With with volatility and private equity, it is quite high. Yes. Our experience is substantially lower than that. Exactly, bryan. When we are looking at Asset Allocation longterm particularly for plans that dont have as mat tour portfolio as you do. You run an efficient frontty which is a mathematical calculation of determining the best mix of assets at each level of risk, the optimum returning portfolio. If you assume that private equity volatility was significantly lower than public markets, you would put your money in private equity. From a long term projection standpoint, we put in what is a economic risk. Now the reality if you said what do i think your portfolio will actually do, you dont experience economic volatility in private equity through time because you have valuation processes as we have seen that are lagged and reduce that volatility. We have a separate volatility forecast. This is economic volatility. We have a separate set of volatility numbers to represent accounting volatility so the forecast for your portfolio would look more like what you think in reality. From planning perspective we assign higher volatility. Accounting may undo that as you experience it in your portfolio. These numbers that you see on page 10, 1930 and 45, often time the typical practice is take known volatility in known markets and adjust upwards for higher returns. In practice, these volatility numbers for private equity are much, much lower. But even if we were to take the same public equity volatility and one of my concerns about Asset Allocation and how we build optimized portfolio, we say have 10 and 30 year expected returns and use one year volatility numbers. That doesnt make sense to me. If we look at what volatility is over 10 years for public equity rather than say 16, it would be about nine. If we measured public equity volatility over 30 years, the volatility is 2 or 2. 5 . It tends to know away over long periods of time. This is the practice that we build Asset Allocation models based on longterm expected returns and short term volatility. The reason we do that. We are a longterm plan is that we are still subject to the concerns that can become to the press and public and to our members if we were to experience a large short term loss. I would second that this assumption at the end of the fiscal year go into our actual to project contribution rates and understand funding ratio. As a result of the volatility the annual makes sense. We do need to have longer term perspectives. Your question is very accurate. We need to understand apples to apples. What is the annual volatility . What is the longterm expected volatility . Same way. How do we compare public equities where we have picks every second and volatility changes every day versus private equity where the valuations dont change that often. In fact, we have updates quarterly. That might not be fully taken into account everything in the market. We have to compare apples to apples. One way is to do that what allen described in looking at economic volatility that is what nepc presents here. I can summarize this. The programmed volatility weighted of 19, 30, 45 is 30 . What we know historically is that the volatility of private equity has probably been less than 15 or right around there. That also gives the appearance of being less volatile but it is because of the infrequency of price assets. You have compensation by making quarterly returns for the other Asset Classes . The other way which is what is called de smoothing the returns, right . Which is what allen just presented. We have two lenses. One desmoothing which is more common. Common industry practice is to do it this way. We see do compare results with other consultants, and in doing that on average this year our returns as low as they may we are a little bit higher than i think the industry normings and volatility is probably in line with. We do this against lots of other consulting firms. The important point is not to forecast anything differently but to capture the uncertainty of the results over the time period we are doing the plan and that we get the order right in terms of most attractive to least attractive. Now, while i think that the expected volatility assuming normally distributed returns is probably somewhat over stated because i dont think volatility is really 30, it is half that. That is compensated for that we know the returns are not normally distributed. Sometimes you have chaotic markets and returns can be instead of two standard deviations, 2. 5 probability. Irregular returns happen more often than normally distributed returns would forecast. I would very much agree with that and what we discussed last time where we had the stress test like dfc. Specifically applied to our private Equity Portfolios you can see this can present considerable volatility. That is i think captures potential downsides. Positive of what any pc approach here is that we see more accurately how we are managing our plan. We are very different in private equity and private credit and public equity. What you see here is the returns are enhanced 60 to 70 basis points with only a 50 basis point increase in volatility. You see a considerable jump in sharp ratio and the sortino ratio, that is downsides which is what we care about. This approach is much more accurately capturing how we are managing plan assets. I know you asked them and not me, but to make the optimizer work we have to force certain numbers. It is not perfect but the first Risk Management tool we have to use. That is one. It is beyond the issue of amortization and smoothing. That is one reason we do it. If we didnt do it we wouldnt be managing the assets. The second point is that it has to be done consistently year in and out which we have been doing. Third in terms of is there more risk to take on or more returns to earn someplace else. That is the tactical aspect. We have to force