S O LV I N G F O R 2 0 1 8

3

1 As of September 30, 2017. Firm assets under management (AUM) includes $100.6 billion in Equity assets, $127.2 billion in Fixed Income assets and $56 billion in Alternatives assets. Alternatives “AUM and Committed Capital” includes assets under management for non-Private Equity businesses and Committed Capital since inception for the Private Equity and Private Credit businesses. Committed Capital since inception reflects all contractual commitments, and those still in documentation, to fund private equity and credit investments, including those that have since been realized, advised by NB Alternatives Advisers LLC and its affiliates or predecessors since 1987.

2 As of November 1, 2017.

EQUITY FIXED INCOME ALTERNATIVES

AUM $284BN1

INVESTMENT PROFESSIONALS2

$101bn

223

$127bn

156

$64bn

130

QUANTITATIVEGlobal U.S. Emerging MarketsCustom Beta

Risk PremiaOptionsGlobal MacroCommodities

FUNDAMENTAL

Global/EAFEU.S. Value/Core/GrowthEmerging MarketsRegional EM, ChinaSocially Responsive InvestingIncome Strategies: – MLP– REITs

Global Investment GradeGlobal Non-Investment GradeEmerging MarketsOpportunistic/Unconstrained MunicipalsSpecialty Strategies: – CLO Mezzanine– Currency– Corporate Hybrids

Private Equity:– Primaries– Co-Investments– Secondaries– Specialty Strategies – Minority stakes in

alternative firms/DYAL

Alternative Credit:– Private Credit– Residential Loans– Special Situations

Hedge Funds:– Multi-Manager– Equity Long/Short– Credit Long/Short– Event Driven

AUM and Committed Capital

Risk Parity

Global Tactical Asset Allocation

Global Relative and Absolute ReturnIncome FocusedInflation ManagementLiability Aware

MULTI-ASSET CLASS SOLUTIONS AND STRATEGIC PARTNERSHIPS

FUNDAMENTAL QUANTITATIVE

I N V E S T M E N T P L AT F O R M

B R E A D T H O F I N D E P E N D E N T P E R S P E C T I V E S A C R O S S A S S E T C L A S S E S

Integration of Environmental, Social and Governance Factors

4

T E N F O R 2 0 1 8

The heads of our investment platforms identified the key themes they anticipate will guide investment decisions in 2018. These 10 themes are summarized below and discussed in more detail in the

CIO Roundtable beginning on page 5.

1 “Goldilocks” Gives Way to Something More Complicated

Though the strength of global economic momentum is unde-niable, a confluence of factors—including tightening central bank policy, plateauing economic growth and rising market volatility—suggests that conditions are unlikely to remain “just right” for all of 2018.

3 Geopolitical Climate Remains Unsettled

Though 2017 mostly failed to deliver the electoral fireworks of 2016, elections this year in Italy, Mexico, Brazil and the U.S.—in addition to ongoing disrupters like North Korea, special investigations, Brexit, etc.—could upset the current order.

2 Both Monetary and Fiscal Policy are in Motion Globally

As major central banks wind down unprecedented levels of monetary stimulus, their efforts are being met—and poten-tially complicated—by expansionary fiscal policy and reform initiatives taking root in a number of countries.

4 China Accelerates Structural Reforms

An emboldened Xi will be more aggressive in reducing leverage and re-orienting China’s economy toward more sustainable, high-quality development, to the potential detriment of near-term growth.

Macro: Global Inflection Point Nears Risks: Clouds Gather as the Year Progresses

S O LV I N G F O R 2 0 1 8

5

9 Low-Vol Strategies for a More Volatile World

Market-neutral and relative-value hedge funds may help investors earn returns with lower volatility.

7 Market Momentum Could Present Opportunities to Reduce Beta Exposure

Strong earnings growth could fuel equities in early 2018, providing investors with chances to trim holdings in high-valuation stocks and redeploy into more attractive risk-adjusted exposures.

10 Sharpen Quality Focus in Private Assets

Given high private equity valuations, investors can help mitigate risk by targeting experienced private equity sponsors with a history of adding operational value or by moving up the capital structure to first-lien private debt.

6 Credit Drivers Begin to Change

Continued low default rates suggest global credit spreads likely will be impacted less by fundamentals and more by technical developments such as hedging costs, LDI-related flows and regulatory changes.

8 Active Management Positioned to Shine

Market dynamics continue to shift in favor of active management, which could extend the comeback mounted by stock pickers last year after a period of underperformance.

Fixed Income: The Chase Continues

Alternatives: Finding Opportunities Amid High Valuations

Equities: Two-Way Markets Return

5 No End to the Search for Yield

Biased higher but still low, long-term interest rates continue to send investors into less-familiar corners of the fixed income markets in the hunt for yield, with high valuations leaving little cushion to absorb a volatility shock.

6

JOSEPH V. AMATO

PRESIDENT AND CHIEF INVESTMENT OFFICER— EQUITIES

ERIK L. KNUTZEN, CFA, CAIA

CHIEF INVESTMENT OFFICER— MULTI-ASSET CLASS

ANTHONY D. TUTRONE

GLOBAL HEAD OF ALTERNATIVES

BRAD TANK

CHIEF INVESTMENT OFFICER— FIXED INCOME

S O LV I N G F O R 2 0 1 8

7

Joe Amato: The optimism of the “reflation trade” that ended 2016 gave way to a “Goldilocks” environment over the course of 2017, fueling the rise of risk assets of all types and geographies. We remain in that “just right” state as we enter the new year, with synchronized global growth for the first time in a decade, low inflation and low volatility.

Tony Tutrone: The economic momentum is undeniable. All 45 countries tracked by the OECD are expected to expand in 2017, which has only happened three times over the past 50 years. The U.S. is running above 3% and nearing full employment. Euro zone growth has broadened beyond Germany and the Netherlands, and the region is finally keeping pace with the U.S. Japan’s in the midst of its longest quarterly growth streak in more than 20 years. China continues motoring along even as Beijing pushes toward sustainable long-term reforms.

Erik Knutzen: I think all this makes 2018 a particularly challenging year to forecast, especially from a full-year perspective. Though I expect the positive impulse to extend into the early part of 2018, obstacles ratchet up significantly as the year progresses, moving us away from Goldilocks into something more complex.

We anticipate monetary tightening will really start to be felt about midyear, when year-over-year growth in G-4 central banks’ balance sheets is expected to turn negative. Obviously, the Fed is furthest along in terms of normalization. December’s hike brought the upper bound of the fed funds rate to 1.5%, and the Fed is forecasting three more hikes in 2018. While its balance-sheet reduction has been uneventful so far, the runoff accelerates in 2018 and will reach its monthly maximum of $50 billion by the fall. The European Central Bank plans to halve

With the end of 2017 near, the leaders of our investment platforms gathered to talk about the evolution of the investment environment over the past 12 months and what they expect for 2018.

