VIDEOCONFERENCE MEETING STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM BOARD OF ADMINISTRATION FINANCE & ADMINISTRATION COMMITTEE ZOOM ...
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VIDEOCONFERENCE MEETING
STATE OF CALIFORNIA
PUBLIC EMPLOYEES' RETIREMENT SYSTEM
BOARD OF ADMINISTRATION
FINANCE & ADMINISTRATION COMMITTEE
ZOOM PLATFORM
MONDAY, APRIL 19, 2021
10:05 A.M.
JAMES F. PETERS, CSR
CERTIFIED SHORTHAND REPORTER
LICENSE NUMBER 10063
J&K COURT REPORTING, LLC 916.476.3171APPEARANCES
COMMITTEE MEMBERS:
David Miller, Chairperson
Theresa Taylor, Vice Chairperson
Henry Jones
Fiona Ma, represented by Frank Ruffino
Stacie Olivares
Jason Perez
Ramon Rubalcava
BOARD MEMBERS:
Margaret Brown
Rob Feckner
Lisa Middleton
Eraina Ortega
Shawnda Westly
Betty Yee, represented by Lynn Paquin
STAFF:
Marcie Frost, Chief Executive Officer
Dan Bienvenue, Interim Chief Investment Officer
Michael Cohen, Chief Financial Officer
Matthew Jacobs, General Counsel
Scott Terando, Chief Actuary
Kelly Fox, Chief, Stakeholder Relations
J&K COURT REPORTING, LLC 916.476.3171APPEARANCES CONTINUED
STAFF:
Jennifer Harris, Chief, Financial Planning, Policy and
Budgeting Division
Justin Heeb, Assistant Chief, Operations Support Services
Division
Pam Hopper, Committee Secretary
Nina Ramsey, Associate Pension Actuary
Dallas Stone, Chief, Operations Support Services Division
Paul Tschida, Senior Pension Actuary
ALSO PRESENT:
J.J. Jelincic
Mr. David Soares, Retired Public Employees Association
J&K COURT REPORTING, LLC 916.476.3171INDEX
PAGE
1. Call to Order and Roll Call 1
2. Approval of the April 19, 2021 Finance and
Administration Committee Timed Agenda 2
3. Executive Report – Michael Cohen 3
4. Action Consent Items – Michael Cohen 5
a. Approval of the February 17, 2021 Finance
and Administration Committee Meeting Minutes
b. Semi-Annual Contracting Prospective Report 6
c. Valuation Report for the 1959 Survivor
Benefit Program
d. California Actuarial Advisory Panel
Appointment
5. Information Consent Items – Michael Cohen 17
a. Annual Calendar Review
b. Draft Agenda for the September 14, 2021
Finance and Administration Committee
Meeting
c. Semi-Annual Financial Report (PERF)
d. Semi-Annual Health Plan Financial Report
e. Pension Contracts Management Program Report
6. Action Agenda Items
a. 2021-22 Annual Budget Proposal – Michael
Cohen, Jennifer Harris 17
b. Annual Review of Board Member Employer
Reimbursements – Michael Cohen, Michele Nix 45
c. State Valuation and Employer/Employee
Contribution Rates – Scott Terando,
Nina Ramsey 46
d. Schools Valuation and Employer/Employee
Contribution Rates – Scott Terando, Paul
Tschida 58
7. Information Agenda Items
a. Summary of Committee Direction – Michael
Cohen 66
b. Public Comment 66
Adjournment 66
Reporter's Certificate 67
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1 PROCEEDINGS
2 CHAIRPERSON MILLER: It's 10:05 by my clock, so
3 I'll call the Finance and Administration Committee open
4 session to order.
5 And the first order of business is the roll call.
6 Ms. Hopper, please
7 COMMITTEE SECRETARY HOPPER: David Miller?
8 CHAIRPERSON MILLER: Here.
9 COMMITTEE SECRETARY HOPPER: Henry Jones?
10 COMMITTEE MEMBER JONES: Here.
11 COMMITTEE SECRETARY HOPPER: Frank Ruffino for
12 Fiona Ma?
13 ACTING COMMITTEE MEMBER RUFFINO: Present.
14 COMMITTEE SECRETARY HOPPER: Stacie Olivares?
15 Jason Perez?
16 COMMITTEE MEMBER PEREZ: Here.
17 COMMITTEE SECRETARY HOPPER: Ramon Rubalcava?
18 Theresa Taylor?
19 VICE CHAIRPERSON TAYLOR: Here.
20 COMMITTEE SECRETARY HOPPER: Ramon Rubalcava?
21 COMMITTEE MEMBER RUBALCAVA: Here.
22 COMMITTEE SECRETARY HOPPER: Mr. Chair, I have
23 everyone in attendance with the exception of Stacie
24 Olivares. I do not show that she's connected yet as of
25 right now.
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1 CHAIRPERSON MILLER: Yeah, I do not see her
2 either. Let me see if I've got anything in the chat.
3 No, I do not see anything. I think if we'll take
4 a moment or two, if someone could -- staff could reach out
5 and see if we can see what's happening with Ms. Olivares
6 whether she's going to be -- whether she's having
7 technical problems or anything.
8 COMMITTEE SECRETARY HOPPER: I see her now.
9 CHAIRPERSON MILLER: Okay. There she is.
10 COMMITTEE SECRETARY HOPPER: Stacie Olivares?
11 COMMITTEE MEMBER OLIVARES: Here.
12 COMMITTEE SECRETARY HOPPER: Thank you.
13 Mr. Chair, all is in attendance.
14 CHAIRPERSON MILLER: Thank you, Ms. Hopper.
15 Okay. Our first item to take up now is Item
16 number 2, approval of the April 19th, 2021 Finance and
17 Administration Committee timed agenda. What's the
18 pleasure of the Committee?
19 VICE CHAIRPERSON TAYLOR: Move approval.
20 COMMITTEE MEMBER JONES: Move approval.
21 Second.
22 CHAIRPERSON MILLER: Okay. Moved by Ms. Taylor,
23 seconded by Mr. Jones.
24 Any discussion on the matter?
25 I'll call for the question. Ms. Hopper, would
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1 you please call the roll.
