los angeles department of water and · screenshots are for illustrative purposes only. trading hubs...

Los Angeles Department of Water and PowerRussell 1000 Index Fund Review

8 March 2017

1

I. BlackRock Update

II. Index Investment Process and Discipline

III. Market Overview

IV. Performance Review

V. Portfolio Characteristics

VI. Fee Schedule

• Appendix

Table of contents

FOR USE WITH INSTITUTIONAL INVESTORS ONLY – PROPRIETARY AND CONFIDENTIAL

I. BlackRock Update

3

BlackRock at a glance

UIM-0255

* As of 31 December 2016** As of 30 September 2016

• Established in 1988

• NYSE: BLK

• $5.15 trillion assets under management

• More than 12,000 employees

• More than 1,800 investment professionals **

• Offices in over 30 countries

• 25 primary investment centers globally **

• Clients in over 100 countries

• Over 800 iShares® ETFs Globally

• Through BlackRock Solutions, the Firm provides risk management and enterprise investment services for over 200 clients

• Financial Markets Advisory business managed or advised on over $8 trillion in asset and derivative portfolios

• Transition Management team partners with clients to save costs and reduce risks when changing investment exposures

BlackRock facts * $5.15 trillion managed across asset classes

Create a better financial future for our clients by building the most respected investment and risk manager in the world

BlackRock Mission Statement

Assets as of 31 December 20161 Includes commodity and currency mandates

Active Equity 275 bn

Passive Equity2.4 tn

Alternatives1

117 bn

Active Fixed Income

752 bn

Passive Fixed Income

820 bnMulti-Asset

395 bn

Cash Management

404 bn

Advisory3 bn


4

The LADWP Account Coverage Team

San Francisco Office Address

400 Howard StreetSan Francisco, CA 94105

Name Title Phone Email

Jeremy Watt Director (415) 670-7208 [email protected]

Tom Holmes Associate (415) 670-4120 [email protected]


II. Index Investment Process and Discipline

BlackRock Index Investments Overview

7BES-0203

BlackRock’s Index proposition

Seeking to deliver high quality, cost effective access to a broad range of market opportunities

Provide you with a broad range of market exposures together with a flexible range of product features

An evolving range of products and solutions designed to help meet your needs today and in the future

Partner with you to address your unique investment challenges through our customisation and solutions capabilities

Disciplined investment approach focused on delivering optimal tracking, enhanced returns and lowering the total cost of ownership

Scale, breath and diversity of our clients and strategies helps us to minimise transaction costs and seek to preserve the value of your investments

Design products and solutions that consider the factors that impact your investment results from tax-efficiency to access and liquidity.

Our investment professionals are focused on delivering consistent performance and efficient outcomes

Extensive trading, risk and operational platform positioned to seek efficient tracking as well as enhanced returns

Investment track record spanning four decades that has seen investors entrust us with $3.3 trillion of AUM as of 31 December 2016

Flexibility

Efficiency

Precision


8BES-0203

BlackRock’s Index Equity Platform

Global leader in Index Equity assets1

• We seek to deliver consistent performance with efficient outcomes for our clients

• Thousands of skillful and thoughtful decisions made each year for swift response to market trends and client demands

Extensive and flexible platform for index strategies• Over 2,000 funds managed against 650+ benchmarks

• Daily liquidity with T-1 notification (for US equities) and T-2 notification (for non US equities)2

• Modular fund structure and asset allocation platform facilitates custom and outcome oriented solutions

Source: BlackRock, Inc. and its affiliates (together “BlackRock”) as of 31 December 2016

1 In terms of AUM. Source: Pensions & Investments2 Frontier markets commingled fund and currency hedged funds are currently open bi-monthly and monthly, respectively

Total Index Equity risk managed assets of $3.3 trillion USD

In billions USD

US Equities54%

Developed Non-US

37%

Emerging Markets

8%Commodities

1%

Distribution of assets by region of mandate

1,281 1,400 1,408 1,534

734 805 839 975

2013 2014 2015 2016

Institutional AUM iShares® AUM IAA Risk Managed

$2.8T $2.9T $3.0T$3.3T


9BES-0203

45 years of experience driving index forward

We constantly reinvest in and reinvent our business so our clients have access to high quality index solutions Drive the industry forward through our ability to create specialized, innovative investments afforded by our scale and depth of expertise

Forge new ground for clients — first manager to offer opportunities in equity index developed, emerging, and frontier markets

Evolve capabilities to continuously deliver on emerging trends — smart beta, global benchmarking, overlay strategies

Serve as an index advocate on behalf of clients and as a key partner to index providers seeking our practitioner knowledge

Fund of fund structures

EAFE Equity Index

Securities Lending

Equity and currency hedging

First 401(k) Target Date

Fund (LifePath)

Russell Index Funds

Investment Analysis:

index portfolio management

tool

Incomestrategy ETFs

EAFE Small Cap

EM Directed FX

Daily openings for all funds

Emerging Markets

Small Cap

Factor ETFsAladdin

MigrationT-2 for

International

CurrencyHedged iShares ETFs

Index pioneer and innovator

Defined contribution capabilities

Emerging Market

Equity Index

World Equity Benchmark

Shares (WEBS)

