Nebraska Investment Council · 2017-01-24 · 1 Nebraska Investment Council As of September 30, 2016, aggregated assets totaled $23,123,042,756, which represented a increase of approximately

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Nebraska Investment CouncilThird Quarter 2016 Performance Review

1Nebraska Investment Council

As of September 30, 2016, aggregated assets totaled $23,123,042,756, which represented a increase of approximately $769 million from the end of the previous quarter.

Global equity markets rose sharply over the third quarter. Equity markets rallied as markets absorbed the UK’s decision to leave the EU and economic data pointed to a more positive environment. U.S. equities, as measured by the Dow Jones U.S. Total Stock Market Index, gained 4.4% during the third quarter. Non-U.S. equities outperformed U.S. equities, returning 6.9% for the quarter, as measured by the MSCI AC World ex-U.S. Index. The U.S. Dollar appreciated sharply against the pound on confirmation of Brexit, but depreciated against the euro and the yen during the quarter.

The Barclays Universal Bond Index returned 1.0% in the third quarter, driven by gains in the corporate sector. The index has provided a return of 6.1% for the past year.

HighlightsTotal NIC Plans As of September 30, 2016


The Defined Benefit, Cash Balance Benefit, 50/50 Endowments, Excess Liability Fund and Total OIP Plans managed to match or outperform their respective benchmarks during the quarter. It is also noteworthy that the majority of the Plans have matched or exceeded their policy benchmarks over the trailing three-, five-, and ten-year periods, as longer-term results remain favorable.

Asset Allocation & Performance Selected* Plans

*Only includes Plans that have a total fund return. As such, Defined Contribution, Deferred Compensation, Hartford, College Savings Plans, TDOA, and University Fund N Plan are not shown

As of September 30, 2016


As of September 30, 2016, the asset class allocations within each portfolio were within permissible ranges. In some cases, the U.S. equity allocation is above its policy target, which is largely a result of the relative outperformance U.S. equities have experienced of late. It should also be noted that the U.S. equity allocation will serve as a source of funding for additional alternative investments in the DB and CBB Plans.

All Plans – Actual vs. Policy Allocation

- The intermediate-term Private Equity policy allocation is 4% for the Defined Benefit and Cash Balance Benefit Plans.- The long-term target allocation to Real Estate within the DB and CBB Plans is 7.5% and will be funded from U.S. Equity over time.

Actual Policy Difference Policy Ranges Actual Policy Difference Policy Ranges

U.S. Equity 34.5% 30.5% 4.0% 26.5% - 36.5% 34.4% 30.5% 3.9% 26.5% - 36.5%

Non-U.S. Equity 10.4% 13.5% -3.1% 8.5% - 18.5% 10.3% 13.5% -3.2% 8.5% - 18.5%

Global Equity 15.4% 15.0% 0.4% 10.0% - 20.0% 15.3% 15.0% 0.3% 10.0% - 20.0%

Fixed Income 29.0% 30.0% -1.0% 25.0% - 35.0% 29.4% 30.0% -0.6% 25.0% - 35.0%

Real Estate 6.2% 6.0% 0.2% 0.0% - 10.0% 6.2% 6.0% 0.2% 0.0% - 10.0%

Private Equity* 4.5% 5.0% -0.5% 0.0% - 10.0% 4.5% 5.0% -0.5% 0.0% - 10.0%

Actual Policy Difference Policy Ranges Actual Policy Difference Policy Ranges

U.S. Equity 35.7% 40.0% -4.3% 35.0% - 45.0% 26.2% 25.0% 1.2% 20.0% - 30.0%

Non-U.S. Equity 15.1% 15.0% 0.1% 10.0% - 20.0% 8.5% 10.0% -1.5% 5.0% - 15.0%

Global Equity 13.3% 10.0% 3.3% 5.0% - 15.0% 4.9% 5.0% -0.1% 0.0% - 10.0%

Fixed Income 23.4% 25.0% -1.6% 20.0% - 30.0% 48.5% 50.0% -1.5% 45.0% - 55.0%

Real Estate 5.6% 5.0% 0.6% 0.0% - 10.0% 5.0% 5.0% 0.0% 0.0% - 10.0%

Private Equity* 6.7% 5.0% 1.7% 0.0% - 10.0% 6.9% 5.0% 1.9% 0.0% - 10.0%

Defined Benefit Plan Cash Balance Benefit

Health Care Endowment 50/50 Endowment


The Defined Benefit Plan outperformed the policy benchmark while the Cash Balance Benefit Plan performed in-line with the policy benchmark during the quarter. The Non-U.S. Equity and Fixed Income components were the main drivers of positive relative performance for the quarter. Longer-term peer rankings are favorable across all trailing periods. The equity component of each Plan, in particular the U.S. equity exposure, has been the main driver of absolute performance.

*Denotes a performance benchmark is a splice of more than one index. Descriptions can be found in the appendix of this report. Note: The Total Fixed Income market value for the Cash Balance Benefit plan includes the CBB-GICS & Money Market.

