Board of Administration of the Water and Power Employees’ Retirement Plan Real Estate Consultant RFP presentation Wednesday, 24 February 2021 10.8 Agenda 1 PRESENTATION GOALS AND INTRODUCTIONS 2 OBSERVATIONS ON THE REAL ESTATE ENVIRONMENT 3 ALBOURNE OVERVIEW 4 CONCLUSION 10.9 2 Presentation Goals I. Introduce Albourne’s WPERP client team II. Discuss your opportunities in real estate today III. Provide an overview of Albourne IV. Outline Albourne’s capabilities to fulfill WPERP’s requirements and demonstrate our suitability as a partner for you 10.10 3 Albourne Proposed Client Team Tom Cawkwell Global head of Private Markets Joined 2007 Heather Christopher Lead Consultant, Head of Albourne Real Estate Joined 2012 Christian Reel Back-up Consultant Joined 2013 James Kakoza Secondary Back-up Consultant Joined 2020 10.11 4 Albourne Proposed Client Team Katarina Wadja Client Account Manager Joined 2018 Jonathan Lach Client Relationship Manager Joined 2010 10.12 5 Agenda 1 PRESENTATION GOALS AND INTRODUCTIONS 2 OBSERVATIONS ON THE REAL ESTATE ENVIRONMENT 3 ALBOURNE OVERVIEW 4 CONCLUSION 10.13 6 Current Themes in Real Estate • Global pursuit of yield and returns Investors seeking higher returns are increasing their pursuit of real estate. The denominator effect is also driving real estate investment despite high levels of dry powder. • Inflation Concerns Inflation concerns are also likely to spur investment in real estate and other hard assets. • Government intervention continues Occurring from federal to municipal levels, including quantitative easing, TALF, suspensions of tenant evictions and mortgage foreclosures, mortgage forbearance, rent abatements, and tax collection delays. • Property types hit by COVID-19 Hotels, retail, parking, senior housing, and workforce housing are expected to face additional COVID-19 erosion though not as severe as that of 2020. Office is also anticipated to face some trouble as vacancies grow to levels at or above the prior market peaks as leases begin to mature, especially in urban areas. • Pricing opacity for real estate valuation Many managers have reduced cash flows for negatively impacted property types, but maintained cap rates. Transaction volume rallied in 4Q 2020, but did not prevent reduced 2020 year volume. • Property type demand continues to be driven by the pandemic Industrial, single-family housing, life science, data centers, and self storage are all anticipated to continue to benefit from strong demand further fueled by COVID-19 trends 10.14 7 Agenda 1 PRESENTATION GOALS AND INTRODUCTIONS 2 OBSERVATIONS ON THE REAL ESTATE ENVIRONMENT 3 ALBOURNE OVERVIEW 4 CONCLUSION 10.15 8 Albourne is your ideal RE consulting partner "Our goal is to empower our clients to be the best investors that they can be.” Dr. John Claisse, Executive Committee Member We are solely a non-discretionary investment consultant • We do not manage money to help avoid conflicts • We do not take limited partner advisory council (“LPAC”) seats to help avoid conflicts • We charge the same fee to clients of a given service to help avoid having financial favorites We consult solely on alternative asset classes • To focus our research on complicated asset classes where performance dispersion is high • To develop specialized resources to better assess and advise on many aspects of these asset classes 10.16 9 Our Client Base >300 Clients1 41 Public Pension Plans3 >$550bn Amount our clients have • Teacher Retirement System of Texas invested in alternatives2 • The Missouri Education Pension Trust • Utah Retirement Systems • South Carolina Retirement System Clients by Type Institutions by Type Sovereign Wealth Fund 5% Financial Insurance Company Intermediary 29% 9% Endowment & Foundation 32% Institution 57% Public Pension Plan Corporate Pension 26% Plan Family Office 14% 28% 1 This is the aggregate number of client entities for the Albourne Group worldwide. Clients may be subscribed to multiple services. 2 This is a conservative aggregation of the estimated investments in alternatives (where known) of Albourne Group clients worldwide, using public sources where possible. All figures are as of 1 January 2021 3. The client list is a partial sampling of Albourne’s client universe. In accordance with the SEC’s requirement for an objective methodology for partial client lists, these clients are the four largest public pensions, using what Albourne believes to be their AUM in hedge funds as the criterion and omitting only those requesting anonymity. It is not known whether the listed clients approve or disapprove of the services provided by Albourne. 