2 COMMITTEE SECRETARY HOPPER: Henry Jones?
3 COMMITTEE MEMBER JONES: Aye.
4 Henry Jones?
5 COMMITTEE MEMBER JONES: Aye.
6 COMMITTEE SECRETARY HOPPER: Frank Ruffino for
7 Fiona Ma?
8 ACTING COMMITTEE MEMBER RUFFINO: Aye.
9 COMMITTEE SECRETARY HOPPER: Stacie Olivares?
10 COMMITTEE MEMBER OLIVARES: Aye.
11 COMMITTEE SECRETARY HOPPER: Jason Perez?
12 COMMITTEE MEMBER PEREZ: Aye.
13 COMMITTEE SECRETARY HOPPER: Ramon Rubalcava?
14 COMMITTEE MEMBER RUBALCAVA: Aye.
15 COMMITTEE SECRETARY HOPPER: Theresa Taylor?
16 VICE CHAIRPERSON TAYLOR: Aye.
17 COMMITTEE SECRETARY HOPPER: Mr. Chair, I have
18 the motion being made by Theresa Taylor, seconded by Henry
19 Jones with all ayes.
20 CHAIRPERSON MILLER: Okay. The ayes have it.
21 On to Item 3, the Executive Report, and I will
22 call on Mr. Cohen for the executive report.
23 CHIEF FINANCIAL OFFICER COHEN: Thank you, Mr.
24 Chair. Good morning, Board members. Michael Cohen with
25 the CalPERS team. I have two items to report this morning
J&K COURT REPORTING, LLC 916.476.31714
1 as part of the executive report.
2 The first one is a reminder to those who are
3 watching that next week, Tuesday, April 27th, we'll have
4 our second quarterly asset liability management webinar.
5 This, as you'll recall, is designed to keep our
6 stakeholders up to date on what's going on with the ALM
7 process as it heats up through the rest of the calendar
8 year.
9 And the second note is more unfortunate. And
10 that one is that CalPERS filed a lawsuit on Friday against
11 one of our former long-term employees, given that she had
12 illegal accessed ten dormant retiree accounts and diverted
13 funds from those accounts. These dormant accounts
14 represent a very small portion of the overall portfolio of
15 CalPERS member accounts, but we will make all of the
16 accounts whole. And as part of our investigation, we are
17 conducting a forensic audit.
18 We have added additional security protocols to
19 lock those dormant accounts down as this investigation
20 continues. This employee is no longer here. And as I
21 mentioned, we did file the lawsuit in an effort to recover
22 all of the stolen funds. We are working with law
23 enforcement and we have sent notification to all of our
24 team members, stakeholders, and so forth in the last few
25 minutes. There's additional information that I would
J&K COURT REPORTING, LLC 916.476.31715
1 point anyone who's interested to on our website, including
2 a copy of that lawsuit.
3 And so with that, I'll turn it back to you, Mr.
4 Chair.
5 CHAIRPERSON MILLER: Thank you, Mr. Cohen. Does
6 anyone have any questions or comments for Mr. Cohen at
7 this point?
8 Seeing none.
9 We'll move on to Action Consent items. And I do
10 have a request to pull Action Consent Item 4b. So this
11 will be for 4a, c, and d. So what's the pleasure of the
12 Committee?
13 VICE CHAIRPERSON TAYLOR: Move approval.
14 CHAIRPERSON MILLER: Moved by Ms. Taylor.
15 COMMITTEE MEMBER JONES: Second.
16 CHAIRPERSON MILLER: Seconded by Mr. Jones.
17 Okay. I'll -- any discussion?
18 I'll call for the question.
19 Ms. Hopper.
20 COMMITTEE SECRETARY HOPPER: Henry Jones?
21 COMMITTEE MEMBER JONES: Aye.
22 COMMITTEE SECRETARY HOPPER: Frank Ruffino for
23 Fiona Ma?
24 ACTING COMMITTEE MEMBER RUFFINO: Aye.
25 COMMITTEE SECRETARY HOPPER: Stacie Olivares?
J&K COURT REPORTING, LLC 916.476.31716
1 COMMITTEE MEMBER OLIVARES: Aye.
2 COMMITTEE SECRETARY HOPPER: Jason Perez?
3 COMMITTEE MEMBER PEREZ: Aye.
4 COMMITTEE SECRETARY HOPPER: Ramon Rubalcava?
5 COMMITTEE MEMBER RUBALCAVA: Aye.
6 COMMITTEE SECRETARY HOPPER: Theresa Taylor?
7 VICE CHAIRPERSON TAYLOR: Aye.
8 COMMITTEE SECRETARY HOPPER: Mr. Chair, I have a
9 motion being made by Theresa Taylor, seconded by Henry
10 Jones for items 4a, 4c and 4d.
11 CHAIRPERSON MILLER: All right. Thank you, Ms.
12 Hopper. The ayes have it. The motion carries.
13 And so we'll now turn back to Item 4b on the
14 action consent items. And I'll come back to Mr. Cohen to
15 present this one.
16 CHIEF FINANCIAL OFFICER COHEN: Sure. So this
17 one is an annual contracting prospective report to notify
18 the Board of upcoming contract amounts. If there's any
19 questions, I'll probably need some help in pulling some
20 folks into the meeting to answer those. But given that
21 this was a consent item and a routine report and I don't
22 have a prepared presentation for you.
23 CHAIRPERSON MILLER: Okay. Thank you.
24 Questions from any of the Board?
25 Okay. It looks like Ms. Brown has a question.
J&K COURT REPORTING, LLC 916.476.31717
1 BOARD MEMBER BROWN: Yes. Thank you. I thought
2 you were going to skip me.
3 (Laughter.)
4 BOARD MEMBER BROWN: Mr. Cohen, I have some just
5 general questions and then a few specific ones. And so
6 I'm looking right now at page 12 where it talks about
7 the -- what the prospective report includes. And a lot of
8 these are -- we talk about contracts of a million dollars
9 or more. And, you know, I'm feeling like I want to see
10 this number lowered to $500,000 or more, especially when
11 you look at these bullet points that say any amendments or
12 items previously reported by the Committee when the amount
13 is increased by a million or more. So that means if that
14 contract is increase by $900,000, the Board doesn't see
15 it. I just think a million dollars is a pretty big
16 threshold for us and I'd like to see that number lowered.
17 I don't know -- I don't think it really increases the
18 workload. It's just a few more pages in the report.
19 And So I'd like to see that for more oversight
20 and accountability. A lot of these we don't see. We also
21 don't see purchase orders. I've asked at the last meeting
22 or maybe two meetings ago, if I could see the purchase
23 order listing, because I did want to see some of those.
24 But -- so let me -- so can I have your comment about
25 lowering it to 500,000?
J&K COURT REPORTING, LLC 916.476.31718
1 CHIEF FINANCIAL OFFICER COHEN: Sure. I mean, I
2 think if I recall correctly - and why don't we go ahead
3 and have Dallas Stone brought into the meeting, given he
4 oversees the Contracting Unit of CalPERS. But I -- my
5 understanding is that this report the threshold is set by,
6 you know, Committee policy, so obviously a Committee vote
7 to lower the threshold we'll happily comply with that.
