arkansas public employees’ retirement system

ARKANSAS PUBLIC EMPLOYEES’ RETIREMENT SYSTEM 124 WEST CAPITOL AVENUE

LITTLE ROCK, ARKANSAS 72201

QUARTERLY BOARD MEETING WEDNESDAY, NOVEMBER 18, 2020 AT 9:00 A.M.

** MEETING TO BE CONDUCTED BY VIDEO CONFERENCE ** Contact [email protected] for video conference details.

AGENDA

1. Call to Order

2. Recognition of the Presence of a Quorum

3. Notification of Meeting to News Media Pursuant to Act 93 of 1967 (AR Code 25-19-101) – Freedom of Information Act

4. Action Item: Approval of the Minutes for August 19, 2020 (Page 3) and October 21, 2020 (2)

5. Investments

a. Quarterly Report for the Period Ending September 30, 2020 – Presented by Ms. Brianne Weymouth and Mr. John Jackson of Callan Associates, Inc. (Page 17)

b. Investment Policy Statement Review (Page 42)

6. Actuarial

a. 2020 Annual Actuarial Valuation Results – Presented by Mr. Mita Drazilov and Mr. David Hoffman of Gabriel, Roeder, Smith (Page 50)

b. Action Item: Confirm the Employer Contribution Rate for the year beginning July 1, 2022(State Fiscal Year 2023)

c. Action Item: Confirm Annual Transfers

7. Administrative

a. Summary of Retirees for the Quarter Ending September 30, 2020 (Page 77)

b. Financial Statements for the Quarter Ending September 30, 2020 (Page 86)

c. Action Item: Medical Review Board Results (Page 88)

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8. Legal

a. Litigation Update - Ms. Laura Gilson, APERS Chief Legal Counsel (Page 89)

b. Action Item: Review and Approve Updated Securities Litigation Policy (Page 91)

c. Proposed RFQ for Tax Attorney

d. Update on Legislation and the 2021 Legislative Session

9. Action Item: International Small Cap Manager Search

• Acadian Asset Management – Presented by Harry Gakidis, Ph.D. Sr. VP, Lead Portfolio Mgr. and Thomas N. Obaseki – VP, Americas Client Group

• Franklin Templeton Investment – Presented by Harlan Hodes, EVP/Portfolio Manager and Joel Brous, VP – Institutional Sales

• JO Hambro Capital Management – Presented by Greg Mulready, Managing Dir, No. America Institutions and Robert Cresci, Portfolio Manager

• Lazard Asset Management – Presented by Tony Dote, Managing Director and Peter Kashanek, Portfolio Manager

10. Other Business

a. Action Item: Approve 2021 Meeting Dates• February 17, 2021• May 19, 2021• August 18, 2021• November 17, 2021

11. Next Quarterly Board Meeting – Wednesday, February 17, 2021 at 9:00 a.m.a. Potential Member Appeal – Tuesday, December 8, 2020 at 9:00 a.m.

12. Adjournment

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MINUTES OF THE QUARTERLY MEETING OF THE BOARD OF TRUSTEES ARKANSAS PUBLIC EMPLOYEES’ RETIREMENT SYSTEM

AUGUST 19, 2020

A regular meeting of the Board of Trustees of the Arkansas Public Employees’ Retirement System was held on Wednesday, August 19, 2020 at 9:00 a.m., via ZOOM remote conferencing due to the COVID-19 crisis. Ms. Candace Franks presided. QUORUM PRESENT: Ms. Candace Franks recognized the presence of a quorum. BOARD MEMBERS PRESENT: Ms. Candace Franks (State Employee Member), Chair, Little Rock, AR Mr. Larry Walther (Ex-Officio Member), Vice Chair, Department of Finance and Admin Mr. David Hudson (County Employee), Fort Smith, AR Mr. Gary Carnahan (Other, Non-State Employee), Hot Springs, AR Mr. Joe Hurst, (City Employee), Van Buren, AR Mr. Dale Douthit, (State Employee), Russellville, AR Mr. Daryl Bassett (State Employee Member), Sherwood, AR Mr. Jason Brady, State Treasurer’s Office (proxy) Hon. Andrea Lea (Ex-Officio Member), State Auditor Mr. Duncan Baird (Executive Director), APERS Executive Director BOARD MEMBERS ABSENT: Hon. Dennis Milligan, (Ex-Officio Member), State Treasurer VISITORS PRESENT: Mr. David Hoffman, GRS Mr. Mita Drazilov, GRS Ms. Heidi Barry, GRS Ms. Brianne Weymouth, Callan LLC Mr. John Jackson, Callan LLC Mr. John Bridges, ASEA Ms. Shauna Carpenter, ASEA Mr. Nicholas Poole, ASEA Mr. Gary Wallace, ASEA Mr. Jack Critcher, Arkansas Municipal League Ms. Cindy Frizzell, Arkansas Municipal League Mr. Chris Villines, Association of Arkansas Counties Ms. Lindsey French, Association of Arkansas Counties Mr. John Shelnutt, Department of Finance and Admin. Mr. Paul Louthian, Department of Finance and Admin. Mr. Mike Wickline, Arkansas Democrat-Gazette Mr. Matthew McCue, FIN News Ms. Martha Diaz Mendez, Pageant Media Ms. Erika Gee, Wright, Lindsey & Jennings LLP Ms. Lee Ann Dietz, LAD Consulting

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Mr. Rett Hatcher, Gilmore Strategy Mr. Jon Gilmore, Gilmore Strategy Mr. Len Pitcock, Perimeter Group Mr. Adam Johnson, Ft. Chaffee FFA Mr. Clayton Rogers, AR Wildlife Officers Mr. Alan Johnson, APERS Member Mr. Nicholas Poole, APERS Member Ms. Zona Maness, Retired Ms. Carole Good Mr. David Quast 3 Unidentified Call-in Members STAFF PRESENT: Mr. Carlos Borromeo, APERS Chief Investment Officer Ms. Usha Doolabh, APERS Investments Manager Ms. Laura Gilson, APERS Chief Legal Counsel Ms. Abbi Bruno, APERS Director of Operations Mr. Phillip Norton, APERS Director of IT Mr. Jon Aucoin, APERS Retirement Section Manager Ms. Jennifer Taylor, APERS Retirement Section Manager Ms. Allison Woods, APERS Director of Benefits Mr. John Owens, APERS Internal Auditor Mr. Jason Willett, APERS Chief Financial Officer Ms. Cheryl Wilburn, APERS Retirement Coordinator Ms. Shelly George, APERS Retirement Coordinator Mr. Keith Stillwell, APERS Media Specialist Mr. Craig Blackard, APERS Accounting Coordinator Ms. Nina Gettinger, APERS Retirement Coordinator Ms. Jacobia Twiggs, APERS Retirement Section Manager Ms. Linda McGrath, APERS Administrative Specialist NEWS MEDIA NOTIFIED: An e-mail with notification of the Arkansas Public Employees’ Retirement System Board meeting was sent to the Arkansas Democrat-Gazette, the Associated Press, Television Station KLRT- FOX16, Radio Station KARN, and Radio Station KAAY. This notification is pursuant to A.C.A 25-19-101 (Act 93 of 1967) as amended-The Freedom of Information Act. WELCOME AND AFFIRM BOARD CHAIR: Ms. Franks welcomed everyone and noted the first item on the agenda was to affirm the Board Chair. Mr. Walther moved to nominate the current Chair and was seconded by Mr. Brady. Mr. Carnahan motioned to cease nominations and he was seconded by and the currently Chair be reappointed. Second by Mr. Brady and the motion passed unanimously. MINUTES: Prior to the Board meeting, a copy of the Minutes from the July 28, 2020 meeting was e-mailed to each APERS Board member for review. Ms. Lea motioned to accept the July Minutes and commented she was delighted to see how many members were attending the on-line ZOOM meetings. Mr. Walther seconded and the Minutes were approved.

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INVESTMENTS QUARTERLY INVESTMENT REPORT FOR THE PERIOD ENDING JUNE 30, 2020- Presented by Ms. Brianne Weymouth and Mr. John Jackson of Callan LLC Mr. Jackson gave a brief market overview. He noted the market had been spurred on by an unprecedented rebound after its precipitous drop during the last quarter. This rebound was shared abroad as central governments across the globe made strong efforts to battle COVID-19. The S&P 500 notched a 20.54% return for the quarter; its largest quarterly return since 1998. The Russell 2000 returned 25.42%. Emerging Markets were up 18%. The Fed has stated they will be holding rates at or near 0% for the foreseeable future. Small Cap outperformed Large Cap while Growth outpaced Value across market capitalizations. Mr. Jackson noted that Wall Street is doing well while much of Main Street continues to suffer with hotels, restaurants, airlines and many small businesses being the hardest hit. Unemployment for June was around 11.1% and it remains elevated. As it nears time for schools to go back in session, many fear this will prompt a second spike in the infection rate. Only time will tell if the safeguards the schools have put into place will be effective. Ms. Weymouth described the portfolio’s performance through the end of Fiscal Year 2020; she pointed out that while Domestic and International Equities performed exceptionally well over the last quarter, the Diversified Strategies and Real Assets of the portfolio were challenged. She explained the managers Blackstone and AQR were mainly responsible for the poor performance in their respective asset classes. However, it was the Energy portfolio that had struggled the most on an absolute basis; despite having a very strong second quarter, there was still a lot of ground to be made up from the previous quarter’s steep losses. As of June 30, 2020 the Fund was up 14.61% and the Market Value was just over $9 billion; slightly ahead of where it finished on December 31, 2019. The fund’s Actual Asset Allocation was close to the Target Allocation. The fund continues to be slightly overweight in equities (3%) due to strong market performance and underweight in Real Assets (2%). No rebalancing is necessary. Ms. Weymouth detailed some management changes at BNY Mellon, but Callan was comfortable with the transition plans. She promised to discuss it at a later meeting, when more information was available. Mr. Hudson asked how did the Target Asset Allocate relate to the Board’s goal of achieving 7.15% annual investment return and Ms. Weymouth explained these were the percentages the Board had agreed on after viewing the results of Callan’s latest Asset Liability Study. ACTUARIAL PRELIMINARY 2020 ANNUAL ACTUARIAL VALUATION RESULTS — Presented by David L. Hoffman, and Heidi G. Barry of GRS Mr. Hoffman explained that their presentation was slightly different this year as to fit the format of most people’s computer screens. He began by reviewing the plan’s participant data and he complimented Staff on their very speedy turn around, getting them the relevant data merely three weeks after the close of the fiscal year. While the number of APERS participants had dropped slightly (45,965 down to 44,373) their payroll had increased 3.2% with $40,469 being the average. He noted that 15 years after the implementation of the Contributory Plan that over 75% of the membership is now participating.

