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Good morning, everyone. The San Diego County Employees Retirement Association Board of Retirement Meeting will please come to order. And could we please have a roll call? Certainly. Mr. Vartman.

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I would please stand.

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We'll begin then with the Pledge of Allegiance.

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A Pledge of Allegiance to the flag of the United States and America.

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And to the Republic for which stands one nation under God, indivisible, with liberty and justice for all.

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Public communication?

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Lane, are there any individuals that wish to speak under public communications?

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We have no non-agenda items.

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Thank you.

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Item number four is approval of the April 20th, 2017 board meeting minutes, changes, corrections.

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Motion to approve.

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So motion to approve the minutes is stated.

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There are two or three seconds.

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Please vote.

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Motion carries unanimously unanimously with all members present.

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Moving right on to introductory remarks, David.

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Good morning, everybody.

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But as the role call indicated, Trustee Myers has traveled today and unable to make

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the meeting.

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So Trustee Tim Hancock is sitting in his place.

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Like last month, the meeting is really mostly twofold.

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Disability consent calendar at the start, bookended by the Steve Secks Hour and the investment

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team with a number of really excellent agenda items, sandwiched between staff reports and

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a couple of ministerial policy matters.

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So the meeting should move much as last month.

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Thank you.

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We'll move on to the consent calendar.

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6A.

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Elaine, are there items public we just have pulled?

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Yes, we are staff as pulled item number 6A next

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month.

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6, 8, 6, 8, 6, 8, 10.

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We have speaker slips on the motion, so they will be pulled for the speakers.

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Again, 6, 3, 6 and 10.

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6 and 10.

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Thank you.

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Mr. Divine, Ms. Guadalupe and Mr. San Vicente.

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Item 9 is off the agenda for today.

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Correct.

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So you're voting on items 6.

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1, 2, 4, 5, 7, 8, 11.

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Correct.

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And 8.

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And 8.

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Thank you.

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Motion.

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Second.

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The motion is second to approve items.

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1, 2, 4, 5, 7, 8, 11 and B.

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Please vote.

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Oh.

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You've got David.

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How do we get your name up here?

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You're not David and Iris.

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Can we?

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Tim?

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I worked for years with Curtis Gillis, item number five.

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I never directly supervise them, but I just want to let you know that we have worked

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together.

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It doesn't affect my ability to vote on the issue, but I also want to just commend, he's

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a 25 plus year employee for the county.

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He worked at our camps, working with a lot of troubled youth in the county of San Diego.

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I want to commend his service for the county's endiego, so.

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Thank you, Tim.

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With that, there is a motion in a second for the consent agenda, please vote.

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Motion carries unanimously with all members present.

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Move on to A3.

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Yes, and we have a speaker slip from Patrick Devon.

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Can we please have staff report, please?

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First, and then we'll go to applicant.

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Good morning, Madam Chair, Trustee's, Mario Carrasis, and Chief Legal Officer for SD Sarah.

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Mr. Patrick Devine is a deputy sheriff who's applied for a service-connected disability retirement to a low-back condition.

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That Mr. Devine tributes to Kimaliv trauma as well as a injury that occurred in February of 2014.

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There is no question regarding his permanent incapacity.

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All evaluating physicians agree that Mr. Divine is permanently incapacitated and unable

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to return to work as a deputy sheriff.

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The issue relies in causation, so there's a conflict in the evidence in regards to causation.

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Now he was evaluated by Dr. Tyab, S.D. Saras expert, and S.D. Saras expert attributes Mr.

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to advise injury to the generative disease, not to the February 2014 injury.

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Mr. Devine was also evaluated by two workers' compensation doctors who both apine that it

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was work-related.

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So, that's where we have the conflict.

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We have S.C. Sanders expert that says it's a generative condition and then we have two workers'

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compensation doctors who say that it is work-related.

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Because of this conflict, staff is compelled to recommend denying the service connection,

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but granting a non-service connected disability retirement.

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Of course, if the board votes to deny the service connection, Mr. Devine would be afforded

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the opportunity to request a hearing denoval, provides for intestine money, provide additional

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medical evidence, and bring any witnesses that he would like to have.

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Then the board would be able to revisit their decision after considering the hearing officer's findings and recommendations.

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Standing by for any other questions you might have.

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Thank you. Any questions at this point?

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We'll move on to the speaker.

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Welcome to the mail on behalf of Mr. Devine.

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Thank you.

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Good morning.

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Good morning, members of the board.

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Again, I would like to introduce Julia Domell of O'Marren Hampton on behalf of Patrick Devine.

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We're asking the Board to grant Mr. Devine a service-connected disability retirement based

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on substantial evidence which meets the standard for causation under the government code,

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and that's Section 31720.

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As has been noted, there's total agreement, all positions agree Mr. Devine is permanently

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incapacitated for a performance of his duties as a deputy sheriff and detention's court

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services.

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On the issue of causation, two reputable credible doctors, Dr. Larry Dodge and Dr. Charles

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Roland, provide the greater weight of substantial medical evidence supporting industrial causation.

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I think it's important to have an understanding of the legal standard and why there really

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is no reason to send this to a hearing.

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The California Supreme Court and Bowen V. Board of Retirement of the County of Los Angeles

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was interpreted, this is a substantial contribution test of 31720 as requiring, and I quote,

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substantial medical evidence of a real and measurable connection between the disability

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and employment."

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The Bowen Court, relying in part on prior case law, and that case law was depue the Board

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of Retirement, defined the appropriate test for industrial causation under the Government

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government code related to county retirements, and I'm going to quote from the Bowen case,

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while the causal connection between the job stress and the disability may be a small part

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of the causal factors, it must nevertheless be real and measurable. There must be substantial

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evidence of some connection between disability and the job. And this is important because

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because this is the legal test a hearing officer would have to consider.

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Bowen expressly rejected the argument that the substantial contribution test of Section

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31720, the interpreted to mean more than 50% industrial causation, noting pension legislation

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must be liberally construed.

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Here the Bowen test is met based on the reporting of both Dr. Stodge and Dr. Rowlan.

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Neither Dr. Dodge nor Dr. Roland ignore the fact that the MRI and that was in 2015 shows evidence of degenerative changes.

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That was pre-exist the injury, the initial injury of February 2014.

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However, again, for workers' compensation purposes, both Dr. Dodge and Dr. Roland clearly acknowledging the evidence of pre-existing degenerative changes,

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They apportion only a small percentage of the disability to the non-industrial cause.

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And it recognizes Mr. Devine's 17 years of employment as a deputy with no back complaints

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until February 2014, when he experienced a specific incident triggering severe back pain.

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Dr. Rowland, Dr. Dodge's report, it's noted on page 4, it's his November 30, 2016 report.

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He apportions 5% of Mr. Devine's undisputed in capacity to the pre-existing degenerative

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process.

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Dr. Rowland, who is the qualified medical examiner for workers' compensation purposes in his

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This report in its dated January 14, 2017, page 17, notes that there's pre-existing degenerative

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arthritis and therefore he apportions only 10 percent of Mr. Devine's, again, and there's

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no dispute on his incapacity to non-industrial causes.

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Significantly, both doctors Dodge and Dr. Roland, as well as Dr. Taya, by the way, acknowledge

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that there was an MRI done in June of 2015 and it demonstrates a bulging disc.

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Dr. Taya acknowledges this in his findings.

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Dr. Taya downplays the significance of the February 2014 event.

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But he ignores entirely the contribution of Mr. Divine's work duties going forward

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from February 2014 through May of 2015, which is the cumulative trauma period.

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His job duties changed.

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He was engaged in prolonged standing, which just lit up his back problems.

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I think most significantly, Dr. Tab, he offers no explanation as to why any pre-existing

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degenerative changes are the sole cause of incapacity in an individual who's worked for 17 years

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without complaints prior to February 2014.

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Additionally, Dr. Taya describes the degenerative changes as, quote, minimal, and, quote, not

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atypical for a man of his age when he's 42 years old.

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And the end.

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It has, with the history of obesity, and Mr. Divine may be carrying up a few extra pounds

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by lay standards. I don't believe we'd identify him as obese. That aside, again, and it's acknowledged

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by Dr. Tyab, Mr. Divine had no back complaints prior to February 14. It simply isn't credible

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from a medical standpoint or from a lay standpoint to attribute his, again, undisputed permanent

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in capacity to the degenerative changes, which are, again, a Dr. Tyab's words, quote,

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not atypical for a 42-year-old. I don't think any of us would consider normal degenerative

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process in a 42-year-old should render somebody permanently incapacitated from work. There

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has to be another reason, and the other reason seems to be that 17 years of employment,

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the events of February 2014, the continuing work duties through May of 2015, and the fact

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that there were no complaints prior to 2014, the MRI evidence of the bulging disk, all

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All of that points to, there's something other than simply at 42-year-old with normal

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age-related degenerative processes being unable to work.

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The evidence is substantial.

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It meets the Bowen test and I don't know if the board is completely familiar with the Bowen

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test.

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It's as I've described, and it doesn't require a total that the sole cause of incapacity, the identified as work related.

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You have two credible doctors who find otherwise. Dr. Tyad is the outlier. His evidence is not credible.

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And it's not substantial evidence on which to deny the service-connected disability retirement.

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Thank you. Thank you. Is there some indication somewhere on the speakers of of the time when their time is up?

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Indication when when someone is speaking yeah and the amount of time is

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Three minutes yes and at the discretion the chair can provide more. Okay so we'll

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I just we want to make sure that we get all the information in front of us, but I also want to make sure that you're not repeating.

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You know, we're a couple of things that were repetitious in your testimony, but thank you for that. Are there any questions?

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Mr. Devines here is saying no questions. What's your pleasure?

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Thank you. Were you offering Mr. Devine? Where is that where you're saying?

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I know I'm just alerting he is present if the board would have any questions for him.

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Thank you.

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We'll see if anyone has any questions.

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I mean, I mean, seeing none,

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Samantha, Council, I believe that you do have compelling evidence

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on behalf of your client, however, it's been at least my practice where we have these conflicts

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of evidence to refer it, or think it's best suited before hearing for the hearing officer

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to decide the evidence.

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And so with that information, that's why I would pursue or move to deny the service

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connected and have you pursue a denobo hearing, so that's your client's pleasure.

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So it would be the administrative recommendation?

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Yes.

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Is there a second?

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Yes.

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There's a second.

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Skip?

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It's under discussion.

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I have a bit of a concern about the way the injury occurred.

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But, you know, sort of having been there, I can understand how the injury occurred.

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I also have a concern about Dr. Tai of saying one thing and then making a conclusion that

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this minimal impact of the generative changes is the main cause of why it should be denied

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as far as the causation. I'm inclined to go along with the Dr. Dodge and Dr.

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Rowland. I believe that everything else that's on the table is in agreement

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except for that one small issue. I don't think there's going to be a lot of

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differences should it go to hearing and I'll be voting no on the motion.

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Any other comments under discussion?

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Just to keep in mind, this is an administrative recommendation.

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It doesn't mean ultimately the service-connected disability retirement would be denied, that

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it will, you have the opportunity to go to hearing officer, as you know.

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So please vote on the motion.

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Motion carries with Mr. Murphy and Mr. Hancock voting, no.

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Moving on to item 6,

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staff report, first please.

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Madam Chair, Trustee Smith-Gwadalupe is a sheriff's detention nurse who filed for a service

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connected disability retirement due to a neck, right of rickstermity and a back condition.

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Staff recommends denying this application for service connected disability retirement.

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There is a agreement amongst the evaluating physicians that she was injured and that injury

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was work related.

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So no dispute in regards to causation.

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The dispute lies in the permanent incapacity.

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In regards to permanent incapacity, the evaluating physicians disagree whether her right or

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for extremity condition is permanent.

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There's no question that in her current state, she's unable to go to work, however, the

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good news is that there's treatment available, there's treatment available that would allow

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Ms. Waldo-Lupin to return back to work.

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She was evaluated by three physicians, two S.T. Sarah experts, an orthopedic surgeon, as

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well as a neurologist, both S.T. Sarah experts opined that there was treatment with a minimal

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risk that would allow Ms. Wallerlupitt to return back to work.

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Now the workers' compensation doctor, the treating physician,

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opined that she was permanent, did not address this potential treatment.

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So the bottom line, again, is that we have this conflict in the evidence and staff is recommending

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denying the application.

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If Ms. Wallerlupitt would request a hearing to know of him, she would be afforded that

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opportunity, present additional evidence, maybe seek treatment, and then come back.

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with additional medical evidence.

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But at this point, the staff is compelled to recommend denying it.

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Thank you.

233
00:22:32,420 --> 00:22:33,320
Any questions or staff?

234
00:22:34,560 --> 00:22:36,200
We have a speaker on this item also.

235
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We do.

236
00:22:37,480 --> 00:22:39,420
The speaker is Alan Guadalupe.

237
00:22:40,420 --> 00:22:41,460
Ms. Guadalupe?

238
00:22:56,760 --> 00:22:57,440
Good morning.

239
00:22:57,800 --> 00:22:59,480
Good morning, everybody.

240
00:23:08,720 --> 00:23:11,940
I would like to thank everybody for the chance

241
00:23:11,940 --> 00:23:14,180
to be able to attend this meeting.

242
00:23:14,180 --> 00:23:21,160
Could you speak a little closer to the microphone, and before you begin, would you please give

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00:23:21,160 --> 00:23:22,340
your name to the record?

244
00:23:23,440 --> 00:23:25,860
My name is Ellen Guadalupe.

245
00:23:28,860 --> 00:23:34,380
What amazes me the most, reading through the packet of doctor visits, documentations,

246
00:23:34,560 --> 00:23:36,760
and treatments provided me for review?

247
00:23:37,400 --> 00:23:43,420
I have a number of years I work through despite my discomfort, just to be able to hold onto

248
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my job.

249
00:23:45,120 --> 00:23:51,520
I worked my best without question, accepted whatever task that fell into my lap when nobody

250
00:23:51,520 --> 00:23:56,460
else didn't have the time to do it just because my work ethics told me that that's what

251
00:23:56,460 --> 00:23:58,120
a nurse or good employee should do.

252
00:23:59,560 --> 00:24:04,780
The hope that the next day would be better kept me going will be the effect of my worsening

253
00:24:04,780 --> 00:24:05,400
condition.

254
00:24:06,560 --> 00:24:10,920
And fortunately it took me years to realize the problem now I'm paying for it.

255
00:24:13,020 --> 00:24:22,340
Under the recommended findings that says burden-proof, I have the latest notes from Dr.

256
00:24:22,500 --> 00:24:22,960
Provide.

257
00:24:23,600 --> 00:24:25,700
I saw him last April 19.

258
00:24:26,100 --> 00:24:28,980
I don't believe that this is in your record.

259
00:24:28,980 --> 00:24:44,520
And in here he reiterated 100% causation to the injury as 100% related to my job.

260
00:24:45,760 --> 00:24:53,240
And also I have a supplemental report here from Dr. Holland as requested by Workers

261
00:24:53,240 --> 00:25:04,500
com. Again, citing with Dr. Previde, that my condition is permanent and stationary. Also,

262
00:25:04,720 --> 00:25:16,140
I have a note here from Dr. Lane. He is the doctor that my attorney Tali requested

263
00:25:16,140 --> 00:25:19,600
it for me to see through workers' compensation.

264
00:25:20,540 --> 00:25:27,560
And all of these people, all of these doctors, they agree that I am permanent and stationary

265
00:25:27,560 --> 00:25:37,860
and, like I said, doctor provides saying that it is 100% of work related injury.

266
00:25:40,600 --> 00:25:44,560
The other thing is the only profession I'm confident, the same I'm good at.

267
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But I went through a difficult education just to be able to finish it, I trained and got

268
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experience for it.

269
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But if medical services could no longer accommodate my restrictions, who will, where do I go?

270
00:25:58,440 --> 00:26:01,540
I think it's obvious that my nursing career is done.

271
00:26:03,970 --> 00:26:08,610
I respected the professionals who treated me and the findings they have diligently worked

272
00:26:08,610 --> 00:26:14,390
on however this could not accurately define the struggles and effort I have just to be able

273
00:26:14,390 --> 00:26:19,230
to accomplish simple activities that in the past I took for granted to accomplish.

274
00:26:20,490 --> 00:26:23,550
My problem started with my hand so

275
00:26:25,730 --> 00:26:31,750
my issue is not just my shoulder, my neck and my back.

276
00:26:33,270 --> 00:26:40,130
These are all just secondary and this is just a long-term injury I got because of the problem

277
00:26:40,130 --> 00:26:43,090
with my hand, the functioning of my hand.

278
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And I have to, when I use my right hand, I have to accommodate and all the other muscles

279
00:26:49,490 --> 00:26:56,530
in my back, my neck, you know, that's why they get through years of working through it.

280
00:27:03,110 --> 00:27:09,550
And I believe that the problem when my hands start was exacerbated by poor economic

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00:27:09,550 --> 00:27:15,010
center for my workplace and the rigorous need for prolonged data entry and computer use.

282
00:27:15,690 --> 00:27:21,430
Let me know if I need to submit pictures of those workstations, you know, just to show

283
00:27:21,430 --> 00:27:26,710
you that it's not all the time that we have an ideal setting where to, you know, to

284
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work on.

285
00:27:28,870 --> 00:27:34,270
My question is what other job can I do and how much longer can I maintain function and

286
00:27:34,270 --> 00:27:37,550
use my right hand without causing more damage?

287
00:27:38,610 --> 00:27:43,190
The stress of uncertainty was going to happen to my job, it's killing me every day.

288
00:27:45,350 --> 00:27:51,510
You mentioned something about Kaiser giving me that treatment option.

289
00:27:51,930 --> 00:27:56,150
At the time when I went to Kaiser I was so desperate because I wasn't too much pain

290
00:27:56,150 --> 00:28:00,290
and I was thinking that it could probably be neurologic.

291
00:28:01,730 --> 00:28:08,150
And then they did a series of tests, MRIs, they did, you know, and then they told me that

292
00:28:08,150 --> 00:28:12,590
actually there was nothing wrong and that I might have dysphocalistonia.

293
00:28:13,590 --> 00:28:19,550
At the time, it was not even mentioned to me or it was not really explained to me that

294
00:28:19,550 --> 00:28:26,650
the botox injection that they are recommending right now was the right treatment for my condition.

295
00:28:27,690 --> 00:28:31,350
But it was just a trial of medication that would help.

296
00:28:31,530 --> 00:28:34,210
So there was not even a guarantee that it would help.

297
00:28:35,750 --> 00:28:43,130
And for right now I already have a lot of medical issues taking medication and adding one

298
00:28:43,130 --> 00:28:48,450
more medication that I'm not even sure would work for me was not an option at that time.

299
00:28:51,270 --> 00:28:59,810
So, for this reason, I rest my case into your hands, and again, I would like.

300
00:29:01,110 --> 00:29:06,990
And for one thing, I've heard I'm reading through the packet.

301
00:29:07,350 --> 00:29:10,410
We're putting too much weight on the notes from Kaiser.

302
00:29:11,490 --> 00:29:17,350
But unfortunately at a time when I was put on leave without pay, I have bills to pay.

303
00:29:17,350 --> 00:29:38,470
I went to Kaiser for them to sign, to sign that disability form and they would not even sign it because they didn't do the whole treatment for me and now this is what is causing the conflict with my situation here.

304
00:29:39,570 --> 00:29:46,370
Thank you very much. Thank you. Don't go away. Let me see if there are any questions from board members of you.

305
00:29:48,510 --> 00:29:59,770
I just you indicated you named two other reports that you had and I'm sorry I don't remember the names right now, but I don't recall.

306
00:30:00,000 --> 00:30:08,100
Seeing those names as I read the material, are those new reports that you've obtained? New

307
00:30:08,100 --> 00:30:12,120
or reports? Yes, I was seen by Dr.

308
00:30:14,260 --> 00:30:19,640
Previte, just like April 19. I could give you a copy of

309
00:30:19,640 --> 00:30:25,620
that. No, I have the ones from Dr. Previte. Yeah, Dr. Previte, this is the latest visit I have

310
00:30:25,620 --> 00:30:36,180
with him it was on that was in April 19. I think the last records that you have was like before

311
00:30:36,180 --> 00:30:56,940
this date. Okay. And then also I have a note from Dr. Lane. I saw him like April 21st and then

312
00:30:56,940 --> 00:31:02,920
Sarah's Council. Were those documents in the packet? I just don't recall reading those

313
00:31:02,920 --> 00:31:09,940
names. Maybe I did. Trustee Murphy, those documents have were not presented to us, so we just

314
00:31:09,940 --> 00:31:13,900
learned of these documents today. Okay. We did not consider these. Thank you.

315
00:31:14,220 --> 00:31:20,640
I'm sorry, the one Dr. Privat, I just received it last Friday. Okay, that answers my question.

316
00:31:21,280 --> 00:31:25,080
That was the exact same question that I had that Trustee Murphy just brought up about these.

317
00:31:25,080 --> 00:31:33,240
You referenced in your opening comments the two supplemental pieces of information and also the the note or the letter and

318
00:31:33,240 --> 00:31:35,860
Trustee Murphy has addressed it. So thank you

319
00:31:36,460 --> 00:31:38,880
So Elaine, what would be our options in this case?

320
00:31:38,880 --> 00:31:42,120
I mean there's some information that was

321
00:31:42,840 --> 00:31:46,460
Presented verbally today that had not been considered by staff

322
00:31:46,460 --> 00:31:54,340
Is there an option to refer this back to staff for further administrative review or just move it on to hearing with a denial

323
00:31:55,080 --> 00:31:59,440
you do have both of those options. She can present this new evidence at

324
00:31:59,440 --> 00:32:04,420
hearing and deal with it there in front of the hearing officer. I will say that

325
00:32:04,420 --> 00:32:08,500
if staff refuse that new evidence and comes to a different conclusion,

326
00:32:09,060 --> 00:32:13,060
we would bring it back to you with a different recommendation before going to

327
00:32:13,060 --> 00:32:13,440
the hearing.

328
00:32:15,500 --> 00:32:19,940
Okay. What's your pleasure? Madam Chairman, I would move that we

329
00:32:19,940 --> 00:32:23,660
refer this matter back to staff and ask the applicant to provide all

330
00:32:23,660 --> 00:32:28,380
All information that she has in her possession to staff for consideration.

331
00:32:28,920 --> 00:32:31,960
It's a motion and a second, Tim.

332
00:32:33,140 --> 00:32:36,720
I would have the opposite recommendation that we deny.

333
00:32:37,020 --> 00:32:50,100
I don't know that any of this information that she's describing here is going to have any, in fact, I get that.

334
00:32:50,100 --> 00:32:55,280
But I do think it's spending more of her time.

335
00:32:56,080 --> 00:32:58,340
I think a hearing officer is going to go to hearing officer.

336
00:33:00,770 --> 00:33:01,290
OK.

337
00:33:01,710 --> 00:33:02,690
Mr. and the other comments?

338
00:33:03,270 --> 00:33:04,170
Yeah, Elaine.

339
00:33:04,870 --> 00:33:07,870
Yes, I would make a comment and response

340
00:33:07,870 --> 00:33:10,730
to Mr. Hancock, which is referring it directly

341
00:33:10,730 --> 00:33:12,990
to the hearing officer who will avoid further delay

342
00:33:13,850 --> 00:33:18,110
on the part of finally wrapping this up

343
00:33:18,110 --> 00:33:24,590
because it can be dealt with by the hearing officer or if staff looks at it and does decide

344
00:33:24,590 --> 00:33:28,870
that it changes their recommendation into a grant, we can always bring it back.

345
00:33:29,410 --> 00:33:34,290
But sending it back for to staff again just delays it by another month or so.

346
00:33:35,330 --> 00:33:42,590
So even if we voted the staff recommendation and she requested a hearing officer of staff

347
00:33:42,590 --> 00:33:47,710
found the additional information, change their position, you'd bring it back to us?

348
00:33:47,910 --> 00:33:52,050
Correct. We wouldn't go through a hearing unnecessarily.

349
00:33:53,350 --> 00:34:01,490
Okay, so the motion then could be the staff recommendation pending staff review of the

350
00:34:01,490 --> 00:34:06,550
additional information and if staff recommendation changes, it would come back to us.

351
00:34:06,550 --> 00:34:06,970
Correct.

352
00:34:12,860 --> 00:34:19,960
What I heard Council say is that if the board approves the staff recommendation,

353
00:34:20,740 --> 00:34:34,060
which is to deny the application for a service-connected disability, if we did that, and then the applicant

354
00:34:34,060 --> 00:34:42,880
requested a hearing and then as a part of the motion we ask staff to review the

355
00:34:42,880 --> 00:34:46,340
additional information that was provided to us today and if staff

356
00:34:46,340 --> 00:34:50,860
recommendation changes as a result of that staff would bring it back it would

357
00:34:50,860 --> 00:34:58,440
not go to a hearing. It would yes it would expedite the process and it would

358
00:34:58,440 --> 00:35:00,400
would save her time.

359
00:35:00,880 --> 00:35:04,540
By the same token, if it should be no difference,

360
00:35:04,960 --> 00:35:08,080
then she needs to go before the administrative law judge,

361
00:35:08,500 --> 00:35:10,740
and as council Reagan has pointed out,

362
00:35:10,920 --> 00:35:15,020
that would prolong the case.

363
00:35:16,060 --> 00:35:17,580
So they're...

364
00:35:17,580 --> 00:35:19,180
Well, if we took action today,

365
00:35:19,880 --> 00:35:21,940
as the staff is recommending, actually,

366
00:35:22,970 --> 00:35:26,260
as I understand it, it would expedite the process.

367
00:35:26,260 --> 00:35:26,460
Yes.

368
00:35:27,060 --> 00:35:31,580
It would expect, because it gives two options, it gives staff chance to take a look at the

369
00:35:31,580 --> 00:35:35,940
additional information, and to see if they change the recommendation at the same time

370
00:35:35,940 --> 00:35:38,260
doesn't have to come back to this board to go to hearing.

371
00:35:39,220 --> 00:35:41,620
If a hearing is deemed appropriate.

372
00:35:41,840 --> 00:35:47,000
We accept staff recommendation based on council's explanation and the chair's further explanation

373
00:35:47,000 --> 00:35:48,480
of a council's explanation.

374
00:35:48,980 --> 00:35:53,640
We do have a motion on the floor, so that, unless the maker of the motion.

375
00:35:53,640 --> 00:35:58,860
Yeah, I'll withdraw my motion in favor of Mr. Reformportman.

376
00:35:59,260 --> 00:36:08,780
Okay, so the first motion is withdrawn and, okay, Mr. Vortman's motion and Mark, I think Tim, you second.

377
00:36:09,340 --> 00:36:11,400
Okay, I just want to make a comment.

378
00:36:11,720 --> 00:36:18,500
Samantha, and if staff could revisit the weight that had did place on the Kaiser documentation, I think that that's something that should be reviewed.

379
00:36:18,900 --> 00:36:19,240
Thank you.

380
00:36:20,720 --> 00:36:34,500
Certainly, yes, we will revisit that and as Ms. Reagan stated, we're just trying to get to the right answer, certainly if she provides evidence that it would change staff's recommendation, we would bring that before the board and not necessarily go to a hearing.

381
00:36:34,940 --> 00:36:35,380
Thank you.

382
00:36:36,420 --> 00:36:41,740
And if this motion passes, would staff please explain to Ms. Guadalupe what we just did?

383
00:36:43,100 --> 00:36:45,580
Certainly, Madam Chair, we have a disability specialist standing by.

384
00:36:45,580 --> 00:36:45,620
All right.

385
00:36:45,920 --> 00:36:46,280
Thank you.

386
00:36:46,800 --> 00:36:47,260
Okay.

387
00:36:47,380 --> 00:36:48,620
With that, let's vote on the motion.

388
00:36:49,340 --> 00:36:49,780
Please vote.

389
00:36:56,140 --> 00:36:58,780
Motion carries unanimously with all members present.

390
00:36:59,260 --> 00:37:01,900
So we'll move on then to our last item that's pulled.

391
00:37:02,140 --> 00:37:03,860
And that would be item 10.

392
00:37:05,060 --> 00:37:06,300
Record of San Vicente.

393
00:37:06,500 --> 00:37:07,880
Could we have staff report, please?

394
00:37:08,360 --> 00:37:08,380
First.

395
00:37:11,320 --> 00:37:17,180
Madam Chair, Trustee Smith, Mr. San Vicente is a human service specialist who is filed for a service-connected

396
00:37:17,180 --> 00:37:20,780
disability retirement based on a neck and right shoulder condition.

397
00:37:21,940 --> 00:37:25,200
Evidence is clear in that Mr. Cervincent is permanently

398
00:37:25,200 --> 00:37:28,460
incapacitated, all evaluating physicians agree on that.

399
00:37:29,020 --> 00:37:30,720
The issue is again with causation.

400
00:37:31,360 --> 00:37:35,080
In the conflict in the evidence and causation is in regards

401
00:37:35,080 --> 00:37:37,260
to his neck and his shoulder injury.

