. >> shall we call the meeting to order and start with the pledge of allegiance? would everyone please rise. [pledge of allegiance] >> roll call, please. [roll call]

>> quorum is present. >> thank you very much. we're going to be going into closed session. is there anybody from the public that would like to address the commission regarding going into closed session? seeing none, we would ask anyone that doesn't need to be here to please leave the room. otherwise, bit. >> are there any motions? is there a motion not to disclo disclose. there's a motion. is there a second? please call for public comment on this motion not to disclose. okay. great, thank you. can we take this item without objection? great. item passes. we are coming back into open session. we're going to proceed to item number four, general public comment. i have a couple speaker cards. i will call the names that i have, and if there's anyone else who would like to speak, you'll have a chance to do so. david page is the first speaker

card that i have. >> hello, everyone. i happened to be in town. david page, retiree. i happened to be in town for the climate summit. i thought i would drop by. i heard you were going to talk about coal today. i was also thinking about gratitude and how fortunate we've been. when you peek out those blinds, you can see the clean air. you go down the hall, we've got clean water. we've got shelter. we're not worried about a wildfire coming through the door, we're not worried about a flood coming down on market street, but some people aren't so lucky as us. the weather is changing partly because of coal being burned, and as far as i understand, we're going to continue to invest in some coal companies,

divest from others. and i'm confident you're going to change directions, someday. i'm hoping it's going to be sooner rather than later. thanks very much. >> thank you, mr. page. up next, we have rudy gonzalez. >> good afternoon. rudy gonzalez, executive director of the san francisco labor council representing 140 unions in the city. i have to tell you that i was concerned to hear from feedback from our afifiliates -- i also wanted the body to know that we are in the process of meeting

with prudential at a labor table with the larger unions, with seiu, and firefighters and other so we can speak directly with the t.p.a. about our concerns. i would urge you to keep in mind the stablt that we look forward to returns and a lot of the investment portfolios, that same stability is necessary when you're dealing with a t.p.a. we'll be setting up our own table to talk with prudential and go through some of these issues, but i would just urge you to take a slow and measured process and really examine to all of the factors and listen to the stakeholders. there's a lot of people in this room that represent these people that are counting on it to deliver for them in retirement. that's all. >> thank you very much. up next, i have tracey mcrae. >> i'm currently the sergeant of arms for the p.o.a.

i'm appearing today on behalf of the p.o.a. on behalf of president tony montoya, who's here in new york this week. we're hearing that a provider is to be selected, and we just want to throw our support behind prudential. we received no complaints in regards to any of prudential's returns, investments, options or service in our membership. we understand the process is coming to a conclusion, you'll be voting, i believe, sometime next week, and we strongly urge you to continue this relationship. i've been a member since join being the city in 1989, and i've been through several deferred compensation providers. this is, for our membership, we'd like to continue with prudential. we know what they provide for

us. we'd like for this to be based on the merits of the company and not any type of personality conflict. unless someone offers some superior, better performance package. we've changed carriers several times in the past, and it doesn't appear to be the case today that it should be based on performance. we hope that we're not forced to be inconvenienced again by changing providers when there appears to be no basis for that. thank you. >> thank you. up next, i have tom o'conor. >> good afternoon, commissioners. tom o'conor, president of the local firefighters, and i am here to speak on behalf of prudential. the firefighters are disrupted by changing providers every few years, we just think it's

costly, it's disruptive, and so far, the firefighters have been exceptionally pleased with the service provided by prudential, and we urge you to maintain them, as well, and at least let the public employees also perhaps be a part of the process and weigh in and here what the different pleasures are if we are going to go to a new provider. thank you very much. >> thank you very much. up next, vince courtney, sr. >> good afternoon. i used to appear before the board once in a while. i'm here today to speak on behalf of 261. they couldn't make it here, so they asked -- i used to be a laborer way back when, and that's the laborer's union, and they have the same concerns as the labor council and the police officers and firefighters, and that's why

