Detroit General Retirement System Investment Committee

7:12PM Aug 13, 2024

Speakers:

Keywords:

manager

portfolio

outperforming

large cap

convertibles

index

kevin

benchmark

performance

market cap

fund

return

page

question

relative

committee

underperformed

report

large cap growth

equal weighted

Present, Anthony Estelle, George moyni present, Thomas

Sheehan, Deon Stevens, present, Michael

Van over best present,

the time is now 10, 1206

10 before I seek approval of the Minutes. Is there any discussion they

came today at 1155,

go. We can move the approval of the minutes to later in the meeting, approval of the agenda, motion to

approve the

agenda, certainly All in favor,

thinking about this meeting and the topics, the spirit of timing is everything. I think it's it's very appropriate as we dig in deeper into our public equity portfolio, and in particular, our large cap public equity portfolio with some very good, robust topics, I know that will be good to participate in the committee CIO and nepc in that, in that spirit of timing, living the Markets every day, what's called June 11. Excuse me, july 11, a meaningful and potential inflection date since the market closed on July 10, if you've been paying much attention to it, few numbers to think about, which parlay themselves into today's conversation. The S p5 100 is down 5% from the close of July 10, the equal weighted S p5 100 is up 1% so it's outperformed the S, p5, 100 cap weighted by 600 basis points, the often touted Magnificent Seven. They're not down 5% they're down 15% small caps like the void and S P are positive. They're up about 2% values outperform growth. And I'm not sure we're ready to to deem this the great rotation, but I think it's a rotation that investors should certainly be taking heed of, given that at the end of June in the S p5 100, the five largest stocks accounted for 28% of the index, the 10 largest S p5 100 stocks in their size accounted for 35% of the index. We know that that that index is one benchmark was becoming the most concentrated. It had been in more than 25 years. It was especially concentrated, less so in the value space, more so in the large cap growth space, and I'll say personally, having lived through this as a portfolio manager in 2000 when the dot coms began to not fulfill their high expectations, or even in periods post covid, November, 2020 there is that strong potential for this unwinding of concentration in the index that it can last for multiple time. Periods it did after the middle of 2000 it was nailed for the next five years with the equal weighted S p5 100 outperformed the cap weighted S p5 100 by roughly 700 basis points per annum. It's not that we wish negative returns for those Magnificent Seven stocks, but a level of. Sensibility and diversification restored to the indexes. I think the timing is is important for today's conversation, because the events in the last month show you what happens when the market starts to unwind this heavy concentration that has prevailed for the last three plus years, all good for our conversation. So with that sending the table a little bit for the discussion today, with both Kevin and Christine will Ford's on the call as well. Nepc is director of research. Let's start that conversation on investment topics, and in particular, starting with our domestic large cap equity. Great. Thank you, Mr.

Chairman Margaret, obviously is on here today. She's on vacation. She was going to call in. We go. Jointly, Kevin and I, and David as well, convinced her to stay on vacation, as David said, Will Ford, I think Dave accidentally gave him a title, not that he shouldn't deserve the head of research, but he's now going to run around in the PC looking for a pay rate. But so will is our head of global equities on the liquid side. He's a partner of the firm, was on the public fund team as a consultant. Had always had a passion for research, so when we made the decision internally to what I would say is upgrade some of our research positions, that was something that will was really interested in. He's made tremendous impacts on our global equity research efforts and on our team and the folks that he manages. When we came out of the last meeting, I know we continue to have a discussion about tobam. You know, whether we want to continue to deal with tovam or look for a replacement manager, or determining tovan And to put that money in another part of our part of portfolio. It continues to be our recommendation that we don't want you to terminate, to ban and put it into the Russell 1000 we'll get into more of this, just given how concentrated the index has been. So I was having that conversation with will and asked him if he could make some comments today just about market cap versus equal weighted indices. Just that, I don't put words in Will's mouth, but you know, we're in agreement as a firm right now about kind of market cap versus equal weighted frustration behind the performance that you've seen with to ban and the comments the chair just made. You know this isn't a guarantee, but certainly this is something that I think the market has been waiting for. There was an article on Friday in Bloomberg talking about the first time in a long time you're seeing the non tech sectors outperforming the tech sectors within the major indices. I know I send this to you all typically on Monday, but I'll read this to you. It's a little bit of a continuation about what the chair said, but on quarter to date. So this would be through July one through August 9. The Russell 1000 value is up 2% the Russell 1000 growth is down 5.2 the Russell 2000 is up 1.7 the Russell 1000 is down 1.9% so, you know, is this the beginning of this big rotation back into where, where? You know, we've talked a long time about how value on a relative basis, is pushing for the growth. Time will tell. But this kind of plays into why we don't think it's a great time to take the toll band money and put it into the to the Russell 1000 my comment earlier at the last meeting was about if there's a determination to terminate them now to look at the active strategies within within your portfolio. So with that said, I'll turn it over to will. Tim is also on the call as well, and so Kim and maybe you could share the market cap versus equal weighted deck, and I'll turn it over to will. But

can I just before, Will Kim start as part of your comments? And I'm assuming you're going to get through anyway, so

I'll be asking,

Can you maybe just provide your thoughts and leadership on what is the impetus for any potential shifting when I look at it from a macro we've got an election cycle silly season here in the US. Is it valuations? Is it recession?

Just of the room? Yeah.

So I just I can stop. It's fine. The house is thought on, if there is going to be this rotation, what is the engine that will pull us in that direction?

Great. I'll certainly make sure that we go into my comments, maybe before jumping in just afternoon, everybody and hopefully Kevin mentioned ahead up. Our public equity research team, so a lot of our work is focused on not only the active strategies that we recommend, but also the passive index strategies to which you have in your portfolio, or be cap weighted and index weighted waivers also, as mentioned earlier, try to give you a sense of our formal recommendation of what to do with that covid exposure and why, maybe some of the impetus for why we think there could be a potential rotation taking place here. So the chairman did a very good job stealing a little bit of my thunder in relation to performance. But if we start on page two, we not only wanted to give you a sense of performance of the market cap versus equal weighted exposure today, but also take a look at that over time. I think some of this historical information can be good context for the committee as you consider what to do with your included exposure today moving forward. So maybe before jumping into the numbers here, want to explain a little bit mechanics of this analysis on this page, we look at the rolling three year so every 36 month period of performance for the market cap weighted index versus equal weighted and we do that through time 1994 all the way through June of this year. And effectively, when that rolling three year performance is above that 0% line, that means that the market cap index has simply outperformed, and when it's below that 0% line, equal weighted, has tended to win. A couple of things I would point out here. Just holistically, you can see that the ebbs and flows depending on the time period that you look at, and oftentimes this performance of whether market cap lens or equal wage lens, that's a multi year period generally. And so for example, when you look at the early to mid and late 90s market cap had a really great run, prouncing the automated index that reversed heading into the 2000s of course, you have the.com bubble, which was the impetus there was a multi year run, typically, you Know, barely the 2000s all the way to the PFC for equal weighted health performance. That's a seven, eight year period there of equal weighted health performance, driven large part by small caps and some of the other sectors that are more pronounced in those areas, doing well. You fast forward to today, you do see that this is one of the periods where, over the past year and a half, two years, where market cap weighted indices have really outperformed their peers in a way in which we've only really seen in the 90s and really the early 2000s and then over time, you can see that that light blue line, which is a historical average of the three year performance, which is essentially flat, meaning that for any given rolling three year period. It's tough to predetermine which index waiver is going to help. We also go into the next page. Have this information on a really five year basis. The story is the same here, so I'm not going to reiterate some of the comments that I made earlier. I think you get the point here that these things move in cycles in terms of performance. We'll talk about in a little bit what some of the drivers are there, but we should keep that in context, especially when we think about how strong the market cap and seats have done here more recently. Maybe the last point I'll make before diving in a little bit to what you're actually buying when you're investing in market cap weighted versus are equal weighted, is the reversals of these trends typically happen pretty severely and rapidly. So it's important to note that these are multi year trends, but they can change like that. The chairman mentioned that maybe we're in the midst of that happening now, time will tell. But it's not rare that all of the. Sudden, equal weight indices are outperforming their pairs within the course of a month or two, and that changes pretty rapidly, and then there's a pronounced tailwind to to keeping that persistent. Maybe with that, I'll jump into the to the next page, what are you actually buying and owning when you're investing in a market cap weighted, or equal weighted index share? And that's people we highlighted, really the two big differences when you look at the dark blue bars, that is market cap weighted in the light blue is equal to, generally speaking, you are buying a whole lot more it and Consumer Services and the S and p5 100, about 38% of that of that index. This is, again, what's before the recent fell off the past week and a half, but about 38% of the entire index of those two sectors. Obviously, if they're overweight, the market cap index is overweight those two sectors. That means the equal weighted index has got to be overweight somewhere, somewhere else. And generally, what you see on an equal weighted perspective, the higher allocation to industrials, utilities, materials and real estate. So in some ways, and sadly, not that simplistic, but you know, you can make a call on whether it's better to own it consumer services, or potentially those other sectors that we talked about, not that simple, but certainly one of the drivers of performance related to which one will win over the coming months and quarters. Here, I want to tie that together with the next page, and then maybe give a formal recommendation, and then answer any questions that folks have. We wanted to show you the valuation of each of these sectors today, which is the bar and then that light blue line is the historical five year valuation for each of those sectors. And so I'll take that first sector in it, for example, historically, it's been a 20 to 25 price multiple for the tech sector Today, that number is well above 35 approaching 40. You can make the argument that, given that that sector is over bound, and when you tie that together with what we talked about on the previous page, look at some of the other sectors of the equal weighted index tends to allocate more to that's industrials, utilities, materials and real estate. Those have valuations that are less stretched relative to long term averages, or in some cases, like real estate, you can make the argument that they're undervalued. There are a lot of things that go into that, but generally speaking, those are some important factors that we think should be coming to plan as you think about what to do next. In terms of our recommendation, I will just reiterate what what Kevin mentioned. Look, we know that toe dance performance over the trailing three year period down 60 basis points versus an index that was about 8.8% so that's been tough to tough to stomach. Longer term, you should consider whether this plays a role in your portfolio, particularly with a level of active risk that's in the four to 5% range that is in line with the tracking error and active risk for some of your active large cap value strategies. With that said, our recommendation today is to stay put and allow some of these trends that we're starting to see work its way through the market, be in accelerant to that equal weighted exposure, and hopefully make up some of the ground that it's lost relative to the market cap within the disease, and allowing you some time to think through what the better approach will be over the long term. I

