Aon 

Retirement and Investment

I Fund Benchmark Study 

Federal Retirement Thrift Investment Board

Thrift Savings Plan

October 2019

port Document Title

Sub-Title of Report Document

Date
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Risk. Reinsurance. Human Resources.

Table of Contents

Page

1. Executive Summary 1

2. I Fund 7
 1

EXECUTIVE SUMMARY
Executive Summary

3

Background

In 2017, The Federal Thrift Savings Plan (“TSP”) requested that Aon Hewitt Investment Consulting, Inc. 

(“AHIC”) review and evaluate the appropriate index to benchmark the Common Stock Index Investment 

Fund (“C Fund”), Small Cap Stock Index Investment Fund (“S Fund”), Fixed Income Index Investment Fund 

(“F Fund”), and International Stock Index Investment Fund (“I Fund”). To do so, AHIC reviewed multiple 

indexes by evaluating the construction methodology and opportunity set covered by each, the investability

and liquidity of the indexes, acceptance of the indexes by the investment community, the appropriateness of 

the indexes for the TSP, and the estimated costs associated with making a change. These factors are the 

most relevant to consider when choosing a benchmark. Based on our review, we issued a report and 

recommendation. Our recommendation at that time was not to change the benchmark for the C Fund, S 

Fund, and F Fund and was to change the benchmark of the I Fund from the MSCI Europe, Australasia, Far 

East Index (MSCI EAFE Index) to the MSCI All Country World ex US Investable Market Index (MSCI ACWI 

ex USA IMI Index). 

In September of 2019, the TSP asked AHIC to review and re-evaluate its 2017 I Fund recommendation. We 

have done so and affirm the following recommendations based on a re-review of the factors mentioned 

above.

I Fund

Aon recommends continuing with the plan to replace the MSCI EAFE Index with the MSCI ACWI ex 

USA IMI Index

This recommendation is based on the following reasons, among others: 

▪ Legislative Requirementson Market Exposure:

− The Federal Retirement Thrift Investment Board is an independent federal agency that was

established to administer the TSP under the Federal Employees’ Retirement System Act of 1986 

(See 5 U.S.C. §§ 8351; 8401 et seq.).

− The Board’s mission is to act solely in the interests of its participants and beneficiaries.

− Section 8438(b)(2) defines the C Fund and Section 8438(b)(3) defines the S Fund, which combined 

provide participants with access to the reasonably complete representation [roughly 99%] of the 

U.S. public equity markets (5 U.S.C. §§ 8438(b)(2)-(b)(3)). 

− The I Fund—that is, the international equity complement to the C Fund and S Fund—is defined in 

Section 8438(b)(4), which states: 

o “The Board shall select an index which is a commonly recognized index comprised of stock 

the aggregate market value of which is a reasonably complete representation of the 

international equity markets excluding the United States equity markets.” (Id. § 8438(b)(4)).

− Moving from the MSCI EAFE Index, which represents 58% of the international equity market, to the 

MSCI ACWI ex USA IMI Index, which represents 99% of the international equity market, is a more 

representative benchmark and better fulfills the intent of Title 5 U.S.C. Section 8438(b)(4)(A). 

Specifically, it provides participants with greater investable access to the international equity market 

including: 
Executive Summary

4

o Canada—Canada is the fourth-largest developed equity market in the world, representing 

6.8% of the developed non-U.S. equity opportunity set.

o Emerging Markets—which represent 25.7% of the international non-U.S. equity investable 

universe. 

▪ Best Practice in U.S. Defined Contribution Plans:

- The MSCI indexes remain the most popular indexes for U.S. based institutional investors investing 

in overseas equity markets. Including an international equity option with a material allocation to 

emerging markets equities is considered best practice in the marketplace, exemplified by adoption 

among public plans, defined contribution plans, target date funds, etc.

o From the evaluation of public filings, we have observed the Top 10 publicly traded U.S. 

companies and Federal contractors all offer their participants access to the full non-U.S. 

equity market including emerging market equity. 

o In addition, in the public plan space across the Top 20 largest public plans, we have found 

a clear majority of them use a full non-U.S. equity benchmark in their defined benefit plan 

strategic allocation, as well as in their participant-directed 457(b) plans. 

− Both the availability and the constitution of standalone options in a DC plan are important, and they 

become even more meaningful when a plan offers a custom target date fund (“TDF”), because a 

custom TDF will rely on those asset exposures to build the strategic asset allocation of the custom 

target date funds’ glide path. Best practices for U.S. target date funds design has relevance as 

TDFs are increasingly becoming a meaningful part of all Americans’ investment portfolio within 

defined contribution plans. It is our observation that most TDFs include a dedicated equity 

allocation to emerging markets. Since President George W. Bush signed the Pension Protection Act 

of 2006 (which defined a qualified default investment alternative) into law, target date funds have 

become the most used investment option within defined contribution (“DC”) plans in the United 

States. (For reference, the TSP’s L Funds are target date funds.) 

o At the end of 2018, Fidelity and Vanguard, two of the largest recordkeepers of DC plans,

reported that roughly 52% of all participants hold a single target date fund as their sole 

investment. 

o Vanguard also reported at the end of 2018 that 79% of all participants have some exposure 

to a target date fund, and 57% of all participant-directed contributions were allocated to a 

target date fund. 

o As of June 30, 2019, Vanguard reported that the top six target date fund providers by 

assets (i.e., Vanguard, Fidelity, T. Rowe Price, BlackRock, JP Morgan, and American 

Funds) hold 86% of all assets invested in target date funds—that is, more than $1.9 trillion. 

o As of June 30, 2019, all six of those listed target date fund providers invest in emerging 

market equity as part of the international allocation of their respective target date fund

products. 

▪ Liquidity: 

- AHIC’s analysis suggests that including emerging markets and international small cap equities in

the I Fund will not hinder the ability of the TSP to meet its daily liquidity needs. 
Executive Summary

5

▪ Analysis of International Equity Benchmarks:

- Capital Market Assumptions

o AHIC’s Q3 2017 30-year forward-looking capital market assumptions forecasted that the 

MSCI ACWI ex USA IMI Index’s nominal return and Sharpe Ratio were 7.7% and 0.24,

respectively, compared to the MSCI EAFE Index’s nominal return and Sharpe Ratio of

7.3% and 0.23, respectively.

o AHIC’s Q3 2019 30-year forward-looking capital market assumptions have improved 

expectations for the international equity markets as shown by the MSCI ACWI ex USA IMI

Index’s nominal return and Sharpe Ratio of 7.9% and 0.27, as compared to the MSCI EAFE

Index’s nominal return and Sharpe Ratio of 7.5% and 0.26. 

- Securities Lending

o In addition, the MSCI ACWI ex USA IMI Index generated the higher expected yield and 

percentage out on loan when compared to the MSCI EAFE Index.

o Across each of the last three calendar years, the income to the TSP I Fund is estimated to

have been at least 1.5x as much if the I Fund tracked the MSCI ACWI ex USA IMI Index

instead of the MSCI EAFE Index.

▪ Analysis of Model Participant using the L Funds:

- Aon was asked to provide a historical analysis of changes in TSP account balances for hypothetical 

average participants under two scenarios for both 5- and 10-year time periods. The first scenario 

analyzes the L Funds’ performance using the MSCI EAFE Index as the benchmark for the I Fund 

(current benchmark). The second scenario analyzes the Funds’ performance using the MSCI ACWI 

ex USA IMI Index as the benchmark for the I Fund (approved benchmark).

o The results of the analysis supported the recommendation to replace the current I Fund 

benchmark (MSCI EAFE Index) with the proposed benchmark (MSCI ACWI ex USA IMI

Index). The differences in expected returns and account balances for both time periods 

were minimal between the two approaches. 

- Aon was asked to provide a forward-looking analysis of changes in TSP account balances for 

hypothetical average participants under two scenarios over a 10-year timespan. The first scenario 

analyzes the L Funds’ performance using the MSCI EAFE Index as the benchmark for the I Fund 

(current benchmark). The second scenario analyzes the L Funds’ performance using the MSCI 

ACWI ex USA IMI Index as the benchmark for the I Fund (approved benchmark).

o The results of the analysis supported the recommendation to replace the current I Fund 

benchmark (MSCI EAFE Index) with the proposed benchmark (MSCI ACWI ex USA IMI

Index). In almost every market environment for each L Fund included in the analysis, the 

MSCI ACWI ex USA IMI Index produced better expected returns. When incorporating the 

positive effects of contributions while modeling participant account balances, the L Funds 

including the MSCI ACWI ex USA IMI Index are expected to produce better results over all 

market environments. 

▪ Macro Analysis of Investment Flows into China Equities:

- Investment in China’s equity market is not new for U.S. based institutional investors. Since MSCI 

included China in the Emerging Markets Index in 1996, U.S. investors have gained exposure to 
Executive Summary

6

China equities. Over the past ten years, U.S. investors have primarily invested in China equities

through listings on the Hong Kong Stock Exchange and the NYSE/ Nasdaq.

- U.S. retirement funds’ capital flows into China equities have grown from an estimated $53 billion to 

$161 billion1 over the past ten years, which reflects the rising weight of overall China in the MSCI 

Emerging Markets Index, the evolution of share classes for China equities within the Emerging 

Markets Index, as well as investors’ outlook for Emerging Markets Equity.

- The higher weight of overall China since 1996 reflects the expanding investable market universe 

due to increasing issuance across different share classes of China equities, improved market 

access particularly to its onshore markets, as well as the growth of market valuations.

- Starting in 2018, MSCI’s move to include China onshore equities (A-Shares) in the Emerging 

Markets Index provided investors a new channel to gain exposure to China’s domestically listed 

equities. Looking further out, MSCI has illustrated the possibility that China (as a country) could 

comprise more than 40% of the MSCI Emerging Markets Index, rising from the current weight of 

32%, when eligible A-Shares are fully included. A-Shares alone could jump from the current 2.5% to 

17.4% of the MSCI Emerging Markets Index, while other China share classes are displaced by AShares. The expected rising weight of China domestic equity in the MSCI China Index will likely 

determine the direction and scale of future capital flows to China equities.

