Transcripts For SFGTV Retirement Board 20240712

Conversation that is going on right now. But were definitely monitoring that and well try and plug into that process when the opportunity presents itself. President tsen okay. Thank you. Okay. So the next item, please. Its adjourned. President tsen all right. Thank you. Director richardson before we adjourn. Yes. Director richardson i have two statements to make. Just to acknowledge mr. Jim smith for helping us out through the technical glitches today. And i would love to with your permission to adjourn this meeting in the memory of the late congressman john lewis and it was put eloquently, some thoughtful recognition of this great man. And we are all in gratitude to mr. John lewis for his life long fight in systemic racism and injustice. So he was a leader by all measures. And may his soul rest in peace. And thank you. President tsen thank you very much. With that, well adjourn. Thank you, all, for a great meeting. Thank you. [roll call] we have a quorum. You may begin the meeting. Thank you, madam secretary. The motion is whether to disclose the closed session. I move we do not disclose the results of closed session number one or closed session number two. Second to that. We do not disclose the results of closed session one and two. We will take Public Comment at in time. Please open the phone lines. Callers if you have not already done so one moment, please. Callers, please press star 3 to be added to the queue to those on hold, please continue to wait until the system indicates you have been muted. Moderator, do we have any callers on the line . Madam secretary, there is one caller on the line. Thank you. Please state your name. You have two minutes to speak. Caller i am john. Can you hear me. I can hear you. Thank you. I emailed three Public Comments on monday for inclusion in the minutes. I will emphasize a few points. In the july 15th document they said 10 year return is 5. 0 and for the current strategic allocation it is 5. 5 . He said if we had no cash flows no political sensitivities what short terms would be rather than 49 of public and private equity i recommend 100. I highly commend his honesty. New cash flows. Very gradually reset the stakeholder expectations about longterm returns starting with recession and stagflation in any pc july 15 study. 70 30 doesnt work with 10 year treasures and sp500 very high. There is no good diversifying assets. Given overweighting good ideas from the staff excellent management. Hopefully staff can be compensated for continued outperform answer. That is the end of my first Public Comment. I will comment on other agenda items later. Thank you for your comments. Moderator. Do we have any further callers . Madam secretary, there is one caller on the line. Thank you. Caller, please state your name. Your two minutes begins when you speak. Are you still on the line, caller . Moderator, please let us know if there are any further calls. Madam secretary, there are no more callers on the line. Thank you. Hearing no further calls, Public Comment is closed. President bridges. Thank you, madam secretary. Again, it has been moved by commissioner and seconded that we do not disclose sessions one and two. 67a. Madam secretary. Roll call vote, please. Commissioner bridges. Aye. Commissioner casciato. Aye. Commissioner heldfond. Aye. Commissioner safai. Eye. Thank you. Commissioner stansbury. Aye. Thank you. 70. Motion passes. President bridges. Thank you. Next item, please. Action item number 5. Approval of minutes of the july 8, 2020 retirement Board Meeting. Are there any corrections or omissions . If not a motion is in order. Can you hold for just one moment we need to do general Public Comment. Have we received any Public Comment via email . We received one general Public Comment via email from johjohn stenton. He wrote the client asked the Hedge Fund Manager where has my money gone . No, it just went to somebody else. Most hedge funds go out of business after losing most of their clients money i recommend you turn the hedge funds investments into cash. In the last recession cash gave better market protection than hedge funds. When the government stops giving out stimulus we will go into deep recession and the pension fund will lose billions of dollars, ps, the former chief Investment Officer is looking for a job. He is an expert in hedge fund and chinese investment. With best regards from john stinson. Any further Public Comment . Madam secretary. Next item. Item 5. Action item. Approval of the minutes july 8, 2020 retirement Board Meeting. A motion to approve the minutes. If there are corrections or omissions . I move. I second. It is moved and seconded that we approve the minutes of the july 8, 2020 retirement Board Meeting. We will take Public Comment at this time. Thank you, callers. If you have not already done so, please press star 3 to be added to the queue. To those on hold, please continue to wait until the system indicates you have been unmuted. Moderator, do we have any caller on the line . There are no callers on the line. Thank you Public Comment is closed. President bridges. Roll call, please. [roll call] 70. Motion passes. Interest. Next item, please. Number 6. Action item. Consent calendar. Motion to approve consent calendar. I make motion to approve consent calendar minus one correction that i forwarded regarding a retiree that appears on the list that he could not he did not want to retire. He changed his mind. I am aware of that. I can make that correction. Is there a second. I will second and request that we have everybody put it on mute. Thank you. It is moved and seconded that we approve the consent calendar with the state the the stated co be made by staff based on the retiree has changed their mind. We will take Public Comment at this time. One comment. Regarding item 6c it is not about a case. I will bring this up under executive directors report. Thank you, commissioner driscoll. Callers press star three. If you are on hold wait until you are unmuted. Do we have any caller on the line . Maddat secretary there are no callers on the line. Thank you. Hearing no callers, Public Comment is closed. President bridges. Aye. Roll call. [roll call] 70. Motion passes. Thank you, madam secretary. Next item, please. Item 7, action item approval every viced Investment Policy Statement he of the revised investment pa policy. Staff is requesting in addition to the ips and processes and procedures of the security Lending Program just restarted a number of months ago, good news the security Funding Program is off to a very strong start. We will deliver an update next month or in october. We are requesting some modest changes. Very good, bill. Good afternoon everyone. On may 13 this year the retirement board conditionally approved the initiation of Credit Facility up to 250 million. With the custodian with the cash release program from the securities lending on the investment account. The final approval of the facility was contingent on the approval of the needed changes to the Investment Policy Statement related to the Credit Facility, and the acceptance of the internal processes and procedures for the securities Lending Program including the cash release program. So today we are bringing the original changes to the ip to include the Credit Facilities for the plan and we also bring the new internal processes and procedures documents for the Lending Program. So first i will outline the key proposed changes to the Investment Policy Statement to accommodate Credit Facilities for the plan. The proposed changes are in two sections. One is the section called Investment Policies and procedures. We introduce section 12 for subsection 12. Second is in the duties of responsible parties. We amended the duties and responsible investment staff as it related to the Credit Facility. On page 8 of the marked version of the ipf document, we introduced the use of section 12 that allows the trust to initiate Credit Facility under four conditions. First, Facility Needs to be reviewed and approved by the board and general investment consultant. Second, total amount of outstanding loans should be less than 1 of the trust. Third, initiation of any loan through the Credit Facility should be approved by both the chief Investment Officer and the executive director. After careful consideration of the potential sources of