HomeMy WebLinkAboutReports - 2021.07.29 - 34740<CBDoc TenantId="2" EntityTypeId="3100" EntityId="2903" DocumentTypeId="2" EffectiveDate="06/30/2021" Interval="1" />
Investment Performance Review
Period Ending June 30, 2021
Oakland County ERS
Defined Benefit Plan
Monthly Flash Report
Market UpdateRussell Indices Style Returns Equities Month 3 M YTD 1 Year 3 Yr Ann 5 Yr Ann VBG VBGS&P 500 Total Return 2.33 8.55 15.25 40.79 18.67 17.65Russell Midcap Index 1.47 7.50 16.25 49.80 16.45 15.62Russell 2000 Index 1.94 4.29 17.54 62.03 13.52 16.47Russell 1000 Growth Index 6.27 11.93 12.99 42.50 25.14 23.66Russell 1000 Value Index (1.15) 5.21 17.05 43.68 12.42 11.87Russell 3000 Index 2.47 8.24 15.11 44.16 18.73 17.89MSCI EAFE NR (1.13) 5.17 8.83 32.35 8.27 10.28MSCI EM NR 0.17 5.05 7.45 40.90 11.27 13.03Fixed IncomeMonth3 MYTD1 YearMod. Adj. DurationYield to WorstCurrencies06/30/2112/31/2012/31/19U.S. Aggregate 0.70 1.83 (1.61) (0.34) 6.58 1.50 Euro Spot 1.19 1.22 1.12U.S. Corporate Investment Grade 1.63 3.55 (1.27) 3.30 8.72 2.04 British Pound Spot 1.38 1.37 1.33U.S. Corporate High Yield 1.34 2.74 3.62 15.37 3.84 3.75 Japanese Yen Spot 111.11 103.25 108.61Global Aggregate (0.88) 1.31 (3.21) 2.63 7.49 1.12 Swiss Franc Spot 0.93 0.89 0.97Key Rates06/30/2112/31/2012/31/1912/31/1812/31/17Commodities06/30/2112/31/2012/31/19US Generic Govt 3 Mth 0.04 0.06 1.54 2.35 1.38 Oil 73.47 48.37 53.88US Generic Govt 2 Yr 0.25 0.12 1.57 2.49 1.88 Gasoline 3.12 2.25 2.59US Generic Govt 10 Yr 1.47 0.91 1.92 2.68 2.41 Natural Gas 3.65 2.72 2.33US Generic Govt 30 Yr 2.09 1.64 2.39 3.01 2.74 Gold 1,771.60 1,905.80 1,187.30ICE LIBOR USD 3M 0.15 0.24 1.91 2.81 1.69 Silver 26.19 26.59 16.50Euribor 3 Month ACT/360 (0.54) (0.55) (0.38) (0.31) (0.33) Copper 428.90 352.70 284.15Bankrate 30Y Mortgage Rates Na 3.13 2.87 3.86 4.51 3.85 Corn 588.50 434.75 410.50Prime 3.25 3.25 4.75 5.50 4.50 BBG Commodity TR Idx 201.87 166.63 172.00Source: Bloomberg & Investment Metrics. For informational purposes only and should not be regarded as investment advice. Information is based on sources and data believed to be reliable, butAndCo Consulting cannot guarantee the accuracy, adequacy or completeness of the information. The material provided herein is valid only as of the date of distribution and not as of any future date.Levels (%)Levels19.9 34.5YTD 2020Index Returns (%)LevelsS 26.7 17.5 9.0 S4.638.4M 19.4 16.2 10.4 M4.9 17.0 35.5June 30, 2021Index Returns (%)L 17.0 14.9 13.0 L2.8 20.945.6125.6023.3019.6716.4015.2514.5013.7611.8510.275.022.380.05.010.015.020.025.030.035.040.045.050.0YTD Sector Returns43.7433.1923.5420.6718.3313.4111.0210.710.52-1.75-2.16-33.60-40.0-30.0-20.0-10.00.010.020.030.040.050.02020 Sector Returns
Executive Summary
Policy Target In Policy Outside Policy
0.0%8.0%16.0%24.0%32.0%40.0%48.0%56.0%60.0%
Total Cash Composite (0.5%)
Total Real Asset (10.1%)
Total Fixed Income Composite (30.7%)
Total Long/Short Equity Composite (6.0%)
Total International Equity (14.0%)
Total Domestic Equity (38.7%)
Asset Allocation Compliance
Asset
Allocation
$
Current
Allocation (%)
Minimum
Allocation (%)
Maximum
Allocation (%)
Target
Allocation (%)
Min. Rebal.
($000)
Max. Rebal.
($000)
Target Rebal.
($000)
Total Fund Composite 806,938,065 100.0 N/A N/A 100.0 ---
Total Domestic Equity 312,595,039 38.7 10.0 50.0 35.0 -231,901,232 90,873,994 -30,166,716
Total International Equity 113,017,349 14.0 5.0 20.0 15.0 -72,670,445 48,370,264 8,023,361
Total Long/Short Equity Composite 48,818,622 6.0 0.0 7.5 5.0 -48,818,622 11,701,733 -8,471,719
Total Fixed Income Composite 247,342,209 30.7 10.0 55.0 35.0 -166,648,402 196,473,727 35,086,114
Total Real Asset 81,184,389 10.1 0.0 15.0 10.0 -81,184,389 39,856,321 -490,583
Total Cash Composite 3,980,458 0.5 0.0 5.0 0.0 -3,980,458 36,366,446 -3,980,458
Asset Allocation Compliance
Oakland County Employees' Retirement System Total Fund Composite
As of June 30, 2021
Page 2
Executive Summary
Policy Target In Policy Outside Policy
0.0%8.0%16.0%24.0%32.0%40.0%48.0%56.0%60.0%
Total Cash Composite (0.5%)
Total Real Asset (10.1%)
Total Fixed Income Composite (30.7%)
Total Long/Short Equity Composite (6.0%)
Total International Equity (14.0%)
Total Small Cap Equity Composite (7.9%)
Total Mid Cap Equity Composite (8.4%)
Total Large Cap Equity Composite (22.5%)
Asset Allocation Compliance
Asset
Allocation
$
Current
Allocation (%)
Target
Allocation (%)
Target Rebal.
