Retirement Board Minutes
March 8, 2017
Page 1 of 18
Wednesday, March 8, 2017
1145 Market Street, 6th Floor
San Francisco, CA 94103
1:00 p.m.
MISSION STATEMENT
San Francisco City and County Employees’ Retirement System is Dedicated to Securing, Protecting and Prudently Investing the Pension Trust Assets, Administering Mandated Benefit Programs, and Providing Promised Benefits.
RETIREMENT BOARD MEMBERS
President
Malia Cohen
Vice President
Brian Stansbury
Commissioners
Leona Bridges
Al Casciato
Joseph Driscoll
Victor Makras
Wendy Paskin-Jordan
Executive Director
Jay Huish
DISABILITYACCESS
The San Francisco Employees' Retirement System is wheelchair accessible. Accessible seating is available for persons with disabilities. To obtain a disability-related modification or accommodation, including large print agendas, American Sign Language interpreters, FM sound amplification system and auxiliary aids or services, please contact Norman Nickens at (415) 487-7035 at least two (2) business days before the meeting.
There is accessible parking in the vicinity of 1145 Market Street at Civic Center Plaza. Accessible MUNI lines are available at the corner of Market Street and 8th Street. The closest accessible MUNI /BART station is Civic Center Station.
Materials accompanying the agenda are available for public inspection and copying at SFERS, 1145 Market Street, 7th Floor. For additional information, please contact Norman Nickens, Executive Assistant, at (415) 487-7035.
In order to assist the City’s efforts to accommodate persons with severe allergies, environmental illness, multiple chemical sensitivity or related disabilities, attendees at public meetings are reminded that other attendees may be sensitive to various chemical based products. Please help the City to accommodate these individuals.
The ringing of and use of cell phones, pagers and similar sound-producing electronic devices are prohibited at this meeting. Please be advised that the Chair may order the removal from the meeting room of any person(s) responsible for the ringing or use of a cell phone, pager, or other similar sound-producing electronic devices.
Know Your Rights Under the Sunshine Ordinance
(Chapter 67 of the San Francisco Administrative Code)
Government's duty is to serve the public, reaching its decisions in full view of the public. Commissions, boards, councils and other agencies of the City and County exist to conduct the people's business. This ordinance assures that deliberations are conducted before the people and that City operations are open to the people's review. FOR MORE INFORMATION ON YOUR RIGHTS UNDER THE SUNSHINE ORDINANCE OR TO REPORT A VIOLATION OF THE ORDINANCE, CONTACT THE SUNSHINE ORDINANCE TASK FORCE.
Sunshine Ordinance Task Force
City Hall
1 Dr Carlton B. Goodlett Place, Room 244
San Francisco, CA 94103-4689
(415) 554-7724
by fax at (415) 554-7854
or by email at
Citizens interested in obtaining a free copy of the Sunshine Ordinance can request a copy from Mr. Darby or by printing Chapter 67 of the San Francisco Administrative Code on the Internet,
Any materials distributed to the Retirement Board (or committee) within 72 hours of the meeting or after distribution of the agenda packet to Board (or committee) members are available for public inspection at SFERS, 1145 Market Street, 7th Floor, during regular office hours.
Lobbyist Registration and Reporting Requirements
Individuals and entities that influence or attempt to influence local legislative or administrative action may be required by the San Francisco Lobbyist Ordinance (San Francisco Campaign and Governmental Conduct Code sections 2.100 – 2.160) to register and report lobbying activity. For more information about the Lobbyist Ordinance, please contact the Ethics Commission at 25 Van Ness Avenue, Suite 220, San Francisco, CA 94103, telephone (415) 252-3100, fax (415) 252-3112 and web site:
Meetings are recorded by SFGovTV, the Government Channel 26. For DVD copies and rebroadcast scheduling call (415) 554-4188. Video on demand is available at:
OPENING CALENDAR
President Cohen called the meeting to order at 1:05 PM
1. / Pledge of Allegiance2. / Roll Call / Commissioner Malia Cohen 1:05 PM
Commissioner Leona Bridges 1:05 PM
Commissioner Al Casciato 1:05 PM
Commissioner Joseph D. Driscoll 1:05 PM
Commissioner Victor Makras Absent
Commissioner Wendy Paskin-Jordan 1:05 PM
Commissioner Brian Stansbury 1:05 PM
3. / 03082017-03 / Action Item / CLOSED SESSION
President Cohen called for public comment.
There were no comments from the public and President Cohen closed public comment.
Recommendations and Possible Action on Sales and Purchases of Particular, Specific Pension Fund Investments under California Government Code Section 54956.81 (4 investment recommendations).
The Board entered into Closed Session at 1:08 PM.
