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HomeMy WebLinkAboutAgenda - Pension Advisory Committee - 07/23/2024_____________________________________________________________________________________ Pension Advisory Committee (PAC) Quarterly Meeting Tuesday, July 23, 2024 | 2:00 p.m. City Hall Conference Room 301, 180 Market Street Attend Virtually: Please join my meeting from your computer, tablet or smartphone. https://meet.goto.com/SouthBurlingtonVT/pensionadvisorymeeting07-23-2024 You can also dial in using your phone. Access Code: 851-378-933 United States: +1 (571) 317-3122 A G E N D A 1)Welcome & Introductions 2)Additions, deletions, or changes to agenda 3)***Approve prior meeting minutes from the April 23, 2024 PA meeting 4)***SEI review of Q2 Net Performance Report-Dan Cappell & John Waite •General overview of the investment plan •Cash flow summary •Overview of a pension fund lifecycle •Discuss performance and present asset allocation study 5)Update on Newport Group joining Ascensus-Erik Schait 6)Other business 7)Next scheduled meeting- October 22, 2024 at 2pm 8)Adjourn _____________________________________________________________________________________ Pension Advisory Committee (PAC) Quarterly Meeting Tuesday, April 23, 2024, 2:00 p.m. City Hall Conference Room 301, 180 Market Street MINUTES ______________________________________________________________________________ Attendees: Martha Machar, Steve Locke, Daisy Brayton, Dan Chappell, Dan Boyer, Spencer Baker, Jason Morin, Mike Scanlan, Matt Sleeman, and Brad Datillio. Absent: Tim Barrit 1) Welcome & Introductions – Meeting called to order at 2:10 p.m. 2) Additions, deletions, or changes to agenda – None, agenda approved. 3) *** Approve prior meeting minutes from January 16, 2024. – No changes, minutes approved. 4) *** SEI review of Q1 Net Performance Report-Dan Cappell •Discuss performance and status of asset allocation Executive summary - $46.5M market value. Solid returns within expectations. One year return – 13.43% 3 Year Return – 4.10% 5 Year Return – 7.56 % SEI believes inflation will remain stubbornly high and above central bank targets. If U.S. 10 year Treasury yields revisit 5%, equities may struggle. Interest Rates – Debt markets deserve our attention, fiscal spending continues unabated in the face of some eye watering metrics. U.S. government debt has reached $36 trillion as of December 2023, in excess of 120% GDP, with annual interest costs breaching $1 trillion. Markets – Multiple rate cuts are priced into equity markets across the globe. Starting from here, the bar has been set fairly high for earnings to outperform expectations and drive prices higher. Market and Economic Review U.S. equity market review – US large caps marched steadily higher during the quarter, encouraged by a solid growth outlook for the prospect for Federal Reserve rate cuts. Small caps managed to post positive performance thanks to a March bounce back. International Equity Market Review In the first quarter developed markets maintained their winning form against emerging markets. Japan and US were notable outperformers. In emerging markets, Asia outperformed as ongoing AI mania pushed Taiwan stock market higher. Fixed Income Review Global outlook slowly gaining steam Good news – The US continues to exceed expectations. Bad news – Labor markets are tight, and wages continue to rise at a pace inconsistent with low inflation. SEI expect bond yields to remain elevated, with the US Treasury 10 year benchmark more likely to trade sustainability in the 4-5% range. •Provide overview of the plan fee’s structure SEI’s Full Service OCIO SolutionoStrategic advice o Investment management o Risk management o Plan modeling o Administrative services Global Investment Team – 30 years of taking accountability for client investment results o An experienced team of investment professionals o Accountability to clients o Globally integrated team-based structure o Investment disciplines Overview of fee summary was reviewed. First $25M = .62% Next $25M = .57% Over $50M = .47% Core Property = 1.25% •Portfolio Review – fund is in compliance with agreement. Ending Portfolio Value - $46,500,461 5) Other business – no other business. 6) Next scheduled meeting- July 23, 2024, at 2pm. 7) Adjourn – meeting was adjourned at 3:00 p.m. For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI. Dan Cappell, CAIA dcappell@seic.com OCIO partnership reviewSecond Quarter 2024 July 23, 2024 City of South Burlington Jon Waite, F.S.A. jbwaite@seic.com For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.2©2024 SEI Agenda •Executive Summary •Market & Economic Review •Portfolio Review •Asset Allocation Study •Appendix For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.3©2024 SEI Please refer to the important disclosures accompanying your portfolio performance in this presentation for information on performance calculations. Executive summary Equities:Equities returned 1.81% in Q2. Again, returns were dominated by a narrow set of mega-cap tech companies resulting in strong earnings driven by AI demand, benefiting passive exposures. Largest active positioning continues to be value, which we view as critical given the current level of concentration and valuations. Fixed Income: Fixed income returned 0.73% in Q2. Interest rates have continued to gyrate in response to inflation prints as well