Shall we call the meeting to order. Will everyone rise and join us for the pledge of allegiance . I pledge allegiance to the flag, of the United States of america. And to the republic, for which it stands, one nation, under god, indivisible, with liberty and justice for all. This secretary roll call please. [ roll call ] thank you. First thing well do today is call for general public comments. Im sorry. Im sorry. We will be going theyre right here but i didnt look. Theyre right inhouse, yes. Well be going into closed session. Anyone who doesnt need to be in the room would you order. Were coming out of closed session. Is there a motion not to disclose . Theres a motion. We need a second. And a vote. Item passes. Next item please. Item 4, general public comments. I have a couple speaker cards. Up first john furland. Let us speak on agenda item 10 on Risk Mitigation. I think the presentations are what i have for you was general public comment. You want to speak on item 10 or general item comment. Im using my general public comment. Ok. I think the Risk Mitigation presentation are fine as far as they go. But theyre basically a repeat of the june 2016 Investment Committee meeting that commissioner bridges had. I think the key thing is to focus on implementation. I think that, i hope that the two speakers will cousin how Risk Mitigation can actually be implemented. Im going to make three quick proposals. The first is necessary. The first one again, which ive said a lot of times, is the managing director for blah blah blah. Should be a manager district or for chief risk officer. If that capacity, second proposal, at your march 21st Investment Committee meeting on strategic plans theres part of that strategic Risk Mitigation plan. The third one is that you bring in, she does this also, you bring in non consensus views about the risks facing this committee. This board. I just want to mention terrorist caging. Which is discussed in that agenda item. A terror risk is a big risk. The minus 10 correction you had couple weeks ago is not a terror risk. Minus 20 is not a terror risk. Its a big risk. Its minus 25. If you stick to hedging that, you can make the cost very low. Especially if you only partially hedge it. If you only partially hedge it, if you only hedge it for a couple of years. If you just stick to that. The Risk Mitigation plan that i proposed be part of your strategic Investment Plan should include the whole array of Risk Mitigation solutions talked about by pemco. Its a tiny little part. Its an easy part. You can do it extremely easy, especially now that you know where the exposures are. Thank you. Up next is david paige under general public comments. Hello, everyone. Theres been a lot going on lately. We got valentines day today and stock market corrections. Gung hey fat choi and also Ash Wednesday is today. February, every february. Black history month, i wanted to say about the Ash Wednesday for those of you that know, you know its a time to take the opportunity to reflect on what precious few moments we have here on this place we call home. Pope frances wrote a book in cyclical on Climate Change and inequality. I finished reading it and thought it was well done. If youve been wondering about the changes in the weather, this is a good way to get the scientific, mostly science, not much religion in here. Scientific explanation of how and why the weather has been changing. So im done with my copy. Im happy to loan it out. See me afterwards. Thank you very much. Paul grey up next. Hi, my name is paul. Ive been a City Employee for seven years. Id like to comment on the e. S. G. Options in it the deferred program. After engaging a few months back and finding out weve yet to divest in fossil fuels, i thought we did five years ago. I must comment on last months timid vote. Littlely tom lynn said the problem with the rat race is even if you win you are still a rat. The reason i quote this is last month, on your side of the podium, several times, the phrases worse of the worse and dirty to the dirty were used in describing fossil fuel investments. So even if you get rid of the dirty you are still investing in the dirty. Even if its the worst of the worst. Divestment is a morally correct choice. I heard claims your board is the leader in the investment movement. Others are quick to claim to the audience the environmental records. Even one person proclaiming theyre the biggest environmentalists the audience will meet. Please step up, divest now and divest quickly. I heard you expressed concerns about your diversifying because of your fiduciary findings and the city was to divest, you would lose significant amounts of money. There are many people smarter than i am who have studies and arguments to the contrary. No proclaim to know the methodology known for each side. I heard what 99point 9 of the people dont understand what you do heard. What i heard was with your whole board, with your whole staff, with the parade of consultants you cant come up with investments equal to or better than fossil fuel. Everything else you would chose would lose in comparison. Thats what i heard. I have trouble believing this. If it were the case and you believe it, why arent we doubling down on fossil fuels and putting more money into it . That makes no sense to me. Thank you for your time. Ill see you next month when i plan on talking about your level 2 engagement in fossil fuel companies. Thank you mr. Grey. Are there any other members of the public that would like to address the commission . David williams. Retiree chapter. I want to thank the board and perhaps particularly the executive district or in item 28 of the report. Its noted california, well its titled Assembly Bill but its a senate bill. There was some confusion about that. Senate bill 2031 