hard. [applause] it is amazing how much children learn and we also learn every day. i want to thank everybody who has been a part of making today possible. it is a dream come true. thank you. [applause] --------------------------------

you. >> good afternoon, everyone please rise put our raise your hand over your heart and pledge and to the republic for which it stands, one nation under god, indivisible, with liberty and justice for all. >> good afternoon. welcome want to apologize we are starting 10 minutes late this is wednesday, september 14th the regular schedule retirement board meeting i'll malia cohen he chair this board meeting to my left is mr. stansbury and mr. clerk how are you today. >> just fine. >> good do roll call. >> commissioner cohen commissioner bridges i believe commissioner bridges is excused

commissioner driscoll commissioner makras commissioner meiberger commissioner paskin-jordan she's here. >> mr. stansbury we have quorum you. >> i refreshment that could you call item 3 occlusion. >> all right. ladies and gentlemen, we'll go into closed session we'll resume at the 2:30 may i take public comment what we mr. wen beggar and good afternoon, everyone thank you. we'll come out of closed session. >> everyone can take your seats thank you very much may i have a motion from one the members of

the board not to due process with was covered in closed session a motion that he snielg e commissioner driscoll and seconded by commissioner paskin-jordan without objection this motion passes thank you. >> mr. clerk could you call the next item. >> on the agendas. >> item 4 general public comment. >> thank you all right. ladies and gentlemen, now is the time general public comment you'll have to men's to talk about anything that is on the agenda please come forward if you're interested in speaking there are no speaker cards. >> i'm opening up the platform at this point thank you good to see you. >> i'm john a 42 year member and pension fund - last meeting professor commissioner meiberger he was in management why i think he said can you give me 3

reasons to invest in the hedge funds the first reason he grateful was all pension funds you get the seam answer protection in a down market my comment is it is a fallacy you get protection in a down market for hedge funds what is important calpers is in hedge funds for 15 years been in up and down market and flat markets and after 15 years of out of hedge funds why? because you get a 4.8 percent average over 15 years and for that 4.8 only paid hundreds and probable $500 million in management and performance fees that's my comments on that i'd like to brought to your attention a

bluberger report of 11 large pension funds with hedge funds investment and religious are basically said in brief on this hedge funds generates market retains after the management. >> pause the mind is that your phone. >> i don't know. >> that's my hedge fund manager. >> anyway. >> 30 seconds. >> i should have long-range because not that many people only a small number of hedge funds generate the market - secondly, hedge funds that were studied and the best of prime and similar assets in the p,z&e, finance governance also showed very little or no defer indication in investing in the same thing the exclusion of the report on a few. >> time. >> hedge funds generated by

harper and the transfer of wealth none of the hedge funds studied beat the market this is a bluberger report and the other respect report. >> i wrest me access and anyone that wants to speak in general public comment at this time please come up. >> commissioners mike welfare for the piano piano pee pee he tell you our members are pleased in the he come shawn thank you for the compensation for the year and a half spent getting that together and for approving it working quite well, thank you. >> good to have positive feedback anyone else?

>> all right. public comment is closed. at this time thank you, thank you mr. clerk call the next item. >> and item 5 amble action approval of the minutes retirement board meeting. >> a motion on this item. >> all right. let's take public comment on that. >> line item on item 5. >> all right. seeing none, public comment is closed. may i have an action item may i have a motion to accept the minutes. >> thank you. is there a second. >> second seconded by without objection this motion's mason passes thank you mr. clerk, please calm u call item 6 consent calendar. >> public comment on the consent calendar seeing none, public comment is closed. the motion to accept the consent calendar >> moved. >> motion by mr. stansbury and seconded by commissioner makras

without objection passes unanimously next item. >> item 7 review and approval the investment for firearm and manufacturers and retailers. >> thank you a presentation? just a brief presentation this is a report we present originally to the retirement board at the july meeting and it was requested we bring it back to the september we've updated the information regarding our holding as well as addressing an issue by commissioner paskin-jordan we included the action that was taken by the new york pension plan in addition to devesting from the arms and ammunition manufacturing companies they voted recently to deresist from the retailers that sell firearms

that was presented to the board in a form of a board of supervisors resolution if supervisor farrell and this is under the social investment policy of the board and staff has no recommendation on this because it is a policy call of the board i'll be happy to answer any questions you may have. >> you might have about the information we've provided overall in fact, if the action was taken to divest from either or firearms mustards and/or retailers we've indicated that the retailers were roughly $829,000 worth of holding and in the arms and manufacturing we have $741,000 in holdings. >> thank you, very much. director for that representation

colleagues any questions. >> no questions? any questions >> please. the definition of firearms. >> i remember him raising that. >> i didn't see it in here. >> we've provided a breakdown continue the military sales and civilian sales here's. >> so these are with one exemption that is a-2 a page 2 of the memorandum all the other firemen's are small ones the a-2 k manufactures the small arms but less or military so large caliber and other weapon systems. >> thank you. >> anyone else let's go ahead and take public comment and back

to a motion ladies and gentlemen, public comment on item no. 7? all right. seeing none, public comment is closed. is there a motion ready for discussion on this item >> i'll move the item. >> okay. >> little memo i want to call out the board resolution and or for the record dianne feinstein referenced the passage package didn't have her letter it in it. >> thank you very much a motion made by commissioner makras and seconded by. >> i'll second the motion. >> seconded by commissioner meiberger let's do a roll call vote. >> all right.

