Investment Performance Measurement
Investment Performance Measurement
Paul J. Williams Chief Investment Officer
Sandra Bragg Deputy Investment Officer
TCDRS Portfolio Benchmarking
How We How We VS. Expected Performed to Perform
TCDRS Portfolio Benchmarks Asset class return benchmark is selected by the board at the
time an asset class is added to the portfolio Investment managers’ performance is measured against asset
class benchmark performance List of asset class benchmarks can be found in — TCDRS Investment Policy — Investments section of the TCDRS website — Comprehensive Annual Financial Report (CAFR)
Industry-Established Benchmarks U.S. Equity
Dow Jones U.S. Total Stock Market Index
Dev. Int'l. Equity
MSCI World Ex United States Net Dividend Index
Emerging Equity
MSCI Emerging Markets Net Dividend Index
Global Equity
MSCI World Net Dividend Index
Hedge Funds
HFRI Fund of Funds Composite Index
Investment-Grade Fixed-Income
Barclays Capital Aggregate Bond Index
High-Yield Bonds
Citigroup High-Yield Cash Pay Capped Index
Opportunistic Credit
Citigroup High-Yield Cash Pay Capped Index
Direct Lending
Citigroup High-Yield Cash Pay Capped Index
Distressed Debt
Citigroup High-Yield Cash Pay Capped Index
Master Limited Partnerships
Alerian MLP Index
TIPS
Barclays Capital U.S. 10 Year Breakeven Inflation Index
Commodities
Bloomberg Commodity Index
U.S. REITs
FTSE NAREIT Equity REITs Index
Global REITs
FTSE EPRA/NAREIT Global Real Estate Index
Private Real Estate
Cambridge Associates LLP Real Estate Pooled Internal Rate of Return Cambridge Associates LLP U.S. Private Equity & Venture Capital Pooled
Private Equity Cash
Internal Rate of Return U.S. 3-Month T-Bill
How We Calculate Performance Portfolio Performance Actual Asset Class Return
X
Actual Asset Class Portfolio Weight
=
Asset Class Performance
Sum of all asset class performance = total portfolio performance
Benchmark Performance Asset Class Benchmark Return
X
Target Asset Allocation Weight
=
Asset Class Benchmark Performance
Sum of all asset class benchmark performance = total benchmark performance Note: Performance is calculated monthly based on monthly returns and weights. Annual performance is the product of the monthly returns.
How Managers Affect Performance Chief Investment Officer Allocation Outperform by overweighting a higher returning asset class Outperform by underweighting a poorer returning asset class Underperform by underweighting a higher returning asset class
Underperform by overweighting a poorer returning asset class
Investment Manager Performance Outperform by performing better than their benchmark Underperform by performing worse than their benchmark
2015 TCDRS Portfolio Performance vs. Benchmark Performance CIO Allocation Outperform by overweighting a higher returning asset class
REITs Outperform by underweighting a poorer returning asset class
Commodities Underperform by underweighting a higher returning asset class
U.S. Equities Underperform by overweighting a poorer returning asset class
Master Limited Partnerships
2015 TCDRS Portfolio Performance vs. Benchmark Performance Investment Manager Performance Outperform by performing better than their benchmark
International Developed Equities Opportunistic Credit Private Equity Emerging Markets Equities Global Equities Underperform by performing worse than their benchmark
Hedge Funds
2015 TCDRS Portfolio Return vs. Benchmark Return Sources of Over/Under Performance Portfolio Return -0.66%
Benchmark Return -2.45%
Outperformance 1.79%
Cash Direct Lending Opportunistic Credit Distressed Debt High-Yield Bonds Inv. Grade Bonds Hedge Funds
TIPS MLP Priv. Real Estate Funds
Commodities REIT Equity Private Equity Global Equity Emerging Markets Equity Intl. Dev. Equity U.S. Equity -0.3
-0.2
-0.1
0
0.1
CIO Asset Allocation -.15
0.2
0.3
0.4
0.5
Mgr. Performance 1.5
*Calculations are net of fees **Numbers may not sum due to rounding ***Hedge represents approx. gain/loss to total fund from implementing the hedge
0.6
0.7
