Quarterly Investment Report Q1 2018

Ah Quarterly Investment Report Q1 2018

Prepared for London Borough of Enfield Pension Fund

Prepared by Aon Hewitt Date 21 June 2018

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Table of Contents

Table of Contents 0

Executive Summary – Q1 2018 1

Summary of Key Developments 3

Funding level update 4

Quarterly Investment Outlook Summary 5

Portfolio overview 6

Analysis of Alternatives Portfolio 9

BlackRock – Passive Global Equity 12

Trilogy – Global Unconstrained 13

MFS – Global Unconstrained Equity 14

London CIV – Baillie Gifford Global Alpha Growth Fund 15

Adams Street – Private Equity 16

Lansdowne – Developed Markets Hedge Fund 17

York – Distressed Securities Hedge Fund 18

Davidson Kempner – Event Driven Hedge Fund 19

Gruss – Event Driven Hedge Fund 20

CFM – Stratus Hedge Fund 21

BlackRock – UK Property 22

LGIM – UK Property 23

Brockton – Opportunistic Property 24

International Public Partnership Ltd – Listed PFI 26

Antin – Infrastructure Fund III 27

BlackRock – Passive Index-Linked Gilts 28

Western – Active Investment Grade Credit 29

M&G – Inflation Opportunities 30

Insight – Absolute Return Bond Funds 32

Appendix A – Market Background: Q1 2018 33

Appendix B – Quarterly Investment Outlook 40

Appendix C – Explanation of Manager Ratings 44

Appendix D – Adams Street Ratings Breakdown 46

Disclaimer 47

Executive Summary – Q1 2018

Since Inception p.a. Quarterly (%) Annual (%) (%)

Benchmark Benchmark Benchmark

Performance Portfolio Portfolio Portfolio

Active Active Active

Equities BlackRock UK Passive -6.9 -6.9 0.0 1.3 1.3 0.1 - - - BlackRock World ex UK Passive -4.5 -4.5 0.0 2.4 2.1 0.2 - - - BlackRock EM Passive -2.2 -2.2 0.0 11.2 11.4 -0.2 - - - Trilogy Global Unconstrained -3.9 -4.5 0.6 3.3 2.4 0.9 7.7 7.8 -0.1 MFS Global Unconstrained -5.5 -4.5 -1.0 1.0 2.4 -1.4 13.8 12.3 1.5 Baillie Gifford -0.9 -4.5 3.6 13.1 2.4 10.7 16.7 9.8 6.9 Private Equity Adams Street 3.7 4.9 -1.1 6.7 13.5 -6.8 11.9 10.8 1.1 Hedge Funds Lansdowne Global Equity L/S -0.6 - - 6.1 - - 8.0 - - York Distressed Securities -2.2 - - 0.7 - - 8.1 - - Davidson Kempner -3.4 - - -7.4 - - 8.0 - - Gruss -6.2 - - -10.9 - - 3.1 - - CFM Stratus -0.7 - - 2.5 - - -1.6 - - UK Property Blackrock 1.7 1.9 -0.2 9.9 10.0 -0.1 n/a n/a n/a Legal & General 1.2 1.9 -0.7 7.5 10.0 -2.5 8.0 7.7 0.3 Brockton 2.2 - - 6.6 - - 11.4 - - PFI & Infrastructure IPPL Listed PFI -10.9 0.1 -11.0 -6.1 3.3 -9.4 7.9 3.0 4.8 Bonds BlackRock Passive ILGs -0.2 -0.2 0.0 -0.3 -0.3 0.0 1.8 1.7 0.1 Western Active Credit -2.1 -1.4 -0.7 1.7 1.7 0.0 5.5 5.5 0.0 Insight Absolute Return Bonds -0.5 - - -0.6 - - 1.9 - - Inflation protection illiquids M&G Inflation Opportunities 0.7 0.1 0.6 7.1 3.3 3.7 7.8 2.2 5.6 Total Assets -2.5 -1.7 -0.8 2.0 2.4 -0.4 8.5 - - Source: Investment managers/ Aon / Northern Trust. Performance is shown net of fees. In the absence of audited net performance figures from Northern Trust, performance has been sourced from the managers or estimated by Aon Hewitt using manager data where possible. Totals may not sum due to rounding. 1) The Fund is invested in a passive global equity mandate with BlackRock. The performance shown is for the underlying pooled funds. 2) IPPL is measured against the UK Retail Price Inflation (RPI) index. 3) Adams Street and Brockton are close ended funds and traditional time weighted returns are not reflective of true performance. Adam Street numbers are IRR figures. Returns are lagged by a quarter due to the nature of the asset class (returns are as at Q4 2017). 4) The Adams Street, Davidson Kempner, Gruss and York returns will partly reflect currency movements. Over the quarter, Sterling appreciated against the Dollar and, as a result, these returns are weaker in sterling than in local currency terms. 5) The BlackRock property line shows the return of the BlackRock fund for the quarter and year. Since inception returns relating to the combined property portfolio are not shown as accurate figures cannot be obtained in the absence of figures provided by a performance measurer. 6) Fund benchmark is composed of 35% global equities 5% private equity (proxied by a global equity index), 10% property, 29% bond composite (based on underlying manager benchmarks) 6% infrastructure and 15% hedge funds

31.12.2017 31.03.2018

Percentage (%) Percentage (%)

Market Market Value

Strategic (%)

Relative (%)

Manager Allocations (£m) (£m)

Value

Equities 520.5 46.0 500.0 45.4 35.0 10.4 BlackRock Global Passive 170.1 15.0 162.3 14.7 Trilogy Global Unconstrained 168.4 14.9 162.0 14.7 32.5 10.4 MFS Global Unconstrained 102.0 9.0 96.4 8.8 Baillie Gifford 52.0 4.6 51.5 4.7 Lansdowne Equity L/S1 28.0 2.5 27.8 2.5 2.5 0.0 Private Equity 55.9 4.9 55.3 5.0 5.0 0.0 Adams Street 55.9 4.9 55.3 5.0 5.0 0.0 Hedge Funds 130.9 11.6 119.8 10.9 10.0 0.9 Lansdowne Equity L/S1 28.0 2.5 27.8 2.5 York Distressed Securities 19.1 1.7 19.0 1.7 Davidson Kempner 25.4 2.2 25.1 2.3 Gruss 22.7 2.0 21.3 1.9 CFM Stratus 27.1 2.4 26.6 2.4 Markham Rae 8.5 0.8 - - UK Property 74.6 6.6 75.3 6.8 10.0 -3.2 BlackRock 36.9 3.3 37.3 3.4 Legal & General 31.8 2.8 32.2 2.9 Brockton 5.8 0.5 5.8 0.5 PFI & Infrastructure 45.4 4.0 40.7 3.7 6.0 -2.3 IPPL Listed PFI 43.3 3.8 38.6 3.5 Antin 2.1 0.2 2.2 0.2 Bonds 208.1 18.4 206.0 18.7 24.0 -5.3

BlackRock Passive ILGs 86.5 7.6 86.3 7.8 Western Active Credit 88.8 7.8 86.9 7.9 Insight Absolute Return Bonds 32.8 2.9 32.7 3.0 Inflation protection illiquids 42.8 3.8 43.6 4.0 10.0 -6.0 M&G Inflation Opportunities 42.8 3.8 43.6 4.0 Cash 53.5 4.7 59.9 5.4 - 5.4 Enfield Cash 53.5 4.7 59.9 5.4 - 5.4 Total Assets 1,131.8 100.0 1,100.7 100.0 100.0 35.0 9.6

Source: Northern Trust, Managers Note: Numbers may not sum due to rounding. Due to the equity-like nature of the Lansdowne global equity long / short hedge fund investment, the valuation has been 162.3 14.5 32.5 9.6 split 50:50 between equities and hedge funds.

Summary of Key Developments 12 February and 12 . At 12 February meeting, the Committee agreed to invest £45m in April meetings CBRE's UK Secured Long Income Fund. A strategic allocation of 10% was adopted to inflation protecting illiquid strategies, which encompasses the CBRE fund as well as the M&G Inflation Opportunities Fund. . The Committee received a presentation from the London CIV on the fixed income offerings that are expected to be available on the platform. . At the 12 April meeting, Aon presented their review of the Fund's bond portfolio. As part of the bond portfolio review, the Committee considered the wider credit opportunity set and agreed to include an allocation to global credit (specifically multi asset credit) funded by a reduction in its equity holdings. . At the April Committee meeting the Committee agreed a new strategic allocation of 10% to Hedge Funds.

Hedge Fund portfolio . The Fund received its capital back from Markham Rae (c. £8.5m). . The proceeds from the Gruss redemption will be received in tranches over a one year period.

Funding level update This item has been provided as a supplementary document.

Quarterly Investment Outlook Summary Market background Q1 2018

Summary . The return of market volatility this year has brought struggles for equities, credit and government bonds. . Both near and long-term outlooks for the global economy will impact markets a great deal but views on this are much divided. . The gilt yield curve has flattened due to muted moves in long-dated yields, similar to the US. Bonds see the future with far less optimism than equities. Gilt valuations are not substantially out of line. . Credit spreads are now a little higher, but our views are unchanged. . The tell-tale signs of serious trouble for equities are absent, but the falling equity risk premium points to a coming valuation adjustment. This may not be achieved without at least some pain. . Hedge funds' struggles may not be over, but they could be past their worst.

Portfolio overview Asset class target The table below shows the discussions at the April 2018 Committee ranges meeting where new strategic allocations were agreed.