($000)
Total Fund Composite 806,938,065 100.0 100.0 -
Total Large Cap Equity Composite 181,206,388 22.5 20.0 -19,818,775
Total Mid Cap Equity Composite 68,006,480 8.4 7.5 -7,486,125
Total Small Cap Equity Composite 63,382,171 7.9 7.5 -2,861,816
Total International Equity 113,017,349 14.0 15.0 8,023,361
Total Long/Short Equity Composite 48,818,622 6.0 5.0 -8,471,719
Total Fixed Income Composite 247,342,209 30.7 35.0 35,086,114
Total Real Asset 81,184,389 10.1 10.0 -490,583
Total Cash Composite 3,980,458 0.5 0.0 -3,980,458
Asset Allocation Compliance
Oakland County Employees' Retirement System Total Fund Composite
As of June 30, 2021
Page 3
May 31, 2021 : $800,003,568 June 30, 2021 : $806,938,065
Allocation
Market Value Allocation
SSgA S&P 500 34,637,339 4.3¢
SSgA S&P 500 Equal Weighted Index 52,392,078 6.5¢
T. Rowe Price 91,305,631 11.4¢
Nuance Mid Cap Value 14,375,460 1.8¢
TimesSquare 16,620,206 2.1¢
Great Lakes SmidCap 16,704,918 2.1¢
Reinhart Partners 20,007,438 2.5¢
Lee Munder (LMCG)30,821,199 3.9¢
Loomis Small Cap 32,422,537 4.1¢
Lazard 48,188,518 6.0¢
Pictet 44,886,087 5.6¢
Berkeley Street 21,619,479 2.7¢
ABS Global 48,818,622 6.1¢
CS McKee 108,266,643 13.5¢
Loomis Fixed Income 82,302,202 10.3¢
Pimco Diversified Income (PDIIX)34,266,484 4.3¢
Churchill Senior Loan Fund 9,805,719 1.2¢
Marathon Distressed Credit Fund LP 5,496,537 0.7¢
H.I.G. Bayside Loan Opportunity VI 608,714 0.1¢
BlackRock Direct Lending Feeder IX 4,440,700 0.6¢
Morgan Stanley 38,716,240 4.8¢
JPM Euro Property 34,103 0.0¢
Prudential PRISA II 19,963,027 2.5¢
Alidade Capital Fund IV 5,503,230 0.7¢
Walton Street Real Estate 3,004,539 0.4¢
AEW Real Estate 3,018,415 0.4¢
Dune Real Estate IV 1,129,164 0.1¢
ValStone Opportunity Fund V 2,209,756 0.3¢
Hamilton Lane Secondary Fund V LP 3,337,017 0.4¢
Portfolio Adv Secondary Agg VI 1,443,343 0.2¢
Cash and Equivalents Account 348,659 0.0¢
Private Markets Cash 3,309,564 0.4¢
Allocation
Market Value Allocation
SSgA S&P 500 35,442,675 4.4¢
SSgA S&P 500 Equal Weighted Index 52,464,178 6.5¢
T. Rowe Price 93,299,535 11.6¢
Nuance Mid Cap Value 14,199,636 1.8¢
TimesSquare 17,364,670 2.2¢
Great Lakes SmidCap 16,613,445 2.1¢
Reinhart Partners 19,828,729 2.5¢
Lee Munder (LMCG)30,253,756 3.7¢
Loomis Small Cap 33,128,415 4.1¢
Lazard 47,001,726 5.8¢
Pictet 43,884,940 5.4¢
Berkeley Street 22,130,683 2.7¢
ABS Global 48,818,622 6.0¢
CS McKee 109,338,324 13.5¢
Loomis Fixed Income 83,043,039 10.3¢
Pimco Diversified Income (PDIIX)34,609,177 4.3¢
Churchill Senior Loan Fund 9,805,719 1.2¢
Marathon Distressed Credit Fund LP 5,496,537 0.7¢
H.I.G. Bayside Loan Opportunity VI 608,714 0.1¢
BlackRock Direct Lending Feeder IX 4,440,700 0.6¢
Morgan Stanley 39,793,507 4.9¢
JPM Euro Property 34,103 0.0¢
Prudential PRISA II 20,923,457 2.6¢
Alidade Capital Fund IV 5,503,230 0.7¢
Walton Street Real Estate 3,004,539 0.4¢
AEW Real Estate 2,695,140 0.3¢
Dune Real Estate IV 1,129,164 0.1¢
ValStone Opportunity Fund V 2,209,756 0.3¢
Hamilton Lane Secondary Fund V LP 3,999,051 0.5¢
Portfolio Adv Secondary Agg VI 1,892,443 0.2¢
Cash and Equivalents Account 348,659 0.0¢
Private Markets Cash 3,631,798 0.5¢
Asset Allocation By Manager
Total Fund Composite
As of June 30, 2021
Page 4
Financial Reconciliation Month to Date
Market Value
04/01/2021
Net
Transfers Contributions Distributions Management
Fees
Other
Expenses Income Apprec./
Deprec.
Market Value
06/30/2021
Total Fund Composite 793,670,055 -2,694,070 -22,000,000 -435,143 -5,631 3,048,676 29,966,038 806,938,065
Total Equity Composite 474,082,096 -25,000,000 48,960 --115,065 -1,893 1,041,245 24,375,667 474,431,010
Total Domestic Equity 310,425,521 -18,000,000 ---5,413 -706 698,465 19,477,172 312,595,039
Total Large Cap Equity Composite 174,472,157 -7,000,000 ---5,413 -96 281,559 13,458,181 181,206,388
SSgA S&P 500 39,657,317 -7,000,000 ---3,619 --2,788,977 35,442,675
SSgA S&P 500 Equal Weighted Index 49,068,552 ----1,794 --3,397,420 52,464,178
T. Rowe Price 85,746,288 -----96 281,559 7,271,784 93,299,535
Total Mid Cap Equity Composite 67,641,984 -3,000,000 ----320 274,182 3,090,634 68,006,480
Nuance Mid Cap Value 13,740,679 -----141 79,615 379,483 14,199,636
TimesSquare 15,823,512 -----64 21,175 1,520,048 17,364,670
Great Lakes SmidCap 18,757,592 -3,000,000 ----38 44,870 811,020 16,613,445
Reinhart Partners 19,320,200 -----76 128,522 380,083 19,828,729
Total Small Cap Equity Composite 68,311,380 -8,000,000 ----290 142,724 2,928,357 63,382,171
Lee Munder (LMCG)33,518,324 -5,000,000 ----71 123,056 1,612,446 30,253,756
Loomis Small Cap 34,793,056 -3,000,000 ----219 19,667 1,315,911 33,128,415
Total International Equity 115,645,103 -7,000,000 48,960 --109,652 -1,186 342,780 4,091,344 113,017,349
Lazard 44,913,254 -----1,186 163,237 1,926,422 47,001,726
Pictet 42,780,037 ----60,692 -179,543 986,052 43,884,940
Berkeley Street 27,951,812 -7,000,000 48,960 --48,960 --1,178,871 22,130,683
Total Long/Short Equity Composite 48,011,471 ------807,151 48,818,622
ABS Global 48,011,471 ------807,151 48,818,622
Total Fixed Income Composite 239,589,358 2,515,501 ---21,417 -970 1,418,652 3,841,084 247,342,209
Total Domestic Fixed Income 188,175,057 -----970 1,029,847 3,177,429 192,381,363
CS McKee 106,972,305 -----663 554,818 1,811,863 109,338,324
Loomis Fixed Income 81,202,752 -----307 475,029 1,365,566 83,043,039
Total Global Fixed 33,578,133 ----21,417 -388,806 663,655 34,609,177
Pimco Diversified Income 33,578,133 ----21,417 -388,806 663,655 34,609,177
Private Fixed Income 17,836,168 2,515,501 ------20,351,669
Churchill Senior Loan Fund 10,106,828 -301,109 ------9,805,719
Marathon Distressed Credit Fund LP 7,607,854 2,600,000 ------10,207,854
H.I.G. Bayside Loan Opportunity VI 298,957 831,512 ------1,130,469
BlackRock Direct Lending Feeder IX 3,471,826 968,874 ------4,440,700
Financial Reconciliation
Total Fund
Quarter To Date Ending June 30, 2021
Page 5
Financial Reconciliation
Total Fund
Quarter To Date Ending June 30, 2021
Market Value
04/01/2021
Net
Transfers Contributions Distributions Management
Fees
Other
Expenses Income Apprec./
Deprec.
