china in our chinatown you don't have to go far. >> small business is important to our neighborhood because if we really make a lot of people lives better more people get a job here not just a big firm. >> you don't have to go anywhere else we have pocketed of great neighborhoods haul have all have their own uniqueness. >> san francisco has to all -

>> san francisco is known worldwide for its atmospheric waterfront where spectacular views are by piers and sight and sounds are xhanl changing we come to the here for exercise

relax ball games entertainment, recreation market, exhilaration a wide variety of contributions easily enjoyed look up the bay the waterfront is boosting for activities boosting over 25 visitors every year the port of san francisco manages 7 may have million dollars of waterfront from hyde street and fisherman's wharf to the cargo terminals and name shoreline the architecture like pier 70 and the ferry building is here for the embarcadero and a national treasure the port also supports 10

different maritime industries alongside with the recreational attractions making san francisco one of the most viable working waterfronts in the world but did you think that our waterfront faces serious challenges if earthquake to damage the seawall and the embarcadero roadway rising seawalls will cause flooding at high tides and major repairs to a safe many of the piers the port is at a critically turnl point time to plan for the future of san francisco's waterfront this year the port is updating it's marts plan the plan working group to invite a wide variety of poichdz from the city and

bayview and other advisory teams to share their expertise if intense and maritime operations the waterfront land use plan has guided the use and development of the lanes for the last 20 years major physical changes take place along the waterfront and now is the time to update the waterfront plan to continue improvements that will keep our waterfront vibrate, public and resilient the biggest challenges facing the waterfront are out the site an aging seawall along the embarcadero roadway and seawalls that will rise by 21 hundred to provide and productivity of tides seawall is built over weak soils and mud the next earthquake will cause it to settle several feet without the urgent repairs that will damage the promenade and

other things we've been fortunate over the last hundred years less than one foot of seawall over the next hundred years scientists say we'll have 6 feet of seawall rise imagine the pier 30/32 will be floated, the embarcadero will be flooded our transportation system is fog to be heavy impacts unfortunately, the port didn't have the financial resources to repair all the deteriorating piers let alone the adaptations for sea level rise. >> it is clear that the port can't pay for the seawall reinforcement or deal with the sea level rise on its own needs to raise money to take care of the properties at take care of the maintenance on the properties no way absent anti

funding the issues of sea level rise or the schematic conditions of seawall can be development. >> as studies talk about the seawall challenges the working group is look at the issues please come share our ideas about recreation, pier activities, shoreline habitat, historic preservation and transportation issues and viral protection. >> we know this planning process will not have one question and one answer we need the diversity of the opinions how people feel about san francisco waterfront and want to hear all the opinions. >> the challenges call for big decisions now is the time to explore now and creative ideas to protect and preserve san francisco waterfront. >> now is the time to get involved to help to shape the

future of our waterfront. >> we need the debate please come forward and engage in the process. >> this is your waterfront and this is your opportunity to get involved be part of solution help san francisco create the waterfront we want for the future. >> this is really to dream big and i think about what our waterfront looked like for all san franciscans today and generations to come. >> get involved with the planning process that will set the fraction for what is coming at the port. >> find for in upgrading dates on the ports website. >> (ship blowing horn in

distances) all right. on 5, 5 2, 1 you innovation on or was on over 200 years they went through extensive innovations to the existing green new metal gates were installed our the perimeter 9 project is funded inform there are no 9 community opportunity and our capital improvement plan to the 2008 clean and safe neighborhood it allows the residents and park advocates like san franciscans to make the

matching of the few minutes through the philanthropic dungeons and finished and finally able to pull on play on the number one green a celebration on october 7, 1901, a skoovlt for the st. anthony's formed a club and john then the superintendent the golden gate park laid out the bowling green are here sharing meditates a permanent green now and then was opened in 1902 during the course the 1906 san francisco earthquake that citywide much the city the greens were left that with an ellen surface and not readers necessarily 1911 it had the blowing e bowling that was formed in 1912 the parks

commission paid laying down down green number 2 the san francisco lawn club was the first opened in the united states and the oldest on the west their registered as san francisco lark one 101 and ti it is not all fierce competition food and good ole friend of mine drive it members les lecturely challenge the stories some may be true some not memories of past winners is reversed presbyterian on the wall of champions. >> make sure you see the one in to the corner that's me and. >> no? not bingo or scrabble but the pare of today's competition two doreen and christen and

