Agenda Investment Advisory Council (IAC)

Wednesday, September 11, 2019, 1:00 P.M.*

Hermitage Room, First Floor 1801 Hermitage Blvd., Tallahassee, FL 32308

1:00 – 1:05 P.M. 1. Welcome/Call to Order/Approval Bobby Jones, Chair of Minutes (See Attachments 1A – 1B)

(Action Required)

1:05 – 1:15 P.M. 2. Opening Remarks/Reports Ash Williams (See Attachments 2A – 2E) Executive Director & CIO

1:15 – 2:15 P.M. 3. Asset Liability Review Aon Hewitt (See Attachment 3) Phil Kivarkis Kristen Doyle

2:15 – 3:15 P.M. 4. Global Equity Asset Class Alison Romano, SIO Review Tim Taylor, SIO (See Attachments 4A – 4B) Mercer Jay Love Savannah Finney

Investment Advisory Council – Agenda September 11, 2019 Page 2

3:15 – 3:45 P.M. 5. SIO Updates Katy Wojciechowski, SIO DC Programs Update Fixed Income Investment Programs & Steve Spook, SIO Governance Office Update Real Estate (See Attachments 5A – 5F) John Bradley, SIO Private Equity Trent Webster, SIO Strategic Investments Walter Kelleher, Director Educational Services Defined Contribution Programs Michael McCauley, Investment Programs & Governance Officer

3:45 – 4:00 P.M. 6. Major Mandate Performance Aon Hewitt Review Kristen Doyle (See Attachment 6)

4:00 – 4:15 P.M. 7. IAC Compensation Subcommittee Bobby Jones, Chair Update (See Attachment 7)

(Action Required)

4:15 – 4:25 P.M. 8. Audience Comments/December Bobby Jones, Chair Meeting Date/Proposed 2020 Meeting Dates/Closing Remarks/ Adjourn (See Attachments 8A – 8B)

*All agenda item times are subject to change.

2

APPEARANCES

IAC MEMBERS:

STATE BOARD OF ADMINISTRATION OF FLORIDA BOBBY JONES PETER COLLINS VINNY OLMSTEAD PETER JONES GARY WENDT CHUCK COBB INVESTMENT ADVISORY COUNCIL MEETING TOM GRADY (telephonically) SEAN McGOULD (telephonically)

SBA EMPLOYEES:

ASH WILLIAMS, EXECUTIVE DIRECTOR KENT PEREZ TUESDAY, JUNE 18, 2019 JOHN BENTON 1:05 P.M. - 4:30 P.M. ALISON ROMANO TIM TAYLOR KATY WOJCIECHOWSKI STEVE SPOOK JOHN BRADLEY 1801 HERMITAGE BOULEVARD WES BRADLE HERMITAGE ROOM, FIRST FLOOR CLARK GRIFFITH TALLAHASSEE, FLORIDA TRENT WEBSTER DANIEL BEARD MINI WATSON WALTER KELLEHER MICHAEL MCCAULEY

CONSULTANTS:

GLENN THOMAS - (Lewis, Longman and Walker, P.A.) AMY MICHALISZYN - (Federated Investors) PAIGE WILHELM - (Federated Investors) REPORTED BY: JO LANGSTON LIQIAN MA - (Cambridge Associates) Registered Professional Reporter KRISTEN DOYLE - (Aon Hewitt) KATIE COMSTOCK - (Aon Hewitt)

ACCURATE STENOTYPE REPORTERS, INC. 2894-A REMINGTON GREEN LANE TALLAHASSEE, FLORIDA 32308 (850)878-2221

ACCURATE STENOTYPE REPORTERS, INC. 3 4

1 INVESTMENT ADVISORY COUNCIL MEETING 1 4.61 percent. That's 95 basis points ahead of

2   2 target without any adjustments for private market 3 MR. BOBBY JONES: Ladies and gentlemen, if 3 investments. That leaves the fund balance at

4 you'll please be seated, we'll go ahead and get 4 $161.4 billion, which is 900 million above where we

5 started. Okay. Welcome to the June 18th meeting of 5 started the year, net of distributing approximately

6 the Investment Advisory Council. And first I'd like 6 3 billion in retirement benefits over that time.

7 to welcome everyone and call this meeting to order. 7 Normally -- and there's no guarantee on this,

8 Our first piece of business is the approval of the 8 but in the current market environment, unless

9 March 26, 2019, minutes, which have been sent out to 9 something changes dramatically, when we do reach the

10 the Board. I would entertain a motion for approval. 10 fiscal year end, we will then do a backward-looking

11 MR. COLLINS: So move. 11 audit of all the performance numbers and a

12 MR. PETER JONES: Second. 12 revaluation of the private market assets, which are

13 MR. BOBBY JONES: And we've got a second. All 13 done only periodically, because obviously when

14 in favor, say aye. 14 you're out appraising a very large book of real

15 (Ayes) 15 estate or getting the final valuations on

16 MR. BOBBY JONES: Motion is approved. Now, for 16 partnerships in a range of areas that we're in,

17 our opening remarks and reports from Ash Williams, 17 that's time-consuming and expensive, so we don't do

18 our executive director. 18 it every five minutes.

19 MR. WILLIAMS: Thank you, Mr. Chair, members, 19 But, normally, that exercise will add some

20 thank you all for making the trip. And now that 20 amount of incremental performance, unless we were in

21 we're into the summer storm season, glad everybody 21 an environment where valuations for some reason,

22 got here in one piece and on time. A couple of 22 there had been some event that dramatically affected

23 things. We'll open with performance. As of last 23 vals in the other direction, which one can never

24 night's close, fiscal year to date -- these are of 24 really anticipate.

25 course estimated numbers at this point -- we're up 25 Other quick items to touch on would be our

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1 budget. The trustees passed our budget as requested 1 activity, is that they fully funded both the normal

2 at their last meeting. That went well, so we think 2 contribution for the Florida Retirement System and

3 the board continues to be well-positioned to not 3 also an actuarially indicated contribution to the

4 only manage the assets we have but our budget 4 unfunded liability. So that's positive as well.

5 contemplates managing additional money internally as 5 There were no other legislative actions that really

6 we go forward, and we're continuing to put things in 6 had bearing on us from an investment standpoint.

7 the budget that will help us hold down overhead. 7 The next item I would touch on is for the

8 One of the more interesting attributes of the 8 benefit of newer members to the IAC who have not

9 budget, I thought, was the addition of some money to 9 been with us during a full -- for a full year, the

10 put in some robotic AI to help us manage middle 10 IAC has an interesting role in addition to the

11 process sorts of things, receipts and reconciliation 11 overall policy oversight role, and it relates to our

12 of various things that are currently posted 12 compensation scheme.

13 manually. Fairly far out, but I thought it was 13 We have, I want to say, 205 employees at the

14 interesting. 14 State Board. Sixty-two of those employees are in

15 Let's see. What else? The Airbnb issue that 15 what is called our incentive compensation plan,

16 we had talked about in the fourth quarter of '18 has 16 which is something that the IAC was directly

17 been resolved. Airbnb, in fact, did not embrace the 17 involved in creating, spent the better part of six

18 policy that had been problematic, and as a 18 years developing the structure, made recommendations

19 consequence, we have removed them, with the 19 to the trustees.

20 trustees' approval, from our scrutinized list. So 20 The structure was -- the recommendations were

21 that's an example, I think, of engagement that had a 21 adopted unanimously by the trustees and have now

22 positive effect. 22 been in place for several years and have worked very

23 The next item would be the legislative session. 23 well. And the way this works is employees have one

24 The legislature came and went. And the single most 24 or both of two compensation streams, a base, a base

25 important thing for this group, reporting on their 25 salary, and in the case of the 62 people who are in

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1 this incentive scheme, there's also an element of 1 that affects portfolio outcomes. The more senior

2 incentive compensation that is closely tied to 2 they are, so if you get to an SIO or myself, it

3 accomplishments specific to that individual's role. 3 would be a very large component would be

4 That incentive payment is in two components. 4 quantitative.

5 There is a performance component that's based purely 5 The subjective component, the decision on what

6 on investment performance. So if we were looking at 6 the rating on the subjective piece is is made by

7 one of our senior investment officers, the 7 whoever the individual reports to. So for the 62

8 performance of their individual asset class would be 8 people in the plan, that works very nicely for 61 of

9 the dominant feature. And the increment of 9 them because they all report to somebody. The

10 performance awarded there is directly dependent on 10 sixty-second person is me, and I report to the

11 the investment performance. And how that works 11 trustees.

12 through the gearing is actually laid out in the plan 12 The trustees really have indicated by the plan

13 document for the incentive plan that was adopted by 13 design that they would prefer for a subset of the

14 the trustees. 14 IAC and ultimately the entire IAC to provide that

15 There's then a subjective component as well. 15 evaluation of my performance. So the process we

16 So to the extent someone has been a good team 16 have is -- and this is all under the plan design

17 player, they've shown a lot of initiative, they've 17 that was adopted by the trustees, so it's very

18 mentored junior people, et cetera, et cetera, then 18 prescriptive. By the 15th of July every year, I am

19 there's an element of subjective as well. 19 to write a self-assessment, forward it to the

20 And the component of investment or quantitative 20 members of the Investment Advisory Council's

21 incentive input versus the subjective varies with 21 Compensation Subcommittee.

22 the seniority of the person and the influence they 22 Each of those members then scores me on a set

23 have on the investment process. So the more junior 23 of attributes similar to those for other employees

24 the person, the higher the subjective comp component 24 and sends those scores to Mercer, who is our

25 is, because they are not making decisions at a level 25 external third-party comp consulting firm. They

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1 then aggregate the results and send them to me. I 1 MR. WILLIAMS: Oh, very good. Nice to meet

2 then distribute them out to the members of the IAC, 2 you. Vinny Olmstead and Gary Wendt.

3 and we schedule a public meeting, at which the 3 MR. COLLINS: If we're looking for a chairman,

4 performance appraisal of the executive director is 4 I would nominate my good friend Vinny Olmstead.

5 discussed. That's specifically in the context of 5 MR. WENDT: (Applause.)

6 saying to the trustees, Here's our recommendation on 6 MR. BOBBY JONES: Sounds like that's been

7 whether we pay none, all or some subset of the 7 seconded. Seconded. All in favor say aye.

8 potential subjective comp for the executive 8 (Ayes)

9 director. 9 MR. BOBBY JONES: Well, the committee has a

10 And the reason I bring all that up is so you 10 chair, Mr. Vice-Chairman and Chairman. Two jobs,

11 don't get surprised if you see a letter on the 15th 11 yes. Pays double. So we now have a comp committee,

12 of July, because we'll CC the other members of the 12 which was section eight of our agenda. So one down.

13 IAC. And the other reason is that, since Michael 13 Anything else, sir?

14 Price and Les Daniels, who both served two 14 MR. WILLIAMS: No, sir, unless anyone has

15 distinguished terms on the IAC, have termed off and 15 questions. Thank you.

16 are not serving, Michael Price was chairman of the 16 MR. BOBBY JONES: Okay. Well, next, our big

17 compensation subcommittee, so we need to replace the 17 issue, one of our big issues, along with private

18 chair of the comp subcommittee as part of today's 18 equity, today is our Florida PRIME review. And

19 proceedings at some point. So with that, unless 19 we're pleased to have Glenn Thomas to first give us

20 someone has questions, I'm good. 20 the legal compliance review. Glenn, can I turn it

21 MR. COLLINS: Ash, I have a question. Those 21 over to you, sir?

22 members today of the comp subcommittee -- 22 MR. THOMAS: Hi. I'm Glenn Thomas, with Lewis,

23 MR. WILLIAMS: The comp subcommittee members 23 Longman and Walker. And typically, I think over the

24 today are, in addition to Mr. Peter Collins -- 24 past few years, you would have seen Anne Longman

25 MR. COLLINS: Who is me. 25 here. That's who I work with. And so it will -- it

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1 may be me for the time being. My review was to 1 participants' best interests.

2 determine compliance with Sections 218.40 through 2 So within your materials, we have the detailed

3 218.412, Florida Statutes, Part IV of Chapter 218. 3 report. We do have a few slides where we just

4 The time period covered by my review was May 16th, 4 highlight the major components of this year's

5 2018, through May 16th, 2019. 5 report. Typically there are a few routine items

6 My review included an analysis of the 6 that we cover, one being the responses to the annual

7 applicable statutes, interviews with SBA personnel 7 participant survey. This is a survey that goes out

8 and review of materials from SBA personnel, as well 8 to all participants, and we cover items such as the

9 as materials posted to the websites. And it was my 9 participant base, understand who is investing in the

10 determination that Florida PRIME is in compliance 10 pool, and then satisfaction with operational

11 with the requirements of Part IV, Chapter 218. If 11 management and service-related items, as well as get

12 anybody has any specific questions, I'd be happy to 12 an idea of what other types of competing money

13 answer them. 13 market products that are being used, just to get an

14 MR. BOBBY JONES: Any questions? Thank you, 14 understanding of if there are ways that participants

15 Glenn. And next, in terms of best practices review, 15 think that the pool could be enhanced, where they're

16 both Kristen Doyle and Katie Comstock from Aon 16 satisfied or if there are any dissatisfactions with

17 Hewitt. 17 the pool. And similarly consistent with previous

18 MS. COMSTOCK: Good afternoon, everyone. As 18 responses, the overall response has been positive on

19 most of you know, we also do a best practices review 19 both an operational and a service-related

20 on the Florida PRIME portfolio on an annual basis. 20 perspective.

21 And consistent with previous years, we continue to 21 We highlight three other major components here

22 find that the pool is being managed in a manner that 22 within the -- in this year's report, the first being

23 is consistent with best practices and up to date 23 a compliance review update. So this has been a

24 with the regulatory and investment landscape that we 24 topic that we've covered the past two years. I

25 see today, as well as in consideration of the 25 believe it was in 2017, I think, that the triennial

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1 governance, risk management and compliance 1 two over the past ten years, actual exceptions to

2 assessment was conducted on the overall Florida SBA, 2 these compliance -- to these compliance standards.

3 of which covers obviously Florida PRIME. We also, 3 And so the monthly -- the mandated monthly meetings,

4 Aon Hewitt, did our governance and compliance review 4 it was suggested to make those to be on an

5 back in 2017. And as those results and findings 5 exceptions basis, whereby the IOG would only meet

6 were digested, overall the takeaway was that SBA 6 when there was a compliance exception or an issue

7 continues to be a high-performing organization with 7 raised, which there has not been over the past

8 very strong governance and compliance practices. 8 several years.

9 There were a few suggestions that came out of 9 This is consistent with also how most of the

10 that and ways to enhance or further make some of the 10 other IOGs function currently and is also in line

11 practices more efficient. And the one that's 11 with creating more efficiencies with the time and

12 applicable today relates to the investment oversight 12 the resources of the Florida SBA and the members of

13 group for Florida PRIME, or IOG as is referenced 13 the IOG. So we support this recommendation.

14 here. There are various IOGs. The one related to 14 And, importantly, this change of going from a

15 Florida PRIME and what we're discussing today is 15 monthly meeting to an exceptions-based meeting

16 more of a mechanical or logistic. 16 schedule does not change the actual compliance

17 The IOG's main responsibility is they currently 17 oversight or anything that is being done in terms of

18 meet monthly and review the compliance reports and 18 governance. It's simply just the logistical or

19 screening that is done on a regular basis of Florida 19 mechanical change on when the physical meetings take

20 PRIME to make sure that the portfolio is being 20 place.

21 managed consistent with the investment policy 21 MR. BOBBY JONES: So what we have in our books

22 statement and all of the applicable management 22 that were sent out beforehand are changes to the

23 guidelines. 23 investment advisory committee review of the PRIME,

24 Given the strong governance structure of 24 literally to make it consistent, where meetings can

25 Florida PRIME, there have been, I think, one, maybe 25 be called as needed versus monthly, which is not

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1 needed. So we need a motion to approve these minor 1 investment management services for Florida PRIME.

2 changes to make it consistent with the law. 2 The Florida SBA takes care of the administration,

3 MR. COLLINS: Make a motion. 3 the service-related items, as well as the risk

4 MR. COBB: Second. 4 management compliance aspects of managing Florida

5 MR. WENDT: Third. 5 PRIME. And then BNY Mellon is the custodian.

6 MR. BOBBY JONES: All in favor say aye. 6 So the last time that this overall review was

7 (Ayes) 7 conducted was back in 2010. And at that time there

8 MR. BOBBY JONES: Thank you. Okay. Motion 8 wasn't a compelling reason to change the management

9 passed. Now, in terms -- anything else from the Aon 9 from its current practices. And so over the next

10 standpoint? 10 coming months, that review will be taking place,

11 MS. DOYLE: Do you want to summarize the 11 factoring in cost, administration efficiencies,

12 business review real quick? 12 updated services. And at the next year's review,

13 MS. COMSTOCK: Yeah. 13 you can expect an update on the results of that

14 MS. DOYLE: One other item, if you don't mind. 14 review and if there is a case to be made to keep the

15 MS. COMSTOCK: In addition to the investment 15 current practice or to change the current practice.

16 policy statement, which was just covered, the last 16 So that's more of a preview of what's to come.

17 thing is more of a preview of what's to come. On 17 But overall the portfolio continues to be managed in

18 the Florida PRIME's strategic plan for the next five 18 line with best practices, up to date with the

19 years, one of the major initiatives is to do a 19 regulatory investment marketplace we're in today and

20 business case review, meaning doing evaluation of 20 in line with putting the participants' needs and

21 the merits or considerations of possibly insourcing 21 desires first. Are there any questions?

22 all of the operations related to Florida PRIME or 22 MR. BOBBY JONES: Okay.

23 outsourcing all of those operations and evaluating 23 MR. WENDT: Mr. Chairman?

24 the hybrid management in between. 24 MR. BOBBY JONES: Yes, sir.

25 Currently, as you all know, Federated does the 25 MR. WENDT: I have a suggestion. I don't know

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1 if -- to make it a little bit better (inaudible). 1 the internal cash that we manage, it's very

2 This is a suggestion that I made in other activities 2 straightforward and it's very prescriptive in terms

3 like this, but specifically in Florida PRIME. You 3 of the nature of the strategy. I think one other --

4 serve, take care of 732 cities. In addition to 4 two qualifying points. There is the state treasury,

5 that, there are a lot of state agencies, which have 5 which is under the chief financial officer of the

6 their own cash and withhold their cash. I'm 6 State. They manage most of the State's cash,

7 familiar with the state university system, for 7 per se, not us. And they're very capable. They're

8 instance. I'm a trustee of one of the universities 8 in this building. They're fully staffed and run a

9 that has tens of thousands in cash. They don't know 9 good, clean shop and are very efficient and do a

10 what to do with it. 10 great job. And then to the extent there are other

11 And I just don't know why somehow somewhere it 11 areas like the university system, the legislature

12 isn't required that these agencies use this 12 sets out what the guidelines are.

13 facility. It's here. It's less expensive than 13 MR. WENDT: That's fine. But you have the

14 anything else they can do. And so I throw that out. 14 resource here to do it. You know what I mean.

15 And I'm not going to run for Senate or anything, so 15 MR. WILLIAMS: And you're making a fair point.

16 I'm not -- I just think we have a resource here 16 MR. WENDT: It will never go anywhere, but --

17 which is not used by the rest of the State of 17 MR. WILLIAMS: Just qualifying it.

18 Florida as it should be. 18 MR. WENDT: I mean, there's a lot of money

19 MR. BOBBY JONES: Ash, would you like to 19 splashing around in the State of Florida coffers

20 comment on that? I think some of it's historic, if 20 that you have an ability to manage. And I'm not

21 I can recall. 21 just talking about the cash, but the rest of it,

22 MR. WILLIAMS: Yeah. I think it's a fair 22 too. You have the ability to manage without any

23 point, because there's no question we have the 23 additional cost to the state -- to us taxpayers.

24 resource here, and it's scalable. And if you're 24 Some day I hope I'm heard.

25 talking about cash equivalents like Florida PRIME or 25 MR. COBB: Mr. Chairman, I'd like to follow up.

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1 First of all, I think it was a -- I've heard Gary on 1 have probably a billion dollars more under

2 this before, and I happen to agree with his 2 management. They can afford more staff, and it's

3 challenge. But I'd like to expand it and ask a 3 all in-house. The University of South Florida has a

4 question relating to the equity investments of the 4 CIO. The board is a little bit less engaged than I

5 various university foundations, how are they 5 would say Florida State's board is or Florida's

6 managed, and other equity funds throughout the 6 board is. They are -- beta is much higher than

7 Florida system. 7 ours, as you would imagine, because they're much

8 MR. COLLINS: So it just so happens I chair the 8 more heavily focused on equities than we are. So

9 FSU endowment, and I can tell you that we function, 9 every university is a little bit different. And

10 at our endowment level, the way that this board 10 there are, I think, 12 that report numbers, that I

11 functions. We have a nine-person board. We have a 11 know of, the state university system, the public

12 consultant, a main consultant, Cambridge. We have a 12 ones.

13 fully diversified asset allocation, including 13 And so I think, to go back to the question that

14 private equity, hedge funds. You know, it's a full 14 Mr. Wendt asked, I think from a municipality

15 diversification. And the equities are managed 15 standpoint, I think it's a question of sovereignty,

16 externally. We don't do a lot of passive investing 16 right? Some of them just don't like to turn it over

17 like the State does in-house, I should say. We just 17 to somebody else. They want to manage it. And I

18 don't have the resources for that. 18 think at the university level, I think that there is

19 I think also, to some of your question -- now, 19 some feeling from the people that are donating the

20 each university handles it differently. I've spent 20 money for the endowment, that they want the

21 quite a bit of time in the last couple of years with 21 university to run it. They don't want somebody else

22 the chairs of the various -- or the CIOs of the 22 to run it.

23 various university endowments, other university 23 For example, in North Carolina, UNC Management

24 endowments, public anyway. 24 Company manages UNC's endowment, but they also

25 University of Florida has a bigger shop. They 25 manage NC State's endowment. But I don't think a

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1 lot of the NC State people know that. So, you know, 1 option to invest in Florida PRIME, and a number of

2 it's little things like that. But we manage it. 2 them do. But I think your point is, there's a lot

3 Every university manages it a little differently and 3 more to a portfolio than cash. The vast majority of

4 have differing results because of it. 4 it --

5 MR. COBB: So my question is, how are the 5 MR. COLLINS: By the way, Florida State does

6 results, how good are the results, and how about the 6 invest in Florida PRIME.

7 cost of managing? So, Ash, you must know what those 7 MR. WENDT: Good. I didn't know that.

8 numbers are compared to our records and performance 8 MR. BOBBY JONES: And one thing that's pretty

9 and our incredibly low cost across the board. 9 good that's outlined in the investment committee

10 MR. WILLIAMS: I don't know what the 10 book is they are very robust in convention trade

11 performance of the different university endowments 11 shows for municipalities, universities. Florida

12 is across the board. I am very familiar with FSU 12 PRIME, represented by Federated, are very aggressive

13 because I sit on that investment committee with both 13 going out and looking for the money.

14 Peter Collins and Peter Jones. So it's a deep 14 I think the one thing that I would add in,

15 committee with capable people on it, and the results 15 Gary, though, is it's a little bit of a slippery

16 speak for that. The point that's well taken here is 16 slope. If you remember back 20 years ago --

17 the cost. Nobody is going to touch the State Board 17 MR. WENDT: I don't remember.

18 for cost. They just can't, because of our scale. 18 MR. BOBBY JONES: I don't remember much either.

19 MR. WENDT: I've done a rough calculation, and 19 But Florida PRIME, much like many other money market

20 it's tens of millions of dollars that would be saved 20 funds, had a lot of money that was literally in the

21 by the State of Florida if they had all their money. 21 mortgage industry, and that was where they broke the

22 You know, at least I think the option should be made 22 dollar. And so there's a lot of municipalities, I

23 available to these various institutions and 23 can remember right after that, that were scared to

24 universities to invest under your programs. 24 have all their eggs in one basket. And so that's

25 MR. WILLIAMS: And they do currently have the 25 the slippery slope that many people, whether it's a

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1 municipality or a university or anybody else, really 1 and please give us a portfolio review.

2 worries about having all their eggs in one basket. 2 MS. MICHALISZYN: Thank you. I'll make a few

3 MR. WENDT: I wouldn't put them in one basket. 3 comments about our outreach before turning things

4 I'd put them in Ash's basket. It's a big basket and 4 over to Paige. Mr. McCauley, you're not coming to

5 a very wide basket, a very broad basket. It's just 5 the table to volley with me like you usually do?

6 a question of cost. That's all. And I think the 6 MR. McCAULEY: If you want me to, I can.

7 best point you raised was that the people who were 7 MS. MICHALISZYN: Well, only if you desire. I

8 on the boards of the trustees, man, they know how to 8 noticed you're back there, though, and not up here.

9 run that money and they've got money over there with 9 You have a sign.

10 Fred in the corner, you know, and so they hate to 10 So I guess the story to share, just briefly

11 give it up. 11 before we get into the portfolio, is the story of

12 But if the product was made available, if your 12 rising rates. And I'd like to thank Mr. Wendt for

13 investment product was made available to them, and 13 his suggestion, because I think you're a wonderful

14 the cost, I don't know how they could say no, 14 evangelist for Florida PRIME and wanting everybody

15 because what I've seen is your results are pretty 15 to use it, and so that's fabulous. We agree.

16 good. 16 And, Mr. Jones, thank you for commenting on

17 MR. COLLINS: Pretty good. 17 Federated's assertiveness in the field in recruiting

18 MR. WENDT: Pretty good. Anyway, so that's 18 new participants. And I think, in concert with the

19 enough. That's my suggestion. If I ever get a 19 SBA, in partnership, it has been a relationship

20 chance to tell it to a congressperson, I will. 20 that's produced great results, because, you know,

21 MR. BOBBY JONES: Thank you, Gary. 21 here we are, if you look at page two in our section,

22 MR. WENDT: I'll try to be quiet the rest of 22 right after the cover page, we ended the quarter at

23 the meeting. 23 13.9 billion. So that's quite a nice story. And

24 MR. BOBBY JONES: No, please don't. And I'd 24 here we sit in June at 13.7 billion. So what you're

25 like to now call on our Federated Investors friends, 25 seeing are higher highs, higher lows, in the context

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1 of the seasonality of the pool's cash flows. 1 Florida PRIME being no exception, these kinds of

2 So what I can tell you is participants notice 2 messages are a really good reminder to people that

3 the yield. And the story in the field, as we attend 3 the yield is on the uptick, the yield is attractive,

4 all of the conferences and sponsor all of the events 4 and it's as great a time as any to go into the pool

5 and exhibits, is that everybody seems exceedingly 5 or to add to current investments.

6 satisfied with the rates of return, obviously all of 6 So it seems to be working. We continue to try

7 this in the context of safety of principal and 7 to grow the brand. Florida PRIME does enjoy a nice

8 liquidity. Nobody wants to forfeit those things, 8 brand at this point, high recognition all across the

9 but everybody is loving the yield. 9 state. We continue to work with all of the

10 So if you look at page three, you can see just 10 constituent users in the pool, sponsoring placements

11 how dramatically that yield did improve and how 11 in their magazines, sponsoring exhibits, being their

12 pleased participants were. So that's a three year 12 partners, so that they feel themselves to be

13 record there, and it's quite impressive. We had a 13 stakeholders in the pool's growth.

14 little help from the Fed. But, nonetheless, I'd 14 And to that extent, I'll just summarize with a

15 like to think we've optimized those results. 15 few comments on page six. If you look at the 2019

16 If you look at page four, I just wanted to show 16 conferences and the number of attendees at each,

17 you some of the e-mails that we do. I realize you 17 we're at each and every one of these, and we

18 can't read the text here, but you can see the 18 optimize in every single case either the

19 general trend. These e-mails are responded to very 19 sponsorships and/or exhibits that we're afforded at

20 positively. When you tie back to the survey, 20 these venues.

21 47.4 percent of participants said these outbound 21 And so what you see is we're touching the

22 messages were very useful. Forty-four percent 22 school board officials. We're touching the

23 thought they were somewhat useful. So they are 23 universities, the cities, the counties, the clerks,

24 getting traction. 24 because it's not just one kind of pool of money in

25 And what we see in all of the pools we manage, 25 the pool but rather various constituents who use the

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1 pool in different ways. So that will continue, a 1 But we've not really encountered that. You

2 very assertive outreach for 2019, and as well 2 know, ordinarily it's just a logistical matter of

3 calling on individual participants and making board 3 who needs cash when. And the growth has been

4 presentations to those who seek that kind of 4 continuous since the pool has been on this

5 support. 5 trajectory, you know, back from 2008.

6 So, you know, we're pleased with the brand 6 MR. PETER JONES: It sounds like everybody is

7 growth, the imprint we're leaving, again, in 7 happy.

8 partnership with the SBA, and it seems like we have 8 MS. MICHALISZYN: Well, they seem to be, but we

9 some satisfied customers overall. That said, you 9 never take it for granted. I guess that's what I

10 know, we're always looking to do better. Mike, do 10 want to stress, you know, because if we don't pay

11 you have anything? 11 attention to our participants, they are the client,

12 MR. McCAULEY: No. You've summed it up pretty 12 things could turn. So we're attentive to that. But

13 well. 13 thank you.

14 MR. PETER JONES: A question, if I may, please. 14 MR. BOBBY JONES: Do we have any other

15 To the extent you lose a participant on occasion -- 15 questions on the PRIME program? Okay. Thank you

16 I would assume you do every now and then -- what 16 very much. Okay. Next we'll move on to the private

17 would the reason be, if you know? 17 equity asset class. I'm sorry. We've got

18 MS. MICHALISZYN: Well, I don't know that -- so 18 something. I'm sorry, Paige.

19 this is the great thing when you manage liquidity, 19 MS. MICHALISZYN: The portfolio part. I'm

20 because a zero balance doesn't necessarily mean that 20 sorry.

21 people don't love you. It just means they have 21 MS. WILHELM: We can talk about the portfolio.

22 something else to temporarily do with their money. 22 MR. BOBBY JONES: Oh, the 19.5 percent in

23 So if we saw patterns where people pulled out and 23 Japan?

24 they didn't come back, we would certainly talk to 24 MS. WILHELM: All right. I'm going to give a

25 them and find out why. 25 quick market overview. Remember, we are looking at

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1 the portfolio from March of 2018 to March of 2019. 1 got into year end, we saw that the inflation rate

2 So some of these market comments might seem a little 2 was falling a little bit lower than what the Fed had

3 bit dated, because we all know the markets have 3 projected, around 1.6 percent as opposed to

4 completely moved in the opposite direction in the 4 2 percent, but the unemployment rate still looked

5 past two months. And I'll talk about that a little 5 pretty good.

6 bit, too. 6 However, the Fed kind of changed course a

7 But during 2018 we actually had four increases 7 little bit at the end of December. They raised

8 in the fed funds rate by the Federal Reserve Bank, 8 rates by the 25 basis points, but they kind of put

9 25 basis points each, in March, June, September and 9 the word out there that they could afford to be

10 December. Takes the current fed funds rate to 2.25 10 patient. The market was expecting that the Fed

11 to 2.5 percent. So when you looked at Amy's chart 11 would continue to raise rates into 2019, and it was

12 there, you saw that the yield of Florida PRIME 12 pricing in additional increases throughout this

13 steadily moved up with those increases in the 13 year, two to three more raises in 2019.

14 interest rates. 14 But when the Fed came out in December and said

15 If you ever want to look at a rate and try to 15 they were going to take a patient stance and watch

16 figure out what the yield of Florida PRIME might be 16 and see what was happening, because of global trade

17 or where it's headed, take a look at the LIBOR 17 wars, because of government debt ceiling, various

18 curve. And we'll talk about the LIBOR curve in a 18 different issues that were going on, the market kind

19 minute. But what happened throughout 2018 was 19 of took a turn, and said, Okay, we're going to take

20 Chairman Powell took over in March of 2018, and he 20 a step back. We're going to put things on hold.

21 reiterated that the Fed's goal is full employment 21 And we saw money market rates start to just level

22 and to keep the inflation at their target of around 22 off.

23 2 percent. 23 So if you flip to the next page, this is

24 We stayed within the ranges that the Fed was 24 actually the LIBOR curve, which as I mentioned, this

25 targeting throughout most of the year. But as we 25 is indicative of the securities that we invest in.

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1 And if you start at the bottom with the gray line, 1 trade tariffs, continuing issues with Brexit,

2 that gray line shows you what the LIBOR curve looked 2 Chinese trade tariffs, if you started your line in

3 like in March of last year. It was upward-sloping 3 between the gold and kind of that medium blue, at

4 because it was predicting another move from the Fed 4 around 2.4 percent, our yield curve is pretty flat.

5 at the June meeting. 5 It's 2.4 percent until we get out to three months,

6 Then in June we saw a 25 basis point increase 6 and then it starts to invert.

7 in rates. The market was still anticipating more 7 In the six-month area today, six-month rates

8 raises from the Fed. You see the green line. In 8 are at 2.31, and one-year rates are 2.21. That's

9 September, the blue line for LIBOR. It's moving up, 9 because today the market is pricing in a chance that

10 all the way across the money market curve. And then 10 the Fed is going to ease. Completely different

11 in December of 2018, that's the dark blue line at 11 thought process than where we were at the beginning

12 the top, this is where the market is still 12 of the year and through most of 2018.

13 anticipating two to three more moves from the Fed. 13 The Fed meeting, by the way, is tomorrow. We

14 But as we get into the first quarter of 2019, 14 don't anticipate that the Fed will change rates

15 the Fed takes a different stance. They say that 15 tomorrow. We think they'll stay on hold. We'll

16 they can afford to be patient. And see that gold 16 wait to see what Powell says in the press

17 line, you see how the LIBOR rate starts to drop off. 17 conference, but a pretty good chance that they might

18 The market is no longer pricing in the chance that 18 cut rates in July or sometime in the fall of this

19 the Fed is going to continue to raise rates every 19 year.

20 quarter. So the rates that we are investing in for 20 Okay. So having looked at the yield curve,

21 Florida PRIME have leveled off, and you've seen that 21 let's take a look at the portfolio itself, and we'll

22 the yield of the fund has gone down slightly since 22 start with the assets. Florida PRIME has this

23 the beginning of the year. 23 typical pattern that you see, where tax money is

24 Now, if we were to look at this, what this 24 collected in November through February. The assets

25 LIBOR line looks like today, because of Mexican 25 pick up because we do have a lot of investments from

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1 counties, school boards, cities. And then the 1 down there at the bottom is actually an asset-backed

2 assets start to level off and it's just a slow 2 program sponsored by a Canadian bank. The Japanese

3 decline in assets throughout the summer months as we 3 and Canadian banks have been some of the most

4 get into the fall. So typical pattern there. As 4 attractive securities in our market. That's why you

5 Amy mentioned, we've hit higher highs in the assets. 5 see some big exposures there, but nothing greater

6 And today we stand at around -- or at the end of 6 than a 5 percent position.

7 March, they were around 13.8 billion. 7 In the middle of the page, I'm sorry, is the

8 So above the little nitty-gritty on what the 8 top country exposure. That should have been sorted

9 portfolio actually owns, at the end of March, you'll 9 by the biggest exposure at the top, which would have

10 recall that we invest in securities that take credit 10 been Japan at 19.5 percent, followed by Canada at

11 risk, short-term securities like commercial paper, 11 10 percent.

12 bank CDs, repurchase agreements. In the pie chart 12 At the bottom of the page, recall that the pool

13 there, you can see the breakdown of the securities 13 itself is rated AAA by Standard & Poor's. As such,

14 by type, fixed and floating rate commercial paper, 14 we have to hold at least 50 percent of the portfolio

15 fixed and floating asset-backed commercial paper. 15 in securities that have a short-term rating of A-1+.

16 You can see the chart there. 16 So you can see at the end of March, about 60 percent

17 On the far right we look at the top ten 17 of the portfolio was rated A-1+.

18 holdings, and you'll see a money market fund there 18 MR. COLLINS: Can I interrupt you for one

19 at the top, the Federated Institutional Prime Value 19 second?

20 Obligations Fund. We use that for liquidity 20 MS. WILHELM: Yes.

21 purposes because we can redeem out of that fund on a 21 MR. COLLINS: And, Mr. Chairman, it's just to

22 daily basis if necessary. And then you'll note that 22 ask Ash. We had this conversation a little earlier

23 some of the top holdings are some Japanese banks, 23 about Florida PRIME and how come everybody is not

24 Mitsubishi, Mizuho, Sumitomo Bank, and some of the 24 using it. But you remember well, ten years ago

25 Canadian banks, Royal Bank of Canada. Thunder Bay 25 there were a lot of people here with pitchforks,

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1 right, on Florida PRIME. And I'm sure at the time, 1 Number two, keep in mind that what happened in

2 before the crisis, we had a similar report, that we 2 2007 with what was then known as the Florida Local

3 were AAA rated and everything was good and what we 3 Government Surplus Funds Trust Fund was the

4 were invested in was highly liquid and safe. I know 4 securities that became illiquid were never allowable

5 that there was a committee set up. We used to meet 5 securities, never allowable securities. Those were

6 with them, the advisory committee. And that's now 6 investments outside of policy.

7 been disbanded because the work has been done. 7 We are very much within policy now. And one of

8 But how do we now today -- you know, I think 8 the reasons we have the annual exercise that is

9 about Japan, where 19 percent of what we hold is in 9 statutorily required, the annual exercise that we're

10 Japanese securities. How do we -- how do you feel 10 doing today, where we're reviewing for best

11 comfortable that we're not going to have that 11 practice, we're reviewing for legal compliance and

12 situation again, where we wake up and, well, we 12 we're having external third party independent

13 didn't really have what we thought we had? 13 certifications on both those points and this body

14 MR. WILLIAMS: Well, I think there are several 14 approves the investment policy statement of Florida

15 things here, and first of them is there's a reason 15 PRIME -- and there's an update to it in the book

16 that we have had Federated in the role they've been 16 today -- is to make very clear what the policies are

17 in ever since they stepped into it. When was that 17 and that everything we're doing is right and in

18 originally, '08? They've done an unbelievable job. 18 keeping not only with Florida law and relevant

19 We externally diligence their risk and ops 19 federal and other standards, but also best practice.

20 capabilities internally regularly. And they've got 20 So those are the main reasons to be

21 an excellent risk system. They're very, very 21 comfortable. And the other reasons to be

22 hands-on on the way they manage the portfolio, and 22 comfortable are that the risk and compliance

23 they're a huge and globally respected shop. And I 23 environment within the State Board is nothing like

24 think they've earned everybody's confidence, number 24 it was in the fourth quarter of 2007 when there were

25 one. 25 problems in PRIME. There was no independent

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1 compliance operation within the State Board. We now 1 MS. WILHELM: That was something new, because

2 have a vigorous and thoroughly integrated risk and 2 that gives you another set of eyes to oversee what

3 compliance unit within the board. The amount of 3 you're doing, because that AAA rating from S&P for a

4 dotting of I's and crossing of T's that we have 4 cash pool, they're looking at everything from a

5 internally to ensure a risk and compliance oriented 5 credit standpoint and from a dollar and liquidity

6 culture is fully in effect top to bottom is very 6 standpoint.

7 real. 7 They want to make sure that your portfolio is

8 And in fact, as we come to the end of this 8 structured in such a way that there's ample

9 month, everybody that works for the board, including 9 liquidity to meet the participant redemptions

10 me, is required to take training every single year 10 without breaking a dollar. So that's part of S&P's

11 that covers all of these areas, take an exam, pass 11 due diligence. And they -- we have to report to

12 the exam by at least 80 percent, review an online 12 them every Thursday evening, the entire portfolio,

13 copy of whatever the current policy is, certify that 13 and they do their annual due diligence on Federated

14 they're in compliance with it, and also certify that 14 as a manager on an annual basis, thus their annual

15 they understand, if they violate it, they're subject 15 due diligence. They actually come to our office

16 to termination. And people do get terminated if 16 August 8th this year.

17 there are issues. 17 And if I can add one more thing about the

18 MR. COLLINS: So other than all that, I mean, 18 Japanese, the 19-point-whatever percent exposure.

19 what are you really doing? 19 We can't own more than 5 percent of any one

20 MR. WILLIAMS: Not much. 20 individual issuer. And recall that Federated has a

21 MS. WILHELM: Can I just add to that that I 21 whole credit team in the liquidity space that just

22 don't believe -- we didn't manage the pool in '07, 22 focuses on the credits that we invest in for the

23 but I don't believe it was rated by the rating 23 LGIP. Those credit analysts do not work on our

24 agencies back then. 24 equity funds or our bond funds. So we've got a

25 MR. WILLIAMS: It was not. 25 whole team, seven credit analysts that just focus on

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1 these different names that we invest in. And 1 MR. WENDT: How much does Federated -- how many

2 everything is very short, too, remember. We're not 2 basis points does Federated charge for the

3 buying anything longer than a year. Some of it's a 3 investment in their prime value obligations fund?

4 lot shorter than that, 30 days, 60 days, 90 days, if 4 MS. WILHELM: That's rebated back to the

5 that helps. 5 Florida PRIME.

6 Anyway, our targeted average maturity right now 6 MR. WENDT: So zero?

7 is about 40 to 50 days. We extended that maturity 7 MS. WILHELM: If you were to buy prime value

8 back the beginning of March when our thought process 8 obligations fund on your own, it would be a 20 basis

9 changed and we felt that the Fed might be on hold 9 point fee. About 10 basis points of that is the

10 for a while. You want your maturity to be as long 10 investment advisory fee. And that investment

11 as possible. So we're still within that range. 11 advisory fee is rebated back to Florida PRIME.

12 MS. MICHALISZYN: Can I just add one thing? I 12 MR. WENDT: The 10 basis points?

13 think it's important, too -- and probably there is 13 MS. WILHELM: Yes.

14 general awareness of this. But when we look at 14 MR. WENDT: Thank you.

15 these banks and their country of domicile, we're not 15 MS. WILHELM: The next page is just the

16 talking about little banks. We're not talking about 16 performance of the pool itself. You can see, we

17 regionalized banks. We're talking about 17 compare the performance, if you look at the one

18 world-renowned banks. The top, how many, 250 banks 18 month, 2.68 at the end of March versus the Standard

19 in the world? 19 & Poor's Government Investment Pool Index. This is

20 MS. WILHELM: Top 100 banks in the world. 20 a group of other investment pools that are rated AAA

21 MS. MICHALISZYN: Top 100 banks in the world. 21 by S&P that were up at 2.44. You can see how much

22 So the country of domicile can be a little bit 22 outperformance the pool has had versus the benchmark

23 misleading in that respect. 23 over the past 10 year time period.

24 MR. WENDT: Question, Mr. Chairman. 24 I also remind you that one of the things that

25 MR. BOBBY JONES: Yes, sir. 25 we looked at when Amy had the chart about the Fed

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1 raising rates and because the pool is investing in 1 event, right now our credit event is that something

2 market rate securities that are following what the 2 happens with the European and the UK banks because

3 Fed is doing, they're not administered rates. 3 of Brexit. If those spreads on those securities

4 They're market rates. So the yield on the portfolio 4 widen out by 50 basis points, if the floaters that

5 moves with the market, and it's been moving up. 5 we own widen out by 25 basis points, and then in

6 If you look at bank CDs, which are typically 6 combination, at the bottom, what would happen if you

7 alternatives for some of the participants in the 7 had 40 percent redemptions from the pool, all of

8 pool, you'll see that, on average, bank CD rates 8 those stress scenarios hit simultaneously, at the

9 right now are 50 basis points. Some are as high as 9 end of March, your dollar NAV would fall to .99789.

10 maybe 1 percent. So the difference between a 2.68 10 And .995 is, quote, breaking a dollar.

11 and 50 basis points is pretty big. So I think a lot 11 There's a lot of information there, but just be

12 of the growth that we've seen, not only in the 12 assured it's something that we review with the IOG

13 Florida state pool but other state pools has been 13 on a regular basis.

14 participants taking their money out of their bank CD 14 MS. MICHALISZYN: Not all of the pools against

15 products and moving it to the pools. 15 which we compete perform this kind of stress

16 And the last two pages here are stress testing. 16 testing. It's required of 2a-7 money funds. It's

17 We go over this with the IOG on a monthly basis. 17 not required of local government investment pools.

18 And this is just a proof statement that there is 18 But the stress testing concept and the rigorous

19 ample liquidity and the portfolio is structured 19 approach we take to it is something that we brought

20 properly so as to not break that dollar. The dollar 20 forward and has been instituted here and accepted by

21 is listed there at the top, and then the stress 21 the SBA. We do it for all of the pools we manage.

22 scenarios kind of show what would happen in 22 And like Paige said, we think it's the best proof

23 different environments. 23 statement you could possibly have as to the status

24 If there was a sudden interest rate shock of 75 24 of liquidity and principal stability.

25 basis points in the pink, if there was a credit 25 MR. BOBBY JONES: Do we have any other

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1 questions on the PRIME? First I'd like to thank not 1 consultant team at Cambridge Associates. So with

2 only Federated and Aon for this wonderful review, 2 that, we'll jump right in. Here's the agenda and

3 and the legal review as well, and I'd also like to 3 what we planned on covering today. I'm going to

4 thank both Gary and Peter Collins for the questions. 4 walk us --

5 I mean, this is what was meant to happen, which is a 5 MR. COLLINS: Blue suit (inaudible).

6 very strong review. And, obviously, I think it has 6 MR. BRADLEY: So I'm going to take us through

7 been done, and I thank everyone. Thank you. 7 the policy process and performance sections and then

8 MR. WENDT: I think it's the leadership you 8 turn it over to Wes. Wes is going to do a little

9 provide us, Mr. Chairman. You make us have good 9 bit deeper dive into our due diligence process.

10 questions. 10 Clark is going to then take us through our four main

11 MR. BOBBY JONES: Well, I've been wanting this 11 sub-strategies in the portfolio. And then I think

12 for a long time. John Bradley. I've been chewing 12 Liqian is going to bring it home with a few slides

13 at the bit to find out about private equity and the 13 and a few comments.

14 portfolio and the review and meeting with John and 14 So the PE asset class, we have a target

15 his team. So I'm ready to turn it over. John, are 15 allocation of 6 percent to the total fund, with the

16 you ready to catch the ball? 16 targeted range around that of 2 to 9 percent. As of

17 MR. BRADLEY: I'm ready. 17 12/31 we were at 7.3 percent allocation. And if we

18 MR. BOBBY JONES: Send me in, coach. 18 fast-forward to the end of May, our allocation stood

19 MR. BRADLEY: Great. Well, thank you, Mr. 19 at approximately 7 percent.

20 Chairman, and good afternoon. I'm John Bradley, 20 Here we can see our asset class goals and

21 senior investment officer, private equity. It's a 21 objectives. They are to create a portfolio that

22 pleasure to present the asset class today. I am 22 outperforms our benchmarks to avoid concentrated

23 joined on my right by two of our senior portfolio 23 exposure to any particular vintage year, strategy,

24 managers, Wes Bradle and Clark Griffith. We also 24 manager or geography, and then finally to focus on

25 have with us Liqian Ma. Liqian is a member of our 25 keeping the number of managers in the portfolio low.

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1 And so that's our charge, to invest with conviction 1 Associates is our asset class consultant. They

2 and our charge to invest with discipline. 2 provide support and assistance with the program,

3 We have two benchmarks in the asset class. Our 3 including things such as market research and help

4 primary benchmark is the global equity benchmark, 4 sourcing new fund ideas. And I'd also point out

5 which is the MSCI ACWI IMI, plus a 300 basis point 5 that in addition to diligence that our SBA PE team

6 premium. This is an opportunity cost benchmark. It 6 does, Cambridge does their own independent due

7 measures the decision to allocate to private equity. 7 diligence on every fund that we commit to.

8 Our secondary benchmark is a peer benchmark. It's 8 So we have four components to our investment

9 the Cambridge Associates Global Private Equity and 9 process. Wes is going to take us through the

10 Venture Capital Index. And this really measures our 10 diligence piece of this, and I will quickly walk us

11 effectiveness in selecting managers, so is our team 11 through the rest. So first is the creation of our

12 selecting top funds, is our investment process 12 annual investment plan. So our aim here is to focus

13 working. 13 our resources and efforts on areas of need or the

14 MR. COBB: Question. 14 most attractive areas within our markets and within

15 MR. BRADLEY: Yes. 15 our portfolio.

16 MR. COBB: Which of those indexes or benchmarks 16 We use a number of tools when putting this plan

17 do we have for the total fund, when we talk about 17 together, including our portfolio construction

18 being over or under? 18 model, our heat map, where we're ranking areas by

19 MR. BRADLEY: So the total fund benchmark will 19 levels of attractiveness, and a focus list of GPs

20 be the primary benchmark. 20 that we want to proactively target over the next few

21 MR. COBB: Thank you. 21 years.

22 MR. BRADLEY: The PE asset class is staffed 22 Next is sourcing. Almost every investment we

23 with six investment professionals. We have three 23 make is a result of proactive sourcing. So we are

24 senior portfolio managers, one portfolio manager, a 24 targeting top GPs multiple years in advance of

25 senior analyst and myself as SIO. Cambridge 25 fund-raising, just trying to build those

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1 relationships and gain allocation. And on this 1 MR. BRADLEY: Some geographic, some strategy.

2 slide we usually show our new deal funnel. And so 2 So we've tended to see and look at a lot of really

3 this is a first for us. But all of our commitments 3 good technology funds. And when we look through the

4 in calendar year 2018 were actually re-ups with 4 portfolio and look through our exposure, the desire

5 existing managers. 5 to add on top of that just isn't there today.

6 As you can see on the funnel, we did do a lot 6 MR. OLMSTEAD: Because when you look back at

7 of work on new funds. We reviewed almost 150 new 7 your slide before where you're talking about where

8 managers during the year. Eleven of those funds or 8 your priorities are, it seems like it's all Asia,

9 managers moved to full diligence. However, none met 9 for all intents and purposes, so hence the geography

10 the bar for a new commitment in 2018. 10 question.

11 MR. OLMSTEAD: Mr. Chairman, thanks. What were 11 MR. BRADLEY: And so I guess, when we look at

12 some of the characteristics of why it seems like -- 12 this, if we were to look at the heat map, what this

13 you know, you got through 11, came up with zero, but 13 is, so what we're combining here is what is the

14 what were you finding when you were doing the due 14 exposure in the portfolio and do we like that area

15 diligence? 15 in the market. And so the easy one is North

16 MR. BRADLEY: So today in the portfolio it's 16 American large buyout. We are probably overexposed

17 usually a -- it's a portfolio construction. It's a, 17 to large buyout in North America, and we don't find

18 does this GP, are they additive to the portfolio. 18 it the most attractive area. Therefore, it's a low

19 And so for the most part, the GPs we looked at were 19 priority.

20 really good performers, good teams, but at the end 20 When we look at Asia, mid-market, small buyout,

21 of the day, we thought they duplicated exposures we 21 growth equity and venture, we are underexposed and

22 had, strategies we already had in the portfolio. 22 we think that it's actually a pretty interesting

23 MR. OLMSTEAD: Is it more geographic? 23 area to invest. And so back to your point, a lot of

24 MR. BRADLEY: In terms of? 24 the new things, most likely most of them didn't fall

25 MR. OLMSTEAD: Construction. 25 in the Asia category, or else there could have been

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1 more of a desire to pull the trigger on them. 1 be primary fund investments.

2 But we did look at a few. And when we look at 2 MR. OLMSTEAD: And then do you comment at all

3 our forward calendar, we have GPs that we're 3 on your co-invest strategy and -- I don't know what

4 targeting, and they might just have not come back to 4 the fees are typically on your co-invest --

5 market this year, but we're expecting them back to 5 MR. BRADLEY: Yeah. So co-invest, it's a

6 market over the next couple of years. 6 target. We'll get through this in a bit. But it's

7 So now, monitoring, so here we just show some 7 a 10 percent target within the asset class. I

8 examples of our portfolio monitoring efforts. I 8 believe we're a little bit below that at 8 percent.

9 will not read the list. I would just point out that 9 In that co-investment program, the fee basis, it's

10 we are very active with our funds. And before I 10 less than 50 basis points. I think it's somewhere

11 move on to the portfolio, we'll touch on fees. So 11 between 40 and 50, and no carry. So we wouldn't pay

12 this chart shows what's generally considered market 12 carry on a co-invest.

13 for industry fees. I would say that we were at the 13 So now I'm going to move on to the portfolio

14 bottom of all of these ranges and in many cases 14 composition and overall portfolio performance. And

15 below. We always use our size. We always use our 15 so just as a reminder for the group, we have four

16 stature as an LP to negotiate the best terms 16 main strategies within the portfolio. First is

17 possible. 17 buyouts/growth equity. So these are GPs that are

18 The last fiscal year we paid a total of $142 18 focused on established businesses. These are

19 million in fees. This equals about 129 basis points 19 largely control or majority investments. And these

20 on our NAV and 81 basis points on our total exposure 20 GPs often utilize leverage.

21 to PE, which would include our unfunded commitments. 21 There's venture capital, which is early stage

22 MR. OLMSTEAD: Real quick. On these fees, 22 investing in high growth, innovative companies.

23 these don't include co-invest? This is just your 23 This is almost always a minority investment. These

24 primary investments? 24 GPs rarely use leverage. There's

25 MR. BRADLEY: Yeah, correct. Those would just 25 distressed/turnaround. This is control investing in

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1 underperforming companies. All of our GPs have a 1 MR. COBB: Thank you.

2 very heavy focus on operations, and most use little 2 MR. BRADLEY: Here we have the overall

3 to low leverage, at least at the time of purchase on 3 composition of the portfolio. This is shown as of

4 these deals. And then, lastly, secondary funds. So 4 12/31. Our NAV stood at $11 billion. We had about

5 GPs who purchase stakes in private equity funds from 5 6.4 billion in unfunded commitments, which gives us

6 other limited partners. 6 a total program size of roughly 17 and a half

7 MR. COBB: Mr. Chairman, I have another 7 billion dollars.

8 question on fees. 8 We have 193 funds in the portfolio today.

9 MR. BOBBY JONES: Yes, sir. 9 Those funds are managed by 67 GPs, 49 of which we

10 MR. COBB: In a lot of the private equities, 10 would consider core or GPs that we will continue to

11 they are charging an investment banking fee to sell 11 invest with. Then on the bottom of this slide we

12 or ongoing other kinds of management fees. Are 12 have the geographic and sector breakdown of those 49

13 those included in these fees, or are these just the 13 core GPs in the program.

14 stated fees? 14 So here we show our current allocations to

15 MR. BRADLEY: So those are just the stated 15 those four sub-strategies as well as our targets,

16 manager fees for the fund. Those fees, those 16 which can be seen in the red column on the right.

17 investment banking fees, those monitoring fees, in 17 The blue column is our current position as of 12/31.

18 today's market -- and we've probably been there for 18 In the middle column, our total exposure would

19 the last five to six years, when we negotiate LPAs, 19 incorporate our unfunded commitments. And so this

20 all of those fees are rebated back to us. And so 20 kind of gives us an idea of where we're positioned,

21 those fees would then offset our management fee, 21 where is our dry powder at in the portfolio.

22 which is some of the reason, when we look through 22 As we can see, our allocation to buyouts is at

23 what we've paid this year relative to that schedule, 23 target. Venture remains above target but should be

24 when we say we've paid on average 80 basis points, 24 coming back down to target, while our distressed and

25 some of that is those rebates coming back to us. 25 secondary portfolios are below target but will be

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1 increasing. 1 Okay. So since inception, our private equity

2 Here's an estimate of our pacing over the next 2 program --

3 three years. This is an educated guess based on the 3 MR. COLLINS: Mr. Chairman?

4 expected fundraisings of our existing GPs, as well 4 MR. BOBBY JONES: Yes, sir.

5 as a few new funds that we've been targeting. This 5 MR. COLLINS: So any co-investment you're doing

6 pacing averages $1.9 billion, which is in line with 6 is going through Lexington no matter the fund or no

7 the modeling we do to maintain the asset class's 7 matter the co-investment?

8 6 percent target allocation. And I would also point 8 MR. BRADLEY: Today that's correct, yes.

9 out that this is consistent with our sub-strategy 9 MR. COLLINS: And why do we do it that way?

10 targets as well. 10 MR. BRADLEY: So I think originally the program

11 Here are the sector exposures in the portfolio. 11 started in -- I believe it was 1998, so almost 20

12 No change. Technology remains the largest exposure. 12 years ago.

13 It's a bit overweight relative to our Cambridge 13 MR. COLLINS: I was still here.

14 private equity benchmark and almost double that of 14 MR. BRADLEY: And I think it's just a staff --

15 the public market benchmark. Here we can see the 15 MR. COLLINS: Seriously.

16 geographic breakdown. We look fairly similar to our 16 MR. BRADLEY: It's a staff and a resource

17 PE benchmark, although we remain overweight North 17 issue. And so Lexington has a team. I believe

18 America and slightly underweight Asia. 18 their team is up to 12 people today. They manage

19 Next we have our largest exposures by general 19 the fund solely for us. They have a few other LPs

20 partner, so we can see here 63 percent of our 20 that they do it for. And so they're able to source

21 portfolio's NAV is concentrated in these 15 firms. 21 diligence, act quickly on co-investments.

22 Our largest partner is Lexington Partners at 22 Okay. So since inception, we've committed over

23 11 percent of our portfolio, and the majority of 23 $26 billion to 249 funds. Our cumulative paid-in

24 that or 75 percent of that is coming through our 24 capital to date is 19.73 billion, with total

25 co-investment portfolio, which Lexington manages. 25 distributions received back from our GPs of

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1 19.66 billion, which gives our program a DPI of 1 of a J curve.

2 .99x. We have 11 billion in remaining NAV today, 2 MR. COLLINS: Okay.

3 which gives us a TVPI or total value to paid-in 3 MR. BRADLEY: Hopefully. And then finally I'll

4 ratio of 1.6x and total value creation to date in 4 end my time with a look at our cash flow. Our cash

5 the portfolio of $10.9 billion. 5 flows continue to remain strong, as our GPs remain

6 Asset class performance as of December 31st is 6 net sellers of assets in this environment, which is

7 seen here. The portfolio has outperformed its 7 what we would hope and expect. 2018 was a record

8 public market benchmark over all time periods. Our 8 year for us, with net cash flow of over a billion

9 short-term performance is particularly strong. I 9 dollars back into the portfolio, which was great.

10 would tell you we don't pay too much attention to 10 And we are very hopeful that trend will continue.

11 the one year number but do look at the three year 11 And as we move into 2019, it looks like we will, at

12 and five year performance, which is quite strong on 12 least through the first half of the year, again have

13 both an absolute and relative basis. 13 another good, positive cash flow year.

14 This slide shows the performance of our program 14 And so with that I'm going to now turn it over

15 by vintage year. So the green bar would represent 15 to Wes. Wes is going to walk us a little bit into

16 our IRR for each vintage year, and the blue square 16 our due diligence process.

17 would be the corresponding Cambridge benchmark 17 MR. BRADLE: So I'm going to cover the key

18 return for that vintage year. I believe we've done 18 components of our diligence process, our formula for

19 a really good job as a team in selecting managers. 19 making decisions and how we're starting to

20 We've outperformed this benchmark in 15 out of 19 20 incorporate technology to improve our processes.

21 years, or almost 80 percent of the time. 21 We think that good decision-making starts with

22 MR. COLLINS: What happened in '17? Is that 22 a transparent and repeatable process, where the

23 just a -- 23 information collected and the quality of analysis is

24 MR. BRADLEY: We would say '17 is probably a 24 consistent. As you can see, a process, though, is

25 little too early to tell. It's probably just more 25 only really as strong as its people, as well as the

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1 plumbing or the tools that you use to do the 1 strategy team, track record, investment process and

2 analysis and execute on new investments. 2 portfolio, and then we discuss the findings at our

3 We have a talented team of investment 3 weekly team meeting.

4 professionals. Obviously Clark is here. But 4 If we decide to move forward, a member of the

5 everyone on the team is great, and they show strong 5 team is assigned to draft a two- to three-page

6 judgment, and we work as a team to execute new 6 preliminary diligence summary. And here they

7 investments. And, secondly, the SBA provides the 7 highlight the fund's strategy differentiation and

8 plumbing or the tools necessary to effectively 8 performance relative to a benchmark. We then again

9 gather and analyze data, which a few I will 9 discuss the findings of the team, and if we think

10 highlight shortly. 10 it's still compelling, we gather more data and

11 And you can see that the bottom part of this 11 populate the interim diligence summary. And this is

12 slide are just the stages of our diligence process. 12 a 20- to 30-page memo addressing both standard and

13 There's four of them. The first is initial 13 the spoke diligence items.

14 screening. Here we review a fund strategy and how 14 And, Vinny, I think to your question earlier,

15 it might fit into the portfolio. As John mentioned 15 this might be where a fund comes in. The

16 earlier, the majority of the investments are 16 performance is great. And you drill down and you

17 declined at this stage. The second is full 17 go, wow, 90 percent of it is being driven by

18 diligence, and this is where we drill down into 18 technology. We already have plenty of technology

19 specific items related to the firm or the fund, and 19 exposure, so therefore we're going to pass on the

20 then legal negotiations and finally closing. 20 fund.

21 So here's a visual chart of that second stage, 21 Some of the standard diligence items that we

22 so due diligence. And so after the team agrees that 22 address during this time, I mean, there's really

23 we should do more work on a fund, we meet with the 23 just -- there's too many to list, but it's things

24 GP at our office to gather more information. This 24 like performance, drilling down into the

25 includes an in-depth review of things like the fund 25 organization, the competitive position of the firm,

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1 market conditions and key risks. And on the right 1 112 questions on topics related to fund strategy,

2 side you see some of the tools that we use, things 2 investment process, reporting and administration.

3 like the due diligence questionnaire, the 3 It's quite lengthy.

4 quantitative data request. We do a number of 4 The second tool is the quantitative data

5 reference calls. Typically we do on-site due 5 request. And this provides 71 data points on each

6 diligence. And then the findings from these are 6 company in a previous fund. So obviously some cases

7 incorporated into the interim diligence summary that 7 we have funds with over a -- where they'll have four

8 again goes back to the team. 8 funds and each fund has 30 or 40 portfolio

9 As an additional check, as John mentioned, we 9 companies. So it provides a lot of data points to

10 also have Cambridge to do a consultant memo on every 10 see kind of where a fund is investing. It allows us

11 fund, and we also are typically in dialogue during 11 to test hypotheses and form conclusions or to test

12 the diligence process with Cambridge, comparing 12 those and draw conclusions.

13 notes and sometimes drilling down on some more 13 So for example, did the previous fund invest in

14 items. 14 the geographies or the sectors or the strategies

15 Once we discuss the -- discuss and debate the 15 where they're investing today, which areas

16 findings from our diligence, we then make a 16 outperformed, which areas underperformed, how does

17 decision. And if we decide to move forward, then we 17 the performance of previous funds compare to a

18 send the investment approval memo up to Kent and 18 relevant benchmark. And, again, these are just a

19 Ash, and they again review it and scrutinize it and 19 few of the many areas that we analyze when deciding

20 then hopefully sign off on it and we move forward. 20 whether a fund should get a new commitment.

21 Here is some information on the diligence tools 21 And then the last area, we do a thorough review

22 that we use. We leverage standardized diligence 22 of the fund's legal terms with both our internal and

23 documents and data collection tools to populate the 23 external fund counsel, which helps us better assess

24 interim diligence summary. The first one is the 24 alignment and tactically negotiate terms.

25 ILPA due diligence questionnaire. This consists of 25 So here's a real-life example of how we

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1 benchmark a fund. The numbers were modified for 1 It's also known as the PME. And the PME analysis

2 confidentiality reasons. And we highlight some of 2 addresses the question, so what if every time a fund

3 the key areas in here with a red outline. So the 3 called capital we instead invested that capital in a

4 first box in the middle of the page, the net IRR, 4 public market index or an ETF, would we be better

5 for this fund, on a capital-weighted basis, it's 5 off. And, again, this example is based on a

6 13.8 percent, which that seems pretty strong on an 6 real-life fund.

7 absolute basis. But what about on a relative basis? 7 So you can see here, fund two, above median.

8 So when you compare it to our opportunity cost, 8 You say, great, you know, it's outperforming the

9 which is the Cambridge global PE and VC benchmark, 9 MSCI ACWI index by more than 300 basis points, which

10 it's above median, which is good. But then when you 10 John mentioned earlier is our benchmark, and it's

11 drill down into the strategy level benchmark, which 11 also outperforming the Russell 2000 small cap index.

12 is U.S. buyouts, you can see that the fund is 12 You move on to this firm's fund three. Again, great

13 actually below median. 13 IRR, top quartile, outperforming by over 2,000 basis

14 And then if you look in the bottom right-hand 14 points.

15 corner, you see the TVPI versus the U.S. buyout 15 And then you come to fund four, and again it's

16 benchmark. And this measures essentially the total 16 above median, but if you notice the little red box,

17 value of both the realized and the unrealized 17 they have actually only outperformed the Russell

18 investments as compared to the amount of capital 18 2000 index now by 120 basis points, which is

19 that the investor has paid in. And, again, you can 19 somewhat concerning. But then you notice in the

20 see it's below median. So even though this firm had 20 next fund they have now returned to top quartile

21 strong absolute performance, we ultimately decided 21 status, as well as have now outperformed the Russell

22 to pass on the next fund, in part because of the 22 2000 by 620 basis points.

23 relative performance shown here. 23 And this is a good example of why you can't

24 Here's another example of the analysis we do. 24 just rely on comparing a fund to a benchmark. You

25 So this is called the public market equivalent. 25 also want to look at the PME to see, okay, well,

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1 great, you outperformed the benchmark but did you 1 MR. BRADLE: So we're in the middle of testing

2 also beat the public markets as well. And so on 2 it right now.

3 this fund we did more work to get comfortable with 3 MR. PETER JONES: I see.

4 the PME decline in fund four, but we ultimately 4 MR. BRADLE: We've been testing it for the last

5 committed to the next fund, due to expected future 5 four weeks. We're hoping to have it done by the end

6 outperformance relative to both the private equity 6 of the fiscal year. But if not, it will be a little

7 benchmark as well as the public equity benchmark. 7 bit after that, so towards then.

8 In terms of our tools, we continue to use 8 These last two slides highlight the keys to

9 technology to be more efficient. As you can see, 9 success of our process that are more qualitative.

10 we've moved away from manual paper-based tools and 10 If you start at the top level, this is where we're

11 currently use automated electronic tools in our 11 sourcing opportunities. We feel like our system is

12 analysis. And we're actually currently implementing 12 really built to rigorously test and analyze

13 a cloud-based software system to further enhance our 13 investments before we make a final decision. Our

14 diligence capabilities. One thing this will really 14 private equity funds have durations of ten years or

15 improve is the PME analysis, which I just mentioned. 15 more, so we have to be very thorough and take our

16 Right now we run it through Excel. It's pretty 16 time when making a new commitment.

17 manual. 17 So we source as many opportunities as we can,

18 We have a limited number of PMEs, and this new 18 and then we analyze, collect information. You can

19 cloud-based system will allow us to select from over 19 see we discuss and debate the opportunity. Then we

20 1,000 public market equivalent indices. So we can 20 collect and analyze more information and discuss and

21 really do some robust analysis and just gain greater 21 debate again and do the same thing over and over,

22 insight into the funds we invest with. 22 kind of rinse and repeat until we feel comfortable

23 MR. PETER JONES: Question. I lost our 23 making a decision. And then every so often we

24 chairman here. When will the future -- when does 24 evaluate our results and make adjustments as

25 the future happen? 25 necessary.

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1 And there are some funds, John, what, we've -- 1 sled racing. So originally dog sled drivers, they

2 like three, four, five times, where, you know, 2 used one to two dogs to transport products, but they

3 sometimes there's one specific piece of analysis 3 found that over time larger loads could be carried

4 where we say, okay, let's go back and figure out, 4 longer distances by distributing the effort among

5 get an answer to that question, and then if it's 5 more dogs.

6 acceptable, we'll move forward. 6 So we see this in the Iditarod, which obviously

7 And we kind of -- there's this little picture 7 happens in a much colder part of the continent, but

8 in the background of refining gold, and we kind of 8 it's a race where a team of up to 16 sled dogs, they

9 liken it to that process, where you take the ore and 9 run a thousand miles while pulling over 150 pounds

10 you heat it up to, I think, 1900 degrees Fahrenheit, 10 in subzero temperatures. And no one dog could

11 and then the impurities rise to the top and you kind 11 obviously do that alone. And so in a similar way,

12 of scrape it off, and then you do it again and 12 we feel like we can accomplish so much more by

13 again. And the more you do it, the more pure the 13 working together as a team and utilizing each

14 gold becomes. 14 person's skill set and network.

15 And the goal of our system is similar. So we 15 Another component of our culture is

16 feel like each investment or fund commitment should 16 transparency. So on some teams you'll have one

17 be able to survive the analytical rigor and the 17 decision-maker, where they kind of listen to the

18 scrutiny of our entire team numerous times before we 18 information. They make the final decision, and you

19 commit. 19 don't really know why that decision happened or

20 And then back by popular demand, the final 20 where their logic was for making it. And really

21 slide I have just highlights the other key element 21 we're the opposite. On our team we have an

22 of our process, which is really culture. And we 22 iterative process, where everyone is included and

23 start by emphasizing the team and not the 23 everyone is encouraged to express their opinion,

24 individual, which I think actually starts at the top 24 even down to the analyst level.

25 of the SBA. We think about it a little bit like dog 25 Now, we don't always agree, but when people

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1 know why a decision was made, it allows them to take 1 MR. OLMSTEAD: Good.

2 ownership for that decision regardless of the 2 MR. COBB: I have a question, Mr. Chairman.

3 outcome. So that's really it. If there are no 3 MR. BOBBY JONES: Yes, sir.

4 questions, I'll turn it over to Clark to talk about 4 MR. COBB: One of the things that I didn't

5 our strategy exposure. 5 hear -- and maybe it was included in this

6 MR. OLMSTEAD: Mr. Chairman, quick question. 6 deliberative process and great team spirit

7 MR. BOBBY JONES: Yes, Vinny. 7 process -- was an in-depth analysis of where the

8 MR. OLMSTEAD: So when you're going through 8 gaps in the market are in private equity, which

9 this process, do you typically interview LPAC 9 firms have the skills to exploit those gaps in the

10 members, and what percentage of your funds are you 10 market, where is capital overflowing and where is

11 guys actually on the LPAC? 11 insufficient capital flowing.

12 MR. BRADLEY: I don't know the exact 12 And it seems to me that's so key, and that is

13 percentage. It's probably 85, 90 percent of the 13 maybe more important than their past record in some

14 funds we're LPAC members. And so the majority of 14 cases, because they maybe had the skills at one

15 the funds we're probably a top five investor in 15 phase of the cycle but maybe not the phase for the

16 terms of size, so we usually get that, that LPAC -- 16 next needs in private equity. But I didn't hear

17 MR. OLMSTEAD: Do you usually take that, or do 17 very much about that.

18 you spread it -- 18 MR. BRADLEY: Yeah. So I think that review and

19 MR. BRADLEY: I take it at some points. We 19 that discussion is likely -- it occurs in our annual

20 spread it around. So whoever is responsible for 20 investment plan, in our planning process. And so

21 that relationship, whoever led the diligence will 21 one thing we didn't mention also is that we have a

22 likely take that seat. 22 full-day strategy session twice a year with

23 MR. OLMSTEAD: So further transparency just by 23 Cambridge, where we look at different markets,

24 being on the LPAC, obviously, also. 24 different exposures, where should we be spending our

25 MR. BRADLEY: Yeah. 25 time, what type of GP, what type of fund, what type

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1 of strategy do we think is best equipped to 1 the process that Wes described with a large mega

2 capitalize on this market environment. 2 U.S. buyout fund. Those are getting screened out.

3 What Wes went through was more -- once we find 3 What we are spending that time is if we establish

4 those GPs in those areas, how do we then drill down 4 that we think China is interesting, we think that

5 into that specific fund. And so that planning, that 5 the domestic market in China is an interesting place

6 discussion happens. It happens more at an upper 6 to be, we are then focusing our sourcing efforts on

7 level when we set allocations and set targets with a 7 those firms and putting those firms that we find

8 fund. 8 that play in that area through the due diligence

9 MR. BRADLE: The only other thing I would add 9 process.

10 is we do in every fund have a market conditions 10 MR. COBB: As an investor, I guess I find what

11 section, where the team highlights what's happening 11 you've just said in these last three paragraphs more

12 in the market. So if it's a U.S. buyout fund, you 12 critical to success than some of the other things

13 have kind of EV to EBITDA, you know, multiple -- 13 you've said. Is that a fair conclusion or --

14 every year, so you can see where entry valuations 14 MR. BRADLEY: In terms of the more top down?

15 are, kind of where leverage is. 15 MR. COBB: In terms of what's going to enable

16 We also have a competitive landscape, where 16 us to --

17 it's essentially a bubble chart of all the groups 17 MR. BRADLEY: Absolutely.

18 who sort of play in that space or invest in that 18 MR. COBB: -- to have the highest rates of

19 space. And then sort of we highlight, well, why is 19 return and beat our benchmark.

20 this the best group compared to every single one of 20 MR. BRADLEY: We would 100 percent agree, but I

21 these other firms. So, as John said, we do it 21 think the importance is, when we get to the detailed

22 annually, but we also do it every time we look at a 22 due diligence, is that we are testing those

23 new investment. 23 hypotheses. We're testing that that firm that

24 MR. BRADLEY: And I guess I would add, what 24 represented that they are a top Chinese buyout fund,

25 we're not doing is we're not spending our time on 25 that that's actually where the record has been

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1 created, the people, the process, the strategy, to 1 made, I believe, one investment. And so the fact

2 verify that. 2 that it's a high priority, that we're spending our

3 MR. OLMSTEAD: Just to jump on, Mr. Chairman. 3 time there doesn't necessarily mean it gets into the

4 So when you look at -- Asia is obviously a high 4 portfolio. But it does mean that we spend time

5 priority. I use that anecdotally. But are you 5 there. It does mean that we make sure that we know

6 looking at that because you're underweighted there 6 all the players in those markets.

7 or because of opportunity? So when you look at -- I 7 MR. OLMSTEAD: Is there any risk that that

8 understand large buyouts is a place where you're 8 focus is inhibiting you putting money elsewhere with

9 oversaturated, but there are niche U.S. buyout guys 9 these great returns?

10 that could give a nice return that you would 10 MR. BRADLEY: I don't believe so. We showed on

11 potentially want to look at. So I'm just curious on 11 the sourcing slide the 150 funds that we looked at

12 how -- 12 just this year. That also includes another 20 funds

13 MR. BRADLEY: Yeah. So, I mean, with Asia it's 13 that we committed to re-ups in the portfolio. And

14 both. It is both a, we are underweighted, so we 14 so -- and then as I mentioned, every six months

15 should be aware that this is an area in the 15 we're sitting back down, saying do we still believe

16 portfolio that we are underweight and what does that 16 this, what else aren't we looking at, what are we

17 mean in terms of performance. But it is also, we 17 seeing. So I think it's fairly robust.

18 think it is an attractive area. We think that the 18 MR. GRIFFITH: Good afternoon. My name is

19 growth in the region, the rise of the middle class 19 Clark Griffith. I'm a senior portfolio manager in

20 in China, that those are all themes that we can play 20 private equity. I'm now going to walk through the

21 on and that we've seen GPs play on. And some of 21 sub-strategy review of our portfolio. The first

22 that is, we have seen GPs be successful in those 22 slide we have just goes back to John's -- what John

23 markets. We've seen liquidity from those markets. 23 laid out, the allocation targets that we have. You

24 I would also point out, it's been a high 24 see buyout being the largest one of that at

25 priority for probably four years now, and we've 25 55 percent. As we kind of mentioned here

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1 previously, the buyout breaks down into really 1 to put more and more of their time into that sector.

2 75 percent in small and middle market buyout, with 2 And so, as our generalists invest more money into

3 only 25 percent of that in large buyout. 3 information technology, that obviously is going to

4 Moving on to the next page, really what I would 4 increase our exposure.

5 highlight on this page, if you look on the left, 5 Down below, the exposure by geography, still

6 which is the large buyout portfolio, you're going to 6 heavily weighted towards North America at

7 see things are tilted towards generalist funds. And 7 71 percent. That number has actually come down in

8 as you look to the right, to the middle market and 8 buyout from 76 percent last year. And a lot of that

9 small buyout fund, you're going to see things are 9 is attributable to increased time and focus in

10 much more tilted towards specialist funds. What 10 building out the rest of Europe and spending more

11 you'll see in the U.S. is those are generally sector 11 time in Asia. We think that number will probably

12 specialists, while in Europe you're going to look 12 continue to come down a little bit, maybe down to

13 at -- typically going to be regional specialists. 13 sort of a 65/35 split between North America and the

14 In terms of exposures, we've already 14 rest of the world. But it will come down pretty

15 highlighted it once today. Our largest exposure by 15 gradually.

16 far is in information technology, in IT, at 16 In terms of performance, the buyout performance

17 32 percent. There's really three reasons that we 17 has been strong. It's outperformed the benchmark

18 look at why that sector has continued to grow. 18 over all time horizons. The only thing I'd kind of

19 First of all, just the general secular tailwinds in 19 note here in terms of performance, this year, the

20 technology, as we all know, has continued to grow, 20 DPI of 1.0, up from .9 last year, so we've now

21 along with outperformance of our specialist IT funds 21 gotten back all of the capital committed since

22 that have done well, like Thoma Bravo, that continue 22 inception to the buyout portfolio, and again, with a

23 to outperform. 23 public market equivalent of over 600 basis points

24 And the third is, as we always see, when one 24 over the benchmark, continues to be a good-returning

25 sector tends to do well, the generalist firms tend 25 portfolio.

