tv Retirement Board SFGTV April 9, 2022 4:00pm-7:01pm PDT
thank you. okay. madam secretary, can you read the -- >> secretary: the introduction. >> president: yeah. the notice to the public. >> secretary: certainly. good morning. and welcome to the specialty report meeting of march 10, 2022. this meeting is being held hybrid format with the meeting occurring in person and live on sfgov tv. before we begin, i would like to remind all individuals present and attending the meeting in person today that all health and safety protocols and building rules must be adhered to at all times. failure to adhere to these rules and requirements may result in your removal from this room.
we appreciate your cooperation with these important rules and requirements and the interest of everyone's health and safety. please note that hand sanitizer stations are available throughout the building and at each elevator and masks are available upon request at the front desk. >> president: okay. great. madam secretary, please call the roll. >> secretary: [roll call] thank you. we have a quorum. >> president: thank you, madam secretary. please call the first item. >> secretary: thank you. item number two communications. we welcome the public's participation during public
comment periods. there will be an opportunity for general public comment at this meeting after closed session and there will be an opportunity to comment on each discussion or action item on the agenda. each comment is limited to two minutes. public comment will be taken both in person and remotely by video or call-in. for each item, the board will take public comment first from people attending the meeting in person and then from people attending the meeting remotely. comments or opportunities to speak during public comment period are available via phone by calling (415) 655-0001 access code 24801915160 then pound and pound again. when connected, you will hear the meeting discussions, but you will be muted and in listening mode only. when your item of interest comes up, press star three to
be added to the speaker line. best practices are to call from a quiet location, speak clearly and slowly, and turn down your tv or radio. please note that city policies along with federal, state, and local law prohibits harassing comments to city employees during public comment meetings. and will not be tolerated. public comment is permitted only on matters within the jurisdiction meeting of this body. we thank you for joining us. >> president: thank you, madam secretary. so we will take in-person public comment at this time. please call the first speaker. >> secretary: president safai, there is no public comment in person at this time. >> president: okay. we will close public comment in person. please call public comment callers at this time. madam secretary, please open the phone lines for public comment callers.
>> secretary: if you have not done so press star three to be added to the queue. wait until the system indicates you have been unmuted. moderator, do we have any callers on the line? >> madam secretary, there are no callers on the line. >> secretary: thank you. hearing no calls, public comment is now closed. >> president: thank you, madam secretary, please call the next item. >> secretary: thank you. item number three. board resolution to continue to meet in person with some members possibly attending remotely for at least 30 days pursuant to california government code section 54953.e. >> president: gray. great. and i believe this is an action item, madam secretary. if you can read the action. you're on mute. >> secretary: action adopted march 2022 resolution recommending the retirement board begin to meet in person with some members possibly
attending remotely for at least the next 30 days. adopt findings under the new state urgency legislation codified as government code section 54953e ab 631. remain that the city remain in a state of emergency. and it the committees in person without allowing certain members of this body to attend remotely would present imminent risk to the health or safety of certain attendees due to covid-19. and providing that all meetings of the retirement board and its committees will provide an opportunity for members of the public to address the body and will otherwise occur in a manner that protects the statutory and constitutional rights of the parties and the members attending in person or via teleconferencing. >> president: great. >> commissioner: move to
approve. >> president: are you on mute? there you go. >> commissioner: move to approve. >> president: motion made by commissioner heldfond, seconded by commissioner driscoll. great. so motion and second, all those in favor or call the roll, madam secretary. right. sorry. public comment. we'll take public comment at this time. please can you call the first public commenter in person? >> secretary: president safai, we have no public present at this time. >> president: great. if you can call public comment callers at this time, open the phone line for public comment. >> secretary: thank you. a reminder to any callers to press star three to be added to the queue. moderator, do we have any
callers? >> madam secretary, there are no callers on the line. >> secretary: thank you. no calls. public comment is now closed. >> president: great. so there was a motion made by commissioner heldfond seconded by commissioner driscoll. madam secretary, can you call the roll. >> secretary: yes. [roll call] thank you. we have four ayes. item passes. >> president: great. madam secretary, please call the next item. >> secretary: item four closed session. >> president: great.
we will move to closed [ roll call ] >> clerk: we have a quorum. >> chair peskin: motion is in order to vote whether disclose what wasser discussed in closed discussion. 67.12a, may i have a motion? motion made by commissioner -- [ indiscernible ] commissioner heldfond. please call the first speaker
madam clerk. >> clerk: we do not have public at this time. >> chair peskin: in-person comment is closed we'll take public comment callers at this time. please open the phone lines for public comment. >> clerk: thank you callers, please press star 3 to be added to the queue. for those on hold please continue to wait until the system indicate you have been unmuted. do we have any callers on the line? >> there are no callers on the line. >> clerk: thank you. hearing no calls. public comment is now closed. >> chair peskin: great. motion has been made by commissioner heldfond seconded by commissioner bridges. please call the roll for this item. >> clerk: thank you. [roll call vote]
we have five ayes. motion passes. >> chair peskin: please call the next item. >> clerk: item 5, general public comment. did you want me to read the e-mail received? >> chair peskin: is this general public comment open to the public? >> clerk: general public comment we received one e-mail from john stenson. i will read it as follows. i was implored that you will change your future board meeting from wednesday to thursday because it's convenient for one of your board members. you will be setting a bad precedent if you change meeting
day for convenience of one board member. when if comes to vesting, you should divest from any investments because in the future, the chinese government will take in taiwan, the same actions the russians are taking ukraine. best regards. >> chair peskin: thank you for that mr. stinson. we'll take now in-person public comment. please call the first speaker. >> clerk: there's no public present at this time. >> chair peskin: in-person public comment is close. we will take public comment from callers at this time. please open the phone lines for public comment. >> clerk: callers if you have not already done so, please press star 3 to be added to the queue. do we have any callers? >> there are no callers --
there's one caller on the line. >> clerk: thank you. please state your name, your two minutes begin when you speak. hi, good afternoon. my name is david page. i'm retired from the d.p.h., retired back in 2015. you may remember that i spoke last october at the annual e.s.g. review. i said something previous to that october 2020. which is there should be much more emphasis put on the s in the e.s.g. i mentioned in particular the chinese communist party and vladimir putin. i like to see this pension become the national leader in impact investing. if you were to make the s.m.a. segment of our pension socially
responsible in the u.s.a. how could it happen? it involves some amount of money. what i'm recommending that you direct the staff to map out how such a massive transformation could take place. transformation away from all of the dirty polluters and gruesome dictators. the plan would show how in theory how to do much more than you did last year. when you moved few hundred million from black rock e.s.g. portfolio. having a plan to look at how it would tie your hands it's showing you what options are available. it should help with potential contingencies in case the chinese communist invade taiwan, you'll have something available.
instead of being caught. i assume like you have been in the last couple of weeks. thank you very much. i appreciate you're listening to me. >> clerk: thank you for your call. do we have any further callers? >> there are no further callers. >> clerk: hearing no calls. public comment is now closed. >> chair peskin: public comment is closed. i don't think we need to take a vote on this. >> clerk: no. >> chair peskin: please call the next item. >> clerk: item 6, action item. approval of the minutes of the february 9, 2022 retirement board meeting, february 2, 2022 and february 18, 2022, special retirement board meeting.
>> chair peskin: do we need any presentation at all? motion to approve the minutes made by commissioner heldfond, seconded by commissioner driscoll. before we take a vote, madam secretary will take in-person comment at this time on the minutes. >> clerk: thank you. there are no members of the public present at the time. >> chair peskin: in-person public comment is closed. we will take public comment from callers at this time. please open the phone lines for public comment on approval of the minutes. >> clerk: callers, please press star 3 to be added to the queue. do we have any callers on the line? >> there are no callers on the line. >> clerk: thank you. public comment is now closed.
>> chair peskin: public comment callers is closed at this time. there's been a second made by commissioner heldfond second by commissioner driscoll. i think we can take that item same house same call. that item is approved. >> clerk: item 7, action item. consent calendar. >> move to approve. >> chair peskin: move to approve the consent calendar made by commissioner heldfond seconded by commissioner driscoll. we'll take questions public comment at this time. >> clerk: we do not have any public at this time. >> chair peskin: in person public comment is closed. please call public comment calls
at this time. >> clerk: callers, please press star 3 to be added to the queue. are there any callers on the line? >> there are no callers on the line. >> clerk: thank you. hearing no calls, public comment is closed. >> chair peskin: in person public comment is closed. motioned by commissioner heldfond and seconded by commissioner driscoll to approve the consent calendar. we can take that item same house same call. that item is approved. >> we really should be doing the roll call votes. >> chair peskin: deputy city attorney, my understanding is that same house same call has been the practice of this body for some time. we did get on the record in the beginning the roll call vote. all the folks when we came out have closed session that was recorded in the minutes. from that point forward, we
should have the ability to do same house same call. >> it's recommended a roll call vote. if you want to proceed, go ahead. >> chair peskin: do you have a different understanding? let me ask the executive director, have we done same house same call in the past? >> director huish: we have done it in the past. it's not a general practice but we've done it in the past. >> chair peskin: thank you. as long as we take a preliminary vote from any break and we do same house same call from that point forward. thank you. please call item number 8. recommendation to invest up to $400 million in loomis sayles >> clerk: recommendation to invest up to $400 million in
loomis sayles world credit asset separate account. >> good afternoon. the strategy that we're recommending told compliments the approaches taken by existing managers which we have invested and fidelity which the above bod approved last month. it has a higher yield and has less emerging market. >> thank you. good afternoon commissioners. as reminder, the board approved an investment at last board meeting. we're working on guidelines with fidelity we expect to bring that the board for approval. >> chair peskin: can you speak little bit louder please?