Strategic asset SIP allocation ranges

Equities (including 40% 30-50% private equity) Hedge Funds 10% 10-20% Property 10% 5-15% Infrastructure 6% 3-9% Bonds 24% 19-39% Inflation protection 10% illiquids

Split of equity portfolio The table below shows the allocation to emerging markets within the equity portfolio:

31 March 2018 Emerging Emerging Market Market AUM (£m) Allocation (%) Allocation (£m) BlackRock 162.3 7.5 12.2 Trilogy 162.0 10.3 16.6 MFS 96.4 2.1 2.0 Baillie Gifford 51.5 20.0 10.3 Lansdowne 27.8 0.0 0.0 Total 500.0 8.2 41.2 Source: Investment managers. Totals may not sum due to rounding. . c. 32% of the equity portfolio is being managed passively by BlackRock. The remainder is being managed on an active basis, with Trilogy the largest holding. . In aggregate, 8.2% of the Fund's equity portfolio is allocated to Emerging Markets. As at 31 March 2018, the MSCI All Country World Index had a 12.2% exposure to Emerging Markets. . The Fund has made, yet not implemented a decision to invest in the Henderson EM equity fund on the London CIV platform; funded through a disinvestment in BlackRock's EM equity passive fund and a partial disinvestment from Trilogy. The amount invested in total with Henderson was agreed to be an amount that increased the Fund's EM equity allocation to that of the EM weight in the MSCI ACWI (12.2%).

Sterling-US dollar The chart below shows the movements in sterling versus the US dollar exchange rate over time.

The appreciation of sterling versus the US dollar over the quarter decreased the value of dollar denominated holdings.

Currency analysis The Fund has exposure to the euro, US dollar, yen and other currencies within its portfolio. The active equity managers have exposures to various currencies as they are all global mandates, and we have approximated the currency exposures based on the geographical split of the underlying investments. Adams Street, York, Gruss and Davidson Kempner are US dollar denominated whilst Antin is euro denominated. The Lansdowne, CFM, BlackRock (bonds and property), Western, M&G Inflation Opportunities, Legal & General, Brockton, Insight and IPPL mandates are assumed to have no direct exposure to foreign currencies as they are either hedged to sterling or are sterling share classes.

Total Currency % £m

Sterling 48.9 538.7

US dollar 33.0 362.8 Euro 8.2 90.0 Yen 3.5 38.2 Other 6.4 70.9

Total 100.0 1,100.7

Note: Totals may not sum due to rounding. Manager exposures are based on geographical, not currency, exposures.

Summary US dollar exposure is the largest foreign currency risk for the Fund. Following a 1% foreign currency appreciation (depreciation), we approximate that the value of the Funds' US dollar denominated assets will increase (decrease) by £3.6m, euro denominated assets will increase (decrease) by £0.9m and yen denominated assets will increase (decrease) by £0.4m. Note that movements in currencies may either contribute to or be caused by factors that move other asset classes. For example, the US dollar may appreciate at times of stress which could coincide with a fall in the value of the Fund's equity holdings.

Approximate increase in value of Fund assets following a 1% foreign currency appreciation 0.4%

0.3%

0.2%

0.1% 0.1%

0.0%

0.0% USD (£3.6m) Euro (£0.9m) Yen (£0.4m)

Fund exposure to 1% change in currency 1% change in currency Currency currency (£m) (£m) (% in Fund's assets) US dollar 362.8 3.6 0.3 Euro 90.0 0.9 0.1 Yen 38.2 0.4 0.0

Analysis of Alternatives Portfolio The approximate analysis below aims to evaluate whether the impact of increasingly diversifying the Fund's growth portfolio away from equities over the last ten years has been in line with prior expectations. The aim of portfolio diversification is to reduce reliance on a single stream of returns (i.e. equities) and serve to reduce the expected volatility of the Fund and potential funding level variability. We have constructed a proxy for the Fund's growth portfolio and have calculated the performance of this portfolio for the ten year period to March 2018. This portfolio takes into account the major diversification themes that have been introduced into the growth portfolio over time (Hedge Funds, UK Core Commercial Property, Adams Street and listed infrastructure). In a change to previous quarters, the proxy portfolio incorporates changing weights of each of the asset classes varying over time in line with the changes made to the Fund's investment structure. The return of this proxy portfolio is calculated by using manager returns for the alternatives and the equity element assumes these assets are managed passively in a global equity fund. We also constructed a model equity portfolio, invested solely in passively managed global equities. We tracked the performance of these two portfolios over the ten years to 31 March 2018 (see chart) and evaluated their risk and return characteristics (see table).

Return (% pa) Risk (%) Return/Risk ratio Model equity portfolio, £ 9.8% 14.0% 0.7 Proxy Fund growth 3.5% 9.4% 0.4 portfolio, £ Note: Information shown to 31 March 2018. Information shown is net of fees. We have assumed a fee of 0.10% p.a. for the passive equity portfolio.

Our analysis shows that the proxy growth portfolio underperformed the model equity portfolio by 6.3% p.a. over the last ten years. Whilst investing passively would have resulted in higher absolute returns it would have also lead to significantly higher absolute risk. When analysed on a risk-adjusted basis, the Fund's proxy growth portfolio produced a lower return per unit of risk. However, we stress that this analysis is undertaken ex post rather than ex ante, when the decision was made and also that it does not incorporate the Fund's unlisted assets, which are significant. The reason for this unusual outcome is that the realised volatility in equity markets over the past 10 years has been significantly lower expected. Equity markets have made steady positive returns over the period which is reflected in the performance of the model passive equity portfolio. If future volatility increases, we would expect a diversified portfolio to outperform equities in a falling equity market.

Performance

Business

Process

Overall

ODD Staff

Risk

T&C Ratings

Equities BlackRock Global Passive Buy Pass 4 4 4 4 4 2 Trilogy Global Unconstrained Qualified ER      - MFS Global Unconstrained Buy (closed) A1 3 3 3 2 3 2 Baillie Gifford Global Alpha Buy (closed) A1 4 3 3 2 3 3 Private Equity Adams Street Qualified Pass Please see Appendix D for our ratings on this fund Hedge Funds Lansdowne Global Equity L/S Buy (closed) A2 4 4 3 2 3 3 York Distressed Securities Buy A2 3 3 3 2 3 2 Davidson Kempner Buy A2 4 4 4 3 3 3 CFM Stratus Buy (Closed) A1 3 4 3 3 3 2 Gruss Sell Pass 2 2 2 2 2 2 UK Property BlackRock Buy Pass 4 4 3 3 3 2 Legal & General Qualified A1 4 2 3 3 2 2 Brockton Buy (Closed) Pass 3 4 4 2 4 2 PFI & Infrastructure IPPL Listed PFI Not Rated ------Antin Buy A2 4 4 3 3 3 2 Bonds BlackRock Passive ILGs Buy Pass 4 3 4 4 4 2 Western Active Credit Qualified ER       Insight Absolute Return Bonds Buy A1 4 4 4 3 3 2(4) Bonds M & G Inflation Opportunities Buy (closed) Pass 3 3 3 3 3 3

Note: 1. Ratings shown as at 31 March 2018. 2. Previous quarter's ratings are shown in brackets where they have changed. 3. ER = Exceptions reported/ NER = No exceptions reported.

. The T&C’s rating for Insight Absolute Return Bonds was downgraded during Q1 2018 as fees are no longer considered as competitive versus peers given the prevalence of new entrants to the market. . The Fund has placed its redemption request with Gruss and will receive this back over a one year period.

BlackRock – Passive Global Equity

Buy

Key Information:

31 March 2018 Value: £162.3 million

Vehicle: Aquila Life

Mandate:

Global Equities

Benchmark:

FTSE All Share/ FTSE All World Developed ex UK/ MSCI Emerging World

Target: Source: Blackrock. Returns are shown net of fees. To perform in line with the benchmarks Performance Fee Scale: The pooled equity funds within the BlackRock equity portfolio exhibited Fees following transition of units to acceptable tracking error during the first quarter of 2018. London CIV: UK Equity, World ex UK Equity: 0.005% p.a. Emerging Markets Equity: 0.03%

Our Ratings:

Overall Buy ODD Pass Business 4 Staff 4 Process 4 Risk 4 Performance 4 Terms 2

Trilogy – Global Unconstrained

Qualified

Key Information:

Appointed: November 2007

31 March 2018 Value: £162.0 million

Initial Investment

£68 million

Vehicle: Segregated

Mandate:

Global Equity Source: Trilogy. Returns are shown net of fees. Benchmark: Overall Views MSCI AC World Total Return Index Trilogy employs a bottom-up, growth-at-a-reasonable-price philosophy, Target: which generally results in portfolios focused towards this style tilt. Initial filtering of ideas is achieved through straightforward quantitative To outperform the benchmark by 3% pa over rolling three year screens combined with research team contributions. We expect the periods. strategy to outperform in rising markets and underperform in falling markets due to its focus on higher growth companies. Fee Scale:

Fixed base fee of 0.50% pa on Performance AUM. No performance fee. The Trilogy mandate delivered a return of -3.9% over the quarter, Our Ratings: outperforming the benchmark by 0.6%. During the quarter, stock selection in the Energy, Industrials, Telecommunication Services, Overall Qualified Materials, Real Estate, and Consumer Staples sectors added relative Exceptions ODD Reported value as did underweight allocations to the Telecommunication Services, Materials, and Real Estate sectors. Partially offsetting these Business  positives was their stock selection in the Consumer Discretionary and Staff  Information Technology sectors. Geographically, stock selection in the Process  United Kingdom, continental Europe, and Asia ex. Japan contributed Risk  positively to relative performance as did exposure to the Emerging Markets and the underweight allocation to Canada. Partially offsetting Performance  these positives was stock selection in the United States and Japan as Terms  well as an underweight allocation to the United States.

Positioning and Transactions

With respect to the portfolio’s structure, trading and market activity during the period resulted in increased exposure to the Financials, Energy, and Industrials sectors and decreased exposure to the Materials and Consumer Discretionary sectors.