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1 MR. OLMSTEAD: Mr. Chairman. 1 capital continue to rise in this cycle. The largest

2 MR. BOBBY JONES: Yes, sir. 2 valuation increase has been in later stage

3 MR. OLMSTEAD: Clark, on the previous page just 3 investments. And so as we continue to spend our

4 before this, curiosity-wise, when you look at U.S. 4 time looking at venture capital, we focus our

5 as overweighted, does that include -- is that based 5 efforts on early Series A and that type of

6 on the fund or based on -- is that based on the 6 investment because we feel like we'll be able to get

7 location of the fund? So if someone is doing a 7 in at earlier valuations, which obviously is going

8 bunch of buyouts in Asia, would that be reflected 8 to be -- hopefully going to be in a less risky

9 here or not? 9 position as the companies grow.

10 MR. BRADLEY: So these exposures are bottoms 10 So in terms of performance, venture capital has

11 up, so this is the actual -- 11 delivered solid performance, our benchmark, along

12 MR. GRIFFITH: It's from the portfolio. 12 the benchmark, with a little bit of outperformance

13 MR. OLMSTEAD: It's from the portfolio. 13 since inception. The two things that -- the thing

14 MR. BRADLEY: Yes. 14 to point out here, I think, is the distributions at

15 MR. OLMSTEAD: Thank you. 15 a .7x DPI, that's up from .5x DPI last year. You

16 MR. GRIFFITH: So next step we have venture 16 know, I think everyone has seen sort of there's been

17 capital. I think the thing here that we'll point 17 strong liquidity in the public markets.

18 out, you know, in terms, on the top left, the 18 In 2018 there were venture capital exits, with

19 exposure by sector, heavily weighted towards IT, a 19 just over $120 billion, which was the highest since

20 split between consumer and enterprise, but it's 20 2012. And it was also the largest number of -- in

21 still IT exposure. 21 2018, the largest number of venture-backed IPOs

22 The other piece that we think is pretty 22 since 2014. So as we've had companies like Uber and

23 important, on the bottom right, the exposure by 23 Pinterest and Lyft go public, that's going to add to

24 stage. As you can see, 50 percent of our exposure 24 our liquidity. There's also a strong pipeline of

25 is to early stage. The valuations in venture 25 other companies that are looking to -- going to go

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1 public, including I think one this week. So we 1 complementary to the portfolio. Even without adding

2 think that as long as the IPO window stays open, 2 anything, we feel confident that if some day we're

3 that we're going to continue to get some liquidity 3 in a downturn in the economy in the next three to

4 back, which will continue to bring that DPI up 4 five years, these firms would definitely be able to

5 closer to the other strategies. 5 capitalize on that.

6 MR. OLMSTEAD: Were you invested in the 6 And just as a reminder, John alluded to it,

7 wonderful company Chewy from our great state? 7 what we do in distressed is based on equity control

8 MR. GRIFFITH: No. We weren't in the fund that 8 of the business. So whether it's buying out a

9 owned the company that spun it out. 9 bankruptcy or buying from a distressed seller, it's

10 MR. WENDT: It was privately owned, wasn't it? 10 ultimately got equity control and then operationally

11 MR. GRIFFITH: Was it all privately owned? I 11 improve the company to create value.

12 thought it -- 12 Our distressed portfolio has performed well

13 MR. WENDT: Chewy is owned by another -- 13 sort of across all time horizons. It's been very

14 MR. GRIFFITH: It was owned by BC Partners, 14 strong performance. The nice thing about

15 which is a fund that we're not invested in. 15 distressed, it generally performs across cycles

16 MR. WILLIAMS: I think it went public last 16 because there's always companies that are failing

17 week. I was downtown last Wednesday night. 17 that need to be recapitalized and improved. And so

18 MR. WENDT: It did, but it was privately owned. 18 the returns have been solid. The 1.2x DPI in the

19 MR. WILLIAMS: The front of the NYC was Chewy 19 portfolio is the strongest in our portfolio. And,

20 colors. 20 again, just the 1200 basis points of alpha over the

21 MR. OLMSTEAD: For 40 percent off, I think. 21 PME just shows the strength of the portfolio that

22 MR. GRIFFITH: So next up is the distressed 22 we've put together.

23 portfolio. As John mentioned, we're slightly below 23 And then finally the last piece is the

24 our target allocation in distressed, so we continue 24 secondary portfolio. We continue to maintain two

25 to seek out opportunities that we feel like will be 25 large relationships in the secondary market. The

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1 secondary market has been very competitive over the 1 a provider and not a consultant?

2 last cycle. Secondary market pricing continues to 2 MR. BRADLEY: Correct.

3 remain elevated. There's a lot of dry powder that 3 MR. COBB: Thank you.

4 needs to be invested. And so we've been trying to 4 MR. BOBBY JONES: Okay. Do we have any other

5 leverage our large relationships with these managers 5 questions on private equity? Gary?

6 to operate more tactically. And so we look to 6 MR. WENDT: And it's not a question. It's more

7 co-invest with our managers when we can in 7 of a reflection. You know, I think -- and I suspect

8 opportunities that we find to be more attractive. 8 most people do -- that we're in a period now, a

9 Secondary performance has been pretty good 9 prolonged period of low interest rates, which are

10 overall, generally consistent with the benchmarks 10 going to put even a greater weight on our ability to

11 across the time periods, the time horizons. You 11 make the 7 percent average overall.

12 know, we look at the DPI of 1.1, which is pretty 12 And so perhaps a relook at our allocations is

13 solid for other strategies, and 800 basis points of 13 about right. And we've got a group here that is the

14 outperformance relative to the benchmark, you know, 14 only group among the -- well, I can't say that.

15 continue to be an attractive market to be invested 15 They have the ability, it seems, to put more money

16 with. 16 to work. They have a 6 percent allocation. They're

17 I'm happy to answer questions or I can pass it 17 at 7 percent now or whatever it is. And I'm not

18 on to Liqian. 18 sure about that. But it seems maybe we should start

19 MR. COBB: I have a question on Lexington's 19 thinking about getting more money out of the fixed

20 role. As I understand it, in addition to having 20 income basket. We're going to have a hard time

21 11 percent of our portfolio, they are also an 21 making our returns as long as we do that.

22 independent -- are they an independent adviser, or 22 MR. BOBBY JONES: Good comment. Executive

23 is that all Cambridge? 23 Director Williams, do you have any comments?

24 MR. BRADLEY: That's all Cambridge. 24 MR. WILLIAMS: Well, it's a fair observation.

25 MR. COBB: Right. So Lexington is just purely 25 I think the broad trend -- I agree with you

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1 completely on interest rates and the challenge to 1 You may remember in March of each year we

2 meeting our investment return. So I think there are 2 review the question of allocation, and we did that

3 two variables there. One is accepting -- well, 3 this year. I don't know if Aon has any broad

4 there are two potential variables. One is the 4 comments on what others might be doing in this

5 return itself. 5 space.

6 Our belief is -- and we've said this in writing 6 MR. WENDT: I think the information they've

7 to the trustees and the legislature, is that the 7 given us in the past is that the private equity

8 current investment return objective actuarially is 8 investments by other institutions like ours have

9 high, by about 100 basis points relative to what we 9 been higher than ours.

10 think is a reasonable expectation. The second -- so 10 MR. WILLIAMS: Higher allocations.

11 in theory, if you change that target a bit, then our 11 MR. WENDT: Higher allocations than ours, yeah.

12 existing allocation would be in line. 12 And I wouldn't look at it as substantially more

13 The second question would be, well, if we're 13 risk. I'd look at it as moderately more risk. I

14 going to accept the return assumption, which is 14 would feel very comfortable with increasing our

15 currently at 7.4 percent, as an immutable principle 15 investments, say, in the private equity area now. I

16 and adjust our portfolio to put that return level at 16 mean, you think about going from 6 percent to

17 the median of the distribution of expected outcomes, 17 10 percent is not much, but it helps a little bit on

18 then by definition you have to take on substantially 18 that 7 percent return.

19 more risk, whether it's private equity or venture or 19 So I'm suggesting that we -- I don't know how

20 even listed equity, which brings with it a tricky 20 we do this, but I know you have to go to the boys up

21 collateral problem, which is the tails of outcome 21 on the hill and say, Guys, we need a different rule

22 become much more extreme. And that underperformance 22 here. But that's food for thought. My suggestion

23 tail of outcome can create a contribution shock 23 would be that we try to increase our investments in

24 issue for the member employers that's utterly 24 private equities and decrease our investments in

25 unattractive. 25 fixed income. Thank you.

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1 MR. BOBBY JONES: Okay. Anything else for 1 the last ten years, we have a sample size of just

2 private equity? 2 under 400 portfolios that we track and, over the

3 MR. BRADLEY: I think Liqian was going to go 3 past one year, where we have more data because more

4 through some slides. 4 programs have instituted private equity, almost 500

5 MR. BOBBY JONES: Okay. 5 portfolios that we track.

6 MR. MA: I can keep this brief. Thank you, 6 And in each time period, from the one year to

7 Mr. Chair. I have the benefit of following John, 7 the ten year, the Florida State Board's private

8 Wes and Clark's very comprehensive presentations, so 8 equity asset class performance has not just

9 I will keep this at a high level and additive to the 9 outperformed the median portfolio in private equity

10 discussion so far. And, by the way, my name is 10 but stands within the first quartile of that

11 Liqian Ma, managing director with Cambridge 11 performance, so both on a primary benchmark

12 Associates based in Boston. 12 standpoint on a relative basis as well as relative

13 So really you've seen here in the prior 13 to other institutions instituting private equity

14 discussion here that the absolute returns of the 14 investments, remains a top-performing portfolio.

15 private equity portfolio remains strong, in the 15 We're pleased to see that.

16 mid-teens. And as John alluded to earlier, it's 16 You mentioned earlier, Mr. Wendt, about

17 generated 10.9 billion of total value creation since 17 increasing exposure. I think this is a historical

18 inception. So impressive figure in terms of 18 figure of the increasing allocation to private

19 absolute figures. But also on a relative basis, 19 equity relative to the 6 percent target policy

20 compared to the primary benchmark, it has 20 benchmark or target allocation. You can see we are

21 outperformed all time periods on a dollar-weighted 21 at just over 7 percent today. That's been built up

22 basis, especially in the last three to five years. 22 over the long period, long time period. And we do

23 I would also add that we at Cambridge, we track 23 expect that it will fairly steady out over the next

24 many institutions' private investment programs and 24 few years.

25 portfolios. So on this page you can see here, over 25 We do this every -- once or twice every year,

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1 in terms of modeling the commitment pacing on a 1 shows the core U.S. buyout exposure, and you can see

2 look-forward basis. And you can see that year by 2 we have added meaningful exposure to other

3 year, at the bottom, the commitment pace would vary, 3 diversifying asset classes, whether it's in

4 depending on the opportunity set, depending on who's 4 distressed or growth equity or venture capital or

5 coming back to market. But we do think about around 5 non-U.S. venture capital and buyouts.

6 $2 billion per year as the right amount in terms of 6 So today, as we're looking at the world, we do

7 discipline and selectivity to commit to GPs. That 7 feel that we are broadly diversified across

8 will keep us within that target allocation range. 8 different areas, both geography and sectors, and so

9 Of course, what we can't control is the overall 9 we do have a very nimble portfolio to work with to

10 market environment. So we do run scenario analyses. 10 capitalize on opportunities globally.

11 Whether it's a kind of 2008 scenario, where you see 11 And I'll end with a chart on the market

12 a kind of dislocation in the broader markets and the 12 environment. Mr. Cobb, you did ask about where we

13 total denominator decreases, like we saw in 2008, of 13 see opportunity and areas that we could add to. So

14 course we would expect an increase in the allocation 14 here it shows the broader private equity market.

15 to private equity, even if the NAV does not 15 The green line shows what prices private equity GPs

16 increase. But over time, as we saw back in 2009 and 16 here in the U.S. are paying for companies. It

17 2010, as markets recovered, you get down closer to 17 remains very elevated, just around 11 times EBITDA.

18 that target allocation range again. So we do run 18 So that's the purchase price multiple. And the

19 these once or twice a year, in conjunction with the 19 leverage amount is also fairly elevated, at around

20 work done by the asset class team, to make sure that 20 six times EBITDA.

21 we are on pace in terms of deployment pacing. 21 We all know that, and we're very aware of that.

22 Finally, I would just mention here that, as 22 And as you remember from Clark's presentation, we

23 Clark mentioned, the portfolio has evolved over 23 have been adding to smaller cap buyouts, where the

24 time, and I think this picture really shows that, 24 prices are more reasonable and the debt levels are

25 since inception. The blue area of the chart really 25 more reasonable. So just to say, to the point about

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1 relative value and top-down navigation of the 1 MR. MA: Generally, yes. There are very

2 markets, we do keep that very close to heart when 2 access-constrained venture managers, just like here

3 we're making decisions on where to allocate. 3 in the U.S. But we have been able to seek access

4 That concludes my remarks, unless there are any 4 through, whether it's our broader fund of fund

5 questions. 5 relationship or through strategic relationships to

6 MR. BOBBY JONES: Okay. Thank you. Any 6 gain access there.

7 questions on private equity? Vinny. 7 MR. BRADLEY: The number of top quality venture

8 MR. OLMSTEAD: Two quick questions perhaps. 8 funds in China is just a lot smaller. There might

9 One is, when you look at the benchmarks and you look 9 be 10, 10 to 12 that we would consider to get --

10 at we're underweight in Asia, they're overweight, 10 MR. OLMSTEAD: I guess part of the question I'm

11 when you look at performance, is North America 11 going to, as Gary's, which is should we be deploying

12 outperforming Asia? So when you look at the overall 12 more and, if we're deploying more and we have a hard

13 returns, how do you compare to the peer group? 13 time getting into Asia, why not deploy more in other

14 MR. MA: So I think one of the reasons we have 14 places, other sectors, and/or double down on some of

15 been looking at Asia is because the -- especially on 15 the ones that we're already doing, given your

16 the venture side, we have seen a number of highly 16 returns versus potentially some of the returns of

17 successful companies out of especially China. So we 17 the other asset classes, which is a bigger probably

18 have been looking at opportunities there, both in 18 conversation than for here.

19 venture capital, growth equity and small buyouts. 19 But it just seems to hit you in the face. If

20 But North America remains very strong with the 20 you can get greater returns in our PE portfolio and

21 operating performance of the companies in the 21 not being so hyper-focused just on getting into

22 portfolio. 22 Asia, where you can't get into, but you still need

23 MR. OLMSTEAD: And are the venture funds over 23 to keep that strategy and keep working it because

24 there highly -- is it hard to get into them? Are 24 it's a long strategy versus a short strategy, that

25 they highly controlled? 25 there seems like there's still opportunity for us

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1 to, as a whole, to outperform or to perform better 1 MR. WENDT: I thought we voted on that.

2 if we deployed more money and weren't so restricted 2 MR. BOBBY JONES: We did, but they wanted to

3 there. 3 make sure we had it on the record as well as with

4 MR. BOBBY JONES: Okay. If nothing else, I've 4 the people that are on the phone. So all in favor,

5 got some housekeeping issues that first I wanted to 5 please say aye.

6 take care of. First, I'd like to acknowledge that 6 (Ayes)

7 we may have some IAC members on the phone. So for 7 MR. BOBBY JONES: Any opposed? So moved.

8 the record, I want to see if either Tom Grady or 8 Thank you. One last point of order, too, is, Vinny,

9 Sean McGould are on the phone. 9 I'd like to also add to your subcommittee on

10 MR. McGOULD: Yeah, Sean is on. 10 compensation Ambassador Chuck Cobb to join with all

11 MR. GRADY: Tom Grady is on the phone, 11 of you.

12 Mr. Chairman. 12 MR. OLMSTEAD: Sounds great.

13 MR. BOBBY JONES: Thank you so much. And also 13 MR. BOBBY JONES: Okay. And now we're ready

14 I'd like to return to item number three, relating to 14 for Daniel Beard and talking about the defined

15 the Florida PRIME review, just to make sure. In our 15 contribution situation. Daniel.

16 notebooks we have the investment policy statement 16 MR. BEARD: Thank you. Good afternoon. So I'm

17 cleanup we've already discussed. But I wanted to 17 going to go over the FRS investment plan and the

18 make sure, for the record, with all of our members 18 MyFRS financial guidance program. Along with me we

19 participating, that we would like to make these 19 have Mini Watson, who is our director of

20 changes to pass on to the Board of Trustees related 20 administration, as well as Walter Kelleher, who is

21 to the Florida PRIME investment policy statement. 21 the director of educational services.

22 Do I have a motion for such approval? 22 The Florida Retirement System is made up of two

23 MR. COBB: Move it. 23 plans, as you know. It's the pension plan, which is

24 MR. COLLINS: Second. 24 the defined benefit plan, been around since 1970,

25 MR. BOBBY JONES: Second? 25 and then the investment plan, which is a 401(a)

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1 defined contribution plan, been in existence since 1 is delegated authority by the -- by Ash to oversee

2 2000 when the legislature passed the legislation to 2 the administrative duties and responsibilities for

3 create the plan, opened for membership in 2002. 3 the plan. And then the Investment Advisory Council,

4 All new employees with the Florida Retirement 4 there's a couple of roles, three roles that you have

5 System have a choice between the two plans. They 5 related to the investment plan. One is to assist

6 can choose between the pension plan or the 6 the SBA with administering the plan. The second one

7 investment plan. If they do not make an active 7 is you can provide comments on recommendation on

8 choice, they will default into the investment plan 8 providers and investment products, and then the last

9 for everyone except for special risk employees, and 9 one is to review any proposed changes to the

10 that's first responders and correctional officers. 10 investment policy statement and present those

11 The Division of Retirement, who is part of the 11 results to the trustees.

12 Department of Management Services, they're 12 MR. WENDT: Are schools of the state university

13 responsible for the day-to-day administration of the 13 system included in these employers? I see the

14 pension plan, and then the SBA is responsible for 14 community colleges, but I don't see the state

15 the day-to-day administration of the investment 15 university system.

16 plan. 16 MR. BEARD: Yeah. So the, what is it, 12

17 So as I mentioned, the plan was created back in 17 public universities are part of the FRS.

18 2000, legislation that was passed. The legislation 18 MR. WENDT: But none of them have signed up?

19 said that the State Board of Administration would 19 MR. BEARD: Well, no. They're part of -- their

20 handle the administration of the investment plan. 20 employees, new hires that are eligible to join the

21 The executive director and chief investment officer 21 FRS -- not all of their employees are eligible to

22 was delegated authority by the trustees to oversee 22 join the FRS -- they do either make a choice of

23 the plan, and then the deputy executive director 23 doing one of the plans, and then if they don't, they

24 provides guidance and input on plan activities. 24 will default into the investment plan.

25 The chief of the defined contribution programs 25 MR. WENDT: I understand that part. But I

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1 don't see the state university system listed in the 1 a thousand participating public agencies within the

2 participating employers. I see "other," and maybe 2 state of Florida that participate in the Florida

3 they're in "other." 3 Retirement System. But universities are counted

4 MR. BEARD: I have a slide coming up, so when I 4 with the State.

5 get to it, I'll go into more detail on that. 5 MR. WENDT: Thank you.

6 MR. WENDT: Okay. 6 MR. BEARD: I'll now turn it over to Mini, and

7 MR. BEARD: The organizational chart you see 7 she'll go over the investment plan administration.

8 there. So we're a small office of seven employees. 8 MS. WATSON: Hello. My name is Mini Watson. I

9 I report to Ash, and then I have four directors 9 am the director of administration of the defined

10 under me, Mini and Walter, but including them, I 10 contribution program. This is a slide to show some

11 have Allison Olson, who is our director of policy, 11 statistics as of March 31st, 2019. As of this date,

12 risk management and compliance, and then Stephen 12 we had 10 billion -- just at 10 billion assets under

13 Tabb, our director of investment management. I also 13 management, distributions, 12 billion, and 199,951

14 have Cindy Morea, who assists Mini, and then I also 14 members.

15 have Ruthie Bianco, who is our -- she assists 15 Just to bring you up to speed, as of May 31st,

16 Allison with that compliance. 16 we had 10.7 billion assets under management and

17 So participating employers, to you, Mr. Wendt, 17 $13 billion of distributions, and we're at about

18 so there are over a thousand participating 18 209,000 members. The average balance as of today or

19 employers. Within those employers you have the 19 as of May 31st is now at 51,052.

20 State. So the universities are considered part of 20 Our investment plan administration service

21 the State. So that's why you don't see them listed 21 providers, we have Alight Solutions. They are our

22 there by themselves. The universities are 22 plan choice administrator and our record-keeper.

23 considered part of the State. Then you have, of 23 They also provide the choice service that we provide

24 course, your county agencies, all 67 school boards, 24 our members, when making a choice between the

25 community colleges, so forth. But there's over 25 investment plan and the pension plan. They also are

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1 our provider of our self-directed brokerage account. 1 member contributions, totaling 344 million, during

2 BNY Mellon is currently our custodian, and they have 2 this last period. And BNY Mellon mailed the 8,232

3 the custody of our separate accounts and provide the 3 distribution checks, with the -- here, through the

4 distributions to our members. 4 assets under custody, is the 10.92 billion assets

5 The Division of Retirement, as Dan mentioned, 5 under management.

6 is the pension plan administrator. They oversee the 6 MR. PETER JONES: Just a quick question, if I

7 retirement reporting, the health insurance subsidy 7 may.

8 for investment plan members, along with the 8 MR. BOBBY JONES: Yes, sir.

9 disability and in-line-of-duty application process 9 MR. PETER JONES: I'm just curious. This is

10 for death benefits for investment plan members. 10 just out of my own curiosity. If I go back to, I

11 Here are some choice statistics. As you can 11 think it's page 13 here, it shows the choice

12 see, through the 2018-'19 fiscal year, we have a new 12 statistics. Forty-five percent this last year were

13 column. This is the investment plan default that 13 number -- the percentage of employees that defaulted

14 rolled out in January of 2018. To bring this up to 14 into this plan. Do we try to educate employees

15 speed -- this is through March 31st, 2019. As of 15 before they make a decision and we still have that

16 today or as of May 31st, the enrollment of each plan 16 high a percentage? It just seems like a high

17 would be 70 percent in the investment plan and 17 percentage, even after they've had some education.

18 30 percent in the pension plan. 18 MS. WATSON: We do. We have a -- Walter will

19 This next slide shows an increase of membership 19 touch a little bit on it. We have an education --

20 through March 31st, 2019. As I previously stated, 20 they have an eight month window that we provide

21 we had 209,708 members in the investment plan. This 21 education during the entire eight months to

22 increase is due to the default that went into effect 22 determine and to provide them information for

23 January 1st. 23 pension plan and investment plan.

24 These are just some high-level statistics. One 24 MR. PETER JONES: Okay.

25 thing I want to point out is we processed 1,265,580 25 MS. WATSON: For my last slide, we do have --

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1 the Florida Statutes provide for members who have 1 the choice of the two plans. It provides a bubble

2 complaints or disputes about their accounts or 2 chart that explains, on a very high level, this is

3 transactions. We do provide a complaint process. 3 the plan. If you work this long and you're this

4 We review them, investigate what events may have 4 age, this plan may provide the greater benefit.

5 occurred. And here are some of the top reasons -- 5 And then we reinforce that by telling them,

6 there are other reasons, but these are the top 6 call the Ernst & Young financial planners, go and

7 reasons through March 31st, 2019. Since inception 7 use the choice service, which is a tool that's

8 we've had over 4,000 complaints that we've resolved 8 available online, to get definitive numbers on which

9 and researched and assisted with. I'll turn it over 9 plan may be the best choice.

10 to Walter. 10 Then from there we start sending out reminders.

11 MR. KELLEHER: Good afternoon. Walter 11 So we send out five e-mail reminders over this

12 Kelleher, director of educational services. Thank 12 eight month period. We send out two hard copy

13 you. So the financial guidance program is the 13 reminders. And then ultimately we're telling them,

14 education program for the Florida Retirement System. 14 you've got to make a decision. On the last day

15 It covers investment plan members and pension plan 15 prior to making that decision, we send them one more

16 members. And you asked the question about new 16 e-mail, You've got to make a decision. If they

17 hires, what do new hires get. 17 don't make the decision, then they default.

18 So we hit them initially, so when they first 18 So we hit them probably ten times over that

19 come in the door, we provide employers an 19 eight month period, trying to get them to make an

20 orientation, one pager, high level, this is the 20 active election. There's just -- no matter, I don't

21 choice you've got to make, you've got to do it 21 think, what you do, you're still going to get about

22 within eight months after month of hire. And then 22 60 percent of the people that will probably default

23 starting about a month or so, once we've got them 23 in total.

24 reported on the payroll, we send out a new hire kit. 24 So how do we do this financial guidance

25 And in that new hire kit, it gives an explanation of 25 program? We've got a number of partners that we

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1 deal with. We have EY, our financial planners. 1 also assist us, as Mini mentioned, with the first

2 Members in the pension plan or the investment plan 2 and second election choice service tool that we have

3 can call and speak, get unbiased financial planning 3 available online.

4 guidance via telephone. 4 We also have a contract with MetLife, because

5 They also do workshops all over the state. We 5 one of the biggest dangers in an investment plan

6 did about 500 from Pensacola to Key West on every 6 type program is people getting a lump sum, and at

7 subject, not just new hires but estate planning, 7 the end, what do they do with that money. And we

8 retirement planning, how do you invest in the 8 have the ability for people to convert that lump sum

9 investment plan, a lot of different things that are 9 into monthly income guaranteed for the rest of their

10 done in those workshops. We also do them via 10 life. So that's an annuity product that we have

11 webcast. We webcast them here four times a year 11 available to them.

12 from the State Board all over the state. 12 So the financial guidance program, there's a

13 We also have a contract with GuidedChoice. So 13 number of different items. Telephone, we fielded

14 if someone is in the investment plan and they say, 14 around 300,000 calls last year. MyFRS.com, over

15 How do I invest my money? You know, we've got 21 15 2 million hits on the website. Print, videos,

16 available products that are available. How do I 16 workshops, webcasts. And not only do we educate the

17 choose? So using GuidedChoice, they can utilize 17 employees, we educate the employers, because that's

18 that service, and it will actually tell them, Based 18 really, really important. Employees, who do they

19 upon your age, what your risk profile is, we think 19 trust the most? Their HR office. They'll go there

20 you ought to invest 25 percent in this fund, 30 20 to get information. So we want to make sure the HR

21 percent in this fund. And the members can take it 21 offices are trained and up to speed on this decision

22 or leave it, but it's a service that's available to 22 that they need to make.

23 them. 23 These are some additional statistics. As I

24 Alight Communications, they design all the 24 mentioned, the calls to the financial guidance line,

25 printing and they handle focus groups for us. They 25 around 312,000. We did 531 workshops last year.

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1 18,000 members attended. Website chats, we have 1 site, which is a site that new hires utilize. The

2 that available on the website. There's the 2 new hire kits are being updated. And, lastly, the

3 annuities that were purchased in the last year. We 3 new hire video is being updated.

4 had 20 members purchase. That was around 4 MR. COLLINS: Mr. Chairman?

5 1.5 million. To date, we've had 124 members 5 MR. BOBBY JONES: Yes, sir.

6 annuitize their benefits, for around 15 million. 6 MR. COLLINS: So do you think by not -- by

7 And in April we had the biggest purchase we've ever 7 ignoring it, they're making their choice, most of

8 had. $2.5 million was made to purchase an annuity, 8 them?

9 which equated to about $10,000 a month on a joint 9 MR. KELLEHER: That's a good point.

10 and survivor benefit for a member. 10 MR. COLLINS: They read it. They say, hey,

11 Some of the highlights of the education 11 unless I do this, this happens. So they're like,

12 program, we selected EY once again as the education 12 well, I'm just going to do that, so I'm not going to

13 provider. That was via an ITN process. Alight 13 do anything.

14 Communications was once again selected as the 14 MR. KELLEHER: We've heard that, and I think --

15 communication provider for the program. We 15 Dan and I have talked about that.

16 conducted focus groups. 16 MR. BEARD: So when the default was the pension

17 We've also implemented a monthly survey that 17 plan, we got out of a focus group that approximately

18 goes out to all members that recently made an 18 9 percent were defaulting because they wanted to go

19 election to say, How was this new hire process? Is 19 into the pension plan. So if you go back to the

20 there anything that we can change? Is there 20 slide and look at the stats --

21 anything you like? What do you like? And based 21 MR. COLLINS: Only nine, huh?

22 upon that, we'll tweak our program going into the 22 MR. BEARD: Only 9 percent. That was from the

23 future based upon the results from those surveys. 23 focus groups. You go back and look at the stats,

24 And lastly we've got -- effective July 1st 24 you'll see that the active elections into the

25 we're rolling out a revised ChooseMyFRSplan.com 25 pension plan has actually increased, which you would

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1 expect because that's the only way you could get in 1 MR. BOBBY JONES: Oh, sorry.

2 there. So they've increased probably about 2 MR. COLLINS: Wow.

3 6 percent. So you can theoretically say about 3 MR. BEARD: So we're going to do an overview of

4 6 percent are now choosing because the default is 4 the investment fund options. So we have a total of

5 gone. 5 22 funds, if you count the 11 core funds and then

6 But you also notice that the active elections 6 the 11 target date funds. They're all white

7 for the IP has dropped some, not a lot, but they've 7 labeled. The target date funds are made up of the

8 dropped some. So I'd say that 30 is possibly 8 core funds. So the target date funds, the

9 correct, but I won't say it's a large amount that's 9 underlying assets are made up of those core funds.

10 defaulting because of that, because when you look at 10 Our assets, here's a breakdown of how our

11 the numbers prior to and now, basically everything 11 assets are broken out. As you can see, 44 percent

12 just flipped. As far as the total going into each 12 are in the retirement date funds, which we would

13 plan, it basically flipped. So now you have that 13 expect, mainly because, for those defaulters, if

14 number coming into the investment plan, which I 14 they don't make a choice, they're going to go into

15 would say is small represent, but not a huge number. 15 one of the retirement date funds. And then what

16 MR. BOBBY JONES: One thing I'd like to point 16 we've also seen is, for those defaulters, they don't

17 out before we thank Daniel and his team. We are 17 take any action when they do go in, so those funds

18 honored to have David DiSalvo, Director of the State 18 are staying in the retirement date funds, which is

19 of Florida, Division of Retirement, being here in 19 good for them because over time it will adjust based

20 the audience. 20 on their age.

21 MR. DISALVO: Thank you for inviting me. This 21 So we have several of our funds that are

22 has been very helpful and educational. Thank you. 22 multi-manager funds, and you see them listed there,

23 MR. BOBBY JONES: Any more questions for Daniel 23 and what the multi-managers are -- what the

24 and his team? 24 different parts of those funds are. So we have the

25 MR. BEARD: Well, I have a few more slides. 25 enhanced bond index fund. We have a core plus fixed

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1 income fund and then we have an adjusted 1 The other thing I'd point out there, you see

2 multi-assets fund that are all multi-manager funds. 2 that .01 percent says all funds. So we do have, I

3 In addition to that, our FRS large cap stock fund 3 think it's under 20 members who actually have money

4 and then the small-mid cap stock fund are also 4 in every fund. So all 22 funds, all 11 retirement

5 multi-manager funds. 5 date funds, they have money allocated to that.

6 The assets of the RDFs, or the retirement date 6 So we'll be doing a roll-down of our

7 funds, you see there how that's broken up and to 7 allocations for the retirement date funds effective

8 which one has the most based on age of the 8 July 1, 2019, and that's what you see here. So

9 membership. This is total fund asset allocation by 9 those are changed based on just another year. Ages

10 age, pretty much what you would expect, that the 10 change, so we'll do some changes in the allocations.

11 younger you are, the more you're into stocks. And 11 And then this is our performance through --

12 then as you progress and get older, it kind of 12 again, this is March, is our performance. As of

13 shifts from stocks into more fixed income. 13 market close yesterday, fiscal year to date, we're

14 This slide here, so this slide, a couple of 14 actually at 3.32 percent.

15 corrections on this slide. The single retirement 15 And then the last slide is our 2019-2020

16 date fund, that should be 72.5 percent, and the 16 initiatives. I mentioned the roll-down that we're

17 all non-RDF funds really should be 18.5 percent. So 17 doing. Aon Hewitt investment consultant, they're

18 what this is saying, if you look at the taller bar 18 also going to be doing a structure review. So what

19 graph, it's saying that at least 72.5 percent of our 19 they're going to do is come in, look at our

20 membership is invested in one retirement date fund, 20 investment funds, the structure, and then they'll

21 but it also may be invested in a non-RDF. But 21 review it and make recommendations or tell us that

22 72.5 percent are at least one of the RDFs. And then 22 we're where we should be.

23 18.5 percent are invested in a fund other than a 23 And then we also have some plan administration

24 non-RDF, so they're not in any of the retirement 24 initiatives coming up. We're going to do some

25 date funds at all. 25 additional security enhancements for our members

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1 when they log in, to protect them, also to keep 1 face that your balance is going to create this much

2 unauthorized account access. It's more of a 2 money. Just lets them know in the back of their

3 proactive than reactive. So we're trying to be 3 mind, you know, I may need to start saving elsewhere

4 proactive in protecting our member identity. And 4 for retirement because this is not going to provide

5 then we're also going to have, as Walter mentioned, 5 everything I need.

6 new hire materials. 6 And then the last thing is we're going to again

7 And then we're also going to do some enhanced 7 develop an online beneficiary submission form.

8 member experience. So we're going to make it so 8 Again, as our membership grows, one of the things we

9 they can access their 1099R online. So they will 9 want to do is try to push as much as we can so it's

10 still be mailed. But every February we start 10 online, so members can get to it without calling and

11 getting a lot of calls from people who want their 11 clogging up the call centers with a lot of calls.

12 1099. So this will allow them to go online and get 12 So we're putting as much as we can online, make it

13 it. It takes about two weeks to mail them out a 13 easier for them to get to without having to log into

14 duplicate copy, so much faster. 14 their account. They can go fill this out and just

15 And then you also see the -- they'll be able to 15 click "submit," and it goes to the investment plan

16 access their ACH deposit advice. Right now that's 16 administrator.

17 mailed out. So we're strictly going to do it 17 Does anyone have any questions? Great. Thank

18 online. So the only way they'll be able to get that 18 you.

19 is by logging in to get that ACH deposit advice. 19 MR. WENDT: Thank you.

20 We're also going to add estimated monthly 20 MR. COBB: Mr. Chairman, I have a question on

21 income to the quarterly statements. So as Walter 21 fees.

22 mentioned, we have a contract with MetLife for 22 MR. BOBBY JONES: Yes, sir.

23 annuities. So we're going to take their annuity 23 MR. COBB: And I'd like everybody to turn to

24 factors, take their lump sum, convert it to a 24 page 15 of the Aon summary of fees. It's also on

25 monthly amount. So we put it right in the member's 25 page 20 of the Aon report. And my conclusion and

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1 therefore maybe my question, my conclusion is that 1 the cost of the options relative to other peer

2 these fees are lower than the average mutual fund 2 plans, they're also lower. And realize that within

3 fees, but they are appreciably greater than Schwab 3 each of these options, for a lot of them, we're

4 and Vanguard. 4 using active management instead of passive. And so

5 And so it's my understanding that Vanguard and 5 that's why costs may look slightly higher, because

6 Schwab can provide significantly lower fees and 6 you're paying active management fees. However,

7 still pay some of their administrative costs. And 7 again, those active management fees are a lot lower

8 so why are our fees higher than Schwab and Vanguard? 8 than what is the average for those particular

9 It's possible the question is that we have to cover 9 strategies in the market.

10 some of the other costs of education and other 10 Is there a particular category that looks

11 additional benefits that maybe a Vanguard or a 11 higher to you that maybe we can look into a little

12 Schwab wouldn't provide. 12 bit more in-depth?

13 Let me make just one last editorial statement. 13 MR. COBB: Yeah. I would say foreign stock

14 I have always been impressed and I commented earlier 14 index -- excuse me. No. That is passive. I mean

15 how low our pension fund fees are compared to other 15 that is competitive. So I guess the foreign stock

16 major pension funds and other investment management 16 fund is active management.

17 options for our employees. And I guess I would hope 17 MS. DOYLE: That's right.

18 that our investment plan options were also some of 18 MR. COBB: That's why that's so high.

19 the lowest available. And so why can't we get these 19 MS. DOYLE: Right.

20 lower, is my question. 20 MR. COBB: So I guess my suggestion would be

21 MS. DOYLE: Well, without having the exact 21 that we compare it to Vanguard, apples to apples

22 comparisons for -- at the asset class level and 22 with Vanguard and Schwab and any other competitive

23 whether we're talking about active management or 23 low fees and convince ourself that for our employees

24 passive management, it's a little bit hard for me to 24 that are picking the pension -- picking the

25 comment. But in general, when we look at your -- 25 investment plan, that the State of Florida can do it

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1 less expensive than competitive organizations, than 1 MR. WILLIAMS: Fidelity now, I think, has their

2 Vanguard and Schwab, would be my suggestion. Ash, 2 whole platform with almost no fee. So definitely

3 are you comfortable with that? 3 the trend is down on fees.

4 MR. WILLIAMS: I think so. And, you know, we 4 MR. COBB: And I would hope we would be

5 do all of this by RFP and getting information, et 5 competitive for our employees. That should be our

6 cetera. So part of it would be to what extent are 6 objective, to be as competitive in the investment

7 Vanguard and Schwab in this business. And I think 7 plan as we are -- for our employees as we are in our

8 the answer is they almost certainly are. And I'm 8 pension plan for our employees.

9 sure they're part of the universe we've looked at. 9 MS. DOYLE: Absolutely. The other thing to

10 So I think it has to do with the way things lay 10 note is a lot of times there are multiple share

11 together, and I'm not sure whether this graphic is 11 classes as well, and so we're always making sure

12 contemplating funds that are in the separate 12 that the investment plan is offering the lowest cost

13 platform or those that are woven into the target 13 share class that's available for a particular

14 date funds that we use, or both. 14 strategy.

15 MS. DOYLE: I believe, if I understand your 15 MR. BEARD: Yeah. And one of the things, when

16 question, it's both. And, you know, what's offered 16 I mentioned the structure review, that's one of the

17 on Vanguard and Schwab's platforms would likely be 17 things, when they go in and do that, that's one of

18 in that mutual fund universe that we're showing here 18 the things they'll look at, is our fees for our

19 as well. It's a pretty broad sweep of mutual funds 19 investment funds and make recommendations on that as

20 that are available in the marketplace. 20 well.

21 MR. BOBBY JONES: And, Chuck, I would agree 21 MR. BOBBY JONES: I think at this point in

22 with you that the term "average mutual fund fee" 22 time, I think all of us have kind of reviewed the

23 doesn't mean much when you compare it to a Vanguard 23 materials. So I'd like to ask Aon if there's any

24 and Schwab. So you're right, that can hide a 24 high points that y'all would like to bring up as it

25 multitude of sins. 25 relates to the defined contribution and the overall

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1 retirement plan. 1 few times is also this move towards less choice,

2 MS. DOYLE: Sure. If you don't mind, Chair, 2 away from the old style of offering a defined

3 I'll just make a couple of high-level comments, and 3 contribution plan which was offering, you know, 40

4 then we can move on to the next agenda item. 4 funds, all different style boxes, where participants

5 So the material that you have, basically what 5 don't know what to do.

6 we did was point out what the key challenges are in 6 In fact, I think one of the most interesting

7 the defined contribution space, which namely are 7 statistics about defined contribution plans is, when

8 that participants don't build efficient portfolios 8 you offer participants too much choice, they

9 and they don't save enough. And so what are kind of 9 actually allocate to every single fund that you

10 best practices to deal with those particular 10 offer, which obviously is not the right way to

11 challenges, and then looking at your program through 11 utilize an investment menu.

12 that lens, to see whether it's aligned with those 12 So as your plan has evolved, it started to look

13 best practices. 13 simpler to a participant and provide a structure

14 So investment structure is one of the most 14 that helps them logically figure out where they

15 important ways that you can influence participant 15 should -- if they want to make a choice, where they

16 behavior. And that is by doing things, using white 16 should be putting their assets. So those would be

17 labeled funds, which you do 100 percent of here, 17 the -- so basically the conclusion is we believe

18 using target date funds with a custom glide path, 18 that the investment program is in line with those

19 which you do here, using automation to default 19 best practices and is moving along with the

20 participants, to make choices for them. And we've 20 marketplace in terms of trying to put an investment

21 seen that work here, where almost 50 percent of the 21 structure in place that will get better results for

22 assets in the investment plan are in the target date 22 the participants.

23 funds. 23 Any questions on any of the material, if you

24 The other piece that we've talked a lot with 24 were able to review it ahead of time, I'm happy to

25 your team about and we've, I think, mentioned here a 25 answer.

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1 MR. GRADY: Mr. Chairman, this is Tom Grady. 1 MR. BOBBY JONES: So, yeah, I think there's two

2 MR. BOBBY JONES: Yes, Tom. 2 questions there from our end, Tom. Are you saying

3 MR. GRADY: I don't think this is a question 3 that somebody not affiliated with the SBA through a

4 directly for Aon, but there was questioning this 4 position with the State of Florida or a college, or

5 morning or earlier this afternoon about why other 5 are, you know -- are you talking about the people

6 state and local government entities or NGOs don't 6 that are already able to participate?

7 take advantage of the products and services offered 7 MR. GRADY: You came in a little garbled. But

8 by the SBA. And I would ask that question in the 8 I'm just trying to determine whether the investment

9 context of the defined contribution plan. 9 advantages, including the scale economies, can be

10 The comments from Aon are well-documented 10 passed on to someone else in the same identical form

11 regarding the difficulty in making choices when you 11 that we offer them to the participants in the

12 have too many choices available. And I'm wondering, 12 pension plan.

13 and I think maybe this was the gist of the 13 MR. WILLIAMS: Mr. Chairman, if I may.

14 questioning earlier today, is it possible that an 14 MR. BOBBY JONES: Yes, please.

15 investor client, whether that's a participant in a 15 MR. WILLIAMS: Tom, this is Ash. I think the

16 defined contribution plan or a university or someone 16 answer to your question is -- first of all, it seems

17 else, can simply say, Look, I want to mirror the 17 that your question is, is there essentially a

18 performance results of the defined benefit plan. 18 unitized version of the investment portfolio of the

19 I'm going to take my dollar, and I want you to 19 Florida Retirement System Trust Fund that is

20 invest it in exactly the same mix of fixed income 20 available to anybody who might choose to have it and

21 and equity and other securities. 21 it's priced in some way that reflects our low costs.

22 And you might argue that a liability-driven 22 I think that's the general question. Is that

23 portfolio overall to the pension plan might not be 23 correct?

24 ideal, depending on the particular investor. But is 24 MR. WENDT: That's the question.

25 that even an option, where somebody can do that? 25 MR. GRADY: I think it is, whether there is or

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1 whether there could or should be. 1 So that's one barrier. And that's the reason

2 MR. WILLIAMS: Okay. So the answer is there is 2 we use target date funds. And target date funds are

3 not. Whether there could or should be would depend 3 recognized internationally as best practice in

4 on several other variables. First of all, what is 4 defined contribution plans, because they take that

5 the breadth of universe of people to whom we make 5 change and personal risk curve into consideration,

6 that option available. And I would think that would 6 and the mix resets, in our case, every three years

7 be subdivided into two categories at first glance. 7 to reflect the change in the individual's age.

8 The first category would be existing 8 And the reason we use three versus one, two,

9 beneficiaries of the State Retirement System, 9 five or some other number is that Aon did a lot of

10 notably defined contribution participants. And part 10 work on this and concluded that the optimal period

11 of the reason that that is not an option currently 11 where the benefit of the rebalance equals or offsets

12 is that the -- one of the powerful reasons that the 12 the cost of the rebalance is doing it every three

13 Florida Retirement System Trust Fund has the 13 years.

14 long-term strong, strong investment performance that 14 So that's one reason why we haven't done this,

15 it does and also a reason that it has the low cost 15 because a lot of people would tend to say over time,

16 that it does is that the risk pooling that's 16 Hey, the pension plan seems like a good deal, I'll

17 afforded by a defined benefit structure means that 17 take that. But then when you have that person who's

18 we are always investing over a very long-term 18 way along in life and the pension plan has a year

19 horizon, which means that we do a lot of investments 19 like 2008 where it's down 19 percent, I think every

20 in things that might not be appropriate for people 20 trial law firm in Florida would be busy in the wake

21 as they age, because the risk curves of individuals 21 of that outcome, because people would say, Why did

22 change the closer we get to the end of our lives, 22 you have me in frontier market equities or why did

23 because we don't want to take the risk of ruin if 23 you have me in venture capital or distressed debt?

24 the risk we take in our portfolio is excessive 24 MR. WENDT: Because it's their choice, isn't

25 relative to our age. 25 it?

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1 MR. COLLINS: Well, I don't think so. No, I 1 the portfolio level on our own volition with your

2 don't think so. I think -- 2 guidance, and those decisions stick. We're not

3 MR. GRADY: If I could just follow up. 3 revisiting those decisions for a million different

4 MR. COLLINS: I think what Tom is talking about 4 beneficiaries, which is how many we have, who all

5 is the defined benefit side, having a unit in the 5 have their own preferences and might have their own

6 defined benefit side, not in the defined 6 in and out and the need to provide liquidity and

7 contribution side, because anybody can do that and 7 things like that.

8 they can just go through the funds. 8 As you know, we own a lot of direct real

9 MR. WILLIAMS: They already have it. 9 estate. We just heard about private equity. None

10 MR. COLLINS: Right. So the DB -- I think what 10 of those things are liquid. And to the extent you

11 he's trying to say is, hey, the low cost and the 11 have people --

12 performance on the DB side is very attractive, it 12 MR. COLLINS: And levered.

13 is, but how can you unitize that for somebody else? 13 MR. WILLIAMS: -- wanting to come and go -- but

14 And that's what Ash is saying. It's like, well, you 14 not enough. To the extent you have people wanting

15 know, you'd have to -- it would be a great idea in 15 to come and go, that's a problem. And how do you

16 theory because you'd get a lot more assets under 16 deal with that? Is it possible there could be some

17 management. You could drive costs down even 17 sleeve created with some sort of suitability test?

18 further. But how would you manage, from an 18 Perhaps so. But then you'd also have to have a

19 actuarial basis, the incoming and outgoing into the 19 distribution arm, a client service arm, et cetera,

20 defined -- into that group that then creates a unit 20 none of which we're set up to do.

21 price? 21 MR. GRADY: Well, it may be impractical, but I

22 MR. WILLIAMS: Well, you have that and you have 22 think, if I could back up -- and I apologize. I

23 another variable. And that is, one of the reasons 23 don't want to bog down the meeting with this this

24 we have the costs that we do is we are by definition 24 afternoon, but it seems important to me, as a

25 an institutional manager. We're making decisions at 25 trustee of those participating in the defined

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1 contribution plan, to voice the concern or the 1 you've just made exactly the argument for why target

2 question. 2 date funds are considered best practice. Now, as to

3 The most challenging decision people will make 3 the question of what are beneficiaries missing

4 in their theoretically individually directed 4 because they don't have the benefit of private

5 retirement plan will be asset allocation. And we're 5 equity, venture capital and perhaps some of the

6 eliminating many asset classes from them to choose 6 other things we do in the alternative space, here's

7 from in the defined contribution plan, including for 7 the reason we don't have those. It's not because we

8 example private equity, which we discussed this 8 haven't tried. And in fact we have added a real

9 morning was something where we may want to add more 9 estate product to our target date fund mix. That's

10 dollars from fixed income. But that's not an option 10 been there now for, I want to say, about two years.

11 if you're in the defined contribution plan. 11 And it's gone quite well, in fact.

12 And when the public markets have gotten to the 12 We also looked at putting in other

13 point where we have half the number of stocks 13 non-correlated diversifying investments, such as

14 available than we had 20 years ago, that's a limited 14 private equity and hedge fund products or

15 universe for those folks to participate in. So I'm 15 alternative investment products broadly. And when

16 just thinking out loud as to whether there's a way 16 we looked at the products in the market, we found

17 that the asset allocation mix could better mirror 17 two things.

18 that in a large pension plan, given the scale and 18 Number one, their performance really wasn't

19 other benefits that we have, because these folks 19 terribly good. And, number two, their fees, to

20 really -- when you get down to it, we can talk about 20 Ambassador Cobb's point, their fees, as I remember,

21 what they should do, what they might do. We heard 21 were something on the order of 8x the fees that we

22 someone say, if you give them 50 choices, they'll 22 charge. And the fees were so large that the fees,

23 take all 50. They're not likely to make good 23 even for that small section of the target date fund

24 choices, so maybe we can help them. 24 asset mix, would have increased our overall fee

25 MR. WILLIAMS: I couldn't agree more, Tom. And 25 level materially.

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1 And so our conclusion was it could be that 1 MR. WILLIAMS: Well, the main thing will be the

2 because of the point in time we did this work, which 2 liquidity mismatch, because you're going to have to

3 was about two years ago, that because of the long 3 have daily liquidity and daily valuation. That does

4 run of underperformance in some of the alternatives, 4 not exist. We can't create that through a box of

5 not private equity, but some of the alternatives, it 5 individual --

6 was holding back their performance, and the fees 6 MR. COLLINS: I'm sure you could come up with a

7 were not reflecting of performance. The fees were 7 cost for that.

8 absolute, so they looked unseemly on the high side. 8 MR. WILLIAMS: Well, we have. I mean,

9 MR. COLLINS: Could I ask this in a different 9 Blackstone has that product right now. We've looked

10 way so that we could move on and still address 10 at it. And a handful of other people --

11 Tom's, I think, really good question? Could you-all 11 MR. COLLINS: And you're saying it's just too

12 by the next meeting come back to us and tell us if 12 expensive.

13 the defined contribution plan could invest in the 13 MR. WILLIAMS: They're all very, very

14 private equity portion of the DB program or the real 14 expensive, and frankly their history is not great

15 estate portion of the DB program, and if so, how 15 either.

16 would that happen, and if not, why we can't do that? 16 MR. COLLINS: Well, John's history is pretty

17 MR. WILLIAMS: We can do that, sure. 17 good, and he doesn't look expensive. I mean --

18 MR. COLLINS: Because I think Tom's point 18 MR. WILLIAMS: Why don't we do this. I think

19 there, if we can't offer them a unit in the defined 19 your question is well-phrased. And, Tom, I think

20 benefit plan, which I totally get, why can't the 20 your intent is appropriate, as is your question. So

21 defined contribution plan have a private equity 21 why don't we do this? Why don't we do a little work

22 component that's right down the hallway from them? 22 on this and we'll do a little pluses and minuses on

23 And there's probably a myriad of reasons. None of 23 it and come back to you, because this is one of

24 us know why. But maybe there isn't and we've just 24 those ones where the concept is great, and when you

25 got to figure out how to do it. 25 come down to the execution, you rapidly find out the

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1 devil is indeed in the details. So let us do some 1 we've assembled, and they make these investment

2 work on it and we'll get back. 2 decisions, and by and large they've been okay, so

3 MR. COBB: So, Mr. Chairman, as part of that 3 why can't we let the people in the -- what's it

4 same report, which I think is a good idea, I'd like 4 called? Not defined benefit program.

5 to focus, in addition to private equity and real 5 MR. WILLIAMS: Defined contribution.

6 estate, as Peter suggested, is focus on common 6 MR. WENDT: Defined contribution program. Why

7 equity. And it's my understanding our cost today, 7 can't we let them just side by side do it? I don't

8 we index about half of our equity position. Is that 8 see why you can't have a unit of that at all. But

9 right? And so our cost is way less than a tenth 9 as I said, I don't want to get involved in the

10 of one -- I mean, a hundredth of 1 percent, I would 10 discussion because it's running late, but I would

11 guess, our cost on that indexing. 11 like to -- the next time we'll have more time for

12 And then on our managed cost it's, I'm 12 this.

13 guessing, 20, 15, 20 basis points. So I would guess 13 MR. WILLIAMS: We'll have it.

14 our average costs are appreciably less than the fees 14 MR. WENDT: Less time on audit, more time on

15 suggested here. And so I would like to see what 15 this.

16 kind of competitive fees we might have by doing some 16 MR. COLLINS: Tell that to the auditors. Don't

17 of it in house and some of it through third-party 17 tell that to the auditors.

18 providers that would be appreciably less than this 18 MR. WENDT: I'm not going to -- I'll tell them

19 and more attractive to our investment customers. 19 if you want me to.

20 MR. WENDT: I don't want to prolong this 20 MR. COLLINS: And I didn't mean to say that

21 discussion. I'm going to wait until the 21 John looked cheap, because he doesn't. He just

22 recommendations come back. But I haven't been 22 didn't seem really expensive.

23 hearing what Mr. Grady has been saying as what you 23 MR. BOBBY JONES: So it sounds like we're going

24 people have been responsive to. I think he's 24 to have a vigorous discussion on these points that

25 saying, look, we have all this expertise here that 25 not only Tom brought up but the ambassador, as well

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1 as Gary, on the September 17th meeting. So it will 1 we're showing here on the right-hand side.

2 be a good discussion. 2 Normally, we don't get into month-to-month detail,

3 MR. COLLINS: It will be a humdinger. 3 but what we're showing here is, given factor

4 MR. BOBBY JONES: Yes, and I would totally 4 performance, for instance, in the top graph, how did

5 agree. Now, in the interest of time and also we 5 the top high beta stocks do compared to the

6 have a few other asset classes, I'd like to turn it 6 benchmark. And we've shown this for beta,

7 over to Alison and Tim to tell us about global 7 volatility, book to price, et cetera.

8 equity. 8 And what you can see on a month-to-month basis

9 MS. ROMANO: Good afternoon. So today, in our 9 is there's no traction for any of these factors.

10 high-level review, I will go through the specific 10 There's volatility in the factors. So beta did not

11 market conditions that impact our performance, how 11 work at all in October and worked phenomenally well

12 we perform at the aggregate level. And then I'll 12 in January.

13 turn it over to Tim, and he'll peel away the layers 13 Why does this matter? We have diversified

14 a little bit, talk about some aggregate performance 14 assets. We have diversified managers. Most aren't

15 and where our strategic focus has been of late. 15 making bets on a single factor. Well, they do tend

16 So you-all, again, know the markets well, and 16 to lean on factors. And in a short time period, a

17 it's been a little bit of a roller coaster over the 17 quarter, a year, when you can't get traction in any

18 last six months. We had a rough fourth quarter. 18 type of style, it makes it difficult for active

19 Who knew that the markets could go down? And I 19 managers.

20 think the markets forgot that then again in the 20 That said, what you can see when you turn the

21 first quarter. And since then, the markets have 21 page is, despite that factor volatility, market

22 again gone up and down. 22 volatility, we've continued to outperform. So the

23 But it's much more than a risk-on, risk-off, 23 three points I'd like to make overall on our

24 pro-equity, against-equity market. And I think 24 performance, we continue to outperform on the

25 what's really relevant to our performance is what 25 quarter, the year and in all periods that we've

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1 shown here. 1 level. Performance was led by solid results in both

2 Our allocation to defensive managers, to 2 foreign developed large cap and also in emerging

3 managers that tend to lean on quality factors, 3 markets, with high growth and quality growth leading

4 really did pay off when the markets were down. But 4 the former and stock selection in China the latter.

5 that doesn't mean that we've given up on the upside 5 Our currency program benefited from strength in

6 when markets come back. We've done all of this 6 the U.S. dollar and a rebound in emerging market

7 maintaining very low relative risk to the benchmark. 7 currencies. Performance was somewhat offset,

8 And then the final point that I'll make on 8 however, by lagging U.S. strategies, international

9 top-level performance, on this slide, which we have 9 small cap and our dedicated global aggregate. U.S.

10 included in materials in the past, which is that 10 large cap managers face significant headwinds from

11 we've had a lot of consistency in our 11 their value, small cap and quality biases as

12 outperformance. What we're showing here is a plot 12 expectations for rising interest rates diminish and,

13 of our aggregate managed returns to the benchmark 13 as we all know, markets raced ahead in Q1.

14 returns. So any dot that is above that black line 14 The last page of our slides focus on some

15 means we outperformed. 15 updates in global equity, some of our initiatives.

16 What you can see is in almost 95 percent of the 16 As to structural enhancements, we funded a new

17 12 month periods that we've had since our inception, 17 emerging market small cap manager in Q1. We're also

18 we have beaten our benchmark. Again, that's all 18 nearing the final stages of an emerging markets

19 with a very low level of risk and very different 19 manager search. And we continue to research and try

20 market environments. 20 to identify strategies that we can internally

21 MR. TAYLOR: Good afternoon, everybody. The 21 manage. Of course, these have significant cost

22 next page we'll dig a little deeper into the 22 advantages. We currently manage two active internal

23 performance of our active strategies. Overall, 23 strategies, and we'll be funding another in the very

24 active performance during the quarter was positive. 24 near future.

25 However, results were mixed at the sub-aggregate 25 China A shares are becoming a larger component

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1 of our benchmark. MSCI has been increasing them 1 MS. ROMANO: I thought one other point that we

2 gradually in the last year. And while they're 2 didn't have on the slide but would be relevant,

3 currently a modest percentage, this percentage is 3 based on the conversations we've been having, is our

4 going to continue to consistently increase over the 4 team has been very successful over the last year

5 next several years. 5 renegotiating fees with existing managers.

6 We decided to allocate some money to a couple 6 Why have we been able to do it? Yes, it's

7 of dedicated A share strategies. They're managed by 7 because we have scale. Yes, it's because generally

8 institutions we know very well and we've worked with 8 management fees are under pressure. But I would

9 them for several years. That said, we're also 9 attribute a lot of that to our ability to retain

10 reviewing other industry offerings. And at some 10 talented individuals. With the talented individuals

11 point in the future, we may look to allocate even 11 we've had on our team, we've built analytical

12 more to dedicated A share strategies. So with A 12 platforms to better disaggregate sources of return

13 shares, here we have the potential for notable 13 and go to the table with a manager, explain how

14 excess returns, along with liquidity via 14 they've been delivering the performance and not pay

15 exchange-traded securities. 15 for performance that we can get in a cheaper manner.

16 Finally, here at the bottom of the page, global 16 So I thank you-all, the committee here, for the

17 equities must always remain aware of our role as a 17 work that you've done on compensation and the

18 liquidity provider to the Florida Retirement System. 18 culture that's been set on the top because we

19 We think an interesting observation is that in the 19 wouldn't be able to get those lower fees without a

20 past five years, our foreign developed large cap 20 good team to do it.

21 aggregate has been the source of about $11 billion 21 MR. TAYLOR: And we're happy to answer any

22 of liquidity assessments to pay our beneficiaries. 22 questions.

23 At the same time they've still been able to generate 23 MR. BOBBY JONES: Folks, any question?

24 131 basis points of annualized alpha. And Alison 24 MR. WENDT: Yes, I have one. For those of us

25 had one more point to make. 25 who have been out of town for a while, explain the

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1 difference between a China A and a non-China A. 1 And it's a program whereby you can actually, as a

2 MR. TAYLOR: Certainly, certainly. Thank you 2 non- -- a citizen outside of China, buy local A

3 for that question. A shares are -- up until 3 shares. And so that has opened the market even

4 recently were only available to individuals who 4 more. But the number of A shares and the ability of

5 lived in China. So A shares, if you were a non- -- 5 the A shares, even while the opportunity set is

6 if you were an investor outside of China, you did 6 pretty big already, it's even greater because

7 not have access to A shares. How you could access 7 there's much more A shares to be accessed.

8 China were through other programs, like H shares, H 8 So I'm sorry for the long-winded answer. But A

9 shares traded in Hong Kong, for example, or ADRs 9 shares were previously only available to qualified

10 traded in New York, global depository receipts 10 investors that are only citizens of China. They've

11 traded in London and so forth. 11 been opened up to the rest of the world. And in

12 One of the ways that China has striven to open 12 terms of the size of the market, it is actually the

13 its markets to international investors is through 13 second largest equity market in the world, only

14 the quota programs. So about a decade ago they 14 behind the United States.

15 opened the market to international investors to 15 MR. WENDT: So is the answer to the question

16 purchase local A shares, but you needed to qualify. 16 that A shares are ones that the Chinese government

17 You needed to put in an application and become a 17 say you can buy?

18 qualified foreign institutional investor. So mostly 18 MR. COLLINS: No.

19 it was only the largest institutions that had the 19 MR. TAYLOR: Yeah. I'm not sure who said that

20 resources to do that and were approved. 20 but --

21 In the recent years, another step to open their 21 MR. COLLINS: I did. So think -- the way I

22 markets even more to foreign investors has been the 22 would answer it, I think, is think of the A shares

23 Hong Kong connect program. And so this is 23 as common stock and think of everything else as an

24 working -- the Hong Kong stock exchange working with 24 appreciation or a depreciation right. Right?

25 the local stock exchanges in Shanghai and Shenzhen. 25 MR. WENDT: To me, that's more confusing than A

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1 versus non-A. 1 is MSCI ACWI IMI.

2 MR. COLLINS: So think of -- so if China is not 2 MR. PETER JONES: I see.

3 going to let you buy that stock, it means because it 3 MR. TAYLOR: And one of the benefits of being a

4 carries some rights that they don't want you to 4 liquidity provider almost on a monthly basis is we

5 have. Right? So it's like a common stock. You're 5 do have the opportunity to look at any biases,

6 a common shareholder. So they don't want you to 6 overweights, underweights we have. And if we want

7 have that right, so they're going to give you some 7 to address those biases, it's an opportunity for us

8 sort of piece of paper that -- you know, it's like 8 to do so at that time.

9 voting stock versus non-voting stock. It's common 9 MR. PETER JONES: That answers it. Thank you.

10 stock versus an appreciation right. 10 MR. TAYLOR: You're welcome. Thank you.

11 MR. WENDT: I withdraw the question. I do. 11 MR. BOBBY JONES: Are there any other questions

12 MR. COLLINS: That's worse? 12 for global equity?

13 MR. WENDT: I don't want to get into -- 13 MR. OLMSTEAD: Mr. Chairman, a quick question?

14 MR. COLLINS: I'm worse? Okay. Sorry. 14 MR. BOBBY JONES: Yes, sir.

15 MR. BOBBY JONES: Yes, Peter. 15 MR. OLMSTEAD: When you say you completed

16 MR. PETER JONES: For your overall equity 16 evaluation of specific China A strategies, have you

17 portfolio, how much is U.S. versus non-U.S. of the 17 invested in China A strategies?

18 total equity? 18 MS. ROMANO: We have two that are near final

19 MR. TAYLOR: Roughly 55 percent U.S., 19 stages to make the investment, and we do have a plan

20 45 percent non-U.S. currently. 20 longer term to evaluate a broader swath of managers.

21 MR. PETER JONES: And is that, other than -- do 21 MR. OLMSTEAD: Got it. Thanks.

22 we rebalance to that ratio and has that changed, 22 MR. COLLINS: May I?

23 what drives that? 23 MR. BOBBY JONES: Yes, sir.

24 MR. TAYLOR: Yes, sir. We generally try to 24 MR. COLLINS: What is a quality growth manager?

25 remain relatively neutral to our target. Our target 25 What is quality growth? I think all growth is

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1 quality, right? 1 boring as possible. I'll try to be as brief as

2 MS. ROMANO: We often joke, what is quality, 2 possible.

3 because we have very few managers that say they 3 MR. COLLINS: People have been taking shots at

4 don't buy quality. We have one but -- but in all 4 her all day.

5 seriousness, definitions are different. I think 5 MS. WOJCIECHOWSKI: Exactly, yeah. Yeah, I

6 quality growth often -- 6 hear there's a rumor that they want to get rid of

7 MR. COLLINS: Is that like large cap growth? 7 fixed income again.

8 MS. ROMANO: No, not necessarily. It may be a 8 So quick review. I just have a few comments.

9 company in a space that is growing, but there are 9 The 12 month returns that I put in here were 4.98.

10 steady cash flows. There's not a lot of debt, as 10 As of today they are 6.17. So it just goes to show

11 opposed to a very high flyer, exciting small cap 11 that you can have total return in fixed income in a

12 tech company, for instance. 12 2.5 percent yield world.

13 MR. COLLINS: That's non-quality growth. 13 So I liken us -- and I've said this before

14 MS. ROMANO: Well, again, quality for managers 14 about sleeping well, but I have a different analogy.

15 truly is in the eye of the beholder. And one 15 We're kind of like eating your vegetables, unless

16 quality manager could be very different from another 16 you really, really like vegetables, but it's

17 quality manager. 17 something that you need. It is preservation of

18 MR. BOBBY JONES: I think that's probably all 18 principal. It is liquidity. It is the anchor to

19 we want to hear from global equity. I'm joking. 19 windward or the balance versus equity.

20 Thank you so much, Alison and Tim. Now we're 20 So we look at that all day. And whenever we

21 looking for a very boring report from fixed income, 21 analyze and evaluate managers, it's can they be a

22 knowing that the real shell shocker of real estate 22 diversifier, so do they take on too much credit risk

23 comes right afterwards. So give us a break, Katy. 23 and therefore become more like equity, do they take

24 MS. WOJCIECHOWSKI: You guys are a hard 24 large interest rates bets.

25 audience today. Wow. Okay. I'll try to be as 25 So our job is to make sure that there's plenty

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1 of liquidity. And we have provided liquidity a 1 year. So that's kind of where we've been focusing.

2 couple of times in the past couple of months. So we 2 We are overweight spread product. This is for

3 have outperformed on all time periods, in a boring 3 our total allocation for all of our internal and

4 fashion and with a -- I'd just like to point out a 4 external. Again, we have an active portfolio of

5 couple of things. I put in here that the benchmark 5 about 6.5 billion, and then we have five external

6 yield was 2.70. It's now down to 2.46. So we had 6 managers, and about 40 percent of our portfolio is

7 quite a yield. The 10 year hit 2.01 this morning. 7 passively managed.

8 So we'll see if we're sub-two tomorrow. 8 We have pretty low risk on right now. We,

9 MR. COLLINS: 2.01? 9 along with all of managers, don't see a lot of great

10 MS. WOJCIECHOWSKI: 2.01, yeah. It's not that 10 opportunities. So it's more about picking up a lot

11 now, but it was this morning. A couple of notes, 11 of stones and doing security selection.

12 you can see -- I just said this, but yields fall. 12 And just a couple of things that I've mentioned

13 We've had spreads widen and tighten and widen and 13 in the past. We've been looking at a shorter

14 tighten again a little bit. Risk off, risk on, 14 duration manager, and we're barbelling that with a

15 depends on what happens overnight. Draghi comes out 15 full ag, so a broad index manager. We're going to

16 with comments this morning. Paige said it pretty 16 marry those in a core-plus mandate. Looking back

17 well, so I'm not going to repeat those market 17 over the past five years, that would have increased

18 comments. 18 our returns reasonably with very little expansion to

19 But the world is awash in negative yield. So 19 risk.

20 find a good investment somewhere -- and I'll get to 20 And, you know, I've said it before. We gave up

21 that, on kind of what we're doing in that space a 21 some returns five years ago when we went to the

22 little bit later. But the right chart points to it. 22 intermediate ag. We knew that. We've given up

23 If you look at the short rates, we have a -- I call 23 probably about 90 basis points a year. We do have

24 it a sinkhole in the yield curve right now. 24 better risk-adjusted returns. And that allowed the

25 Front-end rates very high relative to like the five 25 board the opportunity to spend the risk elsewhere,

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1 and it's probably been a good thing. Otherwise, 1 MR. COLLINS: So the only -- so the issue that

2 we're funding that manager probably first quarter of 2 I think would be -- the reason would be to take that

3 the next fiscal year. And I think that's it. 3 bet is currency is picking up some of it, but some

4 MR. BOBBY JONES: Folks, any questions on fixed 4 of it is inefficient -- inefficiency in the market,

5 income? Go ahead, Peter. 5 right, in an emerging country, in their debt markets

6 MR. COLLINS: Going back to China for a second. 6 versus the United States? I mean, it's very

7 MS. WOJCIECHOWSKI: So that's not me. 7 efficient, right?

8 MR. COLLINS: Yeah. How much time -- do you 8 MS. WOJCIECHOWSKI: It is, right.

9 have any of your team looking at that on a fixed 9 MR. COLLINS: So you could get better pricing

10 income basis? Is there just not even a market there 10 for a pretty decent piece of paper over an emerging

11 for real fixed income or mortgages? 11 market, just because there's not a lot of demand for

12 MS. WOJCIECHOWSKI: There's plenty of debt in 12 it.

13 China, yes. 13 MS. WOJCIECHOWSKI: That may be true, yeah.

14 MR. COLLINS: So do you-all -- are you active 14 MR. COLLINS: Yeah, I don't know if it's true,

15 in that area? 15 but that's one of the reasons why I would think it's

16 MS. WOJCIECHOWSKI: Internally we would not 16 not just a currency question.

17 probably -- we just don't have a deep enough team to 17 MS. WOJCIECHOWSKI: Absolutely, yeah. I'm not

18 look globally. We do charge our external managers 18 saying that there is no value in emerging markets.

19 to look globally. We've looked a lot at does it 19 Certainly not. There are certainly opportunities.

20 make sense to go into emerging markets. And it 20 It's been very tough, with the strong dollar lately,

21 seems to be much more of a currency bet from a debt 21 to make that make sense in debt space.

22 perspective. So then why not just make the clean 22 MR. COBB: I have a question. Put yourself in

23 bet in that case? They certainly take opportunities 23 the shoes of a French or German fixed income pension

24 in emerging markets and in high yield all the time, 24 fund with multi billions of dollars to invest in

25 yeah, but we don't have a dedicated manager. 25 fixed income. Why wouldn't you put all of it in

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1 U.S.? 1 Not we personally, but U.S. Treasuries are very

2 MS. WOJCIECHOWSKI: If I were able to, I 2 marketable.

3 probably would. Personally, I probably would, yeah. 3 MR. WEBSTER: Not you personally?

4 We looked at it, could you possibly invest in bunds 4 MS. WOJCIECHOWSKI: No, I'm definitely not.

5 and basically earn less than you put in or get back 5 MR. BOBBY JONES: Thank you, Katy. Any other

6 less than you put in. Where would that make sense? 6 questions? Okay. It's that time, Steve. Real

7 If currency adjusted, could it make sense? And, 7 estate, here we go.

8 again, you get back to the currency bet. Right? 8 MR. WENDT: I have a question of this witness.

9 And we just couldn't make it make sense. 9 Why aren't you borrowing more money?

10 MR. COBB: But I guess my conclusion -- it's a 10 MR. SPOOK: We are.

11 question. My conclusion is that they're worried 11 MR. WENDT: Thought I'd get a head start on you

12 about the strength of the U.S. dollar and how the 12 guys. Borrow more money. Interest rates are low.

13 dollar has a depreciation potential, and that must 13 MR. COLLINS: What did the 10 year just hit?

14 be why they aren't putting 100 percent. 14 2.01?

15 MS. WOJCIECHOWSKI: Oh, by the way, they 15 MR. WENDT: Two points. Borrow all you can.

16 certainly are. 16 MR. SPOOK: Good afternoon. And, Peter, thank

17 MR. COBB: In addition to their -- I guess the 17 you for changing your opinion on John from cheap to

18 insurance companies have some regulatory problems. 18 expensive.

19 MS. WOJCIECHOWSKI: They do. There are 19 MR. COLLINS: I didn't say he was expensive. I

20 requirements. 20 didn't say -- but I didn't say he was cheap.

21 MR. COBB: But the pension fund mostly I don't 21 MR. SPOOK: We both shop at the same suit

22 think does. 22 place. I just carry mine a little better maybe.

23 MS. WOJCIECHOWSKI: I'm not familiar completely 23 Okay. So slide one shows that at

24 with European pension funds but -- but they 24 12/31/2018 we're 9.7 percent, because of denominator

25 certainly do, yeah. We are very marketable to them. 25 effect and equities have performed fairly well since

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1 then. We are now back to 9.4 percent. So real 1 acquisitions since that time.

2 estate can jump around without buying or selling or 2 Performance, total real estate performance,

3 acquiring or disposing. 3 good for all periods except one year. One year was

4 The next couple of pages are leverage in the -- 4 impacted by two specific instances, but those will

5 trying to be as transparent as possible, since I 5 soon roll off. Principal investments, again, the

6 believe you're interested in that. You can see 6 one year is below the primary benchmark, and we're

7 principal investments, which is the one that we 7 equal to or above the benchmark for all periods

8 control the most, is 25.7 percent there. You'll see 8 after that. Just to remind you, principal

9 in a later slide that it has actually increased 9 investments is our direct investments.

10 since then, with transactions that have happened 10 MR. WENDT: And why? Why are you lower for one

11 since then. 11 year?

12 I tried to break it down between different kind 12 MR. SPOOK: I'm sorry?

13 of closed -- pooled funds. The closed-end funds 13 MR. WENDT: Did you give any reasons for why

14 tend to be value add and opportunistic. So they're 14 you are lower than the benchmark for the last year?

15 going to have higher leverage. The open-end funds 15 MR. SPOOK: I didn't, but I can. So we had a

16 are mostly the ODCE funds, which are at 21 percent 16 large senior housing joint venture we formed back in

17 leverage. But we do have a few what's called core 17 '97, '98. And we formed it with a public REIT.

18 plus funds, which is really just levered core, and 18 Subsequent to forming the REIT --

19 they're allowed to go up to 50 percent. So that's 19 MR. WENDT: Credit loss, is that the answer,

20 what kind of pushes that up to 27.7 percent. 20 credit loss?

21 Here's more on principal investments, and you 21 MR. SPOOK: I'm sorry?

22 can see the last bar in the top right is what we 22 MR. WENDT: Credit loss, is that the answer?

23 call the adjusted loan to value on principal 23 MR. SPOOK: No, no. Good try, though.

24 investments. So it's that 12/31 number plus 24 MR. WENDT: I was trying to shorten up the

25 adjusted for any new debt, dispositions and 25 answer.

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1 MR. SPOOK: Several years after we formed a JV 1 much time on. As we discussed last time, we don't

2 with this much smaller REIT out of California, that 2 try to adhere too closely to them. They are a

3 REIT was acquired by the largest health care REIT 3 guide. But as you'll see in some of the

4 and one of the largest REITs period. This portfolio 4 transactions that we did, we definitely do pick our

5 was almost unnoticeable to them. Hard to get their 5 spots that we want to invest in, same as private

6 attention. It was a triple net lease portfolio, so 6 market diversification. Where we differ a little

7 we didn't operate the properties. 7 bit from -- mostly from our benchmarks is in the

8 The properties were falling into disrepair, as 8 "other," which is comprised of international.

9 the tenants didn't put in the required amount of 9 Finally, our transactions, under apartments, it

10 capital. The partner, it seemed, liked the fee 10 should be two transactions. When I had to prepare

11 stream that we were providing them, so they were 11 this, it was kind of hard to get visibility into the

12 happy with the situation as it was. We invoked the 12 future. One transaction I thought would not occur

13 buy-sell. Buy-sell is a tricky mechanism where you 13 until well after this meeting. It already happened.

14 buy it for -- 14 It was also a partner buyout that went friendly and

15 MR. WENDT: I know what it is. 15 successful. They're not all like the senior housing

16 MR. SPOOK: Okay. So it was a tricky 16 one.

17 mechanism. We didn't want to buy it, so we priced 17 And so that was one where we did a build to

18 it low in case we had to buy it, but we also wanted 18 core. We developed apartments in South Florida,

19 it to be enticing to our partner. We ended up 19 leased them up and paid off our partner, their

20 buying it. We had to write it down, the entire 20 interest and their promoted interest. The other is

21 investment, to that buyout price. Those portfolios 21 just a straight-up core apartment purchase in

22 are now on the market and expected to sell, we hope, 22 California, the first core apartment purchase we've

23 by the end of the third quarter. 23 done in a few years. There's a pretty good story

24 MR. WENDT: Thank you. 24 behind that one.

25 MR. SPOOK: Diversification I won't spend too 25 MR. COLLINS: Steve -- Mr. Chairman?

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1 MR. BOBBY JONES: Yes, sir. 1 would think that that -- you should try to do more

2 MR. COLLINS: The build to core deal, how much 2 of those, right? I mean, if you're not going to be

3 money did you put in that? Is it one deal or was it 3 buying core, maybe build to sell to a core buyer,

4 a series? 4 right? So was that a programmatic thing or did --

5 MR. SPOOK: No. This was one deal. 5 did Heitman bring you that or --

6 MR. COLLINS: Was it, just ballpark, 6 MR. SPOOK: We're doing it with L&B. We're

7 30 million, 10 million? 7 doing it with MetLife. We're doing it with several.

8 MR. SPOOK: Equity, total? 8 It's not programmatic in the sense that it's all

9 MR. COLLINS: A hundred million? 9 with one partner, but I would say it's programmatic

10 MR. SPOOK: Equity or total? 10 in that, for the last several years, it's been

11 MR. COLLINS: Yeah, equity. I'm assuming the 11 something that real estate staff has been focused on

12 JV partner put up the debt, or were you -- 12 because, as you know, core pricing for apartments or

13 MR. SPOOK: Five, 10 percent. 13 industrial is too expensive --

14 MR. COLLINS: You did 5 or 10 percent? 14 MR. COLLINS: Can't buy it, yeah.

15 MR. SPOOK: No. They did. 15 MR. SPOOK: -- and this is just a better way to

16 MR. COLLINS: Of the debt or the equity? 16 access it. So not with the same partner, which is

17 MR. SPOOK: Equity. 17 the typical definition of a programmatic, but we

18 MR. COLLINS: Yeah. How much of the equity -- 18 considered it programmatic because we're always

19 how big of a deal was that for you guys? 19 looking for it and trying to keep a couple always in

20 MR. SPOOK: It was total 171 and a half, and we 20 the pipeline.

21 financed it, so equity was 102.9, and we were 21 Now we've got two that are coming out that are

22 90 percent of that. 22 in lease-up. And in the next -- within the next

23 MR. COLLINS: Okay. And so on those deals, 23 month -- well, we've actually started. We're going

24 which we've talked about that deal specifically 24 to be doing the buyout discussions again.