as the tone of Fed commentary, finishing the quarter modestly higher Alternatives:The property market continued its selloff through the first quarter of 2024. Again, income remained the positive contributor to performance, while property valuations continued to move lower in response to higher interest rates and heightened uncertainty within the space. Q2 Manager Changes: Terminated KBI Global Investors within Emerging Markets Equity. Terminated ArrowMark within Small Cap II. As of:6/30/2024 net of fees Market Value 3 Month Return FYTD Return 1 Year Return 3 Year Return 5 Year Return Since Inception Return (10/31/16)City of SouthBurlington $46.4M 1.14%11.01%11.01%2.79%7.19%6.95% -5%0%5%10%15%20%25%30% Commodities Inflation-Linked Emerging Markets Debt High Yield Bonds Long Duration Fixed Income Core Fixed Income Emerging Markets Equity World Equity x US U.S. Small Cap U.S. Large Cap Financial Markets Review One Year 2024 Q2 For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.4©2024 SEI Sources: SEI. These are the views and opinions of SEI which are subject to change. They should not be construed as investment advice. Source: SEI Forward document dated First Quarter, 2024. SEI market observations & summary views Summary Views Macro/Cross-asset •Inflation will remain stubbornly high and above central bank targets.•Easing cycles have begun but may still fall short of expectations. Government bond supply will put upward pressure on long-term interest rates.•We remain positive on commodities based on firming growth and likely rate cuts. Equity •Emphasis on diversity in equity positions: issuer, sector, and geography.•Strategic holdings in value, quality, momentum; emphasis on value and momentum. •Sector focus broadly includes financials and energy (value), consumer discretionary, and industrials(momentum), and consumer staples and health care (quality).•Remain patiently underweight to China. Fixed income •Expect higher 10-year yields in the U.S.•Positioned for a steeper U.S. yield curve Observations •Concentration and valuation concerning for U.S. equity investors •Central banks change course Notables for the quarter •Global small cap -2.5% in 2Q: Not all risk is “on.” •NVDA +144% year to date vs Equal Weight S&P 500+5% year to date: First it was the Magnificent Seven.Then it was the Fab Four. Now, a single stock is driving most of the gains in the S&P 500. •U.S. 10-Year Treasury yield at 4.36%: Staying updespite rate cut expectations. For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI. Market and economic review For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.6©2024 SEI Sources: Bloomberg, Russell, Standard & Poor’s. US Large Cap = Russell 1000 Index, US Small Cap = Russell 2000 Index. Value and Growth represented by Russell 1000 Value Index and Russell 1000 Growth Index, respectively. Sectors represented by respective S&P 500 sector indexes. As of 06/30/2024. Past performance is not a guarantee of future results. U.S. equity market review •The stock market got off to a rocky start in the second quarter, as hotter-than-expected consumer prices and a downside surprise in job openings renewed investor concerns about stagflation. Large caps posted a recovery during June, while small caps remained in negative territory. •Large-cap sector performance reverted to a more concentrated nature in the quarter, with tech-oriented industries dominating returns. Cyclical areas like financials, energy, industrials and materials incurred negative returns. •As a result of cyclical sectors underperforming and tech-oriented areas outperforming, the value style meaningfully underperformed growth in the US. -10%-8%-6%-4%-2%0%2%4% 6% Mar '24 Jun '24 Cu m u l a t i v e T o t a l R e t u r n QTD Domestic Equity Market Returns U.S. Large Cap (3.6%)U.S. Small Cap (-3.3%) -2.2% 8.3%13.8%9.4%4.7%1.4%0.6% -1.0%-1.9%-2.0%-2.4%-2.9%-4.5% 13.0% 33.5%41.8%44.9% 7.8%8.2%13.1%11.7%5.6% 24.1%15.8%15.5%8.7% Value Growth Technology Communications Utilities Cons.Staples Cons.Disc.Healthcare Real Estate Financials Energy Industrials Materials To t a l R e t u r n U.S. Large Cap Sectors Second Quarter One Year For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.7©2024 SEI 7 Source: Bloomberg. Data as of 6/28/2024. This data should not be construed as a recommendation to purchase or sell a security. The reader should consult with their financial professional for more information. Nvidia dominates the stock market $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 1/1/2024 2/1/2024 3/1/2024 4/1/2024 5/1/2024 6/1/2024 Ma r k e t V a l u e ( $ M i l l i o n s ) NVIDIA Market Value •Nothing has kept up with Nvidia’s price over the second quarter as the chipmaker added nearly $1 trillion to its market value in just 30 trading days. •It added more than the market value of Berkshire Hathaway in six weeks. Year-to-date, it has grown by roughly the market value of Amazon—over $1.8 trillion. For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.8©2024 SEI Source: NDR, S&P Global, SEI. Data as of 6/30/2024. “The World” represents the MSCI World Index. No mention of particular securities should be construed as a recommendation or considered an offer to sell or a solicitation to buy any securities. Concentration of weight USA Largest 10 (USA) The World AustraliaAustriaBelgiumCanadaDenmarkFinlandFranceGermanyHong