City and County of San Francisco Employees Retirement System RETIREMENT BOARD MEETING MINUTES

Transcription

1 City and County of San Francisco Employees Retirement System RETIREMENT BOARD MEETING MINUTES Wednesday, 1145 Market Street, 6 th Floor San Francisco, CA :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 Herb Meiberger, CFA Commissioners Leona Bridges Joseph Driscoll Victor Makras Wendy Paskin Jordan Brian Stansbury Jay Huish Executive Director

2 Page 2 of 24 DISABILITY ACCESS 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) 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 8 th 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) 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 (415) by fax at (415) or by at sotf@sfgov.org 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, 7 th 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 ) 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 94102, telephone (415) , fax (415) and web site: Meetings are recorded by SFGovTV, the Government Channel 26. For DVD copies and rebroadcast scheduling call (415) Video on demand is available at:

3 Page 3 of 24 OPENING CALENDAR President Cohen called the meeting to order at 1:10 PM. 1. Pledge of Allegiance 2. Roll Call Commissioner Malia Cohen 1:10 PM Commissioner Leona Bridges 1:20 PM Commissioner Joseph D. Driscoll 1:10 PM Commissioner Victor Makras Absent Commissioner Herb Meiberger, CFA 1:10 PM Commissioner Wendy Paskin Jordan 1:10 PM Commissioner Brian Stansbury 1:10 PM Action Item CLOSED SESSION There were no comments from the public and President Cohen closed public comment. The Board entered closed session at 1:13 PM. a) Conference with Legal Counsel under Government Code Section (d)(4) and San Francisco Administrative Code Section 67.10(d)(4): Anticipated litigation as plaintiff, number of potential cases: one (Discussion and possible action). The following individuals were present for the closed session: Commissioners Cohen, Driscoll, Meiberger, Paskin Jordan, and Stansbury; Jay Huish, Executive Director; Caryn Bortnick, Deputy Executive Director; Norm Nickens, Board Secretary; and Ashley Dunning, Nossaman LLP. Commissioner Bridges joined the meeting at 1:20 PM. b) Recommendations and Possible Action on Sales and Purchases of Particular, Specific Pension Fund Investments under California Government Code Section (five investment recommendations) (Discussion and possible action). The following individuals were present for the closed session: Commissioners Cohen, Bridges, Driscoll, Meiberger, Paskin Jordan, Stansbury; Jay Huish, Executive Director; Caryn Bortnick, Deputy Executive Director; William J. Coaker, Chief Investment Officer; Robert Shaw, Managing Director for Public Markets; Art Wang, Managing Director for Private Markets; David Francl, Managing Director for Absolute Return; Ellen Brownell, Director for Asset Allocation, Risk and Innovation; Tanya Kemp, Director, Private Equity; Ed Comerford, Eunice McHugh, Han Pham, Victoria Owens, Senior Portfolio Managers; Christopher Chow, Cynthia Wong, Joshua Man, Justin Lo; Security Analysts; Robert Bryan, William Lin, Deputy City Attorneys; Norm Nickens, Board Secretary; Anita Ng, Kelly Jensen, Craig Beach, Marina Kedrun, Marshall Fisher, Cambridge Associates.

4 Page 4 of 24 The Board left Closed Session at 2:45 PM. Action: Moved by Commissioner Paskin Jordan, Seconded by Commissioner Bridges to return to Open Session and not disclose discussions held in Closed Session. Ayes: Bridges, Cohen, Driscoll, Meiberger, Paskin Jordan, Stansbury Absent: Makras Recess 2:45 3:05 PM General Public Comment Not earlier than 3:00 PM Patrick Monette Shaw congratulated President Cohen on her recent marriage. He also expressed concern regarding responses to questions raised by Commissioner Makras regarding Northern Trust and the pace of divestment from Thermal Coal. He submitted the following written statement, which he represented was an accurate summary of his public comment: Through Chair Cohen, before I start my timed public testimony, I d like to congratulate Commissioner Cohen on her wedding and getting hitched in Jamaica recently. Since you keep urging me to take a vacation somewhere, I m disappointed you didn t invite me to your nuptials! Congratulations Commissioner Malia! Many happy anniversaries to you and your spouse! As I have previously testified, I m deeply concerned about Executive Director Jay Huish s delaying timely responses to formal inquiries from SFERS s Commissioners regarding issues related to their fiduciary duties due to Huish s endless delays responding to Board member information requests. On October 14, Commissioner Makras submitted 15 questions to Mr. Huish regarding Northern Trust. On October 23 Huish responded to just one of Makras questions. From a records request I placed June 5, I received Huish s April 22 response to Makras responding to the other 14 questions. Huish s six month delay responding clearly impeded Commissioner Makras fiduciary duties regarding due diligence, which delay I find obstructionist, and inexcusable. Another records request I placed June 5 for correspondence from SFERS Board members, staff, and consultants regarding divestment from investments in thermal coal and redirecting those investments which the Board directed in December wasn t answered. What s taking so long divesting from thermal coal? John Furlan, spoke in support of the hedge fund recommendation and commended staff for their actions related to the recommendation. He also commended President Cohen and Commissioner Meiberger for their service as Board President and Vice President, and urged greater collegiality on the Board.

