Executive Summary - Informational

TO: State Investment Board

FROM: Dave Hunter

DATE: August 16, 2019

SUBJECT: SIB Meeting Materials – August 23, 2019

The August SIB meeting will include a high-level performance update as of June 30, 2019, noting that we pushed our comprehensive annual investment performance review (with Callan) to September 27th due to very tight fiscal year end reporting time constraints. RIO’s CFO Connie Flanagan and Senior Financial Accountant Susan Walcker have been hounding our managers to finalize their June 30, 2019, results and valuations since July 1. Due to Connie’s and Susan’s relentless efforts, we effectively “closed” our books this morning. RIO will now seek to confirm and reconcile all investment valuations, cash flows and returns with our custodian (Northern Trust) and consultant (Callan) over the next week in advance of our auditors (Clifton Larson Allen) coming onsite the last week of August to complete their fiscal year end audit procedures.

The August SIB meeting materials will address the following topics:

1. Asset and Performance Overview – Given the above noted time constraints, RIO will distribute this high level asset and performance update on or about August 22nd.

2. Public and Private Equity – Darren Schulz and Eric Chin will provide updates on the comprehensive review of our $6.4 billion public equity and $200 million private equity programs. Board Action will be requested to approve up to a $75 million commitment to Adams Street Partners 2019 Global Fund. RIO notes that Adams Street is our largest private equity manager and their Global Funds for 2015, 2016, 2017 and 2018 have performed well and ranked in the 1st or 2nd quartile by Callan as of March 31, 2019. Jeff Diehl, Managing Partner and Head of Investments, and Miguel Gonzalo, Head of Investment Strategy and Risk Management, from Adams Street have been invited to provide a firm and market update in addition to a review of our Adams Street portfolio and private equity investment strategy.

3. Legacy Fund Earnings Committee – RIO reviewed historical earnings of the Legacy Fund and explained the challenges faced in estimating future “earnings” based on the current definition. RIO also shared how other similar investment funds, like the Alaska Permanent Fund and North Dakota’s Common Schools Trust Fund, have used the Percent of Market Value approach for estimating future “earnings” and developing a sustainable spending policy.

4. Large Transfers and AG Settlement Fund – RIO notes the Budget Stabilization Fund is expected to increase to approximately $665 million following recent transfers in excess of $545 million. Board Action will be requested to approve the Office of the Attorney General as a new contractual investment client relating to the $1.1 million AG Settlement Fund.

5. BND Match Loan CD Program – In response to BND requesting a $100 million increase in this BND CD investment program, RIO respectfully requests the SIB to consider increasing the program size from $200 million to $300 million while extending fixed rate terms from 5 years to 10 years. RIO obtained indicative pricing spreads from our largest fixed income managers to obtain evidence the spread being charged to like term U.S. Treasury’s was sufficient to compensate for the incremental liquidity risk. RIO notes that “economically targeted investing” is prohibited unless the investment meets the “exclusive benefit rule” whereby: a) the cost does not exceed the fair market value at time of investment; b) the investment offers an equivalent or superior rate of return for a similar investment with a similar time horizon and similar risk; c) sufficient liquidity is maintained in the fund to permit distributions in accordance with plan terms; and d) the safeguards that a prudent investor would adhere to our present.

6. Annual Governance Manual Review – If the SIB concurs, RIO intends to conduct our annual Governance Manual Review over the next four months in order to facilitate a more meaningful review. Under this proposal, the SIB and RIO would review Section A on Executive Limitations and Section B on Governance Process this month. At the conclusion of our monthly board discussions, the SIB may make a motion to accept recommended changes, if any, to our Governance Manual.

7. Review of Governance Expert Proposed Ideas – RIO will summarize the ideas shared last month by Amy McDuffee on best practices in board governance. Shared ideas will include the desired form and length of executive summaries, succession planning, use of consent agendas, the development of a core curriculum for all board members versus a custom oriented approach tailored to meet individual needs, the desire to formally engage our consultant in board member orientation (or “on boarding”), and consideration of informal board dinners or lunches to stimulate more open board member discussion and/or expand discussion on the roles and responsibilities of the board, staff, consultants, managers or other outside experts.

8. Agency Update – RIO will highlight recent efforts to make RIO more efficient by redefining roles and responsibilities to address areas of increased emphasis (such as investment risk management and enhanced due diligence reporting and compliance monitoring). RIO is currently seeking to hire a new Investment Accountant (new FTE) and a new Investment Compliance Officer (existing FTE).

ND STATE INVESTMENT BOARD MEETING

Friday, August 23, 2019, 8:30 a.m. Peace Garden Room, State Capitol 600 E Blvd., Bismarck, ND

I. APPROVAL OF AGENDA

II. APPROVAL OF MINUTES (July 26, 2019)

III. INVESTMENTS

A. Asset & Performance Overview - Mr. Hunter (25 minutes) Informational 1. Public Equity Update - Mr. Eric Chin Informational 2. Legacy Fund Earnings Committee Update – Mr. Hunter Informational 3. Investment Update – Large Transfers and AG Settlement Fund Board Action B. Private Equity Update – Mr. Darren Schulz (40 minutes) Informational 1. Adams Street Global Fund 2019 – Mr. Jeff Diehl and Mr. Miguel Gonzalo 2. Staff Recommendation and Pacing Schedule – Mr. Schulz Board Action C. Match Loan CD Program Update - Mr. Hunter (enclosed) (25 minutes) 1. Bank of North Dakota – Mr. Eric Hardmeyer Informational 2. Staff Recommendation – Mr. Hunter Board Action

======Break from 10:15 to 10:30 a.m. ======

IV. GOVERNANCE (enclosed) (90 minutes)

A. Annual Governance Manual Review - Mr. Hunter Board Action B. Review of Proposed Ideas by Governance Expert and Board – Mr. Hunter Informational C. Board Education – Conferences Informational D. RIO Agency Update – Mr. Hunter Informational

V. OTHER

Next Meetings: Securities Litigation Committee – September 4, 2019, 3:00 p.m. RIO Conference Room Audit Committee - September 26, 2019, 10:00 a.m. RIO Conference Room SIB - September 27, 2019, 8:30 a.m., State Capitol, Peace Garden Room

VI. ADJOURNMENT

Any individual requiring an auxiliary aid or service, please contact the Retirement and Investment Office (RIO) (701) 328-9885 at least three (3) days prior to the scheduled meeting.

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NORTH DAKOTA STATE INVESTMENT BOARD MINUTES OF THE JULY 26, 2019, BOARD MEETING

MEMBERS PRESENT: Brent Sanford, Lt. Governor, Chair Rob Lech, TFFR Board, Vice Chair Troy Seibel, PERS Board, Parliamentarian Jon Godfread, Insurance Commissioner Toni Gumeringer, TFFR Board Bryan Klipfel, WSI Designee Adam Miller, PERS Board Mel Olson, TFFR Board Yvonne Smith, PERS Board

MEMBER ABSENT: Kelly Schmidt, State Treasurer Jodi Smith, Commissioner of Trust Lands

STAFF PRESENT: Eric Chin, Senior Investment Officer Connie Flanagan, Chief Financial Officer Bonnie Heit, Admin Svs Suprv David Hunter, Exec Dir/CIO Fay Kopp, Dep ED/CRA Sara Sauter, Audit Svs Suprv Darren Schulz, Deputy CIO

GUESTS: Mike Burton, Teachers’ Fund for Retirement Julie Dahle, Choice Financial Group Sen. Jim Dotzenrod, Legacy/Budget Stab. Adv. Board Karlene Fine, Industrial Commission Shane Goettle, Odney Public Affairs Jon Griffin, SIB Audit Committee Eric Hardmeyer, Bank of North Dakota Danelle Hopkins, Governor’s Office Rep. Keith Kempenich, Legacy/Budget Stab. Adv. Board Allen Knudson, Legislative Council Adam Mathiak, Legislative Council Amy McDuffee, Mosaic Governance Advisors Scott Miller, Public Employees Retirement System Anders Odegaard, Attorney General Counsel Andrea Pfennig, Industrial Commission Tim Porter, Bank of North Dakota Angela Rodell, Alaska Permanent Fund Ryan Rauschenberger, Tax Commissioner Sheila Sandness, Legislative Council Mylynn Tufte, Public Employees Retirement System Sen. Rich Wardner, Legislative Assembly

CALL TO ORDER:

Lt. Governor Sanford, Chair, called the State Investment Board (SIB) regular meeting to order at 8:30 a.m. on Friday, July 26, 2019, at Bismarck State College, National Energy Center of Excellence, Room 335, Bismarck, ND.

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MINUTES:

IT WAS MOVED BY MR. OLSON AND SECONDED BY MS. SMITH AND CARRIED BY A VOICE VOTE TO APPROVE THE MAY 24, 2019, AND JUNE 19, 2019, MINUTES AS DISTRIBUTED.

AYES: MR. MILLER, COMMISSIONER GODFREAD, MR. OLSON, MR. KLIPFEL, MS. GUMERINGER, MR. SEIBEL, DR. LECH, MS. SMITH, AND LT. GOVERNOR SANFORD NAYS: NONE MOTION CARRIED ABSENT: TREASURER SCHMIDT, COMMISSIONER SMITH

AGENDA:

The Board considered the agenda for the July 26, 2019, meeting,

IT WAS MOVED BY DR. LECH AND SECONDED BY COMMISSIONER GODFREAD AND CARRIED BY A VOICE VOTE TO ACCEPT THE AGENDA FOR THE JULY 26, 2019, MEETING.

AYES: MS. GUMERINGER, MS. SMITH, MR. KLIPFEL, DR. LECH, COMMISSIONER GODFREAD, MR. OLSON, MR. SEIBEL, MR. MILLER, AND LT. GOVERNOR SANFORD NAYS: NONE MOTION CARRIED ABSENT: TREASURER SCHMIDT, COMMISSIONER SMITH

ELECTION OF OFFICERS AND APPOINTMENTS:

IT WAS MOVED BY DR. LECH AND SECONDED BY COMMISSIONER GODFREAD AND CARRIED BY A ROLL CALL VOTE TO NOMINATE LT. GOVERNOR SANFORD AS CHAIR OF THE SIB FOR THE PERIOD OF JULY 1, 2019 – JUNE 30, 2020.

AYES: MR. OLSON, MR. SEIBEL, MS. GUMERINGER, COMMISSIONER GODFREAD, MS. SMITH, MR. MILLER, MR. KIPFEL, DR. LECH, LT. GOVERNOR SANFORD NAYS: NONE MOTION CARRIED ABSENT: TREASURER SCHMIDT, COMMISSIONER SMITH

IT WAS MOVED BY LT. GOVERNOR SANFORD AND SECONDED BY COMMISSIONER GODFREAD AND CARRIED BY A ROLL CALL VOTE TO NOMINATE DR. LECH AS VICE CHAIR OF THE SIB FOR THE PERIOD OF JULY 1, 2019 – JUNE 30, 2020.

AYES: MS. GUMERINGER, COMMISSIONER GODFREAD, MR. KLIPFEL, MS. SMITH, DR. LECH, MR. MILLER, MR. SEIBEL, MR. OLSON, AND LT. GOVERNOR SANFORD NAYS: NONE MOTION CARRIED ABSENT: TREASURER SCHMIDT, COMMISSIONER SMITH

Lt. Governor Sanford reappointed Mr. Seibel as parliamentarian for the period of July 1, 2019 – June 30, 2020.

IT WAS MOVED BY MS. GUMERINGER AND SECONDED BY MR. OLSON AND CARRIED BY A ROLL CALL VOTE TO ACCEPT THE MEMBERSHIP OF THE AUDIT COMMITTEE, CONSISTING OF MS. SMITH, DR. LECH, MR. GRIFFIN, MS. DAHLE, AND COMMISSIONER SMITH, FOR THE PERIOD OF JULY 1, 2019 – JUNE 30, 2020.

AYES: MS. SMITH, MR. MILLER, MR. OLSON, MS. GUMERINGER, DR. LECH, MR. SEIBEL, MR. KLIPFEL, COMMISSIONER GODFREAD, AND LT. GOVERNOR SANFORD NAYS: NONE MOTION CARRIED 2 7/26/19

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ABSENT: TREASURER SCHMIDT, COMMISSIONER SMITH

IT WAS MOVED BY MS. SMITH AND SECONDED BY DR. LECH AND CARRIED BY A ROLL CALL VOTE TO ACCEPT THE MEMBERSHIP OF THE SECURITIES LITIGATION COMMITTEE, CONSISTING OF MR. SEIBEL, COMMISSIONER SMITH, MR. ODEGAARD, MS. FLANAGAN, AND MR. HUNTER, FOR THE PERIOD OF JULY 1, 2019 – JUNE 30, 2020.

AYES: MR. SEIBEL, MR. OLSON, DR. LECH, MR. MILLER, COMMISSIONER GODFREAD, MS. GUMERINGER, MS. SMITH, MR. KLIPFEL, AND LT. GOVERNOR SANFORD NAYS: NONE MOTION CARRIED ABSENT: TREASURER SCHMIDT, COMMISSIONER SMITH

IT WAS MOVED BY COMMISSIONER GODFREAD AND SECONDED BY MS. SMITH AND CARRIED BY A ROLL CALL VOTE TO ACCEPT THE MEMBERSHIP OF THE EXECUTIVE REVIEW COMMITTEE, CONSISTING OF MS. SMITH, MR. OLSON, AND MR. MILLER, FOR THE PERIOD OF JULY 1, 2019 – JUNE 30, 2020.

AYES: MR. KLIPFEL, MR. OLSON, COMMISSIONER GODFREAD, MR. SEIBEL, DR. LECH, MR. MILLER, MS. SMITH, MS. GUMERINGER, AND LT. GOVERNOR SANFORD NAYS: NONE MOTION CARRIED ABSENT: TREASURER SCHMIDT, COMMISSIONER SMITH

INVESTMENT GOVERNANCE:

Fundamental Investment Beliefs – Mr. Hunter highlighted the SIB and RIO Fundamental Investment Beliefs, Client Assets Under Management as of March 31, 2019, Investment Fees and Expenses between 2013 – 2018, Strategic investment Plan 2019-21, RIO’s Mission Statement, Annual Board Planning cycle, and ND Legacy Fund Summary of Deposits, Earnings, and Net Position as of May 31, 2019.

Code of Conduct – SIB Governance Policy/Board Members’ Code of Conduct requires the SIB members to reaffirm their understanding of the policy on an annual basis and disclose any conflicts of interest. Board members are to acknowledge the affirmation by signing and dating the form and returning to staff.

Investment Policies – Mr. Hunter presented revised Investment Policy Statements for the Public Employees Retirement System (PERS,) PERS Retiree Health Insurance Credit, and Job Service for the Board’s consideration. After discussion,

IT WAS MOVED BY DR. LECH AND SECONDED BY COMMISSIONER GODFREAD AND CARRIED BY A ROLL CALL VOTE TO ACCEPT THE REVISED INVESTMENT POLICY STATEMENTS FOR THE PUBLIC EMPLOYEES RETIREMENT SYSTEM, RETIREE HEALTH INSURANCE CREDIT, AND JOB SERVICE.

AYES: MR. KLIPFEL, COMMISSIONER GODFREAD, MR. OLSON, MR. MILLER, MS. GUMERINGER, MS. SMITH, DR. LECH, MR. SEIBEL, AND LT. GOVERNOR SANFORD NAYS: NONE MOTION CARRIED ABSENT: TREASURER SCHMIDT, COMMISSIONER SMITH

Mr. Hunter presented a revised Investment Policy Statement for the ND State Board of Medicine. After discussion,

IT WAS MOVED BY MR. OLSON AND SECONDED BY MS. GUMERINGER AND CARRIED BY A ROLL CALL VOTE TO ACCEPT THE ASSET ALLOCATION CHANGES FOR THE ND STATE BOARD OF MEDICINE.

AYES: DR. LECH, MR. OLSON, MR. SEIBEL, MR. MILLER, COMMISSIONER GODFREAD, MS. GUMERINGER, MS. SMITH, MR. KLIPFEL, AND LT. GOVERNOR SANFORD 3 7/26/19

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NAYS: NONE MOTION CARRIED ABSENT: TREASURER SCHMIDT, COMMISSIONER SMITH

Investment Update – Mr. Hunter reported on the first distribution from the Legacy Fund since its funding inception in late 2011. RIO personnel will transfer $455 million of investment earnings, as defined by NDCC 21-10-12 from the Legacy Fund to the General Fund on or about July 23, 2019. This transfer will reduce Legacy Fund investments from roughly $6.5 billion to $6 billion.

Mr. Hunter also reported approximately $450 million will be transferred into the Budget Stabilization Fund on or after August 12, 2019 by the Office of Management and Budget (OMB) which will increase the value of the Fund to approximately $568 million.

Mr. Hunter also informed the Board the Office of Attorney General is inquiring if the SIB could accept the Office of the Attorney General as a new client to oversee their “AG Settlement Fund” of approximately $1 million. After discussion,

IT WAS MOVED BY MS. SMITH AND SECONDED BY MS. GUMERINGER AND CARRIED BY A ROLL CALL VOTE TO ACCEPT THE OFFICE OF ATTORNEY GENERAL AS A NEW CLIENT TO OVERSEE THEIR “AG SETTLEMENT FUND.”

AYES: COMMISSIONER GODFREAD, MR. KLIPFEL, MS. GUMERINGER, MS. SMITH, MR. SEIBEL, MR. MILLER, DR. LECH, MR. OLSON, AND LT. GOVERNOR SANFORD NAYS: NONE MOTION CARRIED ABSENT: TREASURER SCHMIDT, COMMISSIONER SMITH

Governance Best Practices – Ms. Amy McDuffee, Mosaic Governance Advisors, presented an educational segment on best practices and current trends in public fund governance.

The Board recessed at 10:40 a.m. and reconvened at 11:02 a.m.

BOARD EDUCATION:

Education Options – Mr. Hunter reviewed the importance of continuing education and strong board governance and summarized previous board education and upcoming board educational opportunities.

US Sovereign Wealth Funds – Ms. Angela Rodell, Chief Executive Officer of the Alaska Permanent Fund Corporation, discussed the unique opportunities and challenges facing the largest US Sovereign Wealth Fund presently at $65 billion.

Investment Manager Catalog – In the Board’s meeting materials was a catalog of investment managers which includes a brief description of existing investment strategies and firms, the date in which the SIB engaged the firms for a specific mandate, the asset class (or classes) for which they offer their services and the major investment pools (or trusts) in which these strategies are utilized. A listing of closed investment strategies is also included in the catalog.

OTHER:

The next meeting of the SIB for regular business has been scheduled for August 23, 2019, at 8:30 a.m., at the State Capitol, Peace Garden Room.

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The next meeting of the Securities Litigation Committee is scheduled for August 22, 2019, at 3:00 p.m. at the Retirement and Investment Office.

The next meeting of the SIB Audit Committee is scheduled for September 26, 2019, at 10:00 a.m. at the Retirement and Investment Office.

ADJOURNMENT:

With no further business to come before the SIB, Lt. Governor Sanford adjourned the meeting at 12:10 p.m.

______Lt. Governor Sanford, Chair State Investment Board

______Bonnie Heit Recorder

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AGENDA ITEM III. A.

Asset and Performance Overview Preliminary Update as of June 30, 2019

August 22, 2019

Dave Hunter, Executive Director / CIO Darren Schulz, Deputy Chief Investment Officer Fay Kopp, Deputy Executive Director / Chief Retirement Officer Connie Flanagan, Chief Financial Officer Eric Chin, Senior Investment Analyst ND Retirement & Investment Office (RIO) State Investment Board (SIB) State Investment Board – Client Assets Under Management Market Values Market Values Fund Name as of 6/30/19 (1) as of 6/30/18 (2) Pension Trust Fund  SIB client investments totaled approximately $15.1 Public Employees Retirement System (PERS) 3,152,930,087 3,024,222,995 billion as of June 30, 2019, with the Pension Trust at Teachers' Fund for Retirement (TFFR) 2,573,622,554 2,485,835,306 $5.95 billion, Insurance Trust approaching $2.3 billion City of Bismarck Employees Pension 104,517,247 99,177,507 City of Grand Forks Employees Pension 68,419,301 63,633,206 and Legacy Fund exceeding $6.5 billion. City of Bismarck Police Pension 41,862,976 40,106,249 Grand Forks Park District 7,176,427 6,772,657  Equity markets continued to advance in the second Subtotal Pension Trust Fund 5,948,528,592 5,719,747,919 quarter, aided by expectations of easing by the Fed, Insurance Trust Fund healthy consumer spending, and low unemployment. Workforce Safety & Insurance (WSI) 2,065,400,398 1,923,117,660 Bonds posted gains as rates rallied across maturities Budget Stabilization Fund 118,707,130 113,603,777 City of Fargo FargoDome Permanent Fund 44,840,633 44,629,288 and credit spreads fell. As a result, global public equities PERS Group Insurance Account 31,067,120 31,610,707 returned 3.8% in the 2nd quarter of 2019, while fixed State Fire and Tornado Fund 22,761,457 23,066,784 income returned 3.2%. ND Association of Counties (NDACo) Fund 6,333,052 5,910,661 Insurance Regulatory Trust Fund 6,218,781 5,637,791  The Pension Trust posted a net return of 5.5% in the Petroleum Tank Release Compensation Fund 5,994,235 6,167,272 State Risk Management Workers Comp Fund 5,187,879 5,356,549 last year. During the last 5-years, the Pension Trust State Risk Management Fund 4,909,623 4,956,217 generated a net annualized return of 6.2%, exceeding State Bonding Fund 3,609,422 3,411,215 the performance benchmark of 5.7%. ND Board of Medicine 2,362,384 2,251,119 Bismarck Deferred Sick Leave Account 779,596 730,026  The Insurance Trust generated a net return of 6.4% in Lewis & Clark Interpretive Center Endowment Fund 751,763 703,284 Cultural Endowment Fund 475,311 448,825 the last year. During the last 5-years, the Insurance Subtotal Insurance Trust Fund 2,319,398,784 2,171,601,175 Trust posted a net annualized return of 5.0%, exceeding Legacy Trust Fund the performance benchmark of 4.0%. Legacy Fund 6,580,759,920 5,577,319,109  Legacy Fund generated a net return of 5.0% last year. PERS Retiree Insurance Credit Fund 135,962,521 126,605,207 Job Service of North Dakota Pension 97,285,279 95,690,469 During the last 5-years, Legacy Fund earned a net ND Tobacco Prevention and Control Trust Fund 9,300,127 54,365,162 annualized return of 5.7%, exceeding the performance benchmark of 5.2% noting the Fund was not fully Total Assets Under SIB Management 15,091,235,223 13,745,329,041 invested in its current asset allocation until 2015. (1) Market values are unaudited and subject to change. (2) 6/30/18 market values as stated in the Comprehensive Annual Financial Report.

2 Investment Performance Evaluation – June 30, 2019 Investment Performance Criteria : SIB clients should receive investment returns consistent with their investment policies and market variables (pursuant to Section D.3 of the SIB Governance Manual). The “Ends” for investment performance is evaluated based on comparison of each client’s actual rate of return (net of fees), risk levels and risk adjusted returns, versus the client’s policy benchmark over 5 years. Pension Pool: Every Pension Pool client posted positive Excess Returns of at least 0.38% per annum over the last 5-years (including 0.53% for PERS and TFFR), while adhering to approved risk levels and generating positive Risk Adjusted Excess Return. TFFR and PERS earned 6.2% per annum for the 5-years ended June 30, 2019. Global equities were the primary return driver with TFFR and PERS portfolios earning 6.7% the last 5-years (versus 6.55% for the MSCI All Country World Index) with U.S. Equities up 10.3% while International Equities were up only 3.5% since June 30, 2014. Private equity was disappointing earning only 2.2% per annum the last 5-years (but up 8.6% in the last year). Fixed Income earned 4.2% annualized over the last 5-years outperforming the Bloomberg Aggregate U.S. Benchmark of 3.0%. Real Assets earned 7.3% per annum for the 5-years ended June 30, 2019, with Real Estate up 9.8% (versus 8.8% benchmark), Infrastructure up 5.0% (exceeding benchmarks), while Timber underperformed the last 5- years (-0.07% versus +4.7% for NCREIF Timber Index) albeit improving in the past year (up 4.1% versus NCREIF +3.2%). Non-Pension Pool: Every Non-Pension client generated positive Excess Return of at least 0.38% per annum and positive Risk Adjusted Excess Returns for the 5-years ended June 30, 2019, with two exceptions for PERS Retiree Health Insurance Credit Fund (-0.28% excess return) and PERS Group Insurance (-0.01% excess return). The Legacy Fund earned 8.1% per annum for the 3-years ended June 30, 2019, which surpassed the performance benchmark return of 7.5% (noting that Legacy was not fully invested in its current asset allocation until 2015). Legacy’s U.S. Equity portfolio earned 12.8% per annum over the last 3-years, while International Equities earned 10% (with both U.S. and International Equities outperforming their respective benchmarks). Fixed Income returned 4.5% per annum the last 3-years, surpassing the Bloomberg Aggregate Index which was up 2.3%. Real Asset returns were mixed with Real Estate up 6.8% and Infrastructure up 7.6%, whereas Global Inflation Linked Debt Securities (including U.S. TIPs) were up only 2.3% the last 3-years. Risk, as measured by standard deviation, was within approved levels for all SIB clients for the 5-years ended June 30, 2019. Actual asset allocations are within Target ranges and guidelines as of June 30, 2019. 3 Note: Amount and returns are unaudited and subject to change. Pension Pool Return & Risk Summary – June 30, 2019 Risk Adj Key Points: Risk Ex ce ss 5 Yrs Return Every Pension 1 Yr Ended 3 Yrs Ended 5 Yrs Ended Ended 5 Yrs Ended Pool portfolio 6/30/2019 6/30/2019 6/30/2019 6/30/2019 6/30/2019 generated PERS $3.15 billion Total Fund Return - Net 5.52% 9.21% 6.22% 6.6% 0.21% positive “Excess Policy Benchmark Return 6.41% 8.68% 5.69% 6.2% Return” for the Excess Return -0.89% 0.53% 0.54% 106% 5 years ended June 30, 2019, TFFR $2.57 billion Total Fund Return - Net 5.54% 9.15% 6.19% 6.6% 0.28% while adhering Policy Benchmark Return 6.36% 8.61% 5.66% 6.3% to prescribed Excess Return -0.82% 0.54% 0.53% 105% risk levels (e.g. within 115% of Bismarck Employee $105 million the Policy Total Fund Return - Net 5.94% 8.43% 5.91% 5.5% 0.48% Policy Benchmark Return 6.34% 7.64% 5.28% 5.3% Benchmark the Excess Return -0.39% 0.80% 0.64% 103% last 5-years).

