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Item 7a, Attachment 1, Page 1 of 62
Performance Review – December 31, 2016 California Public Employees’ Retirement System
Item 7a, Attachment 1, Page 2 of 62
2
December 2016 Asset Class Assumptions
Dev Global LT ex-US
US ex-US Emg ex-US Global Private Core Core High Bond US Global Private Real US
Stock Stock Stock Stock Stock Markets Cash Bond Bond TIPS Yield (Hdg) RES RES RE Cmdty Assets CPI
Expected Compound Return (%) 6.50 6.50 6.50 6.70 6.70 9.40 1.55 3.65 4.10 2.95 5.35 1.35 5.40 5.60 6.00 3.50 6.30 1.95
Expected Arithmetic Return (%) 7.80 7.95 9.45 8.30 8.05 12.60 1.55 3.80 4.55 3.10 5.80 1.40 6.75 6.75 6.90 4.55 6.65 1.95
Expected Risk (%) 17.00 18.00 26.00 18.75 17.15 27.50 1.25 5.15 9.85 6.00 10.00 3.50 17.00 15.80 14.00 15.00 8.40 1.75
Cash Yield (%) 2.00 3.00 2.25 2.85 2.40 0.00 1.55 3.80 5.05 3.30 8.40 1.80 3.95 3.95 2.85 1.55 2.85
Correlations:
US Stock 1.00
Dev ex-US Stock 0.83 1.00
Emerging Mkt Stock 0.75 0.75 1.00
Global ex-US Stock 0.85 0.96 0.87 1.00
Global Stock 0.96 0.94 0.84 0.96 1.00
Private Markets 0.75 0.65 0.63 0.68 0.74 1.00
Cash Equivalents -0.05 -0.09 -0.05 -0.08 -0.07 0.00 1.00
Core Bond 0.29 0.13 0.00 0.10 0.20 0.32 0.19 1.00
LT Core Bond 0.32 0.16 0.01 0.12 0.23 0.33 0.11 0.95 1.00
TIPS -0.05 0.00 0.15 0.05 0.00 -0.03 0.20 0.61 0.48 1.00
High Yield Bond 0.55 0.40 0.50 0.45 0.52 0.34 -0.10 0.25 0.33 0.05 1.00
Non-US Bond (Hdg) 0.16 0.26 -0.01 0.19 0.18 0.27 0.10 0.68 0.65 0.40 0.27 1.00
US RE Securities 0.60 0.48 0.45 0.50 0.57 0.51 -0.05 0.17 0.23 0.10 0.57 0.05 1.00
Global RE Securities 0.66 0.60 0.57 0.63 0.67 0.58 -0.05 0.16 0.22 0.11 0.63 0.04 0.96 1.00
Private Real Estate 0.55 0.45 0.45 0.48 0.53 0.51 -0.05 0.19 0.26 0.09 0.58 0.05 0.79 0.77 1.00
Commodities 0.15 0.25 0.30 0.28 0.22 0.15 0.00 -0.04 -0.05 0.20 0.20 -0.05 0.26 0.29 0.25 1.00
Real Asset Basket 0.40 0.41 0.48 0.46 0.45 0.38 0.02 0.24 0.26 0.41 0.51 0.08 0.66 0.70 0.70 0.56 1.00
Inflation (CPI) -0.10 -0.15 -0.13 -0.15 -0.13 -0.10 0.10 -0.12 -0.12 0.15 -0.08 -0.08 0.05 0.04 0.05 0.40 0.25 1.00
Real Estate
Equity Fixed Income Real Assets
Item 7a, Attachment 1, Page 3 of 62
3
Economic Review
Data sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve Bank of St. Louis, Barclays Capital
December 31, 2016CPI (all items)Seasonally adjusted Dec-16 0.3 3-Month 0.8
Nov-16 0.2 12-Month 2.1Oct-16 0.4 10-Yr Annual 1.8
Breakeven Inflation 10-Year 2.0
Consumer Sentiment Dec-16 98.2Unv. of Michigan Survey Nov-16 93.8
1-Yr Ago 92.6 10-Yr Avg 77.9
Manufacturing Dec-16 54.7 Change in Manufacturing SectorInst. for Supply Mgmt Nov-16 53.2 >50 ExpansionPurchasing Mngrs' Idx 1-Yr Avg 51.5 <50 ContractionNote: Seasonally adjusted CPI data is utilized to better reflect short-term pricing activity. Dec/2016 CPI is based on Federal Reserve of Philadelphia Survey of Professional Forecasters
Monthly Change Cumulative ChangeKey Economic Indicators
Real GDP
Consumer Spending
$(18,000)
$(15,000)
$(12,000)
$(9,000)
$(6,000)
$(3,000)
$-
$3,000
$6,000
$9,000
$12,000
$15,000
$18,000
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Qu
arte
rly
GD
P (
$b
il)
An
nu
alized
Grow
th
Changes in Real GDP (2009 base year)
Annualized Change in Real GDP Private Investment Series9 Government Spending
(5.0)
-
5.0
10.0
15.0
(200)
(100)
-
100
200
300
400
Un
em
plo
ym
en
t R
ate
(%
)
Job
Grow
th/
Loss (
thou
)
Unemployment Rate and Job Growth/Loss
Job Growth (Loss) Unemployment Rate
Item 7a, Attachment 1, Page 4 of 62
U.S. Economic Growth
• Current economic expansion began during the second quarter of 2009
• Annualized real growth during that period is 2.1%
• Although it is one of the lengthiest expansions of the past 100+ years, cycles have been trending longer, in general
• Recessions typically last 1-2 years
4 Source: J.P. Morgan Asset Management
*Chart assumes that growth during Q4 2016 will be positive
Item 7a, Attachment 1, Page 5 of 62
Wilshire’s Economic Factor Portfolios
5
• Helpful to examine market behavior through a broad lens of economic factors
• Market performance during 2016 clearly shows the importance of asset class exposure to inflation expectations
Rising Growth6.5%
Falling Growth-0.4%
Net Growth3.7%
Rising Inflation9.2%
Falling Inflation-4.1%
Net Inflation7.5%
-5%
0%
5%
10%
Tota
l Ret
urn
2016 Through Factor Portfolios
Source: U. S. Department of the Treasury
Item 7a, Attachment 1, Page 6 of 62
Challenges of Low/Declining Rate Environment
6
Source: Wilshire Compass, Bloomberg-Barclays
0
25
50
75
100
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
Required Risk Taking vs. Bond Yields
% Stocks Bond Yield Exp Ret Target Ret Exp Risk
Item 7a, Attachment 1, Page 7 of 62
Global Stocks & Bonds
• Major shift in asset values since November 8th
– Global equity up $1 trillion
– Global investment grade fixed income down $2 trillion
• Various sources have reported strong fund flows into equities
7 Source: Wilshire Atlas, Bloomberg Index Services Limited
$40.0
$42.0
$44.0
$46.0
$48.0
$50.0
$30.0
$32.0
$34.0
$36.0
$38.0
$40.0
Change in Business Debt / Potential GDP
MSCI AC World Index (left) BB Global Aggregate Index (right)
Global Market Value (trillions)