KongIrelandIsraelItalyJapanNetherlandsNew ZealandNorwayPortugalSingaporeSpainSweden 15 20 25 30 35 40 19 7 2 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 20 0 4 20 0 8 20 1 2 20 1 6 20 2 0 20 2 4 Pe r c e n t 10 largest stocks in S&P 500 Index as % of total capitalization "Nifty Fifty" bubble Tech bubble For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.9©2024 SEI Source: Bloomberg, Russell, MSCI, SEI. U.S. = Russell 3000 Total Return Index, Developed (ex-US) = MSCI World ex-U.S Net Total Return Index, Emerging = MSCI Emerging Markets Net Total Return Index, Europe = MSCI Europe Net Total Return Index, Japan = MSCI Japan Net Total Return Index, Pacific ex-Japan = MSCI Pacific Ex Japan Net Total Return Index, EMEA = MSCI Emerging Markets Europe Middle East & Africa Net Total Return Index, Latin America = MSCI EM Latin America Net Total Return Index, Asia = MSCI EM Asia Net Total Return Index.All returns in USD. As of 06/30/2024. Past performance is not a guarantee of future results. International equity market review •Emerging market equities were up in the quarter while their developed market counterparts were down slightly, leading to the former’s first quarterly outperformance since 2022. •Emerging markets were led by continued strong performance from Taiwan and India, as well as a rebound in China’s equity market. The South African market also contributed, while Latin American bourses struggled overall. •The main contributor within developed markets was the US, followed by the UK. Japan and France were the primary detractors, the latter due in part to political uncertainty caused in June by Prime Minister Macron’s surprise dissolution of the National Assembly and call for elections. -6% -4% -2% 0% 2% 4% 6% 8% Mar '24 Jun '24 Cu m u l a t i v e T o t a l R e t u r n QTD International Equity Market Returns Developed (ex-U.S.) (-0.6%)Emerging Markets (5%) 3.2% -0.6% 5.0%2.5%0.5% -4.3% 7.4%1.6% 23.1%11.2%12.5%6.8%11.7%13.1%15.1%9.3% -5.6%U.S.Developed(ex-U.S.)Emerging Pacific ex-Japan Europe Japan Asia EMEA Latin America Broad Regions Developed Regions Emerging Regions To t a l R e t u r n Regional Performance Second Quarter One Year For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.10©2024 SEI Sources: Bloomberg, JP Morgan, SEI. Option-adjusted spreads over US Treasurys US Investment Grade = Bloomberg U.S. Corporate Index, US High Yield = Bloomberg U.S. Corporate High Yield Index, and Emerging Market Debt = JP Morgan EMBI Diversified Sovereign Index. Vertical axis in U.S. Yield Curve chart shortened to enhance visibility of yield curve dynamics. As of 06/30/2024. Past performance is not a guarantee of future results. Fixed income review •Treasury yields edged higher over the quarter as markets once again recalibrated the outlook for Federal Reserve (Fed) interest rate cuts due to a surprise reacceleration of inflation. •Ongoing inflation uncertainty, US labor market developments, a recent upturn in global trade activity and commodity prices, and a Fed that has promised to remain data-dependent will all be important factors in determining the future path of interest rates. •Investment-grade and high yield credit spreads widened slightly in the second quarter but remained below both beginning-of-the-year and long-term average levels. •Emerging markets debt spreads widened more substantially over the quarter, but this was due in part to the re-inclusion of Venezuelan debt in certain benchmark indexes in recent months, following the lifting of US sanctions. 2.0% 3.0% 4.0% 5.0% 6.0% 0 5 10 15 20 25 30 Yi e l d Maturity (Years) U.S. Yield Curve 6/30/20243/31/20246/30/2023 0.9% 3.1% 3.9% 0.9% 3.0%3.4% 1.0% 3.2% 3.8% 1.2% 4.2%3.8% 0% 1% 2% 3% 4% 5% US Investment Grade US High Yield Emerging Market Debt Op t i o n -Ad j u s t e d S p r e a d Option-Adjusted Spreads 6/30/2024 3/31/2024 12/31/23 10Y Average For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.11©2024 SEI Source: Congressional Budget Office U.S. debt dynamics 0 50 100 150 19 0 0 19 0 2 19 0 4 19 0 6 19 0 8 19 1 0 19 1 2 19 1 4 19 1 6 19 1 8 19 2 0 19 2 2 19 2 4 19 2 6 19 2 8 19 3 0 19 3 2 19 3 4 19 3 6 19 3 8 19 4 0 19 4 2 19 4 4 19 4 6 19 4 8 19 5 0 19 5 2 19 5 4 19 5 6 19 5 8 19 6 0 19 6 2 19 6 4 19 6 6 19 6 8 19 7 0 19 7 2 19 7 4 19 7 6 19 7 8 19 8 0 19 8 2 19 8 4 19 8 6 19 8 8 19 9 0 19 9 2 19 9 4 19 9 6 19 9 8 20 0 0 20 0 2 20 0 4 20 0 6 20 0 8 20 1 0 20 1 2 20 1 4 20 1 6 20 1 8 20 2 0 20 2 2 20 2 4 20 2 6 20 2 8 20 3 0 20 3 2 20 3 4 Pe r c e n t a g e o f G D P Federal debt held by the public CBO Projections •The U.S. Congressional Budget Office (CBO), a non-partisan agency charged with providing the U.S. Congress with budget analysis,has projected that the U.S. budget deficit will reach just under $2 trillion for fiscal year 2024, up $400 billion since their last estimate in February. •Simply put, government spending continues to outpace revenues, at an increasing rate, despite a relatively robust economy. Total debt is projected to hit 99% of gross domestic product (GDP) this year before growing to 122% of GDP by 2034—the highest level in U.S. history. •These dynamics play a role in shaping our outlook for interest rates in the U.S., which is decidedly bearish. We see no reason for rates to fall dramatically. For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.12©2024 SEI Source: Bloomberg, SEI. Data as of 6/30/2024. Tempered policy-rate