402
00:37:37,740 --> 00:37:40,080
He was evaluated by two SD Sarah experts

403
00:37:40,080 --> 00:37:43,800
in orthopedic surgeon dealing specifically with a spine,

404
00:37:43,800 --> 00:37:47,000
a spine specialist, Dr. Taiyem, and Dr. Peterson,

405
00:37:47,120 --> 00:37:49,600
Dr. Peterson at orthopedic surgeon as well.

406
00:37:49,600 --> 00:37:55,660
for the shoulder. Both experts concluded that his injuries were not

407
00:37:55,660 --> 00:38:00,200
work related in regards to the shoulder. Dr. Peterson opined that the duties

408
00:38:00,200 --> 00:38:06,400
that a human service specialist is charged with would not have resulted in

409
00:38:06,400 --> 00:38:11,400
those shoulder injuries that he's exhibiting. Dr. Tyub also lifted all the

410
00:38:11,400 --> 00:38:16,680
objective evidence, the MRI, and Dr. Tyub opined that his spine condition is

411
00:38:16,680 --> 00:38:21,940
degenerative in nature. And in a specific, it's important to note that he specifically stated,

412
00:38:22,460 --> 00:38:27,620
absent his work with the county, he would still be permanently incapacitated. So regardless

413
00:38:27,620 --> 00:38:33,240
of what job he did, he would be permanently incapacitated according to Dr. Tyre. Now Dr.

414
00:38:33,380 --> 00:38:39,220
Thompson on the other side, the workers' compensation doctor, again, evaluated Mr. Samson's intake,

415
00:38:39,740 --> 00:38:43,800
and accordance with the worker's compensation law, different than our county disability law.

416
00:38:44,480 --> 00:38:46,220
He determined that it was work related.

417
00:38:47,240 --> 00:38:52,340
The bottom line here is that we have another conflict in the evidence between fore causation

418
00:38:52,340 --> 00:38:58,120
and staff is recommending denying the service connection, but granting a non-service connected

419
00:38:58,120 --> 00:38:59,320
disability retirement.

420
00:38:59,800 --> 00:39:02,520
Again, affording the applicant a right to request a hearing to no vote.

421
00:39:03,280 --> 00:39:03,600
Thank you.

422
00:39:04,160 --> 00:39:06,160
Any questions of staff before we go to the speaker?

423
00:39:13,300 --> 00:39:13,780
Okay.

424
00:39:13,780 --> 00:39:14,840
Good

425
00:39:19,900 --> 00:39:20,420
morning, sir.

426
00:39:20,980 --> 00:39:21,360
Good morning.

427
00:39:21,840 --> 00:39:23,340
My name is Ricardo Sambicente.

428
00:39:23,860 --> 00:39:26,460
I started working with the county on 1990.

429
00:39:27,620 --> 00:39:32,700
And back then, there was no computers, no ergonomic desk.

430
00:39:33,740 --> 00:39:37,400
We are required to do manual entries at the time.

431
00:39:39,320 --> 00:39:45,500
Review big caseloads, carry with us to the interview rooms,

432
00:39:45,500 --> 00:39:53,780
having our code books to make proper determination for families in need, which I love to do for 25 years.

433
00:39:55,340 --> 00:40:03,500
I've become having problems with my neck and shoulder back in 2011.

434
00:40:04,260 --> 00:40:10,440
I have one surgery which released pressure of two cervical C5 and C6.

435
00:40:14,160 --> 00:40:23,980
And I was getting a little bit better but not 100% I went back and I got a second surgery

436
00:40:23,980 --> 00:40:32,580
which pinched one of my nerves and that caused great pain and I've been suffering with

437
00:40:32,580 --> 00:40:38,880
that pain being out of work for 19 months and have a release of the pressure on my nerve

438
00:40:38,880 --> 00:40:48,140
on a third surgery seen by workmen's come doctor result in not able to perform the job

439
00:40:48,140 --> 00:40:56,200
that I love for 25 years. I was not ready to retire, but I was recommend to do so due

440
00:40:56,200 --> 00:41:02,320
to the fact that I have to take narcotics every day, and I have to deal with issues on my

441
00:41:02,320 --> 00:41:12,160
Islamic and all related limited my activities that I was able to do before. I have no experience

442
00:41:12,160 --> 00:41:22,080
on legal terms other than the ones that I do when I was a human service specialist

443
00:41:22,620 --> 00:41:26,100
doing everything with my heart for the people they need.

444
00:41:28,190 --> 00:41:30,570
Right now there is not much that

445
00:41:30,570 --> 00:41:34,350
But I ask, it's not going to be any increase on my retirement benefits.

446
00:41:35,270 --> 00:41:46,850
With my 25 or 24, 9 months and so, because I was a year and 9 months unable to work, there

447
00:41:46,850 --> 00:41:49,450
was no increase on my retirement benefit.

448
00:41:50,050 --> 00:41:56,570
It just the matter of, acknowledge that it was service-connect disability, that give me

449
00:41:56,570 --> 00:42:06,110
opportunity under that base to seek for better opportunities, having my income non-taxable

450
00:42:06,110 --> 00:42:13,190
in the 100%, which put me on the bracket to look for buying a house or doing something

451
00:42:13,190 --> 00:42:21,350
else. I'm grateful with the retirement that I received because it's a great opportunity

452
00:42:21,350 --> 00:42:28,650
and I'm very grateful to the board and San Diego Zera for the benefits that I'm getting actually.

453
00:42:29,310 --> 00:42:35,550
I'm just appeal to the board to consider that based on the San Diego experts,

454
00:42:36,290 --> 00:42:41,310
when they try to figure out the nature of my injury, based on today's days,

455
00:42:42,270 --> 00:42:49,710
it's not a clear picture of what's happening before when we start working with a lot of challenges

456
00:42:49,710 --> 00:42:56,770
just in our work stations, going to the interviews at their rooms with no

457
00:42:56,770 --> 00:43:02,490
paperwork around, we have to copy everything. Now we have smartphones and you

458
00:43:02,490 --> 00:43:08,830
guys don't need to bring much of the minutes of what happened, but not back

459
00:43:08,830 --> 00:43:14,110
then and I'm pretty sure that I see faces here, Mr. Jacob representing us for so

460
00:43:14,110 --> 00:43:21,050
along. And I'm appealing to that to grant my service

461
00:43:21,050 --> 00:43:27,810
connect disability retirement, which not impact in any way the benefits that I received,

462
00:43:27,810 --> 00:43:31,850
but allowing me to get a better opportunity in life. Thank you.

463
00:43:32,290 --> 00:43:39,250
Thank you. You understand, Mr. Sam Sinney, don't go away. There may be questions of board members of you,

464
00:43:39,250 --> 00:43:49,930
But even if we do act on the administrative recommendation before us, it doesn't necessarily mean the end result may be a denial.

465
00:43:50,690 --> 00:44:01,630
It just means that from what staff said, there's conflicting evidence in your case once again, and the hearing officer is the appropriate venue to resolve that conflict.

466
00:44:02,270 --> 00:44:03,250
Are there any questions?

467
00:44:04,770 --> 00:44:08,550
I want to thank you for your time and service to the County of San Diego.

468
00:44:09,470 --> 00:44:14,750
I think one of the statements that you made in your comments was, it's not a clear picture

469
00:44:14,750 --> 00:44:19,070
of the times of change and things that you did before you do differently now.

470
00:44:19,290 --> 00:44:23,430
And I think it's an accurate statement of, there is a conflict.

471
00:44:23,750 --> 00:44:28,010
There is a conflict in the evidence of what caused your injury.

472
00:44:28,010 --> 00:44:36,410
And it's exactly why it needs to go to a hearing officer and to hopefully resolve that conflict.

473
00:44:37,070 --> 00:44:46,070
So unfortunately in my eyes, I don't think that I could vote to resolve it today, although I think going to a hearing officer,

474
00:44:46,070 --> 00:44:49,130
hopefully it can come to a resolution at that level.

475
00:44:50,450 --> 00:44:54,550
But I do thank you. I think you've done a fantastic job for the county. I appreciate it.

476
00:44:56,280 --> 00:44:57,000
Thank you.

477
00:44:57,000 --> 00:44:59,920
That will be a motion for me to

478
00:45:00,000 --> 00:45:04,800
To support the staff's recommendation. Okay, there's a second.

479
00:45:04,880 --> 00:45:29,440
Mr. Hancock, point you're right on. Bob. Before we vote, I just wanted to also thank you for your service to the accounting San Diego. It should be noted. I work in the exact same job classification as Mr. San Vicente. I do not feel that that will hinder my decision in any way, but it should be noted. Were you there in 1990? I was not there in 1990 and I agree with Mr. Hancock.

480
00:45:29,440 --> 00:45:31,520
and Mr. San Vicente's assessment.

481
00:45:32,500 --> 00:45:34,480
Yeah, thanks for different back then.

482
00:45:35,080 --> 00:45:35,800
I remember that.

483
00:45:35,920 --> 00:45:39,140
I think Skip might do about others on this board,

484
00:45:39,140 --> 00:45:40,520
but yes, things have changed.

485
00:45:40,920 --> 00:45:47,300
So with that, I see no other speakers, please vote.

486
00:45:56,540 --> 00:45:58,120
All members voting aye.

487
00:45:58,620 --> 00:46:00,000
To support the staff recommendation

488
00:46:00,500 --> 00:46:03,680
and hopefully you will apply to have a hearing

489
00:46:03,680 --> 00:46:07,100
and the issue and the conflicts will be resolved there.

490
00:46:07,100 --> 00:46:08,540
So, thank you for your testimony.

491
00:46:14,980 --> 00:46:25,720
Moving on to staff reports, we will first go to our chief executive officer, Mr.

492
00:46:25,840 --> 00:46:26,180
Westcope.

493
00:46:26,720 --> 00:46:27,320
Thank you.

494
00:46:28,600 --> 00:46:32,740
The first paragraph in my board report talks about board election results.

495
00:46:33,100 --> 00:46:38,420
And before I talk about the winners, I just wanted to mention that I do a lot of speaking

496
00:46:38,420 --> 00:46:39,540
on corporate governance.

497
00:46:40,040 --> 00:46:43,980
And the bottom line is this, you can have all the policies, you can have all the procedures,

498
00:46:44,820 --> 00:46:46,400
you can have all the hoos.

499
00:46:46,580 --> 00:46:52,120
But the bottom line is that all resides with the personal integrity and intelligence of

500
00:46:52,120 --> 00:46:53,500
the people that are sitting in your chair.

501
00:46:54,320 --> 00:47:02,200
And we are extraordinarily fortunate to have the nine of you, Trustee Myers, who couldn't

502
00:47:02,200 --> 00:47:02,760
be here today.

503
00:47:02,920 --> 00:47:08,320
And of course, alternate Jim Feeley, whom we will recognize next month as he retires from

504
00:47:08,320 --> 00:47:08,640
the board.

505
00:47:08,640 --> 00:47:13,760
to really have, I think, about as collegial and intelligent

506
00:47:13,760 --> 00:47:17,440
and well-trained group of people that I've never worked for.

507
00:47:17,700 --> 00:47:19,120
I think we'd all agree with that.

508
00:47:19,240 --> 00:47:20,860
Yes, so we'll take a vote on that.

509
00:47:21,320 --> 00:47:27,500
Now, with respect to that, as you know, Samantha was elected

510
00:47:28,140 --> 00:47:30,380
in the second seat, pictures nice.

511
00:47:30,540 --> 00:47:33,760
Now, I don't know if any of you have read her form 700 or not.

512
00:47:34,180 --> 00:47:36,220
She does have outside income.

513
00:47:36,220 --> 00:47:42,940
She is Haley Dumpfey on Modern Family, so don't laugh yet, Skip.

514
00:47:47,480 --> 00:47:53,500
So Samantha, we appreciate your running and your election.

515
00:47:53,920 --> 00:48:00,200
No, and Skip has been board chair 12 terms served over 20 years starting in 1983 with the board.

516
00:48:00,580 --> 00:48:02,420
And he too occasionally has a cameo.

517
00:48:04,700 --> 00:48:06,240
And it's good, isn't it?

518
00:48:06,280 --> 00:48:06,740
Yes, no.

519
00:48:07,120 --> 00:48:08,040
Thank you, Tom Williams.

520
00:48:08,360 --> 00:48:08,580
Yes.

521
00:48:09,160 --> 00:48:10,260
Tom was sweating that.

522
00:48:10,420 --> 00:48:11,600
It was Tom's idea.

523
00:48:12,100 --> 00:48:12,340
And Susan?

524
00:48:15,300 --> 00:48:15,740
Yes.

525
00:48:16,280 --> 00:48:17,140
Oh, absolutely.

526
00:48:17,820 --> 00:48:18,520
Without question.

527
00:48:19,060 --> 00:48:20,060
The sign of a good leader.

528
00:48:20,260 --> 00:48:20,940
Tom did it.

529
00:48:22,220 --> 00:48:23,800
And then Susan, you can relax.

530
00:48:24,600 --> 00:48:26,180
Because I don't know you well enough yet.

531
00:48:26,520 --> 00:48:26,900
So anyway.

532
00:48:27,960 --> 00:48:31,000
And Susan Mallet was elected to replace Jim.

533
00:48:31,000 --> 00:48:35,500
feeling of course Jim has big shoes and a big chair to fill and we couldn't be luckier

534
00:48:35,500 --> 00:48:39,040
than to have Susan occupy that position starting until I first.

535
00:48:39,440 --> 00:48:41,240
So we look forward to working with her.

536
00:48:41,360 --> 00:48:47,300
She's been through orientation with the staff already and the reaction is just as it was

537
00:48:47,300 --> 00:48:52,400
when Bob Goodchild went through his orientation which is staff is so excited at the intelligence

538
00:48:52,400 --> 00:48:57,220
and at the grasp of the mission and the understanding of what we do and the eagerness to learn and

539
00:48:57,220 --> 00:49:01,960
develop the skills necessary to be a great trustee and Susan will be a great alternate trustee.

540
00:49:02,520 --> 00:49:06,740
So with respect to that's the board elections and those terms for those three individuals

541
00:49:06,740 --> 00:49:12,440
start on July 1st. With respect continuing the theme of talent we've added some talent

542
00:49:12,440 --> 00:49:16,780
in the last month at SD Serenow. I want to introduce two of the folks to you today. The first

543
00:49:16,780 --> 00:49:21,080
is Melissa Martinez, who joined our HR department replacing Theresa Wood Cowsky, who retired

544
00:49:21,080 --> 00:49:25,340
married after 35 years with the county, 12, 10 and a half with us.

545
00:49:25,740 --> 00:49:26,520
So Melissa is here.

546
00:49:28,460 --> 00:49:31,820
I hope you're working with Farucia, you can't be bashful, there's come up.

547
00:49:32,540 --> 00:49:38,200
And then I also want to introduce Angela Carrera, who joined Greg Baish's group as an accountant.

548
00:49:38,460 --> 00:49:44,080
Angela has a accounting degree, a study to be a CPA, and the thing that went up, Angela,

549
00:49:44,220 --> 00:49:48,860
the thing that sold Greg on her, it made me nervous, is that in her spare time she enjoys

550
00:49:48,860 --> 00:49:49,300
calculus.

551
00:49:51,240 --> 00:49:57,800
We have really, really talented staff people, and I'm not kidding when I say they've already

552
00:49:57,800 --> 00:50:01,800
made a positive impact in what we do, and so we appreciate having them here.

553
00:50:01,820 --> 00:50:05,800
They're going to make this place even better than it is today, and we appreciate

554
00:50:05,800 --> 00:50:06,300
them moving.

555
00:50:06,620 --> 00:50:07,940
So, introducing to them.

556
00:50:08,400 --> 00:50:08,720
Welcome.

557
00:50:13,370 --> 00:50:20,630
Now, continuing the talent, the Steve Sacks ours, you know, is in my opinion the best CIO

558
00:50:20,630 --> 00:50:21,130
in the country.

559
00:50:21,130 --> 00:50:26,530
I hope Liza Krasoffee is not watching the tape over at City, but Steve's had a great

560
00:50:26,530 --> 00:50:29,670
month and he's had obviously a great tenure here in a great career.

561
00:50:30,290 --> 00:50:36,390
But Steve has recently published, sorry,

562
00:50:38,540 --> 00:50:42,340
there we go, two articles in publications were published

563
00:50:42,340 --> 00:50:44,040
just in the last couple of weeks.

564
00:50:44,300 --> 00:50:49,660
One as you can see in the Journal of Portfolio Management and the other in the Journal of

565
00:50:49,660 --> 00:50:53,840
to incredibly prestigious journals that are so prestigious,

566
00:50:53,840 --> 00:50:55,720
none of us can afford to subscribe to them.

567
00:50:56,240 --> 00:50:59,120
So Steve's work will be read by few,

568
00:50:59,480 --> 00:51:03,140
but those who read it will really enjoy it.

569
00:51:03,420 --> 00:51:05,520
No, but Steve is at the pinnacle of his career,

570
00:51:05,780 --> 00:51:07,620
at the pinnacle of his intellectual talents,

571
00:51:07,920 --> 00:51:10,620
and his contributions to our system

572
00:51:10,620 --> 00:51:13,840
really cannot be overstated.

573
00:51:14,240 --> 00:51:16,380
Now that he's going down from the pinnacle.

574
00:51:16,780 --> 00:51:18,480
Now that he has reached the pinnacle,

575
00:51:18,480 --> 00:51:21,020
There's a search under where you're speaking of that.

576
00:51:21,480 --> 00:51:25,960
Steve recently attended the Organization of Economic

577
00:51:25,960 --> 00:51:29,980
Cooperation and Development, the OECD meeting in Paris.

578
00:51:30,360 --> 00:51:32,580
And that is by invitation only to attend.

579
00:51:33,440 --> 00:51:36,100
But it is also by invitation only to speak.

580
00:51:36,740 --> 00:51:39,080
And in addition to attending, Steve was a speaker.

581
00:51:39,720 --> 00:51:43,140
And the OECD was formed in 1961.

582
00:51:43,140 --> 00:51:45,560
But it's a form of countries describing themselves

583
00:51:45,560 --> 00:51:47,500
committed to democracy and market economy,

584
00:51:47,500 --> 00:51:53,380
providing a platform to compare policy experiences, seeking answers to common problems, identifying

585
00:51:53,380 --> 00:51:57,380
good practices, and coordinating domestic and international policies of its members.

586
00:51:58,120 --> 00:52:03,360
This is a place that no one else in this room could get in the door, and I was impressed

587
00:52:03,360 --> 00:52:05,960
when Steve sent me a picture of their meeting room.

588
00:52:06,660 --> 00:52:12,340
And very impressive, and Greg Baish has been on it ever since because next month, we too

589
00:52:12,340 --> 00:52:22,280
will be sitting in a room as elegant as Steve was in but I don't mean to be a little bit

590
00:52:22,280 --> 00:52:28,420
Steve is really one and a million and we're awfully lucky to have him here.

591
00:52:29,540 --> 00:52:36,160
Now in addition to talent I want to call out Skip Murphy because as I mentioned a year ago

592
00:52:36,160 --> 00:52:43,180
So Skip is the chair of the regional law enforcement foundation that puts on the law enforcement

593
00:52:43,180 --> 00:52:48,440
memorial ceremony every year, and we just celebrated this on May 3rd.

594
00:52:48,520 --> 00:52:53,340
Skip was the master of ceremonies and a driving force behind it, and his public service is

595
00:52:53,340 --> 00:52:54,080
unparalleled.

596
00:52:54,500 --> 00:52:59,280
And the event for those of you, many of you were there simply is just one of the most poignant

597
00:52:59,280 --> 00:53:04,760
days in the County of San Diego, and it wouldn't be as well run and well recognized if Skip

598
00:53:04,760 --> 00:53:06,300
it wasn't involved as the chair.

599
00:53:06,760 --> 00:53:08,460
So Skip, we really hats off to you

600
00:53:08,460 --> 00:53:10,820
and everything you do for these citizens of San Diego

601
00:53:10,820 --> 00:53:13,780
and for those in law enforcement who risk their lives for us.

602
00:53:14,360 --> 00:53:15,300
Yes, excellent.

603
00:53:15,660 --> 00:53:17,460
So anyway, I wanted to recognize that.

604
00:53:18,340 --> 00:53:21,680
Then moving on, I wanted to talk about Zach Sickles

605
00:53:21,680 --> 00:53:24,600
and Duarte Brown who run our active and retired unit.

606
00:53:25,240 --> 00:53:28,820
One of the most important sentences in this lengthy boardbook

607
00:53:28,820 --> 00:53:30,840
is Jim Larry will talk about it in a few minutes

608
00:53:31,300 --> 00:53:33,680
is that in Jim's experience at SD Sarah,

609
00:53:33,680 --> 00:53:39,140
the most recent processing of benefits, which included three times the normal benefit processing

610
00:53:39,140 --> 00:53:43,060
because of the application of the COLA and the increase in the spike in retirements,

611
00:53:43,600 --> 00:53:46,820
is due to people thinking about what they do and making it better.

612
00:53:46,980 --> 00:53:51,620
In Zack and DeWatt, we do a lot of scanning here, documents into our systems have been thinking

613
00:53:51,620 --> 00:53:57,680
about it and have come up with process improvements that will eliminate the need to scan over 70,000

614
00:53:57,680 --> 00:53:59,480
documents a year into the system.

615
00:53:59,480 --> 00:54:03,220
and they've only focused on two or three or four of their own processes and they have

616
00:54:03,220 --> 00:54:04,620
another dozen or so to look at.

617
00:54:05,040 --> 00:54:10,120
So it's not inconceivable that we will be talking about a reduction in hundreds of

618
00:54:10,120 --> 00:54:14,080
thousands of pages of documents that won't have to be scanned into systems for improvements

619
00:54:14,080 --> 00:54:14,520
and the like.

620
00:54:14,920 --> 00:54:19,840
So this is what goes on days other than board meetings is we have really smart people thinking

621
00:54:19,840 --> 00:54:24,760
really hard about how to make this system the NyQuist of all systems.

622
00:54:26,220 --> 00:54:31,480
Speaking also of talent, my colleague, Jerry Fawfel, many of you know, is really extraordinary

623
00:54:31,480 --> 00:54:35,060
and has the ability to talk to members in the like and his communication on outreach

624
00:54:35,060 --> 00:54:42,160
has continued to really pay dividends for us and expand the SD Sarah Brands, so to speak,

625
00:54:42,320 --> 00:54:43,520
to more and more of our members.

626
00:54:44,100 --> 00:54:48,560
And then, as I mentioned, one of our members was hospitalized recently and couldn't be here

627
00:54:48,560 --> 00:54:52,760
to sign a document they needed and Jerry got us car immediately, drove down, got the document

628
00:54:52,760 --> 00:54:53,800
sign and came right back.

629
00:54:53,800 --> 00:54:59,500
So, that's the dedication to member service that is really in the organization, and Jerry,

630
00:54:59,700 --> 00:55:03,520
Merma, Gummary, and others live and breathe it every day, and Yvonne, Sanders, and the team

631
00:55:03,520 --> 00:55:07,780
in the member service center, as you see when you come in, do that eight hours a day,

632
00:55:07,980 --> 00:55:09,680
five days a week, throughout the year.

633
00:55:09,920 --> 00:55:11,060
It's very impressive.

634
00:55:12,300 --> 00:55:17,220
Then, occasionally, we do have fun, Greg Baish's group, and the IT group, on a Cinco de Mayo

635
00:55:17,740 --> 00:55:22,920
fundraiser, we raise money during the year for our holiday party, and so this is Mario

636
00:55:22,920 --> 00:55:31,820
after his third Marguerite is in the front left of that picture and he has recovered, I think, quite well.

637
00:55:32,920 --> 00:55:39,080
So, Cinco de Mayo was a lot of fun, and then we started as you know, a book club several years ago, and Jerry also moderates that,

638
00:55:39,480 --> 00:55:47,620
and this month's book I recommend to you is a quartet about the transition from the articles of Confederation of the Constitution in the United States.

639
00:55:47,620 --> 00:55:52,580
It's an incredibly easy read, and it is very powerful about the issues that were being

640
00:55:52,580 --> 00:55:57,020
discussed in the late 1700s, and many of those issues carry over to some of the issues

641
00:55:57,020 --> 00:55:57,780
we have today.

642
00:55:58,440 --> 00:56:01,000
So I recommend the book to you, if you like, a copy, let us know.

643
00:56:01,180 --> 00:56:05,100
But we have the highest participation rate of any of the book clubs so far.

644
00:56:05,220 --> 00:56:08,720
We have almost 100% participation of all employees who have asked for the book or reading

645
00:56:08,720 --> 00:56:10,820
the book and will participate in the book club.

646
00:56:11,960 --> 00:56:14,120
So I am very excited about that.

647
00:56:14,680 --> 00:56:20,780
Then Jim Larry, to my right, was an employee of the month for the great work he has done

648
00:56:20,780 --> 00:56:21,620
with his team.

649
00:56:21,620 --> 00:56:25,820
I couldn't be prouder of Jim and in the retired benefit unit, I've already mentioned

650
00:56:25,820 --> 00:56:31,700
them and what a great job they did and Jim will follow up on that and the disability unit.

651
00:56:31,900 --> 00:56:36,720
They were also employees of the month for the great work they do with respect to disabilities.

652
00:56:38,220 --> 00:56:42,220
Employee anniversaries, I was going to think that May is not a great hiring month because

653
00:56:42,220 --> 00:56:45,340
We only have three anniversaries in May, and they're all short-termers.

654
00:56:45,740 --> 00:56:49,480
I'm not going to mention Tom Williams' name anymore, thanks Tom.

655
00:56:50,180 --> 00:56:51,280
And little cartoon.

656
00:56:51,700 --> 00:56:54,340
But I also wanted to mention something because a couple of meetings ago,

657
00:56:54,420 --> 00:56:55,720
you know, I mentioned Zoe occasionally.

658
00:56:56,440 --> 00:57:00,000
And Dick Tarte gave me some trouble saying, David, you've been talking about Zoe for 10 years.

659
00:57:00,160 --> 00:57:01,520
You know, she must be 22, 23.

660
00:57:02,000 --> 00:57:04,440
By now, so why don't, you know, she obviously can't.

661
00:57:04,500 --> 00:57:09,340
So I just wanted to show you last weekend, Zoe, and I went to Denver to meet her brother

662
00:57:09,340 --> 00:57:11,620
and her brother's girlfriend, and Zoe ran in a half marathon.

663
00:57:11,620 --> 00:57:17,420
on. She's the one on the right. And so this is after the race finish, I was very proud

664
00:57:17,420 --> 00:57:22,160
of her because it was run at high altitude and she did a really fine job and finished

665
00:57:22,160 --> 00:57:27,280
this was her 10th half marathon. But as we were going to Denver, she had trouble grasping

666
00:57:27,280 --> 00:57:32,600
the concept of the mile high city and she did not understand where the moniker mile high

667
00:57:32,600 --> 00:57:37,260
came from. So I said, Zoey, the reason it's called the mile high city is unlike San Diego

668
00:57:37,260 --> 00:57:43,260
go at sea level. It's 5,280 feet, which is a mile above sea level, so that's why they

669
00:57:43,260 --> 00:57:48,380
call it the Mile High City. And so she took that under advisement. And after we finished

670
00:57:48,380 --> 00:57:53,620
the race as we were leaving in the car driving back downtown, she has an Instagram account.

671
00:57:53,880 --> 00:57:58,820
And so she published the picture because she's very proud of running and she loves her

672
00:57:58,820 --> 00:58:03,500
dad. And so she publishes it on her Instagram account. And all of a sudden, she started

673
00:58:03,500 --> 00:58:08,760
saying boy you know she has usually four or five followers and all of a sudden there were four and then

674
00:58:08,760 --> 00:58:12,660
there was thirty and then there was a hundred and then there was a and she couldn't understand

675
00:58:12,660 --> 00:58:16,620
that so she handed the phone to her brother Max who was in the back seat of the car with it and he

676
00:58:16,620 --> 00:58:21,380
looked at her caption and he said well Zoe this is the problem you're captioned of this picture with

677
00:58:21,380 --> 00:58:24,820
the sixty two year old man assembly today I joined the mile high club

678
00:58:31,180 --> 00:58:39,360
So she didn't have a clue which she was talking about, but there was a police car behind

679
00:58:39,360 --> 00:58:42,920
me quickly and we were able to resolve that matter.

680
00:58:43,280 --> 00:58:47,800
So that's why occasionally I still enjoy talking about Zoe because she is a very unique person.

681
00:58:48,380 --> 00:58:53,820
So with that I'm out of jail and here I appreciate it and I'm going to turn the microphone over

682
00:58:53,820 --> 00:58:59,520
to Jim Larry, who was an employee of the month, was an employee of the year, and is a

683
00:58:59,520 --> 00:59:00,780
terrific chief benefits officer.

