SJCERA's Asset Allocation

224 Pages·2015·6.38 MB·English

by  Dana Duley

San Joaquin County Employees
Retirement Association
A G E N D A
FINANCIAL QUARTERLY MEETING
SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION
BOARD OF RETIREMENT
FRIDAY, NOVEMBER 13, 2015
UPON ADJOURNMENT OF THE REGULAR MEETING
(APPROXIMATELY 9:30 AM)
Location: SJCERA Board Room
6 S. El Dorado Street, Suite 400, Stockton, California
1.0 ROLL CALL
2.0 PLEDGE OF ALLEGIANCE
3.0 APPROVAL OF MINUTES
3.01 Approval of the Minutes for the Financial Meeting of October 23, 2015 4
3.02 Board to approve minutes
4.0 CONSENT ITEMS
4.01 Report of Closed Sessions
01 On October 23, 2015, the Board unanimously agreed to fully redeem its
allocation to the PIMCO All Assett All Authority (AAAA) Strategy and
temporarily allocate the assets to the Bridgewater All Weather Strategy.
5.0 STRATEGIC ASSET ALLOCATION POLICY 8
5.01 Proposed Strategic Asset Allocation Policy (INV 0100) 9
5.02 Current Total Fund Asset Allocation Policy (INV 0100 May 9, 2014) 16
5.03 Proposed Resolution 2015-11-04 titled “Revised Strategic Asset Allocation Policy” 22
5.04 Board to approve proposed policy and adopt proposed resolution 2015-11-04
6.0 PRELIMINARY IMPLEMENTATION PLAN - 2015 STRATEGIC ASSET
ALLOCATION
6.01 Memo from PCA regarding Preliminary Implementation Plan 23
6.02 Board to review and give direction to staff and consultant as necessary
7.0 RISK PARITY MANAGER STRUCTURE
7.01 Memo from PCA regarding Risk Parity Manager Structure 26
7.02 Board to review and give direction to staff and consultant as necessary
8.0 CRISIS RISK OFFSET (CRO) EDUCATIONAL SESSION
8.01 Presentation by PCA on CRO 36
8.02 Board to review and give direction to staff as consultant as necessary
9.0 ANNUAL REVIEW OF REAL ESTATE DELEGATION POLICY 52
6 South El Dorado Street, Suite 400 • Stockton, CA 95202 SJCERA Financial Quarterly Meeting • 11/13/2015 • Page 1
[phone] • [phone] • www.sjcera.org
9.01 Real Estate Delegation Policy No. INV 0410 53
9.02 Recommendation: No Revisions
9.03 Board to discuss and give direction to staff as necessary
10.0 QUARTERLY REPORTS FROM INVESTMENT CONSULTANT FOR PERIOD
ENDING SEPTEMBER 30, 2015
10.01 PCA Quarterly Investment Performance Analysis 56
10.02 PCA Manager Compliance Report - 3rd Quarter 2015 104
10.03 Mr. David Sancewich, Consultant with Pension Consulting Alliance, will review
and discuss the reports in relation to the Board’s investment policies
10.04 Board to review and give direction to staff and consultant as necessary
11.0 REPORTS
11.01 Monthly Investment Performance Updates
01 PCA Investment Market Risk Metrics - November 2015 114
11.02 PCA Manager Due Diligence Meetings and Reports
01 Manager Due Diligence Schedule 132
02 PCA Memo on meeting with Mt. Lucas MLM Managed Futures Strategy - 133
November 2015
03 PCA Memo on meeting with Crestline Opportunity Fund II - November 2015 139
11.03 RV Kuhns Public Universe Analysis - June 30, 2015 144
11.04 CIO Report
01 Proposed Financial Agenda Topics 205
11.05 Report from Real Estate Committee
01 SJCERA Committee Chair and staff will provide a brief summary of the
outcome of the Real Estate Committee and investments
12.0 CORRESPONDENCE
12.01 Letters Received
01 October 2015 PCA ESG/ Sustainability 207
Institutional Investor Market Development
12.02 Letters Sent
12.03 Market Commentary/Newsletters/Articles
13.0 COMMENTS
13.01 Comments from the Board of Retirement
13.02 Comments from the Chief Executive Officer
13.03 Comments from the Public
14.0 CLOSED SESSION - CONSIDERATION OF INVESTMENT TRANSACTIONS,
PURCHASES, SALES; GOVERNMENT CODE SECTION 54956.81 (4)
SJCERA Financial Quarterly Meeting • 11/13/2015 • Page 2
15.0 CALENDAR