they're here. given the make up of the board, i'm not really doubtful about you doing the right thing, so thank you very much. bye. >> thank you very much. up next, i have jonathan coaker. >> everybody, my name is jonathan coker, and i work for the city and county of san francisco where my job is to reduce coal energy and reducing emissions. every hour that i work to reduce fossil fuel emissions -- or carbon emissions, i am simultaneously investing into coal companies. if as a species we continue to go on the current path of business as usual then what type of world am i going to retire into? you have a fiduciary

responsibility that the world that i retire into is going to be safe and sustainable. in the last year alone there's been the largest wildfire in california history, thomas, and the most destructive, tubbs. the downtown weather station hit 106°, shattering the previous record by three full degrees. right now, the people of the carolinas are facing the worst storm in decades. i helped organize a march for three months. this week is the global climate action summit, where business and government leaders from around the world are meeting to discuss solutions to climate change. california has been a leader in environmentalism for decades in setting an example for the rest of the people to follow. i hope you can divest and urge

you to separate from fas ill fuel company -- fog ill fuel companies. >> my name is fred sanchez, and really, the only reason i came here today is to congratulate carmen chiu and ahsha safai for their appointments on the board. they will listen to everybody's thoughts in the room, the staff, everything. we're happy. i mean, i didn't know that fossil fuel was going to come up again. i'm very confident in what the steps that the retirement board are taking on behalf of p.o.b., that we have a good group, and they will divest as fast as they can, but leave it in their

hands, and your performance has been stellar. everybody's been pleased with things that are happening like suppleme supplemental colas. as far as the prudential matter, i think you should give some of the stakeholders that are here today, give them that time to meet with prudential and then you guys, in the appropriate time, you'll make a good decision. but i would have to side with them in that you should at least hear them out and give them the opportunity to meet with prudential. thank you, and thanks for your great performance. >> thank you very much. are there any other members of the public that would like to address the commission under general public comment? seeing none, we will close general public comment. next item, please. >> clerk: number five, action item, approval of the minutes of the august 8, 2018 meeting. >> is there a motion on the floor for approval of the

consent calendar? i'm sorry, for the minutes, is there a motion? i'll make a motion to approve the minutes. is there a second? >> second. >> there's a motion, there's a second. why don't we call for general public comment. is there any members of the public that would like to address the commission regarding the minutes? seeing none, we'll close public comment. is there any comments regarding the minutes? seeing none, can we take this item without objection? degrees. next item, please. >> action item six, consent calendar. >> great. is there a motion on the floor? >> i'll make a motion. >> there's a motion. do we have a second? >> second. >> there's a motion and a second. why don't we open it up to general public comment. are there any members of the public that would like to address the commission regarding the consent calendar? seeing none, we'll close public comment.

is there any -- a motion? we'll take that without objection. we're going to skip through the calendar and skip straight to item 19. >> jumping in, commissioners, i have people here from -- >> 19 is the supplemental cola, i'm sorry. >> you're right, it is. we'll skip back, no jumping. >> item 19, action item, review and acceptance of supplemental cola analysis as of july 1, 2018. >> okay. after each year end, we ask our actuaries to do an analysis to determine if our cola is payable. although the analysis is based on preliminary cash flows and

preliminary year end market value of assets, there is enough of a gap that we can see that this -- the excess earnings are going to cover the cost of the supplemental cola, which they have estimated conservatively at $241 million. we ask that the board adopt the analysis and ask the board to process and analyze the supplement cal cola to the post-1996 retirees. and of course if anyone needs any clarification, i would be happy to answer questions. >> i have a clarifying question. >> yep. >> on -- i guess it would be the page two of your report, saying we do not have the full information necessary to calculate the increase for the payees. >> so that's for the old safety colas, right? so they calculated it

