Insights from the 2016 Fidelity Global Institutional Investor Survey The Art and Science of Investment Decision Making: Factors That May Drive the Need for Change Insights from the 2016 Fidelity Global Institutional Investor Survey For institutional use only.

Fourteen Years Conducting Primary Research Expanded and evolved to become one of the largest institutional research studies 2002 First U.S. Defined Benefit (DB) survey 2005 First Endowment & Foundation survey KEY MILESTONES 2007 First Canadian DB survey 2008 Completed North American Survey 2009 Created Pyramis Pulse Poll 2010 North American/ European Survey 2011 First Asian Pulse Poll 2012 First Global Institutional Survey 2014 Expanded Global Survey 2016 Expanded Global Institutional Survey 197 pensions 1 country <$1 Trillion 2002–2005 2006–2007 2008 2009 2010 2011 2012 2014 2016 933 institutions 25 countries $21 Trillion 2002 GEOGRAPHIC REACH 2016 For institutional use only.

2016 Survey Demographics 933 institutional investors, 25 countries, $21 trillion in investable assets RESPONDENTS BY ORGANIZATION (%)+ 30 27 21 17 1 Private Sector Pension Public Sector Pension Insurance Company Endowment/ Foundation Sovereign Wealth Fund RESPONDENTS BY REGION (%) 45 27 12 11 5 Americas* Continental Europe** Asia Pacific*** United Kingdom Japan +Not shown: 4% “Other” segment which consists of trade unions, law firms, heath and medical centers, etc. *Includes United States, Canada, Mexico and Brazil **Includes Denmark, Finland, France, Germany, Iceland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland ***Includes Australia, China, Hong Kong, Singapore, South Africa, South Korea, Taiwan. For institutional use only.

Key Themes: Art and Science of Investment Decision Making More inputs, more decisions, alternative asset classes should prompt institutions to revisit their investment process In recent years, the sophistication and complexity of institutional investor portfolios has grown, and will continue to grow, as they seek to navigate volatility and grow assets in the current economic environment. On average, institutions feel they can generate nearly 2% annualized excess return with roughly half of that coming from a more dynamic portfolio management (tactical asset allocation and individual manager outperformance). Institutions are expected to make a greater number of investment decisions in the future, both from more asset allocation changes and higher manager turnover; Some have also added more factors into the decision-making process. Today, 25% of institutions define their investment process as highly systematic/disciplined, while 9% classify their decision-making style as “ad-hoc”; Remaining 66% put themselves somewhere in between. A disciplined investment process: 1. Clearly defines your goals/objectives and strategy for achieving them 2. Cuts through short term “noise”, reduces behavioral biases 3. Identifies what to buy, when to buy it, and when to sell 4. Helps evaluate what worked and why. - Maybe Cathy can discuss this? Each institution’s decision-making process is unique however, more dynamic investment decision making, higher manager turnover and a number of other factors suggest institutions should revisit their investment decision making approach. Future investment success may come not only from WHAT investments are made but also from HOW those investment decisions are made. For institutional use only.

WHAT IS YOUR INVESTMENT PORTFOLIO’S PRIMARY INVESTMENT OBJECTIVE? Primary Investment Objective Majority of institutions are still looking to grow their portfolios WHAT IS YOUR INVESTMENT PORTFOLIO’S PRIMARY INVESTMENT OBJECTIVE? Growth* Preservation** 41% Private Sector Pension 57% 44% Public Sector Pension 55% 40% Insurance 60% 48% Endowment/Foundation 52% 54% Sovereign Wealth Fund 46% 43% Global/Overall View 56% Other segment consists of trade unions law firms, heath and medical centers, etc. *Growth includes capital growth and funded status growth options. **Preservation includes capital preservation and funded status preservation. NOTE: 1% of organizations answered “other.” For institutional use only.

Investment Concerns External environment most concerning as institutions look to grow assets WHAT IS YOUR TOP CONCERN REGARDING YOUR INVESTMENT PORTFOLIO? (Top 3 answers shown) TOP CONCERNS Ability to manage risk portfolio risk Volatility Low return environment GLOBAL RESPONSE 9% 28% Low return environment Private Sector Pension 26% 38% 13% Public Sector Pension 31% 30% 16% 27% Market Volatility Insurance 25% 19% 17% Endowment/Foundation 22% 16% 13% Managing Portfolio Risk 15% Sovereign Wealth Fund 46% 8% Other segment consists of trade unions law firms, heath and medical centers, etc. Other responses: impact of regulatory and accounting changes (12%), rising interest rates (9%), Current funded status (7%), Ability of asset managers to generate excess return (4%), Other (1%). For institutional use only.