Triple A: asset allocation

PM tool

iShares Exchange-

Traded Funds

Eliminated dividend flipping

Risk model enhancements

EAFE Index Plus

Frontier Markets

Fundamentallyweighted strategies

Minimum Volatility ETFs

Journey Management

Project Vision

ESG fund series

45 years of Index Equity — Continual evolution of products, technology and capabilities

BlackRock Index Equity AUM

1971 2016


10BES-0203

Americas – Investments Pillar

As of December 2016* Located outside of the US

Manish MehtaGlobal Head of Investments, Products, and Markets

Investments Pillar Leadership

Alan MasonHead of Americas Portfolio

Management

Americas Portfolio Management Global Strategy

Portfolio Management Research Strategy

Americas

Scott Dohemann, CFAHead of U.S.

Product Strategy

Christian De Leon

Kevin Kim

Timothy Murray, CFA

Jacqueline Ramkumar

EMEA

APAC

Global Strategy

Kristen DickeyHead of Global

Product Strategy

DB & DC

Index Asset Allocation

Amy WhitelawHead of Index

Asset Allocation

Defined Benefit

+ 3 Portfolio

Managers

Defined Contribution

+ 6 Portfolio

Managers

U.S. &Canada

Developed & Emerging

iShares Portfolio Management

Greg Savage, CFACo-Head of iShares

Portfolio Management

Jennifer Hsui, CFACo-Head of iShares

Portfolio Management

U.S. International Developed

+ 6 Portfolio

Managers

Canada

+ 4 Portfolio

Managers

+ 5 Portfolio

Managers

InternationalEmerging

+ 4 Portfolio

Managers

Investment Research

Index Research

Matthew Lee, Ph.D.Global Head of Investment

Research

Stephanie AllenGlobal Head of Index Research

Research OfficersIndex Research

+ 9 Index

Researchers+ 2 Research

Officers

U.S. &Developed

Index Plus & Emerging

Institutional Portfolio Management

Rachel AguirreCo-Head of Institutional Portfolio Management

Creighton Jue, CFACo-Head of Institutional Portfolio Management

U.S. Index Plus

+ 6 Portfolio

Managers

InternationalDeveloped

+ 8 Portfolio

Managers

+ 2 Portfolio

Managers

FX / Synthetics

+ 5 Portfolio

ManagersAndrew Graver*Head of EMEAIndex Strategy

Rita Gemelou*

Flora Herries*

Norbert van Veldhuizen*

Ben Garland, CFA*Head of APACIndex Strategy

Colin Zhang*

InternationalEmerging

+ 5 Portfolio

Managers

Global Research

Ananth MadhavanGlobal Head of ETF and

Index Investment Research

ETF and Index Investments Business


11BES-0203

An extensive and flexible range of index capabilities

Matching the exposures you want with the features you need

Global Developed MarketsCore Beta

Extended or Segmented Beta

EM & Frontier

Small Caps

High Yield

Countries & Sectors

Duration & Styles ESG

Property & ‘Alts’

Assets

Smart Beta Factor Strategies Outcome Strategies Reweighting Strategies

Key Developed Countries & RegionsLocal Market Developed

Investment Grade

Currency Hedged

Tax Efficiency Liquidity Daily Access Intra-Day

Access

Fixed or Variable Spreads

Operating Model

Distributing & Accumulating

Options

Shares Class Currency Options

Governance (e.g. UCITS,

ERISA)

Local Registration

Expo

sure

sFe

atur

esVe

hicl

es

ETFsSeparate Accounts LifePath Funds40 Act Funds Unit Trusts/SICAV


BlackRock Index Investments Philosophy and Process

13BES-0203

An approach that seeks to deliver efficient investment outcomes

Return

Risk Cost

Total Performance Management

BlackRock’s disciplined,

pragmatic and adaptable approach to index tracking is focused on optimally managing and balancing return, risk and cost.

Seeks to deliver incremental value and strong performance

Deep knowledge of financial markets and indices

Return Enhancements

Preserve value for clients through our intelligent approach to index events

Extensive global trading platform helps ensure cost are low and we have optimal access to liquidity

Cost Efficiency

Risk managed process that seeks to consistently deliver optimal tracking outcomes

Market leading risk analytics and investment tools provided by our Aladdin® platform

Risk Management


14BES-0203

Index investment management cycle – dedicated expertise and resources

Benchmark Knowledge• Detailed knowledge of index

methodologies• Experience with predicting and

projecting index changes• Focused on optimal treatment of

corporate actions• Continual research into index events

Portfolio Construction• Significant investment in technology• Market leading portfolio and risk tools

provided by our Aladdin® platform• Integrated cost and liquidity analysis• Knowledge of optimisation challenges

