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Item 8a, Attachment 2, Page 1 of 24CalPERS Trust Level ReviewInvestment ReviewPeriod Ending June 30, 2018Ted Eliopoulos, Chief Investment OfficerElisabeth Bourqui, Chief Operating Investment OfficerEric Baggesen, Managing Investment DirectorInvestment CommitteeAugust 13, 2018

Item 8a, Attachment 2, Page 2 of 24CalPERS Trust Level ReviewExecutive Summary Performance– Total Fund fiscal year 2018 (FY2018) return was 8.6% Public Equity returned 11.5%, contributing 5.6% of total fund return All program areas experienced positive performance with Private Equity achieving highest total return of 16.1%– Total Fund FY2018 excess return was -6 bps Biggest contributors to FY excess return were Public Equity (-19 bps), Private Equity (-17 bps), and RealAssets ( 13 bps)– Affiliate Investment Program returns were in line with their respective asset allocations, largely positivefor FY2018 Risk– The plan’s risk is driven primarily by growth assets, with performance closely tied to the equity market– The current Barra risk model estimate for total plan volatility is 7.6% This is a short term estimate indicative of behavior given the current environment. The bigger risk for PERFremains that of a severe and/or sustained drawdown in global equity markets which would not be predicted bythe model– Current active volatility estimate is 0.5%, within the 1.5% target

Item 8a, Attachment 2, Page 3 of 24CalPERS Trust Level ReviewPerformance SummaryAs of June 30, 2018Funds ManagedPublic Employees' Retirement FundJudges' Retirement Fund1-Yr3-Yr5-Yr10-YrEndingMarketValueNet Excess Net ExcessNet Excess Net Excess(MM)Returnbps Returnbps Returnbps Return bps351,807 5.2%295.8%31CERBT Strategy 16,8018.0%296.4%427.4%425.9%15CERBT Strategy 21,0906.2%355.4%406.2%40--CERBT Strategy 33954.7%274.3%335.1%42--CalPERS Health Care Bond Fund443 %-14-Judges' Retirement System II FundLegislators' Retirement System FundLong-Term Care FundTerminated Agency Pool4,5151344.0%2.3%

Item 8a, Attachment 2, Page 4 of 24CalPERS Trust Level ReviewPERF 10 Year Cumulative ReturnsTotal Fund Cumulative ReturnsTotal Fund FY ReturnsTotal Fund Cumulative ReturnsActuarial Rate Cumulative ReturnsCalPERS Policy FY ReturnsCalPERS Policy Cumulative Returns120%100%80%60%40%20%0%-20%-40%FY 2009FY 2010FY 2011FY 2012FY 2013FY 2014FY 2015FY 2016FY 2017FY 2018Note: Actuarial Rate of Return was 7.75% during FYs 2007/8-12/13 and 7.5% for FYs 2013/14-16/17.The rate is 7.375% for FY 2017/18.

Item 8a, Attachment 2, Page 5 of 24CalPERS Trust Level ReviewPERF Short-Term vs. Long-Term Performance1-Year Total Returns10-Year Total Returns8.6%Total Fund5.6%11.5%Public Equity6.7%16.1%Private Equity9.0%0.4%Income5.7%8.0%Real 2%0%2%4%6%8%10%12%14%16%18%

Item 8a, Attachment 2, Page 6 of 24CalPERS Trust Level ReviewPERF Policy Benchmark: Expected vs. Realized2013 ALM Return Expectations vs. 5-Yr Realized Policy Benchmark Returns*30%Annualized Return %20%10%0%-10%Total FundPublic Equity Private EquityIncomeReal eturn and volatility expectations are based on the 2013 ALM cycle capital market assumptions. Therange is estimated using arithmetic returns and a 90% confidence level.

Item 8a, Attachment 2, Page 7 of 24CalPERS Trust Level ReviewPERF Rolling 5-Year Excess ReturnsTotal Fund Rolling Excess ReturnTotal Fund 1-Year Excess ReturnTotal Fund Rolling 5-Year Excess Return2%1%0%-1%-2%-3%-4%-5%-6%-7%FY 2009FY 2010FY 2011FY 2012FY 2013FY 2014FY 2015FY 2016FY 2017FY 2018

Item 8a, Attachment 2, Page 8 of 24CalPERS Trust Level ReviewPERF 1-Year and 5-Year Excess Returns1-Year Excess BPS5 Year Excess BPS(6)(7)Total Fund(42)Public Equity4(251)Private Equity(222)38Income73118Real -150-100-50050100150