prohibit the Retirement Systems from making cost of living adjustments. I thank you for bringing that to our attention. I can assure you the unions, the labor movement, retirement groups, and ago vow ka see groups will take this up and do everything we can to help kill it. Good afternoon, commissioners and happy valentines day. Claire representing raccsff. I just happen to be going again to city hall the other day and rounded the corner at vaness and grove. That building that used to be a church is undergoing changes on the corner. I was just wondering if perhaps we had managed to buy that nice chunk of real estate and were considering redeveloping it to actually build the Retirement SystemsCity Department administrative building that would house other City Departments including the retirement system and the Health Service system. I just happen to notice theres some activity there and id like to hear some updates on our Real Estate Investment in our search for our own building and property. Thank you. Thank you, very much. Are there any other members of the public that would like to address the commission under general public comments. Seeing none. Well close general public comment. Lets jump to item number 10 and we will come back to the other items later on. Item number 10. Number 10. That would be great. Thank you president stansbury. You see portfolio risk. We dont get a chance to talk about this very often. Id like you to remember this, we think about this subject and we think about optimizing risk and return. We think about this all the time. We rarely have an opportunity to step back and look at portfolio construction and Risk Mitigation from a more holistic point of view. This is informational but i did want to let you know that we consult, we do make decisions in a vacuum, we consult many thought leaders and any p. C. Is the general consultant and we also sample about a dozen consultants around the country on their ideas about Asset Allocation and risk management. We consult perm, other c. I. O. S, et cetera. I just wanted to let you know that we take things into this account holistically. Were glad to present this and look back and present this to you holistically. Ellen has been preparing for this for an extended period of time and i will ask her to introduce the subject and introduce our guests. Thank you, bill. Good afternoon commissioners. I a poll joys for my voice. Im getting over a cold. But as bill said, well be giving an update to our last dedicated Risk Mitigation presentation to the board, which was at the i. C. Meeting june of 2016. First id like to highlight a few points. As bill said, this is an on going Continuous Research focus for us. Todays presentations are a highlevel overview of that research. We consider all view points as a large institutional invest or. We have access to proprietary research and meetings with premiere leaders from Investment Managers to j. P. Morgan and Goldman Sachs to c. I. O. S, et cetera. We have over 200 managers in our portfolio with varying view points. Their expertise spans all markets. Asset clause, industry, sector, geography. For example, jeremys firm g. M. O. Which is one of the more bearish Investment Managers managing an emerging market death portfolio for us, as you know. And in addition to client meetings, we attend their annual conference and gain in sight on their perspective as well as their investors. Over all, we continue to recommend diversification through as set allocation and manager selection and its the strongest down side risk, mitigation. More specifically, theres no silver bullet. Compared to Home Insurance have been made in the past. But as we saw during the financial crisis, Home Insurance does not protect against market value decline. Influence companies did not write checks when peoples home values went down. Home insurance for techs against fraud, theft, property damage, et cetera, has comparable coverage in our management agreement. Investment portfolio protection is limited and expensive. You cannot lock in prices when theyre low because these are contracts that expire and have to be continuously renewed at adjust the market rates which spike in times of market stress. Buying could reduce our expected run from 7. 1 to 5. 6 . Therefore, we continue to pursue and implement the most effective strategies to minimize down side risk and prepare for a wide range of adverse market conditions. Later this average we will provide the infrastructure necessary for risk mitigating exposure of Management Strategies in addition to cash securization. Now id like to produce any pimco. They manage an emerging Market Portfolio for us. We have Phillip Nelson here, principle and director of Asset Allocation for any p. C. And Michael Conner executive vice presses at pimco. Thank you for joining us. Good to see yall again. So well revisit some of our presentation from june of 2016. But were going to set a couple stones first. One is, you know, how do we define risk and think about risk . Most importantly how does that translate to when we set a strategic Asset Allocation . And then well have a couple of examples of what are some broad approaches that one can use to manage risk . Well go through a couple examples there. And then, you know, additionally well focus a little more closely on buying puts and what a dedicated putbuying program would look like if its done in a passive fashion. And to steal the punch line of the rest of the portfolio, thats not something were generally supportive of. We think a strategic Asset Allocation is the best solution to manage the Broad Spectrum of risk that exists in the market today. Focusing on just down side risk and many ways ignores the real risk of not meeting longterm liabilities. Theres a return target and a return