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M E K E T A I N V E S T M E N T G R O U P
B O S T O N
M A S S A C H U S E T T S
C H IC A G O
I L L I N O I S
M I A M I
F LO R I D A
P O R T L A N D
O R E G O N
S A N D IE G O
C A L I F O R N I A
LO N D O N
U N I T E D K I N G D O M
www. m ek et a gr ou p . com
M E E T I N G M A T E R I A L
Municipal Employees’ Retirement System of Louisiana
December 13, 2018
Municipal Employees’ Retirement System of Louisiana
Table of Contents
Prepared by Meketa Investment Group
1. BlueBay Overview
2. Core Real Estate Search
3. Performance Report As of October 31, 2018
4. Disclaimer, Glossary, and Notes
Page 2 of 45
BlueBay Manager Overview
Page 3 of 45
Municipal Employees’ Retirement System of Louisiana
BlueBay Manager Overview
Prepared by Meketa Investment Group
BlueBay
Background/Organization
BlueBay Asset Management is headquartered in London, England and manages more than $50 billion in private and public fixed income strategies. BlueBay is a subsidiary of Royal Bank of Canada (“RBC”), a large global financial services company. In 2015, the Retirement System committed $40 million to the BlueBay Direct Lending Fund II strategy (“the Fund” or “Fund II”). The Fund raised €2.8 billion from dozens of limited partners. MERS represents less than 1.5% of the Fund.
Team
Anthony Fobel leads the direct lending team and must sign off on all new investments. He may source investments, but he rarely works on the deal team so he can remain objective when evaluating the merits of the investment. The total team has more than fourteen dedicated team members with over 100 operational/support staff across the organization. All Direct Lending team members are based in London, but there are regional specialists (Germany, France/Spain, Central Europe, United Kingdom).
Philosophy
The Fund invests in senior secured loans to small/mid sized European businesses. The Fund seeks to capitalize on an underserved portion of the European market that is in need of cash: small/mid-sized companies that are too small to issue their own debt in the public markets and unable (or unwilling) to access loans from banks1. Small/mid-sized companies in need of financing are willing to pay high interest rates to lenders (e.g. BlueBay) along with origination fees.
1 Banks in Europe have generally provided fewer loans than U.S. banks due to regulatory changes (Basel III) and increased bank stress tests. Banks have been required to hold increased capital buffers and have been more stringent with lending.
Page 4 of 45
Municipal Employees’ Retirement System of Louisiana
BlueBay Manager Overview
Prepared by Meketa Investment Group
BlueBay (continued)
Process
The team sources potential investments from an extensive network built over many years by regional experts. Potential investments undergo a multi-stage investment review process.
Fees and Liquidity
Fees are drawn on called capital only (not committed) which is more favorable than the standard fund structure. The Fund charges 1.5% on net invested capital with a 20% performance fee over a 5% hurdle.
The strategy is a closed-end fund with no intermediate term liquidity. All capital and proceeds are expected to return to investors by 2023 (fund life).
Page 5 of 45
Municipal Employees’ Retirement System of Louisiana
BlueBay Manager Overview
Prepared by Meketa Investment Group
BlueBay
As of September 30, 2018, BlueBay Direct Lending Fund II had called and invested $35.3 mm of the Retirement System’s $40.0 mm commitment. The Fund has distributed (paid) the Retirement System $13.6 mm on this investment with a remaining fair value of $26.7.
The current net unrealized multiple on the investment is 1.2x. with a net IRR of 8.5%.
The Fund has made 27 investments in Fund II. The largest regional concentration is currently the United Kingdom (41%), Germany (25%), and France (14%).
$40.0
$35.3
$13.6
$26.7
0
5
10
15
20
25
30
35
40
45
Committed Called Distributed Reported Value
Page 6 of 45
Core Real Estate Presentation
Page 7 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Background
The Retirement System has a 4% target to core real estate.
As of October 31, 2018 the System was 2% underweight its 4% target.
The current core real estate strategy only invests in one type (multifamily apartments) of the four core real estate property types (office, industrial, retail and multifamily).
At the October 2018 Board meeting Meketa provided education on core real estate.
The education focused on: defining the asset class, discussion of fees, liquidity, return and risk expectations, property concentration, use of leverage, and expected correlation of returns to bonds/equities
At Meketa Investment Groups’ recommendation, the Board decided to conduct a manager search to hire a diversified core real estate strategy to bring the exposure up to target weight
Today we will discuss four candidates that the Board should consider for a $35 million allocation.
The four groups under consideration are:
- Morgan Stanley
- Deutsche Bank (DWS)
- Invesco
- TA Realty
We recommend the Board identifies two finalists for in-person interviews during the January 2019 Board meeting.
Page 8 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Morgan Stanley – Firm Overview as of June 30, 2018
Morgan Stanley Real Estate Advisors
Firm Location New York, NY
Real Estate Inception 1991
Ownership Structure Public Company
Strategy Under Consideration Prime Property Fund “PRIME”
Strategy Assets Managed $26.1 billion
Morgan Stanley Real Estate Investing (“MSREI”) has been an active real estate investor for two decades, acquiring over $200 billion of assets in 36 countries. Primarily focused on opportunistic and core strategies, MSREI’s range of experience encompasses a broad array of property types, geographic regions and investment strategies across all phases of the real estate cycle.
MSREI currently manages over $34 billion of global real estate on behalf of its clients. The Prime Property Fund is the largest fund across MSREI’s global real estate investing platform, and is one of the largest funds in the NFI-ODCE at $26.1 billion.
MSREI’s involvement with PRIME began in 2003, when MSREI acquired Lend Lease’s U.S. real estate advisory businesses, which represented approximately $13 billion in assets under management and included the Prime Property Fund, the Arch Street Funds, the Lend Lease U.S. Office Trust, and separate accounts.
Page 9 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Morgan Stanley - Investment Team as of June 30, 2018
Prime Property Fund
Team Overview:
Total Real Estate Professionals 200
Portfolio Management Team 4
Investment Committee:
Investment Committee Members 11
IC Voting Super Majority
MSREI has a global team of approximately 200 dedicated professionals across 17 offices in 13 countries throughout the U.S., Europe and Asia. MSREI is headquartered in New York City, with regional offices in Atlanta, San Francisco, and Los Angeles.
Prime has a four-person dedicated portfolio management team that utilizes the shared functional groups of MSREI, including research, acquisitions, asset management, legal & risk, accounting and analytics, financing, portfolio specialists, and investor relations.
Scott Brown serves as the Head of Prime Property Fund and is responsible for portfolio construction and performance of the Fund as well as the direction and execution of the Fund’s strategy. Scott began working with PRIME in 1993 as part of Equitable Real Estate and then Lend Lease, and became fully dedicated to PRIME in 2002. He transitioned to Morgan Stanley in 2003 and took a leadership position in PRIME in 2007.
Page 10 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Morgan Stanley - Investment Strategy
Prime Property Fund, established in 1973, is an open-end, commingled, private real estate fund that seeks to maintain a diversified investment portfolio in core U.S. real estate that offers stable, highly predictable cash flow returns. PRIME seeks to achieve an aggregate annual total return of 8% to 10%, gross of fees, over the long term, with the majority of the return generated from income, with modest appreciation potential.
