Stepstone Atlantic Fund, L.P

StepStone Atlantic Fund, L.P.

Private Equity and Infrastructure

Quarterly Monitoring Report

For the period ending September 30, 2016

Report Prepared For:

BEIJING DUBLIN HONG KONG LA JOLLA LONDON NEW YORK PERTH SAN FRANCISCO SÃO PAULO SEOUL SYDNEY TOKYO TORONTO ZURICH

Important Information This document is meant only to provide a broad overview for discussion purposes. All information provided here is subject to change. This document is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, or as an offer to provide advisory or other services by StepStone Group LP, its subsidiaries or affiliates (collectively, “StepStone”) in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this document should not be construed as financial or investment advice on any subject matter. StepStone expressly disclaims all liability in respect to actions taken based on any or all of the information in this document.

This document is confidential and solely for the use of StepStone and the existing and potential clients of StepStone to whom it has been delivered, where permitted. By accepting delivery of this presentation, each recipient undertakes not to reproduce or distribute this presentation in whole or in part, nor to disclose any of its contents (except to its professional advisors), without the prior written consent of StepStone. While some information used in the presentation has been obtained from various published and unpublished third-party sources considered to be reliable, StepStone does not guarantee its accuracy or completeness and accepts no liability for any direct or consequential losses arising from its use. Thus, all such information is subject to independent verification by prospective investors.

The presentation is being made based on the understanding that each recipient has sufficient knowledge and experience to evaluate the merits and risks of investing in private equity products. All expressions of opinion are intended solely as general market commentary and do not constitute investment advice or a guarantee of returns. All expressions of opinion are as of the date of this document, are subject to change without notice and may differ from views held by other businesses of StepStone.

All valuations are based on current values provided by the general partners of the Underlying Funds and may include both realized and unrealized investments. Due to the inherent uncertainty of valuation, the stated value may differ significantly from the value that would have been used had a ready market existed for all of the portfolio investments, and the difference could be material. The long-term value of these investments may be lesser or greater than the valuations provided.

StepStone is not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

Prospective investors should inform themselves and take appropriate advice as to any applicable legal requirements and any applicable taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant to the subscription, purchase, holding, exchange, redemption or disposal of any investments. Each prospective investor is urged to discuss any prospective investment with its legal, tax and regulatory advisors in order to make an independent determination of the suitability and consequences of such an investment.

Past performance is not necessarily indicative of future results. Actual performance may vary.

Each of StepStone Group LP, StepStone Group Real Assets LP and StepStone Group Real Estate LP is an Investment Adviser registered with the Securities and Exchange Commission. StepStone Group Europe LLP is authorized and regulated by the Financial Conduct Authority, firm reference 551580. Swiss Capital Invest Holding (Dublin) Ltd is an SEC registered investment advisor and Swiss Capital Alternative Investments AG (together SwissCap) is registered as a relying advisor with the SEC, such registrations do not imply a certain level of skill or training and no inference to the contrary should be made.

Table of Contents

I. Quarterly Update ...... 1 II. Market Update ...... 2 III. Portfolio Review ...... 4 IV. Performance Summary ...... 6 V. Investment Summaries ...... 15 VI. Quarterly Market Overview...... 41

Dear Limited Partner,

We are pleased to enclose the quarterly update for StepStone Atlantic Fund, L.P. (the “Fund”, “SSAF”, or “Partnership”) for the period ending September 30, 2016.

I. Quarterly Update

StepStone Atlantic Fund, L.P. – Private Equity (“SSAF – PE”) was formed in August 2009 and made its first private equity investment in December 2009. During the third quarter of 2016, the Fund made two new private equity commitments totaling $31.2 million, bringing cumulative commitments to $516.1 million in 59 total investments, of which 56 remain active. From inception through the third quarter of 2016, the Fund has contributed $388.3 million, or 75.2% of the SSAF –PE’s commitments. The Fund’s private equity investments have a total value of $559.0 million, which includes $130.4 million from distributions received by the underlying investments. SDCERS’ private equity return, net of all fees, expenses, and accrued carried interest, is equal to a net total value multiple of 1.38x and a net IRR of 17.0%(1).

During the second quarter, SSAF – PE was written up $31.7 million, or 8.6%, driven by DN Capital – Global Venture Capital III L.P. (+$6.4m; 49%), Project Sumo (+$5.0m; 37%), and StepStone Capital Partners III, L.P. (+$3.4m; 18%). Partially offsetting the increase in value to SSAF – PE was a decline in value of Mercato Co-Investment (-$1.9m; -22%).

StepStone Atlantic Fund, L.P. – Infrastructure (“SSAF – Infra”) was formed in December 2011 and made its first infrastructure investment in October 2009 (a transfer from the private equity portfolio). The Fund made two new infrastructure commitments totaling $25.0 million, bringing cumulative commitments to $128.1 million in 16 total investments, of which 15 remain active. From inception through the third quarter of 2016, the Fund has contributed $102.3 million, or 79.9% of the Partnership’s infrastructure commitments. The Fund’s infrastructure investments have a total value of $110.5 million, which includes $29.7 million from distributions received by the underlying investments. SDCERS’ infrastructure return, net of all fees, expenses, and accrued carried interest, is equal to a net total value multiple of 1.02x and a net IRR of 1.1%(1).

During the third quarter, SSAF – Infra was written up $1.1 million, or 1.8%, driven by Project East-End (+$1.2m; 39%), Argonaut PE III (+$0.8m; 6%), and Project Delta (+$0.7m; 8%). Partially offsetting the increase in value to SSAF – Infra was a decline in value of Denham Co-Investment (-$0.7m; -6%).

The Fund (Private Equity and Infrastructure) has a total value of $669.4 million, which includes $160.1 million from distributions, and was written up $32.8 million, or 7.6%, during the third quarter. SDCERS’ return, net of all fees, expenses, and accrued carried interest, is equal to a net total value multiple of 1.31x and a net IRR of 13.9%.

