investment report - tennessee department of … · 2017-06-27 · e-mail: [email protected] susan...
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INVESTMENT REPORT
TENNESSEE CONSOLIDATED RETIREMENT SYSTEM
Third Quarter Fiscal Year 2016 - 2017
January 1, 2017 – March 31, 2017
Prepared for: Board of Trustees
June 23, 2017
Investment Advisory Council
Pursuant to T.C.A. Section 8-37-108, the State Treasurer shall nominate, with the advice and consent of the Board of Trustees, the Investment Advisory Council, comprised of five senior investment professionals in the Tennessee investment community, who shall have at least five years professional experience as a portfolio manager, economist or an investment advisor in any field of which investments of TCRS funds are authorized. The term of appointment is for five years. Also, the treasurer may nominate two (2) additional members for the three year terms.
The TCRS investment staff consults at least semi-annually with the Advisory Council on a formal basis for strategy and guidance, and on an informal basis as needed.
The current members are as follows:
Council Member Expiration of Term Appointed Term
Frederick S. Crown, Jr., CFA June 30, 2017 5 year124 Longwood Place Nashville, TN 37215 Phone: 615-347-0343 E-mail: [email protected]
Susan Logan Huffman, CFA June 30, 2016 5 yearManaging Director Reliant Investment Management, LLC 1715 Aaron Brenner Drive, Suite 504 Memphis, TN 38120 Phone: 901-843-0600 / Fax: 901-843-0325 E-mail: [email protected]
George B. Stadler, CFA June 30, 2015 5 year5130 Ashland City Hwy Nashville, TN 37218 Phone: 615-416-3455 cell E-mail: [email protected] Carol Womack, Principal Diversified Trust Company 3102 West End Avenue, Suite 600 Nashville, TN 37203 Phone: 615-386-7302 E-mail: [email protected]
June 30, 2015
3 year
TENNESSEE CONSOLIDATED RETIREMENT SYSTEM
Third Quarter
Fiscal Year 2016-2017
January 1, 2017 – March 31, 2017
TABLE OF CONTENTS Page Minutes of March 27, 2017 IAC Meeting ..............................................................1 Portfolio Overview...................................................................................................3 Equity Portfolio ........................................................................................................5 Fixed Income Portfolio ..........................................................................................17 Real Estate Portfolio ..............................................................................................25 Private Equity Portfolio .........................................................................................29 Strategic Lending Portfolio……………………………………………………....31 Derivative and Currency Activity ..........................................................................34 Operations Report ..................................................................................................39
Minutes of the Meeting of the Investment Advisory Council March 27, 2017
The Investment Advisory Council of the Tennessee Consolidated Retirement System (TCRS) met on March 27, 2017 in the Andrew Jackson Building. Council Member George Stadler called the meeting to order at 10:08 AM. Other Investment Advisory Council members present were Treasurer David H. Lillard, Jr. (ex officio), Ms. Susan Logan Huffman, and Ms. Carol Womack. Investment staff members present included Mr. Michael Brakebill, Derrick Dagnan, Tim McClure, Michael Keeler, Thomas Kim, JP Rachmaninoff, Roy Wellington, Daniel Crews, Stephen Wright, Kushal Gupta, Jim Robinson, Roger Henry, Jennifer Selliers, Matt Haitas, David Bradbury, Neha Sakaria, Jacob Perry, Andrew Messer, and Rhonda Myers. Mr. Brakebill gave an overview of the new investment policy, targets, and strategic changes in allocations. He also reviewed performance as of December 2016 and compared it relative to policy benchmarks and pension funds over several time periods. Next, Mr. Keeler gave an update on domestic equities. He described the main focus which was on addressing issues in the Quant Fund as well as the Sector Fund. As a result, the Quant Fund is now 50 basis points ahead of the benchmark. Finally, Mr. Keeler discussed allocation changes in various portfolios. Mr. Wellington then reviewed International Equities; five managers were hired and funded. The transition trade took place starting the beginning of October and finished the third week of October. Performance tracking of the managers began October 2016. Ms. Womack questioned the selection process and Mr. Stadler asked if TCRS visits the managers when selecting them. The evolution of the manager selection process was discussed; trailing performance was reviewed and manager tenure was prescreened, and questionnaires were issued. The questionnaire response rates were higher than usual due to a streamlined process. Mr. Kim discussed the performance of each fixed income portfolio and overall short positioning versus the recent moves in interest rates. He focused on the low performance of mortgage backed securities and decided more of a focus would be placed on security selection and coupon stack selection going forward. He also reviewed the total return fund’s outperformance via short floating rate assets combined with treasury futures. Ms. Huffman questioned the allocation to treasuries as well as the position in the capital structure. Finally, she inquired about liquidity. He mentioned a rotation from both the corporate bond and MBS portfolios into short ABS and the top of the capital structure. Finally, he and Mr. Brakebill reviewed the reduction of the TBA strategy from $350 million to $200 million. Mr. Rachmaninoff reviewed the real estate portfolio which is now 8% of the entire portfolio. Occupancy rates are relatively high with office buildings at 89.3% and industrial buildings at 98.7%. Compared to the NPI, TCRS is underweight retail and office exposure and overweight apartment and industrial buildings. The group continues to lighten their suburban office exposure. Geographically, they continue to have limited exposure to the Northeast due to difficulties buying real estate in New York City and are overweight Texas, mainly Houston, Dallas, and Austin. Mr. Crews reviewed the Private Equity Portfolio’s strong performance, 3.1% for the quarter, 12% annualized. Compared to other pension fund private equity returns, TCRS is the median return over the
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past quarter. On a longer time horizon, TCRS has been second to MassPRIM over the last one, three, five and ten years. Over the coming quarters, the team expects the NAV for leveraged buyouts and growth equity to increase and the NAV for Venture capital to decrease. Annually, the team is currently committing $600 million per year and this is expected to increase to $1.2 billion to achieve the target allocation while continuing to keep quality and performance in mind. Ms. Huffman and Ms. Womack questioned the fee difference between co‐investment versus fund investment. Mr. Crews responded with a discussion on fees, co‐investment, and performance. At this point, Mr. Stadler called a motion to approve the minutes from November 18, 2016. The minutes were approved. Mr. Dagnan then discussed program changes in the strategic lending portfolio. Ms. Huffman asked if the investments are in comingled or separate funds. Mr. Dagnan said $1.6 billion are in nine accounts that TCRS controls and the rest are in locked up vehicles. Fourth quarter performance was driven mainly by a rebound in high yield, namely oil, metals, and mining companies. However, underperformance versus the index came from being in high quality assets while a risk on environment allowed low quality assets to outperform. Going forward, they will look to sell high yield liquid loans and evaluate illiquid opportunities. He discussed two particular investments; renew their investment in a mining finance fund and a European bank capital release strategy. Mr. McClure gave a brief cash cycle update. Cash currently stands at 1% of the portfolio. Trading was down 36% in the fourth quarter of 2016 versus the previous quarter. Commissions were down 34% with the number of brokers constant at twenty‐six. Securities on loan increased from $5.4 billion to $5.5 billion at the end of the quarter. He also discussed the transition to T+2 settlement. Ms. Huffman asked about any challenges that might come about with this. Mr. McClure did not foresee any risks or challenges. Upon seeing no further questions or comments, Mr. Stadler adjourned the meeting at 11:45 AM.