8 But there is, I will say, from my experience on the sort
9 of providing information for this reports, it does take a
10 fair bit of work to, you know, pull it together. It's not
11 sort of an automated report. So it's -- there is some
12 workload associated with putting it together each time.
13 But obviously, we'll comply with the desires of the Board
14 regarding any information and --
15 BOARD MEMBER BROWN: Well, let me ask you a
16 question. We prepare this report twice a year?
17 CHIEF FINANCIAL OFFICER COHEN: That's correct.
18 BOARD MEMBER BROWN: Okay. And I assume it's a
19 query we run to get the -- to get the dollar amounts over
20 a million? It would be the same query, except you'd lower
21 the amount to 500,000. I don't know our systems. Maybe
22 Dallas can tell us how easy that would be, but I -- that's
23 one of my asks. And then let me give you the two other
24 ones, so we can grab them as well.
25 CHIEF FINANCIAL OFFICER COHEN: Sure.
J&K COURT REPORTING, LLC 916.476.31719
1 BOARD MEMBER BROWN: Moving to page 15, BlackRock
2 Financial Management, Inc. And it says contract amendment
3 to add services, fees to be negotiated. And so I want to
4 know what those services are we're getting from BlackRock.
5 And I know you'll need to bring somebody on to answer that
6 question.
7 And then my next question, and this is more
8 generic for you, Mr. Cohen. As I look on page 17 and when
9 we talk about these new contracts, what's interesting is
10 typically when a public agency has contracts, usually they
11 have not to exceed, not to exceed two million, not to
12 exceed four million. Except when we look at the details
13 of these contracts, I'm looking specifically at items 4
14 for Jeffries LLC, and then one and two, Berman Tabacco and
15 Orrick Herrington. These say what they're expected to
16 exceed. And typically, when we give a contract for
17 services, we -- or even things, we say what it shall not
18 exceed. And so I'm wondering why we do it this way.
19 CHIEF FINANCIAL OFFICER COHEN: Sure. Let me
20 pass it over to Dallas. But on that specific question, I
21 think I can answer it. Talking about the over a million
22 dollars is because it's hitting the threshold to be
23 included in the report. But let me turn it to Dallas and
24 also see if we can get Dan from the Investment Office to
25 pop in on the BlackRock question.
J&K COURT REPORTING, LLC 916.476.317110
1 OPERATIONS SUPPORT SERVICES DIVISION CHIEF STONE:
2 Thank you, Michael. And can we also promote
3 Justin Heeb. He's our Assistant Chief over our contracts
4 and procurement area.
5 So Ms. Brown, just to answer your question with
6 regard to the amount of work or the work that goes into
7 putting this agenda item together twice a year. So what
8 we do is we reach out to each program area, because again
9 you need a prior approval before these contracts can be
10 executed. So we reach out to each program area asking
11 them if they have any contract solicitation services that
12 they will be trying to execute that would exceed the
13 million dollar threshold.
14 We collect all of those requests. We compile
15 them in that report and then we send it to you through the
16 Board for prior approval before those are executed. So by
17 lowering the threshold, that would just require us again
18 to reach out to each program area with that $500,000
19 threshold and asking them to provide that information,
20 which would be added to that report.
21 Would it add additional workload? It would most
22 likely turn into additional items being placed on that
23 report, but the process would remain the same.
24 BOARD MEMBER BROWN: Thank you.
25 OPERATIONS SUPPORT SERVICES DIVISION CHIEF STONE:
J&K COURT REPORTING, LLC 916.476.317111
1 You're welcome.
2 BOARD MEMBER BROWN: Do you want to answer the
3 other part of the question -- Michael, did you want him --
4 sorry, Mr. Cohen, did you want him to answer the other
5 part of the question as to why the contracts say exceed
6 two million as opposed to the contract term, which is not
7 to exceed two million?
8 CHIEF FINANCIAL OFFICER COHEN: Sure. Go ahead
9 Dallas, if you've got something to add to what I --
10 OPERATIONS SUPPORT SERVICES DIVISION CHIEF STONE:
11 Yes. So if a contract was previously approved by
12 the Board, let's say it had a $2 million threshold, and we
13 know that it could possibly exceed a $3 million threshold
14 or it goes over that hundred -- that $1 million mark, it
15 needs to go back to the Board for additional approval, if
16 it was to exceed that million dollar threshold. I don't
17 Know, Justin, if you want to add anything to that with
18 regards to why we have the exceeding language on there.
19 OPERATIONS SUPPORT SERVICES ASSISTANT DIVISION
20 CHIEF HEEB: Yeah. Dallas, that is correct. So anything
21 that may exceed that next million dollar mark to give us
22 the ability to contract out, we would put that in the
23 report as "may exceed" to allow us to have -- if the Board
24 approves, to allow us to have the option to enter into a
25 contract for those services that may exceed that amount.
J&K COURT REPORTING, LLC 916.476.317112
1 That's why you see the language as the way it is listed in
2 this report.
3 BOARD MEMBER BROWN: So, Mr. Heeb, if we look on
4 page 16, the second box, number two, Orrick, Herrington
5 and Sutcliffe, and it says that the estimated contract
6 amount is expected to exceed one million. So does that
7 mean it will not exceed two million, is that what that
8 means?
9 OPERATIONS SUPPORT SERVICES ASSISTANT DIVISION
10 CHIEF HEEB: Correct, Ms. Brown. If the contract were to
11 get close to the $2 million mark or possibly exceed, we
12 would need to come back to the Board and receive that
13 approval. So with the approval of the way that that
14 contract is written into this report, that contract may go
15 up to, if approved, $1.9 million as currently written
16 without coming for approval. You are correct.
17 BOARD MEMBER BROWN: Yeah. That's backwards the
18 way that's written, in my opinion. Maybe other members of
19 the Committee could say. But typically, if a contract is
20 not going to exceed two million, that's what it would say,
21 because it gives the impression that this contract is a
22 million, but this contract is really a million 999999.
23 All right. Those are my comments. I don't know if any of
24 the other Board members have comments about this, but
25 it's -- you know, it's (inaudible)--
J&K COURT REPORTING, LLC 916.476.317113
1 GENERAL COUNSEL JACOBS: Ms. Brown. I have
2 something to add on that, Ms. Brown. I think you're
3 getting -- there's a distinction to be drawn here between
4 what the contract itself says and the process that we're
5 engaged in for the purpose of this report.
6 The contracts typically have a not-to-exceed
7 amount in them. What we're talking about here is just
8 because it may exceed, which is what Mr. Heeb and Mr.
9 Stone are putting in here, a threshold that was determined
10 by the Board, they're reporting it. But that's different
11 from the contract itself having a not-to-exceed number in
12 it, which I believe most of these or all of them do.
