[roll call] is commissioner safai present at this meeting . [roll call] we have a quorum. Thank you, madam secretary. Motion is awarded to vote whether to disclose discussions held in the San Francisco administrative code section 67. 1a. At this time i make a motion. Motion not disclosed. Ill second this. Moved and seconded. We will take Public Comment at this time. Madam secretary. Please open the phone lines. Members of the public who wish to provide Public Comment on this item should call 408 4189388. Access code 1467135208. Press pound and press pound again. If you havent already done so, please dial star 3 to lineup to speak. A system prompt will indicate you have raised your hand. Please wait until the system indicates you have been unmuted and you may begin your comments. Please state your name and make your comment. You will have the standard two minutes to provide your comments. Please let us know if there are any callers. Madam secretary, there are no callers. Thank you. Hearing no callers, Public Comment is now closed. Thank you, madam secretary. Again, its been moved and seconded. Roll call, please. [roll call] sorry, there was something wrong with my computer, aye. Thank you. Mr. Stansbury. Aye. Months passes. President bridges. Next item, please. Item number 4, general Public Comment. Madam secretary, please open the phone lines for general Public Comments. We have received one Public Comment via the emails. Its from joh john stensen. In the past we had johnny cash, steve jobs and bob hope and now we have no jobs, no cash and no hope. Were very happy that weve had public pension plan. Please be ware that the Hedge Fund Industry would like to destroy public Pension Plans. Ps, your hedge funds salesman told you that hedge funds would provide down markets and what happened . Thats Public Comment. Thank you, callers. If you have not already done so please press star pound three to be added to the cue. Please continue to wait until the system indicates you have been unmuted. Moderator, do we have any callers on the line. Madam secretary, we have no callers on the line. Thank you, hearing no calls, Public Comment is now closed. President bridges. Thank you, madam secretary. Next item, please. Item number 5. Action item. Approval of the minutes of june 10, 2020 meeting. Thank you. At this time i would pass a motion to approve minutes the june 10th, 2020 meeting. So moved. Second. Thank you, commissioner. Its removed by commissioner and second by commissioner. Please open up the phone lines for the public. Callers, if you have not already done so please press star three to be added to the cue. Those already on hold, please continue to wait until the system indicates that you have been unmuted. Moderator, do we have any callers on the line . Madam secretary, there are no callers on the line. Public comment is closed. President bridges. Madam secretary, roll call vote, please. [ roll call vote ] thank you, commissioners. 70, motion passes. President bridges. Thank you, madam secretary. Next item, please. Item number 6, action item. Consensus calender. In order to approve the consent calender. So moved. Second. Thank you, the move moved and seconded. Please open the phone lines for Public Comment. Those callers from the line, if you have not already done so press star 3 and to be added to the cue. Those on hold please continue to wait and system indicates youve been unmuted. Moderator, do we have any callers on the line . Madam secretary, there are no callers on the line. Thank you. Hearing no calls, Public Comment is closed. Thank you, madam secretary. Roll call vote, please. [ roll call vote ] motion passes. President bridges. Thank you, mad amount madam. Next item please. Item number 7, discussion item. Private equity strategy update. This is a discussion item this is discussion item only and the meeting inaudible . January we did public equity and fixed income and it was scheduled for april and then we waited until may due to covid. We did a absolute return update. We did esg last october with a special est update in march and establishing the ambition for 02050 and we have three as set and real assets and private credit will begin with private equity and you will see in the beginning of the package theres a twopage he can executive summary. The strategy, which we pursue to achieve our objective, portfolio construction and performance and actions planned Going Forward. Good news is the performance of the the Public Private equity portfolio continues to be exceptional and strong and since going back more than 30 years, the program is returned 16. 1 its not a failed number its also very relevant for performance over the past five or 10 years and they return 13 and a half and about 17 annualized so performance continues to remain exceptionally strong on a absolute basis and also on a relative basis. Weve out performed our peers by 5. 6 annualized over the past one year and by 3. 8 the past three years and 3 the past five years. When asked to talk us through the rest of the item. Thank you. They meet the sensation. He is the host right now. Thank you. Lets see if i can do it. Let me know if you can see the penetration ok i can see it fine. Im here to present our annual private equity update. The format will be different from what youve seen in the past and the staff will present an update on the performance portfolio Strategy Initiative Going Forward and then they will have cambridge who will provide their overview of our portfolio but also perhaps their thoughts on the current environment. You have received a presentation and that presentation has lots of appointed and were not presenting it today, however, services will be available at the end of our presentation to answer any questions that you might have and before i start the presentation, shout out to the private equity team who works hard over the past several years gathering all the data together for this presentation. So time, im going to cover 2019 activity however performs what kind of exposures we have with the portfolio and to touch a little bit about q1 performance which im sure you know about this and. And put to work 1. 2 billion with 24 managers and seven of them why new. 75 million with existing managers and the north American Strategies and to the buy out strategies. Our managers were active quite as well before and and the exact number and 928 million which was the record for our programs since inception. 2019 was another record quality and we also and we registered almost 1 billion in portfolio in 20 . That was the very successful 2018 which they have 700 million. And at the end of december, our total was 21. 6 of the assets above our target of 18 but was the ranges over 18 to 23 and withinning with our activities, the highlight of the year was our secondary sales and you might resolve that in march of last year. The approved aboard a sale of up to 1 billion and private equity and we were able to wrap it up and the timing and pricing of the secondary sale were fantastic. Especially considering what happens in year one. Most of the exposure was within the buy out portfolio and older funds and not part of the strategy Going Forward. We have pro j projects and collaborated with our public equity team. We put it no the private equity portfolio into the private credit portfolio and we have exposure and i felt like a better home for the credit strategy we did not pursue in our Credit Property foal. In another collaboration, we are able to hire managers and that was another very timely decision that has added value since of september of 2019. Since that time we have 90 million and given volume tar tee that was very unfortunate conversation. Withinning with our initiative in 2019, we did a deep dive into our early stage portfolio. We have diligence over a dozen stage managers and not lead up with some of our relationships and were able to add separated account which is going to be and Going Forward. I was in the buy out portfolio, we added dedicated exposure to the healthcare managers and extended our relationship within the Consumer Tech and they mentioned three comments with 75 million. Switching gears and going to performance, private equity portfolio has been a contributor to the over all fund returned. Since inception, tracking at 16 and positively doing every single period we have looked at. More interestly, you will see that every single strategy was in our private equity portfolio and contributed positive return and private equity has over performed our benchmarks over all periods except for one year. You might remember that 2019 it was a fantastic for Public Markets and benchmarks and going up 30 it added 3. 3 billion versus the benchmarks and half of that value happened over the last five years and if you have this valuable it would be manager selections and it has always been a critical point for all of our private portfolio and were proud to report that over 70 of our private equity funds registered in the first or second benchmarks by markets and value. Consumers with the deploy past the with billions to every year so most of our history, private equity portfolio was below its targets and in 2018, we reached our target of 18 and went above in 2018 and 2019. Not coincidently 2018 and 2019 were the record years as far as the value per decision and in 2019, and in 2018, fort foal appreciated 700 million, which was a prior record of our portfolio. Over the next three years, our expectation is based on the patient mortal that worked to put it together, roughly 700 to 900 million a year so that is a reflected it will be reflected of the environment, opportunities and configurations at the current level so were certainly thinking about it and our positions right now Going Forward. Because of this build out over the last several years, it was the data point for us. We were surprised to see how young our portfolio is. You will see that 83 of our private equity portfolio is less than fiveyearsold compared to 43 . On a positive note, cambridge projecting our portfolio will be cash flow positive in the next year or two and were hoping that all this Value Creation that happens over the last five years inaudible . The next say quick shop of how we look five years ago and five now and you will see our age of specific exposure, a group from 7 to 24 and that happened and on the left side you will see our buy out exposure has shrunk to a third of the portfolio compared to our venture and exposure. Its partial due to the appreciation that occurred in our Venture Capital and capital fort foals over the past several years. Were going to go through the fort foal. There are three things we have biased or technology and we ha have. Every single sector in our private equity fort foal and if we were to classify this technology, exposure based on the end user and you see that and we just did analysis of our large buy out exposure in technology and we sell exposure very diverse to of our Financial Technology and real estate and its its unone sector and its different sectors together and surprisingly, its our Technology Exposure has performed the best and were able to and its not only the best performing sector within our fort foal its where we were able to add the most value add of cambridges benchmark and you will see were under weight in consumer and industrial and financialed and were relative performance has been a little bit lagging. Talking about our geographical exposures you will see that we have quite a bit of over weight to asia and compared to Cambridge Association benchmark and its deliberal. The majority of exposure in asia and in china and that is threeyearsold and it has been a fantastic contribute or to our over all Portfolio Performance tracking at roughly 21 and a half percent and we have performed in north america and that is where the largest exposure in the portfolio is and followed by asia and europe. Europe is a big part of our portfolio over the last five or seven years we exposure has been decreasing and while we know there are fantastic investment opportunities, it has now been our experience that we have not seen the right and i have something to do with that. And the last of our overweight to growth and venture strategies. Growth and venture have always been in the portfolio have done well historically but particularly well over the past 10 years, five years, and three years so while comfortable, with this over weight, we want to rebuild our soldier that stood up 50 and it will take some time. Moving on with performance, i wanted to walk you through our we have 13point investments with our private equity fort foal. The program is young. Its only 2. 