- We expect future capital inflows to China equities from passive investors to track the rising weight 

of overall China in the Emerging Markets Index as well as the expected dominance of A-Shares in 

the MSCI China Index. In addition to capital inflows of equity passive strategies that follow index 

moves, we also expect additional inflow to China’s domestic equity markets from active investors. 

 

1 As of 12/31/2018. U.S. retirement funds include total assets of DB, DC Plans and IRAs. Source: Federal Reserve Bank of St. Louis; 

Allocation to China is estimated based on market survey on DC funds’ allocation to Non -U.S. Equity at 6%-8% and DB funds allocation 

to EM at 2.6%, then assumed a passive allocation to China based on the index weight. 
I Fund

7

I FUND
I Fund

8

I Fund

Summary

Aon has reviewed the International Stock Index Investment Fund’s (“I Fund”) legislative requirements and 

compared its current benchmark, the MSCI EAFE Index, to other leading international equity indexes.

Legislative Requirements

The objective of any investment option or portfolio plays an important role in determining the appropriate 

benchmark for that investment. The Federal Employees’ Retirement System Act of 1986 (FERSA), as 

amended, states the following regarding the I Fund, under Title 5 U.S.C. Section 8483 (b)(4):

(4)(A) The Board shall select an index which is a commonly recognized index comprised of stock the 

aggregate market value of which is a reasonably complete representation of the international equity 

markets excluding the United States equity markets.

 (B) The International Stock Index Investment Fund shall be invested in a portfolio designed to replicate 

the performance of the index selected under subparagraph (A). The portfolio shall be designed 

such that, to the extent practicable, the percentage of the International Stock Index Investment 

Fund that is invested in each stock is the same as the percentage determined by dividing the 

aggregate market value of all shares of that stock by the aggregate market value of all shares of all 

stocks included in such index.

Benchmarks Considered

We initially short-listed the following benchmarks for the I Fund:

▪ Dow Jones Developed World ex U.S. Index

▪ MSCI Europe, Australasia, Far East (EAFE) Index (Current Benchmark) 

▪ MSCI World ex USA Index 

▪ MSCI All Country World ex USA (ACW ex USA) Index

▪ MSCI All Country World ex USA Investable Market Index (ACW ex USA IMI) (Approved

Benchmark)

▪ FTSE All World Developed ex North America Index (AWD ex NA)

▪ FTSE All World ex US Index (AW ex US)

▪ S&P/Citigroup Broad Market Index (BMI)

We eliminated the Dow Jones Developed World ex U.S. Index and the S&P/Citigroup index from further 

consideration based on the lack of significant passive assets managed to them. None of the major index 

fund managers offer funds indexed to these benchmarks, either in the U.S. or internationally. 

As for the FTSE indexes, Vanguard is the only investment management firm out of the five major index 

fund providers in the U.S. that has assets benchmarked to FTSE indexes. Although assets managed to 

FTSE indexes through Vanguard index funds are meaningful in size, the benchmark is not common 

across the rest of the major passive providers. Therefore, we excluded both FTSE indexes in further 

study. 
I Fund

9

We compare the broad characteristics of each of the remaining benchmarks in Table 1.

Table 1: Benchmark comparison (as of June 30, 2019)

1One-year turnover

Table 2 compares the country allocation of each of the indexes. Among developed countries, Canada is 

the fourth-largest country by market capitalization after Japan, United Kingdom, and France. Canada 

comprises 9.3% of the MSCI World ex USA Index, which provides coverage of large and mid-cap stocks 

across developed countries. 

It is also important to note that several emerging market countries have market capitalizations that are 

greater than several developed countries. 

For instance, in the MSCI All Country World ex USA Index, which provides coverage of the large and midcap stocks across developed and emerging countries, countries such as Brazil, China, India, Korea, 

South Africa, and Taiwan have market capitalizations that are greater than those of several EAFE

countries (Austria, Denmark, Ireland, New Zealand, Norway, Portugal, and Singapore). 

MSCI

EAFE

MSCI ACWI ex

USA IMI 

MSCI ACWI

ex USA

MSCI World ex

USA

Inclusion criteria

Targets 85% 

market-cap 

coverage of each 

country

(Large and Mid Cap)

Targets 99% 

market-cap 

coverage of each 

country (Large, 

Mid, and Small 

Cap)

Same as MSCI 

EAFE Index

Same as MSCI 

EAFE Index

Country coverage

21 developed 

market countries

22 developed 

countries + 26

emerging market 

countries

22 developed 

countries + 26

emerging market 

countries

22 developed 

countries

(EAFE plus 

Canada)

Coverage of nonU.S. equity 

markets

58% 99% 85% 65%

# of securities 923 6,413 2,206 1,012

Market cap $14.0 trillion $24.2 trillion $20.9 trillion $15.4 trillion

Reconstitution 

frequency

Quarterly Quarterly Quarterly Quarterly

Turnover1 4.0% 5.2% 5.1% 4.2%
I Fund

10

Table 2: Country allocations (as of June 30, 2019)

MSCI EAFE

MSCI ACWI 

ex USA IMI

MSCI ACWI 

ex USA

MSCI World 

ex USA

Developed Markets

Australia 7.1% 4.9% 4.7% 6.4%

Austria 0.2 0.2 0.2 0.2 

Belgium 1.0 0.8 0.7 0.9 

Canada - 6.8 6.8 9.3 

Denmark 1.7 1.2 1.1 1.6 

Finland 1.0 0.7 0.7 0.9 

Israel 0.6 0.5 0.4 0.5 

France 11.4 6.9 7.6 10.3 

Germany 8.8 5.7 5.9 8.0 

Hong Kong 4.0 2.5 2.7 3.6 

Ireland 0.5 0.4 0.4 0.5 

Italy 2.3 1.7 1.5 2.1 

Japan 23.7 16.6 15.8 21.5 

Netherlands 3.6 2.4 2.4 3.3 

New Zealand 0.2 0.2 0.2 0.2 

Norway 0.7 0.6 0.4 0.6 

Portugal 0.2 0.1 0.1 0.1 

Singapore 1.3 1.0 0.9 1.2 

Spain 3.0 1.9 2.0 2.7 

Sweden 2.6 2.1 1.8 2.4 

Switzerland 9.3 5.8 6.2 8.4 

U.K. 16.8 11.4 11.2 15.2 
I Fund

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MSCI EAFE

MSCI ACWI

ex USA IMI

MSCI ACWI

ex USA

MSCI World 

ex USA

Emerging Markets

Argentina -- 0.1 0.1 --

Brazil -- 2.0 2.0 --

Chile -- 0.3 0.2 --

China -- 7.5 8.3 --

Colombia -- 0.1 0.1 --

Czech Rep. -- 0.0 0.0 --

Egypt -- 0.0 0.0 --

Greece -- 0.1 0.1 --

Hungary -- 0.1 0.1 --

India -- 2.5 2.4 --

Indonesia -- 0.6 0.6 --

Korea -- 3.3 3.3 --

Malaysia -- 0.6 0.6 --

Mexico -- 0.7 0.7 --

Pakistan -- 0.0 0.0 --

Peru -- 0.1 0.1 --

Philippines -- 0.3 0.3 --

Poland -- 0.3 0.3 --

Qatar -- 0.3 0.3 --

Russia -- 1.0 1.1 --

Saudi Arabia -- 0.4 0.4 --

South Africa -- 1.5 1.6 --

Taiwan -- 3.0 2.9 --

Thailand -- 0.8 0.8 --

Turkey -- 0.1 0.1 --

UAE -- 0.2 0.2 --

Total Developed 100.0% 74.3% 73.6% 100.0%

Total Emerging 0.0% 25.7% 26.4% 0.0%

Total Index 100.0% 100.0% 100.0% 100.0%

Source: MSCI Index Service
I Fund

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Investability & Liquidity

All the benchmarks under consideration take into account the liquidity of stocks for inclusion in the index. 

Although some stocks in certain smaller countries can be difficult to trade, index fund managers still hold 

most, if not all stocks, though they may have a higher tolerance for mis-weights, as the benefit from fully 

replicating the benchmark can be more than offset by transaction costs. 

Investors have become increasingly interested in the non-U.S. equity markets over the past decade. 

Institutional investors have embraced non-U.S. equity as an essential asset class in the asset allocation 

plan. Liquidity in the non-U.S. equity-related index products has increased substantially as a result. 

More specifically, liquidity in the markets related to the four indexes has reached a sizeable level, as 

shown in Table 3.

Table 3: Average daily trading volume (ADV) (as of June 30, 2019)

MSCI

EAFE

MSCI ACWI ex

USA IMI 

MSCI ACWI ex

USA

MSCI World

ex USA

30 Days 3,344,744,732 59,148,319,215 49,224,968,688 3,468,216,857

3 Months 3,233,692,824 55,739,125,663 45,759,965,297 3,360,307,592

Source: Bloomberg

Acceptance

The MSCI indexes are the most widely followed non-U.S. stock indexes for U.S.-based institutional 

investors. 

The MSCI ACWI ex USA IMI Index provides the broadest coverage of the international opportunity set in 

that it also includes smaller capitalization stocks across the non-U.S. equity markets that are not included 

in the MSCI ACWI ex USA. The MSCI ACWI ex USA IMI Index was launched in 2007 and is a commonly 

used benchmark across large institutional investment programs. 

Analysis of International Equity Benchmarks

Modern portfolio theory suggests that the “market portfolio” is the most efficient portfolio (in terms of 

risk/return trade-off) that an investor can hold. The “market portfolio” is a market-cap weighted sum of all 

available asset classes/regions/countries. Excluding segments of the market limits investors’ opportunities 

(return and/or diversification potential).

In general, we recommend constructing equity portfolios with the broadest possible market coverage. For 

instance, we recommend the Dow Jones U.S. Total Stock Market Index, which provides complete 

coverage of large, mid, and small-cap stocks, as the benchmark for the broad U.S. equity market. 

The C and S Funds’ recommended benchmarks, the S&P 500 Index and the Dow Jones U.S. Completion 

Total Stock Market Index, respectively, when combined, provide coverage of the broad U.S. equity 
I Fund

13

opportunity set that is very similar to the coverage provided by the Dow Jones U.S. Total Stock Market 

Index.

