common investment meeting public session · • us equity market – earnings, breadth. •...

THE CITY OF NEW YORKOFFICE OF THE COMPTROLLER

September 17, 2018

COMMON INVESTMENT MEETINGPublic Session

MARKET RETURNSSecond Quarter 2018

3

Market Returns: Q2-2018

Source: State Street

*Average of consultant long-term arithmetic expected returns, as of 2016

Asset Class IndexSecond

Quarter 2018Fiscal Year

Ending 6/18 3 Year 5 Year Expected*

Equities - U.S. Russell 3000 3.9% 14.8% 11.6% 13.3% 7.8%Equities - Developed Intl MSCI World Ex-US 7.0% 4.9% 6.2% 8.9%Equities - Emerging Intl MSCI EMF -8.0% 8.2% 5.6% 5.0% 11.0%Debt - US Govt Long Duration Citigroup Treasury 10+ 0.4% -0.1% 3.5% 4.6%Debt - US Government NYC Treas/Agency +5 0.1% -1.0% 1.9% 2.7% 2.8%Debt - Investment Grade NYC IG Credit -0.9% -0.7% 2.8% 3.3% 3.4%Debt - High Yield Citigroup BB & B 0.9% 2.4% 4.8% 5.1% 6.1%

-0.75 %

Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management

4


• Key Market Themes of Q2 1) Strong US equity returns – continued strong profit growth and continued large scale equity buybacks

YOY Earnings Growth

Index Q2 ’18 Q1 ‘18

Russell 3000 27.1 % 25.7 %

MSCI EAFE 25.5 % 38.2 %

MSCI EM 14.1 % 24.22 %


5


2) Global trade and tariff concerns – US- China, US-Europe, US-NAFTA; concerns led to dollar strength and underperformance of foreign equity markets

Dollar vs DM currencies: Q2=+4.8 %; FY= (0.3%)


6


• Dollar vs EM Currencies: Q2= (9.2 %); FY= (6.2%)


7


• Divergent Equity Returns, US vs Global Markets


8



• Trade/tariff issues – NAFTA and EU resolutions, China remains an ongoing concern.

• US monetary policy – frequency and amount of additional interest rate increases, balance sheet strategy; US Treasury Yield Curve Flattening.

• US Equity market – earnings, breadth.• Emerging Market risks – Turkey and Argentina concerns, potential for

contagion growth. • Italian politics- fiscal concerns.• Japan Monetary Policy – reversal rate, ability to continue

accommodative monetary policy, expanding 10-yr yield target.• Brexit- ongoing negotiations with EU.

9

Current Global Macro Issues


10

Current Market Themes• US Monetary Policy - Is flattening of US Treasury Yield curve signaling a recession?


https://research.gs.com/content/research/en/reports/2018/08/22/51a501eb-64b6-48ff-83e7-df219727e154/_jcr_content/report/chapter_2/exhibitGroup_1/exhibit_1.img.png

https://research.gs.com/content/research/en/reports/2018/08/22/51a501eb-64b6-48ff-83e7-df219727e154/_jcr_content/report/chapter_2/exhibitGroup_1/exhibit_1.img.png

11

Current Market Themes

• 3 mo – 18 mo yield curve – market based expectations of future fed funds change, does not indicate recession.


12


• Term premium – additional yield required by investors for investing in long duration bonds, remains very low.


• Real fed funds rate (fed funds – inflation) – historically has risen to 2% - 4% prior to beginning of recessions.

13



• Chicago Fed Financial Conditions Index

14


Tighter

Accommodative


15

Returns of R3KPerform

Contributions to Return of Russell 3000

Q2 FY

Amazon 10.86% 13.48%

Apple 9.97% 7.25%

Facebook 7.78% 2.72%

Google 2.61% 1.93%

Netflix 4.36% 5.71%

Q2 FY3.9 % 14.8 %

Russell 3000 Performance

Performance and Valuation

FY (return %) Market Cap PE Ratio

75% $ 950 B 200 X

28% $ 1 T 20 X

28% $460 B 22 X

20% $800 B 30 X

160% $150 B 160 X


Index ’17 (actual)

’18 (est.) ’19 (est.)