MFS – Global Unconstrained Equity

15.0 13.8 Buy 12.3 11.6 11.0 10.110.2 Key Information: 10.0

Appointed: 5.0 2.4 1.5 August 2010 1.0 0.6 0.0 31 March 2018 Value: Return (%) 0.0 -1.0 -1.4 £96.4 million -5.0 -4.5 Initial Investment: -5.5

£35.9 million -10.0 Since Inception Quarter One Year 3 Year (p.a.) 5 year (p.a.) Vehicle: (p.a.) Fund -5.5 1.0 10.1 11.6 13.8 MFS Global Equity Fund Benchmark -4.5 2.4 10.2 11.0 12.3 Relative -1.0 -1.4 0.0 0.6 1.5 Mandate: Source: MFS. Returns are shown net of fees. Global Equity

Benchmark: Major Developments MSCI AC World Total Return In April 2018, long-time Portfolio Manager, David Mannheim, retired. Index This was effectively communicated in advance and succession was well Target: planned. We have a high opinion of Mr. Morley, who has worked closely with Mr. Mannheim over a number of years. Additionally we have a To outperform the benchmark by 2% pa gross of fees good level of confidence in the MFS Global Research Platform. Our interactions with Mr. McAllister and Mr. Morley would suggest continuity in how the portfolio will be managed. We remain confident the strategy can deliver significant outperformance. Improvement in capacity conditions over the recent Fee Scale: years has led MFS to reopen the strategy, both through a pooled Tiered base fee based on the vehicle and on a case by case basis through a separate account. AUM of 0.65% pa on the first £25.0m, 0.50% pa on the next Performance £25.0m, 0.45% pa on the next £50.0m and 0.40% pa thereafter. The fund underperformed the benchmark index over the quarter. No performance fee. From a sector perspective, an overweight to Consumer Staples and to Our Ratings: the Transportation sub-sector relative to the benchmark were primary detractors over the quarter. Stock selection within Transportation also Buy Overall (Closed) detracted. Stock selection within Financials contributed positively. Also, avoiding Utilities and Communications sectors contributed to ODD A1 performance as they underperformed the broad market. Business 3 Staff 3 Positioning and Transactions Process 3 The positioning of the portfolio has remained fairly consistent over the Risk 2 quarter. It remains underweight Financials, Energy, IT, Performance 3 Telecommunications and have avoided Metals and Mining companies Terms 2 given their sensitivity to commodity prices. The portfolio remains overweight to Health Care and Consumer Staples where the manager

continues to find attractive opportunities and promising long-term risk and reward potential.

London CIV – Baillie Gifford Global Alpha Growth Fund

Buy

Key Information:

Appointed: October 2016

31 March 2018 Value: £51.5 million

Initial Investment: £41.4 million

Vehicle: London CIV Mandate: Global Equities Source: London CIV/ Aon. Returns are shown net of fees. Benchmark: MSCI ACWI World Total Return Performance Index Over the first quarter of 2018 Baillie Gifford Global Alpha was again well Target: ahead of its benchmark. Key contributors were reasonably diverse but To outperform the benchmark by overall the bias towards growth and technology businesses and away 2-3% pa gross of fees over rolling from commodity and stable defensive stocks helped. A significant five year periods. overweight position to Emerging Market listed stocks was also a Fee Scale: positive factor. Tiered base fee based on the The strongest individual stock contributors over the period were aggregate AUM of the Fund, Amazon, Grubhub and ABIOMED. Significant detractors from 0.65% pa on the first £30.0m, 0.50% pa on the next £30.0m, and performance included Naspers, ICICI Bank and Tesla. 0.35% p.a. thereafter. Positioning and Transactions An additional platform fee of 0.025% p.a. is payable to London Global Alpha remains underweight in Energy, Materials and lower CIV. growth Consumer Staples type businesses with little or no exposure to Telecoms or Utilities. The main overweight positions relative to Our Ratings: benchmark are Technology, Consumer Discretionary and Financials. Regionally the main positions are an underweight to US equities and an Overall Buy overweight to Emerging Markets. ODD A1 New purchases in the first quarter of 2018 included LendingTree and Business 4 Netflix. US based LendingTree is growing through its online offering of Staff 3 mortgages and increasingly personal loans, credit cards and auto Process 3 finance. The team believes that lending through digital channels will Risk 2 become increasingly accepted in the US. The team also sees further scope for streaming media business Netflix, both in its home market, as Performance 3 it scales up its content offering, but also in its ability to successfully Terms 3 establish its brand outside the US. Among the businesses where the Global Alpha team reduced exposure was NVIDIA (graphic chip

design); the company’s end markets of data solutions, artificial intelligence and automated vehicles still has plenty of potential but the team believes its view is no longer differentiated from the broader market.

Adams Street – Private Equity

Qualified

Key Information:

Appointed: January 2003

31 March 2018 Value: £55.3 million

Vehicle: Pooled fund ($ Share class)

Mandate: Private Equity Benchmark: MSCI World Total Return Index Source: Adam Street. Internal rate of return (IRR) shown above. Returns are lagged by a quarter due to the nature of the asset class (returns are as at Q4 2017). Returns are shown net of fees. Target: To generate an absolute return of . Performance of the underlying ASP funds has been strong over all 15% p.a. net of fees major time periods. Fee Scale: . Detailed ratings are available in Appendix D. Tiered base fee based on the AUM of 1.00% pa on the first £25.0m, 0.90% pa on the next £25.0m, 0.75% pa on the next £100.0m and 0.50% pa thereafter. No performance fee. Our Ratings:

Overall Qualified ODD Pass Business n/a Staff n/a Process n/a Risk n/a Performance n/a Terms n/a The graph above, sourced from ASP, shows the cashflow profile of the Fund's investment in ASP. As the fund has matured over time the cashflow profile has started to improve and since 2015 the fund was net

cashflow positive.

Lansdowne – Developed Markets Hedge Fund

Buy (Closed)

Key Information:

Appointed: September 2007

31 March 2018 Value: £55.7 million

Initial Investment:

£25 million

Vehicle:

Lansdowne Developed Markets Master Fund Limited (£ share class) Source: Lansdowne. Returns are shown net of fees. Mandate: Performance L/S Equity Hedge Fund

Benchmark: The Lansdowne Developed Markets Fund (“LDM”) returned -0.6% during a tumultuous first quarter of the year for global equity markets, which N/A ended the quarter down over -2.5% despite rallying strongly in January. Target: In contrast to the markets, Lansdowne saw fairly muted monthly returns, with the key story being the strong performance on both sides of the Absolute Return book seen in its US and Asian positions relative to the Fee Scale: underperformance of its holdings in the UK and Germany. As a whole over the first quarter the long book detracted -1.9% while the short book Fixed based fee of 1.0% of AUM added +1.4%. base fee plus 20% performance fee. Gross and net exposures were slightly reduced over the period, with gross decreasing from 227% to 224% and net declining to 38% from 44% at the Our Ratings: start of the year. Lansdowne views that we are later in the economic cycle Buy and so has a bias to slightly reduce market sensitivity but maintain gross Overall (Closed) exposure and stock specific opportunities. Generally the portfolio has ODD A2 continued the trend of Q4 2017 towards lower sensitivity to growth stocks Business 4 and slightly more cyclical stock exposure. Staff 4 Business Process 3 Lansdowne’s assets under management remained roughly unchanged Risk 2 during the first three months of 2018 to end March at $21.1 billion. LDM Performance 3 remains hard closed and ended the first quarter with assets of $9.4 billion. Terms 3 The manager continues to not replace redemptions in the strategy.

York – Distressed Securities Hedge Fund

Buy 14.0 13.0 12.0

10.0 Key Information: 8.1 8.0 6.4 Appointed: 6.2 6.0 4.5 4.5 January 2010 4.0

Return Return (%) 2.5 1.5 31 March 2018 Value: 2.0 0.7 £19.0 million 0.0

Initial Investments: -2.0 -2.2 -4.0 $16.0 million (£10.0 million) Since Quarter One Year 3 Year (p.a.) 5 year (p.a.) Inception Vehicle: (p.a.) GBP -2.2 0.7 4.5 6.2 8.1 York Credit Opportunities Fund USD 1.5 13.0 2.5 4.5 6.4 ($ share class)

Mandate: Source: York/Aon Hewitt/Enfield. Returns shown above are Sterling and USD returns, net of fees. Distressed debt hedge fund Performance

Benchmark: The York Credit Opportunities Fund (“YCO”) generated a net return of 1.5% in USD terms (-2.2% in GBP terms) over the first quarter. The N/A fund comfortably outperformed broader credit markets. Target: At a position level, one of the key contributors during the quarter was Absolute Return Samson Energy which added +1.5%. Steinhoff convertible bonds Fee Scale: contributed +0.9%. York purchased these at a significant discount when the company defaulted towards the end of 2017 due to a fraud scandal. Fixed based fee of 1.5% p.a. on However, Steinhoff is a large conglomerate and York believed the AUM + 20% performance fee. convertible bonds had overly discounted the value in a number of the Our Ratings: subsidiaries. This proved to be right as the bonds recovered in price from around 30 cents to 60 cents during the first quarter and York has Overall Buy now reduced the position. The main detractor over the quarter was ODD A2 NextDecade (-0.4%) a Texas based gas company. Following a restructuring the company was publicly listed last year, and in the first Business 3 quarter the stock traded down on news that regulatory approval for the Staff 3 construction of one of its gas export terminals had been delayed. Process 3 The portfolio continues to maintain a 12% cash position. The allocation Risk 2 to post-reorganisation equities was up to 29% net long at the end of the Performance 3 quarter, up from 24%. This higher than usual equity exposure reflects Terms 2 the success York has had in a number of restructuring situations which have resulted in receiving equity. This should reduce over the course of

this year as York expects the market will revalue these companies and

it can take profits. Distressed credit exposure was flat over the quarter at 30% net long. Business Assets under management at York Capital Management stood at $18.2 billion as at 31 March 2018. This reflects an increase of $1 billion over the quarter driven by strong performance across the firm’s fund range as well as deployment of capital in the firm’s latest drawdown vehicle the York Distressed Asset Fund III. YCO assets were flat at $3.2 billion at the end of the quarter.