PRIME focuses on investments in each property-type sector, however will strategically target sectors that are best positioned to perform through the market cycle. The Fund has a focus on high-quality office buildings, top tier super-regional malls, Class A apartment communities, and distribution warehouses. Today, the portfolio maintains a similar allocation to the benchmark, NFI-ODCE, with the exception of a dedicated allocation to self-storage.
MSREI favors investments in major metropolitan markets and selectively invests in secondary markets that are expected to achieve above-average economic performance. PRIME currently has approximately 8.8% invested in value-add/development projects with a maximum of 15% permitted in value-added or opportunistic investments such as development.
The PRIME portfolio currently has 392 assets, with an average investment size of $66 million. Leverage is currently at 16.4% which trails the index exposure of 21.1%. In the fourth quarter of 2017, PRIME modified its targeted leverage range from 20% to 30% down to 15% to 25%.
Page 11 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Morgan Stanley - Investment Process
The PRIME portfolio is fully specified today. The investment process is largely focused on strategic acquisitions and dispositions, as the Fund is actively managed to best position the portfolio for future growth. Once qualified investment opportunities have been identified, the team conducts extensive due diligence utilizing both internal and external resources.
Portfolio fit is determined by Scott Brown and investment approval is required from the Investment Committee. A super majority vote is required. The Investment Committee is comprised of 11 professionals, including two of the four portfolio management team members of the Fund.
Page 12 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
DWS (Deutsche Bank) - Firm History as of June 30, 2018
DWS
Firm Location New York, NY
Real Estate Inception 1998
Ownership Structure Public Company
Strategy Under Consideration RREEF America REIT II
Strategy Assets Managed $12.4 billion
DWS is the asset management arm of Deutsche Bank, with $843 billion in assets under management across fixed income, equity, index-oriented, multi-asset, cash, and alternatives strategies. DWS was originally known as Deutsche Asset Management, however, Deutsche Bank recently floated Deutsche Asset Management through an IPO and rebranded the group as DWS.
DWS’s Private Real Estate division manages approximately $21.2 billion in U.S. private real estate AUM, with $12.4 billion in RREEF America REIT II.
The Private Real Estate Americas division has 132 professionals who sit within three main offices in New York, Chicago, and San Francisco, and six regional offices in Atlanta, Boston, Costa Mesa, Dallas, Seattle, and Washington D.C.
Page 13 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
DWS (Deutsche Bank) - Investment Team as of June 30, 2018
RREEF America REIT II
Team Overview:
Total Real Estate Professionals 132
Portfolio Management Team 6
Investment Committee:
Investment Committee Members 11
IC Voting Unanimous
RREEF has a dedicated portfolio management team of six responsible for the strategy across three major offices in New York, Chicago, and San Francisco. John Ehli and Jay Miller are co-lead portfolio managers and are members of the investment committee for RREEF America REIT II with Kevin Howley, a designated RREEF America REIT II investment committee member.
In addition, the RREEF II team has access to the broader DWS real estate business platform of resources, including Research & Strategy, Global Client Group, Portfolio/Asset Management, Transactions, ESG & Sustainability and Operations. Together, there are 350 employees in DWS’s private real estate business across its global platform.
Page 14 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
DWS (Deutsche Bank) - Investment Strategy
RREEF II is an actively-managed open-ended real estate commingled fund investing in low-risk core and selective moderate-risk/enhanced return income producing properties.
RREEF II invests solely in the main four property types and primarily in major metropolitan markets. RREEF II completes very few development projects with 0% of NAV committed currently. On the value-add side, only 3.6% of the fund is committed to value-add projects.
RREEF II will continue to emphasize investments primarily in major gateway cities, while selectively considering “next tier” markets such as Portland and Phoenix.
The Fund has 34% of the portfolio is allocated to office assets, 21% to multifamily, 20% to retail, and 23% to industrial. Compared to the index, the Fund has an overweight to industrial (23% vs 17%), and a slight underweight to office properties (34% vs 36%) and multifamily properties (21% vs 25%). Retail is near the index weight (20% vs 19%).
Leverage is 15.5% which is lower than the index (21.1%).
Page 15 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
DWS (Deutsche Bank) - Investment Process
The investment process is largely focused on strategic acquisitions and dispositions, with 16 new acquisitions ($1.45 billion) and 28 closed dispositions ($1.15 billion) in the last 12 months. Once qualified investment opportunities have been identified, the team conducts extensive due diligence utilizing both internal and external resources.
The Americas Real Estate Investment Committee (“IC”) approves all major decisions for all U.S. managed real estate portfolios, including RREEF America REIT II. Portfolio managers represent their account on the IC and only vote on those transactions related to their account. For RREEF America REIT II, this includes co-lead PMs John Ehli and Jay Miller. Kevin Howley also serves as a designated RREEF America REIT II voting member on the Committee. All investment decisions brought to the Committee require unanimous approval.
Page 16 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Invesco - Firm History as of June 30, 2018
Invesco Real Estate
Firm Location Dallas, TX
Real Estate Inception 1983
Ownership Structure Public Company
Strategy Under Consideration Invesco Core Real Estate
Strategy Assets Managed $12.7 billion
Invesco is an independent global investment firm, managing $963.3 billion in assets on behalf of clients worldwide. Invesco has specialized investment teams who manage investments across a comprehensive range of asset classes, investment styles, and geographies, with more than 7,300 employees across the globe.
Invesco Real Estate (“IRE”) has been an active manager of real estate since 1983 with global investments in direct real estate, real estate securities (both equity and debt), infrastructure securities and master limited partnerships. The firms real estate business is focused solely on investment management.
IRE currently manages $65.3 billion in real estate with 489 employees worldwide across 21 offices in 16 countries. $31.2 billion is invested in North American direct real estate.
The Core Real Estate fund launched in 2004.
Page 17 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Invesco - Investment Team as of June 30, 2018
Invesco Core Real Estate
Team Overview:
Total Real Estate Professionals 489
Portfolio Management Team 7
Investment Committee:
Investment Committee Members 11
IC Voting Super Majority
Invesco has a global real estate team of 489 professionals across 21 offices in 16 countries throughout the U.S., Europe and Asia. The IRE US platform is headquartered in Dallas, with regional offices in Atlanta, San Francisco, Newport Beach, and New York.
Invesco Core Real Estate has a seven-person dedicated portfolio management team that leverages the shared resources of IRE, including research, sourcing, underwriting, closing & due diligence, asset management, and accounting/administration. Bill Grubbs is the Lead Portfolio Manager for the fund. Bill has 28 years of real estate experience and joined IRE in 2005.
Page 18 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Invesco - Investment Strategy
IRE Core Real Estate, established in 2004, is an open-end, commingled, private real estate fund that seeks to generate durable, growing income through a diversified portfolio of differentiated, resilient assets. Invesco seeks to position the portfolio in a way that creates outsized tenant and investor demand for their properties. The objective of the Fund is to equal or exceed the NFI-ODCE index over long-term time horizons.
The strategy focuses on amenity-rich, live-work-play type locations with good access to transportation options. Apartment building are typically newer vintage Class A mid/high rise assets. Industrial assets are newly-built product with modern functionality near ports and population centers. Office properties are differentiated, functional assets “where tenants want to be”. The focus for retail will be grocery-anchored centers in high barrier locations, in addition to experiential retail tenants not easily replicated online.
