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l 2021
Investment Management
Teacher Retirement System of Texas 1 0 0 0 R e d R i v e r S t r e e t A u s t i n , T e x a s 7 8 7 0 1 - 2 6 9 8
NOTE: The Board of Trustees (Board) of the Teacher Retirement System of Texas will not consider or act
upon any item before the Investment Management Committee (Committee) at this meeting of the Committee.
This meeting is not a regular meeting of the Board. However, because the full Committee constitutes a
quorum of the Board, the meeting of the Committee is also being posted as a meeting of the Board out of an
abundance of caution.
TEACHER RETIREMENT SYSTEM OF TEXAS MEETING
BOARD OF TRUSTEES
AND
INVESTMENT MANAGEMENT COMMITTEE
(Committee Chair and Members: Mr. Corpus, Chair; Mr. Hollingsworth; Mr. Moss, Ms.
Sissney and Mr. Walls, Jr.)
All or part of the July 15, 2021, meeting of the TRS Investment Management Committee
and Board of Trustees may be held by telephone or video conference call as authorized
under Sections 551.130 and 551.127 of the Texas Government Code. The Board intends to
have a quorum and the presiding officer of the meeting physically present at the following
location, which will be open to the public during the open portions of the meeting: 1000
Red River, Austin, Texas 78701 in the TRS East Building, 5th Floor, Boardroom. This
meeting will be conducted in accordance with the Governor’s authorization concerning
suspension of certain open meeting law requirements in response to the COVID-19
(Coronavirus) Disaster.
The open portions of the July 15, 2021, meeting are being broadcast over the Internet.
Access to the Internet broadcast and agenda materials of the meeting is provided
at www.trs.texas.gov. A recording of the meeting will be available at www.trs.texas.gov.
AGENDA
July 15, 2021 – 11:00 a.m.
TRS East Building, 5th Floor, Boardroom
1. Call roll of Committee members.
2. Consider the approval of the proposed minutes of the April 2021 committee
meeting – Committee Chair.
3. CIO Update including Fleet Strategy; Talent Management; Accomplishments;
Notices; Awards; and Key Dates and Upcoming Events – Jase Auby
4. First Quarter 2021 Performance Review – Mike McCormick, AON.
5. Annual Update on External Private Markets – Eric Lang, Carolyn Hansard, Neil
Randall, and Grant Walker.
2
6. Review of Proposed Amendments to Investment Policy Statement– Katy Hoffman
and Neil Randall.
1
Minutes of the Investment Management Committee April 14, 2021 The Investment Management Committee of the Board of Trustees of the Teacher Retirement System of Texas met on Wednesday April 14, 2021, by videoconference in accordance with the Governor’s authorization concerning suspension of certain Open Meeting law requirements in response to the COVID-19 (Coronavirus) disaster.
Committee members who participated by videoconference: Mr. David Corpus, Chair Mr. Jarvis Hollingsworth Mr. Christopher Moss Mrs. Nanette Sissney Mr. Robert H. Walls, Jr. Other TRS Board Members who participated by videoconference: Mr. Mike Ball Mr. John Elliott Mr. James D. Nance Others present: Brian Guthrie, TRS Andrew Roth, TRS Heather Traeger, TRS Jase Auby, TRS Katy Hoffman, TRS James Nield, TRS Stephen Kim, TRS Dale West, TRS Brad Gilbert, TRS J.B. Daumerie, TRS Katherine Farrell, TRS Suzanne Dugan, Cohen Milstein Dr. Keith Brown, Board Advisor Steve Voss, Aon Hewitt Mike McCormick, Aon Hewitt. Investment Management Committee Chairman, Mr. David Corpus, called the meeting to order at 1:22 p.m. 1. Call roll of Committee members.
Ms. Farrell called the roll. A quorum was present.
2. Consider the approval of the proposed minutes of the December 2020, Investment
Management Committee meeting – Chair David Corpus.
2
On a motion by Mr. Hollingsworth, seconded by Ms. Sissney, the committee voted to approve the proposed minutes for the December 2020 Investment Management Committee meeting as presented.
3. CIO Update including Fleet Strategy; Talent Management; Accomplishments; Notices and Key Dates and Upcoming Events and Market Update– Jase Auby.
Mr. Jase Auby provided an overview of IMD’s operations. He stated the Trust ended the fourth quarter with an alpha at 46 basis points and continue to see positive alpha moving into the first quarter of 2021. He said in absolute return the Trust was up 9.5 percent for the quarter, ending 2020 at an all-time high of $176.9 billion. Mr. Auby reported the fleet hiring is back on pace with 20 positions now posted across the IMD. He announced that Katy Hoffman was elected to the Council of Institutional Investors board. He also announced the Real Estate Group was named the North American Institutional Investor of the Year by the prestigious Private Equity Real Estate magazine. Mr. Auby concluded his report with a review of the standard metrics reporting page. In April he reported on the realized fee savings as part of building the fleet. He said the budget for 2020 was $80 million and the actual realized was $93 million, exceeding the budget for fee savings by $13 million.
4. Discuss the Fourth Quarter 2020 Performance Review – Steve Voss and Mike McCormick, Aon Hewitt.
Mr. Mike McCormick provided an overview of the Trust’s performance. He reported the global equity markets up 15.3 percent for the calendar year 2020 and stable value up 15.4 percent. He said there has been a huge rebound in the value stocks in the fourth quarter of 2020 as well as the beginning parts of 2021. Mr. McCormick reported for asset allocation compliance there was not any meaningful allocation differences. He said asset allocation generally was in alignment with the allocation, the internal policy target and for all intents and purposes, very much in line with the policy. Mr. McCormick reviewed the risk parity portfolio. He said what worked in the past for the portfolio and allowed it to achieve a risk level more commensurate with its target than some of its peers is the more active risk targeting that occurs within the internally=managed risk parity portfolio. However, that worked against it in the early parts of the COVID crisis. He noted volatility in equities got much higher very quickly resulting in a de-risking of the portfolio. He noted when this V-shaped recovery began there was an underperformance based on that lower equity exposure. This drove some of the 61 basis points in performance for the trailing one-year period. He said over the five year period though there is a superior return at a slightly lower level of risk compared to peers.
3
Mr. McCormick concluded by stating the actuarial assumed rate of return being seven and a quarter, the one year trailing period was up 11.6, 8.1 per year over the last three years, 9.8 per year over the last five years, and 8.5 percent every year over the last 10 years on average.
5. Annual review of Public Markets – Dale West and Brad Gilbert.
Mr. West reported on the Trust public equity and stable value hedge fund portfolios, which total over $80 billion. He said global equity is the largest part of the strategic asset allocation, global equity represented 56 percent of the Trust at the end of the year. He said a team of 54 people manages the Trust’s public equity portfolio and hedge fund programs. He noted the progress of their efforts to bring more investing activities in-house as part of the build the fleet initiative. At end of the year, 51 percent was internally managed within the equity portfolio, which has increased gradually from a low of about 36 percent.
Mr. West said despite the overall absolute return of 13.9 percent, the portfolio’s performance was a negative for the year with returns roughly two percent behind the benchmark at a total level. He noted external managers and internal fundamental portfolios had positive contributions in 2020 but were offset by large negative contributions from internal quantitative strategies.
Mr. West provided a short case study, by looking at the two strategies that have contributed net negative performance, quantitative factor strategies and internal pre-IPO. As long term investors, he said, time alone and degree of underperformance are only starting points as to the question of what is the limit of underperformance. He stated the first thing is to reevaluate the core idea behind the strategy, its rationale. Another criterion he noted was to know how external peers are doing. He said if TRS results were negative but peers were successful, it is a pretty good idea that the implementation of a particular strategy was flawed. Another key question, he said ,is the valuation for a strategy, a forward outlook. He said bottom line for the two strategies is that they are in the process of winding down the internal IPO strategy, not investing in new positions and selling existing positions as they go public. But in contrast, he believes patience will be paid for with continuing the quantitative factor strategies. In response to Mr. Hollingsworth’s inquiry, Mr. West said for the last year there have been extraordinary outcomes for the quantitative strategy on the bad side, but using a forward-looking basis, the portfolio will be balanced between quantitative and fundamental strategies going forward. He said there is no reason for major changes right now.
Mr. Brad Gilbert provided an update on the allocation to hedge funds. He referenced the changes that were implemented. First was integrating the directional hedge funds into the regional public equity portfolios and second was adding additional equity exposure to directional hedge funds. He reported the portfolio was roughly in line with policy benchmark in U.S., while non-U.S. saw strong outperformance, the aggregate was $187 million in additional value added for the Teachers.
Mr. Gilbert reported the stable value hedge funds, representing $9.1 billion in assets, focus on diversification and downside protection. He said the portfolio was launched in 2011 and last year was the largest absolute return at 9.4 percent, and its second-highest excess return at plus 291 basis points.
6. Annual Review of Public SPN – J.B. Daumerie.
4
Mr. J.B. Daumerie reviewed the performance of the public strategic partnership portfolio. He reported the partnership now in its 13th year, ended the year at $7.5 billion returning 20.1 percent in 2020. He said the portfolio generated 25 percent of the alpha of the Trust despite being only 1/25th the size of the whole Fund.
Mr. Daumerie noted that in the first quarter of 2020, the public SPN team joined the external public markets team. It has been a successful transition. He said the SPN portfolio evolves but the purpose remains the same, to contribute to the Trust’s relative return objectives and access total partner capabilities, disseminating information and resources through IMD.
7. Semiannual Risk Report – James Nield and Stephen Kim. Mr. James Nield provided the semi-annual risk report. He reviewed the eight risk metrics and noted they were in compliance. He provided greater detail regarding three of the metrics: drawdown risk; leverage and securities lending. Mr. Stephen Kim discussed the drawdown risk of the Trust which is measured by the value at risk, VaR. He reported the Trust’s VaR is currently at 6.1 percent which compares with the benchmark VaR of 5.6 percent. Mr. Kim pointed out the impact of the new strategic asset allocation (SAA) changes made a year ago. He noted one of the goals with the new SAA was to improve diversification, increase balance and reduce sensitivity of the Trust to equities. He said the new SAA is working as intended, reducing global equity contribution to risk by over 10 percent. He said one tool used to get this diversification was leverage. The Trust net asset allocation leverage has stabilized at target levels over the past year, currently at 5.2 percent. Mr. Nield concluded by providing a brief update on securities lending. He said this program has been in place for over 10 years now and earned more than half a billion dollars net of fees. He noted there has been a decline in earnings over the past three years. He said the program has decreased in size over the past year and a half in order to divert some of the assets into other programs. Another reason for the decline is the macro environment in general, interest rates remain quite low and makes it difficult to earn a premium on this portfolio. There being no more business before the Investment Management Committee, the committee adjourned at 1:30 p.m.
Approved by the Investment Management Committee of the Board of Trustees of the Teacher Retirement System of Texas on July ____, 2021.
_____________________________ _________________
Katherine H. Farrell Date
Jase Auby, Chief Investment Officer
CIO Update
July 2021
2
CIO UpdateIMD at a Glance
Priorities Our People
Snapshot as of June 2021IMD FTEs 189Shared-Services 15Contractors 22Secondees 6
Activity Phase I Phase II Phase IIIHired 31 24 0Recruiting 1 1 0Pipeline 0 6 25
32 31 25
Key Dates and Upcoming EventsEvent Location Dates
Council of Institutional Investors (CII) Fall 2021 Conference Chicago September 22-24, 2021
Strategic Partnership Network (SPN) Summits Austin November 16, 2021
• Return to Office. Finalized IMD return to office and future work from home plan. September 7th start date
• Compensation. Completed biennial base compensation study with target to set base salary changes effective October 1st
• SPN Summits. Hosted virtual public and private SPN Summits to discuss portfolio performance and market insights
• CIO Fireside Chats. Held team-level sessions to answer questions from employees and inform of key Trust priorities
• Recruiting. Actively recruiting for 17 positions across IMD due to recent increase in turnover and vacancies
• Assessing Performance. Revamped annual review process started in June
• Intern Program. Onsite internship program began June 6th
with seven candidates across Investment Operations and Public Markets
• Industry Awards.
