Introduction of new items . Seeing none, Public Comment is closed. Mr. Clerk, please call the next item. Any Public Comment on items not on our agenda . Seeing none, Public Comment is closed. And mr. Clerk, do we have any further business . No other. Chairman we are adjourned. My s. F. Dove government t. V. Moment was when i received a Commendation Award from supervisor chris daly. Then we sang a duet in the board chamber. [singing] happy anniversary San Francisco government t. V. Happy anniversary to you. Happy anniversary San Francisco government t. V. Anniversary, anniversary, happy 25th anniversary to you. We have a quorum. Were going to go into closed session and regular business will mort start before 2 00. The start rules listed in the agenda are in effect and reminded that Public Comments may be limited to an individual for two minutes. Is there a notion didnt into closed session . So moved. Hearing no Public Comment, motion made and seconded. All those in favour say aye, and opposed no. Do we need to close the back door for closed session p . All those this favour say aye and opposed . That tables us to approval of the minutes of the june 12t june 12th meeting. General Public Comment. Any general Public Comment . My a 44 year member of our pension fund and tile you something today, that Asset Managers wont tell you, hedgefund managers wont tell you and Investment Consultants wont tell you. In the past ten years, public Pension Funds have paid out billions of dollars in management, performance and consultant fees and what do they have to show . Average retainers of 67 . In the past ten years, an investment in the s p 500 index is 6040 and the real estate index would have outperformed every Public Pension Fund in the world. One of the reasons that nearly all public Pension Funds are underfunded because they are overdiversified in investments such as hedgefunds. Over diversification reduces investments. Over diversification is for investors that dont know what theyre doing. Stocks, bonds and real estates, 33 in the s p 500, 33 in a 60 40 balance, 33 in the real estate index and one in cash. If you do this over the next ten years, you will outperform every pension fund in the country. Mr. Heb irkil. Thank you. Over the weekend i received an email from al telling me that youre up to 7. 81. How this fund earned about 2. 4 in a month is stunning and were happy. Were delighted. The retirees are grateful and i just want to acknowledge what a fantastic jump that was and all of you take credit for that. Also, the poa did note that the Institutional Investor has named the sf employees retirement system the public plan of the year and thats extraordinary and that deserves Public Notice to whatever extent we can do. Its such an extraordinary accomplishment and thank you to all of you and i will be for careful in my comments in the future. [ laughter ] i will call item number 25 which is retirement Board Members good of the order. The entire retirement system members, the employees of the retirement system starting with from j to our newest hire who have participated in getting us to where were at, doing all of the work we do, that each and every member receive adom case signed by the board and some time in august that it be entered, ac acknowledge and distributed to all of the unions, reminding everyone that these members that work here are part of the family. They are members of m etch a,ea1 and a variety of others. I think the accomplishments that these employees have performed over the years that have gotten us to the point where were at deserve to be acknowledged normally by the board, deserve to be in their personnel files so that this history becomes a part of their work history so wherever they go in the future, it will go with them. So i ask the board to support this by consensus. That sounded like a motion. Seconded. So i can ask by consensus. So i dont the calendar has a discussion item on it. Ok, a discussionitem only, i assume a draft would be available at that time. If so directed, for the record and you would accept mr. Casiatos assistance in writing such a letter . Certainly. I welcome anyones. So, then, this is not an action item and so ordered. Thank you. I would like a consensus from the rest of the Board Members at this time. Any Board Members object to what mr. Casiato suggesting . Ill second the item. Any addition or deletions. Public comment. I just noted that carmen shoe is listed as and sen absent andi expected should be listed as excused gimp t given to what i r to be circumstance and i think it makes a difference with regard to attendance on the board. I would like to suggest she be properly designated for or absence, thank you. Please make the correction. Via correction, shes absent and didnt ask to be excused, right. Right. Thanks for bringing that to our attention. However, no further Public Comment, those in favour say aye and opposed, passes. Item six is the consent calendar and any corrections or deletion or any items set aside for separate consideration . Motion to adopt the consent calendar in order. So moved. So second. Is there there a second andc comment . Motion made and seconded and all those in favour say aye and opposed . That takes us to item 7, the investment calendar. Item number 7, investment item, to hire jp morgan distribution management to manage and distribute security. Board members, when gps private Equity Managers have issued distributions, they may do so in cash or they may to soo in kind through delivering shares to us. For the past 1 15 years, we have been trading internally and we want to put these in the hands of professional management, professional traders and also to improve the efficiency of our own operations and the resources that we have available internally. Ill