Scenarios for inflation
BROUGHT TO YOU BY THE MULTI-ASSET SOLUTIONS TEAM

2021 MARKET OUTLOOKThis topic was explored with our investment teams across the New York Life
Investments’ platform, including Ausbil, CANDRIAM, Goldpoint Partners,
MacKay Shields, Madison Capital Funding, NYL Investors, and Tristan CapitalPartners. Particular gratitude is due to Steven Friedman and Michael DePalmaof MacKay Shields, who provided extensive input.

Executive summaryn Inflation impacts investor portfolios via asset class performance and by acting

as a tax on returns. Its emergence has become a key risk for investor portfolios.
n Supply-demand imbalances and an accommodative monetary and fiscal

backdrop have been driving the strongest medium-term inflation outlook
in some time. However, the evidence so far suggests that supply-demand
imbalances are likely temporary and that underlying inflationary pressures
will firm only modestly in the coming years.
n Substantial uncertainties remain in the wake of an unprecedented crisis.

We explore three plausible inflation scenarios and share asset allocation
ideas for each.
n We use the United States as a benchmark for our scenarios, but view thetrends driving inflation outcomes to be similar for many countries.

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As the economic recovery gains traction, inflationary pressures are building, andmarkets are responding.
On the one hand, this is a normal part of a healthy economic cycle: production
declines during downturns, only to face growing resource constraints as demandrebuilds over the course of an expansion. On the other hand, the COVID-19 cycle
has been unprecedented in many ways, raising an important question for investors:
could inflationary pressures be here to stay?

Inflation and inflation expectations have firmed somewhat
U.S. economic and market inflation data

Median G20 inflation, %YoY

6.0%

6.0%

5.0%

5.0%

5.0%

4.0%

3.0%

2.3%

Inflation

3.1%
3.0%

2.0%

2.0%

1.0%

1.0%

0.0%
5/20199/20191/20205/20205-year, 5-year forward
breakeven inflation rate

9/20201/20215/2021

00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21

0.0%

20

Inflation

4.0%

U.S. Headline CPI

Sources: New York Life Investments Multi-Asset Solutions, Bloomberg LP, 6/23/21. As of publication, G20 inflation data is for May 2021 for 19 out of 20 countries
and April 2021 for one country.

In our view, the answer is likely to be no. It’s one thing to experience a priceadjustment on the back of an unusual crisis with significant supply chain disruptions
and sizable policy support; it’s quite another to have durable price pressures, which
is a more complex process. Still, risks to this perspective are plentiful. The pace oflabor market tightening and the path of monetary and fiscal policy are yet unknown
and will determine the pace of inflation in the years ahead.
Given the importance of this discussion to asset allocation, security selection, andtake-home returns,6 it is a worthwhile exercise to consider what would happen if data
develops differently than we expect from here. In this piece, we focus on the threemost likely scenarios and provide asset allocation ideas.

6. Since 1972, inflation has eaten away at 40%-50% of returns, largely due to the high and volatile inflation of the 1970s.
During the more recent benign inflation environment, which started in 1998, inflation has still eaten away at 20%-25% ofreturns across asset classes. Sources: Michael DePalma and Michael Ning of MacKay Shields, Bloomberg LP, 6/21/21.
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Using the U.S. as a blueprint for global trends
Our scenarios are predominantly shaped by two drivers—monetary and fiscal
policy—which influence the pace at which the output gap closes and maximum
employment is reached. By both measures, U.S. action through the COVID-19
pandemic has been stronger than in other areas of the world; for this reason, we
use it as the blueprint for our inflation scenarios. The country’s accommodative
policy stance, should it continue, could lead to a sustained positive output gap
and, with it, pressure on resource allocation and prices.
Many of the trends seen in the U.S. can be used to describe circumstances in othercountries. For example, many central banks have acknowledged treating inflation risks
asymmetrically, focusing too much on preventing inflation overshoots at the expenseof growth and employment. To address this perceived imbalance, many central
banks are in the process of changing or have already changed their strategies—
tolerating or even encouraging inflation in exchange for a stronger economy andhigher employment. Some central banks may choose to react with incremental
changes; others with more extensive ones, influencing the likelihood of our inflation
scenarios for different countries.
Similarly, most governments loosened the fiscal reigns, at least temporarily, in thename of fighting an unprecedented crisis. Automatic stabilizers and COVID-19
support packages have gone a long way to prevent a worst-case scenario forbusinesses and households. Should fiscal accommodation continue in the years
ahead, its impact on aggregate demand and employment could lead to moresustained supply pressures. Those countries unwilling or unable to sustain fiscal
support may experience less inflationary pressure.
With these drivers in mind, we focus on the U.S. in the following analysis, but weview trends as broadly similar in many other countries, albeit of a differing magnitude.