or make up certain numbers, particularly for private equity since it is about Price Movement be and they have accounting rules how private equity and real estate are prepped. I should have pointed out at the very beginning. We are not suggesting because of the numbers we make any changes to the longterm targets, but these numbers through janette go to your actuary who will incorporate these into their process. For them to estimate what they think the longterm distribution of your portfolio looks like and use that as a basis to come back to recommend your assumed rate. Good, bad, indifferent is less likely this will recommend a discount rate which means contribution rates dont have to go out. I am not suggesting we did it for that. It should support not increasing contribution rateds. That is what the actuary will derm after they get the numbers. Thank you for explanation. I understand the concept of taking quarterly returns and putting through the formula. I am not a ph. D. But i think that it artificially caps us. I think the real question is can staff still achieve these returns if we go above say 18 allocation. That is where they start to come down. If you ask me if they didnt come down too much i will throw more money in private equity. I dont know if you are saying that are you trying to say that we should be on the calendar year versus the fiscal year . No, no. I got that impression. Is an annual cadence. The annual volatility matters. We have an annual exercise to review th the contribution risk. Are there any plans, maybe allen can answer, on the calendar year versus fiscal year . The vast majority are fiscal. Orange county is calendar year. The important dance of the 12 month importance is how often you are reporting the funding status. Short term variations can have an impact. Just because everyone else has had a chance to talk about volatility. Imagine a private equity obo firm. They tend to buy small companies. Our assumption for Public Companies is 20 for a one year volatility. Now if they buy th the companies and lever them up to increase the risk of something bad happening. It is reasonable to think that ithat aprivate equity manager sd have volatility higher than the 20 that Small Cap Stock have. It is not what is reported. They have a different valuation practice. What are the risks in the companies you are owning . That is economic volatility and economic risk. That is a great point. Again, we wanted to make sure the board was aware of the numbers. They will go to the actuary who is asking questions. We wanted to make sure you were aware of the changes associated with both had method and the numbers. I would be happy to go through in more detail but i dont have much more to add. The numbers are the numbers. The other thing i would add for overall Risk Management, having this in place as an anticipated return and volatility guide sets the stage for the work anna will do in terms of thinking about strategies to enhance the return profile or manager addition which is associated with Asset Classes. It is important that everyone be aware that the distribution of returns associated with our views of the Capital Markets are more robust than they were. 7. 7 . The volatility is wider and that sets the basis for some of the additional work anna will be doing. Thank you very much for highlighting it. For example on this page the expected return is over 6 and the volatility 10. 5 . That is something as we work with our liquid credit this is the guideline that we think about. This is what went into estimate and expectations. On the 30 year and 5 years are lower. The 5 and a quarter and the 10. 5 volatility. That sets the stage as we evaluate each manager and present it to you and to the board, that is one of the frameworks that we look at. I would just close again, we could spend more time on questions. On page 21 for an example how the forecast came up with the underlying aspects. For every class we go through the Building Block approach. We start with view of inflation which is 2. 25 for short term and longer 2. 75. We add earnings growth. Dividend yields areand the variable is valuations. How much will the market pay per dollar of earnings . That is more than it is in u. S. Large cap. You can look here across to private equity where you add this additional illiquidity premium to the baseline be to get you to that much higher number. We think private equity in a market where a lot of people find it attractive that risk is 3 or a little less. The buildings blocks for the individual Asset Classes are here, internally consistent and drive off the common economic view. We also have the ability which we will do when we go through the full asset liability study is look at scenarios and we have built a 2degree environmental risk to look at the portfolio returns in an environment with constraints on carbon output, for example. It is a flexible tool. The current forecasts are as we described them here. We will start with board questions. Page 21. I have never seen it where the inflation block is different for the different Asset Classes. I can understand between china and United States between Asset Classes it is a important number, a big number. If we want to go into this in great depth we would arrange for phil to join us. We discriminate. Global inflation is higher. We do build asset class returns thinking not just about u. S. Inflation rate. When you get to mid cap and small cap and micro cap, the impact of inflation can vary given the nature of the underlying instrument. In terms where if numbers come from we would have to detail that for you in more detail, joe. It is different. This is a subject we will talk about over the next several months. It leads up to the vote on the economic assumptions. I will focus on the inflation block in the hedge fund area. I would like that explained to me. It is significantly different. On page 25 and page 