5-Yr. Returns Asset Benchmark Allocation June 30, 2019 Allocation Return x Return Asset Class a b a x b PERS Current Policy Benchmark: Equity 58% 6.6% 3.8% 58% Equity (30% U.S., 21% Non-U.S., 7% Private); 23% Fixed Income (16% Fixed Income 23% 3.0% 0.7% Investment Grade, 7% High Yield); 19% Real Real Assets 19% 6.2% 1.1% Assets (11% Real Estate; 6% Infrastructure; Policy Benchmark Return (5-years) 5.69% 2% Timber).

4 Note: Amounts are unaudited and subject to change. Pension Pool Return & Risk Summary – June 30, 2019 Risk Adj Risk Adjusted Risk Ex ce ss 5 Yrs Return Excess Returns 1 Yr Ended 3 Yrs Ended 5 Yrs Ended Ended 5 Yrs Ended for the 5-years 6/30/2019 6/30/2019 6/30/2019 6/30/2019 6/30/2019 ended June 30, Bismarck Police $42 million 2019, were Total Fund Return - Net 5.76% 8.76% 5.97% 5.9% 0.45% positive for all Policy Benchmark Return 6.14% 8.09% 5.40% 5.7% Pension Pool Excess Return -0.38% 0.67% 0.58% 103% clients. Job Service $97 million Job Service is Total Fund Return - Net 6.86% 5.20% 4.87% 3.6% 0.25% 140% funded & Policy Benchmark Return 6.74% 6.24% 4.48% 3.4% significantly de- Excess Return 0.11% -1.05% 0.38% 103% risked its G.F. Employee $68 million portfolio (to Total Fund Return - Net 6.17% 9.46% 6.34% 6.7% 0.42% 20% equity / Policy Benchmark Return 6.51% 8.96% 5.86% 6.7% 80% debt) in Excess Return -0.34% 0.50% 0.47% 101% recent years.

G.F. Park District $7 million Total Fund Return - Net 6.02% 9.34% 6.46% 6.5% 0.22% Policy Benchmark Return 6.65% 8.81% 5.91% 6.2% Excess Return -0.64% 0.53% 0.55% 106%

Risk Adjusted Excess Return measures actual portfolio results versus a benchmark adjusted by its risk relative to a benchmark portfolio. This metric is positive if excess returns are due to “smart” investment decisions or negative if driven by excess risk.

5 Note: Amounts are unaudited and subject to change. Non-Pension Pool Return & Risk Summary – June 30, 2019 Risk Adj Risk Ex ce ss 5 Yrs Return Returns and Risk: 1 Yr Ended 3 Yrs Ended 5 Yrs Ended Ended 5 Yrs Ended Thirteen out of Fifteen 6/30/2019 6/30/2019 6/30/2019 6/30/2019 6/30/2019 WSI $2.065 billion Non-Pension Pool Total Fund Return - Net 6.87% 6.83% 5.45% 4.0% 0.41% clients generated Policy Benchmark Return 7.06% 5.33% 4.41% 3.4% positive Excess Return Excess Return -0.20% 1.49% 1.04% OK and Risk Adjusted Legacy Fund $6.58 billion Excess Return for the 5 Total Fund Return - Net 4.98% 8.16% 5.72% 6.5% 0.23% years ended June 30, Policy Benchmark Return 6.12% 7.49% 5.14% 6.1% Excess Return -1.14% 0.67% 0.59% OK 2019. PERS RHIC underperformed by Budget Stabilization $119 million Total Fund Return - Net 4.51% 1.86% 1.85% 1.1% 0.37% 0.28% and Group Policy Benchmark Return 4.23% 1.60% 1.41% 1.0% Insurance trailed by Excess Return 0.28% 0.26% 0.44% OK 0.01%. These returns Fire & Tornado $23 million were achieved while Total Fund Return - Net 6.41% 7.00% 5.35% 5.1% 0.32% adhering to risk levels Policy Benchmark Return 6.76% 5.86% 4.52% 4.5% within 1% of policy. Excess Return -0.35% 1.14% 0.83% OK

State Bonding $3.6 million Risk Adjusted Excess Return Total Fund Return - Net 5.83% 3.08% 2.79% 1.9% 0.70% measures a portfolio’s excess Policy Benchmark Return 5.35% 1.92% 2.02% 1.8% return adjusted by its risk Excess Return 0.48% 1.17% 0.77% OK relative to a benchmark portfolio. This metric is positive Insur.Reg.Trust Fund $6.2 million if returns are due to “smart” Total Fund Return - Net 5.03% 5.65% 4.07% 4.1% 0.09% investment decisions or negative Policy Benchmark Return 5.37% 5.04% 3.64% 3.7% Excess Return -0.35% 0.61% 0.43% OK if driven by excess risk.

6 Note: Amounts are unaudited and subject to change. Non-Pension Pool Return & Risk Summary – June 30, 2019 Risk Adj Risk Ex ce ss 5 Yrs Return SIB Client Commentary: 1 Yr Ended 3 Yrs Ended 5 Yrs Ended Ended 5 Yrs Ended 6/30/2019 6/30/2019 6/30/2019 6/30/2019 6/30/2019 Most Non-Pension Pool Petrol Tank Release $6 million funds generated positive Total Fund Return - Net 5.47% 2.93% 2.62% 1.7% 0.64% Risk Adjusted Excess Policy Benchmark Return 5.07% 1.86% 1.92% 1.7% Returns for the 5-years Excess Return 0.40% 1.06% 0.70% OK ended June 30, 2019, including the Legacy Fund, State Risk Mgmt. $4.9 million WSI, Budget Stabilization, Total Fund Return - Net 7.67% 7.01% 5.91% 4.7% 0.40% Fire & Tornado, State Policy Benchmark Return 7.67% 5.79% 5.01% 4.2% Bonding, Insurance Excess Return 0.00% 1.23% 0.90% OK Regulatory Trust Fund, State Risk Mgmt W/C $5.2 million Petroleum Tank Release Total Fund Return - Net 7.56% 7.65% 6.33% 5.3% 0.34% Compensation Fund, State Policy Benchmark Return 7.75% 6.62% 5.55% 4.9% Risk Management, State Excess Return -0.19% 1.03% 0.78% OK Risk Management Workers Compensation, NDACo $6.3 million NDACO, Bismarck Total Fund Return - Net 7.12% 6.62% 5.06% 5.1% 0.28% Deferred Sick Leave, Fargo Policy Benchmark Return 7.32% 5.50% 4.26% 4.4% Dome and the Cultural Excess Return -0.19% 1.12% 0.80% OK Endowment Fund Bismarck Def.Sick Leave $779,596 (excluding PERS Retiree Total Fund Return - Net 6.90% 6.79% 5.30% 4.8% 0.43% Health Insurance Credit Policy Benchmark Return 7.06% 5.33% 4.28% 4.1% Fund and PERS Group Excess Return -0.16% 1.46% 1.02% OK Insurance Fund). FargoDome Perm.Fund $45 million Total Fund Return - Net 5.13% 8.30% 5.85% 6.8% 0.28% Policy Benchmark Return 6.07% 7.44% 5.15% 6.2% Excess Return -0.94% 0.87% 0.70% OK

7 Note: Amounts are unaudited and subject to change. Non-Pension Pool Return & Risk Summary – June 30, 2019 Risk Adj Risk Ex ce ss Commentary: 5 Yrs Return The Board of Medicine became an 1 Yr Ended 3 Yrs Ended 5 Yrs Ended Ended 5 Yrs Ended SIB client 3 years ago noting they 6/30/2019 6/30/2019 6/30/2019 6/30/2019 6/30/2019 were previously investing in CD’s. Cultiral Endow.Fund $475,311 Total Fund Return - Net 6.02% 8.96% 6.83% 7.0% 0.14% PERS Retiree Health absolute returns have been reasonable Policy Benchmark Return 6.91% 8.47% 6.32% 6.6% the last 5-years (at 5.8%) but Excess Return -0.88% 0.50% 0.50% OK disappointing on a risk adjusted Board of Medicine $2.3 million excess return basis of -0.67%. Total Fund Return - Net 4.98% 4.46% N/A Given significant legislative Policy Benchmark Return 5.22% 4.02% N/A actions impacting this fund, Excess Return -0.24% 0.44% N/A PERS is re-evaluating this PERS RHIC Fund $136 million portfolio in 2019-20. Total Fund Return - Net 6.51% 8.46% 5.79% 7.5% -0.67% PERS Group Insurance returns Policy Benchmark Return 6.89% 8.44% 6.06% 6.9% are reasonable and within Excess Return -0.37% 0.02% -0.28% OK 0.01% of the Policy Benchmark PERS Group Insur $31 million and within 0.04% for Risk Total Fund Return - Net 4.20% 1.55% 1.23% 1.0% -0.04% Adjusted Excess Return basis Policy Benchmark Return 3.97% 1.54% 1.24% 1.0% (and improving in recent Excess Return 0.24% 0.01% -0.01% OK years). The Tobacco Prevention and Tobocco Prevention $9.3 million Control Trust Fund was transferred Total Fund Return - Net 4.47% 2.58% N/A to OMB regulatory oversight on July Policy Benchmark Return 4.38% 2.57% N/A 1, 2017. Excess Return 0.09% 0.01% N/A Lewis & Clark Interp.Ctr. $751,763 The Lewis & Clark (Interpretive) Total Fund Return - Net 6.99% N/A N/A Center became a client in 2017 and Policy Benchmark Return 7.15% N/A N/A was previously invested in CD’s. Excess Return -0.16% N/A N/A

8 Note: Amounts are unaudited and subject to change. ND State Investment Board Investment Performance Summary Investment Performance (net of fees) As of June 30, 2019 Fiscal Years ended June 30 Periods ended 6/30/19 (annualized) Market Values FYTD Fund Name as of 6/30/19 2019 2018 2017 2016 2015 2014 3 Years 5 Years 10 Years 20 Years 30 Years Pension Pool Teachers' Fund for Retirement (TFFR) $ 2,573,622,554 5.54% 9.11% 12.93% 0.28% 3.52% 16.53% 9.15% 6.18% 9.57% 5.68% 7.68% Public Employees Retirement System (PERS) 3,152,930,087 5.52% 9.19% 13.05% 0.28% 3.53% 16.38% 9.21% 6.22% 9.41% 6.00% 7.90% City of Bismarck Employees Pension 104,517,247 5.94% 7.86% 11.56% 0.82% 3.69% 14.56% 8.43% 5.91% 8.99% 5.93% * City of Bismarck Police Pension 41,862,976 5.76% 8.36% 12.24% 0.32% 3.56% 15.27% 8.76% 5.97% 9.24% 5.86% * City of Grand Forks Employees Pension 68,419,301 6.17% 9.46% 12.84% 0.11% 3.53% 16.33% 9.46% 6.33% 9.71% * * Park District of the City of Grand Forks Pension 7,176,427 6.02% 9.33% 12.74% 0.36% 4.22% 16.44% 9.33% 6.45% * * * Subtotal Pension Pool 5,948,528,592 Insurance Pool Workforce Safety & Insurance (WSI) 2,065,400,398 6.87% 5.34% 8.29% 3.58% 3.26% 11.71% 6.83% 5.45% 7.82% 5.87% 7.39% State Fire and Tornado Fund 22,761,457 6.41% 5.32% 9.30% 2.67% 3.16% 12.78% 7.00% 5.34% 8.34% 5.87% 6.82% State Bonding Fund 3,609,422 5.83% 1.07% 2.40% 3.48% 1.25% 4.06% 3.08% 2.79% 3.98% 3.48% 5.24% Petroleum Tank Release Compensation Fund 5,994,235 5.47% 1.13% 2.23% 3.17% 1.13% 3.68% 2.93% 2.61% 3.67% 3.25% * Insurance Regulatory Trust Fund 6,218,781 5.03% 4.53% 7.40% 1.46% 2.04% 9.88% 5.65% 4.07% 6.29% 5.01% 5.89% State Risk Management Fund 4,909,623 7.67% 5.14% 8.27% 4.46% 4.08% 12.29% 7.02% 5.91% 8.94% 5.58% * State Risk Management Workers Comp Fund 5,187,879 7.56% 6.03% 9.41% 4.21% 4.57% 13.68% 7.66% 6.34% 9.62% * * Cultural Endowment Fund 475,311 6.02% 8.27% 12.71% 2.18% 5.22% 16.94% 8.96% 6.82% 10.62% * * Budget Stabilization Fund 118,707,130 4.51% 0.32% 0.80% 1.82% 1.86% 1.94% 1.86% 1.85% 2.61% * * ND Association of Counties (NDACo) Fund 6,333,052 7.12% 4.48% 8.30% 2.76% 2.77% 11.61% 6.62% 5.06% 8.00% 5.21% * Bismarck Deferred Sick Leave Account 779,596 6.90% 4.66% 8.85% 3.26% 2.95% 12.32% 6.79% 5.30% 8.28% * * City of Fargo FargoDome Permanent Fund 44,840,633 5.13% 7.64% 12.25% 1.19% 3.38% 16.34% 8.30% 5.85% 9.67% * * State Board of Medicine Fund 2,362,384 4.98% 3.12% 5.29% 1.63% 2.70% * 4.46% 3.54% * * * PERS Group Insurance Account 31,067,120 4.20% 0.41% 0.08% 1.49% 0.01% 0.06% 1.55% 1.23% 0.74% * * Lewis & Clark Interpretive Center Endowment 751,763 6.99% * * * * * * * * * * Subtotal Insurance Pool 2,319,398,785

Legacy Fund 6,580,759,920 4.98% 7.57% 12.03% 1.06% 3.31% 6.64% 8.15% 5.72% * * * Job Service of North Dakota Pension 97,285,279 6.86% 3.15% 5.63% 5.45% 3.30% 13.54% 5.20% 4.87% 8.17% 5.53% * Tobacco Control and Prevention Fund 9,300,127 4.47% 1.63% 1.66% * * * 2.58% * * * * PERS Retiree Health Insurance Credit Fund 135,962,521 6.51% 7.15% 11.81% 0.72% 3.06% 16.53% 8.47% 5.79% 9.76% 5.22% * Total Assets Under SIB Management $ 15,091,235,224

Note: Asset allocation largely drives investment performance. Each fund has a unique allocation that takes into consideration return objectives, risk tolerance, liquidity constraints, and unique circumstances. Such considerations must be taken into 9 account when comparing investment returns. All figures are preliminary and subject to revision. NOTE: Callan will provide a comprehensive annual investment performance review and market update at our next SIB meeting on Sep. 27, 2019.

ND State Investment Board TFFR, PERS, WSI and Legacy Fund account for over 95% of total SIB client assets. Investment Performance Summary As of June 30, 2019 Investment Performance (net of fees) Periods ended 6/30/19 Quarter Ended Fiscal Years ended June 30 (annualized) Market Values FYTD Fund Name as of 6/30/19 % of total 9/30/18 12/31/18 3/31/19 6/30/19 2019 2018 2017 2016 2015 3 Years 5 Years 10 Years Pension Pool Teachers' Fund for Retirement (TFFR) $ 2,573,622,554 17.1% 2.46% -7.41% 7.46% 3.53% 5.54% 9.11% 12.93% 0.28% 3.52% 9.15% 6.18% 9.57% Public Employees Retirement System (PERS) 3,152,930,087 20.9% 2.42% -7.37% 7.46% 3.50% 5.52% 9.19% 13.05% 0.28% 3.53% 9.21% 6.22% 9.41% City of Bismarck Employees Pension 104,517,247 0.7% 1.84% -5.54% 6.46% 3.45% 5.94% 7.86% 11.56% 0.82% 3.69% 8.43% 5.91% 8.99% City of Bismarck Police Pension 41,862,976 0.3% 1.96% -6.14% 6.77% 3.51% 5.76% 8.36% 12.24% 0.32% 3.56% 8.76% 5.97% 9.24% City of Grand Forks Employees Pension 68,419,301 0.5% 2.80% -7.60% 7.78% 3.70% 6.17% 9.46% 12.84% 0.11% 3.53% 9.46% 6.33% 9.71% Park District of the City of Grand Forks Pension 7,176,427 0.0% 3.26% -7.47% 7.16% 3.56% 6.02% 9.33% 12.74% 0.36% 4.22% 9.33% 6.45% * Subtotal Pension Pool 5,948,528,592 39.4% Insurance Pool Workforce Safety & Insurance (WSI) 2,065,400,398 13.7% 1.30% -3.06% 5.39% 3.26% 6.87% 5.34% 8.29% 3.58% 3.26% 6.83% 5.45% 7.82% State Fire and Tornado Fund 22,761,457 0.2% 2.02% -5.24% 6.66% 3.20% 6.41% 5.32% 9.30% 2.67% 3.16% 7.00% 5.34% 8.34% State Bonding Fund 3,609,422 0.0% 0.56% 0.58% 2.43% 2.16% 5.83% 1.07% 2.40% 3.48% 1.25% 3.08% 2.79% 3.98% Petroleum Tank Release Compensation Fund 5,994,235 0.0% 0.55% 0.58% 2.23% 2.01% 5.47% 1.13% 2.23% 3.17% 1.13% 2.93% 2.61% 3.67% Insurance Regulatory Trust Fund 6,218,781 0.0% 1.68% -4.37% 5.39% 2.48% 5.03% 4.53% 7.40% 1.46% 2.04% 5.65% 4.07% 6.29% State Risk Management Fund 4,909,623 0.0% 2.29% -4.44% 6.56% 3.37% 7.67% 5.14% 8.27% 4.46% 4.08% 7.02% 5.91% 8.94% State Risk Management Workers Comp Fund 5,187,879 0.0% 2.67% -5.59% 7.29% 3.42% 7.56% 6.03% 9.41% 4.21% 4.57% 7.66% 6.34% 9.62% Cultural Endowment Fund 475,311 0.0% 3.14% -8.46% 8.72% 3.28% 6.02% 8.27% 12.71% 2.18% 5.22% 8.96% 6.82% 10.62% Budget Stabilization Fund 118,707,130 0.8% 0.38% 1.10% 1.35% 1.61% 4.51% 0.32% 0.80% 1.82% 1.86% 1.86% 1.85% 2.61% ND Association of Counties (NDACo) Fund 6,333,052 0.0% 2.07% -5.17% 7.00% 3.43% 7.12% 4.48% 8.30% 2.76% 2.77% 6.62% 5.06% 8.00% Bismarck Deferred Sick Leave Account 779,596 0.0% 1.75% -4.42% 6.35% 3.35% 6.90% 4.66% 8.85% 3.26% 2.95% 6.79% 5.30% 8.28% City of Fargo FargoDome Permanent Fund 44,840,633 0.3% 2.34% -8.04% 8.14% 3.30% 5.13% 7.64% 12.25% 1.19% 3.38% 8.30% 5.85% 9.67% State Board of Medicine Fund 2,362,384 1.26% -2.53% 4.01% 2.27% 4.98% 3.12% 5.29% 1.63% 2.70% 4.46% 3.54% * PERS Group Insurance Account 31,067,120 0.2% 0.38% 1.04% 1.22% 1.51% 4.20% 0.41% 0.08% 1.49% 0.01% 1.55% 1.23% 0.74% Lewis & Clark Interpretive Center Endowment 751,763 1.86% -5.21% 7.09% 3.48% 6.99% * * * * * * * Subtotal Insurance Pool 2,319,398,785 15.4%

Legacy Fund 6,580,759,920 43.6% 2.16% -7.60% 7.72% 3.24% 4.98% 7.57% 12.03% 1.06% 3.31% 8.15% 5.72% * Job Service of North Dakota Pension 97,285,279 0.6% 2.27% -1.44% 3.75% 2.18% 6.86% 3.15% 5.63% 5.45% 3.30% 5.20% 4.87% 8.17% Tobacco Control and Prevention Fund 9,300,127 0.1% 0.98% -0.39% 2.20% 1.62% 4.47% 1.63% 1.66% * * 2.58% * * PERS Retiree Health Insurance Credit Fund 135,962,521 0.9% 2.97% -8.72% 9.44% 3.55% 6.51% 7.15% 11.81% 0.72% 3.06% 8.47% 5.79% 9.76% Total Assets Under SIB Management $ 15,091,235,224 * These funds do not have the specified periods of history under SIB management.

Note: Asset allocation largely drives investment performance. Each fund has a unique allocation that takes into consideration return objectives, risk tolerance, liquidity constraints, and unique circumstances. Such considerations must be taken into 10 account when comparing investment returns. All figures are preliminary and subject to revision. Agenda Item III.A.1

Informational

TO: State Investment Board

FROM: Dave Hunter, Darren Schulz and Eric Chin

DATE: August 23, 2019

SUBJECT: Public Equity Portfolio Optimization Update

Background:

Across the Pension Pool, Insurance Pool and Legacy Fund approximately $6.4 billion is allocated to equity strategies. This represents approximately 44.8% of total plan total assets as of May 31, 2019. Given the evolving equity landscape and the importance of public equity strategies for meeting long-term return targets, Staff believes it is timely to review and optimize the equity portfolios across the three pools. As such, at the May 20, 2019 board meeting the SIB approved Staff’s recommendation to engage Callan to assist Staff with analyzing the public equity portfolios and developing a plan to optimize these portfolios.

Update:

Since the May board meeting, Staff has employed a multi-pronged approach to reviewing and optimizing the equity portfolios. Highlights of these endeavors include:

1. In early June, Staff met with senior research professionals at Callan’s San Francisco headquarters. Topics discussed include: a. A review of the equity structure across the three pools b. A manager by manager performance/strategy review c. Challenged strategies d. Ideas to gain consistency across the different equity portfolios (see below) 2. Initiated an extensive review of benchmarks and smart beta indices. Key vendors that Staff met with include Russell, MSCI, S&P, Scientific Beta. 3. Conducted initial due diligence on prospective equity managers. Managers include Morgan Stanley, AB, Lazard, Schroders, Pyrford, Marathon, Investec, Marathon, BlackRock, Toqueville, JOHCM and others. 4. Engaged Goldman Sachs, J.P. Morgan and BlackRock to conduct independent reviews of the equity portfolios. These firms have sophisticated analytical platforms and distinct modelling capabilities that may be able to provide additional insights. These evaluations are being conducted at no additional cost. 5. Staff has also begun performing its own evaluation of the equity portfolios including calls/meetings with challenged managers and in-depth quantitative/qualitative analyses of the existing equity portfolios—these analyses include factor analyses, benchmark comparisons and exposure analyses.

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Highlights of Initial Findings:

Staff has identified key areas that warrant additional research.

1. Differences Between Portfolios: There are differences in the investment guidelines (guidelines are below) and manager allocations across the Pension Pool, Legacy Fund, and Insurance Fund. Staff’s early inclination is to adjust the guidelines and the allocations so that the three equity portfolios are managed in a more consistent manner. The Legacy Fund and Insurance Fund have comparatively more rigid guidelines, which going forward may lead to different managers selected (resulting in a greater number of managers and smaller mandates), unwanted tilts/exposures and limitations to the strategies available for selection. For instance, the Pension Pool currently has a 16% allocation to World Equity strategies, whereas the guidelines for the Insurance Pool and Legacy Fund are inhibiting—making an allocation to these types of strategies difficult.

Staff has also identified a number of small but similar equity mandates and are investigating whether it may be more efficient to combine these mandates thus gaining size and scale with the remaining managers.

Equity Policy Guidelines by Pool

Pension Pool Policy Guidelines: Policy Target Global Equity 57.8% Public Equity 51.3% Private Equity 6.5%

Insurance Pool Policy Guidelines: Policy Target Global Equity 19.2% Large Cap Equity 9.6% Small Cap Equity 2.7% International Equity 6.8%

Legacy Fund Policy Guidelines: Policy Target Global Equity 50.0% Broad U.S. Equity 30.0% Broad International Equity 20.0%

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2. Active vs Passive Strategies: Staff is assessing how to more effectively deploy active and passive equity strategies to optimize the equity portfolios. As seen in the chart below, there are parts of the equity markets that seem conducive for active strategies to generate excess returns. Conversely, there are areas of the equity market where active strategies have difficulties consistently generating excess returns. Staff is considering increasing active exposure to less efficient markets such as small cap equities (U.S. and ex U.S.) and decreasing active exposure to more efficient markets such as U.S. large and mid-caps.

Average Annualized 3-year excess return Active Managers vs. Benchmark (Gross, Median Manager) * Large Cap Equity Style vs. S&P 500 0.12% Mid Cap Broad Equity Style vs. S&P MidCap 400 -0.93% Small Cap Equity Style vs. Russell 2000 1.63% Global Equity Style vs. MSCI World 1.75% Non-U.S. Equity Broad Style vs MSCI ACWI ex USA 1.44% Non-U.S. Small Cap Style vs MSCI ACWI ex USA Small Cap 2.70% Emerging Markets Broad Equity Style vs MSCI Emerging Markets 1.16% * From Callan's Active vs. Passive Report First Quarter 2019. Average Annualized Returns are calculated over a 20 year period

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3. Value vs Growth: It’s no secret that value stocks have underperformed growth stocks in recent years. However, there is debate as to whether this phenomenon is cyclical or whether there is an underlying paradigm shift. The fact that the value factor has outperformed historically is well researched and documented. However, with improved technology investors are now able to quickly identify and purchase cheap stocks thus driving up valuations—perhaps leading to reduced alpha. Exacerbating this issue is a recent focus on quality. With new technology, investors are readily able to identify cheap quality stocks rapidly driving up valuations. In turn, this moves what historically would have been great value companies outside of the value spectrum. As a result, the remaining value stocks may be cheap for a reason. There is ongoing dialogue, debate, and research on this topic.

Growth vs. Value Indices (As of June 30, 2019) Last Quarter Last Year Last 3 Years Last 5 Years Last 7 Years Last 10 Years Russell 1000 Growth 4.64% 11.56% 18.07% 13.39% 15.76% 16.28% Russell 1000 Value 3.84% 8.46% 10.19% 7.46% 12.09% 13.19% Growth minus Value 0.80% 3.10% 7.88% 5.93% 3.67% 3.09%

Russell 2000 Growth 2.75% -0.49% 14.69% 8.63% 12.87% 14.41% Russell 2000 Value 1.38% -6.24% 9.81% 5.39% 10.31% 12.40% Growth minus Value 1.37% 5.75% 4.88% 3.24% 2.56% 2.01%

Russell 3000 Growth Index 4.50% 10.60% 17.81% 13.02% 15.54% 16.13% Russell 3000 Value Index 3.68% 7.34% 10.19% 7.31% 11.96% 13.14% Growth minus Value 0.82% 3.26% 7.62% 5.71% 3.58% 2.99%

MSCI World Growth 5.50% 8.43% 14.17% 9.09% 12.19% 12.21% MSCI World Value 2.46% 4.24% 9.31% 4.08% 8.97% 9.18% Growth minus Value 3.04% 4.19% 4.86% 5.01% 3.22% 3.03%

Staff is also evaluating current allocations to systematic or quantitatively driven value focused strategies, which have tended to underperform in recent years against comparative value benchmarks. Staff will conduct additional research to determine whether there is a fundamental issue with the managers’ models or if there is an expectation for a reversion to the mean.