IRE Core Real Estate seeks to maintain a mild overweight to industrial, apartment, and other; a mild underweight to office; and a strong underweight to retail. Invesco also maintains a manage-to-core (value-add) portfolio, currently 8.5% of total fund GAV.
The portfolio currently has 101 investments, with an average investment size of $137.2 million. Leverage is currently at 23.8% which exceeds the index exposure of 21.1%. The portfolio is well-leased at 93.3% occupancy.
Page 19 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Invesco - Investment Process
The IRE Core Real Estate portfolio is fully specified today. The investment process is largely focused on strategic acquisitions and dispositions, with $1.29 billion in acquisitions and $495.8 million in dispositions over the past 12 months.
IRE has three committees, an investment committee to approve all acquisition/disposition transactions, a steering committee to determine the fund’s investment and governance policy, and a North American direct investment strategy committee to develop the strategy including market and sector allocation.
Page 20 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
TA Realty - Firm History as of June 30, 2018
TA Realty
Firm Location Boston, MA
Real Estate Inception 1982
Ownership Structure Privately-owned
Strategy Under Consideration TA Realty Core Property Fund
Strategy Assets Managed $2.3 billion
TA Realty (“TA”) has been an active real estate investor for 35 years. TA’s sole business is real estate investing, and since inception has acquired, invested, and/or managed over $27 billion of real estate for U.S. and non-U.S. investors, including pension plans, endowments, foundations, and high net worth individuals.
TA Realty is majority-owned by Mitsubishi Estate Co. (“MEC”). MEC is a significant investor in TA’s commingled funds, and provided most of the seed capital to “jumpstart” its Core Property Fund (“CPF”).
TA has invested through its series of 11 value-added commingled funds (4 active) and 18 core separate accounts (7 active, 1 investing). Currently, the firm has $10.2 billion in gross real estate assets under management.
The firm’s 23 partners have been with TA for an average of 15 years and average 27 years of real estate experience.
Page 21 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
TA Realty - Investment Team as of June 30, 2018
TA Realty Core Property
Fund
Team Overview:
Total Real Estate Professionals 38
Portfolio Management Team 3
Investment Committee:
Investment Committee Members 6
IC Voting Unanimous
TA has 77 employees responsible for the firm’s value add commingled funds, core open-end fund, and core separate accounts. The firm has offices in Boston, MA, Newport Beach, CA, Palm Beach Gardens, FL, and Dallas, TX.
CPF will be managed by the fund’s dedicated portfolio team, Sean Ruhmann (partner), Nicole Dutra Grinnell (partner) and Jacob Maliel (vice president). The portfolio managers will be supported by the broader TA team, which includes 13 acquisitions, 13 asset management, 12 portfolio management, and 39 finance/operations professionals.
Mr. Ruhmann was hired in August 2016 from NEPC, where he was Director of Private Markets Research. Prior to joining NEPC, he was a VP in the Real Estate Investment Banking Group at Goldman Sachs.
Ms. Grinnell has been with TA since 2002, focusing primarily on portfolio management and dispositions.
Mr. Maliel joined TA in 2013 to focus on portfolio management and asset management. Prior to joining TA, he was a VP of transactions and investments at Bank of America.
Page 22 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
TA Realty - Investment Strategy
CPF is an open-end, commingled, private real estate fund that seeks to acquire and manage primarily core multifamily, industrial, retail, and office properties located in the United States, while generating consistent top quartile performance versus NCREIF’s NFI-ODCE index.
The fund intends to be overweight to industrial and underweight to retail, relative to the ODCE Index. Geographically, the fund will overweight the Southwest and underweight the Pacific, relative to the Index. TA will focus on twelve markets that they believe can deliver outsized long-term cash flow growth.
While the primary investment strategy is core, CPF may also make limited core-plus and value-added investments (no more than 20% of fund). Currently, one asset in the portfolio representing 8.3% of GAV is considered core-plus/value-added as TA completes lease-up from 78% occupancy.
Deal sizes will range from $25 million to $300 million, with the current average investment size at $80.5 million. Leverage on the portfolio is currently 16.5%, below the NFI-ODCE index’s average exposure of 21.1%. TA intends to increase leverage to the mid-20% range (assuming leverage remains accretive) towards the end of 2018.
Page 23 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
TA Realty - Investment Process
CPF was launched on March 27, 2018 and was pre-seeded with 26 investments at a cost basis of $1.4 billion in NAV. The portfolio management team has made strategic acquisitions as new investor capital is closed and has now grown the portfolio to 29 investments, representing $1.9 billion in NAV ($2.4 billion GAV).
TA’s firmwide investment committee (for all products) is Michael Ruane, Jim Buckingham, Michael Haggerty, Blair Lyne, Jim Raisides, and Jim Whalen. Sean Ruhmann is currently an observer, but will become a voting member by year-end. Unanimous approval is required.
Page 24 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Portfolio Characteristics as of June 30, 2018
Morgan Stanley Prime
Property Fund
DWS RREEF America REIT II
Invesco Core Real Estate
TA Realty Core Property Fund
NFI-ODCE Equal Weighted
Index
Property Type Allocation:
Apartments 24% 21% 33% 31% 25%
Industrial 19 23 14 31 19
Office 32 34 33 30 35
Retail 17 20 20 8 18
Hotel - - - - -
Other 8 2 1 - 3
Geographic Allocation:
East 32% 32% 26% 33% 30%
Midwest 12 9 4 5 11
West 37 43 53 25 40
South 21 17 17 37 19
Composition:
Number of Investments 392 99 96 29 2,721
Average Investment Size ($ mm) $66 $125 $133 $80 $89
Leverage:
Leverage % 16% 16% 25% 17% 23%
Allocation:
Core 91% 96% 92% 92% NA1
Value-added/Non-Core 9 4 8 8 NA
1 Most funds in the NFI-ODCE tend to allocate approximately 90% to 95% to core properties and the remainder to non-core properties.
Page 25 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Trailing and Calendar Year Performance as of June 30, 20181
Morgan Stanley Prime Property
Fund DWS RREEF
America REIT II Invesco Core Real
Estate TA Realty Core Property Fund
NFI-ODCE Equal Weighted
Index
Trailing Period Returns:
2Q 2018 2.0% 2.2% 1.9% 2.3% 2.1
1 Year 9.4 8.8 8.3 NA 8.6
3 Years 10.8 9.8 9.2 NA 9.6
5 Years 12.8 11.7 11.0 NA 11.1
10 Years 6.9 5.6 5.4 NA 5.1
Calendar Year Returns:
