>> this meeting is now recorded. vice president thomas, you may begin the retirement meeting at this time. >> thank you, madam secretary. please call the roll. >> commissioner o'connor.

>> i believe he's present, he just went to the bathroom. >> thank you. >> commissioner gandhi. >> present. >> vice president thomas. >> present. >> commissioner engardio. >> present. >> and commissioner driscoll. >> present >> thank you, we have a quorum. >> next item. >> item 2, communication. we welcome the public comments after period. there will be an opportunity to comment on each discussion or action item on the agenda. each comment is limited to two minutes. public comment will be taken both in-person and remotely by call-in. for each item, the board will take public comment first by people attending the meeting in-person and remotely. comments or opportunities to speak during public comment period are available by phone by call 415-655-0001 access code 2662, 631, 2479 then pound

and pound again wh. connected you will hear the meeting discussions but you'll be muted and in listening mode only. when your item of interest comes up, please star 3 to be on liven. speak clearly and slowly and turn off your computer. prohibits discriminatory or harassing conduct against city employees and others during public comments and will not be tolerated. more over, public comment is only permitted in the public matters within the jurisdiction of this public body. and we thank you for joining us. >> thank you, madam secretary, please call the next item. >> item number 3, general public comment. a reminder that public comment is limited to 2 minutes. do we have any in-person public comment?

seeing none, a reminder to any callers to press star-3 to be added to the speaker line. is there any speakers online? >> no callers online. >> next item. >> item number 4, action item. >> move to approve the minutes from august 14, 2024. >> is there a motion, is there a second. >> i seconded it. >> there is a motion and second. madam secretary please call for public comment on this item. >> thank you, do we have any in-person public comment in this item? seeing none. moderator are there any callers on the line? >> madam secretary, there are no callers on the line. >> thank you, hearing no callers, public comment is now closed. >> thank you, madam secretary. a motion has been made and

seconded by commissioner gandhi to adopt the minutes. is there any discussion from the commissioners at this time? seeing none, those in favor say aye. >> aye. >> those opposed say nay? >> motion passes. madam secretary, next item please. >> thank you, item number 5, action item consent calendar. >> thank you madam secretary. >> i move to approve the consent calendar. >> second. >> please call public comment. >> thank you, are there in person public comment on this item? seeing none, moderator do we have any callers on the line? >> madam secretary, we have one caller on the line. >> thank you, caller please state your name, your two minutes begins when you speak. >> my name is eric learner and i'm with aids alliance

empowerment. it's made up 18,000 low age fighting for housing justice. i'm calling in today because the san francisco retirement system is an investing in the priority blackstone which is the largest landlord. >> point of order, is this comment on topic? are we allowed to take public comment that is off the calendar items at this time? >> no, this is not general public comment. sol it should be related to consent calendar. >> please keep your comments on the comment period. >> is there a place for general comment for this meeting? >> we have already completed general public comment at this time. >> speaker: would i like to continue meeting, i have 30 seconds more, would that be

acceptable. >> go ahead. >> speaker: thank you. so, blackstone is making--blackstone originally port has documented how blackstone is getting millions to keep initiative here in california and protecting residential benefits, blackstone made the contribution frz real estate funds at the san francisco retirement system and other pension funds have invested in. blackstone has been using retirement funds from work political contributions and invest on policies that would benefit over people. they have lobby against to rent increases in california. we are asking that the san francisco employment retirement system before they make another investment in blackstone ask them why they have used investments from retirement

funds and let them know that is not acceptable. thank you. >> thank you for your comments. moderator are there any further comments on the line? >> madam secretary, there are no other callers on the line. >> thank you, hearing no other callers, public comment is now closed. >> thank you, motion has been made by commissioner o'connor and seconded by commissioner driscoll, any comments? seeing none, all in favor say aye. >> aye. >> any opposed say nay. >> motion passes. >> item number 6, discussion item. >> we have a dates for the committee meetings for this coming up as well as topics. i'll make a couple of points.

genre minders, the approach that we've taken based on feedback from prior years. we're scheduling meetings on wednesday and we did our best to accommodate various preference buzz when in the month folks wanted and used us to do it before a regular board meeting. so with that in mind, both the ic, investment committee meetings and personnel committee meetings and morning of board given the ic committee is the board, and you all are generally be here, we thought that was an efficient use of time. also as a reminder, we will confirm attendance two weeks in advance, and if somebody tentative, we'll have to take na as a no. and we'll have to adjust quorum. as pekt with the topics, i work

with each of the committee chairs. please know that i reviewed each of the terms of references of the committees to make sure that what we put forward this year, not only was in line but made sure that you would meet the obligations of the terms of. and of course, as the year progresses, should things change, there is the flexibility to do it. the intent is to give the entire board a window as to what will be covered in the committees for the year. with that, i'll turn it over to vice president thomas, or others who want to comment on the, any of the committee chairs who want to comment on the reports. >> commissioners? any comments only this item? please unmute. commission per driscoll.

>> this comes up every time, each topic, you can argue which committee should talk about it especially when it relates to the full board. since i chair one of the committee, the many aspects of it, the committee can talk about it but unless the full board participates, so biases, things that affect decision making, trying to figure out how to talk about it at the committee to bring it to the full board. i'm just saying how important the committee meetings is to discuss things to then qualify for the larger meetings which is the investment meeting or the full board, trying to respect people's time. thank you. any other comments? i would like to thank staff for scheduling the sheer full meetings and making sure we have quorum at all of them.

so thank you to staff for all the efforts put into scheduling these and getting them under way. this is a discussion item only, please call public comment. >> thank you, do we have any public comment on this item? seeing none, moderator are there any callers on the line? >> madam secretary, there are no callers on the line. >> thank you, seeing none, item is closed. >> item number 7. discussion item. >> commissioner, there are no major new updates consistent with what we shared with the past fmgt i do want to highlight general administrative points if you will.

first i'm pleased to report that we oefted our annual service award for our team. it struck me that we have so many dedicated team members that spent majority if not all of their career here at sfers. i'm working with the team to make this an en timer where people want to continue to spend their careers here. so thanks to the team. secondly as you all know, we have a board retreat that is coming up in a couple of weeks. we put a lot of effort in planing the event. as a reminder, the agenda was set by essentially by all of you in the board education plan

that awe proved. the plan suggested that we have one fiduciary topic so to provide more context on the investment side, we'll be talking about artificial intelligence, the development in that space what that means for opportunities in the markets et cetera, on decision, sorry, on if fiduciary training, we will address, if fiduciary responsibilities as it relates to funding methods and policy setting, that is not something that we've covered recently in any of the board meetings. and then third, we will talk about governorance and decision quality and have an outside speaker educate the board on what decision quality means and how that relates to potentially this organization. so i look forward to that. we will start officially at 1:00 with the meeting and have

lunch available earlier than that so folks can have the opportunity to eat before the meeting and engage. those are the two points i wanted to make. i'll take any questions. >> members any questions? >> i have a question on the service issue. when staff completes providing service, which i know it could be multiple meetings, particularly on the retirement aspect. is there ever any service of a follow-up, i get them all the time. do you ask people what is your experience positive or negative? you know the basic questions, i talk about? do you ever do that? >> yes, we used to do it all the time. i cannot say right now, whether we are still doing it. i do know that that was confusion or after a counseling session, we sent a survey.

but i can follow-up. >> that's good, at least you're trying to get feedback, that's the key. thank you. >> and i know you're aware, there is a lot of work done on the dc side following up in monitoring statistics in terms of responsiveness and that. >> thank you. >> thank you, commissioner driscoll. commissioners any further comment or questions? seeing none, madam secretary, please call public comment. >> thank you, do we have any in-person public comment on this item? seeing none. a reminder in the callers to please press star-3 to be added to speaker line. 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. >> thank you, madam secretary. and thank you for your ceo report. given that we seem to be pretty

good on time, i think we can call item 8 at this time. >> thank you, item number 8 is discussion item, retirement fund for the quarter ended june 30, 2024. thank you, ma dm secretary. and i'll hand it over. >> thank you, good to see you commissioners. >> good morning. >> so i can't believe it's been a year since our first presentation, but here we are, really looking forward to it. i'm going to have my colleague kick things off and review and then i will dive into some of the details. : >> thank you very much, ali. if we can start on the high level tiles as we call them. the portfolio ended fiscal year 24, just under 35 and a half billion dollars. focusing on the longer term

results of the for the fellow i don't over the last two years, generated in 8 percent return which is really right in line with the long term policy index. over the last fiscal year, the portfolio was about 8 percent. and that out paced the discount rate that you see listed there at 7.2. so remained very well funded at just over 95 percent. from a comparison stand point, at the bottom left, you do see that over longer term, the portfolio does ranch very well. i do think it's important to point out that some of the drivers comparison over the long term which has been very positive, does have the potential to provide for more difficult comparisons. particularly the allocation of

private markets which we do highlight here just a little over half of the portfolio is allocated to private markets. those do tend to be valued more slowly than public markets. so as we look at what is happened over the last call it about a year and a half or so in public equity markets in particular, those have performed very very strong leon the private side. those have not kept pace with that. so having a higher allocation to private markets, is likely to be a head wind with those comparison. we do respect and this is reflected in our active work, wanted to make the commissioners aware of what you might see in shorter time periods. the bottom, right hand three tiles do show that in the broad strategic buckets, the portfolio is within its

allowable range. you can see, just over 58 percent in growth and capital assets just over 3 percent in diversifying assets, think about absolute return in real a ssets and 18 percent to income liquidity and capital preservation assets. on page 3, just a couple of comments around those absolute and relative performance, for the quarter, the portfolio was up point 7 percent about under perform the policy by 1.6 percent and a lot of that is due to that valuation lag that we've seen with public markets outpacing private assets from valuation perspective. and i want to be clear that that's not because there are huge problems or issues in the private market of the portfolio, it really does come

down in many cases to the timing of valuations. and we want to go cognizant of that as we talk about the portfolio moving forward. on the, public equity lead the portfolio for the quarter, you can see the portfolio was just under 1 percent and for the full fiscal year, was up 18.6 percent. so very very strong performance from public equities. private he quited did not keep up, a policy index which was up north of 20 percent. and that deviation that you can see in private assets. however again, i want to stress over the longer term, private equity has been a strong

contributer to performance. on the lower left hand side, also delivered a positive absolute return, one of the stronger performer over the one-year period with performance north of ten return. real assets do remain a challenging part of the portfolio. i think the commissioners are well aware of issues in private real estate in particular. and so that was a portfolio that did struggle and over fiscal year down 3.4 percent and final leon the income and cap dol preservation side, private credit remains a strong driver of absolute returns and did out perform its policy benchmark there in the second quarter.

and similarly, liquid credit followed with another positive absolute relative contribution in qeii. if we flip to page 2 to the broader economy, a couple of key statistic which i think are important. i'll start in the upper row the second from the left in the non farm pay rolls. you can see that those did decrease relative to the prior quarter by 131,000, that's why you have the downward facing arrow. other big news, recently the revision to the longer term, record of pay roll reports was very high. and i think what that highlights is the challenge

that we've seen in economic statistics from the pandemic. the models which are used to reflect the update. are likely to get revised because of the volatility that we saw during the pandemic and then coming out of the pandemic recovery. we've also seen an up tick in the unemployment rate. the number here is 4 percent. but as we've received more updated information, that sits at 4.2 percent. and absolute basis, 4.2 is very low. it has trended upward by about half a percent. so we want to be cognizant of the broader economic trajectory. on the bottom left hand side, i'll focus first on the annual

inflation rate you can see it there at 3 percent. we received more updated data that continues to trend downward currently sits at 2 and a half percent. so the federal reserve has made a lot of progress in terms of bringing the inflation rate downward, clearly that's a very positive direction from the economy stand point. and that's lead to what is, the topic of conversation in capital markets and that's what the federal reserve is likely to do as we move forward. you can see the interest rate at 5.33 percent. the expectation is that we're likely to see a cut in the september meeting. the expectation is vas lated between a cut of 25 basis points, potentially 20 basis points, on balance the expectation sitting at that 25 basis point level. as we look through the end of

the year, again being depend pent but a possibility of seeing more aggressive cuts in november, depending on what happens with the labor market so. what the federal reserve is trying to do is balance, bringing down inflation while maintaining a very healthy labor market given the progress that they've made on inflation. it's fair it say that they're focusing on the softness that we're seeing in the labor market relative to tighter points earlier this year and then finally, i think it's fair to point out that priced earnings of the s&p 500 through june 30, that tons move higher. equity markets have rallied even as we've seen some softness and challenging in terms of consumer spending and

so we want to be, very judicious about risk positioning in portfolio as we move forward. i'll stop there, before and turn it back to ali on detail on the portfolio but happy to answer any questions from the commissioners. >> commissioners any initial questions? >> i'll wait. >> great, thank you. >> one quick question, i noticed a couple of times we talked about the lag with private equity, is it also safe to assume the reverse where we saw a downward trend? that there is a lag in that direction as well? they tend to look better longer? >> absolutely. we would expect very similar dynamic to the downside. >> and you experienced that in 2022, when we had the sell off across all the markets? because of the nature of valuations. >> thank you.