>> today, we are recommending an investment up to $400 million in the loomis sayles world credit asset strategy. we're about to do a deep dive on that topic at the full investment committee meeting. this recommendation is a continuation of the evolution of the liquid credit portfolio to core portfolio comprised the multisectors. we believe this construct is work tactical and opportunistic. the recommendations were fidelity last month and 2020. this was a search comprised of
lot of high quality candidates. it is our intention to continue to monitor the space and evaluate existing managers for potential conclusion. the firm also runs equity strategies with the loomis sayles fixed income. seats -- assets is approximately $10 billion. the world credit asset strategy has $3.3 billion.
in 2013, loomis sayles launched the credit strategy by including emerging market debt component. the team for the world credit asset strategy sits in boston comprising of kevin kearns. we think this is another strength of the strategy and decisions are taken in a manner and this helps to reduce some of the key person risks. each managers has expertise. mr. kearns has risk management background. the team has developed tools to
distinguish between the state of the market cycle from downturn to credit repair, recovery and expansion and cycle. since different sectors perform different stages, the team believes this step is critical to rotation. their thoughts on the process is combined the security selection to create a portfolio that has investment of approximately 25% to 75%. risk management is embedded throughout the process. this team has been highly innovative in developing tools and framework. i will pass it over to dennis who will discuss the characteristics, exposures and
performance. >> thank you. good afternoon commissioners. the world asset credit strategy has maintained a benchmark. current duration is 3.5 years. since the inception, the strategy has arched over -- averaged over 75% exposure. regarding credit quality, the strategy targets double b plus. which is lower than the investment grade rate bloomberg, barclays u.s. aggregate.
the strategy has generated 2% net and volatility of 6% since inception. the strategy has generated 200 bases points annually relative to the investment grade, bloomberg barclay index with two-time the volatility. since its inception, the strategy has net basis by credit strategies. the strategy has performed in the top third.
>> to conclude, we think that the loomis sayles represents strong option within the multisector fixed income universe. it's supported by a strong and deep organization. the team is combined top-down modification to create a strong compelling return stream. we believe the strategy will be a compelling addition to the loomis sayles portfolio. >> good afternoon commissioners. i want to say, we're very supportive of loomis sayles and world credit asset strategy.
i think they did a solid job. we're supportive of it. thank you very much. >> can i add to the strategic context. you're going to see later on the performance of the portfolio and other liquid credit is one of the few allocations that's actually not performing as well as others. this is part of the strategic move to realign and correct that lag and this is a particular time for this kind of strategy win we have the uncertainty of inflation and potential for rising rates. again, we like the strategy, it's particularly suited for san francisco's allocation. >> we'll now take questions from the board. >> chair peskin: i have couple of questions. you said the credit rating for their portfolio generally is
double b? >> that's correct. >> chair peskin: what do you think the benchmark is? benchmark with the emerging market debt as a component? >> the benchmark is little bit higher quality. i think it's bb plus. >> my point versus increase amount of risk. i'm wondering how it tradeoff works. >> commissioner driscoll: was that in all markets or just developing markets? >> i think what you're isolating on is the underperformance of
the emerging market. as we highlighted in the memo, this was a period where emerging market debt continue to under perform, especially strong credit market that we've seen in the united states. just really quickly on the currency, the team does view this as a mitigating tool. it's not something that they have in their strategy with the intention -- [ indiscernible ] >> primarily, they are focused on u.s. dollar securities, currency hedging macro oriented risk or it can be way of dollar security being held. >> commissioner driscoll: i ask the question because, high turnover portfolio, the fact they are doing it, whether or not we have to still continue to monitor, what our currency
exposure is. this came up in the previous session. we tend to ride out the cycles. think for overall, monitor our currency exposure. i'm going to keep raising that question. we do not break out the fixed income that way. are you planning on having to report to us or making a more dedicated commitment or investment in emerging market debt? >> two questions there. when we do our update in april, we will show the components of the liquid credit portfolio including what we have allocated as a whole.
i would say not right now. that's the point of allocating to multisector managers. there are times when you want to be in emerging market debt and times not. the notion is to give that latitude to managers to make those decisions. >> commissioner driscoll: thank you for the answer. thank you. >> chair peskin: any other commissioner comments or questions from commissioners? >> commissioner driscoll: move adoption of recommendation up to $400 million to loomis sayles.
>> chair peskin: motion by commissioner driscoll, seconded by commissioner bridges. we'll take in person public comment at this time. >> clerk: there's no public present. >> chair peskin: in person public comment is closed. we will take public comment from callers at this time. please open the phone lines for public comment. >> clerk: thank you. any callers? please press star 3 to be added to the queue. are there any callers or the line? >> there are no callers on the line. >> thank you. public comment is closed. >> chair peskin: public comment is closed. there's been a second by commissioner driscoll, seconded by commissioner bridges. i believe we can take that item same house same call.
item is approved. please call item 9. >> clerk: discussion item. update on asset ilcase and leverage. >> we will give an annual update of capital market assumption and the intended impact on sfers given our allocation policy. i will note that our expected returns have decreased to 6.6%. the probability of earning our 7.2% return only occurs under an expansion scenario. private markets continue to be important element for sfers as we harvest that premium diversification today is much better which i will acknowledge later on this afternoon than it was five years with the implementation of a return and private program and finally introduction of leverage has
given us opportunities to increase return as well as improve sfers liquidity situation. >> you gave us the opportunity to go little bit deeper in all of those points that you highlighted. good afternoon commissioners. this is an update of sfers strategic asset allocation as well as leverage as promised. we will, nepc and staff will present item -- nepc will review their 2022 forecast what's expected returns and risks. the changes in the capital market assumptions for the broad market and for sfers specific asset classes. nepc will discuss the building
blocks, how approach to capital market assumptions and forecast. specifically, we'll spend time on inflation. it becomes a important component of the capital market assumption. we'll start with staff review of the implication of the lower expected return. the estimate that we calculated of the benefits of diversification and leverage, approved in the previous years. we will visualize the risk return tradeoff by evaluating and conclude with probabilities of estimates, reaching actuarial
these are nepc's 10-year and 30-year expected returns. if you examine the column ten years, there's only one asset class that sfers allocated to that has expected return high as the actuarial return of 7.2. this is private equity. we do allocate a lot to private equity. we'll review it multiple times. that's why we -- that goes hand-in-hand with this very sophisticated framework. however, you will see that this assumptions are broad mortgage assumption. they do incorporate liquidity premium from private asset, which is real assets and liquid credit.
if you inspect the 30-year return, these are the only assets that provide -- that are estimated to provide a probability of reaching 7.2% of return. this is where we are. if you see currently have 49% allocated to liquid asset classes. we're very aware that we need to capture long-term investor, we provide liquidity. we need to monitor liquidity and the allocation to private very carefully. expected return what came down. it's important to think about it. this expected return is 50%
probability. if 2 see little bit lower, we have examined the calculation what it means for reaching expected level of return. for example, on the policy allocation, over one year, the expected return can be reached with less than 50%. 52% of the time we're expected to be less than 7.2%. in fact, over one year, almost 30% of the time sfers can reach -- have negative return. i chose 5% here, assumption
currently over long-term 2.6% inflation. we have between 2% and 3% in pension payment outgoing of the trust. 5% is just barely treading the water. it's 45% of the time we can return less than 5%. however you will see the calculation later on over 10 years. even though the median doesn't change. the expected return doesn't change. the volatility is lower. it's a result of a 10 years. we are expected to reach 5% return and 65% of the time or 7.2%, however, is still going to
be significantly less. this one 56% less than 50. what it shows is that at this point, just relying on data. even on illiquidity is not enough. what we've done so far. we did increase the expected return by introducing two asset classes, private credit and we increased it by introducing leverage. this page calculates the diversification and expected return. by introduce -- we are comparing to the policy allocation, 10 years ago when sfers did not allocate to return and private
credit. this would have been 5.9% expected return. because we allocate more to diverse at the private credit and return. we have 6.55 return now. therefore, adding 64bps to the respected return. we decreased volatility. right now it's 11.9. leading to diversification of 68. which is very significant. it's an annualized volatility. not only did we increase the expected return, we also lowered the expected risk. in general, we expect the continue -- the benefits of
diversification. we expect 3% leverage allocation about 20%, 20 bases points additional return to the total trust. we would like to update the board on your support couple of years now to introduce, leverage into strategic policy allocation. in 2021, staff collaborated. we put together the request for information where the nepc helped us with drafting the question and developing the responses to eight different providers of leverage. we interviewed four different clients. we decide to move forward with
existing provide cash overlay and rebalancing program with sfers. we had since gave them the feedback on the additional support that we would like to see to implement leverage solution. we started with implemented leverage starting july 2021. using total return swap and exchange rate of futures. we worked very closely with our custodian and our investment operations team which we're very happy to have to make sure that we have proper counting and proper reporting of the leverage. for the period of the first fiscal year, july-december 2021. the average leverage was less than 60 bases points.
