ve 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 manager get a percent gain.

>> typically they'll get a gain an incentive fee on the 20 percent but not in the subsequent where we're well into the next year until they're back to where they were at the prior point and okay. so in essence their losses will offset their gain. >> that's correct. >> one by one. >> not everyone at the same time. >> the majority have my water marks. >> the claw back you get our money back if they lose money that's not the case here it is subsequent gains you're not paying an incentive fee. >> if they go out of business your toast. >> that's true. >> we're truly sorry you lost

95 percent of our money but not sorry enough to give back the fees. >> the risk is i would role the device because i can make it up let me move on the staffs recommendations report if i could go through those 0 next. >> let's - let's go to some of the assumptions they drive the numbers so let me go to the report this is page 7 of angeles report some of the assumption and while they get they're typically the assumptions drive it out put so it will lean our way for the natural resources and the infrastructure i had a question on this the one thing that it seems to me to be

prudent - i'm looking at the bottom of page 7 if you have our report and following infrastructure would be the riches a bridges and the roads and those kinds of things that are having high cast flows and some inflation protection that's part of the recommendation so to me those are this makes the most sense to switch 234r from bonds and infrastructure that as a 5 percent rate of return on principle so roughly a 10 percent rate of return we have cal percent representative made a presentation to that effect so to me the infrastructure hunter's bay should having a co-relation with fixed out flow

so our number for the fixed income if to the income there's a low number of 10 percent and high co-relies westbound infrastructure and bonds and infrastructure private equity spelling the last name i'd think that infrastructure would have a higher co-relation with bonds your fixed income asset is a similar type of so can you talk about that on page 7 please. that is due to the fact that infrastructure is not public so it is locked up for a very long time so the cash flows may or may not come off the funds as reinvested in the funds we assumed they were more equity like when you look at them

there's 6 and a half percent returning asset versus only three to four depending on what kind of bond portfolio you put together so because of the liquidity they're not marked, of course as income their end up keying more equity like in terms of driving the recommendation i'll say we modeled infrastructure to be really best considered as part of the real sate. >> i did not ask that question it is only focusing on the correlation so the structure determines the reason you have a low co-relation is that what i'm hearing. >> yeah. the cash flows are not as constant as the income and much less 4r0ikd so the

characteristics are probably their clearly differenceers they're a long term depression asset and still liquidity. >> so bonds are a long term assets so it's not as much as a function. >> i mean their longshoreman in the terms of being 4r07k9d up. >> again, i disagree with our numbers ass backgrounds in terms of the actual flying asset if you're saying the structure determines that is not the genuine look at this from any prospective and the underlying asset should have a higher co-relation but regarding the standard delineations it characterizes are higher standardization for

infrastructure and natural resources that is 11 percent and 12 percent respectfully when this represents was presented to the board in january i presented the case for on all resources showing the historic standardization for farmland and 6 and a half percent and tinder land and others so based on the co-relations those are much lower that obviously makes the asset class nor appealing if i can ask the two people to stop talking about take your conversations outside it is distracting those should be less for the classes and i think it make sense those are difference first degree assets you're not see the co-relation between the

real assets if the market drops i still think that people reason or or going to drive their cars crayons the toll roads and buy food it is a lot more better defense in the significant beer market that is what that is all about i think the standardizations are too high for the infrastructure and 2 should be lower for that as well. >> so on the report a that's what i have let's go to the report and the recommendations on the table since the gentleman wants us to see the elements let go to the precise page and the number we're looking at here. >> two on the - >> i thought that is page 11 the second column from the right so -

>> okay. so let's this is the motion on the table i believe this is the with what's called page 11 the second to the far right most column that is the title easiest policy just want to point out that we're notlogically bonds that much you're moving bond from 25 to 20 percent so we still have a lot of fixed up i income in the portfolio that is the consensus we want to lower the risks of populate so yourlogically the fixed income by 5 percent in terms of coming up with that again, if i had my druthd i think that real assets is the best answer in terms of the natural resources of

infrastructure are the best difference if i did portfolio that's been presented on the correlations and his research shows the real seats have the greatest differenceing effects so has anything changed since then he building that our research in 2007 was the greatest research. >> it's great because given it's very liquid. >> real estate is like that i know unifying your mixing those but 12 percent of real estate is property is a big difference between having a farmland and timer land that's different than a building. >> and commissioners this is 17 awhile most of that is probably going to be real estate he know