3yearsold on average and last year we added 75 million to our investment and its really well. As of 2019 it was tracking at 18 and again, this is very, very early days for our investment programs. It would be about 2020 and what happens with our portfolio if you want. So this is based on the preliminary data and you know, our portfolio will down roughly 7 but on the relative days is it held up very well and cambridge benchmark was down 8 and you all narrowed that Public Markets were down 20 using the mark. And as far as the positioning of the portfolio, a lot of our over weight and actually felt and our technology was helpful because they held up better compared to companies in industrial, financial sectors where we have under weight. If ask you me in january, i would definitely tell you it was our asia portfolio and we were on the phones for nonstop and it was only down 3 and it was asia portfolio. The last one is our over weight to bench portfolio was down only 3 and in aggregate, it helps our portfolio and the reason that we are down 7 compared to our benchmark. So that is a performance so ill finish up with our 2020 initiative. We do want to reabout the our port follow because we want to buy out and it helps the distribution for our private equity fort foal and we want to make sure were balanced Going Forward. We want a visit with exposure and just the same reason we mentioned. Historically, these have been fantastic markets. Over the last five or seven years maybe not so much from our private equity portfolio but it would be one of the visits and reconfirm our petitioning and we do want to do, if you with our Growth Equity portfolio. Its the youngest program and over the last five or seven years now its time to step back and take stock of what we have and seeing if were willing to adjust exposures and we keep our eyes open for investments opportunities that might come our way with covid19. Over the next and well see some value and but were doing right now. With the public equity with andrew regarding esg initiatives and we do expect to increase the level of engagement. Well need to hire Additional Resources at the end of 2019. We were down two people, unfortunately, on the private equity side. They stepped up and felt, quite a bit, during this time and were now announcing that people will join our team permanently as a disaster or private equity. However we still need to hire it and last but not least, well be running consultants later this year and this is just a normal process and normal. I think thats it. That concludes my my comments. Im going to turnover to team bridge and for their presentations. Great, thank you, tanya. Good afternoon, commissioners. Let me try and get my presentation up. This is anita and hopefully you have this presentation also in your package and in it, what areas we find attractive and where were focusing our efforts for the retirement system. We first turn to page 3 in the intro here. The headline is that in the near term which expect investment funding, to flow from those sectors of private equity. Managers have been laser focused. And we do ex ticket and dis a ploy but not until the Price Expectations have come down, risks are better understood and gps are they are delaying fundraising and exit plans for fort foal companies have been pushed out since ipos and large acquisitions will remain limited for the foreseeable future. In terms of commitment casing, first words this year, we reran or model and recommend a 700 million annual paid for the private equity program. This is were comfortable with even our stress scenario that we discussed at last months Board Meeting and the target is intended to be a guide post and we do think theres room for flexibility and depending on the opportunities and the market. On page four, fundraising globally hit another peek last year similar to what happened during other down turns and we expect a slow down in 2020 and were already seeing that slow down happen with our data here through may. On the flip side of this, given the record levels of fundraising in recent years, theres a lot of dry powder on the sidelines ready to be deployed. Page five, its wellknown that we look to private investments to out perform the Public Markets over the longterm and on slide five we show another benefit of private. In significant market volatility, they have historically been less volatile than public mark he is. To camden volatility and this slide charts the gfc and were seeing the same happen in q1 of this year where the s s p 500 s down and venture down less than a quarter. On pages six and seven, we show that during coming out of down turned performed well and generally better. We want to make the point that we want to emphasize the importance of staying the course with the private if you can, and make comments during times of volatility like today. Moving on to page eight, in recent months weve had hundreds of calls with managers to discuss the covid impact to their portfolio and they request to take action when the covid19 pandemic hit focused on Employee Health and their existing portfolios and shoring up liquidity and addressing cash needs and requirements. As a result, the portfolios are general positions well relatively speaking and gps are trying to figure out how to playoffens and we started seeing gps propose amendments to increase a flexibilities to support our portfolios and we expect this trend to continue. As i mentioned, its definitely flowed and deals in process pre covid has been renegotiated and reprised lower or many were not transacting and with uncertainty economy and seller expectations theres airbnb and way fair recently and potentially privates. Fundraising has also slowed and many managers are pushing back and fundraising time lines and the exception are special evacuations, managers and distressed managers about what have investment activity in this environment. On the next slide, for venture its a similar story in terms of slower investment activity and fund raying. Venture have been des impacted and they were down less than 3 compared with buy outs which were down about 10 . And today, venture managers are primarily focused on pipeline deals that were already in process and Portfolio Companies have added at quit cash runway. We show that covid19 Different Industries in varying degrees and you will notice that with technology, technology has been less effected which is effecting San Francisco and retirement system has had an intention over weight. Some companies in i. T. Have actually benefited from covid. Enterprise Technology Companies that are enabling remote work and companies focused on virtual healthcare and delivery and Online Education have seen a surge in traffic. They have high recurring revenues making them better positions to withstand the downturn and the hardest hit sectors, as you can imagine, have been in consumer. Particularly travel and leisure and brick and Mortar Retail and restaurants. Many of these Companies May not recover and over Leveraged Companies in this environment will hurt. On page 11, we highlight attracted in this environment. We did see across the board and here we highlight specific areas that we like today. They remain system and we look to enhance the programs and fort foal in early stage Venture Capital, mid cap and tech to be focus boy out funds as well as gross equity. The latter two areas, secondary and devalued turn around or destress, those have not been attractive for the last decade until now. For secondary its been a sellers market with narrow discounts for a long time and we expect discounts and pricing to be more attractive beginning later this year or next year as more come to market. On the turn around side, the environment has not been denied when you ask was in its longest economic period in history and one of your distressed managers said it has gone from a fourth core tongue to a environment today and for those who made two reup commitments last year to this space and this is an area focused for the program in the near term. Id like to end it with a few quick comments on your private equity performance. On page 12, we show you a longterm performance and compare it against your benchmark and you connist sently rank in the top 10 of pension plan pe returns. Last year, you were number five in the investment force on data and on page 13 is your preliminary q1 performance and you can see here that your private equity out performed your custom blended benchmark at brussels 3,000 and msci and even plus the 300 basis point premium. It was down 7 compared with down 20 plus for the public industry and this obviously will benefit over all plan volatility as we get pointed to earlier in terms of an added benefit for private. You compare to our public cambridge private equity benchmark in q1 as well. Were happy to take questions and join here by a couple of my private equity colleagues scott martin and kelly jensen too. We have the whole private equity Team Available for answering questions along with ak sil tee. The reports. Board members, this is discussion items. Any questions or concerns you would like to district to the Investment Team . Eye like to thank the team for pulling together this update and private equity and the questions that come up with they the chain or what to be direct with. Thank you. Thank you for working remotely and pulling all this information and data together. I know it wasnt easy but we truly appreciate all the time and effort that has gone into it so thank you very much. Thank you, we pressure comments. This was a discussion item so if you could open the Public Comment, i would appreciate it. Thank you. A reminder to those of you on the line, to press star 3 to be added to the queue. Those already on hold, please continue to wait until the system indicates that you have been unmuted. Moderator, are there any callers on the line . Madam secretary, there are no callers on the line. Yes, maam. Next item, please. Item number 8. Discussion item. Real as se asset strategy updat. Thank you, very much. The second of our three asset class updates today is real sets. Again, you will see . The beginning of the packages the executive summary, same five bullet points. Turning to performance, our Real Assets Program is two segments. Natural resources and real estate and you will see the real estate returns over each of the last one one, throw, five and 10 years remain strong, arrive half or just above performing by 3. 