The Big Mystery – What do these people do all day? Alain Hung, CFA Associate Director of Investments

WARF’s Approach Allocate risk not capital Separate beta and alpha Maximize benefits of diversification

R = rf + β + α

Economic Diversification Growth Inflation Rising Stocks Commodities Real Estate Private Equity Style Premia Inflation-linked bonds Falling Global nominal bonds

Risk Allocation by Economic Environments

Volatility Assumptions Leverage at Asset Level Domestic Large Cap 16% 1x Domestic Mid Cap 18% Domestic Small Cap 21% EAFE 17% Emerging 23% Frontier Markets 25% Commodities Real Estate 13% TIPS 7% 2x Global Bonds 5.6% 2.6x Private Equity Style Premia 12% Alpha Portfolio 4%

Rising Growth Falling Growth Rising Inflation Falling Inflation Target Risk Budget Capital Allocation Domestic Large Cap 3.1% 7% Domestic Mid Cap 1.5% 3% Domestic Small Cap 1.2% 2% EAFE 5.2% 10% 11% Emerging 5.0% 8% Frontier Markets 1.4% Commodities 2.5% 5.7% Real Estate 1.9% 0.9% 4% 5% TIPS 6.6% 13% 17% Global Bonds 7.9% 16% 20% Private Equity 3.6% Style Premia 1.3% Alpha Portfolio 12% 54% Total 100%

Beta Portfolio leverage 1.5 Total portfolio leverage 2.0 Portfolio risk target 10.3% Expected excess return 6.1% Sharpe ratio 0.6

5-Year 10-Year Portfolio Return 7.80% 7.40% Spending Rate 4.50% 4.50% +3.30% +2.90%

Quiz What was the portfolio’s 10-year annualized return as of the end of FY2016 (6/30/16)? What was the percentile ranking of that performance in a universe of the top 35 university foundations?

Reminder: Investment contest due date, tomorrow @ 3 p.m.