Davidson Kempner – Event Driven Hedge Fund

Buy

Key Information:

Appointed: January 2015

31 March 2018 Value: £25.1 million

Initial Investment: £19.2 million ($30.0 million)

Vehicle: Davidson Kempner International Ltd ($ share class) Source: Davidson Kempner/Aon Hewitt. Returns shown above are Sterling and USD returns, net of Mandate: fees. Event Driven hedge fund Performance Benchmark: In the distressed credit book a position in defaulted Puerto Rico bonds, N/A which last year was one of the portfolio’s key detractors, added +0.2% Target: as the debt rallied on expectations for improved debt-restructuring Absolute Return (7-10% p.a.) terms. The second biggest contributor in the distressed credit book was Avaya which added +0.2%. Davidson Kempner was a holder of the Fee Scale: company’s debt through its bankruptcy in 2017 and received equity as Fixed base fee of 1.5% pa on part of the restructuring. The main detractor at the position level over AUM plus 20% performance fee. the quarter came from the fund’s holding in Lehman Brothers’ claims which contributed -0.2% as the securities traded down following a Our Ratings: settlement with creditors.

Overall Buy The portfolio finished the quarter fully invested at 105% gross long ODD A2 exposure with net exposure just over 90%, up from 80% at the end of 2017. This is primarily attributable to an increase in the merger arbitrage Business 4 exposure, which is now 41% gross long. Staff 4 Business Process 4 Risk 3 Assets under management at the firm level stood at $31.1 billion as at Performance 3 the end of March 2018, an increase of approximately $1.1 billion since the end of 2017. This was largely driven by capital calls on two of the Terms 3 firm’s drawdown funds. At the end of the first quarter the total assets under management for the International strategy were $22.0 billion. The

International strategy saw redemptions of $330 million during the quarter and subscriptions of $500 million. Although the fund remains soft closed, Davidson Kempner has indicated that they will take slightly higher inflows as opposed to simply replacing redemptions.

Gruss – Event Driven Hedge Fund

Sell 4.0 3.1

Key Information: 2.0 0.0 Appointed: -0.1 -0.1 -2.0 March 2015 -4.0 -2.8 31 March 2018 Value: Return Return (%) -6.0 £21.3 million -6.2 -8.0 Initial Investments: -10.0 £20.2 million ($30.0 million) -12.0 -10.9 Since Inception Vehicle: Quarter One Year (p.a.) Pooled ($ share class) GBP -6.2 -10.9 3.1 USD -2.8 -0.1 -0.1 Mandate: Source: Gruss/ Aon Hewitt. Returns shown above are Sterling and USD returns, net of fees. Event Driven hedge fund Benchmark: Major Developments N/A Assets under management at the firm level stood at $1.1 billion as at 31 Target: March 2018. This reflects a net reduction of $100 million during the Absolute Return quarter. The firm now manages only the Gruss DV Fund which was previously named the Gruss Global Investors (Enhanced) Fund where Fee Scale: assets under management were $1.1 billion as at the end of the first 1.25% of AUM base fee plus 15% quarter. performance fee. There were two further departures from the investment team during the Our Ratings: first quarter which includes Andrew Levy, a senior analyst based in New York and a junior analyst in the London team. Both left to pursue other Overall Sell opportunities. The Gruss investment team is now made up of seven ODD Pass individuals including Sean Dany. Business 2 Staff 2 Performance Process 2 The Fund was down -2.8% in USD during the first quarter of 2018 Risk 2 compared to the HFRI:Event-Driven Index which was up +0.5%. After a Performance 2 strong rally in January, equity market volatility picked up significantly in Terms 2 February. Credit markets were generally more stable although high yield ended the quarter down -0.75% against the S&P 500 which was

down only -0.86% despite the sell-off in February and March. Fears

over an escalating trade war with China contributed to some off the risk sell-off whilst the Fed raised rates by an anticipated 25bps mid-March. Against this backdrop the Fund’s equity exposure was a key detractor (- 1.9%), only marginally offset by the portfolio’s equity hedges which added +0.5%. The distressed credit book also detracted during the quarter (-0.9%).

CFM – Stratus Hedge Fund

Buy (closed)

Key Information:

Appointed: 1 February 2016

31 March 2018 Value: £26.6 million

Vehicle

Pooled fund (£ Share class)

Mandate: Multi Strategy hedge fund

Benchmark: Source: CFM. Returns shown above are net of fees. n/a Performance Target: Absolute Return CFM's Stratus strategy returned -0.7% during the first quarter of 2018, however the final result masks a volatile path of monthly returns. The Fee Scale: fund began the year strongly in January before being hit by the increase Fixed base fee of 2.0% pa on in volatility seen in markets during February and before recovering AUM. 20% performance fee. again in March. One bright spot in particular during the quarter was the Volatility Arbitrage allocation, which was able to take advantage of the turmoil in markets to contribute +0.5% to performance from its small, 4% allocation. The directional strategy contributed -0.3% during the period, however Our Ratings: similar to the overall fund its performance was volatile with a strong January and March offset by a weak February as its long positions in Overall Buy equity markets delivered the majority of the losses. Across the quarter, ODD A1 gains in other asset classes broadly made up for the losses sustained in Business 3 equities, while technical clusters materially outperformed fundamental Staff 4 ones. Process 3 The statistical-arbitrage allocation was flat during the first three months Risk 3 of the year, with returns again following a similar pattern to Stratus’ Performance 3 overall. During the period performance was mixed across regions, while Terms 2 at the cluster level Leader-Laggard, Trend and Mean-Reversion were positive while Flight to Quality and Liquidity were detractors.

Strategy allocations were unchanged during the first quarter at 46%

stat-arb, 38% directional, 4% volatility arbitrage, 6% directional volatility and 6% intraday. Business Assets under management at the firm level grew to $11.4 billion at the end of the first quarter of 2018. CFM’s alpha strategy, Stratus, remains closed with assets of $6.1 billion, and so the majority of flows were driven by the range of alternative beta products.

BlackRock – UK Property

Buy

Key Information:

Appointed: December 2012

31 March 2018 Value: £37.3 million

Vehicle:

Pooled fund

Mandate: UK Property

Benchmark: Source: Blackrock. Returns are shown net of fees. IPD UK Pooled Property All Balanced Funds Total Return Index Performance

Target: Performance over the quarter was 1.7% which was below the fund's benchmark, the IPD All Balanced Property Fund Index, of 1.9%. This To outperform the benchmark took the annual return to 9.9% for the fund which is slightly below the Fee Scale: benchmark's 10.0%. Three and five year annualised performance Fixed base fee of 1.0% pa on figures still trail the benchmark, by -0.4% and -0.7% respectively. AUM. No performance fee. Team Changes Mark Long, Head of Real Estate Research and EMEA Strategy resigned last quarter. Mark had overall responsibility for real estate

research outputs across EMEA including forecasts and strategy. Post Our Ratings: quarter end, BlackRock have recruited Simon Durkin to replace Mark Long. Overall Buy Transactions ODD Pass During the first quarter of 2018, the fund completed one purchase of Business 4 67 acres of land in Voltage Park, Manchester for £6.0 million. This Staff 4 acquisition is part of the build-to-hold logistics strategy where industrial Process 3 units will be developed. Risk 3 The fund completed two sales over the quarter totalling £7.0 million: Performance 3  Autoplaza, Basingstoke, comprised of three car showrooms Terms 2 sold to the current operator for £3.6 million.  Nene Valley, Oundle was leased to Fairline Yachts and

following a lease renewal in 2017. The property was sold for £3.4 million. Post quarter end, the fund completed the sale of 5 The Strand, London for £92.5 million significantly ahead of valuation. The fund saw an opportune time to sell and de-risk the portfolio with a significant upside realized. Cash as at 31 March 2018 was 3.6% of the fund's Gross Asset Value. The fund remains open to subscriptions.

LGIM – UK Property

Qualified

Key Information:

Appointed: February 2010

31 March 2018 Value: £32.2 million

Initial Investment: £14 million

Vehicle: Pooled fund

Mandate: UK Property Source: LGIM. Returns are shown net of fees.

Benchmark: Overall View IPD UK PPFI All Balanced Performance for the fund is behind the benchmark over the last five Property Funds year market cycle with material underperformance from 2014 to 2017. Target: The fund has seen a high cash allocation relative to benchmark over the To outperform the benchmark long term which has been a material drag on performance. We believe Fee Scale: the fund continues to be well diversified at a portfolio level, with good quality properties, however the fund has suffered from being Tiered base fee based on the underweight to strong performing sectors and planned asset AUM of 0.70% pa on the first £2.5m, 0.65% pa on the next management initiatives timelines being pushed out which has detracted £2.5m, 0.60% pa on the next from performance. £7.5m and 0.55% pa thereafter. No performance fee Performance

Our Ratings: The fund’s total return was 1.2% over Q1 2018 which was behind the benchmark return of 1.9%. The total return over the past 12 months to Overall Qualified March 2017 is 7.5% compared to the benchmark return of 10.0%. The ODD A1 manager believes recent underperformance can be largely attributed to the fund’s underweight position to the industrial sector and an Business 4 overweight position to cash. The manager continues to address its Staff 2 underweight industrial position having made a number of acquisitions Process 3 over recent quarters and will continue to so seek further opportunities Risk 3 for good quality stock if sensible pricing can be achieved. Performance 2 Cash held as at 31 March 2018 was 8.6% of the fund's net asset value, Terms 2 compared to 8.3% in the previous quarter. Whilst the fund continues to

retain a higher cash weighting relative to the benchmark (partly due to

the fund’s redemption terms), it aims to progress towards a target of around 5%-7.5%, closer to the benchmark. Holding high cash levels in the fund is regularly raised by us with LGIM and we will continue to monitor this.