expectation. Theres funding requirements and theres Economic Risks between both planned sponsor and employees and thinking about that risk in totality is, in our minds, equally as important to longterm goals to pay benefits for as long as possible. So starting with that, just talking a little bit about when we talk about risk, what do we mean by that . Im not going to go page by page. Jumping to page five, risk is a term that is also overly generalized at times. What is risk. Risk with be dis berg of prices relative to the average overtime. It could have month meaning in terms of longterm results. Risks can be permanent loss of capital which is something that we think about in terms of Asset Allocation views, valuation, out of structure longterm portfolio target. And then kind of in our minds, most importantly, risk and not meeting your longterm return goal. What are the draw downs, what are the Economic Impact of over a longterm period not meeting return e expectations. Well have some exhibits in the back that highlight some of this. And then, you know, to address these risk, theres a lot of different ways to go at it. Thats the summary of all this. Theres not one solution theres not one thing being done. Theres not a universal equasion that fixes all of the risks. Its really a holistic multiperspective approach that requires everything from a strategic Asset Allocation looking at ways in areas to be dynamic or tactical with asset class exposures. Having a diversified portfolio. The simplest of Asset Allocation concepts is in the long run, diversification wins out. Thats a boring message at times. One that i think we would be remiss if we didnt hammer that home constantly. We do believe in diversification, over longterm periods. That wins out over longterm periods. Thinking about that, and weve gone through some of these slides. If theres questions about stuff youve seen before, feel free to stop me. Not going to spend as much time on that. But one of the things that we wanted to think about is trying to illuminate when we talk about strategic verse being dynamic and what that means. And when i think about strategic, thats the Asset Allocation target we set and were approved back in october or september timeframe. That is the longterm guide post with which the plans operating today. But then thinking about what are ways to be dynamic within that allocation. So setting bans, setting plus or minus Asset Allocation targets around that. Setting guidelines which, ellen and others will talk about later, talking about the para met tick structure. And within that, identifying Asset Classes that maybe are exhibiting stream levels of under valuation or over valuation. And then tilting the portfolio in those areas. This is not a trading in and out every single day, this is one thats not even trading in every single quarter but subtle shifts over a year, two year periods in terms of how to shift assets. Thinking about Japanese Equities in the late 80s and early 9 50s. One by all objective valuation measures, many at the time identified this, it was extremely over valued. The point of which you walk away from japanese equity or reduce Japanese Equities at the time, gets back to what is the risk tolerance relative to peers, bench marks, to move away from benchmark allocations and just the portfolio. Thats what we think about today when we look at markets, we look at return expectations and we look at what is out there. In many cases markets are over valued but not in a multitype level that would dictate strong actions that would run away from certain Asset Classes. Thats something that we can work on and its something that bill and ellen and others can work on. If we can find Asset Classes we find trouble some, bring them to your attention and address them quickly. If you go to page 11, this page essentially coulden capsule eight the entire presentation. I would say that this is one of the more important presentations weve had in a while. So please dont feel rushed to jump over import points. Think about on page 11, certain things that we think that are basic Asset Allocation principles that well stand on and press our conviction or views. I want to mention already that theres not a simple answer to managing risk. Having a broadview of risk. Across all Asset Classes. Its not just equity risk, its not just Interest Rate risk, risk of inflation falling or rising, theres a Broad Spectrum of risk that we really think are important to think about when structuring a portfolio. Different type of economic have a impact on longterm portfolio returns and you need to think about more than just the scenarios of equity is falling or equity is rising. And with that, you know, providing a structure that improves the diversification of the portfolio. So every incremental decision, every incremental addition to the portfolio has either some sort of total return benefit, diversification benefit, and ideally has a level of sensitivity that either mitigates risks or improves outcomes across different economic environments. Thats one that we think about. Its not just one tool to address risk but multiple tools to address risk. Thinking about that would then have strategies that well address later on. Theres different approaches within that. Were going to walk through one that is simplistic and is a straightforward passive approach and is definitely something that we do not recommend. We wanted to walk through the example to say this is what it would look like if you sold puts on a consistent basis. Pimco can provide purchase puts. Pimco will walk through a structure of how can one be dynamic and manage a tail risk program, which is something that we think would be required in order to have eye successful investigation of tale risk protection. At its core, thinking