5 Page 5 of 24 Dorsey McTaggart, spoke in support of COLAs for pre 1996 retirees. Claire Zvanski, RECCSF, SEIU 1021 West Bay Retirees, IFPTE 21 Retirees, spoke in support of COLAs for pre 1996 retirees and urged swift action by the Board. John Stinson spoke in opposition to investment in hedge funds and urged development of an exit strategy. Sai Orr spoke in opposition to investment in hedge funds due to performance, fees and transparency concerns. Emma Gerard, retiree, spoke in support of COLAs for pre 1996 retirees and urged consideration for the most vulnerable retirees. There were no additional comments from the public and President Cohen closed public comment Action Item Consideration of Protect our Benefits Request for Reconsideration of the Board s Previous Determination regarding Payment of Supplemental COLAs to pre 1996 Retirees and Continuants Documents provided to the Retirement Board prior to the current meeting: Staff memorandum and Letter dated March 24, 2016 from David Clisham, Protect Our Benefits ( POB ), to Jay Huish, Executive Director Jay Huish, Executive Director, presented and oral and written report on this item. Mr. Huish reported that the Retirement System retained Nossaman LLP as independent legal counsel to the Board for the purpose of advising the Board whether it has discretion to grant supplemental COLA benefits to pre 1996 retirees without applying the full funding condition in Charter Section A (d) in view of the decision in Protect our Benefits v. City and County of San Francisco (2015). Nossaman advised the Board related to this matter in closed session. Mr. Huish noted that at the request of Commissioners Meiberger and Makras, this item was calendared for possible action related the letter dated March 24, 2016 from David Clisham, representing Protect our Benefits ( POB ), requesting the Board to reconsider its previous decision related to payment of 2013 and 2014 supplemental COLAs to pre 1996 retired members and continuants. If the majority of the Board voted to reconsider their previous decision, then a written proposed resolution supporting such reconsideration would be presented to the Board for deliberation and action in open session at the July 13, 2016 Board meeting.

6 Page 6 of 24 Bob Muscat, Public Employee Committee, Local 21, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration. Joseph Asaro, retiree, read a letter submitted by Tom O Connor, SF Fire Fighters Local 798, in support of COLAs for pre 1996 retirees and the POB request for consideration. Larry Barsetti, Chair of Protect Our Benefits, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration. Nancy Gin, retiree and former president of Protect Our Benefits, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration. Rudi Faltes, retiree, Protect Our Benefits and United Educators Retirees, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration. Fred Sanchez, retiree, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration, and read a letter from Tom Smith. Rich Waller, retiree, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration. Jim McCoy, President of the Retired Fire Fighters and Widows Association, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration. Kathleen Price, retiree, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration. Joseph Scannell, retiree, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration. He noted the impact on veterans of World War II and the Korean War. George Lau, retiree, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration and urged resolution without any additional litigation. Rich Costa, retiree, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration. He read a previous ballot argument submitted by the Retirement Board regarding benefit increases to offset the impact of inflation. Elmer Carr, retiree, spoke in support of COLAs for pre 1996 retirees and the POB request for reconsideration. He read a previous ballot argument submitted by the Retirement Board regarding benefit increases to offset the impact of inflation. Cynthia Landry, Local 1021 Retirement Security Committee, spoke in support of COLAs for pre 1996 retirees and urged the Board take swift action John Bettencourt, retiree, spoke in support of COLAs for pre 1996 retirees.

7 Page 7 of 24 Patricia O Connor, Protect Our Benefits, spoke in support of COLAs for pre 1996 retirees and read a previous ballot argument submitted by the City in support of benefit increases for retirees. Julie Collins, retiree, spoke in support of COLAs for pre 1996 retirees and read a previous ballot argument submitted by the City in support of Proposition C. Tom Maguire, Protect Our Benefits, spoke in support of COLAs for pre 1996 retirees and noted previous support for benefit increases. Sharon Johnson, Protect Our Benefits, noted that the Proposition C litigation began over 6 years ago and spoke in support of COLAs for pre 1996 retirees. Patrick Monette Shaw, retiree, spoke in support of COLAs for pre 1996 retirees and requested a motion approving payment of the COLAs. He submitted the following written statement, which he represented was an accurate summary of his public comment: The discussion with SFERS independent legal counsel, Nossaman LLP, about whether this Board has discretion to grant the supplement COLA benefits to pre 1996 should have been heard in Open, not Closed, Session today. David Clishman s March 24, 2016 letter representing Protect Our Benefits, correctly noted San Francisco Charter A (b) contains no directive the Pension fund be fully funded as a precondition for pre 1996 retirees to receive the supplemental COLA. I support Commissioner Meiberger s motion to reconsider your previous decision denying the supplemental COLA for pre 1996 retirees. Now that you ve passed Meiberger s motion, please now introduce, and then pass unanimously, a motion today to approve paying pre 1996 retirees the supplemental COLA. You do not need to wait until your July 13 meeting to do so. Herbert Weiner, retiree, spoke in support of COLAs for pre 1996 retirees. Emma Gerald, Local 1021 SEIU, spoke in support of COLAs for pre 1996 retirees and read a letter into the record on behalf of Local There were no additional comments from the public and President Cohen closed public comment. President Cohen expressed her appreciation for the efforts of the members of Protect Our Benefits and retirees in bringing this issue before the Board. She noted the compassion they brought to this issue. Commissioner Stansbury noted the Board s deliberative process, commended the members of Protect Our Benefits, and asked the members of the audience to consider: 1. Why is there a motion to reconsider;