9 and 1. 7 . In Natural Resources theres two stories. Data return and alpha returns. Data returns meaning the benchmark, you see the returns have been very lowr low recentln 5. 8 here over the past year and even out over 10 years and a return of 3. 3 . Our alpha returns, have been exceptional and clocking in at 6. 1 annualized over the past 10 years and as much as 8. 2 over the past year and also its dollar weighted returns through 12 31. The second in the table in the executive summary is to march 31. Its based on dollar weighted returns and these are the same returns as any pc reported to the board in june. And you see our access theyre high. Over the past year, 3 had the 7 and the past three and five years access return relative to our peers at 6. 6 and 8. 5 respectively and thats truely extraordinary asper formance. Tanya inaudible . Ill troy to share the presentation. Can you see it . Ok. Already. I happen to provide the update on the portfolio and this format were going to follow and with private equity presentations and shout out to the real sets team for. Were going to give you insights into what happens with our portfolio in 2019. One performance than the portfolio and and and goals for 2020. 2019, it was very successful year for our real assets portfolio. We put to work roughly 900 million and half and half real estate and Natural Resources and the real estate portfolio, we emphasized Communications Infrastructure and logistics and scl strategies and for Natural Resources mining will be inaudible . Continuing with 2019, the portfolio was at 290 million and this is how much the fair market value and gains and out performed its benchmark by 900 basis points which was fantastic out performance. Were currently at roughly 15 and Asset Allocations and compared to our target of and that will bring us down to 14 . The fort foa portfolio generatee 2019 so fantastic. And last month, we did come from secondary sales, thats my last opportunity to mention what a fantastic decision its worth to go out with the secondary sale when we did and wrap it up by the end of december. You see in dark blue its our Portfolio Performance tracking 7 in one year. Light blue is our benchmark and green is our Public Markets equivalence. I should note here, over the past five or seven years our portfolio has gone through significant transformations. You might recall that prior to that our real assets portfolio was essentially real estate u. S. Portfolio targeting and achieving roughly 8 to 9 return. Over the past seven years we need the decision to have return generations versus maybe more traditional diversification inflation and what people peck for real as sets portfolio and it was fantastic performance over the past 10 years out performances versus our benchmark. And i real assets portfolio has been over a very long time period. Moving on to more detailed performance on the two segments, in our real assets portfolio, 640 is the newest base roughly 40 is Natural Resources and and you will see that performance of the real estate more recently has been strong and its lagging and for the real estate portfolio. On the Natural Resources side, they have generated out performance versus benchmark in every single time period and despite very challenging energy environment, our Natural Resources portfolio not only out perform its benchmark but also delivers seller longterm performance. Moving on to Co Investments, private equity, we open for investments in our real as set portfolio and its very young portfolio tracking less than 1. 8 year less than two years in age and. The investment and we do expect some headwinds Going Forward. As far as q1 performance the portfolio was down roughly 9 compared to 10 cambridge benchmark and that roughly actually its our benchmark, our policy benchmark 10 and Public Market that were down 30 in the First Quarter. So a very challenge quarter. It held up well thanks to our real estate exposure and it was down 2 in the quarter and as far as you will see here reperformance sector and see what sectors did well during q1. We are over weight where within our portfolio would you have dedicated exposure with specialists and so were very fortunate that we do have dedicated sectorfocused managers within the area so that it held up quite well during q1. Were very Communications Infrastructure or industrial or selfstore an managers and we did not have any dedicated exposure within launching segments which were a hit quite a bit during covid19. And similar to private equity, were just going to go turning opportunity exposures and still within our portfolio. We started out having in blue states and prior to 2015, we were 90 real estate and 10 natural living resources and weve been diversifying portfolio exposure and now were at a more balanced 60 40 blitz. Were probably a little bit more in Natural Resources right now than we would have liked and that is given they go the redemption that was out of the manager in our fort foal. We have been work to go diversify. We started roughly with 90 10 might and right now we have a balanced portfolio with additional golders and you would see an ex pose youre and looking at the details at our real estate exposure in the top slide, chart were 45 right now to compared to compared images and ream estate benchmark. We expect that our allocation our portfolio is pretty well diversified and compared to cambridges benchmark, were a little bit more over weight with our exposure to but its comfortablcomfortable position e changes Going Forward. And last but not least, sector wise, the proposal is well diversified. At the bottom right chart you will see that we ended 2019 with over weight logistics and industrial strat agrees and retail and hotels and liquidity redemptions, we are going to be under weight and thats going to be an area of focus for our portfolio Going Forward. With our Natural Resources, im just going to ask that we were under wait versus cambridge benchmark over weight in mineing and this helps us quite a bit using and under weight in communications also intellectual with our investments and were under weight facilities and thats the positioning that well probably continue. We did spend, right now, our infrastructure exposure is roughly 100 million so very small part of the portfolio and given this commitment, we do staff thats the part of the portfolio where we have our own relationships. Switching gears and going to our deployment, weve been busy. This morning roughly 900 million a year across the last five years. Based on our current casing modeling, our casing Going Forward is going to be between 400 and hundred Million Dollars and that depends not only the opportunities steps but also strategically the considerations and more strategically the role of the real assets and at as set allocation Going Forward, which we will be discussing this year. And our initiatives. I think number one is going to be a challenge and an opportunity to manage and casing Going Forward and well have to think so its been working on opportunities and you see some of them coming your way over the next few months. We want to be more integrated within the greater investments mean and collaboration work whether its esg projects or private credit portfolio where we do have some comments points and well continue to do it and the real focus for the portfolio given the refew Going Forward, we want to refine our internal investment process and particularly as it concerns data and an lit ticks because thanks to all the online bill we have fantastic tools and we want to make sure were utilizing them. So that concludes my prepared comments and unless we have any questions, ill be happy to turnover to president bridge. Thank you. I guess if you could pass the ball over to me so i can share the screen. Ive lost it. Ok, great. Are you able to see my screen . Yes. Ok, great. Thank you, tanya and thank you commissioners. Were always happy to be here and appreciate the continued partnership with the retirement system. Im joined by mark and bob lang and we work with a global Real Assets Team and working o the real assets portfolio. Tanya covered a lot of the initiatives and the work that has gone into the real assets portfolio of 2019 so keep our remarks on the real assets portfolio and its pretty brief and will focus our time today on the market environment following the covid. Anderson and resulting volatility and its impact on real sets. I want to call out three things in particular into this for the portfolio. This has been a meaningful diver of returns for the pensions over the longterm and over the laugh five years, the real assets portfolio has generated an 11 net iir and 700 basis points of out performance relative to the policy benchmark which is quite impressive. 2019 was another productive year and we committed 900 million to fund and Co Investments across real estate, resources, and Infrastructure Investments. And finally, weve worked with this for staff and presented to the board last month as well as earlier in 2020 extensive Scenario Analysis related to the go forward commitment further real assets for the Real Assets Program and recommend 550 million but with the understanding there needs to be flexibility given that Uncertain Times with that i focus really more to the market environment. Before we do that, we just want to take a step back and do a reminder where real assets have performed over the last 10 years. For real estate and infrastructure returns for our benchmark and they have been very attractive and stable following the gsd where performance for resources has been much more disappointing and supply and demand in balance driven by increasing supplies and the u. S. Has become very good at extracting oil leading to increased supplies and if the demand had fallen slightly it would be a larger part of the energy system. These dynamics continued into the viedensky fell off in march. Resources sold off in march as well as real estate and Infrastructure Investments and it has has bounced back since then and there continues to be considerable uncertainty across the Asset Classes Going Forward. The dynamics effecting real estate were driven by stay at home orders and uncertainty around rent collection but the experiences is are different depending on what property types you had in your portfolio so, like you can imagine, hospitality and retail sets have performed in travel and shopping and whereas, its given the acceleration of ecommerce, activity and as well as residential which continues to be a property type given we all nodneed a place to live. With a infrastructure to sell off was led by transportation so like the airport assets where as we all know, travel largely came to a halt so there is impacted where telecommunications and cell power sets even traded up during the sell off, given increasing reliance on broadband and wifi connection. Im sure im not the only one who had to stumble