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He reminded the trustees that the asset valuation method smoothed the gains and losses over a 4-year period. APERS return for the fiscal year 2020 was calculated to be about 2%. As of June 30, 2020, the funding value of assets exceeded the market value by about $352 million. These investment losses will have to be recognized over the next several years. As these losses are phased in, it will put upward pressure on the Employer Rate, or the amortization period will have to be increased to hold the Employer Rate at 15.32%. Mr. Hoffman detailed the development of the Funding Value of Assets, noting that the ratio of Funding Value to Market Value for FY 2020 was 104%. The Valuation assets totaled $9.09 Billion with Actuarial Accrued Liabilities of $11.51 Billion. This gives APERS a funded ratio of 79%, which is the same as last year. On a market value basis, the funded ratio is 76%, down from 79% last year. This was about median for similar-sized public plans. He broke down the normal costs and showed the calculated Preliminary Employer contribution rate beginning July 1, 2022 as 15.32%. This rate carried a UAAL of $2.42 Billion that would be amortized over 23 years. This is down one year, from 24 years last year. Mr. Walther commented that he wanted to discuss how the changes APERS plans to include in the next General Session would affect the UAAL. Mr. Baird agreed that was an important consideration since there was a convergence of this tentative employer rate for July 1, 2022 and the implementation of the proposed reforms. Mr. Carnahan stated that when the board adopted Package 4 at last meeting, this data had been projected forward over the next 30 years. Mr. Hudson raised the issue of the proposed legislative changes that were approved at the last meeting and asked that they be set in a resolution format with explanations of the rationale for each change. He also requested that Staff continue to provide the Board a history of the changes in APERS various planning factors and considerations over the years so that they could keep that in perspective. Mr. Hudson also commented on Mr. Hoffman’s suggestion of rounding the Employer Contribution of 15.32% to a more even number like 15.4% or even 15.5%, should be considered since the employee contribution rate would probably be increasing, as well. Mr. Walther agreed with Mr. Hudson, but clarified that for now, the Board should approve the 15.32% Employer Contribution rate proposed by GRS. Mr. Bassett motioned to keep the Employer Contribution Rate at 15.32% and he was seconded by Mr. Brady. Motion passed. Mr. Hoffman returned to his presentation and gave a variety of projected scenarios for the next 4 years based on different market returns for FY2021. He noted that none of these projections took into consideration the proposed benefit changes being sent to the legislature. All of these projections assumed a 15.32% Employer Rate and showed how possible market returns would impact the Funded Ratio, UAAL, and Amortization Period. ADMINISTRATIVE SUMMARY OF RETIREES FOR THE QUARTER ENDING JUNE 30, 2020: Mr. Baird read from the report, noting that APERS had 164 members who retired in April, 175 in May and 179 retirees in June, for a total of 518 in the last quarter of FY2020. This brought the

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total number of retirees and beneficiaries receiving monthly checks from APERS to 36,446. The number of retirees during this period are slightly lower than the same time period a year ago. FINANCIAL STATEMENTS FOR THE QUARTER ENDING JUNE 30, 2020: Employer Contributions are up about $6 million from the same time period a year ago to $299 million, while Member contributions totaled $71.4 million over that period. There has been about a 6% increase in payouts to retirees since a year ago. APERS paid out over $587 million in benefit payments in FY 2020. Mr. Baird also noted the Administrative Expenses were down, but stated these tend to fluctuate from year to year. MEDICAL REVIEW BOARD RESULTS: The Medical Review Board met at 9:00 a.m. on Tuesday, August 11, 2020 in the APERS Library to discuss the case of Member XXX4725.

• After review and discussion, the Medical Review Board found that XXX4725 was suffering from an illness or injury at the time of her termination July 31, 2016, which subsequently led to the disability determination.

With APERS Board approval, in accordance with ACA 24-4-511(e)(3) benefits for the approved member will be effective retroactive to March 1, 2020. Ms. Lea motioned to accept the Medical Review Board’s recommendations and was seconded by Mr. Hudson. Motion carried unanimously. ANNUAL AUDIT RESULTS & PROPOSED AUDIT FOR FISCAL YEAR 2021 – Presented by Mr. John Owens, APERS Internal Auditor Mr. Owens introduced himself to the Board and gave a summary of the SFY2020 Internal Audit. The work schedule consisted of nine audits and one special project for the audit period of July 1, 2019 through June 30, 2020.

• Review processing of DROP participants. • Review processing of PAW participants. • Review of benefit calculations with public safety service. • Review process for collection of deceased retiree annuity process. • Review calculations of monthly annuities for retirees. • Review of benefit calculations with reciprocal service. • Review processing of disability benefits. • Review of workflow of employer reporting. • Review process for handling employee termination refunds. • Special Project: COMPASS – Assisted staff with software applications

He explained the SFY 2020 Audit Plan was revised from the original list of eleven planned audits to nine planned audits due to COVID and other time restraints from CSA. Each of the nine audits conducted resulted in the achievement of audit objectives and no audit findings were identified. The special project was assistance with the pension administration computer software application. Mr. Bassett questioned if Mr. Owens felt that 60 was an adequate representation for sampling the collection of deceased retiree annuities. Mr. Owens stated he did not and in the future he planned to increase the sample size, however he was comfortable issuing this report.

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Mr. Owens listed the 10 Planned Audits for FY2021 and described briefly what each would encompass. He spoke of increasing the sample sizes and institute audit procedures for the special project that could be used as guidelines in the future.

• Age and Service (5) • Retired Members (1) • Disability Benefits (1) • Survivor Benefits (1) • Refund of Contributions (1) • Member Benefits (1)

The Trustees questioned Mr. Owens about any plans for audits on the security if the IT systems, including COMPASS and he explained those issues were examined annually by the Legislative Audit team. After some further discussion, Mr. Walther motioned to accept the Audit Report and he was seconded by Mr. Bassett. Motion passed. LEGAL Litigation Update – Ms. Laura Gilson, APERS Chief Legal Counsel Ms. Gilson noted that a litigation report was included in the board materials. She apprised the Board of some changes that had occurred since the May Board meeting. Recently there had been a request for an appeal of a Director’s Decision. This would probably require scheduling a special ZOOM meeting for the hearing. Mr. Baird would be in touch with the Trustees regarding their availability. APERS received a request for an in person hearing on a Motion to Dismiss on the Bolding case. The Judge on the case offered to just rule on the motions, if both parties agreed. Both parties agreed. Ms. Cherriet Clark has requested that the Claims Commission delay hearing her case until October, so that has been pushed back. The other case before the Claims Commission, Ellis Sloan, is waiting for word from Mr. Sloan’s attorney if they are ready to schedule a hearing. Ms. Gilson reviewed the securities litigation cases and noted that there had been a new addition to the list: Lobstein, Pro Se. This is not a new securities litigation case, but is related to a case that was settled years ago. Cohen Milstein handled the original complaint against Washington Mutual (WaMu). Ms. Lobstein, representing herself in what is generally considered a frivolous lawsuit, thinks she should have participated in the original suit since she lost her WaMu mortgage. Ms. Gilson opined the case would probably be dismissed eventually. Review and Approve Securities Litigation Policy Mr. Baird reminded the Board that a year ago, they had gone through the process of selecting Securities Litigation firms to represent APERS. This was the first time they had been reviewed in about seven years. Through that process, APERS went from six to eighteen law firms who were chosen to represent APERS. Previously, the Board had no Securities Litigation Policy to guide Staff and after going through the review, it seemed important to establish a written policy for Staff to work from.

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After looking at the model policy put forth by National Association of Public Pension Attorneys (NAPPA) and the policies from a few other states, Staff combined them for what would work best for APERS. The board had been provided with a copy of what Staff had prepared for their consideration. Mr. Baird highlighted 2 sections in particular he wanted the Board to review. The first was Section 5 (Loss Threshold). APERS Policy was requiring at least 2 basis points or about $1.8 million to trigger this threshold. However further in the draft, it was noted that this benchmark could be modified downward to pursue certain litigation. Mr. Baird asked the Board to consider if they wished to raise, lower or even eliminate the threshold trigger. In Section 6 (Delegation of Authority), Mr. Baird noted that the first section authorized the Executive Director and Staff to review, evaluate and authorize litigation, then continued on permitting them administrative procedural and strategic decisions to use to meet the goals and objectives of the Board. The policy noted that before the Executive Director would seek Lead Plaintiff on any litigation, the case would be brought before the entire board as a regular agenda item for consideration. Ms. Gilson assured the Board that historically APERS had handled about 2-3 cases a year in a prudent and responsible manner. She reminded everyone that Securities Litigation was a very small portion of the work that Staff was involved in daily. APERS recovers the same losses from winning litigation regardless if they are lead plaintiff or not. Ms. Gilson also noted that settlement money trickled into APERS years after the case was finally settled, making it very hard to flag exactly what was from Lead Plaintiff cases and what was from just being in the class. She noted that Securities Litigation counsel welcomed a set “lost threshold” so they could focus on bringing Staff cases that would be considered, and discourages law firms from presenting cases to Staff that APERS would never accept and allowing Staff to do their Fiduciary Duty. Mr. Douthit spoke out against the current wording in Sections 6A and Section 9 as giving APERS Executive Director too much authority and wanted to see those sections rewritten giving the Board the final authority to decide. Ms. Lea didn’t feel that those sections were an issue, as she read and interpreted them. Mr. Walther questioned if Mr. Douthit was proposing that the Trustees have to decide on every case APERS entered into regardless if they would be Lead Plaintiff or not and Mr. Douthit stated it was just the Lead Plaintiff status he was concerned about, especially if APERS received no financial gain from it. Mr. Walther questioned the threshold as possibly too high, depending on how many other plaintiffs were involved. He also felt that APERS should have a much better accounting of how much was received from these cases. Mr. Baird agreed and said APERS was working on procedures to correct that issue. Mr. Walter continued, stating the Board wanted to be the final decider on when APERS became Lead Plaintiff in any case and that needed to be crystal clear in the policy. Mr. Baird said he felt that was the intention of the section, but if the wording needed to be changed to make it clearer, he could do that. Mr. Baird noted that in the year-and-a-half he’d been the Director at APERS, the agency had engaged in no new Securities Litigation cases and he wanted to make sure he was following the board’s intentions completely before moving forward with any. Mr. Bassett applauded Staff for working to create a policy where none had existed before and felt the construct that Mr. Baird had presented to the board could be amended as the Trustees wished. He stated this discussion high -lighted areas of the policy that might need to be adjusted; reduce the loss threshold and clarify final decision maker. Mr. Bassett felt that these were minor tweaks to the policy.

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Ms. Gilson offered some legal points. She pointed out that “Lead Plaintiff” was a designation awarded by the Judge in the case, if the judge decided you would best represent all the plaintiffs. APERS could also become a plaintiff in a case through a direct action, and the Loss Threshold would not apply to such cases, since it was not a Class Action. This was what was being referenced in paragraph 3C. Mr. Douthit motioned to table the approval of the Securities Litigation Policy until Staff could make changes to align it more with the board’s stated desires and review it later. He was seconded by Mr. Walther. Ms. Lea commented that she agreed the board needed to review the policy and she trusted Staff to deal with the many legal nuances that had to be considered. Her concern went back to a statement that Interim Director Jay Wills had imparted to the board at his final meeting. Mr. Wills noted that he had never seen such so much action from lobbyists that board members were having to handle, as what he was currently witnessing. She felt that Staff was better prepared to handle lobbyist activity than board members and hoped that board members would take that into consideration. Mr. Brady cited specific points he wished Mr. Baird to address in reworking to policy. Section 5B regarding Lead Plaintiff, needs to be clarified about only if APERS has the most losses. Section 6 – He asked if APERS maintain a list of lawsuits they are involved in or have an interest in and suggested that, if not, there needs to be one. Accompanying this list needs to be a report of settlement dollars received by APERS from the various cases. Mr. Baird responded that in 5B he acknowledged the loss threshold but felt APERS needed leeway for cases where a loss was lower than the threshold but APERS was best suited to be lead plaintiff for one reason or another. He agreed the policy could be more specific. As far as reporting litigation payback, Staff had run numbers from 2009-2018 on every deposit related to a Class-Action settlement; there were hundreds of these deposits. Unless APERS opted-out of a class, the fund received checks from many settlements. But Staff could work harder on tracking and reporting this activity at the quarterly board meetings, if that was the desire of the trustees. Mr. Baird reiterated that the goal of Securities Litigation Policy was to allow Staff to do the groundwork and bring the Board proposals, so they were not forced to spend hours evaluating a case or interviewing firm. Ideally, that would be delegated to Staff so they could bring the Board concise and relevant material to work from, ensuring the Board met its fiduciary and oversight responsibility. Mr. Bassett noted that there had been 428 filed Securities Litigation claims filed last year. The Board did not need to put itself in the position of micro-managing Staff. He felt the construct Mr. Baird had provided was very good, since this was totally new territory for both Staff and Trustee responsibilities. He agreed that the policy needed some adjustments and this meeting had provided good suggestions. Chair Franks reminded the board members that she had a motion and a second to table adopting this policy until it could be reworked and presented again at the next board meeting. She called for a vote and the motion passed. Review and Approve Staff Legislation Mr. Baird had a short list of items Staff noted needed to be cleaned up or changed in the code. With the Board’s approval, Staff would begin drafting legislation for the 2021 session. Ms. Gilson went through the two Substantive Changes, three Technical Corrections and three other sections

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of the Arkansas Code that affect APERS that were under consideration. All the changes were consistent with APERS’ practices and internal procedures, but there may be a section of Code that Staff feels needs to be clarified. The final three items affected other state pension plans and APERS would work with them and coordinate the changes with all the other retirement systems. Mr. Brady motioned to accept suggested changes. He was seconded by Mr. Douthit and the motion carried. OTHER BUSINESS There was no other business. NEXT QUARTERLY BOARD MEETING: The next quarterly Board Meeting is scheduled for Wednesday, November 18, 2020 at 9:00 a.m. The Annual Trustee Educational Seminar is scheduled for October (date TBD). ADJOURNMENT: There being no further business, the meeting was adjourned. __________________________________ ___________________________________ Ms. Candace Franks, Chair Mr. Duncan Baird, APERS Executive Director