D I S R U P T I N G T H E M O M E N T U M

C I O R O U N D T A B L E

Source: International Monetary Fund. Note: IMF projections as of October 31, 2017.

0%

1%

2%

3%

4%

5%

6%

7%

8%

WorldEmerging MarketsChinaAustraliaCanadaJapanEuro AreaU.S.

1.5%

2.3%1.8% 2.1% 1.9%

1.0%1.5%

0.7%

1.5%

3.0%

2.1%2.5%

2.2%

2.9%

6.7% 6.8%6.5%

4.3%4.6% 4.9%

3.2%3.6% 3.7%

2.2%

2018 Projected GDP Growth Rate2017 Projected GDP Growth Rate2016 GDP Growth Rate

SYNCHRONIZED GLOBAL GROWTH TOOK HOLD IN 2017

8

its monthly asset purchases beginning in January, and it may look to move its policy rate off zero later in the year. The Bank of Japan may be slower to act given its multi-decade battle against deflation, but it will become increasingly difficult for the BOJ to defend open-ended stimu-lus measures with the Fed and ECB heading in the opposite direction.

Brad Tank: In general, I think that the synchronized global growth will transition to a synchronized global plateauing in 2018. The business cycle is aging rapidly, and the tighter conditions Erik mentioned could start to weigh on its ability to persist. That said, I don’t expect a U.S. recession in 2018, though 2019 and 2020 are viable possibilities. Chi-na’s continued deleveraging, which may accelerate in 2018 behind an even more powerful Xi Jinping, will also play a role in dampening the global economic acceleration. Less liquidity and slowing but reason-ably strong economic growth combined with high valuations should result in renewed volatility across financial markets.

I also see signs that inflation may pick up globally in 2018. In fact, I think conditions are more hospitable for an increase in inflation than they have been in years. The output gap in the U.S., for example, has closed completely, and rising productivity should pressure wages higher. Producer prices in China have climbed sharply in the past two years, which should ultimately be felt in consumer prices in many markets. On top of this, many countries are intent on introducing expansionary fiscal policy and reform initiatives. The U.S. passed a $1.5 trillion tax cut. French President Macron has turned out to be as pro-business as advertised; in just a few months in office he has liberalized labor laws and cut the deficit, and we expect more reform in 2018. Japan’s recent budget calls for growth-oriented fiscal policy. Brazil is looking to trim pension costs in an effort to get its public debt under control.

Should these efforts spur a meaningful acceleration of inflation, central banks may be forced to act more quickly than they had planned to—and more quickly than markets expect.

Amato: It’s really an unprecedented—and precarious—time for cen-tral banks as they manage the unwind of years of extraordinary accom-modation. We’re basically in uncharted territory, and the Fed has a new hand at the tiller in Jay Powell. He’s been a Yellen ally since he joined the board in 2012, and I expect his approach will be consistent with the groundwork she laid. That said, the degree of difficulty is certainly

higher now than it was a year ago. Meanwhile, the seven-member Fed board of governors is understaffed, with three vacancies currently and two more coming in 2018.

Knutzen: The Fed isn’t the only place with job openings. Trump has had a hard time filling the seats in his administration, at both the cabinet and sub-cabinet levels. Only about one-third of the key posi-tions in the administration requiring Senate confirmation have been filled; two-thirds of the Treasury’s positions remain open and half are open at Commerce. While part of this can be attributed to Democratic stonewalling, a lot is due to a lack of qualified candidates willing to serve. And it’s troubling that some of the most capable members of the administration—people like Cohn and Tillerson—don’t seem like they’ll be around much longer.

Tank: I think we can agree that Washington in general seems like it has the potential to be a source of market headwinds in 2018. It looks like the Mueller special investigation will continue to make headlines, whether or not the president ultimately is implicated in any collusion with the Russians. And it’s safe to expect a conten-tious midterm election season in 2018. There’s a very real chance that the Democrats take back the House in 2018—if they do, that may increase the chances that Trump could be impeached in 2019. With Republicans likely to keep hold of the Senate, the possibility of Trump’s removal is remote, though a divided Congress would result in political gridlock. Come June and July people will start looking toward the polls to see how these races are trending, which may rattle markets.

Tutrone: We managed to get through last year’s slate of Europe-an elections relatively unscathed. This year Italy is the only major country up for grabs, with parliamentary elections taking place in March. Italy is still the third-largest economy in Europe, though it also has the second largest debt-to-GDP ratio and a recovering banking system. Polls suggest that there’s a possibility that an an-ti-establishment, anti-Europe party, like the Five Star Movement, could rise to power there.

There are some interesting emerging markets political races coming up in 2018. Mexico elects a new president in July. The poll leader there—Andres Obrador, a left-wing populist—has been outspoken about his distaste for NAFTA. Should he win, trade negotiations with the U.S.

9

could grow even more contentious. In Brazil, the runaway leader in the polls is a former president who was caught up in the Petrobras corruption scandal and may be facing prison time.

On top of potentially disruptive elections, you have the usual sources of geopolitical discord. North Korea continues to lob missiles and is always unpredictable, as is the potential U.S. response to any provo-cation. Brexit talks continue in Europe, and while there’s been some progress, a final accord appears far off.

ELECTION RISK PERSISTS: KEY 2018 ELECTIONS

MarchItalian general election

JulyMexican general election

OctoberBrazilian general election

NovemberU.S. midterm elections

Source: Neuberger Berman.

Amato: In contrast with the wild cards Tony mentioned, there’s much less uncertainty in China after Xi cemented his leadership following the most recent Communist Party congress. As a result I think Xi may be more aggressive than most people expect when it comes to promoting economic and financial reforms and risk containment. China typically doesn’t announce its GDP growth target until March, but it wouldn’t be surprising to see it again set at 6.5% for 2018. While it beat that bogey easily in 2017, this year will be more of a challenge should Xi follow through on aggressively reining in credit and cutting excess industrial capacity.

Knutzen: At the end of the day, we need to acknowledge the pos-itive economic context in which we will be making our investment decisions. In short, strong macroeconomic fundamentals and corporate earnings are real and underscore the case for remaining exposed to growth. The challenge for investors is to do so in a prudent way, with risks skewed as far as possible in their favor.

Asset allocation becomes more challenging in a world of high val-uations, a maturing economic cycle and shallow, short-lived market dips. From a multi-asset class investment standpoint, our approach for 2018 must be predicated on finding those asset classes and

subsectors where meaningful upside potential is still available, and then seeking to extract that upside potential in more sophisticated, risk-controlled ways.

FIXED INCOME: THE CHASE CONTINUES

Tank: While the Fed’s slow-and-steady approach to the normaliza-tion of its target fed funds rate has successfully pushed up the short end of the Treasury yield curve, longer-term rates have remained anchored. There are three primary reasons for this, in my view: per-sistently low inflation, the tethering effect of low global rates on U.S. rates and the disconnect between the Fed and the market in terms of the terminal fed funds rate. I see all three of these pressures easing as 2018 progresses, which suggests that longer-term Treasury rates may be biased higher.