684
00:59:01,120 --> 00:59:06,440
Before we go to Jim, though, David, thank you so much for the great reports that you

685
00:59:06,440 --> 00:59:11,300
give today, is not disappointing at all, and very entertaining.

686
00:59:11,880 --> 00:59:15,980
And also for the great work that you do, your leadership role at S.D. Sarah, and for all

687
00:59:15,980 --> 00:59:21,700
the employees, it makes us all on the board very, very proud of the work that you're doing

688
00:59:21,700 --> 00:59:22,420
for our members.

689
00:59:22,700 --> 00:59:23,320
So thank you.

690
00:59:23,320 --> 00:59:29,980
Yeah. Good. Did you want to say something? Okay. Oh, thank you. That's first, huh?

691
00:59:33,080 --> 00:59:39,440
So we will go to the employer the month. Jim Larry. Your report is up next. All right. Thank you

692
00:59:39,440 --> 00:59:42,780
And I don't know if I should thank you, David. I don't know how to follow that

693
00:59:44,000 --> 00:59:46,100
You're always a tough one to go after

694
00:59:46,760 --> 00:59:51,160
There are two items. I want to discuss today that don't have nearly the levity of David's report

695
00:59:51,760 --> 00:59:56,460
The first is something that David touched upon and is actually an item that I have been

696
00:59:56,460 --> 00:59:59,960
and talking about the last couple of board meetings related to the pandemic.

697
01:00:00,000 --> 01:00:07,380
I'm excited to the March retirements and the increase volume of applications we receive. I really do just want to thank

698
01:00:07,380 --> 01:00:29,180
DeWater Brown and the entire retired benefit staff for the outstanding work they did in April and processing. They just did a fabulous job of getting all 192 retirements with a March retirement date processed by April payroll. In the five years that I've been here, I have never seen more efficient processing.

699
01:00:29,180 --> 01:00:32,380
and I'm just really proud of DeWatta and the retired benefits team.

700
01:00:32,820 --> 01:00:34,040
It's great, thank you.

701
01:00:35,160 --> 01:00:40,420
Something else that David touched upon was Zach Sickles and the work that he's doing in the active benefits units.

702
01:00:40,620 --> 01:00:42,280
He is our manager and active benefits.

703
01:00:43,000 --> 01:00:47,340
The next item is related to a monthly report we've been providing the board.

704
01:00:47,840 --> 01:00:53,320
I have a slide for what we have previously been providing is the membership count report.

705
01:00:54,580 --> 01:01:00,900
This is just a template of what we had been providing in the past to represent the members

706
01:01:00,900 --> 01:01:03,760
that we administer and calculate benefits for.

707
01:01:04,120 --> 01:01:12,940
If I can direct the board to tab 21 of the boardbook, we are replacing the membership

708
01:01:12,940 --> 01:01:16,880
count report with the SD Sarah Participants report.

709
01:01:17,400 --> 01:01:24,000
I want to commend Zach for continuing to ask the question of why and push us to improve and

710
01:01:24,000 --> 01:01:29,100
always do better. And I think this is a prime example of the impact, positive impact he's making.

711
01:01:29,900 --> 01:01:33,940
He took a look at the membership count report and said, I think we can better represent

712
01:01:33,940 --> 01:01:38,480
the SD Sarah population that we administer and calculate benefits for.

713
01:01:39,540 --> 01:01:45,280
Two significant improvements to the report are the separation of non-members and beneficiaries.

714
01:01:45,920 --> 01:01:49,820
So at the bottom of the report you'll see a section for non-members and beneficiaries,

715
01:01:49,820 --> 01:01:57,260
members, non-members, represent former spouses of our members who are eligible for an SD

716
01:01:57,260 --> 01:02:01,940
Sarah benefit as a result of a court issued domestic relation order.

717
01:02:02,600 --> 01:02:08,620
So we now have a separate line items for our non-member former spouses.

718
01:02:09,460 --> 01:02:15,220
In addition, we have beneficiaries, these are beneficiaries of our members who have passed

719
01:02:15,220 --> 01:02:18,000
away and that are receiving a monthly

720
01:02:18,000 --> 01:02:20,660
continuous benefit. Again, it just

721
01:02:20,660 --> 01:02:23,180
better depicts the overall population

722
01:02:23,180 --> 01:02:25,440
that we serve. The second improvement

723
01:02:25,440 --> 01:02:27,620
to the report in both the active

724
01:02:27,620 --> 01:02:30,160
section and the retired section, we

725
01:02:30,160 --> 01:02:32,000
now break out the membership by

726
01:02:32,000 --> 01:02:34,340
tier. Again, just to give more

727
01:02:34,340 --> 01:02:36,180
information to the board and provide a

728
01:02:36,180 --> 01:02:38,900
more detailed and thorough breakdown

729
01:02:38,900 --> 01:02:40,800
of our total land participants.

730
01:02:41,900 --> 01:02:43,280
That's it for me unless there are any

731
01:02:43,280 --> 01:02:44,760
questions. Thank you.

732
01:02:44,760 --> 01:02:46,940
that is extremely informative.

733
01:02:47,480 --> 01:02:49,620
I noticed Tier 1, any Tier 2s?

734
01:02:50,820 --> 01:02:55,340
Tier 2, so you will see in the retired section.

735
01:02:56,060 --> 01:02:59,920
We do have a category for Tier 2 retirees

736
01:03:00,580 --> 01:03:05,360
because the enhancements on March 8, 2002

737
01:03:07,260 --> 01:03:10,600
eliminated Tier 2 as an active plan.

738
01:03:10,600 --> 01:03:12,820
You don't see any active or deferred members

739
01:03:12,820 --> 01:03:14,540
in a Tier 2 status, just retirees.

740
01:03:14,540 --> 01:03:16,080
And just 23-2 or once.

741
01:03:16,900 --> 01:03:17,020
Correct.

742
01:03:17,500 --> 01:03:21,940
I also want to add my thank you to that because I've asked that question a couple of times.

743
01:03:23,360 --> 01:03:24,500
You know, who do we have?

744
01:03:24,640 --> 01:03:25,380
How many do we have?

745
01:03:26,500 --> 01:03:30,920
And this new report gives it to me every month or every month rather.

746
01:03:31,500 --> 01:03:33,580
And I thank you for that.

747
01:03:33,880 --> 01:03:34,320
Thanks, Zach.

748
01:03:35,600 --> 01:03:36,300
I would love to know.

749
01:03:37,920 --> 01:03:43,880
There's a theme at the Aeon conference where the expression echo chamber was brought up.

750
01:03:43,880 --> 01:03:49,740
And I don't want to have this comment be an echo chamber, but whether it's it's six sigma or

751
01:03:51,060 --> 01:03:56,900
In Japan it's catsin or good to great, you know that is an author book

752
01:03:56,900 --> 01:04:01,980
You probably read in a book club. There's a culture here. There's the theme. It's in the investment area

753
01:04:01,980 --> 01:04:06,520
It's in benefits. It's in it leadership, which is constant improvement and

754
01:04:07,740 --> 01:04:11,340
It Greg you're doing it with what you will see in the budget

755
01:04:11,340 --> 01:04:17,980
But this we have to continue, and it does come from the top, so a compliment to the management

756
01:04:17,980 --> 01:04:24,320
team here, that continuous improvement is your theme and the culture that you're building.

757
01:04:24,820 --> 01:04:25,520
Thank you, Mark.

758
01:04:26,320 --> 01:04:26,500
Ditto.

759
01:04:27,220 --> 01:04:30,120
Move on to Chief Financial Officer's report, Greg.

760
01:04:31,140 --> 01:04:31,480
Good morning.

761
01:04:32,460 --> 01:04:35,880
David has already introduced you to Angela Carrillo, our new accountant.

762
01:04:37,780 --> 01:04:46,540
We strategically sought her out as we've begun to work more and more with Jim's group and have determined that we need to be providing them more support on the finance side.

763
01:04:47,020 --> 01:04:51,080
So Angela is a great addition to our team to do that and she'll be working under the direction of Monica Ward.

764
01:04:52,120 --> 01:04:55,500
So we're making great strides and this is going to make us even stronger.

765
01:04:56,520 --> 01:05:03,240
As Mark just mentioned, we'll be giving the proposed FY 2018 operating budget to the Audit Finance and Budget Committee later today.

766
01:05:03,240 --> 01:05:09,560
And then in the IT arena, we have installed new voice recording systems for the Voice of

767
01:05:09,560 --> 01:05:10,120
SD Sarah.

768
01:05:10,340 --> 01:05:17,440
So if Felicia would please stand up, I want to introduce you to the new Voice of SD Sarah.

769
01:05:23,540 --> 01:05:28,380
So if you call in and you get the call center in the recordings, it was now Felicia's voice

770
01:05:28,380 --> 01:05:28,660
you'll hear.

771
01:05:29,560 --> 01:05:35,400
We're also working with AT&T to install their next gen of voice and telecom lines.

772
01:05:35,400 --> 01:05:43,040
And when we complete that in the coming months, we'll achieve their performance and lower costs in that ATT contract, so that's all good.

773
01:05:43,740 --> 01:05:44,580
And that concludes my report.

774
01:05:45,240 --> 01:05:45,660
Thank you, Greg.

775
01:05:46,620 --> 01:05:48,420
Chief Legal Officer's report, Elaine?

776
01:05:48,860 --> 01:05:49,500
Yes, thank you.

777
01:05:50,040 --> 01:05:54,980
So we have successfully completed another election for Board Trustees.

778
01:05:54,980 --> 01:06:02,860
And I would like to add my congratulations to Samantha to skip and to Susan for being elected or re-elected to the board.

779
01:06:04,300 --> 01:06:10,940
Ms. Mallett has completed the first session of her trustee orientation which included

780
01:06:10,940 --> 01:06:17,020
a session on fiduciary duties and we have session two of her orientation schedule for

781
01:06:17,020 --> 01:06:17,640
June the 12.

782
01:06:17,940 --> 01:06:22,480
So we got right on that and she should complete her training prior to the July meeting

783
01:06:22,480 --> 01:06:23,580
when she takes office.

784
01:06:24,660 --> 01:06:31,820
We have, we're right on target with the items assigned to legal on the 27-action plan.

785
01:06:31,820 --> 01:06:38,800
The document management item is pretty much complete with adoption of the records retention

786
01:06:38,800 --> 01:06:43,760
policy this month, and we're on target to complete review and optimization of our internal

787
01:06:43,760 --> 01:06:44,880
policies and processes.

788
01:06:45,980 --> 01:06:46,840
Thank you.

789
01:06:47,700 --> 01:06:49,920
Any questions or comments on any of the reports?

790
01:06:51,240 --> 01:06:56,100
Seeing none, we'll move on to item 9, which is tab 7.

791
01:06:57,200 --> 01:06:57,480
Great?

792
01:06:58,380 --> 01:06:59,240
Good morning again.

793
01:07:00,000 --> 01:07:02,700
The quick summary on this, you have the report in front of you.

794
01:07:02,940 --> 01:07:13,300
In April of 2014, the Board of Supervisors approved an elimination of the retirement offset contributions and in April 2017, they approved a wage and flexible benefit increase for county employees.

795
01:07:14,120 --> 01:07:25,580
To comply with the county compensation ordinance, the Board of Retirement approval is required for all SDCIR employees and must be submitted as the County Department of Human Resources by June 5th.

796
01:07:25,580 --> 01:07:28,960
So we're recommending approval of these changes for all S.T. Serum, please.

797
01:07:29,320 --> 01:07:29,680
Motion.

798
01:07:30,960 --> 01:07:32,360
Motion for staff recommendations.

799
01:07:32,600 --> 01:07:33,180
Is there a second?

800
01:07:33,360 --> 01:07:33,540
Second.

801
01:07:33,920 --> 01:07:34,660
There's a second.

802
01:07:34,980 --> 01:07:35,340
Please vote.

803
01:07:42,910 --> 01:07:45,490
Motion carried unanimously with all members present.

804
01:07:46,070 --> 01:07:47,570
We'll move on to item 10.

805
01:07:48,070 --> 01:07:48,670
I have a second.

806
01:07:49,030 --> 01:07:49,530
I have a second.

807
01:07:49,970 --> 01:07:50,830
The flex benefit.

808
01:07:51,350 --> 01:07:57,190
Is that a fixed dollar amount per employee or is it expressed as a percentage of the individual's employees' compensation?

809
01:07:57,830 --> 01:07:59,810
It's a no, it's part of the negotiations.

810
01:08:00,310 --> 01:08:01,330
It's a fixed dollar amount.

811
01:08:01,890 --> 01:08:03,390
Yes. Yes.

812
01:08:06,320 --> 01:08:10,540
Okay. Item 10, tab 8.

813
01:08:13,270 --> 01:08:16,430
You're late. Yes. You have in front of you the records retention policy.

814
01:08:16,670 --> 01:08:24,430
It's tab 8. This policy is in essence. The policy delegates to the CEO, the authority to create an altar

815
01:08:24,430 --> 01:08:29,630
as necessary a record retention schedule which we will bring back to you for your review

816
01:08:29,630 --> 01:08:39,170
and then staff can dispose of documents pursuant to the requirements in the record retention schedule without further authority of the board.

817
01:08:39,990 --> 01:08:44,430
Thank you. Any questions? Motion?

818
01:08:46,720 --> 01:08:48,440
Would somebody make a motion please?

819
01:08:48,440 --> 01:08:56,020
Please, may Samantha Emotion, by Samantha, second by Dan, several seconds.

820
01:08:56,580 --> 01:08:57,380
Question, Dick?

821
01:09:01,820 --> 01:09:04,880
The grantee of the CEO authority to override the policy.

822
01:09:05,040 --> 01:09:06,400
Is your mic on?

823
01:09:06,640 --> 01:09:06,860
Can't hear.

824
01:09:06,920 --> 01:09:11,800
The grantee of the CEO of the authority to override the policy, it seems to imply a quick

825
01:09:11,800 --> 01:09:16,700
reading that it would be granting an extension longer than the policy would allow.

826
01:09:16,700 --> 01:09:26,860
Does it also grant the CEO the ability to shorten the time and delete documents from the record earlier than the policy would dictate?

827
01:09:27,420 --> 01:09:31,040
I did not read it that way, but we can clarify that just to make sure that the intent.

828
01:09:31,440 --> 01:09:35,320
The intent was to allow us to keep the documents for a longer period of time only.

829
01:09:35,620 --> 01:09:37,380
We ought to make sure it's clear on that.

830
01:09:39,060 --> 01:09:46,680
What's the logic of it seems to me the policy implies that we purposely want to get rid of all emails at a certain point time.

831
01:09:46,680 --> 01:09:49,660
Yeah, that's distinct from retaining them, is there?

832
01:09:50,480 --> 01:09:57,040
We would set a period in the record retention schedule for retention of emails, but you

833
01:09:57,040 --> 01:10:01,820
can clog up your system with too many emails and you want to have the ability to get rid

834
01:10:01,820 --> 01:10:05,560
of them, especially ones that are not substantive in nature.

835
01:10:07,960 --> 01:10:11,420
There's all thousands of emails that come in on a weekly basis.

836
01:10:13,860 --> 01:10:15,260
Contemporary topics these days.

837
01:10:15,580 --> 01:10:15,780
Right.

838
01:10:15,780 --> 01:10:18,560
and argue the process of minuses of retaining them.

839
01:10:18,660 --> 01:10:20,020
Sometimes they're very excellent defense

840
01:10:20,020 --> 01:10:21,060
for issues and other times they're

841
01:10:21,060 --> 01:10:23,020
in committing evidence, but our policies

842
01:10:23,020 --> 01:10:24,640
to get rid of them regardless.

843
01:10:25,300 --> 01:10:28,220
Well, number one, the policy doesn't say get rid of them.

844
01:10:28,840 --> 01:10:32,780
Number two, many people, the issue with the policy is this.

845
01:10:32,960 --> 01:10:35,080
Many people have emails that come in,

846
01:10:35,180 --> 01:10:39,580
if I get 100 a day, 80 or promotional announcements

847
01:10:39,580 --> 01:10:43,420
get on a transfer list, 20 apply to substantive things

848
01:10:43,420 --> 01:10:44,320
that I may care about.

849
01:10:44,320 --> 01:10:48,500
I move those emails to a folder and those emails would not be deleted.

850
01:10:48,720 --> 01:10:54,000
We're talking about just unclogging that whatever, but we will come back with the schedule.

851
01:10:54,460 --> 01:10:59,020
So you could say keep emails for 10 years, keep emails for five years.

852
01:10:59,180 --> 01:11:02,820
We will pick a time we think appropriate and then we'll look at it.

853
01:11:02,840 --> 01:11:06,380
But the bottom line is we should not be in the permanent record retention business, which

854
01:11:06,380 --> 01:11:06,740
we are.

855
01:11:07,000 --> 01:11:11,100
We should not be keeping Iron Mountain in business because we have every document that's

856
01:11:11,100 --> 01:11:13,640
ever been produced here, you know, going back decades.

857
01:11:13,640 --> 01:11:28,740
We need to say, what are important documents to maintain and keep them and make sure we do because I often go back and look for a document that might be 20 years old and the policy will say we're going to keep that record forever but there are

858
01:11:29,680 --> 01:11:34,960
thousands of emails daily that whatever but we'll bring the one thing I want to make you clear about is this.

859
01:11:35,280 --> 01:11:42,160
I often talk to folks here about getting people in the boat with you where you don't want to be. I'm from Kansas and don't know how to sail.

860
01:11:42,160 --> 01:11:44,220
You don't want to be in a boat by yourself in the water.

861
01:11:44,920 --> 01:11:47,840
So if you make a decision, it's always nice when I say, well, who decided that?

862
01:11:47,920 --> 01:11:51,580
Someone says, well, I did, but I also checked with you, David and Elaine and Greg and Jim.

863
01:11:52,020 --> 01:11:52,180
Good.

864
01:11:52,340 --> 01:11:53,480
You got all of us in the boat with you.

865
01:11:54,160 --> 01:11:59,840
Believe me, not one document will ever be deleted here unless it's pursuant to a schedule

866
01:11:59,840 --> 01:12:01,720
you all know we discussed and we talked about.

867
01:12:02,140 --> 01:12:06,220
I do not want to be in any boat by myself saying, oh, yeah, toss that aside.

868
01:12:06,580 --> 01:12:11,500
Unless all of us know that document's going to be tossed for the right reason and will never

869
01:12:11,500 --> 01:12:15,640
come back to think boy we should kept that. So you all are going to be in the boat with me and

870
01:12:15,640 --> 01:12:19,360
when we get the schedule done I will bring it back to you so we can all agree on what the appropriate

871
01:12:19,360 --> 01:12:25,540
time limits are. Thank you for the clarification but if I could at the moment just at a total

872
01:12:25,540 --> 01:12:31,640
aside and you mention you get 100 or that 500 a day many of our advertisements do we have an act of

873
01:12:31,640 --> 01:12:35,980
education program here within staff to to understand what fishing is all about how to prevent.

874
01:12:36,860 --> 01:12:42,380
Okay. Any other questions? We have a motion and a second. Please vote.

875
01:12:51,340 --> 01:12:52,820
Dan Tim,

876
01:12:55,010 --> 01:12:55,970
thank you.

877
01:12:58,200 --> 01:12:59,720
Motion carries unanimously.

878
01:13:00,340 --> 01:13:12,720
All members present. I'm inclined where we've got our famous Chief Investment Officer to give his report a lot of good news here.

879
01:13:12,720 --> 01:13:20,680
I mean, applying to take a 10-minute break, and then we'll be all set, Steve, to have you on.

880
01:13:21,180 --> 01:13:21,620
Thank you.

881
01:24:00,500 --> 01:24:08,180
One minute break is up. Everyone would please take their seats. Meeting will come back to order and

882
01:24:10,700 --> 01:24:18,220
I'm going to turn it over to our internationally renowned chief investment officer, Steve, sex hour.

883
01:24:18,220 --> 01:24:21,600
Chair Jacob, good morning.

884
01:24:21,800 --> 01:24:22,660
Trust these, good morning.

885
01:24:23,160 --> 01:24:25,980
We have three topics.

886
01:24:26,300 --> 01:24:28,660
So let me go through the plan and do some introductions.

887
01:24:29,480 --> 01:24:30,360
And then we'll go through.

888
01:24:30,620 --> 01:24:39,220
So topic one, which is item 11 and tabs 9, 10, 11 is our standard report on the trust fund.

889
01:24:40,300 --> 01:24:48,000
And then topics 12 and 13 are really important because they are part of the input that you'll have

890
01:24:48,000 --> 01:24:52,920
when we come to you in June for the annual recommendation of the allocation.

891
01:24:53,260 --> 01:24:56,700
I just want to spend a minute on that here at the beginning

892
01:24:56,700 --> 01:25:00,100
and then introduce the people that are here and why everybody is sitting up here.

893
01:25:00,940 --> 01:25:08,220
So for items 12 and 13, our goal is that you have the breadth and depth

894
01:25:08,220 --> 01:25:13,560
of expert inputs to be prepared in June to go through and approve the annual

895
01:25:13,560 --> 01:25:14,780
in the last allocation update.

896
01:25:15,400 --> 01:25:17,280
I just want to spend a minute to connect that

897
01:25:17,280 --> 01:25:18,860
to our investment policy statement

898
01:25:19,630 --> 01:25:22,880
to kind of our responsibilities jointly under SIRL

899
01:25:23,290 --> 01:25:24,800
and then to think through the pieces

900
01:25:24,800 --> 01:25:27,120
that we're going to go through about 15 minutes.

901
01:25:27,460 --> 01:25:29,980
So if you remember in chapter two

902
01:25:29,980 --> 01:25:31,320
of the investment policy statement,

903
01:25:31,900 --> 01:25:35,420
the first paragraph says the board believes

904
01:25:35,420 --> 01:25:37,960
that establishing the appropriate asset allocation

905
01:25:37,960 --> 01:25:41,160
is the single most important determinant

906
01:25:41,160 --> 01:25:42,080
of our investment return.

907
01:25:42,080 --> 01:25:46,280
So we're going to talk about today in June is the most important thing, and we're going

908
01:25:46,280 --> 01:25:47,880
to try and be very organized about it.

909
01:25:48,780 --> 01:25:51,280
And because of that, you put particular emphasis on that.

910
01:25:51,360 --> 01:25:52,480
So the question is how are we going to do it?

911
01:25:52,980 --> 01:25:58,820
And if you remember at the Board Education Offsite, we talked about fiduciary responsibilities

912
01:25:58,820 --> 01:26:01,780
and how to do it, and there were two key things about that.

913
01:26:01,920 --> 01:26:08,560
One, you evaluate things in a regular basis, and two, you get expert input.

914
01:26:09,660 --> 01:26:11,740
And so I'm going to introduce the experts in a minute.

915
01:26:11,740 --> 01:26:15,160
I'm going to review other expert inputs in the boardbook.

916
01:26:16,340 --> 01:26:20,840
I think when we're done with that, you'll be in a position to have the expert input,

917
01:26:21,380 --> 01:26:26,160
to have information so we come back in June to review the ass allocation make a decision.

918
01:26:26,560 --> 01:26:31,260
So how we'll do this is I'm just going to go through who's here, then I'll do my standard

919
01:26:31,260 --> 01:26:35,360
part, and then we'll start to go through the private markets update because that's a

920
01:26:35,360 --> 01:26:39,880
key part of the ass allocation, and then we'll go through a lot of the work that was done

921
01:26:39,880 --> 01:26:42,460
on the risk and return of the trust fund.

922
01:26:42,900 --> 01:26:44,900
I use those terms, but if you think of SIRL,

923
01:26:45,540 --> 01:26:46,940
those are the two most important things,

924
01:26:46,960 --> 01:26:49,400
and that's where we spent our time being prepared

925
01:26:50,120 --> 01:26:50,880
for this meeting.

926
01:26:51,100 --> 01:26:51,800
So let me do introductions.

927
01:26:51,980 --> 01:26:53,760
You know our deputy CEO, Tom Williams,

928
01:26:54,480 --> 01:26:57,460
and to my right, you know, my comm suck and Steve Vos,

929
01:26:58,100 --> 01:26:59,680
they're here in a dual role today.

930
01:27:00,480 --> 01:27:02,140
They're here in their roles at General Consultant,

931
01:27:02,940 --> 01:27:05,760
but they're also here because A on Hewitt's expertise,

932
01:27:05,760 --> 01:27:05,960
companies.

933
01:27:06,600 --> 01:27:12,240
It risk and return in private markets is in the class of the best of the best, and

934
01:27:12,240 --> 01:27:16,860
their colleagues have worked for us providing the inputs I'm going to summarize from you

935
01:27:16,860 --> 01:27:17,480
in the talk about.

936
01:27:17,640 --> 01:27:22,280
So they're also here in that role to provide that input today, and to their right is Jim

937
01:27:22,280 --> 01:27:23,060
Moore from PIMCO.

938
01:27:23,840 --> 01:27:27,920
I'm going to go through Jim's background a minute, because again, in terms of experts, the

939
01:27:27,920 --> 01:27:29,640
best of the best, here's Jim's background.

940
01:27:29,640 --> 01:27:35,200
I do it somewhat chronologically, a PhD in University of Pennsylvania,

941
01:27:37,390 --> 01:27:38,830
Mercer, Actuario,

942
01:27:39,410 --> 01:27:40,910
as you know, I'll go back to Pennsylvania.

943
01:27:41,250 --> 01:27:46,350
When we do trustee training, the weeklong intense training, that's who we go.

944
01:27:46,870 --> 01:27:51,050
And Jim is taught. He worked in Actuario, worked at Mercer.

945
01:27:52,350 --> 01:27:58,990
He was at Morgan Stanley for a minor well, doing analysis of pensions, portfolios.

946
01:28:00,750 --> 01:28:06,210
He's now at PIMCO, and it's his team that has done all the detailed risk and return

947
01:28:06,870 --> 01:28:11,570
analysis of our portfolio that we got an input from PIMCO, and it's Jim and his team

948
01:28:11,570 --> 01:28:13,710
that provide input to us with staff level.

949
01:28:13,850 --> 01:28:17,170
So Jim's role today is to walk us through how they do it.

950
01:28:17,330 --> 01:28:22,310
So you have a context and feel for it, and then after he does that, Jim, after Jim does

951
01:28:22,310 --> 01:28:25,690
that, then we'll have Mike and Steve walk through how he undoes it.

952
01:28:25,690 --> 01:28:31,310
And so I think at the end of the day you'll say, yep, we're prepared and we're good to go for next month.

953
01:28:32,130 --> 01:28:33,510
Is there any questions on that plan?

954
01:28:36,110 --> 01:28:36,750
All right, we're ready.

955
01:28:36,990 --> 01:28:41,770
So I'm going to go to tab 9, which is the CIO staff report.

956
01:28:44,330 --> 01:28:52,830
And the one thing I'll call to your attention here is staff, Tom and I have spent a fair amount of time talking with,

957
01:28:53,430 --> 01:28:58,270
meeting with and reviewing underlying managers and we provided you a list of

958
01:28:58,270 --> 01:29:03,570
that. Part of it was in preparation for this meeting, the next meeting, part of it is just for our standard due diligence.

959
01:29:07,980 --> 01:29:08,420
Any questions?

960
01:29:10,540 --> 01:29:14,980
Okay, we will now go to tab 10, the standard risk return report.

961
01:29:24,030 --> 01:29:24,510
All

962
01:29:29,440 --> 01:29:31,680
right, thanks button.

963
01:29:32,740 --> 01:29:40,040
So page one, you can see the trust fund at the end of last month was $11.3 billion.

964
01:29:41,100 --> 01:29:44,800
You can see the allocations right on target.

965
01:29:45,820 --> 01:29:51,340
The little bit overweight equities just comes from the strong performance and the most important

966
01:29:51,340 --> 01:29:52,800
column is on the far right.

967
01:29:53,540 --> 01:29:58,200
Every one of these asset allocation levels is within our guidelines.

968
01:30:00,000 --> 01:30:00,640
Questions?

969
01:30:02,910 --> 01:30:07,870
Okay, probably the most important page is returns. It's the next page. I'm going

970
01:30:07,870 --> 01:30:14,390
to highlight the column, third column in, fiscal year to date, or a few weeks away to the

971
01:30:14,390 --> 01:30:18,710
end of the fiscal year, so I think that's the number to focus on. And there's nothing but

972
01:30:18,710 --> 01:30:24,430
good news. Let's start with the total trust fund. It's up 10%, a really strong return.

973
01:30:24,970 --> 01:30:31,610
If you look at our two reference points, the policy benchmark, it's up 10.5%, and if

974
01:30:31,610 --> 01:30:39,330
you look at our other benchmark, which is a simple 70% equity index fund, 30% fixed income

975
01:30:39,330 --> 01:30:44,790
index fund, it's up 10.7, I'll explain those differences in a minute, and then finally the

976
01:30:44,790 --> 01:30:46,610
accrual of the actual oil rate is set.

