Amy C. McGarrity

Chief Investment Officer

January 17, 2020

MARKET &

PORTFOLIO

UPDATE

5

Market Performance

2019 vs. 2018

All returns are presented in unhedged USD terms

2019 Highest

Performers

“Risk assets” rebounded in 2019

2

3.2%

-2.5%

-2.1%

-2.5%

-15.4%

-14.8%

-14.3%

-15.5%

-10.1%

-4.4%

-20.5%

-0.9%

13.1%

14.3%

14.5%

16.5%

17.8%

18.1%

24.4%

26.4%

31.5%

34.4%

-30% -20% -10% 0% 10% 20% 30% 40%

US Dollar Index

Emerging U.S. Dollar Debt

U.S. Corporate High Yield Debt

U.S. Corporate Investment Grade Debt

Broad Commodities

Emerging Market Equities

Japanese Equities

European Equities

Global Equities

U.S. Equities

WTI Crude Oil

Return

2019 Return

2018 Return

2020 Policy Benchmark Weights

New Asset Allocation effective January 1, 2020

No “interim” allocation, Policy Benchmark weights will reset

yearly based on actual Alternatives allocation

Asset Class

2020 Policy

Benchmark

Weight

Actual Weight*(December 31, 2019)

(preliminary and

unaudited)

Long-

Term

Target

Target Range

Global Equity 56.0% 57.3% 54.0% 48%–60%

Fixed Income 23.5% 22.2% 23.0% 18%–28%

Private Equity 8.5% 7.8% 8.5% 4%–13%

Real Estate 8.5% 8.8% 8.5% 4%–13%

Alternatives 3.5% 3.4% 6.0% 0%–12%

Cash and Short Term** 0.0% 0.5% 0.0% 0%–3%

Total 100.0% 100.0% 100.0%

*Transitional cash remains within respective asset classes

**Includes Cash Overlay

3

5 4

2020 Strategic Initiative Projects

Project Status

Updated Proxy

Voting Statement

Planning stages – analysis of existing policy and potential enhancements;

expected completion 1Q2021

Direct investment in

private asset classes

Exploratory stages – initial presentation to Investment Committee in

November 2019

Participation on

Secure Savings

Board

In progress – currently receiving and reviewing studies from chosen

consultants; expect report release to Legislature late February 2020

Refreshed

technology roadmap

In progress – currently analyzing private market software vendors and

service providers; expected completion of this phase in late 2020

DC plan: improved

alignment of

preferences and

product offerings

In progress – member research, evaluation of current and proposed options

by Defined Contribution committee; expected completion 2021

Liquidation of BlackRock Fixed Income passive account – assets

being brought in-house

Onboarding work with Callan, the new CAP Investment

Consultant

Representatives from Investments, IT, and Accounting, in concert

with an external consultant, have completed an investment

systems infrastructure review; the team is evaluating next steps

PERAdvantage SRI Fund transition complete

DC Fund Fact Sheets will be produced by Investment staff instead

of Morningstar – beginning with 4Q19

Investment Activities

5

5 6

Investment Stewardship Awareness

2019 campaign increased awareness and engagement around PERA’s

Investment Stewardship

Collaboration between Investments, Communications, and Creative Services

Results tracked following July release of Stewardship report

Surpassed targets for both Awareness and Engagement metrics

2018 Baseline 2019 Target 2019 Results

Awareness 1,383 5,532 379,981

Impressions 1,383 5,532 379,981

Engagement 231 562 3,908

Infographic Views 95 190 2,298

Report Views 136 272 1,610

APPENDIX

7

Portfolio Monitor

Asset Class Strategy

Global Equity Portfolio retains higher quality bias. No material sector or geographic

overweights or underweights relative to the benchmark.

Fixed Income Current environment is uncertain and valuations are high. Portfolio is

positioned conservatively with no significant overweight or underweight by

asset class or duration versus the benchmark.

Private Equity Initiating work on budget and plan for 2020 vintage. PE market and

fundraising continues to be robust with no shortage of investment

opportunities. Re-up opportunities expected to drive commitment activity in

2020.

Real Estate In an uncertain interest rate and asset valuation environment, difficulties

exist in pursuit of new acquisitions. Team is focusing efforts on existing

strategic partner relationships to expand long term, core, income oriented

strategies and investment vehicles.

Alternatives Allocating to opportunistic and special situations funds, which can tactically

invest across multiple asset classes. Also focused on diversifying strategies

such as healthcare credit, specialty crops/agriculture and Asia private credit

opportunities.