through a couple of wifi that we transition to working from home. Resources have continued to be happy with the level of resources, pose youre and comport able for this real assets portfolio but the bar will continue with strong tail winds through the covid19. While they remains uncertainty in todays market environment we continue to favor residential, industrial and logistics and this fort portfolio remains well positioned today. Despite this uncertainty, we do remain advocates of a stable commitment over the longterm. You will see on the top of this here we plotted the vintage year return for real estate, along with lp commitments and a lot of lps missed out on the stable 11 to 12 return that were generated following the gst. And it costs about over 200 basis points of performance over a nineyear period. And finally, one of the rules investigate portfolio can be to help inflation while inflation has been relatively flat in recent years, and is hard to pro dictionary, given the Government Spending in this covid era, as well as some economists have worried about inflation Going Forward and add a 15 allocation we think this fort foal generally has a pretty good cushion against an increase in rise in prices. Ill pause and say despite todays uncertain real assets and market environment generally, we believe this portfolio is fall positioned over the long run and has generated 900 basis point of out performance relative to the policy benchmark in 2019 in 700 basis points of out performance over the last five years which is quite impressive. Tanya, back to you or we can open it up for questions at this point. Well open up for questions. We have the team and. We will take questions for tanya and the Investment Team as well as the you may unmute at this time. I have two types of questions. Commissioner driscoll. Regarding the real estate, how much leverage is attached to those Property Values . Its roughly 50 and its higher inaudible and it will be more significantly lower for the core strategies. Did you hear, commissioner driscoll . I missed part of that. You said basically 50 tell me what the 50 is against. The total number . Its about the ltv of the ill go to question number two. I do not have the breakdown of the dollars, each one of our Real Estate Managers is managing when the problems of the way the numbers are reported to us now and its not in the last quarterly. Im not talking about funds, im talking about managers. Let me ask is it another way. Are they selling properties and returning us cash for other investing . We have been work to go sell down our core real estate exposure and perhaps that has been going a little bit lower than we were anticipating. Given what happened in q1 were actually pretty happy with what we have that exposure. Longterm, you know, longer term, its focused for us to lay down the portfolio away from and Everybody Knows that its a priority for all. Im seeing a comment made by your predecessor. Again, i do not have all the numbers in front of me ill come back at another point in time and ill come back object the leverage issue question. Thats it for now. Thank you. Thank you, commissioner driscoll. Any other comments or items for the commissioners . Thank you, tanya, once again for a complete comprehensive update. We appreciate you and your teamworking on this and bringing it to our attention so thank you so much. Thank you. This is a discussion item so at this time madam secretary, if you can open up the phone lines for Public Comment. Thank you. Callers, please press star 3 to be added to the queue. Those already on hold, please continue to wait until the system indicates you have been unmuted. Do we have any callers on the line. Madam secretary, there are no cares ocallers on the line. Public comment is now closed. President bridges. Madam secretary item number 9, discussion item. Strategy update. Thank you very much. Members, good afternoon. Private credit so to sum up the previous two, is in private equity in real assets are a fiveyear returns have been about 15 and 11 and a half percent respectively. Very good returns. 9 story in private question its the same. You see on page two of the executive summary, across all time periods you are hitting returns of 10 to 11 and a half percent and access returns that over the last five years, have been 4. 3 annualize and that number has been trending even more positive in the range of five and a half to six percent over the past one and throw years to sum up, all three private equity portfolio and private markets portfolios are earning very good absolute returns and are also achieving very high access returns. Thank you, bill. First ill start by passing the ball to show our presentation . I think i have it with me. Ok, can everyone see that presentation. Yes. Ok. Thank you, bill. Well, thank you everyone. Ill form that today will be similar to the prior to presentations and first i want to acknowledge something here which it would be credit team but the term team is a misnomer that the portfolio that im going to describe the performance has been constructed by a oneperson show so i want to give eunice all due credit here for maintaining a considerable amount of pacing and well talk about the fact that we made 12 recommendations to our board in 2019 and 2020 and weve already done eight recommendations and creditable amount of work to her similar format, however, it is a new as set class and a little bit more time on their review and more time than the presentations and well talk about the performance in december and the composition of the portfolio and we now hand it over for a Market Update and well both close with some comments on both opportunities and initiatives and the relatively new as set class and it was relatively new as asset clans and it was born out of the larger Global Crisis where following the crisis, regulators and policymakers globally and a number of regulations they would never have to bail out banks again and as a consequence, banks got out of a variety of businesses including discussion ary trading, and they also started to curtail to what they were doing with financing middle market companies, consumers and even government. Into that void, they have private pools of capital with the private credit as set class and it was much broader than just direct lending and strategies and we currently have allocations and the Aviation Finance and healthcare royalties and its a class to try and describe in a moment and they a apartmented the target community at 10 at the end of 2017 so the build that private credit is really just beginning in earnest in 2018 and they suggest and they do about 750 million a year with the idea of having 10 invested with we expect to be there in the next two and a half to three years. As a highlight, the portfolio had about 1. 1 billion in any of the invested which was 4 of plan assets and we have gone through the first half and they are incried over ask still noted performance is strong and generating our our sun tom benchmark and the private credit benchmark. Quickly, our investment objective to add diversity and its greater than that of what we can find in liquid credit and we see and the benchmark 50 credit and we have a leverage loan index and and it never goes down positive and the including 150 basis points of alpha and thats what were trying ta beat. Richard will take about the nature of the private credit market in a little bit but it represents a large and new as set class, however, under writing skills within the managers is and its not noted here, it includes performing assets as well as non performing assets and its on a scale of risk and return was that private credit our expectations are returns greater than what we can get out of liquid credit and highyield bonds and can range to returns that are commence. Turning to our portfolio, were going to just virtually every portfolio we take a bottom up approach and manager selection is critical here and we are mindful of the diversification and we are sticking to creative portfolio diversified by strategy, geography and gm relationships and broadly speaking we allocate capital within three broad categories, if you will. Capital preservation, opportunistic and return maximummization and the emphasis over the longterm is the strategies name year strategies and they have been over seeded until recently until we have allocated and more especially and a little bit later. In terms of our over all structure to give you a picture of how we think of this here, at any one point in time we expect to have anywhere from 15 to 25 g. M. But Fund Relations representing a variety of strategies and beneat beneath tm were going to establish three, perhaps five longterm separate account relationships and due to large strategic relationships that we expect to grow overtime and really become the link ors of our program. We recommended a separate account with airies that focuses on seniors with opportunities to invest that will approve in 2018 and it got going in 2019 and in 2019, we recommended to our board a second step of the count with hps which will focus also on senior debt and nonresponse order opportunities and inaudible . Ill speak about hbp a little bit later. So, ill talk about performance and as its true without equity and real estate colleagues, ill first tribe performance through december 31st which is at which point we had 100 our funds reported and well attempt to give updates on performance through the First Quarter given how challenging it was as i noted, we managed to do quite well with this portfolio with every timeframe except for the last year this portfolio has more than exceeded its benchmark and again thats a benchmark with a we did under perform over the last 12 months in december 2019 however i would say its more about the function of the high yield markets which got a little ahead of themselves in 2019 and as we turned to results of the First Quarter, that came crashing down so without performance and if you are just a couple of years to build out and this is a more and more important and i mentioned were inspired by a private equity and real estate colleagues in terms of the value that they may have been able to add and here, we show, the amount of value added relative to the same time of cash flow but invested in this public benchmark which has 150 basis points and relative to that Public Market benchmark weve added 140 million, 139 million in value and albeit a very, very short time. As you can see from the chart, its until 2018 and this would be an important chart for us to watch over the years to come. The calender year, performance was broad based by mesa with a aviation and more importantly you can see it across the strategies and for timeframes. You can produce strong and consistent return. Turning to cambridge benchmark of peer groups, again, weve been able to substantially help perform in all periods 15 and section. This is a inaudible meaning as time goes on, weve been allocating to private strategies and initially in our private equity portfolio and later in our portfolio we can see that historically weve had a lot of success in invest north private credit. As i said, or i will say, the number of funds to which we committed in the early years is quite few. Over the next several years, it will be another important slide for us to monitor and this slide shows that in prior quarters the private Credit Program was ruling along and adding consistent value to the plan that is true with every as set class in the First Quarter things came to a halt and we had posted a loss of 84 million and its probably more dramatic than it deserves and the vast majority of this pricing or evaluation and my guess is we recovered all of those losses and importantly, this didnt represent any amount of permanent logs of capital with no question theres stress in the markets but in many cases its leading to opportunity. Despite having lost appreciation during the First Quarter our performance against the benchmark was strong and with access returns for the quarter of four and a half percent. Numbers have come down and theyre now 8. 