Russell 3000

12 % 19 % 7 %

MSCI EAFE 19 % 7.5 % 7.5 %

MSCI EM 25.7 14.1 12.1

16

Year Over Year Earnings Per Share Growth and Valuations

YOY EPS Growth

1-yr fwdP/E

Current P/B

17.7 X 3.2

13.5 X 1.65

11.3 X 1.68

Valuations


17


Consumer Discretionary,

6.83%

Consumer Staples, 7.32%

Energy, 3.30%

Financials, 20.42%

Health Care, 9.09%Industrials, 4.25%

Technology, 47.51%

Materials, 0.80%

S&P 500 2018 Share Buybacks

• Buybacks


PERFORMANCE REPORTINGSecond Quarter 2018

19

NYC Retirement Systems Asset Allocation (% , in millions)


OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management

$195,771m Total Asset Allocation for all 5 Systems as of June 30, 2018

Net of fees in public asset classes are recorded on an accrual basis.Private markets data is reported on a lagged basis

NYC Pension System Portfolio Std Dev - 1 yr.

3 Month Fiscal YTD Three Year Trailing

BERS 5.11% 0.81% 10.37% 8.43%

TRS 4.57% 0.57% 8.12% 7.38%

NYCERS 4.51% 0.66% 8.56% 7.58%

POLICE 4.45% 0.95% 9.41% 7.82%

FIRE 4.36% 1.05% 9.30% 7.74%

Public Mkt Equiv 65/35 1.35% 7.64% 6.75%Median Fund - TUCS 1.11% 8.67% 7.47%

20

Total NYC Pension Fund Net Performance as of 06/30/2018

Source: State StreetOFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management

21

Asset Allocation Review - Growth


Relative Mix to Adjusted New Policy Weights


22

Asset Allocation Review – Inflation Protection




23

Asset Allocation Review - Deflation Protection




24

Treasury Duration Actual Vs. Target as of 06/30/2018

TRS, 8.4

NYCERS, 6.1

Police, 8.7 Fire, 8.4

BERS, 5.6

TRS, 17.1

NYCERS, 10.6

Police, 17.1 Fire, 17.1

BERS, 10.6

0.0

3.0

6.0

9.0

12.0

15.0

18.0

21.0

0 1 2 3 4 5 6

Actual Target



25

Fiscal Year to Date Return as of 06/30/2018 – Total Portfolio

-1100

-900

-700

-500

-300

-100

100

300

500

700

900

1100

FYTD Portfolio FYTD Benchmark FYTD Excess

bps

TRS

NYCERS

Police

Fire

BERS

Basis Points of Excess Return (SSB N, p.30; T, F p. 31; P p.32; B p.33)

Source: State StreetOFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management

26

Fiscal Year to Date as of 06/30/2018 Excess Return – Total Portfolio

-1,100

-900

-700

-500

-300

-100

100

300

500

700

900

1,100

FYTD Total Excess Return FYTD Asset Allocation FYTD Manager Value Added

bps

TRS

NYCERS

Police

Fire

BERS


Basis Points of Excess Return (SSB N, p.15; T, F p.16 ; P p.17; B p.18)


27

Value Added – Total Domestic Equity

-600

-400

-200

0

200

400

600

QTD FYTD 3 Year Trailing

TRS: 27.47%NYCERS: 27.64%POLICE: 29.94%FIRE: 28.56%BERS: 30.74%


Weights as of06/30/2018

bps



28

Value Added – Total Domestic Small Cap

-600

-400

-200

0

200

400

600





bps



29

Value Added – Total Domestic Mid-Cap

-800

-600

-400

-200

0

200

400

600

800


TRS: N/ANYCERS: N/APOLICE: 1.54%FIRE: 2.14%BERS: 2.66%



bpsBasis Points of Excess Return (SSB F p.31 ; P p.32; B p.33)


30

Value Added – Total World Ex-USA

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000





bps

Basis Points of Excess Return (SSB; T, N p.32; F p.33; P, B p.34)


31

Value Added – Total Emerging Markets

-600

-400

-200

0

200

400

600





bps

Basis Points of Excess Return


32

Value Added – Total Structured Fixed Income

-600

-400

-200

0

200

400

600





bps

Basis Points of Excess Return (SSB; T p 35; N, B p.36; F, p.37; P p.38)


33

Value Added – High Yield

-600

-400

-200

0

200

400

600





bps



34

Value Added – Bank Loans

-600

-400

-200

0

200

400

600





bps



35

Value Added – Economically Targeted Investments

-600

-400

-200

0

200

400

600


TRS: 0.87%NYCERS: 1.26%POLICE: 1%FIRE: 0.74%BERS: 0.58%



bps

Basis Points of Excess Return (SSB; T, B p 36; N, F p.38; P p.39)