commissioner driscoll >> yes. i'm going to make sure i understand the definition of firearms i'll say i. >> yes. >> all right. >> i. >> all right. thank you very much call the next item. >> oh, excuse me - call 8 and 9 together any apologizes. >> today reporting on the managers review. >> thank you. >> over to bob and allen the top news the fiscal year ended we return one .3 percent that is actually a loft i didn't return squared to our piers our

piers lost points we've outperformed the medium by one .8 percent are relative returns around 16th percentile and top 10th percentile under the 3 years our returns run 4 to 57th percentile and in fixed income in the 10th percentile in private equity so mixed news the markets were innovate generous tough but we are having good out flee with that i'm going to turn it over to bob and allen and allen has terrific math for supporting information for the board. >> board members was we recorded later quarter trifgsz the performance books to n ot c

this is the first time we'll appreciate any commissioner kim's from the board regarding additional information what we it finds useful and like us to do in in addition to any feedback is greatly precedent on the book with that comment i'm going to turn it over to allen a walk you through the macro daylight with the fun level performance information. >> hi to bobs point all of it to the custodian we're working on the breakdown of previous quickest and real estate to give you more information we talk about it you'll hear the asset classes bill has given you the report we were going to give me you. >> (laughter). >> i do want to point out a few things you have before you a report

that covers ending 6, wri78 and the quickest market value are autopsy its opinion up and down and bill will report he did this to me he'll report later your performance through august is up about 3 percent so in the months since this report you've generated more in the entire fiscal year we're covering as you can see this is a difficult periods for most public to find benefit plans with a medium return for the fiscal year of negative points the average to define the public plan lost 50 base reports of return net of fees last year that's the second year in a row and the third year in the last 5

years where public plans have dramatically underperformed and unfortunately your outcome going forward is more of the same we're operating ouch a low interest rate new invested 60, 40 appendix in local stocks and bones over the next 5 years you'll earn 5 and a half percent 2 percent over our assumed rate as that's 60 percent. >> 60 global equity and 40 percent be quibble bones we think you can do better than 60, 40 and add diversifying classes and gain that's a discussion for early next year i want everybody

to know there is a very challenging environment. >> can i ask a question. >> yes. >> i didn't get the numbers what's the next 5 years. >> next 5, 7 toro asking, 40 global condos 5 percent and tim collin will give you a more depressing number. >> what's the number. >> i'll tell you for 5.7 percent for the last year okay that's the sort of the headline we'll telling you talk about what worked and didn't work and the attraction to the martin luther king the economic environment this is highlighted

on page 4 is as we expected and very consistent with what we've seen so for the last 8 years the united states has been a in a slow recovery so 72 hours lost one of the weakest in the second quarter g b d growth up 2 percent retail sales looked better in july and employment's we've come down and employment numbers look better but in a long slow recovery and unemployment in the united states has dropped to precrisis levels percentage the labor force employed to lower than hefk by jobs radio doing well but not as many people have jobs inflation remarkable low we

continue to see low inflation and as you can see the hedge funds rate was unchanged from 50 points the 10 year treasurer yelled at the end of june was 1.6 percent a deputy director from criminally low levels why prices caused forgotten buyers to buy the treasurers that brought up the prices so what it didn't have a huge impact on u.s. returns it did have an impact think foreign buyers of u.s. bones and it products i products an ongoing lower interest rate the outcome globally is not as attractive in the u.s. 24r50 europe has some signs they've load the interest rate belonging blow zero for profits they look better in some sense europe is doing better and

which we think has a terrifically being effect on the merging market we feel that the dropping of chinese growth down into the 5 percent is stabilizing they dealt with the biggest parts of economy that were in scissor so the baengz the building area and they seem to have stabilized and weathered the stateroom converting from a largely internally to a domestic economy that that's the general news that's translating into markets i'm going 0 going to go over the details but highlight some things with the one year period union street eligibility returned 4 percent that's versus the 12.5 percent over the last 5 years we think this 4 percent is for

consistent with what you'll see going forward if you look at the negatives on to page very much market equity significant negatives this is the courtesy effect if you look at bonds you'll see surprise the barking let me see index up 6 percent that again was driven by interest rates going lower and producing attractive bonds we don't think this is sustainable it is close to the current yield to maturity that is a one .6 or 7 the biggest surprise is non-dollars meaning bones of forgotten country's up 11 percent is your advice years ago the worse performing class i would have said non-dollars

bonds yields lower than the u.s. bonds and engaging in the- what happened in europe holders did very well and not sustainable the other couple of items calling your attention real estate did well and hvsdz for the year doesn't do well although you look at the 3, 5 and 10 year results closer to the light plus the numbers but hedge funds in general this year didn't do particularly well that's it the market environment i wasn't going to spent a lot of time but the year we've seen looks more like we expect to see in the 5 years we've been through. >> if we go to the punch lining line for san francisco on page 20 as bill has already told you the top line it is r is the net even if fee return and the ranking in a public universe of

plans grandchildren a billion dollars so if you go along the top line experts have ranked highly if you look at the 6 percent 3 years top 3 percent and, etc. only in the 5 year period have you matched 9 summoned rate if you look at the reflex adjustment in the table your volatility is medium when you look at our sharp ratio that is the return you earned must the risk per rate you'll call that zero divided that is the sharp ratio and our return for united of risk on the metric i do skwiets well top 5 percent and 13 for 3 years we also report this ratio when is which is is a down side similar results on to a reflex

adjustment your plan even though you're right at volatility did well, if you go to the policy index what you would have earned if we rebalanced the policy target and have all our manages match the benchmark to the difference continue what you earned and what policy would have gotten you the effects of manager out or under performance or tactical position of portfolio we'll look at where the effects came from with you compare the returns to the policy you'll see over the periods certainly for the one year and the 5 year period unifying your policy index did better than the actual returns the manager contribution met was below which you hoped and the

effects of tax tactics you see a bunch of recent under performance the under perform is structurally as opposed to the others so those are the results and see the numbers for purposes the medium public fund blow it. >> if we go to the next page and look at the positioning of our portfolio versus the boards approval policy prior to the february last year taushts you'll see that your current percentages are very close in general to the policy prgsz the defenses are small with the description of private equality and the offset numbers have to add up to one hundred over

somewhere this is the eligibility so the money you've not be able to employ in private quilt that is structural because you can't get to the target right away creates an allocation felt negatives the private quickest was done well and you've been under our target in private equity one the ranges you approved except for cash at the end of june your outside of cash range it is waiting deployments we don't expected to to continue your above our cash at the end of june. >> any questions about that. >> i'm not going into the next page. >> director sorry. >> thanks on our page 20.

