before meeting of august 17, 2023. at this time. hey, just give me one second here. get me organized. i'm doing my survey. all right. okay welcome, everyone. thank you for all the participation on the board level and i'm madam secretary. do you want to call the roll, please? thank you, commissioner. commissioner connor. present mr.

thomas. present. present. helfen. present mr. driscoll. here mr. gandhi. present commissioner bridges and commissioner servais is not in attendance today. we do have a quorum right. thank you. can i ask you, madam secretary, to turn your volume up a little? can you do that? it's sort of. is that better? better better. item number two, communications . we welcome the public's participation during public comment periods. there will be an opportunity for general public comment at this meeting after closed session and there will be an opportunity to comment on each discussion or action item on the agenda. each item each comment is limited to two minutes. public comment will be taken both in person and remotely by calling for each item, the board will take public

comment first. people attending the meeting in person and then from people attending the meeting remotely. comments or opportunities to speak during the public comment period are available by phone by calling. 56550001. access. code 26605203021. then pound, then pound again when connected you will hear the meeting discussion. but you will be muted and in listening mode only your item of interest comes up. press star three to add to this speaker line best practices are to call from a quiet location. speak clearly and slowly then turn down your tv or radio. please note that city policies, along with federal, state and local law, prohibit discriminatory or harassing conduct against city employees and others during public

meetings and will not be tolerated. moreover, public comment is permitted only on matters within the jurisdiction of this meeting body. we thank you for joining us. thank you, madam secretary. will you call the next item? item number three closed session at this time, the board will be moving into closed session. item number three, fiscal year 20 2324. ceo and cio performance evaluation. okay we're going to call for a public comment before we close. thank you. we have no in-person public comment on this item. callers, you have not already done so please press star three to be added to the queue. moderator do we have any callers on the line ? madam secretary, we have no callers on the line. thank you. hearing no calls, public comment is now closed. okay. can i ask everyone to please enter the closed session and do we have a

time that we're going to estimate we'll be back in commissioner bridges. mr. driscoll president. mr. gandhi. present present. president. fund. present mr. o'connor. present and commissioner thomas . present. a quorum is present. right thank you. a motion's in order for vote. whether we disclose discussions held in closed session. i'll move not to disclose contents of closed session. second, it's a motion that's been made by president thomas. commissioner thomas and seconded by commissioner driscoll to call for a public comment. madam secretary. thank you. we have no in-person public comment on this item. a reminder to callers to press star three

to be added to the queue. moderator do we have any callers on the line? madam secretary, we have no callers on the line. thank you. hearing no calls. public comment is now closed. thank you. do you want to call for police. to vote. a we haven't voted. so all the emotion, it's been made right. we've been made those in person on the script. i don't. okay motion's been made by commissioner thomas and seconded by commissioner driscoll. all those in favor? those opposed? nay nay. motion passes. next item, please. thank you. item number four, general public

comment. do you want to call for a public comment? madam secretary? do we have in-person public comment? any we could step up to the audience here. we have what, three or public comment. morning my name is jordan. fine. i'm a lead research analyst with unite here local 11, which represents 32,000 hotel and food service workers in southern california and arizona, will be addressing the board today regarding offers investment manager blackstone group. your fund has invested 150 million in blackstone real estate partners. eight the owner of the fairfield inn aloft hotels by lax airport and 100 million in blackstone. real estate partners nine, which is the owner of the sheraton phenix hotel, contracts at all three hotels expired on june 30th, and workers at the fairfield in aloft went on strike in july to fight for family sustaining wages, affordable benefits and a

safe and humane workload. there's also an escalating labor dispute at the sheraton phenix as workers fight for a fair contract, they have unaffordable health insurance and a 401. retirement instead of a defined benefit plan like spheeris and many other blackstone investors in response to strikes by employees at the fairfield and aloft the hotels brought in workers from a third party agency to try to break the strike outrageously, these hotels have employed very few african american workers among their permanent unionized staff. in spite of the union's demands for more diversity and hiring. yet when in need of strikebreakers, they were somehow able to find and hire a number of black workers, but only as temporary agency employees. we request that add an information agenda item to the upcoming september meeting concerning spheeris investments and blackstone managed limited partnerships and asked that the fund not reinvest with blackstone until the contract disputes are resolved and blackstone can guarantee labor

peace at its hospitality investments. and the company demonstrates inclusive hiring practices, including with respect to african american workers. we're going to have some other speakers and laura will translate for them. wednesday numbers. graciela navarro, trabajo para trabajadores durante anos de housekeeping in a hotel sheraton del centro de phenix motel is propiedad con dinero de sus fondos gracias por escuchar. mr. good morning. my name is graciela navarro and i work. i've worked for 14 years as a housekeeper at the sheraton hotel in downtown phenix. my hotel is owned by blackstone with money from your fund. so

thank you for listening to my story. the principles assistant de mi familia porque me esposa se informa as varios anos tuvieron carrion plaza en el otro mas de se cientos dollars durante cuatro anos porque el segundo seguro de la hotel de serato era demasiado caro incluyendo tuvimos vender nuestros pagar. i am 70, 72 years old and i'm the primary breadwinner of my family because my husband got sick several years ago, he had to have his kidneys replaced in 2018 and we were paying over $600 per month for medicaid for four years because the sheraton hotel insurance was too expensive. we

even had to sell our car to pay medical bills. so ensenada cuando hotel. okay okay, i'll recuperar el trabajo. pero voy one per porque al regresar. no no, quieren dar trenta arbitrations para limpia las habitacion mas diferentes the limpia porque el hotel. after the pandemic. i was excited when the hotel reopened and i got my job back. but it was even worse than before. they tried to give us 30 rooms to clean and the rooms were harder to clean because as they'd renovated the hotel, the trabajo se agua mucho mas dificil pero después de trabajo solamente de la hora

tengo pagar mil cientos dollars de los estan viviendo. the check and check in. no, no tengo una buena calidad de vida. the workload has gotten much harder. but after 14 years working there , i make only $17 per hour per month. i have to pay $1,100 for my mortgage and $300 for electricity. and i'm living paycheck to paycheck and i do not have a good quality of life . second remaining estoy con con después de trabajar no nos yaman el corazon de la otra pero no stratum como se for more on los pues. i am exhausted and in pain after work they call us the heart of the hotel, but they treat us like we're the feet.

you know who we como lo los miembros de de su fondo pero el hotel. no tiene un una pensione seguro social no pagar los officiant asi tengo seguir trabajando. i want to retire like the members of your fund. but the hotel doesn't have a pension and social security won't pay me enough, so i'm still working. thank you. next. next so it's a company. the grand de nuestro de nuestro grand. and mr. de nuestro mundo con un trillion puede permitir panos de manera justa darle atencion médica asi lanza e processor un pension por favor

de nos ayuda por rectum. black blackstone is the largest investment company in the world, with $1 trillion. they can afford to pay us fairly, give us affordable health care and provide a pension. please tell them to do the right thing. thank you. buenos dias, mi nombre de rosalba sanchez de domestika. uno de los dias. me estoy a hacer cuando la jubilation pero tengo trabajando porque no tengo una pension. you know, suficiente como para pagar la renta yara para la jubilation. my name is rosalba sanchez, and i've been a housekeeping worker at the sheraton hotel since 2010. i'm approaching retirement

age, but i have to keep working because i don't have a pension and don't earn enough money to both pay for rent and save for retirement. an el costo de la vivienda may fuerte la casa durante anos de se siento. 70. the rising cost of housing has hit me extremely hard. the home i rented for years at around $600 a month was suddenly sold. desde pago cientos de la de un mesa estado casillas tres quarters parte de ingresos en renta. i now rent an apartment where i pay $1,200 in rent by myself for one month from one month to the next. my rent doubled and i have i have to

spend nearly three fourths of my income on rent. the incluso comprar comida puede ser un desafio educational saltado comida y quedado sin comida porque no habia suficiente dinero ing even buying food can be a challenge. and i have occasionally skipped meals and gone without food because there wasn't enough money. reducir mis gastos no puedo viajar, no puedo tomar vacations, no puedo hacer ninguna actividad brinda alegria . i've had to reduce my other expenses cause i can't travel, can't take vacations and can't do any leisure activities that bring me joy. trabajando toda mi vida tengo muchas ganas pero no sé cuando poder porque no tengo dinero, no tengo una pension. i've worked my whole life and

i'm looking forward to retirement. but i don't know when i can ever retire because i don't have money saved and i do not have a pension. tanto trabajando para una empresa tan rica estoy lista para por lo. vamos ganado blackstone firme un contrato justo para nosotros. i should not have to struggle so much working for such a rich company. i'm ready to fight for what i deserve and i won't stop until we've won. please tell blackstone to settle a fair contract for us. thank you. morning, commissioners. my name is on and sing. i'm the president of unite here local two. we're the union of over 15,000 hospital workers here in san francisco, san mateo county

, and in the east and the north bay. 2500 of our members of local. two members from seven hotels went out on strike against the marriott corporation for over two months back in 2018, san francisco city and county officials in that time supported our members. they were fighting for the same things that the two women you just heard from were fighting for basic necessities for working people, things like living wages, affordable health care, retirement benefits, a safe and humane workload. we were successful. we want a transformative contract for our members. at the end of that strike and workers returned to their jobs. let me just say that we may be a different local union here in san francisco, but there is no space between our organizations and attack on the workers. we just heard from is akin to an attack on san francisco hotel workers. and we treat it in that way. and so we're asking for your fund support because, hey, it's the

right thing to do. and i challenge anyone who just heard their stories not to believe that. but this fund also has a fiduciary responsibility to mitigate the risks associated with strikes, boycotts and picket lines. many of blackstone's hotel workers are living in poverty. they're unable to afford the rising cost of housing and basic necessities. and in 2019, the united nations special rapporteur on the right to adequate housing accused blackstone of exploiting tenants, wreaking havoc in communities and helping to fuel a global housing crisis. so we requested the fund add an information agenda item to the upcoming september meeting. concern your investments in blackstone, manage limited partnerships and ask the fund not to reinvest with blackstone until the contract disputes are resolved. and blackstone can guarantee labor peace at its hospitality investment. so thank you very much for your time.

good morning. my name is laura perez and i'm an organizer with unite here, local 11, based in arizona. as you heard from rosalba workers at blackstone owned hotels are asking for living wages, affordable health care and a safe and humane workload. in july, black stone became the first $1 trillion private equity manager. yet many workers at its hotels still live in poverty. blackstone's usage of african american strike breakers at the aloft and fairfield hotels has also generated concerns from clergy. on july 18th, passed pastor william smart, president and ceo of the southern california, our southern christian leadership conference of southern california, wrote to a loft in fairfield hotel management and blackstone executives expressing, quote, profound concern about your company's commitment to decent labor practices and inclusivity and requesting a meeting to discuss

how the hotels can demonstrate respect for the workers they employ and the communities in which they operate. it is particularly concerning that blackstone group continues to confront labor concerns given that blackstone owned packer sanitation services inc paid a $1.5 million fine in february for employing more than 100 teenagers in jobs at meatpacking plants in eight states through a blackstone fund affiliated with sfr ers. the children reported worked overnight shifts and use hazardous chemicals to clean dangerous meat processing equipment such as briskets sores . 30s remaining. we request that sfrs add an ad, add an information agenda item to the upcoming september meeting concerning learning as a first investment in blackstone managed limited partnerships and we ask that as staffers not reinvent it with blackstone until the contract disputes are resolved and blackstone can guarantee

labor peace as at its southern california and arizona, hospitality investors. thank you . thank you. a reminder to callers to press star three to be added to the queue for those already on hold, please continue to wait until the system indicate you have been unmuted. moderator do we have any callers on the line ? madam secretary, we have no callers on the line. thank you. hearing no calls, public comment is now closed. thank you. thank you for the presentations. madam secretary, do you want to call it item number five, please? yes. item number five, action item. approval of the minutes of the july 2023 retirement board meeting. i move adoption of the minutes as submitted. thank you . is there a second? second.

great so it's motion's been made by commissioner chris and seconded by commissioner thomas . any public comment, madam secretary? we have no in-person public comment. callers. and reminder to press star three to be added to the queue. moderator do we have any callers on the line? madam secretary, we have no callers on the line. thank you. hearing no calls, public comment is now closed. okay. the motion's been made and seconded . all those in favor say aye. those opposed say nay. motion passes. thank you, madam secretary. next item. item number six. action item consent. calendar. okay commissioners, everything consent calendar is in your pocket. motion to approve or any comments. i move

adoption of the consent calendar as submitted. thank you. second, it's moved and seconded. moved by commissioner driscoll. seconded by you. commissioner connor, is there any public comment? we have no in-person public comment. moderator do we have any callers on the line? madam secretary, there are no callers on the line. thank you. there are no calls public comment is now closed. moved in second. and those in favor say aye. those opposed say no. motion passes. thank you. the next item, please. item number seven action item review and acceptance of report. independent actuarial review. okay. good morning, commissioners. the actuarial review is undertaken every five years to have an independent set

of eyes. look at our actuaries work. chiron has performed 15 valuations for spurs, and this is the third review of their work by three different actuarial firms. and it resulted for the third time in a clean report course. there are suggestions for improvement, and karen and i will respond with recommendations at the board's november meeting, which will be the same meeting. the board will be selecting assumptions for the 2023 actuarial valuation. danny white and cassie rapoport are two members of the grs team and they are here to present their findings and answer board questions. and i just like to say that it was a very smooth process and i want to thank grs for their work. thank you, mr. chairman. members of the board, it's a pleasure to be here today. um, we submitted a very detailed report of an audit that was or review that was conducted over the summer. we have a presentation that i just go over the highlights or summary of those results. we go to the next

slide please. um, give you some background information on this. you chiron, your actuary, provides a lot of very important information in terms of funded status, um, changes in financial condition, and very importantly, the actuarial determined contribution rate, which once the board certified, that's what the employers actually pay. so it's very specialized work. it's not always transparent. a lot of calculations very complex calculations go in. and so from time to time it's important to do a review or background. if we go to the next slide. actuarial review or audit, i kind of use those term synonymously is a process where you retain an outside independent firm to go in and review the review of actuarial calculations, assumptions on periodic basis. what we find is your past practice of having reviews every five years is appropriate and good governance follows the guidelines and i think it's most systems are on a similar type

basis in terms of review process . we go to the next slide in terms of perspective. we go in and we're doing a detailed review. we of the calculations and the data years and the output, the assumptions for validity comply with the standards of practice actuarial standards of practice, but also we try to bring forward some new perspective of our an outside perspective of suggest of possible improvement. just consideration. and that's that's how i'd put it today is when we go through you're going to see a report, a clean audit and just some considerations for kind to consider next time just in industry prevalence processes. if we go to the next slide, the scope of the review which cassie, my associate, will go through in more detail, but we've we go through, we take the census data that out as far as provides chiron. we get a

corresponding copy. they do a number of processes we've replicate or validate those processes and compare results for differences. we review spent a lot of time reviewing the actuarial assumptions used in the valuation as probably the most where there's some give and take, you know, different perspectives and most often um, comments of suggestions also a team go through and does a sample test sniff audit. so what we do is if you think of an actuarial valuation, we calculate a liability. that liability is the sum of the liability for each member in the system. that's due to benefit. and so we request a sample of liability calculations for each member, whether our active member or retired. and we compare results using the same assumptions, methodologies and processes and we should match. so the idea is if you match on a sample basis, then things should match in a in an aggregate basis . if you sample. the other thing

