would you like to call 9 and 10? >> yeah, we often do. >> let's call 9 and 10. >> 9 discussion proxy voting report for calendar year 2017. and item 10, review and approval of proxy voting policies for the calendar year 2018. >> we report a summary report on proxies voted. this report provides summary level information on how the retirement system has voted. proxies across two categories, those put forth by management which include election of directors, appointment of auditors and mergers and those put forward by shareholders, we

provide level of information as to how the retirement system voted its proxies on matters related to executive and director compensation. in addition this year, and in response to board request, this report shows percentage of our votes that align with past and failed proposals. so i'll introduce andrew. >> i'm the u.s. head of custom research at iss so our team helps to implement your proxy voting. we've enhanced the report this year showing the proxy voting and how it has affected the vote outcome. we brought in the vote results as well as how you voted on the topics. i want to provide you with trends around corporate governance to get a sense of how the market is voting, how sfers is voting and give you an idea

of that sort of impact that your proxy voting is having. so looking at russell 3,000 companies in 2017, average support for directors was about 96%. it's actually a high watermark, going up every year since 2009. so that is certainly a sign that shareholders are finding directors are fulfilling their fiduciary duties than a higher level in years past. but really where you tend to think about issues around the board of directors is things like the independence of the board, the directors serving on too many boards. these are structural issues and are certainly things you vote against, the reelection of directors for. that said, where you tend to see failed elections or directors receiving high levels of against votes tend to be on accountability related issue, matter affecting risk oversight or poor response to a prior

shareholder vote. when i talk about risk oversight, a good example is milan, this is the manufacturer of epipen. that resulted in federal hearings, congressional hearings and lawsuits. as a result of that, shareholders voted in high opposition to the members of the board, members of the governance committee charged with risk oversight of these matters. in fact, one director at milan failed to receive majority support and they voted against that direct area as well as others. that director failed to receive support, just barely failed to, so shows evidence where your voting is having impact calling out or asking directors to be held accountable for their actions on the board. moving to the next topic of executive compensation. in the u.s. context, this is

primarily in the form of advisory vote on c.e.o. pay. this is nonbinding vote, thumbs up or thumbs down on the prior pay. average support for this proposal was around 9 #%. sfers voted against 1 out of 10, which is in line what you're peers are voting as well. the primary focus is the alignment between the pay and the focus of the company. where you see these proposals failing is misalignment between those two i. going back to milan as an example, the executive chairman received $100 million in compensation in 2016. this was front loaded pay for his next five years of service

on the board, but the shareholder saw a negative return following the epipen pricing controversy, so that disconnect between sizeable compensation grant and negative run for shareholders is where you see the proposals receiving high opposition or failing. the advisory vote received 17% support which was one of the most opposed resolutions in 2017 on executive compensation. moving to the next topic, looking at environmental and social shareholder resolutions. this is another hot button issue. if you had a time line going back over 15 years, looking at average support tore the proposals, you'd see 15 years ago, average support was in the single digits. fast forward to 2017 and likely

2018, average support for the proposals on environmental and social topics receive on average 22% support. and a number of these received majority support which five or ten years ago was unheard of. in 2017, there were six proposals that received majority support touching on environmental and social issues. three relating to climate change and exxon mobil, ppo corporations. and sfers voted in favor of each of those proposals. what they're focused on is asking the company to report on how they -- what the portfolio impact of 2° scenario would be and how the company was adopting policies or what sort of policies they had in place to address that issue. this was of course -- this has been a hot button issue for a number of years, something investors have been focused on. the risk on the portfolios.

exxon mobil, these are companies you did not see this level of support in the years past. that's really -- i would view that as a change in the mindset among institutional investors, finding there is a financial argument and a real financial risk with not supporting the proposals. as i mentioned before, of course, sfers voted if favor of the resolutions. so that's a direct evidence of your proxy voting affecting how the companies are providing -- being transparent to shareholders and providing shareholders with information. >> that is where owning fossil fuel stock gives you a seat at the table, you can vote for proxies, forcing change, that you otherwise wouldn't be able to effect if you weren't a shareholder? >> absolutely.