977
01:30:47,450 --> 01:30:50,170
So to trust fund level, really good.

978
01:30:51,310 --> 01:30:56,390
Now, as you know, we split talking about returns into two pieces, public markets, things

979
01:30:56,390 --> 01:31:02,210
we have more direct control over, things we have current returns on, that's the second

980
01:31:02,210 --> 01:31:07,930
block and we've highlighted in black, the numbers, they're all good, the public markets

981
01:31:07,930 --> 01:31:17,450
assets in our trust fund, we're up 11.5 percent fiscal year today, the policy benchmark is

982
01:31:17,450 --> 01:31:23,290
up 10.7, that's before fees or hours or after fees. And then if you look at the individual

983
01:31:23,290 --> 01:31:29,450
the two individual big pieces, equities, we're up 16.8 in the trust fund, really good.

984
01:31:30,250 --> 01:31:38,190
And the benchmark itself is up 16. Fixed income, similar story as we know this is not a

985
01:31:38,190 --> 01:31:42,750
good time to be in bonds, it has not been a good time to be in bonds. And we've had really

986
01:31:42,750 --> 01:31:50,090
really good performance from our fixed income managers at PIMCO, Ashkisson Wiley and Oak

987
01:31:50,090 --> 01:31:50,310
Tree.

988
01:31:50,770 --> 01:31:52,590
So we've got, we're in good position there.

989
01:31:53,810 --> 01:31:57,350
I'm going to skip down to the block that's highlighted in private assets.

990
01:31:58,450 --> 01:32:07,500
We've got pretty good private asset returns close to 11%, 10.9 for private equity, 10.7

991
01:32:07,500 --> 01:32:08,160
for real assets.

992
01:32:08,160 --> 01:32:13,980
That's the reference point which shows up in the SDCIRC policy benchmark calculation,

993
01:32:14,920 --> 01:32:20,180
where as soon as not only did we get the really high returns and equities, we got even more.

994
01:32:20,940 --> 01:32:22,300
That's how the benchmark works today.

995
01:32:23,280 --> 01:32:26,740
So that's the number that explains the difference between 10 for the trust fund

996
01:32:26,740 --> 01:32:30,900
and basically 10.5 for the policy benchmark, that plus fees.

997
01:32:31,380 --> 01:32:33,080
So just overall really good.

998
01:32:33,080 --> 01:32:36,440
then the final point I'll make on this page and stuff for questions we've

999
01:32:36,440 --> 01:32:42,020
reported to the sub asset classes and you can see again that in global

1000
01:32:42,020 --> 01:32:46,300
equities where the portfolio is 100 percent indexed we're right next to the

1001
01:32:46,300 --> 01:32:51,680
benchmark in US equities we're a little bit above it we do some active management

1002
01:32:51,680 --> 01:32:57,400
there and in non-US which is EFA we're a little bit above same thing in

1003
01:32:57,400 --> 01:32:59,020
emerging reference

1004
01:33:01,040 --> 01:33:03,660
point here I think I've told you we've tried not to take a

1005
01:33:03,660 --> 01:33:06,720
a lot of unnecessary risk to be short through what's happening in the world, so this is good.

1006
01:33:06,900 --> 01:33:08,600
We're right near the benchmark, but we're a little ahead.

1007
01:33:09,640 --> 01:33:12,540
Is that complete to my summary of our returns?

1008
01:33:12,980 --> 01:33:13,200
Dan.

1009
01:33:13,680 --> 01:33:14,520
Just a quick question.

1010
01:33:14,940 --> 01:33:15,220
Yes, sir.

1011
01:33:15,460 --> 01:33:15,940
applause.

1012
01:33:16,260 --> 01:33:16,880
Noted, I guess.

1013
01:33:17,980 --> 01:33:20,860
But it pertains to fixed income portfolio.

1014
01:33:21,460 --> 01:33:29,260
Are we looking at just sort of holding pad at this point, or an anticipation of rising, there's

1015
01:33:29,260 --> 01:33:32,640
that word interest rates again in the future.

1016
01:33:33,500 --> 01:33:35,780
Where are we relative to our allocation?

1017
01:33:35,960 --> 01:33:36,360
Are we happy?

1018
01:33:37,160 --> 01:33:38,500
Or are we going to back off?

1019
01:33:39,060 --> 01:33:41,400
You said that you were pleased with what we've seen

1020
01:33:42,140 --> 01:33:44,520
in spite of what we're concerned about,

1021
01:33:45,060 --> 01:33:48,560
but maybe in the future with rising interest rates

1022
01:33:48,560 --> 01:33:52,480
are we going to be bolder, or are we backing off?

1023
01:33:52,780 --> 01:33:53,100
What are we?

1024
01:33:53,940 --> 01:33:58,900
So I'm going to take the standing at the podium position

1025
01:33:58,900 --> 01:34:01,160
and privilege to break your question in the three pieces.

1026
01:34:01,500 --> 01:34:01,580
Okay.

1027
01:34:02,240 --> 01:34:04,380
One, are we comfortable with what we're at?

1028
01:34:04,700 --> 01:34:05,320
Happy, yes.

1029
01:34:07,840 --> 01:34:11,140
Two, do we think we, you know, given that we think interest rates

1030
01:34:11,140 --> 01:34:15,300
would rise, we don't know what interest rates are going to do.

1031
01:34:15,440 --> 01:34:17,660
In fact, that's one of our challenges.

1032
01:34:18,640 --> 01:34:21,220
We know the short end has gone up, and we'll go on,

1033
01:34:21,300 --> 01:34:23,640
and I'll go on that, but it's just so extraordinary

1034
01:34:23,640 --> 01:34:25,800
difficult to, how will the curve move?

1035
01:34:25,800 --> 01:34:30,980
So we position ourselves to be very close to the benchmark, and to be liquid.

1036
01:34:31,280 --> 01:34:36,540
So the third thing is, the way I want to recognize Tom's work here,

1037
01:34:39,400 --> 01:34:40,700
the long-term return

1038
01:34:40,700 --> 01:34:44,120
of a portfolio like ours is a starting yield, so we're not going to fight that.

1039
01:34:45,780 --> 01:34:51,280
But we do have liquidity and we have the ability to move if we have to, and we've been very

1040
01:34:51,280 --> 01:34:52,020
careful about that.

1041
01:34:52,100 --> 01:34:56,600
So we have plenty of liquidity to make the payroll for retirees, and if there's a surprise

1042
01:34:56,600 --> 01:35:01,240
the market. We're not going to get caught off sides. There's no whoops part of the position.

1043
01:35:02,480 --> 01:35:04,520
Okay. Thank you.

1044
01:35:06,920 --> 01:35:12,860
Mark. Yeah. Thank you. You know, when you say rising interest rates,

1045
01:35:12,980 --> 01:35:16,680
you always have to say, well, what rate do you mean? You know, there's short rates,

1046
01:35:16,940 --> 01:35:25,600
intermediate rates, long term rates. And to Steve's point, you can't guess that right.

1047
01:35:25,600 --> 01:35:27,100
and ever expect to get it right.

1048
01:35:27,540 --> 01:35:29,400
I mean the market is saying it's 100%

1049
01:35:29,400 --> 01:35:30,760
for the ability to move in June.

1050
01:35:31,080 --> 01:35:32,040
It's probably going to happen.

1051
01:35:33,640 --> 01:35:37,200
I mean, if it was right, then everybody would be doing.

1052
01:35:38,020 --> 01:35:41,380
Yeah, but it's killed a win-word with the bond portfolio.

1053
01:35:41,700 --> 01:35:43,800
That's the stabilizing force.

1054
01:35:45,780 --> 01:35:49,700
So we shouldn't be doing a whole lot of tactical things with that.

1055
01:35:51,060 --> 01:35:52,100
Dick and then skip.

1056
01:35:52,100 --> 01:35:58,820
Yeah, I just have under your private ass dick and then skill. I yield the skips version. I apologize.

1057
01:36:01,060 --> 01:36:01,620
I

1058
01:36:01,620 --> 01:36:07,020
think I've heard you say in the past days that the benchmarks of the the index plus

1059
01:36:07,020 --> 01:36:15,500
200 was somewhat questionable or maybe not the best benchmark to be using. And I notice

1060
01:36:15,500 --> 01:36:22,020
as a significant spread although we did good don't get me wrong. Are you and Tom and

1061
01:36:22,020 --> 01:36:27,640
And A, on thinking about that benchmark, or is that what you really want to do?

1062
01:36:28,540 --> 01:36:33,860
So the question is, the review of the benchmark for privates, and we have spent a lot of time

1063
01:36:33,860 --> 01:36:38,540
with Stephen Mike, and here's where Rat will come to the next month.

1064
01:36:39,360 --> 01:36:43,800
We're going to have, for the roll-up to the total trust fund, we're going to just use

1065
01:36:43,800 --> 01:36:46,380
Acquate, which is, we can index that if we want to.

1066
01:36:47,100 --> 01:36:51,420
So at the trust fund level, when we report how the benchmark did, it'll just be all the

1067
01:36:51,420 --> 01:36:56,040
stocks in the world for individual parts of the market will have a secondary

1068
01:36:56,040 --> 01:37:00,960
benchmark to say how are we doing in the decisions like for example in real

1069
01:37:00,960 --> 01:37:05,240
state or the decisions in private equity and typically there'll be two sub

1070
01:37:05,240 --> 01:37:10,860
measures one is some index could be the average of all the problems and the

1071
01:37:10,860 --> 01:37:14,680
the other the second one probably somewhat pure base so you have three

1072
01:37:14,680 --> 01:37:19,900
reference points it could have been an equities if we did go illiquid into

1073
01:37:19,900 --> 01:37:25,320
private is there some index even though you can't invest in it that just captures what all the

1074
01:37:25,320 --> 01:37:30,020
other investors are doing and is there some pure group like us that we could look at. So we

1075
01:37:30,020 --> 01:37:33,520
want to have those three. And we're going to recommend that in the June meeting. Okay.

1076
01:37:35,520 --> 01:37:40,140
Yes, Steve, we had talked about this, but I think it might be useful for just share your thoughts

1077
01:37:40,140 --> 01:37:46,200
as a prelude to our ultimate discussion on asset allocation, but our sport of our equity allocation

1078
01:37:46,200 --> 01:37:52,200
between U.S., non-US developed and emerging markets, how does that compare to the actual

1079
01:37:52,200 --> 01:37:57,520
split of the globalized equity markets between those three geographic regions?

1080
01:37:58,910 --> 01:38:02,180
So trustee of Orban's question, we can use this slide answer on.

1081
01:38:02,700 --> 01:38:12,440
We've got in pure liquid, you know, market-tradable equities, 47% of the trust fund, just to make

1082
01:38:12,440 --> 01:38:14,220
the number is easy, 10% was 100%.

1083
01:38:14,960 --> 01:38:17,420
The Acque Index Fund, if we just index,

1084
01:38:18,100 --> 01:38:23,200
would be about 55% North America, 52 US, 3 Canada.

1085
01:38:23,360 --> 01:38:28,320
So 55 here in North America, roughly 35 in Europe, Asia,

1086
01:38:28,380 --> 01:38:32,560
and the Far East, and roughly 10% in emerging markets.

1087
01:38:33,340 --> 01:38:36,640
So you take that ratio of 55, 35, 10, and say,

1088
01:38:36,840 --> 01:38:39,060
oh, you've got 46%, 47%.

1089
01:38:39,060 --> 01:38:44,120
You'd expect us to see us to be 5% in emerging markets.

1090
01:38:44,580 --> 01:38:51,140
You can see we're 9% actually we've actually been overweight emerging markets and done

1091
01:38:51,140 --> 01:38:56,220
very well because of that and it's measured by every month by Steve and Mike, it's measured

1092
01:38:56,220 --> 01:39:02,840
in our risk calculations which I'll show you and it's part of when Jim and Steve and

1093
01:39:02,840 --> 01:39:06,740
Mike go through the analytics they've done in the trust fund, it's actually in their

1094
01:39:06,740 --> 01:39:13,140
measurement, too. So, we overweight emerging markets, we're overweight Europe and Asia,

1095
01:39:13,140 --> 01:39:18,460
we're underweight the U.S. And that's a decision based on Tom's judgment in my judgment.

1096
01:39:21,920 --> 01:39:25,300
Not saying it's good or bad, but it's a good reference point as we have the right-hand side

1097
01:39:25,300 --> 01:39:29,620
on occasion that we are different than the split geographically and we're purposely different.

1098
01:39:30,100 --> 01:39:34,940
Correct. The next month, when they do the review of the portfolio and they do the attributions,

1099
01:39:34,940 --> 01:39:39,420
we can ask Stephen Mike to exactly show you what the effect was between those

1100
01:39:39,420 --> 01:39:47,180
decisions versus the managers. Who did that? I had one more point on fixed

1101
01:39:47,180 --> 01:39:52,020
income because I think Trustee McAllister's question of rising interest rates.

1102
01:39:52,060 --> 01:39:57,700
Let me give you a frame of reference. I'm about to be two years working for you.

1103
01:39:58,480 --> 01:40:02,900
So I went to the bond market and said what's happened in two years? Let me

1104
01:40:02,900 --> 01:40:11,640
reduce some numbers. In the 30 year part of the bond market, the more volatile part, basically

1105
01:40:11,640 --> 01:40:18,740
no change. Rates have fallen this much, a couple of basis points. If I go to the 6 month

1106
01:40:18,740 --> 01:40:25,260
part of the bond market, rates are up 100 basis points. So we've already absorbed a really

1107
01:40:25,260 --> 01:40:29,700
big move in the bond market. And over that period, our fixed income portfolio is up.

1108
01:40:32,360 --> 01:40:32,880
It's

1109
01:40:32,880 --> 01:40:37,380
We've not Tom or I haven't come to you with any oops stories, so I think we're trying

1110
01:40:37,380 --> 01:40:38,280
to accomplish that.

1111
01:40:38,740 --> 01:40:40,900
We're here a year from now and it's up another hundred.

1112
01:40:41,600 --> 01:40:46,160
We'd love to say there was no oops and fix the income and rest the portfolio perform

1113
01:40:46,160 --> 01:40:46,500
well.

1114
01:40:47,580 --> 01:40:50,340
Did you just say long-term rates in the last six months were up a hundred visits?

1115
01:40:51,240 --> 01:40:54,300
No, but what I said was over two years, but we'll give you a year today.

1116
01:40:55,700 --> 01:40:57,940
Thirty-year rates have fallen just a little.

1117
01:40:58,500 --> 01:40:58,660
Fall.

1118
01:40:59,080 --> 01:40:59,320
Fall.

1119
01:40:59,700 --> 01:41:00,360
It's probably going to.

1120
01:41:00,960 --> 01:41:06,460
If the six-month part of the yield curve, those interest rates of six months are up 100

1121
01:41:06,460 --> 01:41:07,120
basis months.

1122
01:41:07,280 --> 01:41:08,540
You mean over the last six months?

1123
01:41:08,760 --> 01:41:09,600
The last two years.

1124
01:41:09,920 --> 01:41:10,440
I don't think so.

1125
01:41:10,600 --> 01:41:11,060
Last two years.

1126
01:41:12,400 --> 01:41:13,340
That was just two years.

1127
01:41:14,160 --> 01:41:14,680
I could look at it.

1128
01:41:15,040 --> 01:41:15,080
I don't know.

1129
01:41:15,080 --> 01:41:21,760
I mean, isn't that indicative, Steve, of the public press talks about interest rates in

1130
01:41:21,760 --> 01:41:22,380
the Fed's movements?

1131
01:41:22,560 --> 01:41:25,960
I mean, it's all restricted to the short end of the curve.

1132
01:41:26,800 --> 01:41:33,740
The long end that a curve is hard to we someone independent as such if they they have shown well the any short term is going up the long term hadn't done anything.

1133
01:41:34,400 --> 01:41:34,960
Yes sir.

1134
01:41:35,480 --> 01:41:44,200
Standard rule of bond markets, which Jim knows better than I do, is captured by the Fed controls the short end, the markets control the long end.

1135
01:41:44,660 --> 01:41:48,280
And so half of bond investing is the shape of the curve.

1136
01:41:48,580 --> 01:41:51,140
But the popular press only talks about one of those pieces with that.

1137
01:41:55,220 --> 01:42:08,460
And I think just to repeat, we're blessed to have Tom with us because that's been Tom's expertise coming here is fixed income, both the large portfolio random and Arizona public employees and then in the church department for the city.

1138
01:42:08,560 --> 01:42:11,180
And so I think that's what Tom's one of the reasons we've done well.

1139
01:42:13,930 --> 01:42:15,370
Okay, any more questions on returns?

1140
01:42:15,370 --> 01:42:18,250
So we can go to risk,

1141
01:42:22,500 --> 01:42:24,080
everybody's favorite, everybody.

1142
01:42:27,360 --> 01:42:29,160
I know some of the same questions.

1143
01:42:29,900 --> 01:42:30,900
He understands it.

1144
01:42:32,180 --> 01:42:32,620
Sorry, Brian.

1145
01:42:35,680 --> 01:42:41,000
So we're going to talk later on about risk models and how much risk is in the portfolio

1146
01:42:41,000 --> 01:42:45,680
and what the expected return could be and what the range is.

1147
01:42:46,660 --> 01:42:48,580
And again, I need some important repeat.

1148
01:42:48,580 --> 01:43:07,540
independent of the staff, there's 114 numbers on this page, and the experts at A-on have taken the data directly from B-N-Y and computed how much risk has been in our portfolio, and what we think the expected risk is going forward, we're defining risk-wide volatility.

1149
01:43:09,320 --> 01:43:13,600
And I'm here to repeat to you, of those 114 numbers, everyone's work should be.

1150
01:43:14,440 --> 01:43:16,660
And we've gone through them in A.A. on scale throne.

1151
01:43:17,800 --> 01:43:19,960
And there's no surprises, we're in good shape.

1152
01:43:21,140 --> 01:43:25,300
And I would entertain any questions, if you have them, on this report.

1153
01:43:25,780 --> 01:43:28,300
It's the 115th number we worry about. 114.

1154
01:43:30,060 --> 01:43:31,500
It's the 100th number.

1155
01:43:34,060 --> 01:43:37,920
But just, I mean, it's a hundred and fourteen, but there's one trust fund and then there's

1156
01:43:37,920 --> 01:43:42,600
four asset classes and, you know, it rapidly spits out.

1157
01:43:42,980 --> 01:43:44,080
Okay, last thing is changes.

1158
01:43:45,200 --> 01:43:47,500
We made some adjustments.

1159
01:43:48,900 --> 01:43:56,100
One was to just increase operational cash to make sure that Greg's team had payroll cash

1160
01:43:56,100 --> 01:43:56,620
they wanted.

1161
01:43:57,400 --> 01:44:03,000
We had money to put in just from some cash flows that came in, so we index them in the

1162
01:44:03,000 --> 01:44:07,180
U.S. because we're a little bit under way, as I said, with the BlackRock Index Fund.

1163
01:44:07,900 --> 01:44:13,460
And it's part of the SL allocation work we've done with Steve and Mike and within the

1164
01:44:13,460 --> 01:44:19,380
IPS governance, we're moving from having a convertible security portfolio, which has been

1165
01:44:19,380 --> 01:44:25,100
positioned in the U.S. equity market to more of a global stock portfolio, and we'll go through

1166
01:44:25,100 --> 01:44:28,700
that more next month, but that's the third thing is just raising the cash to do that.

1167
01:44:31,820 --> 01:44:34,900
So that concludes my report.

1168
01:44:35,240 --> 01:44:35,560
Any questions?

1169
01:44:40,700 --> 01:44:45,100
I'm curious because it's been in the news in the last two days, and that is the downgrade

1170
01:44:45,100 --> 01:44:47,880
by rating agencies in China.

1171
01:44:48,560 --> 01:44:54,280
And what impact, if any, would that have on our investments, even though we're limited,

1172
01:44:54,280 --> 01:44:59,920
I would assume at this point but in Asian investing and things of that

1173
01:45:00,480 --> 01:45:29,820
So, what impacts does that have on the market? So, to receive me, how does this question is the downgrade of China's debt? And which brings up China? So, I'll answer it in Part A and Part B. Part A is, you know, China hit the gas about nine months ago. And it is just rippled through the world. That is why things are so strong. They're strong in Germany, they're strong in Europe, they've been strong here. And the way they hit the gas is creating debt. And that's been both in the real estate markets.

1174
01:45:29,820 --> 01:45:30,780
in the commodity markets.

1175
01:45:32,820 --> 01:45:36,140
It would be an entire off site to talk about how the Chinese economy

1176
01:45:36,140 --> 01:45:40,760
works and how they're going to resolve these data issues. It is the topic of the day

1177
01:45:40,760 --> 01:45:46,440
every day someplace. And there's a widespread of opinions. And then I can tell you the opinion

1178
01:45:46,440 --> 01:45:52,040
range from they will collapse in the conflagration of problems to, are you kidding me? They just decide

1179
01:45:52,040 --> 01:45:57,520
what to do and do it and they're a big growing rich country. So we don't know. It's your question.

1180
01:45:57,520 --> 01:46:02,020
We don't have any big, active, specific bets in China.

1181
01:46:02,660 --> 01:46:05,620
So we're going to feel China, which is why I did Part A.

1182
01:46:06,360 --> 01:46:07,800
And China expands as fast as they did.

1183
01:46:08,540 --> 01:46:09,340
So is the world.

1184
01:46:09,460 --> 01:46:11,620
If China has a big hiccup, we'll all feel it.

1185
01:46:11,900 --> 01:46:12,620
Which is a big country.

1186
01:46:14,340 --> 01:46:14,620
Thanks.

1187
01:46:15,580 --> 01:46:15,940
Okay.

1188
01:46:16,360 --> 01:46:17,480
We're going to go to...

1189
01:46:17,480 --> 01:46:18,060
That's one question.

1190
01:46:18,880 --> 01:46:19,740
The government's issue.

1191
01:46:19,900 --> 01:46:21,100
So at least I understand.

1192
01:46:21,580 --> 01:46:22,820
The movement on your convertibles.

1193
01:46:24,700 --> 01:46:29,000
This is authority that we, the board, have delegated to staff to move within, presumably

1194
01:46:29,000 --> 01:46:33,780
the ranges we've set around the asset classes, and this would have been an example of doing

1195
01:46:33,780 --> 01:46:34,100
that.

1196
01:46:35,160 --> 01:46:38,320
And this was, was it a converged classified as a fixed or then the equity?

1197
01:46:38,500 --> 01:46:39,000
They were equities.

1198
01:46:39,340 --> 01:46:43,160
Okay, so you're just moving within subclasses within our ranges for equity, correct?

1199
01:46:45,870 --> 01:46:52,210
Okay, so tab 11 is the standard CI market support for the sake of time because the experts

1200
01:46:52,210 --> 01:46:57,310
are here, I'm going to make the points in one sentence with each point. I'm going to go through

1201
01:46:57,310 --> 01:47:02,810
the graphs. If you want to come back and ask questions, I'll answer them. Okay. So, first thing,

1202
01:47:03,850 --> 01:47:07,190
Fed stated its course last meeting, but it's pretty obvious when you look at the charts,

1203
01:47:07,890 --> 01:47:11,790
they're going to keep raising short-term rates. This is the probability they do a Fed hike.

1204
01:47:12,290 --> 01:47:17,330
Second thing, what is the Fed look at? An employment? Well, it's pretty low. Doesn't mean there aren't

1205
01:47:17,330 --> 01:47:21,670
people still looking for jobs, but it's pretty low. And what do they want to see? People have jobs

1206
01:47:21,670 --> 01:47:26,930
with wages doing what? Going up, wages are going up. So this is about as

1207
01:47:26,930 --> 01:47:35,650
Goldilocks as you get if you're a Fed Chair. So as point one, point two, we had

1208
01:47:35,650 --> 01:47:40,190
the French elections. It's a big deal. They stayed down the middle of the fairway

1209
01:47:40,950 --> 01:47:46,230
and that has brought great relief to the markets in Europe. So the next one on

1210
01:47:46,230 --> 01:47:51,110
the horizon is Italy. Markets tend to look three or four months ahead, anywhere

1211
01:47:51,110 --> 01:47:55,350
from six to nine months out, keep you posted, but they're doing the

1212
01:47:55,910 --> 01:47:58,270
negotiations now, the word on the street is they'll figure it out.

1213
01:47:58,930 --> 01:47:59,330
It's doable.

1214
01:48:00,010 --> 01:48:01,050
So anyway, Europe's in pretty good shape.

1215
01:48:02,470 --> 01:48:05,870
Next point, international equities have done extraordinarily well.

1216
01:48:05,990 --> 01:48:07,810
You saw that in this return report, we're overweight.

1217
01:48:08,490 --> 01:48:12,210
A lot of it has to do with one China, and Europe is actually,

1218
01:48:12,350 --> 01:48:14,690
I mean, the numbers, the fundamental numbers in Europe are strong,

1219
01:48:15,270 --> 01:48:20,270
and they've avoided the self-impaling of trying to have some scenario

1220
01:48:20,270 --> 01:48:22,490
where France leaves the Eurozone 30 days or something.

1221
01:48:23,150 --> 01:48:24,330
I guess it would be the term.

1222
01:48:25,450 --> 01:48:30,690
And then last point, we call this the trustee good child

1223
01:48:30,690 --> 01:48:30,970
chart.

1224
01:48:32,210 --> 01:48:36,210
This is the monthly small business optimism index.

1225
01:48:36,390 --> 01:48:37,990
It's been put together since the 70s

1226
01:48:37,990 --> 01:48:39,590
by the National Federation of Independent Business.

1227
01:48:40,350 --> 01:48:43,430
You can see that leap that we showed you three months ago,

1228
01:48:43,910 --> 01:48:44,470
post-Trump.

1229
01:48:45,010 --> 01:48:47,390
And the question that trustee good child asks us

1230
01:48:47,390 --> 01:48:49,410
is I'd like to see this in three months to see it.

1231
01:48:49,410 --> 01:48:53,610
actually is sustainable and as you can see there's two more data points and it

1232
01:48:53,610 --> 01:48:57,270
certainly has been so there's this high expectation that things are going to

1233
01:48:57,270 --> 01:49:03,810
get better and it's still captured in this index. So that concludes the

1234
01:49:03,810 --> 01:49:04,750
market's report question.

1235
01:49:05,470 --> 01:49:05,830
Dan.

1236
01:49:06,330 --> 01:49:11,270
On number four the retail trends with the trends what they are and the changes in

1237
01:49:11,270 --> 01:49:17,190
latitudes and attitudes as far as these kinds of investments go how does that

1238
01:49:17,190 --> 01:49:19,150
impact any of our real estate holdings.

1239
01:49:20,290 --> 01:49:22,130
I did skip over that for the sake of efficiency.

1240
01:49:22,310 --> 01:49:27,590
If you go to this chart, the last thing we want to own is real estate investment trust

1241
01:49:27,590 --> 01:49:28,970
and malls.

1242
01:49:30,650 --> 01:49:36,330
But the reason we put that in is, you know, this whole technology revolution is hitting

1243
01:49:36,330 --> 01:49:39,950
every part of the economy, and it has really affected retail.

1244
01:49:40,530 --> 01:49:46,810
And we put this in here, one, to make the point that it hasn't affected all retail, because

1245
01:49:46,810 --> 01:49:52,210
industrial real estate investment trust because the economy is strong we're doing well but this is

1246
01:49:52,210 --> 01:49:56,310
just one segment and we're just aware of it we're just it's a story we want to let you know we're

1247
01:49:56,310 --> 01:50:05,350
on top of it and you know first rule is don't do anything dumb so it's good yeah I read a Bloomberg the

1248
01:50:05,350 --> 01:50:13,850
other day that there was some kind of a hiccup in this whole Brexit negotiations thing can you comment

1249
01:50:13,850 --> 01:50:16,710
And then on that and what impact you think that might have in the European market?

1250
01:50:18,730 --> 01:50:23,270
So the question is the story was in Bloomberg and all the places about Brexit.

1251
01:50:25,450 --> 01:50:30,730
We've taken the approach that it's going to be impossible to know how this plays out,

1252
01:50:31,590 --> 01:50:34,850
and it'll be really impossible to forecast what the markets are going to do.

1253
01:50:35,430 --> 01:50:39,050
So we're just kind of like diversifying the way that out.

1254
01:50:39,230 --> 01:50:41,650
So far it's been pretty positive for the UK.

1255
01:50:42,250 --> 01:50:47,810
So, we've just tried to ignore the world as ending, or the world couldn't be better type

1256
01:50:47,810 --> 01:50:51,550
stories than acting on them, which is right down the middle of the fairway here until we

1257
01:50:51,550 --> 01:50:52,030
figure it out.

1258
01:50:52,710 --> 01:50:52,910
Thank you.

1259
01:50:54,710 --> 01:50:55,110
Okay.

1260
01:50:55,670 --> 01:50:55,910
All right.