• Real Estate Team – PERE Institutional Investor of the Year: North America
• Justin Wang, Private Equity – Private Equity International Top 40 Under 40
• Kate Rhoden, Investment Operations – TXCPA Young CPA of the Year Award 2020-2021
3
2/19/20
3/23/20
6/30/20
6/25/21
Median
12/31/21Targets
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Jan 20 Apr 20 Jul 20 Oct 20 Jan 21 Apr 21 Jul 21
S&P 500 Performance Since 12/31/2019(% Cumulative Return)
CIO UpdateMarkets are ascending higher on improved sentiment, strong earnings, and a red-hot economy
• The market continues to break records. • The S&P 500 closed at a record high (4,281) on
June 25th, 2021 • Since the trough in March 2020, the index has
risen over 95%
• Key drivers in year-to-date 2021.• Vaccine rollout. Approximately 53% of the US
population has received at least one dose; distribution in Europe is also speeding up
• Government stimulus. Additional $1.9T American Rescue Plan enacted in March
• Reopening of economy. Consensus GDP forecasts are calling for 7.0% real (10.1% nominal) growth in 2021, the fastest pace in four decades
• Earnings growth. Strong corporate earnings combined with positive surprises and upward analyst revisions
Source: Bloomberg, Our World in Data, BEA, Federal ReserveNote: Target set includes major Wall Street strategist price predictions. S&P Price targets: high: 4,600, low: 3,800, median: 4,300
S&P Price
% Change
NTM P/E
2/19/20 (Pre-COVID Peak) 3,386 N/A 19.5x3/23/20 (Trough) 2,237 -33.8% 14.0x6/30/20 (Since Trough) 3,100 39.3% 25.0x6/25/21 (Since Trough) 4,281 95.3% 22.6x
4
-80 -60 -40 -20 0 20 40 60 80
UtilitiesCons StaplesOnline Retail
HealthcareRestaurantsCons Discret
MaterialsHome Improvement
Info TechS&P 500
IndustrialsIndustrial REITS
Communication SvcsHotels, Resorts, Cruises
Office REITSAirlines
Residential REITSFinancials
Capital MarketsRetail REITS
BanksBrick and Mortar Retail
Energy
Returns before and after Pfiz er V accine Announcement(% relative to S& P 5 00, by sector/ industry)
CIO UpdateA value and pro-cyclical market trend is outpacing the growth story as the pandemic loses steam
Value-oriented and re-opening shares have outperformed their growth counterparts since vaccines were announced…
… While value vs. growth valuations continue to signal that value may still have plenty of room to run despite recent outperformance
Relative valuations remain below historical levels(forward P/ E ratios, value/ growth)
V al ue O v erv al ued
V al ue U nderv al ued
Source: Bloomberg, J P MorganN ote: Pfiz er vaccine candidate was revealed to have more than 9 0% efficacy against the CO V ID-19 virus in global trials on N ovember 9 , 2020. N ovember 6 , 2020 chosen to measure returns as the last business day prior to this announcement
11/ 9/ 2020 – 6/ 25/ 202112/ 31/ 2019 – 11/ 6/ 2020
5
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Jun 16 Jun 17 Jun 18 Jun 19 Jun 20 Jun 21
Inflation Expectations ( TIPS Breakeven, %)
5 Year Breakeven5yr5yr BreakevenFed Target
CIO UpdateAll eyes have turned to inflation ex pectations and the risk of an overheating economy
Spiking demand, constrained supply, and rising commodity and labor costs are all contributing to a surge in inflation readings…
… As the market’s expectations of near-term and longer-term inflation continue to trend higher
Source: FREDN ote: The 5 year breakeven inflation rate represents a measure of ex pected inflation derived from 5 -Y ear Treasury Constant Maturity Securities and 5 -Y ear Treasury Inflation-Index ed Constant Maturity Securities. The value implies what market participants ex pect inflation to be in the nex t 5 years (on average). The 5 year 5 year series is a measure of ex pected inflation (on average) over the five-year period that begins five years from today.
0.1% 0.2% 0.0% 0.0% 0.1%0.3%
0.9%0.7%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21
Core CPI Index ( % Change)
MoM Change YoY Change Fed Target
6
CIO UpdateMetrics Reporting – As of March 31, 2021
Metric Objective Target Q4 2020 Q1 2021
Total Trust Excess Return Return in excess of the benchmark return for the Total Trust (3 Year Rolling) +100 bp -32 bp -27 bp
Private Markets Excess Return Return in excess of the benchmark return for Private Markets investments (3 Year Rolling) +155 bp +95 bp +80 bp
Active Public Markets Excess Return
Return in excess of the benchmark return for Active Public Markets investments (3 Year Rolling) +100 bp -89 bp -90 bp
Principal Investments Percent of portfolio capital plan in principal investments approved (cumulative year-to-date)1
2020: 38%2021: 42% 38% YTD: 47%
Public Equity Allocation Percent of internal public equity allocation 45% 50% 50%
Estimated Net Fee Savings External manager annual net fee savings2
2018: $53M2019: $64M2020: $80M
2021: $105M
2018: $46M2019: $65M 2020: $93M
2021: To be reported April 2022Total: $204M
Source: State Street Bank, TRS IMD1 – Q4 represents actual capital commitments vs. approvals and actual capital plan vs. budgeted plan2 – Estimated net fee savings presented net of inception to date marginal direct and overhead costs attributed to employees hired as part of the Building the Fleet initiative. CY2020 estimated net fee savings includes any cumulative prior period adjustments.
I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y
N o t h i n g i n t h i s d o c u m e n t s h o u l d b e c o n s t r u e d a s l e g a l o r i n v e s t m e n t a d v i c e . P l e a s e c o n s u l t w i t h y o u r i n d e p e n d e n t p r o f e s s i o n a l f o r a n y s u c h a d v i c e . T o p r o t e c t t h e c o n f i d e n t i a l a n d p r o p r i e t a r y i n f o r m a t i o n i n c l u d e d i n t h i s m a t e r i a l , i t m a y n o t b e d i s c l o s e d o r p r o v i d e d t o a n y t h i r d p a r t i e s w i t h o u t t h e a p p r o v a l o f A o n .
Teacher Retirement System of TexasP e r f o r m a n c e R e v i e w : F i r s t Q u a r t e r 2 0 2 1
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 2
S u m m a r y
• G l o b a l e q u i t i e s e n d e d t h e q u a r t e r h i g h e r , b a c k e d b y f u r t h e r s t i m u l u s a n d p o s i t i v e v a c c i n e d e v e l o p m e n t s . w i t h g l o b a l e q u i t i e s r e t u r n i n g 7 . 2 % f o r t h e q u a r t e r .
• T h e U . S . n o m i n a l y i e l d c u r v e s t e e p e n e d o v e r t h e q u a r t e r w i t h y i e l d s r i s i n g s h a r p l y a c r o s s m e d i u m t o l o n g e r m a t u r i t i e s . L o n g - d a t e d y i e l d s s a w t h e l a r g e s t q u a r t e r l y i n c r e a s e d u e t o h i g h e r i n f l a t i o n e x p e c t a t i o n s . S h o r t - t e r m m a t u r i t i e s w e r e l a r g e l y u n c h a n g e d a s t h e U S F e d e r a l R e s e r v e ( F e d ) s i g n a l e d t h a t i t w o u l d k e e p i t s p o l i c y r a t e n e a r z e r o u n t i l a t l e a s t 2 0 2 4 .
• T R S r e t u r n e d 2 . 6 % f o r t h e q u a r t e r w h i c h w a s 0 . 5 p e r c e n t a g e p o i n t s a b o v e i t s b e n c h m a r k− O u t p e r f o r m a n c e a t t h e a s s e t c l a s s l e v e l f o r S t a b l e V a l u e a n d R e a l R e t u r n w e r e t h e p r i m a r y d r i v e r s f o r r e l a t i v e r e s u l t s .
• F o r t h e t r a i l i n g t w e l v e m o n t h s , T R S r e t u r n e d 2 4 . 9 % v e r s u s t h e b e n c h m a r k r e t u r n o f 2 4 . 2 %− O u t p e r f o r m a n c e f r o m t h e S t a b l e V a l u e a n d R e a l R e t u r n a s s e t c l a s s e s w e r e t h e p r i m a r y d r i v e r s t o r e l a t i v e p e r f o r m a n c e
7 . 2 %
- 9 . 7 %
2 . 1 %
- 1 . 7 %
4 7 . 4 %
- 8 . 5 %- 0 . 1 %
2 6 . 0 %
- 2 0 . 0 %- 1 0 . 0 %
0 . 0 %1 0 . 0 %2 0 . 0 %3 0 . 0 %4 0 . 0 %5 0 . 0 %6 0 . 0 %
G l o b a l E q u i t y P o l i c y B e n c h m a r k S t a b l e V a l u e P o l i c y B e n c h m a r k R e a l R e t u r n P o l i c y B e n c h m a r k R i s k P a r i t y B e n c h m a r k
F i r s t Q u a r t e r O n e - Y e a r
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 3
1 . M a r k e t S u m m a r y – F i r s t Q u a r t e r 2 0 2 1
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 4
2 . M a r k e t V a l u e C h a n g e
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 5
3 . A s s e t A l l o c a t i o n D e t a i lMarket Value $ in millions)
as of 03/31/2021 InterimPolicyTarget
Relative toInterimPolicy Target
Long TermPolicy Target
Long TermPolicy
Ranges($) (%)Investment Exposure -- 104.3% 104.0% +0.3% 104.0% N/A-115%T o t a l U . S . A . $ 3 1 , 5 5 3 1 7 . 5 % 1 9 . 5 % - 2 . 0 % 1 8 . 0 1 3 - 2 3 %N o n - U . S . D e v e l o p e d $ 2 5 , 0 6 9 1 3 . 9 % 1 3 . 5 % + 0 . 4 % 1 3 . 0 8 - 1 8 %E m e r g i n g M a r k e t s $ 1 6 , 4 7 7 9 . 1 % 9 . 0 % + 0 . 1 % 9 . 0 4 - 1 4 %P r i v a t e E q u i t y $ 2 8 , 8 0 9 1 6 . 0 % 1 4 . 9 % + 1 . 1 % 1 4 . 0 9 - 1 9 %Global Equity $101,908 56.5% 56.8% -0.4% 54.0 47-61%G o v e r n m e n t B o n d s $ 2 4 , 6 4 2 1 3 . 7 % 1 6 . 5 % - 2 . 8 % 1 6 . 0 0 - 2 1 %S t a b l e V a l u e H e d g e F u n d s $ 9 , 3 6 5 5 . 2 % 5 . 0 % + 0 . 2 % 5 . 0 0 - 1 0 %A b s o l u t e R e t u r n $ 5 , 6 0 6 3 . 1 % 0 . 0 % + 3 . 1 % 0 . 0 0 - 2 0 %Stable Value $39,612 21.9% 21.5% +0.5% 21.0 14-28%R e a l E s t a t e $ 2 3 , 6 9 9 1 3 . 1 % 1 3 . 0 % + 0 . 2 % 1 5 . 0 1 0 - 2 0 %E n e r g y , N a t u r a l R e s o u r c e a n d I n f . $ 8 , 8 5 5 4 . 9 % 4 . 7 % + 0 . 2 % 6 . 0 1 - 1 1 %C o m m o d i t i e s $ 2 5 0 0 . 1 % 0 . 0 % + 0 . 1 % 0 . 0 0 - 5 %Real Return $32,803 18.2% 17.7% +0.5% 21.0 14-28%R i s k P a r i t y $ 1 3 , 8 8 4 7 . 7 % 8 . 0 % - 0 . 3 % 8 . 0 0 - 1 3 %Risk Parity $13,884 7.7% 8.0% -0.3% 8.0 0-13%C a s h $ 2 , 7 9 5 1 . 5 % 2 . 0 % - 0 . 5 % 2 . 0 0 - 7 %A s s e t A l l o c a t i o n L e v e r a g e - $ 1 0 , 4 8 0 - 5 . 8 % - 6 . 0 % + 0 . 2 % - 6 . 0 - -Net Asset Allocation -$7,685 -4.3% -4.0% -0.3% -4.0 --Total Fund $180,523 100.0% --- 100.0% --
Note: Asset allocation information shown above is based upon MOPAR reporting. The excess returns shown above may not be a perfect difference between the actual and benchmark returns due entirely to rounding.
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 6
4 . T o t a l T R S P e r f o r m a n c e E n d i n g 0 3 / 3 1 / 2 0 2 1
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 7
Total Fund Performance Total Value Added: 0.51 %
Total Asset Allocation: 0.43% Total Security Selection Value Added: 0.11%
Total F und vs. Total F und Benchmark
0.00%0.01%
-0.01%0.00%
0.24%0.01%0.00%
-0.15%-0.04%
-0.25%0.16%
-0.03%0.18%
-0.4% 0.0% 0.4%
2.61%
2.11%
0.51%
0.0% 4.0%
Total Fund
Total Fund Benchmark
Total Value Added
-0.04%
0.11%
0.43%
-0.2% 0.0% 0.2% 0.4% 0.6%
Other
Security Selection Value Added
Asset Allocation
-1.06%-0.10%
0.04%0.17%0.07%
-0.35%3.53%
0.16%-2.08%
0.31%0.49%0.39%
-1.57%
-6.0% 0.0% 6.0%
Asset Allocation LeverageRisk Parity
ENRICommodities
Real EstateCash EquivalentsAbsolute Returns
Stable Value Hedge FundsLong Treasuries
Private EquityEmerging Markets
Non-U.S. DevelopedTotal U.S.A
0.00%0.01%0.00%
-0.01%0.00%
0.02%0.05%
0.00%0.35%
0.07%0.01%0.01%
-0.07%
-0.3% 0.0% 0.3% 0.6%
5 . T o t a l F u n d A t t r i b u t i o n – O n e Q u a r t e r E n d i n g 3 / 3 1 / 2 0 2 1
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 8
Total F und vs. Total F und BenchmarkTotal Fund Performance Total Value Added: 0.64 %
Total Asset Allocation: 0.70% Total Security Selection Value Added: -0.40%
0.03%-0.17%
-0.03%0.00%
0.41%0.03%
0.00%-0.20%
-0.10%-0.74%
0.13%0.24%
0.00%
-0.8% 0.0% 0.8%
24.87%
24.23%
0.64%
0.0% 8.0% 16.0% 24.0% 32.0%
Total Fund
Total Fund Benchmark
Total Value Added
0.34%
-0.40%
0.70%
-2.0% 0.0% 2.0%
Other
Security Selection Value Added
Asset Allocation
-1.47%-0.06%-0.12%
0.19%-0.21%-0.05%
3.61%0.07%
-1.56%0.00%
0.32%0.42%
-1.14%
-5.0% 0.0% 5.0%
Asset Allocation LeverageRisk Parity
ENRICommodities
Real EstateCash EquivalentsAbsolute Returns
Stable Value Hedge FundsLong Treasuries
Private EquityEmerging Markets
Non-U.S. DevelopedTotal U.S.A
0.00%0.01%
0.11%0.05%0.03%
-0.03%-0.33%
-0.01%0.83%
0.34%0.07%0.04%
-0.41%
-1.0% -0.5% 0.0% 0.5% 1.0%
5 . T o t a l F u n d A t t r i b u t i o n – O n e Y e a r E n d i n g 3 / 3 1 / 2 0 2 1
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 9
6 . R i s k P r o f i l e : T o t a l F u n d R i s k - R e t u r n v s . P e e r s
Note: Public Plan peer group composed of 15 public funds with total assets in excess of $10B as of 03/31/2021 respectively for the periods above. An exhibit outlining the asset allocation of the peer portfolios is provided in the appendix of this report.
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 1 0
6 . R i s k P r o f i l e : T r a i l i n g 3 - Y e a r a n d 5 - Y e a r R i s k M e t r i c s P e e r C o m p a r i s o n
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 1 1
7 . G l o b a l E q u i t y : P e r f o r m a n c e S u m m a r y E n d i n g 0 3 / 3 1 / 2 0 2 1
Note: The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.