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PUBLIC EMPLOYEES RETIREMENT SYSTEM

MINUTES OF THE MEETING OF THE BOARD OF TRUSTEES 31st ANNUAL EDUCATIONAL SEMINAR

WEDNESDAY, OCTOBER 21, 2020

The Board of Trustees of the Arkansas Public Employees Retirement System held its thirty-first Annual Educational Seminar beginning at 9:00 a.m. and concluding at 11:30 a.m. on Wednesday, October 21, 2020 via ZOOM video conferencing. Ms. Franks presided. BOARD MEMBERS PRESENT: Ms. Candace Franks (State Employee Member), Chair, Little Rock, AR Judge David Hudson, (County Employee), Fort Smith, AR Mayor Joe Hurst, (City Employee), Chair, Searcy, AR Mr. Paul Louthian, AR Department of Finance & Administration (proxy) Mr. Jason Brady, State Treasurer’s Office (proxy) Mr. Duncan Baird, (Executive Director), APERS BOARD MEMBERS ABSENT: Mr. Gary Carnahan, (Other, Non-State Employee), Little Rock, AR Mr. Daryl Bassett (State Employee Member), Sherwood, AR Mr. Dale Douthit (State Employee), Little Rock, AR Mr. Larry Walther, (Ex-Officio Member), Vice Chair, DF&A Hon. Andrea Lea, (Ex-Officio Member), State Auditor Hon. Dennis Milligan, (Ex-Officio Member), State Treasurer ADDITIONAL VISITORS PRESENT: Ms. Brianne Weymouth, Callan Associates, Inc. Mr. John Jackson, Callan Associates, Inc. Mr. Avery Robinson, Callan Associates, Inc. Mr. David Hoffman, Gabriel Roeder Smith Mr. Mita Drazilov, Gabriel Roeder Smith Ms. Heidi Barry, Gabriel Roeder Smit Dr. John Shelnutt, AR Department of Finance & Administration Mr. Matt Raimo, AQR Capital Management Mr. Greg D’Alessandro, AQR Capital Management Mr. Keith Ingram, AQR Capital Management Ms. Rebecca King, Baillie Gifford Mr. Jerome Thomas, BNY Mellon Corp. Mr. Jerry Castellini, CastleArk Management Ms. Nora Walsh, CastleArk Management Mr. Quentin Ostrowski, CastleArk Management Mr. Bob Takazawa, CastleArk Management Mr. Dan Becker, CastleArk Management Ms. Christine Chun, DoubleLine Ms. Barbara Ziegler, DoubleLine Mr. Tom McCarthy, Heitman Capital Management Mr. Blaise Keane, Heitman Capital Management Ms. Anne Westbrook, Heitman Capital Management Mr. Scott Horrell, Horrell Capital Management

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Ms. Kimberly Horrell, Horrell Capital Management Mr. Brad Horrell, Horrell Capital Management Ms. Leanne Schmitt, INTECH Mr. Max Swango, Invesco Core Real Estate Mr. Bill Grubbs, Invesco Core Real Estate Mr. Joe Munoz, LaSalle Investment Management Mr. Matthew Walley, LaSalle Investment Management Mr. Anthony Dote, Lazard Asset Management Mr. Robert Failla, Lazard Asset Management Mr. Scott Kemper, LSV Asset Management Mr. Josef Lakonishok, LSV Asset Management Ms. Heather Howell, MacKay Shields Mr. Todd Bailey, Mellon Capital Management Mr. James Blake, Newton Capital Management Mr. Rupal Shah, PGIM Fixed Income Mr. Michael Opre, SSI Investment Management Ms. Wambui Lynch, SSI Investment Management Mr. George Douglas, SSI Investment Management Mr. Patrick White, Stephens Investment Management Mr. Ryan Crane, Stephens Investment Management Mr. Tom Landry, TA Associates Realty Mr. James Raisides, TA Associates Realty Mr. Zander Grant, Wellington Management Company Mr. Jon Cangalosi, WFAM Golden Capital Management Ms. Katie Wadley, WFAM Golden Capital Management 4 Unidentified Callers STAFF PRESENT: Mr. Carlos Borromeo, APERS Chief Investment Officer Ms. Usha Doolabh, APERS Investments Manager Ms. Laura Gilson, APERS General Counsel Mr. Jason Willett, APERS Chief Financial Officer Ms. Allison Woods, APERS Director of Benefits Ms. Abbi Bruno, APERS Director of Operations Mr. Phillip Norton, APERS Director of IT Ms. Jacobia Twiggs, APERS Retirement Section Manager Ms. Linda McGrath, APERS Administrative Specialist NEWS MEDIA NOTIFIED: An e-mail notification of the Arkansas Public Employees Retirement System Board meeting was sent to the Arkansas Democrat-Gazette, the Associated Press, Television Station KLRT/FOX16, Radio Station KARN, and Radio Station KAAY. This letter of notification is pursuant to A.C.A 25-19-101 (Act 93 of 1967) as amended -The Freedom of Information Act Welcome – Opening Remarks Ms. Franks welcomed everyone to APERS 31st Educational Seminar and recognized the presence of a quorum before turning the meeting over to Mr. Baird. He noted this was the first virtual seminar for APERS and there were over 40 participants including money managers and APERS Staff. The topics

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that would be addressed today were chosen for their relevance to recent events, as well as feed-back from the Trustees. Update on Callan Work Plan - Presented by Ms. Brianne Weymouth of Callan Ms. Weymouth and Mr. Jackson reviewed the Callan Work Plan and gave a high-level overview of topics that would be addressed in more detail later in the seminar. She introduced the various speakers and urged the Trustees to chime in anytime if they had any questions. Ms. Weymouth explained that the Callan workplan called for interviewing the finalists for the International Small Cap position at the November meeting, along with reviewing the Investment Policy Statement. She noted that it was a good practice to review it on an annual basis. After that, Ms. Weymouth noted that Callan would continue the portfolio structure studies; after the Asset Liability Study they would examine each of the asset classes in the portfolio. First up would be the Real Asset Structure review in February, followed by U.S. Equities in May and finish with Diversified Strategies at the August meeting. Fixed Income would be examined at the November 2021 meeting. Passive versus Active Investing/Value versus Growth - Presented by Mr. Joe Jackson of Callan Mr. Jackson discussed the differences between Active and Passive Investing. He explained how indexes grew from a benchmarking tool to a passive investment vehicle. He showed how historically Active Managers compared to the Index, and then applied the Active Manger fees to show the excess returns. Mr. Jackson noted that Small Cap stocks tended to outperform their benchmark, gross of fees. In the US Fixed Income market, Core and Core Plus substantially outperformed High Yield, with excess returns for the last 20 years. He noted that APERS portfolio contained a mix of Active and Passive and explained that despite their often-lower returns compared to actively managed portfolios, Passive investments offered less-expensive exposure and more liquidity, that the fund needed to pay benefits each month. Ms. Weymouth used a chart to show where each of APERS’ Domestic Equity Managers fell between Growth and Value, and Small to Large Cap investors. After a short description of Growth and Value and explaining Price-to-Earning theory, she showed sector weights in the Russell 3000 Index. Mr. Jackson detailed the types of stocks typically found in each sector and how the market affected them. Growth Investing - Presented Mr. Ryan Crane of Stephens Investment Mr. Crane stated that the framework of growth and value is an over-simplication of a very complex array of investment styles and strategies. He noted that Growth and Value are not mutually exclusive, and some stocks can appear in both indexes. Mr. Crane gave the history of the last 50 years, when Growth and Value became separately managed portfolios. Value is perceived to be less risky than Growth, but Growth has done much better in the past 10 years. He discussed “mean reversion” and commented that there was no such thing as “normal”. He argued that the way Growth and Value index providers defined themselves, resulted in significant differenced across other factors that changed dramatically over time. Mr. Crane talked about how Beta affected the prices of stocks and why Growth stocks have recently outperformed. He summed up his belief that right now, Growth is secular and Value is cyclical. When that happens, Value should outperform if there is a cyclical recovery. Growth is actually more defensive, and much higher quality than Value. He also noted that the past 13-year shift of moving funds from Active to Passive portfolios has actually helped Growth stocks disproportionately due to “Cap weighting”. Value Investing -Presented by Dr. Josef Lakonishok of LSV Asset Management Dr. Lakonishok talked about how it was a very tough time to be a Value manager during the “Tech bubble” and also during the last 2-3 years. He said that most people define Value stock as “cheap on

14

multiples” while Growth stock has higher multiples. However, it is very difficult to predict future growth rates, so paying for higher multiples is a dangerous game, as evidenced by what happened to many technology companies after the tech bubble burst. He discussed why there should be Value exposure in the portfolio by showing the Growth/Value Cycles in the US over the last 90 years. Dr. Lakonishok pointed out that in every instance, Value stocks always came back and outperformed Growth after every cycle of underperformance. Currently, Growth is trading at almost 50% premium to Core, which he felt was unjustifiable, while simultaneously Value has a 28% discount to Core. Finally, he showed a chart that listed the top 10 S&P Stocks for each of the last five decades. Names like IBM, General Electric, Exxon Mobil, Coca-Cola, Merck and AT&T populated the list of companies once thought to be invincible but have now dropped off the list. He felt that the multiples that companies like Amazon, Microsoft and Facebook were currently trading at was unsustainable and they were vastly over-priced. <BREAK> Core Real Estate Panel Discussion with Mr. Avery Robinson from Callan Mr. Robinson introduced speakers for the next investment topic. The panelists would be discussing what benefits APERS found from investing Real Estate, what’s been happening in the market in 2020 and what the current returns are indicating. He gave a broad overview of the differences between Core Real Estate and Value-Add Real Estate investment managers.

• Mr. Bill Grubbs, INVESCO Real Estate • Mr. Blaise Keane, Heitman America Real Estate Trust

Both managers showed actual examples of investments that are actually in the APERS’ portfolio and discussed their plans to turn a profit on those properties going forward. Value Add Real Estate Panel Discussion with Mr. Avery Robinson from Callan Mr. Robinson introduced the panelists for the Value-Add Real Estate discussion and talked about the cycles of Real Estate

• Mr. Joe Munoz, LaSalle Investment Management • Mr. Tom McCarthy, Heitman Value Partners • Mr. Jim Raisides, TA Realty

The Value-Added managers talked about trends in their sector and how they planned to capitalize on Value-Creation strategies that seemed to be trending using actual properties in the APERS’ portfolio as examples. Closing Remarks Ms. Weymouth thanks the panelists and hoped the discussions had been informative. Ms. Franks thanked all the participants and commented she had learned a lot and hoped the other Trustees had gotten as much out of the experience as she had. NEXT QUARTERLY BOARD MEETING: The next quarterly Board Meeting is scheduled for Wednesday, November 18, 2020 at 9:00 a.m. There is a Member Appeal scheduled for Tuesday, December 8, 2020 at 9:00 a.m.

15

ADJOURNMENT: There being no further business, the meeting was adjourned. __________________________________ ___________________________________ Ms. Candace Franks, Chair Mr. Duncan Baird, APERS Executive Director

16

Executive Summary Third Quarter 2020

Arkansas Public Employees Retirement System

Brianne Weymouth, CAIA Senior Vice President John Jackson, CFA Senior Vice President

17

1 Knowledge. Experience. Integrity.

Global Economic Update: 3Q 2020

While equity markets rebound, a high degree of uncertainty remains – 2Q GDP fell -31.4%, largest decline on record; 3Q GDP rose at an annualized rate of 33.1% (advanced estimate)

– GDP is projected to remain below the February 2020 pre-COVID peak until late 2021 or into 2022. – Retail sales, durable goods, and personal spending rebounded in 2Q and 3Q, but growth slowed in August and September. – Unemployment dropped to 7.9% in September from 14.7% April peak.