that is good neighbor policy goub going to be up the bar then cambridge to determine the constitution of that 17 i want to point out two things suppose it's 12 and 5 those are liquid assets it take a a long time. >> i i know. >> this is not a closed deal this is another a at this point in time today and i signaled in merry in two and a half years we'll revisit from 7 to something higher in addition we'll take a close look at the infrastructure we ran out of time it is a highly liquid asset not a high rate of return but a good cash flow so we'll hope the nation will reinvest and it's in

its infrastructure so we want to take a look at i want to say the signaling effect is going 17 now we're not done. >> those are true or false questions and i'll scombroeld 234u7b will the hedge fund manager being a fiduciary to this fund? again let me repeat will the hedge fund manager state he'll take the standing of the fiduciary to the fund >> i'll say no, but i'll ask leslie a question too. >> hedge funds you're likely to work with are scc regulated and they've take into account the action in their clients interest the fiduciary matters are

complicated honestly so are they fiduciary to their clients or. >> that's my question. >> specifically to our plan that will depend on the infrastructure and other things. >> i have a few of these a no and maybe is the way i'm reading our answers. >> i would say no to maybe to maybe. >> well, it - >> this is a big deal you know i'm a fiduciary i have fiduciary responsibilities we don't have errors and omission insurance so. >> it's a big deal would we not limit their answer to yes or no so it could be on the record. >> let's negotiate it - >> it is complicated. >> can we speak. >> are there equate managers.

>> yes. that's what i meant about the structure if you have a separately managed assassinate that commissioner driscoll mentioned there is a manager that is managing on your behalf if you're in a fund or other structure the relationship is more complicated and i don't feel comfortable giving a yes or no. >> just say yes or no i'm a fiduciary i'm personally liable and number 2 you know we're not governed by the employer security act of 1974 you ply with that the question will the hedge fund managers comply with or recess if you could comply with one word.

>> if we could negotiate i can't say yes or no negotiable. >> in most cases and certainly hedge funds are fully compliant bus they're very well helped on the other hand, represented in the risk portfolios. >> number that will the hedge funds managers have a manager investment guidelines stated in the guidelines we have another security that the instruments they can invest in and the rejected the question is will the hedge fund managers have a manager investment guidelines that is explicitly stated in the contract? >> as for all the other managers. >> again your hedge fund program is not flushed out

if you invest in funds you will have the guidelines that apply to those 0 fund if i invest in separate accounts you can direct the managers precisely. >> so the fund of one structure and the larger amount of money we e money we have the more likely to be successful at negotiating funds of one where it's our fund pursue. >> if you don't mind so if we did a customized account we'll negotiate it. >> - >> sure. >> absolutely is it better. >> so if you go like this it's better. >> sorry then it's far away from me. >> so the chief investment officer are those the things

we'll negotiate in a customized account. >> and . >> number 4 will hedge fund managers provide gifts that is the global standards i have a standards for the csa regarding performance that are provided and it's the gift compliance we want to make sure the performance numbers save this will the hedge fund managers satisfy global investment manager performances? >> i think in our experience gift gifts was developed for merchandising that managed many portfolios so they might have hundreds gifts probes how you

put together the portfolios in a simple track record for a fund for a hedge fund the manager had report on the performance of the funds in due diligence need to look at exactly how the track record is put together with the skraegs evaluation policies like you look at a pr r with a liquid manager so the gibbs standards will be procedures for generated time rate of return will apply whether or not the firms are gibbs compliant that is not as universally the case. >> and . >> once again that's due diligence for us you'll be going through. >> the commissioner i'll add this goes to the robustness of a

special will consultant or specialist fund to fund because the investment due diligence is something you know we can do but it is the operation of due diligence you know the guts of you know the evaluation and the like this is very important that's where i think another value added in a specialist is very valueable. >> do you have a cpa. >> no. >> i want to ask that we have a question one question respondent to the risk agree incubator to identify the "x" powers to identify the positions portfolios of company is in essence the way i interpret that you're not going to get the holdings or the contributions buy the risk holders so number one you can talk about the risk

agree gate if you members of the public know what's going on. >> risk aggregation in fact to the exposure are two things the risk ago gator they'll take the holdings of the managers and put them together and show you what you're holdings are and our factor exposure, etc. so this is one thing that many plans do another thing because not many plans actually look at that i mean i've talked to a lot of black man's to you use the holder place data they don't so another option is the factor exposure you're seeing what our data is and country and wheezing weights and the equity.