First Quarter
OneYear
ThreeYears
Total Global Equity 7.3% 47.0% 11.2%G l o b a l E q u i t y B e n c h m a r k 7 . 2 4 7 . 4 1 2 . 2Difference +0.2 -0.4 -1.0Total U.S. Equity 7.3 62.7 14.1T o t a l U . S . E q u i t y B e n c h m a r k 6 . 3 6 2 . 8 1 7 . 2Difference +1.0 -0.1 -3.1Non-U.S. Equity 3.9 52.9 6.9N o n - U . S . B e n c h m a r k 3 . 3 5 1 . 1 6 . 5Difference +0.5 +1.8 +0.3Non-U.S. Developed 3.7 47.9 6.3M S C I E A F E + C a n a d a 4 . 0 4 5 . 7 6 . 3Difference -0.2 +2.2 0.0
Emerging Markets 4.0 60.2 7.7M S C I E m e r g i n g M a r k e t s 2 . 3 5 8 . 5 6 . 6
Difference +1.7 +1.7 +1.1
Five Years
Ten Years
12.7% 9.1%1 3 . 3 9 . 2
-0.6 -0.1
14.5 12.01 6 . 7 1 3 . 8
-2.2 -1.8
10.5 5.31 0 . 3 4 . 7
+0.1 +0.6
8.7 5.98 . 9 5 . 2
-0.2 +0.7
13.0 4.6
1 2 . 1 3 . 7
+0.9 +0.9
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 1 2
7 . G l o b a l E q u i t y : P e r f o r m a n c e S u m m a r y E n d i n g 0 3 / 3 1 / 2 0 2 1 ( c o n t ’ d )First
QuarterOne Year
Three Years
Five Years
Ten Years
Total Public Equity 5.4% 57.0% 10.0% 12.0% 7.9%
P u b l i c E q u i t y B e n c h m a r k 4 . 7 5 6 . 3 1 1 . 2 1 2 . 8 8 . 3
Difference +0.6 +0.7 -1.2 -0.8 -0.4
Total Private Equity 12.8 23.6 14.8 14.6 14.0
P r i v a t e E q u i t y B e n c h m a r k 1 3 . 9 2 5 . 4 1 5 . 6 1 4 . 8 1 2 . 6
Difference -1.1 -1.8 -0.8 -0.1 +1.4
Note: The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 1 3
8 . S t a b l e V a l u e : P e r f o r m a n c e S u m m a r y E n d i n g 0 3 / 3 1 / 2 0 2 1First
QuarterOne Year
Three Years
Total Stable Value -8.2% -5.6% 6.0%T o t a l S t a b l e V a l u e B e n c h m a r k - 9 . 7 - 8 . 5 5 . 8
Difference +1.5 +2.9 +0.2
Total Government Bonds -13.8 -16.3 6.1
T r e a s u r y B e n c h m a r k - 1 3 . 5 - 1 5 . 8 5 . 9
Difference -0.3 -0.5 +0.3
Stable Value Hedge Funds 0.7 15.2 4.9
H e d g e F u n d s B e n c h m a r k 3 . 7 1 9 . 0 5 . 0
Difference -3.0 -3.7 -0.1
Absolute Return 3.7 15.4 8.0
A b s o l u t e R e t u r n B e n c h m a r k 0 . 5 2 . 3 3 . 6
Difference +3.1 +13.1 +4.3Note: The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.
Five Years
Ten Years
4.5% 6.3%3 . 7 5 . 7
+0.8 +0.6
3.2 6.8
3 . 1 6 . 3
+0.1 +0.5
5.8 4.34 . 7 3 . 8
+1.0 +0.5
7.8 9.6
3 . 5 2 . 9
+4.3 +6.6
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 1 4
9 . R e a l R e t u r n : P e r f o r m a n c e S u m m a r y E n d i n g 0 3 / 3 1 / 2 0 2 1First
QuarterOne Year
Three Years
Five Years
Ten years
Total Real Return 3.4% +2.5% 5.1% 7.0% 7.5%R e a l R e t u r n B e n c h m a r k 2 . 1 - 0 . 1 3 . 1 4 . 5 6 . 5
Difference +1.3 +2.5 +2.0 +2.5 +1.0
Real Estate 2.9 3.1 7.0 8.8 10.7
R e a l E s t a t e B e n c h m a r k 1 . 1 0 . 3 4 . 0 5 . 3 8 . 9
Difference +1.8 +2.8 +3.0 +3.6 +1.8Energy, Natural Resource and Infrastructure
4.8 -0.5 1.2 -- --
E n e r g y a n d N a t u r a l R e s . B e n c h m a r k 5 . 0 - 1 . 1 1 . 4 - - - -
Difference -0.1 +0.6 -0.1 -- --
Note: The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 1 5
1 0 . R i s k P a r i t y : P e r f o r m a n c e S u m m a r y E n d i n g 0 3 / 3 1 / 2 0 2 1First
QuarterOne Year
Three Years
Five Years
Ten Years
Total Risk Parity -1.3% 24.0% 5.8% 7.9% --
R i s k P a r i t y B e n c h m a r k - 1 . 7 2 6 . 0 8 . 0 8 . 8 - -
Difference +0.4 -1.9 -2.2 -0.9 --
Note: The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 1 6
1 1 . C a s h E q u i v a l e n t s : P e r f o r m a n c e S u m m a r y E n d i n g 0 3 / 3 1 / 2 0 2 1First
QuarterOne Year
Three Years
Five Years
Ten Years
Cash Equivalents 0.3% 1.3% 1.5% 1.7% 1.9%
C a s h B e n c h m a r k 0 . 0 0 . 1 1 . 5 1 . 2 0 . 6
Difference +0.3 +1.2 0.0 +0.5 +1.3
Note: The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 1 7
Appendix – Supplemental Reporting
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 1 8
T R S C o m m i t m e n t L e v e l s v s . P e e r s ( > $ 1 0 B i l l i o n ) a s o f 0 3 / 3 1 / 2 0 2 1
Note: The Public Plan peer universe had 15 observations for the first quarter 2021. TRS allocations may not sum to 100.0% which is entirely due to the impact of rounding
T h e c h a r t b e l o w d e p i c t s t h e a s s e t a l l o c a t i o n o f p e e r p u b l i c f u n d s w i t h a s s e t s g r e a t e r t h a n $ 1 0 b i l l i o n .
− T h e e n d s o f e a c h l i n e r e p r e s e n t t h e 9 5 t h a n d 5 t h p e r c e n t i l e o f e x p o s u r e s , t h e m i d d l e l i g h t b l u e a n d g r e y l i n e s r e p r e s e n t t h e 2 5 t h a n d 7 5 t h p e r c e n t i l e o f e x p o s u r e s , t h e p u r p l e s q u a r e r e p r e s e n t s t h e m e d i a n , a n d t h e g r e e n d o t r e p r e s e n t s T R S e x p o s u r e .
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 1 9
H i s t o r i c a l E x c e s s P e r f o r m a n c e E n d i n g 0 3 / 3 1 / 2 0 2 1
Quarterly and Cumulative Excess Performance Total Fund vs. Total Fund Benchmark
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 2 0
T R S A s s e t G r o w t h
0
2 0
4 0
6 0
8 0
1 0 0
1 2 0
1 4 0
1 6 0
1 8 0
2 0 0
Mar
ket V
alue
(Billi
ons)
T o t a l F u n d H i s t o r i c a l G r o w t h ( S e p t e m b e r 1 9 9 7 - M a r c h 2 0 2 1 )
$ 1 8 0 . 5
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 2 1
E x t e r n a l M a n a g e r P r o g r a m : P u b l i c E q u i t y P e r f o r m a n c e a s o f 0 3 / 3 1 / 2 0 2 1
Allocation ($ in
billions)
FirstQuarter
OneYear
EP Total Global Equity $30.0 5.8% 63.6%E P G l o b a l E q u i t y B e n c h m a r k -- 4 . 7 5 7 . 3Difference -- +1.1 +6.3EP U.S.A. $10.9 7.5 68.6E P U . S . A . B e n c h m a r k - - 6 . 3 6 2 . 8Difference -- +1.2 +5.8EP Non-U.S. Developed $6.7 3.2 56.9M S C I E A F E + C a n a d a P o l i c y I n d e x - - 4 . 0 4 5 . 7Difference -- -0.8 +11.2EP Emerging Markets $6.1 4.6 67.2M S C I E m e r g i n g M a r k e t s P o l i c y I n d e x - - 2 . 3 5 8 . 5Difference - - +2.3 +8.7EP World Equity $5.7 7.0 60.5E P W o r l d E q u i t y B e n c h m a r k - - 5 . 1 5 6 . 9Difference -- +2.0 +3.7
Note: The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.
Three Years
11.6%1 1 . 1+0.616.11 7 . 2-1.19.36 . 3
+3.08.96 . 6
+2.312.51 2 . 9-0.4
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 2 2
E x t e r n a l M a n a g e r P r o g r a m : S t a b l e V a l u e / T o t a l P r o g r a m P e r f o r m a n c e a s o f 0 3 / 3 1 / 2 0 2 1
Allocation ($ in
billions)
FirstQuarter One Year Three
Years
EP Total Stable Value $9.4 0.7% 15.2% 4.9%
E P S t a b l e V a l u e B e n c h m a r k - - 3 . 7 1 9 . 0 5 . 0
Difference - - -3.0 -3.7 -0.1
EP Stable Value Hedge Funds $9.4 0.7% 15.2 4.9
E P S t a b l e V a l u e H e d g e F u n d s B e n c h m a r k - - 3 . 7 1 9 . 0 5 . 0
Difference -- -3.0 -3.7 -0.1
Total External Public Program $39.3 4.6 50.6 10.0
E P E x t e r n a l P u b l i c B e n c h m a r k - - 4 . 6 4 7 . 5 9 . 8
Difference -- 0.0 +3 .1 +0.3
Note: The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 2 3
P u b l i c S t r a t e g i c P a r t n e r s h i p P r o g r a m ( S P N ) : P e r f o r m a n c e S u m m a r y a s o f 0 3 / 3 1 / 2 0 2 1
T h e P u b l i c S P N s i n a g g r e g a t e o u t p e r f o r m e d t h e b e n c h m a r k d u r i n g t h e f i r s t q u a r t e r a n d o u t p e r f o r m e d o v e r t h e t r a i l i n g o n e - , t h r e e - , a n d f i v e - y e a r t r a i l i n g p e r i o d s .
Allocation ($ in
billions)
FirstQuarter
OneYear
Three Years
Five Years
Public Strategic Partnership $7.6 0.6% 40.2% 11.0% 11.5%P u b l i c S P N B e n c h m a r k - - -0.9% 30.9% 10.2% 10.5%Difference -- +1.5 +9.3 +0.8 +1.1
BlackRock $2.6 -0.7% 35.9% 11.0% --J.P. Morgan $2.7 1.0% 42.5% 11.1% --Morgan Stanley $2.4 1.5% 42.7% 10.6% --
Note: The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 2 4
T o t a l F u n d P e r f o r m a n c e B e n c h m a r k – 1 9 . 5 % M S C I U . S . A . I M I , 1 3 . 5 % M S C I E A F E p l u s C a n a d a I n d e x , 9 . 0 % M S C I E m e r g i n g M a r k e t s I n d e x , 1 4 . 9 % S t a t e S t r e e t P r i v a t e E q u i t y I n d e x ( 1 q u a r t e r l a g g e d ) , 1 6 . 5 % B l m b . B a r c . L o n g T e r m T r e a s u r y I n d e x , 5 . 0 % H F R I F o F C o n s e r v a t i v e I n d e x , 2 . 0 % C i t i g r o u p 3 M o . T - B i l l I n d e x , 1 3 . 0 % N C R E I F O D C E I n d e x ( 1 q u a r t e r l a g g e d ) , 4 . 7 % E n e r g y a n d N a t u r a l R e s o u r c e s B e n c h m a r k , 8 . 0 % R i s k P a r i t y B e n c h m a r k , a n d - 6 . 0 % A s s e t A l l o c a t i o n L e v e r a g e B e n c h m a r k .
G l o b a l E q u i t y B e n c h m a r k – 3 4 . 3 % M S C I U . S . A . I M I , 2 3 . 7 % M S C I E A F E p l u s C a n a d a I n d e x , 1 5 , 8 % M S C I E m e r g i n g M a r k e t s I n d e x , a n d 2 6 . 1 % S t a t e S t r e e t P r i v a t e E q u i t y I n d e x ( 1 q u a r t e r l a g g e d )– T F U . S . E q u i t y B e n c h m a r k - M S C I U . S . A . I n v e s t a b l e M a r k e t s I n d e x ( I M I )– E m e r g i n g M a r k e t s E q u i t y B e n c h m a r k – M S C I E m e r g i n g M a r k e t s I n d e x– N o n - U S D e v e l o p e d E q u i t y B e n c h m a r k – M S C I E A F E + C a n a d a I n d e x– P r i v a t e E q u i t y B e n c h m a r k - S t a t e S t r e e t P r i v a t e E q u i t y I n d e x ( 1 q u a r t e r l a g g e d )
B e n c h m a r k s
Note: Returns and market values (based on account level) reported are provided by State Street. Net additions/withdrawals are reported on a gross (adjusted for expenses) total fund level as provided by State Street. All rates of return for time periods greater than one year are annualized. The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 2 5
B e n c h m a r k s ( c o n t ’ d ) S t a b l e V a l u e B e n c h m a r k – 7 6 . 7 % B l m b . B a r c . L o n g T e r m T r e a s u r y I n d e x a n d 2 3 . 3 % H F R I F o F C o n s e r v a t i v e I n d e x
– U S T r e a s u r i e s B e n c h m a r k – B l o o m b e r g B a r c l a y s L o n g T e r m T r e a s u r y I n d e x– S t a b l e V a l u e H e d g e F u n d s – H F R I F u n d o f F u n d s ( F o F ) C o n s e r v a t i v e I n d e x– A b s o l u t e R e t u r n B e n c h m a r k - 3 M o . L I B O R + 2 %– C a s h B e n c h m a r k - C i t i g r o u p 3 M o . T r e a s u r y B i l l I n d e x
R e a l R e t u r n B e n c h m a r k – 7 3 . 2 % N C R E I F O D C E I n d e x a n d 2 6 . 8 % E n e r g y & N a t u r a l R e s o u r c e s B e n c h m a r k– R e a l E s t a t e B e n c h m a r k – N C R E I F O D C E I n d e x ( 1 q u a r t e r l a g g e d ) – E n e r g y a n d N a t u r a l R e s o u r c e s B e n c h m a r k – 7 5 % C a m b r i d g e A s s o c i a t e s N a t u r a l R e s o u r c e s I n d e x ( r e w e i g h t e d ) a n d 2 5 %
q u a r t e r l y S e a s o n a l l y - A d j u s t e d C o n s u m e r P r i c e I n d e x ( 1 q u a r t e r l a g g e d ) – C o m m o d i t i e s B e n c h m a r k – G o l d m a n S a c h s C o m m o d i t y I n d e x
R i s k P a r i t y B e n c h m a r k – 1 0 0 % H F R R i s k P a r i t y V o l 1 2 I n s t i t u t i o n a l I n d e x
Note: Returns and market values (based on account level) reported are provided by State Street. Net additions/withdrawals are reported on a gross (adjusted for expenses) total fund level as provided by State Street. All rates of return for time periods greater than one year are annualized. The excess returns shown in this presentation may differ from State Street statements due entirely to rounding. These differences are generally within a few basis points and are not material.