beginninger against robert and others easing our opponents for the stair down is a pregame strategy even in lawn bowling. >> play ball. >> yes. >> almost. >> (clapping). >> the size of tennis ball the object of the game our control to so when the players on both sides are bold at any rate the complete ends you do do scoring it is you'll get within point lead for this bonus first of

all, a jack can be moved and a or picked up to some other point or move the jack with i have a goal behind the just a second a lot of elements to the game. >> we're about a yard long. >> aim a were not player i'll play any weighed see on the inside in the goal is a minimum the latter side will make that arc in i'm right-hand side i play my for hand and to my left if i wanted to acre my respect i extend so it is arced to the right have to be able to pray both hands. >> (clapping.) who one. >> nice try and hi, i'm been play lawn bowling affair 10 years after he retired i needed

something to do so i picked up this paper and in this paper i see in there play lawn bowling in san francisco golden gate park ever since then i've been trying to bowl i enjoy bowling a very good support and good experience most of you have of of all love the people's and have a lot of have a lot of few minutes in mr. mayor the san francisco play lawn bowling is in golden gate park we're sharing meadow for more information about the club including free lessons log

>> call the meeting to order and would everybody please rise and join me in the pledge of allegiance. i pledge allegiance to the flag of the united states of america, and to the republic, for which it stands, one nation, under god, indivisible, with liberty and justice for all. roll call. >> commissioner cohen? yes. commissioner bridges? yes. casciato will not be here today. president here? kwoer um is present. >> we'll be going into closed >> shall we call the meeting back to order?

we're coming back into public session. there was a motion to disclose. >> there was a motion that was approved by the retirement board not to disclose what was discussed in closed session, except that the board authorizes the executive director to disclose details of the completed investment prior to the next board meeting to the extent that the executive director deems it necessary to fulfill the objectives of that investment. >> great, thank you. >> president stansbury: we called for public comment before going in. we're coming back to open session. can we move on? call for public comment again? that's just the completion of this item? great.

>> every chair you have -- make it a lot easier for all of us. >> president stansbury: ok, mr. secretary, nexttime. >>time 4, general public comment. >> president stansbury: great, if there are member of the public that would like to address the commission under general public comment now. i have one speaker card for david page. you know what, i'm sorry, number 5, mr. page, my fault. seeing none, we'll close general public. my name is john stenson. i'm a member of the retirement fund. i would like you to do away with public comment, instead having something similar to question time. i think that would be beneficial

to you members, make you educated on investments and what the members think. i would like you to take that up in discussion and see if you can have a question time where we can question you on the investments, instead of coming and ranting and raving, and whether it gets through to you, who knows? that's not really what i want to talk about. i gave a bloomingdale report on passive events. active money management. today i would like to give you the highlights. active money management and passive management. according to a research in standard and poors, in the past 15 years, it was determined that only 8% of large cap managed funds outperformed the s&p 500.

only 5% of mid cap managed funds o performed the index. that is going back 15 years. only 3% of small cap outperformed their index. so to me, i always follow myself, i follow passive management, rather than active. i think a lot of active managers are a big waste of money. especially hedge fund manager. the conclusion was the recommendation to financial advisors, they should avoid recommending actively managed funds to their clients. we're the clients. so i would like you to do that one of these days. let me go back 1926, 1916. that's 90 years. three years before the great depression. and in that time --

>> time. thank you, mr. stencil. sorry, you reached your time. >> one more minute? >> sorry, that was already two minutes. thank you very much. >> good afternoon. i just have to say that mr. stenson built some of the most incredible cable cars that are still running in the city and since he retired no new cable cars have been built. but that's aside. i'm here to ask once again on the progress of looking into its own city building or to buy, renovate, or build and where we are in the process of acquiring our own city office building. thank you very much. >> thank you seeing none, we close the general public comment. next item.