liquidity. Number four, the detail reporting through monthly cio reports and annual review to the board should be provided by investment staff in line with the procedures. These are the changes to the Investment Policies and procedures section. I will briefly outline the changes and amended to the duties of responsible parties section. [please stand by] we continue monitoring the process and the security Lending Program and we plan to report the results of the Previous Fiscal Year to the board within a couple of months. The program is operating as intended and so far, the fiscal fiscal year lended for the plan. And the oversight of the account any oversight that we have for any managed account. In line with any public Equity Income equity and retention document. That includes quarterly reviews that covers the compliance with adopted guidelines. We also cover any credit down kraids on our account. Costs associated with the Overall Program and with the cash release program. Review quarterly performance of the program and issues and outlines. We review the lending markets and the credits facilities available towe review the counter monitoring processes since they guarantee the program. We review the other requests such as[indiscernible]. Thats the monitoring. As it relates to the overall security Lending Program. Now id like to quickly outline the process fees for the cash Credit Facilities. First, the initiation of the facilities. The c io and director need to approve the cash release Credit Facilities. We expect to make the Credit Facility. We think of it as a safeguard that allow us to continue meaningful investment. In a way you can think of it as building a hand rail that will help us to recover in time. We dont expectsecond theres a statement period. Were setting it for six months. But expect to repay within six months. Large market may require longer timeframes to prudently pay the cash and pay down the facility. We have large expected cash flows such as projected employer contribution repayments for statement redemption received. That could potentially take longer than three months. Thirdly, we require transparency and reporting in the process and procedures through the documents. The monthly c io reports through the lick the liquidity managemet oversight on a fiscal year. With that staff recommends to approve the proposed changes to the San Francisco city and county system Investment Policy Statement. Independent processes and procedures to the Lending Program. Ill open up for questions. Any questions regarding the[indiscernible]. You can walk through that process. It actually seems we rely on melon. If you remember the way we structure, dual indemnification with all counterparties that they initiate the program. We really rely on the melons process. We do review and monitor them. Because they provide indemnification in the event of the counterparty, we rely on them. Its interesting as a side to note that in march, i believe march 17th there was a counterparty and melon had exposure and we did not even notice it. They worked it through. They have plenty ofremember when we reviewed security lending, with their counterparties. As a result it was a non event fraud by melon as a whole. I wasnt sure what percentage of collateral[indiscernible]. They do monitor my second question is the cash of the balance [indiscernible]. Do we have enough time in the eventim worried about the time line here. We usuall usually know the ch flows within a week. Its rare when we have a large flow. Remember we are preparing for the event when theres a Large Capital flow from one of our managers. They usually give up the time for a couple of weeks for the scheduled pension payments. With that, we think we have enough time to ask for the approval from the c io. We need to move. Right. Thats what im worried about. If we need to move quickly. Thats the timing im worried about. We have about[indiscernible]. Commissioners, any other questions. This is an action item. Move for approval and adoption. I second but would like to make a comment. Adding the requirement for the c io to be counter signed with the security, the point i want to make is this just another bullet point of why or how much finance knowledge the executive director must have in that position. Most organizationsthis duty would fall to the cfo. Thats all. Thank you. Thank you commissioners. Moved and seconded. Madam secretary, please take Public Comment at this time. Thank you. Callers, if you are not already done so, please press star three to be added to the queue until the system indicates you have been unmuted. Moderator are there any callers on the line . Thank you very much for your time. Thank you for being available and holding your meetings so we can all participate. Thank you. This is john. Can you hear me . Hello . Yes, thank you. You may begin your comments. Thank you. I strongly support this change. Given the highly successful heavy waiting in private funds, it was imperative for analysis and tools and this cash release program. The best way of dealing with lick iliquidity of diversifica. Theres a very deep bench. To also help with liquidity, the allowable ranges are huge. We have made a Restructuring Program and this past year alen will report next month for the end of june public equity for up to six and a half percent. North of three percent and that includes passive and passive like strategies. Access returns are higher. We recently had some European Asset managers are currently under way in europe per say. They invest in global heaters. Its not entirely a european based region in terms of where they extract their revenues and profits. Its concentrated. Quantitative analysis in all 20. In conjunction we developed a request for information which last august they approve logos d and was sent out to eleven managers. All of which were visited in europe the following month. He is the third partner and joined shortly after they launched. Investment banking experience. He is a professor at a leading Business School where he teaches a class on financial analysis. We are recommended today 15 to 18 high quality businesses. The detail for cash flow analysis allows strong defensible businesses that are misunderstood by the market. The resulting portfolio highly differentiated from the benchmark. We provide an investment example on page 14 of the memo. This is a good sill straition of the kind of companies for a long Term Investment approach. Biologic manufacturing is very complex. The facilities they use takes years to build and upward of a billion dollars. Bio logics is a growing part of the industry. Most companies dont want to invest until they have regulatory approval. It takes more than ten years to get a drug from initial trials to see the market. Regulatory approval of biologics are contingent on the environment they see the child in. Once they get that approval its a race to get that drug to market before their patent expires. Its usually five to ten years which provides predictable revenues for the companies. Potential vaccines for covid has been in the neuf news a lot lat. If it does get fda approval for the vaccine they will need to scale up fast. They are currently doing their phase three trials. If they do get approval, they will literally scale up a vaccine in a short period of time. It would be significant for the company. A lot of investing, the staff was under valued. Its a great opportunity in bio logics. Theyve been building up their manufacturing capability bs andd facilities. They saw it was well positioned to benefit. Theres a gross ir of almost 50 . It would be additive to our current portfolio. The only managers that have it have less than a one percent and these are diversified investments. We are not[indiscernible]. That has lagged the last ten years relative to the u. S. The growth has been weak. You can see that on the chart in the memo. The net returns of 10 . Returns analysis are on page 18 of the memo. In addition to strong absolute and relative returns as measuredtheres up capture of 100 . Down can down capture of 80 . It will create over the long term. Were recommending capital. I will now turn it over to nat c to make any additional comments. Thank you. As curt mentioned. They were involved in helping to contribute interesting strategies for the rfi as well as reviewing and editing the questions that went out and