U.S. Presidential Election
Item 7a, Attachment 1, Page 8 of 62
8 Forecasts using Wilshire’s 2017 Asset Class Assumptions.
6.23% 6.25%7.51% 7.52%
11.43% 11.59%
0.33%
0.0%
5.0%
10.0%
15.0%
Target Allocation Actual Allocation
Expected Return - 10 Yr Expected Return - 30 Yr
Expected Risk Expected Allocation Based TE
CalPERS Expected Return and Risk Estimates
Item 7a, Attachment 1, Page 9 of 62
9
Asset and Risk Allocation
Forecasts using Wilshire’s 2017 Asset Class Assumptions.
82.00%
6.95% 9.87%
1.19% -0.01%0.00%
Contribution to Total Risk - Target Allocation
Growth
Income
Real Assets
Inflation
Liquidity
ARS + Multi-Asset
84.16%
6.28% 8.10%
1.28% -0.01%0.20%
Contribution to Total Risk - Actual Allocation
Growth
Income
Real Assets
Inflation
Liquidity
ARS + Multi-Asset
54.0%
20.0%
13.0%
9.0%4.0%
0.0%
Target Asset Allocation
Growth
Income
Real Assets
Inflation
Liquidity
ARS + Multi-Asset
55.9%
18.9%
10.9%
9.5%
4.4%0.5%
Actual Asset Allocation
Growth
Income
Real Assets
Inflation
Liquidity
ARS + Multi-Asset
Item 7a, Attachment 1, Page 10 of 62
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Drivers of Expected Excess Risk
Forecasts using Wilshire’s 2017 Asset Class Assumptions.
• This excess risk forecast is based on asset allocation variance only. • Other sources of risk (structural within asset classes, manager/program
specific source of tracking error, covariance) are not considered here.
1.92%
-1.15%
-2.10%
0.49% 0.35% 0.49%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Growth Income Real Assets Inflation Liquidity ARS + Multi-Asset
CalPERS Asset Allocation Variance
69.96%
6.51%15.00%
2.67%
-0.03%
5.90%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Growth Income Real Assets Inflation Liquidity ARS + Multi-Asset
Contribution to TF Tracking Error
Item 7a, Attachment 1, Page 11 of 62
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Total Fund – Performance Market Value Qtr 1-Year 3-Year 5-Year 10-Year VaR Sharpe Info
TOTAL FUND $302.8 bil 0.3% 7.7% 4.6% 8.6% 4.4% $36.2 bil 1.4 0.0Total Fund Policy Benchmark 0.2% 8.5% 4.8% 8.6% 5.6% 1.4 0.0Actuarial Rate 1.8% 7.5% 7.5% 7.5% 7.6%
GROWTH 169.3 2.2% 9.3% 4.7% 10.6% 4.9% $34.9 bil 1.1 -0.4Growth Policy Benchmark 2.3% 10.5% 5.0% 11.6% 5.9% 1.2 0.0
PUBLIC EQUITY 143.9 1.9% 9.8% 3.9% 10.6% 4.2% $29.0 bil 0.9 0.9Public Equity Policy Benchmark 1.6% 9.0% 3.7% 10.3% 4.5% 0.9 0.0
PRIVATE EQUITY 25.4 4.0% 6.6% 8.8% 11.5% 9.8% $8.3 bil 3.1 -0.4Private Equity Policy Benchmark 6.3% 16.7% 10.2% 16.4% 12.8% 1.4 0.0
INCOME 57.1 -5.3% 5.4% 4.5% 3.4% 6.1% $6.1 bil 0.7 1.5Income Policy Benchmark -5.4% 4.2% 4.0% 2.4% 5.4% 0.4 0.0
REAL ASSETS 33.0 1.9% 5.8% 10.8% 11.3% -0.8% $4.8 bil 1.6 0.1Real Assets Policy Benchmark 1.7% 8.3% 10.6% 10.7% 7.4% 2.6 0.0
INFLATION 28.7 -1.6% 6.3% -3.7% -2.2% -.-% $2.0 bil -0.3 0.2Inflation Policy Benchmark -1.6% 6.3% -4.5% -2.5% -.-% -0.4 0.0
LIQUIDITY 13.2 0.1% 0.5% 0.8% 0.4% 1.5% $0.1 bil 0.3 -0.6Liquidity Policy Benchmark 0.1% 0.3% 1.2% 0.7% 1.7% 0.4 0.0
ABSOLUTE RETURN STRATEGIES 0.3 -3.5% -6.5% 0.0% 2.4% 1.8% 0.6 -0.7Absolute Return Strategies Policy Benchmark 1.3% 5.8% 5.4% 5.3% 6.5% 25.7 0.0
MULTI-ASSET CLASS COMPOSITE 1.2 0.7% 2.9% 4.5% -.-% -.-% N/A N/AAbsolute 7.5% 1.8% 7.5% 7.5% -.-% -.-% N/A N/A
CURRENCY + ASSET ALLOCATION TRANSITION 0.0 -.-% -.-% -.-% -.-% -.-% N/A N/A
TERMINATED AGENCY POOL 0.1 -4.6% 5.0% 5.2% -.-% -.-% N/A N/A
TOTAL FUND PLUS TAP 302.9 0.3% 7.7% 4.6% 8.6% 4.4% N/A N/A
5-Year Ratios
Item 7a, Attachment 1, Page 12 of 62
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Total Fund – Attribution (Quarter)
Growth 55.83 2.19 54.00 2.32 1.83 -0.12 0.00 0.00 -0.06 -0.06
Public Equity 47.37 1.87 46.00 1.61 1.37 0.25 -0.02 0.01 0.11 0.10
Private Equity 8.47 4.03 8.00 6.25 0.47 -2.23 0.02 -0.01 -0.18 -0.16
Income 19.87 -5.27 20.00 -5.43 -0.13 0.17 -0.01 0.00 0.03 0.02
Real Assets 10.86 1.88 13.00 1.69 -2.14 0.19 -0.03 0.00 0.02 -0.01
Inflation 7.90 -1.60 9.00 -1.62 -1.10 0.02 0.04 0.00 0.00 0.04
Absolute Return 0.50 -3.54 0.00 1.28 0.50 -4.82 0.01 -0.02 0.00 -0.02