Hedge .44
0.8
2015 TCDRS Portfolio Return vs. Benchmark Return Sources of Over/Under Performance Portfolio Return -0.66%
Benchmark Return -2.45%
Outperformance 1.79%
Cash Direct Lending Opportunistic Credit Distressed Debt High-Yield Bonds Inv. Grade Bonds Hedge Funds
TIPS MLP Priv. Real Estate Funds
Commodities REIT Equity Private Equity Global Equity Emerging Markets Equity Intl. Dev. Equity U.S. Equity -0.3
-0.2
-0.1
0
0.1
CIO Asset Allocation -.15
0.2
0.3
0.4
0.5
Mgr. Performance 1.5
*Calculations are net of fees **Numbers may not sum due to rounding ***Hedge represents approx. gain/loss to total fund from implementing the hedge
0.6
0.7
Hedge .44
0.8
2015 TCDRS Portfolio Return vs. Benchmark Return Sources of Over/Under Performance Portfolio Return -0.66%
Benchmark Return -2.45%
Outperformance 1.79%
Cash Direct Lending Opportunistic Credit Distressed Debt High-Yield Bonds Inv. Grade Bonds Hedge Funds
TIPS MLP Priv. Real Estate Funds
Commodities REIT Equity Private Equity Global Equity Emerging Markets Equity Intl. Dev. Equity U.S. Equity -0.3
-0.2
-0.1
0
0.1
CIO Asset Allocation -.15
0.2
0.3
0.4
0.5
Mgr. Performance 1.5
*Calculations are net of fees **Numbers may not sum due to rounding ***Hedge represents approx. gain/loss to total fund from implementing the hedge
0.6
0.7
Hedge .44
0.8
2015 TCDRS Portfolio Return vs. Benchmark Return Sources of Over/Under Performance Portfolio Return -0.66%
Benchmark Return -2.45%
Outperformance 1.79%
Cash Direct Lending Opportunistic Credit Distressed Debt High-Yield Bonds Inv. Grade Bonds Hedge Funds
TIPS MLP Priv. Real Estate Funds
Commodities REIT Equity Private Equity Global Equity Emerging Markets Equity Intl. Dev. Equity U.S. Equity -0.3
-0.2
-0.1
0
0.1
CIO Asset Allocation -.15
0.2
0.3
0.4
0.5
Mgr. Performance 1.5
*Calculations are net of fees **Numbers may not sum due to rounding ***Hedge represents approx. gain/loss to total fund from implementing the hedge
0.6
0.7
Hedge .44
0.8
How TCDRS Reports Performance
How TCDRS Reports Performance All performance results are reported net of all investment fees – Quarterly
– Annually – Year-to-Date
Quarterly Investment Results Reported one month after the end of each calendar quarter Results for the private asset classes are included on a one-quarter-lagged basis Consistent with performance reporting by other institutional investors Available at www.tcdrs.org > Investments > Recent Activity
Quarterly Investment Results
Annual Investment Results Reported for all asset classes as of Dec. 31 Published in conjunction with TCDRS Comprehensive Annual Financial Report Available at www.tcdrs.org > Investments > Our Results
Annual Investment Results
Year-to-Date Performance Does not include the performance of the private asset classes until they are received When received, the return graph is updated to reflect those returns Intended to provide an estimate of the portfolio’s performance over the course of the year Available at www.tcdrs.org > Investments > Our Results
Year-to-Date Performance
Looking Forward
Capital Market Assumptions As of Jan. 1, 2016
Asset Category (Portfolio)
Expected Return
Expected Risk
U.S. Equities
7.05%
17.00%
International Equities – Developed
7.05%
18.00%
International Equities – Emerging
8.05%
26.00%
Global Equities
7.35%
18.00%
Hedge Funds
6.85%
6.10%
High-Yield Bonds
6.70%
11.00%
Opportunistic Credit
6.69%
7.16%
Distressed Debt
9.70%
11.00%
Direct Lending
8.00%
10.00%
Private Equity
10.05%
20.00%
REITs
5.60%
22.00%
Commodities
1.50%
18.00%
Master Limited Partnerships
8.40%
17.00%
Private Real Estate Partnerships
8.50%
30.00%
TIPS
2.25%
7.00%
Investment-Grade Bonds
2.60%
4.00%
Cash and Cash Equivalents
1.50%
2.00%
Conclusion Past performance does not indicate future performance Past performance is evaluated through benchmarking Performance is reported quarterly, annually and year to date Capital market assumptions help TCDRS create a portfolio that achieves our long-term goal with an acceptable level of risk
Questions?
