UCRP and GEP Quarterly Investment Risk Report · 2019-10-03 · 002 2 003 2 00 4 2 005 2 006 2 00 7...

Office of the Treasurer of The Regents

University of California

UCRP and GEPQuarterly Investment Risk Report Quarterly Investment Risk Report

Committee on Investments/ I t t Ad i GInvestment Advisory GroupQuarter ending March 2010

May 17, 2010

Contents

UCRP GEP• Asset allocation history 5 17

– What are the fund’s asset exposures?• Asset allocation current position and risk contributions 6 18

– How do they compare to policy targets?• Capital markets expectations for return 7 19

– What is the probability the fund will achieveWhat is the probability the fund will achieveits required return?

– Is the amount of risk required acceptable?• Historical Funded Status 8 NA• Forecast Funded Status 9 NA• Forecast Funded Status 9 NA

– What is the probability the fund will be ableto meet future obligations(with and without additional contributions)?

• Historical standard deviation of returns vs benchmark 10 20• Historical standard deviation of returns vs. benchmark 10 20• Historical standard deviation of active return 11 21

– What is fund’s realized volatility?– How does it compare with the policy benchmark and risk budgets?

UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 2University of California


Contents continued

UCRP GEP• Systematic vs. residual risk contribution 12 22• Asset allocation vs. selection risk contribution 12 22

– What are the sources of volatility?What are the sources of volatility?– What factors drive performance?

Is the fund adequately diversified?• Sharpe ratio (total risk) 13 23• Information ratio (active risk) 14 24( )

– Are risk exposures being rewarded?– Historical risk adjusted returns

• Performance Attribution 15 25– What are the sources of active return?– Asset allocation versus security selection– Which asset classes?



Risk Metrics for UCRPRisk Metrics for UCRP



Asset Allocation

• Total Risk is largely related to the allocation between equity and bonds• The portfolio’s exposures were similar to the benchmark during Q1 2010

UCRP ASSET ALLOCATION (%)

60%

70%

80%

2.0%

4.0%

6.0%

s)s)

UCRP ASSET ALLOCATION (%)

40%

50%

-4.0%

-2.0%

0.0%

xpos

ures

(lin

es

Exp

osur

e (b

ars

10%

20%

30%

-10.0%

-8.0%

-6.0%

Tota

l E

Act

ive

0%-12.0%

Ma

r-05

Sep

-05

Ma

r-06

Sep

-06

Ma

r-07

Sep

-07

Ma

r-08

Sep

-08

Ma

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Sep

-09

Ma

r-10



Public Equity Over/ (Under) Public Equity U.S. Equity Non-U.S. Equity

Asset Allocation and RiskNote: Exposures and Risk charts below are shown using June 1 2009 target asset weightsNote: Exposures and Risk charts below are shown using June 1, 2009, target asset weights.Systematic risk is estimated using long term forecasts [from Mercer Investment Consulting, March 2009], not recent realized volatility.

(Lower Left) Asset weights are measured relative to Current Policy. The fund has an overweight in Absolute Return, and an underweight in TIPS and Real Estate.g

(Lower Right)• The fund’s forecast total systematic risk (blue bars) is up slightly at 12.55% annualized standard deviation. It is heavily weighted to US and Non-US developed equity (73% of total). • Forecast active systematic risk is up slightly at 39 bp. The Real Estate underweight and Absolute Return overweight accounted for almost 90% of this amount (yellow bars)

60

70

UCRP Forecast Contrib. to Systematic Risk at Mar 2010

Return overweight accounted for almost 90% of this amount (yellow bars).

2

2.5

UCRP Asset Exposures vs. Policy as of Mar 2010

10

20

30

40

50

60

Perc

en

t-0.5

0

0.5

1

1.5

2

Perc

ent

-10

0

US Equity

Int'l Dev.

Equity

Emg Mkt

Equity

Global Equity

US Fixed Inc.