>> how much -- i'll take a couple more minutes. high points here? >> sure, actually that wraps up the historical vote in terms of the proxy voting. the other order of business is the updated proxy voting policy for the 2018 changes. so welcome move there item of business. >> president stansbury: any questions on the first part? >> i have one. you mention where public plan voted on the social issues, so overall has that changed year over year given sentiment? >> absolutely, if you look at the trajectory it's only gone up over the years. where there is slight dips is the shareholder proposals evolve and they become more costly on the company, you may see decrease in support, but across the board you see more and more investors recognizing this sort of information -- again most of

these are asking for reports on potential risks and recognizing that is important piece of information for shareholders to have to evaluate their investment. >> thank you. >> president stansbury: why don't we present and open up to the board? i'm sorry. >> proxy voting stuff is in one sense level one. it lays the foundation for level two, which we're hoping to do more of. when people see the votes, when people get together, they start to see, i think of a number, 21 of the climate votes. 21% of people opposed to resolutions, that's a good sign. the observation, it took a couple of years to get you tell us about not just how we voted,

but column 5, it's tricky reading the numbers, they all add up to more than 100%. we don't need to go through it today. but think about whether you can make that clearer going forward. if with a new social policy director, what are we calling the director? this is going to be working hand in with it and you as well. >> we can enhance this more. the intention was to show based on the vote outcome how often you were aligned with the outcome. five proposals that failed, how often did you vote against that? the updates for the proxy voting policy. there are six changes but i'll trying to simplify them. the first four changes are on the topic of director election.

would have complex and this is common among the peers, you have complex set of rules when looking at the board of directors and electing them. the first change is really to strengthen and simplify the policy around poison pills. it allows the company to avoid a potential takeover. what we're doing here is simplifying the policy, saying if a company has a poison pill in the books, with a term of more than one year, you expect them to put that out for shareholder aproox, if they don't, they vote against the members of the board. if the company adopts a short term pill, they'll review that on case by case basis. they may have justification for doing so. long-term pills you expect shareholder approval, if not, vote against members of the board.

the next material change, the second material change to the director elections policy is on excessive non-employ director compensation. when you're talking about compensation, non-employee director pay has gone up year after year. and what we're doing here, or what the proposed changes here is not to punish companies or directors for higher pay, but truly excessive levels. these are multiples of what their peers are receiving. and also not just looking at whether they're doing this one time or one year, but looking for a pattern of multiple years of excessive non-director pay. if this identified, then proposed in the policy where you vote against the members of the compensation committee for setting this excessive pay and doing so on an ongoing basis.

the next two change are i would say less material. i would spend a second sort of summarizing each one. essentially you're codifying positions you're already voting in the policy. being more transparent, stating that companies shut opt out of state laws. this means if there is a state law that requires them to hold elections of just a part of the board each year, so a third of the board being up for election, you would expect the companies to opt out of the state laws. these are limited states, but this is a codification of an approach you already have. the same thing for the next section on problematic pledging for company stock. this is something you already factor in. your analysis of the board of directors and really this is just a codification or being transparent in terms of stating that you will be evaluating problematic pledging of company stock and potentially vote against members of the board

when magnitude of that pledging is exceeded or the company's policies to address that are not adequate. >> are we near the end? >> yeah, two more. so the next update is a new shareholder proposal on gender pay gasp. companies are asked to report on pay broken down by gender and reporting what sort of policies or procedures they have in place to reduce any potential gender pay gap. we saw these three years ago. they're increasing in number and the focus around the issue increasing as well, so we thought it made sense, we would propose you adopt the policy specific to this issue to lay out the framework in terms of how you would evaluate. so on a case by case basis looking at how the company's disclosure compares to peers, controversies or litigation. that is the framework for the

policy here. and the last topic, we touched on this earlier around climate change risk. of course you have a strong policy on environmental related shareholder proposals that you generally vote for. those sorts of proposals but because climate change and climate risk is such a major issue of discussion in many industries, we thought we were proposing a policy that is specifically addressed this issue as opposed to under the general umbrella of environmentally related proposals. your position would be same and you would vote for the reasonable requests. >> thank you very much. >> one question on the compensation issue. does iss have a rule or mettic they use when the compensation is going to hire officers in the

