Senior Research Consultant, NEPC Dulari Pancholi Senior Research Consultant, NEPC

2017 Current Opportunities Trim US Equity Gains Overweight Non-US Developed Market Equities Emerging Market Equities Remain Attractive Allocate to TIPS from Core Bonds Reduce High Yield for Other Credit Strategies Fund Emerging Local Debt from Risk Assets Add Macro Hedge Fund Strategies

Summary: Credit Beta Group Trends Beta Subset Q1 2017 Q2 2017 Comments: Q2 2017 Developed Corporate Credit Investment Grade Negative Concerns around fund flows High Yield Neutral Spread compression elevates future risk-adjusted return concerns Bank Loans Positive Positive/ Negative convexity, high percent of cov-lite is a concern Private Credit Europe and Asia are preferred over the US Emerging Market Credit EMD Local Attractive real rates DM vs EM, FX volatility remain a concern but dispersed among EM countries Structured Credit CLO Mezzanine over equity, unless equity has edge

Summary: Equity Beta Group Trends Beta Subset Q1 2017 Q2 2017 Comments: Q2 2017 Liquid Global Positive International Equity allocations; complements small cap allocation United States Neutral Consider passive; For non core exposure consider concentrated/ flexible International Consider scaling in throughout 2017 to take advantage of volatility Emerging Markets Consumption theme still exists; EM small is more expensive Illiquid Special Situations Opportunistic special situations funds with flexible and nimble approaches Asia Seek managers with strong local networks and those with industry or operational focus to drive growth and profitability

Summary: Multi-Asset Beta Group Trends Beta Subset Q1 2017 Q2 2017 Comments: Q2 2017 GAA Benchmark Relative Negative Low return outlook strains ability to offer a differentiated return profile Absolute Return Positive Macro orientation offers low correlation Risk Parity Risk Parity Dynamic Tactically adjust risk exposure Global Macro Systematic GM Core macro exposure & diversification CTA/Managed Futures Maintain positive view on diversification Diversified Macro Core allocation within a macro portfolio Thematic Macro Emerging markets trading opportunities Other Diversifiers Neutral Providing unique and uncorrelated exposure

Three Different way to Implement an Impact Strategy Thematic VOTE Active Engagement Negative Screening ESG Integration Strategy Focus Investment Universe Performance Level of Impact Pro-actively seeking opportunities in targeted areas (e.g. Renewable Energy) Actively engage in corporate voting process to push key agenda Screening out certain securities for non-financial reasons ESG Factors built-in as part of the investment process Varied across asset classes Sizable and includes mainstream managers Growing in size, but most funds are smaller and newer Small but growing May lag benchmarks due to restricted universe Performance studies show neutral to positive impact Varied and will have sizable tracking error due to sector focus TBD Low Low/Medium High TBD

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