conservatively by assuming 0%, so that's why i say the cost of the supplement cal cola will b less than $241 million. >> so you do have the information now. when it's officially done, it will be accurate? >> yes. but we have enough to declare that we can fully pay the supplemental cola at the 3.5% level less the basic cola. >> and when the numbers are moved and dedicated, they're based on the real number, not this more conservative one? >> yeah. the old safety colas are paid in october. they haven't been determined yet. >> this affected the actuarials. >> there's a motion and a second. why don't we call for general public comment. is there any members of the public that would like to address the commission regarding general public comment? seeing none, we'll close public comment. is there any objections on this motion? seeing none, we'll pass the

item. item number 20. >> receive and acceptance of actuarial ought i had of october 2017, the actuarial evaluation. -- audit of october 2017, the actuarial evaluation. >> we're here today from bartell associates. they have prepared a short summary and are here to answer any questions the board may have. >> thank you, jeanette, commissioners. we're really happy to be here in person to talk to you about what we are found in the evaluation. we think it's good news, but we're going to go through it quickly, and i'm happy to answer questions as we go through, or at the end. so the purpose of our actuarial audit is to assure the board the numbers the actuary calculates are reasonable, that they've been calculated using

actuarial assumptions and funding methods that are appropriate for the plan; that the actuaries who did the calculations are fully qualified, and that the calculations are performed in accordance with the principles and practices set by the actuarial standards board. so the way we did this was to replicate the evaluation. so we got data, we used the information in the report, and then, we did our very own calculation of the liabilities. when an actuarial audit is done, you never get the same answer. if you get within, i don't know, 5%, it's probably good. if you're within 2%, you're really, really happy. we were much closer than that, so we are really happy with our results. we matched the overall crude liabilities, and about .2%

higher on the normal costs. it varies a little bit by person, by category, by status, but again, overall, we're happy with our numbers, and what this indicates to us is that kyron is doing the calculations correctly and reasonably. just to -- sort of as an illustration, the largest difference we had when they breakdown all the little subgroups in the plan, where the farthest stop of the groups in kyron were the miscellaneous groups were about 5% difference than in liability, but that's a very small group by liability, and they're very short service people, as pension service goes. we spent some extra time working through those people with kyron, looking through them. there's no consistent differences in any particular direct. we think that that difference is caused by -- mostly by rounding. you know, when people have sort of 3.5 years, it depending on

whether they have three or four for the evaluation system, so we think there are very small issues that are going to sort of even out as the group ages, and it's really nothing to be concerned about. it will get better as time goes on. so when we moved from calculation of the liabilities to replicating the calculation of the contribution rate, again, we're very, very close to kyron's numbers. they calculated a blended contribution rate of 23% and we got 23.51%. in the world of actuarial audits, that's astoundingily close. so we were very happy with the way we replicated with what kyron was doing. we did have one comment where we disagree with what their assumption is, which is relative to the supplemental

colas. the way kyron does their liability, the way of all the present liabilities to be paid by the plan, they take all the supplemental colas that have already been granted in the past and assume those will be continue to be paid in the future, but they assume there will be no future supplemental colas granted ever. we believe that the actuarial standards of practice require the actuary to include in their valuation all significant plan provisions that are known to the actuary, and i think the supplemental cola, the fact that it exists, and its requirements are known to the actuary, so we think if that is at all significant, it needs to be included in the plan's liability. there are a couple of exceptions where those actuarial standards would allow you to not include the supplemental cola, and that would be if you were doing a

very particular measurement, and for purposes of that measurement, it was important not to include a benefit. i can't think of a good example, but there might be particular calculations where it might not be appropriate to include everything, and then, you would be allowed to not include that. but sort of for purposes of determining what the plan's funded status is and what the contribution rate is, that would not be an exception in our mind. the other exception is if an outside party has specifically directed the outside actuary to not include that. so if the board were to say to the actuary, we do not want you to include supplemental cola, they would not include it, and they would have to state in their assumptions this is the reasoning. but other than those two fairly limit limited exceptions, we believe that the valuable of future supplemental colas be included in the plan's liabilities. we did look at the rest of the

