Managed Volatility & LDI: A Holistic Plan Solution...Hypothetical Sample Plan Strategy Development: Portfolio Analysis Metric Current Proposed Change Return-Seeking Assets 60.0% 60.0%

David R. Wilson, CFAHead of Institutional Solutions Nuveen Asset Management

James A. Colon, CFAPortfolio Manager

Nuveen Asset Management

Managed Volatility & LDI:

A Holistic Plan Solution

FOR INSTITUTIONAL INVESTOR USE ONLY. NOT FOR PUBLIC DISTRIBUTION

2

Client Interview

Key Plan

Characteristics

Asset / Liability

Information

Actuarial Report

Ongoing Risk

Assessments

Milestone Plan

Tracking

Completion

Management

Customized Client

Dashboard

Portfolio

Optimization

Milestone Plan

Construction

Comprehensive

Investment Policy

Statement

Strategy

Implementation

Qualitative Factors

Hedge Ratios

Deterministic

Analyses

Stochastic

Analyses

How We Develop Customized Solutions

Strategy Monitoring

& Management

Strategy

DevelopmentInitial Plan AnalysisPlan Assessment

Hypothetical Sample Plan

Initial Plan Analysis: Key Plan Characteristics

Key Plan Characteristics

Investment Portfolio Value: $875 Million

Estimated Liabilities (PBO): $1 Billion

Funded Ratio: 87.5%

Plan Status: Soft Frozen

Plan End Game: Annuity Buyout

End Game Funded Ratio: 110%

Return-Seeking Assets (‘RSA’): 60.0%

Liability-Hedging Assets (‘LHA’): 40.0%

Current Interest Rate Hedge Ratio: 21.4%

Current Credit Spread Hedge Ratio: 7.1%

Current Funded Ratio Volatility: 13.8%

40%

20%

20%

20%

Asset Allocation

Domestic EquityInternational EquityIntermediate Duration Fixed IncomeLong Duration Fixed Income

Source: Nuveen Asset ManagementSee supplemental information regarding hypothetical sample plans at the back of this presentation.

(15.0)

(10.0)

(5.0)

-

5.0

10.0

15.0

20.0

Interest Rate Hedge Ratio

Du

rati

on

(20.0)

(15.0)

(10.0)

(5.0)

-

5.0

10.0

15.0

20.0

Credit Spread Hedge RatioDu

rati

on

Hedge Ratio: 21.4% Hedge Ratio: 7.1%

Liability-Hedging Assets Total Portfolio Liabilities Net


Initial Plan Analysis: Nuveen’s Hedge Ratio Methodology

Source: Nuveen Asset Management, YieldbookSee supplemental information regarding hypothetical sample plans at the back of this presentation.

76.3%

104.5%

60%

70%

80%

90%

100%

110%

5% 15% 25% 35% 45% 55% 65% 75% 85% 95%

Fu

nd

ed

Rati

o

Percentile

1 Year Funded Ratio Volatility Simulation

Downside volatility (median – 5th percentile): 13.8% Downside volatility (95th percentile – median): $317.1 mm

$33.1

$581.5

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

5% 15% 25% 35% 45% 55% 65% 75% 85% 95%

NP

V C

on

trib

uti

on

($m

m)

Percentile

10 Year Contribution Simulation

Median PV of contributions: $264mm

Median funded ratio: 90.1%


Initial Plan Analysis: Stochastic Analysis

Source: Nuveen Asset Management. 2,000 simulations. The simulations provided in this analysis were generated using assumptions Nuveen Asset Management believes to be reasonable representations of asset class performance. Different assumptions may change the results of the analysis. Simulated performance is not a guarantee of future results.

See supplemental information regarding hypothetical sample plans at the back of this presentation.


