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 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 identif