actuarial assumptions. our job was not to replicate the actuarial experience study, but we did review it fairly carefully, and we spent quite a bit of time looking at the discount rate. bartell associates has our own set of market assumptions that we put together by surveying a group of investment advisors, and we modelled the discount rate by using our assumptions. there are four asset classes that you have that are very specific to the system, and for those, we use the assumptions set by nepc because we don't have the knowledge of exactly what's in those to model them. when we did our modelling we found as a 50% confidence level, we expected the assets would earn 8%, and use that as a discount rate. what i mean by 50% confidence

is we expect half the time the fund would earn more than 8% and half the time it would earn less than 8%. because the nepc assumptions reused on the four funds are not our assumptions and we don't know a lot about them, we tried to do a sensitivity analysis, and we tried to say what is the expected returns were actually 1% lower than what nepc says, and when we model it that way, we came up with a discount rate of 7.65%. still, you know, very reasonable compared to the 7.5% discount rate that you're using. >> and these are long-term. >> these are very long-term. >> 30 years or -- >> right. >> all right. >> we're looking at what the fund will earn in the very long-term. so given all that, we are very comfortable with the 7.5% rate

you're using. and i have to say sort of as a comment on that, typically, when we do our actuarial audits, we find ourselves going in and saying that we think the discount rate being used is too high, so it's a little bit unusual for us to say yeah, we're very comfortable with the rate, and in fact, we might even be comfortable if it was higher than it is, so that was very nice to see. i did want to talk about the census data use in the valuation. part of it was not to evaluate the census data. we're supposed to start with evaluation data that kyron used in their valuation. we did look at the data system provided to kyron, and the data that kyron used in their valuation. it all looks very similar, so we think that

kyr we don't think there's any of those that has any significant impact at all on the evaluation, and we want to say thank you to your staff, and

thanks to the kyron team who helped us get the audit done promptly. we think the actuarials are reasonable and the actuaries are qualified. except for the issue of the supplemental cola, we think that it complies with the actuarial standards of practice. that is the end of our report. are there any questions? >> that is the end of the preparation. are there any questions from the board? mr. driscoll. >> on page 9, you say it would have a significant impact, but going back to page 5, this issue of the annual standards of practice requires the actuarial to rereflect all provision evaluations in the supplemental cola. >> that is the one thing that would likely have a significant impact. we don't know what -- what

exactly it is, but other than that one issue, all the other little things that we haven't told you about that are in the report, everything else is very small. >> okay. in terms of supplemental colas, is it the ones that have already been earned and are payable. >> it's the ones that have been earned in the past and are payable are included in the evaluations as they should be. it's the ones that are not granted in the future. >> you use the word require. it's a very strong word. >> yes. it's -- we believe that those supplemental colas are just no different than the regular basic cola. they're benefits provided by the plan. >> thank you. >> this is background for the board. kyron will be providing their actuary report as next month's board meeting or potentially the november board meeting.

this is the as the process requires, that we hire an outside actuarial firm to replication our -- to replicate our actuary's report. >> commissioner chiu? >> i think following up with that line of questioning, i guess whether our plan or what we think about that interpretation of the supplemental cola impact and whether it should be included in the actuarial reports or not, are we relying upon kyron to provide a response? do we have an opinion on our own? >> we've actually dealt with the idea and the issue associated to prefounding supplement cal colas five years ago. >> it was actually before the board in 2012 and 2013 and 2014. it was looked at extensively, and i don't want to talk too

much about it except that it was looked at it at the board, and kyron looked at it, and the fact that we moved to a 15 year amortization of our cola, and moved to a five year made a difference to kyron regarding whether or not they were amenable to us not funding future supplement cal colas. >> i think it was by recommendation of kyron that we shortened the amortization period for supplemental colas that were granted as they're granted, and that sort of went to are we properly considering them when we're determining the actuarial liability and we're paying them off over the lifetime of the retirees rather than a longer lifetime, 15