Liquidity 5.04 0.15 4.00 0.09 1.04 0.06 0.00 0.00 0.00 0.00
Monthly Linked Return 100.00 0.19 100.00 0.22 -0.03 0.00 -0.03 0.00 -0.03
Trading/Hedging/Other 0.09 0.00 0.09 0.09
Total 0.28 0.22 0.06 0.06
California Public Employees' Retirement SystemTotal Fund Attribution - Quarter
As of 12/31/2016
Asset Class
Actual (%) Policy (%) Difference (%) Total Fund Return Contribution (%)
Weight Return Weight Return Weight Return Actual Allocation Interaction Active
Management Total
Item 7a, Attachment 1, Page 13 of 62
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Total Fund – Attribution (Calendar YTD)
Growth 60.13 9.32 59.25 10.50 0.88 -1.19 -0.15 0.06 -0.65 -0.74
Public Equity 51.13 9.77 49.75 9.00 1.38 0.76 -0.12 0.01 0.36 0.26
Private Equity 9.01 6.61 9.50 16.66 -0.49 -10.05 -0.01 0.06 -1.06 -1.01
Income 20.02 5.36 20.00 4.17 0.02 1.19 -0.09 0.01 0.24 0.16
Real Assets 10.74 5.77 12.25 8.31 -1.51 -2.54 -0.03 0.02 -0.29 -0.30
Inflation 6.18 6.32 6.75 6.32 -0.57 0.00 0.02 -0.01 0.00 0.02
Absolute Return 0.54 -6.50 0.00 5.79 0.54 -12.29 -0.01 -0.07 0.00 -0.08
Liquidity 2.39 0.55 1.75 0.33 0.64 0.22 -0.02 0.00 0.00 -0.01
Monthly Linked Return 100.00 7.54 100.00 8.49 -0.95 -0.27 0.01 -0.70 -0.95
Trading/Hedging/Other 0.13 0.00 0.13 0.13
Total 7.67 8.49 -0.82 -0.82
Weight Return Weight Return Actual Allocation Interaction
California Public Employees' Retirement SystemTotal Fund Attribution - Calendar Year-to-Date
As of 12/31/2016
Asset Class
Actual (%) Policy (%) Difference (%) Total Fund Return Contribution (%)
Weight Return Active Management Total
Item 7a, Attachment 1, Page 14 of 62
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Total Fund – Attribution (Fiscal YTD)
Growth 58.22 7.44 57.50 7.70 0.72 -0.26 0.04 0.00 -0.18 -0.15
Public Equity 49.63 7.67 48.50 7.53 1.13 0.14 0.00 0.00 0.06 0.06
Private Equity 8.58 5.92 9.00 8.78 -0.42 -2.86 0.04 -0.01 -0.24 -0.21
Income 20.02 -3.95 20.00 -4.58 0.02 0.63 -0.02 0.00 0.13 0.11
Real Assets 10.72 3.49 12.50 3.58 -1.78 -0.08 -0.01 0.00 -0.01 -0.02
Inflation 6.92 -1.70 7.50 -1.07 -0.58 -0.64 0.03 0.00 -0.04 0.00
Absolute Return 0.51 -7.33 0.00 2.58 0.51 -9.91 -0.01 -0.05 0.00 -0.06
Liquidity 3.62 0.30 2.50 0.18 1.12 0.12 -0.03 0.00 0.00 -0.02
Monthly Linked Return 100.00 3.74 100.00 3.87 -0.14 0.00 -0.05 -0.09 -0.14
Trading/Hedging/Other 0.11 0.00 0.11 0.11
Total 3.85 3.87 -0.02 -0.02
California Public Employees' Retirement SystemTotal Fund Attribution - Fiscal Year-to-Date
As of 12/31/2016
Asset Class
Actual (%) Policy (%) Difference (%) Total Fund Return Contribution (%)
Weight Return Weight Return Weight Return Actual Allocation Interaction Active
Management Total
Item 7a, Attachment 1, Page 15 of 62
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Total Fund – Rolling Excess Returns
Item 7a, Attachment 1, Page 16 of 62
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Total Fund – Rolling Tracking Error
Item 7a, Attachment 1, Page 17 of 62
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U.S. Equity Market
Data sources: Wilshire Compass, Wilshire Atlas
December 31, 2016 Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr
Wilshire 5000 4.5 13.4 13.4 8.8 14.7 7.2Wilshire U.S. Large Cap 4.1 12.5 12.5 8.9 14.6 7.1Wilshire U.S. Small Cap 8.3 22.4 22.4 7.5 15.5 8.7
Wilshire U.S. Large Growth 3.9 9.0 9.0 8.7 15.2 8.2Wilshire U.S. Large Value 4.4 15.4 15.4 9.0 14.1 5.8Wilshire U.S. Small Growth 7.6 17.0 17.0 4.9 14.1 8.8Wilshire U.S. Small Value 9.0 27.7 27.7 10.0 16.7 8.5
Wilshire REIT Index -2.3 7.2 7.2 13.8 12.0 4.8MSCI USA Minimum Volatility Index 0.0 9.8 9.8 10.1 12.8 7.5FTSE RAFI U.S. 1000 Index 7.3 17.6 17.6 8.9 15.5 8.0
13.4
25.1
17.6
22.6
-4.5
27.6
6.1
20.2
7.8
-2.1
25.7
13.9
4.5
6.0
0.7
5.7
-2.9
7.6
-1.5
8.3
2.9
-3.6
21.2
1.6
Wilshire 5000
Telecom
Utilities
Materials
Real Estate
Energy
Cnsmr Stpls
Industrials
Cnsmr Discr.
Healthcare
Financials
Info. Tech.
2.6%
3.1%
3.2%
4.5%
7.2%
8.8%
10.6%
12.2%
12.7%
15.7%
19.5%
Wilshire 5000 Sector Weight & Return (%)
4th Quarter Year to Date
