The U.S. presidential election results took many investors by surprise. After an initial overnight

plunge in the futures market, U.S. equities rallied on expectations of a more pro‐business regulatory environment and the possibility of large‐scale fiscal stimulus. U.S. equities may possess greater upside potential post‐election.

Economies around the globe experienced higher inflation as the effects of lower energy prices fall out of year‐over‐year inflation figures. U.S. headline inflation rose to 1.7% year over year and the market’s inflation expectations increased. U.S. consumer and business sentiment indicators improved markedly in the fourth quarter based on positive expectations of future economic growth.

U.S. interest rates moved higher in Q4, returning the yield curve to levels experienced one year ago. The Federal Reserve is not likely to increase rates drastically because of lower yields and economic growth around the globe, and due to an already strong U.S. dollar. The U.S. dollar rose 6.4% in Q4 on a trade‐weighted basis. Currency movement continues to contribute to higher volatility for investors with unhedged currency exposure.

Developed countries experienced a coordinated pick up in inflation in recent months, suggesting we may be moving into a reflationary environment. Headline CPI was up 1.1% in the Eurozone in December, its highest rate in more than three years.

For the quarter ending December 31, 2016 ACERA’s Total Fund had gross returns of 0.8%, ranking it in the 52^nd percentile among its peers, and finished the fourth quarter at a market value of $7.0 billion.

Domestic Equities returned 3.9% (71^st percentile), International Equities returned -2.1% (48^th percentile) and Fixed Income returned -3.2% (77^th percentile) in the quarter. ACERA’s Real Estate managers composite and Private Equity and Alternatives Return Leading Strategies* (PEARLS) composite returned 1.8% and 4.2% respectively, during the fourth quarter. Gross return for the Real Assets class was 2.5%. ACERA is a long term investor with a well-diversified portfolio and has generated 7.6% annualized returns over the last 20 years, ranking it in the 6^th percentile among its peers.

* Real Estate and PEARLS composite returns are subject to a quarter lag in reporting results.