(1) Net returns for SSAF – PE and SSAF – Infra are estimates.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 1

II. Market Update

After the second quarter ended with the unexpected British referendum vote to leave the European Union, global equities in the third quarter of 2016 were not as volatile as anticipated. Global markets rallied due to stabilizing oil prices, unchanged interest rates by the U.S. Federal Reserve (the “Fed”), and better than expected worldwide growth, with non-U.S. indices reporting stronger quarterly performance than U.S. In particular, the MSCI Emerging Markets index led benchmark performances, ending 8.3% higher than last quarter, as Chinese technology and financials companies reported strong gains and Brazil bolstered hopes for economic growth and new leadership following the impeachment of President Dilma Rousseff. The S&P 500 Total Return Index finished the quarter up 3.9%, led by US information technology stocks surging 12.9%.1, 2

U.S. leveraged buyout (“LBO”) debt volume was down 2.3% compared to the second quarter of 2016 at $24.1 billion, but was above the 10-year quarterly average of $18.4 billion and above the Q2 2015 level of $22.5 billion. Purchase price multiples (“PPM”) for U.S. LBOs rose from 9.7x EBITDA in the second quarter to 10.6x EBITDA in the third quarter. However, this increase demonstrated a return to more consistent PPM levels of the past two years. The 9.7x EBITDA PPM for the second quarter was the lowest multiple since 9.5x EBITDA in the fourth quarter of 2014. Average debt multiples of large corporate U.S. LBO loans remain high, though they fell slightly quarter-over-quarter from 5.5x to 5.4x, while equity contributions for U.S. LBOs increased from the second quarter’s level of 44.7% to 45.3%, providing a more durable capital structure.3

In private markets, the third quarter’s private equity fundraising across all sectors remained on par with the healthy levels of the previous two quarters, as the $92.1 billion raised brings the amount raised in the first three quarters of 2016 to 15.0% more than was raised in the first three quarters of 2015. Geographically, U.S. fundraising represented 51.2% of total funds raised in the third quarter. Funds raised in Asia increased quarter-over-quarter to make up 22.1% of total funds raised for the quarter. This increase was primarily driven by one fund: China’s State-owned Venture Capital Fund, which raised $15.1 billion in the third quarter, with a fundraising target of $30.0 billion for venture capital investments in China. Removing the effects of this one fund would decrease Asia’s portion of fundraising to 7.0%. The rest of the world made up 6.0% of global fundraising, decreasing from an abnormally high second quarter share of 17.9%. Private equity invested capital decreased 33.0% quarter-over-quarter, though the amount invested through the first three quarters of 2016 is 4.8% higher than the amount invested through the first three quarters of 2015.4

Private equity-backed IPO transaction volume in the third quarter of 2016 increased 5.6% quarter-over-quarter and 5.0% compared to the third quarter of 2015, as $3.1 billion was raised in 22 IPOs. The largest IPO of the quarter was Patheon NV (NYSE: PTHN), a Danish provider of outsourced pharmaceutical development and manufacturing services, which raised $718.8 million. Third quarter M&A volume was $150.4 billion for the quarter, a 6.9% increase compared to the second quarter of 2016, but a 14.3% decrease compared to the third quarter of 2015. The largest M&A deal of the quarter was the $9.9 billion take-private of Qihoo 360 Technology Co. Ltd., a Chinese internet security firm. 4, 5

1 Loomis Sayles, “Equity Market Review and Outlook,” Q3 2016 2 Capital Group, “World Markets Review – Third Quarter 2016” 3 S&P US LBO Review, 3Q 2016 4 Thomson ONE data as of October 28, 2016 5 Capital IQ Transaction Screening Report as of October 28, 2016 *Please note, all data in this report from Thomson ONE is as of October 28, 2016, but it is subject to upward revision as further data is made available.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 2

Third Quarter Review and Market Outlook - Secondaries

Through the third quarter of 2016, the secondary market remained active, supported by a strong pricing environment and the availability of dry powder. StepStone believes secondary volume for 2016 will moderate relative to longer term averages, with much of the activity driven by active portfolio management, divestment of non-core assets and GP restructurings. Although pricing remained high on average, we continued to see wide variances based on asset quality with well-known fund interests attracting higher prices and more obscure and older vintage fund interests garnering higher discounts.

In a year characterized by global macroeconomic and geopolitical uncertainty, StepStone continued to successfully execute on its strategy of buying the most attractive relative value opportunities in the market. The transactions we acquired were sourced through inefficient processes, purchased at attractive discounts, and underwritten to above-market returns. We achieved this by sourcing directly from general partners and limited partners; leveraging StepStone’s global platform, information advantage, proprietary relationships, and attractive profile as a desirable replacement limited partner. These important advantages differentiate StepStone’s secondaries strategy and position our fund to deliver significant value while insulating our investors from the impact of market shifts.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 3

III. Portfolio Review

New Investments

Project Sumo Private Equity Secondaries $21.2 million commitment StepStone purchased a commitment in Spindletop Healthcare Capital, a 2011 vintage, North American-based growth equity Fund that specializes in the healthcare sector.

Vertical Venture Partners L.P. Private Equity Seasoned Primary $10.0 million commitment Vertical Venture Partners is a Santa Clara-based seed stage venture capital firm that targets investments in enterprise IT companies serving vertical markets.

Argonaut PE III Infrastructure Secondaries $20.0 million commitment StepStone purchased a commitment in Argonaut Private Equity III. The Fund's assets consist of seven cash flowing U.S. middle-market companies that are primarily energy-related.

Project East-End Infrastructure Secondaries $5.0 million commitment StepStone made a secondary purchase of six funds, Aetos Capital Asia II, IDFC Private Equity III, 3i India Infrastructure, Arsenal Capital Partners II, Arcturus Capital Ventures Fund, and Housatonic Equity Investors V. Over 75% of the exposure is to Infrastructure and Real Assets.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 4

Contributions

During the quarter, the Fund called $37.4 million to meet the capital requirements of underlying investments and anticipated capital calls. Additionally, a portion was used to pay management fees and expenses related to the Fund.

Distributions

During the quarter, the Fund distributed $9.5 million from underlying investments.

StepStone continues to be optimistic about the market for private equity and infrastructure investments, and is currently reviewing a number of investment opportunities. Should you have any questions or if we can provide any further information, please feel free to contact Johnny Randel at 858.558.9700.

Best Regards,

Monte Brem John Coelho Johnny Randel Partner, CEO Partner Partner, CFO/COO

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 5

IV. Performance Summary

As of September 30, 2016, the Fund’s portfolio consisted of the following:

StepStone Atlantic Fund, L.P.(6) (US $ millions) Private Equity Infrastructure Total Capital Committed $ 516,080,877 $ 128,113,549 $ 644,194,426 Capital Contributed (1) (2) 388,254,350 102,338,449 490,592,799 Contributed as a % of Capital Committed 75.2% 79.9% 76.2% Number of Active Investments 56 15 71 Distributions (3) 130,448,359 29,696,189 160,144,548 Distributions as a % of Capital Contributed (4) 33.6% 29.0% 32.6% Market Value of Investments 428,502,705 80,776,119 509,278,824 Partnership Value as a % of Contributed 110.4% 78.9% 103.8% Market Value as of % of Total Market Value 84.1% 15.9% 100.0% Total Value of Investments $ 558,951,064 $ 110,472,308 $ 669,423,372

