Future Return Expectations

• Modest forward-lookingreturn assumptions

• Yield environment is keyto understanding returnprospects

• Asset class returnsare “linked” to interestrates

• Fairly directmethodology inforecasting fixedincome

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%Wilshire Forecasted Return

Equity Fixed Income 60/40 Portfolio

0.0

2.5

5.0

7.5

10.0

12.5

15.0

Annu

alize

d Re

turn

(%)

Barclays Agg Yield Subsequent 10-Year Return

Agenda Item 9, Attachment 3Page 1 of 3

How Has the Environment Changed Recently?

• Yields lower earlier in year and have jumped recently

• Equity P/E valuation levels have risen (since last ALM cycle)

• Dec 2013: 17.2 • Sep 2016: 21.3 • Nov 2016: 20.1

0%

50%

100%

150%

200%

250%

300%Inflation and Yields (Dec 2013 - Nov 2016)

10Yr BE Inflation Bloomberg Agg Yield

90

95

100

105

110

115

120

125

130

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300S&P 500 Price & EPS (Dec 2013 - Nov 2016)

S&P 500 Index Price S&P 500 Oper. EPS (1Yr Trailing)

Agenda Item 9, Attachment 3 Page 2 of 3

• Equilibrium assumptions use building block approach

• Inflation + Real Cash Yield + Duration/Credit Premia + Equity Premium+ Private Markets Premium, etc.

• Based on historical return premiums demanded by investors forbearing various forms of risk

• Post-election impact (back-of-the-envelope estimate)

10 Year Outlook vs. Equilibrium

Sep '16 Nov '16 DiffInflation 1.60 1.95 0.35Cash 1.25 1.90 0.65Core Bond 2.85 3.65 0.80Global Stock 6.45 6.70 0.25

Asset Class 10-Year Eqlbrm. Diff 10-Year Eqlbrm. DiffInflation 1.60 2.75 -1.15 1.60 2.75 -1.15Cash 1.25 3.50 -2.25 -0.35 0.75 -1.10Core Bond 2.85 5.35 -2.50 1.60 1.85 -0.25Global Stock 6.45 8.65 -2.20 3.60 3.30 0.30Private Markets 8.85 11.35 -2.50 2.40 2.70 -0.30

Return Assmptions Building Blocks

Agenda Item 9, Attachment 3Page 3 of 3