corporation where we don't want it 150 times the lowest level. it's not on a sexual basis -- >> companies beginning this year, companies are required to disclose that. the c.e.o. pay is a ratio to the average worker. but we're look at non-director based. iss doesn't have a single metric or multiple we look at when look at executive compensation, although the magnitude of pay is one input in the screen when we're evaluating c.e.o. pay. we're looking at pay relative to peers and shareholder return and also the magnitude of pay. it's a factor, but it's not immediately result in any sort of adverse recommendations under the policy. >> well, maybe the link then is when the when sayings committee on the -- compensation committee on the board of directors voting

on the c.e.o. and other people's pay, a conflict there. >> thank you. >> commissioner bridges: there is issues and discussions around still dealing with the gender and pay equity gaps around women on corporate boards. and i don't see it as part of this research this year. is the whole issue around the number of women on corporate boards? >> i believe you have a policy addressing board diversity, that's why there is no proposed change. >> and it will continue to be in there. >> yes, i'm looking for it. >> commissioner bridges: i was looking through -- >> it's number 32 on page 11. board of director diversity. that's an existing policy we're not updating, but we're recommending that the gender pay

gap as additional issue. >> commissioner bridges: right, i don't want to lose that part. >> one comment i'll add, six shareholder proposals on environmental and social matters that passed, received majority support in 2017, two or on board of diversity, that is running along side climate change in terms of issue that shareholders are evaluating closely and supporting at record numbers. >> perfect. that's what i wanted to know. >> thank you, please see the gender pay gap issues reflected in this list. i don't know if, andrew, if you know about my personal background, but i'm a member of the san francisco board of supervisors and not too long ago we asked this body, the sfers board, to consider executive pay and diversity pay in the proxy vote. and this was scheduled to be on

this week's finance committee. which did not happen, but with the staff recommendation to move a different committee, is that correct? move it to a different committee? we believe it should be referred to the investment committee -- >> because it's an investment matter? ok. so i guess my question, did you consider executive pay when updating the guides? board diversity is a factor we look at in the contested director elections. as far as uncontested election is a factor, but it's not a specific reason we would recommend for or against the board. looking at just the pay alone, really the only context it comes up, or for the vote, would be when you're voting on the executive compensation package. so i guess i don't see how we

would -- how the diversity pay factors into that quite as much as we're looking at the alignment between pay and performances. >> you conflated what i was saying, i was saying executive pay and/or diversity of boards. two independent concepts that could be on this list of -- i don't know what you call these things -- gender pay, i did not see executive pay. i heard you talk about it. >> executive pay is on page 10. at the top of the page. >> required separate chairman and c.e.o.? equal access to proxy ballots? i don't -- >> number 6, voting on msop,

management on pay proposal. >> i'm looking in the wrong section. >> it's compensation related section. >> ok. you say it was number what? >> number 6 on the top of page 10. >> ok. great you answered my question. i appreciate it. half of it. what about diversity on the boards? >> 32 on page 11. >> great, you answered both. i appreciate it. thank you. >> comments, questions? seeing none, we'll open up to public comment. are there any members of the public who would like to address this proxy voting only? >> every pension in the world divested from fossil fuels in global warming.

we're going to have a global warming for the next 5,000 years. all ice in the world is going to melt. when that happens, sea levels will rise 240 feet. the good news for you members that live on pacific ice, 5,000 years from now, you're going to have beach front property. >> thank you, just a reminder to the comment on fossil fuel, this is comment on proxy voting only. if you would like to discuss proxy voting, step forward. >> david page with climate justice. the vote that got exxon mobil to talk about their fossil fuel and climate change is a step forward and thanks to the rockefeller family and black rock, i think it is especially,

plus our proxy vote, we got them to make this historic report. unfortunately, my understanding of what the report said that exxon mobil produced was minu minimizing the risk related to climate change. and it was not the type of report that a lot of people were hoping for in terms of delineating how much profit will be lost assuming there is a rapid drop in the value of the assets that they have under the ground. i'm hopeful that somehow in the future they'll do better in terms of the reasons for divestment, instead of having us be at level 2. i figure this is another example of how progress with the results

of the emissions going into the air related to these engagements and proxies is too slow and too small. and while i'm up here, i'll say i'm also glad about the progress with gender equity and i hope that continues to move in the right direction. thank you. >> thank you. any other members of the public? seeing none, we close public comment. thank you for your report. >> we need a motion to approve the addition to the policy? >> president stansbury: sorry, i was thinking the first item. is there a motion on the table. >> i move that we approve the additions to the proxy voting policy. >> president stansbury: there is motion, a second. any discussion? seeing none, take the item without objection. item passes. thank you for the report. just the one action, right?