The I Fund’s existing benchmark, the MSCI EAFE Index, excludes Canada and the emerging markets. As 

noted earlier, the Canadian equity market is the fourth-largest developed equity market outside of the 

United States, and emerging markets represent nearly a fourth of the non-U.S. equity opportunity set. 

Moreover, emerging markets represent a significant and growing portion of global growth or GDP and an 

increasingly larger portion of the world equity market capitalization. Over the past two decades, emerging 

economies, such as Brazil, China, India, Russia and South Africa, have expanded at a much faster pace 

than developed countries. 

Today, emerging markets contribute to 59% of global GDP as compared to 43% in 1997 (shown in Chart 

1).

Chart 1: World GDP (based on PPP) breakdown

Source: IMF

With the growth in emerging economies, several of the world’s top 500 companies by market 

capitalization are based in the emerging markets (See Chart 2).

Developed 

57%

Emerging

43%

Global GDP Contribution as of 

12/31/1997

Developed 

41%

Emerging

59%

Global GDP Contribution as of 

12/31/2018
I Fund

14

Chart 2: Emerging markets presence in the global capital markets 

As of 5/15/2019

Source: Forbes.com

Market participants broadly expect emerging economies to continue to grow at a faster pace than 

developed economies. Reasons include:

▪ Favorable demographics and a growing middle class

▪ Growth in local consumption demand

▪ Improving economic, legal and regulatory systems

▪ Disciplined fiscal and monetary policies 

Emerging countries today run surplus budgets and are much less burdened by massive amounts of public 

debt as compared to their developed counterparts (Chart 3). Several emerging market countries have 

also accumulated massive amounts of foreign currency reserves (Chart 4), which have proven to provide 

a cushion against external economic shocks. The growth in foreign currency reserves, combined with 

growth in domestic consumption, helped many emerging economies soften the impact of the global 

economic downturn. 
I Fund

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Chart 3: Public debt as % of GDP

As of 12/31/2018

Source: IMF

Chart 4: Foreign currency reserve

As of 12/31/2018

Source: World Bank

Along with the growing economic power of emerging markets as a whole, the capital markets in several 

emerging countries have also evolved over the past decade. Data from The World Federation of 

Exchanges shows that, assessed by total market capitalization and trade value, China’s two major stock 
I Fund

16

exchanges, if combined, rank third-largest in the world after the New York Stock Exchange and NASDAQ. 

Other emerging countries such as Brazil, India, Russia, South Africa, and Korea also claimed spots within 

the top-20 stock exchanges at the end of 2018. With the improved liquidity and transparency, lower 

transaction costs, and improved property rights and legal protections, institutional investors have become 

more comfortable investing in emerging markets. 

While the case for investing in emerging markets has become more compelling, emerging markets have 

experienced, and, in our opinion, will continue to experience greater volatility than that of developed 

markets. Some of the risks in emerging markets include:

▪ Political risk (rogue regimes, expropriation of assets, etc.)

▪ Slowing down or a reversal of favorable economic and monetary policies

▪ A higher willingness based on historical experience to default or devalue their currencies

▪ Growth that is heavily dependent on or tied to growth in developed markets (exports, commodities, 

etc.)

While several of these risks are not easily quantified, we do believe investors are compensated for these 

risks on a risk-adjusted basis. The volatility of emerging markets has been higher than developed markets 

over the last decade or two, but emerging markets have been able to outperform developed markets on a 

risk-adjusted basis.

Table 4 shows Aon’s expected returns and risk (volatility) for developed and emerging markets over the 

long term. These represent 30-year forward-looking expectations.

Table 4: AHIC’s Capital Market Expectations 

Q3 2017 Expected Return Expected Risk Sharpe Ratio

Developed Markets 7.3% 20.0% 0.23

Emerging Markets 7.7% 30.0% 0.17

Total International Equity Market 7.7% 21.6% 0.24

Q3 2019 Expected Return Expected Risk Sharpe Ratio

Developed Markets 7.5% 20.0% 0.26

Emerging Markets 8.1% 27.5% 0.21

Total International Equity Market 7.9% 20.6% 0.27

Changes from 2017 to 2019 Expected Return Expected Risk Sharpe Ratio

Developed Markets +0.2% - +0.3

Emerging Markets +0.4% (2.5%) +0.4

Total International Equity Market +0.2% (1.0%) +0.3
I Fund

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As shown, we expect emerging markets to perform favorably as compared to developed markets, but at a 

higher level of risk.

As for non-U.S. small cap stocks, because commonly used benchmarks for international equity, MSCI 

EAFE and MSCI ACWI ex USA indexes, do not contain small cap names, we believe that non-U.S. small 

cap stocks are under-invested relative to their U.S. small cap peers. Additionally, relative to larger peers, 

smaller companies in the index are covered by a smaller pool of sell-side analysts. This under-investment 

and lack of analyst coverage may lead to less market efficiency and a greater return potential. 

Non-U.S. small cap stocks are also tied more to their local economies than to the global economy. The 

lack of connection to the global economy should provide lower correlations to the broader equity market. 

Consequently, we believe that adding non-U.S. small cap exposure will likely improve the Sharpe Ratio of 

the overall non-U.S. equity portfolio.

The broad non-U.S. equity market is of significant market size and index assets under management are 

large. The broad non-U.S. equity market provides diversification across country, sector, and market 

capitalization. By broadening the exposure of the I Fund, it will increase stock coverage by 1,282 stocks 

in the case of the MSCI ACWI ex USA Index and 5,473 stocks in the case of the MSCI ACWI ex USA IMI

Index as of July 31, 2019.

Overall, we favor a benchmark that includes Canada, emerging markets, and international small cap

equities, as it provides broader coverage of the international equity markets, more fully captures global 

growth, and provides enhanced diversification of the international equity portfolio. From a theoretical 

standpoint, we recommend that clients utilize the MSCI ACWI ex USA Index or MSCI ACWI ex USA IMI

Index as these indexes provide complete coverage of the global equity opportunity set.

However, as we consider an appropriate benchmark for the I Fund, it is important to take into account the 

Thrift Savings Plan’s unique circumstances. These include:

▪ Need to provide daily liquidity 

▪ Transition cost and planning

▪ Securities lending income 

▪ Administrative complexities: coordinating custody account openings in emerging markets, which are 

generally more complex and time consuming.

Considerations in Expanding the I Fund benchmark to Index Emerging Markets

As we review the I Fund’s current benchmark, the MSCI EAFE Index, the case to include Canada is very 

compelling and logical given that it is the fourth-largest developed equity market outside the U.S.

One of the main considerations in expanding the I Fund benchmark to include emerging markets and 

international small cap equities is the need to provide daily liquidity. A sufficient level of cash must be 

maintained in the Fund to meet participant withdrawal needs. 
I Fund

18

Historical Analysis of TSP Account Balances for Hypothetical Average Participants 

Aon was asked to provide a historical analysis of changes in TSP account balances for hypothetical 

participants invested in the L 2030 Fund and the L 2040 Fund under two scenarios for both 5- and 10-

year time periods. The first scenario (“L 2030” and “L 2040”) analyzes the Funds’ performance using the 

MSCI EAFE Index as the benchmark for the I Fund (current benchmark). The second scenario (“L 2030 

Alt.” and “L 2040 Alt.”) analyzes the Funds’ performance using the MSCI ACWI ex USA IMI Index as the 

benchmark for the I Fund (approved benchmark in 2017). 

The historical analysis shown in the exhibits below incorporates the following assumptions: 

▪ Contributions are based on [salary x deferral] 

▪ The deferral rate includes 5% employer contribution

▪ Contributions occur mid-year

▪ The starting value for the L 2030 Fund is $49,500 for the 10-year analysis and $110,000 for the 5-

year analysis

▪ The starting value for the L 2040 Fund is $19,000 for the 10-year analysis and $50,000 for the 5-

year analysis

▪ Returns are calculated using passive indexes (S&P 500, Dow Jones U.S. Completion Total Stock

Market, MSCI EAFE Index, MSCI ACWI ex USA IMI Index, Bloomberg Barclays US Aggregate & 

actual G Fund returns) as of June 30, 2019

▪ The glide path weights from the beginning of each year are used to calculate the total fund 

returns on an annual basis. The 10 annual returns are then geometrically linked and annualized 

over the 5- and 10-year periods

Charts5 & 6: 5-year annualized returns and standard deviation
I Fund

19

Charts 7 & 8: 10-year annualized returns and standard deviation

Charts 5-8 show that using the MSCI ACWI ex USA IMI Index as the I Fund benchmark instead of the 

current benchmark, MSCI EAFE Index, would have had minimal impact on L Fund historical performance.

Chart 9: 5-Year Historical Nominal Account Balance Growth
I Fund

20

Chart 10: 10-Year Historical Nominal Account Balance Growth

Charts 9 and 10 show the historical nominal account balance growth for a hypothetical participant 

invested in the L 2030 Fund and the L 2040 Fund over the 5- and 10-year time periods. The charts 

incorporate different factors such as starting account balances, participant contributions, employer 

contributions, etc. The results shown here are consistent with charts 5-8 and show that using the MSCI 

ACWI ex USA IMI Index as the benchmark for the I Fund would have had minimal impact on L Fund 

historical performance.

Prospective Analysis of TSP Account Balances for Hypothetical Average Participants 

Aon was asked to provide a prospective analysis of changes in TSP account balances for hypothetical 

participants invested in the L 2030 Fund, L 2040 Fund, and the L 2050 Fund under two scenarios over a 

10-year timespan. The first scenario (“L 2030”, “L 2040”, and “L 2050”) analyzes the Funds’ performance 

using the MSCI EAFE Index as the benchmark for the I Fund (current benchmark). The second scenario 

(“L 2030 Alt.”, “L 2040 Alt.”, and “L 2050 Alt.”) analyzes the Funds’ performance using the MSCI ACWI ex

USA IMI Index as the benchmark for the I Fund (approved benchmark).