1261
01:50:56,490 --> 01:51:04,850
So, we're going to go to tabs 12 and 13, and again, let me just set the framework, because

1262
01:51:04,850 --> 01:51:11,250
starting now, I'd like it to be as interactive as possible, and anybody who's up here, you're

1263
01:51:11,250 --> 01:51:16,710
comfortable to just stop, just put your hand up stop, ask a question, because we have two

1264
01:51:16,710 --> 01:51:19,830
kind of big topics.

1265
01:51:20,290 --> 01:51:24,590
One is I want to go through the research we showed you last year on private markets.

1266
01:51:24,930 --> 01:51:29,810
I want to go through an update and just talk about what we've learned and what it tells us

1267
01:51:29,810 --> 01:51:30,990
we think we should do.

1268
01:51:31,930 --> 01:51:36,430
But in place of having me, one person saying that, you've got Tom, you've got Mike, you've

1269
01:51:36,430 --> 01:51:36,790
got Steve.

1270
01:51:36,790 --> 01:51:42,750
The enormous depth, so I want you to, anything you want to ask somebody else, just on private

1271
01:51:42,750 --> 01:51:47,230
markets as I go through it, just ask them, there's no kind of format here.

1272
01:51:48,130 --> 01:51:51,710
Second part is, we did do a lot of rigorous work on the trust fund.

1273
01:51:52,150 --> 01:51:57,270
How much risk is in there, what the returns could be, and because our job is to diversify

1274
01:51:57,270 --> 01:52:03,290
not only the actual securities in the trust fund but information sources, I'm going to report

1275
01:52:03,290 --> 01:52:08,170
to you input from seven sources to whom we're here, and then we just want to talk about

1276
01:52:08,170 --> 01:52:08,910
these processes.

1277
01:52:09,210 --> 01:52:13,650
So when we show you the results in June and say we think we should do this, you're like,

1278
01:52:13,730 --> 01:52:16,970
okay, I've got the frame or reference and you've had a chance to ask the experts.

1279
01:52:17,450 --> 01:52:17,790
Makes sense?

1280
01:52:18,770 --> 01:52:18,950
Okay.

1281
01:52:19,150 --> 01:52:25,210
So let's go to the private equity review that was presented to you on October 16, and I'm

1282
01:52:25,210 --> 01:52:30,130
going to rapidly go through, everyone would close notes of the highlights from that.

1283
01:52:31,070 --> 01:52:38,490
Highlight one is, you know, at the beginning of the century, there wasn't much money in private equity or hedge funds.

1284
01:52:39,470 --> 01:52:44,570
And the source of this is from I conceive, you know, a little, you know, $600 billion.

1285
01:52:45,870 --> 01:52:50,310
It's like pushing, it's more than this now, it's pushing five trillion.

1286
01:52:51,290 --> 01:53:00,110
It's people like us saying, we need returns when you go get them for us, and we'll pay you lots of money and we'll wait seven to twelve years to find out.

1287
01:53:00,110 --> 01:53:01,270
And this is worth repeating.

1288
01:53:01,890 --> 01:53:04,510
We need returns, we'll pay you a lot of money,

1289
01:53:04,890 --> 01:53:06,850
and we'll wait five or seven years to find out.

1290
01:53:07,050 --> 01:53:08,210
Sometimes 12.

1291
01:53:09,430 --> 01:53:10,310
So that's point one.

1292
01:53:10,570 --> 01:53:14,450
Point two is, yeah, it really matters when you do this.

1293
01:53:15,070 --> 01:53:19,590
So these are returns of buyouts from a very respected study

1294
01:53:19,590 --> 01:53:21,970
in each point on the bottom.

1295
01:53:21,970 --> 01:53:23,610
The year is when the money is put in the ground.

1296
01:53:24,330 --> 01:53:25,830
Trustee Vortman asked me a great question.

1297
01:53:26,010 --> 01:53:27,190
What happened in the 90s?

1298
01:53:27,910 --> 01:53:32,110
And I, before I said, oh, I know the answer, I went and asked a group of people and the

1299
01:53:32,110 --> 01:53:36,090
standard answer was, well, interest rates went up a lot in $94.95, that didn't help.

1300
01:53:36,770 --> 01:53:39,330
And then everybody was getting into the tech bubble at the wrong time.

1301
01:53:39,890 --> 01:53:43,450
Our takeaway is, you have to pay attention to when you put the money in the ground.

1302
01:53:44,350 --> 01:53:45,670
It's the most dominant thing.

1303
01:53:46,610 --> 01:53:50,810
And then the last two charts I want to highlight, because we went through these with you, these

1304
01:53:50,810 --> 01:53:55,530
These are trust funds under the county employment

1305
01:53:55,530 --> 01:53:59,410
retirement law in California, and what the staff did

1306
01:53:59,410 --> 01:54:03,790
we presented to you is we said, how much of that

1307
01:54:03,790 --> 01:54:09,410
trust fund is in private markets, and then what

1308
01:54:09,410 --> 01:54:09,990
were the returns?

1309
01:54:10,530 --> 01:54:13,510
And what you can see is you can have a lot in private

1310
01:54:13,510 --> 01:54:16,050
markets, that's the far left, or you can have a

1311
01:54:16,050 --> 01:54:18,890
little, but that dotted line which captures the

1312
01:54:18,890 --> 01:54:19,410
average return?

1313
01:54:21,430 --> 01:54:24,210
Didn't move much. We did that for three years. It was the same.

1314
01:54:25,030 --> 01:54:31,290
Here's the actual fees. So here's the takeaway. Just because you're in private

1315
01:54:31,290 --> 01:54:34,370
markets. Just because you say we're going to spend a lot of money doesn't mean

1316
01:54:34,370 --> 01:54:37,710
you're going to get the returns. Doesn't mean you can't. If you want to be a

1317
01:54:37,710 --> 01:54:40,610
little bit humble and think through, what are we doing? Why are we doing it?

1318
01:54:40,670 --> 01:54:43,930
I'm going to kind of go through that thing. So now I'm going to give you an update on

1319
01:54:43,930 --> 01:54:46,010
that. So if we go to the next tab,

1320
01:54:49,490 --> 01:54:52,890
Martin's going to bring it up. Since we showed you

1321
01:54:52,890 --> 01:54:56,990
this work we did going through all the counties, there's a large scale study on this done

1322
01:54:56,990 --> 01:55:03,430
by the Pew Research Institute. And one of the tables in that study, I thought was helpful

1323
01:55:03,430 --> 01:55:10,330
and it actually confirmed, independently confirmed, those California county charts. And here it

1324
01:55:11,610 --> 01:55:17,430
These are 73 public pension plans in 2006 and 2015.

1325
01:55:18,710 --> 01:55:20,070
Let me tell you what the red dots are first.

1326
01:55:20,470 --> 01:55:23,730
It's the fees that that plan was paying.

1327
01:55:24,050 --> 01:55:26,290
And by the way, in the appendix is the actual list.

1328
01:55:26,570 --> 01:55:29,350
So you can see Arizona Public Safety Network time worked.

1329
01:55:30,590 --> 01:55:32,750
It was paying 200 basis points.

1330
01:55:33,870 --> 01:55:35,070
And they're the far left dot.

1331
01:55:35,330 --> 01:55:36,310
You can see it on the 200.

1332
01:55:37,110 --> 01:55:41,990
And all I did with that data was I just printed it in a chart that says high-feed loafing.

1333
01:55:43,190 --> 01:55:47,470
And then the blue numbers are for each of those plans the returns they got.

1334
01:55:50,370 --> 01:55:56,330
Now, Jim has a PhD, so I'm going to let him, like Steve's not doing that right, but I'm

1335
01:55:56,330 --> 01:55:58,330
going to give you a bold statement about this chart.

1336
01:55:59,850 --> 01:56:06,190
In a minimum, I can't make the case that because I have a lot of money and private equity,

1337
01:56:06,470 --> 01:56:07,290
I get better returns.

1338
01:56:08,090 --> 01:56:10,010
In a minimum, I can say that pretty confidently.

1339
01:56:10,810 --> 01:56:14,890
I could probably say, there's no combination, there's just no connection.

1340
01:56:15,350 --> 01:56:19,130
Like, you know, I get returns, I pay a lot, but I don't see any connection here.

1341
01:56:20,030 --> 01:56:24,570
Maybe I can make a case that the less I have and feed is the higher my returns.

1342
01:56:24,570 --> 01:56:28,250
That would be my, I passed the test if you were teaching.

1343
01:56:29,170 --> 01:56:29,570
Yes,

1344
01:56:31,890 --> 01:56:36,550
in general, the central tendency is right, but as you see, there's a wide variation around it.

1345
01:56:36,710 --> 01:56:41,970
So picking your private equity managers, if you're going to be in private equity, is very important for the process.

1346
01:56:44,730 --> 01:56:45,410
Second point.

1347
01:56:46,170 --> 01:56:48,610
Yes, I always pause when I hear those responses.

1348
01:56:49,410 --> 01:56:53,230
I mean, I think all of us, we really understand how picking the right manager is critical.

1349
01:56:53,230 --> 01:56:56,470
But no one has yet been able to tell us how to pick the right manner.

1350
01:56:57,370 --> 01:56:58,530
Everybody says so.

1351
01:56:58,910 --> 01:57:03,990
We know prospectively this is the right manager, but an hindsight, it's a

1352
01:57:03,990 --> 01:57:04,450
crap shoot.

1353
01:57:06,130 --> 01:57:09,210
It's not a perfect science, there is no perfect way to do it.

1354
01:57:10,770 --> 01:57:16,050
In my view, it comes down to the classic people process

1355
01:57:16,050 --> 01:57:17,330
in past performance.

1356
01:57:17,910 --> 01:57:21,070
Past performance indicates they've done something right in the past.

1357
01:57:21,070 --> 01:57:25,350
people you can look at their resumes and their track records and what they've

1358
01:57:25,350 --> 01:57:31,990
done gives you some indication of their knowledge base and the process

1359
01:57:31,990 --> 01:57:37,750
indicates gives us some idea of do they have a repeatable process process to

1360
01:57:37,750 --> 01:57:42,990
doing it so you know I as somebody who sees what we do and knows number people in

1361
01:57:42,990 --> 01:57:48,890
private equity the question I ask is what is your edge is it a specific

1362
01:57:48,890 --> 01:58:12,310
Do you have specific knowledge in a specific area that's an inefficient part of the market, or do you have something else that you bring to bear, but given how much money is out there right now chasing deals in private markets, you know, I generally want to get some comfort that they do have some specific area knowledge that's relatively neat and understand some inefficiency of the market.

1363
01:58:13,710 --> 01:58:18,050
So, I would like to append something to a gymset, because I think it's going to be our theme.

1364
01:58:18,830 --> 01:58:20,230
One, it's really hard to do.

1365
01:58:20,770 --> 01:58:23,110
So, let's be careful and be humble and think how we're doing it.

1366
01:58:23,510 --> 01:58:24,990
Because it's hard to do the first people, that's right.

1367
01:58:26,090 --> 01:58:30,490
Any gymsist wants to spot on, you're going to see what we're going to talk about is,

1368
01:58:30,710 --> 01:58:32,270
let's work with the right firms.

1369
01:58:32,710 --> 01:58:35,110
Let's work to know those firms. Let's get the right people.

1370
01:58:35,750 --> 01:58:39,030
And then I ask the question, how are you going to make money for us, and how much risk we're taking,

1371
01:58:39,030 --> 01:58:40,810
and literally do it like that.

1372
01:58:41,190 --> 01:58:43,750
the humble work hard, but ask these core questions.

1373
01:58:43,990 --> 01:58:45,010
Do we want to work with this firm?

1374
01:58:45,790 --> 01:58:47,650
Are these very competent good people?

1375
01:58:48,670 --> 01:58:49,970
And how do we think we'll make money

1376
01:58:49,970 --> 01:58:51,110
in this particular investment?

1377
01:58:51,230 --> 01:58:52,830
And not only the staff, but our consultants,

1378
01:58:53,090 --> 01:58:54,750
and other experts, and really walk through it?

1379
01:58:55,130 --> 01:58:56,230
But that is a good question.

1380
01:58:57,070 --> 01:58:58,750
So I want to go through a couple more pieces of research.

1381
01:59:00,090 --> 01:59:01,790
Excuse me, before you leave the chart,

1382
01:59:01,950 --> 01:59:02,790
what you're going to be able to do

1383
01:59:02,790 --> 01:59:04,390
with the digital conversation?

1384
01:59:04,970 --> 01:59:05,210
You're on.

1385
01:59:05,610 --> 01:59:07,450
I mean, to me, that's the most profound chart

1386
01:59:07,930 --> 01:59:13,450
that was in Steve's package. There's a very clear relationship between the lower the

1387
01:59:13,450 --> 01:59:17,330
fees as a generalization and all the things being equal in the higher the return.

1388
01:59:17,810 --> 01:59:23,370
Not the opposite. And it's like my eyeball and it would take some statistician to confirm whether my

1389
01:59:23,370 --> 01:59:27,590
eyeball is accurate or not. One would expect that your return would be higher by the

1390
01:59:27,590 --> 01:59:31,310
amount of fees you say. But my eyeball tells me those returns are even more

1391
01:59:31,310 --> 01:59:35,530
higher than the amount of fees. There's another variable in there. And whether there's

1392
01:59:35,530 --> 01:59:39,810
There's something that the lower fees indicate there's a simplicity of necessity, a simplicity

1393
01:59:39,810 --> 01:59:40,410
or portfolio.

1394
01:59:40,650 --> 01:59:45,650
Whether that generates a higher return in love itself than a more complicated portfolio,

1395
01:59:46,150 --> 01:59:46,850
independent of fees.

1396
01:59:47,470 --> 01:59:51,850
But the very intriguing chart, a very compelling one versus the philosophy that Steve has been

1397
01:59:51,850 --> 01:59:55,550
advocating to us is simplicity is not the enemy of good returns.

1398
01:59:59,040 --> 01:59:59,880
That's why I put the table.

1399
02:00:00,000 --> 02:00:29,980
All the details in the back, because it's like they could city those $10,000 stories and you actually have to look at every story. Think about it. So, I'm going to tell you a story of this chart. These are private equity returns for energy investments in the all-born database. So, again, these are private equity returns for energy investments in the all-born database. And what I asked all-born to do was for each year that the money went in the ground. So, the first bars went to ground in 2000. The second bars went to ground in 2000.

1400
02:00:30,360 --> 02:00:35,820
in 2002. I said, what are the high and low return? This is this point if you could pick

1401
02:00:35,820 --> 02:00:36,400
good managers.

1402
02:00:38,820 --> 02:00:43,920
And it's the pattern of, I don't care which bar you pick. If you get it

1403
02:00:43,920 --> 02:00:49,020
wrong, and so people say, well, you should always be invested then because you can't time

1404
02:00:49,020 --> 02:00:53,560
it. I'm like, well, that sounds like a good way to make me into an ATM machine for your,

1405
02:00:54,820 --> 02:00:58,380
because it's really hard to know whether to do this. And I said, well, our job is not

1406
02:00:58,380 --> 02:01:02,460
to avoid the hard questions. So part of this theme of underwriting is, is this a good

1407
02:01:02,460 --> 02:01:06,220
time or not? So, Jim and the point, with all the money in chasing private equity and

1408
02:01:06,220 --> 02:01:11,880
valuations, I'm not a great time to be aggressive about it. Here, take my money. And this chart

1409
02:01:11,880 --> 02:01:16,940
really captures it. Okay. Here's the appendix, it's all the names.

1410
02:01:19,240 --> 02:01:20,300
So, that's the data.

1411
02:01:20,420 --> 02:01:24,800
We're going to go to the next section, and I'm going to talk fast because you've seen some

1412
02:01:24,800 --> 02:01:27,960
of this before, but we're going to talk about it in more of a formal setting.

1413
02:01:28,560 --> 02:01:36,500
questions. Yes. On your chart that you showed relative to fees and returns. Where do we rank

1414
02:01:36,500 --> 02:01:44,620
in there because I didn't see us listed on that list. So we're now in the middle.

1415
02:01:45,040 --> 02:01:51,500
Okay. Yeah. And in the middle kind of moving to the right. Thank you.

1416
02:01:53,520 --> 02:01:54,500
like in the 60s.

1417
02:02:00,120 --> 02:02:02,140
High-fee stuff for digeration.

1418
02:02:03,220 --> 02:02:04,400
Unless we want to bail out the subject.

1419
02:02:05,760 --> 02:02:06,320
But it moves.

1420
02:02:06,640 --> 02:02:07,520
So we get money back.

1421
02:02:07,660 --> 02:02:08,340
We had these conversations.

1422
02:02:08,520 --> 02:02:09,900
People say you should go on our next fund.

1423
02:02:10,180 --> 02:02:11,080
And we go, how much is it?

1424
02:02:11,240 --> 02:02:12,320
And how much will we get return?

1425
02:02:12,480 --> 02:02:13,200
You know, what are returns?

1426
02:02:13,900 --> 02:02:14,860
And so you walk through the trends,

1427
02:02:14,900 --> 02:02:16,020
and they say, well, it's 220.

1428
02:02:16,340 --> 02:02:17,680
And we're going, we're a problem with that.

1429
02:02:18,020 --> 02:02:19,880
And plus we just hire this fantastic

1430
02:02:19,880 --> 02:02:21,160
for public pension capital.

1431
02:02:21,360 --> 02:02:22,180
And it's like one in tech.

1432
02:02:23,220 --> 02:02:23,580
Hey, I'll go.

1433
02:02:23,960 --> 02:02:24,660
You know, we should talk.

1434
02:02:24,840 --> 02:02:25,960
We have another way to do this.

1435
02:02:27,740 --> 02:02:31,520
So, as soon as you say you have an alternative and you want to get that alignment, there's

1436
02:02:31,520 --> 02:02:32,460
always this side conversation.

1437
02:02:33,080 --> 02:02:34,740
We should talk we have something else we should say.

1438
02:02:35,360 --> 02:02:38,480
All right, private markets model.

1439
02:02:38,660 --> 02:02:43,760
So, Corey Wuhan worked with us last year, he had been at the city, and what we want to do

1440
02:02:43,760 --> 02:02:44,140
is array.

1441
02:02:44,440 --> 02:02:44,960
How do you do these?

1442
02:02:45,140 --> 02:02:45,500
Who doesn't?

1443
02:02:45,700 --> 02:02:46,240
How do you do it?

1444
02:02:46,880 --> 02:02:48,020
What can we learn from that?

1445
02:02:48,800 --> 02:02:52,740
And so, what I'm going to do is rapidly go through the models, and I'm going to summarize

1446
02:02:52,740 --> 02:02:55,800
a recommendation that I have as we go forward next year.

1447
02:02:55,980 --> 02:02:58,320
It's not a policy recommendation, but it's how we'd operate.

1448
02:02:58,760 --> 02:03:01,460
So I want you to say, yes, to ask questions if you disagree.

1449
02:03:02,580 --> 02:03:05,740
So there's no decision here, but I think it's thoughtful

1450
02:03:05,740 --> 02:03:07,260
and it fits some of the prior conversation.

1451
02:03:07,480 --> 02:03:08,840
So let's go through the models very fast.

1452
02:03:09,660 --> 02:03:12,820
If you're small and you want to be in private equity,

1453
02:03:13,440 --> 02:03:14,960
fun to find is not a bad solution.

1454
02:03:15,040 --> 02:03:16,360
It's like a mutual fund of private equity.

1455
02:03:16,580 --> 02:03:17,120
That's a good news.

1456
02:03:17,380 --> 02:03:19,680
Well, diversified, it's easy, it's one decision.

1457
02:03:20,520 --> 02:03:22,200
The challenge is, it's very expensive,

1458
02:03:22,200 --> 02:03:26,920
and you have limited control, because it's a fun, it's got to respect this, it's got two layers of fees.

1459
02:03:27,820 --> 02:03:32,380
But it's efficient for that part of the market. The second way to do it is outsource the whole deal.

1460
02:03:33,100 --> 02:03:39,120
There are outsourced CIO firms for five markets. There's one very successful here in Malaya, step so.

1461
02:03:39,660 --> 02:03:42,720
You pay down, you say, here's the money, you decide where to put it.

1462
02:03:43,680 --> 02:03:49,280
And you'll be paid fees, plus performance fees, and then the annoying managers will be paid fees, plus performance fees.

1463
02:03:49,280 --> 02:03:53,480
but we think we'll get the high returns we want. We'll do it. That's two.

1464
02:03:54,580 --> 02:03:58,780
Option three, which is really what we have today in many ways,

1465
02:03:59,260 --> 02:04:05,140
is you hire a consulting firm or firms to tell you how much money to be

1466
02:04:05,140 --> 02:04:08,420
in which asset class and which managers to consider hiring,

1467
02:04:09,120 --> 02:04:12,780
and then you assign the staff to go find them and the staff comes back to you and say,

1468
02:04:12,900 --> 02:04:15,920
hire this manager. And so if you think about the pieces there,

1469
02:04:17,400 --> 02:04:24,360
Aon would say, be 10% private equity and you say, okay, and then you say to the staff,

1470
02:04:24,680 --> 02:04:29,820
well go find 10% private equity so we would call up Aon or all born and say, well, who

1471
02:04:29,820 --> 02:04:30,220
should we hire?

1472
02:04:31,180 --> 02:04:34,800
And they say, well, here's the best firms, go interview them, and then Tom and I go back

1473
02:04:34,800 --> 02:04:37,460
to our office and say, if we don't get this money invested by the next board meeting,

1474
02:04:37,460 --> 02:04:42,560
we'll probably lose our jobs and we, I mean, a bit extreme, but that's the basic structure

1475
02:04:42,560 --> 02:04:43,260
of the model, right?

1476
02:04:43,260 --> 02:04:49,240
it's get the money in the ground, find good firms. Then there's a fourth option. This has been done

1477
02:04:49,240 --> 02:04:54,520
enormously successfully by the Canadians. The state was consenced on it well, the state of

1478
02:04:54,520 --> 02:05:00,620
South Dakota has done it well in public funds. And basically you say, why would we pay all these fees

1479
02:05:00,620 --> 02:05:07,620
out here? If we pay 20% of that in here, we can get better returns and save 80% of the fees.

1480
02:05:08,120 --> 02:05:09,480
And so it's the internal model.

1481
02:05:10,360 --> 02:05:14,900
The challenge to that is the Canadian say, oh, our solution is we pay our investment staff

1482
02:05:14,900 --> 02:05:15,880
like our hockey players.

1483
02:05:16,780 --> 02:05:18,900
You know, there's his headline news.

1484
02:05:19,040 --> 02:05:23,620
I mean, there's a kerfuffle in Wisconsin because we're got out the bonus pool for the staff

1485
02:05:23,620 --> 02:05:27,620
as $11 million in a year that the numbers were below zero.

1486
02:05:28,940 --> 02:05:30,380
Well, it's tough to manage that.

1487
02:05:30,560 --> 02:05:34,860
Although Tom and I wouldn't mind splitting $11 million, but I mean, so those are the four

1488
02:05:34,860 --> 02:05:35,260
options.

1489
02:05:36,120 --> 02:05:41,240
These are standard options. We have in the deck for your reference points some information on each of them.

1490
02:05:42,420 --> 02:05:46,380
I'm going to talk about the fifth option here. And what we've done the underwriting model.

1491
02:05:47,000 --> 02:05:52,100
And as you know, we've gone from a lot of managers to smaller managers, smaller side, stable managers.

1492
02:05:52,600 --> 02:05:57,860
We've looked for the best people in the best firms and we've worked to create alignment with them

1493
02:05:58,900 --> 02:06:02,840
and have them working what they do day in and day out where they're the best at.

1494
02:06:03,160 --> 02:06:04,300
Jim's a good example today.

1495
02:06:04,740 --> 02:06:07,460
But they're going to be for our trust fund and we're paying them fairly to do that.

1496
02:06:08,280 --> 02:06:11,480
What that means in private equity then is this theme of alignment.

1497
02:06:12,180 --> 02:06:14,660
Who are the firms? We're not going to work with every firm.

1498
02:06:15,980 --> 02:06:18,900
And we want to, it'll be three, four, five, ten.

1499
02:06:20,480 --> 02:06:23,300
And those are the firms we want to work with and then the people.

1500
02:06:23,300 --> 02:06:30,660
So, for example, we have $400 million in real estate in a separate account with Reef, which

1501
02:06:30,660 --> 02:06:31,620
is the division of Deutsche Bank.

1502
02:06:31,920 --> 02:06:32,940
They've done a good job for us.

1503
02:06:33,640 --> 02:06:34,760
They're very experienced.

1504
02:06:35,100 --> 02:06:38,760
When we talk to them, it's a serious conversation about how much money will we make?

1505
02:06:38,980 --> 02:06:39,940
How are we making it?

1506
02:06:40,340 --> 02:06:41,300
How are you paying us?

1507
02:06:41,740 --> 02:06:42,980
Their response is very clear.

1508
02:06:43,140 --> 02:06:43,780
Here's what we're doing.

1509
02:06:43,940 --> 02:06:45,680
Here's how much we think you can make now.

1510
02:06:45,860 --> 02:06:50,060
And by the way, we are completely open to how we structure this separate account going

1511
02:06:50,060 --> 02:06:50,480
forward.

1512
02:06:50,960 --> 02:06:57,520
So it's a properly aligned rather reasonable that's different than saying we have the best performance for the last three years

1513
02:06:57,520 --> 02:07:00,080
And we joined this fund we're trying to raise a billion dollars

1514
02:07:00,640 --> 02:07:10,600
So this is underwriting the people and then I'm going to go to if we go to the next I want to go to one thing on that deck

1515
02:07:10,600 --> 02:07:14,580
Sorry, but I'm going to go through a couple points on the underwriting

1516
02:07:15,380 --> 02:07:21,960
But we have a fee appendix in here, which Greg and Tom will go through next meeting.

1517
02:07:22,720 --> 02:07:23,900
But this is really important.

1518
02:07:24,020 --> 02:07:27,500
We spend a lot of money on our private equity portfolio, and you can see it here.

1519
02:07:28,720 --> 02:07:33,640
And we've called this the trusty hand clock chart, because he has to see spending in perspective.

1520
02:07:33,880 --> 02:07:34,780
So let me tell you what's here.

1521
02:07:35,600 --> 02:07:38,000
The first two bars are fiscal year 14 and 15.

1522
02:07:38,560 --> 02:07:41,760
It's all the fees we've spent that have been reported in the CAFER.

1523
02:07:41,760 --> 02:07:47,960
What is not, I don't know why not in here, is a breakout between public and private markets,

1524
02:07:48,940 --> 02:07:52,900
between incentives and not incentives, because we don't have the granularity,

1525
02:07:53,900 --> 02:07:59,780
because Greg's new and I'm new and Tom's new. We do have it for 16 and 17.

1526
02:08:00,380 --> 02:08:04,140
And so what you can see here is, one, fees are down a lot to trust the

1527
02:08:04,140 --> 02:08:11,800
Riffy's question from about 105 basis points, 110 basis points, down into the 60 range and

1528
02:08:11,800 --> 02:08:16,920
basis points, and the big chunk of that is our commitments towards private.

1529
02:08:18,600 --> 02:08:20,100
And here you can see it in basis points.

1530
02:08:20,540 --> 02:08:25,280
So we think Tom and I think it's 63 this year, down from 107.

1531
02:08:26,620 --> 02:08:30,200
We want to think real carefully how we spend this money, and that's our goal here in private.

1532
02:08:30,420 --> 02:08:32,800
We want to spend, we want to pay our manager's money.

1533
02:08:32,800 --> 02:08:40,480
But you want the staff to be able to say, we paid PIMCO $100, but there's $300 in the trust fund after we paid them

1534
02:08:41,280 --> 02:08:43,980
because of their work, and we can see it, we can measure it.

1535
02:08:44,960 --> 02:08:49,360
Okay, that was, let's go to the next one now, and we'll see if I can visit.

1536
02:08:50,180 --> 02:08:53,500
I had a comment to that on that chart, first of all,

1537
02:08:54,020 --> 02:09:01,500
you've shown on that earlier research from Pew that paying high fees does not correlate to getting higher returns.

1538
02:09:01,500 --> 02:09:09,580
I mean, that's clear, you've the concept of the underwriting model makes total sense.

1539
02:09:10,000 --> 02:09:15,840
I mean, we have intelligent leaders in the investment side of San Eosera.

1540
02:09:16,600 --> 02:09:21,580
You are trying to control what you can control, which is the element of interest and the fees

1541
02:09:21,580 --> 02:09:23,940
that you pay and the managers you deal with.

1542
02:09:24,840 --> 02:09:30,640
So you're selecting those that you have conviction about, it will be intelligent with the money.

1543
02:09:30,640 --> 02:09:32,960
you're going to create stronger alignment of interests.

1544
02:09:33,580 --> 02:09:36,300
It's going to manifest itself in lower fees.

1545
02:09:37,160 --> 02:09:40,860
And I believe it would also improve returns

1546
02:09:40,860 --> 02:09:42,300
and certainly alignment of interests.