fit the respondents for us. Two groups of our Research Team work with hahn and her group. The fundamental Research Analysts reviewed them and there is a supporting memo in the material fromwritten by them why we think would be a effective strategy and why we support these recommendations. Our Due Diligence group looked at the strategies. We looked at the firm and infrastructure and various oversight. Aspects of trading and liquidity. Various controls. We found no negative items of note. We join the staff in recommending the strategies. Okay. Board members. Any questions or comments . This is an action item from the Investment Team. Question. How many alternatives did you seriously consider before settling on this one. I realize the plan to add more, as you described in the opening paragraph may still be a work in progress. Im try to go see how many alternatives you seriously considered. We looked at closer to thirty strategies. Many of them were closed to new investors. They had low net equity but we seriously considered 11. I visited all 11 in europe. I spent hours in their offices and went through all the materials and did significant data analysis. We did more recently virtual calls with a number of them as we narrowed down the list. Thank you. The numbers that out of this shows, would they have qualified or passed the same requirements that was in the public equity search that we issued a couple years ago . In that one we did have a tracking error. Its a little over 5 what it took to qualify. There were quite a few of the other things we were looking for. Exactly. I think almost Everything Else. Only working equities. Significant internal, strong historical returns. Really differentiatedwhat i like most about this one when i visited all of them. All the other ones are based in london. They have heavy uk financial. Portfolios are very similar to some of our east coast managers. This one really had differentiated holdings and i really believe their Free Cash Flow analysis. The level of Due Diligence is really unprecedented when evaluated. Thank you, again. I would assume its only scwins dental that richard ran the Eastern European fund for somebody. Thank you. Commissioners, are there any other questions or comments . If not, i will entertain a motion at this point. Staffs recommendation with a 3 million limit. Thank you. Its been moved and seconded. Madam secretary, if we could take Public Comment at this time. If you have not already done so, press star three to be added to the queue. If you are already on hold, please continue until prompted to speak. Madam secretary, there are no callers. Public comment is now closed. Thank you. As reviewed and seconded that the retirement board recommendation to hire alatus capital for up t to 300 millio. Roll call, please. roll call . Six yeses. Motion passes. President bridges. Thank you, madam secretary. If we can call items nine, ten t and eleven together, please. Yes. Thank you. Item nine request for proposals for private Consulting Services. Item number ten recommendation to issue a request for proposals for private Investment Consulting services. Also item number eleven, action item. Recommendation to issue a request for proposals for private Consulting Services. Thank you, madam secretary. Extended a contract to manage or provide Consulting Services that was a private contract for two years. In march of 2017 the contract was amended to approve private credit. In addition at the end of november 2013 a contract was awarded for monitoring and recording for our private program. All three of these contracts are expiring over the next couple of months. Staff is requesting the issuance of these three rfds. Well turn it over to the board. Board members, are there any question hes on items nine, ten, and eleven. The rfd that have been recommended by our Investment Team . All three are action items. I want to make sure that we covered all three. If there are no questions, i would entertain a motion. Thank you. Its been moved and seconded that we adopt the recommendation for items nine, ten, and eleven. Madam secretary, Public Comment at this time, please. Thank you. For those of you who are on the line, please press star three to be added to the queue. Those that are on hold, please continue to wait until the system indicates youve been unmuted. 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 closed. President bridges. Thank you, madam secretary. Again, its been moved and seconded that we adopt staffs proposal and recommendation to issue requests and proposal for private investment services. Madam secretary, roll call, please. Thank you. President bridges. Aye. roll call five yeses. Motion passes. President , bridges. Thank you, madam secretary. Next item, please. Item number 12 action item. Recommendation good evening. In march of this year, the board approved staffs request to issue an rfp for Consulting Services. It was issued in april. The memo highlights a review committee of those rfps. The five member review committ committee. For the april 10th deadline, we did extend the deadline by one week. The Selection Committee that built this outline we found we were being charged individually based on the interest provided in the rfp. Based on thosewe did this work in april and then in june we proceeded to look off site. During those meetings that lasted several hours. Research capabilities and saw portfolios. It was asked to be prepared and discussed. Based on these interviews and also extensive references conducted, we recommend the board[indiscernible]. While we were very fortunate to receive four very strong submissions. First of all, research capability. Strong coverage at the end of the marketthats our existing portfolio. It aligns with our philosophy with the investment port foa poo going forward. The Global Nature of our existing portfolio and with the build out team in asia and north america. Last but not least, the proposed team is highly experienced in diverse coverage. Bringing over twenty years of experience. The team is led by mark with twenty years of Investment Real Estate and resources. A wide variety of strategies. I also supported by bob twenty years of experience focusing on Natural Resources and infrastructure. This team is here today and with that im going to wrap up and open up for any questions the board might have for the ca tea. Board members. Commissioners this is an action item. Are there any questions for representations of hiring Investment Team Consulting Services. If not, i entertain a motion. So moved. Seconded. We accept staffs recommendation and will take Public Comment at this time. Thank you. Callers if you have not already done so press star three to enter the queue. Moderator, are there any callers on the line . There are no callers on the line. Thank you. Hearing no calls, Public Comment is now closed. President bridges. Thank you, madam secretary. We adopt staffs recommendation to have associated for real assets Consulting Services. Roll call, please. roll call . Commissioner chew has stepped away. Is she back . Five yes. Motion passes. President bridges. Thank you, mad madam secret. Next item, please. Item 13 action item. Investment report. Im sorry. Item number 13 is next. Action item. Recommend offed statement of objectives, guidelines and procedures. Fixed income portfolio. Board members, this is not the most exciting thing we do in our portfolio but its a critical thing that we do. It provides stability and et cetera. Senior Portfolio Manager worked exhaustively. It was brought to the board and the board approved last month. This month were bringing forth the guidelines and procedures. First, we would agree with you about the excitement. Last month Board Members you approved an investment of a portfolio. Were seeking the boards approval of the guidelines. These guidelines were developed over the past several weeks with los angeles thinweeks withlengtf guidelines. If approved by the board the guidelines a copy of which has been provided to you will be incorporated to the management agreement. These guidelines are extensive and thorough, they are written in a relatively straight forward manner. With that, ill turn it back over to the board for any questions or comments. Any questions or concerns. This is an action, i would entertain a motion. So moved. Is there a second. Second. Moved and seconded. I