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 days path there are a couple of paths to reducing fees further one is manager the accounts okay. and a second is longer than lock up periods if you signal to a manager and hey we're looking to partner together with the world's most outstanding managers we're not going to gain the capital soon, we'll make a 3 year commitments in exchange for lower fees almost all managers will do that. >> many, many. >> many okay many. >> and then the third way to reduce the fees through managed accounts the pathway is having a

large allocation of money $100 million or more for managers you'll begin to think about managed account is within our realm of possibilities. >> can you confirm that and that's probably, maybe larger than that. >> maybe one hundred 50. >> oh, the customization of those fees can you give me a range of how much it would reduce our expense. >> yeah. he think if we were to get down to a level that i think is achieveable i'm going to ask leslie to confirm that about 1.3 and 13 maybe 1 point that 3 and 15. >> what does that mean. >> 1.3 percent in the

management fee and 15 percent of profits for the equipment fee and there's so many valuables and the types of managers some managers are less than expensive and 23 and 20 is on the high side how much you're willing to lock up the 13 sounds low but that maybe- >> now that i think it is probably 1.3 and 15 i think another idea about how the lower fees i'll not do this like in the first 7 or 8 years of a program but new streams and teams being lifted out not only that but take equity in this cal percent did in with public equities managers they funded

arrow street now, it's a $50 million firm is that you provide seat capable north america in exchange for very low fees and sometimes you get a percentage of revenue that may expire after a period of time but that's another pathway but not something we would consider until this thing is seasoned maybe 7 or 10 years down the road if we were ever to do that. >> thank you. i want to good morning to the customers and the members it's good to see you again i wanted to also speak directly to you through this entire process there's been several moments of it reflection and one thing i wanted to come to realize and heard reiterated in public comment was the need for

better, more streamline communication between this body and yourselves and that is something i respect and agree there needs to be a more efficient way to communicate to you make sure that everyone has pure and accurate information a lot of the feedback i've heard as well as red is somewhat concerning in terms of your advocacy for the positions that you're taking and i don't see that as anyone's fault other than our inability to communicate more efficiently so i want to let you know we as a board will be discussing ways to do a better job of communicating and it is my goal it through the communication it will ass also relax the tension that you feel particularly with when we come

to an impasse where we disagree with each other i want to get to a phase we'll disagree but with a level of our respect there and i heard that request for information was made and on some occasions not honored and this again goes back to what i want to see this body move in a direction we develop some kind of a communication direction to communicate with people in a more timely manner i wanted to acknowledge the many concerns that i've heard from folks i've met with from e-mails i've read and public comment that i've heard and there or are couple of things i want to also remind folks of i too i am an active employee my instead of members are active employees

particularly with local 21 i'm very permanently connected to the financial risk and many of the retirees and those soon to be retirees in the room are not in jeopardy of losing their pensions that's an important fact we must always focus on and good investments or bad investments you will have a check it is the financial risk rests on the shoulders of folks hike myself and employees it is scary to look at and real financial climate we're living in and i myself anal a renter as well any staff so the increasing costs of san francisco is not something that say that i miss also want to just give voice to

many of i in this room have overcome a huge learning curve in educating yourselves on hedge funds as well as alternative asset classes i have as well i want to commend the folks in labor that have taken upon themselves to educate themselves and come together collectively it is i think an example of helpful and critical feedback and i'd like to see us move in that direction i'm prepared today to vote in favor of hedge funds i am i said that by the majority of the folks in this room it's apple unimportant position hedge funds have been used 41 by

constitutional investors for over 20 years and one of the things it is attractive of that is that we able to move quickly in and out of this particular investment also known as to other holders we have there are seasoned voices on this body i respect and listen to as i continue to learn but in the he said the reason why i'm going to be cast my vote i do believe that i've heard enough evidence to convince me we need to protect the pension from an unvegetable down mark our strategies may be anybody difference if i had and flexible

and the hedge fund are one as one vehicle to invest our assets in also well, i'm stop there tuff. >> commissioner stansbury. >> can everybody in the audience hear me okay. >> great to members of the public that are here today thank you for coming we've hired our concerns about a year ago we started this progress and several times made it a point to come out and talk to you there are many faces i've meet with in the past year some are for and some against hedge fund one overriding emotion i since is fear retirees will not

