of the hedge funds and down market the index lost 19 or whatever it was in 2008 according to one provider who i asked for to see the returns the aggregate public plans is they lost 16.4 it's not uncommon for isn't it a fact it is common investors to out perform the hr 4 index because of the way it's constructed not asset weighed so it is weighed towards the managers that have a lot of assets and presuming done well it is not even quell weighed or excuse me. not the median return you take the sum of the managers returns and gifted and the managers meandered manager has

outperformed by one and a half percent so it's not uncommon for people to systematically out perform the h f r i wanted to mention the bad hedge funds, of course, we're aware of the newsworthy items that madoff and longer than capital the 10 fraudulent hedge funds almost one hundred mroifldz the 10 largest fraudulent companies in the united states add up to one $.5 trillion so more than 15 percent times the size and the hedge fund universe is $3 trillion and the u.s. market is about 23 or $34 billion so the u.s. equity market is 8

times the size of the hedge funds market but it has had 15 times in terms of large-scale frauds so you know we point to bad apples can be found anywhere it is important to bury through the transparency in research and the partnership what's the incentives of the manager you know so anyways i wanted to to point out in scale it universe is not different than ours. >> one finally question again i want to make sure we answer any questions out in the audience people have asked they said your area you were in was reduced to explosive fees and under performs i think claire you made that comment so it mr.

cokeer should. >> regarding performance that's not the case you can look at that up on the website the 3 equities i managed their agree gate performance was one point one percent and those numbers are well above average the alternative entity strategy on the performed by leveling percent in 2011, i asked the staff at s c on monday has what we call on tusk it is killing it outperformed by another 78 who's taken place at uc is what has needed to take place at uc for a long time imagine uc there were

29 public equity managers that is what 2w5078 way too many trying to edge that down results in higher tracking arrows that worried the c i o it was down to 21 new c i o wants to cut that there were 60 machine guns managers kroonsz across the public equity market if you have more than 25 or thirty in the agree congratulating gait you need to stop right there are a have a large internally managed program you can't go out and bow manager after manager so the performance is very good your sharp for the plan as a whole which i was integral in

the allocation was the sharp the returned were in the 2 that per actually, you, look this up on the website so pretty good returned with lower risk and the risk adjusted returns the information ratio i was managing most of the money so the information meaning the excess returns by the active stacey says is first percent pilgrim actually. >> i take it on the website. >> so i think claire is writing this down this is the information that probably you didn't have this is why we have more faith in mr. cokeer and what he achieve he's done those programs prior and performance track records in the bad market

in 2008, and that's important to see. >> and commissioners the numbers i pointed out for years through june 14th on ucs website that's didn't exclude 2008 when we and i'll try not to be redundant but there were questions asked by the audience and plus e-mails from the members actually and retire and statements being made so i want to try and show to ms. hawthorne we're listening to many hawk i think he's something been the activitys of the board members and not waiting for the decisions this is not a rush

stamped board this has to do what happened in 2008 is that true. >> that's exactly it. >> my prevention it is about reducing risk and this hedge fund and the strategies what we have we want to call this their risky hover this is less risker than bonds very a the information to show us so what it's important to reduce risk by still trying to reach it target of the rate return that is 7.5 percent that effects the contributions we the actual members must pay and it dramatically effects what the citizens and taxpayers must pay they pay 2 to one

it goes to the issue of not how much to get to the fully fund cola there's a lawsuit this the board will deal with no matter wail pay for a the benefits if i have a chance for a good benefit the thing is my pension is guaranteed by the city not by the funding ratio the supplemental cola will do that but the city backs the promises in the charter i believe that's true of every city employee a member of the system we're trying to do something to knock out the drawdowns that occurred in 2008, and 2002 when we dropped blood two periods the

discussion about the model of selection of managers it is one important document we must do we control that we must obsolete on and develop that's the guidelines we do that in the private equity if we don't state our guidelines that's where we will address the leverage and the social issues so in the development of guidelines it's the first step before we decide who we're going to hire and the infrastructure how and when will that be done. >> commissioner the sequence of events to asking conduct an rfp, second is conduct a search and then third to retain somebody after those things are done then

i envision crafting investment guidelines after we have someone in house to oversee the program that's the subsequence of events; right? >> that will address the ethnical issues that the members want us to take not have. >> i'm sorry. >> the ethnical issues. >> those include the social responsibility of nesting. >> thank you issue of transparency you touched think it a moment ago but they use the issue of transparency you mentioned there are people if we wanted complete transparency i looked at a couple of managers reports i didn't building the first one one-on-one most of the hedge funds investments are in limited piece of paper which we do a lot in the private equity, however

