started in february i believe it was march that i met here in our offices with a member of their hedge fund team and talked with him a couple of hours we effort intended through everything this was a long meeting and since then we've talked by phone a couple of times more recently is that i did reach out to the gentleman and heard back from him a week and a half ago i would like to say pubically i'm appreciative that a man that has as much time demands was gracious to talk with me about thirty minutes at the beginning of his conversation he asked for confidentiality about the specification of our

conversation subject matters we walked through my objectives to learn about the evolution of the program why in their thought 38 they didn't achieve in their droifkdz and why their divesting from the programs and could others succeed in the program he pointed out specifically so a confidence he had with blue that berg resort that the resort asked me the same question and on that or smaller than you can they psyche my answer was yes we talked about some of the lessons from their experience i asked him for suggestions and he give me some suggestions i'm

appreciative. >> it would be wonderful i don't know if you can do this but sometime if we could appear in front of this board or have one of his people. >> i had a couple of ideas and i can't how he can help us i don't want to put him on the spot but he is glad to help, however, he came in ways that their you know the ceo. >> uh-huh. >> but he was very yes, ma'am authentic i thought that you folks a number of times but we're going to talk again in the next couple of weeks or so. >> i've okay and somebody made a comment

about that we grew since 2008 without risky assets i mean i consider private equities as 16 percent on the risker scale of our allocations can you comment to that. >> that is not correct about i would say 90 percent more than 85 percent of our portfolios is in risk oriented assets we have a little bit less than 16 percent in high quality bond and high quality bonds is more it's risk oriented but many, many, many less risk. >> let me understand you consider do you say or 85 percent of our portfolios is in

risk. >> north of '85 percent the only risk free assets is u.s. treasurers we have let me asks eunice when i believe our exposure is mr. fur land made a very, very comment. >> oh, he did. >> he said that we're in a dilemma the dilemma is that the risk free rate of return is 2 percent and as my brother said to me last night it's all risk and return you know so what we're trying to do is optimize that relationship and still earn 7 and a half percent and not subject ourselves to as much as a loss as we've experienced in the internet model and the

greatest recession. >> oh, to add and sorry to add that the last 6 years have been an absolutely phenomenal environment and if we projected the future to look like the always look like the last 6 years the purpose of hedge funds is an environment experience in 2008, where s&p was down thirty percent and the draw down 50 global inhibits were down 42 and hvtdz plus 19 but protected on the downside that is the way in which hedge funds are less risky they protect against the very, very deep drawdowns that be along to come back from and to

plan you'll hear from our ticky later how the deep losses to roll off and the lower volatility of hedge funds with extremely low bond exceptions and an equity market that is pretty long to we know a time to put the savings in the ground. >> real quick in addition to the hedge funds in the great recession this was nowhere else to hide except in intruders and in 2002 it was the internet bowl there was investment values and hedge funds had a slight gain over others period and in addition i'd like to - >> i want i want to say one

thing before you finish. >> okay. >> that again my comment is there are good hedge funds and bad hedge funds i mean not all hedge funds protect in the down side and so i think that w5er7bd people out in the public have read about hedge funds that have done parolee i mean very poorly a lot of the reaps some finds hedge funds have done very poorly is that they probably had excess leverage so that it is something that as well as many other things they can do but a lot of times when you see the hugely bad under professionalism hedge funds it is because they've taken on 7 or 8 or 9

times leverage so they double bound distancing on their bet so that's why i mean although i say hedge funds in general is true in general as a large class they were down half as much as the s&p 5 hundreds so it is enbunt upon us to monitor this and to as i said early in the program we need to see the program the staff you hire the point out to get into those very, very tough hedge funds i mean george sorrows was a hedge fund correct. he was a hedge fund for a lot of years and did incredibly well, we

would have wanted to get into the george sorrows he's brought it all in house and does it all himself so i go back to i'll let you finish on that but i want to go back to the good and bad i mean warren buffett in 1989 bought u.s. air it was a horrible bust and warren buffett we know warren buffett is a great investor but didn't do hedge fund he does by auctioned you bought department of education's take care shoes in a sense it become worth less and used 4 point i have percent of his stock to buy it you don't always win and in 2008 he bet on

energy prices and bought conco it was a horrible disaster so he can rate things and all put together you know he's done well, because he's dough so many things that have done well in the pension funds we're at a higher status than the pension funds in 9 country it is getting berry you have our guarantee you know we will do everything to make sure those programs are not excess are well gifted so all the programs we've lost the come back we want to make sure we have things in place that can help that so i just wanted to

make sure that again, when we look at the hedge funds we understand the leverage of those hedge funds i'll let you continue. >> thank you, commissioner regarding the performance again 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 few more 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