is the review of the calculations. so we got the liabilities. are they calculating the contribution rates appropriate and accordance with city charter and then appropriately reflect actual standards of practice, which there are number about 5 or 6 that apply to perform public valuations? we've got the next slide. um this is the big takeaway and if there's any highlight in here is based on our view, the census data experience study, test life replicate in the valuation reports. we believe that the 2022 valuation, which was the scope of the audit, was reasonable and, and complies with actual standards of practice. in other words, this was considered a clean audit. you know, in light of the complexity of the system and you know, you can rely on it for sound business making decisions. so with that, i'm going to turn it over to my colleagues to go over a little more detail of the

processes and steps reviewed. all right. thank you and good morning, everybody. um, next slide, please. so as danny has mentioned, this was a clean audit. there were no major issues. just a few minor comments, which i'll cover over the next few slides. all of the main components of the report, including the methods and assumptions, the results themselves, as well as the content of the report we have deemed to be reasonable and in compliance with the actuarial standards of practice. next slide, please. so as part of the audit, we do a review of the evaluation data process. so provides us with preliminary data files that are also provided to kyren. and then we also receive the final census data files from kyron that was actually used in the valuation using the preliminary data and information in the report, we reconcile the data on our own and then compare it against the summaries provided by kyron. so in this table here, we have a summary of the comparison in the

second column, we have the data summary as provided by kyron in the next column over, we have our own data that we reconciled and then the difference in the column all the way to the right. so as you can see, the differences are very minor and could be due to additional information that kyron had that that we did not. but overall, we consider the data to be both reasonable and valid for valuation purposes. next slide, please. so in addition to reviewing the valuation data process, we also want to look at the calculation of the liabilities. so we requested 51 sample lives. as you all know, there's quite a few plans that are part of sfrs, so we wanted to make sure we were covering all of them and getting a good idea of the calculations for both active members and then inactive members who are receiving benefits. so it's important to make sure that the

benefits and assumptions are being correctly and that liabilities are being calculated correctly on an individual basis. so using the assumptions and plan provision as know plan, provision summaries, we did calculate our own liabilities and compared those to the ones we received from kyron. so we have a couple tables here summarizing those. again, the column all the way to the right has the percentage and overall, we concluded that the liability calculations were reasonable. slide, please. so here we have some additional information on the investment return analysis that we did. currently, the investment return assumption is 7.2. so we looked at a few things here. as of 2022. we looked at the expected return as well as the probability of exceeding that 7.2% return assumption. and we use the asset allocations provided by aws as well as capital market

assumptions from 11 different investment consultants. so as of 2022, the expected return was about 6% over the next 7 to 10 years. and 7.1% over the next 20 to 30 years. the probability of exceeding 7.2% was about 39% over the next 7 to 10 years and 49% over the next 20 to 30 years. so i do want to mention, of course, this audit was based on the 2022 valuation. so it was this analysis does consider 7.2% to be on the higher know the upper limit of the reasonable range for the best accurate assumption. however forward looking expectations did increase for 2023, so it should be easier to support the 7.2% assumption moving forward. we just recommend you continue to monitor the assumption which i'm sure kyren you know, if i give one other comment, i do want to commend the retirement system on their process of reviewing the economic assumptions each year that is not common in large

public retirement systems. so i think that provides additional prudence, you know, and shows the responsibility of this board as the system. so we want to commend you for that. all right. next slide, please. so as i mentioned previously, we just had a few minor comments while going through the experience study and valuation reports. our recommendations are for the next experienced study. we recommend that chiron consider a salary or amount weighted approach in setting both the termination and retirement rates. this can help to minimize the gains and losses the sf sees from year to year. additionally, we noticed that some of the termination assumptions were based on five years of experience and for some plans they were based on ten years of experience. we would just recommend using ten years of experience for all plans across the board. we also find that females tend to have higher rates of termination than males, so it may be reviewing the

termination assumption on a gender basis. and as i mentioned in the last slide, we would just continue to monitor the appropriateness of that 7.2% return assumption. again these are very minor. yes in the grand scheme of things and all the complexity of the calculations, these are we would consider these very minor suggestions and these are in fact, suggestions for consideration. you know, so i think i think it's important at this point to give a shout out to our actuarial director, mr. brazelton, who leads this cause, and also to the staff to for putting this together and supporting. please and next slide, please. so we do want to say thank you for the opportunity to work on this audit. thank you to the staff and karen for their assistance and cooperation with this audit. we feel like very smoothly. so thank you. thank you. we'll open

up any questions or discussion, please. i have two questions. i understand the you said the word minor. i have to figure out how significant the minor is in terms of page ten, which is one of the relates to one of the suggested as you had this question asked, may be directed more. jeanette this change on using the salary or amount weighted approach. how significant is that. i'll be happy to comment. it's you don't know until you look at it. and so you think a one way is and this is a process that we've identified. i think it depends on the system. so i you know, to quantify, it would be hard to say. but if you look at it this way, the current process, you're counting noses, they're counting bodies of, you know, when they leave and stuff. but the other one, the suggestion of alternative approach is look at

it on a salary weighted basis. you think a turnover, you know, turnover typically occurs more on lower paid positions than higher paid positions. and you think on a liability way to basis since your your benefit is a function of final average pay, you have higher paid higher liability on the associate. so is there a difference? so is that you know, are you trying so the goal is minimize liability gains and losses versus on headcount basis. that's that's kind of the fundamental concept behind the suggestion. so to but to answer your direct question of how serious it is without looking at it, i don't couldn't quantify. you may have no effect on because the other table where you have all the spreads is on pages 2728. i see a lot of negative numbers. but when you add it all together, it's almost insignificant. it could be right

. but there's you know, the other thing we've i mean, economic times have changed so much over the years. but okay. but again, i come in, i come in the process on this point now we'll ask the question, is this a point worth discussing with chiron? do you think they'll resist or or how much more work's involved? assessing we will be discussing this with chiron and they will be able to go back to their demographics study that they did five years ago. and the one that they did ten years ago and they'll be able to let to answer your question and we will be answering that question in november. okay they desire to be as accurate as possible to minimize actual gains and losses. yes. and i consider all of these suggestions worthy. the second question really is to do with page 29. i'm trying to understand the significance of the last paragraph. i can't tell if i want to say discovered a mistake, but it sounds like what happened on page 42, the process was right, but the answer was correct in the process was wrong, but the answer was right.

i just don't understand that paragraph. yeah, so it goes with the there was a calculation. you have a schedule with amortization basis in in the report. and if you were to go through on that table, that table didn't foot or tie when you had the individual amounts when we went through and compared last year's report to understand the difference, we went to last year's report brought it forward and what we thought should have been looked at in that line when we put in, i believe it's an honest missed reference where they show a total amounts of the annual amount outstanding for the year . and so when you correct that line item and then you sum for the total, the total ties to what's in the report and it also ties to what we expect or what what we believe should be in that report to. okay thanks for that answer. appreciate it. got it. okay. yeah. questions let's

. thank you very much and thank you. thank you. thank you. thank you. we do a motion to accept the report. please and make a motion to accept the report of the. april rotary and smith company as independent national review. second second. right it's been this is a discussion item, right? this is an action item. okay, then let's have. and we need to have public comment. do we have any in person public comment seeing none. a reminder to callers to press star three to add to the queue. moderator are there any callers on the line? madam secretary, there are no callers on the line. thank

you. hearing no calls, public comment is now closed. okay. it's been moved and seconded by commissioner driscoll, seconded by commissioner thomas. we have a roll call vote. oh, sorry. yeah, sorry. jim o'connor. you want a roll call? vote yeah. yes, i do. commissioner o'connor . mr. thomas. president helfen. hi, mr. driscoll. hi, commissioner gandy. hi commissioner burgess. hi thank you. we have six eyes, motion passes. thank you. thank you. so item number eight is not item not used. i don't see is not being used. right. i item number nine discussion item. chief executive officer's report. if i

may, i'll go ahead and kick off this discussion. the comments today will be in two broad areas. one, board related topics and second and administration related topics. so first on the board related topics i had shared with all of you a board education survey to do a board education assessment. many of you responded, but i don't have everybody's response, so i would appreciate those that haven't responded to go ahead and do so, so that i have a consistent view of everybody's educational needs and we can work with the governance committee to put a plan in place next on board topics committee schedule. we talked a lot in the last board meeting about the process of setting up committee meetings for the year. we've reached out to each of the committee chairs . thank you for engaging in that discussion and have identified a set of proposed dates. we have

to sort of schedule these meetings. holistic so while we want to work with each individual chair in each committee's schedule, we need to take into account all of the committees and the board meetings. your busy schedules, our teams, busy schedules and get something that is regular and on the calendar and that is very much consistent with our policy. so to help in that effort, i've shared with all of you to confirm your availability for the dates that that have sort of come together and emerge in our discussions with the chair. and i seek your feedback on willingness to do more than one committee meeting on a day or do a committee meeting and a board meeting on a day. because again, we can we can accommodate only so much, but in some cases we may want to pull these levers. and i want to know willingness to do so. also we do have the proposed dates. so if you could confirm for us, if the ones that we have proposed work for you, for the committees that

you're on, that would be extremely helpful. again, we want to be respectful of your time and the tack that we've taken here is working with the committee chairs, anything that's going to be in a committee these are really important items that are either required or, for instance, in the meeting, part of the actuarial liability study that require deep dive. so we don't have a lot of extraneous things here. and this is important work, and i appreciate your support in that. so please do complete that. that survey. and as a heads up per policy next board meeting, the each of the chairs is responsible for making what's in the board policy of presentation on the goals and the schedule for the year. i will work on putting together those materials based on the discussions that i've had with the chairs. but get that to you for your review. it will be relatively straightforward. next on administrative topics, our team is working very hard, led by karen to develop faqs,

communicate and implement the changes with respect to the purchase of military service. this is a complex process. military service is different than public service, and we have to address those complexities and we have to do that in compliance with admin code in our policies. so we are working diligently. there will be more to come and we will come before the board to amend our policy. but please know that that hard work is underway and we have received requests for the forms to apply for that service and we have responded to those requests . finally, on the administrative side, we've included in the materials our retirement services dashboard, and i turn it over to karen to walk through commissioners. as you know, every quarter we provide a retirement services dashboard that gives you a high level information on what the team there has been doing. you have that before you. i did want to let you know that we are in the

process of refining what we're going to be reporting to you with respect to our disability cases, working with the city attorney's office, they've made some good recommendations on how we can let you know a lot better where the cases stand, not just what application are pending, but where they stand. are they do we have the information? is it waiting for hearing? i know over the years that many of you have expressed an interest in that kind of statistics. so i just wanted to let you know that the next report we will be providing you with that information. and i'm happy to answer any questions. great great questions. the site visits out of separate from overlapping with what is done with the deferred comp. they do their own dashboard. and this is does not include good. secondly it's good to see the registration count is

high versus the total number of members. and if we want to add the total number of members or just put in the percentage, how many of our members are actually registered on the website? and we can we can we can clarify that for you. all right. three goes back to the first part about meetings for committee meetings. does remote access rules still? and we still do it remotely for committees, but not the full the full board meeting . they have to be in person. there are a few more exceptions for committees than there are for the full board, but but the rules are that we are back in person. but the answer is no. right. okay. thank you. but for everybody's edification, how long is the list of the exceptions? not very long. i mean, i think there was, um. there might be a there's one for example, contains illness. you can be absent twice a year for committee for that purpose. but if not for the full board, you'd have to just take the absence.

so not very long and they are. can we rare can we just a memo to the board members so that they know. well they've got a conflict or whatever whether it fits within an exception just we did circulate a memo but i will resend it. yes i didn't read the memo. yeah so we'll i'll send it again. and now this is an important legal question because i get phone calls regarding the military service and i know it's confusing for a bunch of reasons. people are going understandably crazy trying to get the answers for page two. my question is now that the benefit exists or the right to claim the benefit exist, it can still take many, many months to get this done. if someone were to retire today saying, hey, look it, i want it, but i can't get the paperwork in because beyond my control, would we recognize that they would get the benefit under the admin code in the charter, the purchase has to be complete

before retirement. yeah, well, the person is ready to retire and pay for it now. but it's our process that combination, our process and the federal process that is impeding their they're ready, willing to pay and everything. i i would have to consult with the city attorney and it's a legal call in the middle of a meeting, not knowing the full facts. right. we need to we'd have to look into that. okay. okay it'll come up again. thank you. any other questions on. any other questions? on this? on the report? i just want to point out one thing that i know from my discussions with our ceo and she's the important thing about on site visits and this would apply to your group is a definite point to consider in any real estate move or whatever that we're looking at. and improvement to access is

important. so that's a top list item. and for further comments. it's a discussion item. we'll do public comment. we don't do public updates right to what shall we call the next item? we need public comment. we do. do we have any in-house public comment? seeing none. a reminder to any callers to press star three to add to the queue. moderator do we have any callers on the line? madam secretary, we have no callers on the line. thank you. here are no calls. public comment is now closed. okay. so just to set the time then we'll break at 1230 or whenever we can close around that time. i'm going to use this as a practice session because as you all, my fellow board members, we're looking at the

scheduling of all the committees and the boards and there's a possibility and the premises we might have these all meeting in the morning and a meeting in the afternoon. so let's get practice. i'm going to give apology that we might be eating at the meeting. the commissioners, but not to hold up everybody's sitting there while we're out having lunch at and sonia that's that's just but let's turn it over to diane item number ten discussion item san francisco deferred compensation plan quarterly report q 223 thank you. ms. armando. diane justin for the sbdc and thank you. vice president helfand we will make sure that we conclude by 1230. did i get demoted? i know he's president. excuse me. i'm so sorry i missed the line. that's that. that was great. president helfand excuse me.

well, thank you so much for your time today. we are presenting our quarterly report, which covers the four main pillars of the plan in investments, marketing operations and the record keeper up first is our investments pillar. and if darlene can promote the quarterly activity report, the one before this one, the quarterly board report. sorry and i will. it's the other one. um so while she's working on that, i just want to provide a brief overview . so as mentioned in my report last month, we had a smooth transition to t rowe price as our target date fund manager. most of the target date fund vintages are currently at their target allocation and we'll be meeting with the deferred compensation committee to

discuss tactical asset allocation required later this year. also mentioned is the 22 bips jump for our stable value crediting rate, which is now at 2.9, which is guaranteed for q three. thank you, mr. menino greg unger is also here from callan, who is our investment consultant. and i've asked him to share a few thoughts on last quarter's performance, as shown on the attached activity report and being promoted right now by mr. menino next month he will be reporting out on the performance for the first half of 2023. but as this is a quarterly report we're going to talk about q two, so greg, please begin. yeah. good afternoon, everyone. i'll make my comments very brief on this one pager. i always start really with the target date funds on the bottom because they really express the beauty of the plan. all the underlying funds that you offer participants make up the target date funds and you'll see both in the quarter and the year to date column.