US High Yield

Emg Mkt Debt

TIPS Cash Private RE

Private Equity

Hedge Funds

-2

-1.5

-1

US

Equi

ty

No

n U

S Eq

mg

Mkt

Eq

ba

l Eq

uity

ate

Eq

uity

US

Bond

s

Hig

h Yi

eld

n U

S Fi

xed

EM D

eb

t

TIPS

ea

l Est

ate

Ab

s Re

t

Ca

sh



Contrib. to Total Risk Contrib. to Active Risk

N

Em

Glo

b

Priv

a H

No

n Re

Active vs. Current Policy

Expected Risk and Return

Forecast risk and return (using Mercer’s April 2009 capital markets assumptions) lies near the constrained efficient frontier; long-term forecast return of 8.1%* is close to the actuarially required return of 7.5%. [Note: Mercer January 2010 capital mkt. assumptions largely unchanged]

*A t Cl t

12

14

n

2009 Capital Market AssumptionsRisk and Expected Return with Constrained Efficient Frontier

*Asset Class returns and efficient frontiers are shown in the chart as arithmetic (i.e.,

4

6

8

10

xpec

ted

Retu

rn

(average) expected returns.

The projected compound annual

-

2

- 5 10 15 20 25 30

Ex

Risk (Standard Deviation)

compound annual return over multi-year horizon is 8.1% for the Current Policy weights.

US Equity Int'l Dev. Equity Emg Mkt EquityGlobal Equity US Fixed Inc. US High YieldInt'l Fixed Inc. Emg Mkt Debt TIPSCash Private RE Private EquityHedge Funds UCRP Long-Term UCRP Current PolicyEffic. Frontier

Forecast volatility is 12.4%.



Historical Funded StatusThe Pension Fund’s liabilities have been growing The Pension Fund s liabilities have been growing steadily (upper left) with University employment, while the assets have grown (and fallen) with the equity markets. The ratio of actives to retirees has recently fallen from 3x to 2x (lower left).

UCRP ASSETS, LIABILITIES, and SURPLUS ($B)

20

30405060

The Funded Ratio (= the ratio of assets to liabilities), is an overall metric of the financial health of a pension plan. This ratio has fluctuated considerably over the past (lower right) and has

(10)-10

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Surplus (Smoothed) Assets (Smoothed) considerably over the past (lower right), and has recently fallen below 100% with the bear market of 2007-09

Surplus (Smoothed) Assets (Smoothed)Liabilities (AAL) Assets (Market)

Pension Membership (LHS) and Active/Retiree Ratio (RHS)140,000 7

UCRP FUNDED RATIOS200%

60,000

80,000

100,000

120,000

3

4

5

6

100%

125%

150%

175%

-

20,000

40,000

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

-

1

2

50%

75%

%

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009



Active Members Retired Members Ratio: Active/Retired Funded Ratio (smoothed) Funded Ratio (Market)

Forecast Funded Status

• Contributions were suspended in 1990, but annual benefit payments have grown in line with and recently exceeded, Normal Cost over the last decade (upper left).

UCRP Cash Flows (Contributions, Benefit Payments) vs. Normal Cost ($ Billion)

1 251.501.752.002.25

( pp )• The bottom two charts show projected

funded ratio without and with contributions, assuming a -19% return for FY 2009 and aconstant 7.5% investment return beginning FY 2010 (For this example contributions

-0.250.500.751.001.25

988

989

990

991

992

993

994

995

996

997

998

999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009 FY 2010. (For this example, contributions

were set to be equal to forecast Normal Cost, beginning FY 2011.)

•LEFT: Assumes no contributions, 7.5% annual investment

UC Pension Projections (Treasurer's Office)120%

UC Pension Projections (Treasurer's Office)120%

1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2

Total Outflows (ex-Labs) Total Inflows Normal Cost

annual investment return after FY 2009•RIGHT: Assumes Normal Cost contributed annually beginning FY 2011; 7 5% return

40%

60%

80%

100%Fu

nded

Rat

io

40%

60%

80%

100%

Fund

ed R

atio

FY 2011; 7.5% return after FY 2009•These projections are approximations only, developed by Treasurer’s Office, not Segal Co

0%

20%

2008

2009

2010

2011

2012

2013

2014

2015

2016

F

Funded Ratio (Smoothed)

0%

20%

2008

2009

2010

2011

2012

2013

2014

2015

2016

F

Funded Ratio (Smoothed)



not Segal Co.Funded Ratio (Market Val)Funded Ratio (Market Val)

Risk Measures: Total

Total risk trend quite similar to benchmark; recently Plan volatility has been slightly less than the Budget, but well within ranges. Total volatility has resumed a historically normal range higher than the mid 2000’s

25

30

UCRP Total Risk, Total Risk Budget, and Ranges

normal range, higher than the mid 2000 s but lower than the 2008-09 crash.