15.01 Regular Meeting, December 11, 2015 at 9:00 AM
15.02 Financial Meeting, December 11, 2015 upon Adjournment of Regular Meeting
16.0 ADJOURNMENT
SJCERA Financial Quarterly Meeting • 11/13/2015 • Page 3
San Joaquin County Employees
Retirement Association
M I N U T E S
FINANCIAL MEETING
SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION
BOARD OF RETIREMENT
FRIDAY, OCTOBER 23, 2015
AT 9:04 AM
Location: SJCERA Board Room
6 S. El Dorado Street, Suite 400, Stockton, California
1.0 ROLL CALL
1.01 MEMBERS PRESENT: Shabbir Khan, J.C. Weydert, Michael Duffy, Michael
Restuccia (left at 10:45 a.m.), Adrian Van Houten, and Raymond McCray presiding
MEMBERS ABSENT: Katherine Miller, Dave Souza, Margo Praus
STAFF PRESENT: Chief Executive Officer Annette St. Urbain, Chief Investment
Officer Nancy Calkins, Retirement Financial Officer Lily Cherng, Information Systems
Manager Tallie Claypool, Department Information Systems Specialist II Jordan
Regevig and Office Assistant Andrea Ireland
OTHERS PRESENT: Deputy County Counsel Andrew Eshoo, David Sancewich,
John Linder and Ryan Lobdell of PCA
2.0 PLEDGE OF ALLEGIANCE
2.01 Led by Cindy Garman
3.0 APPROVAL OF MINUTES
3.01 Approval of the minutes for the Financial Meeting of September 25, 2015
3.02 Board unanimously approved the Minutes of the Financial Meeting of
September 25, 2015.
4.0 CONSENT ITEMS
4.01 Report of Closed Sessions
01 On October 24, 2014, the Real Estate Committee unanimously approved
Resolution 2014-10-03 titled "Principal US Property Account" and authorized the
Chair to sign the necessary documents to invest $20 million in the Fund.
4.02 Board approved the consent item.
5.0 INVESTMENT OPPORTUNITIES
5.01 CRESTLINE OPPORTUNITY FUND III
01 Presentation by Managing Directors Sean Gannon and Keith Williams of Crestline
Associates, L.P.
5.02 WHITE OAK SUMMIT FUND
01 Presentation by Barbara McKee, Founder and Managing Partner and Milbrey
“Casey” Jones, Managing Director,of White Oak Global Advisors
5.03 PCA Book on Direct Lending Manager Search
6 South El Dorado Street, Suite 400 • Stockton, CA 95202 SJCERA Financial Meeting • 10/23/2015 • Page 1
[phone] • [phone] • www.sjcera.org
5.04 Subject to legal review and successful negotiation of terms, the Board
unanimously approved a contingent commitment of $50 million to each
opportunity: Crestline Opportunity Fund III and White Oak Summit Fund.
(Mr. Restuccia left the meeting at 10:45 a.m. prior to the Board’s action on this item.)
6.0 2015 ASSET-LIABILITY STUDY
6.01 2015 Asset-Liability Study Results - Strategic Allocation Decision
6.02 Presentation by David Sancewich, John Linder and Ryan Lobdell of PCA
6.03 Motion by Weydert, second by Restuccia, carried to adopt the long term
strategic asset allocation policy for SJCERA, identified as “Option 1” on page 8
of agenda item 6.01, with Garman and McCray voting no. The asset allocation
percentages are: 30% global public equity, 10% stable fixed income 14% credit,
14% risk parity, 12% private appreciation, and 20% crisis risk offset.
7.0 BOARD EVALUATION OF CONSULTANTS
7.01 Consulting Actuary - Board Evaluation Summary
7.02 General Investment Consultant - Board Evaluation Summary
7.03 Real Estate Investment Consultant - Board Evaluation Summary
7.04 The Board briefly discussed each of the evaluation summaries. Trustee Weydert
asked if PCA would provide input on SJCERA’s real estate portfolio (this is not
currently included in the scope of services in SJCERA’s contract with PCA.) This was
an informational item; the Board took no action nor gave direction on this item.
8.0 REPORTS
8.01 Monthly Investment Performance Updates
01 Manager Performance Flash Report (provided at the meeting)
02 PCA Investment Market Risk Metrics October 2015