receive that monthly pension check i know this looks like first hand but those who haven't heard the store story of 340e my parents they rely on a pension for the city of stockton when stockton filed burden of proof they're retired health care they expected to be there are for the rest of their life it has disappeared that's been decided in court the only question whether or not their continue to receive their monthly pension check and if so how much there are estimates they'll lose half their apprehension imagine in our mid 60s not having a lot of savings you expected your pension and retiree health care to be there and all of a sudden you have 30 no health care and

loss half the pension can you afford the lifestyle unify worked to put in place so they were face with this and mutilate year battle that went through court thankfully they've learned their pension will remain intact but as you look across the country stoelg is not the only example detroit and many other examples so i understand what it is like to be a retiree to truly worry about if iceberg to get it pens so one of the things i've looked how we got where we are if you look at the tech bubble in 2000 there were 3 years of negative returns and we changed nothing and continued with the strategy we had in place who o so when the global financial crisis hit

no 2008 the same thing happened the stock abates e entities lost 41 percent so our planning status went down one hundred plus to a low of 72 percent in 09 is in a period of 8 years from one hundred 8 percent to 72 percent funded we would be remiss if we didn't stop and look at it ourselves and say how did we ended up here and what to change as a sunlight of that extraordinary drop there were a total of 3 ballot measures put out there trying to reform our pension system as a result we have prop c pro activities like myself a couple of others we

took a 40 percent pay cut from prop c so for us logan 20 years down the road i'll thrill that 20 years a highly uncertain now for the retirees i have absolutely no doubt our monthly paycheck will come for the rest of our life i apologize if anyone has made you believe otherwise your pension check will come every most for the rest of your life and after your done it will be for our beneficiaries it is backed up by itself city and county of san francisco so i'll say it you'll forever get our pension check regardless of what's decided here today as we look at where we were and the two down turns we thought

how do we reduce risk so this didn't happen gun the crossroads there's no easy answer the speaker easily awe loutd latitude we're stubble we can't get the funds and stocks are incredibly risky we ride them up and down so as we start to look at hedge funds what we learned and this is real financial data they've provided consistent returned i thought at a luncheon and seated next to a hedge fund dbi and he said well, you can't avoid the 2008s without giving up the, 2013 you can't avoid the major down turns by the way,

hedge fund are temporary you're not going to ride the turn a all the way up but if you look at our global equity that lost 21 percent and hedge funds lost 20 percent if you look at a pension system in southern california or orange county their hedge fund lost one percent we lost 41 and they lost one percent how much would you pay in fees to avoid prop c in the lost of $71 million so 0 that's what we're trying to deal with today if you look at the return hedge funds over the last 20 years it's approximately that twice of the s.p.c.a. 5 hundred with half of the volatility so over the longer over the last 20 years twice the returns with half the risks and there's many

ways to measure the risk how high do we go up and come down it's as good as any as we've gone through the process i think a couple of us have gone out and talked to the retirees and the active employees and there's when i've learned an extraordinary cloud of information surrounding hedge fund the common belief we're going to be increasing the risk in our portfolio thereby pitting u putting retirees that's the contrary we're trying to reduce risk and by every measure in terms of financial returns hedge fund are a way to reduce risk you've heard people talking about warren buffett how he is against hedge fund well, i think that is one data point and

certainly another side to the story we don't know was is in warren buffett's head by few looked at it's scc filings warren is the hedge fund in his fcc fooildz he's talked about contracts i disclosures the interest rate decisive contractors a product of hedge funds not you'll hedge funds they're not the same not all hedge funds utility derivatives you can't put all hedge funds you cannot pay them all so even some s c i u pension systems they have hedge funds if i look at excuse me. if you look at our returns and compare

those to the pension system in terms of our returns we've done extraordinarily that's a our funding ratio but if you compare us to endpochlts we're afternoon and endowments have out performed us they've been early performs of the hedge funds i understand that how pension systems have performed in the past hedge fund and emancipation proclamation documents is not always the same some of the concerns that people have with hedge fund their higher than we we pay for index funds but in the world of finance you entity what you pay for in terms of transparency i'll never vote to put money to hedge funds that