2. Action: Approve minutes of Investment Committee of April 10, 2018.

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1 PUBLIC NOTICE AGENDA INVESTMENT COMMITTEE SAN BERNARDINO COUNTY EMPLOYEES' RETIREMENT ASSOCIATION May 8, :00 PM Board Room 348 West Hospitality Lane, First Floor San Bernardino, California Items of interest to the public that are within the subject matter jurisdiction of the Board of Retirement, hereinafter referred to as Board, may be addressed by the public during the meeting. Persons wishing to address items on the agenda should provide notice to the Secretary of the Board prior to Board s discussion of the item. Members of the public may also comment during the Public Comment period at the end of Open Session. Speakers are limited to three minutes. 1. Call meeting to order. 2. Action: Approve minutes of Investment Committee of April 10, Action: Recommend that the Board of Retirement approve Board member and staff attendance at client conferences and similar events within 21 significant manager relationships, epected to occur in the fiscal year ending June 30, Action: Recommend that the Board of Retirement approve the changes to the Investment Policy No Insurance for Investment Managers. 5. Committee discussion and possible direction to staff regarding Investment Policy No. 007 Due Diligence. PUBLIC COMMENT At this time, the Committee will provide an opportunity for the public to address any subject, within the jurisdiction of the Committee, which is not already scheduled on this agenda. Committee members may respond briefly to statements made or questions posed. They may ask a question for clarification and, through the Chairman, make a referral to staff for factual information or request staff to report back to the Committee at a later meeting. Speakers are limited to three minutes. ADJOURN NOTES The term "Action" in the wording of any Agenda item contained herein serves as notice that the Committee may, in its discretion, dispose of any item by any action in the following non-

2 Investment Committee Agenda May 8, 2018 Page 2 eclusive list: approve, disapprove, modify, defer, table, take no action, and receive and file. The Board of Retirement meeting facility is accessible to persons with disabilities. If assistive listening devices or other auiliary aids or services are needed in order to participate in the public meeting, requests should be made through the Eecutive Assistant at least three (3) business days prior to the meeting. The Eecutive Assistant s telephone number is (909) , and the office is located at 348 W. Hospitality Lane, Third Floor, San Bernardino, CA Investment Committee Meeting Tuesday, June 12, :00 p.m. UPCOMING MEETINGS

3 MINUTES INVESTMENT COMMITTEE April 10, 2018 BOARD ROOM 348 WEST HOSPITALITY LANE, FIRST FLOOR SAN BERNARDINO, CA Trustees Present: NEAL WANER, Committee Chair DAWN STAFFORD, Committee Member OSCAR VALDEZ, Committee Member Others Present: CHRISTIE PORTER, Chief Operating Officer MICHAEL CALABRESE, Chief Counsel DONALD PIERCE, Chief Investment Officer EYDIE COX, Sr. Investment Analyst ERIN CALICCHIO, Recorder Not Present: JARED NEWCOMER, Committee Member 1. Call meeting to order. Committee Chair Waner called the meeting to order at 2:01 p.m. 2. Action: Approve minutes of Investment Committee of February 13, Stafford moved, Valdez seconded, to Approve minutes of Investment Committee of February 13, Ayes: Waner, Stafford, Valdez Motion Passed. 3. Action: Recommend that the Board of Retirement Approve the 5th Amendment to the Investment Consultant Agreement with NEPC. Pierce, staff, and Allan Martin of NEPC presented. Valdez moved, Stafford seconded, to Approve to Recommend that the Board of Retirement approve the 5th Amendment to the Investment Consultant Agreement with NEPC. Ayes: Waner, Stafford, Valdez Motion Passed.

4 Investment Committee Minutes April 10, 2018 Page 2 4. Action: Recommend that the Board of Retirement Approve the eighteen (18) month Investment Manager On-site Due Diligence Schedule for , and 2018 eceptions. Co and Pierce presented. Committee Chair Waner suggested to agendize the current Due Diligence Policy for discussion at the net Investment Committee meeting and any concerns thereafter would be taken to the full Board. Valdez moved, Waner seconded, to Approve to Recommend that the Board of Retirement approve the eighteen (18) month Investment Manager On-site Due Diligence Schedule for , and 2018 eceptions. Ayes: Waner, Valdez Noes: Stafford Motion Passed. 5. Action: Recommend that the Board of Retirement review and renew Board Investment Policy No. 002 Informed Rebalancing/Tactical Asset Allocation Policy. Pierce presented. Stafford moved, Valdez seconded, to Approve to Recommend that the Board of Retirement review and renew Board Investment Policy No. 002 Informed Rebalancing/Tactical Asset Allocation Policy. Ayes: Waner, Stafford, Valdez Motion Passed. 6. Action: Recommend that the Board of Retirement review and renew Board Investment Policy No. 017 Alternative Investment Structures. Pierce presented. Valdez moved, Stafford seconded, to Approve to Recommend that the Board of Retirement review and renew Board Investment Policy No. 017 Alternative Investment Structures. Ayes: Waner, Stafford, Valdez Motion Passed. 7. Continued discussion and possible direction to staff regarding the Annual Alternative Investment Fee Disclosures in Compliance with California Govt. Code Pierce presented. Committee Chair Waner suggested to continue the discussion regarding this item to the net Investment Committee meeting and to include Chief Financial Officer, Julie Underwood.