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
Larg
e C
ap
in
excess o
f S
mall C
ap
Large Cap vs. Small Cap
QTD Excess Return Rolling 3-Year Excess Return
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
Grow
th i
n e
xcess o
f V
alu
e
Growth vs. Value
QTD Excess Return Rolling 3-Year Excess Return
Item 7a, Attachment 1, Page 18 of 62
U.S. Corporate Earnings
• Troubling trend in the U.S. equity market reversed course during the year
• Operating earnings had been on the decline for approximately a year and a half before returning to growth in 2016
18 Source: S&P Dow Jones Indices
-15%
-10%
-5%
0%
5%
10%
15%
20%
S&P 500 Index: Operating Earnings Growth
Quarterly Change Year-over-Year
Item 7a, Attachment 1, Page 19 of 62
Annual Equity Returns
• U.S. Equity has now produced 8 straight years of positive returns since 2008
• Median selloff during the periods included below is -12%
19
21
31
24 24
-11 -11
-21
32
13
6
16
6
-37
28
17
1
16
33
13
1
13
-9 -10
-22
-12
-21
-29-32
-13
-8 -7 -8 -10
-49
-27
-16-20
-10
-6-7
-12 -11
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Wilshire 5000 IndexWorst Intra-period Selloff vs Annual Return (%)
Annual Return Largest Selloff
Item 7a, Attachment 1, Page 20 of 62
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Returns by Quality Segment
Relatively strong returns across most quality ratings for 2016; best performers in the B-range
Data sources: Wilshire Atlas
(5.00)
-
5.00
10.00
15.00
20.00
25.00
4Q 16 YTD 2016
Tota
l R
etu
rn
(%
)
Return by S&P Quality Rating
A+ A A- B+ B B- C / D
A+ 6%
A 12%
A- 16%
B+ 27%
B 13%
B- 9%
C / D 3%
N.A. 15%
Segment Weights
as of September 30
Item 7a, Attachment 1, Page 21 of 62
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Non-U.S. Equity Market
Data sources: Wilshire Compass
December 31, 2016 Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr
MSCI ACWI ex-US ($g) -1.2 5.0 5.0 -1.3 5.5 1.4MSCI EAFE ($g) -0.7 1.5 1.5 -1.2 7.0 1.2MSCI Emerging Markets ($g) -4.1 11.6 11.6 -2.2 1.6 2.2MSCI Frontier Markets ($g) 0.5 3.2 3.2 -1.7 5.6 0.0
MSCI ACWI ex-US Growth ($g) -5.7 0.5 0.5 -0.9 5.7 1.9MSCI ACWI ex-US Value ($g) 3.4 9.6 9.6 -1.9 5.2 0.9MSCI ACWI ex-US Small ($g) -3.5 4.8 4.8 1.3 8.2 3.3
MSCI EAFE Minimum Volatility Idx -6.5 -1.4 -1.4 3.9 8.0 4.2FTSE RAFI Developed ex-US Index 3.7 7.3 7.3 -0.9 7.2 1.9
MSCI EAFE LC (g) 7.1 5.9 5.9 6.0 12.4 2.7MSCI Emerging Markets LC (g) -1.4 10.1 10.1 3.2 6.0 4.7
1.5
13.3
-4.0
3.4
5.9
-0.2
2.7
-0.7
1.1
-3.9
1.5
3.1
-0.9
-0.1
MSCI EAFE
Australia
Switzerland
Germany
France
United Kingdom
Japan
7.4%
8.7%
9.3%
10.2%
18.3%
24.1%
MSCI EAFE: Largest Countries and Return (USD)
4th Quarter Year to Date
11.6
18.6
66.6
-1.4
19.6
8.7
1.0
-4.1
-4.0
2.2
-8.0
-2.2
-5.5
-7.2
MSCI Emrg Mrkts
South Africa
Brazil
India
Taiwan
South Korea
China
7.1%
7.7%
8.3%
12.2%
14.4%
26.5%
MSCI EM: Largest Countries and Return (USD)
4th Quarter Year to Date
Item 7a, Attachment 1, Page 22 of 62
22
Growth: Public Equity – Performance
Market Value Qtr 1-Year 3-Year 5-Year 10-Year VaR
5-year Sharpe Ratio
5-year Info Ratio
PUBLIC EQUITY 143.9 1.9% 9.8% 3.9% 10.6% 4.2% $29.0 bil 0.9 0.9Public Equity Policy Benchmark 1.6% 9.0% 3.7% 10.3% 4.5% 0.9 0.0Value Added 0.3% 0.8% 0.2% 0.3% -0.3%
US Equity Composite 77.7 4.5% 13.4% 8.1% 14.7% 7.1% 1.3 0.5Custom US Equity Benchmark 3.9% 12.5% 8.0% 14.5% 7.0% 1.3 0.0Value Added 0.6% 0.9% 0.1% 0.2% 0.1%
Total Int'l Equity 66.2 -1.0% 5.8% -0.5% 6.4% 1.7% 0.5 -0.2Custom Int'l Equity Benchmark -0.8% 5.4% -0.6% 6.5% 1.6% 0.5 0.0Value Added -0.2% 0.4% 0.1% -0.1% 0.1%
Item 7a, Attachment 1, Page 23 of 62
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Growth: Public Equity – Rolling Excess Returns
Item 7a, Attachment 1, Page 24 of 62
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Growth: Public Equity – Rolling Tracking Error
Item 7a, Attachment 1, Page 25 of 62
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Growth: US Equity – Rolling Excess Returns
Item 7a, Attachment 1, Page 26 of 62