for certain managers desire to do it for the good ones restraining order troubled and embarrassed they've set up investments for the clients where there's no limited pales in comparison the manages don't get the money it is for the custodian dui but it is not mixture there's transparency everyday everyday that costs a point is that level of transparency necessary not always but what's occurred since 2008 i meet two of the groups in the private entity we invest in the limited partnerships there's been improvements on the backpacks so it is software so in the hedge fund assets area the same thing

has occurred between investors and hedge fund and consultants trying to improve the best practices a driven from the industry not from the government it is one thing last week 11 thousand hedge funds. >> i want to say since the franklin act passed 16 have fold because they don't know how to do the regulatory filings they disappear have are they did top 15 hundred funds yes their but the thing about transparency with the guidelines is the issue of control can we control our

money? the mechanisms are there and the are laws and guidelines we'll go back to the guidelines and infrastructure it r is from i'm in favor of hiring threatened city employees and i have a higher degree of trust when i know person i can ask is it doable i believe it is we've been lucky to get the dons it couples with with who would want san francisco it invest with them may not know but appreciate the success in the private equity portfolio we have a good reputation there built up by staff high-end short and folks because convincing the best to

let you invest because one thing they don't need it for money but if they have too much money we don't want to invest so that's the due diligence for operation just who the hell are those people and the due diligence for the reflex this is what it's all about back to managing the risk to drive the contributions to increase the attraction we dootd don't want paper but they have to guarantee the pensions are processed that's - as for our peers cal percent got out i talked to another trustee and so thankfully folks wrote about things that happened to cal percent not only the first two or three statements as well as

other guidelines we were not sure what we were doing that's where the hard work comes in and we pay attention we're not likening douchlts, however when it comes down to investing money they're exactly like us they don't invest to lose money and start relationships to lose money fits not just the endouchlt so i can't breakdown what they do in terms of of equities it's not just them look at what another innovates have done be orange county and utah and others where they're doing infrastructure on one big union infrastructures are good we've done some but infrastructures are more expensive than hedge

fund and extremely liquid hedge funds your money will be 4r0k9d up for a year but equity money is locked up for 10 to 15 years we like it but there's it's not a reflex but you have to understand that's one of the go problems every area has picking up it's pros and cons investing in choip was great and europe and united states is great but you have to understand the problems that go along with it you can plan according how much 4r0ik9 liquidity do we know the degree of the liquidity we

asking can add more money to reduce risk which i believe mr. cokeer was trying to do when 33 he showed us this in may i apologize we haven't had more meeting but only two citizens showed up the retirees were not aware but i know that there's been a little bit of talking some of the facts just some of the facts they released some of the mississippi and the important information is not exactly true not exactly complete i think that several of you demanded as we go through the process we must be theory that's the thing we have been theory in equity have we been super no, it never stops

>> it's our own money and our pensions have impede by the people of san francisco thank you and i hope we support that. >> commissioner melberger. >> first of all, thank you for the floor and members of the public members of the plan for coming and expressing our viewpoints it is well, this is an important decision let me address some of our comments and i want to address the motion on hand we've talked about warren buffett a lot i know that commissioner paskin-jordan mentioned u.s. air it is interesting i've read most of his letters to the u.s. air i makes fun of it and he wrote every letter he mentioned he got all of his money on the depth as

well as the return which principle he didn't lose money interesting story but here's the thing it is relevant to the hedge funds vs. the trust every annual report that warren buffett said he addressed his failure in u.s. air i might have gotten the first coup on but had a legal condition on the arrears and the penalty you couldn't sell the bonds and stock he was forced to keep it but he let everyone know has it was happening we talked about the currency overlay it wasn't the same level of oh, i made a mistake i want to communicate fully those kinds of habits go a long way to get

truth for the people that have the capital i want to discuss some of the comments by the unions that represent the members this was by terry that we have to trust the exerts let me give you a quote from jfk from the bay of pigs how could i have been so foolish to trust the experts we almost went to uniquely last year war so you tell meer the experts that was the whole problem with the bay of pigs everyone said hey, let's go so beware of the experts and groupthink i want to talk about a few issues i mean we've talked about being able to find the best