>> why don't we start with general comment. mr. page, i have a speaker card for you. >> thank you, good afternoon, everyone. the january 24 meeting was about the fossil fuel investment, divestment question. a lot of people got to talk. it was an interesting discussion, a lot of people didn't get to talk. one of the things that i think might have been left out, but maybe you heard it already, is about the changing of the weather and climate catastrophe that is developing. i was talking with a stanford scientist over the weekend who has studied quite a bit about this and was asking him in particular about his emotional processing with the knowledge of

this type of grim weather forecast that we're looking at. and if you want more information about this, you can look at the mercer report that mr. martin included in his report that he put in for the january meeting. anyhow he said he struggled with it and didn't really have a lot of positive things to say, but after talking with him, he ended up saying well, i guess we'll have to take good care of each other as we go through this. and thought that was good advice and i wanted to pass it along. thank you. >> thank you, mr. page. any other members of the public that would like to address us regarding the minutes? seeing none, we'll close public comment. is there a motion on the floor is this --? great, there is a motion, there

is second. item passes. next item, please. >> great when we call for public comment are there members of the comment that would like to address with the consent calendar. seeing none, is there a motion on the floor? there is a motion, there is a second. can we take this item without objection? great, item passes. next item, please. >> december 31, 2017. mr. coaker. >> very good, board members, we have great news to share, terrific year, particularly total return as well as relative return. alan, i'm going to ask you to update the board on the performance. >> absolutely. you have the report before you. it's the cover -- as the cover sheet indicates.

the fund earned 4.01% net of fees for the quarter and 16.98 net return for the year. since the report was generated, the s&p is up another 2.9%, but it's been a more volatile period so the s&p was up 5.5ers in january and that was the 16th month in a row of gains, but it was down 3.8% of february, and a flat march. so the fund is still up, although we've had more volatility than we've seen in the market for a while. the quarterly economic developments are outlined on page 4. i'm not going to spend a lot of time on them. it's very much what weaver seen in the u.s. economy for about the last nine years. very slow growth of g.d.p., about 2.6%. a slight increase in corporate

profits which was welcome. continuing very low inflation with few signs of the kinds of inflationary pressures, particularly on the wage side that would cause the fed to raise rates. you can see the long-term treasuries are still at 2.4%, a small increase from where they were at the end of september. i would say the biggest concern and why you've seen volatility in the market is nervousness about the pace at which the fed will have to increase rates. so far they've managed to increase rates below the rate at which the market has expected them. and we've continued to enjoy economic expansion not just in the u.s., but globally. once again, if you look at that very last line, price earnings multiples did raise slightly. and that is why as you debated earlier about how difficult it is in this environment to

invest, the long-term bond returns are in the 2-3% range, equities typically do about 4% better and that's optimistic. so public market equities look to be on expected basis around 5-6% with bonds at 2-3. you put those two together and you can't get to 7.5 without taking the kind of actions you've sided in your asset allocation and that is moving assets into things like private equity and private debt. with that economic backdrop, if you look at the markets on the next page, column one is the quarterly gains by asset class. virtually every market you can have invested in the quarter was up. the s&p 500 which represents u.s. equities was up 6.6%. non-u.s. developed markets 5%. emerging markets 7.4%.

core u.s. bonds .4%. that is illustrating the kinds of returns you're going to earn from bonds when the rates go up. when you annualize that it reinforces shifting the assets away from core bonds. private equity was up 3.8. real estate 1.6. for the year, again, all markets were up. headlined by u.s. equities. international developed equities up 27.2% and emerging markets up 37.3%. you've got one-third return on your money from emerging markets. i would caution you that all of the indieses are cap market weighted and that is driven by three chinese technology stocks that you've never heard of, or

maybe you have, alibaba, you're an advisinvestor in the funds ir manager. u.s. bonds generated 3.5%. credit where you do have a targeted 10% exposure did earn 7.8%. so credit even in a bonds type category did produce a return in that year that would have been sufficient to exceed your assumed rate. private equity up 16.7. real estate as art commented starting to top out a little bit with the 7% return. before we go to sfers results, i wanted to take you to page 11 which is a breakdown of the return to the s&p 500 in the year. i mentioned it was 21.8%. this chart decomposes that return into 9% or almost half of

the return with multiple expansion. that is a growth in price earnings ratio and another 7.7% was real economic growth which was really profit margin expansion. those two variables going forward are highly unlikely to generate those kind of return. as we mentioned from a valuation perspective, u.s. equities are highly valued in a pe sense as they have been in a last ten years and looking forward we anticipate shrinkage in pe ratio. so that 9% goes negative. and profit margins were high as we look at rising interest rates, it's going to be harder and harder for companies to increase earnings when the cost of borrowing rises for them. that's part of the underpinning for the forecast for the u.s. equity returns in the 5-6% going forward when you experienced who benefit 21% in the last year.