5, the assumptions for the rate of return for the absent return area, the index about the composition of the weight which is different than hours. I want to make sure the assumptions how accurate they are as to what we ar we are doi. These are designed to be reflective. We will confirm that when david is there. It will come up when we are set to vote on it. How reliable nepc has been with the forecast. These are significant changes. We are not recommending changing it yet. These are enough difference i want to come back and make sure of the relie ability. The purpose was to. That out to make sure we provided the underlying information to have you be comfortable. The issue how inflation affects the wage assumption. How wages and returns like s p move the cycles are consistent. They are not totally in sync. Will the Service Coordinator comment looking out 7 years and 30 years when we start to watch our wage assumption will be. Are you ready for that one . Using the same inflation number 2. 2 or higher for us . Typically an actuary if they have a materially different inflation view they will deflate our numbers to come up with a real number and add that back to their inflation rate. Many of the actuaries are in sync at 2 and threequarters. I dont know where kyron is as we speak. You are higher. We are talking about this several times over several times over the next nine months. This was an introduction. We wanted to make sure where you had concerns. We hear you with the Risk Management. Not to belabor the whole project too much longer, if you put these in the optimizer, does it shoot the allocation of private equity off the charts . Do you have to put a restraint on it with the 27 . We are doing this for another client who was curious. What would unconstrained look like in the sport folios are overweighted to private debt, not equity. When you look at the sharp ratio of the asset class most attractively. Unconstrained 30 in real estate and 30 in Small Cap Stock and 30 in private equity which nobody will do. You build in constraint with a maximum based how quickly you can build out the portfolio and look at constrainted front tears until you get to the more rational portfolio. Expected returns would come down because the more dollars we allocated is we could invest less in specialist strategies where we expect higher returns we would have to go up the large cap ladder and returns would come down. That is the question the dilution. Would you rather have 15 of 4 billion or 12 or 10 . Anyway, i would say that in terms of the small and mid Cap Companies leveraging up. I get the point. Expected returns that we see here in the volatility associated are mostly for companies that have debt anyway. They are not de levering the returns for the entire 1,000 to say what is the volatility minus the debts they put on. I get your point but i see things differently. One last question to joes point. If we were to go back in and you brought stuff from years ago what is the scorecard . What is the first time we had a 5 to 7 year return assumption presentation from you, four years ago . Nepc has always done it. There were 10 years rushes in volatility. You have been four years now . Four years ago you did one for us. We can show you when we as a firm started to do it before we were engaged here. That is great. I dont know how anybody can really see this stuff. It is curious. People think getting it right is exactly what you are trying to do. You are really trying to build a strategy not to have everything in the asset class that does the best but to understand the rank ordering and risk you are taking. I think being right, it is more important to say did you have equities couping better than bonds. Did you rank order it as opposed to the 16. 6. We do track it. We can provide it. We did that when we did the original that got us hired. We provided statistics of accuracy of longterm forecasts. It is easily done. Im not sure how familiar you will conclude from it that is useful. We can provide the information. We scratch the itch and realize it is not meaningful. There is a larger ror rate. I think back to in january of 2000 nobody was predicting 10 year zero percent return which is what happened 2000 to 2009. Everybodys returns were 8 and higher. Over a decade that is more than 100 compounded. That is a big error rate. January 2010 we are coming up on a 10 year number now. Nobody was predicted the s and p up 13 . The error rate is really large. That is not the fault of any firm or individual. That is just the 10 year horizons in investing. I fully understand. If someone had the numbers actually were, they would be on their own island somewhere. No further board questions. Any questions from the public for comment . This is a discussion item only. That concludes item 15. Item 16. Discussion item chief Investment Officer report. Board members no sooner did we have the best quarter in 32 years in 1q than in month of may we had the worst month of may in 50 years. Markets were down almost 7 . Good news we were down only 88 basis points. That is a heroic return given the downdraft in the equity more cat last month. A quick update that you will be interested to know where we stand today with two andahalf weeks left. Up 6. 49 . With two and a half weeks to go. That compares to the Global Public equity market up 2. 