8.02 PCA Manager Due Diligence Meetings and Reports
01 Manager Due Diligence Schedule
02 PCA Memo on meeting with Parametric regarding Policy Implementation Overlay
Service (PIOS) - October 2015
03 PCA Memo on meeting with Parametric regarding Contraction Strategy - October
2015
8.03 CIO Report
01 Proposed Financial Agenda Topics
02 Trustee Weydert referred to Research Affiliates’ October Newsletter, agenda item
9.03-01, stating that it was very interesting and enlightening. He encouraged the
Board to read it if they had not already done so.
8.04 Trustee and Executive Staff Travel
01 Conferences and Events Summary for 2015-2016
a 2015 Opal Financial Group Alternative Investing Summit
b 2016 Public Funds Roundtable
SJCERA Financial Meeting • 10/23/2015 • Page 2
02 Summary of Pending Trustee and Executive Staff Travel
03 Summary of Completed Trustee and Executive Staff Travel and Travel Report (1)
a 2015 CALAPRS Administrators’ Institute
8.05 Report from Real Estate Committee
01 CIO Calkins provided a brief summary of the outcome of the Real Estate
Committee meeting and investments
8.06 Board accepted and filed reports.
9.0 CORRESPONDENCE
9.01 Letters Received
9.02 Letters Sent
9.03 Market Commentary/Newsletters
01 Research Affiliates Fundamentals October 2015
10.0 COMMENTS
10.01 Comments from the Board of Retirement
10.02 Comments from the Chief Executive Officer
01 SJCERA Remedial Cycle E Filing with IRS - Received word from tax counsel
Hanson Bridgett that SJCERA’s filing was submitted to the IRS on October 21st.
02 SIS and Verus Merger Announced - SIS and Verus Advisory, Inc., formerly
known as Wurtz & Associates, are merging, under the Verus name; reported as
synergistic for both firms; no layoffs or departures are expected.
03 SACRS Membership Survey Online - Reminder that responses are due October
30th.
04 Cyber Liability Insurance - Coverages offered through the CSAC Program
written by unadmitted Lloyds of London does not to be as comprehensive as other
product offerings. Staff will work with Trustee Duffy on next steps for the Board’s
consideration.
05 Thank You to RPESJC - Ms. Urbain thanked RPESJC for inviting her and Mr.
McCray to present a “fireside chat” this past Monday afternoon at the CRCEA Fall
conference held at the Stockton Hilton. The topic was the role of a public pension
trustee. Ms. St. Urbain noted that It was a pleasure to be a part of the conference
program, and it seemed the session was well received by the participants.
06 Asst. CEO Update - There have been some complications with the family health
issue; It is uncertain when Ms. Pabst will be returning to the office.
07 SACRS Travel Packets - Are provided the Board dais for those of you who are
attending the Fall Conference.
10.03 Comments from the Public - None
11.0 CLOSED SESSION - CONSIDERATION OF INVESTMENT TRANSACTIONS,
PURCHASES, SALES; GOVERNMENT CODE SECTION 54956.81 (1)
SJCERA Financial Meeting • 10/23/2015 • Page 3
11.01 The Chair convened a Closed Session at 11:36 a.m. The Chair adjourned the Closed
Session and reconvened the Open Session at 11:42 a.m.
Counsel noted there was nothing to report from closed session regarding this subject.
12.0 CALENDAR
12.01 Regular Meeting, November 13, 2015 at 9:00 AM
12.02 Financial Meeting, November 13, 2015 directly following Regular Meeting
13.0 ADJOURNMENT
13.01 There being no further business the meeting was adjourned at 11:42 a.m.
Respectfully Submitted:
________________________
Raymond McCray, Chair
Attest:
________________________
Michael Restuccia, Secretary
SJCERA Financial Meeting • 10/23/2015 • Page 4
Board of Retirement Financial Meeting
San Joaquin County Employees’ Retirement Association

