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2019.02_4Q18 AHIC Presentation Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. Nothing in this document should be construed as legal or investment advice. Please consult with your independent professional for any such advice. To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the approval of Aon. The Metropolitan St. Louis Sewer District Employees’ Pension Plan Fourth Quarter 2018 March 5, 2019 Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 2 (This page left blank intentionally) Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 3 Table of Contents Section 1 Market Environment Fourth Quarter and Calendar Year 2018 Markets Review Medium-Term Views Section 2 Quarterly Performance Update Fourth Quarter 2018 Performance January Performance Update Fund Fee Comparison Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 4 (This page left blank intentionally) Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 5 Market Environment – Fourth Quarter and Calendar Year 2018 Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 6 (This page left blank intentionally) Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 7 Major Capital Markets Performance Summary As of Jan. 31 As of December 31, 2018 1-Month 1-Quarter 2018 3 years 5 years 10 years MSCI All Country World IMI Index 8.1% -13.3% -10.1% 6.5% 4.2% 9.7% DJ U.S. Total Stock Market Index 8.6 -14.4 -5.3 8.9 7.9 13.2 MSCI EAFE Index 6.6 -12.5 -13.8 2.9 0.5 6.3 MSCI EAFE Index (Local Currency) 5.5 -12.2 -11.0 2.6 3.8 7.5 MSCI Emerging Markets Index 8.8 -7.5 -14.6 9.2 1.6 8.0 MSCI Emerging Markets Index (Local Currency) 7.2 -7.4 -10.1 8.8 5.0 9.6 Blmbg. Barclays U.S. Aggregate Index 1.1 1.6 0.0 2.1 2.5 3.5 Blmbg. Barclays Corporate High Yield Index 4.5 -4.5 -2.1 7.2 3.8 11.1 NCREIF ODCE Index -- 1.5 7.4 7.3 9.4 6.0 Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 8 Equity Pullback Not Uncommon *Cumulative Return from 3/2/2009 – 2/25/2019 S&P 500 Cumulative Return 2009 – Present* 299% 700 1,200 1,700 2,200 2,700 3,200 3/2/2009 3/2/2010 3/2/2011 3/2/2012 3/2/2013 3/2/2014 3/2/2015 3/2/2016 3/2/2017 3/2/2018Price S&P 500 Index Major Pullback During Current Market Cycle Jul. 2, 2010 -16.0% •Flash Crash •BP oil spill •Greece Debt Crisis Oct. 3, 2011 -19.4% •U.S. downgrade •Stress in the periphery of Europe Jun. 1, 2012 -9.9% •Euro double dip Oct. 15, 2014 -7.4% •Global growth scare •Ebola Aug. 25, 2015 -12.4% •Global growth scare •Collapse of Chinese stock market •Federal Reserve uncertainty Feb. 11, 2016 -13.3% •Oil prices drop below $27 •Fears of U.S. recession •China Feb. 8, 2018 -10.2% •Wage inflation scare Dec. 24, 2018 -19.3% •Rising rates •Global growth slowdown •Geopolitical tensions Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 9 Historical U.S. Equity Returns Source: JPMorgan S&P 500 intra-year declines vs. calendar year returns Although the average intra-year drop has been 13.9%, annual returns have been positive in 29 of 39 years In 2017, there was only a 3% market correction – the smallest market correction since 1995 We have expected volatility to increase and we believe 2017’s low volatility was unusual –In 2018, the largest market decline was -20% Calendar Year Returns Largest Market Decline within the Calendar Year 2017-18 Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 10 Periodic Table of Performance *U.S. Equity - Dow Jones U.S. Total Stock Market; EAFE – MSCI EAFE; EM – MSCI EM; REITs – FTSE NAREIT All Equity REITS; Bonds – Blmbg. Barc. U.S. Aggregate; High Yield – Blmbg. Barc. U.S. Corporate High Yield; Cmdty – Bloomberg Commodity Index; HFOF – HFR FOF; PE - Burgiss Private Equity Time Weighted Returns; PRE - Private Real Estate - NCREIF ODCE 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 10 Year Annualized EM REITs EM REITs REITs High Yield EM 55.8 31.6 34.0 35.1 27.9 17.1 37.3 EAFE EM PE EM EM EM EM REITs US Equity EAFE PE 38.6 25.6 23.2 32.2 39.4 78.5 18.9 19.7 12.6 25.0 13.2 PE REITs PE Cmdty PE PE High Yield PE EM Cmdty US Equity US Equity 82.1 37.1 23.7 21.4 31.3 23.2 58.2 18.1 18.2 11.8 21.2 13.2 EM US Equity EAFE PRE EAFE Cmdty EAFE US Equity EAFE US Equity REITs EM PE REITs 66.0 31.6 20.2 20.2 26.3 16.2 31.8 17.5 17.3 33.5 28.0 11.2 12.0 12.5 EAFE Cmdty High Yield US Equity EAFE US Equity PRE US Equity Cmdty PRE US Equity EAFE US Equity PE REITs High Yield 27.0 31.8 29.0 12.5 13.5 15.8 14.8 28.6 16.8 15.0 16.4 22.8 12.5 9.8 8.7 11.1 HFOF REITs REITs Cmdty Cmdty PRE PRE EAFE REITs PRE REITs High Yield PE PRE PRE REITs HFOF EM 26.5 26.4 13.9 25.9 23.9 12.0 12.2 15.3 11.2 28.0 15.3 8.3 15.8 19.7 11.5 14.0 8.6 7.7 8.0 Cmdty PRE Bonds Bonds PE High Yield HFOF High Yield HFOF Cmdty High Yield Bonds PE PRE PE PE PRE High Yield EAFE 24.3 13.2 8.4 10.3 18.6 11.1 7.5 11.8 10.3 18.9 15.1 7.8 13.0 12.9 11.4 7.5 7.8 7.5 6.3 US Equity Bonds High Yield PRE HFOF Cmdty US Equity HFOF Bonds PE EAFE PE PRE HFOF Bonds REITs Bonds PRE PE PRE 23.6 11.6 5.3 4.6 11.6 9.1 6.4 10.4 7.0 15.8 7.8 7.9 9.8 9.0 6.0 2.8 2.6 6.7 11.0 6.0 PRE PE PRE REITs PRE HFOF High Yield Bonds US Equity HFOF Bonds High Yield HFOF High Yield HFOF Bonds EAFE Bonds PRE Bonds 12.1 10.5 4.6 3.8 8.3 6.9 2.7 4.3 5.6 11.5 6.5 5.0 4.8 7.4 3.4 0.5 1.0 3.5 7.4 3.5 High Yield HFOF HFOF HFOF Bonds Bonds Bonds Cmdty High Yield Bonds Bonds HFOF US Equity Bonds REITs High Yield US Equity HFOF Cmdty Bonds HFOF 2.4 4.1 2.8 1.0 4.1 4.3 2.4 2.1 1.9 5.2 5.9 5.7 1.1 4.2 2.9 2.5 0.4 0.5 1.7 0.0 3.1 Bonds High Yield EM High Yield REITs PRE PRE HFOF Cmdty Bonds EM HFOF High Yield Cmdty -0.8 -5.9 -2.6 -1.4 -15.7 -10.7 -30.4 -5.7 -1.1 -2.0 -2.2 -0.3 -2.1 -3.8 REITs US Equity US Equity EM HFOF EAFE EM EAFE EAFE HFOF -4.6 -10.9 -11.0 -6.2 -21.4 -12.1 -2.6 -4.9 -0.8 -3.9 EAFE PE PE PE Cmdty Cmdty Cmdty High Yield REITs -14.2 -19.8 -10.9 -25.4 -13.3 -9.5 -17.0 -4.4 -4.0 EM Cmdty EAFE High Yield EM EM US Equity -30.8 -19.5 -15.9 -26.2 -18.4 -14.9 -5.3 EAFE US Equity Cmdty Cmdty Cmdty -21.4 -20.9 -35.6 -24.7 -11.3 US Equity EAFE -37.2 -13.8 REITs EM -37.7 -14.6 EAFE -43.4 EM -53.3 Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 11 Global Equity Markets -13.3% -11.9% -14.5% -12.7% -14.4%-15.6% -13.4%-13.7% -8.5%-7.4% -10.1% -14.8% -5.7% -15.0% -13.5% -17.6% -3.6% -15.7% -11.2% -15.0% -20% -10% 0% ACWI IMI 46.0% ACWI ex-U.S. IMI 54.0% USA IMI 5.4% UK IMI 8.0% Japan IMI 3.0% Canada IMI 0.2% Israel IMI 13.9% Europe ex-UK IMI 3.9% Pacific ex-Japan IMI 11.7% Emerging Markets IMI GLOBAL MSCI IMI INDEX RETURNS (USD) AS OF 12/31/2018 Fourth Quarter 2018 One-Year Source: MSCI USA 54.0% UK 5.4% Canada 3.0% Pacific ex-Japan 3.9%Japan 8.0% Europe ex-UK 13.9% Israel 0.2% Latin