6 and a multiple of 1. 22 times and again they are mark to market because it was expected at the time. In the First Quarter, the loss was unrealized and pretty broad based with most pain in special situations area and it was one quarter and vast majority has been made up to and the benchmarks, again, most strategies were down and we continue to add value relative to the private credit industries. I will turn to the private credit portfolio and the composition of the portfolio and i noted at the outset, we established a separate account late 2018 with ars and it didnt really get going until 2019. Theres a lot of work to be done with the mccann ticks and a private account with a 250 milliondollar separate account focusing on a first secured loans and they have the ability to induct up to 25 in opportunistic strategies and we expect it to be roughly balanced between the north american europe and 60 40. Through march 31st, they called 131 million on 200 million and not much to report there and other than the fact well discuss this but middle market k direct lending space has changed remarkly in terms it used to be the borrowers had all the leverage. They had the ability to dictate terms. Now the lenders do. Theres a lot of companies sticking areas and ar they are seeing coupons up to 250 basis points better than what they were six months ago. Its diversified and thats 30 of the portfolio is committed or in this is measures our nav and unfunded capital and total exposures is roughly 40 in capital Preservation Strategies and were diversified by a geography, namely the time they focus the north america but we have balanced exposures in europe and asia as well and as we look through to our underlying companies, this is invested capital, similarly were well diversified across industries and wellbalanced across geography. And exposures as you might imagine just given how new the program is, the vast majority of our Company Exposure has really occurred over the last three years and not surprisingly the vast majority of that exposure to private companies as opposed to Public Companies quickly, the the slowed the slide to show this is a new asset class that were building out that will be over five years ask and what we show in the orange bars a above, the program does generate cash however, the new programming, the capital calls of much greater than the cash being distributed and we expect in 20232024, this program will return to being cash flow positive. Understand now that this is a taker of capital as opposed to a supplier of capital. That dynamic will change in a couple of years. In 2019, i alluded as a asset class its a resource intensive as set class. Funds come back more quickly than other private markets strategies and as a consequence, theres a strong treadmill here and in 2019, we committed 905 million to 12 funds and again, the commitments were broadbased across strategies and those commitments included the establishing of a 275 million managed account which i referenced earlier. This is again designed to be allocated 90 to sin years withel balance invested in distressed credit this is a good compliment to what we have is the majority of the senior loans will be focused on nonresponse or opportunities. With the 50 million to hpf in 2019 and tanya referenced this earlier in the private equity presentation, we transferred 17 distresses and special funds with 105 million and some private equity to private credit and i mentioned this already, in 2012, that conveyer belt continues and weve commit to our board now eight separate funds with 450 million. With that, i will turn it over to richard with a Market Update and we will make separate remarks in closing. Ill attempt to pass you this ball. As you do that, ill introduce myself. Richard grim, managing director on the Pensions Team of Cambridge Associates and i help lead our firms prior credit effort. Let me pop up the content here. Great. Lets spend a few minutes on an overview of the private credit markets and before i dive in. We believe the private Credit Opportunities in todays market are more compelling than theyve been for a number of years and ill touch on the reasons why we think that and how we recommend pursuing those investment opportunities. First, its important to frame where we were going into this crisis. Non financial corporate debt to gdp was at all time highs on a nominal basis as well as a percentage of g. D. P. Relative to the great financial crisis with Corporate Credit markets increased even more so both the high yield and leverage loan markets roughly doubled and the risk is part of the Investment Grade market triple bs were up more than three and similarly they had tripled over that timeframe. And its cause and effect as global Interest Rates trended lower as the chase for yield become greater and debt service was more affordable, we saw the trend in Purchase Price in leverage multiples increasing. Those were at a peak prior to the crisis as well and they were based on a just. Normalizing for those adjustments the multiples were even higher, equally important and especially in times of stress, creditor protections were being owe roaded meaning not just stripping away and making loans covenant and weakening of broader protections like limiting borrows ability to incur debtor distribute assets or take dividends out of the lender group. I with say taking a part these are trends that we collectively have been focused on and that have influenced first private credit portfolio allocations and prior periods, and now the cause of the crisis and the distress stod certainly is surprising and unpredictable. What were seeing coming out of that was not unpredictable and it was quite predictable based on those trends. Here ill just touch on a lot of what we all the know and we just lived through. This slide is just a recap of what we experienced in late q1 and late 3q2. In mid march, market dislocation was unprecedented, even relative to the financial crisis. Since that point in time, risk assets have rallied significantly, helped by government stimulus and clearly theres a debate today if liquid asset prices are with economic reality. The government response was in terms of size as well as speed and here you can see that Federal Reserve in u. S. Treasury were at the forefront and providing that stimulus on equal level basis. Since that time, the bounce back in as set prices has been dramatic. The prices have fully recovered and are back in positive territories so, dramatic trend from longer were seeing in mid march. Here, were seeing a longer turned snapshot of spread widening and the high yield markets. With this representing, its referred to the distress ratio of the high yield master two index which is a broad based intext and it prefers t refers t 1,000 basis points on a spread basis and its typically seen as a predict or or error a precur. You can see at the end of the chart of march [please stand by] that underscores the liquidity stress and strain that a number of companies are facing and given the structure of the market that i touched on previously, it is relatively predictable to see the way the downgrade is impacting the yield markets. While it might be predictable, the size and the degree to what is happening is certainly unprecedented. Even relative to the financial crisis. I would say that while these are interesting metrics, they have realworld implications. There are fun mandates that arent allowed to downgrade below certain levels. What that does is create churned within the market. Certainly what they have done in terms of supporting highyield fallen angels provide some support to that market. There continues to be this in the market as issues get downgraded and it is difficult for people who own the majority of these assets to hold the loans long term. The point is, even though liquid assets are performing well, there still continues to be a lot of strain and stress in some of these markets. The lagging trend is the stress that terms through the market. Certainly we have seen a significant increase in the folks to date. It is worth pointing out the defaults to date have predominantly been for issues that we are likely needing to restructure whether that be energy names or names that we probably all know quite well. Retailers such as neiman marcus, jcpenney, and names like that, which have been rumoured to go through restructuring for several years. What will be interesting in the coming quarters will be, and the expectation of companies that were performing well prior to covid hitting a lull from a liquidity standpoint and having no alternative but to seek a restructuring and seeing a spike in those sorts of situations. Here on the chart we see that the default rate is roughly 5 today and a number of investment banks and the likes of others will predict that that rate will go into the teens. Levels you havent seen since the financial crisis. We are also talking on a percentage basis. In conclusion, the markets remain volatile. The government response has pushed back out of the market. The fundamentals of most corporations continue to deteriorate liquidity that remains a severe challenge. Notwithstanding what would occur if there was a recovery. There appears to be a mismatch in asset prices. We expect a distressed cycle to continue through the credit market. This will create opportunities for Patient Capital in a number of spots within the private credit. On that note, i will turn it back to kurt. I will go through the last few slides here. Can you pass that back to me . I stopped sharing. Okay now you can see my screen. I dont see it yet. I dont have the ability to share my screen at this stage. Okay. Can you get that ball that has been handed back to me . I see that you have the ball. I will try to reshare then. All right. Can you see it now . I guess we made this more complicated than necessary. Richard, i will just have you addressed this slide in terms of the opportunities and then i will present the final slide in terms of what our initiatives are going to be. Great. As i said, in the outset of this discussion, we do think that the Credit Opportunities are more attractive today than they have been for a number of years. We would recommend that you continue to take a balanced investment approach along the lines of what kurt had outlined previously and the broad baskets of capital reservation, opportunistic and specialties and return maximization. Having said that, there are a number of compelling managers focused on Credit Opportunities and distressed and we think it would be prudent to