Efficient Trading• Building smart trading strategies

designed to access optimal liquidity• Industry’s largest internal market place

for potential netting of client flows• Focused trading research and systems

Performance & Oversight• Review cumulative effect of investment

decisions to help identify factors contributing to/subtracting from portfolio performance

• Risk & Quantitative Analysis Team (RQA) monitors dozens of risk factors globally on a continuous basis


15BES-0203

EII Strategies has a dedicated Index Research team

Index investment management cycleBenchmark knowledge

Daily index loads to provide a clean fund snapshot

Project daily changes and rebalances

Field all equity index data requests across the firm

The Index Research Group communicates directly with index vendors on various levels

Index equity benchmark management

9 index analysts (7 US, 2 UK) and 1 global headBased out of London and San Francisco, with daily reconciliations and handovers

Global coverage model

Benchmark expertise for index portfolio management

Seek to predict index changes before announcement

Lead consultations with index providers to drive methodology improvements

Use knowledge of benchmarks to assist with daily portfolio management, predictions, and consultations.

Index methodology expertise

Benchmark knowledge


16BES-0203

Index investment management cyclePortfolio construction

Portfolio construction

Over 140 Investment professionals dedicated to overseeing 2,000 Funds managed against 650+ benchmarks. Thousands of investment decisions made every year around:• Optimizing versus full replication• Equitizing cash• Trading around periodic index changes• Corporate action elections• Investing / divesting based on client and participant instruction

BlackRock’s propriety portfolio management applications, Portfolio Construction and Index Pro, provide a seamless

platform, where by every step of the investment process is handled electronically from the time a client order is placed to the time any required trades go out to market

Screenshots are for illustrative purposes only.


17BES-0203

Over 50 equity traders across four trading hubs and three spokes• Leverage traders’ local market expertise

• Benefit from execution in appropriate time zone

• Common technology enables us to pass the book with embedded business continuity plan

Index investment management cycleEfficient trading

NYCSFO

PRI

LON

HKG

TAI

TKY

24 hour a day, 5.5 day per week coverageData as of 31 December 2016Screenshots are for illustrative purposes only.

Trading hubs

Trading spokes

BlackRock’s global coverage

Proprietary applications are used to monitor expected trading costs and actual trading costs1. Ability to specify date range2. Custom filters to drill into specific trading activity3. Data visualization provides intuitive execution insights4. Extensive library of metrics and analytics for evaluating trading

performance5. Enable breakdown of TCA across order, execution, broker, or

asset-level characteristics and dimensions

BlackRock’s proprietary applications

1 2

3

4

5

Efficient trading


18BES-0203

Performance and oversight of portfolios occurs through the following steps• Daily Portfolio Management review

• Monthly IRC review with senior management

• Independent review from BlackRock’s Risk and Quantitative Analysis Group

The following additional systematic checks occur for all portfolios and accounts

Index investment management cyclePerformance & oversight

As part of the account set-up process, the OnBoarding group identifies client guidelines / restrictions

Any guidelines / restrictions are then coded onto various PM and Trading systems

New account set-up

On a real time basis prior to executions, the front-end compliance systems checks for restrictions and violations

Violating trades would be blocked from proceeding

Front-end compliance

Monitoring reports are generated daily as part of the “Green Package”

reporting process

Warnings and violations are distributed electronically to the relevant investment professions

Back-end compliance

Performance & oversight


Index events, trends, and themes

20BES-0203

Overall the Global Index Equity Investment Team executed 99,000 orders worth approximately $57 billion 109 funds traded with an aggregate AUM of $337 billion Overall performance of the reconstitution this year was flat Crossed approximately 50% of activityMethodology Changes Share classes that do not qualify independently will no longer be combined with the primary line and will be removed from available

shares (except Berkshire Hathaway class A) The threshold level of free float was modified. A joint effort was made between BlackRock and Russell to apply this change thus

reducing sizable impact on eight index members. Index Equity implemented active trading on selected names and funds

Russell Reconstitution 2016

Buy – sell spread performance

Adds: Additions in the Financials and Health Care sectors made the highest contributions and outperformed the index by 0.25%

Deletes: Health Care and Technology sectors, the biggest underperformance drivers, ended underperforming the index by 1.32%

Overall moved wrong way with Sells outperforming the Buys by 1.95%

Russell 2000Russell 1000

Adds: Transocean (RIG) and US Foods (USFD) closed down 4.73%, underperforming R1 by 1.1%.

Deletes: Jazz Pharmaceuticals (JAZZ), ended down 4.9%, underperforming the index by 1.26%

Overall moved right way with Buys outperforming the Sells by 1.36%

Russell 1000

Russell2000

Adds 2 182

Deletes 1 127

2016 Two-Way Turnover 3.77% 21.71%

2015 Two-Way Turnover 4.54% 20.88%

Index change highlights

Source: BlackRock, as of June 2016. Past performance is not indicative of future results. It is not possible to invest directly in an index.