Brockton – Opportunistic Property

BUY (Closed)

Key Information:

Appointed: August 2014

31 March 2018 Value: £5.8 million

Total commitment:

£20.0 million Capital drawn: £8.0 million

Vehicle: Source: Brockton. Pooled fund (close ended) Mandate: Opportunistic Property Capital Commitments and Investments Benchmark: Brockton Capital Fund III (“BC FIII”) has total investor commitments of 3 Month LIBOR £786.0 million. As at 31 March 2018, BC FIII had made investments of £496.3 million across five investment strategies. The current equity Target: invested is £262.5 million (or £320.8 million including amounts on the 15% net IRR and 1.5x net Fund-level revolving credit facility that are bridging future debt). In multiple. addition, BC FIII had established reserves of £67.9 million for the Fee Scale: completion of the asset acquisition and asset management plans for Management fee of 1.4% over the these initiatives. life if the fund. Carried interest Existing portfolio and strategy proportion subject to IRR of the fund. The BC FIII portfolio is currently in a phase of growth through the acquisition of assets. As a result, some of the capital structures have Our Ratings: not yet reached their stabilised positions and finalised sector allocations Buy Overall are still to be determined. (Closed) ODD Pass Brockton remains focused on aggressively implementing their asset Business 3 management initiatives across the portfolio as the principal means of increasing asset value. These initiatives include adding value through Staff 4 physical improvements (such as adding square footage or improving Process 4 floorplate configuration), through the planning process and through Risk 2 operational initiatives to increase operating profit and maximise running Performance 4 yield. Terms 2

The charts below show the BC FIII portolfio by sector and location.

Relevant dates of the funds

First Closing Date 12 August 2014 Final Closing Date 12 February 2016

Fund Life 12 August 2022 (8 years from First Closing Date, excluding Fund Life Extension) Fund Life Extension Two one-year extension options at the discretion of the GP (requires Advisory Committee approval)

Investment Period 12 August 2018 (up to 4 years from First Closing Date)

Commitment Period 12 August 2022 (8 years from First Closing Date, excluding Fund Life Extension)

International Public Partnership Ltd – Listed PFI

Key Information:

Appointed: January 2006

31 March 2018 Value: £38.6 million

Initial Investment: £15.0 million

Additional Investment £4.0 million (April 2017) £5.0 million (December 2017)

Mandate: Listed PFI Source: Northern Trust. Returns are shown net of fees.

Annual Report Summary IPPL provide semi-annual reports to investors. We therefore update our commentary every six months once these reports are released. The information below pertains to the latest information available. International Public Partnerships Limited released its 2017 Annual Report on 21 March 2018. International Public Partnerships Limited (“IPP Ltd”) invests in 129 public infrastructure projects. As at 31 December 2017, the majority (c. 71%) of the fund is invested in the UK although the fund also has material exposure to Australia (c.10%) and Belgium (c.10%). A sector breakdown

is provided below:

Source: INPP.

The weighted average investment life of the portfolio is currently 37 years. As at 31 December 2017, the investment life and project stake

breakdown of the portfolio was as follows:

Investment Life % of fund Project Stake % of fund <20 years 40% 100% 47% 20-30 years 33% 50% - 100% 7% >30 years 27% <50% 46%

The portfolio is performing well with returns ahead of target. The fund is seeing an attractive pipeline of new opportunities across the UK,

Germany and Australia, and continues to deploy its commitment in the Thames Tideway Tunnel. 2017 was a strong year for the IPPL. It delivered robust financial performance in addition to making over £460 million of new investment, committing to invest up to a further £225 million and raising over £400 million of additional capital. The largest investment in 2017 was £272.5 million, as part of a consortium which acquired a 61% stake in Cadent (formerly known as National Grid’s gas distribution networks).

Antin – Infrastructure Fund III

Overall View Buy Antin is one of the strongest European infrastructure managers with a large team with deep knowledge of the infrastructure sector. While Fund Key Information: I’s performance will be difficult to replicate, Aon believe Antin is capable Appointed: of achieving its 15% gross IRR target for Fund III. January 2017 Drawdown Total Commitment The Fund has committed €25m EUR (c. £21.2m GBP) to the fund and €25.0m the manager will call down capital gradually over time. The first

31 March 2018 Value drawdown of €0.25m was made into the Fund on 23 January 2017.

£2.2m Antin also drew down €2.5m to cover the purchase of the infrastructure fund's two assets. Mandate: European Infrastructure Pipeline

Benchmark: Antin made two investments from Fund III during the year, in Kisimul and Almaviva, with a further investment announced in February 2018 Burgiss iQ European Infrastructure (EUR) with the acquisition of Hesley. Their objective remains to build a diversified portfolio both in terms of sector and geographic exposure. Target: 15% Gross IRR with a gross yield Their pipeline is currently focused on telecom, energy and transport target of 5% p.a. themes and they expect to make investments in these sectors over the next 12 months. Fee Scale: 1.5% p.a. of total commitments Relevant dates of the funds during investment period First and Final 9 December 2016

Closing Date Fund Term 9 December 2026 (10 years from First Closing Date, excluding Fund Life Extension) Our Ratings: Fund Life Two one-year extension options at the discretion of Extension the GP following consultation with the Investors' Overall Buy Committee ODD Pass Investment Period 9 December 2021 (up to 5 years from First Closing Business 3 Date) Staff 3 Commitment 12 August 2022 (8 years from First Closing Date, Process 3 Period excluding Fund Life Extension)

Risk 2 Performance 3 Terms 2

BlackRock – Passive Index-Linked Gilts

Buy

Key Information:

Appointed: October 2005

31 March 2018 Value: £86.3 million

Vehicle: Pooled

Mandate: Index-Linked Gilts

Benchmark: Composite benchmark of Aquila Source: Blackrock. Returns are shown net of fees. Since inception figures shown reflect performance since the inception of the restructured mandate in July 2016. Life Up To 5 Years UK Gilt Index Fund and the Aquila Life All Stocks UK Index-Linked Gilt Index The Fund invests in a blend of the Aquila Life Up To 5 Years UK Gilt Index Fund and the Aquila Life All Stocks UK Index-Linked Gilt Index Target: Fund to create a portfolio with duration of c.11 years. At the outset of N/A the portfolio's construction, the split was set to approximately 60/40 between the two funds, although this has, and will change, over time as Fee Scale: market conditions dictate. Fees following transition of units to London CIV: The table below shows the pooled funds held in the portfolio and their 0.005% p.a. value as at quarter end (provided by BlackRock): Nominal Security Value (£) Allocation Duration yield Aquila Life Up To 5 Years UK Gilt 50,649,789 58.69% 0.82% 2.38 Our Ratings: Index Fund Aquila Life All Stocks Overall Buy UK Index-Linked Gilt 35,650,702 41.31% 1.50% 22.67 ODD Pass Index Fund Business 4 Total 86,300,491 100.00% 1.10% 10.76 Staff 3 Process 4 Risk 4 Performance 4 Terms 2

Western – Active Investment Grade Credit

Qualified

Key Information:

Appointed: April 2003

31 March 2018 Value: £86.9 million

Vehicle:

Segregated

Mandate: IG Credit

Benchmark:

BofA Merrill Lynch Sterling Non- Source: Western. Returns are shown net of fees. Gilt 10+ Index

Target: Performance To outperform the benchmark by 0.75% pa over a rolling 5 year The Western mandate delivered a return of -2.1% over the quarter period underperforming the benchmark by -0.7%. Since the inception of the restructured mandate on 30 November 2016, the fund has returned in Fee Scale: line with its benchmark, returning 5.5%. Note that the performance Fixed base fee of 0.15% pa measurements have been restarted due to the restructure and going thereafter. No performance fee. forward performance will relate to the new mandate.

The chart below shows the portfolio and benchmark allocations as at

May 2018. Our Ratings:

Overall Qualified Exceptions ODD Reported Business  Staff  Process  Risk  Performance  Terms 

Source: Western, Merrill Lynch

M&G – Inflation Opportunities

BUY

Key Information:

Appointed: May 2013

31 March 2018 Value: £43.6 million

Total Strategy Assets:

£1.4 billion (March 2015)

Vehicle: Pooled fund

Mandate:

Inflation Opportunities Source: M&G/ Aon Hewitt. Returns are shown net of fees. Benchmark: RPI Key developments Target: M&G Prudential and Prudential plc (UK Insurance firm) announced on Benchmark + 2.5% pa the 14th March 2018 the intention to separate M&G Prudential from the US and Asian operations to create two separate companies. There have Fee Scale: been no changes to ratings on M&G strategies as a result of this Fixed base fee of 0.20%- 0.50% announcement. We will continue to monitor the situation as it progresses. pa on AUM. No performance fee. As a result of the merger, M&G Prudential, which predominantly consists Our Ratings: of the current firm’s European asset management business, will become a newly independent firm listed on the London Stock Exchange. The Overall Buy news follows the announcement in August 2017 of the merger between ODD Pass M&G and the Prudential UK & Europe business to form M&G Prudential. Business 3 The merger between M&G and Prudential UK & Europe is expected to Staff 3 complete in summer 2018. The demerger is not likely to occur until the Process 3 end of 2019 given the complexity and scale. Risk 3 Performance 3 In addition to the demerger, M&G Prudential has sold £12 billion of annuity assets to Rothesay Life, a move which suggests the new Terms 3 business will be focused on asset management.

There are limited details on how exactly it will affect the business in the long term, but in terms of the current M&G asset management business, it will continue to be led by John Foley and team, with no changes to senior leadership. There will be no changes to the asset management staff or researchers and the retail and institutional investment streams will remain separate.

Performance During Q1 2018, the fund returned 0.7% outperforming the benchmark by 0.6% and underperforming the target (RPI + 2.5% p.a.) by -0.2%. Over the longer term the fund has returned 7.8% p.a. since inception compared with 4.7% for its target return, outperforming by 3.1% p.a. net

of fees.

Long lease property and income strips provided both stable capital and income returns during the quarter. The high contribution figures for these asset classes can be accounted for by their respective weightings in the fund.