>> when your ranking us walk me through what our pier amount is. >> won their public funds, two grandchildren a billion dollars, their 55 in this universe you use a net universe your ranking in trust universe is similar we've talked about you're a large plan in that universe so we could indeed switch you to public plan grandchildren $10 billion i'll tell you the results are different and the problem with a bigger universe your logging membership and the universe is less robust and those are the numbers. >> sure. sure. >> that would be great. >> on page 21 versus target you've recorded a prior policy why would we use and other

policy. >> the policy that was approved includes the 5 percent allocation to hedge funds as of this point has not been funded so the more relevant mexico to look at it the prior policy once hedge funds are in the december 31st form and quiescent that be more accurate with hedge funds to zero it out so we know where the asset allocation came from and then understand maybe more money in into something else. >> the outlet issue the majority of period of time measured the one year was covered under the prior allocation we made that decision in february we haven't started with implementing at least some of the changes we've made some movement but certainly can do it measuring it against the current

new february 2015 forward. >> because you know at the end of the day you want to be able to accept the reports and if you look at this not consistent with what our business is in allocation for instance, you are policy for i's kwikts is 23.3 is that what it is. >> agriculture the documents are dated for june ending 2016. >> is that our policy you i don't believe it is. >> actually little policy reads 25 the outlined policy not 25 it is 20 now. >> so maybe i should ask would you mind talk about the real allocations. >> the instruction has been the last policy we've adapted and implemented so again, we're in different to do that.

>> and been inconsistent with what we're doing i might as well rollback the money and see - >> not uncommon with plans implements new allocations as you have to waited fill that allocation is actually filled before you start the measurement you don't have to do that that way for example, because we're increasing private quickest from 16 to 18 and 12 to 7 those are long dated investments you made to the capital it is not called for a couple of years, etc. a common practice that plans do they report their existing policy their previous policy and then they amortize the commissioner tang to the new policy as investors that's a

very common practice that's what has been done. >> well when this is called yes, but not when the policy is made because i can't make the investments right now investments when - >> you make the candidates and the capital is called. >> this is called or not. >> 245ir9s not asset value so that's - (multiple voices). >> in addition other 2 housing unit $7 billion in uncalled commitments. >> after we started 2 -

that's the problem with committed capital not out there aribnb money o money within private sxikt. >> bill said all are mid asset called. >> what i'll suggest we recognize the change between the existing policy and the new policy as investments are made not when the policy is made but when the investments are made and off to the right what question show you know for long term policy that way everything is clear. >> and since your schedule

calls for reviewing asset allocation early next year i think at that time, not only the board approves we review the benchmarks and to bills point everybody has this issue you put a long term policy for private equity - bill said you can create an interim policy the ability to invest assets over time and create had is so-called a tactical policy there are pros and cons to all of those things we can address them in the discussion and make sure our confront with the benchmarks as well as the reporting this give us the best favor for how you actually did versus a

policy that was operated over the period in which you're doing the investment but has clauses as pointed out. >> is that it. >> the challenge he referred to the 10 year numbers we have a return based on for measuring the actual liabilities we say we'll loot h look at but perhaps our return is incorrect it triggers all sorts of disagreements and fighting and maybe a loss that's those numbers we have to understand what system at this time. >> this is my last i don't want to hammer it within the scope it is that complicated this is a 2016 which accurately reflects what we're doing today

in previous equity when good evening invest wool have a total of one hundred you'll have the money has tobacco allocate on the schart. >> that's correct. >> so if we put zero we owe to ourselves to say we have the hvsdz program we have invested money nothing wrong but it is more actual and there's a minimum we should show the long term policy. >> again, that's part of the feedback certainly tooesz to do but the policy versus the results that transpired during the period so okay. >> thank you. >> thank you for being open on suggestions i have a few of them

first of all, number one this is really hard to read i have my reading glasses if you could make the numbers bigger there's a lot of kwhiert and naomi kelly we have commentaries. >> this is the accuracy and number 3 i want to talk about some of the specific numbers as i said ravrdz the ability to read them if you can find a way to make the numbers bigger that would be good think page 20 our most important page page 20 this is your schuf summary question used to have those for people that liked the ends of the short story so emphasis that that is extremely key number 2 more accuracy of previous reports two digits to the right for the decimal here one that's a big

deal okay a really big deal particularly with rounding errors to be consistent with how they did it previously to show two digits to the right if i could do that and number 3 the accuracy of the numbers i'll didn't go through all of them but page four of the report you talk about the fed fupts the 10 year treasurers at the 1.6 down from one .9 i looked at the w . www.treasurers dot gov. i'm getting different numbers that is specifically the 10 year treasurer for this second quarter that is june 30th and yields of woven .5 from 7.8 down

i got those from www.treasurer dot gov. we consider the primary source. >> i will check that's specifically what they say if i look at that questionability that specifically states 10 year treasury again, if you have two indicts to the right of decimal that will help figure out the data source but two digits to the right of decimal it is very, very appreciative of that. >> we'll make sure we include that to two detection is very simple. >> you have round inner correctly it is not rounded. >> okay.

>> the alpha we underperformed the policy benchmark i wouldn't clarify that has a benchmark positive i wouldn't characterize that to review the benchmark is emergency room in i invested all the benchmarks so for example, a policy index for 3 months on page 3 thank you for pointing that out we did one .5 percent we're under for 3 months and 90 base points for 3 years and, etc. that's when i look at houses i'll consider verse the policy benchmark so 2 looks better by the 3 months is a negative we've underperformed the benchmark is if you want to

clarify that bill. >> sure commissioner maybe i should have used assess return testators the first line item and it appears i mean obviously different weighs in the classes that might not be the bank of the west matrix to use when i look at the alpha i look at the policy and see performances based on that all righty those are my comments i'll be brief thank you for presentation and look forward a point of clafrngs on page 20 the charts may we have that to the next page that's my recommendation. >> there are many ways. >> still 2kw50 small we'll work on that and presents something different and you'll determine if it is two small we've heard you and expand the

decimals and increase of legibility. >> page 28 applies to the other charters i can't see the universe medium symbol perhaps an explanation. >> the intersection. >> either in the paupgs but similar to the 68 percent number i don't see that as well that's fine but we use the number 95 when we talk about the rain water of return on the liability side so we put it on there i assume that is an important number to look at it and the explanation of the reports for the d b like to know who the

pier group that much pier group we should know in the case people want to pick up on that and the same with the universal an explanation will help that's the first kind of reviewing the context. >> since you brought it up 27 and page 28 are depictions of every dot on that page is a fund grandchildren one million dollars it should be 65 and in risk return space so anything if we say page 27 look at the one year anything above the horizontal line is a return higher than the medium public funds and anything to the left of the vertical is a very well outlet to the public funds if you virtually look at those pages you'll see during 24