The prospective analysis shown in the exhibits below incorporates the following assumptions:

▪ Aon’s 10-year capital market assumptions as of June 30, 2019 for the asset classes representing 

the S&P 500, Dow Jones U.S. Completion Total Stock Market, MSCI EAFE Index, MSCI ACWI 

ex USA IMI Index, Bloomberg Barclays US Aggregate, and 10-year government bond yields

▪ 5,000 annual Monte Carlo simulations to calculate a range of account balance growth over the 

next 10 years

▪ Contributions are based on [start of the year salary x deferral rate]

▪ The deferral rate includes 5% employer contribution

▪ Contributions occur mid-year

▪ Salary growth is nominal [real + inflation]. The deferral rate includes both employee and employer 

contributions, and the inflation rate is 2.1%
I Fund

21

▪ The starting account balance as of June 30, 2019 for the L 2030 Fund is $222,415, for the L 2040

Fund is $126,040, and for the L 2050 Fund is $55,238

▪ The starting salary as of June 30, 2019 for the L 2030 Fund is $89,606, for the L 2040 Fund is

$86,270, and for the L 2050 Fund is $69,076

Chart 11: 10-year prospective nominal account balance growth

Chart 11 shows the forward-looking range of possible account balances for a hypothetical participant 

invested in the L 2030 Fund, L 2040 Fund, and the L 2050 Fund over a 10-year time period. The analysis 

incorporates different factors such as starting account balances, participant contributions, employer 

contributions, salary growth, AHIC’s proprietary capital market assumptions, etc. According to the 

analysis, on a forward-looking basis, using the MSCI ACWI ex USA IMI Index as the benchmark for the I 

Fund is expected to produce better outcomes under all market scenarios. 
I Fund

22

Chart 12: 10-year distribution of nominal expected returns

Chart 12 shows the distribution of nominal expected returns. In all market environments, benchmarking 

the I Fund to the MSCI ACWI ex USA IMI Index is expected to produce better outcomes with the 

exception of the L 2030 Fund. Under the worst-case scenario, the expected return is marginally lower for 

the L 2030 Fund due to the increased volatility of the MSCI ACWI ex USA IMI Index. Due to contributions 

modeled over the 10-year time period in Chart 11, we still expect to see better outcomes when utilizing 

the MSCI ACWI ex USA IMI Index as the benchmark for the I Fund. 

Macro Analysis of Securities Investment Fund Flows into China EquitiesOver the Past 5 to 10 

Years

1. Overall China: Onshore and Offshore Markets

Investment in China’s equity market is not new for U.S. based institutional investors. Since MSCI included 

China in the Emerging Markets Index in 1996, U.S. investors have gained exposure to China. Over the 

past ten years, U.S. investors’ access to China equities has shifted through different stock exchanges at 

various stages. Up to 2015, the Hong Kong Stock Exchange was the primary venue through which U.S. 

investors gained access to China equities. Since 2015, increasing listings of China equities on U.S. stock 

exchanges such as the NYSE and the Nasdaq have provided U.S. investors an additional channel to gain 

exposure to China equities. As of today, China ADRs (mainly on U.S. stock exchanges) almost claim the 

equal weight as China equites traded on the HKEX in the MSCI China Index. Starting in 2018, MSCI’s 

move to include China onshore equities in the MSCI Emerging Markets Index provided investors a new 

channel to gain exposure to China’s domestically listed equities. The expected rising weight of China 

domestic equity in the MSCI China Index will likely determine the direction and scale of future capital 

flows to China’s equity market. 
I Fund

23

Over the past ten years, U.S. retirement funds’ capital flows into China equities have grown from an 

estimated $53 billion to $161 billion2, which reflects the rising weight of overall China in the MSCI 

Emerging Markets Index, the evolution of various share classes composition of overall China Index, as 

well as investors’ outlook for Emerging Markets Equity. 

Since 2009, China’s overall weight in the MSCI Emerging Market Index has nearly doubled from 17.5% to 

31.9% as of September 30, 2019, while China’s weight within the MSCI ACWI ex USA Index also 

followed a similar trend, jumping from 3.7% to 8.3%. The higher weight of overall China since 1996 

reflects the expanding investable market universe due to increasing issuance across different share 

classes of China equities, improved market access particularly to its onshore markets as well as the 

growth of the market valuation. (Chart 13-14)

Chart 13: China’s historical weight in MSCI ACWI ex USA Index and MSCI Emerging Markets Indexes 

 

2 As of 12/31/2018. U.S. retirement funds include total assets of DB, DC Plans and IRAs. Source: Federal Reserve Bank of St. 

Louis; Allocation to China is estimated based on market survey on DC funds’ allocation to Non -U.S. Equity at 6%-8% and DB funds 

allocation to EM at 2.6%, then assumed a passive allocation to China based on the index weight. 

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

9/1/20093/1/20109/1/20103/1/20119/1/20113/1/20129/1/20123/1/20139/1/20133/1/20149/1/20143/1/20159/1/20153/1/20169/1/20163/1/20179/1/20173/1/20189/1/20183/1/20199/1/2019

China's Histroical Weight in MSCI ACWI ex US 

Index

Weight of MSCI China in ACWI ex USA Others

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

9/1/20093/1/20109/1/20103/1/20119/1/20113/1/20129/1/20123/1/20139/1/20133/1/20149/1/20143/1/20159/1/20153/1/20169/1/20163/1/20179/1/20173/1/20189/1/20183/1/20199/1/2019

China's Histroical Weight in MSCI EM Index

Weight of MSCI China in EM Others

Source: MSCI 
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24

Chart 14: China’s equity markets growth by issuance and valuation

Based on listing locations, trading currencies, and accessibility to different groups of investors, China’s 

equity market is unique in its regulation and structure with multiple classes of shares (Table 5). While 

China’s weight has increased, the share classes composition with MSCI China Index has evolved at the 

same time, as a result of growing overseas listings and easier access to its onshore markets (Chart 15). 

Earlier passive investors benchmarked to MSCI China Index were primarily exposed to H-Shares 

(Chinese companies incorporated in China but listed in HK). Since 2015, passive investors have been 

increasingly exposed to Chinese ADRs (overseas listing), and most recently started to gain exposure to 

Chinese A-Shares (companies incorporated and traded in China).

Table 5: Comparison of various China equity share classes

0

50

100

150

200

250

300

# of Listings

China Off-Shore Market Issuance Growth 

Offshore H Shares Offshore Red Chips Offshore ADRs (NYSE & NASDAQ)

$438.10 

$121.94 

$100.86 

$242.25 

 $-

 $100.00

 $200.00

 $300.00

 $400.00

 $500.00

 $600.00

 $700.00

 $800.00

 $900.00

1/1/20105/1/20109/1/20101/1/20115/1/20119/1/20111/1/20125/1/20129/1/20121/1/20135/1/20139/1/20131/1/20145/1/20149/1/20141/1/20155/1/20159/1/20151/1/20165/1/20169/1/20161/1/20175/1/20179/1/20171/1/20185/1/20189/1/20181/1/20195/1/2019

Dollar Growth of China Markets 

Overall China Onshore A-Shares Offshore H Shares Offshore ADRs

A-Shares B-Shares H-Shares Red Chips P Chips Overseas Listings

Incorporation Location China China China Outside of 

China 

Outside of 

China 

China 

Listing Location China China Hong Kong Hong Kong Hong Kong U.S./Singapore 

Trading Currency RMB USD/HKD HKD HKD HKD USD/SGD

Availability to Foreign 

Investors 

Only under 

QFII, RQFII,

and Stock 

Connect 

Yes Yes Yes Yes Yes

Source: HKEX, NYSE, NASDAQ Source: DJ, CSI, MSCI

Source: HKEX, SSE
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25

Chart 15: MSCI China Index & top 10 composition by share classes

2. China Onshore Markets

Historically, international investors’ participation in China’s onshore equity markets has been very low and

not proportionate to its share of the world economy and of the global capital market, primarily due to the 

tight control of foreign ownership and access by Chinese authorities. Foreign capital counted for less than 

0.2% of the total market capitalization of China’s domestic equity markets in 2009. Over the past decade, 

the Chinese government has gradually relaxed rules imposed on foreign capital, and equity index 

providers have started to include China’s onshore equity markets in emerging markets indexes. The 

opening of markets and index inclusion has helped grow foreign capital participation in China’s equity 

markets from only 0.2% to about 3% over the past 10 years3. 

Among various classes of shares, A- and B-Shares make up China’s onshore equity markets. A-Shares, 

the lion’s share of China’s onshore equity markets (Table 6), refers to stocks of those companies 

incorporated in China, listed in China, and traded only in Renminbi (RMB) on either the Shanghai or 

Shenzhen stock exchange. 

 

3

Source: HSBC

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

9/1/20092/1/20107/1/2010

12/1/2010

5/1/2011

10/1/2011

3/1/20128/1/20121/1/20136/1/2013

11/1/2013

4/1/20149/1/20142/1/20157/1/2015

12/1/2015

5/1/2016

10/1/2016

3/1/20178/1/20171/1/20186/1/2018

11/1/2018

4/1/20199/1/2019

MSCI China Index Historical Composition

A ADR B FGN (Non ADR) Overseas H P CHIP RED CHIP

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

MSCI China Index Top 10 Holdings Composition 

by Share Classes

Red Chip H P ADR

Source: MSCI
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26

Table 6: Comparison of A-Shares listings in onshore China equity markets with other China listings 

Hong Kong Shanghai Shenzhen Nasdaq NYSE

Main Board Chi-Next A-Shares B-Shares A-Shares B-Shares

Ov erseas 

Listings*

Ov erseas 

Listings*

H-Shares 222 24 N/A N/A N/A N/A N/A N/A

Red Chips 152 6 N/A N/A N/A N/A N/A N/A

P Chips* 614 N/A N/A N/A N/A N/A N/A N/A

No. of listed 

securities 

10,003 288 1,294 51 1,983 49 127 22

Market capitalization 

(billion USD)

$3,623 $34 $4,489 $15 $3,309 $12 $1,056 $71 

Floating market 

capitalization (billion 

USD)

N/A N/A $3,764 $15 $2,304 $12 N/A N/A

China’s A-Shares market has not been easy for foreign investors to access. Five years ago, international 

investors could only gain access to China’s A-Shares market through strictly controlled quota schemes—

such as the Qualified Foreign Institutional Investor (QFII) scheme and the Renminbi Qualified Foreign 

Institutional Investor (RQFII) program. When Stock Connect was set up in 2014 (Chart 16), the latest 

platform program allowed foreign investors to access A-Shares traded in the Shanghai or Shenzhen stock 

exchange via the Hong Kong stock exchange, though with some restrictions such as daily trading volume.

