the new mexico state investment council (“nmsic”)...• 2016 saw $285 billion in u.s. commercial...

The New Mexico State Investment Council (“NMSIC”) Fourth Quarter 2016: Real Estate Performance Measurement Report

Proprietary & Confidential May 2017

1) Real Estate Market Updates

2) Performance Measurement Highlights 4Q 2016

Appendix:

A. Additional 4Q 2016 Performance Attribution

B. Definitions

C. Flash Report: 4Q 2016

Table of Contents

2 Disclaimer: This is a public version of the original Performance Measurement Presentation, portions of which have been removed for confidentiality purposes.

1. 4Q16 Economic Dashboard – Market Outlook

General

• Economic activity decelerated during the Fourth Quarter of 2016 to end the year at an

annual rate of 1.9%, compared to 3.5% in the previous quarter. Compared to 2015, GDP increased 1.6% in 2016. The only positive contributing private sector, consumer spending added 1.84% to annual growth, offset by -0.26% and -0.12% subtractions from business investment and trade respectively. Business investment, while lackluster in 2016, has seen a positive start to 2017.

• Macro indicators for U.S. real estate remained moderate and consistent during 2016. Non residential construction increased at the same rate as in 2015 (+8% y/y) while residential housing starts declined (-1% y/y). Building permits, which signal future construction activity, inched a bit during the fourth quarter but essentially remained flat during the year.

United States Real Estate Market Update (4Q16)

Sources: Bureau of Economic Analysis, U.S. Census Bureau, Federal Reserve Board, NCREIF, CBRE Global Research and Consulting, Jones Lang LaSalle, Real Capital Analytics, Bloomberg LP. Wells Fargo Economics, Institute for Supply Management.

Source: NCREIF

Source: NCREIF

Commercial Real Estate • 2016 saw $285 billion in U.S. commercial real estate transaction volume. This represents

43% of global investment and a 9% decline over 2015. JLL estimates global fundraising slowed in 2016 by -2.7% y/y, with $245 billion in dry powder globally, $133 billion of which is North America focused. Possibly an indication of difficulty deploying capital.

• CMBS issuances totaled $25.9 billion in 4Q16. Full year ($75.8 bn) issuances were down

25% over 2015 levels ($101 bn). The credit environment in 2016 was cautious, with demand waning and supply remaining tight, reflecting a variety of risks: market cycle and to a lesser extent regulatory. The Fed’s survey of senior loan officers showed credit standards especially tight for multifamily and development loans, indicating credit selectivity.

• U.S. cities have dominated as real estate investment targets in 2016. New York and Los

Angeles (1st and 3rd respectively) featuring in the top five. Of note is Shanghai coming in at 5th globally off the back of a record 2016.

• Transaction cap rates compressed moderately over 2016 across major sectors.

Multifamily experienced a 9 bps compression while Retail saw the largest 12-month change in cap rates (-37 bps). The Industrial and Office sectors logged 22 bps and 26 bps of cap rate compression over 2016, respectively.

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Current Value Cap Rates by Property Type Apartment Industrial Office Retail

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4-Qtr Rolling NOI Growth by Property Type Apartment Industrial Office Retail

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United States Property Matrix (4Q16)

INDUSTRIAL MULTIFAMILY

• With fewer expansions, “new to market” tenants increased by 670 bps compared to last

quarter. Vacancy rate has declined another 20 basis points to a record low of 5.6%.

• Fourth-Quarter investment volumes grew 11.0% compared to the third-quarter, with 2016 finishing at $46.3 billion, the second highest total since the GFC.

• Single-market-focused portfolios continue to drive volumes, representing 70% of primary markets, 44% of secondary markets and 44% of tertiary markets.

• The development pipeline currently consists of 194.0 million SF, putting downward pressure on rental rates and providing tenants with new supply options.

• As of 4Q16, Industrial properties returned 3.04% and outperformed the NPI by 131 bps.

• Investment for the quarter totaled $44.2 billion, bringing 2016’s total to $150.3 billion.

Multifamily sales are up 4.3% when compared to 2015 figures.

• Secondary market activity reached $52.7 billion, up 8.2% compared to 2015 totals. 2016’s figure represents a record high for secondary market activity.

• Annual rental growth was reported at 3.8% for the Fourth Quarter. This was the first time annual growth rate dipped below 4.0% since 2014.