Market Value
06/30/2021
Total Real Asset 77,512,392 1,634,301 ---298,662 -2,467 588,499 1,750,326 81,184,389
Total Real Estate 71,705,385 -659,942 ---248,662 -588,499 1,697,859 73,083,139
Morgan Stanley 38,716,240 ----189,965 -380,871 886,361 39,793,507
JPM Euro Property 34,103 -------34,103
Prudential PRISA II 19,963,027 ----58,696 -207,628 811,499 20,923,457
Alidade Capital Fund IV 5,597,920 -94,690 ------5,503,230
Walton Street Real Estate 3,004,539 -------3,004,539
AEW Real Estate 3,260,392 -565,252 ------2,695,140
Dune Real Estate IV 1,129,164 -------1,129,164
Private Investments 5,807,007 2,294,243 ---50,000 -2,467 -52,467 8,101,250
ValStone Opportunity Fund V 2,209,756 -------2,209,756
Hamilton Lane Secondary Fund V LP 2,550,184 1,448,867 ---50,000 -2,467 -52,467 3,999,051
Portfolio Adv Secondary Agg VI 1,832,369 1,479,407 ------3,311,776
Total Cash Composite 2,486,209 20,850,198 2,645,111 -22,000,000 --301 280 -1,039 3,980,458
Cash and Equivalents Account 91,497 19,646,029 2,611,134 -22,000,000 --301 301 -348,659
Private Markets Cash 2,394,713 1,204,169 33,977 ----21 -1,039 3,631,798
Page 6
Asset Allocation & Performance
Allocation
Market
Value
$
%
Performance(%)
MTH QTD FYTD YTD 1 YR 3 YR 5 YR 7 YR 10 YR Inception Inception
Date
Total Fund Composite 806,938,065 100.0 0.77 4.24 19.08 7.12 24.17 10.16 10.17 8.02 8.65 8.60 10/01/1986
Total Fund Policy Index 1.29 4.73 17.57 7.24 22.76 10.98 10.25 8.18 9.13 9.07
Total Equity Composite 474,431,010 58.8 0.35 5.54 32.66 11.70 41.11 13.25 14.13 10.31 11.27 10.05 10/01/1986
Total Equity Index 1.35 7.03 33.67 14.14 43.67 15.34 15.49 11.93 13.04 10.54
Total Fixed Income Composite 247,342,209 30.7 0.89 2.18 1.15 -0.42 2.69 5.48 3.84 3.50 3.96 6.28 10/01/1986
Total Fixed Income Index 0.51 1.73 -0.67 -1.84 0.42 5.20 2.91 3.10 3.18 6.05
Total Real Asset 81,184,389 10.1 2.95 2.98 8.15 5.01 10.02 7.08 7.95 9.63 9.56 5.15 07/01/2008
NCREIF Fund Index-ODCE (VW)3.93 3.93 7.50 6.12 8.02 5.52 6.57 8.40 9.60 5.35
Total Cash Composite 3,980,458 0.5
Asset Allocation & Performance
Total Fund Composite
As of June 30, 2021
Page 7
Asset Allocation & Performance
Total Fund Composite
As of June 30, 2021
Allocation
Market
Value
$
%
Performance(%)
MTH QTD FYTD YTD 1 YR 3 YR 5 YR 7 YR 10 YR Inception Inception
Date
Total Domestic Equity 312,595,039 38.7 1.07 6.69 36.33 14.88 46.34 16.08 N/A N/A N/A N/A 10/01/1986
Total Large Cap Equity Composite 181,206,388 22.5 1.61 8.20 33.00 16.11 44.50 18.65 17.75 14.26 15.02 12.26 07/01/2008
SSgA S&P 500 (1.5 bps)35,442,675 4.4 2.33 8.50 29.20 15.21 40.74 18.66 17.66 14.13 14.89 15.04 10/01/2009
S&P 500 Index 2.33 8.55 29.25 15.25 40.79 18.67 17.65 14.10 14.84 14.99
SSgA S&P 500 Equal Weighted Index (4 bps)52,464,178 6.5 0.14 6.92 41.29 19.11 50.75 16.18 N/A N/A N/A 13.23 02/01/2018
S&P 500 Equal Weighted 0.14 6.90 41.18 19.18 50.71 16.41 15.68 12.34 13.76 13.40
T. Rowe Price (25 bps)93,299,535 11.6 2.18 8.81 30.48 14.93 42.75 19.52 18.88 15.09 15.68 15.62 10/01/2009
S&P 500 Index 2.33 8.55 29.25 15.25 40.79 18.67 17.65 14.10 14.84 14.99
Total Mid Cap Equity Composite 68,006,480 8.4 0.44 4.99 36.50 12.28 43.52 10.88 12.86 9.42 11.23 10.12 07/01/2008
Nuance Mid Cap Value (75 bps)14,199,636 1.8 -1.22 3.34 26.23 8.99 N/A N/A N/A N/A N/A N/A 07/01/2020
Russell Midcap Value Index -1.16 5.66 43.85 19.45 53.06 11.86 11.79 9.34 11.75 53.06
TimesSquare (80 bps)17,364,670 2.2 4.48 9.74 29.54 9.84 41.88 22.92 20.71 15.50 15.97 16.94 09/01/2009
Russell Midcap Growth Index 6.80 11.07 31.45 10.44 43.77 22.39 20.52 15.39 15.13 16.98
Great Lakes SmidCap (55 bps)16,613,445 2.1 -0.55 4.67 36.21 10.99 46.21 N/A N/A N/A N/A 12.98 05/01/2019
Russell 2500 Index 1.18 5.44 49.02 16.97 57.79 15.24 16.35 11.74 12.86 20.43
Reinhart Partners (65 bps)19,828,729 2.5 -0.89 2.63 52.81 17.36 51.90 N/A N/A N/A N/A 14.70 05/01/2019
Russell 2500 Index 1.18 5.44 49.02 16.97 57.79 15.24 16.35 11.74 12.86 20.43
Total Small Cap Equity Composite 63,382,171 7.9 0.22 4.50 45.41 14.23 53.77 14.04 15.88 11.28 11.81 11.61 07/01/2008
Lee Munder (70 bps)30,253,756 3.7 -1.84 5.10 58.89 22.53 62.54 10.38 12.44 10.02 10.95 10.14 09/01/2005
Russell 2000 Value Index -0.61 4.56 68.96 26.69 73.28 10.27 13.62 9.26 10.85 8.18
Loomis Small Cap (90 bps)33,128,415 4.1 2.18 3.97 34.36 7.21 46.14 17.76 21.12 15.28 N/A 17.31 09/01/2012
Russell 2000 Growth Index 4.69 3.92 41.25 8.98 51.36 15.94 18.76 13.11 13.52 15.57
Page 8
Asset Allocation & Performance
Total Fund Composite
As of June 30, 2021
Allocation
Market
Value
$
%
Performance(%)
MTH QTD FYTD YTD 1 YR 3 YR 5 YR 7 YR 10 YR Inception Inception
Date
Total International Equity 113,017,349 14.0 -1.45 4.07 30.15 7.38 37.42 8.54 10.95 6.28 6.82 5.27 07/01/2008
Total International Equity Index -0.62 5.64 28.14 9.45 36.29 9.88 11.59 5.81 5.97 4.25
Lazard (75 bps)47,001,726 5.8 -2.46 4.65 27.73 7.70 35.30 9.02 10.44 6.21 7.61 6.55 09/01/2006
MSCI AC World ex USA -0.62 5.64 28.14 9.45 36.29 9.88 11.59 5.81 5.93 5.12
Pictet (65 bps)43,884,940 5.4 -2.19 2.72 33.30 8.38 39.38 5.47 9.73 5.23 6.03 2.77 01/01/2008
MSCI EAFE Index -1.10 5.38 26.74 9.17 32.92 8.77 10.79 5.45 6.38 3.52
Berkeley Street (95 bps)22,130,683 2.7 2.36 5.60 31.72 7.70 41.08 16.30 16.11 9.55 N/A 8.91 11/01/2012
MSCI Emerging Markets Index 0.21 5.12 28.86 7.58 41.36 11.67 13.43 6.74 4.65 6.62
Total Long/Short Equity Composite 48,818,622 6.0 0.00 1.68 16.68 2.88 19.99 7.98 8.50 5.58 5.61 5.58 10/01/2010
ABS Global (100 bps)48,818,622 6.0 0.00 1.68 16.68 2.88 19.99 7.98 8.50 5.68 6.14 6.30 10/01/2010
HFRI FOF: Strategic Index 1.37 4.30 17.46 6.02 24.34 7.68 7.64 4.88 4.51 4.55
Total Domestic Fixed Income 192,381,363 23.8 0.95 2.24 0.26 -1.10 1.76 6.23 N/A N/A N/A N/A 07/01/2008
CS McKee (35 bps)109,338,324 13.5 0.99 2.21 -0.69 -1.35 0.49 5.73 3.45 3.71 3.83 4.02 02/01/2010
Blmbg. Barc. U.S. Aggregate Index 0.70 1.83 -0.95 -1.61 -0.34 5.34 3.03 3.28 3.39 3.65
Loomis Fixed Income (30 bps)83,043,039 10.3 0.90 2.27 1.54 -0.77 3.50 6.89 5.07 4.24 5.24 5.80 04/01/2010
