>> from more information, visit >> reminder to turn your red light off on your mic to speak and speak directly into your microphone. thank you. this meeting is now being recorded. president heldfond you may begin the retirement board meeting of may 8, 2024. >> thank you madam secretary. you want to call the roll? >> mr. driscoll, present. president heldfond, present. mr. thomas, present. mr. engardio, present. thank you, a quorum is present. >> call the next item, please.

>> item 2, communication. we welcome public participation during public comment period. there will be a opportunity for general public comment at this meeting and there will be a opportunity to comment on each discussion or action item on the agenda. each comment is limited to two minutes. public comment will be taken both in person and remotely by call in. for each item the board will take public comment first for those in person and from people attendeding the meeting remotely. comments are opportunities to speak during the public comment period are available via phone by calling 415-655-0001 access code, 26638831727 then # and # again. when connected you hear the meeting discussions, but will be muted and in listening mode only. when your item of interest

comes up, press star 3 to be added a the speaker line. call from a quite location, speak clearly and slowly and turn down your tv radio or computer. city policy along with federal, state and local law prohibits discriminatory conduct and will not be tolerated. public comment is permitted on matters within the jurisdiction of the meeting body and thank you for joining us. >> thank you. next item, please. >> item 3, general public comment. reminder public comment is limited to two minutes. >> i have no speaker cards. >> we have one public comment. go ahead and step up to the podium.

>> [unable to hear speaker] i'm sure you can hear me. is the mic on? >> yes. >> okay. now, i just am sorry and missed the investment committee meetings. sounds like you are doing due diligence looking at china portfolio and stuff and that would be interesting to see so i'll hit replay. i see some performance and in real difficult times and an election year. you guys seem to continue to perform at a very high level, so i thank you for that. other then that, i don't have anything to say, but congratulations for doing your good job. thank you. >> thank you. >> thank you for your comments. are there any other in-person comments? seeing none, moderator, do we have any call ers on the line? >> madam secretary, there are

no callers on the line. >> thank you. hearing no calls, public comment is now closed. >> call the next item, please. >> minutes of april 10, 2024 retirement board meeting. >> adopt the minutes. thank you. >> second. >> public comment, please. >> do we have in-person public comment on this item? seeing none, moderator, are there any callers on the line? >> madam secretary, there are no callers on the line. >> thank you. hearing no calls, public comment is now closed. >> been moved and seconded. all in favor say aye. >> aye. >> opposed, nay. motion passes. thank you. next item. item 5, action item consent calendar. >> move to approve the consent

calendar. >> second. >> thank you. public comment, please. >> are there in-person public comment on this item? seeing none, moderator, any callers on the line? >> madam secretary, there are no callers on the line. >> thank you. public comment is now closed. >> moved and seconded. all in favor say aye. >> aye. >> those opposed? motion passes. before we call the next item, let me just thank vice president thomas and staff on organizing a great investment committee report meeting and i think as i said in the meeting, this is--that was a great example of what the investment committee can do. with that, we'll move to

the-call item 6. >> thank you. item 6, action item. actuarial funding methods policy. >> good morning commissioners. this is the housekeeping item on july 22, the retirement board approved a 10 year amortization for proposition a passed by the voter november 22, which it did and we are codifying that by placing the approval within the body of the funding policy. >> housekeeping. >> and if i may add, probably over the next several board meetings there might be board policies that come

before you. you are very familiar the process looking at all terms of reference and governance policy. we have gotten through that and moving to other policies, so they will come before you. this is a example that, which is relatively straight forward since you had approved this approach and we are documenting it now. >> this is a action item. motion or question? >> quick question. matching what we expect to be the life expectancy of the group that benefit applies to? >> it was short enough that we were happy with that as a funding policy for this proposition. >> thank you. i move we adopt the modified policy as recommended. >> is there time for comment after the second, or can i-do i need to comment prior? >> make the comment now.

>> i appreciate commissioner driscoll bringing that up. while i understand that it was a acceptable amortization process, i feel that it is good we are having discussion about that and adhering to best practices in future analysis should still be a priority. i think that i feel the board is generally our preference and goal looking at best practice when doing this sort of analysis and understand at the time it was deemed acceptable and appreciate the candor. it didn't meet the highest tier, but a acceptable tier but i want to prioritize looking at the model for funding and analysis around that highest tier of best practice when we are looking at any sort of expense that is incurred. >> thank you, i agree. >> so noted.

>> seconded. >> madam secretary, call for public comment, please. >> thank you. do we have in-person public comment on this item? seeing none, moderator, are there any callers on the line? >> madam secretary, there are no callers on the line. >> thank you. hearing no calls, public comment is now closed. >> okay. been moved and seconded and with a noted comment. all in favor say aye. >> aye. >> those opposed? next item, please. >> item 7, discussion item. review phase 1 partial investment delegation and discuss phase 2. >> commissioners, i can hardly believe it was all most a year ago that i and investment team were hereprinting to you about partial investment delegation. at that time this board approved phase 1 of partial investment delegation, the board requested that we

calendar in a year's time a vote on implementing phase 2. so, to adhere to the board request, we are here today to discuss and this is a discussion only item, the status that delegation and what i will do is walk through the rational, remind all the board members the rational that we considered in the partial investment delegation. we'll discuss the implementation of phase 1. weal review the terms of phase 2, and importantly, allow you all to ask questions about that implementation or about consideration for phase 2. depending on the out fp am of the conversation today, we would follow a similar path to what we did last year, and then codify phase 2 with a edit to the investment policy statement,b which we would bring before the board. so, i reiterate again, this is a opportunity to discuss what we

have done to date and address any questions that you have. let's start again with the rational. many of you are familiar with this, but think it is important to level-set. what was the rational for providing partial investment delegation? first, it is consistent with fiduciary duty and standards. so, [indiscernible] at length on many occasions talk about fiduciary duty and talk about the notion delegating to subject matter experts and having a board that continues and importantly continues to monitor and oversee that delegation. another benefit of partial delegation is effective use of board's time. time for discussing impactful investment and non investment topics that effect the entire organization, so things like asset allegation, risk discussion and administration topics

and how we administer benefits. the third rational and efficient use of investment professionals time. the team has always and will continue regardless of investment delegation focus on due diligence, but having flexibility with their time allows them to continue on that path to do regular manager monitoring, to have flexibility to travel to do diligence to attend apac and agm in the past they were here to present to the board. fourth, in terms of rational, best practice among many of our peers. again, as you recall we provided a lot of data last year what peer plans are doing. conducted a survey of peers and complemented with cambridge work on endowment. i highlight a point we addressed last year, which is 83 percent of peer plans in the survey did have partial

investment delegation. next, timeliness of decision making. we had monthly board meetings. of course we can call special board meetings and know we have a great board willing to step in short notice should we need it, but with partial delegation, we meet regularly every two weeks to address investment options and it is a more streamline process to call ad hoc meetings should we need to. i'll get into more of the benefits that as we go through the presentation. and then finally, it is important to note that the board already delegates a lot of impactful decisions to staff. we have decisions around asset allocation, you set the target but we make decisions that work around that target. we make decisions about liquidity within the guidelines you set, and we make decisions on risk

management, again, within the guidelines you set. when we spent probably a hour or two last time really digging into all those, this time i again want to level set and remind you why you had-what we had discussed and the rational behind you granting phase one of partial investment delegation. the other thing we talked a lot about last year was the enhanced internal processes we put into place to insure there was a robust process. both with the internal team and with external controls. thank you darlene for putting up the slides. what we have before you on slide 6 is a visual reminder and i won't go through all this, of our process and the fact at every stage of the process, we have eyes on the investment opportunity outside of the direct team working on it and both internal and

external oversight of the decision from when we start, when we determine the search criteria and whauts we with are looking to operational and investment dill igence, making the decision to invest and when we contract. with those enhanced processes in place, again, the board approves phase 1. as reminder, phase 1 is staffed under my direction. the opportunity to reup and allocate capitals with managers previously approved by the board and up to a certain percentage of assets and that level is different by each asset class. strategies above those limits or new managers or opportunities we continue to bring before the board over the last year. phase 2, would delegate funding strategies with new managers, still subject to all those limits such that any big investment that came above one of those pre-set limits would

again, continue to compl before the board. that's review of why we implemented phase 1 and what phase 1 is. now i like to turn to slide 13 and we'll talk about the actual implementation over the year. certainly, please feel free to jump in and ask questions as we go along. when we talk last year, we not only in terms of rational but specific benefits. potential benefits of partial investment delegation. that is what we have here. it is exactly the words we put out a year ago and what i have on page 13. i checkmarked across all these because i think we have realized the benefits of partial investment delegation. so, we have taken the approach, given the year's time to allow the board to see how it was working, how we

were delivering on the required reporting and get comfortable with the process. you are a judge whether you are comfortable with the process, but i think that time and over the year has given perspective and a sense of what that process is. the board continued to retain approval over authority over larger investments. during this year we didn't actually have investments that met that threshold, in part because we take a diversified approach to inest investing and generally don't make those large investments. should we though, of course we would come to the board. you also are very familiar we accomplished with your over sight of lot of decisions over the last year. the strategic asset allocation is a process that takes place every 3 years. we spent a significant amount of time doing that among other topics like risk management.