ask kirk to further introduce the item and work through the rationale for it. Thank you, bill. Ill expand on what distribution management is and talk a bit about the history. Ill describe a bit of our process and get into our recommendation. As bill described, private Equity Managers, via growth have a variety of ways to realize investments. Most commonly, they do the shares and initial public offering, a listing of those shares. The general partners have a choice. They can sell or distribute cash or as often as the case they will distribute those shares to the limited partners or the investor. Subsequently the, the investor is responsible for what we think of as the last mile of the private equity experience. When shares are distributed to the investors, their behaviour in the markets is often quite unpredictable. These are midcap stocks underresearched and evidence shows within the first couple of trading days, distribute stocks lose 8 to 10 and there is a risk for loss. If you lose capital or returns during the private equity experience, you diminish the return to the plan. Lps like us when we get stock have a challenge. We have a quandary and we want to maximize the price for the share. We also want to sell them relatively quickly to invest into other investments within the plan. Thats staff distribution generally. We, in past, have had a distribution manager. In 1996, the plan hired pinkus to distribute the investments and in 1999, credit fleece brought pinkus and in january of 2004, spurs terminated credit fleece for the credit mandate and managing distributed stocks. Since then, the handling of or the distribution of the stock has been the Public Markets team. I will say, though, in 2004 stap2004staff focus was differed 20 of the overall plan was managed and 15 if equity and 5 in fixed income. I would characterize our effort and our results in selling distributed stock as fine. Our data is somewhat limited but weve been able to ascertain we captured 97 of value and held the stock for 59 to 60 days on average. Today is different and ill talk about that. And i would say that the volume of distributions weve had over the last couple of years have been fairly muted. We received 150 million in distributions, stock distributions and 30 million or so in the past year but today, its noted that the private equity portfolio is over 5 billion in value and 10 of that, 500 million is sitting in post ipo stock. Theres a potential pipeline here for distributing stocks. Intelligenteryconsently, its te these stocks. There is no best practices, so to speak. In my view, best practices are what is commensurate with stats capabilities and focus. As you know, staff focus, 100 of focus is on researching, monitoring, external managers and that is where our expertise and skills lies and thats where our focus is, not in single stock trading. To this end, i reached out to our consultants. I reached out to our prayer institutions to determine which firms do this type of work and what im talking about is taking distributers stock on a discretionary basis and managing them. It turns out there are very, very few firms that do this work. In january 209, staff send out and rfi to five firms on a discretionary basis and two which were brokerage firms. Given our focus on extendal managers, however, we eliminated two firms for consideration. Staff, and this was a joint effort by the Public Market and private markets team conducting onsite visits and we spoke to dozens of reference. A comparison is oblique and the reason is, if you think about it distribution managers dont require stock and they have to influence or control over the quality of the stock that they receive, the timing of the stock they receive. They represent a variety of clients, some which have very, very good high Venture Programmes and others dont. So co theres no benchmarks to compare the track records of distribution managers. However, we were able to conclude that over average of the four firms we di dissected y were able to value 101 and 103 of distribution value and that is ultimately our goal with the distributioning manager, to get close to or above our distribution priceses because if you recall, the general partners will mark their portfolios based on the value of distribution date and earn their Incentive Fee on that price. So we have, as close as we can get, the economic experience will be maintained. Put given the track records offered little in terms of differentiation, we focus on equal dayitqualitative factors,y focusing on the global or Resources Trading capabilities of the firms. Given that the nonu. S. Focus of our venture and private equity portfolio, we favorited firms with global resource. We focused on the firms that had a certain element of alignment, meaning the distribution businesses were important to the overall success of the firm. The link to consider fee structures that provided some incentive, a fee incentive for sales beyond distribution values and finally, we considered the tenure, the relative tenure of the team. With this as a backdrop, staff is recommending jp morgan asset managements, private Equity Distribution group. This group is the sole manager for jp morgans private equity business. In addition, they manage distribution mandates for 40 external clients. The group is lead by a gentleman of ed phrase over 12 years. The firm and leadership of the distribution management has been together for 12 years. They apply a largely quantitative process on 30 years of data that recognises the technical patterns of distributed stock after distributions based on their industries. They combine momentum and volatility measures into their distribution decision. 