Required and Excess Return Expectations Despite concerns, 96% believe they can generate annualized excess return of 2% WHAT IS YOUR LONG TERM REQUIRED RATE OF RETURN AND EXPECTED EXCESS RETURN? Expected Excess Required Return Private Sector Pension 5.8 1.7 7.5% Public Sector Pension 6.0 1.8 7.8% Insurance 6.2 2.1 8.2% Endowment/Foundation 5.5 1.8 7.3% Sovereign Wealth Fund 7.5 2.3 9.8% Other segment consists of trade unions law firms, heath and medical centers, etc. For institutional use only.

Expected Sources of Excess Return Half from more dynamic portfolio management; growth tied to accuracy of decisions OVER THE NEXT 3 YEARS, PLEASE ESTIMATE THE PERCENTAGE OF YOUR TOTAL EXCESS RETURN THAT WILL COME FROM EACH SOURCE Private Sector Pension Public Sector Pension Insurance Endowment/Foundation Sovereign Wealth Fund Other segment consists of trade unions law firms, heath and medical centers, etc. For institutional use only.

Expected Asset Allocation Changes: Global Responses More complex investments, portfolio changes expected in next two years WHAT ARE YOUR EXPECTED ASSET ALLOCATION CHANGES OVER THE NEXT 1-2 YEARS? (GLOBAL RESPONSES) 72% - 1% - 64% 8% 55% - 1% - 46% 24% - 42% 8% 46% - 11% Increasing - 40% 11% - 41% 6% - 29% 33% - 28% 37% - 26% 6% - 15% 59% - 14% 32% 13% - 11% Decreasing 2016 2012 2016 2012 2016 2012 2016 2012 2016 2012 2016 2012 2016 2012 Domestic Equity Non-Domestic Equity Domestic Fixed Income Non-Domestic Fixed Liquid Alternatives Illiquid Alternatives Cash Income Note: Responses of “no change” and “do not use asset class” are not shown above. 2016 results use expected changes for hedge funds and private equity as proxies for liquid and illiquid alternatives, respectively. 2016 Canadian results use global equity, domestic core fixed income and investment grade corporate as proxies for non-domestic equity, domestic fixed income and non-domestic fixed income, respectively. For Institutional Use Only

Average Number of Investment Decisions Today Expected to rise in the future HOW MANY INVESTMENT DECISIONS* DOES YOUR ORGANIZATION MAKE IN AN AVERAGE YEAR? Private Sector Pension 10 Public Sector Pension 14 Insurance 15 Endowment/Foundation 10 Sovereign Wealth Fund 16 12=Average *Asset allocation and manager hiring/firing. For institutional use only.

Discipline of Investment Decision-Making Process Institutions run spectrum of pure “art” to pure “science” 9% 25% “Art” “Science” For institutional use only.

Factors Influencing Asset Allocation Decisions Behavioral biases can have a significant impact on investment process Past performance of asset class Previous successes/failures with similar investments Expected return from asset class Risk tolerance Economic forecast Time Horizon Consultant recommendation Board dynamics Asset allocation of peers Media (e.g., articles, conferences) Board member emotions (e.g., confidence, fear) For institutional use only.

Factors Influencing Asset Allocation Decisions Behavioral biases can have a significant impact on investment process Past performance of asset class Previous successes/failures with similar investments Expected return from asset class Risk tolerance Economic forecast Time Horizon Consultant recommendation Board of dynamics “Science” Asset allocation of peers Media (e.g., articles, conferences) Board member emotions (e.g., confidence, fear) For institutional use only.

Factors Influencing Asset Allocation Decisions Behavioral biases can have a significant impact on investment process Past performance of asset class Previous successes/failures with similar investments Expected return from asset class Risk tolerance “Art” Economic forecast Time Horizon Consultant recommendation Board dynamics Asset allocation of peers Media (e.g., articles, conferences) Board member emotions (e.g., confidence, fear) For institutional use only.