The table below provides a summary of the net performance of SDCERS’ investment as of September 30, 2016:

San Diego City Employees' Retirement System(6)(7) Private Equity Infrastructure Total Capital Called from SDCERS (2) (3) $ 394,910,867 $ 91,283,821 $ 486,194,688 SDCERS' Unfunded (2) - - 97,591,813 Distributions to SDCERS (3) 110,191,619 27,207,190 137,398,809 SDCERS' Distributions as a % of Contributed (4) 27.9% 29.8% 28.3% Estimated Market Value 434,734,012 66,274,997 501,009,009 Estimated MV as a % of Capital Contributed 110.1% 72.6% 103.0% Estimated MV as a % of Total MV 86.8% 13.2% 100.0% Total Distributions and Estimated Market Value $ 544,925,631 $ 93,482,187 $ 638,407,818

Net Total Value Multiple (TVM) (5) 1.38x 1.02x 1.31x (5) Net Internal Rate of Return (IRR) 17.0% 1.1% 13.9%

(1) Includes 1% GP commitment from StepStone. (2) Capital Contributed represents contributions to underlying partnership investments including capitalized legal and other transaction fees and expenses. Management fees paid to StepStone Group LP are not considered to be inside of the partnership’s commitment and thus do not affect the unfunded amount. (3) Capital Committed and Distributed amounts are shown net of distributions received from underlying investments that have been characterized as recallable by the respective General Partners. (4) Distributions as a % of Capital Called represents total net distributions received by the Fund from underlying partnership investments (including distributions used to offset drawdowns for investments) divided by Capital Called. (5) Net TVM and IRR for the total are based on SDCERS' cash flows, net of all fees, expenses, and carried interest (but before taxes or withholdings incurred by the limited partners directly or indirectly through payments or withholdings by any StepStone-managed vehicle). Net returns for Private Equity and Infrastructure are estimates. For the four individual investment series, the net returns are: SSAF 2009 is 13%; SSAF 2011 is 1%; SSAF 2012 is 14%; and SSAF 2014 is not meaningful. (6) This report reflects a reallocation of several investments from Private Equity to their proper category of Infrastructure. The transferred investments are: Denham IV, Energy Capital I, SilverStone I, EnCap Flatrock II, and Sheridan II-B. (7) With the combining of the Private Equity and Infrastructure programs, the valuation and underlying calculations are now to be considered estimates and based upon an approved methodology. StepStone’s methodology is available upon request. Past performance is not necessarily indicative of future results and there can be no assurance that the fund will achieve comparable results or avoid substantial losses.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 6

The graphs below detail the sources of value generated from the Fund’s underlying portfolio investments from inception through September 30, 2016:

StepStone Atlantic Fund Total Funded to Total Value

StepStone Atlantic Fund Private Equity Total Funded to Total Value

StepStone Atlantic Fund Infrastructure Total Funded to Total Value

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 7

Schedule of Investments

StepStone Atlantic Fund, L.P. As of September 30, 2016 # of Investment Type Investments Committed(1) Funded(2) (3) Distributed (3) Market Value Total Value TVM(4) IRR(4) Private Equity Secondaries 22 $ 111,354,312 $ 85,490,479 $ 57,320,051 $ 77,003,416 $ 134,323,467 1.57x 24.5% Active PE Secondaries 21 106,354,312 80,530,432 54,542,217 77,003,416 131,545,633 1.63x 28.3% Realized PE Secondaries 1 5,000,000 4,960,047 2,777,834 - 2,777,834 0.56x -36.1% Private Equity Seasoned Primaries 15 165,979,000 110,423,930 28,591,428 152,428,568 181,019,996 1.64x 25.4%

Private Equity Primaries 7 101,500,000 77,771,583 10,749,733 100,892,768 111,642,501 1.44x 14.9%

Private Equity Co-Investments 15 137,247,565 114,568,358 33,787,146 98,177,954 131,965,100 1.15x 11.0% Active PE Co-Investments 13 120,517,565 97,726,398 14,946,308 98,177,954 113,124,262 1.16x 10.0% Realized PE Co-Investments 2 16,730,000 16,841,960 18,840,838 - 18,840,838 1.12x 41.8% Private Equity Subtotal 59 516,080,877 388,254,350 130,448,359 428,502,705 558,951,064 1.44x 20.0%

Infrastructure Secondaries 7 53,676,049 41,023,926 17,953,604 36,559,773 54,513,377 1.33x 15.4%

Infrastructure Seasoned Primaries 1 10,000,000 7,795,338 1,157,470 7,538,976 8,696,446 1.12x 8.3%

Infrastructure Primaries 2 17,500,000 14,705,952 2,351,522 12,416,628 14,768,151 1.00x 0.1%

Infrastructure Co-Investments 6 46,937,500 38,813,233 8,233,593 24,260,741 32,494,334 0.84x -10.6% Active Infra Co-Investments 5 42,937,500 34,806,553 1,568,117 24,260,741 25,828,858 0.74x -15.7% Realized Infra Co-Investments 1 4,000,000 4,006,680 6,665,476 - 6,665,476 1.66x 29.4% Infrastructure Subtotal 16 128,113,549 102,338,449 29,696,189 80,776,119 110,472,308 1.08x 4.1%

StepStone Atlantic Fund Gross Returns 75 $ 644,194,426 $ 490,592,799 $ 160,144,548 $ 509,278,824 $ 669,423,372 1.36x 17.0%

Other Fund Net Assets/(Liabilities) 4,869,436 Total Partnership Value 514,148,260 674,292,808

SDCERS Net Returns (5) $ 486,194,688 $ 137,398,809 $ 501,009,009 $ 638,407,818 1.31x 13.9%

(1) For secondary investments, Commitment represents total exposure, calculated as the total purchase price of the interest, plus the remaining commitment assumed as of the pricing date. (2) Funded includes additional fees and expenses associated with the investment in the underlying partnerships. (3) Funded and Distributed amounts are shown net of distributions received from underlying investments that have been characterized as recallable by the respective General Partners. (4) Net IRR and TVM are net of management fees and expenses related to the underlying partnership investments (but before taxes or withholdings incurred by the limited partners directly or indirectly through payments or withholdings by any StepStone-managed vehicle). IRR performance for investments held less than two years is not meaningful. (5) Net IRR and TVM to SDCERS includes all fees, expenses, and carried interest paid to the General Partner. Past performance is not necessarily indicative of future results and there can be no assurance that the fund will achieve comparable results or avoid substantial losses.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 8