>> right. >> item 11. cio report. >> thank you, board members, we had the first in a long time. year and a half we were down 1.47%. you see the returns on the front page what is not reflected on here is the absolute return program lost 60 basis points which we consider quite good. equal to the bond market and better than the stock market. >> did you say loss or gain? >> it declined 60 basis points. >> i thought you said we made 60 basis points. i thought i said decline. i know david did. david said 60-70. there is narrative on the returns. they're still north of 9 and

today they're at 10% for the fiscal year. economic conditions, one quick note, is that the payroll report was delivered on friday after the publication of this board package. very strong number. the jobs created were 313,000 for the month of february, versus consensus estimate of 2-hundred,000. so very strong number. the january report was revised up from 200,000 to 230,000. this indicates that the economy is quite strong. boyu, this is a much sought after long short manager in china. we requested $100 million. we only got 20. even though this manager we were on top of this, pretty early, the strategy is only 2.5 years old but it is capital

constrained. we're hoping to build a long-term relationship with this manager we consider a strategic partner. pelican energy we requested $50 million. >> this is entertainment and media startup company. previously of dream works and disney. we requested 50 million dollar and we did get 50. we have three open positions, we've made progress on two of them.

i would like to turn to those now and in page 1 of the case report, the returns, strong returns over one, three and five years, the 10 years of 6.2. and comparing very favourably to a 7030 benchmark. out performing by 2%.

we are looking for input. ignore that for now. the last two numbers look out to 2016. you see the rate of return for this 23 year period, 22 and a half period as listed in the above right. you look at the compound rate of return, over the 22 plus year period, we returned 8.16%. and that is where the volatility is 8.25. you see the returns compare favourably to 70, 30 and the risk adjusted returns and standard deviation and the sharp ratio versus. it is a bunch in the belly in terms of the numbers is --

during the gsb. we are going to go over returns data in the weeks. you see here also in the graphical charts, in the rolling volatility is we had unusual volatility here for the last three years. occasionally it works well and occasionally not. it does not work well... it does work well in the decline. you see here on two occasions we -- only once on a physical year basis have we lost more than 7.5%. we will show the data next week. the next couple of charts just show some of our geographical

and sector exposures. the first two on page 2 and 3 are dollars as currently invested. each three has the -- we have a very u.s. centric portfolio. on page 4, what i would note is when you have some sector variances. 70-30. it is to show you what the portfolio would look like. versus 70-30 is the technology by the previous 3%. 3 and a half for real estate. real estate is not well represented in the public equity inde index. we anticipate this changing.

we don't have much data exposure. in the next report, we will be including our provision. you will see how diversified we are and the active weight showing how different those. the margin positions are versus the benchmark. i will open for questions. questions for the board? >> i have a couple of questions. on page 2 of the exposure report, it is committee capital? going back to page 3, in the 6th column, it was labelled target.

going back to the question, this is the policy number in returns, right? we show a policy number? page 3. is the target the policy or the same thing? it should be perhaps relabelled target. i want to make sure we are talking about the same thing. the answer to the question is this. secondly opportunistic -- >> the next issue you have to deal with, was the private equity deal.

a process question. the equity area. the board approved in october a lot of work is going on with this. the question i have about that has the legal team been identified and available to start work on that once the board decides because i asked that question because of the length of time to >> we do request legal assistance when there is due

diligence. we don't know until it is done. when we do know, we do request assistance. >> we have a couple of unique policies. we expect the managers to comply with in san francisco. it is international measures and another set of law. my question is have the lawyers been identified and they are ready to work so we don't have the same execution problem we did the last time? over the years, we provide them a sample in the agreement and all of the boiler plate requirements and in their response to the -- let us know what parts of this thing you do not agree to. >> the information transfer, the question you need to bring onboard to execute as we focus

on who the finalists were, we go and make sure that if there are outstanding issues, we do not engage counsel until we bring a recommendation to the board. but we have a pretty good idea based on what they responded back to us that there is no deal killers from our perspective in our contract that they cannot agree to. >> we get on top of potential deal breakers before we get started. there is a disconnect because the people that generally respond to our case are not necessarily legal counsel.