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Performance Review March 2017
Absolute comparison
• 1 quarter return of 4.6% • 1 year return of 10.3% (median fund did 11.5%) • 3 year return of 6.2% (median fund did 6.1%) • 5 year return of 7.8% (median fund did 8.0%) • 10 year return of 5.8% (median fund did 5.4%)
Benchmark (relative) comparison
• Qtr return beat allocation index by 0.4% • 1 year return beat allocation index by 0.1 % • 3 year return beat allocation index by 0.1% • 5 year return beat allocation index by 0.2%
Peer comparison
• 1 quarter return ranked at 33% (0% = best) • 1 year return ranked at 89% • 3 year return ranked at 29% • 5 year return ranked at 57% • 10 year return ranked at 23%
Risk Adjusted Returns (Sharpe Ratio)
The Sharpe ratio measures the amount of return generated per unit of risk taken. TCRS beat 65% of peers as measured via the Sharpe ratio for the trailing 3 year period and 63% for the trailing five year period.
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Key Initiatives March 2017
• People
o Recruiting for a Director of Equity o Recruiting for a Senior Fixed Income Analyst o Recruiting for an Alternative Asset Analyst
• Process
o eFront system implementation o Private Equity and Strategic Lending portfolio review
• Portfolio
o Tactical allocation – neutral o Strategic Allocation Transition to new interim policy targets
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TCRS Asset Allocation
($US millions)
Source: Verus, Inc.
March 2017
0%
50%
100%3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
33.00% 33.21% 33.79% 34.18% 33.15%
3.00% 3.48% 2.96% 2.12%2.09%
12.70% 12.31% 13.75% 14.11%14.64%
4.30% 4.52%4.77% 4.45% 4.85%
26.90% 26.64%25.62% 24.76% 25.65%
5.70% 4.91% 4.05%3.42%
3.32%
7.50% 7.48%7.81%
7.99%7.99%
3.20% 3.44% 3.57%3.73%
3.83%
3.30% 3.64% 3.81%4.25%
4.20%
0.40% 0.36% 0.59% 1.00% 0.29%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017
US Equity Canada Int'l Developed Equity Int'l Emerging Equity US Fixed Income
Inflation Hedged Real Estate Private Equity Strategic Lending Short Term
$42,539 $43,235 $44,405 $44,089
$45,786
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TCRS Domestic Equity
Domestic Equity Portfolio OverviewMichael Keeler, CFA
-2.2%
1.0%
1.2%
-2.50%
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
Large Cap vs 500 Mid Cap vs. 400 Small Cap vs. 600
TCRS Cap Weights vs. S & P 1500 Composite
$3707 m
Small Cap $6674%
Canada Fund$9566%
Quant Fund $1,97312%
S&P 500 Fund $5,54434%
Sector Fund $5,72936%
Mid Cap Fund$1,234
8%
TCRS North American Equity Funds
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TCRS Domestic Equity
Kushal Gupta, CFA, CAIA
March 2017Quant Fund
0.34 0.42 0.40 0.40
0.22
0.49 0.34
0.59 0.70
0.24
0.64 0.48
0.89
(1.28)
(0.27)
1.86
0.63
(0.84)
1.80
(0.22)
(1.16)
(0.61)
(0.80)
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Tota
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Active Percent ExposureSector Weighting Difference
0.21
0.06 0.00
(0.21)
(0.48)
(0.08)
0.43
0.03
(0.11)
0.01 0.04
(0.10)
1 2 3 4 5 6 7 8 9 10 11 12
Relative Return %Forecast Tracking Error 1.30%
S&P 500 finished up 6.06% for the first quarter of 2017. The quant fund was slightly down versus the benchmark S&P500 during the quarter. Technology and Discretionary were the best performing sectors for the fund, while Financials and Health-Care were the worst performing sectors. Like the last quarter, cyclicals sectors outperformed defensive sectors again in this quarter. Also, Growth outperformed Value by a large margin. The Russell 1000 Growth index beat the Russell 1000 Value index by 3% on a total return basis in the first quarter of 2017. Currently, the Quant Fund has a projected annualized tracking error of 1.30% and a projected beta of 1.05, both slightly higher from the last quarter.
