN K. MOISE STATE INVESTMENT OFFICER

ROBERT “VINCE” SMITH, CFA

DEPUTY STATE INVESTMENT OFFICER

Motions for voting items at June 30, 2014 SIC Meeting Suggested wording:

(1b) Approval of Agenda I move to approve the agenda for today’s meeting.

(1c) Approval of minutes I move that the State Investment Council approve the meeting minutes for May 27, 2014.

(5a&b) Executive Session I move that the State Investment Council enter executive session, pursuant to NMSA 1978 Section 10-15-1(H)(7), to discuss ongoing or pending litigation: investment matters and related legal issues; and to discuss as allowed under Section 10-15-1(H)(2), Limited Personnel Matters: employee hiring, retention and compensation.

ACTION SUMMARY

STATE INVESTMENT COUNCIL

May 27, 2014

Item Action Page # APPROVAL OF AGENDA Approved 2 APPROVAL OF MINUTES April 22, 2014 Approved 3 INVESTMENT MATTERS: REQUIRING VOTE PEIAC report Informational 3 Ares Special Situations Fund IV, L.P. $75 million investment 3 EPIC Ventures V, L.P. Lesser of 10% of committed 4 capital or $10 million Investment Committee report Informational 6 Brookfield RE Finance Fund IV $75 million investment 6 Real Return Investment Policy update Approved 7 OTHER INVESTMENT MATTERS 4Q RE performance review Informational 8 4Q 2013 National PE performance review Informational 8 4Q 2013 NMSIC Co-Investment Fund Rev. Informational 9 4Q 2013 NM PE Inv. Pgm Performance Informational 9 National PE reporting items Informational 10 NM PE Investment Pgm reporting items Informational 10 SIC perf report, TUCS & monthly summary Informational 10 STATE INVESTMENT OFFICER’S REPORT Informational 10 FINANCE MATTERS: COMMITTEE AND INFORMATIONAL REPORTS CFO report Informational 11 GOVERNANCE MATTERS: DISCUSSION 11 [none] CLOSING MATTERS 12 Old & New Business Next meeting date: 6/30 at 2:30 pm PUBLIC COMMENT 12 EXECUTIVE SESSION 12

New Mexico State Investment Council: May 27, 2014 2

MINUTES OF THE

NEW MEXICO STATE INVESTMENT COUNCIL

Santa Fe, New Mexico

May 27, 2014

1. OPENING MATTERS a. Roll call and introduction of guests: quorum present A regular meeting of the New Mexico State Investment Council was called to order on this date at 9:05 a.m. in the Governor’s Cabinet Room of the State Capitol Building, Santa Fe, New Mexico. A quorum was present: Members Present: Mr. Scott Smart, Public Member, Acting Chair Dr. Thomas E. Clifford, Secretary of Finance & Administration Ms. Linda Eitzen, Public Member [by telephone] Mr. Tim Jennings, Public Member Mr. Harold Lavender, Public Member The Honorable James B. Lewis, State Treasurer [arriving at 9:50 a.m.] Mr. Leonard Lee Rawson, Public Member Mr. John Young, Public Member Members Absent: The Honorable Susana Martinez, Governor Mr. Peter Frank, Public Member, Vice Chair The Honorable Ray Powell, Commissioner of Public Lands Attorney General Representative: None. Staff and Committee Members Present: Mr. Steven K. Moise, State Investment Officer Mr. Vince Smith, Deputy State Investment Officer Ms. Lynn Hoffman, Council Investment Committee Mr. Evan Land, General Counsel Mr. Greg Kulka, Director of Private Equity Mr. Brent Shipp, Chief Financial Officer Ms. Geraldine Barlow, Real Return Director Mr. Charles Wollmann, Director of Communications Ms. Kerri Segell, Executive Assistant Guests Present: [See Sign-in Sheet.] b. Approval of agenda


Mr. Lavender moved approval of the agenda, as published. Mr. Jennings seconded the motion, which passed unanimously by voice vote. c. Approval of minutes: April 22, 2014 Mr. Young moved approval of the minutes of the April 22, 2014, meeting, as submitted. Mr. Lavender seconded the motion, which passed unanimously by voice vote. 2. INVESTMENT MATTERS: INVESTMENTS REQUIRING VOTE a. Private Equity Investment Advisory Committee report (Linda Eitzen) Ms. Eitzen reported on discussion and actions taken at the May 8 PEIAC meeting. -- The State Investment Office had asked LP Capital to review those aspects of the private equity investment program that made the program the most successful, as well as lessons learned. The lessons learned were that “managers matter” and that consistent funding over vintage years is essential for performance. The two funds approved at the PEIAC meeting were in fact repeat managers. The PEIAC will be continuing its pacing schedule to consistently fill in the vintage years. -- PEIAC unanimously approved a $75 million commitment to Ares Special Situations Fund IV. This manager has produced good returns over many market cycles. The GP is committing $50 to the fund, so the alignment is very attractive. -- PEIAC discussed the venture capital category. LP Capital noted that, in 2007, the NMSIC sold a lot of the high quality venture capital funds, which is why there are lesser performing and fewer funds in the VC category than in the past. Furthermore, the VC category is very difficult to fill in at the national level because the funds tend to be so small that it is difficult for the SIC to commit enough to make any difference. -- Sun Mountain introduced EPIC Ventures V to the PEIAC. EPIC representatives made a very good presentation, and the committee unanimously approved an investment of 10 percent of the EPIC Venture V Fund, not to exceed $10 million. EPIC was formerly Wasatch. The NMSIC has made commitments to two Wasatch funds, both of which are performing well. EPIC will be investing in New Mexico companies as per the side letter agreement. An EPIC investment professional is on the ground in New Mexico. b. Vote: Ares Special Situations Fund IV, L.P. (Vince Smith & LP Capital) LP Capital advisor Allen Waldrop presented LP Capital’s recommendation of a $75 million commitment to Ares Special Situations Fund IV. [This investment was unanimously endorsed by PEIAC at its May 8 meeting.] -- This fund is a credit-focused strategy that targets stressed and distressed debt securities. The NMSIC has committed to two prior Ares special situations funds in the past: Fund I has a 13 percent net return and a gain of $17.1 million to date. Fund II has a 14 percent net return and a gain of $10 million to date. -- The NMSIC has also committed to two Ares private equity funds. Ares Corporate Opportunities Fund III, a 2008 fund, is at a 23 percent net IRR. Ares Corporate Opportunities Fund IV, raised in 2012, is still early in its investment period.


-- This investment takes advantage of dislocations in the market both in the U.S. and Europe. It is expected that there will be some sort of event in the relatively near future. -- The team is very experienced and there are extensive resources across the Ares platform. The GP is making a $50 million commitment and the terms are very favorable. The fund is expected to benefit from the strong market reputation and resources of the broader Ares platform, which includes 310 investment professionals across the U.S., Europe and Asia. Ares manages four platforms, all of which are expected to provide deal flow to the fund. Ares lead portfolio managers Greg Margolies and Jeff Moore introduced themselves and made a presentation. Responding to Secretary Clifford, Mr. Moore stated that the vast majority of investments they make initially come in the form of a credit obligation. In about half of those situations, the company will go through a reorganization and Ares will end up receiving back a new piece debt vis-à-vis the prior claim, and the rest of the claim will come back in the form of a post-reorganization equity. In other cases, the company may be able to execute a turnaround strategy and ultimately Ares would be the seller. He added that Ares will not participate in issuers where the overall debt capitalization is less than $500 million; and in a fund of this size (around $1 billion), a core position size will be about $50 million. Secretary Clifford said he worries about layoffs and potential loss of workforce through these reorganizations. He asked what Ares’ track record or policy is in “limiting the damage.” Mr. Margolies responded that Ares tries to focus on companies that are not “bad companies with bad balance sheets, but rather good companies with bad balance sheets.” He said the good companies with bad balance sheets tend not to have to go through significant layoffs and reductions in workforce. He added that he could not overestimate the importance of investing in a franchise company with a good management team or where there is the ability to bring in a good management team. By fixing the balance sheet, it “recharges” the company to start growing again. Based upon the recommendation of the Private Equity Investment Advisory Committee, LP Capital Advisors and staff, Ms. Eitzen moved that the SIC approve a commitment of $75 million from the National Private Equity Program to Ares Special Situations Fund IV, L.P. (the “Fund”), and subject to and contingent upon New Mexico state law, New Mexico State Investment Council policies, negotiation of final terms and conditions and completion of appropriate paperwork. Mr. Young seconded the motion, which passed by voice vote, with Secretary Clifford abstaining. c. Vote: EPIC Ventures V, L.P. (Smith & Sun Mountain Capital) Sun Mountain advisor Brian Birk stated that EPIC Ventures V is a small venture capital fund that is targeting $80-$90 million and is being proposed as part of the New Mexico Private Equity Investment Program (NMPEIP), which means that the fund is committed to investing in companies in the state of New Mexico. Sun Mountain is proposing an overall commitment of up to a maximum of $10 million. This investment is consistent with the pacing plan approved by the NMSIC earlier this year. Mr. Birk stated that EPIC has a long relationship with the NMSIC, which invested in Wasatch III (2001) and Wasatch New Mexico (2004). In 2008, the firm underwent a complete overhaul, changing its name to EPIC and making significant changes to the team, investment strategy and operations, and raised EPIC Venture Fund IV. Mr. Birk stated that Sun Mountain always looks at a fund in terms of financial performance (whether it can achieve returns competitive with national benchmarks or better) and its commitment to New Mexico. He said EPIC’s focus is consistent with deal flow that Sun Mountain sees in New Mexico. In


addition, they are willing to comply with the side letter requirements that the program imposes on them, and historically have done that. They have invested in nine companies in New Mexico (on average about one per year) and also have a New Mexico-based investment professional, Katie Rice, who is very involved with a number of New Mexico organizations and the New Mexico venture ecosystem. Mr. Birk noted that EPIC played a significant role in the exit of Lumidigm two months ago, which was a very important milestone for the program. Mr. Birk stated that Fund IV’s performance has been at the top of the second quartile for its vintage, which is a conservative marking. There are at least three portfolio companies with significant upside potential to their current book value. Further, the team’s performance in Fund III is at the top quartile for its vintage. Highlights from Sun Mountain’s report: -- EPIC’s investment strategy for Fund V is a continuation of the investment strategy used in Fund IV. EPIC is an early stage venture capital investor, with approximately 80 percent of its investments made at the Series A investment stage. -- In its most successful funds, EPIC’s strategy is to invest a small amount of capital across a relatively large number of companies, and then to aggressively invest behind the emerging winners in the portfolio. -- For Fund V, EPIC is anticipating making initial investments into 20 companies. Fund V will have a sector focus in early stage software and technology companies in the areas of cloud computing, storage, security, mobile, general IT, media, entertainment and enterprise software. EPIC Managing Director Kent Madsen and Senior Associate Katie Rice introduced themselves and made a presentation. [Treasurer Lewis joined the proceedings.] Mr. Jennings asked if EPIC is active in areas such as Las Cruces or Socorro and areas outside of Albuquerque. Ms. Rice responded that, while they certainly spend more time in the Santa Fe and Albuquerque areas, they attend various events and are tapped into the deal flow down south. She added that Coronado Ventures Forum, which includes a member from NMSU’s Arrowhead Center, is looking to expand to more events in the southern part of the state. Mr. Lavender commented that there has been a lot of discussion recently about the efficacy and potentiality of New Mexico investments, and asked how New Mexico compares with Utah In terms of opportunities. Mr. Madsen responded that EPIC sees great opportunity in New Mexico, but feels it is about “five or ten years behind Utah.” He said Utah has similar state programs to New Mexico and a very strong ecosystem, but with the national labs and research institutions in New Mexico, EPIC is seeing a lot of potential deals and has built a very strong pipeline. Responding to Mr. Moise, Ms. Rice stated that EPIC is working to bring an accelerator to New Mexico that is fashioned after the very successful TechStars model. She said the accelerator will offer a three-month boot camp in Albuquerque for very early stage startups from around New Mexico and there


will also be seed funding available. In addition, there will be a “demo day” and a roadshow to meet prospective investors in places like Silicon Valley and New York. Based upon the recommendation of the Private Equity Investment Advisory Committee, Sun Mountain Capital and staff, Ms. Eitzen moved that the SIC approve a commitment of the lesser of 10% of the total committed capital (including the SIC’s commitment) or $10 million from the New Mexico Private Equity Program to EPIC Ventures V, L.P. (the “Fund”), and subject to and contingent upon New Mexico state law, New Mexico State Investment Council policies, negotiation of final terms and conditions and completion of appropriate paperwork. Mr. Lavender seconded the motion, which passed by voice vote, with Mr. Rawson voting against the motion. d. Investment Committee report (Harold Lavender) Mr. Lavender referred to the minutes of the May 8 Investment Committee meeting, noting the CIC’s unanimous agreement to recommend approval of an investment in Brookfield Real Estate Finance Fund IV. Mr. Smith stated that the June CIC meeting would include an institutional peer comparison with the NMSIC, prepared by the strategy group, as well as a detailed presentation from the Asset Class Directors. He said this will be an information-filled meeting with a great deal of material discussed, and it would be advantageous for NMSIC members to either attend the meeting or call in. e. Vote: Brookfield Real Estate Finance Fund IV (Smith & Townsend) Townsend Group consultants Jack Koch and Seth Marcus introduced this item, which recommended a $75 million commitment to Brookfield Real Estate Finance Fund IV (BREF IV). The fund has a hard cap of $1.375 billion, which they expect to hit by the end of July 2014. -- BREF IV is a US commercial real estate mezzanine lending vehicle. The fund’s primary strategy is to originate higher yielding US commercial real estate debt, targeting a 13 percent gross, 10 percent net unlevered IRR, primarily in the form of current income. They will do both acquisition of assets as well as refinancing of current owners. -- Loans will predominantly be structured with LIBOR-based floating rate current pay coupons. -- On average, BREF IV capital will represent 60-80 percent of the underlying property appraised value upon origination. -- Anticipated mix of underlying property types is expected to be 40 percent office, 40 percent retail/multifamily/industrial, 10 percent hospitality, and 10 percent other. -- BREF IV will generally target individual investments between $30 million and $50 million in prime locations within larger Metropolitan Statistical Areas (MSAs). -- The fund will utilize a small amount of fund-level leverage with a target of up to 35 percent. Managing Partner Andrea Balkan and Senior Vice President Chris Harris introduced themselves and made a presentation. NMSIC Real Return Director Geraldine Barlow said staff sees this strategy as a “fixed income replacement” rather than part of the equity side of the real estate bucket. Staff also likes that this strategy is not dependent upon the GDP cycle to a large extent.


Based upon the recommendation of the Council Investment Committee, the Townsend Group and staff, Mr. Lavender moved that the SIC approve a commitment of $75 million to Brookfield Real Estate Finance Fund IV, subject to and contingent upon New Mexico state law, New Mexico State Investment Council policies, negotiation of final terms and conditions and completion of appropriate paperwork. Mr. Young seconded the motion, which passed unanimously by voice vote. f. Vote: Real Return Investment Policy update (Smith & Geraldine Barlow) Ms. Barlow stated that the Real Return policy combines the four policies that were on the real asset side and also contemplates the financial assets as well, which currently make up 40 percent of the real return allocation. Highlights from Ms. Barlow’s presentation: -- With the policy in place, the NMSIC will still continue to approve individual investments as they come through. -- The real assets component of the portfolio will now make up 60-80 percent of the real return portfolio, while financial assets will be adjusted to 20-40 percent. These ranges are in accordance with the portfolio discussed and recommended at the April NMSIC meeting, where real assets were 75 percent and financial assets were 25 percent. -- Each of the subcategories in real assets previously had a 10 percent band. In the new policy, a wider band has been created so that many categories are 0-40 percent, which allows a more tactical approach when strategies of interest are in and out of market. -- The portfolio will be measured against a blend of indices that were used in the real return study. A key difference is now there is a portfolio approach to real return, the objective will be to manage the portfolio within a standard deviation of no greater than 12 percent. There is a wide variety of risk profiles within the bucket, and staff felt having a common objective was important. -- With respect to portfolio construction criteria, staff has made a number of changes, one being the increase on the non-OECD exposure. Previously, this was by individual real asset types (energy, infrastructure, timberland and farmland). Combining the financial assets, where staff is specifically looking at a 10 percent allocation to emerging markets debt, will clearly play a role in needing more room in non-OECD exposure. Further, staff is increasingly seeing the strategies that are executed in the farmland space and in timberland to being non-OECD regions, and staff will look for very experienced managers for this part of the portfolio. Secretary Clifford commented that he understands the logic behind the broader allocation ranges, but added that it also increases the Council’s burden of evidence to understand why this is an appropriate investment for the overall goals of the sub-portfolio. Secretary Clifford said he would like to see guidelines for liquidity included in the policy. Mr. Rawson noted that renewables are included as an asset type under energy, but since hydro is not considered a renewable under the Obama Administration, it needs to be added. Secretary Clifford asked for an analysis of the return and risk measures for the US portfolio versus the ex-US OECD so he can see the similarities. Based on the recommendation of the Council Investment Committee and staff, Mr. Lavender moved that the SIC approve its updated Real Return Investment Policy, as presented to and discussed


by members of the Council today. Mr. Young seconded the motion, which passed unanimously by voice vote. 3. OTHER INVESTMENT MATTERS: INVESTMENT PERFORMANCE, MARKET UPDATES & PRIVATE EQUITY REPORTING a. 4Q Real estate performance review (Townsend) Townsend Group advisors Jack Koch and Seth Marcus presented a market overview and summary of performance. -- NMSIC current target allocation to real estate is 8.0 percent, approved in August 2012. The target allocation is expected to increase to 10 percent. -- The real estate portfolio continues to provide positive performance, though underperforming the NFI-ODCE Index (net) benchmark. -- NMSIC performance year ending 4Q13: 15.7 percent gross, 12.8 percent net. -- NFI-ODCE benchmark year ending 4Q13: 13.9 percent gross, 12.9 percent net. -- Portfolio underperformance versus the NFI-ODCE benchmark over the trailing five-year period can be attributed to the legacy portfolio, including: 1) underexposure to high quality core investments over the long term; 2) overexposure to higher risk, non-core investments; and 3) investment concentration in poor performing vintage years. -- NMSIC real estate commitments made since 2011 (inception of rebalancing) have been accretive to the real estate portfolio, resulting in net returns of 16.6 percent (versus 12.9 percent NFI-ODCE) over the last one-year period. b. 4Q 2013 National private equity performance review (LP Capital) LP Capital Advisors consultant Allen Waldrop presented this report for the 4th quarter. -- Performance continues to improve. Quarter-over-quarter private equity performance increased with a net gain of $73 million. -- Since inception (1988), the net IRR for all funds has gone from 11.4 percent to 11.8 percent. -- Total gain for the year was $230 million. -- Distributions have been outpacing contributions. The NMSIC received $420 million in distributions in 2013 compared to $165 million of contributions. -- As of 12/31, there is $1+ billion of unfunded commitments. Managers have been slow to draw the capital that the NMSIC has approved. -- Performance has been negatively impacted by lack of consistent pacing, particularly in vintage years 2008 to 2010. A consistent investment pace of $300 million would have increased gain of the program by about $140 million.


c. 4Q 2013 NMSIC Co-Investment Fund review (LP Capital) [Informational.] d. 4Q 2013 NM Private Equity Investment Program performance review (Sun Mountain) Sun Mountain advisors Brian Birk and Sally Corning presented this Q4 2013 update summary, with the following highlights: -- There is continued improvement in portfolio performance, and distributions continue to keep pace, or in some cases outpace, actual commitment level. -- Program financial performance has improved since 2004. Since inception, program IRR since inception has improved from -18.2 percent to -0.5 percent. NMPEIP investments have performed in line with national venture benchmarks. -- 29 funds have received commitments and invested in 67 New Mexico based companies. -- Capital multiplier of 6.5 percent has resulted in over $2.0 billion of capital invested in NM companies. Responding to Mr. Rawson, Mr. Birk said Sun Mountain is working with a couple of funds that would have an emphasis on the southern part of the state and have a broader investment mandate to help find more deals “that are not just Albuquerque.” Because of the concentration of population in Albuquerque, that is where most of the deals are. He said Sun Mountain goes on field trips at least once or twice a year to areas such as Farmington and the Arrowhead Center in Las Cruces. Mr. Jennings commented on the dire economic conditions facing people in the northwestern part of the state with the closing of the coal mines, and the lack of investment interest or opportunity there. Mr. Rawson pointed out that the emphasis on tech-based investments ignores other investment opportunities around the state. He said the opening of the Union Pacific railroad at Santa Teresa will present a huge opportunity, as will the expansion of businesses at the Spaceport. Ms. Corning commented that tech and healthcare are very popular right now, but Sun Mountain is sector agnostic and makes an effort to look at all sectors. Secretary Clifford commented that the pie chart of investment sectors in Sun Mountain’s report does not include what Mr. Rawson was talking about. He said, “These are very sort of forward-looking types of investments. These are trying to anticipate the economy of the future. I think we might want to focus more on the economy we have today.” Mr. Jennings said Raton, as well as the east side of the state, also need investment focus. He pointed out that the Oglala aquifer is going away very quickly, and that would negatively affect people east of the Pecos River. Mr. Young said the overriding mandate is still to make money. If there were investments in these other areas, Sun Mountain would be making them. Mr. Lavender agreed. This is the tightrope that the advisors and investors have to walk. He pointed to the returns in the New Mexico fund before 2004, when the mandate was to focus on economic development


rather than financial returns. He recalled Mr. Birk commenting at a previous meeting that Sun Mountain looks at 100 potential investments for very one investment that is made. e. National private equity reporting Items (Informational) [Materials in packet.] f. NM Private Equity Investment Program reporting items (Informational) [Materials in packet.] g. SIC performance report, TUCS & monthly activity summary (Smith & RVK) RV Kuhns advisor Marcia Beard distributed and reviewed the April report, which reflected fiscal YTD returns of 12.32 percent. NMSIC total fund composite reflected a 1-year return of 11.60 percent. Mr. Smith reviewed individual manager performance. 4. STATE INVESTMENT OFFICER’S REPORT (Steve Moise) Investment Matters -- NAV today reached a new intra-month high of $19.446 billion. -- Distributions over the last 12 months to the state and beneficiaries have totaled $705.4 million. Council Matters 1. June/July SIC and committee meetings:

a. SIC – Monday 6/30 at 2:30 p.m. & Tuesday, 7/1 at 9:00 a.m., Cabinet Room b. Audit – Monday 6/30 at 1:00 p.m., Governor’s small conference room c. Governance – Friday 6/20 at 10:00 a.m., teleconference d. Investment – Thursday 6/12 at either 9:00 or 11:00 a.m., SIC offices e. PEIAC – no July or August meetings; possible June meeting

2. Legislative matters: a. Constitutional amendment 5 vote 11/4 – strategy update -- Mr. Moise and Mr. Wollmann have diligently been working to put the strategy together. Anyone wishing to be involved in a speaking engagement or in writing an op-ed, please contact Mr. Wollmann. b. 2015 legislative agenda -- STPF contribution initiative is moving forward. Study group will convene soon to begin putting plan together. -- SIC enabling statute update is in process. Management group has commented on changes that need to be made, which are being coordinated by Bruce Brown before being brought forward to the NMSIC.