www.tcdrs.org www.tcdrs.org
Paul J. Williams Chief Investment Officer
Sandra Bragg Deputy Investment Officer
TCDRS Portfolio Benchmarking
How We How We VS. Expected Performed to Perform
TCDRS Portfolio Benchmarks Asset class return benchmark is selected by the board at the
time an asset class is added to the portfolio Investment managers’ performance is measured against asset
class benchmark performance List of asset class benchmarks can be found in — TCDRS Investment Policy — Investments section of the TCDRS website — Comprehensive Annual Financial Report (CAFR)
Industry-Established Benchmarks U.S. Equity
Dow Jones U.S. Total Stock Market Index
Dev. Int'l. Equity
MSCI World Ex United States Net Dividend Index
Emerging Equity
MSCI Emerging Markets Net Dividend Index
Global Equity
MSCI World Net Dividend Index
Hedge Funds
HFRI Fund of Funds Composite Index
Investment-Grade Fixed-Income
Barclays Capital Aggregate Bond Index
High-Yield Bonds
Citigroup High-Yield Cash Pay Capped Index
Opportunistic Credit
Citigroup High-Yield Cash Pay Capped Index
Direct Lending
Citigroup High-Yield Cash Pay Capped Index
Distressed Debt
Citigroup High-Yield Cash Pay Capped Index
Master Limited Partnerships
Alerian MLP Index
TIPS
Barclays Capital U.S. 10 Year Breakeven Inflation Index
Commodities
Bloomberg Commodity Index
U.S. REITs
FTSE NAREIT Equity REITs Index
Global REITs
FTSE EPRA/NAREIT Global Real Estate Index
Private Real Estate
Cambridge Associates LLP Real Estate Pooled Internal Rate of Return Cambridge Associates LLP U.S. Private Equity & Venture Capital Pooled
Private Equity Cash
Internal Rate of Return U.S. 3-Month T-Bill
How We Calculate Performance Portfolio Performance Actual Asset Class Return
X
Actual Asset Class Portfolio Weight
=
Asset Class Performance
Sum of all asset class performance = total portfolio performance
Benchmark Performance Asset Class Benchmark Return
X
Target Asset Allocation Weight
=
Asset Class Benchmark Performance
Sum of all asset class benchmark performance = total benchmark performance Note: Performance is calculated monthly based on monthly returns and weights. Annual performance is the product of the monthly returns.
How Managers Affect Performance Chief Investment Officer Allocation Outperform by overweighting a higher returning asset class Outperform by underweighting a poorer returning asset class Underperform by underweighting a higher returning asset class
Underperform by overweighting a poorer returning asset class
Investment Manager Performance Outperform by performing better than their benchmark Underperform by performing worse than their benchmark
2015 TCDRS Portfolio Performance vs. Benchmark Performance CIO Allocation Outperform by overweighting a higher returning asset class
REITs Outperform by underweighting a poorer returning asset class
Commodities Underperform by underweighting a higher returning asset class
U.S. Equities Underperform by overweighting a poorer returning asset class
Master Limited Partnerships
2015 TCDRS Portfolio Performance vs. Benchmark Performance Investment Manager Performance Outperform by performing better than their benchmark
International Developed Equities Opportunistic Credit Private Equity Emerging Markets Equities Global Equities Underperform by performing worse than their benchmark
Hedge Funds
2015 TCDRS Portfolio Return vs. Benchmark Return Sources of Over/Under Performance Portfolio Return -0.66%
Benchmark Return -2.45%
Outperformance 1.79%
Cash Direct Lending Opportunistic Credit Distressed Debt High-Yield Bonds Inv. Grade Bonds Hedge Funds
TIPS MLP Priv. Real Estate Funds
Commodities REIT Equity Private Equity Global Equity Emerging Markets Equity Intl. Dev. Equity U.S. Equity -0.3
-0.2
-0.1
0
0.1
CIO Asset Allocation -.15
0.2
0.3
0.4
0.5
Mgr. Performance 1.5
*Calculations are net of fees **Numbers may not sum due to rounding ***Hedge represents approx. gain/loss to total fund from implementing the hedge
0.6
0.7
Hedge .44
0.8