those are really important decisions that drive the return and risk of this portfolio and having the time to dedicate to that and dig into those topics i think it is beneficial and productive. again, it continues to be consistent with fiduciary prudence. we had the opportunity to make investment decisions in a timely manner. again, with a monthly cycle of board meetings, it wasn't necessarily a issue. we do get a little more flexibility meeting as a internal team twice a month to review investment opportunities. it also to be honest gives sometimes more time between the approval of the investment and the contract period for the team to be able to follow up on questions that our team may have on diligence and push on some of the contracting terms. i absolutely believe that partial

investment delegation increases our probability of access to deals, and the ability to recruit top talent. we have a number of searches underway for apm and other positions on our investment team. we are excited about that, and i think it is helpful when we show we are following best practices in terms how we approach investing and giving some of the partial investment delegation to the cio and the investment team. finally, and we'll provide numbers to support this, partial investment delegation really has allowed staff additional time to value add activities that are about construction, about risk, about reunderwriting the thesis how we invest, similar what we discussed earlier on china. while we continue to do that deep thorough robust diligence on each individual investment opportunity, we are also able to take a step back and

work on these important projects which i'll go into more detail. so, turns to what we committed to delivering to the board on the next slide, slide 14, a lot of this was related to the board's responsibility to continue to monitor and oversee. here i outlined exactly what we committed to do and put check marks against what we did. we did at each board meeting reported any strategies that were terminated and strategies where the contract was signed and deal funded. we did not have any cases where we added capital beyond what the board had approved under the period prior to investment delegation, but we obviously would have recorded that #14d that have been the case. we made staff recommendations and consultant memos available. i know some board members asked to see those and they have reviewed

those. we also had committed that if we made any investment against the size constraints that i alluded to earlier, that we would go through the board. again, there were no deals that met that criteria. we also committed to the board that we would have additional processes in place during the period of phase 1, so we have the concurance memo highlighting the suitability of the investment from the consultant. we implemented a process leveraging technology where we have a work flow essentially to insure that every step of the process has been followed. that visual i showed earlier of the controls and steps, all the steps are recorded in a system and software we use and i insure that process has been followed and all the points reviewed before i approve any investment.

we also committed in the case there was disagreement between the portfolio management group who reviewed each investment and myself, that i supplement the final decision in a memo. what i want to convey to the board here is that, the pmg and i are independent thinkers and everybody comes at a different angle. i think some--certain risks differently, but there is no case this year where the pmg reached a conclusion that was different then mine, so again, no memos there, but don't--i don't want you to think because there was a rubber stamp process. there was a very robust dialogue and debate with each and every investment. finally, again, we enhanced documentation process and are using data management software to

better monitor what managers we are speaking to, the nature of those conversation, what we are learning in those discussions and tying it back to our investment decision process and the ultimate recommendation process. so, that is qual itatively what we did. i thought it might be helpful for the board to get this translated into numbers to give a sense of exactly what we have done. slide 15 you can see that over the-since delegation, so just under a year, via partial investment delegation, we've approved 19 strategies for about a billion dollars in commitments. the board approved at about $315 million, so certainly a busy year, and that's again, 19 strategies that we vetted internally in a thoroughly robust process we brought

before the board. turning to the next slide, slide 16, this goes back to my comment that even with partial investment delegation, which is one part of the investment process and one part of the board rule, the board is very active making important decisions on topics that are critical to the success of this fund. what i try today do here is highlight looking at the calendar sheets for the last 11 months. the number of sessions we had on these important topics from inment risk, asset liability puformance and security lending reviews and i included the number of sessions and also the aum impacts. a report on investment viscimpacts the entire fund. the asset liability study can impact the entire fund. securities lending i

approximated is half the fund because it is for our public market asset class. these are important decisions again, and while each individual investment at $50 million is important, having the time and robust dialogue we do in board meetings on these topics is meaningful and the board isn't stepping away from any of those responsibilities in providing further investment delegation with phase 2. our slide 17 and 18, again, wanted to try to put some numbers around our investment diligence process to give a flavor of the work the team does. what we are profiling for private equity as well as real assets is sometimes what we like to call, the funnel of opportunities. so, as a example, on slide 17, our private equity team had about

348 meetings with managers over the course of the year. that, 158 distinct managers we met with to talk about diligence, intro and updates. there were 45 funds reviewed and 8 invested. so, whereas, you may see through partial investment delegation the result of what makes it so one of those 8 or the pmg and i may see the result of what is 8. there is a lot of work and diligence done up until that point and that has continued to be strong and active with the team. and i think it important to note, as i approve any investment, as the p am -p mg concurs with the opportunity, it is how does that tie back to

everything you looked at? why are we investing based on the objectives of the asset class and how does it compare to other opportunities in the space? again, having a pmg to review this and having individuals with investment expertise across different assets classes, means we have a good sense of opportunity cost putting money to work in private equity and also can put to work in public equity and let's understand the benefit we get there or vice versa. page 18 shows a similar pipeline, active pipeline for our real assets portfolio. turning to slide 19, this goes back to the theme of spending time not only the selecting managers, but on important portfolio construction risk in

process topics. i am incredibly proud of the investment team for what they accomplished over the last year beyond putting money to work. it is really easy to get lured into the treadmill of the next gp coming to market and this is a really interesting investment opportunity and an exciting space. the hard work really is taking a step back and saying, what are we trying to achieve? is this a theme we want to honor? is this a space we want to be in? how should we be structured and take risk? how do we make sure the policies and procedures which are not always the most fun to work on but critical for decisions. we have those in place. slide 19, i tried to give a flavor for all the things the team has done. rather then list out 34 individual

projects, i put them by theme. across all the asset class groups we have done a lot of monitoring risk and risk tools to better approach how we invest. themes, we talked earlier, we had public and private market respond time reunderwriting, try to--we looked at our legal negotiation process for instance. we looked at the risk systems for fixed if come. we were undergoing review how we approach coinvestment. these are really important topics that the team spnt time on and they had a little more flexibility. they are still incredibly busy but had more flexibility to do this work and get out and do the manager diligence given we had partial investment delegation. finally, on slide 20 in terms of realizing the benefit of a

delegation, again, we have biweekly meetings and call ad hoc meetings, so we are able to move expeditiously should we need to. i really do want to reeterate the point raised earlier that, when the pmg approves and i approve investment, in some cases we have opportunity to say we approve subject to you addressing this one issue, or we want you to approve but want you to continue to monitor as we put money to work. that has been a nice tool in the tool kit and we have flexibility to do that since those decisions are delegated. that leads us to the phase 2 terms, unless we want to pause. happy to first answer questions about implementation over the last year.

phase 2 terms are outlined on 22 and 23. there are a lot of words because i wanted to be very clear what would ultimately going into the ipm should you approve it. the key difference between phase 1 and phase 2, is phase 1, we had-i and team had authority to approve public market and private market strategies with managers. the board previously approved. now we could approve with strategies with managers we had not worked with and been approved by the board previously. this is all still5 sub5ject to the same caps. public market investment is more then 1 and a half percent of the total fund, that would be brought before the board. as reminder, we also have authority to terminate investments as well.

so, where are we and what are the potential next steps subject to this board discussion today? under your direction, should you want us to do so, we would provide a red line draft of the ip scrks in the june meeting with the precise language you saw in the prior past slides and have that partial investment delegation be effective july 1, 2024. we absolutely would continue to provide you with the asset class reviews or risk reviewed and liquidity reviews and other impactful analysis and i think we enjoy being able to present that broader thoughtful work that impacts each asset class in totality. also, we of course will continue to bring before the board any investment that is above those criteria that we are required to get broader

board approval. the appendix we have slides we included last year. i included that for completion so happy to address anything on the slides. implementation or questions about next steps. >> thank you cio romano for the presentation. i have to say that the phase 1 implementation has been delightful from my perspective and think it made the meetings much more productive and think it freed up staff to act in the moment with--when there's critical things that need to be done that couldn't fit within it timeline of the previous decision making process. i think that it is very difficult to look what happened over the last year and say there was a negative on

phase 1. it seemed it worked as intended and it solved most if not all the concerns that were raised when we first started talking about these. my question and i was the one i believe that requested that we have this revisit because i want to see how it was going to work out and i'm really happy with it. my thought is sort of, if it was such success and solved for a lot of the problems, we haven't had a lot of agenda time soaked with things that fit within that phase 1 to phase 2 window. where is the necessity for phase 2? what problems are we trying to solve with phase 2 component? i can see value add, if new investments or new areas or things that exceed a certain scope come before-opportunities show up, proving those up and having the board put eyes on it may be value add and given that using a

