Massachusetts Water Resources Authority (“MWRA”) Employees’ Retirement System

Risk Management TOP DOWN BOTTOM UP Portfolio Managers have primary responsibility to oversee and manage risk, including liquidity, within clear portfolio- specific guidelines. We typically will not own more than 10% of an underlying company. We monitor regional, country and industry exposures and ensure we do not breach maximum allocations. Approximately 96% of the portfolio can be liquidated in 30 days.¹ Positions are reviewed for the value impact of macroeconomic circumstances. Baxter Street employs FX hedging when the strategy has a large exposure to a given currency that is overvalued relative to long-term purchasing power parity, and it is cost effective to hedge. The Firm's Investment Committee, consisting of all Portfolio Managers, meets quarterly to conduct portfolio reviews including analysis of business quality, investment theses, exposures, counterparties and liquidity. Members of our team present opposing arguments and play devil's advocate for each investment. Our most valuable risk management tool is the deep understanding we have of our businesses. We typically study a business for over two years before establishing a core position. We believe our investment strategy is relatively defensive due to our investments in the highest-quality, predictable businesses with sustainable barriers to competition. We weigh downside risk more heavily than upside reward, and our focus is on protecting against a permanent loss of capital. Position sizing is determined by our estimates of upside to intrinsic value and downside risk, which are derived from cash flow analysis. ¹As of December 31, 2020. The above liquidity analysis is based on gross exposure and derived using information from Bloomberg, assuming a six-month look back for average daily volume (ADV) and limiting our participation rate to 20% of ADV. The liquidity analysis excludes listed indices, custom basket swaps and options. The manager reserves the right to exclude any other securities, which either do not show volume on Bloomberg or, in the manager's opinion, show inaccurate volume. See additional disclosures at the end of this document. Nothing herein is intended to imply that an investment in the Funds or the Funds' investment strategies may be considered conservative. Investment losses may occur, and there can be no assurance that any investment objectives will be achieved. 16

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