Asset Allocation & Performance Defined Benefit & Cash Balance Benefit Plans As of September 30, 2016


Plan Sponsor Peer Group AnalysisTotal Defined Benefit Plan

Universe rankings highlight that the Defined Benefit Plan outperformed the majority of its peers over the one-, three-, five-, and ten-year periods. Over the trailing one-, three-, five-, and ten-year periods, the DB Plan ranks in the 6th, 2nd, 8th, and 16th percentile relative to peers. Furthermore, the Plan has matched or exceeded its policy benchmark return over the longer-term trailing periods.

As of September 30, 2016


Total Fund Attribution1 Quarter Ending September 30, 2016Total Defined Benefit Plan

During the third quarter, the Plan’s underlying managers added 0.15% (net-of-fees) to absolute performance while the overweight and underweight asset class positions had a negative impact in aggregate, detracting 0.08% from absolute performance.


The Plan’s underlying managers detracted 0.31% from absolute performance over the one-year period, causing the Fund to underperform by 0.22%. However, the Plan’s overweight and underweight asset class positions contributed 0.04% to absolute performance over the past year. The (non-tactical) timing of cash flows turned out favorably during the past year, adding 0.05% to the Fund’s overall return.

Total Fund Attribution1 Year Ending September 30, 2016Total Defined Benefit Plan


The Fund options offered to participants span the risk / return spectrum, which is consistent with best practices.

Asset Allocation & Performance Total Defined Cont. & Deferred Comp. As of September 30, 2016


Five funds (PIMCO, American Century Value, Hartford Capital Appreciation HLS, Loomis Sayles Bond, and Federated Total Return Bond A) were removed from the watch list during the quarter. Removal of these funds was triggered by favorable performance factors as of late. Two new funds were added to the watch list, both for performance reasons (Ironbridge and Vanguard Equity Income). No action is recommended at this time.

Watchlist

Status Number of Criteria Met Suggested ActionLess than 2 Active – No action required

Greater than 4 Closed Out – All invested balances must be moved to another active

2 to 3 Active – On “closely monitored” list4 Closed – all allocations to the fund must be stopped, but

Funds listed under the College Savings Plan section register “Yellow” in at least one of the three underlying plans

Plan/Fund Status as of 3Q 2016 Trigger Event AHIC Comment

Defined Benefit & CBB Ironbridge Yellow Performance Continue to monitor Deferred Contribution & Deferred Compensation Plan None Hartford Plan Hartford Dividend & Growth HLS Yellow Performance Continue to monitor Goldman Sachs Mid-Cap Value Yellow Performance Continue to monitor

Munder Mid-Cap Core Growth Yellow Performance Continue to monitor Hartford Small Company HLS Yellow Performance Continue to monitor Oakmark Equity & Income Yellow Performance Continue to monitor College Savings Plans

Vanguard Equity Income Yellow Performance Continue to monitor State Farm CSP

Oppenheimer Value Fund Yellow Performance Continue to monitor Oppenheimer Main Street Fund Yellow Performance Continue to monitor


Fees remain extremely competitive for both the Defined Benefit Plan and the Cash Balance Plan. The total fee as of September 30, 2016, is 30 basis points (0.30%) annually.

Defined Benefit & Cash Balance Benefit Fees

1. Total Fee (in dollars) of trailing 12-month period as of 12/31/2015.2. Total Fee (in dollars) of trailing 12-month period as of 3/31/2016.

Manager Assets ($ in dollars)

Total Fee ($ in dollars)

Total Fee (bps)

DFA – U.S. Small Cap $433,500,593 $1,603,952 37BlackRock Russell 1000 Index $3,827,919,361 $382,792 1BlackRock World ex-U.S. IMI $751,040,112 $300,416 4Baillie Gifford Emerging Markets $204,066,631 $1,122,366 55McKinley $14,254 $107 75Gryphon $323,372,607 $1,616,863 50Acadian Global Equity $422,318 $1,900 45Arrowstreet $565,563,647 $2,714,706 48MFS Global Equity $381,335,142 $1,761,768 46Ironbridge $283,468,909 $1,652,624 58Mondrian $380,510 $1,903 50BlackRock All Country World IMI $478,748,738 $191,499 4Wellington Global $191,368,751 $1,530,950 80BlackRock Core Plus $462,172,198 $933,588 20PIMCO Total Return $621,406,071 $1,628,084 26BlackRock Bond Index $718,516,872 $143,703 2Wellington Global $348,423,940 $1,219,484 35Loomis Sayles Multi-Sector Full Discretion $176,567,170 $605,625 34Loomis Sayles Bank Loans $295,131,182 $1,230,697 42Franklin Templeton $294,883,316 $1,385,952 47Neuberger Berman $538,017,302 $860,828 16Total RE1 $763,859,996 $7,946,174 105Total PE2 $557,061,486 $8,171,847 147Total DB/CBB $12,217,241,104 $37,007,829 30


The fees for the funds within the DC Plans are extremely favorable, ranging from 0.02% to 0.37% per annum. The DFA Small Cap Fund fee is 0.37%, which ranks very favorably relative to other active small cap managers.

Fee ScheduleAs of September 30, 2016Total Defined Cont. & Deferred Comp

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Nebraska Investment Council · 2017-01-24 · 1 Nebraska Investment Council As of September 30, 2016, aggregated assets totaled $23,123,042,756, which represented a increase of approximately