• The rate of completions as a percent of inventory was 1.8%, declining 10 bps year-over-year. The national absorptions rate stayed unchanged at 1.6% from third quarter figures, while softening 20 bps from Fourth-Quarter 2015.

• The Apartment sector delivered a 1.67% return during the quarter, underperforming the NPI by 6 bps.

OFFICE RETAIL

• The Office segment experienced $43.2 billion of reported capital markets activity in the fourth

quarter of 2016, up 7.4% from the third quarter and represents the largest quarterly figure of the cycle. This brings YTD volume to $143.0 billion, 0.6% below prior-year levels.

• Secondary market transactions continued to rise in the fourth quarter reaching $10.4 billion of transactions, and accounting for nearly 50.0% of deal flow and 39.0% of total 2016 activity.

• The Fourth Quarter resulted in the lowest level of occupancy growth in 24 months. The tech sector continued to be the primary demand driver representing 24.4% of national leasing activity. Despite this slowdown in leasing activity, construction volumes rose and now stand at a cyclical high of 110.5 million SF.

• Cap rates are beginning to plateau with signs of softening emerging in select secondary markets. 25% of tracked markets experienced softening in 2016. The gap between primary and secondary markets is averaging 111 bps, compared to the long-term average of 75 bps.

• The Office sector returned 1.35% in 4Q16, 38 bps below the NPI.

• Year-end retail volumes declined 18.7% to $64.3 billion. Portfolio volume was a main driver

decreasing 33.7% from 2015 totals.

• With secondary markets experiencing rental rates increases, sales growth in secondary markets increased by 26.5% compared to primary markets decrease of 43.9% year-over-year.

• While overall mall volume decreased by 11.0% in 2016, Trophy and Tier 1 assets continue to transact quickly when brought to market.

• Institutional acquisitions grew by 2.2% in 2016, while REIT investment saw the lowest investment into retail since 2001, slowing by 59.3% from 2015 activity.

• As of 4Q16, the Retail sector delivered a quarterly return of 1.65%, underperforming the NPI by 8 bps.

Sources: Cushman & Wakefield, Jones Lang LaSalle, Bloomberg LP, NCREIF, REIS

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Europe • European investment volume was €251.1 billion during 2016, -10% less than 2015. The decline was driven by the U.K. which

saw transaction volume drop substantially in local currency terms. Excluding the U.K., 2016 compares favorably (+5% y/y) to 2015.

• The biggest markets performed poorly for Europe during 2016. UK made up 24% of transactions and declined -37% y/y.

Germany accounted for 21% of transactions and remained flat for 2016. France followed with -4% y/y decline. Sector wise Retail and Hotel have been the weakest for investment across Europe, declining (-29% y/y).

Asia • Asia Pacific investment ended 2016 at $130 billion, a 5% growth rate from 2015, supported by a record year in China and

South Korea, and robust growth in Singapore.

• China finished 2016 up 24% y/y to a record $34.4 billion in investment volume, back loaded into 4Q which grew 48% over 4Q15 with major transactions in Shanghai and Beijing. South Korea experienced $15.9 billion in turnover, with a few high profile sales with long term leasebacks as some corporations attempt to improve their financial position.

• Transaction volumes in Australia, mainly driven by foreign investment, continued to decline, falling 13% over 2015 to $5.2 billion with scant transaction activity. Even after a strong Fourth Quarter (+25% y/y) due to the completion of several large office and industrial deals, investment in Japan ended the year 3% down compared to 2015.

• Hong Kong recorded $10.3 billion in investment during 2016, a 14% decrease from 2015, although Chinese investor demand

for development sites remains very active

Global Real Estate Market Update (4Q16)

Sources: Jones Lang LaSalle Research, CBRE Global Research, Bloomberg LP

Global • Global investment activity totaled $661 billion in 2016.

-6% below a strong 2015. Despite political and economic turbulence that marked the second half of the year, commercial real estate investment dropped only -2% y/y in the last quarter compared to 4Q15.