want to pause there. I threw a lot I know I still have the question around what the engine might be to help spur some of this. Reversal, which I'm happy to get into, but I want to pause there and see if there

are questions just before. So my question would be good,

and with the manager to make up some grounds. And how long you at what point do you determine whether sufficient time has passed? What is happening in the market for before we know that time?

Yeah, so I will, I will take the recommendation. We're probably more performance based than time based. So no, this could just play out in, you know, two or three quarters of this institution play out in, you know, 24 to 36 months. But effectively, we want to see performance of these people. We consistently outperforming that of the market cap index by how much is kind of a preference of the committee, but along the way, particularly if it's a pronounced out performance, there's an ability for you to, over time, start taking some of those profits off the table and winding down that position in a more thoughtful and more thoughtful way. And so it's a nuance towards nuanced answer, because there's not a right or wrong outperformance number to build to, but we would look at closing the gap from a performance standpoint. I'm happy to work with Kevin Kim and the chairman on this, as opposed to saying, let's give it, you know, anyone's guess whether that performance is going to play out over that time frame.

And I think it also plays into will, what you're probably going to get into now about the other question gets into, right? If we, if we do see value outperforming statistically, if we do see small cap outperforming, and the reasons why that could potentially be what we'll get into covid should be outperforming, right? That will be a kind of a true backing of why they're out forming, and that dollar cost averaging of, right? If you look at their performance over the last 20 years, you know, the S, p5, 100 at 10% their benchmark, MSCI USA, is at 8.6 it's a question of like, do we get back to the benchmark, right? Do we start saying, when we start equaling or outperforming the benchmark that we start dollar cost averaging out, you know, if we're wrong with this, and all of a sudden, a month from now, tech is significantly outperforming value, which we don't think that will be the case, but then I think we have to have that conversation. Everything that's kind of been lining up. And Tom, I know your frustration has been, we've been saying that for some time now. It feels like, it feels like we are entering, I mean, what we've seen there in the short term, we've not seen in a long, long time. And we think that, you know, again, it might not be a steady path of every day value in small cap out of a woman, but we think that the market's starting to appreciate kind of the evaluation. So, so sorry. Well, you still have to answer the question,

yeah, I'm sorry. My issue with toe Pam, you know, it's more that do I want a manager in the space that will outperform its own benchmark by 920, basis points over a three year period, and 10 percentage points over a one year period. I mean, to me, it just defines the whole notion of indexing. So that is what I find problematic. I mean, I, you know, I'm certainly willing to wait this out until the tables turn, but it's my issue with them has really willed you with the dynamics that's taking place in the market. More more so is philosophically with having the strategy in this core component of the portfolio. That's that's just my issue. And endorse that.

You know, I certainly don't disagree with that. And Ken, if you can do any, you've got it up. If we can maybe show page five of the large cap ex portfolio review. And if not, I can certainly just speak to it. But this gets into more of a structural discussion, and certainly, if you're, if you think you're buying. An index strategy. It's in contention with the level of tracking error that type of strategy takes. So for example, you see tobam On this page, which is in the middle, green, dot, dot, and on the horizontal axis is level of active risk. Meditates for tracking. It's an, as I mentioned before, the four to 5% range in terms of active risk that's not that different than the level of active risk that you're getting from barrel handling your active large cap value manager or deroit. Deroit, your active all cap value manager, or even edge with large cap growth, it has the feel of a bit more of an active strategy than an index strategy. Structurally, we should, you know, potentially take a look at whether long term, that is where the committee wants to be. The issue now is even if you say that's not for us, now is not a great time to sell, or at least you're selling at a loss in a market that we think will be re balloting and be better suited for you, hopefully in the near term, to move on from them at less of loss. And so that's the dynamics that we're trying to work through here.

Yeah, I get that, and I appreciate that. I guess what I'm saying is that even if they do bounce back, I'm not sure I get that finding would not do

it to terminate that. I just want to be clear when we'll use the term loss, relative loss, relative to the benchmark

I get it

April. We have to hold

on one second Tom's asking the question, in April,

we actually come in with a suggestion on what to do about this deal with this, what other

management is are

equal weighted, similar to this? Have you looked at comparing this product with

other managers in this field. So this, this type of strategy, is not something we would we recommend to our clients. So I mean, typically, if an investor is going to go equal waste, equal weighted is typically would be done through a pure index. These are typically black. These are typically quant models that are equal way. So you say that we didn't come on the recommendation. Our recommendation has been not, not to hire a new manager to eventually gain some of the relative underperformance back if we get into a market where we think we are, and then look at other parts of the portfolio, whether that be with your active value strategies, your active growth strategies, or your active global equity strategies. We do not think you need to replace this strategy with another quant type model.

It's just, I think first place, what's that? Should we have bother in the first place?

I so will maybe speak to why do we have a level of confidence today that this, although this could be a bumpy ride, not a pure ride, that we kind of that the overall marketplace is feeling like this kind of kind of value, small cap things should continue and and why is it, and what would sustain

it? Yeah, so two critical points on on that front. One is evaluation story I talked about the valuation mismatches from a sector perspective, that I think can be a tailwind for some of the sectors that are more heavily allocated within the related index. Certainly when you when you look at just the overall multiples of the overall indices, it's much more attractive, on a on a long term basis, to own equal weighted versus the market cap weighted. And so we were just robots, and we said, we want to go towards the area where the balance valuations are lower than what they've historically been. That certainly would be a team for covid. The second piece are industries. I think one of the things that have been challenging or a headwind for equal weighted index has been this cycle of rising interest rates to rates that have been persistently high, we are now starting to enter a situation based off of the work that our asset allocations. Some expectations of rate cuts this year, and then certainly looking forward into 2025 as well, that will likely be a kill when, not only for small caps, and ultimately the equal weighted is more has more of a small cap highest, but also some of the other sectors were equal weighted indices. Allocated to think about real estate and the impact of higher interest rates had on the profile of commercial real estate. That's going to be until their utilities. Is another interest rate sensitive sector which is more heavily represented in the equal weighted index, then then market cap. Those two structural trends, valuation and interest rates certainly could help be a continued accelerant to the equal weighted index. Making up the other piece of this is also just the macro economic environment, and it's anyone to guess whether we're heading towards a recession or not. But certainly, if we avoid the recessionary environment, we can make the case for a potential pro growth cycle here. And if that's the case, you historically over time, think small caps continue to do well, I think that would be the engine that would help close the gap here, which will buy some time and they consider moving on from the type of investment given its profile, right? Thank you. Well, just

I'm going to put this in context as we think about our decision as an investment committee. I think the first is patient or thoughtful committees are probably more skilled at not selling managers or asset classes after extreme environments, and simply put, not selling at the bottom and on the macro environment, selling at the bottom would be selling a non cap weighted index and going into a very concentrated cap weighted index. I think the second important decision that we need to make is we're not we're not abandoning the asset class at the bottom, as I've described it before. Are they the right mouse trip? And I think the best way we can make a reasonable assessment of that is, if this rotation were to continue, how is tobam faring, not just against a cap weighted index, but something perhaps as simple as an equal weighted index to know we're not going to sell an asset class At the bottom, but is TO BAM, as I described, the right mouse trap. And in that spirit, have alternative options that are not cap weighted, but potentially a different process, investment process and methodology that would take advantage of greater breath in the market if, if there's a better solution to tobe, and one month is probably not, it's certainly not, not sufficient. So TO BAM has outperformed the cap weighted indexes in the last month. Let's see how they're doing against where they should be performing if this were to continue for the next quarter or two, and be ready but thoughtful as a committee.

And the one thing I add to Will's comments, which is more of a historical and you obviously know that what have we learned when we've seen market extremes like things do revert, we certainly have been on one side of the extreme For the last

few years. All right? Any other discussion on cap weighted versus equal weighted in particular as it relates to our manager line, thank you will if

you want to stick around and do the rest of my job and get back to the consulting side again, right? Can. Tom gets a good question you might need to answer

coming up. Well, we

appreciate your

your your time in new time. I appreciate everyone's

time. Thank you. Well. Thank

you. Take care.