That said, I believe interest rates across the Treasury curve likely will remain well below historical levels in 2018 and beyond. And though the amount of bonds offering negative yields worldwide seems to have peaked, it remains substantial at about $6 trillion. As a result, yield-hungry investors may continue to look to other areas of the mar-kets, with varying degrees of risk, in search of increased yield potential.

For example, we continue to see a ton of inflows into U.S. credit markets from non-U.S. investors; this may become a problem, as non-U.S. investors are vulnerable to a pause in economic growth, rising rates and rising hedging costs. This last point may be the key risk for credit at the moment, as interest-rate differentials between the U.S. dollar and other developed markets are pushing the cost of hedging back to euros or Japanese yen ever higher, complicating the regional relative-value decision and threatening to debase the appeal of U.S. credit for non-U.S. investors.

Real rates in the emerging world have continued to attract capital flows as well, and emerging markets have delivered solid returns over the past 12 months. Reflation and an upward bias on global bond yields can pose a risk to the performance of EMD assets. However, a buffer is likely to come from the consolidation of the cyclical improve-ment in a large majority of emerging economies and ongoing reforms in key markets.

10

In terms of fixed income positioning for 2018, it may be an opportune time to take a bit of credit risk off as a way to de-risk the whole port-folio as spreads become more two-way and range-bound. Basically, we’ve entered a new zone for fixed income. The cyclical market is over. Yields could go lower over the next 12 months, but the secular bull market has already ended. It doesn’t really feel that way thanks to low correlations among fixed income markets, which have buffered fixed income investors during recent bouts of trouble. But given narrow credit spreads and low rates, the lifeline of low correlations is unlikely to persist. In fact, I think the chance of a broad, cross-markets selloff is higher today than it has been for years.

Knutzen: From an asset allocator’s perspective, cash is in the discus-sion for the first time in years, at least for U.S. dollar investors. The risk- adjusted return outlook on cash now competes with investment grade credit while also offering the liquidity and optionality to grasp value opportunities that may result from any sell-off in risk assets.

Tank: I’d add TIPS to the category of investments that may see renewed interest in 2018. With breakeven inflation rates tracking well below 2%, TIPS currently present an attractive opportunity for investors who agree with our assessment that inflation will perk up over the course of 2018.

Source: Bloomberg Barclays.

GOVERNMENT BONDS WITH NEGATIVE YIELDS HAVE PEAKED BUT REMAIN SIGNIFICANT

As of November 30, 2017

1 2 3 4 5 6 7 8 9 10 10+% Negative

Yielding

Switzerland 59%

Germany 64%

Japan 55%

Finland 49%

Denmark 55%

Netherlands 58%

Belgium 36%

France 49%

Sweden 43%

Austria 50%

Spain 28%

Italy 21%

Norway 0%

U.K. 0%

U.S. 0%

NEGATIVE YIELD

POSITIVE YIELD

11

EQUITIES: TWO-WAY MARKETS RETURN

Amato: I think equity market momentum will continue in early 2018, driven by strong economic and earnings growth. As we discussed pre-viously, however, clouds are gathering on the horizon; these risks com-bined with already-extended valuations suggest the beta-driven returns delivered by stock markets in recent years may give way to something more nuanced and two-way. While I wouldn’t advocate trying to time markets, strong positive momentum in the new year would present an opportunity to shift equity portfolios to a more defensive posture.

In the U.S., we envision a rebound from the smaller, more cyclical com-panies that have lagged. Larger, higher-quality companies and growth stocks outperformed to an extraordinary degree in 2017; for example, while the Russell 1000 Growth Index was up nearly 30%, the Russell 2000 Value Index rose a pedestrian 6%. We heard a lot about the market leadership of “FANG” stocks in 2017, and such narrowness of sentiment historically has not been a good sign for equity markets. It could be an indication that investors are chasing winners rather than investing for more broad-based growth—a phenomenon typical of late-cycle behavior. Some catch-up from smaller companies and cyclicals would be reassuring. The tax bill should help, as smaller companies would disproportionately benefit from a lower statutory tax rate given their higher current effective rates.

Non-U.S. equities also should present investment opportunities, in many cases offering exposure to potential growth catalysts at lower valuations. In terms of developed markets, both Europe and Japan are seeing consistent economic growth for the first time in many years, buoying corporate earnings growth. Brad spoke earlier about how emerging markets debt has benefitted from the fundamental improve-ments and ongoing reform across the emerging markets complex, and we foresee a similar tailwind for its equities.

Knutzen: Options strategies are another possibility to consider. Equity index put-writing strategies historically have captured more upside than downside from equity markets over the long term, with lower volatility.1 Such strategies may be particularly attractive for equity mar-ket investors concerned about downside risk.

Amato: I’d note that I believe the stage is set for active management to do well in 2018 after a solid 2017. Our analysis of Morningstar data shows that in 2017 50% of active U.S. stock funds beat their benchmarks net of fees and transaction costs, compared to only 25% in 2016.2 One reason for the rebound in stock picking has been the collapse in the correlation between stocks. For the S&P 500, for example, correlation has gone from around 0.60 at the beginning of 2016 to less than 0.10 today. Similar trends can be seen in a variety of equity markets globally.

Source: Bloomberg.

020406080

100120140160180200

MSCI ACWI ex-USS&P 500 Index

20172016201520142013201220112010200920082007

NON-U.S. EQUITIES HAVE LAGGED EVEN AS EARNINGS HAVE IMPROVED

Cumulative Indexed Price Performance

1 As measured by the CBOE S&P 500 PutWrite Index versus the S&P 500 Index.2 Based on analysis of all actively managed U.S.-domiciled open-end equity funds data from Morningstar. Performance is based on fund’s oldest share class relative to

its primary prospectus benchmark.

12

The tenets of capitalism suggest that correlations should go down when the capital allocation process is driven by company-specific factors rather than the macroeconomic influences that have prevailed in recent years. The 2017 rebound in actively managed portfolios is a timely reminder that these relative performance trends have long been cyclical, not structural. We think the cycle may have turned in favor of active.

ALTERNATIVES: FINDING OPPORTUNITIES AMID HIGH VALUATIONS

Tutrone: Hedge fund performance was vastly improved in 2017 and the industry is on track to deliver its best performance since 2013, though it continues to lag broader equity markets. We think the shift to a higher interest-rate environment and the emergence of more volatile, two-way markets could result in an expanded opportunity set for hedge fund managers, particularly those who seek to identify market-agnostic trading opportunities. This would include uncorrelated strategies like market-neutral and relative-value hedge funds, which historically have delivered returns similar to traditional hedge fund cat-egories (long/short equity, for example) with less volatility. By hedging out all market beta and focusing exclusively on alpha generation via

very idiosyncratic risks, uncorrelated strategies have little to no correla-tion with broader financial markets. They also tend to exhibit low cor-relation with traditional hedge fund strategies and can be combined in a well-balanced portfolio to further enhance the overall risk-adjusted return profile. While these strategies have struggled at times during the risk-on/risk-off markets that have characterized the post-crisis years, they have the potential to be a source of incremental return in the face of a fading beta trade and hazy forward market direction.