1547
02:09:42,900 --> 02:09:45,340
So it makes absolute sense.

1548
02:09:46,060 --> 02:09:47,840
And you'll be working with those managers

1549
02:09:47,840 --> 02:09:51,260
who would be stingy right now deploying capital.

1550
02:09:51,900 --> 02:09:54,460
So make commitments so you have the exposure

1551
02:09:54,460 --> 02:09:57,320
to the asset class, to the edge,

1552
02:09:57,720 --> 02:09:58,960
the competitive advantage that they have.

1553
02:09:58,960 --> 02:10:03,220
But they're going to be very thoughtful about the deployment of that capital because even

1554
02:10:03,220 --> 02:10:09,100
though you make a commitment on one year, it'll be five before that capital is ultimately

1555
02:10:09,100 --> 02:10:09,580
deployed.

1556
02:10:10,020 --> 02:10:12,520
So again, it comes back to working with the right manager.

1557
02:10:13,160 --> 02:10:20,080
So that Model 5 makes absolutely total sense and you've already begun implementing it

1558
02:10:20,080 --> 02:10:22,180
in effect when you became CIO.

1559
02:10:24,390 --> 02:10:30,450
So, the spirit, transparency and accountability, we're going to go build on what Trustee

1560
02:10:30,450 --> 02:10:31,030
M. P. said.

1561
02:10:31,130 --> 02:10:35,870
So, we want you to know what we're doing, but I'm also going to review and tab 15.

1562
02:10:39,050 --> 02:10:43,430
The underwriting process, we've already put in place for private markets, we made it

1563
02:10:43,430 --> 02:10:43,870
too step.

1564
02:10:44,010 --> 02:10:45,930
I just don't repeat this just so long on the same page.

1565
02:10:47,050 --> 02:10:52,370
If we see a private market's investment, we come to you and say, here's the firm, that's

1566
02:10:52,370 --> 02:10:53,190
why we won't put the firm.

1567
02:10:53,690 --> 02:10:54,210
Here's the people.

1568
02:10:54,210 --> 02:10:55,330
Here's how much we'll make.

1569
02:10:56,190 --> 02:10:57,830
Here's the people that are going to present to you.

1570
02:10:58,430 --> 02:11:00,890
You make a decision to go forward or not.

1571
02:11:01,410 --> 02:11:04,410
If we go forward, then we come back to you with a second analysis.

1572
02:11:04,830 --> 02:11:05,810
We've repeated a few.

1573
02:11:06,470 --> 02:11:08,070
We tell you we've done all the legal work.

1574
02:11:08,190 --> 02:11:09,910
So we've just made it a two-step process,

1575
02:11:09,910 --> 02:11:12,190
and that's what this tab memorializes for you.

1576
02:11:12,650 --> 02:11:14,250
That's already in place, and we're doing it.

1577
02:11:15,690 --> 02:11:18,070
Okay, so now we go to the next tab.

1578
02:11:19,590 --> 02:11:22,290
And we're going to conclude this section.

1579
02:11:23,270 --> 02:11:29,050
And what I've written to you is that we actually adopt this underwriting model.

1580
02:11:30,490 --> 02:11:33,650
And we can do this within the IPS.

1581
02:11:34,510 --> 02:11:36,870
We were Tom, David and I reviewed it.

1582
02:11:37,010 --> 02:11:41,650
But we think it's so important that the board understand it and talk about it

1583
02:11:42,210 --> 02:11:45,950
that you would affirm to us, yes, we understand you're doing it

1584
02:11:45,950 --> 02:11:50,830
and we're comfortable if this is how you're going about your private markets work today for us.

1585
02:11:53,720 --> 02:11:58,680
I don't know if we need a policy adoption on this, but my goal is transparency and accountability.

1586
02:11:59,000 --> 02:11:59,580
This is what we're doing.

1587
02:12:01,000 --> 02:12:03,380
And this is what we think will add value.

1588
02:12:07,500 --> 02:12:11,740
I would certainly put that forth as recommended by Steve.

1589
02:12:12,260 --> 02:12:13,000
I'll second that.

1590
02:12:13,280 --> 02:12:21,920
I think it is within the purview of staff, but I think a motion does, in fact, reinforce the fact that everything's been put on the table in front of us.

1591
02:12:21,920 --> 02:12:25,260
and we are in concurrence to move in that direction.

1592
02:12:25,720 --> 02:12:26,660
And motion is?

1593
02:12:27,000 --> 02:12:30,920
To adopt the underwriting model for private markets and

1594
02:12:30,920 --> 02:12:31,400
applications.

1595
02:12:31,660 --> 02:12:32,800
And that is my second.

1596
02:12:33,520 --> 02:12:33,660
Okay.

1597
02:12:34,140 --> 02:12:34,260
Tim.

1598
02:12:34,960 --> 02:12:35,400
And then Dick.

1599
02:12:35,720 --> 02:12:36,200
Read with the motion.

1600
02:12:37,400 --> 02:12:38,080
Oh, it's easy.

1601
02:12:38,880 --> 02:12:43,260
I mean, it's for us now and for future boards,

1602
02:12:43,580 --> 02:12:46,160
the best thing about it is we've classified

1603
02:12:46,160 --> 02:12:48,140
the range of options out there.

1604
02:12:48,820 --> 02:12:51,740
And we've made it very clear what is

1605
02:12:51,740 --> 02:12:55,680
is the most effective structure for this board.

1606
02:12:56,920 --> 02:12:57,080
Dick?

1607
02:12:57,620 --> 02:13:03,800
Just for clarity, putting a whole process in picture here from once we the board have

1608
02:13:03,800 --> 02:13:08,220
agreed on a asset allocation, which would include a segment devoted to this.

1609
02:13:08,920 --> 02:13:12,900
And once you have brought a candidate that fits your in the running model and we have approved

1610
02:13:12,900 --> 02:13:16,120
that, if I'm understanding it, let's pick a number, we got a hundred million dollars.

1611
02:13:16,800 --> 02:13:19,720
You're going to be funding them through their budget and so on and so forth.

1612
02:13:19,720 --> 02:13:25,220
But whether or not you commit that $100 million, we've delegated to you to make that decision

1613
02:13:25,720 --> 02:13:29,460
if and when the stars are aligned right based on your cooperation.

1614
02:13:30,300 --> 02:13:36,140
And until you decide to fund that, that $100 million will be spread across the allocation pro-rata

1615
02:13:36,780 --> 02:13:40,380
and when you do fund it, you'll draw down from the other aligned items pro-rata

1616
02:13:40,380 --> 02:13:42,500
that the intention about would work.

1617
02:13:43,560 --> 02:13:47,340
I mean, previously, if my memory's right, when we used to have an allocation for alternative

1618
02:13:47,340 --> 02:13:54,300
of the capital calls hasn't been gone yet. We tried to replicate that through a hybrid

1619
02:13:54,300 --> 02:13:55,380
of other investments.

1620
02:13:56,440 --> 02:13:59,140
And it's out there and we call it quasi-alternative.

1621
02:13:59,560 --> 02:14:05,180
The IPS calls for rebalancing ranges around asset class targets. So your staff, Steven's team

1622
02:14:05,180 --> 02:14:11,660
has flexibility to alter that, but ultimately it will be roughly 70% return seeking equities

1623
02:14:11,660 --> 02:14:16,240
and roughly 30% fixed income. And so at any point in time, when one of your private managers

1624
02:14:16,240 --> 02:14:22,120
calls capital down, Tom, Steve, and Mike, and I look at current allocations and where

1625
02:14:22,120 --> 02:14:24,000
should that money come from based upon their judgment.

1626
02:14:24,660 --> 02:14:29,200
The model gives them flexibility to operate within board approved policy.

1627
02:14:29,300 --> 02:14:32,100
Tactically, you become aware that within the range, right?

1628
02:14:34,020 --> 02:14:36,500
I would like to append one important thing to that.

1629
02:14:37,520 --> 02:14:42,540
It does not, the intention is not to go off and sign contracts or do things, the intention

1630
02:14:42,540 --> 02:14:50,220
is that there's a process, the firm, the people, the investment, and that we will come

1631
02:14:50,220 --> 02:14:53,700
to you and say, we think we should do this, which increases this part of the market at

1632
02:14:53,700 --> 02:14:54,840
this time within the ranges.

1633
02:14:56,620 --> 02:14:59,840
When you said discretion or tactical, it's not as though we're making

1634
02:15:10,780 --> 02:15:16,420
I'm actually a little bit hesitant to adopt this at this point. I think this is a personnel

1635
02:15:16,420 --> 02:15:24,420
specific authoritative or dict mandate. So that is to say that I feel comfortable with

1636
02:15:24,420 --> 02:15:28,840
this since you're in the spot. So if we adopt this model and then you're not in the spot,

1637
02:15:28,840 --> 02:15:33,600
basically give them the next CIO sort of free reign. I don't know if we should have a sunset

1638
02:15:33,600 --> 02:15:41,480
clause on it and have it be sort of, yeah, that it has to renew with each new CIO. But I mean,

1639
02:15:41,560 --> 02:15:48,320
this is basically complete authority. So again, I'm not entirely comfortable only assuming,

1640
02:15:48,580 --> 02:15:52,180
you know, you were in that role. So I don't know if it's something we can revisit in the future,

1641
02:15:52,600 --> 02:15:54,800
or not, but that's my one concern.

1642
02:15:57,930 --> 02:15:59,310
David, do you want to respond to that?

1643
02:15:59,310 --> 02:16:03,890
Well, Steve should, because I had a question for Steve, respect to complete authority.

1644
02:16:04,410 --> 02:16:08,430
One of Steve's strengths in terms of transparency and coming back to the board getting people

1645
02:16:08,430 --> 02:16:14,030
on the boat is this process envisions the board being involved in making these decisions,

1646
02:16:14,030 --> 02:16:16,390
not Steve doing it or Tom, whether or not.

1647
02:16:16,410 --> 02:16:19,670
But that's my point, though, David, is that I completely trust the people he's bringing

1648
02:16:19,670 --> 02:16:20,010
forth.

1649
02:16:20,010 --> 02:16:23,910
And then that two-step process that he gives us the information that we then act on.

1650
02:16:24,090 --> 02:16:28,610
But if it wasn't Steve, then it's a different gatekeeper.

1651
02:16:28,610 --> 02:16:30,590
that's bringing us in opportunities or investments

1652
02:16:31,330 --> 02:16:33,430
that I think I would have concern with this sort of

1653
02:16:33,430 --> 02:16:33,890
expertise.

1654
02:16:34,290 --> 02:16:34,970
So that's my only point.

1655
02:16:35,330 --> 02:16:37,830
So I understand Trustee Vega just question.

1656
02:16:39,790 --> 02:16:42,950
Let me try a kind of a connected sequence here

1657
02:16:42,950 --> 02:16:45,450
that maybe Daniel said, oh, this is an improvement

1658
02:16:45,450 --> 02:16:46,130
for more rad.

1659
02:16:46,710 --> 02:16:49,510
Right now, we're in mixed mode.

1660
02:16:50,130 --> 02:16:53,830
We have this top-down allocation with big ranges

1661
02:16:53,830 --> 02:16:56,390
that's been set or visited next month.

1662
02:16:56,390 --> 02:17:00,170
We don't have a set of rules for how to do it in the middle.

1663
02:17:00,450 --> 02:17:03,950
So as money comes into our investments or we get cash from the county,

1664
02:17:04,450 --> 02:17:10,730
there is no set process of how to put those private investments in the ground.

1665
02:17:11,910 --> 02:17:15,690
We just don't, we haven't had one under and I've been promising you to come back with one.

1666
02:17:16,190 --> 02:17:20,190
So I think this process would be bigger than me in the sense that

1667
02:17:21,090 --> 02:17:24,990
there's an annual allocation review with the consultant on what the ranges are.

1668
02:17:26,170 --> 02:17:31,750
All investments will be driven by, this is the right firm, the right people, and the right

1669
02:17:31,750 --> 02:17:32,170
investment.

1670
02:17:32,670 --> 02:17:36,250
And all investments come to you for twice.

1671
02:17:37,190 --> 02:17:38,790
So you actually have a lot of control.

1672
02:17:39,010 --> 02:17:43,570
So it just memorializes how we've been operating in a way.

1673
02:17:44,850 --> 02:17:51,130
This defines the discipline of the process that is added control.

1674
02:17:51,630 --> 02:17:58,110
And if for some reason Steve should ever not be here, A, we have the ability to change the process.

1675
02:17:58,490 --> 02:18:02,510
And B, we have the comfort and control of our general consultant.

1676
02:18:03,210 --> 02:18:05,250
It's a piece of concrete you're standing on.

1677
02:18:05,450 --> 02:18:10,630
So let's say that I guess the UT reported there's a lot of sharks off the coast these days.

1678
02:18:11,070 --> 02:18:11,970
I might mention that to me.

1679
02:18:12,510 --> 02:18:13,390
It's funny on the morning.

1680
02:18:14,310 --> 02:18:18,570
But to your point, you don't want these things to be tied to an individual or a team.

1681
02:18:18,570 --> 02:18:23,690
I would think if I wasn't here tomorrow morning, you're in good shape because it's a process

1682
02:18:23,690 --> 02:18:24,570
that everybody's in.

1683
02:18:24,670 --> 02:18:29,730
And you can say, I want to talk about this process, pull up that memorandum and how we're

1684
02:18:29,730 --> 02:18:30,350
going to change it.

1685
02:18:30,490 --> 02:18:34,250
Without that, you don't, we don't have any concrete right now because we were in this transition

1686
02:18:34,250 --> 02:18:37,910
period and this is the apartment market's concrete.

1687
02:18:38,510 --> 02:18:44,550
And I think what Samantha's raising is the model, is that something that does not depend

1688
02:18:44,550 --> 02:18:53,410
and on one particular individual that establishes a model that would go depending on whoever is the CIO?

1689
02:18:54,830 --> 02:18:57,190
I'm going to ask the independent experts.

1690
02:18:58,650 --> 02:19:00,770
Well, a couple things to keep in mind.

1691
02:19:01,510 --> 02:19:06,730
One, this particular model doesn't change the fact that all private investments come before you for approval.

1692
02:19:06,730 --> 02:19:13,170
So the IPS currently calls for that section B, the delegation authority, all private investments

1693
02:19:13,170 --> 02:19:13,990
have to come to you.

1694
02:19:14,870 --> 02:19:18,910
The staff can make follow-on investments of up to 1% to an existing, so you have an

1695
02:19:18,910 --> 02:19:23,210
existing relationship with a private manager, Stephen Tom can decide after their underwriting

1696
02:19:23,210 --> 02:19:27,810
using the processes and the methods that he just described, they can do follow-on investments

1697
02:19:27,810 --> 02:19:28,890
of 1%.

1698
02:19:28,890 --> 02:19:34,430
So you're still in control of the aggregate asset allocation to private equity and private

1699
02:19:34,430 --> 02:19:34,930
real estate.

1700
02:19:34,930 --> 02:19:39,810
You're still in control of the ranges around those and they will continue to be sufficiently

1701
02:19:40,810 --> 02:19:46,130
narrow so that you get what you expect to get and you're still vetting hearing from

1702
02:19:46,130 --> 02:19:49,650
and vetting the private investment deals before they go into the trust fund.

1703
02:19:51,230 --> 02:19:57,470
So the answer is we like the model we encourage you to endorse it in terms of whether it's

1704
02:19:57,470 --> 02:20:00,790
hard coded in policy or an addendum to the statement of the investment policy.

1705
02:20:00,790 --> 02:20:02,290
They don't have a really strong opinion on that.

1706
02:20:02,910 --> 02:20:05,810
We're Steve or your circumstances were

1707
02:20:05,810 --> 02:20:06,550
to change tomorrow.

1708
02:20:07,050 --> 02:20:09,790
You revisit structure, you visit policy.

1709
02:20:10,190 --> 02:20:11,190
And I don't feel more comfortable about it.

1710
02:20:11,290 --> 02:20:12,410
There was a line that said this policy

1711
02:20:12,410 --> 02:20:15,270
should be visited upon installation of a new CIO.

1712
02:20:16,010 --> 02:20:17,510
I didn't hear in the motion though

1713
02:20:17,510 --> 02:20:19,990
that we were asking staff to come back with a policy.

1714
02:20:19,990 --> 02:20:23,230
What I heard is that we're adopting the recommendation

1715
02:20:23,770 --> 02:20:26,450
on the model, the underwriting model

1716
02:20:26,450 --> 02:20:28,310
for private market allocation.

1717
02:20:28,310 --> 02:20:35,030
So it's simply a motion and action of this board which could be changed and we're supporting

1718
02:20:35,030 --> 02:20:36,210
with staff is saying.

1719
02:20:37,830 --> 02:20:43,890
So it's not, it's not, it's not ever locked in, it could always be changed by this

1720
02:20:43,890 --> 02:20:49,070
board or future board, but it's guidance and we don't have anything now.

1721
02:20:49,690 --> 02:20:55,230
So this at least puts in place or codifies what you are already doing.

1722
02:20:55,430 --> 02:20:56,470
Is that fair to say?

1723
02:20:56,690 --> 02:20:56,990
It does.

1724
02:20:56,990 --> 02:21:03,990
Okay, so it's really a codification of what the staff is doing, and by the motion it

1725
02:21:03,990 --> 02:21:07,430
supports what the staff is currently doing.

1726
02:21:07,630 --> 02:21:14,670
And of course the sentence at the end may be that this process gets reviewed annually,

1727
02:21:14,890 --> 02:21:16,090
the annual ask allocation update.

1728
02:21:16,690 --> 02:21:18,870
Okay, really driven by depending on the results.

1729
02:21:19,310 --> 02:21:21,010
Samantha, is that for you?

1730
02:21:21,130 --> 02:21:21,550
Yes, perfect.

1731
02:21:21,650 --> 02:21:23,930
Okay, Richard, skip, and then Dan.

1732
02:21:26,910 --> 02:21:34,210
Almost every conversation of this general area and others as well, you talk about interest

1733
02:21:34,210 --> 02:21:43,430
alignments and incentive alignments and so to me there must be some, there's an inference

1734
02:21:43,430 --> 02:21:52,190
not knowing you or not knowing the history of the last couple of sentences, not being

1735
02:21:52,190 --> 02:21:59,630
and number four of the model, as opposed to just, or by the way, we're going to work

1736
02:21:59,630 --> 02:22:01,050
on incentive alignments.

1737
02:22:02,110 --> 02:22:11,010
So what was your decision to not make a requirement and alignment as opposed to Google

1738
02:22:11,010 --> 02:22:12,070
work toward it?

1739
02:22:15,510 --> 02:22:17,250
Which page are we on, Trustee?

1740
02:22:17,330 --> 02:22:18,670
We're on the page that's on the board.

1741
02:22:18,670 --> 02:22:32,910
You have four, three main points with respect to the underwriting model and then your conclusion is we're going to work on aligning the interests.

1742
02:22:33,290 --> 02:22:41,090
Okay. My question being, isn't that at the fourth point or do you not want to be bound by that?

1743
02:22:41,090 --> 02:22:41,130
Yes.

1744
02:22:43,840 --> 02:22:44,920
It is the fourth point.

1745
02:22:47,420 --> 02:22:52,300
I made it a separate paragraph because we have this larger effort including public markets

1746
02:22:52,300 --> 02:22:55,340
have given better alignment of interest, but I could have easily been the fourth point.

1747
02:22:56,380 --> 02:23:04,080
As I say, not knowing the context, reading it alone, the words will work to create, sort

1748
02:23:04,080 --> 02:23:09,340
of give wiggle room to subsequent generations of people.

1749
02:23:10,060 --> 02:23:12,360
So we'll make it the fourth point when we update this.

1750
02:23:12,360 --> 02:23:14,680
It's not a big point. It is a point, however.

1751
02:23:15,480 --> 02:23:18,380
We'll do that. We will make that the fourth, and we'll add the sentence.

1752
02:23:19,120 --> 02:23:21,960
The new last sentence will be the annual review of the IPS.

1753
02:23:23,200 --> 02:23:23,460
Skip?

1754
02:23:23,960 --> 02:23:30,100
Yeah, I'm totally in support of endorsing this concept.

1755
02:23:30,760 --> 02:23:36,900
And my question to Steve is, this sounds like what you and I have talked about in the past.

1756
02:23:37,460 --> 02:23:42,960
relative to PIMCO. I see all these blurbs and I wonder what's going on and you

1757
02:23:42,960 --> 02:23:46,760
told me that we're dealing with a firm that's solid. We're dealing with

1758
02:23:46,760 --> 02:23:51,820
certain people that are in our corner and we have an alignment with. Is this

1759
02:23:51,820 --> 02:23:56,180
this is exactly what you're trying to do, correct? Exactly. Okay.

1760
02:23:59,190 --> 02:24:00,830
Dan? I'll

1761
02:24:00,830 --> 02:24:08,990
answer the question. Okay. We have a motion and a second to support the adoption of

1762
02:24:08,990 --> 02:24:13,070
the underwriting model for private market allocations, please vote.

1763
02:24:16,820 --> 02:24:25,280
Adopt is the motion is the motion going to change the last sense to point four or is it?

1764
02:24:25,820 --> 02:24:27,120
I don't think the motion is the change.

1765
02:24:27,560 --> 02:24:32,060
Adopting the underwriting model and what you added is just is a part of it.

1766
02:24:32,740 --> 02:24:35,760
Okay, well I won't vote on it for this in this way.

1767
02:24:35,760 --> 02:24:36,860
I mean, I won't.

1768
02:24:36,920 --> 02:24:37,180
Oh, yes.

1769
02:24:37,680 --> 02:24:38,740
It's just for clarity.

1770
02:24:39,120 --> 02:24:40,220
What was it?

1771
02:24:40,460 --> 02:24:41,640
What was it?

1772
02:24:41,640 --> 02:24:42,380
What was it?

1773
02:24:42,460 --> 02:24:42,480
What was it?

1774
02:24:42,480 --> 02:24:45,060
It was heard to add the fourth part that Richard mentioned.

1775
02:24:45,900 --> 02:24:46,280
No, it's not.

1776
02:24:46,520 --> 02:24:47,420
The annual review.

1777
02:24:47,760 --> 02:24:48,620
As amended.

1778
02:24:48,920 --> 02:24:51,020
So as amended would be the right term.

1779
02:24:51,100 --> 02:24:53,180
We're going to amend what you see in the screen, too.

1780
02:24:53,380 --> 02:24:56,180
As one, the last paragraph becomes point four.

1781
02:24:56,460 --> 02:24:57,360
As amended is fine.

1782
02:24:57,760 --> 02:25:02,160
And then the last sentence will be for trusty beg of it that we review.

1783
02:25:02,420 --> 02:25:03,780
That really makes me a lot happier.

1784
02:25:03,980 --> 02:25:04,100
Yeah.

1785
02:25:04,100 --> 02:25:05,100
I want you to be happy.

1786
02:25:05,540 --> 02:25:06,000
Thank you.

1787
02:25:06,020 --> 02:25:08,820
That is what my wife felt the same way.

1788
02:25:09,220 --> 02:25:13,000
Whoever is recording this motion, have it all now.

1789
02:25:13,580 --> 02:25:14,820
Is that you, Elaine?

1790
02:25:15,200 --> 02:25:16,280
And it's on the tape as well.

1791
02:25:16,640 --> 02:25:16,960
Thank you.

1792
02:25:18,000 --> 02:25:20,060
Does the second concur in the interview?

1793
02:25:20,080 --> 02:25:20,360
I do.

1794
02:25:22,240 --> 02:25:23,020
Please vote.

1795
02:25:29,870 --> 02:25:31,070
Motion carries unanimously.

1796
02:25:31,070 --> 02:25:32,290
All members present.

1797
02:25:32,890 --> 02:25:33,610
Moving right along.

1798
02:25:34,030 --> 02:25:34,250
Okay.

1799
02:25:34,390 --> 02:25:38,170
Can I make one point on Samantha's comment?

1800
02:25:38,930 --> 02:25:39,210
Sure.

1801
02:25:39,210 --> 02:25:46,570
If that is her concern, which I don't doubt, and if I don't happen to be here, all you

1802
02:25:46,570 --> 02:25:51,410
have to do when you interview CIO candidates is take this document in and put it right

1803
02:25:51,410 --> 02:25:54,790
next to the face of the person you're looking at, and if you don't trust them to do what you

1804
02:25:54,790 --> 02:25:56,390
just adopted, don't hire them.

1805
02:25:57,770 --> 02:25:59,150
It's about that simple.

1806
02:26:00,550 --> 02:26:00,670
Huh?

1807
02:26:01,510 --> 02:26:01,990
Or her?

1808
02:26:02,550 --> 02:26:02,810
I guess.

1809
02:26:03,470 --> 02:26:04,170
Unless it's her.

1810
02:26:04,550 --> 02:26:04,910
Okay.

1811
02:26:05,530 --> 02:26:12,190
I think the fact of the matter seems to me that you were doing this anyway and just because

1812
02:26:12,190 --> 02:26:16,490
we're operating now in full transparency, you brought it to the attention of the board

1813
02:26:16,490 --> 02:26:22,250
and you didn't really ask us to adopt it, but I think that that's part of our responsibility

1814
02:26:22,250 --> 02:26:25,770
to support what already is being done.

1815
02:26:26,030 --> 02:26:26,670
So nothing new.

1816
02:26:26,810 --> 02:26:29,510
We did have a lot of discussion on it and thank you very much.

1817
02:26:30,830 --> 02:26:31,670
We'll move on.

1818
02:26:31,670 --> 02:26:36,590
We are now on tab 12, which will be the fun part, and so here's how I'm going to very

1819
02:26:36,590 --> 02:26:39,930
briefly set the stage for what's coming in June, but I'm not going to go through a lot

1820
02:26:39,930 --> 02:26:42,170
of the beginning, which is my part.

1821
02:26:42,350 --> 02:26:43,170
Nothing I turned over to Jim.

1822
02:26:43,490 --> 02:26:44,970
What tab did you say?

1823
02:26:47,310 --> 02:26:48,190
Tab 17.

1824
02:26:48,810 --> 02:26:50,050
Yeah, that sounds better.

1825
02:26:50,450 --> 02:26:53,250
Tab 17 were on item 13.

1826
02:26:55,450 --> 02:27:01,550
So the chart on the screen is the chart you saw when we did the work in the fall of

1827
02:27:01,550 --> 02:27:06,690
15 and it took the capital markets inputs from our consultant at the time, which is

1828
02:27:06,690 --> 02:27:07,030
Varus.

1829
02:27:07,410 --> 02:27:10,350
This is the capital markets input from ANHUIT.

1830
02:27:10,570 --> 02:27:16,290
It used their risk models to simulate what could happen to our trust fund over the

1831
02:27:16,290 --> 02:27:16,850
next decade.

1832
02:27:17,770 --> 02:27:22,030
And I've labeled this the thumb chart because if you take your thumb and put it on the chart

1833
02:27:22,030 --> 02:27:26,810
on the page at the bottom of the gray bar, you should expect anything under your thumb

1834
02:27:26,810 --> 02:27:27,410
to happen.

1835
02:27:27,730 --> 02:27:28,570
It's really important.

1836
02:27:28,570 --> 02:27:35,690
And so what we've done, because this is industry standard, yes, we've had...

1837
02:27:35,690 --> 02:27:37,490
Depends on how big your thumb is.

1838
02:27:37,670 --> 02:27:38,730
Yes, my thumb.

1839
02:27:39,250 --> 02:27:42,430
So we've had two board educations on how...

1840
02:27:42,430 --> 02:27:43,550
Am I thinking of President Trump?

1841
02:27:43,850 --> 02:27:43,950
Yes.

1842
02:27:44,610 --> 02:27:49,490
How returns are calculated, what risk is, what liquidity is, what uncertainty is.

1843
02:27:50,270 --> 02:27:57,130
So what we've done to be prepared for June is if you go to the next page,

1844
02:27:57,130 --> 02:28:08,450
which is our asset allocation, we've given this to seven firms and said you analyze our portfolio and tell us what your models tell you it would be.

1845
02:28:09,690 --> 02:28:14,190
This is the portfolio we gave them in detail. You've seen this type of chart before.

1846
02:28:14,990 --> 02:28:21,710
They have all come back and said based on our expertise, here's what we think the risk and return of the portfolio could be.

1847
02:28:23,280 --> 02:28:29,700
We've also asked them to say if the wheels come off a kind of coldest chair Jacob chart,

1848
02:28:29,940 --> 02:28:33,560
it's really bad what happens based on their modeling.

1849
02:28:34,520 --> 02:28:39,200
And when you think about models, I put the opening line to Anna Krenner down there,

1850
02:28:40,240 --> 02:28:46,220
like just like all happy families are like, but each unhappy family is unhappy in its own way.

1851
02:28:47,080 --> 02:28:54,940
All of these best in class firms have the same modeling expertise that they all model differently.