8 Page 8 of Why did it take this long; 3. What has changed; and, 4. Why was the motion not made a couple of months ago. Commissioner Meiberger expressed appreciation for members who attended the meeting and advocated on behalf of retirees. Action: Moved by Commissioner Meiberger, Seconded by Commissioner Driscoll to reconsider the Board s previous decision regarding payment of Supplemental COLA benefits to pre 1996 retirees and continuants. Ayes: Bridges, Cohen, Driscoll, Meiberger, Paskin Jordan, Stansbury Absent: Makras Recess 4:15 4:20 PM Action Item Discussion and Approval of Staff Recommendation to Hire Blackstone Alternative Asset Management as General Partner for a $500 Million Customized Fund of Hedge Funds and Advisor for a $500 Million Direct Hedge Fund Investment Program Documents provided to the Retirement Board prior to the current meeting: Staff and Aon Hewitt memoranda Commissioner Bridges left the meeting at 4:20 PM. William J. Coaker, Jr., Chief Investment Officer; David E. Francl, Managing Director, Absolute Return; Steve Voss, Partner, Aon Hewitt Retirement and Investment Consulting; Mike Pollard, Consultant, Liquid Alternatives, Aon Hewitt Retirement and Investment Consulting; and, Sean Bill, Investment Program Manager, Santa Clara Valley Transportation Authority, presented an oral and written report on this item. Mr. Francl reported that on April 13, 2016, the Board approved Staff s recommendation of five firms as finalists under the Request for Proposals ("RFP ) for hedge fund consulting and/or fund of hedge funds. The five finalists approved were as follows: 1) Aksia; 2) Blackstone Alternative Asset Management; 3) Grosvenor; 4) Lighthouse Partners; and 5) Mesirow Financial. A due diligence team comprised of Chief Investment Officer William J. Coaker, Managing Director of Absolute Return David E. Francl, and Director of Asset Allocation, Risk Management and Innovation Ellen Brownell, completed onsite due diligence visits with each of the five finalists from April 21, 2016 through May 5, The purpose of Staff s due diligence was to verify information provided in each firm's proposal, acquire a greater understanding of the capabilities and characteristics of each firm's personnel, portfolio construction, research, risk management, reporting and fee structures, and report findings to the Hedge Fund RFP Review Committee. Staff conducted onsite meetings lasting at least four hours with each firm that

9 Page 9 of 24 included various key personnel representing each firm's management, investment and operational due diligence, legal and compliance, risk management and research functions. After conducting comprehensive onsite due diligence of each of the five finalists Staff recommended Blackstone Alternative Asset Management ( BAAM") as general partner for a $500 million customized fund of hedge funds and advisor for a $500 million direct hedge fund investment program. Commissioner Meiberger asked about long term value creation in the recommendation. Mr. Francl noted structures in place to defer fees and mitigate risk of paying fees for value that is not preserved beyond the year in which it is created. Commissioner Meiberger requested information on gross fees of the Blackstone commingled product referenced in the staff recommendation. Mr. Francl estimated the fees at 130 basis points, approximately $6.5 million per year, but indicated that SFERS fees would likely be much different based on its discussions to date with Blackstone. Commissioner Meiberger discussed asset allocation by class. Mr. Francl noted that allocation strategies will be presented to the Board for consideration at a future meeting as part of manager guidelines. President Cohen noted Blackstone s commitment to diversity. Commissioner Meiberger discussed risk, standard deviation and how it was calculated. Mr. Coaker noted that standard and appropriate methodology was used by staff in calculating standard deviation. Mr. Meiberger noted that lower risk and fees could be achieved with the appropriate mix of stocks and bonds. Commissioner Driscoll discussed alignment of interests in the proposed investment. Mr. Francl noted the direct investment of current and former employees of Blackstone. Commissioner Driscoll discussed guidelines to be presented in the future and what will be included. Mr. Francl noted that the guidelines will address strategies and ranges of exposure. Commissioner Driscoll asked if Blackstone s proprietary software had been tested as part of due diligence. Mr. Francl confirmed that the systems had been tested as part of Staff s due diligence. Commissioner Driscoll asked if the funds would be domiciled in the US. Mr. Francl noted that Blackstone offers the option of domestic (Delaware) and offshore funds, and that domestically domiciled funds are generally used for public sector clients. Commissioner Paskin Jordan noted Blackstone s previous positive performance, particularly during the 2008 Credit Crisis. She requested additional information regarding manager turn over at Blackstone, including which managers were released and the impact on their portfolio.