5 Investment Committee Minutes April 10, 2018 Page 3 8. Discussion and possible direction to staff regarding the start time for the monthly Investment Committee meetings. Committee and Staff discussed. PUBLIC COMMENT ADJOURN No Public Comment was provided. Committee Chair Waner adjourned the meeting at 2:49 p.m. Respectfully submitted, NEAL WANER, Committee Chair CHRISTIE L. PORTER, Acting Board Secretary DATED

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7 REPORT/RECOMMENDATION TO THE INVESTMENT COMMITTEE OF SAN BERNARDINO COUNTY EMPLOYEES RETIREMENT ASSOCIATION May 8, 2018 FROM: Donald Pierce, CFA Chief Investment Officer SUBJECT: Annual Investment Manager Client Conference Travel Approval RECOMMENDATION: Action: Recommend that the Board of Retirement approve Board member and staff attendance at client conferences and similar events within 21 significant manager relationships, epected to occur in the fiscal year ending June 30, BACKGROUND INFORMATION: On February 5 th, 2015, the Board instructed the investment staff to provide a list of investment manager annual meetings and client conferences be approved for attendance by trustees and staff in a single block, rather than on an ad hoc basis throughout the year as had been the prior practice. Managers recommended for such pre-approval would be limited to those with whom SBCERA has significant relationships and importantly, the events would need to occur within the United States. These significant relationships would include, for the 2018/2019 fiscal year: Alcentra Apollo Ares BeachPoint Birch Grove Cairn GoldenTree Gramercy Halcyon Industry Ventures Invesco Manulife Marathon Partners Group Pathway Pinnacle PGIM Russell Investments Tennenbaum Waterfall Zais Managers on this list may or may not necessarily hold annual client meetings or conferences; however, the current list represents managers with significant eisting and on-going capital deployment for SBCERA. ADMINISTRATIVE BUDGET IMPACT: Costs for this item were included in the current fiscal year budget. ATTACHMENTS: No PRESENTERS: Donald Pierce, CFA, Chief Investment Officer

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9 REPORT/RECOMMENDATION TO THE INVESTMENT COMMITTEE OF SAN BERNARDINO COUNTY EMPLOYEES RETIREMENT ASSOCIATION May 8, 2018 FROM: Donald Pierce, CFA Chief Investment Officer SUBJECT: Periodic Review of Investment Policy No. 010 Insurance for Investment Managers RECOMMENDATION: Action: Recommend that the Board of Retirement approve the changes to the Investment Policy No. 010 Insurance for Investment Managers. BACKGROUND INFORMATION: Investment Policy No. 010 (the Policy) was recently slated for review as part of staff s ongoing project to update all policy pursuant to Board General Policy No Upon staff and legal review, it was determined that the Policy, originally enacted in 2010, contains certain very specific requirements for insurance coverage by investment managers that reflected the prevailing market standards in 2010 but are not consistent with today s market. Further, it was determined that the Policy had been written in an infleible manner such that there was little fleibility to tailor coverages to SBCERA s needs on a deal-todeal basis, or as market conditions change. Thus, revisions to the Policy are proposed that would preserve the core principles that managers must provide adequate and appropriate coverage, and laying out specifics as to what kinds of coverage will generally be required, while also providing fleibility to respond to deal-specific needs and changing market conditions. ATTACHMENTS: Investment Policy No. 010 v.1.0 (Redline) - Insurance for Investment Managers Investment Policy No. 010 v.2.0 (Clean) - Insurance for Investment Managers PRESENTER: Donald Pierce, CFA, Chief Investment Officer

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11 REDLINE VERSION Investments Policy No. 010 (Issue 1.0) Insurance for Investment Managers