Our base case: inflationary pressures firm modestly
In the U.S., recovery from the COVID-19 pandemic is well underway as vaccinations
continue and health-related restrictions ease. Aggregate demand has strengthened,
aided by monetary policy’s favorable impact on financial conditions and fiscal policy’s
support of household and business balance sheets. At the same time, supply isconstrained—both in terms of restarting production after large-scale shutdowns,
as well as labor shortages due to ongoing virus safety and childcare constraints,
and, in some cases, the extension of federal unemployment insurance benefits.
The resulting supply-demand imbalances have already created upward price pressure.
Certainly, the size of these imbalances and their impact has been exceptional in thenear term—much like many aspects of the COVID-19 crisis. It takes time for global
supply chains to come back online and for the labor market to mobilize.
Prices have already responded to these imbalances—rising inflation figures havesurprised to the upside in recent months—but evidence does not yet point to
inflationary pressures beyond temporary supply-demand imbalances. Instead,33

we expect that growth and consumption will revert to more typical patterns once thereopening surge passes, while on the supply chain, production picks up, bottlenecks
are cleared, and labor force participation climbs. In fact, there may already beevidence of inflationary pressures waning. Oft-cited examples of surging inflationsuch as lumber and used car prices appear to have peaked or may soon do so.7

Outside of the sectors facing temporary supply-demand imbalances, there is not muchevidence of inflationary pressure
Contribution to month-on-month core CPI change (United States)
1.0%Core CPI Change

Housing and health care

COVID-19 and supply-sensitive sectors

All other

0.5%

0.0%
Jan 19Mar 19May 19Jul 19Sep 19Nov 19Jan 20Jul 20Mar 20

Sep 20

Nov 20Jan 21Mar 21

May 21

May 20-0.5%

Sources: MacKay Shields, Bureau of Labor Statistics, 7/13/21. COVID-19 and supply-sensitive sectors include lodging away from home; airfare; apparel; new, used,
and rental vehicles; recreational goods and services; and household furnishings.

That said, we have reason to believe that inflationary pressures could firm at modestly
higher levels relative to the pre-pandemic expansion.
During the post-global financial crisis (GFC) recovery, tighter financial conditions,
Fed concern about inflation, and fiscal austerity contributed to an unusually long labormarket recovery. Banks, companies, and households struggled to rebuild their balance
sheets. Sluggish growth and inflation became the norm.
By contrast, the policy response to the COVID-19 health and economic crisis has been
sizable and swift, even generating concerns about overheating and inflation risk. For
one, fiscal policy has taken a stronger role, stepping in to support companies andhouseholds through zero-revenue and periods of unemployment. The U.S. Federal
Reserve’s response was also prompt and meaningful, with programs designed tomaintain smooth market functioning and give corporations access to needed capital,
bridging the liquidity gap created by the pandemic. What’s more, the Fed’s newpolicy strategy framework, which prioritizes maximum employment alongside a morebalanced perspective of inflation risks, may result in monetary accommodation that
extends for longer, supporting growth further.