for the same period of the first half of the fiscal year, leverage 21 bases points of return. unlevered return was 6.93. i will move visualizing between risk and return. here you see pictures thanks to our colleagues, we're using nepc's capital market assumption. if you remember the -- it offers the highest return for the level of risk. what you see those points, each one of optimal portfolio for the set level of risk.
it's very important to think about the time horizon when you think about the portfolio volatility. over one year, 12% or 11.8% expected volatility is substantial. but it is reduced over 10 years. however, unfortunately, it stays the same. it means we get closer to the expected return but we do not add additional piece comes from alpha. this slide also gives visualization what alan martin from nepc will present. urging you to think about the expected return. it is a range of expected return. you see this bar chart -- this
is the median is the 6.2 and here is 6.5. depends on number of a and simulation. this is 50 percentile. i like to visualize the fifth percentile. i like to conclude with a review of the different scenarios of economic growth. what we put here is the baseline and we'll talk about the trend growth. it's very healthy gdp growth of 2% to 4%. that's the baseline.
global gdp growth is greater than 4%. then we have a slow growth where the growth is between 0% and 2%. the contraction is more than 2%. we also put inflation shock where here we see that inflation is about 5%. this is a analysis. in this scenario, what is the expected return for our portfolio. you will see that under all of those scenarios, only under above trend, it means more than
4% growth, this probability of return, less than 7.2% is less than 50. everywhere else, more than 50% that means it's more probable that we will not reach 7.2% actuarial return. expected return in this scenario, this is the median in this type of scenario where there's more than 2% economic global contraction, is about 32.3%. the volatility is almost twice of what we are forecasting. again, it's very important to look at the ranges and
understand what is the portfolio -- what are the expectations of return. lastly, i will let you review that. there's been considerable periods of time when sfers did not perform 5-year and 10-year return, where below expected -- the actuarial target return. it's very important to look at the asset allocation holistically. make sure we maintain long-term view. it's very important to have flexible dynamic view.
i'll conclude with that. >> these are super important subjects as the study will show that 90% of vary ability of our return comes from asset allocation. keep remarks brief, that will be great. >> i will try to be brief. anna has given you the punch line. despite one of the best markets we've seen, the outlook going forward, 6.6%. versus 6.9%. that is without alpha. if you continue to earn your historic alpha and add that to this it's not as bleak a picture as you might think. i'm going to go through the process quickly.
if you go to the next page, go back to the page 2. this is simply 92% of historic return have been determined by where you put your money, not what managers you chose. that will be different going forward because this was an environment where overall data returns were higher. alpha is going to get more important and you've got a portfolio that is significantly exposed to alpha opportunities. you can see what anna talked about where you still have 60% of our assets in equity but you shifted it dramatically towards private equity. you've added allocations to private debt which particularly in an inflation increasing environment is very important because the duration of private
debt is much shorter meaning less likely to be damaged by rising interest rates. you see the return allocation. it's a bull market positioning with respect to equities but with very significant mitigators on the downside. our process had outlined on the next page. i'm not going to go through it. we look at 70 asset classes. we add up the asset classes using modern portfolio to determine the expected return to the portfolio. that's what leads us to this outlook. i will say it's very important for the board fiduciaries to have a transparent logical and consistent process to make this very important assessment. the process itself is also more important than the result because it translates uncertain environment into measurable
metrics that we can wrap our hands around. the methodologies on the next page, we simply start with the view of inflation, which is absolutely important. we add real growth yield and valuation premium to come with the forecast for each asset class. that's easier with respect to treasuries because the current yield maturity on treasury bond is excellent predictor of your holding period return over 10 years. if we were to go into the details, you see we actually think there will be a more return to a more normal
valuation. the punch line if you go to the next page, simply what anna talked about. lower rate than last year ritualing in -- resulting in 10-year forecast return 6-point isics%. is -- 6.6%. this does become a call to action. you only have three things you can really do. one is change the mix to get high return. which in this environment, means taking on a lot more risk, which is undesirable. you can lower your assumed rate, which many plans have done. you have done as well or you can reduce benefits. none of those are attractive. this is not really a call to change anything. i would add, you have a very intelligent and well thought out
asset allocation that has considerable down size trying to change things now in this uncertainty is not a good thing to do. we're not recommending nor is staff recommending that we change allocations at this point. we're scheduled to go through a full analysis next year. current outlook looks reasonable with respect to your alpha being able to get you to that 7.2. i'm going to stop there and ask phil to talk about the themes that drive this particularly inflation and under certainty and make sure you have plenty time to ask questions. >> thank you allan. why don't we jump to page 25. just try to hit on some real highlights here.
it will slowly transition lower longer term inflationary forces take hold, like demographics, automation changes. when we think about four major items here that are influencing inflationary pressures. supply chain disruptions and energy segment have only been further exacerbated by russian-ukraine conflict. we think about where energy prices are likely to be at year end. the supply chain that will occur.
likely, that shelter piece, which is also what we call inflation level, likely remain elevated as well. should the economy remain on solid foot. when we think about our inflation outlook, it's tied back to couple of key items. if we jumped to page 25. we think about how has the market has been pricing in inflation levels. this is still to some degree, holding true. break even inflation rates are fully discounting the high end level that we can see of
inflation. i think you can argue may be fixed income market is discounting it because of some of the longer term inflationary risks. or pricing in for a potential surprise. this is really an important component that flows into our capital market assumption. break even inflation rate is a market input, flows into how we come to our inflation assumption. you can see our 10-year and 30-year forecast for inflation. these are higher they've been over the last year or so. if we struck them as of today. likely to be higher because of elevated inflation levels for the next several years. the effect of that is, how do you higher inflation expectations flow into capital markets? there's two important considerations to think about.
first is when we think about catch. page 28. we think about what is the potential path of cash over an extended period. i think one way to think about market pricing is over the long-term, all assets have a risk premium and that risk premium is pricing relative to risk-free cash rate. if cash is zero or negative, overtime, asset classes will be low. cash moves high longer term, asset return should be higher. one of the things we're thinking about, what is the central bank reaction function. how quickly do they move or may be better, do they move as fast
as they can without disrupting market sentiment and have economic growth rates. that is the key question mark. when we look at this path today, it would reflect much higher cash levels one year out two years out that than are today. the back-end of this curb will not be changing. what we're talking about is how quickly do we get back to a long-term equilibrium that happened very quickly or slowly over time. if we jumped to page 36, i want to highlight few things of how from building block perspective. kind of the light, bright blue model here reflect how inflation flows into our public equity
asset classes. inflation building block grows. that will level increase the capital market assumption. when inflation changes, there's two key things we have to think about. how does it influence remain earnings grow? which is kind of less door blue. there's the valuation block which is the darker blue. if you have rapid changes in inflation without productivity increases, you're likely to see profit you margins come down, real earnings growth will be less robust. there's little bit of balancing mechanism that goes in. as we like to say, if inflation is higher because we have a
strong growth fundamental, good productivity in the economy it will be positive in the capital. if we have inflation levels because we have some sort of extended disruption or extended surprise or some entrench level of inflation, that will start to have a more dramatic impact on valuations, real earning growth and real return assumption as opposed to nominal return assumption which most of us look at capital market assumptions. i wanted to highlight how inflation flows through our capital market assumptions and pause there for questions. i want to echo allan, as we look at the portfolio and the strategic target, we don't believe it warrants any sort of change. we think it's well balanced and manage some of these economic
environments we might see in the coming years. >> we'll turn to you for questions or observations? >> commissioner driscoll: you don't want to change anything, this does not diminish the pursuit of tactical opportunities or decisions does it? that's where our alpha comes from? that's one of the places. >> absolutely. >> commissioner driscoll: okay. we did lower our expected returns to 7.2. >> joe, i would add, one aspect of your allocation, you have more in private markets. as you heard today, the ability to find managers that out
perform in private markets is higher than in public markets. your allocation allows you to do more in an area where the likelihood of success is higher. >> commissioner driscoll: i want to go back to page -- it's where all those scenarios. anna covered. what page was that? page 11. alan or anna, you able to tell me what might be the approximate way for any one of those six possible scenarios? we obviously -- we obviously based it on what we believe
which is conglomeration -- i wondering if you can tell me since you identified there's only one that would achieve the rate of return that we've assumed. this is a 10 year number versus 30-year number. >> one comment i would make, i i think it's really important that you plan for the most broad-based case. look at the scenarios, not just probably waiting. we could take weighted average of the scenarios. are there any scenarios in which the outcome is so severe, that you might want to go back and change the core allocations. here i think the likelihood of negative environments is highly unlikely. the tactical ability to mitigate
them is in your portfolio. the short answer we don't do probability waited. you should focus on the base case and see if you need to modify that based on a likelihood one of those adverse scenarios would happen. anna, you may have a comment on that as well. >> i would say that 32% is very strong, it is considerably less what we experienced in previous in this location. we compared to where we could be and what is it that we can do to change strategic asset allocation. even though it looks as a very strong implication, it compares very favorably to other
potential asset allocations. >> commissioner driscoll: thaek for trying to answer the question. maybe it was a poor question. forecasters looking at what the possibility what will happen. the probability number here of the 10 year number is less than assumed rate of return. we should then certainly alert the city to actuarial losses we have to factor into the contribution rate. expected 10-year probability
number of achieving 7.2 is less than 50%. >> that's correct. we highlighted it. we highlighted that's based on expectations. it's highlighted beneath what staff to add also. we hope to add alpha to bridge the gap. >> commissioner driscoll: thank you so much. nothing to be guaranteed. assume rate of return we're using, we're using numbers from nepc compared to the other forecasters that you looked at or were looked at for us.