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 2 6
D e s c r i p t i o n o f P e r f o r m a n c e A t t r i b u t i o n A m e a s u r e o f t h e s o u r c e o f t h e d e v i a t i o n o f a f u n d ' s p e r f o r m a n c e f r o m t h a t o f i t s p o l i c y b e n c h m a r k . E a c h b a r o n t h e a t t r i b u t i o n
g r a p h r e p r e s e n t s t h e c o n t r i b u t i o n m a d e b y t h e a s s e t c l a s s t o t h e t o t a l d i f f e r e n c e i n p e r f o r m a n c e . A p o s i t i v e v a l u e f o r a c o m p o n e n t i n d i c a t e s a p o s i t i v e c o n t r i b u t i o n t o t h e a g g r e g a t e r e l a t i v e p e r f o r m a n c e . A n e g a t i v e v a l u e i n d i c a t e s a d e t r i m e n t a l i m p a c t . T h em a g n i t u d e o f e a c h c o m p o n e n t ' s c o n t r i b u t i o n i s a f u n c t i o n o f ( 1 ) t h e p e r f o r m a n c e o f t h e c o m p o n e n t r e l a t i v e t o i t s b e n c h m a r k , a n d ( 2 ) t h e w e i g h t ( b e g i n n i n g o f p e r i o d ) o f t h e c o m p o n e n t i n t h e a g g r e g a t e .
T h e i n d i v i d u a l A s s e t C l a s s e f f e c t , a l s o c a l l e d Selection Effect , i s c a l c u l a t e d a s A c t u a l W e i g h t o f A s s e t C l a s s x ( A c t u a l A s s e t C l a s s R e t u r n – A s s e t C l a s s B e n c h m a r k R e t u r n )
T h e b a r l a b e l e d Allocation Effect i l l u s t r a t e s t h e e f f e c t t h a t a T o t a l F u n d ' s a s s e t a l l o c a t i o n h a s o n i t s r e l a t i v e p e r f o r m a n c e . A l l o c a t i o n E f f e c t c a l c u l a t i o n = ( A s s e t C l a s s B e n c h m a r k R e t u r n – T o t a l B e n c h m a r k R e t u r n ) x ( A c t u a l W e i g h t o f A s s e t C l a s s –T a r g e t P o l i c y W e i g h t o f A s s e t C l a s s ) .
T h e b a r l a b e l e d Other i s a c o m b i n a t i o n o f C a s h F l o w E f f e c t a n d B e n c h m a r k E f f e c t :– Cash Flow Effect d e s c r i b e s t h e i m p a c t o f a s s e t m o v e m e n t s o n t h e T o t a l F u n d r e s u l t s . C a s h F l o w E f f e c t c a l c u l a t i o n = ( T o t a l
F u n d A c t u a l R e t u r n – T o t a l F u n d P o l i c y R e t u r n ) – C u r r e n t S e l e c t i o n E f f e c t – C u r r e n t A l l o c a t i o n E f f e c t– Benchmark Effect r e s u l t s f r o m t h e w e i g h t e d a v e r a g e r e t u r n o f t h e a s s e t c l a s s e s ' b e n c h m a r k s b e i n g d i f f e r e n t f r o m t h e T o t a l
F u n d s ’ p o l i c y b e n c h m a r k r e t u r n . B e n c h m a r k E f f e c t c a l c u l a t i o n = T o t a l F u n d P o l i c y R e t u r n – ( A s s e t C l a s s B e n c h m a r k R e t u r n x T a r g e t P o l i c y W e i g h t o f A s s e t C l a s s )
Cumulative EffectC u m u l a t i v e E f f e c t c a l c u l a t i o n = C u r r e n t E f f e c t t * ( 1 + C u m u l a t i v e T o t a l F u n d A c t u a l R e t u r n t - 1 ) +C u m u l a t i v e E f f e c t t - 1 * ( 1 + T o t a l F u n d B e n c h m a r k R e t u r n t )
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 2 7
Disclaimers and Notes
P r o p r i e t a r y & C o n f i d e n t i a l I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . , a n A o n C o m p a n y . 2 8
D i s c l a i m e r s a n d N o t e sDisclaimers:
P l e a s e r e v i e w t h i s r e p o r t a n d n o t i f y A o n I n v e s t m e n t s U S A I n c . ( A o n ) w i t h a n y i s s u e s o r q u e s t i o n s y o u m a y h a v e w i t h r e s p e c t t oi n v e s t m e n t p e r f o r m a n c e o r a n y o t h e r m a t t e r s e t f o r t h h e r e i n .
T h e c l i e n t p o r t f o l i o d a t a p r e s e n t e d i n t h i s r e p o r t h a v e b e e n o b t a i n e d f r o m t h e c u s t o d i a n . A o n h a s c o m p a r e d t h i s i n f o r m a t i o n t o t h e i n v e s t m e n t m a n a g e r s ’ r e p o r t e d r e t u r n s a n d b e l i e v e s t h e i n f o r m a t i o n t o b e a c c u r a t e . A o n h a s n o t c o n d u c t e d a d d i t i o n a l a u d i t s a n d c a n n o t w a r r a n t i t s a c c u r a c y o r c o m p l e t e n e s s . T h i s d o c u m e n t i s n o t i n t e n d e d t o p r o v i d e , a n d s h a l l n o t b e r e l i e d u p o n f o r , a c c o u n t i n g a n d l e g a l o r t a x a d v i c e .
R e f e r t o H e d g e F u n d R e s e a r c h , I n c . w w w . h e d g e f u n d r e s e a r c h . c o m f o r m o r e i n f o r m a t i o n o n H F R i n d i c e s
Notes:
T h e r a t e s o f r e t u r n c o n t a i n e d i n t h i s r e p o r t a r e s h o w n o n a n a f t e r - f e e s b a s i s u n l e s s o t h e r w i s e n o t e d . T h e y a r e g e o m e t r i c a n d t i m e w e i g h t e d . R e t u r n s f o r p e r i o d s l o n g e r t h a n o n e y e a r a r e a n n u a l i z e d .
U n i v e r s e p e r c e n t i l e s a r e b a s e d u p o n a n o r d e r i n g s y s t e m i n w h i c h 1 i s t h e b e s t r a n k i n g a n d 1 0 0 i s t h e w o r s t r a n k i n g .
D u e t o r o u n d i n g t h r o u g h o u t t h e r e p o r t , p e r c e n t a g e t o t a l s d i s p l a y e d m a y n o t s u m u p t o 1 0 0 . 0 % . A d d i t i o n a l l y , i n d i v i d u a l f u n d t o t a l s i n d o l l a r t e r m s m a y n o t s u m u p t o t h e p l a n t o t a l s .
F o o t n o t eI n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . 2 9
L e g a l D i s c l o s u r e s a n d D i s c l a i m e r s
I n v e s t m e n t a d v i c e a n d c o n s u l t i n g s e r v i c e s p r o v i d e d b y A o n I n v e s t m e n t s U S A I n c . T h e i n f o r m a t i o n c o n t a i n e d h e r e i n i s g i v e n a s o f t h e d a t e h e r e o f a n d d o e s n o t p u r p o r t t o g i v e i n f o r m a t i o n a s o f a n y o t h e r d a t e . T h e d e l i v e r y a t a n y t i m e s h a l l n o t , u n d e r a n y c i r c u m s t a n c e s , c r e a t e a n y i m p l i c a t i o n t h a t t h e r e h a s b e e n a c h a n g e i n t h e i n f o r m a t i o n s e t f o r t h h e r e i n s i n c e t h e d a t e h e r e o f o r a n y o b l i g a t i o n t o u p d a t e o r p r o v i d e a m e n d m e n t s h e r e t o .
T h i s d o c u m e n t i s n o t i n t e n d e d t o p r o v i d e , a n d s h a l l n o t b e r e l i e d u p o n f o r , a c c o u n t i n g , l e g a l o r t a x a d v i c e . A n y a c c o u n t i n g , l e g a l , o r t a x a t i o n p o s i t i o n d e s c r i b e d i n t h i s p r e s e n t a t i o n i s a g e n e r a l s t a t e m e n t a n d s h a l l o n l y b e u s e d a s a g u i d e . I t d o e s n o t c o n s t i t u t e a c c o u n t i n g , l e g a l , a n d t a x a d v i c e a n d i s b a s e d o n A o n I n v e s t m e n t s ’ u n d e r s t a n d i n g o f c u r r e n t l a w s a n d i n t e r p r e t a t i o n .
A o n I n v e s t m e n t s d i s c l a i m s a n y l e g a l l i a b i l i t y t o a n y p e r s o n o r o r g a n i z a t i o n f o r l o s s o r d a m a g e c a u s e d b y o r r e s u l t i n g f r o m a n y r e l i a n c e p l a c e d o n t h a t c o n t e n t . A o n I n v e s t m e n t s r e s e r v e s a l l r i g h t s t o t h e c o n t e n t o f t h i s d o c u m e n t . N o p a r t o f t h i s d o c u m e n t m a y b e r e p r o d u c e d , s t o r e d , o r t r a n s m i t t e d b y a n y m e a n s w i t h o u t t h e e x p r e s s w r i t t e n c o n s e n t o f A o n I n v e s t m e n t s .
A o n I n v e s t m e n t s U S A I n c . i s a f e d e r a l l y r e g i s t e r e d i n v e s t m e n t a d v i s o r w i t h t h e U . S . S e c u r i t i e s a n d E x c h a n g e C o m m i s s i o n . A o n I n v e s t m e n t s i s a l s o r e g i s t e r e d w i t h t h e C o m m o d i t y F u t u r e s T r a d i n g C o m m i s s i o n a s a c o m m o d i t y p o o l o p e r a t o r a n d a c o m m o d i t y t r a d i n g a d v i s o r , a n d i s a m e m b e r o f t h e N a t i o n a l F u t u r e s A s s o c i a t i o n . T h e A o n I n v e s t m e n t s A D V F o r m P a r t 2 A d i s c l o s u r e s t a t e m e n t i s a v a i l a b l e u p o n w r i t t e n r e q u e s t t o :
A o n I n v e s t m e n t s U S A I n c .2 0 0 E . R a n d o l p h S t r e e tS u i t e 7 0 0C h i c a g o , I L 6 0 6 0 1A T T N : A o n I n v e s t m e n t s C o m p l i a n c e O f f i c e r
© A o n p l c 2 0 2 0 . A l l r i g h t s r e s e r v e d .