Blmbg. Barc. U.S. Aggregate Index 0.70 1.83 -0.95 -1.61 -0.34 5.34 3.03 3.28 3.39 3.68
Total Global Fixed 34,609,177 4.3 1.06 3.13 1.52 0.77 1.18 -0.35 N/A N/A N/A N/A 04/01/2010
Pimco Diversified Income (75 bps)34,609,177 4.3 1.06 2.82 N/A N/A N/A N/A N/A N/A N/A 2.19 03/01/2021
Blmbg. Barc. Global Credit (Hedged)0.98 2.24 2.64 -0.46 4.66 6.53 4.85 4.58 5.15 1.41
Page 9
Asset Allocation & Performance
Total Fund Composite
As of June 30, 2021
Allocation
Market
Value
$
%
Performance(%)
MTH QTD FYTD YTD 1 YR 3 YR 5 YR 7 YR 10 YR Inception Inception
Date
Total Real Estate 73,083,139 9.1 3.20 3.20 7.58 5.42 9.22 6.72 N/A N/A N/A 8.02 09/01/2016
NCREIF Fund Index-ODCE (VW)3.93 3.93 7.50 6.12 8.02 5.52 6.57 8.40 9.60 6.80
Morgan Stanley (84 bps)39,793,507 4.9 3.27 3.27 7.09 5.54 8.46 6.47 7.76 9.75 11.24 6.43 01/01/2008
NCREIF Fund Index-ODCE (VW)3.93 3.93 7.50 6.12 8.02 5.52 6.57 8.40 9.60 5.27
Prudential PRISA II (85 bps)20,923,457 2.6 5.11 5.11 9.10 7.28 9.57 6.53 7.63 9.65 N/A 10.99 10/01/2011
NCREIF Property Index 0.00 0.00 2.88 1.72 3.64 4.27 5.38 7.18 8.41 8.27
JPM Euro Property 34,103 0.0 0.00 0.00 -47.96 -51.64 -44.92 -27.00 -13.67 -8.95 -8.16 -6.82 04/01/2009
NCREIF Property Index 0.00 0.00 2.88 1.72 3.64 4.27 5.38 7.18 8.41 7.57
Total Cash Composite 3,980,458 0.5
Cash and Equivalents Account (No fee)348,659 0.0
Private Markets Cash 3,631,798 0.5
Page 10
Comparative Performance - IRR
MTH QTD FYTD YTD 1 YR 3 YR 5 YR 7 YR 10 YR Inception Inception
Date
ValStone Opportunity Fund V 0.00 0.00 0.75 1.64 2.51 6.81 5.03 N/A N/A 7.33 08/27/2014
Alidade Capital Fund IV 0.00 0.00 13.74 5.50 20.08 9.89 N/A N/A N/A 8.40 04/20/2017
Walton Street Real Estate 0.00 0.00 9.99 5.74 13.10 8.56 N/A N/A N/A 10.19 05/24/2017
AEW Real Estate 0.00 0.00 7.63 6.09 10.35 13.17 N/A N/A N/A 9.93 09/28/2017
Churchill Senior Loan Fund 0.00 0.00 5.68 3.74 12.84 5.81 N/A N/A N/A 6.14 12/07/2017
Dune Real Estate IV 0.00 0.00 -24.93 -22.94 -23.71 N/A N/A N/A N/A -27.27 08/22/2019
Hamilton Lane Secondary Fund V LP 0.00 0.00 24.83 -1.02 37.83 N/A N/A N/A N/A 40.03 04/28/2020
Marathon Distressed Credit Fund LP 0.00 0.00 27.26 9.59 N/A N/A N/A N/A N/A 36.89 09/10/2020
H.I.G. Bayside Loan Opportunity VI 0.00 0.00 0.00 -10.15 N/A N/A N/A N/A N/A 0.00 09/29/2020
Portfolio Adv Secondary Agg VI 0.00 0.00 N/A -1.33 N/A N/A N/A N/A N/A 28.45 11/02/2020
BlackRock Direct Lending Feeder IX 0.00 0.00 N/A 5.44 N/A N/A N/A N/A N/A 5.44 01/05/2021
Comparative Performance - IRR
Alternative Investments
As of June 30, 2021
Page 11
Disclosures AndCo compiled this report for the sole use of the client for which it was prepared. AndCo is responsible for evaluating the performance results of the Total Fund along with the investment advisors by comparing their performance with indices and other related peer universe data that is deemed appropriate. AndCo uses the results from this evaluation to make observations and recommendations to the client. AndCo uses time-weighted calculations which are founded on standards recommended by the CFA Institute. The calculations and values shown are based on information that is received from custodians. AndCo analyzes transactions as indicated on the custodian statements and reviews the custodial market values of the portfolio. As a result, this provides AndCo with a reasonable basis that the investment information presented is free from material misstatement. This methodology of evaluating and measuring performance provides AndCo with a practical foundation for our observations and recommendations. Nothing came to our attention that would cause AndCo to believe that the information presented is significantly misstated. This performance report is based on data obtained by the client’s custodian(s), investment fund administrator, or other sources believed to be reliable. While these sources are believed to be reliable, the data providers are responsible for the accuracy and completeness of their statements. Clients are encouraged to compare the records of their custodian(s) to ensure this report fairly and accurately reflects their various asset positions. The strategies listed may not be suitable for all investors. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. Past performance is not an indication of future performance. Any information contained in this report is for informational purposes only and should not be construed to be an offer to buy or sell any securities, investment consulting, or investment management services. Additional information included in this document may contain data provided by from index databases, public economic sources and the managers themselves. This document may contain data provided by Bloomberg Barclays. Bloomberg Barclays Index data provided by way of Barclays Live. This document may contain data provided by Standard and Poor’s. Nothing contained within any document, advertisement or presentation from S&P Indices constitutes an offer of services in jurisdictions where S&P Indices does not have the necessary licenses. All information provided by S&P Indices is impersonal and is not tailored to the needs of any person, entity or group of persons. Any returns or performance provided within any document is provided for illustrative purposes only and does not demonstrate actual performance. Past performance is not a guarantee of future investment results. This document may contain data provided by MSCI, Inc. Copyright MSCI, 2017. Unpublished. All Rights Reserved. This information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. This information is provided on an “as is” basis and the user of this information assumes the entire risk of any use it may make or permit to be made of this information. Neither MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating this information makes any express or implied warranties or representations with respect to such information or the results to be obtained by the use thereof, and MSCI, its affiliates and each such other person hereby expressly disclaim all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating this information have any liability for any direct, indirect, special, incidental, punitive, consequential or any other damages (including, without limitation, lost profits) even if notified of, or if it might otherwise have anticipated, the possibility of such damages. This document may contain data provided by Russell Investment Group. Russell Investment Group is the source owner of the data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a user presentation of the data. Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in presentation thereof. This document may contain data provided by Morningstar. All rights reserved. Use of this content requires expert knowledge. It is to be used by specialist institutions only. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is not guarantee of future results. Page 12
Oakland County Employees' Retirement System
Asset / Manager Summary - July 29, 2021
Asset Class / Manager MV ($000) % MV ($000) % Add/Reduce
SSgA S&P 5001 $35,443 4.4%$40,086 5.0%$4,643
SSgA S&P 500 EW 1 $52,464 6.5%$40,086 5.0%($12,378)6/30 MV; Transfer $10MM to CS McKee
T. Rowe Price Enhanced 500 $94,789 11.8%$80,172 10.0%($14,617)
TimesSquare Mid Growth $17,241 2.2%$15,032 1.9%($2,209)
Great Lakes Small/Mid Core $15,979 2.0%$15,032 1.9%($947)
Reinhart Small/Mid Core $19,464 2.4%$15,032 1.9%($4,432)
Nuance Mid Value $14,303 1.8%$15,032 1.9%$729
Loomis, Sayles Small Growth $32,082 4.0%$30,064 3.8%($2,018)
LMCG Small Value $29,606 3.7%$30,064 3.8%$458
ABS Global L/S Equity1 $48,819 6.1%$40,086 5.0%($8,733)
Total US Equity $360,190 44.9%$320,687 40.0%($39,503)2.5% added to allocation (unallocated other assets)
Lazard Intl Equity $46,738 5.8%$40,086 5.0%($6,652)
Pictet Intl Equity1 $43,889 5.5%$40,086 5.0%($3,803)
Berkley Street Emerging Mkts.1 $21,632 2.7%$20,043 2.5%($1,589)
Total Intl Equity $112,259 14.0%$100,215 12.5%($12,044)
CS McKee Core Fixed $110,041 13.7%$160,344 20.0%$50,303
Loomis, Sayles Core Plus $83,453 10.4%$60,448 7.5%($23,005)
PIMCO Diversifed Income $34,701 4.3%$40,086 5.0%$5,385
Churcill Direct Lending1 $12,460 1.6%$12,460 1.6%$0
BlackRock Direct Lending1 $2,281 0.3%$2,281 0.3%$0 $12MM Commitment; 1st CC in March 2021
Bloomfield Direct Lending1 $0 0.0%$0 0.0%$0 $8MM Commitment
HIG/Marathon Distressed1 $4,983 0.6%$4,983 0.6%$0 $7MM Commitment Each
Total Fixed Income $247,919 30.9%$280,601 35.0%$32,682 1.5% added to allocation (unallocated other assets)
MS Prime Property RE1 $39,829 5.0%$48,834 6.1%$9,005
Prudential PRISA II VA RE1 $19,963 2.5%$16,034 2.0%($3,929)
Private VA Real Estate Funds1,2 $15,303 1.9%$15,303 1.9%$0
Total Real Estate $75,095 9.4%$80,172 10.0%$5,077
Hamilton Lane $4,013 0.5%$10,021 1.3%$6,008 $10MM Commitment
Portfolio Advisors $1,893 0.2%$10,021 1.3%$8,128 $10MM Commitment
Total Private Equity $5,906 0.7%$20,043 2.5%$14,137
Cash Account $349 0.0%$0 0.0%($349)
Total Fund $801,718 100.0%$801,718 100.0%$0
Market values from Northern Trust as of 7/16/21.
1. Market values not updated daily by Northern Trust.
2. Currently represents investment with AEW VIII, Alidade IV, Dune IV, JPM European Property Fund, Valstone and Walton Street.
Other Assets / Basket Clause $72,168 9.0% $77,572 9.7% 15% Target
Includes ABS, Churchill, BlackRock, Bloomfield, HIG, Marathon, HL,
and PA
Target Allocation = 10% target less Direct Lending
and Distressed Debt strategies
Current Allocation Target Allocation
Comments
Included in Other Assets allocation
Transfer $10MM to CS McKee
Target Allocation = 10% RE target less VA mgrs.
6/30 MV
CHICAGO | CLEVELAND | DALLAS | DETROIT | ORLANDO | PITTSBURGH | RENOClients first.
1Clients first.Introduction to ESGA Primer for Institutional ClientsJuly 2021
2DisclosureThis document is the proprietary and confidential work product of AndCo Consulting and is not intended for distribution to the public. It is provided for educational and informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular course of action.The primer uses assumptions and statements of future expectations, estimates, projections, and other forward-looking statements that are based on available information and views as of the time of those statements. Such forward-looking statements are inherently speculative as they are based on assumptions which may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements.Past performance is no guarantee of future results.The source of all data, charts and graphs is AndCo Consulting unless otherwise stated. Certain information is based on sources and data believed to be reliable, but their accuracy and completeness cannot be guaranteed.Opinions expressed reflect prevailing market conditions at the time this material was completed and are subject to change. Moreover, the material provided is valid as of the date indicated on the cover and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after such date.AndCo Consulting is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Registration as an investment adviser does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability.
3The Investment ChallengeMany institutional investors have started toassess the environmental impacts, the socialbenefits, and the governance practices associated with the companies they are investingin, alongside traditional financial metrics. With this shift in mindset, Environmental, Social,and Governance (ESG) investing has gained momentum, especially in the last 10 years.Many institutional investors say they implement ESG investing practices to align assetswith their organizational values.1However, depending on an investor’s required objectives, ESG investmentimplementation should be evaluated with consideration to any potential performanceimpact.1Natixis Global Survey of Institutional Investors conducted from October to November 2020 including 500 institutional investors in 29 countries.