we are making an effort to put them on notice. thank you. >> questions for the board? very well. public comment. are there members of the public? and i don't know [indiscernible] china as you know, they can change the economic policy overnight. they can make the prime minister for life. and the same with the economic policies. if you want to invest with china, i think the only way to

do it is by buying american international corporations. in china, you like kentucky fried chicken. i don't know if you can invest. i know you can invest in kentucky fried chicken. i recommend that you invest in china, you should buy international corporations and invest in china. they know more of what is going on in china and the markets. >> commissioner. >> any of the members of the public like to address the commission? >> public comment. i just wanted to make a couple of clarified comments. >> public comments, please. >> okay. >> i understand there were two closed on monday after the

[indiscernible] the asset fund we requested 50 million in january. and we did get 50 million. and the value of your fund, we got 50 million. >> clarifying comments. you mentioned the private market is a private equity in the return portfolio. and the capacity we received relative to the amount that was approved. the board did approve $100 million for the investment. we invested 20 million and that was really an agreement between the manager to invest. we do intend that we will sign

the investment eventually. >> thank you. >> commissioner, before you do the monthly report, if there are no questions i would like to go into the two more items i have. one is the investment changes. it was successful. the changes have been online tonight. and the participant will see the mapping effective on their statements should they be invested in the map fund. and the invest line up has been updated and the fact sheets with the new funds are available for reference. i wanted to share the news with

the board. the other thing i want to update is the administrative request for proposal. we have signed a contract. that contract is set to expire january 31st, 2019. and so we are about to issue an rsp for third party administration. we plan to share the draft of the first draft with the committee on monday. i wanted to share that with the board. there are no questions. >> it will not be released until mid-april. >> that's correct. >> i would like to address the commission on the station manager report. >> having closed public comment. questions for the board?

thank you. >> item 13, the next item. the consulting services request for approval. >> commissioner, the audit is prepared every five years in accordance with the reporting policy. the purpose and i am going to provide an independent review of the analysis -- analyses and preparing for actual evaluation. and the draft is before you. i would like to draw your attention to the selection criteria. on page 4 of the draft. there are five bullet points. and required by our service provider selection policy would be 10% for the first bullet. 15%, 40%, 25% and 10%.

and it would help us evaluate. if the board has questions, i would like to answer at this time. >> are there questions? >> experience and qualifications to the proposal. >> we can only judge the companies by the proposals. how well they are communicating. how well they will be able to convey to the board by their proposal. >> this is unusual because of the short-term engagement. they are only here for two or three months. you know, it looks like they gave thought to the proposal what they submitted.

this is the short-term engagement. >> any questions or comments from the board? >> we will close public comment. that is the motion. passed. item 14. the financial statement and indications for the year-ending june 30, 2016. i am not sure in detail you are planning to go.

we will focus on deficiencies or areas for improvement. >> my presentation would be brief and i will take questions on what i have. in terms of the audit, the financial statement audit. it is a comparative financial statement. it was comparable. [indiscernible] that may be significant to the financial statements. and all of this is in the report. i can take questions you have. >> i would like to point out that this is the 18th year that

we had have clean audit. where they found no material issues that needed to be reported to management. when i started there was an issue related to school district payroll. and so i congratulate the staff for the hard work that they do and we are grateful that we have an ongoing at least 5-year working relationship at this point. an independent auditor was hired by the controler's office to audit our financials. >> question. does the audit cover any of the money flows in the different compensation program that we all have a responsibility for?

>> i did not. it was a city-wide audit. there was testing of payroll records. i defer the response to the auditors. >> it is the controller of aware of that. the comptroller gave me instructions. >> the assets are as trust. >> it has nothing to do with money that flows into the deferred comp program as jim pointed out they look at payroll to confirm numbers that are out of people's paychecks and where they go and where they land. but if that is not part of this, i understand that step was done by the comptroller? >> i think i can confirm.

>> the audit for the city you mean or the selection, not the audit? >> from an active member's paycheque, it was at their request. the program which they do. >> the question is can you verify that? >> the city's overall audit we look at the payroll process including the deductions that would go through. that is not the objective of the city's audit. they may have selected samples. that would not be objective. >> objective... >> there is no separate audit.