5 fiscal yeartodate. I have some closings. Participatpatria we asked for . We have different aircraft strategy we asked for 50 million and closed at 50 million. Emr in the Natural Resources we asked for 100 million and got 100 million. We had a couple closings since the board package was completed on wednesday or thursday. First, advent our International Equity buyout strategy. We asked for 100 million and got 55 million. Nea, a Venture CapitalGrowth Equity strategy we asked for 100 million and got 75 million. I have a couple personnel updates. Very enthused to report that tiffany dong joined us may 27th to assist anna. You can see tiffanys bio. Two degrees from two bachelors degrees from the university of california as well as master in Financial Financial engineering. Four Years Experience. Chris terrazano has six Years Experience and. Could you stand up . Chris, come up in case the board wants to interrogate you. Just come up here. Chris has six Years Experience. A undergraduate degree from the university of georgia. We are beefing up the football team. He is a cfa charter holder. Gegiatta is helping us. Very credentialed education experience already. Currentlien control rolled in the mba program at uc and expects to graduate next year. Is she here . She is an intern, not a fulltime employee. Tiffany and chris. Feel free to introduce yourselves if you would like. Thank you. I am excited to join the team here on the real essets team working with chris and ed. I have been working for about six years now in the bay. You grew up in atlanta. I have been here for a few years. I love it. Excited to be here and looking forward to contributing as much as i can. Thank you. Tiffany. Thank you for the introduction. I am mostly working with anna Asset Allocation and risk. I graduated from berkeley and did my under grad at berkeley i worked in both u. S. And china for four years. My experience lastly is financial analysis. I am excited to join the team and i look forward to contributing my part. Thank you. Thank you both. That concludes that cio report. Next time we have personnel we could introduce them early in the agenda so they dont have to wait all day to give us an interesting to let them part of the training and education is to see how the board operating. I would like to see them at the beginning. The key is if they come back to work after the first board meeting. That is what i am afraid of. That concludes the report. Questions. I would like to commend you having the intern. That is something i have been asking about is including interns. Having interns is great. I would like to commend you for that. Thank you. She is a great addition. Item three. When we get to the semiannual reports of private equity i would like to see how coinvestments are doing. It is more than manager selection that is the decision abilities of our staff. That is on our radar. Any members of the Public Comments on the cio report . That concludes item 16. Item 17. Personnel committee report. Two items the process has concluded we have one firm to use for personnel work. We may pursue rfi for certain parts of it the other item was closed session only. That is all i have on the report. Would you care to add . No that is enough. That takes us to item 18. Overview of disability application process. Interest and, commissioners, we are today giving you an overview of the disability retirement application process. I know that many of you are aware of some aspects of it. We thought we would go over the entire process today. We will not be discussing the calipers application because it is different. There are different standards. We are talking about the process as it deals with first members today. There are two types of disability retirements available to members. Ordinary retirement available to all members. Safety and nonsafety members. Industrial disability retirement only available to safety members. At the time we were looking at this whole process in midapril we had approximately 400 pending applications. That including both ordinary disability and industrial disability. Most of those let me step back. The process is the member will come to our office and get counsel selled if they are entitled to a retirement benefit of some type. We tell them that they may be able to file an application for disability retirement with the stipulation and what that means they get the retirement benefit pending the disability process. If the disability application is later granted, then we adjust the benefits to act for the disability retirement. Obviously, this would only happen in an ordinary disability case. If your retirement benefit is greater than the maximum which is 40 under ordinary disabilities even if you were substantially unable to work you are not likely to file the disability retirement. For those who are able to get a safety or disability retirement, they will generally opt to receive the Service Retirement and continue the application process which will be adjusted later on the they should get their benefit. The ordinary is 40 . If it is industrial it is more . 90 . 90 an and also favorable tax treatment for safety. When staff receives an application, we have to collect all of the medical records that relate to the i hate to sound crude. The body part or injuries that are the basis for the application. We get medical releases at the time of the application and then staff inturn contacts the doctors that our members identify and provide releases and we seek the medical records. Our members are telling us the basis upon which they are making the application. We think these medical records will support or application. The medical standard that they have to establish when they get to hearing which is required under the charter that they are substantially incapacitated from performance of did duty. I dont know the technical term for that. I have never done it. It usually takes for that initial possessing under two weeks, about two weeks to get it in our system and get everything set up and get the initial request to doctors or Workers Compensation to get the records. In the past it has taken a considerable amount of time to get some records, but we have the system now where we are consistently following up. We have been able to reduce that timeframe considerably. When we get the medical records identified by the member, staff calls it medical ready, they look at those records and what they are doing is frequently the doctor will copy everything and send it to us. Staff remove things unrelated to what the member has told us the basis of the application. If there are duplicate pages they remove that, they get the medical evidence ready and upload on the confidential site and send to the City Attorneys office. The City Attorney does the analysis and evaluation for us. The City Attorney takes a look at the medical evidence and review it and if necessary they will ask for a medical examination. We call it independent medical examination. In the recent past what they are doing is looking at the there is a Workers Compensation case. They are writing a letter to the Workers Compensation doctor getting answers to questions that will assist them in determining whether they are substantially incapacitytated from the performance of duty. That is from medical ready looking at records to the ime can vary. It proximates 5. 