-- Evan Land and Brent Shipp have made good progress with AJ Gallagher on liability protections after looking at new approach. Next month a report will be made at the NMSIC. -- Staff is looking at ways of enabling the Council to better comply with its fiduciary responsibilities regarding budget and staffing with proper oversight. 3. Strategic plan implementation is moving along. Office administration 1. Staffing: a. Progress being made on accounting position. IT position has been filled. b. Requested information on pending compensation-related matters is in process of being gathered. External Relations -- Mr. Moise and Mr. Wollmann had three first-rate days in southeastern NM last week, in Artesia, Portales and Hobbs, with excellent meetings and contacts. -- Press kit has been created, and available to Members today. -- Website is up, and being updated as needed. -- There are 8-9 sovereign wealth funds in the U.S.; of those that the SIO has spoken with, all have agreed that they would like to share ideas. The plan is to invite the leadership of those funds to a meeting in Santa Fe. -- Institutional Investor has recently interviewed him, Vince Smith and Charles Wollmann. 5. FINANCE MATTERS: COMMITTEE & INFORMATIONAL REPORTS: VOTE/DISCUSSION a. CFO report (Brent Shipp) Mr. Shipp presented budget to actual comparisons through April 30, 2014. -- NMSIC will be well within budget in all categories for the fiscal year. -- Draft audit contract and the public accountant recommendation was submitted to the State Auditor for approval on March 21. Final approval was received on May 21, two months later. This allows for only a month of audit work done before the end of the fiscal year. This is in contrast to all audit work being done after the end of the fiscal year in the past. An RFP will be issued for FY 2015, but staff will have to wait until February for the State Auditor to publish the list of approved auditors. -- The IT position has been filled by Dave Jackson. 6. GOVERNANCE MATTERS: COMMITTEE REPORTS: DISCUSSION a. Governance Committee Report (Scott Smart)


[No meeting held in May.] 7. CLOSING MATTERS (Governor Martinez) a. Old or new business Mr. Rawson asked for a periodic listing of fees of each asset class by manager, including carried interest, terms, etc. b. Next SIC meeting date: June 30, 2:30 p.m., Santa Fe, NM 8. PUBLIC COMMENT PERIOD Kay Lynde Grotbeck said the NMSIC should ask what the role of the state is in creating jobs. She said the state has about 25 programs that create jobs. Ms. Grotbeck said it is not clear to her whether the NMSIC gets money back when there is an exit from the Sunstone portfolio, and where the money goes. Ms. Grotbeck said she would like accommodations made for the public when meetings are conducted by telephone. 9. VOTE TO ENTER EXECUTIVE SESSION PURSUANT TO NMSA 1978

a. 10-15-1(H)(2) Limited Personnel Matters: employee hiring and retention & compensation b. 10-15-1(H)(7) Ongoing or pending litigation: investment matters & related legal issues

Mr. Lavender moved to enter executive session for the purposes stated on the agenda. Treasurer Lewis seconded the motion, which passed on the following roll call vote: For: Secretary Clifford; Mr. Jennings; Mr. Lavender; Treasurer Lewis; Mr. Rawson; Mr. Smart; Mr. Young. Against: None. [Council was in executive session from 12:45 until 1:20.] Acting Chair Smart affirmed that the only matters discussed in executive session were those listed on the agenda. 10. ADJOURNMENT Its business completed, the State Investment Council adjourned the meeting at 1:20 p.m. Approved: Scott Smart, Acting Vice Chair

Tab 2

2. Investment Matters: Investment Performance, Market Updates & Private Equity Reporting

a. Investment Committee report (Harold Lavender)

b. SIC performance report & monthly activity summary (Vince Smith & RV Kuhns)

c. RV Kuhns Return Assumption Review (Smith & RV Kuhns)

d. Peer Review (Smith)

e. Financial Models (Smith & RV Kuhns)

f. New Mexico PE program reporting items (informational)

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State of New Mexico STATE INVESTMENT COUNCIL

41 Plaza La Prensa Santa Fe, New Mexico 87507

Phone: (505) 476-9500 Fax: (505) 424-2510

\

COUNCIL INVESTMENT COMMITTEE MEETING SUMMARY NOTES

THURSDAY, June 12, 2014 9:00 AM Committee Members present: Harold Lavender, Chair Linda Eitzen (by phone) John Young Gene Sanger (Advisory) Lynn Hoffman (Advisory) Staff present: Steve Moise Vince Smith Charles Wollmann Evan Land Bruce Brown Brent Shipp Geraldine Barlow Lisa Bacon Greg Kulka David Lee Bart Stucky Todd Frybarger Starla Bennett Wade Franks Consultants: Jack Koch and Seth Marcus – The Townsend Group (by phone) Matthias Bauer (in person) and Marcia Beard (by phone) – RV Kuhns Fund Managers: None present

STEVEN K. MOISE STATE INVESTMENT OFFICER

ROBERT “VINCE” SMITH, CFA

DEPUTY STATE INVESTMENT OFFICER

SUSANA MARTINEZ

GOVERNOR

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1. Investment Performance & Portfolio Activity

a/b. Performance Report & Monthly Activity Summary: The April 2014 performance report was reviewed by the Committee. Vince Smith focused his remarks on the performance of growth managers, observing that overall the managers are adding value (see upper right chart, page 4), but some are underperforming even while others overperform. A bad period in late 2011 is influencing some of the lower performance. Two of the managers, J.P. Morgan and T. Rowe Price, are lagging near term benchmarks, as is Cortina (see page 8). Vince noted that staff moved quickly in addressing Denver Investments’ poor performance because staff identified strategy execution problems, compounded by the departure of the main portfolio manager. In the case of these growth managers experiencing some short term benchmark lagging, Vince believes this is an issue of style and market periods when in fact staff might expect them to underperform. Vince stated that under these circumstances, staff would plan on giving them a fuller market cycle before evaluating a reduction in the SIC’s commitment. Chairman Harold Lavender asked for additional clarification about what would trigger a more serious look at a manager and Vince responded that in this case staff would watch and wait, and that so long as they are doing what they were hired them to do, staff would recommend maintaining our allocation with them. Vince concluded by remarking that we have solid numbers—strong returns for both permanent funds. CIC Member John Young concurred with this approach. 2. Capital Markets Update & Portfolio Positioning

a. General Discussion: There was no discussion beyond what was covered in Item 1.

3. Portfolio Recommendations & Informational Items

a. Real Estate – Lion Industrial Trust (“LIT”, additional allocation): Mr. Smith turned it over to Jack Koch at Townsend to summarize the recommendation to commit an additional $50 million to this open-end commingled fund exclusively focused on the industrial sector in North America. The SIC made its initial commitment of $35 million to this fund in April 2012 (with a current market value of $41.5 million), and the addition would bring the total commitment to $85 million. Jack noted that unlike closed-end funds, investors in open-end funds can request redemptions and get in the queue to add more at any time (although there may be a waiting period in both cases). Jack further described that performance to date has been strong and the fund has outperformed the broader ODCE benchmark. LIT pursues primarily a core or build to core strategy and targets an annual dividend yield. Townsend is generally recommending the SIC increase its exposure to the industrial sector—which is currently at about 11% of the real estate portfolio, while the sector is 15% of the ODCE. Jack commented that they are not looking for the SIC to mimic the ODCE at this point in the cycle necessarily, but are recommending an at least neutral if not slight overweight for the SIC’s portfolio. The recent commitment to the Exeter Industrial fund earlier this year was part of working toward a higher industrial allocation. Jack further stated that the original reasons for investing in LIT still exist, including but not limited to a strong team, a diverse portfolio of quality assets, and good alignment.

CIC Member Gene Sanger asked Townsend about whether a succession plan was in place and how comfortable they were with it. Mr. Koch responded by first noting that LIT is separate from the larger Clarion platform, then stating that that Townsend is comfortable with the next layer below the senior LIT team members. Mr. Sanger also asked about possible drivers for LIT to convert to a public company and what benefits would accrue to the SIC if that happened. Jack responded that LIT was built to grow in a private form and the expectation is it will stay that way. CIC Member Linda Eitzen asked if the fund made distributions and Jack responded that they did, adding that an investor can take them or

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reinvest them. Currently the SIC takes its distributions but periodically reevaluates this selection and can make a change if warranted.

Chairman Harold Lavender then called for a vote and the CIC unanimously agreed to recommend the addition to LIT to the SIC. b. 2014 Asset Study: Mr. Smith began the segment by saying the SIC has been working toward this study for over a year by conducting a series of educational sessions on the various classes, and on the permanent funds’ structures, including a study of the probabilities each will achieve its long term objectives under various assumptions. Vince noted that today’s presentations are the last part of the educational run up to the study, then gave a short summary of each piece that was to follow. b.1.RVK Asset Class Assumptions: Mr. Smith introduced this segment by explaining that the SIC sets these assumptions once a year and that they are the basis for modeling the portfolios, and then turned it over to Matthias Bauer of RVK to take the CIC through his presentation.

Mr. Bauer began by explaining that capital market assumptions are forward looking expectations of the behavior of specific asset classes, noting that many studies show that asset allocation is the most important aspect of overall performance. Expected returns, volatility (standard deviation), and correlations are the three main assumptions developed. Matthias noted that economic forecasts tend to be shorter-term than capital market assumptions which look longer term, but that RVK does review capital market assumptions annually and revises them as necessary. Additionally, RVK assumes reversion to the mean over the long term. RVK looks to achieve relative accuracy among assumptions, as well as absolute accuracy. Matthias continued by saying that relative accuracy is the most important of the two to constructing a portfolio that is well positioned to maximize overall returns in varied market environment.

A question was asked about other consultants’ and institutions’ assumptions and Matthias noted that Horizon publishes a report aggregating 17 entities’ forecasts, which are generally directionally consistent. He further noted that this is not surprising since interest rates are low, and expected to stay low for a while, resulting in most forecasters expecting lower returns across the board. Consequently, most institutions will be looking at similar assumptions, so different allocations are generally the result of different views about risk preferences and return needs. Mr. Bauer moved on to explain the process of developing the correlation assumptions: the standard process is to give 90% weight to since inception correlations and 10% to the last five years’ history for all asset classes, except private equity where the historical and near term periods are each given 50% weight and the near term is 10 years instead of 5. For returns, volatility, and correlations, RVK asset class leads build up assumptions by asset class then get together to “triangulate” the recommendations and adjust them as needed so that the relative assumptions make sense. Matthias then covered the 2013 and 2014 assumptions and compared them. Risk and return are both down for public and private equity, both up for fixed income and TIPS, and unchanged for real estate, hedge funds, and inflation hedges (for the SIC, this represents real return, including TIPS, commodities, and REITs, although we have a custom index that includes less REITs and more timber and infrastructure). Mr. Bauer then summarized the equity decomposition model that is used to estimate risk premiums, showing that its inputs include dividend yield, stock buybacks, P/E ratio, sales and earnings growth, and an inflation assumption. The P/E ratio, if high indicates lower forward 10 year returns, and if lower next 10 year higher returns, with a high predictive power (R-squared=80). Matthias then summarized the broad demographic trends that influence capital markets, including a growing aged population, shrinking work age population, reduced savings, and reduced output. He concluded by pointing to the material in the back of the presentation that provided more detail on specific asset classes.

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b.2. Peer Review: Bart Stucky presented a review and comparison of selected peer funds, including pensions, sovereign wealth funds, and endowments and foundations. Peer comparisons provide an additional relative measure of performance as the SIC considers the range of choices others have made with respect to asset allocation and resulting performance and see where the SIC fits. Bart began by presenting some TUCS performance comparison information that allows the SIC to look more in depth at where returns are coming from.

The data show with respect to allocation that the SIC is pretty close to the peers, except for a notably lower international equity allocation of 11.8 less than the average; however the SIC is about 6% higher in US equity and emerging market equity combined than average combined, and so is only about 5% less than average for total equity. The data also show that the SIC has about 5% more than average in alternatives (hedge funds and private equity). Mr. Smith noted that across the different peer groups, those with $1-$20B number about 80, those with $5-$20B number about 40, and those with $10-$20B number about 30.

Mr. Stucky continued with a comparison to other public plans (n=29), describing that the SIC is close on most allocations but higher in US equity and less in international equity versus the average, but about the same as average on total equity exposure. Compared to other US permanent funds (n=8), the SIC is close to average on most, but higher in private equity and lower in fixed income versus the average. With respect to endowments (n=64), the SIC is high in US equity and US fixed income (both 1st quartile), but lower for international fixed income and alternatives (both 4th quartile). Bart then highlighted some additional aspects of three funds’ allocation and performance compared to the SIC (CALSTERS, PSERS, and Oregon PERF). He concluded by presenting a risk-return plot of the comparable fund universe that shows the SIC having delivered a higher than median return for a lower than median risk level. b.3. Investment Environment

i.A Look Back to 2011’ Asset Study: David Lee gave a presentation looking back on what was happening in the markets during the SIC’s last asset allocation study in 2011 and covered market conditions between then and now as the SIC prepares for this 2014 study. David began by describing the economic situation where the country was experiencing an uneven recovery following the GFC, with GDP and market returns having bottomed, but with the housing recovery occurring more slowly and still high unemployment. David described the monetary policy situation by covering the Fed’s aggressive lowering of the federal funds rate and implementation of quantitative easing (QE) that purchased a variety of debt to put money in the system.

Mr. Lee continued by highlighting the International Monetary Fund’s expectation of a recovery, but at a more moderate pace than prior recessions, with unemployment remaining elevated, and personal consumption remaining low and creating drag. David then showed that the RVK 2011 study assumptions for risk and return were almost all higher than they are recommending for 2013 and 2014. Coming out of 2011, worldwide political and economic events drove strong real estate and private equity returns, and pushed international equities down, while US equity was up a bit.

Moving into 2012 and 2013, Mr. Lee described more improvement in asset class performance, but this was partly attributable (according to some) by the Fed’s QE program, which has only recently started tapering off. David further described real GDP as being still relatively low at 2-2.6%, but with unemployment improving to 6.7%, inflation still low at 1.2-1.4%, and long term interest rates still low with 30 year treasuries at 3.96% at the end of 2013. He concluded by characterizing recently strong investment returns as stronger than economic metric improvements, and noted several near term concerns, including: questions about whether economic improvements can maintain momentum

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without monetary policy easing; and whether market prices for assets adequately reflect risks, such as higher interest rates, higher inflation, and moderating improvements in the labor and housing markets.

ii. A Look Forward, Economic Regimes: Mr. Smith provided an update on his prior economic regimes presentations by focusing on how the regime concepts will inform this asset study. Vince began by describing that the economic environment is a major driver of asset returns and saying the impact of current economic conditions and future economic direction on major asset groups must be understood and monitored.

Vince showed how the past century can be divided into roughly 6 economic periods, of about 15 years each, and noted that certain assets tend to be advantaged or disadvantaged in specific regimes based on historical performance during those regimes. Vince believes the markets are moving into a period where assets that generate income offer a better risk-return play than those that depend on capital gain for total returns. The various economic regimes involve identifying whether CPI and GDP are in low, med, or high historical ranges.

Mr. Smith continued by saying that the process of re-regulating banks will provide certain investment opportunities for a while as the banks reinforce and clean up their balance sheets. Vince expects the near term will have medium to high inflation and low to medium GDP, a regime which favors bonds, stocks, and real return assets. For example, real return assets tend to deliver good performance in periods with high CPI and low to med GDP, bonds tend to do well when GDD is low and CPI is low to medium, and stocks tend to do well when both CPI and GDP are in medium ranges.

Vince noted that over the last 10 years, the markets had not had high CPI and low-med GDP conditions, which favors real return, and which staff now see as a possibility in the coming economic environment. So generally, Vince expects slow growth, and eventually rising rates. He concluded by reiterating that studying economic regimes is not about forecasting future returns, but looking at environments that differentially favor and disfavor the three asset types. b.4. Asset Class Issues and Considerations: Mr. Smith introduced this segment, saying that the asset class directors will give presentations on issues relevant to their portfolios regarding considerations for later decisions that will need to be made during the allocation study.

i. Publicly-Traded Equity: Starla Bennett covered four main topics: the expected economic environment where stocks tend to perform less well; public equity return forecasts coming down relative to history; a review of the SIC’s allocation to domestic and international equities; and emerging market valuations offering a potential opportunity.

Starla discussed a set of charts showing that stocks don’t perform well when GDP growth is low and inflation is up, or when volatility is up. She then discussed a chart showing RVK’s long term domestic equity assumptions being fairly flat from 2005-2011, but coming down over 2012-2014.

Starla then discussed two pie charts showing how the SIC’s public equity allocation includes 25% more in domestic equity than the MSCI ACWI benchmark, which has that 25% in developed international equities. Starla continued by describing how the SIC is watching several emerging market valuation metrics for indications of improving opportunities in those markets. Collectively they show improving conditions, but that caution is still warranted. She concluded by observing that the SIC’s current strategy of decreasing equity allocations and putting capital into other classes looks good based on the four areas covered.

ii. Private Equity: Greg Kulka began by describing the private equity a substitute in some

respects for public companies, with a key difference being that public companies are pretty efficiently run and earnings depend on top line GDP, while private companies are less efficiently run with more

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opportunity for value creation by using operational expertise to grow revenues and margins. This puts private equity in a position to perform well even in slow-growth GDP periods. Greg described how the private equity program is currently following the strategic plan put in place in June 2011, with pacing and diversification targets across geographic and company stages and sectors being updated annually.

Mr. Kulka said the program plan is based on 3 key assumptions. (1) Target fund managers with potential for top quartile performance. (2) Target multiple substrategies, including venture capital (VC) early and general, late stage VC and growth, buyout, and special situations, considering each group’s return and risk profiles to establish target ranges for allocations to the substrategies. (3) Invest consistently across vintages—this is important because insufficient diversification across vintages can negatively impact performance when investors miss strong vintages and are overweight weak vintages. Mr. Kulka and Mr. Smith discussed that historical data show that vintage years investing in falling or flat markets tend to ultimately outperform vintages that invested in rising markets. Mr. Kulka further described that high performing vintage years tend to have a wide manager dispersion between the top and median quartile performance, making manger selection even more important for these periods.

Mr. Kulka continued discussing implementation of the strategic plan, under which the target for private equity is 10% and the SIC is currently at about 8.8% due in part to recent distributions being significant. As a result, LP Capital is revising the pacing model to increase near term future commitments to maintain the target allocation. Greg then described some new components of the private equity program, including: conducting selected secondary sales; developing a co-investment program; and enhancing reporting to show core v. legacy fund performance. He concluded saying the allocation study will consider current private equity target of 10% and whether that should be increased, decreased, or kept the same.

iii. Fixed Income/Stable Value: Wade Franks gave a presentation on the fixed income market

outlook and began with comparing how things played out with what people thought would happen in the bond markets and Fed actions. For example, the timeline for the Fed to quit QE is turning out to be longer than thought, GDP is weaker than thought, and people are seeing some deflation in international markets. Wade noted that some, including the St. Louis Fed, think QE didn’t really do anything. Even so, the Fed is sticking with some purchases and signaling no rate increases anytime soon.

Mr. Franks continued describing that inflation has not been what the Fed had hoped, in part due to reverberations of monetary policy actions taken by the Bank of Japan and European banks. Wade showed a chart illustrating that QE has been concurrent with rising values of risk assets, with the Fed balance sheet increases driving (or at least corresponding to) S&P500 level increases. Wade went on to discuss how QE had also had a big effect in credit markets, with near zero interest rates and the Fed taking out supply of certain instruments pushing investors to other types of risk(y) assets seeking yield. Wade discussed another chart showing that before 2008, strong GDP growth led to tighter credit spreads, but now we have tighter spreads with weak GDP growth, with spreads now reflecting optimistic assumptions about growth. With respect to the Fed’s exit strategy, Wade sees purchases ending by fall 2014 but no tightening until late ‘15 or ‘16.

Mr. Franks said our immediate concern relates more to credit risk than to interest rate risk, but observed other investors seem to be more focused on interest rate risk. Regarding how the SIC core bond pool is positioned, he discussed data showing PIMCO being heavy in US governments while Loomis and Prudential are allocating more to investment grade and high yield corporate, with much less in governments. Wade said this portfolio construction was by design at the time of selection and allocation. Across these three managers, we are underweight governments versus the Barclays Universal Index and overweight in high yield and structured credit. He concluded by saying that we will need to the position of the portfolio given our views of where equity markets and rates may go and that the upcoming structure study will provide guidance for any rebalancing among existing managers and

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potentially make additional allocations to address cyclical credit risk in the near term, and the longer term risk of rising interest rates and low expected returns.

iv. Real Estate and Real Return. Geraldine Barlow covered four topics in her presentation: seeing

significant scope to participate in real assets; looking at how and where to scale; thinking about real estate beyond the benchmark; and moving forward to develop a strategic framework for these assets. She noted some significant drivers for this asset class include changing global demographics and emerging middle classes. Geraldine discussed data showing US public plans are increasingly looking at alternatives, and showing that around the world, many developed countries have some allocation to real estate and other alternatives (for example the US plans allocate about 15% to these assets, but other countries such as Canada, Australia, Japan, and Switzerland allocate between 20-25%. She continued describing that market inefficiencies exist in infrastructure, energy, timberland, and agriculture assets, providing investment opportunities. Across these assets, investible opportunities exist as current allocations which are 1% or less of the estimated current private investment universe.

Ms. Barlow then focused on infrastructure, describing the $1 trillion annual funding gap, and saying that in this area staff may focus on geographic areas where supply of capital for such investments is less than demand. Geraldine noted that filling even 10% of this gap doubles current investible universe. With respect to timberland, she described the size of the potential market for institutional ownership as significantly greater than exists now. The SIC is currently invested with two global timber managers and we are currently looking at a third.

With respect to agriculture, Geraldine described the investible universe as about $1 trillion, which is about 2.5 times the investable timber universe. She characterized institutional ownership of agrilands as very low, indicating an opportunity to increase that if fund managers can capitalize on a fragmented market to generate returns from consolidating, scaling up, and making operations more efficient. Geraldine concluded the real asset highlights by saying that these investable markets provide opportunities for the SIC to invest as much as or more than it does in real estate. Geraldine believes the SIC can deploy more capital in near term into infrastructure and energy, but it may take longer to identify quality managers in timber and agriculture. She also noted that with respect to financial assets contemplated for the real return portfolio, these are large liquid markets the SIC can easily access in scale.

Ms. Barlow then discussed the real estate portfolio, saying she expects it to be fairly resilient in a slower growth/rising rate market, but noted that staff will be careful about recommending more to core and instead focus on tactical opportunities that are less susceptible to economic cycles, including looking ex-US where stronger growth is occurring.

Ms. Barlow concluded by describing how staff will develop strategic frameworks for each real asset class that will: map the opportunities; identify long term macro trends and drivers; identify emerging trends; identify demand-supply imbalances; focus on preferred partners and developing/inuring strategic partnerships with selected managers.

4. Investment Operations

a. Strategy Group Update: Mr. Smith shared that the group was working on several things, including: identifying a common set of inputs for three pacing models; starting the production of regular reports about every 2 months on varied topics; adding to the analyst network; evaluating the rebalancing bands; developing an efficient frontier model for private equity; writing a white paper on ESG; and further analysis of our comparison against peers.

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b. Asset Class Directors Group Update: Mr. Smith said that the directors would be continuing efforts around the educational pieces seen today; the private equity program is working on asset sales; and fixed income/stable value will be working on a structure study.

5. Old or New Business and Informational Items: None. Adjournment: The Chairman adjourned the meeting at 1:30 pm.

New Mexico State Investment CouncilPreliminary Investment Performance Analysis

Period Ended: May 31, 2014

General Market Commentary Land Grant Asset Allocation vs. Interim Target

*Severance Tax Asset Allocation vs. Interim TargetNMSIC Performance Attribution Summary

NMSIC Total Fund - Schedule of Investable Assets

Long-Term

Target (%)

AssetAllocation

($)

AssetAllocation

(%)

InterimTarget

(%)

Differences(%)

Land Grant Total Fund Composite - 0.00 100.00 -100.00

US Equity - 0.00 35.00 -35.00

Non-US Equity - 0.00 15.00 -15.00

Fixed Income - 0.00 20.00 -20.00

Absolute Return - 0.00 7.00 -7.00

Private Equity - 0.00 10.00 -10.00

Real Estate - 0.00 8.00 -8.00

Real Return - 0.00 5.00 -5.00

Cash Equivalent - 0.00 0.00 0.00

For the first time since 2011, U.S. real GDP declined, as the initial Q1 0.1% estimate wasrevised downward to -1.0%.The European Union extended $15 billion in grants and loans to Ukraine, contingent onthe country adopting economic reforms and reaching an agreement with the InternationalMonetary Fund. These reforms seek to improve Ukraine’s current trade deficit byallowing its currency to depreciate.Equity markets posted positive returns in May as the S&P 500 (Cap Wtd) Index returned2.35% and the MSCI EAFE (Net) Index returned 1.62%. Emerging markets returned3.49% as measured by the MSCI EM (Net) Index.The Barclays US Aggregate Bond Index returned 1.14% in May, outperforming theBarclays US Treasury Intermediate Term Index return of 0.69%.Absolute return strategies, as measured by the HFN FOF Multi-Strat Index, returned1.24% for the month and 5.33% over the trailing one-year period.