Item 8a, Attachment 2, Page 9 of 24CalPERS Trust Level ReviewExcess Returns Attribution (as of June 30, 2018)AverageWeight inPlan5 YearProgram ExcessReturn (bps)1 Year5 YearTotal Excess Return (bps)Public Program ContributionsPUBLIC EQUITYINCOMEINFLATIONLIQUIDITYTLPMOTHER PLAN LEVEL52%18%6%3%0%2%(42)38363647353(15)Private Program ContributionsPRIVATE EQUITYREAL ASSETS9%10%(251)118(222)(23)Allocation ManagementPublic Proxy Performance 2Contribution to PlanExcess (bps)1 Year15 25)(21)(4)95(1)(7)1Contribution figures are calculated on monthly basis and aggregated over the respective period.2Impact of not obtaining full desired interim policy exposure to private asset classes and proxyingthese with public assets.Key 5 Year Excess Return Drivers:Positive contribution from publicassets, predominantly FixedIncomeNegative contribution from privateassets, predominantly PrivateEquityNegative contribution fromunderweights to private assetsrequiring proxying with publicsKey 1 Year Excess Return Drivers:Positive contribution from RealAssets, Allocation, and FixedIncomeNegative contribution from Publicand Private Equity

Item 8a, Attachment 2, Page 10 of 24CalPERS Trust Level ReviewPERF Asset Risk Highlights (as of 6/30/2018)Total Plan Risk The plan’s risk is driven primarily by growth assets and the performance of PERF is closely tied to the equity market Over the past 6 months, market volatility increased somewhat, but overall the environment has remained calm byhistorical standards– The Barra risk model’s estimate for total plan volatility is 7.6%. This is a relatively short term estimate indicative ofthe plan’s volatility given the current environment. Rapid shifts in volatility regime can occur and would not bepredicted by this model The bigger risk for PERF remains that of a severe and/or sustained drawdown in global equity markets. Over the past 20years, two such events occurred, during which the current portfolio would have lost on the order of 100B. Such lossestoday would leave the funded status of the plan around 50%Active Risk Current active volatility estimate is 0.5%, within the 1.5% target. Active volatility provides a quantification of how actualimplementation of the portfolio differs from the policy benchmarkOther considerations Well diversified across individual issuers/companies Adequate liquidity coverage and modest leverage level Counterparty risk remains modest

Item 8a, Attachment 2, Page 11 of 24CalPERS Trust Level ReviewGrowth Assets Dominate RiskAs of June 30, 2018Portfolio AllocationInflation, 5.9%Forecast Contribution to VolatilityInflation, 2.7%Trus t Level, 0.9%Trus t Level, 0.6%Li quidity, 0.0%Li quidity, 3.4%Rea l Assets, 11.0%Rea l Assets,10.8%Income, 2.3%Pri va te Equity,13.0%Publ ic Equity,48.8%Publ ic Equity,70.4%Income, 22.5%Pri va te Equity,7.7%40%Total Fund and Performance Contribution of Growth PortfolioRolling 12-Month Returns30%20%10%0%-10%-20%-30%Total FundGrowth Portfolio Performance Contribution to Total Fund-40%Source: BarraOne, State Street Bank

Item 8a, Attachment 2, Page 12 of 24CalPERS Trust Level ReviewVolatility Estimates InterpretationRange of Outcomes Implied byALM's Capital Market Assumptions600550500PERF NAV in B Jan-12Jul-11Jan-11Jul-10150* Most risk models assume that returns are evenly distributed around an average expectation (as shownabove). In the real world, worse outcomes than these occur more frequently than implied by the models.Note: This is an illustrative example with CalPERS risk and return capital market assumptionsfrom 2017 ALM workshop applied to portfolio positions on Jun 29, 2018.

Item 8a, Attachment 2, Page 13 of 24CalPERS Trust Level ReviewDrawdown Risk Looking at how today’s portfolio would have performed during past market events providesan alternate perspective on riskWhile no two market declines unfold in the same way, historical simulation can provide anindication of the magnitude of potential lossesScenarioSimulated Impact on Current PortfolioSimulated ReturnGain/LossEstimated FundingRatio*Subprime and Credit Crisis(Oct 07 – Mar 09)-34%- 119B44%Tech Crash and Recession(Jan 00-Mar 03)-22%- 78B52%*Estimate is a one year projection. Assumes starting funding ratio of 71% as of 6/30/2018 and one year growth in liabilities and cash flowprojections as per CalPERS Actuarial Office.