4Addressing the Investment ChallengeThe investable ESG-focused universe has grown, and the number of strategies hasincreased to meet investor demand. As of 2020, there were 281 mutual funds with anESG focus listed in Morningstar, a 247% increase since 2011.11 Data sourced from Morningstar’s 2020 Sustainable Funds U.S. Landscape Report.2 Data sourced from US SIF Sustainable and Impact Investing 2020 survey. The data sourced in this report is predominantly related to mutual funds as this information is more readily available. We believe these trends to be equally applicable to other vehicle options.As the number of ESG strategies offered hasincreased so has the amount of institutionaldollars invested in these strategies. At the end of 2020, there were $6.18 billioninstitutional dollars invested, up over 200% since 2010.279 81 84 89 90 115 128 163 195 223 281$2,026.00 $2,484.00 $4,042.00 $4,725.00 $5,608.00 $6,180.00 $- $1,000.00 $2,000.00 $3,000.00 $4,000.00 $5,000.00 $6,000.00 $7,000.000501001502002503002010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020ESG Universe by Funds and Institutional Dollars1,2 Number of Open-End FundsInsitutional Dollars Invested (Billions)
5Addressing the Investment Challenge1 Sourced from US SIF Sustainable and Impact Investing 2020 survey. 2 The other investor type consists of family offices, healthcare institutions, faith-based institutions, and other nonprofits. 3Sourced from Morningstar’s 2020 Sustainable Funds US Landscape Report. Public54%Insurance Companies36%Education 6%Foundations2%Labor 1%Other 1%2Institutional ESG dollars by Investor Type1As of 2020, the institutional dollars invested in ESG strategies are primarily coming frompublic plans followed by insurance companies.1Equity 62%Fixed Income 21%Allocation16%Alternative1%ESG Funds by Asset Class3Most current ESG-related investments offered to investors are equity strategies but thereare also a number of fixed income and allocation (balanced) strategies to consider.
6Addressing the Investment ChallengePassive ESG funds were introduced in the 1990s following the creation of the first ESGindex.1Over the past 30 years, a wide variety of additional ESG-focused indexes havebeen created.1 The Domini 400 Social Index, later renamed the MSCI KLD 400 Social Index, is a capitalization weighted index of 400 US securities that provides exposure to companies with good ESG ratings (based on data from MSCI ESG research) and excludes companies whose products have negative social or environmental impacts.2 Sourced from Morningstar’s 2020 Sustainable Funds US Landscape Report.37597290971180204060801001202015 2016 2017 2018 2019 2020Number of Funds in MorningstarPassive ESG Funds2The number of passive ESG funds has also been increasing. In 2020, there were 118passive ESG-focused funds available in Morningstar, a 219% increase of funds in the last5 years.
7Addressing the Investment ChallengeMany studies have shown that taking ESG factors into consideration may positivelyimpact long-term performance, may provide downside protection, and may offer a senseof purpose for investors. Those investing in ESG seek competitive returns but with theside benefit of promoting social good, and better corporate environmental andgovernance practices.1 Sourced from Nuveen’s 2020 Annual Responsible Investing survey. 2 Sourced from Morgan Stanley’s 2019 report titled Sustainable Reality Analyzing Risk and Returns of Sustainable Funds. 3 Sourced from Nuveen’s 2018 report titles Responsible Investing: Delivering Competitive Performance. 4 Sourced from Deutsche Asset & Wealth Management and Hamburg University’s 2015 article titled ESG and Financial Performance: Aggregated Evidence From More Than 2,000 Empirical Studies. The above represents study findings through the cited firms and do not necessarily represent AndCo’s views. AndCo is neither affiliated with nor endorses them.“The returns of sustainable funds arein line with those of traditional funds, while also offeringlowerdownside riskfor investors.”- Morgan Stanley Institute for Sustainable Investing2“Incorporating Environmental, Social, and Governance criteria in security selectiondid not entail additionalrisk.”- Nuveen TIAA Investments3“Roughly 90% of studies find a nonnegative ESG – corporate financial performance relation. More importantly,the large majority of studies reportpositive findings.”- Deutsche Asset & Wealth Management and Hamburg University4“A majority of investors say having the option to choose responsible investing options in [their] retirement planwouldmake [them] feel good.”- Nuveen Responsible Investing Survey1Quotes from several ESG publications:
8Addressing the Investment Challenge1 Sourced from BlackRock’s An Evolution in ESG Indexing whitepaper. Some companies have operations across this ecosystem, but these were listed by their primary focus.This graphic is for illustrative purposes only and is not an exhaustive list.See the glossary for definitions of standard setters, data aggregators, specialized data providers, and rating agencies.The ESG Research EcosystemStandard SettersData AggregatorsSpecialized Data ProvidersRating AgenciesSustainability Accounting Standards Board (SASB)Global Reporting Initiative (GRI)BloombergMorningstarMSCI ESG ResearchSustainalyticsTruValue LabsCDPThe ESG movement is made up of many groups that collect, analyze, and distributedata. Examples range from rating agencies that evaluate underlying companies toorganizations that are working to set industry standards around ESG reporting.1
9Addressing the Investment ChallengeThe Forum for Sustainable and Responsible Investment (US SIF):created in 1984, thismember association works to advance sustainable investing across all asset classes.Ceres Principles (formerly the Coalition of Environmentally Responsible Economies):wasformed following the Exxon Valdez oil spill in 1989 to aid in the adoption of sustainable businesspractices and the transition to a low-carbon economy.Global Reporting Initiative (GRI):established in 1997, this organization created an accountabilityframework for companies to track how they aligned with the Ceres Principles.CDP (formerly the Carbon Disclosure Project):this organization was created in 2002, to helpmake environmental reporting a business standard,first collecting data on and tracking greenhousegas emissions.United Nations Principles for Responsible Investment (UNPRI):a network that encouragesand supports responsible asset managers incorporating ESG factors into their investment decisions.Sustainability Accounting Standards Board (SASB):launched in 2011, this group set out tostandardize sustainability accounting similar to that of the Financial Accounting Standards Board(FASB) for financial data.The following are a few of the many organizations that have been created to facilitate thegrowing demand for ESG metrics and information:
10Addressing the Investment Challenge1Sourced from Ratings That Don’t Rate The Subjective World of ESG Ratings Agencies whitepaper.2The Ten Principles of the UN Global Compact center around human rights, labor, environment, and anti-corruption. MSCI ESG Research:first launched in 2010, this is now one of the largest independent providers ofESG ratings. MSCI evaluates companies based on 37 key ESG issues and rankings range from AAA(highest) to CCC (lowest).Sustainalytics:created in 2008, this agency assesses companies on at least 70 ESG indicators ineach industry. Sustainalytics also breaks down theindicators into three sub-groups: preparedness,disclosure, and performance. The ratings range from 100 (highest) to 0 (lowest) using both sector andindustry comparisons.RepRisk:founded in 1998, RepRisk focuses on 28 ESG issues connected to the Ten Principles of theUN Global Compact.2RepRisk also implements a two-year and ten-year score outlook. The rankingsrange from AAA (highest) to D (lowest).Institutional Shareholder Services (ISS) Quality Score:founded in 1999, ISS recently addedenvironmental and social factors in 2018 to their preexisting governance factors. ISS evaluatescompanies based on hundreds of factors and ratings range from 1st(highest) to 10th(lowest) decile.Many managers do not have the time or resources to conduct in-house ESG research.This led to the creation of ESG rating agencies. While a number of agencies haveemerged to fill this gap, there are four major agencies that dominate the market.1
11Addressing the Investment ChallengeNot only are there rating agencies in place to assess ESG metrics on a company level,but organizations have also created systems to determine ESG validity across entirefunds. Fund level analysis attempts to assessthe ESG-friendliness of a total portfolio byaggregating the individual company exposures.Examples include:MSCI ESG Fund Ratings:similar to the company level data, this provider ranks funds onrange from AAA (highest) to CCC (lowest). The ratings seek to measure the ESGcharacteristics of the underlying holdings. MSCI also aggregates additional metrics such asexposure to controversial weapons or tobacco.Morningstar Sustainability Rating:first introduced in 2016, these ratings are depicted witha five-globe system showing if the investment is ranked at the bottom end (one globe) or thehigh end (five globes) of its industry group rating. The rating is based on two components-underlying company-level ESG scores sourced from Sustainalytics and ESG controversies.