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Growth: US Equity – Rolling Tracking Error
Item 7a, Attachment 1, Page 27 of 62
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Growth: International Equity – Rolling Excess Returns
Item 7a, Attachment 1, Page 28 of 62
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Growth: International Equity – Rolling Tracking Error
Item 7a, Attachment 1, Page 29 of 62
29 Source: Preqin, as of December 31, 2016.
Global Quarterly Private Equity Fundraising (2010 - 2016)
Global Private Equity-Backed Buyout Activity (2007 – 2016)
050100150200250300350400
$0
$20
$40
$60
$80
$100
$120
$140
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011 2012 2013 2014 2015 2016
No.
of F
unds
Cap
ital R
aise
d ($
bn)
Aggregate Capital Raised (bn USD) No. of Funds
05001,0001,5002,0002,5003,0003,5004,0004,500
0
100
200
300
400
500
600
700
800
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Agg
rega
te D
eal V
alue
($bn
)
No.
of D
eals
Aggregate Deal Value ($bn) No. of Deals
Private Equity – Fundraising & Investment Activity
Item 7a, Attachment 1, Page 30 of 62
Private Equity – Pricing & Valuations
30
Global LBO Multiples (2006 – 2016)
U.S. Venture Capital Median Pre-Money Valuations (2006 – August 2016)
Sources: S&P LCD, through December 31, 2016; PitchBook, as of August 1, 2016.
$0
$50
$100
$150
$200
$250
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Serie
s C
, D+
Valu
atio
ns ($
m)
Seed
, Ser
ies
A, B
Val
uatio
ns
($m
)
Seed Series A Series B Series C Series D+
8.4x
9.7x 9.1x
7.7x 8.5x 8.8x 8.7x 8.8x
9.7x 10.3x 10.0x
8.8x 9.7x 9.7x
8.9x 9.2x 8.8x 9.3x
8.7x 9.7x
9.2x 9.9x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Purc
hase
Pric
e M
ultip
les
U.S. Europe
Item 7a, Attachment 1, Page 31 of 62
• Smaller deals continue to dominant deal activity by count
• Deals between $100 million-$1 billion make up the majority of deal volume by size in 2016
Private Equity – U.S. Investment Activity by Deal Size
31
Percentage of Deal Volume (count) by Deal Size
Source: PitchBook, as of December 31, 2016.
Percentage of Deal Volume (dollars) by Deal Size
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
$2.5B+
$1B-$2.5B
$500M-$1B
$100M-$500M
$25M-$100M
Under $25M
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Item 7a, Attachment 1, Page 32 of 62
32
Private Equity – Capital Overhang
• As of December 31, 2015, aggregate private equity dry powder across North America and Europe remains elevated at $749 billion, a 3% decline from the end of 2014
• While the overhang slightly decreased across 2007 to 2010, the overhang has increased back to 2007-2008 peak levels
Source: PitchBook, as of December 31, 2015.
Private Equity Overhang by Vintage Year
$623
$765 $760 $741 $680 $703 $697
$759 $773 $749
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$ B
illio
ns
2016
2015
2014
2013
2012
2011
2010
2009
2008
CUMULATIVE OVERHANG
OVERHANG BY VINTAGE
Item 7a, Attachment 1, Page 33 of 62
• The amount of capital available for leverage has decreased considerably since its peak volume in 2007; loan volume appears consistent in the last few years
• Historically, middle-market transactions apply less leverage than large-cap deals
Private Equity – U.S. Debt Markets
33 Source: S&P LCD, as of December 31, 2016.
Percentage of Debt Used in Buyouts (2006 – 2016)
Total U.S. Leveraged Buyout Loan Volume ($bn) (2006 – 2016)
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
USD
Bill
ions
Funded Bank Debt Unfunded Bank Debt
35%
40%
45%
50%
55%
60%
65%
70%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Perc
enta
ge o
f Deb
t
$50M or more of EBITDA Less than $50M of EBITDA
Item 7a, Attachment 1, Page 34 of 62
• As debt has become more readily available, purchase price multiples have increased and remained high from the low point in 2009
• Pricing in 2016 decreased slightly by 0.3x from the recent high in 2015
Private Equity – U.S. LBO Purchase Price Multiples
34
Purchase Price Multiples of U.S. LBO Transactions (2006 – 2016)
Source: S&P LCD, as of December 31, 2016.