sample size of the last year, we haven't really seen a whole lot as you point ed out, agenda time dedicated to these, so it it seems workable within our agenda. what i'm trying to figure out, why do we need to implement phase 2 and what problem are we solving for? >> thank you for those comments and thank you for the question. it is small set looking at a year and i cannot predict the future, but we do know we have gone through a year where generally in the marketplace particularly in the private market, the cycle has slowed, and so we put less dollars to work. i think we also have a opportunity as we continue to put dollars to work and to upgrade managers, get access to managers we may not previously had access to for whole host of reasons, and so the limited number we

saw last year may not be reflective of the future. i think that we are going to be making changes based on strategic asset allocation that may--we are undergoing reviews of our global equity book, fixed income book and structure there, so i can't predict, but i think there is higher likelihood going forward over the last year there could be new managers in the roster. again, i can't predict, but i think what it would enable us to do would be to stick to the important diligence and work we do and again, give us time to perhaps do more things like we did in the investment committee meeting this morning and are address those bigger picture topics. >> i might add to your answer, we set this in motion based on the

desire to have a process, terms of reference, accepted terms of references and what is real in terms of our our--[indiscernible] i don't think it serves us well in terms of our managers, in terms of our staff, in terms of us as a board to go back and forth and changing terms of reference based on light year one year, and heavy year the next year. it is not the way it goes, as far as i'm concerned. these have been diligently reviewed and with the extra step to review the progress over a year period,

so, i don't see why we would go backwards and --accept if there is a problem and we haven't found a problem. that would be my opinion. >> sorry, just to be clear, i'm not at all suggesting we go back to the pre-phase 1 set up going backwards, i'm just-i think phase 1 worked so well, i'm wondering what we are solving for with phase 2. i'm by no means suggesting we go to the prior method. >> i think you mentioned having a board put eyes on investment. >> i think in phase 2, it mentions in certain circumstances a new investment or exceeds certain authority limits.

only in that context. >> those are the guardrails that we take. >> i think it might help me understand is, further discussion around best practices in industry around these sort of decisions. that would help more as well. i know we had some discussion already, but perhaps if we revisit accelerating this sort of delegation of authority, it might be helpful to also revisit analysis of best practices in the industry. >> thank you for that. i did not include the full survey results in these materials, so we can certainly redistribute that to the board for reference. i think and can going from memory here that, there were different ways to approach partial investment delegation. again, it was 88 percent or 83

percent that has some level of partial delegation. beyond that it is very specific to the organization to how they investment the private versing public market exposure and importantly the governance structure and the investment team and who they have and i can't emphasize enough with there support of the board over the last 10 years, the ability to grow the talent and capabilities of this investment team. it is necessary to have investment delegation, so while we should look what peers are doing and peers are moving in that direction, the exact flavor of partial investment delegation has to be considered in the context of each individual fund that absolutely will follow up with noserman materials. >> peer organizations may be doing bad

too or better tailored to their portfolio. looking best practice to improve--i think understanding things that impact this delegation and improve that quality is good for us. whether it is looking at noserman guidance or updated analysis from our consultant is either way, i like to learn more about that best practice. >> i think i did include some of the data in the appendix, but not all of it so we'll get that for you. >> i have a series of points i like to make a couple questions. the overall thing is what i like to

support what you proposed. very positive improvement process. when i go on my next point, it may sound i'm try toog tear it apart, but trying to point things said that may or may not be true. one thing the decision quality requires is a good governance structure, which is after whatever structure you decide to have. in terms of best practice in the appendix, or there is a point in the appendix that comes from the governance study noserman did. i'm interested where it says, i forget the page number, but shows one number where hundred percent of the sample rebalancing by delegation and coinvesting and sample sizes on 6 plans.

is that a realistic sample, 6 plans to come up with hundred percent conclusion? that is page 28. >> page 28 just for the record is not the noserman survey. this is nepc survey done in 2021. so, this is a smaller set then noserman survey. >> i say this sample size is statistically insignificant but given to us a reason to do this. those are things i have problems with. the more important slide perhaps is couple pages before that, where it showed how many of the funds are actually doing this. i think that is page perhaps 27. sorry, my pages got mixed up. in terms of best practices, percentages, my concern about proving the case is how did they do what they

are investing, opposed to quhoo made the decision? i know many endowments are much more successful invest rs then we are. there is a lot of things we have been doing a long period of time our peers do not do. is that return best practice to invest in or not. others with their decision people process, so many do it it must be best practice and i would say that is not true. if we get numbers in the top quartile and haven't been doing it, is it our process or not? at the same time, trying to figure can we improve the process. the answer is yes. here goes my i would say suggestion, recommendation, requirement about the change youp want to make. the smaller points has to do with coinvesting. is the process where we were going to have a coinvestment

recommendation is still vetted by it consultant to make sure it is thorough. the general consultant was supposed to be doing that. we have the specialized consultant in the private equity and real area we invested without their approval. specifically without their approval. how do we cover that issue in the decision making process and i raise this issue not because i'm curious, but if we are delegating to you, the process has to be completed under you, not when it comes back to the board. if it gets to the board it is too late to ask the question or there will be no questions ask. if we find out 1, 2, 3 years later, well, one, fiduciary dont operate that way. leading back to the issue i think will make it work better and without slowing or stopping what you have been doing. been working well with your team for the last couple years since you have been here. i'm it concerned since it is really not

a best practice to join what we did. join the cio and ceo. when wisconsin did it, huge investment operation, but they were not operating the pension plan. it is a huge different change of path so concerned, you have a great ceo working for you handling the side but you are also responsibility as weal. concerned if you are working with your pmg, how much of your time is there when you have a significant obligation doing something else? that is why i thought again, it wasn't your creation, but when we created this whole position, coming from a cio hundred percent committed to investing, [indiscernible] is your plan to bring someone in that will help with the decision making process? not trying to undercut the pmg.

that decision making process has got to be improved there with another solid senior level trained experienced intelligent person. that is the people part of the puzzle. the second part has to do with process and this goes back to when we have professor osborn at the retreat. it is structured systems strategy and staff. those are the 4 you need for success. i just are picked the process has to do decision quality. how to improve the quality. [indiscernible] organizational improvement andgh decision quality is different. we had only board had a very simple introduction to the concept. again, improving the process if we are going to delegate more to you and only hear results maybe once a year, we get updates but updates are over the top.

how to improve the process, so it comes down if we improve the process and people, then it reinforces the board fiduciary decision to delegate more to you because we can prove we are investing in you and i say you don't mean just you alison, but the investment team as well as the team on the service side. we invested in you, therefore there is a reason we are able to rely on you more and trust you more. not because it is nice thing to say, by the way, mayor, this is why we need more dollars to hire more people, better people. that's how 80 justify the cost. what is the pay-off to them? we believe how we are able to prove why we adopted a 7.2 assumed rate of return or discount rate, it pays off in terms of the contributions the city must pay that the employees must pay as

well as the way the supplemental cola for all the retired members. again, doing a lot of talking here, but i want to hear your plan for improving the decision making process where you and your pmg are operating, which means people as well as with all the work you are doing and traveling, the training and decision making process. >> thank you for that. i have a couple points to note. so, i can an icdotally speak what other plans who have delegation do relative to their structure, both organization that have combined cio or ceo or ones where it is separate. there are some that have an

internal team-internal investment committee that somebody presenting from the asset classes goes to that committee and includes the cio and investment member och the team. that is akin to the model we are following. there are other organizations that may have a singular deputy cio and it goes through that individual and ultimately to the cio. what we implemented here was based on me coming to the organization looking at the great team we have, the structure that existed, the levers we could pull in terms of personnel and thinking about capability and team and reinvigorated the pmg structure and we enhanced the decision making process from the initial point where we said, we want to invest in something to where the pmg reviews and are approves and i approve.