25 before in the last couple of meetings. I mean, you 25 MR. COLLINS: So would you-all consider being

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1 the developer and holding it? 1 point, if some soul comes along and says, That's the

2 MR. SPOOK: We don't have the -- 2 most beautiful thing I've ever seen, I want to pay

3 MR. COLLINS: Well, I mean, on this deal, 3 you X, and we look at each other and say, We need to

4 instead of selling, would you buy? Would you invest 4 take this person's money, we'll do it.

5 and own? 5 MR. SPOOK: And we've done it, yeah. And then,

6 MR. SPOOK: We're planning to -- 6 you know, we continue the medical office building

7 MR. COLLINS: You're going to keep it. 7 program. So there -- you know, one in New

8 MR. SPOOK: Yes. 8 Hampshire, one in Tennessee, one in California.

9 MR. COLLINS: Okay. I thought you were going 9 Dispositions, none during the period since the

10 to sell it. So you're going to keep all of these 10 last meeting, but I expect that at the next meeting

11 build to core. 11 I'll have several dispositions to report on that

12 MR. SPOOK: Well, our intent going in is to 12 are -- should come to fruition very soon.

13 keep all of them. Sometimes you get into a 13 On the commingled funds, you know, we did talk

14 situation where, at the end, you just can't come to 14 about adhering very closely to the property type

15 agreement with your -- 15 targets for the benchmark. But here you can see

16 MR. COLLINS: Right. 16 that we very deliberately -- we feel industrial is

17 MR. SPOOK: -- with your partner and -- or you 17 going to be a strong property type going forward,

18 get an offer that's just ridiculous and you have to 18 and we'd like more of it. So these 200 million that

19 take it. 19 we put into two separate core-plus industrial funds

20 MR. COLLINS: Right. 20 came out of existing core ODCE funds that we have

21 MR. WILLIAMS: In the interest of time, to keep 21 that we felt weren't performing up to par. And so

22 us moving here, the intent on the underwriting is 22 this was a rebalance into a property type that we

23 always we want to build it and structure it as if we 23 think is going to perform better. Any questions?

24 want to own it, and if it works out that way, that 24 MR. BOBBY JONES: Thank you, Steve. We

25 we can, that's great. But to Ambassador Cobb's 25 appreciate it.

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1 MR. COLLINS: I have one question. 1 But he never talks about what level of

2 MR. BOBBY JONES: Yes. Go ahead, Peter. 2 leverage. Right? So, hey, levered outperformed

3 MR. COLLINS: So just to touch on leverage 3 unlevered, but not in 11 of those years. In 11 of

4 again, it's my favorite topic. Risk is not, but 4 those years, the levered returns got crushed.

5 leverage is. So I got -- Steve was good enough and 5 Again --

6 spent some time after my last banging on the table 6 MR. SPOOK: I think, Peter, the leverage he

7 and sent me some information. One of it was 7 used was the actual leverage of the ODCE. So if it

8 something Aon put together back in 2017, which I 8 was 21 percent, that was the levered, and then he

9 sort of understand. And then the other one was an 9 delevered that just to have a delevered return to

10 e-mail and three slides from Seth Marcus, I guess, 10 compare it to.

11 at Townsend. 11 MR. COLLINS: So I guess -- I guess I'm just

12 Again, I'm not pushing leverage. I'm 12 too simple, because I don't understand how -- I'm

13 questioning under-leverage and I'm questioning the 13 going to go back to the very -- if you could pull up

14 fact that people tell me that X amount is too much 14 the minutes from the very first time I brought this

15 or we should never go over Y. And nobody can tell 15 up, somebody has got to tell me how much more risk

16 me exactly the reasons for that. 16 putting 20 percent leverage, for a pension fund,

17 And so what I would say, in both what Aon has 17 putting 20 percent leverage on an asset versus zero

18 given us, or given me, and what Seth Marcus put 18 percent is going to flip the return by 1,000 basis

19 together, they're still missing the point. So I'll 19 points. I don't believe that. I honestly don't

20 give you an example. So Seth says that the levered 20 believe it. I think there's something wrong with

21 versus unlevered beat -- levered returns beat 21 what he's looking at. I think there's something

22 unlevered returns 25 out of 36 years by about 525 22 wrong in how they're measuring the data.

23 basis points, which means that they didn't beat it 23 But the State of Florida pension fund, if it

24 on 11 of the years, and the underperformance was 24 owned two office buildings in 2007 and one had

25 about 530 basis points. 25 20 percent leverage on it and one had zero percent

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1 leverage on it, I would tell you today we should not 1 have it in front of you? Are you looking at the

2 have had markedly different returns just solely 2 2017 real estate leverage discussion PowerPoint that

3 based on leverage. It might have been, you know, 3 you guys did for us? That's okay.

4 one asset was a little bit better than the other, 4 So you've got on the Y axis return, and you've

5 but it's not like you're going to have 1,000 basis 5 got on the X axis risk. I just don't understand.

6 points difference because of 20 percent leverage. 6 I'd like you-all to go back on this chart, if you

7 And they're not doing a very good job of 7 could, and sort of make that understandable for a

8 explaining it, certainly to me and I don't think to 8 fifth-grader, because I don't understand it.

9 you. My second point -- and that's all I'm going to 9 I get that you're saying that the total

10 say on Seth. I'm just disappointed in Townsend and 10 expected returns in the total fund are 10 basis

11 their level of response to this. I'm not -- I have 11 points, between 20 percent leverage and 40 percent

12 nothing against the real estate staff here. I think 12 leverage in real estate. I sort of get that. I

13 they do a great job and they're doing -- they're 13 believe that because, you know, real estate is a

14 creating great returns. 14 small component, you're talking about a little bit

15 But we started out at 17 percent. We're at 15 more because of the leverage. It's really going to

16 27 percent. And I'm not saying go to 37. But I'm 16 only save you 10 basis points, until you start

17 saying nobody can tell me today how much more risk 17 thinking about, well, that 10 basis points is

18 we've put on the portfolio by adding that 18 $160 million, right, a year every year that you

19 10 percent, not in some way that I can understand. 19 don't use it that you could be redeploying somewhere

20 Right? Yay, we got to 27, or I don't know, maybe 20 else.

21 it's, oh, my God, we're at 27. But nobody can tell 21 And then when you think about it in terms of

22 me what that 10 percent has really done. 22 just the real estate portfolio, it's 200 basis

23 One more thing, and then it's all yours. So I 23 points, right, difference in the real estate

24 don't understand, Kristen, the slide -- and maybe 24 returns. Now, that only impacts the overall fund,

25 you don't have it. Maybe you've got it. Do you 25 like I said, by 10 points, but it is 200 basis

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1 points, going from 20 percent to 40 percent 1 first, you know, risk-return graph, the graph that

2 leverage. 2 was a 45-degree angle. For every percent of

3 Again, I don't know how much risk you put on by 3 increased leverage, you get a percent increased

4 going from 20 percent to 40 percent, because I can't 4 risk. It's like, that can't be.

5 understand the risk slide. It just doesn't make any 5 So, please, somebody, I'm begging you to do the

6 sense to me. So all I'm saying is the same thing 6 work. Just do the work. Spend some time on it.

7 I've been saying for two years. Somebody please do 7 Spend the brain power. Not you guys. You guys are

8 the work and tell us, at X percent leverage, we're 8 buying and selling properties. I get it. But

9 putting on X percent more risk, because otherwise 9 you've got these consultants, and they're the best

10 every time you tell me, Hey, we can't do that, I 10 in the world. Right? Aon Hewitt is the best in the

11 tell you, Why? 11 world. Townsend is supposed to be the best in the

12 Nobody has told me why, so -- and I could be 12 world in real estate. Get them on it. Otherwise

13 totally wrong. I'm probably leading us down the 13 what are we doing with them? That's it. I'm off my

14 path of doom, right, because we've gone from 14 soapbox.

15 17 percent leverage to 27 percent leverage. But I 15 MR. BOBBY JONES: Sounds good. Okay. I think

16 can look all of you in the eye and say, Hey, how 16 that's probably a good admonition for next meeting

17 much more risk did we add? And you can't tell me, 17 in September, and that way we can all look at the

18 because we don't know. 18 same thing, because I think, Peter, you were citing

19 So until that time, I don't think you're right 19 a previous presentation.

20 and I could be wrong, but nobody can tell me. And 20 So I think that the marching orders, Steve,

21 we're spending hundreds of thousands -- millions of 21 would you agree, working with your consultants, are

22 dollars a year with consultants, and nobody can tell 22 pretty distinct in terms of trying to measure the

23 me. Seth's e-mail to you, I thought, was lazy. It 23 effect of leverage? And obviously it's much like

24 was like half a page and three slides that my senior 24 we've looked at on the Florida PRIME fund in terms

25 at Notre Dame could have done. It was like the 25 of, in an up market, a down market, obviously it's

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1 different. But one way or the other we need to try 1 market decline. There was a significant market

2 to quantify whether leverage can be used to our 2 decline in the fourth quarter. We came roaring back

3 benefit. 3 in the first quarter, so unsurprisingly, we have

4 Okay. What do you think, Trent? 4 underperformed the rest of the fund.

5 MR. WEBSTER: Well, I'd just like to go on 5 MR. BOBBY JONES: Trent, I had a question for

6 record as saying I'd be more than happy to lend to 6 you on the quarters. Is any of that tied to

7 real estate. You just might not like the terms. 7 valuations, when it goes down and then back up

8 This is the strategic investments portfolio at 8 within literally simultaneous quarters?

9 the end of the quarter. We're currently 26 percent 9 MR. WEBSTER: Yeah. That's a good point,

10 debt, 20 percent equity, 22 percent each in real 10 because we're cheating a little bit on that, because

11 assets and diversifying strategies and 10 percent in 11 you don't get the mark to mark on a big chunk of the

12 flexible mandates. We would expect over time the 12 portfolio. So you'd see it in an extensive increase

13 debt and the equity portion to go down, all things 13 or decline but -- but it does -- in our liquid

14 remaining equal, and the real assets and the 14 portfolio, we find that that's how it's behaving.

15 diversifying strategies to increase. 15 MR. BOBBY JONES: So commonsensically it's

16 We underperformed our benchmark by 2.2 percent 16 basically on a timing issue in terms of when you

17 in the first quarter. We don't get too excited one 17 mark up or down.

18 way or the other. For example, in the fourth 18 MR. WEBSTER: Yeah. To some extent, that's

19 quarter, we outperformed our benchmark by 19 correct. So in the last quarter we funded up five

20 2.2 percent. So for the last six months, we're 20 new investments at 875 million. This quarter, we've

21 roughly flat, but we're beating our benchmark over 21 actually today closed on another fund, so we've

22 currently all time periods. 22 closed on seven funds, totaling $740 million. We

23 When I showed this graph last quarter, we were 23 have two more in the pipeline. We're expecting to

24 way ahead of the FRS. One of our policy objectives 24 close in June. We expect this to be our busiest

25 is to outperform the FRS when there's a significant 25 year on record and our most active year on record.

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1 In our pipeline, the one fund that closed was a 1 16 percent this year, there's been very large

2 royalties fund. So we currently have four equity 2 outflows from public equities.

3 funds and four real assets funds in our pipeline. 3 Interestingly, about half of that has come from

4 Our opportunities currently, during the quarter 4 the energy stocks, which account for about 5 percent

5 we've seen the insurance markets harden. Pricing 5 of the S&P 500. So you're seeing that not just in

6 has gotten more attractive. Insurance -- your home 6 the public markets but you're seeing it in the

7 insurance is all going to go up, but you'll know 7 private markets, too, where funding is a lot tighter

8 you'll be benefiting the Florida Retirement System 8 in energy now. Private debt, a lot of that funding

9 because of it. We put $400 million in reinsurance 9 has dried up. So we think there's some very

10 funds in the last -- in this quarter. 10 interesting opportunities, especially in the smaller

11 That second bullet point is -- it's not -- it 11 end of the energy markets. And we've been bullish

12 doesn't mean we're bullish on the state of Missouri 12 on mining for some time in the private markets as

13 but rather that we're looking at equities funds for 13 well.

14 managers who have a significant outperformance or 14 MR. PETER JONES: Trent, do you use MLPs,

15 demonstrated significant market outperformance. And 15 master limited partnerships?

16 we're currently looking at expanding our activist 16 MR. WEBSTER: We do not, no. What do you think

17 book particularly overseas, so we might do something 17 of them?

18 in the U.S. 18 MR. PETER JONES: No. I'm curious what you

19 One thing I didn't put on here, where we're 19 think, actually, why you would or wouldn't.

20 currently looking at, we're looking at 20 MR. WEBSTER: Well, we tend to do it through

21 non-performing loans and distressed debt in India. 21 the private markets as opposed to the public

22 We think there's a very interesting opportunity 22 markets. We could do an MLP fund. I personally

23 there. And, finally, we think that commodities are 23 think they're an interesting vehicle. The spread

24 really interesting right now, particularly in energy 24 between the yield on utilities and MLPs are as wide

25 and mining. Even though the S&P is up, what, 15, 25 as they've ever been in history. But they're

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1 just -- right now people just hate energy. 1 had $159.9 billion. As you heard, it was a very

2 You know, we looked at some of the public 2 strong quarter. So that represented growth of

3 market stocks and found that, through our work, that 3 $9.2 billion, and you can see -- which is net of

4 they're trading at valuation levels last seen in the 4 benefit payments and expenses, due to investment

5 first quarter of 2016 when oil was $28 and during 5 earnings of over $11 billion.

6 the global financial crisis. You're seeing 6 Fiscal year to date here, you heard in the

7 Schlumberger trade like at 2009 lows, which is just 7 beginning of the meeting, this information is still

8 astonishing. 8 updated through, I believe, a few days ago. The

9 So I don't know if the market is looking over 9 growth in the total portfolio from a fiscal year to

10 the hill and seeing the end of oil in 2030 or 2040 10 date perspective is actually positive $900 million,

11 or whenever. That's how they're behaving. But 11 so an improved picture since the end of the first

12 right now there's tremendous capital discipline 12 quarter.

13 going on in the energy markets. So guys like us who 13 From an asset allocation perspective, it's

14 are more than happy to lend to Steve at really 14 actually -- you can't really see these numbers, but

15 extortionary prices, we can get that happily in the 15 it's rare. If you could, you would see that the

16 energy markets right now because there's just not a 16 asset allocation is actually right in line with the

17 lot of capital. Any questions? Thank you. 17 interim policy. It's rare that you see that, so

18 MR. BOBBY JONES: Any questions for Trent? 18 credit to your investment team for maintaining the

19 Okay. Let's move on to major mandate review. Aon. 19 asset allocation in line and also a little luck with

20 MS. COMSTOCK: Great. Well, we can make this 20 how capital markets have moved.

21 fairly quick, given that we've already covered 21 Looking at investment results through the end

22 Florida PRIME and the investment plan. We'll start 22 of the first quarter, there you can see for the

23 with the pension plan, and all of this information 23 total FRS pension plan, in that beige-ish yellow

24 in this deck is through the first quarter of 2019, 24 color, strong quarter, 7.3 percent, and then

25 so March 31st. At the end of the quarter, the plan 25 trailing periods, strong absolute returns as well.

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1 Not shown here are the fiscal year to date returns. 1 So the next slide shows performance over the

2 So the strong quarter bumped up the fiscal year to 2 trailing 20, 25 and 30. Strong outperformance over

3 date of the total fund to 3 percent through the end 3 those longer time periods and some modest

4 of March. And as it was mentioned earlier in the 4 underperformance over the 20 year period.

5 meeting, more recent numbers have the fiscal year to 5 And we look relative to the universe of the

6 date up 4.6 percent on an absolute basis and ahead 6 largest ten defined benefit plans in the United

7 of the policy benchmark. 7 States. A comment was made earlier on peer

8 On a relative perspective, there was some 8 comparisons to asset allocation, and we usually show

9 modest underperformance over the one quarter. As 9 this chart. The story has remained the same. The

10 you heard from John earlier today, this is primarily 10 FRS has a greater allocation to global equity, but

11 due to a benchmarking issue with private equity. 11 specifically international equity relative to peers.

12 The primary benchmark, which was noted, is the 12 On the flip side, modestly underweight to what is

13 public equities plus a premium. And if you look at 13 bucketed as alternatives by roughly the same 10

14 that for the first quarter, it was over 13 percent, 14 percentage points. So we would bucket strategic

15 so a very high bar for a one quarter period and a 15 investments and private equity to compare to the

16 high hurdle to keep up with. So on a relative 16 alternatives of the peer group.

17 basis, that's what drove the underperformance for 17 And this is what largely drives a difference,

18 the quarter. But if you look longer term, the total 18 is in relative performance, and actually flip to

19 FRS has outperformed the performance benchmark over 19 this page where you can see where the FRS ranks

20 all the other trailing time periods. 20 there, those numbers at the bottom. We haven't

21 The secondary benchmark that we show here is 21 seen, I think, a rank north of the median in a long

22 the absolute nominal target rate of return, which 22 time, but you see there, for the one year period,

23 most recently reflects CPI plus 4 percent, and again 23 the FRS did rank 75th, and that's primarily due to

24 outperformed over all of these time periods. We 24 the overweight, relative to peers, to international

25 like to look at this over even longer time periods. 25 securities, which over the year were down about 5.5

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1 percent relative to U.S. securities, which were up 1 they don't report net returns for peers. So in

2 close to 9 percent. So that relative allocation is 2 order to make it an apples-to-apples comparison, we

3 what's driving -- primarily driving that rank there. 3 have to use gross.

4 But over the longer time -- 4 MR. COBB: Thank you. I assumed that's what it

5 MR. COBB: Mr. Chairman, I have a question on 5 was.

6 this. 6 MR. BOBBY JONES: Okay. Thank you.

7 MR. BOBBY JONES: Yes, sir. 7 MS. COMSTOCK: Any questions on pension

8 MR. COBB: So on page 12, which I assume that 8 performance? Then we'll very quickly touch on the

9 chart is, I compared it to page 20, which is a 9 hurricane catastrophe funds. On page 16, there's

10 different comparison. This page 12 relates to the 10 roughly 16 billion in total assets under management.

11 top defined plans. Well, page 20 is all plans over 11 You can see, as rates continue to be low, they have

12 a billion dollars. But the numbers for Florida are 12 ticked up. We do see some modest returns on an

13 different. For the one year, for example, the 13 absolute basis but general outperformance over the

14 Florida number is 4.0 compared to the 4.4 here. And 14 long-term, three, five and trailing ten year

15 for three years it's 9.0, on page 20, compared to 15 periods.

16 the 9.4 here. And for ten years it's 10.6 compared 16 And then, lastly, the Lawton Chiles Endowment

17 to 11. Maybe those are net of fees -- 17 Fund. Roughly $780 million in assets under

18 MS. DOYLE: Yeah. 18 management. Approximately 70 percent of this

19 MR. COBB: -- the differences are -- 19 portfolio is allocated to global equities, which

20 MS. DOYLE: So back in the more detailed 20 explains the strong absolute performance over the

21 performance report, we're showing net of fee 21 quarter and then the longer trailing time periods.

22 returns, which is how we always show performance. 22 Relative performance remains positive, outperforming

23 However, when we compare to the TUCS universe that 23 the performance benchmark over the three, five and

24 Katie was just describing, the top ten defined 24 ten year time periods.

25 benefit plans, we have to use gross returns because 25 And that wraps up the major mandates. Any

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1 questions? 1 CERTIFICATE OF REPORTER

2 MR. BOBBY JONES: Katie, Kristen, thank you so 2

3 much. Folks, if we have no further questions, first 3 STATE OF FLORIDA )

4 I'd like to thank both Tom and Sean for being on the 4 COUNTY OF LEON )

5 phone with us. I know it makes for a long 5

6 afternoon, but I certainly appreciate it. And I 6 I, Jo Langston, Registered Professional

7 know our committee does as well. 7 Reporter, do hereby certify that the foregoing pages 3

8 Our next meeting will be September 17th of 8 through 169, both inclusive, comprise a true and correct

9 2019. And with that being said, I would certainly 9 transcript of the proceeding; that said proceeding was

10 welcome a motion to adjourn. 10 taken by me stenographically and transcribed by me as it

11 MR. PETER JONES: So move. 11 now appears; that I am not a relative or employee or

12 MR. BOBBY JONES: We have a motion. Do we have 12 attorney or counsel of the parties, or a relative or

13 a second? 13 employee of such attorney or counsel, nor am I interested

14 MR. OLMSTEAD: Second. 14 in this proceeding or its outcome.

15 MR. BOBBY JONES: Thank you, Vinny. All in 15 IN WITNESS WHEREOF, I have hereunto set my hand

16 favor, say aye. 16 this 5th day of July 2019.

17 (Ayes) 17

18 MR. BOBBY JONES: Ladies and gentlemen, thank 18

19 you so much. Thanks for being with us. 19

20 (Whereupon, the meeting was concluded at 4:30 20 ______

21 p.m.) 21 JO LANGSTON Registered Professional Reporter 22 22

23 23

24 24

25 25

ACCURATE STENOTYPE REPORTERS, INC. ACCURATE STENOTYPE REPORTERS, INC. 11E RON DESANTIS STATE BOARD OF ADMINISTRATION GOVERNOR OF FLORIDA CHAIR JIMMY PATRONIS 1801 HERMITAGE BOULEVARD, SUITE 100 CHIEF FINANCIAL OFFICER TALLAHASSEE, FLORIDA 32308 ASHLEY MOODY (850) 488-4406 ATTORNEY GENERAL

POST OFFICE BOX 13300 ASHBEL C. WILLIAMS EXECUTIVE DIRECTOR & 32317-3300 CHIEF INVESTMENT OFFICER

Date: August 5, 2019 To: Board of Trustees From: Judy Goodman, Audit Committee Chair Subject: Quarterly Audit Committee Report

The State Board of Administration's Audit Committee met on August 5, 2019. Please see the attached agenda for the items discussed. Also please see the attached Office of Internal Audit Quarterly Report presented to the Audit Committee at the meeting. STATE BOARD OF ADMINISTRATION Audit Committee Meeting Agenda August 5, 2019 9:30 A.M. – Noon

1. Call to Order

2. Approval of the minutes of open meeting held on April 29, 2019

3. SBA Executive Director & CIO status report  SBA Update: investment performance, risks, opportunities and challenges

4. Annual review of the charters a. Audit Committee b. Office of Internal Audit

5. Proposed revised Annual Audit Plan for FY 2019-2020

6. Office of Internal Audit Quarterly Report

7. Chief Risk & Compliance Officer Quarterly Report • Compliance Functions Presentation

8. Other items of interest

9. Closing remarks of the Audit Committee Chair and Members

10. Special Election of Committee’s Chair and Vice Chair

11. Adjournment

August 5, 2019 • Internal Audit and Advisory Engagements 4

Status of the FY 2018-19 • External Engagement Oversight 5 Annual Audit Plan • Special Projects, Risk Assessment, and Other Activities 6

• New and Closed Action Plans and Recommendations 8

Status of Management Action Plans/ • Details of open items – Audit Projects 9 Recommendations • Details of open items – Advisory Projects 10

• Status of Data Analytics Maturity Model 12 Data Analytics • Continuous Monitoring – A/P Dashboard 13

• OIA’s QAIP Program 15 Quality Assurance and Improvement Program • Scope and Timeline for the annual reviews 16

• Budget to Actual Comparison FY 2018-19 18

Other FY 2018-19 Metrics for OIA • Professional Staff Training FY 2018-19 19

• Results of Client Survey FY 2018-19 20-22

Department Goals • Department Goals for FY 2019-2020 24

Appendix Open Audit Recommendations and Action Plans Appendix A

2 33 Internal Audit and Advisory Engagements

Planned Not Yet Projects Status Type In Progress Timing 20% Started Completed 13% Externally Managed Derivatives Audit (carryover) OIA Operational Audit Q2 ACH Advisory FHCF (carryover) OIA Advisory Q2 Proxy Voting Data Analytics OIA Advisory Q3 Performance and Risk Analytics OIA Operational Audit Q3 Periodic Follow-up Audit OIA Operational Audit Q4 Review of Critical Financial Reporting Spreadsheets OIA Advisory Q4 Business Continuity Program Peer Survey OIA Advisory Q3/Q4 Continuous Monitoring - Accounts Payable OIA Advisory Q3 Continuous Monitoring - General OIA Advisory Ongoing – Complete Action Plan Monitoring Project Management for FY 18-19 In Progress Completed Continuous Monitoring - Travel & Expense OIA Advisory Carryover 67% Strategic Investments OIA Operational Audit Carryover CIS CSC Framework Gap Assessment OIA Advisory Carryover Not Started Highlighted: Completed since prior quarterly report. Network and Application Change Control OIA Operational Audit FY19-20 Real Estate - Direct Owned OIA Operational Audit FY19-20 4 External Engagement Oversight

Project Status Service Provider Type Planned Timing In Progress Completed 9% Network Security, outsourced BDO External IT Audit Q1/Q2 Florida Retirement System (FRS) Trust Fund Crowe External Financial Statement Audit for FY17-18 Q1/Q2 Florida Retirement System (FRS) Trust Fund Crowe - IT Only External Financial Statement Audit for FY18-19 Q4 FRS Investment Plan Trust Fund Crowe External Financial Statement Audit for FY17-18 Q1/Q2 Florida PRIME Auditor General External Financial Statement Audit for FY17-18 Q1/Q2 Florida Hurricane Catastrophe Fund KPMG External Financial Statement Audit for FY17-18 Q1/Q2 Part of the Statewide CAFR Auditor General External Financial Statement Audit for FY17-18 Q2/Q3 Florida Growth Fund Initiative OPPAGA External Review Q1/Q2 Completed Biennial Review OPPAGA External Review Q2/Q3 91% External Validation of OIA's self-assessment IIA Quality Services External Review Q3 In Progress Florida Retirement System (FRS) Trust Fund Crowe External Financial Statement Audit for FY18-19 Q4 Not Started None

Highlighted: Completed since 5 prior quarterly report. Special Projects, Risk Assessments, and Other Activities

Ongoing / Project Status Type Planned Timing In Progress 23% Completed Annual Quality Assessment Review - Self-Assessment OIA Quality Assurance Q1/Q2 Integrated Risk Management Solution ITN OIA Special Projects Q2/Q3 Annual Risk Assessment OIA Risk Assessment Q2/Q3 Annual Audit Plan OIA Risk Assessment Q3 Teacher Retirement System of Texas Peer Review OIA Special Projects Q4 Data Analytics Tools Enhancements OIA Special Projects Special requests from SBA management and/or Audit Committee OIA Special Projects Ongoing – WorkSmart Portal Enhancements OIA Special Projects Complete for FY Audit Committee Related Activities OIA Audit Committee 18-19 Completed OIA process improvement initiatives, including QAR identified initiatives OIA Quality Assurance 77% Ongoing/In Progress Continuous Risk Assessment with Data Analytics/Risk Assessment Updates* OIA Quality Assurance FY19-20 CFO/COO Key Metrics* OIA Special Projects FY19-20 Assistance with Aladdin Implementation OIA Special Projects Carryover Highlighted: Completed since prior quarterly report. Not Yet Started None

*These projects will be combined into one project next FY: Enterprise-wide KRI Collaboration

6 77 Audit and Advisory Engagements

# of Recs Source New recommendations: 7 Review of Critical Financial Reporting Spreadsheets 7 Total action plans/recommendations added to the database Closed action plans and recommendations: (8) Information Technology General Controls Advisory Closed after consideration during the Annual Risk Assessment for FY 2019-20 (1) Funston GRC Assessment (9) Total action plans/recommendations closed in the database (2) Total change for both audit and advisory action plans/recommendations

8 Risk Rating Status 16

14 Report Title Report Date High Med Low Total NYI PIRP OTV Total

12 Fixed Income Trading Activities Operational Audit 1/29/2016 0 1 0 1 0 1 0 1

10 Global Equity Internal Trading Operational Audit 1/18/2017 1 0 1 1 1 Low Internally Managed Derivatives Operational Audit 3/31/2017 1 1 0 2 2 0 2 8 Med AG - Operational Audit 2017 11/13/2017 0 1 1 2 0 2 2 6 High AG - IT Operational Audit 2017 4/5/2017 0 9 0 9 0 9 9 4 Incentive Compensation Program Operational Audit 4/10/2018 0 2 1 3 1 2 3 Report 2 Externally Managed Derivatives Operational Audit 10/31/2018 1 2 3 3 3 0 Performance & Risk Analytics Operational Audit 2/21/2019 4 5 9 5 4 9 NYI PI OTV 7 21 2 30 12 3 15 30 23% 70% 7% 40% 10% 50% For details, see Appendix A. Legend: NYI - Not Yet Implemented PIRP - Partially Implemented and the Remainder is in Progress OTV - OIA to Verify

Management Action Plans relating to findings from audits performed by internal or external auditors. The OIA monitors and performs follow-up procedures on the management action plans in accordance with the 9 IIA Standard 2500. A1. In certain cases, follow-up procedures are performed by external auditors. Status

Report Title Report Date NYI PI IMP Total Governance, Risk Management, and Compliance Assessment (Funston)1 01/15/2018 58 3 61 Network Security Assessment 2018 (BDO)2 11/15/2018 38 6 44 Review Critical Financial Reporting Spreadsheets1 4/22/2019 7 7 103 3 6 112

Legend: NYI - Not yet implemented PI - Partially Implemented, as represented by SBA management IMP - Implemented, as represented by SBA management

Advisory Recommendations made by OIA or external consultants resulting from an assessment of a program or activity such as governance, risk management, compliance, ethics, disaster recovery preparedness program, etc. The OIA monitors the disposition of these recommendations in accordance with the IIA Standard 2500.C1.

1At the advice of the Audit Committee, the OIA closes Advisory Recommendations that management represented as “complete” once the OIA has considered those in the annual risk assessment.

2Recommendations will be reviewed for remediation and closure by BDO as part of the 2019 Network Security Assessment.

10 1111 Accomplishments since November Audit Committee meeting Level 5: Integrated • Updated the Data Analytics Strategic Plan and data analytics procedures to with “data-driven” define auditor roles GRC processes • Adopted the CRISP-DM analytics framework and incorporated it into continuous monitoring procedures • Continued to enhance continuous monitoring projects for improved analytics and dashboards • Used live connections in data extraction and achieved reduction in manual Level 4: “Data- procedures for analytics processes in order to increase long term sustainability driven” approach • Trained all OIA auditors with use of Tableau and data analytics ation

z • Developed and implemented client surveys for continuous analytics projects

Level 3: Managed and integrated into processes the organi to OIA Key goals/actions to move to the next level alue v Level 2: Repeatable • Continue to refine the strategic goals and actions to achieve the strategy statement

i ng analytics • Develop and apply metrics to measure the success of the program • Develop key risk indicators to better facilitate ongoing risk assessment • Continue to take actions to support long-term sustainability, output, Increas Level 1: Ad hoc and maintenance of continuous monitoring projects occasional use • Encourage the use of data analytics within other GRC departments

Increasingly automated, well managed and integrated 12 This tool was created to provide management with a more reliable and more real-time method to review potential anomalies in the accounts payable data. Using Tableau along with SQL live connection improves the analytical accuracy and accelerates the identification of findings.

Results of these analytics included:

1. Integrated tests and scripts of several separate key risk indicators into a single automated, consistent data visualization tool.

2. Tableau dashboard resulted in 16 tests including accounts payable three way match, aging analysis, segregation of duties violations, etc.

3. Enables identification of irregularities and potential risks on a continuous basis and delivers more insights to management.

13 1414  The Standards issued by The IIA require that an internal audit department maintain a QAIP.  The OIA’s QAIP contains:  Internal assessments that include both ongoing and periodic monitoring.

Ongoing Periodic • Progress tracking of Annual Audit Plan • Annual internal quality assurance • Supervisory review of work papers self-assessment. The results are • Maintenance of recommendations/action plans and status presented in this report. • Maintenance of OIA procedures manual • Annual review of OIA Charter • Engagement-specific QA assessments and related verifications • Completion of required continuing professional education

 External assessments conducted every five years, under the direction of the Audit Committee, by a qualified, independent reviewer.

15  2014: Self-Assessment with independent validation (Report issued 5/23/2014)  2015: Self-Assessment (Report issued 8/3/2015)  2016: Self-Assessment (Report issued 7/15/16)  2017: Self-Assessment (Report issued 6/27/17)  2018: GRC Assessment (Report issued 1/15/18)  2019: Self-Assessment with independent validation (Report issued March 25, 2019; provided at April 2019 Audit Committee Meeting)  2020: Self-Assessment  2021: Self-Assessment  2022: Self-Assessment  2023: GRC Assessment  2024: Self-Assessment with independent validation

16 1717 Budget to Actual Over Category Budget Percent Actual Percent / Under Explanation for any difference greater than 1%

Audit/Advisory Projects 5,092 39.93% 4,353 36.59% 3.34% Due to resource constraints two projects not starting until next fiscal year.

Oversight of External 291 2.28% 332 2.79% -0.51% Auditors

Special Projects 660 5.18% 825 6.93% -1.76% More time than expected spent on the IRMS project – researching tools and the ITN process.

Risk Assessment 471 3.69% 447 3.76% -0.06%

Audit Committee Related 363 2.85% 256 2.15% 0.69% Activities

Leave & Holidays 2,810 22.04% 2,674 22.48% -0.44% See next slide for details of training. 2-day COSO training was not in the budget; invited by ERM Continuing Education 840 6.59% 1,087 9.14% -2.55% and coordinated by HR for all staff. Additional Tableau training.

Quality Assessment Review 457 3.58% 437 3.67% -0.09%

Administrative 1,768 13.86% 1,486 12.49% 1.37% Less time spent on Administrative activities than budgeted.

Total 12,752 100% 11,897 100%

18 Training Hours by Type Audit and Accounting, 178, 20% Investments, 226.5, 25%

SBA Policy, 38.8, 4%

Soft Skills, 14, 2%

Fraud, 27, 3%

Information Technology, including Data Analytics, Technical Business, 181, 235, 26% 20%

19 20 21 22 2323 AS OF QUARTERLY REPORT TOPIC ACTIVITIES IMPLEMENTATION EFFORTS STATUS Develop a process to be used for OIA's continuous risk assessment, for example using data Not started analytics and KRIs. (Process improvement - STD 1220 from QAR) Engaged ITCI for a Direct-Owned Engage consultants (co-source or outsource) to assist with high risk areas relating to RE audit; also BDO SOW for 2019- Complete investments and IT audits. 20 Move from Level 2 to Level 3 on the Data Analytics Maturity Model per our Strategic Plan. In progress

Take the initiative to develop a formalized SBA data analytics workgroup. In progress Develop a five-year audit plan based on the risk-based assessment of the audit universe and develop frequencies of audits based on risk rankings. (Process improvement – STD Instead of 5-year plan, moving 2020 from QAR) toward an ongoing risk In progress Note: This has been changed to move toward an ongoing risk assessment vs. a 5-year plan assessment process.

INTERNAL AUDIT PROCESSES as communicated in the at the April Audit Committee Meeting. Update the risk assessment process to align with the new framework and business model in In progress coordination with RMC and BC. OIA has the Server version and in Transition to the Server version of Tableau for dashboard and data management. In progress the process of transitioning. Request IT manpower resources (Approximately 4 weeks of assistance from applications Complete staff) for the activities related to IIAMS and Tableau. USE OF OF USE In collaboration with ERM and BC, implement the Integrated Risk Management Solution LogicManager selected and

TECHNOLOGY through the vendor selected. (Process improvements - STDS 2110, 2340, and 2500 from starting with implementation of BC In progress QAR) plan. Request training budget based on knowledge gaps in the internal audit staff and develop a Approved Complete training plan for each member of the OIA to close those gaps. Plan to attend in November 2019 At least one OIA member attend each APPFA meeting. Not started and May 2020 Have at least one team building event during the fiscal year to enhance the team. Not started

PEOPLE Requested and denied; Request an additional FTE for an IT Senior Audit Analyst III. downgraded Mgr position to this Complete position Based on the AAP, determine whether an intern would be a useful resource throughout the Intern started in June 2018 Complete 24 year. 2525  Ongoing Projects ◦ Status on Integrated Risk Management Solution implementation with LogicManager

 Completed Projects ◦ Business Continuity Peer Survey ◦ TRS Peer Review

 Denise Purvis CIDA Certification Announcement

 2019 Audit Committee Meeting Date ◦ Monday, November 25

26

RON DESANTIS STATE BOARD OF ADMINISTRATION GOVERNOR OF FLORIDA CHAIR

JIMMY PATRONIS 1801 HERMITAGE BOULEVARD, SUITE 100 CHIEF FINANCIAL OFFICER TALLAHASSEE, FLORIDA 32308 ASHLEY MOODY (850) 488-4406 ATTORNEY GENERAL

POST OFFICE BOX 13300 ASHBEL C. WILLIAMS EXECUTIVE DIRECTOR & 32317-3300 CHIEF INVESTMENT OFFICER

MEMORANDUM

To: Ash Williams From: Michael McCauley Date: August 26, 2019 Subject: Quarterly Standing Report - Investment Programs & Governance

GLOBAL PROXY VOTING & OPERATIONS During fiscal year 2019, SBA staff cast votes at 11,341 companies worldwide, voting on ballot items including director elections, audit firm ratification, executive compensation plans, mergers & acquisitions, and a variety of other management and shareowner proposals. Voting levels in fiscal year 2019 rose by 2.9% over last year. These votes involved 106,793 distinct voting items—voting 79.4% “For’’ and 18.4% “Against”, with the remaining 2.2% involving abstentions. Of all votes cast, 19.3 percent were “Against” the management-recommended vote. SBA proxy voting was conducted across 80 countries, with the top ten countries comprised of the United States (2,875 votes), Japan (1,386), China/Taiwan (1,092), India (649), South Korea (599), United Kingdom (411), Cayman Islands (337), Canada (336), and Brazil (203). The SBA actively engages portfolio companies throughout the year, addressing corporate governance concerns and seeking opportunities to improve alignment with the interests of our beneficiaries. The chart below provides the SBA voting breakdown across all major proposal categories during fiscal year 2019.

PROXY SEASON 2019 As summarized in the attached report titled, “2019 Season Review: Voting Trends & Proxy Stats,” from corporate governance research firm and proxy advisor Glass, Lewis & Co., the 2019 proxy season in the U.S. equity market continued the years-long trend of having fewer shareowner resolutions. In 2019, there were 426 resolutions going to a vote in the U.S., down from 433 in 2018 and 585 in 2015. As in prior periods, the lower number of shareowner Quarterly Standing Report—August 26, 2019

resolutions can be attributed to increasingly successful engagement efforts by investors and companies, which reduces the likelihood of bringing such action through proxy activism. Average support for shareowner resolutions was virtually unchanged, increasing from 32.5% to 32.9% year over year. However, the proportion of all resolutions receiving a majority level of support increased from 10.9% in 2018 to 14.5% in 2019—with resolutions submitted by public pension funds receiving the highest level of support relative to other proponents. Highlights from the 2019 proxy season included an increase on human capital issues (such as workforce diversity and employment practices), continued dissent on compensation plans (primarily in the U.S. market), and an overall decline in the number of environmentally-related proposals. Other key takeaways from the report include:

• Highest number of failed directors in the last three years, with 68 directors receiving below-majority support from investors (and with more directors receiving less than a super-majority level of support below 75%);

• Lower director turnover among the group of failed directors (only 3 failed directors removed from their boards);

• Increase in board diversity, with the percentage of boards with no female directors decreasing to 18.8% from 26% in 2018;

• Increased focus on human capital topics by shareowner resolutions, with entirely new forms of proposals submitted on sexual harassment, mandatory arbitration, and equal employment practices (with technology firms such as Alphabet, Facebook, and Amazon receiving the largest proportion of such resolutions); and

• Increased focus on “over-boarded” directors by investors, with multiple directorships in the top 3 rationales (along with compensation and attendance) for dissenting votes against individual board members.

More detail on the individual types of shareowner resolutions and investor support is included in their attached report.

HIGHLIGHTED PROXY VOTES Proxy Contest at EQT Corp On July 10, 2019, shareowners at EQT Corporation voted more than 80% of their shares for a controlling slate of seven directors nominated by a group led by Toby Z. Rice, Derek Rice, Will Jordan and Kyle Derham (the “Rice Team”). This contest involved the first use of a universal ballot for a controlling slate of directors in the United States. A universal ballot allows shareowners to vote among candidates nominated from either side, whereas traditional ballots only allow shareowners to select candidates proposed by one side—the company nominees or the dissident nominees.

The SEC has previously sought comments on a proposal to require the use of universal proxy cards in all contested elections but has yet to issue final rules, leaving the matter up to individual companies to decide in the meantime. The Rice team had sought to gain control of EQT, the largest natural gas producer in the U.S., less than two years after selling their own company, Rice Energy, to EQT for $6.7 billion. Dissatisfied with the company’s financial management, operating performance, and floundering share price, the Rice Team proposed a majority slate of seven members for the new board and suggested shareowners keep five members of the existing board, with former CEO of Rice Energy Toby Rice slated to become the new CEO of EQT.

In their analysis, the Rice Team cited a number of financial and operational missteps by the existing management of EQT, and staff at SBA held meetings with both EQT and the Rice Team before making the decision to cast votes to support all members of the Rice team slate. SBA also reviewed proxy voting recommendations and summaries from both ISS and Glass Lewis. The advisory services were split on their recommendations, with ISS backing the Rice Team and Glass Lewis backing the management team of EQT. SBA also voted against the “say on pay” compensation

SBA Investment Programs & Governance (IP&G) Page 2

Quarterly Standing Report—August 26, 2019

proposal and against the company’s proposed long-term incentive plan due to lack of rigorous performance formulas and substantial change in control payments, and high dilution levels, respectively.

CORPORATE GOVERNANCE & PROXY VOTING OVERSIGHT GROUP The most recent meeting of the Corporate Governance & Proxy Voting Oversight Group (Proxy Committee) occurred on June 24, 2019, and the Committee will meet next on September 23, 2019. The Proxy Committee continues to review ongoing governance issues including the volume and trends for recent SBA proxy votes, company-specific voting scenarios, corporate governance policies, governance-related investment factors, major regulatory developments and individual company research related to the Protecting Florida’s Investments Act (PFIA) and other statutory investment requirements related to Israel and Venezuela.

ACTIVE OWNERSHIP & CORPORATE ENGAGEMENT From late May 2019 through late August 2019, SBA staff conducted engagement meetings with companies owned within Florida Retirement System (FRS) portfolios, including EQT and Kyushu Railway Company.

LEADERSHIP & SPEAKING EVENTS Staff periodically participates in investor and corporate governance conferences. Typically, these events include significant involvement by corporate directors, senior members of management, and other key investor or regulatory stakeholders. The following items detail involvement at events that occurred recently:

• In June, SBA staff participated in a panel on the role of stewardship and engagement at an MSCI- hosted seminar for Governance Week.

• In June, SBA staff participated in the Harvard Law School Institutional Investor Forum’s Shareholder Engagement Roundtable

• In July, SBA staff attended the annual conference of the International Corporate Governance Network (ICGN), covering a variety of global corporate governance topics.

• In August, SBA staff participated in a meeting of the Independent Steering Committee of Broadridge Financial Services, focusing on proxy voting operations and the latest SEC regulatory topics tied to vote tabulation, universal proxy, and vote reconciliation.

REGULATORY ACTIONS Securities and Exchange Commission (SEC) Investment Advisers’ Proxy Voting Responsibilities and Application of Proxy Rules to Voting Advice On August 21st, the SEC approved new guidance in two releases from the Division of Corporation Finance and the Division of Investment Management concerning the fiduciary responsibilities of investment advisers with respect to proxy voting, and the use of proxy advisory firms. Commissioners voted 3-2 on two related action items: 1) to publish guidance regarding the proxy voting responsibilities of investment advisers under Rule 206(4)-6 under the Investment Advisers Act of 1940, and Form N-1A, Form N-2, Form N-3, and Form N-CSR under the Investment Company Act of 1940; and 2) to publish an interpretation and related guidance regarding the applicability of certain rules, which the Commission has promulgated under Section 14 of the Securities Exchange Act of 1934, to proxy voting advice.

The guidance contains no new rules, rather provides clarification on both the provision and reporting by proxy advisors as well as investor guidance on the circumstances for and reporting of proxy voting decisions. The SEC reiterated views that the provision of voting advice is “solicitation” under federal securities regulations and therefore governed by anti-fraud rules. The SEC also opined that the proxy advisory industry is required to disclose any conflicts of interest, which the two largest firms, Institutional Shareholder Services (ISS) and Glass, Lewis & Co., already do.

SBA Investment Programs & Governance (IP&G) Page 3

Quarterly Standing Report—August 26, 2019

The two items were hotly debated leading up to SEC action, with many investor groups opposing the need for additional guidance out of fear that any action may have a negative impact on the cost, timeliness, and quality of proxy research. Commissioners noted that potential future rulemaking may include: 1) proposed rules to amend the submission and resubmission thresholds for shareholder proposals under Rule 14a-8 under the Exchange Act; and 2) proposed rule amendments to address proxy advisory firms’ reliance on the proxy solicitation exemptions in Exchange Act Rule 14a-2(b). Many market participants expect the SEC to continue its consideration of “proxy plumbing” initiatives. The guidance and interpretation will be effective upon publication in the Federal Register.

NOTABLE RESEARCH & GOVERNANCE TRENDS On June 18th, Nasdaq, Inc. announced the founding of the Nasdaq Center for Corporate Governance, aimed at being a global information and research hub that will integrate Nasdaq’s information technology to accelerate the understanding of emerging corporate governance and sustainable business practices. The new Center will cater primarily to boards of directors and senior executives, but also provide research to governance professionals at public, private, and nonprofit organizations. In its release, NASDAQ stated, “Forward-looking board directors and executives are seeking to achieve long-term business growth through innovation and transformation, and are having to adapt their governance structures accordingly.”

SBA Investment Programs & Governance (IP&G) Page 4

2019 SEASON REVIEW VOTING TRENDS & PROXY STATS

UNITED STATES OF AMERICA

1 ABOUT GLASS LEWIS

Glass Lewis is the leading independent provider of global governance services, helping institutional inves- tors understand and connect with the companies they invest in. More than 1,300 institutions use Glass Lewis’ research and data to help inform proxy voting decisions and corporate engagement activities, and investors around the world depend on Glass Lewis’ Viewpoint service to manage their proxy voting, custom policy implementation, recordkeeping, and reporting.

Glass Lewis’ team has been providing in-depth analysis of U.S. companies since 2005, relying solely on pub- licly available information to inform its policies, research and voting recommendations. The research team also engages extensively with issuers, investors, regulators, and other industry stakeholders as an important means to gain relevant context into the realities surrounding companies, sectors and the market in general. This al- lows companies to better understand the role we play in servicing their shareholders, and most importantly enables us to provide the most comprehensive, pragmatic insights for our clients.

JOIN THE CONVERSATION As the leading independent provider of governance services to the world’s institutional investors, Glass Lewis is committed to ongoing engagement with all market participants. Investors and companies can contact Glass Lewis at any time at [email protected]. You can also access a wealth of free resources and tools such as our guidelines, our engagement policy, request a meeting, report an error, or submit filings at our dedicated engagement portal at http://www.glasslewis.com/issuer-overview/

I Table of Contents

VOTING TRENDS...... 1

PROXY STATS...... 4 Board Composition...... 4 Governance & Disclosure...... 8 Election of Directors...... 11 Compensation Proposals...... 14 Shareholder Proposals...... 18

APPENDIX A...... 20

APPENDIX B...... 22

APPENDIX C...... 23

APPENDIX D...... 24

EDITORS & CONTRIBUTORS Carolin Arami Brianna Castro Julian Hamud Courteney Keatinge Anthony Myers Dimitri Zagoroff

I ABOUT THIS REVIEW Throughout the 2019 proxy season, Glass Lewis covered roughly 4,200 U.S. companies (consisting of share- holder meetings that took place during the six-month period from January 1 to June 30). This review provides a comprehensive overview of the 2019 U.S. proxy season, with specific focus on data analysis of board statistics, voting trends and results. For further in-depth analysis of the 2019 proxy season, please see our season review on Shareholder Proposals for the U.S. market. Clients can access our reviews via Viewpoint, or glasslewis.net, or by emailing their dedicated Client Services contact to request a copy. If you are not a client of Glass Lewis, you can request a copy of our reviews via the Special Reports page on our website.

Voting Trends

GOVERNANCE

The 2019 proxy season saw the highest number of failed directors in recent years. Sixty- eight directors failed to receive majority support from shareholders, up from fifty-one in 2018 and sixty in 2017.

Moreover, a greater number of directors received less than 75% support than last year. This may be a reflection of heightened investor scrutiny on all aspects of proxy voting, including directors.

While the number of failed directors increased, director departures are down. Currently, three failed directors have left their boards, or will leave prior to the next annual meeting.

This decrease may become a problem for investors. Board responsiveness to shareholder concerns has become a major area of focus, as ongoing compensation concerns and failure to implement majority-supported shareholder proposals were two of the biggest drivers of majority opposition we saw this year.

1 It appears that many companies did respond to the recent shareholder push to increase board gender diversity. Just 18.8% of boards in our U.S. coverage had no female representation, down from approximately 26% in 2018.

While this is encouraging, there are still inroads to be made towards diversity among board leadership positions. Only 5% of boards in the Russell 3000 Index had a female chair, and 8.5% had female lead independent directors.

The number of companies in our U.S. coverage universe holding their first annual meeting since an initial public offering (IPO) increased in the past year, especially in the technology sector. We also saw an increase in the number of GL against recommendations based on restrictive shareholder rights provisions in post-IPO governing documents.

Investors seem to be more willing to voice opposition in these first-time director elections. Two directors at recent IPO companies failed to receive majority support, compared to no directors in either of the past two proxy seasons.

COMPENSATION

While average support for say-on-pay proposals declined marginally, to 89.8% (2018: 90.0%), support for equity plan proposals stayed roughly the same and for director compensation plans increased broadly.

The number of failed proposals decreased by 10% from 2018, while instances of significant opposition increased yb 5.5%.

Opposition to Golden Parachute proposals remains higher than to other compensation items.

Average shareholder opposition to Golden Parachute proposals continued increasing, and the proportion of failed GP proposals more than doubled from 2018.

ENVIRONMENTAL, SOCIAL & GOVERNANCE

Although environmental and social issues continue to become more mainstream, the number of shareholder proposals going to a vote has been in decline: Glass Lewis reviewed 426 proposals in 2019, from 585 in 2015.

Despite an overall decrease in the number of shareholder proposals, average support for these resolutions remained the same from 2018 to 2019: 32.5%. However, we saw a notable increase in the average support for environmental and social initiatives, rising from 24% to 27% in 2019.

2

The most significant decline among all categories of shareholder proposals were those that dealt with environmental issues. For example, only one climate proposal asking for a 2-degree scenario analysis went to a vote in 2019, down from 21 proposals in 2017.

The decrease in the number of climate-related proposals comes after a significant number of those proposals received majority support in 2017 and 2018, prompting many companies to become more responsive (and even proactive) in addressing shareholder concerns.

There has been an increased focus on human capital management, with new proposals related to sexual harassment, mandatory arbitration and inequitable employment practices all going to a vote during the 2019 proxy season

Despite many of these proposals being submitted to tech companies with dual class share structures, they received 26% support on average. Further, a number of these proposals, on issues ranging from executive diversity to reporting on workforce composition, received majority shareholder support.

Technology companies took the spotlight: Alphabet, Inc. had the highest number of shareholder proposals (13) followed by Amazon.com Inc (12) and Facebook Inc. (8).

The increasing focus reflects the increasing importance of technology companies in society. Shareholder proposals on technology-related issues, such as facial recognition technology and content governance, received 21% support.

3 Proxy Stats

BOARD COMPOSITION

Key Findings

A majority of Russell Compared to the Russell Just 18.8% of boards in U.S. 3000 directors serve 3000 and our total U.S. Coverage have no female on only one board. Male coverage, S&P 500 boards directors, down from directors are more likely were the most independent ~26% in 2018. Most boards to serve on one board, (85.03%) overall, had the most have 11% to 30% female and female directors are female directors (26%), and representation (typically one more likely to serve on the most independent female to three female directors). two to three. directors (29.9%).

RUSSELL 3000 AVERAGE DIRECTOR AGE RUSSELL 3000 AVERAGE TENURE

Figure 1.1 Figure 1.2

BOARD GENDER (IM)BALANCE

Figure 1.3

4 HOW MANY WOMEN SERVE ON THE BOARD?

Figure 1.4

GENDER (IM)BALANCE -- FIRST YEAR APPOINTMENTS

Figure 1.5

5 GENDER (IM)BALANCE -- DIRECTOR INDEPENDENCE

15% 22%

RUSSELL 3000 S&P 500

85% 78%

Independent

Not Independent 70% Male 76% Male 30% Female 24% Female

24%

TOTAL COVERAGE

76%

78% Male

22% Female Figure 1.6

GENDER (IM)BALANCE -- BOARD LEADERSHIP POSITIONS

4.6%

Figure 1.7

6 RUSSELL 3000 -- NUMBER OF PUBLIC COMPANY DIRECTORSHIPS

Figure 1.8

7 GOVERNANCE & DISCLOSURE TRENDS

Key Findings

The number of companies holding Approximately 43% of the Russell 1000 annual shareholder meetings by virtual addressed board oversight responsibility for means only continues to increase year Environmental & Social issues. Companies in over year. 200 companies in Glass Lewis the Utilities (83%) and Energy (78%) sectors U.S. Coverage held such meetings in were the most likely to discuss E&S issues, 2019, compared to 163 in 2018. while those in the Information Technology (24.8%) and Real Estate (28.6%) sectors were least likely.

COMMON BYLAW PROPOSALS BY TYPE

Figure 2.1

8 VIRTUAL-ONLY MEETINGS

Figure 2.2

RUSSELL 1000 DISCLOSURE TRENDS

Disclosed E&S Oversight

Disclosed Skills Matrix

Disclosed Both

Not Disclosed

43.0% 16.6% 26.6%

Figure 2.3

© 2018 Glass, Lewis & Co., and/or its a‚liates. 9 E&S OVERSIGHT DISCLOSURE BY SECTOR

Figure 2.4

10 ELECTION OF DIRECTORS

Key Findings

Glass Lewis supported 68 directors in GL's U.S. coverage The biggest driver of a substantial majority failed to receive majority shareholder majority opposition of the roughly 22,000 support. 51 of these directors were was a board's failure directors voted on, with on Russell 3000 boards, which is a to address ongoing an approximate 87.6% significant increase over last year shareholder concerns support rate, similar to our when just 17 such directors failed to regarding executive 2018 support rate of 87.2%. receive majority support. compensation.

GLASS LEWIS DIRECTOR RECOMMENDATIONS

Figure 3.1

SHAREHOLDER SUPPORT FOR DIRECTORS

Figure 3.2

11 RUSSELL 3000 NUMBER OF FAILED DIRECTORS

Figure 3.3

ELECTION METHODS AT COMPANIES WITH FAILED DIRECTORS

Election Method # Companies % Discussed Results % Departed Board

Plurality 32 6% 0%* Majority 3 100% 25%** Resignation Policy 10 100% 75%*** * Two resignations were submitted and will become e ective before or as of the next annual meeting ** Two directors at Acceleron Pharma, Inc. failed; one resigned, and one remains as a holdover director

***Four resignations are pending board decision Table 3.1

MOST COMMON DRIVERS OF MAJORITY OPPOSITION TO DIRECTORS

Figure 3.4

12 COMPANIES WITH FAILED DIRECTORS BY SECTOR

Figure 3.5

13 COMPENSATION PROPOSALS

Key Findings

GL recommendations Average SOP and equity GL against recommendations for in favor of Say-on- shareholder support levels GP proposals increased during Pay and Equity Plans remain mostly flat at 89.8% and the 2019 proxy season to 41.3% slightly increased, 88.9% with a small change in up from 25.4% in the prior year. respectively at 85.9% the total number of failed Say- At the same time, the proportion and 85.7%. on-Pay proposals (61 in 2019 vs. of failed proposals more than 65 in 2018). doubled year over year (from 6.0% in 2018 to 12.7%)

U.S. SAY-ON-PAY ("SOP")

2018 2019 Total US SOP Fails 65 61 Total S&P 500 Fails 7 6 % of failed US SOP votes 2.7% 2.4% US SOP with Low Support (50-75%) 218 241 S&P 500 with Low Support (50-75%) 32 37 Avg. shareholder support rate across all US SOP 90.0% 89.8% GL Against Rate for all US SOP 14.8% 14.1% GL Against Rate for failed US SOP 82.7% 73.7% % of Fails with P4P Grades A, B, or C 15.5% 14.8%

Table 4.1

GLASS LEWIS RECOMMENDATIONS: AGAINST RATES

50% 2018 2019

40%

41.27% Glass Lewis policy focuses on 30% problematic entitlements primarily when they're put in place or paid out. Because the golden parachute vote 20% represents the actual payout of large CIC benefits, gross-ups, and the like, 25.40% those factors are more likely to drive 10% a negative recommendation on the

17.00% golden parachute than on a normal- 14.12% 14.80% 14.52% course say-on-pay. 0%

SAY-ON-PAY EQUITY GOLDEN PLANS PARACHUTES Figure 4.1

14 S&P 500 SAY-ON-PAY FAILS

Company Shareholder Support Prior Year Support P4P GL Rec. Align Technology, Inc. (ALGN) 42.5% 95.3% C AGAINST Ameriprise Financial (AMP) 32.6% 24.3% D AGAINST CenturyLink, Inc. (CTL) 38.6% 78.8% N/A AGAINST FLEETCOR Technologies, Inc. (FLT) 25% 14.3% D AGAINST Netflix, Inc (NFLX) 49.8% 61.1% C AGAINST Xerox Corporation (XRX) 40.1% 64% F AGAINST

Table 4.2

FAILED SAY-ON-PAYS: PRIOR YEAR SUPPORT

4

Figure 4.2

MOST COMMON DRIVERS OF GLASS LEWIS AGAINST RECOMMENDATIONS*

Say-on-Pay Equity Proposals

P4P Disconnect 42.58% Evergreen 38.64% Structural Concerns 23.81% Repricing/Buyout 23.48% Other Concerning Pay Practices 21.29% Cost 21.97% Concerning Pay Practices: Excessive Grants 12.61% Dilution 13.64% Insuƒcient Response to Shareholders 12.61% Overhang 2.27%

*Multiple reasons may be flagged for one AGAINST recommendation. Percentages are not intended to sum to 100%.

Table 4.3

15 DISTRIBUTION OF GRADES WITH SAY-ON-PAY RECOMMENDATIONS

1000 Against 57.96% For 51 800

106 600

13 104 400 800

527 Number of Companies 200 395 301 82 1 0 89 59 A B C D F

NO GRADE

Figure 4.3

14

GL SUPPORT RATE BY GRADE: 2018 VS. 2019 SEASON

2018 2019 A 97.5% 98.9% B 97.8% 96.8% C 93.6% 94% D 75.7% 74.3% F 35% 41.8% No Grade 82.4% 83.3%

The higher support for F grades reflects a multiyear trend, but the 2019 increase was larger than prior years. After reviewing almost 60 cases, we found that roughly half were supported on the basis of significant changes to the program or realizable pay considerations that are not part of a strict, quantitative view. The other half of the group ran a gamut of extenuating circumstances and unique scenarios.

Table 4.4

16 GLASS LEWIS VS. SHAREHOLDER SUPPORT BY P4P GRADE

100% Average GL Support Rate

Average 97.5% 97.8%

95.0% Shareholder 80% 93.6% 94.5% 92.3%

89.4% Support Rate 85.8% 82.4% 76.4% 60% 75.7%

40%

20% 35.0%

0% A BCDF

NO GRADE

Figure 4.4

OTHER COMPENSATION PROPOSALS

Equity Number of Proposals 872 Average Shareholder Support 88.90% Glass Lewis Support Rate 85.67% Number of Failed Proposals 5 (0.6%) Number Approved with Significant Opposition (25% to 50%) 106 (12.1%)

Director Compensation Number of Proposals 37 Average Shareholder Support 93.95% Glass Lewis Support Rate 81.08% Number of Failed Proposals 0 Number Approved with Significant Opposition (25% to 50%) 2 (5.4%)

Golden Parachutes Number of Proposals 63 Average Shareholder Support 79.84% Glass Lewis Support Rate 58.73% Number of Failed Proposals 8 (12.7%) Number Approved with Significant Opposition (25% to 50%) 8 (12.7%)

Table 4.5

17 SHAREHOLDER PROPOSALS

Key Findings

Although ESG issues The most significant There has been an Tech companies continue to become decline among all increased focus took the spotlight more mainstream, categories of shareholder on human capital during the 2019 the number of proposals were those management, with proxy season. proposals going that dealt with new proposals on Alphabet, Inc. had to a vote has been environmental issues. issues related to sexual the highest number on a decline: Glass For example, only one harassment, mandatory of shareholder Lewis reviewed climate proposal asking arbitration and proposals (13) 426 shareholder for a 2-degree scenario inequitable employment followed by proposals in 2019, analysis went to a vote practices, all going to Amazon.com Inc. down from 585 in in 2019, down from 21 a vote during the 2019 (12) and Facebook 2015. proposals in 2017. proxy season. Inc. (8).

SHAREHOLDER PROPOSALS BY CATEGORY

SHAREHOLDER PROPOSALS BY CATEGORY

55.9% Environmental

Social

7.0% Governance Compensation

8.7%

28.4%

Figure 5.1

© 2018 Glass, Lewis & Co., and/or its aliates.

18 SHAREHOLDER SUPPORT VS. GLASS LEWIS RECOMMENDATIONS

100%

90%

80% 76.8%

70% 68.1% 60.7% 60% 56.8% 54.5% 50% 41.7% 43.8% 40% 37.7% 37.2% 32.5% 32.5% 29.8% 29.5% 28.9% 30% 25.1% 24.5% 23.5% 20% 21.6% 21.2% 20%

10%

0% Environmental Social Governance Compensation Total

2018 Glass Lewis Recommendations 2019 Glass Lewis Recommendations

2018 Average Shareholder Support 2019 Average Shareholder Support Figure 5.2

MAJORITY SUPPORTED SHAREHOLDER PROPOSALS

Majority-Supported Non-Majority Supported 84.6%

81% Governance 15.4% 5% Compensation

14% Social

Figure 5.3

For further analysis of shareholder proposals during the 2019 proxy season, please see our U.S. Shareholder Proposals Season Review.

19 Appendix A

FAILED DIRECTORS FROM JANUARY TO JULY 2019 (GLASS LEWIS U.S. COVERAGE)

Continues to Company Voting Method Director Name Serve on Board? 2U, Inc. Plurality Timothy M. Haley Yes Valery B. Jarrett Yes Acceleron Pharma Inc. Majority Tom Maniatis No Richard F. Pops Yes* American Finance Trust, Inc. Plurality Leslie D. Michelson Yes Avalon Holdings Corporation Plurality Stephen L. Gordon Yes Kurtis D. Gramley Yes Biospecific Technologies Corp. Plurality Michael Schamroth Yes BJ's Restaurants, Inc. Majority w/ Resignation Policy Patrick Walsh Yes** Blackstone Mortgage Trust, Inc. Plurality Jonathan L. Pollack Yes Care.com, Inc. Plurality George Bell Yes CareDx, Inc. Plurality Fred E. Cohen Yes Centrus Energy Corp. Plurality Michael S. Diament Yes Neil S. Subin Yes Mikel H. Williams Yes C.H. Robinson Worldwide, Inc. Majority Timothy C. Gokey Yes* Clarus Corporation Plurality Michael A. Henning Yes Donald L. House Yes Nicholas Sokolow Yes Cogent Communications Holdings, Inc. Majority Steven D. Brooks Yes* CoreCivic, Inc. Majority w/ Resignation Policy Robert J. Dennis Yes** DXP Enterprises, Inc. Majority Cletus Davis Yes electroCore, Inc. Plurality Francis R. Amato Yes*** Enova International, Inc. Majority w/ Resignation Policy Daniel R. Feehan Yes Exantas Capital Corp. Plurality w/ Resignation Policy Murray S. Levin Yes Farmland Partners Inc. Plurality Jay B. Bartels Yes Global Net Lease Plurality Lee M. Elman Yes P. Sue Perrotty Yes GlycoMimetics, Inc. Plurality Scott Koenig Yes Home BancShares, Inc. Plurality Alex R. Lieblong Yes Houston American Energy Corp. Plurality R. Keith Grimes Yes Stephen Hartzell Yes Hyster-Yale Materials Handling, Inc. Plurality J.C. Butler, Jr. Yes Industrial Logistics Properties Trust Plurality Lisa Harris Jones Yes Interface, Inc. Plurality w/ Resignation Policy Andrew B. Cogan Yes** James River Group Holdings, Ltd. Plurality Jerry R. Masters Yes KemPharm, Inc. Plurality Travis C. Mickle Yes Danny L. Thompson Yes Kite Realty Group Trust Majority w/ Resignation Policy Barton R. Peterson Yes Legacy Reserves Inc. Plurality William R. Granberry Yes Kyle D. Vann Yes Douglas W. York Yes Marathon Oil Corporation Plurality J. Kent Wells Yes (continued) Nabors Industries Ltd. Plurality w/ Resignation Policy James R. Crane Yes** Netflix, Inc. Plurality 20 Timothy M. Haley Yes Leslie Kilgore Yes Ann Mather Yes Susan Rice Yes New Media Investment Group Inc. Plurality Theodore P. Janulis Yes Old Republic International Corporation Plurality Jimmy A. Dew Yes John M. Dixon Yes Glenn W. Reed Yes PriceSmart, Inc. Plurality Mitchell G. Lynn Yes Ra Medical Systems, Inc. Plurality Mark E. Saad Yes Reliv' International, Inc. Plurality Paul J. Adams Yes Robert M. Henry Yes John M. Klimek Yes Retail Opportunity Investments Corp. Plurality w/ Resignation Policy Lee S. Neibart Yes Saga Communications, Inc. Plurality G. Dean Pearce Yes ServiceSource International, Inc. Majority w/ Resignation Policy Bruce W. Dunlevie Yes Thomas F. Mendoza Yes Stamps.com Inc. Plurality Mohan P. Ananda Yes Tetraphase Pharmaceuticals, Inc. Plurality John G. Freund Yes Texas Capital Bancshares, Inc. Plurality w/ Resignation Policy Elysia Holt Ragusa Yes Tutor Perini Corporation Plurality Peter Arkley Yes Michael R. Klein Yes Universal Health Services, Inc. Plurality Robert H. Hotz Yes**** * Holdover director pursuant to Delaware Law; may continue to serve on the board until resignation, removal, or election of a successor **Pending board decision ***Resignation will become e
ective upon (i) the appointment of new CEO or (ii) September 30, 2019 ****Resignation will become e
ective upon (i) the appointment of a new Class II director; (ii) the 2020 AGM; or (iii) at the board's request Continues to Company Voting Method Director Name Serve on Board? 2U, Inc. Plurality Timothy M. Haley Yes Valery B. Jarrett Yes Acceleron Pharma Inc. Majority Tom Maniatis No Richard F. Pops Yes* American Finance Trust, Inc. Plurality Leslie D. Michelson Yes Avalon Holdings Corporation Plurality Stephen L. Gordon Yes Kurtis D. Gramley Yes Biospecific Technologies Corp. Plurality Michael Schamroth Yes BJ's Restaurants, Inc. Majority w/ Resignation Policy Patrick Walsh Yes** Blackstone Mortgage Trust, Inc. Plurality Jonathan L. Pollack Yes Care.com, Inc. Plurality George Bell Yes CareDx, Inc. Plurality Fred E. Cohen Yes Centrus Energy Corp. Plurality Michael S. Diament Yes Neil S. Subin Yes Mikel H. Williams Yes C.H. Robinson Worldwide, Inc. Majority Timothy C. Gokey Yes* Clarus Corporation Plurality Michael A. Henning Yes Donald L. House Yes Nicholas Sokolow Yes Cogent Communications Holdings, Inc. Majority Steven D. Brooks Yes* CoreCivic, Inc. Majority w/ Resignation Policy Robert J. Dennis Yes** DXP Enterprises, Inc. Majority Cletus Davis Yes electroCore, Inc. Plurality Francis R. Amato Yes*** Enova International, Inc. Majority w/ Resignation Policy Daniel R. Feehan Yes Exantas Capital Corp. Plurality w/ Resignation Policy Murray S. Levin Yes Farmland Partners Inc. Plurality Jay B. Bartels Yes Global Net Lease Plurality Lee M. Elman Yes P. Sue Perrotty Yes GlycoMimetics, Inc. Plurality Scott Koenig Yes Home BancShares, Inc. Plurality Alex R. Lieblong Yes Houston American Energy Corp. Plurality R. Keith Grimes Yes Stephen Hartzell Yes Hyster-Yale Materials Handling, Inc. Plurality J.C. Butler, Jr. Yes Industrial Logistics Properties Trust Plurality Lisa Harris Jones Yes Interface, Inc. Plurality w/ Resignation Policy Andrew B. Cogan Yes** James River Group Holdings, Ltd. Plurality Jerry R. Masters Yes KemPharm, Inc. Plurality Travis C. Mickle Yes Danny L. Thompson Yes Kite Realty Group Trust Majority w/ Resignation Policy Barton R. Peterson Yes Legacy Reserves Inc. Plurality William R. Granberry Yes

Kyle D. Vann ContinuesYes to Company Voting Method DouglasDirector W.Name York ServeYes on Board? Marathon2U, Inc. Oil Corporation Plurality J.Timothy Kent Wells M. Haley Yes Nabors Industries Ltd. Plurality w/ Resignation Policy JamesValery B.R. JarrettCrane Yes**Yes Netflix,Acceleron Inc. Pharma Inc. PluralityMajority TimothyTom Maniatis M. Haley YesNo LeslieRichard Kilgore F. Pops YesYes* American Finance Trust, Inc. Plurality AnnLeslie Mather D. Michelson Yes Avalon Holdings Corporation Plurality SusanStephen Rice L. Gordon Yes New Media Investment Group Inc. Plurality TheodoreKurtis D. Gramley P. Janulis Yes OldBiospecific Republic Technologies International Corp. Corporation Plurality JimmyMichael A. Schamroth Dew Yes BJ's Restaurants, Inc. Majority w/ Resignation Policy John Patrick M. Walsh Dixon YesYes** Blackstone Mortgage Trust, Inc. Plurality GlennJonathan W. ReedL. Pollack Yes PriceSmart,Care.com, Inc. Inc. Plurality MitchellGeorge BellG. Lynn Yes RaCareDx, Medical Inc. Systems, Plurality Inc. Plurality MarkFred E. CohenSaad Yes Reliv'Centrus International, Energy Corp. Inc. Plurality PaulMichael J. Adams S. Diament Yes RobertNeil S. SubinM. Henry Yes JohnMikel M.H. KlimekWilliams Yes RetailC.H. Robinson Opportunity Worldwide, Investments Inc. Corp. PluralityMajority w/ Resignation Policy LeeTimothy S. Neibart C. Gokey YesYes* SagaClarus Communications, Corporation Inc. Plurality G.Michael Dean A.Pearce Henning Yes ServiceSource International, Inc. Majority w/ Resignation Policy BruceDonald W. L. Dunlevie House Yes ThomasNicholas F. Sokolow Mendoza Yes Stamps.comCogent Communications Inc. Holdings, Inc. PluralityMajority MohanSteven P.D. AnandaBrooks YesYes* TetraphaseCoreCivic, Inc. Pharmaceuticals, Inc. PluralityMajority w/ Resignation Policy John Robert G. J.Freund Dennis YesYes** TexasDXP Enterprises, Capital Bancshares, Inc. Inc. PluralityMajority w/ Resignation Policy ElysiaCletus Holt Davis Ragusa Yes TutorelectroCore, Perini Corporation Inc. Plurality PeterFrancis Arkley R. Amato YesYes*** Enova International, Inc. Majority w/ Resignation Policy Michael Daniel R. R. Feehan Klein Yes UniversalExantas Capital Health Corp.Services, Inc. Plurality w/ Resignation Policy Robert Murray H.S. LevinHotz Yes****Yes *Farmland Holdover Partners director Inc.pursuant to Delaware Law; may continuePlurality to serve on the board until resignation,Jay B. Bartels removal, or election of aYes successor **PendingGlobal Net board Lease decision Plurality Lee M. Elman Yes ***Resignation will become e
ective upon (i) the appointment of new CEO or (ii) SeptemberP. Sue 30, Perrotty 2019 Yes ****ResignationGlycoMimetics, willInc. become e
ective upon (i) the appointmentPlurality of a new Class II director; (ii)Scott the Koenig2020 AGM; or (iii) at the board'sYes request Home BancShares, Inc. Plurality Alex R. Lieblong Yes Houston American Energy Corp. Plurality R. Keith Grimes Yes Stephen Hartzell Yes Hyster-Yale Materials Handling, Inc. Plurality J.C. Butler, Jr. Yes Industrial Logistics Properties Trust Plurality Lisa Harris Jones Yes Interface, Inc. Plurality w/ Resignation Policy Andrew B. Cogan Yes** James River Group Holdings, Ltd. Plurality Jerry R. Masters Yes KemPharm, Inc. Plurality Travis C. Mickle Yes Danny L. Thompson Yes Kite Realty Group Trust Majority w/ Resignation Policy Barton R. Peterson Yes Legacy Reserves Inc. Plurality William R. Granberry Yes Kyle D. Vann Yes Douglas W. York Yes Marathon Oil Corporation Plurality J. Kent Wells Yes Nabors Industries Ltd. Plurality w/ Resignation Policy James R. Crane Yes** Netflix, Inc. Plurality Timothy M. Haley Yes Leslie Kilgore Yes Ann Mather Yes Susan Rice Yes New Media Investment Group Inc. Plurality Theodore P. Janulis Yes Old Republic International Corporation Plurality Jimmy A. Dew Yes 21 John M. Dixon Yes Glenn W. Reed Yes PriceSmart, Inc. Plurality Mitchell G. Lynn Yes Ra Medical Systems, Inc. Plurality Mark E. Saad Yes Reliv' International, Inc. Plurality Paul J. Adams Yes Robert M. Henry Yes John M. Klimek Yes Retail Opportunity Investments Corp. Plurality w/ Resignation Policy Lee S. Neibart Yes Saga Communications, Inc. Plurality G. Dean Pearce Yes ServiceSource International, Inc. Majority w/ Resignation Policy Bruce W. Dunlevie Yes Thomas F. Mendoza Yes Stamps.com Inc. Plurality Mohan P. Ananda Yes Tetraphase Pharmaceuticals, Inc. Plurality John G. Freund Yes Texas Capital Bancshares, Inc. Plurality w/ Resignation Policy Elysia Holt Ragusa Yes Tutor Perini Corporation Plurality Peter Arkley Yes Michael R. Klein Yes Universal Health Services, Inc. Plurality Robert H. Hotz Yes**** * Holdover director pursuant to Delaware Law; may continue to serve on the board until resignation, removal, or election of a successor **Pending board decision ***Resignation will become e
ective upon (i) the appointment of new CEO or (ii) September 30, 2019 ****Resignation will become e
ective upon (i) the appointment of a new Class II director; (ii) the 2020 AGM; or (iii) at the board's request Appendix B

GLASS LEWIS DIRECTOR CONCERNS 2019 PROXY SEASON

Reason S&P 500 Russell 3000 Adoption of Exclusive Forum Provision 4 27 Aliate/Insider on a Committee 17 127 Attendance 4 45 Auditor not up for Ratification 1 31 Board Gender Diversity 0 131 CFO on Board 4 38 Director Received Excessive Against Votes 0 3 Insucient Board Independence 9 119 Insucient Committee Meetings 0 12 Interlocking Directorship 0 5 IPO Governance Concerns 0 121 Material Weakness 2 27 No Lead Director 6 120 Ongoing Compensation Concerns 8 59 Overboarding 51 166 Poison Pill 0 22 Related Party Transactions 7 98 Restated Financial Statements 4 9 SHP Not Implemented 10 18 Virtual-Only Meeting 0 19