Source: HKEX, NYSE, 

NASDAQ, *As of 

5/31/2017
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Chart 16: Developing access points for foreign investors to China equity onshore / A-Shares market

Source: MSCI

The launch of the Stock Connect program between Hong Kong and Shanghai stock exchanges in 2014 

was a turning point. In addition to the quota programs QFII and RQFII, the Stock Connect program 

provided international investors with an alternative channel to buy and sell selective stocks of China’s 

onshore equity markets. Similar Connect programs between Hong Kong and Shenzhen stock exchanges 

established in 2016 further expanded the channel and stock universe and now international investors can 

access China’s domestic equity markets relatively easier than QFII and RQFII, which required a lengthy 

application and approval process. International capital participation in China’s onshore markets through

Stock Connect programs started to grow and accelerated particularly after MSCI announced that it would

add 222 China A-Shares to the MSCI Emerging Markets (EM) Index in 2017. 

When the inclusion was officially launched in June 2018, China A-Shares accounted for about 0.73% of 

the MSCI EM Index. Since June 2018, MSCI has gradually increased the China A-Shares weight in the 

MSCI EM Index through a multi-step process. By November 2019, China A-Shares are expected to 

account for 3.3% of the MSCI EM Index. Based on the data provided by the Hong Kong Stock Exchange, 

the capital inflows to China’s onshore equity markets has jumped at each stage of MSCI’s multi-phase 

index inclusion process. It is estimated that total capital inflows to China’s onshore market through the 

Hong Kong Stock Exchange program due to MSCI Index inclusion will reach $84 billion by November 

2019 (Chart 17). We have estimated the capital inflows of U.S.-based investors to be $47 billion, 

assuming assets of U.S.-based institutional investors account for 56% of the total institutional assets 

worldwide.4 However, it should be noted that during this time window, China’s overall weight within the 

Emerging Markets Index has not increased (32.7% in Jun 2018 vs.31.9% in Sep. 2019). The estimated 

 

4

Based on world pension assets statistics by OECD
I Fund

28

net inflows to China onshore equity markets by passive investors are primarily sourced from other China 

equity shares classes. 

Chart 17: Total capital inflows to China equity onshore markets through HK Stock Connect resulting from 

MSCI Index inclusion 

Source: HKEX

Compared to five years ago, China’s onshore equity markets are more accessible by international 

investors. Stock Connect has become the major channel to access China’s domestic equity markets 

(Chart 18). Co-existing with the Stock Connect Program, QFII and RQFII programs remain the special 

channels for many large institutional investors with active strategies such as Sovereign Wealth Funds and 

Endowments & Foundations. Foreign capital participation is still low, approximately 3% of total A-Shares

market capitalization (about 7% of total free float) in 2019, already a leap from a very low base. Over the 

past five years, China has simplified license application and relaxed requirements of reporting among 

many rules for both QFII and RQFII investors. As the most recent move to further open the market, China 

removed the quota limits of both QFII and RQFII programs in September 2019 (Chart 19). 

28.0

84.0

17.0

13.0

13.0

13.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Capital Inflow Through HK Connect (USD Billions) 
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Chart 18: Foreign institutional investor participation through three channels

Source: HSBC

Chart 19: Latest market opening measures in China and MSCI inclusion progress

Source: MSCI, CSRC, SSE, and SAFE

September 2019

SAFE removed 

quotas on QFII and 

RQFII
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30

3. Overall China Weight Outlook

Looking further out, MSCI has illustrated the possibility that China (as a country) could comprise more 

than 40% of the Emerging Markets Index, rising from the current weight of 32%, when eligible A-Shares 

are fully included. A-Shares alone could jump from the current 2.5% to 17.4% of the Emerging Markets

Index, while other China share classes are displaced by A-Shares. In our earlier paper5, we estimated 

that A-Shares’ weight rising from 0.7% to 17.4% of MSCI Emerging Markets Index is expected to bring as 

much as $323 billion in passive capital flows to China’s onshore equity markets, about 5% of the total 

market capitalization once fully incorporated. 

We expect future capital inflows to China’s equity market from passive investors to track the rising weight 

of overall China in the Emerging Markets Index as well as the increasing importance of A-Shares and 

shrinking shares of other offshore share classes in the MSCI China Index. While the future of MSCI China 

is expected to be dominated by A-Shares, investors’ access channel to China equities is expected to shift 

from historically HKEX, then NYSE/NADAQ to China onshore equity markets through HK Exchange. In 

addition to capital inflows of passive strategies that follows the index moves, we also expect additional 

inflows to China’s domestic equity markets from active investors. Given the inefficiency of China’s 

domestic equity markets due to trading dominated by retail investors, active investors will continue to 

explore alpha opportunities in China’s equity markets, leveraging all three access channels. 

Securities lending

The market demand for lending emerging markets and international small cap equity is generally greater 

than developed large and mid-cap names. The higher demand is primarily driven by the lack of supply of 

small capitalization securities available for lending. Other reasons for the higher demand for these two 

segments are the higher volatility associated with these two markets and less public information 

compared to developed large and mid-cap names. Across each of the last three calendar years, the 

income to the TSP I Fund is estimated to have been at least 1.5x as much if the I Fund tracked the MSCI 

ACWI ex US IMI Index instead of the MSCI EAFE Index.

Operational Considerations

Please note the following custody considerations apply to international strategies managed in separate 

accounts. Most of the world's largest custodians do not have custody operations in every country, 

requiring these organizations to contract with a local custodian that does have these local capabilities. 

Requiring global custody services introduces additional risks including:

▪ Failure or default of sub-custodian that could result in losses if proper segregation of securities and 

cash is not in place

 

5 Aon research: MSCI’s Announcement to Add China A-Shares to Its Emerging Markets Index-Looking Beyond the Tiny 

Percentage, 2017
I Fund

31

▪ Lack of contingency planning and/or sufficient contractual protection by main custodian for adverse 

organizational events

▪ Settlement and other operational-related risks if the sub-custodian does not have strong controls & 

processes in place

We believe the above risks are generally mitigated across the world’s largest custodians since the 

custodian is responsible for selecting the foreign custodian (sub-custodian), which is typically based on a 

very robust, in depth, and complex due diligence process. Custodians also monitor their sub-custodian 

relationships on an ongoing basis to ensure financial stability, monitor changes in personnel, and identify 

any changes to the business (technology, client service structure, etc.) that warrants a change. 

Settlement Risk

Settlement cycles vary across market; settlements tend to range from T+1 to T+5. This can cause out of 

market balances, overdrafts, or leverage. Passive managers may use broker-facilitated short settlements 

and their FX trading desk to ensure settlement cycles match up.

Local Account Openings

A majority of market accounts are expected to take no longer than eight weeks to open, with an exception 

to India, which is projected to take six months to open. During those six months, passive managers can 

obtain exposure to the Indian market by using ADRs/GDRs, exchange-traded funds (ETFs), derivatives, 

and potentially omitting. This can cause the potential for delays in a full replication strategy and also the

potential for higher tracking error.

Transferability of Stocks

In emerging markets, a number of countries do not allow for shares to be transferred between accounts 

nor do they allow for change of beneficial ownership. If the market does allow assets to be transferred, 

there is generally an associated charge around exchange fees, stamp taxes, registration fees, etc. 

Restricted Currencies

There are emerging market currencies that are restricted, which means currency trades can only be done 

by the local sub-custodian. In developed markets, currency trades can be auctioned to a number of banks 

in order to receive the most favorable rate. Restricted currencies can result in higher tracking error. Major 

passive providers tend to have a rigorous due diligence framework before utilizing local FX agents. They 

also conduct ongoing monitoring and review of FX executions. 

Local Tax Advisor

The client is generally responsible for hiring local tax advisors in some emerging markets such as 

Pakistan, Taiwan, and India. Passive providers may assist the TSP in hiring a local tax advisor in these 

countries depending on the account structure the TSP has in place. Given the TSP’s existing account 

structure, the passive manager would generally provide a meaningful amount of assistance in hiring a 

local tax advisor in these countries. 
I Fund

32

Foreign Ownership Limits

International companies may impose foreign ownership limits on their stock. Passive managers tend to 

optimize around foreign ownership limits. Foreign ownership limitations can result in potentially higher 

tracking error.

Repatriation Issues

In markets where repatriation issues exist, such as Egypt, custodial standing instructions may be used to 

begin the repatriation process. Passive managers may also choose to reduce the size of the portfolio’s

exposure to such a country to mitigate the risk of delayed repatriation. This can result in a potential delay 

in receiving proceeds in USD and thus can result in potentially higher tracking error.

Political Risk

Political risk is managed on a case-by-case basis, in consultation with the passive provider. Passive 

managers may use various strategies to mitigate emerging market political risk to the extent possible.

One example is shifting exposure from local currency names to depository receipts to mitigate liquidity 

risk in a market that may be at risk for capital restrictions/sanctions.

Best Practice in U.S. Defined Contribution Plans

The MSCI indexes remain the most popular indexes for U.S.-based institutional investors investing in 

overseas equity markets.

Best practices for U.S. target date funds include equity investment in emerging markets. Since President 

George W. Bush signed the Pension Protection Act of 2006 (which defined a qualified default investment 

alternative) into law, target date funds have become the most-used investment option within defined 

contribution (“DC”) plans in the United States. (For reference, the TSP’s L Funds are target date funds.) 