Eric Lang, Senior Managing Director
Private Markets
July 2021
2
Overview
• Philosophy
• Private Markets Role in the Trust
• Performance
• Building the Fleet Status
• TRICOT Update
• Strategic Partnerships
• Accomplishments and Priorities
3
Private Markets Philosophy
• Culture and Team: Demonstrating the TRS IMD culture through collaboration, openness, candor andmeritocracy of ideas. Hire and retain great investors for internal capabilities and work across theTrust
• World Class Investors through Partnership: Being the partner of choice for our managers usingspeed, consistency, predictability, and our people
• Transparency: Using improved transparency through reporting and communication both internallyand externally
• Innovate: Utilizing unique partnership and investment structures. Focus on technology and data.Always evolving
• Value Driven: Finding value where others are not looking
• Industry Leadership: Maintaining industry leadership roles across all private asset classes
4
Private Markets Role in the TrustExecutive Summary ($M)
Source: State Street based on 12/31/20 valuations for IRR calculation and 3/31/21 cash adjusted valuations for TWR calculation; Percentage of Trust is as of 3/31/21; Activity based on TRS IMD dataNote: ENRI TWR reflects ENR performance from 10/01/13 through 9/30/2016 and ENRI (ENR plus Infrastructure) from 10/01/16 through 3/31/21 Note: ENRI IRR reflects performance from fund investments initially transferred to ENRI portfolio (inception date: 10/28/04)Note: Approval activity does not include Emerging Managers
2020 APPROVAL ACTIVITYNUMBER OF INVESTMENTS
Portfolio Funds PIs TotalENRI 5 22 27Private Equity 13 89 102Real Estate 6 66 72Total 24 177 201
2020 APPROVAL ACTIVITYDOLLAR VALUE OF INVESTMENTS
Portfolio Funds PIs TotalENRI $950 $591 $1,541 Private Equity $1,632 $854 $2,486Real Estate $675 $1,168 $1,843Total $3,257 $2,613 $5,870
2020 CASH FLOWS
PortfolioNet Capital
CalledCapital
DistributionsIncome
DistributionsTotal
DistributionsNet Cash
FlowsENRI $1,429 $1,067 $168 $1,235 ($194)Private Equity $4,318 $3,583 $268 $3,851 ($466)Real Estate $3,365 $2,639 $393 $3,032 ($310)Total $9,112 $7,289 $829 $8,118 ($970)
PORTFOLIO PERFORMANCE
Portfolio Market Value
% of Trust
1-Year TWR
3-Year TWR
5-Year TWR
1-Year IRR
3-Year IRR
5-Year IRR SI IRR
SAA Median Return
PL Invested Managers
Energy, Natural Ressources & Infrastructure ("ENRI") $8,802 4.9% (0.5%) 1.2% 5.5% (2.3%) 1.1% 5.2% 4.5% 7.3% 23Private Equity $29,842 16.0% 23.6% 14.8% 14.6% 23.4% 15.0% 14.8% 13.7% 8.4% 37Real Estate $23,513 13.1% 3.2% 7.0% 8.8% 2.9% 7.0% 8.8% 8.6% 8.5% 46Total $62,157 34.0% 11.4% 9.4% 10.9% 10.9% 9.7% 11.0% 10.8% 8.3% 89
PRINCIPAL INVESTMENTS ("PI") PERFORMANCE
Portfolio Market Value
% of Portfolio
No.(active)
1-Year TWR
3-Year TWR
5-Year TWR
1-Year IRR
3-Year IRR
5-Year IRR SI IRR
ENRI $3,397 38.6% 35 (1.3%) 1.8% 6.4% (2.5%) (0.5%) 3.8% 6.4%Private Equity $8,217 27.5% 70 17.8% 12.9% 14.7% 16.3% 13.2% 14.7% 16.5%Real Estate $11,756 50.0% 102 5.1% 8.6% 10.9% 4.7% 8.5% 10.7% 14.1%Total $23,370 37.6% 207 8.1% 8.8% 11.5% 7.2% 8.4% 11.0% 13.8%
5
Private Markets Role in the TrustPortfolio Detail Returns
Source: State Street based on 12/31/20 valuations for IRR calculation and 3/31/21 cash adjusted valuations for TWR calculation; TUCS as of 3/31/21
PORTFOLIO MEASURE1-YEARRETURN
3-YEARRETURN
5-YEARRETURN COMMENTS
ENRI IRR (2.3%) 1.1% 5.2% • Performance has been challenged due to an overweight to energycomponent of the portfolio; in addition, 20% to CPI has elevatedbenchmark in a down market
• Infrastructure has helped the portfolio• ENRI does not have a TUCs Peer comparison
TWR (0.5%) 1.2% 5.5%
Benchmark (1.2%) 1.4% 5.2%
Excess Return 0.6% (0.1%) 0.3%Private Equity IRR 23.4% 15.0% 14.8% • 23% 1-year return
• Achieved high absolute returns across all time periods• The benchmark is also top performer among peers across all time
periods• PE remain a top performer against peers
TWR 23.6% 14.8% 14.6%
Benchmark 25.4% 15.6% 14.8%
Excess Return (1.8%) (0.8%) (0.1%)
TUCS Peer (Percentile) 38th 23rd 18th
Real Estate IRR 2.9% 7.0% 8.8%• 1-year return were hurt by lock-downs• Achieved attractive absolute returns across longer time periods• Excess return has been exceptional over all time periods• Performance was top versus peers across all time periods
TWR 3.2% 7.0% 8.8%
Benchmark 0.3% 4.0% 5.3%
Excess Return 2.8% 3.0% 3.6%
TUCS Peer (Percentile) 27th 15th 17th
6
A Preview of 2021 PerformanceRe-opening
Source: State Street preliminary data as of 3/31/21Note: IRR calculations include cash flows and valuations for ~91% of General Partner reporting received as of 06/21/21
• First quarter 2021 returns are looking healthy
• Private Equity has exceptional returns
• ENRI has recovered
• Real Estate has remained steady
Preview of 1Q 2021 Performance
Portfolio Q1 2021IRR
1-YearIRR
% of NAVReported
ENRI 4.9% 17.3% 89.2%
Private Equity 12.6% 56.7% 90.0%
Real Estate 3.4% 10.0% 93.6%
Total 7.9% 30.3% 91.2%
7
Building the Fleet
• Hiring: o Cumulative fleet hires of sixteen including seven in 2020 o Nine hired or identified to date for 2021
• Attritiono Lost two in 2020 and five to date in 2021
• Asset Class level Investment Committees running smoothly• Teams started or completed their “ ARCI” , a document that outlines when team members are
Accountable, Responsible or should be Consulted or Informed • Real Estate is refreshing portfolio framework
• Achieving Build the Fleet savings through Principal Investmentso 38% of executed investments in 2020 were Principal Investmentso Private markets excess return of 80 bps for 3 years through Q1-2021o Estimated cumulative net fee savings of $114 million through 2020
• Reviewing Strategic Partnerships• TRS London Office
o Working to accommodate longer term assignmentso Increasing relationship management to include fund investments
8
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9Source: TRS IMD
TRICOT UpdateTRS London
• Continuing solid results, sourcing principal investments throughout Europe• TRICOT saw a reduction in deal flow in 2020, primarily in Real Estate due to the COVID-19 pandemic; TRICOT executed
29 deals in 2020, representing $490 million of capital across Private Markets• Added an ENRI position and will add a PE funds position
o Total team member count will grow to 10, including contractors/secondees• Justin Wang was included in Private Equity International's 40 under 40
Historical Deal Summary
59
8
51
11
67
22
75
17
69
29 30
18
010203040506070
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2016 2017 2018 2019 2020 2021
Private Equity Real Estate ENRI
10
Summary: Accomplishments & Priorities
• Successfully managed through COVID
o Generated 11% 1-Year IRR for Private Markets
• Continued to Build the Fleet
o Hired a Head of Portfolio Initiatives
• Carolyn Hansard was featured on Kayo’s Top 21 in ’21 Women in Power list
• Review and updated Procedures and Guidelines
• Implemented successful integration of Private SPN relationships and former SPR team members
• 45% of aggregate approval activity in Principal Investments
o Estimated $52 million in management fee savings for 2020
• Intensify portfolio management as we continue to manage through COVID
• Review the Strategic Partnerships
• Continue to work though the expansion of TRICOT
• Enhance data and portfolio analytics capabilities including automation of reporting
Source: State Street as of 12/31/20 valuations
2020 ACCOMPLISHMENTS 2021 PRIORITIES
APPENDIX
12
Private Markets OverviewO rganiz ational Structure
TRICOT – TRS L ON DON
K imberly CareyTRICOT L eadDirector, REBBA, Tex as A& M
PRIV ATE MARK ETS AN AL YTICS AN D SU PPORT
Melissa K leihegeAnalystBS, Tex as A& M
J eff StaffordSenior AssociateBS, Pepperdine University, Canberra
Barbara Woodard, CPASenior AssociateBBA, Tex as A& M
Eric L angSenior Managing DirectorBBA, UT AustinMBA, University of H ouston
N eil RandallManaging Director BBA, Tex as A& MMS, Tex as A& M
Carolyn HansardSenior DirectorBS, UT Austin MBA, UT Austin
Private Eq uity1 4 % of T rus t Bench m ark
Real Estate1 5 % of T rus t Bench m ark
EN RI6 % of T rus t Bench m ark
Private Markets3 5 % of T rus t Bench m ark
Sam Z edanSenior AnalystBA, University of Illinois
N ikhil MothukuriContractor B-Tech, J N TU, IndiaMS, University of H artford
Alex HuangAnalystBS, N ew Y ork University
Susan WhiteJ unior AnalystBS, Penn State University
J ustin WangInvestment Manager, PEBBA, UT Austin
Tyler K niskernContractorBBA, N ew Mex ico State University
Sara ShanContractorLLB, Middlesex University
Emerson HalsteadInvestment Manager, EN RIBS, UT AustinMBA, Indiana University MA, H arvard University
L eAnn Gola, CPAPortfolio Initiatives ManagerBBA, Tex as State UniversityMAcy, Tex as State University
Tim K oekDirectorBA, Griffith University LLB, Griffith University
Private Markets Analytics Portfolio Initiatives
Grant WalkerSenior DirectorBBA, BaylorMBA, St. Edwards
Roxie TongSenior AnalystBS, University of CaliforniaMS, University of California
Sienna HiltonContractor
13
To be the preferred destination for all
attractive investment opportunities with our
partners in Europe
To provide alpha, diversification and deep, local market knowledge
to the Trust through investing in European
markets
Mission
V ision
Source and execute accretive investments, and monitor / manage
them actively
Develop strong, meaningful relationships
with all market participants
Develop local market knowledge to develop proactive viewpoints and
manage risks appropriately
Replicate the TRS culture and values, and integrate
into the broader Trust
Communicate effectively with Austin HQ and develop a strong
feedback loop
Focus on the European market,
not just the UK
TRICOTTRS London
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15
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16
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17
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Carolyn Hansard, Senior Director
Energy, Natural Resources, and Infrastructure
July 2021
2
Overview
• ENRI in the Trust
• 2020 Performance
• Capital Plan
• Spotlight- Energy Markets
• Accomplishments and Priorities
3
Role in the TrustEnergy, N atural Resources & Infrastructure (EN RI)
Source: State Street as of 3 / 3 1/ 21N ote: Per the TRS Investment Policy Statement, target allocation weights represent transitional benchmarks (2006 -2014), long-term target allocations (2015 -present)
HISTORICAL TRU ST AL L OCATION
Risk Parity 8%
EN RI6%
Global Eq uity54%
Stable V alue21%
Risk Parity 8%
N et Asset Allocation L everage ( 4%)
Real Return21%
EN RI TARGET % OF TRU ST
4
Performance Summary($M)
Source: State Street based on 12/31/20 valuations; TWR as of 3/31/21Note: Inception date as 10/28/04, when fund investments were initially transferred to ENRI portfolioNote: TWR and Benchmark reflect ENR performance from 10/01/13 through 9/30/2016 and ENRI (ENR plus Infrastructure) from 10/01/16 through 12/31/20Note: Legal fees are included in the total aggregate IRR and TWR performance
PORTFOLIO PERFORMANCE PORTFOLIO GROWTH1-Year 3-Year 5-Year ENRI 1-Year 3-Year 5-Year
Asset Class Return Return Return Ending Value $8,802 $8,802 $8,802 ENRI IRR (2.3%) 1.1% 5.2% less Starting Value 8,815 6,357 3,652 ENRI TWR (0.5%) 1.2% 5.5% less Contributions 1,429 5,866 8,815 ENRI Benchmark (1.1%) 1.4% 5.2% plus Distributions 1,235 3,685 5,303 ENRI Excess Return 0.6% (0.1%) 0.3% Investment Return ($207) $264 $1,638
FUND AND PRINCIPAL INVESTMENTS PERFORMANCE
PortfolioMarket
Value% of
Portfolio No. (active)1-YearTWR
3-YearTWR
5-YearTWR
1-YearIRR
3-YearIRR
5-YearIRR SI IRR
Funds $5,406 61.4% 69 (2.5%) 2.0% 5.9% (2.2%) 2.1% 6.0% 3.9%Principal Investments 3,397 38.6% 35 2.4% 0.2% 5.1% (2.5%) (0.5%) 3.8% 6.4%Total $8,802 100% 104 (0.5%) 1.2% 5.5% (2.3%) 1.1% 5.2% 4.5%
PORTFOLIO STRATEGY SUMMARY BY RISK
StrategyTarget Portfolio
Weight % of Portfolio Investment Returns
12/31/2020 12/31/2017 Change 1-Year IRR 3-Year IRR SI IRRCore 10-20% 2.1% 0.4% 1.7% (0.6%) (1.7%) (1.2%)Value-Add 50-70% 63.5% 61.6% 1.9% 5.8% 6.2% 6.8%Opportunistic 20-30% 34.4% 38.0% (3.6%) (14.4%) (6.4%) (0.2%)ENRI TOTAL 100% 100.0% 100.0% 0.0% (2.3%) 1.1% 4.5%
PORTFOLIO SECTOR SUMMARY BY SECTOR
SectorTarget Portfolio
Weight % of Portfolio Investment Returns
12/31/2020 12/31/2017 Change 1-Year IRR 3-Year IRR SI IRRInfrastructure N/A 50.1% 40.9% 9.2% 8.9% 9.7% 11.1%Energy Diversified N/A 43.4% 50.9% (7.5%) (14.5%) (7.1%) (3.4%)Natural Resources N/A 6.5% 8.2% (1.7%) 14.8% 6.0% 13.1%ENRI TOTAL N/A 100.0% 100.0% 0.0% (2.3%) 1.1% 4.5%
5
Performance SummaryTRS Vintage Year Comparison
Source: State Street as of 12/31/20; Cambridge Associates as of 12/31/20
• ENRI outperformed the benchmark six out of the last 12 years
• ENRI’s performance against the benchmark has been volatile due to the energy exposureo ENRI’s outperformance has totaled 566 bps on average
o ENRI’s underperformance has totaled 413 bps on average
TOTAL ENRI PORTFOLIO VERSUS BENCHMARK
17.1%
4.5%
-4.9%
6.3% 6.6%4.7%
1.6% 2.1%
12.7%
4.1%2.1%
19.5%
6.2%
0.9%
5.7%4.3% 3.0%
6.6% 5.4% 4.8% 4.7%
8.2%
3.8%
13.6%
-10%
-5%
0%
5%
10%
15%
20%
25%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
TRS Vintage Year SI IRR ENRI Benchmark Vintage Year SI IRR
6
Performance SummaryENRI Principal Investments Program
Source: State Street as of 12/31/20Note: Target is the long-term target for Principal Investments
• ENRI continues to focus on Principal Investments with increased transaction volumes through innovative structures
• Principal Investment deal flow in 2020 was relatively modest as a result of market uncertainty
PRINCIPAL INVESTMENT MARKET VALUE OVER TIME TARGET
60%
40%
Funds Principal Investments
83% 76% 73% 80% 72% 68% 60% 62% 61%
17% 24% 27% 20% 28% 32% 40% 38% 39%
0%
25%
50%
75%
100%
2012 2013 2014 2015 2016 2017 2018 2019 2020Funds Principal Investments
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8
Spotlight - Energy Markets
Source: TPH, Enervus, Bloomberg, FactSet
COMMODITY PRICE HISTORY (WTI & HENRY HUB)
ENERGY CORPORATE M&A TRANSACTIONS
$13.1
$4.8
$2.3
$9.9
$2.7 $2.5
$0.0 $0.3 $0
$3
$6
$9
$12
$15
2014 2015 2016 2017 2018 2019 2020 2021 YTD
($bn)
Energy IPO Issuances
$46.2
$32.9
$28.8
$40.6
$32.3
$19.6
$40.3
$26.9
$0
$10
$20
$30
$40
$50
2014 2015 2016 2017 2018 2019 2020 2021 YTD
($bn)
High Yield Issuances
2.8%
10.1%
0%
2%
4%
6%
8%
10%
12%(%)
Energy as a % of S&P 500
ENERGY AS A % OF S&P 500 & ENERGY IPOS
0%
5%
10%
15%
20%
25%(%)
Broad Market High Yield Energy High Yield SP500 Dividend Yield
ENERGY HIGH YIELD ISSUANCES & YIELDS VS. MARKET
$39.4
$11.0
$22.7 $30.3
$43.4
$74.4
$45.3
$20.4
51
33
50
27
36
26
39
12
0
10
20
30
40
50
60
$0
$20
$40
$60
$80
2014 2015 2016 2017 2018 2019 2020 2021 YTD
(No.)($bn)
Transaction Value ($bn) Transaction Count
$0
$3
$6
$9
$12
$0
$30
$60
$90
$120
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21
($/MMBtu)($/bbl)
WTI Crude Henry Hub Gas
9
1.1x 1.2x
1.1x0.9x
1.4x1.2x 1.2x
1.0x 1.0x0.9x 1.0x
96.4%
70.6%
74.3%
50.2%
66.6%
39.3% 43.7%
12.0%8.4% 6.8% 7.1%
0%
25%
50%
75%
100%
0.0x
0.4x
0.8x
1.2x
1.6x
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(%)(x)
MOIC Distribution to Paid-In (DPI)
25%
30%
35%
40%
45%
50%
55%(%)
% Private
Source: Enervus, Simmons, Bloomberg, Pitchbook, Preqin.Note: Energy PE Vintage returns and DPI based on 189 US private equity funds launched between 2010-2020
UPSTREAM PE CAPITAL RAISED
UPSTREAM ACQUISITION & DIVESTITURE TRANSACTIONS
$68.2
$21.5
$48.8 $40.0
$44.0
$21.5
$6.2 $6.6
809 1,042
1,368
1,693
1,104
643
288 104
0
500
1,000
1,500
2,000
$0
$20
$40
$60
$80
2014 2015 2016 2017 2018 2019 2020 2021 YTD
(No.)($bn)
Transaction Value ($bn) Transaction Count
$12.8 $12.3 $10.9
$16.1
$6.7
$3.2
$0.6 $0
$5
$10
$15
$20
2014 2015 2016 2017 2018 2019 2020
($bn)
Annual Upstream PE Capital Raised
Post-2014 vintage funds have not returned capital to investors
US RIG COUNT & PRIVATE OWNERSHIP (%)
791 790 771
565
348274 255 250 257 280 311 341 374 397 408 437 457
0
150
300
450
600
750
900
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21
(No.)