they're outperforming their various benchmark. so i know from a starting place, that's a very good sign both in relative terms. but you'll note the absolute returns have been quite strong year to date. you'll see the most recent retire fund, that's the most conservative one, up almost 6% for the year to date with the longer dated funds up over 10. and i think i'd leave you with the one comment that we've last year we saw a big shift of value to outperforming growth. and now in 2023, growth is vastly outperformed value. so we're seeing big shifts in style within particularly the us market really led by five companies. the big five company apple, microsoft and amazon and meta or facebook. so those phenomenons continue with volatility as as the capital markets digest inflation and the

fed funds rate. i'll stop there and see if there's any questions . i'll send you my question regards to the large cap growth later. it's good. thank you. okay, commissioners, moving on to marketing, as noted in the memo before you, we've outlined all the features from our most recent target date fund campaign that includes the advanced notification, special messages for safety employees, our live presentation and webinars, microsites and other evergreen targeted fund messaging. i believe i mentioned our stellar open rates and click through rates last month and our participant engagement is very encouraging as we approach national retirement security month in october. this year, we have a rather catchy theme. do you have retirement fomo again? do you have retirement fomo,

fomo? so this is a rather a clever use of the fomo acronym, which is fear of missing out. it appears to be more mainstream these days and also sends a clear message that you don't want to be left behind. so positioning will be using peer comparisons to prompt action. so for instance, 60% of csrf employees are participating in the smtp and their maximizing the retirement benefits. are you missing out or or 70% have registered their account online protecting them from cyber attacks. are you missing out? are you protected? so we look forward to developing this year's campaign and hope we can win another psc award like we did last year for our last nzme campaign. and then finally, i want to share with the board our insert that was included in the recent spur annual statement

mailing. it is the last attachment in the dc item. we always get a boost of activity as a result of this mailing and that really dovetails nicely into the october and shrm. if there are no questions on the marketing front, i'd like to move on to operations. i had a question. you said, did you say 60% of csrf employees participating in deferred comp? correct. have you looked at that data and based on income, is there any correlation between sort of like lower income folks are less likely to participate or higher income? or is it is that not relevant? no, it is very that's a very, very good point. in fact, we definitely look at the demographics when we're doing targeted messaging. so we can certainly divvy up the data and present, you know, the salary ranges for participation in the plan. so that is of interest to the board. we can

certainly report out on that at an upcoming committee meeting, but we do have that data so that we can identify higher earners. and in fact, that's a very, very good point because we're going right into secure 2.0 where we will actually be identifying the higher earners. so okay. so that actually moves very nicely for operations. i wanted to provide an update to the board with regards to secure 2.0. so we are closely monitoring and preparing for all the provisions related to secure 2.0. some of those details can be found on page seven in the memo before you. but in short, the most famous or rather most infamous provision is section 603. and this is also known as the 145 k roth, age 50 ketchup requirement. i don't want to bore the committee, but the board. but i do feel that maybe a brief overview on this

provision is helpful. so section 603 basically means that any participant who makes more than $145,000 in wages from the city will be required to make roth contributions if they take advantage of the age 50 ketchup amount. so the irs sets annual limits for qualified plans. and i believe this year it is 22,500. so when you are over age 50, you are allowed to catch up contribution that amount this year is 7500, but this provision means as part of secure 2.0 is that if you want it to maximize your contributions and contribute another 7500 to the plan, those contributions must be roth. now, you have a choice. you can either do pretax or you can do roth. but but as part of

secure 2.0 being a rather large revenue generator, they have required now, now the ketchup contributions for the higher earners, which they have identified as 145 k plus to make only roth contributions. so how do we do this? there would be a look back at the prior year and we would be working with our payroll department to ascertain the amount of wages the city has paid an individual based on their w-2. after identifying those who've earned more than 145 k, we would flag them with an rcr and rcr is the roth catch up required? it's an indicator that would default any age 50 ketchup amounts into roth parts will still have only one account, but the contributions will be earmarked and accounted as pretax versus roth. we

currently do that now for pretax and roth and also rollover funds because rollover funds have to be accounted separately because they're special required for 401. k money as opposed to 457 money, which is what the plan is . so i know that's a lot. i wanted to pause and see if there's any questions there before i go into sort of what we're doing now as a result of this. so there's been a lot of industry pushback, both public and private, in administering, you know, these this mandatory provision. there is a lot of administrative effort and a relatively short period because we're looking at completing this by year end. our plan is positioned rather neutrally because we actually already have roth. so it's just a matter of working with our payroll team and our record keeper to funnel

the ketchup contributions into the roth category. but i want to share with the board that there have been at least five letters sent to congress. the treasury department and the irs to request an extension for at least two years. as mentioned earlier, this is a huge tax revenue generator. and so to my understanding and mr. bishop stein can talk about it as well, he is closely connected on the record keeping side, and they've been monitoring this very, very closely as well. that extension talks have been remote at best. so as such, staff is preparing under the assumption that this provision will hold and will go into effect next year. so as mentioned, we're currently working with voya, our record keeper, as well as the comptroller's office, to analyze our options and compliance. we've already had a kickoff meeting with the key stakeholders and the payroll division is currently working

with spurs it to scope out the project and the business requirements because we would have to reprogram files that go back and forth between the city and voya to make sure we capture the rcr, which is the indicator and making sure that the payroll division has insight into the wages. so there's a lot of logistical things and i don't want to bore the board, but to give you an example on the logistics, that needs to be sort of fleshed out is the payroll office has said they don't get the w-2s out until mid-january. this provision goes into effect january 1st. so there's things like that that we're trying to go through. we're also looking back to see, well, you know, when does that year start? right? is there a prior year? do we work with the board? do we do we delay, contribute, you know, for the age 50 ketchups to later on in the year after we've ascertained the wage amounts? there are a lot of logistics

that have been really keeping us busy and up at night. actually trying to figure this out. but our intention is to always allow participants to save the maximum they desire, right? and so we're just trying to make sure that we can stay qualified under the laws we already have a draft letter in place to our participants as well as faqs of these changes. and our counselors also have talking points, as mentioned earlier this year, when secured, 2.0 was first signed into law. we would implement the mandatory provisions first and then consider whether to recommend the optional provisions to the deferred compensation committee and then to the board plan document changes are not required until january of 2028 for government plans. so the idea would be for us to implement all the things and

then capture them in the plan document and that includes both the cares act and secure. 1.0 as well. and one last thing, just to make sure that the board is fully aware with. section 6.603. um, as as part of that legislation, there was also a technical error. um they in including the 145 k wage limit or wage bottom, i guess they had inadvertently removed a clause about at age 50 ketchups entirely. so this actually means that if that is not fixed or put back in, it would theoretically be unlawful to even allow age 50 ketchups in 2024. now i've

talked to my colleagues, the extension is remote at best, but you can be sure that that they are working to make sure that that correction is made. so at that time, maybe i can stop since we're talking about that. greg, did you want to share any thoughts or. bishop, did you want to share any thoughts on security 0.0? no, you accurately described it in the ketchup provision, as i understand is going through technical corrections. now so that will be added back. yeah, and that's that's my understanding is as well. but i guess my concern is because it is remote and because and i don't know the status of what committee is working on at this point, i'm wondering how they're going to do the last part you talked about how are they going to make corrections prior to it going into effect because there are too many moving parts to most times that get that point that yeah, that that is a part that they are they say it was a complete error. they've all acknowledged

it and that is not a subject of confrontation. 603 ms. julie justin talked about is a big revenue raiser and that there is just it's very hard to change a law that's already been signed by. that's my that's my concern. yeah. that that portion we don't believe is going to get deferred. everybody's hoping. but those are two separate right and i've been following it closely. but my concern is, is once it goes into effect, how you do how you do the back field and as you said, you can prepare for it. but how do you actually get it right? yeah. and maybe i'll let my colleague from voya talk about that. thank you. i think the question of getting it right is what's keeping all of us up late at night right? there's a little bit of inertia out there, right? you have plan sponsors who don't want to look at this right now. you have payroll providers who are kind of kicking the can down the road

a little bit as well. in some instances. and then you have consultants and brokers and others that are at the table. and i think there's a large mass of people that are banking on a delay. however the key for us and for our communication has always been to try to encourage people to comply and be ready to comply. in fact, i just had a conversation with a plan sponsor this morning, which has been kind of kicking the can down the road. and i said, okay, feel good to do that if you'd like. but to be prepared and assuming it goes online, let's look at these various steps. and i think to applaud your plan, your plan is doing that. there have been active communications with the comptroller's office and others to make sure you're in compliance. so i feel good about where you're at. i hesitatingly say there are others i'm a little concerned about, but in your case i feel pretty good. i think we're on a good track. right. if you could just let us know because i'm just curious on how the whole legislative process will move forward at this point. we will certainly keep the board apprized at the

next board meeting as well as the dcc. okay any communications that we would roll out, we would definitely share with the dcc as well in advance. are there any known lobbyists working against this or, you know, nothing? you mean against extension? none that i'm against extension or extension extension, not that i'm aware of. okay thank you. my question i want to clarify something you said at the end there. you said only the age 50 ketchup. is it both or just the age 50? ketchup age 50 ketchup. so the special ketchup doesn't change. okay. that's why it's very confusing. that's because the wrath requirement only applies to age 50 and special ketchup isn't even because that's only for government plans. that's in a separate section. so the removal of 603 doesn't apply to special ketchup. so people who want to ketchup special ketchup today, yes, they can do it. they could 24. they can do it as well. the

way the law is written now. yes. okay, good. that's correct. i'm glad to hear the inertia problem in washington defect. everything actually, i might add to commissioner driscoll, that's one of the social issues that has, you know, some inertia. there's been a letter by congress to treasury and to the irs indicating that that was an inadvertent change so that that has more attention, i think, at this point, then delay and the three year rule on the special ketchup doesn't get affected. so that wasn't worry about that how the special ketchup even if it gets delayed and retroactively fixed people still have time to catch up on any contributed amounts as well. so there's a lot of flexibility. i'm just there's always that exception to things will work out. people who are going to retire next year who if the law that's not changed, they're going to be negatively affected. that's the exception i always worry about. but basically that will work through us over the next couple of years. thank you. okay. excellent. so president helfand

, i want to be mindful of time. it is 1229. we have just a few more minutes, if you would indulge us. no worries. okay. okay. thank you. um, so if there are no more questions on secure 2.0 and operations, i'd like to move on to the record keeper. so this is our last pillar. as noted again in the memo before you, we've had some recent enhancements through voya, including a new look and feel of the dashboard post login. there's an image of that for you in the memo as well as the new hire through retire podcast. so i'm an avid podcast podcast listener myself, so i'm rather curious. i look forward to hearing these different perspectives from dc experts through this higher, higher through retire podcast, and we will certainly keep the board briefed on that as well. i also wanted to provide a personnel update on the record keeper front. so we have recently onboarded a new sbdc counselor

with a name you might recognize . his name is chris wisdom and he had previously worked in the spurs investments area. he is coming over to the participant facing side. we are delighted to have him. chris has a passion for helping others. he has emergency teaching credentials and cannot wait to help ksf employees enroll and maximize their benefits. so so mr. wisdom is currently getting licensed and he will be shadowing our counselor to get a lay of the land and to be introduced to the other city departments and their gatekeepers in addition, the plan will also benefit from additional counselor coverage. this is going to be provided by voya as floating counselors. mr. bishop, as dean can give a little bit more details as well. these are folks that do not have an assigned plan. so for us, we have five assigned counselors. voya also maintains employees

who don't have one, but they provide and travel to provide coverage as needed. so examples on when these folks would be there would be in person seminars or benefit fairs like the ones that are coming up in october to provide participant assistance. we look forward to reporting out on any increased activity as a result of these additional efforts. mr. bastian , did you want to share any other thoughts on the floating counselors? no. to build on diane's comment, i think having an additional resource that we can tap into a time to time, especially if someone is out on vacation, you know, that allows us to not skip a beat or at least adjust and shift meetings over to that counselor to assist. so we're looking forward to having them come in and help out and help us maintain our service goals and objectives as well. hey thank you. and that concludes the memo portion. we do have a board overview deck that has been attached to this

presentation that goes over more of the metrics. so it goes over graphics, cash inflows, outflows, as well as other like counselor activity. is this something that the president would like us to share with? we can provide a five minute overview if that is your pleasure. or how would you like to proceed? well make a short presentation. the work went into it and i think everybody's interested and let's take a few minutes. thank you, mr. bastian . thank you. thank you, commissioners. and since i'm truly standing between you and lunch, i will be quick. just a couple quick things to point out. the board report does reflect an increase in overall number of accounts for the quarter. we did see just short of 250 accounts added during the corner. and this is the fifth straight quarter that we've seen accounting decreasing or account growth, i should say, within the quarter itself. additionally,

the plan experienced an increase in overall plan assets due to the positive market activity that mr. unger mentioned earlier. proud to say that although the increase wasn't as much as the prior quarter, we did see an increase of just over 5, bringing the total plan assets to $4.7 billion overall. i'll skip down just to talk just a little briefly about the counselors since we talked about that a little bit. as well. the counselor activity was a little bit less. if you looked at it quarter to quarter for them, one on one activity group meeting or virtual meetings were down just slightly in group meetings, in person, group meetings were up. however so we're happy to have chris come on board help us to fill that gap. also using the extra resources that we have to increase the numbers as we go through the rest of the summer and into the fall. we do expect heightened activity in october. as diane said, the national retirement security month activities will kick off and that is always a big month for us. and look forward to that activity as well. and with that,

i'd take any questions you might have if you have any. it's not a question, but our next deferred comp committee meetings in october, the information correction income replacement ratio numbers on approximately page 32. thanks for putting it there. that's something i will definitely want to discuss thoroughly. the committee meeting. thank you. okay. thank you. that's noted. great. thank you. thank you. yeah. the committee is actually a great, um, role model for the other committees to get and how much work you guys do in that committee and really appreciate it and we appreciate all the help our advisors get. any questions, comments? none. discussion item, public comment . thank you. do we have any in-house public comment? seeing a reminder to any callers to press star three to be added to the queue? moderator do we have

any callers on the line? madam secretary, we have no callers on the line. thank you. hearing no calls, public comment is now closed. okay so let's take a 20 minute break. okay go to recess

we estimate that the second quarter of last year, we were at the maximum of our exposure at 30. and since then, as our public equities portfolio has rebounded, we have been improving. so you'll see in your report this year, this month we're currently at 29. so within the ranges, liquidity was in credibly challenging during 2022, ipo markets were completely shut. m&a activity was not happening. despite that, our 10 billion portfolio remained cash flow neutral, which is a great achievement. and then our team continue to work really hard deploying capital. our target was billion

two with deploy roughly a billion across various private equity strategies. so within private equity, nothing worked but diversification helped our buyout portfolio was only down roughly 2. venture portfolio was down 20. within the buyout portfolio, it's interesting. most of the markdowns were reflective of the valuation multiples because as reported by our general partners, actually underlying performance companies continue to perform grow revenue and ebitda on the venture side, it's slightly different story. our portfolio, our venture portfolio is a mature portfolio and a lot of companies are ready to go public, ready to produce liquidity. and that didn't happen. and those types of companies, more mature companies, they're tend to be valued. you know, based on market comps. so that was that in another interesting data

point, during 2021, our public exposure was in the venture portfolio ranged from 20 to 30% and you all know what happened to nasdaq in 2022, right down 30 plus percent. so that was impacting our portfolio as well. all geographies were down, but diversification helped our asia pacific portfolio. asia portfolio was down the least at 6. and us portfolio was down the most, reflecting our then trend growth exposures during time of volatility, it's increased terribly important to maintain long term strategic focus, particularly for an asset class like private equity, where investment decisions we're making today will see the fruit of those decisions in five, seven years from now. it's incredibly challenging to type the markets. so our best defense is diversification and consistent capital deployment.