if you go to page 23, that is the sfers summary page. the top line is time weighted total portfolio net of fees. you can see the one-year number, 16.98%. the three-year number, 8.8%. the five-year number, 10.05%. and those are annual numbers. so all of those are handsomely above the 7.5. even the 10-year number, if you look at 6%, when we're here in june, you will be dropping a fiscal year when you had a -20% loss in. that drops off in june. we'll add this fiscal year to that. assuming we don't give up a lot, you expect by the time we get to june that the 10-year result will be in excess of the 7.5. so very good success in the

period ending 12-31, in generating the returns you need to amortize your assumed rate. i don't have it on here. >> the 20-year number is like 7.55. the inception number is more than 8.5. >> one of the things those numbers do point out is there is a lot of pressure on public funds and arguments about whether 7-7.5% assumed rates are sustainable. there is argument that public funds have not generated those kinds of returns historically and indeed, these numbers say you have. the underfunded status is more of a function of the sponsoring agencies to make contributions during good times than it is reflection on poor investment performance. >> comment on that. that is correct. we have achieved a higher rate of return greater than 7.5 for

all time periods except this 10-year and this 10-year is the second biggest collapse in the history of the country. the 20-year number of 7.55 includes two of the four greatest declines in the history of the country. so it includes about 2.5 bull markets and the 20-year numbers from a fair representation number of our performance. it's a bull market cycle. >> 7.55. might be 7.50, but within basis points. >> do you now consider 20 years as a full market cycle instead of 10? >> how i think of investing is actually 30 years. and i will show you data at next

week's meeting as to why. you have public equity returns over one year. whacko. over ten years, still a lot of volatility. you go out to 30 years in public equity, the minimum 30-year return in the 92-year history of the s&p 500, the minimum return is 8.5. >> i know professors in the barclays board would say to get all the noise out of the market, you need 30 years. >> agreed. in 30 years, markets can be generous or punishing. in 30 years, they've only been generous. >> it does remove the cyclical factors, but we've had secular tail winds where we've had 30 years of declines interest rates. that is not a factor where we are now, so i think looking forward over the next 5-7 years,

earning those kinds of returns is going to be a lot more challenging because of the place we start. but the cyclical is out of the 30-year numbers. >> if you look at our 20-year return, ranking of pension funds across the country, would we rank in the top 10%? >> over 20 years? >> yeah. >> well, there are very few funds of our size, so it's not statistically significant, but we're in the top 1%. >> how about for 10 years? >> 23%. >> the number next to the performance number is your ranking in a public fund universe of roughly 60 other public funds that are greater than a billion in size. you can see one year, five years, top 7%, ten years top 23%. so this fund is certainly done quite well. we're going to break that down in a minute. part of that success is the fund has been willing to accept equity risks, so you've had more

inequities than others and equities have done well. but when we look below, you see added to that good policy result is good manager selection and good allocation of the portfolio as well. so very strong competitive results. if you compare the first line to the second line, the second line is the policy result and you see the fund outperforms the policy for the year and matched it in the 3 and 5 year period, trailing in the 10 year period. we're going to look at that because part of the trailing has to do with the benchmark you have for private equity, which is a public market plus five benchmark. so even though your private equity program has been outstanding, take the 21.8% that the equity market did in the last year and you would have had to generate 26% in private equity to beat that. nobody did that.

we'll get into that. but the message is 1, 3, 5 year period, the actions of the staff and the positioning the francois fillon from allocation standpoint and choosing active managers where you've chosen to be active and you know you are lin definitely -- indexed in the large cap space. if you go down in the tables on the bottom right, we rank the fund in terms of the volatility of the result. where a lower volatility would be a more certainty around the achievement of the ongoing result going forward and you can see that your total fund volatility has gotten a little bit less from the 5-year period where you were less risky than 44% of the funds as measured by volatility to 40% in the more current period. the asset allocation you adopted

last november will tend to reduce the going forward volatility of your fund even more so we would expect that rank to get even better. when you combine a relatively volatile fund with a very successful return, you get what is called a sharp ratio which is a risk adjusted return. it is the units of return per unit of volatility risk you took. so if you were to divide the return by the standard deviation, that's roughly the sharp ratio. the theorists would subtract the risk rate return before you did that, but in the last while, the risk free has been 0. when you do that, you'll see the sharp ratio for the 3 year and 5 year is in the top 12% of the peers. so even better at least on a one year basis than the 21% absolute