Total U.S. Rigs
ENERGY PE VINTAGE RETURNS AND DPI
Spotlight - Energy Markets
10
Summary: Accomplishments and PrioritiesENRI
Source: Performance data from State Street as of 12/31/20
2020 ACCOMPLISHMENTS 2021 PRIORITIES
• Performanceo Overall, generated IRR of (2.3%), 1.1% and 5.2% for 1, 3
and 5-year periods, respectively
o Principal investments generated IRR of (2.5%), (0.5%) and 3.8% for 1, 3 and 5-year periods, respectively
• Team Updateo Filled four positions in 2020 (three onboarded virtually)
• Portfolio Constructiono Implemented risk assessment tool for principal
investments
• Capital Plan Impacto Approximately $1.4 billion
$1.0 billion to Premier List manager funds
$390 million to Principal Investments
• Commit approximately $2.0 billion with 40% in Principal Investments
• Build the Fleeto Successfully established TRICOT presence, consisting of
one transfer and one Blackrock secondeeo Hired 2020 summer intern through revised intern
program
• Portfolio Constructiono Comprehensive review of energy investment landscapeo Review of infrastructure market mapo Development of expanded Principal Investments
programo Assessing secondary opportunities
• Organizational Structureo Formalizing roles and responsibilities
APPENDIX
12
OrganizationEN RI Team
* EN RI investment committee (EN RI IC) members; x EN RI IC also includes Eric Lang
Carolyn Hansard*Sr. DirectorBS, UT AustinMBA, UT Austin
Eric Chang*DirectorBBA, UT Austin
Emerson HalsteadInvestment ManagerBS, UT AustinMBA, Indiana University BloomingtonMA, H arvard University
Maddie K urapati, Sr. AssociateBS, O smania University, IndiaMS, Stanford UniversityMBA, UT Austin
Chris F uscoAssociateBA, Bates CollegeMSF, V illanova University
Matt L enzAssociateBBA, UT Austin
Emiliano De L eonAnalystBBA, UT San Antonio
TRICOT ( EN RI)
Andrew CoxAnalystBA, Emory UniversityMIF, H EC Paris
DeMarius McK eeAssociateBS, UT Dallas
V acantAdm i ni s trati v e As s i s tant
Daniel J udd, CF A*DirectorBBus, Griffith UniversityMBA, Bond University
Ryan Z afereo*DirectorBBA, UT Austin
13
Market ConditionsEN RI
Source: FactSet, Preq in, Industry Research
• Infrastructure assets have generally performed well throughout the COVID-19 pandemic with the exception of some transportation assets, specifically roads and airports. Energy continues to experience volatile and uncertain outlook. Telecommunications has been resilient given digitalization and WFH trends.
• Public/Private Trading Multiples Present Mixed Opportunities. Significant growth is priced into Telecommunications, while Transport is priced to normalize to pre-COVID activity levels.
• Abundant Private Capital and Dry Powder targeting Infrastructure. Energy continues to struggle with new capital formation.
• Capital markets availability has promoted deal activity in infrastructure market; energy markets closed for all but a few energy companies.
EN RI TREN DIN G TOWARDS A DIV ERSIF IED PORTF OL IOAttractive ( To Buyer) U nattractive ( To Buyer)
Industry F undamentals
Public V aluation
TransactionComps
PE $ Raised
Capital Markets Availability
TelecommunicationsTransportationEnergy Power & Renewables
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Neil Randall, Managing Director
Private Equity
July 2021
2
Overview
• Private Equity in the Trust
• 2020 Performance
• Capital Plan
• Spotlight – Venture Capital
• Accomplishments and Priorities
3
Risk Parity 8%
PE 14%
Global Equity54%
Real Return21%
Stable Value21%
Risk Parity 8%
Net Asset Allocation Leverage (4%)
Role in the TrustPrivate Equity (PE)
Source: State Street as of 3/31/21Note: Per the TRS Investment Policy Statement, target allocation weights represent transitional benchmarks (2006-2014), long-term target allocations (2015-present)
HISTORICAL TRUST ALLOCATIONPE TARGET % OF TRUST
4
Performance Summary($M)
Source: State Street based on 12/31/20 valuations; TWR and TUCS as of 3/31/21Note: Legal fees are included in the total aggregate IRR and TWR performanceNote: Since Inception IRR of PE Portfolio reflects performance since June 1992, the strategies within the portfolio have various inception dates
PORTFOLIO STRATEGY SUMMARY
StyleTarget Portfolio
Weight% of Portfolio Investment Returns
12/31/2020 12/31/2017 Change 1-Year IRR 3-Year IRR SI IRR
Total Buyout 87.5-90% 77.5% 77.6% (0.1%) 23.2% 14.3% 14.4%
Mega Buyout (>$7bn) 30-35% 40.3% 34.1% 6.2% 24.5% 14.7% 12.7%
Large Buyout ($3-7bn) 12.5-17.5% 27.9% 31.9% (4.0%) 22.8% 15.8% 17.0%
Mid/Small Buyout (<$3bn) 12.5-17.5% 9.3% 11.6% (2.3%) 18.6% 9.0% 14.5%
Venture / Growth Equity 10-12.5% 13.3% 10.2% 3.2% 45.8% 28.6% 12.8%
Credit / Special Situations 0.0% 9.2% 12.2% (3.0%) 6.6% 6.8% 11.1%
PRIVATE EQUITY TOTAL 100% 100.0% 100.0% 0.0% 23.4% 15.0% 13.7%
FUNDS AND PRINCIPAL INVESTMENT PERFORMANCE
PortfolioMarket % of No.
(active)
1-Year 3-Year 5-Year 1-Year 3-Year 5-Year SI
Value Portfolio TWR TWR TWR IRR IRR IRR IRR
Funds $21,625 72.5% 211 26.0% 15.8% 14.9% 26.2% 15.7% 14.8% 13.4%
Principal Investments 8,217 27.5% 70 17.8% 12.9% 14.7% 16.3% 13.2% 14.7% 16.5%
Total $29,842 100% 281 23.6% 14.8% 14.6% 23.4% 15.0% 14.8% 13.7%
PORTFOLIO PERFORMANCE
Asset Class1 Year 3 Year 5 Year
Return Return Return
Private Equity IRR 23.4% 15.0% 14.8%
Private Equity TWR 23.6% 14.8% 14.6%
Private Equity Benchmark 25.4% 15.6% 14.8%
Private Equity Excess Return (1.8%) (0.8%) (0.1%)
TUCS Peer (Percentile) 38th 23rd 18th
PORTFOLIO GROWTH
Private Equity ($ millions) 1 Year 3 Year 5 Year
Ending Value $29,842 $29,842 $29,842
less Staring Value 23,706 19,727 15,361
less Contributions 4,318 12,570 19,698
plus Distributions 3,851 12,790 20,334
Investment Return $5,670 $10,335 $15,117
5
Performance SummaryTRS Vintage Year Comparison
Source: State Street as of 12/31/20
• PE outperformed the pooled average vintage year benchmark 13 out of the last 21 years
TOTAL PE PORTFOLIO VERSUS BENCHMARK
23.3%21.1%
12.4%
28.3%
13.4%10.9%
8.0% 8.6%
14.8% 15.1%
10.5%
14.7%13.8%
10.2%
16.9%18.2% 18.9%
26.9%
22.7%
21.0%
41.6%
9.7%
16.6%18.7%
17.4%
13.2%
9.2%6.6%
10.0% 11.3%
14.3% 14.0% 14.4%
16.7%
13.2%16.1%
17.5%
21.0% 21.6%
26.0%27.8%
35.1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
($ b
illio
ns)
TRS Vintage Year SI IRR PE Benchmark Vintage Year SI IRR
6
… $0.3 $0.7 $1.1 $1.1 $1.5 $2.9 $3.1
$5.2 $7.3 $7.8
$9.0 $9.6 $9.0 $7.2
$7.9 $9.3 $8.6
$10.0 $12.3
$0.3 $0.5 $0.9 $1.5 $2.0
$2.8 $4.7 $4.9
$6.8
$9.6 $11.4
$13.3 $14.9
$15.8 $15.4 $17.0
$19.7 $21.6
$23.7
$29.8
$-
$5
$10
$15
$20
$25
$30
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
($ b
illio
ns)
Market Value - Public Market Market Value - Private Market
PerformancePE Value Added
Source: State Street as of 12/31/20Note: Public Market values calculated by assuming investments were made in the MSCI All Country World Index in the same size and timing as TRS Private Equity cash flows
• $17.5 billion of value added net of fees to 2020
• Since inception alpha versus MSCI All Country World Index: 498 bps
PRIVATE EQUITY PERFORMANCE RELATIVE TO PUBLIC MARKETS
7
PerformancePE Principal Investments Program
Source: State Street as of 12/31/20Note: Target is long-term target for Principal InvestmentsNote: IIC approved the PE Small Deals program in March 2018
• PE continues to focus on Principal Investments with increased transaction volumes through innovative structures
PRINCIPAL INVESTMENT MARKET VALUE OVER TIME TARGET
91% 88% 85% 83% 79% 77% 74% 72% 72%
9% 12% 15% 17% 21% 23% 26% 28% 28%
0%
25%
50%
75%
100%
2012 2013 2014 2015 2016 2017 2018 2019 2020
Funds Principal Investments
65%
35%
Funds Principal Investments
8
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9
Spotlight – Venture Capital Performance Today vs. the Tech Bubble
• TRS is underweight venture versus its benchmark due to scale and access considerations; in current venture return environment this creates headwinds to achieve benchmark alpha
• Recent venture returns have been extremely high (57% over the past three quarters), but still well below the level experience in the tech bubble (‘99-’00)
• The 2020 IPOs were substantially more seasoned and larger than in the tech bubble, however the percentage of profitable companies at the time of IPO dipped back into the teens (versus long-term average and median of ~50%)
Sources: SSPEI, TPG, TRS IMD
The 3/31/21 1-Yr venture return is an estimate based on TRS data (not SSPEI)
-40.0%
10.0%
60.0%
110.0%
160.0%
210.0%
3/1/1997 3/1/2000 3/1/2003 3/1/2006 3/1/2009 3/1/2012 3/1/2015 3/1/2018 3/1/2021
Rolling 1-Yr Returns (1997-2021)SSPEI All Venture Index
Venture Backed IPO MetricsTech Bubble vs. Today
Peak of Tech Bubble4 consecutive quarters of
>150% 1-Yr returns
Post PandemicPrior 3 quarters have an average 1-Yr return of
57%
IPO MetricsTech Bubble (1999/2000)
Median Age of Co. 4-5 Years
Median Revenue $12mm
Median Mkt Cap $500-$700mm
% Profitable 14%
Today (2020)
12.5 Years
$202mm
$4,300mm
19%
10
Summary: Accomplishments and PrioritiesPE
Source: Performance data from State Street as of 12/31/20; TUCS as of 3/31/21
Accomplishments 2021 Priorities
• Performance
o Generated attractive absolute returns across all time periods; 23.4% 1-yr IRR, 15.0% 3-yr IRR
o Ranked in the top quartile versus peer universe (TUCS) for 3- and 5-Year Return periods
o Successfully recruited five new team members
o Scott Ramsower elected to the ILPA Board of Directors
o Justin Wang recognized in Private Equity International 40 under 40
• Capital Plan Impact
o Approximately $2.1 billion
▪ $1.1 billion to Premier List Funds
▪ $0.25 billion to SPN
▪ $0.64 billion to Principal Investments
▪ $0.12 billion to Emerging Managers
• Commit $3 billion with ~30% in Principal Investments
o Build out market maps and make Premier List additions with a focus on U.S. small/mid buyouts
o Generate principal investment deal flow via strong partnerships with existing Premier List managers
• Fleet Building
o Recruiting for seven positions in 2021 (net two additions); four accepted offers with July-August start dates
o Growing TRICOT office by adding PE Funds coverage (in Sept 2021)
• Review PE Benchmark
o Assess PE Benchmark for potentially better performance measurement alternatives (Aon engaged)
APPENDIX
12
OrganizationPE Team