Direct Commercial Real Estate Investment - Regional Volumes, 2015 - 2016

$ US Billions Q3 16 Q4 16% Change

Q3 16 - Q4 16 Q4 15% Change

Q4 15 - Q4 16 2015 2016

% Change YTD 2015 - YTD 2016

Americas 77 78 1% 85 -8% 314 285 -9%EMEA 55 85 55% 90 -6% 267 246 -8%Asia Pacific 33 43 30% 36 19% 123 130 6%Total 165 206 25% 211 -2% 704 661 -6%Source: Jones Lang LaSalle, January 2017

Global Outlook - GDP (Real) Growth % pa, 2016-20182016 2017 2018

Global 3.8 3.4 3.6Asia Pacific 5.0 4.7 4.7

Australia 2.4 2.5 2.7China 6.7 6.5 6.2India 7.9 7.8 7.4Japan 1.0 1.5 1.1

North America 1.6 2.2 2.3US 1.6 2.1 2.0

MENA* 2.3 2.3 2.7European Union 1.9 1.7 1.7

France 1.5 1.5 1.5Germany 1.9 1.8 1.6UK 2.0 2.0 1.6

*Middle East North Africa Source: Bloomberg LP, February 2016

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• Since the end of the GFC, the U.S. market has experienced strong economic expansion galvanized by favorable macro fundamentals and rising FDI volumes, given the lagging recovery experienced across Europe. As a result, the continuous growth of the U.S. market has been reflected in global currency movements characterized by a steady rise in USD compared to other major currencies since 2H14.

• The U.S. Dollar has been experiencing fast growth since 2H14. At quarter-end the British Pound (GBP)/USD and Euro (EUR)/USD exchange rates were 30.7% and 13.6% higher than their 25-year average, respectively.

• The USD appreciation is negatively correlated with the cost of imports and has been favorable to local investors and consumers. One of the key concerns influencing global markets going forward is the pace of inflation and the impact on interest rate expectations.

• Worries continue in Great Britain due to the recent decision to leave the European Union (“EU”) as Article 50 outlining the process of leaving the EU was triggered at the end of March 2017. While volatility has slowed down, it is still expected to be the norm while uncertainty remains. In the meantime, the British Pound continues its unstable ways against the U.S. dollar and has fallen to 0.80 GBP/USD as of 1/31/17 (post Brexit vote). The Euro has also been largely affected against the U.S. dollar and declined to 0.93 EUR/USD as of 1/31/17.

Currency Effects – Market Trends (4Q16)

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EURO-USD Rates over 25 Years

25 year Average: 0.84 EUR/USD

Max: 10/25/20001.21 EUR/USD

Min: 4/22/20080.63 EUR/USD

12/31/2016 0.95 EUR/USD

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GBP-USD Rates over 25 Years

25 year Average: 0.62 GBP/USD

Min: 11/8/20070.47 GBP/USD

Max: 10/11/20160.82 GBP/USD

12/31/20160.81 GBP/USD

2. Performance Measurement Highlights: 4Q 2016

• New Mexico State Investment Council’s (NMSIC) current target allocation to real estate is 10.0%. NMSIC’s 4Q16 real estate market value represents 8.8% of total fund assets.

• The real estate portfolio continues to grow and provide positive performance. As of 4Q16, NMSIC outperformed the NFI-ODCE Index on a net basis over the one-, three-, and five-year periods.

• NMSIC real estate commitments made since 2011 (inception of rebalancing) have been accretive to the real estate portfolio, resulting in net time weighted returns of 9.3%, 13.3% and 13.8% over the one, three and five- year periods, outperforming the ODCE benchmark by approximately 150 bps, 230 bps, and 260 bps over these respective time measurements.

• As of 4Q16, the Legacy Portfolio only represented approximately 8% of the portfolio NAV; however, was the main driver of current quarter underperformance generating a -4.1% net return.

Portfolio Highlights

9

As of 4Q16 Quarter One-Year Three-Year Five-Year

TGRS TNET TGRS TNET TGRS TNET TGRS TNET

NMSIC* 2.0 1.5 10.3 8.2 14.7 12.2 14.0 11.5 NFI ODCE* 2.1 1.9 8.8 7.8 12.1 11.0 12.2 11.2

Over/Under Performance -0.1 -0.3 1.5 0.4 2.6 1.2 1.7 0.3 *Time Weighted Returns over the quarter, one-, three-, and five-year periods.

• As of 4Q16, NMSIC’s portfolio consisted of 57% exposure to core investments and 43% exposure to tactical investments, on a NAV basis.

• During the quarter, managers called approximately $61.4 million across the core and tactical investments; return-of-capital combined with income distributions totaled $93.2 million, bringing total distributions to $248.9 million over the last 12 months.

• Strategic Core Portfolio

– Since December 2011, eight strategic core commitments have been made, totaling $935.0 million.