will take Public Comment at this time. Thank you callers. If you have not already done so please press star three to enter the queue. If you are already on hold please continue to wait until the system indicates you have been unmuted. There are no callers on the line. Hearing no calls, Public Comment is now closed. President bridges. Thank you, madam secretary. Moved and seconded. We accept staffs recommendation to move the retirement board through the guidelines for the multi sector being managed by pim co. Thank you. roll call five yeses. Motion passes. Next item is item number 14. Discussion item. Thank you. Board members, we begin last month we initially reported that our fiscal year end june thirty, we have an updated number. Our returns were two point four one percent for the fiscal year end. They will still float around a little bit. Were talking a matter of a few basis points. In july we had a great month. Up two point four three percent for the month. It was up another six point four percent. The portfolio continues to meaningfully out perform. Last month the board approves staffs recommendation to approve up to 60 million for the Opportunity Fund five expansion. We were allocated 60 million. The board approved another 60 millions dollars for funding tojust a quick updatewe provided an update on strategy for public equity and fixed income. We did absolute return was scheduled even though it was delayed to may duh t due to cov. We updated the board on our liquidity and pacing schedules. We provided an update to the board on private equity and credit asset strategies. Well have an esg update that will be ready to go in april. We may delay that to may. We have a crowded calendar in the next couple of months. The next item on leverage will be ready. We want to bring to the board our Asset Allocation will be ready in october. We want to bring to the board what our risk exposures are and also an attribution of our returns. We would like those two items to precede Asset Allocation and the es c update will be in october november timeframe. In addition to the items i just mentioned, well also have an update. The next couple of months are going to be relatively busy with a calendar on items other than this investment update. Covid is not out of the woods as we know. Recent data has not been encouraging. At its peak fatalities back in april may were about 2300 per day. They declined very rapidly. Five hundred a day. They climbed pretty consistently to about a thousand. Just to give a heads up as the covid is that were not out of the woods. We have a couple hundred trials. Some of these are entering later stage trials before the end of the year. Until there is a vaccine or treatment all we have to prevent the spread and risk to life of covid is social distancing and the like which has had a negative impact on economic growth. With that from a personnel case, were in the final stages of our recruitment of our investment operations and also for our analyst, i think thats all i can say at this time. Were ver very closewith that l turn over comments to the board. This is discussion item only. Are there any questions or comments for the c io. I would like to see how weve done on absolute return. Ill make some initial comments. Weve hadcontinued to have a very good recovery. After the punch in the gut negative nine percent something return in march and that negative report to quarter end. We had a five point three, five point 5 return for 2q and another one and a half percent return in july. Last four months weve recaptured for than 7 percent of the loss. Credit has not rebounded in the market like equity has. A lot of concerns about credit qualityundeunderlying fundmentf the pricing investments. Gradually the two are coming together. They have not occurred in the same degree of recovery weve seen in the equity market. Ill pause there. Yeah, bill. Thank you. Just to add to what you mentioned there. The q1 performance we experienced is definitely by far the worst weve experienced to date with our return program. Driven entirely by what we experienced in march. We did earn back more than half of that loss during the Second Quarter and had the best performing quarter weve had in our history. Were still finalizing the performance numbers for july. It looks like its coming closer to one and a quarter. Continuing on that recovery path. Just on the subject of credit, thats no longer the case. A number of credit managers that experienced significant losses in the month of march, very strong quarters during the Second Quarter. The term weve hard a number of times from our credit managers is that the asset pricing took the elevator down and is taking the stair way on the way back up. Weve definitely seen that in the way of performance. The fundamentals that are in place supporting our Credit Investments are very strong. Going back to what we reported to the brd bac board back in ma. Weve seen very strong and fundamentals that are continuing to improve in that area. The thesis here is a strong one and continue to believe in these investments. Thanks for that. Both of you. When you come back next month for the report and well be talking about absolute returns or when we talk about absolute returns, can you break out credit from Everything Else in absolute returns so i can try to better understand the impact of credit. Absolutely. We plan to bring back a comprehensive asset of returns. Madam secretary, there is one caller on the line. Thank you. Caller, please state your name. Your two minutes will begin when you speak. Caller this is john furland. Can you hear me . Yes, we can hear you. Caller thank you. Regarding absolute return, as i said, it is m. D. , managing director, and also ever since the january 2015 Board Meeting the hedge funds have outrageous fees for poor performance. Despite that, i recommended a 15 allegation to hedge funds because longterm treasuries are not reliable, 63 of assets and 42 blended status in the recession scenario. I now support a lower allocation to absolute return and new allocation to global Asset Allocation per nepc july 15 document. My actual preference, as i said years ago, so heavily overweight what the strongest equities and pay them yourself and paying that edging cost instead of absurd hedge fund fees. As i have also said in each market cycle t strongest assets are different but quite persistent. In the 2010 bull market, they were the largest tech stocks which everybody knew that outperformed every fund manager in every class. Please seriously think about that. Please include the monday written comments in the minutes, not the verbal comments today. Thank you for the opportunity to comment and good luck. A thank you for your comments. Moderator, do we have any further calls . Madam secretary, there are no more callers. Thank you. Hearing no further calls, Public Comment is closed. President bridges . President thank you, madam secretary. Next item please. Next item in item 15, discussion item. Deferred compensation manager report. Good afternoon, everyone. Thank you for your time today. I am the deferred compensation manager and i am here to present the report for the previous quarters. The previous quarter, excuse me, and if it pleases the commissioner, i can briefly go over some of the highlights in the report. Starting in the investment session, it decreased from 2. 15 in the Second Quarter to 2. 