5.2x 6.1x
5.0x 3.8x
4.6x 4.9x 5.1x 5.3x 5.7x 5.6x 5.4x
3.1x
3.5x
4.0x
3.8x
3.8x 3.7x 3.5x 3.4x 3.9x 4.5x 4.5x
8.4x
9.7x 9.1x
7.7x
8.5x 8.8x 8.7x 8.8x
9.7x 10.3x 10.0x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Debt/EBITDA Equity/EBITDA Others
Item 7a, Attachment 1, Page 35 of 62
35
Growth: Private Equity – Performance
Market Value Qtr 1-Year 3-Year 5-Year 10-Year VaR
5-year Sharpe Ratio
5-year Info Ratio
PRIVATE EQUITY 25.4 4.0% 6.6% 8.8% 11.5% 9.8% $8.3 bil 3.1 -0.4PE Policy Benchmark 6.3% 16.7% 10.2% 16.4% 12.8% 1.4 0.0Value Added -2.3% -10.1% -1.4% -4.9% -3.0%
Private Equity Partnership Investments 25.4 4.1% 6.7% 8.9% 11.6% 9.9%
Private Equity Distribution Stock 0.0 -19.5% -37.6% -35.1% -31.5% -13.7%
Item 7a, Attachment 1, Page 36 of 62
36
Growth: Private Equity – Rolling Excess Returns
Item 7a, Attachment 1, Page 37 of 62
37
Growth: Private Equity – Rolling Tracking Error
Item 7a, Attachment 1, Page 38 of 62
38
U.S. Fixed Income Market
Data sources: Wilshire Compass, Bloomberg Barclays, U.S. Treasury
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Op
tion
Ad
juste
d S
pread
(b
ps)
Bloomberg Barclays Fixed Income Indexes
Securitized IG Corporate Aa Corporate High Yield
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
0 5 10 15 20 25 30
Yie
ld (
%)
Maturity (yrs)
Treasury Yield Curve
Current Quarter Previous Quarter One Year Ago
December 31, 2016 YTM Duration Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr
Bloomberg Barclays Aggregate 2.6 5.9 -3.0 2.6 2.6 3.0 2.2 4.3Bloomberg Barclays Treasury 1.9 6.1 -3.8 1.0 1.0 2.3 1.2 4.0Bloomberg Barclays Gov't-Related 2.6 5.4 -3.1 2.7 2.7 2.8 2.1 4.1Bloomberg Barclays Securitized 2.8 4.6 -2.0 1.8 1.8 3.0 2.1 4.2Bloomberg Barclays Corporate IG 3.4 7.3 -2.8 6.1 6.1 4.2 4.1 5.5
Bloomberg Barclays LT Gov't/Credit 4.0 15.0 -7.8 6.7 6.7 7.2 4.1 6.9Bloomberg Barclays LT Treasury 3.0 17.4 -11.7 1.3 1.3 7.8 2.5 6.7Bloomberg Barclays LT Gov't-Rel. 4.5 12.0 -7.5 6.0 6.0 6.6 4.2 6.7Bloomberg Barclays LT Corp. IG 4.5 13.8 -5.0 11.0 11.0 7.0 5.4 6.9
Bloomberg Barclays U.S. TIPS 0.6 8.2 -2.4 4.7 4.7 2.3 0.9 4.4Bloomberg Barclays High Yield 6.5 4.1 1.8 17.1 17.1 4.7 7.4 7.4Treasury Bills 0.5 0.25 0.1 0.3 0.3 0.1 0.1 0.8
Item 7a, Attachment 1, Page 39 of 62
39
High Yield Bond Market
Data sources: Bloomberg Barclays
0
500
1,000
1,500
2,000
2,500
3,000
Op
tion
Ad
juste
d S
pread
(b
ps)
Bloomberg Barclays High Yield Indexes
HY Index Ba B Caa
December 31, 2016 Weight Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr
Bloomberg Barclays High Yield Idx 100% 1.8 17.1 17.1 4.7 7.4 7.4
Quality Distribution
Ba U.S. High Yield 45.4% 0.4 12.8 12.8 5.6 7.2 7.8B U.S. High Yield 38.1% 2.0 15.8 15.8 3.8 6.8 6.2Caa U.S. High Yield 15.6% 4.7 31.5 31.5 4.5 9.0 6.7Ca to D U.S. High Yield 0.7% 12.2 83.1 83.1 -21.1 -7.7 -2.4Non-Rated U.S. High Yield 0.3% 1.4 5.8 5.8 -4.0 3.2 0.3
Item 7a, Attachment 1, Page 40 of 62
40
Non-U.S. Fixed Income Market
Data sources: Wilshire Compass, Bloomberg Barclays
December 31, 2016 Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr
Developed MarketsBloomberg Barclays Global Aggregate xUS -10.3 1.5 1.5 -2.6 -1.4 2.4Bloomberg Barclays Global Aggregate xUS * -1.9 4.9 4.9 5.0 4.5 4.4Bloomberg Barclays Wrld Govt xUS IL Bond -7.4 3.3 3.3 -0.2 1.1 3.0Bloomberg Barclays Wrld Govt xUS IL Bond * -1.8 14.4 14.4 9.0 5.9 5.9
Emerging Mrkts (Hard Currency)Bloomberg Barclays EM USD Aggregate -2.6 9.9 9.9 5.3 5.7 6.7Emerging Mrkts (Foreign Currency)Bloomberg Barclays EM Local Currency Gov't -7.5 5.9 5.9 -2.4 0.5 n.a.Bloomberg Barclays EM Local Currency Gov't * -2.8 3.3 3.3 2.7 2.5 n.a.