Looking at the private markets, with valuations rich and more and more deals coming on line, investment discipline is more important than ever. One way to exercise discipline is by targeting general partners who have a history of both sourcing high-quality private equity deals and creating value in these businesses through operational improvements. This track record should be long enough to capture multiple market cycles, not merely the post-crisis bull market.

Moving up the capital structure to the debt of private equity-backed companies is another way to help mitigate risk in private equity while attempting to capture illiquidity and complexity premiums. We believe going to the top of the capital structure to focus on senior secured first-lien debt offers perhaps the best relative value at this time.

13

Macro: A Sea Change for Economies and Markets

1. The Rise of Nationalistic Self-Interest Continues to Upset the World Order

PARTIALLY TRUE

What we said: After political upheavals in the U.K. and U.S. during 2016, French and German voters will be among those in 2017 to test the persistence of anti-establishment/anti-globalization trends.

What we saw: While mainstream political forces returned to primacy in 2017, the geopolitical climate remains unsettled.

2. Central Bank Impact Fades

NOT TRUE

What we said: Global central banks appear to have reached an in-flection point and will likely drive an increase in interest rates, inflation expectations and market volatility, and a stronger U.S. dollar.

What we saw: Monetary policy globally remained highly accom-modative in 2017, and we witnessed a return to the familiar low-growth, low-rates, low-volatility “Goldilocks” environment of the post-crisis years.

Fixed Income: Normalization Resumes

3. Real Interest Rates in the U.S. Continue to Push Higher

PARTIALLY TRUE

What we said: Expectations for higher growth and inflation are likely to drive higher Treasury yields and a steeper curve, though we don’t anticipate a break from the global rate tether.

What we saw: While three increases in the federal funds rate in 2017 pushed short rates higher, longer bond yields were flat and the curve flattened considerably as a result.

4. Credit Still Holds Appeal

TRUE

What we said: The credit cycle is mature, but it doesn’t appear ready to turn just yet; when it does, more supportive fundamentals are likely to help absorb the impact.

What we saw: The credit cycle has life in it yet; credit spreads drifted tighter in 2017, and their narrow levels suggest risks in credit are skewed to the downside.

S C O R E C A R D 2 0 1 7

Below we take a quick look at how our predictions for 2017 fared.

14

Alternatives: Helping Narrow the Return Gap

9. Volatility Can Work for Investors

PARTIALLY TRUE

What we said: We anticipate that the difference between long-term investor needs and what can be generated from traditional sources of beta is likely to persist, highlighting the value of alter-native risk premia and volatility-capture strategies.

What we saw: Though volatility has yet to re-emerge, the demand for alternative sources of returns and diversification continues, buoyed by the consistent attractive performance of strategies like equity put writing.

10. Private Debt Remains Attractive

TRUE

What we said: Despite the potential re-emergence of banks as liquidity providers, it is unlikely that they will rebuild the infrastructure required to compete in similar, less-liquid credit. In addition, increased M&A activity will likely keep the private debt market well stocked with opportunities.

What we saw: The private debt market continued to attract significant capital in 2017, and the resulting competition for attractive invest-ment opportunities has led to the emergence of pricing pressures.

Equities: Back to Basics

5. Pro-Growth Trump Administration Fuels Outperformance of U.S. Equities

PARTIALLY TRUE

What we said: A more business-friendly environment—characterized by lower taxes, loosened regulations and robust fiscal spending—could provide a tailwind for corporate earnings and stock markets in the U.S.

What we saw: While the anticipated pro-growth legislation has been slow to materialize, robust corporate earnings growth drove U.S. equity indexes higher—though no faster than the pace of many non-U.S. markets.

6. Alpha—and Active Managers Able to Generate It— May Stage a Comeback

TRUE

What we said: The removal of artificially low interest rates could result in individual stock performance once again being differenti-ated by company fundamentals, to the benefit of high-conviction, fundamental investors.

What we saw: Intra-stock correlations collapsed over the course of the year, creating a better environment for stock pickers and a sharp improvement in active managers’ performance relative to their benchmarks.

Emerging Markets: Both Winners and Losers Emerge

7. Economic Orientation Counts

TRUE

What we said: In our view, fears that U.S. policy will drag down the entire emerging world are overblown; improved global growth should be generally supportive, though countries likely will be differentiated based on their key economic drivers—manufacturing vs. commodities vs. domestic.

What we saw: Buoyed by synchronized global growth combined with fundamental improvements and ongoing reforms, emerging markets equities and debt delivered strong returns in 2017.

8. China Risks Remain Significant

TRUE

What we said: The world’s second-largest economy faces a number of ongoing issues—from asset bubbles to currency management—that require a particularly deft touch from Beijing.

What we saw: China’s need to bolster its financial stability hasn’t abated, and policy measures to accomplish it have contributed to volatility in the country’s stock and bond markets.

S O LV I N G F O R 2 0 1 8

A S S E T A L L O C AT I O N C O M M I T T E E O U T L O O K

16

As of 1Q 2018. Views shown reflect near-term tactical asset allocation views and are based on a hypothetical reference portfolio. Nothing herein constitutes a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. See “Additional Disclosures” at the end of this presentation for additional information regarding the Asset Allocation Committee and the views expressed.

Below Normal Outlook

Above Normal Outlook

FIXED INCOME

Cash

Global Bonds

Investment Grade Fixed Income

U.S. Government Securities

Investment Grade Corporates

Agency MBS

ABS / CMBS

Municipal Bonds

U.S. TIPS

High Yield Corporates

Emerging Markets Debt

EQUITY

Global Equities

U.S. All Cap

U.S. Large Cap

U.S. Small and Mid Cap

MLPs

Developed Markets—Non-U.S. Equities

Emerging Markets Equities

Public Real Estate

REAL AND ALTERNATIVE ASSETS

Commodities

Lower-Volatility Hedge Funds

Directional Hedge Funds

Private Equity

Neutral Outlook

M A R K E T V I E W S

B A S E D O N 1 2 - M O N T H O U T L O O K F O R E A C H A S S E T C L A S S

17

R E G I O N A L F O C U S

F I X E D I N C O M E , E Q U I T I E S A N D C U R R E N C Y

As of 1Q 2018. Views shown reflect near-term tactical asset allocation views and are based on a hypothetical reference portfolio. Nothing herein constitutes a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. See “Additional Disclosures” at the end of this presentation for additional information regarding the Asset Allocation Committee and the views expressed.