lean into some of those opportunities. When done well, you certainly can generate equity like returns with substantially better risk profiles and we do think that opportunity that is in front of us. We what we find what we find equally compelling and straddles Credit Opportunities and senior director lending is the rescue financing opportunity. Because of some of the trends that i touched on upfront, in terms of the documents that exist today, there is an ability for borrowers to Work Together with lenders who attach new capital missioncritical assets that are unencumbered or that have been moved away from a current lender group such that the new lender or the new provider of capital is attaching to missioncritical assets and generating an increased right of return. We think that is a very compelling. The other thing i would say, as kurt outlined, there certainly, strategically focus on relationships with a couple of lenders that we think are very wellplaced to take advantage of this market. There is a substantial amount of uncommitted capital within the portfolio today that we think is wellplaced. Further to that, on the direct lending side, we do think there is some specialty, complementary managers that are wellplaced in looking at complex situations, and again, to the point of rescue financing, attaching two interesting collateral and interesting loan to values. I would say the one area that maybe you would sacrifice to some extent would be specialty finance. Theres the number of managers that we think are wellplaced to acquire portfolios in this space , but all things being equal, the Credit Opportunities opportunities and stress managers would be an area that we would lean in. And i will turn it back to you, kurt. Thank you, richard. In closing, i just want to make sure its clear that the environment has changed dramatically for private credit over the last several months. In prior years, the markets have been challenging. There has been very few opportunities and generally the direct lending space was overheated and we have managed to navigate that by focusing on direct lending strategies that are overseen by discerning managers and establishing very strict guidelines there was a lot of talk that limited their use. And we complemented those with opportunistic or niche strategies ranging from healthcare to Aviation Finance. We are acknowledging that the landscape has changed and we will be balanced about this. We will not emphasize one strategy over the other. But i would expect us to focus on direct lending and Credit Opportunities and settles to asians and do less and specialty situations. As this opportunity unfolds, we want to remind the board we do have over a billion dollars in unfunded commitment. We will continue to underwrite new opportunities and as opportunities unfolds, we will be taking the vantage of that. With that, i will stop and turn it back to the board and take any questions or answer any questions that you may have. Thank you, kurt and richard for your presentation. At this time, if you have any concerns or comments, Board Members, please address them to the Investment Team. This is discussion item only. This is john driscoll. I will start with page 14 of the staffs report on private credit thank you for putting in the other benchmarks in the middle section. They are much more reflective of how our performance is supposed to do as opposed to the half and half these and high yield. I am wondering can alan, are you able to put a better benchmark like that as opposed to putting in the quarterly Performance Review . Can you hear me . I can hear you. We can put multiple benchmarks. The 5050 is the most commonly used. At a high level it is helpful. Indeed we do track other benchmarks as appropriate. We can incorporate those into the report if you would like. I do. Do they have their own benchmarks . You also do a lot of private credit consulting or recommending. Like cambridge, we have a large exposure. We can create benchmarks based on an aggregation. There are rougher waters Going Forward. We can indeed share that with you. We do have a universal [indiscernible] [please stand by] and the challenges we might have had, not in private credit. That is correct. We have not. We have not run into an instance within private credit where we werent able to get client allocation. We do not want public funds. Summer just oversubscribed and you couldnt get any even if you wanted to. I would say that our reputation, and again, you deserve much credit for this is our reputation is a very thoughtful and private credit investor. You are well aware of some of the names to which we have committed over the past year or so. Many of those funds were oversubscribed. I would agree with the discussions that we had with managers and the relationships. It was a strategic relationship. Thank you. That concludes my questions. Thank you. Are there any questions . Thank you again, kurt and richard for your presentation. We really appreciate it. Madam secretary, if you can open up the lines for Public Comment. This is for discussion items only. Thank you. A reminder to any callers to plus star three and wait until the system indicates you have been on muted. Do we have any callers on the line . There are no callers on the line. Thank you. Hearing no calls, Public Comment is closed. President bridges . Thank you. Next item, please. Item number 10 is action item recommendation to invest up to 400 million in a sector six income separate account. Thank you so much. Special appreciation to vicky owen, the member of our team who has been working on this recommendation for over a year. It is a very large bond investor its about 1. 8 trillion and most of that is in public fixed income. The public fixed income market is not the juiciest market, but it is very important. Its a very complex market, as is private credit. It they may issue one stock, but they may have 50 bonds. In all 50 of those bonds each have unique terms and covenants and prepayments and collateral, et cetera. Is a complex space. This is part of our evolving strategy to manage liquidity, risk, income, et cetera. With that, i will turn it over to kurt for additional comments and then we will go to vicky. Thank you, bill. This has been a long process to get to this recommendation. The process began at the end of 2017 when a new Asset Allocation was impacted that called for just two 2 in liquid credit. In 20182019, our activity was focused on paring back liquid credit to the point that we ended up redeeming from a number of managers and a point where we reached the minimums for some of those managers. It occurred to us that as we continue to contract the portfolio, we may be better off having more capital with a manager that is nimble across these strategies. At the same time, we developed a view that perhaps a more effective way forward would access the high yield and the market and debt market was to do so tactically. They were long and collaborative and in thinking about a multi credit strategy, we reached out to a variety of firms and indepth conversations for over 25 of them. We went through a process of issuing a request for information a year ago to 19 firms and vicky did onsite with some help from other members of our staff. It has led us to this recommendation today. And before i handed over to vicky, the recommendation here is for 400 million. That is not our intent. We need to convert existing strategy and we want to give ourselves some leverage here. A lot of it comes because of two reasons. As a contemplative revised Asset Allocation mix, overall into the fall, we want to give ourselves flexibility should we choose to have increased allocation to liquid credit and as we are all going to get a greater review of greater scrutiny d. Scrutiny. It is a consequence and we want to give ourselves a little bit of latitude. If we dont fill that entire commitment within the next year as we have done in some of the areas, we would come down to the board for approval. With that, i will handed over to vicky to give the highlights for the recommendations. Thank you. As kurt mentioned, we are recommending an investment of 400 million and a multisector portfolio managed which we think will take advantage of their best ideas and best thinking across the space. The scope will typically be Investment Grade credit, highyield, and an emerging market. It is a compelling way to take advantage of the core organizational strength. The portfolio would be managed with a similar philosophy and process to the wellestablished and diversified fund which was launched in 2003 and has achieved a strong track record over its long history. Initial funding would be through transitioning our current portfolio that is managed at 170 million. And the request to allocate beyond that up to 400 million, is really a factor that kurt mentioned. [indiscernible] to go into more depth on the reasoning behind the recommendation, as you know, they are one of the Worlds Largest investors. We believe [indiscernible] [please stand by] diversifying services. The mandate is by design very flexible. This allows us to take advantage of opportunities presented across geographies sectors, as well as security selection. By diversifying the use, the number of potential sources is offset. In addition, a large opportunity that contributes to the ability to step away from areas that have poor fundamental outlooks. They describe the restructure as a hub. The Investment Committee serves as the hub that determines a broad portfolio. They offer analysis and investment ideas within their respective ideas. Dedicated pms influence these portfolios that they oversee, drawn from insight across the firm. Its worth highlighting here the depth of these systems to this approach. [indiscernible] these include credits, 20 emerging, 63 secured ones, and 67 create Credit Research analysts and 64 portfolio analytics. To inform these moves, which are essential to this process, there is a Secular Forum that is held annually to establish perspectives and consider opportunities. These include growth terms, expectations, monetary and fiscal policy, geopolitical risk , sector and country fundamentals to name a few and they are critical in determining factors. For example, fixed income for the mutual funds are included on page 14 of the memo and illustrate the willingness to act as we allocate. They have been around for 14 of the assets and highyield from 13 to 34 . [indiscernible] in terms of credit quality and yield, as of the end of may, the average credit quality was a triple b . And that compares to a double a benchmark. The yield was higher at 5. 1 compared to 1. 