22 Appendix C

FAILED SAY-ON-PAY PROPOSALS

Company GL Recommendation 2019 Support Prior Year Support 2U, Inc. Against 38.29% 95.20% Advaxis, Inc. Against 49.01% - AGCO Corporation Against 31.96% 94.10% Align Technology, Inc. Against 42.48% 95.30% Alkermes plc Against 34.22% 97.90% Ameriprise Financial, Inc. Against 32.59% 24.30% Applied Optoelectronics, Inc. Against 45.01% 89.80% ASGN Incorporated Against 34.55% 90.70% At Home Group Inc. Against 49.56% - Avaya Holdings Corp. Against 49.93% - Boston Beer Company, Inc. Against 44.17% 82.00% CenturyLink, Inc. Against 38.72% 78.80% Citizens, Inc. For 26.77% 89.50% Diebold Nixdorf, Incorporated Against 46.22% 90.10% Digimarc Corporation Against 46.83% 41.50% FLEETCOR Technologies, Inc. Against 25.03% 14.30% Frontier Communications Corporation For 43.72% 83.10% FuelCell Energy, Inc. For 43.42% 63.50% HC2 Holdings, Inc. For 48.55% 81.50% Hercules Capital, Inc. Against 45.74% 90.00% Houston American Energy Corp. For 37.74% 82.00% IMAX Corporation Against 39.28% 42.60% ImmunoGen, Inc. Against 9.43% 91.00% iStar Inc. Against 42.14% 35.10% Kilroy Realty Corporation Against 15.38% 59.00% LendingClub Corporation For 45.75% 58.60% Mallinckrodt plc For 36.49% 58.60% MEDNAX, Inc. Against 12.55% 73.70% Nabors Industries Ltd. Against 47.32% 40.70% NCR Corporation Against 34.52% 96.40% Netflix, Inc. Against 49.80% 61.10% New Media Investment Group Inc. Against 23.74% 51.00% Nexstar Media Group, Inc. Against 48.89% 39.50% Nuance Communications, Inc. Against 46.98% 9.50% PeerStream, Inc. For 18.66% - Proofpoint, Inc. Against 18.22% - PTC Inc. Against 41.66% 91.10% Puma Biotechnology, Inc. Against 27.37% 79.10% QEP Resources, Inc Against 47.18% 84.90% Rayonier Advanced Materials Inc. Against 39.56% 80.80% Real Goods Solar, Inc. For 38.91% - Reliv' International, Inc. For 44.43% - Repligen Corporation For 18.85% 96.90% SandRidge Energy, Inc. For 19.09% 12.30% ServiceSource International, Inc. Against 35.32% 52.00% SJI, Inc. For 44.53% 97.20% SPAR Group, Inc. For 4.60% 99.70% SS&C Technologies Holdings, Inc. Against 41.83% 66.30% TG Therapeutics, Inc. Against 45.84% - The Middleby Corporation Against 46.22% 84.90% Tribune Media Company Against 49.36% 55.70% Tutor Perini Corporation Against 36.06% 37.90% Tyler Technologies, Inc. Against 47.36% 76.30% United Therapeutics Corporation Against 26.94% 74.50% VARONIS SYSTEMS, INC. Against 33.35% 93.10% Vector Group Ltd. Against 49.08% (continued) 51.50% Westwater Resources, Inc. For 39.29% 45.40% Willdan Group, Inc. 23For 45.51% 86.80% Williams-Sonoma, Inc. Against 39.62% 82.80% Xerox Corporation Against 40.15% 64.00% Xperi Corporation Against 37.98% 74.10%

Company GL Recommendation 2019 Support Prior Year Support 2U, Inc. Against 38.29% 95.20% Advaxis, Inc. Against 49.01% - AGCO Corporation Against 31.96% 94.10% Align Technology, Inc. Against 42.48% 95.30% Alkermes plc Against 34.22% 97.90% Ameriprise Financial, Inc. Against 32.59% 24.30% Applied Optoelectronics, Inc. Against 45.01% 89.80% ASGN Incorporated Against 34.55% 90.70% At Home Group Inc. Against 49.56% - Avaya Holdings Corp. Against 49.93% - Boston Beer Company, Inc. Against 44.17% 82.00% CenturyLink, Inc. Against 38.72% 78.80% Citizens, Inc. For 26.77% 89.50% Diebold Nixdorf, Incorporated Against 46.22% 90.10% Digimarc Corporation Against 46.83% 41.50% FLEETCOR Technologies, Inc. Against 25.03% 14.30% Frontier Communications Corporation For 43.72% 83.10% FuelCell Energy, Inc. For 43.42% 63.50% HC2 Holdings, Inc. For 48.55% 81.50% Hercules Capital, Inc. Against 45.74% 90.00% Houston American Energy Corp. For 37.74% 82.00% IMAX Corporation Against 39.28% 42.60% ImmunoGen, Inc. Against 9.43% 91.00% iStar Inc. Against 42.14% 35.10% Kilroy Realty Corporation Against 15.38% 59.00% LendingClub Corporation For 45.75% 58.60% Mallinckrodt plc For 36.49% 58.60% MEDNAX, Inc. Against 12.55% 73.70% Nabors Industries Ltd. Against 47.32% 40.70% NCR Corporation Against 34.52% 96.40% Netflix, Inc. Against 49.80% 61.10% New Media Investment Group Inc. Against 23.74% 51.00% Nexstar Media Group, Inc. Against 48.89% 39.50% Nuance Communications, Inc. Against 46.98% 9.50% PeerStream, Inc. For 18.66% - Proofpoint, Inc. Against 18.22% - PTC Inc. Against 41.66% 91.10% Puma Biotechnology, Inc. Against 27.37% 79.10% QEP Resources, Inc Against 47.18% 84.90% Rayonier Advanced Materials Inc. Against 39.56% 80.80% Real Goods Solar, Inc. For 38.91% - Reliv' International, Inc. For 44.43% - Repligen Corporation For 18.85% 96.90% SandRidge Energy, Inc. For 19.09% 12.30% ServiceSource International, Inc. Against 35.32% 52.00% SJI, Inc. For 44.53% 97.20% SPAR Group, Inc. For 4.60% 99.70% SS&C Technologies Holdings, Inc. Against 41.83% 66.30% TG Therapeutics, Inc. Against 45.84% - The Middleby Corporation Against 46.22% 84.90% Tribune Media Company Against 49.36% 55.70% Tutor Perini Corporation Against 36.06% 37.90% Tyler Technologies, Inc. Against 47.36% 76.30%

CompanyUnited Therapeutics Corporation GL Recommendation Against 201926.94% Support Prior 74.50%Year Support VARONIS2U, Inc. SYSTEMS, INC. Against 38.29%33.35% 95.20%93.10% VectorAdvaxis, Group Inc. Ltd. Against 49.08%49.01% 51.50%- WestwaterAGCO Corporation Resources, Inc. AgainstFor 39.29%31.96% 45.40%94.10% WilldanAlign Technology, Group, Inc. Inc. AgainstFor 42.48%45.51% 86.80%95.30% Williams-Sonoma,Alkermes plc Inc. Against 39.62%34.22% 82.80%97.90% XeroxAmeriprise Corporation Financial, Inc. Against 32.59%40.15% 64.00%24.30% XperiApplied Corporation Optoelectronics, Inc. Against 37.98%45.01% 89.80%74.10% ASGN Incorporated Against 34.55% 90.70% At Home Group Inc. Against 49.56% - Avaya Holdings Corp. Against 49.93% - Boston Beer Company, Inc. Against 44.17% 82.00% CenturyLink, Inc. Against 38.72% 78.80% Citizens, Inc. For 26.77% 89.50% Diebold Nixdorf, Incorporated Against 46.22% 90.10% Digimarc Corporation Against 46.83% 41.50% FLEETCORFAILED Technologies, GOLDEN Inc. PARACHUTEAgainst PROPOSALS25.03% 14.30% Frontier Communications Corporation For 43.72% 83.10% TickerFuelCell Energy, Company Inc. Name For GL Rec. Shareholder43.42% Support % 63.50% BMSHC2 Holdings, Bemis Inc. Company, Inc. For Against 48.55%39.93% 81.50% CELGHercules Capital, Celgene Inc. Corporation Against Against 45.74%36.33% 90.00% ESLHouston American Esterline Energy Technologies Corp. CorporationFor For 37.74%43.41% 82.00% NFXIMAX Corporation Newfield Exploration CompanyAgainst For 39.28%45.67% 42.60% RENImmunoGen, Resolute Inc. Energy Corporation Against Against 9.43%45.55% 91.00% ULTIiStar Inc. The Ultimate Software Group,Against Inc. Against 42.14%38.97% 35.10% TIERKilroy Realty Tier Corporation Reit, Inc. Against Against 15.38%43.59% 59.00% TRCOLendingClub Tribune Corporation Media Company For Against 45.75%40.12% 58.60% Mallinckrodt plc For 36.49% 58.60% MEDNAX, Inc. Against 12.55% 73.70% Nabors Industries Ltd. Against 47.32% 40.70% NCR Corporation Against 34.52% 96.40% Netflix, Inc. Against 49.80% 61.10% New Media Investment Group Inc. Against 23.74% 51.00% Nexstar Media Group, Inc. Against 48.89% 39.50% Nuance Communications, Inc. Against 46.98% 9.50% FAILEDPeerStream, EQUITY Inc. AND NON-EXECUTIVEFor COMPENSATION18.66% PROPOSALS - Proofpoint, Inc. Against 18.22% - Ticker CompanyPTC Inc. Type Against 41.66% GL Rec. Support91.10% % ARTX ArotechPuma Corporation Biotechnology, Inc. EquityAgainst Plan 27.37%For 46.01%79.10% GSVC GSV CapitalQEP Resources, Corp. Inc EquityAgainst Plan 47.18%For 49.51%84.90% MITK Mitek RayonierSystems, AdvancedInc. Materials Inc. Equity Against Plan Amendment 39.56%Against 48.47%80.80% RLH Red LionReal Hotels Goods Corporation Solar, Inc. Equity PlanFor Amendment 38.91%Against 26.68% - SGRP SPAR Reliv'Group, International, Inc. Inc. Equity PlanFor Amendment 44.43%Against 2.20% - Repligen Corporation For 18.85% 96.90% SandRidge Energy, Inc. For 19.09% 12.30% ServiceSource International, Inc. Against 35.32% 52.00% SJI, Inc. For 44.53% 97.20% SPAR Group, Inc. For 4.60% 99.70% SS&C Technologies Holdings, Inc. Against 41.83% 66.30% TG Therapeutics, Inc. Against 45.84% - The Middleby Corporation Against 46.22% 84.90% Tribune Media Company Against 49.36% 55.70% Tutor Perini Corporation Against 36.06% 37.90% Tyler Technologies, Inc. Against 47.36% 76.30% United Therapeutics Corporation Against 26.94% 74.50% VARONIS SYSTEMS, INC. Against 33.35% 93.10% Vector Group Ltd. Against 49.08% 51.50% Westwater Resources, Inc. For 39.29% 45.40% Willdan Group, Inc. For 45.51% 86.80% Williams-Sonoma, Inc. Against 39.62% 82.80% Xerox Corporation Against 40.15% 64.00% Xperi Corporation Against 37.98% 74.10%

24 Appendix D

MAJORITY SUPPORTED SHAREHOLDER PROPOSALS

Glass Lewis Management 2019* 2018* Ticker Company Name Proposal Type Rec. Rec. Support Support Proponent COMPENSATION PROPOSALS FLT FLEETCOR Technologies, Inc. Clawback Policy For Against 58.1% The Board of Trustees of the International Brotherhood of Electrical Workers Pension Benefit Fund and Connecticut Retirement Plans and Trust Funds MNK Mallinckrodt plc Clawback Report For Against 52.9% UAW Retiree Medical Benefits Trust MYL Mylan N.V. Clawback Policy (Discussion Item) For Undetermined Approved UAW Retiree Medical Benefits Trust GOVERNANCE PROPOSALS AAXN Axon Enterprise, Inc. Simple Majority Vote For Undetermined 96.6% James McRitchie ADXS Advaxis, Inc. Majority Vote for Election of Directors For Undetermined 93.2% California Public Employees' Retirement System ALRM Alarm.com Holdings, Inc. Simple Majority Vote For Against 65.0% James McRitchie and Myra K. Young through their designee John Chevedden AMAT Applied Materials, Inc. Written Consent For Against 50.2% Kenneth Steiner ANTM Anthem, Inc. Board Declassification Against Undetermined 74.9% John Chevedden BBSI Barrett Business Services, Inc. Proxy Access For Against 62.9% Wayne King C Citigroup Inc. Special Meetings For Against 51.3% 49.9% Kenneth Steiner CI Cigna Corp. Written Consent For Against 63.8% Not disclosed COF Capital One Financial Corp. Written Consent For Against 56.9% John Chevedden DF Dean Foods Company Simple Majority Vote For Against 78.9% Kenneth Steiner DFS Discover Financial Services Special Meetings For Against 65.4% Myra K. Young ERI Eldorado Resorts, Inc. Majority Vote for Election of Directors For Do Not Vote 72.7% UNITE HERE ERI Eldorado Resorts, Inc. Poison Pill For Do Not Vote 72.6% UNITE HERE ERI Eldorado Resorts, Inc. Simple Majority Vote For Do Not Vote 65.3% UNITE HERE ERI Eldorado Resorts, Inc. Opt Out of Nevada Combinations Statute For Do Not Vote 63.9% UNITE HERE ERI Eldorado Resorts, Inc. Opt Out of Nevada Controlling Interests Statute For Do Not Vote 63.9% UNITE HERE FCBC First Community Bancshares, Inc. Majority Vote for Election of Directors For Against 53.2% California Public Employees’ Retirement System FE FirstEnergy Corp. Simple Majority Vote Against Against 60.0% John Chevedden FLO Flowers Foods, Inc. Simple Majority Vote For Against 60.3% Not disclosed FLS Flowserve Corp. Written Consent For Against 50.6% 44.0% Not disclosed GHDX Genomic Health, Inc. Simple Majority Vote For Against 64.0% John Chevedden as the agent of James McRitchie & Myra K. Young GHL Greenhill & Co., Inc. Majority Vote for Election of Directors For Undetermined 79.2% John Chevedden, on behalf of Kenneth Steiner GLPI Gaming And Leisure Properties, Inc. Board Diversity For Undetermined 78.3% The Comptroller of the State of New York, Thomas P. DiNapoli ISRG Intuitive Surgical, Inc. Simple Majority Vote For Against 68.9% Myra K. Young, through her designee John Chevedden JAX J. Alexander's Holdings, Inc. Majority Vote for Election of Directors For Do Not Vote 84.0% California Public Employees’ Retirement System JBLU JetBlue Airways Corp. Written Consent For Against 61.8% John Chevedden K Kellogg Company Board Declassification For Undetermined 62.1% Not disclosed KNX Knight-Swift Transportation Board Declassification For Undetermined 68.6% John Chevedden Holdings Inc. LB L Brands, Inc. Simple Majority Vote For For 98.2% John Chevedden LDOS Leidos Holdings, Inc. SImple Majority Vote For Against 92.1% John Chevedden MASI Masimo Corp. Proxy Access For Against 53.4% Comptroller of New York City NEWM New Media Investment Group Inc. Majority Vote for Election of Directors For Undetermined 67.7% California Public Employees’ Retirement System NFLX Netflix, Inc. Simple Majority Vote For Against 88.0% 84.8% John Chevedden NRZ New Residential Investment Corp. Majority Vote for Election of Directors For Undetermined 95.2% California Public Employees’ Retirement System NSC Norfolk Southern Corp. Simple Majority Vote Against Against 69.9% John Chevedden NUAN Nuance Communications, Inc. Written Consent For Against 61.9% Kenneth Steiner NYCB New York Community Bancorp, Inc. Simple Majority Vote For Against 74.4% Kenneth Steiner OGE OGE Energy Corp. Simple Majority Vote For Against 84.2% John Chevedden OMI Owens & Minor, Inc. Proxy Access For Undetermined 87.0% James Bierman ORI Old Republic International Corp. Proxy Access For Against 78.1% 74.6% California Public Employees' Retirement System ORLY O'Reilly Automotive, Inc. Special Meetings For Against 51.2% John Chevedden *ExcludesOXY Occidental abstentions Petroleum and non-votes Corp. Special Meetings For Against 60.0% John Chevedden RDNT Radnet, Inc. Majority Vote for Election of Directors For Undetermined 63.2% California Public Employees’(continued) Retirement System SAFT Safety Insurance Group, Inc. Majority Vote for Election of Directors For Against 90.1% California Public Employees’ 25 Retirement System SBGI Sinclair Broadcast Group, Inc. Majority Vote for Election of Directors For Against 99.5% California Public Employees’ Retirement System SON Sonoco Products Company Simple Majority Vote For Against 71.4% Not disclosed STML Stemline Therapeutics, Inc. Majority Vote for Election of Directors For Against 62.1% California Public Employees’ Retirement System SWKS Skyworks Solutions, Inc. Simple Majority Vote For Undetermined 96.3% John Chevedden URI United Rentals, Inc. Written Consent For Against 50.4% 47.2% Not disclosed UTHR United Therapeutics Corp. Board Declassification For For 96.9% James McRitchie and Myra K. Young XRX Xerox Corp. Simple Majority Vote Against Undetermined 72.9% Not disclosed SOCIAL PROPOSALS CTSH Cognizant Technology Solutions Corp. Political Contributions For Against 53.6% John Chevedden on behalf of James McRitchie and Myra K. Young GEO The GEO Group, Inc. Human Rights For Undetermined 87.9% USA West Province of the Society of Jesus and 12 co-filers LNT Alliant Energy Corp. Political Contributions For Against 54.3% 39.0% Comptroller of the City of New York M Macy's Inc. Political Contributions For Against 53.1% Mercy Investment Services, Inc. MNK Mallinckrodt plc Opioids For Against 78.9% Mercy Investment Services, Inc., Daughters of Charity, Inc., Bon Secours Mercy Health, Catholic Health Initiatives, and one other MNK Mallinckrodt plc Lobbying For For 79.7% United Church Funds NWL Newell Brands Inc. Executive Diversity For Against 56.6% Trillium Asset Management LLC on behalf of the Trillium Small/Mid Cap Fund TRV The Travelers Companies, Inc. Diversity Reporting For Against 50.9% 36.4% Trillium Asset Management, LLC WBA Walgreens Boots Alliance, Inc. Opioids For Against 60.5% Mercy Investment Services., UAW Retiree Medical Benefits Trust, Northwest Women Religious Investment Trust, and two other co-filers *Excludes abstentions and broker non-votes Glass Lewis Management 2019* 2018* Ticker Company Name Proposal Type Rec. Rec. Support Support Proponent COMPENSATION PROPOSALS FLT FLEETCOR Technologies, Inc. Clawback Policy For Against 58.1% The Board of Trustees of the International Brotherhood of Electrical Workers Pension Benefit Fund and Connecticut Retirement Plans and Trust Funds MNK Mallinckrodt plc Clawback Report For Against 52.9% UAW Retiree Medical Benefits Trust MYL Mylan N.V. Clawback Policy (Discussion Item) For Undetermined Approved UAW Retiree Medical Benefits Trust GOVERNANCE PROPOSALS AAXN Axon Enterprise, Inc. Simple Majority Vote For Undetermined 96.6% James McRitchie ADXS Advaxis, Inc. Majority Vote for Election of Directors For Undetermined 93.2% California Public Employees' Retirement System ALRM Alarm.com Holdings, Inc. Simple Majority Vote For Against 65.0% James McRitchie and Myra K. Young through their designee John Chevedden AMAT Applied Materials, Inc. Written Consent For Against 50.2% Kenneth Steiner ANTM Anthem, Inc. Board Declassification Against Undetermined 74.9% John Chevedden BBSI Barrett Business Services, Inc. Proxy Access For Against 62.9% Wayne King C Citigroup Inc. Special Meetings For Against 51.3% 49.9% Kenneth Steiner CI Cigna Corp. Written Consent For Against 63.8% Not disclosed COF Capital One Financial Corp. Written Consent For Against 56.9% John Chevedden DF Dean Foods Company Simple Majority Vote For Against 78.9% Kenneth Steiner DFS Discover Financial Services Special Meetings For Against 65.4% Myra K. Young ERI Eldorado Resorts, Inc. Majority Vote for Election of Directors For Do Not Vote 72.7% UNITE HERE ERI Eldorado Resorts, Inc. Poison Pill For Do Not Vote 72.6% UNITE HERE ERI Eldorado Resorts, Inc. Simple Majority Vote For Do Not Vote 65.3% UNITE HERE ERI Eldorado Resorts, Inc. Opt Out of Nevada Combinations Statute For Do Not Vote 63.9% UNITE HERE ERI Eldorado Resorts, Inc. Opt Out of Nevada Controlling Interests Statute For Do Not Vote 63.9% UNITE HERE FCBC First Community Bancshares, Inc. Majority Vote for Election of Directors For Against 53.2% California Public Employees’ Retirement System FE FirstEnergy Corp. Simple Majority Vote Against Against 60.0% John Chevedden FLO Flowers Foods, Inc. Simple Majority Vote For Against 60.3% Not disclosed FLS Flowserve Corp. Written Consent For Against 50.6% 44.0% Not disclosed GHDX Genomic Health, Inc. Simple Majority Vote For Against 64.0% John Chevedden as the agent of James McRitchie & Myra K. Young GHL Greenhill & Co., Inc. Majority Vote for Election of Directors For Undetermined 79.2% John Chevedden, on behalf of Kenneth Steiner GLPI Gaming And Leisure Properties, Inc. Board Diversity For Undetermined 78.3% The Comptroller of the State of New York, Thomas P. DiNapoli ISRG Intuitive Surgical, Inc. Simple Majority Vote For Against 68.9% Myra K. Young, through her designee John Chevedden JAX J. Alexander's Holdings, Inc. Majority Vote for Election of Directors For Do Not Vote 84.0% California Public Employees’ Retirement System JBLU JetBlue Airways Corp. Written Consent For Against 61.8% John Chevedden K Kellogg Company Board Declassification For Undetermined 62.1% Not disclosed KNX Knight-Swift Transportation Board Declassification For Undetermined 68.6% John Chevedden Holdings Inc. LB L Brands, Inc. Simple Majority Vote For For 98.2% John Chevedden LDOS Leidos Holdings, Inc. SImple Majority Vote For Against 92.1% John Chevedden MASI Masimo Corp. Proxy Access For Against 53.4% Comptroller of New York City NEWM New Media Investment Group Inc. Majority Vote for Election of Directors For Undetermined 67.7% California Public Employees’ Retirement System NFLX Netflix, Inc. Simple Majority Vote For Against 88.0% 84.8% John Chevedden NRZ New Residential Investment Corp. Majority Vote for Election of Directors For Undetermined 95.2% California Public Employees’ Retirement System NSC Norfolk Southern Corp. Simple Majority Vote Against Against 69.9% John Chevedden NUAN Nuance Communications, Inc. Written Consent For Against 61.9% Kenneth Steiner NYCB New York Community Bancorp, Inc. Simple Majority Vote For Against 74.4% Kenneth Steiner OGE OGE Energy Corp. Simple Majority Vote For Against 84.2% John Chevedden OMI Owens & Minor, Inc. Proxy Access For Undetermined 87.0% James Bierman ORI Old Republic International Corp. Proxy Access For Against 78.1% 74.6% California Public Employees' Glass Lewis Management 2019* 2018* Retirement System TickerORLY Company O'Reilly Automotive, Name Inc. ProposalSpecial Meetings Type Rec.For Against Rec. Support 51.2% Support JohnProponent Chevedden OXY Occidental Petroleum Corp. Special Meetings COMPENSATIONFor PROPOSALSAgainst 60.0% John Chevedden FLTRDNT FLEETCORRadnet, Inc. Technologies, Inc. ClawbackMajority Vote Policy for Election of Directors ForFor UndeterminedAgainst 63.2%58.1% TheCalifornia Board Publicof Trustees Employees’ of the InternationalRetirement System Brotherhood of SAFT Safety Insurance Group, Inc. Majority Vote for Election of Directors For Against 90.1% ElectricalCalifornia WorkersPublic Employees’ Pension Benefit FundRetirement and Connecticut System Retirement Plans and Trust Funds SBGI Sinclair Broadcast Group, Inc. Majority Vote for Election of Directors For Against 99.5% California Public Employees’ MNK Mallinckrodt plc Clawback Report For Against 52.9% UAWRetirement Retiree System Medical Benefits Trust MYLSON Mylan Sonoco N.V. Products Company ClawbackSimple Majority Policy Vote(Discussion Item) ForFor UndeterminedAgainst Approved 71.4% UAWNot disclosed Retiree Medical Benefits Trust STML Stemline Therapeutics, Inc. Majority Vote for Election of DirectorsGOVERNANCE For PROPOSALS Against 62.1% California Public Employees’ Retirement System AAXN Axon Enterprise, Inc. Simple Majority Vote For Undetermined 96.6% James McRitchie SWKS Skyworks Solutions, Inc. Simple Majority Vote For Undetermined 96.3% John Chevedden ADXS Advaxis, Inc. Majority Vote for Election of Directors For Undetermined 93.2% California Public Employees' URI United Rentals, Inc. Written Consent For Against 50.4% 47.2% Retirement Not disclosed System ALRMUTHR Alarm.comUnited Therapeutics Holdings, Corp.Inc. SimpleBoard DeclassificationMajority Vote ForFor AgainstFor 65.0% 96.9% JamesJames McRitchieMcRitchie andand MyraMyra K.K. Young XRX Xerox Corp. Simple Majority Vote Against Undetermined 72.9% YoungNot disclosed through their designee John Chevedden AMAT Applied Materials, Inc. Written Consent SOCIAL PROPOSALSFor Against 50.2% Kenneth Steiner CTSH Cognizant Technology Solutions Corp. Political Contributions For Against 53.6% John Chevedden on behalf of ANTM Anthem, Inc. Board Declassification Against Undetermined 74.9% John Chevedden James McRitchie and Myra K. Young BBSI Barrett Business Services, Inc. Proxy Access For Against 62.9% Wayne King GEO The GEO Group, Inc. Human Rights For Undetermined 87.9% USA West Province of the Society C Citigroup Inc. Special Meetings For Against 51.3% 49.9% Kennethof Jesus Steinerand 12 co-filers CILNT Cigna Alliant Corp. Energy Corp. WrittenPolitical Consent Contributions ForFor Against 63.8%54.3% 39.0% Not Comptroller disclosed of the City of New York COFM CapitalMacy's Inc.One Financial Corp. WrittenPolitical Consent Contributions ForFor Against 56.9% 53.1% JohnMercy Chevedden Investment Services, Inc. DFMNK DeanMallinckrodt Foods Companyplc SimpleOpioids Majority Vote ForFor Against 78.9% KennethMercy Investment Steiner Services, Inc., DFS Discover Financial Services Special Meetings For Against 65.4% MyraDaughters K. Young of Charity, Inc., Bon Secours Mercy Health, ERI Eldorado Resorts, Inc. Majority Vote for Election of Directors For Do Not Vote 72.7% UNITE HERE Catholic Health Initiatives, ERI Eldorado Resorts, Inc. Poison Pill For Do Not Vote 72.6% UNITEand one HERE other ERIMNK EldoradoMallinckrodt Resorts, plc Inc. SimpleLobbying Majority Vote ForFor Do NotFor Vote 65.3% 79.7% UNITEUnited HEREChurch Funds ERINWL EldoradoNewell Brands Resorts, Inc. Inc. OptExecutive Out of Diversity Nevada Combinations Statute For DoAgainst Not Vote 63.9%56.6% UNITETrillium HERE Asset Management LLC ERI Eldorado Resorts, Inc. Opt Out of Nevada Controlling Interests Statute For Do Not Vote 63.9% UNITEon behalf HERE of the Trillium Small/Mid Cap Fund FCBC First Community Bancshares, Inc. Majority Vote for Election of Directors For Against 53.2% California Public Employees’ TRV The Travelers Companies, Inc. Diversity Reporting For Against 50.9% 36.4% Retirement Trillium Asset System Management, LLC FEWBA FirstEnergyWalgreens Boots Corp. Alliance, Inc. Simple Opioids Majority Vote AgainstFor Against 60.0% 60.5% JohnMercy Chevedden Investment Services., UAW Retiree Medical Benefits Trust, FLO Flowers Foods, Inc. Simple Majority Vote For Against 60.3% NotNorthwest disclosed Women Religious FLS Flowserve Corp. Written Consent For Against 50.6% 44.0% NotInvestment disclosed Trust, and two other co-filers GHDX Genomic Health, Inc. Simple Majority Vote For Against 64.0% John Chevedden as the agent of *Excludes abstentions and broker non-votes James McRitchie & Myra K. Young GHL Greenhill & Co., Inc. Majority Vote for Election of Directors For Undetermined 79.2% John Chevedden, on behalf of Kenneth Steiner GLPI Gaming And Leisure Properties, Inc. Board Diversity For Undetermined 78.3% The Comptroller of the State of New York, Thomas P. DiNapoli ISRG Intuitive Surgical, Inc. Simple Majority Vote For Against 68.9% Myra K. Young, through her designee John Chevedden JAX J. Alexander's Holdings, Inc. Majority Vote for Election of Directors For Do Not Vote 84.0% California Public Employees’ Retirement System DISCLAIMERJBLU JetBlue Airways Corp. Written Consent For Against 61.8% John Chevedden K Kellogg Company Board Declassification For Undetermined 62.1% Not disclosed © 2019 Glass, Lewis & Co., Glass Lewis Europe, Ltd., and CGI Glass Lewis Pty Ltd. (collectively, “Glass Lewis”). All Rights Reserved. KNX Knight-Swift Transportation Board Declassification For Undetermined 68.6% John Chevedden This report Holdings is intended Inc. to provide a post-season summary of Glass Lewis’ research, data and analysis of proxy voting issues and, therefore, LB L Brands, Inc. Simple Majority Vote For For 98.2% John Chevedden should not be relied upon as investment advice. Glass Lewis analyzes the issues presented for shareholder vote and makes recommendations LDOS Leidos Holdings, Inc. SImple Majority Vote For Against 92.1% John Chevedden as to how Glass Lewis believes institutional shareholders should vote their proxies, without commenting on the investment merits of MASI Masimo Corp. Proxy Access For Against 53.4% Comptroller of New York City theNEWM securities New Media issued Investment by Group the Inc.subject Majority companies. Vote for Election Therefore, of Directors none of GlassFor Lewis’Undetermined proxy vote recommendations 67.7% shouldCalifornia be Public construed Employees’ as a recommendation to invest in, purchase, or sell any securities or other property. Moreover, Glass Lewis’ proxy vote recommendationsRetirement System must beNFLX construed Netflix, Inc. solely as statements Simpleof opinion, Majority Vote and not as statements Forof fact, and mayAgainst be revised 88.0% based 84.8% on additional John Chevedden information or any otherNRZ reason New Residential at any Investment time. Corp. Majority Vote for Election of Directors For Undetermined 95.2% California Public Employees’ Retirement System TheNSC information Norfolk Southern contained Corp. in this reportSimple Majorityis based Vote on publicly availableAgainst informati2on. Against While Glass 69.9% Lewis exercises reasonableJohn Chevedden care to ensure thatNUAN all information Nuance Communications, included Inc. in this Writtenreport Consent is accurate and is obtained fromFor sources Againstbelieved to 61.9%be reliable, no representationsKenneth Steiner or warranties expressNYCB Newor implied,York Community are Bancorp,made Inc.as to Simplethe accuracy Majority Vote or completeness of anyFor informationAgainst included 74.4% herein. In addition, GlassKenneth Lewis Steiner shall not be OGE OGE Energy Corp. Simple Majority Vote For Against 84.2% John Chevedden liable for any losses or damages arising from or in connection with the information contained herein or the use or inability to use any such OMI Owens & Minor, Inc. Proxy Access For Undetermined 87.0% James Bierman information. ORI Old Republic International Corp. Proxy Access For Against 78.1% 74.6% California Public Employees' Glass Lewis expects its subscribers possess sufficient experience and knowledge to make their own decisionsRetirement entirely System independent of ORLY O'Reilly Automotive, Inc. Special Meetings For Against 51.2% John Chevedden any information contained in this report. Subscribers are ultimately and solely responsible for making their own voting decisions. This OXY Occidental Petroleum Corp. Special Meetings For Against 60.0% John Chevedden GlassRDNT Lewis Radnet, report Inc. is intended to serveMajority as Vote a complementary for Election of Directors source of Forinformation Undetermined and analysis 63.2% for subscribers in makingCalifornia Publictheir Employees’ own voting decisions and therefore should not be relied on by subscribers as the sole determinant in making voting decisions.Retirement System SAFT Safety Insurance Group, Inc. 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Pension Asset-Liability Study: Initial Results Florida State Board of Administration August 2019

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. Table of Contents

. Executive Summary . Overview ‒ Asset-Liability Management Background ‒ Asset-Liability Profile . Analysis ‒ Investment Analysis ‒ Asset-Liability Projection Analysis ‒ Liquidity Analysis ‒ Public Pension Peer Comparison . Summary & Conclusions . Appendix

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 1 Executive Summary

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 2 Scope of Project

. Annual Asset-Liability Management (ALM) review and update ‒ 30 year asset-liability projection analysis ‒ Review stochastic risk/reward results ‒ Review multiple portfolio strategies ‒ Conduct liquidity analysis

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 3 Executive Summary

. We believe the current portfolio is well-diversified with 81% return-seeking assets Investment . The equity risk premium is 3.88% in this 2019 A-L study, compared to 3.62% from 2018 Analysis . Asset returns (6.59%) are not expected to keep pace with the actuarial assumed rate of return (7.40%) . Expected real return of 4.41% exceeds the absolute real target rate of return of 4.00%

. Longer time horizons are expected to reward higher levels of risk; shorter time horizons are not . The funded ratio is expected to remain relatively flat over the course of the projection period in our Asset-Liability central expectation (50th percentile outcome) Projection . Higher return-seeking strategies result in a higher trajectory of projected funded ratio, with greater Analysis risk than the current portfolio; lower return-seeking portfolios do the opposite . Adverse market experience could significantly impact the funded status of the Plan over the projection period, albeit with low likelihood . The Current Policy portfolio is projected to have sufficient liquidity in the modeled Base, Recession, Black Liquidity Skies scenarios Analysis . Allocations in the Black Skies scenarios could drift far enough from the targets that FRS would want to rebalance

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 4 Overview . Asset- Liability Management Background

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 5 Asset-Liability Management Background What is an Asset-Liability Study?

. Provides fiduciaries with an understanding of the dynamic relationship between plan assets and liabilities over time

. Illustrates the impact of various asset allocation targets on required contributions and funded status under a range of different macro-economic scenarios

. Identifies future trends in the financial health of the plan based on economic uncertainties that may not be evident from an actuarial valuation, which provides only a snapshot at a point in time

. Helps determine the level of risk that is appropriate in the context of the Plan’s liabilities

An asset-liability study provides the tools to align a plan’s risk taking with its liabilities

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 6 Asset-Liability Management Background Balance of Liabilities and Assets

PENSION PLAN + Cash + Asset + New Benefit + Liability Contributions Return Accrual Return

Assets Liabilities $ $

- Benefit - Benefit Payments Payments

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 7 Asset-Liability Management Background Mechanics of Asset-Liability Modeling Process

Asset and liability modeling Demographics Asset Mix Plan Design integrated in single platform Actuarial Assumptions . Integrates impact of key economic variables Interest Inflation Rate Flexibility in modeling Duration Discount Correlation Rate parameters and output to Salary Portfolio client preferences Increase Liabilities Return Stochastic and deterministic modeling performed Contributions Funded Ratio

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 8 Asset-Liability Management Background Risk and Return in an Asset-Liability Context

Traditional: - Return = Investment performance - Risk = Annual volatility of investment gains and losses (e.g. weak/negative capital market returns)

Asset-Liability: - Return = Potential cost reduction or funded status improvement under average economic conditions - Risk = During the worst economic conditions, contributions need to increase or funded status declines (e.g., stocks decline, inflation/deflation shocks and/or interest rates decline)

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 9 Asset-Liability Management Background Key Factors Affecting the Risk/Reward Trade-off

The key take-away from the A/L study is the allocation between equity (“return-seeking”) vs. fixed income (“risk-reducing”)

Major factors affecting the ultimate mix are: . Time horizon (or amortization period of unfunded liability) to fund the liability: a longer time horizon supports more risk taking . Characteristics of plan participants: a growing population of active participants supports more risk taking; a mature population with significant retirees might need a more conservative policy . Funded status: a less funded plan can utilize additional returns from equity investments . Nature of plan benefits: a pension with sensitivity to wage inflation growth can benefit from equities in the long-term; an increased need in liquidity due to significant benefit payments in the near future can have a more conservative policy

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 10 Asset-Liability Management Background Glossary of Terms

. AVA = Actuarial Value of Assets (i.e., incorporates smoothing of gains and losses) . Asset Growth Rate or “Hurdle Rate” – The required rate of growth of the assets (through both contributions and investment returns) to keep pace with the growth of the liability . Current Frontier – uses SBA’s mix of asset classes within the Return-Seeking allocation, then dials the Return-Seeking allocation up and down from 0% to 100% to illustrate forecasted returns at various Return-Seeking / Safety Asset mixes . Economic Cost – Present Value of forecasted future contributions + Funding Shortfall / (Surplus) . Liability Growth Rate – the projected growth of the liability over the coming year as measured by the sum of the Normal Cost (new benefit accruals) and Interest Cost (one year of discounting) . MVA = Market Value of Assets (i.e., un-smoothed / economic reality) . Return-Seeking Assets (“R-S”) – All non “Safety” assets . Safety Assets – Assets where the primary function is risk control / downside mitigation. . Target Mix – the allocation of assets between Return-Seeking Assets and Safety Assets

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 11 Overview . Asset- Liability Profile

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 12 Florida Retirement System (FRS) Historical Information

Key Takeaways:

. Blue line represents the actuarial liabilities over time – Adding to the increase in liability has been the decrease in the assumed investment return in recent years (light gray bar)

. Green line represents the actuarial value of plan assets over time – Assets reflect smoothing parameters to the actual return on assets (dark gray bar)

Sources: Public Plans Data (publicplansdata.org) as of August 2019

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 13 Asset-Liability Profile as of July 1, 2018

Asset-Liability Snapshot as of 7/1/2018 Key Takeaways: Metric ($, Billions) Value Fund % . Pension plan is 86.7% funded on a market value of assets basis Market Value of Assets $161.2 86.7% as of July 1, 2018 Actuarial Value of Assets $156.1 83.9% . Asset allocation is 81% return-seeking assets with 19% risk- Liability Metrics reducing/safety assets to withstand stressed markets Actuarial Liability (AL) - Funding $186.01 . Asset hurdle rate of 9.76%, via cash funding and investment returns, needed to maintain or improve actuarial funded status Asset-Liability Growth Metrics Target Asset Allocation as of 7/1/2018 Metric ($, Billions) Value % Liability % Assets Metric ($, Billions) Value Alloc % Return-Seeking AL Discount Cost $13.8 7.40% 8.54% - Global Equity $85.4 53% AL Normal Cost $2.0 1.06% 1.22% - Private Equity $9.7 6% Total Liability Hurdle Rate $15.7 8.46% 9.76% - Real Estate $16.1 10% Expected Return on Assets² $10.6 5.71% 6.59% - Strategic Allocation $19.3 12% Total Contributions $3.9 2.09% 2.41% - Total $130.6 81% Risk-Reducing Total Exp. Asset Growth $14.5 7.80% 9.00% - Cash & Short Duration Fixed Income $1.6 1% Hurdle Rate Shortfall/(Surplus) $1.2 0.66% 0.76% - Intermediate Duration Fixed Income $29.0 18% Est. Benefit Payments $10.3 5.54% 6.39% - Total $30.6 19% Total $161.2 100% 1Based on a 7.40% discount rate consistent with the July 1, 2018 valuation results. 2 Expected returns are using customized AHIC Q3 2019 Capital Market Assumptions. Assumptions do not include fees/expenses. All expected returns are geometric (long-term compounded; rounded to the nearest decimal) and net of investment fees. Expected returns presented are models and do not represent the returns of an actual client account. Not a guarantee of future results. See capital market assumptions disclosure pages in Appendix.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 14 Asset Hurdle Rates

. Asset Hurdle Rate is the required rate of asset growth needed to keep pace with the growth of the Plan liabilities – Assets must grow at this rate or more in order to maintain or reduce the existing funding shortfall . Assets can grow via: FRS’ – Investment performance, and/or Hurdle Rate = – Funding contributions 9.76% . Asset hurdle rates decline as the funded status increases, as shown in the chart to the right . This analysis assumes funding which is sufficient to cover the asset hurdle rates over time

1 Expected returns are using customized AHIC Q3 2019 Capital Market Assumptions. Assumptions do not include fees/expenses. All expected returns are geometric (long-term compounded; rounded to the nearest decimal) and net of investment fees. Expected returns presented are models and do not represent the returns of an actual client account. Not a guarantee of future results. See capital market assumptions disclosure pages in Appendix.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 15 Analysis . Investment Analysis

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 16 Investment Analysis SBA Approach: Equity Risk Premium1

Starting in 2016, the SBA averages the Global equity risk premiums from four consulting firms and then uses that average risk premium to scale AHIC’s expected returns for the “Risk Assets” 2019 Average Global Equity Risk Premium = Average (Global Equity Return – U.S. Bond Return) = 3.88%

AHIC Mercer Wilshire Callan2 Average 2019 Assumptions (15-year geometric average expected returns) - As of Date June 2019 July 2019 June 2019 - Global Equity 7.35% 6.60% 6.45% N/A 6.80% - Core U.S. Bonds 2.80% 2.90% 3.05% N/A 2.92% - Global Equity Risk Premium 4.55% 3.70% 3.40% N/A 3.88%

2018 Global Equity Risk Premium 4.10% 3.53% 2.90% 3.93% 3.62%

Change 2019 vs. 2018 0.45% 0.17% 0.50% N/A 0.16%

Prior Years: - 2017 (based on Global ERP) 3.75% 4.13% 3.05% 3.93% 3.72% - 2016 (based on Global ERP) 3.70% 4.40% 3.20% 4.45% 3.94% - 2015 (based on U.S. ERP) 3.62% 3.00% 2.90% 4.60% 3.53%

1 Equity Risk Premium is defined as the excess return earned over bonds that compensates investors for taking on higher risk. 2 Callan was excluded from the averaging in 2019 because its capital market assumption date did not coincide with the same timeframe as the other consultants given they only update their assumptions once a year while the other consultants update quarterly. Calculations may not sum to total due to rounding Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 17 Investment Analysis Current Frontier

Key Takeaways: . The current portfolio is well-diversified Ideal – Return-seeking assets are broadly diversified – Safety asset allocation should withstand stressed markets

Return-Seeking Assets Risk-Reducing / Safety Assets Exp. Nominal Exp. Nominal Global Private Strategic Cash & Short Interm. Duration Interm. Duration Return1 Volatility Sharpe Ratio Equity Equity Allocation2 Real Estate3 Duration Bonds Gov't Bonds Credit Current Policy (81% R-S) 6.59% 12.88% 0.333 53% 6% 12% 10% 1% 9% 9% Current Frontier 0% Return-Seeking 2.91% 3.99% 0.154 0% 0% 0% 0% 0% 50% 50% 10% Return-Seeking 3.45% 3.98% 0.290 7% 1% 1% 1% 0% 45% 45% 20% Return-Seeking 3.97% 4.58% 0.364 13% 1% 3% 2% 0% 40% 40% 30% Return-Seeking 4.46% 5.60% 0.385 20% 2% 4% 4% 0% 35% 35% 40% Return-Seeking 4.92% 6.86% 0.383 26% 3% 6% 5% 0% 30% 30% 50% Return-Seeking 5.37% 8.24% 0.372 33% 4% 7% 6% 0% 25% 25% 60% Return-Seeking 5.78% 9.70% 0.359 39% 4% 9% 7% 0% 20% 20% 70% Return-Seeking 6.18% 11.20% 0.347 46% 5% 10% 9% 0% 15% 15% 80% Return-Seeking 6.56% 12.73% 0.334 52% 6% 12% 10% 0% 10% 10% 90% Return-Seeking 6.91% 14.28% 0.323 59% 7% 13% 11% 0% 5% 5% 100% Return-Seeking 7.24% 15.84% 0.312 65% 7% 15% 12% 0% 0% 0% 1 Expected return assumptions are based upon the AHIC capital market assumptions adjusted for the delta in Global Equity Risk Premium (ERP) among three investment advisors: Mercer, Wilshire, and AHIC (-67bps adjustment) 2 Strategic assumption breakdown is found in the Appendix 3 Real Estate assumption was modeled as 76.50% Core Real Estate / 13.50% Non-Core Real Estate / 10.00% REITs

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 18 Investment Analysis Range of Nominal Returns

Actuarial assumed rate of return (7.40%)

Current Policy – Current Policy – Current Policy – Current Policy – Percentile 5 Year 10 Year 15 Year 30 Year

th 5 -2.39% 0.16% 1.31% 2.83% Percentile

th 25th 2.81% 3.90% 4.39% 5.03% 95 50th 6.59% 6.59% 6.59% 6.59% 75th 50th 75th 10.50% 9.34% 8.83% 8.17% 25th 95th 16.39% 13.42% 12.14% 10.48% 5th

Note: Returns based on AHIC’s 30 Year Capital Market Assumptions as of June 30, 2019 adjusted for the average global equity risk premium

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 19 Investment Analysis Range of Real Returns

Absolute Real Target Rate of Return (4.00%)

Current Policy – Current Policy – Current Policy – Current Policy – Percentile 5 Year 10 Year 15 Year 30 Year

th 5 -4.53% -1.99% -0.85% 0.66% Percentile

th 25th 0.65% 1.73% 2.22% 2.85% 95 50th 4.41% 4.41% 4.41% 4.41% 75th 50th 75th 8.31% 7.15% 6.64% 5.98% 25th 95th 14.17% 11.22% 9.94% 8.29% 5th

Note: Returns based on AHIC’s 30 Year Capital Market Assumptions as of June 30, 2019 adjusted for the average global equity risk premium

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 20 Analysis . Asset- Liability Projection Analysis

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 21 Asset-Liability Projection Analysis Market Value of Assets / Actuarial Liability Funded Ratio

60% Return-Seeking 70% Return-Seeking Current Policy (81% R-S) 90% Return-Seeking 100% Return-Seeking Key Takeaways: 200% . Under the Current Policy 180% (81% R-S), the funded ratio 160% Projected is expected to decline in the 140% Full Funding near-term before increasing 120% 2044 later in the period in the 100% central expectation (50th 80% percentile outcome)

60% . Higher return-seeking 40%

Funded Ratio (MVA / AL) (MVA Ratio Funded allocations will increase the 20%

Market Value of Assets / Actuarial Liability trajectory of funded ratio, 0% albeit with greater downside

2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 risk 5th Percentile 25th Percentile 50th Percentile 75th Percentile 95th Percentile . Downside risk (5th percentile Strategy 60% Return-Seeking 70% Return-Seeking Current Policy (81% R-S) 90% Return-Seeking 100% Return-Seeking outcomes) illustrates a small Year 2028 2038 2048 2028 2038 2048 2028 2038 2048 2028 2038 2048 2028 2038 2048 5th Percentile 42% 29% 19% 40% 28% 19% 38% 27% 19% 36% 26% 19% 34% 25% 19% likelihood of significant 25th Percentile 58% 46% 37% 58% 48% 41% 58% 50% 45% 58% 51% 48% 58% 52% 51% funded ratio deterioration 50th Percentile 72% 66% 62% 75% 71% 73% 78% 78% 86% 81% 83% 98% 84% 89% 113% over the projection period 75th Percentile 90% 98% 123% 97% 112% 157% 105% 131% >200% 112% 148% >200% 121% 169% >200% 95th Percentile 122% >200% >200% 137% >200% >200% 156% >200% >200% 173% >200% >200% 194% >200% >200% Probability > 100% 19% 25% 34% 24% 32% 42% 30% 39% 47% 35% 44% 50% 39% 47% 55%

* Projections assume constant 7.40% discount rate for pension liabilities for all investment policies studied

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 22 Asset-Liability Projection Analysis Employer Contribution Rate (Defined Benefit Plan Only)

60% Return-Seeking 70% Return-Seeking Current Policy (81% R-S) 90% Return-Seeking 100% Return-Seeking Key Takeaways: 40% . Employer contribution rate is 35% expected to increase from

30% 11% to 17% over the next two decades 25%

20% . Higher return-seeking allocations will reduce the Percentage 15% expected (50th percentile) All figures in % of Payroll 10% outcome but with a wider Plan Year Contribution Year Plan

5% range of outcomes

0% . 95th percentile results show

2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 potential contribution rates in

5th Percentile 25th Percentile 50th Percentile 75th Percentile 95th Percentile excess of 30% over the next two decades, albeit with low Strategy 60% Return-Seeking 70% Return-Seeking Current Policy (81% R-S) 90% Return-Seeking 100% Return-Seeking likelihoods Year 2027 2037 2047 2027 2037 2047 2027 2037 2047 2027 2037 2047 2027 2037 2047 5th Percentile 5% 2% 1% 4% 2% 1% 4% 2% 1% 4% 2% 1% 4% 2% 1% 25th Percentile 10% 10% 5% 9% 6% 4% 7% 5% 4% 5% 5% 4% 5% 5% 4% 50th Percentile 14% 20% 16% 13% 19% 14% 13% 17% 11% 12% 15% 9% 12% 13% 7% 75th Percentile 18% 26% 23% 18% 26% 22% 19% 26% 21% 19% 25% 21% 19% 25% 21% 95th Percentile 24% 33% 29% 25% 33% 29% 26% 33% 30% 26% 34% 30% 27% 34% 30% Probability > 15% 44% 62% 52% 42% 57% 47% 41% 54% 41% 40% 50% 37% 39% 46% 36%

* Projections assume constant 7.40% discount rate for pension liabilities for all investment policies studied

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 23 Asset-Liability Projection Analysis Total Contributions Amounts (Employer + Employee)

60% Return-Seeking 70% Return-Seeking Current Policy (81% R-S) 90% Return-Seeking 100% Return-Seeking $130 Key Takeaways: $22 $120 $20 . Total contribution $110 $18 $100 amounts are expected $16 $90 to increase over the $14 $80 next two decades and $12 $70 decrease once $10 $60 amortization bases are $8 $50 All figures in billion dollars billion in figures All $6 $40 fully recognized Present Value of Contributions of Contributions Value Present All figures in billion dollars $4 $30

$2 $20 . Higher return-seeking Plan Year Cash Contributions Cash Year Plan $0 allocations will reduce th

2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 the expected (50

5th Percentile 25th Percentile 50th Percentile 75th Percentile 95th Percentile percentile) outcome but

60% Return-Seeking 60% Return-Seeking 70% Return-Seeking 90% with a wider range of

Strategy 60% Return-Seeking 70% Return-Seeking Current Policy (81% R-S) 90% Return-Seeking 100% Return-Seeking Return-Seeking 100%

Year 2027 2037 2047 2027 2037 2047 2027 2037 2047 2027 2037 2047 2027 2037 2047 R-S) (81% Policy Current outcomes 5th Percentile $1.98 $1.97 $2.03 $1.96 $1.97 $2.02 $1.95 $1.96 $2.02 $1.94 $1.96 $2.02 $1.94 $1.96 $2.02 25th Percentile $4.13 $4.80 $2.18 $3.64 $2.11 $2.09 $2.89 $2.03 $2.07 $2.03 $2.02 $2.06 $2.00 $2.00 $2.05 50th Percentile $5.44 $10.23 $10.50 $5.24 $9.43 $9.00 $5.04 $8.55 $7.04 $4.87 $7.70 $4.66 $4.67 $6.54 $2.43 75th Percentile $6.94 $13.36 $15.33 $7.05 $13.21 $14.79 $7.18 $13.10 $14.36 $7.28 $12.98 $14.13 $7.43 $12.81 $13.88 95th Percentile $9.08 $16.54 $19.77 $9.45 $16.77 $19.96 $9.87 $17.10 $20.20 $10.20 $17.37 $20.43 $10.57 $17.67 $20.68 Probability > $5B 58% 74% 67% 54% 65% 64% 51% 64% 60% 49% 62% 49% 47% 58% 44%

* Projections assume constant 7.40% discount rate for pension liabilities for all investment policies studied

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 24 Asset-Liability Projection Analysis Net Outflow Analysis: (Benefit Payments less Contributions) / Market Value of Assets

60% Return-Seeking 70% Return-Seeking Current Policy (81% R-S) 90% Return-Seeking 100% Return-Seeking Key Takeaways: 16% . Net outflows are expected to 14% remain in the 4-7% range

12% over the projection period

Contributions)/ 10%

- . Net outflows of 10%+ can put

8% stress on fund liquidity over time – this is a possible but

Net Outflow Net 6% unlikely event Market Value of Assets Value Market 4%

(BenefitPayments 2%

0% 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048

5th Percentile 25th Percentile 50th Percentile 75th Percentile 95th Percentile

Strategy 60% Return-Seeking 70% Return-Seeking Current Policy (81% R-S) 90% Return-Seeking 100% Return-Seeking

Year 2027 2037 2047 2027 2037 2047 2027 2037 2047 2027 2037 2047 2027 2037 2047 5th Percentile 4.1% 2.9% 2.1% 3.8% 2.5% 2.1% 3.4% 2.0% 2.1% 3.1% 1.8% 2.1% 2.8% 1.8% 2.1% 25th Percentile 4.7% 4.5% 5.2% 4.5% 4.2% 4.5% 4.3% 3.8% 3.7% 4.1% 3.5% 3.1% 3.9% 3.2% 2.8% 50th Percentile 5.1% 5.3% 7.5% 5.0% 5.1% 7.0% 4.8% 4.9% 6.3% 4.7% 4.7% 5.8% 4.6% 4.5% 5.2% 75th Percentile 5.6% 6.2% 9.9% 5.5% 6.2% 9.5% 5.5% 6.1% 9.0% 5.4% 6.0% 8.5% 5.3% 5.9% 8.1% 95th Percentile 6.4% 7.9% 14.1% 6.5% 8.2% 14.0% 6.6% 8.3% 14.0% 6.6% 8.5% 13.9% 6.7% 8.7% 13.8% Probability > 10% <1% <1% 25% <1% 1% 23% <1% 2% 21% <1% 3% 19% <1% 3% 18%

* Projections assume constant 7.40% discount rate for pension liabilities for all investment policies studied

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 25 Asset-Liability Projection Analysis Economic Cost Analysis over a 2, 5, 10, 15, and 30-Year Horizon

Economic Cost Key Takeaways: Present Value of Contributions plus AL Funding Shortfall/(Surplus)* at 7.40%, $billions . Short time horizons (2 year) show largely

$30 100% RS horizontal economic cost curves – i.e., 100% RS 100% RS added risk does not result in a significant 0% RS $50 July 1, 2020 100% RS expected reward/economic cost reduction (2 Years) 100% RS . Longer time horizons (15, 30 year) show

Reward 0% RS $70 July 1, 2023 largely vertical economic cost curves –

(5 Years) July 1, 2048 i.e., added risk does result in a significant

(30 Years) $90 0% RS expected reward/economic cost reduction July 1, 2028 (10 Years) 0% RS $110 July 1, 2033 0% RS

Average Cost (All 5,000 Scenarios) (All Cost 5,000 Average (15 Years)

$130 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180

Risk

Average Risk (Worst 1,000 Scenarios)

* Projections assume constant 7.40% discount rate for pension liabilities for all investment policies studied Note: Excludes 50% of surplus in excess of 110% of Actuarial liability, and includes twice the shortfall below 40% of Actuarial liability, on a market value basis

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 26 Risk-Reward Analysis Sensitivity to Equity Risk Premium Assumption

Economic Cost Observation: Present Value of Contributions plus AL Funding Shortfall/(Surplus)* at 7.40%, $billions . The dashed lines illustrate how the

$30 Economic Cost curve shifts under 100% RS ERP = 4.88% alternative equity risk premium ERP = 3.88% $50 100% RS assumptions over a 5 and 15-year time ERP = 2.88% horizon.

Reward 0% RS $70 July 1, 2023

(5 Years)

$90

0% RS $110 July 1, 2033

Average Cost (All 5,000 Scenarios) (All Cost 5,000 Average (15 Years)

$130 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180

Risk

Average Risk (Worst 1,000 Scenarios)

* Projections assume constant 7.40% discount rate for pension liabilities for all investment policies studied. Note: Excludes 50% of surplus in excess of 110% of Actuarial liability, and includes twice the shortfall below 40% of Actuarial liability, on a market value basis

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 27 Short-Term Funded Ratio Shortfall Analysis (Based on Market Value of Assets)

FRS’ funded ratio based on the current allocation projects to the following outcomes after 5 years: . 27.2% probability of being below 70% funded . 13.4% probability of being below 60% funded . 4.9% probability of being below 50% funded

70% Funded Status 50% Funded Status . Asset allocations with a return-seeking allocation of 70% or . Dialing up the risk to 90% return-seeking assets will increase greater have a similar likelihood of falling below 70% funded this probability of falling below 50% funded to 6.0% . Dialing down risk to 70% return-seeking assets will decrease the probability to 3.1%

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 28 Analysis . Liquidity Analysis

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 29 Liquidity Analysis | Background

. FRS’ liquidity analysis is performed under its Current Policy (81% R-S) portfolio ̶ Intended as a stress-testing model, incorporating the profile of the liabilities as well as expected future contributions ̶ Uses different scenarios for economic environments and other relevant events ̶ Shows how the portfolio’s liquidity profile could evolve with a given investment strategy

. We categorized investments by liquidity into five buckets ̶ Liquid (Risk-Reducing Assets): less than 3 months needed for return of capital (e.g. publicly traded securities) ̶ Liquid (Return-Seeking Assets): less than 3 months needed for return of capital (e.g. publicly traded securities) ̶ Quasi-Liquid: Typical lock-up of 3–12 months. Conservatively, we assumed a 1-year lock-up in most economic environments, 2 years in a Recession scenario, and 3 years in a Black Skies scenario (e.g. many hedge funds, core real estate) ̶ Illiquid: Potential lock-up of 5–10 years, depending on economic environment (e.g. closed-ended real estate) ̶ Illiquid: Potential lock-up of 10+ years (e.g. typical private equity)

. This is intended to be a conservative approximation of the actual liquidity properties of the assets

. Not surprisingly, varying economic scenarios would lead FRS’ percentage allocation to alternative assets to differ from its targets due to liquidity differences in asset classes

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 30 Liquidity Analysis | Overview Asset Allocation and Liquidity Category (Current Policy)

Target Asset Allocation Asset Class Illiquid Illiquid Liquid Quasi-Liquid Total 5-10 Years 10+ Years Global Equity 53.00% 53.00%

Private Equity 6.00% 6.00%

Seeking Real Estate 1.00% 7.65% 1.35% 10.00%

Strategic Allocation 7.00% 5.00% 12.00% - Return

Subtotal 54.00% 14.65% 6.35% 6.00% 81.00% / Intermediate Duration 18.00% 18.00% Fixed Income Cash 1.00% 1.00% Reducing Safety - Subtotal 19.00% 0.00% 0.00% 0.00% 19.00% Risk Total 73.00% 14.65% 6.35% 6.00% 100.00%

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 31 Liquidity Analysis | Summary of Results

Base Case Recession Black Skies

Note: Year 0 represents a starting point of June 30, 2019

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 32 Conclusions

. The Current Policy asset allocation has sufficient liquidity in all economic scenarios modeled ̶ We do not foresee potential cash flow issues occurring in the Black Skies, but the allocations could drift far enough from the targets that FRS would want to rebalance

. The Recession scenario has results that are directionally similar to the Black Skies scenario, but much less extreme

. This analysis is highly sensitive to the assumed contributions ̶ If FRS receives less contributions than assumed, especially in a Black Skies environment, then liquidity could be worse than projected here ̶ If FRS receives more contributions when the funded status is low, it would reduce the liquidity stresses

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 33 Analysis . Public Pension Peer Comparison

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 34 Public Pension Peer Comparison FRS’ Asset Allocation versus Public Peers

Wilshire Report Total Public * Source: "2018 U.S. Institutional Market Public Pension on State Asset Allocation FRS Pension Trends", Greenwich Associates Plans (>$5B)* Retirement Universe* ** Source: "2018 Report on State Systems ** Retirement Systems: Funding Levels Equity Exposure and Asset Allocation", Wilshire Global Equity 53.0% 11.6% 10.6% Consulting Total U.S. Equity 0.0% 18.3% 19.9% 29.9% Total Int'l Equity 0.0% 19.1% 19.2% 18.7% Private Markets 6.0% 8.3% 7.9% 9.0% Total Equity 59.0% 57.3% 57.6% 57.6%

Fixed Income Exposure U.S. Fixed Income 18.0% 25.5% 25.0% High Yield Bonds / Bank Loans 0.0% Non-US Developed Bonds 0.0% 1.5% 1.6% Emerging Market Debt 0.0% 1.6% 1.6% Inflation Protected 0.0% Total Fixed Income 18.0% 28.6% 28.2% 22.8%

Real Asset Exposure Infrastructure (Public + Private) 0.0% 0.3% 0.2% Commodities 0.0% 1.5% 1.4% Real Estate 10.0% 2.4% 2.6% 13.9% Total Real Assets 10.0% 4.2% 4.2% 13.9%

Hedge Funds / Opportunistic 12.0% 3.0% 3.0% Multi-Asset / Risk Parity 0.0% 0.2% 0.4% Money Market / Cash 1.0% 3.0% 2.7% 1.0% Leverage 0.0% Other 0.0% 3.9% 4.0% 4.8% Net Other 13.0% 10.1% 10.1% 5.8% Total 100% 100% 100% 100%

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 35 Florida Retirement System (FRS) Expected Return Assumption versus Peers1

Key Takeaways: . Median actuarial assumption for investment return has declined from 8.00% in 2001-2010 to 7.25% based on the latest survey data . FRS’ assumption for FYE 2018 (7.40%) fell between the 50th- 75th percentiles relative to its peers . If FRS exceeds (or falls short of) the actuarial return assumption, lower (or higher) funding will be needed in future years

Percentile

95th

75th 50th 25th

5th

Sources: Public Plans Data (publicplansdata.org) as of August 2019; Expected Returns are the assumptions made by the plans included in the data set. 1 Peers defined as public funds published within publicplansdata.org as of August 2019; Number of plans per year are shown in parentheses

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 36 Florida Retirement System (FRS) Magnitude of Expected Return on Assets Assumption Changes versus Peers1

Key Takeaways: . More plans have been changing their expected return assumption in recent years (74 in FYE 2017; 44 in FYE 2018) . The median change in the investment return assumption has consistently been a reduction in the 25bps range in recent years . FRS has reduced its investment return assumption in 4 of the last 5 years

Percentile

95th

75th 50th 25th

5th

Sources: Public Plans Data (publicplansdata.org) as of August 2019 1 Peers defined as public funds published within publicplansdata.org as of August 2019; Number of plans per year are shown in parentheses

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 37 Florida Retirement System (FRS) Demographic Data versus Peers1

Key Takeaways: . The median ratio of actives to beneficiaries has declined from 2.2 at FYE 2001 to 1.2 at FYE 2018. . Over that same time frame, FRS’ active to beneficiary ratio has declined from 2.9 to 1.2

Percentile

95th

75th 50th 25th

5th

Sources: Public Plans Data (publicplansdata.org) as of August 2019 1 Peers defined as public funds published within publicplansdata.org as of August 2019; Number of plans per year are shown in parentheses

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 38 Florida Retirement System (FRS) Funded Ratio (Based on Actuarial Value of Assets) versus Peers1

Key Takeaways: . The median funded ratio as of FYE 2018 was 73% based on the latest survey data . FRS’ FYE 2018 funded ratio (84%) fell at the 75th percentile relative to its peers

Percentile

95th

75th 50th 25th

5th

Sources: Public Plans Data (publicplansdata.org) as of August 2019 1 Peers defined as public funds published within publicplansdata.org as of August 2019; Number of plans per year are shown in parentheses

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 39 Florida Retirement System (FRS) Percentage of Actuarial Contribution Made versus Peers1

Key Takeaway: . Median contributions of plans within the data, as a percentage of the actuarial amount, have been approximately 100% since FYE 2001 . FRS has made at least the full actuarial contribution in the last 5 years

Percentile

95th

75th 50th 25th

5th

Sources: Public Plans Data (publicplansdata.org) as of August 2019 1 Peers defined as public funds published within publicplansdata.org as of August 2019; Number of plans per year are shown in parentheses

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 40 Summary & Conclusions

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 41 Summary of Results

30-year Present Value of Gross 30-year Ending All Scenarios Contributions (Employee + Employer) Funded Ratio (MVA / AL) $ billions Expected1 Downside2 Expected1 Downside3 Current Policy (81% R-S) $65.3 $114.1 86% 19% 0% Return-Seeking $97.4 $104.5 25% 13% 10% Return-Seeking $93.3 $102.7 28% 15% 20% Return-Seeking $89.3 $103.0 32% 16% 30% Return-Seeking $85.2 $104.1 38% 17% 40% Return-Seeking $81.3 $105.6 45% 18% 50% Return-Seeking $77.5 $107.5 53% 18% 60% Return-Seeking $73.5 $109.5 62% 19% 70% Return-Seeking $69.4 $111.7 73% 19% 80% Return-Seeking $65.5 $113.9 85% 19% 90% Return-Seeking $62.1 $116.0 98% 19% 100% Return-Seeking $58.9 $118.7 113% 19% Key Observations: . The funded ratio is expected to remain relatively flat over the projection period under the Current Policy . Employer contribution rate is expected to grow over the near-term before eventually declining . Adjusting the return-seeking vs. risk-reducing allocation will exhibit standard risk/reward trade-off of expected costs and risks – longer time horizons will incentivize higher allocations to return-seeking assets 1 Expected = 50th percentile outcome or central expectation across all 5,000 simulations 2 Downside = 95th percentile outcome across all 5,000 simulations 3 Downside = 5th percentile outcome across all 5,000 simulations

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 42 Summary and Conclusions

. We believe the current portfolio is well-diversified with 81% return-seeking assets Investment . The equity risk premium is 3.88% in this 2019 A-L study, compared to 3.62% from 2018 Analysis . Asset returns (6.59%) are not expected to keep pace with the actuarial assumed rate of return (7.40%) . Expected real return of 4.41% exceeds the absolute real target rate of return of 4.00%

. Longer time horizons are expected to reward higher levels of risk; shorter time horizons are not . The funded ratio is expected to remain relatively flat over the course of the projection period in our Asset-Liability central expectation (50th percentile outcome) Projection . Higher return-seeking strategies result in a higher trajectory of projected funded ratio, with greater Analysis risk than the current portfolio; lower return-seeking portfolios do the opposite . Adverse market experience could significantly impact the funded status of the Plan over the projection period, albeit with low likelihood . The Current Policy portfolio is projected to have sufficient liquidity in the modeled Base, Recession, Black Liquidity Skies scenarios Analysis . Allocations in the Black Skies scenarios could drift far enough from the targets that FRS would want to rebalance

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 43 Appendix . Assumptions & Methods

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 44 Actuarial Assumptions and Methods

Actuarial assumptions: . Investment Return = 7.40% for all future years . Inflation = 2.60% per year . Real Wage Growth = 0.65% per year . Payroll Growth = 3.25% per year . Actuarial Value of Assets (AVA): developed by crediting the rate of investment return assumed in the prior valuation to the prior year’s AVA. Then 20% of the difference between the actual market value of assets (MVA) and the expected AVA is immediately recognized in the AVA ‒ To ensure the AVA remains reasonable close to the MVA, the asset method includes a corridor whereby the AVA must remain within 80% - 120% of the MVA . Actuarially-Determined Contribution Calculation = Normal Cost plus a level percent amortization of the unfunded liability with layered 30 year, closed periods, and a 3.25% salary scale ‒ Amortization bases developed are projected to continue until either their individual expiry or the plan reaches 100% funded on an actuarial value of assets basis at which point any remaining balance is fully recognized

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 45 Actuarial Assumptions and Methods (continued)

Projection assumptions: . Future benefit payments and payroll projections (used for GASB 67 purposes) were supplied by the plan actuary and used in our analysis . Per Staff request, future employees were assumed to selected the Defined Benefit plan at a rate of 30% (with 70% selecting the Defined Contribution plan) . Actual asset experience was factored in to use an asset value of $163.135 billion as of June 30, 2019 . All other assumptions as documented in the Actuarial Valuation Report as of July 1, 2018

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 46 Capital Market Assumption Methodology

. The Aon Asset Model and Economic Scenario Generator (ESG) creates 5,000 simulations of key economic variables and total returns. . We believe the model is complete and consistent. All the major markets and asset classes are modeled within a consistent framework allowing for the interactions between them to be properly taken into account. . It is arbitrage free and captures the fact that extreme market events do occur more frequently than would be predicted by simpler statistical models. . The ESG models the full yield curve as this allows for accurate treatment of liabilities and realistic modeling of the future distribution of interest rates and inflation. This allows us to assess the sensitivities of assets and liabilities to changes in interest and inflation rates. . The model is calibrated to Aon's globally-consistent Capital Market assumptions every quarter. . Nominal and real government interest rates are projected using an extended two factor Black-Karasinki model and a 2 factor Vasicek model respectively. The models are mean reverting starting with current yield curves and reverting towards our long-term fair values over the very long-term. . Credit spreads are modeled stochastically using a Markov based model to determine the probabilities of transition between various credit rating and default, and a stochastic parameter reflecting the level of risk aversion in the market. . Return seeking assets (including equities) are modeled using an individual asset class model with its own returns and volatilities but no correlations to other asset classes, and exposure to 6 other economic models to gain the correct correlation structures between returns for each asset class.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 47 Custom FRS Capital Market Assumptions—Q3 20191

Expected Nominal Expected Nominal Expected Real Return1 Return1 Volatility Equity 1 Global Equity IMI 4.7% 6.9% 19.0% Fixed Income 2 Cash (Gov't) 0.2% 2.3% 2.0% 3 Intermediate Gov't Bonds (4-Year Duration) 0.3% 2.4% 3.5% 4 Intermediate Corporate Bonds (4-Year Duration) 1.3% 3.4% 5.0% Alternatives 2 5 Strategic Allocation (Custom) 5.5% 7.7% 9.0% 3 6 Real Estate (Custom) 3.0% 5.2% 13.0% 7 Private Equity 6.7% 8.9% 25.5% Inflation 8 Inflation 0.0% 2.1% 1.5%

1 Expected return assumptions are based upon the AHIC capital market assumptions adjusted for the delta in Global Equity Risk Premium (ERP) among three investment advisors: Mercer, Wilshire, and AHIC (-67bps adjustment) 2 Strategic assumption breakdown is found on the next page 3 Real Estate assumption was modeled as follows: . 76.50% Core Real Estate . 13.50% Non-Core Real Estate . 10.00% REITs

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 48 FRS Capital Market Assumptions—Q3 2019 Strategic Investment Allocation

The Strategic Investment allocation was modeled as follows:

% of Total Asset % of Strategic Capital Market Assumption Allocation Investment Commodities 0.36% 3.00% Global Public Equities 1.20% 10.00% Hedge Funds -- Buy List (Diversified Portfolio of Direct HFs) 1.68% 14.00% Hedge Funds -- CTAs (Buy List) 0.96% 8.00% Hedge Funds -- Distressed Debt (Buy List) 0.36% 3.00% Hedge Funds -- Equity Long/Short (Buy List) 0.48% 4.00% Hedge Funds -- Event Driven (Buy List) 0.12% 1.00% Hedge Funds -- Global Macro (Buy List) 0.84% 7.00% Infrastructure 0.96% 8.00% Insurance-Linked Securities (Catastrophe Bonds) 0.24% 2.00% Non-Core Real Estate 0.42% 3.50% Private Debt -- Commercial Mortgages 0.42% 3.50% Private Debt -- Direct Lending 0.72% 6.00% Private Equity 0.84% 7.00% Private Equity -- Distressed Debt 1.32% 11.00% Private Equity -- Mezzanine 0.60% 5.00% Timberland 0.48% 4.00% Total 12.00% 100.00%

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 49 AHIC Capital Market Assumptions—Q3 2019

Nominal Correlations 1 2 3 4 5 6 7 8 1 Global Equity IMI 1.00 0.07 -0.07 0.08 0.88 0.49 0.67 0.06 2 Cash (Gov't) 0.07 1.00 0.61 0.47 0.14 0.15 0.09 0.53 3 Intermediate Gov't Bonds (4-Year Duration) -0.07 0.61 1.00 0.76 -0.04 0.03 -0.04 0.27 4 Intermediate Corporate Bonds (4-Year Duration) 0.08 0.47 0.76 1.00 0.23 0.09 0.07 0.20 5 Strategic Allocation (Custom) 0.88 0.14 -0.04 0.23 1.00 0.52 0.72 0.13 6 Real Estate (Custom) 0.49 0.15 0.03 0.09 0.52 1.00 0.39 0.09 7 Private Equity 0.67 0.09 -0.04 0.07 0.72 0.39 1.00 0.05 8 Inflation 0.06 0.53 0.27 0.20 0.13 0.09 0.05 1.00

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 50 AHIC Capital Market Assumptions Explanation of Capital Market Assumptions—Q3 2019 (30 Years)

The following capital market assumptions were developed by Aon’s Global Asset Allocation Team and represent the long-term capital market outlook (i.e., 30 years) based on data at the end of the second quarter of 2019. The assumptions were developed using a building block approach, reflecting observable inflation and interest rate information available in the fixed income markets as well as Consensus Economics forecasts. Our long-term assumptions for other asset classes are based on historical results, current market characteristics, and our professional judgment. Inflation – Expected Level (2.1%) Based on Consensus Economics long-term estimates and our near-term economic outlook, we expect U.S. consumer price inflation to be approximately 2.1% during the next 30 years. Real Returns for Asset Classes Fixed Income . Cash (0.2%) – Over the long run, we expect the real yield on cash and money market instruments to produce a real return of 0.2% in a moderate to low-inflationary environment. . TIPS (0.9%) – We expect intermediate duration Treasury Inflation-Protected Securities to produce a real return of about 0.9%. . Core Fixed Income (i.e., Market Duration) (1.0%) – We expect intermediate duration Treasuries to produce a real return of about 0.3%. We estimate the fair value credit spread (credit risk premium - expected losses from defaults and downgrades) to be 0.7%, resulting in a long-term real return of 1.0%. . Long Duration Bonds – Government and Credit (1.2%) – We expect Treasuries with a duration comparable to the Long Government Credit Index to produce a real return of 0.7%. We estimate the fair value credit spread (credit risk premium - expected losses from defaults and downgrades) to be 0.5%, resulting in an expected real return of 1.2%.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 51 AHIC Capital Market Assumptions Explanation of Capital Market Assumptions—Q3 2019 (30 Years)

. Long Duration Bonds – Credit (1.7%) – We expect Treasuries with a duration comparable to the Long Credit Index to produce a real return of 0.7%. We estimate the fair value credit spread (credit risk premium - expected losses from defaults and downgrades) to be 1.0%, resulting in an expected real return of 1.7%. . Long Duration Bonds – Government (0.7%) – We expect Treasuries with a duration of ~12 years to produce a real return of 0.7% during the next 30 years. . High Yield Bonds (2.7%) – We expect intermediate duration Treasuries to produce a real return of about 0.3%. We estimate the fair value credit spread (credit risk premium - expected losses from defaults and downgrades) to be 2.4%, resulting in an expected real return of 2.7%. . Bank Loans (3.3%) – We expect LIBOR to produce a real return of about 0.5%. We estimate the fair value credit spread (credit risk premium - expected losses from defaults) to be 2.8%, resulting in an expected real return of 3.3%. . Non-US Developed Bonds: 50% Hedged (0.3%) – We forecast real returns for non-US developed market bonds to be 0.3% over a 30- year period after adjusting for a 50% currency hedge. We assume a blend of one-third investment grade corporate bonds and two-thirds government bonds. We also produce assumptions for 0% hedged and 100% hedged non-US developed bonds. . Emerging Market Bonds (Sovereign; USD) (2.5%) – We forecast real returns for emerging market sovereign bonds denominated in US dollars to be 2.5% over a 30-year period. . Emerging Market Bonds (Corporate; USD) (2.4%) – We forecast real returns for emerging market corporate bonds denominated in US dollars to be 2.4% over a 30-year period. . Emerging Market Bonds (Sovereign; Local) (2.7%) – We forecast real returns for emerging market sovereign bonds denominated in local currency to be 2.7% over a 30-year period.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 52 AHIC Capital Market Assumptions Explanation of Capital Market Assumptions—Q3 2019 (30 Years)

. Multi Asset Credit (MAC) (4.0%) – We assume real returns from beta exposure to high yield, bank loans and emerging market debt to add 3.0% plus 1.0% from alpha (net of fees) over a 30-year period. . Private Debt-Direct Lending (4.9%) – The base building block is bank loans 3.3% + spread 1.6% (net of management fees and performance incentives). There is 100% leverage included in the assumption with the cost of financing at LIBOR + 2.5%.

Equities . Large Cap U.S. Equity (4.6%) – This assumption is based on our 30-year outlook for large cap U.S. company dividends and real earnings growth. Adjustments are made for valuations as needed. . Small Cap U.S. Equity (5.1%) – Adding a 0.5% return premium for small cap U.S. equity over large cap U.S. equity results in an expected real return of 5.1%. This return premium is theoretically justified by the higher risk inherent in small cap U.S. equity versus large cap U.S. equity, and is also justified by historical data. In recent years, higher small cap valuations relative large cap equity has reduced the small cap premium. . Global Equity (Developed & Emerging Markets) (5.4%) – We employ a building block process similar to the U.S. equity model using the developed and emerging markets that comprise the MSCI All-Country World Index. Our roll-up model produces an expected real return of 5.4% for global equity. . International (Non-U.S.) Equity, Developed Markets (5.3%) – We employ a building block process similar to the U.S. equity model using the non-U.S. developed equity markets that comprise the MSCI EAFE Index. . Emerging Market Stocks (5.9%) - We employ a building block process similar to the U.S. equity model using the non-U.S. emerging equity markets that comprise the MSCI Emerging Markets Index.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 53 AHIC Capital Market Assumptions Explanation of Capital Market Assumptions—Q3 2019 (30 Years)

. Equity Risk Insurance Premium Strategies-High Beta (4.3%) – We expect nominal returns from 50% equity + 50% cash beta of 5.0% plus 1.6% insurance risk premium over the next 30 years.