Maybe we can shift into the large cap equity portfolio review. I know this presentation is extremely quantitative in nature. Some of you probably loved it. Some of you probably hated it. The purpose of this evaluation was really a few things. Is the portfolio a large cap portfolio? Is the portfolio neutral? Meaning, do we have any style bias, unintended style bias into the portfolio. Meaning, does it have a growth bias? Does it have a value bias? What do we want it to be? We want it to be a large cap, what I would call core or neutral portfolio, where it has exposure to both growth and value, and then looking at some of the underlying managers and saying, are they producing the alpha you would expect, right on an after three basis, are they outperforming the benchmarks that they're putting together? So let me I won't go through every page here, but let me walk you through a couple of pages. And here on page three is a summary. And really the top I'm showing you as of June 30 in the large cap portfolio, what was the percentages of each of the underlying strategies in relation to the large cap portfolio itself. And then you'll see on the right side the benchmarks. In the middle of the page, we're saying the current allocation has it produced positive Alpha? What's the beta to the overall market? What's the tracking error, et cetera. Some of the statistical measures, you can see that, in total, the overall portfolio has generated a positive alpha of point three as a beta of point nine, nine to the which it should be. Because, again, we're showing this versus each of the underlying manager benchmarks. I'm also on the next page. We showed it to you relative just the broad banks, Russell, 1000 you can see the style and size regression. You can see this portfolio is a neutral large cap portfolio. And then we look at the return decomposition. We look at up, capture, down, capture, et cetera. You can see and up capture is defined as when the overall underlying manager benchmarks are positive. How much are they capturing of the upside on the downside? How much of the downside? Obviously, you want more of the upside and less of the downside? You can see on a relative basis, and this should be a surprise, because we're seeing under performance with tovam and Edgewood. You're seeing the up capture of 98.2 the down capture of 97 if we go to the next page to look at some of these statistics, just to show it, versus the broad based Russell 1000 which is that large cap core benchmark, you can see the overall alpha is point two. The beta is still point nine, nine, similar tracking error. And then when we look at the market capture, you can see the market capture at 98 six, upside capture, I'm sorry. And then the downside capture is 97.7 so you have good downside protection. Obviously the upside again being hurt by the toe ban portfolio, mainly. And then some of that being Edgewood page five, is that what we call, kind of the style and tracking matrix. So if you look here on the left side, which is the vertical high growth, growth, core value, deep value, and then on the horizontal axis, from a tracking error perspective, low, moderate, high, very high. So the takeaway here is that the managers apply to exactly where we would expect them to be. So if we take a look down the bottom of your two value managers, barrel Handley and DeRoy and Deborah, they are deep value managers. If you think about their underlying philosophy and strategy, we would consider them a deep value manager. That's exactly how they're plotting. And you can see the overall kind of tracking area that they've assumed is in line with what you would expect them to do. So this is really kind of a report card. Are they cheating? Are they not cheating? And this gets back into when you think about man, about managers outperforming or underperforming, are they doing something they shouldn't be doing? The answer is no. Edgewood, which is your large cap, concentrated deep growth Manager. You can see they plot very, very high growth. That's where they should be, but they also have the highest tracking error, and that gets back into some of the underperformance relative to the benchmark, and then historically, growth managers tend to have a higher tracking error than that of valuable just because of the heavy concentration, as will mentioned into the technology sector. So really, when we step back and say, Are there any unintended biases to the portfolio that shouldn't be there, the answer is no. Your portfolio has, obviously the exponent Market Plus portfolio index, Russell 1000 index as your core positions. We call this a core satellite. And then you're satelliteing it with two value managers, and then the one growth manager. The other thing you would want to look at here is, if you're going to make a decision to have those satellites, you wouldn't want to have a relative value manager, meaning a relative man. A relative value manager could be a value manager that will actually buy growth companies just because they're trading cheap. That's not what we want. That is when you can really have high tracking error. Because if you get into a market where, let's say, value is out of favor, you would love that portfolio, because that relative value manager would look more growthy. But if value came back, those value managers significantly underperformed. So it's key that when you're having multiple manager portfolios, if you want to the deep growth manager, offset by a deep value manager, or to a true value manager, and you have that portfolio, and just as a reminder, D and D is an all cap manager, so they allow to drift. They are primarily over time or large cap, but they can drift into mid cap and small cap, and you'll see performance wise, that has helped them here in the shorter time. Page Six, taking a look at the underlying managers, I won't read this to you, but we're really stripping out theta and alpha, right? So the active managers adding alpha to the portfolio. You can see here, as I mentioned earlier, the one manager that has negative alpha is minimus. But at point three, we'll get into some of the kind of the return dynamics here in a minute, and then you can see some of the up, capture, down, capture for each of the managers. Page nine is a way to look at kind of what we call active risk return. So what we're showing here on the left side is what the dollar allocations are to each of the underlying managers in the portfolio. And then on the right side, we're taking a look at what's the overall risk allocation to the portfolio, right? So when you look at sizing versus risk, I mentioned earlier how Edgewood has the highest tracking error in the portfolio, so you can see that they are big pieces of overall risk profile of the portfolio in total. So you can see, even though the weighting at call it 28% you can see the weighting of the risk being 65%

of the overall portfolio.

And then if we move into page 10, we're showing you the rolling three year excess returns versus each of the benchmarks. So again, how you want to see this as you follow one of the lines, and you can just see on that rolling three year again, what is that out performance relative to their benchmark? Page 11 shows it versus the Russell 1000 which, to me, we wanted to add that in there, in case you wanted to see it, but you wouldn't want to compare our value manager to the Russell 1000 so the real better metric would be there back on page 10 to show you and you can see where the current allocation is. Is that light blue? Light blue line where you can see that that's where the portfolio started underperforming that kind of in that october 21 january 22 time period, and that really comes into line when you saw the drop in performance for Edgewood. You can see Edgewood, on a rolling basis, was outperforming over all time periods up to that 21 period. I'll show you in a minute their calendar year returns to show you some of that volatility of calendar year returns. Page 12 gets into kind of just showing you a pure performance of each of the managers relative to their benchmarks. You can certainly see we're showing you kind of green is outperformance. Red is underperforming. You can see D and D over all time periods outperforming. You can see over the last 10 years, it had 150 basis points of annualized return over the last five years, 270 basis points. And then over the last three years, 190 basis points. Battle handling longer term performance does lag benchmarks over the last 10 years, that product has lagged as benchmark by 50 basis points. You can see over the last five years flat relative to the benchmark. And then, more recently, over the last three years, adding 180 basis points of performance. And then finally, Edgewood. You can see the big piece of that longer term under performance is really that three year number. You can see the three year number underperforming by 11.1% and you can see the 10 year underperforming by 1.8 again, a big piece of that. And I want to show you kind of the calendar year returns for Edgewood, because they've had years where they've significantly outperformed and they've had years where they've significantly underperformed. Remember, this is a very concentrated product, so when I talk about some of that risk and track. Era, you're going to get that in a portfolio that is very concentrated. Let me stop, stop and pause there to see if there's any Kevin, if you have anything to add to that, or any general questions that we can spend a little bit more time with somebody

underlying Kevin. Anything to

add, just to add, I think, more general statement, when you do these asset class reviews, sometimes there's the urge to make an action or do something, but as long term investors, that isn't always our focus has to do with as the discussion continues maybe more relevant, but in the instance of Edgewood, the reason they were hired is because it's a concentrated high condition manager. There is some endpoint bias and the numbers we're looking at, but this is a manager that you know, two years ago, on a rolling basis, was outperforming by 6% and nothing has changed in the team process over so just keeping that in mind as a backdrop as we continue the discussion. Thank you,

Kim, can you? I'm going to quickly just go through some of the universe rankings on each of the active managers. So maybe we'll start with page 45 so this is the composite of each of the managers, so and your performance should be in line with this. But I wanted to show you the overall composite. So this is D and D, so we're comparing the overall composite returns. This is as of June 30, versus the universe of other active all cap value managers you can see over the last 10 years. So if you look all the way the right, and I apologize for the font size here, but you can see the 10 year annualized return at 10.29 their benchmark. At 810, they rank in the 16th percentile, one being the highest, 100 being the lowest. Five years, you can see they rank in the 19th percentile. One year they rank in the 40th percentile. And then year to date, they rank in the 13th percentile. So just a pure absolute return versus benchmark, versus other managers of similar style, outperforming and doing very well relative to their if we go to page 51 this is Edgewood. Take a look at Edgewood again. This is their compositing Term versus other large cap managers. You can see, over the last 10 years, the large cap growth product ranks in the 54th percentile. So again, versus other growth managers, five years ranks in the 80th percentile, and the one year ranks in the 66 I had mentioned earlier about kind of the calendar returns.