21

0

20

40

60

80

100

120

140

2012 2013 2014 2015 2016

$ bi

llion

s

Commodities Smart Beta FactorsGDP, Risk, Equal-Weighted Fundamentally WeightedMinimum Volatility Income

BES-0203

Investors today are enhancing their passive allocations in three ways:

Customization

Social & environmental investment considerations

• Spurring a wide variety of societal outcomes with capital

• Multi-faceted goals on top of financial return and risk

Tax-sensitive investing

Comprehensive core

Migrating to broader mandates —segregated index mandates are re-aggregated into one

Going global — ACWI / ACWI IMI* is the fastest growing index strategy

Moving EM into mainstream — no longer niche; gain EM exposure via global indices

Complementary styles

Growing suite of smart beta offerings, complementing traditional indices

• Certain equity risk factors that have demonstrated added value over the long term

– Value– Quality– Momentum– Size

Index strategies continue to be a growing portion of client portfolios

Increase of currency hedged assets under management Growth in smart beta long-only equity strategies over 5 years

Source: BlackRock smart beta (non-market cap weighted equity index strategies) assets under management.

As of 31 December 2016.

*All Country World Index Investable Market Index

$90

$34

$56

$76

Source: BlackRock, as of 31 December 2016. Above is display of Currency Hedged ETFs with longest track

record. BlackRock offers multiple currency hedged vehicles, including: separate accounts, CTFs and ETFs.

$123

$-

$1,000

$2,000

$3,000

$4,000

Oct

-14

Nov

-14

Dec

-14

Jan-

15Fe

b-15

Mar

-15

Apr-1

5M

ay-1

5Ju

n-15

Jul-1

5Au

g-15

Sep-

15O

ct-1

5N

ov-1

5D

ec-1

5Ja

n-16

Feb-

16M

ar-1

6Ap

r-16

May

-16

Jun-

16Ju

l-16

Aug-

16Se

p-16

Oct

-16

Nov

-16

Dec

-16

iShares Currency Hedged Int'l Developed iShares Hedged GermanyiShares Currency Hedged Eurozone iShares Currency Hedged JapaniShares Currency Hedged EM


22BES-0203

Key takeawayOur approach to Index: anything but passive

Investors today demand more efficient returns and innovative ways to use index products

BlackRock’s Index approach is focused on:

Seek to provide consistent performance

as planned

Performance

Rooted in deep understanding of

benchmarks and capital markets

Process

Scale and technology innovations enhance

ability to deliver consistent performance

and minimize costs

Platform

Flexible spectrum of solutions featuring

more than 1,000 funds covering 350+ benchmarks

Products

Team combines skill and ingenuity in

seeking to enhance outcomes

People


Performance attribution

24BES-0203

Major sources of tracking error:Global & domestic index funds

Minimize

Impact

Maximize

Impact

Enh

ance

sR

etur

n

Red

uces

Ret

urn

Tax Reclaim Process

Securities Lending

Treatment of Corporate Actions

Optimization

Treatment of Index Changes

Transaction Costs

Cash Drag

Illiquidity

Red

uces

Ret

urn

Enhances Return


25

Summary of LADWP Investment Guidelines

Index: Russell 1000 Index

Fund Guidelines: The Russell 1000 Index Fund shall be invested and reinvested in a portfolio of Equity Securities with the objective of approximating as closely as practicable the capitalization weighted total rate of return of the segment of the United States market for publicly traded equity securities represented by the 1,000 largest capitalized companies. The criterion for the selection of investments shall be the Russell 1000 Index. When deemed appropriate by the Manager, the Manager may invest a portion of the Russell 1000® Index Fund in stock index futures contracts for the purpose of acting as a temporary substitute for investment in equity securities. The Russell 1000 Index Fund will not engage in speculative futures transactions. For the purposes of these investment guidelines the defined term "Equity Securities" shall mean common stocks and forms of equity securities (e.g., preferred stock), American Depository Receipts, European Depository Receipts, Global Depository Receipts and Investment Company Shares (as defined below) where such investment company portfolio seeks to replicate or outperform the performance of an equity index selected by the Manager.

Tracking Error: +/- 10 basis points annually

The LADWP accounts are managed in strict compliance with the Plan’s guidelines


III. Market Overview

27

The U.S. election has amplified themes that have been in play since mid-year

Asset performance pre- and post-Brexit

Sources: BlackRock Investment Institute, Thomson Reuters Datastream and MSCI, 30th December 2016.

Notes: The graph show the total return in local currency terms for each respective asset class, except for commodities and currencies, which are spot returns in USD from 31st

December, 2015 – 23rd June, 2016 and 24th June, 2016 to 8th December, 2016 respectively. Government bonds are 10-year benchmark issues.