95 of the distributions that they get, they end up selling them, but they have the latitude to hold on to distributions should they believe that these distributed stock have value over the longterm. We benefit here for us with jp morgan as they have the benefits of trading through jp morgan asset managements Global Trading platform trading 20 to 30 million shares a day and has local trading centres in all major markets. To summarize, we talked about distribution management, what it is and talked about why spurs needs it. Spurs and staffs focus is on managing and reviewing, monitoring external managers, not trading stocks. Jp morgans virtues is that they have a tenured team and its a Critical Service for their private equity business. If i can add a couple of brief points. Kurt touched upon theres 500 million of any of the publically traded stock in the private equity portfolio and this is about to become more important than its ever been. Put six years ago, our private Equity Programme was about 2. 3 billion and 2. 2 and now its almost 5. 5 billion. So again, this is to give a scale of how important this will become and then lastly is that six years ago we had 1. 2 billion or so in unfunded exitments and now we have 3. 2 billion. So this is going to sustain itself in terms of importance now for quite some time. Well turn it over to the board for questions. Board questions, ill start with casiatos. On the fee auctions, walk us through a b and just how theyre incentivized and what the difference is. One thing ill acknowledge on fee, this is the standard process and were in negotiation of whats dated here. We wanted to be careful about saying anything before we concluded. All of the firms had similar options. A flat basis points which was proposed of 60 basis points. Its 60 basis points annually but if you think the average Holding Period is 59 days or so, you would say 60 basis points on whats hell for 59 days. So a base fee. Alternatively, we could pay them less on acidbase fee, in this case 25 basis points but 25 of the profits above the distribution price. So if they were to sell a stock at a value that exceeds what the g ps distribute it at, they would get 25 . Again, were negotiating something thats favorable relative to both. Thats all i have. Same question. If theres no further questions, ill make a comment. Is there a motion . Ill move to approve. Is there a second . Ill second. Ok, Public Comment . I would just like to say, like hedgefunds, private equity is High Risk Investment, very high cost investment, ver very. Let me give you the passive investments in stock funds and real estate. Vanguard with passive investment, 15. 4 . Vanguard, 60 40 balance index, tenyear returns, 20 . Vanguard s p 500 index, tenyear returns, 14. 23 . These are passive investments. You dont need any highrisk investments like hedgefunds, private equity and before you invest, read what they have to say. Its a High Risk Investment just like hedgefunds and you find out over the longterm, passive investment will outperform management investment. You can go back 100 years to identify that. In the last 30 years let me give you an example. The s p 500 consists of 500 large corporations. In the past 50 years, less than 1 of the Money Managers have outperformed the s p 500. And in the last 15 years, less than 8 have outperformed it. So passive investments, you can go back and backcheck and youll find out passive investments and were supposed to be longterm investments youll find passive investments will outperform management investments. Very low risk and very low cost. This is an example of something well tie to the strategic plan. Trading activity always is an issue expecting best execution. With Public Security managers, its rolled into the rate of return we see and this area is different. However, if staff i think mark was the one handling these trades, hit 97 , thats an a performance so how material is it to get 101, an a plus . This is to issue materialality, less than a Million Dollars. It would be great to have a Million Dollars and thats more than 20 times what some of the members annual salary is. However, our goal this year and basically end of year is to earn 1. 8 billion. So when you put that 1 billion over 1. 8, not that its not important but how significant is it for the things we should focus on trying to do better . The incremental money we might achieve by putting in an external and i appreciate staff telling us they did consider many alternatives, perhaps we will be able to justify that the money were saving by doing this, if you allow us to reinvest by hiring more personnel to do better investing, it will more than pay for itself. Thats a comment and thank you for finding this way to improve another project to increase value of the system. Public comments concluded and no further comments, those in favour say aye and opposed. That was a motion by helfon and seconded. That takes us to eight 8, private equity portfolio update. Board members, this is an update on the private Equity Programme in 2018, when it seems like a distant memory but the Public Markets struggled and were negative and our private Equity Programme was up 17. 6 . The tenyear return of 14 and inception to date return of 15. 9. Tonya and cambridge are here, as well as tory cove, are here to provide an update on our programme. Tanya . How do we get the presentation going . Thank you, bill and good afternoon, commissioners. Well try a slightly different setup for our performance to tate. This time were combining our strategy and performance overviews for each. To my left i have those with cambridge associates. They advice on portfolio strategy, portfolio construction and they support staff on new Investment Opportunities. I also have here representatives from tory cove. Tory performs different but very important function within our private queb