These are highlights of some of the key topics that Staff is considering. Over the next several months Staff will continue to assess the equity portfolios through a number of different lenses and report back to the Board with key findings and a formal recommendation on how to structure the portfolios moving forward.

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AGENDA ITEM III.A.2.

Informational

TO: State Investment Board

FROM: Dave Hunter & Darren Schulz

DATE: August 16, 2019

SUBJECT: Legacy Fund Earnings Committee Update

RIO was requested by the newly formed Legacy Fund Earnings Committee to provide an overview of the investments and earnings of the Fund, including estimated future earnings.

The attached presentation appeared to be generally well received by the Committee based on feedback shared by Chair Chet Pollert and Vice Chair Rich Wardner. The meeting on August 15th lasted less than two hours and discussion focused on the Earnings’ Committee purpose and Study Plan in addition to potential uses of Fund earnings.

RIO’s discussion included a review of historical annual earnings, investment volatility, the current “earnings” definition, and an alternative approach for estimating future earnings. The latter proposal focused on developing a sustainable spending policy using the Percent of Market Value (POMV) approach for estimating future “earnings” (for potential distribution from the Fund). RIO noted the POMV approach has been used by many other similar investment funds including Alaska’s Permanent Fund and North Dakota’s Common Schools Trust Fund. Jay Kloepfer, Paul Erlendson and Alex Browning from Callan were instrumental in reviewing this information for reasonableness which included many previously prepared slides (supplied by Callan during legislative session). Darren Schulz also provided an excellent comparison of Alaska’s peak historical oil production levels versus current levels and contrasted them with North Dakota’s recent production levels and recent production forecast (as supplied by Justin Kringstad, Director - North Dakota Pipeline Authority, on August 9, 2019).

The POMV approach proposed by RIO (and reviewed by Callan) is based on the Legacy Fund’s current asset allocation policy and an assumed long-term rate of return of approximately 6% less an assumed inflation rate of 2%. This annual sustainable spending policy rate of 4% was suggested by Callan in early-2019 and appears to be conservative when compared to the Alaska Permanent Fund at 5.25% per annum or the Common Schools Trust Fund at 10% per biennium or 5% per annum, noting the average spending rate for endowments has ranged 4.2% to 5.2% in the prior decade.

Chairman Pollert indicated the Earnings Committee intends to hold four meetings outside of Bismarck (potentially in Fargo, Grand Forks, Minot, Dickinson or Williston) to encourage public engagement, awareness and understanding. They may also consider the engagement of an outside consultant to provide additional background on other Sovereign Wealth Funds (SWF) and/or reach out to other SWF executives to learn from their prior experience. RIO will continue to provide assistance to the Committee and likely attend future Earnings Committee meetings. Executive Overview Legacy Fund Investments

Legacy Fund exceeded $6.25 billion at May 31, 2019 with: $3 billion in Stocks (48%) $2.1 billion in Bonds (34%) $919 million Real Assets (15%) $187 million in Cash (3%)

The Legacy Fund had a higher “Cash” balance in mid-2019 due to the upcoming distribution of $455 million to the General Fund.

The SIB and Legacy Fund Advisory Boards approved target asset allocation is 50% Equity, 35% Fixed Income and 15% Real Assets.

Legacy Fund Investments and returns are posted on RIO’s website after every month-end with a one-month lag and noting that fiscal year end results are generally delayed 45 to 60 days to complete the fiscal year end audit process (please refer to RIO’s website link below for further details).

1 http://www.nd.gov/rio/SIB/Publications/Fund%20Reports/report_list.asp?rType=financials&rFolder=Legacy&rName=Legacy Legacy Fund Investments- June 30, 2019 6,572,324,654 LEGACY FUND GLOBAL EQUITY 3,210,940,287 Preliminary Market Value of Investments Domestic - broad 1,938,117,067 LA Capital Large Cap Growth 447,984,664 As of June 30, 2019 LSV Large Cap Value 413,250,101 LA Capital 289,714,463 As of June 30, 2019, Legacy Fund investments Clifton Group Enhanced S&P 500 291,471,887 TOTAL LARGE CAP DOMESTIC EQUITY 1,442,421,116 approximated $6.5 billion based on preliminary PIMCO - Research Affiliates Equity US Small 242,166,506 market valuations which are unaudited and Clifton Group Enhanced Russell 2000 253,529,445 subject to change: TOTAL SMALL CAP DOMESTIC EQUITY 495,695,951 LSV International Large Cap Value 484,716,545 Global Equity (Stocks) = $3.2 billion William Blair International Leaders 549,253,750 DFA International Small Cap Value 116,598,229 Global Fixed Income (Bonds) = $2.2 billion Vanguard International Explorer Fund 122,254,697 Global Real Assets = $925 million TOTAL INTERNATIONAL EQUITY 1,272,823,220 Cash Equivalents = $255 million GLOBAL FIXED INCOME 2,180,307,017 Western Asset U.S. Core Fixed Income 614,935,431 The State Investment Board has engaged 21 Prudential Core Plus Fixed Income 697,181,556 investment firms to manage our assets (as listed PIMCO DISCO II 41,311,623 PIMCO BRAVO II 14,005,200 in the adjacent chart). Declaration Total Return Bond Fund (1) 165,218,383 State Street U.S. Govt Credit Bond Index 307,904,493 Wells Capital Medium Quality Credit 187,329,651 Ares ND Credit Strategies 53,875,014 THE LEGACY FUND GENERATED Cerberus ND Private Credit Fund 60,926,193 $455 MILLION OF “EARNINGS”, Bank of ND Match Loan CDs 37,619,473 as defined by NDCC 21-10-12, GLOBAL REAL ASSETS 925,233,433 for the 23 months ended May 31, 2019. Western Asset Global Inflation Linked Plus, L.L.C. 420,949,062 Grosvenor Customized Infrastructure Strategies II 42,932,859 JP Morgan Infrastructure Investments Fund (IIF) 116,515,226 These earnings were transferred to the General ISQ Global Infrastructure Fund II 19,080,123 Fund on July 23, 2019. NDCC 21-10-12 defines Macquarie Infrastructure Partners IV 28,537,920 earnings as “net income in accordance with TOTAL DIVERSIFIED REAL ASSETS 628,015,190 generally accepted accounting principles, J.P. Morgan U.S. Real Estate Income & Growth 150,970,316 excluding unrealized gains or losses”. Invesco Core Real Estate-USA, LP 146,247,927 TOTAL REAL ESTATE 297,218,243 Northern Trust-MFB NI Gov't Assets Portfolio 48,236,583 Bank of ND 207,607,333 TOTAL CASH EQUIVALENTS 255,843,916 2 NOTE: Market values are preliminary and subject to change. Executive Summary: Legacy Fund Earnings Estimate

Background: 1) RIO is regularly requested to update “earnings” estimates for the Legacy Fund given the significant impact these earnings could have on our State’s economy and budget. 2) Although we are fortunate the Legacy Fund has grown to exceed $6 billion since 2011, RIO notes it is difficult to estimate “earnings” in any biennium given the inherent volatility of investment earnings from year to year (or even day to day). 3) Given this challenge, RIO notes that many other similar investment funds have amended their “earnings” definition to establish a “spending rate” based on a Percent of Market Value (POMV). As example, a POMV approach has been used by the Alaska Permanent Fund and North Dakota’s own Department of Trust Lands (DTL) among many others. 4) The POMV approach is often based on the investment funds market value over the prior 3 to 5 years noting the Alaska Permanent Fund is based on 5 of the 6 preceding fiscal years and DTL is based on the prior 5 periods. Earnings Definition: Transferrable earnings for the Legacy Fund are defined in NDCC 21-10-12 which states “earnings means net income in accordance with generally accepted accounting principles, excluding unrealized gains or losses”. Earnings Risk: The current earnings definition is volatile as investments can experience wide valuation swings over short periods including the time between the end of legislative session and the fiscal biennium. This uncertainty makes it difficult to accurately estimate Legacy Fund earnings in any future year. RIO also notes that “earnings”, as currently defined, could be negative after a major market downturn particularly if it occurred between the end of legislative session and the fiscal biennium. Potential Solution: In order to address this risk, RIO suggests the Committee consider a new spending policy based on the Legacy Fund’s current asset allocation and POMV approach. Callan cites the “General Rule” that “a sustainable spending policy can’t spend more than the expected Real Return in the long-run (e.g. Expected Real Return = Nominal Return – Inflation Rate) as shown below. 6% Legacy Fund has a Nominal Expected Return of approximately 6% over the long-run; 2% Inflation Rate assumed to average 2% to 3% per year over the long-term; and 4% Expected Real Return represents a sustainable spending policy based on these assumptions.

Summary: Using the POMV approach to define earnings and a sustainable spending rate of 4% along with OMB’s latest oil and gas tax flow forecasts, Legacy Fund “earnings” would likely exceed $446 million in each of the next two biennium assuming a 0% principal spending rate.

3 Note: NDCC “Earnings” exceeded $455 million for the 23 months ended May 31, 2019. Example: Legacy Fund Earnings Estimate (POMV) North Dakota Legacy Fund Estimated Future Earnings Using Percent of Market Value (POMV) Approach Forecasted as of June 30, 2021

Net Increase/ Deposits Total Net Earnings Ending Net Position (Decrease) FY2016 434,853,950 45,851,680 480,705,630 3,806,541,341 FY2017 399,501,134 479,595,256 879,096,390 4,685,637,731 FY2018 529,870,755 360,575,532 890,446,287 5,576,084,018 FY2019 * 692,568,943 250,000,000 992,568,943 6,568,652,961 FY2020 * 643,000,000 - 643,000,000 7,211,652,961 FY2021 The most recent fiscal year end is excluded each biennium - Average net position for five prior FYE's 5,569,713,803

Proposed Annual Spend Rate 4.00% 4.50% FY 2016 to 2020 Proposed Biennial Spend Rate (times 2) 2 2 Percent of Market Value ==> Proposed Biennial Spend Rate in dollars 445,577,104 501,274,242 * FY2019 and FY 2020 amounts are forecasted estimates and subject to change.

Recommendation: Revise definition of “earnings” to be based on a Percent of Market Value, preferably for 5 of the 6 prior fiscal year ends and excluding the current fiscal year end, to enhance State budget forecasting by minimizing the impact of “earnings” volatility. This approach should also serve to stabilize North Dakota’s budget flexibility if revenues from oil and gas decline in the future.

Legacy may grow to $36 billion in 2038 using the POMV approach for Earnings and a 4% Annual Spend Rate with $60 Oil and 1.4 million BOPD or $23 billion with $40 Oil and 1 million BOPD. Based on these estimates, the Biennial Spend Rate would likely approach $2 billion by 2038.

4 All future values and estimates are unaudited and subject to change given the inherent volatility of commodities and the capital markets. Legacy Fund Earnings Committee Investment and Earnings Update

Executive Summary: Slides August 15, 2019 - Investment Overview 3-4 - Proposed Earnings Estimates 11-12 - Historical Deposits & Earnings 13-14

Dave Hunter, Executive Director/CIO Darren Schulz, Deputy Chief Investment Officer Connie Flanagan, Chief Financial Officer Eric Chin, Senior Investment Officer ND Retirement & Investment Office (RIO) State Investment Board (SIB) 2 Executive Overview Legacy Fund Investments

Legacy Fund exceeded $6.25 billion at May 31, 2019 with: $3 billion in Stocks (48%) $2.1 billion in Bonds (34%) $919 million Real Assets (15%) $187 million in Cash (3%)

The Legacy Fund had a higher “Cash” balance in mid-2019 due to the upcoming distribution of $455 million to the General Fund.

The SIB and Legacy Fund Advisory Boards approved target asset allocation is 50% Equity, 35% Fixed Income and 15% Real Assets.

3 http://www.nd.gov/rio/SIB/Publications/Fund%20Reports/report_list.asp?rType=financials&rFolder=Legacy&rName=Legacy Legacy Fund Investments- June 30, 2019 6,572,324,654 LEGACY FUND GLOBAL EQUITY 3,210,940,287 Preliminary Market Value of Investments Domestic - broad 1,938,117,067 LA Capital Large Cap Growth 447,984,664 As of June 30, 2019 LSV Large Cap Value 413,250,101 LA Capital 289,714,463 As of June 30, 2019, Legacy Fund investments Clifton Group Enhanced S&P 500 291,471,887 TOTAL LARGE CAP DOMESTIC EQUITY 1,442,421,116 approximated $6.5 billion based on preliminary PIMCO - Research Affiliates Equity US Small 242,166,506 market valuations which are unaudited and Clifton Group Enhanced Russell 2000 253,529,445 subject to change: TOTAL SMALL CAP DOMESTIC EQUITY 495,695,951 LSV International Large Cap Value 484,716,545 Global Equity (Stocks) = $3.2 billion William Blair International Leaders 549,253,750 DFA International Small Cap Value 116,598,229 Global Fixed Income (Bonds) = $2.2 billion Vanguard International Explorer Fund 122,254,697 Global Real Assets = $925 million TOTAL INTERNATIONAL EQUITY 1,272,823,220 Cash Equivalents = $255 million GLOBAL FIXED INCOME 2,180,307,017 Western Asset U.S. Core Fixed Income 614,935,431 The State Investment Board has engaged 21 Prudential Core Plus Fixed Income 697,181,556 investment firms to manage our assets (as listed PIMCO DISCO II 41,311,623 PIMCO BRAVO II 14,005,200 in the adjacent chart). Declaration Total Return Bond Fund (1) 165,218,383 State Street U.S. Govt Credit Bond Index 307,904,493 Wells Capital Medium Quality Credit 187,329,651 Ares ND Credit Strategies 53,875,014 THE LEGACY FUND GENERATED Cerberus ND Private Credit Fund 60,926,193 $455 MILLION OF “EARNINGS”, Bank of ND Match Loan CDs 37,619,473 as defined by NDCC 21-10-12, GLOBAL REAL ASSETS 925,233,433 for the 23 months ended May 31, 2019. Western Asset Global Inflation Linked Plus, L.L.C. 420,949,062 Grosvenor Customized Infrastructure Strategies II 42,932,859 JP Morgan Infrastructure Investments Fund (IIF) 116,515,226 These earnings were transferred to the General ISQ Global Infrastructure Fund II 19,080,123 Fund on July 23, 2019. NDCC 21-10-12 defines Macquarie Infrastructure Partners IV 28,537,920 earnings as “net income in accordance with TOTAL DIVERSIFIED REAL ASSETS 628,015,190 generally accepted accounting principles, J.P. Morgan U.S. Real Estate Income & Growth 150,970,316 excluding unrealized gains or losses”. Invesco Core Real Estate-USA, LP 146,247,927 TOTAL REAL ESTATE 297,218,243 Northern Trust-MFB NI Gov't Assets Portfolio 48,236,583 Bank of ND 207,607,333 TOTAL CASH EQUIVALENTS 255,843,916 4 NOTE: Market values are preliminary and subject to change. Legacy Fund Strategic Asset Allocation

Actual Allocation Current High Level Target Asset Allocation: 8/1/2013 - 50% Equities (Stocks) - 35% Fixed Income (Bonds) - 15% Real Assets (Real Estate/Infrastructure/TIPs)

100% Short Term Fixed Income

Policy Allocation January 31, 2015 to Current

10% 5% 30% Broad U.S. Equity Broad International Equity

35% Fixed Income 20% Diversified Real Assets Core Real Estate

Note: Amounts are preliminary, unaudited and subject to change.

5 NOTE: All data included in this “Preview of Investment Returns” after June 30, 2018, is unaudited and subject to change. Legacy Fund – Actual Performance vs Policy Benchmark Net Returns Exceed Policy Benchmark – Periods Ended 12/31/18

1. For the 1-Year Ended 12/31/2018, the Legacy Fund posted a Net Return of -5.29% trailing the Policy Benchmark of -4.42% and creating negative Excess Return of 0.87%.

2. For the 5-Years Ended 12/31/2018, the Fund earned a Net Return of 4.31% exceeding the Policy Benchmark (of 3.61%) and creating Excess Return of 0.70%. Actual returns exceed Policy by over $100 million for the 5 years ended 12/31/2018 (e.g. $3 billion x 0.70% = $21 million x 5 years = $105 million).

3. The above benchmark returns were achieved while adhering to approved risk levels.

The Policy Benchmark is 50% Equity, 35% Bonds and 15% Real Assets (including Real Estate and Infrastructure).

6 Note: All amounts are preliminary, unaudited and subject to change including estimates of excess returns. 7 8 Legacy Fund Schedule of Investment Expenses

FY 2018 FY 2017

Average Market Average Market Value Fees in $ Fees in % Value Fees in $ Fees in % Investment managers' fees: Domestic large cap equity managers 1,157,153,749 817,082 0.07% 965,570,487 1,922,415 0.20% Domestic small cap equity managers 424,498,126 709,704 0.17% 364,557,307 630,814 0.17% International equity managers 1,051,633,065 4,308,926 0.41% 859,092,053 3,553,654 0.41% Domestic fixed income managers 1,829,238,525 5,809,170 0.32% 1,481,415,976 4,987,591 0.34% Diversified real assets managers 513,215,642 2,704,986 0.53% 406,004,165 1,368,397 0.34% Real estate managers 273,421,343 1,490,324 0.55% 255,143,146 1,514,247 0.59% Cash & equivalents managers 42,188,081 69,690 0.17% 12,637,988 9,758 0.08% Total investment managers' fees 2 5,291,348,530 15,909,882 4 0.30% 3 4,344,421,122 13,986,877 4 0.32%

Custodian fees 430,805 0.01% 355,376 0.01% Investment consultant fees 294,600 0.01% 222,477 0.01% Total investment expenses 1 16,635,287 0.31% 1 2 14,564,731 0.34% 1

Total Performance Fees Paid (included in total above) 190,922 0.00% 2,167,158 0.05% Actual Investment Performance (Net of Fees) 7.57% 12.03% Policy Benchmark 6.51% 9.91% Outperformance 3 1.06% Outperformance 5 2.12%

 Investment Fees and Expenses for Fiscal 2019 will be updated in connection with the completion of our financial audit procedures in September and then shared with the SIB, Advisory Board & Earnings Committee.

The above amounts are based on unaudited data that is deemed to be materially accurate but subject to change.

9 10 Executive Summary: Legacy Fund Earnings Estimate

11 Note: NDCC “Earnings” exceeded $455 million for the 23 months ended May 31, 2019. Example: Legacy Fund Earnings Estimate (POMV) North Dakota Legacy Fund Estimated Future Earnings Using Percent of Market Value (POMV) Approach Forecasted as of June 30, 2021

12 All future values and estimates are unaudited and subject to change given the inherent volatility of commodities and the capital markets. ND Legacy Fund Key Topic for Summary of Deposits, Earnings and Net Position Committee As of May 31, 2019 Consideration: Fiscal Year End data as of June 30, 2019, will not be available until late-August. Net Increase/ Ending Net Earnings as defined Deposits Total Net Earnings (Decrease) Position by NDCC 21-10-12 FY2012 396,585,658 2,300,225 398,885,883 398,885,883 2,571,475 FY2013 791,126,479 4,216,026 795,342,505 1,194,228,388 15,949,089 FY2014 907,214,971 113,153,662 1,020,368,633 2,214,597,021 50,033,655 FY2015 1,011,343,040 99,895,650 1,111,238,690 3,325,835,711 95,143,905 FY2016 434,853,950 45,851,680 480,705,630 3,806,541,341 65,326,673 FY2017 399,501,134 479,595,256 879,096,390 4,685,637,731 207,814,875 FY2018 529,870,755 360,575,532 890,446,287 5,576,084,018 242,859,840 FY2019 * 628,610,681 53,186,743 681,797,424 6,257,881,442 212,403,376 Since Inception 5,099,106,668 1,158,774,774 6,257,881,442 6,257,881,442 892,102,888

All earnings up to June 30, 2017, became part of principal 436,839,672

Current Earnings Defintion ======> FY 2018 and FY 2019 earnings transferred out on July 23, 2019 455,263,216

Ending net position for five prior FYE's 19,608,695,822 Divide by 5 (for 5 years average) 5 Biennial Spend Rate Sensitivity: Average End Net Position 5 prior FYE's 3,921,739,164 2% = $189 million 3.0% = $284 million Proposed Annual Spend Rate 4.00% 4% = $378 million 4.5% = $425 million Proposed Biennial Spend Rate 2 Percent of Market Value Defintion => Proposed Biennial Spend Rate in dollars 313,739,133 FY 2014 to 2018 Average End Net Position FY 2015 to 2019* 378,431,684 FY 2015 to 2019 * FY2019 amounts are preliminary and unaudited.

Proposal: Earnings, as defined by NDCC 21-10-12, are inherently volatile and therefore difficult to forecast and rely upon for State budgeting purposes. RIO suggests the State consider redefining transferrable earnings to be based on a Percent of Market Value of Legacy Fund assets in prior fiscal years.

13 NDCC 21-10-12 defines “earnings” as net income in accordance with generally accepted accounting principles excluding any unrealized gains or losses. Monthly Deposits into Legacy Fund

Monthly Deposit 140,000,000.00

120,000,000.00

100,000,000.00 Legacy received a $61.5 million monthly deposit on July 22, 2019. 80,000,000.00

60,000,000.00

40,000,000.00

20,000,000.00

- Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18

14 15 16 17 18 19 20 ● WTI Crude was $71.50 on May 17th 1:50pm CT.

WTI Crude was $54.29 on August 9th at 9am C T.

Original May 2018 Assumptions: Baseline assumes oil prices rise from current $55 to $60 and hold steady over the forecast. Forecast for the next four years originally provided by State of North Dakota and Callan extended the forecast to 20 years. Production rises from current level of 1.1 mm barrels per day (BOPD) to 1.4 mm over next 3 years, then holds steady for the forecast. Alternative scenario assumes oil prices rise in line with the baseline for two years, then fall to $40 and hold steady over the forecast. Production is assumed to rise in line with the baseline for two years, then fall back to 1.0 mm BOPD. Resulting projections of asset values and spending from the alternative oil price & production scenario differ substantially from baseline, and will have an impact on the future financial condition of Fund. August 2019 Update for 2019-2021: Current OMB forecast for Oil Tax Cash Flows are based on $48.50 Bakken and 1.4 BOPD in fiscal 2020 and $48 Bakken and 1.44 BOPD in fiscal 2021 which translates into $643 million of Legacy Fund deposits in fiscal 2020 and $654 million of Legacy Fund deposits in fiscal 2021. August 2019 Update for 2021-2023: For July 1, 2021 to June 30, 2023, OMB forecast for Oil Tax Cash Flows are based on $47 to $46 Bakken and slightly higher production approaching 1.5 million BOPD which translates into comparable Legacy Fund deposits of approximately $650 million per fiscal year.

21 State Investment Board – Client Assets Under Management

Market Values Market Values Market Values  SIB client investments totaled approximately $14.5 (1) (2) (1) Fund Name as of 3/31/19 as of 6/30/18 as of 3/31/18 billion as of March 31, 2019, with the Pension Trust at Pension Trust Fund Public Employees Retirement System (PERS) 3,050,783,390 3,024,222,995 2,999,335,828 $5.75 billion, Insurance Trust approaching $2.3 billion Teachers' Fund for Retirement (TFFR) 2,487,153,763 2,485,835,306 2,466,427,925 and Legacy Fund exceeding $6.2 billion. City of Bismarck Employees Pension 100,914,673 99,177,507 98,280,546 City of Grand Forks Employees Pension 63,641,250 63,633,206 64,240,952  Following a sharp sell-off in the 4th quarter of 2018, City of Bismarck Police Pension 40,382,091 40,106,249 39,741,400 equity markets rebounded during the first quarter, Grand Forks Park District 6,952,858 6,772,657 6,622,154 Subtotal Pension Trust Fund 5,749,828,027 5,719,747,919 5,674,648,805 aided by the Fed’s unexpected dovish comments in

Insurance Trust Fund January, solid corporate fundamentals, and low Workforce Safety & Insurance (WSI) 2,014,551,746 1,923,117,660 1,925,297,355 unemployment. Bonds also recaptured most of the loss Budget Stabilization Fund 116,833,661 113,603,777 38,323,931 in the prior quarter. As a result, global public equities City of Fargo FargoDome Permanent Fund 43,404,933 44,629,288 43,891,602 st PERS Group Insurance Account 33,055,703 31,610,707 33,474,017 returned over 12% in the 1 quarter of 2019, while State Fire and Tornado Fund 22,553,867 23,066,784 22,869,464 fixed income returned over 3%. ND Association of Counties (NDACo) Fund 6,121,636 5,910,661 5,871,740 Petroleum Tank Release Compensation Fund 5,875,396 6,167,272 6,466,968  The Pension Trust posted a net return of 3.0% in the State Risk Management Workers Comp Fund 5,016,260 5,356,549 5,278,321 last year. During the last 5-years, the Pension Trust State Risk Management Fund 4,749,666 4,956,217 5,244,793 State Bonding Fund 3,533,119 3,411,215 3,411,679 generated a net annualized return of 6.2%, exceeding ND Board of Medicine 2,310,324 2,251,119 2,231,656 the performance benchmark of 5.7%. Insurance Regulatory Trust Fund 2,156,818 5,637,791 1,924,358 Bismarck Deferred Sick Leave Account 754,399 730,026 726,168  The Insurance Trust generated a net return of 4.2% in Lewis & Clark Interpretive Center Endowment Fund 678,880 703,284 700,060 the last year. During the last 5-years, the Insurance Cultural Endowment Fund 460,466 448,825 454,379 Subtotal Insurance Trust Fund 2,262,056,874 2,171,601,175 2,096,166,489 Trust posted a net annualized return of 4.9%, exceeding

Legacy Trust Fund the performance benchmark of 3.9%. Legacy Fund 6,209,372,421 5,577,319,109 5,375,052,531  Legacy Fund generated a net return of 2.6% last year. PERS Retiree Insurance Credit Fund 130,740,655 126,605,207 125,145,623 Job Service of North Dakota Pension 96,420,669 95,690,469 96,405,170 During the last 5-years, Legacy Fund earned a net ND Tobacco Prevention and Control Trust Fund 28,850,459 54,365,162 54,065,143 annualized return of 5.6%, exceeding the performance benchmark of 5.0% noting the Fund was not fully Total Assets Under SIB Management 14,477,269,105 13,745,329,041 13,421,483,761 invested in its current asset allocation until 2015. (1) Market values are unaudited and subject to change. (2) 6/30/18 market values as stated in the Comprehensive Annual Financial Report.

