Boeing 2015 Annual Report Download - page 107

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Fixed income securities are invested primarily in a diversified portfolio of long duration instruments. Global
equity securities are invested in a diversified portfolio of U.S. and non-U.S. companies, across various
industries and market capitalizations.
Real estate and real assets include global private investments that may be held through an investment in
a limited partnership (LP) or other fund structures and publicly traded investments (such as Real Estate
Investment Trusts (REITs) in the case of real estate). Real estate includes, but is not limited to, investments
in office, retail, apartment and industrial properties. Real assets include, but are not limited to, investments
in natural resources (such as energy, farmland and timber), commodities and infrastructure. Private equity
investment vehicles are primarily limited partnerships (LPs) and fund-of-funds that mainly invest in U.S.
and non-U.S. leveraged buyout, venture capital and special situation strategies.
Hedge fund investments seek to capitalize on inefficiencies identified across and within different asset
classes or markets. Hedge fund strategy types include, but are not limited to directional, event driven,
relative value, long-short and multi-strategy.
Investment managers are retained for explicit investment roles specified by contractual investment
guidelines. Certain investment managers are authorized to use derivatives, such as equity or bond futures,
swaps, options and currency futures or forwards. Derivatives are used to achieve the desired market
exposure of a security or an index, transfer value-added performance between asset classes, achieve the
desired currency exposure, adjust portfolio duration or rebalance the total portfolio to the target asset
allocation.
As a percentage of total pension plan assets, derivative net notional amounts were 13.1% and 3.5% for
fixed income, including to-be-announced mortgage-backed securities and treasury forwards, and 4.0%
and 2.0% for global equity and commodities at December 31, 2015 and 2014.
Risk Management In managing the plan assets, we review and manage risk associated with funded status
risk, interest rate risk, market risk, counterparty risk, liquidity risk and operational risk. Liability matching
and asset class diversification are central to our risk management approach and are integral to the overall
investment strategy. Further, asset classes are constructed to achieve diversification by investment
strategy, by investment manager, by industry or sector and by holding. Investment manager guidelines for
publicly traded assets are specified and are monitored regularly through the custodian. Credit parameters
for counterparties have been established for managers permitted to trade over-the-counter derivatives.
Valuation is governed through several types of procedures, including reviews of manager valuation policies,
custodian valuation processes, pricing vendor practices, pricing reconciliation, and periodic, security-
specific valuation testing.
Fair Value Measurements The following table presents our plan assets using the fair value hierarchy as
of December 31, 2015 and 2014. The fair value hierarchy has three levels based on the reliability of the
inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in
active markets for identical assets. Level 2 refers to fair values estimated using significant other observable
inputs, and Level 3 includes fair values estimated using significant unobservable inputs. We have
retrospectively adopted ASU No. 2015-07, Disclosures for Investments in Certain Entities that calculate
Net Asset Value Per Share. The fair value hierarchy now excludes certain investments which are valued
using Net Asset Value (NAVs) as a practical expedient.