33 for the third quarter. Primarily due to declining yield. However t rates still very competitive given the current Interest Rate and market environment. While on the topic of stable value, galiart was approved to continue as the provider earlier this year in april. The contract renewal was successfully completed with a new term commencing on july 1. For the communication section on page three, i wanted to mention some of the initiatives. At the outset of the shelter in place order, the is sfdcp informed employees of the resources still available. However, with social distancing protocols continuing indefinitely t focus is to expand the virtual methods of communication and i wanted to give a few examples of this. Live webinars were recently added to the sfdcp website. We created a retirement counselor flyer, introduction email, and the various distributions to them for the locations that work from home and can be distributed electronically. The they are posted at locations where employees primarily work. We worked with various employees to coordinate virtual live presentations or creating prerecorded ones. We just finished with Fourth Annual statement and here is the little preview of what you are receiving. And on top of the initiatives, staff have also started planning for National Retirement security month in october which was previously known as National Retirement security week before this year. This year the theme is going to be Financial Health also known as financial wellness. Throughout the month we will focus on how to help an individuals Financial Health. We have held a live presentation at the San Francisco main library in conjunction with this, but due to current circumstances this, years presentation will be in a virtual setting on is sfdcp website. In the operations section, i wanted to provide an update on the cares act. In june the i. R. S. Provided Additional Guidance from the cares act. This included qualified additions and is incorporated in the cares act processes and attached cares act flyers has been updated accordingly. Additionally the Second Quarter activity report now includes cares act distribution statistics, but i did want to provide you with more updated numbers as of the end of last month. As of july 31, we have had 22 coronavirus related loans for a little under 900,000 and 40 coronavirus related loan suspensions. And earlier i spoke about some of the work that sfdcp has done to adapt to a virtual work environment. And the Record Keeper is doing the same as well. As a coup of examples starting in september, participants will be able to view the voya website in spanish and also at the end of the year, voya will be rolling out a text dashboard notification to allow them to request text updates on the inquiry. Those are some of the main highlights i wanted to cover. If you have any questions, please let me know. Otherwise, i would like to thank everyone for your time. Thank you very much. This is a discussion item only. Are there any questions on the deferred compensation manager report . If not, we will take Public Comment at this time. Thank you. Please continue to wait until the system indicates you have been unmuted. Moderator, do we have any callers on the line . Madam secretary, there are no callers on the line. Thank you. Hearing no further calls, Public Comment is now closed. I was trying to get through. Were you able to hear me . No, commissioner casciato, i didnt hear you. U an im sorry. I wanted to comment as he was finishing that i will be scheduling a deferred Comp Committee meeting very shortly. Thank you very much. I appreciate that. Madam secretary, next item please. Next item is number 16, review of sfdcp Investment Performance for the first half of 2020. Thank you. We will be providing the review of the sfdcp Investment Performance for the first half of 2020. In the interest of time, i wanted to see if the commissioners would like the full report or an abbreviated version . Im fine with an abbreviated version. Are there any opposed commissioners that would like to see the full report . So lets move forward with the abbreviated version. Very good. Thank you. Great thank you and good afternoon, everyone. Thank you. I will do an abbreviated report and as always we have included the summary of the key bullet points that we found for the period june 30. To work on page two, this is the summary and ill just run through a couple of the key findings. Overall it was a very good report despite a difficult and volatile period as you are well aware. The total deferred Compensation Plan was 3. 8 billion and this was a roller coaster for the first two quarters and the plan fell by 484 million in the First Quarter but bounced back and made up almost almost made up the entire balance. The target date funds bounced back nicely and have generally performed in the balance of the report. The Strong Equity and fixed income markets during the quarter really showed through on all the different investment options. We will look at that in a moment. The one manager to highlight that qualifies for the watch list is lsb that is the Large Cap Value manager in the plan. Really it was a dramatic sell off in the First Quarter. They underperformed the benchmark by 5 during the First Quarter and that brought down the longer term cumulative results with the diversified exposure with 180 securities in the fund. With a slightly higher allocation to financials and energy that sold off dramaticcally. Financials were down 30 and energy about 50 for the entire First Quarter. So that really brought down the longer term results. There was one organizational announcement to turn your attention to and that was schroeders on the International Value side. They did have an analyst pm leave, michael obrien. He is going off for other opportunities. Hes one of 30 on the team. It is a quantitative strategy, so there is no one key decision maker, so while we continue to watch and meet with schroeders, we dont believe this is any action is warranted. We did want to turn your attention to two announcements made by the d. O. L. During the quarter. One was on esg and essentially they came out with proposed ruling. Really making it a continuing to make it a higher standard to allow esg funds to be added to the fund lineup. The second was a d. O. L. Letter in response to two private equity firms asking if private equity is allowable investment in the defined contribution plan. And the answer is there is nothing that prohibits private equity from being a component of the target fund. But there still needs to be consideration and given the different permeations of the class. And those are the high level summary. And to reflect on the growth value challenges we experienced the last few years. What really highlight sod far this year on page 7. And here we show two charts. The left one looks at the f. C. P. By sector and the total returns year to date. And this is through july 15. And there are many Success Stories and facebook, amazon, microsoft, and google. And they are up collectively 33 year to date. And technology and consumer discretionary, health care, are all positive year to date. And in the far right, energy and financials and industrials and utilities. Central centric sectors are still hard hit despite the nice bounceback that you can see with Energy Bouncing back 59 . This is from the bottom of the market on march 23 through july 15. So just gives you a flavor of how extreme the market environment has been. How volatile and extreme really depend on what sector and what style your investment is. And that really explains why theres been some underperformance by the managers and i think the big picture take away from our perspective is this is a very short time period and these are very diversified funds, and we expect over the long haul value added managers to bounce back and particularly lsb. Returns can be found on page 13 for the target date fund. You will will see strong rt kwaerly results. And they have been arranged by the most active at the top and the most longest dated for the younger populations at the bottom. As you move left to right, you look at the section, they are all outperforming. Lately the shorter funds on a relative basis have done better given the bond markets outperformance in the Second Quarter. You will see the individual managers on 14, visavis the benchmarks and the coding is the peer group per peer performance. And red in the fourth quantile and the large kept identify and to have a lot to do and when we look at the second call last year and down 12. 7 visavis the russell 1000 value index down 8. 8 . And largely accounted for and we tend to work longer term and expect ethem to bounce back as their strategy to take over buying more. I would offer it is a nice counterpoint to the Large Cap Growth Fund you offer participants of 21. 