• Per the pacing model and NMSIC’s investment requirements, no additional core commitments will be required in the future, unless modifications occur in NMSIC’s allocation policy. Townsend will continue to consider rebalancing initiatives.

• Tactical Portfolio

– Since December 2011, approximately $1.2 billion has been committed to 20 tactical investments, including two commitments in 2016 of approximately $100.0 million to a Europe focused debt fund and $75.0 million to a US focused street retail fund.

Portfolio Highlights

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11

Real Estate Portfolio Allocation Portfolio Status

• Since the 2004 inception, NMSIC has committed approximately $3.2 billion to real estate across seven joint ventures and 42 funds with 28 different managers.*

• Investment activity from 2004-2007 focused exclusively on tactical investments.

• In 2011, NMSIC and Townsend began to implement its portfolio repositioning through commitments to core open end funds as well as tactical strategies in order to maintain vintage year exposure and capitalize on market opportunities, while divesting of non-strategic JV relationships.

• The pacing model does not call for any future core commitments, but calls for approximately $193 million of non-core commitments in 2017. Follow-on investment opportunities and new managers to the SIC portfolio are being evaluated for the 2017 vintage year.

2 Funds $81

6 Funds $289

5 Funds $177

8 Funds $597

1 Fund $100

4 Funds $225

5 Funds $201

4 Funds $235

1 Fund $100

5 Funds $410

1 Fund $75

1 Fund $50

3 Funds $200 2 Funds

$175 1 Fund $42

4 Funds $275

$151 $200 $207 $214 $222 $229 $237 $246

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NMSIC Real Estate Allocation Growth

Annual Tactical Commitments Annual Core Commitments YTD 2016 Tactical Commitments Per Pacing Model Tactical

In 2011, NMSIC increased its real estate allocation from 5% to 10% of total assets.

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Real Estate Portfolio Performance Performance

• The NMSIC real estate portfolio seeks to outperform the NFI-ODCE (net of fees) on a time weighted return basis over a rolling five-year period.

• Recent total performance is strong. NMSIC outperforms over all time periods except for the quarter.

• Performance of the rebalanced portfolio and corresponding commitments made since 2011 remains compelling, with significant outperformance reported against the ODCE benchmark over all measured periods.

1NMSIC Legacy Holdings represent investments made prior to the rebalancing initiative beginning 1Q 2011.

*Time Weighted Returns over the quarter, one-, three-, and five-year periods. **Port folio Weighted Benchmark is a market weighted combination of the ODCE, Townsend Value-Added Fund Index, and Townsend Opportunistic Fund Index based on NMSIC's market weights. Due to timing of this report, data for the Portfolio Weighted Benchmark is as of 3Q16.

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Quarter One-Year Three-Year Five-Year Value Weighted Since Inception Net IRR

NMSIC Total Portfolio Performance* As of December 31, 2016

NM SIC (net) New Commitments Since 2011 (net) NFI-ODCE (net) Portfolio Weighted Benchmark (net)**

Appendix A: Additional 4Q 2016 Performance Attribution

Portfolio Status

• As of 4Q16, NMSIC had $1.7 billion invested in real estate representing 8.8% of total fund assets.

• Including new commitments made post quarter end, total unfunded commitments are $705.1 million.

• The Tactical portfolio currently represents 43% of the portfolio on a funded basis. At the 55% / 45% target core/non-core blend, the tactical real estate allocation is over-committed by approximately $217 million on a funded and committed basis, reflecting an over commitment factor of 1.2x1, slightly below the over-commitment target of 1.3x.

• Over-commitment to tactical is the result of the ongoing regeneration process taking place in the portfolio, with new tactical investments (82% of the portfolio) actively drawing capital and Legacy investments (18% of the Portfolio) expecting near-term liquidation.

• The charts reflect the allocation at a point in time and do not take into account total plan growth, real estate sector NAV growth, or the projected timing of capital calls/distributions. The pacing model presented as part of the Real Estate Investment Plan takes into account all of these factors.

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Real Estate Portfolio Performance

($ in millions) as of 12/31/16 SIC's Target Allocation 10.0% $1,984.2

Current Market Value 8.8% $1,743.4

Market Value + Unfunded Commitments 12.1% $2,406.5

Funded NAV

Unfunded

Remaining Allocation

-$1,000

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Portfolio Snapshot estimated as of 12.31.16 10% Target Allocation

8.8%

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Funded NAV

Funded NAV

Unfunded Unfunded



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Tactical Portfolio (Non-Core)

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Sub-Portfolio Snapshot estimated as of 12.31.16 10% Target Allocation

1 Unfunded commitments is based on 75% of all outstanding commitments to closed-end tactical funds to approximate the prolonged exposure.