And so if you go back to page 50, Kim, so if you look a little bit below halfway, we're showing you the performance information the trailing returns. I won't read this too, but you can kind of see that volatility of calendar year return. So if you start on the right side, 2017 they outperformed the benchmark by over 13% you move right to left, they outperformed in 1718, 1920 they underperformed in 2122 and outperformed in 23 so again, this is a concentrated growth portfolio, so you're going to see some years where there's significant outperformance and significant underperformance. And again, I mentioned earlier, some of that shorter term under performance is a direct result of really 2000 and then Barrow Hanley, which is on page 48 to look at some of the trailing returns for Barrow Hanley, you can see over the last 10 years, relative to the rest of 1000 value, they slightly outperformed at 8.28 versus 8.23 that ranked them in the 82nd percentile. The one thing I will point out is, if you look right above that 10 year and I call this kind of the accordion chart, you can see the spread from high to low the last 10 years is very tight, right? So the tighter that kind of chart is, that means that the top quartile manager to the bottom quartile manager. And I understand that every basis point of return matters, but there's not a lot of spread from high to low. They look at the one year return on that universe from high to low. Right the high return over 25% below it, call it 7% so a huge dispersion in return on that one year where over the last 10 years, it was very tight. And I should have pointed that out, that you tend to see that over the longer term, very similar dynamics on the large cap growth. You look at the high to low on the 10 year. On the high to low on the one year, the highest rate of return to the universe on the one year was over 40% let's call it 15% for the larger so a big, big dispersion.

I'll stop and

pause there to see if there's questions and

comments. I'll start specifically about it, but I don't know we heard it because we were concentrated. But anyway, I'm on page nine, where there is 65% of domestic short, global trend. Lines below 10 and 11 and on 12 is where I'm looking at the delta.

And you look across the bottom line, it's all negative versus the index and I don't know where you'd get this one on the right side of that, have the 12.1

versus the Russell growth of

12.5 over that time period, they've met the benchmark.

We'll see how they met the benchmark. They underperformed the

benchmark just just a different time period,

is that, that's the inception, correct, that we hired them. Well, for each of them,

we paid 1% a million dollars a year, more than that for this, if you against whatever other universe service that large cap managers, I think it's time to take a look at what's out there.

What is that? Give me specifics on what what that would

be he's speaking to me or him? Oh, are you asking to take? Do you like to look at other managers in a large cap growth space relative look,

I mean, I'm just looking at what they have

done the return.

So we could certainly do a comparison of Edward relative to our other kind of one in two replacement. I think there's, there's also needs to be discussion about concentrated manager versus a more diversified manager. Our recommendation would be to continue to have a deep growth manager. We want to have deep growth and deep value. And so when comparing an Edgewood versus other growth managers. We have to make sure we're comparison which we can do versus other deep aggressive.

We want a deep aggressive.

We're going to keep the core satellite approach, where you have the Russell 1000 as the core Absolutely. We want to make sure we have that deep growth and deep value, right? You guys have value and growth and true value. I would suggest we go

ahead and do a review and search for comparison to how this does against other canopies.

Kevin kennealing, your give us your perspective too, please.

So I think the on page 12 here

tell me reference the red line from the bottom, that is a snapshot today. Yes, it is over time, but the end period is today. I

and your point about it underperforming over the time periods? It is as if I imagine this is achieving 30 years. There's some input bias in those numbers. It has been a top quarter and even calendar year to date period. So that's impacting the longer term

numbers.

This shows you on a rolling basis, so that not just one period of time, even today, of how they've been able to perform or underperform relative to the better part, and really this is from the 10 year period or the eight year period from the beginning of the chart, the fact that they they. Were using positive alcohol. It's really impressive

to Kevin's I'm

sorry, Kevin, Kevin's point about this is a high growth concentrated manager, there is going to be volatility. So the fact that we've sort of crossed the line here and have experienced under performance as of late, and I think this is another example of a time where this is where we absolutely would want to talk about making a change, or selling low, as it were, like I said, nothing has changed in

the team and the process

they're following on the firm. If you know, if they're, if the consensus with the committee

is that even want to take a deeper look at Edgewood, well, let's, I think before we just skip to conducting a replacement manager search, we should minimum have the meant to to present. They are the team is very good. They are, they are. They articulate very well with what they do. I think it would benefit if there is doubts among the committee. I think who you do. I to listen to to what they have to say before skipping ahead to

high school search.

I don't need to hear but I can see what's going on.

I've got some thoughts on this. First and foremost, Tom's very right to seriously question under performance for any manager, and in particular, actually, our duty as a committee is to borrow from Paul Harvey, when he used to say the rest of the story, or peel away in the onion on Yeah, I'm dating myself. So be it. But to peel away the onion and have a better understanding of what's behind the natural concern about underperforming managers. So to that end, I took a look at the growth indexes versus the value indexes, and a simple takeaway is this, in large cap value, the 10 largest stocks account for 20% of the index, 20% in large calf growth. The 10 largest stocks account for 60% of the index. If we think the S, p5, 100 is concentrated and top heavy, it is even more prevalent in the large cap growth, which, which, for any active large gap manager, is going to make outperforming more difficult when it is as concentrated as it is, just just

as you're going just to put numbers as of June 30, the IT sector of the Russell 1000 road was 43.5% of the

index. So

just continuing on that it doesn't we're asking the right questions on underperformance, but our duty is to peel away the onion and have a better grasp to make a thoughtful decision as a committee to show that concentration in the first half of this year, the growth index was up 20% 70% of that return was driven by five stocks. Mind you, there's 400 stocks in the growth index, but five stocks drove 70% of the return in the Russell 1000 growth index. So we know from a index perspective for an active manager, unless you were overloaded in Nvidia, Microsoft, Google as an example, versus say, in this case, a 22 stock portfolio that's concentrated but more diversified than simply very heavily concentrated in that handful of names, it begins to at least describe some of the underperformance in a more recent time period, which, as Kevin Keneally said, drags down the longer term track record. So looking at Edgewood on a long the good thing with Edgewood is they have a long term track record. So if I were to look at the rolling five year return of Edgewood, there are period there are more often periods when they're in the top quartile. Of their peer group than below average. I think, given a long term track record, what you want to dig into is, if they have a good long term track record and they underperform, have they demonstrated an ability to get back to that long term better rate of return they did in 2012 and 14, when they underperformed and they got back to consistently above, consistently being top quartile manager, and they sit in the same position today, whereas Tom is rightful to say, what's up with the underperform? That's the rolling five year number, if you stretch it out even longer to the rolling 10 year number, they're consistently in the top quartile of their peer group on a rolling tenure now that's a long term time period. I prefer to look in the five year to see when you underperform and good managers do, do you have the ability to get back to where you were, and they have been able to demonstrate that, recognizing that this market has been extraordinarily concentrated in large cap growth and then last in this rotation that seems to be underway in the last 30 days, if you just look at their mutual fund as a proxy to the benchmark, in the last 30 days, they've outperformed by 400 basis points, which they should be doing in an environment where it's not so top heavy and the market's not just rewarding a handful of stocks, but for a greater breath. So I'll summarize and say we're right to ask the right questions. Our duty as a committee is to dig deeper than simply look at the performance, but to understand why from a qualitative standpoint for the manager, as well as blending in the quantitative aspects of the market. And the last thing I'll say is, what, if you look at a large cap growth manager who has outperformed, they will have very likely done it by being more more focused, more concentrated in a handful of stocks than I think we would want that tolerance to be the poster child is Nvidia. It's it's edgewood's largest position, but it's a 6% position. It's not where Edgewood, where Nvidia has accounted for 40% of the index, returns year to date, and we've seen in the last month, Nvidia is a wonderful company. Nvidia is down 30% in the last month. I think that's something we really need to ponder as a committee, when we look at the numbers that are naturally concerned and appeal that money in a way I'm Manager specific, the same way we're doing it

with token, I think it would be you. This is a deep growth question, the portfolio, some of the better performances.

This is a big universe, large scale growth, and I still think it's important to look at others with a

deep growth to see if there's others out there that can outperform this manager for smaller people, smaller