3 . While it will range over time, the yield compared to this is consistent with what we typically expect with strategy. As risk management, the portfolio tends to be highly diversified. As i mentioned, security selection is informed by a very large global credit analyst team the annual default right since inception was about zeropoint 3 versus one point 5 . With respect implementation, use of derivatives is also important it is used to manage factors including duration, risk exposures, liquid currency, and to take advantage of valuation opportunities. We will provide details later. Turning to performance, historic returns compared to relevant benchmarks and compared to university periods are included in the memo, with details concerning attribution over time to summarize, the strategies outperformed its benchmarks since conception. It also outperforms most standalone fixedincome sectors and with considerably less volatility and risk then most of the higheryielding sectors. The fund has performed over the past three, five, and 10 year periods. It is in the top percentile. The strategy not only offers [indiscernible] it would serve as a complement to the other managers in our liquid credit portfolio. As kurt mentioned, we have a number of specialist portfolios that are currently in the liquid credit portfolio, including highyield specialists in the market and those managers have a limited ability to shift the broad allocation based on the investment environment. We think it is well diversified and it is a risk aware approach. As kurt mentioned, we want to bring in a strong understanding of the space and we evaluate this before making our recommendations. We view it as a very critical component in the evolution of our portfolio. We feel the timing is right, in particular, to bring the investment forward given the number of uncertainties and we need to be especially nubile in this environment. Given these attributes, we can make an allocation for the strategy that will add to the longterm return potential for the liquid credit portfolio overall. Ellen martin will also provide their 2 cents on the strategy. We worked closely with them throughout the process. I would be happy to answer any questions before or after his comments. [please stand by] we do think and you can see it, along the people and a portfolio look around and say that non u. S. And they stay there and its creative and they have really had this strategy in place since 2003 and you can see, as vicky described, there were only three or four firms that would have the capability to do this and were fully supportive and and San Francisco and you can see how much work we put into looking at various managers. I would say that were seeing with the record today. This strategy increased our ability to be tactical and across and fundamentals and rather than a really high yield and to the degree that we currently do and months at a time and a crisis. Think tend to act down and a period of a recovery with a longer recovery goes on, high yield ponds look like bonds and no longer look look stocks. This helps us to be tactical to take advantage of varying risk and return regimes. Well turn it over to the board. Items for the Investment Team. I think i have it down to one basic question. Shooting for being digressed by your last comment there, bill, i would not say this allows us to be tactical. It allows simcoe to be tactical for us, not trying to get into a semantics discussion there but if you talk about 400 million theyll be able to move excuse me. Across the regions and classes of fixed income, you are talking about being tactical and i think staff has much wider discussion in terms of what they decide and where to move the one. Were trying to come back to the main question. It comes from sector rotation which is very important if we allow them to be multiproduct for us. The small question i have then has to do with currency. Currency is touched on in the recommendation, im just curious how much would they care to attribute by their currency collection since theyre focusing on regions. I think currency management has been somewhat additive, maybe since 2011 its maybe added just five or so basis points annualized. So its a small contribution relative to sector selection and security collection. Our portfolio would potentially have well it would have a customized benchmark to continue to take advantage of market expertise in emerging markets. Thats the portfolio they manage. So to continue allowing for greater exposure we have a customized benchmark were proposing. In the case of our portfolio, currency could have marginally higher impact but still or higher impact but still, sector selection and security selection would be probably the most important. That would add direct to age 33 and of vickys memo which does show some attribution overtime and we rely on pemco for this information and they have a change in their systems and mechanisms for portfolio attribution. You do see that added over the years. I have a smaller numbers compared to Asset Allocation but they do not ignore it just like one of our a managers, bridgewater does not ignore currency. Thank you. Are there other questions . How often will you receive the reporting on derivative exposure in. Well, were still negotiating our guidelines which is were planning to bring it back to the board probably in august if all goes as planned. I would say thats to be negotiated but at least month loo. Its probably the base case is monthly. If the board has any thoughts on that, we would be happy to negotiate further. How theyre using it, when theyll use it but its also very important to monitor it very closely. Yeah, i agree. It raises an important element of this recommendation as a separate account where making the recommendation and we hoped though bring the guideline at the same time but this is the complex strategy at a a lot of consideration so we intend to bring those guidelines back or board approval probably in august. Thank you. This is an action item so if there are no questions or concerns, a motion is in order for up to 400 million and a multisector managed by pemco with transition of the market debt strategy managed. Move to approve that. Thank you, commissioner. Thank you commissioner safai. Thank you, commissioner. Its moved by commissioner safai. Madam secretary, if you can open phone lines for Public Comment. Thank you, this is a reminder and until they indicate you have been unmuted. Do we have any callers on the line . Madam secretary, there are no callers on the line. Thank you, hearing no callers, Public Comment is closed. Yes, madam secretary, roll call vote, please. [ roll call vote[. 70. Motion passes. Thank you, madam secretary. And thank you to the Investment Team for bringing the investment to us. Next item, please. Clerk item number 11, discussion item. Chief Investment Officer report. Thank you, president bridges. Board members, im pleased and relieved to report our fiscal yearend returns preliminarily are 2. 1 9 and that number will fluctuate a little bit as co mingled and private markets are still to report and at that number has since edged up a little bit but lets hold between two and the two and a quarter as quoted as a probable range of our returns and this is in spite of a major late count into february and march when markets fell 35 in five weeks and also despite three of our Asset Classes with negative returns in the mid Single Digits or low to mid Single Digits for the year we still edged out a positive return of 2. 2. Public equity was the stalwart, actually, as it turns out. The markets have experienced an extra ordinarily finishing 7. 57 and the gun equity market was up 1 and we out performed by well north of 6 and that includes having assets in index like. We did especially well in active space. Private equity edged out a return of 5. 97 and for the miss cal year it was up a little north of 10 heading into the last quarter. Were less than initially expect and we finished up the year a little less than 6 . Fixed income was our second best performer and the third best performer of the year up 4. 22 and there were two stories here. The treasury market and the core bond market were very good. The treasury market we made 7 and core bonds we made more than six. It was in the lower Quality Markets where we lost money. High yield and both finished in the red for the year and they did experience strong rallies of more than five and more than 10 respectively in the Fourth Quarter private credit with the mark downs finished the year down this is not indicative of recent under writing. Even that one experience with that one manager, the manager expects well get most or a large majority of those back over the next three or four years. Absolute return through the end of may. We were down 5. 097 . Davids just reported on the returns for about 70 of the portfolio for the month of june. In june so far its up one and a half percent putting our fiscal year to date to negative 3. 67 in the quarterly return a return of 5. 3 that would be our second best performer for the quarter that would be absolute return. Real assets, it finished the year down 5. 43 . Real estate held up well but were all familiar probably with what occurred in the oil markets where demand plunged 30 because of a loss of business travel, economic shutdown, air travel, et cetera. And theres been some recovery since then about half the price of oil from about 70 a barrel at the start of the year to a low of 20. Now its somewhere around 40 a barrel so theres been some recovery but this was the biggest shock in the oil market. Oil has had 20 experiences in my career of falling or rising 40 or more but never has demand like this. Demand rise or falls a couple of percent a year and its all about 30 in a period of about six weeks. It stabilized recently with tabling of production and some inquiries in demand is some openingings have occurred. So the past quarter, we bin issued 5. 17 and public he can wick tee north of 24 we had absolute return finished up more than five and fixed income was up nearly 4 . All pre private markets did fall for the quarter ranging from 4. 3 to negative 7point 9 and they did their job in the prior quarter. In one cue, when public equity was down north of 20 all three private market portfolios edged out private returns in one view. We have some closings to report on item by the it has since closed and Software Specialist and it made 50 million and we were allocate being 50 million. The debt real Estate Strategy and idp which is a venture cash and and allocated 50 million ssg which is one of our two asia private credit strategy private specialist from june 75 million were allocated 75 million and they set a shining and return portfolio increased investment up to 150 million and and additional and we expect to add it to that as time goes on. You can ask personnel and im thrilled to report that Christopher Chow have accepted new roles ed is now the director of private equity for our buy out strategy increases now the soul real asset and real estate portfolio and so theyre taking on new roles and discouraged of five years and four and a half years and most of it goes in another regard is that obviously and learn a new strategy. In addition to have the incumbents and intellectual capital and the return background and the credit is expertise and public equity experience now and the public and for deferred and expert expe so many people developing and its very helpful and when we have asked them a departure and a tactical need is for a couple of years so its for arrival and theyll update us on the as set liability study that nepc has recently completed and anna and allen are also going to update further on the sl allocation that we provided brief overview in february and it made further progress and well bring items to the board next week and this is a pivotal meeting and its a important meeting and it serves and its foundational for the as set allocation and that were going to be bringing to the board in september. Thank