Schedule of Investments

StepStone Atlantic Fund, L.P. As of September 30, 2016 Vintage Private Equity Secondaries Year Fund Strategy Committed(1) Funded(2) (3) Distributed (3) Market Value Total Value TVM(4) IRR(4) ABRY Partners VI, L.P. 2008 Buyout $ 10,345,250 $ 9,167,455 $ 14,328,539 $ 4,059,048 $ 18,387,586 2.01x 21.5% Affinity Asia Pacific Fund III, L.P. 2007 Buyout 1,105,542 921,588 80,166 787,601 867,767 0.94x -5.0% American Capital Equity III, LP 2003 Buyout 10,939,605 8,713,696 12,405,006 4,543,000 16,948,006 1.94x 94.1% Core Capital Partners II LP 2015 Buyout 742,094 394,513 61,664 357,079 418,744 1.06x 6.2% Crestview Partners III, L.P. 2013 Buyout 3,838,669 818,363 - 855,890 855,890 1.05x 5.0% Eureka II, L.P. 2006 Buyout 1,834,790 1,506,835 745,419 1,211,173 1,956,592 1.30x 12.8% FTVentures II & III 2001 Growth Equity 2,713,039 2,398,314 1,806,386 1,422,929 3,229,315 1.35x 28.9% Hancock Park Capital III, L.P. 2005 Buyout 4,676,095 4,624,664 429,426 3,987,830 4,417,256 0.96x -4.4% Hummer Winblad Venture Partners V, L.P. 2000 Venture Capital 1,528,566 1,528,566 1,016,555 1,995,036 3,011,591 1.97x 44.9% Project Dolphin (HGGC I) 2002 Buyout 1,885,615 1,813,504 50,099 1,961,044 2,011,143 1.11x 11.4% Project Sail 2014 Buyout 3,599,200 2,842,737 10,366 3,771,888 3,782,254 1.33x 67.0% Project Sumo 2011 Growth Equity 21,207,258 13,509,794 - 18,522,674 18,522,674 1.37x 906.2% Project Talde 2005 Growth Equity 1,489,482 968,212 996,204 446,300 1,442,504 1.49x 78.4% Ridgemont Partners Secondary Fund I, L.P. 1999 Buyout 5,555,556 4,951,982 8,568,876 1,515,670 10,084,546 2.04x 41.5% Rosetta Capital IV, L.P. 2006 Venture Capital 3,232,914 3,079,274 - 3,602,105 3,602,105 1.17x 5.1% Signal Peak Technology Ventures, L.P. 2002 Venture Capital 2,514,286 2,514,286 4,241,267 10,823,668 15,064,935 5.99x 57.2% SilverStone II, LLC Series B (Bain IX) 2006 Buyout 3,694,150 3,596,136 6,001,709 1,084,059 7,085,768 1.97x 27.6% SilverStone II, LLC Series C (Excel Ventures I & II) 2008 Venture Capital 5,088,235 4,083,223 715,147 2,591,550 3,306,697 0.81x -6.1% SilverStone II, LLC Series E (Small Secondaries) 2006 Buyout 2,114,000 1,953,757 2,110,346 1,513,217 3,623,563 1.85x 51.5% SilverStone II, LLC Series G (KRG) 2005 Buyout 15,000,000 7,726,015 428,234 8,927,209 9,355,443 1.21x 14.5% Terra Firma Capital Partners III, L.P. 2006 Buyout 3,249,965 3,417,518 546,808 3,024,445 3,571,254 1.04x 1.3% PE Active Secondaries Subtotal $ 106,354,312 $ 80,530,432 $ 54,542,217 $ 77,003,416 $ 131,545,633 1.63x 28.3% Realized PE Secondaries Longworth Venture Partners II, L.P. 2001 Venture Capital 5,000,000 4,960,047 2,777,834 - 2,777,834 0.56x -36.1% Realized PE Co-Investment Commitments Subtotal $ 5,000,000 $ 4,960,047 $ 2,777,834 $ - $ 2,777,834 0.56x -36.1% Private Equity Secondaries Total $ 111,354,312 $ 85,490,479 $ 57,320,051 $ 77,003,416 $ 134,323,467 1.57x 24.5% (1) For secondary investments, Commitment represents total exposure, calculated as the total purchase price of the interest, plus the remaining commitment assumed as of the pricing date. (2) Funded includes additional fees and expenses associated with the investment in the underlying partnerships. (3) Funded and Distributed amounts are shown net of distributions received from underlying investments that have been characterized as recallable by the respective General Partners. (4) Net IRR and TVM are net of management fees and expenses related to the underlying partnership investments (but before taxes or withholdings incurred by the limited partners directly or indirectly through payments or withholdings by any StepStone-managed vehicle). Past performance is not necessarily indicative of future results and there can be no assurance that the fund will achieve comparable results or avoid substantial losses.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 9

Schedule of Investments

StepStone Atlantic Fund, L.P. As of September 30, 2016 Vintage Private Equity Seasoned Primaries Year Fund Strategy Committed Funded(1) (2) Distributed (2) Market Value Total Value TVM(3) IRR(3) Clearlake Capital Partners II, L.P. 2009 Distressed $ 5,000,000 $ 4,763,043 $ 3,166,882 $ 5,571,763 $ 8,738,645 1.83x 19.1% Delos Investment Fund, L.P. 2014 Distressed 20,000,000 12,599,455 1,860,889 12,316,210 14,177,099 1.13x 12.0% DFJ Mercury Fund II, L.P. 2008 Venture Capital 10,000,000 10,218,219 2,703,149 10,828,992 13,532,141 1.32x 7.6% DN Capital – Global Venture Capital III L.P. 2012 Venture Capital 10,104,000 6,811,053 1,478,415 18,886,478 20,364,892 2.99x 93.7% Foundry Group Select Fund, L.P. 2013 Growth Equity 5,000,000 4,250,000 2,081,449 5,369,866 7,451,315 1.75x 46.2% HGGC Fund II, L.P. 2014 Buyout 10,000,000 6,276,020 936,383 6,386,520 7,322,903 1.17x 17.4% HighBAR Partners II, L.P. 2009 Growth Equity 15,000,000 15,000,000 3,117,200 17,637,846 20,755,046 1.38x 17.9% NSI Ventures I, L.P. 2015 Venture Capital 6,875,000 3,771,101 - 6,938,674 6,938,674 1.84x 164.1% One Rock Capital Partners, L.P. 2012 Buyout 20,000,000 8,490,769 2,340,272 10,068,345 12,408,617 1.46x 21.8% Ridgemont Equity Partners Fund I, L.P. 2011 Buyout 15,000,000 14,126,679 7,792,341 16,696,452 24,488,793 1.73x 28.4% Signal Peak II, L.P. 2014 Venture Capital 15,000,000 7,983,273 - 9,507,189 9,507,189 1.19x 32.2% SoftTech VC III, L.P. 2011 Venture Capital 10,000,000 9,250,000 3,000,000 23,208,407 26,208,407 2.83x 32.1% SoftTech VC Plus 2016 Venture Capital 4,000,000 671,845 567 656,315 656,882 0.98x -8.4% Tritium I, L.P. 2013 Buyout 10,000,000 2,712,473 113,881 2,993,529 3,107,410 1.15x 6.9% Vertical Venture Partners L.P. 2014 Venture Capital 10,000,000 3,500,000 - 5,361,982 5,361,982 1.53x 537.4% Private Equity Seasoned Primaries Total $ 165,979,000 $ 110,423,930 $ 28,591,428 $ 152,428,568 $ 181,019,996 1.64x 25.4%