Asset class returns were mixed over the quarter. Aside from long lease property and income strips, only ground rents and gilts provided positive returns, whilst returns from all other asset classes were marginally negative. Capital values on the private index-linked assets held by the fund were negatively affected as index-linked gilt yields widened at the short end of the curve. This was compounded by a small widening of spreads used to price these assets.

The chart below shows the allocation as at 31 March 2018.

Insight – Absolute Return Bond Funds

Buy 2.5 2.0 2.0 1.9 Key Information: 1.5 Appointed: 1.0 December 2013 0.5 31 March 2018 Value: Return (%) £32.7 million 0.0

Initial Investments: -0.5 -0.4 -0.6 £10.0 million -1.0 Since Inception Quarter One Year 3 Year (p.a.) Additional Investments: (p.a.) £10.0 million (January 2014) Fund -0.4 -0.6 2.0 1.9 £10.0 million (March 2014)

Vehicle: Source: Northern Trust/ Aon Hewitt. Returns are shown net of fees. Insight Bonds Plus 400 Fund Major Developments Mandate: The T&C’s rating was downgraded during Q1 2018 as fees are no Absolute Return Bonds longer considered as competitive versus peers given the prevalence of Benchmark: new entrants to the market. However, Insight is not willing to enter into a 3 Month LIBOR (UK) Total Return price war given the substantial asset base they already have in the Index strategy. Furthermore, client servicing has deteriorated. Taking these Target: factors into account we have lowered the T&C score from a 4 to a 2. Benchmark + 4.0% pa over rolling Performance 3 year periods net of fees. Insight Bonds Plus underperformed its LIBOR benchmark during the Fee Scale: first quarter of 2018 and incurred modest losses. Negative returns were Fixed base fee of 0.75% per driven by cross market positions that proved to be more directional than annum. expected. Exposure to investment grade credit cost the fund performance as spreads widened. Gains from tactical neutral and short Our Ratings: duration positioning at a portfolio level partially offset losses. US inflation positioning also added to returns, as did long exposure to Overall Buy emerging market local rates. Positioning during the quarter was little ODD A1 changed: Insight continued to express views by various cross market Business 4 positions, asset backed securities, loans and emerging market debt. Staff 4 Process 4 Risk 3 Performance 3 Terms 2(4)

Appendix A – Market Background: Q1 2018

Summary Q1 2018 Index returns from 31/12/2017 to 31/3/2018 Sterling terms Local currency terms 2.2% 0.8% 0.3% 0.1%

-0.6% -1.2% -2.2% -3.1% -2.6% -4.2% -4.7% -4.7%

-6.9% UK Equities US Equities Europe Ex Japanese Emerging UK Fixed UK Index UK Corporate UK Property UK Equities Equities Market Interest Gilts Linked Gilts Bonds Equities

Source: FactSet/IPD

General Background . Despite a positive start to 2018, global equity markets fell with the MSCI AC World returning -1.9% in local currency terms. The halt in the equity market uptrend was triggered by expectations of a pick-up in US inflation, exacerbated by technical factors (investors exiting short volatility positions), and then later extended by growing fears over a possible trade war between the US and China. . The US Federal Open Market Committee (FOMC) voted to raise the Federal Fund rate target by 25bps to 1.50%-1.75% in March, while also signalling more rate hikes on the horizon by strengthening their economic outlook. The Bank of England (BoE) and the European Central Bank (ECB) maintained their policy rates over the quarter, but the former signalled an increase in the base rate could well be imminent. . The UK gilt yield curve flattened over the quarter; expectations of further monetary tightening raised short- term rates while long-term rates inched marginally lower. The UK Fixed Interest Gilts All Maturities Index returned 0.3% whilst the UK Index Linked Gilts Index moved only 0.1% higher over the quarter. . Credit spread widening led to UK corporate bonds underperforming gilts with a return of -1.2%. . On a trade-weighted basis, sterling strengthened by 2.1%, largely due to sterling appreciation against the US dollar but also supported by strength against the euro. The downward trend in the US dollar continued into 2018 with the 'greenback' falling by 2.1% on a trade- weighted basis. Sterling strength led to a lower return for global equities of -4.5%. . Steady income and capital appreciation led to a 2.2% return for UK property.

UK Equities . UK equities were the weakest performers, returning -6.9% in the first three months of 2018. Sterling appreciation, expectations of UK monetary tightening and global trade concerns exerted downward pressure on UK equities over the period. . The UK and other members of the European Union (EU) conditionally agreed upon a transition period running from the 31 March 2019 to December 2020. Pushing out the EU exit delays some of the Brexit uncertainties but there is still much to be agreed, which is reflected in weak UK growth forecasts. . Despite recording a rather paltry return of 0.6% over the quarter, the Health Care sector outperformed other sectors by quite a wide margin. In stark contrast, the standout underperforming sector was Technology (-26.7%) which suffered as Micro Focus (one of the larger stocks in the sector) lost more than half of its value over the quarter. The Telecommunications (-17.1%) and Consumer Goods (-11.8%) sectors also posted double digit losses over the quarter. . UK large cap equities (-7.2%) underperformed both small (-4.8%) and mid cap (-5.7%) equities. Sterling strength and trade friction weighed on large cap performance which has larger exposure to revenue earned overseas.

Overseas Equities . Although at the epicentre for the two events of significant pick-up in volatility this quarter, the US equity market performed well relative to other regions, returning -0.6% in local currency terms. Higher than forecast wage growth data in February bolstered expectations of further monetary tightening which raised bond yields and eroded support for equities. Short volatility positions in the Cboe's Volatility Index (VIX) exacerbated market falls. Fears of greater trade protectionism increased following the adoption of import tariffs on Chinese steel and aluminium. However, US equities continued to benefit from robust economic data, a solid earnings season and the additional tailwind from tax reform. US dollar weakness resulted in a return of -4.2% in sterling terms. . The current European economic climate remained positive with falling unemployment and encouraging GDP growth data; the latter at an annualised 2.7% – the same as the previous quarter. However, there were signs of fading economic momentum as economic data missed expectations and forward-looking economic indicators moved sharply from their previous highs in the quarter; the Markit Manufacturing Purchasing Managers’ Index (PMI) moved four points lower to 56.6, although it remains in expansionary territory. Political risk also resurfaced in the Eurozone over the first quarter with the Italian general elections resulting in a hung parliament as the far-right Five Star Movement gained support. European (ex-UK) equities returned -3.1% in local currency but returns for unhedged UK investors were -4.7%. . Although not performing as strongly in absolute terms as in previous quarters, emerging markets were still the best performers despite increased fears of protectionism and global trade wars. The MSCI Emerging Markets Index was up 0.8% but the appreciation of sterling

against EM currencies led to a negative return of -2.2%; still above the returns of all other regions in sterling terms. The upturn in commodity prices continues to benefit EM equities; the most notable rally was in the price of Brent crude oil which rose by 17.4% to end the year at $66.50 per barrel. Performance was varied amongst EM countries, but Brazil and Russia were the standout performers. The former benefited from confirmation of the criminal conviction of former president Luiz Inácio Lula da Silva which reduced the likelihood of his candidacy in upcoming elections. Russian equities were supported by monetary easing as well as the increase in oil prices. Returns were strong amongst the Technology and Financial sectors (which, combined, account for half of the index) and supported the overall index return. . Japanese equities (-4.7%) underperformed all regions in local currency terms with the exception of the UK. Political events, both domestically and globally, offset a strong earnings season and signs of improved corporate governance. Controversy struck Japan's recently re-elected Prime Minister, Shinzo Abe, as he became embroiled in a cronyism scandal regarding the sale of land to a company. Weaker economic data against a backdrop of growing trade tension led to cyclical and trade-related sectors particularly underperforming while defensive areas, such as Health Care, outperformed. . In the FTSE All World ex UK Index, the technology sector (2.8%) outperformed all other sectors with a strong earnings season. Most sectors declined over the quarter but Basic Materials (-5.0%) and Telecommunications (-5.9%) were particularly weak.

Currencies and Sterling Exchange Rates Interest Rates 8%

-4%

-8% Jan 18 Feb 18 Mar 18 UK £ vs US $ UK £ vs EURO UK £ vs YEN Source: FactSet . Sterling ended the quarter 2.1% higher on a trade-weighted basis. The conditional agreement for a transition Brexit period provided some impetus for sterling with substantially more time for both parties to settle on a new relationship. In addition, expectations of faster monetary tightening in the UK and the continuation of a weaker US dollar provided further support. Sterling appreciated by 3.7% and 1.2% against the US dollar and euro respectively. The re-appointment of Governor Kuroda as the Head of the Bank of Japan indicated continued support of monetary easing. However, Kuroda’s remarks about a potential exit from monetary easing and safe haven flows on trade war concern resulted in a stronger Japanese yen. Against

sterling, the Japanese yen appreciated by 2.1%. . The US dollar declined for the fifth consecutive quarter, falling by 2.1% in trade-weighted terms. The dollar continues to be weak despite robust economic data, faster wage inflation and higher interest rates. Instead, expectations of greater U.S. borrowing to finance planned fiscal stimulus have put pressure on the 'greenback'. Conversely, the euro edged 0.4% higher on a trade-weighted basis over the quarter. Appreciation against the US dollar offset depreciation against sterling and the yen. Even against the dollar, the pace of euro appreciation slowed over the quarter, after strong appreciation in 2017, as the exchange rate moved sideways in February and March. Slower Eurozone and global economic momentum were both negative for the euro.

Gilt Returns Index returns from 31/12/2017 to 31/3/2018

1.5%

0.6% 0.1%

-0.5% -0.4% -1.0% -1.2%

Cash Gilts - Short Gilts - Medium Gilts - Long ILG - Short ILG - Medium ILG - Long Source: FactSet

. The 0.3% marginally positive return on the FTSE All Stocks Gilts Index was driven by long duration bonds. Their yields fell over the quarter whereas short and intermediate bond yields rose on increasing expectations of further interest rate hikes by the Bank of England. . Index-linked yields followed a similar trend over the quarter although the upward move in yields was more modest in comparison. Higher breakeven inflation at the short end of the curve supressed upward pressure on yields and led to outperformance relative to their fixed counterparts. While index-linked yields did not increase as sharply as equivalent nominal bond yields, the income return component was not as strong and ultimately led to underperformance at longer maturities over the quarter.