The following individuals were present for the closed session: Commissioners Casciato, Cohen, Bridges, Driscoll, Paskin-Jordan and Stansbury; Jay Huish, Executive Director; Caryn Bortnick, Deputy Executive Director; William J. Coaker, Chief Investment Officer; Art Wang, Managing Director for Private Markets; Bob Shaw, Managing Director for Public Markets; David Francl, Managing Director for Absolute Return; Ellen Brownell, Managing Director for Asset Allocation; Tanya Kemp, Director; Glen Schwartz, Senior Investment Officer; Han Pham, Christopher Chow, Justin Lo, Vicki Owens, Ed Comerford, Senior Portfolio Managers; Cynthia Wong, Mark Coleman, Joshua Man, Dennis Esselsagoe, Kien Trinh, Joe Bates, Security Analysts; Robert Bryan and Tran Ly, Deputy City Attorneys; Norm Nickens, Board Secretary; Anita Ng and Craig Beach, Cambridge Associates; Allan Martin, NEPC.
Commissioner Cohen left the meeting at 1:33 PM and returned at 1:38 PM.
The Board returned to open session at 2:37 PM.
Action: Moved by Commissioner Stansbury, Seconded by Commission Bridges to not disclose discussion in Closed Session under San Francisco Administrative Code Section 67.12(a).
Ayes: Bridges, Casciato, Cohen, Driscoll, Paskin-Jordan, Stansbury
Absent: Makras
4. / 03082017-04 General Public Comment - Not earlier than 2:30 PM
President Cohen called for public comment.
Claire Zvanski, SEIU West Bay Retirees, congratulated Commissioner Casciato on his election to the Board.
There were no additional comments from the public and President Cohen closed public comment.
5. / 03082017-05 / Action Item / Approval of the Minutes of the February 8, 2017 Retirement Board Meeting
Documents provided to the Retirement Board prior to the current meeting: Draft Minutes of the February 8, 2017 Retirement Board Meeting
President Cohen called for public comment.
There were no comments from the public and President Cohen closed public comment.
Moved by Commissioner Stansbury, Seconded by Commissioner Driscoll to recuse Commissioner Casciato from voting on the Minutes as he was not on the Board in February, 2017.
Ayes: Bridges, Cohen, Driscoll, Paskin-Jordan, Stansbury
Absent: Makras
Abstain: Casciato
Action: Moved by Commissioner Stansbury, Seconded by Commission Cohen to approve the Minutes of the February 8, 2017 Retirement Board Meeting
Ayes: Bridges, Cohen, Driscoll, Paskin-Jordan, Stansbury
Absent: Makras
Abstain: Casciato
CONSENTCALENDAR
All matters listed hereunder constitute a Consent Calendar, are considered to be routine by the Retirement Board and will be acted upon by a single vote of the Retirement Board. There will be no separate discussion of these items unless a member of the Retirement Board so requests, in which event the matter shall be removed from the Consent Calendar and considered as a separate item.
6. / 03082017-06a / Action Item / Consent Calendar03082017-06b / Action Item / Voluntary Retirement Board
List No. 9-16
03082017-06c / Action Item / Decisions of Hearing Officers
David J. Broder
Effective Date: 10/10/15 / 9345 Sheet Metal Supervisor I
Airport / Ordinary Disability Retirement
Granted
John B. Daniels
Effective Date: 11/12/16 / 9163 Transit Operator
MTA / Ordinary Disability Retirement
Granted
MoniqueKwan
Effective Date: 6/1/14 / 2908 Sr. Hospital Eligibility Wkr
DPH-SFGH / Ordinary Disability Retirement
Granted
Lee A. Martin
Effective Date: 9/9/15 / 9504 Permit & Citation Clerk
MTA / Ordinary Disability Retirement
Denied
Nick G. Sarantes Jr.
Effective Date: 12/19/15 / 7355 Truck Driver
Port / Ordinary Disability Retirement
Granted
AuroraSummers
Effective Date: 7/1/10 / 9163 Transit Operator
MTA / Ordinary Disability Retirement
Granted
03082017-06d / Action Item / Travel Requests
Request Travel Approval for Commissioner Leona Bridges to attend The Pension Bridge Annual, April 18-19, 2017, San Francisco, CA.
Request Travel Approval for Commissioner Leona Bridges to attend the 20th Annual Milken Institute Global Conference, April 30 – May 3, 2017, Los Angeles, CA.
Request Travel Approval for Commissioner Wendy Paskin-Jordan to attend NEPC’s 22nd Annual Investment Conference, May 9-10, 2017, Boston, MA.
Request Travel Approval for Commissioner Leona Bridges to attend the Salt Vegas Conference, May 17-19, 2017, Las Vegas, NV.