Item 8a, Attachment 2, Page 14 of 24CalPERS Trust Level ReviewHistorical Equity Market DrawdownsS&P composite declines from all-time highs0%-10%-20%VolckerTighteningFlash Crashof 1962-30%1987 Crash/Program Trading-40%Tech Crash of 1970-50%Tech BubbleCollapseStagflation/ OilEmbargo-60%GlobalFinancialCrisisPost-WWII Crash-70%-80%-90%19281937 FedTighteningCrash 1988199319982003Source: Robert Shiller, Bloomberg, J.P. Morgan Asset Management, BarraOneAs of 06/30/18200820132018

Item 8a, Attachment 2, Page 15 of 24CalPERS Trust Level ReviewUpdates to Performance and Risk Reporting Semi Annual Trust Summary (Eliminating)– Content also existed in either the Monthly Update - Performance and Risk Reportor in the annual program reviews Monthly Update – Performance and Risk (Updating)– Consolidates PERF and Affiliate trusts into single report with consistentpresentation– Adds realized volatility statistics & benchmark descriptions for Affiliate trusts– Removes asset/liability assumptions as they are included in the annual programreviews– Eliminates unnecessary text– Improves ability to adhere to accessibility standards

Item 8a, Attachment 2, Page 16 of 24CalPERS Trust Level ReviewAppendix

Item 8a, Attachment 2, Page 17 of 24CalPERS Trust Level ReviewPERF Asset AllocationAsset ClassAs of: June 30, 2018GrowthPublic EquityPrivate EquityIncomeReal AssetsReal ust LevelTotal %Trust Level0.9%Real Assets10.8%Public Equity48.8%Income22.5%Private Equity7.7%*Interim strategic targets were adopted by the Board and effective April 1, 2018.Growth56.6%

Item 8a, Attachment 2, Page 18 of 24CalPERS Trust Level ReviewPERF Contribution to ReturnAsset ClassGrowthPublic EquityPrivate Equity1-Yr1-YrAverage1-YrContributionWeight (%) Return (%) to Return 1Real AssetsReal 70.1Trust Level0.7--0.1Total Fund1008.68.6

Item 8a, Attachment 2, Page 19 of 24CalPERS Trust Level ReviewPERF Asset Liability Management AssumptionsReturn and Volatility (Expected vs 5-Year Realized)20%15%Private EquityReal Assets10%Return %Public EquityReal AssetsTotal FundIncome5%IncomePrivate EquityPublic EquityTotal FundInflationMore Return0%Inflation-5%-5%More Risk0%5%10%15%20%25%30%Volatility % Expected volatility and return is based on the 2013 ALM Workshop and uses the short-term (110year) expected return from capital market assumptions. Data points scaled based on size of assets.

Item 8a, Attachment 2, Page 20 of 24CalPERS Trust Level ReviewRecent market volatility slightly higher, but still low historically50%S&P 500 12 m trailing e: Bloomberg

Item 8a, Attachment 2, Page 21 of 24CalPERS Trust Level ReviewVolatility estimates vary with models used Risk models are calibrated with historical data and are especially sensitive tohistorical look back period Barra’s model used for risk reporting is calibrated from last 1-3 years of data, while20 history is used for models utilized for ALM purposes Longer term model volatility is higher, reflecting a broader range of marketenvironmentsForecastedAbsolute Volatility - PERFBarra Model Used forRisk Reporting(Short term)Estimate from ALM’sCapital MarketAssumptions(Long term)7.6%11.3%

17Jan-17Dec-16Nov-16Oct-16Sep-16Aug-16Jul-16FTSE Global Total Return Index LevelItem 8a, Attachment 2, Page 22 of 24CalPERS Trust Level ReviewEquity returns for last two years900850800750700650600

Item 8a, Attachment 2, Page 23 of 24CalPERS Trust Level ReviewEquity returns for FY 2017-18 - A year of two 00Jul-17FTSE Global Total Return Index Level880

Item 8a, Attachment 2, Page 24 of 24CalPERS Trust Level ReviewHistorical Returns Are Not Normally DistributedPERF’s Rolling Annual Returns: Jun 89-Jun 18Average HistoricalRolling Return: 9.1%504540HistoricalVolatility: 7.3%35Frequency3025Normal Curve w/same return andvolatility as %Annual Net Returns20%25%30%35%40%45%50%55%

Risk – The plan’s risk is driven primarily by growth assets, with performance closely tied to the equity market – The current Barra risk model estimate for total plan volatility is 7.6% This is a short term estimate indicative of behavior given the curre