ERFC Real Assets Strategic Plan

All commentary below is property of NEPC
NEPC’s Real Estate General Market Thoughts and 2017 Implementation Views
Core/REIT market environment normalized

– Real estate fundamentals (rent growth, occupancy, net absorption) remain strong; however, valuations are high on an absolute and relative basis

– Rising interest rates have been baked into existing valuations but excess cap rate expansion (beyond general expectations) will reset valuations

– REIT sector has been volatile and remain at historically high FFO multiples

• Opportunity remains in non-core strategies

– In the US, we favor managers that are attentive to duration risk at the current stage of the expansion cycle, are focused on cash flow, and may have niche areas of expertise

– Outside the US, Europe remains a relatively attractive opportunity for asset focused managers who are not making macro bets on growth. Current US-dollar denominated investors with currency exposure will feel near-term impact of Brexit, but new investors may benefit from strong US-dollar amidst asset repricing in select cities (e.g. London). Long-term Brexit implications, however, remain unclear.

Strategy Outlook Commentary

Core

Private – 0

Hold to target allocation; focus on quality managers/portfolios in primary locations that should better navigate a downturn

Public REITs – 0

Hold to target allocation; if under-allocated leg into a target allocation to minimize entry point risk; expect high volatility in the near term

Non-Core

Value-Add + & Opportunistic +

Flight to quality will continue to favor US real estate, while opportunities to capitalize on distress or capital markets inefficiencies in Europe and select emerging markets will remain; emphasize more defensible demographically driven sectors vs. GDP driven sectors and watch for “emerging institutional” asset classes with high cash yields

Real Estate Debt +-

Low interest rate environment is challenging for senior loans but mezzanine strategies can offer favorable terms with downside protection

March 14-16, 2017 Meeting of the Regents of the University of California

ASSET ALLOCATION, PERFORMANCE BENCHMARKS, AND REBALANCING POLICY

Endowment Investment Review as of December 31, 2016

For Meeting of March 14, 2017 GENERAL ENDOWMENT POOL ASSET ALLOCATION REVIEW AND RECOMMENDATIONS

Pension Investment Review as of December 31, 2016

The Regents of the University of California

INVESTMENTS SUBCOMMITTEE October 26, 2016

UC Retirement Savings Program as of December 30, 2016

University of California Executive Summary UPDATE ON INVESTMENT PRODUCTS

Working Capital Investment Review as of December 31, 2016