thoughtful and well laid out presentation along with consultants. very straight forward. i think inflation driving the conversation. people are concerned about that. we will be keeping an eye on that and working with you. i believe a motion is in order. >> clerk: this is a discussion item. >> chair peskin: we will close this item then. please call the next item. >> commissioner driscoll: i think public comment is required. >> chair peskin: please open up the line for public comment.
>> clerk: there's nobody here at this time. >> chair peskin: we can close in person public comment. please take public comment callers at this time. >> clerk: callers, please press star 3 to be added to the queue. >> there are no callers or the line. >> clerk: thank you. public comment is closed now. >> chair peskin: public comment is closed. i believe now we can go to the next item. >> clerk: item 10, discussion item. report on investment performance of the retirement funds for the quarter ended december 31, 2021. >> i will make a couple of comments. this is a review of the four quarters performance. four quarters seem like a
lifetime ago. we already acknowledged the spectra of rising rates and the impact of inflation as well as very tense and fragile geopolitical situation. the martins are down. this year public equity markets are down depending on your measure. bonds are down too, aggregate 4%. these are through yesterday. fourth quarter was a long time ago. it's an important document. the environment has changed. allan? >> with that, let's go to the punch line page on 10. i'm going to not talk at all about environment and market. i think we covered that. 60, 40 portfolio was down over 4% in year to date.
anna if you can turn to page 10. i'll start off. the next page has the same data for 15, 20 and 30 years. all annualized returns for all periods are greater than your 7.2% by a lot. i said last time, couldn't get much berd. -- much better. 5-yearsharp ratio is number two. we earned higher returns while at the same time moving toward a more resilient portfolio with
respect to downside. fiscal year to date was up to your annual rate, it's not that now at the end of january and certainly not that at the end of march. compared to a 60, 30, 10, stock bond index portfolio, sfers outperformed every period greater than a period. line 2 is your policy return. that's what we would have earned in all of our allocations were at target. our manager composites were all matching the benchmark. by having a higher return than policy, that is the value add through manager selection and positioning. again, you have out performance
-- i'm on page 10. you have out performance in every period and for the 5-year period, 13.8% per annum versus 9.8%, that's 4% per annum in dollars. it's $3.8 billion. i want to stress that. because the prior discussion we talked about with with the markets and policy would give you is being less attractive going forward but the manager out performance piece i would argue is more sustainable. we've got a portfolio where at least historically, we've added substantial value. you'll see if you look at the tables to the lower right, we've said, we've added asset classes that reduce volatility of the portfolio. that's measured by standard deviation. we're in the bottom 5%. you want to be in the bottom on
this one. the bottom 5% of our peer group in terms of volatility. i'm going to top there on performance. any questions. performance? if you want to move to page 12, this is the compliance page. i'll be brief. all your asset classes are close to target. within range. the one i would highlight you see private equity as of 12/31, 29.96%. that's very close to the 30% limit. in fact, if you look at what happened to the equity markets in the first quarter. we're now over the 30% limit. we can talk. that when we get there. i don't think it's something to worry about. we're there because we've done
so extraordinarily well. that's compliance. i would flip then to the 5-year on page 16 risk return chart. each of these dots is public fund greater than a billion mapped on return vertical scale, standard deviation horizontal scale. that blue square is you. as i said before, there's nobody that has a better return and only two or three percent of your peers have lower volatility. if you compare that blue square with the black diamond, the black diamond is policy. you can see the actions of manager selection and positioning have not only reduced the volatility from your policy portfolio but they've added return. i'll now talk a little bit about why that result is. if you turn to page 26, this is the total fund distribution
analysis. that's 2.69%. here we break it down. allocation effects being overweight that did well. a small positive that's what you want to see. that means we're not bouncing the portfolio around in terms of market position. but it's a small positive number. that leaves 2.5%, per annum out performance from manager selection. most of that not surprisingly, private equity. you see out performance in virtually every asset class you have if we went to the detail, you'll see in a minute, we had slight under performance in the multi-strategy credit. we continued to have under performance versus an aggressive benchmark of treasuries plus 5 in absolute return.
it's important, you're achieving your results not because you did well in one asset class but consistently across all asset classes with couple of exceptions. on a risk adjusted base if we go to page 37, it's a very busy page. here you see for every allocation, how you did it is a composite followed by the index. again, you'll see rankings with respect to return, standard deviation, alpha and tracking error. we talked about at the portfolio level return per unit of risk in an asset class level and that rank is over to the right. top 2% of your peers and public equity overall. you can see in every equity sub-class, substantial out performance. that is the policy you've
adopted being more active in equity and doing well at it. income is on the next page, page 38. not quite as good here. that is the issue of the multistrategy credit. not doing well. importantly, only 5% of your portfolio is covered here. you have 5% in private credit. which you'll see on the next page -- don't go there yet -- private credit allocation 11.3% per annum. that is a very strong out performance. more importantly, as was covered earlier in your manager selection, private credit tends to be floating rate, which means it has lower duration and less likelihood of decline in rising rates. private market results are on the next page.
we don't have universe rankings here of return per unit of risk. you can see your returns in every case real assets, real estate and private debt from in the top quartile or better. only one where you trailed is absolute return where question did have -- we did have challenges earlier. [ please stand by ]
there's any public callers at this time. >> if you've not already done so bless á3 to be added to the queue. are there any callers? >> madam secretary, there are no colors on the line. >> hearing on callers, public comment is now closed. >> public comment is now closed at this time. please call the next item. >> item 11, action item consideration ofwebex questions , russia related sanctions securities as soon as possible . >> thank you. i believe there's a staff presentation.>> correct, andrew will make the presentation but this has been calendared at the request of president safai and it follows a letter sent from london breed encouraging that we take urgent
action to divest of our russian affiliated holdings and with that i will turn it overto kurt . >> i'll make a few comments and andrew you can add on but i've noted we've been directors, staff have been directed to undertake an analysis to understand our current exposure to investments held in russia. determine options fordivestment , survey the actions of other asset owners, survey action and understand the ongoing sanctions regime which changes almost daily. and then to ultimately make a recommendation for the board to consider in terms of divestmen . i'll provide a summary of all these things first. our estimated exposure to russian security at the end of february was 37 and a half
million dollars or about 1/10 of one basis point of the total plan. of this 37.5 million 3.2 million was called directly in what we call managed accounts, that is the amount over which we have direct and and can direct our managersto divest . if the board wishes to proceed it must first agree on the definition and scope of investments and ongoing restrictions. we provide the board with several options to evaluate and different considerations and challenges associated with each option . then finally we've given you abridged summary of what other asset owners have taken. finally it's worth noting the sanctions, market closures, rushes securities by foreigners, many divestment would not be immediate. that would need to be
implemented over time. funding in most areas in which we have exposure and we have limited exposure in the area of $3.2 million direct exposure in the form of both adr or local shares in sovereign debt as well as corporate debt. those markets as well as the currency markets remain and divestment at the moment is impossible with theexpectation over time there will be possibilities todivest . given all of that as a backdrop , we drafted a motion for the board to consider which all have two motions. moving that we involve all investments in russian securit , a move that we first take steps to divest as soon as equitable for securities linke to and the definition comes from the department of treasury , opec specifically. entities that are harmful to foreign activities of the
government of therussian federation . further recognizing again as i noted the fluid nature of the response to the russian ukrainian conflict and update to the board on this topic including criteria used to develop divestment and criteria that can be used to lift divestment in the future. i'll have far more detail and memos retracted and i'll ask for you to make any comments or anything i didn't highlight for things you'dlike to highlight yourself but if not we will turn it back to the board .>> thank you kurt. i'm here to answer any questions but that was a comprehensive summary of the current state of play. >> i have a question about the direction of this policy. because people will interpret
what we're trying to do. as if this has been calendared directly, before that it is our way of protesting and trying to reverse the very negative effects of the russians invading ukraine. it should not necessarily be interpreted as anything agreeing with any of the other policies of the ukrainian government . it's at a reasonable interpretation of what the second part of the resolution is about. >> staff needs this as a policy call by the board. certainly under the previous social investment policy the board had its now in place with
the efc policy, you can focus on the e, you can focus on the f and you can focus on the g. i believe you've been provided legal counsel, legal advice the city attorney related to it was an email sent out i believe monday of thisweek. this was advice provided previously to the retirement board . i believe it was when you were considering a divestment from the manufacturers, ammunition manufacturers and retailers . >> excuse me, i did not see that>> cecilia send it out i believe on monday . >> that's correct i can resend it to you if you've not received it . as commissioner. >> this was surrounding the department trying to provide public pension plans.