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TCRS Domestic Equity
Largest Overweights by Stock in Fund Largest Underweights by Stock in Fund
Ticker Description Ticker DescriptionJPM JPMorgan Chase & Co. 106 INTC Intel Corporation -84AAPL Apple Inc. 106 KO Coca-Cola Company -81MS Morgan Stanley 95 IBM International Business Machines Co -74AMAT Applied Materials, Inc. 89 GOOGL Alphabet Inc. Class A -70LLL L3 Technologies, Inc. 81 BRK.B Berkshire Hathaway Inc. Class B -68COP ConocoPhillips 81 XOM Exxon Mobil Corporation -54GS Goldman Sachs Group, Inc. 79 PG Procter & Gamble Company -49BAC Bank of America Corporation 79 MSFT Microsoft Corporation -48VNQ Vanguard REIT ETF 78 BMY Bristol-Myers Squibb Company -45PH Parker-Hannifin Corporation 75 GE General Electric Company -45AMGN Amgen Inc. 75 GILD Gilead Sciences, Inc. -44CHKP Check Point Software Technologies 75 VZ Verizon Communications Inc. -44MO Altria Group, Inc. 72 UNP Union Pacific Corporation -43PRU Prudential Financial, Inc. 66 QCOM QUALCOMM Incorporated -42KLAC KLA-Tencor Corporation 65 UTX United Technologies Corporation -41NRG NRG Energy, Inc. 63 CVS CVS Health Corporation -40GOOG Alphabet Inc. Class C 57 UPS United Parcel Service, Inc. Class B -36RAI Reynolds American Inc. 57 COST Costco Wholesale Corporation -36NOV National Oilwell Varco, Inc. 57 WBA Walgreens Boots Alliance Inc -35LW Lamb Weston Holdings, Inc. 57 CHTR Charter Communications, Inc. Class -35
Large Cap Quant FundKushal Gupta, CFA, CAIA
Bps Over
Bps Under
March 2017
0.0% 0.0%
1.6% 1.4%0.7% 0.5%
4.0%
2.8%
6.9%
10.1% 10.3%
3.6%
5.2% 5.1% 4.9%
2.7%
3.9%
1.9%
5.3%
2.5%
1.0%
2.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
< ─
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─10
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Perc
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Active Bets in Fund vs. S&P500, Grouped by Bet Sizes
0 0 2 2 1 1 9 828
70
217
110
3821 14 6 7 3 7 3 1 2
0255075
100125150175200225250275
< ─
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Num
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Number of Individual Stocks in Bet Size Bins
8
TCRS Domestic Equity
Comments:
March 2017Large Cap Sector Fund
Roy Wellington, CFA
0.13
0.55 0.48
0.27 0.29 0.39
0.51 0.62
0.44 0.25
0.80
0.47
(0.08)
(1.53)
0.15
0.77
(0.17)
0.61
1.83
(0.13)
(0.54)(0.38)
(0.53)
0.00
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Tota
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Active Percent ExposureSector Weighting Difference
0.05
(0.27)
(0.16)(0.11)
(0.17)
(0.07)
0.89
(0.00)
0.02 0.08
(0.00)
0.24
1 2 3 4 5 6 7 8 9 10 11 12
Relative Return %Estimated Tracking Error 1.38%
The Sector Fund is positioned for continued economic growth; this leads to the small overweight to Industrials andInformation Technology and the larger underweight to the defensive sectors Consumer Staples, Real Estate, Utilities andTelecomm Services. The Financials overweight is becoming problematical as the pace of rate hikes is beginning to outrunthe return to growth. The Trump-bump, or the anticipation of reflationary growth seems to be on pause while the merits of acorporate tax cut get debated.
The Sector Fund benefited from Information Technology emphasis on semiconductors as several companies reported betterthan expected earnings and issued strong forward guidance. Consumer Staples held back performance as merger activitystruck the tobacco companies while our focus was on valuation. The Sector Fund will assign a new analyst to cover Staplesand Utilities beginning in the third quarter.
Micron Techonology was the strongest in a strong semiconductor group. Investments made in its latest 3-D NAND memoryproduct paid off in a strong memory market as manufacturing ramped up quickly.
9
TCRS Domestic Equity
Largest Overweights by Stock in Fund Largest Underweights by Stock in Fund
Ticker Description Ticker Description
MU Micron Technology, Inc. 109 MSFT Microsoft Corporation -85AAPL Apple Inc. 99 CSCO Cisco Systems, Inc. -83SWKS Skyworks Solutions, Inc. 97 INTC Intel Corporation -79QRVO Qorvo, Inc. 95 KO Coca-Cola Company -76AVGO Broadcom Limited 94 PM Philip Morris International Inc. -74NXPI NXP Semiconductors NV 82 IBM International Business Machines Cor -74SYNA Synaptics Incorporated 77 PEP PepsiCo, Inc. -74UBNT Ubiquiti Networks, Inc. 75 ORCL Oracle Corporation -66HSY Hershey Company 75 V Visa Inc. Class A -66CNP CenterPoint Energy, Inc. 74 VZ Verizon Communications Inc. -65EXC Exelon Corporation 74 XOM Exxon Mobil Corporation -59CAG Conagra Brands, Inc. 73 SLB Schlumberger NV -54AMAT Applied Materials, Inc. 72 MA Mastercard Incorporated Class A -52TSN Tyson Foods, Inc. Class A 71 BRK.B Berkshire Hathaway Inc. Class B -47HAL Halliburton Company 68 QCOM QUALCOMM Incorporated -42SYY Sysco Corporation 66 TXN Texas Instruments Incorporated -40DOW Dow Chemical Company 65 CVS CVS Health Corporation -40FB Facebook, Inc. Class A 61 ACN Accenture Plc Class A -37AEE Ameren Corporation 60 COST Costco Wholesale Corporation -36ADM Archer-Daniels-Midland Company 60 JNJ Johnson & Johnson -36
Large Cap Sector FundRoy Wellington, CFA
Bps Over Index Wt
Bps Under
March 2017
0.0% 0.0%
1.7%
3.8%
2.0% 1.7%0.9%
4.4% 4.1%
8.9%
11.9%
4.0%
4.9%
6.0%
3.6%
2.5% 2.8%
3.8%
5.9%
0.8%
3.9%
1.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
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Perc
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Active Bets in Fund vs. S&P500, Grouped by Bet Sizes
0 0 2 5 3 3 213 17
62
96
3424
11 6 5 6 8 1 4 10
25
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75
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125
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175
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231
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TCRS Domestic Equity March 2016Mid Cap Fund
Mike Keeler, CFA
0.55 0.36
0.69 0.55
0.34 0.43 0.39 0.44 0.24
0.63 0.39 0.50
(2.03)
(0.15)
1.53
3.05
(0.37)
(1.47)
(0.61) (0.51)
0.08 0.09 0.47
0.00
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Active Percent ExposureSector Weighting Difference
0.02
0.17
(0.00)
0.30
0.19
0.06
(0.26)
(0.11)
0.01
(0.00)
0.07
0.45
1 2 3 4 5 6 7 8 9 10 11 12
Relative Return % Estimated Tracking Error 1.09%
The Mid Cap Fund outperformed S & P Mid Cap 400 during the period. Good stock selection in the Financial, Health Care andConsumer Staples sectors helped relative performance while difficulties in the Technology sector detracted slightly from value added against the benchmark. Stock selection accounted for all of the excess return during the quarter as industry sectorallocation was a slight drag. .