I think we should do our duty as a committee, but the duty of any good committee is to understand and understand more behind the numbers. So if we want to look at other large cap growth managers and really understood how they understand how they outperform, there's no harm doing that for our own sake, well, but we should understand what's what's driving performance and why, then simply looking at the numbers, our duties and committees to dig

deeper, and we can do that. So I'll work with Kevin. The precursor will will be the managers that have done better are going to be overweight those high end stocks. They're going to be overweight tech sector, and they're going to be overweight by seven meters. But we can do a comparison

as a part digging

deeper than we also want to hear from Edgewood to get the story behind the numbers. Have

you

reached out to them? Yes, I have. That's the first step. I

think I

have. I do think again, if this is the consensus commitment. It with the group to hear the story, if we are really considering making a move. The inception date for me, but it's been long term management. Of course, that's done well, and I do, I do think it

would benefit off your opinion, I appreciate. Greatly your the color you've added this manager like when you look at the material that's been presented to us, just and we have to look at performance, it's eye opening when we look at the trend. And I'm looking on page 11 with, you know, coming down. Is there any such thing as this a watch list to help us understand why it's coming down so quickly, and for us as a committee, you as a professional, to get in front of it, so that we don't immediately fall to the bottom line to show just how much under performance there is to help explain, as the Chairman has, why it's performing or what are The factors that they're leading to it. I again, maybe more free time than most enjoy. Managers come in and are able to explain and look that person face to face and have them explain why they're underperforming and where they are also seeing, you know, future performance coming from and what's going to change. That the team hasn't changed, but performance remains poor. What's going so yes,

the answer is yes. So you do have watch lists, and it is all based off a rolling three years. And then what we're seeing managers significantly drop off the cliff, like you're you're seeing there, right? The answer is yes, having an understanding of why, and as you well know, when you see something that extreme, right? Your first question, is they doing something that they shouldn't be? The answer is no, and I apologize I keep harping back on this. When you have a portfolio that is so heavy in the top 10 names, you're going to see that right? So when you see a sector that can come out of favor, where they can be underweight, a sector, you know, one of the reasons why they've been underperforming more recently is just, very simply, they're underweight, something like Nvidia. They're underweight for one sector that's doing extremely well. And so to your point, understanding that is key, right? Saying, Okay, I understand why they're underperforming relative to the best. And then I would say that, you know, in this trend that we're seeing, they should be outperforming again, not to oversimplify that, but in a very short period of time, they've added 400 basis points of performance. It makes sense, right? Team hasn't changed style. Hasn't changed underweight technology. Okay? They should be outperforming and they are. So are

there ways, and I don't want to create work for

the Kevin and add more

than 59 pages, but are there ways to provide this report, to add more letters and sentences and less numbers, sure. So understanding, again,

what you're presenting, so it's not just a red dramatically across the board, sure. Yeah, I get it. Yeah, not. I mean, we back when they started, significantly number one, we were we were having those conversations. I don't think you were here at the time. But the answer is, we, when we're doing the quarterly review, tend to spend more time on kind of underperforming managers. Yes, you need to put some commentary together.

I was, I'm curious when we see manager fall off like this, this. This. This was two years ago. When, when do we get a barn and when do we reach out to them? Inside Out, like Kevin said, two years later, that's how I'm coming. Shouldn't we have done that problem to do it now? But probably should have been looking at about two years ago, right?

So that's a rolling number, right? So it's not like, so to your point, like, if all of a sudden we start two consecutive quarters in a row, they're under forming by I'm making numbers up here right now. You start saying, you ask questions. So when they were under the warming, 221, yeah, yes. We're looking at in a quarter by quarter basis, like, what is, what's the attribution? So in the quarterly report, and we included the latest quarter in here, right? So we're showing you what is their sector weightings. What is their performance in those sectors relative to the benchmarks, right? Other sector weightings. Does it make sense, right? Like, if they're underweight, does it make sense that they're underweight? Technology? Yes, it does. Right? If you think about their philosophy, although they're concentrated, what they're willing to pay, you know, for a company right from a size, they're going to own the video, but they're going to be underweight that just because of some of more that kind of their aggressive growth, and some of the quality, kind of biases they have into their philosophy. So I think that's your question. Is absolutely valid. That is such an extreme I've been doing for 32 years to see a three year rolling number drop like that. That's because they underperformed in one calendar year so significantly. And you have to, you have to understand that and the questions. You never want to see a manager underperform over a longer period of time, but shorter term, performing. It's in a portfolio that has, let's call it, 20 securities, and the top 10 holdings can be over 50% of the portfolio. You can set, you're going to see volatility relative to the benchmark, to the good and to the bad. I mean, I mentioned earlier they had been out. There were years where they helped perform by 20 something percent. And I jokingly, I don't make this as a comment to this committee, but I always nobody complains when somebody's outperforming, when the tracking here is high, everyone's like, great performance, right? You're not asking questions, then the same questions need to be asked when somebody's outperforming that significantly, when they're underperforming significantly. So you're you're spot on, but that's a role in three year. It's really that one calendar year that killed them relative to the benchmark that may fall off.

June asks a really good question, and maybe the shortest answer is, there's no perfect formula. So what you try to do is, I think, is you put it into two buckets, what's called the first bucket, qualitative, second bucket, quantity, qualitative, yellow or red flags would be PMT, portfolio managers change. Somebody retire, somebody leaves for another firm. There's change in the people who delivered the passport. That's a challenge. Could be change in ownership. They get bought by a bank, suddenly somebody shopping for a condo and they own they're not paying attention. Those might be the qualitative flags. Quantitative is where I think nepc and Kevin Connealy too is dig into the portfolio. And have you? Have you? Have you seriously altered your investment process that delivered the good returns? And, and if, and if you have, that's a yellow flag too. No, sir. And that's the best you can do. There's no perfect answer, but you dig into the tendency, right? To my knowledge, I don't think so, change in ownership. No, they only concentrate on one thing, and that's large gap, growth. Many others just dig into the the actual to get under the hood, look at the engine and understand what's driven performance and when you lag. Good managers lag. They don't want to, but they do. Do you have a Do you have a batting average, at least getting it back? Because you just never know, but that helps answer them the decision a committee

needs to make. Us yes numbers here, and I have to do probably don't have a huge amount of concern for EDGE board, and that's just me, and I look at the one year number, they were up over 29% they do better than any other manager. And then for the five years, they're up 15% they underperformed the benchmark. But it's about one minute year term and understand why they underperform in that one year. I think we've already resumed the explanation. So I guess I'm just not as concerned about everyone else when I look at the absolute return. So absolutely determined, you know, I would say that they haven't kept pace with the benchmark, for obvious reasons. We've been talking about this extent of program about, you know, how certain sectors were heavily concentrated in a few stocks and those stocks throughout the market, and if you weren't there, you sort of missed the mark. But I think they've done a pretty respectable job for the last year, the last five years, I think they've done a respectable job. So you've got one year in there, but it looks like they, they're sort of turned the corner already. So I don't, I don't, they don't share the committee.

Thank you, Doris, they are on the watch list. This was in

the first quarter report that they were

put on the watch list for that one year. That's for the one year we're looking at that. No,

no, I'm talking about a three year trailing, ending on December 3120 22 they've been on the watch list beginning in July of 2023, and they've underperformed every quarter, December 3122 March of 23 June. All through this this period you

asked about one. We do. We have a rule, not a manager being on a watch list. Kevin, what's the rule here

we do? It's, yeah, you all have a stated formula, and it is based off of three year rolling. So it's an automatic Kim. Kim has that. And we'll have the june 30 IPA published in a couple weeks. But you'll see the the watch there's this page is in there with what managers automatically. So to your point, some of the watch list could be more a committee says, Now let's put them on watch list. Yours is formula. I think it gets back to what you're saying is, like, it's not, it's not a committee man, like, let's have a consensus. It's an automatic

I think that's what you put

so that these conversations, which is really kind of dominated rightfully the conversation today, we could start preparing

for some of those, some of the non USC. Right.

So it's probably TO BAM. It's Madrid exponents. SSI,

well, I guess if you gotta watch with you gotta go by the line, but Right? Well,

I'm just telling you,

it's out there. These are good discussion points. Doesn't cause anything to look at what's

out there. We'll take a look at our one and two rated managers that fit in a comparative basis of similar types to Island. You have an idea of what they're doing, and don't target 1% there.

On the watch

list. This was in the

because they've underperformed the benchmark by about the same amount. They're

probably going to come out. I don't know if we didn't have to prey here the number can do for know if, Kim, you're still there or not. They didn't have three years, that's why. So Ken, yeah, once they hit the three year number, they'll go on it. We

have room for them

on the bus. Okay?

I'm at investment consultant report. We've got a couple other topics here,

and I know Tom wanted to discuss seminal as well, so we'll get to that. Where you

going with the rest of this performance report. Well, we

have large cap value, large cap growth, additional fixed income strategies. Is

there anything else you want to cover in large cap value or large cap

I mean, I think it gets back into I think this is part of the discussion about the construction of the portfolio being partly as it is, being more neutral. You if you go to page four of the flashing port, Kim, if you can pull up the flashing port, I

Kevin, you have a policy allocation of 3% to growth, But the manager has 6%

so that was your sorry. Go

ahead. Similarly, in the large cap balance policy, 3% of the portfolio allocation,

you're underweight. You're underweight Casa right now, relative. So if you look at your large cap core, which is obviously both the passive and TO BAM at 93 versus 13, you've been overweight on the active part of your portfolio, which I would recommend, and we continue to have that. But I just wanted to show you, sorry. Go

ahead not get it. I understand. Okay,

I think this just gets, you know, you have again. We went over the analysis. You have a neutral portfolio. You look at your large cap value at the end of June, it was six and a half the active large cap value, the active large cap, I think that was just meant to put on the agenda this. Another discussion from a construction. This is not a manager specific discussion. More have we seen as we're seeing this fundamental kind of maybe tilt back into where value could potentially be out when we grow? If we want to strategically, have a tactical kind of call to slightly overweight value relative to growth. We may be too early for that conversation, but I just wanted to point out that you're very neutral in the portfolio, and that if we believe that we're you know, we're seeing this maybe fundamental shift. If we want to tactically lean into that a little bit through rebalancing and having a value overweight, the danger in that is, again, there's a lot going on right now, right we have a presidential election coming up. I don't think any of us think AI is going away, and so technology should continue to perform well. But obviously, from a valuation perspective, things are pretty expensive in growth. So that wasn't meant to be a recommendation. I think was more just an overall conversation about growth being over value, or a little pricey versus value being undervalued and maybe a little bit cheap right

now, like you suggesting we put some more money into value? Is that what

I'm hearing? I think we should continue to have that conversation, I don't know,

they've all performed significantly, and we believe in that, you know, we were talking about earlier, where small cap could potentially be outperforming large cap that are handling. So if you thought about that, I'm sorry DoD within your active value portfolio, that's another kind of tilt you could talk about. So do we want to lean into an all cap strategy right now? Relative to just a four large

we added some amount. What would you recommend?