Agenda Item 5.0
November 13, 2015

SUBJECT: Revised Strategic Asset Allocation Policy

SUBMITTED FOR: __ CONSENT l_X_ ACTION ___ INFORMATION

RECOMMENDATION
Staff and consultant recommend that the Board approve the proposed Strategic Asset
Allocation Policy (INV 0100), and adopt proposed Resolution 2015-11-04.

PURPOSE
To incorporate the long-term strategic asset allocation the Board selected for the SJCERA
portfolio in October 2015, and make related revisions to the policy as recommended by
Pension Consulting Alliance and staff.

DISCUSSION
The proposed revisions to the current Total Fund Asset Allocation Policy (INV-0100) retitle
and recast the policy to respective allocations and benchmarks. These have been discussed
with the Board throughout the conduct of the 2015 Asset-Liability Study for SJCERA,
culminating in the Board’s selection of a revised strategic asset allocation for the portfolio at
its October 23, 2015 Financial Meeting.

The proposed revisions also identify some general investment beliefs derived from the
Board’s discussion, key decision factors and selected asset allocation, and clarify and refine
the general guidelines for portfolio rebalancing.

ATTACHMENTS
Proposed Revised Strategic Asset Allocation Policy (INV 0100)
Current Total Fund Asset Allocation Policy (INV 0100) – May 2014
Proposed Resolution 2015-11-04 titled Revised Strategic Asset Allocation Policy

__________________________
ANNETTE ST. URBAIN
Chief Executive Officer
San Joaquin County Employees'
Retirement Association

Creation Date: October 2007 Created By: Nancy Calkins
Updated: November 13, 2015 Updated By: Pension Consulting Alliance
Policy Number: INV 0100 Revision: 7

STRATEGIC ASSET ALLOCATION POLICY
PURPOSE

This Policy outlines the goals and investment objectives for the San Joaquin County
Employees’ Retirement Association (SJCERA), provides general guidelines for managing the
investments of SJCERA, and defines certain specific provisions that will govern how the goals
and objectives are to be achieved.

The SJCERA board believes that the investment policies described in this Statement should be
dynamic. These policies will be reviewed and revised periodically to ensure they adequately
reflect changes related to SJCERA and the capital markets.

This policy supersedes any prior Board adopted policies related to asset allocation.

INVESTMENT BELIEEFS

A. General
1. We believe that risk for SJCERA is the inability to meet benefit obligations when due.
2. We believe that the paramount duty of the SJCERA Board is to manage the assets
of the Plan in a prudent manner.
3. We believe that SJCERA should monitor current and future benefit obligations to
ensure long-term solvency of the Plan.
B. Investment Strategy
4. We believe that SJCERA should invest its assets and manage its liabilities so as to
increase the likelihood of paying all benefit obligations over time.
5. We believe that SJCERA should seek a long-term rate of return that exceeds
inflation, while recognizing and managing the need to maintain adequate liquidity to
pay benefits.
6. We believe that SJCERA should invest globally, seeking investment opportunities in
a variety of asset classes and management styles, in order to improve the likelihood
of being able to meet benefit obligations over time.

C. Pattern of Investment Returns
7. We believe the volatility of investment returns is as important as the level of returns
in determining SJCERA’s ability to meet future benefit obligations.
8. We believe we should be able to reduce the volatility of the SJCERA portfolio returns
and the risk of large portfolio drawdowns through diversification, opportunistic
allocations, and passive investing where appropriate.
9. Therefore we believe that actions to manage volatility should be appropriately
integrated into the investment decision-making process.

INVESTMENT OBJECTIVE

The funding obligations of SJCERA are long-term in nature; consequently the investment of
portfolio assets should have a long-term focus. The assets shall be invested in accordance
with sound investment practices that emphasize long-term investment fundamentals. The
investment objective for SJCERA assets is to achieve long-term investment returns that allow
the plan to meet all benefit payments to plan participants. It is expected that this objective can
be obtained through a well-diversified portfolio structure in a manner consistent with this Policy.
Accordingly, the investment of these assets shall be guided by the following underlying
principles:

• To achieve a positive rate of return over the long-term that significantly contributes to
meeting SJCERA’s objectives, including achieving the actuarial assumption for rate of
return and satisfying expected benefit payment obligations;
• To provide for asset growth at a rate in excess of the rate of inflation and of the liability
growth rate of SJCERA;
• To earn a sufficient rate of return while minimizing exposure to losses or wide swings in
market value.

SJCERA POLICY INV 0100 PAGE 2 of 7