years. so i think -- yeah, i guess it was three years in a row. it seems like it was a couple of times we talked about. >> it was implementation of gatsby 6768, and they are included in our gdsbe liabilities, and it's disclosed in our annual finance report and our annual statement. and that is what the city takes, so when they're reporting funded status for sfers, they are looking at a lower funded status than is shown in our actuarial report. they are looking at our gtsbe funded status, so that is what they reported to the public and that is what they reported to the bond holders. >> there were sort of little pieces here and there, how we

treat normal cost, so it's a process, then, that we will be discussing this as a board or that the staff will provide a recommendation to us about things that we may or may not change in our next go around. >> so i'll just say, and you can correct me, page 9, on the other, another the supplemental cola, we don't believe any of these other minor things will have a significant impact on the valuation results, but i will be discussing all of the findings with kyron, and a lot of the things were thinged that need to be more fully disclosed. >> including the items discussed on normal cost calculations and so on? >> well, go ahead. >> i think the normal cost item was more of us just trying to say there was sort of two ways to do normal costs and as long

as you understand which method has been chosen and understand it, that's fine. so i don't think we have a problem with what they're doing. >> -- is obviously the major finding in the evaluation replication, so we'll be dealing with that, and hopefully, they'll have a recommendation along with their report as to how the board either continues it and discloses why we don't specifically include it or

would include it the way the auditors basically had recommended. >> i just have one -- one question for you. of the public for bartell, and bartell associates, of the public plans that you have, of which you call it an audit or evaluated, how often do you turn up a material or significant event or something that needs to be changed? >> very rarely. typically, if we find anything that feels significant, it'll be, you know, something that might only apply to a little tiny group of people, but i think that most of the audits we perform are done by reputable firms and very qualified actuaries, and among those audits, it's unusual to turn up anything significant. >> on page 2, there is these

percentages. gives us a sense of how close your numbers are to kyron's. what is an acceptable sort of range? i mean, how -- 95%? >> so i would think for an audit, 5% would be acceptable, so 95%. i'm happier if overall we're within 2%, and here, we're oeceven closer than that. there's -- when you're auditing, you always run into this issue of how much time do we want to spend? we're in a range where we're very happy. if you -- we're willing to have us work a couple more months on this, we could probably get closer, but it's just not worth it. >> okay. great. thank you very much. are there any other questions from the board? >> i have a question from the board. it was one of the reports released the other day. the ten college majors least desirable, ten college majors most desirable in terms of getting a professional job?

you want to guess what number one most desirable job is? >> actuary. >> actuary. just want to thank you folks for coming down here. you probably don't want to go back to college. >> been characterized as the least stressful profession. >> what was number two? >> i forgot. clinical psychologist was on the other list, number one, for undesirable. useless was a better word. >> okay. why don't we call for public comment. are there any members of the public wishing to comment? seeing none, we'll close public comment. this is an action item -- oh, accept the report. >> i'll make a motion to accept the report. >> second. >> the motion is seconded. is there any discussion? okay. great. can we take this item without objection? thank you very much. let me take a look at the agenda here.

we discussed -- you want to go to the c.i.o. report? >> actually, we need to go back through -- well, how's your slide? do you need the c.i.o. report? >> why don't we start with the c.i.o. report and then we'll roll into these other ones. >> all right. thank you. >> so why don't we call item number 14, please. >> item number 14 is a discussion item, chief investment officer report. >> well, this'll be enjoyable because the numbers are good. so to begin, we made another 1.25% in the month of august, and on a calendar year basis, we're now up 5.55%, even after the rough period in february and part of march. in particular, in the month of

august is that u.s. equity and private equity were up over 3%. i make the comment a little bit later that the i.p.o. market has been really, really strong. you see the caliber of companies that are listed in the narrative, and it's going to continue to be quite strong. companies like dell, survey monkey. i could add maitwan, which is a chinese company. and companies like uber, airbnb, and lyft, and the like are expected to go public at some point, and they're very, very large companies. turning to turning to the narrative on page 2 is i wanted to highlight performance, and namely in the first group of

tables and performance in years 1 through five is we rank in the fourth, second, and second percentile relative to our peers and we're outperforming our peers over the last five years by 2% annualized. that's really exceptional performance, and i wanted to give special appreciation to each and every member of our staff as well as cambridge and nepc, to jay and also to the board for their support. it's the sum of those parts as to what has generated this truly extraordinary performance, which, you know, in terms of dollars, that is roughly about $2 billion over the last five years of excess returns. so -- and we're doing it in the next group of tables that you see in standard deviation. we're not doing it by taking extraordinary risk relative to our peers.

