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 Brian Stansbury Commissioners Leona Bridges Joseph Driscoll Victor Makras Herb Meiberger, CFA Wendy Paskin Jordan Executive Director Jay Huish

2 Page 2 of 14 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 14 OPENING CALENDAR President Cohen called the meeting to order at 1:14 PM 1. Pledge of Allegiance 2. Roll Call Commissioner Malia Cohen 1:14 PM Commissioner Leona Bridges 1:18 PM Commissioner Joseph D. Driscoll 1:14 PM Commissioner Victor Makras 1:14 PM Commissioner Herb Meiberger, CFA 1:16 PM Commissioner Wendy Paskin Jordan Absent Commissioner Brian Stansbury 1:14 PM Action Item CLOSED SESSION President Cohen called for public comment on whether the Retirement Board should go into closed session. Steve Selzter spoke in opposition to meeting in closed session and in opposition to investment in hedge funds. Kay Walker, SEIU Retirees, addressed the Board regarding the composition of the Board, representation of Miscellaneous members, and in opposition to investment in hedge funds. There were no additional comments from the public and President Cohen closed public comment. The Board entered closed session at 1:22 PM. Commissioner Meiberger left the meeting at 1:22 PM and returned at 1:25 PM. Recommendations and Possible Action on Sales and Purchases of Particular, Specific Pension Fund Investments under California Government Code Section (2 investment recommendations). The following individuals were present for the closed session: Commissioners Cohen, Bridges, Driscoll, Meiberger, Makras, and Stansbury; Jay Huish, Executive Director; Caryn Bortnick, Deputy Executive Director; William J. Coaker, Chief Investment Officer; Art Wang, Managing Director for Private Markets; David Francl, Managing Director for Absolute Return; Ellen Brownell, Director; 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; William Lin and Tran Ly, Deputy City Attorneys; Norm Nickens, Board Secretary; Anita Ng, Dwight Keysor, Cambridge Associates; Allan Martin, NEPC.

4 Page 4 of 14 Commissioner Meiberger left the meeting at 1:50 PM and returned at 1:53 PM. The Board recessed from 2:00 PM 2:16 PM. The Closed Session was continued to the end of the meeting. The Board returned to Open Session at 2:17 PM General Public Comment Not earlier than 2:00 PM Sylvia Alvarez Lynch addressed the Board in opposition to investment in hedge funds, and regarding the representation of miscellaneous and safety members on the Board. Patrick Monette Shaw addressed the Board regarding investment in hedge funds and submitted the following written testimony: Why total secrecy and damning lack of transparency with the hedge fund investment? Reportedly, manager names, manager amounts awarded, fee structures, contracts, and customized Manager Investment Guidelines won t be made public to Plan members? Why not? What happened to transparency promised by SFERS Board? When this Board approved the hedge fund allocation in February 2015, those meeting minutes show several Commissioners including Makras, Paskin Jordan, Meiberger, Cohen, and others expressed concerns about transparency. SFERS CIO Mr. Coaker noted transparency would depend in part the on managers hired and contractually negotiated terms. Those minutes show Meiberger inquired whether hedge fund managers will have manager investment guidelines included in contracts. Ms. Kautz from Angeles Investments SFERS then General Consultant noted that they would have manager investment guidelines as part of contract, based on the specific fund structure. An unanswered question is whether these hedge fund managers will be fiduciaries to our Pension fund. There were no additional comments from the public and President Cohen closed public comment Action Item Approval of the Minutes of the December 14, 2016 Retirement Board Meeting

5 Page 5 of 14 Documents provided to the Retirement Board prior to the current meeting: Draft Minutes of the December 14, 2016 Retirement Board Meeting Commissioner Meiberger submitted amendments to the Minutes. Patrick Monette Shaw requested additional changes to the minutes and submitted the following written testimony: These meeting minutes are overly summarized. Agenda Item 4, Public Comments, reports only that John Stenson addressed the Board in opposition to hedge fund investments. How skimpy is that summary? Stenson actually related a hedge fund manager joke, excluded from these minutes. Stenson noted the last down market was 2008, when 2,000 hedge funds folded. Stenson reminded SFERS Board of Warren Buffet s $1 million bet in January Stenson noted Buffett s bet shows the hedge fund is up 21% and Buffett s Vanguard index fund is up 65%. This is completely missing in these minutes. I want to commend Commissioner Makras for inquiring during Agenda Item 8 about whether SFERS portfolio lost $1.5 billion last year. Thankfully, Messers Coaker, Huish and Allan Martin confirmed SFERS had a $1.89 billion net investment gain. Makras question and all staff responses to him are missing from reporting in these minutes, although available on videotape. Claire Zvanski, RECCSF, spoke in support of changes to the minutes as requested by Commissioner Meiberger There were no additional comments from the public and President Cohen closed public comment. Action: Moved by Commissioner Meiberger, Seconded by Commission Makras to Approve Minutes of the December 14, 2016 Retirement Board Meeting as amended. Ayes: Bridges, Cohen, Driscoll, Makras, Meiberger, Stansbury Absent: Paskin Jordan 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 a Action Item Consent Calendar