managers i have to have all 3 a to find the managers and b to accept the money and c they continue their performs so after all the discussion if that's the case we talked about the cal percent and ted opening lose so the chief executive officer said there were recommendations to invest up on 3 occasions so again, a group made a decision your supporting the facts and omitting the vague facts that go against it is an important issue to come up with i wanted to mention end with the actual recommendation and find errors in that let me talk about

our common ground staff agrees that we hold two many bonds bond are 2 or 3 percent do we have risks to the bonds so the genesis for those recommendations i think are june win we all have anxiety about the market declining but in terms of of the publications and all the print it is a peak to trough to climb just our fund dropped if over billions of that's a peak to trough analysis obviously in hedge fund you're giving up some everyday to have protection on the downside i think your exaggerated when you look at the peek to approve u trough analysis we've heard about the hedge fund over the

lutheran how do you know if you've been successful how do i know if you've been successful in depending on the hedge fund regarding again, i want to quote from randy diamond is he still here it says dated january 29th mr. 0 a chang will take over the portfolio for the chief executive officer and the officers have been reduced and the system was paying excess fees so we're come back to the excess fees 3 things excess fees and number 2 is the risk and 3 the cultural i want to address those 3 in terms of the fees 2 percent are the manager fees and up to 20 the profit; however, how about a down market do they

pay back does the loss go against the credit we see in our private equity portfolio oh, the foes are about the same it's a different investment and the targeted fund for the portfolio alternative investment is 15 percent modeling for a lower money that by bye 15 percent if you're take into account at 15 percent return you're more prone to pay a higher percentage of managing fees if the hedge fund has 10 percent you want to give some more to the manager so they have a skin in the game it is different from the private portfolio we've talked about endouchlts investigating hedge fund there's a defensive

hedge funds sorry endowments and public pension funds are governed by law we must pay cash flow and let's talk about that are you getting income from hedge funds not a word cash flow is important to service the members and also a different cultural for endowments. >> might have a wealthy beneficiary so jean ken france made a lot of money from the endo you do shares of millions of dollars do we want hedge funds will we give one hundred millions no. your the clients and consumers a totally different things it is in terms of the way it is done the

endowments you can't have the on session for the enar document they're not going to get members like you hey this is any money don't do this is a dive culture for endowments i did any due diligence no one mentioned the harvard one of the 3wig9 funds has not recovered in dollars it's precrash peek so they're still in the retired versus the peak before the crash with hundreds and hundreds of employees to manage their hedge funds portfolio let me talk about culture in investing culture tremendous everyone we have a long term hypothetical to fund let me talk about the customers we didn't

talk about the difference in customers within the public pension funds as well as the especially documents but the chief executive officer has given us hundreds and hundreds of pages on the recommendation and risk and everything else so you're saying he hadn't paid attention there is one thing on page 11 one sentence staff has heard and taking a look at the concerns of trusts beneficiaries regarding staff proposals that sf staff hedge funds so there's one sentence i want you to understand it says i, however we believe we're right but one sentence 2, 3, 4 those documents that addresses the concerns of 200 positions that are signed and this hundreds of e-mails and the participation by the members let's not be critical that staff has not addressed the concerns only one thing i want to talk about the risk

that less what common sense is different because everyone here most of the members think the prospective that hedge funds are riskier than stock and site staffs recommendations the analysis says only one masking that's the standard delineation the stated of return so how did this takes into account hedge funds have lost 75 percent of their value the chief financial officer talked about fraud well, if you have fraud in a company and you're in the s.p.c.a. 5 hundred you're not going to allows our directing value they see the insider trading allegations from the i can't pronounce his name the

whole fund is destroyed one of the most humerus and most audacious things i've read in the newspaper is a hedge fund manager in you courtesy that lost 95 percent of their value and was truly sorry for all of the harm that it causes the members but not sorry enough to retract the fees if they have at lawsuit they're not going to make good and any experience there's a contradiction that is very very different from the private equity portfolio if we've put - >> is that a question to mr. - >> yeah. let's ask if the hedge fund managers loss money is that a credit or debt against their gain. >> theres a high-water mark so the incentive fee is reduced.

>> so in essence there's a claw back they match the gain versus the loss. >> claw back is different claw back means you get our money back regardless, how water mark medians future gains you recapture our losses before you pay an incentive fee. >> so let me rephrase it like this. >> we have claw backs but the more normal is the high-water mark no incentive fee is paid again until it gets back to where it was. >> let me ask a question let's see a is a manager has a 20 percent angina this year and next year 20 percent loss will that