i think the process, what we have done over the last two years putting into place these processes and procedures is tied very closely to making better decisions, and i think that a structure of having again, a deputy cio or individual has concern benefits. given the team we have today, the pmg is very strong in their review and if it is helpful at all, i hear feedback that the pmg is really tough. we ask a lot of hard questions, a lot of detailed questions and what is helpful in this structure again, there are different structures is that we have a pmg that comes at it with different perspectives so somebody incredibly talented thinking about risk and quantitative assessment and will push who is making a recommendation on those points. we have folks that worked across public and private markets, so can

think again across asset classes how we are investing. we have individuals that have experience negotiating contracts in their asset classes and fees and have the capability to ask those questions. so, it is a different model then maybe having a single person, but it is one i do know other plans use and i think is effective with the team we have in place, and it isn't a static approach. we continue to evolve and self-reflect and say are we asking the right questions, meeting with the right frequency and listen to the feedback of the team in terms how the process is working, so it is evolving, but i think the structure we put into place is doing what it was inteneded to do, which is make sthur we ask the tough questions, the diligence and make sure we considered all the risks of each investment. it doesn't guarantee every investment will always perform, but it makes sure we ask the right questions and assess the resks risks before we make

an investment. >> i would underscore the fact that we agreed to go forward on the reorganization we did and covered all the cross t and i and put a year under our belt that, and i would suggest that it has gone better then we expected. it always has--the problem we didn't change things in the place and went with the old and why i think we had some problems and this in fact is a living organism that is changing with the management we put in, and looking for the good decision making process and to even try to drastically

change it is-doesn't make sense in my mind, but does that doesn't mean we don't do a retreat and we approach these issues looking from the currency as well in the future, but we don't--and improve upon what we got, which is proven out just as we mapped it out in terms of how successful it's been to date. i don't know anybody negative about what we have done, so--i think that even--to even start discussing merger of cio, ceo, year plus into--we

could do a-we could address a lot more important things,b that are important to you for instance, like [indiscernible] >> how we came to the joint role was not delivered as it may appear. it was not done as deliberately as it might appear. >> deliberately? >> it had to do with the compensation issue we couldn't hammer out with the mayor's office. that is how we got from this. we came from a slightly different direction. >> i want to make sure we don't go off topic and stick to our agenda item. >> about how to go forward, many years when we were trying to understand if we were getting bigger and more sophisticated complex, did we have the people to do it? it came from the board to bring in a consultant to analyze what staff was doing and that consultant said

you better hire 3 more investment professionals. it came from the board not staff. [indiscernible] it still took a couple years for those three people to hire. that was a long time ago. the increment that occurred under jay hewish. getting the approve and budget to hire more people and compensation levels much fairer to attract and keep the talent we are able to get and the paid off and think the city is happy with that result. going forward, as we get bigger and more complicated in the last session proves part of it. that is why i'm concerned when you wear more then two hats why another key person in that final decision group i think is valuable. not trying to put the pmg down at all, but we are going to get more sophisticated and your amount of time spent on investment isn't going to increase so trying to figure how to prove the process. some increased the decision

making body and some decreased the decision making body trying to figure what is best. that is why i look how the endowments do it and general partners do it as they got bigger and better looking at their decision making process? i think [indiscernible] will not stop now to prove that to you. that is one. two, it will come back about the process, meaning the decision quality process that how to improve the process to get bias to figure how much risk to take to pay off. that is something the retreat and other places going forward. it is evolutionary. it takes a couple years to make a significant change like this work to see the proof. >> we are only one year into this. >> pardon? >> [indiscernible] >> phase 1 was just-- >> [indiscernible] >> if we had done phase 2 and phase 1 the first day we might have said no. >> [unable to hear speaker] >> it has to be done.

>> this is definitely something that where change is [difficulty hearing speaker due to audio quality] evolving, not just making [indiscernible] >> one piece missing from this document i think as you develop things has to do with the issue of legal review or legal support. just like staff is able to figure getting best execution from brokers and managers, but the issue but in the contract issue, the lawyers involving the city attorney or the attorneys that they bring into do the work, that review has to be done. we have been ignoring it forever.

>> a lot of reasons. >> again, this is discussion item only and i really appreciate the discussion. it is good to talk through these issues and i look to the board for guidance, again the next step could be coming back and putting this in a red line version into the ips. in the interim i can provide the survey results from last year. if there is a different approach you prefer i take, just let me know. >> when it comes back maybe you add a few bullet points of this is what you also plan on doing.

>> okay. thanks. let's ask for public comment, please. >> thank you. do we have in-person public comment on this item? seeing none, moderator, any callers on the line? >> madam secretary, there are no callers on the line. >> thank you. hearing no callers, public comment is now closed. >> this is discussion item. we'll move on. let's-want to take 15 minutes grab, food and eat while we go through it? that good? 15

>> item 8, chief executive officer's report. >> commissioners , i have two topics. first a update on the budget and second provide a update on expectations for the next board meeting. on the budget, the board approved the budget in february but the process is such, after you all approve it, it goes through processes the mayor office and board of supervisors and i just publicly want to extend thanks to karen bortnick to christine lee and michael in hr who have been instrumental helping navigate through a process and address a lot of questions. our focus in answering the questions and moving through the budget

process, we--and support our it team given with you manage $35 billion asa sets having the best it infrastructure is very important so thanks again to karen and team for working on the budget. next in terms of june and board meeting, you may have noticed it seems we have ebb and flow of long and briefer meetings. the last meeting of the quarter is more packed with topics. the same will be true in june, so we apt there will be closed session items, quarterly performance review, likely changes to the its related to the approved new strategic asset allocation. on the administrative side, provide a update on strategic plan, election of president and vise president and might have policies to approve. a lot of big items to cover in

june and wanted you to be aware that might be a longer meeting. with that, as you know, in the materials we always have the board calendar, the conferences and training and this quarter's travel expense report. open up to any questions. >> any questions? thank you. public comment, please. >> do we have in-person public comment on this item? seeing none, 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 now closed. >> next item . >> item 9, 2024 annual liquidity management update. >> as anna and kevin are

getting set up make a couple comments on the presentation. last week i had the opportunity to attend a conference cio panel and the question came up about how are you as a cio to the peers addressing liquidity and i thought i should tell you what i told the audience at the conference. at spers liquidity is fused into over asspect of decision making we have. what i hope you see in the presentation today is how we have a thorough process that is quantitative and qualitative that addresses liquidity from the asset allocation level to the asset class level to the monthly benefit payments we have and having both qualitative discussion and quantitative metrics to assess liquidity in good times and challenged times. again, special thanks to ana

and kevin who respond a lot of their days think about the issue and reflected in the presentation here and will turn it over to ana and team to walk you through it. >> thank you alison. good afternoon commissioners. i like to start with thanking everyone in the investment team for working closely and collaborating with us. these are not fun discussions often, but necessary discussions. the liquidity management touches everyone in the investment team from developing contingency and this year you'll see executing contingency plans for liquid assets to evaluating annual commitment pacing and going through different views and trade-offs and daily monitoring and adjusts liquidity needs. for the pote folio, i like to

compare what we do with asset allocation and risk management and asset liability which we have done in the last four sessions. it is similar to food and water. liquidity is the air. that's something that we need to monitor all the time. the other piece is that, if you look at it, we have hundreds of funds, we have thousands of capital calls and distribution going on. we do have regular pension payments, so there are multiple ways to look at it and a lot of modeling and approximation that go into thought forecasting and we'll talk about that. i also like to thank janette who worked very closely with us on

multiple models to make sure that we have proper--as we forcast liquidity needs we have presentation of our actuarial obligations. special gratitude to cambridge associates, they are on the call today, who custom built multiple risk liquidity models for us that we'll review. we keep pushing them. we keep expanding their tool kits and they are tremendous partners. it is a extensive process. we have a framework which we'll review today that covers the cash flow, pacing, asset allocation, what we have in liquid assets and also pension

obligations. we will revuiew also our liquidity needs are increasing and part of it as you know, sfers is a large investor in private markets. the board approved the new asset allocation target to private markets, which is computation of private equity, real assets and private credit that target 40 percent allocation. versus the target we are currentsly at 51. some of this liquidity configuration is a product of our success. this private market allocation did perform and produce very strong results and that lead to not only the fact that we need to manage as asset

allocaturs and improved funding status lead to significantly decreased contributions from the employer. you see on this page that, this fiscal year we expect net cash benefit out-payments, just for the pension payments [indiscernible] which is now 3 percent of the fund. in 2015, this was four times less, $256 million was the net contribution from the fund. the rest came from the employer contribution, so at that time, our annual spending grade is 50 basis point and now 3 points. the percent of total fund that

is net benefit payments. it is forcasted in 10 years in medium on average, this will further-the spending rate is forcasted to increase from 3 percent to 4.5. while we have a phenomenal private team, it performs very well for this fund. we do need to start making sure that the allocation to private markets is in line with our increase liquidity needs. we have multiple tools at disposal. with long-term and short-term. longer term we'll talk about how we are

adjusting pacing, commitment pacing and that is something that it is the third year we are recommending reduce--you will see in the forecast it is already taking effect and helping fund liquidity. we also implement short-term liquidity tools such as credit facility and also we can adjust-we can use leverage to adjust rebalancing to be in line or closer to the strategic asset allocation. in general, our private markets, we have been investing with private equity since late 80's. it is a very robust and mature portfolio, however, you will see that the private--current condition of capital markets private capital markets is quite challenging.