– Jobless claims decelerated to less than 1 million per week (837k in Sept), but are still elevated relative to prior recession peaks. – Fed left rates close to 0% and expects to be on hold until at least 2022; Powell: “Fed is not even thinking about thinking about raising

rates.” – High degree of uncertainty as COVID-19 rates begin to rise leading into Winter

U.S equity markets “back in black” after March market bottom – The S&P 500 recovered all of its COVID-19 related losses by mid August; positive year-to-date returns (+5.6% through 9/30/20)

– Top performing sectors and industries include: Online Retail, Home Improvement, Information Technology, Groceries – Performance remains concentrated - Top five stocks in the S&P 500 account for 23% of the Index and 33% of the quarter’s

performance – Growth continued to outperform value (R1000 Growth: 3Q: +13.2%, YTD: +24.3%; R1000 Value: 3Q: +5.6%, YTD: -11.6%)

– Growth, value dispersion near all-time high (driven by Tech) – Large caps (R1000: +9.5%) outperformed small caps (R2000: +4.9%)

International Equity continued its recovery with positive 3Q returns – International Equity (MSCI ACWI ex US: +6.3%) and Emerging Markets (MSCI EM: +9.6%) enjoyed positive returns, still negative

year-to-date – U.S. dollar lost ground versus every developed market currency on expectation of lower-for-longer U.S. rates

Fixed Income earns positive returns; higher yielding sectors were top performers – Bloomberg Barclays Aggregate (+0.62%) underperformed the Bloomberg Barclays High Yield Index (+4.60%) – 10-year UST yield at 0.69% in 3Q20, up 3 bps from 2Q20 but off sharply from year-end level of 1.92%

What Just Happened?

18


Stunning Recovery in Global Equity Markets in 3Q20

Global equity continued the rally in 3Q after March market bottom

– S&P 500 fell 33.5% from peak (02/19/20) to low on 3/23/20

– Rebound since March puts S&P 500 even with February peak, suggesting broad-based recovery, but YTD results are concentrated in a few stocks.

– Fed cut rates to zero, commenced QE, instituted multiple facilities to backstop money markets, credit markets, and economy. – Further fiscal stimulus expected

– Congress passed fiscal stimulus (CARES) to carry the economy through the crisis.

– Economic recovery will be uncertain as COVID-19 infections surge anew; re-openings may be reversed.

V-shaped equity rebound, ahead of the global economy

*Cambridge PE data through 06/30/20 Sources: Bloomberg, Bloomberg Barclays, Callan, Cambridge, Credit Suisse, FTSE Russell, MSCI, NCREIF, S&P Dow Jones Indices

1 Quarter 1 Year 5 Years 10 Years 25 YearsU.S. EquityRussell 3000 9.21 15.00 13.69 13.48 9.29S&P 500 8.93 15.15 14.15 13.74 9.31Russell 2000 4.93 0.39 8.00 9.85 7.96Global ex-U.S. EquityMSCI World ex USA 4.92 0.16 5.32 4.37 4.71MSCI Emerging Markets 9.56 10.54 8.97 2.51 --MSCI ACWI ex USA Small Cap 10.50 6.97 6.80 5.31 5.82Fixed IncomeBloomberg Barclays Aggregate 0.62 6.98 4.18 3.64 5.3090-day T-Bill 0.04 1.10 1.20 0.64 2.32Bloomberg Barclays Long Gov/Credit 1.22 12.92 8.78 7.36 7.66Bloomberg Barclays Global Agg ex-US 4.14 5.48 3.60 1.35 3.90Real EstateNCREIF Property -0.99 0.25 5.91 9.18 9.01FTSE Nareit Equity 1.44 -18.16 3.95 7.90 9.34AlternativesCS Hedge Fund 3.44 2.41 2.76 3.64 7.25Cambridge Private Equity* 9.89 7.67 11.36 13.38 14.86Bloomberg Commodity 9.07 -8.20 -3.09 -6.03 0.91Gold Spot Price 5.28 28.69 11.19 3.77 6.57Inflation - CPI-U 0.96 1.37 1.81 1.77 2.14

Returns for Periods ended 9/30/20

19


GDP Rebounds in 3Q After Precipitous First-Half Decline

– After the Global Financial Crisis, it took 3.5 years before real GDP reclaimed its pre-recession highs – GFC peak to trough was down 4% – 2Q20 real GDP levels were down over 10% from 4Q19 – 3Q20 seasonally adjusted real GDP bounced back over 7% and is now down only 3.5% since 4Q19

14,000

15,000

16,000

17,000

18,000

19,000

20,000

Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020

$bill

ions

Seasonally Adjusted Real GDP in Billions of Dollars Since 2007

Source: St. Louis FRED

14 quarters to recover -10%

20


U.S. Employment Situation

– There are 10.7 million fewer jobs in the economy than there were in February of this year – This reflects a 7% drop in total employment

– Unemployment rate has dropped in five consecutive months. September’s rate is 7.9%, down from April’s high of 14.7%

While the recovery continues, the employment landscape remains depressed

Source: Department of Labor

0 0

-1

-21

3 5

2 1 1

Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20

Monthly Change in Nonfarm Payrolls (millions)

-2.3

-1.4

-1.0

-0.9

-0.8

-0.7

-0.6

-0.5

-0.5

-0.4

-0.4

-0.3

-0.3

-0.3

-0.2

-0.1

0.0

Food Services and Drinking

Professional and Business Services

Healthcare and Social Assistance

Government

Arts, Entertainment and Recreation

Accommodation

Manufacturing

Other Services

Retail Trade

Construction

Education Services

Wholesale Trade

Transportation and Warehousing

Information

Financial Activities

Mining and logging

Utilities

Change in Payrolls (millions) by Sector from February to September 2020

22


U.S. Equity Continues to Shine Amid Pandemic

Russell 3000Russell 1000

Russell 1000 GrowthRussell 1000 Value

S&P 500Russell Midcap


U.S. Equity: Quarterly Returns

9.2%9.5%

13.2%5.6%

8.9%7.5%

5.9%4.9%

U.S. Equity: One-Year Returns


Russell 1000 GrowthRussell 1000 Value

S&P 500Russell Midcap


15.0%16.0%

37.5%-5.0%

15.1%4.6%

2.2%0.4%

Gains YTD – S&P +8.9% for the quarter, bringing YTD to +5.6%

– Consumer Discretionary (+15%) and Industrials (+13%) dominated, with Tech (+12%) a close third in risk-on market.

– S&P 500 YTD would be negative if not for Facebook, Microsoft, Amazon, Alphabet, and Apple, representing 33% of the return.

– YTD, pandemic punishing some sectors while rewarding others – Tech +29% YTD; Cons. Disc. +23% (online retailers +60%) – Energy -48% amid declining crude and natural gas prices

– Demand from hotels/cruise lines/airlines down as industries have dropped 40%+

Small cap reverses to trail large cap – Following a stellar 2Q20 recovery, small cap trailed large.

– Remains behind large cap by a wide margin over last 12 months – Growth continues to outpace value across market caps – Growth, value dispersion near all-time high driven by Tech

– YTD RUS1G +25% vs. RUS1V -12% – Growth stock P/E near 2x historical average across market caps

Sources: FTSE Russell, S&P Dow Jones Indices

Industry Sector Quarterly Performance (S&P 500)

8.9%15.1%

10.4%

-19.7%

4.4% 5.9%12.0%12.5% 13.3%

1.9%6.1%

ServicesCommunication

DiscretionaryConsumer

StaplesConsumer

Energy

Financials Health Care IndustrialsTechnologyInformation Materials Real Estate Utilities

23


Global ex-U.S. Equity Performance

Continued recovery into 3Q20 – Returns broadly positive across developed and emerging

markets but muted YTD – Recent support from ultra-low interest rates and upward

earnings revisions – EM recovery driven by global risk-on environment; key

countries within EM (China and South Korea) have better managed the pandemic

– Small cap continued to outperform large as lockdowns eased and business confidence improved.

Rebound for cyclicals – Materials, Industrials, and Consumer Discretionary

outperformed as consumption and production resumed. – Factor performance led by momentum (rebound) and

volatility (risk-on market mentality)

U.S. dollar vs. other currencies – U.S. dollar lost ground versus every developed market

currency on expectation of lower-for-longer U.S. rates due to Fed’s shift in approach toward inflation and employment.

Growth vs. value – Growth continued to outperform value. – Extremely narrow market with performance dominated by

Tech

EAFEACWIWorld

ACWI ex USAWorld ex USA

ACWI ex USA Small CapWorld ex USA Small Cap

Europe ex UKUnited KingdomPacific ex Japan

JapanEmerging Markets

ChinaFrontier Markets

Global Equity: Quarterly Returns

4.8%8.1%

7.9%6.3%

4.9%10.5%

10.1%5.9%

-0.2%2.0%

6.9%9.6%

12.5%8.3%

EAFEACWIWorld

ACWI ex USAWorld ex USA

ACWI ex USA Small CapWorld ex USA Small Cap

Europe ex UKUnited KingdomPacific ex Japan

JapanEmerging Markets

ChinaFrontier Markets

Global Equity: Annual Returns

0.5%10.4%10.4%

3.0%0.2%

7.0%6.9%

4.4%-15.8%

-6.1%6.9%

10.5%33.6%

-2.7%

Source: MSCI

25


U.S. Fixed Income Performance: 3Q20

Treasury yields largely unchanged – 10-year UST yield at 0.69% in 3Q20, up 3 bps from 2Q20 but

off sharply from year-end level of 1.92% – TIPS did well as inflation expectations rose from 1.34% to

1.63%. – No rate hikes expected until at least 2023

Bloomberg Barclays Aggregate roughly flat – Corporate and CMBS the strongest investment grade sectors

as investors hunted for yield – Corporate supply ($1 trillion YTD) at a record as companies

rushed to take advantage of ultra-low interest rates

Risk-on sentiment helped high yield and loans – Non-investment grade sectors rallied, but remain roughly flat

YTD. – The high yield bond market also experienced high levels of

net new issuance (over $120 billion YTD).

Munis boosted by favorable supply/demand dynamics – Robust demand and muted supply of tax-exempt municipals – Issuance in taxable municipals sharply higher – Tax revenues better than expected, but challenges remain

and stimulus uncertain (but needed)

Blmberg Barclays Gov/Cr 1-3 Yr

Blmberg Barclays Aggregate

Blmberg Barclays Long Gov/Cr

S&P/LSTA Leveraged Loans

Blmberg Barclays High Yield

Blmberg Barclays TIPS

Blmberg Barclays Muni 1-10 Yr

Blmberg Barclays Municipal

U.S. Fixed Income: Quarterly Returns

0.2%

0.6%

1.2%

4.1%

4.6%

3.0%

1.1%

1.2%

Blmberg Barclays Gov/Cr 1-3 Yr

Blmberg Barclays Aggregate

Blmberg Barclays Long Gov/Cr

S&P/LSTA U.S. Leveraged Loans

Blmberg Barclays High Yield

Blmberg Barclays TIPS

Blmberg Barclays Muni 1-10 Yr

Blmberg Barclays Municipal

U.S. Fixed Income: Nine Month Returns

3.1%

6.8%

14.2%

-0.7%

0.6%

9.2%

3.2%

3.3%

26


High Yield Market’s Change in Composition

High yield trended higher in quality – BB/Ba-rated debt, the highest-quality category within high

yield, experienced a surge of new issuance as 2020 remains a year of record new issuance across corporate debt.

– Reconstitution of downgraded investment grade debt into high yield has also added to the category.

– BBs now represents over half of the Bloomberg Barclays US High Yield Index.

– Historically, composition changes have generated market inefficiencies that managers can seek to exploit.

Growth in BB-rated bonds

Sources: Bloomberg Barclays, Western Asset Management

Growth of BBs

U.S. Corporate Fallen Angels and Rising Stars Quality Breakdown of the High Yield Index (Market Values)

27


Callan Periodic Table of Investment Returns

Annual Returns Monthly Returns

Sources: ● Bloomberg Barclays Aggregate ● Bloomberg Barclays Corp High Yield ● Bloomberg Barclays Global Aggregate ex US ● FTSE EPRA Nareit Developed ● MSCI World ex USA ● MSCI Emerging Markets ● Russell 2000 ● S&P 500

EquityLarge Cap

21.83%

EquityLarge Cap

-4.38%

EquityLarge Cap

31.49%

EquityLarge Cap

-0.04%

EquityLarge Cap

-8.23%

EquityLarge Cap

-12.35%

EquityLarge Cap

12.82%

EquityLarge Cap

4.76%

EquityLarge Cap

1.99%

EquityLarge Cap

5.64%

EquityLarge Cap

7.19%

EquityLarge Cap

-3.80%

EquityLarge Cap

5.57%

EquitySmall Cap

14.65%

EquitySmall Cap

-11.01%

EquitySmall Cap

25.52%

EquitySmall Cap

-3.21%

EquitySmall Cap

-8.42%

EquitySmall Cap

-21.73%

EquitySmall Cap

13.74%

EquitySmall Cap

6.51%

EquitySmall Cap

3.53%

EquitySmall Cap

2.77%

EquitySmall Cap

5.63%

EquitySmall Cap

-3.34%

EquitySmall Cap

-8.69%

EquityDev ex-U.S.