expectations Monetary policy is proceeding as expected. •Higher-for-longer inflation should also mean higher-for-longer interest rates. •At the start of the year, markets were pricing in as many as six or seven policy-rate cuts by the end of 2024 for the U.S. federal-funds rate, the Bank of England’s (BOE) bank rate, and the European Central Bank’s (ECB) deposit rate. •We thought at the time that this expectation on the part of traders was overly optimistic. Sure enough, the consensus view of the number of policy-rate cuts between now and year-end have moved much closer to our own, as we show in the chart. •Only Japan is expected to increase its policy rate this year, but only by 10 basis-point increments to 0.3%. •By year-end, market pricing implies policy rates of 4.9% in the U.S., 4.8% in the U.K., 3.2% in the eurozone, and 4.3% in Canada. -7 -5 -7 -6 2 -2 -2 -2 -2 2 Eurozone Canada U.K.U.S.Japan # o f p o l i c y -ra t e h i k e s / c u t s Market-implied central-bank policy moves by year-end 2024 Beginning of 2024 Today For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.13©2024 SEI Source: St Louis Federal Reserve. The Consumer Price Index (CPI) is a measure of the average change overtime in the prices paid by urban consumers for a market basket of consumer goods and services. Inflation remains stubborn 8.3 8.5 9.0 8.4 8.2 8.2 7.8 7.1 6.4 6.4 6.0 4.9 4.9 4.1 3.1 3.3 3.7 3.7 3.2 3.1 3.3 3.1 3.2 3.5 3.4 3.3 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 Pe r c e n t c h a n g e o v e r 1 2 -mo n t h s p a n Headline CPI year over year No progress for the last year despite the highest Fed Funds rate since 2007 For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI. Portfolio review For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.15©2024 SEI Important information: asset valuation and portfolio returns Inception date 8/31/2013. Historical Total Index can be provided upon request. The Portfolio Return and fund performance numbers are calculated using Gross Fund Performance, using a true time-weighted performance method (prior to 6/30/2012, the Modified Dietz method of calculation was used). Gross Fund Performance reflects the effective performance of the underlying mutual funds that are selected or recommended by SIMC to implement an institutional client’s investment strategy. Gross Fund Performance does not reflect the impact of fund level management fees,fund administration or shareholder servicing fees, all of which, if applicable, are used to offset the account level investment management fees the client pays to SIMC. Gross Fund Performance does reflect certain operational expenses charged by the funds and the reinvestment of dividends and other earnings. The inclusion of the fund level expenses that the client incurs but that are offset against the client’s account level investment management fees would reduce the Gross Fund Performance of the mutual funds. For additional information about how performance is calculated, please see your monthly performance report. If applicable, alternative, property and private assets performance and valuations may be reported on a monthly or quarterly lag. Alternative, property and private assets performance is calculated gross of investment management fees and net of administrative expenses and underlying fund expenses. However: Structured Credit Fund performance is calculated gross of investment management fees and net of administrative expenses; SEI Offshore Opportunity Fund II Ltd. Class A performance is calculated net of investment management and administrative expenses; and Energy Debt Fund performance is calculated net of management fees, performance fees, as applicable, and operating expenses. Net Portfolio Returns since 6/30/12 reflect the deduction of SIMC’s investment management fee and the impact that fee had on the client’s portfolio performance. Prior to 6/30/12, Net Portfolio Returns deduct a proxy annual fee for all periods to demonstrate the impact that SIMC’s investment management fee had on the portfolio performance. However, this is a hypothetical calculation, as it does not reflect the actual fees paid by the client during the period. Please see your client invoice for actual fees paid. For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.16©2024 SEI City of South Burlington Defined Benefit Plan Portfolio summary —June 30, 2024 For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.17©2024 SEI City of South Burlington Pension Plan Cash flow summary –June 30, 2024 Last 5 fiscal years of Plan cash flows ($) 2023 2022 2021 2020 2019 Since Inception Total Contributions 1,581,034.16 1,422,939.83 1,676,500.40 1,764,516.26 1,744,340.56 15,403,145.62 Net benefit payments -2,618,974.52 -2,248,480.47 -2,077,646.09 -1,929,008.79 -1,816,071.92 -20,048,342.10 Investment Activity 4,840,333.09 4,070,378.24 -4,650,640.94 9,881,829.36 1,201,492.03 25,092,592.04 6/30/2024 Portfolio value: $46,413,981 Trust Summary YTD ($) Contributions 1,454,140.43 Net benefit payments -2,669,529.06 Investment activity*4,840,333.09 *Per SEI Trust statement, includes income, plus realized and unrealized gains/losses. For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.18©2024 SEI Return time periods less than 12 months are cumulative, over 12 months are annualized. City of South Burlington Defined Benefit Plan Annualized investment returns —June 