* Private Equity Investment Committee (PEIC) members; PEIC also includes Eric LangMikhael Rawls and Edward Stroud will transition to the TRICOT office in August/Sept 2021
Neil Randall*
Managing Director
BBA, Texas A&MMS, Texas A&M
Beth Booker
Assistant
BA, Ursuline CollegeMLIS, Kent State University
Scott Ramsower*
Head of Funds
Director
BBA, Texas A&M
Michael Lazorik*
PI Head / Technology
Director
BBA, UT Austin
Justin Wang
Investment Manager
BBA, UT Austin
Deniz Oran
Sr. Associate
BBA, College of William & Mary
Kaitlin Miles
Investment Manager
BBA, University of Richmond
Mikhael Rawls, CFA
Investment Manager
BA, Harvard University
To be AnnouncedSr. Analyst
Starts July 2021
Caitlyn Macdonald
Sr. Associate
BA, Williams College
FUNDSPRINCIPAL INVESTMENTS
Will Carpenter, CFA*
PI Head / Industrials
Director
BBA, Texas A&MMS, Texas A&M
To be AnnouncedAssociate
Starts August 2021
To be AnnouncedSr. Analyst
Starts July 2021
To be AnnouncedAssociate
Starts August 2021
Courtney VillaltaDirector BA, St. Edward’s
Thomas Albright, CFA
Financials
Investment Manager
BA, Dartmouth College
Tamara Polewik*
PI Head / Consumer
Director
BA, Dartmouth CollegeMBA, Univ of Chicago
Travis Gauntt
Associate
BBA, Texas Christian UniversityMBA, UT Austin
Heidi Piper
Associate
BA/BS, McGill UniversityMBA, NYU SternMS, DePaul University
D’Oncee Brockington
Sr. Analyst
BBA, UT Austin
Edward Stroud
Sr. Analyst
BA, Washington & Lee University
Jake Melville
Sr. Analyst
BA, Denison University
TRICOT
13
Market ConditionsPE
Source: Preqin; Pitchbook; S&P Leveraged Commentary Data; Bloomberg; Credit SuisseNote: $ Distributed and $ Invested show Q3 2020 annualized data due to data availability; Capital called shown as proxy for $ Invested
• Prices remain high but have fallen below the 2019 peak
• After moderating in Q1/Q2 2020, leverage has increased to peak levels
• Annualized Q1 fundraising outpaced 2019 fundraising
• Dry powder remains at an all-time high
• Rates remain historically low; inflation and potential rates hikes are a focus for monitoring
12/31/19 2007 (Peak) 2009 (Trough)
Attractive (To Buyer) Unattractive (To Buyer)
Price Multiple
LeverageMultiple
$ Distributed
$ Invested
$ Raised
$ Dry Powder
Current Rates
Q1 2021 (Today)
14
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15
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16
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17
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18
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19
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20
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Grant Walker, Senior Director
Real Estate
July 2021
2
Overview
• Real Estate in the Trust
• 2020 Performance
• Capital Plan
• Spotlight - COVID-19 Impact on Real Estate
• Accomplishments and Priorities
3
Role in the TrustReal Estate (RE)
Source: State Street as of 3 / 3 1/ 21N ote: Per the TRS Investment Policy Statement, target allocation weights represent transitional benchmarks (2006 -2014), long-term target allocations (2015 -present)N ote: RE’s current allocation of 13 .1% is underweight due to overall Trust Growth.
HISTORICAL TRU ST AL L OCATION
Risk Parity 8%
Real Return21%
Real Estate15%
Global Eq uity54%
Stable V alue21%
Risk Parity 8%
N et Asset Allocation L everage ( 4%)
RE TARGET % OF TRU ST
4
PORTFOLIO STRATEGY SUMMARY
Strategy Target Portfolio Weight
RE Portfolio Leverage % of Portfolio Investment Returns
12/31/2020 12/31/2017 Change 1-Year IRR 3-Year IRR SI IRRCore 35% - 45% 35.7% 30.0% 36.4% (6.4%) 1.3% 6.1% 9.8%Value Add 10% - 15% 49.5% 14.9% 14.8% 0.1% (2.9%) 2.9% 6.4%Opportunistic 30% - 40% 44.4% 40.1% 34.4% 5.7% 7.6% 10.3% 8.2%RASS 10% - 15% 58.9% 14.4% 13.2% 1.2% (0.7%) 4.9% 11.3%Other Real Assets 0.0% 3.3% 0.6% 1.2% (0.6%) 17.2% 4.5% 1.8%REAL ESTATE TOTAL 100% 45.1% 100.0% 100.0% 0.0% 2.9% 7.0% 8.6%
Performance Summary($M)
Source: State Street based on 12/31/20 valuations; TWR and TUCS as of 3/31/21Note: Inception date of RE portfolio is April 2006 Note: Currency hedges and legal fees are included in the total aggregate IRR and TWR performanceNote: RE Portfolio Leverage from General Partner reporting as of 9/30/20Note: ODCE benchmark had 22.7% leverage as of 9/30/20
PORTFOLIO PERFORMANCE
Asset Class1 Year 3 Year 5 YearReturn Return Return
Real Estate IRR 2.9% 7.0% 8.8%Real Estate TWR 3.2% 7.0% 8.8%Real Estate Benchmark 0.3% 4.0% 5.3%Real Estate Excess Return 2.8% 3.0% 3.6%TUCS Peer (Percentile) 27th 15th 17th
FUNDS AND PRINCIPAL INVESTMENT PERFORMANCE
Portfolio PositionMarket % of
No. (active)1-Year 3-Year 5-Year 1-Year 3-Year 5-Year SI
Value Portfolio TWR TWR TWR IRR IRR IRR IRRFunds $11,757 50.0% 147 1.8% 5.6% 7.6% 1.8% 5.6% 7.5% 6.8%Principal Investments 11,756 50.0% 102 5.1% 8.6% 10.9% 4.7% 8.5% 10.7% 14.1%Total $23,513 100% 249 3.2% 7.0% 8.8% 2.9% 7.0% 8.8% 8.6%
PORTFOLIO GROWTH
Real Estate ($ millions) 1 Year 3 Year 5 Year
Ending Value $23,513 $23,513 $23,513 less Staring Value 22,491 17,351 16,402 less Contributions 3,365 13,213 19,480 plus Distributions 2,993 11,205 20,283 Investment Return $650 $4,154 $7,914
5
-0.3%
1.5%
4.2%
10.3% 10.1%
15.1%
5.1%6.9%
5.1%
11.4%
7.6%
16.8%
7.4%
15.6%
21.4%
5.0% 4.1% 4.3%
8.9% 9.1%8.3% 8.0% 7.5% 6.9%
5.6%4.8% 4.3%
2.8%1.3%
4.5%
-5%
0%
5%
10%
15%
20%
25%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
TRS Vintage Yr TWR (SI) ODCE TWR Benchmark (SI)
Performance SummaryTRS Vintage Year Comparison
Source: State Street and NCREIF data as of 12/31/20
• RE’s vintage year investments have outperformed the benchmark 9 out of the last 15 years
• Portfolio positioning and security selection the past five years has been successful
TOTAL RE PORTFOLIO VERSUS BENCHMARK
6
PerformanceRE Principal Investments Program
Source: State Street as of 12/ 3 1/ 20N ote: Target is long-term target for Principal Investments
• RE has maintained its target allocation of 50% Funds and 50% Principal investments
• Committed approximately $2.2 billion to Principal Investments in 2020
PRIN CIPAL IN V ESTMEN T MARK ET V AL U E OV ER TIME TARGET
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8
Spotlight – COVID-19 Impact on Real Estate
Source: Costar, AEW Research, USAA, NCREIF, TRS Research
Single Family Rental: (Positive Impact)• Rent collections and occupancy levels were stronger than multifamily• Rent growth continued despite the challenging economic environmentStudio/Media: (Positive Impact)• Occupancy near 100% for quality product in major markets• Massive demand for content translating to increase in demand for studiosLab/Life Sciences: (Positive Impact)• Investor demand rose sharply since the onset of pandemic, pricing higher• Strong rent growth; virtually no vacant space in the top LS marketsSeniors Housing: (Neutral Impact)• Sector improving quickly as seniors received priority access to vaccination• Occupancy bottomed in Q4’20 around 77%, up to 79% in Q1’21Student Housing: (Neutral (Short-Term) Impact)• School was out for 2020, Fall ‘20 demand/occ. weak; sharp rebound in ‘21
COVID IMPACT (TO-DATE) – ODCE PROPERTY TYPES COVID IMPACT (TO-DATE) – ALTERNATIVE PROPERTY TYPES
Industrial: (Positive Impact)• Accelerated shift to e-commerce boosted outlook; strong performance
uninterruptedApartment: (Neutral (Short-Term) Impact)• Collections held, but rents & occupancy dipped in Q2 & Q3 of 2020• Sharp rise in demand, rent levels, & capital markets (pricing & trans. Vol.)
• Q1’21 saw the largest net absorption rate in U.S. history; 2x supplyOffice: (Neutral Impact)• Outlook most uncertain of the major sectors as many still haven’t RTO• Companies adopting flexible remote work; what is the impact to long-term
demand?Retail: (Negative Impact)• Retailers have re-opened; situation improving with surge in spending• Questions loom: How long to collect back-rent/deferrals? Who will fill
vacancies caused by permanent closures and bankruptcies?Hospitality: (Negative Impact)• Hotels are open; travel has resumed; business travel slower to recover• Close to 60% occupancy in the U.S.; long-term impact to business travel?
(Just Zoom!)
9
Summary: Accomplishments and PrioritiesRE
Source: Performance data from State Street as of 12/31/20; TUCS data as of 03/31/21
2020 Accomplishments 2021 Priorities• Performance
o Generated a 2.9% 1-yr IRR and 7.0% 3-yr total IRRo TRS RE team beating benchmark on 1-, 3-, and 5-year
period Returned 3.2% and 7.0% TWR, respectively, for 1- and 3-
year periods – 27th and 15th TUCS ranking for both periods
• Team Updateo Filled one new position in 2020
• Maintained allocation of 50% to Funds and 50% to Principal Investments
• Capital Plan: Committed $3.2 billion toward a $4.2 billion plano $949 million to Fundso $2.2 billion to Principal Investments
• Commit approximately $3.2 billion with 50% in Principal Investments
• Real Estate Portfolio Frameworko Implement long-term strategic plan for RE portfolio
based on our strategic design and operating model
• Improve Data Analytics & Portfolio Reportingo Integrate Data Analytics tools into investment memos
and analysis
• Build the Fleeto Adding 3 new team members by late Summer 2021
• Long Term Facilitieso Collaborate with Red River and IMD Exec teams for TRS
Agency wide planning
APPENDIX
11
OrganizationRE Team
* Real Estate Investment Committee (REIC) members; REIC also Includes Eric Lang** Chase Lewis will transition to the TRICO T office in August 2021
12
What to watch?• Cap Rates: Outcomes vary, but are still low
• Few transactions, but Apartment, Industrial ; Office, Retail, Hotel
• Where will cap rates head as volume picks up?
• Dependent on inflation, interest rate movements, and capital flows
• Global Interest Rates remain near zero
• As economies emerge from the pandemic and inflationary pressures arise, will central banks move quickly to raise rates?
• Investment V olume: As expected, volume plummeted in Q2 and Q3 of 2020 (~ 50% year-over-year)
• Volume recovering (?), down just 9% YOY Q1
• Expected to return to normal in 2H’21 due to pent up transaction supply and demand.
Market ConditionsRE
Source: Preq in, St. Louis Federal Reserve, CMAlert, Real Capital Analytics, Altus, Green Street, J P Morgan, CBRE N ote: “ Today” markers based on 3 / 3 1/ 21 data.