>> so starting on slide 7, just a review of your asset compliance. tom alluded at the high-level that you are, this gives a more grand lar view and the one change from last quarter, is now you're in compliance with all in terms of tolerance within the changes. the one change is within treasurers where you were outside of the range, that has since changed and, i'll talk a little bit as far as why. you can see public equity, under way by a significant amount. that is, really to offset the weight to private equity so we get that growth exposure in line with the overall target. so similar to the story to what receive even on the past. on slide 8, a little bit more detail in terms of the drivers compliance and the main point, i wanted to highlight here is

currently, you can see equities at 30.3 percent. there were at 32 percent last quarter so there has been a rotation out of the equity into some of the defensive assets. so the income capital is currently at 18 percent, that's up from 16.4 percent. so what is driving that really? a lot to do with implementation of the new, the board's newest allocation which is leaning into more of the liquid portion of the portfolio in particular, credit, treasuries and cash. so far that's been a portuitus trade, so far, hopefully that continues. on page 13, high level oaks of your overall performance. this is also going to highlight one of the new additions to the

portfolio in the last quarterly meeting, we referenced with the interim policy and the new strategic asset allocation that we were going to report to the board across all three commissions in terms of your total basis and what the benchmark looks like but also strategic performance is doing across all of these. so you're going to see that in multiple times, pure analysis but also from a tribution. total fund up 40 basis in the quarter. over the last year, the portfolio did out pace the 7.2 percent target, yielding a return of 8 percent over that time frame. the three year number, which includes the sell off, when you

compare that to the 5 and one-year number, you see a bit of volatility and that's indicative of the market that we've seen over the last come of years with the feds keeping inflation in check and then the rebound that we saw driven by a i and that narrow rally, it's been a volatile several years and indicated here. on page 14, we show performance of the portfolio relative to a reference index. so this reference index that's been part of your material predating wilshire consultant. and i think one thing to think about this this is a simplistic implementation of a portfolio with representative exposures to not only growth and interest rates which is what you typically get, but with that allocation to real estate, it now has a degree of inflation

sensitivity within that simplistic view. and when you look at the benchmark relative to that simplistic, you see performance. and that should be a not occasion of all the work that goes into building a sophisticated strategic asset allocation, does add value over the short and long term so this is a confirmation of that. moving to slide 15, this is the rolling per tile ranking. so this shows you over a five-year rolling period of what your ranking is. and you can see you've been very highly ranked, you're still in the 11th percentile, so it's outpacing. the reason is why the reason tom alluded to private markets, with a fund that has a higher

allocation relative to some of your peers. one other thing to note and i referenced this in several meetings ago, there was a question about the pierce universe being used. we use a greater than one billion in terms of total fund assets. and there was a question about the usefulness of that pier use. so we did research earlier this year. that really broke up, into quenttile and look at the exposure across of the pierce universe. and what we found is no real material differentiation in terms of private markets. so our review confirm for us that there is no downside in terms of using the larger sample size for pier analysis and when we look at the larger mega cat names in the pier universe, some of those had

smaller allocations to private markets and that speaks to you're looking to 4 to 8 funds of that size and in your view, the lower sample size is probably less helpful in terms of peoria nal sis. but happy to address any questions related to that. on page 16, this is the scatter grand that shows policy benchmark. which is the red diamond relative to peers. and the peers are going to be the gray squares. the portfolio is in the left quadrant which is where you want to be. it's going to have lower volatility and returns are

going to move you to the higher portion of the why access. the new addition is saa and you can see gross relative to the benchmark, that is a good thing because it shows you that the staff has been managing to the nature that you would would have had. the last section here is going to be on a tri beaucing. meant to give what the a attribution is intended to do. there are top down component and bottom up components. so attributions, try to

disagrgate the pieces. one is asset allocation, so to the degree that you're over weight what is the contribution to access return coming from that piece? below that is what we call selection affect and that is broken into three pieces. one is what are your managers doing? what is the contribution coming from specific manage decision your managers are made to make. we can calculate that. then there is a portfolio construction piece, that speaks to how the composites are allocated to in terms of those managers. so to the degree that staff has built a portfolio, well aligned with the bench marks or have they taken any pills. that would be captured in that portfolio construction piece. the last piece are benchmark contributions, there are challenges to benchmarking some of the classes.

they have spoken eloquently. there is a contribution to your access returns driven by that benchmark affect. and that's not a measure of skill it's just a by product but it does provide meaningful to some of the analysis that you're going to see here. now i also added, not only relative to the policy benchmark but to the strategic allocation and then there is a second component that looks at your benchmark relative to the strategic asset allocations. so we're really peeling the onion here. there are 12 pages of attribution, i'm not going to go through all of them. so, maybe we'll start on page 25. so this is the total fund relative to the interim

benchmark over the last five years. so you can see over the period, the portfolio under performed by about 70 basis points. when we look at the come poent components, we can see the top piece was a tail wind to the degree of 40 basis points. and you can see some over weights and under weights in the bottom left which throw that 40 basis points. so to the degree of private equity that added value, again not necessarily because you planned or intend today be over weight but it did drive about 30 basis points. and other areas that offset that to a degree but that is the asset allocation component. the biggest drier is in the selection component that i alluded to. when we dis aggregate that, you can see the bottom right that

private equity benchmark is the biggest driver of the head wind. so that is not something that can be mitigated again the benchmark consideration. within the other classes, you do see a mix of under performance and out performance. that speaks to the manager's contribution sxz then that portfolio construction component which is driven by staff. in october ic, we're going to provide an update and how staff is building these portfolio and really what drives the contribution within the selection piece so we're looking forward to that discussion coming up next month. so this is the total fund, versus the benchmark. on page 37 is the full board. and really the take away here is a very similar story of under performance, and it's driven by the same drivers that we just alluded to.

so really nothing to point out except that this looks really similar. so what does that imply? well on page, 31 you see the attribution versus the asset allocation and you see a very small degree of out performance about 40 basis points. so that is essentially telling you that the interim are moving align. there is a small difference there besinger again a 40 basis points driven by asset deviations. we know what those are because they have strategic deviations away from the strategic allocation for the reasons that we touched on. so this layer is going to continue to add value as the staff implements the new asset allocation with new interim targets. so we're going to be looking forward to showing you all of these drivers going forward across multiple dimensions. i will pause that, as that

concludes our remarks to see if there are any questions. >> commissioners any questions on this portion of the presentation? >> commissioner driscoll? >> i understand why we have the asa , the long term and policies because it's going to take a couple of years to shift back. i'm not sure if you portrayed this all this way to do an analysis or to confuse the issue? >> sorry, the question is? >> that's moefr a rhetorical question. as i much i want to thank you for all of this analysis. maybe i come from the school, when the best way to convince people that you're doing well is to confuse them. >> so that is not the intent

here, the intent here is to be as transparent as possible. and to the confusion question, i say there is 12 pages of attributions, i already went through with it with staff to consolidate. this will be, it's 100 percent born transparent and decision-making process about how the interim policies are doing with this asset allocation. that is the board's portfolio and it's important to see how that approved portfolio has done overtime. even though it deviates. >> portraying it on one-page and then skipping it to another page with a different bench, maybe i'm the only person that does not find that helpful or

truly reflective. >> we'll take that feedback and continue to work to ensure that the report is as useful as possible. >> since i have the floor, are the points based on capital views? >> so they are based on a lag basis, but they do reflect all the marks. >> so those are actual numbers? >> correct, yes. >> okay. three years is more normal. so your comment, i forget about the phrase you used, is it true

with the ten-year. because we're long term investors. i try to focus on the long term but you talk about the difference between the private and public numbers, when you get to the ten-year numbers, is that lag still as significant? >> woiz say, it becomes less impactful, the loaninger the--longer, the time horizon. but the number that they have over the one or two resent years is impacted. but the longer horizon, the less impactful, the lag impact is. >> okay, the benchmark is different than the other klasz. but i think the numbers still proof that liquidity premium is being captured. >> yes >> what is the illliquidity.

>> the illid quitity. >> okay, you can argue several days. we have the liquidity approved since staff is doing. as for the word selection which you were kind enough to explain i forgot which page, the way this is done, but there is the issue of selection for security selection which i cannot tell if that's captured. >> it is captured, you don't see the level of granule airity in the report itself but in that selection piece is capturing the decisions, we do have the ability within our performance stem to show in the fuller report, you do see individual managers but it's inher interly captured. >> when you say selection, you have the manager and two other

sub components. >> i should speak for myself, i don't find it useful. >> commissioner driscoll, if i may offer some thoughts. again i'll reiterate the intent in providing this was to provide greater transparency. when we do attribution, it's better mathematically. you can do it by sector or by how they're picking stocks. when we rule it up to the total fund attributions is very important but it becomes far more complex. so in providing the slides,

what we're trying to say is selection is not just stock picking or the bond picking, it captures all of these idiosinkro cy. it's only one piece as a cio though, i do want to be looking at, what are the decisions that we have control over and are we making good decision. and what are, what is coming across as is, under over performance that isn't our decision, it's a function of lag or other things. this is one way to dis aggregate the sources of the decisions and the returns. it is complicated and we can continue to inhans how we display that. but again, the spirit was transparency.

>> thank you, commissioner any other comments. >> there is an--didn't do work for us, used to say the key in funding is the direction. are you going in the right direction? so when i look at the 5-year attribution, versus the 3 years and i see the pluses and minuses. that means we're going in the right direction, that means most decisions after 10-year boom market, we're back to normal volatility, in one sense. that's what i'm looking for. are we going in the right direction? are there enough right decisions? that's why i asked these questions. thank you. >> thank you, commissioner driscoll. i definitely want to thank staff and wilshire for the work in preparing this report for us. while i understand commissioner driscoll's term about getting

explanatory value, it's nice to see that the feedback will be utilized to further improve this. and i do appreciate this as well. the intent is transparency and sometimes that means the information. commissioners any other questions or comments? great. >> thank you so much. >> thank you so much for your report. >> thank you. in light of time, should we consider pulling item 11 out of order? >> the cio? >> yes. >> if there is no objection, we'll be calling item 11, the cio report. >> we need to do public comment first. >> thank you very much, madam secretary, please call public comment on item 8. >> thank you. do we have any in-person public comment on this item? seeing none. a reminder to any call tore please press star-3 to be added

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. >> all right, thank you madam secretary for that. and we will now call item 111 out of order. >> thank you, item 11 is a discussion item, cio report. >> i will go go through performance since we covered that in depth. i want to make a point that whil we are and ali made, that in our october meeting, we'll be discussing portfolio construction and concepts of alpha and beta. i'm very much looking for this. i think it's a great discussion for an ic to dig into. one of the things i think it's important is because this team

has done a tremendous amount of work. a lot of the conversation of the board had been picking managers but portfolio construction and risk management is incredibly impactful and we want to take an opportunity to think about why it's important and we look towards that conversation in a month's time. with respect to the materials, i will read now into the record approved investments that we have closed on. there are 2, sculper real estate, which closed on august 27, 2024. this is classified as a real estate investment within the real assets portfolio. and it's our first investment with sculpture. secondly, discovered fund 5 under delegated authority, first committed 75 million, it

closed on august 30th, 2024 and classified as a buy out towards the sfers private equity portfolio. that concludes my report for cio, and i'll welcome any questions. >> commissioners any questions? comments? >> later on under public comment. just curious in terms of these two investments did director andrew do his normal analysis. >> that is always part of our process. >> just want to make sure, thank you. >> thank you. seeing no further comments or questions, thank you c.i. o.romano for your report here. >> madam secretary, please call for public comment. >> thank you, do we have any in-person public comment on this item? moderator, do we have any callers on the line? >> madam secretary, we have no callers on the line.