-20 -10 0 10 20 30 40 50

SterlingJapanese Yen

GoldEuro

U.S. Government BondsItalian Government Bonds

Global Investment Grade CreditGerman Government Bonds

Emerging Market DebtUK Government Bonds

Global High Yield CreditGlobal Developed Market Equities

Emerging Market EquitiesAsia ex-Japan Equities

U.S. EquitiesU.S. Dollar Index

European EquitiesBrent Crude Oil

U.K. EquitiesCopper

Japanese EquitiesEuropean Bank Equities

RETURN (%)

Pre-Brexit Post-Brexit

BII-0232FOR USE WITH INSTITUTIONAL INVESTORS ONLY – PROPRIETARY AND CONFIDENTIAL

28

The global economy is facing a confluence of inflection points

GROWTH REFLATION POLICY

Global growth picking up after an extended slide

The U.S. appears to be leading a global rebound

Potential boost from fiscal stimulus to U.S. growth but

little progress elsewhere


29

The recovery grinds on, and near-term global growth expectations are too gloomy

The GPS shows that U.S. growth has the biggest upsideWe see room for upside surprise in consensus real GDP forecasts for G7 nationsBlackRock Macro GPS for G7 nations, 2015-2016 Difference between Macro GPS and consensus

Sources: BlackRock Investment Institute and Consensus Economics, 30th December 2016.

Notes: The GPS (blue line) shows where the 12-month consensus GDP forecast may stand in three months’ time. Consensus forecasts are measured by Consensus Economics. G7 country components are weighted by country GDP. The green line shows the current 12-month economic consensus forecast for G7 economies.

The GPS builds on existing nowcasting models that exploit the information from dozens of macroeconomic indicators to forecast GDP growth – including realized activity, employment, sentiment and survey data. It draws on a wider set of information sources by incorporating proprietary big data insights from BlackRock’s Scientific Active Equity team. These include

micro insights, such as consumer behavior captured through internet searches, and macro insights such as country business sentiment measured through the text-mining of corporate managers’ conference calls. Other big data inputs include online job postings, inflation chatter, satellite images, e-invoicing and traffic patterns.

1.5

2.0

2.5

Jan 15 Jul 15 Jan 16 Jul 16

RE

AL

GD

P G

RO

WTH

(%)

GPS 12m Forward Consensus

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

GP

S S

PR

EA

D O

VE

R C

ON

SE

NS

US

(%)


30

Share of CPI components with above-average inflation, 2006-2016

Inflation in, deflation out …

Sources: BlackRock Investment Institute, U.S. Bureau of Labor Statistics, UK Office for National Statistics and Eurostat, December 2016.

Notes: The lines show the percentage of CPI basket components with seasonally adjusted, month-on-month inflation above the average since 1999. The indexes capture 77 components in the U.S., 94 in the eurozone and 85 in the UK.

10

30

50

70

2006 2008 2010 2012 2014 2016

SH

AR

E (%

)

U.S. Eurozone UK


31

Whilst the Fed plans to tighten, monetary policy remains accommodative elsewhere

Expectations for short-term interest rates remain muted outside the U.S.

Central bank bond purchases are exacerbating a shortage in high quality assets

1y1y forward expectations for overnight deposit rates, 2016

Sources: BlackRock Investment Institute and Thomson Reuters Datastream, 30th

December 2016

0

10

20

30

40

50

60

70

2009 2011 2013 2015 2017 2019

SH

AR

E O

F O

UTS

TAN

DIN

G B

ON

DS

Bank of Japan Bank of England

U.S. Federal Reserve European Central Bank

Central bank holdings of government debt, 2009-2020

Sources: BlackRock Investment Institute and IMF, September 2016.Notes: The chart shows total central bank holdings of government debt securities as a percentage of outstanding issuance (including bonds ineligible for purchase). The projections are illustrative in nature and do not express a forecast; they are constructed using IMF fiscal balance forecasts and with the following assumptions: The Fed maintains re-investment; the ECB and BoJ maintain their current pace of buying; the Bank of England does not expand asset purchases beyond the £60 billion announced in August 2016.

Projection

-1

-0.5

0

0.5

1

1.5

2

Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16P

ER

CE

NT

U.S. Europe UK Japan


32

We believe that we have seen the low in bond yields

A 35-year bond bull market

Sources: BlackRock Investment Institute and Thomson Reuters Datastream, 30th

December 2016.

Selected government bond yields, 1980-2016

Sources: BlackRock Investment Institute and New York Fed, 22nd December 2016.

Notes: Term premium estimates from New York Fed economists Tobias Adrian, Richard Crump, and Emanuel Moench (or "ACM")

The term premium has turned positive

10 year treasury term premium – ACM estimates, 1981-2016

1981 1986 1991 1996 2001 2006 2011 2016-2

0

2

4

6

8

10

12

14

16

1980 1985 1990 1995 2000 2005 2010 2015

YIEL

D (%

)

Japan U.S. Germany UK

-1

0

1

2

3

4

5

6

TER

M P

RE

MIU

M E

STI

MA

TE (%

)


33

Political risks have the potential to shake up 2017

Source: BlackRock Investment Institute, December 2016Notes: The Fed and ECB meetings are those accompanied by press conferences. The BoJ events shown are followed by the publication of the central bank’s outlook report

EurozoneKey ECB meetingsJan. 19Mar. 9 Apr. 27June 8

July 20Sept. 7Oct. 26Dec. 14

NetherlandsGeneral electionsMar. 15

FrancePresidential electionsApr. 23 (first round)May 7 (runoff)

GermanyGerman electionsFall 2017

China19th Party CongressFall 2017

JapanKey BoJ meetingsJan. 30-31Apr. 26-27July 19-20Oct. 30-31

UKSelf –imposed deadline for Brexit talksMar. 31U.S.