>> i don't think the customers will understand that will you believing be able to see the holders it is in a simple language or is is batting bet to this and that. >> it can be both if we end up in the plan insists on the holdings and we will see that and the microscopically you described. >> yes or no can you see the holdings and transactions of the merchandising. >> i would say no. >> you may or may not. >> may or may not. >> it depends on okay. >> the reason i think that is you substantive every managing we see the holders transactions this is very troubling pursuing let's leave it at that number 5

every other manager we ask them to adhere to the code of ethnics so two of the members of this board have it you have it and leslie and many of the staff has it the cf a will the merchandising adhere to the code of ethnic leslie. >> again, i really can't say that every single hedge funds would sign up ann as an organization many hedge fund managers have cf a's i think you may well-wisher to require that the firms you work with are scc regulated and any if i understand of any size will be fcc regulated and they have a code of ethnics so you will again, that's part of the due

diligence process to look at the managers operations and their ethnics code and whether each one complies with all 12 or whatever elements to see the code of ethics we'll have to development and last direct question liabilities insurance members of the board don't have errors and omissions we're impersonal reliable. >> that's what keeps us helicopter and sharing is a with other members of the board so the question i have is the standard for liability for the hedge funds managers whether the liability standard be in relations or negative

gunman's or gross negligence. >> either amongst the investment we have the difference being that in negative gansz you screwed up and in gross negligence you deceived. >> so they have 0 intentionally deceive. >> i believe that's the answer but katie might know most of the time we accept the standard of the gross negligence. >> do we pay for their defense as a member felt fund so do we pay for the managers defense in a negligence case. >> those are terms that are negotiated. >> negotiated right. >> okay. well, that's answering any questions for me he my vote is a no until i have

a burden of proof and there's enough accents i appreciate the goal of losing the risk of the portfolio that is a legitimate interpose but the investment of in hedge fund is not the answer so thank you (clapping.) >> we want to shift the conversation a little bit back into the original question that commissioner bridges about the proposal and the direct or is a a fund to fund investment. >> it's to be determined if you if there is approved pardon. >> speak closer to the

microphone. >> if this is approved we'll conduct a search for fund to fund and so it will be demonstrated by that outcome. >> okay. >> so it's on be signaling the board will be signaling a strategic intent this is what we're going to do go out and present us with a platoon in terms of the infrastructure who's going to do it. >> with a followup question what's - what's our kind of draft timeline how long does that take to recruit a person or roll out the entire process. >> the rfp could come next week the board could productive that the rfp responded about the third week of april i'm going to guess elevating those and until early

may until about mayor 10 and from there presenting to the board our final sarah so we'll enlist in a board meeting june and offsite due diligence maybe august before an investment recommendation on who to detainee. >> will it be one person or one firm we'll make or looking to assembly an entire team. >> so multiple sets of eyes i envision 3 sets of eyeing a third party a fund of fund are specialist consultant and second in the inn house experienced staff we'll hire that will also take i'm going to guessfour or five months will culminate about the

same and the third set of eyeing is myself regarding the second there's been a handful of people that have reached out over the country expressing an interest should this be approved and impressed how experienced they are in hedge fund. >> when it comes to investing at 10 percent or 5 percent do you think that either one of those percentages or - did investing at the higher percentage make the job more attractive to other people. >> that's a good question commissioner, i think a dismissal i don't think dollar fund will attract $2 billion that be important attractive

people have reached out to me has larger allocations than one billion dollars but but it's certify the area is not that badass place to live i think so in terms of krouchlt i think we'll be in a good place at 5 percent and good place at 10 percent the trade off between the 5 and 10 really is it comes down to this strategic decision it does the board want to ease into something which it doesn't have experiences deference in or do you want the reduction in risk sooner than later so 5 percent didn't move the risk reductions down and 10 percent is pretty might have seen. >> it is meaningful.

>> so it's the decision point for the board if you approval this at all but the trade off between those two. >> thank you a few more questions something i've heard in public comment olden acquit often was a concern i share are the fees high-level fees so in doing a little bit of research and digging i learned there are ways to customize selfies maybe you can expand on that. >> first of all to begin with the 20 and 20 is a little bit outdated it's probably for an average of about 1.7 and 78 i'm going to ask leslie to confirm. >> there's some downward pressure. >> so that's 17 and 17 is potential more the norm those