30, 2024 For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.19©2024 SEI Return time periods less than 12 months are cumulative, over 12 months are annualized. City of South Burlington Defined Benefit Plan Annualized investment returns —June 30, 2024 For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.20©2024 SEI City of South Burlington Defined Benefit PlanInvestment compliance verification —June 30, 2024 As of: 6/30/2024 Market Value Actual Allocation Target Allocation US Equity Factor $7,079,916 15.3%15.0% Large Cap Index Fund $6,162,550 13.3%13.0% Small Cap II Fund $1,386,913 3.0%3.0% World Equity Ex-US Fund $9,676,945 20.8%21.0% Emerging Markets Equity Fund $1,395,431 3.0%3.0% Equity $25,701,755 55.4%55.0% Core Fixed Income Fund $5,494,187 11.8%12.0% Limited Duration Fund $5,494,144 11.8%12.0% High Yield Bond Fund $1,856,063 4.0%4.0% Emerging Markets Debt Fund $1,828,753 3.9%4.0% Fixed Income $14,673,147 31.6%32.0% Dynamic Asset Allocation $2,380,026 5.1%5.0% Other $2,380,026 5.1%5.0% Core Property CIT $3,659,047 7.9%8.0% Real Estate $3,659,047 7.9%8.0% Gov't Institutional Fund $5 0.0%0.0% Cash $5 0.0%0.0% Total $46,413,980 100.0%100.0% For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI. Asset Allocation Study For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.22©2024 SEI City of South Burlington Retirement Income Plan:Key characteristics Plan Overview •Status: Open and Active •Demographic profile: Balanced •Valuation rate: 7.25% Liability Overview •Liability Growth: 3.4% •Benefit Payments/Assets: 6.6% Hurdle Rate: 10.0% -Contribution: 3.4% = Net Hurdle: 6.6% Pension Metrics: Funded status changes driven by portfolio returns relative to liability returns. Funded Status Funding Standard Account 7/1/2023 AAL deficit/ratio: $6.2M/87.6%2023 Annual Recommended Contribution: $1.1MM Minimum Contribution driven by benefit accruals and funded ratio volatility. Normal Cost:$744K + Net Amortization charges:$561K + Interest:$87K - Employee Contributions $278K = Market Value of Assets:$43.0MM Actuarial Value of Assets:$44.2MM Actuarial Accrued Liability:$50.5MM For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.23©2024 SEI How we create probability distributions and what they mean •The probability distribution graphs and/or tables that follow are meant to provide an overview of the range of possible outcomes for a given variable (e.g. returns, expense) for a given asset allocation. •The probability distributions are generated using SEI’s proprietary modeling tool and simulated capital market behavior. •Capital market behavior is simulated for 1,000 possible scenarios based on expected performance of each asset class and reflecting current economic conditions. Capital market assumptions such as return, standard deviation and covariances are inputs into this process, combining with model parameters to create market scenarios. •We use these 1,000 capital market scenarios to create 1,000 output scenarios for each variable being considered. •A 90% confidence interval should be interpreted as 90% of the projected output variables, falling between the 5% and 95% results, based on SEI Capital Market Assumptions. •This projection is hypothetical in nature, does not reflect actual investment results and is not a guarantee of future results. About capital market assumptions •SEI Investments Management Corporation develops forward-looking, long-term capital market assumptions for risk, return and correlations for a variety of global asset classes, currencies, interest rates, and inflation. •These assumptions are created using a combination of historical analysis, future market environment expectations and by applying our own judgment. In certain cases, alpha and tracking error estimates for a particular asset class are also factored into the assumptions. •We believe this approach is less biased than using pure historical data, which may be affected by unsustainable trends or permanent material shifts in market conditions. 95th percentile: 95% of outcomes are less than or equal to this value 5th percentile: 5% of outcomes are less than or equal to this value 50th percentile: 50% of outcomes are greater than this amount, and 50% are less $ M i l l i o n s Distribution of probable outcomes 95th Percentile Median(50th Percentile) 5th Percentile 75th Percentile 25th Percentile 22 20 18 16 14 12 10 8 6 4 2 0 For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.24©2024 SEI Source: SEI Capital Market Assumptions. Please see important disclosures at the beginning of this section and at the back of the presentation. Modeled Portfolios Asset Class Current Portfolio A Portfolio B US Large Cap Index 13.0 10.0 14.0US Small Cap Equity 3.0 3.0 4.0 World Equity ex-US 21.0 18.0 23.0 Emerging Markets Equity (+ Frontier)3.0 3.0 4.0 U.S. High Yield 4.0 3.0 5.0 Emerging Markets Debt 4.0 3.0 5.0 Dynamic Asset Allocation 5.0 4.0 6.0 US All Cap Factor Equity 15.0 14.0 17.0 Total Return Enhancement 68.0 58.0 78.0 Limited Duration Fixed Income 12.0 17.0 7.0 Core Fixed Income 12.0 17.0 7.0 Total Risk Management 24.0 34.0 14.0 Private Real Estate 8.0 8.0 8.0 Total Alternatives/Other 8.0 8.0 8.0 Portfolio Metrics(%) -Net of Fees Expected Return (Short Term)7.1 6.8 7.5 Expected Return (Equilibrium)8.2 8.0 8.5Standard Deviation 14.4 12.8 16.1 Poor Scenario (Short Term)-13.8 -12.1 -15.6 Fee Impact --+1 bp