6 Page 6 of b Action Item Voluntary Retirement Board List No c Action Item Decisions of Hearing Officers Mary M. Carder Effective Date: 5/1/14 Tonya M. Hill Effective Date: 1/2/15 Tony K. Lew Effective Date: 2/13/16 Kevin J. McDonnell Effective Date: PERS Shari L. Zinn Effective Date: 5/2/15 H2 Firefighter Fire 9163 Transit Operator MTA H2 Firefighter Fire 8304 Deputy Sheriff Sheriff 2468 Diagnostic Imaging Technologist II DPH SFGH Industrial Disability Retirement Denied Ordinary Disability Retirement Denied Industrial Disability Retirement Denied Cal PERS Disability Retirement Certified Ordinary Disability Retirement Denied d Action Item Petition for Rehearing Mary M. Carder Effective Date: 5/1/14 Tonya M. Hill Effective Date: 1/2/15 Shari L. Zinn Effective Date: 5/2/15 H2 Firefighter Fire 9163 Transit Operator MTA 2468 Diagnostic Imaging Technologist II DPH SFGH Industrial Disability Retirement Denied Ordinary Disability Retirement Denied Ordinary Disability Retirement Denied e Action Item Travel Requests Documents provided to the Retirement Board prior to the current meeting: Voluntary Retirement Board List, Hearing Officer Decisions Patrick Monette Shaw provided comments unrelated to the item under consideration. There were no additional comments from the public and President Cohen closed public comment. Action: Moved by Commissioner Makras, Seconded by Commission Meiberger to Approve the Consent Calendar. Ayes: Bridges, Cohen, Driscoll, Makras, Meiberger, Stansbury Absent: Paskin Jordan

7 Page 7 of 14 INVESTMENT CALENDAR Item not used 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 that the fund was valued at $20.98 billion as of December 31, In December the portfolio gained 1.15%. U.S. and International stocks both did well, earning 1.67% and 2.05%, respectively. The Fixed Income portfolio gained 0.60%, while Private Equity and Real Assets returned 0.26% and 0.81%, respectively. Fiscal Year: For the first six months of the fiscal year, the portfolio has gained 4.75%. U.S. stocks have returned 9.32%, while International stocks have gained 5.39%. Private Equity has earned 4.95%, while Real Assets have gained 4.43%. After the tough bond market in November, the Fixed Income portfolio is up just 0.30% fiscal year to date. Calendar Year: On a calendar year basis, preliminary estimates are that the portfolio gained 7.46% in U.S. stocks gained a solid 11.33% in 2016, while International stocks gained just 4.21%. Fixed Income returned 5.35%, thanks to good returns earned in the first half of the year. Private Equity and Real Assets returned approximately 7.94% and 10.96% in Closed Session disclosures: Himalaya Capital Investors, L.P. At its meeting on December 14, 2016, the Retirement Board approved in closed session an investment of up to $200 million in Himalaya Capital Investors, L.P. The investment was approved by the following vote: Ayes: Commissioners Bridges, Cohen, Driscoll, Makras, and Meiberger Absent: Paskin Jordan and Stansbury SFERS investment of $150 million in Himalaya Capital Investors, L.P. closed on December 28, SFERS will look to deploy the remaining $50 million as additional opportunities arise in the Fund.

8 Page 8 of 14 Himalaya is classified as an opportunistic global value manager within SFERS public equity portfolio. More information about Himalaya is available at: MBK Partners IV, L.P. At its meeting on November 9, 2016, the Retirement Board approved in closed session an investment of up to $50 million in MBK Partners IV, L.P. The investments were approved by the following vote: Ayes: Commissioners Bridges, Paskin Jordan, Meiberger, Stansbury and Makras Absent: Commissioners Driscoll and Cohen SFERS investment of $42.5 million in MBK Partners IV, L.P. closed on December 30, MBK Partners IV, L.P. is classified as a large buyout investment within SFERS private equity portfolio. More information about MBK Partners is available at: 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 $125 million in Vista Foundation Fund III, L.P. The investment was 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 Foundation Fund III, L.P. closed on May 19, The General Partner further agreed to accept an additional $75 MM from SFERS on December 29, 2016, increasing SFERS total commitment to Vista Foundation Fund III, L.P. to $125 MM. Vista Foundation Fund III, L.P.is classified as a medium buyout investment within SFERS private equity portfolio. More information about Vista is available at: Commissioner Makras discussed the portfolio relative to the Board recommended asset allocation and requested historical comparisons (benchmarked). Commissioner Meiberger discussed the liquidity of the portfolio.