▪ At the end of 2018, Fidelity and Vanguard, two of the largest recordkeepers of DC plans, reported 

that roughly 52% of all participants hold a single target date fund as their sole investment 

▪ Vanguard also reported at the end 2018 that 79% of all participants have some exposure to a target 

date fund and 57% of all participant-directed contributions were allocated to a target date fund 

▪ As of June 30, 2019, Vanguard reported that the top six target date fund providers by assets (e.g., 

Vanguard, Fidelity, T. Rowe Price, BlackRock, JP Morgan, and American Funds) hold 86% of all 

assets invested in target date funds—that is, more than $1.9 trillion

▪ As of June 30, 2019, the top six target date fund providers invest in emerging market equity
I Fund

33

Table 7: Top 50 U.S. DC plans by asset level (P&I Research Center as of September 30, 2018)

P&I Rank Name Total U.S. DC Assets ($Millions)

1 Federal Retirement Thrift Investment Board $578,755.00

2 AT&T Inc. $65,478.00

3 The Boeing Co. $64,000.00

4 International Business Machines Corp. $54,047.00

5 Wells Fargo & Co. $42,900.00

6 Lockheed Martin Corp. $41,396.00

7 Bank of America Corp. $40,672.00

8 Verizon Communications Inc. $34,560.00

9 Walmart Inc. $31,894.00

10 JPMorgan Chase & Co. $28,744.00

11 General Electric Co. $26,695.00

12 Northrop Grumman Corp. $25,253.00

13 New York State Deferred Compensation Plan $25,157.00

14 University of California Retirement System $25,004.00

15 United Parcel Service Inc. $24,991.00

16 General Motors Co. $24,328.00

17 United Technologies Corp. $24,176.00

18 Dow DuPont Inc. $23,393.00

19 Delta Air Lines Inc. $23,028.00

20 Kaiser Foundation Health Plan Inc. $22,385.00

21 FedEx Corp. $22,300.00

22 Exxon Mobil Corp. $21,838.00

23 Microsoft Corp. $21,698.00

24 Procter & Gamble Co. $21,557.00

25 New York City Deferred Compensation Plan $21,547.00

26 Chevron Corp. $20,986.00

27 United Continental Holdings Inc. $20,575.00

28 Raytheon Co. $19,366.00

29 Intel Corp. $19,207.00

30 American Airlines Group Inc. $19,076.00

31 Washington State Investment Board $19,048.00

32 Johnson & Johnson $18,366.00

33 FMR LLC $18,172.00

34 Ford Motor Co. $17,204.00

35 Costco Wholesale Corp. $17,000.00

36 Teachers' Retirement System of the City of New York $16,980.00

37 HCA Holdings Inc. $16,879.00

38 Oracle Corp. $16,438.00

39 General Dynamics Corp. $16,126.00

40 Honeyw ell International Inc. $15,679.00

41 Pfizer Inc. $15,540.00

42 County of Los Angeles Deferred Income Program $14,773.00

43 Citigroup Inc. $14,609.00
I Fund

34

44 California State Savings Plus Program $14,585.00

45 Ohio Public Employees Deferred Compensation Program $13,980.00

46 State Farm Mutual Automobile Insurance Co. $13,284.00

47 Deloitte $13,006.00

48 Southw est Airlines Co. $12,493.00

49 Cisco Systems Inc. $12,464.00

50 Siemens Corp. $12,278.00

Table 8: Top 100 U.S. DB plans by asset level (P&I Research Center as of September 30, 2018)

P&I Rank Name Total U.S. DB assets

1 California Public Employees' Retirement System $375,117.00

2 California State Teachers' Retirement System $229,181.00

3 New York State Common Retirement Fund $213,241.00

4 New York City Retirement Systems $200,805.00

5 State Board of Administration of Florida $163,600.00

6 Teacher Retirement System of Texas $153,126.00

7 New York State Teachers' Retirement System $120,088.00

8 State of Wisconsin Investment Board $109,329.00

9 North Carolina Retirement Systems $99,508.00

10 Ohio Public Employees Retirement System $99,103.00

11 Washington State Investment Board $93,426.00

12 Virginia Retirement System $80,211.00

13 New Jersey Division of Investment $79,430.00

14 Oregon Public Employees Retirement Fund $78,993.00

15 State Teachers Retirement System of Ohio $77,634.00

16 Teachers Retirement System of Georgia $77,523.00

17 Massachusetts Pension Reserves Investment Management 

Board

$73,848.00

18 State of Michigan Retirement Systems $73,059.00

19 University of California Retirement System $68,292.00

20 Minnesota State Board of Investment $68,288.00

21 United Nations Joint Staff Pension Fund $65,605.00

22 General Motors Co. $64,199.00

23 The Boeing Co. $59,700.00

24 AT&T Inc. $58,651.00

25 Los Angeles County Employees Retirement Association $57,133.00

26 Pennsylvania Public School Employees' Retirement System $55,147.00

27 General Electric Co. $54,259.00

28 Maryland State Retirement & Pension System $52,355.00

29 Teachers' Retirement System of the State of Illinois $51,844.00

30 Tennessee Consolidated Retirement System $50,754.00

31 Public Employees' Retirement Association of Colorado $49,481.00

32 International Business Machines Corp. $49,207.00

33 Public School and Education Employee Retirement Systems of 

Missouri

$44,406.00

34 Public Employees' Retirement System of Nevada $42,704.00
I Fund

35

35 Illinois Municipal Retirement Fund $42,413.00

36 Western Conference of Teamsters Pension Trust $41,764.00

37 United Parcel Service Inc. $41,253.00

38 Ford Motor Co. $40,506.00

39 Arizona State Retirement System $39,968.00

40 Retirement Systems of Alabama $38,533.00

41 Lockheed Martin Corp. $35,159.00

42 Connecticut Retirement Plans & Trust Funds $34,899.00

43 Utah State Retirement Systems $33,364.00

44 Iow a Public Employees' Retirement System $32,260.00

45 South Carolina Public Employee Benefit Authority $31,651.00

46 Kaiser Foundation Health Plan Inc. $31,376.00

47 Texas County & District Retirement System $31,013.00

48 Dow DuPont Inc. $30,510.00

49 Indiana Public Retirement System $29,127.00

50 Commonw ealth of Pennsylvania State Employees' Retirement 

System

$29,061.00

51 Employees Retirement System of Texas $28,847.00

52 Public Employees' Retirement System of Mississippi $28,841.00

53 Nokia Corp. $28,785.00

54 Texas Municipal Retirement System $28,619.00

55 National Railroad Retirement Investment Trust $28,461.00

56 Northrop Grumman Corp. $27,713.00

57 State Farm Mutual Automobile Insurance Co. $27,143.00

58 Alaska Retirement Management Board $26,890.00

59 United Technologies Corp. $26,044.00

60 City & County of San Francisco Employees' Retirement System $25,806.00

61 City of Los Angeles Department of Fire & Police Pensions $23,288.00

62 FedEx Corp. $22,000.00

63 The World Bank $21,834.00

64 Raytheon Co. $20,708.00

65 FCA US LLC $20,487.00

66 Teachers' Retirement System of Louisiana $20,481.00

67 Teachers' Retirement System of Kentucky $20,221.00

68 Honeyw ell International Inc. $20,116.00

69 Kansas Public Employees Retirement System $19,928.00

70 Johnson & Johnson $19,643.00

71 State Universities Retirement System of Illinois $19,504.00

72 Bank of America Corp. $19,288.00

73 Verizon Communications Inc. $18,793.00

74 Illinois State Board of Investment $18,610.00

75 Central Pension Fund of the International Union of Operating 

Engineers & Participating Employers

$18,211.00

76 Los Angeles City Employees' Retirement System $17,840.00

77 Exelon Corp. $17,786.00

78 Arkansas Teacher Retirement System $17,339.00

79 Public Employee Retirement System of Idaho $17,104.00
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80 Teachers' Retirement System of Oklahoma $16,882.00

81 Employees' Retirement System of the State of Haw aii $16,487.00

82 PG&E Corp. $16,289.00

83 Federal Reserve Employee Benefits System $16,239.00

84 Employees' Retirement System of Georgia $16,145.00

85 3M Co. $16,135.00

86 West Virginia Investment Management Board $15,898.00

87 Ohio Police & Fire Pension Fund $15,885.00

88 Orange County Employees Retirement System $15,869.00

89 Public Employees Retirement Association of New Mexico $15,565.00

90 JPMorgan Chase & Co. $15,543.00

91 Shell Oil Co. $15,452.00

92 Pfizer Inc. $15,022.00

93 National Electrical Benefit Fund $14,812.00

94 Consolidated Edison Co. of New York Inc. $14,788.00

95 Los Angeles Water & Pow er Employees' Retirement Plan $14,777.00

96 Maine Public Employees Retirement System $14,623.00

97 Delta Air Lines Inc. $14,600.00

98 School Employees Retirement System of Ohio $14,556.00

99 Exxon Mobil Corp. $14,110.00

100 Teamsters Central States, Southeast & Southw est Areas 

Pension Fund

$14,094.00

Table 9: Top 10 largest publicly traded U.S. companies’ DC plans

Company TDF’s Non-U.S. Equity Benchmark Core Lineup Non-U.S. Equity 

Benchmark

Microsoft Corp • MSCI ACWI ex USA IMI Index

(BlackRock’s TDF)

• MSCI ACWI ex USA Index

Apple Inc. • MSCI ACWI ex USA IMI Index

(BlackRock’s TDF)

• FTSE Global All Cap ex US Index

Amazon.com Inc • FTSE Global All Cap ex US Index 

(Vanguard’s TDF)

• FTSE Global All Cap ex US Index

Facebook Inc • FTSE Global All Cap ex US Index 

(Vanguard’s TDF)

• FTSE Global All Cap ex US Index

• MSCI Emerging Market Index

Berkshire Hathaway • FTSE Global All Cap ex US Index 

(Vanguard’s TDF)

• FTSE Global All Cap ex US Index

Alphabet Inc • FTSE Global All Cap ex US Index 

(Vanguard’s TDF)

• FTSE Global All Cap ex US Index

• MSCI Emerging Market Index

JP Morgan Chase & 

Co

• MSCI EAFE Index

• MSCI Emerging Market Index

(JP Morgan TDF)