Strategy Development: Portfolio Analysis

Metric Current Proposed Change

Return-Seeking Assets 60.0% 60.0% 0.0%

Liability-Hedging Assets 40.0% 40.0% 0.0%

Intermediate Duration Fixed Income 20.0% 0.0% -20.0%

Long Duration Fixed Income 20.0% 40.0% +20.0%

Estimated Funded Ratio Volatility 13.8% 12.1% -1.7%

Estimated Surplus Volatility 9.2% 8.8% -0.4%

Estimated Hedge Ratio 21.4% 30.3% +8.9%



Strategy Development: Milestone Plan

Funded Ratio 87.5% 90.0% 92.5% 95.0% 97.5% 100.0% 102.5% 105.0% 107.5% 110.0%

Funded Ratio Volatility Target 12.1% 11.4% 10.6% 9.7% 8.1% 6.5% 5.0% 3.4% 2.9% 2.5%

Surplus Volatility Target 8.8% 8.2% 7.6% 7.0% 5.9% 4.9% 3.8% 2.8% 2.2% 1.9%

Return-Seeking Allocation 60.0% 55.0% 50.0% 45.0% 37.50% 30.0% 22.5% 15.0% 10.0% 0.0%

Liability-Hedging Allocation 40.0% 45.0% 50.0% 55.0% 62.50% 70.0% 77.5% 85.0% 90.0% 100.0%

0%

20%

40%

60%

80%

100%

Po

rtfo

lio

Weig

hts

Funded Ratio



Traditional De-Risking Plan – Assumed Surplus Volatility

Funded Ratio 87.5% 90% 92.5% 95% 97.5% 100% 102.5% 105% 107.5% 110%

Risk Assets 60% 55% 50% 45% 37.5% 30% 22.5% 15% 10% 0%

Hedge Assets 40% 45% 50% 55% 62.5% 70% 77.5% 85% 90% 100%

8.78 8.21 7.61 6.97 5.93 4.86 3.79 2.81 2.16 1.90

0

5

10

15

20

25

30

35

40

Surp

lus

Vo

lati

lity


Expected Surplus Volatility at a Given Milestone Point

0

10

20

30

40

50Su

rplu

s V

ola

tilit

y (a

nn

ual

ized

)

Time

The graph above is for illustrative purposes and does not represent the surplus volatility of an actual plan.

60% Risk Assets / 40% Hedging Assets – Fully Rate Hedged

0

10

20

30

40

50Su

rplu

s V

ola

tilit

y (a

nn

ual

ized

)

Source: Nuveen Asset Management, Bloomberg

Risk Assets are represented by the S&P 500 Index. Hedging Assets are represented by the Barclays Long Credit Index (85%) and the Barclays Long Government Index (15%). The information is provided for illustrative purposes only. Different benchmarks, economic periods and other methods and market conditions may result in significantly different outcomes. Indices are unmanaged and unavailable for direct investment. Past performance is no guarantee of future results.

60% Risk Assets / 40% Hedging Assets – Low Volatility Period

Value at Risk 1% 2.5% 5% 10%

Surplus Return -0.99% -0.83% -0.70% -0.55%

Change in Funded Ratio -1% -1% -1% -1%



60% Risk Assets / 40% Hedging Assets – High Volatility Period

Value at Risk 1% 2.5% 5% 10%

Surplus Return -5.74% -4.83% -4.06% -3.16%

Change in Funded Ratio -6% -5% -4% -3%Source: Nuveen Asset Management, Bloomberg


40% Risk Assets / 60% Hedging Assets – High Volatility Period

Value at Risk 1% 2.5% 5% 10%

Surplus Return -3.82% -3.22% -2.70% -2.11%

Change in Funded Ratio -4% -3% -3% -2%Source: Nuveen Asset Management, Bloomberg


-5

5

15

25

35

45Su

rplu

s V

ola

tilit

y


Traditional De-Risking Plan – Range of Surplus Volatility45.3%

42.6%39.7%

36.5%

31.1%

25.3%

19.2%

12.9%8.5%

1.9%

Funded Ratio 87.5% 90% 92.5% 95% 97.5% 100% 102.5% 105% 107.5% 110%

Risk Assets 60% 55% 50% 45% 37.5% 30% 22.5% 15% 10% 0%

Hedge Assets 40% 45% 50% 55% 62.5% 70% 77.5% 85% 90% 100%


Risk Budget Targeting

Equities60%

Fixed Income (D=6)40%

Equity Risk50%

InterestRate Risk

50%

Portfolio Contribution to Surplus RiskLiabilities

Funded Ratio = 100%+ =

The “Contribution to Surplus Risk” chart employs assumptions Nuveen Asset Management believes to be reasonable representations of asset class risk characteristics. Different assumptions may change the results of the analysis.