Alternative Asset Classes . Hedge Fund-of-Funds Universe (1.9%) – The generic category “hedge funds” encompasses a wide range of strategies accessed through “fund-of-funds” vehicles. We also assume the median manager is selected and also allow for the additional costs associated with Fund-of- Funds management. A top-tier portfolio of funds (hedge fund-of-funds buy-list) could add an additional 1.1% in return at similar volatility based on alpha, lower fees and better risk management. . Hedge Fund-of-Funds Buy List (3.0%) – The generic category of top-tier “hedge funds” encompasses a wide range of strategies accessed through “fund-of-funds” vehicles. We assume additional costs associated with Funds-of-Funds management. To use this category the funds must be buy rated or we advise on manager selection. . Broad Hedge Funds Universe (3.2%) – Represents a diversified portfolio of direct hedge fund investments. This investment will tend to be less diversified than a typical “fund-of-funds” strategy as there will be fewer underlying managers and will not include the extra layer of fees found in a Fund-of-Funds structure. . Broad Hedge Funds Buy List (4.6%) – Represents a diversified portfolio of top-tier direct hedge fund investments. This investment will tend to be less diversified than a typical “fund-of-funds” strategy as there will be fewer underlying managers and will not include the extra layer of fees found in a Fund-of-Funds structure. To use this category the funds must be buy rated or we advise on manager selection. . Core Real Estate (2.9%) -- Our real return assumption for core real estate is based a gross income of about 4.4%, management fees of roughly 1%, and future capital appreciation near the rate of inflation during the next 30 years. We assume a portfolio of equity real estate holdings that is diversified by property and by geographic region.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 54 AHIC Capital Market Assumptions Explanation of Capital Market Assumptions—Q3 2019 (30 Years)

. Non-Core Real Estate (6.2%) -- Core real estate is levered approximately 100% as the base building block for this assumption. We subtract financing costs for the leverage and 2% management costs. We also assume nominal alpha of 3%. We assume a 50/50 mix of value-add and opportunistic investments. . U.S. REITs (3.9%) – Our real return assumption for U.S. REITs is based on income of about 3.9% and future capital appreciation near the rate of inflation during the next 30 years. REITs are a sub-set of U.S. small/mid cap equity universe. . Commodities (2.5%) – Our commodity assumption is for a diversified portfolio of commodity futures contracts. Commodity futures returns are composed of three parts: spot price appreciation, collateral return, and roll return (positive or negative change implied by the shape of the future curve). We believe that spot prices will converge with CPI over the long run (i.e., 2.1%). Collateral is assumed to be LIBOR cash (0.5%). Also, we believe the roll effect will be near zero, resulting in a real return of about 2.5% for commodities. . Private Equity (7.3%) – Our private equity assumption reflects a diversified fund of funds with exposure to buyouts, venture capital, distressed debt, and mezzanine debt. . Infrastructure (5.7%) – Our infrastructure assumption is formulated using a cash flow based approach that projects cash flows (on a diversified portfolio of assets) over a 30-year period. Income and capital growth as well as gearing levels, debt costs and terms, relevant tax and management expenses are all taken into consideration. Our approach produces an expected real return of 5.7% for infrastructure. . Equity Risk Insurance Premium Strategies-Low Beta (3.8%) – We assume real returns from cash of 0.2% + 3.5% from alpha. . Alternative Risk Premia (ARP) (4.4%) – Nominal return target LIBOR 2.6% plus 4.0% alpha (net of fees)

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 55 AHIC Capital Market Assumptions Explanation of Capital Market Assumptions—Q3 2019 (30 Years)

Volatility / Correlation Assumptions Assumed volatilities are formulated with reference to implied volatilities priced into option contracts of various terms, as well as with regard to historical volatility levels. For asset classes which are not marked to market (for example real estate), we “de-smooth” historical returns before calculating volatilities. Importantly, we consider expected volatility trends in the future – in recent years we assumed the re-emergence of an economic cycle and a loss of confidence in central bankers would lead to an increase in volatility. Correlation assumptions are generally similar to actual historical results; however, we do make adjustments to reflect our forward-looking views as well as current market fundamentals.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 56 Appendix . Horizon Survey of Capital Market Assumptions

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 57 2018 Horizon Survey Results AHIC vs. Other Advisors

Since 2010, Horizon Actuarial Services, LLC has conducted a capital market assumption survey of investment firms to aid in determining reasonable assumptions for a pension plan’s expected return on assets . While we do not seek to change our approach based on how we compare to peers, it is a helpful double-check to make sure we are not too far off from others in the industry

2018 AHIC 10-year forecast assumptions of Equities tend to be mixed compared to the survey average, Fixed Income assets slightly lower and Alternative Assets higher than the survey average . As equity valuations in the US and Emerging Markets have trended towards overpricing, AHIC equity return assumptions have consequently fallen . In other developed markets, a combination of slightly higher GDP growth expectations, small increase in inflation expectations and some of the market depreciation have driven our return assumptions higher . AHIC fixed income assumptions reflect rising yields, narrower credit spreads and flattening of yield curves during the first quarter of 2018 . AHIC alternative asset class assumptions are generally higher due to methodological and inflation forecast differences compared to survey participant forecasts

In conclusion, AHIC assumptions appear within reasonable ranges in relation to peers included in the 2018 Horizon Survey of capital market assumptions

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 58 2018 Horizon Survey Results Capital Market Assumptions from 34 Investment Advisors

Expected Geometric Returns of 34 Investment Advisors 14% (10 Year Forecast) 12% 10% 8% 6% 4% 2% 0%

AHIC 10-Yr

SOURCE: Horizon Actuarial survey of 2018 capital market assumptions from 34 independent investment advisors Expected returns of the survey are annualized over 10-years (geometric). AHIC expected returns are annualized over 10-years as of 1Q 2018

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 59 AHIC Versus Peers (2018 Horizon Survey)—10-Year Forecast

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 60 Leading Methodologies & Reasons for Differences

Leading Methodologies Reasons for Differences

. Building Block . Methodology . Global Capital Asset Pricing Model (Global . Time Horizon CAPM) . Arithmetic vs. Geometric forecasts* . Surveys . Alpha (active management)* . Historical data (as a guide to future) . Inflation . Black- Litterman (combination of building block . Investment Fees and CAPM) . Asset class definition

* While some firms in Horizon survey responded with Arithmetic forecasts, the results have been converted to Geometric forecasts for comparison purposes. Additionally, the return expectations included in the Horizon survey are based on indexed returns (no “alpha”). However, AHIC return assumptions for certain asset classes include “alpha” or active management premium (e.g., Hedge Funds)

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 61 Appendix . Liquidity Analysis Detail

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 62 Background AHIC Approach to Analyzing Liquidity Risk from Alternatives

. Intended as a stress-testing model . Develops multi-year projections of assets and spending needs . Uses different scenarios for economic environments and other relevant events . Shows how the portfolio’s liquidity profile could evolve with a given investment strategy . Incorporates the profile of the liabilities as well as expected future contributions

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 63 Background Process Inputs and Outputs

Investment Strategy Economic Scenarios Asset Allocation Contributions Liquidity Profile Benefit Payments

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 64 Background Modeling Parameters – Degrees of Illiquidity

We categorized investments by liquidity into five buckets . Liquid (Risk-Reducing Assets): less than 3 months needed for return of capital (e.g., publicly traded securities) . Liquid (Return-Seeking Assets): less than 3 months needed for return of capital (e.g., publicly traded securities) . Quasi-Liquid: Typical lock-up of 3–12 months. Conservatively, we assumed a 1-year lock-up in most economic environments, 2 years in a Recession scenario, and 3 years in a Black Skies scenario (e.g., many hedge funds, core real estate) . Illiquid: Potential lock-up of 5–10 years, depending on economic environment (e.g., closed-ended real estate) . Illiquid: Potential lock-up of 10+ years (e.g., typical private equity)

This is intended to be a conservative approximation of the actual liquidity properties of the assets

We started with the Current Policy allocation, then see how the actual allocations would change in different economic scenarios, continuing new commitments to private assets, as expected.

Assumptions . Starting assets based the reported June 30, 2019 value provided by Staff . The plan’s contribution policy is actuarially based, leveraging the 2019 asset-liability study for projection analysis . Assumes the portfolio starts at the target asset allocation levels for illiquid assets, maintaining close to the Current Policy portfolio targets over the next 10 years

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 65 Background Economic Scenarios

Base Scenario . Markets perform consistent with Aon’s Capital Market Assumptions (~50th percentile)

Recession Scenario . Somewhat pessimistic outlook for the markets (~95th percentile) . Return-seeking assets decline in the first two years with a modest rebound in later years.

Black Skies Scenario . Very pessimistic outlook for markets (~99th percentile) . Return-seeking assets decline significantly . The value of public equities is cut in half over three years, without an immediate rebound

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 66 Liquidity Analysis: Base Economic Scenario Current Policy

The exhibit below shows the projected liquidity lock-up of the Current Policy allocation in the Base economic scenario, assuming commitments are continued as expected

Key Takeaway: . Total illiquid and quasi-liquid assets are projected to stay near 27% of the Plan and can be maintained near the target with no cash flow problems

Note: Year 0 represents a starting point of June 30, 2019

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 67 Liquidity Analysis: Base Economic Scenario (continued) Current Policy

The exhibit below shows the projected liquidity lock-up of the Current Policy allocation in a Base scenario

Asset Allocation Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Risk-Reducing Assets 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19%

Liquid Return-Seeking 54 54 54 54 54 54 54 54 54 54 54

Total Liquid 73% 73% 73% 73% 73% 73% 73% 73% 73% 73% 73%

Quasi-Liquid 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%

Illiquid: 5-10 Year Lock-up 6 6 7 7 7 7 7 7 6 6 6

Illiquid: 10+ Year Lock-up 6 6 6 6 6 6 6 6 6 6 6

Total Quasi + Illiquid 27% 27% 27% 27% 27% 27% 27% 27% 27% 27% 27%

Note: Year 0 represents a starting point of June 30, 2019; Percentages may not sum to 100% due to rounding

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 68 Liquidity Analysis: Recession Economic Scenario Current Policy

The exhibit below shows the projected liquidity lock-up of the Current Policy allocation in the Recession economic scenario, assuming commitments are continued as expected

Key Takeaways: . Commitments to illiquid alternatives are maintained at the steady state level, but recessionary markets cause the total portfolio to shrink . Total illiquid and quasi-liquid assets are projected to reach as high as 34% of the Plan due to the shrinking market value of the total Plan in this scenario . There would not be a concern with the ability to pay benefits . FRS may need to redeem some quasi-liquid assets to stay close to its target allocation Note: Year 0 represents a starting point of June 30, 2019

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 69 Liquidity Analysis: Recession Economic Scenario (continued) Current Policy

The exhibit below shows the projected liquidity lock-up of the Current Policy allocation in a Recession scenario

Asset Allocation Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Risk-Reducing Assets 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19%

Liquid Return-Seeking 54 51 48 48 48 48 48 48 48 48 47

Total Liquid 73% 70% 67% 67% 67% 67% 67% 67% 67% 67% 66%

Quasi-Liquid 15% 15% 15% 16% 17% 17% 17% 17% 17% 17% 17%

Illiquid: 5-10 Year Lock-up 6 8 10 9 9 9 9 8 8 8 8

Illiquid: 10+ Year Lock-up 6 7 8 7 8 8 8 8 8 8 8

Total Quasi + Illiquid 27% 30% 33% 33% 33% 33% 33% 33% 33% 33% 34%

Note: Year 0 represents a starting point of June 30, 2019; Percentages may not sum to 100% due to rounding

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 70 Liquidity Analysis: Black Skies Economic Scenario Current Policy

The exhibit below shows the projected liquidity lock-up of the Current Policy allocation in the Black Skies economic scenario, assuming commitments are continued as expected

Key Takeaways: . Commitments to illiquid alternatives are maintained at the steady state level, but subpar markets cause the total portfolio to shrink . Total illiquid and quasi-liquid assets are projected to reach as high as 48% of the Plan due to the shrinking market value of the total Plan in this scenario . There would not be a concern with the ability to pay benefits . FRS may need to redeem some quasi-liquid assets and/or pare back future commitments to stay closer to the target allocation Note: Year 0 represents a starting point of June 30, 2019

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 71 Liquidity Analysis: Black Skies Economic Scenario (continued) Current Policy

The exhibit below shows the projected liquidity lock-up of the Current Policy allocation in a Black Skies scenario

Asset Allocation Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Risk-Reducing Assets 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19%

Liquid Return-Seeking 54 50 44 39 38 37 36 36 35 34 33

Total Liquid 73% 69% 63% 58% 57% 56% 55% 55% 54% 53% 52%

Quasi-Liquid 15% 16% 17% 19% 19% 19% 20% 20% 20% 19% 19%

Illiquid: 5-10 Year Lock-up 6 9 11 13 14 14 14 14 14 14 14

Illiquid: 10+ Year Lock-up 6 6 8 9 10 11 11 12 13 14 15

Total Quasi + Illiquid 27% 31% 37% 42% 43% 44% 45% 45% 46% 47% 48%

Note: Year 0 represents a starting point of June 30, 2019; Percentages may not sum to 100% due to rounding

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 72 Base Case Scenario World Events Unfold In A Fashion Consistent With Our Capital Market Assumptions

. Yield and bond return series reflect our average estimates. These estimates represent our benchmark view.

. The US economy continues to grow slightly above trend over the next 12 months, as the US is buoyed by previous fiscal stimulus and a good global economic outlook. However, US growth moderates to trend growth in later years as stimulus fades and global growth slows.

. Consumer price inflation, measured by the Consumer Price Index, remains modestly above 2% over the next five years, supported by global growth prospects.

. Government and corporate bond yields gradually rise. Robust profit margins sustain stable corporate spreads.

. Risk asset returns are in line with our long term assumptions.

Returns from 31 March 2019 Source: Aon The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 73 Base Case Scenario Data Table

BASE SCENARIO Year 0 1 2 3 4 5 6 7 8 9 10

Yields (BOY) Treasury yield 5y 2.3% 2.3% 2.4% 2.5% 2.6% 2.7% 2.9% 3.0% 3.1% 3.1% 3.2% Long Treasury yield 15y 2.7% 2.7% 2.8% 2.9% 3.0% 3.1% 3.2% 3.3% 3.4% 3.4% 3.5% TIPS yield 5y 0.4% 0.5% 0.6% 0.6% 0.7% 0.8% 0.9% 0.9% 1.0% 1.0% 1.1% Long TIPS yield 15y 0.7% 0.8% 0.8% 0.9% 1.0% 1.0% 1.1% 1.1% 1.2% 1.2% 1.3% Breakeven price inflation 15y 1.9% 1.9% 2.0% 2.0% 2.0% 2.1% 2.1% 2.2% 2.2% 2.2% 2.2% A Corporate bond yield 5y 3.2% 3.4% 3.6% 3.7% 3.9% 4.1% 4.3% 4.4% 4.5% 4.6% 4.7% Long A Corporate bond yield 10y 3.8% 3.9% 4.1% 4.2% 4.4% 4.5% 4.7% 4.8% 4.9% 5.0% 5.1% A Corporate spread 5y 0.9% 1.0% 1.1% 1.2% 1.3% 1.3% 1.4% 1.4% 1.4% 1.4% 1.4% Long A Corporate spread 10y 1.2% 1.3% 1.4% 1.4% 1.5% 1.5% 1.6% 1.6% 1.6% 1.6% 1.6%

Expected nominal return on assets Equity - US 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% Equity - Global 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% A Corporate bonds 5y 3.0% 3.0% 3.1% 3.2% 3.4% 3.6% 3.7% 4.0% 4.1% 4.3% Long A Corporate bonds 10y 3.3% 3.2% 3.3% 3.4% 3.6% 3.9% 4.1% 4.3% 4.5% 4.8% Treasury 5y 2.4% 2.2% 2.3% 2.3% 2.4% 2.5% 2.6% 2.7% 2.9% 3.1% Long Treasury 15y 2.2% 2.0% 1.9% 1.9% 2.0% 2.0% 2.1% 2.2% 2.7% 2.7% TIPS 5y 2.5% 2.6% 2.7% 2.7% 2.8% 2.9% 2.9% 3.1% 3.1% 3.2% Long TIPS 15y 2.4% 2.4% 2.5% 2.4% 2.6% 2.8% 2.6% 2.9% 3.0% 3.0% US High Yield 5.8% 5.1% 4.7% 4.9% 4.8% 4.5% 4.6% 5.0% 4.8% 5.2% Bank Loans 5.1% 5.2% 5.5% 5.4% 5.6% 5.7% 5.7% 5.6% 5.5% 5.7% USD Emerging Market Debt 5.8% 5.1% 5.0% 5.1% 5.2% 5.1% 5.3% 5.5% 5.4% 5.4% Local Emerging Market Debt 5.7% 5.8% 5.6% 5.4% 5.7% 5.2% 5.0% 5.3% 6.3% 5.4% Real Estate 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% Commodities 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% Hedge Funds - FoHF - Universe 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% Private Equity 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% Infrastructure - Europe 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% Cash 2.4% 2.2% 2.2% 2.3% 2.4% 2.5% 2.6% 2.8% 2.9% 3.0% CPI 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2%

Scenario information as of March 31, 2019

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 74 Recession Scenario The US Economy Slips Back Into Recession In 2020

. Global growth is much slower than under the base case scenario.

. The US experiences a recession in 2020, due to subdued global growth.

. Inflation turns slightly negative in 2020. However, the period of deflation is short lived and inflation starts to rise in later years as an economic recovery begins to establish itself.

. Treasury yields fall while TIPS yields remain at low levels as the US enters recession. Yields rise in later years as a recovery gets underway.

. Corporate spreads rise significantly due to the poor economic situation and increased risks of downgrades or defaults.

. Most risk assets make losses in the first two years but rebound in later years as the economy recovers.

Returns from 31 March 2019 Source: Aon The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 75 Recession Scenario Data Table

RECESSION SCENARIO Year 0 1 2 3 4 5 6 7 8 9 10

Yields (BOY) Treasury yield 5y 2.3% 1.0% 0.7% 0.9% 1.4% 2.0% 2.2% 2.3% 2.5% 2.7% 2.8% Long Treasury yield 15y 2.7% 1.8% 1.5% 1.6% 1.9% 2.5% 2.6% 2.8% 2.9% 3.0% 3.2% TIPS yield 5y 0.4% -0.5% -0.5% -0.2% 0.2% 0.7% 0.7% 0.8% 0.9% 1.0% 1.0% Long TIPS yield 15y 0.7% 0.3% 0.2% 0.2% 0.5% 0.8% 0.8% 0.9% 1.0% 1.1% 1.1% Breakeven price inflation 15y 1.9% 1.5% 1.3% 1.4% 1.5% 1.7% 1.8% 1.8% 1.9% 2.0% 2.0% A Corporate bond yield 5y 3.2% 4.1% 4.6% 4.6% 4.9% 5.0% 5.0% 5.1% 5.1% 5.1% 5.1% Long A Corporate bond yield 10y 3.8% 4.4% 4.7% 4.8% 5.0% 5.2% 5.2% 5.3% 5.3% 5.4% 5.4% A Corporate spread 5y 0.9% 3.1% 3.9% 3.7% 3.5% 3.0% 2.9% 2.7% 2.6% 2.4% 2.3% Long A Corporate spread 10y 1.2% 3.0% 3.7% 3.5% 3.3% 2.9% 2.8% 2.7% 2.6% 2.4% 2.3%

Expected nominal return on assets Equity - US -18.1% -10.1% 10.6% 5.7% 5.7% 5.7% 5.8% 5.9% 5.9% 6.0% Equity - Global -20.8% -11.5% 11.5% 6.0% 6.0% 6.1% 6.2% 6.4% 6.5% 6.6% A Corporate bonds 5y 0.3% 1.6% 3.5% 2.9% 3.7% 4.1% 4.2% 4.4% 4.5% 4.7% Long A Corporate bonds 10y -2.2% 0.1% 2.5% 1.4% 2.1% 3.3% 3.5% 3.9% 4.2% 4.5% Treasury 5y 8.5% 2.6% 0.4% -0.5% -0.4% 1.5% 1.7% 1.9% 2.2% 2.4% Long Treasury 15y 16.3% 7.4% -0.3% -2.1% -4.5% 0.4% 0.6% 0.8% 1.3% 1.4% TIPS 5y 4.6% 0.3% -0.4% -0.6% -0.5% 1.7% 1.8% 2.1% 2.3% 2.5% Long TIPS 15y 7.8% 2.2% 1.0% -2.4% -1.8% 1.3% 1.3% 1.7% 1.9% 2.0% US High Yield -10.7% -6.0% 7.4% 4.0% 3.9% 3.7% 3.9% 4.4% 4.3% 4.7% Bank Loans -5.1% -1.8% 6.3% 4.3% 4.7% 4.9% 5.0% 5.0% 5.0% 5.2% USD Emerging Market Debt -13.3% -7.4% 8.3% 4.5% 5.0% 4.8% 5.1% 5.3% 5.2% 5.3% Local Emerging Market Debt -15.5% -8.2% 9.3% 4.7% 5.4% 4.9% 4.8% 5.1% 6.1% 5.2% Real Estate -13.0% -7.9% -2.7% 0.7% 4.6% 4.7% 4.7% 4.8% 4.8% 4.9% Commodities -27.6% -21.7% 7.3% 3.9% 3.9% 4.0% 4.1% 4.1% 4.2% 4.3% Hedge Funds - FoHF - Universe -14.1% -8.9% 6.6% 5.5% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7% Private Equity -18.6% -6.1% 13.4% 8.6% 8.8% 8.8% 8.7% 8.7% 8.7% 8.7% Infrastructure - Europe -5.0% -0.7% 2.8% 3.6% 7.2% 7.3% 7.3% 7.4% 7.4% 7.5% Cash 2.4% 0.3% 0.3% 0.7% 1.1% 1.3% 1.6% 1.9% 2.1% 2.3% CPI -0.3% 0.4% 0.7% 1.0% 1.3% 1.4% 1.5% 1.6% 1.7% 1.8%

Scenario information as of March 31, 2019

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 76 Black Skies Scenario A Deep Recession Followed By A Longer Period Of Stagnant Growth

. There is a sharp deterioration in the global economic outlook, as the Eurozone crisis flares up and there is a sharp slowdown in emerging market economies.

. The US experiences a protracted deep recession.

. Inflation is pushed into negative territory in 2020 and remains there in 2021, while continued sluggish growth over the following years means that inflation stays close to zero.

. Treasury yields fall and remain at low levels as the US enters recession.

. Corporate spreads rise significantly due to the poor economic situation and increased risks of downgrades or defaults.

. Risk assets make losses in the first few years. There is no pronounced bounce in growth and the economic situation remains poor for a long time, which weighs on returns in later years.

Returns from 31 March 2019 Source: Aon The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 77 Black Skies Scenario Data Table

BLACK SKIES SCENARIO Year 0 1 2 3 4 5 6 7 8 9 10

Yields (BOY) Treasury yield 5y 2.3% 0.1% -0.1% 0.0% 0.1% 0.3% 0.6% 1.0% 1.3% 1.6% 2.0% Long Treasury yield 15y 2.7% 1.1% 0.8% 0.8% 0.9% 1.1% 1.4% 1.7% 2.0% 2.2% 2.5% TIPS yield 5y 0.4% -0.6% -0.7% -0.6% -0.5% -0.3% -0.2% 0.0% 0.2% 0.4% 0.5% Long TIPS yield 15y 0.7% 0.0% -0.1% 0.0% 0.1% 0.2% 0.3% 0.5% 0.6% 0.7% 0.9% Breakeven price inflation 15y 1.9% 1.1% 0.9% 0.8% 0.8% 0.9% 1.1% 1.2% 1.4% 1.5% 1.6% A Corporate bond yield 5y 3.2% 4.2% 5.0% 5.0% 5.0% 4.7% 4.8% 4.9% 4.9% 5.0% 5.0% Long A Corporate bond yield 10y 3.8% 4.5% 5.0% 5.0% 5.0% 4.8% 4.9% 5.0% 5.1% 5.2% 5.2% A Corporate spread 5y 0.9% 4.1% 5.1% 5.0% 4.9% 4.4% 4.1% 3.9% 3.6% 3.3% 3.0% Long A Corporate spread 10y 1.2% 3.9% 4.7% 4.6% 4.5% 4.1% 3.9% 3.6% 3.4% 3.1% 2.9%

Expected nominal return on assets Equity - US -28.8% -20.9% -11.6% 2.5% 2.5% 2.9% 3.3% 3.7% 4.0% 4.4% Equity - Global -31.7% -22.9% -12.6% 2.6% 2.6% 3.1% 3.5% 4.0% 4.5% 4.9% A Corporate bonds 5y -0.3% -1.5% 1.5% 1.9% 3.0% 1.5% 1.7% 2.2% 2.5% 2.8% Long A Corporate bonds 10y -3.1% -4.2% 0.6% 0.8% 2.6% 0.3% 0.7% 1.3% 1.8% 2.4% Treasury 5y 12.4% 1.2% 0.1% -0.1% -0.1% -0.7% -0.4% 0.0% 0.4% 0.7% Long Treasury 15y 28.4% 6.2% 2.1% 0.1% -1.1% -2.4% -2.1% -1.8% -1.3% -1.0% TIPS 5y 3.2% -1.0% -0.3% -0.3% -0.4% 0.0% 0.3% 0.7% 1.0% 1.3% Long TIPS 15y 10.0% 0.3% 0.2% -1.2% -0.7% -0.5% -0.4% 0.1% 0.4% 0.6% US High Yield -25.4% -19.5% -11.2% 1.4% 1.5% 1.5% 1.9% 2.7% 2.8% 3.5% Bank Loans -15.5% -11.2% -5.5% 2.3% 2.6% 3.0% 3.3% 3.5% 3.7% 4.2% USD Emerging Market Debt -21.2% -16.3% -8.7% 1.9% 2.3% 2.4% 3.0% 3.4% 3.6% 4.0% Local Emerging Market Debt -24.4% -18.1% -9.7% 1.9% 2.5% 2.3% 2.4% 3.1% 4.3% 3.7% Real Estate -15.6% -11.1% -5.2% -0.7% 1.6% 1.9% 2.3% 2.7% 3.0% 3.4% Commodities -36.7% -28.3% -3.6% 2.4% 2.4% 2.6% 2.9% 3.1% 3.3% 3.5% Hedge Funds - FoHF - Universe -18.1% -12.6% -6.7% 0.6% 0.6% 0.9% 1.2% 1.6% 1.9% 2.2% Private Equity -32.5% -23.5% -12.3% 4.3% 4.3% 4.8% 5.2% 5.6% 6.0% 6.5% Infrastructure - Europe -12.8% -8.4% -4.4% 0.9% 3.6% 4.0% 4.4% 4.8% 5.2% 5.7% Cash 2.4% 0.1% 0.1% 0.1% 0.1% 0.4% 0.8% 1.2% 1.5% 1.8% CPI -1.8% -1.3% 0.1% 0.3% 0.5% 0.7% 0.8% 1.0% 1.2% 1.4%

Scenario information as of March 31, 2019

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 78 Appendix . How Do Public Pensions Impact Credit Ratings?

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 79 How Do Public Pensions Impact Credit Ratings? Summary and Conclusions

. Pension plans have a direct impact on the ultimate state or local credit rating Pension Impact on Credit Ratings . Rating agencies are not just looking at where public pension plans stand today; they are looking at the expected future trajectory of the plan based on how it is managed

Credit Ratings . Taxpayers in lower credit rated jurisdictions are paying higher borrowing costs and could save money and Borrowing through healthier pension plan management Costs

. The Big Three (Fitch, Moody’s and S&P) value selecting appropriate actuarial assumptions, avoiding excessive risk taking, and developing an adequate funding policy Call to Action . While debt priorities and revenue framework to service such debt will vary on a case-by-case basis, every jurisdiction has the ability to thoughtfully develop a funding policy and set appropriate assumptions . These initial steps will help pension stakeholders better understand the true economic costs, improve the funding outlook for public pensions, and potentially reduce borrowing costs and further taxpayer burden

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 80 How Do Public Pensions Impact Credit Ratings? Call to Action: Plan Sponsors Have Ability to Impact Credit Rating

Below are three specific actions plan sponsors can take today to directly improve the impact a pension plan will have on the credit rating of its locality:

Action Considerations . Assumptions set to plan-specific expectations will lead to lower contribution 1. Conduct an actuarial assumption audit volatility . Review reasonability of key assumptions: ̶ Salary scale, Mortality, Retirement . Aggressive assumptions may provide short-term relief but may have long-term rates, Turnover rates consequences

. Contributing an actuarial amount? 2. Consider adjustments to expected ̶ Yes: Failing to achieve target returns will necessitate increases in future return assumption contributions and make what was intended to be a smooth, budget-friendly . Adjustments should be in line with forward- progression of contribution increases far more volatile looking expectations for asset returns ̶ No: The funding gap will widen and become highly volatile as contribution policy will not add enough dollars to replenish losses . Conduct “tread water”/hurdle rate analysis to ensure short-term contributions are 3. Review the plan’s funding policy sufficient to keep pace with growth of plan liabilities . Look far enough into the future to identify potential pain points . Consider asset-liability study to understand range of potential future outcomes rather than a single deterministic scenario

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 81 Appendix . Investment Guidance for Public Employee Retirement System Trustees

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 82 Investment Guidance for Public Employee Retirement System Trustees1

1. PERS trustees should look to the state for statutory direction on behalf of the taxpayers a) Prudent-person rule b) Peer analysis 2. PERS trustees should not be daunted by a liability value that exceeds the value of assets a) Do not feel obliged to incur greater risk in an effort to narrow the gap b) Funded status has less to do with investment performance than it does with public policy and politics 3. PERS trustees should not assume that an equity-oriented investment policy is suitable for their fund a) Discern the risk tolerance of taxpayers b) May conclude that a moderate level of risk is warranted 4. Trustees of individual PERSs should be cognizant of the existence and implications of the unitary state pension fund a) Unitary state pension fund is the only fund of economic consequence to the taxpayers b) Multiple actively managed funds may form, in total, a closet index fund 5. PERS investments should be exposed to rewarded risks, and insulated from unrewarded risks a) Market risk (equity exposure) is rewarded risk, on average b) Diversifiable risk is not

1 Richard M. Ennis, Is a Statewide Pension Fund a Person or a Cookie Jar? The Answer Has Implications for Investment Policy, Financial Analysts Journal, November-December 1988

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 83 Appendix . Additional Detail

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 84 Asset-Liability Management Background Key Risks for Public Pension Plans

Types of Risk Time Horizon Risk Management Tools and Controls Return Shortfall Long-Term . Funding policy . Assets do not grow with liabilities (10+ years) . Plan design . Investment return & contribution less than liability . Investment policy growth . Assumptions & methods Liquidity Short- to Medium-Term . Funding policy . Cannot liquidate assets efficiently to meet needs (<5 years) . Benefit accruals . Lose control of asset allocation . Use of Illiquid investments . Scenario analysis . Monitoring Investment Short-to Medium-Term . Investment policy statement . Asset allocation (policy) (<5 years) – Static/dynamic . Investment structure – Asset allocation . Manager selection – Rebalancing . Rebalancing – Manager guidelines . Scenario (or path risk) – Monitoring/roles & responsibilities . Factor . Risk budgeting . Monitoring / dashboards . Medium term views . Regression and scenario analysis

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 85 Asset-Liability Management Background Overview of the Asset-Liability Study Process

Planning Discussions Asset-Liability Projections

Planning Risk Tolerance Asset Modeling Liability Analysis . Objectives of the . Risk Preference . Capital Market . Cost Projections Study . Demographics Analysis . Funded Status . Modeling and + . Funded Status + . Efficient Frontier + . Sensitivity Analysis Liability Assumptions . Business/Financial Analysis . Industry Practices . Portfolios for Study

Desired Outcomes: . Understand the pension risk . Identify optimal investment strategy

Implementation

Monitoring & Execution

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 86 Asset-Liability Management Background Modeling Process

Goals of an asset-liability study: Asset-liability studies are best-suited to determine the . Understand the pension plan’s asset-liability risk, and optimal mix of return-seeking (e.g., equity) and fixed income assets for the pension fund . Identify the optimal investment strategies . Asset mix is the single most important investment decision for the plan sponsor Stochastic, Monte Carlo simulation analysis used ‒ Is it worthwhile to have a more aggressive . 5,000 independent economic trials allocation in order to reduce long term cost in . Building block approach exchange for risk of higher costs in a bad outcome? ‒ Starts with inflation and interest rates ‒ Is it worthwhile to have a more conservative ‒ Using a multi-factor regression analysis, other allocation in order to have a more predictable cost asset classes are then modeled in exchange for potentially higher average costs? . Assets and liabilities are modeled over the projection period ‒ Projections include contribution requirements and funded ratios

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 87 Asset-Liability Management Background Long-Term Economic Cost of Plan

Long-Term Economic Cost = . Main component of long-term economic cost . Present Value of Plan Contributions + Present Value . Does not reflect the plan’s funded of Plan status at the end of the forecast period . Present Value of Terminal Funding, Contributions adjusted by a utility factor

Present Value of Terminal Terminal Surplus Shortfall Funding Funding

Declining value, or Increasing “pain” as . Reflects the plan’s funded status at Utility Rationale utility, from very high unfunded amounts grow funded ratios to high levels the end of the forecast period Utility Factor . Surplus assets are valuable as they (5 Yrs. of Benefit Threshold PVB / AL Applied to Payments) / AL lower future contributions Terminal Utility Factor . Unfunded liabilities are costs that above/below 50% 200% Funding will be recognized in future years threshold

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 88 Asset-Liability Management Background Utility Factor For Terminal Funded Status

Modest deviations from 100% funding are normal, and no special adjustment is needed for these scenarios – the amount of surplus or unfunded liability can be reflected at its dollar value

As surplus amounts grow to very high levels, there is a declining value, or utility, to the surplus: . Contributions cannot go below zero . Long contribution holidays may create a false sense of how much the plan really costs, and lead to confusion when cost levels revert to “normal” . Large surplus amounts can become a potential target for non-pension applications

As unfunded amounts grow to very high levels, there is an increasing amount of “pain” as contributions rise to unacceptable levels: . May be viewed as “breaking trust” with future taxpayers . Freezing of the pension plan becomes a possibility

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 89 Appendix . About This Material

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 90 About This Material

This material includes a summary of calculations and consulting related to the finances of Florida State Board of Administration (SBA). The following variables have been addressed: . Contributions, Economic Cost, Funded Ratio, Liquidity, Net Outflow This analysis is intended to assist the Investment Committee with a review of the associated issues and options, and its use may not be appropriate for other purposes. This analysis has been prepared solely for the benefit of the Investment Committee. Any further dissemination of this report is not allowed without the written consent of Aon Hewitt Investment Consulting, Inc. Our calculations were generally based on the methodologies identified in the actuary’s valuation report for SBA. We believe the methodology used in these calculations conforms to the applicable standards identified in the report. Experience different than anticipated could have a material impact on the ultimate costs of the benefits. In addition, changes in plan provisions or applicable laws could have a significant impact on cost. Actual experience may differ from our modeling assumptions. Our calculations were based on data provided by the plan actuary. The actuarial assumptions and methods and plan provisions reflected in these projections are the same as those used for the 2018 fiscal year actuarial valuation for SBA as noted in the actuarial report, except where noted in this report. Unless specifically noted, our calculations do not reflect any other changes or events after July 1, 2018. In conducting these projections, we have relied on plan design, demographic and financial information provided by other parties, including the plan’s actuary and plan sponsor. While we cannot verify the accuracy of all of the information, the supplied information was reviewed for consistency and reasonableness. As a result of this review, we have no reason to doubt the substantial accuracy or completeness of the information and believe that it has produced appropriate results. These projections have been conducted in accordance with generally accepted actuarial principles and practices, including applicable Actuarial Standards of Practice as issued by the Actuarial Standards Board. The undersigned actuary is familiar with the near-term and long-term aspects of pension valuations and meet the Qualification Standards of the American Academy of Actuaries necessary to render the actuarial opinions contained herein. All sections of this report are considered an integral part of the actuarial opinions. To our knowledge, no associate of Aon Hewitt Investment Consulting, Inc. providing services to SBA has any direct financial interest or indirect material interest in SBA. Thus, we believe there is no relationship existing that might affect our capacity to prepare and certify this report for SBA. Aon Hewitt Investment Consulting, Inc. Phil Kivarkis FSA, CFA

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 91 Legal Disclosures and Disclaimers

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc. (“AHIC”). The information contained herein is given as of the date hereof and does not purport to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information set forth herein since the date hereof or any obligation to update or provide amendments hereto.

This document is not intended to provide, and shall not be relied upon for, accounting, legal or tax advice. Any accounting, legal, or taxation position described in this presentation is a general statement and shall only be used as a guide. It does not constitute accounting, legal, and tax advice and is based on AHIC’s understanding of current laws and interpretation.

AHIC disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. AHIC reserves all rights to the content of this document. No part of this document may be reproduced, stored, or transmitted by any means without the express written consent of AHIC.

Aon Hewitt Investment Consulting, Inc. is a federally registered investment advisor with the U.S. Securities and Exchange Commission. AHIC is also registered with the Commodity Futures Trading Commission as a commodity pool operator and a commodity trading advisor, and is a member of the National Futures Association. The AHIC ADV Form Part 2A disclosure statement is available upon written request to:

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© Aon plc 2019. All rights reserved.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 92 Global Equity Alison Romano, Senior Investment Officer Tim Taylor, Senior Investment Officer

Investment Advisory Council September 11, 2019 Agenda

• Program Overview – Policy and Objectives – What We Do to Meet Objectives • Global Equity By the Numbers – Top Down Look: GE’s Role in Total Fund – Asset Class Look: GE Structure Details • Performance Review – Returns and Risk – Return Attribution • Appendix: Investment Process Review – External Manager Oversight – Internal Portfolio Management – Asset Class Construction and Manager Allocation

3 Program Overview

4 Global Equity Investment Policy Statement

• Invest to achieve or exceed return of benchmark over long period of time – Well diversified relative to benchmark – Reliance on low cost passive strategies scaled according to: • Degree of efficiency in underlying securities markets • Capacity in effective active strategies • Ongoing total fund liquidity requirements

Source: DB Plan Investment Policy Statement 5 Investment Policy Benchmark

• SBA Custom MSCI All Country World Investable Benchmark Regional Weights (%) Market Index (ACWI IMI) 60.0% – Large, mid and small capitalization 40.0% – In US dollar terms 54.8% 20.0% – Reflects provisions of Protecting Florida’s 33.7% 11.4% Investments Act 0.0% Developed Markets ex United States Emerging Markets – Includes over 45 countries and over 8,800 securities USA China 29.3% of EM Benchmark Sector Weights (%)

20.0% 16.5% 15.6% 16.0% 11.0% 11.4% 11.3% 12.0% 8.1% 7.8% 8.0% 5.4% 5.3% 4.2% 3.3% 4.0%

0.0% Communication Consumer Consumer Energy Financials Health Care Industrials Information Materials Real Estate Utilities Services Discretionary Staples Technology Developed Markets ex USA United States Emerging Markets 6 Note: Source MSCI, FactSet. As of June 30, 2019. Investment Policy: Implementation Snapshot

Well Diversified Vs. Benchmark Invest to Achieve or Exceed Equity Benchmark 100% 9.5% • Total AUM: $88bn 24.4% 80% • 11,000+ securities 47.5% 60% 84.5% • 76 Countries 90.5% 40% 75.6%

• 52 Currencies Percent of Total 52.5% 20% • 6 Internal strategies 15.5% 0% 58 Externally managed strategies Domestic Foreign Global Total • Active Passive Focus on Return and Low Costs Opportunistically Invest in Active Strategies 100% Value Add Since Inception 35.1% Market Value 80% 44.8% (Annualized)

60% 84.9% Active Currency $3.25B Notional 0.02% 100% 40% 64.9% US Microcap $231M 0.01%

Percent of Total 55.2% 20% 15.1% Frontier $358M 0.01% 0% Domestic Foreign Global Total External Internal 7 Note: As of June 30, 2019. Investment Policy Drives Specific Global Equity Asset Class Objectives

Objectives

Provide Beta

Manage Costs

Diversify Sources of Alpha

Maintain Low Active Risk

Be Selectively Opportunistic

Provide Liquidity

8 Investment Objectives Drive What We Do For The Long Term

What We Do Pitfalls We Strive to Avoid

Provide Beta Manage 47.5% of assets passively Becoming an index fund

Manage Costs Uncompromisingly negotiate fees Overpaying for non-unique alpha

Diversify Sources of Fund strategies with varying philosophies, processes, Relying on specific market conditions to drive Alpha geographic focus and sector exposures relative performance

Maintain Low Active Focus intensely on aggregate construction using Taking uncompensated or concentrated risk Risk multiple risk lenses

Be Selectively Invest in Currency, Frontier, US Microcap, China-A Allowing scale to dampen opportunism Opportunistic and Internal Factor Indices

Source funds monthly with emphasis on enhancing Provide Liquidity Sacrificing excess return potential risk/return profile and minimizing transaction costs

9 Navigating Dynamic Market Environments

FY19 Market Dynamics To Consider • Increasingly concentrated benchmarks and wide divergences in size/style Provide Beta • Increase in China-A weight in EM and global benchmarks • Pressures on sources of value-add in passive portfolios (e.g. Sec Lending and rebalance trade) • Market pressure on fees have cost benefit but create some industry risk Manage Costs • European regulations related to MiFiD II indirectly impact US managers

• Continuation of value and size underperformance while defensives are expensive Diversify Sources of • Low rate environment Alpha • Balancing long-termism against underperforming strategies

Maintain Low Active • Reappearance of some equity market volatility while predicted risk of holdings on the decline Risk • Increasing challenges to traditional active management Be Selectively • Benchmark concentration Opportunistic • Fewer IPOs and prevalence of ETFs • Data availability is an equalizer

Provide Liquidity • Pockets of low liquidity persist in market segments with rich alpha potential 10 Meeting Objectives By Navigating Dynamic Market Environments

Recent Market Dynamics Actions Taken in FY2019 • Benchmark changes • Provided managers with access to China Connect Provide Beta • Pressure on passive value-add • Worked to maximize Sec Lending opportunities (with no incremental risk) sources • Continued to develop internal passive management resources • Fee pressure • Aggressively negotiated fees for newly funded strategies, renegotiated fees with several existing • Changes in European managers and enhanced internal analytics platform to evaluate fees relative to alpha sources Manage Costs regulations • Lowered costs of data for internal management and funded (Aug 2019) internal US SC strategy • Actively engaged managers in dialogue on MiFiD II

Diversify • Style distortions / low rate • Hired growth leaning EM manager and added another EM Small Cap Manager environment • Utilized internal and external analytics platform to evaluate underperforming managers relative Sources of • Balancing long-termism against to market conditions Alpha underperformance • Modest reallocations across strategies

Maintain Low • Continued to utilize passive as significant source of liquidity • Pockets of market volatility Active Risk • Risk managed within policy bounds and with room for increased market volatility

• Funding dedicated China-A funds Be Selectively • Challenges to traditional active • Evaluating equity related opportunistic strategies with well known partners Opportunistic management

Provide • Liquidity vs. Alpha tradeoff • Raised $5B FY19 Liquidity 11 Meeting Objectives: Looking Forward

Selected Elements of FY2020 Work Plan

• Continue to be vigilant in the best execution of internal passive strategies and support staff Provide Beta development

• Further evaluate opportunities to manage strategies internally Manage Costs • Continue to renegotiate fees

Diversify Sources of • Fund new Emerging Market strategies Alpha

Maintain Low Active • Enhance analytics capabilities with efficient investment in tools and human capital Risk

Be Selectively • Systematically review opportunistic strategies and fund as appropriate Opportunistic • Reallocate within currency aggregate

• Utilize liquidity draws to rebalance / reposition Provide Liquidity • Maintain significant exposure to liquid portfolios

12 Meeting Objectives: Approach to Fees

• Consider multiple factors in negotiating fees – Uniqueness of alpha source – Level of expected alpha and risk – Product capacity and scale of investment process – Level of assets invested – Opportunity cost vs. passive alternative and/or internal alternative – Current fees paid by GE and marketplace • Develop bespoke analytical tools to evaluate above points • Primarily utilize flat fees; selectively moving to performance fees • Pay across all strategies weighted average fees of approximately 17 bps • Negotiate low fees vs. peer plans* – External management fees are approximately 14% lower than peers in comparable strategies – Internal management costs are approximately 58% less that peers in comparable internal strategies

*Note: Based on 2018 CEM Investment Cost Effectiveness Analysis (data as of 12/31/2017) prepared for the Florida State Board of Administration 13 Meeting Objectives: Experienced Staff with Complementary Skills

Internal Management and Trading Joe Wnuk Jennifer Myers James Wells Brian Staverosky Samantha Kane

Risk and Analytics Senior External Manager Oversight Denise Hale Investment Ted Nation Officers Dustin Heintz Alexa Crenshaw Alison Romano Meghan Brown [Open Position] Tim Taylor Luke Tucker Daniel Gold

Administration Lisa Cheshire Whitney Kirk

Financial Operations Accounting Legal Risk & Compliance Corporate Governance IT 14 GE By The Numbers

15 Top Down View: GE’s Role in the Total Fund

% of Total FRS Assets % Contribution to Total FRS 3-Yr Absolute Return

Policy Range: Policy Goal: 55 45% - 75%, With 53% Target Seek Absolute Returns % 70%

% of Total FRS Assets GE Manages Internally % Contribution to Total FRS 3-Year Excess Return

24% Policy Goal: Policy Goal: Reliance on Low Cost (Passive) Strategies 40% Exceed Returns of Benchmark

% of Liquidity Provided in Last 3 Years % Contribution to Total FRS Active Risk

Policy Goal: 5% Policy Goal: Meet Ongoing Funding Requirements Passive with Active Risk 73% Amount Raised in 3 Years: in Less Efficient Markets $17.2bn 16 Note: As of June 30, 2019. 3 Year Returns include GE Liquidity and Cash Equitization accounts. % of Active Risk is a measure of GE contribution to total fund, based on 1 year predicted risk. Within the Asset Class: Delivering on Policy and Objectives

Provide Alpha and Beta: % Actively Managed Maintain Low Active Risk: Tracking Error Over Time

56% 1.25%

1.00% 52% 0.75% 48%

% of Total GE 0.50%

44% 0.25% Actively Managed Assets as 3 Year 3 Year Realized Tracking Error Jun-16 Jun-17 Jun-18 Jun-19 Sep-16 Sep-17 Sep-18 Dec-16 Dec-17 Dec-18 Mar-17 Mar-18 Mar-19 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Policy Range: 47% - 57% Active Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Current Aggregate Beta: 0.99 Policy: 0.75% Monitoring Standard and 1.25% Escalation Standard Risk Where Rewarded: Information Ratio Low Active Risk: Take Tracking Error Where Rewarded

1.40

1.20

1.00

0.80 1.94 0.60

0.40 One Year Aggregate 0.84 Predicted Tracking Error 3 Year Information Ratio Information Year 3 0.41 0.17 Jun-16 Jun-17 Jun-18 Jun-19 Oct-16 Oct-17 Oct-18 Apr-17 Apr-18 Apr-19 Feb-17 Feb-18 Feb-19 Dec-16 Dec-17 Dec-18

Aug-16 Aug-17 Aug-18 Total US Non-US Global Policy Risk Adjusted Return Standard (3 Year): 0.25 Range Predicted Tracking Error for Individual Strategies: 0.07% to 9.78% 17 Note: As of June 30, 2019. Current 3 Year IR: 1.09 Structured for Performance Consistency

Global Equity OutperformedGlobal Benchmark, Equity Rolling net of One fees,-Year in 91 Performance of 96 One-Year Rolling Periods

27

Outperformance 21

15

9

3 Global Equity Global

-3 (Absolute Performance, Netof Fees)

-9 Underperformance

-15 -15 -9 -3 3 9 15 21 27 Global Equity Benchmark (Absolute Performance) Note: Based on official performance numbers through June 30, 2019. Each dot represents a one year period based on rolling monthly returns. 18 Structured to Perform Across Market Conditions

BATTING AVERAGE: % OF MONTHS GE RETURNS EXCEED BENCHMARK 89% 81% 80% 73% 66% 56% 55% 52% 41%

ALL CONDITIONS MARKETS UP MARKETS DOWN GROWTH BEATS VALUE BEATS MIN VOL BEATS MARKET BEATS USA BEATS ROW ROW BEATS USA VALUE GROWTH MARKET MIN VOL

Note: Based on Global monthly returns since inception and MSCI Indices. 19 Structured to Diversify Sources of Risk

• The Total Fund has established asset allocation ranges that support the long term return objective via diversified sources of risk and returns • Similarly, Global Equity is structured to deliver the equity return objective via diversified return drivers RISK DECOMPOSITION: TOTAL PREDICTED ACTIVE RISK = 41 BPS Cash, 5 Style Factors, 6

Currency, 6

Countries, 9

Selection, 9 Industries, 7

Benefits of Diversified Risk Sources Risk of More Concentrated Bets

• Aligns with strategic objective • Potential deviation from strategic objective • Multiple excess return sources with lower dependence on one • Liquidity risk good bet • Unintended exposures • Timing risk • Potential to smooth excess returns • Uncompensated transaction costs • Manager processes and skill drive performance • Potentially higher volatility and lower risk-adjusted return 20 Note: Projected one-year risk of 41bps based on Barra GEMLT Risk model as of June 30, 2019. Diversify Sources of Alpha and Risk: Strategy Types

Diversified for Market Conditions

Defensive Active Core Active Upmarket Active Low Beta Multifactor Quant High Growth High Yield Quality Emphasis Pro - Cyclical Earnings Stability Regional Strategies Currency Overlay

Passive

Diversified by Investment Process

Fundamental Approach Traditional Quant Approach Factor/Other Growth Core Value Growth Core Value US LC   US Small Cap       Developed LC      Developed SC      EM & Frontier      Global  

Currency    21 Diversify Alpha: Active Management Structure

Higher Active Exposures In Segments Where Risk Is Rewarded

Average Active Mandate # of Active Total AUM ($mm) % Active Size ($mm) Strategies

US LC $39,865 11.7% $1,166 4

Developed LC $22,208 84.5% $1,706 11

Emerging $9,367 100.0% $669 14

Global $8,845 75.6% $1,114 6

Developed SC $4,237 100.0% $530 8

US SC $2,980 66.5% $180 11

Frontier $358 100.0% $119 3

Currency $3,250 (Notional) 100.0% $813 4

Note: As of June 30, 2019. US All Cap passive strategy assets allocated the US LC and SC groups in-line with the benchmark large cap/small cap split. US SC includes microcap. 22 Performance Review

23 Performance: Total GE Summary

2Q19 CYTD 1 Yr 3 Yr 5 Yr Incept. GE Return 3.56 16.39 4.98 11.88 6.70 10.82 Benchmark 3.36 16.07 4.55 11.42 6.06 9.98 Excess Return 0.20 0.31 0.43 0.46 0.64 0.84 Tracking Error 0.37 0.49 0.49 Info Ratio 1.09 1.19 1.51

1.80% 1.68% 1.60%

1.40% 1.33%

1.20% 1.03% 1.00%

0.80% 0.74%

Excess Return Excess 0.60% 0.53% 0.44% 0.43% 0.40% 0.16% 0.20%

0.00% FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Note: As of June 30, 2019. GE Inception July 2010. 24 Performance: FY 2019 Total GE Attribution

Stock Selection and Allocation Decisions Drove FY2019 Outperformance Despite Style Headwinds

0.50 0.43 0.40

0.30 0.22 0.20 0.17 0.18 0.12 0.10 Excess Return (%) Return Excess

0.00

-0.10 (0.11) (0.16) -0.20 Selection Country Currency Industry Style Cash Total

Note: Attribution based on official performance numbers and Barra factor performance. 25 Performance: Returns by Approach and Region

Weight (% of One Year Excess Three Year Five Year Excess Asset Class) Return Excess Return Return By Approach Passively Managed Strategies 47.5% 0.13% 0.16% 0.18%

Actively Managed Strategies 52.5% 0.10% 0.30% 0.56%

By Region US 48.6% -0.35% 0.00% -0.13%

Foreign 41.0% 0.29% 0.58% 0.82%

Global 10.0% 1.09% -0.46% 0.41%

Note: As of June 30, 2019. 26 Performance: By Active Aggregate

Key Drivers of One Year Returns Active Strategy Weight (% of One Year Excess Three Year Excess Five Year Excess Grouping Asset Class) Return Return Return • Foreign Large Cap Foreign Developed – Faced performance headwinds from EM allocation and exposure to value 21.3% -0.35% 1.55% 1.76% stocks in European Consumer Staples and Healthcare sectors Standard • Emerging Emerging & – Tilt toward size, Brazil overweight and China positioning supported strong 11.0% 1.84% -0.75% 0.11% performance Frontier Markets • Dedicated Global – Mega cap tilt and defensive positioning (tilt to dividend yield and away from Dedicated Global 7.6% 1.26% -0.66% 0.38% Beta and earnings variability) supported positive performance • US Large Cap – Significant style headwinds resulting from value-leaning positioning and tilt US Large Cap 5.3% -4.72% -0.88% -1.60% away from mega-caps • Foreign Small Cap Foreign Developed – Outperformance of growth and core strategies subsumed by underperforming 4.8% -0.85% -0.30% -0.21% value managers that faced significant style headwinds Small Cap • Currency – Strong USD (particularly against EUR), swift resurgence of EM currencies following steep declines in late 2018, and pickup in performance of cheaper Currency 3.7% 0.42% -0.12% 0.77% currencies drove outperformance • US Small Cap – Strong performance by growth and value managers, led by overweights in US Small Cap 2.2% 1.57% 0.16% -0.13% technology

Note: Currency weight based on underlying notional equity assets. Returns as of June 30, 2019. 27 Appendix: Investment Process Review

28 Process: Manager Monitoring

Daily Monthly Quarterly

• Manager and aggregate performance • Performance review • Customized performance analysis – Reconciliation with managers • High level performance attribution • Assess drivers of performance • Positioning (e.g. Cash, PFIA) – Attribution • Largest holdings, over and • Customized risk analysis • Big moves in individual holdings underweights • Currency manager positioning – Sources of realized risk • Derivatives positioning – Sources of predicted risk (country, • Regional index performance factor, currency, stock specific) • Economic/Macro events impacting • Process review performance – Alignment of risk/performance with • Monitor organizational or operational manager defined process changes • Formal performance review • Dialogue with managers conducted with manager quarterly (In-person 1x/year); External PM participation required – Pre-call preparation – Post-call summary, with issues to consider

29 Process: Manager Selection

Steps in Typical Manager Selection Process 1. Identify need – Review alpha opportunity in given market segment – Evaluate performance trends, risk and factor exposures of existing aggregate 2. Develop search criteria 3. Develop list of managers meeting criteria, based on: – Screen of external databases of investment managers – Prior meetings/diligence on prospective managers – Input from consultant 4. Send very detailed questionnaire to identified managers – Investment questions cover process, performance attribution, risk, trading, approach to currency, and pre/post trade compliance – Data requested includes monthly historical returns and holdings – Operational diligence questions cover team, organization structure, risk/compliance capabilities, and legal topics 5. Narrow universe based on internal discussion and consultant input – Evaluate quality and clarity of response – Complete detailed analytics of manager performance – Run scenario analysis evaluating impact on aggregate of adding manager – Work with Legal and RMC (Risk, Management & Compliance) to identify potential non-investment risks

30 Process: Manager Selection

Steps in Typical Manager Selection Process

6. Negotiate key terms of contract and have preliminary fee discussions 7. Conduct interviews at SBA. PM attendance required. – 2+ hour interviews led by GE with representatives from Legal, RMC and/or SBA Executives 8. Determine manager(s) to hire based on internal discussion and consultant input 9. Contract 10. Typically conduct onsite due diligence 11. Determine best approach to transition 12. Fund

31 Process: Internal Asset Management

% Internally Managed Assets over Time

50.0%

Launch of 45.0% 45.0% Global Passive Portfolio, Atlas 40.0% 35.6% Launch of 35.0% Launch of US LC Internal Global Passive Factor Strategy, Portfolio, Nova Sinensis 30.0% Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-18 May-19 Benefits of GE’s Internal Management Program • Explicit cost advantage in that asset management fees are not paid to external investment firms • Fixed cost of running passive money spread over large asset base • Ability to leverage skills gained in directly managing money to analyze external managers • Capability to manage equity transitions and liquidity raises • Ability to support certain trading needs of other asset classes • Ability to manage cash flows associated with Currency program 32 Process: Internal Asset Management

Significant Systems and Human Capital Resources Required to Operate Effectively • Best In Class Systems – Portfolio optimization and risk management tools – Order management system (equity and FX) – Pre and Post Trade compliance – Transaction Cost Analysis tools – Real-time market data and research – Computing power to support quantitative models – Business continuity plan • Experienced Staff – PMs able to navigate index changes, corporate actions and cash flows while managing within narrow risk budget (passive portfolios) – PMs with strong quantitative and programming skills able to develop alpha engine (active portfolio) – Global trading expertise in equity and currency – Redundancy is critical • Departure of skilled personnel always a risk • Large asset management firms able to maintain deep bench of replacements – public plans find this challenging or not possible 33 Process: Aggregate and Asset Class Construction Monthly Quarterly • Assess drivers of aggregate performance • Comprehensive total asset class review • Daily structure report – Market trends – Evaluate regional over/underweights, style – Overall positioning and attribution over/underweights and active/passive split – Sources of aggregate risk • Use regular monthly liquidity • Comprehensive aggregate review assessments to rebalance – Drivers of performance opportunistically – Manager correlations – Drivers of risk – Restructuring recommendations, as needed – Prospective managers

34 Process: Allocation or Manager Changes

Allocation Changes Manager Changes

• Liquidity – Opportunity for reallocation • Typically conduct 1 - 2 manager searches per year – Review daily structure report – Consider • Changes made over last year • Active/passive split, regional exposures and style exposures – Emerging Markets • Individual manager performance and relative risk – Emerging Markets Small Cap • Trim winners – buy low and sell high – China A • Non-Liquidity driven reallocations – Realign post significant index rebalances • Defunding considerations – Balance Growth/Value Exposure – Unexplained vs. explainable underperformance – Manage factor and risk exposure (Run scenario analysis) – Team, organization or compliance issues – Near term versus long term risks – Range of short term or longer term alternatives (e.g. ETF, • Opportunistic – Allocation to new alpha sources another manager, in-house, etc.) – Transaction costs; evaluate need for transition manager – Fees versus alpha potential

35 HEALTH WEALTH CAREER

FLORIDA STATE BOARD OF ADMINISTRATION

REVIEW OF PUBLIC EQUITY MARKETS

SEPTEMBER 2019 AGENDA

• SBA’s Public Markets Investment Program • Review of Equities • Recent Activity • Appendix

© MERCER 2019 1 SBA’S PUBLIC MARKETS INVESTMENT PROGRAM

© MERCER 2019 2 SBA’S PUBLIC MARKETS INVESTMENT PROGRAMS GUIDING PRINCIPLES • All asset classes shall be invested to achieve or exceed the return of their respective benchmarks over a long period of time. To obtain appropriate compensation for associated performance risks: – Public market asset classes shall be well diversified with respect to their benchmarks and have a reliance on low cost passive strategies scaled according to the degree of efficiency in underlying securities markets, capacity in effective active strategies, and ongoing total fund liquidity requirements (Investment Policy Statement).

© MERCER 2019 3 SBA’S GLOBAL EQUITY INVESTMENT PROGRAM MERCER’S GENERAL OBSERVATIONS

• The Global Equity asset class is managed in a prudent, risk aware fashion

• Appropriate levels of delegation are given to the staff

• FRS Global Equity makes significant use of passive management (49% of Portfolio vs. 44% of peers1)

• Active risk levels are monitored against predetermined ranges

• The Plan effectively uses internal resources to keep costs low (43% of Portfolio vs. 40% of peers1)

• Active management fees are 5-10bp below peers across asset classes

• Performance results have been favorable over all time periods measured

1 Source: Data as of 12/31/2017- CEM 2018 Survey

© MERCER 2019 4 REVIEW OF EQUITIES ASSET ALLOCATION – PASSIVE VERSUS ACTIVE • The SBA Global Equity asset class uses more internal passive management and external active management relative to peers.

FRS Peers

Internal Passive 42.1% 25.2%

Internal Active 0.9% 14.8%

External Passive 7.4% 19.2%

External Active 49.6% 40.9%

Source: Data as of 12/31/2017- CEM 2018 Survey

1 May not add to 100% due to rounding.

© MERCER 2019 5 SBA’S PUBLIC MARKETS INVESTMENT PROGRAMS GUIDING PRINCIPLES • In 2016, Mercer conducted a structural review of the Global Equity asset class and concluded Global Equity incorporates many of the best practices in institutional fund management and is appropriate given the FRS’s size and negative cash flow position. Specifically, Mercer believes there are a number of key areas that should be evaluated for best practices, with some key observations for SBA: – Active/Passive Allocations. The SBA is utilizing active/passive management across sub-asset classes effectively. – Use of Internal Management. The SBA has been cost effective in their use of internal passive management within the US Equities space, unlike many of their peers. – Active Risk Budget. The risk budgeting monitoring standards for the FRS Pension Plan for the Global Equity asset class is a monitoring standard of 0.75% and an escalation standard of 1.25% and staff has stayed well within these bounds over time. – Investment Manager Review. Overall we believe the sub-asset classes to be well diversified in terms of manager style and risk. – Benchmarking/Market-Capitalization Weighted Exposures. The staff has incurred very little misfit risk relative to its asset class benchmarks. – Potential Alpha Opportunities. The Global Equity staff continually researches and capitalizes on potential alpha opportunities which has included exposures to China A shares, frontier markets, emerging markets small cap, US microcap, and a currency overlay program – Performance Summary. The SBA has realized strong risk-adjusted returns historically. These strong risk- adjusted returns are attributable to the SBA’s thoughtful approach to portfolio construction through employing passive mandates in more efficient markets, allocating assets to a diversified yet high conviction active manager base, and deploying assets in higher alpha potential market segments.

© MERCER 2019 6 REVIEW OF EQUITIES

© MERCER 2019 7 REVIEW OF EQUITIES ASSET ALLOCATION – REGION • In July 2010 the SBA consolidated its separate allocations to US and Foreign Equity asset classes into a single Global Equity asset class benchmarked to the FSB ACWI IMI ex Iran and Sudan. • Compared to peers, the SBA has a smaller allocation to US equity and dedicated global equity.

Large Plan US Public Product¹ FRS Peers Plans MSCI ACWI IMI

US Equity 48.2% 49.1% 47.4% 52%

Developed Market ex US 33.7% 31.2% 28.7% 36%

Emerging Markets 11.2% 10.8% 7.7% 12%

Global Equity² 7.1% 7.9% 14.3% -

Other - 0.1% - -

Source: Data as of 12/31/2017 - CEM 2018 Survey 1 May not add to 100% due to rounding 2 The lower allocation to global equities is due to a greater use of dedicated strategies.

© MERCER 2019 8 REVIEW OF EQUITIES ASSET ALLOCATION – PASSIVE VERSUS ACTIVE • On an absolute basis, the SBA Global Equity uses passive management for most of its US allocation and active management for most Non-US Equity. The majority of dedicated Global Equity mandates are fully active and all Emerging Market mandates are fully active. • Compared to peers, the SBA Global Equity uses more passive management for its US and global equity allocations

Product¹ FRS Peers US Equity Passive 85.1% 76.2% Active 14.9% 23.9% Developed Market ex US Passive 20.6% 37.1% Active 79.4% 62.9% Emerging Markets Passive 0.0% 22.8% Active 100.0% 77.2% Global Equity Passive 23.1% 1.6% Active 76.9% 98.4% Source: Data as of 12/31/2017- CEM 2018 Survey

1 May not add to 100% due to rounding. © MERCER 2019 9 REVIEW OF EQUITIES PERFORMANCE: US, NON- US, & DEDICATED GLOBAL EQUITY • Over the 3- and 5-year periods, the US Equity asset class has trailed its benchmark with a negative information ratio, but outperformed most of its peers on a risk adjusted basis. • Over the 3- and 5-year period, the Non-US Equity asset class has delivered significant value added and outperformed almost all (3 Years) or all (5 Years) of its peers on a risk adjusted basis.

Inception Year to Date 1 Year 3 Years 5 Years Periods Ending 6/30/2019 (April 1988) Return (Rank) Return (Rank) Return (Rank) Return (Rank) Return (Rank)

FRS US Equity 1,2 18.33% (54) 8.60% (30) 13.99% (36) 10.05% (33) 10.51%

Benchmark 18.71% 8.98% 14.02% 10.19% 10.45%

Value Added -0.38% -0.38% -0.03% -0.14% 0.06%

Information Ratio3 -- -- -0.10 (32) -0.51 (46) 0.09

Tracking Error3 -- 0.30% 0.23% 0.27% 0.80%

Inception (October 1992) Return (Rank)

FRS Non-US Equity 2,4 14.05% (70) 0.37% (81) 9.72% (45) 3.14% (56) 7.19%

Benchmark 13.31% 0.22% 9.16% 2.28% 6.20%

Value Added 0.74% 0.15% 0.56% 0.86% 0.99%

Information Ratio3 -- -- 0.66 (6) 0.96 (1) 0.77

Tracking Error3 -- 0.55% 0.79% 0.85% 1.28%

Inception (July 2003) Return (Rank)

FRS Dedicated Global Equity 2,5 16.63% (47) 7.36% (23) 11.33% (44) 6.95% (43) 8.19%

Benchmark 16.90% 6.27% 11.79% 6.53% 8.66%

Value Added -0.27% 1.09% -0.46% 0.42% -0.47%

Information Ratio3 -- -- -0.35 (52) 0.17 (40) N/A

Tracking Error3 -- 2.03% 1.48% 1.60% N/A

1 Compared to the Public Funds >$1B - US Equity universe; rankings are based on gross-of-fees FRS performance. 2 Returns are shown net of fees. 3 Calculated using monthly returns 4 Compared to the Public Funds >$1B - Non-US Equity universe; rankings are based on gross-of-fees FRS performance. 5 Compared to the Public Funds >$1B - Global Equity universe; rankings are based on gross-of-fees FRS performance © MERCER 2019 10 RECENT ACTIVITY

© MERCER 2019 11 MERCER RESEARCH RATING REVIEW BREAKDOWN OF STRATEGIES BY RATING • Of the 59 external global equity strategies in the Plan, 47 strategies, or 80%, are rated “B+” and above • The graph below shows the breakdown of the strategies by the Mercer Rating:

Mercer Ratings: A = "above average" prospects of outperformance B+ = "above average" prospects of outperformance, but there are strategies in which Mercer has greater conviction B = "average" prospects of outperformance C = "below average" prospects of outperformance N = not rated R= Mercer does not maintain formal ratings in category, but has reviewed the strategy.

© MERCER 2019 12 RECENT ACTIVITY

• Emerging Markets Equity Search • Emerging Markets Small Cap Equity Search • Active currency discussion • Regularly working with staff conducting ongoing performance and manager monitoring • Increased focus on operational due diligence • Ongoing manager reviews

© MERCER 2019 13 APPENDIX

© MERCER 2019 14 DISCLAIMERS

References to Mercer shall be construed to include Mercer LLC and/or its associated companies.

© 2019 Mercer LLC. All rights reserved.

Information contained herein has been obtained from a range of third party sources. Although the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party.

No investment decision should be made based on this information without first obtaining appropriate professional legal, tax and accounting advice and considering your circumstances.

Investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Mercer Investment Management, Inc. and Mercer Investment Consulting LLC are federally registered investment advisors under the Investment Advisers Act of 1940, as amended. Registration as an investment adviser does not imply a certain level of skill or training. Mercer’s Form ADV Part 2A & 2B can be obtained by written request directed to: Compliance Department, Mercer Investments, 701 Market Street, Suite 1100, St. Louis, MO 63101.

MMC Securities LLC is a registered broker dealer and an SEC registered investment advisor. Securities offered through MMC Securities; member FINRA/SIPC, main office: 1166 Avenue of the Americas, New York, New York 10036. Variable insurance products distributed through Marsh Insurance & Investments LLC; Marsh Insurance & Investments LLC in California, and Marsh Insurance Agency & Investments in New York. Mercer, Mercer Investment Consulting, LLC, Mercer Investment Management, Inc., Guy Carpenter, Oliver Wyman, Marsh and Marsh & McLennan Companies are affiliates of MMC Securities.

© MERCER 2019 15 © MERCER 2015 16 State Board of Administration Fixed Income Update Katy Wojciechowski Senior Investment Officer Fixed Income

Investment Advisory Council September 11, 2019 Fixed Income Review and Outlook September 2019 • 12 Month Returns for the Fixed Income benchmark – Barclays Intermediate Aggregate through 6/30/2019 were 6.73%. – Annual Absolute Returns were positive for all sectors – Treasury yields were lower during the period –hitting a low of 2.00 at the end of June, hitting a near term low of 1.52 on 8/23. The 30 yr bond hit an all time low of 1.97% on 8/15. – Yield on the entire Benchmark is only 2.09% with a 3.54yr duration – lower than 3 month LIBOR currently at 2.13 – Asset class outperformed Benchmark over ALL time periods with low risk and high Information Ratio

Fixed Income Asset Class Returns 6/30/2019 8 6 4 2 0 Fiscal YTD 1 Year 3Yr Ann 5Yr Ann

Fixed Income Benchmark Value Added 3 Fixed Income Review September 2019 Yields fell off in the quarter as geo-political Spreads to Treasuries fluctuate with risk on/risk off headwinds begin to show up and China trade war movements from news out of trade talks and Fed heats up – flow of funds into bonds Intermediate Aggregate Yield to Maturity Option Adjusted Spread

4 Fixed Income Review September 2019 • Bigger Picture: Global negative yielding debt • Central Banks Globally pumping cash stock grows

Source: Bloomberg and BlackRock 5 Fixed Income Review September 2019 • Portfolio trimmed but continues to • But overall Active Risk continues low at total overweight Spread Product allocation level

Fixed Income Sector Allocation 6/30/2019

CMBS 2.0% ABS 1.8% MBS 2.4% CORPORATES 3.8% AGENCIES 0.0% -10.0% TREASURIES

-15.0% -10.0% -5.0% 0.0% 5.0%

6 Fixed Income Review September 2019 Looking Forward: Pockets of Value • Continue to increase active allocation • Add exposure to out of benchmark structured products or other in a dedicated strategy • Expanded guidelines with several managers – Consider opportunity to reduce risk to a rising rate environment within overall allocation • Preparing to fund a short duration credit manager – Execute on tactical opportunities, especially in shorter duration securities • Continuing purchase of short duration securities within Active Core portfolio

7 State Board of Administration

Real Estate Update Steve Spook Senior Investment Officer

Investment Advisory Council Meeting September 11, 2019 Real Estate Portfolio Sector Allocation as of 3/31/2019 Total RE Portfolio Florida Retirement System Defined Benefit Fund Public Private Equity 10.7% Cash 7.0% 1.1% Private Strategic Inv. 89.3% 8.4%

Real Estate 9.3% Private Market Global Equities 55.1% Non-Core 19.1%

Fixed Income Core 19.2% 80.9%

3 Source: IBP 3/31/19 Report Private Market Leverage as of 3/31/2019 Private Portfolio Levered Market Value $19,148 M

Private Market Leverage Pooled Funds Leverage 30.9% Closed-End Funds 57.4%

Principal Pooled Funds Investments Open-End Funds 27.7% 40.9% 25.4%

Investment Portfolio Guidelines: - Private Market Portfolio leverage limited to 40% Loan to Value (LTV). - Principal Investments Portfolio leverage limited to 30% Loan to Value (LTV).

4 Principal Investments Leverage

DEBT TYPE WEIGHTED AVG COST OF DEBT PI 5 YR LEVERAGE 03/31/19 03/31/19 $3.5 26.8% 30.0% 100% 25.4% 25.4% 17% 80% Floating 4.11% $3.0 22.1% 21.4% 22.2% 21.5% 25.0% 60% Fixed 3.10% $2.5 40% 83% 20.0% 20% 21.5% 21.1% 21.6% 21.6% Total PI 3.27% $2.0 0% 18.5% 15.0% $1.5 16.5% Fixed Rate Floating Rate 0.00% 2.50% 5.00% BILLIONS 12.6% 10.0% $1.0 DEBT MATURITIES 5.0% 03/31/19 $.5 $700 $.8 $1.5 $1.8 $2.3 $3.2 $3.1 $3.2 $- 0.0% $600 06/30/14 06/30/15 06/30/16 06/30/17 06/30/18 03/31/19 03/31/19 ADJ $500 PI DEBT PI LTV ODCE LTV

$400 PI CORE AND NON CORE LEVERAGE Investment Portfolio Guidelines

MILLIONS $300 $608 40.00% - Portfolio Leverage limited to 30% Loan To Value (LTV) $500 $369 $200 30.00% - Individual Asset Level limited to 50% LTV $17 $298 20.00% 25.52% 25.41% 24.97% $100 $190 24.41% - JV Individual Asset limited to 70% LTV $90 $151 $168 $72 $132 10.00% - Nonrecourse to the SBA $- $43 $39 $20 0.00% 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 03/31/19 03/31/19 ADJ Fixed Rate Floating Rate Core Non Core 5 Total Real Estate Portfolio Performance Data Through March 31, 2019

Market Value $14,919 M 14%

12% 9.9% 10% 9.2% 7.6% 7.9% 8% 7.5% 7.1%

6%

4%

2%

0% One Year Return Three Year Return Five Year Return

SBA RE Total Net Return SBA RE Primary Benchmark

Source: The Townsend Group 6 Principal Investments Performance Data Through March 31, 2019 Market Value $9,325 M 16%

14%

12%

10% 9.4% 9.2% 9.2%

8% 7.5% 7.3% 7.1% 6.6% 6.5% 7.0% 6%

4%

2%

0% One Year Return Three Year Return Five Year Return

PI Total Net Return ODCE Total Net Return SBA Primary Benchmark

Source: The Townsend Group 7 Externally Managed Portfolio Performance Data Through March 31, 2019 Market Value $5,594 M 14%

12% 10.7% 10% 9.4% 9.2% 8.9% 8.9% 9.0% 8% 7.5% 7.2% 7.1%

6%

4%

2%

0% One Year Return Three Year Return Five Year Return

EMP Total Net Return External Custom Benchmark Net Return SBAF Primary Benchmark

Source: The Townsend Group 8 Private Market Property Type Diversification as of 3/31/2019 Target NFI-ODCE +/- 15%

40% 33.9% 35% 32.8% 30% 25.2% 25% 20.2% 18.3% 20% 16.6% 18.3% 14.9% 15.5% 15% 10% 4.3% 5% 0.0% 0% Apartment Industrial Retail Office Other *

SBA Exposure ODCE

* Other includes Agriculture, Student Housing, Senior Housing, Self-Storage, Hotel, Land 9 Private Market Geographic Diversification as of 3/31/2019 Target NFI-ODCE +/- 15%

50% 41.6% 40.4% 40% 31.0% 30% 27.1% 21.5% 18.7% 20%

8.7% 10% 4.8% 6.1% 0% 0% East Midwest South West Other *

SBA Exposure ODCE

* Other includes International Investments 10 Recent Activity (Since Last IAC Report)

Direct Owned: Acquisitions (Price/Equity) - None

Dispositions (Sale Proceeds) - None

Commingled Funds (New Commitments): - Global Co-Investment $90 million - Global Opportunistic Fund $75 million

11 State Board of Administration

Private Equity Asset Class Update John Bradley, SIO Private Equity

Investment Advisory Council September 11, 2019 Market/Portfolio Update • Market/Portfolio Update: – Market • Active first half of 2019 in the PE market – Fundraising up slightly, large funds dominate market – A number of high profile venture backed companies IPO’d in 2nd quarter – Valuations and equity contributions continue to rise, while debt multiples hold steady – Portfolio • Venture and growth strategies continue to lead performance over short- term • 2019 1st half net cash flow: -$42 million

3 Sector and Geographic Exposure As of March 31, 2019

100% 100% 8% 8% 9% Other 90% 16% 90% 15% 20% 10% 11% 80% 80% 16% 6% Financials 11% 14% 17% 70% 70% 12% 20% Africa 12% 60% 13% Energy/Natural 60% Resources Middle East 20% 50% 14% 50% Latin America 16% Healthcare 40% 40% Asia 73% 19% Mfg/Industrial 65% 30% 30% 58% Europe 20% 42% 20% North America 37% Consumer/Retail 10% 24% 10%

0% IT/Media 0% PE NAV Cambridge MSCI ACWI PE NAV Cambridge MSCI ACWI IMI PE/VC Bmrk IMI PE/VC Bmrk

Source: Cambridge Associates 4 Private Equity Asset Class Performance Asset Class - Net Managed and Benchmark Returns (IRRs) as of March 31, 2019

20.0% 16.7% 16.7% 16.0% 14.6% 14.4%

15.0% 13.4% 13.1% 11.6%

10.0% 9.1%

5.0% 3.6%

0.0%

-5.0% 1 Year 3 years 5 years 10 years Since Inception

Private Equity Asset Class Benchmark

Note: Asset class IRR performance data is provided by Cambridge Associates. Benchmark IRRs are provided by the Florida State Board of Administration. The PE benchmark is currently the Custom Iran- and Sudan-free ACWI IMI + 300bps. From July 2010 through June 2014 the benchmark was the Russell 3000 + 300 bps. Prior to July 2010 , the benchmark was the Russell 3000 + 450 bps. Prior to November 1999, Private Equity was part of the Domestic Equities asset class and its benchmark was the Domestic Equities target index + 750 bps. 5 Sub-strategy Performance As of March 31, 2019

1yr 3yr 5yr 10yr Since Inception Benchmark U.S. Buyouts 14.9% 19.5% 15.3% 16.6% 12.4% 12.1% Non-U.S. Buyouts 11.1% 16.2% 13.4% 14.5% 11.3% 10.9% U.S. Venture 21.2% 13.9% 14.7% 14.4% 12.0% 10.8% U.S. Growth Equity 21.0% 18.4% 17.2% 17.2% 14.1% 14.0% Non-U.S. Growth Equity 10.7% 11.8% 9.4% 8.2% 8.0% 12.7% Distressed/Turnaround 3.6% 12.6% 11.1% 18.4% 19.5% 9.9% Secondaries 4.5% 12.3% 10.2% 12.9% 15.5% 14.3%

Total PE Asset Class 14.6% 16.7% 14.4% 16.0% 13.1% 12.3%

Sub-strategy returns and benchmark returns provided by Cambridge Associates and are calculated net of all fees and expenses. The Cambridge benchmark is the median return for the respective sub-strategy.