13 BOARD MEMBER BROWN: Thank you, Mr. Jacobs, for
14 explaining that to us. I'm just saying that this report
15 is misleading, because you look at that one million and
16 you think they're getting a million dollar contract, but
17 really they could be getting up to a two million -- well,
18 a million nine hundred thousand dollar contract. That's
19 all I'm saying that this report is a bit misleading.
20 Thank you.
21 CHIEF FINANCIAL OFFICER COHEN: And, Board Member
22 Brown, did you have a specific question on BlackRock? I
23 see Dan has joined us.
24 BOARD MEMBER BROWN: Yeah. So the question on
25 BlackRock. This is on page 15, number 3, it says contract
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1 amendment to add services, fees to be negotiated. And I'm
2 just wondering if you can tell us in open session what
3 those services are that we're going to be adding to the
4 contract?
5 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE:
6 Sure, Ms. Brown. Happy to. We were exploring
7 use of BlackRock's Total Fund Risk System. So, you know,
8 we've spent quite a bit of time looking at how we manage
9 our risks and our risk technologies. We're exploring the
10 Aladdin system for total fund risk. So that's what the
11 additional services are.
12 BOARD MEMBER BROWN: I'm sorry. Do we have an
13 idea of how much that is expected to cost? It does --
14 because this doesn't say will exceed ten million or will
15 exceed five million. It doesn't have a number on here.
16 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE: You
17 know, we're in negotiations frankly, so I would be a
18 little bit hesitant to talk too much --
19 BOARD MEMBER BROWN: Okay.
20 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE:
21 -- about what we expect it to cost, but you know,
22 we -- I know we've talked about also the other risk
23 systems, so we would expect that depending on where we
24 end, it will be something like flat, but we'll certainly
25 have full transparency as we -- as we conclude those
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1 negotiations.
2 BOARD MEMBER BROWN: All right. Thank you.
3 CHAIRPERSON MILLER: Okay. I have a question or
4 comment from Ms. Taylor.
5 VICE CHAIRPERSON TAYLOR: Yes. Sorry about that.
6 So I just want to remind everybody that the Board oversees
7 the strategy. We voted on this. And it is unusual for
8 Board members to ask for purchasing orders. And then the
9 other information, which I thought was interesting,
10 because these are fees that we normally pay for
11 investments. And I think we're going to go into that
12 later in the budget as well. So I just want to remind
13 everybody that we oversee the strategy. And things like
14 purchasing orders aren't something -- that's why we have
15 staff just to remind everyone.
16 CHAIRPERSON MILLER: Okay. Thank you. I'm not
17 seeing any other questions or comments from Board members.
18 So does that pretty much cover that, Mr. Cohen?
19 CHIEF FINANCIAL OFFICER COHEN: This was an
20 action item, so --
21 CHAIRPERSON MILLER: Okay. So -- okay. So
22 unless there -- seeing no further questions or comments.
23 Ms. Hopper, I'll call for the question.
24 COMMITTEE SECRETARY HOPPER: Okay. Can get who
25 did the motion and who seconded on this particular item?
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1 VICE CHAIRPERSON TAYLOR: I think I made the
2 original motion and Henry seconded it.
3 COMMITTEE SECRETARY HOPPER: Okay.
4 CHAIRPERSON MILLER: Yeah.
5 COMMITTEE MEMBER JONES: That was on the other
6 three items.
7 CHAIRPERSON MILLER: Oh, okay.
8 COMMITTEE MEMBER JONES: That was not this item
9 CHAIRPERSON MILLER: Okay. So do I --
10 COMMITTEE MEMBER JONES: So you need a motion.
11 CHAIRPERSON MILLER: So we'll need a motion on
12 this one then.
13 VICE CHAIRPERSON TAYLOR: I make the motion.
14 CHAIRPERSON MILLER: Okay.
15 COMMITTEE MEMBER JONES: Second.
16 CHAIRPERSON MILLER: Okay. We have a motion from
17 Ms. Taylor, seconded by President Jones. So now I'll call
18 for the -- any further discussion?
19 No. Seeing none. I'll call for the question.
20 Ms. Hopper, please call the roll.
21 COMMITTEE SECRETARY HOPPER: Henry Jones?
22 COMMITTEE MEMBER JONES: Aye.
23 COMMITTEE SECRETARY HOPPER: Frank Ruffino for
24 Fiona Ma?
25 ACTING COMMITTEE MEMBER RUFFINO: Aye.
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1 COMMITTEE SECRETARY HOPPER: Stacie Olivares?
2 COMMITTEE MEMBER OLIVARES: Aye.
3 COMMITTEE SECRETARY HOPPER: Jason Perez?
4 COMMITTEE MEMBER PEREZ: Aye.
5 COMMITTEE SECRETARY HOPPER: Ramon Rubalcava?
6 COMMITTEE MEMBER RUBALCAVA: Aye.
7 COMMITTEE SECRETARY HOPPER: Theresa Taylor?
8 VICE CHAIRPERSON TAYLOR: Aye.
9 COMMITTEE SECRETARY HOPPER: Mr. Chair, I have a
10 motion being made by Theresa Taylor, seconded by Henry
11 Jones for Item 4b, Semiannual Contracting Prospective
12 Report.
13 CHAIRPERSON MILLER: Thank you, Ms. Hopper. The
14 ayes have it. The motion passes.
15 So that takes us to information consent items.
16 And I'm not seeing any requests to discuss or pull any of
17 those.
18 So that will bring us to action agenda items.
19 And our first action agenda item is the 21 -- 2021 to '22
20 annual budget proposal. And so I'll go to Mr. Cohen.
21 (Thereupon a slide presentation.)
22 CHIEF FINANCIAL OFFICER COHEN: Thank you, Mr.
23 Chair. And if we can bring Jennifer Harris in to present
24 the budget. And as she's coming in and we're getting the
25 PowerPoint queued up, I did want to just make an
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1 introductory comment. When you look at the overall
2 percentage increase of the budget, it is quite large. But
3 you do need to keep in mind that we had sort of
4 artificially reduced the current year budget dramatically,
5 based on our mid-year budget cuts that the Board approved
6 in November. That combined with the current PLPs, the
7 sort of furlough program for State employees, are bringing
8 down our expenses in the current year before they pop back
9 up in the budget year, as well as Ms. Harris will go into
10 the investment external fees, which are also driving the
11 increase.
12 And with that, let me turn it over to Jennifer to
13 walk you through the details of the budget.
14 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
15 CHIEF HARRIS: Good morning, Mr. Chair and members of the
16 Committee. Jennifer Harris with CalPERS Financial Office.
17 It's my pleasure to present the 2021-22 annual
18 budget. This is an action item and your approval today
19 will set the funding levels for the new fiscal year
20 beginning on July 1st. As I typically do, I'll begin with
21 a brief update on where we are with current year spending.