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Real Estate Portfolio Domestic and International Exposure

Portfolio Status

• As of 4Q16, NMSIC’s U.S. exposure is approximately $1.6 billion on a NAV basis, representing 90% of the total portfolio vs. 10% of international exposure. On a NAV plus unfunded basis, NMSIC’s U.S. exposure is approximately $1.9 billion, representing 79% vs. 21% of international exposure.

• As of 4Q16, NMSIC committed approximately $476.7 million to seven dedicated international investments over the last two years. These investments currently represent approximately 8.4% of the portfolio’s NAV and have approximately $304.8 million of unfunded commitments.

$1,563 90%

$1,906 79%

$180 10%

$495 21%

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U.S. vs. International Exposure

US Exposure International Exposure

U.S., 90%

Europe, 7%

Asia, 2% Emerging

America, 0%

Other, 0%

Global Geographic Diversification on NAV Basis

Portfolio Status

• Included in the pacing model presented as part of the Real Estate Investment Plan, a number of NMSIC’s existing investments are selling assets and are projecting to be fully realized over the next 12 to 24 months (see slide 22-23 for more details on Legacy Investments).

• Based on 4Q16 market values, the chart below provides a projection of how much capital NMSIC is likely to receive over this time frame. The projections rely on individual manager feedback as well as life of fund assumptions.

• Based on current market values, approximately 21% of Value-Added investments and 20% of Opportunistic investments are projected to be distributed over the next two years, totaling an estimated value between $125-175 million.

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Real Estate Portfolio Performance

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Existing Portfolio Projected Exits / Sales Over the next 12-24 Months (Market Value)

Remaining Market Value Projected Exits/Sales

Target Allocation - Strategic Core: $1,091 m Target Allocation -

Tactical: $893 m

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Real Estate Portfolio Performance – Portfolio One-Year Attribution

One-Year Time Weighted Return Performance

• The charts below show the contribution of each the New Portfolio and the Legacy Portfolio to the total one-year net return, as well as the return contribution of each portfolio by asset risk type.

• Over the one-year period, the New Portfolio continues to be the main driver of NMSIC’s total net return. The New Portfolio’s share of return was 8.3% vs. -0.2% from the Legacy Portfolio. The New Portfolio continues to grow as new commitments are made, which further minimize the effects of the Legacy Portfolio on shorter-term returns.

• Over the one-year period, the Strategic Core Portfolio represented 4.9% of NMSIC’s one-year net return and had the largest impact on the portfolio shorter-term returns due to its weight combined with strong returns.

8.2%

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8.3%

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7.0%

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9.0%

Legacy Portfolio ($137.2 M / -1.5%)

New Portfolio ($1.6 B / 9.3%)

Total NMSIC ($1.7 B / 8.2%)

4Q16 One-Year Net Contribution Legacy and New Investments

NAV/One-Year net TWR

8.2%

4.9%

1.7%

1.5% 0.1%

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9.0%

Strategic Core ($998.0M / 8.7%)

Tactical Value Add ($323.0 M / 9.1%)

Tactical Opportunistic

($328.5 M / 7.7%)

Tactical Credit ($93.8 M / 1.0%)

Total NMSIC ($1.7 B / 8.2%)

4Q16 One-Year Net Contribution by Risk Type

NAV/One-Year net TWR

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Real Estate Portfolio Performance – Legacy Investment Distributions

• The charts below illustrate changes in the Legacy Investments since 2010, as well as expected distributions from the Legacy Investments from 2015 to 2017*.

• Out of eight remaining investments, three are expected to be fully liquidated by year-end 2017.

*Charts based on managers’ projections.

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2010 - 4Q16 NAV Components - Real Estate Legacy Portfolio

$156 m

$49 m $49 m

$68 m

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) Legacy Portfolio Expected Distribution - 2016 As of December 31, 2016

Actual Distributions Projected Distributions

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Real Estate Portfolio Performance – Diversification

• The portfolio is well diversified, although underweight to retail and strategically underweight to office on a NAV basis. The portfolio is strategically overweight to hotel and “other” property type (including for sale residential, student housing, self storage etc.). Recent new commitments will reduce the “Other” exposure.