5

10

15

20

Total Risk budget equals Benchmark risk plus the Active risk budget. The ranges are +/- 20% around the budget

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25

30 UCRP Total Risk, Total Risk Budget, and Ranges

around the budget.

Risk is measured by standard deviation of monthly total returns; each point or bar shows a

Pension Total Risk Total Risk Budget

Lower Range: - 20% Upper Range: + 20%

5

10

15

20

monthly total returns; each point or bar shows a 12 month measurement period. All risk calculations done using exponentially declining weights. (This and following charts show risk budgets as if they had been in place during

ti hi t i l i d )

-

5

Ma

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y-09

Jun-

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Pension Total Risk Total Risk Budget



entire historical period.) Lower Range: - 20% Upper Range: + 20%

Risk Measures: Active

Until 2009, active risk for the total fund has held steady at 0.50% annualized standard deviation. The spike up in Q1 09 resulted from the underweight in equity as the market fell and then rallied Active risk has resumed its 3.50

4.00

4.50

5.00

UCRP Active Risk, Active Risk Budget, and Ranges

and then rallied. Active risk has resumed its low level of the mid 2000’s, but is still well below long term expectations for active return, and is well diversified.

0 50

1.00

1.50

2.00

2.50

3.00

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0.50

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Pension Tracking Error Tracking Error Budget 3.5

4.0

4.5

5.0

UCRP Active Risk, Active Risk Budget, and Ranges


1.0

1.5

2.0

2.5

3.0

The Active risk budget is 3% annualized Tracking Error (adjusted for market volatility), with ranges of +/- 1 pct. point around Budget

Risk is measured by standard deviation of monthly active returns; each point or bar shows a 12 month measurement period. All risk calculations done using exponentially

-

0.5

Ma

r-09

Ap

r-09

Ma

y-09

Jun-

09

Jul-0

9

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Sep

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Jan-

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Ma

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Pension Tracking Error Tracking Error Budget

with ranges of / 1 pct. point around Budget



risk calculations done using exponentially declining weights. Lower Range: - 33% Upper Range: + 33%

Risk Attribution

(Upper Left) Almost all of Total Risk is attributed to systematic (market) factors.

(Lower Right) Normally, the majority of Active Risk is attributed to security selection.

70%

80%

90%

100%

UCRP - Components of Total Risk

yWhen active management is reduced, or when asset allocation transitions are implemented, allocation risk increases. In the last 12 months, the equity over / underweight dominated all other decisions.30%

40%

50%

60%

70%

g

0%

10%

20%

ar-0

5

ep-0

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ar-0

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ep-0

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ar-0

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ep-0

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ar-0

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ep-0

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ar-0

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ep-0

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ar-1

0

90%

110%

UCRP - Components of Active Risk

Risk is measured here by variance (standard deviation squared) of monthly returns; each

M Se M Se M Se M Se M Se MSystematic Risk % Residual Risk %

30%

50%

70%

deviation squared) of monthly returns; each bar shows a 12 month measurement period

Systematic Risk is associated with benchmark exposures; residual risk is associated with non benchmark decisions (security selection)

-10%

10%

Mar

-05

Sep-

05

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10



benchmark decisions (security selection)Resid Risk Contrib Alloc Risk Contrib

Risk Adjusted Return: Total

Sharpe Ratio (risk adjusted total return) trend has been quite similar to the benchmark for the past 5 years. The 12 month return on risky assets has finally 2.0

3.0

4.0

UCRP and Benchmark Sharpe Ratio

y yturned positive as the March 2009 rally continues.

(1.0)

-

1.0

3 5

UCRP and Benchmark Sharpe Ratio

(3.0)

(2.0)

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1.0 1.5 2.0 2.5 3.0 3.5

Sharpe ratio is “excess” return (total return less risk-free rate) divided by total risk; each point or

Pension Benchmark

(2.0)(1.5)(1.0)(0.5)

-0.5

9 9 9 9 9 9 9 9 9 0 0 0) y pbar shows a 12 month measurement period. All risk calculations done using exponentially declining weights.

Ma

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Pension Benchmark



Risk Adjusted Return: Active

Information ratio (risk adjusted active return) is the result of both asset weighting decisions and active performance. It is higher when the returns are positive and more consistent (less volatile) The Info ratio at quarter end 70%

80%

90%

100%

2.0

3.0

Pension Information Ratio and Significance Level

(less volatile). The Info. ratio at quarter end was positive; from the graph below, active returns for the past nine months have been small but positive.