2017 9.9 7.4 8.4 NA 7.8
2016 10.4 9.1 9.2 NA 9.3
2015 15.8 16.7 14.7 NA 15.2
2014 15.5 13.0 12.4 NA 12.4
2013 17.5 15.0 14.2 NA 13.3
1 Data shown is gross of fees.
Page 26 of 45
Municipal Employees’ Retirement System of Louisiana
Core Real Estate Presentation
Prepared by Meketa Investment Group
Fees
Morgan Stanley Prime
Property Fund DWS RREEF
America REITII Invesco Core Real Estate TA Realty Core Property Fund
Management Fee 0.84% of investor’s net assets 0.95% of investor’s net assets 1.10% of investor’s net
assets1 0.70% of investor’s net
assets2
Performance See footnote. Capped at 0.35% of investor’s NAV3
n/a n/a n/a
Effective Management & Performance Fee
Max of 1.19% of investor’s net assets assuming full
performance fee 0.95% 1.10% 0.70%
Cash Balance n/a n/a 0.15% on cash in excess of
7.5% of Fund’s NAV, in lieu of management fee
n/a
1 Up to $15 million: 1.10%; greater than $15 million up to $25 million: 1.0%; greater than $25 million: 0.90%; greater than $75 million, the fee on the portion in excess of $75 million up to $175 million is 0.80%; greater than $175 million, the fee on the portion in excess of $175 million is 0.70%. 2 The 0.70% is part of an early investor incentive fee break that is currently available for investors making a commitment. This fee break applies in perpetuity and applies to all future commitments. Without the fee break, normal fee of 1.0% applies. 3 The performance fee accrues on a monthly basis over a calendar year and the monthly accrual will equal the product of X*Y*Z*1/12, where X=5%, Y=NAV, Z=Comparable Property NOI Growth; This incentive fee will not exceed 0.35%.
Page 27 of 45
Preliminary Performance As of October 31, 2018
Page 28 of 45
Municipal Employees' Retirement System of Louisiana
Total Retirement System AggregateAs of October 31, 2018
Prepared by Meketa Investment Group
Allocation vs. Targets and PolicyCurrent
BalanceCurrent
Allocation Policy Policy Range Within IPSRange?
_
US Equity $252,330,248 31% 28% 18% - 38% YesInternational Developed Non-US Equity $101,496,668 12% 12% 7% - 17% YesInternational EM Equity $80,352,860 10% 10% 5% - 15% YesUS Core Bond $145,549,327 18% 18% 8% - 28% YesTreasury Inflation Protected Securities $61,371,444 8% 7% 2% - 12% YesHigh Yield Bonds $38,724,983 5% 5% 0% - 10% YesForeign Bonds $34,104,049 4% 5% 0% - 10% YesPrivate Debt $41,840,513 5% 3% 0% - 6% YesInfrastructure -- -- 3% 0% - 6% YesPrivate Equity $10,280,591 1% 2% 0% - 4% YesHedge Funds $3,451,381 0% 0% 0% - 5% YesCore Real Estate $15,792,353 2% 4% 0% - 8% YesNon-Core Real Estate $4,008,800 0% 0% 0% - 5% YesNatural Resources $11,308,445 1% 3% 0% - 6% YesCash $14,400,977 2% 0% 0% - 5% YesTotal $815,012,640 100% 100%
XXXXX
Page 29 of 45
Prepared by Meketa Investment Group
Municipal Employees' Retirement System of Louisiana
Total Retirement System AggregateAs of October 31, 2018
Page 30 of 45
Municipal Employees' Retirement System of Louisiana
Total Retirement System AggregateAs of October 31, 2018
Prepared by Meketa Investment Group
Asset Class Net Performance Summary
Market Value($)
% ofPortfolio
1 Mo(%)
FiscalYTD(%)
YTD(%)
1 Yr(%)
3 Yrs(%)
5 Yrs(%)
10 Yrs(%)
Inception(%)
InceptionDate
_
Total Retirement System Aggregate 815,012,640 100.0 -5.0 -3.1 -3.7 -1.9 2.3 1.7 4.3 3.4 Jan-06Policy Benchmark -4.8 -2.5 -2.9 -0.6 6.1 5.0 8.8 6.3 Jan-0660% MSCI ACWI & 40% Barclays Universal -4.8 -2.3 -3.1 -0.9 5.4 4.7 7.9 5.4 Jan-06Domestic Equity 252,330,248 31.0 -8.8 -3.2 -0.4 2.2 10.5 8.7 13.3 7.8 Feb-06
Russell 3000 -7.4 -0.8 2.4 6.6 11.3 10.8 13.3 8.3 Feb-06Developed Equity 101,496,668 12.5 -7.6 -6.3 -7.2 -5.3 4.9 -- -- 3.3 May-14
MSCI EAFE -8.0 -6.7 -9.3 -6.9 3.6 2.0 6.9 0.9 May-14Emerging Market Equity 80,352,860 9.9 -8.6 -8.5 -15.0 -11.7 7.5 -- -- 2.9 Dec-13
MSCI Emerging Markets -8.7 -9.7 -15.7 -12.5 6.5 0.8 7.8 1.4 Dec-13U.S. Core Bond Assets 145,549,327 17.9 -0.8 -0.8 -2.4 -2.1 1.2 -0.7 -- 0.5 Apr-13
BBgBarc US Aggregate TR -0.8 -0.8 -2.4 -2.1 1.0 1.8 3.9 1.3 Apr-13Treasury Inflation Protected Securities 61,371,444 7.5 -1.4 -2.2 -2.3 -1.3 -- -- -- -0.7 Jul-16
BBgBarc US TIPS TR -1.4 -2.2 -2.3 -1.2 1.5 1.0 4.1 -0.7 Jul-16Foreign Bond Assets 34,104,049 4.2 -3.7 -4.5 -7.5 -5.8 2.4 0.7 -- -0.2 Apr-13
BBgBarc Global Aggregate TR -1.1 -2.0 -3.5 -2.1 1.5 0.3 3.2 0.2 Apr-13High Yield Bonds 38,724,983 4.8 -0.8 0.2 -1.0 -0.3 4.4 3.9 -- 4.0 Apr-13
BBgBarc US High Yield TR -1.6 0.8 0.9 1.0 6.6 4.7 11.2 4.5 Apr-13
Page 31 of 45
Prepared by Meketa Investment Group
Municipal Employees' Retirement System of Louisiana
Total Retirement System AggregateAs of October 31, 2018
Market Value($)