America 1.4% Asia 8.6% Eastern Europe, Middle East & Africa 1.7% Emerging Markets 11.7% MSCI ALL COUNTRY WORLD IMI INDEX GEOGRAPHIC ALLOCATION AS OF 12/31/2018 Source:MSCI UK 11.7% Canada 6.5% Pacific ex-Japan 8.4% Japan 17.5% Europe ex-UK 30.2% Israel 0.5% Latin America 3.1% Asia 18.6% Eastern Europe, Middle East & Africa 3.6% Emerging Markets 25.3% MSCI ALL COUNTRY WORLD EX-U.S. IMI INDEX GEOGRAPHIC ALLOCATION AS OF 12/31/2018 Source:MSCI Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 12 U.S. Equity Markets Up until November 2018, U.S. equities had generated high-single digit returns. However, all the gains were reversed towards the end of the quarter. The Dow Jones Total Stock Market Index dropped by 14.4% in the fourth quarter, translating into an overal l 5.3% fall for the year. Most notably, Information Technology stocks, which had been such a strong driver for the U.S. market, moved sharply lower over the quarter. Earnings growth expectations, particularly in the tech sector where optimism was perhaps excessive, were revised down. The Russell 3000 Index fell 14.3% during the fourth quarter and 5.2% over the one-year period. All sectors generated negative returns over the quarter. In particular, Energy (-25.8%) and Technology (-17.9%) were the worst performing sectors in Q4 2018. Performance was negative across the market capitalization spectrum over the quarter. In general, small cap stocks underperformed both medium and large cap stocks over the quarter. Growth stocks underperformed their Value counterparts in Q4 2018. Over the last 12 months, Value stocks continued to lag their Growth stock equivalents significantly. -14.3% -10.1% -15.9%-15.0%-16.0%-18.7% -21.7% -5.2%-6.2% -0.5% -12.3% -4.8% -12.9% -9.3% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% Russell 3000 32.1% Large Value 35.6% Large Growth 14.9% Medium Value 10.4% Medium Growth 3.5% Small Value 3.6% Small Growth RUSSELL STYLE RETURNS AS OF 12/31/2018 Fourth Quarter 2018 One-Year Source: Russell Indexes -14.3% -17.9% -10.7% -14.7% -6.0% -25.8% -15.6% -17.7% -12.5% -2.0% -5.2% -1.2% 5.6% -0.8% -9.8% -19.7% -17.8% -12.6% -8.4% 0.0% -30.0% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% Russell 3000 20.3% Technology 14.6% Healthcare 14.4% Cons. Disc 6.0% Cons. Staples 5.0% Energy 3.5% Materials & Processing 10.2% Producer Durables 20.8% Financial Services 5.3% Utilities RUSSELL GICS SECTOR RETURNS AS AT 12/31/2018 Fourth Quarter 2018 One-Year Source: Russell Indexes Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 13 U.S. Fixed Income Markets The Bloomberg Barclays U.S. Aggregate Bond Index rose over the quarter. Government bonds were the best performer at 2.5% whilst corporate bonds were the worst performer at -0.2%. Performance was positive across all investment-grade credit qualities, with the exception of Baa bonds which fell 0.9%. High yield bonds fell the most at -4.5%. In investment grade bonds, Aaa bonds was the major outperformer with a return of 2.3%. Intermediate maturity bonds outperformed short and long maturity bonds over the quarter. Intermediate maturity bonds returned 1.8-2.1% while short and long maturity bonds returned 1.2% and 0.9% respectively in Q4 2018. 