22 Next slide, please.
23 --o0o--
24 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
25 CHIEF HARRIS: CalPERS total 2020-21 budget is 1.621
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1 billion. This does include the 72.3 million budget
2 reduction that we took at mid-year to achieve savings.
3 As detailed on page five of the budget, which is
4 Attachment 1 to this agenda item, you'll see that as of
5 December 31st, we've spent 722.8 million, or nearly 45
6 percent of the budget. Based on our projections, we do
7 estimate that we'll end the fiscal year with about 15.7
8 million in savings. This includes 11.9 million in
9 unexpended administrative operating costs, 1.7 million for
10 headquarters building costs, and 3.8 million in unexpended
11 third party administrator fees.
12 The current year update that's in the budget also
13 includes some information on our Social Security program
14 fees. Based on our collections, we anticipate that the
15 fund balance will be about 2.6 million. This is a pretty
16 high fund balance for the program. And we are proposing
17 to suspend collection of those fees for the 21-22 fiscal
18 year. We do need Department of Finance approval on that
19 fee modification as required by State law.
20 Next slide, please.
21 --o0o--
22 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
23 CHIEF HARRIS: Moving onto the proposed budget.
24 Can you move the slide?
25 There we go. Our total 2021-22 proposed budget
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1 is 1,888,000,000. This a 267.1 million increase compared
2 to the authorized budget. This is including both
3 operating costs and external fees.
4 Need to go back one budget -- or one slide
5 please, back to slide 3.
6 Well, our operating cost increases are primarily
7 due to the anticipated cancellation of those personal
8 leave program days, the furloughs that we were taking, as
9 well as the restoration of funding for some one-time
10 reductions that we took in the current year to achieve
11 savings. A large majority of our increase is with the
12 external investment manager fees. And this is due to
13 increased assets under management, or AUM, revised asset
14 allocations and expected continued portfolio performance.
15 There are funding for 2,843 authorized positions.
16 This number does reflect the 32 positions that we
17 eliminated at mid-year. There are no funds included for
18 permanent positions in the blanket or seasonal clerks
19 performing non-seasonal workload.
20 Next slide, please.
21 --o0o--
22 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
23 CHIEF HARRIS: The next slide does detail the overall
24 budget. It shows you what our authorized budget was.
25 Beginning in 2020-21, this was the annual budget approved
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1 by the Board last April. It shows what the authorized
2 budget is currently, based on those mid-year reductions
3 that we took, and then the proposed amount for fiscal year
4 to 2021-22.
5 We do need to be on slide 4.
6 Great. Thank you. Oh, my apologies. It looks
7 like I'm being delayed seeing it, but you all are seeing
8 it. Great.
9 So here's that overall chart and you can see the
10 increases for each of the budget categories. On the next
11 slides, I'll walk you through the major changes for each
12 of these components.
13 Next slide, please.
14 --o0o--
15 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
16 CHIEF HARRIS: Within operating costs, we have a large
17 increase for administrative operating costs. This is
18 detailed on page ten of the budget. And this is
19 increasing 59 million, or 12 and a half percent. This
20 category does include both personal services expenses as
21 well as OE&E. The biggest driver of our increase in this
22 category is the anticipated cancellation of the statewide
23 compensation reductions or the personal leave program.
24 While we won't know the outcome of this issue
25 until after the State releases the May revision, the
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1 Legislature has its legislative budgets hearings, as well
2 as the outcome of collective bargaining. But even though
3 we won't know the outcome of that, we are including an
4 estimated amount here, given the timing of our budget
5 cycle compared to the State's.
6 The personal services increase does reflect as
7 well a 9.3 million increase. This is a restoration of
8 funding for some of those one-time cuts that we took in
9 the current year. And there is a decrease of 3.8 million
10 for reduced temporary help and over time, and some revised
11 health benefit calculations.
12 Pages 13 and 14 of your budget show that over the
13 past five to six years, CalPERS has reduced temporary help
14 and overtime costs by nine and a half million.
15 Next slide, please.
16 --o0o--
17 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
18 CHIEF HARRIS: Within OE&E we are seeing a 20.9 million
19 increase. This is driven by software and data processing
20 expenses, the allocation of our facilities expenses to
21 Affiliate Funds, an increase for statewide pro rata costs
22 that are determined by the Department of Finance, and
23 external vendor costs that we're anticipating for the
24 upcoming Board elections.
25 Although our administrative costs are increasing
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1 compared to the mid-year budget - this is what Michael was
2 talking about that we are seeing kind of the snapback
3 effect - overall our administrative budget is 9.7 million
4 less than it was a year ago today.
5 With the reductions that we took at mid-year as
6 well as continued reductions that were ongoing, CalPERS
7 will achieve 40 million in savings in its admin budget
8 over a two-year period. This is over and above the
9 reductions that we saw for those personal save -- personal
10 savings reductions for the furloughs.
11 Additionally, it's far exceeding the $5 million
12 target cut that the Governor's administration asked
13 CalPERS to make for 21-22 alone.
14 Next slide, please.
15 --o0o--
16 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
17 CHIEF HARRIS: Two other operating cost categories include
18 investment operating costs and the headquarters building
19 budget. Within investment operating costs, we are
20 proposing a $4.2 million increase. This includes an
21 increase for usage-based master custodian fees, as well as
22 some technology expenses to continue investment data
23 strategies within the Investment Office.
24 Headquarters building costs are going down four
25 and a half million dollars. Now, the headquarters
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1 building budget that you see, this represents the amount
2 of the headquarters costs that are paid for by the Pension
3 Fund, by the PERF. So the net reduction that we're seeing
4 here not only includes a decrease in both operating and
5 non-operating costs, but as well as the allocation of some
6 of the headquarters expenses to Affiliate Funds.
7 Additionally, there's some truing up going on,
8 because of continued decreases in parking revenue, given
9 that our buildings are closed.
10 Next slide, please.
11 --o0o--
12 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
13 CHIEF HARRIS: So moving on to fees. Within fees, we have
14 both investment external manager fees, as well as
15 Third-party administrator fees. Both of these categories
16 of expenses are significantly affected by external
17 conditions. So, for example, investment external manager
18 fees are impacted by portfolio performance and market
19 conditions. In contrast, third-party administrator fees
20 are largely influenced by the migration of members to
21 different health plans.
22 So within this budget -- and we should be on
23 slide 8. There we go. So within the external fees
24 portion of our budget, we are seeing a 207.5 million
25 increase in external investment manager fees. These fees
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1 again are based on assets under management, which have
2 increased, portfolio performance, and some strategies that
3 we're employing.
4 The drivers include base fees for global equity,
5 private equity, and opportunistic strategies, and
6 performance fees for real assets. Details by asset class
7 are shown in the budget on page 19.