So right now you're slightly overweight and large cap period. So you're at 22% versus 19. I don't hate that overweight bands, right? And so within value and this, I gotta be careful, because I I'm a hypocrite if I say I'm not ready to make the value call, but I'm not ready to make the value call, and I shouldn't be ready to make a small cap call either, but we do believe any PC has been wrong. For the last several years, we've been saying we thought value should be outperforming growth, and we do think it's going to when that happens. Could be quick and sizable is a wrong word to say, but if you believe it straights are going to be coming down, that should put a lot of wind in the sale of barrel Hanley relative to a pure large cap, just because they have the cap flexibility to go into mid cap. I'm sorry I keep saying I only had 10 cups of coffee today. I think that could be a strategic rebalancing just within when Kevin's liquidating, things are using some of the money out there. I'm

going to, we're going to get to that. I mean, you're talking 25 each.

25 each manager,

the value manager,

you're saying to Oh, continue to overweight. Large Cap war, yeah. So you're already your target. The large caps 19. You're at 22% that's probably fluctuated a little bit as we sit here in August. You already have a I was you're slightly underweight. Small cap, you're slightly underweight exchange pounds. So to take that cash, and you might, my concern would be, as we put that back into the large cap portfolio, and Kevin's going to need that cash,

I understand that.

I'm saying they sit near large cap. I'm saying, when you put that money, you take, if you take 50 million out of cash and put it into your domestic equity portfolio, how quickly are you going to need? Well, talking

about the Black Rock short term cash fund that you terminated, those proceeds are going to fund the following investments for the global equity. So if you look the global equity right

now is a 13.6%

allocation versus target of 19.

That's Blackrock short duration, which is cash. It's

going to go to big global equity, and then that gives us roughly three months of medical payments.

What are your monthly outflows? 20, 20 million a month. My thing about what I'm saying you. We take 50 million out of cash, and then four months from now, are we liquidating somewhere?

Well, you can wait and see some continued underperformance where you will if somebody

I'm all for putting money, I think two days is we continue to believe, yes, we don't get equities continue to be attractive. But the big thing here is, is transaction cost, if we're, if we're going to be liquidating from the portfolio in under six months, I don't, I don't like that.

I hope some of this real estate comes back. Well, then how about 40,000,020 each?

I don't have a problem with that. As long as we understand that we might, there could be other sources we could liquidate from that we're gonna need that money between now and the end of the year, value overgrowth, I'll say yes to you. Yes. I in all cap versus large cap, I would say yes, only

$20 million you have

about seven that we that were terminated cash.

It's all international. Was liquidated International, and now we're doing the convertible. It's going to be liquidated for the private debt, but that's a slow job. So, I mean, there's

cash flow. Yeah, so you voted at the last meeting. Right now, at the end of June, you had about 78 million in pure cash, and 94 in the short but some of that money in that in that short duration, don't forget, that's your sweet vehicle.

You told me, liquidate that on the private debt, whatever else you want to remove. This was on your your CIO report. We're getting rid of this account and convertible stuff,

terminally. Of a Blackrock cash flow right here? Yeah, that was an action that the IC took at the June meeting. Yeah, I know. So 97 94 million there once it going. So that has been terminated. And as the cash proceeds come, they would be swept into the you know what we have here, which is being wide, but it's all the all the investments there were under three months in nature. So the Kevin's point about minimizing transaction costs as they mature, that money is has been swept into cash. I thought the sweep was going into this cash bottle. We're on page six. Sounds like two. Cash, cash.

Here we go again. I was dizzy when I left the last meeting. The cash. Cash is pure cash, right? That's cash that you can use, right? Anything you want. The short duration investment grade, remember the Blackrock was that kind of we went through that that is used as a sweep vehicle for your active manager, but you made the determination that we wanted to start having switch back so that the sweep is going into the BNY money market account for each of the managers. Yeah.

Thomas, correct, yes.

So you're right, it will be terminated as a function of what it was over. Correct,

this is going away. Correct, it was 99 million, right,

and so I'm looking at this 78 million. Correct. Here we are almost at the end of August. I don't really know how much we spent already in benefits June and July, how much we're going to spend in August? So I would be, I would feel more comfortable making a decision knowing how much money we have in cash right now, rather than making it on a June 30 report. Do we know that Kevin,

I can pull that up.

So let me go back into well, he's looking that up because we did, we did take action to terminate the convertibles. That money will go into future private debt investments. That is a slow draw, right? We know a lot of these. You're going to draw that money down over a three year period of time. So if you wanted to put more money into equities, you could take some of that money out of the convertibles, right? Even though we know, by, I mean, the pure, you know, the 5% you had in convertibles, we said that will go into private debt long term. That's going to take 345, years for that money to get paid $3 million

in convertibles, correct? That's coming up.

So you could take some of that money.

I said, to take it up, put in the cash now you're gonna earn more.

He always throws another question.

You're listening. You could always

listening. You could terminate convertibles today. Yeah, sit back in cash. We did that. We told them to sell them last month. That's not.

Eliminate convertible bonds.

Eliminate convertible laws to fund future private debt,

convertible sit there for three years. Part of

the conversation, okay, 41 million, there's

two.

No if you say cash today, the cash cash, 41

correct? So, yeah, August payments benefit. It's gone. It's already out, okay? So that

that money will go away in the next two months. I don't want to use that cash to fund

equities right now. 20,000,050 20 million

convertibles. It does matter. Can we have already overweight

they're performing. What is the highest performer

relative to the benchmark? They also have the lowest benchmark? They also have, we might be

even getting outside

of the bank. Kim, can you look after the investment policy statement? You don't have to put up on the screen just what the bandwidth is. It might actually be in the last IPA, the bandwidth around large cap, yeah.

And then I do, once she gives us that answer, I do want to have a conversation. Say you voted to terminate convertibles. Let's have a conversation right now on so we're all on the same page. Are we using that money slowly, or are we terminating it immediately and putting it somewhere else in the portfolio, knowing the intent is we're going to be using that for future private debt commitments? I think Tom had mentioned that we want to put

that million in cash. My concern is, as you put that into cash, it's going to be used to pay

benefits. I think I would offer up this, this suggestion to tag team on Tom's idea, if we used a portion of the cash, and we can and we terminate convertible sooner than later

you have,

you can allocate it both to Probably one of the large cap or all cap value managers, and allocate another portion of it, where we're under weighted to small cap value. And if, and if we were hypothetically working with a $40 million pool of money. I think a good solution is 20 of that to Detroit and Devereaux. 20 of that to our small cap value manager. Yes, as partners, if

you're targeting the small cap is 80% you're at 6.2% at the end of the year, your target small cap is 8% and you are under allocated at 6% so 20 million to earnest Parker, small cap value with 20 million to DOD out of converters. Small

cap, DMV, all

cap demo funded from the convertible portfolio,

and for either of the Kevins, before the next meeting I'm interested in on a holding space analysis. If you look at DeRoy and Devereaux versus barrel handling, and you look at the market cap of the portfolios, and you can, you can fine tune it by looking at the quintile of market caps, just to see potentially how much overlap is there, versus is drawing how much all cap is drawing down. Sure, I think that's that's helpful too. But in the meantime, that the 20 million to drawing down below and 20 million to the small cap value as partners, I think, allows us to lean into asset classes that are cheaper and where we're under allocated.

That's the motion.

So in the convertible portfolio we're looking at that would be obviously moved through credit correct and. Anything else we

have a motion, any further discussion,

all in favor, aye,

liquidation of the convertibles. Is this immediate, or is it immediately? We have to clarify. Yeah, I want to clarify. Okay,

you made a motion at the last meeting to terminate convertibles as an allocation increase private debt. That's all under optimistic. So as we walked away, there's, there's not a we need to follow up on this, because it was it. We're going to liquidate convertibles immediately, which you could do. Where would that money go? Because it's not, you know, the private the four private debt managers you hired at last meeting are going to take two to three years to call that money down. So do you keep it early on? You keep it in convertibles. You're now taking 40 million out. But keep it in convertibles and then as you need more and more cash, or do you liquidate it all now and then, where does

it go? Briefly, had this discussion before the meeting as well, main discussion, but as a as the alternative there too, what sounds like 40 is going to but there was a, we're using a board of park that we had started a discussion earlier in the year warehouse talking about a local manager, Boyd. They were coming up with a liquid clo product that we liked, but it was a new product, just from an update perspective. They have since opened it without us as the anchor investors.

We launched July Tom, meet you just sorry.