10 Page 10 of 24 Mr. Francl introduced representatives from The Blackstone Group to present to the Board and to respond to the issues raised by the Board members: Gideon L. Berger Senior Managing Director, The Blackstone Group John McCormick Senior Managing Director, The Blackstone Group Tia Breakley Managing Director, The Blackstone Group Brad Rudner Managing Director, The Blackstone Group Mr. Berger discussed asset allocation, and noted they were generally the same underlying assets SFERS currently is invested in except cash. The manager guideline will create ranges of allocations designed to take advantage of opportunities. Manager turn over is estimated at 10 15% per annum. Ms. Breakley discussed concerns raised regarding the domicile of funds and diversity at Blackstone. Blackstone has 12 US pension funds as clients, 9 are in funds domiciled on shore, and 7 of those have no offshore component. A Delaware limited partnership corporation investing in other Delaware limited partnerships is an option available for SFERS. She noted diversity is an important concern for Blackstone and that they currently have a number of initiatives in place to recruit and maintain a diverse staff, including paid family leave.. Commissioner Stansbury noted concerns raised by SFERS members regarding transparency. Mr. Berger noted that Blackstone is highly regulated and values transparency. Commissioner Stansbury asked for comment on the value of hedge funds to SFERS. Mr. Berger noted that hedge funds could assist with diversification and risk management. Commissioner Meiberger discussed benchmarks. Amihan Makayan, Local 21, spoke in support of investment in hedge funds to reduce risk. She commended staff for their efforts and spoke in support of the staff recommendation. Herbert Weiner, retiree, noted that many hedge funds are domiciled in the Cayman Islands and could result in frozen assets. Ed Kinchley, Local 1021, spoke in opposition to investment in hedge funds due to high risk, tax avoidance strategies, fees and transparency. John Furlan, spoke in support of the recommendation and asked how successful Blackstone would be in getting SFERS into the best funds. Cynthia Landry, Local 1021, noted that the Local 1021 Board has adopted a policy in opposition to investment in hedge funds, and expressed concern regarding transparency, claw back, and off

11 Page 11 of 24 shore funds, and adverse actions towards public employees. Mike Hebel, POA, spoke in support of the staff recommendation, requested that hedge funds be reported as a separate category. Patrick Monette Shaw, retiree, spoke in opposition to investment in hedge funds. He submitted the following written statement, which he represented was an accurate summary of his public comment: Reject the Staff recommendation splitting half of this investment into a fund of hedge funds and half into a direct hedge fund. Eighteen months ago you unanimously voted to invest $1 billion only in a fund of funds program; Commissioner Bridges had strongly opposed any direct hedge fund investments. This recommendation runs contrary to your initial directive to Staff who now put their thumbs in your eyes. Obviously this Staff recommendation usurps Board authority, which approved a very narrow directive restricting the type of hedge fund investment. The process has been flawed, with Staff changing composition of the Hedge Fund review panel from five to six members and changing the panel s composition this Board directed be established. Wouldn t Board approval of this Staff recommendation breach this Board s fiduciary duties? Have you shared with Board members in secret the management fees structure, but withheld fees from our Plan beneficiaries, preferring secrecy over transparency? Claire Zvanski, RECCSF, spoke in opposition to investment in hedge funds, cited SEIUs opposition to the investment of public pension funds in hedge funds, and expressed concerns regarding fees. John Stenson, retiree, spoke in opposition to investment in hedge funds and noted that other public funds have moved away from hedge funds. There were no additional comments from the public and President Cohen closed public comment. President Cohen requested comment on the concerns regarding hedge fund performance attributed in the media to Tony James. Mr. Berger stated that he has spoken to Mr. Jones and that the comments taken out of context, as they applied to funds not of institutional quality. President Cohen asked if SFERS would be able to get in to the best funds. Mr. Berger responded yes, based on Blackstone s past experience. Action: Moved by Commissioner Stansbury, Seconded by Commissioner Paskin Jordan to approve Staff s recommendation to hire Blackstone Alternative Asset Management as general