Risk Budget Targeting

Equity Risk87%

Interest Rate Risk13%

Contribution to Surplus Risk

0

10

20

30

40

50

60

70

80

90VIX Index

48

Source: Nuveen Asset Management. The “Contribution to Surplus Risk” chart employs assumptions Nuveen Asset Management believes to be reasonable representations of asset class risk characteristics. Different assumptions may change the results of the analysis.


Volatility-Controlled De-Risking

Funded Ratio 87.5% 90% 92.5% 95% 97.5% 100% 102.5% 105% 107.5% 110%

Risk Assets 60% 55% 50% 45% 37.5% 30% 22.5% 15% 10% 0%

Hedge Assets 40% 45% 50% 55% 62.5% 70% 77.5% 85% 90% 100%

-5

5

15

25

35

45

Surp

lus

Vo

lati

lity


Equity Correlations to PPA Spot Curve

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

Ro

llin

g 2

4-M

on

th C

orr

ela

tio

ns

U.S. Large Cap Equities U.S. Small Cap Equities Intl Dev Equities Emg Mkt Equities

Source: Nuveen Asset Management, BloombergUS Large Cap Equities are represented by the Russell 1000 Index. US Small Cap Equities are represented by the Russell 2000 Index. Intl Dev. Equities are represented by the MSCI EAFE Index. Emg Mkt Equities are represented by the MSCI Emerging Markets Index. The information is provided for illustrative purposes only. Indices are unmanaged and unavailable for direct investment. Past performance is no guarantee of future results.

Steps Toward Holistic Risk Solutions

Introductory Step:

Individual Asset Classes

Volatility-Targeted U.S. Equities

Volatility-Targeted International Developed Equities

Volatility-Targeted Emerging Market Equities

Advanced Step:

Risk Overlay

Appendix

Low Volatility Equities

0

10

20

30

40

50

60

70

80

90S&P 500 Index

S&P Low Volatility Index

An

nu

aliz

ed V

ola

tilit

y

Source: Nuveen Asset Management, BloombergIndices are unmanaged and unavailable for direct investment. Past performance is no guarantee of future results.

Minimum Variance Equities

0

10

20

30

40

50

60

70

80MSCI World Index

MSCI World Minimum Volatility Index

An

nu

aliz

ed V

ola

tilit

y

Source: Nuveen Asset Management, BloombergIndices are unmanaged and unavailable for direct investment. Past performance is no guarantee of future results.

Smart BetaA

nn

ual

ized

Vo

lati

lity

0

10

20

30

40

50

60

70

80

90Russell 1000 Index

"Smart Beta" 1000 Index


Important Information

The Hypothetical Sample Plan portfolio is presented for illustrative purposes only and does not reflect a strategy or product currently or previously managed by Nuveen Asset Management, LLC (“NAM”). The hypothetical portfolio allocations, holdings and weights and other characteristics are subject to change without notice. There is no guarantee the hypothetical portfolio will meet its investment objectives. The reader should not assume that investment in the hypothetical portfolio will be profitable. This report contains no recommendation to buy or sell any specific securities and should not be considered investment advice of any kind.

This information represents the opinion of Nuveen Asset Management, LLC, and is not intended to be a forecast or guarantee of future

events or results. It is not intended to provide specific advice and should not be considered investment advice of any kind. Information was

obtained from sources we believe to be reliable, but are not guaranteed as to their accuracy or completeness. This report contains no

recommendations to buy or sell specific securities or investment products. All investments carry a certain degree of risk, including possible

loss of principal. This presentation is for general information purposes only and should not be construed as specific investment advice. It is

important to review your investment objectives, risk tolerance, and liquidity needs before choosing an investment style or manager.

Investing in securities involves risk of loss that clients should be prepared to bear. There is no assurance that an investment will provide

positive performance over any period of time. Past performance is no guarantee of future results and different periods and market

conditions may result in significantly different outcomes.Firm tenure for Nuveen Asset Management investment professionals may include

years of service at predecessor advisory operations.

Nuveen Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen Investments, Inc.

4696-INST-O08/15

Documents

Managed Volatility & LDI: A Holistic Plan Solution...Hypothetical Sample Plan Strategy Development: Portfolio Analysis Metric Current Proposed Change Return-Seeking Assets 60.0% 60.0%