Crude oil's price increased by 2.98% in May and by 11.68% over one year.

100.0031.00

15.00

16.00

8.00

10.00

10.00

10.00

0.00

Long-Term

Target (%)

AssetAllocation

($)

AssetAllocation

(%)

InterimTarget

(%)

Differences(%)

Severance Tax Total Fund (Ex. ETI) Composite - 0.00 100.00 -100.00

US Equity - 0.00 35.00 -35.00

Non-US Equity - 0.00 15.00 -15.00

Fixed Income - 0.00 20.00 -20.00

Absolute Return - 0.00 7.00 -7.00

Private Equity - 0.00 10.00 -10.00

Real Estate - 0.00 8.00 -8.00

Real Return - 0.00 5.00 -5.00

Cash Equivalent - 0.00 0.00 0.00

The Land Grant Total Fund's relative underperformance over the last 3 years was

primarily driven by manager performance in equities, particularly US equities.

However, asset allocation positioning relative to the target allocation was favorable, as an

under allocation to non-US equity and real return proved helpful.

Over the last year portfolio positioning has deviated from the target allocation, as

residuals intended for other asset classes are temporarily held as fixed income.Despite that variance, strong value add by managers within US equity, fixed income, and

alternative assets led to overall outperformance by the Total Fund.T. Rowe Price LC Growth, Seizert, and Donald Smith provided the best relativeperformance, while the MFS Int'l, Templeton, BlackRock Emg, and DuPont have not

been able to add value since their inception late in 2013.

The Total Fund also benefitted from the timing of large transactions over the last year.

100.0031.00

15.00

16.00

8.00

10.00

10.00

10.00

0.00

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years

NMSIC Total Fund Composite 1.43 1.70 3.76 13.92 12.71 8.82 12.04 6.94

Land Grant Total Fund Composite N/A N/A N/A N/A N/A N/A N/A N/A

Land Grant Policy Index 1.25 1.62 4.27 14.30 13.31 9.80 13.85 7.03

Difference N/A N/A N/A N/A N/A N/A N/A N/A

Severance Tax Total Fund Composite N/A N/A N/A N/A N/A N/A N/A N/A

Severance Tax Policy Index 1.25 1.62 4.27 14.30 13.31 9.80 13.70 7.11

Difference N/A N/A N/A N/A N/A N/A N/A N/A

Periods EndingBeginning

Market Value ($)Net

Cash Flow ($)Gain/Loss ($)

EndingMarket Value ($)

%Return

CYTD 18,751,981,477 46,790,266 706,348,432 19,505,120,175 3.76

New Mexico State Investment Council

As of May 31, 2014

Performance shown is gross of fees. Performance is annualized for periods greater than one year. Fiscal year ends June 30.*Severance Tax target allocation excludes economically targeted investments and the state private equity program.

Page 1

Allocation

MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011 2010 2009

NMSIC Total Fund Composite 19,505,120,175 100.00 1.43 1.70 3.76 13.92 12.71 8.82 12.04 6.94 16.26 14.26 -0.93 14.55 18.69

Land Grant Total Fund Composite - 0.00 N/A N/A N/A N/A N/A N/A N/A N/A 16.28 14.45 -0.87 14.44 19.30

Land Grant Policy Index 1.25 1.62 4.27 14.30 13.31 9.80 13.85 7.03 16.03 14.11 2.48 14.48 20.68

Difference N/A N/A N/A N/A N/A N/A N/A N/A 0.25 0.34 -3.35 -0.04 -1.38

Severance Tax Total Fund Composite - 0.00 N/A N/A N/A N/A N/A N/A N/A N/A 15.61 13.52 -0.39 12.82 18.59

Severance Tax Policy Index 1.25 1.62 4.27 14.30 13.31 9.80 13.70 7.11 16.03 14.11 2.48 14.67 18.61

Difference N/A N/A N/A N/A N/A N/A N/A N/A -0.42 -0.59 -2.87 -1.85 -0.02

NMSIC Global Equity Composite 9,782,692,266 50.15 2.25 2.19 3.36 20.09 17.56 10.19 15.33 8.38 27.18 16.32 -7.00 18.26 41.50

Global Equity Custom Index 2.24 2.63 4.13 20.92 18.12 11.44 16.29 8.55 26.81 16.93 -3.84 15.57 34.39

Difference 0.01 -0.44 -0.77 -0.83 -0.56 -1.25 -0.96 -0.17 0.37 -0.61 -3.16 2.69 7.11

NMSIC US Equity Composite 7,033,828,055 36.06 2.18 1.80 3.68 21.99 20.62 13.02 17.17 8.80 34.12 16.02 -4.34 19.00 38.89

R 3000 Index 2.18 2.30 4.32 22.15 20.57 14.80 18.82 8.17 33.55 16.42 1.03 16.93 28.34

Difference 0.00 -0.50 -0.64 -0.16 0.05 -1.78 -1.65 0.63 0.57 -0.40 -5.37 2.07 10.55

NMSIC Non-US Equity Composite 2,748,864,211 14.09 2.45 3.19 2.55 15.41 10.04 2.43 9.85 8.05 10.88 16.27 -14.99 12.13 56.12

Non-US Equity Custom Index 2.37 3.40 3.66 17.94 12.42 3.67 10.31 9.06 12.03 17.79 -14.54 12.12 49.14

Difference 0.08 -0.21 -1.11 -2.53 -2.38 -1.24 -0.46 -1.01 -1.15 -1.52 -0.45 0.01 6.98

NMSIC Fixed Income Composite 4,411,152,422 22.62 1.17 2.10 4.54 7.02 4.95 6.78 9.87 4.72 1.74 12.78 6.65 17.12 4.74

Fixed Income Custom Index 0.97 1.67 3.48 3.90 2.54 1.90 5.10 1.90 -1.41 0.69 6.25 10.89 6.04

Difference 0.20 0.43 1.06 3.12 2.41 4.88 4.77 2.82 3.15 12.09 0.40 6.23 -1.30

NMSIC US Core Bonds Pool 3,020,679,532 15.49 1.46 2.44 5.01 7.15 4.43 5.90 6.25 5.58 -0.34 11.29 4.92 11.07 -0.33

Barclays US Agg Bond Index 1.14 1.99 3.87 4.32 2.71 3.55 4.96 4.99 -2.02 4.21 7.84 6.54 5.93

Difference 0.32 0.45 1.14 2.83 1.72 2.35 1.29 0.59 1.68 7.08 -2.92 4.53 -6.26

NMSIC Credit & Structured Finance Pool 931,255,489 4.77 0.50 1.53 4.44 7.75 8.76 11.57 30.73 N/A 11.61 19.67 16.03 46.02 37.65

C&SF Primary Benchmark 0.81 1.28 3.45 3.53 3.38 -4.34 6.34 N/A 1.45 -12.07 -2.18 31.02 4.64

Difference -0.31 0.25 0.99 4.22 5.38 15.91 24.39 N/A 10.16 31.74 18.21 15.00 33.01

C&SF Secondary Benchmark 1.00 1.71 4.16 4.24 4.09 -4.12 6.48 N/A 1.45 -12.07 -2.18 31.02 4.64

Difference -0.50 -0.18 0.28 3.51 4.67 15.69 24.25 N/A 10.16 31.74 18.21 15.00 33.01


Asset Allocation & Performance - Composites

As of May 31, 2014

Performance shown is gross of fees, except for Credit & Structured Finance, Absolute Return, Real Estate, Real Return, and Private Equity investments, which are shown net of fees. Performance is annualized for periods greater than one year. RVK endorses GIPS and calculates performance for composites and investment managers using different methodologies. Fiscal year ends June 30.

Page 2



As of May 31, 2014Allocation

MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011 2010 2009

NMSIC Unconstrained Fixed Income Pool 459,217,402 2.35 0.70 1.09 1.82 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

3 Month LIBOR + 2.5% 0.22 0.44 1.12 2.51 2.74 2.84 2.85 4.56 2.78 2.94 2.85 2.85 3.21

Difference 0.48 0.65 0.70 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

NMSIC Cash Equivalent Composite 197,043,259 1.01 0.00 0.00 0.20 0.20 0.54 1.15 0.84 2.41 1.06 0.00 2.52 0.20 0.56

BofA ML 3 Mo US T-Bill Index 0.00 0.01 0.02 0.05 0.06 0.08 0.11 1.64 0.07 0.11 0.10 0.13 0.21

Difference 0.00 -0.01 0.18 0.15 0.48 1.07 0.73 0.77 0.99 -0.11 2.42 0.07 0.35

NMSIC Absolute Return Composite 1,347,043,955 6.91 1.05 0.88 2.45 7.91 7.30 4.38 5.31 N/A 10.68 6.50 -3.92 4.65 11.43

HFRI FOF Comp Index 1.18 0.47 1.00 6.45 4.97 2.48 4.10 3.34 8.96 4.79 -5.72 5.70 11.47

Difference -0.13 0.41 1.45 1.46 2.33 1.90 1.21 N/A 1.72 1.71 1.80 -1.05 -0.04

NMSIC Private Equity Composite (Ex. State) 1,451,297,578 7.44 0.00 0.00 4.90 12.37 15.96 11.01 10.98 11.65 12.94 14.86 10.03 11.02 -11.25

80/20 Cambridge PE Index (Lagged 1 Qtr) 0.00 0.00 7.73 17.13 22.13 15.31 15.22 13.94 16.83 14.26 15.27 16.18 -9.88

Difference 0.00 0.00 -2.83 -4.76 -6.17 -4.30 -4.24 -2.29 -3.89 0.60 -5.24 -5.16 -1.37

Venture Econ All Prvt Eq Index (Lagged 1 Qtr) 0.00 0.00 7.33 15.24 20.84 14.50 15.51 13.11 16.57 14.34 12.33 15.77 -6.33

Difference 0.00 0.00 -2.43 -2.87 -4.88 -3.49 -4.53 -1.46 -3.63 0.52 -2.30 -4.75 -4.92

Townsend Reported Real Estate 1,082,589,554 5.55 0.00 0.00 3.80 9.80 12.34 10.26 1.93 N/A 10.50 9.63 10.34 -6.44 -32.07

NCREIF ODCE Index (Net) (Lagged 1 Qtr) 0.00 0.00 2.94 10.21 12.90 12.53 2.71 6.16 11.97 10.47 17.18 6.01 -35.70

Difference 0.00 0.00 0.86 -0.41 -0.56 -2.27 -0.78 N/A -1.47 -0.84 -6.84 -12.45 3.63

NCREIF/Townsend Wtd Benchmark (Lagged 1 Qtr) 0.00 0.00 3.00 9.91 12.35 12.28 2.65 N/A 12.07 10.46 17.01 3.64 -37.07

Difference 0.00 0.00 0.80 -0.11 -0.01 -2.02 -0.72 N/A -1.57 -0.83 -6.67 -10.08 5.00

NMSIC Real Return 795,267,578 4.08 0.00 0.00 2.14 5.26 5.70 N/A N/A N/A 8.40 N/A N/A N/A N/A

Real Return Custom Index 0.00 0.00 3.20 4.74 2.49 1.52 3.92 4.87 -2.72 4.90 2.77 7.53 8.92

Difference 0.00 0.00 -1.06 0.52 3.21 N/A N/A N/A 11.12 N/A N/A N/A N/A


Page 3

Allocation

MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

US Equity

NMSIC US Equity Composite 7,033,828,055 36.06 2.18 1.80 3.68 21.99 20.62 13.02 17.17 8.80 34.12 16.02 -4.34 5.44 05/01/1999

R 3000 Index 2.18 2.30 4.32 22.15 20.57 14.80 18.82 8.17 33.55 16.42 1.03 5.04

NMSIC US Large Cap Equity Composite 6,063,202,420 31.09 2.45 2.54 4.17 22.03 20.36 12.86 16.41 8.78 32.57 16.32 -4.63 4.76 05/01/1999

R 1000 Index 2.30 2.78 4.88 22.57 20.90 15.08 18.78 8.14 33.11 16.43 1.50 4.81

NMSIC US Large Cap Active Pool 2,512,339,057 12.88 2.66 2.26 3.32 21.64 20.15 11.63 15.33 8.51 32.34 15.45 -6.46 4.26 05/01/1999

Wellington Management Company 776,843,593 3.98 1.31 2.38 5.37 18.93 17.79 N/A N/A N/A 28.72 N/A N/A 22.98 06/01/2012

R 1000 Value Index 1.46 2.43 5.52 20.66 19.60 15.12 18.44 8.00 32.53 17.50 0.39 25.98

Brown Brothers Harriman 618,130,573 3.17 1.56 2.29 4.38 17.35 17.07 N/A N/A N/A 28.51 N/A N/A 21.72 07/01/2012

R 1000 Index 2.30 2.78 4.88 22.57 20.90 15.08 18.78 8.14 33.11 16.43 1.50 22.96

J.P. Morgan Asset Management 769,748,883 3.95 4.10 2.47 1.28 24.52 21.36 N/A N/A N/A 34.13 N/A N/A 18.96 06/01/2012

T. Rowe Price LC Growth 350,110,974 1.79 4.58 1.45 1.67 30.10 29.01 N/A N/A N/A 45.43 N/A N/A 26.94 06/01/2012

R 1000 Growth Index 3.12 3.12 4.28 24.50 22.15 14.96 19.04 8.12 33.48 15.26 2.64 22.35

NMSIC US Large Cap Index Pool 2,992,717,586 15.34 2.30 2.78 4.87 22.52 20.87 14.93 18.27 8.88 33.10 16.09 1.18 5.39 05/01/1999

NT Russell 1000 Index Fund 2,992,488,925 15.34 2.30 2.78 4.88 22.53 20.87 N/A N/A N/A 33.10 16.31 N/A 17.52 08/01/2011

R 1000 Index 2.30 2.78 4.88 22.57 20.90 15.08 18.78 8.14 33.11 16.43 1.50 17.66

NMSIC US Large Cap Enhanced Index Pool 558,145,778 2.86 2.30 2.51 4.21 21.31 18.85 N/A N/A N/A 32.03 N/A N/A 23.49 06/01/2012

PanAgora Asset Management 558,145,778 2.86 2.30 2.51 4.21 21.31 18.85 N/A N/A N/A 32.03 N/A N/A 23.76 06/01/2012

R 1000 Index 2.30 2.78 4.88 22.57 20.90 15.08 18.78 8.14 33.11 16.43 1.50 24.21

NMSIC US Small/Mid Cap Equity Composite 970,625,635 4.98 0.52 -2.57 0.74 21.48 21.59 13.49 N/A N/A 42.39 14.00 N/A 12.39 05/01/2011

R 2500 Index 1.17 -1.16 1.11 19.84 18.53 12.89 20.78 9.62 36.80 17.88 -2.51 12.08

NMSIC US Small/Mid Cap Active Pool 674,634,368 3.46 0.04 -3.14 0.29 20.97 21.77 13.65 19.69 9.38 43.97 13.70 -2.65 8.92 11/01/1998

Seizert Capital Partners 240,533,179 1.23 2.00 0.25 2.63 25.10 25.92 N/A N/A N/A 49.44 22.61 N/A 29.87 01/01/2012

R Mid Cap Index 2.22 1.63 5.21 22.81 21.33 14.04 21.37 10.37 34.76 17.28 -1.55 23.42

Donald Smith & Company 220,305,094 1.13 -0.67 0.36 8.56 30.11 25.41 N/A N/A N/A 32.42 19.90 N/A 25.27 01/01/2012

R 2000 Value Index 0.63 -1.95 -0.21 17.35 16.87 12.07 18.77 8.30 34.52 18.05 -5.50 20.99

Cortina Asset Management 214,826,201 1.10 -1.36 -9.75 -9.07 8.81 13.43 N/A N/A N/A 49.08 7.72 N/A 16.96 01/01/2012

R 2000 Growth Index 0.97 -4.22 -3.75 17.44 16.71 11.41 19.82 8.74 43.30 14.59 -2.91 20.85

NMSIC US Small/Mid Cap Index Pool 91,734,395 0.47 1.49 -1.13 1.57 21.17 20.00 N/A N/A N/A 33.79 N/A N/A 24.17 01/01/2013

NT Extended Equity Market Index Fund 90,234,382 0.46 1.51 -1.11 1.60 21.20 20.03 N/A N/A N/A 33.79 N/A N/A 24.19 01/01/2013

R 2500 Index 1.17 -1.16 1.11 19.84 18.53 12.89 20.78 9.62 36.80 17.88 -2.51 25.73


Asset Allocation & Performance - Composites & Managers

As of May 31, 2014

Performance shown is gross of fees, except for Credit & Structured Finance, Absolute Return, Real Estate, Real Return, and Private Equity investments, which are shown net of fees. Performance is annualized for periods greater than one year. RVK endorses GIPS and calculates performance for composites and investment managers using different methodologies. Since Inception date shown represents the first full month following initial funding. Fiscal year ends June 30.

Page 4




MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

NMSIC US Small/Mid Cap Enhanced Index Pool 204,256,872 1.05 1.68 -1.29 1.85 23.59 22.11 N/A N/A N/A 40.57 N/A N/A 29.83 12/01/2012

BlackRock Alpha Tilts 204,227,221 1.05 1.68 -1.29 1.85 23.60 22.12 N/A N/A N/A 40.59 N/A N/A 22.76 02/01/2012

R 2000 Index 0.80 -3.11 -2.02 17.40 16.79 11.73 19.32 8.59 38.82 16.34 -4.18 18.23

Non-US Equity

NMSIC Non-US Equity Composite 2,748,864,211 14.09 2.45 3.19 2.55 15.41 10.04 2.43 9.85 8.05 10.88 16.27 -14.99 6.20 05/01/1999

Non-US Equity Custom Index 2.37 3.40 3.66 17.94 12.42 3.67 10.31 9.06 12.03 17.79 -14.54 6.55

NMSIC Non-US Developed Markets Composite 1,420,533,596 7.28 2.01 3.40 3.76 21.65 17.33 7.43 11.60 6.54 22.22 17.61 -11.38 4.86 05/01/1999

MSCI EAFE Index (Net) 1.62 3.09 3.78 22.39 18.04 7.30 11.43 7.06 22.78 17.32 -12.14 4.40

NMSIC Non-US Developed Markets Active Pool 1,291,763,606 6.62 2.06 3.44 3.82 N/A N/A N/A N/A N/A N/A N/A N/A 16.42 09/01/2013

LSV Int'l Large Cap Value 289,212,739 1.48 1.92 4.02 4.89 N/A N/A N/A N/A N/A N/A N/A N/A 18.86 09/01/2013

MSCI ACW Ex US Value Index (Net) 1.66 3.62 4.36 21.86 16.20 4.87 10.15 7.90 15.04 16.97 -13.20 17.43

T. Rowe Price Int'l Core 356,386,231 1.83 2.41 3.54 3.45 N/A N/A N/A N/A N/A N/A N/A N/A 18.78 09/01/2013


MFS Int'l Large Cap Growth 353,819,859 1.81 1.78 3.74 2.94 N/A N/A N/A N/A N/A N/A N/A N/A 7.10 10/01/2013

MSCI ACW Ex US Growth Index (Net) 2.23 2.97 3.28 17.64 12.90 4.38 10.80 7.64 15.49 16.67 -14.21 8.09

Templeton Int'l Small Cap Equity 292,335,856 1.50 2.10 2.38 4.29 N/A N/A N/A N/A N/A N/A N/A N/A 9.68 10/01/2013

MSCI ACW Ex US Sm Cap Index (Net) 1.61 1.44 4.96 23.41 17.14 5.37 14.20 9.98 19.73 18.52 -18.50 9.81

NMSIC Non-US Developed Markets Index Pool 128,769,990 0.66 1.56 3.02 3.17 21.29 16.99 7.33 11.54 6.51 22.56 17.61 -11.38 4.84 05/01/1999

Alliance Bernstein MSCI EAFE Int'l Index 125,880,029 0.65 1.59 3.06 3.22 21.38 17.08 7.33 11.61 7.07 22.59 17.53 -11.44 6.34 06/01/1998


NMSIC Non-US Emerging Markets Composite 1,328,330,616 6.81 2.92 2.96 1.29 8.13 1.18 -4.78 6.41 11.49 -3.55 14.10 -21.95 9.63 05/01/1999

MSCI Emg Mkts Index (Net) 3.49 3.84 3.39 11.35 4.27 -1.76 8.37 11.70 -2.60 18.23 -18.42 9.38

NMSIC Non-US Emerging Markets Active Pool 789,450,118 4.05 2.40 2.26 -0.04 N/A N/A N/A N/A N/A N/A N/A N/A 7.82 09/01/2013

BlackRock Emg Mkts Opp Fund 273,876,870 1.40 3.41 3.75 1.70 N/A N/A N/A N/A N/A N/A N/A N/A 3.59 10/01/2013

DuPont Capital Management 514,891,031 2.64 1.88 1.49 -0.95 N/A N/A N/A N/A N/A N/A N/A N/A 6.45 09/01/2013


NMSIC Non-US Emerging Markets Index Pool 538,880,497 2.76 3.68 4.01 3.30 11.34 4.19 -3.85 7.04 11.81 -2.61 14.10 -21.95 9.85 05/01/1999

Alliance Bernstein Emerging Markets Index 539,178,482 2.76 3.68 4.01 3.30 11.34 4.20 N/A N/A N/A -2.61 N/A N/A 4.32 11/01/2012



Page 5




MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

Fixed Income

NMSIC Fixed Income Composite 4,411,152,422 22.62 1.17 2.10 4.54 7.02 4.95 6.78 9.87 4.72 1.74 12.78 6.65 5.56 05/01/1999

Fixed Income Custom Index 0.97 1.67 3.48 3.90 2.54 1.90 5.10 1.90 -1.41 0.69 6.25 3.42

NMSIC US Core Bonds Pool 3,020,679,532 15.49 1.46 2.44 5.01 7.15 4.43 5.90 6.25 5.58 -0.34 11.29 4.92 5.99 05/01/1999

Barclays US Agg Bond Index 1.14 1.99 3.87 4.32 2.71 3.55 4.96 4.99 -2.02 4.21 7.84 5.48

PIMCO Barclays US Universal 1,278,288,823 6.55 1.42 2.42 4.47 5.94 3.44 5.07 N/A N/A -0.69 11.44 N/A 5.39 04/01/2011

Prudential Barclays US Universal 871,025,980 4.47 1.55 2.46 5.21 8.30 5.34 7.01 N/A N/A 0.77 11.23 N/A 7.40 04/01/2011

Loomis Sayles Barclays US Universal 872,708,895 4.47 1.43 2.46 5.62 8.03 5.11 6.19 N/A N/A -0.84 10.77 N/A 6.83 04/01/2011

Barclays US Unv Bond Index 1.20 2.04 4.03 5.04 3.20 4.06 5.71 5.32 -1.35 5.53 7.40 4.67

NMSIC Credit & Structured Finance Pool 931,255,489 4.77 0.50 1.53 4.44 7.75 8.76 11.57 30.73 N/A 11.61 19.67 16.03 2.26 04/01/2006

C&SF Primary Benchmark 0.81 1.28 3.45 3.53 3.38 -4.34 6.34 N/A 1.45 -12.07 -2.18 N/A

C&SF Secondary Benchmark 1.00 1.71 4.16 4.24 4.09 -4.12 6.48 N/A 1.45 -12.07 -2.18 N/A

NMSIC Unconstrained Fixed Income Pool 459,217,402 2.35 0.70 1.09 1.82 N/A N/A N/A N/A N/A N/A N/A N/A 1.78 12/01/2013

PIMCO Unconstrained 254,154,975 1.30 0.31 0.87 1.77 N/A N/A N/A N/A N/A N/A N/A N/A 1.46 12/01/2013

Loomis Sayles Unconstrained 205,061,286 1.05 1.18 1.44 2.08 N/A N/A N/A N/A N/A N/A N/A N/A 2.38 12/01/2013

3 Month LIBOR + 2.5% 0.22 0.44 1.12 2.51 2.74 2.84 2.85 4.56 2.78 2.94 2.85 1.35

NMSIC Cash Equivalent Composite 197,043,259 1.01 0.00 0.00 0.20 0.20 0.54 1.15 0.84 2.41 1.06 0.00 2.52 4.06 07/01/1988