22 SIB client assets under management approximate $15 billion as of June 30, 2019. SIB Member & RIO Website Update – July 31, 2019

The State Investment Board includes 11 members including Lt. Governor Brent Sanford as Chairman, Rob Lech (TFFR) as Vice Chairman, Chief Deputy Attorney General Troy Seibel (PERS) as Parliamentarian, Treasurer Kelly Schmidt (who is the longest serving board member), Land Commissioner Jodi Smith, Insurance Commissioner Jon Godfread, WSI Director Bryan Klipfel, To n i Gummeringer (TFFR), Mel Olson (TFFR), Yvonne Smith (PERS) and Adam Miller (PERS). RIO Website Investment performance for all SIB clients, including manager level returns and balances, are generally posted to RIO’s website within 30 days of month-end or 60 days of our fiscal year end. In addition, the following website links provide additional information relating to SIB governance, meeting materials and our audit committee.

SIB Governance Manual - accessed by clicking on “SIB Governance Manual” under the “SIB / Board” section http://www.nd.gov/rio/SIB/Board/GovernanceManual/default.htm SIB Meeting Materials - accessed by clicking on “Meeting Materials” under the “SIB / Board” section http://www.nd.gov/rio/SIB/Board/SIB%20Meeting%20Materials/default.htm

SIB Audit Committee Charter and Meeting Materials - accessed by clicking on “SIB Audit Charter” or “Meeting Materials” under the “SIB Audit” section http://www.nd.gov/rio/SIB%20Audit/Board/default.htm

23 The North Dakota Legacy Fund was upgraded to a 10 (from an 8) after the first quarter of 2018.

The Linaburg-Maduell Transparency Index was developed at the Sovereign Wealth Fund Institute (“SWFI”) by Carl Linaburg and Michael Maduell. This index is a method of rating transparency in respect to sovereign wealth funds. Pertaining to government-owned investment vehicles, where there have been concerns of unethical agendas, calls have been made to the larger “opaque” or non-transparent funds to show their intentions.

The Linaburg-Maduell Index was developed in 2008 and has since been used worldwide, by sovereign wealth funds in their official annual reports and statements, as the global standard benchmark.

The Linaburg-Maduell index is based off ten essential principles that depict sovereign wealth fund transparency to the public. The following principles each add one point of transparency to the index rating. This index is an ongoing project of the SWFI which recommends a minimum rating of 8 in order to claim adequate transparency.

24 NORTH DAKOTA LEGACY FUND The Legacy Fund investment policy statement was INVESTMENT POLICY STATEMENT reviewed and approved by the Advisory Board and SIB on May 24-25, 2018 for accuracy and completeness. 1. PLAN CHARACTERISTICS AND FUND CONSTRAINTS

The North Dakota legacy fund was created in 2010 when the voters of North Dakota approved a constitutional amendment--now Article X, Section 26, of the Constitution of North Dakota--to provide that 30 percent of oil and gas gross production and oil extraction taxes on oil and gas produced after June 30, 2011, be transferred to the legacy fund. The principal and earnings of the legacy fund may not be spent until after June 30, 2017, and any expenditure of principal after that date requires a vote of at least two-thirds of the members elected to each house of the Legislative Assembly. Not more than 15 percent of the principal of the legacy fund may be spent during a biennium. The Legislative Assembly may transfer funds from any source to the legacy fund, and such transfers become part of the principal of the fund. The State Investment Board (SIB) is responsible for investment of the principal of the legacy fund. Interest earnings accruing after June 30, 2017, are transferred to the general fund at the end of each biennium. North Dakota Century Code Section 21-10-11 provides that the goal of investment for the legacy fund is principal preservation while maximizing total return.

2. FUND MISSION

The legacy fund was created, in part, due to the recognition that state revenue from the oil and gas industry will be derived over a finite timeframe. The legacy fund defers the recognition of 30 percent of this revenue for the benefit of future generations. The primary mission of the legacy fund is to preserve the real inflation-adjusted purchasing power of the money deposited into the fund while maximizing total return.

3. RESPONSIBILITIES AND DISCRETION OF THE STATE INVESTMENT BOARD

The Legacy and Budget Stabilization Fund Advisory Board (the “Advisory Board”) is charged by law under Section 21-10-11 with the responsibility of recommending policies on investment goals and asset allocation of the legacy fund. The SIB is charged with implementing policies and asset allocation and investing the assets of the legacy fund in the manner provided in Section 21-10-07--the prudent institutional investor rule. The fiduciaries shall exercise the judgment and care, under the circumstances then prevailing, that an institutional investor of ordinary prudence, discretion, and intelligence exercises in the management of large investments entrusted to it, not in regard to speculation but in regard to the permanent disposition of funds, considering probable safety of capital as well as probable income.

Management responsibility for the investment program not assigned to the SIB in Chapter 21-10 is hereby delegated to the SIB, which must establish written policies for the operation of the investment program consistent with this investment policy.

The SIB may delegate investment responsibility to professional money managers, which are also required to employ investment strategies consistent with the investment policy. Where a money manager has been retained, the SIB's role in determining investment strategy and security selection is supervisory not advisory. 25 At the discretion of the SIB, the fund’s assets may be pooled with other funds. In pooling funds, the SIB may establish whatever asset class pools it deems necessary with specific quality, diversification, restrictions, and performance objectives appropriate to the prudent investor rule and the objectives of the funds participating in the pool.

The SIB is responsible for establishing criteria, procedures, and making decisions with respect to hiring, retaining, and terminating money managers. The SIB investment responsibility also includes selecting performance measurement services, consultants, report formats, and frequency of meetings with managers.

The SIB shall notify the Advisory Board within 30 days of any substantial or notable changes in money managers; performance measurement services; and consultants, including hiring or terminating a money manager, performance measurement service, or a consultant.

The SIB, after consultation with the board, will implement necessary changes to this policy in an efficient and prudent manner.

4. RISK TOLERANCE

The Advisory Board's risk tolerance with respect to the primary aspect of the legacy fund's mission is low. The Advisory Board is unwilling to undertake investment strategies that might jeopardize the ability of the legacy fund to maintain principal value over time. The Advisory Board recognizes that the plan will evolve as the legacy fund matures and economic conditions and opportunities change.

5. INVESTMENT OBJECTIVES

The Advisory Board's investment objectives are expressed in terms of reward and risk expectations relative to investable, passive benchmarks. The legacy fund's policy benchmark is comprised of policy mix weights of appropriate asset class benchmarks as set by the SIB: a. The legacy fund's rate of return, net of fees and expenses, should at least match that of the policy benchmark over a minimum evaluation period of five years. b. The legacy fund's risk, measured by the standard deviation of net returns, should not exceed 115 percent of the policy benchmark over a minimum evaluation period of five years. c. The risk-adjusted performance of the legacy fund, net of fees and expenses, should at least match that of the policy benchmark over a minimum evaluation period of five years.

6. POLICY ASSET MIX

After consideration of all the inputs and a discussion of its own collective risk tolerance, the Advisory Board approved the following policy asset mix for the legacy fund as of April 2, 2013:

26 Asset Class Policy Target Percentage Broad US Equity 30% Broad International Equity 20% Fixed Income and BND CD 35% Core Real Estate 5% Diversified Real Assets 10%

Rebalancing of the fund to this target will be done in accordance with the SIB’s rebalancing policy, but not less than annually. The SIB approved an 18-month implementation strategy which completed in January of 2015. On June 17, 2017, the Advisory Board acknowledged the transfer of the Bank of North Dakota Match Loan Certificates of Deposit Program (“BND CD”) to the Legacy Fund in early-2017. The BND CD investment will be limited to the lesser of $200 million or 5% of the Legacy Fund (and represent a sector allocation within fixed income). The Advisory Board approved this future change in the Legacy Fund’s asset allocation without exception. BND will be requested to guarantee a minimum 1.75% investment return. The minimum return requirement will be periodically reviewed in connection with the Legacy Fund’s overall asset allocation framework. BND CD’s are rated AA by S&P.

7. RESTRICTIONS

While the SIB is responsible for establishing specific quality, diversification, restrictions, and performance objectives for the investment vehicles in which the legacy fund's assets will be invested, it is understood that: a. Futures and options may be used to hedge or replicate underlying index exposure, but not for speculation. b. Derivatives use will be monitored to ensure that undue risks are not taken by the money managers. c. No transaction may be made that would threaten the tax-exempt status of the legacy fund. d. All assets will be held in custody by the SIB's master custodian or such other custodians as are acceptable to the SIB. e. No unhedged short sales or speculative margin purchases may be made. f. Social investing is prohibited unless it meets the exclusive benefit rule, and it can be substantiated that the investment provides an equivalent or superior rate of return for a similar investment with a similar time horizon and similar risk. For the purpose of this document, social investing is defined as the consideration of socially responsible criteria in the investment or commitment of public fund money for the purpose of obtaining an effect other than a maximized return to the Fund. g. Economically targeted investing is prohibited unless the investment meets the exclusive benefit rule.

For the purpose of this document, economically targeted investment is defined as an investment designed to produce a competitive rate of return commensurate with risk involved as well as to create collateral economic benefits for a targeted geographic area, group of people, or sector of the economy. Also, for the purpose of this document, the exclusive benefit rule is met if the following four conditions are satisfied:

27 • The cost does not exceed the fair market value at the time of investment. • The investment provides the legacy fund with an equivalent or superior rate of return for a similar investment with a similar time horizon and similar risk. • Sufficient liquidity is maintained in the legacy fund to permit distributions in accordance with the terms of the plan. • The safeguards and diversity that a prudent investor would adhere to are present. • Where investment characteristics, including yield, risk, and liquidity, are equivalent, the Advisory Board's policy favors investments which will have a positive impact on the economy of North Dakota.

8. INTERNAL CONTROLS A system of internal controls must be in place by the SIB to prevent losses of public funds arising from fraud or employee error. Such controls deemed most important are the separation of responsibilities for investment purchases from the recording of investment activity, custodial safekeeping, written confirmation of investment transactions, and established criteria for investment manager selection and monitoring. The annual financial audit must include a comprehensive review of the portfolio, accounting procedures for security transactions, and compliance with the investment policy.

9. EVALUATION AND REVIEW Investment management of the legacy fund will be evaluated against the fund's investment objectives and investment performance standards. Emphasis will be placed on 5-year and 10-year results. Evaluation should include an assessment of the continued feasibility of achieving the investment objectives and the appropriateness of the investment policy statement for achieving those objectives. Performance reports will be provided to the Advisory Board periodically, but not less than quarterly. Such reports will include asset returns and allocation data. Additionally, not less than annually, reports will include information regarding all significant and/or material matters and changes pertaining to the investment of the legacy fund, including:

• Changes in asset class portfolio structures, tactical approaches, and market values. • Loss of principal, if any. • Management costs associated with various types of investments. • All material legal or legislative proceedings affecting the SIB. • Compliance with this investment policy statement. • An evaluation of the national economic climate. • A forecast of the expected economic opportunities and dangers. • Management of risk by the SIB.

In addition to the quarterly and annual evaluation and review process, the SIB shall notify the Advisory Board within 30 days of any substantial or notable deviation from the normal management of the legacy fund, including any anomalies, notable losses, gains, or liquidation of assets affecting the fund.

28 RIO is available to assist the Advisory Board establish separate formal governance policies, if so directed. Limitations of Deterministic Projections

 A deterministic projection does not reflect capital market uncertainty (risk).  10-year (and 20-year) returns with no volatility - a deterministic projection with the same return each year - may yield substantially different results from a series of 10 annual returns with substantial volatility but the same 10-year average return. The sequence of the returns matter, as do the size of the swings. Negative returns earlier in the period may cause less harm than later in the period, when more money may be at stake.  Simulation models that take volatility and probabilities into account typically generate median returns - those with a 50% probability of occurring - that are below those of the deterministic or average projections.  The deterministic projections paint a more optimistic view of the Legacy Fund over the next 20 years than under a regime of capital market uncertainty.

29 Capital Market Assumptions play 2018 Capital Market Projections – Return and Risk a major role in Summary of Callan’s Long-Term Capital Market Projections (2019 – 2028) developing our asset allocation policy.

30 Source: Callan LLC

AGENDA ITEM III.A.3.

BOARD ACTION REQUESTED

To: State Investment Board

From: Dave Hunter, Executive Director / CIO

Date: August 16, 2019

RE: Investment Update – Large Fund Transfers and AG Settlement Fund

Budget Stabilization Fund Contribution:

RIO received a $513 million transfer into the Budget Stabilization Fund on August 13, 2019, and expects to receive an additional $32 million contribution later in August. These funds will be invested in previously approved, short-term, fixed income strategies with JPMorgan and Barings (a $317 billion financial services subsidiary of Mass Mutual). As a result, the Budget Stabilization Fund is estimated to increase to approximately $665 million in late-August.

Potential New SIB Client Update:

On July 26, 2019, the SIB expressed a willingness to accept the Office of the Attorney General as a new client to oversee their “AG Settlement Fund” of approximately $1 million. During the past month, the AG Office and RIO have worked together to develop an initial Investment Policy Statement (IPS) including a 100% short-term fixed income asset allocation. RIO seeks SIB approval of the attached AG Settlement Fund IPS contingent upon the North Dakota Industrial Commission (NDIC) approving the attached request on August 28, 2019. If the SIB and NDIC provide their approvals by August 31, 2019, RIO will seek to onboard the AG Settlement Fund as of the close of business on September 30, 2019 (noting that RIO only accepts clients at quarter-end). RIO notes the AG Settlement Fund asset allocation will be of high quality, highly liquid, short term fixed income investments to match the clients requested conservative low-risk, short-term investment profile.

Board Action Requested:

After addressing any questions, comments or concerns, RIO respectfully requests the SIB to consider a motion to approve the Office of the Attorney General as a contractual investment client of the SIB for the AG Settlement Fund, subject to subsequent NDIC approval.

SIB Governance Policy Section E-13 - Accepting New Clients NDCC 21-10-06 states “The state investment board may provide investment services to, and manage the money of, any agency, institution, or political subdivision of the state, subject to agreement with the industrial commission. The scope of services to be provided by the state investment board to the agency, institution, or political subdivision must be specified in a written contract. The state investment board may charge a fee for providing investment services and any revenue collected must be deposited in the state retirement and investment fund.” When a request is received by staff from a potential new investor requesting investment services from the State Investment (SIB), the following steps shall be followed.

1. Staff will conduct initial discussions with the potential client regarding type of fund, risk tolerance, size of fund, services to be provided, costs, etc.

2. Staff will recommend that an Asset/Liability study be conducted by the potential client if one has not been done recently. This discussion will include a description of the asset classes available for investment with the SIB to be included in their study.

3. If the potential client is still interested in participating in the SIB program, staff will bring the preliminary request to the SIB for acceptance. It shall be the policy of the SIB to take the following into consideration when determining if a new investor request will be accepted.

a. Internal staff administrative capacity. b. Compatibility of new investor’s goals and risk tolerances with existing SIB clients. c. Whatever other factors the SIB determines to be appropriate to the decision.

4. If the SIB chooses to accept the preliminary request, staff will provide the necessary template documents to the potential client for review and completion. These documents include a contract for services and investment guidelines.

5. Once documentation is completed, staff will request to have the issue included on the Industrial Commission’s agenda for their approval. Copies of all documentation will be provided for their review.

6. If approved by the Industrial Commission, final documentation will be presented to the SIB for final acceptance.

7. If accepted, staff will work with the new client to set up transfer of funds and implementation of asset allocation as directed. All new clients will be brought in as of the last day of a calendar quarter.

8. Fees will be charged with the intention of covering all associated costs as described in RIO Fiscal Management procedure “Investment Fee Allocations”.

Policy Implemented: November 20, 2009

August 15, 2019

Ms. Karlene Fine State Industrial Commission 600 E. Boulevard Bismarck, ND 58505-0001

Dear Karlene:

Pursuant to NDCC 21-10-06, the North Dakota State Investment Board (NDSIB) requests permission of the Industrial Commission to enter into an agreement with the Office of the Attorney General for the AG Settlement Fund (Fund). The Fund was established to support attorney related compensation needs and educational initiatives. The Fund will begin with approximately $1.11 million in assets. It is the intention of the Office of the Attorney General to withdraw approximately one-sixth of the Fund balance every six months beginning in March, 2020, with the final distribution occurring in approximately March, 2022. Additional contributions may occur in the future which could extend the life of the fund.

Copies of the draft contract and investment guidelines are enclosed. We ask that you please include this request on your August 28, 2019, meeting agenda. If you have any questions, please feel free to call me at 328-9892. Thank you.

Sincerely, a CONNIE L. FLANAGAN Chief Financial Officer INVESTMENT MANAGEMENT AGREEMENT

This agreement is entered into by and between the North Dakota State Investment

Board ("NDSIB") and the Office of the Attorney General of ND ("Trustee").

WHEREAS, the Trustee desires to retain the NDSIB as its investment manager with respect to the AG Settlement Fund ("Fund") and the NDSIB desires to provide investment management services to the Trustee as set forth in this agreement;

WHEREAS, the NDSIB is authorized to provide investment management services to, and manage the money of, any agency, institution, or political subdivision of the state, subject to agreement with the Industrial Commission, under North Dakota Century Code

(N.D.C.C.) § 21-10-06;

WHEREAS, the Industrial Commission, by resolution dated ______, has given its approval for the NDSIB to provide investment management services to the Trustee;

NOW THEREFORE, in consideration of the covenants to be performed by each party on behalf of the other, as hereinafter set forth, it is understood and AGREED by and between the parties hereto as follows:

SECTION 1: APPOINTMENT OF THE MANAGER.

The Trustee appoints NDSIB as its investment manager.

SECTION 2: POWERS OF THE MANAGER.

NDSIB has complete discretionary authority to allocate the Fund’s assets according to the Fund’s Statement of Investment Goals, Objectives and Policies (Attachment A) which is attached and incorporated by reference. The governing body of the Fund shall ensure that Attachment A meets the requirements of and follows the procedures set forth in

N.D.C.C. § 21-10-02.1. NDSIB will utilize money managers and can delegate discretionary authority to the individual money managers as to selection, retention, and sale of individual securities.

SECTION 3: FUND ACCOUNT.

The NDSIB will establish separate fund accounts on its internal accounting system, and any other accounts with the NDSIB's master custodian as may be appropriate, to maintain separate accounting for the Fund’s assets. It is understood that the NDSIB, when investing the Fund’s assets, may commingle those assets with other funds under the control of the NDSIB. Separate accounting will be maintained at all times.

The Trustee has the right at any time to make withdrawals from and additions to the fund accounts. Written notice of any withdrawal or addition must be provided to NDSIB prior to the action that is intended to be taken.

All assets will be custodied by the NDSIB's master custodian or such other bank or trust company as is acceptable to the NDSIB. Such custodian shall have physical possession of the assets in the account and is responsible for the safekeeping of the assets.

All payments, distributions, and other transactions in cash or securities with respect to the fund account must be delivered promptly to or by the custodian and NDSIB is not responsible or liable with respect to the acts or omissions of the custodian in this regard.

SECTION 4: SERVICE TO OTHER FUNDS.

It is understood that NDSIB may from time to time give advice and take action with respect to other trust funds, which may differ from the advice given or the timing or the nature of action taken with respect to this Fund.

SECTION 5: RECORDS.

NDSIB will keep accurate books and records relating to its transactions under this agreement including records of all purchase and sale transactions. Confirmations of such transactions are available to the Trustee. NDSIB books and records relating to its transactions are open during regular office hours for inspection. NDSIB will provide reports to the Trustee of its performance and activities under this Agreement according to the schedule set forth on Attachment B and incorporated by reference. The parties understand that all records generated or maintained pursuant to this agreement are subject to North

Dakota open records law.

SECTION 6: AUTHORIZED PERSONNEL.

NDSIB will provide the Trustee a written list of NDSIB's employees who are authorized to act under this Agreement which is attached as Attachment C and incorporated by reference. The Trustee will provide NDSIB a written list of individuals authorized to provide written instructions to NDSIB relating to matters contained herein which is attached as Attachment D and incorporated by reference.

SECTION 7: NDSIB STANDARDS.

NDSIB will apply the prudent investor rule in investing for funds under its supervision pursuant to N.D.C.C. § 21-10-07. This means that the NDSIB in making investments shall exercise the judgment and care, under the circumstances then prevailing, that an institutional investor of ordinary prudence, discretion, and intelligence exercises in the management of large investments entrusted to it, not in regard to speculation but in regard to the permanent disposition of funds, considering probable safety of capital as well as

3 probable income. However, NDSIB may raise any legally available defense for any act or

omission of itself or authorized personnel or any agent connected with NDSIB's obligations

under this Agreement. In addition to carrying out its fiduciary responsibilities under the

prudent investor rule, the NDSIB's fiduciary responsibilities include establishing and

implementing policies in accordance with N.D.C.C. § 21-10-02.1 and approving investment

regulations or resolutions recommended to it by the investment director pursuant to

N.D.C.C. § 21-10-05. Additionally, NDSIB as a statutorily created state agency and fiduciary shall competently perform any duty imposed on it pursuant to N.D.C.C. ch. 21-10 or any other applicable law.

SECTION 8: FEES AND EXPENSES OF MANAGER.

The Fund is responsible for the actual fees attributable to the Fund charged by money

managers, the master custodian, consultants, and other professionals pursuant to N.D.C.C.

§ 21-10-06.2. If the Fund’s assets are commingled with other NDSIB funds, such fees will

be the Fund’s proportional shares of those same fees charged to the NDSIB.

In addition, the Fund will pay to the NDSIB an administrative fee, payable quarterly,

based on the Fund’s pro rata share of the NDSIB’s administrative expenses. A minimum

fee of the lesser of 15 basis points of the total market value of the Fund or $1,000 per

year will apply. All fees will be paid directly out of the Fund’s assets.

SECTION 9: NOTICES.

Any notice or demand made under the terms of this Agreement must be made in

writing and delivered to the addresses set forth as follows:

a. If to NDSIB at:

4 North Dakota Retirement and Investment Office 3442 East Century Avenue, P.O. Box 7100 Bismarck, ND 58507-7100

b. If to the Trustee at:

c. The above addresses may be changed at any time by written amendment.

SECTION 10: TERM and TERMINATION.

This Agreement will commence on the date by which all necessary signatures have been obtained and continue until terminated. This Agreement may be terminated at any time by either party by giving the other party ninety (90) days written notice of termination or such other shorter notice as may be mutually agreed upon. Termination shall be without prejudice to any obligations or liabilities of either party already accrued prior to the termination.

SECTION 11: MERGER CLAUSE.

This agreement constitutes the entire agreement between the parties. No waiver, consent, modification, or change of terms of this agreement shall bind either party unless in writing and signed by both parties. Such waiver, consent, modification, or change, if made, shall be effective only in the specific instance and for the specific purpose given. There are no understandings, agreements, representations, oral or written, not specified herein regarding this agreement. The parties, by the signature of their authorized representatives, hereby acknowledge that they have read this agreement, understand it, and agree to be bound by its terms and conditions.

5 SECTION 12: FORCE MAJEURE

NDSIB shall not be held responsible for delay or default caused by fire, flood, riot, acts of

God or war if the event is beyond NDSIB’S reasonable control and NDSIB gives notice to

Trustee immediately upon occurrence of the event causing the delay or default or that is reasonably expected to cause a delay or default.

SECTION 13: APPLICABLE LAW AND VENUE

This contract is governed by and construed in accordance with the laws of the State of

North Dakota. Any action to enforce this contract must be adjudicated exclusively in the

State District Court of Burleigh County, North Dakota.

Effective this ___ day of_____, 2014.

NORTH DAKOTA STATE INVESTMENT BOARD

By: By:

______Title Title

6 LIST OF ATTACHMENTS

Fund's Statement of Investment Goals, Objectives and Policies Attachment A

Report Listing Attachment B

NDSIB Authorized Employees List Attachment C

Trustee Authorized Employees List Attachment D

7 Attachment A

ND ATTORNEY GENERAL SETTLEMENT FUND

INVESTMENT POLICY STATEMENT

1. PLAN CHARACTERISTICS AND FUND CONSTRAINTS

The Office of the Attorney General for the State of North Dakota (Client) has established the AG Settlement Fund to support attorney related compensation needs and educational initiatives.

The AG Office indicated the AG Settlement Fund (Fund) will be initially established with a $1,114,311 investment contribution on September 30, 2019, and expects to withdraw approximately one-sixth of the Fund balance every six months thereafter with the first distribution on or about March 31, 2020, with the final distribution occurring on or about March 31, 2022. Additional contributions may occur in future years which could extend the expected investment horizon of the Fund and/or potentially alter its investment risk, return and liquidity profile.

2. FUND GOALS

The investment objectives of the Fund reflect a low risk tolerance and short-term liquidity needs. Operating considerations shape the Fund’s policies and priorities as outlined below:

Objective #1: Investment income is needed as a funding source. This will be achieved through a diversified portfolio of high quality, short-term fixed income and cash.

Objective #2: Growth of capital is minimal to preserve the real purchasing power of Fund assets as the investment term is not expected to be more than a few years.

Objective #3: Sufficient liquidity must be maintained as the fund will be liquidated in semi-annual distributions over the next few years. Short-term fixed income and cash equivalent investments shall be used to achieve this objective.

3. RESPONSIBILITIES AND DISCRETION OF THE STATE INVESTMENT CLIENT (SIB)

The Office of the Attorney General (Client) has entered into a contract with the SIB for investment services as allowed under NDCC 21-10-06. The Client is responsible for establishing policies on investment goals and asset allocation of the Fund. The SIB is charged with implementing these policies and investing the assets of the Fund in the manner provided in NDCC 21-10-07, the prudent investor rule. Under this rule, the fiduciaries shall exercise the judgment and care, under the circumstances then prevailing, that an institutional investor of ordinary prudence, discretion, and intelligence exercises in the management of large investments entrusted to it, not in regard to speculation but in regard to the permanent disposition of funds, considering probable safety of capital as well as probable income. The Fund must be invested exclusively for the benefit of the members and their beneficiaries in accordance with this investment policy.

Management responsibility for the investment program not assigned to the SIB in Chapter 21-10 of the North Dakota Century Code (NDCC) is hereby delegated to the SIB, who must establish written policies for the operation of the investment program, consistent with this investment policy.

The SIB may delegate investment responsibility to professional money managers. Where a money manager has been retained, the SIB’s role in determining investment strategy and security selection is supervisory, not advisory.

At the discretion of the SIB, the Fund’s assets may be pooled with other funds. In pooling funds, the SIB may establish whatever asset class pools it deems necessary with specific quality, diversification, restrictions, and performance objectives appropriate to the prudent investor rule and the objectives of the funds participating in the pools.