Key Fed meetingsMar. 14-15June 13-14Sept. 19-20Dec. 12-13

Trump’s inauguration

Jan. 20

ItalyItalian electionsTimeline unknown


IV. Performance Review

35

LADWP Performance Overview

Our investment objective for the Los Angeles Department of Water and Power Fund is to replicate the risk

and return of the Russell 1000 Index.

Fund (gross) Fund (net) Index Difference

Water and Power Retirement Plan: $1,673,096,519

Retirement Health Benefits Fund: $307,499,215

1 month 2.01% 2.01% 2.01% 0.00%

Year-to-date 2.01% 2.01% 2.01% 0.00%

12 months trailing 20.86% 20.85% 20.81% 0.04%

3 years annualized 10.55% 10.54% 10.50% 0.04%



Since inception annualized 9.00% 8.99% 8.98% 0.01%

Source: BlackRockAs of 1/31/2017Benchmark is the Russell 1000 IndexInception Date: 08/07/2003. On 8/31/2010, LADWP redeemed out of the Large Cap Index Trust managed by BlackRock InvestmentManagement, LLC and transitioned into the Russell 1000 Index Fund managed by BlackRock Institutional Trust, N.A


36


Our investment objective for the Los Angeles Department of Water and Power Fund is to replicate the risk

and return of the Russell 1000 Index.


Water and Power Retirement Plan: $1,673,096,519

Retirement Health Benefits Fund: $307,499,215

2006 15.62% 15.60% 15.46% 0.14%

2007 5.76% 5.74% 5.77% -0.03%

2008 -37.63% -37.65% -37.60% -0.05%

2009 28.48% 28.46% 28.43% 0.03%

2010 16.80% 16.78% 16.75% 0.03%

2011 1.56% 1.55% 1.50% 0.05%

2012 16.47% 16.46% 16.42% 0.04%

2013 33.14% 33.13% 33.11% 0.02%

2014 13.27% 12.26% 13.24% 0.02%

2015 0.96% 0.95% 0.92% 0.03%

2016 12.12% 12.11% 12.05% 0.06%




37


0.00%

6.00%

12.00%

18.00%

24.00%

1 month YTD 12months

3 years 5 years 10 years Sinceinception

Fund (gross)

Fund (net)

Benchmark


1 month 2.01% 2.01% 2.01% 0.00%

Year-to-date 2.01% 2.01% 2.01% 0.00%

12 months trailing 20.86% 20.85% 20.81% 0.04%




Since inceptionannualized 9.00% 8.99% 8.98% 0.01%



38


-20.00%

0.00%

20.00%

40.00%

2009 2011 2013 2015 Since inceptionannualized

Fund (gross)

Fund (net)

Benchmark


2009 28.48% 28.46% 28.43% 0.03%

2010 16.80% 16.78% 16.75% 0.03%

2011 1.56% 1.55% 1.50% 0.05%

2012 16.47% 16.46% 16.42% 0.04%

2013 33.14% 33.13% 33.11% 0.02%

2014 13.27% 12.26% 13.24% 0.02%

2015 0.96% 0.95% 0.92% 0.03%

2016 12.12% 12.11% 12.05% 0.06%


Source: BlackRock, As of 1/31/2016Benchmark is the Russell 1000 IndexInception Date: 08/07/2003. On 8/31/2010, LADWP redeemed out of the Large Cap Index Trust managed by BlackRock InvestmentManagement, LLC and transitioned into the Russell 1000 Index Fund managed by BlackRock Institutional Trust, N.A


39

LADWP Portfolio Attribution - Sectors

Our investment objective for the Los Angeles Department of Water and Power Fund is to replicate the risk and return of the Russell 1000 Index.

As this is a passive portfolio, portfolio attribution of sectors is not applicable.


40

LADWP Portfolio Attribution – Top Contributors/Detractors


As this is a passive portfolio, contributors/detractors are at index levels. There are no active over/underweights for attribution.


41

LADWP Portfolio Attribution – Stock Selection


As this is a passive portfolio, stock selection is not performed. Individual securities are weighted at index levels, therefore attribution is not applicable.