period of time whether one or 3 or 5 or 10 year ending san francisco has generally returned a return higher than the medium public fund and the volatility is roughly about the same as the medium public funds threat the takeaway you're not articulating a heck of volatility risk and average earned a reasonable amount our comments on defining the universe the medium is where the lines intersect i will suggest if so important for you to look at that one year result we plot you and your policy index and to commissioner meibergers point your policy index has a higher return in the one year than you actually earned we'll talk about where that came from but you're actually less volatile the

actions produce less volatility and less return if i look at the trade offs your sharp ratio is arbitrate less in the actual than in the policy but that's adams a an interesting effect we can say the acts of our manages or allocation took uaw from the policy return they returned the reflex are in terms of volatile i wasn't going to go through those in detail we want to talk about attribution look at page thirty those are the fiscal year returns the universe of the putting their lives on the line public plan for 6 fiscal years

and see san francisco's numbers are at the top of every one individually but if you draw a line from the left hand at the 7 and a half percent you see not only did you not make your 7 in each in the last of 3 years but virtually no one else did i'm saying that is good or bad this is a trying environments and all the criticism i came to you years ago is coming back because public plans are not aribnb their assumed rates that will raise a lot of questions in terms of the public so this just lays out for you what that challenge is. >> this is on public pensions. >> if he did this cooperate cooperates have slightly different they have liability matching stwraejz but the actual performance is not a heck of a lot deficit it is the

environment we're aribnb low rays think stocks and bones. >> didn't calpers move they're done. >> the actuary is here to reduce the assumed risk. >> do you know what calpers did. >> i think. >> actually, they have a complicated formula only reduce in times why they make their assumptions a thirty year plan with very little likely hood of movement laura. >> your actuary is here you have the afternoon assumed rate four or five years ago the medium average has comedy guess

7 and three quarters. >> how many reached they're what their experience now we can take whatever numbers you want. >> we'll show you nobody did in the last 5 years for your informational purposes 5 years ago the expected recreate of return was 9 percent the actual returns have been less than 6. >> that's not - >> the reason he start this line of questions other institution that are achieving higher rates of return and if so can we capture those things. >> is there more you can do yes are there more doing it no the best public funds did about 2.7. >> never mind.

>> on that note howard was there any again data set. >> there are endow time in this period they've dysfunction better than public funds that's 2009 always true we went back four or five years and tired to liquidate a portfolio they didn't do has well, we keep track of the endow time and others internal reven. >> i'd like to know how the endow times do. >> over the past year they were tough their average were negative one and a half percent port commission the same average return of pension funds over 10 year period of time whereas, a top performing pension plan has been 6 percent

you know the top 10 top 15 ensue times are more in the low 9 to low tens. >> the top performing endow times and the pension system is 3 percent. >> over 10 years but over 10 years all of these numbers are very period specific to and that's true i have no reason to say we can give you that strategic not off the top of my head. >> okay attribution we have regarding the endow times different fiduciary standards i'd like not to mix a big thing as harvard before the financial crisis i don't know if

they've gotten back to where they've been to the optimism is over rates harvard has not done well, i have no trouble seeing the endow times a different set of laws and rules and fiduciary rooblts is different and many, many other factors i want to innovate make the apples to apples comparison and certainly for our transitional curiosity. >> we will should it as data there are modest very understandable differences they have doors we have tax base and contributors you know one thing i don't like

about endow times they're very, very competitive with each other if you're the 6 or 7 rated ivy legacy school you'll get bounded out of town even if your returns are good the it up endow times should consider where to take risk and how much rather than xairz themselves to each other. >> thank you. >> and to be clear the reason rechose public funds subject to the same rules and regulations so i'll never mix-and-match only ask for comparisons. >> i'd like a larger one that commissioner makras has discussed. >> i'll show you the rest and the allocation the number of trade off is a smaller universe. >> could shrink from 55 to a

board significance. >> i'm not not asking for - then you're able to look at what they're doing and look at the asset allocation their track record and get a better understanding where they're coming from if you grew up them, no foundation whatsoever other than the rankings. >> certainly. >> a question certainly pension funds they have subtle differences at the end of the day they're trying to minimum risks and everyone has a different obviously but maybe something to be learned into say endow times that have out paced you guess by 33 percent that's sixth that's billions of dollars

and under opportunity and overfunded i was trying to understand. >> there's something to be learned from everybody you can corporations have sensitivity about the volatility that is defined the benefit plan we're introducing to the balance sheet that's something to consider. >> the you know the top endow times have been return permissible and there's something to be learned from everyone. >> that's my point having the data to be looked at. >> the point whether asset allocation is a public funds drives everything less go back to page 27 it gets f it and why

look at page 27 the do not are higher returns not many of them by notice everyone has lower volatility i think we'll talk about this in asset allocation that's been a successful strategy in the most recent one year period and going forward given the market value that will likely be something that works in the future we may learn out of that but to our point i can get you a list of individual funds. >> how the did and look at those and pick those that are close and different this is a at some point to try to engender this discussion. >> commissioner stansbury the difference between 6 and 9 percent is $600 billion over 10

years it's a worst pursuing and how to - what is achievable institutional differences and what assess do they will have we don't but given the magnitude of the potential of the status and a permanent institution our are timeframe is correct i've been on the boards it is worth learning from. >> transmissiontion but page 33 i want to use this as an example not using it in a meeting but easy to see in

porter how the numbers are clawed and a longer periods we'll weigh terrier to take the dollar performance against policy the rate of one and a half versus the policy of one .9 we are going to break down into how much was manager or outperform of benchmark versus the over recreate of the classes that did well and those if didn't the actual returns is the line the selection effect which is the average effect of managers under or out performing the index negative 40 base point voourp all the managers were under performing very little allocation to see it to the chart to the left what you'll

see is that private equity was the culprit now you have within of the bank of the west equity projecting programs but that's 5 hundred plus 5 you under performed that in effect was significant i don't think that has nothing to do with with our asset class you have to take with that a grain of salt on the other hand, equity has been a consistent underperform for the one, 3 and 5 years we can draw a realistic conclude what the corner will say mostly the manager and u.s. equity and previous equity with the back deputy director i'll under penalty of perjury you to a one year and 5 year period so the period under performance versus policy of 90 base points noriega