So early this year, we talked about, boy, it's a local fixed income manager in there. They were establishing a new seal, a liquid clo product that would might work out well for us, because it wasn't the liquidity profile, wasn't strictly private credit, yet it still added, offered the enhanced returns that the Clos. The reason we didn't immediately proceed earlier in the year was partially because it was a brand new product. We would have been an anchor investor. We wanted to see if they were able to get off the ball without us, which they subsequently have. July 1 they launched the product. So I wanted to throw it out to the committee. If you would like us to revisit it. Take a look as a potential place to park the other 40 million. Or look at other that was presented as a. It wasn't a lower truck. It was more of a quality grade, double A, triple A. It was a higher on the debt structure, their product and the return on that wasn't what was the proposed return, because they were just starting to stop putting it together, right? So I backed off, but I haven't looked at information, but I wanted to put that out there as a possibility if, again, we came in here thinking that this money, as it was approved, this money was earmarked for future private credit commitments, if we, if we want, and I just wanted to gage the committee's interest, if you wanted us to look elsewhere, potentially for maybe a better way To where better place for Park, if we want to have a church, they updated their term sheet. I know I can do the work, though. I just wanted to gage the

interest 60,000,002 months ago, and I want to see we've been to the summit. That's why I was asking, what they're what they

have out there, does anyone else? Yeah? I know you were

you, yeah, as we are thinking about liquidating the vertical portfolio totally. And yes, I know they opened up their fund. Would, you know, return to anywhere? So, and it's 45 to 90 day liquidity. So it does have opportunity cost, I believe, to hold and park back. Yes, the liquidity, oh yes, I'm interested in will be good to have

an answer. Do you want to see or not? You could just walk. Yeah,

just as a refresher, the boy credit quality is pay rated. So to the investment grade rating, the returns I understand, are high, single digit, potentially double digit, liquidity with

the leverage on that.

It's the nature of single, a rated, collateralized loan applications available, and last we're going to be if we're going to be

allocated, are we looking for an investment, or are we trying to find place to park the money until we identify investments? Are we looking for an investment now?

I think, I think, for our next meeting, and before come back, how does it? How does it fit within the total scheme of the portfolio and the liquidity?

One phone call with them just to get the high level before they got it off,

you've got some homework to do.

Just wanted to see if there was interest in going the direction different than the slope. How did you refer to it as a slope waiting to the funded rate? Okay, are we liquidating the risk of the convertibles and putting it in cash so

you can use it to pay benefits for the next affordability in this investment? Right? Now,

four months down the road, six months down the road, are we putting this in cash to use to pay benefits for the next three months? Convertibles,

not as not as not as we have approval for not right now. That's not what you approved. You approved the termination of to fund future private debt, autistic credit status, I get I get that. That's why it's back on the

So, where you going to get the money to fund the benefits? Theoretically, that's not going to be an issue for just a few months here. But as I think, what I heard was bring back, maybe ideas for this remainder of 4 million. So that might be one of

them. Just put it in cash. That is received.

You want a motion to give direction that the convertibles be liquidated now and put into cash

for future benefit things. 80 million

gets liquidated. 40 of it is targeted to add to the two value strategies. The other 40 is to be determined,

suggesting we liquidate the whole thing and make it available for the next two

months. Further discussion.

I have no insight into the cash flow. So I have no insight into how you may I don't see, I have no insight or see if that's the most efficient way to do it. But from a cash flow perspective, historically, I think when there's a criminal

application, how I was fine before, you know, with the last

recommendation, I've

been fine with using the convertible. The last recommendation that we gave using convertibles to fund future private debt, I said, I have no insight into understanding what's the best way to liquidate. You know, investments for benefit pages over the next three months. I don't know if that's the best way to

do it. I agree. Neither do I. It would have been nice if you had something already that was on the table. Look at because right now, realize you've got 41 million sitting in cash. But then after that,

say something please. I disagree with what you see the 40 and get

rid of the and do the 44

80 and do the 40 towards the two that we just talked about, and then

to be the other one to be determined. And I think so. So to me, Kevin saying, you have a net outflow of 20 million. We're going to chew off the existing hat for two months. We need $40 million we. So you're terminating the managers. I terminating both of them, using half of it to fund the two managers, and have the other city cash to use the cash flow to me as a proven

you've got two pots of money here, because that piece that you're looking at is black rock that's not going into global equity manager,

all right, a black office manager. Cash, I don't know how much of that would be available for us to use. Do you use Kevin? It

is so that there, but there's some mechanics behind the scene. But that that would just be transferred to the BNY cash.

I know it's going to be transferred to BNY cash, but this is manager cash.

We know what the capital called, the users for that cash. What's that? Schedule One? The

when you say 20 million,

is that just benefits, or is it also capital calls, or that's just

so the answer is, do we know the money you just committed to? Well, you set up the 94 what? What's the draw on that from the managers?

What's that schedule

look like over the next period of time,

private commitments

of that 94

right? You said manager

cash. What is there? Our obligation is that for private managers,

no, that's 94 No, it's not the manager

you don't, you don't, for all your committed manager in the private debt side, you don't set aside. It's typically part of the rebalancing of the portfolio. You think about, if you're 20 million outflow market for benefits expenses, with the outstanding capital calls and I we have it the private model, have it updated through 930 but 30, you think about the money you just committed, they typically will call that money down over three year period of time. They're typically giving you a month notice. So there's not a pure schedule where you, where you purely know what it needs to be. You can, you can guesstimate it. So, what was it? 60 million? Yeah, 60 million. You figure they drawn down 20 million of that a year or three years, divided by, you

know, 2 million. Historically, it's been over under certain

call it 22 so your total outflows, call it 22 to 23 with two to three of that being some of the capital costs, plus you're getting some distributions back from some of your older stuff, and that's offsetting some of that, but I would say two to 3 million a month job.

So I think somebody asked me a question, would I be okay with that other 40 million sitting in cash today? Yes, I

any more discussion on the on the immediate liquidation of the convertible portfolio.

The motion was to liquidate?

Yes, Tom made the motion. Do we have a second? All right, any further discussion? All in favor.

Aye, very good. I

want to go right over here to go right over here to formal real estate. What's happening liquidation? So we put in our liquidations, and we are placed in the queue with everyone else that's liquidating, other than UBS, from which class about next

18

months. Dollar amount? Kevin, so we have UBS crumble, please do

It's 15 point 3

million. So that's 15 out of 160 million in real estate. Yeah,

so that portion

they we know, is coming back in the next 18 months with the 15

million from UPS trouble, correct? And

we submitted redemptions for 10 million in those schedule, as I mentioned, we're placed in the queue. They don't, they don't provide projections, even they're actually, actually shy away from that quite strongly as far as how quickly or slowly the money will come out. I was able to in Detroit bank, when they talked about it, it's going to be between one and at the very, very high end, 3 million a quarter that we will see coming back to us. And that isn't determined until they actually do their calculations for that time period based on holdings, cash flow and redemptions, so that that those proceeds are going to come in a little little more slowly over time. But after all the after the sort of effect of all the changes, I think will end up, you know, slightly underweight real estate, but it's going to take us a little bit to get there. Well after we after receive all the proceeds, we get a quarterly report on the activity of those particular funds. We

have it in the alternative report. So, yes, okay,

yeah, we just can't get the protections. I just like, I can see what balances are the values, but I don't know what's going on. We're getting anything back at

those distributions. But yes, are there

other question, is there anything you Want to additional report on the real estate application?

You we have this, we have this soft timeline of cash flows from the redemption of UBS trouble. That's 15 million out of the 100 and 60 million total in real estate, probably for the sake of the committee, a refresher on how our other Real Estate is very independent of UPS trouble. Thank you.

Tom wanted to have a discussion about sending

them. We looked at this product. It's a three year, $15 million commitment. We waited for Wayne County. They finally got around to approving it. They've gone ahead, made their investment, their views, and I wanted to three year review.

We have the right up there. I mean, I think would be,

it's not neutral, not Oh, it was, I mean,

concern that there's that the current fund has three investors in it, and then the new fund only has one investor. That's my biggest concern would be, it's a site. Why do they? Why would they not the other investors, the two, two of you in this building are only investors. To me, raises a lot of quiet like, what? Why are they not going after other sources

of capital market? For them not listening? I not listening. I'm still interested. It's 8% 8% 8% that gave a bonus last

2023, decision that if they didn't raise money over a certain time period, and that money was being committed to other private debt, which you just committed

$60 million still a good opportunity. They've been doing this for 30 years.

I would be interested in in this with respect to Seminole. One is, it's called opportunity cost, in in either their direct strategy or because it's debt, right, and it's real estate out of our existing lineup. Does seminal stand equal or better than where we're committing capital? Which lends itself to the question that's been asked of their truly, are they of institutional quality, which is, I think, what we're always in search of. So how have their returns done? 8% is a good number, but how is that fared against other debt, real estate investments or private

credit,

that's probably the biggest question. It's a niche product. I

mean, it's

just diversification in their private debt. It's something unique, right? You're doing a lot of direct funding, and Clos, it's something that does something different.