11
TCRS Domestic Equity
Largest Overweights by Stock in Fund Largest Underweights by Stock in Fund
Ticker Description Ticker DescriptionRJF Raymond James Financial, Inc. 123 DPZ Domino's Pizza, Inc. -53AFG American Financial Group, Inc. 76 WR Westar Energy, Inc. -47WPX WPX Energy, Inc. Class A 74 WOOF VCA Inc. -45WCN Waste Connections, Inc. 73 CC Chemours Co. -43WAB Westinghouse Air Brake Technologi 67 TTC Toro Company -41EVR Evercore Partners Inc. Class A 62 GNTX Gentex Corporation -37CBOE CBOE Holdings, Inc. 58 PTC PTC Inc. -37ALGN Align Technology, Inc. 57 DCI Donaldson Company, Inc. -36SNPS Synopsys, Inc. 56 TTWO Take-Two Interactive Software, Inc. -36PDCE PDC Energy Inc 54 X United States Steel Corporation -36PII Polaris Industries Inc. 54 LW Lamb Weston Holdings, Inc. -35SNV Synovus Financial Corp. 53 SCI Service Corporation International -35NWL Newell Brands Inc 52 ULTI Ultimate Software Group, Inc. -35NFG National Fuel Gas Company 51 NVR NVR, Inc. -34SAIC Science Applications International C 49 LOGM LogMeIn, Inc. -31WLK Westlake Chemical Corporation 46 SBNY Signature Bank -31DLX Deluxe Corporation 46 BRCD Brocade Communications Systems, -31LHCG LHC Group, Inc. 45 COHR Coherent, Inc. -30HBI Hanesbrands Inc. 44 DNKN Dunkin' Brands Group, Inc. -30ASH Ashland Global Holdings, Inc. 42 POOL Pool Corporation -30
Mid Cap FundMike Keeler, CFA
Bps Over
Bps Under
March 2017
0.0% 0.0% 0.0% 0.0% 0.0% 0.5%1.7%
4.7%
15.2%
17.5%
3.6%2.3%
6.5%7.8%
7.1%6.0%
4.3%
1.3%2.2%
0.0% 0.0%1.2%
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
< ─
100
bps
─10
0bps
to
─90
bps
─90
bps
to
─80
bps
─80
bps
to
─70
bps
─70
bps
to
─60
bps
─60
bps
to
─50
bps
─50
bps
to
─40
bps
─40
bps
to
─30
bps
─30
bps
to
─20
bps
─20
bps
to
─10
bps
─10
bps
to 0
bps
0bps
to
+1
0bps
+10
bps
to+
20bp
s
+20
bps
to+
30bp
s
+30
bps
to+
40bp
s
+40
bps
to+
50bp
s
+50
bps
to+
60bp
s
+60
bps
to+
70bp
s
+70
bps
to+
80bp
s
+80
bps
to+
90bp
s
+90
bps
to+
100b
ps
> +
100b
ps
Perc
ent o
f Fun
dActive Bets in Fund vs. S&P400, Grouped by Bet Sizes
0 0 0 0 0 1 414
63
121
71
49 4531
2014
82 3 0 0 1
0
25
50
75
100
125
150
< ─
100
bps
─10
0bps
to
─90
bps
─90
bps
to
─80
bps
─80
bps
to
─70
bps
─70
bps
to
─60
bps
─60
bps
to
─50
bps
─50
bps
to
─40
bps
─40
bps
to
─30
bps
─30
bps
to
─20
bps
─20
bps
to
─10
bps
─10
bps
to 0
bps
0bps
to +
10b
ps
+10
bps
to+
20bp
s
+20
bps
to+
30bp
s
+30
bps
to+
40bp
s
+40
bps
to+
50bp
s
+50
bps
to+
60bp
s
+60
bps
to+
70bp
s
+70
bps
to+
80bp
s
+80
bps
to+
90bp
s
+90
bps
to+
100b
ps
> +
100b
ps
Num
ber o
f Bet
s
Number of Individual Stocks in Bet Size Bins
12
TCRS Domestic Equity March 2017Passive Domestic Equity Funds
Michael Giggie & Chris Denny
Index Fund vs. S&P 500 Assets as of March 2017: $5.5B
‐0.50%
‐0.30%
‐0.10%
0.10%
0.30%
0.50%
Monthly Excess Returns
Small Cap Fund vs. S&P 600 Assets as of March 2017: $660M
‐0.20%
‐0.10%
0.00%
0.10%
0.20%
Monthly Excess Returns
1 Quarter 1 Year 3 Years Since Inception
Index Fund 6.01% 17.02% 10.50% 7.99%
S&P 500 6.07% 17.17% 10.37% 7.87%
Excess Return ‐0.05% ‐0.16% 0.12% 0.12%
Tracking Error 0.05% 0.07% 0.16% 0.20%
1 Quarter 1 Year 3 Years Since Inception
Small Cap Fund 1.13% 24.86% 9.58% 15.49%
S&P 600 1.06% 24.59% 9.45% 15.54%
Excess Return 0.07% 0.27% 0.13% ‐0.05%
Tracking Error 0.25% 0.12% 0.13% 0.25%
13
TCRS Domestic Equity March 2017Canada Fund
Kushal Gupta, CFA, CAIA
Canada Fund vs. SPTSX60 Index Assets as of March 31, 2017 : $0.956B
‐0.40%
‐0.20%
0.00%
0.20%
0.40%
0.60%
0.80%
Apr‐10
Jun‐10
Aug‐10
Oct‐10
Dec‐10
Feb‐11
Apr‐11
Jun‐11
Aug‐11
Oct‐11
Dec‐11
Feb‐12
Apr‐12
Jun‐12
Aug‐12
Oct‐12
Dec‐12
Feb‐13
Apr‐13
Jun‐13
Aug‐13
Oct‐13
Dec‐13
Feb‐14
Apr‐14
Jun‐14
Aug‐14
Oct‐14
Dec‐14
Feb‐15
Apr‐15
Jun‐15
Aug‐15
Oct‐15
Dec‐15
Feb‐16
Apr‐16
Jun‐16
Aug‐16
Oct‐16
Dec‐16
Feb‐17
Monthly Excess Returns
‐$500
$0
$500
$1,000
$1,500
$2,000
Apr‐10
Jun‐10
Aug‐10
Oct‐10
Dec‐10
Feb‐11