the long term seems we're pursuing in our portfolio our growth and innovation, and you'll see it in our portfolio with our weights to venture and growth type of opportunities. our exposure to asia, our exposure to technology and now growing exposure to healthcare type of opportunities. we're very comfortable as a team with our long term positioning of the portfolio. but i wanted to assure you that the team is monitoring debate in all of these tilts all the time and right now there are multiple research initiatives that are happening and just a few to highlight that. we're doing research on europe, we're doing research on parts of asia and definitely looking to grow our healthcare exposure and definitely these top down views will shape our portfolio over time. but we're committed to remaining opportunistic and pursuing the best opportunities, the best managers across

geographies and strategies. i'll go through the next few slides very quickly just to remind you the role of private equity in our overall plan portfolio is the growth engine. we want to deliver returns. we target over the full cycle 12 to 14, with the goal to outperform in public markets and earn illiquidity premium. and that's reflected in our benchmark, which is a public index plus 300 basis points of illiquidity premium. and our portfolio has earned at the key strategies in the portfolio of venture capital buyouts and growth capital. all again, different type of dislocations. it's incredibly important to go back and revisit. what do you believe as a private equity investor and with no private equity is very cyclical. so what we experienced in 2022 when we're down, we experienced it, you know, in 2021 when we were

up 30. so we know to expect that . we also know that private markets are extremely efficient, and that's manifest itself in a huge dispersion of returns in private markets. sometimes it could be thousands of basis points between top performing managers and median performing managers. and our job as a team is to go find those managers and create access for san francisco . so we're opportunistic, pursue managers, but we're also managing a portfolio. and when we're managing a portfolio program, it's incredibly important to maintain the long term horizon consistent pacing and vintage sophistication. this is what makes breaks a private equity program. if we were deploying capital during the high valuation environment in 2021, we absolutely should continue deploying capital right now as valuations have come down. and i'm incredibly proud

of our private equity team. it was incredibly challenging to stay disciplined in 2020, 2021, we had so many more opportunities than capital to deploy, but we maintained the course and we're trying to do the exact same thing right now as valuations have come down. this is a quick overview. the only of our program. we have been investing in private equity for over 30 years now since inception. returns a very strong 16% plus net irr, 1.7 x multiple invested capital, almost 10 billion of generated value in the portfolio and over 4 billion of value above the benchmark. this is a graphical representation and you can see our performance versus the benchmark performance and how much value has been created in the portfolio. and you see that the last couple of years have been special. i don't think we'll see the repeat of that,

but who knows? this is our annual deployment phase. we have been deploying consistently. so 2022, we came under our expected deployment pace. we're supposed to do 1.2. we did roughly a billion, and that's reflective of the slowing market, the fundraising has slowed down. gp's are not fund raising as much, but in general we're on a 1.1, 1.2 annual deployment base. we've done analysis as was cambridge was on a team and the target deployment pays over the next few years for our portfolio is roughly 1.2 billion. and then on this chart you'll see that we have been the portfolio was then private equity is quite diversified and we have been deploying roughly 5050 to buyout and venture type of opportunity and growing our gross equity portfolio as well. this is a quick representation of cash

flows in the portfolio. you all might be might recall that around 20 1415 we increased allocation to private equity, which means we went the deep into the jv curve, which means we had to put more capital into the program that was coming back to us. we're finally reaching the point where we should be generating a lot of cash back to the plan. unfortunately given the current environment that has been delayed. but there is no doubt in my mind that the cash flows are coming and it's really good that we have a mature program that does not consume a lot of capital, a lot of capital right now. um, couple slides on our performance this chart just to show you that over the years over long term, the private equity portfolio has been a great contributor to the overall planned returns. and we're indeed the growth engine of the plan assets. this is a quick snapshot. the only thing i would

highlight here is that since inception we contributed roughly $13 billion into the program. we got back all the money. so dpi is one x and we have $10 billion left in value in the portfolio. so this is a fantastic program. this is performance by strategy . to give you a quick snapshot, you'll see that one year was tough across the board. but if you look at the five, ten, 20 years performance has been really, really strong. so this time around, we're also doing something different. we're showing you the analysis and which is public market equivalent and it's essentially a way of measuring how well a private equity portfolio is doing compared if we invested all of this money, all of these cash flows into our policy benchmark and you see here that our portfolio has outperformed

across all relevant time periods and let me remind you that the policy benchmark already includes the illiquidity premium that we put on the portfolio. right now, it's at 300 basis points. this is a value bridge just to show you how the portfolio did last year. so you'll see what we're down almost $1.4 billion, but cash flows were roughly flat. we contributed roughly the same amount as we got back out of the portfolio. obviously not a great outcome, but over the last three years, this portfolio. generated $4 billion in appreciation. and that's one of the key reasons that we're at the higher end of our range as percent of total plan assets. and we did. it was not without consuming cash because cash flows were neutral . we actually got a little bit back from the portfolio. this is a quick chart to show you. the

preliminary. well, we're actually finalized the performance now and the portfolio is roughly flat up 1% for q1. and we only have roughly 15% reporting for q2 and all based on that, it's going to be flat again, that's our expectations was that i'm going to turn over to add to walk you through our kids posters in the portfolio. thanks tanya. good afternoon, commissioners. i'll walk you through our next section, which was portfolio exposures, attributions and both short and long term performance drivers. slide 22 focuses on performance contributors for the portfolio in 2022. as you recall , throughout innovation, our key themes for our portfolio and while those themes have been accretive over the long term, they faced headwinds in the past year as a public markets have shifted focus from growth oriented strategies to value.

slide 23 covers our sector exposures, which brings us to our first strategic, overweight technology. as part of our innovation theme. long term attribution in the overweight to technology has been accretive. it's been a high performing sector with annualized performance over 20% over the last three years in 2022, the pullback in the public tech markets had a spillover effect on our private holdings with software exposure in the portfolio down around 8.5% for the year. really softness was felt across all sectors in 2022, with the exception of our industrial exposure, which was up about 18% despite the performance or the down performance for software software company fundamentals were remain strong. the average private tech company increased revenue by about 15% and ebitda by about 10% in 2022, which means the decline in performance was driven by falling multiples in the software sector. looking ahead, we expect overweight to tech to continue as we continue to pursue excuse me, our innovation theme, health care as well has also been an area of

focus. slide 24 shows our second strategic overweight, which is asia pacific, at the expense of europe as part of our growth theme, the majority of the exposures through venture and growth strategies as we believe these strategies are best positioned to take advantage of the region's growth rate. as we've discussed before, we don't believe in geographic diversification for diversification sake. we need to have conviction, the manager, the strategy and the return profile in order to be comfortable to take on the currency risks. investing outside of the us. the decrease in us exposure since 2017 is driven predominantly by the secondary sale that we had in 2018 2019. time frame. we do expect us exposure to moderately increase going forward as the secondary sale impact wears off , but we do expect that shift to be very gradual. we continue to review a rationale for investing outside of the us and any changes to potential geographic exposures will likely also be

gradual. we have been spending more time looking opportunities in europe, which so it's feasible that the gap between asia and europe could shrink in the coming years. slide 25 covers our geographic attribution. we've achieved the highest absolute performance in the us over the last decade plus, although we felt the impact of short term volatility here in the region, we've outperformed cambridge in the us over longer time periods as well. a short term attribute in point of view, our asia pacific exposure was the best relative performer in 22, although all geographies were down for the year. we have generally performed well in apac across time periods compared to cambridge. and as a reminder, our focus on asia pacific investing really started about a decade ago. over that time, our asia pacific exposure has outperformed european exposure with the caveat there being most of our european exposure. so that's a good reminder of how quickly the investment landscape can be changed. you think back

only two years ago at our portfolio update, then our five and ten year investment returns for asia pacific were in line with what the returns for the us and that's no longer the case today. slide 2626 shows our third strategic overweight, which is venturing growth as part of our innovation and growth themes, a decrease symbiotic structure really is driven mostly by the secondary sale in 2019 with large pieces of that also from the strong venture performance that tanya mentioned earlier going forward, we expect our exposure to increase as the impact of the secondary sale wears off, although we do expect the shift to be gradual and will likely remain decent amount below the numbers shown on cambridge's benchmark here. slide 27 shows our sub strategy attribution over a 20 year horizon. all of our sub asset classes are performed. venture has been the highest absolute performer over the past decade plus and since inception the venture has really been the performance driver for

the point over the past year battle and growth strategies have outperformed cambridge with venture slightly lagging for venture in tonya mentioned this a little bit earlier and i'm going to dig into the details here a little bit. the volatility has impacted our venture holdings more than cambridge because our portfolio is more heavily weighted towards late stage portfolio companies. now this is not due to investing more into late stage venture strategies than cambridge, both ross and cambridge have about 15% of their exposure to late stage vc strategies. but because our portfolio is more mature than cambridge's, which means that we have older portfolio companies across our early stage and multi stage managers and pd. so these managers, these holdings, these older holdings will be more sensitive to public market movement. their valued and also means there's likely more public stock that our managers are holding. they haven't yet distributed either for lock up restrictions or other reasons, as a good example of this, at its peak in 2021,

our venture capital portfolio had 35% of its value in public stocks, while cambridge only had 15. so long way of saying public market volatility volatility here. our venture portfolio more than hit cambridge. and on slide 28, it's a good visual representation of what we just discussed about our public exposure. you can clearly see the peak in 2021 and today the public exposure is back in line with historical averages of 1,011. and now i'd like to turn the presentation over to rishi for an update on our co-investment program and our portfolio initiatives. good afternoon, everyone. so i'm going to speak about co-investment program today. as you can see, our co-investment portfolio is still relatively early in its development. the first co-investment was completed in 2014. we have one private equity team executing on fund investments and co-investment. since managing our team capacity is very important, you know, we think we have a solid due diligence process. some of the things we do include evaluating general

partner investment memos, reviewing third party due diligence reports, stress testing, financial models for financial, for operating different operating assumptions and return outcomes, and then having a large pipeline of co-investment. we're hoping will allow us to be selective and focus on our highest conviction opportunities. so moving over, moving on now to the co-investment portfolio and performance the teams invested a little over 350 million across 26 co-investment since inception and the average check size per co-investment is being about 15 million and the range per co-investment is being 5 to 25 million. as i noted earlier, the portfolio is still relatively young with an average whole period of three years when five full exits since inception. so the portfolio is still developing. they need some time to mature and to continue to be built out. but overall, right

now, the portfolio is currently performing and our goal is to build out the co-investment program over time. but fund investing remains remains our top priority. so moving on to the last slide in this section now, i, i'd be interesting to share some of the recent observation we've seen from our co-investment deal flow. and so you know lp demand for co-investment remains robust and co-investment have generally performed well for lps. we think the thesis around co-investment remains intact, so low fees and lower carry, you know, leading to potentially potential outperformance versus primary fund commitments, you know, that said, co-investment aren't all upside there, they're important considerations too, like the demands on team capacity and potential for a wider range of outcomes versus versus fund investments. um what's what we've been seeing over time now as general partners in limited partners have continued to evolve their approach to co-investment and they've added

dedicated resources and adding more dedicated resources in terms of the internal teams to manage co-investment deal flow. and we're also seeing expanding use cases from general partners in terms of how they're using co-investment capital. so evaluating potential conflicts of interest is a key part of our due diligence process. when we evaluate co-investment and then some of the things we've been seeing here today, some themes from the deal flow. we've seen, you know, general partners have been more focused on fundamentals. so profitability and growth versus growth at all costs. we've seen some thoughtful financing and transaction structures. so in the current exit environment, rather than selling majority stakes of businesses, general partners have opted to sell minority stakes of their businesses. you've seen general partners structure their transactions so they don't need to reprice their debt in the

current higher interest rate environment, they're able to maintain their the capital structures where they had favorably priced debts prior to the rate increases. and in the deals that are getting done, we're seeing more equity in those deals due to the higher high cost of debt and low amounts of leverage available. they're putting more, more equity into those deals. um, and i mentioned earlier lp demand for co-investment is being robust. however, the supply of co-investment has slowed and that slowed in line with the slowdown in private equity deal flow. and there are a couple of contributing factors to that. uh, one of them is the persistence of the valuation gap between sellers and buyers on the seller side, especially sellers who have high quality assets. they might be able to hold on to those assets, continue to compound the growth in those assets and don't feel pressured to sell into the current exit environment. and

then on the bias side, you know, with a higher cost of debt and lower leverage levels available, it makes it more difficult for buyers to stretch to the valuations that sellers are still demanding. so we're still seeing that that valuation gap and that's that's causing a slow in deal flow. that said, is optimistic about their future pipelines. they feel like there's pent up supply of deals in the market and they feel like gps and lps will require liquidity at some point. and so they're optimistic about about the future opportunity set there . so that wraps up the co-investment section. i'm going to i'm going to wrap up the staff portion of our presentation now by talking about our 2022 and 2023 initiatives, 2022 initiatives. i think the takeaway from this slide is that private equity being a long term asset class,

as a lot of our initiatives are ongoing and multi-year initiatives. that said, we've made progress on on several of these initiatives in 2022. you know, tanya mentioned earlier a blue joining the team. we're pleased to welcome lou. so we were able to successfully recruit and add resources there. we continue to build out our buyout exposure and an important one for this year is the deployment of our new crm system . you know, this isn't just important for the private equity team. i think this is important for the broader first team and will help us to continue to institute, analyze our internal data and knowledge and investment process. so it's something we've been focused on and are working on, including it in our in our workflows and then collaboration with other asset classes is an ongoing initiative and an example of how we've done that is, is how we've incorporated an esg review in

all of our private equity reviews, private equity underwriting, um, moving on, moving on to the 2023 initiatives now, um, i think the 2023 initiatives are similar to the 2022 initiatives and that is focused on consistent deployment and investment pacing as well as thoughtful portfolio construction. some of the specific initiatives were we're focused on is continuing to build out a pipeline and buyout co-investment and next generation managers, as well as continuing to monitor existing exposures and then of course continue to collaborate with with other assets plus teams remains an important goal for us . and so that concludes the off portion of the presentation. um maybe we pause for questions after cambridge presents latest . that's okay with everyone. um, so let me let me pass it on to anita now to, to present for

cambridge. thanks rishi. well, good afternoon commissioners it's a pleasure to be back here in person today. and on behalf of the rest of my cambridge teammates, i'd like to thank you and staff for our partnership over the last nine years. i have some prepared remarks today in which i'll provide a review of the private equity market for the last year and then talk about our outlook in the current environment and where we are focusing our efforts for the retirement system. we'll reserve some time for q&a at the end, but please feel free to interrupt me and ask questions as i'm talking through my presentation. the headline is after a few record breaking years, private equity started to slow down in 2022 in terms of performance, fundraising, investment activity, exit activity, especially as we entered into the second half of

the year. and this this slowdown has extended through 2023 with the backdrop of higher interest rates. recession fears lingering inflation concerns challenged ipo and exit markets, geopolitical risks and so on. it's no surprise that gpus are experience being a tougher environment. as tanya noted, hers is over target and private equity today, and this is largely due to the significant outperformance of the private equity program over public markets in recent years. the p e allocation is now at 30% and we are still above our target of 23, but down from the high we reached of 33% in a volatile. 2022 series p portfolio provided some volatility dampening benefits to the overall pool performance. this p program was down 12.4% for the year, compared with down 15.8% for the benchmark, which already

incorporates a 300 basis point illiquidity premium. the retirement system was productive and flexible in the uncertain market last year. target pace of 1.2 1.3 billion for the year. but maintain flexibility and ultimately closed on just shy of a billion with this lower commitment amount, the team still worked hard for it. we were able to add five new managers to the direct program, which emphasized some of the strategic areas we have been looking to add to for the program, like buyouts, health care and europe. despite the more difficult environment, we continue to have high conviction in private equity as a long term driver of portfolio returns and we'll discuss some of our current outlook. it's important to remember in times like these that private equity commitments in vintages, years during and coming out of a downturn generally have performed well. and the key is having a well constructed and diversified

program with best in class managers that are able to navigate the uncertainty. and on this point, we believe spurs is well positioned with its current portfolio and initiatives in terms of commitment pacing, we reran our models and recommend a $1.2 billion target annual pace for the next few years for the program. but we continue to emphasize maintaining flexibility and being guided more so by the attractiveness of opportunities in the market on the next several pages, we can see more clearly the slowdown in the industry. on this slide, you see that global fundraising in recent years has been really robust. the first half of 2022 remain strong, but it fell sharply in the second half, which continues through 2023. similarly investment activity began at slowdown in the back half of 2022. here we see the exit markets, the ipo market on

the left side of the page shut down in 2022. you can see that that sharp drop off and m&a on the right side of the page has come down significantly as well. we should be prepared for longer, hold periods and slower distribute options to lps as a result, we think m&a will pick up more quickly as valuations reset and we're already starting to see some ipo filings, but it's still really challenged and the fall off in distributions to lps, those resulted in a liquidity crunch for many lps that rely on distributions to reinvest back into their private programs, thereby leading to the slower fundraising environment. moving to this slide, we expected, as we expected, we saw private valuations correct somewhat in 2022 managers with large, unrealized public portfolios and late stage venture have been hit. the

hardest. the s&p 500, as denoted in the gray line here, had a peak to trough return of down 24. here we see that us venture capital and us private equity have come down from its 2021 peaks to reflect some of that public market sell off us private equity here for us refers to us buyouts and the us in green which ran up the fastest in recent years, was down 21% in 2022. us buyouts in blue was down a more mild 4. i should note that we have had three really strong quarters recently in the public markets. the s&p is now down just 8% from its peak. historically, private investments typically recover more slowly than publics in periods of rebound. and we saw this in during the tech wreck or after the tech wreck and the gfc