% ofPortfolio
1 Mo(%)
FiscalYTD(%)
YTD(%)
1 Yr(%)
3 Yrs(%)
5 Yrs(%)
10 Yrs(%)
Inception(%)
InceptionDate
_
Core Real Estate 15,792,353 1.9 0.0 1.6 5.6 7.9 8.2 9.7 7.9 6.7 Apr-06NCREIF ODCE Equal Weighted (Net) 0.0 1.9 5.8 7.9 8.2 9.9 4.5 5.6 Apr-06
Private Debt 41,840,513 5.1 1.1 2.2 7.7 9.1 5.6 6.5 -- 6.4 Apr-13BBgBarc High Yield+2% -1.4 1.4 2.6 3.0 8.7 6.8 13.4 6.6 Apr-13
Private Equity 10,280,591 1.3 0.0 -0.1 -0.6 2.4 -18.1 -17.9 -7.5 -7.2 Feb-08S&P 500 +3% -6.6 1.3 5.6 10.5 14.8 14.7 16.6 12.0 Feb-08
Non-Core Real Estate 4,008,800 0.5 0.0 0.0 -34.0 -34.0 -19.3 -8.9 -4.8 -2.0 Feb-06NCREIF Property (1-quarter lagged) 0.0 1.8 5.4 7.2 8.3 9.8 6.2 8.0 Feb-06
Natural Resources 11,308,445 1.4 0.0 0.0 0.0 0.0 -30.3 -19.3 -- -17.0 Apr-13S&P Global Natural Resources Index TR USD -9.1 -7.9 -4.5 1.5 12.4 1.5 4.3 1.9 Apr-13
Hedge Funds 3,451,381 0.4 Cash 14,400,977 1.8
XXXXX
Page 32 of 45
Prepared by Meketa Investment Group
Municipal Employees' Retirement System of Louisiana
Total Retirement System AggregateAs of October 31, 2018
Trailing Net Performance
Market Value($)
% ofPortfolio
% ofSector
1 Mo(%)
FiscalYTD(%)
YTD(%)
1 Yr(%)
3 Yrs(%)
5 Yrs(%)
10 Yrs(%)
Inception(%)
InceptionDate
_
Total Retirement System Aggregate 815,012,640 100.0 -- -5.0 -3.1 -3.7 -1.9 2.3 1.7 4.3 3.4 Jan-06Policy Benchmark -4.8 -2.5 -2.9 -0.6 6.1 5.0 8.8 6.3 Jan-0660% MSCI ACWI & 40% Barclays Universal -4.8 -2.3 -3.1 -0.9 5.4 4.7 7.9 5.4 Jan-06
Domestic Equity 252,330,248 31.0 31.0 -8.8 -3.2 -0.4 2.2 10.5 8.7 13.3 7.8 Feb-06Russell 3000 -7.4 -0.8 2.4 6.6 11.3 10.8 13.3 8.3 Feb-06
Northern Trust S&P 500 Index 142,400,594 17.5 56.4 -6.8 0.3 2.9 7.3 11.5 -- -- 10.8 Dec-13S&P 500 -6.8 0.3 3.0 7.3 11.5 11.3 13.2 10.9 Dec-13
Large Cap MStar MF Median -7.1 -0.8 1.9 6.3 10.1 9.9 12.8 9.3 Dec-13Large Cap MStar MF Rank 41 26 36 36 26 -- -- 24 Dec-13
Northern Trust S&P 400 MidCap Index 58,031,954 7.1 23.0 -9.5 -6.1 -2.9 0.9 9.8 -- -- 8.7 Dec-13S&P 400 MidCap -9.5 -6.1 -2.8 1.0 9.8 8.9 14.1 8.8 Dec-13
Mid Cap MStar MF Median -9.1 -4.8 -2.0 2.0 8.7 8.2 13.2 7.9 Dec-13Mid Cap MStar MF Rank 58 70 56 57 34 -- -- 29 Dec-13
Barrow Hanley Small Cap Value Equity 51,897,700 6.4 20.6 -12.8 -9.1 -6.2 -8.4 9.9 7.5 16.1 9.6 Jan-06Russell 2000 Value -9.0 -7.5 -2.5 -0.6 10.5 7.2 10.9 7.0 Jan-06
Small Value MStar MF Median -9.4 -8.5 -5.5 -3.3 7.8 6.5 11.6 7.5 Jan-06Small Value MStar MF Rank 99 72 62 98 16 20 2 1 Jan-06
Developed Equity 101,496,668 12.5 12.5 -7.6 -6.3 -7.4 -5.5 4.8 -- -- 3.2 May-14MSCI EAFE -8.0 -6.7 -9.3 -6.9 3.6 2.0 6.9 0.9 May-14
First Eagle International Value 31,804,161 3.9 31.3 -4.8 -5.0 -7.9 -6.9 3.0 -- -- 1.5 May-14MSCI EAFE -8.0 -6.7 -9.3 -6.9 3.6 2.0 6.9 0.9 May-14
Foreign MStar MF Median -8.9 -8.4 -11.0 -8.6 3.8 2.3 7.4 1.3 May-14Foreign MStar MF Rank 2 6 13 24 70 -- -- 44 May-14
Page 33 of 45
Market Value($)
% ofPortfolio
% ofSector
1 Mo(%)
FiscalYTD(%)
YTD(%)
1 Yr(%)
3 Yrs(%)
5 Yrs(%)
10 Yrs(%)
Inception(%)
InceptionDate
_
WCM Focused International Growth Fund 30,838,278 3.8 30.4 -9.9 -7.2 -4.9 -2.6 7.7 -- -- 5.8 Jun-14MSCI ACWI ex USA -8.1 -7.5 -11.0 -8.2 4.4 1.6 6.9 0.8 Jun-14
Foreign MStar MF Median -8.9 -8.4 -11.0 -8.6 3.8 2.3 7.4 1.3 Jun-14Foreign MStar MF Rank 77 27 5 4 7 -- -- 4 Jun-14
Northern Trust MSCI EAFE Index 38,854,230 4.8 38.3 -7.9 -6.8 -8.8 -6.6 -- -- -- 7.4 Jan-17MSCI EAFE -8.0 -6.7 -9.3 -6.9 3.6 2.0 6.9 7.1 Jan-17
Foreign MStar MF Median -8.9 -8.4 -11.0 -8.6 3.8 2.3 7.4 7.1 Jan-17Foreign MStar MF Rank 19 20 21 22 -- -- -- 44 Jan-17
Emerging Market Equity 80,352,860 9.9 9.9 -8.6 -8.5 -15.0 -11.7 7.5 -- -- 2.9 Dec-13MSCI Emerging Markets -8.7 -9.7 -15.7 -12.5 6.5 0.8 7.8 1.4 Dec-13
Dimensional Emerging Markets Value 37,814,669 4.6 47.1 -8.4 -6.4 -13.1 -9.4 9.1 -- -- 1.7 Dec-13MSCI Emerging Markets Value NR USD -7.3 -4.1 -11.3 -8.3 6.3 -0.3 7.2 0.4 Dec-13MSCI Emerging Markets -8.7 -9.7 -15.7 -12.5 6.5 0.8 7.8 1.4 Dec-13
Diversified Emerging Mkts MStar MF Median -8.4 -10.9 -17.6 -14.6 5.4 0.6 8.0 1.1 Dec-13Diversified Emerging Mkts MStar MF Rank 51 10 10 11 5 -- -- 30 Dec-13
GQG Partners Emerging Markets 40,475,676 5.0 50.4 -8.8 -- -- -- -- -- -- -10.1 Sep-18MSCI Emerging Markets -8.7 -9.7 -15.7 -12.5 6.5 0.8 7.8 -9.2 Sep-18
Diversified Emerging Mkts MStar MF Median -8.4 -10.9 -17.6 -14.6 5.4 0.6 8.0 -9.4 Sep-18Diversified Emerging Mkts MStar MF Rank 61 -- -- -- -- -- -- 61 Sep-18
Northern Trust Emerging Markets Index 2,062,515 0.3 2.6 -8.6 -9.6 -15.9 -12.8 -- -- -- 8.3 Jun-16MSCI Emerging Markets -8.7 -9.7 -15.7 -12.5 6.5 0.8 7.8 8.5 Jun-16
Diversified Emerging Mkts MStar MF Median -8.4 -10.9 -17.6 -14.6 5.4 0.6 8.0 6.1 Jun-16Diversified Emerging Mkts MStar MF Rank 58 35 31 35 -- -- -- 23 Jun-16