certainly as fiduciaries you were wearing that hat but at the same time this board has taken action ontobacco, on sudan , on guns and manufacturing. so this would not be the first time this board would take as commissioner driscoll pointed out some of not necessarily a protest but certainly an action that the board wants to send a message . and to impact and to make sure money that is coming from this trust is not being used to fund the war. so i don't know if that answered commissioner driscoll both parts of the question but certainly has four points out, across the country is intense
are being faced with the same discussion and decision. some boards have already taken action . some boards have called social meetings in order to take urgent action is staff wanted to make sure we brought this to the board with the understanding that we will take urgentaction when it's possible , should the board approve or direct staff to proceed in that direction. really, the issueis how hard you want to go initially . obviously the four categories i believe that staff will provid , their separate and some of them are very very specific and have various impacts really the most important thing is how we would define any kind of target
and giving the staff there direction . >> what is calpers doing on this, do we know? >> i believe asked staff to analyze but they might have taken some action also. >> we summarized this on page six of staff memo. that's to summarize what caliber has done in response to governor nuisance request that you see regions divest. calpers has communicated they use all current transactions in russian securities. they're assessing theircurrent exposures .and they confirmed compliance with the opec
sanctions that are currently i place . >> offering new investments are considering a fast-forward with existing investments. and are ensuring and affirming plans for sanctions, opec sanctions. >> to consider the president put this on the agenda, i'm would suggest that the votes and the one answer just described, it has an element of us being able to act decisively now and dig deeper, do a deeper dive in the near future and take if there's any other actions we can do and not do it
all in one cell school without all the information. that's to the second piece but it's the positive statement that were acting immediately on that but whatwas the number three , 3.25 million . >>. >> 3.2 million of the securitiesthat we could immediately give . that will divest from. >> i would offer a motion which is the suggested motion that we put in the memo is pretty consistent with what the approach is to halt and then to comply with the ruling. that's essentially what we're doing. or advising, anyway. >> i just want to go back in that stamp. what is the part two of the motion? part one is easy. >> part two again, i'll repeated the nature of the response including specific
criteria used to implement divestment and criteria that can be used to consider lifting investment restrictions. the point about motion is to make it consistent with others that we have in place on firearms, tobacco. circumstances may change so we may need in the future for this particular thing can be revisited and all we're suggesting here is as we do with these other restrictions, we provide the board what today is a manual update on certain stancessurrounding those restrictions . the performance impact of those restrictions and any recommendations so the motion is toreally make significant progress with the others we have in place . >> i wanted to make sure i was
notmixing this up with the letter we did get from london read on the subject . the reason therefore or part one is easy. there'ssignificantly increased risk to any new investments and with russia . to justify stopping without getting into a light of the debate about any of the est issues. part two is that keeping in the due diligence process to decide to continue to sell any of our securities it would be increasing rest. so now i understand part two, it's an action but not an action to divest. the justification for divesting is important in casepeople say why areyou divesting ? we're complying with the rules . >> can you repeat that? >>. >>.
[inaudible] >> the staff has adapted motions. >> i know it'sprobably somewhere in here but i can't find it . >> it was sent out on monday. >> who sent it? >>. >> it was distributed on monday. and she basically saved robert willwork . >> i had the memo from the city attorney i don't have anything on staff recommendation . >> item 11. >> we provided it to division, she sends notice separately and
he provided us a memo. >> hold on. >> i'm asking curtis if he's up there if he can get this stoppage. >> it's andrew and me on the floor. >> did you just go home? can you ask if she can make a presenter? >> she's not here. >> we can share onthe screen the recommendation . >> i can forward it toyou if you want to read it off myself . >> i can put it on the screen. >> be helpful. can you see the memo? if so i'llmove it .
>> that staff report progress and updates to the board on this topic including specific criteria used to implement divestment and criteria that could be used so therelifting investment restrictions . so the first part is ... [inaudible] >> how much of this 27.5 million is related to fossil fuel investments. >> i'm trying to unmute myself. i guess i'll reframe the question. what is digestible is what's held in separately managed accounts which has a value of about $3.2million . within a 3.2, we hold depository receipts for two oil companies from memory i think the total value ofthose was about $800,000 . >> what of the other45 million,
how much of that is related to fossil fuel . >> asked staff to weigh in. it's held in cold mingled funds. and what their specific holdings are available, i don't have themin front of me . >> so it's essentially moot. >> is moved in that we don't havediscretion over those assets anyway . i believe in that very little of it are held in russian oil companies. just given the nature of the spaces in the emerging markets in particular and ... >> if it's fixed income it would not be tradable. >> ... oil and gas companies ... [inaudible]
>> our ad we did not conduct the analysis specifically by sector of investment. we may come back and provide that information to you, commissioners but we are concerned primarily with securities that are domiciled in russia and specifically linked to those providing funding to russia including state owned securities. so there's certainly energy companies within the next but we didn't conduct a specific analysis. i will add that since we published this memo and provide it to you, pullback sanctions were expanded to include all russian energy companies as i'm sure you're aware. so any oil and gas companies that is russian would be covered through this recommendation.
>> i would add or highlight the fact that when opec makes a ruling like that it becomes a matter of compliance not only for direct asset owners like that $3.2 million but the cold mingled fundsthat we're referencing here also have to comply . so in some respects this is evolving from a divestment matterto in many ways a compliance matter as well . >> and what doesn't opec section specifically state.>> i'm sorry. it's difficult to summarize all of them because they've been frequent nearly each day but the involve sanctioning both russia entities so this is
companies primarily state owned but other russian companies as well as individuals so those sort of characterized as being in vladimir putin's inner-circle that may be financially supporting the conflict. and they you know, outline a variety of measures for us individuals investors are included as "an individual. my understanding is that they prevent us from buying new securities for entering in new transactions. i do not believe that they compel us to divest. but i'm not an expert on interpreting all this. so we would need to look into thatadditional detail .and then there are a host of
sanctions related to the import and export of products in an out of russia as well. that are perhaps best related to our activities as an asset allocate. >> so what i've got from what i've heard you say is that on the commissioners question, the recommendation is to cause many secured plan investments to consider the options we have on the table in terms of potential divestment and or other options and then following the sections and recommendation of opec as it relates their energy sector, am i getting the correct? >> that is the summary i believe of what our peers in sacramento have done.
it's similar to the wording that interim cio rate for red which we can read again. >> i saw that but with that then follow the same lead or do we have toadd some additional language . >> the major distinction i guess i can highlight in terms of the motion that we have provided for consideration is that it would take steps to divest those securities that are quote unquote linked to harmful foreign activities of the government of russia defined as those opec. i do not believe that calpers has said they will accept to
divest those that they can. they promised to review and consider and come back with next steps so that's probably the main point of contention but i've identified the challenge is that we have limited ability to transact these new securities today and it's uncertain when we may be able to actually implementthe divestment given market closures . and just lack of liquidity for many of if not all these securities. >> what i was talking about doing was right away i think we all agree on getting .25 million, whatever that was. that's an action and it's supportable. wecan do that , we should. and get staff and commissioners as well as any interested parties, the time to dig deeper
and dive into what else will add to it. as i dive. >> i want to make sure we are clear that the motion that we drafted which is toimmediately halt and then to divest . >> that investment however did not actually is not actionable right now. so we could make a motion but i want to emphasize that these securities are be traded, there isn't an ability to divestthem therefore we add the terms here of acting actionable prudent and practical . >> i want to make sure if the motion ispassed these securities are going to be sold tomorrow . >> as soon as possible or as soon as practical. >> prudently possible. >> the text there is
intentional. >> that's fine. >> if you take the other action and also president sought by you mentioned is to get staff to halt all investments in any of the opec companies and now those due to your point include all therussian energy companies . at the time of publishing this memo they didn't have all of them but since then they have. so we would in effect halt all future investments, restrict all investments in russian energy companies going forward and that we would analyze and come back and report out our success in divesting ones that became possible for us to do it. >>.