. so in other words 2023 private numbers will likely lag public market returns. and we shouldn't be surprised if that happens. it's the valuation lag and a short term effect, but in the long term, private still outperform. on page eight here. well i guess there are no page numbers on this page. we have another view of the start of the valuation reset. this valuation, this this slide breaks out venture and buyout returns by vintage. you and it shows returns as of december 2021 compared with returns as of december 2022. venture in green on the right is down the most and then you see that the more recent vintages across private equity and venture capital are hit. the hardest, i.e. those would have had more investments in the frothy year 2020 to 2021

timeframe. but looking to the long term, we continue to expect private investments to be a strong contributor of returns here you see the longer, longer term returns on the left side of the page and across buyouts, growth, equity and venture. the returns are in the mid-teens. that's probably really but that is still very good and provides an attractive premium to the public markets. the next two slides show that private equity vintages during and coming out of downturns have performed well and generally generally better. the point is we want to emphasize the importance of staying the course with the privates program, if you can, and continuing to make investments during tougher times like today. this slide shows the buyout vintages and this this slide shows venture and we've boxed out the time period during the recovery after the gfc. on

this slide, we see that in periods of significant market volatility, privates have historically been less volatile than public markets. in other words, providing volatility dampening benefits for the overall portfolio, which is what serves experienced last year. looking at your specific performance, your private equity program has steadily outperformed your policy benchmark and our cambridge private benchmark and consistently ranks in the top ten of pension plan. private equity returns in the latest american investment council private equity report. the retirement system is once again on the top ten list of private equity performance for public pensions. spurs boasts the rarefied accomplishment of being on the list nine nine out of 11 times that the aic has published a report. on this slide. we

share data that breaks out the return multiple years of realized investments that we've tracked over the last 21 years. you can see that growth is a big driver of returns. the higher the revenue growth of an investment, the more likelihood of an outsized return. and you see that on the on the right hand side going forward, we think gps will need to continue to focus on driving growth in the portfolio companies. but they'll also need to focus on improving margins and operations as well. as rishi said, it's no longer growth at any cost. we need to or gps need to find sustainable profitable growth paths for their their portfolio companies. and finally, i've said multiple times that we believe private equity continues to have the ability to outperform public and here are some additional metrics to show why you can see that in terms of entry valuations denoted by

ebitda, pm or purchase price multiples all the way on the left here. that entry valuation lines are more attractive than public markets and we've compared that with the msci world index and also the growth rates for revenue growth and ebitda growth. that's more attractive as well and leading to the outperformance all the way on the right in terms of actual returns that have been generated for the private equity investments as opposed to the public indices. i have in the in the appendix, some highlighted some observations of this first portfolio that i won't walk through, but just wanted to summarize that. in short, we think the portfolio is well positioned with a strong roster of manager relationships. we remain comfortable with the tilts to asia. venture growth and technology, but recommend

added focus in in complementing the program in other areas, which is an effort that we already began in recent years. and we also have been working on rebalancing underweight areas where appropriate such as buyouts, health care in europe, with that, let me turn it back to tanya and team and open it up for any questions for us as our staff. thank you. just open up for questions. okay excellent report. does anybody have any questions? i have a few, but let's open it up to the rest of the board and questions. yeah. no particular order, but i'll do it backwards. and images. pages are not numbered the way i have them. but anyway, the return assumptions going forward, 12%

irr for buyouts, 13% for venture capital. what is the assumption for the s&p or the benchmark that we're using, which is 75 to 25% well, this these assumptions i think you're referring from our pacing model. we included this in the appendix as well. this is for the long term return assumptions that's used in the pacing model. does not account for. there's no input in terms of s&p and for global equity, though, for the 25 year return, our estimate is, ana, correct me if i'm wrong, in terms of the capital markets assumptions, is . 7.2. yeah 7.2. so our for global equity, our benchmark plus 300 falls within this or this is exceeds that, which is good. okay. thank you. and this 12 and 13% is does not assume any alpha right now it all.

thank you on. page 28 of the staff's presentation on the 11% private exposure that 11. how much of it is under your discretion versus the discretion it was in portfolios. we still nothing with no exposure? no discretion from staff. okay i see. this case goes back to cambridge statement. fine that you were number eight in some sort of universe. right. okay. i prefer to ignore peer any kind of peer group comparison, but in this obviously good numbers. but my question is, is what is the spread between number eight and number one in the aic report? um, you can make a wild guess because i'll tell you what, the point's really going to be

because we look at those floating bar charts all the time , top quartile and they're not spaced evenly basis points. um because i think we've come to a conclusion we don't, we can't do this for the average. okay. my question is if someone's ahead of us, that's fine. whoever they are, i think this is our why are they there? are they better stock picking up stock? but are they doing something? implies they're doing something different or better. it's a ten year number, so it looks like there's some persistence. there wasn't just a one lucky kind of bet. so that's what i'm trying to drive at. that's why i like to look at what are the endowments doing? because when it comes to investing, we are the same as him. therefore, what are they doing? can we do it? some things they can do we can't do. that's fine, let alone the issue of then hiring better people. meaning city hall. please give us more salary and more people. why because we can do better if you let us if you'll support us. so that's why i asked that question, if i may.

commissioner driscoll, and i know you know this as well as anyone when we think about us relative to peers or if we're delivering performance is absolutely important. but performance in the context of risk in other metrics are also important. and to use a very simple analogy, if a car is driving at 40 miles an hour, sure, it's beating the 20 mile per hour car. but if it doesn't have brakes, that's a problem. and we want to make sure that we think about our performance relative to peers and where there are levers that we can successfully pull to enhance performance that's in private equity in any asset class. but make sure we do so in a way that meets what we're trying to deliver in terms of return and risk over the long term. our risk tolerance may be different than other good institutional investors. our liquidity needs may be different. therefore, there's things we can and cannot do while we're still trying to be wise, but not to fool around with your analogy. but the woman who got arrested yesterday for driving at 100 miles an hour into a wall, she's the one who

survived, not the two passengers. and that's a kind of a silly analogy, but when i see someone else is doing better, she doesn't quite know how or why did they do that? can we do it or not again? and it may come back to our asset allocation mix because we have a higher weight to buy out, which is fine, but that's the safer group. we want a higher probability of that return as opposed to the venture capital group, which we do a lot of. so thanks for the numbers. thanks for reports. thanks for the good carrying on. the reason i asked about the liquidity premium is the alpha is above the liquidity premium. that's the number i look at that really you guys get credit for achieving that. thank you. but listen, thank you. first, i want to say thank you for the presentation and also just similar to our last meeting when we discussed private credit, one of the things that he's done has just been spectacular performance. looking back over the last few years to the point where now we're relying on you

all to be really good because you're carrying a big load of the of the performance of the entire fund in that growth. and then additionally, when we see the denominator effect and how it impacts your strategy, one of the things we discussed last time was balancing that need against liquidity needs of the fund as well. so you mentioned that and i appreciate in your presentation how you've been able to produce while also not having an impact negative on liquidity and that you actually are optimistic going forward when it comes to liquidity, we're where i wanted to just kind of get an idea on is where would that that opportunity come from, where we're not impacting our liquidity, it would seem like you'd need to be able to reinvest more funds in that. and when i looked at sort of the change over time, it looked like

there was several different areas that you were trying to reallocate. and one of them in particular was geographic. so to get to kind of the meat of the question that i'm looking at is, are there risk concerns you have about this sort of pivot? does it increase the risk that we have where you're able to invest with less capital or in a way that doesn't sorry, i'm fumbling the words, but where you're not impacting our liquidity, but you're able to still produce the sort of returns that the fund needs, the last impact on liquidity is because the private equity program is mature program because what happens with a young program, you're investing contributing capital over the like five, seven years and there are no distribution lines, right? and that you become cash flow negative at the beginning. but then when the program hits like seven, ten years and above , then distributions start coming in and a successful program, well measured, well

managed program can be self-funding over time if we're not making any big changes to the program. that's what i meant. it's not because we did anything special. it's just the time function that the portfolio has matured and essentially self-funding itself. if for example, the board was to increase allocation significantly, then we would go again into the jv curve and the program will consume capital. but its normal younger program consumes capital more mature programs start spitting out cash. and then the focus on europe that you talked about, i assume that you're referring to the geographic focus that's not in addition to what we're already doing. that is going to be a part of the current allocated. the current planned expenditure allocations going forward. so this is within the boundaries we built for ourselves. this is not in addition to what we've had planned on doing. thank you. and i'm wondering if we could kind of talk a little bit more about

that. i noticed that you'd had under contributors and tractors, geography is one of the components and asia was there. could you kind of unpack what you mean by asia pacific? it's big, broad region where are we really targeting with some of this investments and opportunities and are they any risk concerns that you have about investing in this area as compared to, say, europe or north america? i'm sorry. so i think most of their exposure we have in asia pacific is through venture growth. a lot of that exposure is within china itself . any time you look us, there's a higher risk profile, i guess you would call it that. if nothing else, everything else being even there's currency that needs to be taken into account. and then i think given what's happened over the last few years, i would say looking investing in china, risk profile is also changed a little bit and not in a positive way. so these considerations on the risk side are continual considerations. we're already looked at and reviewed them for every investment or every commitment

we make outside of the us. so you know, you could say i would say that there's not necessarily more or less risk. i don't know if that's the way we necessarily think about it, but the risk you're taking on investing in asia pacific is going to be different than the risk you're taking on investing in europe and europe. you're over generalization here, but likely to have currencies that are that could potentially be more stable , and especially if you're in developing asia, you're probably gonna have a little bit less stable currencies. yeah, the trade major trade partners could be different for each of their relationship with the us, could be different for each. and importantly, the growth rate of each region is materially different, right? so these are all the availability of debt, etcetera, etcetera, etcetera. right? so we try to build a profile of risk profile when we think about the risk construct of a potential commitment, we kind of built on the ground up based on, you know, the managers strategy, what they're trying to accomplish, how they go about accomplishing that and the geography in which they play. and how that also layers on as well. so i hope that touches on

some. yeah, i'm on that same note when you're when we're allocating funds in different regions is the distribution of sectors more or less the same. so like our europe exposure is in the same sort of sector distribution as in asia or china specifically, or probably not exactly the same. but i will say that the focus on technology and the focus on health care are themes we have globally. so that's not just within the us. those are things areas we're interested in, in asia or asia areas we're interested in in europe as well. so i would expect that those two to probably be the foot forward from from an exposure point of view. if you will, you know, different regions as you will have to build conviction in exposures differently. what consumption looks like in the us will be different than what a consumption looks like in asia, which is going to look vastly different than what the consumption looks like in europe per se. so based on the differences between the geographies, the other subsectors that we're interested in, we'll also change. and

regarding. oh, sorry, go ahead. i was going to add, you know, it's the sort of top down thinking about it from a geographical standpoint, that's absolutely something we do. but we also acknowledge that we've got to do the bottom up evaluation of a fund of the sectors that they're playing in. and i think being really targeted with that is becoming increasingly important now. and so it isn't sort of a view of, oh, we're going to allocate to this region, it's a view of, hey , here's a portfolio construction that could make sense for us. are they investment opportunities, bottom up that are attractive enough for us to build, build up that exposure? so it's sort of a combination of the top down and bottom up. and would you say, well, how how does due diligence differ? so, you know, obviously with covid and the challenge and travel and all, and then going into these markets that maybe we didn't have as much exposure to before, can you describe sort of

what that due diligence process is when you're proving up these investments? so one of the things we're fortunate with having a fairly consistent team that's been around for a long time, it's unlikely that we're committing to a manager that we've never met before, even during covid times, you know, there would be, you know, tonya's been in this role for a long period of time, so she knows the market in asia and europe adventure and b very, very well. so having those long standing connections in ties helps go a long way. but then the complexities during covid were probably not all that much different. and within the if we couldn't meet someone even in san francisco in person, you know, so that, you know, you have to do a lot over video the zoom etcetera. yeah the amount of desktop work, the preparation and work we do into it, the cutting, the reviewing data, cutting data, you know, understanding that understanding portfolio fit, understanding sector fit, that's the same. yeah so that part's fairly

consistent, but trying to figure out how do you build the same level of conviction when you're video call is what you're able to do in person was a key part of it. and then i would say that the increasing the number of reference calls ended up being important there to try to kind of build out the qualitative aspect of a due diligence and also relying more on our partners who have presence in the ground in the region, whether it's cambridge or some of our managers, you know, who we used as a resource. absolutely. to beef up our diligence during that time. and that function is usually delegated to the managers. our staff is not going, oh, we are absolutely going. absolutely going. yeah this is this is very much a this team here, including justin judd et cetera. ■need to have full conviction going forward. we need to do our work . we need to be comfortable. we are not going to give anyone else that authority or on behalf . and the team has been traveling extensive and the

travel has picked up significantly this year and starting was the second half of last year. so the team has been on the road nonstop. thank you. notice the nods about the travel? i guess the expense has gone up. mr. yes, thank you. president helfand and just to piggyback on commissioner thomas questioning, we got regarding your ongoing evaluation of asia opportunities, how do you benchmark that against the current geopolitical landscape that's going on? it's a very tough question. i know, because the dynamic have changed quite a bit. what helped us right now, the fundraising has slowed down significantly in asia. so we have time to reevaluate as managers are coming back for ops, every manager is going to

be evaluated, not based on what you manager did and your performance, but also does this strategy make sense in the current geopolitical environment ? so yeah, it's going to be tough. re underwriting and that's why our team is going to be in asia several times this year to meet with everybody to see what's actually happening in the ground before making any conclusions. right, because we don't want to make any any rash decisions and we want to do sort of re underwriting of the portfolio. it's one of the biggest projects we have this year, i would think so, given where we are absolutely. and if i could also add that there are really two levers to pull. we can make a decision whether to invest, for instance, in a asia manager and that asia manager most often is investing across countries. and they have on the ground knowledge and decision making capability to move within those opportunities. and they also are assessing geopolitical risk on behalf of us as a us

investor. so there's a lot of ways to get at this question and mitigate and manage that risk. and that's a that's important. it's worth mitigating risk. that's why i wanted to understand the ongoing evaluation of it. great. and then i guess my second question is going into the esg platform, one of the things that i've witnessed and noticed over time with pe and a lot of the managers, you're focused. i mean, there's been an increase focus on esg, but they're not quite there when it comes to building the internal platforms to really support their esg investing. so i wanted to get understand where you feel they are. their focus is and is it something that's a priority when it comes to working with spurs and other pension plans? or what's the update on that? um, we definitely have seen a lot of progress across our larger