7. As of 6/23/21, lumber prices, while still above their five-year average, were down nearly 48% from their May 7 peak. Usedcar prices, as tracked in the Manheim U.S. Used Car Survey, showed a similar dynamic—still growing but at a less rapid pace.
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As a result, we expect a quicker, stronger, and more durable economic recovery.
However, we anticipate that price pressures will firm only moderately relative to theirpre-pandemic growth rates. In the near term, resurging demand and restrained
supply may persist for some time, but an uncontrolled inflation spiral seems unlikely.
Despite the Fed’s framework shift—one that should sustain recovery by notpreemptively tightening interest rates—the central bank has demonstrated only amodest tolerance for inflation above their 2.0% target, and remains attentive to therisks associated with higher inflation. The Federal Open Market Committee’s (FOMC)
June meeting, perceived as hawkish, reinforced its inflation-fighting credentials andreduces the risk that it will have to make sharper policy adjustments down the roadto re-anchor expectations.
In addition, structural disinflationary forces should regain their dominance once
pandemic-related disruptions fade (see below). Supply constraints are already startingto ease, fiscal stimulus will soon fade, and pent-up demand is not open-ended.
While the COVID-19 pandemic has undoubtedly impacted the cyclical factors driving
inflation, the crisis and its accompanying policy response may also be nudging thestructural factors impacting inflation.

The structural factors impacting inflation
Demographics

Globalization

Inequality

Debt

Technology

Pandemic drove
significant
decline inlabor force
participation;
this should be
temporary.

Attention to
supply gaps
in essential
products
may drive
supply chain
fortification

Wealthinequality
pernicious,
but income
inequality could
be improvedby governmenttransfers

Risinggovernment
debt crowds out
private sector

Accelerated
uptake of andinvestment ininnovation

Immigration
reform to
improvedemographics

Stronger tradebarriers could
increase pricepressures

Maximum
employment
and higher
wages would
support higher
aggregate
demandTax changes
and related
proactive
savings
could reduce
aggregate
demandProductivity
improvements
contributeto stronger
growth, but
lower unit laborcosts.

Previous
impact on
inflation
Pandemic
impactPost-pandemic
impact on
inflation
Look for

Policies suchas affordable
childcare
to improvelabor force
participation

5

Redistributive
tax policies
could improveinequality

5

Our estimation of these structural factors suggests that the underlying inflation trend
will firm only modestly as the recovery continues. To reverse these disinflationary
forces, large-scale policy commitments—and durable ones—would likely be required.
As a result, policy commitments to improving education, immigration, and labor force
participation are signposts to monitor for a shift in the underlying inflation trends.
Redistributive policies aimed at addressing inequality could also move the needle.
For now, any determination that they will be inflationary beyond the next 2-3 years’
recovery period remains somewhat speculative.

What could be different? Scenarios for post-crisis inflation
Having reflected on our base case views, we also recognize a heightened degree of
uncertainty about the inflation outlook. This stems from a confluence of factors, namely
an economy and labor force that are likely to have been reshaped by the pandemic inways that are still not fully understood; a central bank that is willing to accept higher
inflation in exchange for a strong labor market; and expansionary fiscal policy that will
also reallocate resources towards lower- and middle-income households.
As such, we will be closely monitoring the path of inflation moving forward. The twoother scenarios we perceive as most likely are:
A return to lowflation: In this scenario, the disinflationary forces that prevailed
pre-pandemic reassert themselves. The Fed’s new reaction function proves“evolutionary, not revolutionary”—too modest to move the needle on inflation
over the medium term and inflation expectations recede from their current levels.
Further fiscal spending faces substantial headwinds due to a gridlocked Congressand concerns about rising national debt levels.
Prolonged higher inflation: In this scenario, the Fed misjudges accelerating
inflationary pressures and contributes to the firming of inflation expectations at higher
levels. A fiscal policy agenda that favors prolonged deficit spending in support oflower- and middle-income households results in stronger aggregate demand on asustained basis, while discouraging labor force participation and increasing laborcosts. A lack of progress in vaccine campaigns in emerging markets leads to more
persistent supply chain bottlenecks. Stronger worker bargaining power results in a
price-wage spiral, with higher labor costs passed along to consumers given weak
productivity growth. Inflation expectations become unanchored. A change in Fed
leadership could also play a role in this scenario if Chair Powell is replaced by a moredovish official when his term expires next February.