12 Page 12 of 24 partner for a $500 million customized fund of hedge funds and advisor for a $500 million direct hedge fund investment program. Ayes: Absent: Nays: Cohen, Driscoll, Paskin Jordan, Stansbury Bridges, Makras, Meiberger Action Item Election of Board President Documents provided to the Retirement Board prior to the current meeting: None This item was not heard and was continued to the July 13, 2016 Retirement Board meeting Action Item Election of Board Vice President Documents provided to the Retirement Board prior to the current meeting: None This item was not heard and was continued to the July 13, 2016 Retirement Board meeting Action Item Approval of the Minutes of the May 9, 2016 Retirement Board Meeting Documents provided to the Retirement Board prior to the current meeting: Draft Minutes of the May 9, 2016 Retirement Board Meeting Claire Zvanski, RECCSF, noted a clerical error in the draft minutes. There were no further comments from the public and President Cohen closed public comment. Action: Moved by Commissioner Stansbury, Seconded by Commissioner Paskin Jordan to Approve Minutes of the May 9, 2016 Retirement Board Meeting as amended. Ayes: Cohen, Driscoll, Meiberger, Paskin Jordan, Stansbury Absent: Bridges, Makras CONSENT CALENDAR 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.

13 Page 13 of Action Item Consent Calendar a Action Item Consent Calendar b Action Item Voluntary Retirement Board List No c Action Item Decisions of Hearing Officers Khalid I. Allawzi Effective Date: 12/1/15 Michael A. Androvich Effective Date: 12/19/12 Douglas A. Bias Effective Date: 10/1/14 William M. Carle Effective Date: 3/1/14 Arlyn C. Eusebio Fortuno Effective Date: 10/19/14 Helen L. Gill Smith Effective Date: 12/1/14 William R. McFarland Effective Date: 3/17/15 Edgar L. Springer Effective Date: TBD 9163 Transit Operator MTA Q4 Police Officer III Police 7346 Painter Administrative Services H 2 Firefighter Fire 1446 Secretary II Human Services 9508 Principal Permit & Citation Clerk MTA H20 Lieutenant Fire Q 82 Captain III Police Ordinary Disability Retirement Granted Industrial Disability Retirement Denied Ordinary Disability Retirement Granted Industrial Disability Retirement Denied Ordinary Disability Retirement Denied Ordinary Disability Retirement Denied Industrial Disability Retirement Granted Industrial Disability Retirement Denied Melvin Thornton Effective Date: 7/1/15 Q4 Police Officer III Police Industrial Disability Retirement Granted d Action Item Petition for Rehearing Michael A. Androvich Effective Date: 12/19/12 Q4 Police Officer III Police Industrial Disability Retirement Denied d Action Item Travel Requests Documents provided to the Retirement Board prior to the current meeting: Voluntary Retirement Board List, Hearing Officer Decisions

14 Page 14 of 24 There were no comments from the public and President Cohen closed public comment. Action: Moved by Commissioner Stansbury, Seconded by Commissioner to Approve the Consent Calendar Ayes: Cohen, Driscoll, Meiberger, Paskin Jordan, Stansbury Absent: Bridges, Makras INVESTMENT CALENDAR Discussion Item Report on the Investment Performance of Retirement Fund for the Quarter ended March 31, 2016 Documents provided to the Retirement Board prior to the current meeting: Staff and NEPC memoranda This item was not heard and was continued to the July 13, 2016 Retirement Board meeting Discussion Item Report on Managers Under Review Documents provided to the Retirement Board prior to the current meeting: Staff memorandum This item was not heard and was continued to the July 13, 2016 Retirement Board meeting Action Item Discussion and Approval to Place Northern Trust on the Manager Under Review List Documents provided to the Retirement Board prior to the current meeting: Calendar Sheet and excerpts from the Board s Investment Policy Statement and Guidelines for Public Equity and Fixed Income Manager Monitoring and Retention Policy This item was not heard and was continued to the July 13, 2016 Retirement Board meeting. Patrick Monette Shaw, spoke in opposition to the recommendation to continue. There were no additional comments from the public and President Cohen closed public comment Item not used

15 Page 15 of Action Item Recommendation of Finalists for the Global Custody Services RFP Documents provided to the Retirement Board prior to the current meeting: Staff and Callan Associates memoranda William J. Coaker, Jr., Chief Investment Officer and Robert L. Shaw, Managing Director, Public Markets, presented an oral and written report on this item. Mr. Shaw reported that at its October 14, 2015 meeting, the Retirement Board approved the reissuance of a Request for Proposals for Global Custody and Securities Lending Services (the "Custody RFP"). A total of eight firms responded to the RFP resulting in 32 potential mixes of providers of Global Custody and Securities lending services: Global Custody Only (Four Firms): State Street, BNY Mellon, Northern Trust and JP Morgan Both Custody and Securities Lending (Four Firms): State Street, BNY Mellon, Northern Trust and JP Morgan Securities Lending as a Stand alone (Eight Firms): State Street, BNY Mellon, Northern Trust, JP Morgan, Deutsche Bank, Goldman Sachs, BNP Paribas and eseclending Staff recommended that the operationally critical Global Custody Services vendor selection be made first and then determine which provider(s) of Securities Lending Services are the best fit for the retirement system. Patrick Monett Shaw spoke in opposition to the staff recommendation. He submitted the following written statement, which he represented was an accurate summary of his public comment: As I testified in April, the SFERS s Black Swan report should have disqualified Northern Trust from this RFP. Because N.T. froze SFERS cash account in 2008, SFERS had to sell securities to raise cash to pay pensions, losing $79.2 million between realized and unrealized losses when N.T. pulled that stunt. Northern Trust must be punished. How could SFERS have lost almost $80 million and even consider climbing back into bed with a company that screwed our beneficiaries? Had Mr. Huish responded fully to Makras 15 questions when first asked last October, N.T. might have already been placed on the watch list. This body should have heard today s Agenda