private equity managers who have added dedicated resources would do was in our portfolio was a focus on smaller managers and venture perhaps those folks that need a little bit of a help, a little bit of a push and that's where our internal resources was . andrew have been instrumental where he has been engaging with those folks directly and those folks have been reaching out for , you know, resources and programs. so it's ongoing dialog and it's the approach would take is a very pragmatic approach to that. and they understand the importance of it as they absolutely understand. before we close any investor, once they see our esg policy, andrew meets with all of our managers to kind of not only to understand what they're doing, but also so they understand what we're doing in offer us as a resource to get help them get better. thank you and thanks for a great report

and update and congratulations on expanding your team. but maybe, maybe one quick thing on on on esg, just a data point that we're seeing with some of our larger managers. you know, some of our larger managers, i think they started on esg in more of a defensive posture. yeah, exactly. and some of them are pivoting now to looking at it more offensively, which is being, you know, a pleasing development because hopefully that'll that'll help to drive returns also. so and that was my concern with the whole sector. that's exactly how they started. exactly. thank you. i have a simple question. you received 62 inbound opportunities and made one co-investment in 19. in 2022. right if you take a needle on one side, it's your team has in their diligence has decided not to do it or the other side

of the scale is that you weren't didn't get the allotment and somewhere in between it just wasn't a good investment. where would it fall? um, i put maybe a third category in there of, of team capacity and timing to, to be able to, to, to, to execute and get the co-investment across the line. so a lot of the co-investment processes can be very quick, they can be sort of a four week turnaround to get from start to finish in a particular process. and you know, our team, we're focusing on fund investing and investing . and so if a co-investment comes up, you know, in the middle of us underwriting a fund , for example, it's not it's not as easy to underwrite and get that co-investment from start to finish in four weeks. and particularly with, you know, sort of the schedules that we had to in order to take to the

board, we really need to get a lot of our work done in the first couple of weeks and build conviction. and so i'd add that third, that third leg to it, which i think is an important piece. i think there's a portion of those core investments that just weren't fit for us in terms of, you know, they might not have been in in companies that were profitable, which is a focus for us. and so the company might have been burning cash. so just not a fit for what we're trying to achieve on the co-investment side, some of those investments came from managers that we might not have been familiar with. and so we would not only need to underwrite the co-investment in four weeks, we would have to underwrite that manager in four weeks and that can also be be challenging to do. so you know, there are various various reasons for it, but i think tight timelines and capacity is the other leg. i'd add to your to use commissioner driscoll's analogy about the woman who is driving so fast and the wall.

you guys have a good breaks on the car. yeah. yeah yeah. second second question. i've always when i first came on the board and our previous cio, so went into the co-investment space and the like and i was always sort of drawn back to the fact we wrote to small a check as the, as the world comes back to normal, hopefully what normal is , it'll be redefined, but it will be a little more robust and whatever are you do you think it's aspirational to say we should be playing with bigger dollars in these co-investment spaces on the lessons learned we've learned today? yeah, i'll take a shot and then i should definitely jump in. so i think there are a couple of things. i think the size of the check can can, can be driven by the, the

type of investment in the size of the manager and so some from some managers will hear that, hey, you know, this 15 to $25 million strike zone that you have, this is perfect for us because this is this is the size check we need. and then from other managers that might be sort of mega-cap, they might be looking for several hundred million dollars of co-investment , which is which, you know, would be difficult for us to do and feel like we were adequately diversified. so the middle sorry, where do you think the middle is? if you were going to define what you just said? yeah i have to. whatever. or 100. what? yeah yeah, i know. so i think i think the several hundreds for us, i think it's tricky. i think it comes back to , you know, if we, if we push into co-investment what percentage of the private equity portfolio do we want that to be? and then you sort of backtrack that into pacing and we backtrack that into the number of deals that we want to do each year and we backtrack that into our team capacity to be able to execute. so i think, you know,

the question around check size, i think it it would need to start first around, like how much of an allocation do we do? we want? how are we going to resource it? you know, and then back back into check size. so maybe not a satisfying answer. well, perhaps to just take a step back and think big picture here. we've got a great team who have all the capability to do the diligence that we need to make individual investments. what we are going to do over the course of the year is really sort of refine how we're going to approach co-invest setting. the objective relative to the team that we have and the skills that that we have. so it's not i'm not here to say we're doing a 180 or making a big change, but as you've seen, as we've done in other asset classes, we've been very thoughtful about what are our objectives, where, where is our time best spent, where's the return and risk for those types of investments and how do we want to approach it? so i say that because i don't want any of our team to be put

on the spot and putting a stake in the ground on a size of a co-invest. we want to think about our approach holistically and that will then drive how big of a check size we maybe to tie that into what we've done historically, i could say we've been opportunistic historically with with regards to how we've approached investments. and we're fortunate that seems to be working well so far and hopefully that continues. it would be great to be able to pivot where it's more of a strategic piece of the overall portfolio. but as alison mentioned, there's a few a couple of boxes that need to be checked, a staffing problem that probably needs to get. yeah buffed a little bit before it was on advocating, it was asking a question. that's okay. and if i could just add the specific bite size. so looking at a co-investment from our perspective, you'd probably look at it in the context of a fund size bite. so if you're typically investing or committing, say, 100 million to a fund that invests in ten

underlying companies, you know, bear in mind, a co-investment is one company. so you've got concentration on risk and you want to build a basket of that. so would you be comfortable with 10% of a bite size or 20? i think that there's some wiggle room in terms of flexibility and judgment there. but looking at the conviction in that specific co-invest, but managers, managers, managers, yeah. yeah. i want to understand something that you said. you said normally you're given four weeks. okay yes. obviously 18 suggests why don't we do more of it. but i understand if the average co-investment was $15 million, it takes just as much time, if not more so, to do a co-investment due diligence recommendation as it does to do a 50 to $100 million fund recommendation. and you can argue which is more valuable, etcetera. but there is a time issue when there's i count five and a half people right now on

the private equity. my point being was four weeks, not enough . yeah. so yeah, it depends. four weeks can can be can be tricky because four weeks, you know, it takes us time to do the initial due diligence. well i'll give you a sense of the process. right. so first, we typically need to sign ndas and non reliance letters just to get access to information for the co-investment. that process of lawyers going back and forth can take can eat a few days and then then we'll get access to the information. we'll do a desktop review, the manager might schedule. due diligence meetings , those due diligence meetings sometimes happen after when we need to submit board material to for a board meeting. and so, you know, in situations like that, we're in a we're in a difficult position because we'd have to

say is this worthwhile for us to call a special board meeting to try to try to execute on this co-investment and then with everything else we have going on is this the right use of resources? so these are these are some of the challenges we've we faced trying to do this opportunistically. i think if there was if we were doing it programmatically, we you know, it it could be different. there are other plans that do it more programmatically. but based on how we're set up to do it today. yeah. and having one team execute fund investments and co investments for weeks is typically not been enough for us. okay well then i'll make the comment that in one sense you asked the question is it worth it? because when you focus on an opportunity like that, it's going to be disruptive when all the other work you guys plan your work, what, 1 or 2 years in advance, right? non stop. so for all of a sudden an opportunity to come in, there's going to be an effect because there's a lot

of other deadlines. even for fund investing. i would say simply with the numbers on page 18 suggests it's worth doing if you want to be an opportunity to invest your you have to think and act that way. granted, bringing on the resources which means people and tools you edit a crm and maybe that was only on funds as opposed to the other tools that will help you even do that kind of due diligence on a deal. but it indicates to me it is worth doing. and i'll say it this way it is worth calling the special meeting. and then we decided, cancel. we don't want to do it. you have to think parallel all the time. much like the funds you've selected for us. i'm sure they have to play broker deal fields. excuse me? broken deal fees. not all the time, but they have to be there because they know it's wise to pay the broken deal fee as opposed to just not doing it. so it's the same kind of thinking we parallel those people. so i'm just supporting that's how we should do it going forward. as you develop your team and the tools to do more co investing with all the other fund

investing. thank you. great. okay just listening to the exchange, one of the things that came up a couple of times was capacity and i know that we've kind of been looking at the process and how much needs to be done before the board versus otherwise. but i'd like to hear from tony or allison more just with my personnel committee head on. if there is really a lot of room for additional staffing capacity on this team, if that would make a sizable impact on these sorts of investments. if we think that that's maybe a thing we should explore going forward. thank you for that question. so we do have a new addition, as you know, to the team. there's another position. well, let me take a step back. so two years ago, there were seven investment positions in total approved. and i came in and i looked at and assess the needs across all the asset classes based on where we need to invest the money based on liquidity, based on all these things where to start allocating

those resources. so we've been expanding the team and the newest additions in ps, one of those we are looking to make another addition. the process of hiring is long, long, but it is a priority and we will make that happen. we have in the budget two investment positions for this coming fiscal year and that's what's been approved. so we can take a look longer term. but for now i think it's been a tremendous add with the board support to have those seven positions and we will continue to evaluate that is why, though, how we design the co-invest program based on time experience . yes, trade offs is important. so we want to put parameter on that so we can be efficient and effective. thank you. okay so any further questions, comments . it's interesting that this started and like i said, it's interesting. you started in

1987. i was going to ask joe, was that before or after the crash? do you remember the inception of private equity? it was in 87. and i'll tell you, there were co investments in the first fund of funds called crossroads. oh, okay. see, i think you know that that's i was curious when i was preparing for the board meeting, i wanted a historical perspective. so i thought i would ask for context history. 19. yeah. all right. number in your head. thank you. okay thank you. time on team. that was. that was excellent. thank you. so great. and good example of bringing this report in because of the cancellation of the investment committee, we brought it on to the board. that's the flexibility that will get us to the next step in this committee process. and so thank you. um do you have a i believe

we need to open it up to public comment. yeah we will. we'll open up to comments to discussion item pulling in public comment. we. reminder to callers to press star three to be added to the queue. moderator do we have any callers on the line? madam secretary? we have no callers on the line. thank you. hearing no close public comment is now closed. three call the next item. item number 12 discussion item. real assets annual update. all righty. real assets before we go into the presentation, i wanted to highlight our team to my left, we have chris chow and chris rosenow, chris chow joined us almost eight years ago now as senior portfolio manager working on our real assets portfolio and was promoted to director. and in this capacity, chris oversees our real assets portfolio. he's

joined by chris tarzana. chris joined us four and a half years ago as investment analyst and he was promoted to associate portfolio manager. so very happy to have him. we're going to go through very similar agenda. our team will cover. we'll give you highlights of what happened in 2021. our performance tilts in the portfolio, our initiatives, and mark with cambridge will walk you through the markets and give you an overview of what happened in the real assets market in 2022. so unlike many other assets in the portfolio, real assets portfolio actually did well in 2022. our portfolio returned 10% in 2022, we have three major sub strategies in the portfolio and natural resources led the way with 21% return followed by

infrastructure. the newest addition to our portfolio and real estate, but also key sub strategies was in the portfolio, were positive, similar to private equity. we're over allocated to real assets versus our 10% target. it's partially driven by the fact that in 2022 the allocation to assets was decreased from 17% to 10. and at that time we told the board that it's going to be a long process. we don't want to make any big cuts in the portfolio and we're on a glide path to our 10% allocation and that it should take us maybe seven, maybe ten years. so that's in line with what we're expecting. plus you add the fantastic 2022 when the portfolio was up, when everything else was down, the team continued to commit capital. our pacing is was almost. $600 million and we committed to 12 new investments. the majority of those were real

estate investments followed by infrastructure and while the majority of capital went into the existing portfolio, we also supported three new manager relationships. and this portfolio was cash flow positive and delivering $170 million in net distribution to the portfolio. just to remind me, remind you the role of real assets is to provide diversification in total return in yield and also inflation protection. so our program is driven by the total return. we're targeting 10 to 12% over the long time cycle. and you know, the majority of that return will come through asset appreciation. there are three key strategies in the portfolio real estate, natural resources and infrastructure. you might recall that last year we updated

our benchmark and added infrastructure as a new strategy to the portfolio, and the team has been doing a lot of work on that. and similar to private equity, it's a global, very opportunistic program focused on private market funds and co-investment and again, we're emphasizing partnerships with high quality sponsors. the program started in 1978. at that time, we're we're largely for the majority of the program. it was a core real estate program. and then more recently, maybe within the last ten years, we started to diversify into other assets and it became not just a real estate program, but a real assets program. i already mentioned that our benchmark was revised in 2022 and we added the infra structure piece to the portfolio and that's just a graphical representation of the

evolution of our program. so you'll see that the majority for the majority of its history, it was a core real estate program targeted in returning roughly 8. but come to 1000. i think 1314. this is when we added additional strategies such as value add, opportunistic real estate, natural resources, and more recently, over the last couple of years, infra structure. as far as highlights for 2022, again, we made 12 new investment across 11 managers. the majority of capital went to the existing portfolio, three new relationships, and we made, you know, 60,000,000in core investments. the portfolio pipeline for the year end looks really, really busy. and again, with a majority of capital going to the re ops. and then as far

as new commitments that were made in 2022, the majority of them went into the real estate, followed by infrastructure, and then our approach to you know, managers were going after specialized managers, managers who have have expertise, who operate in special geographies or or, you know, can add value and you see it in our investments in dedicated strategies such as outdoor storage, self storage and data center assets, returns were a positive across all strategies, but again, very strongly driven by our exposure to natural resources that return over 20% to the portfolio. um, i think that's it. on this slide i already mentioned some of the metrics that were slightly over allocated and we were cash flow positive last year as of the end

of 2022, we have roughly $5 billion in nav, an additional $2 billion in unfunded commitments . with that, i'm going to turn over to chris to walk you through performance highlights of the portfolio. thank thank you, tanya. um, so yeah, starting off on, on page 12, this shows overall market returns for the year. you can see it was a mixed year for public real assets. in light blue is natural resources, which had a very strong year and opposite of that is in dark blue is real estate which struggled as interest rates increased over the over the year on the very right as infrastructure which you can't really see because it was flat for 2022. and on page 13 this dials in on the real estate return since that's the bulk of our exposure and it's showing 2022 reit performance in

blue and then 2023 performance in green, which is through june. so clearly 2022 is a difficult year for every asset class or every asset type. nothing was exempt really from the impacts of rising rates, but we've seen a bit of a rebound thus far in 2023. there's a lot more variation in that depending on the asset type, you can see, particularly for office, it's continued to struggle so far this year. while those have rebounded a little bit. and in the bottom row, you can see where source has dedicated exposure. that's through closed end funds, not through reits. but just to provide some insight , you can see where we have exposure and how some of those sectors have started to rebound. page 14 so this is showing performance of the real assets portfolio overall. you can see in the one year time period the portfolio underperformed the policy benchmark, but it's in line for the three year time period and shows considerable outperformance for the longer term time periods. so regarding

the one year time frame, it's likely a function of two things. first, currency effects were not favorable in 2022. so our investments were negatively negatively impacted by the currency movement. and another driver was a higher exposure to core real estate. and our benchmark than in our actual portfolio and core real estate performed very well in the first half of 2022, which pushed our benchmark higher. i will come back to that point in a little bit. so i'll touch on that a little bit later on page 15, you can see how the real assets portfolio has performed relative to overall plan returns. clearly a challenging year in 2022, but real assets helped offset that and in addition has also been a contributor over a longer time periods. and on page 16, we also looked at real assets portfolio performance relative to us, cpi over the same time periods, you can see that performance has outpaced inflation over every time period, even as it began

ramping up over the last year. so here we're breaking down performance by each of the major sub strategies. so the bottom half of the page shows natural resources on the left and infrastructure on the right. both of those sub strategies outperform the respective benchmarks over every time period and had a fairly strong performance in 2022. on the top right is real estate, which also shows outperformance over the long longer time periods but slight underperformance in the one and through your time periods. we do have greater exposure to europe and apac markets relative to the benchmark there. and so again, currency movement impact returns over the shorter term time periods. page 18 is illustrating the return attribution based on each of the major sub strategies. so the chart on the left shows quarterly breakdown in terms of gains and losses and

then the chart on the right just showing the total for 2022. so in the quarterly chart you can see the year started off fairly strong. however, real estate begins to pivot in the second quarter. by the third quarter, you know, we're seeing more losses than gains from the real estate portfolio offsetting that, though, is the natural resources portfolio, which produced a gain in every single quarter of 2022. so the result is that over 70% of the gains within real assets last year returned by the natural resources portfolio. even though it's only about a third of the portfolio. from a nab perspective. and here on page 19, this is going back to the point earlier that that i mentioned about the underperformance over the one year time period. so we just wanted to point out that that the lag is mostly driven by our high exposure to core real estate and our benchmark, but that benchmark was changed in the middle of last year and that took effect on july one, 2022. so prior to the change, the policy benchmark for real real estate was the odyssey index.