>> thank you, hearing no callers, public comment is now closed. >> okay, we have 10 minutes before we go to lunch. ?*. >> i don't think that we have any other item that we can take out of order that we can do in ten minutes. >> yeah, we're doing the best we can. why don't we go a little bit early and so we'll go into recess for lunch for 30 minutes and reconvene back here at 12:22. [gavel] you're all gaurtd here. please excuse some of our members who are trying to grab lunch as we move forward. madam secretary, please call the next item which i believe

is item 9. >> thank you, item 9 is discussion item, private credit review. >> commissioners i'll make brief comment sxz then turn it over to the team. both this and next item, these reviews fit squarely into the level for the board and your responsibilities as they relate to invest oversight. so these are important windows into portfolio construction, into performance and risk management and initiative both from a perspective and operational perspective on what the team is doing. the pagers represent all the great work that these teams are doing day in and day out. i want to thank the teams for working with me to make sure that these pages are put together a way that provides

the board both comprehensive and clear information to give you the inside window. so thank you for those efforts and with that, i'll turn it over to kirk. >> thank you, as you know, we have six asset classes and each is required to provide the board with annual update. ms. allison described, and initiative and talk about the market environment. you'll recall that in april, the teams provide the updates to the board. in july the real assets and private equity teams provided their update and today we're going to do private credit. the term private credit when we first introduced the team to, in other order, i want to introduce you to richard grim from cambridge associates.

thank you richard, richard took a flight from europe to be with us. richard will provide some prepared remarks about the environment. thghis your present abesing, this is your only opportunity to dig into the portfolio, so please don't hesitate to ask questions of the team and cambridge as well. at the far end of the table, we introduce you to henry, who joined sfers in 1993. two henry's right i'm thrilled to introduce you to austin rapy, joined us last week as a senior portfolio manager for private credit. i just realized that a senior portfolio manager is among the, this is the most senior higher that we've had with staff in three years. austin joins us from the, from

texas county and district retirement system in austin. so despite what you may read, there are people who are willing to relocate from texas to san francisco. but during that time, he oversaw from private to public. we're thrilled to have him join us. and eunice who oversees this portfolio since beginning of 2018. eunice joined in 2013 after serving in investment roles morgan and stanley. she was promoted to senior portfolio manager in 2024 where she held that role until formal asset class in 2017. and in 2022, eunice was a pointed as director. the agenda today is similar to

the agendas of the prior asset class reviews that i described earlier. with one exception, we have a proposal, and i'll talk about it later. >> quick question on the item? it's not an action item just discussion? >> we'll discuss that and seeing it goes well we'll bring as recommendation to approve at the next meeting. >> thank you. >> yeah. quickly, private credit portfolio continues to perform well. the numbers that you see before you, it was up 10.1 percent in 2023. it was up 10.1 percent in the year-ended march 1. i should note that we talked about this when wilshire. so we have, we have variety set of numbers here.

normally, we do this update in july with year-end numbers with the prior year. we continue to do 2023 and here we also include numbers which happens to be march 31, 2024. so again up in 2023, up 10 percent in march 31, 2024 and up 29 percent since the program's inception. the program now is about 8.7 percent of sfers nav, you recall our target is 10 percent. so we're getting there, you would expect there to be there within the next 19 months or so. our pacing which i'll describe is about 750,000 per year. again we're not going to get. it's taking us time to get to 10 percent but we're doing it slowly and consistently year after year. and gep as i noted, we're not going to get to it here.

and then finally rich will talk about the environment, higher level of interest rates, short-term interest rates, we do believe we're in a higher rate for a while kind of environment which beneficial to private credit. the role of private credit is really to return earn returns it says superior. our benchmark is equally weighted.

again the way we're instructing is to 'em pa size income. of this 4.9 million, has been called and the portfolio has generated g.d.p. i by generating a net value of the plan of 1.2 billion. i referenced this earlier in terms of amount approved and the amount closed. of course once approvals are made there are negotiations and closing happen later. if you have play tons. there is a found and appendix

of our materials 24-25 specifically. here we're showing annual cash flows for the program. we show, the blue bar shows capital being called into the program. the green bar on the upper side are distributions in the program and with any market portfolio in the early years it's a consumer of cash from the portfolio as a whole. but as you can see overtime, we're becoming cash flow neutral and expected to be cash flow positive late 25 early 26. that's one of the primary purposes of a credit portfolio is while the consumer of cash

initially it will be a net contributer as we enjoyed in our private equity program it just takes time to get there. next we're showing annual depreciation. i'm going to review earlier. by calendar year, the blue bar is going up. the appreciation, the read is where we've had depreciation. we've had some comments attribution, but what i think is the most important take away. if you look at every single calendar year and again this program, began at the beginning of 2018, it's the only asset class in its portfolio that has produced positive performance in every calendar year. we've had a variety of market environments over the last five years as you're well aware.

and overview and take any questions you may have. and if not, i'll turn it over to you to discuss our proposals that reclassify the components of the portfolio. >> thank you, commissioners any questions or comments? >> i'll wait. >> i guess just initial leon slide ten and this is more of a asset allocation question. you mentioned, we don't need to allocate as allocation to see borrows. >> there is a couple of things, you don't want to ramp up immediately. there is this diversification, you want it capital slowly. and when the program was first

adopted in 2017, it was estimated that it would take four years to get. so the point is to buildup slowly and be diversified. >> so my question is in the strategic allocation, when we're not allocating money specifically for action because we want to pace it this way, i'm assuming it's in treasuries. >> that's the challenge that has to deal with, which is we have big private markets that grow right here in private credit who are all consumers of cash. are there any need of cost or expertise that we've had to buildup to become really

affective over this? >> i made this comment last year and i didn't include it this year, but i think sfers, what we underestimated is how resource intense this asset class is. the private equity and real assets are similarly resource intensive but the tenure of the funds are longer. here private funds are coming back 18 months later and this has been a one person or one and a half person team over the last several years and there is a cost to that and, waiting us some time, but there is a cost there, and i think we're set for the future. but the cost here is more resources and time and intensity. your points are well diversified but you have to

develop corporate lending, consumer lending in order to have an expertise. so to her credit, they have done well. >> thank you, and the point that i question, whenever i go to trainers and seminars, i'm always surprised to see that this is a big focus when it's done well for us. and when i ask other funds, it's fear of having this expertise so it's nice to see that we've been able. >> it's been a difficult one to implement. and recognize the potential for this asset class many many years ago. sol it's well ahead of its institutional peers. they're finding difficult to implement. >> thank you. >> commissioner driscoll. >> i would like to comment on your first question and it can be a real problem. we do our, you can call it our

discount rate based on the fact that we'll have different rates of return. equity which is going to return 11 percent, but we have not done it. where is the money? it leads to an actual aerial loss on paifper. you may say pacing it in, in this case, a private credit whatever our assume of return is, where is our money parked right now? our over weigh is in real estate. so always, there is issue about the assumption then there is the reality. what do we really do? should we plan on a gain or loss? i think we can say, no we don't need to plan but that's how we keep it smooth.

the question you ask is right, the answer is still very positive. >> thank you. commissioner driscoll for your comments. commissioners any other questions or comments? >> thank you. >> good afternoon, so before i dive into the proposal, i want to make sure that our consultant, cambridge along with kevin who works on our asset allocation and risk team to assist with this entire presentation. today, we're presenting a proposed reclassification for the board's consideration. this has been reviewed and discussed as a team including ceo and cio allison romano. as part of our discussion

today, we'll be providing a rational behind the proposal. and then we'll seek formal board approval on the next board meeting on october 9th. so next page. as some of you may recall we presented our strategic plan to the board after the asset allocation was adopted in late 2015. this include a portfolio framework where the purpose was that it was going to comply with the objectives of the program and also to ensure that the for the fellow would have the necessary amount of diversification. maybe next slide, 14, this illustrates the current portfolio framework which was later adopted early last year and from here you can see on the left, the top chart on the left, capital preservation.

and to the right, you see the sub strategies that fall under each category. the private credit team is now proposing a reclassification. i'll go over slide 15-16, 17. and under the proposed framework we're looking to establish two classification secondly is opportunistic. and to the right, you can see the relevance that would be included under each. just to make this more clear, the proposed framework will result to north --income strategies. and to lesser extent by capital appreciation. in addition, the prior framework or current framework was reflect set at the time. since then the opportunity that has evolved as the private credit markets have matured.

specifically we have seen the continued development of both asset opportunity sets. and we believe that these two segment of the private markets will continue to grow. maybe if we go to 18, i think that's a better way. sotially what we're look to go do is break that down to help us better monitor the exposure and portfolio. and with that, our team does apply a relative approach when we're having asset opportunities compared to direct landing. so we think it makes sense to put those aside direct landing. and we're staying on 18 here. what we did here, on the right, you can see the current

portfolio on app basis. and from here, you can see that somewhere to the left, does tend to be a income strategies. and the balance or a little bit over 40 percent and opportunistic. and then just for the record too and part of this effort, we along with cambridge did go and review every sing the fund in the portfolio and did make some minor changes in terms of how we're classifying certain funds. then if we go to 19, we did also want to confirm that we're not making or proposing a change to the benchmark. in addition, we'll continue to continue the private benchmark as part of our annual update. and the next would be to update the guide liebz. i did want to update that special finance altogether.

and at that time we would come to the board in a similar manner to get approval. and then we're going to go through performance and exposures under both the legacy and proposed work. we're happy to answer any questions now or feel free to ask the questions as we go through the presentation or any questions in advance. i can turn it over to kirk for performance. >> commissioners any questions? comments? >> great. let's turn to performance, a couple of comment before we get to some numbers. first, tania recognized and real assets in july. but there are a variety of ways

to evaluate performance for market asset classes. we want the board to understand our results from a variety of perspective the way we look at it. the most conventional is growth over specific time three-year. we refer to these as time waited returns. where you give the manager a dollar and you can evaluate what that is worth down the road. you can make capitol but they take it overtime and they distribute it overtime. so we use something called public market, which measures the performance against the cash flow equivalent version of benchmark. take all of our cash flows, invest them into a benchmark. and we evaluate a return, which is most common. confuse ing, i know, but happy to speak about the nuances of these and other time.

but it's important for us to make sure that we provide you a variety of perspectives when evaluating the performance. next, and this is really a reflection of pet peeve of mine, they read the results for you. i expect your ability to read the results. i'll highlight some of these for you. some key take aways before i go through the numbers. time way to return, pme, irr, the portfolio has performed really really well and over multiple time periods both on absolute basis, and return somewhere between 8 and 10 percent. but also on a relative basis, relative to our benchmark, i described earlier. and cambridge has a variety of benchmark both at the private credit level. this portfolio has performed very very well. and there is been consistency

in the result, it's not result of one year, it's been really really consist over many time periods. sol with that, we'll talk about our performance relative to our benchmark, our benchmark is equal waited of high yield and bank loans. you can see that over, with the exception of one year in the private markets have been very very strong. three year and ten year our performance has been consistently strong. so i have your eyes drawn to the different road, and our performance has been consistently good over multiple time periods both on a time way to return as well as the bottom table shows irr and empes again strong and consistent performance. we will not spend a lot of time here, but here we show the results of overall plan, first plan in blue.

tlaif done it in a way that it's protected. this is an important slide, this we equate the performance of actual dollars. more than 30 million of value over an index that has 150 basis points built into it that never goes down. finally we compared the high level and sub strategy level as you just noted, we show this, acknowledge that the following slide we show performance, relative, in the here, here in

the current strategy is what i'm trying to say. the take aways are the same both at the top level as well as strategy level. these are the legacy or portfolio framework. the aggregate number is relatively the same. i know we tend to be a more calendar year. our largest contributors to performance in 2023 to tractor and real estate state, we'll talk about more about this as we go through our exposure.

they were best performers and we've had challenge performance most recently with aisha specific focus managers. i'm going to cover 27 and 28, much time at all. tenure performance for each sub strategy both the current categoryization that we have and proposed categoryization. as you can see visually, we've had strong performance and consistent performance really on all sub strategy within the portfolio. so those are my remarks on performance. any questions before i turn it over to eunice? >> i'll wait. >> oning, would any other commissioners like to not wait?

>> all right, why don't we keep chuging along. >> thank you, i'll wrap up with initiative and before we turn it over to richard from cambridge. this is a copy what you saw earlier on page 17, it t shows, under the both current and proposed framework. and the key take away here is that we have a fill towards more income strategies. so maybe moving to 31, so this again is we'll start looking at the portfolio under the legacy. if you look at the chart on the left, this shows our portfolio, first column examine the third column is on a total exposure including the unfunded commitment relative to the private credit benchmark. and show the performance of our three categories. the key take away here is that our portfolio does have a much higher weight towards

preservation strategies relative to the benchmark and--it's been create over the portfolio. then maybe if you move 32, this is the same exercise under proposed framework. the bar chart on the left brakes down our, strategies that we're proposing and performance on the right. i want to draw your attention to the green mark, for the stake of the report, we could not break down the exposure into the focus into opportunistic. 55 to 60 percent of that 20.4 would fall under the income. so this means about 35 percent of cambridge private credit benchmark would fall on focus. opportunistic.

and then the bar chart on the right illustrates that opportunistic performance, that's mostly due to us--opportunistic and moving that income focused. then if we go to 33, we'll spend some time here. our exposure are pretty close in line. in line with the cambridge benchmark where we have over

weight to asia. that has been intentional given current relative value. we'll go to that shortly. then if we go to the next slide for the various trailing periods. you can see that aisha has been a detractive for us. asia was once. i will wrap up my comments.

then maybe if we go to the we look at the portfolio from 2018 to 2023. shows the current framework on bottom. you can see by design we have intentionally increased our exposure, while our exposure to direct lending are met at the time and capital appreciation has stayed relatively low and that has been based on one, making sure that we're complying with the program and two, including some of our views from a top-down perspective. and this breaks it down under the new classifications. and then that is intentional. so moving on to 36 this those

the geographic exposure overtime. here you can see that our strategies have increases while other have decreases and i'm going to draw your attention to the middlesex. we do expect that to trend down. and 37 is illustrating the portfolio. here again, we don't take concentration risk here. and moving to. >> before, if you don't mind. on slide 36 can we jump back on that?

we've had this large up take on global allocations but then it's turning down in asia pacific. >> where is that coming from? >> or where it's going. >> it's our credit opportunity so rather than pivoting, we found credit opposite to be more interesting and it's primarily u.s. and europe where the exposure is going to be. and that's also reflecting our increase and asset base lending. that exposure is mostly going to be in u.s. and europe. >> i see, and then the decrease in aisha pacific? >> and that's been our views. we were, at more active in aisha when rates were near zero. but as one, the markets here became more frothy emphasized

as a way to exposure. and then also reflects given the higher interest rate in resent valuations and our view if rates are higher, we should look to derisk in this portfolio and that results in a laura lo occasion too asia. and that's kind of, time will continue in our portfolio. >> maybe i misunderstood, would the primary change be, that serve the risk calculus that's shipped in or is it that the rates have come down? >> you can get similar returns for elsewhere. ?lt the risk is not what removed, it's just the -- ~>> it has specifically in china it has. but our, we look to achieve, you know, the highest risk adjusted return.