in fact, [indiscernible] in terms of distributions from gp's. as a result, we've decreased commitment payment this year by 30 percent and we also went through asset liability study and recommended reduction of private equity allocation, and we also moved considerable amount of cash from public equity to cash and fixed income. next page. why liquidity? here it is the objective what we are solving for. the first two are primary objectives. we have to meet the benefit payments and we have to meet our contractual obligations to gp's. the second-the third and forth

are objectives. maintain strategic allocation, to achieve the long-term return, the actuarial return and also need to make sure we have the flexibility to be nimble and rebalance if there is a dislocation. how do we think about it? i'll skip the next page and go to page 8. this is the three tiered framework we put together five years ago now and kept enhancing and adding. so, we started thinking liquidity is a multi-faceted problem and we need to make sure that we have if you look at the left hand side, we have a good model that forecast expected cash-flow from private investment so we work closely with cambridge associate and our private market team to make sure we have different ways of

projecting this cash-flow, we need to make sure we have averages, and also have stress and also want to understand the ranges of those capital calls and distributions. on the right hand side you see we also need to forecast pension obligations and we also include estimates. then we put it all together and think of those--how those two streams-cash-flows interact on different cash forecast and that is where we put a simulation that gives us different probabilities of how we will do on the different conditions. and finally, we also look at the asset level liquidity to understand, do we have enough for the next three years? that's how we defined it, to

make sure that's how we measure the primary objective. do we have enough in liquid assets to meet the responding -spending needs for next three years? these are liquidity coverage calculations. so, let's talk about the first pillar, pension benefit payments. here in green, you see-throughout the years, the contribution from employer and employees. the actual-this fiscal year and projection for the next 5 fiscal years. in blue, you have the actual payments for the pension benefits. in black dots you see the net

out-flow from the pension trust to meet the pension out-flows so you could see that in 2021 when we had very good performance, the net out-flow from the fund was $394 million. that performance lead to increasing contributions from the fund to pay for benefit payments, and you could see that the net employer contributions and employee contributions are actually going down since then. we next move to forecasting commitment payments and cash-flow from private investment. page 12, we'll give quick

summary of 2023 and next talk about the plan for the next fiscal year. 2023 as mentioned was one of the most challenging liquidity--capital markets for distributions from gp's. we think about it as a distribution yield from our gp's. it was the lowest we have seen since gc. so, that is the back-drop we have been dealing with. with that back-drop, we presented last year the base case and also two stress cases and said we were managing the liquidity to the stress case we call go growth stress test. that helped. you have seen the presentation from our public equity and public fixed income teams we work on contingency

plans with them. we did execute that plan with public equity team and we raised 1.4 net cash-flows during 2023 from our public equity and absolute return teams. you will see that we were well served to run those stress tests last year because that was our guiding star this year. moving forward looking into our plan for this year and next fiscal year, we are operating under the same stress condition. stress scenario. we don't expect the liquidity condition to become better, though we have seen some spring shoots, but we are managing towards the stress. we recommend and you will see all the details in the appendix for the

cambridge study. we recommend reducing the commitment this year from 1.2 billion last year to 1 billion this year for private equity. from $650 million last year to 600 this year for real assets and for private credit, from 850 to 750. again, i like to make sure that these are longer term three year averages. we never manage to the dot, but this are guiding principal for current year and current liquidity. we do the study annually, so for this fiscal year we are planning again, the next net out-flow from luquid assets to private to the tune of about $200 million and that is in addition

to $1.07 billion for benefit payments. and that would be met from private-primarily from private selling public equities. in the stress case, we might need more and we have liquidity plans for public equity, public fixed income and absolute returns. on page 14, this is a chart that i borrowed to give the one way of monitoring the current liquidity conditions is private markets. what we are measuring here is the percentage of all dollar value of all ipo, all high yield bond issuance and leverage loan issuance of gdp. you could see last year it was

on par of gec and the last two years, both 22 and 23. moving forward, a little about the pacing models that we will present the results. i like to remind that the commitments to draw-down is structured self-luquuidating funds that distribute the capital. the commitment facing model is designed to reach and maintain particular asset allocation, but we are modeling a lot of flexibility that we gave to an opportunities that we gave to our gp's, so that nature of private asset

classes makes this model particularly hard and what we do, we work with cambridge and that data to look at the averages with similar funds, with similar type of strategies. that average gives the base case and then we also look how this type of investment performed to stress cases and we also look at the distribution of this returns. the next page there is a lot of numbers, but i'll start on the first column making sure that this is the proposed commitments facing for next year or next fiscal year or this calendar year. we go both, because again, it straddles across three year average. you will see that versus the previous year, it's down, but you also see on

the 5th column the actual commitments that was done quite a bit last year, and that's a function of not just reduced commitment pacing, but also fewer gp's coming to the market last year. next, the 6th column is 5 year average commitment. you could see it is significantly lower then the average over the previous 5 years. that's been lower for as i mentioned, this would be our third year we are very diligent and very judicious about our underwriting, and scaling commitment pacing. the other things i like to highlight is, the next to last column, the actual cash-flow from liquid assets to private asset was about $348 million, so 350.

that is in addition to what we had to raise for pension payments, and you could see it was very close to what we forecast last year with cambridge which was $369 million. if you look at the second row and that is something i'll highlight as well, this is the base case. this is what we are talking about. look at the averages that we have in cambridge database. what would you expect our private equity to distribute this year? you could see that it is $853 million. that is a lot of money that is tied up in this portfolio. however, you could see in the no growth scenario, we expect to get only 107. that difference, we know it will come--this is very much market dependent, but that difference is

something that we have to manage. and so next page talks about--let's calibrate it. what is the probability of the no growth scenario we are managing, and generally, what should we expect when the market conditions normalize? so, on this page, you see the forecast of net contributebution and distribution from all the private investments each year, and you could see that the average this year, this is the $853 million, but the distribution and the blue is the 25 and 75 quartiles but you could see right now--i think the blue is 10th percentile.

we could see that in more then 85 percent of the time, we are expected to be net cash-flow positive in private investments, but now what we see is [indiscernible] closer to 10 percent of the time and we are cash-flow negative. but, over time we certainly expect to have considerable cash-flows coming out of our private investments. so, we also see in the light blue or light gray, the gec type stress scenario which is 1 percent, and again we don't manage this type of stress, but we certainly have contingency plans for those scenario. moving on, we now have a proposed pacing and cash-flow model. we like to incorporate it into

our asset allocation model. this is the on page 19, is what we presented before and actually used this as a part of the liquidity framework. so, this is the analysis that we have done with black rock, but three years ago and i'll walk you through that a little bit. on the x axis you have spending rate, which is the percentage of the [indiscernible] we need to spend to help with pension payments. and on the y axis, you have the percentage allocation to private assets in your asset allocation. so, you could see that in 2020, our next spending rate was about 2 percent, and we had about 40 percent allocation to private assets, so we were in the green zone and i'll talk what

this green zone means. here to calculate whether we--stepping back and figuring and also answering some of the questions i received from commissioners before, what is the liquidity risk? first and foremost is the ability to pay our pension obligation and contractual risk, so here we define, do we have enough liquidity to pay the contractual obligations and so, whauts what you see in dark blue danger zone, here we ran the 500 simulations and said, if the probability that you run out of cash, that is your liquid assets hold less then 3 years--here we initially 2 years and adjusted to 3 years worth spending needs then

you are in danger zone. if the probability is higher then 5 percent. we run the simulation and more then 5 percent you run out of liquidity store for three years. that's the danger zone. the light blue cushion zone, the probability you run out of cash or cushion will not be enough is greater then 0, but less then 5 percent. that's the light blue. the green is that when--no single pass we ran hit you don't have enough cash or you ran out of cash. so, the proposal always been for our risk framework to keep our asset allocation within it green zone. with that simulation, with this analysis we don't want to have

the probability to run out of cash. see, what we see right now that current allocation and current spending rates pushing us a little to the cushion zone, so it is not 0 and see it is about 2 percent probability thatee we run out of cash. the proposed pacing plan and commitment pacing and glide path brings back to the green zone in 7 to 10 years. here projected in 2024, projecting spending is 4.5, projected median allocation to asset classes here is 38 percent. a lot here. any questions?