And if it, if it fits good, if it's institutional quality, good. I remember when we had this conversation last time, we were intrigued that they had a attractive 75 basis point fee. But upon further digging into it, they charge their loans and origination fee, which they keep, and is a direct extra fee on to us because of that. So I'm all in favor of kicking the tires hard on Seminole, knowing that their asset base is low. Their investor base is low. And personally, I'm not sure I want to just enter into it, because another investor committed capital. The

other thing I want to have a conversation on distributions from your existing fund. Can we use existing money, the existing fund principal, to be reinvested in the fund, right? Like a follow on fund,

but we haven't visited now, yes. I mean, they're paying us quarterly,

right? So that fund that they have structured, when do we get our principal back? They're always reinvesting it right, right, versus it being that closed end structure where you get your quote principal and

gain with them, yeah, no, I get

that. I was just putting that on the table because they're, what, 2% that are currently

they are 2.4 they're big. Your current biggest holding in your private debt portfolio, 2.4%

that's a that's a legitimate question to ask, is we're getting the cash flow from seminar, but the principles staying stagnant, because any debt that matures automatically gets put right back into

the more. I just want to do more digging on that. So, like, why are they raising a new fund if they can just continue to recycle? Why? Why couldn't somebody just make another contribution in the existing fund?

Wayne County did

so sad. So, like, So Wayne County just gave more money. Gave additional money to a new fund. If the existing Fund is a evergreen strategy where you can just keep reinvesting your money and make a contribution. Make a contribution. What's different about this new fund offering versus what a size? Yeah, so it is more of a code than structure. I have to reread that spend a couple years inside so I can I can work on it.

Very good. Any other discussion on Seminole.

I just want to say Seminole has been a proven manager. Over the years, I've been with them. 2014 they've been approved. You.

Fair enough. Let's dig into it before we commit more capital.

I just gotta read. I gotta, I have to

re look at.

That was a couple years ago. There's no material on Seminole for this meeting. It's simply a conversation starter

doors that was back when we were asked to do a kind of a review of their offering, which was dated, what will redistribute it? This was May of 23 so may of 2023 you all were looking at that new fund offering. There was concern that they hadn't had any investors. It was a decision that said, if they raised a certain level of money that you would by a certain date, you would consider allocating to it. That date passed. I think Wayne County was looking at it. And then you all committed. So what you're so the dollar amount for that vintage year has already been committed to. So I mean, obviously we'll have more money for next year. And anyway, so there could be more money to allocate to it. So I'm just saying I need to dust that off and ask

all good discussion. Is there anything else to present? Kevin,

can we end on a good note? None of this wasn't a good discussion. But preliminarily, your your June 3 one year return was 9.2% that doesn't include the alternatives we're working to update all of that. So I hope I can say that it went up a little bit more once we get all the final kind of private debt stuff in there. But obviously a nine plus rate return. So yeah. So Kim, so that flash report artisans not under Global Equity. You'll see the global equity composite market value is correct. We didn't have artisan so she, we did the Performance Report. We'll, we'll reproduce the new flash report. So you'll see there are three managers under Global Equity, but the top line is correct.

This report has the international equity at Jim, or as the international equity

I was just going to say Tom, when you see the I can share my screen so you can see the updated report in that area. So basically, all of the International managers have developed and emerging are gone, and that total lines with these others international that included the global equity. I had to have it reformatted last minute. I apologize, so that that number will now say total local equity. 240-211-2505, I'll send it around and you'll see what I'm talking about.

So the total international equity goes away. That will now read total global equity, earnest partners is has a residual value of 615, 1000. So it will just say total global equity, and you'll have Lazard arrow Street in arts. So we'll reissue the report. You

Kevin Keneally on the CIO report, anything to add that we haven't already discussed in this asset allocation and manager review? No,

we covered most of it.

There's some reference materials for you, all right. David, yes, with respect to the report, I thought it was really good that Kevin said around one thing that I would like to see in the report, as you guys asked for it before, if you wanted to know, sort of the ins and outs of funds, what is coming into the fund? Maybe you don't have that information. I don't know if contributions are coming into the fund or not, but it would really be good to see the outflow. What are you paying by their benefit payments and expenses? I thought this was really good. I really like getting it, but that that add piece of information would just be nice. Thanks

for the Feedback source, I try to capsulate your request that reconciliation report, but to your point, those items were included, so I'll make sure that to add those for the next, next iteration. Thank

you. No, I know. I know you decided with 20, 21 million a month, and I know that for the next few months that's going to be coming from cash. So they're like the

one meeting manager liquidated for that was going Thank you Doris, and I want to report thank you for that.

And in tandem with Doris question on cash flows, a reminder of cash flow. $1 amount and date coming to us from the retiree Protection Fund. What's that? Right? There's the retiree Protection Fund, which is now going to be having cash come into the general employees in the PNF, the dollar amount and a timing of it.

They use some of that for the 82 million they gave us.

Doris was just that. Doris didn't hear the first part of that. She was asking. It's the retiree protection fund transfer that comes into both general police and fire. Doris is what David was asking about,

okay, all right, so they've shared it, okay, all right.

I have one question on the afro district credit the Churchill. This is the first Churchill, and the management fee seems awfully high for the value of the portfolio. This time, $215,000 Yeah. So yeah, as you said, this is the original fund. So this is probably some back end economics, incentive fees. I will break down the plan. What wrong term?

Calculated when deals are sold.

These other I can get the breakdown of the

All right?

Are we good to move to the legal report. Deanne,

so Kevin, can you talk about that property

in Hawaii? So we have two, finally, just two remaining legacy real estate holdings

there in Hawaii. They've been on the books

for quite some time. We've entered into various sales agreements over the past, really, since I've been here five years and

just haven't been able to reach

closing.

Banyan realty is our advisor

on these properties, and they recently came to us and let us know if they have offer on the smaller property

for $600,000

with a with a buyer that actually has local ties, which is important in this case, because there's been challenges. The reason for the challenges in the past, in part, is to pretty strict zoning requirements so the new buyer really knows what they're getting into. They

agreed to a shortened due

diligence period. So the new law, who is creating realities representative for us, spoke to the board at its meeting in July, I think it was

last month, and the board approved to proceed with the

proposed sale on

the smaller property, $600,000

and the remaining property is a little larger, and I think it's in the text here, but the books at about 1.2 million and they're looking to market that property through

CBRE, which

is a national firm with a little larger reach that they think they can hopefully get some traction with and get a lot more books.

So just to re emphasize the two values of the Hawaii real estate in aggregate are 1.8 million.

Yes, and

these investments were made prior to the formation of this investment committee. In approximately what year was that investment committed? That

is going to take time or Michael, it was some time between two dozen three and 2011

okay, just think it's worth reinforcing that as we, as we,

it predates this group bankruptcy,

which has been the objective of this committee, since we all to to seek appropriate liquidation in unsuitable investments made prior to our formation.

Thank you. Applause.

Michael, you've been very patient. Legal report please. Well, you've

been so confident so quickly. Please report to me that I have no

formal legal report today, unless there's any questions, comments or issues to be addressed by committee members. That concludes, I think you're Thank you.

It's always good to have you present at these meetings. Thank

you. Michael, go

ahead. Dionne, do

we have do we ever get a securities with the litigation, litigation initiative going

in we do we have a we have a formal policy that the investment community has adopted? You may recall, towards the end of last year, I brought to you a list we had done, a formal RFP for securities Council. I brought that to you with recommendations by the Investment Committee as well as the board, and that's in place. And so, you know, we've gotten all the retainer agreements recently completed. We're starting to get some monitoring reports, and some requires that. Yeah, we have that, if there's any, if you want any, to back up on any Conservative News activity? Yeah, I plan on bringing the activity to you reports now that we've got that all. And currently,

are we in any securities litigation?

We have we've got one that I'm waiting to get an updated report on that looks like it might get dismissed. We did have a couple that we pursued. We planned a status in, but did not get appointed in, but I will bring that to you. Thank you.

All right. On future agenda items. We have some items to be prepared for the next meeting. Are there any other future agenda items that the committee would like to discuss? Comments?

Yes, I just want to say it's kind of scary. I don't know. It's kind of interesting how we're almost on

time. Thanks so much. Any, any public

comments.

All right, hearing that.

I'm sorry he coming. I'm sorry. Chairman Jessup comment, yes, I do. I'm sorry. Definitely here from Nash, Detroit. I just wanted to take a brief moment thank all who came out and supported the NAS Detroit at 18th annual golf outing, which we did have on August the second, and was done in honor of your past, your past trustee, Ray Well, who won 18 annual scholarship. And it was quite well attended through support from some of your members right there at the table, and also from some of your district managers. For again, I want to thank you expressing an UPC there. Thank you again, as well for being one of our top sponsors and again and for believing and what in raising scholarship dollars for the students of greater mesh Detroit is quite successful and well attended. So again, thank you

very good. Thank you all right, hearing no other public comments. I think we can

seek adjournment. To adjourn,

we need to approve the minutes. Why are they late? I

anything late,

I moved to approve the minutes of the June temple.

June has made a motion. Do we have a second? Second? I support any further discussion. All in favor. Aye,

move to adjourn. All right,

all in favor. Aye, aye. Thank you, as always, good conversation, thoughtful. I think that speaks well to this committee.

Our next our next video being recorded, October is that

right? October 14,

thank you, Michael. October 14,

thanks for robust conversations.

Don't you?

I call you. More College

in Ireland.

So these ship

providers, which is great, kind

of like so we seven.