9 Page 9 of 14 Patrick Monette Shaw provided comment unrelated to the item under discussion. Claire Zvanski, RECCSF, addressed the Board regarding CalPERS exiting hedge funds, SFERS hedge fund investments, in support of defined benefit plans, and the purchase of a SFERS headquarters building. There were no additional comments from the public and President Cohen closed public comment. This was a discussion only item. DEFERRED COMPENSATION PLAN CALENDAR 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 Manager, presented an oral and written report on this item. Russell Investments has been retained as the Target Date Consultant for the SFDCP. Commissioner Stansbury left the meeting at 3:04 PM and returned at 3:06 PM. Patrick Monette Shaw discussed recent articles in the Westside Observer related to the performance of the Deferred Compensation Program and recommended an audit of the program. He submitted the following written testimony: Surely Commissioners on SFERS Board are aware that I publish a monthly column in the Westside Observer newspaper, and have done so for going on 15 years. I have been concerned over the past several months reading a recent series of articles in the Observer reporting on performance of SFERS Deferred Comp Plan. I think it is high time SFERS hire an auditor to audit the DC Plan s performance during the past five years. There were no additional comments from the public and President Cohen closed public comment. Action: This was a discussion only item.

10 Page 10 of 14 ADMINISTRATION CALENDAR Action Item Review and Approval of Supplemental COLA Analysis as of July 1, 2016 Documents provided to the Retirement Board prior to the current meeting: Staff and Cheiron (Consulting Actuary) memoranda. Janet Brazelton, Actuarial Services Coordinator, presented an oral and written report on this item. Ms. Brazelton presented an analysis on supplemental cost of living adjustments payable on July 1, San Francisco Charter Section A provides in part that supplemental cost of living benefits could be payable if in the previous fiscal year, there were earnings in excess of the expected earnings on the actuarial value of the assets. As reported in the analysis, there were no excess earnings in the fiscal year. Therefore no July 1, 2016 supplemental cost of living benefit adjustment is payable to any SFERS retirees. There were no comments from the public and President Cohen closed public comment. Action: Moved by Commissioner Makras, Seconded by Commission Meiberger to adopt Cheiron s Supplemental COLA Analysis as of July 1, 2016 and direct Retirement staff to notify SFERS retirees that no Supplemental COLA is payable effective July 1, Ayes: Bridges, Cohen, Driscoll, Makras, Meiberger, Stansbury Absent: Paskin Jordan Discussion Item Kickoff Presentation for 2017 Board Evaluation Project Funston Advisory Services LLC Documents provided to the Retirement Board prior to the current meeting: Staff memorandum, Funston Advisory Services presentation materials, and Governance Self assessment Survey Jay Huish, Executive Director, Rick Funston, Managing Partner, and Randy Miller, Project Leader, Principal, of Funston Advisory Services LLC presented an oral and written report on this item. Mr. Huish reported that in accordance with the Board Performance Evaluation Policy, from time to time, the Board will undergo a third party performance evaluation in addition to a self assessment. As stated in the policy, the goal of the Board is to undertake such an evaluation not less than every three years. The third party evaluation process will be recommended by a qualified independent expert, who will also conduct the evaluation and submit findings and recommendations. The policy

11 Page 11 of 14 further provides that the Board may engage such expert to assist the Board with the implementation of any recommendations, or provide coaching or related follow up services. The Governance Committee discussed and recommended engaging in the third party evaluation process during 2016 to the full Board at its February 10, 2016 regular meeting. The Board authorized Retirement staff to identify and recommend to the Board, through the Governance Committee, a qualified independent expert to conduct a third party performance evaluation of the Retirement Board for At its May 9, 2016, the Retirement Board unanimously approved engagement of Funston Advisory Services LLC to conduct the 2017 Retirement Board Performance Evaluation. Funston Advisory Services LLC (FAS) is recognized as one of the nation's preeminent advisors to public retirement systems in the areas of governance, operations and risk intelligence. Over the past five years, FAS has assisted a number of state public retirement systems and sovereign wealth funds in evaluating their fiduciary performance and identifying governance, regulatory, policy, and operational process improvement priorities. Funston Advisory Services LLC (FAS) was formed in The principals have been providing governance, strategy and risk advisory services since at least FAS has a leading practices knowledgebase from over SO public retirement systems which includes data on governance, operational, risk and compliance structures, policies and practices. FAS has conducted reviews and audits of some of the nation's largest and most complex retirement systems. FAS governance, fiduciary and operational review clients include: CalPERS; New York State Common Retirement Board; School Employees Retirement System of Ohio; Utah Retirement Systems; Oregon Investment Council; Pennsylvania State Employees' Retirement System (in progress); Indiana Public Retirement System (in progress}; and Los Angeles County Employees Retirement Association (in progress). Rick Funston, Managing Partner, Randy Miller, Project Leader, presented an introduction to the firm, a description of the purpose and scope of the Board evaluation process, as well as the deliverables upon completion of the review process. Commissioner Makras left the meeting at 3:15 PM and returned at 3:19 PM. Patrick Monette Shaw recommended that the structure of 1937 Act County plans be considered, including increasing the size and composition of the Board and voting procedures. He submitted the following written testimony: It was heartening just now hearing Commission Meiberger suggest that as part of the Funston Advisory Services evaluation project of SFERS Board, that the consultants and this Board should look into the 1937 Counties Act. The State Association of County Retirement Systems (SACRS) is an association of 20 California