The SIB is responsible for establishing criteria, procedures, and making decisions with respect to hiring, keeping, and terminating money managers. SIB investment responsibility also includes selecting performance measurement services, consultants, report formats, and frequency of meetings with managers.

The SIB will implement changes to this policy as promptly as is prudent.

4. RISK TOLERANCE

The Client’s risk tolerance with respect to the management of the Fund’s asset is low. The Client is unwilling to undertake investment strategies that might jeopardize the ability of the Fund to maintain principal value over time.

5. INVESTMENT OBJECTIVES

The Client’s investment objectives are expressed in terms of reward and risk expectations relative to investable, passive benchmarks. The Fund’s policy benchmark is comprised of policy mix weights of appropriate asset class benchmarks as set by the SIB.

1. The fund’s rate of return, net of fees and expenses, should at least match that of the policy benchmark over the investment period of approximately three years. 2. The fund’s risk, measured by the standard deviation of net returns, should not exceed 1% of the policy benchmark over a minimum evaluation period of three years. 3. The risk-adjusted performance of the fund, net of fees and expenses, should at least match that of the policy benchmark over a minimum evaluation period of three years.

6. POLICY ASSET MIX

Asset allocation policy is critical because it defines the basic risk and return characteristics of the investment portfolio. Asset allocation targets are established using an asset allocation analysis designed to assist the Client in determining an acceptable volatility target for the fund and an optimal asset allocation policy mix. This analysis estimates the potential impact of various asset class mixes on key measures of total Fund risk.

After consideration of all the inputs and a discussion concerning risk tolerance, the Client approves the appropriate policy asset mix for the Fund.

Asset Class Policy Target(%) Short-Term Fixed Income and Cash 100

While the Client recognizes fluctuations in market values will lead to short-term deviations from policy targets, the Client does not intend to engage in tactical asset allocation. Rebalancing of the Fund to this target will be done in accordance with the SIB’s rebalancing policy, but not less than annually.

7. RESTRICTIONS

While the SIB is responsible for establishing specific quality, diversification, restrictions, and performance objectives for the investment vehicles in which the Fund’s assets will be invested, it is understood that:

a. Futures and options may be used to hedge or replicate underlying index exposure, but not for speculation. b. Derivatives use will be monitored to ensure that undue risks are not taken by the money managers. c. No transaction shall be made which threatens the tax exempt status of the Fund. d. All assets will be held in custody by the SIB’s master custodian or such other custodians as are acceptable to the SIB. e. No unhedged short sales or speculative margin purchases shall be made. f. Social investing is prohibited unless it meets the exclusive benefit rule, and it can be substantiated that the investment provides an equivalent or superior rate of return for a similar investment with a similar time horizon and similar risk.

For the purpose of this document, social investing is defined as the consideration of socially responsible criteria in the investment or commitment of public fund money for the purpose of obtaining an effect other than a maximized return to the Fund.

g. Economically targeted investing is prohibited unless the investment meets the Exclusive Benefit Rule.

For the purpose of this document economically targeted investment is defined as an investment designed to produce a competitive rate of return commensurate with risk involved, as well as to create collateral economic benefits for a targeted geographic area, group of people, or sector of the economy.

Also, for the purpose of this document, the Exclusive Benefit Rule is met if the following four conditions are satisfied:

(1) The cost does not exceed the fair market value at the time of investment. (2) The investment provides the Fund with an equivalent or superior rate of return for a similar investment with a similar time horizon and similar risk. (3) Sufficient liquidity is maintained in the Fund to permit distributions in accordance with the terms of the plan. (4) The safeguards and diversity that a prudent investor would adhere to are present.

Where investment characteristics, including yield, risk, and liquidity are equivalent, the Client's policy favors investments which will have a positive impact on the economy of North Dakota.

8. INTERNAL CONTROLS

A system of internal controls must be in place by the SIB to prevent losses of public funds arising from fraud or employee error. Such controls deemed most important are the separation of responsibilities for investment purchases from the recording of investment activity, custodial safekeeping, written confirmation of investment transactions, and established criteria for investment manager selection and monitoring. The annual financial audit must include a comprehensive review of the portfolio, accounting procedures for security transactions and compliance with the investment policy.

9. EVALUATION AND REVIEW

Investment management of the Fund will be evaluated against the Fund’s investment objectives. Emphasis will be placed on three (or five) year results, if applicable. Evaluation should include an assessment of the continued feasibility of achieving the investment objectives and the appropriateness of the Investment Policy Statement for achieving those objectives.

Performance reports will be provided to the Client periodically, but not less than annually. Such reports will include asset returns and allocation data as well as information regarding all significant and/or material matters and changes pertaining to the investment of the Fund, including, but not limited to:

1. A list of the advisory services managing investments for the SIB. 2. A list of investments at market value, compared to previous reporting period, of each account managed by each advisory service. 3. Earnings, percentage earned, and change in market value of each account’s investments. 4. Comparison of the performance of each account managed by each advisory service to other accounts under the SIB’s control and to generally accepted market indicators. 5. All material legal or legislative proceedings affecting the SIB. 6. Compliance with this investment policy statement.

Approved by:

ND ATTORNEY GENERAL STATE INVESTMENT BOARD

______

Wayne Stenejhem David Hunter Attorney General Executive Director/CIO

Date: August 31, 2019 Date: August 31, 2019

Attachment B

NORTH DAKOTA STATE INVESTMENT BOARD REPORTING SERVICES

Reporting services to be provided by the North Dakota State Investment Board to the Trustee will be as follows:

Monthly - Financial Statements - Based on reconciled custodian reports generally available 45 calendar days after the close of the month.

Preliminary Performance Reports - Based on reconciled custodian reports and preliminary manager returns generally available 45 calendar days after the close of the month.

Annually - Copy of North Dakota Retirement and Investment Office's audited annual financial statements as prepared by NDSIB's independent auditor; generally available December 15 for fiscal year ending June 30.

8 Attachment C

NORTH DAKOTA STATE INVESTMENT BOARD DELEGATION OF AUTHORITY

The following North Dakota Retirement and Investment Office employees are authorized to act under this agreement.

NAME TITLE SIGNATURE

David Hunter Executive Director/CIO ______

Darren Schulz, CFA Deputy CIO ______

Connie Flanagan Chief Financial Officer ______

Susan Walcker Senior Financial Accountant ______

Investment Accountant ______

9 Attachment D

TRUSTEE DELEGATION OF AUTHORITY

The following employees are authorized to provide written instructions to the North Dakota State Investment Board for the indicated transactions:

Transaction Individual Signature

1. Investment Guidelines including asset allocations ______

2. Withdrawal or addition ______of assets

______

By:______Effective Date ______Title

By:

______Title

10 AGENDA ITEM III.B.2

Informational

TO: State Investment Board

FROM: Dave Hunter and Darren Schulz

DATE: August 20, 2019

SUBJECT: Private Equity Overview – Adams Street Preview ______

Background:

As part of a multi-year plan to enhance the expected return of our private equity (“PE”) portfolio, RIO continues to review existing and prospective PE managers in the marketplace. At this time, RIO is considering making a new “follow-on” commitment to the Adams Street Partners (“Adams Street” or “ASP”) Global Fund for 2019. Adams Street is our largest PE manager (at $91.6 million) and has consistently generated the strongest returns (within PE) for our clients over the last 30 years. Inception 1-Yr 3-Yr 5-Yr 10-Yr 15-Yr 20-Yr (3/89) Adams Street NDSIB PE Program Net IRR 12.4% 13.2% 12.3% 14.8% 13.7% 9.0% 11.1% MSCI ACWI Public Market Equivalent 4.6% 10.6% 6.1% 15.8% 8.1% 5.6% 6.4%

It is important to note that SIB clients within the $5.8 billion Pension Trust currently have a 6.5% (or $374 million) target allocation to PE versus an actual allocation of $201.8 million as of March 31, 2019. In order to reduce this $172 million underweight position, RIO is recommending a new “follow- on” commitment to the ASP 2019 Global Fund of up to $75 million. RIO notes the SIB previously approved two similar $30 million commitments to ASP’s Global Fund in September of 2015 and February of 2016, a $60 million commitment in 2017 and a $65 million commitment in 2018.

In March of 2016, RIO and Callan also identified BlackRock as a new strategic partner to complement Adams Street and re-establish our clients’ long-term commitment to this asset class. Given the significant growth in the Pension Trust during the past year, we regularly review our PE investment pacing schedule with the intent of eliminating the sizable underweight position over the next 5 years. Investment pacing plays an important role in gradually re-building our PE portfolio so as to prevent the potential adverse effects of vintage year concentration risk. The establishment of two strategic partners in this long-term investment should also help to reduce management fees. Given expected capital distributions on existing PE assets over the next five years, ASP believes annual private equity commitments will likely need to approximate $75 million (for each manager) in the near term.

RIO Due Diligence:

During the past four years, RIO met with over two dozen private equity investment and consulting firms including Adams Street, BlackRock, Capital Group, Carlyle Group, Cogent, CorsAir, Credit Suisse, Crestline, Evercore, Goldman Sachs, Hamilton Lane, HarbourVest, Invest America, JPMorgan, KKR, Matlin Patterson, Pantheon, Partners Group, Pathway, Portfolio Advisors, Public Pension Capital, Quantum Energy Partners, RCP Investors and UBS. During the course of our due diligence, nearly all investment managers expressed a willingness to offer preferential pricing to develop a long-term strategic relationship.

RIO notes that ASP has served as the SIB’s longest term, strategic partner within PE and provided our Pension Trust clients with a reasonable return premium versus public equity (of over 4% versus MSCI World PME Index since inception). Over the long-term, ASP believes it will be able to generate a 3% to 4% return premium versus public equity (after all fees).

Key Terms:

Fund Name: Adams Street 2019 Global Fund LP General Partner: Adams Street Partners Fund Term: 15 years after final close Borrowing: Up to 25% Commitment Period: Target 2.5 to 3.0 years (50% in 2018 / 35% in 2019 and 15% in 2020) Return Objective: Net IRR in excess of 13% Management Fee: Reduced by 50% since 2015 Sub-Classes: Buyout ~ 55% to 70%; Venture ~ 25% to 35%; and Other ~ 5% to 20% Buyout Fund Size: Mid ~ 50%; Large ~ 25%; and Small ~ 25%. Carried Interest: 0% primary (~65%); 10% secondary/co-invest (~25%); 20% direct (~10%) Preferred Return: 7% for secondary and co-investments Example: Fund of Funds (primary, secondary, co-invest) (~ 90%); Direct (~ 10%)

Adams Street Performance Update:

RIO notes that the ASP Global Funds for 2015, 2016, 2017 and 2018 have performed well and ranked in the 1st or 2nd quartile by Callan as of March 30, 2019, (as highlighted on the following pages).

RIO notes that Callan has also ranked our other strategic private equity partner, BlackRock, in the 2nd quartile, although it is challenging to assess manager performance after only three years within private equity.

Next Steps:

RIO has invited Mr. Jeff Diehl and Miguel Gonzalo to provide a firm and market update in addition to a review of our Adams Street portfolio and private equity investment strategy. Adams St 2015 Global Fd Period Ended March 31, 2019

Organization History Adams Street Partners (ASP) is an independent, 100% employee-owned firm. The firm was started in 1972 as the private equity division of Brinson Partners, which was subsequently purchased by UBS. ASP became independent in 2008. ASP is a large global private equity manager with over 130 employees. The firm is headquartered in Chicago with additional offices located in Palo Alto, London and Singapore.

Quarter March 31, 2019 Change December 31, 2018 Summary Vintage Years 2015-2016 2015-2016

Changes in Value Capital Commitments $30,000,000 - $30,000,000 Paid-In Capital $17,283,772 - $17,283,772 Uncalled Capital $12,716,228 - $12,716,228 % Paid-In 57.61% - 57.61% Distributed Capital $1,603,378 - $1,603,378 Net Asset Value $21,394,398 - $21,394,398 Total Realized and Unrealized Value $22,997,776 - $22,997,776

Ratios and Performance Distributions to Paid-In Capital (DPI) 0.09x - 0.09x Residual Value to Paid-In Capital (RVPI) 1.24x - 1.24x Total Value to Paid-In Capital (TVPI) 1.33x - 1.33x Quartile Ranking 2nd 2nd Net IRR 23.33% (4.82%) 28.15% Quartile Ranking 1st 1st

Additional Performance Metrics Distribution Rate, as % of Beginning NAV 0.00% Unrealized Gain/(Loss), Dollars $0 Unrealized Gain/(Loss), % 0.00%

Quartile rankings against the All Private Equity, All Regions Refinitiv/Cambridge database as of the prior quarter.

North Dakota State Investment Board 44 Adams St 2016 Global Fd Period Ended March 31, 2019

Quarter March 31, 2019 Change December 31, 2018 Summary Vintage Years 2016-2017 2016-2017

Changes in Value Capital Commitments $30,000,000 - $30,000,000 Paid-In Capital $12,289,478 - $12,289,478 Uncalled Capital $17,710,522 - $17,710,522 % Paid-In 40.96% - 40.96% Distributed Capital $0 - $0 Net Asset Value $14,198,590 - $14,198,590 Total Realized and Unrealized Value $14,198,590 - $14,198,590

Ratios and Performance Distributions to Paid-In Capital (DPI) 0.00x - 0.00x Residual Value to Paid-In Capital (RVPI) 1.16x - 1.16x Total Value to Paid-In Capital (TVPI) 1.16x - 1.16x Quartile Ranking 2nd 2nd Net IRR 15.59% - 15.59% Quartile Ranking 2nd 2nd

Additional Performance Metrics Distribution Rate, as % of Beginning NAV 0.00% Unrealized Gain/(Loss), Dollars $0 Unrealized Gain/(Loss), % 0.00%

Quartile rankings against the All Private Equity, All Regions Refinitiv/Cambridge database as of the prior quarter.

North Dakota State Investment Board 46 Adams St 2017 Global Fd Period Ended March 31, 2019

Quarter March 31, 2019 Change December 31, 2018 Summary Vintage Years 2017-2018 2017-2018

Changes in Value Capital Commitments $60,000,000 - $60,000,000 Paid-In Capital $18,550,397 - $18,550,397 Uncalled Capital $41,449,603 - $41,449,603 % Paid-In 30.92% - 30.92% Distributed Capital $0 - $0 Net Asset Value $19,306,856 - $19,306,856 Total Realized and Unrealized Value $19,306,856 - $19,306,856

Ratios and Performance Distributions to Paid-In Capital (DPI) 0.00x - 0.00x Residual Value to Paid-In Capital (RVPI) 1.04x - 1.04x Total Value to Paid-In Capital (TVPI) 1.04x - 1.04x Quartile Ranking 2nd 2nd Net IRR 6.73% (4.68%) 11.40% Quartile Ranking 2nd 1st

Additional Performance Metrics Distribution Rate, as % of Beginning NAV 0.00% Unrealized Gain/(Loss), Dollars $0 Unrealized Gain/(Loss), % 0.00%

Quartile rankings against the All Private Equity, All Regions Refinitiv/Cambridge database as of the prior quarter.

North Dakota State Investment Board 48 Adams St 2018 Global Fund Period Ended March 31, 2019

Quarter March 31, 2019 Change December 31, 2018 Summary Vintage Year 2018 2018

Changes in Value Capital Commitments $65,000,000 - $65,000,000 Paid-In Capital $7,452,383 - $7,452,383 Uncalled Capital $57,547,617 - $57,547,617 % Paid-In 11.47% - 11.47% Distributed Capital $0 - $0 Net Asset Value $7,806,110 - $7,806,110 Total Realized and Unrealized Value $7,806,110 - $7,806,110

Ratios and Performance Distributions to Paid-In Capital (DPI) 0.00x - 0.00x Residual Value to Paid-In Capital (RVPI) 1.05x - 1.05x Total Value to Paid-In Capital (TVPI) 1.05x - 1.05x Quartile Ranking 1st Net IRR 7.76% (3.50%) 11.27% Quartile Ranking 1st

Additional Performance Metrics Distribution Rate, as % of Beginning NAV 0.00% Unrealized Gain/(Loss), Dollars $0 Unrealized Gain/(Loss), % 0.00%

Quartile rankings against the All Private Equity, All Regions Refinitiv/Cambridge database as of the prior quarter.

North Dakota State Investment Board 50 North Dakota State Investment Board

August 23, 2019 Presented by: Jeff Diehl and Miguel Gonzalo, CFA Confidentiality Statement and Other Important Considerations

Adams Street Partners has provided this presentation (the “Presentation”) to the recipient on a confidential and limited basis. This Presentation is not an offer or sale of any security or investment product or investment advice. Offerings are made only pursuant to a private offering memorandum containing important information regarding risk factors, performance and other material aspects of the applicable investment; the information contained herein should not be used or relied upon in connection with the purchase or sale of any security. Statements in the Presentation are made as of the date of the Presentation unless stated otherwise, and there is no implication that the information contained herein is correct as of any time subsequent to such date. All information with respect to primary and secondary investments of Adams Street Partners’ funds (the “Funds”) or Adams Street Partners’ managed accounts (collectively, the “Investments”), the Investments’ underlying portfolio companies, Fund portfolio companies, and industry data has been obtained from sources believed to be reliable and current, but accuracy cannot be guaranteed. The Presentation contains highly confidential information. In accepting the Presentation, each recipient agrees that it will (i) not copy, reproduce or distribute the Presentation, in whole or in part, to any person or party (including any employee of the recipient other than an employee or other representative directly involved in evaluating the Funds) without the prior written consent of Adams Street Partners, (ii) keep permanently confidential all information not already public contained herein, and (iii) use the Presentation solely for the purpose set forth in the first paragraph. The Presentation is not intended to be relied upon as investment advice. The contents herein are not to be construed as legal, business or tax advice, and each investor should consult its own attorney, business advisor and tax advisor as to legal, business and tax advice. The internal rate of return (IRR) data and multiples provided in the Presentation are calculated as indicated in the applicable notes to the Presentation, which notes are an important component of the Presentation and the performance information contained herein. IRR performance data may include unrealized portfolio investments; there can be no assurance that such unrealized investments will ultimately achieve a liquidation event at the value assigned by Adams Street Partners or the General Partner of the relevant Investment, as applicable. Any fund-level net IRRs and net multiples presented herein for the 2015 Global Program Funds and all subsequently formed commingled Funds reflect the use of the Fund’s capital call credit line (or, in the case of an Adams Street Global Fund, capital call credit lines of the underlying Funds) and are calculated using limited partner capital call dates, rather than the earlier dates on which the investment was made using the line of credit. The use of such dates generally results in higher net IRR and net multiple calculations, and the related differences in net IRR and net multiple figures could be material. Any target returns presented herein are based on Adams Street Partners models. There is no guarantee that targeted returns will be realized or achieved or that an investment strategy will be successful. Investors should keep in mind that the securities markets are volatile and unpredictable. There are no guarantees that the historical performance of an investment, portfolio, or asset class will have a direct correlation with its future performance. Past performance is not a guarantee of future results. Projections or forward looking statements contained in the Presentation are only estimates of future results or events that are based upon assumptions made at the time such projections or statements were developed or made. There can be no assurance that the results set forth in the projections or the events predicted will be attained, and actual results may be significantly different from the projections. Also, general economic factors, which are not predictable, can have a material impact on the reliability of projections or forward looking statements. References to the Investments and their underlying portfolio companies and to the Funds should not be considered a recommendation or solicitation for any such Investment, portfolio company, or Fund. Any case studies included in this presentation are for illustrative purposes only and have been selected to provide, among other things, examples of investment strategy and/or deal sourcing. These investments do not represent all the investments that may be selected by Adams Street Partners with respect to a particular asset class or a particular Fund or account.

2 Topics for Discussion

Page

Adams Street Partners Overview 4

Portfolio Update / 2019 Global Private Equity Program 10

Private Markets Update and Strategy 16

Appendix 31

3 Adams Street Partners Overview

4 Investing with Adams Street Partners

Global Private Markets Platform ■ Employee-owned ■ 45+ years of experience ■ $37 billion in assets under management ■ Highly integrated platform with shared insights

Robust Investment Process Strategically ■ Disciplined and coordinated investment process Integrated ■ Top-down, bottom-up analysis Platform ■ Consistent outperformance through market cycles

Exemplary Client Service ■ Client based solutions have been a strategic focus for Adams Street since inception ■ Deep understanding of institutional client needs ■ Client access to industry-leading analytical tools and data

No Adams Street client has lost capital in an ASP investment program since our inception

As of December 31, 2018 5 We Have a Global Footprint

LONDON BOSTON 1997 2016

MUNICH BEIJING NEW YORK 2017 2011 CHICAGO 2016 MENLO PARK 1972 SEOUL 2006 TOKYO 2017 2014

SINGAPORE 2006

200+ 10 30+ 1700+ OFFICES = QUALITY OPPORTUNITIES PEOPLE NATIONS INVESTED REVIEWED ANNUALLY

6 Experienced, Cohesive and Strategically Integrated Platform

Jeff Diehl Bon French Managing Partner & Chairman Head of Investments 42 Years of Experience* 25 Years of Experience*

Primary Investments Secondary Investments Since 1979 Since 1986

940+ funds 450+ funds 310+ GP relationships 190+ GP relationships 470+ advisory boards 15 Professionals 27 Professionals Kelly Meldrum Jeff Akers Partner & Head of Partner & Head of Primary Investments Strategically Secondary Investments 34 Years of Experience* 21 Years of Experience* Integrated Platform

Growth Equity Co-Investments Since 1972 Since 1989

280+ companies 140+ companies 100+ GP relationships 10 Professionals Private Credit 7 Professionals Since 2016 Terry Gould David Brett Partner & Head of Partner & Head of Growth Equity Investments 250+ GP relationships Bill Sacher Co-Investments Partner & Head of 38 Years of Experience* 10 Professionals Private Credit 34 Years of Experience* 34 Years of Experience*

*Investment and Operational As of March 31, 2019. 7 Organized to Ensure Investment Focus

EXECUTIVE COMMITTEE Jeff Diehl Managing Partner & Head of Investments Quintin Kevin Chief Financial Officer Kelly Meldrum Head of Primary Investments Jim Walker Chief Operating Officer Jeff Akers Head of Secondary Investments Kevin O’Donnell Global Head of Investor Relations Terry Gould Head of Growth Equity Investments Miguel Gonzalo Head of Investment Strategy and Risk Management Bill Sacher Head of Private Credit Gary Fencik Head of Investor Relations INVESTMENT PRIMARY SECONDARY DIRECT Kelly Meldrum Sergey Sheshuryak Jeff Akers Alexander Silver Kushal Shah Co-Investments Growth Equity Private Credit Matt Autrey Yar-Ping Soo Troy Barnett Pinal Nicum Mark Terwilliger Dave Brett Terry Gould Bill Sacher Alex Bozoglou Michael Taylor Joe Goldrick Kristof Van Overloop Arjun Thakkar Paul Cappelli Thomas Bremner Shahab Rashid Jeff Burgis Andy Wang Greg Holden Associates Faylynn Wang Alex Kessel Jeff Diehl Michael Allen Mattias de Beau Ling Jen Wu Eric Klen Samuel Gage Ben Wallwork Brian Dudley Fred Chung Jonathan Goh Associates / Analysts Clinton Miller Elizabeth Huizenga Craig Waslin Robin Murray Justin Lawrence Doris (Yiyang) Guo Sam Shanley Nolan Pauker Matthew Auran INVESTMENT STRATEGY AND RISK MANAGEMENT Morgan Holzaepfel Spencer Chernus Fred Wang Emily Shiau Jim Korczak Mark Hourihan Miguel Gonzalo Jana Tortora Matthew Wachtel Brijesh Jeevarathnam Yimin Huang Luke Frey Tobias True Marcus Lindroos Sam McCartney Alex Lesch Jian Zhang Associates Saguna Malhotra Calum Paterson Alex Storer TJ Biegger Luke Prioleau Sunil Mishra Brandon Shirk Adam Gajewski Carol Rusin Ross Morrison Alexander Tatham PRODUCT STRATEGY Todd Havill Ervis Vukaj Steve Landau Margaret Ellen Crawford Dennis Kan

INVESTOR RELATIONS Quintin Kevin FINANCE INFORMATION TECHNOLOGY LEGAL HUMAN RESOURCES Investor Relations Stephen Baranowski Megan McKillen Alicia Pando Tim Bryant Carolyn Flanagan Kevin O’Donnell Ana Maria Harrison Sarah Bass Megan Meyer Bashar Abuelaynein Gail Carey Ko Liang Mike Chia Ben Hart Tyson Bauer Steve Montag Rahul Achanta Sara Robinson Dasse Kelly M. Mahadev Chris Cho Scott Hazen Juan Beltran Erin Murphy Paul Burgess Yana Frigelis Colleen Mathis Olivia Cunningham Nina YouJin Kim Naz Busch Joe Peck Curt De Witt Jennifer Goodman Ted Schneider Greg Favre John Kremer Ellen Castellini Lena Pugh Mike Giannangelo Mamiko Higashi Gary Fencik Mike Lucarelli Sara Cushing Jamie Raibley Elliott Gschwind Rasa Kelpsa MARKETING Brooke Ferguson Kristina Milberg Scott Fisher Rafael Rivera Rohan Hegde Chris Lambert Nadine Fugert Midori Nakano Emily Abrash Jessica Garvey Scott Rybak Megan Heneghan Eric Mansell Michelle Gandhi Greta Nolan CJ Flynn Lynn Hayden Olivia Schreader Jay Jhala Anne Semik Sam Garetano Isamu Sai Aaron Karlinsky Jason Swanson Megan Schroeder Jason Gordon Martin vom Hagen Mhahesh Madhavan David Weller Tracy Kapraun Maricatharine Grantham Scott White Christina Totton Benjamin Peters John Gray Kathleen Kilrea Jessica Trausch Derek Piunti Christopher Larson Hannah Wilson Jack Redmond PERFORMANCE REPORTING AND ANALYSIS Douglas Wong Eduardo Vázquez Todd Jankowski Triste Wyckoff-Heintz Molly Winans Mike Rosa Tyler Cirrencione Oscar Yau Mensur Sulic Lauren Gebbie 8 High-Quality Capacity Drives Results

Most Asset Managers Approach

Financial Fundraising Investment Targets Targets Deployment

Adams Street Approach

High-Quality Fundraising Financial Investment Targets Results Capacity

9 Portfolio Update / 2019 Global Private Equity Program

10 North Dakota State Investment Board Adams Street private equity portfolio summary Total portfolio as of March 31, 2019

Total Net IRR MSCI Added Inception Market Distributions Total Value Value / Subscription Commitments UnDrawn Since ACWI Value Date Value (NAV) (D) (NAV + D) Amount Inception PME^ over PME Drawn