V. Portfolio Characteristics

43

Russell 1000® Equity Index Fund Characteristics

Sector diversification

BES-0182

Data is subject to change. Portions of the above characteristics are based on benchmark data as the portfolio fully replicates benchmark and is for analytical purposes only. Index data may differ to those published by the Index due to different classification criteria. Breakdowns may not sum to total due to rounding, exclusion of cash, STIF, and statistically immaterial factors. The above information is based on the Russell 1000 Equity Index Collective Trust Fund 's portfolio characteristics. Sources: BlackRock, FactSet

Ru-

1K-Id

x-A

-Ch

Top 10 holdings

Fund % Index %

Apple Inc. 2.95 2.95

Microsoft Corporation 2.19 2.19

Exxon Mobil Corporation 1.75 1.75

Johnson & Johnson 1.47 1.47

JPMorgan Chase & Co. 1.46 1.46

Berkshire Hathaway Inc. Class B 1.43 1.43

Amazon.com, Inc. 1.36 1.35

General Electric Company 1.35 1.35

AT&T Inc. 1.22 1.22

Facebook, Inc. Class A 1.20 1.20

Characteristics

Strategy Russell 1000® Index

Total fund assets $43.14B

Number of holdings 997

12.47

8.76

7.28

15.10

13.05

10.55

20.19

3.22

3.68

2.59

3.11

12.46

8.77

7.28

15.11

13.07

10.55

20.17

3.22

3.68

2.59

3.10

0 8 16 24

Consumer discretionary

Consumer staples

Energy

Financials

Health care

Industrials

Information technology

Materials

Real estate

Telecommunication services

Utilities

Fund Index

As of 31 December 2016


44

Portfolio Value

Water and Power Retirement Plan

Initial Value as of 31 August 2010 $531,877,753

Contributions $956,003,503

Withdrawals ($693,000,000)

Interest* $135

Change in Market Value $878,215,128

Market Value as of 31 January 2017 $1,673,096,519

Retirement Health Benefits Fund

Initial Value as of 31 August 2010 $119,429,892

Contributions $133,446,006

Withdrawals ($106,919,000)

Interest* $448

Change in Market Value $161,541,869

Market Value as of 31 January 2016 $307,499,215

Source: BlackRockAs of 1/31/2017Please note that the change in portfolio value detailed above is only relevant to the Russell 1000 Index Fund managed by BlackRock Institutional Trust, N.A.*Interest earned is from assets held in the Money Market Fund which is the sweep vehicle for the Russell 1000 Index Fund.


VI. Fee Schedule

46

LADWP Fee Schedule

Total Assets Annual Fee (bps)

First $500,000,000 1.0

Above $500,000,000 0.75

LADWP Management Fee Schedule


Appendix – Presenter Biographies

48

Jeremy Watt, Director, is a member of the US and Canada Institutional team within BlackRock's Institutional Client Business. He is responsible for developing and maintaining relationships with institutional investors, including public and private pension plans, foundations and endowments.

Mr. Watt's service with the firm dates back to 1996, including his years with Barclays Global Investors (BGI), which merged with BlackRock in 2009. At BGI, he was a senior client relationship officer for the US Institutional Client Service Group. Mr. Watt began his career at BGI as a senior data analyst before serving as a project manager for BGI's Global Market Data Group. Prior to joining BGI, Mr. Watt was a fund accountant and a securities operations analyst at Invesco.

Mr. Watt earned a BA degree in business studies from Charles Sturt University.

Timothy Murray, CFA, Director, is an Index Equity strategist within ETF & Index Investments group.

Mr. Murray's service with the firm dates back to 2007, including his years with Barclays Global Investors (BGI), which merged with BlackRock in 2009. Prior to moving to his role as a product strategist, Mr. Murray was a senior portfolio manager and team leader in BlackRock's Institutional Index Equity Portfolio Management Group. Before joining BGI, Mr. Murray was a manager at State Street working with asset managers on trade processing and settlement. Prior to State Street, he was a financial advisor at Merrill Lynch.

Mr. Murray earned a BS degree in finance from California State University, Sacramento, in 2002, and an MBA degree from the University of California, Davis, in 2013.

Presenter Biographies


49

For recipients in the US: In the US this material is for institutional investors only.

For recipients in the EU: In the EU issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Conduct Authority). Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited.

For recipients in Korea: For distribution in Korea for Professional Investors only ("Professional Investors") as defined in the local regulation.

For recipients in Singapore: In Singapore, the information provided is issued by BlackRock (Singapore) Limited (company registration number: 200010143N) for institutional investors only. This information may not be circulated or distributed to any person in Singapore other than (i) to an institutional investor pursuant to Section 304 of the Securities and Futures Act ("SFA") or (ii) otherwise pursuant to and in accordance with the conditions of any other applicable provision of the SFA.

For recipients in Hong Kong: In Hong Kong, the information provided is issued by BlackRock Asset Management North Asia Limited and is only for distribution to "professional investors" (as defined in the Securities and Futures Ordinances (Cap. 571 of the laws of Hong Kong)) and should not be relied upon by any other persons.