about quoteunquote insurance approaches, were worried about the cash premium or the cost that goes out the door for that. On average at the cost it cant be recooped, overtime reduces longterm return expectations. So fully hedging for example, the Global Equity portfolio, has a Material Impact on the longterm return outcome and funding status. Its one thing you will see later on in the back of the portfolio. Or back of the presentation. So im going to pause there. Any questions or areas that you would like us to focus on. Theres more good illustrations coming up. Theres a couple of examples we have here of ways to manage risk and were going to talk about a couple of them in a summary version and get more focused on buying put protection. The simple one and the one that has worked for longterm for the last 100 years on average, is just using treasuries as the offset diversification benefit relative to s p 500. The example we walked through on page 14 says what if we use long treasuries in a portfolio and how do they do relative to s p 500 when theyre down 5 on a trailing oneyear basis. Is there a direct offset they help provide . You can see on page 14, long treasurers are the green area. You can see how they respond in an environment where equities sell off. And so, from a proved statement, this is one that month to month basis maybe doesnt pan out. On a longer term basis we feel that this is a good grounded approach that helps manage mitigate equity risk. And theres a couple examples to follow. Relative to efficiency, if you used kind of a more pure treasury approach as opposed to core bonds, which when we tie back to the allocations approved in the fall, where theres a dedicated charge of exposure that is clean pure treasury, its more efficient than a core bond fort pole in terms of providing protection. In many ways, its more liquid and available for times to rebalance and move back into equities in times of distress. So its one example. The second is tied back to lets funds. The use of certain types of hedge funds. We dont think of hedge funds as an asset class. So within this kind of generic label theres a class of strategies known as global macro strategies. There are strategies that are systematic. Theres a lot of different labels for them. Some are trend following some are others. The premise of it is as markets decline, whether its equities, bond markets, currency markets, these strategies tart to pick up the signals that confirm that theres a downturn coming and then they adjust their exposure to benefit as markets move negatively. And so again the proof statement here just looking at a pure index, how have these done during times when Global Equities have sold over on a oneyear basis. Not as pure or consistent as long treasuries. But for more protracted longer term draw downs in the 2000s and 2009, strategies that have done well. Periods where theres a sharp drawdown and a quick pike and a reversion of markets, these type of strategies wont pick up the signals very well. But it could be used as a nice compliment relative to treasurers and fixed income allocations to help mitigate risk. This ties back into interestingly i was watching the fiscal strategy this last couple weeks, the trend strategy. It didnt obviously pick up the signal. It went down. Yeah, so sure. I could address that. Most trend followers, they have a window and they need to have the trend established itself before they follow the trend essentially. That would a lot of it is effectively trend followers. They can do well over more extended sell office but they dont provide gap risk protection, protection against really sharp moves. The top two on our table, which weve talked to before, Long Duration and outright, are things which will do that but these other strategies wont tend to do as well in gap events and it turns out that over the last year, the strongest trend in the market uniformly has been equities going up. There havent been trends that were close. So unfortunately, all the trend followers were long equities to their essentially maximum limit. And ours has less than a limit so we have less than a drawdown. So all the trend followers sold off because it was too quick for them. The interesting thing is you had come in a year or two ago. So i watched it since then. Youve been watching it sure. And so just like well, how do you do this kind of market when the equity market has gone up and its flat or down. Right. When we get to our part of the presentation thats what ill talk about. But there are different kinds of strategies that hedge against different kinds of risk and trend followers dont catch all the risks for sure. I think thats back to the basic premise of diversification is not everything the portfolio will do well at the same time. What you are saying is its really going down, you do longterm treasuries or put buying. Those are the strat goes that have been most reliable in terms of catching the really stee step drop opposite. The distinction between a market that october 1987, thats a steep drop off that surprised people verse lets say late winter, early spring of 20082009, weve had a projected drawdown, markets still descending down. Thats an environment where some of the trend strategies should do well, the expense of buying put protection can get steep and having different approaches to manage that equity exposure risk is what is needed. And even in the sharp sell off, the putbuying strategy has to be managed dynamically in order to capitalized and monetize instead of just holding the contract until it expires potentially. It seems like the last few years have been difficult for trend followers to find a trend. Yeah. Or the trend has been pretty clear of buying equities and for many of them, depending on the type of strategies, a