Institutional Venture Capital Fund II 3/1989 $ 5,000,000 $ 5,000,000 $ - $ - $ 13,434,867 $ 13,434,867 21.34% 10.26% 11.08% 2.69x Institutional Venture Capital Fund III 1/1998 $ 6,000,000 $ 6,000,000 $ - $ - $ 18,438,202 $ 18,438,202 34.15% 15.26% 18.89% 3.07x 1998 Global Fund 1/1998 $ 23,701,761 $ 23,938,195 $ 853,688 $ 525,915 $ 34,141,469 $ 34,667,383 5.01% 4.06% 0.95% 1.52x 1999 Global Fund 1/1999 $ 24,489,864 $ 24,657,244 $ 1,068,525 $ 805,331 $ 36,307,637 $ 37,112,968 6.02% 5.84% 0.18% 1.58x 1999 Non-U.S Fund 1/1999 $ 24,523,732 $ 24,512,934 $ 579,124 $ 1,003,692 $ 46,472,374 $ 47,476,066 11.90% 7.62% 4.28% 1.98x Venture Capital Fund IV 5/1999 $ 25,000,000 $ 25,000,000 $ - $ 3,359,836 $ 43,736,431 $ 47,096,267 7.57% 4.61% 2.96% 1.88x Direct Co-Investment 9/2006 $ 20,000,000 $ 20,000,000 $ 900,000 $ 713,802 $ 27,155,434 $ 27,869,236 5.23% 3.83% 1.40% 1.46x ASP 2008 Non-US Fund 1/2008 $ 10,000,000 $ 10,047,102 $ 867,000 $ 7,537,271 $ 7,558,365 $ 15,095,636 10.79% 8.76% 2.03% 1.65x 2010 Global Fund 4/2010 $ 15,000,000 $ 15,041,081 $ 1,682,250 $12,744,641 $ 9,556,099 $ 22,300,740 13.30% 8.90% 4.40% 1.67x 2015 Global Fund 10/2015 $ 30,000,000 $ 32,866,881 $ 10,410,000 $22,166,423 $ 3,909,606 $ 26,076,029 26.11% 8.12% 18.00% 1.33x 2016 Global Fund 5/2016 $ 30,000,000 $ 32,468,768 $ 15,900,000 $14,607,399 $ 1,810,522 $ 16,417,921 17.66% 7.41% 10.25% 1.16x 2017 Global Fund 10/2017 $ 60,000,000 $ 58,272,791 $ 40,290,000 $19,983,234 $ 1,175,448 $ 21,158,682 12.95% 9.83% 3.12% 1.07x 2018 Global Fund 10/2018 $ 65,000,000 $ 37,071,743 $ 57,720,000 $ 8,126,189 $ - $ 8,126,189 N/A* N/A N/A 1.12x

Grand Total $338,715,357 $314,876,741 $130,270,587 $91,573,733 $243,696,454 $335,270,187 11.07% 6.40% 4.67% 1.61x

Last Twelve Months

Subscriptions: $65 million Every Fund has Commitments: $58 million outperformed the public equity Draws from NDSIB: $41 million markets Market Value: Up $41 million

Distributions to NDSIB: $8 million

Total Value / Amount Drawn: Down from 1.71x to 1.61x as new investments generally get added at 1.0x

* Internal rates of return are not calculated for funds less than one year old. Performance early in a fund’s life is not generally meaningful due to fee drag and immature investments. ^ Direct Alpha Methodology. 11 North Dakota State Investment Board Intraperiod returns as compared to benchmark data Total portfolio as of March 31, 2019

Internal Rate of Return (Net of Fees)

16% 15.84%

14% 14.79% 13.72% 13.20% 12% 12.37% 12.31%

11.07% 10% 10.61%

8.97% 8% 8.14%

6% 6.40% 6.14% 5.58%

4% 4.62%

0% 1-Yr IRR 3-Yr IRR 5-Yr IRR 10-Yr IRR 15-Yr IRR 20-Yr IRR Since Inception (03/1989) IRR

North Dakota State Investment Board MSCI ACWI PME*

* For some periods, it was not possible to calculate a traditional PME because the pace of distributions would have created a short position in the public index. In these cases, the PME is calculated using the “Direct Alpha” PME methodology (Gredil, Griffiths, Stucke, “Benchmarking Private Equity: The Direct Alpha Method,“ 2014). 12 Pacing Model Including ASP, Monitored, and Blackrock Estimated commitments to reach and maintain desired private equity exposure

Capital Calls Distributions NAV Target NAV (assumes 5% growth)

$800

$700

$600

$500

$400

$300

$200

$100

$(100)

$(200) 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

ASP Commitments $ 75.0 $ 75.0 $ 80.0 $ 85.0 $ 90.0 $ 100.0 $ 110.0 $ 120.0 $ 130.0 $ 140.0 $ 150.0 $ 160.0 $ 180.0 $ 200.0 $ 220.0

Capital Calls $ (53.9) $ (87.8) $ (92.1) $ (94.9) $ (102.6) $ (98.1) $ (100.4) $ (103.5) $ (102.9) $ (109.8) $ (119.1) $ (128.6) $ (138.8) $ (150.7) $ (164.4)

Distributions $ 26.9 $ 78.3 $ 84.6 $ 91.3 $ 109.5 $ 128.4 $ 147.6 $ 160.9 $ 174.0 $ 183.8 $ 191.7 $ 199.8 $ 207.8 $ 208.0 $ 217.3

Net Cash Flow $ (27.0) $ (9.5) $ (7.5) $ (3.5) $ 6.9 $ 30.2 $ 47.2 $ 57.5 $ 71.1 $ 74.0 $ 72.6 $ 71.2 $ 69.1 $ 57.3 $ 52.8

NAV $ 258.3 $ 301.0 $ 348.4 $ 402.3 $ 457.6 $ 499.0 $ 529.3 $ 552.4 $ 563.6 $ 573.6 $ 587.7 $ 607.3 $ 634.1 $ 677.8 $ 733.4

Portfolio is projected to be cash flow positive and achieve target NAV by 2023

*Adams Street Partners maintains cash flow projection models for various strategy and subclass investment combinations. Each model reflects a combination of expected cash flows going forward and the historical cash flow patterns observed by Adams Street Partners. This slide combines these models based on North Dakota’s existing and expected commitments to Adams Street’s private equity program, North Dakota’s monitored private equity program, and an estimate for the historical and expected commitments to North Dakota’s Blackrock private equity program (specifically $245m from 2017-2020). The commitment row only includes commitments to Adams Street’s Global Fund and illustrates the resulting general long-term cash flow projection. The models do not capture the impact of short term events specific to underlying investments. There can be no guarantee that the projected cash flows and NAVs shown above will be achieved. 13 2019 Global Private Equity Program* Comprehensive private equity solution

Highlights Developed Markets 20-30% ■ Access to best-in-class private equity opportunities ‒ Focus on growth and smaller companies

■ Primary partnerships Developing ‒ Mix of established and spin-out funds diversified North Markets by stage and fund size America 10-15% 60-70% ■ Co-invest and secondary exposure to capitalize on market inefficiencies and mitigate the j-curve

■ Began in January and is ~30% committed

Strategy Subclass Buyout Fund Size** Commitment Pace Growth Equity Up to 10%

Venture Small 50% 2019 Co-Investment Capital 20-30% 5-10% 25-35% Secondary Mid 18-25% Primary Buyout 45-55% 60-67% 55-70% Other Large 35% 2020 5-20% 20-30% 40-50 GPs 15% 2021

* Actual allocations will differ once the Program is fully invested ** Defined as small <$500M, mid $500M-$2B, and large >$2B 14 Building Value While Maximizing IRR Constructing the 2019 Global Private Equity Program

Strategy*

Growth Equity 33-40% Up to 10% 60-67% Tactical Strategies Primary Strategies

■ Shorter duration ■ Longer duration ■ Earlier cash flows Primary ■ Builds value over time ■ Exploit market inefficiencies Secondary 60-67% ■ Focus on minimizing j-curve 18-25%

Target Net Return: MSCI ACWI1 + 400 bps**

* Actual allocations will differ once the Program is fully invested. ** The targeted annual net return (after Adams Street Partners’ fees, expenses and carried interest) is only a target. There can be no guarantee that the 2019 Global Private Equity Program will achieve returns in the targeted range. 1. MSCI ACWI (All Country World Index) captures large and mid cap representation across Developed and Emerging Markets countries. 15 Private Markets Update and Strategy

16 Private Markets Assets Under Management (AUM)

Private Markets ~$5.8 Trillion AUM

14% All Global Asset Classes Venture 13% Capital Private Debt

Growth 10% <10% Private Markets 31% Buyout 4% Natural Resources 4%

Real Estate 16% 8%

Source: Preqin, McKinsey Global Private Markets Review 2019 17 Why Private Markets? Seeking excess returns in exchange for illiquidity

Optimal Superior Excess governance, company investment management growth and returns incentives, and profits capital structure

18 Complications

■ No low-cost “beta” index ■ Returns are cyclical ■ Significant performance dispersion and persistence ■ Constrained access to best managers ■ Blind pool risk = unintended bets ■ J-curve, illiquidity and cash management ■ Late cycle indicators – fundraising, dry powder, valuations, leverage, “EBITDA”, “LTV/CAC”, pre-IPO $, co-investment

Portfolio Construction and Risk Management are key to building high-performing portfolios

19 US Public Markets – NTM EBITDA Multiples

16.0x

14.0x

12.0x

10.0x

8.0x

6.0x

4.0x

Jun-11 Jun-12 Jun-13 Jun-14 Jun-09 Jun-10 Jun-15 Jun-16 Jun-17 Jun-18

Mar-13 Mar-14 Mar-15 Mar-16 Mar-09 Mar-10 Mar-11 Mar-12 Mar-17 Mar-18 Mar-19

Dec-09 Dec-15 Dec-16 Dec-17 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-18

Sep-09 Sep-10 Sep-11 Sep-17 Sep-18 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16

S&P 500 DJIA Russell 2000 NASDAQ

As of March 31, 2019 Source/Notes: Capital IQ. Figures exclude EBITDA multiples above 25x and below 3x. 20 Venture Valuation Elevating

Angel/Seed Series A Series B Series C Series D+

7.0x

6.0x

5.0x

4.0x

3.0x Gross Multiple Gross

2.0x

1.0x

0.0x 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: PitchBook-NVCA Venture Monitor As of June 30, 2019 21 Liquidity as % of Beginning NAV – 3 Year Average

Adams Street are net sellers as a result of full equity valuations driven by low rates

2018 Liquidity as % of 45% Jan. 1, 2018 NAV

40%

35% 31%

30%

3 Year Year 3 Average – 25% 22% 23% 23% 20%

15%

10%

5% Liquidity Liquidity asof % Beginning NAV 0% Primary 1 Secondary 2 Growth Equity 3 Co-Investment 4

1. NAV for primary investments is NAV of all Adams Street Partners primary private equity fund investments in Core Portfolios (excluding interests purchased pursuant to a right of first refusal) as of January 1, 2018. Liquidity refers to cash and stock distributions (as valued by the applicable general partner at the time of distribution) made by the primary private equity fund investments during 2018. 2. NAV for secondary investments is NAV of all secondary private equity fund investments (including interests purchased pursuant to a right of first refusal) made by all portfolios advised by Adams Street Partners as of January 1, 2018. Liquidity refers to cash and stock distributions (as valued by the applicable general partner at the time of distribution) made by the secondary private equity fund investments to portfolios advised by Adams Street Partners during 2018. 3. NAV for Growth Equity investments is the fair value of all portfolio company investments in all direct funds (excluding the Co-Investment Funds as defined herein) advised by Adams Street Partners (the “Direct Funds”) as of January 1, 2018. Liquidity refers to distributions from such portfolio companies to the Direct Funds. 4. NAV for co-investments is the fair value of all portfolio company investments in Adams Street Direct Co-Investment Fund, Adams Street Co-Investment Fund II, and Adams Street Co-Investment Fund III (collectively, the “Co- Investment Funds”) as of January 1, 2018. Liquidity refers to distributions from such portfolio companies to the Co-Investment Funds. Percentages reflect the deduction of underlying general partner/lead general partner fees, expenses, and carried interest (where applicable), but do not reflect the deduction of Adams Street Partners fees, expenses and carried interest, which reduce returns to investors. Past performance is not a guarantee of future results. 22 Buyout Sources of Value

Beginning Equity Revenue EBITDA Mx Leverage Exit Equity Value Value Growth Margin % Expansion

23 Buyout Multiples Remain Elevated, Fueled by Debt

US Private Equity Buyout Multiples (EV/EBITDA)1

14.0x 70.0%

12.0x 60.0%

10.0x 5.7x 50.0% 5.2x 5.7x 5.7x 8.0x 3.8x 4.6x 4.1x 5.4x 40.0% 4.3x 4.6x 3.5x 4.3x 6.0x 30.0% 4.0x 4.0x 20.0% 6.9x 7.2x 6.1x 6.2x 6.0x 5.7x 5.4x 5.4x 5.7x 2.0x 4.6x 4.6x 4.3x 10.0% 3.0x

0.0x 0.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Debt/EBITDA Equity/EBITDA Debt Percent

1. Source: Pitchbook US PE Breakdown March 31, 2019 24 Lower Leverage Levels Debt / EBITDA leverage multiples over time

Market Average Debt / EBITDA Multiples (Companies <$50 million EBITDA) 6.0x Small Buyout Fund Debt / EBITDA Multiples (ASP Data) 1 5.6x 5.5x 5.3x 5.3x 5.1x 5.0x Market 4.6x Average: 4.5x 4.5x 4.3x 4.3x 4.8x

3.9x 3.9x 4.0x 4.0x 3.8x Adams 3.7x 3.7x 3.7x Street 3.5x Portfolio 3.3x 3.2x Average: 3.0x 3.5x 3.0x

2.4x DebtEBITDA /

2.0x

1.0x

0.0x 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: S&P Capital IQ Transaction Statistics as of May 2019. 1. Represents underlying portfolio company data from historical track records of general partners in whose US LBO funds under $1.5 billion in fund size Adams Street Core Portfolios invested from 1999 to 2018. “Core Portfolios” are funds and separate accounts (excluding special mandate funds and non-discretionary separate accounts) of which Adams Street Partners is the general partner, manager or investment adviser (as applicable) and for which Adams Street Partners makes discretionary investments in private equity funds. Core Portfolios include separate accounts no longer with Adams Street Partners. Represents the average leverage ratios (debt / EBITDA) for Adams Street Core Portfolio companies over the past 10 years as available. 25 Late Cycle Indicator #1 A rising tide lifts all levered IRRs

IRRs with Rising Valuation Multiples and GDP Revenue Growth

Unlevered Return Levered Return

30.0% 28.4%

25.0% 23.1%

20.0% 19.5%

15.3% 15.0% 14.6%

Deal Gross IRR Deal Gross 13.1% 13.1% 10.0% 9.9% 10.3%

7.8% 5.7% 5.0% 5.5%

0.0% (A) Flat revenue / (B) 2.5% revenue (B) + (C) 15% (B+C) + (D) 20% (B+C+D) + (E) (B+C+D+E) + (F) EBITDA growth with EBITDA margin exit multiple dividend recaps 1yr fund LOC constant EBITDA expansion expansion margin

For illustrative purposes only. Hypothetical $300M revenue company with 45% gross profit margins and 19% EBITDA margins bought for 10x EBITDA. Also assumes: Debt interest rate of 7%. Taxes of 25%. Capex 18% of EBITDA. Five year assumed hold to exit. Recap assumes annual re-levering. Fund line of credit interest rate of 5%. Does not reflect performance of any Adams Street Partners investment. 26 Late Cycle Indicator #1 (cont.) Swimming naked (levered) in a receding tide

IRRs with Falling Valuation Multiples and Revenue Contraction

Unlevered Return Levered Return

20.0%

15.0%

10.0% 5.7% 4.0% 5.0% 5.5% 1.3% 1.6% 0.0% -1.7%

Deal Gross IRR Deal Gross -1.7% -1.7% -5.0% -5.7%

-10.0%

-15.0% -17.4% -17.4% -17.4%

-20.0% (A) Flat revenue / (B) -2% revenue (B) + (C) 15% (B+C) + (D) 20% (B+C+D) + (E) (B+C+D+E) + (F) EBITDA growth with EBITDA margin exit multiple dividend recaps 1yr fund LOC constant EBITDA decline contraction margin

For illustrative purposes only. Hypothetical $300M revenue company with 45% gross profit margins and 19% EBITDA margins bought for 10x EBITDA. Also assumes: Debt interest rate of 7%. Taxes of 25%. Capex 18% of EBITDA. Five year assumed hold to exit. Recap assumes annual re-levering. Fund line of credit interest rate of 5%. Does not reflect performance of any Adams Street Partners investment. 27 Late Cycle Indicator #2 All EBITDA is not created equal

Adjusted EBITDA Provided by non-ASP buyout sponsor $ 51.7M

ASP adjustment #1 New customers in high probability sales pipe ($ 6.4M)

ASP adjustment #2 Expected to be realized cost synergies ($ 7.4M)

ASP adjustment #3 One-time, non-recurring expenses ($ 5.4M)

ASP adjustment #4 Other adjustments ($ 3.7M)

ASP’s view of EBITDA $ 28.5M

Actual disguised company reviewed by ASP private credit team. 28 Late Cycle Indicator #3 Private Credit sponsors as compared to ASP Portfolio

The Adams Street Private Credit Portfolio1 has, on average, lower leverage, higher equity contribution and higher yields than both the middle market and the large corporate LBO debt markets2

% of Issuances with LBO Leverage Levels2 LBO Equity Cushion2 3,4 Maintenance Covenants2 Weighted Average Yield

96.3% 6.1x 9.4%

50.0% 50.0% 5.7x 8.6%

7.9%

42.0% 54.0%

4.2x

15.0%

Large Middle-Market ASP Private Large Corporate Middle-Market ASP Private Large Middle-Market ASP Private Large Middle-Market ASP Private Corporate LBOs Credit Portfolio1 LBOs LBOs Credit Portfolio1 Corporate LBOs Credit Portfolio 1 Corporate LBOs Credit Portfolio 1 LBOs LBOs LBOs

1. Deal statistics for Private Credit Fund and separately managed accounts. Does not include commitments made to Private Credit portfolio companies by other Adams Street Funds or repayments. Current leverage through investment is calculated based on latest reported financials. Equity Cushion calculated based on cash equity remaining in the business over total cash capitalization (debt + equity). Does not include refinancing transactions 2. Source: S&P Global, LCD June 2019. 3. Source: S&P Global, LCD June 2019. Large Corporate and Middle-Market Weighted Average Yield calculated by Adams Street Partners based on mix of First and Second Lien debt in ASP portfolio 4. The ASP Private Credit Portfolio weighted average yield is modeled based on certain assumptions described in note 3 on “Notes to Portfolio Highlights” included in this presentation. There can be no guarantee that these 29 assumptions will be met or that the modeled yield will be achieved Looking Ahead – Investment Strategy and Outlook

Investment Strategy Investment Outlook

■ Net sellers ■ Venture: overweight, early/mid- stage tech and healthcare ■ Thematic, defensive buyers in current climate ■ Growth: overweight, huge markets, ‒ Sectors going through category leader potential dislocation/change ■ Buyout: overweight SMB with ‒ Technology modest leverage; underweight ‒ Healthcare mega/large ‒ Consumer ■ Credit: overweight SMB with real ‒ Industrial Re-revolution free cash flow and modest leverage; ■ Backing people who have a repeatable focused on senior secured edge in finding and creating value

30 Appendix

31 Adams Street Partners Net Performance As of March 31, 2019 Performance in USD Gross IRR Net IRR PME* Net Multiple Brinson Partnership 1996 Subscription 16.91% 14.20% 6.8% ^ 1.69x Brinson Partnership 1997 Subscription 15.06% 12.12% 3.4% ^ 1.62x Brinson Partnership 1998 Subscription 6.85% 5.01% 3.2% ^ 1.35x Brinson Partnership 1999 Subscription 7.61% 5.77% 4.3% ^ 1.41x Brinson Partnership 2000 Subscription 9.34% 7.29% 5.4% ^ 1.51x Brinson Partnership 2001 Subscription 10.81% 8.60% 6.7% ^ 1.59x Adams Street Partnership Fund - 2002 U.S. Fund, LP 10.56% 8.53% 6.9% ^ 1.65x Adams Street Partnership Fund - 2002 Non-U.S. Fund, LP 14.03% 11.59% 7.9% ^ 1.73x Adams Street Partnership Fund - 2003 U.S. Fund, LP 9.80% 7.92% 6.8% 1.61x Adams Street Partnership Fund - 2003 Non-U.S. Fund, LP 12.09% 9.63% 5.4% ^ 1.60x Adams Street Partnership Fund - 2004 U.S. Fund, LP 8.82% 7.09% 7.3% 1.54x Adams Street Partnership Fund - 2004 Non-U.S. Fund, LP 8.05% 6.10% 3.7% ^ 1.42x Adams Street Partnership Fund - 2005 U.S. Fund, LP 8.55% 6.99% 8.5% 1.55x Adams Street Partnership Fund - 2005 Non-U.S. Fund, LP 6.66% 5.11% 3.0% 1.39x Adams Street Partnership Fund - 2006 U.S. Fund, LP 9.14% 7.51% 9.3% 1.55x Adams Street Partnership Fund - 2006 Non-U.S. Fund, LP 7.57% 6.05% 3.8% 1.45x Adams Street 2006 Direct Fund, L.P. 12.03% 8.72% 7.9% 2.11x Adams Street Partnership Fund - 2007 U.S. Fund, LP 14.05% 12.10% 11.2% 1.85x Adams Street Partnership Fund - 2007 Non-U.S. Fund, LP 9.84% 8.11% 4.9% 1.57x Adams Street 2007 Direct Fund, L.P. 16.27% 12.12% 9.2% 2.35x Adams Street Partnership Fund - 2008 U.S. Fund, L.P. 18.20% 15.73% 13.2% 1.99x Adams Street Partnership Fund - 2008 Non-U.S. Fund, L.P. 13.29% 11.05% 5.6% 1.67x Adams Street 2008 Direct Fund, L.P. 20.87% 15.66% 12.7% 2.46x Adams Street Partnership Fund - 2009 U.S. Fund, L.P. 16.50% 13.94% 13.4% 1.78x Adams Street Partnership Fund - 2009 Non-U.S. Developed Markets, L.P. 14.88% 12.03% 6.1% 1.58x Adams Street Partnership Fund - 2009 Non-U.S. Emerging Markets Fund, L.P. 11.50% 9.68% 4.3% 1.60x Adams Street 2009 Direct Fund, L.P. 20.56% 14.44% 14.3% 1.96x Adams Street Partnership Fund - 2010 U.S. Fund, L.P. 17.37% 14.82% 13.0% 1.77x Adams Street Partnership Fund - 2010 Non-U.S. Developed Markets Fund, L.P. 14.79% 12.05% 6.1% 1.55x Adams Street Partnership Fund - 2010 Non-U.S. Emerging Markets Fund, L.P. 13.56% 11.84% 4.7% 1.64x Adams Street 2010 Direct Fund, L.P. 18.66% 12.79% 13.3% 1.76x Adams Street 2011 US Fund LP 16.50% 14.26% 12.9% 1.67x Adams Street 2011 Non-US Developed Markets Fund LP 15.55% 12.96% 6.2% 1.58x Adams Street 2011 Emerging Markets Fund LP 15.46% 13.69% 4.5% 1.72x Adams Street 2011 Direct Fund LP 22.80% 16.06% 12.7% 1.91x Adams Street 2012 Global Fund LP 14.09% 11.29% 8.3% 1.46x Adams Street 2012 US Fund LP 13.51% 11.29% 11.6% 1.45x Adams Street 2012 Developed Markets Fund LP 15.28% 12.64% 4.8% 1.45x Adams Street 2012 Emerging Markets Fund LP 17.95% 15.98% 6.1% 1.65x Adams Street 2012 Direct Fund LP 13.96% 7.71% 12.0% 1.32x Adams Street 2013 Global Fund LP 14.62% 12.19% 8.2% 1.42x Adams Street 2013 US Fund LP 12.98% 10.94% 11.3% 1.36x Adams Street 2013 Developed Markets Fund LP 15.85% 13.46% 4.4% 1.43x Adams Street 2013 Emerging Markets Fund LP 23.71% 21.84% 6.6% 1.76x Adams Street 2013 Direct Fund LP 9.98% 4.92% 11.7% 1.19x Adams Street 2014 Developed Markets Fund LP 15.91% 12.93% 4.3% 1.31x Adams Street 2014 Direct Fund LP 16.70% 10.12% 11.3% 1.33x Adams Street 2014 Emerging Markets Fund LP 26.20% 24.01% 6.4% 1.65x Adams Street 2014 Global Fund LP 16.44% 13.57% 8.1% 1.38x Adams Street 2014 US Fund LP 14.45% 12.22% 11.2% 1.34x Adams Street 2015 US Fund LP 33.75% 27.96% 12.2% 1.34x Adams Street 2015 Non-US Fund LP 40.11% 34.18% 2.3% 1.41x Adams Street 2015 Direct Venture/Grow th Fund LP 21.95% 11.26% 11.9% 1.20x Adams Street 2015 Global Fund LP 33.82% 26.81% 8.4% 1.34x Adams Street 2016 US Fund LP 26.30% 18.96% 12.3% 1.16x Adams Street 2016 Non-US Fund LP 22.99% 17.69% 1.9% 1.17x Adams Street 2016 Direct Venture/Grow th Fund LP 34.13% 17.06% 9.7% 1.21x Adams Street 2016 Global Fund LP 26.15% 18.09% 7.4% 1.17x The page entitled “Notes to Performance: Adams Street Partners Net Performance.” included on the following page of this presentation, is an important component of this performance data. Past performance is not a guarantee of future results. 32 Notes to Performance: Adams Street Partners Net Performance As of March 31, 2019

Note: Brinson Partnership Subscription gross and net IRR presents representative subscription performance of a subscriber that followed Adams Street Partners’ recommended allocation and pays the highest fees. For Adams Street Funds, actual commingled fund performance gross and net IRR are presented. Gross IRRs are net of management fees, carried interest and expenses charged to the underlying private equity funds, in the case of primary and secondary fund, but gross of Adams Street Partners’ management fees and carried interest, which reduce returns to investors. Net IRRs are net of Adams Street Partners’ management fees, carried interest and expenses as well as net of management fees, carried interest and expenses charged to the underlying private equity funds. Any fund-level net IRRs and net multiples presented herein for the 2015 Global Program Funds and all subsequently formed commingled Funds reflect the use of the Fund’s capital call credit line (or, in the case of an Adams Street Global Fund, capital call credit lines of the underlying Funds) and are calculated using limited partner capital call dates, rather than the earlier dates on which the investment was made using the line of credit. The use of such dates generally results in higher net IRR and net multiple calculations, and the related differences in net IRR and net multiple figures could be material. The group of investments shown on these slides invests in primary investments, secondary investments, growth equity investments, co-investments, and private credit investments. Capital-weighted annualized returns from inception through quarter end. There can be no guarantee that unrealized investments will ultimately be liquidated at the values reflected in this return data. Each Brinson Partnership Subscription includes fund allocations made within a series of pooled investment vehicles. Performance for vintage years later than 2016 is not shown because performance early in a fund’s life is not generally meaningful due to fee drag and immature investments. Past performance is not a guarantee of future results.