Manager Hiring Factors and Evaluation Period Focus on performance with short evaluation periods; may result in higher turnover HOW MUCH DOES EACH IMPACT HIRING DECISIONS FOR NEW ASSET MANAGERS? LENGTH OF TRACK RECORD NEEDED, IN YEARS, TO… ...Determine if a manager is skilled or lucky ...Evaluate a prospective asset manager 28% Investment Performance 27% Investment Team 19% Portfolio Characteristics 17% Investment Philosophy/Process 9% Non-Investment Related Factors 4.2 3.4 2.3 3.3 2.5 P Private Sector Pension r iv ate Se c t o r Pe n s i on 3.4 Public Sector Pension Public Sector Pension 2.5 Insurance Insurance 1.4 Endowment/Foundation Endowment/Foundation 2.3 Sovereign Wealth Fund Sovereign Wealth Fund 1.5 For institutional use only.

Changes to Decision Making Process Evolving decision making process varies by region; results still being evaluated HAVE YOU CHANGED YOUR DECISION MAKING PROCESS IN THE LAST THREE YEARS? HOW DO YOU FEEL THESE CHANGES HAVE IMPACTED YOUR DECISION MAKING RESULTS? Americas Europe/Asia 46% 11% Yes 67% No Strong Opinion 32% Very Positively 1% Very Negatively 54% 89% No For institutional use only.

Ideas for a More Effective and Repeatable Investment Process Recognize and reduce behavioral biases, understand successes, failures Acknowledge markets/manager performance may be unpredictable and random in the short term (i.e., be realistic about expectations and skill). Understand cycles of asset classes and factors that drive manager performance (and identity where you are in the current cycle). Be willing to make investments/hire managers that are out of favor (i.e., buy low). Have the discipline to hold onto investments/managers over the long-term despite short-term underperformance, particularly if other factors haven’t changed. Set criteria up front for potentially exiting an investment or terminating a manager. Do not let frustration or emotion drive investment decision. Conduct post mortem after exiting an investment or manager (i.e., Why did this work (not work)? What did we miss? Was our timing random luck?). For institutional use only.

Important Information This material contains statements that are "forward-looking statements," which are based upon certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different than those presented. Survey Summary: Fidelity Institutional Asset Management® conducted its survey of institutional investors in the summer of 2016, including 933 investors in 25 countries (174 U.S. corporate pension plans, 77 U.S. government pension plans, 51 non-profits and other U.S. institutions, 101 Canadian, 20 other North American, 350 European, 150 Asian, and 10 African institutions including pensions, insurance companies and financial institutions). Assets under management represented by respondents totaled more than USD $21 trillion. The surveys were executed in association with Strategic Insight, Inc. in North America and the Financial Times in all other regions. CEOs, COOs, CFOs, and CIOs responded to an online questionnaire or telephone inquiry. For institutional use only.

Institutional.fidelity.com/globalsurvey For more information Institutional.fidelity.com/globalsurvey For use with institutional investors, investment professionals, and plan sponsors. Unless otherwise noted, all data sourced from the Fidelity Global Institutional Investor Survey. Views expressed are as of Dec. 15, 2016, and may change based on market and other conditions. Unless otherwise disclosed to you, in providing this information, Fidelity is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with any investment or transaction described herein. Fiduciaries are solely responsible for exercising independent judgment in evaluating any transaction(s) and are assumed to be capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies. Fidelity has a financial interest in any transaction(s) that fiduciaries, and if applicable, their clients, may enter into involving Fidelity’s products or services. All trademarks or service marks presented herein belong to FMR LLC or an affiliate, except for third-party trademarks and service marks, which belong to their respective owners. Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. FIAM does not provide legal or tax advice, and we encourage you to consult your lawyer, accountant, or other advisor before making any financial decisions. If receiving this piece through your relationship with Fidelity Institutional Asset Management® (FIAM), this publication may be provided by Fidelity Investments Institutional Services Company, Inc., Fidelity Institutional Asset Management Trust Company, or FIAM LLC, depending on your relationship. © 2016 FMR LLC. All rights reserved. 1.9880644.101 0317 796604.1.0 FIAM-BD FIDELITY INVESTMENTS INSTITUTIONAL SERVICES COMPANY, INC., 500 SALEM STREET, SMITHFIELD, RI 02917