>> [indiscernible] page 1 we use sufficient liquidity or sufficient class but page 19 it has projected higher pay-out rate. is the pay-out rate include the pension benefits or also funding commitments? >> both. >> both. does it also include reserves for opportunity? >> so, this is three years worth of spending. >> three years-- >> just spending. >> no opportunity? >> no. >> just basic, got it. thank you. >> it is the basic. it is the air. [laughter] if we dont have that we are not able to have any opportunities, right? good question. maybe just to elaborate a little bit on the opportunity side, what we did discuss before, we put some type of guardrails to say okay, at what point

is the allocation getting high enough that we need to start thinking about it? do we have flexibility to rebalance or missing some of the opportunities? and so, we highlighted this zone, yellow, orange and red. the red is in the ips. we are saying that the allocation to private investments should be less then 65 percent, but we also put orange and yellow zones which is when the total allocation to private equity and private credit should be less then 55, and if it is higher then 55 percent, then it is the yellow zone and higher then 60, then it is orange zone. let me walk you through what we are doing here. with those allocations, we look at the simulation we just outlined where we modeled the pension obligation

and the commitments, and at the end of each year, you will see on first column, we see what is the probability that the allocation to private investments will be higher then 55 percent? we could see that it is 9.1 percent for 2025, and in gray, we reported the same numbers to the board and that was all most 16 percent, and again, first of all, we are solving for, we like to get the 0 at no point get the allocation more then 65. there is a lot of literature that says, at that point you are very likely to lose control of your strategic asset allocation and potentially cash-flows. a lot of endowments watch the 65 and you could see that now across

the board, we projected in 2028, we could get the probability of getting greater then 65 percent allocation is little more over 1 percent last year, it is 50 basis points this year. so, across the board, the probability of reaching allocation thresholds are substantially lower this year then last year. this is the result of both, the action that staff made and the market conditions. so, the market conditions is yes, the public equity evaluation appreciated, but staff did take action, we sold public equity and [indiscernible] we also did reduce allocation to private

and reduce commitment last year and the year before. it is a combination of both market conditions and staff, multiple staff decisions that is showing that our liquidity risk is substantially reduced. >> is the denominator the total portfolio market value? >> correct. >> this yellow, orange, red also designed to be a subset of it green zone on the previous chart table? >> this is a separate study. but absolutely. absolutely. >> we cannot control the market value per se as well as we can decide to increase our decrease or sell out any private investment portfolio? >> very good point, but if you look at the previous slide, anything

over 65 you are in danger zone. >> just trying to think, this is designed to give warning to take another action. >> correct. >> thank you. >> correct. and the action discussion starts in the yellow zone. last page before we move on to liquidity, asset liquidity. this is the same study, just presented a little differently. we have red and orange lines that says that the allocation total allocation to private investments with the hard thresholds established. what is interesting to see the evolution. the black is medium allocation to all private investment over time and you could see it is coming down.

this is with the pacing that's suggested by--we worked with cambridge. so, this is our glide path on reducing the total allocation to private investments. from 51 today to i think here the average is 36. however, we understand that there is a probability distribution around it, so, the blue is the 25 and 75 percentiles and we also put the orange, which is 5 percentile and 90 percentile. you could see that again, the risk and probability that we could hit the yellow threshold within the next few years, but the trajectory and the glide path is to reduce the total allocation to private investments.

any questions here? >> i'll wait with my next question. >> with that, i like to move to asset level liquidity and ask our investment officer, kevin who worked on most of the presentation to report asset level liquidity. >> commissioner driscoll, was your question on what we just heard or on-- >> it will be, but i'll let get through the process so i don't pick it apart. >> alright. please proceed. >> on page 23, to give a overview of our asset level liquidity. in 2023 our position increased from 39 percent to 41 percent and our definition of liquidity here is, the assets we [indiscernible] tier 1 out to tier 3, liquidity. as our february 2024, it is

14.2 billion and a year ago was $12.7 billion. in this section, we also look at different stressful scenarios that can have empath on liquidity and there [indiscernible] that will reduce our liquidity from 14.2 billion to 12.4 billion and this is assumed every asset is correlated to one and go down at the same time, expect some sort of diversification. this is fairly conservative. under very severe market stress scenario, our liquidity is reduced to $10 billion and challenging to manage the asset allocation and first have enough liquidity to meet next three years of obligations. [indiscernible] manage

short-term liquidity needs and rebalancing. next page is the overview of our definition of four tiers. tier 1 is [indiscernible] tier 2 is 1 to 3 month and tier 3 is 3 to 12 and tier 4 is over a year. made conservative assumption to determine the tiers the assets are. all private investment are tier 4 and the absolute return was provided by flag stone. for international small cap and market equities in tier 2 and high yield in to [indiscernible] bank loans are tier 3. page 25, breakdown of our liquidity by different tiers and different asset class. in the tier 1, majority are public equity and fixed income and

cash. absolute return distribution among tier, 2, 3 and 4. private investment is tier 4. the 1.5 billion in tier 4 based on assumption we assume all the public managers allocate to the maximum allowable in the private allocation. compared to a year ago, our tier 1 to tier 3 liquidities, $14.2 billion now and $12.7 billion a year ago, and mainly driven by positive performance in public equity up 15 percent and fixed income up 5 percent. private equity was up 1 percent and real asset down 2 percent and are private equity up 6 percent. i'll skip next page. page 27, that is a correlated market down stress test we did with asset level liquidity and assume all the assets are down by 1 standard

deviation. at that point, our tier 1 to tier 3 liquidity will reduce by about 1.8 billion to $12.4 billion. page 28 is similar stress test but with standard deviation that further decrease the liquid asset to $10.5 billion. page 29 gives the overview of the actions first can take the match the short-term liquidity. we have four options here. the first one is hold excess cash. guarantees we have enough assets to meet liquidity needs. the cash over long-term is performance drag on the overall portfolio. the second option is to sell the liquid asset. straight forward and quick execution, but the risk here is to [indiscernible] period of stress and typically which sfers enter liquidity stress are the

period public market are under stress. third option is to utilize credit facility and we utilize as a bridge for short-term unexpected capital cost. the last option is utilize leverage. leverage is beneficial because it allows us to get exposure to risky assets without deploying the cash, but the opposite side, we need to manage the risk of utilizing the leverage. next page, covers what first team has done in the last year to deal with liquidity. we have been [indiscernible] 1.5 percent cash last year and the rational was given the inverted yield curve holding cash now is yielding higher then holding to treasuries and the liquidity to meet the obligations. second option, we have raised 1

pote $4 billion and utilize the credit facility to manage cash flow needs. [indiscernible] next section will cover luquidative coverage ratio which is measure we look at to see if we have enough assets to meet three years of obligations. page 32 is the [indiscernible] the idea here is, we have enough liquid assets, plus the cash net from distribution in liquid assets and also employer employee contribution, divided by all the cash obligation we need to

meet over the three year period. those are the benefit payments, [indiscernible] if the l ratio is 1, that means we have enough liquid assets to cover all the cash-flow needs. it also assumes over three year we need to sell everything in the liquid assets to meet the obligation. we want the coverage ratio to be much larger then 1. the second measure we look at modify ratio. the difference here is, we only look at the thresher and core fixed income in the liquid asset class to meet the cash-flow needs and that assumes we do not need to sell anything in public equity or absolute return portfolio. page 33, i look at different scenarios and the impact on the liquidity

coverage ratio. the scenarios are pacing scenarios anna covered in her presentation and from the top which is the base case down to the stress, which is very stressful scenario. the hor zantal scenarios are the correlated draw down scenarios i covered earlier. the most stressful scenario here is in the bottom right corner, which we expect two standard deviation [indiscernible] at the same time we are experiencing [indiscernible] at that point, sfers coverage ratio decline to 1.18 and that is a very stressful scenario that assumes we will all most need to sell everything in the liquid asset to meet the cash obligations over three years. our current coverage ratio and base scenario is 2.15.

we estimated what the liquidity coverage ratio will be under the current allocation and also under the new allocation. our coverage ratio is 2.37 and under the new strategy asset allocation improve to 2.5, that is because we allocate more to the public liquid assets. in the stressful cases, first liquidities [indiscernible] we move the ability to allocate in the public market, but we still have enough assets to meet the obligation over three year periods. page 34, similarly looking at liquidity coverage ratio but in the simulation. the y axis is showing liquidity coverage ratio and axis shows the year.

median of all the simulation in that year for the liquidity coverage ratio and blue shades are the 25 to 75 percentile and orange is 5 to 95 percentile. if you look at the chart, over time we expect the liquidity coverage to improve and looking at the bottom part of this chart, like the orange shade towards the bottom, even though it declines in 2025 and further to the longer years, but it very unlikely to fall below 1.5. outside liquidity coverage raise much much higher then the down side. page 35 is very similar to anna's presentation when she showed about the study of the private asset allocation versus spending rate. here with y axis is our allocation to the private assets and the x

axis is annual spending. this in the middle is the projection of sfers private allocation and responding spending in 2024. we expect at that time our annual responding will be around 4.5 percent and medium private investment allocation around 36 percent. in this--the dark orange, our liquidity coverage ratio is 1 to 1.5. over the long period of time we expect liquidity coverage ratio to be larger then 1, but still be towards the lower part of this. the liquidity will be challenging because of our higher er spending rate. i will pause here for any questions.