• MSCI EAFE Index

• MSCI Emerging Market Index

Johnson & Johnson • MSCI ACWI ex USA IMI Index • MSCI ACWI ex USA IMI Index
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37

(Custom TDF)

Visa Inc • FTSE Global All Cap ex US Index 

(Vanguard’s TDF)

• FTSE Global All Cap ex US Index

Exxon Mobil Corp • MSCI ACWI ex USA Index • MSCI ACWI ex USA Index

Source: Dow Jones Total Stock Market Index Holdings as of July 31, 2019 and Public Form 5500 Filings

Table 10: Top 10 award Federal Contractors DC plans (Fiscal Year 2018)

Company TDF’s Non-U.S. Equity Benchmark Core Lineup Non-U.S. Equity Benchmark

Lockheed Martin N/A • MSCI EAFE Index

• MSCI Emerging Market Index

• MSCI ACWI Index

The Boeing 

Company

• MSCI ACWI ex USA IMI Index

(Custom TDF)

• MSCI ACWI ex USA IMI Index

General Dynamics • FTSE Global All Cap ex US Index 

(Vanguard’s TDF)

• FTSE Global All Cap ex US Index

Raytheon • N/A • MSCI ACWI ex USA Index

Northrop Grumman • FTSE Global All Cap ex US Index 

(Vanguard’s TDF)

• MSCI EAFE Index

• MSCI Emerging Market Index

McKesson • FTSE Global All Cap ex US Index 

(Vanguard’s TDF)

• MSCI EAFE Index

• MSCI Emerging Market Index

United Technologies • MSCI ACWI ex USA Index

(AB TDF)

• MSCI EAFE Index

• MSCI Emerging Market Index

Leidos Holdings • FTSE Global All Cap ex US Index 

(Vanguard’s TDF)

• FTSE Global All Cap ex US Index

• MSCI Emerging Market Index

Huntington Ingalls • MSCI ACWI ex USA Index

(BlackRock TDF)

• MSCI ACWI ex USA Index

BAE Systems • FTSE Global All Cap ex US Index 

(Vanguard’s TDF)

• FTSE Global All Cap ex US Index

• MSCI Emerging Market Index

Source: Bloomberg and Publicly Filed Form 5500

Table 11: Top 20 Largest Public Defined Benefit Plans (as of December 31, 2018)

Company DB Plan Non-U.S. Equity 

Benchmark

457(b) Plan Non-U.S. Equity 

Benchmark

California Public Employees 

Retirement System 

• MSCI ACWI IMI Index (Net) • MSCI ACWI ex USA IMI Index

California State Teachers’ 

Retirement System

• MSCI ACWI ex USA IMI Index • MSCI EAFE Index

• MSCI Emerging Market Index

New York State Common 

Retirement Fund

• MSCI ACWI ex USA IMI Index • MSCI EAFE Index

• MSCI Emerging Market Index
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New York City Retirement 

System

• MSCI ACWI ex USA IMI Index • MSCI ACWI ex USA IMI Index

State Board of 

Administration of Florida 

• MSCI ACWI ex USA IMI Index • MSCI ACWI ex USA IMI Index

Teacher Retirement System 

of Texas

• MSCI EAFE Index

• MSCI Emerging Market Index

• MSCI EAFE Index

New York State Teachers’ 

Retirement System

• MSCI ACWI ex USA IMI Index • MSCI ACWI Index

• MSCI Emerging Market IMI Index

State of Wisconsin 

Investment Board

• MSCI ACWI ex USA Index • MSCI ACWI ex USA Index

Washington State 

Investment Board

• MSCI ACWI ex USA Index • MSCI ACWI Index

• MSCI Emerging Market IMI Index

North Carolina Retirement 

System

• MSCI ACWI ex USA IMI Index • MSCI ACWI ex USA Index

Ohio Public Employees 

Retirement System 

• MSCI ACWI ex USA Index • MSCI ACWI ex USA Index

New Jersey Division of 

Investments

• MSCI EAFE Index

• MSCI Emerging Market Index

• MSCI ACWI ex USA IMI Index

Virginia Retirement System • MSCI ACWI IMI Index • MSCI ACWI ex USA IMI Index

State of Michigan 

Retirement Systems

• MSCI ACWI ex USA IMI Index • MSCI ACWI ex USA IMI Index

Oregon Public Employees 

Retirement Fund

• MSCI ACWI ex USA IMI Index • MSCI ACWI ex USA IMI Index

State Teachers Retirement 

System of Ohio 

• MSCI ACWI ex USA IMI Index • MSCI ACWI ex USA IMI Index

Minnesota State Board of 

Investment

• MSCI ACWI ex USA IMI Index • FTSE Global All Cap ex US Index

Teachers Retirement 

System of Georgia 

• MSCI EAFE Index

• MSCI Emerging Market Index

• MSCI ACWI ex USA Index

Massachusetts Pension 

Reserves Investment 

Management Board

• MSCI EAFE Index

• MSCI Emerging Market Index

• MSCI EAFE Index

Tennessee Consolidated 

Retirement System 

• MSCI EAFE Index

• MSCI Emerging Market Index

• FTSE Global All Cap ex US Index

Source: Pensions & Investments and Publicly Available Investment Policy Statements
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Table 12: AHIC’s 10-Year Capital Market Assumptions as of June 30, 2019 – Expected Return and Risk

Expected 

Real Return1

Expected 

Nominal Return1

Expected 

Volatility

Sharpe 

Ratio

Large Cap U.S. Equity 4.0% 6.2% 17.0% 0.259

Small Cap U.S. Equity 4.2% 6.4% 23.0% 0.200

Global Equity 4.9% 7.1% 18.5% 0.286

International Equity 5.1% 7.3% 20.0% 0.275

Emerging Markets Equity 5.7% 7.9% 27.0% 0.226

Gov Cash -0.3% 1.8% 1.0% 0.000

LIBOR Cash -0.1% 2.0% 1.0% 0.200

TIPS 0.4% 2.5% 4.5% 0.156

Core Fixed Income (Market Duration) 0.4% 2.5% 4.0% 0.175

Long Duration Bonds – Gov’t / Credit 0.9% 3.0% 9.5% 0.126

Long Duration Bonds – Credit 1.1% 3.2% 11.0% 0.127

Long Duration Bonds – Gov’t 0.6% 2.7% 9.0% 0.100

High Yield Bonds 1.9% 4.0% 12.0% 0.183

Bank Loans 2.6% 4.8% 7.0% 0.429

Non-US Developed Bond (0% Hedged) -1.1% 1.0% 10.0% -0.080

Non-US Developed Bond (50% Hedged) -0.5% 1.6% 5.5% -0.036

Non-US Developed Bond (100% Hedged) -0.1% 2.0% 2.5% 0.080

Hard Emerging Market Bonds 2.1% 4.2% 13.0% 0.185

Hedge Funds Fund-of- Funds2 1.5% 3.6% 9.0% 0.200

Hedge Funds Fund-of-Funds (Buy List)2 2.6% 4.8% 9.0% 0.333

Broad Hedge Funds3 2.7% 4.9% 9.0% 0.344

Broad Hedge Funds (BuyList)3 4.1% 6.3% 9.0% 0.500

Core Real Estate 2.9% 5.1% 11.5% 0.287

REITs 3.9% 6.1% 18.5% 0.232

Commodities 2.0% 4.1% 17.0% 0.135

Private Equity 6.5% 8.7% 25.0% 0.276

Infrastructure 5.6% 7.8% 14.5% 0.414

25-year Government Bond 0.2% 2.3% 15.0% 0.033

Corporate Emerging Market Bonds 1.9% 4.0% 11.0% 0.200

Local Emerging Market Bonds 2.7% 4.9% 14.0% 0.221

Private Real Estate (Non-Core) 6.1% 8.3% 25.0% 0.260

Private Debt - Direct Lending 4.8% 7.0% 16.0% 0.325

Multi Asset Credit 3.5% 5.7% 9.5% 0.411

ILS 2.4% 4.6% 5.5% 0.509

EIRP - Low Beta 3.1% 5.3% 5.0% 0.700

EIRP - High Beta 3.8% 6.0% 11.0% 0.382

Alternative Risk Premia (ARP) 3.8% 6.0% 9.5% 0.442

Inflation 0.0% 2.1% 1.0% 0.300

10 Year
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Table 13: AHIC’s 30-Year Capital Market Assumptions as of June 30, 2019 – Expected Return and Risk

Expected 

Real Return1

Expected 

Nominal Return1

Expected 

Volatility

Sharpe 

Ratio

Large Cap U.S. Equity 4.6% 6.8% 17.5% 0.257

Small Cap U.S. Equity 5.1% 7.3% 23.5% 0.213

Global Equity 5.4% 7.6% 19.0% 0.279

International Equity 5.3% 7.5% 20.0% 0.260

Emerging Markets Equity 5.9% 8.1% 27.5% 0.211

Gov Cash 0.2% 2.3% 2.0% 0.000

LIBOR Cash 0.5% 2.6% 2.0% 0.150

TIPS 0.9% 3.0% 4.5% 0.156

Core Fixed Income (Market Duration) 1.0% 3.1% 5.0% 0.160

Long Duration Bonds – Gov’t / Credit 1.2% 3.3% 11.0% 0.091

Long Duration Bonds – Credit 1.7% 3.8% 13.0% 0.115

Long Duration Bonds – Gov’t 0.7% 2.8% 11.0% 0.045

High Yield Bonds 2.7% 4.9% 12.5% 0.208

Bank Loans 3.3% 5.5% 7.5% 0.427

Non-US Developed Bond (0% Hedged) 0.0% 2.1% 11.0% -0.018

Non-US Developed Bond (50% Hedged) 0.3% 2.4% 6.5% 0.015

Non-US Developed Bond (100% Hedged) 0.4% 2.5% 4.0% 0.050

Hard Emerging Market Bonds 2.5% 4.7% 14.0% 0.171

Hedge Funds Fund-of- Funds2 1.9% 4.0% 10.0% 0.170

Hedge Funds Fund-of-Funds (Buy List)2 3.0% 5.2% 9.5% 0.305

Broad Hedge Funds3 3.2% 5.4% 10.0% 0.310

Broad Hedge Funds (BuyList)3 4.6% 6.8% 9.5% 0.474

Core Real Estate 2.9% 5.1% 11.5% 0.243

REITs 3.9% 6.1% 19.0% 0.200

Commodities 2.5% 4.7% 17.0% 0.141

Private Equity 7.3% 9.6% 25.5% 0.286

Infrastructure 5.7% 7.9% 14.5% 0.386

25-year Government Bond 0.5% 2.6% 17.5% 0.017

Corporate Emerging Market Bonds 2.4% 4.5% 11.5% 0.191

Local Emerging Market Bonds 2.7% 4.9% 14.5% 0.179

Private Real Estate (Non-Core) 6.2% 8.4% 25.5% 0.239

Private Debt - Direct Lending 4.9% 7.1% 16.5% 0.291

Multi Asset Credit 4.0% 6.2% 10.0% 0.390

ILS 2.4% 4.6% 7.5% 0.307

EIRP - Low Beta 3.8% 6.0% 5.5% 0.673

EIRP - High Beta 4.3% 6.5% 11.0% 0.382

Alternative Risk Premia (ARP) 4.4% 6.6% 9.5% 0.453

Inflation 0.0% 2.1% 1.5% -0.133

30 Year
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Table 14: AHIC’s Capital Market Assumptions as of June 30, 2019 – Correlations