and so if our target return has not changed, then by definition if interest rates are higher, we cannot afford to take less risk. >> thank you. >> to put it a little differently our objective, so in order to achieve that, we had to take greater risks. now the base rates, you know, 5 percent when you give and take same risk. >> i guess part of me was trying ascertain was risk can change versus less risky alternative? >> thank you. >> before we move to the next commissioners, were there any questions before we go to the initiative section? please go ahead. >> okay. yeah, last slide. so what you see here is largely what our team has been doing and we're looking to looking at the efforts. the first is looking to stay

disciplined. also again, interest rates continue to stay more elevated, we look to derisk and how do we do that, and make it more asset base funding. and wooer looking to maintain a portfolio that performance well throughout a market cycle. we believe that they remain key to our portfolio. i want to spend a couple of minutes, our portfolio did experience head winds on two sector. the first was aviation which representative about 77 percent of our portfolio on manager.

this is impacted by covid and then real estate in china which is affected by regulatory changes in that country. and that manager that focuses on real estate in asia and australia and china, they representative about 6 and a half percent of the portfolio. so our team and was looking at performance minus aviation and minus this one manager that focused on real estate in asia. aviation if you look at the three and five year, it's been a detector. meanwhile, if you look at asia, then and if you strip out that manager, on inception today, it's cost of for the pole 20 basis points. obviously, we would love to achieve the 20 basis points back. this is why we diversify, it's very difficult for our team to under write these types of events. but because of the diversification and our team is hopefully demonstrated that we've done a good job, it's

protective the portfolio from greater losses. so that's the point on 3. and then on the 4.2, obviously, we work closely with our consultant and continue to work closely with them and utilizing and potential explore new system and efforts. and then the last point, i'm thrilled to have a full team on board, our investment returned from maternity leave. that's it and we'll turnover to richard for comments. >> thank you for your presentation. commissioners any questions or comments? >> yes. >> commissioner driscoll. >> since there are two comments, i'll try to focus on performance and then come back to this. >> okay. >> reclassification discussion.

in terms of performance numbers on page 21, time waited, is either one of those what appears in the quarter and annual report that wilshire does? >> i don't know who is op rating the overhead. >> i'll explain the question in just a question. >> in terms of performance, has there been much problem versus

what staff is selected with the managers that we have? >> the short answer is no. >> so on the top left that is showing lever loans which is currently described the private market equivalent. the other charts here on the right, you are seeing private credit default rates so those have been raising. the manager one of the reasons why you've seen such consistency in your portfolio two things, one is construction and having it diversify but two manager selection. the managers that account for the vas majority of your

portfolio are below averages to date. your managers are performing better than market averages. >> okay, that's getting to the question. therefore our numbers relative to this market number by cambridge are, better or less in every one of the categories beinger that's where i'm driving at. 'cause when you just put that number there that captures everything, it does not discuss whether we've done underwriting or not. >> what i would say is the manager selection factors in.

there are some managers where we assume will have multiple defaults on their portfolio but then we focus on the team to work through the situation sxz restructures and ultimately what that recovery would be. that's been a focus of units every time. eunice every time she and her team are underwriting something. we assist with that. there are managers that are default. there are managers where on average those defaulted situations have returned more than par and ones that they return less than par but because they're looking at borrowers and they're getting paid 200, 300 basis points more than xen rates for those. --compensates. >> i understand the question, i'm just trying to find out how many defaults in all the portfolio. ?fm as a manual, our team would have to go through.

>> just do a ballpark number. >> just looking. >> so when i'm thinking of percentage. if you're asking a number, you're talking about hundreds of line items, certainly they've had 5 to 10 defaults in some of those portfolios. >> okay, not perfection. i'm trying to gauge. >> buzz what also benefits our portfolio is how we structure these investments. as our reminder on our separate accounts, we do have more stringent guidelines which should help limit. >> that's what i'm trying to understand, because i asked for defaults.

to out perform the income focus. >> yes, this should because of the higher risk. >> trying to gits to focus on. >> then, the way the sub strategies are listed, the way you put them on. >> 17. >> they're on page 17 but also on 18. they're listed on another page and unfortunately they don't match up well. >> one. >> i think one is page 35 versus page 17. >> 35.

>> it's not 100 percent different. >> i think it's going down. we can resend or update. >> it's just going from highest to lowest. >> it's more than labels. >> commissioner driscoll is your concern with the formatting. >> not the formatting, you're regraoupgt strategies, fine. we have, there are other sub strategies, one when we

originally did this, i remember the wheel. okay, fine, it's going to be die versified. and the way the sub strategies are listed are different. and it's like, >> hard to follow. >> if if you can unmute please. >> i'm sorry. >> commissioner driscoll, i think if you take page 17 or slide 17, you go to 35 and look at the lower part. the lower left is the new confused. what would be the old version but proposed framework where you have the green and blue bars corresponds to slide 17. >> where is the upper right.

so is should have just looked at 235? >> lower left is the proposed. >> okay, i'll stop, thank you. >> point taken before we make our next proposal. we'll make sure that we're consistent. >> i highly suggest don't make performance with the policy change, how is that for feedback? >> thank you, commissioner driscoll. any other questions or comments? all right, and i see that based on what we're going over slide 14 and 17 provide a snap shop of what we likely see here again.

so folks have on the commission have thoughts on that, get the thoughts into staff so they can prepare for more formal proposal in the future. all right any further proposals. >> i have a question. >> oh yes. >> i have a more bigger question on the escua, and how it affects the performance. coming towards the end of the allocation percentage allocation that we have, are you cycling through or what is the framework generally? are you sticking with the managers that you feel you want to give them one or two more cycles? can you explain a more of your philosophy? >> for ever reaf, on a risk

adjustment compared to everything else in the market. this one manager coming back are shutting to fundraise. do we have to go, those kinds of things especially if the portfolio are strong. we're still comparing that to everything else in the market, that's also fundraising. while being mindful of our exposures as well. >> it does not change. but every one of them is under written at the time. >> i didn't know if there was a mind set around backing them for few years, cycled or whatever it is before you move away.

so i don't, again like in private equity, that may be the thinking, i don't know if there was something. >> is that automatic? >> certainly not pre-determined. >> and if i can add, there is a lot of similarity with equity but differences because the fund is shorter. we can look, i don't want to use tactical but we can look at develop tiff value. we want access to funds and relationship and we want to be a good partner but we don't want to invest if it's not a good opportunity at the time. not i difference but increase in performance, something with increased impact that the team did not mention but i want to give them credit for is

contract negotiations. these are complex deals and structure really matters with fees and et cetera. and having eunice and the team push on the terms where we need to push, it's critical in knowing where the risks are and where we can mitigate the risk through the contract we do. so it's again, something that happens behind the scenes and it was after the fact from when you approved investments from the past but it's very very important and that's where we are at an advantage because we have expertise but also, the acknowledgment of the team that has important for them to spend time on. >> thank you, great work. >> commissioners any other questions or comments? >> we did want richard provide a bit of a comment on the environment. >> sure, it seems like a great

time. >> thank you, i'll do a summary of a summary because i do think we're long on time. but starting off with the key take aways slide, yeah, there is a lot on this slide. i think the one thing that i would like to focus on and reiterate is just how this portfolio has done what it intended purpose was. and that is to be a balance among all of your classes in inherit and private credit and down of the focal points is downside protection. but i think also if you look at the way that your portfolio was constructed not just in vintage die if heser fickation but also by strategy. and i think that's important because as you go through

credit cycles and a lot of on this page speaks to you know, we're going through credit cycles that's a normal thing that happens over x number of years. i think what's been dramatic though is really over the last five years, the, the volatility of the overall environment, if you think of 2019, high valuations, 2020 covid dislocation, 2021 unprecedented liquidity, that leads to 22 inflationary environment and rate hike cycle where rates today are at levels that don't look that unusual from a 50-year perspective but that increase that we went through was the most abrupt and in such a short period of time and around over 40 years. so all of that, is creates volatility and affects asset classes in different ways. and if you look at what to

reiterate if you go at the rate of return, and you mapped it quarter by quarter what that looks like, the rolling it's very consistent in that sort of nine plus percent type of return. so i think that's testament to the portfolio doing a lot. now if we're doing what it's intend today do. real quickly going through what are the core drivers, one, you because of the increase in rates, it's affected liquidity, it's affected the cost of leverage. it creates some positive for the portfolio and head winds and what i mean by that, is while you have a yield focus emphasis to your portfolio you also have strategies that will take advantage. so having that rounded portfolio makes a lot of sense. maybe if we skip several

liesed, i'll tell you when to. so now, if you go back what happened within private credit the overall credit markets? and really a lot of this is within the last 24 months with the rate hike cycle that you've seen more dramatic impacts. what is going on in the private credit market, i would say the inflection point 2.0, the second is around this rate hike cycle. and the impacts that that had to the banking environment. in the top right, and i would point out this chart in particular, the green bar show private credit and this is a u.s. perspective, these v high yield and leverage loans. what's happened and the biggest part of that growth in the

green is direct lending which competes directly with the two. that growth really has been influenced backward because in 2022, the rate hike, the bank pull back further. what that does it opens up the opportunity for private credit even further and the eunice's point we see that happening on the asset as well. if we go forward one slide, kirk. so what is happening and what is different and we think the private market will continue to exist and what is different over the last couple of years, private credit was always for pockets of financing that the banks were really no longer interested in, whether they were too small and so so forth. there was enough size to go to

the capital markets. you know have these two markets coexisting, so that opens up the size of the market substantially as well. and really where you see that, that's the banks arranging deals and selling that out to clos. and what happens was that allowed for the top right, you can see the direct lending market to refinance a lot of liquid markets which was a little bit of a role reversal. that's been a question out there, is well, if the liquid markets are performing, doesn't that mean that private credit is no longer relevant? i think the bottom right speaks to that. where credit is go to. private credit provides

certainly and flexibility that you will not get in the syndicated work market. so that's what is happening. i think if we go forward kirk. this one, not much to speak of, maybe on the lower left and i will not even dig into that that much. obviously for this to make, for this to work, you need um growth. as i pointed out, it's from mentions, from soverne well funds, it's from groups that are not tax sensitive that are yield focus. and i would say that by in large, a lot of investors in this asset class, condition to want to grow their allocation to this asset class. similar to your portfolio, you're not quite a target so you're growing into that as well. kirk, if we go.

we can skip this slide just out of the trf time. it just speaks to that some of the large groups are getting higher allocations. so why invest in private credit? at the end of the day, you're, giving up liquidity for a reason. there is a reason why your benchmark is plus 1150 among these pmus. and this speaks and shows empirically, that like for like and if you look at the chart at the bottom. this is showing kind indicated loans, direct lending, similar corporating and you're still

getting additional 150 basis points. that is on the back end, we would say at the front end, public equity, you should have higher recovery rates as well. we can skip this slide, so the prior slide is other people's data, sample of some of the data that we intake as part of our role vision you and some other comparable pension plans. so beginning of 2023, you're really at and this is when you're seeing golden age of private credit repeated often times. you definitely have seen some compression and remember how a lot of these deals with structured, you have a base rate that went from 0 to north

of 5 and a quarter. the spread is really what we look at in terms of where you're getting paid for for your risk. and you can see that there is been some compression. but overall, you know, you're still getting very attractive spread leverage which you see at the bottom left here and really good risk adjusted returns. if you go to the next slide. kurt made that comment, that should be a net positive for your portfolio. you will have some credits that will have problems. you will have increasing defaults if that happens. and then the next slide. one thing that is also

beneficial in this current en vinerment. purchase price have not come down as much. that means we're talking private back deals, they're putting in more equity so that benefits you as a private investor. debaults are climbing not at any alarming space. pace. again, we feel that if we should expect that, defaults, if we go to the next slide, it sort of expands as to why. the lower left you can see if a

borrower had six terms of leverage. some companies are going to be able to make their way through that and some are. you can see we're highlighting the this is the forward metric that we're looking at. the forward looking metric is your coverage ratios. so they have been compressing.

as you saw over the next years. comments, questions? >> i'm going to take a second to get the whole question out. it's not about your covered ratio but it will go to this point. all our private investments have been through banks and partnerships, right? there is no direct lending by you? okay, good. i'm not sure about lending and subboard nature. and the different markets and strategies.

do you consider whether it's the borrower where the borrower what you would call a venture capital company? now when you think about your answer, remember, tania and her team we invest in many funds and we do coinvesting over there as well special. that's what is driving this question, are you going to look at that? >> you know we've been asked this, and you can give your views. our view is yes, we realize that there is a dire need for the liquidity there but as you,

know, from our perspective, and giving where rates are, we don't need to take that type of risk to get the return that we're targeting. so our performance will be. not to go down a rabbit whole but there are some venture back borrowers, to answer your question, venture is not going to be likely or big priority for our portfolio just because of the relative value. thank you. >> thank you. commissioner driscoll. >> commissioners? looks like we have no further questions. thank you for your presentation.

madam secretary please call for public comment. >> thank you, do we have any in-person public comment in this item? seeing none, a reminder to please press star-3 to be added to the queue. moderator, do we have any calls? >> there are no callers on the line. >> hearing no calls, public comment is now closed. >> madam secretary, please call the next item. >> item number 10 discussion item absolute return asset class review. >> thank you. >> happen to follow private credit, that's a tough order. >> i think this team can rise to the challenge.