our volatility ranks close to our peers. alpha is -- by definition is excess returns perunit of risk relative to your peers. and again, we rank in the top 5% overall time periods over the last five years. sharp ratio measures your total return relative to your total risk, and there, we rank in the top 7% over the last five years, top 6% in the last ten years. looking on page 2, public equity returns from improved over the last several years from middle of the pack to the top quartile. and the excess returns, the excess returns in every time period are ranging between 2

and 3% annualized. then, the real shining star has been real assets. you look at the last five years, that's excess returns of a little over 8%, really extraordinary for a whole assess class to be outperforming by 8%. special kudos to art, to chris, and to ed and to cambridge for that comparison [inaudible] >> so it's robust, when you get down to the asset classes, not everybody has all the asset classes, so it drops off to a midteens number for real assesses. >> okay. >> smaller number. [inaudible] >> real assets is -- one of those categories, it's all real assesses, ex-real estate, so

it's infrastructure, farm land, those kind of investments, energy. >> ex-real estate. >> longest pole mark in history is now relatively official is if you accept common definitions, you see the length there. i did highlight on page 4 a number of factors that i think are relevant to understand what might make the current length of the bull market more understandable, namely that the former decline has really, really severe, that the magnitude of economic growth coming out of the recession was unusuallily we unusually weak, so the reason that it's lasted over a long time makes it more understandable. economic growth has been improving. and also, the table or the graph on page 4 highlights that

it's not as if we haven't had some declines over the past seven, eight years. indeed we've had a decline of double digits in every year except one, so it's just that the market -- the s&p 500 did come very close in 2011. it fell 18%. so some of these definitions, you really have to take into account, what's the definition. if you move that up and down a little bit, you get a different outcome, so it is time dependant and definition dependant. i am struck, beginning on page 5, by the number of predictions about how bad the recovery would be, how long it would go on, and the doubtfulness of the current recovery. and so i've highlighted a number of quotes over the

last -- over, really, throughout this eight-year period of people forecasting the demise of the current bull market. you'll see the magnitude of the people, the decline, it's just -- the error rate is huge, you know? it's huge. and i wanted to offer that to keep in mind that i think it's kind of our human nature to always fear the worst, you know? and every once in a while, the worst does happen, but it doesn't happen as often as we fear it's going to, you know? and indeed, even when the worst does happen, given a long enough period of time, 15 or 20 years, things are usually okay, so i wanted to offer that to keep in mind. how to invest in -- in what is admittedly now a very long bull market. and my approach is develop a

plan for long-term outcome, and then stick and remain disciplined to that plan. and our plan has been to reduce the systematic risk, reduce the downside risk in our plan. and indeed, for the first time, we are now slightly under 40% in public equity. that was about 57% actual weight about five years, so we're now just a little bit under 40, so we have a much more diversefied plan when the bursting of the internet bubble and the crash took place. last, east lodge, which is a credit strategy, the board approved an investment of up to 200 million and up to 25 million perspecial investment vehicle. we did invest 25 million in

august. we did add 50 million to that in september, and we're adding another 25 million in october, so we are legging into this over a time series. i think the plan is we're going to get to 100 million, hit the pause button, watch it, continue to develop the relationship and go from there. exodus, we asked for 300 million, and we did invest 175 million. that's another one that we plan to leg into over time. g.g.b., which is a u.s. and china based venture capital and growth equity firm. we asked for 100 million over three strategies. we did get a total of 80 million, 48, 20, and 12 respectively in the three strategies. level equity, which asked for 40 million. it's split between two