7 in the same time period. And it doesnt show you the humidity and the differential and the style. I will pause there and see if theres any questions. That i can answer. Any questions for greg or mr. Mccallan for the Investment Team . On this item . Thank you very much for the update. We will take Public Comment at this time. Thank you. As a reminder to callers who are on the line, to press star 3 and to continue to wait until the system indicates that you have been unmuted. Moderator, do we have any callers on the line. We do in the have any callers on the line. Thank you. Hearing no further calls, Public Comment is now closed. President bridges . Thank you, madam secretary. And i am worried about losing a quorum at this time, so if i could we have one action item number 18, so at this time if you could call item 18 instead of 17. The approval of president s appointments to the committees. Thank you. Excuse me. I have been trying to unmute the mic for several seconds. Im sorry, commissioner. I didnt hear you. I have been trying to unmute for several second here. I am not sure what is going on or who clears and recognizes it. Oh, i didnt hear it. I apologize for that. The comment is not about the performance, but i do want to thank mr. Unger and calan because his colleague who also works on our account in this field has written a very concise but good report regarding the litigation and the deferred compensation area. Maybe this general topic will come up with the next deferred compensation meeting. A lot of it relates to fees and Fund Selection which we Pay Attention to. We are not unnecessarily susceptible to litigation, but all the issues that are raised pertain to what we must do. Anyway, thank you. Thank you, commissioner. Madam secretary, call item 18 now. Number 18, action item, approval of president s axhoi appointments to committees. Board member, this is a discussion item only, and so this is the approval of appointments for committees. If there are any questions or concerns ill move this item. Commissioner casciato, thank you. Second. Commissioner, thank you. Its been moved and seconded. At this time well take Public Comment. Reminder to those on hold to press star 3. And to continue to wait until the system indicates that you have been unmuted. Moderator, do we have any callers on the line . Madam secretary, there are no callers on the line. Thank you. Hearing no further calls, Public Comment is now closed. President bridges . Yes. And again, it has been moved by commissioner casciato and seconded by commissioner hawthorne that we approve the apresident s appointments to committees. Madam secretary, roll call please. Thank you. [roll call vote on item 18] we have six yess. The motion passes. President bridges . Thank you, madam secretary. Call the next item, which would be 17. Thank you, item 17, discussion item, review of demographic experience study. Good afternoon, commissioners. Our demographic study is performed with border and chair policy with rates of retirement, merit salary increases, assumed mortality matchup with the experience of the plan members. Todays item is a discussion only. However, we do intend to bring forth both the recommended demographic assumption changes and the economic assumption study to the board at the november meeting. And your actuaries will present the results to you. This is a study we do every five years. It looks at all the noneconomic assumptions. We review the economic assumptions each and every year and will be coming back with the later reviews. We perform the study in 2010, 2015, and 2020. [audio distortion] with the highlight more detailed than some of the assumptions we are not covering in the presentation there in the full report. The assumptions that are adopted, the demographic assumptions will be used for the next five valuations from 2020 through 2024. At this point our proposed changes are largely refinance of existing assumptions. We have a lot of refinements but no major changes. The first things we look at when we are starting a demographic study is the impact of the assumptions and the demographic measurements since the last assumptions were implemented. And in this chart it shows the variety of assumptions in the experience over the last four valuations. I think the first thing i want to point out to you is the y axis. We were within basely plus or minus. 6 in the projection of the actuarial liability during this period. That is a fairly narrow range. We certainly like to predict your investment returns within that range, and so it supports to make minor changes to the assumption. There is a quick summary of the different categories of assumptions with the most important changes in the categories and the estimated impact on the contribution rate. And there are two components to the salary increases and wage installation scale which we review in the economic assumptions. On top of that we have with the years of service. And that is reviewed with the part of the demographic study. The old safety cola assumption and mortality and so forth. The main note here is the total impact is an estimated reduction in the contribution rate of. 09 . Basically a level impact as we go forward. Turn it to ann to present this section. The increases that are the step increases or promotional increases. It is not the inflation or real wage growth. And that is going to be reviewed when we do the other economic assumptions. This graph here is showing the miscellaneous members and all of our salary and merit increase assumptions are based on service and we do have separate assumptions for the five different groups miscellaneous, the muny drivers, police, and fire. The Miscellaneous Group is by far the largest comprising about 70 of the active members. So the, again, this is based on service and you can see in earlier years, members tend to get higher increases early on in the career and then they trend down to lower increases. And shown here by the red line. The current assumption is the blue line which shows a similar pattern. And we are proposing about an increase to these assumptions and halfway to what the Actual Experience indicated in the last five years. The graph here shows the experience to the Police Members and for the fire members. We are proposing slight increases in these assumptions. I am getting a delay here with the screen. Bill, do you want to take control back and do it . I am not able to move the presentation slide. Now you have the ball, so you should be able to control it now. Try it now. I got it. Okay. The police and fire members were proposing slight increases at the lower ages. And then decreases at the older in a members career. Is everyone able to see the presentation . Okay. Great. So you can see later on we are actually decreasing that ultimate rate of increase from about 1. 5 for police and fire members down to about half a percent based on the Actual Experience we are seeing. Overall the merit increase and the total increase. And offsetting cost impacts and show the increase in the cost and the police and fire will see a decrease in the contribution rate. And the next assumption for basic for the safety charter group. And over 2,000 retirees and beneficiaries. This is a more complex set of assumptions with the 2 basic cola. And that is based on the cpi in the bay area. These colas are a function with the salary increases for the current active members. And the pre1975 retire reese and those who retired before 1975, this assumption is half of the percent increase for the active members salaries. And half a dollar increase for those members. We are proposing decreasing these assumptions so that basically due to the fact that the ultimate wage increase is being reduced from 5 to 4 . So with that decrease in the assumed wage increases for active members, it is going to decrease our assumed cola. I did want to point out here that for all of these groups t assumed cola is still above the basic cola that the other tiers received in the highest percent increase in the safety cola of 3. 8. And that is the majority of the motive. There are about 1600 that call into this category. Pass it to bill. I want to take a second to go through the different statistics with how they are working with the rest of the analysis and what we are looking at and the retirement rates and the mission rates and whatever. And actual expected ratio which helped us get to the right overall level. So if there actually 10 retirements and we only expected seven, this ratio will increase the rate to get them applied. The r squared help us fit the curve. We could have the right ratio and the right level and assuming all together the oldest people retire and when, in fact, it is probably the reverse and get that close to 100 to make sure the pattern fits. And the 90 confidence interval allows us to assess the credibility of the data and whether this is a need to change the assumption. That is the basis for a lot of our graphs, i thought i would just show you an example here to illustrate. If we observe the rate of 10 , we will show that in the black box. If we only have 10 pockets and one person retired, for example, that 1 out of 10 with the data and statistically we can only say its between above 0 and 30 . If its 10 out of 100, we can get to the range of 5 to 15 and if its 100 out of 1,000, were narrowing in to somewhere around 8. 