30%

40%

50%

60%

70%

(1.0)

-

1.0

Sign

ifica

nce

Leve

l

Info

Rat

io

0%

10%

20%

(3.0)

(2.0)

Ma

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ep-0

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6

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ep-0

7

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ep-0

8

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ep-0

9

Ma

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0.50

1.00

1.50

UCRP Active Return & Active Risk Budget [Monthly]

Information ratio is active return (total return less benchmark) divided by active risk; each point

M S M S M S M S M S M

Last 12 Mo Signif. Level Last 12 Mo Info Ratio

(1.00)

(0.50)

-

benchmark) divided by active risk; each point shows a 12 month measurement period. The Significance level is the probability that results are due to skill, with 50% being a neutral measure. All risk calculations done using

ti ll d li i i ht

(1.50)

Ma

r-05

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UCRP Active Return - Risk Budget + Risk Budget



exponentially declining weights. Lower Range: - 33% Upper Range: + 33%

A ti R t f th Q t 0 23% (F d

Performance Attribution

Active Return for the Quarter was +0.23% (Fund return of 3.16% vs policy benchmark of 2.92%). [BELOW] Asset allocation decisions (blue bars) added 0.14% (primarily the underweight in Real Estate) and S it l ti ( d b ) d i i dd d 0 09%

US EquityNon-US EquityEmg Mkt Equity

Global Equity

Avg. Active Weight

Security selection (red bars) decisions added 0.09% (primarily Absolute Return)

UCRP Attribution for 3 mo. ending Mar-31-10

q yPrivate Equity

Core BondsHigh Yield Debt

Emg Mkt DebtTIPS

Real EstateAbs Ret

US EquityNon-US Equity

Emg Mkt EquityGlobal EquityP i t E it

(2.0) (1.0) - 1.0 2.0

Abs RetCash

Avg. Active ReturnPrivate Equity


Emg Mkt DebtTIPS

Real Estate


Emg Mkt EquityGlobal Equity

Private EquityCore Bonds

-0.05 0 0.05 0.1 0.15 0.2 0.25 0.3

Abs RetCash

TOTAL


Emg Mkt DebtTIPS

Real EstateAbs Ret

Cash



Allocation Selection Total Impact(1.0) - 1.0 2.0 3.0

Risk Metrics for GEPRisk Metrics for GEP



Asset Allocation

• Total Risk is largely related to the allocation between equity and bonds• Total equity remained slightly overweight at the end of Q1 2010

70%8 0%GEP ASSET ALLOCATION (%)

50%

60%

70%

2 0%

4.0%

6.0%

8.0%

nes)

bars

)

30%

40%

4 0%

-2.0%

0.0%

2.0%

Expo

sure

s (li

n

Exp

osur

e (b

10%

20%

-8.0%

-6.0%

-4.0%

Tota

l E

Act

ive

0%-10.0%

Mar

-05

Sep-

05

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10



Public Equity Over/ (Under) Public Equity U.S. Equity Non-U.S. Equity

Asset Allocation and RiskNote: Exposures and Risk charts below are shown using October 1 2008 target asset weights Note: Exposures and Risk charts below are shown using October 1, 2008 target asset weights. Systematic risk is estimated using long term forecasts [from Mercer Investment Consulting, March 2009], not recent realized volatility.

(Lower Left) Asset weights are measured relative to Current Policy. The fund is overweight in US Equity and Absolute Return, and underweight in Real Estate and TIPS.q y g(Lower Right) The fund’s forecast total systematic risk (blue bars) is unchanged at 12.2% annualized standard deviation. It is evenly balanced among US equity, Non US developed equity, and Absolute Return (over 75% of total). Forecast active systematic risk is unchanged at 48 bp. The R.E. underweight and Absolute Return overweight accounted for almost 80% of this amount (yellow bars).

40

50

60

GEP Forecast Contrib. to Systematic Risk at Mar 2010

this amount (yellow bars).

1.52

2.5

GEP Asset Exposures vs. Policy as of Mar 2010

(10)

-

10

20

30

Perc

ent

-1.5-1

-0.50

0.51

1.5

Perc

ent

US Equity

Int'l Dev.