Below Normal Outlook

Above Normal Outlook

REGIONAL FIXED INCOME

U.S. Treasury 10 Year

Bunds 10 Year

Gilts 10 Year

JGBs 10 Year

EMD Local Sovereign

EMD Hard Sovereign

EMD Hard Corporates

REGIONAL EQUITIES

Europe

Japan

China

Russia

India

Brazil

CURRENCY

Dollar

Euro

Yen

Pound

Swiss Franc

EM FX (broad basket)

Neutral Outlook

“ We respect the economic and market momentum currently driving risk assets, and express that in our positive views on non-U.S. equities, U.S. small caps, cyclical value stocks and shorter-duration strategies.”

— ERIK L. KNUTZEN, CFA, CAIA

CHIEF INVESTMENT OFFICER—MULTI-ASSET CLASS

18

Global equities, as measured by the MSCI World Index, enjoyed high double-digit returns through 2017. Emerging markets were up by around 30%. The S&P 500 Index posted a positive total return in every month of 2017. Volatility bounced around near its all-time lows for much of the year. Conditions like these tend not to last forever.

Against this background, the Asset Allocation Committee (AAC) debat-ed whether to downgrade its 12-month outlook for global equities from Above Normal to Neutral. In the end we let it stand, and the reason was well articulated by one AAC member: “Do we want to forego return potential, not because we got worried about rich prices in an environment of clear-and-present risks, but because we got worried that nothing looks partic-ularly cheap in an environment that just seems eerily quiet?”

Equities are not cheap, but neither are they terribly rich. Even if they were, rich or full valuations do not cause market corrections in themselves. Mar-kets respond to catalysts.

MSCI World ended 2017 trading at 17 times forward earnings and MSCI Emerging Markets at just 12 times. The S&P 500 Index is at over 18 times forward earnings, which assumes 10 – 11% earnings growth through 2018—and it is not unreasonable to see half of that coming from U.S. cor-porate tax reform and the other half from nominal GDP growth, before any other tailwinds are taken into account. These are not extreme valuations. Some pockets, such as value stocks and the energy sector, appear still to offer value.

When it comes to immediate downside risks, we note signs of late- cycle behavior, from disappearing high yield bond covenants to parabolic bitcoin appreciation, but the overwhelming catalysts we see moving into the first quarter of 2018 are momentum from synchronized global growth, the benign inflation and monetary-policy background, and pro-growth policies such as tax reform in the U.S.

As every sports fan knows, strategy must be path-dependent. Think about football—the version we Americans insist on

calling “soccer,” which might explain why we failed to qualify for this year’s FIFA World Cup. If you’re a goal down with a

quarter of the game to go, you will end the game on the attack. Go two up in the first half, and while you might substitute a

center forward for a fullback, you’d still seek to ride your momentum. Only once you’ve knocked in a third would you “park

the bus” on the goal line, as my U.K. colleagues put it. As we move into 2018 we are two goals to the good, with synchro-

nized global growth and a big U.S. tax overhaul. It may already be opportune to bring on short-duration fixed income and

low-volatility hedged strategies as a substitute for some corporate credit. But economic and market momentum is still with

us, and we think we can press for a third goal before halftime with inflation-sensitive assets. As we approach the midpoint of

the year, volatility, rising interest rates, a late-cycle slowdown and potential political risks could come back at us, looking for

equalizers; at this point, it could be a good time to use continued market momentum to shift, gradually, to a more defensive

formation. Appropriately enough, in our view, the World Cup year of 2018 looks primed to be a game of two halves. In this

quarter’s Asset Allocation Committee Outlook, we set out our thoughts on a game plan for this environment.

A G A M E O F T W O H A LV E S

A S S E T A L L O C A T I O N C O M M I T T E E O U T L O O K 1 Q 2 0 1 8

Erik L. Knutzen, CFA, CAIA Chief Investment Officer—Multi-Asset Class

19

Things could change through the second half of 2018, however. As always, precise timing is impossible, but we envision catalysts for higher market volatility becoming more visible as we look later into the year.

First, we expect inflation to reappear, which may encourage central banks to hike interest rates more quickly than the market currently anticipates. At the same time, balance-sheet reduction will be gathering pace at the Federal Reserve and the European Central Bank will be advanced in its asset-purchase tapering. Risk premia may have to adjust especially quickly in Europe.

Then there is the likelihood of further slowing in China’s economy, as conditions tighten around the shadow banking system and the authorities focus on the quality rather than the pace of economic growth. That is likely to have knock-on effects on commodity prices and other growth drivers in emerging markets, and to soften our global synchronized cycle later in 2018.

Among the more predictable political risks, 2018 brings potentially eventful elections in Brazil, Italy and the U.S. Markets will start to look at opinion polls in late summer for any signs that the Democrats might regain a majority in either house of Congress in November’s midterm elections, which could tie the current administration’s hands for the remainder of its term. In the meantime, we have ongoing coalition talks in Germany, Robert Mueller’s special counsel investigation in the U.S., and of course the Brexit negotiations.

In other words, the AAC expects 2018 to be a game of two halves, and that makes it a challenge to articulate a consistent 12-month outlook. At this point, our views still reflect our expectation that strong positive economic and market momentum can persist into the first half, and we favor remaining positioned to ride it. Should the first half play out as we anticipate, it would be opportune to begin using such continued momentum to adopt a more defensive stance later in the year while remaining ready to act should risks manifest themselves sooner rather than later. In addition, for some months already we have identified a few areas of elevated downside risk to avoid, as well as some areas of potential value.

RESPECT THE CURRENT POSITIVE MOMENTUM

The aspects of our view that express confidence in current positive momen-tum will be familiar to readers of our 4Q 2017 AAC Outlook.

Overall, we retain an Above Normal outlook for global equity returns enter-ing 2018, and most AAC members prefer non-U.S. over U.S. equities, and emerging equities over developed. While we have become more Neutral on China, on the whole we still see the emerging world as a beneficiary of synchronized global growth. We favor U.S. small caps over large caps, and value stocks over growth. The latter overlaps with sector-level preferences for financials and energy.

Source: International Monetary Fund. Note: Projections as of October 31, 2017.

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S&P 500 Index

MSCI ACWI ex USA Index

DIVERGENCE IN U.S. AND NON-U.S. EQUITY VALUATIONS PERSIST DESPITE IMPROVING EARNINGS GROWTH OUTSIDE THE U.S.

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TopixSTOXX 600S&P 500 EPS Growth, YoY change

3Q17(e)2Q171Q174Q163Q162Q161Q164Q153Q152Q15

In fixed income we still lean toward high yield over investment grade, and prefer credit over governments and shorter duration over long.

We think current momentum should be respected and favor maintaining expo-sure while also standing ready to adopt a more defensive stance should risks manifest themselves sooner rather than later in 2018.