>> i have to ask the question sooner or later. currently our lcr is 2.35? i think the number was 2.15. the current lcr and you want the check how frequently, every month? biweekly? >> the lcr is a annual- >> just once a year? >> annual projection. >> okay, thank you. we keep an eye on the liquidity trying to stay in the green zone. and so, when we adopted the asset allocation mix last month, there was discussion of liquidity and the same thinking incorporated into that, correct? great. maybe earlier part of today's meeting. one thing staff does is they know what

our target asset allocations and there are guardrail jz you are to operate inside the guardrails? okay. then, when there are decisions made about any investment decision to wait or increase or decrease money to manager or sector or asset class, do you use this to help you make that decision to shift money without coming back to the board? >> so, you will see in the appendix the proposed pacing model. the pacing model gives the marching orders for private investment, saying we need to deploy around 1 billion in private equity and venture and that is what they are doing. we think this is what we look at, is it better to invest in this fund or the other fund is up to our private

equity team to make those decisions. how much do we invest in private equity versus private credit, that's the decision on the asset allocation piece. >> it isn't about whether investment is good or bad, but we do not want to choose the less liquid asset class for that money? >> to begin, remember there are certain assumptions for each asset allocation there is certain expected return and expected risk for each asset class and yes, if you remember for liquid asset classes these were the only three asset classes wilshire has expected returns higher then the discount rate, so that is over longer term we know, but we also know they come with liquidity premium and we know that how

much of the premium we can afford to take right now. >> try ing to figure how it is used, because in your point, the amount of cash is [indiscernible] the question is, the reason we set the 7.2 discount rate or assumed rate of return, we believe we can achieve it. the question you have reasons to make one investment or not. it is a question of staying within the guardrails. manager x, yz is how you use that as reason to not do something or do something? >> if i can expand, we attack at multiple levels, so we set the asset allocation, we do pacing that relates to the asset allocation and liquidity needs so that sets the marching

orders for the private asset class that is subject to fundraising and market dynamics but that is approximately the money they are going to put to work then that drives individual decisions on funding. at the same time, each month we need to raise cash to pay expenses, meet capital calls, et cetera so what we do is look at current exposure percent allocation to the asset classes relative to the strategic asset allocation target and relative to the liquidity needs and make a decision. is the cash going to come from fixed income, treasurer public-we look each month and say much are we under weight fixed income and equities and neither are at target but where do we take the

money from so we are not too underweight any of those? there is a process each month where we talk anna leads the discussion and talk with there asset class heads to make that decision with the idea that the target again is moving as close to the strategic asset allocation as we can. with the cash decision, that was-we had cash because we get a better return then treasure ease but meet the needs we have. going forward asset allocation of 1 percent cash and think a little that now and probably over time bring that closer in line to the strategic asset allocation. >> the reason banks have reserve requirements, the bank would like to lend more money for better profit but we want the reserve requirement so you don't blow up. same thing here, we want to main a

certain liquidity requirement, which is more wisdom and comfortable and securities, but willing to give up some of the upside by not investing-maintaining. normally cash returns are less then other opportunity sets so trying to get to the point to prove yes, we could have made 7.4 but chose 7.2 because want to have enough liquidity. you probably told us many times but saying out loud to say to others why we did this. this is why. >> it is a tough trade-off, because private markets do offer very good returns and we enjoyed those returns, but we also know we are becoming a more mature fund and need to plan for that as well, so that is the trade-off. >> thank you.

>> further questions? >> they have cambridge on the line. >> the same probability-the discount rate ree chose is the average of the probability. is that the same here? when you said no growth that is what we are using now? we can change that right if we have reason to believe it? who chose--not about the numbers, but how the now growth numbers are arrived at, but the decision to use that was done by who? >> the decision to use that actually was done by cambridge and our team, but we ran it by the board and i think in 2021 when cambridge presented and said, we are going to augment the pacing discussion to always include stress test, not just the base case, and-- >> i appreciate included in the

process, but i do not recall a vote on that. >> we didn't vote but described-- >> you are implementing it based on you think the wisest thing to do? >> right and something that helps manage liquidity. cambridge came back and said we can't [indiscernible] great to know that. we want something that is stressful enough that will help us navigate a stressful scenario and that's what we came up with. >> again, the decision clearly effects performance as well as many other related items and staff decides to execute that way after informing the board. >> we had multiple discussions on how we think about this stress test. we also reviewed it [multiple speakers]

her feedback as well. >> that concludes my questions. >> other questions? thank you anna. thank you. it was mentioned that was discussion item only. take public comment. >> thank you. we have one in-person public comment. >> fred sanchez, protect our benefits. didn't expect this item to be so exciting. i'm glad to hear liquidity is factored in every aspect of investment and all the modeling that was in this report working with cambridge, clearly

indicates this is real and there is is a lot of effort put in to make sure liquidity is real and i applaud you for it. that's all i grot to say. >> thank you for your comments. moderator, do we have further callers. >> there are no callers on the line. >> thank you. public comment is now closed. 76 >> item 10 is discussion item. chief investment officer's report. >> commissioners i'll provide a couple comments on performance and plan value report and then report on closed investments. first, make comments related to page 4 of the slides and won't spend a lot of time on that. the three year annualized performance for the fund is at 4.3 percent and no doubt this is less then the 7.2

percent return objective, but looking at why we are at 4.3 percent is public equity over that period is at .9 and private equity at 7.6 percent. as you know, for long-term return potential, we have 60 percent of assets targeted currently. it will come down and those growth areas and if we are in a three year period where they did not meet or substantially exceed 7.2 percent it isn't a surprise we are under performing on a three year period of 7.2, but again, the 7.2 is a long-term return target. just want to convey that point since we look at a lot of numbers and bring that to your attention. next, the plan value report. this ties very closely to the liquidity discussion and strategic asset allocation discussion and points made earlier, which is we are back

about the guardrail of treasurey. the minimum exposure is 3 percent. we were below 3 percent because we allocated a small portion to cash but now at 3.1 in treasuries and 1.9 cash and that is likely to come down over time on the cash side. finally, in terms of closed investments, i am happy to report that under the delegated authority sfers invested $31.8 million and [indiscernible] closed april 19, 2024 and additional $0.6 million closed april 24, 2024. the fund is categorized as venture capital. what i have for the cio report. happy to answer any questions. >> any questions?

comments? if not, call for public comment. >> thank you. do we have in-person public comment on this item? seeing none, moderator, are there callers on the line? >> madam secretary, there are no callers on the line. >> thank you. hearing no calls, public comment is now closed. >> next item, please. >> item 11 is discussion item. san francisco deferred compensation plan quarterly report, q1 24. >> thank you. good afternoon commissioners. thank you so much for your time today. i realize we are in the home stretch with this last item, so thank you so much for your patience. i will try and keep it brief. as you can see from the materials, this is our quarterly update for where we drill down and provide updates of the 4 pillar of the plan, investment marketing operation and record keeper. up first is investment portion. as mentioned in april, the stable value fund increased the guaranteed

crediting rate to 3.08 percent for the second quarter. while stable values serve as the plan capital preservation plan option it is not a money market fund nor designed to be. in order to provide value stable value has contracts issued by insurance companies to allow for book value accounting and to guarantee the declared rate. contracts provide greater return compared to mun aef market but can trail when rates rise or inverted yield curve we are in. the opposite is true, which means when rates decrease, stable value will fair better and credit rate for likely rise for q3. greg is here to offer our consultant perspective on the offer comparison to money market funds or retail bank products and after that provide commententary on the

performance for q1 before we move to marketing. >> good afternoon everyone. it certainly this is coming up across the define contribution industry. very unique to qualified investment plans offered. they are not available to individual retail for all the reasons just mentioned with insurance contracts. the question remains, why are we still in a stable value fund when money markets are up over 5 percent now? your crediting rate as of this quarter is 3.08 percent. it has been on the rise. it is is a slow and as the name says, stable. it is a very stable type return pattern. largely just due to inverted yield curve. i believe we just passed the longest inverted yield curve going back i think we just passed the record from 1978. typically inverted yield curves means recession is coming. we still haven't seen it.

the expectation from a fed dot plot or other measures, at some point soon interest rates on the short end will begin to fall, but again there is estimated perfect crystal ball to estimate that. we tend from a big picture standpoint tend to stay out of the market timing game for participants and that's really why we have taken a strategic allocation to stable value because generally they out-perform money market funds over the long haul and that is a very true for your plan. happy to answer any questions on that or give a very high level snapshot of the first quarter of 2024. >> since you started with the issue i'll make the point, the picture that helps this argument which comes up regularly whenever the money markets--the cycles are inevitable. if you had the 10 or 20year chart showing the two lines it shows

how many years the stable value is aheads of the market. this long inverted yield curve period, this is the longest in history, right? fairly good correlation but the picture i think help the people who have been asking why didn't we move it. if you have the picture that is great and make sure it gets to participants who ask. >> thank you. >> first, i wanted to say thanks for the presentation. the only concern where i would want to jump in is for those members that are close to retirement, maybe in a situation where they would be more vulnerable to the ebb and flow of the market. whether or not they are in a safe spot. based what i see in the nature of the fund it doesn't seem there is risk to them, but just want to hear you

confirm that. >> yeah, that is truly the nature of stable value, it isn't meant to lose money. the insurance contracts protect participants so they can buy and sell at book value as opposed to market value. right now they call a market to book value ratio is 94 percent, so those insurance companies are on the hook for that 6 percent short-fall at a hundred percent. it worked very well and commissioner driscoll is spot on, the longer term this has been a great investment for the safest investment in the plan. participants i might remind you, there is a brokerage window if participants truly want a money market fund, there is certainly many within the brokerage window, just not as attractive pricing as with the stable value fund. >> good to hear. secondly, you talked about the business of predicting the recession. that is one of the biggest in

the industry, so don't cut short. everybody likes predicting recessions. >> i was referring to inverted yield curve being a spot on predictor of recessions. i think there was one time there was a inverted yield curve and not a recession, but absent that we might be in another one. you just never know. >> would you mind going back to the first page so greg can talk about this? one more. >> the other way to page 1. thank you. just wanted to recognize that we talked about some great performance reports in the past. this is just the one quarter ended march 31 and i just highlight one of the big themes we have been talking about is momentum in the market-there is very different names. that is really subsided.