>> my question for staff has to do with the 3.2 that's directly manage. what percentage or specific investments would not fall under the quote harmful foreign activities of the government of russian federation list. are there any? the entire 3.2 fall under that. >> so that 3.2 million is comprised of 2.3 million of equity like securities, depository receipts. and then a balance call 800,000 or so is in the form of sovereign debt so at the momen , the i don't believe anyway therestrictions don't apply to sovereign debt . but they do apply to equities of which we've gotten exposure to two oil companies about
$800,000. thatwould be on that list . >> sold oil countries would fall under it but 800 k debt and the remaining equities that are not the oil companies would not fall under the old set. >> they have not yet. >> i want to emphasize these lists change daily. and so that was hard but rather than crafting a policy as somewhat binding as this unfolds. to link hours to the various federal
side. as opposed to putting language in a reasonable pace of time. >> i think that's covered in my view by the words here. we'll give our managers the instructions. they will have the obligation. >> i missed that when you were reading it out. thank you. >> also, the situation is moving so rapidly that, you know, even in the last few days, major index providers have excluded russian embassies. we've seen managers both of active and passive products commit to excludeing russian securities on their investment vehicles. so these numbers that we provided were accurate and
illustrative as of [ indiscernible ] 28th, last time we could get current numbers, but they likely would have changed again once securities can trade if and when markets re-open and there's ability to trade in the securities in addition to the price impacts that the chair noted. >> that's a good point. our exposure is worth less than the $75 million and they are able to take some actions early or late in february. so we have less than what's here both by value and actual exposure. >> going to cost us a few ripples one way or the other.
>> okay. >> i didn't actually make a motion. but i think it's smarter to go with the suggested motions because they have covered it seems these contingencies alike. but i think the truth [ indiscernible ] suggesting applies well in this situation when it gives us the image of working quickly. >> i think it captures a balancing act between what the mayor has requested and our fiduciary duties. >> so i would move that we
adopt the staff's motion, drafted motion. >> commissioner: and i would second it. >> okay. >> clerk: motion made by commissioners. let's take public comment. >> there's no public commentors in the queue. >> madam secretary, we have one caller on the line. >> secretary: thank you. caller, please state your name. your two minutes begins when you speak. >> caller: hi everyone. this is david page again. i was appreciative of the
in-depth discussion you've had over the last few minutes. i know there's my message is to do what is prudent and practical but it also gives the excuse to do the minimum. so i'm here to urge you to do as much as possible. one thing that was a little bit lost in the shuffle in the last couple of weeks was the united nations i.p.c.c. latest report. it said that regarding human health and bio diversity, that irreversible losses are happening sooner than
previously thought. since that report came out, a coalition of many ukrainian groups put a link in one of the letters i sent to you said that they recommend that the world quote end its fossil fuel addiction. and end investment in gas and it's imperative that we don't replace russia fossil fuels with other countries. so what i'm asking is beyond the direct funding that all fossil fuel money helps increase the price of oil and natural gas which helps vladimir putin have more funds
for his military machine. i'm hoping that you can divest as prudently as possible from all fossil fuels in our portfolio. thank you very much. >> secretary: thank you for your call. moderator, are there any further callers. >> there are no further callers. >> thank you. hearing no further calls, public comment is now closed. >> chairman: great. there's a motion on the floor from commissioner heldfond seconded by commissioner driscoll. i think we can take that [ indiscernible ] is that correct? okay. roll call vote. >> secretary: [roll call]
thank you, we have five ayes. the motion passes. >> president: great. okay. we can call the next item. >> secretary: item twelve is not use. item 13, discussion item. chief investment officer report. >> thank you, commissioners. we've talked about at length over the past few discussion items, global markets have been very volatile to begin the year. investors grapple with the pecktor of rising interest rates. the market's reaction in february to these events was somewhat muted and, again, bonds were down over 1% for the month. commodities in the area that was up substantially during the month. as was true in the month of january, u.s. stocks fell more
than their developed market peers and 5,500 was down 3% other developed markets were down at 1.8%. merging markets were down 2.99% largely by russia. with respect to russia, we've just acknowledged our exposures error that's quite limited both directly and indirectly to securities in russia and very little in ukraine. that stated that the second order of this conflict from rising energy prices to increased risk to the status of the u.s. dollar remain unclear. we're entering into a volatile time. and i discussed with staff and i talked with allen martin, it's important for all of us to maintain some of the things that make us a core investor. maintain long-term investment horizon and diversification and
liquidity. it's a real asset for us to remain a long-term investment horizon to something around 13 years. thus, we've been able to invest in a liquid area of the markets that i described earlier and invest in areas of long-term secular growth and our approach has allowed us to invest with the long-term in mind. as markets get volatile in the short term, it's important for us to maintain that long-term horizon. to the best defense, it's to make sure we're diversified. topic a few sessions ago, it's far more diversified in the global financial crisis. we now have allocations to
absolutely return. those strategies are uncorrelated with everything else we're doing in the plan. and traditional asset classes, real assets, public equity, we have diversified those portfolios to a far greater extent than we did in the global financial crisis. and then finally maintaining liquidity is critical for a plan like ours to get through these volatile periods both as a matter of defense and as well as an ability to play offense. just to remind you over the last several years, we've done quite a bit to improve our liquidity situation. not only in terms of liquidity, stress testing and monitoring, we've negotiating a credit facility that we could have if we need to bridge to make investments or if we need liquidity more generally. and we've introduced each allocation that includes
leverage and leverage to not only improve returns, but to improve our liquidity situation. i just thought it would be helpful to remind some of our key tenants and so with that bit of a soap box, i just want to note, we're down aren't 93 basis points and a little less than 1%. in other words, returns were led by real assets and private equity and losses were as you might imagine in public equity and absolute return. calendar year to date down
4.5%. our investment returns year to date are to come from our real assets. commodity prices have improved and we noted private credit, a lot of that exposure is variable rates. we actually benefit there because of the low duration. i will note when we're down 4.5% over the last two months or the first two months of this calendar year, a 60-40, or a 60-10-30 whatever it is is down 6%. while negative results don't feel good, we're doing better than a conventional portfolio would have done. for the first eight months of the fiscal year, we have returned approximately 2.3%. again, private equity real assets have produced double digit returns. now we have losses in our
equity absolute return and fixed income. we're up 2.3% for the first eight months of the fiscal year relative to the 6040 portfolios, we're doing quite well. those hypothetical portfolios would have been down 3.8 or 1.1%. turning the total trust assets are about $35.3 billion at the end of february. and as discussed, i mentioned it orally at the january meeting our allocations in private equity has now crested above 30% and i discussed this it was up 58% in aggregate in 2021. now, our allocation to private equity is approximately 39.1%.
exceeding the allowable range. as noted while we're slightly above that range, we remain comfortable with this for a couple of reasons. first, of that 30.9%, 20% of that is actually held in public equities which we're waiting for those to be distributed back to us either in the form of equity which we'll sell or in cash. so an asset allocation basis, a way of 39.5% of equity, 30% is in public equity. which within that public equity, we expect to get much of it back over the next twelve to 18 months. that's 30.9% doesn't reflect a marked market reflecting the volatility we've experienced over the last eight to nine weeks. so those valuations will come down. and finally, i want to point out that our private equity portfolios has reached a point
kurt? >> can you hear me or no? >> now we can. >> we can now. >> that's so bizarre. i come into the office for a reason. i understand we have to do these disclosures. i will do those quickly. update on a board approved and i'm confirming you can hear me? all right. we have five in total, three of which are published. two i'll need to do orally. at its board meeting on february 9th, 2022, our board approved investment up to $60 million. that investment closed on february 11th. the commitment is classified as a real estate investment within the real assets portfolio and its first investment with altara. next, the meeting on january 12th, 2022, the retirement board approved in closed session an additional
investment of $100 million from san francisco return investors that investment of $100 million closed on february 1st. the investment is classified as a global investment with its first absolute return portfolio. next, at this meeting on february 9th, 2022, the retirement board included an investment up to capital six. investment up to $25 million closed. the fund is classified as a venture capital. the next two do not appear in the written material. at its meeting on february 9th, the retirement board approved in closed session up to $75 million. investment of $75 million closed on march 4th. direct lending investment. this is the fifth private
investment and tenth overall. and an investment of up to $60 million digital opportunity fund. invested $55 million and closed on march 4th. real asset portfolio. finally, i want to remind all board members that our next investment committee is scheduled for wednesday, april 20th during which staff and our consultants will provide annual updates for public equity. and return programs. that's it. i'll be happy to answer any questions. >> president: any questions?
>> on the investment committee meeting coming up, i hope we have full board participation on that because of the nature of what's being presented and also the experience we had at the last investment committee meeting chanced. so i just encourage my fellow board members to participate. >> great. thank you. >> i have one technical question. the last page of your report, the market value, i just want to make sure i'm reading it directly. the market value of the closure date of this form is below the actual liability. >> that is correct. >> okay. that's a number that many of our members watch. >> yes. and rightfully so.