8

Active Risk Policy

PolicyActive risk within marketable securities asset classes (i.e.,

Global Equity and Fixed Income) and total marketable

securities portfolios will not exceed maximums

Active Risk

Portfolio

Three-Year Historical

Tracking Error in Basis

Points

December 31, 2019

(preliminary)

Active Risk Policy

Maximum in

Basis Points

Global Equity 100 225

Fixed Income 16 100

Total Marketable

Securities

86 150

StatusActive risk levels are within policy limits

9

Asset Allocation Policy

PolicyAsset class weights will be within permissible ranges

StatusAll asset class weights within permissible ranges

Asset Class

Target

Weight (12/31/19)

Actual Weight*(December 31, 2019)

(preliminary and

unaudited)

RangeRisk Weight

(September 30, 2019)

Global Equity 53.5% 57.3% 47%–59% 72.2%

Fixed Income 23.5% 22.2% 18%–28% -0.8%

Private Equity 8.5% 7.8% 5%–12% 17.4%

Real Estate 8.5% 8.8% 5%–12% 8.7%

Alternatives 5.0% 3.4% 0%–9% 2.0%

Cash and Short Term** 1.0% 0.5% 0%–3% 0.5%

Total 100.0% 100.0% 100.0%

*Transitional cash remains within respective asset classes

**Includes Cash Overlay 10

*Large Growth – Russell 1000 Growth; Large Value – Russell 1000 Value; Small Growth – Russell 2000 Growth; Small Value – Russell 2000 Value; ACWI – MSCI

ACWI; EAFE – MSCI EAFE; EM – MSCI EM; REITs – FTSE NAREIT All Equity REITs; Bonds – Bloomberg Barclays Aggregate; High Yield – Bloomberg Barclays

U.S.Corporate High Yield; Cmdty – S&P GSCI Composite Index; HFOF – HFRI FOF Composite Index; NCREIF – NCREIF ODCE Index

**2019 Returns are through December 31, 2019. HFRI FOF Composite Index returns are through November 30, 2019. NCREIF ODCE Returns are through September

30, 2019.

Calendar Year Returns

11

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019**

EM Sm Growth NCREIF REITs Sm Growth REITs NCREIF Sm Value EM NCREIF Lg Growth

78.5 29.1 15.0 19.7 43.3 28.0 14.0 31.7 37.3 7.4 36.4

High Yield REITs REITs EM Sm Value Lg Value Lg Growth Lg Value Lg Growth Bonds REITs

58.2 27.9 8.3 18.2 34.5 13.5 5.7 17.3 30.2 0.0 28.7

Lg Growth Sm Value Bonds Sm Value Lg Growth Lg Growth REITs High Yield EAFE Lg Growth Sm Growth

37.2 24.5 7.8 18.1 33.5 13.1 2.8 17.1 25.0 -1.5 28.5

ACWI EM High Yield Lg Value Lg Value NCREIF Total Fund Cmdty ACWI High Yield ACWI

34.6 18.9 5.0 17.5 32.5 11.5 1.5 11.4 24.0 -2.1 26.6

Sm Growth Lg Growth Lg Growth EAFE ACWI Bonds Bonds Sm Growth Sm Growth Total Fund Lg Value

34.5 16.7 2.6 17.3 22.8 6.0 0.5 11.3 22.2 -3.5 26.5

EAFE Lg Value Total Fund ACWI EAFE Total Fund HFOF EM Total Fund REITs EAFE

31.8 15.5 1.9 16.1 22.8 5.7 -0.3 11.2 18.1 -4.0 22.0

REITs NCREIF Lg Value High Yield Total Fund Sm Growth EAFE REITs Lg Value HFOF EM

28.0 15.3 0.4 15.8 15.6 5.6 -0.8 8.6 13.7 -4.1 18.4

Sm Value High Yield Cmdty Lg Growth NCREIF ACWI Sm Growth ACWI REITs Lg Value Cmdty

20.6 15.1 -1.2 15.3 12.9 4.2 -1.4 7.9 8.7 -8.3 17.6

Lg Value Total Fund Sm Growth Sm Growth HFOF Sm Value ACWI NCREIF Sm Value ACWI Sm Value

19.7 14.0 -2.9 14.6 9.0 4.2 -2.4 7.8 7.8 -9.4 15.5

Total Fund ACWI Sm Value Total Fund High Yield HFOF Lg Value Total Fund HFOF Sm Growth High Yield

17.4 12.7 -5.5 12.9 7.4 3.4 -3.8 7.3 7.7 -11.7 14.3

Cmdty Cmdty HFOF NCREIF REITs High Yield High Yield Lg Growth High Yield Sm Value Bonds

13.5 9.0 -5.7 9.8 2.9 2.5 -4.5 7.1 7.5 -12.9 8.7

HFOF EAFE ACWI HFOF Cmdty EM Sm Value Bonds NCREIF EAFE HFOF

11.5 7.8 -7.3 4.8 -1.2 -2.2 -7.5 2.6 6.7 -13.8 6.4

Bonds Bonds EAFE Bonds Bonds EAFE EM EAFE Cmdty Cmdty NCREIF

5.9 6.5 -12.1 4.2 -2.0 -4.9 -14.9 1.0 5.8 -13.8 3.1

NCREIF HFOF EM Cmdty EM Cmdty Cmdty HFOF Bonds EM

-30.4 5.7 -18.4 0.1 -2.6 -33.1 -32.9 0.5 3.5 -14.6