Apr‐11
Jun‐11
Aug‐11
Oct‐11
Dec‐11
Feb‐12
Apr‐12
Jun‐12
Aug‐12
Oct‐12
Dec‐12
Feb‐13
Apr‐13
Jun‐13
Aug‐13
Oct‐13
Dec‐13
Feb‐14
Apr‐14
Jun‐14
Aug‐14
Oct‐14
Dec‐14
Feb‐15
Apr‐15
Jun‐15
Aug‐15
Oct‐15
Dec‐15
Feb‐16
Apr‐16
Jun‐16
Aug‐16
Oct‐16
Dec‐16
Feb‐17
US D
Millions
Market Value & Cash Inflows for the Canada FundUSD Cash Infusion/Raise USD Market Value
14
Tennessee Consolidated Retirement System 53
International EquityManager Performance Comparison Period Ending: March 31, 2017
15
TCRS International Equity March 2017Emerging Markets ETF Fund
Kushal Gupta, CFA, CAIA
Assets as of March 31, 2017: $2.22B
$0
$500
$1,000
$1,500
$2,000
$2,500
Nov‐12
Dec‐12
Jan‐13
Feb‐13
Mar‐13
Apr‐13
May‐13
Jun‐13
Jul‐13
Aug‐13
Sep‐13
Oct‐13
Nov‐13
Dec‐13
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
Feb‐15
Mar‐15
Apr‐15
May‐15
Jun‐15
Jul‐15
Aug‐15
Sep‐15
Oct‐15
Nov‐15
Dec‐15
Jan‐16
Mar‐16
Apr‐16
May‐16
Jun‐16
Jul‐16
Aug‐16
Sep‐16
Oct‐16
Nov‐16
Dec‐16
Jan‐17
Feb‐17
Mar‐17
USD
Millions
Market Value & Cash Inflows for the EM ETF FundUSD Cash Infusion/Raise USD Cumulative
16
TCRS Fixed Income March 2017
Value (Yield Book) Portfolio Benchmark Activ ePortfolio ($MMs) Return Return ReturnTCRS Domestic Fixed Income Composite $11,821 1.34 1.18 0.16
Corporate Portfolio $3,044 2.06 1.83 0.22 Total Return $3,642 1.31 1.24 0.08 Government Five Plus Years $2,044 1.42 1.24 0.18 Mortgage Portfolio $3,041 0.57 0.43 0.13
TCRS Inflation Protected Securities $1,521 1.35 1.35 0.00
Portfolio Performance SummaryThomas Kim, CFA
0
0.5
1
1.5
2
TCRS Fixed Income Returns (%) Q1 2017
Portfolio
Benchmark
Active
17
TCRS Fixed Income March 2017
Domestic Fixed Income
Portfolio CharacteristicsThomas Kim, CFA
We are slightly short to our benchmark due to our expected economic outlook
The Yield Curve flattened in 2s-10s and remained largely neutral in 10s-30s
12.41
15.14
3.253.22 3.72 3.73
10.1010.19
12.41
15.43
3.133.74 3.33
4.30
10.21 10.06
0
2
4
6
8
10
12
14
16
Wtd. Avg. LifeTCRS
Wtd. Avg. LifeINDEX
Yield to MaturityTCRS
Yield to MaturityINDEX
Avg CouponTCRS
Avg CouponINDEX
Eff. Dur. TCRS Eff. Dur. INDEX
Portfolio Characteristics
Previous Quarter Current Quarter
TCRS Quality: Aa2/AA-INDEX Quality: Aa1/AA-
18
TCRS Fixed Income March 2017
Domestic Fixed Income
source: Bloomberg
Curve PositioningThomas Kim, CFA
Curve positioning reflects our view that the 10s/30s curve will most likely continue to flatten
-
500, 000.00
1,00 0,000.00
1,50 0,000.00
2,00 0,000.00
2,50 0,000.00
3,00 0,000.00
3,50 0,000.00
4,00 0,000.00
4,50 0,000.00
2 Years 5 Years 10 Years 20 Years 30 Years
Dollar Value of a 1 basis point dow n-move per key rate TCRS
LPF Index
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3:20172:20171:201711:201610:2016
10-Year Yield and Yield Curve Slope
10-Year Yi el d (Lef t Axis) 10-2 Spread (Right Axi s)
Yield Differential between most recent 10 Year and 2 Year Treasury Notes
19
TCRS Fixed Income March 2017
Domestic Fixed Income
source: Point
Portfolio Allocation by SectorThomas Kim, CFA
Credit Spreads continued to tighten during the quarter. Our credit portfolio
outperformed due to a recalibration in low quality credit risk exposure
relative to the credit index and an increase in high quality fixed income products.
32.2%
30.4%
26.3%
3.4%
2.5%
40.0%
30.0%
30.0%
0.0%
0.0%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Treasury /Agency
Credit
Mortgage
ABS
CMBS
Sector Allocation v. Index(% market value)
TCRS Citi LPF
0
50
100
150
200
250
3003/
17
12/1
6
9/16
6/16
3/16
12/1
5
9/15
6/15
3/15
12/1
4
9/14
6/14
3/14
Spread to Treasuries by Asset Class(in basis points, index data)
M or tga ge Lo ng Cr ed it Lo ng Age nc y
Sup ra ABS CM BS
20
TCRS Fixed Income March 2017
Domestic Fixed Income
Allocation by Credit QualityThomas Kim, CFA
outperformed due to an overweight in BBB, and an emphasis on floating rate securities.