lot of different variances of it, its not really the intention or the flavor theyre looking for. The trouble with it is the trend exactly as you said, has been positive buying equities. Which unfortunately made these strategies not really diversifiers to equity risk. Historically they have been but over the last period i wouldnt say they were diversifiers. You cant see that when a trend begins to persist to the down side, these global macro strategies catch it pretty well. Bill, pages 20 or 21 are informative as well. Yes, so this is something weve done for some of the other strategy graphics as well. Its just showing how they respond in periods of market distress. So just look at worse 10 months of Global Equities dating back to the early 1990s, and how have the Systematic Strategies responded. You can see the green box is the performance of these type of strategies. You respond fairly well to historically speaking, to market draw downs. Caveat being, on average, cash levels were higher during a lot of these periods. Theres some other areas that they were able to pick up on. But still, you know, it gives some comfort in terms of establishing is it the objective being met in terms of what you are looking for the strategies to be doing. And thinking on a correlation basis comparing these type of strategies relative to a broader subset please stand by. On average, these type of strategies were flat. They were straddling the line. They broke even. This story of page 20 is that global macro strategies tend to resist really sharp declines in the market pretty well. Occasionally they make pretty good money. As demonstrated on the previous slide. The longer it persists is they tend to capture pretty good returns. Ok. Thank you. There is a distinction between the sharp onemonth drawdown and a cycle where it unwinds over a period of several months. What is the line . How do you distinguish when does it go from, hey, you know, global macros, great. Sort of once a trend has been identified, they can make money on it versus a sharp drawdown. When is that shift . Really that becomes kind of a strategyspecific implementationspecific answer. It depends for a lot of different types of vehicles. Some will have shorter signals to respond to. Some strategis will have short and longterm signals to balance out the exposure. But it could be everything from, you know, last 20 trading days to last 200 trading days and a varying degree of sensitivity to that period in terms of how they adjust exposures for each asset class. Why dont we talk a little bit about purchasing to hedge edgety risk and, you know, one thing that when a i want to emphasize. What we tried to do here is use an easily observed index that one can concede. Its published to try to demystify it a bit. So the cboe, which is one of the main source of options data and Options Markets publishing an index that replicates the return of the s. U. V. With assuming that on a weekly basis you roll a protection strategy that protects at the 5 down side. And so this ing debsing goes all the way back to the late 80s. And so for a lot of the graphs that well look through looks at how does this compare to a if s p portfolio and looking at it from a monthtomonth or rolling oneyear basis to be as clear as possible with one of the things were looking at. On page 26 here, kind of outlines this graphic of periods where s ps down on a rolling 12month basis, how does this type of straefj do in this market environment. One would think if it was executed with perfection and there was no cost to buying protection, that you would have no losses greater than 5 . Thats where is the protection is set. But the fact is costs come into it. Volatility plays a role. Time plays a role. In terms of how one executes and actually implements a strategy like this. And so this is assuming you, on a weekly basis, are changing the options that are necessary. And the fact is often thats almost too slow. You have to be something theyll talk about. This is something that would have to be monitored on a daily basis and in some cases, by the hour basis of what are Cost Effective ways to manage equity exposure. Which still has its longterm cost impact. Can i spend a second on this . You see here in the early 1990s that these strategies would have lost 10 when the market was about even and youll see that in periods even in the bursting of the internet bubble, which didnt hold up as well, it was only as the g. F. C. Really intensified that the strategysies added value but still almost lost 30 when the equity market lost ha. Lost 45. Just to clarify a little bit in terms of rolling the contracts. If you have 75 protection and the market goes down 4 in a week, you lost that 4 and then you renew the contract and goes down another 4 the next week. And then it goes down another. That is how youre capturing that downturn when you are protecting yourself at that 5 . It would have to go down 15 in that time period so you capture the first 5 of the downturn and lose that market value. And then youd have gains from that 5 downturn to the 15 downturn. Assuming that you sold the contract to capture those gains and didnt keep holding on to it. So, cost and timing here are incredibly important. And similar to a slide that we showed before, how does this type of strategy perform in periods of rapid declines in equity returns. So, really focus on try months here. October 87, january 2009 and october 2008. October 87, very much a surprise. Markets selloff dramatically. This type of strategy with 5 protection was down 10 . So, less than its objective. Should only be down 5 . But because of the costs, of buying the puts, you still mitigated half the drawdown risk. October 2008, very rained decline that surprised the markets in some way, you know, sharp