20 percent is selection and 60 point is allocation on the selection see you still see u.s. equities under performance you see private equities but much, much closer and fixed equities if you remember people were worried about the rates and you took a lower benchmark you underperformed and it was a strategic choice not managers doing poorly on the allocation you'll see the tack i didn't line the biggest effect of allocation were up underrated private equity that's not a structure effect with that, look at 5 years because 5 years you start to see something you can

begin to take action on for 5 years the performance of the portfolio of 7.6 percent the benchmark is 7.8 smaller under performance and if i look at the commons you were positive and most of it was the allocation the under allocation to a nice performing asset most of your asset out performed the benchmarks and look at the line private scombikt you own 1 percent a year your benchmark is 17.7190212.2 percent plus 5 percent i think when we talk about asset allocation and the covered california people will say expect the 15e7 is not likely to happen and perhaps

subject to adjustment the u.s. equity is a systematic underperform you draw that conclude and other classes with the fixed income have done better that's the attribution page you'll see that each time i'm not going to go through the remaining pages but they get into the asset class versus the assets and then the last area he'll calling your attention is all of these are performances versus benchmark you go to page 50 let me - yeah page 50 those are our asset classes composite versus pier groups composite 24 shows you in a return and a risk

adjusted basis how you've done versus our pier group the amortized you see the ranking and the tracking error and if you're trying to sxar reluctance on a reflex adjustment cross the managers the information ratio which is the return for units of tracking area or the benchmark for the tracking error the information ratio and the rank of that how you ranked so again, if you look at your u.s. sxikt 74th percentile on the risk adjusted basis that's not good and fixed income i'm sorry international equity and fixed income 23 and core plus been dramatically resteward by over

the 5 years didn't do well the bones were well emerging market debt well, when you move to private assess those comparisons are less relevant we are reporting for previous equity in real estate versus our piers and our volatility and again, private sxekt top in the performance of they are private equity and real access is again good performing program i should have said all the data is time rattled the industry standard the industrial standard becomes dollars price you want to understand the performance you go to the dollars rated those are the consultant rotator. >> thank you and dollars rated we had to put everybody

everything on the same score cards. >> i'm available to answer any questions. >> can i ask you for the u.s. xiblt under performance. >> yes. >> between the effect of performance. >> if you look at u.s. equity we look up the data and let me go to page - >> pages 38 - as the details of i's equities large cap equities it is where the under profrmg and the index did well i would say in the period of time if you talked with your sxikt managers they make their money when lots of of cross

section volatility and differences dwp good and bad stock we've been in a period of time the market value are driven by the banks is everything went up and there was not as much cross section volatility and a period of time from the managers if i look at where the index ranks in the universe the russel one thousand on page 38 right below the large cap the index you'll see ♪ period in the 3 years or 3 months in the top 29 percent so the 5 years in the top 20 percent he hope commisssioner bermejo commissioner meiberger maids the point it is try the index few minutes did better than active management it was challenges to begin with and go down and look at the managers that out performed or

underperformed and see where the contributors were a small cap xiblt we've talked about and the manager has had a challenging time with their orientation and so those are where the under performance and went r remember the 5 years are managers innovate here anymore in the numbers with the come pathologist but in the current manager >> those few minutes that have done well, that the selective equity managers those managers are replicated the index who is. >> on this 20 percent of managers in the space other performed the index not a lot that do who found them? and it is hard to answer high active share manages and the

bigger managers tends to be pushed around by the macro interferences >> yeah. >> pluses and minuses. >> so maybe a contribution for a 5 year run. >> it's hard to say exactly what will happen but (laughter) again, you have a period why you have more natural market forces at play it creates an environment where active managers do better they understand the market where the federal reserve are we're going to see more other performance by managers a yeah.

>> we've had a lot of discussion getting into the detail thank you very much for the percentages. >> what's the key level tossing that i want us to take 23w4r the presentations particularly as the conversation around asset allocation how do we moved in a direction that we're performing we'll to be. >> a that's a good question. >> that's all this reporting does is look back even the last 5 years you've done well, because of a lot of equities and done great in areas and fairly voluntary i will portfolio and we think going forward lowering the volatility of the power point h portfolio will help we

think that more difference indication versus private debt and broader difference indication the controversial - index funds overlarge period of time if you have a staff of two i'll say index but you have a large staff it is an expert staff and good consultants. >> so you say so yourself. >> hershey can't tell you i can visa you are manager you potentially need to earn more from your manager contribution and probably need to lower our

volatility and expand some classes in order to survive the coming environment you'll get maybe not 7 and a half but 7 a tough environment not a magic bullet you can do better and you're done well but will not do well with your private equity funds well continue to side well, you can only put so much money. >> given the hour of time and the amount of schedules airline to move on further for the next item. >> >> is no further questions move on to the next item thank you, alex. >> at some point would like to

see more about opportunities in the market for maybe your staff more accurate risk and shares (inaudible). >> question should put that on the calendars autopsy will did, will do jay and i will discuss that we'll address that question. >> the idea - if i could just comment on that i mean at can point i've been on the boards for 24 years ever since my meeting the u.s. 345shg9s are if you find one manager that will out perform went as. >> showed 84 percent ecstasy a

loser's game their efficient and find another ways to play. >> actually you're saying we are in the top 20 percent 80 percent of the managers did worse than the e. >> we've been successful and those did he minutes ago. >> not the last time i think actually, if you look at the data we're in the 45 or 50 percent not an 80th percentile this was a whole other subjects we're - >> maybe more directly along with wendy and maybe have a direct discussion on modeling

index. >> where we have problems. >> let's not just years and say we're hidden but let's look at what we've done maybe for thirty years and take the longest time and do that adequately and look at it. >> okay. thank you next item. >> i can tell there was difficult. >> any of the 80 precentors. >> with respect 2509 manager report one manager that is 03 our high yield and longer serving managers were at for performance versus benchmark peers beyond that any deletions

and that would complete me commissioner lim unless questions. >> questions. >> no questions. >> all right. thank you let's take public comment on items 8 and 9. >> the money managers have very complicated and very, very simple have to listen and read thing and commissioner meiberger right now he has i think 14 months ago and hedge funds 14 months ago he had hedge funds top manager that out performed with the index he guess what 14 months to go and - anyway right now the hedge funds private