1.6% 2.5% -0.2% 2.1% 1.2%1.7% 0.0% 0.9% -2.5% 1.0% 1.8% 0.8% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% Barclays Agg. Bond 42.3% Govt 25.5% Corp. 29.6% MBS 0.5% ABS 2.1% CMBS BLOOMBERG BARCLAYS AGGREGATE RETURNS BY SECTOR AS OF 12/31/2018 Fourth Quarter 2018 One-Year Source: FactSet 2.3% 1.3% 0.3% -0.9% -4.5% 0.9% 0.1% -2.3% -2.9% -2.1% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% Aaa Aa A Baa High Yield BLOOMBERG BARCLAYS AGGREGATE RETURNS BY QUALITY AND HIGH YIELD RETURNS AS OF 12/31/2018 Fourth Quarter 2018 One-Year Source: FactSet 1.2% 1.8%2.0%2.1% 0.9% 1.6%1.1%0.9% 0.2% -4.5%-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 1-3 Yr.3-5 Yr.5-7 Yr.7-10 Yr.>10 Yr. BLOOMBERG BARCLAYS AGGREGATE RETURNS BY MATURITY AS OF 12/31/2018 Fourth Quarter 2018 One-Year Source: FactSet Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 14 U.S. Fixed Income Markets (cont’d) 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 0 5 10 15 20 25 30 Maturity (Years) U.S. TREASURY YIELD CURVE 12/31/2017 9/30/2018 12/31/2018 Source:U.S. Department of Treasury -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Dec 08 Dec 10 Dec 12 Dec 14 Dec 16 Dec 18 U.S. 10-YEAR TREASURY AND TIPS YIELDS 10Y TIPS Yield 10Y Treasury Yield Source:U.S. Department of Treasury Spread (bps)12/31/2018 9/30/2018 12/31/2017 Quarterly Change (bps)1-Year Change (bps) U.S. Aggregate 54 39 36 15 18 Long Gov't 2 2 2 0 0 Long Credit 200 153 139 47 61 Long Gov't/Credit 113 90 83 23 30 MBS 35 28 25 7 10 CMBS 86 60 62 26 24 ABS 53 38 36 15 17 Corporate 153 106 93 47 60 High Yield 526 316 343 210 183 Global Emerging Markets 330 273 215 57 115 Source: FactSet, Bloomberg Barclays Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 15 Medium-Term Views: 1 to 3 Year Time Horizon February 2019 Medium Term Views (2/12/2019) ------=++++++ USD vs. Currency High Level Asset Class Views Equity Regions Developed Market Equity Styles Return Seeking Fixed Income High Grade Fixed Income Alternatives Real Estate Commodities Direc. Hedge Funds Non-Direc. Hedge Funds Euro Yen Sterling EM US Large US Small EAFE Emerging US High Yield Bank Loans Local EMDUSD EMD US Treas. Inv. Credit TIPS Equities Return Seeking Bonds High Grade Bonds AlternativesUSD Global Value GlobalGrowth Global Low Vol. Global Quality Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 16 Quarterly Performance Update Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 17 (This page left blank intentionally) Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 18 Total Plan Performance As of 12/31/2018 1-Quarter 2018 3-Year 5-Year 10-Year Since Inception Total Plan -6.6% -4.3% 4.2% 2.9% 6.9% 7.0% Policy Benchmark -6.8 -4.5 4.5 3.1 7.0 -- Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 19 Historical Market Values $261.4 million $- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 Market Value (in thousands) Total Plan Market Value History Ending 12/31/2018 Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 20 Risk-Return vs. Peers (<$1B) as of 12/31/2018 *All Public Plans < $1B contains 343 peer portfolios for the 3-Year period and 327 peer portfolios for the 5-Year period. Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 21 Asset Allocation vs. Policy Targets as of 12/31/2018 30.0% 17.3% 35.7% 3.3% 12.8% 0.8% 35.0% 18.0% 35.0% 0.0% 12.0% 0.0% -5.0% -0.7% 0.7% 3.3% 0.8% 0.8% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% Total Domestic Equity Total International Equity Total Fixed Income Hedge Funds Real Estate Cash Asset Allocation Policy Target Difference Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 22 Pension Plan - Trailing Period Performance as of 12/31/2018 *Performance prior to 9/30/2018 has been calculated by MSD’s previous investment consultant. Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 23 Pension Plan - Trailing Period Performance as of 12/31/2018 (cont’d) *Performance prior to 9/30/2018 has been calculated by MSD’s previous investment consultant. Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 24 Pension Plan - Trailing Period Performance as of 1/31/2019 *Performance prior to 9/30/2018 has been calculated by MSD’s previous investment consultant. Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 25 Pension Plan - Trailing Period Performance as of 1/31/2019 (cont’d) *Performance prior to 9/30/2018 has been calculated by MSD’s previous investment consultant. The remaining liquidated Entrust assets were released back to MSD after 1/31/2019 and subsequently reallocated to existing funds within the Pension. Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 26 DC Plans - Trailing Period Performance as of 12/31/2018 Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 27 DC Plans - Trailing Period Performance as of 12/31/2018 (cont’d) Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 28 DC Plans - Trailing Period Performance as of 1/31/2019 Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 29 DC Plans - Trailing Period Performance as of 1/31/2019 (cont’d) Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 30 Pension - Fund Fee Comparison 12/31/2018 Asset Market Values Fund Expense Ratio Institutional Peer Comparison Fund Name % $ % $ Universe Median % Universe Median $ eVestment Alliance Universe BlackRock Russell 1000 Index Fund 22.3% $58,194,586 0.04% $20,368 0.04% $21,615 US Passive Large Cap Kennedy Mid Cap Value Fund 3.8 9,977,412 0.75 74,831 0.73 72,835 US Mid Cap Value TimesSquare Small Cap Growth Fund 3.9 10,132,217 0.99 100,309 0.85 86,124 US Small Cap Growth Morgan Stanley Int’l Equity Fund 11.6 30,442,165 0.91 277,024 0.75 228,316 All EAFE Equity Morgan Stanley Emerging Markets Fund 5.7 14,879,755 1.04 154,749 0.90 133,918 Emerging Mkts Equity Income Research Fund 14.3 37,478,040 0.34 127,425 0.29 109,757 US Core Fixed Income Prudential Core Plus Bond Fund 13.0 33,896,439 0.30 101,689 0.30 101,689 US Core Plus Fixed Income Brandywine Global Opp. FI Fund 8.4 22,024,186 0.45 99,109 0.40 88,097 Global Agg Fixed Income Entrust Capital Diversified Fund* 3.3 8,623,779 -- -- -- -- -- UBS Trumbull Property Fund 12.8 33,540,505 0.86 288,448 0.94 315,281 NCREIF ODCE Peers1 Cash 0.8 2,197,108 0.15 3,296 0.20 4,394 US Taxable Money Market Funds2 Total Pension 100.0% $261,386,192 0.48% $1,247,248 0.44% $1,162,026 -- *The Entrust Capital Diversified Fund has been fully liquidated since 12/31/2018. 1Average annual investment management fee of ODCE peers (24 funds) for similar sized mandates. 2From the 2017 Aon mutual fund expense analysis. Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 31 DC Plans - Fund Fee Comparison 12017 AHIC Mutual Fund Expense Analysis Proprietary & Confidential Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. 32 (This page left blank intentionally)