*Public Market Equivalent (PME) is calculated using the S&P 500 Index for Brinson Partnership Subscription, US Funds and Direct Funds; MSCI EAFE (Europe, Australasia, Far East) for Non-US and Non-US Developed Funds; MSCI Emerging for Emerging Markets Funds; and MSCI All Country World for Global Funds. The PME calculation is based on the Net IRR cash flows which reflects the payments of fees, carried interest and expenses.

^ During some periods in which Adams Street Partners investments outperformed the benchmark by a substantial margin, PME could not be calculated because the tracking position in the underlying benchmark index would have resulted in a short position. In these cases, the PME is calculated using the “Direct Alpha” PME methodology (Gredil, Griffiths, Stucke, “Benchmarking Private Equity: The Direct Alpha Method,” 2014). Mathematically, Direct Alpha PME is equal to the IRR of the future value of the cash flows underlying the IRR calculation, where future value is based on the return of the benchmark index, less the IRR of the actual value of the cash flows.

33 Jeffrey Diehl Managing Partner & Head of Investments, Chicago

■ Jeff is the Managing Partner and Head of Investments at Adams Street. He is responsible for the overall management of the firm and oversees the investment teams’ processes and strategies. As a member of our Growth Equity Investment Team, Jeff invests in venture and growth-oriented companies in the software, IT-enabled business services, and consumer internet/media sectors.

■ Jeff serves on the Boards of Directors of Apto, BoomTown, cbanc Network, EDUCATION: Paylocity (NASDAQ: PCTY), Peerless Network, Q2ebanking (NYSE: QTWO), Cornell University, with TrendKite, and TurnKey. He is a Board Observer at Dolex, SnagAJob, and distinction, BS Spiceworks. His past investments include AMWINS (bought by New Mountain), Ancestry.com (NASDAQ: ACOM), CBeyond (NASDAQ: CBEY), Borderfree Harvard University, MBA (NASDAQ: BRDR), Gevity HR (NASDAQ: GVHR), LogRhythm (bought by Thoma Bravo), MagicJack (NASDAQ: CALL), MxLogic (bought by McAfee), YEARS OF INVESTMENT/ Stratavia (bought by Hewlett-Packard), Sympoz, and TicketsNow (bought by OPERATIONAL EXPERIENCE: Ticketmaster). 25 ■ Before joining Adams Street, Jeff served as a Principal for The Parthenon Group, a Boston-based strategy consulting and principal investing firm with Bain Consulting roots.

■ Jeff is the Chair of both Adams Street’s Portfolio Construction Committee and Executive Committee, and a member of the Growth Equity Investment Committee and the New Product Committee.

34 Miguel Gonzalo, CFA® Partner & Head of Investment Strategy and Risk Management, Chicago

■ Miguel sets investment strategy and oversees the firm’s risk management function while collaborating with investors to formulate strategies that leverage Adams Street’s global investment capabilities.

■ Miguel works closely with investors in the management of their portfolios, including the development and ongoing monitoring of their private market programs. He is actively involved in the portfolio construction and monitoring of our various fund of funds programs and separate accounts. In addition, he EDUCATION: maintains relationships with investment consultants to ensure continuity of University of Notre Dame, client objectives. BA ■ Previously, Miguel was Head of the Performance Analysis Group in the Asset Northwestern University Allocation/Currency Group of Brinson Partners where he oversaw the design Kellogg School of and management of Brinson’s performance attribution and analytics systems. Management, MBA ■ Miguel is a member of the Adams Street Partners Executive Committee, Portfolio Construction Committee, New Product Committee, and Investment YEARS OF INVESTMENT/ Pricing Committee, and Co-Chair of the Diversity and Inclusion Committee. OPERATIONAL EXPERIENCE: 24 ■ Miguel is a member of the CFA Society of Chicago and the CFA Institute, as well as Board Member of the Institute for Private Capital.

35 AGENDA ITEM III.B.2.

BOARD ACTION REQUESTED

TO: State Investment Board

FROM: Dave Hunter, Darren Schulz and Eric Chin

DATE: August 24, 2019

SUBJECT: Private Equity Pacing Schedule Recommendation ______

Background:

Since 2015, the SIB and RIO have continued to build out and diversify our PE portfolio within the Pension Trust by making $245 million of new commitments to BlackRock and $185 million of new commitments to Adams Street Global Funds (in 2015, 2016, 2017, and 2018). As of March 31, 2019, SIB clients within the $5.8 billion Pension Trust currently have a 6.5% (or $374 million) target allocation to PE versus an actual allocation of $201.8 million.

In light of meaningful asset growth in the Pension Trust over the course of the last three years, RIO Staff engaged both Adams Street and BlackRock to each independently review our existing private equity pacing schedule. Investment pacing plays an important role in strategic planning, particularly in working towards strategic policy weights with follow-on program commitments to the asset class, as is the case with the Pension Trust.

Last year, based on pacing models that incorporated overall plan asset growth, existing commitments, capital calls and distributions, each firm determined that annual private equity commitments on the order of $130 million in total were required over the next five years to address the asset class underweight in a methodical, programmatic fashion. This revised pacing schedule suggested increasing program commitments to our existing strategic partners, Adam Street Partners and BlackRock Private Equity Partners, with whom Staff recommended equally weighed private equity commitments of $65 million each.

This month, Adams Street revised its 2019 pacing schedule upward to $75 million per annum as compared to annual Global Fund Series commitments of $30 million in 2015 and 2016, $60 million in 2017, and $65 million in 2018. Staff is currently working with BlackRock to assess whether adjustments need to be made to the $65 million annual commitment targets currently in place going forward.

Recommendation:

RIO recommends the approval of up to a $75 million commitment to Adams Street’s 2019 Global Fund. This amount may be subject to change following the completion of a pacing schedule with BlackRock.

BOARD ACTION

TO: State Investment Board

FROM: Dave Hunter

DATE: August 23, 2019

SUBJECT: Annual Review of Governance Manual – Cover Memo

In accordance with Section B-7 of the SIB Governance Manual, the Board Planning Cycle should include an “Annual Review of the Governance Manual”. In order to facilitate a meaningful review, RIO intends to divide our review process over four months as follows:

August 23, 2019

Section A – Executive Limitations (13 pages)

Section B – Governance Process (15 pages) (added Executive Review Committee)

September 27, 2019

Section C – Board Staff Relationship (6 pages)

Section D – Ends (10 pages)

October 25, 2019

Section E - Investments (30 pages)

Section F – TFFR Ends (postponed pending ongoing TFFR Board review)

November 22, 2019

Section G – By-Laws (9 pages)

Section H – Century Code (5 pages)

RIO encourages board members and RIO staff to review the relevant sections of our SIB Governance Manual prior to each of the above scheduled board meetings.

At the conclusion of our monthly board discussions, the SIB may make a motion to accept the recommended changes, if any, to the Governance Manual. Alternatively, the Board may motion to recommend additional and/or different changes. All SIB recommended changes will be brought forward for further discussion and formally approved at our next regularly scheduled board meeting, assuming no additional changes are recommended. http://www.nd.gov/rio/SIB/Board/GovernanceManual/default.htm

POLICY TYPE: GOVERNANCE PROCESS POLICY TITLE: STANDING COMMITTEES

The board's standing committees are is that which is set forth in this policy as follows:

1. Audit Committee 2. Securities Litigation Committee 3. Executive Review Committee

A. The audit committee, securities litigation committee and executive review committee shall operate under the terms of a charter approved by the board.

INTRODUCTION – Audit Committee

An Audit Committee has been established as a standing committee of the State Investment Board (SIB). The Audit Committee will assist the SIB in carrying out its oversight responsibilities as they relate to the Retirement and Investment Office (RIO) internal and external audit programs, including financial and other reporting practices, internal controls, and compliance with laws, regulations, and ethics.

The primary objective of the internal audit function is to assist the SIB and management in the effective discharge of their responsibilities. To this end, internal auditing will furnish them with analyses, appraisals, recommendations, and pertinent information concerning the activities reviewed.

Functions and units within RIO will be reviewed at appropriate intervals to determine whether they are effectively carrying out their responsibilities of planning, organizing, directing, and controlling in accordance with SIB and management instructions, applicable laws, policies, and procedures, and in a manner consistent with both the RIO objectives and high standards of administrative practice.

POLICY OF THE STATE INVESTMENT BOARD – Audit Committee

The audit staff shall have full, free, and unrestricted access to all RIO activities, records, property, and personnel relative to the subject under review. The audit function will be conducted in a manner consistent with acceptable professional standards and coordinated with others to best achieve the audit objectives and the RIO objectives.

The Internal Audit Services Unit is responsible for developing and directing a broad, comprehensive program of internal auditing within RIO. The Internal Audit Services Unit will report administratively to management and functionally to the Audit Committee of the SIB.

The RIO unit supervisors are responsible for seeing that corrective action on reported weaknesses is either planned or taken within 30 days from the receipt of a report disclosing those weaknesses if known or applicable. The unit supervisors are also responsible for seeing that a written report of action planned or completed is sent to the executive director. If a plan for action is reported, a second report shall be made promptly upon completion of the plan.

INTRODUCTION – Securities Litigation Committee

A Securities Litigation Committee (SLC) has been established as a standing committee of the State Investment Board (SIB). The SLC will assist the SIB in fulfilling its fiduciary oversight responsibilities of monitoring the investment assets entrusted to it by the various statutory and contracted funds, and to serve as a communications link for the SIB, RIO’s management and staff, third party securities litigation firms, and others.

The SLC will determine when an active role should be pursued in regards to securities litigation affecting investments within the SIB’s portfolios based on the SIB approved Securities Litigation Policy and approved SIB Securities Litigation Committee Charter.

POLICY OF THE STATE INVESTMENT BOARD – Securities Litigation Committee

The SLC is authorized to:

• Draft policy (to be formally approved by SIB) regarding dollar and/or risk thresholds for determining when to opt-out of class actions and/or seek direct litigation or lead plaintiff status; • Based on SIB approved policy make decisions on the level of participation the SIB will take in direct litigation, opt-in or group litigation, anti-trust and other class actions; and • Approve the selection of special assistant attorneys (in conjunction with the approval of the Office of the Attorney General) in cases of direct litigation.

RIO’s management is responsible for ongoing monitoring of securities litigation and claims filing. RIO management and staff will enable the SLC to provide a periodic update to the SIB on the SLC’s activities and related recommendations.

The SLC has the responsibility to provide oversight in the areas of:

• policy development; • determination on direct litigation and/or lead plaintiff status; and • approval of special assistant attorneys (outside counsel) with concurrence of the Attorney General.

INTRODUCTION – Executive Review Committee

An Executive Review Committee (ERC) has been established as a standing committee of the SIB. The ERC will assist the SIB in fulfilling its fiduciary oversight responsibilities of “monitoring executive performance (which) is synonymous with monitoring organizational performance against board policies on Ends and Executive Limitations”. Internal audit will be responsible for preparing an annual summary of the required reports submitted to the SIB by the Executive Director in connection with its review of policy adherence to Ends and Executive Limitations. Internal audit will also assist the ERC in completing annual surveys of the Executive Director with the SIB, SIB clients, and RIO team members.

The ERC will conduct a formal evaluation of the Executive Director during the first half of every calendar year. This formal evaluation by the ERC will serve as the basis for an annual compensation recommendation to be reviewed and approved by the SIB on or before June 30th each year. Internal audit will also assist the SIB and ERC in administering the annual board self-assessment process.

POLICY OF THE STATE INVESTMENT BOARD – Executive Review Committee

The ERC is authorized to:

• Conduct a formal evaluation of the Executive Director annually; • Obtain SIB approval of the annual performance evaluation of the Executive Director; • Make a compensation recommendation to the SIB on or before June 30th of each year; and • Administer a formal self-assessment of the SIB periodically (unless instructed otherwise).

The ERC and/or RIO will seek SIB approval prior to formally engaging any third party assistance in conducting the annual executive review process or board self-assessment.

A. EXECUTIVE LIMITATIONS

PAGE

General Executive Constraint ...... A-1

Staff Relations ...... A-2

Relating to Public and Government...... A-3

Budgeting ...... A-4

Financial Condition...... A-5

Communication and Counsel to the Board ...... A-6

Asset Protection ...... A-7

Compensation and Benefits ...... A-8

Conflict of Interest ...... A-9

Code of Conduct ...... A-10

Unrelated Business Interests ...... A-11

EXHIBITS

Annual Affirmation of Conflict of Interest Policy...... A-I POLICY TYPE: EXECUTIVE LIMITATIONS

POLICY TITLE: GENERAL EXECUTIVE CONSTRAINT

The executive director shall not knowingly cause or allow any practice, activity, decision, or organizational circumstance which is either imprudent or in violation of commonly accepted business and professional ethics, state law, rules, and policies.

1. With respect to treatment of staff, the executive director shall not knowingly cause or allow any condition or any communication which is unfair, undignified, or disrespectful.

2. In relating to the public and other governmental entities, the executive director may not knowingly cause or allow any action which is unfair, undignified, or disrespectful. In addition, the executive director may not allow any communications from the staff which are inaccurate or fail to distinguish between fact and personal opinion.

3. Budgeting for any fiscal year or the remaining part of any fiscal year shall not knowingly deviate materially from board Ends priorities, or create fiscal jeopardy, or fail to be derived from the biennial planning calendar.

4. With respect to the actual, ongoing condition of the organization's financial health, the executive director may not cause or allow the development of fiscal jeopardy or a material deviation of actual expenditures from board priorities established in Ends policies.

5. With respect to providing information and counsel to the board, the executive director may not permit the board to be uninformed.

6. The executive director may not allow assets to be unprotected, inadequately maintained, nor unnecessarily risked.

7. Compensation and benefits for staff shall not deviate from applicable state and federal law, including N.D. Administrative Code, Chapter 4-07-02.

8. In order to protect the board from sudden loss of executive services, the executive director may not have fewer than three other executives familiar with board and chief executive issues and processes. The executive director shall not fail to inform the Deputy Executive Director, the Deputy Chief Investment Officer, and the Chief Financial Officer of executive and board issues and processes.

9. The executive director will not allow a conflict of interest in the procurement of goods and services.

10. The executive director will not operate the office without a code of conduct for all RIO Employees. This code of conduct will be a part of the office Administrative Policy Manual.

Policy Implemented: July 23, 1995. Amended: January 22, 1999; November 19, 1999; September 26, 2014.

A-1 POLICY TYPE: EXECUTIVE LIMITATIONS

POLICY TITLE: STAFF RELATIONS

With respect to treatment of staff, the executive director shall not cause or allow any condition or any communication which is unfair, undignified, or disrespectful.

Accordingly, the executive director may not:

1. Operate without personnel procedures which clarify personnel rules for staff, provide for effective handling of grievances, and protect against wrongful conditions or violate any state or federal law.

2. Fail to provide staff with the opportunity to complete an employment termination questionnaire and an exit interview with the Supervisor of Audit Services.

Policy Implemented: June 23, 1995. Amended: May 31, 1996; September 26, 2014.

A-2 POLICY TYPE: EXECUTIVE LIMITATIONS

POLICY TITLE: RELATING TO PUBLIC AND GOVERNMENT

In relating to the public and other governmental entities, the executive director may not cause or allow any action which is unfair, undignified, or disrespectful. In addition, the executive director may not allow any communications from the staff which is inaccurate or fails to distinguish between fact and personal opinion.

Policy Implemented: June 23, 1995.

A-3 POLICY TYPE: EXECUTIVE LIMITATIONS

POLICY TITLE: BUDGETING

Budgeting for any fiscal year or the remaining part of any fiscal year shall not deviate materially from board Ends priorities, or create fiscal jeopardy.

Accordingly, the executive director may not cause or allow budgeting which:

1. Contains too little information to enable credible projection of expenses, cash flow, and disclosure of planning assumptions.

2. Plans the expenditure in any fiscal year of more funds than are authorized by legislative appropriation.

3. Reduces the level of service, or anticipates a reduction in the level of service, of any Retirement and Investment Office program without the prior approval of the State Investment Board.

Policy Implemented: June 23, 1995. Amended: November 2, 1997; June 26, 1998.

A-4 POLICY TYPE: EXECUTIVE LIMITATIONS

POLICY TITLE: FINANCIAL CONDITION

With respect to the actual, ongoing condition of the organization's financial health, the executive director may not cause or allow the development of fiscal jeopardy or a material deviation of actual expenditures from board priorities established in Ends policies.

Accordingly, the executive director may not:

1. Make any expenditure that exceeds the appropriation authority authorized by the North Dakota legislature.

2. Create policies for payment of administrative obligations that are in conflict with the policies of the Office of Management and Budget.

3. Initiate a transfer of appropriation authority between budget line items without board and Emergency Commission approval.

4. Allow appropriation expenditures to be made unless reported on PeopleSoft.

Policy Implemented: June 23, 1995. Amended: September 26, 2014.

A-5 POLICY TYPE: EXECUTIVE LIMITATIONS

POLICY TITLE: COMMUNICATION AND COUNSEL TO THE BOARD

With respect to providing information and counsel to the board, the executive director may not permit the board to be uninformed.

Accordingly, the executive director may not:

1. Neglect to submit monitoring data required by the board (see policy on Monitoring Executive Performance) in a timely, accurate, and understandable fashion, directly addressing provisions of the board policies being monitored.

2. Let the board be unaware of relevant trends, anticipated adverse media coverage, material external and internal changes, and particularly changes in the assumptions upon which any board policy has previously been established.

3. Fail to advise the board if, in the executive director's opinion, the board is not in compliance with its own policies on Governance Process and Board-Staff Relationship, particularly in the case of board behavior which is detrimental to the work relationship between the board and the executive director.

4. Fail to marshal for the board as many staff and external points of view, issues, and options as needed for fully informed board choices.

5. Present information in unnecessarily complex or lengthy form.

6. Fail to provide a mechanism for official board, officer, or committee communications.

7. Fail to deal with the board as a whole except when (a) fulfilling individual requests for information or (b) responding to officers or committees duly charged by the board.

8. Fail to report in a timely manner an actual or anticipated noncompliance with any policy of the board, particularly Ends and Executive Limitations.

9. Fail to inform the board in a timely manner of any intention to hire or dismiss the Deputy Executive Director, the Deputy Chief Investment Officer, or the Chief Financial Officer.

10. Fail to keep the board informed concerning the delegation of fiduciary authority to any staff member. Every person to whom such fiduciary responsibility is delegated is ultimately accountable to the board as to the exercise and execution of the delegated authority.

Policy Implemented: June 23, 1995; November 19, 1999. Amended: September 26, 2014.

A-6 POLICY TYPE: EXECUTIVE LIMITATIONS

POLICY TITLE: ASSET PROTECTION

The executive director may not allow assets to be unprotected, inadequately maintained, nor unnecessarily risked.

Accordingly, the executive director may not:

1. Fail to insure against theft and casualty losses to at least 80 percent replacement value and against liability losses to board members, staff, or the organization itself in an amount greater than the average for comparable organizations.

2. Allow non-bonded personnel access to funds.

3. Subject plant and equipment to improper wear and tear or insufficient maintenance.

4. Unnecessarily expose the organization, its board, or staff to claims of liability.

5. Fail to protect intellectual property, information, and files from loss or significant damage.

6. Receive, process, or disburse funds under controls which are insufficient to meet the state auditor's standards.

7. Invest or hold operating capital in a manner that is inconsistent with state law or board policy.

8. Acquire, encumber, or dispose of real property.

9. Endanger the organization's public image or credibility, particularly in ways that would hinder its accomplishment of mission.

10. Deviate from the investment process set by the State Investment Board (SIB) as contained in the board's policy on investments.

Policy Implemented: June 23, 1995.

A-7 POLICY TYPE: EXECUTIVE LIMITATIONS

POLICY TITLE: COMPENSATION AND BENEFITS

Compensation and benefits for staff shall not deviate from applicable state and federal law, including N.D. Administrative Code, Chapter 4-07-02.

Accordingly, the executive director may not:

1. Change the compensation and benefits of any program officer reporting directly to the SIB.

2. Promise or imply permanent or guaranteed employment.

Policy Implemented: June 23, 1995. Amended: January 22, 1999; November 19, 1999.

A-8 POLICY TYPE: EXECUTIVE LIMITATIONS

POLICY TITLE: CONFLICT OF INTEREST

Conflicts of interest and the appearance of impropriety shall be avoided by the executive director. The executive director must not allow family, social, professional, or other relationships to influence their judgment in discharging their responsibilities. The executive director must refrain from financial and business dealings that tend to reflect adversely on their duties. If a conflict of interest unavoidably arises, the executive director shall immediately disclose the conflict to the SIB. Conflicts of interest to be avoided include, but are not limited to: receiving consideration for advice given to a person concerning any matter over which the executive director has any direct or indirect control, acting as an agent or attorney for a person in a transaction involving the board, and participation in any transaction for which the executive director has acquired information unavailable to the general public, through their position.

"Conflict of Interest" means a situation in which a board member or staff member has a direct and substantial personal or financial interest in a matter which also involves the member's fiduciary responsibility.

The executive director will be required to affirm their understanding of this policy annually, in writing, and must disclose any conflicts of interest that may arise (See Exhibit A-I).

Policy Implemented: June 23, 1995. Amended: January 22, 1999; February 25, 2011.

A-9

POLICY TYPE: EXECUTIVE LIMITATIONS

POLICY TITLE: CODE OF CONDUCT

The executive director will not operate the office without a code of conduct for all RIO employees. This code of conduct shall be a part of the office Administrative Policy Manual.

Policy Implemented: June 27, 1997.

A-10 POLICY TYPE: EXECUTIVE LIMITATIONS

POLICY TITLE: UNRELATED BUSINESS INTERESTS

In the pursuit of personal business interests, the Executive Director will not allow a situation to exist that presents a conflict of interest to the SIB investment program, nor shall such activity be in violation of RIO Administrative Policy, Use of Office Facilities and Equipment.

Policy Implemented: August 18, 2000

A-11

EXHIBIT A-I

Memorandum

To: RIO Executive Director/CIO

From: RIO Compliance Officer

Date: July 1, 20--

RE: Annual Affirmation of Conflict of Interest Policy

Executive Limitations Policy A-9, Conflict of Interest, which is attached to this memorandum, details the conflict of interest policy for the executive director. This policy also indicates that the executive director is required to reaffirm their understanding of this policy annually and disclose any conflicts of interest. Therefore, please read and sign the statement below to comply with this requirement.

“I have read and understand SIB Executive Limitations Policy A-9, Conflict of Interest. I have disclosed any conflicts of interest as required by this policy.”

Name (printed)

Signature_

Date

Detail of any conflicts of interest (if any):

A-I

B. GOVERNANCE PROCESS

PAGE

Governance Commitment ...... B-1

Governing Style ...... B-2

Board Job Description...... B-3

Chairperson's Role ...... B-4

Board Committee Principles ...... B-5

Standing Committees ...... B-6

Annual Board Planning Cycle ...... B-7

Board Members' Code of Conduct ...... B-8

Administration of Fiduciary Authority ...... B-9

Policy Introduction/Amendment/Passage...... B-10

EXHIBITS

Annual Affirmation of Code of Conduct Policy...... B-I

POLICY TYPE: GOVERNANCE PROCESS

POLICY TITLE: GOVERNANCE COMMITMENT

The board, on behalf of benefit recipients and the other clients, who have entrusted their funds to us, will:

• Lead the North Dakota Retirement and Investment Office (RIO) with a strategic perspective.

• Rigorously attend to its investment and oversight role.

• Continually improve its capability as a body to define values and vision.

Policy Implemented: June 23, 1995.

B-1 POLICY TYPE: GOVERNANCE PROCESS

POLICY TITLE: GOVERNING STYLE

The board will strive to govern with an emphasis on:

• Outward vision rather than an internal preoccupation.

• Encouragement of diversity in viewpoints.

• Strategic leadership more than administrative detail.

• Clear distinction of board and executive director roles.

• Collective rather than individual decisions.

• Future rather than past or present.

• Proactivity rather than reactivity.

The board will:

1. Cultivate a sense of group responsibility. The board, not the staff, will be responsible for excellence in governing. The board will strive to be an initiator of policy, not merely a reactor to staff initiatives. The board will strive to use the expertise of individual members to enhance the ability of the board as a body, rather than to substitute the individual judgments for the board's values.

2. Direct, control, and inspire the organization through the careful establishment of the broadest written policies reflecting the board's values and perspectives. The board's major focus will be on the intended long-term impacts outside the operating organization (Ends), not on the administrative or programmatic means of attaining those effects.

3. Enforce upon itself whatever discipline is needed to govern with excellence. Discipline will apply to matters such as attendance, policy-making principles, respect of roles, and ensuring the continuity of governance capability.

4. After speaking with one voice, self-police any tendency to stray from adopted board governance policies. The board will not allow an y officer, member, or committee of the board to hinder or be an excuse for not fulfilling its commitments. The board respects the right of any member, as an individual, to publicly disagree with an adopted board policy. Board members will accurately portray board policies and decisions.

5. Promote continual board development through orientation and mentoring of new members in the board's governance process and through periodic board discussion of process improvement. The board shall not delegate new member governance orientation to the executive director or any staff member.

A. Board mentors are encouraged to assist new members to understand their fiduciary duty and role.

B-2 POLICY TYPE: GOVERNANCE PROCESS

POLICY TITLE: GOVERNING STYLE

B. The new board member should read and study Chapter 21-10, North Dakota Century Code (Section J of the SIB Policy Governance Manual which governs the activities of the boards represented on the SIB: Teachers' Fund for Retirement Board, Public Employees Retirement Systems Board, and the State Investment Board).

C. The board should receive a glossary of terms used by the retirement and pension fund industry; i.e. Callan Associates Inc. - Glossary of Terms.

D. Newly appointed or elected board members should become familiar with the Carver Model of Governance, since the SIB directs its activities by this model. They should read Boards That Make a Difference and study the policy manuals that have been developed by the SIB and TFFR Board.

