Net asset value.

Real Estate Reporting

The NCRS real estate investment consultant is Courtland Partners (“Courtland”). The IMD staff relies on Courtland and Credit Suisse to compile performance and compliance information for the real estate portfolio. The information is reported as part of the quarterly review.

The content of the real estate performance reports is defined in the Real Estate Policy, one of the six policies that compose the NCRS Policies. The table below compares the NCRS real estate

performance reports against what EnnisKnupp believes to be best practice elements of a detailed real estate performance report. A check symbol () indicates those items that are included in the Courtland performance reports.

Table 5.3 – Real Estate Performance Reports

Best Practice Elements Included in Real Estate

Performance Reports Included in Courtland Performance Reports Overview

Executive summary  Limited

Market Overview

Private and public capital market observations  Limited

Detailed return information No

Total Fund Results

Total portfolio performance versus benchmark  Yes

Total portfolio performance versus peers  Yes

Attribution (total fund) No

Total portfolio geographic exposures  Yes

Net-of-fee performance  Yes

Quarterly policy compliance No

Fees (total fund level) No

Annual pacing updates (total fund)  Yes

Quarterly pacing progress (total fund) No

Manager Results

Manager performance by style  Yes

Manager risk analysis No

Individual manager overview No

Fees (for each manager) No

Quarterly manager investment guideline compliance5 _No

Appendix

Benchmark descriptions  Yes

Policy and objectives information  Yes

Including all of the elements listed in Table 5.3 for all the individual managers would result in a very long performance report, which would not be useful for the staff or the Treasurer. Selecting those elements that would be most useful to the Treasurer in monitoring the overall performance, risk, and compliance with the stated policy would be most useful.

EnnisKnupp found the real estate performance reports to be compliant with the requirements in the Real Estate Policy with one exception. Compliance with each of the risk factors described in the Policy is not reported to the CIO and the Treasurer each quarter. Instead, this compliance information is reported annually as part of the strategic review. Modifying the performance report (or a separate compliance report) to include compliance information would more consistent with best practices.

Hedge Fund Reporting

The quarterly performance reports for the hedge fund portfolio are very good. The documents are produced by the IMD staff and give detail on the hedge fund industry as well as high level and detailed data on the NCRS hedge fund investment program. Table 5.4 on the following page compares the NCRS hedge fund performance report against what EnnisKnupp believes to be best practice elements of a detailed hedge fund performance report. A check symbol () indicates those items that are included in the NCRS hedge fund performance report.

Table 5.4 – Hedge Fund Performance Reports

Best Practice Elements Included in a Hedge Fund

Performance Report Included in NCRS Hedge Fund Performance Report Overview

Executive summary  Yes

Market overview

Industry outlook and trends  Limited

Detailed return information No

Total fund results

Total portfolio performance versus benchmark  Yes

Total portfolio performance versus peers  Yes

Total portfolio risk analysis No

Strategy allocation  Yes

Attribution  Yes

Alpha/Beta exposures No

Net-of-fee performance  Yes

Quarterly policy compliance No

Fees (total fund level) No

Fund-of-fund results

Fund-of-fund performance  Yes

Manager risk analysis  Yes

Individual manager overview No

Fees (for each manager)6 _No

Quarterly manager investment guideline compliance7 _No

Appendix

Benchmark descriptions  Yes

Policy and objectives information No

The NCRS hedge fund performance report provides the fiduciary useful information on hedge fund performance and allocation. Attribution is also included, which is a best practice. Fund-of-fund performance and manager risk analysis are also good features of the reports. All performance is shown net-of-fees, which is a best practice. Some performance reporting elements that are not included are market return information, total portfolio risk analysis, and fee information (refer to the above table for other elements that could be included in the performance report that are not currently included).

6 _{Hedge fund manager fees are reviewed and reported annually.}

Conclusion

The newly developed Pension Fund Overview reports provide a reasonable amount of information. However, the reports are not as comprehensive as those of many other public funds. While it is not necessary for all of the elements listed in Table 5.1 to be included in performance reports, it is a best practice to include those elements that assist the fiduciary in its oversight responsibilities. Often, public pension funds rely upon an investment consultant to provide performance reports that contain many of the needed elements.

For private equity, a quarterly report benchmarking the investment program’s performance,

diversification, and risk factors against the approved investment policy would be a valuable oversight tool for the Treasurer and the IAC. This is partially in place, but could be enhanced.

The real estate program’s quarterly performance report provides useful data, with one exception, related to compliance with the Policy requirements. EnnisKnupp believes additional value would be gained from including a section highlighting areas where the program is in or out of compliance with its stated investment policy. Additional detail on the portfolio investments and how they fit within the program from a diversification standpoint would enhance the value of the report.

The hedge fund reporting is comprehensive and provides the staff, IAC, and Treasurer an appropriate level of information.

For all three alternatives asset classes, the staff and Treasurer may want to review Tables 5.2, 5.3 and 5.4 in this Section of the Report to determine if additional elements would be useful.

Recommendations:

1. Evaluate whether any additional elements should be added to the Pension Fund Overview or any of the asset class performance reports (private equity, real estate, and hedge funds). 2. Consider adding more detail to the private equity performance reports on the portfolio

investments, including detailed performance benchmarking, fee schedules, and commentary on how investments fit within the program from a diversification standpoint.

3. Consider augmenting the reporting contract of the private equity investment consultant (or hire another consultant) to include fund-by-fund updates, monitor investment policy compliance, and report on annual meetings.

4. Ensure the sub-asset class classifications in the Alternative Investments Policy and the private equity performance reports match so that compliance can more easily be monitored.

5. Ensure Credit Suisse has the most up-to-date Alternative Investments Policy information so that it can be referenced and analyzed in its report.

6. Report quarterly compliance in the real estate portfolio with each of the risk factors described in the NCRS Policies.