• The portfolio is also well diversified by geographic location within the U.S.

• The international exposure is highly concentrated in Europe and Asia with the remaining international exposure primarily in Latin America (through a legacy investment).

• The diversification charts below will change when adding the unfunded commitments. Some of these commitments target specific property types or geographic areas.

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Property Type Diversification (%)

NMSIC - NAV NMSIC - NAV+Unfunded Capital NFI-ODCE

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Geographic Diversification (%)

NMSIC - NAV NMSIC - NAV+Unfunded Capital NFI-ODCE

Appendix B: Definitions

Definitions:

Townsend classifies risk into two main groups – Strategic Core and Tactical Non-Core Real Estate. Within Tactical Non-Core we utilize the sub-categories of Value-Added and Opportunistic. The definitions of these classifications for the NMSIC’s program are noted below:

• Strategic Core – Operating and substantially leased (typically 80% or higher at the time of acquisition) properties; typically included in this category are the traditional asset types including office, retail, industrial, and multifamily residential, although as the real estate asset class matures, we are beginning to see alternative property types being included in this category (e.g., hotels, self-storage). Leverage is usually limited to less than 30% of value although in some instances, leverage can be as high as 50%.

• Tactical Non-Core – Consists of both Value-Added and Opportunistic Return strategies and includes leasing and/or development risk, asset repositioning, distressed assets, and/or specialty property types; NMSIC’s program allows for an international component up to 30% of the real estate program. Tactical Non-Core investments can be made through a variety of structures.

• Value-Added – Properties that take on moderate additional risk from one or more of the following sources: leasing, redevelopment, repositioning, and require certain specialized operating expertise. Leverage is usually limited to less than 50% of value although in some instances, leverage can be as high as 65%.

• Opportunistic – Investments include direct real estate assets (such as development or major redevelopment of office, retail, industrial, residential or specialized property types). Other forms of investment are also included such as land plays, operating companies, distressed debt/properties, and other specialized investments (e.g., brown fields). Leverage is usually 75% of value or greater.

• Credit – Investments include debt focused strategies with real estate serving as collateral. Typical investments include mezzanine financing, recapitalizations, legacy debt instruments, listed debt securities, and preferred equity.

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New Mexico State Investment Council

Definitions (continued):

• Townsend Portfolio Weighted Index – This Index is a combination of the equal weighted ODCE, Townsend Value Added Fund Index, Townsend Opportunistic Return Fund Index. The equal weighted Index provides a comparison of the investable universe since the NMSIC initiated its real estate portfolio.

• The NCREIF Property Index (NPI) – The NCREIF Property Index represents data collected from the Data Contributing Members of the National Council of Real Estate Investment Fiduciaries (NCREIF). The NPI is an unlevered domestic index, gross of fees, that aggregates the returns of approximately 7,225 privately owned institutional investment properties valued at $471.7 billion. All properties have been acquired, at least in part, on behalf of tax-exempt institutions and held in a fiduciary environment. The properties are wholly owned and joint venture investments consisting of operating properties only – no development projects. It is not possible for investors to invest in or duplicate the NPI.

• NFI-ODCE – The NFI-ODCE, like the NCREIF Property Index and other stock and bond indices, is a capitalization-weighted index based on each fund’s Net Invested Capital. The NFI-ODCE is a gross of fee and net of fee time-weighted return index consisting of Open-end Core Funds. Open-end Funds are defined as infinite-life vehicles consisting of multiple investors who have the ability to enter or exit the fund on a periodic basis, subject to contribution and/or redemption requests, thereby providing a degree of potential investment liquidity.

• We believe that given the inherent valuation lag and lack of leverage in the NPI that the Townsend Indices provide the proper comparison to Investors’ Real Estate Portfolios. The composition of these respective Indices represents the investable universe of funds in each sector and includes leverage.

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• Internal Rate of Return (“IRR”) – IRR is the average rate earned by each and every dollar invested during the period. This rate is influenced not only by movements in financial markets and decisions made by portfolio managers, but also by the timing and size of cash inflows and outflows and the beginning and ending market values.

• Time-Weighted Return (“TWR”) – A rate-of-return measure of portfolio performance that gives equal weight to each period regardless of any differences in amounts invested in each period. TWR are designed to eliminate the effect that the size and timing of cash flows has on the IRR since the pattern of cash flows varies significantly among funds.