>> secretary: we have no public present at this time. thank you. a reminder to callers to press star three to be added to the queue. moderator, do we have any callers on the line? >> madam secretary, there are no callers on the line. >> secretary: thank you. hearing no calls, public comment is now closed. thank you, item number 14, discussion item. review of sfdcp investment performance for the second half of 2021. >> thank you. can you hear me okay? >> secretary: yes.
we can. >> thank you very much. good afternoon commissioners. thank you so much for your time today and welcome commissioner thomas. we are very much looking forward to working with you and i wish you a smooth onboarding. just diving right in. our first item today is the semi-annual performance report for the last half of 2021. we ended the year on a very high note despite recent market volatility which has impacted the plan's total a.u.m.. our investment consultant is prepared to walk the board through our past performance. given the time constraint, he'll provide a reader's digest version. please share your screen. >> thank you very much. and hopefully you all can see. good afternoon, my screen. let's confirm that you can.
all right. it is going to be in reader's digest just in the interest of time. there's been a lot of recent market volatility, but just as a reminder, we do review this with the board, so these assets that you see on the screen are as of december 31st and as much as possible. the punch line here is the plan crested that's grown significantly over the last period largely from investment kurns. assets have grown $1.8 billion over the last three years. stable value and the target date are the two largest categories that participants are invested in and roughly just under a billion dollars each follow bid the large cap growth fund at about 16% of planned assets.
i'll turn your attention to the next slide which looks at the target date performance over cumulative time periods. at the very top, you'll see the last one year, so the six months and the december 31st and you'll note as you go down the page, you'll see the funds perhaps for those younger participants in the plan. very strong both absolute returns as well as relative returns and as you go left to right within each fund and benchmark, you'll note not only are the absolute returns phenomenal particularly for the more equity, longer term funds are also doing relatively well and that's really a reflection of the strong performance that russel uses. these are the core funds that are utilized within the target date funds and many of them are
doing very well relative to benchmarks and peer group distributions with very few exceptions. one of note is the core bond fund you'll see just from an orientation standpoint. when you use the stoplight chart just to turn your attention to things that might be below the medium which is in yellow. red is fourth quarter performance and you'll see the return relative to the appropriate penitentiary mark, but by in large, there's a lot of green on the page. and that means they're in the top half of the group and you'll see many of these are the top performing fund in that period group. and we really look at the longer term time periods. there is manager on this page, two managers that are on watch list. one is the large cap value and it's just for performance reasons and you'll note in the recent period, this value has really come back as values come
back in favor. so while it's in the fourth quartile this is one of your top performing managers particularly in 2022 now that value seems to be strongly outpacing growth. on the page is this active equity, so this is managed by fidelity. they did have a portfolio manager announcement. so, again, that's why it falls into the watch list criteria. we continue to do a lot more due diligence on incoming to portfolio managers and long-term portfolio manager will be retiring in about a year and a half. so let's lots of leg room for him who still continues to manage the fund now and is expected to in a year and a half. now the lineup at the top of the page, you'll see strong absolute and relative results.
i turn your attention to within the international equity fund. there's 50% within international fund. this is a multi-manager and they too fell on the watch list because at the very high level of the organization, the business manager justin ambercrombi is taking a sabbatical and helping that investment team. we're continuing to do due diligence, but we don't believe there's any reason for change, but something note worthy to highlight. and lastly, i turn to principle real estate. the this is indicative of the long-term returns for the year up almost 40% in the 68th
percentile. they continue to do quite well and reallocate assets as they continue to grow. the last page of my formal remarks and watch list is on the component funds. so these are funds that are within the target date funds that participants don't have direct access to. they tend to be very volatile. very specific investment choices that russel, the target date manager utilizes on behalf of participants. and you'll note there is one fund the d.f.a. emerging market core. again, a similar story. they are on watch because they are -- the world corps fund are on watch for the 3 and five year period and below the benchmark. but their recent performance as
values come back in favor, they're really doing a nice job and that's really what we expected to happen in a more balanced market that we're assuming today. so i'll stop there and see if there are any questions. >> i have one question. i know we have a committee meeting at the end of the month, more detailed answers available then. so maybe this is alerting you to the question. looking at the target date funds each one is about two pages on. i know we have lower equity than the average or most other target date funds and other families, but other than the 2020 or target date fund, the
returns all seem to be in the lower left-hand quadrant. in the floating board charts, we are all way below median and the index for target date fund. that's a very serious subject that we have to talk about. and if we had a lower equity return, perhaps we should expect that and maybe the last two months have changed things dramatically but let's be prepared to make a serious discussion about our target date. managers on selected all the components, they seem to have left us way below average. unless you're able to explain it today. >> the very simple answer is that this is a custom portfolio and so it's hard to benchmark relative to a peer group because it's been devised based on your demographics.
you recognize your population and other reasons to support a more conservative glide path. it will be interesting to see as we flow through 2022 in a down period. again, we're looking at outside return, so a very strong market that really all you needed to do was take risk particularly in large cap u.s. equity and very high yield bonds, etc. between the two asset classes which some of the off the shelf funds did. your portfolio.
>> we're focusing on their members getting to that replacement ratio. and the first person to talk about, don't compare us to peers, that's not the effect. but, again, these performance numbers i would ask specifically to see how the commodity how well they did. these are loaded questions. i'm just trying to prepare you for that. >> president: any other comments, commissioners? >> president: all right. this is a discussion item. we'll take public comment if there are any at this time. >> secretary: there's no public present at this time. >> president: great.
public comment in person is closed. please call public comment callers at this time if there are any. >> secretary: thank you. callers if you have not already done so press star three to be added to the queue. >> president: thank you. public comment is closed. madam secretary, please call the next item. >> secretary: item number 15, discussion item. >> thank you. as discussed earlier, mayor breed had asked the board to immediately analyze investments with ties to russia and its government and divest as urgently as possible. as they are designed to be heavy liquid in nature due to the flexibility of contributions into and
distributions out of the plan. to conduct an analysis with our respective investment managers regarding the plan's exposure. we can report that the sfdc have near 0. greg underman is to provide some of which have already taken place. did you want to share? >> yeah. thank you. as mentioned, there is about actually five of the seven international funds that have 0 to very negliable exposure to ukraine. there are two and it shouldn't come as a surprise: both are within the target dates. the emerging market fund that
has about 27 basis fund. that's something all the active managers continue to evaluate and the index providers take just about all of them have taken russia out of the index and so most of these managers are just working through that exercise right now. . those are my prepared remarks. >> thank you, greg. if there are no more questions on that component, i'd like to move on to just a few other plan updates for the board. as many of you know, march is women's history month and this past tuesday was international women's day: in anticipation, the sfdcp launched our newest webinar called "women and
retirement planning." you can learn about the opportunities that women have when it comes to planning for retirement. you can watch this any time, any place on sfdpc.org under the updates and news section. in late february, rmd notifications for those turning 72 dropped to inform participants to take distribution by april 1st. if they did not, lawyers will automatically process in mid march and if they do not to avoid a 50% irs penalty. we've also updated information online at sfdcp.org for those near and in retirement. the office is now open again on
tuesdays and thursdays for in-person appointments and people are coming in which seems to be a desire for in person over 80 in february. the most popular one and surprisingly is our pretax versus ross seminar as taxes are likely on peoples' minds. finally, the last item i'd like to touch on is the monthly activity report included in your material. many of the commissioners are aware of this report, but in light of welcoming our newest commissioner, thomas, i'd like to quickly highlight how to read this report. greg, do you mind pulling that up on your screen and sharing that with the board? thank you so much. this will take commissioners. the first page shows the total
investment lineup. their respective benchmarks. it also includes our scbo which is less than 1% of our assets, but this number as nearly doubled. this started about a year and a half ago. page two shows the net cash flow. you can see we service about 30,000 participants. page three shows each of the under lying funds. so you'll see names that you recognize like vanguard or american funds. page four shows our asset allocation break down at the
broadest level. page five and the last page six shows the money in and out from contributions, distributions, and loans. and finally, the deferred except station committee is scheduled to have our committee at the end of this month. we can certainly touch on a deeper review of the target dates on this performance. with that, i'm happy to take any questions from the board. >> one question. i would like to know the revnies collected in the year 2021 of participants paid in for purposes of administration of the plan. i know you only take money but
we make sure we have major expenses that may occur every five years so i can compare that to an actual budget. is that -- do you think that image you'll be able to get that information by a march 30th. >> that would include an analysis of our fees and expenses which will help inform our recommendation of the fee proposal. >> great, thank you. >> thank you.