Credit Spreads continued to tighten during the quarter. The credit portfoli
0%0%
6%6%
21%
65%
2%0%0%
3%
9%
35%
52%
0%0%
10%
20%
30%
40%
50%
60%
70%
80%
GVTAGNAAAAAABBBBB
Credit Allocation v. Index(% market value)
TCRS Credit
Citi LPF Credit
0
50
100
150
200
250
300
350
Spread to Treasury by Credit Rating(in basis points, index data)
Long Agency AAA AA
A BBB
0
20
145143
178
235
0
79
101
124
187
257
0
100
200
300
AGNAAAAAABBBBB
OAS by Credit Allocation
21
TCRS Fixed Income Allocation by Credit Sector March 2017
Domestic Fixed Income Thomas Kim, CFA
Top 5 Credit Holdings (by Market Value) MktVal % MktVal
30 YEAR US TREASURY BONDS 52,795 1.7MET GOVT NASHVILLE & DAVIDSON 37,025 1.2MORGAN STANLEY DEAN WITTER 35,244 1.1GOLDMAN SACHS GROUP 30,845 1.0ARMY HAWAII FAMILY HSG I-A TR 30,528 1.0
Top 5 Credit Holdings (by Dollar Duration) DV01 % DV01MET GOVT NASHVILLE & DAVIDSON 15,540 1.2%GOLDMAN SACHS GROUP 15,193 1.1%ARMY HAWAII FAMILY HSG I-A TR 14,685 1.1%30 YEAR US TREASURY BONDS 14,460 1.1%MORGAN STANLEY DEAN WITTER 14,367 1.1%
30%
21%
14%
9%
5%
1%
2%
5%
22%
24%
11%
12%
3%
10%
5%
4%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Financials
Consumer
Energy
Communication
Transportation
Electric
Capital Goods
Basic Industry
Sector Allocation v. Index(% market value)
TCRS CORPORATE Citi LPF Credit
22
TCRS Fixed Income March 2017
Domestic Fixed Income
CITIMarket Value
($MM - Yield Book) DifferencAgency Mortgage Backed Securities $3,098,809 26.22 30.0 -3.8
GNMA15-Yr $27,217 0.23 0.2 0.030-Yr $760,404 6.43 8.3 -1.9FNMA10-, 15- & 20-Yr $298,682 2.53 2.9 -0.430-Yr $1,036,610 8.77 10.3 -1.5FHLM15-Yr $141,069 1.19 1.9 -0.730-Yr $834,827 7.06 6.4 0.7
Commercial Mortgage Backed Securities $300,623 2.54 0.0 2.5
CMO and Non Agency Passthroughs $297,926 2.52 0.0 2.5
Asset Backed Securities $401,464 3.40 0.0 3.4
$4,098,823 34.7 30.0 4.7 Total Securitized Product
TCRS
% of portfolio
Securitized Product BreakdownThomas Kim, CFA
MBS
CMBS
CMO
ABS
Percent of Securitized Product
23
TCRS Fixed Income Inflation Hedged Portfolio March 2017
Inflation Protected Fixed Income Thomas Kim, CFA
Portfolio Value (Yield Book): $1,520,746,128Portfolio Return: 1.35%
Citigroup ILSI Index: 1.35%Active Return: 0.00%
% Market Value by DurationTCRS CITI Difference
0-2 3.8 7.6 -3.8%2-4 21.0 19.3 1.7% 4-6 19.4 19.2 0.2%6-8 22.4 18.2 4.2%8-10 11.3 19.6 -8.3%10+ 22.1 16.1 6.1%
* The "breakeven" rate is the expected rate of inflation at which investment in TIPS yield the same return as investment in Treasuries
1.0
1.2
1.4
1.6
1.8
2.0
2.2
TIPS Breakevens* vs. Nominal Treasury Yields
10-Yr 5-Yr
-0.6
-0.1
0.5
1.0
TIPS Real Yields
10-Yr 5-Yr
24
TCRS Real Estate March 2017
Adjust labels for all quarters
Real Estate Overview
JP Rachmaninoff
89.3%
93.2%
96.5%
98.7%
85%87%89%91%93%95%97%99%
Office Apts. Retail Industrial
Occupancy
TCRS Leasing Level
$2,207
$2,714
$3,174
$3,656
$2,000
$2,250
$2,500
$2,750
$3,000
$3,250
$3,500
$3,750
3/31/2014 3/31/2015 3/31/2016 3/31/2017
Millions Market Value
*Occupancy data does not include fund investments.
Core 87%
Non-Core 13%
Strategy Exposure
25
TCRS Real Estate
Adjust labels for all quarters
Market and geography exposure does not include fund investments
JP Rachmaninoff
Real Estate Diversification March 2017
0%
2%
4%
6%
8%
10%
12%
14%
Market Exposure (MSA)
The NPI is the National Property Index of the National Council of Real Estate Investment Fiduciaries (the index used for US core properties).
East North Central
5% Northeast US
14%
Mid East 12%
South West 18%
Pacific 33%
Mountain 8%
South East 7%
West North Central
3%
Geography Diversification
Industrial 19%
Office 28%
Apartments 30%
Retail 18%
Other 5%
Property Diversification Industrial
14%
Office 37%
Apartments 24%
Retail 24%
Other 1%
NPI Property Diversification
East North Central
7%
Northeast US 22%
Mid East 12%
South West 10%
Pacific 32%
Mountain 7%
South East 9%
West North Central
1%
NPI Geography Diversification
26
TCRS Real Estate March 2017
All returns shown above are reported one quarter in arrears
Budgeted Annual Income Return for calendar year 2017 (excluding funds) 4.92%
All returns shown above are reported one quarter in arrears
Real Estate Portfolio Returns
JP Rachmaninoff
1.20% 1.20% 1.11% 1.18%
1.11% 0.97%
0.68%
1.74%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
6/30/2016 9/30/2016 12/31/2016 3/31/2017
Income Appr/(Depr)
2.31% 2.18%
1.79%
2.92%
4.90% 4.76% 5.15% 5.04% 5.32% 5.32% 5.63% 5.63%
4.58%
3.10%
6.07% 5.76% 5.51% 5.39%
0.42%
1.25%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
TCRS 1 Yr. NCREIF 1 Yr. TCRS 3 Yr. NCREIF 3 Yr. TCRS 5 Yr. NCREIF 5 Yr. TCRS 10 Yr. NCREIF 10 Yr.
Income Appr/(Depr)
11.02% 10.92%
6.08% 6.93%
7.97%
11.45% 11.05%
9.65%
27
Daniel Crews, CFA CAIA
We have finalized our fiscal 2Q2017 results (the period ending 12/31/16), and are pleased to report that the program continued to demonstrate exceptional performance on an absolute basis. On a relative basis, performance trailed strong public equities markets in 2016, as well as our peer benchmark.
The following chart shows the total exposure to each strategy based on Net Asset Value through the end of December 2016. By total exposure (Unfunded Commitments + NAV), the portfolio is very close to our target weights for each segment of the portfolio. Over the coming quarters we expect our NAV to increase for Leveraged Buyout and decrease for Venture Capital, moving back towards longer-term strategy targets.
PORTFOLIO BENCHMARK
AS OF DECEMBER 31, 2016 1 QTR 1 YEAR 3 YEARS 5 YEARSSINCE
INCEPTIONTCRS Private Equity 2.4% 12.4% 15.3% 15.5% 15.0%S&P 500 + 300 bps 4.6% 15.0% 11.9% 17.6% 16.3%
Value Added -2.2% -2.6% 3.4% -2.1% -1.3%
PEER BENCHMARK
AS OF DECEMBER 31, 2016 1 QTR 1 YEAR 3 YEARS 5 YEARSSINCE
INCEPTIONTCRS Private Equity 2.4% 12.4% 15.3% 15.5% 15.0%Cambridge Associates 4.1% 13.9% 11.7% 13.5% 13.2%
Value Added -1.7% -1.5% 3.6% 2.0% 1.8%
29
Daniel Crews, CFA CAIA The portfolio continues to grow towards our target allocation. As of March 31, 2017 the private equity portfolio was valued at approximately $1.75 billion (NAV basis), and comprised 3.8% of TCRS plan assets. Staff continues to source, due diligence, negotiate, close, and monitor commitments to high-quality managers.