BofA ML 3 Mo US T-Bill Index 0.00 0.01 0.02 0.05 0.06 0.08 0.11 1.64 0.07 0.11 0.10 3.68

Absolute Return

NMSIC Absolute Return Composite 1,347,043,955 6.91 1.05 0.88 2.45 7.91 7.30 4.38 5.31 N/A 10.68 6.50 -3.92 2.81 09/01/2005

Mariner Matador, LLC 482,479,761 2.47 1.02 1.28 3.13 9.87 9.36 5.40 5.36 N/A 14.75 6.01 -5.34 4.07 10/01/2005

AAM High Desert Fund 415,494,140 2.13 1.61 0.74 2.06 9.17 8.19 5.91 N/A N/A 12.83 10.31 -3.98 5.81 12/01/2010

Crestline Enchantment Fund Class A 399,229,776 2.05 0.59 0.65 2.48 6.51 6.24 3.20 5.05 N/A 7.16 3.84 -1.52 3.32 10/01/2005

Crestline Enchantment Fund Class B 32,024,241 0.16 0.00 0.00 1.98 -1.79 -1.87 -0.03 2.92 N/A -2.04 3.54 0.71 0.37 06/01/2006

Crestline Offshore Recovery 8,366,471 0.04 0.00 0.45 0.20 -3.59 -6.70 -1.13 15.31 N/A -5.50 5.35 -3.07 13.87 02/01/2009

Austin Capital Safe Harbor QP Fund 3,887,705 0.02 0.00 0.00 -10.88 -29.00 -30.22 -16.35 -10.17 N/A -21.36 -2.27 -16.86 -5.27 10/01/2005

CT Preferred Investors Management LLC 3,741,985 0.02 0.00 0.00 0.00 0.10 0.56 0.97 2.49 N/A -2.12 4.61 0.21 -0.89 11/01/2005

HFRI FOF Comp Index 1.18 0.47 1.00 6.45 4.97 2.48 4.10 3.34 8.96 4.79 -5.72 2.84


Page 6




MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

Private Equity

NMSIC Private Equity Composite (Ex. State) 1,451,297,578 7.44 0.00 0.00 4.90 12.37 15.96 11.01 10.98 11.65 12.94 14.86 10.03 4.02 06/01/2001

Private Equity Pooled Funds 1,448,545,263 7.43 0.00 0.00 4.91 12.39 15.99 N/A N/A N/A 12.95 16.22 N/A 10.25 07/01/2011

80/20 Cambridge PE Index (Lagged 1 Qtr) 0.00 0.00 7.73 17.13 22.13 15.31 15.22 13.94 16.83 14.26 15.27 13.78

Venture Econ All Prvt Eq Index (Lagged 1 Qtr) 0.00 0.00 7.33 15.24 20.84 14.50 15.51 13.11 16.57 14.34 12.33 12.88

Real Estate

Townsend Reported Real Estate 1,082,589,554 5.55 0.00 0.00 3.80 9.80 12.34 10.26 1.93 N/A 10.50 9.63 10.34 2.21 10/01/2004

NCREIF ODCE Index (Net) (Lagged 1 Qtr) 0.00 0.00 2.94 10.21 12.90 12.53 2.71 6.16 11.97 10.47 17.18 5.83

NCREIF/Townsend Wtd Benchmark (Lagged 1 Qtr) 0.00 0.00 3.00 9.91 12.35 12.28 2.65 N/A 12.07 10.46 17.01 6.66

Real Return

NMSIC Real Return 795,267,578 4.08 0.00 0.00 2.14 5.26 5.70 N/A N/A N/A 8.40 N/A N/A 7.15 06/01/2012

Real Return Custom Index 0.00 0.00 3.20 4.74 2.49 1.52 3.92 4.87 -2.72 4.90 2.77 2.56

ETI

NMSIC Economically Targeted Investments 40,247,784 0.21 0.05 11.75 10.23 9.02 8.92 2.15 0.06 -0.05 -1.15 -0.32 -2.12 -1.11 07/01/1998


Severance Tax State PE Program 224,098,841 1.15 0.00 0.00 2.34 11.83 10.91 6.73 5.23 -0.44 6.85 13.11 11.39 -5.00 08/01/2001

Cambridge VC Index (Lagged 1 Qtr) 0.00 0.00 11.91 24.36 27.56 15.70 12.64 9.75 15.30 7.64 20.72 1.04


NMSIC Total Fund Composite 19,505,120,175 100.00 1.43 1.70 3.76 13.92 12.71 8.82 12.04 6.94 16.26 14.26 -0.93 5.06 01/01/2000


Page 7


Allocation

MarketValue ($)

%

Perf. (%)

QTD1

Year

Prudential Barclays US Universal 871,025,980 4.47 2.46 5.34

NMSIC Credit & Structured Finance Pool 931,255,489 4.77 1.53 8.76

NMSIC Unconstrained Fixed Income Pool 459,217,402 2.35 1.09 N/A

NMSIC Cash Equivalent Composite 197,043,259 1.01 0.00 0.54

NMSIC Economically Targeted Inv. 40,247,784 0.21 11.75 8.92

SIC Managed Core Bonds Fund 72,323 0.00 0.00 0.01

NMSIC Absolute Return Composite 1,347,043,955 6.91 0.88 7.30

Mariner Matador, LLC 482,479,761 2.47 1.28 9.36

AAM High Desert Fund 415,494,140 2.13 0.74 8.19

Crestline Enchantment Fund Class A 399,229,776 2.05 0.65 6.24

Crestline Enchantment Fund Class B 32,024,241 0.16 0.00 -1.87

Crestline Offshore Recovery 8,366,471 0.04 0.45 -6.70

Austin Capital Safe Harbor QP Fund 3,887,705 0.02 0.00 -30.22

CT Preferred Investors Management LLC 3,741,985 0.02 0.00 0.56

ARS Pool (Cash Account) 1,819,877 0.01 0.00 0.01

NMSIC Private Equity Composite 1,675,396,418 8.59 0.00 15.37

Townsend Reported Real Estate 1,082,589,554 5.55 0.00 12.34

NMSIC Real Return 795,267,578 4.08 0.00 5.70

Waterfall Eden Fund, LP 170,632,932 0.87 0.00 8.30

ING Real Return 155,450,255 0.80 0.00 4.26

Credit Suisse Bank Loan 129,882,726 0.67 0.00 N/A

J.P. Morgan Infrastructure Partners 67,691,343 0.35 0.00 N/A

Natural Gas Partners X, L.P. 49,796,673 0.26 0.00 11.85

Real Return Pool (Cash Account) 38,436,363 0.20 0.00 0.01

EIG Energy Fund XV 38,082,257 0.20 0.00 5.55

Preferred REITs 35,000,584 0.18 N/A N/A

Global Infrastructure Partners II 31,962,115 0.16 0.00 27.40

Brookfield Global Timber V 19,779,936 0.10 0.00 N/A

Brookfield Capital Partners III 13,557,514 0.07 0.00 19.99

Brookfield Infrastructure II 12,729,939 0.07 0.00 N/A

Hancock Timber XII 12,545,325 0.06 N/A N/A

EnCap Investments, L.P. 9,369,473 0.05 0.00 -14.23

EIG Energy Fund XVI 8,679,667 0.04 0.00 N/A

Alterna II 1,670,455 0.01 0.00 N/A

Allocation

MarketValue ($)

%

Perf. (%)

QTD1

Year

NMSIC Total Fund Composite 19,505,120,175 100.00 1.70 12.71

NMSIC US Equity Composite 7,033,828,055 36.06 1.80 20.62

NT Russell 1000 Index Fund 2,992,488,925 15.34 2.78 20.87

Wellington Management Company 776,843,593 3.98 2.38 17.79

J.P. Morgan Asset Management 769,748,883 3.95 2.47 21.36

Brown Brothers Harriman 618,130,573 3.17 2.29 17.07

PanAgora Asset Management 558,145,778 2.86 2.51 18.85

T. Rowe Price LC Growth 350,110,974 1.79 1.45 29.01

Seizert Capital Partners 240,533,179 1.23 0.25 25.92

Donald Smith & Company 220,305,094 1.13 0.36 25.41

Cortina Asset Management 214,826,201 1.10 -9.75 13.43

BlackRock Alpha Tilts 204,227,221 1.05 -1.29 22.12

NT Extended Equity Market Index Fund 90,234,382 0.46 -1.11 20.03

US Small/Mid Cap Index Pool (Cash Account) 1,500,013 0.01 N/A N/A

SIC Managed Large Cap Index 372,146 0.00 -10.05 -5.39

US Small/Mid Cap Active Pool (Cash Account) 92,437 0.00 N/A N/A

BlackRock Transition 29,650 0.00 2.65 -5.15

Northern Trust Transition 10,105 0.00 -6.36 9.56

NMSIC Non-US Equity Composite 2,748,864,211 14.09 3.19 10.04

Alliance Bernstein Emerging Markets Index 539,178,482 2.76 4.01 4.20

DuPont Capital Management 514,891,031 2.64 1.49 N/A

T. Rowe Price Int'l Core 356,386,231 1.83 3.54 N/A

MFS Int'l Large Cap Growth 353,819,859 1.81 3.74 N/A

Templeton Int'l Small Cap Equity 292,335,856 1.50 2.38 N/A

LSV Int'l Large Cap Value 289,212,739 1.48 4.02 N/A

BlackRock Emg Mkts Opp Fund 273,876,870 1.40 3.75 N/A

Alliance Bernstein MSCI EAFE Int'l Index 125,880,029 0.65 3.06 17.08

Non-US Developed Markets Index Pool (Cash Account) 2,200,019 0.01 N/A N/A

SSGM Transition Mgmt Non-US Emerging 682,217 0.00 3.00 N/A

Reclaims (Jarislowksy Fraser) 575,149 0.00 -0.07 -9.66

Russell Transition Mgmt Non-US Developed 8,921 0.00 -0.21 N/A

NMSIC Fixed Income Composite 4,411,152,422 22.62 2.10 4.95

PIMCO Barclays US Universal 1,278,288,823 6.55 2.42 3.44

Loomis Sayles Barclays US Universal 872,708,895 4.47 2.46 5.11


Market Value ($)Net



%Return

FYTD 17,094,085,920 31,481,272 2,379,552,983 19,505,120,175 13.92


Asset Allocation, Performance & Schedule of Investable Assets

As of May 31, 2014

Allocations shown may not sum up to 100% exactly due to rounding. Performance shown is gross of fees, except for Credit & Structured Finance, Absolute Return, Real Estate, Real Return, and Private Equity, which are net of fees. Market values and performance are preliminary and subject to change. RVK endorses GIPS and calculates performance for composites and investment managers using different methodologies. Fiscal year ends June 30.

Page 8

Capital Markets ReviewAs of May 31, 2014

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•

•

•

•

• 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr

•Treasury Yield Curve 05/30/14 04/30/14 05/31/13 05/31/11

Market Indicators 05/31/14 04/30/14 05/31/13 20 Yr 40 Yr 3 Month 0.03% 0.03% 0.03% 0.05%Federal Funds Rate 0.08% ▼ 0.09% 0.09% 3.03% 5.63% 6 Month 0.05% 0.04% 0.06% 0.11%Breakeven Inflation - 1 Year 1.37% ▼ 1.58% 0.71% 1.18% 1.18% 1 Year 0.09% 0.10% 0.13% 0.16%Breakeven Inflation - 5 Year 1.98% ─ 1.98% 1.90% 1.93% 1.93% 3 Year 0.77% 0.85% 0.49% 0.78%Breakeven Inflation - 10 Year 2.21% ▲ 2.19% 2.19% 2.05% 2.05% 5 Year 1.54% 1.68% 1.02% 1.70%Breakeven Inflation - 30 Year 2.30% ▼ 2.31% 2.32% 2.33% 2.33% 7 Year 2.06% 2.23% 1.53% 2.39%Barclays US Agg Bond Index - Yield 2.17% ▼ 2.31% 2.08% 4.94% 5.64% 10 Year 2.48% 2.65% 2.13% 3.06%Barclays US Agg Bond Index - OAS 0.40% ▼ 0.41% 0.56% 0.69% 0.69% 20 Year 3.05% 3.22% 2.95% 3.91%Barclays US Agg Credit Index - OAS 0.98% ─ 0.98% 1.25% 1.55% 1.54% 30 Year 3.33% 3.46% 3.28% 4.22%Barclays US Corp: HY Index - OAS 3.51% ▲ 3.44% 4.40% 5.87% 5.87%Capacity Utilization 79.10% ▲ 78.90% 77.80% 78.80% 79.80% Market Performance MTD QTD CYTD 1 Yr 3 Yr 5 Yr 10 Yr Unemployment Rate 6.30% ─ 6.30% 7.50% 6.00% 6.50% S&P 500 (Cap Wtd) 2.35 3.11 4.97 20.45 15.15 18.40 7.77 PMI - Manufacturing 55.40% ▲ 54.90% 50.00% 52.10% 51.70% R 2000 0.80 -3.11 -2.02 16.79 11.73 19.32 8.59 Baltic Dry Index - Shipping 934 ▼ 943 809 1,618 1,441 MSCI EAFE (Net) 1.62 3.09 3.78 18.04 7.30 11.43 7.06Consumer Conf (Conf Board) 83.01 ▲ 81.71 74.26 93.48 90.88 MSCI EAFE SC (Net) 1.40 0.58 3.96 22.53 8.69 15.31 9.19CPI YoY (Headline) 2.10% ▲ 2.00% 1.40% 2.40% 4.20% MSCI EM (Net) 3.49 3.84 3.39 4.27 -1.76 8.37 11.70CPI YoY (Core) 2.00% ▲ 1.80% 1.70% 2.20% 4.20% Barclays US Agg Bond 1.14 1.99 3.87 2.71 3.55 4.96 4.99PPI YoY 2.40% ▼ 3.10% 1.60% 2.40% 3.70% BofA ML 3 Mo US T-Bill 0.00 0.01 0.02 0.06 0.08 0.11 1.64M2 YoY 6.50% ▲ 6.20% 7.10% 5.90% 6.60% NCREIF ODCE (Gross) N/A N/A 2.52 13.77 13.06 7.32 7.18US Dollar Total Weighted Index 76.65 ▲ 76.28 77.51 86.48 94.37 Wilshire US REIT 2.52 6.16 16.92 10.55 10.07 22.93 9.76WTI Crude Oil per Barrel $103 ▲ $100 $92 $51 $41 HFN FOF Multi-Strat 1.24 0.56 1.31 5.33 2.82 3.87 3.12Gold Spot per Oz $1,250 ▼ $1,292 $1,388 $334 $342 DJ-UBS Cmdty (TR) -2.87 -0.51 6.45 2.50 -6.97 1.47 0.39

All data courtesy of Bloomberg Professional Service. Performance is annualized for periods greater than one year. 20- and 40-year average Gold spot prices are adjusted for inflation. CPI figures are seasonally adjusted.NCREIF performance is reported quarterly; trailing period returns are shown as "N/A" on interim-quarter months.Performance for the HFN FOF Multi-Strat Index is preliminary and subject to change.

Treasury Yield Curve

Crude oil's price increased by 2.98% during the month and has increased by 11.68% over one year.

General Market Commentary

Equity markets posted positive returns in May as the S&P 500 (Cap Wtd) Index returned 2.35% and the MSCI EAFE (Net) Index returned 1.62%. Emerging markets returned 3.49% as measured by the MSCI EM (Net) Index.The Barclays US Aggregate Bond Index returned 1.14% in May, outperforming the Barclays US Treasury return of 0.69%, as measured by the Barclays US Treasury Intermediate Term Index. International fixed income markets returned 0.14%, as measured by the Citi Non-US World Government Bond Index.Public real estate, as measured by the Wilshire US REIT Index, returned 2.52% in May and 22.93% over the trailing five-year period.The Venture Economics All Private Equity Index returned 20.84% for the trailing one-year period and 15.51% for the trailing five-year period ending December 2013.Absolute return strategies, as measured by the HFN FOF Multi-Strat Index, returned 1.24% for the month and 5.33% over the trailing one-year period.

For the first time since 2011, U.S. real GDP declined, as the initial Q1 0.1% estimate was revised downward to -1.0%. Though personal consumption expenditures remained strong, private inventory investment, exports, state and local government spending, nonresidential fixed investment, and residential fixed investment disappointed.The European Union extended $15 billion in grants and loans to Ukraine, contingent on the country adopting economic reforms and reaching an agreement with the International Monetary Fund. These reforms seek to improve Ukraine’s current trade deficit by allowing its currency to depreciate.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

5/30/2014 4/30/2014 5/31/2013 5/31/2011

Page 9

Performance Related CommentsPerformance shown is gross of fees unless otherwise noted. Fiscal year ends on June 30th.Performance is annualized for periods greater than one year.Absolute Return market values are lagged 1 month and provided by J.P. Morgan. Performance for Absolute Return is preliminary and shown as of the most current month end.Historical performance for Crestline Enchantment Fund Class A shares prior to January 2011 consists of Crestline Partners LP. Class B shares before this date consist of Vintage Classic LLC.Performance for Mariner Matador, LLC prior to August 2008 consists of Mariner Select LP.Real Estate, Private Equity, and Real Return investments assume a 0.00% return during interim months. Real Estate and Private Equity investments are lagged 1 quarter.Since Inception performance shown for the HFRI FOF Comp Index is as of October 1, 2005.Indices show N/A for since inception returns when the fund contains more history than the corresponding benchmark.Since Inception dates reflect first month of reliable and verifiable data and may not reflect the actual full month following initial funding.RVK began calculating performance in May 2011 using data provided by J.P. Morgan. Historical performance prior to this date was provided by NEPC.PIMCO Unconstrained, Loomis Sayles Unconstrained, and Brookfield Infrastructure II were funded in November 2013.

Custom Index CommentsLand Grant Policy Index is based on the target allocation and currently consists of 30% Russell 1000 Index, 5% Russell 2500 Index, 9% MSCI EAFE Index (Net), 6% MSCI Emerging MarketsIndex (Net), 14% Barclays US Aggregate Bond Index, 6% Credit and Structure Finance Composite, 7% HFRI FOF Composite Index (Lagged 1 Month), 10% 80/20 Cambridge Private EquityIndex (Lagged 1 Quarter), 8% NCREIF ODCE Index (Net) (Lagged 1 Quarter), and 5% Real Return Custom Index.Severance Tax Policy Index is based on the target allocation and currently consists of 30% Russell 1000 Index, 5% Russell 2500 Index, 9% MSCI EAFE Index (Net), 6% MSCI Emerging MarketsIndex (Net), 14% Barclays US Aggregate Bond Index, 6% Credit and Structure Finance Composite, 7% HFRI FOF Composite Index (Lagged 1 Month), 10% 80/20 Cambridge Private EquityIndex (Lagged 1 Quarter), 8% NCREIF ODCE Index (Net) (Lagged 1 Quarter), and 5% Real Return Custom Index.Global Equity Custom Index consists of 70% Russell 3000 Index, 18% MSCI EAFE Index (Net), 12% MSCI Emg Mkts Index (Net).Non-US Equity Custom Index consists of 60% MSCI EAFE Index (Net) and 40% MSCI Emg Mkts Index (Net).Fixed Income Custom Index consists of the Barclays US Agg Bond Index prior to March 2007 and is calculated using beginning of month weights applied to each corresponding primarybenchmark return thereafter.C&SF Primary Benchmark consists of 45% ABX.HE.BBB-06-1, 45% S&P LTSA 1100 Names Index, and 10% CDX 15 (Lagged 1 Month) through December 31, 2013, and 50% BofA ML USHigh Yield Master II Index, 50% Credit Suisse Leveraged Loan Index thereafter.C&SF Secondary Benchmark consists of 45% ABX.HE.BBB-06-1, 45% S&P LTSA 1100 Names Index, and 10% CDX 15 (Lagged 1 Month) through December 31, 2013, and 33% BofA ML USHigh Yield Master II Index, 33% Credit Suisse Leveraged Loan Index, and 33% Barclays US Corporate Investment Grade Index thereafter.80/20 Cambridge Private Equity Index is lagged 1 quarter and is a blend of 80% Cambridge Private Equity Index and 20% Cambridge Venture Capital Index.Venture Economics All Private Equity Index is lagged 1 quarter.NCREIF/Townsend Weighted Benchmark is calculated by Townsend, lagged 1 quarter, and is a weighted benchmark based on target allocations to each real estate sector in the universe.Real Return Custom Index consists of 35% Barclays US Treasury: US TIPS Index, 25% Dow-Jones UBS Commodity Index (TR), 20% NCREIF Timberland Index, and 20% CPI + 3%.

Absolute Return StrategiesFund of Hedge Funds - Event Driven

Mariner Matador, LLC

Fund of Hedge Funds - Equity HedgeAAM High Desert Fund

Fund of Hedge Funds - Relative ValueCrestline Enchantment Fund Class A

LiquidationCrestline Enchantment Fund Class BCrestline Offshore RecoveryAustin Capital Safe Harbor QP FundCT Preferred Investors Management LLC


Addendum

As of May 31, 2014

Page 10

New Mexico State Investment CouncilInvestment Performance Analysis

Period Ended: April 30, 2014

General Market Commentary Land Grant Asset Allocation vs. Interim Target

*Severance Tax Asset Allocation vs. Interim TargetNMSIC Performance Attribution Summary


Long-Term

Target (%)

AssetAllocation

($)

AssetAllocation

(%)

InterimTarget

(%)

Differences(%)

Land Grant Total Fund Composite 13,722,916,396 100.00 100.00 0.00

US Equity 4,864,118,256 35.45 35.00 0.45

Non-US Equity 1,879,059,732 13.69 15.00 -1.31

Fixed Income 3,152,280,254 22.97 20.00 2.97

Absolute Return 939,178,244 6.84 7.00 -0.16

Private Equity 1,196,907,031 8.72 10.00 -1.28

Real Estate 987,287,102 7.19 8.00 -0.81

Real Return 650,998,768 4.74 5.00 -0.26

Cash Equivalent 53,087,011 0.39 0.00 0.39

The U.S. economy added 288,000 jobs in April, blowing away economists' forecasts andmarking the strongest month for job growth in two years. Unemployment fell to 6.3%, a decrease from the 6.7% reported in March, and the lowest level reported since September2008. Unfortunately, the key driver of this decrease was a decline in the labor forceparticipation rate, which sank to 62.8% in April to match a 35-year low.Equity markets posted positive returns in April as the S&P 500 (Cap Wtd) Index returned0.74% and the MSCI EAFE (Net) Index returned 1.45%. Emerging markets returned0.33% as measured by the MSCI EM (Net) Index.The Barclays US Aggregate Bond Index returned 0.84% in April, outperforming theBarclays US Treasury Intermediate Term Index return of 0.36%.Absolute return strategies, as measured by the HFN FOF Multi-Strat Index, returned-0.75% for the month and 4.76% over the trailing one-year period.

Crude oil's price fell by 1.81% in April but has increased by 6.72% over one year.

100.0031.00

15.00

16.00

8.00

10.00

10.00

10.00

0.00

Long-Term

Target (%)

AssetAllocation

($)

AssetAllocation

(%)

InterimTarget

(%)

Differences(%)

Severance Tax Total Fund (Ex. ETI) Composite 4,253,960,399 100.00 100.00 0.00

US Equity 1,548,102,399 36.39 35.00 1.39

Non-US Equity 653,797,060 15.37 15.00 0.37

Fixed Income 965,681,399 22.70 20.00 2.70

Absolute Return 302,306,717 7.11 7.00 0.11

Private Equity 358,174,754 8.42 10.00 -1.58

Real Estate 261,853,085 6.16 8.00 -1.84

Real Return 138,555,127 3.26 5.00 -1.74

Cash Equivalent 25,489,859 0.60 0.00 0.60

The Land Grant Total Fund's relative underperformance over the last 3 years was

primarily driven by manager performance in equities, particularly US equities.

However, asset allocation positioning relative to the target allocation was favorable, as an

under allocation to non-US equity and real return proved helpful.

Over the last year portfolio positioning has deviated from the target allocation, as

residuals intended for other asset classes are temporarily held as fixed income.Despite that variance, strong value add by managers within US equity, fixed income, and

alternative assets led to overall outperformance by the Total Fund.T. Rowe Price LC Growth, Seizert, and Donald Smith provided the best relativeperformance, while the MFS Int'l, Templeton, BlackRock Emg, and DuPont have not

been able to add value since their inception late in 2013.