24.21%

EquityDev ex-U.S.

-14.09%

EquityDev ex-U.S.

22.49%

EquityDev ex-U.S.

-1.94%

EquityDev ex-U.S.

-8.88%

EquityDev ex-U.S.

-14.12%

EquityDev ex-U.S.

6.97%

EquityDev ex-U.S.

4.25%

EquityDev ex-U.S.

3.42%

EquityDev ex-U.S.

2.66%

EquityDev ex-U.S.

5.16%

EquityDev ex-U.S.

-2.82%

EquityDev ex-U.S.

-7.13%

IncomeU.S. Fixed

3.54%

IncomeU.S. Fixed

0.01%

IncomeU.S. Fixed

8.72%

IncomeU.S. Fixed

1.92%

IncomeU.S. Fixed

1.80%

IncomeU.S. Fixed

-0.59%

IncomeU.S. Fixed

1.78%

IncomeU.S. Fixed

0.47%

IncomeU.S. Fixed

0.63%

IncomeU.S. Fixed

1.49%

IncomeU.S. Fixed

-0.81%

IncomeU.S. Fixed

-0.05%

IncomeU.S. Fixed

6.79%

Market EquityEmerging

37.28%


-14.57%


18.44%


-4.66%


-5.27%


-15.40%


9.16%


0.77%


7.35%


8.94%


2.21%


-1.60%


-1.16%

High Yield

7.50%

High Yield

-2.08%

High Yield

14.32%

High Yield

0.03%

High Yield

-1.41%

High Yield

-11.46%

High Yield

4.51%

High Yield

4.41%

High Yield

0.98%

High Yield

4.69%

High Yield

0.95%

High Yield

-1.03%High Yield

0.62%

Fixed IncomeGlobal ex-U.S.

10.51%


-2.15%


5.09%


0.76%


-0.20%


-3.22%


2.04%


0.30%


1.01%


4.44%


0.29%


-0.58%


4.77%

Real Estate

10.36%

Real Estate

-5.63%

Real Estate

21.91%

Real Estate

0.84%

Real Estate

-8.24%

Real Estate

-22.76%

Real Estate

7.06%

Real Estate

0.23%

Real Estate

2.57%Real Estate

2.78%

Real Estate

2.52%

Real Estate

-3.11%

Real Estate

-19.69%

2017 2018 2019 Jan 2020 Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020 Sep 2020 YTD 2020

31


Asset Class Performance and Market Values Periods Ending September 30, 2020

• Domestic Equity trailed the Russell 3000 Index, but ranked in the top quartile of peers for the quarter. Over the trailing five years, the composite trails its benchmark, but ranks above the peer median. Active managers have struggled to add value over the index in this asset class.

• International Equity led its benchmark and peers for the quarter. Over longer periods, the composite has outperformed its benchmark and peer group median due to the success of active management.

• Diversified Strategies trailed its benchmark in the third quarter and also lags its benchmark over longer periods.

• Domestic Fixed Income outperformed the Bloomberg Aggregate Index in the third quarter and ranked in the top quartile of peers. The composite outperformed its benchmark over the trailing three- and five-year periods due to its Core Plus orientation.

• Real Assets trailed the CPI+4% target over both the short- and long-term periods. The Energy allocation outperformed its benchmark in the third quarter, but trailed peers. Policy Target consists of 37% Russell 3000 Index, 24% MSCI EAFE Index, 18% Blmbg Aggregate Index, 16% CPI All

Urban Cons +4%, 3% MSCI World Index and 2% Blmbg Aggregate Index

Market Last Last Value Ending Last Last 3 5

$(Dollars) Weight Quarter Year Years Years Domestic Equity $3,911,644,628 41.13% 9.03% 15.18% 11.58% 12.95%

Russell 3000 Index - - 9.21% 15.00% 11.65% 13.69%

International Equity $2,332,777,743 24.53% 7.79% 7.72% 3.29% 7.47% MSCI EAFE - - 4.80% 0.49% 0.62% 5.26%

Diversified Strategies $459,656,995 4.83% 3.38% 1.13% 5.33% 5.94% Diversified Strategy Trgt - - 5.00% 10.42% 7.35% 8.32%

Domestic Fixed Income $1,583,753,701 16.65% 2.19% 6.69% 5.64% 5.29% Blmbg Aggregate - - 0.62% 6.98% 5.24% 4.18%

Real Assets $1,222,624,594 12.86% (0.26%) (5.94%) 1.90% 3.98% CPIU + 4% - - 1.92% 5.37% 5.79% 5.81%

Energy $130,864,803 1.38% (2.20%) (17.55%) (10.25%) (4.20%) MSCI ACWI Energy - - (12.78%) (39.05%) (15.55%) (5.26%)

Core Real Estate $772,232,814 8.12% 0.30% (1.77%) 4.03% 5.88% NFI-ODCE Eq Wt Net - - 0.37% 0.89% 4.64% 6.09%

Value Add Real Estate $239,564,584 2.52% 0.37% (11.59%) 6.00% 7.55% NCREIF Total Index - - 0.74% 2.00% 5.11% 6.28%

Timber $79,962,392 0.84% (4.05%) (4.92%) (2.61%) (2.24%) NCREIF Timberland Index - - 0.04% 0.19% 2.09% 2.56%

Total Fund $9,510,457,661 100.00% 6.01% 8.08% 6.84% 8.66% Benchmark - - 5.23% 9.47% 7.21% 8.76%

32


Investment Manager Asset Allocation September 30, 2020 June 30, 2020

Market Value Weight Net New Inv. Inv. Return Market Value WeightTotal Domestic Equity $3,911,644,628 40.87% $(49,617,890) $328,270,932 $3,632,991,587 39.95%

Lazard Asset Mgmt. 412,853,712 4.31% (289,338) 27,033,886 386,109,165 4.25%CastleArk 734,299,052 7.67% (12,021,497) 84,153,885 662,166,664 7.28%Mellon S&P 500 Index Fd 295,354,056 3.09% (23,513,263) 26,542,074 292,325,246 3.21%Golden Capital Management 237,859,492 2.49% (123,622) 18,016,621 219,966,493 2.42%Horrell Capital - Passive 149,431,172 1.56% (55,712) 17,464,221 132,022,663 1.45%Wellington Management 414,919,920 4.34% (11,801,779) 23,893,488 402,828,210 4.43%INTECH 655,246,646 6.85% (531,433) 63,116,810 592,661,269 6.52%LSV Asset Management 199,983,598 2.09% (286,464) 4,092,080 196,177,983 2.16%Stephens Investment Mgmt. 411,981,788 4.30% (644,030) 15,339,357 397,286,460 4.37%SSI Investment Mgmt. 399,715,190 4.18% (350,752) 48,618,510 351,447,432 3.86%

International Equity $2,332,777,743 24.37% $(1,589,162) $168,759,707 $2,165,607,198 23.81%Artisan Partners 445,612,558 4.66% (581,515) 20,982,054 425,212,019 4.68%Mellon ACWI ex US Fund 806,037,443 8.42% (106,497) 47,854,256 758,289,684 8.34%Baillie Gifford Overseas 598,920,264 6.26% (515,528) 71,682,939 527,752,854 5.80%Lazard Asset Mgmt. 481,907,926 5.04% (385,622) 28,227,776 454,065,772 4.99%Manning & Napier Advisors 299,551 0.00% 0 12,682 286,869 0.00%

Div ersified Strategies $459,656,995 4.80% $(661,904) $15,031,861 $445,287,037 4.90%AQR Capital 141,791,717 1.48% 0 4,913,879 136,877,838 1.51%Blackstone Alt. Asset Mgmt 187,478,081 1.96% (469,862) 4,660,315 183,287,628 2.02%Newton Capital 130,387,197 1.36% (192,042) 5,457,668 125,121,572 1.38%

Domestic Fixed Income $1,583,753,701 16.55% $(736,579) $33,966,473 $1,550,523,807 17.05%DoubleLine Capital 488,515,634 5.10% (211,690) 9,240,375 479,486,950 5.27%MacKay Shields 538,794,770 5.63% (261,430) 12,954,001 526,102,200 5.79%PGIM 556,443,297 5.81% (263,458) 11,772,097 544,934,658 5.99%

Real Assets $1,222,624,594 12.77% $(5,238,089) $(3,153,715) $1,231,016,399 13.54%

Energy $130,864,803 1.37% $(370,295) $(2,936,258) $134,171,356 1.48% CastleArk Glob Energy Fd 32,375,550 0.34% (82,728) (674,427) 33,132,705 0.36% CastleArk Glob Energy Fd LP 98,489,253 1.03% (287,567) (2,261,831) 101,038,651 1.11%

Core Real Estate $772,232,814 8.07% $(2,766,298) $2,300,350 $772,698,762 8.50% Invesco Real Estate 471,062,137 4.92% (381,939) (1,324,714) 472,768,790 5.20% Heitman Real Estate Tr LP 301,170,677 3.15% (2,384,359) 3,625,064 299,929,972 3.30%

Value Add Real Estate $239,564,584 2.50% $(785,930) $900,096 $239,450,418 2.63% Heitman Value Partners IV 34,661,178 0.36% (97,151) 1,077,336 33,680,993 0.37% LaSalle Inc & Growth VI LP 9,700,401 0.10% (20,839) (391,343) 10,112,583 0.11% LaSalle Inc & Growth VII LP 35,513,675 0.37% 1,286,132 (1,277,726) 35,505,269 0.39% MCM EB DV Non-SL REIT Fd 99,987,798 1.04% (1,382,974) 802,026 100,568,746 1.11% TA Realty X 3,300,480 0.03% (79,278) (15,733) 3,395,491 0.04% TA Realty XI 50,054,717 0.52% (331,195) 269,420 50,116,492 0.55% TA Realty XII 6,346,336 0.07% (160,625) 436,117 6,070,844 0.07%

Timber $79,962,392 0.84% $(1,315,566) $(3,417,904) $84,695,862 0.93% Pinnacle 79,962,392 0.84% (1,315,566) (3,417,904) 84,695,862 0.93%

In-House $60,051,797 0.63% $(8,026,237) $6,359 $68,071,675 0.75%

Composite Fund $9,570,509,458 100.0% $(65,869,861) $542,881,616 $9,093,497,703 100.0%

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Investment Manager Returns and Peer Group Rankings

● Total Domestic Equity trailed the Russell 3000 Index in the third quarter, but finished in the top quartile of peers. Despite lagging the benchmark over the trailing three- and five-year periods, the portfolio has consistently ranked ahead of the peer group median.

● An overweight to Domestic Equity added value in the quarter, while active management was a detractor.

● Growth performance was mixed; CastleArk ranked in the top quartile of peers, while INTECH and Stephens trailed both their respective benchmarks and peer medians.

● Wellington was the top performing value manager in the third quarter, ranking near the top quartile and leading its benchmark.