23



24


*Frontier is comprised of 151 countries mainly consisting of other developing countries not listed in the Emerging regions as well as Third World countries.

Developed Americas

(2)Developed Europe

(21)Developed Asia

(5)

Developed Middle East and Africa

(1)

Emerging Americas

(6)Emerging Europe

(5)Emerging Asia

(8)

Emerging Middle East and Africa

(3)Frontier*

(151)United States Austria Austra l ia Is rael Brazi l Czech Republ ic China Egypt Other Developing Canada Belgium Hong Kong Chi le Hungary India South Africa and Third World

Denmark Japan Colombia Morocco Indones ia Turkey counti resEngland New Zealand Mexico Poland South KoreaFinland Singapore Peru Russ ia Malays iaFrance Puerto Rico Phi l ippinesGermany TaiwanGreece Thai landIrelandIta lyLuxembourg NetherlandsNorthern Ireland NorwayPortugalScotlandSpainSwedenSwitzerlandUnited KingdomWales

Geographic Diversification

Appendix C: 4Q 2016 Flash Report

1,984,213,352 10.0% 1,743,375,522 8.8% 663,121,377 3.3% -422,283,547 -2.1%

TGRS TNET TGRS TNET TGRS TNET TGRS TNET

2.0 1.5 10.3 8.2 14.7 12.2 14.0 11.5

2.1 1.9 8.8 7.8 12.1 11.0 12.2 11.2

Funding Status ($)Investment

Vintage Year

Commitment

Amount

Funded

Amount

Unfunded

Commitments

Capital

Returned

Market

Value

Market

Value (%)

Market Value

+ Unfunded

Commitments (%)

Strategic Core Investments 2011 935,000,000 763,550,875 177,131,273 101,532,775 998,016,628 57.2 48.8

Tactical Value-Added Investments 2004 938,125,000 739,126,982 200,474,453 560,853,911 323,013,987 19.3 22.2

Tactical Opportunistic Investments 2005 665,547,981 520,038,962 191,354,148 327,866,848 328,520,310 18.8 21.6

Tactical Credit 2014 211,181,393 132,946,084 94,161,503 42,461,521 93,824,597 5.4 7.8

Total Tactical 2004 1,814,854,374 1,392,112,028 485,990,104 931,182,280 745,358,894 42.8 51.2

Total Current Portfolio

New Mexico State Investment Council 2004 2,749,854,374 2,155,662,903 663,121,377 1,032,715,055 1,743,375,522 100.0 100.0



Fourth Quarter 2016

Portfolio Composition ($)

Total Plan Assets Allocation Market Value Unfunded Commitments Remaining Allocation

5 Year (%)

19,842,133,516

Performance Summary Quarter (%) 1 Year (%) 3 Year (%)

NCREIF Fund Index – Open End Diversified Core Equity “NFI-ODCE Value Weight”

Strategic Core Investments

Tactical Value-Added Investments

Tactical Opportunistic Investments

Tactical Credit

INC APP TGRS TNET INC APP TGRS TNET INC APP TGRS TNET INC APP TGRS TNET TGRS TNET

Strategic Core Investments

Strategic Core Investments 998,016,627 1.1 1.1 2.2 2.0 4.8 4.8 9.8 8.7 4.9 8.1 13.3 12.0 5.0 8.8 14.1 12.7 14.5 13.1 2Q11 12.4 1.4

Tactical Value-Added Investments

Tactical Value-Added Investments 323,013,987 1.0 0.3 1.3 0.5 5.6 6.5 12.3 9.1 5.7 12.9 19.1 15.2 6.1 8.9 15.3 12.1 8.9 5.8 3Q04 3.5 1.2

Tactical Opportunistic Investments

Tactical Opportunistic Investments 328,520,310 1.8 1.1 2.9 2.0 4.5 6.0 10.7 7.7 5.3 8.9 14.7 10.6 3.9 10.8 15.0 10.8 6.1 3.1 2Q05 2.1 1.1

Tactical Credit

Tactical Credit 93,824,598 2.3 -3.1 -0.9 -1.4 12.7 -5.4 6.8 1.0 11.9 -3.9 7.8 4.7 7.8 4.7 1Q14 3.2 1.0