you. Its the pio and this is an action item only. I have one question. On page two, the dollar amounts there, do they reflect money from the secondary sale, all of it, some of it, none of it . Please correct me on the mistake. Please correct me if this is mistaken but these numbers here are not of the secondary sale. We havent received all of the proceeds for that but the nav is completely out of our portfolio and we have a receivable on the books for the cash still pending. We remove the economic exposure from the sales so we do not have the economic exposure to the 59 refunds that tanya referenced earlier. So it creates our now. Yes, yes. Any other questions . Madam secretary. Please open the phone lines. Thank you. A reminder to any callers to press star 3. Until the system indicates you have been unmuted. Moderate or, do we havor, do wey callers on the line. There are no callers on the line. Hearing no callers, Public Comment is now closed. President bridges. Thank you so much and thank you for your report. Madam secretary, next item, please. Item number 12, axemen you and retirement board and occurring february 20, 2021. Thank you so much director. Good afternoon commissioners. As you are aware, the three elected members of the fiveyear term and theory elected for five years among all of the members of the retirement plan. Everywhere 2021. Commissioner driscolls five year term will end them and under the terms of the administrative code were requesting that the retirement board declare a vacancy and commissioner driscolls position in 2021 so that we can begin negotiations with the department of elections to arrange for a schedule that well be bringing back later this year for the board to approve. Generally, the voting for these positions, if theres an election, takes place in january early february and the outcome is modally prior to this case commissioner driscolls term expirement. I would be happy to answer any questions but we would recommend the board declare a vacancy at this point. Future vacancy and authorize us to investigate an election just in case theres need to be an election. An election schedule with the department of elections. Thank you, Board Members is there any questions . Ill make a motion to declare the vacancy. Thank you, commissioner. Second. Scott. Thank you. It has been moved by the commissioner and second by commissioner that we declare a vacancy under the time and board occurring february 20th, 2021. Madam secretary, please open the phone lines for Public Comment. Any callers on the line please press star 3. Do we have any callers . There are no callers, madam secretary. Hearing no callers, Public Comment is now closed. President bridges. Thank you, madam secretary. Row cal votes, please. Yes, president bridges. Aye[ roll call vote ] 70. Motion passes. Thank you, madam secretary. Next item please. Item number 13, action item. Approve request to adjust industrial alignments from 50 to 90 . This is a request for an adjustment for a q3 Police Officer who suffered a severe, traumatic injury. He was not qualified for Service Retirement when his industrial disability allowance was awarded so his initial retirement allowance was set at 50 . After that time, Workers Compensation had awarded him a 90 disability a justment from 50 to 90 until the member is qualified for Service Retirement i can take any questions. inaudible . The application was filed with the retirement system on december 13th, 2019. We actually took this case to hearing one month later in january of 2020 and the retirement board approved the hearing officers decision as february meeting. Can you hear me . Yes, we can. When did he receive this check from the Pension System . It was just award sod i would say i dont have that i wouldnt have to get na to you. From the last month or so. Im sorry, im getting a lot of feedback. Can someone press their mute button. Its really hard sorry, every time i talk i can hear myself as challenging. There have been other situations in the past where people have i. D. R. And the paperwork has languished for a long period of time. In certain circumstances, those people are younger than age 50 and theyre not collecting a pension and so theyre without pay while theyre waiting for things to be approved. Thank you for the information. This is something i think that is important that im looking forward to getting into that a little bit more. I make a motion to adopt the staff recommendation. Second. Was that coming from commissioner driscoll. Its been moved and seconded. We vote to approve the areas industrial so the retirement allowance from 50 to 90 until we qualify for the Service Retirement. Press star 3 to be added to the cue. There are no callers on the line. Public comment is now closed. Roll call vote, please. [ roll call vote[. Thank you. 70. I can now. Thank you. 70 motion passes. President bridges. Thank you. Thank you madam secretary. And thank you for presenting the items. Next item, please. Discussion item. Executive directors report. Good afternoon, again, i have provided you should over views of a recent Supreme Court decision relate today a plan that generally speaking even though were not in a risa plan, especially law, where a decision that is made at the Supreme Court could be or should be considered the same precedent for not arisa plan and really be just of this was the Supreme Court found that two participants in a defined benefit plan who had sued the board, the retirement board for sharing duties or mismanagement, they did not have scanning to sue because they were receiving a promise benefit. So i just thought it was an interesting development. Theres not a lot of cases that go to the u. S. Supreme court but this was a recent decision. The other two items that i included were department of labour actions one and it was announced in may that the department of labour basically has cleared the way for, in our case, the comp plan to consider or offer private equity types of investment vehicles and so ive provided the board that it will be discussion item im sure in the deferred Comp Committee and the second say proposed department of labour and im reporting what the article says, the rule is designed to crackdown on esg investing and so, i thought that there i believe were in a 30 or a 60day Comment Period so im not sure whether this regulation will be adopted formally or whether it will be changed but i just want to let you know that this is out there and certainly we, being in the forefront of public Pension Plans in the united states, included is the decisionmaking, well keep an eye on that and the last thing on my report is to remind you that we have until july 31st to complete online our arrestment prevention training and this is a requirement of the city where all commissioners and certain staff and certainly me as a department and with that ill be happy to answer any questions. Jake. Yes. Can you i dont know what my fellow commissioners think but my personal status on that compilation is to confirm whether we are. We could followup with each of your forget this stuff. I know that all of the Board Members have completed the form 700 congratulations and thank you for that. Ill have darlene confirm who has completed the harassment prevention training and notify whether thats ending. Thank you. I have an observation or question for the commission. Commissioner driscoll. This may sound more appropriate but since you touched on this Supreme Court case, perhaps you could plan for when the california state Supreme Court issues a ruling on the california ruletype cases that are up before them now and theyve already had the hearing. Perhaps the combination of you and robert brian and our governments coach and sometimes more important or more interesting and it could be in the immediate term. If we do it and the presentation and sometimes. Soon. If the normal schedule, nothing is normal but the normal secretary for california Supreme Court decisions, we anticipate the decision on the alameda case of 90 days when morale arguments occurred. We should hear that decision or seeing that decision within the next few weeks and i think it would be appropriate that regardless of the outcome, the board receive a briefing from legal council. Well certainly schedule that. Thank you. Are there any questions for the directors report. Thank you. And at this time, madam secretary, if you can open the phone lines for Public Comment. Callers, please press star 3 to be added to the queue. Do we have any callers on the line . Madam secretary, there are no callers on the line. Thank you. Hearing no calls, Public Comment is now closed. President bridges. Next item, please. Item number 15, discussion item. Retirement board member good of the order. Thank you, madam secretary. Board members, at this time i will entertain any items that you may have in order. I would like to recognize all staff for all the work theyve done through this pandemic and theyve really been fantastic and handling all phone calls from the members servicing and also i really want to thank the investment staff for where were at today for all the hard work over the last few years. I express my deep gratitude to them and i hope all the Board Members can join me in that sentiment. We received an article this morning in our email and it was an interesting article. I would like to get feedback to that from the investment staff, administrative staff and i dont know if we need to calender that for discussion or for educational session or would that be falling in the preview of since its about risk next weeks meeting, the investment meeting, i see allen nodding his head so maybe that would be a good time to discuss it. Anyway, those are my comments. Thank you very much. Thank you, i join you and echo your sentiment for our entire team as well as the direction of leadership and its been a very challenging time. With all of that, were still going and were making it so thank you to the Investment Team and the staff and i appreciate your leadership as well. This is very tough times. As well as the Board Members for your patients and understanding and working through it all. So, Board Members, are there any comments . I was going to mention, in the directors report, he attached a lot of the conferences that are coming up. Most of the conferences of the remainder of the year are virtual so its easy to take advantage of extended education or if you want to call or educational training. I guess it moves through december have converted through virtual conferences so please take note of his listing of conferences available to the award for additional education. Since theres no travel expenses we certainly have sufficient budgets for the Board Members to take advantage of any of the opportunity. Thank you for finding the information for us. So no other comments. Concerns. At this time, madam secretary, if you can see if there are any callers on the line for Public Comment. Please press star 3 to be added to the queue. Moderate or, do wor, do we havey callers. Madam secretary, there are no callers on the line. Hearing no callers, Public Comment is now closed. Thank you, madam secretary. Ill call for adjournment. Theres nothing else. Ill make a motion to adjourn. Thank you commissioner. Its been moved that we
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