6 2019 Commitment Activity • Commitments totaling $1.0 billion to 14 funds through June 30, 2019 – $720 million to 11 buyout funds • Small 32%, Middle-Market 34%, Large 34% – $225 million to 2 distressed funds – $66 million to 1 venture fund

– Geographic Focus • US 60%, Europe 14%, Asia 11%, Global 14%

7 Appendix

8 Private Equity Aggregates Dollar-Weighted Performance (IRRs) as of March 31, 2019

Market Value Since Inception Date (in Millions) 1yr 3yr 5yr 10yr Inception Total Private Equity 1/27/1989 $11,785.1 14.6% 16.7% 14.3% 14.8% 9.7% Custom Iran- and Sudan-free ACWI IMI +300bps 3.6% 13.4% 9.0% 17.0% 10.7%

Private Equity Legacy Portfolio 1/27/1989 $9.1 -1.8% -4.2% -4.8% -8.1% 3.7% Custom Iran- and Sudan-free ACWI IMI +300bps 4.8% 13.6% 8.5% 19.0% 9.9%

Private Equity Asset Class Portfolio 8/31/2000 $11,775.9 14.6% 16.7% 14.4% 16.0% 13.1% Custom Iran- and Sudan-free ACWI IMI +300bps 3.6% 13.4% 9.1% 16.7% 11.6%

Note: Asset class IRR performance data is provided by Cambridge Associates. Benchmark IRRs are provided by the Florida State Board of Administration. The PE benchmark is currently the Custom Iran- and Sudan-free ACWI IMI + 300bps. From July 2010 through June 2014 the benchmark was the Russell 3000 + 300 bps. Prior to July 2010 , the benchmark was the Russell 3000 + 450 bps. Prior to November 1999, Private Equity was part of the Domestic Equity asset class and its benchmark was the Domestic Equity target index + 750 bps.

9 State Board of Administration

Strategic Investments Asset Class Review

Trent Webster Senior Investment Officer – Strategic Investments

Investment Advisory Council Meeting September 11, 2019 Portfolio

3 Performance

4 Performance

5 Recent Activity

• Quarterly cash outflow was $492 million • Fiscal year cash outflow was $479 million • Seven funds totaling $745 million were closed in the most recent quarter • One fund totaling $200 million has been closed this quarter • Twelve funds totaling $1.925 billion are in the pipeline

6 Pipeline

• Four Equity funds – Three Long/Short Equity, one SI Private Equity • Four Debt funds – Three Subordinated Capital, one Distressed • Three Real Asset funds – One each in Infrastructure, SI Real Estate and Transportation • One Flexible Mandates fund – Multi-Strategy

• Eight new relationships • Eight private markets strategies • Four hedge funds

7 Investment Themes

• Insurance markets hardening • Emerging Markets infrastructure tailwinds • Covenants? What covenants? • Watching the BBB bond market • Lack of capital in commodities – Energy most hated group – Coming shortage in copper

8 FRS INVESTMENT PLAN FRS Investment Plan Snapshot (as of June 30, 2019) • Assets: $11.2 B (3.7% increase since June 30, 2018)  3.08 % - 2nd Quarter 2019 Return  13.04% - Calendar Year 2019 Return (Since December 31, 2018)  5.24 % - Fiscal Year to date (Jul 18 – Jun 19) • Members: 213,213 (up 11.8% since June 30, 2018)  Active – 148,161  Inactive – 65,052 • Average Acct Balance: $52,723 (7% decrease since June 30, 2018) • Average Age: 46  Males – 47 (36% of members)  Females – 46 (64% of members) • Average Yrs of Service: 5 Years (active members) • Retirees: 138,718 (9% increase since June 30, 2018) • Distributions: $13.1 B  Lump Sum Payouts – 40%  Rollovers – 60% 3 FRS Investment Plan AUM by Asset Class (as of June 30, 2019 in $ millions)

Total Assets: $11.2 Billion International/Global Domestic Equity Equity Funds, $736, 7% Funds, $3,042, 27% Fixed Income Funds, $645, 6%

Inflation Adjusted Multi-Assets Fund, $116, 1% Money Market Fund, $953, 8%

Retirement Date Self-Directed Funds, $5,048, 44% Brokerage Accounts, $701, 6% Asset allocation is a result of member investment selection 4 FRS Investment Plan Performance by Asset Class (as of June 30, 2019)

QTD FYTD 1 Year 3 Years 5 Years Inception

Total Fund 3.08% 5.24% 5.24% 9.34% 5.86% 6.95% Money Market 0.65% 2.52% 2.52% 1.68% 1.11% 1.58% Inflation Adjusted 0.65% Assets & TIPS 1.84% 2.04% 2.04% 3.71% 0.65% (7/1/14) Fixed Income 3.12% 8.08% 8.08% 3.38% 3.36% 4.84% Domestic Equities 3.81% 6.79% 6.79% 14.13% 9.92% 10.14%

Global & Intl Equities 3.19% 1.59% 1.59% 10.31% 3.69% 8.13% Retirement Date Funds 3.09% 5.43% 5.43% 8.96% 5.31% 5.31% 6.32% TF x RDFs 3.06% 5.05% 5.05% 9.67% 6.32% (7/1/14) 5 FRS Investment Plan Membership Growth Percent Membership Growth Year to Year

220,000

213,213 200,000 11.8%

190,664 180,000 7.6% 177,218 4.5% 160,000 169,576 163,456 3.7% 3.9%

140,000 FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19

6 MyFRS Financial Guidance Program (as of June 30, 2019)

INVESTMENT EDUCATION

EY FINANCIAL # FINANCIAL ATTENDANCE WEBSITE PLANNER PLANNING FINANCIAL WEBSITE HITS CALLS WORKSHOPS WORKSHOPS CHATS 2,526,882 317,848 534 18,496 61,871

+9% -1% +11% -3% +38%

(% change from previous 12 months)

21 Annuities purchased last 12 months ($3.89 million) 131 Total Annuities purchased inception to date ($17.9 million)

7 Questions? Investment Programs & Governance (IP&G) Michael McCauley Senior Officer

Investment Advisory Council Meeting – September 11, 2019 Corporate Governance Summary—FY2019

Proxy Voting Activity: o Voting conducted in 80 markets / 11,341 meetings voted / 106,793 distinct ballot items voted o Proxy contest at EQT o Annual Report (abbreviated)

Fiscal Ballot FOR AGAINST FOR FOR Compensation FOR All Shareowner Meetings Year Items Votes Management Directors Items Proposals

2015 10,296 99,320 75.6% 23.3% 75.1% 53.4% 41.8%

2016 10,300 97,000 46.5% 22.2% 78.5% 51.2% 41.0%

2017 10,445 100,847 78.7% 19.1% 79.2% 61.9% 36.2%

2018 11,026 102,367 79.2% 19.4% 78.0% 65.8% 51.9%

2019 11,341 106,793 79.4% 19.3% 77.9% 66.8% 54.9% 3 2019 Proxy Season

SBA Governance Standard—Fewer than 4 Boards S&P 500 Index—All Firms have 1 or More Women Directors

4 Trends in U.S. Corporate Governance

5 Appendix

SBA Corporate Governance Statistics Trends in Board Structure

7 Trends in Board Structure

8 SBA Proxy Voting Summary—Q2/2019

9 SBA Proxy Voting Summary—Q2/2019

10 Investor Activism Trends

Source: Lazard, “Review of Shareholder Activism H1 2019.” 11 Investor Activism Trends

Source: Lazard, “Review of Shareholder Activism H1 2019.” 12 CORPORATE 2019GOVERNANCE SUMMARY REPORT (ABBREVIATED)

INVESTING FOR FLORIDA’S FUTURE 2 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Our mission is to provide superior investment management and trust services by proactively and comprehensively managing risk and adhering to the highest ethical, fiduciary, and professional standards.

SBA Corporate Governance The SBA’s corporate governance activities are focused on enhancing share value and ensuring that public companies are accountable to their shareowners with independent boards of directors, transparent disclosures, accurate financial reporting, and ethical business practices designed to protect the SBA’s investments. Under Florida law, the SBA manages the funds under its care according to fiduciary standards similar to those of other public and private pension and retirement plans. The SBA must act in the best interests of the fund beneficiaries. This standard encompasses all activities of the SBA, including the voting of all proxies held in funds under SBA management. 3 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

The annual corporate governance summary explains how the State Board of Administration (SBA) makes proxy voting decisions, describes the process and policies used to analyze corporate governance practices, and details significant market issues affecting global corporate governance practices at owned companies. As part of the SBA’s mission to invest, manage and safeguard the assets of its various mandates, the SBA plays a vital role in supporting initiatives to ensure that public companies meet high standards of independent and ethical corporate governance. The SBA acts as a strong advocate and fiduciary for Florida Retirement System (FRS) members and beneficiaries, retirees, and other non-pension clients to strengthen shareowner rights and promote leading corporate governance practices at U.S. and international companies in which the SBA holds stock. 4 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Table of Contents

Introduction 6

Interactive Voting Dashboard 8

Investor Stewardship Group 9

Proxy Voting Review 10

Active Ownership 14

Highlighted Proxy Votes 16

Global Voting by Market 22 5 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

SBA Corporate Governance By The Numbers

11,341 Number of eligible votes on public company proxies 80 Number of countries where SBA cast votes on public company proxies 79.4% Percentage of global meeting voting items cast as “FOR” 2.2% Percentage of company ballots not voted due to impediments, liquidity restrictions, or other obstacles 106,793 Total number of distinct voting decisons across all ballot items. 19.3% Percentage of all voting items cast against the management recommendation 6 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Introduction

As part of the SBA’s mission to invest, manage, and During fiscal year 2019, SBA staff cast votes at 11,341 safeguard the assets of its various mandates, the SBA companies worldwide, voting on ballot items including plays a vital role in supporting initiatives to ensure that director elections, audit firm ratification, executive public companies meet high standards of independent compensation plans, mergers & acquisitions, and a and ethical corporate governance. The SBA acts as variety of other management and shareowner proposals. a strong advocate on behalf of FRS members and Voting levels in fiscal year 2019 rose by 2.9% over beneficiaries, retirees, and other clients to strengthen last year. These votes involved 106,793 distinct voting shareowner rights and promote leading corporate items—voting 79.4% “For’’ and 18.4% “Against”, with governance practices at U.S. and international the remaining 2.2% involving abstentions. Of all votes companies in which the SBA holds stock. cast, 19.3 percent were “Against” the management- recommended-vote. SBA proxy voting was conducted In addition to proxy voting, the SBA actively engages across 80 countries, with the top ten countries companies it invests in throughout the year, at times comprised of the United States (2,875 votes), Japan maintaining a year-round dialogue and analysis of (1,386), China/Taiwan (1,092), India (649), South Korea corporate governance issues and other reforms. (599), United Kingdom (411), Cayman Islands (337), Engagement by investors can be a very effective way Canada (336), and Brazil (203). The SBA actively to advocate for positive changes and improve reporting engages portfolio companies throughout the year, by the companies in which the SBA invests. Improved addressing corporate governance concerns and seeking corporate disclosures are a key objective of SBA opportunities to improve alignment with the interests of engagement, as transparent and improved comparability our beneficiaries. can help all shareowners make better investment decisions. The SBA provides disclosures across a wide variety of corporate governance activities, research, and subject The SBA’s corporate engagement activity addresses matter. Historical information, including prior report corporate governance concerns and seeks opportunities segments, proxy voting, and other information can to improve alignment with the interests of our be found within the governance section of the SBA’s beneficiaries. website, available at www.sbafla.com.

The SBA’s governance philosophy encourages companies to adhere to responsible, transparent practices that correspond with increasing shareowner value and to appropriately consider the input of their shareowners. The SBA’s corporate governance activities are focused on enhancing share value and ensuring that public companies are accountable to their shareowners with independent boards of directors, transparent disclosures, accurate financial reporting, and ethical business practices designed to protect the SBA’s investments. 7 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

FOREWORD BY THE CHAIR

INDEED, THE SHAREHOLDER’S RIGHT TO VOTE IS THE FOUNDATION UPON WHICH THE PUBLIC CORPORATION IS CONSTRUCTED AND SUSTAINED. ACCORDING TO THIS APPROACH, SHAREHOLDER SUFFRAGE IS A FUNDAMENTAL RIGHT AND SHOULD THEREFORE BE GRANTED SPECIAL STATUS AND PROTECTION UNDER CORPORATE LAW. — DOV SOLOMON, RAMAT GAN LAW SCHOOL 8 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Interactive Voting Dashboard

During the first quarter of 2019, SBA staff finalized a against-management metrics are included by country new reporting tool allowing anyone to analyze SBA and region, or any other custom group of capital markets proxy voting data over multiple time horizons (data selected by the user. The voting dashboard includes from July 1, 2016 through December 2018) and to filter statistical breakouts with the year-over-year change in and screen voting by date, market, region, and voting voting percentages. The voting dashboard is updated category. Individual company voting histories with notes quarterly (now includes information through March 31, are available for users to view, with sorting by meeting 2019), and future enhancements include new dimensions date, record date and country of origin. Geographic such as market capitalization, industry classification, and analysis is also offered, along with a breakdown of voting other corporate governance factors. Please visit the SBA’s by meeting type (contested, annual, consent, etc.). Votes- website to use the voting dashboard. 9 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Investment Stewardship Group

On January 31, 2017, a coalition of sixteen investors with collectively $17 trillion in assets under management premiered the ISG’s Framework for U.S. Stewardship and Governance, representing a set of six fundamental governance principles for U.S. listed companies and stewardship principles for U.S. institutional investors.

The initiative establishes a set of best structures and practices that enhance WHO WE ARE practices in asset stewardship and their effectiveness; and (6) Boards should The ISG originally comprised the corporate governance which will serve develop management incentive structures following organizations: BlackRock, as the foundation of U.S. institutional that are aligned with the long-term CalSTRS, Cal Regents, Florida SBA, investor and boardroom conduct. A strategy of the company. GIC Private Limited (Singapore’s multitude of renowned empirical studies Sovereign Wealth Fund), Legal and have highlighted a causal relationship STEWARDSHIP PRINCIPLES General Investment Management, between companies with high The six stewardship principles within MFS Investment Management, MN governance standards and increased the Framework include: (1) Institutional Netherlands, PGGM, Royal Bank of shareholder returns. The Framework is investors are accountable to those Canada (Asset Management), State Street Global Advisors, T.Rowe Price the first corporate governance code of whose money they invest; (2) Institutional Associates, Inc., TIAA, Wellington best practices that has been developed investors should demonstrate how they Asset Management, Washington for the U.S. equity market. evaluate corporate governance factors State Investment Board (WSIB), with respect to the companies in which ValueAct Capital, and The Vanguard The Framework is intended as a they invest; (3) Institutional investors Group. “comply or explain” format, similar to should disclose, in general terms, how several European markets’ governance they manage potential conflicts of interest Since its launch in January 2017, over codes—whereby firms either meet the that may arise in their proxy voting and a dozen asset owners and asset managers have endorsed the ISG Framework’s requirements or provide engagement activities; (4) Institutional Principles. shareowners with an explanation on investors are responsible for proxy voting why non-compliance is necessary. The decisions and should monitor the relevant Framework has an implementation date activities and policies of third parties of January 1, 2018. The ISG is inviting that advise them on those decisions; (5) every institutional investor and asset Institutional investors should address management firm in the U.S., including and attempt to resolve differences international investors operating in this with companies in a constructive and market, to join by signing the principles at pragmatic manner; (6) Institutional www.isgframework.org. investors should work together, where appropriate, to encourage the adoption GOVERNANCE PRINCIPLES and implementation of the Company and The six governance principles within Stewardship Principles. the Framework include: (1) Boards are accountable to shareholders; (2) Shareholders should be entitled to voting rights in proportion to their economic interest; (3) Boards should be responsive to shareholders and be proactive in order to understand their perspectives; (4) Boards should have a strong, independent leadership structure; (5) Boards should adopt 10 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

SBA Proxy Voting

Number of meetings voted in global markets by month:

1,400 USA

1,200 Japan

1,000

800

600 Korea

400

India 200 China

0 July'18 Aug Sep Oct Nov Dec Jan'19 Feb Mar Apr May Jun

96.7% Votes For Mergers/Acquisitions 78.9% Votes Against Golden Parachutes (Severance)

Highlights from the 2019 proxy season included an increased focus on human capital issues (such as workforce diversity and employment practices), continued dissent on compensation plans (primarily in the U.S. market), and an overall decline in the number of environmentally-related proposals. 11 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Particular attention is paid to decisions related to director elections, proxy contests, executive compensation structures, corporate anti-takeover measures, and 22.1% proposed mergers or other material corporate restructuring.

SBA Proxy Voting - Major Statistics

Year-over-Year Voting Category # / % % Change Votes to withold support # of Meetings 11,341 +2.8

# of Votes 106, 793 +4.32 or vote against individual

% Votes "For" 79.4 +0.34 board nominees.

% Votes "Against"/"Withhold" 18.4 -0.9

% Votes Against Management 19.3 -0.24

% Votes in Favor of Directors 77.9 -0.05

% Votes in Favor of Auditors 98.9 +0.16

% Votes in Favor of Merger& Acquisition Items 96.7 +16.1

Aggregate voting levels increased by over 300 meetings across all voted markets. +2.8% 12 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

SBA Proxy Voting - Fiscal Year 2019

Against or Voting Category For % Withhold % Abstain %

Audit/Financial 93.1 6.0 0.9

Board Related 77.5 20.7 1.4

Capital Management 78.7 20.8 0.4

Change to Company Statutes 90.4 8.2 1.5

Executive Compensation 68.5 31.0 0.5

Mergers & Acquisitions 95.5 3.5 1.0

Meeting Administration 87.9 88.3 0.2

Other 48.1 12.0 39.9

Shareowner Proposals: Executive Compensation 54.0 45.2 0.8

Shareowner Proposals: Environment 42.0 55.6 2.5

Shareowner Proposals: Corporate Governance 57.3 39.4 3.2

Shareowner Proposals: Miscellaneous (Other) 20.0 80.0 0

Shareowner Proposals: Social 61.1 38.9 0

Proxy Voting

The SBA takes steps on behalf of its participants, beneficiaries, retirees, and other clients to strengthen shareowner rights and promote leading corporate governance practices among its equity investments in both U.S. and international capital markets.

The SBA uses clear and consistent policies to guide its voting decisions on all issues. Our Corporate Governance & Proxy Voting Guidelines are reviewed continually, approved by SBA Trustees annually, and publicly disclosed for all beneficiaries, clients, and interested parties. The proxy vote is a fundamental right tied to owning stock and an integral part of managing assets in the best interests of fund clients and beneficiaries. Pursuant to Florida law and in step with guidance from the U.S. Department of Labor, the SBA’s fiduciary responsibility requires proxies to be voted in the best interest of fund participants and beneficiaries. The SBA casts votes for portfolio holdings managed within both the defined benefit and defined contribution plans of the Florida Retirement System (FRS), as well as other non-pension trust funds. For omnibus accounts, including open-end mutual funds utilized within the FRS Investment Plan, the SBA votes proxies on all shares for funds that conduct annual shareowner meetings. 13 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Use of Proxy Research

The SBA utilizes company research from several proxy advisory firms in conjunction with its own in-house proxy voting guidelines to make voting decisions. During the 2019 fiscal year, the SBA retained several leading proxy advisory and governance research firms: EIRIS, Equilar, Inc., Glass, Lewis & Co. (“GLC”), FactSet Research, Institutional Shareholder Services (“ISS”), IWFinancial, MSCI ESG Research, and Sustainalytics. The SBA uses the research of these firms to help analyze individual voting items and monitor boards of directors, executive compensation levels, and other significant corporate governance practices at owned companies. Since 2016, the SBA has used GLC’s ViewPoint proxy voting platform to cast votes at global companies. In addition to using the ViewPoint system to execute proxy votes, the SBA subscribes to specific research and analysis of proxy issues and meeting agendas on all publicly-traded equity securities from both ISS and GLC. 14 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Active Ownership

The SBA attempts to engage proactively, as In April 2019, SBA staff participated in a panel appropriate, with investee companies on risks to long- discussion on ESG investing at the Pension Bridge term performance in order to advance beneficiary or investment conference. client interests. The SBA routinely engages portfolio companies on a variety of issues and often collaborates In May 2019, SBA staff participated in a panel with other pension or investor funds, including external discussion on corporate governance and engagement investment managers, when possible. The SBA actively at the ESG Investing conference hosted by Pensions & engages companies throughout the year, maintaining a Investments. The conference covered practical themes dialogue and analysis of corporate governance issues for corporate governance and ESG investing, including and other reforms. An engagement of this type can be data integration, risk assessment, and techniques for a very effective way to advocate for positive changes factor integration. and improve reporting by the companies in which the SBA invests. Many companies seek out their largest In February 2019, SBA staff participated in the shareowners to discuss pressing concerns and current International Corporate Governance Network (ICGN) governance topics. spring mid-year conference. The meetings covered general corporate governance topics, with a focus on During the 2019 fiscal year, SBA staff conducted proposed takeover regulations in the Netherlands. engagements with over 100 companies owned within Florida Retirement System (FRS) portfolios, including In March 2018, SBA staff participated in the Council of Compass Group PLC, Microsoft, Coca-Cola, Prudential, Institutional Investors (CII) spring conference, speaking Bank of Yokohama, Chevron, Bank of America, ENI, on several panels. The event covered a variety of Amgen, Ethan Allen, Oracle, The Goldman Sachs corporate governance issues such as governance in Group, JPMorgan, RTI Surgical, Boeing, Terna Group emerging markets, comparative ownership structures, SpA, Regions Financial Corporation, Red Electrica, and block-chain voting ledgers, and current SEC and stock Time Warner. As part of evaluating voting decisions exchange proposals. for several proxy contests, SBA staff also met with a number of activist hedge funds, including Red Mountain In September 2018, SBA staff participated as a speaker Capital (proxy campaign at iRobot), Harvest Capital in the 2018 ValueEdge Advisors Public Funds Forum, (proxy campaign at Green Dot), and SilverArrow Capital which included presentations and panel discussions (proxy campaign at Rofin-Sinar Technologies). covering global investment risks and opportunities, corporate governance issues, divestment versus Staff periodically participates in investor and corporate engagement, asset allocation, and risk modeling. governance conferences. Typically, these events include significant involvement by corporate directors, In October 2018, SBA staff participated in simultaneous senior members of management, and other key investor events offered by the Council of Institutional Investors, or regulatory stakeholders. The following items detail Investor Stewardship Group (ISG), and International involvement at events that occurred during the last Corporate Governance Network (ICGN) covering a fiscal year: wide variety of corporate governance, stewardship, and other investment topics. In June 2019, SBA staff participated in a panel on the role of stewardship and engagement at an MSCI- In July 2018, SBA staff participated in the Center hosted seminar for Governance Week. on Executive Compensation’s discussion call titled, “Investor Scrutiny of Long-Term Incentive Effectiveness In June 2019, SBA staff participated in the Harvard and the Growing Debate over Simplification.” Law School Institutional Investor Forum’s Shareholder Engagement Roundtable.

In April 2019, SBA staff was appointed to the Independent Steering Committee of Broadridge Financial Services. The Steering Committee is an oversight body charged with monitoring the performance, voting accuracy and readiness of Broadridge in conducting the U.S. street name proxy system on behalf of the nation’s banks and brokers. 15 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

AS ORGANIZATIONS SEEK TO DEMONSTRATE THEIR PURPOSE, MANY FIRMS WILL FACE PRESSURE TO DEMONSTRATE EMPATHY AND VALUE AND TO WORK TO ESG PRINCIPLES. INCORPORATING THESE PRINCIPLES IS NOT A SIMPLE TASK; IT MEANS MAKING JUDGMENTS ABOUT RISK, WHICH IS A SPECIALIZED FINANCIAL ANALYSIS SKILL. AT THE SAME TIME, SCIENCE CAN BE USEFUL TO UNDERSTAND INVESTMENT IMPLICATIONS IN THE PHYSICAL WORLD. MAKING ESG PRINCIPLES A FACTOR IN INVESTING IS A NEW AND NECESSARY TECHNOLOGY IN THE INVESTMENT PROCESS, WITH NEW METHODS AND TOOLS TO BE APPLIED. AS WE GRADUALLY GET THE FULLER DATA ON COMPANIES IN THIS REGARD, IT ENABLES ESG FACTORS TO BE INTEGRATED EFFECTIVELY. — CFA INSTITUTE, ‘FUTURE STATE OF THE INVESTMENT PROFESSION’ APRIL 2017 16 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

highlighted The SBA makes informed and independent voting decisions at investee companies, applying due care, intelligence, and judgment. The SBA PROXY makes all proxy voting decisions independently, casting votes based on written, internally- developed corporate governance principles and VOTES proxy voting guidelines that cover all expected ballot issues. Every voting policy is reviewed The SBA’s proxy voting guidelines and approved by the SBA’s Investment Advisory reflect its belief that good corporate Council and Board of Trustees on an annual governance practices will best serve basis. The SBA ordinarily seeks to exercise all and protect the funds’ long-term voting rights tied to its investments. investments.

Bayer AG At the company’s April 26, 2019 annual general meeting, the management proposal to approve the discharge of the Management Board failed. The discharge ballot item received approximately 44% of votes in favor. As reported by Proxy Insight, “In a first for Germany’s postwar corporate history, Bayer’s shareholders gave a vote of no confidence to the company’s bosses. Under German law, voting against discharge is one of the strongest forms of signaling dissatisfaction with management available to investors. Bayer’s Werner Baumann is the first CEO of a Dax (German stock exchange) listed company to receive this form of no confidence vote.” SBA staff voted against the ratification of management board acts, given the potential long-term reduction to shareowner value and considerably higher risk levels that management has incurred with the Monsanto purchase and associated glyphosate- related lawsuits. Bayer now faces over 13,000 glyphosate-related legal claims. The company announced it will schedule a special meeting in the next few months in response to the unprecedented lack of support for its board members. Bayer’s total market capitalization is now trading below the value it paid for Monsanto— declining by over 40% at one point since the Monsanto acquisition was completed in June 2018. Some German investors are voicing a desire to revamp the company’s supervisory board and possibly restructure its operations, including the potential to spin-off its pharmaceutical unit. During the shareowner meeting, Supervisory Board Chairman Werner Wenning said the firm was working to improve the knowledge of crop-science among its board members. 17 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Volkswagen AG The May 3, 2019 annual meeting of Volkswagen AG reflected ongoing concerns regarding board stewardship in the wake of the VW emissions scandal. Former CEO Martin Winterkorn has now been indicted both in the US and in Germany for his role in the diesel fraud, while VW and subsidiaries have been fined approximately EUR 2 billion by German regulators. Nevertheless, the VW board has provided minimal transparency for investors, and actually reduced the number of independent board directors to zero. In 2018, the all-important audit committee shifted from 25% independence to 0%. In addition, Volkswagen has taken other steps to limit shareowner input, including the requirement that foreign investors submit proxy vote instructions in written format, along with mandatory power of attorney forms. For the May 3rd AGM, SBA staff cast a vote against all board members and supervisory board members for failure to act in the interests of shareowners and failure to maintain majority independent committees, particularly the audit committee in light of ongoing investigations. The SBA has witheld support for a majority of the supervisory and management board members since 2016.

A vote was also cast against the reappointment of statutory auditor due to excessive non-audit fee revenue to the auditor, creating the potential for conflicts of interest or reduced independence of the statutory auditor. Volkswagen is considered a controlled company, with approximately 43% of shares held by Porsche and the German State of Lower Saxony.

Despite the unusual occurrence of ISS and Glass Lewis both recommending against the full board, Volkswagen reported that all directors received over 98% support at the May 3rd AGM.

Shares in the German carmaker have lost almost 16% of its value over the last five years through June 2019. VW has underperformed all large car makers in Europe with the exception of Renault. 18 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

FCB Financial Holdings and LaSalle Hotel Properties For the November 29, 2018 and November 27, 2018 annual meetings respectively, investors roundly rejected the advisory vote on “golden parachutes”, which are compensation packages related to mergers and acquisitions. More than 70% and 66% of investors voted against the plans at the companies, respectively. Golden parachute plans often have excessive terms that take a large chunk of shareowner value for senior executives, leading to many failed votes. The plan at FCB Financial Holdings was recently revised to change provisions to allow executives a windfall of tens of millions in compensation despite them keeping their employment in the merged company. Originally, the plan terms permitted the payments only if the executives departed the company, which is a standard practice. The plan at LaSalle Hotel Properties was rejected by investors due to several poor practices, including over $60 million in payouts to three executives, including company payment of taxes (known as gross-up payments), bonus payments of more than 100% of target, accelerated vesting of equity awards provided at above-target payouts, and generally poor alignment between compensation amounts and company performance. Unfortunately, say-on-pay votes for golden parachute plans are legally non-binding, and quite often the payments are made to executives regardless of the voting results.

EssilorLuxottica Essilor and Luxottica merged in 2017, but with eight board members from each entity the new company has struggled to establish clear leadership and clashed on the appointment of the next CEO. At the May 16, 2019 AGM, several asset managers came together in an attempt to bring direction to the board with the proposal of two new independent directors. The asset managers included one of SBA’s external equity managers, Baillie Gifford, along with Comgest, Fidelity International, Sycomore AM, Guardian Capital, Edmond de Rothschild AM and Phitrust. SBA voted in support of the two independent directors this group proposed, Jesper Brandgaard, former CFO of Novo Nordisk, and Wendy Lane, current board member at Willis Towers Watson and MSCI. Final vote results showed 35% support for director Brandgaard, and 43.7% for director Lane. While short of the required majority to be added to the board, this still represents a strong result and investors continue to request the company add these independent directors to the board to solidify strategy and leadership in the interest of long-term investors. 19 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Hain Celestial Group For their December 5, 2018 annual meeting Hain Celestial’s advisory vote on executive compensation passed by a slim margin, with 50.6% support. SBA staff voted against the annual say on pay agenda item because of poor alignment between pay and performance, poor disclosure, and excessive severance pay to the outgoing CEO. We also voted against two directors for holding too many directorships, including a CEO who is on three public company boards, and we voted against an additional director for engaging in material related party transactions that personally enrich the director. The company is also under SEC investigation due to its accounting and audit practices and is the subject of multiple class action and derivative lawsuits over materially false or misleading statements and breach of fiduciary duty, among other complaints.

American Funds For their November 28, 2018 annual meetings, SBA staff voted shares owned within the FRS Investment Plan. For American Funds mutual funds New Perspective and Euro-pacific Growth, SBA staff cast votes in support of all director nominees with the exception of Ms. Chang, Mr. Gonzalez Guajardo, and Mr. Ovi—each director had support withheld due to concerns with the high number of outside directorships and overall time commitment of their management service. Applied to both the FRS Pension Plan and FRS Investment Plan is the SBA corporate governance principle and proxy voting guideline covering multiple simultaneous directorships (a.k.a. “over- boarded” directors). The SBA’s policy limits simultaneous board service to less than four directorships. Trustee elections were the only ballot item up for a vote and this was the first shareowner meeting held by the funds since 2009.

American Outdoor Brands For its September 25, 2018 annual meeting, SBA staff voted in favor of an investor resolution asking the company’s board to report on measures it is taking to strengthen gun safety and mitigate harm associated with gun products (Smith & Wesson). The proposal requests the company report by Feb. 8, 2019 on: 1) its monitoring of violent events associated with its products; 2) efforts to research and produce safer guns and gun products; and 3) its assessment of the corporate reputational and financial risks related to gun violence. The proposal was the second of its kind that received majority support in 2018. 20 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Sandridge Energy Inc. The June 19, 2018 annual meeting provided a contested election of directors, with the dissident slate nominated by activist investor Carl Icahn. SBA staff supported three of the seven dissidents nominated by Icahn and five of the six management candidates. Governance concerns, underperformance, and strategy errors at Sandridge supported the case for additional board leadership, but staff was concerned with supporting Icahn’s full slate, as this would provide a de facto board takeover with no change-in-control premium paid to investors. Upon vote tabulation of all shareowners, Icahn won control of the Sandridge board with four dissident directors elected and agreement by the board to add one additional dissident due to the close nature of the vote. For this contest, Sandridge took the unusual step of providing a universal ballot for the selection of directors, allowing investors to choose their preferred combination of activist and incumbent directors. In most proxy contests, investors are restricted to either the incumbent slate or the dissident slate of directors, but a universal proxy allows more flexibility in choosing the most qualified set of candidates from both slates. The SBA voted against Sandridge’s proposed poison pill and the advisory vote on compensation, both of which were also rejected by shareowners.

Innovate Biopharmaceuticals The December 4, 2018 annual meeting of Innovate Biopharmaceuticals included a number of management proposals to significantly reduce shareowner rights and protections. Despite a significant drop in share price since a 2018 reverse merger with Monster Digital Inc., all proposals received majority support due to the large number of shares controlled by insiders. While a de minimis holding in the overall portfolio, the meeting shows some of the cautions for minority shareowners. SBA staff voted against the management proposals to classify the board, limit special meetings, eliminate written consent, prohibit director removal without cause, and require a supermajority vote of shareowners.

Comcast Corp. The SBA withheld support from six of ten Comcast directors at the June 11, 2018 annual meeting due to a variety of governance concerns. Support was withheld from one director serving on the audit committee as an affiliated, non-independent director; two directors were over-boarded – serving on four total boards while being fully employed, with insufficient time to fulfill all relevant duties; and three directors on the compensation committee failed to receive support due to ongoing compensation issues. Similarly, an advisory vote was cast against the executive compensation plan due to a disconnect between Comcast pay and performance, insufficient disclosure of relevant performance goals, and substantial discretionary options awards over multiple years. The SBA also supported a shareowner proposal to increase transparency of corporate funds used for lobbying and trade association payments. 21 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Ellaktor SA

On July 25, 2018, Greece’s largest construction company faced a proxy contest for all directors. With a market capitalization of approximately $300 million, Ellaktor represents an international small-cap holding and the potential governance reforms needed in many such markets. In reaction to the proxy contest, Ellaktor instituted basic governance reforms such as increased board independence and the creation of audit, nomination, and remuneration committees. The proxy contest provided a difficult choice for shareowners, with both slates led by key company insiders with large stakes in the company. SBA staff supported the dissident slate due to ongoing governance concerns with incumbent management, including the CEO facing felony charges of tax evasion and money laundering in 2015 and 2017. Shareowners as whole elected the dissident slate with 53% of the vote. The new board announced that first steps would include governance based on international best practices, focus on long-term value creation, and appointment of the firm’s first chief financial officer.

EQT On July 10, 2019, shareholders at EQT Corporation voted more than 80% of their shares for a controlling slate of seven directors nominated by a shareholder group led by Toby Z. Rice, Derek Rice, Will Jordan and Kyle Derham (the “Rice Team”). This contest involved the first use of a universal ballot for a controlling slate of directors in the United States. A universal ballot allows shareowners to vote among candidates nominated from either side, whereas traditional ballots only allow shareowners to select candidates proposed by one side—the company nominees or the dissident nominees.

The SEC has previously sought comments on a proposal to require the use of universal proxy cards in all contested elections but has yet to issue final rules, leaving the matter up to individual companies to decide in the meantime. The Rice team had sought to gain control of EQT, the largest natural gas producer in the U.S., less than two years after selling their own company, Rice Energy, to EQT for $6.7 billion. Dissatisfied with the company’s financial management, operating performance, and floundering share price, the Rice Team proposed a majority slate of seven members for the new board and suggested shareowners keep five members of the existing board, with former CEO of Rice Energy Toby Rice slated to become the new CEO of EQT.

In their analysis, the Rice Team cited a number of financial and operational missteps by the existing management of EQT, and staff at SBA held meetings with both EQT and the Rice Team before making the decision to cast votes to support all members of the Rice team slate. SBA also reviewed proxy voting recommendations and summaries from both ISS and Glass Lewis. The advisory services were split on their recommendations, with ISS backing the Rice Team and Glass Lewis backing the management team of EQT. SBA also voted against the “say on pay” compensation proposal and against the company’s proposed long-term incentive plan due to lack of rigorous performance formulas and substantial change in control payments, and high dilution levels, respectively. 22 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Global Voting Summary - Trailing Twelve Months Ending June 30, 2019

Country Global Equity Percentage of Total Number Total Number Percentage of All SBA % of Country (Market) Portfolio Ending All Meetings of Meetings of Resolutions Resolutions Voted Resolutions Market Value Voted Voted Voted Supported

Argentina $21,228,388.29 0.04% 5 9 0.01% 77.78% Australia $1,439,888,526.93 2.25% 256 1248 1.16% 85.66% Austria $122,948,538.68 0.25% 28 235 0.22% 85.53% Bahamas $34,720.00 0.02% 2 14 0.01% 85.71% Bahrain $8,450,153.69 0.02% 2 17 0.02% 76.47% Bangladesh $15,722,612.70 0.04% 5 24 0.02% 91.67% Belgium $254,722,158.60 0.62% 71 632 0.59% 74.68% Bermuda $303,676,019.52 2.27% 258 1631 1.51% 66.40% Brazil $1,067,681,689.64 2.65% 302 2312 2.14% 52.77% Canada $2,077,540,906.20 2.98% 339 3296 3.06% 79.92% Cayman Islands $694,820,980.11 2.96% 337 2743 2.54% 68.03% Chile $72,347,987.49 0.37% 42 332 0.31% 75.00% China $1,707,321,797.46 5.02% 571 5081 4.71% 87.92% Colombia $35,196,845.38 0.09% 10 112 0.10% 83.04% Croatia n/a 0.02% 2 14 0.01% 71.43% Cyprus $9,837,043.32 0.05% 6 63 0.06% 53.97% Czech Republic $6,080,544.66 0.04% 5 32 0.03% 81.25% Denmark $578,446,206.76 0.41% 47 662 0.61% 85.35% Egypt $49,371,881.98 0.29% 33 180 0.17% 52.78% Faroe Islands n/a 0.01% 1 12 0.01% 8.33% Finland $321,503,196.59 0.43% 49 484 0.45% 97.31% France $2,725,485,401.13 1.44% 164 3529 3.27% 82.60% Gabon $39,794.23 0.01% 1 12 0.01% 66.67% Germany $2,513,900,719.11 1.42% 161 1430 1.33% 90.77% Ghana $2,138,907.95 0.01% 1 12 0.01% 91.67% Greece $56,874,597.36 0.29% 33 246 0.23% 63.41% Guernsey $15,498,398.71 0.03% 3 23 0.02% 86.96%

Hong Kong $1,901,016,432.97 1.45% 165 1440 1.34% 64.58% Hungary $55,858,514.19 0.04% 4 79 0.07% 89.87% India $1,281,398,782.82 5.70% 649 3583 3.32% 71.64% Indonesia $251,467,813.92 1.66% 189 751 0.70% 58.06% Ireland $1,340,997,415.12 0.39% 44 354 0.33% 90.40% ISLE OF MAN $17,612,853.22 0.04% 4 76 0.07% 90.79% Israel $294,422,129.42 1.12% 128 509 0.47% 79.37% Italy $630,543,813.40 0.90% 102 630 0.58% 77.94% Japan $5,488,275,650.70 12.18% 1386 15447 14.32% 85.32% Jersey $49,730,085.49 0.22% 25 219 0.20% 87.21% Kazakhstan $4,386,980.40 0.02% 2 20 0.02% 90.00% Kenya $17,904,842.82 0.02% 2 20 0.02% 65.00% Korea, Republic of $1,231,656,257.86 5.26% 599 3601 3.34% 67.51% Kuwait $23,043,822.81 0.07% 8 69 0.06% 53.62% Liechtenstein $1,529,697.61 0.02% 2 14 0.01% 100.00% Luxembourg $153,712,577.45 0.37% 42 333 0.31% 91.59% 23 2019 Annual Corporate Governance Summary | [email protected] | www.sbafla.com

Country Global Equity Percentage of Total Number Total Number Percentage of All SBA % of Country (Market) Portfolio Ending All Meetings of Meetings of Resolutions Resolutions Voted Resolutions Market Value Voted Voted Voted Supported

Malaysia $109,871,242.66 1.65% 188 1640 1.52% 75.49%

Malta $5,778,776.55 0.01% 1 31 0.03% 77.42% Mauritius $2,671,771.01 0.01% 1 19 0.02% 68.42% Mexico $341,956,917.45 0.91% 103 675 0.63% 55.85% Morocco $6,825,750.30 0.02% 2 11 0.01% 100.00% Netherlands $1,662,342,132.29 0.88% 100 774 0.72% 92.12% New Zealand $96,863,354.20 0.26% 30 133 0.12% 85.71% Nigeria $42,992,361.21 0.09% 10 74 0.07% 70.27% Norway $311,386,675.43 0.48% 55 802 0.74% 8.98% Oman $2,940,191.46 0.02% 2 16 0.01% 62.50% Pakistan $10,254,146.12 0.09% 10 57 0.05% 59.65% Panama $55,873,248.48 0.04% 4 5 0.00% 100.00% Papua New Guinea $26,595.55 0.02% 2 10 0.01% 80.00% Philippines $121,499,872.13 0.61% 69 1235 1.15% 65.51% Poland $70,881,833.94 0.59% 67 939 0.87% 92.12% Portugal $85,221,951.45 0.11% 13 109 0.10% 89.91% Romania $26,382,212.81 0.16% 18 116 0.11% 77.59% Russian Federation $303,520,900.92 0.44% 50 586 0.54% 60.75% Singapore $434,477,286.89 1.04% 118 858 0.80% 82.28% South Africa $484,338,899.59 1.11% 126 2035 1.89% 89.14% Spain $619,380,158.77 0.55% 63 923 0.86% 87.97% Sri Lanka $8,824,594.28 0.04% 5 34 0.03% 64.71% Sweden $652,787,872.10 1.27% 145 1847 1.71% 81.97% Switzerland $2,340,784,382.39 1.08% 123 2341 2.17% 84.79% Taiwan $971,023,288.20 4.58% 521 4707 4.37% 85.60% Thailand $288,529,256.43 0.75% 85 965 0.89% 65.60% Turkey $137,050,430.23 0.47% 54 743 0.69% 78.20% United Arab Emirates $92,099,311.33 0.17% 19 213 0.20% 80.28% United Kingdom $4,437,582,119.94 3.61% 411 6024 5.59% 89.59% United States $53,617,376,954.06 25.29% 2878 28248 26.20% 76.79% Vietnam $58,695,491.51 0.10% 11 88 0.08% 79.55% Virgin Islands (British) n/a 0.08% 9 47 0.04% 57.45% WWW.SBAFLA.COM [email protected]

The State Board of Administration is a body of Florida state government that provides a variety of investment services to clients and governmental entities. These include managing the assets of the Florida Retirement System, the Local Government Surplus Funds Trust Fund (Florida PRIMETM), the Florida Hurricane Catastrophe Fund, and over 30 other fund mandates.

© Copyright 2019 State Board of Administration (SBA) of Florida State Board of Administration of Florida

Major Mandate Review Second Quarter 2019

Aon Hewitt | Retirement and Investment Inv estment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 1

Table of Contents

1. Executive Summary 2. Pension Plan Review 3. Investment Plan Review 4. CAT Fund Review 5. Lawton Chiles Endowment Fund Review 6. Florida PRIME Review 7. Appendix

Aon Hewitt | Retirement and Investment Inv estment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 2 Executive Summary

ƒ The major mandates each produced generally strong returns relative to their respective benchmarks over both short- and long-term time periods ending June 30, 2019. ƒ The Pension Plan outperformed its Performance Benchmark over the trailing one-, three-, five-, ten-, and fifteen- year periods. – Over the trailing five-year period, Global Equity is the leading source of value added, followed by Private Equity, Strategic Investments, and Real Estate. – Over the trailing ten-year period, the Pension Plan’s return ranked in the top quartile of the TUCS Top Ten Defined Benefit Plan universe. ƒ The FRS Investment Plan outperformed the Total Plan Aggregate Benchmark over the trailing three-, five-, and ten-year periods. ƒ The Lawton Chiles Endowment Fund outperformed its benchmark over the trailing three-, five-, and ten-year periods. ƒ The CAT Funds’ performance is strong over both short-term and long-term periods, outperforming the benchmark over the trailing three-, five-, and ten-year periods. ƒ Florida PRIME has continued to outperform its benchmark over both short- and long-term time periods.

Aon Hewitt | Retirement and Investment Inv estment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 3

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Aon Hewitt | Retirement and Investment Inv estment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 4 Pension Plan: Executive Summary

ƒ The Pension Plan assets totaled $163.1 billion as of June 30, 2019 which represents a $3.3 billion increase since last quarter. ƒ The Pension Plan, when measured against the Performance Benchmark, outperformed over the trailing one-, three-, five-, ten-, fifteen-, twenty-, twenty-five-, and thirty-year periods. ƒ Relative to the Absolute Nominal Target Rate of Return, the Pension Plan outperformed over the trailing one- , three-, five-, ten-, fifteen-, twenty-five-, and thirty-year period, and underperformed over the trailing twenty-year time period. ƒ The Pension Plan is well-diversified across six broad asset classes, and each asset class is also well-diversified. – Public market asset class investments do not significantly deviate from their broad market-based benchmarks, e.g., sectors, market capitalizations, global regions, credit quality, duration, and security types. – Private market asset classes are well-diversified by vintage year, geography, property type, sectors, investment vehicle/asset type, and investment strategy. – Asset allocation is monitored on a daily basis to ensure that the actual asset allocation of the Pension Plan remains close to the long-term policy targets set forth in the Investment Policy Statement. ƒ Aon Hewitt Investment Consulting and SBA staff revisit the plan design annually through informal and formal asset allocation and asset liability reviews. ƒ Adequate liquidity exists within the asset allocation to pay the monthly obligations of the Pension Plan consistently and on a timely basis.

Aon Hewitt | Retirement and Investment Inv estment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 5

FRS Pension Plan Change in Market Value Periods Ending 6/30/2019

Summary of Cash Flows

Second Quarter Fiscal YTD*

Beginning Market Value $159,869,212,643 $160,438,424,775

+/- Net Contributions/(Withdrawals) $(1,697,757,720) $(7,032,388,495)

Investment Earnings $4,963,750,990 $9,729,169,633 = Ending Market Value $163,135,205,913 $163,135,205,913

Net Change $3,265,993,270 $2,696,781,138

*Period July 2018 – June 2019

Aon Hewitt | Retirement and Investment Inv estment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 6 Asset Allocation as of 6/30/2019 Total Fund Assets = $163.1 Billion

Aon Hewitt | Retirement and Investment Inv estment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 7

FRS Pension Plan Investment Results Periods Ending 6/30/2019

Total FRS Pension Plan Performance Benchmark Absolute Nominal Target Rate of Return

12.0

9.8 10.0 9.6 8.9 8.8

8.0 7.2 6.6 6.5 6.7 6.6 6.8 6.3 6.2 6.0 5.7 5.7 5.7

4.0 3.2 3.0

2.0 1.8

0.0 Quarter 1-Year 3-Year 5-Year 10-Year 15-Year

Aon Hewitt | Retirement and Investment Inv estment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 8 FRS Pension Plan Investment Results Periods Ending 6/30/2019

Long-Term FRS Pension Plan Performance Results vs. SBA's Long-Term Investment Objective

Total FRS Pension Plan Absolute Nominal Target Rate of Return

12.0

10.0 8.4 8.6 8.0 6.9 6.8 7.0 6.0 6.0

4.0

2.0 Annualized Return (%) Return Annualized 0.0 Last 20 Years Last 25 Years Last 30 Years

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Comparison of Asset Allocation (TUCS Top Ten) As of 6/30/2019 FRS Pension Plan vs. Top Ten Defined Benefit Plans

FRS TOTAL FUND TUCS TOP TEN

Cas h Cas h Strategic Investments 1.9% 8.6% 1.1% Alternatives 18.5%

Private Equity 7.3%

Real Estate 9.4% Real Estate 7.6% Global Equity** 50.7% Fixed Income Global Equity* 18.8% 54.8%

Fixed Income 21.3%

*Global Equity Allocation: 26.3% Domestic Equities; 22.2% Foreign Equities; **Global Equity Allocation: 31.9% Domestic Equities; 18.8% Foreign 5.4% Global Equities; 0.9% Global Equity Liquidity Account. Percentages are Equities . of the Total FRS Fund.

Note: The TUCS Top Ten Universe includes $1,606.2 billion in total assets. The median fund size w as $156.4 billion and the average fund size w as $160.6 billion. Note: Due to rounding, percentage totals displayed may not sum perfectly.

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Total FRS (Gross) Top Ten Median Defined Benefit Plan Fund (Gross) 25.0

20.0

15.0

10.0 9.6 10.2 9.9 10.0 6.7 6.8 7.0 6.9

5.0 3.3 3.4

0.0 Rate of Return (%) Return of Rate

-5.0

-10.0

-15.0 Quarter 1-Year 3-Year 5-Year 10-Year

Note: The TUCS Top Ten Universe includes $1,606.2 billion in total assets. The median fund size w as $156.4 billion and the average fund size w as $160.6 billion.

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Top Ten Defined Benefit Plans FRS Universe Comparison (TUCS) Periods Ending 6/30/2019

Total FRS Top Ten Median Defined Benefit Plan Universe

12.0

10.0

8.0

6.0

4.0 Rateof Return (%)

2.0

0.0

-2.0 1-Year 3-Year 5-Year 10-Year

FRS Percentile Ranking 75 5 37 25

Note: The TUCS Top Ten Universe includes $1,606.2 billion in total assets. The median fund size w as $156.4 billion and the average fund size w as $160.6 billion.

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ƒ The FRS Investment Plan outperformed the Total Plan Aggregate Benchmark over the trailing three-, five-, and ten- year periods. This suggests strong relative performance of the underlying fund options in which participants are investing.

ƒ The FRS Investment Plan’s total expense ratio is slightly higher, on average, when compared to a defined contribution peer group and is lower than the average corporate and public defined benefit plan, based on year-end 2017 data. The total FRS Investment Plan expense ratio includes investment management fees, as well as administration, communication and education costs. Communication and education costs are not charged to FRS Investment Plan members; however, these and similar costs may be charged to members of plans within the peer group.

ƒ Management fees are lower than the median as represented by Morningstar’s mutual fund universe for every investment category.

ƒ The FRS Investment Plan offers an appropriate number of fund options that span the risk and return spectrum.

ƒ The Investment Policy Statement is revisited periodically to ensure that the structure and guidelines of the FRS Investment Plan are appropriate, taking into consideration the FRS Investment Plan’s goals and objectives.

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Total Investment Plan Returns & Cost

Periods Ending 6/30/2019*

One-Year Three-Year Five-Year Ten-Year FRS Investment Plan 5.2% 9.3% 5.9% 8.4% Total Plan Aggregate Benchmark** 5.2% 8.8% 5.6% 8.0% FRS Investment Plan vs. Total Plan Aggregate 0.0 0.5 0.3 0.4 Benchmark

Periods Ending 12/31/2017*** Five-Year Average Five-Year Net Expense Return**** Value Added Ratio FRS Investment Plan 8.3% 0.2% 0.30%***** Peer Group 9.6 0.2 0.28 FRS Investment Plan vs. Peer Group -1.3 0.0 0.02

*Returns shown are net of fees. **Aggregate benchmark returns are an average of the individual portfolio benchmark returns at their actual weights. ***Source: 2017 CEM Benchmarking Report. Peer group for the Five-Year Average Return and Value Added represents the U.S. Median plan return based on the CEM 2017 Survey that included 123 U.S. defined contribution plans with assets ranging from $93 million to $60.3 billion. Peer group for the Expense Ratio represents a custom peer group for FSBA of 17 DC plans including corporate and public plans with assets between $2.3 -$18.6 billion. ****Returns shown are gross of fees. *****The total FRS Investment Plan expense ratio includes investment management fees, as well as administration, communicatio n and education costs. These latter costs are not charged to FRS Investment Plan members; however, these and similar costs may be charged to members of plans within the peer group utilized above.

Aon Hewitt | Retirement and Investment Inv estment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 14 CAT Fund: Executive Summary

ƒ Returns on an absolute basis continue to be modest given the current low interest rate environment.

ƒ All CAT Funds are adequately diversified across issuers within the short-term bond market.

ƒ The Investment Portfolio Guidelines appropriately constrain the CAT Funds to invest in short-term and high quality bonds to minimize both interest rate and credit risk.

ƒ Adequate liquidity exists to address the cash flow obligations of the CAT Funds.

ƒ The Investment Portfolio Guidelines are revisited periodically to ensure that the structure and guidelines of the CAT Funds are appropriate, taking into consideration the CAT Funds’ goals and objectives.

ƒ Over long-term periods, the relative performance of the CAT Operating Funds has been favorable as they have outperformed the Performance Benchmark over the trailing three-, five-, ten-, and fifteen- year time periods.

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CAT Operating Funds Investment Results Periods Ending 6/30/2019

5.00

4.00 3.53 3.63

3.00 CAT Operating Funds Composite* 1.91 1.74 2.00 Performance Benchmark** 1.19 1.19 1.29 1.19 0.94 1.00 0.65

0.00 1 Quarter 1 Year 3 Years 5 Years 10 Years 5.00

4.00

3.00 2.47 2.45 CAT Operating Liquidity Fund 2.00 1.54 1.37 BoA Merrill Lynch 3-6 month U.S. 1.06 0.97 0.83 1.00 0.66 0.70 0.54

0.00 1 Quarter 1 Year 3 Years 5 Years 10 Years 5.00 4.08 4.23 4.00

3.00 CAT Operat ing C laims Payin g F und 2.00 1.48 1.45 65% Treasury 35% Corporate Bond 1.00

0.00 1 Quarter 1 Year

*CAT Operating Funds: Beginning March 2008, the returns for the CAT Operati ng Funds refl ect m arked -to-m arket returns. Pri or to that time, cost-based returns are used. Beginning February 2018, the CAT Operating Funds were split into two different sub funds, the CAT Fund Operating LiquidityFund and the CAT Fund Operating Claims Paying Fund. Performance for each sub fund is shown below. **Performance Benchmark: Beginning February 2018, the CAT Fund Operating Liquidity Fund was benchmarked to the B of A Merrill Lynch 3-6 M onth U.S. T reasury Bill Index, and the CAT Fund Operating Claims Paying Fund benchmark is a blend of 35% of the Bank of America Merrill Lynch 1-3 Year AA U.S. Corporate Bond Index and 65% of Bank of America Merrill Lynch 1-3 Year U.S. Treasury Index. Additional benchmark history can be found in the appendix.

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ƒ Established in July 1999, the Lawton Chiles Endowment Fund (LCEF) was created to provide a source of funding for child health and welfare programs, elder programs and research related to tobacco use. – The investment objective is to preserve the real value of the net contributed principal and provide annual cash flows for appropriation. – The Endowment’s investments are diversified across various asset classes including global equity, fixed income, inflation-indexed bonds (TIPS) and cash. ƒ The Endowment assets totaled $793.6 million as of June 30, 2019. ƒ The Endowment’s return outperformed its Target over the trailing three-, five-, and ten-year time periods and underperformed its Target over the trailing quarter and one-year.

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Asset Allocation as of 6/30/2019 Total LCEF Assets = $793.6 Million

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Total LCEF Performance Benchmark

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Florida PRIME: Executive Summary

ƒ The purpose of Florida PRIME is safety, liquidity, and competitive returns with minimal risk for participants. ƒ The Investment Policy Statement appropriately constrains Florida PRIME to invest in short-term and high quality bonds to minimize both interest rate and credit risk. ƒ Florida PRIME is adequately diversified across issuers within the short-term bond market, and adequate liquidity exists to address the cash flow obligations of Florida PRIME. ƒ Performance of Florida PRIME has been strong over short- and long-term time periods, outperforming its performance benchmark during the quarter and over the trailing one-, three-, five-, and ten-year time periods. ƒ As of June 30, 2019, the total market value of Florida PRIME was $13.4 billion. ƒ Aon Hewitt Investment Consulting, in conjunction with SBA staff, compiles an annual best practices report that includes a full review of the Investment Policy Statement, operational items, and investment structure for Florida PRIME.

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FL PRIME Yield 30-Day Average S&P AAA & AA GIP All 30-Day Net Yield Index**

3.0 2.57 2.58 2.36 2.5 2.26

2.0 1.71

1.5 1.40 1.14 1.0 0.89 0.70 0.64 0.59

Rate of Return (%) Return of Rate 0.50 0.5

0.0 Second Quarter* 1-Year 3-Years 5-Years 10-Years Since Jan. 1996

*Returns less than one year are not annualized. **S&P AAA & AA GIP All 30-Day Net Yield Index for all time periods shown.

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Florida PRIME Risk vs. Return 1 Year Ending 6/30/2019

3.00%

Florida PRIME 2.50% 1 M LIBOR 90-Day T-Bill S&P US AAA & AA Rated GIP All 30-Day Net 2.00%

1.50% Return

Annualized 1.00%

0.50%

0.00% 0.00% 0.01% 0.02% 0.03% 0.04% 0.05% 0.06% 0.07% 0.08%

Annualized Standard Deviation

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1.80% Florida PRIME

1.60% 1 M LIBOR

S&P US AAA & AA Rated GIP All 30-Day Net 1.40% 90-Day T-Bill

1.20%

1.00%

Return 0.80% Annualized

0.60%

0.40%

0.20%

0.00% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30%

Annualized Standard Deviation

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Florida PRIME Risk vs. Return 5 Years Ending 6/30/2019

1.20% Florida PRIME

1 M LIBOR 1.00%

S&P US AAA & AA Rated GIP All 30-Day Net 90-Day T-Bill 0.80%

0.60% Return

Annualized 0.40%

0.20%

0.00% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30%

Annualized Standard Deviation

Aon Hewitt | Retirement and Investment Inv estment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 24 Return Distribution Periods Ending 6/30/2019

Return Distribution 2.90% 2.70% 2.50% 95th, 2.45% 75th, 2.33% 2.30% 50th, 2.15%

2.10% 25th, 1.95% 1.90%

1.70% 5th, 1.54% 95th, 1.56% 1.50% 75th, 1.48% 1.30% 50th, 1.27% 25th, 1.07% 1.10% 95th, 1.00% 75th, 0.93% Rate of Return (%) 0.90% 5th, 0.76% 50th, 0.77% 0.70% 25th, 0.64% 0.50% 5th, 0.46% 0.30% 0.10% -0.10% 1-Year 3-Year 5-Year

FL PRIME S&P US AAA & AA Rated GIP All 30-Day Net 1 mo LIBOR Citigroup 90-day T-Bill

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Standard Deviation Distribution Periods Ending 6/30/2019

Standard Deviation Distribution 0.28% 95th, 0.26% 0.26% 75th, 0.25% 50th, 0.24% 95th, 0.23% 0.24% 25th, 0.22% 75th, 0.22% 0.22% 50th, 0.21% 25th, 0.20% 0.20% 5th, 0.18% 5th, 0.18% 0.18% 0.16% 0.14% 0.12% 0.10% 0.08%

Standard Deviation Deviation Standard (%) 0.06% 95th, 0.02% 0.04% 75th, 0.02% 50th, 0.02% 0.02% 25th, 0.02% 5th, 0.01% 0.00% -0.02% 1-Year 3-Year 5-Year

FL PRIME S&P US AAA & AA Rated GIP All 30-Day Net 1 mo LIBOR Citigroup 90-day T-Bill

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Appendix

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Average Mutual Fund Investment Category Investment Plan Fee* Fee**

Large Cap Equity 0.15% 0.79%

Small-Mid Cap Equity 0.58% 0.99%

International Equity 0.31% 0.94%

Diversified Bonds 0.15% 0.53%

Target Date 0.15% 0.60%

Money Market 0.06% 0.39%

*Average fee of multiple products in category as of 6/30/2019. **Source: AHIC’s annual mutual fund expense analysis as of 12/31/2018.

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Investment Plan Fiscal Year End Assets Under Management

By Fiscal Year ($ millions) $12,000 $11,241 $10,825 $9,967 $10,000 $9,035 $9,129 $8,918

$7,879 $8,000 $7,136 $6,733

$6,000 $5,048 $4,365 $4,075 $4,000 $3,688

$2,306 $2,000 $1,426 $706 $333 $0 FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19*

*Period Ending 6/30/2019

Source: Investment Plan Administrator

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220,000 213,213

200,000 190,664 177,218 180,000 169,576 163,456 157,227 160,000 150,721 144,299 136,661 140,000 127,940 116,531 121,522 120,000 98,070 100,000

80,000 75,377 56,034 60,000 38,347 40,000

20,000

0 FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19* * Period Ending 6/30/2019

Source: Investment Plan Administrator

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Florida Hurricane Catastrophe Funds Background and Details

ƒ The purpose of the Florida Hurricane Catastrophe Fund (FHCF) is to provide a stable, ongoing and timely source of reimbursement to insurers for a portion of their hurricane losses.

ƒ The CAT Operating Funds, along with CAT 2016 A Fund and CAT 2013 A Fund are internally managed portfolios.

ƒ As of June 30, 2019, the total value of: − The CAT Operating Funds was $13.5 billion − The CAT 2016 A Fund was $0.7 billion − The CAT 2013 A Fund was $1.0 billion

ƒ History of the CAT Funds Benchmarks: The CAT Operating Funds were benchmarked to the IBC First Tier through February 2008. From March 2008 to December 2009, it was the Merrill Lynch 1-Month LIBOR. From January 2010 to June 2010, it was a blend of the average of the 3-Month Treasury Bill rate and the iMoneyNet First Tier Institutional Money Market Funds Gross Index. From July 2010 to September 2014, it was a blend of the average of the 3-Month Treasury Bill rate and the iMoneyNet First Tier Institutional Money Market Funds Net Index. Effective October 2014, it is a blend of the average of the Merrill Lynch 1-Yr U.S. Treasury Bill Index and the iMoneyNet First Tier Institutional Money Market Funds Net Index. Beginning February 2018, the CAT Operating Funds were split into two different sub funds, the CAT Fund Operating Liquidity Fund and the CAT Fund Operating Claims Paying Fund. Beginning February 2018, the CAT Fund Operating Liquidity Fund was benchmarked to the B of A Merrill Lynch 3-6 Month U.S. Treasury Bill Index, and the CAT Fund Operating Claims Paying Fund benchmark is a blend of 35% of the Bank of America Merrill Lynch 1-3 Year AA U.S. Corporate Bond Index and 65% of Bank of America Merrill Lynch 1-3 Year U.S. Treasury Index.

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5.00

4.00 2.97 2.97 3.00 CAT Fu nd 2013A 1.67 2.00 1.50 Performance Benchmark* 1.15 0.89 0.89 1.05 1.00

0.00 1 Quarter 1 Year 3 Years 5 Years

5.00

4.00 3.28 3.22 3.00 CAT Fu nd 2016A 1.78 1.59 2.00 Performance Benchmark* 0.96 0.96 1.00

0.00 1 Quarter 1 Year 3 Years

*Perf ormance Benchmark: Beginning February 2018, the CAT 2013 A and 2016 A Funds were benchmarked to themselves.

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CAT Operating Funds Characteristics Period Ending 6/30/2019

Maturity Analysis 1 to 30 Days 1.51% 31 to 60 Days 0.19 61 to 90 Days 1.30 91 to 120 Days 5.52 121 to 150 Days 5.51 151 to 180 Days 19.24 181 to 270 Days 0.00 271 to 365 Days 0.34 366 to 455 Days 1.38 >= 456 Days 65.01 Total % of Portfolio: 100.00%

Bond Rating Analysis AAA 74.86% AA 20.63 A 4.51 Baa 0.00 Other 0.00 Total % of Portfolio 100.00%

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Maturity Analysis 1 to 30 Days 0.01% 31 to 60 Days 5.02 61 to 90 Days 4.95 91 to 120 Days 0.48 121 to 150 Days 3.39 151 to 180 Days 2.99 181 to 270 Days 6.32 271 to 365 Days 22.03 366 to 455 Days 53.35 >= 456 Days 1.46 Total % of Portfolio: 100.00%

Bond Rating Analysis AAA 88.31% AA 9.81 A 1.88 Baa 0.00 Other 0.00 Total % of Portfolio 100.00%

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CAT 2016 A Fund Characteristics Period Ending 6/30/2019

Maturity Analysis 1 to 30 Days 6.25% 31 to 60 Days 0.10 61 to 90 Days 0.35 91 to 120 Days 0.00 121 to 150 Days 0.00 151 to 180 Days 0.94 181 to 270 Days 7.52 271 to 365 Days 4.29 366 to 455 Days 5.69 >= 456 Days 74.86 Total % of Portfolio: 100.00%

Bond Rating Analysis AAA 50.91% AA 35.66 A 13.43 Baa 0.00 Other 0.00 Total % of Portfolio 100.00%

Aon Hewitt | Retirement and Investment Inv estment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 36 Florida PRIME Characteristics Quarter Ending 6/30/2019

Cash Flows as of 6/30/2019 Second Quarter Fiscal YTD* Opening Balance $13,895,737,865 $10,512,100,060 Participant Deposits $4,597,566,093 $24,920,511,895 Gross Earnings $88,443,887 $310,271,718 Participant Withdrawals ($5,145,263,998) ($22,303,538,205) Fees ($1,084,654) ($3,946,274) Closing Balance (6/30/2019) $13,435,399,194 $13,435,399,194

Change ($460,338,671) $2,923,299,134

*Period July 2018 – June 2019

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Florida PRIME Characteristics Quarter Ending 6/30/2019

Portfolio Composition

7.5% 0.3% 3.8% 16.4% Bank Instrument-Fixed 19.7% Repurchase Agreements 17.3% Corporate Commercial Paper-Fixed Bank Instrument-Floating Mutual Funds-Money Market Asset Backed Commercial Paper-Fixed 5.8% Corporate Notes-Floating Corporate CP-Floating 19.0% Asset Backed Commercial Paper-Floating 10.0%

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Effective Maturity Schedule 1-7 Days 52.4% 8 - 30 Days 19.3% 31 - 90 Days 21.2% 91 - 180 Days 5.2% 181+ Days 1.9% Total % of Portfolio: 100.0%

S & P Credit Quality Composition A-1+ 67.2% A-1 32.8% Total % of Portfolio: 100.0%

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FRS Pension Plan | Second Quarter 2019 Quarterly Investment Review Visit the Aon Retirement and Investment Blog (https://retirement-investment-insights.aon.com); sharing our best thinking. (This page is left blank intentionally)

Table of Contents

1 Market Environment 1 2 Total Fund 15 3 Global Equity 25 4 Domestic Equities 27 5 Foreign Equities 31 6 Global Equities 35 7 Fixed Income 37 8 Private Equity 41 9 Real Estate 45 10 Strategic Investments 49 11 Cash 51 12 Appendix 53 (This page is left blank intentionally)

Market Environment

1 Global Equity Markets

GLOBAL MSCI IMI INDEX RETURNS (USD, Net) AS OF 06/30/2019 Second Quarter 2019 One-Year 10% 8.3% 6.9% 6.2% 5.6% 4.6% 4.5% 4.7% 3.4% 3.9% 2.7% 2.2% 2.3% 1.3% 0.3% 0.7% 0.7% 0.4% 0.5% 0%

-3.2% -5.2%

-10% ACWI IMI 45.2% 54.8% 5.2% 7.5% 3.1% 0.2% 13.8% 3.9% 11.6% ACWI ex-U.S. USA IMI UK IMI Japan IMI Canada IMI Israel IMI Europe ex-UK Pacific ex-Japan Emergi ng Source: MSCI IMI IMI IMI Markets IMI

 Global trade negotiations dominated equity markets in Q2 2019. In local currency terms, the MSCI AC World Investable Market Index returned 3.4% which was supported by prospects of looser monetary policy by major central banks and positive progress in U.S.-China trade negotiations.  Increased expectations of further monetary stimulus from the European Central Bank (ECB) combined with a strengthening of the euro against the U.S. dollar resulted in the European equities being the strongest performer (in USD terms) over the quarter.  Japanese equities delivered positive returns in USD terms due to strong yen performance against the U.S. dollar over the quarter. In local currency terms, however, Japanese equities largely lagged other markets with yen strength and escalating trade tensions leading Japanese equities to be the only equity market to post negative returns in local currency terms over the second quarter. Emerging market equities, especially those with greater linkages to China, came under pressure due to uncertainties around the ongoing trade dispute.

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2

Global Equity Markets

MSCI ALL COUNTRY WORLD IMI INDEX MSCI ALL COUNTRY WORLD EX-U.S. IMI INDEX GEOGRAPHIC ALLOCATION AS OF 06/30/2019 GEOGRAPHIC ALLOCATION AS OF 06/30/2019 Pacific ex-Japan 3.9% Israel Canada Japan 0.5% 7.5% Latin Latin America 3.1% Israel Europe ex-UK America 3.2% 30.4% UK Europe 0.2% 1.4% 5.2% ex-UK 13.8% Emerging Asia Emerging Asia Markets 8.4% Japan Markets 18.6% 11.6% 16.6% 25.7%

Eastern Eastern Europe, Europe, USA Middle Middle 54.8% East & Pacific ex- East & Japan Canada Africa Africa UK 1.8% 8.6% 6.8% 3.9% Source: MSCI Source: MSCI 11.4%

 The two exhibits on this slide illustrate the percentage that each country/region represents of the global and international equity markets as measured by the MSCI All Country World IMI Index and the MSCI All Country World ex-U.S. IMI Index, respectively.

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3 U.S. Equity Markets

RUSSELL STYLE RETURNS Second Quarter 2019 RUSSELL GICS SECTOR RETURNS Second Quarter 2019 AS OF 06/30/2019 One-Year AS OF 06/30/2019 One-Year 13.9% 20.0% 15.0% 16.7% 10.9% 10.8% 15.0% 11.8% 11.2% 10.0% 9.0% 10.4% 10.6% 10.0% 9.8% 10.0% 9.0% 5.4% 6.2% 7.0% 4.4% 4.1% 4.0% 5.7% 4.1% 4.2% 5.0% 4.0% 3.4% 5.0% 3.2% 3.7% 2.7% 1.4% 1.9% 1.5% 1.4% 0.0% 0.0% -5.0% -3.7% -0.5% -5.0% -10.0% -6.2% -15.0% -10.0% -16.1% -20.0% Russell 31.0% 36.2% 14.8% 11.1% 3.3% 3.6% Russell 21.4% 13.9% 14.4% 5.7% 5.1% 3.4% 10.5% 20.4% 5.1% 3000 Technology Healthcare Cons. Disc Cons. Energy Materials & Producer Financial Utilities 3000 Large Large Medium Medium Small Small Staples Processing Durables Services Value Growth Value Growth Value Growth Source: Russell Indexes Source: Russell Indexes  U.S. equities continued their rally fueled by the increased expectation for an interest rate cut by the U.S. Federal Reserve (Fed). Equities rallied despite mixed economic data releases and a murkier economic outlook. Greater optimism over thawing U.S.-China trade tensions towards the end of the quarter also helped to lift investor sentiment. The Russell 3000 Index rose 4.1% during the second quarter and 9.0% over the one-year period.  All sectors, except for Energy (-3.7%), generated positive returns over the quarter. In particular, Financial Services (7.0%) and Consumer Discretionary (6.2%) were the best performing sectors in Q2 2019.  Performance was positive across the market capitalization spectrum over the quarter. In general, small cap stocks underperformed both large and medium cap stocks over the quarter. Growth stocks outperformed their Value counterparts in Q2 2019, benefitting from the fall in U.S. yields.

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4

U.S. Fixed Income Markets

BLOOMBERG BARCLAYS AGGREGATE RETURNS BY SECTOR BLOOMBERG BARCLAYS AGGREGATE RETURNS BY MATURITY AS OF 06/30/2019 AS OF 06/30/2019 16.0% 12.0% 13.9% 10.7% 14.0% 10.0% 9.0% 12.0% 7.9% 8.0% 7.2% 10.0% 9.0% 6.2% 7.5% 8.0% 6.0% 5.0% 6.5% 6.6% 4.5% 6.0% 4.3% 4.0% 3.1% 3.0% 3.3% 3.6% 4.0% 2.0% 1.7% 2.2% 2.6% 2.0% 1.5% 2.0% 0.0% 0.0% Barclays Agg. 42.7% 26.2% 28.5% 0.5% 2.1% 1-3 Yr. 3-5 Yr. 5-7 Yr. 7-10 Yr. >10 Yr. Bond Govt Corp. MBS ABS CMBS Second Quarter 2019 One-Year Source: FactSet Second Quarter 2019 One-Year Source: FactSet  BLOOMBERG BARCLAYS AGGREGATE RETURNS BY QUALITY The Bloomberg Barclays U.S. Aggregate Bond Index AND HIGH YIELD RETURNS AS OF 06/30/2019 returned 3.1% over the quarter. Corporate bonds were 12.0% 11.4% the best performers, returning 4.5% whilst ABS bonds 10.1% 10.0% underperformed with a return of 1.7%. 8.5% 7.5%  Performance was positive across all credit grades. 8.0% 6.9%

Within investment grade bonds, lower quality bonds 6.0% 4.8% outperformed with Baa bonds returning 4.8%. 4.2% 4.0% 3.3% 2.6%  Long-maturity bonds outperformed both intermediate 2.5% 2.0% and short-maturity bonds over the quarter. Long- maturity bonds returned 6.6% while short-maturity bonds 0.0% returned only 1.5% in Q2 2019. Aaa Aa A Baa High Yield Second Quarter 2019 One-Year Source: FactSet

Aon Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company.

5 U.S. Fixed Income Markets

U.S. TREASURY YIELD CURVE U.S. 10-YEAR TREASURY AND TIPS YIELDS 3.5% 5.0% 10Y TIPS Yield

4.0% 10Y Treasury Yield 3.0% 3.0%

2.5% 2.0%

1.0% 2.0% 6/30/2018 0.0% 1.5% 3/31/2019 6/30/2019 -1.0%

1.0% -2.0% 0 5 10 15 20 25 30 Jun 09 Jun 11 Jun 13 Jun 15 Jun 17 Jun 19 Maturity (Years) Source: U.S. Department of Treasury Source: U.S. Department of Treasury  The U.S. nominal yield curve shifted downwards over the quarter with yields falling across all maturities. In Q2 2019, 10-year US Treasury yield dipped below 2.0% for the first time since 2016 but ultimately rested at 2.0% at the end of the quarter; a 41bps decrease since the end of March.  The Fed appeared to capitulate to financial market pressure by signaling possible rate cuts this year, with eight out of seventeen officials expecting at least one rate cut in 2019. This came amidst a slowing U.S. economy and elevated risks from the ongoing trade dispute.  The 10-year TIPS yield fell by 22bps over the quarter and ended the period at 0.31%. Breakeven inflation decreased as inflation expectations had moved lower.

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6

European Fixed Income Markets

EUROZONE PERIPHERAL BOND SPREADS (10-YEAR SPREADS OVER GERMAN BUNDS) 15%

13% Spain Italy Portugal

11% Greece Ireland

9%

7%

5%

3%

1%

-1% 2013 2014 2015 2016 2017 2018 2019 Source: FactSet  Eurozone government bond spreads over 10-year German bunds generally fell across the Eurozone. ECB officials indicated the possibility of a fresh round of quantitative easing if needed to stimulate the flagging economy.  German government bund yields fell by 26bps to a record low of -0.33% as the country’s manufacturing sector continued in the contraction territory.  Italian government bond yields fell by 41bps to 2.08% over the quarter. The dovish stance from the ECB encouraged greater risk appetite and sent more risky bond yields lower. Minutes from the European Commission meeting on June 5th indicated that the European Commission will hold off disciplinary actions over Italy’s fiscal target and could give additional time until the end of the year to reduce its public debt.  Greek government bond yields reached a record low over the quarter, falling by 130bps to 2.43%.

Aon Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company.

7 Credit Spreads

Spread (bps) 06/30/2019 03/31/2019 06/30/2018 Quarterly Change (bps) 1-Year Change (bps)

U.S. Aggregate 46 44 44 2 2

Long Gov't 1 1 1 0 0

Long Credit 161 172 174 -11 -13

Long Gov't/Credit 92 99 101 -7 -9

MBS 46352811 18

CMBS 69 69 70 0 -1

ABS 41 39 47 2 -6

Corporate 115 119 123 -4 -8

High Yield 377 391 363 -14 14

Global Emerging Markets 282 283 288 -1 -6

Source: FactSet, Bloomberg Barclays

 Mirroring equity market concern, credit spreads increased in the middle of the quarter but broadly retraced May’s spread widening late in the quarter as investor concern eased and risk appetite returned.  In Q2 2019, High Yield bond spreads narrowed by 14bps – the largest spread narrowing among credit market we consider here. Despite the spread narrowing, High Yield bonds underperformed investment grade bonds due to the lower duration of the index. Spreads on securitized debt widened slightly, most notably for Mortgage-Backed Securities which increased by 11bps.