For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.25©2024 SEI Net of fees.Source: SEI Capital Market Assumptions. Please see important disclosures at the beginning of this section and at the back of the presentation. Expected Return Distributions –Short-Term POTENTIAL OUTCOMES Good Scenarios (95th Percentile) 75th Percentile Median (50th Percentile) 25th Percentile Poor Scenarios (5th Percentile) -13.8%-12.1% -15.6% -2.0%-1.4%-2.7% 7.1%6.8%7.5% 17.2%15.7% 18.7% 33.2% 29.8% 36.9% -20% -10% 0% 10% 20% 30% 40% Current Portfolio A Portfolio B RE T U R N ( % ) For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.26©2024 SEI Expected Return Distributions –Equilibrium POTENTIAL OUTCOMES Good Scenarios (95th Percentile) 75th Percentile Median (50th Percentile) 25th Percentile Poor Scenarios (5th Percentile) Net of fees.Source: SEI Capital Market Assumptions. Please see important disclosures at the beginning of this section and at the back of the presentation. -12.8%-11.0% -14.6% -1.0%-0.2%-1.7% 8.2%8.0%8.5% 18.2%16.8% 19.7% 34.3% 30.9% 37.9% -20% -10% 0% 10% 20% 30% 40% Current Portfolio A Portfolio B RE T U R N ( % ) For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.27©2024 SEI Market Value Projections –10 years POTENTIAL OUTCOMES Good Scenarios (95th Percentile) 75th Percentile Median (50th Percentile) 25th Percentile Poor Scenarios (5th Percentile) Net of fees.Source: SEI Capital Market Assumptions. Please see important disclosures at the beginning of this section and at the back of the presentation. 37.1 38.4 35.7 51.4 51.4 51.5 63.9 62.4 65.9 81.4 76.6 86.5 117.1 104.8 130.5 20 40 60 80 100 120 140 Current Portfolio A Portfolio B $ M I L L I O N S For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.28©2024 SEI Funded Ratio Projections (AAL) –10 years POTENTIAL OUTCOMES Good Scenarios (95th Percentile) 75th Percentile Median (50th Percentile) 25th Percentile Poor Scenarios (5th Percentile) Net of fees.Source: SEI Capital Market Assumptions. Please see important disclosures at the beginning of this section and at the back of the presentation. 54.2 56.4 52.1 73.5 73.7 73.1 90.1 87.9 92.8 111.4 105.6 117.9 159.9 144.1 177.6 40 60 80 100 120 140 160 180 Current Portfolio A Portfolio B % P E R C E N T For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.29©2024 SEI De-risking potential Consider funding policy Timeline for approaching 100% funded Assume fund maintains current return/risk level in short term Current funded level implies need for return to supplement contribution policy As fund approaches 100% funded Contributions should approach Normal Cost Emphasis on portfolio return should decrease For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.30©2024 SEI Public Plan De-risking Once plan exceeds 100% funded, begin de-risking process Process will take several years Must begin process several years before reaching 100% funded To adjust budget needs appropriately Implementation process Attain and exceed 100% funded De-risk portfolio Actuary will reduce discount rate See example of discount rate change Rate reduction expectation typically is 25 bps or less Result is funded status will drop below 100% See example of discount rate change Begin process again Process will be iterative May be accelerated with strong markets, increased contributions or reduced benefit accruals For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.31©2024 SEI De-risking potential Estimated Funded Status of a Plan (if Plan is 100% funded) Discount Rate 7.25%7.00%6.75%6.50% Market Value ofAssets $100.0MM $100.0MM $100.0MM $100.0MM Liabilities $100.0MM $103.0MM $106.0MM $109.2MM Funded Status 100.0%97.1%94.3%91.6% Note: Analysis is demonstrative only; it does not represent any particular pension planBaseline assumption of 100% funded is to demonstrate effect of lowering discount rates Assumed non-retired liability duration of approximately 16 years and retiree liability duration of approximately 8 yearsNon-retired liability at 7.25% is $48.0M, retired liability is $52.0MActuary should provide actual liability determination for any specific plan analysis For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI. Appendix For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.33©2024 SEI SEI Capital Market Assumptions -Short Term -June 2023 Please see important disclosures at the beginning of this section and at the back of the presentation Compound Return Risk Arithmetic Return Inflation:2.30% World Equity ex-US 8.57%22.63%11.13% US Private Equity 10.68%26.25%14.12% Core Fixed Income 5.20%6.62%5.42% U.S. High Yield 7.03%12.75%7.84% Emerging Markets Debt 7.56%15.52%8.77% US Small Cap Equity 8.71%23.44%11.46% S&P 500 Index 6.81%19.00%8.61% Limited Duration Fixed Income 4.07%2.62%4.10% Dynamic Asset Allocation 9.14%19.92%11.12% Private Real Estate 6.65%19.26%8.51% US All Cap Factor Equity 7.91%19.29%9.77% For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.34©2024 SEI SEI Capital Market Assumptions -Short Term -June 2023 Please see important disclosures at the beginning of this section and at the back of the presentation Correlations World Equity ex-US US Private Equity Core Fixed Income U.S. High Yield Emerging Markets Debt US Small Cap Equity S&P 500 Index Limited Duration Fixed Income Dynamic Asset Allocation Private Real Estate US All Cap Factor Equity World Equity ex-US 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 