>> good to see you david, and for folks beinger remember red means you're muted. >> good afternoon, commissioners we have a lot to cover but i would like to first introduce other members of the team representing the absolute return program. to my immediate left is ryan fu who joined our team after spending 13 years at a bay area fund to funds. and to his left is ken who has been working together with me since the start of program. to the left of ken, is steve, head of portfolio management at multi asset investing. and on the end, is roberto managing director both from blackstone's multi asset investing group and who have both been work withing keen and

i since this program began in 2016. since our last return update. we've seen a lot of opportunities and rest in the global financial markets. i'm going to comment on some of these to set the stage. in a period of less than a year and a half. global he quits have appreciated more than 30 percent but a global 70-30 portfolio has performed negative performance six times during those 18 times. inflation has moderated but persist in some areas and just a month ago, we saw the bank of japan hike interest rates. this end the negative interest rates and carry trade that was that was popular in a lot of portfolio. and that massively carry trade on winding precipitated a large

spike. so these resent dynamic albeit different than those that we talked about when we last delivered an update in 2023, remain supportive of investing for alpha over beta and provide us in the return world with continued optimism. in today's update, we will cover a number of things. we'll provide an update on changes that were approved by the board in july of last year. and the evolution of our program. we'll share performance measure. we'll provide you with a liquidity and also hear an update and lastly we'll wrap up with a discussion on our key initiative. so darlene, looks like we've got a presentation ready to go.

let's move to slide four, if we could please. the most important message we would like to leave you today is included on page 4. and there are a number of things here i would like to highlight. the absolute return has continued to fulfill its role as die if heser fieer as well as liquidity to the overall plan. last july, the board approved new investment guidelines, new benchmarks and a new investment framework for absolute return. these have all been implemented and resent performance would suggest that these changes were the right ones. in fiscal year, 2024. the portfolio returned 10.8 percent. exceeded both primary and secondary benchmark by a significant margin and delivered a positive return on each of those 12 calendar months. portfolio also provided a net of 389 million dollars of cash back to the plan and currently

slightly below its strategic allocation of 10 percent. to provide some context to the rest of our discussion, we provide a bit of a refresher on page 6. absolute return strategies, seek investment returns with less market sensitivity than those in traditional assets. the exposures are not benchmark driven and generally on the more liquid end of the spectrum. on page 7, are metrics indicating how sfers absolute return has done relative to the role that has been defined for the program. the program has enhanced the risk ated justment returns toft plan as measured by the 41 base base poipt reduction in overall plan volatility over the last 7 plus years. this is annualize number. additionally, the returns have been enhanced through exposure with strategy such as map grow

and quantitative which have provided strong returns to the total plan in the most resent fiscal year and since the inception of the program. you can see some of the specific metrics listed in the sub bullets here. absolute return has been a significant source of liquidity sweeping a net of 1.2 million since 2020 and making up for the lack of liquidity that has existed at times in other asset klasz. last laoe, the program has provide capitol during equity market down turns. during the most resent severe equity market dislocation, when the msci was down 18.4 for calendar year 2022, the absolute return program delivered a positive return. additionally, the program has out performed global fixed income by over 5 percent

annualized since inception and lower standard deviation of returns. there are several key things that we'll refer to throughout our update. die if heser fickation, downsize, liquidity and out performance relative to global fixed income. let's turn to page 9. the absolute return program has evolved in both its size and composition since inception in 2016. page 9 shows the history of the program by calendar year and a mix of assets among the blackstone discretionary and sfers direct portfolio. in its early days, the program was heavily weighted while direct investments were being sourced, researched and brought through the sfers investment process. in 2019, the sfers direct portfolio became the majority of the program and has

comprised greater than two-thirds of the assets since. the current 10 percent target allocation, was approved by the board in november of 2020 and the program was brought in line with that target in late 2021 and has remained at or below since. the current allocation is 8.86 percent of total assets. the program has also evolved significantly in terms of its composition. page 10 provides a summary of different sub strategies the portfolio invest in which was historically the primary way in which we kaegd exposure. we still used this categoryization but we now set use a set of building blocks to category exposure based on expected risk adjusted returns and expected diversification characteristics that we're expecting to achieve.

on page 11, you see the construction building blocks and these are the foundation for absolute return framework that was approved by the board at the july 2023 meeting. this is very much consistent with what you've heard from some of the other asset classes, particularly related to the private credit that you just saw where the team is proposing a new categoryization. this is an expert that we went through the first half of 2023 and reflected with the board approved in july last year. staff implemented this framework during fiscal year 2024 and now provides the basis for our portfolio construction activities. page 12, shows the history of the program allocations to these building blocks did i versifiers.

and our currently focused on increation the expos --exposure to risk mitigaters. page 13, tells an important story about how the program has evolved over the last three years. the first section of this page contains portfolio criteria from exhibit 3 of the investment guidelines that were approved in july of last year. the standard deviation shown here, a five-year metric has not moved very much. but what is important is staff also tracks measures for three year and one-year standard deviation which is significantly lower at 2.8 and 1.7 respectively and these show trending of this metric to well below the guideline target. the higher number for five years, is largely attributable to the programs draw down in march of 2020. this data point from one single

month is an extreme out liar and skaouz that metric and will be rolling off within the next six months. so we expect the number will come down significantly wnt next two quarters. the five-year trailing have moved within target. equity beta has decreased by one-third in the last three years and the beta to income has reduced more than half. additionally the three-year beta metrics are much lower at point 06 and point 05 respectively implying that the five-year measure should consistly decrease in the quarters ahead. the trailing have also come down significantly since 2021, particularly for he quits which has now been within guideline. the three-year metrics for equity and fixed income are

much lower at point 36 and point 37, again measures should decrease even further in the upcoming quarters. the strategy target mix is also improved over the last two months with die versifiers. --diversifiers. the liquidity profile of the program has slightly improved but other remains relatively constant and within guideline. of note here, the for the fellow is more liquid today than it was three years ago. so it's seems almost a little bit counter intuitive.

lastly on this page. paim 14 shows the risk in metrics of the program and all having consistly improved. and this metric has increation. perfect storm metrics are based on calculations made by aler burn over the last five

quarters. assumes that all investment experience their worse draw down in history at exactly the same time. the downside volatility reflects the maximum amount. this metric denotes significant improvement over the period measure. slightly more than a year ago, one fund within our portfolio was contributing nearly half of the portfolio total downside volatility risk but through restructuring efforts staff has reduced by 4% to 26.4 percent. factesque, the last factor shown these measures remain high on absolute basis but consistently improving.

and the tact or x declined by almost two-thirds. this can be explained by the significant reductions in equity beta zen--centric exposure. on slide 16, we include an update on performance. we like to show performance in a different way, at the building block level as well as

at the sub strategy level in the way we historically kaegd performance and we like to evaluate performance over in these different ways of slicing dicing the portfolio as well as looking at them overtime periods. 2024 was a good year for the for the pole. out performed by it00 basis points. all three of our portfolio construction categories had returns exceeding 10 percent, and two of the three categories exceeded their relevant benchmark return. return drivers was the only category that did not exceed its benchmark. and this was due to legacy exposure to china and biotech exposures we'll talk more about that a little bit later. lastly performance was

consistent with every year with positive for 12 months. on page 17, we have results of the total portfolio and several other relevant. on this page are the following. one-year performance is very strong, trailing only equities among the major asset classes. 3-year performance although lower on absolute basis is only 30 basis points lower than global equities. since its inception performance a period of three years is in line with primarily and secondary benchmark. lastly on this page, during resent periods that include a significant equity market dislocation and high volatility of global fix income which are historically thought to equity. the absolute return portfolio

has returned comparable significantly higher than bonds and with much more volatility than both. let's move to page 18. staff and flag stone are work to go be more diversified and less sensitive to equity. credit oriented investment have out performed hedge fund index. apart from the five-year period which includes q1 of 2020 when the program's over weight to residential mortgage related

credit was a significant dragon performance. when manager concentration detracted. quantitative strategies are the best strategy both on absolute and relative basis. over the multi hedge fund index. and lastly special swayssing performance has been improving recently driven largely by staff to restructure the approach and incorporate more

of a hedging to investment. the next section of this update will included discussion on the drivers of performance in each of the these sub strategies and the sub strategies as i mentioned is a historical way in which we category our exposure exclusively. and we continue to use the sub strategies to organize or research activities, allocate and to report on investments. works closely with blackstone and having things categorized helps us with to coalign with the blackstone approach. through an discussion, we'll provide an example on some of the unique exposures that exist. so we'll start we quitity on page 20. and as mentioned earlier,

equity has been the only area of the program with negative alpha. while the total absolute return portfolio return just less than 5 percent since its inception. the equity sub strategy returned only 2.1 percent. it's he quit that the portfolio would have returned more of the portfolio in total and the opportunities for alpha over the last four years. unfortunately this has been been our experience. the other performance is due to manager selection and geographic and sector focus on a number of managers within portfolio that were core positions until 2022. the performance ax can best be described as sub optimal allocation of capital to out of favor and negative alpha through and over weight to an out of favor sector.

going forward, staff will be more conscious of the risk of geographic and sector concentration as well as the impact that an increasing greater long bias can have on our portfolio. the program recently had an allocation to equity to platform which is expected to provide alpha generation with much more sensitivity to directionality in a transparent structure. page 21. recovered strontionly from that and consistently delivered positive returns over the last years. capital return from credit managers that we have in

redemption, it's hard to predict in general staff reflicks to rotate in opportunities over the next six months. one of the core positions in our portfolio today is mortgage serving rights. and mortgage servicing right have continued to provide a positive returns with low sensitivity as well as low sensitivity to interest rates due to comprehensive interest rate component that exist in the strategy. slide 22, here we reflect a macro sub strategy exposure and macro returns have been in line since inception but lining in the most resent 12 months. allocations to this sub strategy have generated positive alpha. staff's efforts in the macro area are focused on sourcing

capacity and strategies that provide exposure to a wide range of discretionary. a resent trade example includes an investment in the treasury bonds of an emerging market that has experienced unprecedented currency evaluation and interest rate movement. page 23, includes a summary of our quantitative exposure. quaunt has been the star performer of our portfolio. out performing by 800 basis points in the last 12 months and 3.7 percent since its inception. this is due to manl jer selection and consistently strong performance by several of our core partners. examples of exposure include traditional statistic, machine learning, and technical trading

strategies with a holding period that can range from milli seconds to multiple weeks. on page 24, we have our sub strategy exposure. an example of exposure is reinsurance. where industry dynamic in the last couple of years have created an opportunity to return returns that are not directly core dated with most financial assets. and final leon page 25, we have special swayssing. special situations exposure has been another consistent driver of returns, overall periods since inception.

this strategy includes opportunities and exposure to market dislocations, includes equity trading tragedy and a accounts receivable. in summary, sfers portfolio has had consistent alpha generation as measured by out performance relative to relevant sub strategy benchmarks. in total, the portfolio has had strong returns within the last three years, capturing over 90 percent of the msci while having an equity beta of only point 06. alpha generation at the portfolio level in the last 12 months has been trending positive as represented by the out performance relative to portfolio bench marks and other relevant industries.

close management in july of last year. is trending favorable and intended to increase. and finally as we noted previously, factor risk metrics within guidelines are also trending lower and expected to go down significantly over the next few quarters. we show historical capitol flows of the program on page 29 where we reflect on update on liquidity. and several take aways, one the program has been in a net significant return of capital trend, providing 11.2 million of cash since 2020.

2, we show a break down between the sfers portfolio and blackstone portfolio. and blackstone has been a reliable source of liquidity providing over 400 million in 2020 when the program overall provided over 250 million net to the plan. lastly i touched on this earlier, staff maintains a liquidity profile that will allow the program to be a provider of liquidity if and when needed. on page 41, we talked about alignment with sfers overall goals with esg. and our collaboration with esg remains focus with absolute return. we depicket --depict some of the work as well as an evaluation that we do of esg philosophy and policies while we're underwriting new

investments. so we're consistent with the other classes with the integration that we with the team. on slide 33, i'll transition here and let steve take over for a moment but just make a few comments before that. here blackstone will discuss some observations. what this means for the return and how we're taking advantage of some of these opportunities in the portfolio. so at this point, i'll turn it over to steve and start with your attention on page 33. >> great, thank you david. so yeah, the focus of my remarks are going to focus on the last 30-month period where we've been in a different regime, paradigm. and starting with a little bit of allocation 101, this page really illustrating the value

of equities as the highest respected class, 10 percent over last 100 years. and lower part of the page, the potential draw downs make it something to manage the portfolio, other things have to come into play to create a more robust portfolio. return to page 34, consistent return, out of one-third the volatility markets and certainly the first as an important role in that. and in this more resent set of decades where the secular trend

has been rate year after year going lower. the idea that bonds are correlated in environment markets where stock market goes down, the risk off type of environment. as we see from the draw down, the more resent environment. the bonds are a great diversify to equity. and this idea of diversification, even after the long term does not really holdup. i think looking at the most

resent period, i think the correlation has gone up. that is the topic of this analysis. you know three of the ten quarters were, those markets moved in office directions. and as we know most of 2022, materially moving downward in both markets. so from a idea that bonds go up when equities go down, now we're in a environment where rates go up so he quitity go down? and what does that mean for 60-40 investors? on page 36, we see over that time frame, slightly negative return. with equities, rebounding off 2022, annual eyes 3 and a half percent over that time frame. as soon as, bonds analyzing negative 6. and as you observe, major

source of under performance which we see on the next page. looking at the performance of sfers after return portfolio across the same time frame analyzing 5.7 percent. and being, not only from absolute return basis out performing equity markets and obviously the kind of sole source of that return at the portfolio level. the importantly, from a volatility perspective just as markets spiking volatility dramatically so, the profile the portfolio remains stable. and most importantly, from diversification stand point really stood out. so if you look at the 38, this is looking at the trailing 12 months, individually from the

portfolio. as you can see, positive ever month. but importantly you had looking at those five months where the 60-40 portfolio was negative, able to returns independent of those negative performance of both stock and bond markets. and i think when you drill down a little bit, you know, as david highlighted there is a beta to equities, so negative equity markets are head wind, returns have to offset that. on average were net short. you know, rates generally and that was a positive contributer, but i won over state that in the sense that the portfolio was short rates. it's not a risk that was taken

across the portfolio. and also highlight that in the credit part of the portfolio, there is little interest rate risk. so either matters ridge that risk in their portfolio their involved in either stress securities or liquid mortgage look. so, again when you turn on the portfolio it's not surprising that the ability to generate positive returns, you know, is it all happens in that context. i think, you know, the goal of these pages is really to shine a light on the broader asset allocation importance of the return portfolio. scenario is another important take away from this. again looking backward to the secular period of lower rates,

your optimizer, would probably not take into account some of the downside scenario, i'm on page 38 that we've experienced in this last 30-month period. and critically important to have a portfolio that is not subject to the same that the broader portfolio is the biggest take away. but i guess, the follow-up to that is now you're in a higher rate environment, you have this yield on bonds. you cannot touch funds out perform and earn that spread over the rate than they did in lower rate. so page 40, you know, to address that, this is looking at the access return of the fhr index over the t bill. and as you see, it's a fairly random rock.