Aon Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company.

8

Currency

TRADE WEIGHTED U.S. DOLLAR INDEX U.S. DOLLAR RELATIVE TO EUR, GBP AND JPY (1973 = 100) REBASED TO 100 AT 06/30/2013 125 140 Stronger Dollar 120 130 115 Weaker Dollar 110 120 105 110 100 95 100 EUR/USD 90 90 GBP/USD 85 JPY/USD 80 80 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Jun 19 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Jun 19 Source: Federal Reserve Source: FactSet  The U.S. dollar fell 0.4% on a trade-weighted basis over the quarter, depreciating against all major currencies with the exception of sterling. The upward trend in the U.S. dollar stalled in the second quarter. The dollar fell in June as expectations of Fed easing grew. Cyclical supports to the ‘greenback’ (stronger relative economic growth and wide interest rate differentials) lost momentum.  In the UK, Brexit uncertainties continued as UK Prime Minister Theresa May announced her resignation and the prohibitive favorite, Boris Johnson, has taken a very tough stance on Brexit which has increased expectations of a “Hard-Brexit” by the end of October. Against this backdrop, sterling depreciated by 2.3% against the U.S. dollar.  Despite a more dovish ECB and a weaker economic outlook, the euro appreciated by 1.4% against the U.S. dollar.  The yen strengthened over the quarter as investors moved back to the 'safe-haven' currency. Similar to the Euro Area, there was less disappointment in economic releases over the quarter while the gap between U.S. and Japanese government bond yields narrowed by just under 50bps.

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9 Commodities

COMMODITY RETURNS Second Quarter 2019 AS OF 06/30/2019 One-Year

-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0%

Bloomberg Commodity Index -1.2% -6.8% 0.4% Ex-Energy -3.1% Energy -4.6% -14.3% Industrial Metals -7.2% -11.0% Prec. Metals 7.1% 7.6% 4.5% Agric. -4.2% -0.3% Softs -11.8% 8.4% Grains -0.2% Livestock -11.0% -3.5% Source: Bloomberg Note: Softs and Grains are part of the wider Agriculture sector  Commodities generally fell over the quarter with the Bloomberg Commodity Index returning -1.2%.  Livestock (-11.0%) was the worst performing sector whilst Grains (8.4%) returned the most. The latter benefitted as weather-related planting delays boosted prices.  The Energy sector fell 4.6% over the quarter. The price of Brent crude oil fell by 2.7% to $67/bbl and the WTI crude oil spot price fell by 2.8% to $58/bbl. Oil prices got some support from rising tensions in Middle East as the U.S. re- imposed sanctions on Iran. However, a sharp rise in U.S. crude inventories and, more significantly, signs of slowing global growth put pressure on energy prices. Weaker anticipated demand due to a slowing economic environment also pushed Industrial Metals lower with copper prices falling 7.9% to $5,972/t.

Aon Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company.

10

Hedge Fund Markets Overview

HEDGE FUND PERFORMANCE Second Quarter 2019 AS OF 06/30/2019 One-Year -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 1.7% Fixed Income/Convertible Arb. 2.7% 2.7% Global Macro 2.6% 1.8% Equity Hedge 0.5% 1.2% Emerging Markets 0.5% 1.4% Event-Driven 1.3% 1.3% Distressed-Restructuring -0.1% 1.5% Relative Value 3.2% 1.9% Fund-Weighted Composite Index 1.5% 1.7% Fund of Funds Composite Index 1.4% Note: Latest 5 months of HFR data are estimated by HFR and may change in the future. Source: HFR

 Hedge fund performance was positive across all strategies in the second quarter.  Over the quarter, Global Macro and Equity Hedge strategies were the best performers with returns of 2.7% and 1.8%.The former’s strong return offset weaker performance over the previous nine months and led to a positive return of 2.6% over the trailing twelve months. Conversely, Distressed-Restructuring and Emerging Markets were the worst performers, returning 1.3% and 1.2%, respectively.  The HFRI Fund-Weighted Composite Index and the HFRI Fund of Funds Composite Index produced returns of 1.9% and 1.7%, respectively.

Aon Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company.

11 Private Equity Market Overview – Q1 2019 – Slide 1 of 2

$600 Deal Value ($ Billions) 7,000

Number of Deals 6,000 $500

5,000

$400 Deals # of

4,000 $300 3,000

Value ($ ValueBillions) ($ $200 2,000

$100 1,000

$0 0 4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 2Q15 1Q16 4Q16 3Q17 2Q18 1Q19

 Distressed Debt: The LTM U.S. high-yield default rate was 1.4% as of March 2019, which was down from December 2018’s LTM rate of 2.4%.5 During the quarter, $4.0 billion was raised by 11 funds, lower than both the $4.9 billion raised by 14 funds in Q4 2018 and $8.7 billion raised by 17 funds in Q1 2018.1 Dry powder was estimated at $118.0 billion at the end of Q1 2019, which was up slightly from year-end 2017’s total of $117.6 billion. This remained above the five-year annual average level of $103.3 billion.1  Secondaries: Eight funds raised $1.8 billion during the quarter, down significantly from the $8.2 billion raised by seven funds in Q4 2018 and the $5.9 billion raised by 11 funds in Q1 2018.1 At the end of Q1 2019, there were an estimated 58 secondary and direct secondary funds in market targeting roughly $78.5 billion.1 The average discount rate for all private equity sectors finished the quarter at 9.5%, higher than the 8.9% discount at the end of 2018.6  Infrastructure: $24.2 billion of capital was raised by 13 funds in Q1 2019 compared to $16.6 billion of capital raised by 16 partnerships in Q1 2018. At the end of the quarter, dry powder stood at an estimated $175.0 billion, down slightly from year-end 2018’s totalof $177.0 billion. Infrastructure managers completed 508 deals with an estimated aggregate deal value of $58.0 billion in Q1 2019 compared to 568 deals totaling $54.0 billion a quarter ago1.  Natural Resources: During Q1 2019, four funds closed on $1.3 billion compared to 11 funds totaling $1.8 billion in Q4 2018. Energy and utilities industry managers completed approximately 36 deals totaling an estimated $4.2 billion through Q1 2019, which represents 12.2% of the full year capital deployment in 2018.1

Sources: 1 Preqin 2 Standard & Poor’s 3 PwC/CB Insights MoneyTree Report 4 PitchBook/NVCA Venture Monitor 5 Fitch Ratings 6 Thomson Reuters 7 UBS Notes: FY=Fiscal year ended 12/31; YTD=Year to date; LTM=Last 12 months (aka trailing 12 months); PPM=Purchase Price Multiples: Total Purchase Price ÷ EBITDA.

Aon Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company.

12

Private Equity Market Overview – Q1 2019 – Slide 2 of 2

12.0 x 10.6x 10.3x 10.6x 10.3x 9.8x 10.0x 10.0 x 8.5 x 8.8 x 8.7x 8.8x 8.0 x

6.0 x

4.0 x

2.0 x

0.0 x

Senior Debt/EBITDA Sub Debt/EBITDA Equity/EBITDA Others

 Fundraising: In Q1 2019, $143.1 billion was raised by 319 funds, which was a decrease of 8.9% on a capital basis and a decrease of 35.3% by number of funds from the prior quarter. Dry powder stood at $2.0 trillion at the end of Q1 2019, an increase of 5.7% and 33.6% compared to Q4 2018 and the five year average, respectively.1  Buyout: Global private equity-backed buyout deals totaled $102.2 billion in Q1 2019, which was down 13.4% on a number of deals basis and 22.4% on a capital basis from Q1 2018.1 At the end of Q1 2019, the average purchase price multiple for all U.S. LBOs was 10.3x EBITDA, a drop of 0.3x from year-end 2018 and up slightly from the five-year average (10.2x).2 Large cap purchase price multiples stood at 10.3x, down compared to the full-year 2018 level of 10.6x.2 The weighted average purchase price multiple across all European transaction sizes averaged 10.9x EBITDA for Q1 2019, down from the 11.3x multiple seen at year-end 2018. Purchase prices for transactions of €1.0 billion or more decreased from 11.7x in 2018 to 11.3x at the end of Q1 2019. Transactions between €500.0 million and €1.0 billion were down 0.4x from the end of 2018, and stood at 10.9x at the end of the quarter.2 Globally, exit value totaled $38.0 billion from 382 deals during the first quarter, significantly lower than the $65.5 billion in exits from 464 deals during Q1 2018. 1  Venture: During the first quarter, 1,279 venture-backed transactions totaling $24.6 billion were completed in the U.S., which was a substantial decrease on a capital basis over the prior quarter’s total of $38.7 billion across 1,328 deals. This was still 30.1% higher than the five-year quarterly average of $18.9 billion.3 Total U.S. venture-backed exit activity totaled approximately $46.7 billion across 137 completed transactions in Q1 2019, up slightly on a capital basis from the $37.2 billion across 184 exits in Q4 2018.4  Mezzanine: Three funds closed on $1.0 billion during the first quarter. This was a significant decrease from the prior quarter’s total of $8.0 billion raised by 14 funds and represented a decrease of 81.0% from the five-year quarterly average of $5.3 billion. Estimated dry powder was $58.8 billion at the end of Q1 2019, up from the $53.5 billion seen at the end of 2018.1 Sources: 1 Preqin 2 Standard & Poor’s 3 PwC/CB Insights MoneyTree Report 4 PitchBook/NVCA Venture Monitor 5 Fitch Ratings 6 Thomson Reuters 7 UBS Notes: FY=Fiscal year ended 12/31; YTD=Year to date; LTM=Last 12 months (aka trailing 12 months); PPM=Purchase Price Multiples: Total Purchase Price ÷ EBITDA.

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13 U.S. Commercial Real Estate Markets

PRIVATE VS. PUBLIC REAL ESTATE RETURNS CAP RATES BY SECTOR AS OF 06/30/2019 SOURCE: RCA, AON HEWITT 3/31/2019 Private (NFI-ODCE Gross)* 20.0% 10.0% Public (NAREIT Gross) 15.5% 16.0% 9.0%

11.2% 8.0% 12.0% 9.8% 9.9% 7.0% 7.6% 7.9% 8.0% 6.4% 6.0% 4.2% 4.0% 5.0% 1.0% 1.2% 0.0% 4.0% Second 1-Year 3-Years 5-Years 10-Years '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Quarter 2019 *Second quarterquarter returns returns are are preliminary preliminary Office Industrial Retail Apartment Sources: NCREIF, NCREIF, FactSet Factset  U.S. core real estate returned 1.0%* over the second quarter, equating to 6.4% total gross return year-over-year, including a 4.1% income return. Debt mark-to-market was a drag on performance due to declining interest rates.  Global property markets, as measured by the FTSE EPRA/NAREIT Global Developed Real Estate Index, returned 1.0% (USD) in aggregate during the second quarter. The sector was mainly flat after a strong rebound during the prior quarter. REIT market performance was driven by Asia Pacific (0.6% USD), North America (0.7% USD) and Europe (-1.9% USD). The U.S. REIT markets (FTSE NAREIT Equity REITs Index) gained 1.2% in the second quarter. Lower U.S. Treasury yields were supportive for REIT share prices. Outside of the U.S., government bond yields similarly fell with the German 10-year bond yield falling from -0.07% to -0.33% at the end of the quarter.  According to RCA, through May 2019, the U.S. property market experienced price growth of 7.2% year-over-year across major sectors. In addition, transaction volume was down 8% over the same period.  Return expectations have normalized, with forward expectations in line with historical norms. The market has priced in a rate cut from the Federal Reserve, and declining interest rates have led to a rally across various asset classes. According to Preqin, there remains a record amount of dry powder ($331 billion) in closed-end vehicles seeking real estate exposure, which should continue to lend support to valuations and liquidity in the commercial real estate market. *Indicates preliminary NFI-ODCE data gross of fees

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14

Total Fund

15 As of June 30, 2019 Highlights

Executive Summary x Performance of the Pension Plan, when measured against the Performance Benchmark, has been strong over short- and long-term time periods. x Performance relative to peers is also competitive over short- and long-term time periods. x The Pension Plan is well-diversified across six broad asset classes, and each asset class is also well-diversified. x Public market asset class investments do not significantly deviate from their broad market based benchmarks, e.g., sectors, market capitalizations, global regions, credit quality, duration, and security types. x Private market asset classes are well-diversified by vintage year, geography, property type, sectors, investment vehicle/asset type, or investment strategy. x Asset allocation is monitored on a daily basis to ensure the actual asset allocation of the plan remains close to the long-term policy targets set forth in the Investment Policy Statement. x Aon Hewitt Investment Consulting and SBA staff revisit the plan design annually through informal and formal asset allocation and asset liability reviews. x Adequate liquidity exists within the asset allocation to pay the monthly obligations of the Pension Plan consistently and on a timely basis.

Performance Highlights x During the quarter, the Total Fund outperformed the Performance Benchmark. The Total Fund outperformed the Performance Benchmark during the trailing one-, three-, five-, and ten-year periods.

Asset Allocation x The Fund assets total $163.1 billion as of June 30, 2019, which represents a $3.3 billion increase since last quarter. x Actual allocations for all asset classes were within their respective policy ranges and in line with the current policy at quarter-end.

16

Total Fund As of June 30, 2019 Total Plan Asset Summary

Change in Market Value From April 1, 2019 to June 30, 2019 $240,000.0

$180,000.0 $159,869.2 $163,135.2

$120,000.0

$60,000.0

Millions ($) $4,963.8 $0.0 ($1,697.8)

($60,000.0)

($120,000.0) Beginning Market Value Net Additions / Withdrawals Investment Earnings Ending Market Value

Summary of Cash Flow

1 Fiscal Quarter YTD* Total Fund Beginning Market Value 159,869,212,643 160,438,424,775 + Additions / Withdrawals -1,697,757,720 -7,032,388,495 + Investment Earnings 4,963,750,990 9,729,169,633 = Ending Market Value 163,135,205,913 163,135,205,913

*Period July 2018 - June 2019

17 Total Fund As of June 30, 2019 Total Plan Performance Summary

Return Summary

14.0

12.0

10.0 9.8 9.6

8.9 8.8

8.0

6.6 6.5 6.7 Return 6.3 6.3 6.2 6.0 5.7 5.7 5.7 5.7 5.7

4.0

3.2 3.0

2.0 1.8

0.0 1 Fiscal 1 3 5 10 Quarter YTD Year Years Years Years Total Fund Performance Benchmark Absolute Nominal Target Rate of Return

18

As of June 30, 2019 Asset Allocation & Performance

Allocation Performance(%) Market 1 Fiscal 1 3 5 10 Value % Policy(%) Quarter YTD Year Years Years Years ($) Total Fund 163,135,205,913 100.0 100.0 3.2 (45) 6.3 (36) 6.3 (36) 9.6 (12) 6.5 (14) 9.8 (11) Performance Benchmark 3.0 (57) 5.7 (49) 5.7 (49) 8.9 (39) 5.7 (52) 8.8 (57) Absolute Nominal Target Rate of Return 1.8 (100) 5.7 (49) 5.7 (49) 6.6 (93) 6.2 (25) 6.7 (96) All Public Plans > $1B-Total Fund Median 3.1 5.7 5.7 8.8 5.7 8.9 Global Equity* 89,473,827,619 54.8 54.2 3.6 5.0 5.0 11.9 6.7 11.3 Asset Class Target 3.4 4.5 4.5 11.4 6.1 10.4 Domestic Equities 42,845,510,890 26.3 4.0 (37) 8.6 (27) 8.6 (27) 14.0 (28) 10.0 (22) 14.7 (19) Asset Class Target 4.1 (28) 9.0 (22) 9.0 (22) 14.0 (26) 10.2 (14) 14.7 (22) All Public Plans > $1B-US Equity Segment Median 3.8 7.2 7.2 13.3 9.2 14.0 Foreign Equities 36,171,492,378 22.2 3.0 (60) 0.4 (73) 0.4 (73) 9.7 (34) 3.1 (42) 8.0 (12) Asset Class Target 2.7 (75) 0.2 (80) 0.2 (80) 9.2 (68) 2.3 (83) 6.8 (87) All Public Plans > $1B-Intl. Equity Segment Median 3.1 1.0 1.0 9.4 3.0 7.4 Global Equities 8,845,853,415 5.4 4.0 7.4 7.4 11.3 6.9 10.7 Benchmark 4.0 6.3 6.3 11.8 6.5 10.7 Fixed Income 30,715,248,788 18.8 19.0 2.4 (73) 6.8 (60) 6.8 (60) 2.2 (77) 2.6 (76) 4.5 (58) Asset Class Target 2.4 (74) 6.7 (60) 6.7 (60) 2.0 (84) 2.5 (85) 3.5 (93) All Public Plans > $1B-US Fixed Income Segment Median 2.9 7.0 7.0 3.0 3.0 5.0 Private Equity 11,902,319,264 7.3 7.4 6.3 16.0 16.0 17.2 14.4 14.8 Asset Class Target 4.2 7.5 7.5 14.4 9.1 15.7 Real Estate 15,266,732,271 9.4 9.6 1.7 (41) 7.1 (41) 7.1 (41) 7.7 (45) 9.5 (46) 9.6 (28) Asset Class Target 1.1 (76) 6.9 (43) 6.9 (43) 7.0 (57) 9.0 (73) 8.6 (41) All Public Plans > $1B-Real Estate Segment Median 1.6 6.8 6.8 7.1 9.4 8.3 Strategic Investments 14,029,367,709 8.6 8.9 1.6 5.2 5.2 7.6 6.2 11.0 Short-Term Target 2.8 5.1 5.1 6.1 4.5 6.9 Cash 1,747,710,261 1.1 1.0 0.6 2.3 2.3 1.5 1.0 0.8 Bank of America Merrill Lynch 3-Month US Treasury Index 0.6 2.3 2.3 1.4 0.9 0.5

Benchmark and universe descriptions can be found in the Appendix. * Global Equity became an asset class in July 2010. The historical return series prior to July 2010 was derived from the underlying Domestic Equities, Foreign Equities, and Global Equities components.

19 As of June 30, 2019 Plan Sponsor Peer Group Analysis

All Public Plans > $1B-Total Fund 32.0

26.0

20.0

14.0

8.0 Return

2.0

-4.0

-10.0

-16.0 1 Fiscal 1 3 5 10 2018 2017 2016 Quarter YTD Year Years Years Years  Total Fund 3.2 (45) 6.3 (36) 6.3 (36) 9.6 (12) 6.5 (14) 9.8 (11) -3.0 (41) 17.2 (8) 7.1 (64)  Performance Benchmark 3.0 (57) 5.7 (49) 5.7 (49) 8.9 (39) 5.7 (52) 8.8 (57) -5.2 (80) 16.5 (24) 7.1 (65)

5th Percentile 4.0 8.1 8.1 10.0 6.8 10.1 0.5 17.7 9.2 1st Quartile 3.4 6.8 6.8 9.2 6.2 9.5 -1.9 16.4 8.1 Median 3.1 5.7 5.7 8.8 5.7 8.9 -3.5 15.6 7.5 3rd Quartile 2.7 4.9 4.9 8.2 5.2 8.5 -4.6 14.2 6.6 95th Percentile 2.2 3.6 3.6 5.9 3.9 7.1 -6.7 10.3 3.9

Population 94 91 91 90 90 86 125 101 104 Parentheses contain percentile rankings.

20

Total Fund As of June 30, 2019 Universe Asset Allocation Comparison

Total Fund BNY Mellon Public Funds > $1B Net Universe

Strategic Investments Cash Cash 8.6% 1.1% 2.0%

Alternatives 19.7% Private Equity 7.3%

Global Equity** Real Estate 6.5% 46.7% Real Estate 9.4%

Fixed Income Global Equity* 18.8% 54.8%

Fixed Income 25.2%

*Global Equity Allocation: 26.3% Domestic Equities; 22.2% **Global Equity Allocation: 27.1% Domestic Equities; 19.6% Foreign Equities; 5.4% Global Equities; 0.9% Global Equity Foreign Equities. Liquidity Account. Percentages are of the Total FRS Fund.

21 Total Fund As of June 30, 2019 Attribution

Global Equity 42 Global Equity 44

Fixed Income 1 Fixed Income 2

-1 Real Estate Real Estate 3

Private Equity 58 Private Equity 31

Strategic Investments 1 Strategic Investments 13

-2 Cash AA* -2 Cash AA*

-40 TAA -5 TAA

Other** 0 Other** 0

Total Fund 59 Total Fund 86

-100 -75 -50 -25 0 25 50 75 100 -100 -75 -50 -25 0 25 50 75 100 Basis Points Basis Points

1-Year Ending 6/30/2019 5-Year Ending 6/30/2019

*Cash AA includes Cash and Central Custody, Securities Lending Account income from 12/2009 to 3/2013 and unrealized gains and losses on securities lending collateral beginning June 2013, TF STIPFRS NAV Adjustment Account, and the Cash Expense Account. **Other includes legacy accounts and unexplained differences due to methodology.

22

Total Fund As of June 30, 2019 Asset Allocation Compliance

Market Current Target Minimum Maximum Value Allocation Allocation Allocation Allocation ($) (%) (%) (%) (%) Total Fund 163,135,205,913 100.0 100.0 Global Equity 89,473,827,619 54.8 54.2 45.0 70.0 Fixed Income 30,715,248,788 18.8 19.0 10.0 26.0 Private Equity 11,902,319,264 7.3 7.4 2.0 9.0 Real Estate 15,266,732,271 9.4 9.6 4.0 16.0 Strategic Investments 14,029,367,709 8.6 8.9 0.0 16.0 Cash 1,747,710,261 1.1 1.0 0.3 5.0

54.2% Global Equity $89,473,827,619 54.8% 0.7%

19.0% Fixed Income $30,715,248,788 18.8% -0.2 %

7.4% Private Equity $11,902,319,264 7.3% -0.1 %

9.6% Real Estate $15,266,732,271 9.4% -0.2 %

8.9% Strategic Investments $14,029,367,709 8.6% -0.3 %

1.0% Cash $1,747,710,261 1.1% 0.1%

-30.0 % -15.0 % 0.0% 15.0% 30.0% 45.0% 60.0% 75.0% 90.0%

Target Allocation Actual Allocation Allocation Differences

23 (This page is left blank intentionally)

24

Global Equity

25 Global Equity* As of June 30, 2019 Global Equity* Portfolio Overview

Current Allocation June 30, 2019 : $89,474M

Currency Managed Account 0.0% GE Liquidity 1.4% Global Equity Currency Program 0.4% Global Equities 9.9%

Domestic Equities 47.9%

Foreign Equities 40.4%

Return Summary 20.0

15.0

11.9 11.4 11.3 10.4 10.0 Return 6.7 6.1 5.0 5.0 4.5 5.0 4.5 3.6 3.4

0.0 1 Fiscal 1 3 5 10 Quarter YTD Year Years Years Years Global Equity Asset Class Target

* Global Equity became an asset class in July 2010. The historical return series prior to July 2010 was derived from the underlying Domestic Equities, Foreign Equities, and Global Equities components.

26

Domestic Equities

27 Domestic Equities As of June 30, 2019 Domestic Equities Portfolio Overview

Current Allocation June 30, 2019 : $42,846M

Internal Active 0.4% External Active 15.1%

Internal Passive 84.5%

Return Summary 24.0

18.0 14.7 14.7 14.0 14.0 12.0 10.0 10.2 Return 8.6 9.0 8.6 9.0

6.0 4.0 4.1

0.0 1 Fiscal 1 3 5 10 Quarter YTD Year Years Years Years Domestic Equities Asset Class Target

28

As of June 30, 2019 Plan Sponsor Peer Group Analysis

All Public Plans > $1B-US Equity Segment 36.0

28.0

20.0

12.0

4.0 Return

-4.0

-12.0

-20.0

-28.0 1 Fiscal 1 3 5 10 2018 2017 2016 Quarter YTD Year Years Years Years  Domestic Equities 4.0 (37) 8.6 (27) 8.6 (27) 14.0 (28) 10.0 (22) 14.7 (19) -5.2 (22) 21.2 (21) 11.9 (64)  Asset Class Target 4.1 (28) 9.0 (22) 9.0 (22) 14.0 (26) 10.2 (14) 14.7 (22) -5.2 (25) 21.1 (25) 12.7 (46)

5th Percentile 5.1 10.6 10.6 14.7 10.6 16.8 -3.4 23.2 16.0 1st Quartile 4.2 8.9 8.9 14.0 10.0 14.6 -5.3 21.1 13.6 Median 3.8 7.2 7.2 13.3 9.2 14.0 -6.1 19.9 12.6 3rd Quartile 3.4 6.0 6.0 12.2 8.2 13.5 -7.1 18.3 11.3 95th Percentile 2.9 2.9 2.9 9.6 6.2 12.0 -9.4 16.4 8.0

Population 55 53 53 50 48 34 54 59 60 Parentheses contain percentile rankings.

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30

Foreign Equities

31 Foreign Equities As of June 30, 2019 Foreign Equities Portfolio Overview

Current Allocation June 30, 2019 : $36,171M

Frontier Active 1.0% Developed Passive 9.5%

Emerging Active 25.9%

Developed Active 63.6%

Return Summary 16.0

12.0

9.7 9.2 8.0 8.0 6.8 Return

4.0 3.0 2.7 3.1 2.3

0.4 0.2 0.4 0.2 0.0 1 Fiscal 1 3 5 10 Quarter YTD Year Years Years Years Foreign Equities Asset Class Target

32

As of June 30, 2019 Plan Sponsor Peer Group Analysis

All Public Plans > $1B-Intl. Equity Segment 50.0

35.0

20.0

5.0 Return

-10.0

-25.0

-40.0 1 Fiscal 1 3 5 10 2018 2017 2016 Quarter YTD Year Years Years Years  Foreign Equities 3.0 (60) 0.4 (73) 0.4 (73) 9.7 (34) 3.1 (42) 8.0 (12) -14.9 (73) 30.2 (19) 4.1 (38)  Asset Class Target 2.7 (75) 0.2 (80) 0.2 (80) 9.2 (68) 2.3 (83) 6.8 (87) -14.8 (72) 27.9 (60) 4.3 (34)

5th Percentile 5.2 5.3 5.3 10.9 4.4 8.2 -10.9 32.8 7.9 1st Quartile 3.7 2.0 2.0 9.8 3.4 7.8 -13.4 29.8 4.7 Median 3.1 1.0 1.0 9.4 3.0 7.4 -14.0 28.6 3.4 3rd Quartile 2.7 0.3 0.3 9.1 2.6 7.1 -15.0 26.9 2.4 95th Percentile 1.8 -1.2 -1.2 8.4 1.8 6.1 -15.9 22.4 -0.9

Population 57 55 55 55 51 32 56 63 63 Parentheses contain percentile rankings.

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34

Global Equities

35 Global Equities As of June 30, 2019 Global Equities Performance Summary

Return Summary

18.0

16.0

14.0

12.0 11.8 11.3 10.7 10.7

10.0 Return 8.0 7.4 7.4 6.9 6.5 6.3 6.3 6.0

4.0 4.0 4.0

2.0

0.0 1 Fiscal 1 3 5 10 Quarter YTD Year Years Years Years Global Equities Benchmark

36

Fixed Income

37 Fixed Income As of June 30, 2019 Fixed Income Portfolio Overview

Current Allocation June 30, 2019 : $30,715M

Other 0.0% Fixed Income Liquidity 4.3% Active Internal 21.6%

Passive Internal 39.2%

Active External 34.8%

Return Summary 12.0

9.0

6.8 6.7 6.8 6.7 6.0

Return 4.5 3.5 3.0 2.4 2.6 2.5 2.4 2.2 2.0

0.0 1 Fiscal 1 3 5 10 Quarter YTD Year Years Years Years Fixed Income Asset Class Target

38

As of June 30, 2019 Plan Sponsor Peer Group Analysis

All Public Plans > $1B-US Fixed Income Segment 14.0

11.0

8.0

5.0

2.0 Return

-1.0

-4.0

-7.0

-10.0 1 Fiscal 1 3 5 10 2018 2017 2016 Quarter YTD Year Years Years Years  Fixed Income 2.4 (73) 6.8 (60) 6.8 (60) 2.2 (77) 2.6 (76) 4.5 (58) 1.0 (9) 2.4 (93) 2.3 (89)  Asset Class Target 2.4 (74) 6.7 (60) 6.7 (60) 2.0 (84) 2.5 (85) 3.5 (93) 0.9 (9) 2.3 (94) 2.0 (93)

5th Percentile 3.9 8.6 8.6 4.6 4.3 7.9 1.7 7.4 8.3 1st Quartile 3.2 7.5 7.5 3.7 3.6 5.5 0.0 5.5 6.2 Median 2.9 7.0 7.0 3.0 3.0 5.0 -0.5 4.6 4.6 3rd Quartile 2.4 6.2 6.2 2.3 2.6 4.0 -1.2 3.6 3.5 95th Percentile 1.9 4.1 4.1 1.2 0.8 3.0 -4.0 2.1 1.0

Population 57 55 55 54 52 36 57 62 64 Parentheses contain percentile rankings.

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40

Private Equity

41 Private Equity As of June 30, 2019 Overview

FRS Private Equity by Market Value* Preqin Private Equity Strategies by Market Value**

Other*** 12.0% Other**** 19.9%

Venture LBO Capital 58.1% 21.6% LBO 66.4% Venture Capital 21.9%

*Allocation data is as of June 30, 2019. **Allocation data is as of June 30, 2017, from the Preqin database. ***Other for the FRS Private Equity consists of Growth Capital, Secondary, PE Cash, and PE Transition. ****Other for the Preqin data consists of Distressed PE, Growth, Mezzanine, and other Private Equity/Special Situations. Preqin universe is comprised of 10,000 private equity funds representing $3.8 trillion.

42

Private Equity Time-Weighted Investment Results

Private Equity Return Summary as of June 30, 2019 32.0 24.0 17.2 16.0 16.0 14.4 14.4 14.8 15.7

Return 9.1 8.0 7.5 0.0 1 3 5 10 Year Years Years Years

Private Equity Asset Class Target

Private Equity Legacy Return Summary as of June 30, 2019 30.0 14.4 15.7 15.0 7.5 9.1 0.0

Return -5.1 -5.5 -15.0 -9.6 -8.5 -30.0 1 3 5 10 Year Years Years Years

Private Equity Legacy Asset Class Target

Private Equity Post Asset Class Return Summary as of June 30, 2019 32.0 24.0 16.1 17.3 16.1 16.0 14.4 14.6 15.7

Return 9.1 8.0 7.5 0.0 1 3 5 10 Year Years Years Years

Private Equity Post Asset Class Asset Class Target

43 Private Equity Dollar-Weighted Investment Results As of March 31, 2019 Since Inception

25.0 20.0 13.5 15.0 9.4 10.7 9.9 11.6 10.0 4.4 5.0 0.0 -5.0

Rate of Return (%) Private Equity Legacy Portfolio* Post-AC Portfolio**

Private Equity Target

As of March 31, 2019

Since Inception

25.0 20.0 13.2 13.4 13.4 12.5 15.0 9.4 10.0 4.4 5.0 0.0 -5.0

Rate of Return (%) Private Equity Legacy Portfolio* Post-AC Portfolio**

Private Equity Secondary Target***

*The Inception Date for the Legacy Portfolio is January 1989. **The Inception Date for the Post-AC Portfolio is September 2000. ***The Secondary Target is a blend of the Cambridge Associates Private Equity Index and the Cambridge Associates Venture Capital Index based on actual ABAL weights. Secondary Target data is on a quarterly lag.

44

Real Estate

45 Real Estate As of March 31, 2019 Overview

NFI-ODCE FRS* Index*

Other** Other*** 15.6% Apartment 4.5% Apartment 20.0% 25.0%

Office 34.0%

Industrial 14.8% Office 33.2% Industrial 18.7%

Retail Retail 16.4% 17.7%

*Property Allocation data is as of March 31, 2019. The FRS chart includes only the FRS private real estate assets. Property type information for the REIT portfolios is not included. **Other for the FRS consists of Hotel, Land, Preferred Equity, Agriculture, Self-Storage and Senior Housing. ***Other for the NFI-ODCE Index consists of Hotel, Senior Living, Health Care, Mixed Use, Single Family Residential, Parking, Timber/Agriculture, Land and Infrastructure.

46

Real Estate As of June 30, 2019 Real Estate Portfolio Overview

Current Allocation June 30, 2019 : $15,267M

Cash 0.2% REITs 10.5% Externally Managed Joint Ventures 0.0%

Pooled Funds 26.2%

Principal Investments 63.1%

Return Summary 16.0

12.0

9.5 9.6 9.0 8.6 8.0 7.7 7.1 6.9 7.1 6.9 7.0 Return

4.0

1.7 1.1 0.0 1 Fiscal 1 3 5 10 Quarter YTD Year Years Years Years Real Estate Asset Class Target

47 Real Estate

Principal Investments Return Summary as of June 30, 2019 16.0 12.0 9.1 9.1 8.7 7.7 8.0 6.4 6.6 7.1 7.0 Return 4.0 0.0 1 3 5 10 Year Years Years Years

Principal Investments NCREIF NPI Index

Pooled Funds Return Summary as of June 30, 2019 20.0 15.0 11.4 9.5 9.2 9.6 10.0 7.8 7.8 6.6 7.0 Return 5.0 0.0 1 3 5 10 Year Years Years Years

Pooled Funds NFI-ODCE Index Net of Fees

REITs Return Summary as of June 30, 2019 24.0 18.0 14.3 13.4 12.0 10.1 7.7 Return 6.2 6.3 6.0 4.5 4.9 0.0 1 3 5 10 Year Years Years Years

REITs FTSE EPRA/NAREIT Developed Index

48

Strategic Investments

49 Strategic Investments As of June 30, 2019 Strategic Investments Portfolio Overview

Current Allocation June 30, 2019 : $14,029M

SI Cash AA 0.2%

SI Diversifying Strategies 25.1% SI Debt 24.7%

SI Flexible Mandates 9.9%

SI Equity 19.1%

SI Real Assets 21.0%

Return Summary 16.0

12.0 11.0

8.0 7.6 6.9 Return 6.1 6.2 5.2 5.1 5.2 5.1 4.5 4.0 2.8 1.6

0.0 1 Fiscal 1 3 5 10 Quarter YTD Year Years Years Years Strategic Investments Short-Term Target

50

Cash

51 Cash As of June 30, 2019 Cash Performance Summary

Return Summary

3.6

3.2

2.8

2.4 2.3 2.3 2.3 2.3

2.0 Return 1.6 1.5 1.4

1.2

1.0 0.9 0.8 0.8 0.6 0.6 0.5 0.4

0.0 1 Fiscal 1 3 5 10 Quarter YTD Year Years Years Years Cash Bank of America Merrill Lynch 3-Month US Treasury Index

52

Appendix

53 As of June 30, 2019 Appendix

Total FRS Assets Performance Benchmark- A combination of the Global Equity Target, the Barclays Capital U.S. Intermediate Aggregate Index, the Private Equity Target Index, the Real Estate Investments Target Index, the Strategic Investments Target Benchmark, and the Bank of America Merrill Lynch 3-Month US Treasury Index. The short-term target policy allocations to the Strategic Investments, Real Estate and Private Equity asset classes are floating and based on the actual average monthly balance of the Global Equity asset class. Please refer to section VII. Performance Measurement in the FRS Defined Benefit Plan Investment Policy Statement for more details on the calculation of the Performance Benchmark. Prior to October 1, 2013, the Performance benchmark was a combination of the Global Equity Target, the Barclays Aggregate Bond Index, the Private Equity Target Index, the Real Estate Investments Target Index, the Strategic Investments Target Benchmark, and the iMoneyNet First Tier Institutional Money Market Funds Net Index. The short-term target policy allocations to the Strategic Investments, Real Estate and Private Equity asset classes are floating and based on the actual average monthly balance of the Global Equity asset class. Prior to July 2010, the Performance Benchmark was a combination of the Russell 3000 Index, the Foreign Equity Target Index, the Strategic Investments Target Benchmark, the Barclays Aggregate Bond Index, the Real Estate Investments Target Index, the Private Equity Target Index, the Barclays U.S. High Yield Ba/B 2% Issuer Capped Index, and the iMoneyNet First Tier Institutional Money Market Funds Gross Index. During this time, the short-term target policy allocations to Strategic Investments, Real Estate and Private Equity asset classes were floating and based on the actual average monthly balance of the Strategic Investments, Real Estate and Private Equity asset classes. The target weights shown for Real Estate and Private Equity were the allocations that the asset classes were centered around. The actual target weight floated around this target month to month based on changes in asset values.

Total Global Equity Performance Benchmark- A custom version of the MSCI All Country World Investable Market Index, adjusted to exclude companies divested under the provisions of the Protecting Florida's Investments Act (PFIA). Prior to July 2010, the asset class benchmark is a weighted average of the underlying Domestic Equities, Foreign Equities and Global Equities historical benchmarks.

Total Domestic Equities Performance Benchmark- The Russell 3000 Index. Prior to July 1, 2002, the benchmark was the Wilshire 2500 Stock Index. Prior to January 1, 2001, the benchmark was the Wilshire 2500 Stock Index ex-Tobacco. Prior to May 1, 1997, the benchmark was the Wilshire 2500 Stock Index. Prior to September 1, 1994, the benchmark was the S&P 500 Stock Index. Total Foreign Equities Performance Benchmark- A custom version of the MSCI ACWI ex-U.S. Investable Market Index adjusted to exclude companies divested under the PFIA. Prior to April 1, 2008, it was the MSCI All Country World Index ex-U.S. Investable Market Index. Prior to September 24, 2007, the target was the MSCI All Country World ex-U.S. Free Index. Prior to November 1, 1999, the benchmark was 85% MSCI Europe, Australasia and Far East (EAFE) Foreign Stock Index and 15% IFCI Emerging Markets Index with a half weight in Malaysia. Prior to March 31, 1995, the benchmark was the EAFE Index.

Total Global Equities Performance Benchmark- Aggregated based on each underlying manager's individual benchmark. The calculation accounts for the actual weight and the benchmark return. The benchmarks used for the underlying managers include both the MSCI FSB All Country World ex-Sudan ex-Iran Net Index and MSCI FSB All Country World ex-Sudan ex-Iran Net Investable Market Index (IMI).

54

As of June 30, 2019 Appendix

Total Fixed Income Performance Benchmark- The Barclays Capital U.S. Intermediate Aggregate Index. Prior to October 1, 2013, it was the Barclays U.S. Aggregate Bond Index. Prior to June 1, 2007, it was the Fixed Income Management Aggregate (FIMA). Prior to July 1, 1999, the benchmark was the Florida High Yield Extended Duration Index. Prior to July 31, 1997, the benchmark was the Florida Extended Duration Index. Prior to July 1, 1989, the Salomon Brothers Broad Investment- Grade Bond Index was the benchmark. For calendar year 1985, the performance benchmark was 70% Shearson Lehman Extended Duration and 30% Salomon Brothers Mortgage Index.

Total Private Equity Performance Benchmark- The MSCI All Country World Investable Market Index (ACWI IMI), adjusted to reflect the provisions of the Protecting Florida's Investments Act, plus a fixed premium return of 300 basis points per annum. Prior to July 1, 2014, the benchmark was the domestic equities target index return (Russell 3000 Index) plus a fixed premium return of 300 basis points per annum. Prior to July 1, 2010, it was the domestic equities target index return plus a fixed premium return of 450 basis points per annum. Prior to November 1, 1999, Private Equities was part of the Domestic Equities asset class and its benchmark was the domestic equities target index return plus 750 basis points.

Total Real Estate Performance Benchmark- The core portion of the asset class is benchmarked to an average of the National Council of Real Estate Investment Fiduciaries (NCREIF) Fund Index- Open-ended Diversified Core Equity, net of fees, weighted at 76.5%, and the non-core portion of the asset class is benchmarked to an average of the National Council of Real Estate Investment Fiduciaries (NCREIF) Fund Index- Open-ended Diversified Core Equity, net of fees, weighted at 13.5%, plus a fixed return premium of 150 basis points per annum, and the FTSE EPRA/NAREIT Developed Index, in dollar terms, net of withholding taxes on non-resident institutional investors, weighted at 10%. Prior to July 1, 2014, the benchmark was a combination of 90% NCREIF ODCE Index, net of fees, and 10% FTSE EPRA/NAREIT Developed Index, net of fees. Prior to July 1, 2010, it was a combination of 90% NCREIF ODCE Index, gross of fees, and 10% Dow Jones U.S. Select RESI. Prior to June 1, 2007, it was the Consumer Price Index plus 450 basis points annually. Prior to July 1, 2003, the benchmark was the Dow Jones U.S. Select Real Estate Securities Index Un-Levered. Prior to November 1, 1999, the benchmark was the Russell-NCREIF Property Index.

Total Strategic Investments Performance Benchmark- Long-term, 4.0% plus the contemporaneous rate of inflation or CPI. Short-term, a weighted aggregation of individual portfolio level benchmarks.

Total Cash Performance Benchmark- Bank of America Merrill Lynch 3-Month US Treasury Index. Prior to July 1, 2018 it was the iMoneyNet First Tier Institutional Money Market Funds Net Index. Prior to July 1, 2010, it was the iMoneyNet First Tier Institutional Money Market Funds Gross Index. Prior to June 1, 2007, it was the return of the Merrill Lynch 90-Day (Auction Average) Treasury Bill Yield Index.

55 As of June 30, 2019 Appendix

Description of Benchmarks

Bank of America Merrill Lynch 3-Month US Treasury Index- Consists of U.S. Treasury Bills maturing in 90 days.

Barclays Capital U.S. Intermediate Aggregate Bond Index- A market value-weighted index consisting of U.S. Treasury securities, corporate bonds and mortgage-related and asset-backed securities with one to ten years to maturity and an outstanding par value of $250 million or greater.

Consumer Price Index (CPI)- The CPI, an index consisting of a fixed basket of goods bought by the typical consumer and used to measure consumer inflation.

FTSE EPRA/NAREIT Developed Index- An index designed to represent general trends in eligible real estate equities worldwide. Relevant real estate activities are defined as the ownership, disposure and development of income-producing real estate. This index covers the four primary core asset classes (Industrial, Retail, Office, and Apartment).

MSCI All Country World Investable Market Index- A free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed and emerging markets. This investable market index contains constituents from the large, mid, and small cap size segments and targets a coverage range around 99% of free-float adjusted market capitalization.

NCREIF ODCE Property Index- The NCREIF ODCE is a capitalization-weighted, gross of fee, time-weighted return index. The index is a summation of open- end funds, which NCREIF defines as infinite-life vehicles consisting of multiple investors who have the ability to enter or exit the fund on a periodic basis, subject to contribution and/or redemption requests.

Russell 3000 Index- A capitalization-weighted stock index consisting of the 3,000 largest publicly traded U.S. stocks by capitalization. This represents most publicly traded, liquid U.S. stocks.

56

As of June 30, 2019 Appendix

Description of Universes

Total Fund- A universe comprised of 102 total fund portfolio returns, net of fees, of public defined benefit plans calculated and provided by BNY Mellon Performance & Risk Analytics and Investment Metrics. Aggregate assets in the universe comprised $1.6 trillion as of quarter-end and the average market value was $15.7 billion.

Domestic Equity- A universe comprised of 53 total domestic equity portfolio returns, net of fees, of public defined benefit plans calculated and provided by BNY Mellon Performance & Risk Analytics. Aggregate assets in the universe comprised $1.2 trillion as of quarter-end and the average market value was $23.4 billion.

Foreign Equity- A universe comprised of 56 total international equity portfolio returns, net of fees, of public defined benefit plans calculated and provided by BNY Mellon Performance & Risk Analytics. Aggregate assets in the universe comprised $1.3 trillion as of quarter-end and the average market value was $22.7 billion.

Fixed Income- A universe comprised of 56 total fixed income portfolio returns, net of fees, of public defined benefit plans calculated and provided by BNY Mellon Performance & Risk Analytics. Aggregate assets in the universe comprised $1.2 trillion as of quarter-end and the average market value was $21.4 billion.

Real Estate- A universe comprised of 42 total real estate portfolio returns, net of fees, of public defined benefit plans calculated and provided by BNY Mellon Performance & Risk Analytics. Aggregate assets in the universe comprised $1.2 trillion as of quarter-end and the average market value was $28.5 billion.

Private Equity- An appropriate universe for private equity is unavailable.

Strategic Investments- An appropriate universe for strategic investments is unavailable.

57 As of June 30, 2019 Appendix

Explanation of Exhibits

Quarterly and Cumulative Excess Performance- The vertical axis, excess return, is a measure of fund performance less the return of the primary benchmark. The horizontal axis represents the time series. The quarterly bars represent the underlying funds' relative performance for the quarter.

Ratio of Cumulative Wealth Graph- An illustration of a portfolio's cumulative, un-annualized performance relative to that of its benchmark. An upward-sloping line indicates superior fund performance versus its benchmark. Conversely, a downward-sloping line indicates underperformance by the fund. A flat line is indicative of benchmark-like performance.

Performance Comparison - Plan Sponsor Peer Group Analysis- An illustration of the distribution of returns for a particular asset class. The component's return is indicated by the circle and its performance benchmark by the triangle. The top and bottom borders represent the 5th and 95th percentiles, respectively. The solid line indicates the median while the dotted lines represent the 25th and 75th percentiles.

58

As of June 30, 2019 Notes

x The rates of return contained in this report are shown on an after-fees basis unless otherwise noted. They are geometric and time-weighted. Returns for periods longer than one year are annualized. x Universe percentiles are based upon an ordering system in which 1 is the best ranking and 100 is the worst ranking. x Due to rounding throughout the report, percentage totals displayed may not sum to 100%. Additionally, individual fund totals in dollar terms may not sum to the plan total.

59 Disclaimer

Past performance is not necessarily indicative of future results.

Unless otherwise noted, performance returns presented reflect the respective fund’s performance as indicated. Returns may be presented on a before-fees basis (gross) or after- fees basis (net). After-fee performance is net of each respective sub-advisor’s investment management fees and includes the reinvestment of dividends and interest as indicated on the notes page within this report or on the asset allocation and performance summary pages. Actual returns may be reduced by AHIC’s investment advisory fees or other trust payable expenses you may incur as a client. AHIC’s advisory fees are described in Form ADV Part 2A. Portfolio performance, characteristics and volatility also may differ from the benchmark(s) shown.

The information contained herein is proprietary and provided for informational purposes only. It is not complete and does not contain certain material information about making investments in securities including important disclosures and risk factors. All securities transactions involve substantial risk of loss. Under no circumstances does the information in this report represent a recommendation to buy or sell stocks, limited partnership interests, or other investment instruments.

The data contained in these reports is compiled from statements provided by custodian(s), record-keeper(s), and/or other third-party data provider(s). This document is not intended to provide, and shall not be relied upon for, accounting and legal or tax advice. AHIC has not conducted additional audits and cannot warrant its accuracy or completeness. We urge you to carefully review all custodial statements and notify AHIC with any issues or questions you may have with respect to investment performance or any other matter set forth herein.

The mutual fund information found in this report is provided by Thomson Reuters Lipper and AHIC cannot warrant its accuracy or timeliness. Thomson Reuters Lipper Global Data Feed provides comprehensive coverage of mutual fund information directly to Investment Metrics, AHIC’s performance reporting vendor, via the PARis performance reporting platform. Thomson Reuters Lipper is the data provider chosen by Investment Metrics, and as such, AHIC has no direct relationship with Thomson Reuters Lipper.

Refer to Hedge Fund Research, Inc. www.hedgefundresearch.com for information on HFR indices.

FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” and “FTSE4Good®” are trademarks of the London Stock Exchange Group companies and are used by FTSE International Limited under license. The FTSE indices are calculated by FTSE International Limited in conjunction with Indonesia Stock Exchange, Bursa Malaysia Berhad, The Philippine Stock Exchange, Inc., Singapore Exchange Securities Trading Limited and the Stock Exchange of Thailand (the "Exchanges"). All intellectual property rights in the FTSE/ASEAN Index vest in FTSE and the Exchanges. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Aon Hewitt Investment Consulting, Inc. (“AHIC”) is a federally registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). AHIC is also registered with the Commodity Futures Trade Commission as a commodity pool operator and a commodity trading advisor, and is a member of the National Futures Association. The AHIC Form ADV Part 2A disclosure statement is available upon written request to:

Aon Hewitt Investment Consulting, Inc. 200 East Randolph Street Suite 1500 Chicago, IL 60601 ATTN: AHIC Compliance Officer

60

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Table Of Contents

1 FRS Investment Plan 1 2 Appendix 11 (This page is left blank intentionally)

FRS Investment Plan

1 As of June 30, 2019 Asset Allocation & Performance

Allocation Performance(%) Market Year 1 1 3 5 10 Value % To Quarter Year Years Years Years ($) Date FRS Investment Plan 11,241,206,978 100.0 3.1 13.0 5.2 9.3 5.9 8.4 Total Plan Aggregate Benchmark 3.0 12.6 5.2 8.8 5.6 8.0 Blank Retirement Date 5,048,856,680 44.9 Blank FRS Retirement Fund 384,272,071 3.4 2.8 (38) 9.7 (25) 5.5 (14) 5.9 (55) 3.6 (75) 6.6 (83) Retirement Custom Index 2.9 (28) 9.7 (25) 5.8 (10) 5.8 (57) 3.7 (72) 6.2(89) IM Retirement Income (MF) Median 2.7 9.2 5.3 6.1 4.3 8.0 FRS 2015 Retirement Date Fund 301,723,693 2.7 2.8 (76) 9.9 (65) 5.5 (80) 6.5 (54) 3.9 (83) 7.0 (80) 2015 Retirement Custom Index 2.9 (67) 9.9 (62) 5.8 (73) 6.2 (67) 3.9 (83) 6.7 (83) IM Mixed-Asset Target 2015 (MF) Median 3.0 10.2 6.1 6.6 4.6 8.1 FRS 2020 Retirement Date Fund 603,971,539 5.4 2.9 (84) 10.6 (64) 5.6 (72) 7.6 (36) 4.6 (71) 7.9 (62) 2020 Retirement Custom Index 3.0 (81) 10.6 (64) 5.8 (71) 7.3 (42) 4.5 (72) 7.6 (65) IM Mixed-Asset Target 2020 (MF) Median 3.1 10.9 6.2 7.1 4.9 8.3 FRS 2025 Retirement Date Fund 747,875,267 6.7 3.0 (78) 11.6 (68) 5.7 (73) 8.6 (34) 5.2 (61) 8.8 (74) 2025 Retirement Custom Index 3.0 (76) 11.6 (71) 5.7 (72) 8.3 (39) 5.0 (66) 8.5 (76) IM Mixed-Asset Target 2025 (MF) Median 3.2 12.1 6.2 8.2 5.3 9.5 FRS 2030 Retirement Date Fund 691,675,756 6.2 3.1 (80) 12.5 (75) 5.6 (68) 9.4 (36) 5.7 (55) 9.6 (51) 2030 Retirement Custom Index 3.1 (80) 12.4 (77) 5.6 (68) 9.1 (46) 5.5 (64) 9.3 (61) IM Mixed-Asset Target 2030 (MF) Median 3.3 13.1 6.1 9.0 5.8 9.7 FRS 2035 Retirement Date Fund 652,941,446 5.8 3.2 (83) 13.2 (86) 5.5 (70) 10.3 (35) 6.0 (53) 10.3 (61) 2035 Retirement Custom Index 3.2 (83) 13.1 (89) 5.5 (69) 9.8 (47) 5.7 (72) 10.0 (70) IM Mixed-Asset Target 2035 (MF) Median 3.3 14.3 5.8 9.7 6.1 10.4 FRS 2040 Retirement Date Fund 578,110,676 5.1 3.2 (61) 14.0 (81) 5.3 (68) 10.7 (40) 6.2 (63) 10.4 (61) 2040 Retirement Custom Index 3.2 (64) 13.8 (83) 5.3 (68) 10.4 (47) 5.9 (74) 10.1 (70) IM Mixed-Asset Target 2040 (MF) Median 3.4 15.0 5.7 10.3 6.4 10.5 FRS 2045 Retirement Date Fund 558,129,464 5.0 3.3 (66) 14.5 (83) 5.1 (70) 10.9 (49) 6.3 (61) 10.5 (81) 2045 Retirement Custom Index 3.2 (70) 14.3 (85) 5.1 (70) 10.7 (54) 6.1 (74) 10.2 (89) IM Mixed-Asset Target 2045 (MF) Median 3.4 15.6 5.6 10.9 6.5 10.8 FRS 2050 Retirement Date Fund 331,126,574 2.9 3.3 (65) 14.8 (77) 5.0 (69) 10.9 (54) 6.3 (69) 10.5 (76) 2050 Retirement Custom Index 3.2 (66) 14.7 (79) 5.0 (69) 10.7 (57) 6.1 (78) 10.2 (80) IM Mixed-Asset Target 2050 (MF) Median 3.4 15.6 5.7 11.0 6.6 10.9 FRS 2055 Retirement Date Fund 170,468,203 1.5 3.3 (68) 14.8 (85) 5.0 (67) 10.9 (62) 6.3 (73) - 2055 Retirement Custom Index 3.2 (73) 14.7 (87) 5.0 (67) 10.7 (64) 6.1(79) - IM Mixed-Asset Target 2055 (MF) Median 3.5 15.8 5.6 11.1 6.6 - FRS 2060 Retirement Date Fund 28,561,990 0.3 3.3 (67) 14.9 (84) 5.0 (67)- - - 2060 Retirement Custom Index 3.2 (73) 14.7 (87) 5.0 (67) - - - IM Mixed-Asset Target 2055 (MF) Median 3.5 15.8 5.6 - - -

2

As of June 30, 2019 Asset Allocation & Performance

Allocation Performance(%) Market Year 1 1 3 5 10 Value % To Quarter Year Years Years Years ($) Date Cash 953,102,498 8.5 0.6 (2) 1.3 (1) 2.5 (1) 1.7 (1) 1.1 (1) 0.7 (1) IM U.S. Taxable Money Market (MF) Median 0.6 1.1 2.1 1.2 0.7 0.4 FRS Money Market Fund 953,102,498 8.5 0.6 (2) 1.3 (1) 2.5 (1) 1.7 (1) 1.1 (1) 0.7 (1) iMoneyNet 1st Tier Institutional Net Index 0.6 (25) 1.2 (18) 2.2 (20) 1.3 (17) 0.8 (18) 0.5 (18) IM U.S. Taxable Money Market (MF) Median 0.6 1.1 2.1 1.2 0.7 0.4 Real Assets 115,512,653 1.0 FRS Inflation Adjusted Multi-Assets Fund 115,512,653 1.0 1.8 9.0 2.0 3.7 0.6 4.0 FRS Custom Multi-Assets Index 2.4 9.6 3.5 3.9 1.4 4.0 Fixed Income 644,739,430 5.7 3.1 (1) 6.9 (1) 8.1 (1) 3.4 (5) 3.4 (1) 4.6 (15) Total Bond Index 3.0 (1) 6.5 (1) 7.8 (1) 3.0 (10) 3.1 (1) 4.2 (25) IM U.S. Intermediate Investment Grade (MF) Median 1.8 4.1 5.4 2.2 2.1 3.4 FRS U.S. Bond Enhanced Index Fund 228,939,194 2.0 3.1 (39) 6.1 (34) 7.9 (39) 2.4 (1) 3.0 (35) 4.0 (33) Blmbg. Barc. U.S. Aggregate 3.1 (39) 6.1 (34) 7.9 (39) 2.3 (1) 2.9 (36)3.9(33) IM U.S. Long Term Treasury/Govt Bond (MF) Median 2.9 5.1 7.1 1.2 2.4 3.2 FRS Intermediate Bond Fund 104,034,054 0.9 2.6 (2) 5.4 (1) 7.1 (1) 2.3 (34) 2.6 (4) 3.9 (32) Blmbg. Barc. U.S. Intermediate Aggregate 2.4 (14) 4.7 (22) 6.7 (7) 2.0 (59) 2.5 (10) 3.3 (53) IM U.S. Intermediate Investment Grade (MF) Median 1.8 4.1 5.4 2.2 2.1 3.4 FRS Core Plus Bond Fund 311,766,182 2.8 3.3 (25) 7.7 (20) 8.5 (15) 4.0 (19) 3.6 (18) 6.0 (21) FRS Custom Core-Plus Fixed Income Index 3.0 (70) 7.0 (47) 8.1 (39) 3.3 (45) 3.3 (42) 5.4 (49) IM U.S. Broad Market Core+ Fixed Income (SA+CF) Median 3.2 6.9 8.0 3.2 3.2 5.4 Domestic Equity 3,041,972,570 27.1 3.8 (54) 18.8 (42) 6.8 (50) 14.1 (31) 9.9 (28) 15.1 (17) Total U.S. Equities Index 3.8 (53) 18.5 (46) 7.1 (48) 13.5 (39) 9.6 (33) 14.5 (26) IM U.S. Multi-Cap Equity (MF) Median 3.9 18.2 6.8 12.6 8.4 13.5 FRS U.S. Stock Market Index Fund 1,081,814,489 9.6 4.1 (57) 18.8 (48) 9.1 (58) 14.1 (48) 10.3 (45) 14.8 (29) Russell 3000 Index 4.1 (57) 18.7 (48) 9.0 (58) 14.0 (50) 10.2 (47) 14.7 (32) IM U.S. Large Cap Equity (MF) Median 4.3 18.5 9.7 13.9 10.0 13.9 FRS U.S. Large Cap Stock Fund 1,016,230,211 9.0 3.0 (76) 17.6 (53) 5.4 (74) 14.9 (29) 10.2 (37) 15.2 (20) Russell 1000 Index 4.2 (44) 18.8 (38) 10.0 (33) 14.1 (35) 10.5 (32) 14.8(27) IM U.S. Large Cap Equity (SA+CF) Median 4.1 17.9 8.4 13.1 9.6 13.9 FRS U.S. Small/Mid Cap Stock Fund 943,927,870 8.4 4.1 (52) 20.6 (42) 3.8 (43) 13.9 (31) 9.3 (23) 16.0 (12) FRS Custom Small/Mid Cap Index 3.0 (67) 19.2 (49) 1.8 (49) 12.3 (41) 7.8 (42) 12.5 (82) IM U.S. SMID Cap Equity (SA+CF) Median 4.1 19.0 1.4 11.5 7.1 14.0

3 As of June 30, 2019 Asset Allocation & Performance

Allocation Performance(%) Market Year 1 1 3 5 10 Value % To Quarter Year Years Years Years ($) Date International/Global Equity 736,228,012 6.5 3.2 (38) 14.8 (35) 1.6 (35) 10.3 (27) 3.7 (28) 8.1 (26) Total Foreign and Global Equities Index 2.9 (43) 13.7 (45) 1.1 (40) 9.5 (34) 2.8 (42) 7.4 (41) IM International Equity (MF) Median 2.4 13.3 0.0 8.7 2.5 6.9 FRS Foreign Stock Index Fund 290,023,577 2.6 2.9 (42) 13.9 (44) 0.6 (44) 9.5 (35) 2.6 (48) 7.2 (45) MSCI All Country World ex-U.S. IMI Index 2.7 (45) 13.3 (50) 0.3 (47) 9.2 (42) 2.2 (55) 6.9 (52) IM International Equity (MF) Median 2.4 13.3 0.0 8.7 2.5 6.9 FRS Global Stock Fund 281,421,392 2.5 4.4 (34) 18.9 (29) 7.4 (35) 14.7 (14) 9.4 (12) 12.6 (17) MSCI All Country World Index Net 3.6 (48) 16.2 (49) 5.7 (43) 11.6 (34) 6.2 (38) 10.2 (48) IM Global Equity (MF) Median 3.4 16.0 4.7 9.9 5.5 10.1 FRS Foreign Stock Fund 164,783,043 1.5 3.9 (20) 17.6 (5) 1.9 (13) 10.8 (6) 4.4 (1) 8.2 (1) MSCI All Country World ex-U.S. Index 3.0 (41) 13.6 (30) 1.3 (21) 9.4 (13) 2.4 (4) 6.7 (31) IM International Large Cap Core Equity (MF) Median 2.6 12.6 -0.4 8.6 1.6 6.2 FRS Self-Dir Brokerage Acct 700,795,135 6.2

The returns for the Retirement Date Funds, Inflation Adjusted Multi-Assets Fund, Core Plus Bond Fund, U.S. Large Cap Stock Fund, and U.S. Small/Mid Cap Stock Fund use prehire data for all months prior to 7/1/2014, actual live data is used thereafter. Note: The SDBA opened for members on 1/2/14. No performance calculations will be made for the SDBA.

4

As of June 30, 2019 Asset Allocation & Performance

Performance(%) 2018 2017 2016 2015 2014 2013 2012 2011 2010 FRS Investment Plan -5.7 16.4 8.0 -0.9 4.9 15.2 10.5 0.7 10.6 Total Plan Aggregate Benchmark -5.8 15.5 8.5 -1.3 4.9 14.6 9.7 0.9 10.2 Blank Retirement Date Blank FRS Retirement Fund -3.7 (53) 10.8 (52) 6.2 (59) -2.6 (100) 4.4 (82) 3.5 (96) 10.7 (59) 3.4 (10) 11.5 (55) Retirement Custom Index -3.8 (55) 10.4 (58) 6.2 (59) -1.8 (98) 3.6 (89) 3.4 (96) 8.5 (78) 5.0 (1) 9.9 (84) IM Retirement Income (MF) Median -3.7 10.8 6.7 -0.1 5.7 12.8 11.0 -0.5 11.8 FRS 2015 Retirement Date Fund -3.8 (54) 12.0 (39) 6.7 (44) -2.5 (98) 4.4 (78) 5.5 (89) 11.3 (43) 2.1 (20) 11.5 (62) 2015 Retirement Custom Index -3.9 (57) 11.2 (60) 6.5 (52) -1.8 (90) 3.7 (92) 5.7 (88) 9.6 (88) 3.2 (1) 10.4 (85) IM Mixed-Asset Target 2015 (MF) Median -3.7 11.5 6.6 -0.7 4.9 11.5 11.0 0.9 11.7 FRS 2020 Retirement Date Fund -4.4 (53) 14.0 (24) 7.4 (22) -2.1 (91) 4.4 (79) 9.6 (75) 12.4 (38) 0.6 (38) 12.2 (64) 2020 Retirement Custom Index -4.5 (55) 13.3 (47) 7.1 (32) -1.6 (80) 3.9 (88) 9.7 (75) 11.0 (74) 1.5 (21) 11.2 (86) IM Mixed-Asset Target 2020 (MF) Median -4.3 13.1 6.7 -0.8 5.1 13.0 11.8 0.2 12.8 FRS 2025 Retirement Date Fund -5.2 (46) 16.1 (26) 8.0 (14) -1.7 (80) 4.5 (86) 13.7 (74) 13.5 (43) -0.7 (35) 12.5 (88) 2025 Retirement Custom Index -5.3 (51) 15.5 (39) 7.6 (20) -1.5 (77) 4.2 (91) 13.8 (74) 12.4 (73) -0.3 (26) 11.8 (93) IM Mixed-Asset Target 2025 (MF) Median -5.3 15.2 7.2 -1.0 5.5 16.1 13.3 -1.0 13.7 FRS 2030 Retirement Date Fund -6.0 (44) 18.0 (30) 8.5 (18) -1.3 (63) 4.5 (83) 18.1 (54) 14.6 (34) -2.1 (50) 13.0 (86) 2030 Retirement Custom Index -6.0 (45) 17.3 (48) 8.0 (33) -1.5 (67) 4.4 (83) 18.2 (52) 13.8 (53) -2.0 (49) 12.5 (91) IM Mixed-Asset Target 2030 (MF) Median -6.2 17.2 7.5 -1.0 5.7 18.2 14.0 -2.2 13.9 FRS 2035 Retirement Date Fund -6.7 (37) 19.8 (27) 9.1 (17) -1.4 (51) 4.4 (84) 22.0 (38) 15.8 (23) -3.0 (46) 13.7 (80) 2035 Retirement Custom Index -6.8 (38) 18.9 (54) 8.3 (43) -1.7 (67) 4.3 (85) 22.0 (38) 15.2 (46) -3.1 (47) 13.3 (89) IM Mixed-Asset Target 2035 (MF) Median -7.2 18.9 8.3 -1.3 5.7 20.8 15.1 -3.1 14.6 FRS 2040 Retirement Date Fund -7.5 (39) 20.9 (28) 9.2 (17) -1.4 (55) 4.4 (83) 22.3 (48) 15.8 (36) -3.0 (38) 13.7 (79) 2040 Retirement Custom Index -7.5 (39) 20.4 (45) 8.6 (43) -1.7 (69) 4.3 (84) 22.4 (48) 15.2 (50) -3.1 (38) 13.3 (85) IM Mixed-Asset Target 2040 (MF) Median -7.9 20.3 8.4 -1.1 5.9 21.7 15.2 -3.7 14.7 FRS 2045 Retirement Date Fund -8.0 (49) 21.5 (26) 9.4 (18) -1.5 (53) 4.4 (82) 22.3 (60) 15.8 (38) -3.0 (26) 13.7 (86) 2045 Retirement Custom Index -8.0 (49) 21.2 (39) 8.9 (36) -1.7 (64) 4.3 (83) 22.4 (60) 15.2 (68) -3.1 (26) 13.3 (89) IM Mixed-Asset Target 2045 (MF) Median -8.0 21.0 8.5 -1.3 5.8 23.1 15.7 -3.9 15.0 FRS 2050 Retirement Date Fund -8.4 (55) 21.6 (32) 9.5 (20) -1.5 (58) 4.4 (82) 22.3 (53) 15.8 (36) -3.0 (20) 13.7 (84) 2050 Retirement Custom Index -8.4 (55) 21.3 (52) 8.9 (37) -1.7 (65) 4.3 (82) 22.4 (53) 15.2 (58) -3.1 (20) 13.3 (87) IM Mixed-Asset Target 2050 (MF) Median -8.3 21.3 8.4 -1.3 6.0 23.3 15.6 -4.0 14.9 FRS 2055 Retirement Date Fund -8.4 (53) 21.5 (47) 9.3 (27) -1.4 (54) 4.4 (81) 22.3 (72) 15.8 (45) - - 2055 Retirement Custom Index -8.4 (53) 21.3 (55) 8.9 (33) -1.7 (63) 4.3 (81) 22.4 (71) 15.2 (75) - - IM Mixed-Asset Target 2055 (MF) Median -8.3 21.5 8.5 -1.3 5.7 23.2 15.7 - - FRS 2060 Retirement Date Fund -8.3 (52) ------2060 Retirement Custom Index -8.4 (53) ------IM Mixed-Asset Target 2055 (MF) Median -8.3------

5 As of June 30, 2019 Asset Allocation & Performance

Performance(%) 2018 2017 2016 2015 2014 2013 2012 2011 2010 Cash 2.2 (1) 1.2 (1) 0.6 (1) 0.2 (1) 0.1 (1) 0.2 (1) 0.3 (1) 0.2 (1) 0.3 (2) IM U.S. Taxable Money Market (MF) Median 1.7 0.7 0.2 0.0 0.0 0.0 0.0 0.0 0.0 FRS Money Market Fund 2.2 (1) 1.2 (1) 0.6 (1) 0.2 (1) 0.1 (1) 0.2 (1) 0.3 (1) 0.2 (1) 0.3 (2) iMoneyNet 1st Tier Institutional Net Index 1.8 (17) 0.9 (17) 0.3 (19) 0.0 (20) 0.0 (23) 0.0 (23) 0.1 (23) 0.1 (23) 0.2 (7) IM U.S. Taxable Money Market (MF) Median 1.7 0.7 0.2 0.0 0.0 0.0 0.0 0.0 0.0 Real Assets FRS Inflation Adjusted Multi-Assets Fund -5.5 8.1 6.0 -7.9 3.2 -9.1 9.1 7.4 11.7 FRS Custom Multi-Assets Index -5.5 8.1 6.2 -5.0 1.8 -8.9 6.6 4.6 13.0 Fixed Income -0.1 (94) 4.4 (2) 4.7 (8) 0.3 (81) 4.7 (1) -1.1 (84) 6.0 (36) 6.7 (1) 7.6 (30) Total Bond Index -0.1 (94) 3.9 (3) 4.3 (9) 0.1 (89) 4.9 (1) -1.2 (87) 4.8 (62) 7.4 (1) 7.0 (35) IM U.S. Intermediate Investment Grade (MF) Median 1.0 2.1 2.3 0.7 1.9 0.1 5.5 3.9 6.1 FRS U.S. Bond Enhanced Index Fund 0.0 (64) 3.6 (31) 2.7 (1) 0.7 (37) 6.2 (36) -2.0 (17) 4.4 (13) 7.9 (67) 6.7 (48) Blmbg. Barc. U.S. Aggregate 0.0 (65) 3.5 (31) 2.6 (1) 0.5 (47) 6.0 (36) -2.0 (18) 4.2 (14) 7.8 (68) 6.5 (49) IM U.S. Long Term Treasury/Govt Bond (MF) Median 0.5 2.2 1.0 0.5 5.0 -3.4 2.9 9.7 6.5 FRS Intermediate Bond Fund 0.7 (63) 2.4 (20) 3.1 (22) 0.9 (25) 3.4 (13) -0.5 (63) 4.9 (59) 5.9 (12) 7.0 (35) Blmbg. Barc. U.S. Intermediate Aggregate 0.9 (53) 2.3 (33) 2.0 (68) 1.2 (9) 4.1 (1) -1.0 (82) 3.6 (79) 6.0 (11) 6.1 (48) IM U.S. Intermediate Investment Grade (MF) Median 1.0 2.1 2.3 0.7 1.9 0.1 5.5 3.9 6.1 FRS Core Plus Bond Fund -0.5 (46) 5.3 (25) 5.7 (27) 0.1 (48) 4.6 (87) 0.8 (21) 11.1 (16) 4.6 (89) 10.1 (27) FRS Custom Core-Plus Fixed Income Index -0.4 (40) 4.2 (61) 4.9 (40) 0.2 (42) 5.1 (79) 0.8 (20) 7.8 (51) 7.6 (32) 9.1 (42) IM U.S. Broad Market Core+ Fixed Income (SA+CF) Median -0.7 4.5 4.4 0.0 5.9 -0.8 7.8 7.1 8.7 Domestic Equity -6.5 (45) 20.8 (49) 13.7 (28) 0.7 (34) 11.5 (43) 35.2 (43) 16.9 (34) 0.3 (38) 20.4 (21) Total U.S. Equities Index -6.5 (45) 19.6 (56) 14.9 (23) -0.5 (44) 11.1 (47) 34.0 (54) 16.5 (37) -0.1 (41) 19.3 (27) IM U.S. Multi-Cap Equity (MF) Median -7.0 20.6 10.2 -1.1 10.8 34.4 15.9 -1.0 16.1 FRS U.S. Stock Market Index Fund -5.2 (58) 21.2 (56) 12.9 (26) 0.6 (54) 12.6 (34) 33.6 (40) 16.5 (39) 1.0 (39) 17.1 (19) Russell 3000 Index -5.2 (58) 21.1 (56) 12.7 (27) 0.5 (55) 12.6 (34) 33.6 (40) 16.4 (40) 1.0 (39) 16.9 (21) IM U.S. Large Cap Equity (MF) Median -4.6 21.9 9.5 0.9 11.4 32.7 15.6 -0.2 14.1 FRS U.S. Large Cap Stock Fund -7.0 (64) 25.5 (24) 9.3 (58) 2.7 (30) 12.8 (42) 36.4 (22) 17.2 (24) 1.2 (45) 17.8 (19) Russell 1000 Index -4.8 (39) 21.7 (43) 12.1 (34) 0.9 (43) 13.2 (33) 33.1 (47) 16.4 (31) 1.5 (41) 16.1 (31) IM U.S. Large Cap Equity (SA+CF) Median -5.7 21.0 10.4 0.4 12.3 32.7 15.1 0.7 14.4 FRS U.S. Small/Mid Cap Stock Fund -8.2 (34) 16.3 (55) 19.9 (26) -1.1 (35) 8.6 (28) 37.1 (47) 18.7 (26) -0.9 (37) 29.6 (25) FRS Custom Small/Mid Cap Index -10.0 (45) 16.8 (51) 19.6 (26) -4.2 (70) 7.7 (34) 22.0 (98) 15.3 (53) 1.1 (22) 21.3 (85) IM U.S. SMID Cap Equity (SA+CF) Median -11.0 16.8 15.4 -2.3 6.1 36.4 15.6 -2.5 25.9

6

As of June 30, 2019 Asset Allocation & Performance

Performance(%) 2018 2017 2016 2015 2014 2013 2012 2011 2010 International/Global Equity -13.5 (28) 28.6 (50) 4.5 (42) -2.6 (49) -3.2 (42) 21.6 (33) 18.6 (53) -11.3 (23) 10.1 (73) Total Foreign and Global Equities Index -14.0 (33) 27.3 (60) 4.9 (38) -4.4 (56) -3.0 (41) 20.6 (39) 16.6 (72) -11.3 (23) 10.1 (73) IM International Equity (MF) Median -15.6 28.6 2.8 -2.9 -4.2 17.0 18.8 -14.8 14.3 FRS Foreign Stock Index Fund -14.7 (40) 28.3 (53) 5.3 (37) -4.4 (56) -4.5 (55) 20.5 (39) 17.6 (63) -11.8 (27) 9.2 (77) MSCI All Country World ex-U.S. IMI Index -14.8 (41) 27.8 (56) 4.4 (42) -4.6 (56) -4.2 (51) 21.0 (36) 16.4 (72) -12.2 (30) 8.9 (78) IM International Equity (MF) Median -15.6 28.6 2.8 -2.9 -4.2 17.0 18.8 -14.8 14.3 FRS Global Stock Fund -5.6 (20) 29.3 (17) 2.2 (81) 5.6 (13) 3.7 (44) 27.1 (41) 21.0 (15) -7.4 (47) 13.0 (55) MSCI All Country World Index Net -9.4 (46) 24.0 (40) 7.9 (46) -2.4 (57) 4.2 (39) 22.8 (60) 16.3 (37) -5.5 (35) 11.8 (60) IM Global Equity (MF) Median -9.7 22.0 7.4 -1.7 2.7 25.2 14.6 -7.8 13.9 FRS Foreign Stock Fund -14.9 (50) 31.2 (5) 1.0 (63) -0.5 (21) -2.3 (17) 20.6 (60) 19.6 (37) -13.3 (59) 9.8 (35) MSCI All Country World ex-U.S. Index -14.2 (32) 27.2 (24) 5.0 (10) -5.3 (76) -3.4 (19) 15.8 (80) 17.4 (67) -13.3 (60) 11.6 (20) IM International Large Cap Core Equity (MF) Median -14.9 24.4 1.9 -2.7 -5.6 20.8 18.8 -13.0 7.2 FRS Self-Dir Brokerage Acct

The returns for the Retirement Date Funds, Inflation Adjusted Multi-Assets Fund, Core Plus Bond Fund, U.S. Large Cap Stock Fund, and U.S. Small/Mid Cap Stock Fund use prehire data for all months prior to 7/1/2014, actual live data is used thereafter. Note: The SDBA opened for members on 1/2/14. No performance calculations will be made for the SDBA.

7 FRS Investment Plan As of June 30, 2019 Asset Allocation

Asset Allocation as of 6/30/2019 U.S. Equity Non-U.S. Equity U.S. Fixed Income Real Assets Cash Brokerage Total % of Total FRS Retirement Fund 56,487,994 51,876,730 126,041,239 149,866,107 384,272,070 3.4% FRS 2015 Retirement Date Fund 47,672,344 44,051,659 95,344,687 114,655,003 301,723,693 2.7% FRS 2020 Retirement Date Fund 122,002,251 112,338,706 173,943,803 195,686,779 603,971,539 5.4% FRS 2025 Retirement Date Fund 194,447,569 179,490,064 194,447,569 179,490,064 747,875,267 6.7% FRS 2030 Retirement Date Fund 213,727,809 197,819,266 156,318,721 123,809,960 691,675,756 6.2% FRS 2035 Retirement Date Fund 231,141,272 212,858,911 123,405,933 85,535,329 652,941,446 5.8% FRS 2040 Retirement Date Fund 227,775,606 209,854,175 86,716,601 53,764,293 578,110,676 5.1% FRS 2045 Retirement Date Fund 234,414,375 216,554,232 60,277,982 46,882,875 558,129,464 5.0% FRS 2050 Retirement Date Fund 144,702,313 133,444,009 24,172,240 28,808,012 331,126,574 2.9% FRS 2055 Retirement Date Fund 74,494,605 68,698,686 12,444,179 14,830,734 170,468,203 1.5% FRS 2060 Retirement Date Fund 12,481,590 11,510,482 2,085,025 2,484,893 28,561,990 0.3% Total Retirement Date Funds $ 1,546,866,138 $ 1,426,986,439 $ 1,053,112,955 $ 993,329,157 $ - $ - $ 5,048,856,680 44.9% FRS Money Market Fund 953,102,498 953,102,498 8.5% Total Cash $ - $ - $ - $ - $ 953,102,498 $ - $ 953,102,498 8.5% FRS Inflation Adjusted Multi-Assets Fund 115,512,653 - 115,512,653 1.0% Total Real Assets $ - $ - $ - $ 115,512,653 $ - $ - $ 115,512,653 1.0% FRS U.S. Bond Enhanced Index Fund 228,939,194 228,939,194 2.0% FRS Intermediate Bond Fund 104,034,054 104,034,054 0.9% FRS Core Plus Bond Fund 311,766,182 311,766,182 2.8% Total Fixed Income $ - $ - $ 644,739,430 $ - $ - $ - $ 644,739,430 5.7% FRS U.S. Stock Market Index Fund 1,081,814,489 1,081,814,489 9.6% FRS U.S. Large Cap Stock Fund 1,016,230,211 1,016,230,211 9.0% FRS U.S. Small/Mid Cap Stock Fund 943,927,870 943,927,870 8.4% Total Domestic Equity $ 3,041,972,572 $ - $ - $ - $ - $ - $ 3,041,972,570 27.1% FRS Foreign Stock Index Fund 290,023,577 290,023,577 2.6% FRS Global Stock Fund 281,421,392 281,421,392 2.5% FRS Foreign Stock Fund 164,783,043 164,783,043 1.5% Total International/Global Equity $ - $ 736,228,012 $ - $ - $ - $ - $ 736,228,012 6.5% FRS Self-Dir Brokerage Acct 700,795,135 700,795,135 6.2% Total Self-Dir Brokerage Acct $ 700,795,135 $ 700,795,135 6.2% Total Portfolio $ 4,588,838,710 $ 2,163,214,452 $ 1,697,852,385 $ 1,108,841,810 $ 953,102,498 $ 700,795,135 $ 11,241,206,978 100.0% Percent of Total 40.9% 19.2% 15.1% 9.9% 8.5% 6.2% 100.0%

The returns for the Retirement Date Funds, Inflation Adjusted Multi-Assets Fund, Core Plus Bond Fund, U.S. Large Cap Stock Fund, and U.S. Small/Mid Cap Stock Fund use prehire data for all months prior to 7/1/2014, actual live data is used thereafter. Note: The SDBA opened for members on 1/2/14. No performance calculations will be made for the SDBA.