Euro vs. Dollar -6.1 -2.9 -2.9 -8.5 -4.1 -2.2Yen vs. Dollar -13.2 3.1 3.1 -3.4 -8.0 0.2Pound vs. Dollar -4.9 -16.2 -16.2 -9.3 -4.5 -4.5* Returns are reported in terms of local market investors, w hich removes currency effects.
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Yie
ld t
o W
orst
(%
)
Bloomberg Barclays Fixed Income Indexes
U.S. Treasury Global xUS Gov't EM USD Sovereign EM Foreign Gov't
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
0
10
20
30
40
50
60
70
80
90
100
Rollin
g 1
-Y
ear R
etu
rn
In
dex L
evel
U.S. Dollar Index: Major Currencies
Index Level Rolling 1-Year Return
Item 7a, Attachment 1, Page 41 of 62
41
Income – Performance
Market Value Qtr 1-Year 3-Year 5-Year 10-Year VaR
5-year Sharpe Ratio
5-year Info Ratio
INCOME 57.1 -5.3% 5.4% 4.5% 3.4% 6.1% $6.1 bil 0.7 1.5Income Policy BenchmarK -5.4% 4.2% 4.0% 2.4% 5.4% 0.4 0.0Value Added 0.1% 1.2% 0.5% 1.0% 0.7%
U.S. Income 51.4 -4.9% 5.7% 5.4% 4.0% 6.4% 0.8 1.3U.S. Income Policy BenchmarK -5.1% 4.3% 4.9% 3.0% 5.7% 0.5 0.0Value Added 0.2% 1.4% 0.5% 1.0% 0.7%
Non-U.S. Income 5.7 -8.4% 2.9% -3.0% -2.3% 3.0% -0.3 0.8Non-US Income Policy Benchmark -8.6% 2.6% -3.7% -2.9% 2.0% -0.4 0.0Value Added 0.2% 0.3% 0.7% 0.6% 1.0%
Item 7a, Attachment 1, Page 42 of 62
42
Income – Rolling Excess Returns
Item 7a, Attachment 1, Page 43 of 62
43
Income – Rolling Tracking Error
Item 7a, Attachment 1, Page 44 of 62
44
US Income – Rolling Excess Returns
Item 7a, Attachment 1, Page 45 of 62
45
US Income – Rolling Tracking Error
Item 7a, Attachment 1, Page 46 of 62
46
International Income – Rolling Excess Returns
Item 7a, Attachment 1, Page 47 of 62
47
International Income – Rolling Tracking Error
Item 7a, Attachment 1, Page 48 of 62
48
Real Assets
Data sources: Wilshire Compass, National Council of Real Estate Investment Fiduciaries
December 31, 2016 Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr
Barclays U.S. TIPS Index -2.4 4.7 4.7 2.3 0.9 4.4Bloomberg Commodity Index 2.7 11.8 11.8 -11.3 -9.0 -5.6Wilshire Global RESI Index -3.9 5.8 5.8 9.0 11.2 3.2NCREIF ODCE Fund Index 2.1 8.7 8.7 12.0 12.2 5.8NCREIF Timberland Index 1.2 2.6 2.6 6.0 7.1 5.8Alerian MLP Index (Oil & Gas) 2.0 18.3 18.3 -5.8 2.2 8.0
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Cu
rren
t Y
ield
Cu
rren
t C
ap
Rate
Real Estate Valuation
NPI Current Value Cap Rate Wilshire RESI Current Yield 10-Year Treasury Yield
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
Retu
rn
(%
)
NCREIF ODCE Fund Index Return
Appreciation Income Total Return
Item 7a, Attachment 1, Page 49 of 62
49
Inflation – Performance
Market Value Qtr 1-Year 3-Year 5-Year 10-Year VaR
5-year Sharpe Ratio
5-year Info Ratio
INFLATION 28.7 -1.6% 6.3% -3.7% -2.2% -.-% $2.0 bil -0.3 0.2Inflation Policy Benchmark -1.6% 6.3% -4.5% -2.5% -.-% -0.4 0.0Value Added 0.0% 0.0% 0.8% 0.3% -.-%
Internal Commodities 5.3 5.8% 10.9% -20.4% -13.3% -.-%GSCI Total Return Index 5.8% 11.4% -20.6% -13.1% -.-%Value Added 0.0% -0.5% 0.2% -0.2% -.-%
Core Inflation Linked Bonds 18.9 -4.3% 4.0% 1.2% 1.1% -.-%Custom Benchmark -4.2% 4.2% 0.8% 0.9% -.-%Value Added -0.1% -0.2% 0.4% 0.2% -.-%
Tactical Commodities 2.5 7.9% 9.8% -20.9% -.-% -.-%GSCI Total Return Index 5.8% 11.4% -20.6% -.-% -.-%Value Added 2.1% -1.6% -0.3% -.-% -.-%
Tactical TIPS 2.0 -2.4% 4.3% 2.1% -.-% -.-%CalPERS TIPS -2.4% 4.7% 2.3% -.-% -.-%Value Added 0.0% -0.4% -0.2% -.-% -.-%