For recipients in China: These materials may not be distributed to individuals resident in the PRC or entities registered in the PRC unless such parties have received all the required PRC government approvals to participate in any investment or receive any investment advisory or investment management services

For recipients in Latin America: In Latin America, for Institutional and Professional Investors only (not for public distribution). This material is solely for educational purposes and does not constitute investment advice, or an offer or a solicitation to sell or a solicitation of an offer to buy any shares of any funds (nor shall any such shares be offered or sold to any person) in any jurisdiction within Latin America in which such an offer, solicitation, purchase or sale would be unlawful under the securities laws of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator of Brazil, Chile, Colombia, Mexico, Panama, Peru, Uruguay or any other securities regulator in any Latin American country, and thus, might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America.

This document contains general information only and is not intended to be relied upon as a forecast, research, investment advice, or a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information does not take into account your financial circumstances. An assessment should be made as to whether the information is appropriate for you having regard to your objectives, financial situation and needs.

The opinions expressed are as of 3.9.2017 and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock, Inc. and/or its subsidiaries (together, “BlackRock”) to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to pass. Any investments named within this material may not necessarily be held in any accounts managed by BlackRock. Reliance upon information in this material is at the sole discretion of the reader. Past performance is no guarantee of future results.

BlackRock® is a registered trademark of BlackRock, Inc. All other trademarks are the property of their respective owners.

© 2017 BlackRock, Inc. All rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, and iSHARES are registered trademarks of BlackRock, Inc. or its subsidiaries. All other trademarks are the property of their respective owners.

Important notes

UIM-0255FOR USE WITH INSTITUTIONAL INVESTORS ONLY – PROPRIETARY AND CONFIDENTIAL

50

Important Notes

Past performance does not guarantee future results.

For ease of reference, “BlackRock” may be used to refer to BlackRock, Inc. and its affiliates, including BlackRock Institutional Trust Company, N.A. BlackRock Institutional Trust Company, N.A.(“BTC”), a national banking association operating as a limited purpose trust company, manages the collective investment funds and common trust funds (“collective funds”) products and servicesdiscussed in this publication and provides fiduciary and custody services to various institutional investors. Collective funds are privately offered: prospectuses are not required. Strategiesmaintained by BTC are not insured by the Federal Deposit Insurance Corporation or any other agency of the US government, are not an obligation or deposit of, or guaranteed by, BTC or itsaffiliates

Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Any opinions expressed in thispublication reflect our judgment at this date and are subject to change. No part of this publication may be reproduced in any manner without the prior written permission of BTC. Collective fundperformance assumes reinvestment of income, and does not reflect management fees, and certain transaction costs and expenses charged to the fund. Risk controls, asset allocation models,and proprietary technology do not promise any level of performance or guarantee against loss of principal.

This material is for distribution only to those types of recipients as provided below and should not be relied upon by any other persons. This material is provided for informational purposes onlyand does not constitute a solicitation in any jurisdiction in which such solicitation is unlawful or to any person to whom it is unlawful. Moreover, it neither constitutes an offer to enter into aninvestment agreement with the recipient of this document nor an invitation to respond to it by making an offer to enter into an investment agreement. Moreover, where historical performanceinformation of other investment vehicles or composite accounts managed by BlackRock, Inc. and/or its subsidiaries (together, “BlackRock”) has been included in this material and suchperformance information is presented by way of example only. No representation is made that the performance presented will be achieved, or that every assumption made in achieving,calculating or presenting the historical performance information herein has been considered or stated in preparing this material. This material is not intended to be relied upon as a forecast,research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

This document contains general information only and is not intended to represent general or specific investment advice. The information does not take into account an investor’s financialcircumstances. An assessment should be made as to whether the information is appropriate for you having regard to your objectives, financial situation and needs.

None of the information constitutes a recommendation by BTC or a solicitation of any offer to buy or sell any securities. The information is not intended to provide investment advice. Neither BTCnor BlackRock, Inc. guarantees the suitability or potential value of any particular investment. The information contained herein may not be relied upon by you in evaluating the merits of investingin any investment. To obtain pricing information, please contact your local service representative. Strategies maintained by BlackRock are not insured by the Federal Deposit InsuranceCorporation and are not guaranteed by BlackRock or its affiliates. There are structural and regulatory differences between collective funds and mutual funds that may affect their respective feesand performance

BlackRock Institutional Trust Company, N.A., is a wholly-owned subsidiary of BlackRock, Inc.

For A Funds:Strategies include bank collective investment funds maintained and managed by BlackRock Institutional Trust Company, N.A. which are available only to certain qualified employee benefit plansand governmental plans and not offered or available to the general public. Accordingly, prospectuses are not required and prices are not available in local publications.

For B Funds:Strategies include bank common trust funds maintained and managed by BlackRock Institutional Trust Company, N.A. which are available only to certain qualified purchasers and are not offeredor available to the general public. Accordingly, prospectuses are not required and prices are not available in local publications.

THIS MATERIAL IS HIGHLY CONFIDENTIAL AND IS NOT TO BE REPRODUCED OR DISTRIBUTED TO PERSONS OTHER THAN THE RECIPIENT.

© 2016 BlackRock, Inc. All Rights reserved. BLACKROCK is a registered and unregistered trademark of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All othertrademarks are those of their respective owners.


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