(1) Funded includes additional fees and expenses associated with the investment in the underlying partnerships. (2) Funded and Distributed amounts are shown net of distributions received from underlying investments that have been characterized as recallable by the respective General Partners. (3) Net IRR and TVM are net of management fees and expenses related to the underlying partnership investments (but before taxes or withholdings incurred by the limited partners directly or indirectly through payments or withholdings by any StepStone-managed vehicle). Past performance is not necessarily indicative of future results and there can be no assurance that the fund will achieve comparable results or avoid substantial losses.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 10

Schedule of Investments

StepStone Atlantic Fund, L.P. As of September 30, 2016 Vintage Private Equity Primaries Year Fund Strategy Committed Funded(1) (2) Distributed (2) Market Value Total Value TVM(3) IRR(3) Amplify Partners II, L.P. 2015 Venture Capital $ 9,000,000 $ 1,530,000 $ - $ 1,208,447 $ 1,208,447 0.79x -22.5% Clearlake Capital Partners III, L.P. 2012 Distressed 7,500,000 6,451,136 3,809,206 8,440,116 12,249,322 1.90x 33.2% Littlejohn Fund IV, L.P. 2010 Distressed 10,000,000 9,172,414 5,157,696 9,675,197 14,832,893 1.62x 12.9% Millennium Technology Value Partners II, L.P. 2010 Secondaries 10,000,000 7,616,244 134,808 8,178,050 8,312,858 1.09x 2.3% Parallax Capital Fund, L.P. 2013 Buyout 12,500,000 7,859,695 324,746 7,166,368 7,491,114 0.95x -2.9% StepStone Tactical Growth Fund, L.P. 2013 Growth Equity 40,000,000 33,326,996 640,356 45,731,086 46,371,442 1.39x 21.0% Trustbridge Partners IV L.P. 2011 Growth Equity 12,500,000 11,815,097 682,921 20,493,504 21,176,426 1.79x 17.3% Private Equity Primaries Total $ 101,500,000 $ 77,771,583 $ 10,749,733 $ 100,892,768 $ 111,642,501 1.44x 14.9%

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 11

Schedule of Investments

StepStone Atlantic Fund, L.P. As of September 30, 2016 Vintage Private Equity Co-Investments Year Fund Strategy Committed Funded(1) (2) Distributed (2) Market Value Total Value TVM(3) IRR(3) PE Active Co-Investment DFJ Mercury Silverstone Fund, L.P. 2011 Growth Equity $ 6,000,000 $ 5,700,000 $ 5,768,679 $ 4,806,829 $ 10,575,508 1.86x 23.8% Mercato Co-Investment 2013 Growth Equity 5,300,000 5,300,000 403,904 6,750,321 7,154,225 1.35x 9.9% Millennium Tech Value Partners II (Master) 2011 Direct Secondary 3,675,522 3,668,491 335,823 2,395,743 2,731,566 0.74x -5.8% Parallax Co-Investment #2 2014 Buyout 10,000,000 10,000,000 - 8,514,350 8,514,350 0.85x -6.2% Project Gaucho (Rincon) 2014 Venture Capital 7,496,821 6,343,083 - 5,444,087 5,444,087 0.86x -15.8% SilverStone II, LLC Series F (Aerospace) 2013 Buyout 2,900,000 2,929,594 1,185,395 2,962,412 4,147,807 1.42x 12.1% Siris Co-Investment 2015 Buyout 2,912,621 2,912,621 - 2,912,621 2,912,621 1.00x 0.0% StepStone Capital Partners III, L.P. 2014 Buyout 45,000,000 23,697,581 - 29,984,738 29,984,738 1.27x 66.8% TC Growth Co-Investment 2015 Growth Equity 13,038,570 13,038,570 7,252,507 5,919,042 13,171,549 1.01x 1.7% TDR Co-Investment 2016 Buyout 7,920,050 7,920,050 - 9,071,183 9,071,183 1.15x 27.6% Tritium Co-Investment 2014 Buyout 6,384,842 6,322,275 - 6,250,000 6,250,000 0.99x -0.5% Updata Co-Investment 2014 Buyout 6,490,910 6,495,903 - 10,025,335 10,025,335 1.54x 27.5% Vector Co-Investment 2015 Buyout 3,398,230 3,398,230 - 3,141,293 3,141,293 0.92x -5.0% PE Active Co-Investment Subtotal $ 120,517,565 $ 97,726,398 $ 14,946,308 $ 98,177,954 $ 113,124,262 1.16x 10.0% Realized PE Co-Investments Parallax Co-Investment #1 2013 Buyout $ 8,000,000 $ 8,111,960 $ 9,936,298 $ - $ 9,936,298 1.22x 79.2% Tritium Co-Investment - Warehouse 2014 Buyout 8,730,000 8,730,000 8,904,540 - 8,904,540 1.02x 5.3% Realized PE Co-Investment Commitments Subtotal $ 16,730,000 $ 16,841,960 $ 18,840,838 $ - $ 18,840,838 1.12x 41.8% Total Private Equity Co-Investment Subtotal $ 137,247,565 $ 114,568,358 $ 33,787,146 $ 98,177,954 $ 131,965,100 1.15x 11.0%

Private Equity Total $ 516,080,877 $ 388,254,350 $ 130,448,359 $ 428,502,705 $ 558,951,064 1.44x 20.0%