that is 100% core real estate. but the actual composition within our real estate portfolio was only about one third core, which you can see in the middle bar graph and the middle bar chart there. so when core real estate had a very strong start to 2022, the benchmark fully captured that performance. but our portfolio didn't give in. it's mostly non core real estate. then the benchmark shifted and that took effect on july first. so from that point on, the weights in our benchmark are floating so that the core non core weights will match our actual portfolio exposure. but of course after that point last year, market shifted in real real estate performance was negative in the second half of the year. so not much of an opportunity to for our portfolio to bounce back relative to the benchmark. but the point being essentially the underperformance in the one year time frame is driven by the core real estate exposure, said being substantially higher in our benchmark compared to our actual portfolio in the first half of 2022. on page 20 here, this is

an overview of our co-investment portfolio. you can see performance is flat at this point to highlight the major points here. so we had two new co investments that were made in 2022, both within real estate and a vast majority of that capital focus on maintaining exposure in the industrial space. there have been a few realizations at this point within our co-investment portfolio, but offsetting some of that, those positive investments was material negative impact from one specific sponsor in in the conventional energy sector. and at this point, though, the active portfolio is relatively young and all of the more recent investments have been in real estate or infrastructure or infrastructure communications and digital infrastructure. so we think we're better positioned going forward in terms of co-investment performance. and then finally, page 21, so this chart is just depicting quarterly gains and losses and

it goes through the first quarter of 2023. so you can see obviously 2021 was a very strong year, but that started to reverse in the second quarter of 2022. and while the net gain loss was positive throughout all last year, we have dipped into negative territory in the first quarter of 2023. so that concludes performance. i'll hand it off to chris to review the exposures and construction. thanks, chris. so now on this slide, i'll talk about our portfolio construction. this has a lot of text and we'll talk about some of these bullet points and succeeding slide. so i'll just hit a few points. one, real estate is our largest exposure and will still be our large exposure. real estate is fairly mature. it has a global opportunity set relative to, say, natural resources or infrastructure for our real estate portfolio. we do intend and continue to have a diversified portfolio as relates to property types, we do have a global portfolio, although i'll note that over the past couple of years and over the near term

it will be more domestic and focus on natural resources, which is our second largest exposure given the current nav and changing our asset allocation target back in 2020. and the change to our long term benchmarks, which reduces natural resources, we do expect this to decrease over time. and on infrastructure, it's our latest addition from a sub composite perspective. we're building from a low base, but we are growing that quite meaningfully on the next page is a illustration of our portfolio evolution by strategy. as you mentioned, historically, we were really a core us real estate program, but about a decade ago that shifted to become a global real assets portfolio. so as you see in the illustration, natural resources in blue has been increasing over time as it relates to infrastructure. we formally adopted it last year, hence the 10% allocation or the 10. that's right, allocation in blue. i'll just note that we have been investing in infrastructure for a period of time. and so in the details, it does break out the infrastructure which was historically classified as

either a real estate or natural resources. just given our long term benchmarks and where we are today, we do expect to continue to focus on real estate and infrastructure on the next page is an evolution of our portfolio by geography. we do maintain a global program and it has increased in a nationally over this time period. most of the exposure internationally is focused in our real estate program. as i mentioned, given our focus more domestically, we do expect this trend of us exposure to moderate this. we will now take a deeper dive into the three different set portfolios with this one being focused on real estate. this is a busy slide, so i'll walk through by quadrant. so starting at the top right, this is a depiction of our exposure by risk profile. we've talked about and noted that our exposure to core will decline or has been declining over time. hence and have we've increased our exposure or investments to non-core meaning value add and

our opportunistic fund strategies. we do expect core to continue to decline as we were active on the value add side of things. just directly below is a depiction of our property type exposure. we do maintain a diversified portfolio, as is evidenced by this illustration. we do intend to increase our exposure to the industrial and residential markets going forward and then just directly to the left is our exposure by geographies. we are overweight to us, both europe and asia pacific compared to, say, the cambridge associates benchmark. and we do expect this trend to moderate. this slide is talking about our real estate office exposure. purely real estate office is topical these days. there has been value destruction to varying degrees depending on building quality and location. there have also been structural headwinds for office pre-covid and additionally post-covid with the work from home phenomenon. i'll make a couple of notes in

our office exposure. one half of our exposure is outside the us through either our work from home trends most prominently, say in the uk and australia, but we think internationally is probably less severely impacted as, say, the us and the second over two thirds of our exposure is in core properties, meaning they are currently well leased and generating cash flow. so office as a whole does remain on watch. we're not necessarily looking to add office exposure or be contrarian, although i'm sure there will be opportunities that our funds will target for our portfolio. this slide breaks down our natural resources and infrastructure exposures just on the left for natural resources. we do have a overweight towards metals and mining and have had so for a period of time with the rest of the exposure being diversified generally across conventional energy, on the right is our infrastructure portfolio. unfortunately, there isn't a great breakdown of benchmark from cambridge associates by sectors or sub

strategies. i'll note that we are looking to diversify our infrastructure program, which is so relatively nascent right now . we do have a heavy allocation towards communications, digital infrastructure, hence the exposure you see for towers and fiber. and then we are looking to be active on the energy transition side and broader sustainability sectors. so you see at the bottom the 21. we do expect that to grow over time. moving to the next slide on annual deployment pace, one of our goals and beliefs is to have consistent vintage year deployment so as not to time the markets. with the exception of 2020, which was due to covid and the change in our asset allocation mix from 17 to 10, we've generally been in the 500 to $600 million range over the past couple of years. year to date, we've closed 125 million and we expect to end up end the year at around 500 to 600 as well. so the teams committing roughly 10 to 12 commitments per year. this next slide, i think

it's new than what we've relayed or had before, although we have relayed some of these same messages and themes previously. the team is always evaluating different strategies and markets from a top down perspective to balance our bottoms up and investment analysis. the trends don't train, trends don't change too much from year to year to much of our focus remains from the prior years. i'll note that there is a greater action ability in special situations or structured solutions since covid, a lot of it is dealing with the rapid rise in the interest rate environment. we will be focused mostly on real estate and infrastructure for our portfolio, given our current underweight. tanya did talk about our portfolio cash flow a bit as as our portfolio is maturing and with the reduced asset allocation targets, there is a greater chance for positive net cash flow for the past four years, starting in 2019, at 2020, we have seen positive net cash flow for the portfolio. i

will note that for 2023 year date, our current exposure is negative to the tune of around $100 million. the drop in real estate and just broader real assets transaction activity is having an impact. hence why we are negative cash flow for the moment. the next couple of slides we'll talk about our initiatives. first, with 2022 recap and then on 2023 for this slide, i won't go through all of the different initiatives in general. we have been looking to diversify our portfolio with new complementary exposures as well as maintain an integer commitment. so we'll continue to collaborate across asset class teams at spurs, which then leads me to my next slide on esg collaboration. esg is integral to our investment due diligence process, as well as monitoring. so for the 12 commitments we made in 2022, we did have an esg review and andrew and tim have been super helpful in that regard. on 2023 initiative on

the following slide, this first slide is focused on our portfolio construction portfolio construction goals, and the second will be focused on investment process and internal strategy and planning for some of our portfolio goals. the 2023 initiatives are large. we continuation of 2022 as a portfolio is maturing. given a team, a dedicated team of two, we do want to be intentional. so as far as who and what we commit to and part of that deals will relate to, we're expecting 100% of our 2023 calendar to be focused on existing managers. the next slide for is some internal processes. as the private equity team mentioned, we have been implementing a crm system to help manage our relationships and due diligence process. on the second one, currently where it's dedicated team of two with the current budget, we do expect to recruit and hire a third dedicated professional at the io level. so

we do expect a posting out later this fall through recurring internal discussion and collaboration, we're continuously learning from past mistakes taking postmortems and staying on top of manager and market trends. this now concludes the asset team's prepared remarks. with us is mark cardillo of cambridge associates, who will now talk, who will now talk about the market environment before broader q&a. thank you, chris, and good afternoon, commissioners. i'll provide a high level overview and outlook of the real asset asset classes , beginning with real estate. i think in an effort to keep my comments more efficient, i'm not necessarily planning to go slide by slide, but everything that i discussed will be in the slide deck. so beginning with real estate, commercial real estate has been a strong asset class really since the global financial crisis up until 2022. and this was largely, you know, that solid progress had largely

been negatively impacted by by rising interest rates, real estate delivered asset class, higher financing costs will will naturally lead to a decline in valuation patterns. but a key point i want to mention is that that and this may be obvious, but but we shouldn't think of real estate commercial real estate as one homogenous asset class. but it's more nuanced than that. and i think the context for that is that i think when you read a lot of headlines about commercial real estate and distressed real estate, those articles inevitably immediately talk about the office sector for good reasons. there's distress in the office sector and there'll be a lot more distress in the office sector. but those articles don't always mention other sectors that are that are from a fundamental perspective, doing a lot better. not to say that they won't have, you know, be impacted negatively on the valuation side, given the rise in interest rates. but again, i just think sometimes just looking at those headlines can be a little bit misleading. and so these are sectors like industrial and residential where where service has been growing exposure. industrial has

obviously been affected from the continued growth in e-commerce. more recently benefiting from ensuring and reshoring trends as more manufacturing grows moves back to the us. and so you see occupancy excuse me, vacancy rates that are still mid-single digits in the us and europe. similarly, the apartment sector itself storage, these are areas where in 2022 you are seeing increases in supply and that is having an impact on occupancy rates. to a lesser degree, you're seeing the impact more on on rental rates declining from pretty robust levels over the past 4 or 5 years. and you're starting to see concessions in certain markets where they're giving a free month or two of rent. but but to the extent there's a positive aspect of rising rates and the pullback in financing the new construction starts across most sectors has has really ground to a halt in

this environment. and so we think that that this period of oversupply will be temporary and there'll be a period of time where where owners will will experience an uptick in occupancy, lower rental rates than maybe they were projecting. but but given what we already see with construction starts, we think that'll be fairly short lived, particularly when you think about the apartment sector . there's still a shortage of housing in the us. the demographics still support new household formation and again, rising rates make homeownership more challenging for a lot of folks and may will push a lot of people towards towards apartment . and so again, longer term industrial residential, these are sectors that that we still think, you know make a lot of sense to be active with. and you know, there'll be some short term pain no doubt. but but but nothing like you're seeing in the office sector. similarly hotels, as anybody that's traveled, has probably been

horrified at how much they're paying for a hotel room, given the hotel that they may have stayed in five years ago. and so leisure oriented hotels are doing you know, when you look at what they're doing relative to pre-covid 2019, they're they're way ahead of, you know, where they where they had been. business oriented hotels struggling a little bit more, but starting to recover. and then similarly, even the retail sector where where the plan doesn't have that much exposure , you have seen certain sectors really thrive. the open air retail is doing really well. community, retail is, in a weird way, benefiting from the work, from home dynamics that are impacting the office sector as people are just in those communities. more and taking advantage of the retail and the restaurants. clearly the class b and the class c malls are dead and not coming back. and that's that's probably a good analogy for what's what's happening and what will happen in the office sector, which is also bifurcated . we have a an exhibit in the materials that show just the

vast the disproportion amount of leasing that's going towards the newest office buildings which have the, you know, the best amenities in the layouts. the tenants are looking for. and so those, you know, there'll be work from home is still, you know, impacting all office sectors although maybe that's starting to change. you're certainly seeing more and more tenants. i should say more, more companies. you know, more ceos encouraging or demanding their employees come back to the office a little more frequently as chris noted, work from home is more of a us phenomenon than you see in asia or europe. and so the office occupancies excuse me, office vacancy in europe and asia are mid-single digits in a lot of places. and so again, i think the portfolio, as chris noted, that office component of the portfolio is largely in the better quality assets. it's the bnc assets that will struggle and there'll be a portion of b

office assets that will get perhaps become converted to residential. but i think that's going to happen in a in a small amount of cases just because it is challenging to make those conversions work just given the layouts of the office sector and i think in a lot of cases the economics require a subsidy from the municipality to justify the transition to residential. so for a lot of back office assets, they will struggle and there will be certainly distress there . but so i would say in 2022, you probably seen values as measured by cap rates, which are the initial yields on these assets of backed up by, you know, 75 to 100 basis points, perhaps more for certain sectors like industrial where which had had really seen a compression incorporates and then that's impact on valuations was further exacerbated by the banking crisis earlier this year and the

pullback. and in debt availability from a lot of lenders. and so as a result, transaction volumes are down significantly in 2023. sellers don't want to sell unless they absolutely have to. and so one impact of that is there's been a we're not necessarily seeing that those those lower valuations. it's taking a while for those to be reflected in in private, private the private valuations in our in our benchmarks and in in the manager of portfolios. so we'll see the impact of those valuation declines. you know, continue to be impacted over the next few quarters. i'd say that conversely, it's a tough market for to be an asset owner that will create what we think will be a pretty good vintage year for real estate in 2024. and 2025. and again, i think while there will be certainly will be distress in certain sectors, areas like industrial and residential areas that the plan has been active and will likely

continue to be active. you'll certainly see some distress there. but we're not expecting widespread distress. i would describe it as maybe, you know, more likely opportunities to get exposure to asset classes, properties at a at a more attractive valuation, a better yields and an underwriting that doesn't require especially heroic assumptions to get to the target returns perhaps you know transitioning to the infrastructure sector where i'd say the story is a little bit more positive as chris mentioned, renewable energy, digital infrastructure. so think of things like cell towers and data centers still have huge tailwinds, huge capital requirements over the next few decades. and as a result, valuations in the infrastructure sector have remained pretty strong. renewable energy assets in particular have benefited in a lot of cases from specific contractual linkages to

inflation that that that flow right to the revenues. there's a green premium now for, for renewable assets. so you know, think of a generating asset that has a given amount of megawatts . a buyer would pay more for a renewed generating asset than they would for the same megawatts that's powered by natural gas and then lastly, the inflation reduction act in the us will be a pretty meaningful opportunity and have a meaningful impact on the infrastructure sector as as more renewable projects will be funded, that'll create opportunities for developers but also service providers and suppliers to the renewable sector. similarly, within the digital infrastructure space, huge tailwinds driven by the growth in technology in all aspects of our lives and most recently ai is, is having a material impact or we'll have a material impact on the on the need for data centers. that's which was a sector that you were starting to see some concerns around new supply. but but those

