Architects of Financial Prosperity Investment Management Consultants Underlying Causes of Pension Deficits Investment Risk September 10, 2015

Investment Risk September 10, DISCLAIMER This presentation is directed only to the client for whom it is intended. The underlying data has been obtained from sources considered to be reliable but its accuracy and completeness cannot be assured. This presentation is for informational purposes only and is not intended to be an offer, solicitation, or recommendation with respect to the purchase or sale of any security or a recommendation of the services supplied by any money management organization. Annual, cumulative, and annualized total returns are calculated assuming reinvestment of dividends and income plus capital appreciation. Past performance results are not necessarily indicative of future performance.

Investment Risk September 10, The many faces of “Risk”: n Actuarial Assumptions n Impact on Liabilities n Running out of money n Variability of Return n Negative Returns n Underperformance n Style Characteristics n Quality of Names in Portfolio

Investment Risk What is it? – It’s not just volatility... – It’s the absence of fiduciary education around duty of care and duty of loyalty when it comes to investments. Not understanding the shape and “math” of the liabilities – Duration – Liquidity – Actuarial assumptions September 10,

Investment Risk September 10, Inversiones para Fiduciarios 5

Investment Risk September 10, Future Spending The “End” Game: “A fund’s liabilities should dictate the shape of its assets... Investment Risk

Leads to… Not setting appropriate asset allocation policy Not rebalancing Not optimizing yield Not watching costs Running out of money altogether September 10,

Investment Risk Investment Risk reflected in the Pension Arena – Didn’t move along the asset allocation continuum September 10,

Investment Risk September 10, Variability Tolerance Range 8%

Investment Risk September 10, Desired Investment Growth Investment A Investment B Time ReturnReturn

Investment Risk September 10, Provides portfolio diversification Can enhance returns and/or lower risk

Investment Risk Not enough diversification – US-Centric Equities Fixed Income – Alternative investments as alpha generators, rather than as diversifiers September 10,

Investment Risk September 10,

Investment Risk September 10,