the hedge funds have been able to generate excess return over interest rates whether they're high or low. and frankly the biggest driver is stock market equity in terms of its, the vair ability above that. much more so than interest rates and even more so, this is the benchmark, if you look at page 41 and as david highlighted, we have out performed that index by 200 basis points last year and other periods as well. so the point on page 40 even further emphasized that even in the last fiscal year at a higher rate level that access return remain. and i think the explanation is a couple of things, you know, at higher rate levels, the volatility that exist in markets and that volatility that that created is an opportunity for hedge funds

when interest rates were zero, there was a hole bunch of hedge funds. and they were not able to generate returns, we allocated from strategies and now that volatility exists. absolutely capturing the volatility in equity markets same thing in the fixed income markets. same respect with inflation slowing as much as it is? what is the feds going to do? all of these decisions, you're creating a robust opportunity for hedge fund managers even at the high rate level. so on page 42, you know, i kind of laid into that a little bit right there but you know where all the opportunities as we move forward. and it remains focused on strategies on volatility and markets. quaunt continues to persist in terms of that. even though volatility is going

down, across section of all volatility, the advantage to take, as we've seen momentum reversals all of those being sources of return. and also as david highlighted even within stock picking, managers that are set up by, more limited to their directional exposure to markets but also on the short side to trade around that volatility. the profile of that portfolio, as we a lo indicated those managers especially those that have a little bit less capital, so they can be more nimble in that environment. similarly, we've recently, we being the program has added to the macro space, taking advantage of opportunities to trade around, you know, manager's inside into where

economies whether it's in the u.s. or globally. current markets, that particularly robust environment. and one that is continuation of what has been experienced the last come of years in that regard. and then i think, there is on going dialogue between blackstone and the black sfers team. so the idea for 20 2008 dislocation south side not there right there. but there are these shifts in capital in rate structure and he quit the markets concentration from cap tation stand point, all create opportunities that, you know, were die around it's a weak or month opportunities not something that you can allocate to. but as the opportunities develop with the kind of 12-24 month time frame.

we want to be more nimble and allocate. so with that, i'll turn it back over to david, happy to answer any questions. >> thank you, steve. we provided a lot of performance information here today relative to hedge fund industries. but steven maybe you can share some comments of performance of sfers portfolio compared to other or even comingle blackstone strategies. >> yeah, and i put forward as a base line, is pretty much in line with the broader set of our portfolio. so at any times, it's not doing better because they're taking more risk. there is a book of our business is the same type of risk profile. i would say that over the more resent period in the last

fiscal year, i highlighted a couple of reasons for that. one of which you mentioned earlier, despite. fact that there is capital around the portfolio, some of these opportunities have been an important factor. you know, we've had, in our business a core allocation to longer term items in the mortgage space. but ping the ability to have free capitol to opportunities and macro, and the degree to which you've been able to move the entire for the portfolio has been important in that regard. and then, i think, you know, secondarily, i think the scaling back of equities is another thing that i would highlight which again, full stop equities have been a challenging environment for more hedge funds and i think

that is something that we've been doing across our business. i would describe more than repositioning then rather than reducing and we talked about some of those opportunities. but that is a source of out performance. >> thanks. i'll take a few minutes to wrap up and talk about the status of some of our past initiatives and current initiative on pages 44 and 45. starting on page 44--. >> if you want us to get the slides back up. >> darlene, can we get those back up, please.

we have redoomed 498 million dollars we saw most of that cash back to the plan. but also invested risk mitigating investments. as we previously stated, we implemented, new benchmarks and new guidelines upon receiving board approval as july. and enhance projects. credit center investment.

and partnering with blackstone to identify other opportunities that are likely to increase our ability to achieve our programs objectives. staff also intends to seek opportunities to optimize the portfolio some small ill liquid position that's are no longer in core or in line with objectives that we defined. process improvement remains a key area focus and that will come through expanding the utilization of technology and sourcing and funding and monitoring. and lastly, as we always do, we try to remain a breast of key industry developments. and staff has been evaluating any initiative to implement a fee structure that is being lead by al born and texas teachers. this is an initiative that is

not relative, and some managers are more amine ine--amenable. and we will advocate where ever it is appropriate for sfers. so, we provided an update on the changes that the board approved last year, evaluation of our program. we provided performance information, various levels, walk through some of our sub strategy exposure and how those sub strategy have done. and you also heard a market update from our strategic partner blackstone and lastly we covered our key initiatives. so in summary, we're pleased with the performance that we sently had. we believe that the portfolio and we have several initiative under way to continue to

extract value out of the capital that we have allocated absolute return. so that concludes what we have for prepared remarks. and we'll now welcome any of the board questions. >> thank you for your presentation, commissioner bridges? do you have comments? >> thank you, mr. vice president, thank you david and team for your comprehensive update on return. david, how many small liquid positions do you have that you're targeting for liquidation? >> yeah, they're about 8 to 10 positions that fall in this category. and you know, they're of a different nature, each of them is of a different nature. there are a couple of them that of small coinvestment. >> that was going to be my next

question. >> of investment partners over the last few years, some have done well, and others have not. and also, you know, there are some of those that remain in line with the objectives of our overall program in term of the risk profile but some clearly do not, they have a higher data profile, higher downside risk profile and the unfortunate thing is that they're not liquid. so this is one of the things where we continue to monitor and evaluate opportunities to realize these investments but that cost associated with them. so one of the things that we would like to do is that, maybe, expand our thinking a little bit in terms of how we can realize these positions.

and see if they can other things that we can use. >> that's exactly why i asked. because the intent is for you to bring it back and reinvest. >> yes, sorry i mentioned some are small coinvestments. there are some others that are side pocket investments but of a similar less liquid nature. >> uh-huh. i like the fact that in the presentation, you mentioned working with the usu team, how respondent--this is difficult to get them to talk. what has been your i should say how management responded. >> it's mix. i would say there are some

managers who, who are very much willing to partner with us, i think some have actually feel like they can learn from sfers approach as we try to be a leader in that area. so line up our experts with their experts. but there are others that not surprisingly are you know, not as far along or maybe less willing to embrace smft things that we want to do. so that typically happens more in the side of things where the strategies don't lend themselves to much to having a

comprehensive approach to esg. there are different things to how they conduct their business. at least the investment process where it's more systematic in nature. and it rally does not lend itself to other classes. >> i tend to look at this each time you bring a recommendation, looking at the various managers that you bring forward. and they're all not created equal, i agree with you. >> we follow a consistent approach. we have a questionnaire and in our due diligence, we try to identify and get responses to the all of the same questions and try to flush those things out. thank you so much and thank you for all of the updates and i'm

glad to see it's doing well and adding value to its core. thank you. >> us too. >> thank you, commissioner bridges. commissioners any further comments or questions? commissioner driscoll? >> you started out by saying, where the performance was poor, you're focusing on the he quit category. okay, so i'll tell you one piece of information to explain the question. one of the performance reports, i remember lang mentioned that, are he quit investors in china. our managers out performed our benchmark relative to china. then you talked about china then you talked about bio, biodiversity, or biofarm. >> it's the combination of both.

so and to your explanation of the question, you know, where you said. in one case, we had negative attribution because of the fund we selected. but the manager selected flt so there was alpha generation at the manager level because they exceeded and it was really because of our allocation to an out of favor geography as i mentioned earlier. it was sub optimal, we had a sizable exposure to focus.

and then in another case, it was the manager under performed the relevant benchmark as well. so it was not just under performing sector, but an under performing manager as well. okay, and then you asked to realign with the portfolio. so you came up with this 60-20-20. >> right. >> and i would clarify to more proper lea line the objective of absolute return to make sure what we're to go is unique and different and you know, not doubling down or tripling down on some of the same exposures

that are pref. >> you said it better than i could, thank you. to proof your point, the question that i have about manager selection improving the process both for you. because blackstone has discretion for their piece, thele piece versus the pc b piece. maybe it's going well on the other categories but is there something about equity that you're improving or not improving or going to do better? >> that's one of the reasons why we continue to show performance at the sub strategy level, because that's a way for us, it's a more, it's a grand lar way for us to select and look at each of those, in this case six sub strategies and look at the performance relative to a relevant benchmark and see if we're

adding value or not. so we talked about some of the reasons why, and we can attribute that to a couple of investments that we had up until two years ago. and we reduces the side of exposures. that's helped our business recently. but we are still not, still not in the process of restructuring that and it's our highest priority. to look tata equity sub strategy realizing that there are signature opportunities for alpha within equities as asset class. we're firm believers on that and realizing, we need to modify our approach. one of the things that we're looking at is looking at

strategies that are lower net exposure or more market neutral in nature to try to reduce that sensitive, yet still capture the alpha opportunity that exist. >> okay, well the legacy piece left side always drag down return. when we look at its inception numbers they will always be there. the question i'm trying to figure outgoing in the right direction, if this manager selection process has been improved? that was the real question. >> and i would say, still in the very early days. because this is, you know, really been something that we just been doing over the last year to two years. so it's still, it's you know, we dont have a lot of data points, but some mft indication that's we're seeing with some of the equity exposure that we've added to the portfolio recently, that has been performing well. >> okay, what is going on here

is fine. but there is another change that occured, blackstone reconnected some of their people as well, couple of years ago, correct? my question, blackstone selection process improved or not? is it going to? i know that's not the purpose of this meeting but since you're here, i'm going to take advantage of it. >> steve, i'll let you speak to more resent changes over the last couple of years. >> i think the short answer is yes, it's been a foix of ours. you know, to what, let's start, the process itself is not changed. the way that we approach managers and under write managers, is consistent across all strategy groups. what we have done is enhance our capabilities in terms of team. so mitch joined us, i guess it's coming up in two years as head of equities and as you know, there is been other changes, both george who heads

the business and more resent cio he hired mitch all have back grounds in he quits. equities. bringing in mitch and enhancing his team. but the process and the way we go about it, i can go into detail in type of things that mitch has strengthened. and again, i think his universe and expertise and background, a of these, i would describe them small as in tiny but relative to multi million dollars shore funds. underwriting so, a lot of manager that have been populating this platform over the last 2 --12 to 16 months,

actually works with him and out of our area office. so there is been a big enhancement, and our capabilities and he quits but the process remains consistent. >> okay, i can tell whether we're going in the right direction, we have high tolerance for learning pain. the word that then throws me off is when you say return. because we've taken money back from certain managers when we discontinued the management. so when you say the return, it's not that we took the money away, suppose to return as in a rate of positive? >> well, i used the term return in a couple of different ways, i guess. one is a measure of investment performance. >> that's the key one. >> where you see that, the only other way in which the term

return is used, that might be, i could understand how that may throw you off is a return of cash. so that, return of cash, is not necessarily the exact same as the investment return. that is just the, the cash that comes out of the absolute return portfolio through realizations, redemptions and it's swept back to the plan. >> okay, so again, this is page is what threw me off. coincidence, can be missed. two people can be seen by two thing things, thank you for the clarification. >> understood. >> thank you, commissioner driscoll. commissioners any questions or concerns? come of questions i have and some of these we've talked about previously. i want to make sure i

understand, on the role of liquidity and absolute return, there are several sides that have touched on it. i just want to make sure that i'm understanding, that is let's call it a constraint or goal or aspiration, it is not to provide a sort of obstructions to be able to allocate funds or produce funds, correct? >> it has not. and a couple of years ago, we did revisit the liquidity guidelines that we had for the program. and you know, some board members may recall that because at the time, we felt like it was. we felt like that, the liquidity guideline that we had in place at the time, which at the time, it was no more than 15 percent of our capital could be allocated to things with a lock up three years or longer. at the time, we felt that that was restricted us. so we came back to the board and we requested approval to