strategies. we actually received 15 and 10 respectively. you see that we're often times not getting our full allocation as requested. polaris, we asked for 30 million. we got 21 million. that is a growth capital strategy within provide equity. solis, we asked for up to 300 million. we have invested 100 million at the end of august, when we plan to be a provider of capital to that as the manager calls capital. i do have a few more that came in subsequent to the closing -- or the distribution of your package, namely, jibe, which was our brazilian investment that you recall. we asked for 124 million plus in brazilian real. we got exactly that, which is a total of $30 million u.s.

there, i believe are -- well, actually, these are all for the board. if you don't have a physical copy of that, i have these available for you, if you'd like. arch, which is an asian equity strategy, real estate investment, we asked for 50 million, and indeed, 50 million, we did close. and there's one more, and that's aries, which is also a real estate private equity investment. we asked for 100 million, and we actually only got $25 million. we do plan to bring back probably a large investment -- well, i'm not going to say anything because it's in public, but any ways, we'll have an announcement about a private credit strategy probably in november or december. i do have some personal news. i'm going to start with the sad and then go to the happy, and

that is art -- art huang is leaving us. i don't know if he's in the building. art has made amazing contributions to sfers in every area. i've pointed out five here. it's strategy, manager relationships, it's helping diversefy plan assets, hiring amazing people and returns. it's really the first four that drive the fifth. art has hired most of the team. we have an amazing private markets team. each and every person conducts great research, they're very thorough in what they do. they work really, really well together. couldn't be more pleased. i think we just have an a.-plus rated private markets team. in addition to that, the quality of the relationships that art helps bring to sfers, i've used the term before that in private equity, i think we're lengthening our lead.

if you'll recall me saying that before, we have a more differentiated strategy than we did five years ago, we have a more unique specialist-type strategies than we did prior, and i think that we're really lengthening our lead here. and so art's contributions to sfers are going to -- sfers is going to benefit from art's contributions for years into the future, so we're terribly sad to see him leave. you know, as somebody said, we're happy for him, i guess. it's one of those kinds of things. onto the happy. we're thrilled to announce that ana langs is joining sfers as our director of asset managing risk. ana has amazing experience. you see the caliber of firms

that she's works for, d.e. shaw, fortress, where she's been at really prominent firms. in addition to that, she has an amazing educational background. three degrees from m.i.t. as well as a c.f.a. as well as a certified risk manager. and with that, i'll turn it over to the board. >> any questions? [inaudible] >> the commission is? i feel privileged and honored to join the talented investment team and look forward to contributing to this plan.

>> thanks, ana. welcome. commissioner driscoll? >> two sets of statements. welcome, miss huang. i look forward to the product that you'll produce in the risk management area since you have three titles, three jobs. there's something that's been missing for sometime. maybe you're one of the persons that you'll deliver it to the board since risk management is so important to the board. next, to the person that's leaving, sad -- we change it to almost happy. unlike assets, when we invest in something, we always hope that we're going to be able to sell it to somebody else for more. when we deal with people, it's great when somebody comes here, they produce for us greatly. it's just as unfortunate when somebody recognizes a great talent, and they want to hire them away from us. that's one of the realities of

it, but hopefully, the culture's here where the investment team realizes this is a great place to work. you can be productive, and hopefully somebody else will recognize that, and we will unfortunately be sad-happy that somebody else recognizes that and steals you away from us. that's one of the sad realities of the investment world. >> commissioner, another way that art's made an amazing contribution is the quality of the team and they work really, really well together. so that's one. and the second is that whoever the heir apparent is is coming into a pretty outstanding situation, so -- so we're very grateful. >> like when norm left, the bar is high for the successor to carry on from that level. >> great. any questions -- other questions from the board? quick question, emerging