20

MORE CAUTIOUS ON CREDIT

While we still prefer corporate bonds over governments, corporate credit is one place where we have already adopted a more cautious view.

The price action during the fourth quarter of 2017—equity markets reaching new highs while credit struggled to stay flat—showed how corporate bonds can dislocate from equity at this stage in the cycle.

We note three things. First, despite defaults remaining historically low overall, we have seen fundamental earnings deterioration in some high yield names.

Second, any sign of a growth slowdown would be expected to be credit-neg-ative, but with spreads as tight as they are, rising interest rates may also pose a risk from the opposite direction.

And finally, as we discussed in our previous Outlook, interest-rate differen-tials between the U.S. dollar and other developed markets are pushing the cost of hedging back to euros or Japanese yen ever higher. This is perhaps the key risk at the moment, as the marginal positioning in U.S. credit is today dominated by non-U.S. dollar investors. The risk of these investors heading for the exits right now remains low, but forward markets indicate that hedg-ing costs are set to rise further in 2018, building up the pressure.

Taking all that into account, the AAC is beginning to take the view that the pric-ing of corporate credit risk is outpacing the fundamentals of corporate earnings, and that there are other places to get income, albeit with varying degrees of risk, that appear less vulnerable to interruptions in flows. One such place might be emerging markets debt, where inflows continue to be steady and positive.

MORE POSITIVE ON SHORT-DURATION AND INFLATION-SENSITIVE ASSETS

Another place to look for income and low-volatility returns that are not so exposed to the credit and interest-rate risks of corporate bonds might be lower-volatility hedged strategies, where we maintain our longstanding Above Normal 12-month outlook.

Short-duration fixed income is also beginning to look more attractive. For some, that might even include the possibility of a cash holding—U.S. dollar investors, at least, can look forward to the prospect of risk-adjusted returns from cash competing with investment grade credit in 2018.

While it does not have the duration to respond positively in the event of a substantial sell-off in risk assets and a bid for government bonds, short- duration assets do offer the liquidity and optionality to seize the resulting value opportunities.

That combination of short duration and optionality also makes it well-suited to one of our central scenarios: a gradual re-emergence of inflation. That scenario is also why the AAC’s slightly more conservative outlook for credit risk is balanced by an upgraded view on inflation-sensitive assets. This view is supported by the fact that these assets tended to be among the few that underperformed during 2017.

Examples include master limited partnerships (MLPs), which were down some 10% and now yield around 7% despite the fact that oil averaged $43/bbl during 2016 and $50/bbl in 2017. Our 12-month outlook for commodities moved from Neutral to Above Normal this quarter, and this mirrored our pref-erence for the energy sector in equities. In fixed income, as well as preferring cash and shorter duration, AAC members unanimously favor Treasury inflation- protected securities (TIPS) over nominal bonds.

Source: Bloomberg.

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80%Bloomberg Commodity Index, YoY change (rhs)U.S. Headline CPI, YoY change (lhs)

COMMODITIES LOOK MORE ATTRACTIVE IF INFLATION IS EXPECTED TO RISE

Summing up, while it would be easy to conclude that our view has become more defensive over the past quarter, that would not reflect the nuances at play. We respect the momentum currently driving both the fundamentals of the economy and the pricing of financial risk assets, and express that in our positive views on non-U.S. equities, U.S. small caps, cyclical value stocks and shorter-duration strategies. We also anticipate a turnaround in the inflation story. We do think the newfound return potential of cash can help investors manage portfolio beta down slightly, and we are also mindful of the asymmetrical downside risks build-ing in credit. Nonetheless, we expect one or two more AAC quarterlies to see the light before a genuinely defensive stance is evident in our views.

21

U.S. TAX REFORM: WHO WINS, WHO LOSES?

One Asset Allocation Committee member recalled a time, leading up to the financial crisis, when analysts would confidently call the top in corporate profit margins after 20 years of appreciation. The cost of capital couldn’t fall any lower, they said. Neither could the cost of labor. In the U.S., there was also the small matter of a much higher corporate tax rate weighing on many companies’ profits.

Since then, of course, rates have collapsed, wages have stagnated, and robots and artificial intelligence have started eating into paid jobs. The final shoe, U.S. tax reform, dropped at the end of 2017.

In previous Outlooks we have noted that smaller, more domestically oriented U.S. companies stand to benefit more than larger multina-tionals, simply because they are more exposed to the U.S. corporate tax rate.

The technology and health care sectors are the least likely to benefit. Retail may reverse a long period of underperformance.

Capital-intensive businesses and their suppliers are likely to benefit from the fact that the bill allows for the immediate expensing of as-sets with a life of less than 20 years, a massive shift in incentives for businesses to make capex investments now. Those incentives should eventually feed into the wider economy, too.

The disallowance of tax deductibility on interest payments in ex-cess of 30% of EBITDA will punish excessively leveraged business strategies, but companies with debt-to-EBITDA ratios of less than approximately 4.0, or with an interest coverage ratio greater than 3.3, are likely to be unaffected, and will benefit from the headline corporate tax cut.

The changes are particularly important for the U.S. municipal bonds market. They effectively eliminate “advance refunding” of tax- exempt bonds. This is when, in order to lock in low interest rates, a trust is created to pay the interest on higher-coupon municipal debt that is not yet callable, and new, lower-coupon debt is issued to fund the trust.

That debt has represented some 50% of total annual new-issue volume over recent years. The bill also eliminates tax exemption for private-activity bonds, and could push up the cost of borrowing by as much as a third for many colleges, hospitals and airports, to name a few typical issuers.

The loss of these tax exemptions led to a rush of muni-bond issuance at the end of 2017—supply hit peaks last seen after the mid-1980s tax reform—and that led to technically attractive pricing that is likely to dominate trading for the first half of 2018. That attractiveness, especially against other parts of the fixed income market, led us to upgrade our 12-month outlook from Below Normal to Neutral.

Source: Bloomberg.

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MUNICIPAL BOND ISSUERS HAVE RUSHED TO MARKET IN ANTICIPATION OF LOSS OF TAX EXEMPTION

Municipal 30-Day Supply Volume (in thousands)

Finally, the AAC debated the potential impact of repatriating over-seas profits on the U.S. dollar. A lot depends on how much of the estimated $3.5 trillion is brought home and how much is held in non-dollar currencies. Estimates range from 20% to as high as 40%. On the whole, the AAC concluded that repatriation may present some short-term upside risk, but that central-bank policy and inflation dynamics will likely be the more important determi-nant of dollar strength over the medium term.

U P F O R D E B A T E

22

WILL INFLATION REAPPEAR IN 2018?

Despite synchronized global growth and falling unemployment, inflation remained muted during 2017. U.S. Core CPI even declined over the summer.

That inspired a lot of commentary about potential structural down-ward pressures on inflation, from globalization and online shopping to the robotization of the workforce. We believe this is premature. Falling unemployment coexisted with low inflation for some years during the early 1960s, after all, immediately before a 20-year peri-od of inflation shocks.