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 12

Schedule of Investments

StepStone Atlantic Fund, L.P. As of September 30, 2016 Vintage Infrastructure Investments Year Fund Strategy Committed(1) Funded(2) (3) Distributed(3) Market Value Total Value TVM(4) IRR(4) Infrastructure Secondary Investments Argonaut PE III 2012 Oil Field Services $ 20,000,000 $ 12,935,679 $ - $ 13,728,776 $ 13,728,776 1.06x 27.8% Denham Commodity Partners Fund IV, L.P. 2005 Mining 3,261,625 3,144,148 3,568,284 715,588 4,283,872 1.36x 9.6% Energy Capital Partners I, L.P. 2006 Energy 2,499,978 2,455,933 523,082 843,441 1,366,523 0.56x -11.5% Macquarie Greater China Infrastructure Fund L.P. 2011 Infrastructure 4,816,200 4,294,020 625,706 6,348,298 6,974,005 1.62x 26.1% Project Delta 2012 Power Generation 14,610,640 12,733,647 11,007,349 8,991,733 19,999,082 1.57x 20.7% Project East-End 2010 Infrastructure 4,987,606 2,987,287 587,869 3,573,265 4,161,134 1.39x 685.6% SilverStone I, LLC (Riverstone RAE II) 2008 Renewable Energy 3,500,000 2,473,213 1,641,313 2,358,672 3,999,985 1.62x 19.3% Infrastructure Secondary Investments Subtotal $ 53,676,049 $ 41,023,926 $ 17,953,604 $ 36,559,773 $ 54,513,377 1.33x 15.4%

Seasoned Primary Infrastructure Investments Stonepeak Infrastructure Fund LP 2013 Infrastructure 10,000,000 7,795,338 1,157,470 7,538,976 8,696,446 1.12x 8.3% Seasoned Primary Infrastructure Investments Subtotal $ 10,000,000 $ 7,795,338 $ 1,157,470 $ 7,538,976 $ 8,696,446 1.12x 8.3%

Primary Infrastructure Investments EnCap Flatrock Midstream Fund II, L.P. 2012 Midstream $ 7,500,000 $ 4,705,952 $ 1,651,522 $ 5,313,628 $ 6,965,151 1.48x 25.5% Sheridan Production Partners II-B, L.P. 2010 Oil & Gas E&P 10,000,000 10,000,000 700,000 7,103,000 7,803,000 0.78x -6.8% Primary Infrastructure Investments Subtotal $ 17,500,000 $ 14,705,952 $ 2,351,522 $ 12,416,628 $ 14,768,151 1.00x 0.1%

(1) For secondary investments, Commitment represents total exposure, calculated as the total purchase price of the interest, plus the remaining commitment assumed as of the pricing date. (2) Funded includes additional fees and expenses associated with the investment in the underlying partnerships. (3) Funded and Distributed amounts are shown net of distributions received from underlying investments that have been characterized as recallable by the respective General Partners. (4) Net IRR and TVM are net of management fees and expenses related to the underlying partnership investments (but before taxes or withholdings incurred by the limited partners directly or indirectly through payments or withholdings by any StepStone-managed vehicle). Past performance is not necessarily indicative of future results and there can be no assurance that the fund will achieve comparable results or avoid substantial losses.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 13

Schedule of Investments

StepStone Atlantic Fund, L.P. As of September 30, 2016 Vintage Infrastructure Investments Year Fund Strategy Committed Funded(1) (2) Distributed(2) Market Value Total Value TVM(3) IRR(3) Infrastructure Active Co-Investments Clairvest Co-Investment 2014 Energy Services $ 7,000,000 $ 7,000,000 $ - $ - $ - 0.00x N/A Denham Co-Investment 2014 Renewable Power 10,000,000 10,000,000 - 12,371,563 12,371,563 1.24x 15.5% GSO Co-Investment 2012 Oil & Gas E&P 7,500,000 7,500,000 1,434,346 2,452,757 3,887,103 0.52x -16.6% AI Co-Investment 2016 Marinas 10,937,500 6,917,969 133,771 6,926,008 7,059,779 1.02x 4.4% Warburg Co-Investment 2014 Oil & Gas E&P 7,500,000 3,388,584 - 2,510,413 2,510,413 0.74x -20.8% Infrastructure Active Co-Investments Subtotal $ 42,937,500 $ 34,806,553 $ 1,568,117 $ 24,260,741 $ 25,828,858 0.74x -15.7% Infrastructure Realized Co-Investments Riverstone Co-Investment 2012 Midstream 4,000,000 4,006,680 6,665,476 - 6,665,476 1.66x 29.4% Infrastructure Realized Commitments Subtotal $ 4,000,000 $ 4,006,680 $ 6,665,476 $ - $ 6,665,476 1.66x 29.4% Infrastructure Co-Investments Subtotal $ 46,937,500 $ 38,813,233 $ 8,233,593 $ 24,260,741 $ 32,494,334 0.84x -10.6%

Infrastructure Investments Total $ 128,113,549 $ 102,338,449 $ 29,696,189 $ 80,776,119 $ 110,472,308 1.08x 4.1%

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 14

V. Investment Summaries

Note: IRR – Internal Rate of Return; DPI - Distributions to Paid-in capital; TVM - Total Value Multiple; RVPI - Residual Value to Paid-in capital. These are not considered meaningful. Fund rating based on IRR performance relative to PrivateIQ benchmark. 'Outperform' indicates top quartile, 'Perform' indicates second quartile and 'Underperform' indicates third/fourth quartile.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 15

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 16

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 17

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 18

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 19

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 20

(US $ in millions) OUTPERFORM Investment Summary Key LP Statistics Investment Eureka II, L.P. Q3 2016 Q2 2016 Q3 2015 Asset Class Buyout Fund Size 130.0 Total Cont 1.5 1.5 1.5 Investment Type PE Sec LP Commitment 1.8 Total Dist 0.7 0.7 0.5 Fund Stage Distribution Unfunded 0.3 Current Value 1.2 1.2 1.3 Geography North America Vintage Year 2006 Total Value 2.0 1.9 1.8

Investment Strategy IRR 12.8% 13.2% 14.7% Eureka is a small market private equity firm based in DPI 0.5x 0.5x 0.4x Philadelphia, Pennsylvania, that has been making private TVM 1.3x 1.3x 1.2x equity investments since 1999. Eureka’s investment strategy RVPI 0.8x 0.8x 0.9x is focused on making small growth and buyout investments in companies principally located on the East Coast.