Prepared by Meketa Investment Group
Municipal Employees' Retirement System of Louisiana
Total Retirement System AggregateAs of October 31, 2018
Page 34 of 45
Market Value($)
% ofPortfolio
% ofSector
1 Mo(%)
FiscalYTD(%)
YTD(%)
1 Yr(%)
3 Yrs(%)
5 Yrs(%)
10 Yrs(%)
Inception(%)
InceptionDate
_
U.S. Core Bond Assets 145,549,327 17.9 17.9 -0.8 -0.8 -2.4 -2.1 1.2 -0.7 -- 0.5 Apr-13BBgBarc US Aggregate TR -0.8 -0.8 -2.4 -2.1 1.0 1.8 3.9 1.3 Apr-13
Northern Trust Barclays Aggregate Index 145,549,327 17.9 100.0 -0.8 -0.8 -2.4 -2.1 -- -- -- 1.3 Dec-15BBgBarc US Aggregate TR -0.8 -0.8 -2.4 -2.1 1.0 1.8 3.9 1.3 Dec-15
Intermediate-Term Bond MStar MF Median -0.8 -0.6 -2.1 -1.8 1.5 2.0 4.8 1.8 Dec-15Intermediate-Term Bond MStar MF Rank 50 70 67 67 -- -- -- 79 Dec-15
Treasury Inflation Protected Securities 61,371,444 7.5 7.5 -1.4 -2.2 -2.3 -1.3 -- -- -- -0.7 Jul-16BBgBarc US TIPS TR -1.4 -2.2 -2.3 -1.2 1.5 1.0 4.1 -0.7 Jul-16
Northern Trust TIPS 61,371,444 7.5 100.0 -1.4 -2.2 -2.3 -1.3 -- -- -- -0.7 Jul-16BBgBarc US TIPS TR -1.4 -2.2 -2.3 -1.2 1.5 1.0 4.1 -0.7 Jul-16
Inflation-Protected Bond MStar MF Median -1.4 -2.1 -2.2 -1.1 1.4 0.7 3.8 -0.4 Jul-16Inflation-Protected Bond MStar MF Rank 48 64 56 61 -- -- -- 64 Jul-16
Foreign Bond Assets 34,104,049 4.2 4.2 -3.7 -4.5 -7.5 -5.8 2.4 0.7 -- -0.2 Apr-13BBgBarc Global Aggregate TR -1.1 -2.0 -3.5 -2.1 1.5 0.3 3.2 0.2 Apr-13
Brandywine Global Opportunistic Fixed Income 34,104,049 4.2 100.0 -3.7 -4.5 -7.5 -5.8 2.4 1.1 6.2 5.1 Jan-06BBgBarc Global Aggregate TR -1.1 -2.0 -3.5 -2.1 1.5 0.3 3.2 3.4 Jan-06
World Bond MStar MF Median -1.1 -1.0 -2.8 -2.1 2.1 0.9 4.5 4.1 Jan-06World Bond MStar MF Rank 97 99 98 96 41 48 17 18 Jan-06
High Yield Bonds 38,724,983 4.8 4.8 -0.8 0.2 -1.0 -0.3 4.4 3.9 -- 4.0 Apr-13BBgBarc US High Yield TR -1.6 0.8 0.9 1.0 6.6 4.7 11.2 4.5 Apr-13
Loomis Sayles Multisector Full Discretion 38,724,983 4.8 100.0 -0.8 0.2 -1.0 -0.3 4.4 3.9 10.4 6.9 Jan-06BBgBarc US Govt/Credit TR -0.9 -0.8 -2.7 -2.3 1.2 1.9 4.1 3.8 Jan-06BBgBarc US High Yield TR -1.6 0.8 0.9 1.0 6.6 4.7 11.2 7.4 Jan-06
Multisector Bond MStar MF Median -1.0 0.2 -0.8 -0.6 3.7 3.0 7.2 5.3 Jan-06Multisector Bond MStar MF Rank 39 55 58 42 26 20 1 1 Jan-06
Municipal Employees' Retirement System of Louisiana
Total Retirement System AggregateAs of October 31, 2018
Prepared by Meketa Investment Group
Page 35 of 45
Market Value($)
% ofPortfolio
% ofSector
1 Mo(%)
FiscalYTD(%)
YTD(%)
1 Yr(%)
3 Yrs(%)
5 Yrs(%)
10 Yrs(%)
Inception(%)
InceptionDate
_
Core Real Estate 15,792,353 1.9 1.9 0.0 1.6 5.6 7.9 8.2 9.7 7.9 6.7 Apr-06NCREIF ODCE Equal Weighted (Net) 0.0 1.9 5.8 7.9 8.2 9.9 4.5 5.6 Apr-06
Sentinel Real Estate Fund 15,792,353 1.9 100.0 0.0 1.6 5.6 7.9 8.2 9.7 7.9 7.4 Mar-06NCREIF ODCE Equal Weighted (Net) 0.0 1.9 5.8 7.9 8.2 9.9 4.5 5.9 Mar-06
Private Debt 41,840,513 5.1 5.1 1.1 2.2 7.7 9.1 5.6 6.5 -- 6.4 Apr-13BBgBarc High Yield+2% -1.4 1.4 2.6 3.0 8.7 6.8 13.4 6.6 Apr-13
BlueBay Direct Lending Fund II, L.P. 25,130,552 3.1 60.1
Republic Business Credit 16,443,779 2.0 39.3
Franchise Equity Capital Partners II 266,182 0.0 0.6
Private Equity 10,280,591 1.3 1.3 0.0 -0.1 -0.6 2.4 -18.1 -17.9 -7.5 -7.2 Feb-08S&P 500 +3% -6.6 1.3 5.6 10.5 14.8 14.7 16.6 12.0 Feb-08
Capital Spring Finance Company 7,797,085 1.0 75.8
Louisiana Fund II 2,165,571 0.3 21.1
Capital Spring, LLC 317,935 0.0 3.1
Non-Core Real Estate 4,008,800 0.5 0.5 0.0 0.0 -34.0 -34.0 -19.3 -8.9 -4.8 -2.0 Feb-06NCREIF Property (1-quarter lagged) 0.0 1.8 5.4 7.2 8.3 9.8 6.2 8.0 Feb-06
Bedico Creek Preserve 1,100,000 0.1 27.4
Gainesville Vision 2,908,800 0.4 72.6
Natural Resources 11,308,445 1.4 1.4 0.0 0.0 0.0 0.0 -30.3 -19.3 -- -17.0 Apr-13S&P Global Natural Resources Index TR USD -9.1 -7.9 -4.5 1.5 12.4 1.5 4.3 1.9 Apr-13
Resource Environmental Solutions 11,308,445 1.4 100.0
Prepared by Meketa Investment Group
Municipal Employees' Retirement System of Louisiana
Total Retirement System AggregateAs of October 31, 2018
Page 36 of 45
Prepared by Meketa Investment Group
Municipal Employees' Retirement System of Louisiana
Total Retirement System AggregateAs of October 31, 2018
Market Value($)
% ofPortfolio
% ofSector
1 Mo(%)
FiscalYTD(%)
YTD(%)
1 Yr(%)
3 Yrs(%)
5 Yrs(%)
10 Yrs(%)
Inception(%)
InceptionDate
_
Hedge Funds 3,451,381 0.4 0.4
GoldenTree Offshore Fund, Ltd. 3,451,381 0.4 100.0
Cash 14,400,977 1.8 1.8 XXXXX
Page 37 of 45
Municipal Municipal Employees’ Retirement System of Louisiana
Footnote Appendix
Prepared by Meketa Investment Group
Footnote Appendix
Item 1. Fiscal year begins July 1.