We can identify a number of signs of incipient rising inflation today.

The U.S. output gap has closed, suggesting that any pickup in growth from here would be inflationary. China’s Producer Price Index has risen fast since 2016. As many finished goods bought by Amer-ican consumers originate or pass through China’s manufacturing sector, we would expect that to feed into U.S. CPI soon, as it has done historically.

Bureau of Labor Statistics data show that, while low-wage jobs have accounted for almost 41% of U.S. jobs growth since 2007 and high-wage jobs only 25%, it is also true that the low-wage sector has seen the biggest jump in year-on-year wage growth during 2017. Other indicators, such as the Employment Cost Index and the Atlanta Fed Tracker, also show signs of a pickup in labor’s pricing power. Officialdom is ready to offer support: both Mario Draghi of the Euro-pean Central Bank and Haruhiko Kuroda of the Bank of Japan have urged labor unions to increase their wage demands. The declining savings rate suggests that even with low wage growth, consumers are growing more confident to spend.

Finally, broader data sets than those picked up by traditional infla-tion measures, such as the Underlying Inflation Gauge (UIG) calcu-lated by the Federal Reserve Bank of New York, tend to show a much clearer upward trend in prices, beginning in early 2016.

While the AAC’s central scenario is for a benign return to rising inflation globally, to levels approaching central bank’s targets rather than heights well in excess of them, this was enough to see upgrades in our 12-month outlooks for inflation-sensitive assets such as TIPS, MLPs, energy-sector equities and commodities.

U P F O R D E B A T E

F IXED INCOME

GLOBAL FIXED INCOME

U.S. Government/Agency: The AAC maintained a Below Normal outlook. In 2018, the Federal Reserve expects to hike rates three more times and will continue reducing its balance sheet. The Fed expects two rate increases each in 2019 and 2020. The cost to investors of hedging U.S. dollar exposures is likely to rise further due to the reduction in the Fed’s balance sheet, as interest rate differentials between the dollar and other currencies widen, and as investment banks’ reserves decline. That may reduce the relative at-tractiveness of U.S. investment grade securities for non-U.S. dollar investors.

U.S. Municipal Bonds: The AAC upgraded its outlook to Neutral from Below Normal. Under the proposed tax reforms, certain tax-exempt bonds may be disallowed after 2017 (advance refunding, private activity bonds and tax credit bonds). That led to a substantial increase in supply to the market in the weeks leading up to the end of the year, creating a short-term value opportunity. Supply is expected to be lower under the new tax rules.

Developed Market Non-U.S. Debt: The AAC maintained a Below Normal outlook on concerns around valuations in the European bond market. While it is expected to remain accommodative, the European Central Bank will begin reducing monthly asset purchases in January, which could cause rates to move higher. The Bank of Japan continues with its yield-targeting strategy at the long end of the curve.

High Yield Fixed Income: The AAC maintained a Neutral view. Within fixed income, high yield is still preferred to investment grade both for its higher expected return as well as its shorter duration, though tight spreads are a reason for the Neutral outlook overall. The AAC notes that fundamen-tal deterioration in, and outflows from, the telecom sector could pose risks.

Emerging Markets Debt: The AAC maintained its Above Normal outlook, as this asset class still appears relatively cheap despite the recent rally. EMD is a large beneficiary of synchronized global growth, low inflation, low rates and a weak dollar. The asset class could benefit from continued inflows if the global growth environment extends.

23

EQUITY

U.S. EQUITIES

The AAC maintained a Below Normal outlook for U.S. large cap and a Neutral outlook for U.S. small and mid cap. Large caps with multinational operations are most likely to benefit from dollar weakness and repatriation of cash under the proposed tax reforms, but small- and mid-cap companies should benefit more from the current U.S. administration’s policies in general. On tax reform, specifically, many large companies already pay less than the headline tax rate. The AAC anticipates style rotation into value stocks from growth in both U.S. large and small caps, as these are more attractively valued at the moment, and are also more likely to benefit from tax reform and deregulation. However, markets will take time to distinguish winners and losers from these dynamics. Large-cap valuations are elevated, but not necessarily enough to constitute a timing signal. Risks include geopolitics (such as tension around North Korea) and the potential for the Fed or ECB to tighten policy too early or too aggressively, as markets are underestimating the importance of the liquidity that the central banks have provided.

MLPs

The AAC upgraded its outlook from Neutral to Above Normal. Depressed valuations due to low oil prices earlier this year provide an opportunity for MLPs to recover; they currently provide an attractive yield relative to fixed income and other dividend yielding assets such as REITs and utilities. MLPs also have long-term contracts, take-or-pay contracts and fee-based assets that potentially provide a hedge against inflation.

Source: Alerian, Bloomberg.

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MLPS ARE ATTRACTIVELY VALUED

PUBLIC REAL ESTATE

The AAC maintained a Below Normal outlook as valuations are full and the asset class is less likely to benefit from global growth and late-cycle dynam-ics than some other risk assets. While listed real estate has performed rela-tively well during past rate-hike cycles, rising rates nonetheless pose a risk.

NON-U.S. DEVELOPED MARKET EQUITIES

The AAC maintained its Above Normal outlook. In Europe, the economy is recovering strongly and unemployment rates have declined rapidly. The ECB remains accommodative, but risks are attached to the very strong euro as the central bank begins to reduce asset purchases in January and discusses how the QE program will wind down. The forthcoming election in Italy is also a key risk. Japanese equities tend to benefit from a weaker yen flowing through to corporate earnings, and the Bank of Japan remains committed to propelling the economy forward and its yield-targeting policy. The Com-mittee felt that if there were any signs of the current synchronized global growth breaking down and slowing, they would be seen first in Japan. The U.K. has seen some important progress in its Brexit negotiations with the European Union, but market reactions seem to be isolated to the U.K. for the time being.

EMERGING MARKETS EQUITIES

TThe AAC maintained its Above Normal outlook. Emerging economies and equities should continue to benefit from synchronized global growth, low inflation and low interest rates. Balance-sheet adjustments have taken place across many economies, making them less susceptible to the potential neg-ative impact of dollar strength as the Fed tightens policy. China’s managed slowdown remains a key risk, as does any sign of a slowdown in global growth.

REAL AND ALTERNATIVE ASSETS

COMMODITIES

The AAC voted to upgrade its outlook from Neutral to Above Normal. Should inflation pick up due to higher energy prices, pent-up demand and wage increases, commodities could act as a hedge. Oil remains range-bound as supply, driven by U.S. shale coming back on line and continued OPEC production cuts, is capping the upside in prices.