Last LastLast Last 3 5

Quarter Year Years YearsTotal Domestic Equity 15 12 24 379.03% 15.18% 11.58% 12.95%

Russell 3000 Index 8 17 22 199.21% 15.00% 11.65% 13.69%Pub Pln- Dom Equity 8.25% 10.95% 10.10% 12.50%

Lazard Asset Mgmt. 56 58 42 527.00% 4.60% 10.92% 11.96% Russell 3000 Index 41 40 40 379.21% 15.00% 11.65% 13.69%Callan All Cap Broad 8.41% 8.98% 7.74% 12.13%

CastleArk 12 19 25 2012.71% 33.96% 18.41% 17.53% Russell 3000 Growth Index 11 15 17 1012.86% 36.12% 20.73% 19.51%Callan All Cap Broad 8.41% 8.98% 7.74% 12.13%

Mellon S&P 500 Index Fd 55 48 40 338.93% 13.51% 11.75% 13.82% S&P 500 Index 55 41 31 248.93% 15.15% 12.28% 14.15%Callan Large Cap Core 9.05% 13.39% 11.26% 13.41%

Golden Capital Management 63 42 69 608.19% 14.23% 10.10% 12.85% S&P 500 Index 55 41 31 248.93% 15.15% 12.28% 14.15%Callan Large Cap Core 9.05% 13.39% 11.26% 13.41%

Horrell Capital - Passive 11 46 41 5713.23% 10.67% 11.44% 11.04% Bloomberg Arkansas Index 51 71 65 898.22% (4.20%) 4.21% 5.81% S&P 500 Index 44 40 39 318.93% 15.15% 12.28% 14.15%Callan All Cap Broad 8.41% 8.98% 7.74% 12.13%

Wellington Management 26 47 47 665.93% (4.23%) 2.97% 7.11% Russell 1000 Value Index 32 54 51 495.59% (5.03%) 2.63% 7.66%Callan Large Cap Value 4.72% (4.68%) 2.74% 7.61%

INTECH 71 82 78 7010.65% 24.85% 17.65% 17.51% Russell 1000 Growth Index 20 31 46 3213.22% 37.53% 21.67% 20.10%Callan Large Cap Growth 11.50% 34.40% 20.93% 18.90%

LSV Asset Management 59 80 972.09% (19.00%) (9.34%) - Russell 2000 Value Index 42 42 44 382.56% (14.88%) (5.13%) 4.11%Callan Small Cap Value 2.35% (15.76%) (5.47%) 3.61%

Stephens Investment Mgmt. 94 67 50 543.86% 19.03% 15.06% 15.10% Russell 2000 Growth Index 75 73 81 847.16% 15.71% 8.18% 11.42%Callan Small Cap Growth 9.67% 25.31% 15.03% 15.34%

SSI Investment Mgmt 4 11 14 1213.84% 31.55% 14.76% 13.21% ML All Conv 3 12 10 1013.93% 31.20% 15.25% 13.81%Callan Convert Bonds DB 6.21% 15.86% 7.89% 8.63%

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● Total International Equity outperformed the MSCI EAFE Index and ranked ahead of the median of peers.

● Baillie Gifford continued to outperform and ranked at the first percentile of its peer group. The strategy leads its benchmark and ranks in the top decile of peers in both the short and long term.

● Over the trailing five years, the International Equity composite led its benchmark by 221 basis points and ranked above the peer group median.

● The Diversified Strategies composite trailed its benchmark in the third quarter. Newton and Blackstone led their absolute return benchmarks for the quarter, while AQR trailed its blended benchmark. Over the trailing five years, Newton leads its benchmark while Blackstone has performed in line with its benchmark.

**60% MSCI World/40% Blmbg Aggregate


Quarter Year Years Years

International Equity 32 33 22 407.79% 7.72% 3.29% 7.47% MSCI EAFE 95 91 80 914.80% 0.49% 0.62% 5.26%Pub Pln- Intl Equity 7.19% 5.55% 2.00% 7.10%

Artisan Partners 75 77 68 544.94% (2.08%) (0.37%) 6.03% MSCI EAFE 77 68 60 674.80% 0.49% 0.62% 5.26%Callan NonUS Eq 7.18% 4.71% 2.30% 6.36%

Mellon ACWI ex US Fund 57 55 556.31% 3.36% 1.54% - MSCI ACWI ex US 59 56 57 516.25% 3.00% 1.16% 6.23%Callan NonUS Eq 7.18% 4.71% 2.30% 6.36%

Baillie Gifford Overseas 1 4 5 613.59% 30.93% 10.89% 13.39% MSCI ACWIxUS Gross 57 54 54 466.36% 3.45% 1.65% 6.74%Callan NonUS Eq 7.18% 4.71% 2.30% 6.36%

Lazard Asset Mgmt. 59 61 42 486.22% 1.88% 2.74% 6.53% MSCI ACWIxUS Gross 57 54 54 466.36% 3.45% 1.65% 6.74%Callan NonUS Eq 7.18% 4.71% 2.30% 6.36%

Div ersified Strategies 3.38% 1.13% 5.33% 5.94% Diversified Strategy Trgt** 5.00% 10.42% 7.35% 8.32%

AQR Capital 62 76 27 303.59% (2.66%) 4.86% 7.08% Diversified Strategy Trgt** 31 8 7 95.00% 10.42% 7.35% 8.32%Intl/Global Balanced DB 4.13% 3.11% 3.25% 5.43%

Blackstone Alt. Asset Mgmt. 74 60 29 572.54% 0.77% 4.74% 5.20% T-Bills + 4% 86 42 17 571.02% 5.10% 5.69% 5.20%Intl/Global Balanced DB 4.13% 3.11% 3.25% 5.43%

Newton Capital 46 31 9 494.37% 6.17% 6.75% 5.88% LIBOR + 4% 86 42 17 541.02% 4.91% 5.70% 5.29%Intl/Global Balanced DB 4.13% 3.11% 3.25% 5.43%

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● Domestic Fixed Income outperformed the Bloomberg Aggregate in the third quarter and finished in the top quartile of peers. All three managers enjoyed success, ranking in the top quartile of peers in the quarter. Over the trailing five years, both MacKay and PGIM have outperformed the benchmark and ranked in the top quartile of peers.

● The Real Assets composite trailed its real return benchmark during the third quarter. Underperformance in the quarter was driven by the Energy allocation even though it outperformed its benchmark by 10.58%. The Real Assets composite has underperformed its benchmark in both the short and long term.

● The Total Fund outperformed its benchmark and finished in the top decile of peers in the quarter. Over the trailing three- and five-year periods, the Fund trailed its benchmark but ranked in the top third of peers.

*Policy Target consists of 37% Russell 3000 Index, 24% MSCI EAFE Index, 18% Blmbg Aggregate Index, 16% CPI All Urban Cons +4%, 3% MSCI World Index and 2% Blmbg Aggregate Index


Quarter Year Years Years

Domestic Fixed Income 11 59 28 262.19% 6.69% 5.64% 5.29%

Blmbg Aggregate Index 89 43 46 640.62% 6.98% 5.24% 4.18%Pub Pln- Dom Fixed 1.19% 6.83% 5.18% 4.62%

DoubleLine Capital 24 99 981.93% 4.48% 4.43% -MacKay Shields 9 40 37 142.46% 8.02% 5.94% 5.56%PGIM 14 57 5 72.16% 7.39% 6.44% 6.05% Blmbg Aggregate Index 99 68 78 980.62% 6.98% 5.24% 4.18%Callan Core Plus FI 1.73% 7.69% 5.82% 5.13%

Real Assets (0.26% ) (5.94% ) 1.90% 3.98% CPIU + 4% 1.92% 5.37% 5.79% 5.81%

Energy (2.20% ) (17.55% ) (10.25% ) (4.20% ) MSCI ACWI Energy (12.78%) (39.05%) (15.55%) (5.26%)

CastleArk Glob Energy Fd 82 80 70 72(2.04%) (21.84%) (10.30%) (3.42%)CastleArk Glob Energy Fd LP 82 76 70(2.25%) (16.04%) (10.23%) - MSCI ACWI Energy 99 99 83 81(12.78%) (39.05%) (15.55%) (5.26%)Callan Gbl Nat Res MF 3.40% (7.48%) (4.48%) 2.28%

Core Real Estate 0.30% (1.77% ) 4.03% 5.88% NCREIF NFI-ODCE Eq Wt Net 0.37% 0.89% 4.64% 6.09%

Invesco Real Estate 78 72 43 33(0.28%) (0.94%) 4.90% 6.49%Heitman Real Estate Trust LP*** 18 94 91 891.04% (3.81%) 2.42% 4.86% NCREIF NFI-ODCE Eq Wt Net 39 57 46 480.37% 0.89% 4.64% 6.09%Callan OE Core Cmngld RE 0.28% 1.40% 4.51% 5.88%

Value Add Real Estate 0.37% (11.59% ) 6.00% 7.55% NCREIF Total Index 0.74% 2.00% 5.11% 6.28%

MCM EB DV Non-SL REIT Fd 87 940.79% (23.30%) - - S&P DJ US Select REIT 86 94 92 910.83% (22.33%) (1.85%) 1.99%Callan Real Estate REIT 1.80% (12.01%) 3.38% 5.80%

Heitman Value Partners IV 3.20% 2.25% - -LaSalle Inc & Growth VI LP (3.88%) (3.44%) 2.24% 6.02%LaSalle Inc & Growth VII LP (3.61%) (0.23%) 8.33% -TA Realty X (0.46%) (3.23%) 17.06% 13.73%TA Realty XI 0.54% 6.58% 11.32% -TA Realty XII 7.25% - - - NCREIF Total Index 0.74% 2.00% 5.11% 6.28%

Timber (4.05% ) (4.92% ) (2.61% ) (2.24% )Pinnacle (4.05%) (4.92%) (2.61%) (2.24%) NCREIF Timberland Index 0.04% 0.19% 2.09% 2.56%

Total Fund 7 35 32 286.01% 8.08% 6.84% 8.66% Benchmark* 35 13 17 235.23% 9.47% 7.21% 8.76%Callan Public Fund Spr DB 4.95% 7.46% 6.22% 8.06%

38


Investment Manager Organizational Developments

– MacKay Shields - September 28, 2020 – MacKay Shields announced the appointment of Janelle Woodward, CFA, as President. Reporting to Jeffrey Phlegar, Chairman and Chief Executive Officer, Ms. Woodward will work with Mr. Phlegar in overseeing the firm’s seven autonomous investment teams and will partner with the head of global distribution to further address growing demand for custom investment solutions. Additionally, she will lead the firm’s Diversity and Inclusion initiatives. Ms. Woodward joins MacKay after spending more than a decade at BMO Global Asset Management, where she most recently served as Global Head of Fixed Income. Ms. Woodward will succeed Lucille Protas, who announced in January her plan to retire. Ms. Woodward will not have investment discretion over the Core Plus strategy in which APERS invests.

– Wellington – Wellington Management Company announced the retirement of CEO Brendan Swords, effective June 30, 2021. Upon his retirement, Jean Hynes will succeed Swords as chief executive officer. Hynes joined the firm in 1991, became a partner in 2001, and then was elected to be a managing partner in 2014. In conjunction with this announcement, Steve Klar has been appointed as president, effective January 1, 2021. Klar joined the firm in 2004, became a partner in 2009, and then a managing partner in 2017.

– PGIM Fixed Income – PGIM announced that Frank Duplak, Head of High Yield Credit Research, will retire at the end of 2020. Duplak’s responsibilities will be taken over by Janet Crowe (Head of Bank Loan Research) whose team will combine with the high yield team and she will serve as the sole Head of US Leveraged Finance. Janet has 10 years of experience running the bank loan research team and has over 35 years at Prudential. In addition to Crowe’s promotion, PGIM will be elevating select senior analysts to take on more managerial responsibilities as an effort to develop talent.

39


Total Fund Relative Attribution

● At the Total Fund level, active management was the primary source of outperformance, with asset allocation decisions also adding value. Active management in Domestic Fixed Income and International Equity were the primary drivers of outperformance.

● Over the last year, Domestic Fixed

Income, Diversified Strategies and Real Assets underperformed their target benchmarks. Active management in International Equity added value during the period. At the Total Fund level, both active management and asset allocation decisions detracted.

● Over the last five years, active

management in Domestic Equity and Real Assets, and asset allocation detracted.