>> a similar question but different. we have authority to create secular trust. any employees who have compensation greater than what the federal government allows and sets up -- we do not control that money. the question is, is that -- people come ask us questions, i believe it is within the scope of the city's audit because it is money that you point out that is in direct control by the employer. in this city. it is does not have to be cleared out if the pension is paid out of the trust. >> it is not to my knowledge.

it is above, that is audited. >> there was a third part. this is what i am trying to explain to people. the money is checked and verified and it is there. it is the uniqueness of the deferred comp in the trust. the charter, we promise people money, it is going to them. it is how and where we account for it. we have auditors to prove it is done correctly. the benefit plans. we felt it was a really bad name.

we called it a replacement benefit plan. which is the same thing under the same code. thank you. >> are there other questions? >> you have a piece of the bond rating. >> we did, yes. i think everyone deserves to know what is available. >> right. with that, almost all california city pension reform. and when the state bill was before the state and they wanted to include it, we actually said our plan provided for employees. they backed away. the growing plan is a positive

thing. always. >> we have a full section, generally. we have our piece. it is 15-20 minutes. they have the whole agenda including health care, all of that. no, i think they are very impressed by how conservatively we are managing this and they feel that, you know, we have been sort of behind everyone else in proving benefits and ahead of everyone else in trying to make new employees benefits

affordable. >> they replaced the plan on the line item. it has to be. it is money that i believe the city collects from the department. so if a firefighter, a retired fire chief who is getting the excess benefit, they have to present money every month to pay. i believe it has to be on the city's. the preferred comp would not be on. the same process is involved. money deducted for a replacement benefit plan. it is money that the fire department puts into the comp so we can cash the cheque or the person can cash the cheque. the member is retired. there is no money coming out and not funded by the active members

because the amount is paid is what is in excess of what we can pay. it is not the same process. in case members are wondering where is the money. >> i am assuming that is what the auditor would do is find if there is an irregularity of money being deferred where the paycheque is not arriving and where it should be deposited. that would be reportable. what i am hearing is they found irregularities. i think in an audit if you found something, you would bring it forward. >> do you want me to comment on that? it is something that is systemic that affects more than one area,

the finding is correct in that comment. comments to the board. seeing none, i believe we can go to public comment. we close public comment. >> sorry, i looked forward to 15. >> hopefully we have a motion. i am looking at 14, discussion only. what should i look at? >> on the calendar. >> is that an issue in terms

of -- >> we can take the motion, right. it is calendared. >> that's okay. they said that there -- it is an action item. it was improperly -- >> on the agenda it is an action item. thank you. is there any discussion? being none. thank you very much for the report. next item, please. >> the department budget.

>> i don't know how much detail you want. we have been asked by the mayor's office not to submit new request for new positions. however, we are -- we have two positions related to the board's decision and direction to staff to begin a targeted -- for fossil fuels. we are looking for a director left position in the investment team. and an analyst, a security analyst to support that effort. we also are proposing substitutions of existing positions that we need to align more closely with what you plan to do. if you read through the budget, we are starting to focus more on separating member services as a strategic emphasis and so we are proposing a substitution of the retirement services of

supervisors to be member services manager, we have accounting positions which are positions we would like to upgrade to the principal administrative analyst and for reaction -- to the past two years, we have a vacant position that we would like to convert into a public relations specialist. or officer as part of the budget, it would be an upgrade in salary. we asking through the budget process to be approved, it will not be an additional position. it will be a substitution. if that, we hope you would approve the budget. we have two significant one year, one time only pieces of the budget. we are going out for an rmp, we have budgeted an additional

$350,000 for legal counsel. to help us negotiate the contract if we go into a contract with a new third party. or to renegotiate our contract. and the effective one is $75,000 to pay for the audit work. approve for it. those are one time -- what we do on a 5-year cycle. they are new. >> the deferred comp plan is the expected revenue that we collect be enough to cover the budget for the next year?

>> it will. we have the money for this year and going into -- depending on what we end up doing, that we have sufficient money to support the full budget for the coming year. for 18, 19. thank you. i have to make sure we look at this. >> question, i still have a question. the positions, are they promotions? >> which ones. >> to the public relations officers. account 4 position. analyst 2. they are title change designations. >> these are -- the clerk position is a vacant ti