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Scenarios for post-pandemic inflation8
These scenarios reflect inflation targets for the 2-3 year period starting mid-2022 after
consensus expects supply-demand imbalances to have faded.

Scenario

Return to lowflation

Base case scenario:
moderate inflation

Prolonged higher inflationn After a year of supply-n Policy support results in

n Policy response overshoots

demand imbalances, thedisinflationary forces thatprevailed pre-pandemic
reassert.
n Inflation remains durably

below the Fed’s 2% Core
Personal Consumption
Expenditure (PCE) target.

n Inflation is sustained

n U.S. large-cap equityn Growth equityn Core fixed income, including

U.S. Treasurys and creditn Favor middle market

in private debt andprivate equityn Core real estate debt

and equity

crisis needs and shifts
structural forces impacting
price pressures.
n Inflation exceeds 3.5%.

between 2%-3.5% for years
after the crisis.

30%

Probability
Assets classpreference

stronger growth andemployment outcomes in
the post-pandemic economy.

60%
n International

developed equityn Cyclical and value

equity sectors
n U.S. small-cap equity
n Value andincome-focused equity
n Listed infrastructuren Private equity
n Liquid alternative assets(hedge funds, mergers,
and acquisitions)10%n Emerging markets equityn Private equity
n Commodities
n Precious metals, goldn Treasury Inflation-Protected

Securities (TIPS)
n Convertible bondsn Commodities currencies
n Real estate equity
n Leveraged loansn Core bondsn Municipal bondsn Credit, private creditn Senior real estate debt
n Leveraged loans

8. Given the accommodative monetary policy setting, a strong growth outlook, and the relatively short time horizon for our scenarios, we set aside a recession
scenario in our analysis. Including a recession scenario would increase the weight we assign to the “return to lowflation” scenario. We focus herein on PCE inflation
since it’s the Fed’s target. In our asset class analysis in later sections, we use consumer price index (CPI) data. For reference, CPI figures tend to run about 25 basis
points higher than PCE. Probabilities assigned are the views of the Multi-Asset Solutions team based on conditions at the time of publication. For illustrative andinformational purposes only. There is no guarantee that these scenarios will come to pass as described.
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Factors to consider in asset allocation
The scenarios we have explored to this point have been somewhat simplistic, but
inflation has different impacts on varying sources of investment return. This section
explores some of those nuances and their tradeoffs in asset allocation.
The nature of inflation matters. Unexpected changes in price level can prompt
a stronger market reaction than expected price increases. However, the order ofmagnitude in inflationary pressures matters less than the duration of those changes.
Sustained price pressures, or lack thereof, likely carry the strongest implications for
asset allocation.
Rising inflation can have a dual impact on asset returns. Many investors thinkof inflation as a tax on returns, but that’s not its only impact. Inflation can have apositive impact on an asset’s value when rising prices result in rising cash flows.
For example, companies with pricing power can “pass-through” inflation to theircustomers. By contrast, inflation expectations and corresponding higher discountrates can result in the market devaluing an asset’s future cash flows, resulting inlower present values. The net impact of these two forces determines an asset’s
behavior in an environment of rising inflation.

Rising inflation can have a dual impact on asset returns
Valuation

Cash flow increase(upward pull on returns)

Discount rate increase(downward pull on returns)

The net impact of these forces determines
an asset’s behavior in an inflationary environment.

Source: MacKay Shields, 12/31/20.