12 POLICY NO. 010 Issue No Committee: Investment Comm. Effective Date: 03/04/ /07/2018 Policy Category: Investments Page(s) 21 Formatted: Highlight Approved. By: Chairman of the Board Subject: INSURANCE FOR INVESTMENT MANAGERS Insurance Requirements Without limiting an Investment Manager's obligation for indemnification, Manager will provide and maintain at its own epense during the term of any Investment Management Agreement or similar agreement with SBCERA the followinga program(s) of insurance that, in the judgment of the Chief Investment Officer in consultation with Chief Counsel, ensures that the Manager has sufficient insurance coverage to effectively cover any obligation that might arise as a direct or indirect result of the Manager s relationship with SBCERA. In determining the sufficiency of such coverage, the Chief Investment Officer and Chief Counsel shall consider the types of coverage available, the types of eposure that can reasonably be anticipated, the availability of such coverage in light of prevailing market conditions, and the importance of the specific investment(s) to SBCERA s portfolio. Coverages and terms and conditions to be considereds shall include, but not be limited to, enumerated within, coverage ing its operations hereunder against claims for injuries to persons or damage to property which may arise from or in connection with the performance of the work hereunder by Manager, its agents, representatives or employees, legally mandatory coverages such as automobile and worker s compensation coverage, coverage for professional errors and omissions, fiduciary liability, and cyber liability. Such coverage, if market conditions permit, include a fidelity or financial institution bond covering employee dishonesty and computer theft. SuchAll coverage required under this policy insurance willshould, in each case set forth in this policywhere market conditions permit:, (a) be primary to and not contributing with any other insurance maintained by the SBCERA and/or the County of San Bernardino;. Such insurance will(b) be provided by insurer(s) rated A or better by an industry recognized rating agency or otherwise approved in writing by the SBCERA; (c), and be supported by evidence of such insurance, in a form satisfactory to the SBCERA;, will(d) be delivered to the SBCERA on or before the effective date of this the Investment Management Agreement or similar agreement;. Such evidence will(e) be accompanied by a written statement from the insurer that SBCERA is to be given at least thirty (30) dayscommercially reasonable written notice in advance of any material modification or termination of any policy of insurance; and (f) place commercially reasonable limitations and notification and approval requirements on any deductibles and self-insured retentions. Manager will supply certificates of insurance which substantially comply with the requirements of this policy. SBCERA shall retains, where commercially reasonable,

13 POLICY: Insurance For Investment Managers Page 2 the right at any time to review the coverage, form, and amount of the insurance required hereby. If in the opinion of SBCERA the insurance provisions in these requirements do not provide adequate protection for SBCERA and its members, SBCERA and Manager shall meet to discuss insurance coverage, sufficient in form and amount to provide adequate protection. Manager shall maintain throughout the term of any Investment Agreement errors and omissions insurance to cover the Manager and its agents for errors, omissions, and losses arising from the services provided under any Investment Agreement and a fidelity or financial institution bond covering employee dishonesty and computer theft. The insurance policy limit and the amount of the bond maintained by the Manager under this policy will shall be consistent with industry standards, the underlying capitalization of Manager, and the amount and type of assets under investment. Any deductibles or selfinsured retentions must be declared and approved by the Board if greater than 10%.

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15 CLEAN VERSION Investments Policy No. 010 (Issue 2.0) Insurance for Investment Managers

16 POLICY NO. 010 Issue No. 2.0 Committee: Investment Comm. Effective Date: 06/07/2018 Policy Category: Investments Page(s) 2 Approved. By: Chair of the Board Subject: INSURANCE FOR INVESTMENT MANAGERS Insurance Requirements Without limiting an Investment Manager's obligation for indemnification, Manager will provide and maintain at its own epense during the term of any Investment Management Agreement or similar agreement with SBCERA a program of insurance that, in the judgment of the Chief Investment Officer in consultation with Chief Counsel, ensures that the Manager has sufficient insurance coverage to effectively cover any obligation that might arise as a direct or indirect result of the Manager s relationship with SBCERA. In determining the sufficiency of such coverage, the Chief Investment Officer and Chief Counsel shall consider the types of coverage available, the types of eposure that can reasonably be anticipated, the availability of such coverage in light of prevailing market conditions, and the importance of the specific investment(s) to SBCERA s portfolio. Coverages and terms and conditions to be considered shall include, but not be limited to, coverage against claims for injuries to persons or damage to property which may arise from or in connection with the performance of the work hereunder by Manager, its agents, representatives or employees, legally mandatory coverages such as automobile and worker s compensation coverage, coverage for professional errors and omissions, fiduciary liability, and cyber liability. Such coverage, if market conditions permit, include a fidelity or financial institution bond covering employee dishonesty and computer theft. All coverage required under this policy should, where market conditions permit: (a) be primary to and not contributing with any other insurance maintained by the SBCERA and/or the County of San Bernardino; (b) be provided by insurer(s) rated A or better by an industry recognized rating agency or otherwise approved in writing by the SBCERA; (c)be supported by evidence of such insurance, in a form satisfactory to the SBCERA; (d) be delivered to the SBCERA on or before the effective date of the Investment Management Agreement or similar agreement;(e) be accompanied by a written statement from the insurer that SBCERA is to be given commercially reasonable written notice in advance of any material modification or termination of any policy of insurance; and (f) place commercially reasonable limitations and notification and approval requirements on any deductibles and self-insured retentions. Manager will supply certificates of insurance which substantially comply with the requirements of this policy. SBCERA shall retain, where commercially reasonable, the right at any time to review the coverage, form, and amount of the insurance required hereby. If in the opinion of SBCERA the insurance provisions in these requirements do not provide adequate