Equity

Emg Mkt

Equity

Global Equity

US Fixed Inc.

US High Yield

Int'l Fixed Inc.

Emg Mkt Debt

TIPS Cash Private RE

Private Equity

Hedge Funds

Contrib. to Total Risk Contrib. to Active Risk

-2.5-2

US E

quity

Non

US

Eq

Emg

Mkt

Eq

Glo

bal E

quity

Priv

ate

Equi

ty

US B

onds

High

Yie

ld

Non

US

Fixed

EM D

ebt

TIPS

Real

Est

ate

Abs

Ret

Cas

h

Active vs. Current Policy



Expected Risk and Return

Forecast risk and return (using Mercer’s April 2009 capital markets assumptions) lies near the constrained efficient frontier; forecast return of 8.3%* is close to the nominal return needed to maintain a constant real payout per student (estimated at 8.5%) [Note: Mercer January 2010 capital mkt. assumptions largely unchanged]

* Asset Class

10

12

14

rn

2009 Capital Market AssumptionsRisk and Expected Return with Constrained Efficient Frontier

returns and Efficient frontiers are shown in the chart as arithmetic

2

4

6

8

10

xpec

ted

Retu

r arithmetic (average) expected returns.

Th j t d -

- 5 10 15 20 25 30

Ex

Risk (Standard Deviation)

The projected compound annual return over multi year horizon is 8.3%

US Equity Int'l Dev. Equity Emg Mkt Equity Global Equity

US Fixed Inc. US High Yield Int'l Fixed Inc. Emg Mkt Debt

TIPS Cash Private RE Private Equity

Hedge Funds GEP Long-Term GEP Current Policy Effic. Frontier

for the Current Policy weights.

Forecast volatility is 12 0%



is 12.0%.

Risk Measures: Total

Total risk trend has been quite similar to benchmark; GEP volatility is quite close to its Budget.Total volatility has resumed a historically normal range, higher than the mid 2000’s but lower than the 2008 09 crash

20

25

GEP Total Risk, Total Risk Budget, and Ranges

2008-09 crash.

Total Risk budget equals Benchmark risk plus the Active risk budget. The ranges are +/- 20% around the budget

5

10

15

around the budget.-

Ma

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Endowment Total Risk Total Risk Budget 20

25 GEP Total Risk, Total Risk Budget, and Ranges

Risk is measured by standard deviation of monthly total returns; each point or bar


5

10

15

y pshows a 12 month measurement period.All risk calculations done using exponentially declining weights. (Charts show risk budgets as if they had been in place during entire historical period )

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Endowment Total Risk Total Risk Budget



historical period.)Lower Range: - 20% Upper Range: + 20%

Risk Measures: Active

Active risk for the total fund has grown slowly over this period from 0.50% to 1.50% annualized standard deviation, up until the 2008 crash.

3 00 3.50 4.00 4.50 5.00

GEP Active Risk, Active Risk Budget, and Ranges

Active risk has resumed its low level of the mid 2000’s, but is still well below long-term expectations for active return, and is well diversified.

0.50 1.00 1.50 2.00 2.50 3.00

-

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Endow. Tracking Error Tracking Error Budget

Lower Range: - 33% Upper Range: + 33% 4.0 4.5 5.0

GEP Active Risk, Active Risk Budget, and Ranges

The Active risk budget is 3.0% annualized Tracking Error (adj. for market volatility), with ranges of +/- 1 pct. point around Budget

Lower Range: 33% Upper Range: + 33%

1.0 1.5 2.0 2.5 3.0 3.5 4.0

Risk is measured by standard deviation of monthly active returns; each point or bar shows a 12 month measurement period. All risk calculations done using exponentially declining weights

-0.5

Ma

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Endow. Tracking Error Tracking Error Budget



using exponentially declining weights. Lower Range: - 33% Upper Range: + 33%

Risk Attribution (Upper Left) Almost all of Total Risk is attributed to systematic (market) factors. ( i ht) ll th j it f (Lower Right) Normally, the majority of Active Risk is attributed to security selection. When asset allocation transitions are implemented, allocation risk tends to dominate In the last 6 months the equity

80%

90%

100%

GEP - Components of Total Risk

dominate. In the last 6 months, the equity overweight dominated all other active decisions.