1852
02:28:55,420 --> 02:29:00,200
So we should expect it in results. The important thing is, one, we have a wide breadth of inputs.

1853
02:29:00,560 --> 02:29:06,080
We'll share with you in more detail in June. Two, we've got the best of the best in the experts doing it.

1854
02:29:06,500 --> 02:29:12,200
So what I'm going to do now is I'm going to end my part on this and turn it over to June because Jim is here to talk with you.

1855
02:29:13,040 --> 02:29:18,200
more talk with you for some time. How do we do this? How does this happen? How do we do it?

1856
02:29:18,580 --> 02:29:21,340
And you can see the PIMCO numbers are here on the chart on this table.

1857
02:29:23,730 --> 02:29:27,850
So you have some context for how the best people do it and where these numbers came from.

1858
02:29:28,550 --> 02:29:33,370
No one Jim's done is represented as a way on. Mike and Steve are going to walk you through how they do it.

1859
02:29:33,870 --> 02:29:41,410
There's no decision here. There's no judgment. It's so you have this granularity of these numbers from the best people.

1860
02:29:41,410 --> 02:29:47,110
And then in June when we talk, hopefully you'll have more comfort like okay when we see what they did

1861
02:29:47,110 --> 02:29:49,950
We see why they're recommending you have this deeper context

1862
02:29:49,950 --> 02:29:55,030
So if that I'm going to turn over to Jim and then Mike and Steve. Tim, did you have something before we go to Jim?

1863
02:29:55,810 --> 02:29:55,910
Okay

1864
02:29:56,590 --> 02:29:59,690
You're on. Thank you. It's a pleasure to be here

1865
02:30:00,000 --> 02:30:29,480
First, let me thank SD Sarah for the vote of confidence they have in PIMCO. It's a pleasure to serve you and manage money on your behalf and behalf of your retirees and current active employees. I had a group called Investment Client Solutions. If we look globally in the team, combined strategist, analytics, and technology, we're a little over 30 people. We do studies

1866
02:30:29,480 --> 02:30:37,480
is like the one that's in your board book, probably 750 to 800 studies for clients globally.

1867
02:30:38,200 --> 02:30:43,000
What's in the board book was something that my colleagues walked through with Steve

1868
02:30:46,210 --> 02:30:47,870
about six weeks ago.

1869
02:30:48,750 --> 02:30:52,470
In the interest of time, I think would you spend about an hour and a half going through

1870
02:30:52,470 --> 02:30:53,050
it with Anshul?

1871
02:30:53,450 --> 02:30:53,730
Is that right?

1872
02:30:53,850 --> 02:30:58,050
In the interest of time, I'm going to go to a few pages to highlight some of the focus

1873
02:30:58,050 --> 02:31:01,850
It's Steve wanted us to talk principally about process

1874
02:31:01,850 --> 02:31:03,490
and how we think about this.

1875
02:31:04,110 --> 02:31:05,630
So I'm going to spend the majority of time

1876
02:31:05,630 --> 02:31:09,630
talking about how we get to our expected returns

1877
02:31:09,630 --> 02:31:11,470
on our capital markets, assumptions,

1878
02:31:11,470 --> 02:31:14,870
and then how we do in a manner that's scalable,

1879
02:31:14,870 --> 02:31:19,350
so we can run studies globally, because we're not just doing it

1880
02:31:19,350 --> 02:31:21,950
for the US, we're doing it for clients in the UK

1881
02:31:21,950 --> 02:31:27,130
in Germany, in Malaysia, in Switzerland, Japan, et cetera.

1882
02:31:27,130 --> 02:31:33,070
So there's a whole large amount of things that we need to come up with expected returns on.

1883
02:31:34,070 --> 02:31:39,330
So skip ahead to page five.

1884
02:31:39,990 --> 02:31:47,230
And this is a process that we've evolved over the past five or so years that I've been involved with it.

1885
02:31:47,510 --> 02:31:55,270
And traditionally what you see in terms of expected returns is one of three different approaches.

1886
02:31:55,270 --> 02:32:00,710
The first is to say we have a long history of returns and we think all those returns

1887
02:32:00,710 --> 02:32:03,050
are equally likely in time.

1888
02:32:04,130 --> 02:32:10,090
The second is to say, well, returns can go up and down over time is their information

1889
02:32:10,090 --> 02:32:15,930
that we can use to condition those expected returns going forward and that can either

1890
02:32:15,930 --> 02:32:19,490
be a model-driven approach or some subjective approach.

1891
02:32:19,490 --> 02:32:22,550
Our approach is kind of a combination of the two.

1892
02:32:22,830 --> 02:32:27,970
We have a large team of about 60 people in analytics who look at various different

1893
02:32:27,970 --> 02:32:34,810
relationships in markets and we will use those models as guide values.

1894
02:32:35,390 --> 02:32:39,310
And then in addition to the guide values, there is a structured survey that there are about

1895
02:32:39,310 --> 02:32:43,070
14 of us who go through every six months.

1896
02:32:43,290 --> 02:32:47,610
The last time we did it was the end December beginning of January or setting up to do it for

1897
02:32:47,610 --> 02:32:55,350
mid-year assumptions and what we have is a web-based tool that we go in and we have the

1898
02:32:55,350 --> 02:32:59,930
analytics guide values you can click and see what we put in the last time we did it

1899
02:32:59,930 --> 02:33:04,630
and then taking account subjective things that we're seeing in the markets we may tailor

1900
02:33:04,630 --> 02:33:09,050
our assumptions for what returns will look like over the next three and ten years.

1901
02:33:10,170 --> 02:33:15,770
The way the guide values work is we start by looking at macroeconomic factors.

1902
02:33:15,770 --> 02:33:22,650
what are views for GDP growth, what are views for inflation, US, Europe, Japan, other

1903
02:33:22,650 --> 02:33:29,130
large markets, because conditional on our views, the models will then give specific individual

1904
02:33:29,130 --> 02:33:29,870
guide values.

1905
02:33:30,150 --> 02:33:33,790
So if I was very bullish on the US economy over the next 10 years and say it was growing

1906
02:33:33,790 --> 02:33:41,730
at 4%, the model would imply that it should have a higher view on equity markets and other

1907
02:33:41,730 --> 02:33:42,450
return values.

1908
02:33:42,450 --> 02:33:49,470
And so as we do this, we collect these things and also the information also gives us some

1909
02:33:49,470 --> 02:33:51,150
consistency checks in the process.

1910
02:33:51,670 --> 02:33:57,730
So we first start with the models, we take the survey process and then because we're

1911
02:33:57,730 --> 02:34:03,210
spanning about 3,000 different indices in a lot of different currencies we use something

1912
02:34:03,610 --> 02:34:08,710
which is a factor approach and instead of going into the nuances of factor approach for those

1913
02:34:08,710 --> 02:34:09,730
who are not familiar with it.

1914
02:34:09,730 --> 02:34:15,030
If you think about all the food that's out there and sort of decompose food, you got

1915
02:34:15,030 --> 02:34:19,550
carbohydrates, fat, protein, and then some other things that actually affect the flavor

1916
02:34:19,550 --> 02:34:22,170
but the real nutrients are really those things.

1917
02:34:23,050 --> 02:34:29,870
And so when we decompose the markets into factors from the 55 inputs, we can get a number

1918
02:34:29,870 --> 02:34:36,870
of factors that span the set and then recast that out to populate about 3,000 different indices

1919
02:34:36,870 --> 02:34:38,690
that we have in the system.

1920
02:34:38,690 --> 02:34:43,650
When we get those, there are system of automated checks that sort of go back and

1921
02:34:43,650 --> 02:34:47,470
iteratively look at them to say, are there consistencies?

1922
02:34:47,910 --> 02:34:53,690
Are certain things just look too good to be true, which would drive any sort of

1923
02:34:53,690 --> 02:34:57,030
optimization results to give sort of implausible asset allocations?

1924
02:34:57,190 --> 02:35:03,470
And generally, what we find is currencies, people have some subjective

1925
02:35:03,470 --> 02:35:09,910
of views on currencies that in reality don't square too well with historical information

1926
02:35:09,910 --> 02:35:10,270
ratio.

1927
02:35:10,530 --> 02:35:15,730
So we tend to truncate or sort of ameliorate the range on currencies, particularly emerging

1928
02:35:15,730 --> 02:35:16,350
market currencies.

1929
02:35:17,150 --> 02:35:24,250
So once we've got that, we've got a course that have used that when you take any portfolio

1930
02:35:24,250 --> 02:35:31,030
we come across, we can then take the asset allocation weights times those core expected

1931
02:35:31,030 --> 02:35:34,070
returns and that gives us a centering of the distribution.

1932
02:35:35,190 --> 02:35:39,990
What we then do with the factors is we have 20 years worth of past data and so in we

1933
02:35:39,990 --> 02:35:46,050
see month by month how those factors have actually performed and will resample from

1934
02:35:46,050 --> 02:35:51,670
those past monthly data and the procedure known as the bootstrap which will give you a wide

1935
02:35:51,670 --> 02:35:58,890
variation around that and I'll get to that in a minute in terms of an analog to Steve's

1936
02:35:58,890 --> 02:35:59,350
thumb chart.

1937
02:36:01,550 --> 02:36:05,470
So skipping ahead to page 10,

1938
02:36:07,610 --> 02:36:10,570
this was the analysis that Steve asked us to

1939
02:36:10,570 --> 02:36:29,850
do with a 7030 benchmark, the current portfolio and portfolio option 1 and portfolio option

1940
02:36:29,850 --> 02:36:42,450
One moves assets from the 18% in the S&P index and into the acquies so more sort of a

1941
02:36:42,450 --> 02:36:46,350
broader global diversification of the equity mix so take down a U.S.

1942
02:36:46,470 --> 02:36:53,050
centric concentration and also takes down the exposure to high yield.

1943
02:36:53,050 --> 02:37:03,050
portfolio. Portfolio 2 increases the exposure to U.S. equity and reduces the exposure to

1944
02:37:03,050 --> 02:37:08,470
emerging markets. And what you see down below, if you make those changes, the estimated

1945
02:37:08,470 --> 02:37:19,530
returns move from about 5.1 percent in either the current portfolio or portfolio 1 down to

1946
02:37:19,530 --> 02:37:27,050
to about 5% in option 2 and that's relative to the 70-30 benchmark expected return of

1947
02:37:27,050 --> 02:37:29,070
about 4.4%.

1948
02:37:29,070 --> 02:37:36,810
So let me take a minute to say, and if you look at the equity expected returns, we're

1949
02:37:36,810 --> 02:37:45,230
at a little over 4.5% annualized over the next 10 years for the US S&P 500, slightly higher

1950
02:37:45,230 --> 02:37:48,870
for EFU, which would be Europe, Asia,

1951
02:37:49,090 --> 02:37:52,330
Far East developed markets, and then a couple points higher

1952
02:37:52,330 --> 02:37:55,310
from an emerging markets perspective.

1953
02:37:56,050 --> 02:37:58,810
That represents a couple things, both in terms

1954
02:37:58,810 --> 02:38:02,730
of an initial valuation perspective and where we see growth

1955
02:38:03,350 --> 02:38:05,850
globally over the next decade.

1956
02:38:06,990 --> 02:38:09,630
If you look at what our growth expectations are

1957
02:38:09,630 --> 02:38:14,110
in the United States, we're predicting about a 2% real GDP growth

1958
02:38:14,110 --> 02:38:20,490
in the U.S. and about 2.3 percent inflation. So slightly higher on growth in

1959
02:38:20,490 --> 02:38:24,290
inflation than we've seen over the last 10 years but noticeably lower than if

1960
02:38:24,290 --> 02:38:30,790
we look back to say 97 through 2007. If you're understanding the numbers here,

1961
02:38:31,010 --> 02:38:34,390
the returns, you used to word return, those are nominal returns, I'm not reading.

1962
02:38:34,390 --> 02:38:37,430
Those are nominal returns. And they're aromatic or geometric. Those are geometric.

1963
02:38:40,210 --> 02:38:51,890
If we look at that, you combine with the starting point of higher valuations in the, you know,

1964
02:38:51,970 --> 02:38:56,950
using a 10-year treasury yield of about 2.45 percent right now,

1965
02:38:57,390 --> 02:39:02,550
compare that with, you know, a decade ago where it was about 4.6 percent to start

1966
02:39:02,550 --> 02:39:11,690
and current Schiller Cape or cyclical adjusted price earnings ratio at around 27

1967
02:39:11,690 --> 02:39:21,430
versus an average long-term of around 17. We see assets being not incredibly

1968
02:39:21,430 --> 02:39:28,250
rich but sort of on the on the on the rich side globally rates much richer

1969
02:39:28,250 --> 02:39:34,010
abroad than in the United States, if you look at Europe and you look at Japan, for example.

1970
02:39:34,770 --> 02:39:45,090
We also see aging demographics, sort of tampering, or tempering how much we see returns

1971
02:39:45,090 --> 02:39:49,150
reverting to longer-term historicals, and I think one of the things that's important

1972
02:39:49,150 --> 02:39:54,230
to understand is we're now in the third-largest expansion in the US history, so the likelihood

1973
02:39:54,230 --> 02:40:00,290
of seeing a recession or two over in the next 10 years is not insignificant.

1974
02:40:00,770 --> 02:40:06,350
So our current forecast is about 20% probability of recession in the next year.

1975
02:40:06,670 --> 02:40:10,670
If you said was that mean for five years, that means there's probably about two and three

1976
02:40:10,670 --> 02:40:13,050
chance that we'll see a recession in the next five years.

1977
02:40:13,790 --> 02:40:21,790
HMF, I could ask you to help with the row at the bottom, the expected volatility and how

1978
02:40:21,790 --> 02:40:22,470
you estimate that.

1979
02:40:22,470 --> 02:40:26,570
And then if we could go through the pictures on that because I think you've done a good job

1980
02:40:26,570 --> 02:40:29,150
Most people don't do a looking at different scenarios. Yeah

1981
02:40:30,510 --> 02:40:35,830
One of the things we do is since we have these factor exposures monthly for 20 years

1982
02:40:35,830 --> 02:40:43,810
What the process does is resample from those 20 years. So what we may get is is a repeat of history

1983
02:40:43,810 --> 02:40:50,670
But we may get an over sampling of the 2008 period or an over sampling of the 2000 tech meltdown

1984
02:40:50,670 --> 02:40:57,170
And so what that's going to do is the volatilities are going to correspond or the width of the

1985
02:40:57,170 --> 02:41:03,030
distribution is going to correspond roughly to what historical volatilities are, but it's

1986
02:41:03,030 --> 02:41:08,770
also going to give you much more exposure to tails because you're coming up with hypothetical

1987
02:41:08,770 --> 02:41:17,550
worlds because you could get a tech bubble followed by a 2008 that give you some tails scenarios.

1988
02:41:17,550 --> 02:41:23,150
And the one thing, you know, I do want to stress because it's interesting looking at the figures

1989
02:41:23,150 --> 02:41:28,270
of what the realized volatility was over the past three years, is the estimated volatility

1990
02:41:28,270 --> 02:41:33,930
for all these portfolios are 11.5 to 12 percent, which is roughly twice what we've experienced

1991
02:41:34,360 --> 02:41:35,490
over the past three years.

1992
02:41:35,490 --> 02:41:42,990
And we're worried about investors getting complacent by anchoring just on the returns we've

1993
02:41:42,990 --> 02:41:47,870
seen which we think is largely a result of the amount of stimulus from central

1994
02:41:47,870 --> 02:41:49,930
blanks in the U.S. and global.

1995
02:41:51,030 --> 02:41:55,290
If I could just jump in and I want to translate something or practical things

1996
02:41:55,290 --> 02:41:58,710
we've had multiple board meetings to talk we've talked on the staff up being

1997
02:41:58,710 --> 02:42:04,350
very diversified. Part of it is to Jim's point about the potential for higher

1998
02:42:04,350 --> 02:42:08,130
volatility so when we look at these numbers and we look at different

1999
02:42:08,130 --> 02:42:12,690
portfolios, what we would not want to see which we don't is there's some jump

2000
02:42:14,210 --> 02:42:19,230
So that gives us confidence that whatever we're thinking of doing is in this space.

2001
02:42:19,230 --> 02:42:24,610
It also gives us confidence to stay diverse like, because Jim's got a couple of series

2002
02:42:24,610 --> 02:42:27,070
of visuals here that kind of capture that.

2003
02:42:29,030 --> 02:42:34,870
So yeah, to do, sure, just before you move on to the next one.

2004
02:42:35,350 --> 02:42:41,930
As I look at these different portfolio options, I see such minor changes between them and I

2005
02:42:41,930 --> 02:42:44,370
I think this is kind of going to maybe a little bit of your point.

2006
02:42:45,270 --> 02:42:48,290
They're so similar in my view.

2007
02:42:48,950 --> 02:42:53,190
I mean, if we were to make a change,

2008
02:42:53,190 --> 02:42:56,390
it would be such a minor change, which

2009
02:42:56,390 --> 02:42:58,510
tells me that we're kind of on the right track.

2010
02:42:59,230 --> 02:43:00,390
So it gives me comfort.

2011
02:43:00,830 --> 02:43:02,110
I think it's kind of one of them saying,

2012
02:43:02,550 --> 02:43:06,390
I don't know how everybody else feels, but I want

2013
02:43:06,390 --> 02:43:10,990
to amplify trustee hand talks, one, when you look at this work

2014
02:43:10,990 --> 02:43:15,550
done independent staff, it tells you that whether we recommend the current portfolio or one or two,

2015
02:43:16,810 --> 02:43:21,570
the specifics of what we're recommending are two different, and it's fact-based who have an

2016
02:43:21,570 --> 02:43:28,170
independent assessment from a pretty rigorous process, and it's one of seven. So it's specific,

2017
02:43:28,430 --> 02:43:31,330
and the recommendation, June's going to be, we're not going to make many changes. We're not going

2018
02:43:31,330 --> 02:43:36,010
to recommend many changes. Right, I think you have evidence of what that means. Yeah, so I think that's

2019
02:43:36,010 --> 02:43:40,490
my point is that we're heading into a period where we're not making major changes. We're on the right

2020
02:43:40,490 --> 02:43:45,650
path and if we tweak a little bit here or there, so it kind of, it gives me confidence

2021
02:43:45,650 --> 02:43:48,490
that we're moving in the right direction.

2022
02:43:49,070 --> 02:43:49,610
Dick?

2023
02:43:50,810 --> 02:43:55,150
I understand a lot of this is just from our background education as we prepare to make decisions

2024
02:43:55,150 --> 02:44:01,570
next month, but looking at the, to Tim's point, the expected returns across these options

2025
02:44:01,570 --> 02:44:06,310
here are all very similar, are also very deficient relative to our actual assumption.

2026
02:44:06,310 --> 02:44:14,310
Well, you also put in front of us alternative portfolios based on the capital market assumptions

2027
02:44:14,310 --> 02:44:19,190
that would get us to our actual essence.

2028
02:44:19,270 --> 02:44:23,050
We can see how extreme they would have to be in order to achieve that.

2029
02:44:23,710 --> 02:44:24,870
So, the

2030
02:44:27,560 --> 02:44:29,260
run is going to bring up the thumb chart,

2031
02:44:32,740 --> 02:44:33,480
but prior to that,

2032
02:44:36,540 --> 02:44:37,280
there's not we can

2033
02:44:37,280 --> 02:44:38,000
use Jim's one.

2034
02:44:42,220 --> 02:44:43,580
It's up to that one.

2035
02:44:45,880 --> 02:44:48,460
Mr. Boardman, your comment is a good one.

2036
02:44:48,820 --> 02:44:53,900
The word extreme is an important word in that, because when we look at the cap market assumptions from PIMCO,

2037
02:44:54,140 --> 02:44:59,700
our own, some of the other providers that provided input, there's really very few asset classes that will get you there.

2038
02:45:00,000 --> 02:45:16,140
And our humble opinion that would get you there prudently. The expected return for private equity is in the range of eight to nine percent. That is an excess of your ex-world Zoom-grade return, but not prudent to invest your money in private equity. Our expected return for global equities is seven point two.

2039
02:45:17,440 --> 02:45:31,720
But the volatility is close to 19 and Jim's comment about volatility expectations on a go-forward basis in the complacency that we've had for the last 5 to 7 years in a low of our market environment means we shouldn't be reaching for those types of things.

2040
02:45:31,740 --> 02:45:39,740
I didn't want to suggest we should but I think it would be useful for the record to show that we have considered those because we have established an actual assumption.

2041
02:45:39,740 --> 02:45:46,620
And I know what our actual is going to say is if we pick one of these, it's woefully lower than what he's using and whether he's going to come back in 12

2042
02:45:46,620 --> 02:45:49,560
So we have to make that adjustment through what we have concluded.

2043
02:45:49,940 --> 02:45:50,500
That's right.

2044
02:45:51,500 --> 02:45:54,380
Let me make a really critical point here.

2045
02:45:55,880 --> 02:45:58,420
The question is what was these pronouns?

2046
02:45:58,900 --> 02:46:00,460
So one of these is an ass allocation.

2047
02:46:01,160 --> 02:46:07,200
So if you remember the chart that we had up that showed the assing classes.

2048
02:46:07,200 --> 02:46:10,500
In Jim Moore's case, he should have expected risk for a chart.

2049
02:46:11,220 --> 02:46:12,500
So that these is an allocation.

2050
02:46:12,780 --> 02:46:14,760
So we can put an allocation in front of the board.

2051
02:46:15,780 --> 02:46:23,440
Problem is, if you look at this chart, every allocation we put in front of you, everyone will have the following.

2052
02:46:24,240 --> 02:46:33,320
It looks like based on what we know, and our best estimate of thousands of variables, you will get 5%.

2053
02:46:33,320 --> 02:46:38,520
but you should not be shocked if you get 15 or minus 5.

2054
02:46:39,200 --> 02:46:42,000
In every portfolio we put in front of you will have that profile.

2055
02:46:43,280 --> 02:46:47,400
So if you think about it, to say this portfolio will get 7,

2056
02:46:48,960 --> 02:46:51,540
the portfolio that I say gets 7 on an expected basis

2057
02:46:51,540 --> 02:46:57,790
will be statistically not too different than the one that gets 5.

2058
02:46:58,870 --> 02:47:00,970
So the question is what's the driving logic?

2059
02:47:00,970 --> 02:47:03,070
The driving logic, as Cyril says,

2060
02:47:05,640 --> 02:47:08,840
diversifies and minimizes the risk of loss and maximizes the return.

2061
02:47:09,920 --> 02:47:15,880
And with these pictures, tell us, as we've done that, we are well diversified.

2062
02:47:16,620 --> 02:47:17,920
We've managed the things we can't our fees.

2063
02:47:18,620 --> 02:47:22,580
And every one of these portfolios, and Brent, if you go down to two pictures,

2064
02:47:25,110 --> 02:47:28,670
oh, I don't have to click one, just click yeah, click down to keep going.

2065
02:47:30,330 --> 02:47:37,750
Every one of these portfolios could return easily, return 7 or 8 or 0.

2066
02:47:39,710 --> 02:47:45,810
And so there is no, my point is there is no profile that says you'll get 7 and a quarter.

2067
02:47:46,290 --> 02:47:48,950
Because every time we put that down we have to give you a range around it.

2068
02:47:49,010 --> 02:47:49,850
The range is going to be big.

2069
02:47:51,370 --> 02:47:54,290
And in Jim's point it's particularly going to be big now.

2070
02:47:54,290 --> 02:47:59,110
So I think what the path of going down is.

2071
02:48:00,250 --> 02:48:01,530
Can you bring it down?

2072
02:48:01,690 --> 02:48:02,010
I'm sure.

2073
02:48:07,000 --> 02:48:07,920
That's the one way to go.

2074
02:48:11,640 --> 02:48:12,840
Well, what are you doing for that?

2075
02:48:13,780 --> 02:48:15,900
What I'm hearing, correct me if I'm wrong,

2076
02:48:16,080 --> 02:48:18,420
these are really best guesses.

2077
02:48:19,200 --> 02:48:23,960
But their expert best guesses based on their modeling of both history

2078
02:48:23,960 --> 02:48:27,500
and I'm going to, I always call it crystal balling

2079
02:48:27,500 --> 02:48:35,740
Where might go is that a fair assumption? Yeah, I think that is it's I would say they're educated

2080
02:48:35,740 --> 02:48:40,640
Yes, it's based on all the information we have available in our our professional best estimate

2081
02:48:45,580 --> 02:48:46,460
Funds or

2082
02:48:47,560 --> 02:48:49,320
Comprehensible obligation regarding

2083
02:48:50,420 --> 02:48:56,780
There aren't very many real outliers. I mean almost everyone is kind of somewhere

2084
02:48:57,500 --> 02:49:01,100
between hours and portfolio one and two and 70, 30.

2085
02:49:01,240 --> 02:49:05,040
I mean, they're just aren't any major outliers.

2086
02:49:05,240 --> 02:49:06,720
Not in the public on the space, no.

2087
02:49:07,280 --> 02:49:09,520
Well, probably, rarely even in the private ones.

2088
02:49:09,780 --> 02:49:11,300
Well, corporate, you have a different problem.

2089
02:49:11,560 --> 02:49:14,340
They're more often than not de-risking.

2090
02:49:14,480 --> 02:49:14,880
They're frozen.

2091
02:49:15,060 --> 02:49:15,640
They're de-risking.

2092
02:49:15,900 --> 02:49:17,320
They're glide-pathing down.

2093
02:49:17,360 --> 02:49:19,900
So they're more heavily tilted towards longer data.

2094
02:49:20,040 --> 02:49:21,380
Fixed income and less towards it.

2095
02:49:21,560 --> 02:49:26,740
So I mean, we're not going to get any revolutionary

2096
02:49:29,480 --> 02:49:39,420
We're just faced with this reality that we are around this number somewhere, and the implication of that is, are some,

2097
02:49:39,560 --> 02:49:47,620
assume great, as uncomfortable as our sponsor might feel about it, is high, and all of our peers are high.

2098
02:49:49,180 --> 02:49:50,840
They've been coming down.

2099
02:49:50,840 --> 02:49:52,460
I know that we've settled down.

2100
02:49:52,720 --> 02:49:53,600
Everyone's coming down.

2101
02:49:56,120 --> 02:49:59,440
We're probably shock sponsors throughout the world

2102
02:49:59,440 --> 02:50:03,300
with how much further they have to come down to be realistic.

2103
02:50:03,920 --> 02:50:06,720
And the cost of that is telephone numbers.

2104
02:50:07,600 --> 02:50:12,900
I think the difficulty is between a rock and a hard place,

2105
02:50:12,900 --> 02:50:16,500
the rock being the investment returns in the hard place,

2106
02:50:16,500 --> 02:50:21,960
being the political reality of if you squared the expected investment returns with the funding

2107
02:50:21,960 --> 02:50:24,880
contributions would be very difficult and painful for taxpayers.

2108
02:50:29,560 --> 02:50:30,980
So it's an educated guess.

2109
02:50:31,870 --> 02:50:38,620
We went through those before and we know where we are now with the 10%.

2110
02:50:38,620 --> 02:50:45,060
So I mean like you said Steve, we could be shocked, pleasantly shocked with 15% or we could

2111
02:50:45,060 --> 02:50:46,200
go on the minus side.

2112
02:50:46,200 --> 02:50:54,220
So, why don't we move on and complete this process of an educated yes.

2113
02:50:56,340 --> 02:50:59,340
So I'm going to ask Jim to spend a couple more minutes like this.

2114
02:50:59,680 --> 02:51:00,360
Maybe the next five.

2115
02:51:00,600 --> 02:51:07,040
There's a series of charts here that capture what could happen and then we're going to have Mike and Steve go through how they do it.

2116
02:51:08,660 --> 02:51:20,140
So what this chart shows is taking that whole resampling out of 25,000 hypothetical years.

2117
02:51:20,580 --> 02:51:30,940
What you get is a slightly different shape in the distribution with the principle difference

2118
02:51:30,940 --> 02:51:39,020
between the current portfolio and option one being shown up in the upper left or near

2119
02:51:39,020 --> 02:51:43,320
the peak of the distribution and then really into the right tail.

2120
02:51:43,660 --> 02:51:51,400
And that's really driven by the overweight to emerging market equities which has the

2121
02:51:51,400 --> 02:51:58,920
propensity to in some years outperform tremendously and I think that was a large driver of what you

2122
02:51:58,920 --> 02:52:05,040
saw in your equity performance last year is emerging market equities had a very good year.

2123
02:52:05,940 --> 02:52:10,480
And if you look at what our expected return assumptions are for emerging market equities,

2124
02:52:10,940 --> 02:52:14,920
we're more bullish on emerging markets than we are in developed markets for a few reasons.

2125
02:52:15,200 --> 02:52:21,620
One from a valuation perspective, as a multiple of earnings that are at a lower level, two

2126
02:52:21,620 --> 02:52:28,160
real rates are higher and three from a demographic perspective, they tend to be younger, which is

2127
02:52:28,160 --> 02:52:30,080
where you tend to see more growth.