12 Page 12 of 14 county retirement systems, enacted under the County Employees Retirement Law of That law requires that management of each of the 20 county retirement systems must consist of at least nine board members stipulating election of two General ( Miscellaneous ), one Public Safety (police or fire), and one retiree; four appointees by the county Board of Supervisors; and the last one being the County Treasurer. The elected and appointed members all serve three year terms. The SACRS provisions allow only Miscellaneous Plan members to vote for miscellaneous board seats. Same with Safety, only Public Safety can vote for Public Safety board seats. Herb Weiner, retiree, discussed Board structure and governance and how it relates to return on investment. There were no additional comments from the public and President Cohen closed public comment. Action: This was a discussion only item Discussion Item Executive Directors Report Documents provided to the Retirement Board prior to the current meeting: Executive Director s Report. Administrative Update: Retirement Board Committee Meeting Schedule Attachments: Public Retirement Conferences and Training Programs for SFERS Trustees listing prepared by Nossaman LLP Blackout Period List Forward Calendar Commissioner Meiberger requested an update on member communications. Mr. Huish noted that this will be included in the Strategic Plan discussion at the February 8, 2017 meeting. Commissioner Makras requested an expansion of the Educational Opportunities List. Mr. Huish noted that the Cortex list can be provided to the Board. Commissioner Makras requested that all articles mentioning the Retirement Board be provided to the Board on a regular basis. Patrick Monette Shaw volunteered to assist the Board in identifying articles related to SFERS.

13 Page 13 of 14 There were no additional 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 Makras requested calendaring discussion of release of information related to hedge funds, including names of the managers. Commissioner Meiberger spoke in support of the request. Commissioner Meiberger urged respect for individuals speaking under public comment. Commissioner Stansbury spoke in support of a discussion of member communications. He also requested an educational presentation on the disability retirement process. Patrick Monette Shaw called for greater diversity on the Board to represent miscellaneous members. He submitted the following written testimony: Mr. Nickens please to distribute my handout to SFERS Board members. Supervisor Cohen, as a Supervisor s Rules Committee member, you talk a good game about increasing diversity of appointments to City advisory bodies. We need greater diversity on SFERS Board; you should advocate for that diversity, Malia! We need diversity between Miscellaneous and Public Safety elected Board members. I ve asked retired Police Captain Al Casicato twice to withdraw from SFERS current election. He refused withdrawing, despite pointing out to him 85.4% of retired Plan members are Miscellaneous, who face being stripped of representation on this Board. SFERS should amend its by laws, or Supervisors should introduce a Charter change to address the inequity of SFERS being in the position all three elected seats could be monopolized by Public Safety. San Francisco should become a 1937 Act County! SFERS Miscellaneous members deserve parity with other jurisdictions members, with diversity on this Board! There were no additional comments from the public and President Cohen closed public comment.

14 Page 14 of Discussion Item Retirement Board Member Reports and Comments There were no comments from the public and President Cohen closed public comment Action Item Closed Session Continued There were no comments from the public and President Cohen closed public comment. Commissioner Bridges left the meeting at 3:55 PM and returned at 4:00 PM. Closed Session reopened at 3:58 PM. Commissioner Meiberger left the meeting at 4:35 and returned at 4:40 PM. The Board returned to Open Session at 4:55 PM. Moved by Commissioner Stansbury, Seconded by Commission Cohen to not disclose discussion in Closed Session. Ayes: Bridges, Cohen, Driscoll, Makras, Meiberger, Stansbury Absent: Paskin Jordan Adjournment Having no further business, the Board adjourned the meeting at 5:00 PM. Respectfully submitted, Jay Huish, Executive Director