8 Finally, we do increase -- expect a small
9 increase, a 0.9 million increase in third-party
10 administrator fees. We are seeing some migration again of
11 members to plans with higher costs, administrative
12 expenses, but there are some decreases offsetting that for
13 the pharmacy benefit manager costs, as well as continued
14 enrollment declines in the Long-Term Care Program.
15 That is the end of the slides.
16 In summary, the 2021-22 proposed budget is
17 1,888,000,000. This does reflect increases that are
18 either mandated or that are necessary for CalPERS to meet
19 its core mission and its strategic goals. We recommend
20 approval of the budget as proposed and welcome your
21 questions.
22 CHAIRPERSON MILLER: Okay. Thank you for that
23 presentation. Very helpful. And I have a question
24 starting off with questions from President Jones.
25 COMMITTEE MEMBER JONES: Thank you, Mr. Miller.
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1 And thank you for the presentation. Just a couple of
2 questions just to -- so that I can understand and not
3 substantive questions, but as -- I have three.
4 The first one is Social Security. As I
5 understand, this is a service we provide to the State to
6 respond to federal government requirements. Could you
7 kind of explain to me how that works? I know it's a small
8 amount of money, but I'm just interested in how -- is this
9 a service we're providing to the State and how does it
10 work?
11 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
12 CHIEF HARRIS: Sure. So since the early 1950s, CalPERS
13 has been the State's designated program administrator for
14 the Social Security program. So we act on behalf of the
15 State of California in overseeing the collection and
16 contracting for employers statewide who choose to offer
17 Social Security benefits to their employees and the social
18 security administration. And so these are public
19 employers, so cities, counties, local districts, and the
20 State.
21 So anybody or anyone of these employers who
22 decides to provide Social Security benefits, they have to
23 enter into an agreement and we oversee the Administration
24 of that program.
25 For many years, there was residual interest
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1 sitting in the old age security fund that we used to cover
2 the administrative costs. Two years ago, we did bring an
3 item to the Board letting you know that per State law, we
4 have the ability to charge the administrative fee to
5 employers to cover the costs of this program. So we
6 started collecting this fee for two years. We're doing
7 really well with collections. We were unsure how
8 collections would rollout, given that a fair number of
9 those employers are not CalPERS-covered employers, but the
10 majority of all employers are paying. And so per statute
11 and regulations, when the fund balance exceeds more than
12 100 percent of administrative costs, we will revise the
13 fee.
14 COMMITTEE MEMBER JONES: Excellent. Thank you.
15 The next question is -- it deals with the
16 vacation accruals. Because of the reduction in time days
17 off that were required to save money during the budget
18 crisis, and individuals were compensated for that
19 reduction by adding -- taking additional vacation days.
20 So my question is if those employees don't take that --
21 those vacation days, isn't that increasing our long-term
22 liabilities for a statewide impact?
23 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
24 CHIEF HARRIS: Yes, that is the case. And under the
25 collective bargaining agreements, although employees do
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1 receive two additional days off a month, they are not
2 required to take them. We encourage them to and offer the
3 time if somebody asks, but they are able to bank that
4 time.
5 COMMITTEE MEMBER JONES: So do you believe that's
6 significant and -- because it is statewide in terms of
7 those individuals electing not to take it off and being
8 part of their vacation they can use in their calculations
9 for retirement.
10 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
11 CHIEF HARRIS: Unfortunately, I have not done the
12 calculation and worked with HR to identify what that
13 long-term liability might be. But certainly, I think that
14 it could be.
15 COMMITTEE MEMBER JONES: Okay.
16 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
17 CHIEF HARRIS: That's always a trade-off that the State
18 considers when it's making these fiscal decisions.
19 COMMITTEE MEMBER JONES: Okay. Okay. And then
20 the last thing I'd just like to comment that the -- I
21 recognize that the fees that you show have increased, but
22 it should be -- should not be taken in isolation, because
23 that's based on improved returns that those fees were
24 increase, is that correct?
25 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
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1 CHIEF HARRIS: Oh, yes, absolutely. Yeah.
2 COMMITTEE MEMBER JONES: Okay.
3 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
4 CHIEF HARRIS: A large driver of the increases in the
5 external management fees really does reflect that we've
6 had some excellent portfolio performance.
7 COMMITTEE MEMBER JONES: Okay. Okay. Thank you.
8 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
9 CHIEF HARRIS: Um-hmm.
10 CHAIRPERSON MILLER: Okay. Thank you.
11 I have -- it looks like I have a question from
12 Director Brown.
13 BOARD MEMBER BROWN: Thank you, Chair Miller.
14 I have a question. I'm on -- let's see, what
15 page? Page 15 of 24 of Agenda Item 6a, the -- I'm looking
16 at the investment operating costs.
17 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
18 CHIEF HARRIS: Um-hmm.
19 BOARD MEMBER BROWN: And I'm just curious as to
20 what is part of the business operations tool going up 25
21 percent this year. And it looked like it went up 25
22 percent the previous year. So can you explain to me
23 what's going on with that?
24 FINANCIAL PLANNING, POLICY & BUDGETING DIVISION
25 CHIEF HARRIS: Sure. And if we can bring in Dan Bienvenue
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1 as well to talk on this. Within our Investment Office, we
2 have a number of data strategies reflected around the
3 total fund performance strategy. And so we are
4 implementing various tools for the Investment staff to not
5 only take on additional investments internally -- and
6 you've seen that, that we have more of our investments are
7 being managed internally, but as well as data tools, so
8 that they can identify when a decision and investments are
9 made in one particular area, what's the impact to the
10 other asset classes.
11 And, Dan, I don't know if you have any additional
12 comments that you'd like to make on those specific
13 strategies?
14 CHAIRPERSON MILLER: Yeah. I'm not seeing Dan
15 here at the moment.
16 BOARD MEMBER BROWN: You want me to move on to my
17 next question?
18 CHIEF FINANCIAL OFFICER COHEN: He just popped
19 in.
20 CHAIRPERSON MILLER: Oh, there he is.
21 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE: Yes.
22 Hi. Yep, apologies. I'm here.
23 No, Jennifer is spot on. Basically, it has to do
24 with our migration to, first of all, enhancing our
25 performance platform, and then secondly really just the
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1 data and the total fund analytical work.
2 BOARD MEMBER BROWN: Okay. So do we expect that
3 to continue to go up or do you think it's going to stay at
4 about where that is?
5 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE:
6 Candidly, I would -- I probably would expect it
7 to continue to go up, probably not at the pace that it's
8 gone up. But as we have migrated towards really focusing
9 on the total fund, and internalizing assets, and managing,
10 you know, risk, and the like, at the total fund level,
11 there are costs that are associated with that. We think
12 those are costs that are well worth the expense, because
13 of the, you know, improvements that we've made around
14 managing our liquidity, our leverage, and all of those
15 things.