hedge funds are off dividi21 pe so - to because of endow times their supported to be and hedge funds salesmen are saying we'll give you protection as anyway it should keep things simple and listen to commissioner meiberger and what is the profit that can urban design the best investment in the entire world and commissioner meiberger agrees with me anyway make the investments simple as indexing i

don't care what the xoichlts but you pay less than a quarter per and the hedge funds manager (inaudible) to get a 5 percent (inaudible). >> i like to say if you have 5 percent (inaudible) with one million dollars in management and platform so basically devesting right now before you loss millions of dollars right now. >> thank you anyone else want to comment on items 8 and 9 public comment is closed. mr. clerk item 10. >> the annual report and recommendation of the investors. >> this is the annual report on tobacco you've got the information flouven devesting

from tobacco in the prior 18 years the information with regards to performance over the trailing one and meow years for the two areas of indexes in u.s. large cap in changes to the recommendation that staff is making over the meow years we recommend to remain devesting from u.s. tobacco with that opening up to comments. >> to divesting tobacco over 18 years this is one. >> within the u.s. s&p 5 hundreds yes. >> (inaudible). >> i'm concerned done calculations because of there's value of the i's dollar assets that will be in the tenth of

million dollars potentially higher i can get you a more accurate number. >> this is something that is $10 million. >> that's my estimate correct. >> i'll argue that tobacco stuccos are risker you're creating a product and doing month public good 1922 a higher risk their bankruptcy the lawsuit lost which i sxhmd the accuse so i'll argue in their risker so obviously if their riskier one should expect a higher rate of return not mislead they're higher if i have tobacco but argue the risk is higher and august that the reflex is not rfbd in the data that is the standard risk

measure significant business reflex for the tobacco stock how do we know they'll be around in 10 or 20 years if you look at the action to do away with tobacco as a health hazard i'll argue that indeed the returns have been higher with tobacco but the risk is higher with tobacco stock. >> how can you argue they're higher without risk. >> the returns as shown on page on the report the risk returns are higher with tobacco in the proposal i'm saying that tobacco is a higher reflex with a higher risk you'll expected higher rates of return this is a substantial business as well as financial reflex with the tobacco stock but not r6b9d that

deviation we saw this with the private portfolios that was presented that showed do portfolio was 6 percent 6 percent when this is amongst the hive 6 percent is closure to bonds and previous equity not close to bonds so if measure the full risk of an investment. >> so just to summarize with tobacco has done better because tobacco stock is risker. >> a concession item. >> i'll move the item. >> on that particular item for divesting do you are a staff recommendation. >> yes. passed and staff

didn't make a recommendation can you explain on one our making one recommendation and one not. >> we're supporting the boards action 18 years ago where they directed the staff to bring back the plan to devest so we are supportive of that board action we'll remain supportive of that board and a actions and bring that back every year to add of subtract we're doing the same thing we're here to support of the board in the decision 18 years ago i wasn't here but building that staff wouldn't have made the recommendation, however, a social recommendation on the board. >> and any discussion on that captain no all right. so there's been a motion move

forward by commissioner makras a second and commissioner meiberger second can we take that without objection? the staff recommendation one point >> okay. >> i think those standard deviations for tobacco versus the tobacco free is the same in the last 20 years so the same amount of risk for a rate of return i'm not advocating we keep tobacco but a good example modesty cause you to pause devesting has consequences any time they work against us financially and socially it is an issue that is something that is important for us to be mindful of. >> great let's take public comment on

this item. >> thank you actually in this case representing the seiu with the retirees i just want to understand a couple of points when you say you're adding different companies i see that in the next item that means those are the companies you want to divest from as opposed to to the companies you're investing in i want to sclafshgs and thinks for both of the items where how much you've the divestment has been custom telegraph hill ether meow years from the $6 million if we can get that information and also where did it go where else was it involved in what other kinds of funds be with tobacco in sudan thank you

very much. >> public comment is closed. mr. shaw answers to answering those questions. >> i'll work on both. >> you'll work on both appreciate that without objection all right. this that item passes unanimously thank you mr. clerk item 11. >> item 11 an action annual report and recommendations on the targeted investment in the sudan. >> thank you. >> all right. there's been a motion any public comment? >> no public comment all right. staff anything you want to highlight in the submitted document no - >> okay. we'll accept that has a motion to accept a second to this motion. >> seconded by commissioner makras and seconded by

commissioner meiberger and without objection this thing passes unanimously 12 an action item. >> is there a discussion. >> any proxies come up. >> thank you okay. thank you madam chair we have a fine month after a slide our portfolios is up 3.8 percent and everything in the green with the public sxiblt marks over 5 percent and to highlight if we turn to the next page there are go things i want to highlight under compliance 4 percent in cash this is the policy is one this is a temporary situation

we're funding our treasury index might be coming about soon very soon we will also be making our first hedge funds investment through black stone on or about october 1st, i think technically accountability first this item is going to it will fall to one percent or less sometime shortly if we - i'd like to turn to the grateful chart showing the net assets and your assets are at a new all-time high $4.9 billion that's very good news and another part of satire and i use the liability slide want you to turn to the far left of the chart and it will say at the end

of december the liability for $14 billion roughly and now they are about 24 and a half or $25 billion so while you are portfolio is at an all-time high our status over that periods of almost 10 years about one and 25 to the low to mid 80s a couple of things to note in the economic conditions i felt that allen's report provide some very, very helpful graphics and charts so some of which i'm concerned referred to here on item number 3 this is the black stone agreement that was approved by the board last month and finalized on september 6th on the next open item number 4 obgyn bridge is a uk bans xiblt

firm we asked for 40 million it was approves we received that the next item number 5 the c i m approves by sideboard in february and approved just a few days ago the custodial search very good news it is progressing well the - questions are on good place it make a recommendation either on october 12th or at the november boards meeting we're optimistic we have a meeting this morning and as long as we continue on the same path with no major hiccups but to make a recommendation on october 12th i'm expecting november at the

lastly personnel we have a person to help us jeremy moving from the east coast and keep joins us to help david manage the asset return strategy after a criteria at the states street and also i'm pleased to announce that dennis can you please stands or wave you are hand okay. dennis - >> can you stand (laughter) so dennis jones our team the investment team if the administrative side of the house where he was proven at the analytical data gavrths and decimation he'll help on the public sxikt portfolios.