>> secretary: we have no public comment at this time. >> president: public comment is closed. >> secretary: thank you. a reminder to any callers to press star three to be added to the queue. moderators, do we have any callers? >> madam secretary, there are no callers on the line. >> thank you, hearing no calls, public comment is now closed. >> secretary: item number 16, discussion item. amended schedule of 2022 retirement board meeting. >> we are presenting the amended calendar changing the april, may, and june board meeting to the second thursday of each month starting at
10:00 a.m. and we were asked that the minutes note and public be given notice of these changes through the june 2022 board meeting. discussion item only. >> perhaps this change is preferable to having our board meeting in city hall on wednesdays down the hall from the board of supervisors so you can go back and forth between rooms. that's what we do here. >> president: that's exactly it. that's what would be happening. okay. i guess we have to take public comment at this time. >> secretary: we have no public present at this time. >> president: public comment in person is closed. madam secretary, if you can open the phone lines. >> secretary: thank you. callers, press star 3 to be added to the queue.
moderator, do we have any callers? >> madam secretary, there are no callers on the line. >> secretary: great. thank you. hearing no callers, public comment is now closed. >> president: public comment phone lines are closed at this time. please call the next item. >> secretary: discussion item. >> as president safai was elected last month, requires that he name his committee. he has kept the committees the same. former commissioner on his committee assignments. so we need the board's approval of these appointments through the july 2022 of board
meetings. >> president: motion made by commissioner heldfond, seconded by commissioner bridges. i'd like to take public comment at this time. in-person public comment is closed. madam secretary, please open up the phone lines for public comment callers. >> secretary: thank you. callers, if you have not already done so press star three to be added to the queue. >> there are no callers on the line. >> secretary: thank you. hearing no calls, public comment is now closed. >> president: thank you, madam secretary. this is not an action item, correct? >> if we have a motion and we need to have a vote. >> president: we do. okay. there's a motion by commissioner heldfond, seconded
by commissioner bridges, i believe we can take that same call. >> perhaps then this document should be edited to replace mr. coper's name. the case on the committee opposed to the liaison. just pointing that out. >> president: okay. duly. >> secretary: agenda item 19, discussion item. executive director's report. >> commissioners, really short. i'm pleased to announce that we have appointed sharon bourdain to the chief operating position in the department. this is part of the realignment or reorganization of the leadership at the top of the organization as a result of the ceo and ciopositions being merged. she has been invaluable to the
before i finally come to work here with the retirement system over eight years ago. so i believe this is an important position. i'm grateful that she's willing to take on the additional responsibilities, but i wanted to make sure that i publicly announce that. also, it's that time of year, we have april 1st as your deadline for your form 700 filings. if you need the details, all of you are going to be required to file electronically. and all staff will be filing electronically. i also wanted to update you on the return to the office. staff has returned to the office at least two days. we're encouraging two to three days per week starting this week, starting on monday of
this week. we intend to as we indicated open for in-person services for the public on tuesdays and thursdays by appointment only and the deferred comp started that this weekend and the retirement stock will be starting that next week also earlier this morning as president safai and we and in particular this office behind the board room is available. it has wifi. we're asking from now on that it be reserved in advanced through and that and it needs
to be made in advance and needs to be during our regular business hours monday through friday as we're trying to keep our staff space with a member of staff and that be coordinated through the director's office. and, with that, i'll be happy to answer any questions. >> president: looks like there's no question. thank you mr. executive director. >> does that relate to phone calls? because there's something in the memo about e-mails and phone calls. sometimes they want to answer on the phone rather than on the
e-mail. does that have to be scheduled or not? >> well, we have a situation where it's helpful for board members to provide a question they may have on board materials in advance via e-mail and staff does its best to respond to e-mails so this is not to prohibit that kind of a contact. what we would ask is especially when you are asking a question that's going to take a number away from maybe the assignment that they're working on that you copy the manager or that you at least copy the executive director to know that that question has been asked. i've said the past when you need information from the staff if you copy darlene or myself on that request, darlene follows through to make sure it gets done. that's what we're trying to encourage you to do is just to centralize requests of using staff time either for in-person
meetings or for asking a question or requesting additional information. >> i always expected answers at their convenience. it's just the phone call problem. >> not me calling them, them calling me. believe it or not, yes, they want to get sometimes the answer's much easier to do it in a phone call as opposed to texting messages back and forth. i'm trying to comply with this. >> okay. i will have a discussion with staff and we'll see what's going to work with them on their side. >> this is certainly aimed at just the board member having restricted access from the fifth floor, the 6th floor and the seventh floor as we return back from the pandemic. >> i understand that, but it's also restricting us from the
board room. of these regular hours for me are not so much different but i'm used to working saturdays and sundays for a very long time. specifically a matter of not wanting to interfere with staff doing their work. it's a very effective room for me. i'm trying to comply with everybody's best. >> president: mr. executive director. i think it's better that you talk off line about this. i think the purpose of highlighting this member was to state a majority of commission if commissioners need or desire
information to coordinate that information through the executive director and if so, if there's i don't necessarily have a problem with that. i just want us to reset the tone in terms of people are coming back into office. a lot of demands put on staff and their time. we want to centralize the contact information and if you have further questions, i think right now is we're coming back and a return to work, i think there's more restrictions on that. once there's more of a general opening and more of a general flow, i think that can be revisited in terms of access to the office. that makes sense. you all have additional one-on-one questions i would
ask you to it take that off line. >> thank you. >> president: okay. any other questions? comments? okay. sump a discussion. do we take public comment on that as well? okay. madam secretary, please, there are no in-person commenters. >> secretary: no public present at this time. >> president: okay. in-person public comment is closed. i would like you to pull public commentors on the phone lines. please open up the phone lines. >> secretary: thank you. reminder to any callers to press star three to be added to the queue. moderator, do we have any callers on the line? >> madam secretary, there's one caller on the line. >> secretary: thank you. caller. please state your name, your two minutes begin when you
speak. >> caller: yes. hi. this is fred sanchez from protect our benefits. i didn't get a chance earlier, but i wanted to welcome trustee thomas to the board and look forward to working with him in the future. glad to have him aboard. it's nice to see a miscellaneous worker on the board. also, i want to take the time to congratulate karen boardnick on chief operating officer and look forward to working with her as well. that's all i have to say at this time. >> secretary: thank you for your call. moderator, do we have any further callers? >> madam secretary, there are no further callers. >> secretary: thank you. hearing no further callers, public comment is now closed. >> president: okay. public comment phone lines are closed at this time. please call the next item. >> secretary: item number 20, discussion item.
retirement board member good of the order. >> president: i'll just lead by saying i'd like to welcome a.j. thomas. congratulations on your appointment. the callers that just called in i want to congratulations ms. boardnick on her position. i really appreciate everyone's effort to do all this work over the past two years. we've been dealing with distanced work, covid and all the impacts it's had on our work force but our retirement fund has continued to thrive. i look forward to working with all of you over the next number of months. any other members of the board have any comments? commissioner driscoll. >> commissioner: i should have asked this under 19, i know you gave us a document to help us during the budget discussions last month, but i'm just curious now, how many direct
reports do you now have? >> president: how many direct reports do you have? can you turn your microphone on? >> i have seven total. >> commissioner: still seven. if it's only still seven. that's good. thank you. >> president: anything else, commissioner driscoll? any other commissioners? okay. we'll take in-person public comment at this time, madam secretary. >> secretary: we have no public present at the time. >> president: in person public comment is closed. open the phone lines for public comment callers. >> secretary: thank you.
callers press star three to be added to the queue. >> madamth is, there are no callers on the line. >> secretary: thank you. hearing no callers, public comment is now closed. >> president: okay. public comment callers line is closed at this time. that's it. okay. so we're going to have to end this meeting -- no. we've got to go back to closed session and then end the meeting. we're going to log off on this and go back into closed session. we have to adjust something. so please log off and
line? >> madam secretary, there are no callers on the line. >> public comment is now closed. >> all the call lines are closed. there's a motion on the floor made by commissioner driscoll and roll call vote. [roll call vote] >> clerk: months passions, i have four ayes. >> we can go back to item on 21. motion to adjourn. >> yes. >> you don't need a motion. >> we are adjourned. i've learned that. you don't need a motion to adjourn. >> ok, good. >> bye-bye.
>> sfusd's meal program right now is passing out five days worth of meals for monday through friday. the program came about when the shelter in place order came about for san francisco. we have a lot of students that depend on school lunches to meet their daily nutritional requirement. we have families that can't take a hit like that because they have to make three meals instead of one meal. >> for the lunch, we have turkey sandwiches. right now, we have spaghetti and meat balls, we have chicken
enchiladas, and then, we have cereals and fruits and crackers, and then we have the milk. >> we heard about the school districts, that they didn't know if they were going to be able to provide it, so we've been successful in going to the stores and providing some things. they've been helpful, pointing out making sure everybody is wearing masks, making sure they're staying distant, and everybody is doing their jobs, so that's a great thing when you're working with many kid does. >> the feedback has been really good. everybody seems really appreciative. they do request a little bit more variety, which has been
hard, trying to find different types of food, but for the most part, everyone seems appreciative. growing up, i depended on them, as well, so it reminds me of myself growing up. >> i have kids at home. i have six kids. i'm a mother first, so i'm just so glad to be here. it's so great to be able to help them in such a way because some families have lost their job, some families don't have access to this food, and we're just really glad to be