PACIFIC PENSION & INVESTMENT INSTITUTE ANNUAL REPORT 2016 VIEW IT ONLINE www.ppi.institute/annual-report-2016 March 9, 2017 Dear PPI Members and Friends: Your support over the past year has been very strong and well appreciated. We wish to express to our thanks for participating in our programs and being part of the PPI community in 2016. In the execution of PPI’s Strategic Plan 2015-2017, we strengthened our programming for PPI’s third decade, as well as consolidating the PPI community of members, and our financial future. We are very confident now that PPI’s powerful perspective adds true value to the investment decisions of our members. Programming for PPI’s Third Decade. The programming at PPI is the hallmark of this organization. In 2016, PPI’s leadership worked diligently to bring insights from a range of institutional investor leaders, government, and the NGO community—while maintaining interactive, peer-to-peer, education. We put a premium on program partnerships and creating new channels for members to provide recommendations for different types of topics, and we remain open to new ideas and initiatives. Strengthening the PPI Community of Members. Throughout the year, we dedicated ourselves to growing PPI’s membership without compromising on quality. These efforts have borne fruit, as our numbers have continued to improve as well as the quality of participation in programs among our member representatives. We added 21 institutional members, bringing our total to 104 by the end of the year. We also moved toward greater parity between our principal membership categories, and have widened our geographic diversity. Securing PPI’s Financial Future. PPI is on solid footing thanks to our membership strategy and well-attended roundtable programs. Membership dues currently provide approximately 80 percent of PPI’s annual operating budget, and we are actively working to diversify our revenue stream and build up our reserves as a buffer against unexpected events. PPI’s Powerful Perspective. Our PPI community continues to be—by virtue of our impressive global membership —a powerful force in the global economy. The board of directors and management team have worked closely to best ensure we can all have new insights into investment opportunities, and the corresponding political, security, financial, and economic risks. We invite your continued support and active participation, both in-person at our signature programs and on-line via the PPI Community Site: the community is only as strong as each member’s input and perspective. We would like to thank Theresa Whitmarsh for her excellent leadership of the board and team over the recent years as chair. We would also like to thank the staff of PPI for their significant insight, assistance, and professionalism over the last year, keeping PPI great. Sincerely, Adrian Orr, Board Chair Lionel C. Johnson, President !2 PROGRAMMING FOR PPI’S THIRD DECADE PPI’s members expect serious, timely conversations with their peers and other experts at our flagship roundtables. Our 2016 programs delivered — blending political analysis with financial assessments, deep-dives into regional developments, and broad surveys on conditions in the global marketplace. We invited subject matter experts, well-known personalities, and PPI members to offer their thoughts and to lead interactive discussions on a diverse set of issues. Though attendance at our programs remained at full capacity throughout 2016, we worked hard to keep the sessions conversational in nature to allow for the intimate exchange of ideas for which PPI is known. In addition, we upgraded the PPI App with features that facilitate direct connectivity among participants at our events and during the months between them. Our dynamic global community also includes important partnerships and programs outside our core offerings. The relationships with the Asian Development Bank (ADB), Global Aging Institute (GAI), and other partners remain important to us. In 2016, we began to explore new and different options for the continuation of our programming specific to developing Asia in 2017 and 2018. Our 2016 Program Lineup Winter Roundtable Summer Roundtable Executive Seminar Asia Roundtable February 24-26, 2016 July 27-29, 2016 October 23-25, 2016 October 26-28, 2016 Los Angeles, CA Cambridge, MA !3 Hong Kong Hong Kong & Shenzhen 3 INVESTING IN A LOW-GROWTH WORLD CAN INNOVATION ALTER OUR TRAJECTORY? 