Item 2. All returns are presented net of management fees.
Item 3. As of February 1, 2016 the policy benchmark performance is 50% equities (represented by 28% Russell 3000 index, 12% FTSE All World (ex. U.S.) index, 10% MSCI EM index), 35% public fixed income (represented by performance of Barclays Universal) and 15% alternatives (represented by 4% NCREIF Property Index, 3% S&P Global Natural Resources index, 3% Barclays High Yield + 2% index, 2% S&P 500 +3% index, 3% S&P Global Infrastructure index). Prior to February 1, 2016 the policy benchmark performance is 50% equities (represented by 26% Russell 3000 index, 12% MSCI EAFE index, 12% MSCI EM index), 15% public fixed income (represented by performance of Barclays Universal) and 35% alternatives (represented by 7% HFRI Fund WC, 7% NCREIF Property Index, 7% S&P Global Natural Resources index, 7% Barclays High Yield index, 7% S&P 500 +3% index).
Item 4. Unless otherwise noted the market values for non-public market assets are based on most recent available data from each manager adjusted for subsequent cash flows (where applicable) through the performance date of this report.
Item 5. The following investments market values are based on the most recent MERS plan level audit valuations prepared by the System’s auditor (adjusted for subsequent cash flows where applicable): Resource Environmental Solutions, Republic Business Credit, Capital Springs Finance Company, Bedico Creek Preserve, Gainsville Vision.
Item 6. Hedge fund investments are in liquidation. The remaining value in the GoldenTree Offshore fund is in an illiquid side-pocket.
Page 38 of 45
Municipal Employees’ Retirement System of Louisiana
Disclaimer
Prepared by Meketa Investment Group
WE HAVE PREPARED THIS REPORT FOR SOLE BENEFIT OF THE MUNICIPAL EMPLOYEES’ RETIREMENT SYSTEM OF LOUISIANA.
SIGNIFICANT EVENTS MAY OCCUR (OR HAVE OCCURRED) AFTER THE DATE OF THIS REPORT AND THAT IT IS NOT OUR FUNCTION OR RESPONSIBILITY TO UPDATE THIS REPORT. ANY OPINIONS OR RECOMMENDATIONS PRESENTED HEREIN REPRESENT OUR GOOD FAITH VIEWS AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE AT ANY TIME. ALL INVESTMENTS INVOLVE RISK. THERE CAN BE NO GUARANTEE THAT THE STRATEGIES, TACTICS AND METHODS DISCUSSED HERE WILL BE SUCCESSFUL.
INFORMATION USED TO PREPARE THIS REPORT WAS OBTAINED FROM INVESTMENT MANAGERS, CUSTODIANS, AND OTHER EXTERNAL SOURCES. WHILE WE HAVE EXERCISED REASONABLE CARE IN PREPARING THIS REPORT, WE CANNOT GUARANTEE THE ACCURACY OF ALL SOURCE INFORMATION CONTAINED HEREIN.
CERTAIN INFORMATION CONTAINED IN THIS REPORT MAY CONSTITUTE “FORWARD - LOOKING STATEMENTS,” WHICH
CAN BE IDENTIFIED BY THE USE OF TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “EXPECT,” “AIM”, “ANTICIPATE,”
“TARGET,” “PROJECT,” “ESTIMATE,” “INTEND,” “CONTINUE” OR “BELIEVE,” OR THE NEGATIVES THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. ANY FORWARD - LOOKING STATEMENTS, FORECASTS,
PROJECTIONS, VALUATIONS OR RESULTS IN THIS PRESENTATION ARE BASED UPON CURRENT ASSUMPTIONS. CHANGES
TO ANY ASSUMPTIONS MAY HAVE A MATERIAL IMPACT ON FORWARD - LOOKING STATEMENTS, FORECASTS,
PROJECTIONS, VALUATIONS OR RESULTS. ACTUAL RESULTS MAY THEREFORE BE MATERIALLY DIFFERENT FROM ANY
FORECASTS, PROJECTIONS, VALUATIONS OR RESULTS IN THIS PRESENTATION.
PERFORMANCE DATA CONTAINED HEREIN REPRESENT PAST PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Page 39 of 45
Disclaimer, Glossary, and Notes
Page 40 of 45
Municipal Employees’ Retirement System of Louisiana
Disclaimer
Prepared by Meketa Investment Group
WE HAVE PREPARED THIS REPORT (THIS “REPORT”) FOR THE SOLE BENEFIT OF THE MUNICIPAL EMPLOYEES’ RETIREMENT SYSTEM OF LOUISIANA.
SIGNIFICANT EVENTS MAY OCCUR (OR HAVE OCCURRED) AFTER THE DATE OF THIS REPORT AND THAT IT IS NOT OUR FUNCTION OR RESPONSIBILITY TO UPDATE THIS REPORT. ANY OPINIONS OR RECOMMENDATIONS PRESENTED HEREIN REPRESENT OUR GOOD FAITH VIEWS AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE AT ANY TIME. ALL INVESTMENTS INVOLVE RISK. THERE CAN BE NO GUARANTEE THAT THE STRATEGIES, TACTICS, AND METHODS DISCUSSED HERE WILL BE SUCCESSFUL.
INFORMATION USED TO PREPARE THIS REPORT WAS OBTAINED FROM INVESTMENT MANAGERS, CUSTODIANS, AND OTHER EXTERNAL SOURCES. WHILE WE HAVE EXERCISED REASONABLE CARE IN PREPARING THIS REPORT, WE CANNOT GUARANTEE THE ACCURACY OF ALL SOURCE INFORMATION CONTAINED HEREIN.
CERTAIN INFORMATION CONTAINED IN THIS REPORT MAY CONSTITUTE “FORWARD - LOOKING STATEMENTS,” WHICH CAN BE IDENTIFIED BY THE USE OF TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “EXPECT,” “AIM”, “ANTICIPATE,” “TARGET,” “PROJECT,” “ESTIMATE,” “INTEND,” “CONTINUE” OR “BELIEVE,” OR THE NEGATIVES THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. ANY FORWARD - LOOKING STATEMENTS, FORECASTS, PROJECTIONS, VALUATIONS, OR RESULTS IN THIS PRESENTATION ARE BASED UPON CURRENT ASSUMPTIONS. CHANGES TO ANY ASSUMPTIONS MAY HAVE A MATERIAL IMPACT ON FORWARD - LOOKING STATEMENTS, FORECASTS, PROJECTIONS, VALUATIONS, OR RESULTS. ACTUAL RESULTS MAY THEREFORE BE MATERIALLY DIFFERENT FROM ANY FORECASTS, PROJECTIONS, VALUATIONS, OR RESULTS IN THIS PRESENTATION.