16 But improving our technology, and our data, and
17 our total fund management does have costs associated with
18 it, but we think those are costs that are well justified
19 in terms of performance.
20 BOARD MEMBER BROWN: All right. Thank you. My
21 next question is on page 157. And this one -- I mean,
22 there's some large increases there in global equity, I
23 see, but -- and this is for Dan. I see that the global
24 equity fee is going up a hundred percent, is doubling, and
25 then real assets is going up even greater. And I'm
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1 curious, since, you know, a lot of our -- well, why don't
2 you tell me why that -- why that -- why those are.
3 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE: I'm
4 sorry, Ms. Brown, can you remind which page you're looking
5 at on the attachment.
6 BOARD MEMBER BROWN: I'm sorry. I'm on page --
7 yeah, page 19 -- my apologies. Page 19 of 24 in that
8 table that talks about investment external management fees
9 going up. So I look at global equity doubling to a
10 hundred percent. These are performance fees, so -- so
11 basically we're -- so performance fees are paid when we
12 sell the asset, is that correct?
13 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE: In
14 the case of Global equity, the assets are moving
15 constantly. So performance fees are -- are based on just
16 basically excess performance relative to the benchmark
17 with some hurdles in place.
18 It is probably worth commenting and -- you know,
19 and Jennifer spoke to this briefly also. We certainly
20 think that it is good governance to include asset
21 management fees, both basis and performance, in the
22 budgeting process. But I will say that to some degree
23 and, you know, I know -- I know Jennifer wrestles with
24 this topic also. They defy budgeting, in some sense,
25 right? If the market goes way down and the assets under
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1 management drops, the fees will go down. But I don't
2 think anybody is going to be very happy with that answer,
3 even though we have lower fees. And vice versa, as the
4 market goes up, the base fees will go up. Probably a good
5 problem to have. And we really have very little control.
6 What we have control over is the terms of our --
7 of our contracts, which is where we focused. And that's
8 where you've seen our total basis points at the total fund
9 level, you know, over the past say ten years go from, you
10 know, over 50 basis points to call it 23 basis points in
11 the total fund level, and even over the last five years go
12 from, you know, mid-thirties to, as I say, sort of 23, 24
13 bass points.
14 But as far as global equity's performance fee,
15 that is very forecast based, the performance of the -- you
16 know, of the global equity portfolio has been very strong,
17 specifically external managers has been very strong.
18 That's very much accretive to the bottom line. But we do
19 expect to -- you know, we do have performance fees in
20 place for those contracts, and we -- we expect to pay.
21 And frankly, we're -- those are places where our interests
22 are aligned and we're happy to pay.
23 BOARD MEMBER BROWN: And is that the same answer
24 for real assets as well?
25 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE: It's
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1 a very similar answer. I would say with real assets, it's
2 probably even harder to predict in some ways. And I would
3 because, because there's a timing on when it -- on when it
4 actually crystallizes. I would say that thinks
5 historically we have only seen the actuals paid be, you
6 know, less than what we forecast every year. Again, we
7 kind of tend to be conservative when we forecast. But,
8 yes, it's a very similar answer, in that we expect both on
9 the real estate and on the infrastructure side. We have
10 seen good performance. We've seen it both accrued, but
11 then also some crystallized, and we expect to be paying
12 those fees in in 21-22.
13 BOARD MEMBER BROWN: Okay. All right. So
14 basically, these are -- if everything goes well, we're
15 going to pay these fees. And if they don't, then we save.
16 Okay. All right. Thank you. Those are my two
17 questions. Thank you.
18 CHAIRPERSON MILLER: Okay. Thank you.
19 Next, I have Director Olivares.
20 COMMITTEE MEMBER OLIVARES: Thank you. I wanted
21 to understand how we're getting some of these estimates
22 for some of the subscriptions services for analyzing
23 investment data. I know there's a lot of value in these
24 services, but I'm not sure if we're doing this on a per
25 person or organization-wide basis.
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1 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE: You
2 know, it really depends on the vendor, Ms. Olivares. In
3 some cases, they are per person. We certainly pursue
4 site-wide licenses, if the site license we think is a more
5 cost effective way to do it, if there are -- is broad use
6 of it. In the case of some services, it's a much more,
7 you know, narrow set of users. So we'll negotiate on the
8 per person basis, but this is something that we are
9 spending quite a bit of time on right now.
10 We certainly have a business plan initiative for
11 this year and will again for next year on cost
12 effectiveness. And it will be looking at those and
13 consolidating services where we can, you know, making sure
14 that we're getting value for services that we're use --
15 that we're -- that we are getting and using, and then to
16 your point, you know, trying to make sure that we -- we're
17 getting, you know, bulk savings and just getting our --
18 you know, the best contract terms that we can.
19 COMMITTEE MEMBER OLIVARES: Thank you. Yeah, I
20 was looking at some of Bloomberg fees in particular,
21 which, you know, is a bit of change. It's quite a bit of
22 money. And it looks like its far beyond the Bloomy,
23 right, on a per person Bloomy for each person in INVO,
24 so -- or it exceeds the Bloomberg terminal cost for each
25 person in the Investment Office. Let me phrase it that
J&K COURT REPORTING, LLC 916.476.317136
1 way.
2 So I imagine it's not -- is that site-wide or are
3 there additional services baked within the Bloomberg
4 contracts, so that way CalPERS is getting additional
5 analytics.
6 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE: It's
7 a little of both. There are some places where we're
8 using -- I'm not -- I'm not exactly sure what the per user
9 is, so I would have to -- I would have to check those
10 numbers. I will say that not everybody in INVO has
11 Bloomberg, but in some cases we're getting real-time
12 services, in some cases we're actually using other
13 analytics of Bloomberg on some of their, you know, sort of
14 trade routing technology. And so as a result of all of
15 those things, it comes together. But your point is spot
16 on and it's certainly an area that we are looking at.
17 There are a handful of vendors that really dominate those
18 subscription services. And it's pricey. Again, we do
19 think there's value there, in that we operate in the
20 market every day, but it -- but it is -- it is a pricey
21 service.
22 COMMITTEE MEMBER OLIVARES: And how do we
23 determine who in the Investment Office needs access to
24 those services? It's obviously not going to be everybody
25 that needs access to these. Can you walk me through that
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1 please?
2 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE:
3 Sure. You know, it's really determined on an
4 ongoing basis, really by -- you know, by manage -- by
5 management. And it's determined based on job function.
6 So certainly, the trader, certainly the portfolio
7 managers, you know, do need it. As I say, there's more
8 expense for real time. So say for myself, I do have a
9 Bloomberg license, but mine is not real time, because I
10 don't believe I need real time, you know, pricing and the
11 like, but really it's in that way.