(US $ in millions) OUTPERFORM Investment Summary Key LP Statistics Investment Foundry Group Select Fund, L.P. Q3 2016 Q2 2016 Q3 2015 Asset Class Growth Equity Fund Size 215.0 Total Cont 4.3 4.3 3.1 Investment Type PE SP LP Commitment 5.0 Total Dist 2.1 1.6 0.7 Fund Stage Investment Unfunded 0.8 Current Value 5.4 5.3 6.3 Geography North America Vintage Year 2013 Total Value 7.5 6.9 7.0

Investment Strategy IRR 46.2% 46.3% 107.4% Foundry Group is a Boulder-based venture capital firm DPI 0.5x 0.4x 0.2x targeting early stage investments in U.S. technology TVM 1.8x 1.6x 2.3x companies. The four senior professionals at Foundry have RVPI 1.3x 1.3x 2.1x worked together since 2001 at Mobius Venture Capital. The fund’s objective is to invest in the growth stage rounds of Foundry’s best performing portfolio companies.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 21

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 22

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 23

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 24

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 25

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 26

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 27

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 28

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 29

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 30

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 31

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 32

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 33

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 34

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 35

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 36

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 37

(US $ in millions) PERFORM Investment Summary Key LP Statistics Investment Trustbridge Partners IV L.P. Q3 2016 Q2 2016 Q3 2015 Asset Class Growth Equity Fund Size 700.0 Total Cont 11.8 12.3 12.1 Investment Type PE Prim LP Commitment 12.5 Total Dist 0.7 0.0 0.0 Fund Stage Distribution Unfunded 0.8 Current Value 20.5 21.6 20.9 Geography Asia Vintage Year 2011 Total Value 21.2 21.7 21.0

Investment Strategy IRR 17.3% 18.6% 23.3% The Fund will concentrate on providing growth capital to DPI 0.1x 0.0x 0.0x private companies in the fast-growing domestic sectors of TVM 1.8x 1.8x 1.7x the Chinese economy with a primary focus on companies RVPI 1.7x 1.8x 1.7x with a proven track record of profitability and growth.

(US $ in millions) OUTPERFORM Investment Summary Key LP Statistics Investment Updata Co-Investment Q3 2016 Q2 2016 Q3 2015 Asset Class Buyout Fund Size 23.8 Total Cont 6.5 6.5 6.5 Investment Type PE Co-I LP Commitment 6.5 Total Dist 0.0 0.0 0.0 Fund Stage Investment Unfunded 0.0 Current Value 10.0 9.4 7.4 Geography North America Vintage Year 2014 Total Value 10.0 9.4 7.4

Investment Strategy IRR 27.5% 27.4% 19.1% The co-investment is in a tech-enabled services company DPI 0.0x 0.0x 0.0x providing live, remote receptionist services. The company is TVM 1.5x 1.5x 1.1x currently growing revenue at a 40% compound annual growth RVPI 1.5x 1.5x 1.1x rate and has never raised any institutional capital.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 38

(US $ in millions) UNDERPERFORM ↓ Investment Summary Key LP Statistics Investment Vector Co-Investment Q3 2016 Q2 2016 Q3 2015 Asset Class Buyout Fund Size 16.0 Total Cont 3.4 3.4 3.4 Investment Type PE Co-I LP Commitment 3.4 Total Dist 0.0 0.0 0.0 Fund Stage Investment Unfunded 0.0 Current Value 3.1 3.1 3.4 Geography North America Vintage Year 2015 Total Value 3.1 3.1 3.4

Investment Strategy IRR -5.0% -7.7% 0.0% The company is a provider of talent management and HR DPI 0.0x 0.0x 0.0x software for large and medium enterprises. The company’s TVM 0.9x 0.9x 1.0x systems are used for various HR functions such as recruiting, RVPI 0.9x 0.9x 1.0x training, compliance and compensation plan management.

(US $ in millions) UNDERPERFORM Investment Summary Key LP Statistics Investment Warburg Co-Investment Q3 2016 Q2 2016 Q3 2015 Asset Class Oil & Gas E&P Fund Size 90.0 Total Cont 3.4 3.1 2.2 Investment Type INF Co-I LP Commitment 7.5 Total Dist 0.0 0.0 0.0 Fund Stage Distribution Unfunded 4.1 Current Value 2.5 2.7 2.4 Geography North America Vintage Year 2014 Total Value 2.5 2.7 2.4

Investment Strategy IRR -20.8% -13.2% 11.9% The company is an oil and gas exploration company and DPI 0.0x 0.0x 0.0x participates in wells as a non‐operating working interest TVM 0.7x 0.8x 1.1x partner, typically owning between 10% and 20% of a single RVPI 0.7x 0.8x 1.1x well.

Q3 2016 San Diego City Employees’ Retirement System - Private Equity and Infrastructure 39

VI. Quarterly Market Overview

For the Quarter Ending September 30, 2016

Executive Summary

After the second quarter ended with the unexpected British referendum vote to leave the European Union, global equities in the third quarter of 2016 were not as volatile as anticipated. Global markets rallied due to stabilizing oil prices, unchanged interest rates by the U.S. Federal Reserve (the “Fed”), and better than expected worldwide growth, with non- U.S. indices reporting stronger quarterly performance than U.S. In particular, the MSCI Emerging Markets index led benchmark performances, ending 8.3% higher than last quarter, as Chinese technology and financials companies reported strong gains and Brazil bolstered hopes for economic growth and new leadership following the impeachment of President Dilma Rousseff. The S&P 500 Total Return Index finished the quarter up 3.9%, led by US information technology stocks surging 12.9%.1, 2

U.S. leveraged buyout (“LBO”) debt volume was down 2.3% compared to the second quarter of 2016 at US$24.1 billion, but was above the 10-year quarterly average of US$18.4 billion and above the Q2 2015 level of US$22.5 billion. Purchase price multiples (“PPM”) for U.S. LBOs rose from 9.7x EBITDA in the second quarter to 10.6x EBITDA in the third quarter. However, this increase demonstrated a return to more consistent PPM levels of the past two years. The 9.7x EBITDA PPM for the second quarter was the lowest multiple since 9.5x EBITDA in the fourth quarter of 2014. Average debt multiples of large corporate U.S. LBO loans remain high, though they fell slightly quarter-over-quarter from 5.5x to 5.4x, while equity contributions for U.S. LBOs increased from the second quarter’s level of 44.7% to 45.3%, providing a more durable capital structure.3

In private markets, the third quarter’s private equity fundraising across all sectors remained on par with the healthy levels of the previous two quarters, as the US$92.1 billion raised brings the amount raised in the first three quarters of 2016 to 15.0% more than was raised in the first three quarters of 2015. Geographically, U.S. fundraising represented 51.2% of total funds raised in the third quarter. Funds raised in Asia increased quarter-over-quarter to make up 22.1% of total funds raised for the quarter. This increase was primarily driven by one fund: China’s State-owned Venture Capital Fund, which raised $15.1 billion in the third quarter, with a fundraising target of $30.0 billion for venture capital investments in China. Removing the effects of this one fund would decrease Asia’s portion of fundraising to 7.0%. The rest of the world made up 6.0% of global fundraising, decreasing from an abnormally high second quarter share of 17.9%. Private equity invested capital decreased 33.0% quarter-over-quarter, though the amount invested through the first three quarters of 2016 is 4.8% higher than the amount invested through the first three quarters of 2015.4