Value Added- Hedge FundsBasis Points of Excess Return

-600

-400

-200

0

200

400

600


POLICE: 5.02%

FIRE: 4.51%



36

bps

Value Added - Hedge FundsBasis Points of Excess Return (SSB F p.61; P p.63)


FY 2018 Hedge Fund Returns

Performance shown net of fees

2Prepared by THE OFFICE OF NEW YORK CITY COMPTROLLER SCOTT M. STRINGER | Bureau of Asset Management

PRIVATE MARKET DATA

39

Value Added - Opportunistic Fixed Income (OFI)

-600

-400

-200

0

200

400

600

Excess Return Since Inception; PME Benchmark: 50% JP Morgan Global High Yield 50% CS Leveraged Loans as of 6/30/18

TRS - 10/24/2007

NYCERS - 10/24/2007

Police - 10/24/2007

Fire - 10/24/2007

BERS - N/A

Inception Date

300bps Target


Basis Points of Cumulative IRR above Public Market Equivalent

bps

The PME Spread is the difference between the IRR and the PME Benchmark.


40

Value Added - Private Equity

-600

-400

-200

0

200

400

600

Excess Return Since Inception; The PE Benchmark is the Russell 3000 + 300 bps as of 03/31/18

TRS - 07/08/99

NYCERS - 03/29/99

Police - 03/29/99

Fire - 03/29/99

BERS - 07/20/06

Inception Date

300bps Target

Source: StepStone Group & Hamilton Lane

Basis Points of Cumulative IRR above Public Market Equivalent

bps



41

Private Equity Value Added – PME Spread By Vintage Year as of 03/31/18

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

PRE-2011 2011 2012 2013 2014 2015

Pre-2011 2011 2012 2013 2014 2015 TRS - PME Spread -1.20% 3.20% 4.90% 2.40% 4.70% 6.80% NYCERS - PME Spread -1.20% 2.50% 5.50% 2.40% 4.90% 4.40% Police - PME Spread 0.00% 2.90% 6.80% 2.20% 5.20% 4.30% Fire - PME Spread 0.40% 2.90% 7.20% 2.00% 5.40% 4.60% BERS - PME Spread -0.40% 0.00% 7.50% 2.10% 5.10% 5.10%

TRS - PME Spread NYCERS - PME Spread Police - PME Spread Fire - PME Spread BERS - PME Spread

Perc

enta

ge

Source: StepStone Group & Hamilton Lane


42

Value Added - Private Real Estate – Non-Core

-900

-700

-500

-300

-100

100

300

500

700

900

Excess Return Since Inception; Non-core = 60% Equities Russell 3000 & 40% Barclay Agg. as 03/31/18

TRS - 12/6/2002

NYCERS - 12/6/2002

Police - 12/6/2002

Fire - 12/6/2002

BERS - 04/11/2011

Inception Date


Basis Points of Cumulative IRR above Public Market Equivalentbp

s



43

Private Real Estate (Non-Core) Value Added - PME Spread By Vintage Year as of 03/31/18


-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%

PRE-2011 2011 2012 2013 2014 2015Pre-2011 2011 2012 2013 2014 2015

TRS - PME Spread 1.84% 7.45% 5.90% 6.25% 4.05% 2.18% NYCERS - PME Spread -1.38% 7.45% 7.81% 6.68% 5.61% 4.17% Police - PME Spread -3.80% 7.31% 9.14% 6.88% 11.24% 4.19% Fire - PME Spread -6.70% 7.65% 8.98% 7.57% 12.50% 4.11% BERS - PME Spread 10.36% 11.85% 4.79% 2.27% 4.08%


Perc

enta

ge


N/A

44

Value Added - Infrastructure

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

Excess Return Since Inception; PME Benchmark: 50% R3000 & 50% Barclays Agg. as of 03/31/18

TRS - 11/19/2013

NYCERS - 11/19/2013

Police - 11/19/2013

Fire - 11/19/2013

BERS - 11/19/2013

Inception Date

Source: StepStone Group

Basis Points of Cumulative IRR above Public Market Equivalentbp

s



45

Infrastructure Value Added – PME Spread By Vintage Year as of 03/31/18


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

VINTAGE -2013 VINTAGE -2014

Vintage -2013 Vintage -2014 TRS - PME Spread 6.4% 9.9% NYCERS - PME Spread 6.3% 9.1% Police - PME Spread 6.3% 10.7% Fire - PME Spread 6.3% 10.4% BERS - PME Spread 6.3% 10.4%


Perc

enta

ge

Source: StepStone Group

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