Documents provided to the Retirement Board prior to the current meeting: Voluntary Retirement Board List, Hearing Officer Decisions, Conference Agendas
President Cohen called for public comment.
There were no comments from the public and President Cohen closed public comment.
Action: Moved by Commissioner Casciato, Seconded by Commission Driscoll to approve the Consent Calendar as amended to add Commissioner Driscoll to the Pension Bridge conference travel request.
Ayes: Bridges, Casciato, Cohen, Driscoll, Paskin-Jordan, Stansbury
Absent:Makras
INVESTMENT CALENDAR
7. / 03082017-07 / Discussion Item / Investment Committee ReportDocuments provided to the Retirement Board prior to the current meeting: Committee Report
Commissioner Bridgespresented an oral and written report on this item.
Commissioner Bridges reported that at their meeting of February 15, 2017 the Investment Committee:
- Approved the minutes of the November 16, 2016 Investment Committee meeting;
- Received an educational presentation on Capital Market Assumptions and the Asset Allocation Process from Allan Martin and Phillip Nelson, NEPC; and,
- Received an educational presentation on Macroeconomics, Security Returns, and Artificial Intelligence from Apurv Jain, Microsoft Corporation.
President Cohen called for public comment.
There were no comments from the public and President Cohen closed public comment.
Action: This was a discussion only item.
Note: President Cohen called Items 8 & 9 together
8. / 03082017-08 / Discussion Item / Report on Investment Performance for the Quarter Ended December 31, 2016
Documents provided to the Retirement Board prior to the current meeting: Quarterly Performance Review and NEPC Investment Performance Analysis
William J. Coaker, Jr., Chief Investment Officer, Bob Shaw, Managing Director for Public Markets,Han Pham, Allan Martin presented an oral and written report on this item.
Mr. Shaw reported that:
SFERS' portfolio advanced 1.23% for the quarter - 24 basis points ahead of the policy benchmark - as plan assets were steady at $21.0 billion. With the exception of Fixed-Income (-1.79%), each
of SFERS' asset classes posted positive returns, led by Real Assets (+6.22%) and Private Equity (+2.76%). In its first full quarter, Absolute Return (+2.38%) was in the black. Public
Equities returned + 1.0 I% driven by the wide difference between US Equities (+ 3.53%) and Non-US Equities (-1.90%).
Public Equities (+ 1.0 I%) lagged the MSCI ACWI IMI by 26 basis points - as poor absolute and relative results in US Large Cap Growth Equities (-5.44% vs. + 1.0 I% for benchmark) reduced public equity performance by an estimated 25 basis points in the quarter.
Private Equity (+2.76%), trailed its benchmark (S&P 500 + 500 basis points), by 232 basis points, but continued its 13+ quarter run of positive absolute performance. It is common for Private Equity to lag its policy benchmark during periods of strong public equity performance - such as this quarter, which saw the S&P 500 climb 5.08%.
Real Assets advanced 6.22% against the benchmark's return of 1.94%.
Fixed income (-1.79%), with its significant short duration posture (4.7 vs. 5.7) coupled with an overweight to credit, was able to handily beat its policy benchmark (-2.61 %) during a quarter that saw US interest rates rise (the US I 0- year treasury rose from 1.60% to 2.44% during the quarter).
Absolute Return (+2.38%), in its first quarter was ahead of the policy benchmark of 90-day T-bills + 500.
Relative to peers (public funds with assets >$I billion), SFERS' results ranked in the second quartile
for the quarter, Fiscal Year to Date and I Year. For all other reported time periods, SFERS ranked in
either the top decile or quartile. The Fund's volatility, measured by standard deviation of returns, was below that of SFERS' Policy Index and the median peer over the trailing 1-,
3-, 5- and I 0-year periods.
Public Equities ended the quarter at 46.0% of plan assets (versus a policy of 40.0%). The above target allocation to equity serves to partly offset the underweight to private equity (14.1 % compared to the target of 18.0%), real assets ( 13.2% versus a target of 17.0%) and Absolute Return (2.2% vs. a target of 5.0%). Fixed income is also overweight (22.2% versus a policy weight of 20.0%). Cash (2.2% of plan assets) remains above the upper end of the allowable range of 0-1 %.
Commissioner Stansbury recommended that additional comparison data (1, 3, 5, 10 year) on performance and allocation for endowments be added to the reporting format. Mr. Coaker agreed to provide the requested information going forward.
Commissioner Stansbury left the meeting at 3:07 PM and returned at 3:11 PM.
Commissioner Driscoll discussed the expected rate of return and impact on contributions.
Commissioner Casciato discussed funding status and GASB requirements.
President Cohen called for public comment.
There were no comments from the public and President Cohen closed public comment.
Action: This was a discussion only item.