uptick in the volatility. Really that gap risk that was mentioned earlier. It is that rapid shock to markets that performs well in. If you look at all the reminders of these months where the s p has sold off, the performance of this type of strategy is subopt mall. It is clearly not meeting its objective to manage Downside Risk relative to what the market is down. And well show through in a little bit, this has a longterm cost. And this is just looking at kind of the cumulative return difference between the long s p 500 having a 5 kind of attachment point or Protection Level and performance of bonds and simple fixed income. You can see over time in the late 1990s, this is an environment great for fixed income. Performances comparable of having an equity portfolio with protection is roughly equal to faixd Income Portfolio during this time. Say that again. Just that last sentence. The core bonds has roughly provided the same performance in returns as a dedicated put Protection Programme at a 5 level. So, just looking at the two blue lines on the cumulative return in this top chart shows, you know, very similar return profiles. And this gets back to the nature of what put protection is. At its core, you are reducing equity exposure. You are paying a cost so you benefit if equities go down. But netnet, you are reducing equity exposure. If there is a concern about drawdowns over a longterm period, the simplest and most Cost Effective method to do it is simply to reduce equities and adding fixed income and adding treasures. Again, as we talk back in the fall and summer period, there is a cost to that. Expect of return comes down. Your financing of liabilitieds and abilities to meet longterm return objectives will get impaired relative to the original portfolio. And so thats the thing. There is no one answer that addresses all of this. But it is finding a balance between managing risk and managing drawdowns over a longterm period. But also managing returns and meeting return objectives over a longterm period. And that is really what were focused on in terms of finding and addressing the appropriate strategic Asset Allocation. Does this make . Ens ok. This is systematically buying puts, 5 out of the money, and over 2 years if we would have earned the same return as bonds but almost at equitylike volatility. This contemplating a 5 counter, right . So f you lose more than 5 youre covered f. You lose more than 20, do we have data on those big the big drops . For the big drops, what the pricing of the puts as we all know is not linear. Right . So we do have quite a number of illustrations still to come. So, something you can speak to. Yeah. And depends on the sharpness of the draw. If its 20 over one to two years, versus 20 in a day. And there is good data on that specifically where go ahead. Yeah. We have a week when we get to it, we have some historical pricing indications where we can show how its moved over time. Thank you. I think the one thing kind of would emphasize for having a longterm passive programme, there is a cost associated with it. You know, whether its 2 , 3 , 4 of the equity fundamental, that is a premium that cannot be earned back in many ways over a longterm period. So, page 30 in particular is worthwhile. Yep. So, this is a kind of illustration that was done as of the end of january. Thats from an implementation standpoint. Makes some basic assumptions. But essentially assumes for the, you know, almost 11 billion Global Equity portfolio, what would it cost and theoretically look like if you tried to hedge 100 of your drawdown exposure. You know, hedge out all losses. So the market goes down. Youre immune to that theoretically. This is kind of an illustrative example. The numbers are real. Im not saying this would be the way that one would implement it. But we want to highlight what the costs would be and what the impact would be. So, you know, assuming that one did this, as the end of january, the costs would be about 560 million to hedge 10. 8 billion equity portfolio. Today it would be what . Today it would be closer to 900 million and that is simply an objective of volatilities higher than it was three weeks ago. And then it becomes what are the outcomes of the equity market around that. Do equities go down . Do equities go up . Over longterm history, one would say equities go up over time. If there is a specific market view or specific market call that you think equities will go down and if you have perfect foresight, then spending half a billion to achieve that result is maybe not a costly venture. But if you dont know the path of equities over the next 12 months, and that is an unknown, half a million cost out the door becomes a very high cost that builds up over time. And that is one of things that really want to emphasize here. That these have a cost and management costs become critically important when you think about how to manage equity risks. Page 31, kind of a repeat of some of the things that we talked before. But looks at the longterm results. And my role is on Asset Allocation. I think in longer term periods and not in the markets daytoday. But over time, the cumulative of wrong equities versus hedging equities is clear. In my mind, if we assume cost of capital structures, markets are normally behaving for the next 30 years, and economics holds, this should be the case going forward. And there is no reason to believe it will. We have a couple of examples on 32 and 33 that look at what the outcomes would have been, you know, if one hedged either the Global Equity fundamental or the u. S. Equity portfolio in 2009. We can kind of briefly touch on this. But it is a similar thought. There is a cost associated with it. To hedging a portfolio. Heres a discrete period where the outcome is beneficial. So, thinking