12/31/19 2007 (Peak) 2009 (Trough)
Attractive ( To Buyer) U nattractive ( To Buyer) What has stayed the same?• Dry Pow der is at all-time highs
• Many investors sat out most of 2020
• Core return expectations remain low
Q1 2021 (Today)
; Few transactions, but Apartment, IndustrialOffice, Retail, Hotel
13
RE Strategy Definitions
Core• Institutional quality, best-located and best-leased assets in the market in each of the traditional property types (office, multifamily, retail,
industrial)• Typical leverage is up to 50% loan-to-value (LTV)• 35% - 45% allocation target
Value-Add• Return-enhancing strategies executed at the property level designed to enhance value through execution of one or more of the following
strategies: lease-up, rehabilitation, repositioning• Typical leverage is 50% to 65% LTV• 10% - 15% allocation target
Opportunistic• Broad range of risk and return via opportunity funds, specialized investments, and mezzanine debt or equity with the majority of strategies
involving some level of development or distress• Typical leverage is 70% LTV and higher• 30% - 40% allocation target
Real Assets Special Situations (RASS)• Publicly traded shares of listed REITs (Real Estate Investment Trusts) and REOCs (Real Estate Operating Companies) or other real asset
related entities, public or private real asset debt• 10% - 15% allocation target
Other Real Estate (ORE)• Land and other opportunistic investments providing inflation protection with relatively low expected volatility
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Katy Hoffman, Chief of StaffNeil Randall, Managing Director
Investment Policy Proposals
July 2021
2
Introduction
• This presentation summarizes proposed modifications to the Investment Policy Statement (IPS)
o Presented today for discussion to the Investment Management Committee
• A formal proposal will be presented to the Policy Committee in September 2021 which may then consider recommending the proposed changes to the Board for approval
o Policy Chair to review proposed changes to Investment Policy Statement languageo Memos from Board Advisors will be prepared discussing their views of the proposed changes
3
Proposed Modifications
Modification # Proposed Modifications1 Establish asset class investment committees in the IPS
2 Incorporate Environmental, Social and Governance (ESG) statement
3 Modify Asset Allocation Leverage and Absolute Return benchmarks
4 Modify Private Market offset asset class composition
5 Establish eligible counterparties for repurchase agreements
6 Modify scope of Investment Integrity Questionnaire
7 Clarify and clean up IPS to improve readability and clarity
4
Modification 1Establish asset class investment committees in the IPS
• Proposal
o Acknowledge Asset Class Investment Committees (ACIC) in the IPS as follows:
The IIC may delegate investment discretion to asset class investment committees as established in IIC procedures and guidelines
• Rationale
o Document existing practice of Internal Investment Committee (IIC) approving the delegation of investment decisions to Asset Class Investment Committees
o ACICs are integral to expanding our Principal Investment portfolio and scaling our investment decision making process
Background Information
o ACIC documented for each External Private Market group and for Special Opportunities to approve investments prior to IIC consideration and execute authority delegated by the IIC
o Private Equity created the first ACIC in 2018
5
Modification 2Incorporate ESG statement
• Proposal
o Incorporate ESG statement (see next page) into Article 1.5 Total Funding Investment Standard and Article 1.7 Total Fund Measurement and Reporting Criteria
• Rationale
o It is best practice to have an ESG policy which confirms that ESG aligns with our fiduciary duty The statement also rules out promoting interests unrelated to the portfolio’s return and risk
• Background Information
o IMD study found that approximately 70% of US pension peers either have a stand-alone ESG policy or ESG language in governing documents
o Number of peers with policies continues to increase
6
Modification 2Incorporate ESG statement
Environmental, social, and governance (ESG) factors influence the performance of TRS’s investments. In making investment decisions, the Investment Division will consider ESG factors that are material to long-term returns and levels of risk. Materiality of specific ESG factors vary across strategies, companies, sectors, geographies and asset classes.
All investments must be made prudently and in accordance with fiduciary and ethical standards, without promoting interests unrelated to the portfolio’s stated objectives of controlling risk and achieving a long-term rate of return.
The Investment Division will report at least annually to the Board on the Trust’s ESG efforts, methods and results.
7
Modification 3Modify Asset Allocation Leverage and Absolute Return benchmarks
• Proposal
• Rationale
o LIBOR (London Interbank Offered Rate) will begin to be phased out by the end of 2021 and Secured Overnight Financing Rate (SOFR) is the new market standard
o Increase the spread for the Absolute Return benchmark from 2% to 4% to reflect credit risk and an illiquidity premium
The new 4% spread is in line with the average spread of a broad levered loan index since 2009
• Background Informationo Alternative Reference Rates Committee (ARRC, a private-market participant group convened by the
Federal Reserve Board) set the methodology to determine the spread from LIBOR to SOFR On March 5, 2021, the LIBOR spread to SOFR was set at 26.161 bp, per ARRC methodology
Asset Class Existing Benchmark Proposed Benchmark
Asset Allocation Leverage 3 Month LIBOR SOFR + 26.161 bp
Absolute Return 3 Month LIBOR + 2% SOFR + 4%
8
Modification 3Modify Asset Allocation Leverage and Absolute Return benchmarks
• Irregularities in LIBOR led regulatory agencies to seek an alternative financing rate
o LIBOR is a self-reported rate whereas SOFR is directly observable
o LIBOR also reflects unsecured term borrowing whereas SOFR reflects a secured overnight borrowing rate
• In order to approximate LIBOR, one adds a spread to SOFR to capture unsecured and duration riskso Spread set at the 5-year median difference between
LIBOR and SOFR• Announcement date (March 5, 2021) of LIBOR
termination used to determine spread
o SOFR + 26.161bp = 3 Month LIBOR
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21
Spread 3-month LIBOR SOFR Avg Spread (26.161 bp)Spread 3-month LIBOR SOFR Avg Spread (26.161 bp)
9
Modification 4Change Private Market offset asset class composition
• Proposal
o Change Private Market offset from 60% US Equity, 20% Non-US Developed Equity, 20% Government Bonds to a pro-rata slice of the Public Markets allocation
• Rationale
o Proposed modification is expected to better achieve objectives of 1) reducing trading and 2) maintaining desired diversification within Public Markets without negatively impacting Trust risk and return profile
• Background Information
o In periods where Private Market allocation deviates from Strategic Asset Allocation (SAA) target, the current offset formula can create material rebalancing activity and change intended composition of Public Markets
10
Modification 4Modify Private Market offset asset class composition
• Background:o Given TRS does not tactically allocate to Private Markets, policy benchmark weights for each of Private Equity,
Real Estate and Energy Natural Resources, and Infrastructure (ENRI) are set to the actual weights on a quarterly basis
o Public Market benchmark weights are adjusted so that the Trust’s total benchmark investment exposure remains the same
A B C D E F
Asset Class Policy Benchmark Actual WeightsDeviation from
PolicyPrivate Market
OffsetPolicy
AdjustmentAdj. Benchmark
WeightCol. ( C ) Total * ( D ) Col. ( A ) + ( C ) + ( E )
USA Eq. 18% 60% +3% 21%Non-US Developed Eq. 13% 20% +1% 14%Emerging Market Eq. 9% 9%Private Equity 14% 12% -2% 12%Government Bonds 16% 20% +1% 17%Stable Value HF 5% 5%Real Estate 15% 13% -2% 13%ENRI 6% 5% -1% 5%Risk Parity 8% 8%Total 104% 30% -5% 100% +5% 104%
Current Private Market Offset Methodolody Example
11
Asset Policy Benchmark Actual Dollars Actual WeightsPrivate Market
OffsetAdj. Benchmark
WeightsTrades to get in
balanceUSA Eq. 18.0% 18.0$ 19.4% 60.0% 21.0% +1.6%Non-US Developed Eq. 13.0% 13.0 14.0% 20.0% 14.0% +0.0%Emerging Market Eq. 9.0% 9.0 9.7% 9.0% -0.7%Government Bonds 16.0% 16.0 17.2% 20.0% 17.0% -0.2%Stable Value HF 5.0% 5.0 5.4% 5.0% -0.4%Risk Parity 8.0% 8.0 8.6% 8.0% -0.6%Private Markets 35.0% 27.9 30.0% 30.0% 0.0%AA Leverage -4.0% -4.0 -4.3% -4.0% +0.3%Total 100.0% 92.9$ 100.0% 100.0% 100.0% +3.5%
Private Markets Deviation from Policy Benchmark Weight: -5.0%
Asset Policy Benchmark Actual Dollars Actual WeightsPrivate Market
OffsetAdj. Benchmark
WeightsTrades to get in
balanceUSA Eq. 18.0% 18.0$ 19.4% 25.0% 19.2% -0.1%Non-US Developed Eq. 13.0% 13.0 14.0% 18.0% 13.9% -0.1%Emerging Market Eq. 9.0% 9.0 9.7% 14.0% 9.7% 0.0%Government Bonds 16.0% 16.0 17.2% 23.0% 17.1% -0.1%Stable Value HF 5.0% 5.0 5.4% 8.0% 5.4% 0.0%Risk Parity 8.0% 8.0 8.6% 12.0% 8.6% 0.0%Private Markets 35.0% 27.9 30.0% 30.0% 0.0%AA Leverage -4.0% -4.0 -4.3% -4.0% +0.3%Total 100.0% 92.9$ 100.0% 100.0% 100.0% +0.3%
Current Methodology: Hypothetical Example
Proposed Methodology: Hypothetical Example
Modification 4Modify Private Market offset asset class composition
• Proso Minimize tradeso Cost savingso Maintain diversification
within Public Marketso Buy more equities after
drawdown / sell more equities after a rally
• Conso Comparable risk profileo If underweight Private
Markets, new method will underperform if equities rally
12
Modification 5 Establish eligible counterparties for repurchase agreements
• Proposal
o Define eligible counterparty as one with either a credit rating of A3/A- or higher, a money market fund, an entity created by the Texas legislature, or a public pension fund designated by the CIO.
• Rationale
o Define repurchase counterparty credit risk requirements for clarity
o Expand list of eligible repurchase counterparties to diversify exposure
• Background Information
o TRS utilizes repurchase agreements as one means to source financing and we currently trade with counterparties rated A3/A- or higher
o Repurchase agreements are backed by Treasury collateral and have daily margin requirements minimizing counterparty risk
o Additional proposed counterparties provide:
Comparable if not better credit risks as traditional counterparties given their strong balance sheets
Reduced transaction costs by trading directly without intermediation
13
Modification 6Modify scope of Investment Integrity Questionnaire (IIQ)
• Proposal
o Remove the requirement for an IIQ when TRS is making a direct investment
• Rationale
o Enhances TRS ability to make direct investments into entities by removing the requirement to complete the IIQ
o Direct investments into public securities do not require IIQ completion
• Background Information
o IIQ policy seeks to ensure integrity and conformity with fiduciary duty for TRS investment transactions with regard to firms use of placement agent, political contributions and interactions with TRS Trustees and Texas political candidate and elected officials
o IIQs are completed by external parties prior to receiving a commitment from TRS. External parties are asked to respond to questions including key items such as any contact, existing relationships, and/or fees associated with TRS and any potential commitments
o Executed IIQs are reviewed by the TRS investment teams as well as Legal & Compliance
APPENDIX
15
Proposed offset has comparable risk profile
0%2%4%6%8%
10%12%14%16%18%20%
Rolling 3 Yr. Tracking Error
Current Offset Proposed Offset
0.00.10.20.30.40.50.60.70.80.91.0
Rolling 3 Yr. Correlation of Offsets
• Proposed offset tracking error to Private Markets is higher by 190bp
• Estimated impact to Trust tracking error is 0 – 10 bp
• Correlation between the offsets is high (average 0.96)
0.000.050.100.150.200.250.300.350.400.450.50
Rolling 3 Yr. Beta
Current Offset Proposed Offset
• However, proposed offset has a higher beta to Private Markets
16
ESG Policies Overview
• Approaches to ESG policies and guidelines vary significantly at the global and regional levels
o Different approaches range from relying on the broad nature of an investment policy to capture ESG related risks to creating a standalone ESG policy
• The degree of ESG policy adoption differs by region: Europe > North America > Emerging Markets
o 88% of European pension plans integrate ESG into their investment policy, up from 68% in 2019
o In contrast, pensions in North America are less likely to adopt an ESG policy. However, the level of adoption is trending positively.
Sources: TRS IMD (Peer group consists of 24 of the largest global pensions including 14 from the United States, 4 from Canada, 4 from Europe, and 2 from Asia), Mercer European Asset Allocation Insights 2020
54%29%
17%29%
43%
29%
Peer ESG Policies
Standalone ESG PolicyESG Language in other Governing DocumentsNo ESG Related Governing Documents
Exterior Ring: US Only Peers
Interior Ring:Global Peers
17
ESG Policy Example: ERS – Language in Investment Policy Statement
• Texas ERS has Social/Environmental language embedded within its Investment Policy Statement as part of ERS’ Proxy Voting Policy (Addendum I), as shown below
• Other pensions that have ESG-related language embedded within their respective investment statements and/or proxy polices include State Teachers Retirement System of Ohio, Ohio Public Employee Retirement System, Colorado PERA and Ontario Teachers’ Pension Plan
18
What Are Repurchase Agreements (Repos)?
• Repurchase agreements (repos) are short-term collateralized loans
o TRS lends out Treasuries in exchange for cash
o Length of loan could be as short as one day but could be as-long-as a year or more
o The amount of interest to be paid is agreed upon at start of transaction
o Margin is exchanged daily as the value of the collateral (Treasuries) changes
o At the end of the transaction, Treasuries are returned to TRS and TRS returns the cash plus agreed upon interest
• Repurchase agreements are one tool used by TRS to gain investment exposure above 100%
Start Date:
TRS pays cash + interest
TRS receives Treasuries
TRS receives cash
TRS sends Treasuries
End Date:
COU
TNERPARTY
19
Governance – External Investment Approval Process
TRS Board of Trustees
•Sets and monitors Investment Policy
•Delegates appropriate authority to IMD
•Review investments <1% of trust fund prior to IIC action
•Review and consider investments >1% of Trust Internal Investment Committee (IIC)
•If investment size is <1% of total trust fund, review and approve/reject internally
•If investment size is >1% of total trust fund, submit for board consideration
•TRS Executive Director has veto power over any investments
Investment Management Division Staff (IMD)
•Manage “Premier List” of external investment managers
•Execute on “Texas Way” investment process
Audit and Compliance• Ongoing monitoring of
IMD and IIC investment activities
• Full transparency and access to investment process
TRS Board may subject any investment proposal in the
Transparency Report to Board approval
For investments < 1% of trust fundMonthly Transparency Report, additional
reporting as requested
Investment Recommendation, Due Diligence Support, Consultant Report & Risk Impact