invid you is up this year but generally subsided so active managers have a chance out-performing. they are all out-performing, 6 out of 7. the only is real estate fund scheduled to be replaced by real asset fund. the two managers on the value side from a watch list perspective, the large cap value and active equity fund, which is managed by fidelity were the two best performers so very gratifying as we see the market change in terms of leadership your managers have been well poised and not acquiesced to the momentum market we have seen. i thought i would make that comment. by in large the target date funds all out-perform their respective benchmarks. >> moving to marketing commissioners. we are currently on track to

meet our targeted midyear mail frr cohorts in julyism you see in the memo before you on page 4. there is a break-down of each target and we plan to weave in the july raise and the mandatory pension deferral decrease to suggest adding those additional savings to the plan. in addition, our lower investment cost announcement as you can see, we had decreased the cost on our core index funds. we prepared direct mail to make that announcement. it dropped in late april and set to be implemented on may 31, so as of may 31, participants will receive more savings going back directly to those investors. a copy of the direct mail has been included in the memo. on the operation front, the annual mailing dropped on april 20 and additional announcement will be

sent on may 18 for participants with a roth account in response to the new secure 2.0 legislation that no longer requires roth money subject to r & d which means roth acouns experience lower--[indiscernible] made to the group to inform them and help them make changes as needed. in a prior board meeting shifting gears rsh r, there was discussion whether student loan payments may be a cause for lower account balance among younger employees. page 6 in the memo you can see a comparison of sfdcp account balances against book of business. thank you mr. vesteen getting the data. voya was able to compare our balances to a handful of other government plans. i thought it is-good to take a look and keep track of peers in the

industry. the balances are relative ly higher then otherss with excension of the healthcare plan and plan e which does not participate in social security so that is another reason why the balances would be higher when you consider 6 to 6 and a half, 7 percent save ings. this exercise peaked staff ininterest how to better cater to younger employees to contribute more. for instance should we offer information on student loan repayment options? our participants aware how they can pay their debts so going forward they can put savings into a plan? should we consider emergency savings account that was a voluntary provision? all good things. still continuing to evaluate and will bring any new development to the board. and then, finally on the record keeping front, we have exciting announcement. staff is delighted to welcome

mr. alvine lang to the team. he started in mid-april and hit the ground running training licensing and shadow teammates in the field. mr. leang is fluent in chinese and will be provided coverage for meetings at the office here on the 5th floor and appointments could be made with him online. shifting gears, the prior method of authenticating participants via paper pin sent via snail mail has been upgraded. voya is allowing eelectronic pins which allow for quicker verification and instructions have been updated for those new folks registering their account online. if no questions on the paper pin, i'll a brief update on manage aaccount and turn it over to go over the

quarterly plan review. the last page in the memo you will see is a small usage report on our managed account service with voya. we offer the this service with a draw-down service that is provided. it was called income plus. i don't know what it is called now, but i think it is still called income plus. yes, and that is with vra folks. we have very very competitive prices for matched account service and really desired for retirees in mind. through our vra account and contract with voya, we also have access to online advice for our participants. this is free advice by logging online and get vector to a financial engine portal where they get advice. they see existing and then the

algorithm will actually suggest another portfolio allocation if needed. that's my update online advice. if there is interest learning more i have bishop to talk about it, but if not we can jump to the quarterly board report. i know it has been a long day for you guys. okay. we'll turn it over to bishop. >> thank you. thank you commissioners. bishop with voya financial. just a few minutes to highlight couple items plan growth and also touch on account activity as well. slide 4 is where i will start. specifically wanted to highlight the net increase and approximately 478 new accounts to the plan in the quarter. this continues a trend of 7 quarters of growth within the participant base itself and reflects increase of just under $1.3 million or 1.4

percent for the period as well. slide 5, that increase participation actually in addition to market activity resulted in increase of plan assets. 6.4 percent increase bringing the plan to just under $5.4 billion total assets overall. on page 6 or slide 6, just wanted to highlight a item refer to cash-flow. cash-flow quarter is high expected. this is combination of issues related to increase in participation. increase contribution rates as you recall, total contribution rates increased on annual basis last november and communications to data capability went out to participants. finally, historically the first quarter is always higher then other

quarters. i will skip ahead within the presentation to slide 28 just to talk about the account activity. as just mentioned, we did hire alvine leang in april and he came on late in the month, the activity you see for accounts is reflective of being down one counselor compared to a year ago. one on one meetings are up 150 over the prior year, we also increase in group meetings and virtual group meetings as well. now alvine is on board and gets fully engaged, we will be hitting the ground fully running. this does reflect a full staff and staff increase over time, because we made a change to the manner in which we've allocated staff to the plan. we are actually going to have 5 full counselors and an additional counselor focused on the management of the team itself and helping open and back up counselors also. we look forward to alvine's work in the coming days and look forward

meeting the goals for the plan overall. with that, i'll pause for any questions you might have. >> questions? >> mention that the june 5 is a next deferred comp committee meeting. whether or not you want to talk about the stable value issue then, be prepared. the large cap fund we talked about a at some length. maybe we didn't finish the conversation because i raised the issue about that specific manager before and that didn't come up. talking about the manager, not the core product. okay. thank you. >> that concludes our report. >> one comment. i just want to say, thank you. i continue to be really impressed with the responsiveness not only to e-mail questions and stuff we brought

up here so thank you. >> you're welcome. >> the update on the student loan piece is material. we had a number of meetings where the interaction between student loans and student loan forgiveness and deferred comp has come up repeatedly so eager to provide information. >> excellent. thank you. >> thank you. comments? >> thank you. do we have in-person public comment? seeing none, moderator, are there callers on the line? >> madam secretary, no callers on the line. >> thank you. hearing no calls, public comment is now closed. item 12, retirement board member good of the order. >> [indiscernible] >> we need in-person public comment? seeing none, moderator, any

callers? >> madam secretary, there are no callers on the line. >> thank you. hearing no calls, public comment is now closed. item 13, adjournment. >> [indiscernible] >> thank you. [meeting adjourned]

francisco. >> my name is fwlend hope i would say on at large-scale what all passionate about is peace in the world.

>> it never outdoor 0 me that note everyone will think that is a good i know to be a paefrt. >> one man said i'll upsetting the order of universe i want to do since a good idea not the order of universe but his offered of the universe but the ministry sgan in the room chairing sha harry and grew to be 5 we wanted to preach and teach and act god's love 40 years later i retired having been in the tenderloin most of that 7, 8, 9 some have god drew us into the someplace we became

the network ministries for homeless women escaping prostitution if the months period before i performed memorial services store produced women that were murdered on the streets of san francisco so i went back to the board and said we say to do something the number one be a safe place for them to live while he worked on changing 4 months later we were given the building in january of 1998 we opened it as a safe house for women escaping prostitution i've seen those counselors women find their strength and their beauty and their wisdom and come to be able to affirmative as the daughters of god and they accepted me and made me, be a part of the their lives.

>> special things to the women that offered me a chance safe house will forever be a part of the who i've become and you made that possible life didn't get any better than that. >> who've would know this look of this girl grown up in atlanta will be working with produced women in san francisco part of the system that has abused and expedited and obtain identified and degraded women for century around the world and still do at the embody the spirits of women that just know they deserve respect and intend to get it. >> i don't want to just so women younger women become a part of the the current system we need to change the system

we don't need to go up the ladder we need to change the corporations we need more women like that and they're out there. >> we get have to get to help them. >>

>> can we have roll call, please. >> president paulson, here. rivera, here. ajami, here. stacey, here. you have a quorum. >> thank you. i would like to note the san francisco public utilities commission acknowledge it owns i stewards of the lands located within the historic -mission san jose band of al mead ow county. also recognizes every citizen residing within the greater bay area has and continues to benefit from the use and occupation of the oholone tribes aboriginal lands since befor