16 Page 16 of 24 Item 12 you just postponed until your July meeting regarding placing N.T. on SFERS Under Review watch list before accepting N.T. as a finalist on this RFP. Northern Trust should have been eliminated today from any further consideration on this RFP! There were no additional comments from the public and President Cohen closed public comment. Action: Moved by President Cohen, Seconded by Commissioner Driscoll that Staff and Callan Associates are authorized to interview and conduct onsite due diligence meetings with BNY Mellon, Northern Trust and State Street. Ayes: Cohen, Driscoll, Paskin Jordan, Stansbury Nay: Meiberger Absent: Bridges, Makras Action Item Presentation by SFDCP General Investment Consultant Finalist and Approval to Retain Callan Associates for General Investment Consulting Services Documents provided to the Retirement Board prior to the current meeting: Staff Memorandum, Gay Lynn Bath Biography and Callan Associates Investment Consulting Services Presentation Diane Chui Justen, Deferred Compensation Plan Manager, presented an oral and written report on this item. Ms. Chui Justen reported that Angeles Investment Advisors, LLC is the current investment adviser for the SFDCP. The current contract with Angeles will expire on June 30, Upon Retirement Board approval, Staff issued a Request For Proposal (RFP) on January 22, 2016 to solicit bids for Investment Consulting Services for the City and County of San Francisco Deferred Compensation Plan. The SFDCP received seven bid responses to the RFP from the following firms: 1. Angeles Investment Advisors, LLC 2. Aon Hewitt 3. Callan Associates, Inc. 4. Cammack Retirement Group 5. NEPC, LLC 6. NFP Retirement 7. Segal Rogerscasey The Deferred Compensation Committee voted to recommend for consideration, Callan Associates as SFDCP's Investment Consultant to the full Retirement Board.

17 Page 17 of 24 Commissioner Meiberger spoke in support of the staff recommendation. Noted public clients have insurance companies as record keepers, 401(k) do not. Nature of the industry, diversity of payroll. Commissioner Meiberger requested comment on litigation involving Intel, a client of Callan. Callan noted that they are not a party to the litigation. Commissioner Stansbury left the meeting at 5:45 PM and returned 6:15 PM. Action: Moved by Commissioner Meiberger, Seconded by Commissioner Paskin Jordan to approve recommendation to enter into a five (5) year contractual agreement with Callan Associates, for general Investment Consulting Services for San Francisco s 457(b) Deferred Compensation Plan. Ayes: Cohen, Driscoll, Meiberger, Paskin Jordan, Stansbury Absent: Bridges, Makras Action Item Chief Investment Officer Report Documents provided to the Retirement Board prior to the current meeting: CIO Report William J. Coaker, Jr., Chief Investment Officer, presented an oral and written report on this item. Mr. Coaker reported on recent events and developments in the Investment Division and in the economy and capital markets, including: Investment Returns in FY Economic Conditions Investment Committee meeting scheduled for June 15, 2016 Update on Personnel Disclosures regarding investments approved in closed session: Longitude Venture Partners III, L.P. At its meeting on April 13, 2016, the Retirement Board approved in closed session an investment of up to $40 million in Longitude Venture Partners III, L.P. The investment was approved by the following vote: Ayes: Bridges, Cohen, Driscoll, Makras, Meiberger, Paskin Jordan Nays: None Absent: Stansbury SFERS investment of $30 million in Longitude Venture Partners III, L.P. closed on May 11, 2016.