2015 TCDRS Portfolio Return vs. Benchmark Return Sources of Over/Under Performance Portfolio Return -0.66%
Benchmark Return -2.45%
Outperformance 1.79%
Cash Direct Lending Opportunistic Credit Distressed Debt High-Yield Bonds Inv. Grade Bonds Hedge Funds
TIPS MLP Priv. Real Estate Funds
Commodities REIT Equity Private Equity Global Equity Emerging Markets Equity Intl. Dev. Equity U.S. Equity -0.3
-0.2
-0.1
0
0.1
CIO Asset Allocation -.15
0.2
0.3
0.4
0.5
Mgr. Performance 1.5
*Calculations are net of fees **Numbers may not sum due to rounding ***Hedge represents approx. gain/loss to total fund from implementing the hedge
0.6
0.7
Hedge .44
0.8
2015 TCDRS Portfolio Return vs. Benchmark Return Sources of Over/Under Performance Portfolio Return -0.66%
Benchmark Return -2.45%
Outperformance 1.79%
Cash Direct Lending Opportunistic Credit Distressed Debt High-Yield Bonds Inv. Grade Bonds Hedge Funds
TIPS MLP Priv. Real Estate Funds
Commodities REIT Equity Private Equity Global Equity Emerging Markets Equity Intl. Dev. Equity U.S. Equity -0.3
-0.2
-0.1
0
0.1
CIO Asset Allocation -.15
0.2
0.3
0.4
0.5
Mgr. Performance 1.5
*Calculations are net of fees **Numbers may not sum due to rounding ***Hedge represents approx. gain/loss to total fund from implementing the hedge
0.6
0.7
Hedge .44
0.8
2015 TCDRS Portfolio Return vs. Benchmark Return Sources of Over/Under Performance Portfolio Return -0.66%
Benchmark Return -2.45%
Outperformance 1.79%
Cash Direct Lending Opportunistic Credit Distressed Debt High-Yield Bonds Inv. Grade Bonds Hedge Funds
TIPS MLP Priv. Real Estate Funds
Commodities REIT Equity Private Equity Global Equity Emerging Markets Equity Intl. Dev. Equity U.S. Equity -0.3
-0.2
-0.1
0
0.1
CIO Asset Allocation -.15
0.2
0.3
0.4
0.5
Mgr. Performance 1.5
*Calculations are net of fees **Numbers may not sum due to rounding ***Hedge represents approx. gain/loss to total fund from implementing the hedge
0.6
0.7
Hedge .44
0.8
How TCDRS Reports Performance
How TCDRS Reports Performance All performance results are reported net of all investment fees – Quarterly
– Annually – Year-to-Date
Quarterly Investment Results Reported one month after the end of each calendar quarter Results for the private asset classes are included on a one-quarter-lagged basis Consistent with performance reporting by other institutional investors Available at www.tcdrs.org > Investments > Recent Activity
Quarterly Investment Results
Annual Investment Results Reported for all asset classes as of Dec. 31 Published in conjunction with TCDRS Comprehensive Annual Financial Report Available at www.tcdrs.org > Investments > Our Results
Annual Investment Results
Year-to-Date Performance Does not include the performance of the private asset classes until they are received When received, the return graph is updated to reflect those returns Intended to provide an estimate of the portfolio’s performance over the course of the year Available at www.tcdrs.org > Investments > Our Results
Year-to-Date Performance
Looking Forward
Capital Market Assumptions As of Jan. 1, 2016
Asset Category (Portfolio)
Expected Return
Expected Risk
U.S. Equities
7.05%
17.00%
International Equities – Developed
7.05%
18.00%
International Equities – Emerging
8.05%
26.00%
Global Equities
7.35%
18.00%
Hedge Funds
6.85%
6.10%
High-Yield Bonds
6.70%
11.00%
Opportunistic Credit
6.69%
7.16%
Distressed Debt
9.70%
11.00%
Direct Lending
8.00%
10.00%
Private Equity
10.05%
20.00%
REITs
5.60%
22.00%
Commodities
1.50%
18.00%
Master Limited Partnerships
8.40%
17.00%
Private Real Estate Partnerships
8.50%
30.00%
TIPS
2.25%
7.00%
Investment-Grade Bonds
2.60%
4.00%
Cash and Cash Equivalents
1.50%
2.00%
Conclusion Past performance does not indicate future performance Past performance is evaluated through benchmarking Performance is reported quarterly, annually and year to date Capital market assumptions help TCDRS create a portfolio that achieves our long-term goal with an acceptable level of risk
Questions?
www.tcdrs.org www.tcdrs.org