return ranking. if you look at the numbers the fund $3.58 billion for the year, which is $250 million in the quarter so that return results in dollars of $3.58 billion and as of december 31, the funds total value was at all-time high of $24.14 billion. if you going to the next page, this is just the asset allocation snapshot. page 25. the first two columns are the dollars you have in each asset class. and then the percentage in each asset class. the policy number showing here is the policy you adopted last november. and the policy range that won't take effect immediately, but we

wanted to give a sense of a comparison where you are with the policy targets. the interim policy to the far right is more reflective of the path to get there and if you compare your allocations to your interim policy, you're essentially operating the plan well within the limits established by the board. the new targets take effect in january so you'll see all of the calculations done at that point in time. all the asset classes again are close to the targets as we migrate to the new policy. if you turn to the next page, you see the policy history. this is simply the change in asset allocation over time. if you look at that you see relative stability with about 60% in equity, but a gradually higher percentage of that equity in the form of private markets. and similarly, particularly if you compare to the strip on the

right, which is the new policy targets, you see more diversification in the policy targets. you're spreading more of the assets into private debt, absolute return and private equity which will serve going forward to insulate the plan against drops in the primary public market asset classes which was intent of the board. let's take less risk and not give it away in a down market and let's move more money into private assets where we believe we can earn a higher return. so that is the history. if you turn to the next page, it's simply a clarity of the growth in -- chart of the growth in your assets over time and that is your net cash flow. you're mature public pension plan which means the money you pay out in benefits is in excess of what you collect in contributions. that's why you have a pension plan. if you were to look at your roughly annualized cash outflow

of $400 million, $4.5 million and divided that by the plan assets, that number would amount to 1.8%, so your cash needs every year relative to the size of your assets is a little less than 2%. a mature plan is 2.5-3. what that says is you have the liquidity to be able to undertake some of the private market investments. you don't have to worry about generating sufficient income to pay the cash flow. you can take liquidity risk and earn higher returns in private markets. the next few pages are risk return charts. i'm just going to go to page 28 and talk about the three-year -- the five year period, sorry, they're all roughly similar to you. so if you look at the left hand chart on page 28, that is a plot of five year risk and return for

60 public funds greater than a billion. the horizontal line is the median return. the vertical line is the median volatility. and you can see the green square which is sfers total return, you're slightly less volatile than the median fund and earned a higher return than the fund. if you were to draw a best-fit line through those spots, that line would start at the upper left and move to the upper right. and that line referred to as the capital line would indicate that taking more risk in the last five years has been rewarded with on average higher return. if you were then to look at how your green square compared to that line, and i'll give you the number later, you would see that it's substantially above where that capital market line would be am meaning, you have earned a higher return than you would have earned had you simply

exposed your portfolio to the risk that you took. that the actions of staff in terms of manager selection and positioning have added above what you would have gotten. it's worth noting that green square which is your total return, just to the right of it, in that dark blue diamond, that is where your policy would have been. so as we said in this period, your total return roughly matched your policy, but the actions of staff caused it to be less risky than policy. so even though you didn't outperform policy on a return standpoint, you took less risk than the policy index. if we go to page 31, it's just the tabular version of what we just talked about. so if you look to the left, total fund return over five years --

>> excuse me. mr. martin, thank you. i would appreciate it if you could translate into layman's terms about the policy not meeting with the staff decisions? >> what i said, is your actual return was just slightly below the policy return. the policy return is has you would have earned, had you been allocated at all times exactly at the exposures of your policy, and had all your managers exactly met the index. so it's a hypothetical that says if you simply indexed your asset classes in every category and you were always exactly on the board approved allocation, that is what you would have earned. it's hypothetical number. because in some cases ycan't actually earn the return, but it's a measure of, if you do

better than that, if your actual return is better than the policy return, it simply means you either picked managers who have done better than the index. that's contribution of active management or positioned the portfolio to be overweighted to the things that did well and underweighted to the things that did less well. the policy is what you would have earned -- >> my question is, base on the hypothetical, that you said, is that a trend? are we missing every year? >> no, no. it's not a trend. i'm going to show you in a minute, the under-performance versus policy is really the mechanics of one of your benchmarks being aspirational benchmark that has been different. >> for private equity? ye