12Addressing the Investment ChallengeCompanies are taking notice of investors’ increased interest in ESG, and they are startingto align their business structures with these factors. Some examples are:BPpartially weighs executive bonuses to the company’s environmental target and in2020 increased this weight.1Chipotle Mexican Grillintroduced a new metric in 2021, that ties executivecompensation to company ESG goals.2Shellwas one of the first companies to tie executive compensation to short-term carbonemissions targets in 2020.3Starbucksstarted connecting its inclusion and diversity efforts to executivecompensation in 2020.4Unileveris considered a leader in sustainability and partially ties the CEO’s bonus to thecompany’s ESG targets.51Sourced from BP’s 2019 Directors’ Remuneration Report. 2Sourced from Chipotle’s 2021 Press Release titled “Chipotle Announces Executive Compensation Metrics Tied To Sustainability Goals”.3Sourced from Shell’s 2019 Sustainability Report.4Sourced from a 2020 Starbuck’s letter from the CEO titled “Starbucks Role and Responsibility in Advancing Racial and Social Equity”. 5Sourced from Unilever’s 2019 Directors’ Remuneration Report.Companies are cited for illustrative purposes only. References herein do not constitute a recommendation to buy, sell, or hold any related securities. AndCo has neither evaluated these individual companies nor verified the practices.
13Defining ESGESG systematically and explicitly incorporates Environmental (E), Social (S), andGovernance (G) factors alongside traditional financial metrics in investment analysis.ESG Factor Examples:1Environmental Factors Social Factors Governance FactorsCarbon Emissions Customer satisfaction Board CompositionAir and Water Pollution Data Protection and Privacy Audit Committee StructureDeforestation Gender and Diversity Bribery and CorruptionEnergy Efficiency Community Relations Executive CompensationWaste Management Human Rights Political ContributionsWater Scarcity Labor Standards Whistleblower Schemes Environmental: measures how a company performs as a steward of natureSocial: measures how a company manages relationships with its workforce,customers, and communityGovernance: measures how a company aligns with its stated purpose, the role andmakeup of boards, shareholder rights, and corporate performance1CFA ESG framework was used to pull various examples of each of the E, S, and G categories.This graphic is for illustrative purposes only and is not an exhaustive list.
14Defining ESGIn AndCo’s view, an investment manager’s approach to ESG can be categorized as adedicated approach or an integrated approach.Adedicated ESGapproach fully embeds ESG factors as a primary input into themanager’s decision-making process. If an investment does not qualify as ESG-friendlyunder the manager’s chosen factors, the manager would be prohibited from investment.This approach will also be accompanied by a robust process the manager follows toassess ESG factors.In anintegrated ESGapproach, managers are aware and conscious of ESG factorshowever, these are not a deciding factor when making a decision. Instead, ESG factorssimply serve as additional data points to provide a more holistic assessment of thecompany.
15Defining ESGWhile Impact Investing, Socially Responsible Investing (SRI), and ESG investing arerelated and often grouped together, they eachhave their own distinct characteristics andgoals.Impact InvestingSRIInvestingESG InvestingReturn Spectrum1Sourced from the Global Impact Investing Network (GIIN).Impact Investingaims to make a measurable, positive environmental or social impactalongside a financial return. Impact investors have diverse financial returnexpectations. Some may willingly accept below market-rate returns, in line with theirstrategic objectives, while others may be less agreeable to these tradeoffs. To date, itis inconclusive as to whether impact investing consistently produces inferior returnswhen compared to traditional ESG approaches.SRIis the predecessor to ESG investing and originally gained traction from religiousorganizations. SRI is also referred to as exclusionary screening as the processtypically aims to avoid investment in “sin stocks” like tobacco, firearms, or alcohol.
16History of ESG1Sourced from Morningstar’s ESG Investing Coming of Age article. The anti-war movement propelled socially responsible investmentin the US. Investors were against investing in the production of napalm and Agent Orange, chemical weapons used in the Vietnam War. This led to the creation of the Pax World Fund. Two ministers wanted to avoid investing church dollars in the Vietnam War in order to align the church’s values with their investments. 2The Domini 400 Social Index, later renamed the MSCI KLD 400 Social Index, is a capitalization weighted index of 400 US securities that provides exposure to companies with good ESG ratings (based on data from MSCI ESG research) and excludes companies whose products have negative social or environmental impacts. 3 The report was titled “Who Cares Wins”. 4The US DOL ruled this so long as the investment is appropriate for the plan and economically and financially equivalent with respect to the plan’s objectives, return, risk, and other financial attributes as competing investments. In 2020 a bureau of the DOL published guidance directing retirement plan sponsors to only consider economic-related or pecuniary factors in evaluating potential investments. The rules did not directly prohibit the consideration of ESG funds but in 2021 President Biden signed an executive order directing the bureau and the DOL to consider suspending, revising, or resending the Financial Factors in Selective Plan Investments rule. 5Sourced from Morningstar’s ESG Investing Coming of Age article. 1960s: The Vietnam War sparked the responsible investing movement in the US11971: Launch of Pax World Fund, the first socially responsible Mutual Fund in the US1990: Launch of Domini 400 Social Indexone of the first socially responsible indices21999: Launch of the Dow Jones Sustainability Indices, the longest-running sustainability benchmarks 2004: The term ESG first introduced in a report published by the United Nations32006: Launch of United Nations Principles for Responsible Investment (UNPRI)2008: The World Bank issued the first Green Bond2016: CalPERS adopts a 5-year plan to incorporate ESG into its investing process52018: The Seychelles government issued the first Blue Bond1986: US Congress passed the Comprehensive Anti-Apartheid Act, banning new investment in South Africa2013: Launch of the Barclays MSCI ESG Fixed Income Indexes, the first global ESG fixed income indices2015: The US Department of Labor ruled that pensions and plan sponsors could invest in socially responsible investments4
17Potential Outcomes of Implementing ESGA number of studies exist that either advocate for or advise against ESG. Within recentyears though there have been several studies depicting the potential positive returnimpact of general ESG strategies as more historical return data has become available.The Morgan Stanley Institute for Sustainable Investing back tested ESG funds’performance from 2004 to 2018 and found that in times of volatility, these fundsexperienced a smaller downside deviation relative to traditional funds.1Thisthesiswassupported in 2020, when ESG strategies weathered the volatility storm better than theirnon-ESG counterparts. On average, three out of every four sustainable equity funds beattheir Morningstar Category in 2020.2While these studies outline the positives, there are also negatives associated with ESG.For example, exclusionary screening may negatively impact investment performancethrough its various screens. The use of binary screens could remove a company fromportfolio consideration that could have positively contributed to performance because ofstrong financial fundamentals and/or positive momentum in its associated industry.1Sourced from Morgan Stanley’s 2019 and 2020 Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds report.2Sourced from a Morningstar article titled Sustainable Equity Fund Outperform Traditional Peers in 2020.