5 months on after age currently. I know we have some very old idrs and there are reasons why those are taking longer. If they are in medical ready stage or waiting for medical records. Sometimes what happens in this process as the City Attorneys office are close to being ready to move to hearing, the applicant will will amend their application. You are at conveyor one at square one. Those records have to be evaluated. That is not infrequent. That adds to the process time as well. It is notnition we can do anything about if not anything that we can do anything about. I get to the next phase. When the City Attorneys office beliefs they have the record ready to go to hearing, they identify for our staff what should comprise the record and my staff collects that information and they provide it not just to the hearing offer but to the applicant. We call it a dor. Beck coloration of declaration of readiness. It is not unusual for the applicant, usually with an attorney to look at the evidence and clearly we have lawyers involved at this point. They may want a medical examination of their own. They want to submit Additional Information which they are entitled to do. Though submit that to us, we offer it to the City Attorney. There may be back and forth for a period of time. That is part of the process as both sides prepare for hearing. Once we eac receive the declaran of readiness we are ready to set that within five weeks. That is calling up the oah doing the hearings. The office of administrative hearings and offering dates and getting it to hearing within five weeks. After the hearing the decisions are usually rendered within 45 days. That is a very rough overview during this process. We have identified a number of areas. We know we have been able to collapse timeframes in some areas of the process. There are other areas that we know still need some work and staff and jay and i have ideas and we are looking at ways to first collapse the timeframes to make it more efficient. I am happy to take any questions. I would say this is more like a marketing customer service. These are our members. We have a lot of them that are in this process. It is a small fraction that we have some of them not being paid, and that becomes problematic all the way around. We have some that have no representation. We have some with poor representation and some with good representation. Really, what i think it is is the process is going to vary. There is no way we can have four weeks or three weeks or whatever. It is going to vary. We have had problematic doctors upset because they are off the city payroll. They dont want to release records back. There is a rock and hard space there for our member. What i really see is that we need somebody who has the authority in the whole chain to be able to get in there and fix what needs fixed on an individual case basis. For example, we have a doctor who is not going to release the records because he or she is having a temper tantrum, we need somebody to forcefully get those demand the records, officially and forcefully demand the records. That is one. Another one is we have had some unusual situations. Once they get to somebody they get cleared up. There is no identifiable somebody. It usually ends up with one of the Board Members being contacted. I take the example of one guy who was sitting out there wondering what is going on . I am waiting and waiting. It turned out there was a mix up between him and his brothers files. Then it all got fixed one they figure out that they have the same last name and similar first names. Somebody made a chai a clerical. That is what i see in this. We can track this and we will always have anything that goes on. We need that identifiable person to shake the tree at the City Attorneys office. We have heard things are zacked up. This person doesnt want to talk. The lawyer calls and then calls us and says the city ter city ay person was rude to me and cant talk to me. Why do we have attorneys if they cant talk to each other . Those are the types of things that im looking at and it is kind of frustrating. That is the end of my comments. To address the last part. We have approved through the mayor and hope to get it through the board of supervisors. It is designed to help people get through the processor if they are stuck in the process they will be high enough to pull and review a file. They are not going to necessarily represent them but they are certainly going to be able to find out the status of anything or answer questions related to the process. Certainly, you know, at the tail end karen didnt go through all examples. We have a lot of followings who were ready to go to hearing. They may be disabled. They are released to go to work with restrictions. The departments play part if they want to medically separate them, if they have to verify that they have no employment to protect their salary and status with the restrictions. You are right not one of them will look the same. I think we have identified, for example there is 160 out of 