Program Updates
• Working on internal process improvements with respect to diligence, monitoring,
compliance, legal negotiations, and how to handle a fund that becomes challenged.
• Monitoring the IPO of our largest current portfolio holding, Snap
• Working on recruiting an Analyst to support the Alternatives portfolios and maintain
our primary software system, eFront
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
6/30
/09
9/30
/09
12/3
1/09
3/31
/10
6/30
/10
9/30
/10
12/3
1/10
3/31
/11
6/30
/11
9/30
/11
12/3
1/11
3/31
/12
6/30
/12
9/30
/12
12/3
1/12
3/31
/13
6/30
/13
9/30
/13
12/3
1/13
3/31
/14
6/30
/14
9/30
/14
12/3
1/14
3/31
/15
6/30
/15
9/30
/15
12/3
1/15
3/31
/16
6/30
/16
9/30
/16
12/3
1/16
3/31
/17
6/30
/17
Mill
ions
Portfolio Size
CommitedUnfunded CommitmentsNAV
30
Tennessee Consolidated Retirement System Strategic Lending Portfolio
Fiscal Q3 2017 Update Jeffrey Dunn, CFA
As of the 31st of March, TCRS has allocated approximately $2.6 billion with $1.9 billion being invested in the strategic lending portfolio. The portfolio consists of $1.6 billion invested in nine larger separate accounts which can be either cancelled and liquidated or put into run-off status on short notice. The other $0.3 billion is invested in eleven co-mingled funds which are less liquid, lock-up vehicles.
Strategic Lending Portfolio Allocation by Investment Type
Market Outlook
During the fiscal third quarter of 2017, the liquid U.S. below-investment grade market continued to rally from the trough made in early February 2016. Performance for the liquid markets was strong for both January and February while
31
March saw a pause as participants absorbed the implications of the failure of the President’s healthcare reform initiative on the rest of the administration’s policy agenda. The Barclays High Yield Bond Index returned 2.7% and the Credit Suisse Leveraged Loan Index returned 1.2% during the quarter. For the fiscal year-to-date, the bond index returned 10.3% and the loan index returned 6.7%. The relative outperformance of bonds was driven by the stabilization of energy and commodity prices leading to a risk-on environment while loans typically exhibit less exposure to changing credit conditions. The Strategic Lending benchmark (50/50) outperformed the Barclays US Treasury Inflation-Linked Notes Index by 8.7% in the fiscal year-to-date and by 0.7% in the quarter. During the fiscal third quarter, the U.S. below investment grade credit markets experienced a continued rebound with a more robust new issue calendar and fund inflows. The exception to the strength was March, as oil prices declined on the back of concerns OPEC production cuts may not be extended past the June 2017 expiration. Much of the activity was driven by re-financings and re-pricings of existing securities. Expectations for default rates continue to fall for those issues unrelated to retail industry as the retail index performance has been negative for fifth month in a row. With respect to the private debt market, we continue to see new entrants into the market pushing yields lower and covenants weaker. Staff feels it is increasingly important to favor investment teams that have the ability to control documents and terms in their transactions. Given how aggressively levered finance markets have rallied, staff believes liquid markets are relatively less attractive on a risk-adjusted return basis than the illiquid markets for the foreseeable future. Recent Developments
During the fiscal third quarter, there were no new allocations. However, staff increased an allocation to private real estate debt and partially redeemed from a public markets mandate. At this time, staff continues to favor loans over bonds, senior over junior debt and illiquid over liquid investments. Future Activity
Recently, staff has been focused on diversifying the portfolio and re-underwriting existing mandates that are up for renewal in 2018. Additionally, staff continues to focus on portfolio monitoring, process, procedures, internal investment capabilities, and other key program initiatives.
32
ACCT SOLD BOUGHT NET EXPIRATION CONTRACT TYPE STRIKE
Begin
1,325 CBOT 10 T‐NOTE 17 Mar 0
(800) CBOT 2YR TNOTE 17 Mar 0
(2,170) CBOT 5YR TNOTE 17 Mar 0
1,580 CBOT T‐BONDS 17 Mar 0
2,970 CBOT ULTRABOND 17 Mar 0
2,728 CBOT UL10TNOTE 17 Mar 0
TRADE SUMMARY BY ACCOUNT
5+ Gov‐t (1381)
225 0 (225) CBOT 10 T‐NOTE 17 Mar 0
225 225 0 CBOT 10 T‐NOTE 17 Jun 0
0 0 0 CBOT 2YR TNOTE 17 Mar 0
0 0 0 CBOT 2YR TNOTE 17 Jun 0
0 275 275 CBOT 5YR TNOTE 17 Mar 0
275 275 0 CBOT 5YR TNOTE 17 Jun 0
330 0 (330) CBOT T‐BONDS 17 Mar 0
150 330 180 CBOT T‐BONDS 17 Jun 0
598 85 (513) CBOT ULTRABOND 17 Mar 0
0 709 709 CBOT ULTRABOND 17 Jun 0
458 0 (458) CBOT UL10TNOTE 17 Mar 0
0 408 408 CBOT UL10TNOTE 17 Jun 0
1‐5 Gov't (1368)
1,000 0 (1,000) CBOT 10 T‐NOTE 17 Mar 0
0 1,700 1,700 CBOT 10 T‐NOTE 17 Jun 0
0 800 800 CBOT 2YR TNOTE 17 Mar 0
1,300 1,000 (300) CBOT 2YR TNOTE 17 Jun 0
300 2,195 1,895 CBOT 5YR TNOTE 17 Mar 0
1,945 0 (1,945) CBOT 5YR TNOTE 17 Jun 0
1,600 350 (1,250) CBOT T‐BONDS 17 Mar 0
100 2,450 2,350 CBOT T‐BONDS 17 Jun 0
3,406 1,149 (2,257) CBOT ULTRABOND 17 Mar 0
104 3,138 3,034 CBOT ULTRABOND 17 Jun 0
2,520 250 (2,270) CBOT UL10TNOTE 17 Mar 0
1,523 1,361 (162) CBOT UL10TNOTE 17 Jun 0
Overlay (1371)
100 0 (100) CBOT 10 T‐NOTE 17 Mar 0
0 100 100 CBOT 10 T‐NOTE 17 Jun 0
0 0 0 CBOT 2YR TNOTE 17 Mar 0
0 0 0 CBOT 2YR TNOTE 17 Jun 0
0 0 0 CBOT 5YR TNOTE 17 Mar 0
0 0 0 CBOT 5YR TNOTE 17 Jun 0