2016 Winter Roundtable in Los Angeles, CA February 24-26, 2016 As PPI convened its 2016 Winter Roundtable, global markets continued their rough start to the year. Equities in both low- and high-income economies tumbled; China’s slowdown continued to disturb exporting countries such as Brazil and Australia, and the European Union’s structural weaknesses were again exposed. While the recovery has been felt unevenly, the global economy has mostly emerged from the recession. Between 2008 and mid-2015, worldwide unemployment rates went down and the US S&P 500 grew 92%. This improvement can be attributed in part to unorthodox monetary policy and government bailouts. These measures cannot, however, support the real economy forever, and economic fundamentals must at some point catch up. That time may be upon us. Stocks, commodities and beaten down sectors have seen impressive rebounds, but that does not necessarily mean smooth sailing during the coming months. Some observers predict another global recession – political disruptions, market bubbles, and central bank ineffectiveness – while others have signaled the arrival of a new low-growth environment. The 2016 Winter Roundtable focused on the latter scenario, in which this “new normal” could see expected returns dampened for institutional investors for years to come. How will investors approach this environment? How will they manage return expectations? How can innovation – both technological innovation and innovative investment approaches – help investors navigate this new terrain? Read the full Insights report Review the agenda View the gallery !4 4 RISK IN AN AGE OF UNCERTAINTY HOW ARE INVESTORS UNDERSTANDING AND MANAGING IT? 2016 Summer Roundtable in Cambridge, MA July 27-29, 2016 The Chaos Theory could provide a useful means of understanding the world in 2016. Simply stated, the theory accounts for the infinite possibilities that are created from minimal changes in the environment. Understanding chaos has allowed for a deeper appreciation for the complexities of our atmosphere, ecosystems and social systems, to name a few fields. Financial markets and economic systems also adhere to this theory. As PPI members know well, slight changes to the external environment could have a monumental impact on markets. Understanding and measuring these changes and how they impact markets is a critical responsibility of institutional investors and shaped PPI Summer Roundtable discussions in Cambridge, Massachusetts, July 27-29, 2016. At the February PPI Winter Roundtable in Los Angeles, we considered the characteristics of the present low- growth, low-return environment. The challenge of understanding the “chaos” of the markets in the current setting is key. In Cambridge, we continued with discussions on risk in a period where chaos—in our markets, politics, and societies—has dominated. The Summer Roundtable featured robust discussions on how institutional investors are navigating this opaque landscape; what risks are on their minds; and where, if anywhere, do they see opportunities. While opportunities do exist, the pessimism of the markets was reflected in the outlook of institutional investors and summarized in one question we asked the audience: “What nominal rate of return do you believe is possible over the next business cycle?” Ninety- four percent of respondents indicated that they don’t believe that a 7% return is possible. Many participants noted that while return expectations will remain low in the coming years, the need to meet liabilities is ever present. Meeting return shortfalls and understanding the associated risks in an environment marked by overvaluations and equity volatility, will be a key challenge for many institutional investors in the years to come. While the roundtable focused on the myriad risks facing institutional investors today, many participants commented on investment opportunities that still exist. The realities of the “new normal” environment of lower equity and bond returns were reflected by participants, but many pointed to opportunities in markets and asset classes further afield. How these opportunities are accessed—particularly by investors who do not have the capacity or mandate to invest extensively in alternatives or emerging markets—will be another obstacle to overcome. Read the full Insights report Review the agenda View the gallery !5 5 HONG KONG GROWTH AND ADAPTATION 2016 Executive Seminar in Hong Kong October 23-25, 2016 Hong Kong has long benefited from its open economy, stable institutions, and position as a gateway to China. It has also demonstrated a great capacity to adapt: beginning as a regional entrepôt, developing as a manufacturer, and now as a global financial center. Hong Kong investors helped turn the Pearl River Delta into the world’s workshop. Chinese companies list in Hong Kong, and the Shanghai-Hong Kong Stock Connect allows investors to access Shanghai-listed stocks through Hong Kong’s exchange. As China’s financial system evolves, how will Hong Kong further adapt? What are the implications for the broader region? The PPI Executive Seminar (October 23-25,