10.17 10 Our Colleagues “We are very proud of our low staff turnover. No doubt our equity policy is a factor.” Meropi Stavrou, Head of HR Analysts 1 Total Headcount 452 300 Portfolio Analysts 301 250 PM IDD Locations 200 Portfolio Analysts 38 11 Multi IDD Plus 29 Client Service Worldwide 150 HF/DB IDD 100 Owned by ODD Private Markets 50 2 100% Investment Due Diligence 44 employees Risk 0 Includes 11 multi asset Partners 111 Year end Hedge Fund Partners’ average >12 Investment Due Diligence 38 Share and Option Holders Includes11 multi asset tenure years 80 Partners’ average 60 Operational Due Diligence 103 experience in >20 40 alternatives and years finance 20 Risk B2Y4 Back Office Analysts 12 0 B2Y Fees & Liquidity Analysts 13 89 Professional staff D&A5 Analysts 20 <5% turnover3 QDD Analysts 44 Year end As at 12 October 2020 1. Headcount numbers are aggregated across all Albourne Group entities worldwide 2. Including the Albourne Employee Benefit Trust 3. Professional staff includes all analysts and all staff with a professional qualification, 3 year average 10.18 4. B2Y - Albourne’s Implementation Support Service 11 5. D&A – Albourne’s Data & Analytics Service Real Estate Due Diligence Team “Through our global analyst team, we are able to lever knowledge across regions, styles, managers, terms, and relative value.” Christian Reel, Partner • Six dedicated Real Estate IDD Analysts, 1 Multi-Asset IDD Analyst and 1 dedicated Real Estate ODD Analyst • Additional analysts drawn from 44-strong Private Markets IDD team when needed* • Multi-Asset class Analysts include 103 ODD, 38 Portfolio, 89 Risk Heather Jaclynn Tim Christian Christopher Bernson Kominiarek Reel Hannah Sarah Carmen Callaghan Ahlberg Lam** Hitoshi Nagata*** As at 12 October 2020 *Private Markets IDD Analysts include members of the Private Equity and Real Assets teams **Real Estate ODD Analyst *** Multi-Asset IDD Analyst The map shows all Albourne offices, not necessarily where the Real Estate team is based 10.19 12 Real Estate Coverage “We will cover any fund, anywhere -- from emerging to seasoned managers.” Tim Kominiarek, IDD Analyst Private Credit Hedge Funds Distressed Equity L / S Structured Credit Asset Backed Sector Real Estate Relative Value Long Only 10.20 13 Investment Due Diligence “Our Real Estate IDD is thorough and supported by our proprietary database, tracking information gathered and conversations held with managers.” Jaclynn Bernson, IDD Analyst Source Initial Review In-depth Review Monitor ▪ Scan Real Estate ▪ Review Albourne ▪ Examine key ▪ Update database universe for new legacy issues & for: opportunities daily information strengths - Monthly / via news, ▪ Initiate contact ▪ Conduct onsite quarterly data announcements, with managers meeting word of mouth - News in ▪ Review materials ▪ Hold additional periodicals ▪ Enter calls to answer opportunities into ▪ Screen against - Newsletters & questions Albourne peers memos database ▪ Complete report ▪ Hold initial call or - Quarterly ▪ Assign meeting & log ▪ Present to summary responsibilities notes Albourne ▪ Meet Top Pick Committee(s) IDD Ratings ▪ Screen strategy ▪ Begin report draft managers ▪ Refine report as periodically & log Analyst Assessment A to E needed notes Conviction level of 1 to 5, ▪ Publish in ▪ Update IDD reflects Analyst’s confidence database Report as needed in the level of transparency and how well the fund is known * The above ratings are for illustrative purposes only. 10.21 14 Operational Due Diligence “We produce a comprehensive suite of reports which represents the culmination of 20 years’ experience developing our proprietary ODD methodology.’’ Carmen Lam, Partner Open-Ended Closed End Focus: Example Similarities and Differences ODD Section Organization & Similar issues and concerns Governance: Firm Additional focus on competence of tax staff and structures, carry distribution and role, responsibilities and composition of Advisory Committees Compliance & Same focus and importance. Regulation Identify and focus on unique Private Markets and Dodd-Frank registration and compliance/regulatory issues, including FCPA & pay-to-play Systems & Same focus. Different strategies carry unique operating issues through their investments, e.g. royalty Instruments streams, whole loans, receivables Custody & Assets often self custodied, which brings unique “existence risk” concerns Counterparty Servicing of assets can sometimes lead to third party relationships that present unique operational and misappropriation risks that need an appropriate control environment Trade Operations Cash flows pervasively in Private Markets funds (capital calls, distributions, deal funding, investment income, etc). Focus more acutely on walking through the cash flow process and the various control points. Look for third party oversight over distributions and the calculation of carry split Valuation Focus on manager’s internal process for valuations Assess valuation