0 0 0 CBOT T‐BONDS 17 Mar 0
0 0 0 CBOT T‐BONDS 17 Jun 0
200 0 (200) CBOT ULTRABOND 17 Mar 0
0 200 200 CBOT ULTRABOND 17 Jun 0
0 0 0 CBOT UL10TNOTE 17 Mar 0
0 0 0 CBOT UL10TNOTE 17 Jun 0
Corporate (1365)
0 0 0 CBOT 10 T‐NOTE 17 Mar 0
0 0 0 CBOT 10 T‐NOTE 17 Jun 0
300 300 0 CBOT T‐BONDS 17 Mar 0
50 450 400 CBOT T‐BONDS 17 Jun 0
0 0 0 CBOT ULTRABOND 17 Mar 0
0 0 0 CBOT ULTRABOND 17 Jun 0
0 0 0 CBOT UL10TNOTE 17 Mar 0
0 0 0 CBOT UL10TNOTE 17 Jun 0
Domestic Fixed Income Derivatives Report
Thomas Kim, CFA
Domestic Fixed Income Derivatives Transaction Log
35
End
1,800 CBOT 10 T‐NOTE 17 Jun 0
(300) CBOT 2YR TNOTE 17 Jun 0
(1,945) CBOT 5YR TNOTE 17 Jun 0
2,930 CBOT T‐BONDS 17 Jun 0
3,943 CBOT ULTRABOND 17 Jun 0
246 CBOT UL10TNOTE 17 Jun 0
Domestic Fixed Income Derivatives Transaction Log
Domestic Fixed Income Derivatives Report
Thomas Kim, CFA
36
2016 4th Quarter Activity
NO ACTIVITY
TCRS Currency Derivative Report
Currency Forwards ActivityThomas Kim, CFA
37
PRICE PAR MARKET SETTLE FIRM($milion) ($million)
15yr FNMA 2.5 100.11 32 32.04 Apr JPM30yr FNMA 3.5 101.68 -4 -4.07 Apr WFC
Total 28 28
By Firm ($million)BAML 32.04JPM -4.07
Total 27.97
TCRS MORTGAGE PORTFOLIO
END OF QUARTER MORTGAGE TBA POSITIONSThomas Kim, CFA
38
TCRS Operations Update March 2017 Tim McClure, CTP
Trading – TCRS’s Equity Trading Group transacted approximately 110 million shares and $6.5 billion of notional value during the time period of January 1, 2017 – March 31, 2017. When compared with the previous 3 month period, these numbers illustrate a 15% decrease in shares volume quarter over quarter, and a 7% decrease in notional value. Twenty five brokers were used during this time period, representing one less counterparty than the previous quarter. Broker performance is monitored to ensure best execution practices. The Equity Trading Group uses Abel Noser’s Transaction Cost Analysis to help verify the trading desk’s analysis with hard data on broker performance. Total commission dollars spent during the quarter were approximately $1.44 million. This represents a +2.8% increase in commissions from the previous quarter ($1.44 million vs $1.40 million). However, when compared with the same period last year, commission spending is down 33%. This is likely due to reduced market volatility and contracting trading volumes across multiple sectors and asset classes. Operations – Operations supports the Treasury Managed Fund and the additional responsibilities associated with the program, such as the reconciliation process that is critical to the accuracy of the daily operation. The conversion to the State Street Bank EAOS platform for custodial services has been completed. While the process was time-consuming, the end result should be a more efficient relationship between TCRS and the bank. Regular meetings are scheduled to review the relationship and discuss areas for improvement when recognized. Staff has begun a review of changes that will be necessary for the conversion to T+2 for most domestic trades on September 5, 2017. Securities Lending – The TCRS securities lending program has been using Deutsche Bank as its securities lending agent since January 30, 2014 (over 39 months). As of March 31, 2017, TCRS earnings since inception totaled $84 million ($6.1 million of that was earned 1st quarter 2017). All cash collateral continues to be invested in indemnified repurchase agreements. The average on loan balance since inception was $5.5 billion with a spread of 53 bps. The average on loan balance for Q1 2017 was $5.3 billion with spread of 53 bps. The largest earnings contributor since inception was Domestic Equities making up 43% of the total (31% as well for Q1 2017) followed by Emerging Market Equities 26% (27% Q1 2017), Fixed Income 23% (36% Q1 2017), and International Equities 8% (6% Q1 2017). With regards to balances in the 1st Quarter 2017, the top 5 borrowing counterparties were Merrill Lynch (representing 14.3% of the total on loan balance), Goldman Sachs (13.9%), Citigroup (10.8%), JP Morgan (10.8%) and Morgan Stanley (9.5%).
39
TCRS Operations Update March 2017 Tim McClure, CTP
Three out of TCRS’ top 5 earners for the period of January 30, 2014 to March 31, 2017 occurred within the ETF space. The overall leader for the 39 month period was iShares MSCI Brazil (EWZ) (5.81% or $4.88 million). This was followed by Armbarella (3.9% or $3.3 million) and iShares MSCI Taiwan (EWT) (3.3% or $2.77 million). The other two places were held by the following: Ishares MSCI Mexico (2.7% or $2.27 million) and Ubiquiti Networks (2.6% or $2.18 million). These 5 securities accounted for 18% or $15.12 million of the TCRS earnings since inception.
Jan 1, 2014 – Mar 31, 2017 Oct 1, 2016 – Dec 31, 2016 Jan 1, 2017 – Mar 31, 2017 TCRS Earnings $ 84M 6.3M 6.1M
Lending 37M 2.4M 2.6M Reinvest 47M 3.9M 3.5M
Avg On Loan 5.5B 5.5B 5.3B Spread 53 BPS 51 BPS 53BPS Domestic Equities 43% 40% 31% Emerging Market Equities 26% 26% 27% Fixed Income 23% 27% 36% International Equities 8% 7% 6%
40
‐ 200,000 400,000 600,000 800,000 1,000,000 1,200,000
Bloomberg
Factset
Barclays Point
Intex Solutions
TheYield Book
Standard & Poor's
Stock Exchanges
Ned Davis Research
Able Noser
Credit Sights
Dow Jones Information Service
Glass, Lewis & Co.
TradeWeb
Green Street Advisors
Empirical Research Partners
Capital Economics
NASIO‐PFDE
MSCI Global Index Monitor
CSA
Estimated
Soft Dollar Payments
Hard Dollar Payments
Commissioned Dollar Report
41