8

As of June 30, 2019 Multi Timeperiod Statistics

3 3 3 3 3 3 3 Years Years Years Years Years Years Years Up Down Standard Sharpe Tracking Information Return Market Market Deviation Ratio Error Ratio Capture Capture FRS Investment Plan 9.34 8.26 0.96 0.42 1.17 103.56 100.94 Total Plan Aggregate Benchmark 8.83 8.04 0.92 0.00 N/A 100.00 100.00 FRS Retirement Fund 5.90 4.80 0.93 0.35 0.26 101.69 101.80 Retirement Custom Index 5.81 4.66 0.94 0.00 N/A 100.00 100.00 FRS 2015 Retirement Date Fund 6.52 5.04 1.01 0.37 0.72 102.96 100.77 2015 Retirement Custom Index 6.25 4.88 0.99 0.00 N/A 100.00 100.00 FRS 2020 Retirement Date Fund 7.60 5.81 1.05 0.35 0.82 103.03 101.54 2020 Retirement Custom Index 7.30 5.65 1.03 0.00 N/A 100.00 100.00 FRS 2025 Retirement Date Fund 8.63 6.78 1.05 0.34 0.90 102.68 101.13 2025 Retirement Custom Index 8.31 6.64 1.03 0.00 N/A 100.00 100.00 FRS 2030 Retirement Date Fund 9.44 7.66 1.04 0.33 0.90 102.14 100.42 2030 Retirement Custom Index 9.12 7.52 1.02 0.00 N/A 100.00 100.00 FRS 2035 Retirement Date Fund 10.28 8.48 1.04 0.40 1.17 102.99 100.51 2035 Retirement Custom Index 9.79 8.33 1.00 0.00 N/A 100.00 100.00 FRS 2040 Retirement Date Fund 10.65 9.21 1.00 0.36 0.76 101.67 100.32 2040 Retirement Custom Index 10.36 9.08 0.98 0.00 N/A 100.00 100.00 FRS 2045 Retirement Date Fund 10.87 9.71 0.97 0.35 0.40 100.72 99.98 2045 Retirement Custom Index 10.73 9.60 0.97 0.00 N/A 100.00 100.00 FRS 2050 Retirement Date Fund 10.89 10.04 0.94 0.36 0.50 100.96 100.01 2050 Retirement Custom Index 10.70 9.93 0.94 0.00 N/A 100.00 100.00 FRS 2055 Retirement Date Fund 10.85 10.03 0.94 0.36 0.41 100.75 99.93 2055 Retirement Custom Index 10.70 9.93 0.94 0.00 N/A 100.00 100.00 FRS 2060 Retirement Date Fund N/A N/A N/A N/A N/A N/A N/A 2060 Retirement Custom Index N/A N/A N/A N/A N/A N/A N/A FRS Money Market Fund 1.68 0.21 5.47 0.03 12.15 124.74 N/A iMoneyNet 1st Tier Institutional Net Index 1.34 0.21 -0.62 0.00 N/A 100.00 N/A FRS Inflation Adjusted Multi-Assets Fund 3.71 5.40 0.45 1.21 -0.17 100.52 105.64 FRS Custom Real Assets Index 3.94 5.01 0.52 0.00 N/A 100.00 100.00 FRS U.S. Bond Enhanced Index Fund 2.35 3.02 0.34 0.05 0.75 100.25 99.14 Blmbg. Barc. U.S. Aggregate 2.31 3.03 0.33 0.00 N/A 100.00 100.00 FRS Intermediate Bond Fund 2.31 2.18 0.45 0.43 0.64 102.25 90.75 Blmbg. Barc. U.S. Intermediate Aggregate 2.03 2.25 0.31 0.00 N/A 100.00 100.00 FRS Core Plus Bond Fund 3.98 2.95 0.89 0.63 1.13 114.39 103.69 FRS Custom Core-Plus Fixed Income Index 3.26 2.71 0.71 0.00 N/A 100.00 100.00 FRS U.S. Stock Market Index Fund 14.11 12.53 1.01 0.04 1.80 100.27 99.89 Russell 3000 Index 14.02 12.53 1.00 0.00 N/A 100.00 100.00 FRS U.S. Large Cap Stock Fund 14.94 13.33 1.01 1.90 0.44 106.31 106.88 Russell 1000 Index 14.15 12.32 1.03 0.00 N/A 100.00 100.00 FRS U.S. Small/Mid Cap Stock Fund 13.87 15.70 0.82 1.49 0.94 104.03 97.55 FRS Custom Small/Mid Cap Index 12.34 15.50 0.74 0.00 N/A 100.00 100.00 FRS Foreign Stock Index Fund 9.51 11.55 0.72 0.80 0.41 100.62 98.28 MSCI World ex USA 9.17 11.42 0.70 0.00 N/A 100.00 100.00 FRS Global Stock Fund 14.66 12.10 1.08 3.18 0.88 110.37 93.91 MSCI All Country World Index Net 11.62 11.32 0.91 0.00 N/A 100.00 100.00 FRS Foreign Stock Fund 10.84 12.37 0.78 2.93 0.48 106.85 100.54 MSCI All Country World ex-U.S. Index 9.44 11.41 0.73 0.00 N/A 100.00 100.00

The returns for the Retirement Date Funds, Inflation Adjusted Multi-Assets Fund, Core Plus Bond Fund, U.S. Large Cap Stock Fund, and U.S. Small/Mid Cap Stock Fund use prehire data for all months prior to 7/1/2014, actual live data is used thereafter.

9 As of June 30, 2019 Multi Timeperiod Statistics

5 5 5 5 5 5 5 Years Years Years Years Years Years Years Up Down Standard Sharpe Tracking Information Return Market Market Deviation Ratio Error Ratio Capture Capture FRS Investment Plan 5.85 8.24 0.63 0.46 0.62 102.36 100.45 Total Plan Aggregate Benchmark 5.57 8.06 0.61 0.00 N/A 100.00 100.00 FRS Retirement Fund 3.55 5.15 0.54 0.47 -0.27 101.29 104.81 Retirement Custom Index 3.70 4.98 0.58 0.00 N/A 100.00 100.00 FRS 2015 Retirement Date Fund 3.91 5.50 0.57 0.46 -0.03 101.81 103.47 2015 Retirement Custom Index 3.93 5.33 0.59 0.00 N/A 100.00 100.00 FRS 2020 Retirement Date Fund 4.55 6.33 0.60 0.42 0.15 101.95 102.35 2020 Retirement Custom Index 4.49 6.23 0.60 0.00 N/A 100.00 100.00 FRS 2025 Retirement Date Fund 5.21 7.25 0.62 0.43 0.40 101.12 99.52 2025 Retirement Custom Index 5.03 7.22 0.60 0.00 N/A 100.00 100.00 FRS 2030 Retirement Date Fund 5.69 8.15 0.62 0.44 0.51 101.35 99.54 2030 Retirement Custom Index 5.46 8.13 0.59 0.00 N/A 100.00 100.00 FRS 2035 Retirement Date Fund 6.04 9.10 0.60 0.49 0.75 102.27 99.76 2035 Retirement Custom Index 5.66 9.04 0.56 0.00 N/A 100.00 100.00 FRS 2040 Retirement Date Fund 6.18 9.69 0.58 0.50 0.52 101.17 99.29 2040 Retirement Custom Index 5.91 9.69 0.55 0.00 N/A 100.00 100.00 FRS 2045 Retirement Date Fund 6.30 10.02 0.57 0.57 0.35 100.27 98.53 2045 Retirement Custom Index 6.09 10.10 0.55 0.00 N/A 100.00 100.00 FRS 2050 Retirement Date Fund 6.31 10.23 0.57 0.56 0.39 100.47 98.67 2050 Retirement Custom Index 6.07 10.28 0.54 0.00 N/A 100.00 100.00 FRS 2055 Retirement Date Fund 6.29 10.22 0.56 0.56 0.36 100.34 98.61 2055 Retirement Custom Index 6.07 10.28 0.54 0.00 N/A 100.00 100.00 FRS 2060 Retirement Date Fund N/A N/A N/A N/A N/A N/A N/A 2060 Retirement Custom Index N/A N/A N/A N/A N/A N/A N/A FRS Money Market Fund 1.11 0.26 4.86 0.03 8.39 132.34 N/A iMoneyNet 1st Tier Institutional Net Index 0.84 0.24 -0.56 0.00 N/A 100.00 N/A FRS Inflation Adjusted Multi-Assets Fund 0.65 6.20 -0.01 1.60 -0.44 105.45 117.52 FRS Custom Real Assets Index 1.41 5.47 0.12 0.00 N/A 100.00 100.00 FRS U.S. Bond Enhanced Index Fund 3.03 2.93 0.75 0.08 1.05 100.84 98.64 Blmbg. Barc. U.S. Aggregate 2.95 2.94 0.72 0.00 N/A 100.00 100.00 FRS Intermediate Bond Fund 2.63 2.18 0.83 0.55 0.30 103.95 99.90 Blmbg. Barc. U.S. Intermediate Aggregate 2.46 2.13 0.76 0.00 N/A 100.00 100.00 FRS Core Plus Bond Fund 3.64 2.98 0.94 0.57 0.66 109.81 107.35 FRS Custom Core-Plus Fixed Income Index 3.26 2.75 0.88 0.00 N/A 100.00 100.00 FRS U.S. Stock Market Index Fund 10.29 12.33 0.79 0.04 2.21 100.29 99.77 Russell 3000 Index 10.19 12.33 0.78 0.00 N/A 100.00 100.00 FRS U.S. Large Cap Stock Fund 10.19 13.30 0.73 2.30 -0.04 105.34 111.27 Russell 1000 Index 10.45 12.14 0.81 0.00 N/A 100.00 100.00 FRS U.S. Small/Mid Cap Stock Fund 9.29 14.97 0.61 1.54 0.88 102.23 94.85 FRS Custom Small/Mid Cap Index 7.83 14.94 0.52 0.00 N/A 100.00 100.00 FRS Foreign Stock Index Fund 2.55 12.38 0.19 1.30 0.22 98.74 96.65 MSCI World ex USA 2.25 12.48 0.17 0.00 N/A 100.00 100.00 FRS Global Stock Fund 9.41 12.04 0.74 2.98 1.03 109.22 89.34 MSCI All Country World Index Net 6.16 11.79 0.49 0.00 N/A 100.00 100.00 FRS Foreign Stock Fund 4.45 12.19 0.35 3.66 0.54 98.54 85.70 MSCI All Country World ex-U.S. Index 2.38 12.55 0.18 0.00 N/A 100.00 100.00

The returns for the Retirement Date Funds, Inflation Adjusted Multi-Assets Fund, Core Plus Bond Fund, U.S. Large Cap Stock Fund, and U.S. Small/Mid Cap Stock Fund use prehire data for all months prior to 7/1/2014, actual live data is used thereafter.

10

Appendix

11 As of June 30, 2019 Benchmark Descriptions

Retirement Date Benchmarks - A weighted average composite of the underlying components' benchmarks for each fund. iMoneyNet 1st Tier Institutional Net Index - An index made up of the entire universe of money market mutual funds. The index currently represents over 1,300 funds, or approximately 99 percent of all money fund assets.

FRS Custom Multi-Assets Index - A monthly weighted composite of underlying indices for each TIPS and Real Assets fund. These indices include Barclays U.S. TIPS Index, MSCI AC World Index and the Bloomberg Commodity Total Return Index, NAREIT Developed Index, S&P Global Infrastructure Index, S&P Global Natural Resources Index.

Total Bond Index - A weighted average composite of the underlying benchmarks for each bond fund.

Barclays Aggregate Bond Index - A market value-weighted index consisting of government bonds, SEC-registered corporate bonds and mortgage-related and asset-backed securities with at least one year to maturity and an outstanding par value of $250 million or greater. This index is a broad measure of the performance of the investment grade U.S. fixed income market.

Barclays Intermediate Aggregate Bond Index - A market value-weighted index consisting of U.S. Treasury securities, corporate bonds and mortgage-related and asset-backed securities with one to ten years to maturity and an outstanding par value of $250 million or greater.

FRS Custom Core-Plus Fixed Income Index - A monthly rebalanced blend of 80% Barclays U.S. Aggregate Bond Index and 20% Barclays U.S. High Yield Ba/B 1% Issuer Constrained Index.

Total U.S. Equities Index - A weighted average composite of the underlying benchmarks for each domestic equity fund.

Russell 3000 Index - A capitalization-weighted index consisting of the 3,000 largest publicly traded U.S. stocks by capitalization. This index is a broad measure of the performance of the aggregate domestic equity market.

Russell 1000 Index - An index that measures the performance of the largest 1,000 stocks contained in the Russell 3000 Index.

FRS Custom Small/Mid Cap Index - A monthly rebalanced blend of 25% S&P 400 Index, 30% Russell 2000 Index, 25% Russell 2000 Value Index, and 20% Russell Mid Cap Growth Index.

Total Foreign and Global Equities Index - A weighted average composite of the underlying benchmarks for each foreign and global equity fund.

MSCI All Country World ex-U.S. IMI Index - A capitalization-weighted index of stocks representing 22 developed country stock markets and 24 emerging countries, excluding the U.S. market.

MSCI All Country World Index - A capitalization-weighted index of stocks representing approximately 47 developed and emerging countries, including the U.S. and Canadian markets.

MSCI All Country World ex-U.S. Index - A capitalization-weighted index consisting of 23 developed and 24 emerging countries, but excluding the U.S.

12

As of June 30, 2019 Descriptions of Universes

Retirement Date Funds - Target date universes calculated and provided by Lipper.

FRS Money Market Fund - A money market universe calculated and provided by Lipper.

FRS U.S. Bond Enhanced Index Fund - A long-term bond fixed income universe calculated and provided by Lipper.

FRS Intermediate Bond Fund - A broad intermediate-term fixed income universe calculated and provided by Lipper.

FRS Core Plus Bond Fund - A core plus bond fixed income universe calculated and provided by Lipper.

FRS U.S. Stock Market Index Fund - A large cap blend universe calculated and provided by Lipper.

FRS U.S. Large Cap Stock Fund - A large cap universe calculated and provided by Lipper.

FRS U.S. Small/Mid Cap Stock Fund - A small/mid cap universe calculated and provided by Lipper.

FRS Foreign Stock Index Fund - A foreign blend universe calculated and provided by Lipper.

FRS Global Stock Fund - A global stock universe calculated and provided by Lipper.

FRS Foreign Stock Fund - A foreign large blend universe calculated and provided by Lipper.

13 As of June 30, 2019 Notes

x The rates of return contained in this report are shown on an after-fees basis unless otherwise noted. They are geometric and time-weighted. Returns for periods longer than one year are annualized.

x Universe percentiles are based upon an ordering system in which 1 is the best ranking and 100 is the worst ranking.

x Due to rounding throughout the report, percentage totals displayed may not sum to 100%. Additionally, individual fund totals in dollar terms may not sum to the plan total.

14

Disclaimer

Past performance is not necessarily indicative of future results.

Unless otherwise noted, performance returns presented reflect the respective fund’s performance as indicated. Returns may be presented on a before-fees basis (gross) or after- fees basis (net). After-fee performance is net of each respective sub-advisor’s investment management fees and includes the reinvestment of dividends and interest as indicated on the notes page within this report or on the asset allocation and performance summary pages. Actual returns may be reduced by AHIC’s investment advisory fees or other trust payable expenses you may incur as a client. AHIC’s advisory fees are described in Form ADV Part 2A. Portfolio performance, characteristics and volatility also may differ from the benchmark(s) shown.

The information contained herein is proprietary and provided for informational purposes only. It is not complete and does not contain certain material information about making investments in securities including important disclosures and risk factors. All securities transactions involve substantial risk of loss. Under no circumstances does the information in this report represent a recommendation to buy or sell stocks, limited partnership interests, or other investment instruments.

The data contained in these reports is compiled from statements provided by custodian(s), record-keeper(s), and/or other third-party data provider(s). This document is not intended to provide, and shall not be relied upon for, accounting and legal or tax advice. AHIC has not conducted additional audits and cannot warrant its accuracy or completeness. We urge you to carefully review all custodial statements and notify AHIC with any issues or questions you may have with respect to investment performance or any other matter set forth herein.

The mutual fund information found in this report is provided by Thomson Reuters Lipper and AHIC cannot warrant its accuracy or timeliness. Thomson Reuters Lipper Global Data Feed provides comprehensive coverage of mutual fund information directly to Investment Metrics, AHIC’s performance reporting vendor, via the PARis performance reporting platform. Thomson Reuters Lipper is the data provider chosen by Investment Metrics, and as such, AHIC has no direct relationship with Thomson Reuters Lipper.

Refer to Hedge Fund Research, Inc. www.hedgefundresearch.com for information on HFR indices.

FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” and “FTSE4Good®” are trademarks of the London Stock Exchange Group companies and are used by FTSE International Limited under license. The FTSE indices are calculated by FTSE International Limited in conjunction with Indonesia Stock Exchange, Bursa Malaysia Berhad, The Philippine Stock Exchange, Inc., Singapore Exchange Securities Trading Limited and the Stock Exchange of Thailand (the "Exchanges"). All intellectual property rights in the FTSE/ASEAN Index vest in FTSE and the Exchanges. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Aon Hewitt Investment Consulting, Inc. (“AHIC”) is a federally registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). AHIC is also registered with the Commodity Futures Trade Commission as a commodity pool operator and a commodity trading advisor, and is a member of the National Futures Association. The AHIC Form ADV Part 2A disclosure statement is available upon written request to:

Aon Hewitt Investment Consulting, Inc. 200 East Randolph Street Suite 1500 Chicago, IL 60601 ATTN: AHIC Compliance Officer

15 Lawton Chiles Endowment Fund | Second Quarter 2019 Quarterly Investment Review Visit the Aon Retirement and Investment Blog (https://retirement-investment-insights.aon.com); sharing our best thinking.

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1 LCEF Total Fund 1 2 Appendix 9

(This page is left blank intentionally) LCEF Total Fund

1

LCEF Total Fund As of June 30, 2019 Total Plan Asset Summary

Change in Market Value From April 1, 2019 to June 30, 2019 $1,200.0

$900.0 $776.9 $793.6

$600.0

Millions ($) $300.0

$23.4 $0.0 ($6.7)

($300.0) Beginning Market Value Net Additions / Withdrawals Investment Earnings Ending Market Value

Summary of Cash Flow

1 FYTD* Quarter LCEF Total Fund Beginning Market Value 776,906,452 763,121,861 + Additions / Withdrawals -6,650,000 -6,650,000 + Investment Earnings 23,351,956 37,136,547 = Ending Market Value 793,608,408 793,608,408

*Period July 2018 - June 2019

2 LCEF Total Fund As of June 30, 2019 Total Plan Performance Summary

Return Summary 16.0

12.0

10.0 9.7 9.0 8.9 8.0 Return 5.6 5.6 5.7 5.5 4.9 4.9 5.2 5.0

4.0 3.4 3.0

0.0 1 FYTD 1 3 5 10 Inception Quarter Year Years Years Years 7/1/99 LCEF Total Fund Total Endowment Target

Quarterly Excess Performance Ratio of Cumulative Wealth - 10 Years 4.0% 1.15

2.0% 1.10 1.08 0.0% 1.05

-2.0 % 1.00

-4.0 % 0.95 6/14 12/14 6/15 12/15 6/16 12/16 6/17 12/17 6/18 12/18 6/19 6/09 6/10 6/11 6/12 6/13 6/14 6/15 6/16 6/17 6/18 6/19

Quarterly Out Performance Quarterly Under Performance LCEF Total Fund Benchmark

3

As of June 30, 2019 Asset Allocation & Performance

Allocation Performance(%) Market 1 1 3 5 10 Value % Policy(%) FYTD Quarter Year Years Years Years ($) LCEF Total Fund 793,608,408 100.0 100.0 3.0 (36) 4.9 (50) 4.9 (50) 10.0 (5) 5.7 (19) 9.7 (5) Total Endowment Target 3.4 (14) 5.6 (29) 5.6 (29) 9.0 (23) 5.2 (37) 8.9 (25) All Endowments-Total Fund Median 2.8 4.9 4.9 8.0 4.8 8.0 Global Equity* 576,291,715 72.6 71.0 3.1 4.3 4.3 12.9 6.9 12.7 Global Equity Target 3.5 4.7 4.7 11.7 6.1 11.5 Blank Fixed Income 127,628,828 16.1 17.0 3.1 (13) 7.9 (5) 7.9 (5) 2.4 (43) 3.0 (33) 4.1 (63) Blmbg. Barc. U.S. Aggregate 3.1 (13) 7.9 (5) 7.9 (5) 2.3 (44) 2.9 (35) 3.9 (67) All Endowments-US Fixed Income Segment Median 2.5 6.0 6.0 2.1 2.7 4.5 TIPS 81,252,130 10.2 11.0 2.9 4.9 4.9 2.2 1.9 3.8 Barclays U.S. TIPS 2.9 4.8 4.8 2.1 1.8 3.6 Blank Cash Equivalents 8,435,735 1.1 1.0 0.7 2.7 2.7 1.8 1.2 1.2 S&P US AAA & AA Rated GIP 30D Net Yield Index 0.6 2.3 2.3 1.4 0.9 0.5

Benchmark and universe descriptions are provided in the Appendix.

*Global Equity became an asset class in September 2012 by merging the Domestic Equities and Foreign Equities asset classes. The return series prior to September 2012 is a weighted average of Domestic Equities' and Foreign Equities' historical performance. 4 As of June 30, 2019 Calendar Year Performance

Performance(%) 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 LCEF Total Fund -6.1 (61) 18.5 (4) 9.2 (9) -1.4 (48) 5.2 (46) 14.7 (39) 13.2 (23) 1.9 (21) 14.0 (14) 21.2 (42) Total Endowment Target -7.0 (79) 17.7 (9) 7.0 (39) -1.6 (51) 4.3 (59) 12.8 (58) 12.2 (45) 1.5 (25) 13.7 (16) 19.6 (52) All Endowments-Total Fund Median -5.3 14.6 6.7 -1.5 4.8 13.8 12.0 -0.7 12.0 20.0 Global Equity* -8.5 24.5 11.4 -1.9 5.3 27.1 20.4 -1.1 17.0 30.8 Global Equity Target -9.8 24.1 8.4 -2.4 3.9 24.1 19.4 -2.2 16.1 30.5 Blank Fixed Income 0.1 (50) 3.7 (32) 2.7 (59) 0.6 (33) 6.0 (20) -1.8 (69) 4.6 (86) 7.6 (48) 7.0 (78) 4.6 (96) Blmbg. Barc. U.S. Aggregate 0.0 (51) 3.5 (38) 2.6 (59) 0.5 (34) 6.0 (22) -2.0 (71) 4.2 (89) 7.8 (46) 6.5 (82) 5.9 (87) All Endowments-US Fixed Income Segment Median 0.0 3.2 2.7 0.0 4.3 -1.1 8.8 7.2 7.8 12.6 TIPS -1.1 3.2 4.8 -1.2 3.5 -8.7 7.2 13.6 6.1 13.3 Barclays U.S. TIPS -1.3 3.0 4.7 -1.4 3.6 -8.6 7.0 13.6 6.3 11.4 Blank Cash Equivalents 2.3 1.2 0.7 0.5 0.2 0.2 1.3 0.1 2.0 2.6 S&P US AAA & AA Rated GIP 30D Net Yield Index 1.8 0.9 0.4 0.1 0.0 0.1 0.1 0.2 0.3 0.7

*Global Equity became an asset class in September 2012 by merging the Domestic Equities and Foreign Equities asset classes. The return series prior to September 2012 is a weighted average of Domestic Equities' and Foreign Equities' historical performance.

5

As of June 30, 2019 Plan Sponsor Peer Group Analysis

All Endowments-Total Fund 32.0

26.0

20.0

14.0

8.0

Return 2.0

-4.0

-10.0

-16.0

-22.0 1 1 3 5 10 FYTD 2018 2017 2016 Quarter Year Years Years Years  LCEF Total Fund 3.0 (36) 4.9 (50) 4.9 (50) 10.0 (5) 5.7 (19) 9.7 (5) -6.1 (61) 18.5 (4) 9.2 (9)  Total Endowment Target 3.4 (14) 5.6 (29) 5.6 (29) 9.0 (23) 5.2 (37) 8.9 (25) -7.0 (79) 17.7 (9) 7.0 (39)

5th Percentile 3.8 7.6 7.6 9.9 6.6 9.7 1.7 18.3 9.8 1st Quartile 3.2 5.8 5.8 8.9 5.5 8.9 -3.4 16.0 7.8 Median 2.8 4.9 4.9 8.0 4.8 8.0 -5.3 14.6 6.7 3rd Quartile 2.5 4.2 4.2 7.1 3.7 7.2 -6.9 12.8 5.3 95th Percentile 1.3 2.6 2.6 3.9 2.0 4.8 -8.5 6.5 2.3

Population 289 281 281 264 234 163 348 451 477 Parentheses contain percentile rankings.

6 LCEF Total Fund As of June 30, 2019 Universe Asset Allocation Comparison

LCEF Total Fund BNY Mellon Endowment Universe

7

LCEF Total Fund As of June 30, 2019 Attribution

Global Equity Global Equity

Fixed Income Fixed Income

TIPS TIPS

Cash Cash

TAA TAA

Other* Other*

Total Fund Total Fund

Basis Points Basis Points

1-Year Ending 6/30/2019 5-Year Ending 6/30/2019

*Other includes differences between official performance value added due to methodology and extraordinary payouts.

8 Appendix

9

As of June 30, 2019 Benchmark Descriptions

LCEF Total Fund Total Endowment Target - A weighted blend of the individual asset class target benchmarks.

Total Global Equity MSCI ACWI IMI ex-Tobacco - From 7/1/2014 forward, a custom version of the MSCI ACWI IMI excluding tobacco-related companies. From 10/1/2013 to 6/30/2014, a custom version of the MSCI ACWI IMI adjusted to reflect a 55% fixed weight in the MSCI USA IMI and a 45% fixed weight in the MSCI ACWI ex-USA IMI, and excluding certain equities of tobacco-related companies. From 9/1/2012 to 9/30/2013, a custom version of the MSCI ACWI IMI excluding tobacco-related companies. Prior to 9/1/2012, the benchmark is a weighted average of both the Domestic Equities and Foreign Equities historical benchmarks.

Total Domestic Equities Russell 3000 Index ex-Tobacco - Prior to 9/1/2012, an index that measures the performance of the 3,000 stocks that make up the Russell 1000 and Russell 2000 Indices, while excluding tobacco companies.

Total Foreign Equities MSCI ACWI ex-US IMI ex-Tobacco - Prior to 9/1/2012, a capitalization-weighted index representing 46 countries, but excluding the United States. The index includes 23 developed and 24 emerging market countries, and excludes tobacco companies.

Total Fixed Income Barclays Aggregate Bond Index - A market value-weighted index consisting of the Barclays Credit, Government, and Mortgage-Backed Securities Indices. The index also includes credit card, auto, and home equity loan-backed securities. This index is the broadest available measure of the aggregate investment grade U.S. fixed income market.

Total TIPS Barclays U.S. TIPS - A market value-weighted index consisting of U.S. Treasury Inflation-Protected Securities with one or more years remaining until maturity with total outstanding issue size of $500 million or more.

Total Cash Equivalents S&P U.S. AAA & AA Rated GIP 30-Day Net Yield Index - An unmanaged, net-of-fees, market index representative of the Local Government Investment Pool. On 10/1/2011, the S&P U.S. AAA & AA Rated GIP 30-Day Net Yield Index replaced the S&P U.S. AAA & AA Rated GIP 30-Day Gross Yield Index, which was previously used from 4/30/08 - 9/30/11. Prior to 4/30/08, it was the average 3-month T-bill rate.

10 As of June 30, 2019 Universe Descriptions

LCEF Total Fund A universe comprised of 431 total endowment portfolio returns, net of fees, calculated and provided by BNY Mellon Performance & Risk Analytics and Investment Metrics. Aggregate assets in the universe comprised $364.8 billion as of quarter-end and the average market value was $846.5 million.

Total Fixed Income A universe comprised of 46 total fixed income portfolio returns, net of fees, of endowment plans calculated and provided by BNY Mellon Performance & Risk Analytics and Investment Metrics. Aggregate assets in the universe comprised $311.0 billion as of quarter-end and the average market value was $6.8 billion.

11

As of June 30, 2019 Explanation of Exhibits

Quarterly and Cumulative Excess Performance - The vertical axis, excess return, is a measure of fund performance less the return of the primary benchmark. The horizontal axis represents the time series. The quarterly bars represent the underlying funds' relative performance for the quarter.

Ratio of Cumulative Wealth Graph - An illustration of a portfolio's cumulative, un-annualized performance relative to that of its benchmark. An upward-sloping line indicates superior fund performance versus its benchmark. Conversely, a downward-sloping line indicates underperformance by the fund. A flat line is indicative of benchmark-like performance.

Performance Comparison - Plan Sponsor Peer Group Analysis - An illustration of the distribution of returns for a particular asset class. The component's return is indicated by the circle and its performance benchmark by the triangle. The top and bottom borders represent the 5th and 95th percentiles, respectively. The solid line indicates the median while the dotted lines represent the 25th and 75th percentiles.

12 As of June 30, 2019 Notes

x The rates of return contained in this report are shown on an after-fees basis unless otherwise noted. They are geometric and time-weighted. Returns for periods longer than one year are annualized.

x Universe percentiles are based upon an ordering system in which 1 is the best ranking and 100 is the worst ranking.

x Due to rounding throughout the report, percentage totals displayed may not sum to 100%. Additionally, individual fund totals in dollar terms may not sum to the plan total.

13

Disclaimer

Past performance is not necessarily indicative of future results.

Unless otherwise noted, performance returns presented reflect the respective fund’s performance as indicated. Returns may be presented on a before-fees basis (gross) or after- fees basis (net). After-fee performance is net of each respective sub-advisor’s investment management fees and includes the reinvestment of dividends and interest as indicated on the notes page within this report or on the asset allocation and performance summary pages. Actual returns may be reduced by AHIC’s investment advisory fees or other trust payable expenses you may incur as a client. AHIC’s advisory fees are described in Form ADV Part 2A. Portfolio performance, characteristics and volatility also may differ from the benchmark(s) shown.

The information contained herein is proprietary and provided for informational purposes only. It is not complete and does not contain certain material information about making investments in securities including important disclosures and risk factors. All securities transactions involve substantial risk of loss. Under no circumstances does the information in this report represent a recommendation to buy or sell stocks, limited partnership interests, or other investment instruments.

The data contained in these reports is compiled from statements provided by custodian(s), record-keeper(s), and/or other third-party data provider(s). This document is not intended to provide, and shall not be relied upon for, accounting and legal or tax advice. AHIC has not conducted additional audits and cannot warrant its accuracy or completeness. We urge you to carefully review all custodial statements and notify AHIC with any issues or questions you may have with respect to investment performance or any other matter set forth herein.

The mutual fund information found in this report is provided by Thomson Reuters Lipper and AHIC cannot warrant its accuracy or timeliness. Thomson Reuters Lipper Global Data Feed provides comprehensive coverage of mutual fund information directly to Investment Metrics, AHIC’s performance reporting vendor, via the PARis performance reporting platform. Thomson Reuters Lipper is the data provider chosen by Investment Metrics, and as such, AHIC has no direct relationship with Thomson Reuters Lipper.

Refer to Hedge Fund Research, Inc. www.hedgefundresearch.com for information on HFR indices.

FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” and “FTSE4Good®” are trademarks of the London Stock Exchange Group companies and are used by FTSE International Limited under license. The FTSE indices are calculated by FTSE International Limited in conjunction with Indonesia Stock Exchange, Bursa Malaysia Berhad, The Philippine Stock Exchange, Inc., Singapore Exchange Securities Trading Limited and the Stock Exchange of Thailand (the "Exchanges"). All intellectual property rights in the FTSE/ASEAN Index vest in FTSE and the Exchanges. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Aon Hewitt Investment Consulting, Inc. (“AHIC”) is a federally registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). AHIC is also registered with the Commodity Futures Trade Commission as a commodity pool operator and a commodity trading advisor, and is a member of the National Futures Association. The AHIC Form ADV Part 2A disclosure statement is available upon written request to:

Aon Hewitt Investment Consulting, Inc. 200 East Randolph Street Suite 1500 Chicago, IL 60601 ATTN: AHIC Compliance Officer

14 Investment Advisory Council Compensation Subcommittee Conference Call September 3, 2019

Agenda Investment Advisory Council (IAC) Compensation Subcommittee Conference Call

Tuesday, September 3, 2019, 4:00 P.M. Hermitage Room, First Floor 1801 Hermitage Blvd., Tallahassee, FL 32308

1. Welcome/Call to Order/Approval of Minutes Vinny Olmstead, Chair of September 10, 2018 Meeting (Attachments 1A and 1B)

2. Opening Remarks Vinny Olmstead, Chair

Opening Remarks Ash Williams, Executive Director & CIO

3. Recap of ED/CIO’s FY 2018-19 Incentive Plan Design Jon Mason, Mercer (Attachment 2)

4. Presentation of Results of ED/CIO’s Evaluation and Jon Mason, Mercer Mercer’s Salary Recommendation (Attachments 3A, 3B, Appendix to 3B, 3C)

5. Discussion of Evaluation Results and Salary Vinny Olmstead, Chair Recommendation by Subcommittee

6. Formulation of Recommendation to IAC and Trustees Vinny Olmstead, Chair

7. ACTION REQUESTED: Approval of Recommendation

8. Other Business/Audience Comments/Closing Remarks Vinny Olmstead, Chair Adjournment (Attachment 4, Information Only) Attachment 1A

Attachment 1B



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#%%74#6'56'016;2'4'2146'45+0% #%%74#6'56'016;2'4'2146'45+0%  

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#%%74#6'56'016;2'4'2146'45+0% #%%74#6'56'016;2'4'2146'45+0%  

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#%%74#6'56'016;2'4'2146'45+0% #%%74#6'56'016;2'4'2146'45+0%  

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#%%74#6'56'016;2'4'2146'45+0% #%%74#6'56'016;2'4'2146'45+0%  

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#%%74#6'56'016;2'4'2146'45+0% #%%74#6'56'016;2'4'2146'45+0%  

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#%%74#6'56'016;2'4'2146'45+0% #%%74#6'56'016;2'4'2146'45+0%  

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#%%74#6'56'016;2'4'2146'45+0% #%%74#6'56'016;2'4'2146'45+0% 

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#%%74#6'56'016;2'4'2146'45+0% Attachment 2

Incentive Plan Design ED/CIO - FY 2018-19

• Individual component level for ED/CIO position accounts for 15% of total award • Organizational and individual component payouts at various incentive achievement levels are shown below. Evalaution criteria for individual component was determined by IAC Compensation Subcommittee in June 2015. Incentive as a % of Salary Mix Threshold Target Maximum Total Incentive Opportunity 100% 17.500% 35.000% 52.500% Organizational Component 85% 14.875% 29.750% 44.625% Individual Component 15% 2.625% 5.250% 7.875%

Incentive Opportunity Breakdown (Annual Salary = $455,000) Mix Threshold Target Maximum Total Incentive Opportunity 100% $79,625 $159,251 $238,875 Organizational Component 85% $67,681 $135,363 $203,044 Individual Component 15% $11,944 $23,888 $35,831

MERCER September 3, 2019 Attachment 3A

ED/CIO Incentive Plan Evaluation Process - FY 18-19

ED/CIO Individual/Qualitative Measurement

The sections below outline the approved criteria and process for evaluating the ED/CIO’s individual/qualitative performance, which constitutes 15% of his incentive award (the other 85% of the award is determined by the level of outperformance of the FRS Pension Fund). Any changes to the criteria for the next Performance Period (fiscal year) need to be determined and communicated to the ED/CIO prior to July 1.

ED/CIO Individual/Qualitative Performance Criteria

Criteria Approved for FY18-19 Performance Period

In line with the overall framework for the incentive plan, criteria for the individual/qualitative performance portion of the ED/CIO’s incentive award approved in June 2015 are: (1) Overall Mission; (2) People; (3) Efficiencies/ Infrastructure/ Operations; and (4) Interaction with the Investment Advisory Council, PLGAC and Audit Committee. The Qualitative Evaluation Form on the following pages includes more descriptive information regarding each rating area.

Process and Schedule for ED/CIO Qualitative Performance Rating

In June 2015 it was decided the Compensation Subcommittee will rate the qualitative performance of the ED/CIO and recommend to the full IAC the amount of incentive to be awarded for the Performance Period. The IAC will vote to approve or disapprove the recommendation.

July 1-14: ED/CIO prepares summary of accomplishments in each of the four areas (Mission, People, Efficiencies/Infrastructure/Operations, and Interaction with IAC, PLGAC and Audit Committee). As part of the summary, the ED/CIO may want to encourage the individual Compensation Subcommittee or IAC raters to s peak with individual members of the Audit Committee and/or PLGAC to gain additional perspective on interactions with them.

By July 15: ED/CIO sends his/her Summary to raters (members of Compensation Subcommittee) along with the attached evaluation form.

By July 31: Raters evaluate ED/CIO and return form to Mercer. Mercer may seek clarification of the ratings and/or comments of individual raters.

By August 31: Mercer compiles final ratings and all final comments from raters and sends them to the ED/CIO, who will compile the materials for a noticed public meeting of the Compensation Subcommittee to review/discuss the evaluation with ED/CIO and provide an overall recommendation to Trustees. The Subcommittee will present its recommendation to the IAC for its approval or disapproval prior to sending the recommendation to the Trustees.

Following the public meetings of the Subcommittee and the IAC, the Subcommittee Chair communicates the recommendation regarding qualitative incentive award and supporting rationale to Trustees, with a copy to IAC members, as materials for a noticed public meeting of the Trustees.

September: Trustees consider recommendation in public meeting.

Attachment 2 Attachment 3B

HEALTH WEALTH CAREER

STATE BOARD OF ADMINISTRATION FLORIDA EXECUTIVE DIRECTOR PERFORMANCE EVALUATION SUMMARY AUGUST 2019

Jon Mason Josh Wilson

Atlanta INTRODUCTION

• Mercer has advised State Board of Administration Florida on a variety of human capital needs since 2012.

• Mercer acts as the independent party in the annual review process of the Executive Director/CIO for SBA by the Compensation Subcommittee of the IAC

• In this process, Mercer collects the performance evaluations completed by the Compensation Subcommittee members and disseminates a summary of the findings.

• Performance reviews were completed by the following members: – Gary Wendt – Peter Collins – Vinny Olmstead – Ambassador Chuck Cobb

• The following pages include an overall summary of the responses and detailed pages on the survey questions

Copyright © 2019 Mercer (US) Inc. All rights reserved. 2 EXECUTIVE SUMMARY Question 2019 Average 2018 Average Rating Rating • The ED continues to (out of a possible (out of a possible receive high marks score of 4) score of 4) across the board with all members selecting Overall Mission 4 4 “exceeds” for three of People 3.5 3.8 the five categories Efficiencies/ • The only category to Infrastructure 4 3.8 receive a lower score in /Operations 2019 (albeit, still a high mark at 3.5) was Interaction with 3.75 3.4 “People” Committees Individual Rating 4 3.9* *meets and exceeds were circled in one response • Mercer converted the verbal rating scale to a numerical scale as follows: – Exceeds = 4 out of 4 – Meets = 3 out of 4 – Below = 2 out of 4 – Poor = 1 out of 4

Copyright © 2019 Mercer (US) Inc. All rights reserved. 3 OVERALL MISSION

• The rating for this category should reflect the degree to which the ED/CIO has: • Assured appropriate alignment with the investment policy of the SBA’s mandates (e.g., FRS Defined Benefit Pension Fund, FRS Investment Plan, Florida PRIME, Florida Hurricane Catastrophe Fund (FHCf), etc.), considering the long term needs of the relevant fund, the risk tolerance of SBA Trustees, and the perceived market environment. • Provided leadership for effective functioning of the SBA, FHCF and the Office of Defined Contribution Programs. • Maintained/strengthened the reputation/brand and performance of the SBA in relation to its large public pension fund peers; external communications and issue management 4 OUT OF 4 Comments: - “Exceptional leader who reinforces mission and vision”

Copyright © 2019 Mercer (US) Inc. All rights reserved. 4 PEOPLE

• The rating for this category should reflect the degree to which the ED/CIO has: – Developed subordinate staff – Recruited and retained key talent 3.5 OUT OF 4 Comments: - “Front level of staff seem competent and dedicated. Little exposure to entire organization”

Copyright © 2019 Mercer (US) Inc. All rights reserved. 5 EFFICIENCIES/INFRASTRUCTURE/OPERATIONS

• The rating for this category should reflect the degree to which the ED/ClO has: – Assured the development of organizational structures, systems and processes that enable effective functioning of the SBA, FHCF and the Office of Defined Contribution Programs. - This includes such areas as communication of knowledge; development and institutionalization of systems and structures to enhance performance and control risk; efficient acquisition and use of data and other resources; business continuity planning, etc. 4 OUT OF 4

Comments: - “External audits find few deficiencies and have limited suggestions for improvement”

Copyright © 2019 Mercer (US) Inc. All rights reserved. 6 INTERACTION WITH IAC & AUDIT COMMITTEE

• The rating for this category should reflect the degree to which the ED/ClO has: – Maintained effective working relationships with individual IAC members and the Council as a whole, and with members of the Audit Committee on matters within the concern of each body. – Provided requested information and transparency. Note: As part of the evaluation process, individual raters may speak with individual members of the IAC, Audit Committee to gain perspective on ED/CIO interactions with them. 3.75 OUT OF 4 Comments: - “Good communication. IAC might be more effective if provided more opportunity to interact with key personnel.”

Copyright © 2019 Mercer (US) Inc. All rights reserved. 7 O V E R A L L INDIVIDUAL/QUALITATIVE PERFORMANCE RATING FOR THIS PERIOD

4 OUT OF 4

Note: There was no comments section provided for this final rating

Copyright © 2019 Mercer (US) Inc. All rights reserved. 8 Copyright © 2019 Mercer (US) Inc. All rights reserved. 9 Appendix to Attachment 3B RON DESANTIS STATE BOARD OF ADMINISTRATION GOVERNOR OF FLORIDA CHAIR JIMMY PATRONIS 1801 HERMITAGE BOULEVARD, SUITE 100 CHIEF FINANCIAL OFFICER TALLAHASSEE, FLORIDA 32308 ASHLEY MOODY (850) 488-4406 ATTORNEY GENERAL

POST OFFICE BOX 13300 ASHBEL C. WILLIAMS EXECUTIVE DIRECTOR & 32317-3300 CHIEF INVESTMENT OFFICER

July 15, 2019

Mr. Robert Vincent “Vinny” Olmstead Vocap Investment Partners 2770 Indian River Blvd., Suite 501 Vero Beach, Florida 32960

Dear Vinny:

Consistent with the process adopted by the Investment Advisory Council (IAC) Compensation Subcommittee and affirmed by the IAC, following is my self-assessment, inclusive of the fiscal year ended June 30, 2019, together with a Qualitative Evaluation Form (attachment 1) for you to complete and return to Jon Mason at Mercer by July 31. For your convenience, an addressed, stamped envelope is enclosed for this purpose. Mercer will review the responses and may contact responders for clarification. They will then compile the ratings and final comments from raters and return them to me by August 31. I will share them with you and the other Subcommittee members and compile materials for a noticed public meeting of the Subcommittee to discuss and adopt a recommendation for the IAC. Please see “ED/CIO Incentive Plan Evaluation Process – FY 18-19” (attachment 2) for additional process details.

As a reminder, in keeping with Florida’s Sunshine Law, please do not discuss this evaluation with any other members of the IAC. All members will have the chance to discuss this evaluation at the noticed public meeting planned for later this year.

Background

Upon being triggered by audited total fund performance as of fiscal year-end June 30, implementation of SBA’s incentive compensation structure is based on achievement as evidenced by quantitative investment performance measures and qualitative assessment of each incentive plan participant’s contributions to the accomplishment of SBA’s objectives. These are summarized at a high level in our Mission and Vision Statements:

Our mission is to provide superior investment management and trust services by proactively and comprehensively managing risk and adhering to the highest ethical, fiduciary and professional standards. Our vision is to be the best public sector investment and administrative service provider while exemplifying the principles of trust, integrity and performance.

As Executive Director & CIO, my priority is to keep our organization’s team, culture, reputation, credibility and resources at a strength that empowers mission and vision fulfillment. This is consistent July 15, 2019 Page 2

with the Trustees’ delegation of authority to the Executive Director & CIO. Our most visible output is investment results, the adequacy or inadequacy of which is readily seen. Taking a long term view, what is actually more important but less visible is the team and culture building, policy and strategy formation, resource provision, risk management and execution that create the many investment outcomes that sum to the total fund’s return. If these are right, the probability of consistent investment outcomes that earn trust, enhance the SBA’s reputation and build brand value is vastly enhanced. The result is a virtuous cycle where our credibility and performance help garner critical policy support from key SBA stakeholders (Trustees, Legislature, local governments, beneficiaries, taxpayers, media, etc.), which in turn, positions us as a serious, stable, and desirable investment partner in the marketplace. This enables us to build well-aligned relationships with other exceptional organizations and capture superior deal flow with more favorable terms and pricing, driving the performance that earns trust, enhances reputation and builds brand value. I take responsibility for ensuring that the SBA executes effectively at all levels of this cycle.

After many successive years of benchmark beating performance, clean audits, consistent adherence to risk and compliance standards, low cost of service delivery and wide recognition for thought leadership and professional excellence among industry peers, investment partners and stakeholders, it would be easy to become complacent. That would be a serious mistake. Those unfamiliar with history might presume the SBA has always been in the enviable posture we now enjoy. With the tenth anniversary of the Great Financial Crisis falling during FY18-19, a look back at SBA’s journey over that decade provides a reminder that excellence in organizations, cultures, the individuals that comprise them and what they accomplish, is fragile and must be earned and constantly nurtured to be sustained.

If resources (tangible or intangible) are withheld or management is inattentive, weakness somewhere in the organization will result. Initially, weaknesses are potential points of failure; if not addressed they will be points of failure. A 2007 liquidity crisis in an SBA managed cash pool for Florida local governments exposed gaps in SBA’s management controls and led to a corrosive decline in credibility at the beginning of the financial crisis. The resulting media and political maelstrom led to the resignation of the Executive Director. A former Trustee, General Bob Milligan, then assumed the role in an acting capacity while working with a search firm to recruit a permanent leader for the SBA. The differences between today’s SBA and the SBA of late 2008 when I returned essentially reflect a complete reconstruction of the control environment and extensive enhancement of the investment side.

The first priority was to upgrade the control environment across our “businesses” and portfolios, a foundational responsibility in any investment organization. Consistent with “tone at the top” a new Risk and Compliance unit was created, a new COO/CFO was brought in, together with a new Chief Audit Executive and upgrades to the Internal Audit team. I worked closely with the IAC, Audit Committee, Participant Local Government Advisory Committee (repealed 2018) and Trustees on the premise that the resources required were the foundation for coming enhancements on the investment side that would prudently drive net returns and lower the likelihood of avoidable errors that can lose money, breach security, impair performance and erode trust.

July 15, 2019 Page 3

Upgrading the investment side has been a larger and more complex undertaking, holistically revisiting what we invest in and how we invest. Recruiting, organizing, retaining and growing talent is the obvious central theme; the IAC’s sustained leadership and support for rationalizing SBA’s compensation plan is clearly paying off in improved motivation, retention and recruitment. Two additional themes dominate our investment evolution: greater diversification and more internal asset management. First, our portfolios are more global, to capture opportunities and benefit from faster growing economies, wherever they may be. Second, the strategies we use go far beyond those of a decade ago. We still have large liquid equity and fixed income portfolios, increasingly internally managed, with passive cores enhanced with value adding active strategies where the risk and cost are likely to be rewarded. We still have a largely unique real estate investment approach, distinguished by a large component of internally managed “principal investments” that reduce costs and disconnect our investment decisions from the artificial timeframes imposed by partnership vehicles. Our private equity program is now mature and thoughtfully constructed with GPs who have demonstrated persistent ability to add value through specialization in certain industries, geographies, etc. Strategic Investments, the newest asset class, is structured to capture our long term real return objective through investments minimally or negatively correlated to global equity, reducing total portfolio risk and serving a defensive purpose. With the benefit of healthy turnover, asset class leadership and investment professional staff are excellent and stable, with sufficient depth to support continued growth in internal management of assets and sophisticated partnerships with private firms that extend SBA’s reach and potential.

Developing our organization has not been without cost, but the net benefits are clear. Looking across the entire SBA, including the FRS Pension Plan, Investment Plan and the Florida Hurricane Catastrophe Fund, from July 1, 2008 to July 1, 2019, total headcount has grown by 49 people, to a total of 217. Of these, 44 are investment and investment support including Accounting, Financial Operations, IT, Risk & Compliance, Legal, HR, etc. Headcount in the Investment Plan (DC) has grown by one person and the Cat Fund has grown by four. Focusing on the trailing 10 year period from June 30, 2019, Florida Retirement System Trust Fund assets under management grew from $99.58 billion to $162.95 billion (estimated), net of $61.33 billion in benefit payments, for an estimated total investment gain of $124.70 billion. Total FRS Pension Fund trailing ten year performance is 9.79% (unaudited), 96 bps ahead of benchmark. That outperformance amounts to $11.74 billion, a very generous multiple of the entire SBA budget, much less incremental headcount growth over the period.

While effective strategy execution and policy engagement describe my responsibilities at a high level, the purpose of this letter is to communicate specifically my performance over the past year for your consideration. Evaluation of the Executive Director & CIO and recommending an appropriate level of qualitative incentive compensation falls to the IAC Compensation Subcommittee, which may also make a recommendation on base compensation. Final action on the ED/CIO compensation is reserved for the SBA Trustees. Following are my thoughts on my contribution and accomplishments relating to each of the four central performance areas for the ED/CIO to be evaluated by the Subcommittee and addressed on the Evaluation Form.

1) Overall Mission

July 15, 2019 Page 4

I believe the SBA continues to be in its strongest position ever, reflecting the performance of a stable, highly competent team under thoughtful, consistent leadership that recognizes and rewards merit and embraces constructive change. Investment performance is an obvious threshold metric for management success. While preliminary FY year-end numbers show value added in all asset classes and total fund relative to benchmarks; the incentive plan documentation requires that we rely on audited numbers (available Q4) so that final market values and necessary income/expense accruals are included and the resulting performance calculations are definitive. The focus of this evaluation is qualitative so I will focus on elements of my management performance beyond specific investment returns and over/under performance. Examples include:

• SBA clearly has historically performed well, continually adding value relative to benchmarks. Initial estimated investment performance numbers for FY 18-19 are also sound. Total pension fund return was 6.17%, 83 bps (unaudited) ahead of target, and we grew the FRS Trust Fund by $2.5 billion, net of distributing $7.0 billion in benefit payments. The FRS Investment Plan (DC) also had a good year, returning 5.24% (unaudited) and meeting its benchmark for the year. All other major mandates beat their benchmarks. • Controls and risk management were effective; all asset classes and the total fund remained within budgeted risk tolerances. • While adding value the SBA has done so with all in costs of 45.8 bps, among the lowest of our US large pension fund peers. • The portion of SBA asset managed in house continues to increase, currently 45% across the global equity, fixed income, and real estate asset classes, up from 36% since 2009. Successfully growing internal management reflects competent, stable professional talent and support for portfolio and risk analytics, trading, systems, portfolio accounting, compliance, etc. The value of these resources is captured in the cost savings of internal vs. external management. Internally managed assets have achieved desired investment results within stated risk tolerances. • During FY 18/19, I was re-elected chair of the Council of Institutional Investors and remain on the Institutional Advisory Board of Fidelity Investments. In addition, I continue my service on the advisory boards of the Alternative Investment Forum, Institutional Investor Roundtable, Managed Funds Association, National Institute for Public Finance, and the Robert Toigo Foundation. • Control and compliance are sound; we achieve desired investment results consistent with ethical, legal, regulatory, compliance and fiduciary bounds. These standards are extended to our external investment partners, who are required to annually certify compliance with a range of relevant policies and statutory obligations. Annually, the SBA undergoes numerous audits among our business units and investment holding companies. FY 18/19 was another year of clean financial statements and no material exceptions in any audits. Following last year’s very positive external review of our “Governance, Risk and Compliance (GRC)” structure, processes and execution; we have advanced on a number of recommendations (see below). • The Florida Hurricane Catastrophe Fund remains financially strong. Loss reserves totaling $5.2 billion are in place for hurricanes Irma and Michael; Irma losses continue to develop, which could lead to a reserve increase of approximately $750 million. Net of these reserves and the maturing pre-event debt issuance, the Cat Fund’s cash balance is $12.4 billion. Despite the recent firming July 15, 2019 Page 5

in global reinsurance pricing, we successfully executed $920 million of risk transfer through private reinsurance for the 2019 hurricane season, at the same rate (adjusted for exposure) and attachment point as last year. Other transactions show Florida hurricane risk transfer costing an average of 15% more than the 2018 season. In addition to capturing a price advantage, we deliberately came to market after the June 1 hurricane season start to ensure that we did not take capacity from Florida primary insurers. Legislative interest in the Cat Fund and its assets remains high; contrary to our recommendations, the law was changed in the 2019 session to double the Fund’s allowance for loss adjustment expenses from 5% to 10%. We remain vigilant on such issues and are realistic in our appreciation that there are many influential groups whose interests do not align with those of the Cat Fund. • Florida PRIME AUM ended FY 18-19 at $13.45 billion, growing by $2.48 billion. PRIME was again certified to be operating in accordance with all applicable laws and regulations. Looking ahead, we are reviewing possible operational changes that could improve disaster recovery and security for PRIME operations. PRIME is the top performing, lowest cost, and most liquid and transparent cash management option for Florida governments.

2) People

Talent recruitment, motivation and retention continues to be very effective. Over the FY just ended, we had 15 terminations, a normal level driven by a mix of factors and offering no particular cause for concern. Five of the terminations involved investment staff and only one involved compensation. We completed related new hires with solid talent. We continue to have succession exposure, with 33% of SBA employees eligible to retire over the next five years. Nearly 60% of this group is supervisory/management level staff. We are managing the succession risk through a formal succession management program, which is working well. We have increased recruiting capability with the addition of a dedicated staff person in HR for this purpose. We anticipate needs and manage succession related staff development, training and recruitment in an orderly manner. The progress made in mitigating human capital risk is very significant to the continued ability of the SBA to fulfill our mission. We are grateful to the IAC and Trustees for their sustained focus and support.

3) Efficiencies/Infrastructure/Operations

Initiatives in these three areas have been empowered with budget support from the Trustees. I believe an important part of earning their support is our an internal budget process, which subjects each business unit’s budget request to peer review; bringing relative priorities into focus quickly and establishing a clear cost/benefit analysis of our resource requests. Our compensation structure incentivizes smarter resource use at all levels. Accomplishments over the past year include:

• Information Security – We continue to focus on the seriousness of cyber risk and systematically harden the SBA as a target. You will recall that over the past couple of years we have brought in a new IT Head and Director of IT Security. This year we brought in a Director of Vendor Management, a recommendation from the GRC review. Outside of investment managers, our July 15, 2019 Page 6

largest vendor relationships and spending is with IT related service providers. The Vendor Management position formalizes and focuses our oversight of the security and business continuity of our service providers to maximize value from these relationships. Numerous other IT security initiatives underway will better protect the SBA’s information, processes and assets.

• Cloud Migration - We have mapped a strategic plan and budgeted for cloud migration. This simple statement belies a complex set of opportunities, risks and counter-dependencies we are evaluating and balancing toward a goal of having a more secure, efficient and robust platform for SBA operations. • Robotic Process Automation – We are analyzing SBA processes that could be automated to free up existing staff resources, increase accuracy and reduce costs. Experience of our Master Custodian and other business partners suggest this is a promising area. • Sustainability – Understanding how current policy decisions can affect longer term cost, effectiveness and viability of the Florida Retirement System and providing executive and legislative leadership with relevant facts and context to support their decisions is a continuing responsibility. For example, while the FRS Pension Plan’s actuarial investment return assumption has declined from 7.75% to 7.4% over the past several years, it is still substantially higher (approximately 100 bps) than the consensus of major independent investment advisors and the recommendation of our independent general plan consultant, Aon. This has implications for the Pension Plan’s future costs and funding ratio. Additionally, since the statutory change in the plan choice (DB or DC) default provision took effect, experience suggests a more pronounced shift to DC than originally expected. This in turn has negative implications for the DB plan’s future capacity for volatile or illiquid investments. Given the substantial return contributions of Private Equity, Real Estate, Emerging Markets, Venture Capital, Opportunistic/Distressed credit, all of which are illiquid, volatile, or both, potential future reduction of exposure to these areas places a greater importance on a realistic, or conservative, return assumption. We are closely monitoring these issues and will keep stakeholders informed appropriately.

4) Interaction with the Investment Advisory Council and Audit Committee

Our experience working together on the IAC speaks for itself, so I defer to your judgement as to the quality and productivity of our relationship. With regard to the Audit Committee, I have attended and actively participated in most of their meetings, built relationships with the members and worked with them on resolving issues. You are welcome to contact any of the members of the Audit Committee individually to hear their perception of my interaction with them (see attachment 3 for their contact information).

Thank you for your service on the IAC and especially for making the additional commitment of serving on the Compensation Subcommittee. As you can see from several of my comments above, your work has made a real and valuable difference for our team and organization, as well as our beneficiaries and Florida taxpayers.

July 15, 2019 Page 7

Best regards,

Ash Williams cc: Jon Mason Josh Wilson

Attachment 3C

3560 Lenox Road, Suite 2400 Atlanta, GA 30326 [email protected] www.mercer.com

MEMO

TO: Vinny Olmstead, Chairman, Compensation Subcommittee of the Investment Advisory Council, State Board of Administration DATE: August 28, 2019 FROM: Jon Mason & Josh Wilson, Mercer SUBJECT: Mercer’s Review of SBA Compensation study and Salary Recommendation for Executive Director/Chief Investment Officer (ED/CIO)

Dear Mr. Olmstead

In 2012-13, Mercer was engaged to conduct a compensation study for the State Board of Administration of Florida (SBA). Near the conclusion of that study, Mercer issued a letter of recommendation to Chuck Newman, a prior Chairman of the Compensation Subcommittee of the Investment Advisory Council, State Board of Administration with regard to the SBA’s ED/CIO (Mr. Ash Williams) compensation. The recommendation was to increase the ED/CIO’s annual salary to $410,000 which approximated the median of the five largest public pension funds in the United States. Mr. Williams’ salary was adjusted from $325,000 to $367,500 effective 12/10/13 and adjusted again to $389,500 effective 12/1/2014. Mr. Williams’ salary was not adjusted in 2015.

In 2016, the SBA refreshed the analysis done in 2013 but did so internally (as a fee savings measure) and Mercer reviewed and validated the work. In Mercer’s view, the process undertaken by the SBA was appropriate and consistent with the approach Mercer would have taken. Mercer’s recommendation for 2016 was to increase Mr. Williams’ base salary to $425,000 (with the intention of ultimately adjusting the ED/CIO to $455,000, but over a two-year period. However, in 2016 Mr. Williams’ base salary was actually adjusted to $411,000.

In 2017 & 2018, SBA continued conducting the benchmarking work internally with validation from Mercer. Based on the 2017 assessment and the ED/CIO’s annual performance review, Mercer maintained its prior recommendation of an ultimate adjustment to $455,000 which the Subcommittee accepted. In 2018 Mercer recommended two alternatives for adjustments and the IAC adopted the higher of the two proposals (a salary of $525,000) based on Mr. Williams’ performance and positioning in the marketplace.

This year, the SBA again conducted the ED/CIO salary analysis internally and has asked Mercer to review the analysis and provide a base pay recommendation for the ED/CIO. We again believe the process undertaken by the SBA was appropriate and consistent with the approach Mercer would have taken.

Page 2 August 28, 2019 Mr. Olmstead

Annual Review of ED/CIO’s performance

Mercer received feedback from all four members of the Compensation Subcommittee pertaining to the annual performance of the ED/CIO. Mr. Williams received high marks in all categories, with all Subcommittee members giving the highest possible ratings with respect to performance related to the organization’s mission, Efficiencies/Operations/Infrastructure and Mr. Williams’ overall individual performance. The Subcommittee has consistently communicated its desire to retain Mr. Williams and the intention to provide market competitive compensation to all SBA employees, including Mr. Williams.

Mercer’s Recommendations Regarding SBA’s ED/CIO Compensation

The SBA compiled multiple salary market reference points for the ED/CIO position including:

1) Median of top 5 public pension funds - $475,000 (Group consists of CalPERS, CalSTRS, New York State Common, New York City Retirement, Teachers Retirement System of Texas) 2) 75th percentile of Larger Public Pension Funds peer group (n=14) - $582,500 3) 75th percentile of Broader Public Pension Funds peer group (n=20) - $575,500

Given, Mr. Williams exceptional performance, his criticality to SBA, the dynamic nature of the market, and our review of comparable funds Mercer would advise an increase to approximately $575,000. A more conservative approach, as secondary alternative, would be to target the average of the three market reference points listed above, which would yield a target base pay of approximately $545,000.

Additionally, several SBA employees, including Mr. Williams, are eligible for a performance based incentive which is closely tied to the results of the funds. Mr. Williams is eligible for incentive compensation ranging from 17.5% to 52.5% of salary and Mercer remains comfortable that the incentive compensation is reasonable but conservative.

If you have any questions, please do not hesitate to contact us.

Thank you, Jon & Josh Attachment 4

2018-2019 SBA Compensation Update

1 SBA Incentive Compensation Update

FY2015-2016 FY2016-2017 FY2017-2018 FY2018-2019 Total Eligible Positions 63 63 63 63 Total Participants Receiving an Award 57 59 54 59^ Maximum Possible Quantitative Award $1,786,970 $1,783,384 $1,831,456 $1,950,361 Actual Quantitative Award (Paid over 2 years) $1,382,538 $1,610,799 $1,648,299 N/A Maximum Possible Individual Award $339,580 $343,442 $350,144 $369,615 Actual Individual Award (Paid over 2 years) $255,999 $296,867 $311,107 N/A Maximum Possible Award $2,126,550 $2,126,827 $2,181,600 $2,319,976 Actual Total Award Earned (Paid over 2 years) $1,638,535 $1,907,665 $1,959,406 N/A Total Earned Quantitative ÷ Max Possible 77% 90% 90% N/A Total Earned Individual ÷ Max Possible 75% 86% 89% N/A Total Earned ÷ Max Possible 77% 90% 90% N/A % Participants Earning Max Possible 53% 63% 69% N/A Total Awards Paid in December following FY $869,218* $1,728,304 $1,886,568 N/A Total Awards Deferred to December after next FY $769,318 $953,833 $979,703 N/A *More than 50% of earned awards were paid out due to two individuals reaching age 65 in the calendar year and triggering 100% payout pursuant to the Plan document. ^Per the Plan document, there are 59 employees in the 63 incentive eligible positions who are eligible to receive incentive for FY2018-2019. If any of the 59 employees terminate prior to the payout date of the incentive, he/she would forfeit the incentive award.

NOTE: The Manager of Asset Allocation & Investment Analytics was added to the Incentive Compensation Program for FY2019-2020. This is the first position added to the Incentive Compensation Program since its inception on 07/01/2015. 2 SBA Base Compensation Comparison for 2017 & 2018 Salary Adjustments

All SBA Employees Non-Incentive Eligible Incentive Eligible December 2017 December 2018 December 2017 December 2018 December 2017 December 2018 Adjustments Adjustments Adjustments Adjustments Adjustments Adjustments Total Employees 194 193 134 135 60 58 Employees as % of Total - - 69% 70% 31% 30% Employees SBA Compa-Ratio 92% 94% 95% 98% 88% 90% (Total Salaries ÷ Total Midpoints) The table above reflects SBA employees only.

All SBA Employees Non-Incentive Eligible Incentive Eligible December 2017 December 2018 December 2017 December 2018 December 2017 December 2018 Adjustments Adjustments Adjustments Adjustments Adjustments Adjustments Aggregate Rate Increase $702,238 $734,384 $435,083 $467,413 $267,155 $266,971 Median Base Pay Increase $3,400 $4,001 $3,000 $3,550 $4,320 $5,768 Average Base Pay Increase $4,107 $4,800 $3,751 $4,328 $4,857 $5,933 Median % of Base Pay Increase 4.3% 5.0% 4.7% 5.5% 4.0% 4.2% Average % of Base Pay Increase 4.6% 5.1% 5.0% 5.6% 3.9% 4.1% The table above reflects adjustments to SBA employees only and excludes position reclassifications and the ED/CIO adjustment.

3 SBA Base Compensation Distribution Update as of December 2018 – Latest Cycle

All SBA Employees SBA Non-Incentive Eligible SBA Incentive Eligible Percentage Increase # of Employees % of Employees # of Employees % of Employees # of Employees % of Employees 0% - 3% 22 14% 14 13% 8 18% 3.1% - 6% 89 58% 57 53% 32 71% 6.1% - 10% 37 24% 32 30% 5 11% Greater than 10% 5 3% 5 5% 0 0% The table above reflects adjustments to SBA employees only and excludes position reclassifications and the ED/CIO adjustment.

4 Progress Toward Target Salaries (Organization-wide Compa-Ratio)

Compa-Ratio for Each Period (Total Salaries ÷ Total Midpoints)

96.0% 94.0% 92.0% 90.0% 88.0% 86.0% % of Midpoints % of 84.0% 82.0% 80.0% 78.0% 9/30/2013 vs. 2013 Midpoints 12/1/2016 vs. 2016 Midpoints 12/1/2017 vs. 2016 Midpoints 12/1/2018 vs. 2016 Midpoints

5 Progress Toward Target Salaries (Distribution of Employees by Compa-Ratio)

Progress Toward Target Salaries Salaries vs. Relevant Period Midpoint Target

100 90 80 70 60 50 40 30 Number of of Number Employees 20 10 0 Below 80% 80-90% 91-100% 101-110% 111-120%

90-110% is "Competitive Range"

9/30/2013 vs. 2013 Midpt 12/1/2016 v. 2016 Midpt 12/1/2017 v. 2016 Midpt 12/1/2018 v. 2016 Midpt

6 Current Base Pay Plan & Proposed Pay Plan

The SBA’s current pay plan was implemented on 04/01/2016. The market has moved and necessitates a change in the SBA pay plan. Below are the current and proposed pay plans, with the percentage change between the two pay plans.

% Change from Current Pay Current Pay Plan Proposed Pay Plan Plan to Proposed Pay Plan Grade Minimum Midpoint Maximum Grade Minimum Midpoint Maximum Minimum Midpoint Maximum 1 $23,400 $29,200 $35,000 1 $24,000 $30,000 $36,000 2.6% 2.7% 2.9% 2 $26,900 $33,600 $40,300 2 $27,600 $34,500 $41,400 2.6% 2.7% 2.7% Employee Recruitment & 3 $30,900 $38,600 $46,300 3 $31,700 $39,700 $47,600 2.6% 2.8% 2.8% Retention Rate for 4 $35,500 $44,400 $53,300 4 $36,800 $46,000 $55,200 3.7% 3.6% 3.6% FY2019-2020 5 $40,900 $51,100 $61,300 5 $42,700 $53,400 $64,100 4.4% 4.5% 4.6% 6 $47,400 $59,300 $71,200 6 $49,500 $61,900 $74,300 4.4% 4.4% 4.4% SBA = $800,000 7 $55,000 $68,800 $82,600 7 $57,400 $71,800 $86,100 4.4% 4.4% 4.2% ODCP = $33,014 8 $63,800 $79,800 $95,800 8 $66,600 $83,300 $99,900 4.4% 4.4% 4.3% 9 $74,100 $92,600 $111,100 9 $77,300 $96,700 $116,000 4.3% 4.4% 4.4% FHCF = $53,255 10 $85,900 $107,400 $128,900 10 $89,700 $112,200 $134,600 4.4% 4.5% 4.4% 11 $103,100 $128,900 $154,700 11 $107,600 $134,500 $161,400 4.4% 4.3% 4.3% 12 $123,800 $154,700 $185,600 12 $129,100 $161,400 $193,700 4.3% 4.3% 4.4% 13 $148,500 $185,600 $222,700 13 $154,900 $193,700 $232,400 4.3% 4.4% 4.4% 14 $178,200 $222,700 $267,200 14 $185,900 $232,400 $278,900 4.3% 4.4% 4.4% 15 $213,800 $267,200 $320,600 15 $223,100 $278,900 $334,700 4.3% 4.4% 4.4% 16 $256,500 $320,600 $384,700 16 $267,700 $334,700 $401,600 4.4% 4.4% 4.4% 17 $364,000 $455,000 $546,000 17 $416,000 $520,000 $624,000 14.3% 14.3% 14.3% PM1 $72,000 $90,000 $108,000 PM1 $76,000 $95,000 $114,000 5.6% 5.6% 5.6% PM2 $93,800 $125,000 $156,300 PM2 $95,500 $129,000 $162,400 1.8% 3.2% 3.9% PM3 $126,000 $180,000 $234,000 PM3 $127,500 $184,900 $242,300 1.2% 2.7% 3.5% PM4 $175,000 $250,000 $325,000 PM4 $185,000 $268,300 $351,500 5.7% 7.3% 8.2% 7 Organization’s Salaries vs. Proposed Pay Plan Midpoints

Employees who are fully proficient in their jobs are typically between 96% and 105% of the market. A bell-shaped curve around 96% to 105% is ideal. The majority of employees should fall in the middle three groupings (85%-95%, 96%-105%, and 106%-115%). Highly experienced employees should be at or above midpoint and approaching the maximum. Only 19% of employees are at or above midpoint. The organization-wide compa-ratio for the proposed pay plan (organization salaries ÷ proposed pay plan midpoints) is 90%. This means that, on average across all positions, the SBA pays about 90% of what our peer organizations are paying for similar jobs. For example, at the individual level, the SBA pays $90,000 for a position that peer organizations are paying $100,000.

50.0% Current Distribution 45.0%

40.0%

35.0% Ideal Distribution 30.0%

25.0%

20.0%

15.0% % % Group of Employee 10.0%

5.0%

0.0% Below 85% 85%-95% 96%-105% 106%-115% Greater than 115%

All SBA Employees Non-Incentive Eligible Incentive Eligible

8 Turnover for all SBA, ODCP, and FHCF Staff

All Employees

10.0% 9.6% 9.0% 9.0% 8.3% 8.1% 8.1%

8.0% 7.6% 7.2% 7.2%

7.0% 6.5% 6.2% 6.1%

6.0% 5.7% 5.5% 5.2% 5.2% 4.9% 4.8% 5.0% 4.8% 4.5% 4.3% 4.2% 4.0% 3.3% 3.2% 2.9% 2.8%

3.0% 2.6% 2.5% 2.5% 2.4% 2.4% 2.0% 1.9% 2.0% 1.4% 1.0% 0.6%

1.0% 0.6%

0.0% 2007 - 2008 2008 - 2009 2009 - 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017 2017 - 2018 2018 - 2019

Total Turnover Total Retirement Turnover Total Non-Retirement Turnover 2 Year Moving Average Non-Retirement Turnover

Based on a 2017 survey, the average turnover rate for the SBA’s pension peers was 8.4%. The median turnover rate was 8.8%. Most of the SBA’s pension peers have average turnover between 3.0% and 9.0%.

Total FY2018-2019 SBA, ODCP, and FHCF turnover is 9.0%. Based on the survey, total FY2018-2019 turnover is above the average and median. 9 Turnover for all SBA, ODCP, and FHCF Non-Incentive Eligible Staff Non-Incentive Eligible 12.0% 10.8% 10.5%

10.0% 8.8% 8.8% 8.5% 8.2% 8.0% 7.5% 6.4% 6.1% 6.1%

6.0% 5.7% 5.3% 5.2% 4.9% 4.5% 4.3% 4.3% 4.0% 3.8% 4.0% 3.7% 3.5% 3.1% 3.1% 3.0% 2.8% 2.5% 2.3% 2.1% 2.1% 2.0% 2.0% 2.0% 1.5% 1.4% 1.3% 0.9% 0.0% 0.0% 2007 - 2008 2008 - 2009 2009 - 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017 2017 - 2018 2018 - 2019

Turnover Retirement Turnover Non-Retirement Turnover 2 Year Moving Average Non-Retirement Turnover

10 Turnover for all SBA, ODCP, and FHCF Incentive Eligible Staff

Incentive Eligible 14.0% 12.9%

12.0% 10.3% 10.3% 10.0% 8.2%

8.0% 7.8% 7.4% 7.2% 7.2% 7.1% 7.1% 6.8% 6.6% 6.6%

6.0% 5.5% 5.1% 5.1% 5.1% 5.1% 4.9% 4.9% 3.9% 3.9% 4.0% 3.7% 3.4% 3.3% 3.3% 3.3% 1.9% 1.9% 1.7% 1.7% 2.0% 1.6% 0.0% 0.0% 0.0% 0.0% 0.0% 2007 - 2008 2008 - 2009 2009 - 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017 2017 - 2018 2018 - 2019

Turnover Retirement Turnover Non-Retirement Turnover 2 Year Moving Average Non-Retirement Turnover

11 Projected Retirements by December 2024 for all SBA, ODCP, and FHCF Staff

• 70 (32.6%) of 215 employees are eligible to retire by the end of 2024. • 41 (58.6%) of 70 employees eligible to retire are manager/supervisor-level and above. • There are 41 (46.6%) manager/supervisor-level and above employees eligible to retire of the 88 total manager/supervisor-level and above employees. This means that 46.6% of the SBA’s manager/supervisor-level and above positions could be replaced by the end of 2024. • Of the 70 employees eligible to retire, 14 (20.0%) are already in DROP. Of the 14 in DROP, 8 (57.1%) are supervisor/manager-level and above. • Of the 70 employees eligible to retire, 14 (20.0%) are in an asset class and 56 (80.0%) are in operations. • There are 62 filled incentive eligible positions with 18 (29.0%) eligible to retire by the end of 2024.

12 2019

January April July October S M T W T F S S M T W T F S S M T W T F S S M T W T F S 1 2 3 4 5 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 7 8 9 10 11 12 7 8 9 10 11 12 13 7 8 9 10 11 12 13 6 7 8 9 10 11 12 13 14 15 16 17 18 19 14 15 16 17 18 19 20 14 15 16 17 18 19 20 13 14 15 16 17 18 19 20 21 22 23 24 25 26 21 22 23 24 25 26 27 21 22 23 24 25 26 27 20 21 22 23 24 25 26 27 28 29 30 31 28 29 30 28 29 30 31 27 28 29 30 31

February May August November S M T W T F S S M T W T F S S M T W T F S S M T W T F S 1 2 1 2 3 4 1 2 3 1 2 3 4 5 6 7 8 9 5 6 7 8 9 10 11 4 5 6 7 8 9 10 3 4 5 6 7 8 9 10 11 12 13 14 15 16 12 13 14 15 16 17 18 11 12 13 14 15 16 17 10 11 12 13 14 15 16 17 18 19 20 21 22 23 19 20 21 22 23 24 25 18 19 20 21 22 23 24 17 18 19 20 21 22 23 24 25 26 27 28 26 27 28 29 30 31 25 26 27 28 29 30 31 24 25 26 27 28 29 30

March June September December S M T W T F S S M T W T F S S M T W T F S S M T W T F S 1 2 1 1 2 3 4 5 6 7 1 2 3 4 5 6 7 3 4 5 6 7 8 9 2 3 4 5 6 7 8 8 9 10 11 12 13 14 8 9 10 11 12 13 14 10 11 12 13 14 15 16 9 10 11 12 13 14 15 15 16 17 18 19 20 21 15 16 17 18 19 20 21 17 18 19 20 21 22 23 16 17 18 19 20 21 22 22 23 24 25 26 27 28 22 23 24 25 26 27 28 24 25 26 27 28 29 30 23 24 25 26 27 28 29 29 30 29 30 31 31 30

Blue is Proposed IAC Meeting Yellow is Proposed Cabinet Meeting Proposed 2020 IAC Meeting Dates

Tuesday, March 31, 2020 Tuesday, June 30, 2020 Tuesday, September 29, 2020 Tuesday, December 15, 2020