Welcome to PSPRS

1. Welcome to PSPRS Version Date : 08-01-2014

2. Public Safety Personnel Retirement SystemCorrections Officer Retirement PlanElected Officials’ Retirement Plan Fiscal Year 2013 Financial Report as of June 30, 2013 Some preliminary updates as of June 30, 2014 Version Date : 08-01-2014

3. Active Members33,855 Terminated Vested Members 3,065 Drop 1,482 Retired 15,026 Normal 11,450 Beneficiaries 2,036 Disability 1,540 Total Participants 53,428 Total Plan StatisticsDefined Benefit Plan Version Date : 08-01-2014

4. Active Members 18,436 Terminated Vested Members 1,442 Drop 1,482 Retired 10,159 Normal 7,444 Beneficiaries 1,305 Disability 1,410 Total Participants 31,519 Total PSPRS StatisticsDefined Benefit Plan Version Date : 08-01-2014

5. Active Members14,580 Terminated Vested Members 1,463 Retired 3,810 Normal 3,164 Beneficiaries 531 Disability 115 Total Participants 19,853 Total CORP StatisticsDefined Benefit Plan Version Date : 08-01-2014

6. Active Members 839 Terminated Vested Members 160 Retired 1,057 Normal 842 Beneficiaries 200 Disability 15 Total Participants 2,056 Total EORP StatisticsDefined Benefit Plan Version Date : 08-01-2014

7. Total Plan StatisticsDefined Benefit Plan Version Date : 08-01-2014

8. Total RevenueJune 30, 2013 Total Revenue $1,390,349,335 Version Date : 08-01-2014

9. Total RevenueJune 30, 2013 Version Date : 08-01-2014

10. Total ExpensesJune 30, 2013 Total Expenses $762,306,028 Version Date : 08-01-2014

11. Total ExpensesJune 30, 2013 Version Date : 08-01-2014

12. Net Cash FlowFYE June 30 (thousands) EE-ER Contributions – Benefits Payments and Expenses Version Date : 08-01-2014

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15. Funding Levels Version Date : 08-01-2014

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18. PSPRS – Aggregate Employer Rates *The aggregate computed contribution rates before application of the statutory minimum Version Date : 08-01-2014

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21. CORP – Aggregate Employer Rates Version Date : 08-01-2014

22. EORP – Employer Rates Version Date : 08-01-2014

23. Total Fund Changing Financial Status (in 000s) *Market value does not include future benefit increase reserve Version Date : 08-01-2014

24. PSPRS Changing Financial Status (in 000s) *Market value does not include future benefit increase reserve Version Date : 08-01-2014

25. CORP Changing Financial Status (in 000s) *Market value does not include future benefit increase reserve Version Date : 08-01-2014

26. EORP Changing Financial Status (in 000s) *Market value does not include future benefit increase reserve Version Date : 08-01-2014

27. Legislative update 2014 • HB 2122 EORP Defined Contribution Plan • HB 2166 Surviving spouse; Health Insurance subsidies • HB 2693 PSPRS: Employer Liability; Death Benefits • SB1284 Peace officers; Omnibus Version Date : 08-01-2014

28. Questions? Version Date : 08-01-2014

29. Total Fund Rates of Return FY’13 Version Date : 08-01-2014

30. Total Fund Rates of Return FY’14 (Gross of fees) (Performance for the Fiscal Year is Preliminary and unaudited) 83% of the past 30 months have been positive return months. Version Date : 08-01-2014

31. AssetAllocationMay 31, 2014 Total Fund $8,069,791,295 Version Date : 08-01-2014

32. PSPRS History* • Extraordinary losses during tech bubble collapse of 2000-2001 lead to sweeping change. • Specific, legal authorizations for current plan in place by 2008. • Three step process implemented over seven years under a unified board of trustees.* • Hiring of appropriate consultants (at cost of 0.01% to 0.02% of NAV / year): • Fiduciary consultant, asset allocation: New England Pension Consultants (NEPC). • Specialty consultant ,credit opportunities: NEPC. • Specialty consultant, private equity: Stepstone and Albourne Partners. • Specialty consultant, “hedge funds”: Albourne Partners. • Specialty consultant, real estate: ORG Portfolio Management. • Fiduciary legal advisor: Kutak Rock, LLP. • Legislative authorization: • Implementing sound advice proved a major roadblock requiring dedicated efforts. • “Legal list” of statutory limitations on assets which could be held in order to “protect” the system -> actually contributed to losses. • Long “do not do” list was accompanied by extraordinary, concentrated risk taking powers. • Adequate staff (6-10 professionals at cost 0.01% to 0.02% of NAV/year) and governance. • Process advice of consultants. • Implement controls such that no one person controlled investments. • Keep board of trustees aware and informed. * Lieberman, M. and Lundin, M. (2014), “From Sow’s Ear to Silk Purse: Transformation of the Arizona Public Safety Personnel Retirement System. Benefits Magazine, June, pp. 2-7. Version Date : 08-01-2014