Fixed Interest and UK Fixed Income Yield Curve 30/09/2017 31/12/2017 31/03/2018 Index-Linked Yield 2.4 Curves 2.0

1.6

1.2

Yield (%) Yield 0.8

0.4

0.0 0 5 10 15 20 25 30 35 Source: Bloomberg Maturity

UK Index Linked Yield Curve 30/09/2017 31/12/2017 31/03/2018 0.0

-0.5

-1.0

-1.5 Yield (%) Yield

-2.0

-2.5 0 5 10 15 20 25 30 35 Source: Bloomberg Maturity . UK fixed interest gilt yields mirrored global government bond patterns with yields rising significantly in the early stages of the quarter as US inflation concerns lifted yields. Closer to home, members of the BoE signalled the possibility of an earlier rate hike than initially anticipated by the market as well as faster rate rises over time which provided upward pressure on short-dated gilt yields. This momentum, however, was not sustained as BoE comments became more cautious as the quarter rolled. Global equity market turmoil also led to bond buying on "flight to safety" investor behaviour. The policy-sensitive two-year bond yield reached 0.82%, reflecting the market's anticipation that a rate hike is looming. Consequently, the fixed interest gilt yield curve flattened over the quarter. . The index-linked gilt yield curve also flattened over the quarter for similar reasons; the longer end of the curve was broadly unchanged but short maturity yields increased with prospects of higher UK bank rates in the future. Breakeven inflation did not change substantially over the quarter except at the shorter end of the curve, where it increased by 26bps which more than offset the 14bp decline seen over the last few months of 2017.

UK Investment Grade iBoxx Non-Gilts Index Credit Spread Credit 150

140

130

120 Spread Spread (bps) 110

100 Mar 17 May 17 Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 Source: FactSet . Volatility, which plagued equity markets, seeped into credit markets with credit spreads increasing globally. UK investment grade credit spreads widened by 12bps to 126bps with spreads for all credit grades picking up. With the compensation for credit at post-financial crisis lows, it did not take much for credit to underperform as investor risk appetite wavered. . The iBoxx Non-Gilts All-Stocks Index returned -1.2% in the first three months of the year. The increase in short-dated yields also detracted from returns particularly in the first two months of the quarter. . Reduced risk-appetite saw lower quality credit spreads widen the most. BBB-rated non-gilt spreads rose by 17bps to 175bps. Meanwhile, AAA and AA-rated credit spreads moved just 4bps higher to 40bps and 70bps respectively.

UK Property 12 Months Rolling Returns IPD UK Monthly Property Index 30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: IPD

. The IPD UK Monthly Index returned 2.2% over the quarter, taking the 12-month return to 11.0%. Capital value growth continued into 2018 although at a slower pace than in previous quarters. The 1.0% increase in capital values was trumped by the 1.3% return due to income. Rental value growth slowed to 0.4% over the quarter while vacancy rates were slightly higher at 7.8%. . Capital appreciation in Industrial properties supports its outperformance relative to other property segments. Conversely, capital values declined in the Retail sector for the first time since late 2016.

Accounting Deficit . The aggregate accounting deficit of final salary schemes sponsored (FTSE 350) by FTSE 350 companies widened over the first quarter of 2018. The aggregate deficit at the end of March 2018 was £24.0bn, compared to £13.9bn at the end of December 2017. Over the quarter, the deficit ranged from £10bn to £29bn. . Discount rates, which are typically based on estimates of corporate bond yields at longer terms, ended the quarter higher with the widening of credit spreads contributing to the increase in long maturity bond yields. The long-dated corporate bond yield, based on the iBoxx Non-Gilts Over 10 Year index, rose from 2.77% to 2.93% which led to a £13bn decrease in pension liabilities over the period. . However, weak performance from equities meant that pension scheme assets generally fell over the period while sterling strength exacerbated falls for overseas equity assets.

Funding Levels . Liabilities fell on a gilts basis over the quarter as long-dated yields (Typical Pension decreased marginally over the quarter. However, it was the weak Scheme) performance of risk assets, most notably equities that were the primary drivers of lower funding levels over the three months to March 2018. . Long-dated fixed gilt yields (20 year duration) decreased by approximately 5bps to 1.69% over the quarter. A more modest decrease was seen in long-dated index-linked gilt yields as breakeven inflation was slightly lower at long maturities.

Appendix B – Quarterly Investment Outlook Summary . The return of market volatility this year has brought struggles for equities, credit and government bonds. . Both near and long-term outlooks for the global economy will impact markets a great deal but views on this are much divided. We give ours. . The gilt yield curve has flattened due to muted moves in long-dated yields, similar to the US. Bonds see the future with far less optimism than equities. Gilt valuations are not substantially out of line. . Credit spreads are now a little higher, but our views are unchanged. Pockets of relative value are discussed. . The tell-tale signs of serious trouble for equities are absent, but the falling equity risk premium points to a coming valuation adjustment. This may not be achieved without at least some pain. . Our views on portfolio actions remain unchanged: phased de-risking remains fine to do, especially on further market strength. . Hedge funds' struggles may not be over, but they could be past their worst. Alternative risk premium funds could be paired with traditional hedge funds to meet portfolio objectives at reasonable cost.

A taste of the The first quarter brought a taste of the unfamiliar - equities, credit and gilts unfamiliar? struggling together. Market volatility surfaced in February after a long hiatus on worries about rising bond yields. This turned into a much bigger market event on forced selling by a large number of market players caught out by their bet on low volatility. As equities sold off, only emerging markets held their ground, more or less. Rising bond yields and higher corporate bond spreads held back fixed income returns though long-dated gilts did better on flatter yield curves. A weaker US dollar helped sterling.

Two big debates over Two debates over the global economy continue to rage. The first is on the global economy long-term economic conditions. Some, like us see the growth that matter for markets disappointments since the end of the financial crisis, amidst low productivity, ageing demographics and still low bond yields, as evidence of a lasting weaker economic growth environment. Others see this as temporary and celebrate the 2017 return to stronger growth in the global economy as a revival that will disprove this idea. The reality is that we will not know which side is right for many years as much more time is needed to be confident of the answer. This is unfortunate as it makes a big difference to where bond yields go or even to company profit growth that drives equities. Will economic growth stay sluggish or is it now moving

stronger in a sustained way? We stay with the view that the post-crisis slower growth environment is not an aberration and is likely to persist. … our view on the The other, equally important, debate is on the current economic cycle. cycle points to a need Although growth has been weak since the end of the crisis, the expansion for more conservative is now almost a decade old. This is already long by post-war norms (see portfolio positioning chart). Normally, changed economic conditions would have ended the expansion by now, disrupting investment markets. Naturally, debate rages on what will end the current expansion. Some see it continuing without a hitch. Others like us are now less confident that the expansion can run much beyond the next 12-18 months. Inflation creeping up, rising interest rates in economies used to ultra-low rates and diminished liquidity as central banks tighten point to a coming change. Trade and geopolitical stress add to risks. Timing this exactly is impossible, but the rising risks of a brake arriving makes a case for moving to a more conservative positioning to protect portfolio value. Gradual de-risking now would avoid unnecessary activity and costs later.

Long-dated gilt yields Typical liability duration gilt yields of 15-20 years or more are still hovering still trapped at fairly at quite low levels, having moved in a fairly narrow range in the past few low levels years. The same is not true of shorter duration yields. If we look at typical short-dated gilts, say of three year duration, we see that yields have risen from about 0.1% just after the Brexit referendum in June 2016, to almost 0.9% today. By contrast, yields for bonds of 25 year durations have risen rather less, from 1.3% to 1.7% over the equivalent period. The smaller move in longer-dated yields versus shorter-dated ones is termed 'curve flattening'. It is notable that the US trend is similar (see chart over page). One message is that those buying long duration gilts or US treasuries in preference to shorter-dated bonds are now less well rewarded for the additional interest rate and inflation risk taken on than before. Short dated gilt yields Why has this curve flattening been occurring? Short-dated yield moves are easier to explain are easier to explain. More interest rate rises are approaching. The Bank of England has made it known that higher inflation recently seen will not

be accommodated, and interest rates need to rise, if only gradually. Short- … longer dated yields dated gilts have reflected this expected move. Longer-dated moves are are more of a puzzle harder to explain. While strong hedging demand from pension funds explains lower yields for long duration gilts than would be otherwise, this has been true for many years. Further, the scarcity explanation does not hold good for the US. We see global long duration yields rather supported by a less optimistic view of economic conditions for the long-term, in the way we discussed above. It is clear that bonds are sending a rather different message on the economic outlook when compared with equities.

'High hedge ratio' The range of possible outcomes for UK gilt yields remains very wide. This advice is repetitive but keeps the message of adopting a high hedge ratio still appropriate, if a sound … gilts are not little repetitive. That yields have remained lower than consensus views for in a bubble many years is instructive, even though we admit there is no certainty that this will be the case going forward. For those who think bonds are in a bubble, there will be cause for hesitation, but the evidence for this is weak. Economic factors largely explain yield moves. Gilts are a little expensive, but that is about it.

Credit views are Credit markets have survived the recent episodes of equity market unchanged … volatility reasonably well. Spreads over gilts and US treasuries have risen, but modestly. The fact remains, though, that even after recent moves, from a fair-value standpoint, spread levels on investment grade corporate bonds are still below sustainable levels through a market cycle. This makes it hard to argue that corporate bonds should be preferred over gilts from a risk-return standpoint, even allowing for slightly higher yields. In riskier sub-investment grade, high yield bond spreads are also too tight, secured loans looking safer at this stage of the economic cycle. We still like local emerging market debt and some areas of securitised credit. … still favour bank Overall, credit is challenged by a substantial expansion of leverage by US loans and local corporate debtors which could be problematic in time given rising interest emerging market debt rates and an eventual economic downturn. Those using illiquid private debt structures will be relying on their manager's skill to navigate a downturn. However, they should also be asking hard questions on what happens to some of the more complex loan structures that have evolved in terms of recovery prospects, should borrowers experience difficulties.