The Total Fund also benefitted from the timing of large transactions over the last year.

100.0031.00

15.00

16.00

8.00

10.00

10.00

10.00

0.00

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years

NMSIC Total Fund Composite 0.27 0.27 2.30 12.32 11.60 7.98 12.51 6.86

Land Grant Total Fund Composite 0.22 0.22 2.23 12.17 11.49 8.00 12.60 6.97

Land Grant Policy Index 0.36 0.36 2.19 12.03 11.37 8.81 14.29 6.88

Difference -0.14 -0.14 0.04 0.14 0.12 -0.81 -1.69 0.09

Severance Tax Total Fund Composite 0.42 0.42 2.41 12.34 11.59 7.63 12.18 6.33

Severance Tax Policy Index 0.36 0.36 2.19 12.03 11.37 8.81 14.10 6.96

Difference 0.06 0.06 0.22 0.31 0.22 -1.18 -1.92 -0.63


Market Value ($)Net



%Return

CYTD 18,751,981,477 43,280,230 431,236,168 19,226,497,875 2.30


As of April 30, 2014

Performance shown is gross of fees. Performance is annualized for periods greater than one year. Fiscal year ends June 30.*Severance Tax target allocation excludes economically targeted investments and the state private equity program.

Page 1

Allocation

MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011 2010 2009

NMSIC Total Fund Composite 19,226,497,875 100.00 0.27 0.27 2.30 12.32 11.60 7.98 12.51 6.86 16.26 14.26 -0.93 14.55 18.69

Land Grant Total Fund Composite 13,722,916,396 71.38 0.22 0.22 2.23 12.17 11.49 8.00 12.60 6.97 16.28 14.45 -0.87 14.44 19.30

Land Grant Policy Index 0.36 0.36 2.19 12.03 11.37 8.81 14.29 6.88 16.01 14.10 2.48 14.50 20.67

Difference -0.14 -0.14 0.04 0.14 0.12 -0.81 -1.69 0.09 0.27 0.35 -3.35 -0.06 -1.37

Severance Tax Total Fund Composite 4,517,024,032 23.49 0.42 0.42 2.41 12.34 11.59 7.63 12.18 6.33 15.61 13.52 -0.39 12.82 18.59

Severance Tax Policy Index 0.36 0.36 2.19 12.03 11.37 8.81 14.10 6.96 16.01 14.10 2.48 14.71 18.61

Difference 0.06 0.06 0.22 0.31 0.22 -1.18 -1.92 -0.63 -0.40 -0.58 -2.87 -1.89 -0.02

NMSIC Global Equity Composite 9,569,720,368 49.77 -0.07 -0.07 1.08 17.45 16.43 8.63 16.31 8.30 27.18 16.32 -7.00 18.26 41.50

Global Equity Custom Index 0.39 0.39 1.85 18.27 16.59 10.01 17.55 8.40 26.81 16.93 -3.84 15.57 34.39

Difference -0.46 -0.46 -0.77 -0.82 -0.16 -1.38 -1.24 -0.10 0.37 -0.61 -3.16 2.69 7.11

NMSIC US Equity Composite 6,887,861,028 35.82 -0.37 -0.37 1.47 19.39 21.28 11.63 17.86 8.75 34.12 16.02 -4.34 19.00 38.89

R 3000 Index 0.12 0.12 2.10 19.55 20.78 13.54 19.54 8.10 33.55 16.42 1.03 16.93 28.34

Difference -0.49 -0.49 -0.63 -0.16 0.50 -1.91 -1.68 0.65 0.57 -0.40 -5.37 2.07 10.55

NMSIC Non-US Equity Composite 2,681,859,339 13.95 0.72 0.72 0.10 12.65 4.73 0.45 12.41 7.81 10.88 16.27 -14.99 12.13 56.12

Non-US Equity Custom Index 1.00 1.00 1.26 15.21 7.10 1.89 12.70 8.73 12.03 17.79 -14.54 12.12 49.14

Difference -0.28 -0.28 -1.16 -2.56 -2.37 -1.44 -0.29 -0.92 -1.15 -1.52 -0.45 0.01 6.98

NMSIC Fixed Income Composite 4,434,019,711 23.06 0.92 0.92 3.33 5.78 2.22 6.71 9.63 4.50 1.74 12.78 6.65 17.12 4.74

Fixed Income Custom Index 0.69 0.69 2.49 2.90 0.10 1.91 5.10 1.76 -1.41 0.69 6.25 10.89 6.04

Difference 0.23 0.23 0.84 2.88 2.12 4.80 4.53 2.74 3.15 12.09 0.40 6.23 -1.30

NMSIC US Core Bonds Pool 2,983,727,224 15.52 0.97 0.97 3.51 5.61 0.94 5.73 5.99 5.34 -0.34 11.29 4.92 11.07 -0.33

Barclays US Agg Bond Index 0.84 0.84 2.70 3.15 -0.26 3.60 4.88 4.83 -2.02 4.21 7.84 6.54 5.93

Difference 0.13 0.13 0.81 2.46 1.20 2.13 1.11 0.51 1.68 7.08 -2.92 4.53 -6.26

NMSIC Credit & Structured Finance Pool 959,262,094 4.99 1.03 1.03 3.93 7.22 9.24 11.89 30.29 N/A 11.61 19.67 16.03 46.02 37.65

C&SF Primary Benchmark 0.46 0.46 2.62 2.70 2.87 -4.75 6.76 N/A 1.45 -12.07 -2.18 31.02 4.64

Difference 0.57 0.57 1.31 4.52 6.37 16.64 23.53 N/A 10.16 31.74 18.21 15.00 33.01

C&SF Secondary Benchmark 0.71 0.71 3.14 3.22 3.39 -4.59 6.86 N/A 1.45 -12.07 -2.18 31.02 4.64

Difference 0.32 0.32 0.79 4.00 5.85 16.48 23.43 N/A 10.16 31.74 18.21 15.00 33.01





Page 2



As of April 30, 2014Allocation

MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011 2010 2009

NMSIC Unconstrained Fixed Income Pool 491,030,393 2.55 0.39 0.39 1.11 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

3 Month LIBOR + 2.5% 0.22 0.22 0.90 2.29 2.76 2.85 2.86 4.57 2.78 2.94 2.85 2.85 3.21

Difference 0.17 0.17 0.21 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

NMSIC Cash Equivalent Composite 102,357,790 0.53 0.00 0.00 0.19 0.20 0.54 1.16 0.85 2.42 1.06 0.00 2.52 0.20 0.56

BofA ML 3 Mo US T-Bill Index 0.00 0.00 0.02 0.05 0.06 0.08 0.11 1.64 0.07 0.11 0.10 0.13 0.21

Difference 0.00 0.00 0.17 0.15 0.48 1.08 0.74 0.78 0.99 -0.11 2.42 0.07 0.35

NMSIC Absolute Return Composite 1,263,560,106 6.57 -0.22 -0.22 1.35 6.75 7.43 3.92 5.60 N/A 10.68 6.50 -3.92 4.65 11.43

HFRI FOF Comp Index -0.75 -0.75 -0.29 5.10 4.29 1.67 4.51 3.12 8.96 4.79 -5.72 5.70 11.47

Difference 0.53 0.53 1.64 1.65 3.14 2.25 1.09 N/A 1.72 1.71 1.80 -1.05 -0.04

NMSIC Private Equity Composite (Ex. State) 1,555,082,052 8.09 0.00 0.00 4.90 12.37 15.84 10.85 10.95 11.68 12.94 14.86 10.03 11.02 -11.25

80/20 Cambridge PE Index (Lagged 1 Qtr) 0.00 0.00 0.00 8.77 13.22 12.25 13.48 13.06 16.62 14.12 15.20 16.36 -9.94

Difference 0.00 0.00 4.90 3.60 2.62 -1.40 -2.53 -1.38 -3.68 0.74 -5.17 -5.34 -1.31

Venture Econ All Prvt Eq Index (Lagged 1 Qtr) 0.00 0.00 7.33 15.24 20.84 14.50 15.51 13.11 16.57 14.34 12.33 15.77 -6.33

Difference 0.00 0.00 -2.43 -2.87 -5.00 -3.65 -4.56 -1.43 -3.63 0.52 -2.30 -4.75 -4.92

Townsend Reported Real Estate 1,082,589,554 5.63 0.00 0.00 3.80 9.80 12.34 10.26 1.93 N/A 10.50 9.63 10.34 -6.44 -32.07

NCREIF ODCE Index (Net) (Lagged 1 Qtr) 0.00 0.00 2.94 10.21 12.90 12.53 2.71 6.16 11.97 10.47 17.18 6.01 -35.70

Difference 0.00 0.00 0.86 -0.41 -0.56 -2.27 -0.78 N/A -1.47 -0.84 -6.84 -12.45 3.63

NCREIF/Townsend Wtd Benchmark (Lagged 1 Qtr) 0.00 0.00 3.00 9.91 12.35 12.28 2.65 N/A 12.07 10.46 17.01 3.64 -37.07

Difference 0.00 0.00 0.80 -0.11 -0.01 -2.02 -0.72 N/A -1.57 -0.83 -6.67 -10.08 5.00

NMSIC Real Return 789,553,972 4.11 0.00 0.00 2.14 5.26 5.96 N/A N/A N/A 8.40 N/A N/A N/A N/A

Real Return Custom Index 0.00 0.00 3.20 4.74 0.44 1.18 4.75 5.00 -2.72 4.90 2.77 7.53 8.92

Difference 0.00 0.00 -1.06 0.52 5.52 N/A N/A N/A 11.12 N/A N/A N/A N/A


Page 3

Figure 2: Total Value Added:0.12%Figure 1: Total Fund Performance

Figure 4: Total Mgr Value Added:0.20%

Manager Value Added

0.00% 0.40% 0.80%-0.40 %-0.80 %

0.00%

0.04%

-0.09 %

0.24%

0.17%

0.15%

-0.40 %

0.09%

Asset Allocation Value Added

0.00% 0.40%-0.40 %-0.80 %

-0.10 %

0.12%

-0.05 %

-0.04 %

-0.02 %

-0.51 %

0.12%

0.05%

Figure 3: Total Asset Allocation:-0.44 %


Land Grant Total Fund Composite vs. Land Grant Policy Index

Total Fund Attribution

1 Year Ending April 30, 2014

Performance shown is gross of fees. Calculation is based on monthly periodicity. Total Value Added: The percentage over- or underperformance of the total fund as compared to the benchmark for the specified time period. Average Active Weight: The average percentage over- or underweight to each investment relative to the policy weights. Asset Allocation Value Added: How the variance of the fund's actual allocation from the policy weights added or subtracted from total fund performance. Manager Value Added: The portion of total value added attributable to the relative performance of the fund's investments, relative to the individual benchmarks that represent them in the Land Grant Policy Index. Other: The contribution of other residual factors, including estimation error and transaction timing. See Glossary for additional information regarding the Total Fund Attribution calculation. Page 4

Figure 2: Total Value Added:-0.81 %Figure 1: Total Fund Performance

Figure 4: Total Mgr Value Added:-1.04 %

Manager Value Added

0.00% 0.80%-0.80 %-1.60 %

0.00%

0.02%

-0.13 %

-0.14 %

0.08%

0.30%

-0.27 %

-0.90 %


0.00% 0.30% 0.60%-0.30 %-0.60 %

-0.06 %

0.13%

-0.08 %

-0.08 %

-0.03 %

-0.22 %

0.22%

0.18%

Figure 3: Total Asset Allocation:0.08%


Land Grant Total Fund Composite vs. Land Grant Policy Index


3 Years Ending April 30, 2014

Performance shown is gross of fees. Calculation is based on monthly periodicity. Total Value Added: The percentage over- or underperformance of the total fund as compared to the benchmark for the specified time period. Average Active Weight: The average percentage over- or underweight to each investment relative to the policy weights. Asset Allocation Value Added: How the variance of the fund's actual allocation from the policy weights added or subtracted from total fund performance. Manager Value Added: The portion of total value added attributable to the relative performance of the fund's investments, relative to the individual benchmarks that represent them in the Land Grant Policy Index. Other: The contribution of other residual factors, including estimation error and transaction timing. See Glossary for additional information regarding the Total Fund Attribution calculation. Page 5

Figure 2: Total Value Added:0.23%Figure 1: Total Fund Performance

Figure 4: Total Mgr Value Added:0.34%

Manager Value Added

0.00% 0.30% 0.60%-0.30 %-0.60 %

0.00%

0.00%

0.02%

-0.09 %

0.24%

0.17%

0.18%

-0.25 %

0.07%


0.00% 0.40% 0.80%-0.40 %-0.80 %

-0.08 %

-0.07 %

0.22%

-0.05 %

0.04%

-0.02 %

-0.41 %

0.16%

-0.15 %

Figure 3: Total Asset Allocation:-0.37 %


Severance Tax Total Fund Composite vs. Severance Tax Policy Index


1 Year Ending April 30, 2014

Performance shown is gross of fees. Calculation is based on monthly periodicity. Total Value Added: The percentage over- or underperformance of the total fund as compared to the benchmark for the specified time period. Average Active Weight: The average percentage over- or underweight to each investment relative to the policy weights. Asset Allocation Value Added: How the variance of the fund's actual allocation from the policy weights added or subtracted from total fund performance. Manager Value Added: The portion of total value added attributable to the relative performance of the fund's investments, relative to the individual benchmarks that represent them in the Severance Tax Policy Index. Other: The contribution of other residual factors, including estimation error and transaction timing. See Glossary for additional information regarding the Total Fund Attribution calculation. Page 6

Figure 2: Total Value Added:-1.18 %Figure 1: Total Fund Performance

Figure 4: Total Mgr Value Added:-1.48 %

Manager Value Added

0.00% 0.80%-0.80 %-1.60 %

0.00%

0.00%

0.02%

-0.16 %

-0.40 %

0.08%

0.24%

-0.21 %

-1.04 %


0.00% 0.30% 0.60%-0.30 %

-0.05 %

-0.11 %

0.17%

-0.04 %

0.21%

0.02%

-0.14 %

0.29%

-0.01 %

Figure 3: Total Asset Allocation:0.34%


Severance Tax Total Fund Composite vs. Severance Tax Policy Index


3 Years Ending April 30, 2014

Performance shown is gross of fees. Calculation is based on monthly periodicity. Total Value Added: The percentage over- or underperformance of the total fund as compared to the benchmark for the specified time period. Average Active Weight: The average percentage over- or underweight to each investment relative to the policy weights. Asset Allocation Value Added: How the variance of the fund's actual allocation from the policy weights added or subtracted from total fund performance. Manager Value Added: The portion of total value added attributable to the relative performance of the fund's investments, relative to the individual benchmarks that represent them in the Severance Tax Policy Index. Other: The contribution of other residual factors, including estimation error and transaction timing. See Glossary for additional information regarding the Total Fund Attribution calculation. Page 7

Allocation

MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

US Equity

NMSIC US Equity Composite 6,887,861,028 35.82 -0.37 -0.37 1.47 19.39 21.28 11.63 17.86 8.75 34.12 16.02 -4.34 5.32 05/01/1999

R 3000 Index 0.12 0.12 2.10 19.55 20.78 13.54 19.54 8.10 33.55 16.42 1.03 4.92

NMSIC US Large Cap Equity Composite 5,920,996,355 30.80 0.09 0.09 1.68 19.11 20.09 11.41 17.06 8.68 32.57 16.32 -4.63 4.61 05/01/1999

R 1000 Index 0.47 0.47 2.53 19.81 20.81 13.80 19.52 8.05 33.11 16.43 1.50 4.68

NMSIC US Large Cap Active Pool 2,449,593,887 12.74 -0.40 -0.40 0.64 18.49 19.65 10.08 15.95 8.40 32.34 15.45 -6.46 4.11 05/01/1999

Wellington Management Company 766,786,520 3.99 1.05 1.05 4.01 17.39 18.34 N/A N/A N/A 28.72 N/A N/A 23.25 06/01/2012

R 1000 Value Index 0.95 0.95 4.00 18.92 20.90 14.16 19.52 7.95 32.53 17.50 0.39 26.29

Brown Brothers Harriman 608,629,432 3.17 0.72 0.72 2.77 15.55 16.86 N/A N/A N/A 28.51 N/A N/A 21.78 07/01/2012

R 1000 Index 0.47 0.47 2.53 19.81 20.81 13.80 19.52 8.05 33.11 16.43 1.50 22.59

J.P. Morgan Asset Management 739,411,489 3.85 -1.57 -1.57 -2.71 19.61 19.94 N/A N/A N/A 34.13 N/A N/A 17.37 06/01/2012

T. Rowe Price LC Growth 334,766,447 1.74 -3.00 -3.00 -2.79 24.40 29.00 N/A N/A N/A 45.43 N/A N/A 25.30 06/01/2012

R 1000 Growth Index 0.00 0.00 1.12 20.73 20.66 13.37 19.47 7.99 33.48 15.26 2.64 21.47

NMSIC US Large Cap Index Pool 2,925,791,912 15.22 0.48 0.48 2.52 19.77 20.78 13.64 18.86 8.78 33.10 16.09 1.18 5.26 05/01/1999

NT Russell 1000 Index Fund 2,925,327,690 15.22 0.48 0.48 2.52 19.78 20.79 N/A N/A N/A 33.10 16.31 N/A 17.12 08/01/2011

R 1000 Index 0.47 0.47 2.53 19.81 20.81 13.80 19.52 8.05 33.11 16.43 1.50 17.27

NMSIC US Large Cap Enhanced Index Pool 545,610,557 2.84 0.21 0.21 1.87 18.58 18.65 N/A N/A N/A 32.03 N/A N/A 23.16 06/01/2012

PanAgora Asset Management 545,610,557 2.84 0.21 0.21 1.87 18.58 18.65 N/A N/A N/A 32.03 N/A N/A 23.44 06/01/2012

R 1000 Index 0.47 0.47 2.53 19.81 20.81 13.80 19.52 8.05 33.11 16.43 1.50 23.91

NMSIC US Small/Mid Cap Equity Composite 966,864,673 5.03 -3.07 -3.07 0.22 20.85 27.32 12.56 N/A N/A 42.39 14.00 N/A 12.56 05/01/2011

R 2500 Index -2.31 -2.31 -0.06 18.45 20.78 12.00 21.22 9.71 36.80 17.88 -2.51 12.00

NMSIC US Small/Mid Cap Active Pool 675,391,094 3.51 -3.18 -3.18 0.25 20.93 28.77 12.89 20.83 9.59 43.97 13.70 -2.65 8.97 11/01/1998

Seizert Capital Partners 235,825,582 1.23 -1.72 -1.72 0.62 22.65 29.04 N/A N/A N/A 49.44 22.61 N/A 29.98 01/01/2012

R Mid Cap Index -0.57 -0.57 2.93 20.15 21.25 13.05 21.87 10.40 34.76 17.28 -1.55 23.19

Donald Smith & Company 221,787,933 1.15 1.03 1.03 9.29 30.99 33.50 N/A N/A N/A 32.42 19.90 N/A 26.65 01/01/2012

R 2000 Value Index -2.57 -2.57 -0.84 16.61 19.61 11.16 19.13 8.37 34.52 18.05 -5.50 21.48

Cortina Asset Management 217,777,580 1.13 -8.51 -8.51 -7.82 10.31 23.18 N/A N/A N/A 49.08 7.72 N/A 18.31 01/01/2012

R 2000 Growth Index -5.13 -5.13 -4.67 16.32 21.46 10.32 20.50 8.85 43.30 14.59 -2.91 21.17

NMSIC US Small/Mid Cap Index Pool 88,889,799 0.46 -2.58 -2.58 0.08 19.40 21.41 N/A N/A N/A 33.79 N/A N/A 24.48 01/01/2013

NT Extended Equity Market Index Fund 88,889,799 0.46 -2.58 -2.58 0.08 19.40 21.41 N/A N/A N/A 33.79 N/A N/A 24.48 01/01/2013

R 2500 Index -2.31 -2.31 -0.06 18.45 20.78 12.00 21.22 9.71 36.80 17.88 -2.51 26.43





Page 8




MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

NMSIC US Small/Mid Cap Enhanced Index Pool 200,883,779 1.04 -2.92 -2.92 0.17 21.55 25.16 N/A N/A N/A 40.57 N/A N/A 30.30 12/01/2012

BlackRock Alpha Tilts 200,855,411 1.04 -2.92 -2.92 0.17 21.56 25.17 N/A N/A N/A 40.59 N/A N/A 22.78 02/01/2012

R 2000 Index -3.88 -3.88 -2.80 16.46 20.50 10.73 19.84 8.67 38.82 16.34 -4.18 18.54

Non-US Equity

NMSIC Non-US Equity Composite 2,681,859,339 13.95 0.72 0.72 0.10 12.65 4.73 0.45 12.41 7.81 10.88 16.27 -14.99 6.07 05/01/1999

Non-US Equity Custom Index 1.00 1.00 1.26 15.21 7.10 1.89 12.70 8.73 12.03 17.79 -14.54 6.42

NMSIC Non-US Developed Markets Composite 1,390,285,664 7.23 1.36 1.36 1.71 19.25 12.29 5.73 13.63 6.45 22.22 17.61 -11.38 4.75 05/01/1999


NMSIC Non-US Developed Markets Active Pool 1,265,800,821 6.58 1.35 1.35 1.72 N/A N/A N/A N/A N/A N/A N/A N/A 14.07 09/01/2013

LSV Int'l Large Cap Value 283,763,828 1.48 2.06 2.06 2.91 N/A N/A N/A N/A N/A N/A N/A N/A 16.62 09/01/2013

MSCI ACW Ex US Value Index (Net) 1.93 1.93 2.66 19.88 11.18 3.11 12.59 7.78 15.04 16.97 -13.20 15.52

T. Rowe Price Int'l Core 347,999,386 1.81 1.11 1.11 1.02 N/A N/A N/A N/A N/A N/A N/A N/A 15.99 09/01/2013


MFS Int'l Large Cap Growth 347,612,865 1.81 1.93 1.93 1.13 N/A N/A N/A N/A N/A N/A N/A N/A 5.23 10/01/2013

MSCI ACW Ex US Growth Index (Net) 0.72 0.72 1.03 15.07 8.34 2.78 13.16 7.39 15.49 16.67 -14.21 5.73

Templeton Int'l Small Cap Equity 286,324,046 1.49 0.27 0.27 2.14 N/A N/A N/A N/A N/A N/A N/A N/A 7.42 10/01/2013

MSCI ACW Ex US Sm Cap Index (Net) -0.17 -0.17 3.30 21.45 13.03 3.80 17.41 9.66 19.73 18.52 -18.50 8.07

NMSIC Non-US Developed Markets Index Pool 124,484,843 0.65 1.44 1.44 1.59 19.44 12.47 5.79 13.67 6.46 22.56 17.61 -11.38 4.76 05/01/1999

Alliance Bernstein MSCI EAFE Int'l Index 123,909,079 0.64 1.45 1.45 1.60 19.48 12.50 5.74 13.76 6.95 22.59 17.53 -11.44 6.27 06/01/1998


NMSIC Non-US Emerging Markets Composite 1,291,573,675 6.72 0.04 0.04 -1.58 5.06 -4.34 -7.14 9.61 10.83 -3.55 14.10 -21.95 9.48 05/01/1999

MSCI Emg Mkts Index (Net) 0.33 0.33 -0.10 7.60 -1.84 -3.74 11.08 11.09 -2.60 18.23 -18.42 9.18

NMSIC Non-US Emerging Markets Active Pool 771,543,690 4.01 -0.14 -0.14 -2.39 N/A N/A N/A N/A N/A N/A N/A N/A 5.29 09/01/2013

BlackRock Emg Mkts Opp Fund 264,758,416 1.38 0.33 0.33 -1.65 N/A N/A N/A N/A N/A N/A N/A N/A 0.18 10/01/2013

DuPont Capital Management 505,393,034 2.63 -0.39 -0.39 -2.77 N/A N/A N/A N/A N/A N/A N/A N/A 4.49 09/01/2013