PERFORMANCE DATA CONTAINED HEREIN REPRESENT PAST PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Page 41 of 45
Municipal Employees’ Retirement System of Louisiana
Glossary
Prepared by Meketa Investment Group
Credit Risk: Refers to the risk that the issuer of a fixed income security may default (i.e., the issuer will be unable to make timely principal and/or interest payments on the security.)
Duration: Measure of the sensitivity of the price of a bond to a change in its yield to maturity. Duration summarizes, in a single number, the characteristics that cause bond prices to change in response to a change in interest rates. For example, the price of a bond with a duration of three years will rise by approximately 3% for each 1% decrease in its yield to maturity. Conversely, the price will decrease 3% for each 1% increase in the bond’s yield. Price changes for two different bonds can be compared using duration. A bond with a duration of six years will exhibit twice the percentage price change of a bond with a three-year duration. The actual calculation of a bond’s duration is somewhat complicated, but the idea behind the calculation is straightforward. The first step is to measure the time interval until receipt for each cash flow (coupon and principal payments) from a bond. The second step is to compute a weighted average of these time intervals. Each time interval is measured by the present value of that cash flow. This weighted average is the duration of the bond measured in years.
Information Ratio: This statistic is a measure of the consistency of a portfolio’s performance relative to a benchmark. It is calculated by subtracting the benchmark return from the portfolio return (excess return), and dividing the resulting excess return by the standard deviation (volatility) of this excess return. A positive information ratio indicates outperformance versus the benchmark, and the higher the information ratio, the more consistent the outperformance.
Jensen’s Alpha: A measure of the average return of a portfolio or investment in excess of what is predicted by its beta or “market” risk. Portfolio Return- [Risk Free Rate+Beta*(market return-Risk Free Rate)].
Market Capitalization: For a firm, market capitalization is the total market value of outstanding common stock. For a portfolio, market capitalization is the sum of the capitalization of each company weighted by the ratio of holdings in that company to total portfolio holdings; thus it is a weighted-average capitalization. Meketa Investment Group considers the largest 65% of the broad domestic equity market as large capitalization, the next 25% of the market as medium capitalization, and the smallest 10% of stocks as small capitalization.
Market Weighted: Stocks in many indices are weighted based on the total market capitalization of the issue. Thus, the individual returns of higher market-capitalization issues will more heavily influence an index’s return than the returns of the smaller market-capitalization issues in the index.
Maturity: The date on which a loan, bond, mortgage, or other debt/security becomes due and is to be paid off.
Page 42 of 45
Municipal Employees’ Retirement System of Louisiana
Glossary
Prepared by Meketa Investment Group
Prepayment Risk: The risk that prepayments will increase (homeowners will prepay all or part of their mortgage) when mortgage interest rates decline; hence, investors’ monies will be returned to them in a lower interest rate environment. Also, the risk that prepayments will slow down when mortgage interest rates rise; hence, investors will not have as much money as previously anticipated in a higher interest rate environment. A prepayment is any payment in excess of the scheduled mortgage payment.
Price-Book Value (P/B) Ratio: The current market price of a stock divided by its book value per share. Meketa Investment Group calculates P/B as the current price divided by Compustat's quarterly common equity. Common equity includes common stock, capital surplus, retained earnings, and treasury stock adjusted for both common and nonredeemable preferred stock. Similar to high P/E stocks, stocks with high P/B’s tend to be riskier investments.
Price-Earnings (P/E) Ratio: A stock’s market price divided by its current or estimated future earnings. Lower P/E ratios often characterize stocks in low growth or mature industries, stocks in groups that have fallen out of favor, or stocks of established blue chip companies with long records of stable earnings and regular dividends. Sometimes a company that has good fundamentals may be viewed unfavorably by the market if it is an industry that is temporarily out of favor. Or a business may have experienced financial problems causing investors to be skeptical about is future. Either of these situations would result in lower relative P/E ratios. Some stocks exhibit above-average sales and earnings growth or expectations for above average growth. Consequently, investors are willing to pay more for these companies’ earnings, which results in elevated P/E ratios. In other words, investors will pay more for shares of companies whose profits, in their opinion, are expected to increase faster than average. Because future events are in no way assured, high P/E stocks tend to be riskier and more volatile investments. Meketa Investment Group calculates P/E as the current price divided by the I/B/E/S consensus of twelve-month forecast earnings per share.
Quality Rating: The rank assigned a security by such rating services as Fitch, Moody’s, and Standard & Poor’s. The rating may be determined by such factors as (1) the likelihood of fulfillment of dividend, income, and principal payment of obligations; (2) the nature and provisions of the issue; and (3) the security’s relative position in the event of liquidation of the company. Bonds assigned the top four grades (AAA, AA, A, BBB) are considered investment grade because they are eligible bank investments as determined by the controller of the currency.
Sharpe Ratio: A commonly used measure of risk-adjusted return. It is calculated by subtracting the risk free return (usually three-month Treasury bill) from the portfolio return and dividing the resulting excess return by the portfolio’s total risk level (standard deviation). The result is a measure of return per unit of total risk taken. The higher the Sharpe ratio, the better the fund’s historical risk adjusted performance.
Page 43 of 45
Municipal Employees’ Retirement System of Louisiana
Glossary
Prepared by Meketa Investment Group
Standard Deviation: A measure of the total risk of an asset or a portfolio. Standard deviation measures the dispersion of a set of numbers around a central point (e.g., the average return). If the standard deviation is small, the distribution is concentrated within a narrow range of values. For a normal distribution, about two thirds of the observations will fall within one standard deviation of the mean, and 95% of the observations will fall within two standard deviations of the mean.
STIF Account: Short-term investment fund at a custodian bank that invests in cash-equivalent instruments. It is generally used to safely invest the excess cash held by portfolio managers.
Style: The description of the type of approach and strategy utilized by an investment manager to manage funds. For example, the style for equities is determined by portfolio characteristics such as price-to-book value, price-to-earnings ratio, and dividend yield. Equity styles include growth, value, and core.
Yield to Maturity: The yield, or return, provided by a bond to its maturity date; determined by a mathematical process, usually requiring the use of a “basis book.” For example, a 5% bond pays $5 a year interest on each $100 par value. To figure its current yield, divide $5 by $95—the market price of the bond—and you get 5.26%. Assume that the same bond is due to mature in five years. On the maturity date, the issuer is pledged to pay $100 for the bond that can be bought now for $95. In other words, the bond is selling at a discount of 5% below par value. To figure yield to maturity, a simple and approximate method is to divide 5% by the five years to maturity, which equals 1% pro rata yearly. Add that 1% to the 5.26% current yield, and the yield to maturity is roughly 6.26%.
5% (discount) =
1% pro rata, plus 5.26% (current yield)
= 6.26% (yield to maturity) 5 (yrs. to maturity)
Sources: Investment Terminology, International Foundation of Employee Benefit Plans, 1999. The Handbook of Fixed Income Securities, Fabozzi, Frank J., 1991.
Page 44 of 45
Municipal Employees’ Retirement System of Louisiana
Notes
Prepared by Meketa Investment Group
The Russell Indices®, TM, SM are trademarks/service marks of the Frank Russell Company.
Throughout this report, numbers may not sum due to rounding.
Returns for periods greater than one year are annualized throughout this report.
Values shown are in millions of dollars, unless noted otherwise.
Page 45 of 45