markets, maybe get a little bit of a stagger? >> yeah. glad you mentioned it. really rough period. argentina and turkey and indonesia's currency are getting slaughtered. china, really good companies are down 30% peak to trough. the -- some of this is due to the trade talk between the u.s. and china. china originally was taking kind of an equal, you know, up the ante type, more recently, they're assuring u.s. companies, hey, we're not going to take retribution for you doing business here in china, you know, please carry on. i still think that the u.s.'s administration is just seeking, you know, what they consider to be a fairer deal, a better deal for the u.s. worker, and i think everybody wants, still, a

good outcome. we did meet with one of our china specialists, and actually, i went there in late june to get the firsthand story. we've met with all three of our public equity china managers, and all of them were still incredibly positively -- have positive view about the under lying investments that they're invested in, and that the current trade back and forth is not impacting their businesses. maybe it is 1 or 2%, but their companies are trading 25% lower. as a result, one of the three -- unfortunately, i can't say their name, but i'd be glad to talk about it providely, has gone out to some of their l.p.'s and said hey, we view this -- i think the word

curtain is what i recall. we think this has upped the ante in the likelihood that we're going to earn 15% over the i.r.r. in the next five or ten years, and we want to put money to work in china. you know, fortunately, with regard to argentina and indonesia in particular, we have super, super -- i asked ana for those dollar amounts of how much we have invested. i don't recall those numbers, but they are super deminimous. indonesia is a larger market, but we still have minimal investments in indonesia. this is a rough period related to strengthening u.s. economy and a strengthening u.s. dollar and higher interest rates, which means result to compete for capital is emerging markets

have to offer higher interest rates to attract foreign capital, which then reduces the profitability on their own investments, the cost of borrowing goes up in their own local markets, and that can bring local growth in those -- in those countries lower. >> so international markets, excluding china, are you still constructive? >> i'm still quite constructive on china. the rest of them, i would say it's really more about individual businesses. i'll say brazil did have a terrible depression, so we have made a couple of modest investments in brazil. one was real estate, and you saw the distressed debt, so

those have been opportunistic. the investment in cartica was a really different approach to investing in emerging markets, more of an activist approach, which we think can add value. cartica does have a record of performing well in down markets. just this last month, they outperformed by a lot. so i'm confident in managers like that. the systematic risk to emerging markets, ex-china, i'm still not completely comfortable with that. >> following that, we still have a fair amount of long managers, b.f.a. and people like that, that are emerging markets. >> yeah. >> is there -- i understand we're not changing allocations,

but are we expecting to see them take a bigger hit in the downside? >> d.f.a., i would because they tend to own lower quality companies with more debt. they're cheaper, which helps soften the cushion, but what i will say throughout my career, emerging markets have always been prone to boom or bust. in 2009, the u.s. was up, e.m.o. was up 79. so i guess, decide beforehand what your systematic exposure, you want to emerging markets and be consistent with that. then, if you do have a major decline, buy into weakness so you have even more shares atloer price. >> but just to understand what

we're going to expect, are you expecting another couple years of bad markets in that area or what are the managers saying in that forecast? >> oh, i think i'm better at asset allocation -- strategic asset allocation and management selection. tactical short-term, when you're measuring it over the course of a year or two, i'm queasy about that. tim paulson nailed the 2008 housing crisis. he got killed after that. elaine garzarelli, if you remember that in 1987, what big shop she worked for. she was out of the market throughout 1987, and so, you know, she made really -- she didn't lose money, and when the market was down 30% peak to trough, she underperformed by

46% in the next three years. so again, i would say is decide beforehand what your exposure to systematic risk would be. i think if you take a 20-year view, emerging markets are likely to outperform. >> yeah. i think we all as a board, we understand. we bought into that concept. i think just -- it's going to -- our expectations of watching our managers -- just like listening to you, d.f.a., because we have that kind of kilt to that manager, and now adding cartica, which is very different, but i didn't realize quite the lower value on d.f.a., the kind of low quality on d.f.a. >> yes. it's -- they believe that smaller companies and