>> it took awhile for him us to let him go and adverbial available for the house or the development committee meetings next wednesday 1 o'clock we are schedule to have black stone and david's presents on the salute you return and have several guest speakers one from the puc as well as others and lastly the updates in the preferential shuns of the existing information and that concludes the ceo roster. >> colleagues me questions nothing we can go to public comment. >> public comment on the cio report

okay public comment is closed. dennis welcome again. >> (laughter). good to have you keep it in house and this is a discussion item move on to item number 13 >> item 13 the long prom all right. thank you. >> thank you good afternoon commissioners thank you very much for your times today, i can't say stop smiling i have excellent news to share with you today as you may know we've been working diligently on pulling

together a loan program at the question of our city employees and after much anticipation i'm happy to announce the loan program wear proud to offer the first ever loan program to city employees through the compensation plan so before you say a presentation that covers the details of launch including an overview of the program, some staevengz as of last media and client feedback and a special page to thank all the partners for the thousands of hours for putting together this program we want to ask the president for permission to go over this presentation. >> just in the executive summary explains that the program was soft launch by

design on august 18th last month we made a loan planters can visit the website and the first page the loan repayment after the loan is taken out occurred successfully on september 6th last week market to be a successful completion of a cycle so the purpose of the soft launch to make sure that is working and as partnering with payroll and financial and first and sfpuc staff the successful launch the program is nunlsz page 3 a consecutive loan program from the loan policy the top half explains the eligibility requirements to qualified folks can take out a

loan and the bottom covers the maximum amount as much as $50,000 or 50 percent of your account balance a administrative fee for the loan $25 every year and $50 is charged to set up the loan payroll deductions and prepayment is available in the event that clients want to pay off their loan sooner before you i continue any questions on the launch or the details of the program oh. >> the next page covers loan statistics as of last media he finds this to be helpful so as you may know the interest rate is the prime rate plus one as of look 8 slash 3 one it is

8.30 and general loans have been approves within loan has been approved and the two is the term year differences and the additional loan documents to support a loan application we're noticing the majority of participants are borrowing the maximum over the long time term so in their taking advantage of the loan program for 2 thousand ether the lofrnt term we're seeing the obviously balance creep up it is significant over the last two weeks we've have north of 5 and a half million dollars in outstanding loan balances and will make sure that people are saving nor retirement and to make sure it didn't impact the plan. >> do we have a cap as to how

much we're loaning outs say when we get to one billion dollars negative impact loans we're going to suspend the loan program. >> i don't know if we can do that but we do doing everything we can to make sure that people thinks the consequence they're taking out a loan in the following page the education their comprehensive by the limousine people understand they're required to read the loan guidelines with before they take out the loan so it could impact their satisfying in the future so we're doing everything we can on the front ended to make sure that people understand so they can make the bank of the west decisions for their retirement the 200 and 17 folks found it while their logging in we've noting married on a fofrl

announcements. >> i think there was publication or publishing of it in the poa journal and expressions for certain situations their looking at for that it we're hoping for a couple of hundreds and we have over 200 and prepared to basically today announce that we've successfully laufrnld so as far as promoting this bathroom, we would be dealing with with committee by today newton's the successful launch. >> thank you. >> the average age of the borrowers is 47 and the mediums accountant balance is 70 thousand this is a significant number not maybe a lot but higher than the national average

around $50,000 that's great for our participant and the medium loan balance is 50 having k is 23 enthuses they're taking half of the balances and the retaliate is 200 and 50 my name is other than the longevities term wanting to pay as little as possible that's it. >> you need to be an active member to qualify for the loan you're working for the city and retire and but you're taking out a loan and still responsible for the where you're working for the city or not. >> there's a broos for those request who terminates to pay off your loan of 90 days. >> ambassador 60 o $50,000

today and in a month your are tefrment or whatever. >> your bothering your own money if i choose not to repay it is recorded as a taxable distribution so in obviously removed from not in our got you don't pay it back so the penalties are significant from the taxation perspective but no lost to the system because people are borrowing their own money to our point is there a maximum to be borrowed out we can't limit 50 percent of active members account that automatically sets a limit but not a dollar limit amount. >> you said if they retire

they have to repay and we've covered every scenario you might go out on an unpaid leave and made an agreement to pay it back and may be called out on military leave that was presented to the board through the loans document but communication pieces are clear what will extend our period and not spends and what happens the only onyx to pay over-the-counter as as check or payroll deduction they're not pretax and that again is by design. >> all right. >> great, thank you so the feedback on the loan program obviously has been very good the as you may know it the online straightforward the education materials are comprehensive by the limousine participants have expressed deep appreciation for

the cause of experience we're experiencing an uptake of loan squalls and slight increase in walk and traffic people come in to talk to the coincidence coconuts one of the positives are withdrawals are unforeseen draurlz they don't need tobacco paid back unlast week, a loan in order to actually qualify you need to first quality for a loan we try to very people pay themselves back and finally because the loan application is online only we have seen a lobby constituent and those who don't say security assess we help them take a loan any questions.

>> thank you. >> this is a wonderful report. >> hold on commissioner driscoll. >> i'm concerned talked with people in their programs and some are 3 as some 40 one k we started it operational it is going well, this is a piece of good news but a leakage we have to understand what the impact an them if they don't pay back the lane if so it geared for retirement the educational materials where don't as a distribution how that effects they're tax situation that's why the loan program the loan application is quick, however, one group says they have a

memory of thirty days they found out a sect group decided he didn't names and addresses it so that was a couple of plans had that little they know in there something like that how it effects the part of this program. >> those are ideas going down over the next couple of years may want to talk about the improvements making that operate well and try to make people thinks what in their doing with their savings account. >> all right. let's take public comment an this wonderful program green from the piano anyone else want to talk about this program all right. public comment is closed. i'll appreciate this great news.