24

HEDGE FUNDS

The AAC maintained its Above Normal outlook for lower-volatility hedged strategies and its Neutral outlook for directional hedged strategies. As a re-sult of concerns around fixed income valuations, some investors are looking for “ballast” to go into their diversifying and lower-volatility portfolios. At the same time a lack of market direction, paired with rising dispersion within markets, may be improving the picture for the alpha-driven strategies that tend to be characteristic of the lower-volatility group.

PRIVATE EQUITY

The AAC maintained its Above Normal outlook. Despite elevated valuations, private equity still looks attractive relative to public equities, especially when taking into account the liquidity premium. Today’s private equity deals are notably less risky than those of 2007, and one reason for that higher level of quality is the presence of more private companies relative to public, creating a wider set of opportunities to choose from.

CURRENCIES

USD: The AAC has upgraded its outlook from Neutral to Above Normal. In the near term we are slightly more bullish, as short-term yield differentials remain supportive, U.S. economic data has been improving, and both tax reform and the substantial short held by the market could cause a surprise on the upside. The risks revolve around the still-unresolved U.S. debt ceiling, subdued inflation, the potential for convergence between ECB and Fed policies, and the fact that Fed tightening is largely priced in already and the dollar is moderately overvalued on a PPP basis.

Euro: The AAC has downgraded its outlook from Neutral to Below Normal. There are signs that the strong euro is causing some concerns within the ECB, which has fixed a very accommodative policy for the next 10 months, despite inflationary pressures remaining weak. Market participants are also still long the euro. The risk to our view is the ECB appears more relaxed on the growth outlook, which is likely to be boosted by the current synchronized global growth environment, and which PMIs and business surveys suggest will be above trend in 2018. The euro zone also runs a large current account surplus.

Yen: The AAC maintained its Above Normal outlook. Japan’s economy is enjoy-ing one of the longest expansions since the 1990s, leading to tentative signs that the Bank of Japan is preparing the market for reduced stimulus. Japan also runs a large current-account surplus. Market participants are short yen despite the fact that PPP and real exchange rates suggest undervaluation, and that long-yen remains a valid trade during periods of risk aversion. Risks to this view include persistent low inflation and the central bank’s yield-curve targeting, which is ex-acerbating already wide rate differentials with other currencies and encouraging the use of the yen as the funding currency for global carry trades.

GBP: The AAC upgraded its outlook from Neutral to Above Normal. Sterling remains undervalued based on PPP measures despite supportive forward- looking fundamental data, a rate hike from the Bank of England and progress in Brexit negotiations. Risks to the view include some disappointing recent economic data, especially on consumer spending, and the ongoing uncer-tainties of Brexit.

Swiss Franc: The AAC maintained its Below Normal outlook. The franc is still very overvalued based on PPP measures, and safe-haven flows may con-tinue to unwind as Europe’s economic prospects improve and investors use the currency to fund global carry trades. Concerns about low inflation means that the Swiss National Bank is likely to lean against any rapid appreciation. Risks to the view include Switzerland’s positive current-account balance, continued strong growth and the potential for higher inflation. Any uptick in geopolitical tensions could reignite safe-haven trades.

25

Neuberger Berman’s Asset Allocation Committee meets every quarter to poll its members on their outlook for the next 12 months on each of the asset classes noted and, through debate and discussion, to refine our market outlook. The panel covers the gamut of investments and markets, bringing together diverse industry knowledge, with an average of 25 years of experience.

A S S E T A L L O C AT I O N C O M M I T T E E

A B O U T T H E

S O LV I N G F O R 2 0 1 8

COMMITTEE MEMBERS

Joseph V. AmatoCo-Chair, President and Chief Investment Officer—Equities

Erik L. Knutzen, CFA, CAIACo-Chair, Chief Investment Officer—Multi-Asset Class

Ashok Bhatia, CFASenior Portfolio Manager—Fixed Income

Thanos Bardas, PhDSenior Portfolio Manager, Head of Global Rates

Timothy F. Creedon, CFADirector of Global Equity Research

Ajay Singh Jain, CFAHead of Multi-Asset Class Portfolio Management

Andrew JohnsonHead of Global Investment Grade Fixed Income

David G. Kupperman, PhDCo-Head, NB Alternative Investment Management

Ugo LancioniHead of Global Currency

Brad TankChief Investment Officer—Fixed Income

Anthony D. TutroneGlobal Head of Alternatives

26

This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommen-dation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Neuberger Berman is not providing this material in a fiduciary capacity and has a financial interest in the sale of its products and services. Neuberger Berman, as well as its employees, does not provide tax or legal advice. You should consult your accountant, tax adviser and/or attorney for advice concerning your particular circumstances. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.

The views expressed herein include those of the Neuberger Berman Multi-Asset Class (MAC) team and Neuberger Berman’s Asset Allocation Committee. The Asset Allocation Committee is comprised of professionals across multiple disciplines, including equity and fixed income strategists and portfolio managers. The Asset Allocation Committee reviews and sets long-term asset allocation models, establishes preferred near-term tactical asset class allocations and, upon request, reviews asset allocations for large diversified mandates. The views of the MAC team or the Asset Allocation Committee may not reflect the views of the firm as a whole, and Neuberger Berman advisers and portfolio managers may take contrary positions to the views of the MAC team or the Asset Allocation Committee. The MAC team and the Asset Allocation Committee views do not constitute a prediction or projection of future events or future market behavior. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed.

A bond’s value may uctuate based on interest rates, market conditions, credit quality and other factors. You may have a gain or a loss if you sell your bonds prior to maturity. Of course, bonds are subject to the credit risk of the issuer. If sold prior to maturity, municipal securities are subject to gain/losses based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on the investor’s state of residence. High-yield bonds, also known as “junk bonds,” are considered speculative and carry a greater risk of default than invest-ment-grade bonds. Their market value tends to be more volatile than investment-grade bonds and may uctuate based on interest rates, market conditions, credit quality, political events, currency devaluation and other factors. High yield bonds are not suitable for all investors and the risks of these bonds should be weighed against the potential rewards. Neither Neuberger Berman nor its employees provide tax or legal advice. You should contact a tax advisor regarding the suitability of tax-exempt investments in your portfolio. Government bonds and Treasury bills are backed by the full faith and credit of the United States Government as to the timely payment of principal and interest. Investing in the stocks of even the largest companies involves all the risks of stock market investing, including the risk that they may lose value due to overall market or economic conditions. Small- and mid-capitalization stocks are more vulnerable to nancial risks and other risks than stocks of larger companies. They also trade less frequently and in lower volume than larger company stocks, so their market prices tend to be more volatile. Invest-ing in foreign securities involves greater risks than investing in securities of U.S. issuers, including currency uctuations, interest rates, potential political instability, restrictions on foreign investors, less regulation and less market liquidity. The sale or purchase of commodities is usually carried out through futures contracts or options on futures, which involve signi cant risks, such as volatility in price, high leverage and illiquidity.

This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclo-sure-global-communications for the specific entities and jurisdictional limitations and restrictions.

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