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8

A tradeoff exists between inflation sensitivity and risk-adjusted returns:
When looking at asset class performance over time, there appears to be atradeoff between inflation protection in the near term and risk-adjusted returnin the longer term.
For example, equities can overcome inflation over long horizons, but their shortand medium-term record as an inflation hedge is relatively poor. Equity earnings
tend to grow faster in years when inflation accelerates, but the market has applieda higher discount rate to those cash flows, lowering valuations.9 By the same token,
commodities have had a consistently positive relationship with inflation, but have
performed relatively poorly over the long term. Investors who prove successful intiming inflationary surprises may be rewarded, but holding the asset class for too
long could detract from performance.

Tradeoff between inflation sensitivity and risk-adjusted returns
Inflation beta vs. risk-adjusted return, 1972-2020
1.6%

1.4%

TIPS

Risk-adjusted return

1.2%
Aggregate
Bonds

U.S. Treasury

1.0%

0.8%
Value Equity
U.S. Equity

0.6%

Resources Equity
REITs

U.S.
Small-Cap

0.4%

Growth Equity
Industrial
MetalsInternational
Equity

Gold

Softs

0.2%

Commodities
EnergyLivestock Agriculture
Grain

Precious Metals

0.0%
-4

-2

0

2

4

6

8

10

12

Inflation beta
Sources: MacKay Shields, Bloomberg Finance LP, Kenneth R. French Data Library, U.S. Bureau of Labor Statistics, S&P Global, MacroTrends,
Ibbotson, 12/31/20. Aggregate Bonds is Ibbotson Intermediate Treasury series until 1972, Bloomberg Barclays Gov/Credit Index from 1973-1975
and Bloomberg Barclays Aggregate Bond Index from 1976-present. Please note that past experience need not be reflected in future performance.
For example, the highly attractive performance of bonds during this time period was driven in part by the relentless downward trend in interest
rates, which cannot be repeated. We decided to use this time period in order to incorporate the higher-inflation scenarios of the 1970s and 1980s
in our analysis, thus providing a more holistic scale of inflation scenarios. These choices precluded the inclusion of emerging markets debt andequity, for which comprehensive data is only available at later dates. Given numerous differences between developed markets and emerging
markets securities at that time, and the many differences between emerging markets then and now—consider: China had not liberalized, companies
were smaller and riskier, currency crises were numerous—we felt this omission was appropriate. Past performance is no guarantee of future
results. An investment cannot be made in an index. Index definitions can be found at the end of this report.
9. Sources: MacKay Shields, Bureau of Labor Statistics, Robert J. Shiller, Yale University, Bloomberg Finance LP, S&P Global, 12/31/20. From
1972–2020, periods of accelerating inflation in S&P 500 earnings growth were 4% stronger than on average, but the higher discount rate resulted
in a 1.7x decline in price-to-earnings ratio. In periods of decelerating inflation, S&P 500 earnings growth was 6.1% weaker than on average, but thelower discount rate resulted in a 2.7x higher price-to-earnings ratio.
99Market expectations play an important role in investor gains: For the sakeof simplicity, we isolated the inflation variable displayed in the previous chart.
However, and despite its importance, inflation does not occur in a vacuum.
Instead, the interaction between actual economic growth and inflation, andmarket expectations for those variables, is a key driver of asset prices.

Economic growth plays an important role in asset class impact
Excess returns over cash, sample of asset classes, 1972-2020

Inflation
surprise

8.4%
18.0%

5.8%

16.2%
3.6%

3.2%

1.7%
-1.1%

-2.7%

Stagflation
Disinflationary
slowdown/
recession

8.8%
4.1%

6.2%

-2.2%

-3.1%

-1.4%

Both inflation and economic
growth outperforming expectations

Growthsurprise

Disinflationary
growth
13.5%

13.5%

8.8%
-2.6%

4.6%

-4.0%

0.1%

-11.7%

Equity

REITs

3.4%

Bonds

Commodities

Resources Equity

Gold

Sources: MacKay Shields, U.S. Federal Reserve Bank of Philadelphia, Bloomberg Finance LP, 12/31/20. Inflation and growth surprises are defined as the difference
between realized inflation and growth and the forecasted values from the Philadelphia Fed’s Survey of Professional Forecasters. We particularly like this survey
because it is widely cited, broad in scope, and has a long history dating back to 1968. Historical asset performance can then be divided into four groups representing
all of the possible combinations of growth and inflation surprises. Past performance is no guarantee of future results. An investment cannot be made in an index.
Index definitions can be found at the end of this report.