17 POLICY: Insurance For Investment Managers Page 2 protection for SBCERA and its members, SBCERA and Manager shall meet to discuss insurance coverage, sufficient in form and amount to provide adequate protection. Manager shall maintain throughout the term of any Investment Agreement errors and omissions insurance to cover the Manager and its agents for errors, omissions, and losses arising from the services provided under any Investment Agreement. The insurance policy limit and the amount of the bond maintained by the Manager under this policy shall be consistent with industry standards, the underlying capitalization of Manager, and the amount and type of assets under investment.

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19 REPORT/RECOMMENDATION TO THE INVESTMENT COMMITTEE OF SAN BERNARDINO COUNTY EMPLOYEES RETIREMENT ASSOCIATION May 8, 2018 FROM: Donald Pierce, CFA Chief Investment Officer SUBJECT: Committee Review of Investment Policy No. 007 Due Diligence RECOMMENDATION: Committee discussion and possible direction to staff regarding Investment Policy No. 007 Due Diligence. BACKGROUND INFORMATION: Per Committee instruction at the April 10, 2018 Investment Committee meeting, attached is Investment Policy No. 007 Due Diligence for discussion and possible direction to staff. ATTACHMENTS: Investment Policy No. 007 v.2.0 Due Diligence PRESENTER: Donald Pierce, CFA, Chief Investment Officer

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21 SB ctc.tf. County Employees' Retirement Association POLICY NO. 007 Issue No. 2.0 Committee: Board of Trustees Effective Date: 01/08/2015 Policy Category: Investments Page(s) 5 Approved. By'C- _, '7if)~ Chairman oft~ Subject: DUE DILIGENCE POLICY Policy It is the Board's policy to conduct various levels of due diligence to engage investment managers and monitor investments for the purpose of meeting its fiduciary obligations. Definition Due Diligence is a broadly based term comprised of many meanings within the institutional investment community. In plain language, it means appropriate carefulness. Within a legal sense, it means the degree of care that a prudent person would eercise. At SBCERA, the Board has elevated due diligence with the goal of providing an added level ofrisk management and oversight. This is done through the use of a multi-pronged approach which is comprised of distinct, but inter-related components, which are carried out over the life of the investment from pre-hire to wind-down. These components include: Investment due diligence, Operational due diligence, and Legal due diligence and Compliance monitoring. Background (The Search Process) Once a search process is initiated and as part of the selection process, Pre-Hire Investment Due Diligence is conducted at the manager's business location (onsite) to further assess and confirm investment philosophy, strategy and implementation. This is an impo1iant step to verify the written documentation provided by the manager during the search process. Continued on net page

22 Policy No. 007: Due Diligence, Continued Investment Due Diligence Pre-Hire: Conducted by Staff and/or Consultant Conducted at Manager's location Assess/confirm investment philosophy, strategy, and implementation Verify written documentation provided by manager during search Post-Hire: Conducted by Staff and Trustees (see Brown Act Considerations) Conducted remotely or on-site Monitoring and Compliance Operational Due Diligence Pre-Hire: Conducted by an eternal, independent accounting and auditing firm, specializing in investment management compliance or audits, or an eternal, and independent, operational due diligence finn. Conducted at Manager's location Establishes a baseline and overview of the film' s back office, trading and compliance capabilities Ensures proper risk management procedures and internal controls are in place prior to funding a manager (i.e., background investigations as to any formal or informal investigations by financial regulatory authorities, interviews with eecutives, portfolio managers, compliance, traders and even lower level staff). Assessment of the firm's general attitude and philosophy in regard to openness and compliance. Post-Hire: Conducted remotely or on-site On-going visits and remote monitoring procedures to check for changes to programs, personnel, systems and ongoing compliance capabilities. Provide a verification of appropriate fees being charged with respect to the account. Note: Standard operational due diligence reviews are typically three-day on-site visits with follow-up visits at least every four years and periodic remote monitoring in the interim. Continued on net page