Total Tactical 745,358,895 1.5 0.2 1.7 0.9 5.7 5.0 10.9 7.5 5.9 10.0 16.4 12.4 5.4 8.9 14.7 11.0 7.5 4.4 3Q04 2.9 1.1

Total Portfolio

New Mexico State Investment Council 1,743,375,522 1.3 0.7 2.0 1.5 5.2 4.9 10.3 8.2 5.4 9.0 14.7 12.2 5.1 8.5 14.0 11.5 7.2 4.6 3Q04 5.4 1.2

Indices

NCREIF Fund Index – Open End Diversified Core Equity “NFI-ODCE Value Weight” 1.1 1.0 2.1 1.9 4.5 4.1 8.8 7.8 4.8 7.0 12.1 11.0 5.0 6.9 12.2 11.2 8.1 7.1 3Q04

NCREIF Property Index "NPI" 1.1 0.6 1.7 4.8 3.1 8.0 5.0 5.8 11.0 5.3 5.4 10.9 9.1 3Q04

FTSE EPRA/NAREIT Developed Index in USD -5.4 5.0 6.8 10.3 7.9 3Q04

Net

IRR

Equity

Multiple


Fourth Quarter 2016

Returns (%)Market Value

($)

Quarter 1 Year 3 Year 5 Year Inception TWR

Calculation

Inception

INC APP TGRS TNET INC APP TGRS TNET INC APP TGRS TNET INC APP TGRS TNET TGRS TNET

Legacy Portfolio

Legacy Portfolio 137,189,432 3.5 -7.4 -3.9 -4.1 8.6 -8.7 -0.5 -1.5 8.7 -2.0 6.8 5.1 7.1 0.5 7.8 5.9 4.8 2.5 3Q04 -0.5 1.0

New Portfolio 2011 Inception

New Portfolio 2011 Inception 1,606,186,090 1.1 1.5 2.6 2.1 4.8 6.4 11.4 9.3 4.8 10.9 16.0 13.3 4.8 11.2 16.5 13.8 16.3 13.8 2Q11 13.6 1.3

Total Portfolio

New Mexico State Investment Council 1.3 0.7 2.0 1.5 5.2 4.9 10.3 8.2 5.4 9.0 14.7 12.2 5.1 8.5 14.0 11.5 7.2 4.6 3Q04 5.4 1.2

Indices

NCREIF Fund Index – Open End Diversified Core Equity “NFI-ODCE Value Weight” 1.1 1.0 2.1 1.9 4.5 4.1 8.8 7.8 4.8 7.0 12.1 11.0 5.0 6.9 12.2 11.2 8.1 7.1 3Q04

NCREIF Property Index "NPI" 1.1 0.6 1.7 4.8 3.1 8.0 5.0 5.8 11.0 5.3 5.4 10.9 9.1 3Q04

FTSE EPRA/NAREIT Developed Index in USD -5.4 5.0 6.8 10.3 7.9 3Q04

Inception TWR

Calculation

Inception

Net

IRR

Equity

Multiple


Fourth Quarter 2016

Returns (%)Market Value

($)

Quarter 1 Year 3 Year 5 Year

Advisory Disclosures and Definitions

Disclosure

Trade Secret and Confidential.

Past performance is not indicative of future results.

Investing involves risk, including the possible loss of principal.

Returns are presented on a time weighted basis and shown both gross and net of underlying third party fees and expenses and may include income, appreciation and/or other earnings. In addition, investment level Net IRR’s and equity multiples

are reported.

The Townsend Group, on behalf of its client base, collects quarterly limited partner/client level performance data based upon inputs from the underlying investment managers. Data collection is for purposes of calculating investment level

performance as well as aggregating and reporting client level total portfolio performance. Quarterly limited partner/client level performance data is collected directly1 from the investment managers via a secure data collection site.

1In select instances where underlying investment managers have ceased reporting limited partner/client level performance data directly to The Townsend Group via a secure data collection site, The Townsend Group may choose to input

performance data on behalf of its client based upon the investment managers quarterly capital account statements which are supplied to The Townsend Group and the client alike.

Benchmarks

The potential universe of available real asset benchmarks are infinite. Any one benchmark, or combination thereof, may be utilized on a gross or net of fees basis with or without basis point premiums attached. These benchmarks may also utilize

a blended composition with varying weighting methodologies, including market weighted and static weighted approaches.

the new mexico state investment council (“nmsic”)...• 2016 saw $285 billion in u.s. commercial...

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