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

1 Large Cap U.S. Equity 1.00 0.92 0.96 0.78 0.72 0.08 0.08 -0.06 0.04 -0.03 0.06 -0.13 0.60 0.39 -0.04 -0.03 0.00 0.42 0.67 0.54 0.67 0.54 0.38 0.66 0.32 0.69 0.38 -0.13 0.41 0.47 0.47 0.33 0.56 0.02 0.51 0.91 0.31 0.052 Small Cap U.S. Equity 1.00 0.90 0.72 0.67 0.07 0.06 -0.06 0.03 -0.03 0.06 -0.12 0.55 0.36 -0.04 -0.03 -0.01 0.38 0.62 0.50 0.61 0.49 0.36 0.61 0.27 0.64 0.36 -0.12 0.38 0.41 0.44 0.31 0.51 0.01 0.46 0.84 0.29 0.043 Global Equity 1.00 0.91 0.84 0.07 0.07 -0.06 0.04 -0.02 0.07 -0.13 0.65 0.42 0.14 0.12 -0.01 0.47 0.65 0.53 0.65 0.52 0.39 0.64 0.38 0.67 0.37 -0.13 0.46 0.56 0.48 0.35 0.62 0.02 0.48 0.88 0.32 0.064 International Equity 1.00 0.75 0.04 0.04 -0.04 0.04 -0.02 0.06 -0.11 0.58 0.37 0.40 0.34 -0.03 0.43 0.56 0.45 0.56 0.45 0.35 0.53 0.43 0.56 0.32 -0.11 0.44 0.59 0.44 0.32 0.58 0.01 0.39 0.72 0.28 0.075 Emerging Markets Equity 1.00 0.06 0.05 -0.05 0.05 -0.01 0.07 -0.11 0.65 0.39 0.18 0.15 0.00 0.48 0.48 0.39 0.48 0.39 0.32 0.49 0.31 0.53 0.30 -0.11 0.47 0.53 0.40 0.33 0.61 0.01 0.37 0.66 0.27 0.066 Gov Cash 1.00 0.99 0.44 0.46 0.22 0.19 0.23 0.15 0.16 0.12 0.29 0.59 0.17 -0.02 -0.01 -0.02 -0.01 0.15 0.08 0.22 0.09 0.11 0.15 0.08 0.01 0.13 0.02 0.13 0.25 0.37 0.16 0.21 0.537 LIBOR Cash 1.00 0.43 0.46 0.22 0.19 0.23 0.15 0.17 0.12 0.28 0.58 0.17 -0.01 -0.01 -0.01 -0.01 0.15 0.08 0.21 0.08 0.11 0.15 0.08 0.01 0.13 0.03 0.14 0.26 0.37 0.16 0.21 0.528 TIPS 1.00 0.48 0.30 0.27 0.31 0.11 -0.03 0.07 0.12 0.20 0.14 -0.11 -0.09 -0.11 -0.09 0.02 -0.03 0.18 -0.05 0.00 0.22 0.03 -0.02 0.01 -0.07 0.05 0.11 0.13 -0.02 0.07 0.429 Core Fixed Income (Market Duration) 1.00 0.85 0.86 0.75 0.35 0.14 0.20 0.36 0.61 0.50 0.07 0.05 0.07 0.05 0.07 0.04 0.08 0.04 0.05 0.65 0.21 0.14 0.06 0.07 0.30 0.12 0.17 0.08 0.11 0.16

10 Long Duration Bonds – Gov’t / Credit 1.00 0.96 0.95 0.16 -0.08 0.19 0.33 0.53 0.37 -0.02 -0.02 -0.02 -0.02 0.01 -0.01 -0.01 -0.02 0.00 0.93 0.10 0.08 0.00 -0.09 0.12 0.05 0.06 0.00 0.04 -0.0911 Long Duration Bonds – Credit 1.00 0.83 0.37 0.17 0.18 0.31 0.51 0.51 0.15 0.12 0.15 0.12 0.04 0.05 0.00 0.05 0.04 0.81 0.23 0.18 0.05 0.12 0.32 0.05 0.09 0.08 0.07 -0.0812 Long Duration Bonds – Gov’t 1.00 -0.10 -0.35 0.18 0.31 0.50 0.17 -0.22 -0.18 -0.22 -0.18 -0.04 -0.08 -0.03 -0.11 -0.04 0.97 -0.05 -0.04 -0.05 -0.32 -0.13 0.06 0.02 -0.09 0.01 -0.0913 High Yield Bonds 1.00 0.79 0.19 0.20 0.13 0.73 0.65 0.52 0.65 0.52 0.26 0.40 0.38 0.45 0.26 -0.14 0.62 0.58 0.32 0.66 0.91 0.04 0.34 0.56 0.24 0.1914 Bank Loans 1.00 0.09 0.10 0.08 0.46 0.68 0.55 0.68 0.55 0.18 0.27 0.21 0.30 0.18 -0.35 0.56 0.43 0.22 0.83 0.81 0.04 0.24 0.37 0.17 0.1815 Non-US Developed Bond (0% Hedged) 1.00 0.95 0.30 0.23 0.02 0.02 0.02 0.02 0.00 -0.02 0.43 -0.01 0.02 0.16 0.21 0.49 0.03 0.06 0.27 0.03 0.03 -0.02 0.06 0.1316 Non-US Developed Bond (50% Hedged) 1.00 0.57 0.28 0.02 0.01 0.02 0.01 0.02 -0.02 0.39 -0.01 0.03 0.28 0.22 0.45 0.04 0.06 0.27 0.07 0.08 0.00 0.09 0.1717 Non-US Developed Bond (100% Hedged) 1.00 0.26 -0.01 -0.01 -0.01 -0.01 0.06 0.01 0.08 0.00 0.04 0.45 0.10 0.08 0.04 0.00 0.14 0.15 0.19 0.05 0.11 0.1918 Hard Emerging Market Bonds 1.00 0.53 0.42 0.52 0.42 0.18 0.28 0.23 0.30 0.18 0.13 0.69 0.64 0.23 0.38 0.76 0.05 0.25 0.40 0.18 0.0919 Hedge Funds Fund-of-Funds 1.00 0.73 0.99 0.73 0.25 0.44 0.29 0.45 0.25 -0.20 0.57 0.49 0.31 0.58 0.69 0.00 0.32 0.61 0.20 0.0420 Hedge Funds Fund-of-Funds (Buy List) 1.00 0.73 0.99 0.21 0.36 0.23 0.37 0.20 -0.17 0.46 0.39 0.25 0.47 0.55 0.00 0.25 0.50 0.17 0.0321 Broad Hedge Funds 1.00 0.72 0.25 0.43 0.29 0.45 0.25 -0.20 0.57 0.49 0.31 0.58 0.68 0.00 0.31 0.61 0.20 0.0422 Broad Hedge Funds (BuyList) 1.00 0.21 0.35 0.23 0.37 0.20 -0.16 0.46 0.39 0.25 0.47 0.55 0.00 0.25 0.49 0.16 0.03

23 Core Real Estate 1.00 0.47 0.09 0.33 0.19 -0.05 0.16 0.11 0.81 0.14 0.22 0.03 0.23 0.38 0.14 0.0924 REITs 1.00 0.19 0.47 0.27 -0.09 0.27 0.29 0.46 0.22 0.37 0.01 0.35 0.61 0.21 0.0525 Commodities 1.00 0.11 0.08 -0.06 0.27 0.44 0.14 0.15 0.37 0.06 0.22 0.30 0.16 0.3926 Private Equity 1.00 0.32 -0.11 0.28 0.21 0.37 0.25 0.38 0.02 0.36 0.64 0.22 0.0527 Infrastructure 1.00 -0.05 0.16 0.13 0.21 0.14 0.22 0.03 0.22 0.37 0.13 0.0628 25-year Government Bond 1.00 -0.08 -0.05 -0.06 -0.31 -0.16 0.04 -0.01 -0.10 -0.01 -0.16

29 Corporate Emerging Market Bonds 1.00 0.62 0.21 0.47 0.73 0.02 0.22 0.38 0.16 0.0930 Local Emerging Market Bonds 1.00 0.19 0.37 0.73 0.00 0.23 0.42 0.18 0.0231 Private Real Estate (Non-Core) 1.00 0.18 0.28 0.03 0.27 0.45 0.17 0.0832 Private Debt - Direct Lending 1.00 0.68 0.01 0.16 0.30 0.12 0.0933 Multi Asset Credit 1.00 0.04 0.31 0.51 0.23 0.1534 ILS 1.00 0.09 0.04 0.06 0.1435 EIRP - Low Beta 1.00 0.49 0.28 0.21

36 EIRP - High Beta 1.00 0.30 0.09

37 ARP 1.00 0.1238 Inflation 1.00