9. / 03082017-09 / Discussion Item / Report on Managers Under Review
Documents provided to the Retirement Board prior to the current meeting:Staff report
William J. Coaker, Jr., Chief Investment Officer, Bob Shaw, Managing Director for Public Markets,presented an oral and written report on this item.
Mr. Shaw reported that each quarter, investment staff and NEPC, SFERS' general investment consultant, provide the Retirement Board with details regarding the current status of Public Market investment managers that have been placed under review in accordance with the Guidelines for Equity and Fixed Income Manager Monitoring and Retention.
Managers added to the "Under Review" list:
No Manager was added to Under Review.
Managers removed from the "Under Review" list:
One manager has been removed from the Under Review list.
• Northern Trust Global Investors -Russell 2000 Growth Equities and MSCI EAFE Index Equities (both
passive mandates). In 2014, Northern Trust Global Investors ("NTGI"}, the asset management arm of The Northern Trust Company, received a subpoena from the SEC requesting information on NTGl's securities lending activities. As a result of this action, investment staff placed NTGI under review. In November 2016, NTGI received a "No-Action Letter" from the SEC, which indicates that the matter is closed. No charges were made by the SEC.
Commissioner Driscoll discussed Wellington’s performance. Mr. Coaker noted that staff is currently gathering additional data, including conducting a review of the peer universe.
Mr. Coaker discussed the process of hiring and terminating managers. Mr. Huish noted that this process is under review as part of the current Funston process, and that recommendations are currently being considered for inclusion in their report to the Board.
President Cohen asked about the status of Capital Guardian, Mr. Coaker noted that they are still under review by staff.
Commissioner Paskin-Jordan left the meeting at 3:38 PM.
President Cohen called for public comment.
Claire Zvanski, RECCSF, noted that endowments are not directly comparable to public pension plans.
There were no additional comments from the public and President Cohen closed public comment.
Action: This was a discussion only item.
10. / 03082017-10 / Discussion Item / Private Equity Portfolio Update
Documents provided to the Retirement Board prior to the current meeting: Cambridge Associates report
William J. Coaker, Jr., Chief Investment Officer, Art Wang, Managing Director for Private Markets,Anita Ng, Craig Beach, Cambridge Associates, presented an oral and written report on this item.
Ms. Ng reported that:
- SFERS PE program has performed well on an absolute basis and relative to public markets. Theprogram has been a strong contributor to overall Plan returns over the long term.
- The PE program currently stands at 14% of total Plan assets and is underweight its 18% targetallocation. Cumulative distributions have amounted to $6.8 billion and have been robust over the past several years, particularly from buyout investments.
- On the heels of an active 2015 with nearly $1.2 billion in commitments; 2016 was another productiveyear for the PE program:
- The fundraising market remains very competitive for the most sought after funds. SFERS hasbenefitted from cultivating relationships with top-tier investment managers.
- Most private equity markets remain frothy. SFERS continues to focus on high convictionopportunities, emphasizing manager selection and prioritizing pockets of relative value andattractiveness.
There were no comments from the public and President Cohen closed public comment.
Action: This was a discussion only item.
11. / 03082017-11 / Discussion Item / Real Assets Portfolio Update
Documents provided to the Retirement Board prior to the current meeting: Cambridge Associates report
William J. Coaker, Jr., Chief Investment Officer;Art Wang, Managing Director for Private Markets; Anita Ng, Scott Martin, and Nick Warmingham, Cambridge Associates, presented an oral and written report on this item.
Mr. Wang introduced Cambridge Associates to present its annual review of SFERS' Real Assets program, including portfolio and market observations. Given the reporting lag associated with private investment partnerships, all data was presented as of September 30, 2016 unless otherwise noted. As of September 30, 2016, SFERS' Real Assets portfolio has a reported value of $2.5 billion (12.0% of total Plan assets) and has generated an 8.1% net IRR since inception.
Cambridge reported that:
- The real assets program has outperformed by 60 bps annualized over the past 20 years.
- Total exposure is 12%, underweight but building up to its 17% asset allocation target.
- 2016 was a productive year, with $1,037.5 million committed to 15 funds and coinvestments.
- Competition remains fierce for capacity with top funds. SFERS' proactive outreach and relationshipbuilding has been rewarded with outsized access.
- Valuations remain elevated for many markets. SFERS continues to focus on pockets of relative valueand managers with strong in-house operational skillsets.
- Since inception in 1978 through September 30, 201 6, SFERS committed $8,371 million to 101 funds.Managers have called $6,367 million (~76%of commitments).
- The program has generated a total value to paid-in of 1.37x, creating $2.4 billion in value net of feesand carried interest.
- Current NAV stands at $2,523 million (12% of total portfolio assets). Unfunded commitments of$2, 116 million will be drawn down over several years.