Is equity market The outlook for equity markets is finely balanced. There are no obvious volatility indicative of near-term causes to believe that a sustained and large market downturn more trouble ahead? is on us. Market sentiment was excessively bullish at the turn of the year as shown up in sentiment surveys, which was a good 'contrarian' signal for the subsequent sell-off. However, other indicators were not so suggestive of excessive optimism - e.g. money flows have generally been stronger into bonds, not equities. More fundamentally, there is no sign of corporate profits growth rolling off – with strong upward revisions in the

US thanks to the tax changes. Economic growth for now is also strong, and though interest rates are on the rise, the level and pace of increases should be tolerable. Credit markets, sometimes an early warning sign of trouble in equities are still being quite well-behaved as noted earlier. And yet, there are doubts. As well known, current valuations in developed equity markets are at the higher end of historical ranges, and at the very top end for the US market. This can be rationalised by the high equity risk premium environment that has prevailed (the extra return that might logically be expected over bonds) given low bond yields. However, the equity risk premium is now normalising at about the long-term average (see chart). Even without further rises in bond yields, it is logical to expect some downward valuation adjustment. This could be benign if strong profits growth outstrips market moves, but there is a clear risk that the valuation adjustment occurs through more market corrections instead. The recent rise in volatility is an early sign that this reality is dawning.

Equities: conditions So what should be done? Our view is that conditions remain good for de- are still favourable for risking, particularly if equity markets recover to levels over and beyond the de-risking year's start. The valuation adjustment required and risks from a change to economic conditions are starting to loom larger. While serious trouble may not be imminent, there are enough signals flagging caution. Foregoing some return opportunity is reasonable after such strong performance over a long period. This is not a call for large equity sales, but rather a view that market conditions are favourable for de-risking, where affordable and practicable. Style-wise, a modest tilt to Value and some overweighting of non-US markets still seems desirable.

Hedge funds, Our analysis shows that several of the major hedge fund strategies have alternative risk found continuing difficulty in generating 'alpha', the return from skill over premium funds and the underlying market-sourced returns. Some strategies like trend-following possible return of have found it particularly difficult. More hedge funds competing for a finite alpha? number of opportunities, high co-movement across asset classes, low volatility and central bank moves to quell economic risks have made alpha elusive. This partly accounts for the growing popularity of alternative risk-premium strategies that claim no alpha but give systematic exposure to factors used by traditional hedge funds at lower fees. It may still be too early to declare that market conditions favour a return of alpha for hedge funds. However, some ingredients for alpha generation are returning as volatility moves higher and dispersion within and between asset classes rises. Alternative risk premium funds are a good way to start building a hedge fund allocation at low cost, but could fruitfully be paired with traditional hedge funds that now appear more likely to deliver.

Appendix C – Explanation of Manager Ratings Below we describe the criteria which we use to rate fund management organizations and their specific investment products. Our manager research process assesses each component using both our qualitative and Aon InForm criteria. With the exception of Operational Due Diligence ("ODD"), each component is assessed as follows: Qualitative Aon InForm Outcome Outcome

1 = Weak  Pass: This component in isolation meets or exceed our desired criteria 2 = Average  Alert: This component in isolation does not meet our desired 3 = Above criteria, or the lack of data on this component means that we are Average not able to judge whether it meets our desired criteria - Not assessed: There is a lack of data, which means that we are 4 = Strong not able to assess this component, however we do not consider this in isolation to justify an Alert  Component has improved over the quarter = Component remains broadly unchanged over the quarter  Component has worsened over the quarter

The ODD factor is assigned a rating and can be interpreted as follows:

Overall ODD What does this mean? Rating

No material operational concerns – the firm’s operations largely align with A1 a well-controlled operating environment.

The firm’s operations largely align with a well-controlled operating environment, with limited exceptions – managers may be rated within this A2 category due to resource limitations or where isolated areas do not align with best practice.

Conditional Pass Specific operational concerns noted that the firm has agreed to address in (“CP”) a reasonable timeframe; upon resolution, we will review the firm’s rating.

Material operational concerns that introduce the potential for economic or F reputational exposure exist – we recommend investors do not invest and/or divest current holdings.

Aon Hewitt previously assigned ODD ratings of pass, conditional pass, or fail for the ODD factor. We are in the process of refreshing all ODD ratings to the new terminology. During the transition period, the prior ratings, as follows, may persist in some deliverables until the ODD factor rating is converted to the above noted letter ratings. . Pass – Our research indicates that the manager has acceptable operational controls and procedures in place. . Conditional Pass – We have specific concerns that the manager needs to address within a reasonable established timeframe.

. Fail – Our research indicates that the manager has critical operational weaknesses and we recommend that clients formally review the appointment. An overall rating is then derived taking into account both the above outcomes for the product. The overall rating can be interpreted as follows:

Overall Rating What does this mean?

Buy We recommend clients invest with or maintain their existing allocation to our Buy rated high conviction products

Buy (Closed) We recommend clients invest with or maintain their existing allocation to our Buy rated high conviction products, however it is closed to new investors

Qualified A number of criteria have been met and we consider the investment manager to be qualified to manage client assets

Sell We recommend termination of client investments in this product

In Review The rating is under review as we evaluate factors that may cause us to change the current rating

The comments and assertions reflect our views of the specific investment product and our opinion of its quality. Overall rating changes must go through our qualitative manager vetting process. Similarly, we will not issue a Buy recommendation before fully vetting the manager on a qualitative basis.

Appendix D – Adams Street Ratings Breakdown

Performance Ratings 31/12/2015 31/12/2016 Adams Street Partnership Fund - 2003 Non-U.S. Fund Performing Performing Adams Street Partnership Fund - 2003 U.S. Fund Below Expectations Performing Adams Street Partnership Fund - 2004 Non-U.S. Fund Below Expectations Below Expectations Adams Street Partnership Fund - 2004 U.S. Fund Below Expectations Performing Adams Street Partnership Fund - 2005 Non-U.S. Fund Below Expectations Below Expectations Adams Street Partnership Fund - 2005 U.S. Fund Below Expectations Performing Adams Street 2006 Direct Fund Performing Performing Adams Street Partnership Fund - 2006 Non-U.S. Fund Below Expectations Below Expectations Adams Street Partnership Fund - 2006 U.S. Fund Below Expectations Below Expectations Adams Street 2007 Direct Fund Performing Performing Adams Street Partnership Fund - 2007 Non-U.S. Fund Below Expectations Below Expectations Adams Street Partnership Fund - 2007 U.S. Fund Performing Performing Adams Street 2008 Direct Fund Performing Performing Adams Street Partnership Fund - 2008 Non-U.S. Fund Performing Below Expectations Adams Street Partnership Fund - 2008 U.S. Fund Exceeds Expectations Exceeds Expectations Adams Street 2009 Direct Fund Performing Performing Adams Street Partnership Fund - 2009 Non-U.S. Developed Markets Fund Below Expectations Performing Adams Street Partnership Fund - 2009 Non-U.S. Emerging Markets Fund Below Expectations Below Expectations Adams Street Partnership Fund - 2009 U.S. Fund Performing Performing Adams Street 2010 Direct Fund Performing Performing Adams Street Partnership Fund - 2010 Non-U.S. Developed Markets Fund Performing Below Expectations Adams Street Partnership Fund - 2010 Non-U.S. Emerging Markets Fund Performing Performing Adams Street Partnership Fund - 2010 U.S. Fund Performing Performing Adams Street 2011 Direct Fund Performing Performing Adams Street 2011 Emerging Markets Fund Performing Below Expectations Adams Street 2011 Non-US Developed Markets Fund Below Expectations Below Expectations Adams Street 2011 US Fund Performing Performing Adams Street 2012 Global Fund Below Expectations Below Expectations Adams Street 2013 Global Fund Below Expectations Below Expectations Adams Street 2014 Global Fund Below Expectations Below Expectations Adams Street 2015 Global Fund Below Expectations Below Expectations

Note: Adams Street reports their performances with a three-month lag.

Disclaimer This document and any enclosures or attachments are prepared on the understanding that it is solely for the benefit of the addressee(s). Unless we provide express prior written consent, no part of this document should be reproduced, distributed or communicated to anyone else and, in providing this document, we do not accept or assume any responsibility for any other purpose or to anyone other than the addressee(s) of this document. Notwithstanding the level of skill and care used in conducting due diligence into any organisation that is the subject of a rating in this document, it is not always possible to detect the negligence, fraud, or other misconduct of the organisation being assessed or any weaknesses in that organisation's systems and controls or operations. This document and any due diligence conducted is based upon information available to us at the date of this document and takes no account of subsequent developments. In preparing this document we may have relied upon data supplied to us by third parties (including those that are the subject of due diligence) and therefore no warranty or guarantee of accuracy or completeness is provided. We cannot be held accountable for any error, omission or misrepresentation of any data provided to us by third parties (including those that are the subject of due diligence). This document is not intended by us to form a basis of any decision by any third party to do or omit to do anything. Any opinions or assumptions in this document have been derived by us through a blend of economic theory, historical analysis and/or other sources. Any opinion or assumption may contain elements of subjective judgement and are not intended to imply, nor should be interpreted as conveying, any form of guarantee or assurance by us of any future performance. Views are derived from our research process and it should be noted in particular that we can not research legal, regulatory, administrative or accounting procedures and accordingly make no warranty and accept no responsibility for consequences arising from relying on this document in this regard. Calculations may be derived from our proprietary models in use at that time. Models may be based on historical analysis of data and other methodologies and we may have incorporated their subjective judgement to complement such data as is available. It should be noted that models may change over time and they should not be relied upon to capture future uncertainty or events.