back, im on page 32, thinking back to june 2008, 103 funded. Concern that lets say u. S. Equities are undervalued or there is a coming crisis, hedge the portfolio and provide protection on any drawdown u. S. Equities which, you know, lets say thats 12 purchases of monthly options over the course of the year. What does that translate to in terms of fund and status outcomes. So for you, june 2009, the actual status was 72 . Having a put Protection Programme on u. S. Equities would improve that by 2 . And then the question becomes in may, june, july of 2009, would you continue that programme . Or would you take the put off . And this is where it becomes a very difficult exercise and where governance and management and kind of strong rulesbased are really required in terms of how one would manage strategies. Because if keeping on that put protection at 100 level would essentially take away the gains and the Market Recovery you start to see in 09 and 10 and those later months. Knowing in the depths of the market, when the markets will recover is a difficult, behavioral exercise. It is hard to rebalance in june 2009 or any market period. Im not saying it cant be done, but that is a challenge that we observed for all investors and really requires really strong rules and structure in place to kind of manage that mitigate the cost around it. On slide 32, the dmik gain from the put protection, that assumes theyre put at 84month loss. Is that 5 down . What is this scenario here . So, it is assuming 0 loss. Ok. So, lose not a single dollar. Yeah. And we could have picked different points, but for consistent si, we picked 0 as an example. Would these numbers look significantly different if it was 5 . Yeah. The costs would be different in terms of purchasing a put. But the theres still a cost to do it. You would balance out larger exposure to the drawdown. But less costs maybe in later months as a market against recovery. That is something that id like to see some data on. It probably doesnt make sense to even contemplate 100 edging nor does it make sense to hedge at zero losses. But at what point do those numbers sort of is there, you know, a swing up and im not saying it still makes sense, but im curious to see what happens to the numbers. You know, how much of a jump are they making . Gi et it. Ok. You know, looking at page 30, this looks at different outcomes of the markets sold off. What it looked like. But at kind of the same attachment point. But i think to your point of, you know, if you were down 5 , down 10 , strike levels what would the different outcomes be . As you goat a more micro level with some of the folks they talked action, some of that will become more apparent. I wanted to jump real quick to pages 36 and 39 and just how we would think about it from a longer term perspective. In terms of how one would manage this. And focus ons two scenarios. One is the base case which we outlined in the fall when we did the asset liability study and looked at the various funded and contribution outcomes. And the other is if you fully hedged out the equity exposure for the Global Equity allocations, so the equity target is 31 currently, what would the portfolio return look like if one hedged out Global Equities during that time. And the return difference is and this is on our kind of five to sevenyear return assumption. You would go from a return expectation of 7. 1 to 5. 5. A significant difference compounded over 10 years. This is the base case on the top of page 36. Look at the path of funded status. This is what kind of the actuary and their work have outlined of where not only over 10 years, but 30 years, where we expect the portfolio to be and contribution levels can be over this time. So, you know, looking closer to 91 in the mid 2020s. But then later on, page 39, for a fully hedged portfolio you can see in the mid 2020s, the difference in funded status outcomes where youre down to, you know, 80 level from a funded status. And this is the type of thing that were concerned about is kind of the longterm return impact from a dedicated, passive programme and there is many other ways to do it, to help manage equities and mitigate equity risk that youll hear from pimco right now. Perfect. Thank you. Really appreciate the opportunity for presenting our views on this very important topic of portfolio diversification. It is one of the most important decisions, if not the most important decision, one can make at the lan level. And now were about 104 months into an expansion. So very late in the Business Cycle which makes this the third longest expansion after the second waffler. Second world war. It is a very opportune time to talk about this. Philosophically, were aligned with what he just mentioned. There is no silver bullet. It is really about thinking about how to put together a portfolio of Risk Mitigation strategis that can work across a range of scenarios. And then we construct this portfolio, what to do that essentially boils down to the same three questions that we think should be the starting points for any exercise. What is the required return for the plan. Whats realistic. What are the markets priced to deliver. So, what is the gap between realistic returns and required returns and then finally is the decision that im about to make to asset that im about to add, does it really move the needle on the longterm sustainability of the plan . Does it improve the funded status . We think that should be the starting point of the exercise. Now when it goes to Risk Mitigation, our view is that the whole part of the exercise should be to avoid big losses. Not to try to smooth the volatility of returns due to normal gyrations of the market. Why is that important . If you look since 1976, there have been 21 periods when s p 500 has loste