30%

40%

50%

60%

70%

0%

10%

20%

30%

r-05

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90%100%110%

GEP - Components of Active Risk

Risk is measured here by variance (standard

Ma

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Sep

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r-

Sep

Ma

r-

Sep

Ma

r-

Sep

Ma

r-

Sep

Ma

r-Systematic Risk % Residual Risk %

30%40%50%60%70%80%

y (deviation squared) of monthly returns; each bar shows a 12 month measurement periodSystematic risk is associated with benchmark exposures; residual risk is associated with non benchmark decisions (security selection)

-10%0%

10%20%

Mar

-05

Sep-

05

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

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Mar

-09

Sep-

09

Mar

-10



benchmark decisions (security selection)Resid Risk Contrib Alloc Risk Contrib

Risk Adjusted Return: Total

Sharpe Ratio (risk adjusted total return) trend has been quite similar to the benchmark for the past 5 years 2.0

3.0

4.0

GEP and Benchmark Sharpe Ratio

the benchmark for the past 5 years. The 12 month return on risky assets has finally turned positive as the March rally continues.

(2.0)

(1.0)

-

1.0

(3.0)

Ma

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Sep

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Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Endowment Benchmark 4.0

GEP and Benchmark Sharpe Ratio

Sharpe ratio is “excess” return (total return less risk-free rate) divided by total risk; each point or bar shows a 12 month measurement period. All -

1.0

2.0

3.0

bar shows a 12 month measurement period. All risk calculations done using exponentially declining weights. (2.0)

(1.0)

Ma

r-09

Ap

r-09

Ma

y-09

Jun-

09

Jul-0

9

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

Jan-

10

Feb

-10

Ma

r-10



Endowment Benchmark

I f ti ti ( i k dj t d ti t )

Risk Adjusted Return: ActiveInformation ratio (risk adjusted active return) is the result of both asset weighting decisions and active equity and bond performance. It is higher when the returns are more consistent (less volatile). The active return

70%

80%

90%

100%

2.0

3.0

Endowment Information Ratio and Significance Level

( )has recently turned positive (see graph below), while active risk is decreasing (see page 20). In the last two quarters, both allocation and selection decisions have been positive

30%

40%

50%

60%

70%

(1.0)

-

1.0

Sign

ifica

nce

Leve

l

Info

Rat

io

been positive.

0%

10%

20%

(3.0)

(2.0)

Ma

r-05

Sep

-05

Ma

r-06

Sep

-06

Ma

r-07

Sep

-07

Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

S

1.50

GEP Active Return & Active Risk Budget [Monthly]

Information ratio is active return (total return less benchmark) divided by active risk; each point

M S M S M S M S M S MLast 12 Mo Signif. Level Last 12 Mo Info Ratio

(1 00)

(0.50)

-

0.50

1.00

benchmark) divided by active risk; each point shows a 12 month measurement period. The Significance level is the probability that results are due to skill, with 50% being a neutral measure. All risk calculations done using exponentially declining weights

(2.00)

(1.50)

(1.00)

Ma

r-05

Sep

-05

Ma

r-06

Sep

-06

Ma

r-07

Sep

-07

Ma

r-08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10



exponentially declining weights.GEP Active Return - Risk Budget + Risk Budget


A ti R t f th Q t 0 68% (F d t f

Performance Attribution

Active Return for the Quarter was +0.68% (Fund return of 2.64% vs policy benchmark of 1.96%). [BELOW] Asset allocation decisions (red bars) added 0.24% (primarily the overweight in US Equity and the underweight in Real Estate) and Security selection decisions (orange bars)



Private Equity

Avg. Active Weight

) y ( g )added 0.44% (primarily Absolute Return Strategies)

q yCore Bonds

High Yield DebtEmg Mkt Debt

Non USD DebtTIPS

Real EstateAbs Ret

CashGEP Attribution for 3 mo. ending Mar-31-10

Avg. Active Return

(4.0) (2.0) - 2.0 4.0

Cash


Emg Mkt EquityGlobal EquityPrivate Equity



Private EquityCore Bonds


q yCore Bonds


Non USD DebtTIPS

Real Estate

(1.0) - 1.0 2.0 3.0

Emg Mkt DebtNon USD Debt

TIPSReal Estate

Abs RetCash -0.2 0 0.2 0.4 0.6 0.8

Abs RetCash

TOTAL

Allocation Selection Total Impact



Allocation Selection Total Impact

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