33. PSPRS History* • Arizona PSPRS: Founded in 1968. • Initially involved itself only in direct investment in US securities; a mix of domestic stocks, bonds, real estate and cash. • Investment management consisted of active security selection. • In 2007 it made its first international equity investments. • In 2008, assets of the PSPRS Trust were commingled with those of two other pension systems, all managed by a unitary board of trustees whose mandate was to invest in a broad variety of assets. • Today: 188 separate mandates with 111 different general partners. * Lieberman, M. and Lundin, M. (2014), “From Sow’s Ear to Silk Purse: Transformation of the Arizona Public Safety Personnel Retirement System. Benefits Magazine, June, pp. 2-7.

34. Currently at 12 asset classes (depending on how you count them) As of June, 2014, Arizona PSPRS Trust controlled $8.1 billion in assets under management and asset classes included: • Public Equity (US listed stocks since inception). • US Fixed Income (US securities since inception). • Cash (Since inception). • Real Estate (US real estate introduced in 1992). • Non-US based Equity (Introduced July of 2007). • Private Equity (Introduced in July, 2008). • Credit Opportunities (Introduced in July, 2008). • Real Assets (Introduced in April, 2009). • Global Tactical Asset Allocation (Introduced in March, 2010). • Non-US based fixed income (Introduced in November, 2010). • Absolute Return (Introduced in November, 2010). • Risk Parity (Introduced in July, 2012). Figure Source: New England Pension Consultants (NEPC) 2014.

35. Arizona PSPRS results of diversification • PSPRS risk evolution since diversification program began: • Average yearly PSPRS Mahalanobis distance (white circles, left scale) reported by calendar year. • Average yearly 60/35/5 portfolio Mahalanobis distance (white squares, left scale). • Ratio of PSPRS Trust to 60/35/5 Mahalanobis distances (darkened triangles, right scale). • 2003 to 2007: Ratio indicates that the PSPRS Trust portfolio was 2.4 times riskier than the 60/35/5 portfolio. • 2008 to 2013: PSPRS Trust portfolio is 0.51 times less risky than the 60/35/5 portfolio. • In seven years, the PSPRS Trust has become 4.7 times less risk than it was historically.

36. PSPRS performance documented in Journal of Asset Management, August, 2014 • For further discussion and other results: • Anderson M., et al. (2014), “Modern Pension Fund Diversification”, Journal of Asset Management, August. • A pre-print copy can also be obtained at www.ssrn.com • We have observed and documented a dramatic decrease in risk (> x4). • -But is the portfolio more efficient?

37. Total Fund Performance and Efficiency As of March 31, 2014 * Peer Rankings are percentiles based on a sample of 55 defined benefit public trusts over $1 billion. Source: NEPC. The Sharpe ratio is estimated as portfolio return, above the risk free interest rate, divided by the standard deviation of those returns, or the risk encountered in order to achieve those returns. Risk-adjusted performance measurement is gauge of portfolio efficiency: The return achieved for risk accepted or the risk endured in order to reach a performance level. Figures as of end Q1, 2014. Fund returns are gross of fees. Version Date : 08-01-2014

38. Total Fund Performance and Efficiency As of March 31, 2014 Risk-adjusted performance, as gauged through the Sharpe ratio, is perhaps most common form of portfolio efficiency measurement. Measurement. * Peer Rankings are percentiles based on a sample of 55 defined benefit public trusts over $1 billion. Source: NEPC. The Sharpe ratio is estimated as portfolio return, above the risk free interest rate, divided by the standard deviation of those returns, or the risk encountered in order to achieve those returns. Risk-adjusted performance measurement is gauge of portfolio efficiency: The return achieved for risk accepted or the risk endured in order to reach a performance level. Figures as of end Q1, 2014. Fund returns are gross of fees. Version Date : 08-01-2014

39. PSPRS Risk-adjusted return relative to the peer groups • In risk-adjusted terms (gauged by the Sharpe Ratio), PSPRS is in the top 6% of US Public Trusts with AUM > $1 billion. • PSPRS has been a top decile performer in term of risk-adjusted return for five straight quarters; since March of 2013. Version Date : 08-01-2014

40. Thank you for attending Version Date : 08-01-2014