NMSIC Non-US Emerging Markets Index Pool 520,029,985 2.70 0.32 0.32 -0.37 7.39 -2.22 -6.46 10.09 11.07 -2.61 14.10 -21.95 9.64 05/01/1999

Alliance Bernstein Emerging Markets Index 520,029,985 2.70 0.32 0.32 -0.37 7.39 -2.22 N/A N/A N/A -2.61 N/A N/A 2.08 11/01/2012



Page 9




MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

Fixed Income

NMSIC Fixed Income Composite 4,434,019,711 23.06 0.92 0.92 3.33 5.78 2.22 6.71 9.63 4.50 1.74 12.78 6.65 5.51 05/01/1999

Fixed Income Custom Index 0.69 0.69 2.49 2.90 0.10 1.91 5.10 1.76 -1.41 0.69 6.25 3.37

NMSIC US Core Bonds Pool 2,983,727,224 15.52 0.97 0.97 3.51 5.61 0.94 5.73 5.99 5.34 -0.34 11.29 4.92 5.93 05/01/1999

Barclays US Agg Bond Index 0.84 0.84 2.70 3.15 -0.26 3.60 4.88 4.83 -2.02 4.21 7.84 5.43

PIMCO Barclays US Universal 1,260,438,090 6.56 0.99 0.99 3.01 4.46 0.15 4.82 N/A N/A -0.69 11.44 N/A 5.06 04/01/2011

Prudential Barclays US Universal 857,749,554 4.46 0.90 0.90 3.60 6.65 1.75 6.87 N/A N/A 0.77 11.23 N/A 7.07 04/01/2011

Loomis Sayles Barclays US Universal 860,416,387 4.48 1.02 1.02 4.13 6.50 1.33 6.13 N/A N/A -0.84 10.77 N/A 6.53 04/01/2011

Barclays US Unv Bond Index 0.83 0.83 2.80 3.79 0.24 4.07 5.69 5.14 -1.35 5.53 7.40 4.39

NMSIC Credit & Structured Finance Pool 959,262,094 4.99 1.03 1.03 3.93 7.22 9.24 11.89 30.29 N/A 11.61 19.67 16.03 2.22 04/01/2006

C&SF Primary Benchmark 0.46 0.46 2.62 2.70 2.87 -4.75 6.76 N/A 1.45 -12.07 -2.18 N/A

C&SF Secondary Benchmark 0.71 0.71 3.14 3.22 3.39 -4.59 6.86 N/A 1.45 -12.07 -2.18 N/A

NMSIC Unconstrained Fixed Income Pool 491,030,393 2.55 0.39 0.39 1.11 N/A N/A N/A N/A N/A N/A N/A N/A 1.08 12/01/2013

PIMCO Unconstrained 253,359,789 1.32 0.55 0.55 1.45 N/A N/A N/A N/A N/A N/A N/A N/A 1.14 12/01/2013

Loomis Sayles Unconstrained 202,669,463 1.05 0.25 0.25 0.89 N/A N/A N/A N/A N/A N/A N/A N/A 1.19 12/01/2013

3 Month LIBOR + 2.5% 0.22 0.22 0.90 2.29 2.76 2.85 2.86 4.57 2.78 2.94 2.85 1.13

NMSIC Cash Equivalent Composite 102,357,790 0.53 0.00 0.00 0.19 0.20 0.54 1.16 0.85 2.42 1.06 0.00 2.52 4.07 07/01/1988


Absolute Return

NMSIC Absolute Return Composite 1,263,560,106 6.57 -0.22 -0.22 1.35 6.75 7.43 3.92 5.60 N/A 10.68 6.50 -3.92 2.71 09/01/2005

Mariner Matador, LLC 446,351,804 2.32 0.24 0.24 2.07 8.74 10.01 4.96 5.58 N/A 14.75 6.01 -5.34 3.98 10/01/2005

AAM High Desert Fund 412,449,931 2.15 -0.88 -0.88 0.42 7.42 7.58 5.24 N/A N/A 12.83 10.31 -3.98 5.46 12/01/2010

Crestline Enchantment Fund Class A 353,895,946 1.84 -0.06 -0.06 1.76 5.76 6.58 2.80 5.31 N/A 7.16 3.84 -1.52 3.27 10/01/2005

Crestline Enchantment Fund Class B 28,614,608 0.15 0.00 0.00 0.17 -3.53 -2.48 -0.60 2.79 N/A -2.04 3.54 0.71 0.15 06/01/2006

Crestline Offshore Recovery 8,373,548 0.04 0.00 0.00 -0.25 -4.02 -7.51 -1.56 15.06 N/A -5.50 5.35 -3.07 14.01 02/01/2009

Austin Capital Safe Harbor QP Fund 7,582,382 0.04 0.00 0.00 -0.37 -20.63 -22.30 -12.98 -7.60 N/A -21.36 -2.27 -16.86 -4.08 10/01/2005

CT Preferred Investors Management LLC 3,741,985 0.02 0.00 0.00 0.00 0.10 -0.08 0.64 2.98 N/A -2.12 4.61 0.21 -0.90 11/01/2005

HFRI FOF Comp Index -0.75 -0.75 -0.29 5.10 4.29 1.67 4.51 3.12 8.96 4.79 -5.72 2.71


Page 10




MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

Private Equity

NMSIC Private Equity Composite (Ex. State) 1,555,082,052 8.09 0.00 0.00 4.90 12.37 15.84 10.85 10.95 11.68 12.94 14.86 10.03 4.04 06/01/2001

Private Equity Pooled Funds 1,552,328,208 8.07 0.00 0.00 4.91 12.39 15.87 N/A N/A N/A 12.95 16.22 N/A 10.57 07/01/2011

80/20 Cambridge PE Index (Lagged 1 Qtr) 0.00 0.00 0.00 8.77 13.22 12.25 13.48 13.06 16.62 14.12 15.20 11.12


Real Estate

Townsend Reported Real Estate 1,082,589,554 5.63 0.00 0.00 3.80 9.80 12.34 10.26 1.93 N/A 10.50 9.63 10.34 2.23 10/01/2004

NCREIF ODCE Index (Net) (Lagged 1 Qtr) 0.00 0.00 2.94 10.21 12.90 12.53 2.71 6.16 11.97 10.47 17.18 5.88

NCREIF/Townsend Wtd Benchmark (Lagged 1 Qtr) 0.00 0.00 3.00 9.91 12.35 12.28 2.65 N/A 12.07 10.46 17.01 6.72

Real Return

NMSIC Real Return 789,553,972 4.11 0.00 0.00 2.14 5.26 5.96 N/A N/A N/A 8.40 N/A N/A 7.47 06/01/2012

Real Return Custom Index 0.00 0.00 3.20 4.74 0.44 1.18 4.75 5.00 -2.72 4.90 2.77 2.67

ETI

NMSIC Economically Targeted Investments 40,258,471 0.21 11.69 11.69 10.18 8.97 8.74 2.13 0.05 -0.04 -1.15 -0.32 -2.12 -1.12 07/01/1998


Severance Tax State PE Program 222,805,161 1.16 0.00 0.00 2.34 11.83 10.91 7.76 5.23 -0.44 6.85 13.11 11.39 -5.03 08/01/2001

Cambridge VC Index (Lagged 1 Qtr) 0.00 0.00 0.00 11.04 13.84 11.32 10.09 8.48 15.15 7.54 20.66 0.12


NMSIC Total Fund Composite 19,226,497,875 100.00 0.27 0.27 2.30 12.32 11.60 7.98 12.51 6.86 16.26 14.26 -0.93 4.99 01/01/2000


Page 11


Allocation

MarketValue ($)

%

Perf. (%)

QTD1

Year

NMSIC Credit & Structured Finance Pool 959,262,094 4.99 1.03 9.24

NMSIC Unconstrained Fixed Income Pool 491,030,393 2.55 0.39 N/A

NMSIC Cash Equivalent Composite 102,357,790 0.53 0.00 0.54

NMSIC Economically Targeted Inv. 40,258,471 0.21 11.69 8.74

SIC Managed Core Bonds Fund 5,123,192 0.03 0.00 0.01

NMSIC Absolute Return Composite 1,263,560,106 6.57 -0.22 7.43

Mariner Matador, LLC 446,351,804 2.32 0.24 10.01

AAM High Desert Fund 412,449,931 2.15 -0.88 7.58

Crestline Enchantment Fund Class A 353,895,946 1.84 -0.06 6.58

Crestline Enchantment Fund Class B 28,614,608 0.15 0.00 -2.48

Crestline Offshore Recovery 8,373,548 0.04 0.00 -7.51

Austin Capital Safe Harbor QP Fund 7,582,382 0.04 0.00 -22.30

CT Preferred Investors Management LLC 3,741,985 0.02 0.00 -0.08

ARS Pool (Cash Account) 2,549,901 0.01 0.00 0.01

NMSIC Private Equity Composite 1,777,887,213 9.25 0.00 15.27

Townsend Reported Real Estate 1,082,589,554 5.63 0.00 12.34

NMSIC Real Return 789,553,972 4.11 0.00 5.96

Waterfall Eden Fund, LP 168,843,768 0.88 0.00 N/A

ING Real Return 154,849,925 0.81 0.00 N/A

Credit Suisse Bank Loan 129,246,035 0.67 0.10 N/A

J.P. Morgan Infrastructure Partners 67,691,343 0.35 0.00 N/A

Natural Gas Partners X, L.P. 46,008,312 0.24 0.00 11.85

Real Return Pool (Cash Account) 45,430,626 0.24 0.00 0.01

EIG Energy Fund XV 38,144,808 0.20 0.00 6.03

Preferred REITs 35,000,287 0.18 N/A N/A

Global Infrastructure Partners II 29,052,090 0.15 0.00 27.40

Brookfield Global Timber V 19,779,936 0.10 0.00 N/A

Brookfield Infrastructure II 12,729,939 0.07 0.00 N/A

Hancock Timber XII 12,545,325 0.07 N/A N/A

Brookfield Capital Partners III 11,816,072 0.06 0.00 19.99

EIG Energy Fund XVI 8,658,868 0.05 0.00 N/A

EnCap Investments, L.P. 8,086,163 0.04 0.00 -14.23

Alterna II 1,670,455 0.01 0.00 N/A

Allocation

MarketValue ($)

%

Perf. (%)

QTD1

Year

NMSIC Total Fund Composite 19,226,497,875 100.00 0.27 11.60

NMSIC US Equity Composite 6,887,861,028 35.82 -0.37 21.28

NT Russell 1000 Index Fund 2,925,327,690 15.22 0.48 20.79

Wellington Management Company 766,786,520 3.99 1.05 18.34

J.P. Morgan Asset Management 739,411,489 3.85 -1.57 19.94

Brown Brothers Harriman 608,629,432 3.17 0.72 16.86

PanAgora Asset Management 545,610,557 2.84 0.21 18.65

T. Rowe Price LC Growth 334,766,447 1.74 -3.00 29.00

Seizert Capital Partners 235,825,582 1.23 -1.72 29.04

Donald Smith & Company 221,787,933 1.15 1.03 33.50

Cortina Asset Management 217,777,580 1.13 -8.51 23.18

BlackRock Alpha Tilts 200,855,411 1.04 -2.92 25.17

NT Extended Equity Market Index Fund 88,889,799 0.46 -2.58 21.41

US Small/Mid Cap Pool Cash 1,700,000 0.01 N/A N/A

SIC Managed Large Cap Index 453,802 0.00 -7.07 -1.28

BlackRock Transition 28,368 0.00 -3.38 -10.48

Northern Trust Transition 10,419 0.00 -3.44 16.95

NMSIC Non-US Equity Composite 2,681,859,339 13.95 0.72 4.73

Alliance Bernstein Emerging Markets Index 520,029,985 2.70 0.32 -2.22

DuPont Capital Management 505,393,034 2.63 -0.39 N/A

T. Rowe Price Int'l Core 347,999,386 1.81 1.11 N/A

MFS Int'l Large Cap Growth 347,612,865 1.81 1.93 N/A

Templeton Int'l Small Cap Equity 286,324,046 1.49 0.27 N/A

LSV Int'l Large Cap Value 283,763,828 1.48 2.06 N/A

BlackRock Emg Mkts Opp Fund 264,758,416 1.38 0.33 N/A

Alliance Bernstein MSCI EAFE Int'l Index 123,909,079 0.64 1.45 12.50

SSGM Transition Mgmt Non-US Emerging 1,392,240 0.01 0.26 N/A

Reclaims (Jarislowksy Fraser) 575,764 0.00 0.03 19.97

Russell Transition Mgmt Non-US Developed 95,734 0.00 0.16 N/A

Schroder Int'l Alpha 4,962 0.00 0.57 N/A

NMSIC Fixed Income Composite 4,434,019,711 23.06 0.92 2.22

PIMCO Barclays US Universal 1,260,438,090 6.56 0.99 0.15

Loomis Sayles Barclays US Universal 860,416,387 4.48 1.02 1.33

Prudential Barclays US Universal 857,749,554 4.46 0.90 1.75


Market Value ($)Net



%Return

FYTD 17,094,085,920 27,971,236 2,104,440,719 19,226,497,875 12.32


Asset Allocation, Performance & Schedule of Investable Assets


Allocations shown may not sum up to 100% exactly due to rounding. Performance shown is gross of fees, except for Credit & Structured Finance, Absolute Return, Real Estate, Real Return, and Private Equity, which are net of fees. Market values and performance are preliminary and subject to change. RVK endorses GIPS and calculates performance for composites and investment managers using different methodologies. Fiscal year ends June 30. Hancock Timber XII and Preferred REITs were funded in April 2014.

Page 12

Capital Markets ReviewAs of April 30, 2014

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•

•

•

•

•

• 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr

•Treasury Yield Curve 04/30/14 03/31/14 04/30/13 04/30/11

Market Indicators 04/30/14 03/31/14 04/30/13 20 Yr 40 Yr 3 Month 0.03% 0.03% 0.05% 0.04%Federal Funds Rate 0.09% ▲ 0.06% 0.14% 3.04% 5.66% 6 Month 0.04% 0.05% 0.08% 0.09%Breakeven Inflation - 1 Year 1.58% ▼ 1.79% 1.00% 1.17% 1.17% 1 Year 0.10% 0.11% 0.10% 0.18%Breakeven Inflation - 5 Year 1.98% ▲ 1.87% 2.07% 1.93% 1.93% 3 Year 0.85% 0.87% 0.31% 0.99%Breakeven Inflation - 10 Year 2.19% ▲ 2.14% 2.34% 2.05% 2.05% 5 Year 1.68% 1.72% 0.68% 1.97%Breakeven Inflation - 30 Year 2.31% ▲ 2.28% 2.43% 2.33% 2.33% 7 Year 2.23% 2.30% 1.11% 2.67%Barclays US Agg Bond Index - Yield 2.31% ▼ 2.39% 1.73% 4.96% 5.65% 10 Year 2.65% 2.72% 1.67% 3.29%Barclays US Agg Bond Index - OAS 0.41% ▼ 0.44% 0.54% 0.70% 0.69% 20 Year 3.22% 3.31% 2.49% 4.15%Barclays US Agg Credit Index - OAS 0.98% ▼ 1.03% 1.25% 1.55% 1.54% 30 Year 3.46% 3.56% 2.88% 4.40%Barclays US Corp: HY Index - OAS 3.44% ▼ 3.58% 4.32% 5.89% 5.89%Capacity Utilization 78.60% ▼ 79.30% 77.80% 78.90% 79.80% Market Performance MTD QTD CYTD 1 Yr 3 Yr 5 Yr 10 Yr Unemployment Rate 6.30% ▼ 6.70% 7.50% 6.00% 6.50% S&P 500 (Cap Wtd) 0.74 0.74 2.56 20.44 13.83 19.14 7.67 PMI - Manufacturing 54.90% ▲ 53.70% 50.00% 52.10% 51.70% R 2000 -3.88 -3.88 -2.80 20.50 10.73 19.84 8.67 Baltic Dry Index - Shipping 943 ▼ 1,362 863 1,619 1,442 MSCI EAFE (Net) 1.45 1.45 2.12 13.35 5.66 13.58 6.93Consumer Conf (Conf Board) 82.30 ▼ 83.86 68.95 93.48 90.89 MSCI EAFE SC (Net) -0.81 -0.81 2.52 18.02 7.25 18.09 8.86CPI YoY (Headline) 2.00% ▲ 1.50% 1.10% 2.40% 4.20% MSCI EM (Net) 0.33 0.33 -0.10 -1.84 -3.74 11.08 11.09CPI YoY (Core) 1.80% ▲ 1.70% 1.70% 2.20% 4.20% Barclays US Agg Bond 0.84 0.84 2.70 -0.26 3.60 4.88 4.83PPI YoY 3.10% ▲ 1.70% 0.50% 2.40% 3.80% BofA ML 3 Mo US T-Bill 0.00 0.00 0.02 0.06 0.08 0.11 1.64M2 YoY 6.20% ▲ 6.00% 7.10% 5.90% 6.60% NCREIF ODCE (Gross) N/A N/A 2.52 13.77 13.06 7.32 7.18US Dollar Total Weighted Index 76.28 ▼ 76.86 75.66 86.54 94.42 Wilshire US REIT 3.55 3.55 14.04 1.47 9.72 22.96 10.30WTI Crude Oil per Barrel $100 ▼ $102 $93 $51 $41 HFN FOF Multi-Strat -0.75 -0.75 -0.01 4.76 1.97 4.21 2.89Gold Spot per Oz $1,292 ▲ $1,284 $1,477 $332 $341 DJ-UBS Cmdty (TR) 2.44 2.44 9.60 3.17 -7.68 4.59 0.85

All data courtesy of Bloomberg Professional Service. Performance is annualized for periods greater than one year. 20- and 40-year average Gold spot prices are adjusted for inflation. CPI figures are seasonally adjusted.NCREIF performance is reported quarterly; MTD and QTD returns are shown as "N/A" on interim-quarter months.Performance for the HFN FOF Multi-Strat Index is preliminary and subject to change.

Treasury Yield Curve

Crude oil's price fell by 1.81% during the month but has increased by 6.72% over one year.

General Market Commentary

Equity markets posted positive returns in April as the S&P 500 (Cap Wtd) Index returned 0.74% and the MSCI EAFE (Net) Index returned 1.45%. Emerging markets returned 0.33% as measured by the MSCI EM (Net) Index.The Barclays US Aggregate Bond Index returned 0.84% in April, outperforming the Barclays US Treasury return of 0.36%, as measured by the Barclays US Treasury Intermediate Term Index. International fixed income markets returned 1.32%, as measured by the Citi Non-US World Government Bond Index.Public real estate, as measured by the Wilshire US REIT Index, returned 3.55% in April and 22.96% over the trailing five-year period.The Venture Economics All Private Equity Index returned 20.84% for the trailing one-year period and 15.51% for the trailing five-year period ending December 2013.Absolute return strategies, as measured by the HFN FOF Multi-Strat Index, returned -0.75% for the month and 4.76% over the trailing one-year period.

The U.S. economy added 288,000 jobs in April, blowing away economists' forecasts and marking the strongest month for job growth in two years. Unemployment fell to 6.3%, a decrease from the 6.7% reported in March, and the lowest level reported since September 2008. Unfortunately, the key driver of this decrease was a decline in the labor force participation rate, which sank to 62.8% in April to match a 35-year low.The Federal Open Markets Committee announced a fourth straight $10 billion reduction to its quantitative easing program, reducing its monthly bond purchases to $45 billion. If the taper continues to progress at the current rate, we would expect to see the QE program completely wound down by the end of the year.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

4/30/2014 3/31/2014 4/30/2013 4/29/2011

Page 13

Performance Related CommentsPerformance shown is gross of fees unless otherwise noted. Fiscal year ends on June 30th.Performance is annualized for periods greater than one year.Absolute Return market values are lagged 1 month and provided by J.P. Morgan. Performance for Absolute Return is preliminary and shown as of the most current month end.Historical performance for Crestline Enchantment Fund Class A shares prior to January 2011 consists of Crestline Partners LP. Class B shares before this date consist of Vintage Classic LLC.Performance for Mariner Matador, LLC prior to August 2008 consists of Mariner Select LP.Real Estate, Private Equity, and Real Return investments assume a 0.00% return during interim months. Real Estate and Private Equity investments are lagged 1 quarter.Since Inception performance shown for the HFRI FOF Comp Index is as of October 1, 2005.Indices show N/A for since inception returns when the fund contains more history than the corresponding benchmark.Since Inception dates reflect first month of reliable and verifiable data and may not reflect the actual full month following initial funding.RVK began calculating performance in May 2011 using data provided by J.P. Morgan. Historical performance prior to this date was provided by NEPC.PIMCO Unconstrained, Loomis Sayles Unconstrained, and Brookfield Infrastructure II were funded in November 2013.

Custom Index CommentsLand Grant Policy Index is based on the target allocation and currently consists of 30% Russell 1000 Index, 5% Russell 2500 Index, 9% MSCI EAFE Index (Net), 6% MSCI Emerging MarketsIndex (Net), 14% Barclays US Aggregate Bond Index, 6% Credit and Structure Finance Composite, 7% HFRI FOF Composite Index (Lagged 1 Month), 10% 80/20 Cambridge Private EquityIndex (Lagged 1 Quarter), 8% NCREIF ODCE Index (Net) (Lagged 1 Quarter), and 5% Real Return Custom Index.Severance Tax Policy Index is based on the target allocation and currently consists of 30% Russell 1000 Index, 5% Russell 2500 Index, 9% MSCI EAFE Index (Net), 6% MSCI Emerging MarketsIndex (Net), 14% Barclays US Aggregate Bond Index, 6% Credit and Structure Finance Composite, 7% HFRI FOF Composite Index (Lagged 1 Month), 10% 80/20 Cambridge Private EquityIndex (Lagged 1 Quarter), 8% NCREIF ODCE Index (Net) (Lagged 1 Quarter), and 5% Real Return Custom Index.Global Equity Custom Index consists of 70% Russell 3000 Index, 18% MSCI EAFE Index (Net), 12% MSCI Emg Mkts Index (Net).Non-US Equity Custom Index consists of 60% MSCI EAFE Index (Net) and 40% MSCI Emg Mkts Index (Net).Fixed Income Custom Index consists of the Barclays US Agg Bond Index prior to March 2007 and is calculated using beginning of month weights applied to each corresponding primarybenchmark return thereafter.C&SF Primary Benchmark consists of 45% ABX.HE.BBB-06-1, 45% S&P LTSA 1100 Names Index, and 10% CDX 15 (Lagged 1 Month) through December 31, 2013, and 50% BofA ML USHigh Yield Master II Index, 50% Credit Suisse Leveraged Loan Index thereafter.C&SF Secondary Benchmark consists of 45% ABX.HE.BBB-06-1, 45% S&P LTSA 1100 Names Index, and 10% CDX 15 (Lagged 1 Month) through December 31, 2013, and 33% BofA ML USHigh Yield Master II Index, 33% Credit Suisse Leveraged Loan Index, and 33% Barclays US Corporate Investment Grade Index thereafter.80/20 Cambridge Private Equity Index is lagged 1 quarter and is a blend of 80% Cambridge Private Equity Index and 20% Cambridge Venture Capital Index. Q1 2014 performance is not yetavailable, so it assumes a 0.00% return.Venture Economics All Private Equity Index is lagged 1 quarter.NCREIF/Townsend Weighted Benchmark is calculated by Townsend, lagged 1 quarter, and is a weighted benchmark based on target allocations to each real estate sector in the universe.Real Return Custom Index consists of 35% Barclays US Treasury: US TIPS Index, 25% Dow-Jones UBS Commodity Index (TR), 20% NCREIF Timberland Index, and 20% CPI + 3%.

Absolute Return StrategiesFund of Hedge Funds - Event Driven

Mariner Matador, LLC

Fund of Hedge Funds - Equity HedgeAAM High Desert Fund

Fund of Hedge Funds - Relative ValueCrestline Enchantment Fund Class A

LiquidationCrestline Enchantment Fund Class BCrestline Offshore RecoveryAustin Capital Safe Harbor QP FundCT Preferred Investors Management LLC


Addendum


Page 14


Monthly Investment Summary

For the Month Ending April, 2014

Global equity markets corrected a bit through mid-month April, but rebounded by month end to post positive results. Bonds, too, produced positive rates of return and interest rates moderated.