E. The board members must understand their roles as trustees and fiduciaries, the Prudent Investor Rule, and Procedural Prudence.

A "new trustee book bag" containing the Retirement and Investment Office’s Comprehensive Annual Financial Report (CAFR) and reference materials relating to board governance, fiduciary conduct, and investment management concepts and terminology and other appropriate materials will be made available to new trustees.

F. The executive director will provide the SIB with a list of periodicals available which would provide current information on pension issues. The board members will review and request subscriptions to appropriate periodicals.

6. Monitor and regularly discuss the board's process and performance. Self-monitoring will include comparison of board activity and discipline to policies in the Governance Process and Board-Staff Relationship categories.

7. Observe Robert's Rules except where the board has superseded them.

Policy Implemented: June 23, 1995. Amended: June 28, 1996; November 19, 1999, January 26, 2001, February 27, 2015, October 26, 2018.

B-2 (cont’d) POLICY TYPE: GOVERNANCE PROCESS

POLICY TITLE: BOARD JOB DESCRIPTION

The function of the board is to make certain contributions that lead RIO toward the desired performance and ensure that it occurs. The board's specific contributions are unique to its trusteeship role and necessary for proper governance and management.

Consequently, the "products" or contributions of the board shall be:

1. The link between the SIB, its investment clients, and benefit recipients.

2. Written governing policies that, at the broadest levels, address:

A. Ends: Organizational products, impacts, benefits, outcomes, recipients, and their relative worth (what good for which needs at what cost).

B. Executive Limitations: Constraints on executive authority which establish the prudence and ethics boundaries within which all executive activity and decisions must take place.

C. Governance Process: Specification of how the board conceives, carries out, and monitors its own task.

D. Board-Executive Director Relationship: How authority is delegated and its proper use monitored: the executive director's role, authority, and accountability.

3. The assurance of executive director performance against above policies 2a and 2b.

4. Legislation necessary to achieve the board's Ends.

Policy Implemented: June 23, 1995.

B-3 POLICY TYPE: GOVERNANCE PROCESS

POLICY TITLE: CHAIRPERSON’S ROLE ROLE The chairperson's primary responsibility is to insure the integrity of the board's process. The chairperson is the only board member authorized to speak for the board other than in specifically authorized instances.

1. The duty of the chairperson is to see that the board operates consistent with state law, administrative rules, and its own policies.

A. The board agenda will be the responsibility and be coordinated by the chairperson.

B. Meeting discussion content will only be those issues which, according to board policy, clearly belong to the board and not the executive director, or in a board member's opinion, may deal with fiduciary responsibilities.

C. Deliberation will be fair, open, and thorough, but also efficient, timely, orderly, and brief.

D. The chairperson shall appoint a parliamentarian.

2. The authority of the chairperson consists in making decisions that fall within the topics covered by board policies on Governance Process and Board-Executive Director Relationship, except where the board specifically delegates portions of this authority to others. The chairperson is authorized to use any reasonable interpretation of the provisions in these policies.

A. The chairperson is empowered to chair board meetings with all the commonly accepted authority of that position (e.g., ruling, recognizing).

B. The chairperson has no authority to make decisions about policies created by the board within Ends and Executive Limitations policy areas. Therefore, the chairperson has no authority to supervise or direct the executive director.

C. The chairperson may represent the board to outside parties in announcing board-stated positions and in stating chairperson decisions and interpretations within the area delegated to the chairperson.

D. The chairperson is authorized, in consultation with the RIO Executive Director, to grant approval for international travel by SIB members and to keep the board informed on travel requests.

E. The chairperson is authorized, in consultation with the RIO Executive Director, to grant approval for domestic due diligence visits by SIB members and it shall be the responsibility of the traveling board member to report to the SIB on the results of the due diligence visits.

Policy Implemented: June 23, 1995. Amended: August 17, 2001, September 25, 2009.

B-4 POLICY TYPE: GOVERNANCE PROCESS

POLICY TITLE: BOARD COMMITTEE PRINCIPLES

Unless specifically provided by governance policy, board committees will be assigned so as to minimally interfere with the wholeness of the board's job and so as never to interfere with delegation from board to executive director. Board committees will be used sparingly.

1. Board committees are to help the board do its job, not to help the staff do its job. Committees ordinarily will assist the board by preparing policy alternatives and implications for board deliberation. Board committees are created to advise the board, not the staff.

2. Board committees may not speak or act for the board except when formally given such authority for specific and time-limited purposes. Expectations and authority will be carefully stated in order not to conflict with authority delegated to the executive director.

3. Board committees cannot exercise authority over staff however committees will make requests of staff through the executive director unless staff is assigned to the committee. Because the executive director works for the full board, he or she will not be required to obtain approval of a board committee before an executive action. In keeping with the board's broader focus, board committees will normally not have direct dealings with current staff operations.

4. Board committees are to avoid over-identification with the committee’s assignment. Therefore, a board committee which has helped the board create policy will not be used to monitor organizational performance on that policy.

5. This policy applies only to committees which are formed by board action, whether or not the committees include non-board members. It does not apply to committees formed under the authority of the executive director.

6. The chairperson will appoint board committees authorized by the board. The operational life span of a board committee will be defined at the time of appointment.

Policy Implemented: June 23, 1995. Amended: November 22, 1996, February 27, 2015

B-5 POLICY TYPE: GOVERNANCE PROCESS

POLICY TITLE: STANDING COMMITTEES

The board's standing committee is that which is set forth in this policy as follows:

1. Audit Committee 2. Securities Litigation Committee

A. The audit committee and securities litigation committee shall operate under the terms of a charter approved by the board.

INTRODUCTION – Audit Committee

POLICY OF THE STATE INVESTMENT BOARD – Audit Committee

B-6

POLICY TYPE: GOVERNANCE PROCESS POLICY TITLE: STANDING COMMITTEES

INTRODUCTION – Securities Litigation Committee

POLICY OF THE STATE INVESTMENT BOARD – Securities Litigation Committee

The SLC is authorized to:  Draft policy (to be formally approved by SIB) regarding dollar and/or risk thresholds for determining when to opt-out of class actions and/or seek direct litigation or lead plaintiff status;  Based on SIB approved policy make decisions on the level of participation the SIB will take in direct litigation, opt-in or group litigation, anti-trust and other class actions; and  Approve the selection of special assistant attorneys (in conjunction with the approval of the Office of the Attorney General) in cases of direct litigation.

The SLC has the responsibility to provide oversight in the areas of:

 policy development;  determination on direct litigation and/or lead plaintiff status; and  approval of special assistant attorneys (outside counsel) with concurrence of the Attorney General.

Policy Implemented: June 23, 1995. Policy Amended: April 27, 2018.

B-6.1

POLICY TYPE: GOVERNANCE PROCESS POLICY TITLE: ANNUAL BOARD PLANNING CYCLE To accomplish its job outputs with a governance style consistent with board policies, the board will strive to follow a biennial agenda which (a) completes a re-exploration of Ends policies annually and (b) continually improves its performance through attention to board education and to enriched input and deliberation.

1. A biennial calendar will be developed.

2. The cycle will conclude each year on the last day of June in order that administrative budgeting can be based on accomplishing a one-year segment of the most recent board long-range vision.

A. In the first three months of the new cycle, the board will strive to develop its agenda for the ensuing one-year period.

B. Scheduled monitoring will be used to evaluate and adjust the annual agenda as needed.

3. Education, input, and deliberation will receive paramount attention in structuring the series of meetings and other board activities during the year.

A. To the extent feasible, the board will strive to identify those areas of education and input needed to increase the level of wisdom and forethought it can give to subsequent choices.

B. A board education plan will be developed during July and August of each year.

4. The sequence derived from this process for the board planning year ending June 30 is as follows:

A. July: Election of officers, appoints audit committee, plan annual agenda, begin to develop board education plan, and new board member orientation.

B. August: Investment Director review of investment results, establish investment work plan, add investment education to education plan, and continue new board member orientation.

C. September: Annual Review of Governance Manual.

D. October: Annual meeting for evaluation of RIO vs. Ends policies and annual board evaluation.

E. November: Investment Director report on investment work plan.

F. January: During second year of the biennium, begin to develop Ends policies for the coming biennium for budget purposes.

G. February: Investment Director report on investment work plan. Evaluation of Executive Director.

H. March: During first year of biennium, set budget guidelines for budget development.

I. May: Investment Director report on investment work plan.

Policy Implemented: June 23, 1995; November 19, 1999. Amended: September 26, 2014, February 27, 2015. B-7

POLICY TYPE: GOVERNANCE PROCESS

POLICY TITLE: BOARD MEMBERS ’ CODE O F CON DUC T

The following will be the Code of Ethical Responsibility for the SIB:

1. SIB members owe a duty to conduct themselves so as to inspire the confidence, respect, and trust of the SIB members and to strive to avoid not only professional impropriety but also the appearance of impropriety.

2. SIB members should perform the duties of their offices impartially and diligently. SIB members are expected to fulfill their responsibilities in accord with the intent of all applicable laws and regulations and to refrain from any form of dishonest or unethical conduct. Board members should be unswayed by partisan interest, public sentiment, or fear of criticism.

3. Conflicts of interest and the appearance of impropriety shall be avoided by SIB members. Board members must not allow their family, social, professional, or other relationships to influence their judgment in discharging their responsibilities. Board members must refrain from financial and business dealings that tend to reflect adversely on their duties. If a conflict of interest unavoidably arises, the board member shall immediately disclose the conflict to the SIB. A board member must abstain in those situations where the board member is faced with taking some official action regarding property or a contract in which the board member has a personal interest. Conflicts of interest to be avoided include, but are not limited to: receiving consideration for advice over which the board member has any direct or indirect control, acting as an agent or attorney for a person in a transaction involving the board, and participation in any transaction involving for which the board member has acquired information unavailable to the general public, through participation on the board.

“Conflict of Interest” means a situation in which a board member or staff member has a direct and substantial personal or financial interest in a matter with also involves the member’s fiduciary responsibility.

4. The board should not unnecessarily retain consultants. The hiring of consultants shall be based on merit, avoiding nepotism and preference based upon considerations other than merit that may occur for any reason, including prior working relationships. The compensation of such consultants shall not exceed the fair value of services rendered.

5. Board members must abide by North Dakota Century code 21-10-09, which reads: “No member, officer, agent, or employee of the state investment board shall profit in any manner from transactions on behalf of the funds. Any person violating any of the provisions of this section shall be guilty of a Class A misdemeanor.”

6. Board members shall perform their respective duties in a manner that satisfies their fiduciary responsibilities.

7. All activities and transactions performed on behalf of public pension funds must be for the exclusive purpose of providing benefits to plan participants and defraying reasonable expenses of administering the plan.

B-8

POLICY TYPE: GOVERNANCE PROCESS

POLICY TITLE: BOARD MEMBERS’ CODE OF CONDUCT

8. Prohibited transactions. Prohibited transactions are those involving self-dealing. Self-dealing refers to the fiduciary’s use of plan assets or material, non-public information for personal gain; engaging in transactions on behalf of parties whose interests are adverse to the plan; or receiving personal consideration in connection with any planned transaction.

9. Violation of these rules may result in an official reprimand from the SIB. No reprimand may be issued until the board member or employee has had the opportunity to be heard by the board.

10. Board Members are required to affirm their understanding of this policy annually, in writing, and must disclose any conflicts of interest that may arise (See Exhibit B-I).

Policy Implemented: June 23, 1995. Amended: January 22, 1999, February 25, 2011, January 27, 2012, February 27, 2015.

B-8(cont’d) POLICY TYPE: GOVERNANCE PROCESS

POLICY TITLE: ADMINISTRATION OF FIDUCIARY AUTHORITY

The board is responsible for:

1. Proper exercise of fiduciary investment authority by RIO.

2. The determination of policies.

3. The investment and disposition of property held in a fiduciary capacity.

4. The direction and review of the actions of all officers, employees, and committees in the exercise of the board's delegated fiduciary authority.

Policy Implemented: June 23, 1995.

B-9

POLICY TYPE: GOVERNANCE PROCESS

POLICY TITLE: POLICY INTRODUCTION/AMENDMENT/PASSAGE

New policies or policy amendments may be proposed by the Executive Director or a Board member. All new policies or amendments may be submitted to the Board’s Legal Counsel for drafting in the approved style.

Upon request of the Executive Director or a Board member a new policy or amendment shall be placed on the Board’s agenda for action as follows:

1. Introduction and first reading. A brief explanation or summary of the new policy or amendment shall be presented to the Board. Upon approval of introduction and first reading, the measure shall be placed on the agenda of the next scheduled meeting of the Board for second reading and adoption. When appropriate, the measure shall be distributed to interested parties.

2. Second reading and adoption. Interested parties and the public shall be allowed an opportunity to comment on the policy or amendment before final action by the Board. The measure shall take effect immediately following second reading and adoption by the Board, unless a different effective date is stated.

3. Amendments. Amendments may be proposed at any time before final adoption of the measure. Upon determination by the Board that adoption of an amendment constitutes a substantive change that significantly changes the meaning or effect of the measure, the Board shall continue consideration of second reading and adoption to the next meeting to permit further review and comment.

Emergency measures. The Board may, upon determination that an emergency or other circumstances calling for expeditious action exists, waive the requirement of a second reading and immediately approve the new policy or amendment following introduction and first reading.

Policy Implemented: February 27, 2009 Policy Revised: November 18, 2016

B-10

EXHIBIT B-I

Memorandum

To: State Investment Board

From: RIO Compliance Officer

Date: July 1, 20--

RE: Annual Affirmation of Code of Conduct Policy

Governance Process Policy B-8, Board Members’ Code of Conduct, which is attached to this memorandum, details the Code of Ethical Responsibility for the SIB. Item #10 of this policy indicates that each Board Member is required to reaffirm their understanding of this policy annually and disclose any conflicts of interest. Therefore, please read and sign the statement below to comply with this requirement.

“I have read and understand SIB Governance Process Policy B-8 Board Members’ Code of Conduct. I have disclosed any conflicts of interest as required by this policy.”

Name (printed)

Signature_

Date

Detail of any conflicts of interest (if any):

B-I

Agenda Item IV.B.

Informational

TO: State Investment Board

FROM: Dave Hunter

DATE: August 23, 2019

SUBJECT: Review Proposed Suggestions by Governance Expert and Board

Since 2015, the SIB has invited leading experts in the fields of board governance and investment education to present at our July board meetings. In prior years, this included Keith Ambachtsheer, Director Emeritus of International Centre for Pension Management at the Rotman School of Management, University of Toronto, Jeanna Cullins, Partner and Practice Leader of Fiduciary Services at Aon Hewitt Investment Consulting, and Ron Peyton, Callan Executive Chairman and Board Chairman and former CFA Institute Chairman of the Asset Manager Code of Conduct Advisory Committee.

This year, the SIB engaged Amy McDuffee, CEO and Founder of Mosaic Governance Advisors, to provide this important continuing education. The following ideas and suggestions were shared during our review of best practices and current trends in public fund governance at our meeting on July 26, 2019.

1. Executive Summaries – The SIB indicated the preparation of executive summaries would enhance its ability to more efficiently gain a better understanding and overview of the key topics, questions and decisions the board needs to consider each meeting. RIO sought to address this constructive point by preparing an executive summary for this meeting. RIO invites feedback on the desired form and length of these summaries.

2. Succession Planning – RIO will seek to prepare a formal succession plan for our agency in 2019. RIO’s management team including Deputy Executive Director & Chief Retirement Officer Fay Kopp, Deputy Chief Investment Officer Darren Schulz, Chief Financial Officer Connie Flanagan, Retirement Program Manager Shelly Schumacher, Supervisor of Administrative Services and Officer Manager Bonnie Heit, IT Supervisor Rich Nagel and Supervisor of Internal Audit Sara Sauter have been engaged in the development of this comprehensive risk assessment which will also seek to develop an enhanced disaster recovery and cybersecurity preparedness plan.

3. Consent Agenda – RIO will seek to expand the use of consent agendas for SIB meetings wherever practical and invite board member comments on this plan (noting they are already used for Quarterly Monitoring Reports).

4. Board Education – RIO invites board member opinion on the desired approach for trustee education including the development of a core curriculum for all board members versus a custom oriented approach tailored to individual needs.

5. Consultant Sponsored Education – RIO believes that Callan already plays a significant role in trustee education as evidenced by SIB attendance at Callan College sessions and Callan’s Annual Conference. Amy McDuffee suggested our consultant could also be engaged to provide one-on-one investment education for new board members. RIO invites board member opinion on this latter suggestion.

6. Board Mentors – Amy McDuffee indicated that some boards identify mentors for new board members in order to provide peer to peer guidance on reviewing board materials. RIO invites board opinion on this proposal.

7. Website Enhancement – RIO is currently working to enhance its outdated website noting that our IT team has diligently been working to incorporate best practices utilized by other state agencies in refreshing their own websites in recent years. RIO looks forward to sharing these updates with the SIB later in 2019.

8. External Board Meetings – Amy suggested that board member interaction could be enhanced by scheduling social gatherings such as dinners or lunches to stimulate more open board member discussion and/or expand discussion on the roles and responsibilities of the board, staff, consultants, managers or other outside experts. RIO invites SIB input on this proposal and potential open meeting related concerns.

There may have been other board governance topics which peaked the interest of our SIB members before, during or after our last meeting. As such, RIO invites our board members to raise any other ideas, concepts or questions for further SIB consideration.

Potential Board Action:

If the SIB would like to formally request any specific action based on our discussions, RIO suggests the Chairman request the board to make a specific motion for consideration and/or approval by the SIB.

Amy McDuffee, Founder and CEO, Mosaic Governance Advisors Amy McDuffee founded Mosaic Governance Advisors to provide independent, action- oriented governance consulting to the public fund community. She specializes in strategic planning, policy development, board self-assessments, executive and consultant evaluations, benchmarking reviews, program assessments, trustee education and other related matters. Over her 20-year career, she has worked with over 40 public funds in 20 states, including public retirement systems, state investment boards, and state treasuries. She also works with non-profit entities that provide health care and other post-employment benefits to state and local workers. Amy’s unique perspective on governance best practices comes from her experience in both the public and private sectors. Before founding Mosaic, Amy was a lead governance consultant within the Fiduciary Services Practice of Aon Hewitt Investment Consulting (AHIC) where she served its largest public fund clients. Prior to becoming affiliated with AHIC’s predecessor firm in 2009, Amy held senior positions with a global asset management firm and a statewide public retirement system. Amy also served as managing director at Great-West Life & Annuity Insurance Company, now Great-West Financial. In that capacity, she was accountable to a board of directors for building and growing an innovative subsidiary company that provided behavioral finance driven investment consulting, advisory, education, and investment management services to the company’s defined contribution retirement plan sponsors and participants. Launching her career at Mercer, Amy was a key member of the National Governance and Policy Practice. She was responsible for research, analyses, strategic planning and policy development for a broad range of public fund clients. Amy is a graduate of the University of Wisconsin and holds the Certified Employee Benefit Specialist designation from the Wharton School of the University of Pennsylvania and the International Foundation of Employee Benefit Plans (IFEBP). She also earned a Certificate of Achievement in Public Plan Policy. Amy serves on the Public Employee Committee of the IFEBP Board of Directors and is an advisor to the Government Finance Officers Association (GFOA) Committee On Retirement and Benefits Administration (CORBA). She is the former president of the Colorado Chapter of Certified Employee Benefit Specialists and a frequent speaker on board governance matters. Her speaking events at national industry conferences have included the National Association of State Retirement Administrators, the National Council on Teacher Retirement, the Public Pension Financial Forum, and the Association of Public Pension Fund Auditors.

AGENDA ITEM IV.C. Informational

North Dakota State Investment Board Board Education - Conferences

August 22, 2019

Dave Hunter, Executive Director / CIO Darren Schulz, Deputy Chief Investment Officer ND Retirement & Investment Office (RIO) State Investment Board (SIB) NDSIB - Fundamental Investment Beliefs Committed to Continuing Board Education and Strong Board Governance

 Maintain a persistent awareness to the importance of continuing board education. . Emphasize continuing board education at SIB meetings and promote the attendance of educationally focused industry conferences. . Given budget pressures, the SIB engaged our consultant offering “Callan College” in Bismarck in July 2017 in order improve accessibility for board members and clients while reducing costs.

 Reaffirm organizational commitment to strong board governance. . Annual board review of SIB governance manual (generally conducted every September) including investment and governance education meetings in July from 2015 to 2019. . Conducted first formal board self-assessment during the first half of 2018 and made a commitment to conduct continuing board self- assessments in future years (including in 2019).

2 Board Education – July 1, 2017 to June 30, 2019 SIB members have actively participated in numerous educational opportunities over the last year including the following sessions which occurred during our regularly scheduled board meetings: • Capital Market Updates & Performance Review Education by Callan (8 hours) • Investment Updates by Adams Street, BlackRock, Epoch, Invesco, JPMorgan, PIMCO, Prudential, Wells Fargo, Western Asset Management (8 hours) • Investment Performance Reviews by RIO Staff (8 hours) • Governance Education by Aon Hewitt and Callan (8 hours) • Investment, Litigation and Open Records Education by Attorney General Office (2 hours) • Callan National Conference (every January) and Callan College (4 to 8 hours) • New Manager Presentations by Financial Recovery Technologies, I-Squared, Macquarie and Mercer (4 hours) • Time spent by board members preparing for 10+ SIB meetings per year (20+ hours)

Several board members and RIO staff have obtained additional investment education by attending conferences sponsored by a wide variety of industry experts such as: • Callan’s Annual Conference and/or Callan College (two to three days) • Public Pension Plan Roundtables, Forums & Conferences (two to three days) • Great Plains (and/or Mountain States) Investor Forum (one to two days) • National Association of State Retirement Officers (two to three days) • National Association of State Investment Officers (two to three days) • National Association of State Investment Professionals (two to three days) • Various conferences sponsored by “Pensions and Investments” (one to three days) Most Recent Educational Opportunity: SIB Meeting on July 26, 2019

3 Board Member Education – Survey Results SIB member were asked “In order to participate in education, would your prefer”: 1. That topics be presented at specially scheduled SIB retreats; 2. To travel to third party sponsored conferences and/or training sessions; 3. That topics be presented at regularly scheduled SIB meetings; and 4. To consume educational materials on your own time rather than in a group setting.

Survey results indicated SIB members clearly prefer to participate in education at “specially scheduled SIB retreats” like the ones we have scheduled in July in each of the last four years which including governance expert Keith Ambachtsheer, Aon Hewitt Fiduciary Services Practice Leader Jeanna Cullins, Callan Executive Chairman and Chairman of the CFA Institute Asset Manager Code of Professional Conduct Advisory Committee Ron Peyton in addition to Amy McDuffee, Mosaic Governance Advisor Founder and CEO, and Angela Rodell, Alaska Permanent Fund CEO last month.

“Travel to third party sponsored conferences and/or training sessions” was ranked # 2 followed by “topics presented at regularly scheduled SIB meetings at # 3.

KEY TAKE AWAY: Given the above responses, RIO invites each SIB member to identify one professional investment education conference each fiscal year going forward. RIO will ensure that we continue to operate within our legislatively approved budget guidelines without exception. The Office of the Attorney General has consistently emphasized the importance of RIO and SIB investment due diligence and professional continuing education for our staff and board members in order to adhere to our fiduciary standards and responsibilities in the oversight of SIB client investments which approximates $15 billion.

4 Board Member Education Options for 2019-20

 Newer Board Member Education Options 1) One on one investment meetings at RIO; and 2) Callan College; or a. October 8-9, 2019 - Atlanta b. October 15-16, 2019 - Chicago 3) Callan Regional Workshops a. October 22, 2019 – Atlanta b. October 24, 2019 – Chicago

 Experienced Board Members 1) Callan National Conference (Jan. 27-29, 2020) San Francisco; and/or 2) Pension Bridge Annual Educational Conference; a. April 9-10, 2020 – San Francisco 3) Institutional Investor Institute; a. October 17-18, 2019 - Chicago; b. More dates to be provided; or 4) A Primer for Investment Trustees, CFA Institute Reading https://www.cfainstitute.org/en/research/foundation/2017/a-primer-for-investment-trustees?s_cid=ppc_RF_Google_Search_Trustees

NOTE: RIO is working with Callan to refresh our investment education conference schedule for the 4th quarter of 2019 and 2020.

5 Annual SIB Meeting Schedule for 2019-20

July 26, 2019 January 24, 2020

August 23, 2019* February 28, 2020

September 27, 2019* March 27, 2020 (Tentative)

October 25, 2019 April 24, 2020

November 22, 2019 May 22, 2020

* Callan’s performance review for the fiscal year ended June 30, 2019, is being moved to September 27, 2019 (from August 23, 2019) due to time constraints raised by Callan and to allow board members a reasonable amount of time to review presentation materials in advance of scheduled SIB meetings.

The SIB approved the above meeting schedule on January 25, 2019.

Note: Most SIB meetings contain some type of board education on investments, governance, capital market trends, economic conditions or securities litigation.

6 AGENDA ITEM IV.D.

NORTH DAKOTA RETIREMENT AND INVESTMENT OFFICE

RIO AGENCY UPDATE

Quarter Ended June 30, 2019

As noted in prior quarterly updates, RIO offered a Voluntary Separation Incentive Program (VSIP) to eligible employees on July 30, 2018. One retirement benefit counselor submitted her VSIP application which was accepted with a termination date of April 30, 2019. Prior to this VSIP candidate retiring, RIO commenced interviews to fill this important position. I am pleased to report that Stephanie Starr joined RIO as a new retirement benefits counselor on May 28th.

Technically, RIO was fully staffed as of June 30, 2019. In late June, however, RIO was informed that our compliance officer accepted a new position with the North Dakota Securities Department effective July 10th. Also as you likely recall, RIO’s budget for the 2019-21 biennium added one new FTE to support our growing investment program.

Based on current and forecasted budget availability, we intend to fill both vacant positions as soon as possible. We are also taking advantage of this opportunity to make RIO more efficient by redefining roles and responsibilities to address areas of increased emphasis (including investment risk management and enhanced due diligence reporting and compliance monitoring). We posted for the Investment Accountant position in August and appear to have already received several qualified applicants. We intend to post for the Compliance and Investment Officer position in the next two weeks.

RIO and ITD are working together to develop a project charter for our TFFR Pension Administration System upgrade. This included a kick-off meeting with Justin Data, Enterprise ITD Division Manager – Reinvention Division this past week in addition to PERS Executive Director Scott Miller and PERS CFO and COO Derrick Hohbein. RIO intends to work closely with ITD and the Governor’s Office to ensure we adhere to all state procurement guidelines and remaining keenly focused on our fiduciary responsibility to our valued TFFR clients and constituents.