23 Policy No. 007: Due Diligence, Continued Legal Due Diligence and Compliance Legal (Pre-Hire): Contracting process utilizes a team approach implemented by approved eternal law firms, in conjunction with Chief Counsel and investment staff. Review legal, pre-hire questionnaire required from each manager Ensure that the contract complies with applicable laws and regulations and that SBCERA is protected from legal risks (Internal and eternal counsel) Ensure the investment strategy purported is congruent in all legal documents; and that managers are held, at a minimum, to professional and fiduciary standards that are both prevalent to the manager's industry and satisfactory to SBCERA. (All) Review and confirm fees, hurdle rates, gating provisions, redemption provisions, prohibited transactions or eposures, and key man provisions. (All) Business related decisions are negotiated by Investment staff. Note: The eecution of the final negotiated contract is the responsibility of the Chief Eecutive Officer. The Chief Investment Officer shall then have the authority to eecute any and all additional documents necessary to implement the Board's decision to approve the investment. Compliance (Post-Hire): Monitor contracts to ensure that agreed upon terms outlined within the contract are met over the life of the contract. (e.g., Key man provisions, insurance coverage, and assets under management). (Investment staff) Monitor for compliance factors (e.g., guideline monitoring, use of leverage, style drift, proy voting, trade allocations, soft dollar trades, commission recapture, security pricing procedures, account administration and reporting). (Investment Staff) Other: The Board has engaged the services of a third-party provider to monitor securities litigation and track the compliance and performance of the Plan' s custodian with regard to this investment related program. Continued on net page

24 Policy No. 007: Due Diligence, Continued Remote vs. Onsite Due Diligence Monitoring and Compliance consists of two components - both remote and onsite reviews. Remote strategy reviews consist of in-person, video, or audio teleconferences held at SBCERA offices, or other selected venues, with investment managers on at least an annual basis. More frequent video teleconferencing and other forms of communication may be utilized as market conditions or managerspecific issues warrant. Managed Custodial Account (MCA) managers will typically be consulted more often throughout the year. Conducted by Investment staff, with up to four Board Members in attendance (see Brown Act Considerations), these sessions are an economical and prudent method to ensure staff and the Board stay abreast of manager or strategy-related issues. On-site investment due diligence is required for all managers, at least once every three years. Typically, managers will be visited for on-site due diligence every other year. Managers that will not be visited at least once every three years must be approved for eception by the Board. A minimum of one staff member is required at each on-site meeting; consultant support is recommended but not required. Note: Chief Investment Officer may defer selected remote or on-site meetings depending upon schedule conflicts or other business considerations. Responsibility and Frequency PRE-HIRE Due Diligence On-Site Staff Investment Operational Legal Contracting MONITORING/COMPLIANCE Investment Remote Investment Guideline Compliance Operational Review X'* Legal Compliance Attend meetings as avallablc ''May be conducted remotely as determined by auditor staff provides fcedbilck ilnd additional direction as needed. Trustees Responsible Consultant Frequency Eternal Every Every As Monthly Annually Contractor 3-years 4-years Needed Pre -hire Investment due diligence is performed prior to presentation I recommendation to the board. Ptc hlrn Operational and Legal contracting due diligence are nerformed alte ' nresenlalinn to the board Continued on net page

25 Policy No. 007: Due Diligence, Continued Eceptions On-site and remote due diligence is conducted on all investment managers unless presented to the Board to request an eception to the policy. Eceptions are typically sought primarily when an investment is in a redemption status, also referred to as the investment being in "wind-down". Brown Act For reasons relating to The Brown Act (Government Code ) Considerations governing meeting access for local public bodies, no more than two (2) Investment Committee members and no more than four ( 4) total Board members may attend the same scheduled due diligence trip or remote due diligence session, regardless of the number of manager reviews. Delegation The Board delegates the development and the implementation of the SBCERA due diligence program as provided in this policy. The Chieflnvestment Officer is granted authority to approve all travel related to pre-hire, on-site due diligence. Effective date January 8, 2015

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