Land Grant Permanent Fund (LGPF) and the Severance Tax Permanent Fund (STPF) returns were modest on the month, but positive, with the LGPF returning 0.22% and STPF producing 0.42%. The difference between the two was a slightly higher equity weight in the STPF on the month in non-U.S. equity, partially offset by a slightly higher cash position. Both funds are outperforming policy benchmarks for the trailing one-year period.

The RVK preliminary monthly flash performance report for April, 2013 is available.

Portfolio Activity Portfolio activity in March was again light. Asset allocation – Portfolio weights for both the LGPF and STPF were quite close to the interim policy targets; with the slowdown and choppiness in the stock market, pressures on rebalancing bands are minimal. The long-standing overweight in fixed income remains as capital is cycled from publicly-traded equity to private investments.

Strategy selection – No changes to strategies in the month.

Active portfolio management – Global equity performance backed up relative to the Council’s passive benchmark again in the month, with the trailing one-year premium falling below for the first time in many months. Month-to-month this number can be volatile; as you recall it was 70bps for the trailing one-year period last month. At issue are the domestic large-cap growth managers T. Rowe Price and JP Morgan, as discussed below.

The domestic equity portfolio pulled back sharply again against the benchmark on the month, losing 49 bpos against the Russell 3000 passive benchmark. On a trailing one-year basis the portfolio continues to run ahead of the benchmark by approximately 50bps or a little under 2x fees, but recently, the Council’s growth managers have taken a downward turn. Staff has been in discussions with the managers and as of yet remains unconcerned. On the trailing one-year numbers, T. Rowe Price remains an unexpectedly-high 834 basis points ahead of their benchmark and JPMorgan has fallen to a modes 72bps underperformance.

The small-cap managers lost ground against the Russell 2500 passive benchmark, one of the very few months this has occurred since inception of these managers in January 2012. The international equity

portfolio continued to have trouble finding its feet and underperformed on the month and over the last year, continues to find itself 200+bps behind the passive equivalent.

While absolute returns are low in fixed income, active management performance remains very good, showing showing a 120bps premium over a negative-returning benchmark over the last year. Those markets are changing, however, as the credit cycle ages, and staff and consultant are beginning discussions regarding strategy and manager line-up as of now with plans for a structure study to be presented to the Council in September.

Market Environment While a very minor correction occurred though mid-month, equity markets continued their remarkable uptrend. The VIX index, a measure of future expected negative volatility, continues to decline in inverse fashion to the market. Investors appear convinced, by their actions, that the economy is on good footing and that the Federal Reserve and other central banks have the answer to present and future issues within the financial system. Time will tell if this reflected good judgment, though we continue to sell into the run-up and cycle capital toward income-producing, more stable assets.

Return Assumptions Review New Mexico State Investment Council June 2014

What are Capital Markets Assumptions? • Capital markets (CM) assumptions are forward-looking

estimates of the behavior of asset classes (i.e., groups of closely related investment opportunities).

• The “behaviors” we estimate include: 1. Return 2. Risk (volatility) 3. Correlation coefficient (the relationship of asset class returns with all

other asset classes)

• Asset allocation is often cited as the most powerful driver of total fund return over the long run, thus we believe a careful review of CM assumptions can be a very useful exercise.

RVK • 2

Forecasts: CM ≠ Economic

• CM assumptions are almost always wrong when examined individually by asset class or over short horizons. Though perhaps more important is how “right” they are relative to each other and over the long run.

• There are of course overlaps between economic forecasts and CM forecasts. After all, value is created in the real economy and only reflected in the Capital Markets.

• However, there are significant differences too – such as the forecast horizon and the importance of relative relationships.

RVK • 3

CM Assumption Setting Process CM Assumptions are so important at RVK that we:

• Utilize historical data, current market data, financial theory, economic forecasts, product performance, and other factors to create our CM forecasts.

• Ensure that all of our Consultants formally review, critique, and ultimately support our CM assumptions.

• Test the assumptions using actual client allocation structures before we put them into use, looking for major changes in the fund’s asset allocation, signs of reduced diversification, or other important factors.

• Frequent review, comprehensive analysis, and a documented approach are all part of our process.

RVK • 4

What does it mean to get CM Assumptions “right”? Although both are important, relative accuracy can matter more than absolute accuracy.

• Relative Accuracy: Assumptions capture the relative relationships between asset classes – particularly closely related ones. – Having some assumptions that are spot on and others that are far off will

produce unbalanced and poorly diversified portfolios.

• Absolute Accuracy: Assumptions reflect the absolute values actually experienced in future long-term market environments. – Having CM assumptions that are too high or low across the board can

cause an institution to believe it can spend more than it can afford or restrict spending more than necessary.

RVK • 5

Factors to keep in mind when evaluating assumptions… • While excessively high capital market assumptions provide

the hope of higher rates of expected return, this prospect may not actually materialize if the market environment does not support them and can often lead to suboptimal portfolio structures.

• A well-structured and executed investment program will be best positioned to benefit from the available market returns regardless of the forecasts for total return.

• Well-structured asset allocations (and the resulting outcomes) are largely produced by the relative accuracy of assumptions, not simply by forecasting higher absolute returns.

RVK • 6

Blue highlighted cells indicate values are being calculated based on a roll up of underlying asset classes. Broad US Equity is a combination of 92.1% Large/Mid Cap US Equity and 7.9% Small Cap US Equity. Broad International Equity is a combination of 69.5% Dev'd Large/Mid Cap Int'l Equity, 9.9% Dev'd Small Cap Int'l Equity, and 20.6% Emerging Markets Equity. Diversified Inflation Strategies is a combination of 1/3 TIPS, 1/3 Global REITs, and 1/3 Commodities. *SIC Custom Diversified Inflation Strategies assumption for 2014: 7.00% Return and 11.75% Risk. **SIC Custom US Inflation assumption for 2014: 3.00% Return and 3.00% Risk.

RVK 2014 Assumptions (incl. YoY ∆)

RVK • 7

Asset Class Return (Arithmetic)

StandardDeviation

Return(Compound)

Return (Arithmetic)

StandardDeviation

Return(Compound)

Return (Arithmetic)

StandardDeviation

Return(Compound)

Broad US Equity 7.30% 17.80% 5.85% 7.90% 17.95% 6.44% -0.60% -0.15% -0.58%

Broad International Equity 8.55% 20.55% 6.66% 8.65% 20.80% 6.71% -0.10% -0.25% -0.06%

Intermediate Duration Fixed Income 4.00% 6.00% 3.83% 3.50% 5.75% 3.34% 0.50% 0.25% 0.49%TIPS 4.00% 6.25% 3.81% 3.50% 5.75% 3.34% 0.50% 0.50% 0.47%

Core Real Estate 7.00% 12.50% 6.28% 7.00% 12.50% 6.28% 0.00% 0.00% 0.00%Non-Core Real Estate 10.00% 22.50% 7.77% 10.00% 22.50% 7.77% 0.00% 0.00% 0.00%

Diversified Hedge Funds 6.75% 9.75% 6.31% 6.75% 9.75% 6.31% 0.00% 0.00% 0.00%

Private Equity 11.00% 29.00% 7.40% 11.75% 30.25% 7.87% -0.75% -1.25% -0.47%

Commodities 7.00% 19.75% 5.22% 7.00% 19.75% 5.22% 0.00% 0.00% 0.00%Diversified Inflation Strategies* 6.00% 11.50% 5.38% 6.00% 11.45% 5.39% 0.00% 0.05% -0.01%

US Inflation** 2.50% 3.00% 2.46% 2.50% 3.00% 2.46% 0.00% 0.00% 0.00%

Indicates an unfavorable change to the assumption from 2013 to 2014

Indicates a favorable change to the assumption from 2013 to 2014

20132014 Change (2014 - 2013)

- =

RVK 2014 Correlation Matrix

Correlation greater than 0.50

Correlation between 0.00 and 0.50

Correlation less than 0.00

RVK • 8

Broad US Equity

Broad Int'l Equity

Int. Dur. Fixed

IncomeTIPS

CoreReal Estate

Non-Core Real Estate

Diversified Hedge Funds

Private Equity

Comm.Diversified

Inflation Strategies

Broad US Equity 1.00 0.84 0.18 0.03 0.24 0.17 0.51 0.71 0.35 0.65

Broad International Equity 0.84 1.00 0.01 0.12 0.29 0.16 0.70 0.71 0.52 0.78

Int. Duration Fixed Income 0.18 0.01 1.00 0.75 -0.06 -0.05 0.13 -0.18 0.04 0.23

TIPS 0.03 0.12 0.75 1.00 0.09 0.09 0.15 -0.04 0.28 0.44

Core Real Estate 0.24 0.29 -0.06 0.09 1.00 0.90 0.22 0.51 0.28 0.36

Non-Core Real Estate 0.17 0.16 -0.05 0.09 0.90 1.00 0.18 0.44 0.14 0.21

Diversified Hedge Funds 0.51 0.70 0.13 0.15 0.22 0.18 1.00 0.62 0.48 0.61

Private Equity 0.71 0.71 -0.18 -0.04 0.51 0.44 0.62 1.00 0.41 0.61

Commodities 0.35 0.52 0.04 0.28 0.28 0.14 0.48 0.41 1.00 0.79

Diversified Inflation Strategies 0.65 0.78 0.23 0.44 0.36 0.21 0.61 0.61 0.79 1.00

Public & Private Equities

Directional changes relative to 2013: • Equity return assumptions have been decreased categorically — domestic equity

reductions are more pronounced relative to their international counterparts • Negative impact on real returns due to rich valuation levels • Mean reversion expected to dampen earnings growth due to high current earnings

margins relative to historical figures

RVK • 9

Asset Class Return Risk

Broad US Equity Broad International Equity Private Equity

Fixed Income & TIPS

Directional changes relative to 2013:

• Higher yielding environment has led to increases in return assumptions • Increases to duration as well as economic uncertainties has led to increases in risk

assumptions

RVK • 10

Asset Class Return Risk Int. Dur. Fixed Income TIPS

Directional changes relative to 2013: • US core real estate fundamentals continue to improve • Low interest rates and falling cap rates have had a positive

impact on real estate valuations • Spreads relative to 10-year US Treasury rates remain attractive

Real Estate

RVK • 11

Asset Class Return Risk Core Real Estate Non-Core Real Estate

Directional changes relative to 2013: • Increases in fixed income assumptions and decreases in equity

assumptions have resulted in no overall change for Diversified Hedge Funds assumptions

Diversified Hedge Funds

RVK • 12

Asset Class Return Risk Diversified Hedge Funds

Directional changes relative to 2013: • Based entirely on assumption adjustments associated with the

underlying component strategies: • TIPS • Commodities • REITs

• SIC Custom Diversified Inflation Hedges assumptions reflects a

more diversified beta approach relative to RVK’s broad assumption, with key differences being allocations to infrastructure and timber in lieu of REITs as well as a higher allocation to cash income-producing financial assets.

Diversified Inflation Hedges

RVK • 13

Asset Class Return Risk Diversified Inflation Hedges

Equity Decomposition Model

RVK • 14

US Large/Mid Cap Equity Decomposition

Factor Value Methodology

Rationale

+2.13% RVK used the historical median dividend yield for the S&P 500 to forecast a long-run, steady state dividend yield.

+0.50%

There is considerable debate regarding whether share buybacks are accretive or dilutive to shareholders. Those who believe that share buybacks are accretive estimate that this effect may rival that of dividends, while skeptics argue that share buy backs are highly dilutive. RVK’s assumption takes a mid-range estimate of 0.50%. This estimate is based on a comprehensive study in 1999 by the Federal Reserve, which provides a mid-range estimate of share buy backs at 0.50% per annum for the S&P 500 Index.1

-0.51%

RVK compared the historical average 10-year cyclically adjusted P/E with the current, 10-year cyclically-adjusted P/E. According to these estimates, the S&P 500 is overvalued, which will have a net negative impact on real returns if valuations return to historical levels.

+1.64%

RVK considered current earnings margins and future expected real sales growth to determine an estimate of forward-looking earnings growth. RVK’s forward-looking earnings growth estimate is lower than historical growth due largely to high current earnings margins, which have tended to revert to historical norms over time. This mean reversion is expected to dampen earnings growth.

Inflation +2.50% RVK’s inflation assumption.

6.26%

PD

( )S∆−

∆

EP

g

iR^

1 Liang, J., and Sharpe, S. “Share Repurchases and Employee Stock Options and their Implications for S&P 500 Share Retirements and Expected Returns.” Federal Reserve Board. (November 1999).

Equity: Shiller P/E vs. Forward Returns

Trendline at 12/31/2013 = 5.7%

RVK • 15

Fixed Income: Current Yield vs. Forward Returns

Trendline at 12/31/2013 = 3.6%

0%

4%

8%

12%

16%

20%

2% 4% 6% 8% 10% 12% 14% 16% 18%

10-Y

ear F

orw

ard

B U

S Ag

g R

etur

n (A

nnua

lized

, %)

B US Agg YTW (Annualized, %)

1976-1980

1980-1990

1990-2000

2000-2010

Forward 10-Year Return: 1976-2003 Correlation: 0.90 Dec 31, 2013 YTW = 2.48%

RVK • 16

Demographic Trends

• The broader shift of age distribution in the population should have implications for capital markets (Abel 2011, 2003; Brooks 2002).

*Forecast Sources: (1) FRBSF (2) The Economist (3) UN Population Division

• These implications include: – Shrinking work-age

populations – Reduced saving – Increased inequality – Reduced output

• As a result of these demographic trends, many economic models are bearish on stock prices over the next 10+ years.

RVK • 17

0 20 40 60 80

Less Developed Regions

China

United States

More Developed Regions

Germany

Japan

Population Aged 65+ per 100 People Aged 25-64

2000 2010 2035*

US Inflation & Cash Equivalents

• Assumptions held constant from previous year’s assumptions

• Even with significant expansionary monetary policy, market expectations for future inflation remain low

Market Expectations for Inflation

Nominal Return

(Arithmetic) %

Risk (Standard Deviation)

%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

US Inflation 2.50 3.00 2.46 2.50 3.00 2.46 0.00 0.00 0.00

Cash Equivalents 2.25 3.00 2.21 2.25 3.00 2.21 0.00 0.00 0.00

Inflation and Cash Equivalents Assumptions

Asset Class

2013 2014 One Year Adjustment

As of December 31, 2013 5-Year 7-Year 10-Year 20-Year 30-YearTreasury Yield 1.75% 2.45% 3.04% 3.72% 3.96%TIPS Yield 0.06% 0.61% 0.80% 1.36% 1.64%Implied Expected Inflation 1.69% 1.84% 2.24% 2.36% 2.32%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5-Year 7-Year 10-Year 20-Year 30-Year

Yiel

d

Maturity

Implied Break Even Inflation

Treasury Yield TIPS Yield Implied Expected Inflation

RVK • 18

Source: U.S. Department of the Treasury (www.treasury.gov). (2014).

Fixed Income – Int. Dur. & Non-US

• Increased Int. Duration return due to higher yield environment, also increased risk due to increase in duration

• Non-U.S. remains unchanged

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Int. Duration Fixed Income 3.50 5.75 3.34 4.00 6.00 3.83 +0.50 +0.25 +0.49

Non-US Dev'd Sov. Fixed Inc. UH 3.25 10.25 2.74 3.25 10.25 2.74 0.00 0.00 +0.00

Asset Class

2013 2014 One Year AdjustmentFixed Income Assumptions

RVK • 19

Barclays U.S. Aggregate IndexYield To Worst and Yield To Maturity

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

12/75 12/78 12/81 12/84 12/87 12/90 12/93 12/96 12/99 12/02 12/05 12/08 12/11

Yiel

d

Yield To Worst: 2.48% Yield To Maturity: 2.49%Average Yield To Worst: 7.20% Average Yield To Maturity: 4.19%Yield To Worst (Rolling 12-Mth Avg): 2.17% Yield To Maturity (Rolling 12-Mth Avg): 2.17%Yield To Worst (Rolling 120-Mth Avg): 3.82% Yield To Maturity (Rolling 120-Mth Avg): 3.84%

Citi Non-US World Government Bond IndexYield To Worst and Yield To Maturity

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

12/84 12/86 12/88 12/90 12/92 12/94 12/96 12/98 12/00 12/02 12/04 12/06 12/08 12/10 12/12

Yiel

d


Fixed Income – TIPS

• Increased TIPS return due to higher yield environment, also increased risk due to increase in duration

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

TIPS 3.50 5.75 3.34 3.50 5.75 3.34 0.00 0.00 0.00

Asset Class

2013 2014 One Year AdjustmentTIPS Assumptions

RVK • 20

Barclays U.S. Treasury: U.S. TIPS IndexYield To Worst and Yield To Maturity

-3.0%

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

9.0%

10.5%

12/96 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13

Yiel

d


Fixed Income – Low & Long Dur. and HY

• Increased Low and Long Duration return due to higher yield environment

• Decreased Long Duration risk due to shortening durations

• Decreased High Yield return due to narrowing spreads

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Low Duration Fixed Income 2.25 3.50 2.19 2.50 3.50 2.44 +0.25 0.00 +0.25

Long Duration Fixed Income 4.25 12.00 3.57 5.00 11.50 4.38 +0.75 -0.50 +0.81

High Yield 6.25 15.00 5.21 5.75 15.00 4.70 -0.50 0.00 -0.51

Asset Class

2013 2014 One Year AdjustmentOther Fixed Income Assumptions

RVK • 21

Barclays U.S. 1-3 Year Government/Credit IndexYield To Worst and Yield To Maturity

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

12/75 12/78 12/81 12/84 12/87 12/90 12/93 12/96 12/99 12/02 12/05 12/08 12/11

Yiel

d


Fixed Income – Low & Long Dur. and HY

RVK • 22

Barclays U.S. Long Government/Credit IndexYield To Worst and Yield To Maturity

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

12/72 12/75 12/78 12/81 12/84 12/87 12/90 12/93 12/96 12/99 12/02 12/05 12/08 12/11

Yiel

d


Barclays U.S. Corporate High Yield IndexYield To Worst and Yield To Maturity

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

22.5%

25.0%

12/86 12/88 12/90 12/92 12/94 12/96 12/98 12/00 12/02 12/04 12/06 12/08 12/10 12/12

Yiel

d


Equities – US

• Return assumptions lowered across the board from 2013 – Current return assumptions remain lower than historical index averages – Bottom-up decomposition model is primary methodology for estimating returns – Mean reversion and bond + equity risk premium calculations also utilized in analysis

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Large/Mid Cap US Equity 7.75 17.75 6.32 7.25 17.75 5.81 -0.50 0.00 -0.51

Small Cap US Equity 8.50 21.25 6.48 7.75 21.25 5.71 -0.75 0.00 -0.76

Broad US Equity 7.90 17.95 6.44 7.30 17.80 5.85 -0.60 -0.15 -0.58

US Equity Assumptions

Asset Class


RVK • 23

Equities – International

• Return assumptions lowered for Developed Small Cap • No change to Developed Large/Mid Cap or Emerging Markets

– Current return assumptions remain lower than historical index averages – Bottom-up decomposition model is primary methodology for estimating returns – Mean reversion and bond + equity risk premium calculations also utilized in analysis

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Dev'd Large/Mid Cap Int'l Equity 8.00 19.00 6.37 8.00 19.00 6.37 0.00 0.00 0.00

Dev'd Small Cap Int'l Equity 8.75 23.00 6.40 8.50 23.00 6.14 -0.25 0.00 -0.26

Emerging Markets Equity 10.50 29.00 6.88 10.50 29.00 6.88 0.00 0.00 0.00

Broad International Equity 8.65 20.80 6.71 8.55 20.55 6.66 -0.10 -0.25 -0.06

Global Equity 8.30 18.75 6.71 7.90 18.35 6.37 -0.40 -0.40 -0.34

International Equity Assumptions

Asset Class


RVK • 24

Real Estate – Core

• Assumptions held constant from previous year’s assumptions

– U.S. core real estate fundamentals continue to improve

– Low interest rates and falling cap rates have had a positive impact on real estate valuations

– Spreads relative to 10-year US Treasury rates remain attractive

Cap Rates and Spread to Treasuries

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Core Real Estate 7.00 12.50 6.28 7.00 12.50 6.28 0.00 0.00 0.00

Core Real Estate Assumptions

Asset Class


RVK • 25

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

3 Month Rolling Cap Rate 10 Year Treasury Spread Average Spread

Real Estate – REITs

• Return assumption decreased relative to 2013

– Bottom-up decomposition model is primary methodology for estimating returns

Global REITs Decomposition

Factor Value Methodology

Rationale

+3.41% RVK used the current dividend yield for the MSCI World Real Estate Index (Gross).

Δ (P/CF) -0.46%

RVK used the price to cash flow for the MSCI World Real Estate Index (Gross) to compare the current P/CF value to the historical average. Based on this comparison, the index is slightly overvalued, which will have a net negative impact on real returns if valuations return to historical levels.

Inflation +2.50% RVK’s Inflation assumption.

5.45%

PD

iR^

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Global REITs 7.50 18.25 5.98 7.00 18.25 5.48 -0.50 0.00 -0.50

Global REITs Assumptions

Asset Class


RVK • 26

Alternatives – Diversified Hedge Funds

• No change in assumptions – We have increased most of

our fixed income assumptions and decreased most of our equity assumptions resulting in no change overall

Manager Rolling 1-Year Average Performance (21 Managers: 1988-2013)

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Diversified Hedge Funds 6.75 9.75 6.31 6.75 9.75 6.31 0.00 0.00 0.00

Diversified Hedge Funds Assumptions

Asset Class


RVK • 27

0

5

10

15

20

25

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

Freq

uenc

y

Rolling 1-Year ReturnsObservations Normal Distribution

Alternatives – Private Equity

• Assumption decreased from 2013 assumption – We have decreased our return premium over our arithmetic US Large/Mid Cap equity

return assumption from 400 basis points to 375 basis points as historical premiums have been gradually falling

– US Large/Mid Cap equity return decreased by 50 basis points – The combination of the two above factors results in a 75 basis point decrease in return – With regard to our volatility assumption, we continue to face the challenge that observed

volatility does not translate to a usable conclusion, therefore, our conclusion is that the final volatility assumption should place the private equity asset class in close proximity to the capital markets line

– Based on a triangulation with other asset classes and the capital markets line, we decreased our assumption from 2013

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Private Equity 11.75 30.25 7.87 11.00 29.00 7.40 -0.75 -1.25 -0.47

Private Equity Assumptions

Asset Class


RVK • 28

Alternatives – Commodities

• Assumptions held constant from previous year’s assumptions – Lower projected global growth and higher debt levels suggest limited upward pressure on

commodity spot prices in the near term, while significant cash inflows exert negative pressure on commodity roll yields

– Depressed collateral yields present a headwind for future returns – However, long-term supply constraints suggest the potential to overwhelm near term

issues over time

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Nominal Return

(Arithmetic) %


%

Nominal Return

(Compound) %

Commodities 7.00 19.75 5.22 7.00 19.75 5.22 0.00 0.00 0.00

Asset Class

2013 2014 One Year AdjustmentCommodity Assumptions

RVK • 29

Peer Fund Review

J U N E 1 2 , 2 0 1 4

TUCS Performance Comparison

2 As of 12/31/2013

Purpose of Peer Fund Review

3

• Provides an additional means to evaluate

relative performance. Measurement

• Allows for identification and review of innovative portfolio strategies. Innovation

• Analyze range of choices made by peers. • Evaluate where SIC fits within the range.

Opportunity Set

4

Current Asset Allocation

Asset Allocation Comparison

All Funds

5


Similar Size Funds

6


Public Plans

7

0%

10%

20%

30%

40%

50%

60%

70%

80%

US Equity

Intl Equity

Total Equity

Private Equity

Real Estate

Fixed Income

Absolute Return

Real Return

Cash

New Mexico LGPF Average Allocation

As of 6/30/2013 Assets($B)

USEquity

IntlEquity

TotalEquity

PrivateEquity

RealEstate

FixedIncome

AbsoluteReturn

RealReturn Cash

New Mexico LGPF 17.1 36.9% 13.8% 50.7% 10.1% 5.2% 22.8% 6.9% 2.6% 1.7%Average Allocation 48.1 28.8% 19.7% 48.5% 7.9% 7.1% 26.8% 3.7% 4.0% 1.9%Max Allocation 260.2 60.0% 33.5% 63.2% 23.8% 14.1% 60.0% 11.7% 12.6% 8.7%Median Allocation 30.4 27.5% 20.0% 50.6% 6.3% 7.2% 23.0% 1.0% 3.4% 1.3%Min Allocation 0.9 9.2% 0.0% 19.4% 0.0% 0.0% 14.9% 0.0% 0.0% 0.0%

Peer group consists of 29 public plans.