>> i'm concerned heard you apply for a loan (inaudible). >> can't believe how fast it is. >> wonderful by design. >> all right. >> you want to call. >> item 14 discussion the monthly manual report. >> thank you, commissioners before you is the monthly activity report your familiar request has been update to show the loan program as well the change to the reports at this time i'd like to ask if there was any questions. >> questions no. >> let's go to public comment. >> public comment on this one. >> all right. seeing none, public comment is closed. not a problem mr. stansbury please. briefly that communicating on

accepting the items for the broker and (inaudible) within of the future solutions (inaudible) maybe something for future consideration to talk about the u t f for the (inaudible). >> yes, we'll certainly discuss the cbo a small fraction of the client base but only a small components we'll discuss that has a platform. >> so let's keep an move on thank you very much for your presentation and let's go to item 5. >> an action item amortization and joint to the 2013 and 2014 h

cola for the retirees. >> good afternoon commissioners to continue our discussion we began last month we need a minute to bring up the presentation.

>> are we having technical difficulties. >> we did again, that last month and the decision to be made just regarding the post 1996 retiree and the impacts on the july one evaluations the current funding policy will be a 5 year amortization of the liability, however, a special circumstances and reasons to consider longer amortization period i hope we gave the board enough information to have a positive - the amortization making a faster amortization the city is in a position to funds the plan at this time and make sense rather than dragging but payments and costing more the

dollars is $400 million over the presents value of each amortization is the same on today's date but a longer a.m. shin period over the long run and let bill start. >> thank you so a continuation over last time we recognize a lot of complex charts and a lot of things to look for the city we want to briefly review this situation and move to have a board discussion and decision we had different scenarios but essentially the issue is that we have been operating under the assumption that supplemental

colas were only paid for if the if i understand is fund the court decision members 0 who worked avenue november 6, 191996 and before proposition e passed not having the full funding requirement we're in the squeak of post 96 retirees than the board made a decision on another group we are receiving to as pre97 retirees to keep others terminology straight those determinations were he restored the supplemental cola's we suggesting that the impact of the restoration of those about reflect in the evaluation based on the plans in effect as the

evaluation date the post 96 in this evaluation that happened before july 2016 in the pre97 red cross in the preyou have decisions after july one 2016 and measurement dates are the evaluation is july. >> as a reminder we paid the majority of folks in the this year of february that's where the money was paid out over the 2015-2016 year and not paid the prebut we anticipate those folks will be paid and recognize that in 2017. >> the decision we are asking how to amortize in the evaluation for the posts 96 retirees impact and have to deal

with the pre97 within the next 5 years. >> so i'm going to cover what the actual costs impacts of the supplemental cola's starting with the post 96 as a stated this is a gastrogroup of retirees paid their supplemental cola's as of february this year two pieces are the retrofit payments and another piece of the plan the expected fire chief value of both 2013 and 2014 supplemental cola's the retroactive pamentsdz payments were effective to when the direct were paid and then also a confident of $350 million to the

increase in the accrued liability for the presents value of the expected payment for the cola to the total for pre96 is $43 million. >> the cost of the pre97 group is about 1/3rd find coast and as jay said not paid yet the approved liability increased for the supplemental for this board one and $15 million the back payment will be one and $35 million no interests for those payments the total factors have increased of one and $55 million. >> yes. >> excuse me - >> on page 4 it says page 5 it

says pre97 are those pre96. >> pejorative 6, 1996 yes. >> i'll call it pre96 is prenovember '96. >> we did to and the excited line is the pre1996 just to be clear. >> continue saw to the question how should the plan pay for the supplemental cola's a better way to phrase that over what time period to pay it off. similar to a liability not pay

for it all at once a decision to amortize this cost over time and the longer than timeframes you'll have a higher coast in the short time but also have shorter paying the higher cost if you have a longer amortization it is a longer period of time we laid out 3 possible funding for the board you are first for the amortization policy which is to amortize the supplemental cola's over a 5 year period and the rational this is a retiree benefit change so it should be amortized ether riffling short time and when -

those assess returns over a 5 year period and the special cola is recognized over the same 5 year period the additional cost is offset by the gains we'll recognition it is like a balancing act that's the rational our second opposition that we laid out to follow the funding policy that was in place on the executive date for the cola the policy it's a wasn't have been amortized over a 20 year period and that's seven years going forward with the 2014 supplemental cola the policy has changed as of 2014 to amortize the cola's over 5 years split

the psychologist for amortized over 15 years and over 5 years >> to amortize the fire chief lifetime of those members that are receiving the cola and this post 96 group the average future lifetime is again 20 years and the rational you don't want to pay poor the spill cola's past the time the retirees are no longer around in the 20-year period an amortization sorry.

>> (inaudible). >> right. right. >> you get catch up in immorality so currently in the charter the amortization period is 20 years this option though was select a special exemption for the funding policy that is currently adapt by the boards. >> the next slide it is talking similarly about the pre97 grew up we're not making a dedication but don't oppositions for 3 group when we discuss that the current funding policy of 5 years for the supplemental cola and the third option to use the

average future leechlt for fiscal year 4010 not providing the section opposition the amortization periods is don't along longing when you, you look at the average future leechlts of the cohort so for the pre97, 5 years for the cola or 10 years we're not making the decision now bill will talk about projections and look at those openings they they impact the employees and employers side. >> we have a series of projections in your packet from last month and also have models so model any variation we are starting with the baseline and

adjusting for the returns and bringing in the option i should say all of the oppositions here because this is their projections they include the pre97 retirees a smaller amount a smaller impact we put that in for consistency. >> all of the projections have an assumption about future supplemental cola's coming to fruition is when we do the evaluations the values on that evaluation don't assume any supplemental cola's but proeng forwards no 100 percent full funding it meets the material projections with the supplemental cola's are so we

put in assumptions that every year we'll have half of the supplemental cola grants equivalent to granting a supplemental cola every other year and one year they are granted and am amortized over the future. >> i want to make sure i follow you. >> there's a probability will be better than 50 percent of the time. >> so above that. >> the theaters the base for that. >> in the presentation all of the drafts the top draft shows percent of pay and that is prior to the cost adjustments the dollars amazes are after the

adjustments for the contribution level the total combined is the same whether you show the costs or not that is the specific amount - so just with the one .3 percent return this projected contribution rate somewhat from the prior evaluation and the red line represents the prior projection and then. >> can i ask a question one more. >> sure. >> you can see the we went as a percentage of pay when you