18ESG Integration:systematic and explicit inclusion of ESG risks and opportunities ininvestment analysis. This is the most widely used ESG method.Sector Leader Selection:favoring companies with better or improving ESGperformance relative to sector peers. This means investing in companies with better ESGlevels or momentum relative to sector peers.Active Ownership:entering into a dialog with companies on ESG issues and exercisingboth ownership rights and voice to affect change. This is not necessarily the same asactivist ownership, which can rely on more aggressive measures.Thematic Investing:investing that is based on trends, such as social, industrial, anddemographic trends. A number of themes are based on ESG issues, including diversity,clean tech, or green real estate.Implementation Considerations – Varying Ways to ImplementThere are four primary ways ESG can be implemented. These methods are not mutuallyexclusive and are often used in combination.The terminology included on this page are industry standard definitions. These are not AndCo proprietary labels.
19Implementation Considerations – Fixed Income & PrivatesEquity managers have been taking ESG factors into account for years. However, fixed income andprivate asset class managers have only recently started to more formally integrate these factors intotheir research processes.Fixed Income can incorporate ESG in a number of ways. The main ways are ESG integration, orexclusion, much like the equity market, and impactinvesting, typically centered around green or bluebonds.1Unlike equity managers though, fixed income managers have a limited ability to influence theunderlying companies’ ESG practices given their ownership does not have the same rights as equityownership.Private asset classes like Real Estate also follow asimilar approach. Real Estate can incorporate ESGby taking underlying ESG factors into account or they may offer impact investing strategies. Acommonly referenced certification in Real Estateis the Leadership in Energy and EnvironmentalDesign (LEED). LEED is the most widely used green building rating system in the world that providesa framework for healthy, highly efficient, and cost-saving green buildings.2Similarly, a Private Equity strategy may assess ESG by underlying factors or could create an impactinvesting strategy. Private Equity may even have total control over ESG practices after purchasing acompany as they work to implement company wide changes.1Sourced from a Morningstar article titled ESG Fixed-Income Approaches Vary Across Industry.2Sourced from the U.S. Green Building Council website.
20Implementation Considerations – GreenwashingSome managers may only use ESG as a buzzword to attract capital and improve theirpublic perception without making notable changes to their ESG practices.After signing the UN Principles of Responsible Investing (UNPRI), actively managedfunds typically experience an almost 5% increase of inflows. However, in the majorityof cases, only select signatories, including institution-only funds, make visibleimprovements to their ESG practices.1Companies can also be accused of ESG misrepresentation. This is often referred to asgreenwashing, the practice of spinning marketing campaigns to deceive the public intothinking a product or policy is environmentally friendly.An example of a greenwashing scandal was the Volkswagen “clean diesel” campaignin 2015. The company misled the public into thinking its cars were environmentallyfriendly when they were really cheating emissions tests.1Data sourced from Analyzing Active Managers’ Commitment to ESG: Evidence from United Nations Principles For Responsible Investing
21Implementation Considerations – No Disclosure RequirementsThere are currently no standard requirements or unified guidelines around ESGdisclosure in the United States. Requirements that do exist vary widely from country tocountry. This creates issues in the disclosure consistency between companies.ESG reporting will likely remain in its infancy until there is a central reporting authoritysimilar to what occurred in financial reporting.However, the Securities & Exchange Commissions (SEC) has started to direct variousdivisions to take steps toward standardizing ESG disclosures.The Division of Corporate Finance has enhanced its focus on climate-relateddisclosure in public company filings and will use these findings to begin updatingSEC guidance regarding disclosures.The Division of Examinations included a greater focus on climate-related risks in its2021 priorities.The Division of Enforcement now houses the Climate and ESG Task Force that isfocused on identifying any material gaps in companies’ climate risk disclosures.
22Implementation Considerations – No Ratings Consistency While there are many rating agencies, there is no recognized standard methodology forcreating ESG ratings. The ESG ratings that currently exist vary substantially amongagencies.Low correlation between agencies is due to a number of factors:1Scope:not all agencies take the same ESG factors into account when creating theratings. One agency may take employee turnover into account while another does not.Weight:agencies assign a varying degree of importance to different ESG factors. Oneagency may value human rights more than lobbying in their methodology.Measurement:the same ESG factor could be measured using different indicators. Oneagency may measure labor practices with workforce turnover while another measureswith labor cases against the firm.1Sourced from Aggregate Confusion: The Divergence of ESG Ratings.
23Activist Ownership:Shareholders influencing a corporation's behavior by exercising their rights at partial owners. Theyattempt to affect change by either appealing to, or putting heavy pressure on, the company’s board of directors,bypassing the normal advisory process.Blue Bond:A bond issued to raise capital to implement the UN’s Sustainable Development Goals (SDG) related to theocean, the seas, and marine resources and transition toward a sustainable ocean economy.Carbon Emissions:The release of carbon into the atmosphere, typically referred to as greenhouse gas emissions, themain contributors to climate change.Correlation:A statistical measurement of the relationship between two variables. Possible correlations range from +1 to -1. A zero correlation indicates there is no relationship between the variables. A correlation of -1indicates a perfectnegative correlation (as one moves up the other moves down)and a +1 indicates a perfect positive correlation (bothmove perfectly in the same direction).Data Aggregators:One of the primary goals of data aggregators is to provide data from publicly available sources to awide group of investors. Data aggregators may create their own ESG ratings or make third-party ratings available on theirplatforms. This group may also make ESG information outside of ratings available on their platforms, such as theunderlying information of an ESG rating.Downside Deviation:A measure of downside risk that focuses on returns that fall below a minimum threshold orminimum acceptable return.Green Bond:A bond that is specifically used to raise capital for climate or environmental based projects. Someexamples are projects around energy efficiency, sustainable agriculture, clean water, etc.Greenwashing:A form of marketing spin in which green PR and greenmarketing are deceptively used to persuade thepublic that an organization’s product, goal, and policies are environmentally friendly.ESG:Stands for Environmental, Social, and Governance. These three categories are made up of factors that can betaken into account when making investment decisions. They are used to measure a company outside of traditionalfinancial metrics.ESG rating agencies:A company or division of a company created to specifically focus on ESG ratings. The agency willassign an ESG rating to companies by applying weightsand ranking ESG factors that are defined by the agency.Glossary
24Exclusionary Screening:The process of screening specific assets out of aninvestment universe.This is also typicallyreferred to as Socially Responsible Investing (SRI).Impact Investing:Investments made into companies, organizations, orfunds with the intention to generate measurable,beneficial social or environmental impact.Low-carbon economy:An economy that has few carbon power sources and therefore has a minimal output ofgreenhouse gas emissions.Rating Agencies:A rating agency is a company that assigns a rating based on specific metrics or a specific area of themarket. ESG rating agencies are commonly referenced throughout this deck but another commonly referenced exampleis a credit rating agency.Socially Responsible Investing (SRI):A form of investing that avoids investments in companies that are associated withthings like alcohol, gambling, or tobacco.Sin Stocks:Sin stocks are shares in companies that are typicallyassociated with making money from exploiting humanweaknesses and vices. These industries can include areas such as alcohol, tobacco, gambling, or weapons.Standard Setters:Standard setters help the industry to create structure around and prioritize ESG reporting anddisclosures.Specialized Data Providers:These firms provide data related to a specific ESG issue. These issues could be as generalas environmental data or as specific as carbon emissions. The providers will typically focus on providing informationaround one single component of ESG.Sustainable Investing:An investment discipline that considers ESG factors to generate long-term competitive financialreturns and positive social impact.Glossary
25CHICAGO | CLEVELAND | DALLAS | DETROIT | ORLANDO | PITTSBURGH | RENOClients first.