Permanent Funds

8

As of 6/30/2013 Assets($B)

USEquity

IntlEquity

TotalEquity

PrivateEquity

RealEstate

FixedIncome

AbsoluteReturn

RealReturn Cash

New Mexico LGPF 17.1 36.9% 13.8% 50.7% 10.1% 5.2% 22.8% 6.9% 2.6% 1.7%Average Allocation 13.7 33.7% 12.5% 46.1% 2.5% 4.3% 37.1% 4.1% 3.7% 2.0%Max Allocation 45.9 60.0% 31.9% 60.0% 10.1% 12.2% 60.0% 10.3% 12.1% 8.7%Median Allocation 7.0 33.8% 12.9% 47.3% 1.2% 3.5% 40.0% 3.5% 1.3% 1.5%Min Allocation 0.9 13.0% 0.0% 30.3% 0.0% 0.0% 18.7% 0.0% 0.0% 0.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

US Equity

Intl Equity

Total Equity

Private Equity

Real Estate

Fixed Income

Absolute Return

Real Return

Cash

New Mexico LGPF Average Allocation

Peer group consists of 8 permanent funds.


Endowment Funds > $1B

9

As of 6/30/2013 USEquity

IntlEquity

US FixedIncome

Intl FixedIncome

AlternativeInvestments

RealEstate Cash

New Mexico LGPF 37.0% 13.8% 22.8% 0.0% 19.5% 6.2% 0.6%95th Percentile 7.7% 3.8% 3.2% 1.5% 9.7% 1.2% 0.5%3rd Quartile 11.3% 8.0% 5.7% 2.0% 40.8% 1.9% 2.0%Median Allocation 16.4% 11.8% 8.9% 2.9% 51.7% 3.6% 4.6%1st Quartile 30.4% 16.9% 13.7% 5.9% 65.3% 4.3% 6.1%5th Percentile 68.2% 25.3% 31.2% 12.3% 73.1% 14.0% 10.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

US Equity

Intl Equity

US Fixed Income

Intl. Fixed Income

Alternative Inv. Real Estate Cash

New Mexico LGPF

Peer group consists of 64 endowments and foundations over $1 billion.

Peer Actual Asset Allocation Comparison As of 6/30/13

10

.

Fund ($B) Assets

US Equity

Int’l Equity

Total Equity

Private Equity

Real Estate

Fixed Income

Hedge Funds

Real Return

Cash

Alaska Permanent 45.9 19.0 26.7 45.7 4.6 12.1 20.8 8.1 8.6 0.1

CALPERS 260.2 23.8 26.8 50.6 12.4 10.4 19.9 2.0 1.5 3.2

CALSTRS 165.8 25.2 28.4 53.6 13.2 13.8 16.8 0.0 0.4 2.2

Colorado PERA 40.6 27.2 30.7 57.9 8.0 7.7 23.1 2.6 0.0 0.7

Florida RS 161.8 27.8 31.3 59.1 5.2 7.7 22.0 0.0 5.1 0.9

New Mexico ERB 10.2 25.0 14.0 39.0 7.0 6.0 33.0 5.0 8.0 2.0

New Mexico PERA 12.9 30.9 23.7 54.6 4.2 3.3 25.4 8.6 2.6 1.3

Oregon PERF 62.3 17.7 20.0 37.7 22.6 12.1 25.2 1.0 1.3 0.1

PSERS 49.3 9.2 10.2 19.4 21.8 14.1 23.7 11.7 9.3 0.0

Texas TRS 117.1 23.4 26.3 49.7 12.3 13.6 15.3 3.6 5.5 0.0

Washington SIB 67.9 17.8 20.1 37.9 23.8 13.6 21.1 0.0 1.5 2.1

Min 10.2 9.2 10.2 19.4 4.6 3.3 15.3 0.0 0.0 0.0

Max 260.2 36.9 30.7 59.1 23.8 13.8 33.0 11.7 9.3 3.2

New Mexico SIC 17.1 36.9 13.8 50.7 10.1 5.2 22.8 6.9 2.6 1.7

11

Case Studies

12

Asset Allocation Case Studies

CALSTRS

Fund ($B) Assets

US Equity

Int’l Equity

Total Equity

Private Equity

Real Estate

Fixed Income

Hedge Funds

Real Return

Cash

CALSTRS 165.8 25.2 28.4 53.6 13.2 13.8 16.8 0.0 0.4 2.2

2013 Return

19.08

One Year Three Years Five Years Ten Years

13.80 12.57 3.72 7.53

Returns

13

Asset Allocation Case Studies

PSERS

Fund ($B) Assets

US Equity

Int’l Equity

Total Equity

Private Equity

Real Estate

Fixed Income

Hedge Funds

Real Return

Cash

PSERS 49.3 9.2 10.2 19.4 21.8 14.1 23.7 11.7 9.3 0.0

2013 Return

8.71


7.96 10.36 2.50 7.72

Returns

Asset Allocation Case Studies Oregon PERF

14

.

Fund ($B) Assets

US Equity

Int’l Equity

Total Equity

Private Equity

Real Estate

Fixed Income

Hedge Funds

Real Return

Cash

Oregon PERF 62.3 17.7 20.0 37.7 22.6 12.1 25.2 1.0 1.3 0.1

2013 Return

15.59


12.68 11.86 4.98 8.40

Returns

15

Target Asset Allocation

Peer Target Asset Allocation Comparison

16

.

Fund ($B) Assets

US Equity

Int’l Equity

Total Equity

Private Equity

Real Estate

Fixed Income

Hedge Funds

Real Return

Cash

Alaska Permanent 45.9 16.9 19.1 36.0 6.0 12.0 22.0 9.0 12.0 1.0

CALPERS 260.2 23.5 26.5 50.0 14.0 11.0 17.0 0.0 4.0 4.0

CALSTRS 165.8 24.9 28.1 53.0 12.0 12.0 20.0 0.0 2.0 1.0

Colorado PERA 40.6 26.3 29.7 56.0 7.0 7.0 25.0 2.5 2.5 0.0

Florida RS 161.8 24.4 27.6 52.0 5.0 7.0 24.0 0.0 11.0 1.0

New Mexico ERB 10.2 22.0 15.0 37.0 8.0 7.0 33.0 8.0 5.0 1.0

New Mexico PERA 12.9 29.0 20.0 49.0 5.0 3.0 26.0 7.0 5.0 0.0

Oregon PERF 62.3 17.6 19.9 37.5 20.0 12.5 20.0 1.0 5.0 0.0

PSERS 49.3 8.2 9.3 17.5 22.0 13.5 23.0 10.0 14.0 0.0

Texas TRS 117.1 23.5 26.5 50.0 12.0 15.0 14.0 4.0 5.0 0.0

Virginia RS 67.9 19.7 22.3 42.0 12.0 15.0 30.0 0.0 0.0 1.0

Min 10.2 8.2 9.3 17.5 5.0 3.0 14.0 0.0 0.0 0.0

Max 260.2 35.0 29.7 56.0 22.0 15.0 33.0 10.0 14.0 4.0

NMSIC- Interim 19.2 35.0 15.0 50.0 10.0 8.0 20.0 7.0 5.0 0.0

NMSIC- Long Term 19.2 31.0 15.0 46.0 10.0 10.0 16.0 8.0 10.0 0.0

Equity Allocation

17

Target Allocation: 46%

Fixed Income Allocation

18


Real Estate Allocation

19


Alternatives Allocation

20


21

Risk/Return Analysis

Risk/Return Analysis

22

R² = 0.6891

8%

9%

10%

11%

12%

13%

14%

15%

16%

6% 7% 8% 9% 10% 11% 12% 13% 14%

An

nu

aliz

ed R

etu

rn

Standard Deviation (Risk)

Risk/Return Analysis 5 Year Annualized Total Fund Return vs. Standard Deviation

As of December 31, 2013

Sharpe Ratio Land Grant Permanent Fund: 1.23 Peer Group Median: 1.15

New Mexico State Investment Council Financial Models

June 2014

The Land Grant Permanent Fund

• The $13.5 billion Land Grant Permanent Fund (LGPF) , also known as the Permanent School Fund, is one of the largest funds of its kind in the country, and every year, provides more than a half-billion dollars in benefits for New Mexico’s public schools, universities and other beneficiaries ($595 million in FY15). The current LGPF spending policy, or distribution rate, is 5.5% of the fund’s 5-year average value.

• Established through New Mexico’s entry into statehood in 1912, the LGPF has evolved and grown over time due to revenue from leases and royalties produced by non-renewable natural resources in New Mexico (primarily oil & gas), and income from returns on invested capital.

• The LGPF has 21 beneficiaries, including: – Specialty Schools (NM Military Institute, Schools for the Deaf and Blind)

– State Universities

– Government Services (hospitals, prisons, water, public buildings)

April 2014 RVK • 2

The Severance Tax Permanent Fund

• The $4.5 billion Severance Tax Permanent Fund (STPF) was created by the New Mexico Legislature in 1973, as a way to save and invest the severance taxes not being used that year to bond capital projects. The taxes originate from oil, gas, and other natural resources as they are taken (severed) from the ground.

• Voters later approved constitutional protections for the STPF against legislative appropriation from the corpus of the fund, which coupled with investment returns, allowed the fund to grow. The STPF annually distributes 4.7% of its 5-year average fund balance, of about $180 million per year to the state’s general fund.

• Annual STPF distributions go to school operating budgets and other general fund needs, reducing the burden on taxpayers.


Financial Objectives & Constraints

Land Grant Permanent Fund • Make the annual distribution to the beneficiaries in accordance with the Constitution. • Protect the corpus of the fund from the economic effects of inflation. • Provide a modest amount of real growth to account for population growth and

uncertainties surrounding future contributions and future inflation.

Severance Tax Permanent Fund • Make the annual distribution to the beneficiary in accordance with the Constitution. • Protect the corpus of the fund from the economic effects of inflation. • Provide a modest amount of real growth to account for population growth and

uncertainties surrounding future contributions and future inflation.


Financial Model Summary: LGPF


Time frame Modeled Required Difference12/31/2013 $13,35912/31/2038 25 years $17,995 $17,132 $86312/31/2048 35 years $20,032 $18,924 $1,10812/31/2063 50 years $22,325 $21,970 $355

Probability of Attaining Full Objective (incl 1% real growth) in 50 years: 51.2%

Model InputsBeginning Value ($ Mil): $13,359 (as of 12/31/2013)Inflows ($ Mil): $410 (ten year historical average)Inflation Assumption: 3%/yearReal Growth: 1%/yearTarget Rate of Return: 7.5%Distribution: 5.5% until 2016, 5% thereafter of trailing 5 year

average market value

Full Objectiveincl 1% real growth

(in $ Millions)

Inflation-Adjusted Values

Financial Model Summary: LGPF @ 5.5%


Time frame Modeled Required Difference12/31/2013 $13,35912/31/2038 25 years $16,442 $17,132 -$69012/31/2048 35 years $17,806 $18,924 -$1,11812/31/2063 50 years $19,197 $21,970 -$2,773

Probability of Attaining Full Objective (incl 1% real growth) in 50 years: 41.0%

Model InputsBeginning Value ($ Mil): $13,359 (as of 12/31/2013)Inflows ($ Mil): $410 (ten year historical average)Inflation Assumption: 3%/yearReal Growth: 1%/yearTarget Rate of Return: 7.5%Distribution: 5.5% of trailing 5 year average market value

Inflation-Adjusted ValuesFull Objective

incl 1% real growth(in $ Millions)

Financial Model Summary: STPF


Time frame Modeled Required Difference12/31/2013 $4,19512/31/2038 25 years $3,341 $5,380 -$2,03912/31/2048 35 years $3,058 $5,942 -$2,88412/31/2063 50 years $2,691 $6,899 -$4,208

Probability of Attaining Full Objective in 50 years: Low Contribution Scenario: 13.0%

Middle Contribution Scenario: 14.7%High Contribution Scenario: 22.6%

Projected Contribution Scenario: 28.7%Required Annual Contribution to Obtain 50.0%: $105.1M

Model InputsBeginning Value ($ Mil): $4,195 (as of 12/31/2013)Inflow Scenarios ($ Mil):

Low $5 (low observation last ten years)Middle $10 (SIC current forward expectation)

High $36.5 (ten year historical average)Projected $52.1 (projected ten year average)

Inflation Assumption: 3%/yearReal Growth: 1%/yearTarget Rate of Return: 7.5%Distribution: 4.7% of the trailing 5-year average market value

Inflation-Adjusted ValuesFull Objective

incl 1% real growth(in $ Millions)

Modeling

June 27, 2014

Land Grant Permanent Fund The following tables illustrate projected real market values over the next 25-, 35-, and 50-years assuming a spending rate of 5.5% until FYE16 and 5.0% thereafter of the trailing 5-year average market value with annual contributions of approximately $410M each year (based on 10-year historical average).

April 2014

The real probability of the Fund value being greater than or equal to the current Fund value in 50 years is: 86.3%

75th Percentile $33,811,450,26695th Percentile $64,053,757,736


Year 50 Projected Real Market Value Target Allocation5th Percentile $8,990,431,948


50th Percentile $20,031,697,142


95th Percentile $41,129,464,258

Year 35 Projected Real Market Value Target Allocation




RVK • 9

Estimated annual, arithmetic investment return, on a nominal basis, required to maintain fund stability at 50th percentile over the 50-year period: 4.6%. (1.6% on a real basis)

Land Grant Permanent Fund The following figure illustrates projected real market values over the next 50-years assuming a spending rate of 5.5% until FYE16 and 5.0% thereafter of the trailing 5-year average market value with annual contributions of approximately $410M each year (based on 10-year historical average).

April 2014

$-

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

$70,000,000,000

Year 10 Year 20 Year 30 Year 40 Year 50

5th Percentile 25th Percentile 50th Percentile 75th Percentile 95th Percentile

RVK • 10

Land Grant Permanent Fund @ 5.5% The following tables illustrate projected real market values over the next 25-, 35-, and 50-years assuming a spending rate of 5.5% of the trailing 5-year average market value with annual contributions of approximately $410M each year (based on 10-year historical average).

April 2014


RVK • 11

Year 25 Projected Real Market Value Target Allocation5th Percentile $7,225,517,77025th Percentile $11,904,040,00350th Percentile $16,442,227,57175th Percentile $23,058,486,64195th Percentile $37,640,383,967




The following figure illustrates projected real market values over the next 50-years assuming a spending rate of 5.5% of the trailing 5-year average market value with annual contributions of approximately $410M each year (based on 10-year historical average).


$-

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

$70,000,000,000



Land Grant Permanent Fund @ 5.5%

Severance Tax Permanent Fund Low Contribution Scenario: The following tables illustrate projected real market values over the next 25-, 35-, and 50-years assuming a spending rate of 4.7% of the trailing 5-year average market value with annual contributions of approximately $3.5M each year (lowest observation over previous 10-year period).

April 2014




Year 50 Projected Real Market Value Target Allocation5th Percentile $463,892,883


50th Percentile $2,846,700,663

5th Percentile $669,733,81425th Percentile $1,633,623,469






RVK • 13


Severance Tax Permanent Fund Low Contribution Scenario: The following figure illustrates projected real market values over the next 50-years assuming a spending rate of 4.7% of the trailing 5-year average market value with annual contributions of approximately $3.5M each year (lowest observation over previous 10-year period).

April 2014

$-

$2,000,000,000

$4,000,000,000

$6,000,000,000

$8,000,000,000

$10,000,000,000

$12,000,000,000

$14,000,000,000

$16,000,000,000



RVK • 14

Severance Tax Permanent Fund Middle Contribution Scenario: The following tables illustrate projected real market values over the next 25-, 35-, and 50-years assuming a spending rate of 4.7% of the trailing 5-year average market value with annual contributions of approximately $10.0M each year (based on SIC estimated average forward-looking expectations).

April 2014




Year 50 Projected Real Market Value Target Allocation5th Percentile $606,903,040









RVK • 15


Severance Tax Permanent Fund Middle Contribution Scenario: The following figure illustrates projected real market values over the next 50-years assuming a spending rate of 4.7% of the trailing 5-year average market value with annual contributions of approximately $10.0M each year (based on SIC estimated average forward-looking expectations).

April 2014

$-

$2,000,000,000

$4,000,000,000

$6,000,000,000

$8,000,000,000

$10,000,000,000

$12,000,000,000

$14,000,000,000

$16,000,000,000



RVK • 16

Severance Tax Permanent Fund High Contribution Scenario: The following tables illustrate projected real market values over the next 25-, 35-, and 50-years assuming a spending rate of 4.7% of the trailing 5-year average market value with annual contributions of approximately $36.5M each year (based on 10-year historical average).

April 2014




Year 50 Projected Real Market Value Target Allocation5th Percentile $1,190,168,673




95th Percentile $10,563,770,248





RVK • 17


Severance Tax Permanent Fund High Contribution Scenario: The following figure illustrates projected real market values over the next 50-years assuming a spending rate of 4.7% of the trailing 5-year average market value with annual contributions of approximately $36.5M each year (based on 10-year historical average).

April 2014

$-

$2,000,000,000

$4,000,000,000

$6,000,000,000

$8,000,000,000

$10,000,000,000

$12,000,000,000

$14,000,000,000

$16,000,000,000



RVK • 18

Severance Tax Permanent Fund Projected Contribution Scenario: The following tables illustrate projected real market values over the next 25-, 35-, and 50-years assuming a spending rate of 4.7% of the trailing 5-year average market value with annual contributions of approximately $52.1M each year (based on a projected 10-year average).

April 2014


RVK • 19





Severance Tax Permanent Fund Projected Contribution Scenario: The following figure illustrates projected real market values over the next 50-years assuming a spending rate of 4.7% of the trailing 5-year average market value with annual contributions of approximately $52.1M each year (based on a projected 10-year average).


$-

$2,000,000,000

$4,000,000,000

$6,000,000,000

$8,000,000,000

$10,000,000,000

$12,000,000,000

$14,000,000,000

$16,000,000,000



Severance Tax Permanent Fund Required Contribution Scenario: The following tables illustrate projected real market values over the next 25-, 35-, and 50-years assuming a spending rate of 4.7% of the trailing 5-year average market value with annual contributions of approximately $105.1M each year (based on contribution rate necessary to obtain 50% probability of Full Objective).

April 2014


RVK • 21





Severance Tax Permanent Fund Required Contribution Scenario: The following figure illustrates projected real market values over the next 50-years assuming a spending rate of 4.7% of the trailing 5-year average market value with annual contributions of approximately $105.1M each year (based on contribution rate necessary to obtain 50% probability of Full Objective).


$-

$5,000,000,000

$10,000,000,000

$15,000,000,000

$20,000,000,000

$25,000,000,000




Sources of Funds (millions) FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 10-YearGeneral Obligation Bonds - - - - - - - - - - - Severance Tax Bonds 201.1 185.6 185.6 185.6 185.6 185.6 185.6 185.6 185.6 185.6 1,871.5 Severance Tax Notes 85.5 99.0 75.5 58.4 49.9 38.2 31.2 26.0 18.4 0.0 482.2 Subtotal Senior STBs 286.6 284.6 261.1 244.0 235.5 223.8 216.8 211.6 204.0 185.6 2,353.6 Supplemental Severance Tax Bonds - - - - - - - - - - - Supplemental Severance Tax Notes 175.2 171.1 168.1 163.7 161.1 157.1 155.0 152.9 162.2 160.1 1,626.7 Subtotal Supplemental STBs 175.2 171.1 168.1 163.7 161.1 157.1 155.0 152.9 162.2 160.1 1,626.7 Total Sources of Funds $461.8 $455.7 $429.2 $407.7 $396.6 $380.9 $371.9 $364.6 $366.2 $345.7 $3,980.3

Uses of Funds (millions) FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 10-YearGOB Projects Approved by Referendum - - - - - - - - - - - Authorized but Unissued STB Projects* 38.0 - - - - - - - - - 38.0 Series 2013S-C Funded Projects 5.0 5.0 10%/8.5% Water Projects 28.7 24.2 22.2 20.7 20.0 19.0 18.4 18.0 17.3 15.8 204.4 Water Projects 20.1 18.7 17.2 16.1 15.5 14.7 14.3 13.9 13.4 12.2 156.2 State Engineer - Water Rights Adjudications (7.5%) 2.9 1.8 1.7 1.6 1.5 1.4 1.4 1.3 1.3 1.2 16.0 Admin Office of Courts - Water Rights (15%) 5.7 3.6 3.3 3.1 3.0 2.9 2.8 2.7 2.6 2.4 32.1 4% Colonias Projects (starting FY15) 14.3 11.4 10.4 9.8 9.4 9.0 8.7 8.5 8.2 7.4 97.0 4% Tribal Projects (starting FY15) 14.3 11.4 10.4 9.8 9.4 9.0 8.7 8.5 8.2 7.4 97.0 New Senior STB Statewide Capital Projects 186.3 237.7 218.0 203.7 196.7 186.8 181.0 176.7 170.3 155.0 1,912.3 Education Capital 175.2 171.1 168.1 163.7 161.1 157.1 155.0 152.9 162.2 160.1 1,626.7 Total Uses of Funds $461.8 $455.7 $429.2 $407.7 $396.6 $380.9 $371.9 $364.6 $366.2 $345.7 $3,980.3

Estimated STPF Transfer 77.2 43.9 48.2 53.3 51.0 52.2 53.3 61.7 39.1 41.0 520.7 10-Year Average: 52.1

STPF Earnings on Contributions - 7.5% Compounding 5.79 9.5 13.8 18.9 24.1 29.8 36.1 43.4 49.6 231.1

Sources and Uses of FundsBonding Capacity Available for Authorization

December 2013 Estimate - SENIOR at 49%, Water 8.5%, OSE 7.5%, AOC 15%, Supplemental at 87.5%

*Includes projects authorized in Laws 2012 and 2013 that have not yet met requirements for project funding.

Actuarial Return Peer Review


1 2 1

5

21

1

17

1 2

10

10

5

10

15

20

25

6.50% 7.00% 7.12% 7.25% 7.50% 7.70% 7.75% 7.80% 7.90% 8.00% 8.37%

Cou

nt

Actuarial Rate AssumptionsMedian - 7.50%

12

6

1

9

1

16

10

1

54

1 12

10

5

10

15

20

3.00% 3.50% 3.80% 3.90% 4.00% 4.20% 4.30% 4.50% 4.70% 4.80% 5.00% 5.10% 5.40% 5.50% 6.00%

Cou

nt

Real Rate of Assumed Investment Return Median - 4.25%

Normal Vol Target Allocation

+ 10% Vol Target Allocation

- 10% Vol Target Allocation

6.00

6.25

6.50

6.75

7.00

7.25

7.50

7.75

8.00

8.25

8.50

7.00 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00

Ret

urn

(Ann

ualiz

ed, %

)

Risk (Annualized Standard Deviation, %)

- 10% Volatility Normal Volatility + 10% Volatility

Volatility Stress Testing


MIN MAXBroad US Equity 20 40Broad International Equity 0 20Int. Duration Fixed Income 10 25Diversified Hedge Funds 0 10Private Equity 0 10Core Real Estate 0 5Non-Core Real Estate 0 5Diversified Infl Strat 0 15

TAB 3

Closing Matters

a. Old or new business (Governor Martinez)

b. Next SIC meeting date: Tuesday, July 1, 9:00am, Santa Fe

TAB 4 a. Public Comment Period (Governor Martinez)

TAB 5

Vote to Enter Executive Session Pursuant to NMSA, 1978: (Governor Martinez)

a. 10-15-1(H)(2) Limited Personnel Matters: employee hiring and retention

b. 10-15-1(H)(7) Ongoing or pending litigation: investment matters & related legal issues

TAB 6 Vote: Personnel matters TAB 7 Adjournment

state of new mexico state investment council · 2014-07-02 · new mexico state investment council:...

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