Private equity-backed IPO transaction volume in the third quarter of 2016 increased 5.6% quarter-over-quarter and 5.0% compared to the third quarter of 2015, as US$3.1 billion was raised in 22 IPOs. The largest IPO of the quarter was Patheon NV (NYSE: PTHN), a Danish provider of outsourced pharmaceutical development and manufacturing services, which raised US$718.8 million. Third quarter M&A volume was US$150.4 billion for the quarter, a 6.9% increase compared to the second quarter of 2016, but a 14.3% decrease compared to the third quarter of 2015. The largest M&A deal of the quarter was the US$9.9 billion take-private of Qihoo 360 Technology Co. Ltd., a Chinese internet security firm. 4, 5

1 Loomis Sayles, “Equity Market Review and Outlook,” Q3 2016 2 Capital Group, “World Markets Review – Third Quarter 2016” 3 S&P US LBO Review, 3Q 2016 4 Thomson ONE data as of October 28, 2016 5 Capital IQ Transaction Screening Report as of October 28, 2016 *Please note, all data in this report from Thomson ONE is correct as of October 28, 2016, but it is subject to upward revision as further data is made available.

Q3 2016 San Diego City Employees’ Retirement System – Market Overview 41

Capital Markets Overview

Public Equity Markets

Public markets increased during the third quarter of 2016 as global equities reported strong growth, especially in emerging markets. All global index benchmarks outperformed the S&P 500 Total Return of 3.3% during the quarter. The MSCI Asia outperformed other global markets, increasing 8.6% for the quarter, followed closely by the MSCI Emerging Markets index, which increased 8.3% in the quarter. The MSCI Europe index was up 5.0% for the quarter.

The following table shows the returns of four major MSCI indices, as well as the S&P 500 and the S&P 500 Total Return Index, over various time horizons through September 30, 2016. Returns for time periods greater than one year are annualized. All non-U.S. markets outperformed the U.S. market over the past quarter.

Debt Markets During the third quarter of 2016, U.S. LBO new loan issuance totaled US$24.1 billion, representing a decrease of 2.3% from

Q3 2016 San Diego City Employees’ Retirement System – Market Overview 42

the prior quarter, but a 7.1% increase from the 3Q 2015 level of US$22.5 billion. The following chart shows the quarterly volume of U.S. LBO new loan issuance for the past ten years.

In the third quarter, the weighted average purchase price multiple for U.S. LBO deals was 10.6x total enterprise value (“TEV”) to EBITDA, an increase from 9.7x in the prior quarter, though below the 11.2x multiple from 3Q 2015. Average debt multiples of large corporate U.S. LBO loans decreased from 5.5x in the second quarter of 2016 to 5.4x EBITDA in the third quarter, as equity contributions for U.S. LBOs slightly increased from 44.7% in the second quarter to 45.3% in the third quarter of this year. The following chart compares purchase price multiples and equity contribution percentages for U.S. LBO deals.

Q3 2016 San Diego City Employees’ Retirement System – Market Overview 43

Private Equity Market Overview

All Private Equity The table below shows the pooled Internal Rate of Return (“IRR”) performance of global private equity investments by sector over various investment horizons through September 30, 2016. The All Private Equity benchmark was up 2.9% for the quarter. All sectors except Energy were up quarter-over-quarter, with Energy declining from 5.2% last quarter to 4.4% this quarter, though the Energy sector remained the best performer over the past two quarters. Following Energy’s 4.4% IRR for the quarter were Large Buyouts (+3.2%) and Venture Capital (+3.2%).

Fundraising Fundraising for global private equity totaled US$92.1 billion in the third quarter of 2016, a 10.2% decrease compared to the second quarter of the year, but a 26.9% increase over 3Q 2015. Buyout fundraising totals decreased 24.6% quarter-over- quarter to US$52.2 billion, though year-over-year comparison with 3Q 2015 shows a 10.7% increase. However, Venture Capital raised US$28.2 billion in the third quarter, an increase of 131.3% and 150.3% compared to the second quarter of 2016 and third quarter of 2015, respectively. Geographically, U.S. fundraising represented 51.2% of the total amount raised in the quarter, while Europe, Asia, and the rest of the world accounted for 20.7%, 22.1%, and 6.0%, respectively. The chart below shows private equity fundraising activity across all sectors over the past ten years. 7

Q3 2016 San Diego City Employees’ Retirement System – Market Overview 44

Investment Activity Private equity funds invested US$40.5 billion globally during the third quarter, representing a quarter-over-quarter decrease of 33.0% and a 37.9% decrease from 3Q 2015. The average investment size during the quarter was US$13.7 million, down 24.0% quarter-over-quarter. Uncertainty in the general economy to drive growth justifies the trend of fewer deals completed, as fund managers seek more stable ways to employ their invested capital.

The graphs below depict the percentage of invested capital by industry and geography for the third quarter of 2016 and over the last ten years. The Information Technology sector attracted the most capital, accounting for US$22.0 billion of transactions, or 54.2% of total capital invested by private equity firms, compared to its 10-year average of 30.1%. Considering geography, in the third quarter of 2016, investment activity in the Rest of World region was above its historical average, representing 13.4% of total invested capital during the quarter compared to its ten year average of 3.2% of total invested capital.

*Note: Invested Capital is for all private equity from Q2 2006 – Q2 2016.

Q3 2016 San Diego City Employees’ Retirement System – Market Overview 45

Deal Environment The number of private equity-backed IPOs increased 22.2% in the third quarter compared to the prior quarter. The third quarter experienced 22 private equity-backed IPOs, which raised US$3.1 billion on the NYSE and NASDAQ. The IPOs of the third quarter can be further broken down between 13 venture capital-backed IPOs that raised a total of US$1.2 billion and nine IPOs from buyouts that raised US$1.9 billion. Through the first three quarters of 2016, US$6.5 billion has been raised in IPOs, compared to US$15.8 billion in the first three quarters of 2015. The largest IPO of the quarter was completed by Patheon NV (NYSE: PTHN), a Danish pharmaceutical company, which raised US$718.8 million, representing 23.2% of the total value for all IPOs in the quarter. The graph below shows the amount raised and the number of IPOs on the NYSE and NASDAQ over the past ten years.

The number of private equity-backed Mergers and Acquisitions (“M&A”) decreased 6.9% from the previous quarter to 671 M&A deals in 3Q 2016, totaling US$150.4 billion. The largest M&A deal of the quarter was the US$9.9 billion take-private of Qihoo 360 Technology Co. Ltd., a Chinese internet security firm, representing 6.7% of the total value for all deals in the quarter. M&A deal value was down 14.3% for the third quarter of 2016 compared to the third quarter of 2015.

Q3 2016 San Diego City Employees’ Retirement System – Market Overview 46