12 And then we have some places where we have, you
13 know, a terminal sitting that can be used to, you know,
14 sort of drag data out of, but they don't belong to any one
15 individual. So there's -- there's all of those, you know,
16 varying levels of sort of service and use by different
17 members of the staff.
18 COMMITTEE MEMBER OLIVARES: So we have processes
19 in place by management reviews the need for access based
20 upon an individual's portfolio or job requirements, and
21 then we're doing what we can to mitigate costs.
22 INTERIM CHIEF INVESTMENT OFFICER BIENVENUE:
23 Correct and correct. Yes.
24 COMMITTEE MEMBER OLIVARES: Okay. Great. I
25 think that's wonderful. Thank you.
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1 CHAIRPERSON MILLER: Okay. Thank you.
2 And next, we have Controller Yee, a question.
3 BOARD MEMBER YEE: Thank you, Mr. Chair. I just
4 had a question for Mr. Cohen, if I could. Really
5 appreciate the -- I guess, the clarification or the
6 clearer depiction of our position situation, so -- but I
7 wanted to ask with respect to the position pool, I just
8 wanted to get clarification about the types of positions
9 that comprise that pool. And I know we've been trying to
10 set this up as an efficiency measure. And is that pool
11 really to service the entire enterprise, including the
12 Investment Office?
13 CHIEF FINANCIAL OFFICER COHEN: Sure. Yes, it
14 absolutely serves the entire enterprise. And the
15 Investment Office has been sort of shrinking over the last
16 couple of years as they give positions to the pool. And
17 one of the areas where that really came in handy this past
18 year is when the customer service center, our call center,
19 was experiencing sort of a spike in volume. So the
20 Investment Office sort of had some positions that they
21 transferred to the pool.
22 And basically, Anthony Suine came to the
23 executive team and, you know, provided information to
24 document the increase in call volume, and then ten
25 positions were transferred over there. So that's sort of
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1 a good example of how it was used to maximum benefit. And
2 as you'll recall in November, we basically had 32
3 positions that were in the pool that the Executive team
4 felt weren't going to be needed any -- for any foreseeable
5 future, so that's where we eliminated them.
6 So it's sort of, I would call it, kind of a
7 holding tank for positions, as we evaluate demands. So
8 there are a handful of positions in this budget that are
9 in the pool, since we don't know really as we come back to
10 the office later in the year. You know, if there's going
11 to be new demands on positions, there will be a handful
12 that are available for the highest use. And twice a year,
13 the Executive team goes through a process by which we sort
14 of review all of the vacant positions that have been open
15 for a while, as well as any that sort of management has
16 identified as they come open that aren't needed to be
17 filled, that come into the pool and sort of make a
18 judgment as to, you know, how big the pool should be, and
19 where, if any, they should be redirected at a point in
20 time.
21 BOARD MEMBER YEE: Okay. Great. No, I
22 appreciate the mechanism. And is it fair to say then that
23 most of the positions are really more of support in
24 nature, that are -- that comprise the pool?
25 CHIEF FINANCIAL OFFICER COHEN: You know, it
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1 really, I think, depends on the situation. There's
2 nothing inherent, why they're -- they're more support
3 oriented versus, you know, some other function. It
4 happened -- my example, happened to be that way. And I
5 think over the last couple of cycles, that's been the
6 trend where we've put more positions into sort of a -- the
7 actuarial Office, the customer service side of things.
8 That's obviously where, you know, we want to make sure
9 we're providing customer service, is always going to be
10 kind of our top evaluation need, but, you know, other --
11 otherwise, wherever sort of we need within the
12 organization the Executive team has worked really well to
13 sort of trust each other's judgment and expect people to
14 come forward when they have a true need, but not come
15 forward when, you know, it's just sort of a want.
16 BOARD MEMBER YEE: Okay. Great. Great. Thank
17 you. Thank you, Mr. Chairman.
18 CHAIRPERSON MILLER: Thank you.
19 I don't see any more questions from Committee
20 members or the rest of the Board, but I believe we do have
21 a couple public commenters queued up. So, Mr. Fox, if you
22 would.
23 Mr. Fox or someone, do we have public comments to
24 take now on this item?
25 STAKEHOLDER RELATIONS CHIEF FOX: Yes. I'll
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1 introduce David Soares to the -- to the public comment.
2 MR. SOARES: Thank you, Mr. Fox and Board
3 members. My name s David Soares. I'm with the Retired
4 Public Employees Association of California, where I'm an
5 Assistant Area Director after retiring, serving 32 years
6 as a prosecutor in Silicon Valley. My comment pertains to
7 Agenda Item 6a.
8 The 21-22 percentage increase for investment
9 internal managers at 30 percent isn't stated on the slide
10 like every other category. Our issue here is that the
11 entire proposed 21-22 salary and operating overhead,
12 excluding external management fees, is projected to be
13 about $700 million. But the projected 21-22 external
14 management fees just for real estate and private equity,
15 adding private equity performance to these extrapolated
16 from the 2020 CAFR, which is not in the -- shown in the
17 budget, are actually going to be at least $1.25 billion,
18 for asset classes to which CalPERS is still struggling to
19 deploy just 17 percent of assets under management due to
20 too much money chasing too few deals.
21 The Philadelphia Inquirer is recently reporting
22 that the Pennsylvania Teachers Retirement Fund is actually
23 under FBI investigation for conflicts of interest
24 involving that sector. My question is shouldn't sound
25 fiduciary exercise the duty of inquiry to ask why such a
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1 high amount of fees -- 1.25 billion is the equivalent to
2 150 percent of all other operating overhead, are being
3 paid on such a relatively small share of capital deployed.
4 Something needs to be done to ratchet down these
5 potentially corrupt fees and to get this money back to
6 work for the members and beneficiaries. California
7 Constitution, Article 16, Section 17A and B limit the
8 Board to defraying reasonable expenses of administering
9 the system. Their seems to be no evidence offered that
10 these fee increases are reasonable in any way, shape, or
11 form.
12 And I'd like the Board to respond what are they
13 doing to inquire about the reasonableness of this 30
14 percent increase in external management fees and
15 especially looking at real estate and private equity.
16 Thank you.
17 CHAIRPERSON MILLER: Okay. Thank you, Mr.
18 Soares.
19 Mr. Fox, do we have an addition -- another
20 commenter?
21 STAKEHOLDER RELATIONS CHIEF FOX: Yes, Mr. Chair.
22 We have one more caller. J.J. Jelincic from the Retired
23 Public Employees Association.
24 MR. JELINCIC: Hi. This is J.J. Jelincic. And I
25 would like to reinforce Dave Soares comments. But my
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