18 Page 18 of 24 This investment is classified as a venture capital investment within SFERS Private Equity portfolio and is SFERS first investment with Longitude. More information about Longitude is available on Vista Equity Partners Fund VI, L.P. and Vista Foundation Fund III, L.P. At its meeting on March 9, 2016, the Retirement Board approved in closed session an investment of up to $100 million in Vista Equity Partners Fund VI, L.P. and up to $125 million in Vista Foundation Fund III, L.P. The investments were approved by the following vote: Ayes: Commissioners Makras, Bridges, Driscoll, Paskin Jordan, Meiberger and Stansbury Absent: Commissioner Cohen SFERS investment of $50 million in Vista Equity Partners Fund VI, L.P. closed on May 19, 2016, and SFERS investment of $50 million in Vista Foundation Fund III, L.P. closed on May 19, Vista Equity Partners Fund VI, L.P. is classified as a mega buyout investment within SFERS private equity portfolio. Vista Foundation Fund III, L.P.is classified as a medium buyout investment within SFERS private equity portfolio. More information about Vista is available on Carmel Partners Investment Fund VI At its meeting on April 13, 2016, the Retirement Board approved in closed session an investment of up to $100 million with Carmel Partners Investment Fund VI ( Fund VI ). The investment was approved by the following vote: Ayes: Absent: Driscoll, Paskin Jordan, Meiberger, Cohen, Makras Bridges, Stansbury SFERS commitment of $50 million closed on May 25, SFERS investment in Fund VI is classified as a real estate investment within SFERS Real Assets portfolio and is SFERS first investment with Carmel. More information about the firm is available on Pelican Energy Partners II At its meeting on May 9, 2016, the Retirement Board approved in closed session an investment of up to $50 million with Pelican Energy Partners II ( Fund II ). The investment was approved by the following vote:

19 Page 19 of 24 Ayes: Bridges, Driscoll, Paskin Jordan, Stansbury, Meiberger Absent: Cohen, Makras SFERS commitment of $50 million closed on May 19, SFERS investment in Fund II is classified as a natural resources investment within SFERS Real Assets portfolio and is SFERS first investment with Pelican. More information about the firm is available on ABRY Heritage Fund, L.P. At its meeting on April 13, 2016, the Retirement Board approved in closed session an investment of up to $50 million in ABRY Heritage Fund, L.P. The investment was approved by the following vote: Ayes: Bridges, Cohen, Driscoll, Makras, Meiberger, Paskin Jordan Absent: Stansbury SFERS investment of $23 million in ABRY Heritage Fund, L.P. closed on March 31, This investment is classified as a buyout investment within SFERS private equity portfolio. More information about ABRY Partners is available on Centerbridge Special Credit Partners III, L.P. and Centerbridge Special Credit Partners III Flex, L.P. At its meeting on May 9, 2016, the Retirement Board approved in closed session a combined investment of up to $50 million in Centerbridge Special Credit Partners III, L.P. ( SC III ) and Centerbridge Special Credit Partners III Flex, L.P. ( SC III Flex ). The investment was approved by the following vote: Ayes: Bridges, Driscoll, Meiberger, Paskin Jordan, Stansbury Absent: Cohen, Makras SFERS investment of $50 million in SC III and SC III Flex closed on May 17, Centerbridge Partners was founded in 2005 by Jeffrey Aronson and Mark Gallogly. The firm is headquartered in New York with an office in London. More information about Centerbridge Partners can be found at Oak Hill Advisors Strategic Credit Fund II, L.P.

20 Page 20 of 24 At its meeting on April 13, 2016, the Retirement Board approved in closed session an investment of up to $50 million in OHA Strategic Credit Fund II, L.P. ( OHA Fund II ). The investment was approved by the following vote: Ayes: Cohen, Driscoll, Makras, Meiberger, Paskin Jordan Absent: Bridges, Stansbury SFERS investment of $50 million in OHA Fund II closed on May 24, Oak Hill Advisors was founded in 1991 by Glenn August. The firm is headquartered in New York with offices in London, Los Angeles, Hong Kong, Sydney and Forth Worth. More information about Oak Hill Advisors can be found at Patrick Monette Shaw. He submitted the following written statement, which he represented was an accurate summary of his public comment: The agenda description and CIO s report posted on line before today are deficient. First, the agenda doesn t list the names of investments previously approved in closed session. Second, in talking with Claire on Sunday, I discovered the CIO report mailed to her contained mention of the closed session investment of $100 million in EMR Capital Resources Fund II, which may specialize in investments in mining operations, natural resources companies and projects, and investments in global metals. But the CIO report posted on line doesn t mention EMR Capital Resources at all, nor that the $100 million investment was previously approved in closed session. Why is this Board talking about divestment of $20 million in thermal coal stocks in Open Session with members of the public, then turning around in secret, behind closed doors meetings, and investing $100 million in other fossil fuels. What happened to honoring the Board of Supervisors guidelines for fossil free investments? There were no additional comments from the public and President Cohen closed public comment. Commissioner Meiberger noted that Carmel was approved for up to $100 million, but closed at $50 million. Mr. Coaker noted that staff was not able to get all concessions sought and there closed at the lesser amount. Action: This was a discussion only item.