Policy Target consists of 37% Russell 3000 Index, 24% MSCI EAFE Index, 18% Blmbg Aggregate Index, 16% CPI All Urban Cons +4%, 3% MSCI World Index and 2% Blmbg Aggregate Index

Relative Attribution Effects for Quarter ended September 30, 2020

Ef f ectiv e Ef f ectiv e TotalActual Target Actual Target Manager Asset Relativ e

Asset Class Weight Weight Return Return Ef f ect Allocation ReturnDomestic Equity 40% 37% 9.03% 9.21% (0.07%) 0.13% 0.06%Domestic Fixed Income 17% 18% 2.19% 0.62% 0.27% 0.04% 0.31%International Equity 24% 24% 7.79% 4.80% 0.72% (0.00%) 0.72%Div ersif ied Strategies 5% 5% 3.38% 5.00% (0.08%) 0.00% (0.08%)Real Assets 14% 16% (0.26%) 1.92% (0.30%) 0.08% (0.22%)

Total = + +6.01% 5.23% 0.54% 0.25% 0.79%

One Year Relative Attribution Effects


Asset Class Weight Weight Return Return Ef f ect Allocation ReturnDomestic Equity 39% 37% 15.18% 15.00% 0.05% (0.04%) 0.01%Domestic Fixed Income 17% 18% 6.69% 6.98% (0.15%) (0.38%) (0.53%)International Equity 24% 24% 7.72% 0.49% 1.85% (0.15%) 1.69%Div ersif ied Strategies 5% 5% 1.13% 10.42% (0.48%) (0.00%) (0.48%)Real Assets 14% 16% (5.94%) 5.37% (1.87%) (0.17%) (2.04%)

Total = + +8.08% 9.47% (0.65%) (0.75%) (1.39%)

Five Year Annualized Relative Attribution Effects


Asset Class Weight Weight Return Return Ef f ect Allocation ReturnDomestic Equity 39% 37% 12.95% 13.69% (0.28%) 0.04% (0.24%)Domestic Fixed Income 16% 18% 5.29% 4.18% 0.17% (0.05%) 0.11%International Equity 24% 24% 7.47% 5.26% 0.55% (0.05%) 0.49%Div ersif ied Strategies 5% 5% 5.94% 8.32% (0.12%) 0.00% (0.12%)Real Assets 15% 16% 3.98% 5.81% (0.30%) (0.05%) (0.34%)

Total = + +8.66% 8.76% 0.01% (0.12%) (0.10%)

40


Historical Market Values of the Total Fund As of September 30, 2020

$6,000

$8,000

$10,000Market Value of the Total Fund ($ millions)

$9,571

Quarter Ending Market Value 09/30/2020 $9,570,509,458 06/30/2020 $9,093,497,703 03/31/2020 $8,001,744,276 12/30/2019 $9,535,086,851 09/30/2019 $9,074,444,671 06/30/2019 $9,153,121,783 03/31/2019 $8,852,246,828 12/31/2018 $8,125,742,177 09/30/2018 $9,101,766,264 06/30/2018 $8,875,244,686 03/31/2018 $8,766,679,679 12/31/2017 $8,823,062,519

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1

FINAL

ARKANSAS PUBLIC EMPLOYEEES RETIREMENT SYSTEM

BOARD OF TRUSTEES

INVESTMENT POLICY STATEMENT

November 2019

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2

TABLE OF CONTENTS

I. INTRODUCTION

II. STATEMENT OF PURPOSE

III. STATUTORY AUTHORITY

IV. INVESTMENT OBJECTIVES

V. ASSET ALLOCATION (BY MAJOR CATEGORIES)

VI. PORTFOLIO GUIDELINES

VII. CUSTODIANSHIP OF SECURITIES

VIII. ROLES AND RESPONSIBILITIES

IX. TOTAL FUND PERFORMANCE MEASUREMENT STANDARDS

X. PROXY VOTING

XI. REVIEW OF INVESTMENT PROCESS

XII. STATEMENT OF INVESTMENT POLICY

ADOPTED 1985

AMENDED NOVEMBER 2004

AMENDED JULY 2007

AMENDED MAY 2010

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3

AMENDED NOV 2019

ARKANSAS PUBLIC EMPLOYEES RETIREMENT SYSTEM

INVESTMENT POLICY

I. INTRODUCTION

The Arkansas Public Employees Retirement System (“APERS”) was established by the General Assembly in 1957 as a multi-employer defined benefit retirement plan for State of Arkansas employees. The administration and control of the system shall be vested in a nine member Board of Trustees as defined in Title 24 of the Arkansas Code of 1987 which contains the statutes that govern the Arkansas Public Employee Retirement System. Including other responsibilities, the Board of Trustees may do any and all things necessary for the proper administration of the system and carry out and make effective the provisions of this Title 24, and provide for the administrative direction and control of the executive director and such clerical staff as may be required in the administration of the system.

II. STATEMENT OF PURPOSE

The assets of the Arkansas Public Employees Retirement System (APERS) shall be invested as determined from time to time by the APERS Board. The purpose of the Investment Policy Statement (“IPS”) is to establish a framework that sets forth the investment objectives of APERS and the investment policies to be followed in carrying out those objectives. Investment of the APERS' funds shall be made for the exclusive benefit of the participants and beneficiaries of the System. The purposes of investing APERS' funds are to provide benefits to participants and their beneficiaries and to defray the necessary expenses associated with investing APERS' funds and administering the System.

III. STATUTORY AUTHORITY

The primary statutory authority for the investment activities of APERS is found in Sections 24-2-601 through 24-2-619 of the Arkansas Code, as amended. Trustees shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. Trustees who have special skills or expertise, have a duty to use those special skills or expertise (24-2-611). The prudent investor rule shall be applied by each party serving in a fiduciary capacity for APERS.

44

4

IV. INVESTMENT OBJECTIVES The investment objectives shall be: (1) the prudent investment of APERS’ assets in

order to provide benefits to participants and their beneficiaries; and (2) to maximize total return - consistent with prudent risk taking on the amounts available to provide such benefits. For this purpose, short-term fluctuations in value shall be considered secondary to long-term investment considerations. This objective is not to be a goal from year to year, but is intended as a long-term guideline to those involved in investing the Trust's assets. This Policy does not require the elimination of risk, but instead strives to achieve a balance between risk and return. Some risk must be taken to achieve desired levels of return. The objective is to ensure that economic and investment risk taken is prudent and properly managed within a framework of contributions from each asset class. The investments of the APERS' Fund shall be diversified in order to mitigate the risk of large losses, and will be implemented with an appropriate number of managers whose investment styles are varied enough to balance the overall risk of the Fund in consideration of the return objective.

V. ASSET ALLOCATION (BY MAJOR CATEGORIES) Asset allocation provides for diversification of assets in an effort to maximize the

Fund’s investment return consistent with its risk profile. Allocation targets and ranges are established and referred to as “Policy” portfolio.

Market Value Exposure Asset Class Target Range Domestic Equity 37 % 32 % - 42 % International Equity 24 % 19 % - 29 % Domestic Fixed Income

18 % 13 % - 23 %

Diversified Strategies 5 % 0 % - 10 % Real Assets 16 % 11 % - 21 %

The Board of Trustees shall receive an Asset Allocation Review prepared by the Investment Consultant at least annually to determine if the Fund allocation is consistent with the level of risk and volatility acceptable to the Board. This Review will include the Fund’s expected return and risk outlook based on capital market assumptions developed by the Investment Consultant. Periodically, (e.g., three to five years, or when a significant change to the Fund’s assets or liabilities has occurred), an Asset-Liability Study will be conducted by the Investment Consultant and presented to the Board. This Study will integrate actuarial liability projections with the asset allocation model in a simulation exercise that examines the financial condition of the Fund consistent with an appropriate investment planning

45

5

horizon. Should the amount invested in an asset class fall outside the target ranges, Staff will rebalance to the allocation within the specified ranges. Within these broader asset classes, the Trustees shall establish commitment levels to various investment styles, as the dynamics of the Fund’s financial needs dictate.

VI. PORTFOLIO GUIDELINES

Through selecting, timing and weighting investments, the Fund's objective is to maximize the total return of the account assets, through price appreciation and/or yield, consistent with the level of risk taken. In determining the appropriate risk posture for the Fund, consideration should be given to the overall risk characteristics of the Fund, and the extent to which components of the Fund are diversified. Additionally, the Board of Trustees establishes the following specific guidelines:

A. Securities may not be purchased on margin.

B. The System may establish a Securities Lending Program subject to restrictions established by the Board.

C. Each investment manager will be required to invest within the

specific guidelines and parameters set by the Board of Trustees.

D. APERS recognizes a legal responsibility to seek to invest in the Arkansas economy, while realizing its primary, legal, and fiduciary commitment is to beneficiaries of the retirement system, under the prudent investor rule.

E. It is the intent of APERS to include qualified minority (African-

American, Hispanic-American, American Indian, Asian-American, or Pacific Islander-American), female, and disabled owned business enterprises in the Fund’s investment manager selection process. The inclusion of the above managers in the selection process will be recorded and periodically reviewed by APERS staff and presented to the Board as requested. This process is intended to ensure all investment managers are given equitable consideration in the manager selection process in keeping with the fiduciary obligations of the APERS Board for the beneficiaries and annuitants of the System.

VII. CUSTODIANSHIP OF SECURITIES

Securities may be held by the State Treasurer or, under the authority granted by

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6

Arkansas Code 24-2-606. APERS may establish an arrangement with a financial institution, as specified by this Code, for the custodianship of its securities subject to the approval of the Board of a Request for Proposal as well as a proposed contract.

47

7

VIII. ROLES AND RESPONSIBILITIES

A. Custodian Bank The custodian bank shall, by nominee agreement, hold any and all securities for

the beneficial interest of the APERS fund. Custodial activities will include, but are not limited to, the purchase, registration, and sale of stocks, bonds, notes, and other securities, as well as the collection of any income. Furthermore, the custodian bank shall sweep idle cash balances in short-term investment vehicles that are consistent with the investment guidelines promulgated by OCC Reg 9 and/or SEC Rule 2a-7. Dividends, interest, proceeds from sales, new contributions and all other moneys are to be invested or reinvested promptly. B. Administrative Staff

The Administrative Staff, at the direction of the, Board of Trustees, shall execute all investment transactions for any assets managed in- house. In addition, they are responsible for communicating the necessary information to fulfill contractual obligations with the investment professionals. The Administrative Staff shall also communicate relevant Board decisions to investment managers, custodian bank, actuary, and consultant.

C. Board of Trustees

The Board of Trustees shall oversee the total investment program. The Board

shall approve the investment policy and provide overall direction to the Administrative Staff in the execution of the investment policy. The Board of Trustees shall review and approve or disapprove investment recommendations not governed by Investment Policy prior to their execution. The Board shall also review and approve investment policy changes. Furthermore, the e Board shall review and approve or disapprove any contracts of a financial nature, when performed by other than APERS' staff persons, such as, although not limited to, those for investment counselors, custodial arrangements, option programs, and security lending.

IX. TOTAL FUND PERFORMANCE MEASUREMENT STANDARDS

The Total Fund Performance and that of the underlying strategies will be measured against appropriate benchmarks and peer groups. Benchmarks establish target investment exposures and provide a relative measure to gauge whether a particular strategy is meeting its goals and objectives. The Total Fund Policy Benchmark is an aggregation of the asset class benchmarks weighted by the policy portfolio. A. The Total Fund’s objective is to rank in the upper 50th percentile compared

to the results of other similarly managed public fund portfolios measured over a market cycle.

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B. The Total Fund's objective is to generate an annualized total return that exceeds the return of the Policy Benchmark, after managers’ fees, over a market cycle,

X. PROXY VOTING

The Board has directed that the individual investment managers will be responsible for voting proxies in the best interest of APERS. Each investment counselor is responsible for maintaining records of how each proxy is voted. A written report of proxy voting will be provided to the Board within 30 days from the end of each quarter. In general, each investment counselor is expected to vote for improvements in corporate governance, for the alignment interests of corporate management with shareholder interests, and for equal access to the management proxy card. A detailed explanation will be given for each instance where the proxy is voted against these concepts or against management.

XI. REVIEW OF INVESTMENT PROCESS

A. Periodically, the Board will review the investment results achieved by each manager

over a market cycle (typically, a three to five-year time horizon) to determine whether:

1. The investment managers performed in adherence to the investment philosophy and policy guidelines set forth herein,

2. The investment managers performed satisfactorily when compared with:

a. Its appropriate benchmark. b. Other similarly managed funds.

B. In addition to reviewing each investment manager's results, the Board will re-

evaluate, from time to time, its progress in achieving the total fund, equity, fixed-income, and international equity segments objectives previously outlined.

C. The periodic re-evaluation also will involve an evaluation of the continued

appropriateness of: 1. The manager structure;

2. The allocation of assets among the managers; and

3. The investment objectives for the Fund’s assets. The Board may appoint

investment consultants to assist in the ongoing evaluation process. The consultants selected by the Board are expected to be familiar with the investment practices of other similar retirement plans and will be responsible for suggesting appropriate changes in the Fund’s investment program over time.