dynamics have completely changed not a sector we're expecting to see much distress, if anything, maybe we're concerned about valuations in some of these sectors that are that are that are receiving a lot of capital. and i'd say those concerns are largely on the core lower risk return. and so think of a fully built out wind farm or solar farm where those properties are probably trading at levels that imply a mid-single digits rate of return for the buyer. we think the better opportunity is more on the value added segment of the market, which requires development, which which, you know, has its own risks. obviously but can be mitigated through, through picking, picking the right gp's. and then we also like energy transition plays. you may recall we, we made a commitment to a few months ago, but you know, a way to benefit from these trends and the development that's taking place. but but, but you know, sort of supplying the picks and shovels, so to speak, to use that analogy. and benefiting

from those megatrends without and hopefully a better a better return. and as we look forward to the next even six months in terms of what's on the commitment calendar, we're we've got new commitments lined up for most likely funds focused on, again, data center cell towers abroad, renewable energy place. so continuing to grow that part of the portfolio. just quickly on natural resources, since that's a declining part of the portfolio, but it's still meaningful today. and the reason it's declining is because it's largely fossil fuel related energy investments. as much as we'd like to find timber and agriculture investments, it's hard to find those opportunities that meet the plans, return profile. and so the good news here is given that it's still a meaningful segment of the rail assets portfolio, is that fundamentals are decent. oil prices have largely traded between 60 and $80 a barrel over the past year, and that's a level that allows producers to make a good return. it leads to

activity in the field that benefits the service providers. and those prices will fluctuate based on expectations around recession, economic growth. and so we've been pushing more towards the $80 level. is the timing of a recession or the severity of it gets pushed out. similarly, the industrial metals will be impacted by those economic expectations, but you know, the so-called green metals, the lithium and cobalt and metals that are used for batteries and electric vehicles is a huge demand to continue to find those those metals, pull them out of the ground, find them in jurisdictions that are that are easier to work with. and so we would still expect to see some growth there. um, so not to be redundant, but this energy transition that we're going through, it is a transition meaning you will still need oil and gas for a long period of time and so in

that context it's the portfolio should benefit from having that exposure here. and but nevertheless, that portfolio of traditional energy investments that will wind down and the exposure to the renewable energy sector will grow in line with the hopefully quicker than the broader economy. so that transition will continue to occur and we certainly look forward to providing future updates on the pace of that transition and how that how that how that progresses in the portfolio. but with that, let me hand it off back to tanya. that concludes our prepared remarks and we'll open up for questions as well as. two questions. chris, is energy 2.0 is that renewables. you know, generally still renewable energy is what i'm focusing on. still generally relating to conventional energy,

but just a different model where you have the us conventional shale boom, where fund managers , companies were focused on acquiring acreage and doing development drilling. now groups are focused more on cash flow and producing assets. given us energy markets are maturing, it's still a conventional energy, oil and gas. okay, i know you've got us into some renewable energy funds. i'm just wondering how focused you are on that at all? we are and we have been active in that space for a number of years. we have also been making a number of commitments, have a handful or least a couple of core managers in that space. so we have been emphasizing and growing that portion of the portfolio. great the word fusion is coming back up on the radio all the time. second question in terms of this 5 billion plus portfolio for real, how much of it would you estimate percentage wise is in rates currently? we don't have any dedicated exposure towards reits and our managers don't generally invest in reits. so it's negligible. don't generally

is it worth considering maybe you're trying to specialize, but in terms of there's a liquidity issue, i know in the absolute return we change things a little bit to have more liquidity, which means less longer term stuff. i'm just wondering, in real estate there is that element of liquidity with reits, assuming you found a good manager and that. yeah, definitely. we did have a read allocation for a period of time. i think it was discontinued back in 2017. it's on our radar screen, it's on our weekly discussions and we do have plans to review that closer or in greater detail this calendar year given kind of the valuation kind of mismatch between public and private. so it's on our radar to deal with. nothing's imminent, but we do consider public securities reits. okay thank you. just. thank you. just a couple of questions. so one of the things is i was listening to the presentation that i just needed to keep wrapping my head around was reconciling some of the trends that you're

explaining to us with some of the anecdotal stuff that we see here locally, because it was hard to reconcile. so i'm hoping that you can help us a little here about the westfield mall situation. the large haze and van ness construct, apartment construction projects stopping, and then of course, the struggles with downtown office space. but there are some examples that i heard you as you were as you all were presenting around areas where apartments and single family rentals being an optimal source for optimism and some forms of office space possible being an area for optimism. and then even in some forms of malls. and so i was wondering if you can kind of unpack so that, you know, as we try to message what locally is a very different narrative from your analysis of the portfolio, that'd be helpful to us. sure yeah. i think it does depend on markets. clearly, san francisco bay area is one of the most

negatively impacted as far as some of these trends and perhaps more so say in san francisco proper or oakland. as it relates to the apartments or office space or some of the retail space. just given the dynamics, whereas perhaps some suburban suburban markets like san jose or parts of the east bay might be doing quite well. i think there are some pockets of growth and say we've seen activity with the i kind of or resurgence or trends there. we do hear of groups taking up office space in san francisco and the broader bay area as the capital of i for now. but the trends are definitely unfortunately negative within san francisco proper and parts of the bay area, but parts of the sunbelt, texas, other areas nationally, there are different trends than say, here and san francisco in particular has been hit really hard with the remote work phenomena and that we're probably one of the largest big

cities where lagging behind everybody else. and that's one of the key reasons why. and that impacts what is trickles down to everything like retail, hotels, everything else. unfortunately that and that kind of tied in. one of my other questions about the difference between domestic versus abroad and the work from home, it seems like the part of the presentation was that san francisco may be an outlier within the us, but the us is also an outlier around the globe in terms of work from home phenomenon. that's right. i mentioned there are some of those work from home trends that probably more accelerated and say the uk or australia, but say in asia, japan, other parts of asia from a cultural perspective or just not having enough space at your own home residence. people are generally showing up to the office from logistics perspective. i think there's groups that track that information. i think generally some of the bigger cities north in the northeast are maybe office properties, for example,

are at 50% of capacity. compare that to the texas markets that are 70 or 80, maybe higher. and largely never really left the office except for a few months in the early days of covid. and again, san francisco and other some other west coast markets are probably even lower than 50. so unfortunately, this is just a tougher market for a lot of these sectors. thank you. additionally you mentioned perhaps a need for some municipal subsidies and some areas for conversion of property. can you unpack that a little for us? yeah, i think i just think maybe as office values continue to decline, perhaps office properties, the values will get to a level where it makes economic sense for a for a developer to buy that and to either demolish it or convert it. i think the problem is, again, a lot of the layouts don't lend themselves to converting it to two residential. so they probably need to be demolished and rebuilt. so with those costs and

i think just with the with the added level of risk of taking on a project like that, i think for a lot of developers they can be doing other things that are that are easier and you know, not getting to that level of return, but get an acceptable return. and so, you know, there's been articles about, you know, in chicago, for example, where where i think developers have or the mayor has has talked about ideas of perhaps trying to you know, engage in activity to spur development. but i think yeah, whether it's sort of tax abatements, which sometimes you see related to affordable housing, perhaps perhaps those kind of public to private partnerships are what's needed to spur some of the development because it makes sense. i mean, there's too much office, there's not enough residential, there's certainly not enough affordable residential. so ideally that those groups can come together. but it's obviously complicated. and that's really in these markets as you're talking about

that that were sluggish in the return office. they wouldn't be doing this and like texas or something. no but yeah some you know the new york chicago certainly some of the cities that have had declining population, it would make a lot of sense to consider. and my last question is on some of the other when i was looking at the portfolio self storage and cell towers was the other one. but the specifically self storage storage we're seeing i'm seeing it elsewhere where i'm reading articles and they're talking about this. can you explain a little bit of where this trend is going? is this a short term thing? is there some long term projection? why is self storage such a booming area? yeah i think it's done well from an asset class perspective as it's driven by kind of life events, whether it's divorce, people moving, just general changes that aren't necessarily tied to the economy. so it's generally been a stable, defensible asset class for a number of investors is also quite fragmented or still own a lot by kind of mom and pop investors. although there are the large publicly traded reits. but there is still an opportunity to acquire these relatively small properties or develop properties in the right

locations. so the main attraction is not necessarily tied to gdp and press cyclicals and say office retail. so i imagine people have been getting divorced and moving for many, many years. but is the idea that it's mom and pops and it has really been consolidated as kind of the opportunity or the there's a number of trends and also because it's based on life events and relatively small percentage of someone's expense, oftentimes are not inclines or motivated to move their furniture or property out of these facilities. so owners historically have been able to push rent increases to the consumers without much impact of people leaving. okay. sector did boom. and during covid, as as people started to work from home and so needed to create that home office. so there was a probably a pull forward of demand that that now you're seeing the post-covid dynamics. it's flattening out a little bit. but but yeah, to chris's

point, there's it's very defensive in terms of you know, in difficult economies maybe people downsize or need to move. and so it's been a pretty stable, stable asset class that people don't always think about . thank you. so. i. assume an actual definition of the cities and worldwide and. redefinition of the city and work life and in tangency to having to stuff

things in storage facility not to mention building out new properties that are in new areas that have a different metric in what work and people are. so this is it's an interesting area . thank you. thank you very much for the presentation and for the questions. yeah thank you guys. probably comment. do we have any public comments? seeing none. a reminder to any callers to press star three to be out to the queue. moderator do we have any callers? madam secretary? we have no callers on the line. thank you. hearing no false public comment is now closed. okay let's call the last call is the last item, not the last item. the next item number 13

discussion item. chief investment officer's report. thank you. just wanted to start off by saying thank you to the board members. it's been a lot of topics to get through this afternoon and detailed topics and i really appreciate your engagement and the good questions that that you asked. what i had asked the team as they did these asset class reviews that we not only reported on performance and the numbers, but really highlighted the judgment of the team and their ability to think about where we want to go moving forward. so hopefully that came through in the presentation today. with respect to the cio report here, i'll make a few points on performance. and then as always, provide an update on the board approved investments. so on the performance side, i want to reiterate, we put the performance numbers in here. we meet monthly. so we provide them to you monthly. but you know

that we have a lot of private market exposure. so provide performance numbers on a monthly basis has to come with a big asterisk that these are estimated numbers with lags built in our aum today stands at 34.5 billion. looking a little longer term three year performance again, estimate is at 10.3. notably exceeding the long term actuarial rate of return assumption of the 7.2. and think about that for the last three years, 10.3% return given all the turmoil in the market, we've had covid, we've had rate resetting inflation, bank struggles, but we continue to be in a strong position given the diversified creation and allocation of our portfolio. one point related to our asset allocation that i do want to continue to highlight for the board as i had done in the prior month, is that we are outside of our asset allocation guideline for treasuries, specifically

treasury allocation is at 2.1% versus the guidelines which have a range of 3 to 12. however we do have cash today. our cash stands at 2.2% and the range there is 0 to 5. so as i discussed last time, we are thinking about sort of treasuries in combination with cash as our source of liquidity . and even today, you can you can earn some return on that that cash. so we're in an okay liquidity position. but again, just wanted to be consistent in reporting that clearly to the board. and finally, with respect to this report, each month, my approach here is to give the highlights. we have more detailed performance reports on a quarterly basis, and i'm going to let those conversations drive the performance discussion. but if at any point board members want to talk more about what are

in these slides in the performance, i'm certainly happy to do that unless there are any questions there. i'll go ahead and turn it over to the approved assessments and i'll read through the script. yeah. at the board meeting on april 20th, 2023, the retirement board approved in closed session an investment of up to k750 million to mc p private capital fund. five r investment to that fund. close on july 27th, 2023. this investment is classified as a capital appreciation investment within the private credit portfolio and this is the third investment with metric net. next blackstone energy transition partners for at our meeting, the board meeting on june 15th, 2023, the board approved in closed session an investment of up to 70 million in blackstone energy transition partners for

the commitment of 70 million to the fund closed on july 31st, 2023. it's classified as an infrastructure investment within the real assets portfolio and it's the 12th investment with the group finally, altus health partners. six at the july 20th board meeting, the retirement board approved in closed session a commitment of up to 75 million and altus health partners for and priority co-invest vehicles . our commitment of 75 million to all terrorist health partners closed on july 28th, 2023, and this is classified as a buyout investment within our private equity portfolio. and our third commitment to altus concludes my remarks for the cio report, but certainly having to go in any more detail or answer any questions, any questions. okay i just want to spend more money of

your operating funds and encourage my from my opinion as the world changes, lots of theories and better ideas and whatever are going to come out of a lot of smart people. and i know joe is an avid and joe and leona are avid attendees of conferences and the like, and this is something that the retirement system does support. and i would only encourage board members to pay attention to the plan funds that were given and expand their mind. it benefits the plan. i think so, said any further business, anything for the good of the order. so go ahead. public comment. yeah. before when you public comment,

aj did you have something? yeah, we're on the order. well, no. yeah, we're on the public. no, we're on public service. any questions on the cio report? all right. yeah. no i didn't come for public comment. sure. pauline, public comment in the public comment, seeing none. moderator do we have any callers on the line? madam secretary? we have no callers on the line. thank you. hearing no calls, public comment going to call the final item. item number 14, discussion item retirement board member good of the order. so no. oh so to my fellow members, i just wanted to express some appreciation to the members of unite here that came up from los angeles at great expense to

speak to us, but also the letter that we've all received, or at least most of us received, detailing some of their concerns . i definitely found the allegations to be concerning, but i know that our staff does a great deal of due diligence when looking at any investments. my primary concern when i heard these though, is just the lack of labor, peace and the threat it can pose to possible returns on our existing investment. so i'm definitely when i hear about potential liability or potential labor issues that might have impact on returns on existing investments, i do have some concerns that i'd like to get more information on some. any other comments? no i would just like to echo the same concerns after reading the letter that was sent to all of us, as well as listening to the comments. and i would like some further due diligence into what's going on and the impact it may have on

our our performance as well as just the optics. wrong. i don't any further comments, items, nothing. all right. we're adjourned. public comment. public comment. excuse me. we have no in-house public comment . moderator do we have any callers on the line? madam secretary, we have no callers on the line. thank you. hearing no calls, public comment is now closed. or adjourned.

>> conduct a field shelter exercise where we open up a number of tents that animal control has they have supplies and equipment and staff and

volunteers. we simulate the need for cape ability after a disaster or earthquake. >> animal care and control is your city's animal shelter. we care for approximately 10,000 animals a year. we are opinion for san francisco's animal in thes upon effect of an emergency. we got our tents and practicing how to deal with that. >> this is the shelter is overwhelmed with animals after a disaster this shelter is full regularly. if we torch have an event that would cause a number of animals to escape or injured or stray or separate friday their people that's where we would respond. >> pets are part of the family and need to make sure they are taken care of like people with the supplies and equip we are able to provide shelter for pets

in addition to the existing shelter. >> we have formulated a plan so this in the event of a disaster we are hear ready to help and support the city. >> we are able to use the muni bus to transport the people. animals and other equip if the shelter. >> encourage people there is an evacuation order to take your pet with you. >> very first thing everyone should do is microchip the pet. and pack a bag >> shelter cert not a place where you want your animal to end up unless the last resort and like to keep most out of the shelter when we can. >> take care of your people and your friend and family. pets need to be taken

>> good morning the meeting will come to order welcome to the september 6 of budget and finance this is our first budget and finance committee meeting since recess and i'm supervisor connie chan chair and joined by rafael mandelman and supervisor safai. clerk is brent jalipa. thank you. good to see you. i would like to thank sfgovtv suzannea for broadcast the meeting. >> thank you, for those here to make sure to sill reasons electronic devices to