21 Page 21 of 24 DEFERRED COMPENSATION PLAN CALENDAR Discussion Item Deferred Compensation Committee Report Documents provided to the Retirement Board prior to the current meeting: Deferred Compensation Committee Report Commissioner Joseph Driscoll, Chair of the Deferred Compensation Committee, presented an oral and written report on this item. At their meeting of May 25, 2016 the Deferred Compensation Committee: Approved the Minutes of the April 27, 2016 Deferred Compensation Committee Meeting; Forwarded for approval by the full Board a recommendation to retain Callan Associates as SFDCP's general Investment Consultant; Received a general update from the Deferred Compensation Plan Manager on ongoing projects. The Committee scheduled their next meeting for June 22, 2016 at 11:00 AM. There were no comments from the public and President Cohen closed public comment. Action: This was a discussion only item Discussion Item SFDCP Manager Report Documents provided to the Retirement Board prior to the current meeting: Staff Memorandum and Monthly Activity Report Diane Chui Justen, Deferred Compensation Plan Manager, presented a written report on this item. Caryn Bortnick, Deputy Executive Director, reported that John Greves has left Russell, resulting in their placement on watch list. Patrick Monette Shaw: He submitted the following written statement, which he represented was an accurate summary of his public comment: Lou Barberini s article in the April Westside Observer issue illustrated SFERS Deferred Comp plan is in complete shambles.

22 Page 22 of 24 Second, Barberini s June article Say It Ain t So, Joe, which I m distributing to you, reports Commissioner Driscoll is aware investments in tax sheltered annuities are inferior investments, but he s voted for 30 years during DC Plan Committee meetings to keep investing in life insurance annuity products, including from Prudential s Retirement and Annuity Company. Our deferred comp plan isn t invested in insurance products because we re required to; were invested in them because Joe wants to. Driscoll s failure responding to Barberini reflects terriblly on each of SFERS Commissioners. I also reviewed Callan s list of clients and noticed almost all of its corporate clients 401k plans have traditional brokerage/mutual funds as their provider, whereas its public sector deferred comp plan clients have investments in insurance companies. SFERS DC Plan could and should choose traditional brokerage/mutual funds! There were no additional comments from the public and President Cohen closed public comment. Action: This was a discussion only item. ADMINISTRATION CALENDAR Action Item Declaration of Vacancy on Retirement Board Occurring February 20, 2017 and Approval of Election Procedures and Timeline Documents provided to the Retirement Board prior to the current meeting: Draft election schedule and materials Jay Huish, Executive Director, presented an oral and written report on this item Mr. Huish reported that on February 20, 2017 Commissioner Meiberger will complete his term of office. Pursuant to the provisions of Administrative Code Section , the Retirement Board is required to declare that a vacancy will occur and establish a schedule for the election of a Retirement Board member for the five year term commencing February 21, He submitted for Board approval a tentative schedule showing the dates required by the ordinance, subject to approval by the Department of Elections which will administer the election process. There were no comments from the public and President Cohen closed public comment.

23 Page 23 of 24 Action: Moved by Commissioner Stansbury, Seconded by Commissioner Paskin Jordan to approve declaration of vacancy on Board and election procedures and timelines Ayes: Cohen, Driscoll, Meiberger, Paskin Jordan, Stansbury Absent: Bridges, Makras Discussion Item Executive Director s Report Documents provided to the Retirement Board prior to the current meeting: Executive Director s Report. Jay Huish, Executive Director, presented an oral and written report on this item including but not limited to: 2016 Proxy Voting System Update on INCR sponsored Resolutions: corrections and update will be submitted at next meeting. Update on status of Supplemental COLA payments under POB order. Attachments for Informational Purposes: The Cortex Report of Educational Opportunities Blackout Period List Forward Calendar There were no comments from the public and President Cohen closed public comment. Action: This was a discussion only item Discussion Item Retirement Board Member Good of The Order Retirement Board members may request that any matter be calendared at a future meeting. All such requests shall be calendared in a reasonable time. (Board Operations Policy 24.) The Board will not discuss any items requested to be calendared until a subsequent meeting when the matter is included on the agenda with the required public notice. Commissioner Stansbury requested an update on the SFERS phone system and the encryption of member information. There were no additional comments from the public and President Cohen closed public comment. Action: This was a discussion only item.

24 Page 24 of Discussion Item Retirement Board Member Reports and Comments Written reports were submitted by: Commissioner Wendy Paskin Jordan who attended the 2016 Blackstone Capital Partners LP Conference, May 4 5, 2016, New York, NY. Commissioners Leona Bridges, Herb Meiberger, Wendy Paskin Jordan, Victor Makras and Brian Stansbury, who attended the SALT Conference, May 10 13, 2016, Las Vegas, NV. Commissioner Brian Stansbury who attended the Wharton University Investment Strategies and Portfolio Management, May 16 20, 2016, Philadelphia, PA. There were no comments from the public and President Cohen closed public comment. Action: This was a discussion only item Action Item CLOSED SESSION This item was not heard Adjournment Having no further business, the Board adjourned the meeting at 6:30 PM. Respectfully submitted, Jay Huish, Executive Director