US Private Equity 0.75 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 Core Fixed Income 0.18 0.10 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 U.S. High Yield 0.59 0.70 0.45 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 Emerging Markets Debt 0.59 0.60 0.45 0.75 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 US Small Cap Equity 0.80 0.85 0.15 0.65 0.60 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 S&P 500 Index 0.87 0.85 0.25 0.65 0.65 0.90 1.00 -1.00 -1.00 -1.00 -1.00 Limited Duration Fixed Income 0.23 0.00 0.92 0.55 0.45 0.10 0.30 1.00 -1.00 -1.00 -1.00 Dynamic Asset Allocation 0.87 0.85 0.25 0.65 0.65 0.90 1.00 0.30 1.00 -1.00 -1.00 Private Real Estate 0.67 0.70 0.35 0.65 0.60 0.80 0.75 0.25 0.75 1.00 -1.00 US All Cap Factor Equity 0.87 0.86 0.25 0.65 0.65 0.92 1.00 0.30 1.00 0.75 1.00 For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.35©2024 SEI SEI Capital Market Assumptions -Equilibrium -June 2023 Please see important disclosures at the beginning of this section and at the back of the presentation Compound Return Risk Arithmetic Return Inflation:2.50% Emerging Markets Equity (+ Frontier)9.67%29.27%13.96% World Equity ex-US 9.32%22.63%11.88% Core Fixed Income 6.54%6.62%6.76% U.S. High Yield 7.82%12.75%8.63% Emerging Markets Debt 8.75%15.52%9.95% US Small Cap Equity 10.15%23.44%12.90% S&P 500 Index 8.00%19.00%9.81% Limited Duration Fixed Income 5.65%2.62%5.68% Dynamic Asset Allocation 10.32%19.92%12.31% Private Real Estate 7.30%19.26%9.16% US All Cap Factor Equity 8.88%19.29%10.74% For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.36©2024 SEI SEI Capital Market Assumptions -Equilibrium -June 2023 Please see important disclosures at the beginning of this section and at the back of the presentation Correlations Emerging Markets Equity (+ Frontier) World Equity ex-US Core Fixed Income U.S. High Yield Emerging Markets Debt US Small Cap Equity S&P 500 Index Limited Duration Fixed Income Dynamic Asset Allocation Private Real Estate US All Cap Factor Equity Emerging Markets Equity (+ Frontier)1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 World Equity ex-US 0.74 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 Core Fixed Income 0.00 0.18 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 U.S. High Yield 0.65 0.59 0.45 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 Emerging Markets Debt 0.80 0.59 0.45 0.75 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 US Small Cap Equity 0.70 0.80 0.15 0.65 0.60 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 S&P 500 Index 0.75 0.87 0.25 0.65 0.65 0.90 1.00 -1.00 -1.00 -1.00 -1.00 Limited Duration Fixed Income 0.15 0.23 0.92 0.55 0.45 0.10 0.30 1.00 -1.00 -1.00 -1.00 Dynamic Asset Allocation 0.75 0.87 0.25 0.65 0.65 0.90 1.00 0.30 1.00 -1.00 -1.00 Private Real Estate 0.55 0.67 0.35 0.65 0.60 0.80 0.75 0.25 0.75 1.00 -1.00 US All Cap Factor Equity 0.75 0.87 0.25 0.65 0.65 0.92 1.00 0.30 1.00 0.75 1.00 For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.37©2024 SEI Important information: SIMC This presentation is provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company. The material included herein is based on the views of SIMC. Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice. Nothing herein is intended to be a forecast of future events, or a guarantee of future results. This presentation should not be relied upon by the reader as research or investment advice (unless SIMC has otherwise separately entered into a written agreement for the provision of investment advice). There are risks involved with investing including loss of principal. There is no assurance that the objectives of any strategy or fund will be achieved or will be successful. No investment strategy, including diversification, can protect against market risk or loss. Current and future portfolio holdings are subject to risk. Past performance does not guarantee future results. For those SEI funds which employ a “manager of managers” structure, SIMC is responsible for overseeing the sub-advisers and recommending their hiring, termination, and replacement. References to specific securities, if any, are provided solely to illustrate SIMC’s investment advisory services and do not constitute an offer or recommendation to buy, sell or hold such securities. Any presentation of gross mutual fund performance of underlying mutual fund investments or gross account level performance is only intended for one-on-one presentations with clients and may not be duplicated in any form by any means or redistributed without SIMC’s prior written consent. Annual performance is calculated based on monthly return streams, geometrically linked as of the end of the specified month end. Performance results do not reflect the effect of certain account level advisory fees. The inclusion of such fees would reduce account level performance, particularly when compounded over a period of years. The following hypothetical illustration shows the compound effect fees have on investment return: For an account charged 1% with a stated annual return of 10%, the net total return before taxes would be reduced from 10% to 9%. A ten year investment of $100,000 at 10% would grow to $259,374, and at 9%,to $236,736 before taxes. For a complete description of all fees and expenses, please refer to SIMC’s Form ADV Part 2A, the investment management agreement between SIMC and each client,and quarterly client invoices. Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases have not been updated through the date hereof. While such sources are believed to be reliable, neither SEI nor its affiliates assumes any responsibility for the accuracy or completeness of such information and such information has not been independently verified by SEI. Index returns are for illustrative purposes only and do not represent actual fund performance. Index performance returns do not reflect any management fees, transaction costs, or expenses, which would reduce returns. Indexes are unmanaged and one cannot invest directly in an index. Any presentation of gross mutual fund performance of underlying mutual fund investments or gross account level performance is only intended for one-on-one presentations with clients and may not be duplicated in any form by any means or redistributed without SIMC’s prior written consent. For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.38©2024 SEI Important information capital market assumptions SIMC develops forward-looking, long-term capital market assumptions for risk, return, and correlations for a variety of global asset classes, interest rates, and inflation. These assumptions are created using a combination of historical analysis, current market environment assessment and by applying our own judgment. In certain cases, alpha and tracking error estimates for a particular asset class are also factored into the assumptions.We believe this approach is less biased than using pure historical data, which is often biased by a particular time period or event. The asset class assumptions are aggregated into a diversified portfolio, so that each portfolio can then be simulated through time using a monte-carlo simulation approach. This approach enables us to develop scenarios across a wide variety of market environments so that we can educate our clients with regard to the potential impact of market variability over time. Ultimately, the value of these assumptions is not in their accuracy as point estimates, but in their ability to capture relevant relationships and changes in those relationships as a function of economic and market influences. The projections or other scenarios in this presentation are purely hypothetical and do not represent all possible outcomes. They do not reflect actual investment results and are not guarantees of future results. All opinions and estimates provided herein, including forecast of returns, reflect our judgment on the date of this report and are subject to change without notice. These opinions and analyses involve a number of assumptions which may not prove valid. The performance numbers are not necessarily indicative of the results you would obtain as a client of SIMC. We believe our approach enables our clients to make more informed decisions related to the selection of their investment strategies. For more information on how SIMC develops capital market assumptions, please refer to the SEI paper entitled “Executive Summary:Developing Capital Market Assumptions for Asset Allocation Modeling.” For more information on how SIMC develops capital market assumptions or the actual assumptions utilized,please contact your SEI representative. For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.39©2024 SEI Important information: collective trust funds As identified in the presentation, certain funds are collective trust funds, not mutual funds. A collective trust fund is an investment fund that is maintained by a bank or trust company for the collective investment of qualified retirement plans and governmental plans, and that is exempt from SEC registration as an investment company under Section 3(c)(11) of the Investment Company Act of 1940. Collective trust funds eliminate many of the administrative costs associated with institutional and retail mutual funds. For more information on the collective trust funds, including fees and expenses, please read the disclosure document for the trust. There is no guarantee that the investment objective will be fulfilled. If the fund is a target date fund, the principal balance of the portfolio may be depleted prior to a portfolio’s target end-date and, therefore, distributions may end earlier than expected. This risk increases if the distribution amount chosen is a significant portion of the starting principal. The target date represents the respective date when an investor intends to retire. Principal of any target date fund is not guaranteed at any time, including the target date. The projected time periods do not take into account the payment of fees to the advisor out of the portfolio or any other additional distribution from the account. For those SEI collective trust funds that may be held in the account, the SEI collective trust fund is part of a Collective Investment Trust (the "Trust") operated by SEI Trust Company (“STC”). STC manages the Trust based on the advice of one or more third party managers, which may include SIMC. Additionally, STC serves as the trustee of the collective trust funds and maintains ultimate fiduciary authority over the management of, and the investments made, in the funds. STC is also a wholly owned subsidiary of SEI Investments Company. For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior writtenconsent of SEI.40©2024 SEI Thank you.