change that, to 25 percent. so allowing us to invest up to one fourth of the portfolio. the market environment in the universe of absolute return has moved in our favor where, an investors no longer needs to be looking for longer and over longer investment duration in order to earn an attractive return in absolute return strategies. so we feel like, you know, that is not been restricting us at all. and this is one of the things that also contributes us to us being able to have a more liquid portfolio than we had three years ago, because while we have been redeeming from a number of investments that are no longer in line with the role that we've defined for the

program, or maybe our con conviction has changed in that strategy or that manager, where we have been reemploying some of that cash, the cash that we have not kept back to the flan, where we have been redeploying that into new investments has been in the end of the spectrum. it's one of the nice things about where the current market dynamic is that, where we find attractive opportunities across the universe of absolute return, a lot of them m mac robsinger a lot of quantitative strategies beinger those are in the more liquid end of the spectrum. some of the credit strategies that were interesting, five or six years ago, they're less liquid. that contributes to some of the dynamic and how it would speak toxer where we are right now relative to the guideline and how we see that guideline. >> thank you, another question, if we can bring up slide 42

real quick. there was macro opportunities, if you can just design explain those a little bit more. i'm not familiar with those context. >> yes, so there is an area that we've seen a number of investment partners allocate capitol to as both an attractive area to learn absolute returns but also for its did i verse fickation is investing in power. in fact, we have one manager that hired a power training team from a utility provide ander brought that team in-house, because of the diversifying nature of the returns. you know, low correlation to a lot of other financial assets and because of the, the actual some of the macro economic factors that were driving opportunities to trade the

assets. >> is this energy generation or france fehr? >> could be a number of different ways, training in the energy market. could be related to some of the dynamic. would be related to other political sources that drive miss pricings. these are, these are certainly on a very liquid end of the spectrum. >> okay. >> and em, emerging markets? >> yes, more general, yeah. >> the last question is gets back to the esg, i think it's slide 31 talks about. we've seen it all over the place, it's hard to get standardize, is it fair to say that within the absolute return, your definitions or framework for you is to align with other allocations, there

is nothing distinguishing if or different? >> yes, and i think one of the things that we're looking for is to make sure that there isn't, most importantly, there isn't anything that somebody who is evaluating is doing that would be in conflict with what we're doing. and so, we have, you know, sfers has as you are well aware of some our very firm policies, of not having exposure to you know, to certain assets and we want to make sure that we're evaluating and monitoring our existing partners, there is nothing that is in conflict. and secondarily, we're making to make sure that philosophically, we're partner with firms that are closely aligned with what we're trying to do. and sometimes that's to a greater degree than others. but, generally speaking that's

what we're trying to do in absolute return. >> and in this, using this tool for assessment head, has this ever had a material impact on decision? >> woiz say, yes, it has. i think you know, having a, having a greater sense of awareness of esg issues, and i, i think there are many many different examples, you know in each of the three that could be mentioned. but, i would say it definitely has enhanced our process. that's created a greater awareness of risk. sxl thinking about with many different considerations with the type of issues that, that can arise and i can think of example of where they have

arisen before the investment. collectively put our team as well as andrew and his team and puts sfers in a much better position to evaluate the impact of those things. >> thank you. and i guess my last portion is to talk, partners as well your approach to esg in this space? >> sure, i think it's very similar to what david commented on earlier, where as an allocater we're trying to enforce best practices. so similar to what david has laid out here, we have a similar approach, we have a dedicated team as well who

partners with the broader blackstone issue firm or team to make sure when we're on boarding manager, it's part of investment team in addition to our esg team and partnership. >> and i've read also with the environmental space, how does blackstone approach the social category? >> with respect to? >> assessing social risk? >> it's part, i guess the risk with each manager is the esg lens, we lean to whatever part of esg is most relevant to the managers. that's something that we would explore more if it's something that is more environmental. >> and the social risk have they resulted on material impacts on decisions on where you're going to be making the allocation? >> i'll have to thi, there is a come of examples but we will

not go into detail but where they have prevented investments or required additional to confirm that they're not a risk. so the issue team has the ability to pause an investment and the investment to do further diligence. >> thank you. thank you for your presentation. commissioners any other comments or questions. thank you for your presentation. i appreciate it. >> we're going to take a 5-minute biobreak. >> we need public comment. >> i apologize. madam secretary please call for public comment. >> thank you, do we have any in-person public comment on this item? seeing none, moderator are there any callers? >> madam secretary, there are no callers on the line. >> thank you, there are no calls. public comment is now clodes. >> thank you, madam secretary, okay, we will take a brief five-minute break and we will return at 2:50.

>> and ready to go. do i have to do this? [gavel] madam secretary, please call item the next item. >> item number 12 discussion item. review of sfdcp investment performance of first half 2024. >> good afternoon, here to present a review of plans investment performance for the first half of 2024 is greg investment. would the board prefer the full version or abbreviated version. >> given that we've got a good chunk of the day, i don't want to lose quorum, we can always

expand based on commissioner questions, does that work for folks? >> yes. >> thank you, let me turn it over to greg. >> thank you, i will stick to the a briefed, it's a really good report card. i know you heard some cap dal markets, just three slides make some simple points as it results back to the participants and fund options you're providing them. if you would not mind, starting on slide 4, just a level set, one thing we've been talking about and i do have a suspenseful conclusion, the ten to two-year treasury, so the yield curve has been inverted, historic 783 days came to an end in early august where the ten-year actually bounced the above the two-year treasury. that's important because it relates back to your

participants in the value fund. the crediting rate has not bin creased, there is an expectation, a strong expectation by the fed to decrease so you can see, the short here, the very few times where the two-year treasury was ahead of the ten-year treasury. and again if this was updated as of today, you would see an uptick on that zero line. so very important point that we've been following. slide 5 captures the cpi which is the blue line, relative to the green line which is the feds fund rate. and just acknowledge inflation is a very gross factor particularly as they retire and turn off their paycheck. inflation was a challenge in 02. we've seen it come down and again this is a very important part of tero price your target

day manager and we'll talk it about in a minute. they're tactical views have shifted to be a little bit more inflations trying to fight inflation at the expense of u.s. equities so their tactical views have been challenged and i'll show you that later. i just wanted to give you a little bit of a back story on that. and lastly slide 6. just a point of interest we've been talking about the mag nificent 7, the bottom left hand chart or table, shows that bicalendar year, and if you strip out, take the s&p 500 and strip out the 7 stocks which comprise 37 percent of the index, you'll see the rest of the 479 stocks have been pretty, pretty meager in terms of returns. 2021 was the best at 17 percent. this year so far five percent.

so it's a very thinly traded market that is challenging for active managers. your index fund actually added significant value in an absolute sense and we'll see those numbers in a short minute. again just wanted to make the point that just a few stops are really leading the market and that's important when you meet with your managers on how they're performing relative to the bench marks quarterly. slide 7, shows the market value and it's a, just under 5 and a half billion as of june 30th of market value continues to increase, that was an increase of almost half a billion over the last six months. this is the annual report, so most of my comments will be on the two quarters ending june

30th. returns can be found on slide 8, i tend to look on the longer term basis, we'll show you the a attribution. going the page for your younger population and you'll see very strong absolute returns and very good relative to the benchmark returns. as i mentioned, we put in an attribution slide on slide 9. and again just to kind of frame the discussion or explain the discussion so, so you'll see the target date vintages with the bottom with the income so the most conservative one with the left hand side going out to the 2065 fund. the total is the blue line, you'll see there it's above

zero, so it's additive. the green, this is a very good story. this is the funds and these are the funds in your core line up as well as the supplemental, they're adding value over your benchmarks. so when we look at the core marks, they've done a really good job. the blue line is that tactical components and as i mentioned, the under performance you'll see it's below the zero. they've swapped out the equity in favor. they're going to be coming to the dcc on december 2, to talk about this in more detail. slide 10, looks at the core line up and you'll see a lot of green on the page and just a reminder, green means the top half for each respective category. blue, it's going to mood chart is in the third, there is no yellow but yellow would be

fourth, these are all fees, that's one of my opening punch lines this is a very good report, absolute returns are really fantastic for the last half year and year. coming off a poor 2022. and longer term results really are improving. you'll note two managers on watch. one is the funds that are on watch, the large growth we just did a de tailed review. you'll see a improvement right there and it speaks to the mag nificent 7. the russell growth has done well. >> yeah, just, can you explain a little white blocks there? and there on your color coding? >> those are funds that didn't exist ten years ago, so we don't go that far. the index those up because it's been around but that's why. all right the rest of the code

line up can be found on slide 7 and the other because it's on watch thing because of the watch list and the inlist you'll see the international fund. we're seeing dramatic improvement as we've been patient both managers are having much stronger results of both absolute and relative. and finally, the last two slides i would like to cover is component funds. so starting on slide 12, you'll see a little bit more food covering. coloring. it's used used in allocation, they tend to be very volatility sectors and that's why we don't offer them to participants. they generally on a longer term basis done well but the peer groups are not only the perfect match and you can see the go

international bond, there is no peer group there is only three other bond managers that do that type of investment strategy. the last page is 13 and this is just captures the remaining, two dfa international funds and again both doing quite well in relative returns are quite strong. so i'll stop there and see if the board has any questions. >> commissioners? any comments? questions? seeing none, thank you for your report. >> great, thank you. >> thank you. madam secretary, please call for public comment on this item. >> thank you, do we have any in-person public comment on this item? seeing none, 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. >> thank you secretary, seeing that this is a discussion only item, call the next item. >> item number 13, san francisco deferred compensation plan monthly report. >> thank you. at last month meeting, we provided a compensation report. out of respect for your time, i will not take too long i'll keep it brief. the first item i want today --wanted to mention, wanted to note a couple of items within this report. total assess increase month after monthinger. so at the end of month is 5.2 billion and end of july, 5.7 billion. as the market closed on september 10th, total were under 5.56 billion. during july we saw an increase

of activity within the plan with counselor meetings increasing and 11 percent month over month with compared to june. july also saw 117 percent increase in enrollment. so a lot of positive come out of this most resent activity report. the topic is initiative. our marketing and communication initiatives in order to boost awareness and encourage employees to take action. i want to provide you with some results of our resent initiatives and upcoming campaign. first of these initiatives are july your mailings, i believe diane mentioned that. the sfdcp had a mid-year campaign in which multiple versions of a maler were

created for different demographics. follow-up email, this was done with a expectation that a customized message would resonate more. from july 15th to august 31, we had increase contributions. the follow-up email that were sent had a nearly 60 percent open rate and a 7 percent click rate. so we're klaesed with the high engagement numbers. once we obtain statistics we'll have a comprehensive report available but first i want to share some reports. the next thing is insert, within the sfers annual statement. each year as sfers send their member statement in august and including is insert. as this mailing has a wide, sees a significant increase and activity after the mailings arrived.

now within the insert we included a qr code which employees can scan to set an appointment. and in august, we saw 256 percent increase in unique qr codes in compare to july. a big big jump. we saw a noticeable increase. and the last of the marketing events that i wanted to mention was our national retirement security campaign in october. as october is national retirement security month, they will be promoting through our robust campaign which includes multiple initiatives throughout october. these include a live seminar. we also will have weekly webinars every thursday covering multiple topics and two will be presented for the first time. we'll have weekly email

communications, encouraging participants to take action on different actions maybe scheduling an account review. and our popular plan and play game will also return where participants can win prizes. so we're going to have a direct mailing which previews national security month arriving later this month. so if you're a participant keep on the look out for that. and october first, our special national security month will go live. so as you can see we're keeping busy, trying to reach out to all of our participants. those are the highlights if you have any questions, let me know, if opinion thank you for thank you for your time. >> any questions. driscoll? >> thank you for keeping them busier, whether you're doing

online or another insert, is it possible to do it where you ask/challenge the participant to go to a link that they will, if they answer the questions, the answer will be their net worth? >> that's something we can look into. >> okay. please do, because the conversation last couple of days, save money. everybody is saving money. how you and diane merged for people planning in that gap very smart move. and connecting their financial readiness is actually a option of their network not just their pension benefits here and what they have differed. you may say it's a larger aggregate number to go to. >> and i know one of the webinar that's will be presented will go over, online account ak iss with voiya and

one of the actually will go over the things from a more holistic view. so that's something that we can promote more. >> so understand the topic, not surprised you're all set to do it. thank you. >> thank you commissioner driscoll. commissioners any other comments? thank you for your presentation. >> ma dm secretary, please call for public comment. >> thank you, we have no person public comment on this item, moderator are there any callers on the line? >> no callers on the line. >> hearing no callers, public comment is now closed. >> thank you, madam secretary, call the next item. >> item 14. retirement board member good of the order. >> commissioner driscoll. >> i do have an item, it's triggered bit public comment that we had at the beginning of the meeting. if the member of the public statement is that his stock was

one manager was using our fund money to distribute to a cause contrary to our values but contrary to the best interest of the members. one, therefore does that fund manager, i've already done some manager. we don't have he quit interest. but we should confirm with our director mr. collins who does analysis on every one of our investment to make sure that one, the first issue that no fund money was used to contribute to a ballot measure that we would be opposed. if they want to use their own personal money, that's none of our business. trying to get us to stop, doing that stuff. so sometimes there is a miss

ubdsing and members ftd public let alone some of our participants that we're investing with people who are taking legal actions contrary to their interest. so we should try to clear tup by asking mr. collins to double check. >> thank you, and i want to make sure that i understand, you're talking about not, dis entangling where we have a investment with a partner and some sort of asset from some sort of other business that may be involved in political contributions but it's not the one we're invested it? >> when it's not the one we're invested it or if it's one of the partner doing business, it does not affect what we do. staff has been screening the business, it's thousand issues they look at. so i think it's just one of those issues. >> and we cannot go into a de tail discussion for protocol reasons, we will follow-up but everything that we invest in

has clear guidelines and they're not investing in individual political campaign. >> thank you for the quick follow-up. any other good of the order comments from commissioners? member bridget? >> no, mr. vice president. can we close the meeting in memory of 9/11? >> absolutely, absolutely, thank you for that observation. if there is no objection, we will call for public comment on item 14 before adjourning in honor of those lives lost on september 11th. >> thank you we have no in-person public comment on this item. moderator do we have any callers on the line. >> madam secretary, we have no callers on the line. >> hearing no calls, item is closed. >> please call the next item. >> item 15, adjournment. >> we are adjourned in honor of the lives lost on 9/11.