2128
02:52:30,860 --> 02:52:33,820
Being emerging markets that has the attendant risks

2129
02:52:33,820 --> 02:52:35,080
of being more volatile.

2130
02:52:35,300 --> 02:52:37,280
You don't have the same sort of rule of law.

2131
02:52:37,480 --> 02:52:39,380
You have more fluctuations in currencies

2132
02:52:39,380 --> 02:52:40,780
and those sorts of things.

2133
02:52:41,080 --> 02:52:44,420
So it's a question of understanding those risk

2134
02:52:45,040 --> 02:52:47,340
and return trade-offs in your comfort order.

2135
02:52:47,960 --> 02:52:49,800
So I'm going to take the moderator's part.

2136
02:52:50,000 --> 02:52:51,220
There's my favorite chart.

2137
02:52:51,440 --> 02:52:52,120
It's two charts in.

2138
02:52:54,260 --> 02:52:54,780
And

2139
02:52:57,310 --> 02:52:58,890
which I need to click on.

2140
02:52:59,530 --> 02:53:02,790
I just want to ask, I just think that one more.

2141
02:53:03,850 --> 02:53:07,910
So kind of close Jim's presentation here.

2142
02:53:09,170 --> 02:53:11,090
Not only do they simulate what could happen,

2143
02:53:11,410 --> 02:53:13,190
they said what happens in bad times,

2144
02:53:13,190 --> 02:53:14,510
which is the lower chart.

2145
02:53:16,150 --> 02:53:18,170
They said what happens in normal times,

2146
02:53:18,170 --> 02:53:20,290
which is the one you saw in general.

2147
02:53:20,770 --> 02:53:23,070
And they said what happens in really good times.

2148
02:53:23,430 --> 02:53:26,910
The reason, I think this is a good place to close

2149
02:53:26,910 --> 02:53:31,130
is twofold. One is the amount of rigor that's been going on behind the scenes and I want to be

2150
02:53:31,130 --> 02:53:38,570
confident of it. Two, a wide range of outcomes. And I was looking in my book to see the charts I

2151
02:53:38,570 --> 02:53:45,190
showed you two years ago and we were fully diversified and we focused on our fees and we've had really

2152
02:53:45,190 --> 02:53:50,090
great returns. So part of the unpredictability of life is being diversified and being prepared.

2153
02:53:50,830 --> 02:53:54,210
But we've also done this kind of homework so we're not going to be shocked at these outcomes.

2154
02:53:55,030 --> 02:53:58,490
So, any questions for Jim before we jump into that?

2155
02:53:58,510 --> 02:54:00,250
I wanted to ask you a question, Jim.

2156
02:54:00,570 --> 02:54:05,530
First of all, I really appreciate you being here and the work that you do in PIMCO does

2157
02:54:05,530 --> 02:54:05,950
for us.

2158
02:54:06,630 --> 02:54:12,950
My question, though, you concern me when you say over the next five years, there's a pretty

2159
02:54:12,950 --> 02:54:14,390
good chance of another recession.

2160
02:54:14,890 --> 02:54:20,810
I'd like you to dig a little deeper on that and provide some facts as to why you made

2161
02:54:20,810 --> 02:54:21,470
that statement.

2162
02:54:21,470 --> 02:54:22,010
Sure.

2163
02:54:23,790 --> 02:54:30,230
If you look at the frequency of recessions historically over US history, you tend to see

2164
02:54:30,230 --> 02:54:33,150
on average a recession about once every six years.

2165
02:54:33,990 --> 02:54:42,130
The last recession we had started December of 2007 and ended in early in early 2009.

2166
02:54:42,390 --> 02:54:46,530
So if you go back, we're eight years since a recession.

2167
02:54:46,530 --> 02:54:52,170
At any point in time it's very difficult to have a crystal ball that will tell you exactly

2168
02:54:52,170 --> 02:54:59,810
when a recession will happen and so we look at it probabilistically and we have a number

2169
02:54:59,810 --> 02:55:05,570
of walls that sort of look at is it is the probability increasing is the probability decreasing

2170
02:55:05,570 --> 02:55:10,450
and it uses things like the chart of sentiment that Steve showed you the chart of industrial

2171
02:55:10,450 --> 02:55:13,190
production and a number of other factors that go in.

2172
02:55:13,190 --> 02:55:21,190
Our current estimate of a probability of recession in the next year is about one in five

2173
02:55:21,190 --> 02:55:27,250
or twenty percent, which means there is an eighty percent probability of no recession

2174
02:55:27,250 --> 02:55:28,010
in the next year.

2175
02:55:28,890 --> 02:55:33,230
If you just say, if I assume it's twenty percent each and every year of the next five

2176
02:55:33,230 --> 02:55:38,450
or eighty percent probably of no recession, then the probability of no recessions at all

2177
02:55:38,450 --> 02:55:44,090
over the next five years is 0.8 to the fifth power, which is roughly about a little

2178
02:55:44,090 --> 02:55:45,110
over 30%.

2179
02:55:45,110 --> 02:55:49,710
So that gets you the idea of the odds of having a recession over the next five years

2180
02:55:49,710 --> 02:55:52,970
is about two and three or once at least one in the next.

2181
02:55:52,970 --> 02:55:59,710
But the circumstances, the last recession were very different, I mean today all indicators

2182
02:55:59,710 --> 02:56:07,630
are the economy is strong, the business environment is good, the market is good, so that's why

2183
02:56:07,630 --> 02:56:15,890
I don't get that speculation, you're just facing it on the averages, is that it?

2184
02:56:16,110 --> 02:56:22,670
The averages and how things change, I can relate a conversation, you know, I had in late

2185
02:56:22,670 --> 02:56:29,090
2006 with Tony Sanemero who was then the president of Philly Fed and was one of my dissertation

2186
02:56:29,090 --> 02:56:29,630
advisors.

2187
02:56:30,410 --> 02:56:35,090
And you know, Tony over lunch said, what are you guys seeing because we were bearish in

2188
02:56:35,090 --> 02:56:41,270
in late 2006 and 2007 and we were specifically looking at the housing market and some other

2189
02:56:41,270 --> 02:56:47,450
things because the Fed economists weren't saying it and in 2006 indicators looked

2190
02:56:48,830 --> 02:56:50,030
very robust.

2191
02:56:50,530 --> 02:56:57,950
Right now we don't see any strong indicators and that's why we're at sort of a 20% indicator.

2192
02:56:57,950 --> 02:57:08,290
If we start seeing more issues of China, for example, or we see some other fundamentals in terms of consumer behavior, and that probably may rise.

2193
02:57:09,910 --> 02:57:18,930
A year from now, I could come back and say our estimates are only 15 or 10%, but I could come back and say it's 20 or 25 or even 40%.

2194
02:57:18,930 --> 02:57:24,230
Okay. So it's a little red flag, not a big one right now.

2195
02:57:24,890 --> 02:57:31,350
Okay, Steve. Okay, we might be focusing on with the light just to bell curves.

2196
02:57:32,490 --> 02:57:35,710
Can you put that back up to that chart if I'm understanding it quickly.

2197
02:57:36,230 --> 02:57:41,410
This is the average and the return over a 10-year period and the tails get to

2198
02:57:41,410 --> 02:57:45,210
the extreme of this would say with an extremely low probability that we would

2199
02:57:45,210 --> 02:57:52,210
have a 70% annual return for 10 years. No, it is it is a what you could expect

2200
02:57:52,210 --> 02:57:58,870
for any one-year draw within the ten years. So if I looked at the cumulative over ten years,

2201
02:57:59,050 --> 02:58:03,270
that would probably shrink to a width of about a third of what you should have.

2202
02:58:03,570 --> 02:58:08,290
It can't be this. But there's a relationship between an enormous annual drawdown

2203
02:58:08,290 --> 02:58:11,650
and the subsequent years. I don't know how one reads anything.

2204
02:58:11,990 --> 02:58:21,910
Yeah, and in some sense, one of the criticisms of a bootstrapped technique is the likelihood of

2205
02:58:21,910 --> 02:58:26,930
getting back to back years, which we did happen to see in equity markets in

2206
02:58:26,930 --> 02:58:32,770
2000, 2001, 2002. So you have three bad years. But the flip side is you had

2207
02:58:32,770 --> 02:58:37,410
2007, 2000, or principally 2008 being a very bad year and it had a very sharp

2208
02:58:37,410 --> 02:58:43,090
rebound in 2009. So the possibility of getting recessions or

2209
02:58:43,090 --> 02:58:46,790
reversals is what gives you sort of a more peaked distribution but also

2210
02:58:46,790 --> 02:58:47,330
about or fail.

2211
02:58:47,490 --> 02:58:52,330
The key point is this is an annual outcome based on a 10-year average, a 10-year.

2212
02:58:53,310 --> 02:58:55,890
So this is a good time to transition.

2213
02:58:56,390 --> 02:58:57,210
Wait, Steve.

2214
02:58:57,590 --> 02:58:57,670
Bob?

2215
02:58:58,690 --> 02:59:04,430
I'd like to piggyback on Supervisor Jacob Madam Chair's question to Mr. Moore.

2216
02:59:05,510 --> 02:59:10,090
You mentioned the 2007-2008, the housing industry was the culprit.

2217
02:59:10,090 --> 02:59:17,750
All right, you mentioned as we're going forward now in 2017, we're not really seeing anything.

2218
02:59:18,390 --> 02:59:22,450
How do you come up with the 20% is that just a default setting?

2219
02:59:22,790 --> 02:59:23,950
How did you come up with that number?

2220
02:59:24,630 --> 02:59:30,990
It's a modeling technique known as sort of a probit is the modeling technique and it takes

2221
02:59:31,590 --> 02:59:37,270
various different macroeconomic and financial variables that go into this model to predict

2222
02:59:37,270 --> 02:59:45,730
predict or recession. The models in the predictor recessions can be quite volatile in terms

2223
02:59:45,730 --> 02:59:51,070
of the probability. So for example, when you get a downturn in GDP prints, it can spike

2224
02:59:51,070 --> 02:59:56,510
a bit higher. When you get downturns in sentiment or industrial production, it can go up.

2225
03:00:00,000 --> 03:00:29,900
Just take the moderator's perspective, because we're out of town, because I can summarize Jim's answer, having lived it, but I think in terms of it makes sense. We don't know when the next procession is coming, but there are rigorous kind of standard statistical procedures to take data and try and have an estimate. So the question is, is some estimate that you'll understand is imperfect? Better than none. And so I think the process is rigorous. And I just want to close in those

2226
03:00:29,900 --> 03:00:36,760
three charts. My favorite clause is the illusion of precision. We can get things to ten

2227
03:00:36,760 --> 03:00:41,240
decimal points, and you do it because it's better than having nothing, but there's

2228
03:00:41,240 --> 03:00:45,980
a precision that that could happen or will happen, not the case. So I think it's the

2229
03:00:45,980 --> 03:00:51,740
rigor to have a rigorous approach, but there's no certainty in Jim and others will know that.

2230
03:00:51,920 --> 03:00:56,880
So I think that there is a very robust way to describe it. You have to take data and say,

2231
03:00:56,880 --> 03:01:00,240
So let's make an estimate, and we could have a whole off site on that.

2232
03:01:01,200 --> 03:01:01,480
Thank you.

2233
03:01:02,060 --> 03:01:07,280
So what we're going to do is Steve and Mike are going to close us up and represent

2234
03:01:07,280 --> 03:01:12,520
their colleagues that do this, and they'll also be here next month to cover this for this.

2235
03:01:12,800 --> 03:01:12,960
Great.

2236
03:01:13,340 --> 03:01:13,620
Thank you.

2237
03:01:14,480 --> 03:01:14,840
Great.

2238
03:01:15,000 --> 03:01:15,820
So let's pull up the next.

2239
03:01:16,140 --> 03:01:16,920
It's already there.

2240
03:01:17,040 --> 03:01:17,300
Fantastic.

2241
03:01:17,820 --> 03:01:20,620
So this is a continued discussion from what we've been having with you.

2242
03:01:20,760 --> 03:01:24,160
Going back to the educational retreat on March 2nd, where you heard from all the aunts.

2243
03:01:24,160 --> 03:01:27,720
you heard from us, you heard from Dr. Melvin

2244
03:01:27,720 --> 03:01:29,600
from the University of California, San Diego,

2245
03:01:29,920 --> 03:01:30,800
and of course from Steve.

2246
03:01:31,800 --> 03:01:34,040
What we're going to talk about today is a continuation

2247
03:01:34,040 --> 03:01:35,920
of what Pipco just went through it, Jim,

2248
03:01:36,020 --> 03:01:38,180
just walked us through, and that is the cap market assumptions.

2249
03:01:38,460 --> 03:01:39,740
It's one of the necessary ingredients

2250
03:01:39,740 --> 03:01:42,160
to do an asset allocation study, things

2251
03:01:42,160 --> 03:01:44,640
that we need to be mindful of or what are the expected returns.

2252
03:01:44,860 --> 03:01:46,180
We've just been a fair amount of time on that.

2253
03:01:46,640 --> 03:01:49,000
What's the volatility or risk with a range around those?

2254
03:01:49,320 --> 03:01:51,760
Jim showed you different bell shape distributions

2255
03:01:51,760 --> 03:01:53,260
and what are the correlation assumptions?

2256
03:01:54,140 --> 03:01:56,100
When we do our work, we're looking out 10 years,

2257
03:01:56,400 --> 03:01:58,520
and over 30 years as well.

2258
03:01:59,060 --> 03:02:00,520
And these really are best estimates

2259
03:02:00,520 --> 03:02:02,780
that we come humbly and suggest

2260
03:02:02,780 --> 03:02:05,360
that we know that we will be precisely wrong,

2261
03:02:05,560 --> 03:02:07,880
but we do believe that we will be directionally accurate

2262
03:02:07,880 --> 03:02:09,780
and we do believe that we will get the relationship

2263
03:02:09,780 --> 03:02:13,220
between cash and core bonds and equity

2264
03:02:13,220 --> 03:02:15,400
and private equity directionally accurate.

2265
03:02:15,580 --> 03:02:18,100
And we'll show you our past experiences with that.

2266
03:02:18,260 --> 03:02:20,180
But just because you see decimal points

2267
03:02:20,180 --> 03:02:25,500
to Steve's comments a moment ago, don't believe that that precision gives us any more insights

2268
03:02:25,500 --> 03:02:28,360
or different information or better information to make choices.

2269
03:02:29,440 --> 03:02:33,460
We are modeling indexed returns, the beta that you can get in the marketplace.

2270
03:02:33,920 --> 03:02:39,480
In some areas such as private equity and hedge funds, however, we do factor in some selection

2271
03:02:39,480 --> 03:02:43,640
effect that we do think that you can get better than, quote, the broad market.

2272
03:02:43,760 --> 03:02:47,860
It's started to find the broad market for things like hedge funds and private equity.

2273
03:02:47,860 --> 03:02:52,940
We do these quarterly, and then roll them out to our clients as well.

2274
03:02:53,660 --> 03:02:58,200
The methodology that we use is not too dissimilar from what PIMCO is doing in terms of a building

2275
03:02:58,200 --> 03:03:03,200
block approach that is a common and best practice PIMCO takes it a step further to look at risk

2276
03:03:03,200 --> 03:03:08,420
factor conversions, which we think is a nice element to look at to think about how everything

2277
03:03:08,420 --> 03:03:10,220
comes together at the end of the day.

2278
03:03:10,720 --> 03:03:15,280
The building blocks that we use for equity, much like PIMCO, its income, inflation, growth

2279
03:03:15,280 --> 03:03:16,200
and valuations.

2280
03:03:17,020 --> 03:03:20,160
you'll see our numbers in just a few minutes for interest rates we're looking at

2281
03:03:20,160 --> 03:03:24,560
the current market yields and fair value pricing inflation we have a consensus

2282
03:03:24,560 --> 03:03:28,560
forecast number of 2.2 percent I think the number I heard Jim reference a

2283
03:03:28,560 --> 03:03:32,460
minute ago was 2.3 percent so we're in the right neighborhood there and then we

2284
03:03:32,460 --> 03:03:36,140
look backwards when we're thinking about volatility and correlations but don't

2285
03:03:36,140 --> 03:03:41,280
rely naively just on past performance and past volatility we are looking at

2286
03:03:41,280 --> 03:03:44,780
where we are in the cycle and making adjustments we do believe that volatility

2287
03:03:44,780 --> 03:03:48,760
consistent with PIMCO's comments of volatility will be higher in the next ten

2288
03:03:48,760 --> 03:03:54,080
years than it has been observed in the last ten years. So let's take a look at

2289
03:03:54,080 --> 03:03:58,300
what our actual assumptions are and we'll keep the discussion going.

2290
03:03:58,840 --> 03:03:59,640
Sounds good. Thanks Steve.

2291
03:03:59,800 --> 03:04:04,800
What you have in front of you are capital market assumptions commonly utilized

2292
03:04:04,800 --> 03:04:08,920
asset classes that are very relevant for the trust fund. You can see the

2293
03:04:08,920 --> 03:04:13,280
ten-year assumptions for both return and risk defined by standard deviation of

2294
03:04:13,280 --> 03:04:18,560
volatility and these are the numbers that went into the thumb chart that Steve

2295
03:04:18,560 --> 03:04:23,420
presented just a bit ago and what we wanted to do is show you how these

2296
03:04:23,420 --> 03:04:27,100
compare to others out in the space. We've spent some time already looking at

2297
03:04:27,100 --> 03:04:33,620
that but before we do that I want to skip ahead to this slide capital market

2298
03:04:33,620 --> 03:04:38,340
assumptions forecast first actual you might ask yourself how have we done how is

2299
03:04:38,340 --> 03:04:42,300
stand done with their modeling versus what's actually happened.

2300
03:04:42,920 --> 03:04:46,780
Steve mentioned the sense of humility that we come forward with capital market assumptions

2301
03:04:46,780 --> 03:04:50,820
and the precision or best guessing that goes around this.

2302
03:04:51,760 --> 03:04:58,840
But for simplicity, say what we're showing here is a 70% U.S. stock and 30% U.S.

2303
03:04:58,960 --> 03:05:05,660
bond portfolio rolling 15 year periods and in red you can see what was forecasted.

2304
03:05:05,660 --> 03:05:08,100
So on the top left, you can see about 18%.

2305
03:05:08,100 --> 03:05:12,520
That was what we forecasted back in 1981 for the next 15 years.

2306
03:05:13,100 --> 03:05:15,340
And you can see in blue, what was reality?

2307
03:05:16,080 --> 03:05:17,100
A couple of different things.

2308
03:05:17,440 --> 03:05:19,820
We have not been precisely correct.

2309
03:05:20,120 --> 03:05:22,580
I would say directionally accurate is fair.

2310
03:05:23,200 --> 03:05:27,000
Also notice just how much lower return assumptions are today,

2311
03:05:27,520 --> 03:05:28,680
relative to where they were.

2312
03:05:28,880 --> 03:05:32,500
We all know what inflation and interest rates were back in the 80s.

2313
03:05:32,600 --> 03:05:34,340
I think the tenure treasury was at 15%.

2314
03:05:34,340 --> 03:05:39,460
We said here today it's at two and a quarter, return assumptions have come down significantly.

2315
03:05:42,330 --> 03:05:48,990
I mentioned that we're going to share what other other firms estimate for different asset

2316
03:05:48,990 --> 03:05:49,350
classes.

2317
03:05:49,530 --> 03:05:51,930
I believe we've shared this with you before.

2318
03:05:52,510 --> 03:06:00,690
This is a horizon actuarial survey done last year, 35 different firms, and across a wide

2319
03:06:00,690 --> 03:06:03,970
variety of asset classes, what are the return assumptions?

2320
03:06:03,970 --> 03:06:10,510
You can see in blue the high firm for that specific asset class and purple the low assumption

2321
03:06:10,510 --> 03:06:12,070
for that specific asset class.

2322
03:06:12,430 --> 03:06:17,310
The average is the green diamond and we are the red circle.

2323
03:06:18,210 --> 03:06:22,430
I would note that we're pretty close to the average across most of these asset classes,

2324
03:06:22,810 --> 03:06:29,470
maybe a bit more conservative than the average firm out there on average.

2325
03:06:32,230 --> 03:06:37,650
And then I'll conclude. If you don't mind going back, just a couple of slides, the S.D.

2326
03:06:37,710 --> 03:06:42,770
Sarah, I thought it was, forward looking risk and return expectations.

2327
03:06:43,750 --> 03:06:47,970
And what we've done here is we've taken the current asset allocation of the trust fund.

2328
03:06:48,310 --> 03:06:51,570
You can see the numbers represent the target weights.

2329
03:06:52,050 --> 03:06:56,570
We've added our capital market assumptions, and we've displayed a couple of different things here.

2330
03:06:56,570 --> 03:07:24,250
First, on the left, you can see, again, all of the underlying asset classes, what the policy allocation is to each, and on the bottom, starting with what's shaded in that darker gray, the expected nominal return, the expected standard deviation or risk, and then the sharp ratio, and the sharp ratio is really a measure of efficiency, how much return are we getting, how much excess return are we getting per unit of risk? You want to increase that to the extent that you can.

2331
03:07:24,870 --> 03:07:30,730
That's what we show on the left. On the right we show the distribution of expected returns.

2332
03:07:31,630 --> 03:07:38,190
And like what Jim from PIMCO showed, what we're looking at here is a 10 year expected distribution.

2333
03:07:38,770 --> 03:07:45,550
So think of that blue bar 0.7 as sort of a worst case estimate over the next 10 year period.

2334
03:07:45,550 --> 03:07:53,850
It's actually the 95th percentile return to the gold square of 12.8 in the best case scenario.

2335
03:07:53,850 --> 03:08:00,670
of the 5th percentile expectation, we see a 12.8% annualized return over the next 10 years.

2336
03:08:01,110 --> 03:08:06,170
If we were to show this over the next one year or any given year, to Jim's point,

2337
03:08:06,410 --> 03:08:12,490
these would be much, much wider. The return expectation over a short period of time is going to be

2338
03:08:13,210 --> 03:08:19,650
much more variable. So a 0% return or a 12% return in any given year is a pretty high probability

2339
03:08:19,650 --> 03:08:24,090
relative to that 6.6% expected return over the long term.

2340
03:08:25,310 --> 03:08:30,550
And I'll just conclude by reiterating what you all are going to reaffirm or approve

2341
03:08:30,550 --> 03:08:36,510
next month. The asset allocation is the single most important decision that you all can make.

2342
03:08:36,710 --> 03:08:43,810
And I'll commend Steve on what he's put forth in front of you all, making sure that you understand the inputs,

2343
03:08:43,810 --> 03:08:52,410
the methodologies and ultimately the outputs of not just us but a wide variety of firms in the marketplace.

2344
03:08:52,910 --> 03:08:54,550
It's really been fantastic.

2345
03:08:56,880 --> 03:08:58,520
Any questions or might there's questions?

2346
03:08:59,180 --> 03:09:03,920
I might give a right-per-side of your chart here is interesting and I'm not certain I fully understand it.

2347
03:09:04,720 --> 03:09:10,620
Whether it's any given year or it's on heavy one of the 10 years on average, it would look like that.

2348
03:09:10,620 --> 03:09:12,440
But what jumps out at me is profoundly,

2349
03:09:13,420 --> 03:09:17,160
is a 4.1% to a 9.1% is a huge range

2350
03:09:17,160 --> 03:09:18,880
of potential outcomes we'd be facing.

2351
03:09:19,140 --> 03:09:19,700
Yeah, that's fair to say.

2352
03:09:19,700 --> 03:09:21,900
If I'm understanding, this truck truck is half the time,

2353
03:09:21,980 --> 03:09:23,120
it'll be better or worse than that.

2354
03:09:24,800 --> 03:09:25,580
That's huge.

2355
03:09:27,280 --> 03:09:29,600
And I think that reflects two things.

2356
03:09:29,820 --> 03:09:31,120
One is, it's an uncertain world.

2357
03:09:32,040 --> 03:09:37,140
But to remember, we did the education session on risk.

2358
03:09:37,140 --> 03:09:42,260
And we said there was liquidity risk, and that's the big serious one.

2359
03:09:42,820 --> 03:09:47,000
There's risks that you can measure, but we measure it in this very sterile standard

2360
03:09:47,000 --> 03:09:51,220
deviation world, and then there's uncertainty things you can't measure.

2361
03:09:51,820 --> 03:09:56,180
So one of the things that's happening here is since the tool set we have is this middle

2362
03:09:56,180 --> 03:10:06,120
tool set of measuring what could happen using these mathematical tools, you get these results

2363
03:10:06,120 --> 03:10:10,480
that are very precise, but very hard to intuit, and they're trying to capture this uncertainty.

2364
03:10:12,140 --> 03:10:19,420
So when you look at the chart that Mike has up, it says, based on the best we can do with

2365
03:10:19,420 --> 03:10:23,740
the tools that we have, this is what the industry standard is for looking at what could happen.

2366
03:10:24,300 --> 03:10:28,200
It doesn't mean that we should anchor completely on that, because remember we have liquidity,

2367
03:10:28,480 --> 03:10:32,400
we have risk that we can measure this way, we have uncertainty, it's just one of the key

2368
03:10:32,400 --> 03:10:33,060
inputs.

2369
03:10:34,880 --> 03:10:42,820
Okay. Anyone else? Thank you. Well, thank you, Steve, and Steve, and Mike, and Jim, and

2370
03:10:43,380 --> 03:10:50,080
great report. Samantha, this is a David question. In the future, maybe we're thinking about

2371
03:10:50,080 --> 03:10:54,760
flipping our presentation so that we have the experts at first. We have people like Sasha,

2372
03:10:55,460 --> 03:10:59,040
and Jim coming down, and I don't know if it makes sense having them sit around all morning

2373
03:10:59,040 --> 03:11:04,020
through our under-items. And this way, I think we get more quality time early in the morning

2374
03:11:04,020 --> 03:11:08,240
with these presentations because they always end up towards the end sort of pushing in on

2375
03:11:08,240 --> 03:11:12,840
that audit committee, for example. So it may be something to think about, have a time

2376
03:11:12,840 --> 03:11:13,900
certain for the disability.

2377
03:11:15,120 --> 03:11:16,620
You're forgetting what time this started.

2378
03:11:17,540 --> 03:11:18,320
What time was that?

2379
03:11:18,640 --> 03:11:24,520
Which is, we started at nine and they got on at about 10, 15th and if we flip them, then

2380
03:11:24,520 --> 03:11:29,300
our members on the disability side have to come and wait. But I'll take it under advisement.

2381
03:11:29,380 --> 03:11:33,500
But the bottom line is we, not only are we starting our meetings later, we used to instead

2382
03:11:33,500 --> 03:11:36,520
at 8.30 at 9, but we're getting to investments faster

2383
03:11:36,520 --> 03:11:37,880
than we've ever gotten to before.

2384
03:11:38,000 --> 03:11:41,120
Well, and sometimes the disability can't,

2385
03:11:41,300 --> 03:11:44,940
we had an extra long disability calendar this morning.

2386
03:11:45,460 --> 03:11:49,020
I suggest we just play it by ear, and we never know for sure.

2387
03:11:49,860 --> 03:11:54,480
I hate to see our members waiting on the disability thing,

2388
03:11:54,620 --> 03:11:59,380
but I mean, relatively speaking, we're almost done at noon.

2389
03:11:59,380 --> 03:12:03,200
So just recall you had these conversations at six at night.

2390
03:12:03,240 --> 03:12:04,880
No more.

2391
03:12:05,300 --> 03:12:05,780
Thank you.

2392
03:12:06,300 --> 03:12:13,480
Item 14, item 14, seminars and conferences, any additions?

2393
03:12:15,540 --> 03:12:21,480
Item 15, information items, and then future agenda items.

2394
03:12:21,920 --> 03:12:26,220
Any board members want to place anything on the agenda for future?

2395
03:12:26,500 --> 03:12:27,460
Just future, real quick.

2396
03:12:30,120 --> 03:12:34,280
The SACR's modern investment theory and practice for retirement systems is coming up.

2397
03:12:34,600 --> 03:12:41,360
It's a great opportunity to learn a lot at UC Berkeley this summer, and I would commend

2398
03:12:41,360 --> 03:12:44,720
it to, well, you never know, it's a blue and a gold thing.

2399
03:12:44,980 --> 03:12:46,100
We can free speech there, no?

2400
03:12:46,320 --> 03:12:46,740
I don't know.

2401
03:12:46,840 --> 03:12:47,740
You can have whatever you want.

2402
03:12:48,400 --> 03:12:54,840
But I'd like to commend this to our newest elected board alternate as a possible.

2403
03:12:57,660 --> 03:12:58,220
Okay,

2404
03:13:00,700 --> 03:13:14,920
thank you and seeing nothing more we have no closed session meeting is adjourned, but thank you all for attending and thanks for the great work for all of you do for us. Appreciate it and to my colleagues. Thank you.