5 to 11. 5 . And the narrower those gray bars are, the more data we have and the more confident we are that the results are actually what we should assume. So in graphs and looking to determine to first understand and the five different categories. And we have three Different Service groups and make assumptions by date. And for each of the groups and everyone older than that is going to retire, 100 retirement. And the significant change were making or proposing here and extend the miscellaneous retirement rates to age 75. We have seen quite a few people working past age 70 in the Miscellaneous Group. With the different retirement rates and to base on the other retirement rates and just apply some judgment based on the different terms of the component. And here are the rates with people with 10 to 19 rates of service. And the gray bars are the confidence intervals with black squares are what we actually observed. The blue line is the current assumption and the green is the proposed. And we are making minor tweaks to the assumption until we get to age 70 and previously suggesting around 125 . And the same graph only for people with 20 to 29 years in service on the top and 30 or more years of service on the bottom. And recommending site reductions at earlier ages and might be a little bit more. And extending the rates to age 75. This is an assumptions that actuaries get most excited about. What is exciting about this for expert this is year is that it has a relatively small impact on the cost in comparison to five years ago and had a very significant that are basically changing tables but the basic result is another tweak in the assumption in terms of cost. The mortality assumption is consists of two piece. The first is a published base table that reflects the current mortality given the last 10 years of experience that we looked at. And it also we can reflect the actual sfers experience on this published table to the extent that the data is credible. When i say credible, i dont mean its not believable, but is there enough data to be statistically viable. That is the first piece of the mortality assumption. The next is a projection scale that projects future mortality improvement going forward. The last study we use is the mortality tables that are out there and those were the only ones at the time that reflected Public Sector experience. In 2019 there are published mortality tables based on Public Sector plan experience. They do differentiate mortality experience between general and safety members and the calfers table did not. This is one thing that the actuaries in our industry doing Public Sector trend are excited about because we can fit those mortality experience to both general and safety with a better relationship. And by updating the production details, basically over the last five years, it is less optimistic about the mortality improvement meaning there will be mortality for these groups but not as significant the initial projection scale. This slide shows the different patterns of mortality between general retire0s and safety retirees. The blue line represents the male ratio of safety retirees to general retirees. And the male comparison shows that safety and the blue line to age 68. After age 68, they have higher rates safety do than general. It was a similar dynamic with the females. The same with female with around 50 to 57 and then have higher rates of normality. And this is in the experience that is in the support with the general and min lains you group. This is a very technical slide that goes into a lot of detail. Im not going to go over to all this and i wanted to the general take away here is looking at the current a e ratio with the calpers tabler have suzed the proposed ratios using the Public Sector table. And the benefit and are closer to 100 . With thealthy retirees and the 100 for the male and female Miscellaneous Groups. And the number of deaths is so high, greater than 1,000 in the category. And to fit that experience. The number of expected deaths are not exactly matched that occurred in the last 10 years. And the proposed mortality improvement and publish and issued to propose the projection scale that was published in 2019. Lastly is the experience for termination rate. This analysis that you are seeing here in the four graphs shows the Miscellaneous Group. And we have three different graphs for members who have less than 10 years of service. We divided those two three different age groupings because the Analysis Shows that members who are younger with less than 10 years of service tend to terminate at a higher rate. And that rate decreases to see what termination rates are much higher. And when members have over 10 years of service. And the current assumptions made of 3 for members who have more than 10 years. However, more of a correlation and depending on how much service they have and proposing slightly higher rates with 12 years of service and to better fit the Actual Experience. Just to wrap up the experience is pretty close to what we had been predicting under the current assumptions. Those are low, major changes proposed. And we tend to highlight some of the most significant changes were proposing. But theres a lot more detail in the full report and well get back to the economic function and asset allegation is selected. Just going back to the impacts, you can see the individual assumption changes and the impact and the grand total. And i think it is significant with the study and rate study. Obviously saying no rate change. Those are served us well and we are fairly close. With that, we will take any questions. Thank you. Board members, do you have any questions . I have two questions. Commissioner dris col. I want to make sure on page 8, that normal wage and increases plus merit . And also also a merit increase. There is some merit increase the promotion. Are you still talking . I cant tell if i am connected or not. I am connected. I had stopped talking. The 4 is 3. 5 for Wage Inflation and plus theres. 5 ultimate merit assumptions. That explains to a couple of months with a lot of adoptions. These are longterm number. It may lead to an actual gain if we are high versus what may occur. The second part connected to the question is the third bullet on this page and asking this question because one of our predecessor consulting actuaries made this inaccurate mistake. The way this is written for the post75 retirees, we have four tiers that meet that definition. Four tier. Does this only apply to one of the tierser to way its written apply to all four tiers who do not all get the benefit of that cola formula . The charter section. I will check to see if that one group that has there are two tiers in that one charter section. With but the cola is different in those two groups. And discovered a mistake and we didnt lose any money. The city didnt lose any money, but it was one of the little tweaks in this very complicated practice that you have to lead us in. That concludes my questions. Other commissioners would question the comment on the demographic study. I have a question for bill and for ann. I am curious to understand and the wages and the city coming cycle. This is a longer term assumption overall. Wondering if you can walk this through what will be happening and working on and whether we expect any changes to happen. The key piece of this that we have not addressed in this study is the assumed Wage Inflation which is the acrosstheboard wage increases. And so those will be addressed separately in november. This is the additional top of that and largely based on service. And i think what you are getting at really is an expectation with the across the board and how those are affecting that. And it is long term in the great recession, and in some cases we have put in the ultimate assumption so maybe 0 or a very low number for a few years and then go up to what we thought the