>> and all the first responders. >> thank you. >> my background is in engineering. i am a civil engineer by training. my career has really been around government service. when the opportunity came up to

serve the city of san francisco, that was just an opportunity i really needed to explore. [♪♪♪] [♪♪♪] i think it was in junior high and really started to do well in math but i faced some really interesting challenges. many young ladies were not in math and i was the only one in some of these classes. it was tough, it was difficult to succeed when a teacher didn't have confidence in you, but i was determined and i realized that engineering really is what i was interested in. as i moved into college and took engineering, preengineering classes, once again i hit some of those same stereotypes that women are not in this field.

that just challenged me more. because i was enjoying it, i was determined to be successful. now i took that drive that i have and a couple it with public service. often we are the unsung heroes of technology in the city whether it is delivering network services internally, or for our broadband services to low income housing. >> free wi-fi for all of the residents here so that folks have access to do job searches, housing searches, or anything else that anyone else could do in our great city. >> we are putting the plant in the ground to make all of the city services available to our residents. it is difficult work, but it is also very exciting and rewarding our team is exceptional. they are very talented engineers and analysts who work to deliver

the data and the services and the technology every day. >> i love working with linda because she is fun. you can tell her anything under the sun and she will listen and give you solutions or advice. she is very generous and thoughtful and remembers all the special days that you are celebrating. >> i have seen recent employee safety and cyber security. it is always a top priority. i am always feeling proud working with her. >> what is interesting about my work and my family is my experience is not unique, but it is different. i am a single parent. so having a career that is demanding and also having a child to raise has been a challenge. i think for parents that are working and trying to balance a career that takes a lot of time,

we may have some interruptions. if there is an emergency or that sort of thing then you have to be able to still take care of your family and then also do your service to your job. that is probably my take away and a lot of lessons learned. a lot of parents have the concern of how to do the balance i like to think i did a good job for me, watching my son go through school and now enter the job market, and he is in the medical field and starting his career, he was always an intern. one of the things that we try to do here and one of my takeaways from raising him is how important internships are. and here in the department of technology, we pride ourselves on our interns. we have 20 to 25 each year. they do a terrific job contributing to our outside plant five or work or our network engineering or our finance team. this last time they took to

programming our reception robot, pepper, and they added videos to it and all of these sort of things. it was fun to see their creativity and their innovation come out. >> amazing. >> intriguing. >> the way i unwind is with my photography and taking pictures around the city. when i drive around california, i enjoy taking a lot of landscapes. the weather here changes very often, so you get a beautiful sunset or you get a big bunch of clouds. especially along the waterfront. it is spectacular. i just took some photos of big server and had a wonderful time, not only with the water photos, but also the rocks and the bushes and the landscapes. they are phenomenal. [♪♪♪]

my advice to young ladies and women who would like to move into stem fields is to really look at why you are there. if you are -- if you are a problem solver, if you like to analyse information, if you like to discover new things, if you like to come up with alternatives and invent new practice, it is such a fabulous opportunity. whether it is computer science or engineering or biology or medicine, oh, my goodness, there are so many opportunities. if you have that kind of mindset i have enjoyed working in san francisco so much because of the diversity. the diversity of the people, of this city, of the values, of the talent that is here in the city. it is stimulating and motivating and inspiring and i cannot imagine working anywhere else but in san

>> (music). >> (multiple voices.) >> landing at leidesdorff is as the new public school in downtown san francisco for people to come together for 0 lunch and weekends a new place to enjoy the architect and our culture. >> landing at leidesdorff one of several initiatives to the road map for the initiatives all about using your public space and network for now environments to 0 invite people adopted not just to the office but any time of the day. >> it shows there is excitement and energy and people

wore looking forward to enjoying the space that people may want to end up in downtown. >> we've been operating in the financial district since 2016 with the treasury and coming up we had a small surge in business in the leidesdorff and in about the financial district and a good time to grow here. >> as a small business the leidesdorff is making us being part of it as being part of in project. for me makes we want to be part of san francisco. >> so landing at leidesdorff for me represents hope for san francisco and the sense that this is become such a safe welcoming area. >> we local artists coming in and exercise boxes and live music but the hub of culture. >> the downtown partnerships

has a studio in san francisco. they identified 6 locations throughout the downtown area we come together with new activity and spaces. >> is between us a place to tell our own story and history. >> it was named after a captain one the black leaders of san francisco before that was called san francisco he was the first treasurer of the city and commercial street a cross street the hifblg original shoreline of san francisco was just a few feet behind where we're 12357b8z around opportunity to bring people to locations we have an opportunity to tell stories and for local businesses. >>

forward/hospitality. >> heart of san francisco an aide so important diverse culture in the name for remarkable individuals like carlton b goodlett a man wheeg legacy is at the iconic lashed not just a man of intelligent his journey was far from san francisco good had studies earning a mountain lake cut off road in child psychiatric a city that is is campus for staff's contributions a city with a very different place when dr. good let was around and you would see him on streets like the fillmore

and what he did he mrs. minority healthcare to people who that did not have insurance or an ability to pay for that. >> dr. good working hard around city hall meaning he would load boxes with people and they would go to san francisco state mainly and other places as well and protest these unjust treatments and unfairness of their system. >> dr. good was a america civil service activity with naacp and protested for the discriminations against blacks and public transportation and public housing and the reporter as most people come into the

building today don't know who he was was district attorney know that not only was a physician, a activity but also an incredible cardplayer. in his spare time. >> and the won a number i published and the also ended edited another newspaper wells fargo willie brown and dr. good had a close relationship in the early 90s several groups got together to his own dr. good and put together petitions and worked very, very hard to have the official address changed. >> dr. king's day of the celebration is in january, i got

to call from mayor brown which i've known for in many, many years to ask me to change the street sign this is remarkable. okay. >> in january of 1999 right after the building reopened, mayor brown and i went outside at that moment it was still cold street we shut down the word on the sign that read polk. >> put up the sign that said number one, dr. carlson carlton b goodlett white. >> i think that he earned a certain place in respect of all poem he was just a remarkable

individual. unfortunately, we didn't live long enough here to see the street sign >> the vibrant south of market neighborhood in san francisco is deep lee rooted filipino if fluences to shape the cultural

identity. soma pilipinas known for [indiscernible] night life and art scenes is home to growing filipino community that thrived for generations. >> soma pilipinas is a community, the village that has been over a hundred years in the making. this is home to many generations of filipino from the turn of the century, to the present. continues to be a gateway community for a lot of filipinos just arriving from the philippines. >> one of sth most prominent scines is filipino owned businesses become staples in the neighborhood. restaurants like manila bowl and jp restaurant offer [indiscernible] >> we call it [indiscernible] this is my passion. everybody's who came right now.

we feel good right here. community is like a family. >> the eatery serve mouth watering dishes and provide a sense of home to the filipino community, preserving traditions passed down generation. >> a filipino restaurant utilizing california ingredients we honor traditional family recipe [indiscernible] we shop in the market 2 to 3 times a week. we make the filipino cuisine proud in san francisco. >> along with the culinary deliteds, soma philippine ow is home to san francisco top mix aulgists. filipino artistry is a facet of soma pilipinas rich tapestry. the filipino cultural heritage district transformed public

spaces into canvases that depict the stories and experiences of filipino americans. >> parlt part of the work we do is support filipino artists to work with community to really create and develop community based art. this is murals and designs that really reflect the rich history, the culture and the struggles and triumps of the filipino community. >> the presence of the filipino cultural center which offer workshops, language classes and community resources is a testament to the community efforts to preserve and promote the heritage. >> features the [indiscernible] philippines which is a indigenous community weaving textiles and tapestry for hundreds of years so proud to feech were modern ones and very antique ones and showcase fashion from the community and we are inviting everybody to come experience that with us.

>> the center not only caters to the filipino community, but welcome all who wish to learn about and embrace this culture. >> we want to develop a cultural district where you have the young generation learn their history, language and culture and where you have also the seniors be part of the cultural and share their stories and their traditions, and continue to grow young in the neighborhood. >> the intersection of technology and culture in this part of san francisco provides a unique back drop for a thriving community embracing the past while looking to the future. the filipino influence ingrained in soma serves as remindser of the power of cultural diversity and importance of celebrating in our ever changing world.

>> in the bay area as a whole, thinking about environmental sustainability. we have been a leader in the country across industries in terms of what you can do and we have a learn approach. that is what allows us to be successful. >> what's wonderful is you have so many people who come here and they are what i call policy innovators and whether it's banning plastic bags, recycling, composting, all the different things that we can do to improve the environment. we really champion.

we are at recycle central, a large recycle fail on san francisco pier 96. every day the neighborhood trucks that pick up recycling from the blue bins bring 50 # o tons of bottles, cans and paper here to this facility and unload it. and inside recology, san francisco's recycling company, they sort that into aluminum cans, glass cans, and different type of plastic. san francisco is making efforts to send less materials to the landfill and give more materials for recycling. other cities are observing this and are envious of san francisco's robust recycling program. it is good for the environment. but there is a lot of low quality plastics and junk

plastics and candy wrappers and is difficult to recycle that. it is low quality material. in most cities that goes to landfill. >> looking at the plastics industry, the oil industry is the main producer of blastics. and as we have been trying to phase out fossil fuels and the transfer stream, this is the fossil fuels and that plastic isn't recycled and goes into the waste stream and the landfill and unfortunately in the ocean. with the stairry step there will be more plastic in the ocean than fish. >> we can recycle again and again and again. but plastic, maybe you can recycle it once, maybe. and that, even that process it downgrades into a lower quality material. >> it is cheaper for the oil industry to create new plastics and so they have been producing more and more plastics so with

our ab793, we have a bill that really has a goal of getting our beverage bottles to be made of more recycled content so by the time 2030 rolls around t recycle content in a coke bottle, pepsi bottle, water bottle, will be up to 50% which is higher thatten the percentage in the european union and the highest percentage in the world. and that way you can actually feel confident that what you're drinking will actually become recycled. now, our recommendation is don't use to plastic bottle to begin w but if you do, they are committing to 50% recycled content. >> the test thing we can do is vote with our consumer dollars when we're shopping. if you can die something with no packaging and find loose fruits and vegetables, that is the best. find in packaging and glass, metal and pap rer all easily

recycled. we don't want plastic. we want less plastic. awe what you we do locally is we have the program to think disposable and work one on one to provide technical assistance to swap out the disposable food service to reusables and we have funding available to support businesses to do that so that is a way to get them off there. and i believe now is the time we will see a lot of the solutions come on the market and come on the scene. >> and is really logistics company and what we offer to restaurants is reasonable containers that they can order just like they would so we came from about a pain point that a lot of customers feel which wills a lot of waste with takeout and deliver, even transitioning from styrofoam to

plastic, it is still wasteful. and to dream about reusing this one to be re-implemented and cost delivery and food takeout. we didn't have throwaway culture always. most people used to get delivered to people's homes and then the empty milk containers were put back out when fresh milk came. customers are so excited that we have this available in our restaurant and came back and asked and were so excited about it and rolled it out as customers gain awareness understanding what it is and how it works and how they can integrate it into their life. >> and they have always done it and usually that is a way of being sustainable and long-term change to what makes good

financial sense especially as there are shipping issues and material issues and we see that will potentially be a way that we can save money as well. and so i think making that case to other restaurateurs will really help people adopt this. >> one restaurant we converted 2,000 packages and the impact and impact they have in the community with one switch. and we have been really encouraged to see more and more restaurants cooperate this. we are big fans of what re-ecology does in terms of adopting new systems and understanding why the current

system is broken. when people come to the facility, they are shocked by how much waste they see and the volume of the operations and how much technology we have dedicated to sort correctly and we led 25 tours and for students to reach about 1100 students. and they wanted to make change and this is sorting in the waste stream they do every single day and they can take ownership of and make a difference with. >> an i feel very, very fortunate that i get to represent san francisco in the legislature and allows me to push the envelope and it is

because of the people the city attracts and is because of the eco system of policy thinking that goes on in san francisco that we are constantly seeing san francisco leading the way. >> kids know there's a lot of environmental issues that they are facing. and that they will be impacted by the impact of climate change. they will have the opportunity to be in charge and make change and make the decisions in the future. >> we are re-inventing the way the planet does garbage founded in the environmental ethic and hunger to send less to landfills. this is so many wonderful things happening in san francisco. i feel very fortunate and very humble to live here and to be part of this wonderful place.

>> the time is 1 p.m. i will now call the roll. please respond with here or present. city administrator legg, here. board member herrera, here. board member bowdry, here. with three members present, we have quorum.