Item 7a, Attachment 1, Page 50 of 62
50
Inflation – Rolling Excess Returns
Item 7a, Attachment 1, Page 51 of 62
51
Inflation – Rolling Tracking Error
Item 7a, Attachment 1, Page 52 of 62
Private Real Estate – Fundraising Activity
52 Source: Preqin, as of December 31, 2016.
1,632
754
410 234
596
252 160
52 0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
North America Europe Asia Rest of World
No. of Funds Closed Aggregate Capital Raised ($bn)
Global Quarterly Closed-End Private Real Estate Fundraising (2010 – 2016)
0
20
40
60
80
100
120
$0$5
$10$15$20$25$30$35$40$45
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011 2012 2013 2014 2015 2016
Num
ber o
f Fun
ds
Cap
ital R
aise
d ($
bn)
Aggregate Capital Raised (bn USD) No. of Funds
Closed-End Private Real Estate Fundraising by Primary Geographic Focus (2006 - 2016)
Item 7a, Attachment 1, Page 53 of 62
53
Commercial Property (as of Q3 2016)
Source: CB Richard Ellis
Office Retail
Industrial Apartment
Item 7a, Attachment 1, Page 54 of 62
Unlisted Infrastructure – Fundraising & Investment Activity
54 Source: Preqin, as of December 31, 2016.
Global Quarterly Unlisted Infrastructure Fundraising (2010 - 2016)
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011 2012 2013 2014 2015 2016
No.
of F
unds
Cap
ital R
aise
d ($
bn)
Aggregate Capital Raised (bn USD) No. of Funds
Unlisted Infrastructure Fundraising by Primary Geographic Focus (2006 - 2016)
153
204
138
106
188
116
50 36
0
50
100
150
200
250
North America Europe Asia Rest of World
No. of Funds Closed Aggregate Capital Raised ($bn)
Item 7a, Attachment 1, Page 55 of 62
55
Timber
Source: Forest Investment Associates
Item 7a, Attachment 1, Page 56 of 62
56
Real Assets – Performance
Market Value Qtr 1-Year 3-Year 5-Year 10-Year VaR
5-year Sharpe Ratio
5-year Info Ratio
REAL ASSETS 33.0 1.9% 5.8% 10.8% 11.3% -0.8% $4.8 bil 1.6 0.1Real Assets Policy Benchmark 1.7% 8.3% 10.6% 10.7% 7.4% 2.6 0.0Value Added 0.2% -2.5% 0.2% 0.6% -8.2%
Real Estate 27.9 1.8% 6.8% 11.7% 12.5% -1.2% $4.5 bil 1.6 0.1Real Estate Policy Benchmark 1.8% 9.1% 11.4% 11.6% 8.3% 2.5 0.0Value Added 0.0% -2.3% 0.3% 0.9% -9.5%
Forestland 2.0 0.4% -9.4% -2.1% -1.8% -.-%NCREIF Timberland Index 0.7% 3.3% 7.6% 6.9% -.-%Value Added -0.3% -12.7% -9.7% -8.7% -.-%
Infrastructure 3.1 4.0% 8.3% 14.0% 12.0% -.-%CPI + 400 BPS 1Qtr Lag 1.2% 5.5% 5.1% 5.3% -.-%Value Added 2.8% 2.8% 8.9% 6.7% -.-%
Item 7a, Attachment 1, Page 57 of 62
57
Real Assets – Rolling Excess Returns
Item 7a, Attachment 1, Page 58 of 62
58
Real Assets – Rolling Tracking Error
Item 7a, Attachment 1, Page 59 of 62
59
Real Estate – Rolling Excess Returns
Item 7a, Attachment 1, Page 60 of 62
60
Real Estate – Rolling Tracking Error
Item 7a, Attachment 1, Page 61 of 62
61
Hedge Fund Performance
Data sources: Wilshire Compass
December 31, 2016 Qtr Ytd 1 Yr 3 Yr 5 Yr 10 Yr
DJ CS Hedge Fund Index 1.2 1.2 1.2 1.5 4.3 3.8Event Driven Index 2.3 2.7 2.7 -0.8 4.5 3.7Global Macro Index 4.6 3.6 3.6 2.3 3.1 5.8Long/Short Equity Index -0.2 -3.4 -3.4 1.8 6.1 4.0Multi-Strategy Index 1.2 4.4 4.4 4.8 7.3 5.2
Wilshire 5000 4.5 13.4 13.4 8.8 14.7 7.2MSCI ACWI ex-US ($g) -1.2 5.0 5.0 -1.3 5.5 1.4Barclays Aggregate Bond Index -3.0 2.6 2.6 3.0 2.2 4.3Dow Jones UBS Commodity Index 2.7 11.8 11.8 -11.3 -9.0 -5.6
DJ CS Hedge Fund
Index
Wilshire 5000 Index
Barclays Aggregate
Bond Index
Dow Jones UBS
Commodity Index
MSCI ACWI ex-US
($g)
0.41
0.38
1.03
(0.31)
0.03
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%
An
nu
alized
Retu
rn
Annualized Risk
Hedge Fund 10-Year Risk/Return
Note: Sharpe Ratio included to the left of each marker.
Item 7a, Attachment 1, Page 62 of 62
62
ARS – Distribution of Performance
Market Value Qtr 1-Year 3-Year 5-Year 10-Year
5-Year Info
Ratio
5-Year Up Capture
Ratio
5-Year Sharpe Ratio
5-Year Sortino Ratio
Absolute Return Strategies 0.3 -3.5% -6.5% 0.0% 2.4% 1.8% -0.7 0.4 0.6 0.8ARS Policy Benchmark 1.3% 5.8% 5.4% 5.3% 6.5%Value Added -4.8% -12.3% -5.4% -2.9% -4.7%
Total Direct Investments 0.3 -3.5% -6.2% 0.0% 2.4% 2.1%
Total Funds of Funds 0.0 -6.4% -14.1% 0.5% 2.7% 1.3%
HFRI Fund of Funds Index 0.6% -0.4% 3.9% 2.1% 2.3%