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ASSETSCash and Cash Equivalents 54,459,772$

ReceivablesDec 2004 Actuarial Liability Receivable 5,617,215 Contributions Receivable 2,361,136 Overpayment Receivable 448,327 Allowance for Doubtful Accounts (388,404) Total Receivables 8,038,275

Investments at Fair ValueInvestment Assets 9,163,526,170 Securities Lending Collateral 750,717,605 Total Investments 9,914,243,775

Prepaids and Other Assets 1,254,987 Fixed Assets 14,405,957

TOTAL ASSETS 9,992,402,766

LIABILITIESAccrued Expense and Other Liabilities 2,659,373 Other Post Employment Benefits 6,655,260 Investment Principal Payable - Securities Lending Liability 752,430,215

TOTAL LIABILITIES 761,744,848

NET POSITION RESTRICTED FOR PENSION BENEFITS 9,230,657,918$

STATEMENT OF PLAN NET POSITIONAS OF SEPTEMBER 30, 2020


Preliminary11/11/2020

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ADDITIONSContributions

Employer 78,662,309$ Employee 18,854,768 Total Contributions 97,517,077

Investment IncomeInvestment Income 524,294,058 Less: Investment Expense (2,396,115) Net Investment Income 521,897,943

Other AdditionsMiscellaneous Additions 78,799 Transfers from Teachers and Highway 988,963 Miscellaneous transfers from State Agencies 275,962 Total Other Additions 1,343,724

TOTAL ADDITIONS 620,758,744

DEDUCTIONSBenefits 153,012,724 Refund of Contributions 3,594,684 Administrative Expense 2,504,108

TOTAL DEDUCTIONS 159,111,516

NET INCREASE/(DECREASE) 461,647,228

ADJUSTMENTSActuarial Adjustment to DJ Unfunded Liability -

NET POSITION RESTRICTED FOR PENSION BENEFITS Beginning of Year 8,769,010,690

End of 1st Quarter 9,230,657,918$

STATEMENT OF CHANGES IN PLAN NET POSITIONFOR THE PERIOD ENDING SEPTEMBER 30, 2020


Preliminary11/11/202087

M I N U T E S

MEDICAL REVIEW BOARD MEETING 124 West Capitol Avenue, Suite 400

Little Rock, Arkansas 72201

** MEETING CONDUCTED BY VIDEO CONFERENCE **

NOVEMBER 10, 2020 – 9:00 a.m. MEDICAL REVIEW BOARD MEMBERS: Dr. Kay Cogbill Dr. James Hazelwood Dr. David L. Hicks STAFF PRESENT: Ms. Abbi Bruno, APERS Director of Operations MEDICAL REVIEW BOARD RESULTS: The Medical Review Board met at 9:00 a.m. on Tuesday, November 10, 2020 via ZOOM video conferencing to discuss the case of APERS Member XXX8126.

After review and discussion, the Medical Review Board found that XXX8126 was suffering from an illness or injury at the time of his termination on September 10, 2018, which subsequently led to the disability determination.

With APERS Board approval, in accordance with ACA 24-4-511(e)(3) benefits for the approved member will be effective December 1, 2020. ADJOURNMENT: There being no other business, the meeting was adjourned.

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Arkansas Public Employees’ Retirement System LITIGATION REPORT November 18, 2020

ADMINISTRATIVE MEMBER APPEALS

Eldridge vs. Arkansas Public Retirement System Board of Trustees. Eldridge appeals from APERS’ Executive Director Determination denying his request that APERS include service credit and require contributions from employers who are not participating public employers in APERS. Board Hearing on Member Appeal scheduled for Tuesday, December 8, 2020 at 9:00 a.m. via ZOOM.

APPEAL FROM ADMINISTRATIVE MEMBER APPEAL - LITIGATION

Veronica Young, et al. vs. Arkansas Public Retirement System Board of Trustees − 60CV-20-2413 Court clerks appealed the decision of the APERS Board from the February 19, 2020 member hearing as allowed under the Administrative Procedures Act. Complaint/Appeal filed March 27, 2020 in Pulaski County Circuit Court, Judge McGowan. Counsel for Court Clerks filed a Motion for Summary Judgment and APERS filed a Motion to Dismiss. October 29, 2020, Counsel for Court Clerks asked for a hearing on their motion. Awaiting response from Court.

Bolding v. APERS, APERS Board, and Duncan Baird − 60CV-19-4050 Case appealed to Circuit Court from APERS’ administrative appeal denying Ms. Bolding’s claim that she is entitled to a COLA from APERS, even though she is retired under a separate retirement system. APERS responses that Ms. Bolding is denied appeal relief under sovereign immunity and statutory immunity. Judge McGowan has briefs from Bolding and APERS. Awaiting decision by Court on APERS’ Motion to Dismiss. Clark v. State of Arkansas (APERS) Claim No. 190709, Refiled as Claim No. 200547 Ms. Clark appealed a decision of APERS Board to the Arkansas Claims Commission. Hearing held via ZOOM on October 23, 2020 and Claims Commission ruled in favor of APERS’ Motion to Dismiss. Claims Commission ruled that it lacked jurisdiction to hear the case, and that it is not an alternative remedy for a claim under the Administrative Procedures Act. Clark may appeal the decision. Ellis Sloan v. Arkansas Public Employees Retirement System Claim No. 17-0726-CC Sloan filed a Complaint with the Claims Commission May 18, 2017, seeking $1.5 million from APERS alleging breach of contract for investment advising services. Claims Commission has set a hearing April 16, 2021.

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SECURITIES LITIGATION CASES

U.S. cases with APERS as Lead Plaintiff

Company name Case Caption Date Case Filed

Lead Plaintiff Status Firm

*Lobstein, pro se

Lobstein v. Washington Mutual, et al. 07/24/2020 N/A Cohen Milstein

Seaworld Entertainment, Inc.

Baker v. Seaworld Entertainment, Inc., No. 14-cv-2129 (S.D. Cal.) 09/09/14

Settled - $65 million -awaiting distribution

Kessler Topaz and Nix, Patterson & Roach

Bristol-Myers Squibb Company

Giugno v. Bristol-Myers Squibb Company, No. 18-cv-878 (N.D. Cal.)

02/09/18

Dismissed -Motion to Dismiss by defendants granted, APERS will appeal

BLB&G

Non-U.S. cases

Company name Case Caption Date Case Filed

Lead Plaintiff Status Firm

TESCO (U.K.)

Non-U.S. opt-in action (filed in London),APERS joined the Tesco action

Labaton Sucharow (local/liaison)

* The lawsuit by this individual regards the foreclosure of their property that is part of a mortgage backed securities trust on which APERS did not sue. This lawsuit is considered a frivolous lawsuit. APERS was a plaintiff in the WaMu TIA litigation, which settled in 2015 for $68.5 million. A pro se complaint was filed in California recently and it included all of the plaintiff pension funds who were involved in the original securities litigation, which included APERS. Cohen Milstein is filing a Motion to Dismiss. This is not a new securities litigation case, rather a complaint loosely based upon a settled securities litigation case.

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Securities Litigation Policy

I. SUMMARY

The Arkansas Public Employees’ Retirement System (APERS) Board of Trustees (the Board), in fulfilling its fiduciary duty to manage APERS’ assets for the primary purpose of providing benefits to members and their beneficiaries, adopts this policy to monitor losses in its portfolio that may trigger a securities litigation claim filed as either an individual or class action.

The Board recognizes that securities litigation is an optional and occasional tool to recover lost assets, and only appropriate in certain circumstances. The objectives of APERS in engaging in securities litigation include collecting losses in the portfolio, maximizing the net recovery, and effecting meaningful corporate governance reforms. II. GOALS, PROCEDURES AND GUIDELINES

• Fulfill APERS’ fiduciary duty to protect the trust by monitoring its investments and

effectively managing securities litigation claims as assets of the trust fund. • Recover losses of investment value through individual actions, opt-outs, or class actions. • Increase recoveries in class action claims through lead plaintiff status. • Reduce fees paid to obtain recoveries by negotiating favorable contingency fee

arrangements and utilizing free securities monitoring services. • Deter and reduce future fraud on the market and promote improvements in corporate

governance.

III. SECURITIES CLASS ACTIONS AND MONITORING RECOVERY STRATEGIES

A. APERS may utilize the services of APERS’ custodial bank as well as the services of any expert in the area of securities monitoring and asset recovery to evaluate a potential securities claim, file a valid proof of claim, or collect any settlement that results from the claim.

B. APERS may retain a law firm that specializes in securities class actions and asset recovery.

C. If APERS does not serve as lead plaintiff, APERS may 1) Participate as a co-lead plaintiff with other institutional investors; 2) Opt out of a class and file a separate securities action in state or federal court; 3) File a shareholder derivative claim in state or federal court; 4) Formally intervene in pending litigation; and 5) Participate in actions before the Securities and Exchange Commission (SEC), including SEC rulemaking.

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D. APERS will evaluate alternatives to litigation that may be as effective as litigation to rectify the underlying cause of the fraud.

IV. EVALUATION OF POTENTIAL CLAIMS

Considerations in weighing the merit of each claim to determine the level of participation, if any, in the claim, may include, but are not limited to the following:

• The significance of the holding or size of the claim for the investment activity. • The projected use of APERS’ staff time and resources. • The legal rationale and justification for the claim. • The increased recovery amounts for APERS and the class by serving as lead plaintiff. • The availability of other appropriate lead plaintiffs. • The actual or potential costs (if any) or other burdens associated with different

strategies and outcomes. • Whether the potential benefits justify the allocation of APERS’ resources to case

management, discovery, or other associated demands of the case. • The heightened pleading standard of the Private Securities Litigation Reform Act

(PLSRA). • The effects upon APERS’ investments, business dealings, or other interests. • The potential reputational risks to APERS in pursuing an action. • Whether the action could lead to corporate governance change to address the cause of

the wrongful conduct or deter misconduct, foster market integrity, or improve company practices.

• The likelihood of success and successful recovery.

V. LOSS THRESHOLD

A. In order for APERS to seek lead or co-lead plaintiff status in a securities class action lawsuit, a loss threshold is established of at least two basis points one million dollars (0.02% $1,000,000). of APERS’ total fiduciary net positions as reflected in the most recent Comprehensive Financial Annual Report.

B. A loss threshold may be modified downward in instances where APERS believes there are important policy reasons for commencing a particular action even though the threshold amount has not been met.

VI. DELEGATION OF AUTHORITY

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B. A. Prior to seeking lead plaintiff status or initiating securities litigation, the Executive Director will provide a recommendation for a securities litigation claim to the Board for consideration approval.

A. B. The Board delegates to the Executive Director the authority to review and , evaluate, potential securities litigation, and authorize securities litigation appropriate for APERS and the authority to make all administrative, procedural, or strategic decisions utilizing the procedure necessary to meet the goals and objectives of the Board.

VII. REPORTS

The Executive Director or his or her designee shall regularly report to the Board any participation in a securities litigation case as a lead plaintiff and update the case status, including the final resolution of the case and any settlements of record. VIII. SELECTION OF SECURITIES MONITORING & ASSET RECOVERY LAW FIRMS

A. The Board delegates to the Executive Director and APERS staff the authority and responsibility to procure securities litigation and monitoring counsel through a request for qualifications (RFQ) process.

B. APERS may select qualified securities monitoring and litigation counsel to monitor APERS securities, evaluate potential securities litigation claims, file and litigate claims on behalf of APERS as requested, and collect any settlements that result from the claims.

C. Upon conclusion of the RFQ process, the APERS staff shall present their selections to the Board for approval by Board resolution.

D. A firm selected under this RFQ shall provide services to APERS on a contingency fee basis.

IX. SELECTION OF SECURITIES LITIGATION FIRM TO PROSECUTE CASE

The Executive Director shall provide a recommendation to the Board regarding choose the securities litigation counsel most appropriate for APERS’ interests on a case-by-case basis, using his or her discretion. If several appropriate counsels are interested in representing APERS for a single case, the considerations for recommending selecting the most appropriate counsel to represent APERS in an action include, but are not limited to:

• First to file or develop the theory for the case • Expertise best suited to the nature of the claim • Willingness to negotiate contingency fees and charge only reasonable and necessary

costs (i.e., the American Bar Association Model Rules of Professional Conduct, Rule 1.5)

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• Transparent billing practices and lodestar and willingness to maintain contemporaneous time records available at APERS’ request

• Demonstrated reputation for ethical behavior and adherence to the spirit and letter of the PLSRA

• Willingness to abide by ABA Formal Ethics Opinion 08-451 (regarding outsourced attorney relationships)

• Public policy considerations in prosecuting cases • Alignment with the interests and goals of APERS • Strength of the communication and cooperation with APERS • Resources necessary to successfully prosecute the case • Joining with other securities litigation counsel if doing so increases the likelihood of

success • Successful prosecution of prior cases for APERS • Rotation of interested firms

X. REVIEW OF POLICY

The Board may periodically review and make appropriate changes to this policy in keeping with its fiduciary standards and policy goals.

This internal policy is exempt from the requirements of the Administrative Procedure Act, § 25-15-201 and the promulgation of rules thereunder, and it may be amended by Board action. In the event of an inconsistency with this Board policy and any previous Board policy regarding securities litigation and monitoring, this policy shall control.

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arkansas public employees’ retirement system

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