400 that are disabilities. It is if they meet the medical standard. We are focusing on a snub of areas to try a number of areas to get the workload under control. Some of them, especially miscellaneous, there is a number of for example, stroke. A person has a stroke. That is not going to be challenged at all. It kind of filters. The letter comes back to say the City Attorney is not going to challenge this. It has taken five months to get to that point. It is straight up. She had a stroke, cant work. The hearing officer demands a certain level of written documentation other than what we believe. How did it take over five months to get a one page letter back from the City Attorneys office that says we are not in opposition to this . They have to wait for the medical to be. It can take five or six weeks for the doctor to send. Hopefully they would expedite it. We dont need casebycase but there are times when the ball is in our court or a Doctors Court and times the ball was in the applicants court to make sure we take responsibility when the ball is in our court to be more efficient and consistent in the way we process these applications. We have to shake these up. Sometimes they dont have much more authority than the patient. The patient saying forward this to the retirement system might be more effective than the third letter. That is part of the process. If we know a member is not being paid, we flag that and we are make attention and tries goes to move forward. If you have no representation. If there is a problem we are going to contest it for whatever reason. We cant tell you that you have to have representation. We will recommend that you get representation. If we know you have a terminal illness, we trier to prioritize those. By the same token, remember we have a lot of people in cue, you dont want to keep pushing them back in the cue just because we have you know other people ahead of them. Otherwise they will get complaints somebody has been sitting for the only reason they are pushed back. I absolutely heard what you are saying. This is an area why we look to see if we can do something to move the cases along faster that we know are not goes to be contested under the line. Remember under the charter. You need a hearing. We dont have the ability. I am saying get the ones that i am talking maybe eight to 10 . Most of the other ones flow, but we have these. We are exploring everything, if it is uncontested. Does your attorney need to be at the heirs . The charter requires a hearing offer. Can a staff letter present it to the hearing offer. Not that we are trying to take work away from the City Attorney. We pay the staff less. If it is a process for us to accomplish the same thing in a shorter period of time and spendings less, certainly those types of things we are also exploring. The 20 years i have been here we had backlog of 35 350 350 to0 cases. There are backlogs we need to find out how to address. This was put on the agenda because i had requested it and you had requested it. You have some interest in this area as well. Thank you very much for taking this on and trying to figure out are there areas we can improve on and do we need staff and what is efficient . In all organizations there are areas where things are inefficient no matter how good the people might be. Thank you. Any questions . I have some questions. When a member indicates they are going to apply for disability pension and they indicate they shall be represented by an attorney. Do they understand we will only talk then to the attorney. The attorney will have to tell them that. That is not true. We would read that stated. We will all way o we wills talk to our members. I would want to know the specific question they want us to talk to their lawyer. Sometimes the correspondence doesnt go to them. You better talk to the attorney. The attorney controls the case. The City Attorneys should only talk to their attorney. We serve serve our members. With respect to the letters, it will go to the attorney but copied to the member . It should be copied to the member. That is good. The issue we do not control what the City Attorney decides to do. Everybody thinks it is the member against the retirement system. That is how they always say it. When they write it up, it is written that way. The City Attorney represents the city first . Our team who is reviewing the applications represent. I know we are paying for the city. They are representing us. There are two additional attorneys that you dont see here today that do almost exclusively disability and retirement legal work. They are included in the work order. Commissioner, are you making the distinction generally it would be the plan sponsor and applicant . We dont see ourselves from our different plans sponsor. We are in the middle. Often times disabilities are settled. If the City Attorney is taking their time, do they work for us or do they work for the city . For this assignment they are working for us. We can produces the prod thee quickly. Are you going to talk to applicant attorney . We are going to, i think, the goal is to effectively communicate to all parties including something they can hand to their attorney to say this is how the process works, these are the steps. It is going to be an application, more than a frequently asked question. The changes need to be communications and we are prepared to communicate them. The cases in the pipeline where dor filed for both sides, is it rapidly handled . Yes. No drag by the hearing offers . No. Of all of the different steps. If the doctors go back and forth for years. We have suggested to the members if we are waiting for their physician to get us medical information it might be faster to pick up the phone and call them themselves and be they have done that. If the member retires for services stipulation, at least they get a paycheck or something . Thats correct. [please stand by]