Recent performance fits neatly into this framework. Since the second half of 2020,
the U.S. economy has posted a series of upside inflation and growth surprises,
putting it into the upper right quadrant of this chart. In this environment, we would
expect to see strong performance of equity and industrial commodities, higher
interest rates and lower precious metals. That’s exactly what the market has
experienced in the past ten months: according to Bloomberg (as of 6/23/21), spot
gold is down over 13% since its peak last August; the 10-year Treasury yield is
100 basis points higher, the S&P 500 Index is up 30%, and copper is up over 40%.
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10The framework may also give us some clues as to where risks could be looming
down the road. Current expectations on both inflation and economic growth are at
the highest levels in the past decade. Should either growth or inflation expectations
be missed, asset performance will likely experience a profound shift out of the upper
right quadrant of the diagram. If both are missed, market volatility could spike, andrisk asset prices could suffer.

Levers of manager value creation
Asset allocation. The ability to anticipate a change in inflation regime—before
market pricing fully reflects that change—can add meaningful portfolio alpha. Of
course, this is easier said than done. In addition to country and regional drivers ofthat change, investors must also consider that growth and inflation in countries likethe U.S. and China can have meaningful impacts on financial conditions and asset
prices in other areas of the world. For this reason, asset allocators must consider not
only the inflationary environment, but the likely durability of that environment. This
assessment will drive important changes in either tactical or structural allocation.
Given the variety of speeds in which countries are managing the COVID-19 healthand economic crises, inflation and rate differentials could persist, generating
currency volatility. The choice to hedge or partially hedge currency volatility can
impact investor return.
Security selection. Skilled managers can assess company characteristics thatwould thrive in an inflationary scenario or persist in a disinflationary one. As themacroeconomic environment changes, and as market breadth expands and narrows,
it is particularly important to identify company characteristics such as:n Pricing power: Can companies pass price increases to consumers?
n Credit evaluation: Would an inflationary environment result in higher borrowing costs,

impacting a borrower’s debt sustainability? Will rating changes impact pricing?
n Business model drivers: Can the company leverage cyclical trends? In this cycle,

trends would include factors like economic reopening, a renewed CAPEX cycle,
and “peak digital demand.”Sources of return. Asset prices are not the only sources of investor return that can
impact the tradeoff between assets as conditions change. For example, while gold
may benefit from higher inflation, stronger economic growth also leads to an increase
in real rates, which lessens the allure of non-interest-bearing assets. Or, as with asset
classes (such as real estate equity), the intersection of higher incomes, lower cap
rates, and manager skill will greatly impact the success of any strategy.
Client focus. For some investors, inflation protection is essential. Insurancecompanies, sovereign wealth funds, pension funds, and even retail investors withspecific liabilities will see those liabilities rise as inflation does. The best multi-asset
allocation will be that which aligns sources of return with investor goals.

1111Definitions
Active investing (also called active management) is aninvestment strategy involving ongoing buying and selling
actions by the investor. Active investors purchase investments
and continuously monitor their activity to exploit profitableconditions. Active management typically charges higher fees.

The Philadelphia Fed’s Survey of Professional Forecasters
is a quarterly survey of economists’ macroeconomic forecasts.
It is commonly used as a benchmark for economic expectations.

Alpha, often considered the active return on an investment,
gauges the performance of an investment against a market
index or benchmark that is considered to represent themarket’s movement as a whole. The excess return of aninvestment relative to the return of a benchmark index is
the investment’s alpha.