longterm assumption would be. And in other cases we took the longterm assumption. We will discuss that when we come back in november. Are there other elements that will be refined between now and november . Not on the demographic side, unless there are specific things that you want us to look at. When we come back, we will be looking at price inflation, Wage Inflation and the expected return on assets. Any other questions . If not, we will take Public Comment at this time. Awe thank you. As a reminder to anybody who is on hold to continue to wait until the system indicates that you have been unmuted. Moderator, do we have any callers on the line . Madam secretary, there are no callers. Thank you. Hearing no calls and Public Comment is now closed. President bridges . Thank you, madam secretary. Again, thank you for this information and we look forward to the rest of the report in november. Thank you very much. Thank you. Madam secretary, next item. Item 19, discussion item. Travel expense report for the Quarter Ended june 30, 2020. Commissioners, fiscal year 20192020 travel report. As you can see effective close to march, all travel was prohibited and so we have incurred no expenses as far as staff or board member travel. As it turns out for the budget year we had just over 1 million in the budget and most of that is restrictions over the last four or five months. If there are any questions, i would be happy to answer any questions. And if not, we will take Public Comment at this time. Thank you. Any callers on hold with no callers on the line. Hearing no calls, Public Comment is now closed. Item 20, discussion item. Executive directors report. I have provided the followup and i found the announcement of high level interpretation by the investment magazine to what the ruling meant and nossman who, by the way, was actually representing a defendant in this lawsuit. Just for the boards members, very high level used to determine and calculate benefits. In 2012 there was statewide law passed by then Governor Brown with the Public Employee pension reform act which strictly limited the components of pay that could be included in calculating final compensation or benefit purposes. It precluded these types of payments and so the group these groups of employees sued basically saying the california rule prohibited any kind of takeaway from the pension benefits without a corresponding or commensurate increase somewhere else. And the spirit of the 2012 law was to prevent pension spike and since the two components of pay were a way for an employee to manipulate the size and the retirement boards and basically said that were not going to include this in our calculation report. So that is why the headline was to get tensions and relative to the california rule. I believe that we can read it one of two ways. And they didnt address california rule and basically said when you were promised that are not guaranteed and we will watch for more on this court case. Not sure the timing of when those will occur, but wanted to bring that to your attention. And quite the discussion on the retirement boards responsibility to correct mistakes. And to give them the authority of discretion as to determine as they did in this case historically those folks have been included. It is not a retroactive change. And to show that there was any kind of impact than they had anticipated to include in the calculation. And the second item and is attached that the department of labor had issued rules that people were generally interpreting to understand what circumstances they could actually consider esg issues and make the e is, g benefit. To belong to and sign onto letters. And opened up a Public Comment period. And to submit our own comment and staff comments. And the department of labor provided and still on the line if there are any questions related to that and the deadline with the 29th. And to bring it to the board and have the board signed and hopefully to understand with the staff and felt it was important to submit those comments to the department of labor. This is a discussion item only. Do we have any questions for our executive director . The entire report. Thank you. And item e on the consent calendar, director, you are authorized to do a study of all the disability cases that have been filed or applied for and i notice all the cases were handled by the same deputy City Attorney. It looks to me like the number of cases being filed with the cases being closed. And this is a productivity item and perhaps the report on the study you are becoming. And the report from the deputy City Attorney and the choke point that the board can do and the case load is climbing at a high level for many, many years. And one question to add. Commissioner casciato. Jay, why did we do away with the death report that used to go out listing all the retirees who had passed away . We havent. Anyone who would like to see a copy of that, we still provide it. And we provide it to a number of groups. We protect the information. It will not have addresses, certainly anything thats confidential, but we produce the death report and we share it with the health services, for example, and we share it with other member organizations. I believe we share wit the Retirement Association also. I was wondering why we dont have it as part of the packet any longer. I dont recall ever having the 20year death report in the time i have worked here. I might be wrong, but the consultant calendar. We have the retirees in the concept calendar and if i remember correctly we used to have it there. It really for me doesnt make sense in the consent calendar because if you refuse to consent to someone dying, they are still dead. Just sort of reason i am bringing it up is we have had incident lately where some of the retirees were names who are deceased and names been joined to join organizations and dues being paid in their name and so forth. But ill bring it more up more offline then. Certainly any group that would like to be included in the distribution, let me know and we can provide that statement. Please add me. Very good. Any other commissioners or comments regarding questions or concerns with the directors report . Again, this is a discussion item only. If not, we will take Public Comment at the time. Thank you, any callers who are holding, please press star 3 and continue to wait until the system indicates you have been unmuted. Moderator, do we have any callers on the line . Madam secretary, there are no callers on the line. Public comment is now closed. Thank you for the executive director report. Next item please. Item 21, discussion item, retirement board member gourd of the order. Any items that you would like to bring up . We will go to Public Comment. I was going to say thank you to the staff for all the challenges trying to do these meetings with the technology. That is very good, commissioner casciato, because it is not easy and i have to say for all the staff that are working behind the scenes, they work day and night. I agree with you. Thank you to the one on this. Above and beyond. Please continue to wait until the system indicates you have been unmuted. Are there any callers on the line . Madam secretary, there are no callers on the line. Thank you. Hear nothing further callers, Public Comment is now closed. President bridges . President thank you. President bridge, permit me to say i guess it is hard to recognize when i have turned the microphone on. To the members of the Governance Committee which includes commissioners chu and casciato, i will have the executive secretary send out a moodle notice to schedule a governance meeting at the earliest mutually convenient time. President thank you, commissioner driscoll, duly noted for the good of the order. Madam secretary, next item. U a next item is adjournment. Motion to adjourn. So moved. Second. Thank you, commissioner hughes. We move that the meeting is adjourned. Second. Thank you, commissioner. Moved and seconded. All in favor . Roll call please, madam secretary. President bridges. Aye. A commissioner casciato. An aye. Commissioner chu. Aye. Commissioner driscoll. Aye. Commissioner hawthorne. Aye. Commissioner stansbury. Aye. And commissioner safai has left the meeting. We have six yess. The motion passes. President bridges. Thank you, madam secretary. The meeting is adjourned. Thank you, all, for your time