The price-to-earnings ratio is the ratio of a company’s shareprice to the company’s earnings per share. The ratio is used for
valuing companies and to find out whether they are overvalued
or undervalued.

Alternative asset classes typically refer to investments thatfall outside of the traditional asset classes commonly accessedby most investors, such as stocks, bonds, or cash investments.

Reflation is an act of stimulating the economy by increasing
the money supply or by reducing taxes, seeking to bring the
economy back up to the long-term trend, following a dip in thebusiness cycle.

A basis point is one one-hundredth of one percent.
Capital expenditures (CAPEX) are funds used by a company
to acquire, upgrade, and maintain physical assets such as
property, buildings, an industrial plant, technology, or equipment.
Cyclical stocks represent companies that make or sell
discretionary items and services that are in demand whenthe economy is doing well. They include industries such as
restaurants, hotel chains, airlines, furniture, high-end clothingretailers, manufacturers, and lenders (banks).
Diversification is a risk management strategy that mixes
a wide variety of investments within a portfolio.
Dry powder refers to cash or marketable securities that are
low-risk and highly liquid and convertible to cash.
Earnings per share (EPS) is calculated as a company’s
profit divided by the outstanding shares of its common stock.

The U.S. 10-year Treasury Note is a debt obligation issued
by the United States government with a maturity of 10 years
upon initial issuance.
A value stock is a stock that tends to trade at a lower
price relative to its fundamentals, making it appealing tovalue investors.

Index definitions
The Bloomberg Agriculture Subindex is a commodity groupsubindex composed of futures contracts on coffee, corn, cotton,soybeans, soybean oil, soybean meal, sugar, and wheat.
The Bloomberg Barclays Gov/Credit Index is a broadbased flagship benchmark that measures the non-securitizedcomponent of the US Aggregate Index. The index includes
investment grade, US- dollar-denominated, fixed-rate Treasurys,
government-related and corporate securities.

Environmental, Social, and Governance (ESG) refers to
the three central factors in measuring the sustainability andsocietal impact of an investment in a company or business.

The Bloomberg Barclay’s U.S. Aggregate Bond Index isan index that broadly tracks the U.S. investment-grade bondmarket. The index is composed of a range of securities from
corporate bonds and Treasurys to asset-backed securities.

Excess return is the return of a portfolio in excess of its
benchmark where in excess is calculated geometricallyby subtracting the benchmark’s return from the portfolio’s
return in each period.

The Bloomberg Barclays US Agg Total Return Value
Unhedged USD Index is the Bloomberg Barclays Aggregate
Bond index, but in unhedged USD.

A general partner (GP) refers to the private equity firm
responsible for managing a private equity fund. The private
equity firm acts as a GP, and the external investors are LPs.
The investors who have invested in the fund would be known
as Limited Partners (LP), and the PE firm would be known
as General Partner (GP)Gross margin is a company’s net sales revenue minus its costof goods sold (COGS). In other words, it is the sales revenue
a company retains after incurring the direct costs associatedwith producing the goods it sells, and the services it provides.
The Manheim U.S. Used Car Survey examines the economic
underpinnings of the used vehicle market and sector-specifictrends that influence supply and pricing. It is commonly used
as a benchmark of changes in used car prices.

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Passive management refers to an investment style for whichinvestors expect a return that closely replicates the investment
weighting and returns of a benchmark index.

The Bloomberg Barclays Global Negative Yielding Debt
Index tracks global negative yielding debt.
The Bloomberg Barclays U.S. Treasury Inflation Notes
Index Value Unhedged USD measures the performance of
the U.S. Treasury Inflation Protected Securities (TIPS) market.
The Bloomberg Commodity Index is calculated on an excess
return basis and reflects commodity futures price movements.
The Bloomberg Energy Subindex is a commodity groupsubindex composed of futures contracts on crude oil, heating
oil, unleaded gasoline and natural gas.
The Bloomberg Gold Subindex is a commodity groupsubindex of the Bloomberg Commodities Index composedof futures contracts on gold.

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The Bloomberg Grains Subindex is a commodity groupsubindex of the Bloomberg Commodities Index composedof futures contracts on corn, soybeans, and wheat.

The MSCI EAFE Index is a stock market index that is designed
to measure the equity market performance of developed
markets outside of the U.S. & Canada.

The Bloomberg Industrial Metals Subindex is a commodity
group subindex of the Bloomberg Commodities Index composedof futures contracts on aluminum, copper, nickel, and zinc.

The Chicago Fed’s National Financial Conditions Index(NFCI) provides a comprehensive weekly update on U.S.
financial conditions in money markets, debt and equity markets
and the traditional and “shadow” banking systems.

The Bloomberg Livestock Subindex is a commodity groupsubindex of the Bloomberg Commodities Index composed offutures contracts on live cattle and lean hogs.
The Bloomberg Precious Metals Subindex is a commodity
group subindex of the Bloomberg Commodities Index
composed of futures contracts on gold and silver.
The Bloomberg Softs Subindex is a commodity groupsubindex of the Bloomberg Commodities Index composed offutures contracts on cotton, coffee, and sugar.
The Core Consumer Price Index is an aggregate of prices
paid by urban consumers for a typical basket of goods,
excluding food and energy.
The FTSE NAREIT All Equity REITs Index is a free-float
adjusted, market capitalization-weighted index of U.S.
equity REITs.
Morningstar Foreign Large Blend: Foreign large-blend
portfolios invest in a variety of stocks of large international
companies. Most of these portfolios divide their assets amonga dozen or more developed markets, including Japan, Britain,
France, and Germany. These portfolios primarily invest in stocks
that have market caps in the top 70% of each economicallyintegrated market (such as Europe or Asia ex-Japan). The blend
style is assigned to portfolios where neither growth nor value
characteristics predominate. These portfolios typically will
have less than 20% of assets invested in U.S. stocks.
Morningstar Large Blend: Large-blend funds are generally
representative of the overall U.S. stock market in size, growth
rates, and price. Stocks in the top 70% of the capitalizationof the U.S. equity market are defined as large cap. The blend
style is assigned to portfolios where neither growth nor value
characteristics predominate.

The Producer Price Index (PPI) is a family of indexes thatmeasures the average change over time in the selling prices
received by domestic producers of goods and services. PPIs
measure price change from the perspective of the seller.
The Russell 1000 Growth Index measures the performanceof the large-cap growth segment of the U.S. equity universe.
It includes those Russell 1000 companies with higher price-tobook ratios and higher forecasted growth values. The Russell
1000 Growth Index is constructed to provide a comprehensive
and unbiased barometer for the large-cap growth segment.
The Russell 1000 Value Index measures the performanceof the large-cap value segment of the U.S. equity universe.
It includes those Russell 1000 companies with lower price-tobook ratios and lower forecasted growth values. The Russell
1000 Value Index is constructed to provide a comprehensive
and unbiased barometer for the large-cap value segment.
The Russell 3000 Index is a capitalization-weighted stock
market index that seeks to be a benchmark of the entire
U.S stock market.
The S&P 500 Index is a stock market index tracking thestock performance of 500 of the largest companies listed
on stock exchanges in the United States. It is widely
regarded as the standard for measuring large-cap U.S.
stock market performance.
The S&P Global Natural Resources Index includes 90of the largest publicly traded companies in natural resources
and commodities businesses that meet specific investability
requirements, offering investors diversified and investable
equity exposure across three primary commodity-related
sectors:  agribusiness, energy, and metals & mining.

Morningstar Small Blend: Small-blend funds invest in
stocks of small companies where neither growth nor value
characteristics predominate. Stocks in the bottom 10%of the capitalization of the U.S. equity market are definedas small cap.

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